EN BANC

G.R. No. L-16598

October 3, 1921

H. E. HEACOCK COMPANY, plaintiff-appellant,

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

JOHNSON, J.:
This action was commenced in the Court of First Instance of the City of Manila to recover
the sum of P240 together with interest thereon. The facts are stipulated by the parties,
and are, briefly, as follows:
(1) On or about the 5th day of June, 1919, the plaintiff caused to be
delivered on board of steamship Bolton Castle, then in the harbor of
New York, four cases of merchandise one of which contained twelve (12)
8-day Edmond clocks properly boxed and marked for transportation to
Manila, and paid freight on said clocks from New York to Manila in
advance. The said steampship arrived in the port of Manila on or about
the 10th day of September, 1919, consigned to the defendant herein as
agent and representative of said vessel in said port. Neither the master
of said vessel nor the defendant herein, as its agent, delivered to the
plaintiff the aforesaid twelve 8-day Edmond clocks, although demand
was made upon them for their delivery.
(2) The invoice value of the said twelve 8-day Edmond clocks in the city
of New York was P22 and the market value of the same in the City of
Manila at the time when they should have been delivered to the
plaintiff was P420.
(3) The bill of lading issued and delivered to the plaintiff by the master
of the said steamship Bolton Castle contained, among others, the
following clauses:
1. It is mutually agreed that the value of the goods receipted
for above does not exceed $500 per freight ton, or, in
proportion for any part of a ton, unless the value be expressly
stated herein and ad valorem freight paid thereon.
9. Also, that in the event of claims for short delivery of, or
damage to, cargo being made, the carrier shall not be liable for
more than the net invoice price plus freight and insurance less
all charges saved, and any loss or damage for which the carrier
may be liable shall be adjusted pro rata on the said basis.

(4) The case containing the aforesaid twelve 8-day Edmond clocks
measured 3 cubic feet, and the freight ton value thereof was $1,480, U.
S. currency.

(5) No greater value than $500, U. S. currency, per freight ton was
declared by the plaintiff on the aforesaid clocks, and no ad valorem
freight was paid thereon.
(6) On or about October 9, 1919, the defendant tendered to the plaintiff
P76.36, the proportionate freight ton value of the aforesaid twelve 8day Edmond clocks, in payment of plaintiff's claim, which tender
plaintiff rejected.
The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered
judgment in favor of the plaintiff against the defendant for the sum of P226.02, this being
the invoice value of the clocks in question plus the freight and insurance thereon, with
legal interest thereon from November 20, 1919, the date of the complaint, together with
costs. From that judgment both parties appealed to this court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the market
value of the clocks in question, to wit: the sum of P420. The defendant-appellant, on the
other hand, contends that, in accordance with clause 1 of the bill of lading, the plaintiff
is entitled to recover only the sum of P76.36, the proportionate freight ton value of the
said clocks. The claim of the plaintiff is based upon the argument that the two clause in
the bill of lading above quoted, limiting the liability of the carrier, are contrary to public
order and, therefore, null and void. The defendant, on the other hand, contends that
both of said clauses are valid, and the clause 1 should have been applied by the lower
court instead of clause 9.
I. The appeal of the plaintiff presents this question; May a common carrier, by stipulations
inserted in the bill of lading, limit its liability for the loss of or damage to the cargo to an
agreed valuation of the latter? 1awph!l.net
Three kinds of stipulations have often been made in a bill of lading. The first is one
exempting the carrier from any and all liability for loss or damage occasioned by its own
negligence. The second is one providing for an unqualified limitation of such liability to an
agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and pays a higher rate of freight.
According to an almost uniform weight of authority, the first and second kinds of
stipulations are invalid as being contrary to public policy, but the third is valid and
enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of
February 13, 1893]: Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express
Co., 4 McAr., 124; 48 Am. Rep., 742) support the proposition that the first and second
stipulations in a bill of lading are invalid which either exempt the carrier from liability for
loss or damage occasioned by its negligence, or provide for an unqualified limitation of
such liability to an agreed valuation.

A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows
that the present case falls within the third stipulation, to wit: That a clause in a bill of
lading limiting the liability of the carrier to a certain amount unless the shipper declares
a higher value and pays a higher rate of freight, is valid and enforceable. This proposition
is supported by a uniform lien of decisions of the Supreme Court of the United States
rendered both prior and subsequent to the passage of the Harter Act, from the case of
Hart vs. Pennsylvania R. R. Co. (decided Nov. 24, 1884; 112 U. S., 331), to the case of the
Union Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921, Advance Opinions, 1920-1921, p.
318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of
carriage, signed by the shipper, is fairly made with a railroad company, agreeing on a
valuation of the property carried, with the rate of freight based on the condition that the
carrier assumes liability only to the extent of the agreed valuation, even in case of loss or
damage by the negligence of the carrier, the contract will be upheld as proper and lawful
mode of securing a due proportion between the amount for which the carrier may be
responsible and the freight he receives, and protecting himself against extravagant and
fanciful valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases,
from the decision in Hart vs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed., 717; 5 Sup.
Ct. Rep., 151, decided in 1884), to Boston and M. R. Co. vs. Piper (246 U. S., 439; 62 L.
ed., 820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it has been
declared to be the settled Federal law that if a common carrier gives to a shipper the
choice of two rates, the lower of the conditioned upon his agreeing to a stipulated
valuation of his property in case of loss, even by the carrier's negligence, if the shipper
makes such a choice, understandingly and freely, and names his valuation, he cannot
thereafter recover more than the value which he thus places upon his property. As a
matter of legal distinction, estoppel is made the basis of this ruling, that, having
accepted the benefit of the lower rate, in common honesty the shipper may not repudiate
the conditions on which it was obtained, but the rule and the effect of it are clearly
established."
The syllabus of the same case reads as follows: "A carrier may not, by a valuation
agreement with a shipper, limit its liability in case of the loss by negligence of an
interstate shipment to less than the real value thereof, unless the shipper is given a
choice of rates, based on valuation."
A limitation of liability based upon an agreed value to obtain a lower
rate does not conflict with any sound principle of public policy; and it is
not conformable to plain principles of justice that a shipper may
understate value in order to reduce the rate and then recover a larger
value in case of loss. (Adams Express Co. vs. Croninger 226 U. S. 491,
492.) See also Reid vs. Farbo (130 C. C. A., 285); Jennings vs. Smith (45
C. C. A., 249); George N. Pierce Co. vs. Wells, Fargo and Co. (227 U. S.,
278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).
It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of
lading here in question are not contrary to public order. Article 1255 of the Civil Code
provides that "the contracting parties may establish any agreements, terms and conditions

they may deem advisable, provided they are not contrary to law, morals or public order."
Said clauses of the bill of lading are, therefore, valid and binding upon the parties
thereto.
II. The question presented by the appeal of the defendant is whether clause 1 or clause 9
of the bill of lading here in question is to be adopted as the measure of defendant's
liability. Clause 1 provides as follows:
1. It is mutually agreed that the value of the goods receipted for above
does not exceed $500 per freight ton, or, in proportion for any part of a
ton, unless the value be expressly stated herein and ad valorem freight
paid thereon. Clause 9 provides:
9. Also, that in the even of claims for short delivery of, or damage to,
cargo being made, the carrier shall not be liable for more than the net
invoice price plus freight and insurance less all charges saved, and any
loss or damage for which the carrier may be liable shall be adjusted pro
rata on the said basis.
The defendant-appellant contends that these two clauses, if construed together, mean
that the shipper and the carrier stipulate and agree that the value of the goods receipted
for does not exceed $500 per freight ton, but should the invoice value of the goods be less
than $500 per freight ton, then the invoice value governs; that since in this case the
invoice value is more than $500 per freight ton, the latter valuation should be adopted
and that according to that valuation, the proportionate value of the clocks in question is
only P76.36 which the defendant is ready and willing to pay to the plaintiff.
It will be noted, however, that whereas clause 1 contains only an implied undertaking to
settle in case of loss on the basis of not exceeding $500 per freight ton, clause 9 contains
an express undertaking to settle on the basis of the net invoice price plus freight and
insurance less all charges saved. "Any loss or damage for which the carrier may be liable
shall be adjusted pro rata on the said basis," clause 9 expressly provides. It seems to us
that there is an irreconcilable conflict between the two clauses with regard to the
measure of defendant's liability. It is difficult to reconcile them without doing violence to
the language used and reading exceptions and conditions into the undertaking contained
in clause 9 that are not there. This being the case, the bill of lading in question should be
interpreted against the defendant carrier, which drew said contract. "A written contract
should, in case of doubt, be interpreted against the party who has drawn the contract." (6
R. C. L. 854.) It is a well-known principle of construction that ambiguity or uncertainty in
an agreement must be construed most strongly against the party causing it. (6 R. C. L.,
855.) These rules as applicable to contracts contained in bills of lading. "In construing a
bill of lading given by the carrier for the safe transportation and delivery of goods shipped
by a consignor, the contract will be construed most strongly against the carrier, and
favorably to the consignor, in case of doubt in any matter of construction." (Alabama, etc.
R. R. Co. vs. Thomas, 89 Ala., 294; 18 Am. St. Rep., 119.)
It follows from all of the foregoing that the judgment appealed from should be affirmed,
without any finding as to costs. So ordered.
Araullo, street, Avancea and Villamor, JJ., concur.

luggage would be forwarded on Fright No. 963 the following day, August 27, 196'(.
However, this message was not received by PAL Butuan as all the personnel had already
left since there were no more incoming flights that afternoon.
In the meantime, petitioner was worried about the missing luggage because it contained
vital documents needed for trial the next day. At 10:00 o'clock that evening, petitioner
wired PAL Cebu demanding the delivery of his baggage before noon the next day,
otherwise, he would hold PAL liable for damages, and stating that PAL's gross negligence
had caused him undue inconvenience, worry, anxiety and extreme embarrassment (Exh.
"B"). This telegram was received by the Cebu PAL supervisor but the latter felt no need to
wire petitioner that his luggage had already been forwarded on the assumption that by
the time the message reached Butuan City, the luggage would have arrived.

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

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

Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi
Airport to inquire about his luggage. He did not wait, however, for the morning flight
which arrived at 10:00 o'clock that morning. This flight carried the missing luggage. The
porter clerk, Maximo Gomez, paged petitioner, but the latter had already left. A certain
Emilio Dagorro a driver of a "colorum" car, who also used to drive for petitioner,
volunteered to take the luggage to petitioner. As Maximo Gomez knew Dagorro to be the
same driver used by petitioner whenever the latter was in Butuan City, Gomez took the
luggage and placed it on the counter. Dagorro examined the lock, pressed it, and it
opened. After calling the attention of Maximo Gomez, the "maleta" was opened, Gomez
took a look at its contents, but did not touch them. Dagorro then delivered the "maleta"
to petitioner, with the information that the lock was open. Upon inspection, petitioner
found that a folder containing certain exhibits, transcripts and private documents in Civil
Case No. 1005 and Sp. Procs. No. 1126 were missing, aside from two gift items for his
parents-in-law. Petitioner refused to accept the luggage. Dagorro returned it to the porter
clerk, Maximo Gomez, who sealed it and forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due
to loss of his documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner
returned to Cebu City on August 28, 1967. In a letter dated August 29, 1967 addressed to
PAL, Cebu, petitioner called attention to his telegram (Exh. "D"), demanded that his
luggage be produced intact, and that he be compensated in the sum of P250,000,00 for
actual and moral damages within five days from receipt of the letter, otherwise, he would
be left with no alternative but to file suit (Exh. "D").
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to
petitioner's office to deliver the "maleta". In the presence of Mr. Jose Yap and Atty.
Manuel Maranga the contents were listed and receipted for by petitioner (Exh. "E").
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the
results of the investigation which Messrs. de Leon, Navarsi, and Agustin had promised to
conduct to pinpoint responsibility for the unauthorized opening of the "maleta" (Exh. "F").
The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
Dear Atty. Ong Yiu:

This is with reference to your September 5, 1967, letter to Mr.

Ricardo G. Paloma, Acting Manager, Southern Philippines.
First of all, may we apologize for the delay in informing you of
the result of our investigation since we visited you in your
office last August 31, 1967. Since there are stations other than
Cebu which are involved in your case, we have to communicate
and await replies from them. We regret to inform you that to
date we have not found the supposedly lost folder of papers
nor have we been able to pinpoint the personnel who allegedly
pilferred your baggage.
You must realize that no inventory was taken of the cargo upon
loading them on any plane. Consequently, we have no way of
knowing the real contents of your baggage when same was
loaded.
We realized the inconvenience you encountered of this incident
but we trust that you will give us another opportunity to be of
better service to you.

Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making
the following Assignments of Error:
I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
RESPONDENT PAL GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT
BAD FAITH IN THE BREACH OF ITS CONTRACT OF
TRANSPORTATION WITH PETITIONER.
II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE
EVIDENCE AND THE LAW WHEN IT REVERSED THE DECISION OF
THE LOWER COURT AWARDING TO PETITIONER MORAL DAMAGES
IN THE AMOUNT OF P80,000.00, EXEMPLARY DAMAGES OF
P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY'S FEES,
AND ORDERED RESPONDENT PAL TO COMPENSATE PLAINTIFF THE
SUM OF P100.00 ONLY, CONTRARY TO THE EXPLICIT PROVISIONS
OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL CODE OF
THE PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.

There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The
Very trulyquestion
yours, is the correctness of respondent Court's conclusion that there was no gross
negligence on the part of PAL and that it had not acted fraudulently or in bad faith as to
PHILIPPINE
AIR LINES,
entitle
petitioner to an award of moral and exemplary damages.
INC.
From the facts of the case, we agree with respondent Court that PAL had not acted in bad
(Sgd) JEREMIAS
S. faith means a breach of a known duty through some motive of interest or ill
faith. Bad
AGUSTIN will. 2 It was the duty of PAL to look for petitioner's luggage which had been miscarried.
PAL exerted due diligence in complying with such duty.
Branch Supervisor
As aptly stated by the appellate Court:
Cebu
We do not find any evidence of bad faith in this. On the
(Exhibit G, Folder of Exhibits) 1
contrary, We find that the defendant had exerted diligent
effort to locate plaintiff's baggage. The trial court saw
On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach
evidence of bad faith because PAL sent the telegraphic message
of contract of transportation with the Court of First Instance of Cebu, Branch V, docketed
to Mactan only at 3:00 o'clock that same afternoon, despite
as Civil Case No. R-10188, which PAL traversed. After due trial, the lower Court found PAL
plaintiff's indignation for the non-arrival of his baggage. The
to have acted in bad faith and with malice and declared petitioner entitled to moral
message was sent within less than one hour after plaintiff's
damages in the sum of P80,000.00, exemplary damages of P30,000.00, attorney's fees of
luggage could not be located. Efforts had to be exerted to
P5,000.00, and costs.
locate plaintiff's maleta. Then the Bancasi airport had to
attend to other incoming passengers and to the outgoing
Both parties appealed to the Court of Appeals petitioner in so far as he was awarded
passengers. Certainly, no evidence of bad faith can be inferred
only the sum of P80,000.00 as moral damages; and defendant because of the unfavorable
from these facts. Cebu office immediately wired Manila
judgment rendered against it.
inquiring about the missing baggage of the plaintiff. At 3:59
P.M., Manila station agent at the domestic airport wired Cebu
On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple
that the baggage was over carried to Manila. And this message
negligence, reversed the judgment of the trial Court granting petitioner moral and
was received in Cebu one minute thereafter, or at 4:00 P.M.
exemplary damages, but ordered PAL to pay plaintiff the sum of P100.00, the baggage
The baggage was in fact sent back to Cebu City that same
liability assumed by it under the condition of carriage printed at the back of the ticket.
afternoon. His Honor stated that the fact that the message was

sent at 3:59 P.M. from Manila and completely relayed to Mactan

at 4:00 P.M., or within one minute, made the message appear
spurious. This is a forced reasoning. A radio message of about
50 words can be completely transmitted in even less than one
minute depending upon atmospheric conditions. Even if the
message was sent from Manila or other distant places, the
message can be received within a minute. that is a scientific
fact which cannot be questioned. 3
Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad
faith, The telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August
26, 1967. The PAL supervisor at Mactan Airport was notified of it only in the morning of
the following day. At that time the luggage was already to be forwarded to Butuan City.
There was no bad faith, therefore, in the assumption made by said supervisor that the
plane carrying the bag would arrive at Butuan earlier than a reply telegram. Had
petitioner waited or caused someone to wait at the Bancasi airport for the arrival of the
morning flight, he would have been able to retrieve his luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not
entitled to moral damages.
Art. 2217. Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral
damages may be recovered if they are the proximate result of
the defendant's wrongful act of omission.
Art. 2220. Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under
the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted
fraudulently or in bad faith.
Petitioner is neither entitled to exemplary damages. In contracts, as provided for in
Article 2232 of the Civil Code, exemplary damages can be granted if the defendant acted
in a wanton, fraudulent, reckless, oppressive, or malevolent manner, which has not been
proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited
PAL's carriage liability to the amount of P100.00 as stipulated at the back of the ticket. In
this connection, respondent Court opined:
As a general proposition, the plaintiff's maleta having been
pilfered while in the custody of the defendant, it is presumed
that the defendant had been negligent. The liability, however,
of PAL for the loss, in accordance with the stipulation written
on the back of the ticket, Exhibit 12, is limited to P100.00 per
baggage, plaintiff not having declared a greater value, and not
having called the attention of the defendant on its true value

and paid the tariff therefor. The validity of this stipulation is

not questioned by the plaintiff. They are printed in reasonably
and fairly big letters, and are easily readable. Moreover,
plaintiff had been a frequent passenger of PAL from Cebu to
Butuan City and back, and he, being a lawyer and businessman,
must be fully aware of these conditions. 4
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the
back of the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for
lost or damaged baggage of the passenger is LIMITED TO
P100.00 for each ticket unless a passenger declares a higher
valuation in excess of P100.00, but not in excess, however, of a
total valuation of P1,000.00 and additional charges are paid
pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much
less did he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually
entered into a contract with PAL limiting the latter's liability for loss or delay of the
baggage of its passengers, and that Article 1750* of the Civil Code has not been complied
with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be a
part of the contract of carriage, and valid and binding upon the passenger regardless of
the latter's lack of knowledge or assent to the regulation". 5 It is what is known as a
contract of "adhesion", in regards which it has been said that contracts of adhesion
wherein one party imposes a ready made form of contract on the other, as the plane
ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to
the contract is in reality free to reject it entirely; if he adheres, he gives his consent. 6
And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878;
Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability
upon an agreed valuation does not offend against the policy of the law forbidding one
from contracting against his own negligence.
Considering, therefore, that petitioner had failed to declare a higher value for his
baggage, he cannot be permitted a recovery in excess of P100.00.Besides, passengers are
advised not to place valuable items inside their baggage but "to avail of our V-cargo
service " (Exh. "1"). I t is likewise to be noted that there is nothing in the evidence to
show the actual value of the goods allegedly lost by petitioner.
There is another matter involved, raised as an error by PAL the fact that on October 24,
1974 or two months after the promulgation of the Decision of the appellate Court,
petitioner's widow filed a Motion for Substitution claiming that petitioner died on January
6, 1974 and that she only came to know of the adverse Decision on October 23, 1974 when
petitioner's law partner informed her that he received copy of the Decision on August 28,
1974. Attached to her Motion was an Affidavit of petitioner's law partner reciting facts

constitutive of excusable negligence. The appellate Court noting that all pleadings had
been signed by petitioner himself allowed the widow "to take such steps as she or counsel
may deem necessary." She then filed a Motion for Reconsideration over the opposition of
PAL which alleged that the Court of Appeals Decision, promulgated on August 22, 1974,
had already become final and executory since no appeal had been interposed therefrom
within the reglementary period.
Under the circumstances, considering the demise of petitioner himself, who acted as his
own counsel, it is best that technicality yields to the interests of substantial justice.
Besides, in the 'last analysis, no serious prejudice has been caused respondent PAL.
In fine, we hold that the conclusions drawn by respondent Court from the evidence on
record are not erroneous.
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment
sought to be reviewed hereby affirmed in toto.
No costs.
SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.

#Footnotes
1 pp. 47-48, Rollo.
* Decision penned by Justice Jose Leuterio, with Justice
Roseller Lim and Francisco Tantuico, Jr., concurring.
2 Air France vs. Carrascoso, 18 SCRA 166 (1966); Lopez vs. Pan
American World Airways, 16 SCRA 431 (1966).
3 pp. 12-13, Decision. on pp. 53-54, Rollo.
4 pp. 8-9, Decision on pp. 27-28, Rollo.
* A contract fixing the sum that may be recovered by the owner
or shipper for the loss, destruction, or deterioration of the
goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
5 Tannebaum v. National Airline, Inc. 13 Misc. 2d 450, 176
N.Y.S. 2d 400; Lichten vs. Eastern Airlines, 87 Fed. Supp. 691;
Migoski v. Eastern Air Lines, Inc., Fla. 63 So. 2d 634.
6 Tolentino, Civil Code, Vol. IV, 1962 ed., p, 462, citing Mr. Justice J.B.L. Reyes, Lawyer's
Journal, Jan. 31, 195 1, p. 49.

Ong Yui vs. CA Case Digest

(91 SCRA 223)

Facts: On august 26, 1967, Ong Yiu was a fare paying passenger of respondent PAL from
Mactan, Cebu to Butuan City wherein he was scheduled to attend a trial. As a passenger,
he checked in one piece of luggae, blue maleta for which he was issued a claim ticket.
Upon arrival at Butuan City, petitioner claimed his luggage but it could not be found. PAL
Butuan sent a message to PAL Cebu which in turn sent a message to PAL Manila that same
afternoon. PAL Manila advised PAL Cebu that the luggage has been overcarried to Manila
and that it would be forwarded to PAL Cebu that same day. PAL Cebu then advised PAL
Butuan that the luggage will be forwarded the following day, on scheduled morning flight.
This message was not received by PAL Butuan as all the personnel had already gone for
the day. Meanwhile, Ong Yiu was worried about the missing luggage because it contained
vital documents needed for the trial the next day so he wired PAL Cebu demanding
delivery of his luggage before noon that next day or he would hold PAL liable for damages
based on gross negligence. Early morning, petitioner went to the Butuan Airport to inquire
about the luggage but did not wait for the arrival of the morning flight at 10:00am. which
carried his luggage. A certain Dagorro, a driver of a colorum car, who also used to drive
the petitioner volunteered to take the luggage to the petitioner. He revelaed that the
documents were lost. Ong Yiu demanded from PAL Cebu actual and compensatory
damages as an incident of breach of contract of carriage.

Issue:
1.

Whether or not PAL is guilty of only simple negligence and not gross negligence?

2.

Whether the doctrine of limited liability doctrine applies in the instant case?

Held: PAL had not acted in bad faith. It exercised due diligence in looking for petitioners
luggage which had been miscarried. Had petitioner waited or caused someone to wait at
the airport for the arrival of the morning flight which carried his luggage, he would have
been able to retrieve his luggage sooner. In the absence of a wrongful act or omission or
fraud, the petitioner is not entitled to moral damages. Neither is he entitled to exemplary
damages absent any proof that the defendant acted in a wanton, fraudulent, reckless
manner.

The limited liability applies in this case. On the presumed negligence of PAL, its liability
for the loss however, is limited on the stipulation written on the back of the plane

Ticket which is P100 per baggage. The petitioner not having declared a greater value and
not having called the attention of PAL on its true value and paid the tariff therefore. The
stipulation is printed in reasonably and fairly big letters and is easily readable. Moreso,
petitioner had been a frequent passenger of PAL from Cebu to Butuan City and back and
he being a lawyer and a businessman, must be fully aware of these conditions.

on volume measurements Sea-land charged the shipper the total amount of

US$209.28 2 for freight age and other charges. The shipment was loaded on board the MS
Patriot, a vessel owned and operated by Sea-Land, for discharge at the Port Of Cebu.
The shipment arrived in Manila on February 12, 1981, and there discharged in Container
No. 310996 into the custody of the arrastre contractor and the customs and port
authorities. 3 Sometime between February 13 and 16, 1981, after the shipment had been
transferred, along with other cargoes to Container No. 40158 near Warehouse 3 at Pier 3
in South Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen by pilferers and
has never been recovered. 4
On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the
value of the lost shipment allegedly amounting to P179,643.48. 5 Sea-Land offered to
settle for US$4,000.00, or its then Philippine peso equivalent of P30,600.00. asserting that
said amount represented its maximum liability for the loss of the shipment under the
package limitation clause in the covering bill of lading. 6 Cue rejected the offer and
thereafter brought suit for damages against Sea-Land in the then Court of First Instance of
Cebu, Branch X. 7 Said Court, after trial, rendered judgment in favor of Cue, sentencing
Sea-Land to pay him P186,048.00 representing the Philippine currency value of the lost
cargo, P55,814.00 for unrealized profit with one (1%) percent monthly interest from the
filing of the complaint until fully paid, P25,000.00 for attorney's fees and P2,000.00 as
litigation expenses. 8

FIRST DIVISION
G.R. No. 75118 August 31, 1987
SEA-LAND SERVICE, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the name
and style of "SEN HIAP HING," respondents.

NARVASA, J.:
The main issue here is whether or not the consignee of seaborne freight is bound by
stipulations in the covering bill of lading limiting to a fixed amount the liability of the
carrier for loss or damage to the cargo where its value is not declared in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign
shipping and forwarding company licensed to do business in the Philippines, received from
Seaborne Trading Company in Oakland, California a shipment consigned to Sen Hiap Hing
the business name used by Paulino Cue in the wholesale and retail trade which he
operated out of an establishment located on Borromeo and Plaridel Streets, Cebu City.
The shipper not having declared the value of the shipment, no value was indicated in the
bill of lading. The bill described the shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based

Sea-Land appealed to the Intermediate Appellate Court. 9 That Court however affirmed
the decision of the Trial Court xxx in all its parts ... . 10 Sea-Land thereupon filed the
present petition for review which, as already stated, poses the question of whether, upon
the facts above set forth, it can be held liable for the loss of the shipment in any amount
beyond the limit of US$600.00 per package stipulated in the bill of lading.
To begin with, there is no question of the right, in principle, of a consignee in a bill of
lading to recover from the carrier or shipper for loss of, or damage to, goods being
transported under said bill ,although that document may have been as in practice it
oftentimes is drawn up only by the consignor and the carrier without the intervention
of the consignee. In Mendoza vs. Philippine Air Lines, Inc. 11 the Court delved at some
length into the reasons behind this when, upon a claim made by the consignee of a motion
picture film shipped by air that he was never a party to the contract of transportation
and was a complete stranger thereto, it said:
But appellant now contends that he is not suing on a breach of contract
but on a tort as provided for in Art. 1902 of the Civil Code. We are a
little perplexed as to this new theory of the appellant. First, he insists
that the articles of the Code of Commerce should be applied: that he
invokes the provisions of aid Code governing the obligations of a
common carrier to make prompt delivery of goods given to it under a
contract of transportation. Later, as already said, he says that he was
never a party to the contract of transportation and was a complete
stranger to it, and that he is now suing on a tort or a violation of his
rights as a stranger (culpa aquiliana) If he does not invoke the contract
of carriage entered into with the defendant company, then he would
hardly have any leg to stand on. His right to prompt delivery of the can

of film at the Phil. Air Port stems and is derived from the contract of
carriage under which contract, the PAL undertook to carry the can of
film safely and to deliver it to him promptly. Take away or ignore that
contract and the obligation to carry and to deliver and right to prompt
delivery disappear. Common carriers are not obligated by law to carry
and to deliver merchandise, and persons are not vested with the right to
prompt delivery, unless such common carriers previously assume the
obligation. Said rights and obligations are created by a specific contract
entered into by the parties. In the present case, the findings of the trial
court which as already stated, are accepted by the parties and which
we must accept are to the effect that the LVN Pictures Inc. and Jose
Mendoza on one side, and the defendant company on the other, entered
into a contract of transportation (p. 29, Rec. on Appeal). One
interpretation of said finding is that the LVN Pictures Inc. through
previous agreement with Mendoza acted as the latter's agent. When he
negotiated with the LVN Pictures Inc. to rent the film "Himala ng Birhen"
and show it during the Naga town fiesta, he most probably authorized
and enjoined the Picture Company to ship the film for him on the PAL on
September 17th. Another interpretation is that even if the LVN Pictures
Inc. as consignor of its own initiative, and acting independently of
Mendoza for the time being, made Mendoza as consignee, a stranger to
the contract if that is possible, nevertheless when he, Mendoza
appeared at the Phil Air Port armed with the copy of the Air Way Bill
(Exh. 1) demanding the delivery of the shipment to him, he thereby
made himself a party to the contract of transportation. The very
citation made by appellant in his memorandum supports this view.
Speaking of the possibility of a conflict between the order of the shipper
on the one hand and the order of the consignee on the other, as when
the shipper orders the shipping company to return or retain the goods
shipped while the consignee demands their delivery, Malagarriga in his
book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of
the Argentina Court of Appeals on commercial matters, cited by
Tolentino in Vol. II of his book entitled "Commentaries and
Jurisprudence on the Commercial Laws of the Philippines" p. 209, says
that the right of the shipper to countermand the shipment terminates
when the consignee or legitimate holder of the bill of lading appears
with such big of lading before the carrier and makes himself a party to
the contract. Prior to that time he is a stranger to the contract.
Still another view of this phase of the case is that contemplated in Art.
1257, paragraph 2, of the old Civil Code (now Art, 1311, second
paragraph) which reads thus:
Should the contract contain any stipulation in favor of
a third person, he may demand its fulfillment provided
he has given notice of his acceptance to the person
bound before the stipulation has been revoked.
Here, the contract of carriage between the LVN Pictures Inc. and the
defendant carrier contains the stipulations of delivery to Mendoza as

consignee. His demand for the delivery of the can of film to him at the
Phil Air Port may be regarded as a notice of his acceptance of the
stipulation of the delivery in his favor contained in the contract of
carriage and delivery. In this case he also made himself a party to the
contract, or at least has come to court to enforce it. His cause of action
must necessarily be founded on its breach.
Since the liability of a common carrier for loss of or damage to goods transported by it
under a contract of carriage is governed by the laws of the country of destination 12 and
the goods in question were shipped from the United States to the Philippines, the liability
of petitioner Sea-Land to the respondent consignee is governed primarily by the Civil
Code, and as ordained by the said Code, suppletorily, in all matters not determined
thereby, by the Code of Commerce and special laws. 13 One of these suppletory special
laws is the Carriage of Goods by Sea Act, U.S. Public Act No. 521 which was made
applicable to all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade by Commonwealth Act No. 65, approved on October 22, 1936. Sec. 4(5) of
said Act in part reads:
(5) Neither the carrier nor the ship shall in any event be or become
liable for any loss or damage to or in connection with the transportation
of goods in an amount exceeding $500 per package lawful money of the
United States, or in case of goods not shipped in packages, per
customary freight unit, or the equivalent of that sum in other currency,
unless the nature and value of such goods have been declared by the
shipper before shipment and inserted in the bill of lading. This
declaration, if embodied in the bill of lading, shall be prima facie
evidence, but shall not be conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and
the shipper another maximum amount than that mentioned in this
paragraph may be fixed: Provided, That such maximum shall not be less
than the figure above named. In no event shall the carrier be liable for
more than the amount of damage actually sustained.
xxx xxx xxx
Clause 22, first paragraph, of the long form bill of lading customarily issued by Sea-Land
to its shipping clients 14 is a virtual copy of the first paragraph of the foregoing provision.
It says:
22. VALUATION. In the event of any loss, damage or delay to or in
connection with goods exceeding in actual value $500 per package,
lawful money of the United States, or in case of goods not shipped in
packages, per customary freight unit, the value of the goods shall be
deemed to be $500 per package or per customary freight unit, as the
case may be, and the carrier's liability, if any, shall be determined on
the basis of a value of $500 per package or customary freight unit,
unless the nature and a higher value shall be declared by the shipper in
writing before shipment and inserted in this Bill of Lading.

And in its second paragraph, the bill states:

If a value higher than $500 shag have been declared in writing by the
shipper upon delivery to the carrier and inserted in this bill of lading
and extra freight paid, if required and in such case if the actual value of
the goods per package or per customary freight unit shall exceed such
declared value, the value shall nevertheless be deemed to be declared
value and the carrier's liability, if any, shall not exceed the declared
value and any partial loss or damage shall be adjusted pro rata on the
basis of such declared value.
Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights
and obligations of common carriers to the provisions of the Code of Commerce and of
special laws in matters not regulated by said (Civil) Code, the Court fails to fathom the
reason or justification for the Appellate Court's pronouncement in its appealed Decision
that the Carriage of Goods by Sea Act " ... has no application whatsoever in this
case. 15 Not only is there nothing in the Civil Code which absolutely prohibits agreements
between shipper and carrier limiting the latter's liability for loss of or damage to cargo
shipped under contracts of carriage; it is also quite clear that said Code in fact has
agreements of such character in contemplation in providing, in its Articles 1749 and 1750,
that:
ART. 1749 A stipulation that the common carrier's liability is limited to
the value of the goods appearing in the bill of lading, unless the shipper
or owner declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the goods
is valid, if it is reasonable and just under the circumstances, and has
been fairly and freely agreed upon.
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is
repugnant to or inconsistent with any of the just-cited provisions of the Civil Code. Said
section merely gives more flesh and greater specificity to the rather general terms of
Article 1749 (without doing any violence to the plain intent thereof) and of Article 1750,
to give effect to just agreements limiting carriers' liability for loss or damage which are
freely and fairly entered into.
It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not
exist, the validity and binding effect of the liability limitation clause in the bill of lading
here are nevertheless fully sustainable on the basis alone of the cited Civil Code
provisions. That said stipulation is just and reasonable is arguable from the fact that it
echoes Art. 1750 itself in providing a limit to liability only if a greater value is not
declared for the shipment in the bill of lading. To hold otherwise would amount to
questioning the justice and fairness of that law itself, and this the private respondent
does not pretend to do. But over and above that consideration, the lust and reasonable
character of such stipulation is implicit in it giving the shipper or owner the option of
avoiding acrrual of liability limitation by the simple and surely far from onerous expedient
of declaring the nature and value of the shipment in the bill of lading. And since the
shipper here has not been heard to complaint of having been "rushed," imposed upon or

deceived in any significant way into agreeing to ship the cargo under a bill of lading
carrying such a stipulation in fact, it does not appear that said party has been heard
from at all insofar as this dispute is concerned there is simply no ground for assuming
that its agreement thereto was not as the law would require, freely and fairly sought and
given.
The private respondent had no direct part or intervention in the execution of the contract
of carriage between the shipper and the carrier as set forth in the bill of lading in
question. As pointed out in Mendoza vs. PAL, supra, the right of a party in the same
situation as respondent here, to recover for loss of a shipment consigned to him under a
bill of lading drawn up only by and between the shipper and the carrier, springs from
either a relation of agency that may exist between him and the shipper or consignor, or
his status as a stranger in whose favor some stipulation is made in said contract, and who
becomes a party thereto when he demands fulfillment of that stipulation, in this case the
delivery of the goods or cargo shipped. In neither capacity can he assert personally, in bar
to any provision of the bill of lading, the alleged circumstance that fair and free
agreement to such provision was vitiated by its being in such fine print as to be hardly
readable. Parenthetically, it may be observed that in one comparatively recent
case 16 where this Court found that a similar package limitation clause was "(printed in
the smallest type on the back of the bill of lading, it nonetheless ruled that the consignee
was bound thereby on the strength of authority holding that such provisions on liability
limitation are as much a part of a bill of lading as though physically in it and as though
placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and enforceability of
freely-agreed-upon stipulations in a contract of carriage or bill of lading limiting the
liability of the carrier to an agreed valuation unless the shipper declares a higher value
and inserts it into said contract or bill. This pro position, moreover, rests upon an almost
uniform weight of authority. 17
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which
expressly authorizes trans-shipment of the goods at any point in the voyage in these
terms:
13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the
exercise of its or his discretion and although transshipment or
forwarding of the goods may not have been contemplated or provided
for herein, may at port of discharge or any other place whatsoever
transship or forward the goods or any part thereof by any means at the
risk and expense of the goods and at any time, whether before or after
loading on the ship named herein and by any route, whether within or
outside the scope of the voyage or beyond the port of discharge or
destination of the goods and without notice to the shipper or consignee.
The carrier or master may delay such transshipping or forwarding for
any reason, including but not limited to awaiting a vessel or other
means of transportation whether by the carrier or others.
Said provision obviates the necessity to offer any other justification for offloading the
shipment in question in Manila for transshipment to Cebu City, the port of destination
stipulated in the bill of lading. Nonetheless, the Court takes note of Sea-Land's

explanation that it only directly serves the Port of Manila from abroad in the usual course
of voyage of its carriers, hence its maintenance of arrangements with a local forwarder.
Aboitiz and Company, for delivery of its imported cargo to the agreed final point of
destination within the Philippines, such arrangements not being prohibited, but in fact
recognized, by law. 18
Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is
applicable up to the final port of destination and that the fact that transshipment was
made on an interisland vessel did not remove the contract of carriage of goods from the
operation of said Act.
Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of
lading relied upon by petitioner Sea Land form no part of the short-form bill of lading
attached to his complaint before the Trial Court and appear only in the long form of that
document which, he claims. SeaLand offered (as its Exhibit 2) as an unused blank form
with no entries or signatures therein. He, however, admitted in the Trial Court that
several times in the past shipments had been delivered to him through Sea-Land, 20 from
which the assumption may fairly follow that by the time of the consignment now in
question, he was already reasonably apprised of the usual terms covering contracts of
carriage with said petitioner.
At any rate, as observed earlier, it has already been held that the provisions of the
Carriage of Goods by Sea Act on package limitation [sec 4(5) of the Act hereinabove
referred to] are as much a part of a bill of lading as though actually placed therein by
agreement of the parties. 21
Private respondent, by making claim for loss on the basis of the bill of lading, to all
intents and purposes accepted said bill. Having done so, he
... becomes bound by all stipulations contained therein whether on the
front or the back thereof. Respondent cannot elude its provisions simply
because they prejudice him and take advantage of those that are
beneficial. Secondly, the fact that respondent shipped his goods on
board the ship of petitioner and paid the corresponding freight thereon
shows that he impliedly accepted the bill of lading which was issued in
connection with the shipment in question, and so it may be said that the
same is finding upon him as if it had been actually signed by him or by
any other person in his behalf. ... 22.
There is one final consideration. The private respondent admits 23 that as early as on April
22, 1981, Sea-Land had offered to settle his claim for US$4,000.00, the limit of said
carrier's liability for loss of the shipment under the bill of lading. This Court having
reached the conclusion that said sum is all that is justly due said respondent, it does not
appear just or equitable that Sea-Land, which offered that amount in good faith as early
as six years ago, should, by being made to pay at the current conversion rate of the dollar
to the peso, bear for its own account all of the increase in said rate since the time of the
offer of settlement. The decision of the Regional Trial Court awarding the private
respondent P186,048.00 as the peso value of the lost shipment is clearly based on a
conversion rate of P8.00 to US$1.00, said respondent having claimed a dollar value of

$23,256.00 for said shipment. 24 All circumstances considered, it is just and fair that SeaLand's dollar obligation be convertible at the same rate.
WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed
and set aside. The stipulation in the questioned bill of lading limiting Sea-Land's liability
for loss of or damage to the shipment covered by said bill to US$500.00 per package is
held valid and binding on private respondent. There being no question of the fact that
said shipment consisted of eight (8) cartons or packages, for the loss of which Sea-Land is
therefore liable in the aggregate amount of US$4,000.00, it is the judgment of the Court
that said petitioner discharge that obligation by paying private respondent the sum of
P32,000.00, the equivalent in Philippine currency of US$4,000.00 at the conversion rate of
P8.00 to $1.00. Costs against private respondent.
SO ORDERED.
Teehankee, C.J., Cruz, Paras and Gancayco, JJ., concur.

Footnotes
1 Exhibits 1, 1-B: TSN Dec. 14, 1982, pp. 19-20.
2 Petition, p. 2; Rollo, p. 11.
3 Exhibits 6, 6-A: TSN Jan. 26, 1983, pp. 18-20
4 Exhibits E 3-A, 4, 8 and 9; TSN Id.
5 Exhibit F.
6 Exhibits 2, 2-A.
7 Civil Case No. 20810.
8 Rollo, p. 21.
9 AC-G.R. CV No. 06150.
10 Rollo, p. 12, 21-32.
11 90 Phil 836, 845-846; see also American Express Co. vs. Natividad, 46
Phil. 207 and Phoenix Assurance Co., Ltd. vs. United States Lines, 22
SCRA 675.
12 Art. 1753, Civil Code.
13 Art. 1766, Civil Code, Samar Mining Co., Inc. vs. Nordeutscher Lloyd,
132 SCRA 529; Eastern Shipping Lines, Inc. vs. The Nisshin Fire & Marine
Insurance Co., et al., G. R. Nos. 69044 and 71478, May 29,1987.

14 Exhibit 2.

Issue: Whether or not Sea-Land is liable to pay Cue.

15 Rollo, pp. 26-27.

16 Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15,
May 15,1973.

Held: There is no question of the right of a consignee in a bill of lading to recover from
the carrier or shipper for loss of, or damage to, goods being transported under said bill,

17 Freixas and Co. vs. Pacific Mail Steamship Co., 42 Phil. 198; H.E.
Heacock Co. vs. Macondray & Co., 43 Phil. 205; American President
Lines vs. Klepper infra; Phoenix Assurance Co. vs. Macondray & Co.,
supra.

although that document may have been drawn up only by the consignor and the carrier
without the intervention of the consignee.

18 Art. 373, Code of Commerce.

19 American Insurance Company vs. Compaia Maritima, 21 SCRA 998.

Since the liability of a common carrier for loss of or damage to goods transported by it

20 Reply to Comment, p. 11, Rollo, p. 87, citing TSN, Sept. 1, 1982.

under a contract of carriage os governed by the laws of the country of destination and the

21 Phoenix Assurance Company vs. Macondray & Company supra, citing

Shackman vs. Cunard White Star, D.C.N.Y. 1940; see also Eastern
Shipping Lines, Inc. vs. IAC, supra, which cites the same American case.

goods in question were shipped from the United States to the Philippines, the liability of
Sea-Land has Cue is governed primarily by the Civil Code, and as ordained by the said
Code, supplementary, in all matters not cluttered thereby, by the Code of Commerce and

22 American President Lines vs. Klepper supra.

special laws. One of these supplementary special laws is the Carriage of goods by Sea Act

23 Appellee's brief, p. 6; Rollo, p. 53.

(COGSA), made applicable to all contracts for the carriage by sea to and from the

24 Appellee's Brief, p. 5; Rollo, p. 53.

Philippines Ports in Foreign Trade by Comm. Act. 65.

Sea-Land Service, Inc. v. Intermediate Appellate Court (153 SCRA 552 )

Facts: Sea-Land, a foreign shipping and forwarding company licensed to do business in the
Philippines, received from Sea-borne Trading Company in California, a shipment consigned
to Sen Hiap Hing, the business name used by Cue. The shipper not having declared the
value of the shipment , no value was indicated in thebill of lading. The shipment was
discharged in Manila, and while awaiting transshipment to Cebu, the cargo was stolen and

Even if Section 4(5) of COGSA did not list the validity and binding effect of the liability
limitation clause in the bill of lading here are fully substantial on the basis alone of
Article 1749 and 1750 of the Civil Code. The justices of such stipulation is implicit in its
giving the owner or shipper the option of avoiding accrual of liability limitation by the
simple expedient of declaring the value of the shipment in thebill of lading.

never recovered.
The stipulation in the bill of lading limiting the liability of Sea-Land for loss or damages
The

trial

court

sentenced

Sea-Land

to

pay

Cue

P186,048

representing

the

Philippine currency value of the lost cargo, P55, 814 for unrealized profit and P25,000 for
attorneys fees. CA affirmed the trial courts decision.

to the shipment covered by said rule to US$500 per package unless the shipper declares
the value of the shipmentand pays additional charges is valid and binding on Cue.

SECOND DIVISION
G.R. No. 88092

April 25, 1990

CITADEL LINES, INC., petitioner,

vs.
COURT OF APPEALS* and MANILA WINE MERCHANTS, INC., respondents.
Del Rosario & Del Rosario Law Offices for petitioner.
Limqueco and Macaraeg Law Office for private respondent.

REGALADO, J.:
Through this petition, we are asked to review the decision of the Court of Appeals dated
December 20, 1988, in CA-G.R. No. CV-10070, 1 which affirmed the August 30, 1985
decision of the Regional Trial Court of Manila, Branch 27, in Civil Case No. 126415,
entitled Manila Wine Merchants, Inc. vs. Citadel Lines, Inc. and E. Razon, Inc., with a
modification by deleting the award of attorney's fees and costs of suit.
The following recital of the factual background of this case is culled from the findings in
the decision of the court a quo and adopted by respondent court based on the evidence of
record.
Petitioner Citadel Lines, Inc. (hereafter referred to as the CARRIER) is the general agent
of the vessel "Cardigan Bay/Strait Enterprise," while respondent Manila Wine Merchants,
Inc. (hereafter, the CONSIGNEE) is the importer of the subject shipment of Dunhill
cigarettes from England.
On or about March 17, 1979, the vessel "Cardigan Bay/Strait Enterprise" loaded on board
at Southampton, England, for carriage to Manila, 180 Filbrite cartons of mixed British
manufactured cigarettes called "Dunhill International Filter" and "Dunhill International
Menthol," as evidenced by Bill of Lading No. 70621374 2 and Bill of Lading No.
70608680 3 of the Ben Line Containers Ltd. The shipment arrived at the Port of Manila Pier
13, on April 18, 1979 in container van No. BENU 204850-9. The said container was
received by E. Razon, Inc. (later known as Metro Port Service, Inc. and referred to herein
as the ARRASTRE) under Cargo Receipt No. 71923 dated April 18, 1979. 4
On April 30, 1979, the container van, which contained two shipments was stripped. One
shipment was delivered and the other shipment consisting of the imported British
manufactured cigarettes was palletized. Due to lack of space at the Special Cargo Coral,
the aforesaid cigarettes were placed in two containers with two pallets in container No.
BENU 204850-9, the original container, and four pallets in container No. BENU 201009-9,
with both containers duly padlocked and sealed by the representative of the CARRIER.

In the morning of May 1, 1979, the CARRIER'S headchecker discovered that container van
No. BENU 201009-9 had a different padlock and the seal was tampered with. The matter
was reported to Jose G. Sibucao, Pier Superintendent, Pier 13, and upon verification, it
was found that 90 cases of imported British manufactured cigarettes were missing. This
was confirmed in the report of said Superintendent Sibucao to Ricardo Cosme, Assistant
Operations Manager, dated May 1, 1979 5 and the Official Report/Notice of Claim of
Citadel Lines, Inc. to E. Razon, Inc. dated May 8, 1979. 6 Per investigation conducted by
the ARRASTRE, it was revealed that the cargo in question was not formally turned over to
it by the CARRIER but was kept inside container van No. BENU 201009-9 which was
padlocked and sealed by the representatives of the CARRIER without any participation of
the ARRASTRE.
When the CONSIGNEE learned that 90 cases were missing, it filed a formal claim dated
May 21, 1979, 7 with the CARRIER, demanding the payment of P315,000.00 representing
the market value of the missing cargoes. The CARRIER, in its reply letter dated May 23,
1979, 8 admitted the loss but alleged that the same occurred at Pier 13, an area
absolutely under the control of the ARRASTRE. In view thereof, the CONSIGNEE filed a
formal claim, dated June 4, 1979, 9 with the ARRASTRE, demanding payment of the value
of the goods but said claim was denied.
After trial, the lower court rendered a decision on August 30, 1985, exonerating the
ARRASTRE of any liability on the ground that the subject container van was not formally
turned over to its custody, and adjudging the CARRIER liable for the principal amount of
P312,480.00 representing the market value of the lost shipment, and the sum of
P30,000.00 as and for attorney's fees and the costs of suit.
As earlier stated, the court of Appeals affirmed the decision of the court a quo but
deleted the award of attorney's fees and costs of suit.
The two main issues for resolution are:
1. Whether the loss occurred while the cargo in question was in the custody of E. Razon,
Inc. or of Citadel Lines, Inc; and
2. Whether the stipulation limiting the liability of the carrier contained in the bill of
lading is binding on the consignee.
The first issue is factual in nature. The Court of Appeals declared in no uncertain terms
that, on the basis of the evidence presented, the subject cargo which was placed in a
container van, padlocked and sealed by the representative of the CARRIER was still in its
possession and control when the loss occurred, there having been no formal turnover of
the cargo to the ARRASTRE. Besides, there is the categorical admission made by two
witnesses, namely, Atty. Lope M. Velasco and Ruben Ignacio, Claims Manager and Head
Checker, respectively, of the CARRIER, 10 that for lack of space the containers were not
turned over to and as the responsibility of E. Razon Inc. The CARRIER is now estopped
from claiming otherwise.
Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each

case. 11 If the goods are lost, destroyed or deteriorated, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extra ordinary diligence as required in Article 1733 of the Civil Code. 12 The duty of the
consignee is to prove merely that the goods were lost. Thereafter, the burden is shifted to
the carrier to prove that it has exercised the extraordinary diligence required by law.
And, its extraordinary responsibility lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for transportation until the same
are delivered, actually or constructively, by the carrier to the consignee or to the person
who has the right to receive them. 13
Considering, therefore, that the subject shipment was lost while it was still in the custody
of herein petitioner CARRIER, and considering further that it failed to prove that the loss
was occasioned by an excepted cause, the inescapable conclusion is that the CARRIER was
negligent and should be held liable therefor.
The cases cited by petitioner in support of its allegations to the contrary do not find
proper application in the case at bar simply because those cases involve a situation
wherein the shipment was turned over to the custody and possession of the arrastre
operator.
We, however, find the award of damages in the amount of P312,800.00 for the value of
the goods lost, based on the alleged market value thereof, to be erroneous. It is clearly
and expressly provided under Clause 6 of the aforementioned bills of lading issued by the
CARRIER that its liability is limited to $2.00 per kilo. Basic is the rule, long since
enshrined as a statutory provision, that a stipulation limiting the liability of the carrier to
the value of the goods appearing in the bill of lading, unless the shipper or owner declares
a greater value, is binding. 14 Further, a contract fixing the sum that may be recovered by
the owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely agreed
upon. 15
The CONSIGNEE itself admits in its memorandum that the value of the goods shipped does
not appear in the bills of lading. 16 Hence, the stipulation on the carrier's limited liability
applies. There is no question that the stipulation is just and reasonable under the
circumstances and have been fairly and freely agreed upon. In Sea-land Service,
Inc. vs. Intermediate Appellate Court, et al. 17 we there explained what is a just and
reasonable, and a fair and free, stipulation, in this wise:
. . . That said stipulation is just and reasonable arguable from the fact that it
echoes Art. 1750 itself in providing a limit to liability only if a greater value is
not declared for the shipment in the bill of lading. To hold otherwise would
amount to questioning the justice and fairness of that law itself, and this the
private respondent does not pretend to do. But over and above that
consideration the just and reasonable character of such stipulation is implicit in
it giving the shipper or owner the option of avoiding accrual of liability limitation
by the simple and surely far from onerous expedient of declaring the nature and
value of the shipment in the bill of lading. And since the shipper here has not
been heard to complain of having been "rushed," imposed upon or deceived in
any significant way into agreeing to ship the cargo under a bill of lading carrying
such a stipulation in fact, it does not appear, that said party has been heard

from at all insofar as this dispute is concerned there is simply no ground for
assuming that its agreement thereto was not as the law would require, freely
and fairly sought and well.
The bill of lading shows that 120 cartons weigh 2,978 kilos or 24.82 kilos per carton. Since
90 cartons were lost and the weight of said cartons is 2,233.80 kilos, at $2.00 per kilo the
CARRIER's liability amounts to only US$4,467.60.
WHEREFORE, the judgment of respondent court is hereby MODIFIED and petitioner Citadel
Lines, Inc. is ordered to pay private respondent Manila Wine Merchants, Inc. the sum of
US$4,465.60. or its equivalent in Philippine currency at the exchange rate obtaining at the
time of payment thereof. In all other respects, said judgment of respondent Court is
AFFIRMED.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
Footnotes
Impleaded as a respondent and added to complete the title of the case stated
in the petition.
*

Justice Josue N. Bellosillo, ponente, and Justices Felipe B. Kalalo and Regina G.
Ordoez-Benitez concurring.
1

Exh. A; Exh. 7-Citadel.

Exh. B; Exh. 8-Citadel.

Exh. 1-Citadel

Exh. 10-D-Razon.

Exh. 4-Citadel.

Exh. C.

Exh. D.

Exh. E.

10

Rollo, 45.

11

Art. 1733, Civil Code.

12

Art. 1735, Id.

13

Art. 1736, Id.

14

Art. 1749, Id.

126, in Civil Case No. C-15532, finding petitioner liable to private respondent Hernandez
Trading Co., Inc. for the value of the lost cargo.

15

Art. 1750, Id.

16

Rollo, 120.

17

153 SCRA 552 (1987).

Private respondent imported three crates of bus spare parts marked as MARCO C/No.
12, MARCO C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company,
Ltd. (Maruman Trading), a foreign corporation based in Inazawa, Aichi, Japan. The crates
were shipped from Nagoya, Japan to Manila on board ADELFAEVERETTE, a vessel owned by
petitioners principal, Everett Orient Lines. The said crates were covered by Bill of Lading
No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO
C/No. 14 was missing. This was confirmed and admitted by petitioner in its letter of
January 13, 1992 addressed to private respondent, which thereafter made a formal claim
upon petitioner for the value of the lost cargo amounting to One Million Five Hundred
Fifty Two Thousand Five Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice
No. MTM-941, dated November 14, 1991. However, petitioner offered to pay only One
Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of
the covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection
docketed as Civil Case No. C-15532, against petitioner before the Regional Trial Court of
Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial
evidence to offer and agreed instead to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment [2] in favor of private
respondent, ordering petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso
equivalent representing the actual value of the lost cargo and the material and packaging
cost; (c) 10% of the total amount as an award for and as contingent attorneys fees; and
(d) to pay the cost of the suit. The trial court ruled:

SECOND DIVISION
[G.R. No. 122494. October 8, 1998]
EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT
HERNANDEZ TRADING CO. INC., respondents.

OF

APPEALS

and

DECISION
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for review, seeks the
reversal of the decision[1] of the Court of Appeals, dated June 14, 1995, in CA-G.R. No.
428093, which affirmed the decision of the Regional Trial Court of Kalookan City, Branch

Considering defendants categorical admission of loss and its failure to overcome

the presumption of negligence and fault, the Court conclusively finds defendant
liable to the plaintiff. The next point of inquiry the Court wants to resolve is
the extent of the liability of the defendant. As stated earlier, plaintiff contends
that defendant should be held liable for the whole value for the loss of the
goods in the amount of Y1,552,500.00 because the terms appearing at the back
of the bill of lading was so written in fine prints and that the same was not
signed by plaintiff or shipper thus, they are not bound by the clause stated in
paragraph 18 of the bill of lading. On the other hand, defendant merely
admitted that it lost the shipment but shall be liable only up to the amount of
Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code Art. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction or deterioration of the goods

is valid, if it is reasonable and just under the circumstances, and has

been fairly and freely agreed upon.
It is required, however, that the contract must be reasonable and just under the
circumstances and has been fairly and freely agreed upon. The requirements
provided in Art. 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss,
destruction or deterioration of the goods it has undertaken to transport.
In the case at bar, the Court is of the view that the requirements of said article
have not been met. The fact that those conditions are printed at the back of
the bill of lading in letters so small that they are hard to read would not
warrant the presumption that the plaintiff or its supplier was aware of these
conditions such that he had fairly and freely agreed to these conditions. It can
not be said that the plaintiff had actually entered into a contract with the
defendant, embodying the conditions as printed at the back of the bill of lading
that was issued by the defendant to plaintiff.
On appeal, the Court of Appeals deleted the award of attorneys fees but affirmed
the trial courts findings with the additional observation that private respondent can not
be bound by the terms and conditions of the bill of lading because it was not privy to the
contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show that the
appellee (Hernandez Trading Co.) consented to the terms of the Bill of
Lading. The shipper named in the Bill of Lading is Maruman Trading Co., Ltd.
whom the appellant (Everett Steamship Corp.) contracted with for the
transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted
the terms of the bill of lading when it delivered the cargo to the appellant, still
it does not necessarily follow that appellee Hernandez Trading Company as
consignee is bound thereby considering that the latter was never privy to the
shipping contract.
xxxxxxxxx

liability as stipulated in the bill of lading does not apply in the instant case; and (3) in
allowing private respondent to fully recover the full alleged value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.
A stipulation in the bill of lading limiting the common carriers liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a greater
value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code which
provide:
ART. 1749. A stipulation that the common carriers liability is limited to the
value of the goods appearing in the bill of lading, unless the shipper or owner
declares a greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been freely and fairly
agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a
number of cases.[3] Thus, in Sea Land Service, Inc. vs Intermediate Appellate Court [4],
we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not
exist, the validity and binding effect of the liability limitation clause in the bill of lading
here are nevertheless fully sustainable on the basis alone of the cited Civil Code
Provisions. That said stipulation is just and reasonable is arguable from the fact that it
echoes Art. 1750 itself in providing a limit to liability only if a greater value is not
declared for the shipment in the bill of lading. To hold otherwise would amount to
questioning the justness and fairness of the law itself, and this the private respondent
does not pretend to do. But over and above that consideration, the just and reasonable
character of such stipulation is implicit in it giving the shipper or owner the option of
avoiding accrual of liability limitation by the simple and surely far from onerous expedient
of declaring the nature and value of the shipment in the bill of lading..

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

Pursuant to the afore-quoted provisions of law, it is required that the stipulation

limiting the common carriers liability for loss must be reasonable and just under the
circumstances, and has been freely and fairly agreed upon.

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

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

Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that
the consent of the consignee to the terms and conditions of the bill of lading is necessary
to make such stipulations binding upon it; (2) in holding that the carriers limited package

18. All claims for which the carrier may be liable shall be adjusted and settled
on the basis of the shippers net invoice cost plus freight and insurance
premiums, if paid, and in no event shall the carrier be liable for any loss of
possible profits or any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any
connection with, goods in an amount exceeding One Hundred Thousand Yen in

Japanese Currency (Y100,000.00) or its equivalent in any other currency per

package or customary freight unit (whichever is least) unless the value of the
goods higher than this amount is declared in writing by the shipper before
receipt of the goods by the carrier and inserted in the Bill of Lading and extra
freight is paid as required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading,
the carrier made it clear that its liability would only be up to One Hundred Thousand
(Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to declare a
higher valuation if the value of its cargo was higher than the limited liability of the
carrier. Considering that the shipper did not declare a higher valuation, it had itself to
blame for not complying with the stipulations.
The trial courts ratiocination that private respondent could not have fairly and
freely agreed to the limited liability clause in the bill of lading because the said
conditions were printed in small letters does not make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals [5] that the jurisprudence on the matter
reveals the consistent holding of the court that contracts of adhesion are not
invalid per se and that it has on numerous occasions upheld the binding effect
thereof. Also, in Philippine American General Insurance Co., Inc. vs. Sweet Lines , Inc.
[6] this Court , speaking through the learned Justice Florenz D. Regalado, held:
x x x Ong Yiu vs. Court of Appeals, et.al., instructs us that contracts of
adhesion wherein one party imposes a ready-made form of contract on the
other x x x are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres he gives his
consent. In the present case, not even an allegation of ignorance of a party
excuses non-compliance with the contractual stipulations since the
responsibility for ensuring full comprehension of the provisions of a contract of
carriage devolves not on the carrier but on the owner, shipper, or consignee as
the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs Court of Appeals[7] that stipulations in
contracts of adhesion are valid and binding.
While it may be true that petitioner had not signed the plane ticket x x, he is
nevertheless bound by the provisions thereof. Such provisions have been held to
be a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latters lack of knowledge or assent to the regulation. It is
what is known as a contract of adhesion, in regards which it has been said that
contracts of adhesion wherein one party imposes a ready-made form of contract
on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it
entirely; if he adheres, he gives his consent. x x x , a contract limiting liability
upon an agreed valuation does not offend against the policy of the law
forbidding one from contracting against his own negligence. (Emphasis supplied)

Greater vigilance, however, is required of the courts when dealing with contracts of
adhesion in that the said contracts must be carefully scrutinized in order to shield the
unwary (or weaker party) from deceptive schemes contained in ready-made covenants,
[8] such as the bill of lading in question. The stringent requirement which the courts are
enjoined to observe is in recognition of Article 24 of the Civil Code which mandates that
(i)n all contractual, property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant for his protection.
The shipper, Maruman Trading, we assume, has been extensively engaged in the
trading business. It can not be said to be ignorant of the business transactions it entered
into involving the shipment of its goods to its customers. The shipper could not have
known, or should know the stipulations in the bill of lading and there it should have
declared a higher valuation of the goods shipped. Moreover, Maruman Trading has not
been heard to complain that it has been deceived or rushed into agreeing to ship the
cargo in petitioners vessel. In fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as consignee,
who is not a signatory to the bill of lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held
that even if the consignee was not a signatory to the contract of carriage between the
shipper and the carrier, the consignee can still be bound by the contract. Speaking
through Mr. Chief Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a
bill of lading to recover from the carrier or shipper for loss of, or damage to
goods being transported under said bill,although that document may have
been- as in practice it oftentimes is-drawn up only by the consignor and the
carrier without the intervention of the consignee. x x x.
x x x the right of a party in the same situation as respondent here, to
recover for loss of a shipment consigned to him under a bill of lading drawn
up only by and between the shipper and the carrier, springs from either a
relation of agency that may exist between him and the shipper or consignor,
or his status as stranger in whose favor some stipulation is made in said
contract, and who becomes a party thereto when he demands fulfillment of
that stipulation, in this case the delivery of the goods or cargo shipped. In
neither capacity can he assert personally, in bar to any provision of the bill
of lading, the alleged circumstance that fair and free agreement to such
provision was vitiated by its being in such fine print as to be hardly
readable. Parenthetically, it may be observed that in one comparatively recent
case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15) where
this Court found that a similar package limitation clause was printed in the
smallest type on the back of the bill of lading, it nonetheless ruled that the
consignee was bound thereby on the strength of authority holding that such
provisions on liability limitation are as much a part of a bill of lading as
though physically in it and as though placed therein by agreement of the
parties.

There can, therefore, be no doubt or equivocation about the validity and

enforceability of freely-agreed-upon stipulations in a contract of carriage or bill
of lading limiting the liability of the carrier to an agreed valuation unless the
shipper declares a higher value and inserts it into said contract or bill. This
proposition, moreover, rests upon an almost uniform weight of authority.
(Underscoring supplied)
When private respondent formally claimed reimbursement for the missing goods
from petitioner and subsequently filed a case against the latter based on the very same
bill of lading, it (private respondent) accepted the provisions of the contract and thereby
made itself a party thereto, or at least has come to court to enforce it. [9] Thus, private
respondent cannot now reject or disregard the carriers limited liability stipulation in the
bill of lading. In other words, private respondent is bound by the whole stipulations in the
bill of lading and must respect the same.
Private respondent, however, insists that the carrier should be liable for the full
value of the lost cargo in the amount of Y1,552,500.00, considering that the shipper,
Maruman Trading, had "fully declared the shipment x x x, the contents of each crate, the
dimensions, weight and value of the contents,"[10] as shown in the commercial Invoice No.
MTM-941.
This claim was denied by petitioner, contending that it did not know of the contents,
quantity and value of "the shipment which consisted of three pre-packed crates described
in Bill of Lading No. NGO-53MN merely as 3 CASES SPARE PARTS. [11]
The bill of lading in question confirms petitioners contention. To defeat the carriers
limited liability, the aforecited Clause 18 of the bill of lading requires that the shipper
should have declared in writing a higher valuation of its goods before receipt thereof by
the carrier and insert the said declaration in the bill of lading, with the extra freight
paid. These requirements in the bill of lading were never complied with by the shipper,
hence, the liability of the carrier under the limited liability clause stands. The
commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show that
petitioner has knowledge of the value of the cargo as contended by private
respondent. No other evidence was proffered by private respondent to support is
contention. Thus, we are convinced that petitioner should be liable for the full value of
the lost cargo.
In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred
Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.
WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R.
CV No. 42803 is hereby REVERSED and SET ASIDE.
SO ORDERED.
Regalado, (Acting Chief Justice), Melo, Puno, and Mendoza, JJ., concur.

Penned by Justice Pacita Canizares-Nye and concurred in by Justices Conchita CarpioMorales and Antonio P. Solano; Rollo, pp. 33-40.
[2] Penned by Judge Oscar M. Payawal, Rollo, pp. 43-50 .
[3] St. Paul Fire and Marine Insurance Co. vs Macondray & Co., 70 SCRA 122 [1976]; Sea
Land Services, Inc. vs Intermediate Appellate Court, 153 SCRA 552 [1987]; Pan American
World Airways, Inc. vs Intermediate Appellate Court, 164 SCRA 268 [1988]; Phil. Airlines,
Inc. vs Court of Appeals, 255 SCRA 63 [1996].
[4] 153 SCRA 552 [1987]
[5] 255 SCRA 48, 58 [1996].
[6] 212 SCRA 194, 212-213 [1992].
[7] 91 SCRA 223 [1979]; Philippine Airlines, Inc. vs Court of Appeals, 255 SCRA 63 [1996].
[8] Ayala Corporation vs. Ray Burton Development Corporation, G.R. No. 126699, August 7,
1998. See also Qua Chee Gan vs. Law Union and Rock Insurance Co., Ltd., 98 Phil. 95
[1955].
[9] See Mendoza vs. Philippine Air Lines, Inc. 90 Phil. 836, 845-846.
[10] Rollo, p. 116.
[11] Rollo, p. 13.
[1]

Alitalia v. Intermediate Appellate Court (192 SCRA 9 )

Facts: Dr. Felipa Pablo, a professor from UP was invited to attend a meeting by the United
Nations in Ispra, Italy. She was to read a paper regarding foreign substances in food and
the agriculture environment which she had specialized knowledge of. She booked a flight
to Italy with Alitalia airlines, petitioner herein. She had arrived in Milan the day before
the meeting however her luggage did not arrive with her. The airline informed her that
her luggage wasdelayed because it was placed in one of the succeeding flights to Italy.
She never got her luggage.

When she got back to Manila she demanded that Alitalia compensate her for the
damages that she suffered. Petitioner herein offered free airline tickets in order to
compensate for the alleged damages, however she rejected this offer and instead filed a
case. Subsequently it was found out that the luggages of Dr. Pablo were not placed in the

succeeding flights. She received her luggage 11 months after and after she had already
instituted a case against Alitalia.

The lower court rendered a decision in favor of Dr. Pablo and ordered plaintiff to pay
damages. On appeal, the Court of Appeals affirmed the decision and even increased the
amount of damages to be awarded to Dr. Pablo. Hence this petition for certiorari.

Issue: Whether or not Alitalia is liable for damages incurred by Dr. Pablo.

Held: The Court held that Alitalia is liable to pay Dr. Pablo for nominal damages.
The Warsaw Convention provides that an air carrier is made liable for damages when: (1)
the death, wounding or other bodily injury of a passenger if the accident causing it took

SECOND DIVISION

place on board the aircraft or in the course of its operations of embarking or

disembarking; (2) the destruction or loss of, or damage to, any registered luggage or
goods, if the occurrence causing it took place during the carriage by air"; and (3) delay in
the transportation by air of passengers, luggage or goods. However, the claim for damages
may be brought subject to limitations provided in the said convention.

G.R. No. 95536 March 23, 1992

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

In this case, Dr. Pablo did not suffer any other injury other than not being able to read her
paper in Italy. This was due to the fact that Alitalia misplaced her luggage. There was

REGALADO, J.:

no bad faith or malice on the part of Alitalia in the said delay in the arrival of her

Assailed in this petition for review on certiorari is the decision in CA-G.R. CV No. 20951 of
respondent Court of Appeals 1 which affirmed the decision of the trial court 2 dismissing
for lack of evidence herein petitioners' complaint in Civil Case No R-2101 of the then
Court of First Instance of Southern Leyte, Branch I.

luggage. Dr. Pablo received all her things which were returned to her in good condition
although 11 months late. Therefore she shall receive nominal damages for the special
injury caused.

The facts, as recounted by the court a quo and adopted by respondent court after
"considering the evidence on record," are as follows:
After the death of plaintiffs' mother, Crispina Galdo Saludo, in Chicago
Illinois, (on) October 23, 1976 (Exh. A), Pomierski and Son Funeral Home
of Chicago, made the necessary preparations and arrangements for the
shipment, of the remains from Chicago to the Philippines. The funeral

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

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

In the meantime, plaintiffs Maria Salvacion Saludo and Saturnino Saludo,

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

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

Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA
counter there to inquire about her mother's remains. She was told they
did not know anything about it.
She then called Pomierski that her mother's remains were not at the
West Coast terminal, and Pomierski immediately called C.M.A.S., which
in a matter of 10 minutes informed him that the remains were on a
plane to Mexico City, that there were two bodies at the terminal, and
somehow they were switched; he relayed this information to Miss Saludo
in California; later C.M.A.S. called and told him they were sending the
remains back to California via Texas (see Exh. 6-TWA).

What transpired at the Chicago (A)irport is explained in a memo or

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

In a letter dated December 15, 1976, 4 petitioners' counsel informed private respondent
Trans World Airlines (TWA) of the misshipment and eventual delay in the delivery of the
cargo containing the remains of the late Crispin Saludo, and of the discourtesy of its
employees to petitioners Maria Salvacion Saludo and Saturnino Saludo. In a separate letter
on June 10, 1977 addressed to co-respondent Philippine Airlines (PAL), 5 petitioners stated
that they were holding PAL liable for said delay in delivery and would commence judicial
action should no favorable explanation be given.
Both private respondents denied liability. Thus, a damage suit 6 was filed by petitioners
before the then Court of First Instance, Branch III, Leyte, praying for the award of actual
damages of P50,000.00, moral damages of P1,000,000.00, exemplary damages, attorney's
fees and costs of suit.
As earlier stated, the court below absolved the two respondent airlines companies of
liability. The Court of Appeals affirmed the decision of the lower court in toto, and in a
subsequent resolution, 7 denied herein petitioners' motion for reconsideration for lack of
merit.

In predictable disagreement and dissatisfaction with the conclusions reached by

respondent appellate court, petitioners now urge this Court to review the appealed
decision and to resolve whether or not (1) the delay in the delivery of the casketed
remains of petitioners' mother was due to the fault of respondent airline companies, (2)
the one-day delay in the delivery of the same constitutes contractual breach as would
entitle petitioners to damages, (3) damages are recoverable by petitioners for the
humiliating, arrogant and indifferent acts of the employees of TWA and PAL, and (4)
private respondents should be held liable for actual, moral and exemplary damages, aside
from attorney's fees and litigation expenses. 8
At the outset and in view of the spirited exchanges of the parties on this aspect, it is to
be stressed that only questions of law may be raised in a petition filed in this Court to
review on certiorari the decision of the Court of Appeals. 9 This being so, the factual
findings of the Court of Appeals are final and conclusive and cannot be reviewed by the
Supreme Court. The rule, however, admits of established exceptions, to wit: (a) where
there is grave abuse of discretion; (b) when the finding is grounded entirely on
speculations, surmises or conjectures;(c) when the inference made is manifestlymistaken, absurd or impossible; (d) when the judgment of the Court of Appeals was based
on a misapprehension of facts; (e) when the factual findings are conflicting; (f) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same
are contrary to the admissions of both appellant and appellee; 10 (g) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; 11 and (h) where the
findings of fact of the Court of Appeals are contrary to those of the trial court, or are
mere conclusions without citation of specific evidence, or where the facts of set forth by
the petitioner are not disputed by the respondent, or where the findings of fact of the
Court of Appeals are premised on the absence of evidence and are contradicted by the
evidence on record. 12
To distinguish, a question of law is one which involves a doubt or controversy on what the
law is on a certain state of facts; and, a question of fact, contrarily, is one in which there
is a doubt or difference as to the truth or falsehood of the alleged facts. 13 One test, it
has been held, is whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case it is a question of law, otherwise it
will be a question of fact. 14
Respondent airline companies object to the present recourse of petitioners on the ground
that this petition raises only factual questions. 15 Petitioners maintain otherwise or,
alternatively, they are of the position that, assuming that the petition raises factual
questions, the same are within the recognized exceptions to the general rule as would
render the petition cognizable and worthy of review by the Court. 16
Since it is precisely the soundness of the inferences or conclusions that may be drawn
from the factual issues which are here being assayed, we find that the issues raised in the
instant petition indeed warrant a second look if this litigation is to come to a reasonable
denouement. A discussion seriatim of said issues will further reveal that the sequence of
the events involved is in effect disputed. Likewise to be settled is whether or not the
conclusions of the Court of Appeals subject of this review indeed find evidentiary and
legal support.

I. Petitioners fault respondent court for "not finding that private respondents failed to
exercise extraordinary diligence required by law which resulted in the switching and/or
misdelivery of the remains of Crispina Saludo to Mexico causing gross delay in its shipment
to the Philippines, and consequently, damages to petitioners." 17
Petitioner allege that private respondents received the casketed remains of petitioners'
mother on October 26, 1976, as evidenced by the issuance of PAL Air Waybill No. 07901180454 18 by Air Care International as carrier's agent; and from said date, private
respondents were charged with the responsibility to exercise extraordinary diligence so
much so that for the alleged switching of the caskets on October 27, 1976, or one day
after private respondents received the cargo, the latter must necessarily be liable.
To support their assertion, petitioners rely on the jurisprudential dictum, both under
American and Philippine law, that "(t)he issuance of a bill of lading carries the
presumption that the goods were delivered to the carrier issuing the bill, for immediate
shipment, and it is nowhere questioned that a bill of lading is prima facie evidence of the
receipt of the goods by the carrier. . . . In the absence of convincing testimony
establishing mistake, recitals in the bill of lading showing that the carrier received the
goods for shipment on a specified date control (13 C.J.S. 235)."19
A bill of lading is a written acknowledgment of the receipt of the goods and an agreement
to transport and deliver them at a specified place to a person named or on his order. Such
instrument may be called a shipping receipt, forwarder's receipt and receipt for
transportation. 20 The designation, however, is immaterial. It has been hold that freight
tickets for bus companies as well as receipts for cargo transported by all forms of
transportation, whether by sea or land, fall within the definition. Under the Tariff and
Customs Code, a bill of lading includes airway bills of lading. 21 The two-fold character of
a bill of lading is all too familiar; it is a receipt as to the quantity and description of the
goods shipped and a contract to transport the goods to the consignee or other person
therein designated, on the terms specified in such instrument. 22
Logically, since a bill of lading acknowledges receipt of goods to be transported, delivery
of the goods to the carrier normally precedes the issuance of the bill; or, to some extent,
delivery of the goods and issuance of the bill are regarded in commercial practice as
simultaneous acts. 23 However, except as may be prohibited by law, there is nothing to
prevent an inverse order of events, that is, the execution of the bill of lading even prior
to actual possession and control by the carrier of the cargo to be transported. There is no
law which requires that the delivery of the goods for carriage and the issuance of the
covering bill of lading must coincide in point of time or, for that matter, that the former
should precede the latter.
Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for
transportation but, when issued, is competent and prima facie, but not conclusive,
evidence of delivery to the carrier. A bill of lading, when properly executed and delivered
to a shipper, is evidence that the carrier has received the goods described therein for
shipment. Except as modified by statute, it is a general rule as to the parties to a
contract of carriage of goods in connection with which a bill of lading is issued reciting
that goods have been received for transportation, that the recital being in essence a
receipt alone, is not conclusive, but may be explained, varied or contradicted by parol or
other evidence. 24

While we agree with petitioners' statement that "an airway bill estops the carrier from
denying receipt of goods of the quantity and quality described in the bill," a further
reading and a more faithful quotation of the authority cited would reveal that "(a) bill of
lading may contain constituent elements of estoppel and thus become something more
than a contract between the shipper and the carrier. . . . (However), as between the
shipper and the carrier,when no goods have been delivered for shipment no recitals in
the bill can estop the carrier from showing the true facts . . . Between the consignor of
goods and receiving carrier, recitals in a bill of lading as to the goods shipped raise only
a rebuttable presumption that such goods were delivered for shipment. As between the
consignor and a receiving carrier, the fact must outweigh the recital." 25 (Emphasis
supplied)
For this reason, we must perforce allow explanation by private respondents why, despite
the issuance of the airway bill and the date thereof, they deny having received the
remains of Crispina Saludo on October 26, 1976 as alleged by petitioners.
The findings of the trial court, as favorably adopted by the Court of Appeals and which we
have earner quoted, provide us with the explanation that sufficiently over comes the
presumption relied on by petitioners in insisting that the remains of their mother were
delivered to and received by private respondents on October 26, 1976. Thus
. . . Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at
3:00 p.m. on October 26, 1976 at the Pomierski & Son Funeral Home,
sealed the shipping case containing a hermetically sealed casket that is
airtight and waterproof wherein was contained the remains of Crispina
Saludo Galdo (sic) (Exh. B). On the same date October 26, 1976,
Pomierski brought the remains to C.M.A.S. (Continental Mortuary Air
Services) at the airport (Chicago) which made the necessary
arrangements such as flights, transfers, etc; C.M.A.S. is a national
service used by undertakers throughout the nation (U.S.A.), they furnish
the air pouch which the casket is enclosed in, and they see that the
remains are taken to the proper air freight terminal (Exh. G-TWA).
C.M.A.S. booked the shipment with PAL thru the carrier's agent Air
Care International, with Pomierski F.H. as the shipper and Mario (Maria)
Saludo as the consignee. PAL Airway Bill No. 079- 01180454 Ordinary
was issued wherein the requested routing was from Chicago to San
Francisco on board TWA Flight-131 of October 27;1976, and from San
Francisco to Manila on board PAL Flight No. 107 of the same date, and
from Manila to Cebu on board PAL Flight 149 of October 29, 1976 (See
Exh. E, also Exh. 1-PAL). 26(Emphasis ours.)
Moreover, we are persuaded to believe private respondent PAL's account as to what
transpired October 26, 1976:
. . . Pursuant thereto, on 26 October 1976, CMAS acting upon the
instruction of Pomierski, F.H., the shipper requested booking of the
casketed remains of Mrs. Cristina (sic) Saludo on board PAL's San
Francisco-Manila Flight No. PR 107 on October 27, 1976.

2. To signify acceptance and confirmation of said booking, PAL issued to

said Pomierski F.H., PAL Airway Bill No. 079-01180454 dated October 27,
1976 (sic, "10/26/76"). PAL confirmed the booking and transporting of
the shipment on board of its Flight PR 107 on October 27, 1976 on the
basis of the representation of the shipper and/or CMAS that the said
cargo would arrive in San Francisco from Chicago on board United
Airlines Flight US 121 on 27 October 1976. 27
In other words, on October 26, 1976 the cargo containing the casketed remains of Crispina
Saludo was booked for PAL Flight Number PR-107 leaving San Francisco for Manila on
October 27, 1976, PAL Airway Bill No. 079-01180454 was issued, not as evidence of receipt
of delivery of the cargo on October 26, 1976, but merely as a confirmation of the booking
thus made for the San Francisco-Manila flight scheduled on October 27, 1976. Actually, it
was not until October 28, 1976 that PAL received physical delivery of the body at San
Francisco, as duly evidenced by the Interline Freight Transfer Manifest of the American
Airline Freight System and signed for by Virgilio Rosales at 1945H, or 7:45 P.M. on said
date. 28
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary
responsibility of the common carrier begins from the time the goods are delivered to the
carrier. This responsibility remains in full force and effect even when they are temporarily
unloaded or stored in transit, unless the shipper or owner exercises the right of
stoppage in transitu, 29 and terminates only after the lapse of a reasonable time for the
acceptance, of the goods by the consignee or such other person entitled to receive
them. 30 And, there is delivery to the carrier when the goods are ready for and have been
placed in the exclusive possession, custody and control of the carrier for the purpose of
their immediate transportation and the carrier has accepted them. 31 Where such a
delivery has thus been accepted by the carrier, the liability of the common carrier
commences eo instanti. 32
Hence, while we agree with petitioners that the extraordinary diligence statutorily
required to be observed by the carrier instantaneously commences upon delivery of the
goods thereto, for such duty to commence there must in fact have been delivery of the
cargo subject of the contract of carriage. Only when such fact of delivery has been
unequivocally established can the liability for loss, destruction or deterioration of goods
in the custody of the carrier, absent the excepting causes under Article 1734, attach and
the presumption of fault of the carrier under Article 1735 be invoked.
As already demonstrated, the facts in the case at bar belie the averment that there was
delivery of the cargo to the carrier on October 26, 1976. Rather, as earlier explained, the
body intended to be shipped as agreed upon was really placed in the possession and
control of PAL on October 28, 1976 and it was from that date that private respondents
became responsible for the agreed cargo under their undertakings in PAL Airway Bill No.
079-01180454. Consequently, for the switching of caskets prior thereto which was not
caused by them, and subsequent events caused thereby, private respondents cannot be
held liable.
Petitioners, proceeding on the premise that there was delivery of the cargo to private
respondents on October 26,1976 and that the latter's extraordinary responsibility had by
then become operative, insist on foisting the blame on private respondents for the

switching of the two caskets which occurred on October 27, 1976. It is argued that since
there is no clear evidence establishing the fault Continental Mortuary Air Services (CMAS)
for the mix-up, private respondents are presumably negligent pursuant to Article 1735 of
the Civil Code and, for failure to rebut such presumption, they must necessarily be held
liable; or, assuming that CMAS was at fault, the same does not absolve private
respondents of liability because whoever brought the cargo to the airport or loaded it on
the plane did so as agent of private respondents.
This contention is without merit. As pithily explained by the Court of Appeals:
The airway bill expressly provides that "Carrier certifies goods described
below were received for carriage", and said cargo was "casketed human
remains of Crispina Saludo," with "Maria Saludo as Consignee; Pomierski
F.H. as Shipper; Air Care International as carrier's agent." On the face of
the said airway bill, the specific flight numbers, specific routes of
shipment and dates of departure and arrival were typewritten, to wit:
Chicago TWA Flight 131/27 to San Francisco and from San Francisco by
PAL 107 on, October 27, 1976 to Philippines and to Cebu via PAL Flight
149 on October 29, 1976. The airway bill also contains the following
typewritten words, as follows: all documents have been examined (sic).
Human remains of Crispina Saludo. Please return back (sic) first
available flight to SFO.
But, as it turned out and was discovered later the casketed human
remains which was issued PAL Airway Bill #079-1180454 was not the
remains of Crispina Saludo, the casket containing her remains having
been shipped to Mexico City.
However, it should be noted that, Pomierski F.H., the shipper of Mrs.
Saludo's remains, hired Continental Mortuary Services (hereafter
referred to as C.M.A.S.), which is engaged in the business of
transporting and forwarding human remains. Thus, C.M.A.S. made all
the necessary arrangements such as flights, transfers, etc. for
shipment of the remains of Crispina Saludo.
The remains were taken on October 26th, 1976, to
C.M.A.S. at the airport. These people made all the
necessary arrangements, such as flights, transfers,
etc. This is a national service used by undertakers
throughout the nation. They furnished the air pouch
which the casket is enclosed in, and they see that the
remains are taken to the proper air frieght terminal. I
was very surprised when Miss Saludo called me to say
that the remains were not at the west coast
terminal. I immediately called C.M.A.S. They called
me back in a matter of ten minutes to inform me that
the remains were on a plane to Mexico City. The man
said that there were two bodies at the terminal, and
somehow they were switched. . . . (Exb. 6 "TWA",

which is the memo or incident report enclosed in the

stationery of Walter Pomierski & Sons Ltd.)
Consequently, when the cargo was received from C.M.A.S. at the
Chicago airport terminal for shipment, which was supposed to contain
the remains of Crispina Saludo, Air Care International and/or TWA, had
no way of determining its actual contents, since the casket was
hermetically sealed by the Philippine Vice-Consul in Chicago and in an
air pouch of C.M.A.S., to the effect that Air Care International and/or
TWA had to rely on the information furnished by the shipper regarding
the cargo's content. Neither could Air Care International and/or TWA
open the casket for further verification, since they were not only
without authority to do so, but even prohibited.
Thus, under said circumstances, no fault and/or negligence can be
attributed to PAL (even if Air Care International should be considered as
an agent of PAL) and/or TWA, the entire fault or negligence being
exclusively with C.M.A.S. 33 (Emphasis supplied.)
It can correctly and logically be concluded, therefore, that the switching occurred or,
more accurately, was discovered on October 27, 1976; and based on the above findings of
the Court of appeals, it happened while the cargo was still with CMAS, well before the
same was place in the custody of private respondents.
Thus, while the Air Cargo Transfer Manifest of TWA of October 27, 1976 34 was signed by
Garry Marcial of PAL at 1400H, or 2:00 P.M., on the same date, thereby indicating
acknowledgment by PAL of the transfer to them by TWA of what was in truth the
erroneous cargo, said misshipped cargo was in fact withdrawn by CMAS from PAL as shown
by the notation on another copy of said manifest 35 stating "Received by CMAS Due to
switch in Chicago 10/27-1805H," the authenticity of which was never challenged. This
shows that said misshipped cargo was in fact withdrawn by CMAS from PAL and the correct
shipment containing the body of Crispina Saludo was received by PAL only on October 28,
1976, at 1945H, or 7:45 P.M., per American Airlines Interline Freight Transfer Manifest No.
AA204312. 36
Witness the deposition of TWA's ramp serviceman, Michael Giosso, on this matter:
ATTY. JUAN COLLAS, JR.:
On that date, do (sic) you have occasion to handle or
deal with the transfer of cargo from TWA Flight No.
603 to PAL San Francisco?
MICHAEL GIOSSO:
Yes, I did.
ATTY. JUAN COLLAS, JR.:

What was your participation with the transfer of the

cargo?
MICHAEL GIOSSO:
I manifested the freight on a transfer manifest and
physically moved it to PAL and concluded the transfer
by signing it off.
ATTY. JUAN COLLAS, JR.:
You brought it there yourself?
MICHAEL GIOSSO:

MICHAEL GIOSSO:
The name is Garry Marcial."

The deposition of Alberto A. Lim, PAL's cargo supervisor at San Francisco, as deponentwitness for PAL, makes this further clarification:
ATTY. CESAR P. MANALAYSAY:
You mentioned Airway Bill, Mr. Lim. I am showing to
you a PAL Airway Bill Number 01180454 which for
purposes of evidence, I would like to request that the
same be marked as evidence Exhibit I for PAL.
xxx xxx xxx

Yes sir.
ATTY. JUAN COLIAS, JR.:
Do you have anything to show that PAL received the
cargo from TWA on October 27, 1976?

37

In what circumstances did you encounter Exhibit I-PAL?

ALBERTO A. LIM:

Yes, I do.

If I recall correctly, I was queried by Manila, our

Manila office with regard to a certain complaint that a
consignee filed that this shipment did not arrive on
the day that the consignee expects the shipment to
arrive.

(Witness presenting a document)

ATTY CESAR P. MANALAYSAY:

ATTY. JUAN COLLAS, JR.:

Okay. Now, upon receipt of that query from your

Manila office, did you conduct any investigation to
pinpoint the possible causes of mishandling?

MICHAEL GIOSSO:

For purposes of clarity, Exhibit I is designated as

Exhibit I-TWA.
xxx xxx xxx
ATTY. JUAN COLLAS, JR.:

ALBERTO A. LIM:
Yes.
xxx xxx xxx

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

shows?

ATTY. CESAR P. MANALAYSAY:

MICHAEL GIOSSO:

What is the result of your investigation?

It shows transfer of manifest on 10-27-76 to PAL at

1400 and verified with two signatures as it completed
the transfer.

ALBERTO A. LIM:

ATTY. JUAN COLLAS, JR.:

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

In the course of my investigation, I found that we

received the body on October 28, 1976, from American
Airlines.
ATTY. CESAR P. MANALAYSAY:

What body are you referring to?

xxx xxx xxx

delivered to you a cargo bearing human remains.

Could you go over this Exhibit I and please give us your
comments as to that exhibit?

ALBERTO A. LIM:

ATTY. ALBERTO C. MENDOZA:

The remains of Mrs. Cristina (sic) Saludo.

ATTY. CESAR P. MANALAYSAY:

That is a vague question. I would rather request that

counsel propound specific questions rather than asking
for comments on Exhibit I-TWA.

Is that the same body mentioned in this Airway Bill?

ATTY. CESAR P. MANALAYSAY:

ALBERTO A. LIM:
Yes.

In that case, I will reform my question. Could you tell

us whether TWA in fact delivered to you the human
remains as indicated in that Transfer Manifest?

ATTY. CESAR P. MANALAYSAY:

ALBERTO A. LIM:

What time did you receive said body on October 28,

1976?

Yes, they did.

ALBERTO A. LIM:
If I recall correctly, approximately 7:45 of October 28,
1976.
ATTY. CESAR P. MANALAYSAY:
Do you have any proof with you to back the
statement?
ALBERTO A. LIM:
Yes. We have on our records a Transfer Manifest from
American Airlines Number 204312 showing that we
received a human remains shipment belong to Mrs.
Cristina (sic) Saludo or the human remains of Mrs.
Cristina (sic) Saludo.
ATTY. CESAR P. MAIALAYSAY:
At this juncture, may I request that the Transfer
Manifest referred to by the witness be marked as an
evidence as Exhibit II-PAL.
xxx xxx xxx
Mr. Lim, yesterday your co-defendant TWA presented
as their Exhibit I evidence tending to show that on
October 27, 1976 at about 2:00 in the, afternoon they

ATTY. CESAR P. MANALAYSAY:

I noticed that the Transfer Manifest of TWA marked as
Exhibit I-TWA bears the same numbers or the same
entries as the Airway Bill marked as Exhibit I-A PAL
tending to show that this is the human remains of Mrs
Cristina (sic) Saludo. Could you tell us whether this is
true?
ALBERTO A. LIM:
It is true that we received human remains shipment
from TWA as indicated on this Transfer Manifest. But in
the course of investigation, it was found out that the
human remains transferred to us is not the remains of
Mrs. Cristina (sic) Saludo this is the reason why we did
not board it on our flight. 38
Petitioners consider TWA's statement that "it had to rely on the information furnished by
the shipper" a lame excuse and that its failure to prove that its personnel verified and
identified the contents of the casket before loading the same constituted negligence on
the part of TWA. 39
We upbold the favorable consideration by the Court of Appeals of the following findings of
the trial court:
It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral
Home delivered the casket containing the remains of Crispina Saludo.
TWA would have no knowledge therefore that the remains of Crispina
Saludo were not the ones inside the casket that was being presented to

it for shipment. TWA would have to rely on there presentations of

C.M.A.S. The casket was hermetically sealed and also sealed by the
Philippine Vice Consul in Chicago. TWA or any airline for that matter
would not have opened such a sealed casket just for the purpose of
ascertaining whose body was inside and to make sure that the remains
inside were those of the particular person indicated to be by C.M.A.S.
TWA had to accept whatever information was being furnished by the
shipper or by the one presenting the casket for shipment. And so as a
matter of fact, TWA carried to San Francisco and transferred to
defendant PAL a shipment covered by or under PAL Airway Bill No. 079ORD-01180454, the airway bill for the shipment of the casketed remains
of Crispina Saludo. Only, it turned out later, while the casket was
already with PAL, that what was inside the casket was not the body of
Crispina Saludo so much so that it had to be withdrawn by C.M.A.S. from
PAL. The body of Crispina Saludo had been shipped to Mexico. The
casket containing the remains of Crispina Saludo was transshipped from
Mexico and arrived in San Francisco the following day on board American
Airlines. It was immediately loaded by PAL on its flight for Manila.
The foregoing points at C.M.A.S., not defendant TWA much less
defendant PAL, as the ONE responsible for the switching or mix-up of
the two bodies at the Chicago Airport terminal, and started a chain
reaction of the misshipment of the body of Crispina Saludo and a oneday delay in the delivery thereof to its destination. 40
Verily, no amount of inspection by respondent airline companies could have guarded
against the switching that had already taken place. Or, granting that they could have
opened the casket to inspect its contents, private respondents had no means of
ascertaining whether the body therein contained was indeed that of Crispina Saludo
except, possibly, if the body was that of a male person and such fact was visually
apparent upon opening the casket. However, to repeat, private respondents had no
authority to unseal and open the same nor did they have any reason or justification to
resort thereto.
It is the right of the carrier to require good faith on the part of those persons who deliver
goods to be carried, or enter into contracts with it, and inasmuch as the freight may
depend on the value of the article to be carried, the carrier ordinarily has the right to
inquire as to its value. Ordinarily, too, it is the duty of the carrier to make inquiry as to
the general nature of the articles shipped and of their value before it consents to carry
them; and its failure to do so cannot defeat the shipper's right to recovery of the full
value of the package if lost, in the absence of showing of fraud or deceit on the part of
the shipper. In the absence of more definite information, the carrier has a the right to
accept shipper's marks as to the contents of the package offered for transportation and is
not bound to inquire particularly about them in order to take advantage of a false
classification and where a shipper expressly represents the contents of a package to be of
a designated character, it is not the duty of the carrier to ask for a repetition of the
statement nor disbelieve it and open the box and see for itself. 41 However, where a
common carrier has reasonable ground to suspect that the offered goods are of a
dangerous or illegal character, the carrier has the right to know the character of such

goods and to insist on an inspection, if reasonable and practical under the circumstances,
as a condition of receiving and transporting such goods. 42
It can safely be said then that a common carrier is entitled to fair representation of the
nature and value of the goods to be carried, with the concomitant right to rely thereon,
and further noting at this juncture that a carrier has no obligation to inquire into the
correctness or sufficiency of such information. 43 The consequent duty to conduct an
inspection thereof arises in the event that there should be reason to doubt the veracity of
such representations. Therefore, to be subjected to unusual search, other than the
routinary inspection procedure customarily undertaken, there must exist proof that would
justify cause for apprehension that the baggage is dangerous as to warrant exhaustive
inspection, or even refusal to accept carriage of the same; and it is the failure of the
carrier to act accordingly in the face of such proof that constitutes the basis of the
common carrier's liability. 44
In the case at bar, private respondents had no reason whatsoever to doubt the truth of
the shipper's representations. The airway bill expressly providing that "carrier certifies
goods received below were received for carriage," and that the cargo contained "casketed
human remains of Crispina Saludo," was issued on the basis of such representations. The
reliance thereon by private respondents was reasonable and, for so doing, they cannot be
said to have acted negligently. Likewise, no evidence was adduced to suggest even an iota
of suspicion that the cargo presented for transportation was anything other than what it
was declared to be, as would require more than routine inspection or call for the carrier
to insist that the same be opened for scrutiny of its contents per declaration.
Neither can private respondents be held accountable on the basis of petitioners'
preposterous proposition that whoever brought the cargo to the airport or loaded it on
the airplane did so as agent of private respondents, so that even if CMAS whose services
were engaged for the transit arrangements for the remains was indeed at fault, the
liability therefor would supposedly still be attributable to private respondents.
While we agree that the actual participation of CMAS has been sufficiently and correctly
established, to hold that it acted as agent for private respondents would be both an
inaccurate appraisal and an unwarranted categorization of the legal position it held in the
entire transaction.
It bears repeating that CMAS was hired to handle all the necessary shipping arrangements
for the transportation of the human remains of Crispina Saludo to Manila. Hence, it was to
CMAS that the Pomierski & Son Funeral Home, as shipper, brought the remains of
petitioners' mother for shipment, with Maria Saludo as consignee. Thereafter, CMAS
booked the shipment with PAL through the carrier's agent, Air Care International. 45 With
its aforestated functions, CMAS may accordingly be classified as a forwarder which, by
accepted commercial practice, is regarded as an agent of the shipper and not of the
carrier. As such, it merely contracts for the transportation of goods by carriers, and has no
interest in the freight but receives compensation from the shipper as his agent. 46
At this point, it can be categorically stated that, as culled from the findings of both the
trial court and appellate courts, the entire chain of events which culminated in the
present controversy was not due to the fault or negligence of private respondents. Rather,
the facts of the case would point to CMAS as the culprit. Equally telling of the more likely

possibility of CMAS' liability is petitioners' letter to and demanding an explanation from

CMAS regarding the statement of private respondents laying the blame on CMAS for the
incident, portions of which, reading as follows:
. . . we were informed that the unfortunate a mix-up occurred due to
your negligence. . . .
Likewise, the two airlines pinpoint the responsibility upon your agents.
Evidence were presented to prove that allegation.
On the face of this overwhelming evidence we could and should have
filed a case against you. . . . 47
clearly allude to CMAS as the party at fault. This is tantamount to an admission by
petitioners that they consider private respondents without fault, or is at the very least
indicative of the fact that petitioners entertained serious doubts as to whether herein
private respondents were responsible for the unfortunate turn of events.
Undeniably, petitioners' grief over the death of their mother was aggravated by the
unnecessary inconvenience and anxiety that attended their efforts to bring her body
home for a decent burial. This is unfortunate and calls for sincere commiseration with
petitioners. But, much as we would like to give them consolation for their undeserved
distress, we are barred by the inequity of allowing recovery of the damages prayed for by
them at the expense of private respondents whose fault or negligence in the very acts
imputed to them has not been convincingly and legally demonstrated.
Neither are we prepared to delve into, much less definitively rule on, the possible liability
of CMAS as the evaluation and adjudication of the same is not what is presently at issue
here and is best deferred to another time and addressed to another forum.
II. Petitioners further fault the Court of Appeals for ruling that there was no contractual
breach on the part of private respondents as would entitle petitioners to damages.
Petitioners hold that respondent TWA, by agreeing to transport the remains of petitioners'
mother on its Flight 131 from Chicago to San Francisco on October 27, 1976, made itself a
party to the contract of carriage and, therefore, was bound by the terms of the issued
airway bill. When TWA undertook to ship the remains on its Flight 603, ten hours earlier
than scheduled, it supposedly violated the express agreement embodied in the airway
bill. It was allegedly this breach of obligation which compounded, if not directly caused,
the switching of the caskets.
In addition, petitioners maintain that since there is no evidence as to who placed the
body on board Flight 603, or that CMAS actually put the cargo on that flight, or that the
two caskets at the Chicago airport were to be transported by the same airline, or that
they came from the same funeral home, or that both caskets were received by CMAS,
then the employees or agents of TWA presumably caused the mix-up by loading the wrong
casket on the plane. For said error, they contend, TWA must necessarily be presumed
negligent and this presumption of negligence stands undisturbed unless rebutting
evidence is presented to show that the switching or misdelivery was due to circumstances
that would exempt the carrier from liability.

Private respondent TWA professes otherwise. Having duly delivered or transferred the
cargo to its co-respondent PAL on October 27, 1976 at 2:00 P.M., as supported by the TWA
Transfer Manifest, TWA faithfully complied with its obligation under the airway bill. Said
faithful compliance was not affected by the fact that the remains were shipped on an
earlier flight as there was no fixed time for completion of carriage stipulated on.
Moreover, the carrier did not undertake to carry the cargo aboard any specified aircraft,
in view of the condition on the back of the airway bill which provides:
CONDITIONS OF CONTRACT
xxx xxx xxx
It is agreed that no time is fixed for the completion of carriage
hereunder and that Carrier may without notice substitute alternate
carriers or aircraft. Carrier assumes no obligation to carry the goods by
any specified aircraft or over any particular route or routes or to make
connection at any point according to any particular schedule, and
Carrier is hereby authorized to select, or deviate from the route or
routes of shipment, notwithstanding that the same may be stated on the
face hereof. The shipper guarantees payment of all charges and
advances. 48
Hence, when respondent TWA shipped the body on earlier flight and on a different
aircraft, it was acting well within its rights. We find this argument tenable.
The contention that there was contractual breach on the part of private respondents is
founded on the postulation that there was ambiguity in the terms of the airway bill,
hence petitioners' insistence on the application of the rules on interpretation of contracts
and documents. We find no such ambiguity. The terms are clear enough as to preclude the
necessity to probe beyond the apparent intendment of the contractual provisions.
The hornbook rule on interpretation of contracts consecrates the primacy of the intention
of the parties, the same having the force of law between them. When the terms of the
agreement are clear and explicit, that they do not justify an attempt to read into any
alleged intention of the parties, the terms are to be understood literally just as they
appear on the face of the contract. 49 The various stipulations of a contract shall be
interpreted together 50 and such a construction is to be adopted as will give effect to all
provisions thereof. 51 A contract cannot be construed by parts, but its clauses should be
interpreted in relation to one another. The whole contract must be interpreted or read
together in order to arrive at its true meaning. Certain stipulations cannot be segregated
and then made to control; neither do particular words or phrases necessarily determine
the character of a contract. The legal effect of the contract is not to be determined alone
by any particular provision disconnected from all others, but in the ruling intention of the
parties as gathered from all the language they have used and from their contemporaneous
and subsequent acts. 52
Turning to the terms of the contract at hand, as presented by PAL Air Waybill No. 07901180454, respondent court approvingly quoted the trial court's disquisition on the
aforequoted condition appearing on the reverse side of the airway bill and its disposition
of this particular assigned error:

The foregoing stipulation fully answers plaintiffs' objections to the oneday delay and the shipping of the remains in TWA Flight 603 instead of
TWA Flight 131. Under the stipulation, parties agreed that no time was
fixed to complete the contract of carriage and that the carrier may,
without notice, substitute alternate carriers or aircraft. The carrier did
not assume the obligation to carry the shipment on any specified
aircraft.
xxx xxx xxx
Furthermore, contrary to the claim of plaintiffs-appellants, the
conditions of the Air Waybill are big enough to be read and noticed.
Also, the mere fact that the cargo in question was shipped in TWA Flight
603, a flight earlier on the same day than TWA Flight 131, did not in any
way cause or add to the one-day delay complained of and/or the
switching or mix-up of the bodies. 53
Indubitably, that private respondent can use substitute aircraft even without notice and
without the assumption of any obligation whatsoever to carry the goods on any specified
aircraft is clearly sanctioned by the contract of carriage as specifically provided for under
the conditions thereof.
Petitioners' invocation of the interpretative rule in the Rules of Court that written words
control printed words in documents, 54 to bolster their assertion that the typewritten
provisions regarding the routing and flight schedule prevail over the printed conditions, is
tenuous. Said rule may be considered only when there is inconsistency between the
written and printed words of the contract.
As previously stated, we find no ambiguity in the contract subject of this case that would
call for the application of said rule. In any event, the contract has provided for such a
situation by explicitly stating that the above condition remains effective "notwithstanding
that the same (fixed time for completion of carriage, specified aircraft, or any particular
route or schedule) may be stated on the face hereof." While petitioners hinge private
respondents' culpability on the fact that the carrier "certifies goods described below were
received for carriage," they may have overlooked that the statement on the face of the
airway bill properly and completely reads
Carrier certifies goods described below were received for
carriage subject to the Conditions on the reverse hereof the goods then
being in apparent good order and condition except as noted
hereon.55 (Emphasis ours.)
Private respondents further aptly observe that the carrier's certification regarding receipt
of the goods for carriage "was of a smaller print than the condition of the Air Waybill,
including Condition No. 5 and thus if plaintiffs-appellants had recognized the former,
then with more reason they were aware of the latter. 56
In the same vein, it would also be incorrect to accede to the suggestion of petitioners
that the typewritten specifications of the flight, routes and dates of departures and
arrivals on the face of the airway bill constitute a special contract which modifies the

printed conditions at the back thereof. We reiterate that typewritten provisions of the
contract are to be read and understood subject to and in view of the printed conditions,
fully reconciling and giving effect to the manifest intention of the parties to the
agreement.
The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a
special contract, a carrier is not an insurer against delay in transportation of goods. When
a common carrier undertakes to convey goods, the law implies a contract that they shall
be delivered at destination within a reasonable time, in the absence, of any agreement as
to the time of delivery. 57 But where a carrier has made an express contract to transport
and deliver property within a specified time, it is bound to fulfill its contract and is liable
for any delay, no matter from what cause it may have arisen. 58 This result logically
follows from the well-settled rule that where the law creates a duty or charge, and the
party is disabled from performing it without any default in himself, and has no remedy
over, then the law will excuse him, but where the party by his own contract creates a
duty or charge upon himself, he is bound to make it good notwithstanding any accident or
delay by inevitable necessity because he might have provided against it by contract.
Whether or not there has been such an undertaking on the part of the carrier to be
determined from the circumstances surrounding the case and by application of the
ordinary rules for the interpretation of contracts. 59
Echoing the findings of the trial court, the respondent court correctly declared that
In a similar case of delayed delivery of air cargo under a very similar
stipulation contained in the airway bill which reads: "The carrier does
not obligate itself to carry the goods by any specified aircraft or on a
specified time. Said carrier being hereby authorized to deviate from the
route of the shipment without any liability therefor", our Supreme Court
ruled that common carriers are not obligated by law to carry and to
deliver merchandise, and persons are not vested with the right to
prompt delivery, unless such common carriers previously assume the
obligation. Said rights and obligations are created by a specific contract
entered into by the parties (Mendoza vs. PAL, 90 Phil. 836).
There is no showing by plaintiffs that such a special or specific contract
had been entered into between them and the defendant airline
companies.
And this special contract for prompt delivery should call the attention of
the carrier to the circumstances surrounding the case and the
approximate amount of damages to be suffered in case of delay (See
Mendoza vs. PAL, supra). There was no such contract entered into in the
instant case.60
Also, the theory of petitioners that the specification of the flights and dates of departure
and arrivals constitute a special contract that could prevail over the printed stipulations
at the back of the airway bill is vacuous. To countenance such a postulate would unduly
burden the common carrier for that would have the effect of unilaterally transforming
every single bill of lading or trip ticket into a special contract by the simple expedient of
filling it up with the particulars of the flight, trip or voyage, and thereby imposing upon

the carrier duties and/or obligations which it may not have been ready or willing to
assume had it been timely, advised thereof.
Neither does the fact that the challenged condition No. 5 was printed at the back of the
airway bill militate against its binding effect on petitioners as parties to the contract, for
there were sufficient indications on the face of said bill that would alert them to the
presence of such additional condition to put them on their guard. Ordinary prudence on
the part of any person entering or contemplating to enter into a contract would prompt
even a cursory examination of any such conditions, terms and/or stipulations.
There is a holding in most jurisdictions that the acceptance of a bill of lading without
dissent raises a presumption that all terms therein were brought to the knowledge of the
shipper and agreed to by him, and in the absence of fraud or mistake, he is estopped from
thereafter denying that he assented to such terms. This rule applies with particular force
where a shipper accepts a bill of lading with full knowledge of its contents, and
acceptance under such circumstances makes it a binding contract. In order that any
presumption of assent to a stipulation in a bill of lading limiting the liability of a carrier
may arise, it must appear that the clause containing this exemption from liability plainly
formed a part of the contract contained in the bill of lading. A stipulation printed on the
back of a receipt or bill of lading or on papers attached to such receipt will be quite as
effective as if printed on its face, if it is shown that the consignor knew of its terms.
Thus, where a shipper accepts a receipt which states that its conditions are to be found
on the back, such receipt comes within the general rule, and the shipper is held to have
accepted and to be bound by the conditions there to be found. 61
Granting arguendo that Condition No. 5 partakes of the nature of a contract of adhesion
and as such must be construed strictly against the party who drafted the same or gave
rise to any ambiguity therein, it should be borne in mind that a contract of adhesion may
be struck down as void and unenforceable, for being subversive of public policy, only
when the weaker party is imposed upon in dealing with the dominant bargaining party and
is reduced to the alternative of taking it or leaving it, completely deprived of the
opportunity to bargain on equal footing. 62However, Ong Yiu vs. Court of Appeals, et
al 63 instructs us that contracts of adhesion are not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, be gives his
consent. Accordingly, petitioners, far from being the weaker party in this situation, duly
signified their presumed assent to all terms of the contract through their acceptance of
the airway bill and are consequently bound thereby. It cannot be gainsaid that petitioners'
were not without several choices as to carriers in Chicago with its numerous airways and
airliner servicing the same.
We wish to allay petitioners' apprehension that Condition No. 5 of the airway bill is
productive of mischief as it would validate delay in delivery, sanction violations of
contractual obligations with impunity or put a premium on breaches of contract.
Just because we have said that condition No. 5 of the airway bill is binding upon the
parties to and fully operative in this transaction, it does not mean, and let this serve as
fair warning to respondent carriers, that they can at all times whimsically seek refuge
from liability in the exculpatory sanctuary of said Condition No. 5 or arbitrarily vary
routes, flights and schedules to the prejudice of their customers. This condition only
serves to insulate the carrier from liability in those instances when changes in routes,

flights and schedules are clearly justified by the peculiar circumstances of a particular
case, or by general transportation practices, customs and usages, or by contingencies or
emergencies in aviation such as weather turbulence, mechanical failure, requirements of
national security and the like. And even as it is conceded that specific routing and other
navigational arrangements for a trip, flight or voyage, or variations therein, generally lie
within the discretion of the carrier in the absence of specific routing instructions or
directions by the shipper, it is plainly incumbent upon the carrier to exercise its rights
with due deference to the rights, interests and convenience of its customers.
A common carrier undertaking to transport property has the implicit duty to carry and
deliver it within reasonable time, absent any particular stipulation regarding time of
delivery, and to guard against delay. In case of any unreasonable delay, the carrier shall
be liable for damages immediately and proximately resulting from such neglect of
duty. 64 As found by the trial court, the delay in the delivery of the remains of Crispina
Saludo, undeniable and regrettable as it was, cannot be attributed to the fault,
negligence or malice of private respondents, 65 a conclusion concurred in by respondent
court and which we are not inclined to disturb.
We are further convinced that when TWA opted to ship the remains of Crispina Saludo on
an earlier flight, it did so in the exercise of sound discretion and with reasonable
prudence, as shown by the explanation of its counsel in his letter of February 19, 1977 in
response to petitioners' demand letter:
Investigation of TWA's handling of this matter reveals that although the
shipment was scheduled on TWA Flight 131 of October 27, 1976, it was
actually boarded on TWA Flight 603 of the same day, approximately 10
hours earlier, in order to assure that the shipment would be received in
San Francisco in sufficient time for transfer to PAL. This transfer was
effected in San Francisco at 2:00 P.M. on October 27, 1976. 66
Precisely, private respondent TWA knew of the urgency of the shipment by reason of this
notation on the lower portion of the airway bill: "All documents have been certified.
Human remains of Cristina (sic) Saludo. Please return bag first available flight to SFO."
Accordingly, TWA took it upon itself to carry the remains of Crispina Saludo on an earlier
flight, which we emphasize it could do under the terms of the airway bill, to make sure
that there would be enough time for loading said remains on the transfer flight on board
PAL.
III. Petitioners challenge the validity of respondent court's finding that private
respondents are not liable for tort on account of the humiliating, arrogant and indifferent
acts of their officers and personnel. They posit that since their mother's remains were
transported ten hours earlier than originally scheduled, there was no reason for private
respondents' personnel to disclaim knowledge of the arrival or whereabouts of the same
other than their sheer arrogance, indifference and extreme insensitivity to the feelings of
petitioners. Moreover, being passengers and not merely consignors of goods, petitioners
had the right to be treated with courtesy, respect, kindness and due consideration.
In riposte, TWA claims that its employees have always dealt politely with all clients,
customers and the public in general. PAL, on the other hand, declares that in the

performance of its obligation to the riding public, other customers and clients, it has
always acted with justice, honesty, courtesy and good faith.
Respondent appellate court found merit in and reproduced the trial court's refutation of
this assigned error:
About the only evidence of plaintiffs that may have reference to the
manner with which the personnel of defendants treated the two
plaintiffs at the San Francisco Airport are the following pertinent
portions of Maria Saludo's testimony:

comfort each other. I told him anyway that was a

shortest flight from Chicago to California. We will be
with our mother on this longer flight. So, we checked
with the PAL.
Q What did you find?
A We learned, Yes, my Mom would be on the flight.
Q Who was that brother?

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

A Saturnino Saludo.

A I immediately went to the TWA counter and I

inquired about whether my mother was there or if'
they knew anything about it.

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

Q What was the answer?

A They said they do not know. So, we waited.
Q About what time was that when you reached San
Francisco from Chicago?
A I think 5 o'clock. Somewhere around that in the
afternoon.
Q You made inquiry it was immediately thereafter?
A Right after we got off the plane.
Q Up to what time did you stay in the airport to wait
until the TWA people could tell you the whereabouts?
A Sorry, Sir, but the TWA did not tell us anything. We
stayed there until about 9 o'clock. They have not
heard anything about it. They did not say anything.
Q Do you want to convey to the Court that from 5 up
to 9 o'clock in the evening you yourself went back to
the TWA and they could not tell you where the remains
of your mother were?
A Yes sir.
Q And after nine o'clock, what did you do?
A I told my brother my Mom was supposed to be on the
Philippine Airlines flight. "Why don't" we check with
PAL instead to see if she was there?" We tried to

A I do not know the number. It was the evening flight

of the Philippine Airline(s) from San Francisco to
Manila.
Q You took that flight with your mother?
A We were scheduled to, Sir.
Q Now, you could not locate the remains of your
mother in San Francisco could you tell us what did you
feel?
A After we were told that my mother was not there?
Q After you learned that your mother could not fly
with you from Chicago to California?
A Well, I was very upset. Of course, I wanted the
confirmation that my mother was in the West Coast.
The fliqht was about 5 hours from Chicago to
California. We waited anxiously all that time on the
plane. I wanted to be assured about my mother's
remains. But there was nothing and we could not get
any assurance from anyone about it.
Q Your feeling when you reached San Francisco and
you could not find out from the TWA the whereabouts
of the remains, what did you feel?
A Something nobody would be able to describe unless
he experiences it himself. It is a kind of panic. I think
it's a feeling you are about to go crazy. It is something
I do not want to live through again. (Inting, t.s.n.,
Aug. 9, 1983, pp. 14-18).

The foregoing does not show any humiliating or arrogant manner with
which the personnel of both defendants treated the two plaintiffs. Even
their alleged indifference is not clearly established. The initial answer
of the TWA personnel at the counter that they did not know anything
about the remains, and later, their answer that they have not heard
anything about the remains, and the inability of the TWA counter
personnel to inform the two plaintiffs of the whereabouts of the
remains, cannot be said to be total or complete indifference to the said
plaintiffs. At any rate, it is any rude or discourteous conduct,
malfeasance or neglect, the use of abusive or insulting language
calculated to humiliate and shame passenger or had faith by or on the
part of the employees of the carrier that gives the passenger an action
for damages against the carrier (Zulueta vs. Pan American World
Airways, 43 SCRA 397; Air France vs. Carrascoso, et al., 18 SCRA 155;
Lopez, et al. vs. Pan American World Airways, 16 SCRA 431; Northwest
Airlines, Inc. vs. Cuenca, 14 SCRA 1063), and none of the above is
obtaining in the instant case. 67
We stand by respondent court's findings on this point, but only to the extent where it
holds that the manner in which private respondent TWA's employees dealt with petitioners
was not grossly humiliating, arrogant or indifferent as would assume the proportions of
malice or bad faith and lay the basis for an award of the damages claimed. It must
however, be pointed out that the lamentable actuations of respondent TWA's employees
leave much to be desired, particularly so in the face of petitioners' grief over the death of
their mother, exacerbated by the tension and anxiety wrought by the impasse and
confusion over the failure to ascertain over an appreciable period of time what happened
to her remains.

making a more extensive inquiry, by themselves or through their superiors, rather than
just shrug off the problem with a callous and uncaring remark that they had no knowledge
about it. With all the modern communications equipment readily available to them, which
could have easily facilitated said inquiry and which are used as a matter of course by
airline companies in their daily operations, their apathetic stance while not legally
reprehensible is morally deplorable.
Losing a loved one, especially one's, parent, is a painful experience. Our culture accords
the tenderest human feelings toward and in reverence to the dead. That the remains of
the deceased were subsequently delivered, albeit belatedly, and eventually laid in her
final resting place is of little consolation. The imperviousness displayed by the airline's
personnel, even for just that fraction of time, was especially condemnable particularly in
the hour of bereavement of the family of Crispina Saludo, intensified by anguish due to
the uncertainty of the whereabouts of their mother's remains. Hence, it is quite apparent
that private respondents' personnel were remiss in the observance of that genuine human
concern and professional attentiveness required and expected of them.
The foregoing observations, however, do not appear to be applicable or imputable to
respondent PAL or its employees. No attribution of discourtesy or indifference has been
made against PAL by petitioners and, in fact, petitioner Maria Saludo testified that it was
to PAL that they repaired after failing to receive proper attention from TWA. It was from
PAL that they received confirmation that their mother's remains would be on the same
flight to Manila with them.
We find the following substantiation on this particular episode from the deposition of
Alberto A. Lim, PAL's cargo supervisor earlier adverted to, regarding their investigation of
and the action taken on learning of petitioner's problem:

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

ATTY. ALBERTO C. MENDOZA:

The records reveal that petitioners, particularly Maria and Saturnino Saludo, agonized for
nearly five hours, over the possibility of losing their mother's mortal remains, unattended
to and without any assurance from the employees of TWA that they were doing anything
about the situation. This is not to say that petitioners were to be regaled with extra
special attention. They were, however, entitled to the understanding and humane
consideration called for by and commensurate with the extraordinary diligence required
of common carriers, and not the cold insensitivity to their predicament. It is hard to
believe that the airline's counter personnel were totally helpless about the situation.
Common sense would and should have dictated that they exert a little extra effort in

ATTY ALBERTO C. MENDOZA:

Yes.
Mr. Lim, what exactly was your procedure adopted in
your so called investigation?
ALBERTO A. LIM:
I called the lead agent on duty at that time and
requested for a copy of airway bill, transfer manifest
and other documents concerning the shipment.

Then, what?
ALBERTO A. LIM:
They proceeded to analyze exactly where PAL failed, if
any, in forwarding the human remains of Mrs. Cristina
(sic) Saludo. And I found out that there was not (sic)

delay in shipping the remains of Mrs. Saludo to Manila.

Since we received the body from American Airlines on
28 October at 7:45 and we expedited the shipment so
that it could have been loaded on our flight leaving at
9:00 in the evening or just barely one hour and 15
minutes prior to the departure of the aircraft. That is
so (sic) being the case, I reported to Manila these
circumstances. 70
IV. Finally, petitioners insist, as a consequence of the delay in the shipment of their
mother's remains allegedly caused by wilful contractual breach, on their entitlement to
actual, moral and exemplary damages as well as attorney's fees, litigation expenses, and
legal interest.
The uniform decisional tenet in our jurisdiction bolds that moral damages may be
awarded for wilful or fraudulent breach of contract 71 or when such breach is attended by
malice or bad faith. 72 However, in the absence of strong and positive evidence of fraud,
malice or bad faith, said damages cannot be awarded. 73 Neither can there be an award of
exemplary damages 74 nor of attorney's fees 75 as an item of damages in the absence of
proof that defendant acted with malice, fraud or bad faith.
The censurable conduct of TWA's employees cannot, however, be said to have
approximated the dimensions of fraud, malice or bad faith. It can be said to be more of a
lethargic reaction produced and engrained in some people by the mechanically routine
nature of their work and a racial or societal culture which stultifies what would have been
their accustomed human response to a human need under a former and different
ambience.
Nonetheless, the facts show that petitioners' right to be treated with due courtesy in
accordance with the degree of diligence required by law to be exercised by every
common carrier was violated by TWA and this entitles them, at least, to nominal damages
from TWA alone. Articles 2221 and 2222 of the Civil Code make it clear that nominal
damages are not intended for indemnification of loss suffered but for the vindication or
recognition of a right violated of invaded. They are recoverable where some injury has
been done but the amount of which the evidence fails to show, the assessment of
damages being left to the discretion of the court according to the circumstances of the
case. 76 In the exercise of our discretion, we find an award of P40,000.00 as nominal
damages in favor of, petitioners to be a reasonable amount under the circumstances of
this case.
WHEREFORE, with the modification that an award of P40,000.00 as and by way of nominal
damages is hereby granted in favor of petitioners to be paid by respondent Trans World
Airlines, the appealed decision is AFFIRMED in all other respects.

Footnotes
1 Justice Jorge S. Imperial, ponente, with Justices Filemon D. Mendoza and Artemon D.
Luna, concurring; Petition, Annet C; Rollo, 154.
2 Penned by Judge Lucio F. Saavedra; Petition, Annex A; Rollo, 51.
3 Rollo, 159-163.
4 Exhibit G, Bill of Exhibits, 7.
5 Exhibit H, ibid., 9.
6 Original Record, 1.
7 Petition, Annex E; Rollo, 200.
8 Rollo, 16-17.
9 Section 2, Rule 45, Rules of Court.
10 Ramos, et al. vs. Pepsi Cola bottling Co. of the P.I., et al., 19 SCRA 289 (1967); Malaysian
Airline System Bernad vs. Court of Appeals, et al., 156 SCRA 321 (1987).
11 Abellana, et al. vs. Dosdos, etc., et al., 13 SCRA 244 (1965); Uytiepo, et al. vs. Aggabao,
et al., 35 SCRA 186 (1970); Carolina Industries, Inc. vs. CMS Stock Brokerage, Inc., et al., 97
SCRA 734 (1980).
12 Garcia vs. Court of Appeals, et al., 33 SCRA 622 (1970); Sacay vs. Sandiganbayan, 142
SCRA 593 (1986); Manlapaz vs. Court of Appeals, et al., 147 SCRA 236 (1987).
13 Pilar Development Corporation vs. Intermediate Appellate Court, et al., 146 SCRA 215
(1986).
14 Vda. de Arroyo vs. El Beaterio del Santissimo Rosario de Molo, et al, 23 SCRA 525 (1968).
15 Comment of Respondent TWA, 5; Rollo, 206; Comment of Respondent PAL, 10-11; Rollo,
213.
16 Consolidated Reply, ibid., 229.
17 Rollo, 17-26.
18 Exhibit E, Bill of Exhibits, 5; Exhibit 1-PAL, Bill of Exhibits, 32.
19 Rollo, 20.
20 13 Am. Jur. 2d, Carriers 771.
21 4 Alcantara, Commercial Laws of the Philippines, 118 (1987).

SO ORDERED.

22 13 C.J.S., Carriers, 233.

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

23 13 Am. Jur. 2d, Carriers 775.

24 13 C.J.S., Carriers 232.
25 Op. cit., 240-243.

26 Rollo, 160.

53 Rollo, 168-169.

27 Memorandum for Private Respondent PAL, 1-2.

54 Section 13, Rule 130, Rules of Court.

28 Exhibits 2 and 2-A-PAL; Bill of Exhibits, 31.

55 Exhibit E, Bill of Exhibits, 5.

29 Article 1737, Civil Code.

56 Comment of Private Respondent PAL, 9; Rollo, 221.

30 Article 1738, id.

57 13 C.J.S., Carriers 390, 392; Mason vs. Chicago & N.W. Ry. Co., 262 I11. App 580.

31 13 Am. Jur. 2d, Carriers 763-764.

58 13 Am. Jur. 2d, Carriers 854; Chicago & A.R. Co. vs. Kirby, 225 US 155, 56 Led 1033, 32 Sct
648; Harmony vs. Bingham, 12 NY 99.

32 Op. cit., 762-763.

33 Rollo, 163-165.

59 13 C.J.S., Carriers 395; Frey vs. New York Cent., etc., R. Co., 100 N.Y.S. 225, 114 App.
Div. 747.

34 Exhibit 1-TWA, Bill of Exhibits, 33.

60 Rollo, 168-169.

35 Exhibit 3-PAL, ibid., 30.

61 13 Am. Jur. 2d, Carriers 778-779; See Ong Yiu vs. Court of Appeals, et al., 91 SCRA 223
(1979) and Pan American World Airways, Inc. vs. Intermediate Appellate Court, et al., 164
SCRA 268 (1988).

36 Exhibit 2-PAL, ibid., 101.

37 Exhibit 5-PAL, ibid., 39-41.
38 Exhibit 5-PAL, ibid., 58-63, 71-73.
39 Rollo, 229-230.

62 Qua Chee Gan vs. Law Union and Rock Insurance Co., Ltd., etc., 98 Phil. 85 (1955);
Fieldman's Insurance Co., Inc. vs. Vda. de Songco, 25 SCRA 70 (1968); Sweet Lines, Inc. vs.
Teves, 83 SCRA 361 (1978).
63 Supra, Fn. 61.

40 Ibid., 166-167.

64 Chicago & A.R. Co. vs. Kirby, supra; Warren vs. Portland. Terminal Co., 121 Me 157, 116 A
411, 26 ALR 304.

41 13 C.J.S., Carriers 148.

65 Petition, Annex A; Rollo, 79.

42 13 Am. Jur. 2d, Carriers 751.

66 Exhibit F and Exhibit 4-TWA, Bill of Exhibits, 6.

43 Manuel ,A. Barcelona, Liabilities of Carriers: Airline Practices and Procedures, in

CURRENT ISSUES AFFECTING AIRLINES IN THE PHILIPPINES, 103 (1989).

67 Petition, Annex C; Rollo, 169-172.

44 Nocum vs. Lagupa Tayabas Bus Co., 30 SCRA 69 (1969).

68 Alitalia Airways vs. Court of Appeals, et al., 187 SCRA 763 (1990); cf. Air France vs.
Carrascoso, et al., 18 SCRA 168 (1966).

45 Rollo, 160.

69 See Philippine Airlines, Inc. vs. Court of Appeals, et al., 188 SCRA 461 (1990).

46 13 C.J.S., Carriers 41; 13 Am. Jur. 2d, Carriers 572.

70 Exhibit 5-PAL, 50-51; Bill of Exhibits, 83-84.

47 Annex 2, Opposition to Joint Motion to Dismiss, 1-2, Original Record, 253-254;

Memorandum of Private Respondent TWA, 250.

71 Article 2220, Civil Code; Tamayo vs. Aquino, et al., 105 Phil. 949 (1959); China Airlines
Ltd. vs. Court of Appeals, et al., 169 SCRA 226 (1989).

48 Exhibit 2-A-TWA, Bill of Exhibits, 26.

72 Perez vs. Court of Appeals, et al., 13 SCRA 137 (1965); Sabena Belgian World Airlines vs.
Court of Appeals, et al., 171 SCRA 620 (1989).

49 Article 1370, Civil Code; Philippine Airlines vs. Philippine Airlines Employees Association,
70 SCRA 180(1976); Government Service Insurance System vs. Court of Appeals, et al., 145
SCRA 311 (1986); Honrado, Jr. vs. Court of Appeals, et al., 198 SCRA 326 (1991).
50 Article 1374, Civil Code.
51 See Section 9, Rule 130, Rules of Court.
52 Ruiz, et al. vs. Sheriff, et al., 34 SCRA 83 (1970); National Union Fire Insurance Company
of Pittsburg, et al. vs. Stolt-Nielsen Philippines, Inc., et al., 184 SCRA 682 (1990).

73 Coscolluela vs. Valderrama, 2 SCRA 1095 (1961); Pan American World Airways, Inc. vs.
Intermediate Appellate Court, et al., 186 SCRA 687 (1990).
74 Article 2232, Civil Code; Davila, et al. vs. Philippine Airlines, 49 SCRA 497 (1973);
Philippine National Bank vs. Court of Appeals, et al., 159 SCRA 433 (1988); Esguerra vs. Court
of Appeals, et al., 173 SCRA 1 (1989).

75 Article 2208, Civil Code; Federation of United NAMARCO Distributors, Inc. et al. vs.
National Marketing Corporation, 4 SCRA 867 (1962); Songcuan vs. Intermediate Appellate
Court, et al., 191 SCRA 28 (1990).

Whether or not the delay in the delivery of the casketed remains of petitioners mother
was due to the fault of respondent airline companies

76 See Northwest Airlines, Inc. vs. Cuenca, et al., 14 SCRA 1063 (1965); Robes-Francisco
Realty & Development Corporation vs. Court of First Instance of Rizal (Branch XXXIV), et al.,
84 SCRA 59 (1978); Alitalia vs. Intermediate Appellate Court, et al., 192 SCRA 9 (1990).

Held:

Saludo Jr. v. CA
Facts:
Crispina Galdo Saludo, mother of the petitioners, died in Chicago, Illinois. Pomierski and
Son Funeral Home of Chicago, made the necessary preparations and arrangements for the
shipment of the remains from Chicago to the Philippines. Pomierski brought the remains
to Continental Mortuary Air Services (CMAS) at the Chicago Airport which made the
necessary arrangements such as flights, transfers, etc. CMAS booked the shipment with
PAL thru the carriers agent Air Care International. PAL Airway Bill Ordinary was issued
wherein the requested routing was from Chicago to San Francisco on board Trans World
Airline (TWA) and from San Francisco to Manila on board PAL.
Salvacion (one of the petitioners), upon arrival at San Francisco, went to the TWA to
inquire about her mothers remains. But she was told they did not know anything about it.
She then called Pomierski that her mothers remains were not at the West Coast terminal.
Pomierski immediately called CMAS which informed that the remains were on a plane to
Mexico City, that there were two bodies at the terminal, and somehow they were
switched. CMAS called and told Pomierski that they were sending the remains back to
California via Texas.
Petitioners filed a complaint against TWA and PAL fir the misshipment and delay in the
delay of the cargo containing the remains of the late Crispina Saludo. Petitioners alleged
that private respondents received the casketed remains of Crispina on October 26, 1976,
as evidenced by the issuance of PAL Airway Bill by Air Care and from said date, private
respondents were charged with the responsibility to exercise extraordinary diligence so
much so that the alleged switching of the caskets on October 27, 1976, or one day after
the private respondents received the cargo, the latter must necessarily be liable.
Issues:
Whether or not there was delivery of the cargo upon mere issuance of the airway bill

NO to both, but TWA was held to pay petitioners nominal damages of P40,000 for its
violation of the degree of diligence required by law to be exercised by every common
carrier
Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for
transportation but, when issued, is competent and prima facie, but not conclusive,
evidence of delivery to the carrier. A bill of lading, when properly executed and delivered
to a shipper, is evidence that the carrier has received the goods described therein for
shipment. Except as modified by statute, it is a general rule as to the parties to a
contract of carriage of goods in connection with which a bill of lading is issued reciting
that goods have been received for transportation, that the recital being in essence a
receipt alone, is not conclusive, but may be explained, varied or contradicted by parol or
other evidence.
In other words, on October 26, 1976 the cargo containing the casketed remains of Crispina
Saludo was booked for PAL Flight Number PR-107 leaving San Francisco for Manila on
October 27, 1976, PAL Airway Bill No. 079-01180454 was issued, not as evidence of receipt
of delivery of the cargo on October 26, 1976, but merely as a confirmation of the booking
thus made for the San Francisco-Manila flight scheduled on October 27, 1976. Actually, it
was not until October 28, 1976 that PAL received physical delivery of the body at San
Francisco, as duly evidenced by the Interline Freight Transfer Manifest of the American
Airline Freight System and signed for by Virgilio Rosales at 1945H, or 7:45 P.M. on said
date.
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary
responsibility of the common carrier begins from the time the goods are delivered to the
carrier. This responsibility remains in full force and effect even when they are temporarily
unloaded or stored in transit, unless the shipper or owner exercises the right of stoppage
in transitu, and terminates only after the lapse of a reasonable time for the acceptance,
of the goods by the consignee or such other person entitled to receive them. And, there is
delivery to the carrier when the goods are ready for and have been placed in the
exclusive possession, custody and control of the carrier for the purpose of their
immediate transportation and the carrier has accepted them. Where such a delivery has
thus been accepted by the carrier, the liability of the common carrier commences eo
instanti.
Hence, while we agree with petitioners that the extraordinary diligence statutorily
required to be observed by the carrier instantaneously commences upon delivery of the
goods thereto, for such duty to commence there must in fact have been delivery of the

cargo subject of the contract of carriage. Only when such fact of delivery has been
unequivocally established can the liability for loss, destruction or deterioration of goods
in the custody of the carrier, absent the excepting causes under Article 1734, attach and
the presumption of fault of the carrier under Article 1735 be invoked.

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

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

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

The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a
special contract, a carrier is not an insurer against delay in transportation of goods. When
a common carrier undertakes to convey goods, the law implies a contract that they shall
be delivered at destination within a reasonable time, in the absence, of any agreement as
to the time of delivery. But where a carrier has made an express contract to transport and
deliver property within a specified time, it is bound to fulfill its contract and is liable for
any delay, no matter from what cause it may have arisen. This result logically follows
from the well-settled rule that where the law creates a duty or charge, and the party is
disabled from performing it without any default in himself, and has no remedy over, then
the law will excuse him, but where the party by his own contract creates a duty or charge
upon himself, he is bound to make it good notwithstanding any accident or delay by
inevitable necessity because he might have provided against it by contract. Whether or
not there has been such an undertaking on the part of the carrier to be determined from
the circumstances surrounding the case and by application of the ordinary rules for the
interpretation of contracts.
Echoing the findings of the trial court, the respondent court correctly declared that
In a similar case of delayed delivery of air cargo under a very similar stipulation
contained in the airway bill which reads: "The carrier does not obligate itself to
carry the goods by any specified aircraft or on a specified time. Said carrier
being hereby authorized to deviate from the route of the shipment without any
liability therefor", our Supreme Court ruled that common carriers are not
obligated by law to carry and to deliver merchandise, and persons are not vested
with the right to prompt delivery, unless such common carriers previously assume
the obligation. Said rights and obligations are created by a specific contract
entered into by the parties (Mendoza vs. PAL, 90 Phil. 836).
There is no showing by plaintiffs that such a special or specific contract had been
entered into between them and the defendant airline companies.

EN BANC
G.R. No. L-22425

August 31, 1965

NORTHWEST AIRLINES, INC., petitioner,

vs.
NICOLAS L. CUENCA and COURT OF APPEALS (SPECIAL SIXTH DIVISION), respondents.
Ross, Selph and Carrascoso for petitioner.
Bengzon, Villegas and Zarraga for respondents.
CONCEPCION, J.:
This is an action for damages for alleged breach of contract. After appropriate
proceedings the Court of First Instance of Manila, in which the case was originally filed,
rendered judgment sentencing defendant Northwest Airlines, Inc. hereinafter referred
to as petitioner to pay to plaintiff Cuenca hereinafter referred to as respondent
the sum of P20,000 as moral damages, together with the sum of P5,000 as exemplary
damages, with legal interest thereon from the date of the filing of complaint," December
12, 1959, "until fully paid, plus the further sum of P2,000 as attorney's fees and expenses
of litigation." On appeal taken by petitioner, said decision was affirmed by the Court of
Appeals, except as to the P5,000.00 exemplary damages, which was eliminated, and the
P20,000.00 award for moral damages, which was converted into nominal damages. The
case is now before us on petition for review by certiorari filed by petitioner, upon the
ground that the lower court has erred: (1) in holding that the Warsaw Convention of
October 12, 1929, relative to transportation by air is not in force in the Philippines; (2) in
not holding that respondent has no cause of action; and (3) in awarding P20,000 as
nominal damages.
We deem it unnecessary to pass upon the first assignment of error because the same is
the basis of the second assignment of error, and the latter is devoid of merit, even if we

assumed the former to be well-taken. Indeed the second assignment of error is predicated
upon Articles 17, 18 and 19 of said Convention, reading:
ART. 17. The carrier shall be liable for damages sustained in the event of the
death or wounding of a passenger or any other bodily injury suffered by a
passenger, if the accident which caused the damage so sustained took place on
board the aircraft or in the course of any of the operations of embarking or
disembarking.
ART. 18. (1) The carrier shall be liable for damage sustained in the event of the
destruction or loss of, or of damage to, any checked baggage, or any goods, if
the occurrence which caused the damage so sustained took place during the
transportation by air.
(2) The transportation by air within the meaning of the preceding paragraph shall
comprise the period during which the baggage or goods are in charge of the
carrier, whether in an airport or on board an aircraft, or, in the case of a landing
outside an airport, in any place whatsoever.
(3) The period of the transportation by air shall not extend to any transportation
by land, by sea, or by river performed outside an airport. If, however, such
transportation takes place in the performance of a contract for transportation by
air, for the purpose of loading, delivery, or transhipment, any damage is
presumed, subject to proof to the contrary, to have been the result of an event
which took place during the transportation by air.
ART. 19. The carrier shall be liable for damage occasioned by delay in the
transportation by air of passengers, baggage, or goods.
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the
event of death of a passenger or injury suffered by him, or of destruction or loss of, or
damage to any checked baggage or any goods, or of delay in the transportation by air of
passengers, baggage or goods. This pretense is not borne out by the language of said
Articles. The same merely declare the carrier liable for damages in the enumerated cases,
if the conditions therein specified are present. Neither said provisions nor others in the
aforementioned Convention regulate or exclude liability for other breaches of contract by
the carrier. Under petitioner's theory, an air carrier would be exempt from any liability for
damages in the event of its absolute refusal, in bad faith, to comply with a contract of
carriage, which is absurd.
The third assignment of error is based upon Medina vs. Cresencia (52 Off. Gaz. 4606),
and Quijano vs. Philippine Air Lines (CA-G.R. No. 21804-R). Neither case is, however, in
point, aside from the fact that the latter is not controlling upon us. In the first case, this
Court eliminated a P10,000 award for nominal damages, because the aggrieved party had
already been awarded P6,000 as compensatory damages, P30,000 as moral damages and
P10,000 as exemplary damages, and "nominal damages cannot co-exist with compensatory
damages." In the case at bar, the Court of Appeals has adjudicated no such compensatory,
moral and exemplary damages to respondent herein.

Moreover, there are special reasons why the P20,000.00 award in favor of respondent
herein is justified, even if said award were characterized as nominal damages. When his
contract of carriage was violated by the petitioner, respondent held the office of
Commissioner of Public Highways of the Republic of the Philippines. Having boarded
petitioner's plane in Manila with a first class ticket to Tokyo, he was, upon arrival at
Okinawa, transferred to the tourist class compartment. Although he revealed that he was
traveling in his official capacity as official delegate of the Republic to a conference in
Tokyo, an agent of petitioner rudely compelled him in the presence of other passengers to
move, over his objection, to the tourist class, under threat of otherwise leaving him in
Okinawa. In order to reach the conference on time, respondent had no choice but to
obey.
It is true that said ticket was marked "W/L," but respondent's attention was not called
thereto. Much less was he advised that "W/L" meant "wait listed." Upon the other hand,
having paid the first class fare in full and having been given first class accommodation as
he took petitioner's plane in Manila, respondent was entitled to believe that this was a
confirmation of his first class reservation and that he would keep the same until his
ultimate destination, Tokyo. Then, too, petitioner has not tried to explain or even alleged
that the person to whom respondent's first class seat was given had a better right thereto.
In other words, since the offense had been committed with full knowledge of the fact
that respondent was an official representative of the Republic of the Philippines, the sum
of P20,000 awarded as damages may well be considered as merely nominal. At any rate,
considering that petitioner's agent had acted in a wanton, reckless and oppressive
manner, said award may also be considered as one for exemplary damages.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the
petitioner. It is so ordered.
Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Dizon, Regala, Makalintal and Zaldivar,
JJ., concur.
Bengzon, J.P., took no part.
Barrera, J., is on leave.
THIRD DIVISION
G.R. No. 70462 August 11, 1988
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS
and ARCHER PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.

CORTES, J.:

Before the Court is a petition filed by an international air carrier seeking to limit its
liability for lost baggage, containing promotional and advertising materials for films to be
exhibited in Guam and the U.S.A., clutch bags, barong tagalogs and personal belongings,
to the amount specified in the airline ticket absent a declaration of a higher valuation
and the payment of additional charges.

Subsequently, Pangan was informed that his name was not in the
manifest and so he could not take Flight No. 842 in the economy class.
Since there was no space in the economy class, plaintiff Pangan took the
first class because he wanted to be on time in Guam to comply with his
commitment, paying an additional sum of $112.00.

The undisputed facts of the case, as found by the trial court and adopted by the appellate
court, are as follows:

When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his
two luggages did not arrive with his flight, as a consequence of which
his agreements with Slutchnick and Quesada for the exhibition of the
films in Guam and in the United States were cancelled (Exh. L).
Thereafter, he filed a written claim (Exh. J) for his missing luggages.

On April 25, 1978, plaintiff Rene V. Pangan, president and general

manager of the plaintiffs Sotang Bastos and Archer Production while in
San Francisco, Califonia and Primo Quesada of Prime Films, San
Francisco, California, entered into an agreement (Exh. A) whereby the
former, for and in consideration of the amount of US $2,500.00 per
picture, bound himself to supply the latter with three films. 'Ang
Mabait, Masungit at ang Pangit,' 'Big Happening with Chikiting and Iking,'
and 'Kambal Dragon' for exhibition in the United States. It was also their
agreement that plaintiffs would provide the necessary promotional and
advertising materials for said films on or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where
he contacted Leo Slutchnick of the Hafa Adai Organization. Plaintiff
Pangan likewise entered into a verbal agreement with Slutchnick for the
exhibition of two of the films above-mentioned at the Hafa Adai Theater
in Guam on May 30, 1978 for the consideration of P7,000.00 per picture
(p. 11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide the
necessary promotional and advertising materials for said films on or
before the exhibition date on May 30,1978.
By virtue of the above agreements, plaintiff Pangan caused the
preparation of the requisite promotional handbills and still pictures for
which he paid the total sum of P12,900.00 (Exhs. B, B-1, C and C1).
Likewise in preparation for his trip abroad to comply with his contracts,
plaintiff Pangan purchased fourteen clutch bags, four capiz lamps and
four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E,
and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's
Manila Office, through the Your Travel Guide, an economy class airplane
ticket with No. 0269207406324 (Exh. G) for passage from Manila to
Guam on defendant's Flight No. 842 of May 27,1978, upon payment by
said plaintiff of the regular fare. The Your Travel Guide is a tour and
travel office owned and managed by plaintiffs witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was
at the defendant's ticket counter at the Manila International Airport and
presented his ticket and checked in his two luggages, for which he was
given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and H-1).
The two luggages contained the promotional and advertising materials,
the clutch bags, barong tagalog and his personal belongings.

Upon arrival in the Philippines, Pangan contacted his lawyer, who made
the necessary representations to protest as to the treatment which he
received from the employees of the defendant and the loss of his two
luggages (Exh. M, O, Q, S, and T). Defendant Pan Am assured plaintiff
Pangan that his grievances would be investigated and given its
immediate consideration (Exhs. N, P and R). Due to the defendant's
failure to communicate with Pangan about the action taken on his
protests, the present complaint was filed by the plaintiff. (Pages 4-7,
Record On Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and
rendered judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all the
plaintiffs the sum of P83,000.00, for actual damages, with interest
thereon at the rate of 14% per annum from December 6, 1978, when the
complaint was filed, until the same is fully paid, plus the further sum of
P10,000.00 as attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff
Rene V. Pangan the sum of P8,123.34, for additional actual damages,
with interest thereon at the rate of 14% per annum from December 6,
1978, until the same is fully paid;
(3) Dismissing the counterclaim interposed by defendant Pan American
World Airways, Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to pay the
costs of suit. [Rollo, pp. 106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their
respective memoranda. In due time the case was submitted for decision.

In assailing the decision of the Intermediate Appellate Court petitioner assigned the
following errors:
1. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages beyond the limitation of liability set forth in the Warsaw Convention and
the contract of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages consisting of alleged lost profits in the face of this Court's ruling
concerning special or consequential damages as set forth inMendoza v.
Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim

NOTICE OF BAGGAGE LIABILITY LIMITATIONS

Liability for loss, delay, or damage to baggage is limited as follows
unless a higher value is declared in advance and additional charges are
paid: (1)for most international travel (including domestic portions of
international journeys) to approximately $9.07 per pound ($20.00 per
kilo) for checked baggage and $400 per passenger for unchecked
baggage: (2) for travel wholly between U.S. points, to $750 per
passenger on most carriers (a few have lower limits). Excess valuation
may not be declared on certain types of valuable articles. Carriers
assume no liability for fragile or perishable articles. Further information
may be obtained from the carrier. [Emphasis supplied.].

NOTICE

On the basis of the foregoing stipulations printed at the back of the ticket, petitioner
contends that its liability for the lost baggage of private respondent Pangan is limited to
$600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for his baggage and
pay the corresponding additional charges.

If the passenger's journey involves an ultimate destination or stop in a

country other than the country of departure the Warsaw Convention
may be applicable and the Convention governs and in most cases limits
the liability of carriers for death or personal injury and in respect of loss
of or damage to baggage. See also notice headed "Advice to
International Passengers on Limitation of Liability.

To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R.
No. L-40597, June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a
printed stipulation at the back of an airline ticket limiting the liability of the carrier for
lost baggage to a specified amount and ruled that the carrier's liability was limited to said
amount since the passenger did not declare a higher value, much less pay additional
charges.

CONDITIONS OF CONTRACT

We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the
Court, through Justice Melencio Herrera, stated:

1. The airline ticket (Exh. "G') contains the following conditions:

1. As used in this contract "ticket" means this passenger ticket and

baggage check of which these conditions and the notices form part,
"carriage" is equivalent to "transportation," "carrier" means all air
carriers that carry or undertake to carry the passenger or his baggage
hereunder or perform any other service incidental to such air carriage.
"WARSAW CONVENTION" means the convention for the Unification of
Certain Rules Relating to International Carriage by Air signed at Warsaw,
12th October 1929, or that Convention as amended at The Hague, 28th
September 1955, whichever may be applicable.
2. Carriage hereunder is subject to the rules and limitations relating to
liability established by the Warsaw Convention unless such carriage is
not "international carriage" as defined by that Convention.
3. To the extent not in conflict with the foregoing carriage and other
services performed by each carrier are subject to: (i) provisions
contained in this ticket, (ii) applicable tariffs, (iii) carrier's conditions of
carriage and related regulations which are made part hereof (and are
available on application at the offices of carrier), except in
transportation between a place in the United States or Canada and any
place outside thereof to which tariffs in force in those countries apply.
xxx xxx xxx

Petitioner further contends that respondent Court committed grave

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

While it may be true that petitioner had not signed the plane ticket
(Exh. "12"), he is nevertheless bound by the provisions thereof. "Such
provisions have been held to be a part of the contract of carriage, and
valid and binding upon the passenger regardless of the latter's lack of
knowledge or assent to the regulation." [Tannebaum v. National Airline,
Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87
Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It
is what is known as a contract of "adhesion," in regards which it has
been said that contracts of adhesion wherein one party imposes a ready
made form of contract on the other, as the plane ticket in the case at
bar, are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his
consent,[Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr.
Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And as
held in Randolph v. American Airlines, 103 Ohio App. 172,144 N.E. 2d
878; Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483.] "a
contract limiting liability upon an agreed valuation does not offend
against the policy of the law forbidding one from contracting against his
own negligence."
Considering, therefore, that petitioner had failed to declare a higher
value for his baggage, he cannot be permitted a recovery in excess of
P100.00....
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099,
July 2, 1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's
liability to a specified amount was invalid, finds no application in the instant case, as the
ruling in said case was premised on the finding that the conditions printed at the back of
the ticket were so small and hard to read that they would not warrant the presumption
that the passenger was aware of the conditions and that he had freely and fairly agreed
thereto. In the instant case, similar facts that would make the case fall under the
exception have not been alleged, much less shown to exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or
$600.00, as stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to
state that the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v.
Cuenca [G.R. No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to
apply the Warsaw Convention which limits a carrier's liability to US$9.07 per pound or
US$20.00 per kilo in cases of contractual breach of carriage ** is against public policy" is
utterly misplaced, to say the least. In said case, while the Court, as quoted in the
Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is
liable only" in the event of death of a passenger or injury suffered by
him, or of destruction or loss of, or damages to any checked baggage or
any goods, or of delay in the transportation by air of passengers,
baggage or goods. This pretense is not borne out by the language of said
Articles. The same merely declare the carrier liable for damages in

enumerated cases, if the conditions therein specified are present.

Neither said provisions nor others in the aforementioned Convention
regulate or exclude liability for other breaches of contract by the
carrier. Under petitioner's theory, an air carrier would be exempt from
any liability for damages in the event of its absolute refusal, in bad
faith, to comply with a contract of carriage, which is absurd.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by certiorari, upon
the ground that the lower court has erred: (1) in holding that the
Warsaw Convention of October 12, 1929, relative to transportation by
air is not in force in the Philippines: (2) in not holding that respondent
has no cause of action; and (3) in awarding P20,000 as nominal
damages.
We deem it unnecessary to pass upon the First assignment of error
because the same is the basis of the second assignment of error, and
the latter is devoid of merit, even if we assumed the former to be well
taken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against
the validity of provisions of the Warsaw Convention. Consequently, by no stretch of the
imagination may said quotation from Northwest be considered as supportive of the
appellate court's statement that the provisions of the Warsaw Convention limited a
carrier's liability are against public policy.
2. The Court finds itself unable to agree with the decision of the trial court, and affirmed
by the Court of Appeals, awarding private respondents damages as and for lost profits
when their contracts to show the films in Guam and San Francisco, California were
cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be
any clearer:
...Under Art.1107 of the Civil Code, a debtor in good faith like the
defendant herein, may be held liable only for damages that were
foreseen or might have been foreseen at the time the contract of
transportation was entered into. The trial court correctly found that
the defendant company could not have foreseen the damages that
would be suffered by Mendoza upon failure to deliver the can of filmon
the 17th of September, 1948 for the reason that the plans of Mendoza to
exhibit that film during the town fiesta and his preparations, specially
the announcement of said exhibition by posters and advertisement in
the newspaper, were not called to the defendant's attention.
In our research for authorities we have found a case very similar to the one under
consideration. In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in
Troy, New York, delivered motion picture films to the defendant Fargo, an express
company, consigned and to be delivered to him in Utica. At the time of shipment the

attention of the express company was called to the fact that the shipment involved
motion picture films to be exhibited in Utica, and that they should be sent to their
destination, rush. There was delay in their delivery and it was found that the plaintiff
because of his failure to exhibit the film in Utica due to the delay suffered damages or
loss of profits. But the highest court in the State of New York refused to award him special
damages. Said appellate court observed:
But before defendant could be held to special damages, such as the
present alleged loss of profits on account of delay or failure of
delivery, it must have appeared that he had notice at the time of
delivery to him of the particular circumstances attending the
shipment, and which probably would lead to such special loss if he
defaulted. Or, as the rule has been stated in another form, in order to
purpose on the defaulting party further liability than for damages
naturally and directly, i.e., in the ordinary course of things, arising
from a breach of contract, such unusual or extraordinary damages must
have been brought within the contemplation of the parties as the
probable result of breach at the time of or prior to contracting.
Generally, notice then of any special circumstances which will show
that the damages to be anticipated from a breach would be enhanced
has been held sufficient for this effect.

WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate
Appellate Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay
private respondents damages in the amount of US $600.00 or its equivalent in Philippine
currency at the time of actual payment.
SO ORDERED.
Fernan, C.J., Feliciano and Bidin JJ., concur.
Gutierrez, Jr., J., took no part.

Footnotes
* Art. 1750. A contract fixing the sum that may be recovered by the
owner or shipper for the loss, destruction, or deterioration of the goods
is valid, if it is reasonable and just under the circumstances, and has
been fairly and freely agreed upon.
** The Warsaw Convention actually provides that "[i]n the transportation
of checked baggage and of goods, the liability of the carrier shall be
limited to a sum of 250 francs per kilogram, unless the consignor has
made, at the time when the package was handed over to the carrier, a
special declaration of the value of delivery and has paid a
supplementary sum if the case so requires. In that case, the carrier will
be liable to pay a sum not exceeding the declared sum, unless he proves
that the sum is greater than the actual value to the consignor at
delivery.... The sums mentioned above shall be deemed to refer to the
French franc consisting of 65-1/2 milligrams of gold at the standard of
fineness of nine hundred thousandths. These sums may be converted
into any national currency in round figures. [51 O.G. 5084, 5091.]

As may be seen, that New York case is a stronger one than the present case for the reason
that the attention of the common carrier in said case was called to the nature of the
articles shipped, the purpose of shipment, and the desire to rush the shipment,
circumstances and facts absent in the present case. [Emphasis supplied.]
Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a
showing that petitioner's attention was called to the special circumstances requiring
prompt delivery of private respondent Pangan's luggages, petitioner cannot be held liable
for the cancellation of private respondents' contracts as it could not have foreseen such
an eventuality when it accepted the luggages for transit.
The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid
down in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for
damages based on the finding that "[tlhe undisputed fact is that the contracts of the
plaintiffs for the exhibition of the films in Guam and California were cancelled because of
the loss of the two luggages in question." [Rollo, p. 36] The evidence reveals that the
proximate cause of the cancellation of the contracts was private respondent Pangan's
failure to deliver the promotional and advertising materials on the dates agreed upon. For
this petitioner cannot be held liable. Private respondent Pangan had not declared the
value of the two luggages he had checked in and paid additional charges. Neither was
petitioner privy to respondents' contracts nor was its attention called to the condition
therein requiring delivery of the promotional and advertising materials on or before a
certain date.
3. With the Court's holding that petitioner's liability is limited to the amount stated in the
ticket, the award of attorney's fees, which is grounded on the alleged unjustified refusal
of petitioner to satisfy private respondent's just and valid claim, loses support and must
be set aside.

Proclamation No. 201, (September 23, 1955) made public the adherence
of the Republic of the Philippines to the Warsaw Convention. [51 O.G.
4933.]
THIRD DIVISION
[G.R. No. 152122. July 30, 2003]
CHINA AIRLINES, petitioner, vs. DANIEL CHIOK, respondent.
DECISION
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 Certiorari [1] under Rule 45 of the Rules of
Court, seeking to reverse the August 7, 2001 Decision [2] and the February 7, 2002
Resolution[3] 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 CA[5] as follows:

On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased from
China Airlines, Ltd. (CAL for brevity) airline passenger ticket number
297:4402:004:278:5 for air transportation covering Manila-Taipei-Hongkong-Manila. Said
ticket was exclusively endorseable to Philippine Airlines, Ltd. (PAL for brevity).
Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei using [the]
CAL ticket. Before he left for said trip, the trips covered by the ticket were pre-scheduled
and confirmed by the former. When he arrived in Taipei, he went to the CAL office and
confirmed his Hongkong to Manila trip on board PAL Flight No. PR 311. The CAL office
attached a yellow sticker appropriately indicating that his flight status was OK.
When Chiok reached Hongkong, he went to the PAL office and sought to reconfirm his
flight back to Manila. The PAL office confirmed his return trip on board Flight No. PR 311
and attached its own sticker. On November 24, 1981, Chiok proceeded to Hongkong
International Airport for his return trip to Manila. However, upon reaching the PAL
counter, Chiok saw a poster stating that PAL Flight No. PR 311 was cancelled because of a
typhoon in Manila. He was then informed that all the confirmed ticket holders of PAL

Flight No. PR 311 were automatically booked for its next flight, which was to leave the
next day. He then informed PAL personnel that, being the founding director of the
Philippine Polysterene Paper Corporation, he ha[d] to reach Manila on November 25, 1981
because of a business option which he ha[d] to execute on said date.
On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess Lok Chan
(hereafter referred to as Lok) ha[d] taken and received Chioks plane ticket and his
luggage. Lok called the attention of Carmen Chan (hereafter referred to as Carmen), PALs
terminal supervisor, and informed the latter that Chioks name was not in the computer
list of passengers. Subsequently, Carmen informed Chiok that his name did not appear in
PALs computer list of passengers and therefore could not be permitted to board PAL Flight
No. PR 307.
Meanwhile, Chiok requested Carmen to put into writing the alleged reason why he was
not allowed to take his flight. The latter then wrote the following, to wit: PAL STAFF
CARMEN CHAN CHKD WITH R/C KENNY AT 1005H NO SUCH NAME IN COMPUTER FOR
311/24 NOV AND 307/25 NOV. The latter sought to recover his luggage but found only 2
which were placed at the end of the passengers line. Realizing that his new Samsonite
luggage was missing, which contained cosmetics worth HK$14,128.80, he complained to
Carmen.
Thereafter, Chiok proceeded to PALs Hongkong office and confronted PALs reservation
officer, Carie Chao (hereafter referred to as Chao), who previously confirmed his flight
back to Manila. Chao told Chiok that his name was on the list and pointed to the latter his
computer number listed on the PAL confirmation sticker attached to his plane ticket,
which number was R/MN62.
Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5 and asked
Chao if this ticket could be used to book him for the said flight. The latter, once again,
booked and confirmed the formers trip, this time on board PAL Flight No. PR 311
scheduled to depart that evening. Later, Chiok went to the PAL check-in counter and it
was Carmen who attended to him. As this juncture, Chiok had already placed his travel
documents, including his clutch bag, on top of the PAL check-in counter.
Thereafter, Carmen directed PAL personnel to transfer counters. In the ensuing
commotion, Chiok lost his clutch bag containing the following, to wit: (a) $2,000.00; (b)
HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e) a three-piece set of gold (18 carats)
cross pens valued at P3,500; (f) a Cartier watch worth about P7,500.00; (g) a tie clip with
a garnet birthstone and diamond worth P1,800.00; and (h) a [pair of] Christian Dior
reading glasses. Subsequently, he was placed on stand-by and at around 7:30 p.m., PAL
personnel informed him that he could now check-in.
Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 for damages,
against PAL and CAL, as defendants, docketed as Civil Case No. 82-13690, with Branch 31,
Regional Trial Court, National Capital Judicial Region, Manila.
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 Appeals [8] 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 CAL[11] 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.

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.

3. The Court of Appeals committed a non sequitur when it did not rule on the
cross-claim of the petitioner.[12]
Applicability of KLM v. CA
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.

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.

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.

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.

Second Issue:
Liability of the Ticket-Issuing Airline

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]

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, thePhilippine Reports, whenever practicable.[17] In 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]

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 Court [20] and China Airlines v. Court of Appeals. [21]

Jurisprudence Supports
CA Decision

It is significant to note that the contract of air transportation was between

petitioner and respondent, with the former endorsing to PAL the Hong Kong-to-Manila
segment of the journey.Such contract of carriage has always been treated in this
jurisdiction as a single operation. This jurisprudential rule is supported by the Warsaw
Convention,[22] to which the Philippines is a party, and by the existing practices of the
International Air Transport Association (IATA).
Article 1, Section 3 of the Warsaw Convention states:
Transportation to be performed by several successive air carriers shall be deemed, for the
purposes of this Convention, to be one undivided transportation, if it has been regarded
by the parties as a single operation, whether it has been agreed upon under the form of a
single contract or of a series of contracts, and it shall not lose its international character
merely because one contract or a series of contracts is to be performed entirely within a
territory subject to the sovereignty, suzerainty, mandate, or authority of the same High
Contracting Party.[23]
Article 15 of IATA-Recommended Practice similarly provides:

Carriage to be performed by several successive carriers under one ticket, or under a

ticket and any conjunction ticket issued therewith, is regarded as a single operation.
In American Airlines v. Court of Appeals,[24] we have noted that under a general pool
partnership agreement, the ticket-issuing airline is the principal in a contract of carriage,
while the endorsee-airline is the agent.
x x x Members of the IATA are under a general pool partnership agreement wherein they
act as agent of each other in the issuance of tickets to contracted passengers to boost
ticket sales worldwide and at the same time provide passengers easy access to airlines
which are otherwise inaccessible in some parts of the world. Booking and reservation
among airline members are allowed even by telephone and it has become an accepted
practice among them. A member airline which enters into a contract of carriage consisting
of a series of trips to be performed by different carriers is authorized to receive the fare
for the whole trip and through the required process of interline settlement of accounts by
way of the IATA clearing house an airline is duly compensated for the segment of the trip
serviced. Thus, when the petitioner accepted the unused portion of the conjunction
tickets, entered it in the IATA clearing house and undertook to transport the private
respondent over the route covered by the unused portion of the conjunction tickets, i.e.,
Geneva to New York, the petitioner tacitly recognized its commitment under the IATA pool
arrangement to act as agent of the principal contracting airline, Singapore Airlines, as to
the segment of the trip the petitioner agreed to undertake. As such, the petitioner
thereby assumed the obligation to take the place of the carrier originally designated in
the original conjunction ticket. The petitioners argument that it is not a designated
carrier in the original conjunction tickets and that it issued its own ticket is not decisive
of its liability. The new ticket was simply a replacement for the unused portion of the
conjunction ticket, both tickets being for the same amount of US$ 2,760 and having the
same points of departure and destination. By constituting itself as an agent of the
principal carrier the petitioners undertaking should be taken as part of a single operation
under the contract of carriage executed by the private respondent and Singapore Airlines
in Manila.[25]
Likewise, as the principal in the contract of carriage, the petitioner in British
Airways v. Court of Appeals[26] 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.
xxxxxxxxx
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 tobreaches 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]

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:

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:

Q Did you say were not notified?

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)

Atty. Calica:

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

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

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]
xxxxxxxxx
Q I see. Miss Chan, I [will] show you a ticket which has been marked as Exh. A
and A-1. Will you please go over this ticket and tell the court whether this
is the ticket that was used precisely by Mr. Chiok when he checked-in at
[F]light 307, 25 November 81?
A [Are you] now asking me whether he used this ticket with this sticker?
Q No, no, no. That was the ticket he used.
A Yes, [are you] asking me whether I saw this ticket?
Atty. Fruto: Yes.
A I believe I saw it.
Q You saw it, O.K. Now of course you will agree with me Miss Chan that this
yellow stub here which has been marked as Exh. A-1-A, show[s] that the
status on flight 311, 24th November, is O.K., correct?
A Yes.

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

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

A Yes.

A May I x x x look at them. Yes, it says O.K. x x x, but [there is] no validation.
Q O.K. Miss Chan what do you understand by these entries here R bar M N 6 V?

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

[41]

A This is what we call a computer reference.

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 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.

Q So this Swire Building is an agency authorized by Philippine Airlines to issue

tickets for and on behalf of Philippine Airlines and also...

A Yes.

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?

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

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 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]

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

This Courts 1992 ruling in China Airlines v. Court of Appeals [47] 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.

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]

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

WHEREFORE, the Petition is DENIED. Costs against petitioner.

SO ORDERED.
Puno, (Chairman), Corona, and Carpio-Morales, JJ., concur.
Sandoval-Gutierrez, J., on official leave.

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.

[1]

Rollo, pp. 3-20.

[2]

Id., pp. 21-37; Penned by Justice Mercedes Gozo-Dadole and concurred in by Presiding
Justice Ma. Alicia Austria-Martinez (now a member of this Court) and Justice
Portia Alio-Hormachuelos.

[3]

Id., pp. 38-39.

[4]

CA Decision, p. 16; rollo, p. 36.

For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA

Finance Corporation v. CA,[52] the Court stated:

[5]

This narration was reproduced also in the Petition and in the Memoranda of both
petitioner and respondent.

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.

[6]

Id., pp. 2-5; rollo, pp. 22-25. Citations omitted.

[7]

RTC Decision, pp. 5-6; CA rollo, pp. 131-132. Penned by Judge Regino T. Veridiano II.

[8]

65 SCRA 237, July 22, 1975.

[9]

CA Decision, p. 15; rollo, p. 35.

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.

xxxxxxxxx

[10]

CA Resolution, p. 2; rollo, p. 39.

[26]

285 SCRA 450, January 29, 1998.

[11]

This case was deemed submitted for decision on October 18, 2002, upon the Courts
receipt of respondents Memorandum signed by Atty. Edgar S. Asuncion of Padilla
Jimenez Kintanar & Asuncion. Petitioners Memorandum, signed by Atty. Marcial
O. T. Balgos of Balgos & Perez, was filed earlier on October 4, 2002.

[27]

238 SCRA 290, November 24, 1994.

[28]

Guerrero v. Court of Appeals, 349 Phil. 605, January 30, 1998; Batingal v. Court of
Appeals, 351 SCRA 60, February 1, 2001.

[12]

Petitioners Memorandum, p. 7; rollo, p. 78. Original in upper case.

[29]

123 Phil. 256, 264-265, March 30, 1966.

[13]

See CA Resolution, p. 2; rollo, p. 39.

[30]

TSN, January 10, 1984, pp. 11-14.

[14]

Rule 10.02, Canon 10 of the Code of Professional Responsibility, provides:

[31]

Id., pp. 16-18.

[32]

Id., pp. 21-24; TSN, April 9, 1985, p. 40.

[33]

Oral Deposition, pp. 45-48.

A lawyer shall not knowingly misquote or misrepresent the contents of a paper, the
language or the argument of opposing counsel, or the text of a decision or
authority, or knowingly cite as law a provision already rendered inoperative by
repeal or amendment, or assert as a fact that which has not been proved.
[15]

KLM v. CA, supra, pp. 243-244, per Castro, J.

[34]

British Airways v. Court of Appeals, supra.

[16]

CA Decision, p. 16; rollo, p. 36.

[35]

346 Phil. 831, November 18, 1997.

[17]

In the present case, Philippine Reports are cited whenever possible.

[36]

Id., p. 845, per Bellosillo, J.

[18]

Supreme Court Reports Annotated.

[37]

207 SCRA 498, March 23, 1992.

[19]

French Oil Mill Machinery Co., Inc. v. Court of Appeals, 356 Phil. 780, September 11,
1998.

[38]

Article 1733 of the Civil Code.

[39]

The oral deposition was taken before Consul Jesus I. Yabes at the Philippine Consulate
General in Hong Kong on March 17, 1987. The deposition was thereafter admitted
as Exhibit 5 for PAL.

[40]

Deposition, March 17, 1987, pp. 4-5; folder of exhibits for PAL, pp. 8-9.

[41]

Also referred to as R/MN62 in some parts of the record.

[42]

Id., pp. 27-28 and 31-32.

[20]

169 SCRA 226, January 17, 1989.

[21]

211 SCRA 897, July 29, 1992.

[22]

Also known as the Convention for the Unification of Certain Rules Relating to
International Transportation by Air. The Philippine adherence to the Convention
on November 9, 1950, was made public through Proclamation No. 201, 51 OG 10,
pp. 4933-4934.

[23]

51 OG 10, p. 5085.

[43]

Id., pp. 41-42 and 45-46.

[24]

384 Phil. 227, March 9, 2000.

[44]

Supra at 20.

[25]

Id., pp. 238-239, per Gonzaga-Reyes, J.

[45]

Id., p. 235.

[46]

Id., p. 236.

[47]

Supra at 21.

[48]

Recently, in Savellano v. Northwest, GR No. 151783, July 8, 2003, the Court awarded
nominal, not moral and exemplary, damages -- in the absence of bad faith, ill
will, malice or wanton conduct in the breach of the carriage contract.

[49]

346 Phil. 831, 842, November 18, 1997, per Bellosillo, J.

[50]

The Civil Code provides:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or

correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.
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.
[51]

Considering that the incident, subject of this case, happened more then 20 years ago,
the Court believes that the amounts awarded are more than reasonable.

[52]

BA Finance Corporation v. Court of Appeals, 327 Phil. 716, 727-728, July 5, 1996, per
Vitug, J; citing Imson v. Court of Appeals, 239 SCRA 58, December 8, 1994, per
Puno, J. (Cited in Bank of Philippine Islands v. Court of Appeals et al., GR No.
146923, April 30, 2003).

[53]

Padilla v. Court of Appeals, 370 SCRA 208, November 22, 2001; Matuguina Integrated
Wood Products, Inc. v. Court of Appeals, 331 Phil. 795, October 24, 1996;
Buazon v. Court of Appeals, 220 SCRA 182, March 19, 1993.

Facts: Daniel Chiok purchased from China Airlines a passenger ticket for air transportation
covering Manila-Taipei-Hong Kong-Manila. The said ticket was exclusively endorsable to
PAL.

Before Chiok his trip, the trips covered by the ticket were pre-scheduled and
confirmed by the former. When petitioner arrived in Taipei, he went to CAL to confirm his
Hong Kong- Manila trip on board PAL. The CAL office attached a yellow sticker indicating
the status was OK.

When Chiok reached Hong Kong, he then went to PAL office to confirm his flight
back to Manila. The PAL also confirmed the status of his ticket and attached a ticket
indicating a status OK. Chiok proceeded to Hong Kong airport for his trip to Manila.
However, upon reaching the PAL counter, he was told that the flight to Manila was
cancelled due to typhoon. He was informed that all confirmed flight ticket holders of PAL
were automatically booked for the next flight the following day.

The next day, Chiok was not able to board the plane because his name did not
appear on the computer as passenger for the said flight to Manila.

Issue: Whether or not CAL is liable for damages?

Held: The contract of air transportation between the petitioner and respondent, with the
former endorsing PAL the segment of Chioks journey. Such contract of carriage has been
treated in this jurisprudence as a single operation pursuant to Warsaw Convention, to
which the Philippines is a party.

In the instant case, PAL as the carrying agent of CAL, the latter cannot evade
liability to respondent, Chiok, even though it may have been only a ticket issuer for Hong
Kong- Manila sector.

CHINA AIRLINES VS. CHIOK (23 JULY 2003)

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 100446 January 21, 1993

ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
GENERAL ACCIDENT FIRE AND LIFE ASSURANCE CORPORATION, LTD.,
respondent.
Sycip, Salazar, Hernandez & Gamaitan Law Office for petitioner.
Napoleon Rama collaborating counsel for petitioner.
Dollete, Blanco, Ejercito & Associates for private respondent.

MELO, J.:
This refers to a petition for review which seeks to annul and set aside the
decision of the Court of Appeals dated June 21, 1991, in CA G.R. SP No.
24918. The appellate court dismissed the petition for certiorari filed by herein
petitioner, Aboitiz Shipping Corporation, questioning the Order of April 30, 1991
issued by the Regional Trial Court of the National Capital Judicial Region
(Manila, Branch IV) in its Civil Case No. 144425 granting private respondent's
prayer for execution for the full amount of the judgment award. The trial court
in so doing swept aside petitioner's opposition which was grounded on the real
and hypothecary nature of petitioner's liability as ship owner. The application of
this established principle of maritime law would necessarily result in a probable
reduction of the amount to be recovered by private respondent, since it would
have to share with a number of other parties similarly situated in the insurance
proceeds on the vessel that sank.
The basic facts are not disputed.
Petitioner is a corporation organized and operating under Philippine laws and
engaged in the business of maritime trade as a carrier. As such, it owned and
operated the ill-fated "M/V P. ABOITIZ," a common carrier which sank on a
voyage from Hongkong to the Philippines on October 31, 1980. Private

respondent General Accident Fire and Life Assurance Corporation, Ltd.

(GAFLAC), on the other hand, is a foreign insurance company pursuing its
remedies as a subrogee of several cargo consignees whose respective cargo
sank with the said vessel and for which it has priorly paid.
The incident of said vessel's sinking gave rise to the filing of suits for recovery
of lost cargo either by the shippers, their successor-in-interest, or the cargo
insurers like GAFLAC as subrogees. The sinking was initially investigated by
the Board of Marine Inquiry (BMI Case No. 466, December 26, 1984), which
found that such sinking was due to force majeure and that subject vessel, at
the time of the sinking was seaworthy. This administrative finding
notwithstanding, the trial court in said Civil Case No. 144425 found against the
carrier on the basis that the loss subject matter therein did not occur as a
result of force majeure. Thus, in said case, plaintiff GAFLAC was allowed to
prove, and. was later awarded, its claim. This decision in favor of GAFLAC
was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v. Court of
Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel,
encountering rough sailing. The attempted execution of the judgment award in
said case in the amount of P1,072,611.20 plus legal interest has given rise to
the instant petition.
On the other hand, other cases have resulted in findings upholding the
conclusion of the BMI that the vessel was seaworthy at the time of the sinking,
and that such sinking was due to force majeure. One such ruling was likewise
elevated to this Court in G.R. No. 100373, Country Bankers Insurance
Corporation v. Court of Appeals, et al., August 28, 1991 and was sustained.
Part of the task resting upon this Court, therefore, is to reconcile the resulting
apparent contrary findings in cases originating out of a single set of facts.
It is in this factual milieu that the instant petition seeks a pronouncement as to
the applicability of the doctrine of limited liability on the totality of the claims vis
a vis the losses brought about by the sinking of the vessel M/V P. ABOITIZ, as
based on the real and hypothecary nature of maritime law. This is an issue
which begs to be resolved considering that a number of suits alleged in the
petition number about 110 (p. 10 and pp. 175 to 183, Rollo) still pend and
whose resolution shall well-nigh result in more confusion than presently
attends the instant case.
In support of the instant petition, the following arguments are submitted by the
petitioner:
1. The Limited Liability Rule warrants immediate stay of
execution of judgment to prevent impairment of other
creditors' shares;

2. The finding of unseaworthiness of a vessel is not

necessarily attributable to the shipowner; and
3 The principle of "Law of the Case" is not applicable to
the present petition. (pp. 2-26, Rollo.)
On the other hand, private respondent opposes the foregoing contentions,
arguing that:
1. There is no limited liability to speak of or applicable
real and hypothecary rule under Article 587, 590, and
837 of the Code of Commerce in the face of the facts
found by the lower court (Civil Case No. 144425),
upheld by the Appellate Court (CA G.R. No. 10609),
and affirmed in toto by the Supreme Court in G.R. No.
89757 which cited G.R. No. 88159 as the Law of the
Case; and
2. Under the doctrine of the Law of the Case, cases
involving the same incident, parties similarly situated
and the same issues litigated should be decided in
conformity therewith following the maxim stare decisis
et non quieta movere. (pp. 225 to 279, Rollo.)
Before proceeding to the main bone of contention, it is important to determine
first whether or not the Resolution of this Court in G.R. No. 88159, Aboitiz
Shipping, Corporation vs. The Honorable Court of Appeals and Allied Guaranty
Insurance Company, Inc., dated November 13, 1989 effectively bars and
precludes the instant petition as argued by respondent GAFLAC.
An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp.
280 to 282, Rollo) shows that the same settles two principal matters, first of
which is that the doctrine of primary administrative jurisdiction is not applicable
therein; and second is that a limitation of liability in said case would render
inefficacious the extraordinary diligence required by law of common carriers.
It should be pointed out, however, that the limited liability discussed in said
case is not the same one now in issue at bar, but an altogether different
aspect. The limited liability settled in G.R. No. 88159 is that which attaches to
cargo by virtue of stipulations in the Bill of Lading, popularly known as package
limitation clauses, which in that case was contained in Section 8 of the Bill of
Lading and which limited the carrier's liability to US$500.00 for the cargo
whose value was therein sought to be recovered. Said resolution did not tackle
the matter of the Limited Liability Rule arising out of the real and hypothecary

nature of maritime law, which was not raised therein, and which is the principal
bone of contention in this case. While the matters threshed out in G.R. No.
88159, particularly those dealing with the issues on primary administrative
jurisdiction and the package liability limitation provided in the Bill of Lading are
now settled and should no longer be touched, the instant case raises a
completely different issue. It appears, therefore, that the resolution in G.R.
88159 adverted to has no bearing other than factual to the instant case.
This brings us to the primary question herein which is whether or not
respondent court erred in granting execution of the full judgment award in Civil
Case No. 14425 (G.R. No. 89757), thus effectively denying the application of
the limited liability enunciated under the appropriate articles of the Code of
Commerce. The articles may be ancient, but they are timeless and have
remained to be good law. Collaterally, determination of the question of whether
execution of judgments which have become final and executory may be stayed
is also an issue.
We shall tackle the latter issue first. This Court has always been consistent in
its stand that the very purpose for its existence is to see to the accomplishment
of the ends of justice. Consistent with this view, a number of decisions have
originated herefrom, the tenor of which is that no procedural consideration is
sacrosanct if such shall result in the subverting of substantial justice. The right
to an execution after finality of a decision is certainly no exception to this.
Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that:
. . . It is a truism that every court has the power "to
control, in the furtherance of justice, the conduct of its
ministerial officers, and of all other persons in any
manner connected with a case before it, in every
manner appertaining thereto. It has also been said that:
. . . every court having jurisdiction to
render a particular judgment has
inherent power to enforce it, and to
exercise equitable control over such
enforcement. The court has authority to
inquire whether its judgment has been
executed, and will remove obstructions
to the enforcement thereof. Such
authority extends not only to such
orders and such writs as may be
necessary to carry out the judgment into
effect and render it binding and

operative, but also to such orders and

such writs as may be necessary to
prevent an improper enforcement of the
judgment. If a judgment is sought to be
perverted and made a medium of
consummating a wrong the court on
proper application can prevent it. (at p.
359)
and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257
[1987]), this Court found that:
The rule that once a decision becomes final and
executory, it is the ministerial duty of the court to order
its execution, admits of certain exceptions as in cases
of special and exceptional nature where it becomes the
imperative in the higher interest of justice to direct the
suspension of its execution (Vecine v. Geronimo, 59
OG 579); whenever it is necessary to accomplish the
aims of justice (Pascual v Tan, 85 Phil. 164); or when
certain facts and circumstances transpired after the
judgment became final which would render the
execution of the judgment unjust (Cabrias v. Adil, 135
SCRA 354). (at p. 201)
We now come to the determination of the principal issue as to whether the
Limited Liability Rule arising out of the real and hypothecary nature of maritime
law should apply in this and related cases. We rule in the affirmative.
In deciding the instant case below, the Court of Appeals took refuge in this
Court's decision in G.R. No. 89757 upholding private respondent's claims in
that particular case, which the Court of Appeals took to mean that this Court
has "considered, passed upon and resolved Aboitiz's contention that all claims
for the losses should first be determined before GAFLAC's judgment may be
satisfied," and that such ruling "in effect necessarily negated the application of
the limited liability principle" (p. 175, Rollo). Such conclusion is not accurate.
The decision in G.R. No. 89757 considered only the circumstances peculiar to
that particular case, and was not meant to traverse the larger picture herein
brought to fore, the circumstances of which heretofore were not relevant. We
must stress that the matter of the Limited Liability Rule as discussed was
never in issue in all prior cases, including those before the RTCs and the Court
of Appeals. As discussed earlier, the "limited liability" in issue before the trial
courts referred to the package limitation clauses in the bills of lading and not

the limited liability doctrine arising from the real and hypothecary nature of
maritime trade. The latter rule was never made a matter of defense in any of
the cases a quo, as properly it could not have been made so since it was not
relevant in said cases. The only time it could come into play is when any of the
cases involving the mishap were to be executed, as in this case. Then, and
only then, could the matter have been raised, as it has now been brought
before the Court.
The real and hypothecary nature of maritime law simply means that the liability
of the carrier in connection with losses related to maritime contracts is confined
to the vessel, which is hypothecated for such obligations or which stands as
the guaranty for their settlement. It has its origin by reason of the conditions
and risks attending maritime trade in its earliest years when such trade was
replete with innumerable and unknown hazards since vessels had to go
through largely uncharted waters to ply their trade. It was designed to offset
such adverse conditions and to encourage people and entities to venture into
maritime commerce despite the risks and the prohibitive cost of shipbuilding.
Thus, the liability of the vessel owner and agent arising from the operation of
such vessel were confined to the vessel itself, its equipment, freight, and
insurance, if any, which limitation served to induce capitalists into effectively
wagering their resources against the consideration of the large profits
attainable in the trade.
It might be noteworthy to add in passing that despite the modernization of the
shipping industry and the development of high-technology safety devices
designed to reduce the risks therein, the limitation has not only persisted, but
is even practically absolute in well-developed maritime countries such as the
United States and England where it covers almost all maritime casualties.
Philippine maritime law is of Anglo-American extraction, and is governed by
adherence to both international maritime conventions and generally accepted
practices relative to maritime trade and travel. This is highlighted by the
following excerpts on the limited liability of vessel owners and/or agents;
Sec. 183. The liability of the owner of any vessel,
whether American or foreign, for any embezzlement,
loss, or destruction by any person of any person or any
property, goods, or merchandise shipped or put on
board such vessel, or for any loss, damage, or
forfeiture, done, occasioned, or incurred, without the
privity or knowledge of such owner or owners shall not
exceed the amount or value of the interest of such
owner in such vessel, and her freight then pending.

(Section 183 of the US Federal Limitation of Liability

Act).
and
1. The owner of a sea-going ship may limit his liability
in accordance with Article 3 of this Convention in
respect of claims arising, from any of the following
occurrences, unless the occurrence giving rise to the
claim resulted from the actual fault or privity of the
owner;
(a) loss of life of, or personal injury to, any person being
carried in the ship, and loss of, or damage to, any
property on board the ship.
(b) loss of life of, or personal injury to, any other
person, whether on land or on water, loss of or damage
to any other property or infringement of any rights
caused by the act, neglect or default the owner is
responsible for, or any person not on board the ship for
whose act, neglect or default the owner is responsible:
Provided, however, that in regard to the act, neglect or
default of this last class of person, the owner shall only
be entitled to limit his liability when the act, neglect or
default is one which occurs in the navigation or the
management of the ship or in the loading, carriage or
discharge of its cargo or in the embarkation, carriage or
disembarkation of its passengers.
(c) any obligation or liability imposed by any law
relating to the removal of wreck and arising from or in
connection with the raising, removal or destruction of
any ship which is sunk, stranded or abandoned
(including anything which may be on board such ship)
and any obligation or liability arising out of damage
caused to harbor works, basins and navigable
waterways. (Section 1, Article I of the Brussels
International Convention of 1957)
In this jurisdiction, on the other hand, its application has been well-nigh
constricted by the very statute from which it originates. The Limited Liability
Rule in the Philippines is taken up in Book III of the Code of Commerce,
particularly in Articles 587, 590, and 837, hereunder quoted in toto:

Art. 587. The ship agent shall also be civilly liable for
the indemnities in favor of third persons which may
arise from the conduct of the captain in the care of the
goods which he loaded on the vessel; but he may
exempt himself therefrom by abandoning the vessel
with all her equipment and the freight it may have
earned during the voyage.
Art. 590. The co-owners of a vessel shall be civilly
liable in the proportion of their interests in the common
fund for the results of the acts of the captain referred to
in Art. 587.
Each co-owner may exempt himself from this liability by
the abandonment, before a notary, of the part of the
vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the
case prescribed in this section (on collisions), shall be
understood as limited to the value of the vessel with all
its appurtenances and freightage served during the
voyage. (Emphasis supplied)
Taken together with related articles, the foregoing cover only liability for injuries
to third parties (Art. 587), acts of the captain (Art. 590) and collisions (Art. 837).
In view of the foregoing, this Court shall not take the application of such limited
liability rule, which is a matter of near absolute application in other jurisdictions,
so lightly as to merely "imply" its inapplicability, because as could be seen, the
reasons for its being are still apparently much in existence and highly
regarded.
We now come to its applicability in the instant case. In the few instances when
the matter was considered by this Court, we have been consistent in this
jurisdiction in holding that the only time the Limited Liability Rule does not
apply is when there is an actual finding of negligence on the part of the vessel
owner or agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila Steamship Co.,
Inc. v. Abdulhanan, 101 Phil. 32 [1957]; Heirs of Amparo delos Santos v. Court
of Appeals, 186 SCRA 649 [1967]). The pivotal question, thus, is whether there
is a finding of such negligence on the part of the owner in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No.
144425 (pp. 27-33, Rollo) as well as the entirety of the records in the instant

case will show that there has been no actual finding of negligence on the part
of petitioner. In its Decision, the trial court merely held that:
. . . Considering the foregoing reasons, the Court holds
that the vessel M/V "Aboitiz" and its cargo were not lost
due to fortuitous event or force majeure." (p. 32, Rollo)
The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86,
Rollo) affirming the decision of the Court of Appeals in CA-G.R. CV No. 10609
(pp. 34-50, Rollo) since both decisions did not make any new and additional
finding of fact. Both merely affirmed the factual findings of the trial court,
adding that the cause of the sinking of the vessel was because of
unseaworthiness due to the failure of the crew and the master to exercise
extraordinary diligence. Indeed, there appears to have been no evidence
presented sufficient to form a conclusion that petitioner shipowner itself was
negligent, and no tribunal, including this Court will add or subtract to such
evidence to justify a conclusion to the contrary.
The qualified nature of the meaning of "unseaworthiness," under the peculiar
circumstances of this case is underscored by the fact that in the Country
Banker's case, supra, arising from the same sinking, the Court sustained the
decision of the Court of Appeals that the sinking of the M/V P. Aboitiz was due
to force majeure.
On this point, it should be stressed that unseaworthiness is not a fault that can
be laid squarely on petitioner's lap, absent a factual basis for such a
conclusion. The unseaworthiness found in some cases where the same has
been ruled to exist is directly attributable to the vessel's crew and captain,
more so on the part of the latter since Article 612 of the Code of Commerce
provides that among the inherent duties of a captain is to examine a vessel
before sailing and to comply with the laws of navigation. Such a construction
would also put matters to rest relative to the decision of the Board of Marine
Inquiry. While the conclusion therein exonerating the captain and crew of the
vessel was not sustained for lack of basis, the finding therein contained to the
effect that the vessel was seaworthy deserves merit. Despite appearances, it
is not totally incompatible with the findings of the trial court and the Court of
Appeals, whose finding of "unseaworthiness" clearly did not pertain to the
structural condition of the vessel which is the basis of the BMI's findings, but to
the condition it was in at the time of the sinking, which condition was a result of
the acts of the captain and the crew.
The rights of a vessel owner or agent under the Limited Liability Rule are akin
to those of the rights of shareholders to limited liability under our corporation
law. Both are privileges granted by statute, and while not absolute, must be

swept aside only in the established existence of the most compelling of

reasons. In the absence of such reasons, this Court chooses to exercise
prudence and shall not sweep such rights aside on mere whim or surmise, for
even in the existence of cause to do so, such incursion is definitely punitive in
nature and must never be taken lightly.
More to the point, the rights of parties to claim against an agent or owner of a
vessel may be compared to those of creditors against an insolvent corporation
whose assets are not enough to satisfy the totality of claims as against it.
While each individual creditor may, and in fact shall, be allowed to prove the
actual amounts of their respective claims, this does not mean that they shall all
be allowed to recover fully thus favoring those who filed and proved their
claims sooner to the prejudice of those who come later. In such an instance,
such creditors too would not also be able to gain access to the assets of the
individual shareholders, but must limit their recovery to what is left in the name
of the corporation. Thus, in the case of Lipana v. Development Bank of Rizal
earlier cited, We held that:
In the instant case, the stay of execution of judgment is
warranted by the fact that the respondent bank was
placed under receivership. To execute the judgment
would unduly deplete the assets of respondent bank to
the obvious prejudice of other depositors and creditors,
since, as aptly stated in Central Bank v. Morfe (63
SCRA 114), after the Monetary Board has declared that
a bank is insolvent and has ordered it to cease
operations, the Board becomes the trustee of its assets
for the equal benefit of all creditors, and after its
insolvency, one cannot obtain an advantage or
preference over another by an attachment, execution or
otherwise. (at p. 261).
In both insolvency of a corporation and the sinking of a vessel, the claimants or
creditors are limited in their recovery to the remaining value of accessible
assets. In the case of an insolvent corporation, these are the residual assets of
the corporation left over from its operations. In the case of a lost vessel, these
are the insurance proceeds and pending freightage for the particular voyage.
In the instant case, there is, therefore, a need to collate all claims preparatory
to their satisfaction from the insurance proceeds on the vessel M/V P. Aboitiz
and its pending freightage at the time of its loss. No claimant can be given
precedence over the others by the simple expedience of having filed or
completed its action earlier than the rest. Thus, execution of judgment in

earlier completed cases, even those already final and executory, must be
stayed pending completion of all cases occasioned by the subject sinking.
Then and only then can all such claims be simultaneously settled, either
completely or pro-rata should the insurance proceeds and freightage be not
enough to satisfy all claims.
Finally, the Court notes that petitioner has provided this Court with a list of all
pending cases (pp. 175 to 183, Rollo), together with the corresponding claims
and the pro-rated share of each. We likewise note that some of these cases
are still with the Court of Appeals, and some still with the trial courts and which
probably are still undergoing trial. It would not, therefore, be entirely correct to
preclude the trial courts from making their own findings of fact in those cases
and deciding the same by allotting shares for these claims, some of which,
after all, might not prevail, depending on the evidence presented in each. We,
therefore, rule that the pro-rated share of each claim can only be found after all
the cases shall have been decided.
In fairness to the claimants, and as a matter of equity, the total proceeds of the
insurance and pending freightage should now be deposited in trust. Moreover,
petitioner should institute the necessary limitation and distribution action before
the proper admiralty court within 15 days from the finality of this decision, and
thereafter deposit with it the proceeds from the insurance company and
pending freightage in order to safeguard the same pending final resolution of
all incidents, for final pro-rating and settlement thereof.
ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the
Regional Trial Court of Manila, Branch IV dated April 30, 1991 and the Court of
Appeals dated June 21, 1991 are hereby set aside. The trial court is hereby
directed to desist from proceeding with the execution of the judgment rendered
in Civil Case No. 144425 pending determination of the totality of claims
recoverable from the petitioner as the owner of the M/V P. Aboitiz. Petitioner is
directed to institute the necessary action and to deposit the proceeds of the
insurance of subject vessel as above-described within fifteen (15) days from
finality of this decision. The temporary restraining order issued in this case
dated August 7, 1991 is hereby made permanent.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
The Lawphil Project - Arellano Law Foundation

CASE DIGEST (Transportation Law): Monarch Insurance

Co., Inc. vs. CA
MONARCH INSURANCE CO., INC vs. COURT OF APPEALS and
ABOITIZ SHIPPING CORPORATION
G.R. No. 92735. June 8, 2000
FACTS:
Monarch and Tabacalera are insurance carriers of lost cargoes. They
indemnified the shippers and were consequently subrogated to their
rights, interests and actions against Aboitiz, the cargo carrier. Because
Aboitiz refused to compensate Monarch, it filed two complaints against
Aboitiz which were consolidated and jointly tried.
Aboitiz rejected responsibility for the claims on the ground that the
sinking of its cargo vessel was due to force majeure or an act of God.
Aboitiz was subsequently declared as in default and allowed Monarch
and Tabacalera to present evidence ex-parte.
ISSUE:
Whether or not the doctrine of limited liability applies in the instant case.
HELD:
Yes.
The failure of Aboitiz to present sufficient evidence to exculpate itself
from fault and/or negligence in the sinking of its vessel in the face of the
foregoing expert testimony constrains us to hold that Aboitiz was
concurrently at fault and/or negligent with the ship captain and crew of
the M/V P. Aboitiz. [This is in accordance with the rule that in cases
involving the limited liability of shipowners, the initial burden of proof of
negligence or unseaworthiness rests on the claimants. However, once
the vessel owner or any party asserts the right to limit its liability, the
burden of proof as to lack of privity or knowledge on its part with respect
to the matter of negligence or unseaworthiness is shifted to it. This
burden, Aboitiz had unfortunately failed to discharge.] That Aboitiz failed
to discharge the burden of proving that the unseaworthiness of its
vessel was not due to its fault and/or negligence should not however

mean that the limited liability rule will not be applied to the present
cases. The peculiar circumstances here demand that there should be
no strict adherence to procedural rules on evidence lest the just claims
of shippers/insurers be frustrated. The rule on limited liability should be
applied in accordance with the latest ruling in Aboitiz Shipping
Corporation v. General Accident Fire and Life Assurance Corporation,
Ltd.,] promulgated on January 21, 1993, that claimants be treated as
"creditors in an insolvent corporation whose assets are not enough to
satisfy the totality of claims against it."

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-74811 December 14, 1988
CHUA YEK HONG, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, MARIANO GUNO and DOMINADOR
OLIT, respondents.

The Appellate Court Decision, however, mentions only the ship captain as
having been negligent in the performance of his duties (p. 3, Court of Appeals
Decision, p. 15, Rollo). This is a factual finding binding on this Court. For the
exception to the limited liability rule (Article 587, Code of Commerce) to apply,
the loss must be due to the fault of the shipowner, or to the concurring
negligence of the shipowner and the captain. As we held, there is nothing in
the records showing such negligence (p. 6, Decision.)
The invocation by petitioners of Articles 1733 and 1735 of the Civil Code is
misplaced. As was stated in the Decision sought to be reconsidered, while the
primary law governing the instant case is the Civil Code, in all matters not
regulated by said Code, the Code of Commerce and other special laws shall
govern. Since the Civil Code contains no provisions regulating liability of
shipowners or agents in the event of total loss or destruction of the vessel, it is
the provisions of the Code of Commerce, particularly Article 587, that governs.
Petitioner further contends that the ruling laid down in Eastern Shipping Lines
vs. IAC, et al. (150 SCRA 464 [1987]) should be made to apply in the instant
case. That case, however, involved foreign maritime trade while the present
case involves local
inter-island shipping. The environmental set-up in the two cases, therefore, is
not on all fours.
ACCORDINGLY, petitioner's Motion for Reconsideration is hereby DENIED
and this denial is FINAL.

Francisco D. Estrada for petitioner.

SO ORDERED.

Purita Hostanosas-Cortes for private respondents.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.

Chua Yek Hong v. IAC

MELENCIO-HERRERA, J.:

Facts:

Before us is a Motion for Reconsideration of our Decision dated 30 September

1988 affirming the judgment of the Court of Appeals dismissing the complaint
against private respondents and absolving them from any and all liability
arising from the loss of 1000 sacks of copra shipped by petitioner aboard
private respondents' vessel. Private respondents filed an opposition thereto.

Petitioner loaded 1,000 sacks of copra on board a vessel owned by

respondents, for shipment from Puerto Galera to Manila. Along its way, the
vessel capsized and sank. Petitioner filed an action for damages for breach
of contract of carriage.

Petitioner argues that this Court failed to consider the Trial Court's finding that
the loss of the vessel with its cargo was due to the fault of the shipowner or to
the concurring negligence of the shipowner and the captain.

Issue:
Whether respondents can avail of the limited liability
Held:

The shipowners or agents liability is merely co-extensive with his interests

in the vessel such that the total loss thereof results in its extinction. The
total destruction of the vessel extinguishes maritime liens as there is no
longer any res to which it can attach.
The primary law is the Civil Code and in default thereof, the Code of
Commerce and other special laws are applied. Since the Civil Code contains
no provisions regulating liability of shipowners or agents in the event of
total loss or destruction of the vessel, it is the provisions of the Code of
Commerce that govern in this case.

CHUA YEK HONG vs. INTERMEDIATE

APPELLATE COURT, MARIANO GUNO, and
DOMINADOR OLIT

liability, as ship owners, for the loss of the cargo is merely co-extensive with their
interest in the vessel such that a total loss thereof results in its extinction.

ISSUE:

Whether or not respondent Appellate Court erred in applying the doctrine of limited
liability under Article 587 of the Code of Commerce as expounded in Yangco vs.
Laserna, supra.

HELD:

G.R. No. 74811 September 30, 1988

As this Court held:

FACTS:

If the ship owner or agent may in any way be held civilly liable at all for injury to or
death of passengers arising from the negligence of the captain in cases of
collisions or shipwrecks, his liability is merely co-extensive with his interest in the
vessel such that a total loss thereof results in its extinction. (Yangco vs. Laserna,
et al., supra).

Petitioner contracted with the herein private respondent to deliver 1,000 sacks of
copra, valued at P101,227.40, on board the vessel M/V Luzviminda I owned by the
latter. However it did not reach its destination, the vessel capsized and sank with
all its cargo.

Petitioner instituted a complaint against private respondent for breach of contract

incurring damages.

Private respondents defense is that even assuming that the alleged cargo was
truly loaded aboard their vessel, their liability had been extinguished by reason of
the total loss of said vessel.

The limited liability rule, however, is not without exceptions, namely: (1) where the
injury or death to a passenger is due either to the fault of the ship owner, or to the
concurring negligence of the ship owner and the captain (Manila Steamship Co.,
Inc. vs. Abdulhaman supra); (2) where the vessel is insured; and (3) in workmen's
compensation claims Abueg vs. San Diego, supra). In this case, there is nothing in
the records to show that the loss of the cargo was due to the fault of the private
respondent as shipowners, or to their concurrent negligence with the captain of the
vessel. The judgment sought to be reviewed is hereby AFFIRMED

FIRST DIVISION
RTC rendered judgment in favor of Chua Yek Hong however CA reversed the
decision by applying Article 587 of the Code of Commerce and the doctrine in
Yangco vs. Lasema (73 Phil. 330 [1941]) and held that private respondents'

[G.R. No. 116940. June 11, 1997]

THE PHILIPPINE AMERICAN GENERAL INSURANCE

COMPANY, INC., petitioner, vs. COURT OF
APPEALS and FELMAN SHIPPING LINES,
respondents.
DECISION
BELLOSILLO, J.:

This case deals with the liability, if any, of a shipowner for loss of
cargo due to its failure to observe the extraordinary diligence
required by Art. 1733 of the Civil Code as well as the right of the
insurer to be subrogated to the rights of the insured upon payment of
the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on
board MV Asilda, a vessel owned and operated by respondent
Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter
Coca-Cola softdrink bottles to be transported from Zamboanga City
to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc.,
Cebu.i The shipment was insured with petitioner Philippine American
General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine
Open Policy No. 100367-PAG.
MV Asilda left the port of Zamboanga in fine weather at eight
oclock in the evening of the same day. At around eight forty-five the
following morning, 7 July 1983, the vessel sank in the waters of
Zamboanga del Norte bringing down her entire cargo with her
including the subject 7,500 cases of 1-liter Coca-Cola softdrink
bottles.

On 15 July 1983 the consignee Coca-Cola Bottlers Philippines,

Inc., Cebu plant, filed a claim with respondent FELMAN for recovery
of damages it sustained as a result of the loss of its softdrink bottles
that sank with MV Asilda. Respondent denied the claim thus
prompting the consignee to file an insurance claim with PHILAMGEN
which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse
against respondent FELMAN which disclaimed any liability for the
loss. Consequently, on 29 November 1983 PHILAMGEN sued the
shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total
loss of MV Asilda and its cargo were due to the vessels
unseaworthiness as she was put to sea in an unstable condition. It
further alleged that the vessel was improperly manned and that its
officers were grossly negligent in failing to take appropriate
measures to proceed to a nearby port or beach after the vessel
started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based
on the affirmative defense that no right of subrogation in favor of
PHILAMGEN was transmitted by the shipper, and that, in any event,
FELMAN had abandoned all its rights, interests and ownership over
MV Asilda together with her freight and appurtenances for the
purpose of limiting and extinguishing its liability under Art. 587 of the
Code of Commerce.ii
On 17 February 1986 the trial court dismissed the complaint of
PHILAMGEN. On appeal the Court of Appeals set aside the
dismissal and remanded the case to the lower court for trial on the
merits. FELMAN filed a petition for certiorari with this Court but it was
subsequently denied on 13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor
of FELMAN.iii It ruled that MV Asilda was seaworthy when it left the
port of Zamboanga as confirmed by certificates issued by the

Philippine Coast Guard and the shipowners surveyor attesting to its

seaworthiness. Thus the loss of the vessel and its entire shipment
could only be attributed to either a fortuitous event, in which case, no
liability should attach unless there was a stipulation to the contrary,
or to the negligence of the captain and his crew, in which case, Art.
587 of the Code of Commerce should apply.
The lower court further ruled that assuming MV Asilda was
unseaworthy, still PHILAMGEN could not recover from FELMAN
since the assured (Coca-Cola Bottlers Philippines, Inc.) had
breached its implied warranty on the vessels seaworthiness.
Resultantly, the payment made by PHILAMGEN to the assured was
an undue, wrong and mistaken payment. Since it was not legally
owing, it did not give PHILAMGEN the right of subrogation so as to
permit it to bring an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the
Court of Appeals. On 29 August 1994 respondent appellate court
rendered judgment finding MV Asilda unseaworthy for being topheavy as 2,500 cases of Coca-Cola softdrink bottles were improperly
stowed on deck. In other words, while the vessel possessed the
necessary Coast Guard certification indicating its seaworthiness with
respect to the structure of the ship itself, it was not seaworthy with
respect to the cargo. Nonetheless, the appellate court denied the
claim of PHILAMGEN on the ground that the assureds implied
warranty of seaworthiness was not complied with. Perfunctorily,
PHILAMGEN was not properly subrogated to the rights and interests
of the shipper. Furthermore, respondent court held that the filing of
notice of abandonment had absolved the shipowner/agent from
liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether MV
Asilda was seaworthy when it left the port of Zamboanga; (b)
whether the limited liability under Art. 587 of the Code of Commerce
should apply; and, (c) whether PHILAMGEN was properly
subrogated to the rights and legal actions which the shipper had
against FELMAN, the shipowner.

MV Asilda was unseaworthy when it left the port of Zamboanga.

In a joint statement, the captain as well as the chief mate of the
vessel confirmed that the weather was fine when they left the port of
Zamboanga. According to them, the vessel was carrying 7,500 cases
of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200
empty CO2 cylinders and an undetermined quantity of empty boxes
for fresh eggs. They loaded the empty boxes for eggs and about 500
cases of Coca-Cola bottles on deck.iv The ship captain stated that
around four oclock in the morning of 7 July 1983 he was awakened
by the officer on duty to inform him that the vessel had hit a floating
log. At that time he noticed that the weather had deteriorated with
strong southeast winds inducing big waves. After thirty minutes he
observed that the vessel was listing slightly to starboard and would
not correct itself despite the heavy rolling and pitching. He then
ordered his crew to shift the cargo from starboard to portside until the
vessel was balanced. At about seven oclock in the morning, the
master of the vessel stopped the engine because the vessel was
listing dangerously to portside. He ordered his crew to shift the cargo
back to starboard. The shifting of cargo took about an hour
afterwhich he rang the engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside
and before the captain could decide on his next move, some of the
cargo on deck were thrown overboard and seawater entered the
engine room and cargo holds of the vessel. At that instance, the
master of the vessel ordered his crew to abandon ship. Shortly
thereafter, MV Asilda capsized and sank. He ascribed the sinking to
the entry of seawater through a hole in the hull caused by the
vessels collision with a partially submerged log. v
The Elite Adjusters, Inc., submitted a report regarding the sinking
of MV Asilda. The report, which was adopted by the Court of
Appeals, reads We found in the course of our investigation that a reasonable
explanation for the series of lists experienced by the vessel that
eventually led to her capsizing and sinking, was that the vessel
was top-heavy which is to say that while the vessel may not have

been overloaded, yet the distribution or stowage of the cargo on

board was done in such a manner that the vessel was in topheavy condition at the time of her departure and which condition
rendered her unstable and unseaworthy for that particular voyage.
In this connection, we wish to call attention to the fact that this
vessel was designed as a fishing vessel x x x x and it was not
designed to carry a substantial amount or quantity of cargo on
deck. Therefore, we believe strongly that had her cargo been
confined to those that could have been accommodated under
deck, her stability would not have been affected and the vessel
would not have been in any danger of capsizing, even given the
prevailing weather conditions at that time of sinking.
But from the moment that the vessel was utilized to load
heavy cargo on its deck, the vessel was rendered unseaworthy for
the purpose of carrying the type of cargo because the weight of
the deck cargo so decreased the vessels metacentric height as to
cause it to become unstable.
Finally, with regard to the allegation that the vessel
encountered big waves, it must be pointed out that ships are
precisely designed to be able to navigate safely even during
heavy weather and frequently we hear of ships safely and
successfully weathering encounters with typhoons and although
they may sustain some amount of damage, the sinking of ship
during heavy weather is not a frequent occurrence and is not likely
to occur unless they are inherently unstable and unseaworthy x x
xx
We believe, therefore, and so hold that the proximate cause
of the sinking of the M/V Asilda was her condition of
unseaworthiness arising from her having been top-heavy when
she departed from the Port of Zamboanga. Her having capsized
and eventually sunk was bound to happen and was therefore in
the category of an inevitable occurrence (underscoring supplied).vi

We subscribe to the findings of the Elite Adjusters, Inc., and the

Court of Appeals that the proximate cause of the sinking of MV
Asilda was its being top-heavy. Contrary to the ship captains

allegations, evidence shows that approximately 2,500 cases of

softdrink bottles were stowed on deck. Several days after MV Asilda
sank, an estimated 2,500 empty Coca-Cola plastic cases were
recovered near the vicinity of the sinking. Considering that the ships
hatches were properly secured, the empty Coca-Cola cases
recovered could have come only from the vessels deck cargo. It is
settled that carrying a deck cargo raises the presumption of
unseaworthiness unless it can be shown that the deck cargo will not
interfere with the proper management of the ship. However, in this
case it was established that MV Asilda was not designed to carry
substantial amount of cargo on deck. The inordinate loading of cargo
deck resulted in the decrease of the vessels metacentric height vii thus
making it unstable. The strong winds and waves encountered by the
vessel are but the ordinary vicissitudes of a sea voyage and as such
merely contributed to its already unstable and unseaworthy
condition.
On the second issue, Art. 587 of the Code of Commerce is not
applicable to the case at bar.viii Simply put, the ship agent is liable for
the negligent acts of the captain in the care of goods loaded on the
vessel. This liability however can be limited through abandonment of
the vessel, its equipment and freightage as provided in Art. 587.
Nonetheless, there are exceptional circumstances wherein the ship
agent could still be held answerable despite the abandonment, as
where the loss or injury was due to the fault of the shipowner and the
captain.ix The international rule is to the effect that the right of
abandonment of vessels, as a legal limitation of a shipowners
liability, does not apply to cases where the injury or average was
occasioned by the shipowners own fault. x It must be stressed at this
point that Art. 587 speaks only of situations where the fault or
negligence is committed solely by the captain. Where the shipowner
is likewise to be blamed, Art. 587 will not apply, and such situation
will be covered by the provisions of the Civil Code on common
carrier.xi
It was already established at the outset that the sinking of MV
Asilda was due to its unseaworthiness even at the time of its

departure from the port of Zamboanga. It was top-heavy as an

excessive amount of cargo was loaded on deck. Closer supervision
on the part of the shipowner could have prevented this fatal
miscalculation. As such, FELMAN was equally negligent. It cannot
therefore escape liability through the expedient of filing a notice of
abandonment of the vessel by virtue of Art. 587 of the Code of
Commerce.
Under Art 1733 of the Civil Code, (c)ommon carriers, from the
nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by them, according to all
the circumstances of each case x x x x" In the event of loss of goods,
common carriers are presumed to have acted negligently. FELMAN,
the shipowner, was not able to rebut this presumption.
In relation to the question of subrogation, respondent appellate
court found MV Asilda unseaworthy with reference to the cargo and
therefore ruled that there was breach of warranty of seaworthiness
that rendered the assured not entitled to the payment of is claim
under the policy. Hence, when PHILAMGEN paid the claim of the
bottling firm there was in effect a voluntary payment and no right of
subrogation accrued in its favor. In other words, when PHILAMGEN
paid it did so at its own risk.
It is generally held that in every marine insurance policy the
assured impliedly warrants to the assurer that the vessel is
seaworthy and such warranty is as much a term of the contract as if
expressly written on the face of the policy.xii Thus Sec. 113 of the
Insurance Code provides that (i)n every marine insurance upon a
ship or freight, or freightage, or upon anything which is the subject of
marine insurance, a warranty is implied that the ship is seaworthy.
Under Sec. 114, a ship is seaworthy when reasonably fit to perform
the service, and to encounter the ordinary perils of the voyage,
contemplated by the parties to the policy. Thus it becomes the
obligation of the cargo owner to look for a reliable common carrier
which keeps its vessels in seaworthy condition. He may have no

control over the vessel but he has full control in the selection of the
common carrier that will transport his goods. He also has full
discretion in the choice of assurer that will underwrite a particular
venture.
We need not belabor the alleged breach of warranty of
seaworthiness by the assured as painstakingly pointed out by
FELMAN to stress that subrogation will not work in this case. In
policies where the law will generally imply a warranty of
seaworthiness, it can only be excluded by terms in writing in the
policy in the clearest language. xiii And where the policy stipulates that
the seaworthiness of the vessel as between the assured and the
assurer is admitted, the question of seaworthiness cannot be raised
by the assurer without showing concealment or misrepresentation by
the assured.xiv
The marine policy issued by PHILAMGEN to the Coca-Cola
bottling firm in at least two (2) instances has dispensed with the
usual warranty of worthiness. Paragraph 15 of the Marine Open
Policy No. 100367-PAG reads (t)he liberties as per Contract of
Affreightment the presence of the Negligence Clause and/or Latent
Defect Clause in the Bill of Lading and/or Charter Party and/or
Contract of Affreightment as between the Assured and the Company
shall not prejudice the insurance. The seaworthiness of the vessel as
between the Assured and the Assurers is hereby admitted. xv
The same clause is present in par. 8 of the Institute Cargo
Clauses (F.P.A.) of the policy which states (t)he seaworthiness of the
vessel as between the Assured and Underwriters in hereby admitted
x x x x"xvi
The result of the admission of seaworthiness by the assurer
PHILAMGEN may mean one or two things: (a) that the warranty of
the seaworthiness is to be taken as fulfilled; or, (b) that the risk of
unseaworthiness is assumed by the insurance company. xvii The
insertion of such waiver clauses in cargo policies is in recognition of
the realistic fact that cargo owners cannot control the state of the

vessel. Thus it can be said that with such categorical waiver,

PHILAMGEN has accepted the risk of unseaworthiness so that if the
ship should sink by unseaworthiness, as what occurred in this case,
PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for
subrogation. PHILAMGENs action against FELMAN is squarely
sanctioned by Art. 2207 of the Civil Code which provides:

WHEREFORE, the petition is GRANTED. Respondent FELMAN

SHIPPING LINES is ordered to pay petitioner PHILIPPINE
AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred
Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00)
plus legal interest thereon counted from 29 November 1983, the date
of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil
Code.xx
SO ORDERED.

Art. 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.

In Pan Malayan Insurance Corporation v. Court of Appeals,xviii we

said that payment by the assurer to the assured operates as an
equitable assignment to the assurer of all the remedies which the
assured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of any privity of contract or
upon payment by the insurance company of the insurance claim. It
accrues simply upon payment by the insurance company of the
insurance claim.
The doctrine of subrogation has its roots in equity. It is designed
to promote and to accomplish justice and is the mode which equity
adopts to compel the ultimate payment of a debt by one who in
justice, equity and good conscience ought to pay. xix Therefore, the
payment made by PHILAMGEN to Coca-Cola Bottlers Philippines,
Inc., gave the former the right to bring an action as subrogee against
FELMAN. Having failed to rebut the presumption of fault, the liability
of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola
softdrink bottles is inevitable.

Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.

Padilla, (Chairman), J., on leave.

i
ii
iii
iv
v
vi
vii
viii
ix
x
xi
xii
xiii
xiv
xv
xvi
xvii
xviii

xix
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-42926 September 13, 1985
PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES, ROMEO
VASQUEZ and MAXIMINA CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC., respondents.

Emilio D. Castellanes for petitioners.

Apolinario A. Abantao for private respondents.

MELENCIO-HERRERA, J.:
This litigation involves a claim for damages for the loss at sea of petitioners' respective children after the
shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966.
The factual antecedents, as summarized by the trial Court and adopted by respondent Court, and which we
find supported by the record, read as follows:
When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early
morning of May 15, 1966 bound for Cebu, it had on board the spouses Alfonso
Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez,
among her passengers. The MV "Pioneer Cebu" encountered typhoon "Klaring" and
struck a reef on the southern part of Malapascua Island, located somewhere north
of the island of Cebu and subsequently sunk. The aforementioned passengers were
unheard from since then.
Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez;
plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo;
and plaintiffs Romeo Vasquez and Maxima Cainay are the parents of the child,
Mario Marlon Vasquez. They seek the recovery of damages due to the loss of
Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.
At the pre-trial, the defendant admitted its contract of carriage with Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez, and the fact of the sinking of the MV
"Pioneer Cebu". The issues of the case were limited to the defenses alleged by the
defendant that the sinking of the vessel was caused by force majeure, and that the
defendant's liability had been extinguished by the total loss of the vessel.
The evidence on record as to the circumstances of the last voyage of the MV
"Pioneer Cebu" came mainly, if not exclusively, from the defendant. The MV
"Pioneer Cebu" was owned and operated by the defendant and used in the
transportation of goods and passengers in the inter-island shipping. Scheduled to
leave the Port of Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00
a.m. the following day, May 15, 1966. It had a passenger capacity of three hundred
twenty-two (322) including the crew. It undertook the said voyage on a special
permit issued by the Collector of Customs inasmuch as, upon inspection, it was
found to be without an emergency electrical power system. The special permit
authorized the vessel to carry only two hundred sixty (260) passengers due to the
said deficiency and for lack of safety devices for 322 passengers (Exh. 2). A
headcount was made of the passengers on board, resulting on the tallying of 168
adults and 20 minors, although the passengers manifest only listed 106
passengers. It has been admitted, however, that the headcount is not reliable
inasmuch as it was only done by one man on board the vessel.
When the vessel left Manila, its officers were already aware of the typhoon Klaring
building up somewhere in Mindanao. There being no typhoon signals on the route
from Manila to Cebu, and the vessel having been cleared by the Customs
authorities, the MV "Pioneer Cebu" left on its voyage to Cebu despite the typhoon.
When it reached Romblon Island, it was decided not to seek shelter thereat,
inasmuch as the weather condition was still good. After passing Romblon and while

near Jintotolo island, the barometer still indicated the existence of good weather
condition continued until the vessel approached Tanguingui island. Upon passing
the latter island, however, the weather suddenly changed and heavy rains felt
Fearing that due to zero visibility, the vessel might hit Chocolate island group, the
captain ordered a reversal of the course so that the vessel could 'weather out' the
typhoon by facing the winds and the waves in the open. Unfortunately, at about
noontime on May 16, 1966, the vessel struck a reef near Malapascua island,
sustained leaks and eventually sunk, bringing with her Captain Floro Yap who was
in command of the vessel.
Due to the loss of their children, petitioners sued for damages before the Court of First Instance of Manila
(Civil Case No. 67139). Respondent defended on the plea of force majeure, and the extinction of its liability
by the actual total loss of the vessel.
After proper proceedings, the trial Court awarded damages, thus:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay:
(a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the
loss of earning capacity of the deceased Alfonso Vasquez, P2,100.00 for support,
and P10,000.00 for moral damages;
(b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss
of earning capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral
damages; and
(c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by way
of moral damages by reason of the death of Mario Marlon Vasquez.
On appeal, respondent Court reversed the aforementioned judgment and absolved private respondent from
any and all liability.
Hence, this Petition for Review on Certiorari, the basic issue being the liability for damages of private
respondent for the presumptive death of petitioners' children.
The trial Court found the defense of caso fortuito untenable due to various decisive factors, thus:
... It is an admitted fact that even before the vessel left on its last voyage, its officers
and crew were already aware of the typhoon brewing somewhere in the same
general direction to which the vessel was going. The crew of the vessel took a
calculated risk when it proceeded despite the typhoon advisory. This is quite evident
from the fact that the officers of the vessel had to conduct conferences amongst
themselves to decide whether or not to proceed. The crew assumed a greater risk
when, instead of seeking shelter in Romblon and other islands the vessel passed en
route, they decided to take a change on the expected continuation of the good
weather the vessel was encountering, and the possibility that the typhoon would
veer to some other directions. The eagerness of the crew of the vessel to proceed
on its voyage and to arrive at its destination is readily understandable. It is
undeniably lamentable, however, that they did so at the risk of the lives of the
passengers on board.
Contrariwise, respondent Appellate Court believed that the calamity was caused solely and proximately by
fortuitous event which not even extraordinary diligence of the highest degree could have guarded against;
and that there was no negligence on the part of the common carrier in the discharge of its duties.
Upon the evidence and the applicable law, we sustain the trial Court. "To constitute a caso fortuito that
would exempt a person from responsibility, it is necessary that (1) the event must be independent of the

human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal
manner; and that (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor."
1 In the language of the law, the event must have been impossible to foresee, or if it could be foreseen, must
have been impossible to avoid. 2 There must be an entire exclusion of human agency from the cause of injury or
loss. 3
Turning to this case, before they sailed from the port of Manila, the officers and crew were aware of
typhoon "Klaring" that was reported building up at 260 kms. east of Surigao. In fact, they had lashed all the
cargo in the hold before sailing in anticipation of strong winds and rough waters. 4 They proceeded on their
way, as did other vessels that day. Upon reaching Romblon, they received the weather report that the typhoon
was 154 kms. east southeast of Tacloban and was moving west northwest. 5 Since they were still not within the
radius of the typhoon and the weather was clear, they deliberated and decided to proceed with the course. At
Jintotolo Island, the typhoon was already reported to be reaching the mainland of Samar. 6 They still decided to
proceed noting that the weather was still "good" although, according to the Chief Forecaster of the Weather
Bureau, they were already within the typhoon zone. 7 At Tanguingui Island, about 2:00 A.M. of May 16, 1966, the
typhoon was in an area quite close to Catbalogan, placing Tanguingui also within the typhoon zone. Despite
knowledge of that fact, they again decided to proceed relying on the forecast that the typhoon would weaken
upon crossing the mainland of Samar. 8 After about half an hour of navigation towards Chocolate Island, there
was a sudden fall of the barometer accompanied by heavy downpour, big waves, and zero visibility. The Captain
of the vessel decided to reverse course and face the waves in the open sea but because the visibility did not
improve they were in total darkness and, as a consequence, the vessel ran aground a reef and sank on May 16,
1966 around 12:45 P.M. near Malapascua Island somewhere north of the island of Cebu.
Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been kept
posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain and crew
were well aware of the risk they were taking as they hopped from island to island from Romblon up to
Tanguingui. They held frequent conferences, and oblivious of the utmost diligence required of very cautious
persons, 9 they decided to take a calculated risk. In so doing, they failed to observe that extraordinary diligence
required of them explicitly by law for the safety of the passengers transported by them with due regard for an
circumstances 10 and unnecessarily exposed the vessel and passengers to the tragic mishap. They failed to
overcome that presumption of fault or negligence that arises in cases of death or injuries to passengers. 11
While the Board of Marine Inquiry, which investigated the disaster, exonerated the captain from any
negligence, it was because it had considered the question of negligence as "moot and academic," the
captain having "lived up to the true tradition of the profession." While we are bound by the Board's factual
findings, we disagree with its conclusion since it obviously had not taken into account the legal
responsibility of a common carrier towards the safety of the passengers involved.
With respect to private respondent's submission that the total loss of the vessel extinguished its liability
pursuant to Article 587 of the Code of Commerce 12 as construed in Yangco vs. Laserna, 73 Phil. 330 [1941],
suffice it to state that even in the cited case, it was held that the liability of a shipowner is limited to the value of
the vessel or to the insurance thereon. Despite the total loss of the vessel therefore, its insurance answers for
the damages that a shipowner or agent may be held liable for by reason of the death of its passengers.
WHEREFORE, the appealed judgment is hereby REVERSED and the judgment of the then Court of First
Instance of Manila, Branch V, in Civil Case No. 67139, is hereby reinstated. No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., De la Fuente and Patajo, JJ., concur.

Footnotes
1 Lasam vs. Smith, 45 Phil. 657, 661 [1924]; Autria vs. Court of Appeals, 39 SCRA
527 [1971].

2 Art. 1174, Civil Code; Lasam vs. Smith, 45 Phil. 657 [1924].
3 Tolentino, Commentaries on the Civil Code, Vol. V, p. 252.
4 T.s.n., August 8, 1967, p. 22.
5 Domestic Bulletin No. 16 of the Weather Bureau.
6 Domestic Bulletin No. 17.
7 T.s.n. December 15, 1967, p. 21.
8 Domestic Bulletin No. 18.

9 Arts. 1755, 1756, Civil Code.

10 Art. 1733, Ibid.
11 Art. 1756, Ibid.
12 Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may
arise from the conduct of the captain in the vigilance over the goods which the vessel carried; but he may
exempt himself therefrom by abandoning the vessel with all her equipments and the freight he may have
earned during the voyage.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-773

December 17, 1946

DIONISIA ABUEG, ET AL., plaintiffs-appellees,

vs.
BARTOLOME SAN DIEGO, defendant-appellant.
---------------------------CA-No. L-774

December 17, 1946

MARCIANA DE SALVACION, ET AL., plaintiffs-appellees,

vs.
BARTOLOME SAN DIEGO, defendant-appellant.
---------------------------CA-No. L-775

December 17, 1946

ROSARIO OCHING, ET AL., plaintiffs-appellees,

vs.
BARTOLOME SAN DIEGO, defendant-appellant.
Lichauco, Picazo and Mejia for appellant.
Cecilio I. Lim and Roberto P. Ancog for appellees.

PADILLA, J.:
This is appeal from a judgment rendered by the Court of First Instance of Manila in the above-entitled
cases awarding plaintiffs the compensation provided for in the Workmen's Compensation Act.
The record of the cases was forwarded to the Court of Appeals for review, but as there was no question of
fact involved in the appeal, said court forwarded the record to this Court. The appeal was pending when the
Pacific War broke up, and continued pending until after liberation, because the record of the cases was
destroyed as a result of the battle waged by the forces of liberation against the enemy. As provided by law,

the record was reconstituted and we now proceed to dispose of the appeal.
Appellant, who was the owner of the motor ships San Diego II and Bartolome S, states in his brief the
following:
There is no dispute as to the facts involved in these cases and they may be gathered from
the pleadings and the decision of the trial Court. In case CA-G.R. No. 773, Dionisia Abueg
is the widow of the deceased, Amado Nuez, who was a machinist on board the M/S San
Diego II belonging to the defendant-appellant. In case CA-G.R. No. 774, plaintiff-appellee,
Marciana S. de Salvacion, is the widow of the deceased, Victoriano Salvacion, who was a
machinist on board the M/S Bartolome S also belonging to the defendant-appellant. In case
CA-G.R. No. 775, the plaintiff-appellee, Rosario R. Oching is the widow of Francisco
Oching who was a captain or patron of the defendant-appellant's M/S Bartolome S.
The M/S San Diego II and the M/S Bartolome, while engaged in fishing operations around
Mindoro Island on Oct. 1, 1941 were caught by a typhoon as a consequence of which they
were sunk and totally lost. Amado Nuez, Victoriano Salvacion and Francisco Oching while
acting in their capacities perished in the shipwreck (Appendix A, p. IV).
It is also undisputed that the above-named vessels were not covered by any insurance.
(Appendix A, p. IV.).
Counsel for the appellant cite article 587 of the Code of Commerce which provides that if the vessel
together with all her tackle and freight money earned during the voyage are abandoned, the agent's liability
to third persons for tortious acts of the captain in the care of the goods which the ship carried is
extinguished (Yangco vs. Laserna, 73 Phil., 330); article 837 of the same code which provides that in cases
of collision, the ship owners' liability is limited to the value of the vessel with all her equipment and freight
earned during the voyage (Philippine Shipping company vs. Garcia, 6 Phil., 281), and article 643 of the
same Code which provides that if the vessel and freight are totally lost, the agent's liability for wages of the
crew is extinguished. From these premises counsel draw the conclusion that appellant's liability, as owner
of the two motor ships lost or sunk as a result of the typhoon that lashed the island of Mindoro on October
1, 1941, was extinguished.
The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of the
Maritime Law, Book III, Code of Commerce, had its origin in the prevailing continues of the maritime trade
and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against
these adverse conditions and encourage shipbuilding and maritime commerce, it was deemed necessary
to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment,
and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and
freight, his liability was extinguished.
But the provisions of the Code of Commerce invoked by appellant have no room in the application of the
Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of
laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a
passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of
the ship as result of collision; nor the responsibility for wages of the crew, but a liability created by a statute
to compensate employees and laborers in cases of injury received by or inflicted upon them, while
engaged in the performance of their work or employment, or the heirs and dependents and laborers and
employees in the event of death caused by their employment. Such compensation has nothing to do with
the provisions of the Code of Commerce regarding maritime commerce. It is an item in the cost of
production which must be included in the budget of any well-managed industry.
lawphil.net

Appellant's assertion that in the case of Enciso vs. Dy-Liaco (57 Phil., 446), and Murillo vs. Mendoza (66
Phil., 689), the question of the extinction of the shipowner's liability due to abandonment of the ship by him
was not fully discussed, as in the case of Yangco vs. Laserma, supra, is not entirely correct. In the last
mentioned case, the limitation of the shipowner's liability to the value of the ship, equipment, freight, and

insurance, if any, was the lis mota. In the case of Enciso vs. Dy-Liacco, supra, the application of the
Workmen's Compensation Act to a master or patron who perished as a result of the sinking of the
motorboat of which he was the master, was the controversy submitted to the court for decision. This Court
held in that case that "It has been repeatedly stated that the Workmen's Compensation Act was enacted to
abrogate the common law and our Civil Code upon culpable acts and omissions, and that the employer
need not be guilty of neglect or fault, in order that responsibility may attach to him" (pp. 449-450); and that
shipowner was liable to pay compensation provided for in the Workmen's Compensation Act,
notwithstanding the fact that the motorboat was totally lost. In the case of Murillo vs. Mendoza, supra, this
Court held that "The rights and responsibilities defined in said Act must be governed by its own peculiar
provisions in complete disregard of other similar mercantile law. If an accident is compensable under the
Workmen's Compensation Act, it must be compensated even when the workman's right is not recognized
by or is in conflict with other provisions of the Civil Code or the Code of Commerce. The reason behind this
principle is that the Workmen's Compensation Act was enacted by the Legislature in abrogation of the other
existing laws." This quoted part of the decision is in answer to the contention that it was not the intention of
the Legislature to repeal articles 643 and 837 of the Code of Commerce with the enactment of the
Workmen's Compensation Act.
In the memorandum filed by counsel for the appellant, a new point not relied upon in the court below is
raised. They contend that the motorboats engaged in fishing could not be deemed to be in the coastwise
and interisland trade, as contemplated in section 38 of the Workmen's Compensation Act (No. 3428), as
amended by Act no. 3812, inasmuch as, according to counsel, a craft engaged in the coastwise and
interisland trade is one that carries passengers and/or merchandise for hire between ports and places in
the Philippine Islands.
lawphil.net

This new point raised by counsel for the appellant is inconsistent with the first, for, if the motor ships in
question, while engaged in fishing, were to be considered as not engaged in interisland and coastwise
trade, the provisions of the Code of Commerce invoked by them regarding limitation of the shipowner's
liability or extinction thereof when the shipowner abandons the ship, cannot be applied (Lopez vs. Duruelo,
52 Phil., 229). Granting however, that the motor ships run and operated by the appellant were not engaged
in the coastwise and interisland trade, as contemplated in section 38 of the Workmen's Compensation Act,
as amended, still the deceased officers of the motor ships in question were industrial employees within the
purview of section 39, paragraph (d), as amended, for industrial employment "includes all employment or
work at a trade, occupation or profession exercised by an employer for the purpose of gain." The only
exceptions recognized by the Act are agriculture, charitable institutions and domestic service. Even
employees engaged in agriculture for the operation of mechanical implements, are entitled to the benefits
of the Workmen's Compensation Act (Francisco vs. Consing, 63 Phil., 354). In Murillo vs. Mendoza, supra,
this Court held that "our Legislature has deemed it admissible to include in the Workmen's Compensation
Act all incidents that may occur to workmen or employees in factories, shops and other industrial and
agricultural workplaces as well as in the interisland seas of the Archipelago." But we do not believe that the
term "coastwise and interisland trade" has such a narrow meaning as to confine it to the carriage for hire of
passengers and/or merchandise on vessels between ports and places in the Philippines, because while
fishing is an industry, if the catch is brought to a port for sale, it is at the same time a trade.
Finding no merit in the appeal filed in these cases, we affirm the judgment of the lower court, with costs
against the appellant.
Moran, Bengzon, C.J., Paras, Feria, Pablo, Perfecto, Hilado, Briones and Tuazon, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-47447-47449

October 29, 1941

TEODORO R. YANGCO, ETC., petitioner,

vs.
MANUEL LASERNA, ET AL., respondents.
Claro M. Recto for petitioner.
Powell & Vega for respondents.

MORAN, J.:
At about one o'clock in the afternoon of May 26, 1927, the steamer S.S. Negros, belonging to petitioner
here, Teodoro R. Yangco, left the port of Romblon on its retun trip to Manila. Typhoon signal No. 2 was then
up, of which fact the captain was duly advised and his attention thereto called by the passengers
themselves before the vessel set sail. The boat was overloaded as indicated by the loadline which was 6 to
7 inches below the surface of the water. Baggage, trunks and other equipments were heaped on the upper
deck, the hold being packed to capacity. In addition, the vessel carried thirty sacks of crushed marble and
about one hundred sacks of copra and some lumber. The passengers, numbering about 180, were
overcrowded, the vessel's capacity being limited to only 123 passengers. After two hours of sailing, the
boat encountered strong winds and rough seas between the islands of Banton and Simara, and as the
waves splashed the ladies' dresses, the awnings were lowered. As the sea became increasingly violent,
the captain ordered the vessel to turn left, evidently to return to port, but in the manuever, the vessel was
caught sidewise by a big wave which caused it to capsize and sink. Many of the passengers died in the
mishap, among them being Antolin Aldaa and his son Victorioso, husband and son, respectively, of Emilia
Bienvenida who, together with her other children and a brother-in-law, are respondents in G.R. No. 47447;
Casiana Laserna, the daughter of respondents Manuel Laserna and P.A. de Laserna in G.R. 47448; and
Genaro Basaa, son of Filomeno Basaa, respondent in G.R. No. 47449. These respondents instituted in
the Court of First Instance of Capiz separate civil actions against petitioner here to recover damages for the
death of the passengers aforementioned. The court awarded the heirs of Antolin and Victorioso Aldana the
sum of P2,000; the heirs of Casiana Laserna, P590; and those of Genaro Basana, also P590. After the
rendition of the judgment to this effcet, petitioner, by a verified pleading, sought to abandon th evessel to
the plainitffs in the three cases, together with all its equipments, without prejudice to his right to appeal. The
abandonment having been denied, an appeal was taken to the Court of Appeals, wherein all the judgmnets
were affirmed except that which sums was increased to P4,000. Petitioner, now deceased, appealed and is
here represented by his legal representative.
Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or agent,
notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly held
liable in damages for the consequent death of its passengers? We are of the opinion and so hold that this
question is controlled by the provisions of article 587 of the Code of Commerce. Said article reads:
The agent shall also be civilly liable for the indemnities in favor of third persons which arise
from the conduct of the captain in the care of the goods which the vessel carried; but he
may exempt himself therefrom by abandoning the vessel with all her equipments and the
freight he may have earned during the voyage.
The provisions accords a shipowner or agent the right of abandonment; and by necessary implication, his
liability is confined to that which he is entitled as of right to abandon "the vessel with all her equipments
and the freight it may have earned during the voyage." It is true that the article appears to deal only with the
limited liability of shipowners or agents for damages arising from the misconduct of the captain in the care
of the goods which the vessel carries, but this is a mere deficiency of language and in no way indicates the
true extent of such liability. The consensus of authorities is to the effect that notwithstanding the language
of the aforequoted provision, the benefit of limited liability therein provided for, applies in all cases wherein
the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain. Dr. Jose
Ma. Gonzalez de Echavarri y Vivanco, commenting on said article, said:

La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de
abandono, si se atiende a lo escrito, solo se refiere a las indemnizaciones a que dierQe
lugar la conducta del Capitan en la custodia de los efectos que cargo en el buque.
Es ese el espiritu del legislador? No; habra derecho de abandono en las
responsabilidades nacidas de obligaciones contraidas por el Capitan y de otros actos de
este? Lo reputamos evidente y, para fortalecer nuestra opinion, basta copiar el siguiente
parrafo de la Exposicion de motivos:
"El proyecto, al aplicar estos principios, se inspira tambien en los intereses del
comercio maritimo, que quedaran mas asegurados ofreciendo a todo el que
contrata con el naviero o Capitan del buque, la garantia real del mismo,
cualesquiera que sean las facultades o atribuciones de que se hallen investidos."
(Echavarri, Codigo de Comercio, Tomo 4, 2. a ed., pags. 483-484.)
A cursory examination will disclose that the principle of liomited liability of a shipowner or agent is provided
for in but three articles of the Code of Commerce article 587 aforequoted and article 590 and 837. Article
590 merely reiterates the principle embodied in article 587, applies the same principle in cases of collision,
and it has been observed that said article is but "a necessary consequences of the right to abandon the
vessel given to the shipowner in article 587 of the Code, and it is one of the many superfluities contained in
the Code." (Lorenzo Benito, Lecciones 352, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil. 281, 282.)
In effect, therefore, only articles 587 and 590 are the provisions conatined in our Code of Commerce on the
matter, and the framers of said code had intended those provisions to embody the universal principle of
limited liability in all cases. Thus, in the "Exposicon de Motivos" of the Code of Commerce, we read:
The present code (1829) does not determine the juridical status of the agent where such
agent is not himself the owner of the vessel. This omission is supplied by the proposed
code, which provides in accordance with the principles of maritime law that by agent it is to
be understood the person intrusted with the provisioning of the vessel, or the one who
represents her in the port in which she happens to be. This person is the only one who
represents the vessel that is to say, the only one who represents the interests of the
owner of the vessel. This provision has therefore cleared the doubt which existed as to the
extent of the liability, both of the agent and of the owner of the vessel. Such liability is
limited by the proposed code to the value of the vessel and other things appertaining
thereto.
In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed ourselves in such a
comprehensive manner as to leave no room for doubt on the applicability of our ratio decidendi not only to
cases of collision but also to those of shipwrecks, etc. We said:
This is the difference which exists between the lawful acts and lawful obligations of the
captain and the liability which he incurs on account of any unlawful act committed by him. In
the first case, the lawful acts and obligations of the captain beneficial to the vessel may be
enforced as against the agent for the reason that such obligations arise from te the contract
of agency (provided, however, that the captain does not exceed his authority), while as to
any liability incurred by the captain through his unlawful acts, the ship agent is simply
subsidiarily civilly liable. This liability of the agent is limited to the vessel and it does not
extend further. For this reason the Code of Commerce makes the agent liable to the extent
of the value of the vessel, as the codes of the principal maritime nations provide with the
vessel, and not individually. Such is also the spirit of our Code.
The spirit of our code s accurately set forth in a treatise on maritime law, from which we
deem proper to quote the following as the basis of this decision:
lawphil.net

"That which distinguishes the maritime from the civil law and even from the
mercantile law in general is the real and hypothecary nature of the former, and the

many securities of a real nature that maritime customs from time immemorial, the
laws, the codes, and the later jurisprudence, have provided for the protection of the
various and conflicting interests which are ventured and risked in maritime
expeditions, such as the interests of the vessel and of the agent, those of the
owners of the cargo and consignees, those who salvage the ship, those who make
loans upon the cargo, those of the sailors and members of the crew as to their
wages, and those of a constructor as to repairs made to the vessel.
"As evidence of this real nature of the maritime law we have (1) the limitation of the
liability of the agents to the actual value of the vessel and the freight money, and (2)
the right to retain the cargo and the embargo and detention of the vessel even in
cases where the ordinary civil law would not allow more than a personal action
against the debtor or person liable. It will be observed that these rights are
correlative, and naturally so, because if the agent can exempt himself from liability
by abandoning the vessel and freight money, thus avoiding the possibility of risking
his whole fortune in the business, it is also just that his maritime creditor may for
any reason attach the vessel itself to secure his claim without waiting for a
settlement of his rights by a final judgment, even to the prejudice of a third person.
"This repeals the civil law to such an extent that, in certain cases, where the
mortgaged property is lost no personal action lies against the owner or agent of the
vessel. For instance, where the vessel is lost the sailors and members of the crew
cannot recover their wages; in case of collision, the liability of the agent is limited as
aforesaid, and in case of shipwreck, those who loan their money on the vessel and
cargo lose all their rights and cannot claim reimbursement under the law.
"There are two reasons why it is impossible to do away with these privileges, to wit:
(1) The risk to which the thing is exposed, and (2) the real nature of the maritime
law, exclusively real, according to which the liability of the parties is limited to a thing
which is at the mercy of the waves. If the agent is only liable with the vessel and
freight money and both may be lost through the accidents of navigation it is only just
that the maritime creditor have some means to obviating this precarious nature of
his rights by detaining the ship, his only security, before it is lost.
"The liens, tacit or legal, which may exist upon the vessel and which a purchaser of
the same would be obliged to respect and recognize are in addition to those
existing in favor of the State by virtue of the privileges which are granted to it by all
the laws pilot, tonnate, and port dues and other similar charges, the wages of the
crew earned during the last voyage as provided in article 646 of the Code of
Commerce, salvage dues under article 842, the indemnification due to the captain
of the vessel in case his contract is terminated on account of the voluntary sale of
the ship and the insolvency of the owner as provided in article 608, and all other
liabilities arising from collisions under articles 837 and 838."
We are shared in this conclusion by the eminent commentators on the subject. Agustin Vicente y Gella,
asserting, in his "Introduccion al Derecho Mercantil Comparado" 1929 (pages 374-375), the like principle of
limited liability of shipowners or agent in cases of accidents, collisions, shipwrecks, etc., said:
De las responsabilities que pueden resultar como consequencia del comercio maritimo, y
no solo por hechos propios sino tambien por las que se ocasionen por los del capitan y la
tripulacion, responde frente a tercero el naviero que representa el buque; pero el derecho
maritimo es sobre todo tradicional y siguiendo un viejo principio de la Edad Media la
responsabilidad del naviero se organiza de un modo especifico y particularisimo que no
encuentra similar en el derecho general de las obligaciones.

Una forma corrientisima de verificarse el comercio maritimo durante la epoca medieval, era
prestar un propietario su navio para que cargase en el mercancias determinada persona, y
se hiciese a la mar, yendo al frente de la expedicion un patron del buque, que llegado al
puerto de destino se encargaba de venderlas y retornaba al de salida despues de adquirir
en aquel otros efectos que igualmente revendia a su regreso, verificado lo cual los
beneficios de la expedicion se repartian entre el dueo del buque, el cargador y el capitan y
tripulantes en la proporcion estipulada. El derecho maritimo empezo a considerar la
asociacion asi formada como una verdadera sociedad mercantil, de responsabilidad
limitada, y de acuerdo con los principios que gobiernan aquella en los casos de accidentes,
abordajes, naufragios, etc., se resolvia que el dueo del buque perdia la nave, el cargador
las mercancias embarcadas y el capitan y la tripulacion su trabajo, sin que en ningun caso
el tercer acreedor pudiese reclamar mayor cantidad de ninguno de ellos, porque su
responsabilidad quedaba limitada a lo que cada uno aporto a la sociedad. Recogidas estas
ideas en el derecho comercial de tiempos posteriores, la responsabilidad del naviero se
edifico sobre aquellos principios, y derogando la norma general civil de que del
cumplimiento de sus obligaciones responde el deudor con todos sus bienes presentes y
futuros, la responsabilidad maritima se considero siempre limitada ipso jure al patrimonio
de mar. Y este es el origen de la regla trascendental de derecho maritimo segun la cual el
naviero se libera de toda responsabilidad abandonando el buque y el flete a favor de los
acreedores.
From the Enciclopedia Juridica Espaola, Vol. 23, p. 347, we read:
Ahora bien: hasta donde se extiende esta responsabilidad del naviero? sobre que
bienes pueden los acreedores resarcirse? Esta es otra especialidad del Derecho maritimo;
en el Derecho comun la responsabilidad es limitada; tambien lo era en el antiguo Derecho
maritimo romano; es daba la actio exercitoria contra el exercitor navis sin ninguna
restriccion, pero en la Edad Media una idea nueva se introdujo en los usos maritimos. Las
cargas resultantes de las expediciones maritimas se consideraron limitadas por los
propietarios de las naves a los valores comprometidos por ellos en cada expedicion; se
separo ficticiamente el patrimonio de los navieros en dos partes que todavia se designan
de una manera bastante exacta; fortuna de tierra y fortuna de mar o flotante; y se admitio la
teoria de que esta era la que respondia solo de las deudas provinientes de los actos del
capitan o de la tripulacion, es decir, que el conjunto del patrimonio del naviero escaparia a
estas cargas desde el momento en que abandonara la nave y los fletes a los
acreedores. . . .
Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38, observes:
La responsabilidad del naviero, en el caso expuesto, se funda en el principio de derecho
comun de ser responsable todo el que pone al frente de un establecimiento a una persona,
de los daos o perjuicios que ocasionare esta desempeando su cometido, y en que
estando facultado el naviero para la eleccion de capitan de la nave, viene a tener
indirectamente culpa en la negligencia o actos de este que o casionaron daos o
perjuicios, puesto que no se aseguro de su pericia o buena fe. Limitase, sin embargo, la
responsabilidad del naviero a la perdida de la nave, sus aparejos, y fletes devengados
durante el viaje; porque no pudiendo vigilar de un modo directo e inmediato la conducta del
capitan, hubiera sido duro hacerla extensiva a todos sus bienes que podria comprometer el
capitan con sus faltas o delitos.
The views of these learned commentators, including those of Estasen (Derecho Mercantil, Vol. 4, 259) and
Supino (Derecho Mercantil, pp. 463-464), leave nothing to be desired and nothing to be doubted on the
principle. It only remains to be noted that the rule of limited liability provided for in our Code of Commerce
reflects merely, or is but a restatement, imperfect though it is, of the almost universal principle on the
subject. While previously under the civil or common law, the owner of a vessel was liable to the full amount

for damages caused by the misconduct of the master, by the general maritime law of modern Europe, the
liability of the shipowner was subsequently limited to his interest in the vessel. (Norwich & N. Y. Trans. Co.
v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A similar limitation was placed by the British Parliament upon the
liability of Englosh shipowners through a series of statutes beginning in 1734 with the Act of 7 George II,
chapter 15. The legislatures of Massachusetts and Maine followed suit in 1818 and 1821, and finally,
Congress enacted the Limited Liability Act of March 3, 1851, embodying most of the provisions contained in
the British Statutes (see 24 R. C. L. pp. 1387-1389). Section 4283 of the Revised Statutes (sec. 183, Tit.
46, Code of Laws of U. S. A.) reads:
LIABILITY OF OWNER NOT TO EXCEED INTEREST. The liability of the owner of any
vessel, for any embezzlement, loss, or destruction, by any person, of any property, goods,
or merchandise, shipped or put on board of such vessel, or for any loss, damage, or injury
by collision, or for any act, matter or thing, loss, damage, or forfeiture, done, occasioned, or
incurred without the privity, or knowledge of such owner or owners, shall in no case exceed
the amount or value of the interest of such owner in such vessel, and her freight then
pending.
The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in
maritime commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright, supra; The Main v. Williams, 152 U. S.
122; 58 C. J. 634.) And it is in that spirit that the American courts construed the Limited Liability Act of
Congress whereby the immunities of the Act were applied to claims not only for lost goods but also for
injuries and "loss of life of passengers, whether arising under the general law of admiralty, or under Federal
or State statutes." (The City of Columbus, 22 Fed. 460; The Longfellow, 104 Fed. 360; Butler v. Boston &
Savannah Steamship Co., 32 Law. ed. 1017; Craig v. Continental Insurance Co., 35 Law. ed. 836.) The
Supreme Court of the United States in Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585,
589-590, accounting for the history of the principle, clinches our exposition of the supporting authorities:
The history of the limitation of liability of shipowners is matter of common knowledge. The
learned opinion of Judge Ware in the case of The Rebecca, 1 Ware, 187-194, leaves little to
be desired on the subject. He shows that it originated in the maritime law of modern
Europe; that whilst the civil, as well as the common law, made the owner responsible to the
whole extent of damage caused by the wrongful act or negligence of the matter or crew, the
maritime law only made then liable (if personally free from blame) to the amount of their
interest in the ship. So that, if they surrendered the ship, they were discharged.
Grotius, in his law of War and Peace, says that men would be deterred from investing in
ships if they thereby incurred the apprehension of being rendered liable to an indefinite
amount by the acts of the master and, therefore, in Holland, they had never observed the
Roman Law on that subject, but had a regulation that the ship owners should be bound no
farther than the value of their ship and freight. His words are: Navis et eorum quae in navi
sunt," "the ship and goods therein." But he is speaking of the owner's interest; and this, as
to the cargo, is the freight thereon, and in that sense he is understood by the
commentators. Boulay Paty, Droit Maritime, tit. 3, sec. 1, p. 276; Book II, c. XI, sec. XIII. The
maritime law, as codified in the celebrated French Ordonance de la Marine, in 1681,
expressed the rule thus: 'The proprietors of vessels shall be responsible for the acts of the
master, but they shall be discharged by abandoning the ship and freight.' Valin, in his
commentary on this passage, lib. 2, tit. 8, art. 2, after specifying certain engagements of the
master which are binding on the owners, without any limit of responsibility, such as
contracts for the benefit of the vessel, made during the voyage (except contracts of
bottomry) says: "With these exceptions it is just that the owner should not be bound for the
acts of the master, except to the amount of the ship and freight. Otherwise he would run the
risk of being ruined by the bad faith or negligence of his captain, and the apprehension of
this would be fatal to the interests of navigation. It is quite sufficient that he be exposed to
the loss of his ship and of the freight, to make it his interest, independently of any goods he
may have on board to select a reliable captain." Pardessus says: 'The owner is bound civilly

for all delinquencies committed by the captain within the scope of his authority, but he may
discharge himself therefrom by abandoning the ship and freight; and, if they are lost, it
suffices for his discharge, to surrender all claims in respect of the ship and its freight," such
as insurance, etc. Droit Commercial, part 3, tit. 2, c. 3, sec. 2.
The same general doctrine is laid down by many other writers on maritime law. So that it is
evident that, by this law, the owner's liability was coextensive with his interest in the vessel
and its freight, and ceased by his abandonment and surrender of these to the parties
sustaining loss.
In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held
civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of
collisions or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total
loss thereof results in its extinction. In arriving at this conclusion, we have not been unmindful of the fact
that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common carrier (De
Villata v. Stanely, 32 Phil., 541), and that the as a vessel engaged in interisland trade, is a common carrier
(De Villata v. Stanely, 32 Phil., 541), and that the relationship between the petitioner and the passengers
who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of
contract of carriage, the exclusively "real and hypothecary nature" of maritime law operates to limit such
liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear
that the vessel was insured.
Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance with
law of not, is immaterial. The vessel having totally perished, any act of abandonment would be an idle
ceremony.
Judgement is reversed and petitioner is hereby absolved of all the complaints, without costs.
Avancea, C.J., Abad Santos, Diaz, Laurel, Horrilleno, and Ozaeta, JJ., concur.

Yangco vs. Laserna

Post under case digests, Commercial Law at Wednesday, March 14, 2012 Posted by Schizophrenic Mind

Facts: At about one o'clock in the afternoon of May 26, 1927,

the steamer S.S. Negros, belonging to petitioner here,
Teodoro R. Yangco, left the port of Romblon on its return trip
to Manila. Typhoon signal No. 2 was then up, of which fact the
captain was duly advised and his attention thereto called by
the passengers themselves before the vessel set sail. The
boat was overloaded as indicated by the load line which was 6
to 7 inches below the surface of the water. The passengers,
numbering about 180, were overcrowded, the vessel's
capacity being limited to only 123 passengers. As the sea
became increasingly violent, the captain ordered the vessel to
turn left, evidently to return to port, but in the maneuver, the

vessel was caught sidewise by a big wave which caused it to

capsize and sink. Many of the passengers died in the mishap.
Separate civil actions were filed against petitioner to recover
damages for the death of the passengers.
Issue: May the shipowner or agent, notwithstanding the total
loss of the vessel as a result of the negligence of its captain,
be properly held liable in damages for the consequent death of
its passengers?
Held: No. This question is controlled by the provisions of
article 587 of the Code of Commerce. Said article reads:
The agent shall also be civilly liable for the indemnities in favor
of third persons which arise from the conduct of the captain in
the care of the goods which the vessel carried; but he may
exempt himself therefrom by abandoning the vessel with all
her equipments and the freight he may have earned during the
voyage.
The provisions accords a shipowner or agent the right of
abandonment; and by necessary implication, his liability is
confined to that which he is entitled as of right to abandon
"the vessel with all her equipment and the freight it may have
earned during the voyage."
Lawful acts and obligations of the captain beneficial to the
vessel may be enforced as against the agent for the reason

that such obligations arise from the contract of agency while

as to any liability incurred by the captain through his unlawful
acts, the ship agent is simply subsidiarily civilly liable. This
liability of the agent is limited to the vessel and it does not
extend further. For this reason the Code of Commerce makes
the agent liable to the extent of the value of the vessel, as the
codes of the principal maritime nations provide with the
vessel, and not individually.
If the shipowner or agent may in any way be held civilly liable
at all for injury to or death of passengers arising from the
negligence of the captain in cases of collisions or shipwrecks,
his liability is merely co-extensive with his interest in the
vessel such that a total loss thereof results in its extinction.
Assuming that petitioner is liable for a breach of contract of
carriage, the exclusively "real and hypothecary nature" of
maritime law operates to limit such liability to the value of the
vessel, or to the insurance thereon, if any. In the instant case it
does not appear that the vessel was insured. Whether the
abandonment of the vessel sought by the petitioner in the
instant case was in accordance with law of not, is immaterial.
The vessel having totally perished, any act of abandonment
would be an idle ceremony.
Yangco is therefore absolved from the complaints.

YU CON, plaintiff-appellee, vs. GLICERIO

IPIL, NARCISO LAURON, and JUSTO
SOLAMO, defendants-appellants.
G.R. No. L-10195 December 29, 1916
YU CON, plaintiff-appellee, vs. GLICERIO IPIL, NARCISO LAURON, and JUSTO SOLAMO, defendants-appellants.
Felix Sevilla y Macam for appellants. Juan Singson and Dionisio Jakosalem for appellee.
ARAULLO, J.:
Facts:
Yu Con, a merchant and a resident of the town of San Nicolas, of the city of Cebu, engaged in the sale of cloth and
domestic articles and having a share in a shop, or small store, situated in the town of Catmon, of said province, had
several times chartered from Narciso Lauron, a banca named Maria belonging to the latter, of which Glicerio Ipil was
master and Justo Solamo, supercargo, for the transportation of certain merchandise and some money to and from
the said town and the port of Cebu. On 17 October, 1911 Yu Con chartered the said banca from Lauron for the
transportation of various merchandise from the port of Cebu to Catmon, at the price of P45 for the round trip, which
merchandise was loaded on board the said craft which was then at anchor in front of one of the graded fills of the
wharf of said port. In the afternoon of the following day, he delivered to the other two defendants, Ipil,
and Solamo, master and supercargo, respectively, of the banca, the sum of P450, which was in a trunk
belonging to Yu Con and was taken charge of by Ipil and Solamo, who received this money from Yu
Con, for the purpose of its delivery to the latters shop in Catmon for the purchase of corn in this town.
While the money was still in said trunk aboard the vessel, on the night of 18 October, the time scheduled for the
departure of the Maria from the port of Cebu, said master and said supercargo transferred the P450 from Yu
Cons trunk, where it was, to theirs, which was in a stateroom of the banca, from which stateroom both
the trunk and the money disappeared during that same night, and that the investigations, made to
ascertain their whereabouts, produced no result.
Yu Con brought action to enable him to recover from Ipil, Lauron, and Solamo in solidum the sum of P450 lost. Yu
Con based his action on the charge that the disappearance of said sum was due to the abandonment,
negligence, or voluntary breach, on the part of the defendants, of the duty they had with respect to
the safe-keeping of said sum.
At the termination of the trial, the court, held that the sole cause of the disappearance of the money from the said
banca was the negligence of the master and the supercargo, Ipil and Solamo, respectively, and that Lauron was
responsible for that negligence, as owner of the banca, pursuant to articles 586, 587, and 618 of the Code of
Commerce, Yu Con therefore being entitled to recover the amount lost. Judgment was rendered on 20 April 1914, in
favor of Yu Con and against Ipil, et. al. jointly and severally for the sum of P450, with interest thereon at the rate of
6% per annum from the date of filing of the complaint, 24 October 1911, with costs.
Issue:
Whether or not the banca may be considered as a vessel and whether or not Glicerio Ipil ,as a master, may be
considered as the captain in the determination of liability.
Held:
Yes.
For legal purposes, that is, for the determination of the nature and effect of the relations created between the
plaintiff, as owner of the merchandise laden on said craft and of the money that was delivered to the master, Ipil,
and the defendant Lauron, as owner of the craft, the latter was a vessel, according to the meaning and
construction given to the word vessel in the Mercantile Code, in treating of maritime commerce, under
Title 1, Book 3.
The word vessel serves to designate every kind of craft by whatever particular or technical name it may
now be known or which nautical advancements may give it in the future.
According to the Dictionary of Legislation and Jurisprudence by Escriche, a vessel is any kind of craft, considering
solely the hull.
Blanco, the commentator on mercantile law, in referring to the grammatical meaning of the word "ship" and
"vessels," says, in his work aforecited, that these terms designate every kind of craft, large or small, whether
belonging to the merchant marine or to the navy. And referring to their juridical meaning, he adds: "This
does not differ essentially from the grammatical meaning; the words "ship" and "vessel" also designate every craft,

large or small, so long as it is not an accessory of another, such as the small boat of a vessel, of greater or less
tonnage. This definition comprises both the craft intended for ocean or for coastwise navigation, as well as the
floating docks, mud lighters, dredges, dump scows or any other floating apparatus used in the service of an industry
or in that of maritime commerce. . . ."
According to the foregoing definitions, then, we should that the banca called Maria, chartered by the plaintiff Yu Con
from the defendant Narciso Lauron, was a "vessel", pursuant to the meaning this word has in mercantile law, that is,
in accordance with the provisions of the Code of Commerce in force.
Glicerio Ipil, the master of the said banca Maria, must also be considered as its captain, in the legal
acceptation of this word.
The same Code of Commerce in force in these Islands compares, in its article 609, masters with captains.
Commenting on said article, the aforementioned General Review of Legislation and Jurisprudence says:
The name of captain or master is given, according to the kind of vessel, to the person in charge of it.
The first denomination is applied to those who govern vessels that navigate the high seas or ships of large
dimensions and importance, although they are engaged in the coastwise trade.
Masters are those who command smaller ships engaged exclusively in the coastwise trade.
For the purposes of maritime commerce, the words "captain" and "master" have the same meaning; both
being the chiefs or commanders of ships.
Article 587 of the Code of Commerce in force provides:
The agent shall be civilly liable for the indemnities in favor of third persons which arise from the
conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself
therefrom by abandoning the vessel with all her equipments and the freight he may have earned during the trip.
Article 618 of the same Code also prescribes:
The captain shall be civilly liable to the agent and the latter to the third persons who may have made
contracts with the former
1. For all the damages suffered by the vessel and its cargo by reason of want of skill or negligence
on his part, if a misdemeanor or crime has been committed he shall be liable in accordance with
the Penal Code.2. For all the thefts committed by the crew, reserving his right of action against the
guilty parties.
It is therefore evident that, in accordance with the provisions of the Code of Commerce in force, which are
applicable to the instance case, the defendant Narciso Lauron, as the proprietor and owner of the craft of
which Glicerio Ipil was the master and in which, through the fault and negligence of the latter and of
the supercago Justo Solamo, there occurred the loss, theft, or robbery of the P450 that belonged to
the plaintiff and were delivered to said master and supercargo, a theft which, on the other hand, as
shown by the evidence, does not appear to have been committed by a person not belonging to the
craft, should, for said loss or theft, be held civilly liable to the plaintiff, who executed with said defendant
Lauron the contract for the transportation of the merchandise and money aforementioned between the port
of Cebu and the town of Catmon, by means of the said craft.

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