TRANSPORTATION LAW CASES

___________________________________________________________________________________2003
G.R. No. 145804 February 6, 2003
LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN
vs.
MARJORIE NAVIDAD, Heirs of the Late NICANOR NAVIDAD & PRUDENT SECURITY AGENCY
The case before the Court is an appeal from the decision and resolution of the Court of Appeals,
promulgated on 27 April 2000 and 10 October 2000, respectively, in CA-G.R. CV No. 60720, entitled
"Marjorie Navidad and Heirs of the Late Nicanor Navidad vs. Rodolfo Roman, et. al.," which has modified the
decision of 11 August 1998 of the Regional Trial Court, Branch 266, Pasig City, exonerating Prudent Security
Agency (Prudent) from liability and finding Light Rail Transit Authority (LRTA) and Rodolfo Roman liable for
damages on account of the death of Nicanor Navidad.
On 14 October 1993, about half an hour past seven o’clock in the evening, Nicanor Navidad, then drunk,
entered the EDSA LRT station after purchasing a "token" (representing payment of the fare). While Navidad
was standing on the platform near the LRT tracks, Junelito Escartin, the security guard assigned to the area
approached Navidad. A misunderstanding or an altercation between the two apparently ensued that led to a
fist fight. No evidence, however, was adduced to indicate how the fight started or who, between the two,
delivered the first blow or how Navidad later fell on the LRT tracks. At the exact moment that Navidad fell, an
LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad was struck by the moving train,
and he was killed instantaneously.
On 08 December 1994, the widow of Nicanor, herein respondent Marjorie Navidad, along with her children,
filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit
Organization, Inc. (Metro Transit), and Prudent for the death of her husband. LRTA and Roman filed a
counterclaim against Navidad and a cross-claim against Escartin and Prudent. Prudent, in its answer, denied
liability and averred that it had exercised due diligence in the selection and supervision of its security guards.
The LRTA and Roman presented their evidence while Prudent and Escartin, instead of presenting evidence,
filed a demurrer contending that Navidad had failed to prove that Escartin was negligent in his assigned task.
On 11 August 1998, the trial court rendered its decision; it adjudged:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants Prudent
Security and Junelito Escartin ordering the latter to pay jointly and severally the plaintiffs the following:
Actual damages of P44,830.00; Compensatory damages of P443,520.00; Indemnity for the death of Nicanor
Navidad in the sum of P50,000.00; Moral damages of P50,000.00; Attorney’s fees of P20,000; Costs of suit.
"The complaint against defendants LRTA and Rodolfo Roman are dismissed for lack of merit.
"The compulsory counterclaim of LRTA and Roman are likewise dismissed."1
Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court promulgated its now
assailed decision exonerating Prudent from any liability for the death of Nicanor Navidad and, instead,
holding the LRTA and Roman jointly and severally liable thusly:
"WHEREFORE, the assailed judgment is hereby MODIFIED, by exonerating the appellants from any liability for
the death of Nicanor Navidad, Jr. Instead, appellees Rodolfo Roman and the Light Rail Transit Authority (LRTA)
are held liable for his death and are hereby directed to pay jointly and severally to the plaintiffs-appellees,
the following amounts: P44,830.00 as actual damages; P50,000.00 as nominal damages; P50,000.00 as
moral damages; P50,000.00 as indemnity for the death of the deceased; and P20,000.00 as and for
attorney’s fees."2
The appellate court ratiocinated that while the deceased might not have then as yet boarded the train, a
contract of carriage theretofore had already existed when the victim entered the place where passengers
were supposed to be after paying the fare and getting the corresponding token therefor. In exempting
Prudent from liability, the court stressed that there was nothing to link the security agency to the death of
Navidad. It said that Navidad failed to show that Escartin inflicted fist blows upon the victim and the
evidence merely established the fact of death of Navidad by reason of his having been hit by the train owned
and managed by the LRTA and operated at the time by Roman. The appellate court faulted petitioners for
their failure to present expert evidence to establish the fact that the application of emergency brakes could
not have stopped the train.
The appellate court denied petitioners’ motion for reconsideration in its resolution of 10 October 2000.
In their present recourse, petitioners recite alleged errors on the part of the appellate court; viz:
I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED BY DISREGARDING THE FINDINGS OF FACTS BY
THE TRIAL COURT
II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT PETITIONERS ARE LIABLE FOR
THE DEATH OF NICANOR NAVIDAD, JR.
III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RODOLFO ROMAN IS AN
EMPLOYEE OF LRTA."3
Petitioners would contend that the appellate court ignored the evidence and the factual findings of the trial
court by holding them liable on the basis of a sweeping conclusion that the presumption of negligence on
the part of a common carrier was not overcome. Petitioners would insist that Escartin’s assault upon Navidad,
which caused the latter to fall on the tracks, was an act of a stranger that could not have been foreseen or
prevented. The LRTA would add that the appellate court’s conclusion on the existence of an
employer-employee relationship between Roman and LRTA lacked basis because Roman himself had
testified being an employee of Metro Transit and not of the LRTA.
Respondents, supporting the decision of the appellate court, contended that a contract of carriage was
deemed created from the moment Navidad paid the fare at the LRT station and entered the premises of the
latter, entitling Navidad to all the rights and protection under a contractual relation, and that the appellate
court had correctly held LRTA and Roman liable for the death of Navidad in failing to exercise extraordinary
diligence imposed upon a common carrier.
Law and jurisprudence dictate that a common carrier, both from the nature of its business and for reasons of
public policy, is burdened with the duty of exercising utmost diligence in ensuring the safety of passengers.4
The Civil Code, governing the liability of a common carrier for death of or injury to its passengers, provides:
"Article 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.
"Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed
in articles 1733 and 1755."
"Article 1759. Common carriers are liable for the death of or injuries to passengers through the negligence
or willful acts of the former’s employees, although such employees may have acted beyond the scope of
their authority or in violation of the orders of the common carriers.
"This liability of the common carriers does not cease upon proof that they exercised all the diligence of a
good father of a family in the selection and supervision of their employees."
"Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the willful
acts or negligence of other passengers or of strangers, if the common carrier’s employees through the
exercise of the diligence of a good father of a family could have prevented or stopped the act or omission."
The law requires common carriers to carry passengers safely using the utmost diligence of very cautious
persons with due regard for all circumstances.5 Such duty of a common carrier to provide safety to its
passengers so obligates it not only during the course of the trip but for so long as the passengers are within
its premises and where they ought to be in pursuance to the contract of carriage.6 The statutory provisions
render a common carrier liable for death of or injury to passengers (a) through the negligence or wilful acts
of its employees or b) on account of wilful acts or negligence of other passengers or of strangers if the
common carrier’s employees through the exercise of due diligence could have prevented or stopped the act
or omission.7 In case of such death or injury, a carrier is presumed to have been at fault or been negligent,
and8 by simple proof of injury, the passenger is relieved of the duty to still establish the fault or negligence of
the carrier or of its employees and the burden shifts upon the carrier to prove that the injury is due to an
unforeseen event or to force majeure.9 In the absence of satisfactory explanation by the carrier on how the
accident occurred, which petitioners, according to the appellate court, have failed to show, the presumption
would be that it has been at fault,10 an exception from the general rule that negligence must be proved.11
The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises
from the breach of that contract by reason of its failure to exercise the high diligence required of the
common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose
to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake
the task. In either case, the common carrier is not relieved of its responsibilities under the contract of
carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the provisions of
Article 217612 and related provisions, in conjunction with Article 2180,13 of the Civil Code. The premise,
however, for the employer’s liability is negligence or fault on the part of the employee. Once such fault is
established, the employer can then be made liable on the basis of the presumption juris tantum that the
employer failed to exercise diligentissimi patris families in the selection and supervision of its employees.
The liability is primary and can only be negated by showing due diligence in the selection and supervision of
the employee, a factual matter that has not been shown. Absent such a showing, one might ask further, how
then must the liability of the common carrier, on the one hand, and an independent contractor, on the other
hand, be described? It would be solidary. A contractual obligation can be breached by tort and when the
same act or omission causes the injury, one resulting in culpa contractual and the other in culpa aquiliana,
Article 219414 of the Civil Code can well apply.15 In fine, a liability for tort may arise even under a contract,
where tort is that which breaches the contract.16 Stated differently, when an act which constitutes a breach
of contract would have itself constituted the source of a quasi-delictual liability had no contract existed
between the parties, the contract can be said to have been breached by tort, thereby allowing the rules on
tort to apply.17
Regrettably for LRT, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad, this Court
is concluded by the factual finding of the Court of Appeals that "there is nothing to link (Prudent) to the
death of Nicanor (Navidad), for the reason that the negligence of its employee, Escartin, has not been duly
proven x x x." This finding of the appellate court is not without substantial justification in our own review of
the records of the case.
There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable act or
omission, he must also be absolved from liability. Needless to say, the contractual tie between the LRT and
Navidad is not itself a juridical relation between the latter and Roman; thus, Roman can be made liable only
for his own fault or negligence.
The award of nominal damages in addition to actual damages is untenable. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may
be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by
him.18 It is an established rule that nominal damages cannot co-exist with compensatory damages.19
WHEREFORE, the assailed decision of the appellate court is AFFIRMED with MODIFICATION but only in that
(a) the award of nominal damages is DELETED and (b) petitioner Rodolfo Roman is absolved from liability. No
costs.
 G.R. No. 150843 March 14, 2003
CATHAY PACIFIC AIRWAYS, LTD.
vs.
SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ
Is an involuntary upgrading of an airline passenger’s accommodation from one class to a more superior class
at no extra cost a breach of contract of carriage that would entitle the passenger to an award of damages?
This is a novel question that has to be resolved in this case.
The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay Pacific Airways, Ltd.,
(hereinafter Cathay) are as follows:
Cathay is a common carrier engaged in the business of transporting passengers and goods by air. Among the
many routes it services is the Manila-Hongkong-Manila course. As part of its marketing strategy, Cathay
accords its frequent flyers membership in its Marco Polo Club. The members enjoy several privileges, such as
priority for upgrading of booking without any extra charge whenever an opportunity arises. Thus, a frequent
flyer booked in the Business Class has priority for upgrading to First Class if the Business Class Section is fully
booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent flyers of
Cathay and are Gold Card members of its Marco Polo Club. On 24 September 1996, the Vazquezes, together
with their maid and two friends Pacita Cruz and Josefina Vergel de Dios, went to Hongkong for pleasure and
business.
For their return flight to Manila on 28 September 1996, they were booked on Cathay’s Flight CX-905, with
departure time at 9:20 p.m. Two hours before their time of departure, the Vazquezes and their companions
checked in their luggage at Cathay’s check-in counter at Kai Tak Airport and were given their respective
boarding passes, to wit, Business Class boarding passes for the Vazquezes and their two friends, and
Economy Class for their maid. They then proceeded to the Business Class passenger lounge.
When boarding time was announced, the Vazquezes and their two friends went to Departure Gate No. 28,
which was designated for Business Class passengers. Dr. Vazquez presented his boarding pass to the ground
stewardess, who in turn inserted it into an electronic machine reader or computer at the gate. The ground
stewardess was assisted by a ground attendant by the name of Clara Lai Han Chiu. When Ms. Chiu glanced at
the computer monitor, she saw a message that there was a "seat change" from Business Class to First Class
for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes’ accommodations were upgraded to First
Class. Dr. Vazquez refused the upgrade, reasoning that it would not look nice for them as hosts to travel in
First Class and their guests, in the Business Class; and moreover, they were going to discuss business matters
during the flight. He also told Ms. Chiu that she could have other passengers instead transferred to the First
Class Section. Taken aback by the refusal for upgrading, Ms. Chiu consulted her supervisor, who told her to
handle the situation and convince the Vazquezes to accept the upgrading. Ms. Chiu informed the latter that
the Business Class was fully booked, and that since they were Marco Polo Club members they had the
priority to be upgraded to the First Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they
would not avail themselves of the privilege, they would not be allowed to take the flight. Eventually, after
talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then proceeded to the First Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to Cathay’s Country
Manager, demanded that they be indemnified in the amount of P1million for the "humiliation and
embarrassment" caused by its employees. They also demanded "a written apology from the management of
Cathay, preferably a responsible person with a rank of no less than the Country Manager, as well as the
apology from Ms. Chiu" within fifteen days from receipt of the letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathay’s Country Manager Argus Guy Robson,
informed the Vazquezes that Cathay would investigate the incident and get back to them within a week’s
time.
On 8 November 1996, after Cathay’s failure to give them any feedback within its self-imposed deadline, the
Vazquezes instituted before the Regional Trial Court of Makati City an action for damages against Cathay,
praying for the payment to each of them the amounts of P250,000 as temperate damages; P500,000 as
moral damages; P500,000 as exemplary or corrective damages; and P250,000 as attorney’s fees.
In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they preferred to stay in
Business Class, Ms. Chiu "obstinately, uncompromisingly and in a loud, discourteous and harsh voice
threatened" that they could not board and leave with the flight unless they go to First Class, since the
Business Class was overbooked. Ms. Chiu’s loud and stringent shouting annoyed, embarrassed, and
humiliated them because the incident was witnessed by all the other passengers waiting for boarding. They
also claimed that they were unjustifiably delayed to board the plane, and when they were finally permitted
to get into the aircraft, the forward storage compartment was already full. A flight stewardess instructed Dr.
Vazquez to put his roll-on luggage in the overhead storage compartment. Because he was not assisted by any
of the crew in putting up his luggage, his bilateral carpal tunnel syndrome was aggravated, causing him
extreme pain on his arm and wrist. The Vazquezes also averred that they "belong to the uppermost and
absolutely top elite of both Philippine Society and the Philippine financial community, [and that] they were
among the wealthiest persons in the Philippine[s]."
In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade passengers to the
next better class of accommodation, whenever an opportunity arises, such as when a certain section is fully
booked. Priority in upgrading is given to its frequent flyers, who are considered favored passengers like the
Vazquezes. Thus, when the Business Class Section of Flight CX-905 was fully booked, Cathay’s computer
sorted out the names of favored passengers for involuntary upgrading to First Class. When Ms. Chiu
informed the Vazquezes that they were upgraded to First Class, Dr. Vazquez refused. He then stood at the
entrance of the boarding apron, blocking the queue of passengers from boarding the plane, which
inconvenienced other passengers. He shouted that it was impossible for him and his wife to be upgraded
without his two friends who were traveling with them. Because of Dr. Vazquez’s outburst, Ms. Chiu thought
of upgrading the traveling companions of the Vazquezes. But when she checked the computer, she learned
that the Vazquezes’ companions did not have priority for upgrading. She then tried to book the Vazquezes
again to their original seats. However, since the Business Class Section was already fully booked, she politely
informed Dr. Vazquez of such fact and explained that the upgrading was in recognition of their status as
Cathay’s valued passengers. Finally, after talking to their guests, the Vazquezes eventually decided to take the
First Class accommodation.
Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing with the
Vazquezes; none of them shouted, humiliated, embarrassed, or committed any act of disrespect against
them (the Vazquezes). Assuming that there was indeed a breach of contractual obligation, Cathay acted in
good faith, which negates any basis for their claim for temperate, moral, and exemplary damages and
attorney’s fees. Hence, it prayed for the dismissal of the complaint and for payment of P100,000 for
exemplary damages and P300,000 as attorney’s fees and litigation expenses.
During the trial, Dr. Vazquez testified to support the allegations in the complaint. His testimony was
corroborated by his two friends who were with him at the time of the incident, namely, Pacita G. Cruz and
Josefina Vergel de Dios.
For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms. Chiu; Norma
Barrientos, Comptroller of its retained counsel; and Mr. Robson. Yuen and Robson testified on Cathay’s policy
of upgrading the seat accommodation of its Marco Polo Club members when an opportunity arises. The
upgrading of the Vazquezes to First Class was done in good faith; in fact, the First Class Section is definitely
much better than the Business Class in terms of comfort, quality of food, and service from the cabin crew.
They also testified that overbooking is a widely accepted practice in the airline industry and is in accordance
with the International Air Transport Association (IATA) regulations. Airlines overbook because a lot of
passengers do not show up for their flight. With respect to Flight CX-905, there was no overall overbooking
to a degree that a passenger was bumped off or downgraded. Yuen and Robson also stated that the demand
letter of the Vazquezes was immediately acted upon. Reports were gathered from their office in Hong Kong
and immediately forwarded to their counsel Atty. Remollo for legal advice. However, Atty. Remollo begged
off because his services were likewise retained by the Vazquezes; nonetheless, he undertook to solve the
problem in behalf of Cathay. But nothing happened until Cathay received a copy of the complaint in this case.
For her part, Ms. Chiu denied that she shouted or used foul or impolite language against the Vazquezes. Ms.
Barrientos testified on the amount of attorney’s fees and other litigation expenses, such as those for the
taking of the depositions of Yuen and Chiu.
In its decision1 of 19 October 1998, the trial court found for the Vazquezes and decreed as follows:
WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby
rendered in favor of plaintiffs Vazquez spouses and against defendant Cathay Pacific Airways, Ltd.,
ordering the latter to pay each plaintiff the following: Nominal damages in the amount of P100,000.00
for each plaintiff; Moral damages in the amount of P2,000,000.00 for each plaintiff; Exemplary damages
in the amount of P5,000,000.00 for each plaintiff; Attorney’s fees and expenses of litigation in the
amount of P1,000,000.00 for each plaintiff; and Costs of suit.
According to the trial court, Cathay offers various classes of seats from which passengers are allowed to
choose regardless of their reasons or motives, whether it be due to budgetary constraints or whim. The
choice imposes a clear obligation on Cathay to transport the passengers in the class chosen by them. The
carrier cannot, without exposing itself to liability, force a passenger to involuntarily change his choice. The
upgrading of the Vazquezes’ accommodation over and above their vehement objections was due to the
overbooking of the Business Class. It was a pretext to pack as many passengers as possible into the plane to
maximize Cathay’s revenues. Cathay’s actuations in this case displayed deceit, gross negligence, and bad
faith, which entitled the Vazquezes to awards for damages.
On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001,2 deleted the award for
exemplary damages; and it reduced the awards for moral and nominal damages for each of the Vazquezes to
P250,000 and P50,000, respectively, and the attorney’s fees and litigation expenses to P50,000 for both of
them.
The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay novated the
contract of carriage without the former’s consent. There was a breach of contract not because Cathay
overbooked the Business Class Section of Flight CX-905 but because the latter pushed through with the
upgrading despite the objections of the Vazquezes.
However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be discourteous to,
Dr. Vazquez, although it might seemed that way to the latter, who was a member of the elite in Philippine
society and was not therefore used to being harangued by anybody. Ms. Chiu was a Hong Kong Chinese
whose fractured Chinese was difficult to understand and whose manner of speaking might sound harsh or
shrill to Filipinos because of cultural differences. But the Court of Appeals did not find her to have acted with
deliberate malice, deceit, gross negligence, or bad faith. If at all, she was negligent in not offering the First
Class accommodations to other passengers. Neither can the flight stewardess in the First Class Cabin be said
to have been in bad faith when she failed to assist Dr. Vazquez in lifting his baggage into the overhead
storage bin. There is no proof that he asked for help and was refused even after saying that he was suffering
from "bilateral carpal tunnel syndrome." Anent the delay of Yuen in responding to the demand letter of the
Vazquezes, the Court of Appeals found it to have been sufficiently explained. The Vazquezes and Cathay
separately filed motions for a reconsideration of the decision, both of which were denied by the Court of
Appeals.
Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for moral damages
has no basis, since the Court of Appeals found that there was no "wanton, fraudulent, reckless and
oppressive" display of manners on the part of its personnel; and that the breach of contract was not
attended by fraud, malice, or bad faith. If any damage had been suffered by the Vazquezes, it was damnum
absque injuria, which is damage without injury, damage or injury inflicted without injustice, loss or damage
without violation of a legal right, or a wrong done to a man for which the law provides no remedy. Cathay
also invokes our decision in United Airlines, Inc. v. Court of Appeals3 where we recognized that, in accordance
with the Civil Aeronautics Board’s Economic Regulation No. 7, as amended, an overbooking that does not
exceed ten percent cannot be considered deliberate and done in bad faith. We thus deleted in that case the
awards for moral and exemplary damages, as well as attorney’s fees, for lack of proof of overbooking
exceeding ten percent or of bad faith on the part of the airline carrier.
On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting awards for moral
and nominal damages and attorney’s fees in view of the breach of contract committed by Cathay for
transferring them from the Business Class to First Class Section without prior notice or consent and over
their vigorous objection. They likewise argue that the issuance of passenger tickets more than the seating
capacity of each section of the plane is in itself fraudulent, malicious and tainted with bad faith.
The key issues for our consideration are whether (1) by upgrading the seat accommodation of the Vazquezes
from Business Class to First Class Cathay breached its contract of carriage with the Vazquezes; (2) the
upgrading was tainted with fraud or bad faith; and (3) the Vazquezes are entitled to damages.
We resolve the first issue in the affirmative.
A contract is a meeting of minds between two persons whereby one agrees to give something or render
some service to another for a consideration. There is no contract unless the following requisites concur: (1)
consent of the contracting parties; (2) an object certain which is the subject of the contract; and (3) the
cause of the obligation which is established.4 Undoubtedly, a contract of carriage existed between Cathay
and the Vazquezes. They voluntarily and freely gave their consent to an agreement whose object was the
transportation of the Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business
Class Section of the aircraft, and whose cause or consideration was the fare paid by the Vazquezes to Cathay.
The only problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did it
constitute a breach of contract? Breach of contract is defined as the "failure without legal reason to comply
with the terms of a contract."5 It is also defined as the "[f]ailure, without legal excuse, to perform any
promise which forms the whole or part of the contract."6
In previous cases, the breach of contract of carriage consisted in either the bumping off of a passenger with
confirmed reservation or the downgrading of a passenger’s seat accommodation from one class to a lower
class. In this case, what happened was the reverse. The contract between the parties was for Cathay to
transport the Vazquezes to Manila on a Business Class accommodation in Flight CX-905. After checking-in
their luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were given boarding cards indicating their
seat assignments in the Business Class Section. However, during the boarding time, when the Vazquezes
presented their boarding passes, they were informed that they had a seat change from Business Class to
First Class. It turned out that the Business Class was overbooked in that there were more passengers than
the number of seats. Thus, the seat assignments of the Vazquezes were given to waitlisted passengers, and
the Vazquezes, being members of the Marco Polo Club, were upgraded from Business Class to First Class.
We note that in all their pleadings, the Vazquezes never denied that they were members of Cathay’s Marco
Polo Club. They knew that as members of the Club, they had priority for upgrading of their seat
accommodation at no extra cost when an opportunity arises. But, just like other privileges, such priority
could be waived. The Vazquezes should have been consulted first whether they wanted to avail themselves
of the privilege or would consent to a change of seat accommodation before their seat assignments were
given to other passengers. Normally, one would appreciate and accept an upgrading, for it would mean a
better accommodation. But, whatever their reason was and however odd it might be, the Vazquezes had
every right to decline the upgrade and insist on the Business Class accommodation they had booked for and
which was designated in their boarding passes. They clearly waived their priority or preference when they
asked that other passengers be given the upgrade. It should not have been imposed on them over their
vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage with the
Vazquezes.
We are not, however, convinced that the upgrading or the breach of contract was attended by fraud or bad
faith. Thus, we resolve the second issue in the negative.
Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked, and that is why they are never presumed. They
amount to mere slogans or mudslinging unless convincingly substantiated by whoever is alleging them.
Fraud has been defined to include an inducement through insidious machination. Insidious machination
refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with
intent to deceive, conceals or omits to state material facts and, by reason of such omission or concealment,
the other party was induced to give consent that would not otherwise have been given.7
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest
or ill will that partakes of the nature of fraud.8
We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to
the upgrading through insidious words or deceitful machination or through willful concealment of material
facts. Upon boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded to First Class
in view of their being Gold Card members of Cathay’s Marco Polo Club. She was honest in telling them that
their seats were already given to other passengers and the Business Class Section was fully booked. Ms. Chiu
might have failed to consider the remedy of offering the First Class seats to other passengers. But, we find no
bad faith in her failure to do so, even if that amounted to an exercise of poor judgment.
Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr.
Robson, the First Class Section is better than the Business Class Section in terms of comfort, quality of food,
and service from the cabin crew; thus, the difference in fare between the First Class and Business Class at
that time was $250.9Needless to state, an upgrading is for the better condition and, definitely, for the benefit
of the passenger.
We are not persuaded by the Vazquezes’ argument that the overbooking of the Business Class Section
constituted bad faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil
Aeronautics Board, as amended, provides:
Sec 3. Scope. – This regulation shall apply to every Philippine and foreign air carrier with respect to its
operation of flights or portions of flights originating from or terminating at, or serving a point within the
 territory of the Republic of the Philippines insofar as it denies boarding to a passenger on a flight, or
portion of a flight inside or outside the Philippines, for which he holds confirmed reserved space.
Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and
excludes deliberate and willful acts of non-accommodation. Provided, however, that overbooking not
exceeding 10% of the seating capacity of the aircraft shall not be considered as a deliberate and willful
act of non-accommodation.
It is clear from this section that an overbooking that does not exceed ten percent is not considered
deliberate and therefore does not amount to bad faith.10 Here, while there was admittedly an overbooking
of the Business Class, there was no evidence of overbooking of the plane beyond ten percent, and no
passenger was ever bumped off or was refused to board the aircraft.
Now we come to the third issue on damages. The Court of Appeals awarded each of the Vazquezes moral
damages in the amount of P250,000. Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith.
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury. Although incapable of pecuniary
computation, moral damages may be recovered if they are the proximate result of the defendant’s wrongful
act or omission.11 Thus, case law establishes the following requisites for the award of moral damages: (1)
there must be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2)
there must be a culpable act or omission factually established; (3) the wrongful act or omission of the
defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is
predicated on any of the cases stated in Article 2219 of the Civil Code.12
Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where
the carrier is guilty of fraud or bad faith or where the mishap resulted in the death of a passenger.13 Where
in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable consequences of the breach of the obligation
which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not
include moral and exemplary damages.14
In this case, we have ruled that the breach of contract of carriage, which consisted in the involuntary
upgrading of the Vazquezes’ seat accommodation, was not attended by fraud or bad faith. The Court of
Appeals’ award of moral damages has, therefore, no leg to stand on.
The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a requisite in the
grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in
wanton, fraudulent or malevolent manner.15 Such requisite is absent in this case. Moreover, to be entitled
thereto the claimant must first establish his right to moral, temperate, or compensatory damages.16 Since
the Vazquezes are not entitled to any of these damages, the award for exemplary damages has no legal basis.
And where the awards for moral and exemplary damages are eliminated, so must the award for attorney’s
fees.17
The most that can be adjudged in favor of the Vazquezes for Cathay’s breach of contract is an award for
nominal damages under Article 2221 of the Civil Code, which reads as follows:
Article 2221 of the Civil Code provides: Article 2221. Nominal damages are adjudicated in order that a right
of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered by him.
Worth noting is the fact that in Cathay’s Memorandum filed with this Court, it prayed only for the deletion of
the award for moral damages. It deferred to the Court of Appeals’ discretion in awarding nominal damages;
thus: As far as the award of nominal damages is concerned, petitioner respectfully defers to the Honorable
Court of Appeals’ discretion. Aware as it is that somehow, due to the resistance of respondents-spouses to
the normally-appreciated gesture of petitioner to upgrade their accommodations, petitioner may have
disturbed the respondents-spouses’ wish to be with their companions (who traveled to Hong Kong with
them) at the Business Class on their flight to Manila. Petitioner regrets that in its desire to provide the
respondents-spouses with additional amenities for the one and one-half (1 1/2) hour flight to Manila,
unintended tension ensued.18
Nonetheless, considering that the breach was intended to give more benefit and advantage to the Vazquezes
by upgrading their Business Class accommodation to First Class because of their valued status as Marco Polo
members, we reduce the award for nominal damages to P5,000.
Before writing finis to this decision, we find it well-worth to quote the apt observation of the Court of
Appeals regarding the awards adjudged by the trial court:
We are not amused but alarmed at the lower court’s unbelievable alacrity, bordering on the scandalous, to
award excessive amounts as damages. In their complaint, appellees asked for P1 million as moral damages
but the lower court awarded P4 million; they asked for P500,000.00 as exemplary damages but the lower
court cavalierly awarded a whooping P10 million; they asked for P250,000.00 as attorney’s fees but were
awarded P2 million; they did not ask for nominal damages but were awarded P200,000.00. It is as if the
lower court went on a rampage, and why it acted that way is beyond all tests of reason. In fact the
excessiveness of the total award invites the suspicion that it was the result of "prejudice or corruption on the
part of the trial court."
The presiding judge of the lower court is enjoined to hearken to the Supreme Court’s admonition in
Singson vs. CA (282 SCRA 149 [1997]), where it said:
The well-entrenched principle is that the grant of moral damages depends upon the discretion of
the court based on the circumstances of each case. This discretion is limited by the principle that
the amount awarded should not be palpably and scandalously excessive as to indicate that it was
the result of prejudice or corruption on the part of the trial court….
and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held: Nonetheless, we agree with the
injunction expressed by the Court of Appeals that passengers must not prey on international airlines for
damage awards, like "trophies in a safari." After all neither the social standing nor prestige of the
passenger should determine the extent to which he would suffer because of a wrong done, since the
dignity affronted in the individual is a quality inherent in him and not conferred by these social indicators.
19

We adopt as our own this observation of the Court of Appeals. WHEREFORE, the instant petition is hereby
partly GRANTED. The Decision of the Court of Appeals of 24 July 2001 in CA-G.R. CV No. 63339 is hereby
MODIFIED, and as modified, the awards for moral damages and attorney’s fees are set aside and deleted,
and the award for nominal damages is reduced to P5,000.
 G.R. No. 141938 April 2, 2001
TUNG CHIN HUI,
Vs.
RUFUS B. RODRIGUEZ, Commissioner of Immigration and the BOARD OF COMMISSIONERS, Bureau of
Immigration and Deportation,
The writ of habeas corpus cannot be issued in cases in which the Bureau of Immigration has duly ordered
the deportation of undocumented aliens, specifically those found guilty of illegally entering the Philippines
with the use of tampered and previously cancelled passports.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 30, 1999 Decision1 of
the Court of Appeals (CA) in CA-GR SP No. 51723. The dispositive portion of the CA Decision reads as follows:
"WHEREFORE, premises considered, the appeal is hereby GRANTED. The petition for habeas corpus is
hereby DISMISSED. No pronouncement as to costs.
The CA reversed the January 7, 1999 Decision3 of the Regional Trial Court (RTC) of Manila, which disposed as
follows:
"WHEREFORE, premises considered, judgment is hereby rendered GRANTING the petition, and as such,
public respondent, Hon. Rufus Rodriguez, Commissioner Bureau of Immigration and Deportation, is
hereby ordered to immediately release the person of petitioner, Tung Chin Hui, from his official custody,
upon receipt of this Decision."4
Also challenged by petitioner is the February 4, 2000 CA Resolution5 denying his Motion for Reconsideration.
The Facts
Petitioner, a "Taiwanese national,"6 arrived in this country on November 5, 1998, as a temporary visitor. A
few days later, he was arrested by several policemen, who turned him over to the Bureau of Immigration and
Deportation (BID).
Petitioner was duly charged. In due course, the Bill Board of Commissioners issued a Summary Deportation
Order dated November 25, 1998, finding him guilty of possessing a tampered passport earlier cancelled by
Taiwanese authorities.
On December 11, 1998, petitioner filed before the Regional Trial Court (RTC) of Manila a Petition for Habeas
Corpus on the ground that his detention was illegal. In their Return of Writ, respondents denied petitioner's
claim. In a Decision dated January 7, 1999, the trial court granted his Petition and ordered his release. In its
January 29, 1999 0rder, it denied respondents' Motion for Reconsideration.
Respondents, who received the trial court's January 29, 1999 Order on February 11, 1999, then filed a
Notice of Appeal on February 16, 1999. In an Order dated February 18, 1999, the RTC rejected petitioner's
Opposition and granted due course to the Notice of Appeal.
Subsequently, the appellate court rendered its July 30, 1999 Decision, which as earlier mentioned reversed
the trial court.
Meanwhile, during the pendency of the proceedings before the CA, petitioner filed a Petition for Certiorari7
before this Court, docketed as GR No.137571, contending that the RTC should have rejected the appeal for
allegedly being filed late-beyond the 48-hour period provided under the pre-1997 Rules of Court. In its
September 21, 2000 Decision which became final on October 31, 2000,8 this Court denied the Petition.
Ruling of the Court of Appeals
The appellate court held that petitioner was not entitled to the writ of habeas corpus, because the BID
Board of Commissioners had found him guilty of violating Section 37 (a) of the Philippine Immigration Act of
1940, as amended. Citing documents from the Taiwan Economic and Cultural Offices (TECO), the CA found
that petitioner's passport had been canceled by the Republic of China on the ground that its holder was not
the real Tung Chin Hui, but a fugitive from justice who had tampered the passport. The CA also held that the
TECO documents, being public in nature, need not be testified to by the persons who had issued them.
Hence, this Petition.9
The Issues
In his Memorandum, petitioner submits the following issues for the consideration of this Court:10
"A. PRINCIPAL ISSUES:
(1) Is the reglementary period within which to appeal in habeas corpus cases forty-eight hours from
notice of the Decision appealed from? (as petitioner contends); or is it 15 days similar to other cases
from notice of the Decision? (as contended by the respondents);
(2) Was the appeal taken by the respondents from the Order of the Regional Trial Court of Manila,
Branch 26, denying respondents' Motion for Reconsideration, proper? (as postulated by the
respondents) or improper and not allowable being violative of Sec. 1 (a), Rule 41, of the 1997 Rules of
Civil Procedure? (as comprehended by the petitioner)
A. SECONDARY ISSUES:
(1) Should the Court of Appeals give weight to findings of fact arrived at by the Regional Trial Court of
Manila, Branch 26, based on the evidence presented or adduced during the trial of the case, in keeping
with established precedents?
(2) May the Honorable Court of Appeals consider extraneous facts brought out by the respondents in
their memorandum but are not supported by the evidence presented, identified and admitted by the
trial court during the hearing of the case?
(3) Did the Court of Appeals acquire jurisdiction over the case when the appeal was filed out of time and
the Order appealed from is not appealable?"
In the main, this Court will resolve the propriety of issuing a writ of habeas corpus. As a preliminary matter,
the Court will also consider the propriety of the appeal before the CA.
Court' s Ruling: The Petition is not meritorious.
Preliminary Matter: Propriety of the Appeal
Petitioner contends that the appeal from the trial court to the CA was improper for two reasons: (1) it was
filed beyond the reglementary 48-hour period provided under the pre-1997 Rules of Court; and (2) it
assailed not a judgment but a resolution denying a motion for reconsideration, contrary to Section 111 of
Rule 41.12
This Court already rejected the same arguments in its earlier Decision in GR No. 137571,13 which debunked
petitioner's challenge to the propriety of the appeal. Pertinent portions of that Decision are reproduced
below:
"Clearly then, the reglementary period for filing an appeal in a habeas corpus case is now similar to that
in ordinary civil actions and is governed by Section 3, Rule 41 of the 1997 Rules, which provides:
 'SEC. 3. Period of ordinary appeal. - The appeal shall be taken within fifteen (15) days from notice of
the judgment or final order appealed from. Where a record on appeal is required the appellant shall
file a notice of appeal and a record on appeal within thirty (30) days from notice of the judgment or
final order.
The period of appeal shall be interrupted by a timely motion for new trial or reconsideration. No
motion for extension of time to file a motion for new trial or reconsideration shall be allowed.'
In this light, the appeal was seasonably filed within the 15-day reglementary period.
xxx xxx xxx
We agree with respondents. In referring to the trial court's 'judgment,' respondents were dearly
appealing the January 7, 1999 Decision. Had they thought otherwise, they would have referred to the
'Order.' Indeed, 'judgment' is normally synonymous with 'decision.'
Furthermore, the wrong date of the appealed judgment may be attributed merely to inadvertence. Such
error should not, by itself, deprive respondents of their right to appeal. x x x."
Main Issue: Propriety of the Writ of Habeas Corpus
Habeas corpus is a writ directed to a person detaining another, commanding the former to produce the body
of the latter at a designated time and place.14 Section 1, Rule 102 of the Rules of Court provides that "the
writ of habeas corpus shall extend to all cases of illegal confinement or detention by which any person is
deprived of his liberty, or by which the rightful custody of any person is withheld from the person entitled
thereto." The objective of the writ is to determine whether the confinement or detention is valid or lawful.13
If it is, the writ cannot be issued.
In the present case, petitioner's confinement is in accord with Section 37 (a) of the Philippine Immigration
Act of 1940, as amended, which reads as follows:
"Section 37. (a) The following aliens shall be arrested upon the warrant of the Commissioner of
Immigration or of another officer designated by him for the purpose and deported upon the warrant of
the Commissioner of Immigration after a determination by the Board of Commissioners of the existence
of the ground for deportation as charged against the alien:
(7) Any alien who remains in the Philippines in violation of any limitation or condition under which he
was admitted as a non-immigrant;
One such condition for the admission of aliens is found in Section 10 of the same law, which requires them
to "present for admission into the Philippines unexpired passports or official documents in the nature of
passports issued by the governments of the countries to which they owe allegiance or other travel
documents showing their origins and identity as prescribed by regulations, x x x."
Herein petitioner was properly charged before the Bureau of Immigration for illegally entering the
Philippines with the use of a passport issued to another person and cancelled by the Taiwanese government
in 1995. The Charge Sheet reads as follows:
"CHARGE SHEET
The undersigned Special Prosecutor charges for deportation CHEN KUAN-YUAN @ TUNG, CHIN-HUI @
DONG TUNG, Taiwanese national for violation of Section 37 (a) (7) of the Philippine Immigration Act of
1940, as amended, committed as follows:
'that on November 21, 1998. respondent was turned over by the Western Police District to
immigration authorities and upon investigation, it was found out that respondent [was] an
 undocumented alien it appearing that respondent [was] in possession of a tampered Taiwanese
passport which was cancelled by Taiwanese Ministry of Foreign Affairs on July 19, 1995, in violation
of Sec. 37 (a) (7) of the Philippine Immigration Act of 1940, as amended.'"
Subsequently, on November 25, 1998, the BID Board of Commissioners issued the Summary Deportation
Order, which is reproduced in full as follows:
SUMMARY DEPORTATION ORDER
Records show that on November 21, 1998 respondent was turned over by the WESTERN POLICE
DISTRICT to immigration authorities and upon investigation, it was found out that respondent [was] an
undocumented alien, it appearing that he [was] in possession of a tampered Taiwanese Passport which
was cancelled by the Taiwanese Ministry of Foreign Affairs on July 10, 1995.
Accordingly, on November 25, 1998, deportation charges were filed against respondent with the Board
of Commissioners for violation of Sec. 37 (a) (7) of the Philippine Immigration Act of 1940 as amended.
After a careful examination of the records, we determine that respondent has violated the above-cited
provision.
WHEREFORE, premises considered, the Board of Commissioners hereby orders that summary
deportation of respondent, CHEN KUAN-YUAN @ TUNG CHIN-HUI @ DONG TUNG to his country of
origin subject to the submission of the usual clearances.
Include his name in the Blacklist upon implementation of this Order.
The Chief of the Civil Security Unit is hereby directed to implement this Order within three (3) days from
receipt hereof.
Give respondent a copy of this Order.
SO ORDERED."
Echoing the holding of the RTC, herein petitioner argues that no evidence was presented to prove that he
was an "undocumented alien"; that is, that he tampered with a passport that had already been cancelled by
the Taiwanese government. He further contends that he was in fact allowed to enter the Philippines
seventeen times from 1995 to 1998, notwithstanding the alleged cancellation of his passport in 1995.16
These contentions are not meritorious. The Return of the Writ submitted by respondents before the trial
court clearly shows that petitioner had lawfully been charged and ordered deported for being an
undocumented alien. Section 13, Rule 102 of the Ru1es of Court specifically provides that "the return [of the
writ] shall be considered prima facie evidence of the cause of the restraint; x x x."
Moreover, attached to the Return of the Writ were copies of official letters of the Taiwan Economic and
Cultural Offices. These documents show that petitioner, whose real name is Chen Kuan-Yuan, was using a
passport that had already been cancelled by the Taiwanese government in 1995 and previously issued to a
man named Tung Chin Hui. The two letters are reproduced in full hereunder:

"November 24, 1998

Honorable Rufus B. Rodriguez
Commissioner
Bureau of Immigration
Magallanes Drive, Intramuros
Manila
Attention: Chief, Intelligence Division
Sir: In behalf of the Bureau of Immigration of the Republic of China, I would like to inform your good office
that Taiwanese fugitive MR. CHEN, KUAN-YUAN (D.O.B. 0ctober 12, 1956) tampered Republic of China
passport number M 9534820, issued to MR. TUNG, CHIN-HUI (D.O.B. November 28, 1956). The said passport
was cancelled by the Republic of China Ministry of Foreign Affairs on July 19t 1995.
Very truly yours, KUO, KUANG-KWO Senior Assistant
Encl. Fingerprint of Mr. Tung, Chin-Hui"

November 19, 1998

Honorable Rufus B. Rodriguez
Commissioner
Bureau of Immigration
Magellanes Drive, Intramuros
Manila
Attention: Chief. Intelligence Division
Sir: In behalf of the Bureau of Immigration of the Republic of China, I have the honor to seek your kind
assistance to deport MR. CHEN, KUAN-YUAN (D.O.B. 12 October 1956). Mr. Chen was sentenced to 8 years
and 2 months imprisonment for drug trafficking and violation of controlling guns, ammunition and knives law.
Mr. Chen was arrested by the Western Police District Command last November 16, 1998 through the request
of the Republic of China international Police. According to the travel record of the said fugitive he has no
record of leaving Taiwan.
Your immediate action and assistance in this matter will be highly appreciated.
Very truly yours, KUO, KUANG-KWO Senior Assistant"
The above-quoted official letters demonstrate the speciousness of petitioner's contention that his passport
could not have been cancelled in 1995, inasmuch as he was allowed to enter the country as late as 1998.
The letters show that the Philippine government was informed about the cancellation only in 1998.
Furthermore, the foregoing letters of the official representative of the Taiwanese government belie
petitioner's submission that there was no evidence to prove the findings of the CA and the Board of
Commissioners.17 Verily, these documents constitute sufficient justification for his deportation. As the Court
held in the landmark case Forbes v. Chuoco Tiaco,18 "[t]he mere fact that a citizen or subject is out of the
territory of his country does not relieve him from that allegiance which he owes to his government, and his
government may under certain conditions, properly and legally request his return."19
Alleged Lack of Notice
We likewise reject petitioner's reliance on the ruling of the trial court that "[w]hile it may be true that there
is a Summary Deportation Order against the petitioner allegedly for being [an] undocumented alien, having
used a passport which had already been cancelled, there is no showing that he was informed about it."20
Other than petitioner's bare allegations, however, we find no sufficient basis to overturn the presumption
that the Bureau of Immigration conducted its proceedings in accordance with law.21
In any event, when petitioner filed the Petition for Habeas Corpus before the RTC, he was afforded ample
opportunity to air his side and to assail the legal and factual bases of the Board of Commissioners' Summary
Deportation Order. Moreover, he could have raised the same points in the proceedings before the CA and
even before this Court. Indeed, an alien has the burden of proof to show that he entered the Philippines
lawfully.22Petitioner has not discharged this burden. He has not controverted - either before the RTC, the CA
or this Court - the Board of Commissioners' ruling that he was in fact Chen Kuan-Yuan, who was "sentenced
to 8 years and 2 months imprisonment for drug trafficking and violation of controlling guns, ammunition and
knives law and was holding a passport cancelled by the Republic of China in 1995.
Just as unmeritorious is petitioner's contention that "at the time of his detention, there was no deportation
charge filed against him."23 Assuming arguendo that his arrest was illegal, supervening events bar his
subsequent release.24In this case, when the Petition for Habeas Corpus was filed, petitioner had already
been charged and ordered deported by the Board of Commissioners.
In sum, we hold that petitioner's confinement was not illegal; hence, there is no justification for the issuance
of a writ of habeas corpus. Moreover, he has not shown any cogent reason to warrant the nullification of the
Board of Commissioners' Summary Deportation Order.
WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. Costs against petitioner. SO
ORDERED.
 G.R. No. 146018 June 25, 2003
EDGAR COKALIONG SHIPPING LINES, INC.,
vs.
UCPB GENERAL INSURANCE COMPANY, INC.,
The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited to
the value declared by the shipper. On the other hand, the liability of the insurer is determined by the actual
value covered by the insurance policy and the insurance premiums paid therefor, and not necessarily by the
value declared in the bill of lading.
The Case
Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the August
31, 2000 Decision2 and the November 17, 2000 Resolution3 of the Court of Appeals4 (CA) in CA-GR SP No.
62751. The dispositive part of the Decision reads:
"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED. The Decision appealed from is REVERSED.
[Petitioner] is hereby condemned to pay to [respondent] the total amount of ₱148,500.00, with interest
thereon, at the rate of 6% per annum, from date of this Decision of the Court. [Respondent’s] claim for
attorney’s fees [is] DISMISSED. [Petitioner’s] counterclaims are DISMISSED."5
The assailed Resolution denied petitioner’s Motion for Reconsideration.
On the other hand, the disposition of the Regional Trial Court’s6 Decision,7 which was later reversed by the
CA, states: "WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit. "No cost."8
The Facts
The facts of the case are summarized by the appellate court in this wise:
"Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc. (now
Cokaliong Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of Christmas décor and
two (2) sacks of plastic toys, to be transported on board the M/V Tandag on its Voyage No. T-189 scheduled
to depart from Cebu City, on December 12, 1991, for Tandag, Surigao del Sur. [Petitioner] issued Bill of
Lading No. 58, freight prepaid, covering the cargo. Nestor Angelia was both the shipper and consignee of the
cargo valued, on the face thereof, in the amount of ₱6,500.00. Zosimo Mercado likewise delivered cargo to
[petitioner], consisting of two (2) cartons of plastic toys and Christmas decor, one (1) roll of floor mat and
one (1) bundle of various or assorted goods for transportation thereof from Cebu City to Tandag, Surigao del
Sur, on board the said vessel, and said voyage. [Petitioner] issued Bill of Lading No. 59 covering the cargo
which, on the face thereof, was valued in the amount of ₱14,000.00. Under the Bill of Lading, Zosimo
Mercado was both the shipper and consignee of the cargo.
"On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with the UCPB
General Insurance Co., Inc., [respondent] for brevity, for the amount of ₱100,000.00 ‘against all risks’ under
Open Policy No. 002/9 1/254 for which she was issued, by [respondent], Marine Risk Note No. 18409 on said
date. She also insured the cargo covered by Bill of Lading No. 58, with [respondent], for the amount of
₱50,000.00, under Open Policy No. 002/9 1/254 on the basis of which [respondent] issued Marine Risk Note
No. 18410 on said date.
"When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the
goods of Legaspi. After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine
room, and, despite earnest efforts of the officers and crew of the vessel, the fire engulfed and destroyed the
entire vessel resulting in the loss of the vessel and the cargoes therein. The Captain filed the required Marine
Protest.
"Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured
under Marine Risk Note No. 18409 and covered by Bill of Lading No. 59. She submitted, in support of her
claim, a Receipt, dated December 11, 1991, purportedly signed by Zosimo Mercado, and Order Slips
purportedly signed by him for the goods he received from Feliciana Legaspi valued in the amount of
₱110,056.00. [Respondent] approved the claim of Feliciana Legaspi and drew and issued UCPB Check No.
612939, dated March 9, 1992, in the net amount of ₱99,000.00, in settlement of her claim after which she
executed a Subrogation Receipt/Deed, for said amount, in favor of [respondent]. She also filed a claim for the
value of the cargo covered by Bill of Lading No. 58. She submitted to [respondent] a Receipt, dated
December 11, 1991 and Order Slips, purportedly signed by Nestor Angelia for the goods he received from
Feliciana Legaspi valued at ₱60,338.00. [Respondent] approved her claim and remitted to Feliciana Legaspi
the net amount of ₱49,500.00, after which she signed a Subrogation Receipt/Deed, dated March 9, 1992, in
favor of [respondent].
"On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts against
[petitioner], with the Regional Trial Court of Makati City, for the collection of the total principal amount of
₱148,500.00, which it paid to Feliciana Legaspi for the loss of the cargo, praying that judgment be rendered
in its favor and against the [petitioner] as follows:
‘WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be rendered
ordering [petitioner] to pay [respondent] the following.
1. Actual damages in the amount of ₱148,500.00 plus interest thereon at the legal rate from the time of
filing of this complaint until fully paid;
2. Attorney’s fees in the amount of ₱10,000.00; and
3. Cost of suit.
‘[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just and
equitable under the premises.’
"[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered to,
and received by, [petitioner] for transportation to Tandag, Surigao del Sur under ‘Bill of Ladings,’ Annexes ‘A’
and ‘B’ of the complaint; that the loss of the cargo was due to the negligence of the [petitioner]; and that
Feliciana Legaspi had executed Subrogation Receipts/Deeds in favor of [respondent] after paying to her the
value of the cargo on account of the Marine Risk Notes it issued in her favor covering the cargo.
"In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of Marine
Inquiry of any negligence in the burning of the vessel; (b) the complaint stated no cause of action against
[petitioner]; and (c) the shippers/consignee had already been paid the value of the goods as stated in the Bill
of Lading and, hence, [petitioner] cannot be held liable for the loss of the cargo beyond the value thereof
declared in the Bill of Lading.
"After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take the
depositions of Chester Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and a
resident of Cebu City, and of Noel Tanyu, an officer of the Equitable Banking Corporation, in Cebu City, and a
resident of Cebu City, to be given before the Presiding Judge of Branch 106 of the Regional Trial Court of
Cebu City. Chester Cokaliong and Noel Tanyu did testify, by way of deposition, before the Court and declared
inter alia, that: [petitioner] is a family corporation like the Chester Marketing, Inc.; Nestor Angelia had been
doing business with [petitioner] and Chester Marketing, Inc., for years, and incurred an account with Chester
Marketing, Inc. for his purchases from said corporation; [petitioner] did issue Bills of Lading Nos. 58 and 59
for the cargo described therein with Zosimo Mercado and Nestor Angelia as shippers/consignees,
respectively; the engine room of the M/V Tandag caught fire after it passed the Mandaue/Mactan Bridge
resulting in the total loss of the vessel and its cargo; an investigation was conducted by the Board of Marine
Inquiry of the Philippine Coast Guard which rendered a Report, dated February 13, 1992 absolving
[petitioner] of any responsibility on account of the fire, which Report of the Board was approved by the
District Commander of the Philippine Coast Guard; a few days after the sinking of the vessel, a
representative of the Legaspi Marketing filed claims for the values of the goods under Bills of Lading Nos. 58
and 59 in behalf of the shippers/consignees, Nestor Angelia and Zosimo Mercado; [petitioner] was able to
ascertain, from the shippers/consignees and the representative of the Legaspi Marketing that the cargo
covered by Bill of Lading No. 59 was owned by Legaspi Marketing and consigned to Zosimo Mercado while
that covered by Bill of Lading No. 58 was purchased by Nestor Angelia from the Legaspi Marketing; that
[petitioner] approved the claim of Legaspi Marketing for the value of the cargo under Bill of Lading No. 59
and remitted to Legaspi Marketing the said amount under Equitable Banking Corporation Check No.
20230486 dated August 12, 1992, in the amount of ₱14,000.00 for which the representative of the Legaspi
Marketing signed Voucher No. 4379, dated August 12, 1992, for the said amount of ₱14,000.00 in full
payment of claims under Bill of Lading No. 59; that [petitioner] approved the claim of Nestor Angelia in the
amount of ₱6,500.00 but that since the latter owed Chester Marketing, Inc., for some purchases, [petitioner]
merely set off the amount due to Nestor Angelia under Bill of Lading No. 58 against his account with Chester
Marketing, Inc.; [petitioner] lost/[misplaced] the original of the check after it was received by Legaspi
Marketing, hence, the production of the microfilm copy by Noel Tanyu of the Equitable Banking Corporation;
[petitioner] never knew, before settling with Legaspi Marketing and Nestor Angelia that the cargo under both
Bills of Lading were insured with [respondent], or that Feliciana Legaspi filed claims for the value of the cargo
with [respondent] and that the latter approved the claims of Feliciana Legaspi and paid the total amount of
₱148,500.00 to her; [petitioner] came to know, for the first time, of the payments by [respondent] of the
claims of Feliciana Legaspi when it was served with the summons and complaint, on October 8, 1992; after
settling his claim, Nestor Angelia x x x executed the Release and Quitclaim, dated July 2, 1993, and Affidavit,
dated July 2, 1993 in favor of [respondent]; hence, [petitioner] was absolved of any liability for the loss of the
cargo covered by Bills of Lading Nos. 58 and 59; and even if it was, its liability should not exceed the value of
the cargo as stated in the Bills of Lading.
"[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x"9 (Citations omitted)
Ruling of the Court of Appeals
The CA held that petitioner had failed "to prove that the fire which consumed the vessel and its cargo was
caused by something other than its negligence in the upkeep, maintenance and operation of the vessel."10
Petitioner had paid ₱14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The CA,
however, held that the payment did not extinguish petitioner’s obligation to respondent, because there was
no evidence that Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi Marketing. The CA also
pointed out the impropriety of treating the claim under Bill of Lading No. 58 -- covering cargo valued therein
at ₱6,500 -- as a setoff against Nestor Angelia’s account with Chester Enterprises, Inc.
Finally, it ruled that respondent "is not bound by the valuation of the cargo under the Bills of Lading, x x x nor
is the value of the cargo under said Bills of Lading conclusive on the [respondent]. This is so because, in the
first place, the goods were insured with the [respondent] for the total amount of ₱150,000.00, which
amount may be considered as the face value of the goods."11
Hence this Petition.12
Issues: Petitioner raises for our consideration the following alleged errors of the CA:
 A. "The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that
petitioner’s liability should be based on the ‘actual insured value’ of the goods and not from actual valuation
declared by the shipper/consignee in the bill of lading.
B. "The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained
by the trial court a quo, holding that the cause of loss of the aforesaid cargoes under Bill of Lading Nos. 58
and 59 was due to force majeure and due diligence was [exercised] by petitioner prior to, during and
immediately after the fire on [petitioner’s] vessel.
C. "The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of
action against the petitioner."13
In sum, the issues are: (1) Is petitioner liable for the loss of the goods? (2) If it is liable, what is the extent of
its liability?
This Court’s Ruling: The Petition is partly meritorious.
First Issue: Liability for Loss
Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds that
its exercise of due diligence was adequately proven by the findings of the Philippine Coast Guard.
We are not convinced. The uncontroverted findings of the Philippine Coast Guard show that the M/V Tandag
sank due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank. Fuel spurted out of
the crack and dripped to the heating exhaust manifold, causing the ship to burst into flames. The crack was
located on the side of the fuel oil tank, which had a mere two-inch gap from the engine room walling, thus
precluding constant inspection and care by the crew.
Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been caused
by force majeure. Broadly speaking, force majeure generally applies to a natural accident, such as that
caused by a lightning, an earthquake, a tempest or a public enemy.14 Hence, fire is not considered a natural
disaster or calamity. In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,15 we explained:
"x x x. This must be so as it arises almost invariably from some act of man or by human means. It does not
fall within the category of an act of God unless caused by lighting or by other natural disaster or calamity. It
may even be caused by the actual fault or privity of the carrier.
"Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases or
rural lands where a reduction of the rent is allowed when more than one-half of the fruits have been lost
due to such event, considering that the law adopts a protective policy towards agriculture.
"As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the
Civil Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall be
presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law."
Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as to
discover the existence of cracked parts, that loss cannot be attributed to force majeure, but to the
negligence of those officials.16
The law provides that a common carrier is presumed to have been negligent if it fails to prove that it
exercised extraordinary vigilance over the goods it transported. Ensuring the seaworthiness of the vessel is
the first step in exercising the required vigilance. Petitioner did not present sufficient evidence showing what
measures or acts it had undertaken to ensure the seaworthiness of the vessel. It failed to show when the last
inspection and care of the auxiliary engine fuel oil service tank was made, what the normal practice was for
its maintenance, or some other evidence to establish that it had exercised extraordinary diligence. It merely
stated that constant inspection and care were not possible, and that the last time the vessel was dry-docked
was in November 1990. Necessarily, in accordance with Article 173517 of the Civil Code, we hold petitioner
responsible for the loss of the goods covered by Bills of Lading Nos. 58 and 59.
Second Issue: Extent of Liability
Respondent contends that petitioner’s liability should be based on the actual insured value of the goods,
subject of this case. On the other hand, petitioner claims that its liability should be limited to the value
declared by the shipper/consignee in the Bill of Lading.
The records18 show that the Bills of Lading covering the lost goods contain the stipulation that in case of
claim for loss or for damage to the shipped merchandise or property, "[t]he liability of the common carrier x
x x shall not exceed the value of the goods as appearing in the bill of lading."19 The attempt by respondent to
make light of this stipulation is unconvincing. As it had the consignees’ copies of the Bills of Lading,20 it could
have easily produced those copies, instead of relying on mere allegations and suppositions. However, it
presented mere photocopies thereof to disprove petitioner’s evidence showing the existence of the above
stipulation.
A stipulation that limits liability is valid21 as long as it is not against public policy. In Everett Steamship
Corporation v. Court of Appeals,22 the Court stated:
"A stipulation in the bill of lading limiting the common carrier’s liability for loss or destruction of a cargo to a
certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles
1749 and 1750 of the Civil Code which provides:
‘Art. 1749. A stipulation that the common carrier’s liability is limited to the value of the goods appearing in
the bill of lading, unless the shipper or owner declares a greater value, is binding.’
‘Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction,
or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been
freely and fairly agreed upon.’
"Such limited-liability clause has also been consistently upheld by this Court in a number of cases. Thus, in
Sea-Land Service, Inc. vs. Intermediate Appellate Court, we ruled:
‘It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity
and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable
on the basis alone of the cited Civil Code Provisions. That said stipulation is just and reasonable is arguable
from the fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not
declared for the shipment in the bill of lading. To hold otherwise would amount to questioning the justness
and fairness of the law itself, and this the private respondent does not pretend to do. But over and above
that consideration, the just and reasonable character of such stipulation is implicit in it giving the shipper or
owner the option of avoiding accrual of liability limitation by the simple and surely far from onerous
expedient of declaring the nature and value of the shipment in the bill of lading.’
"Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common
carrier’s liability for loss must be ‘reasonable and just under the circumstances, and has been freely and
fairly agreed upon.
"The bill of lading subject of the present controversy specifically provides, among others:
’18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shipper’s
net invoice cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for
any loss of possible profits or any consequential loss.
‘The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an
amount exceeding One Hundred Thousand Yen in Japanese Currency (¥100,000.00) 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.’
"The above stipulations are, to our mind, reasonable and just.1avvphi1 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." (Italics supplied)
In the present case, the stipulation limiting petitioner’s liability is not contrary to public policy. In fact, its just
and reasonable character is evident. The shippers/consignees may recover the full value of the goods by the
simple expedient of declaring the true value of the shipment in the Bill of Lading. Other than the payment of
a higher freight, there was nothing to stop them from placing the actual value of the goods therein. In fact,
they committed fraud against the common carrier by deliberately undervaluing the goods in their Bill of
Lading, thus depriving the carrier of its proper and just transport fare.
Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common carrier.
Such stipulation obliges the shipper/consignee to notify the common carrier of the amount that the latter
may be liable for in case of loss of the goods. The common carrier can then take appropriate measures --
getting insurance, if needed, to cover or protect itself. This precaution on the part of the carrier is reasonable
and prudent. Hence, a shipper/consignee that undervalues the real worth of the goods it seeks to transport
does not only violate a valid contractual stipulation, but commits a fraudulent act when it seeks to make the
common carrier liable for more than the amount it declared in the bill of lading.
Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their respective
Bills of Lading. Hence, petitioner was exposed to a risk that was deliberately hidden from it, and from which
it could not protect itself.
It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the insurance
company was paid the correct higher premium by Feliciana Legaspi; while petitioner was paid a fee lower
than what it was entitled to for transporting the goods that had been deliberately undervalued by the
shippers in the Bill of Lading. Between the two of them, the insurer should bear the loss in excess of the
value declared in the Bills of Lading. This is the just and equitable solution.
In Aboitiz Shipping Corporation v. Court of Appeals,23 the description of the nature and the value of the goods
shipped were declared and reflected in the bill of lading, like in the present case. The Court therein
considered this declaration as the basis of the carrier’s liability and ordered payment based on such amount.
Following this ruling, petitioner should not be held liable for more than what was declared by the
shippers/consignees as the value of the goods in the bills of lading.
We find no cogent reason to disturb the CA’s finding that Feliciana Legaspi was the owner of the goods
covered by Bills of Lading Nos. 58 and 59. Undoubtedly, the goods were merely consigned to Nestor Angelia
and Zosimo Mercado, respectively; thus, Feliciana Legaspi or her subrogee (respondent) was entitled to the
goods or, in case of loss, to compensation therefor. There is no evidence showing that petitioner paid her for
the loss of those goods. It does not even claim to have paid her.
On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading No.
59, for which the latter subsequently paid ₱14,000. But nothing in the records convincingly shows that the
former was the owner of the goods. Respondent was, however, able to prove that it was Feliciana Legaspi
who owned those goods, and who was thus entitled to payment for their loss. Hence, the claim for the
goods under Bill of Lading No. 59 cannot be deemed to have been extinguished, because payment was made
to a person who was not entitled thereto.
With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at ₱6,500, the
parties have not convinced us to disturb the findings of the CA that compensation could not validly take
place. Thus, we uphold the appellate court’s ruling on this point.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The assailed Decision is MODIFIED in the sense
that petitioner is ORDERED to pay respondent the sums of ₱14,000 and ₱6,500, which represent the value of
the goods stated in Bills of Lading Nos. 59 and 58, respectively. No costs.
 G.R. No. 152122 July 30, 2003
CHINA AIRLINES
Vs.
DANIEL CHIOK
A common carrier has a peculiar relationship with and an exacting responsibility to its passengers. For
reasons of public interest and policy, the ticket-issuing airline acts as principal in a contract of carriage and is
thus liable for the acts and the omissions of any errant carrier to which it may have endorsed any sector of
the entire, continuous trip.
The Case
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to
reverse the August 7, 2001 Decision2 and the February 7, 2002 Resolution3 of the Court of Appeals (CA) in
CA-GR CV No. 45832. The challenged Decision disposed as follows:
"WHEREFORE, premises considered, the assailed Decision dated July 5, 1991 of Branch 31, Regional Trial
Court, National Capital Judicial Region, Manila, in Civil Case No. 82-13690, is hereby MODIFIED by
deleting that portion regarding defendants-appellants’ liabilities for the payment of the actual damages
amounting to HK$14,128.80 and US$2,000.00 while all other respects are AFFIRMED. Costs against
defendants-appellants."4
The assailed Resolution denied Petitioner’s Motion for Partial Reconsideration.
The Facts: The facts are narrated by the CA5 as follows:
"On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased from China Airlines,
Ltd. (CAL for brevity) airline passenger ticket number 297:4402:004:278:5 for air transportation covering
Manila-Taipei-Hongkong-Manila. Said ticket was exclusively endorseable to Philippine Airlines, Ltd.
"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 Chiok’s plane ticket and his luggage. Lok called the attention
of Carmen Chan (hereafter referred to as Carmen), PAL’s terminal supervisor, and informed the latter
that Chiok’s name was not in the computer list of passengers. Subsequently, Carmen informed Chiok
that his name did not appear in PAL’s 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 PAL’s Hongkong office and confronted PAL’s 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 former’s
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 PAL’s 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 petitioner’s claim that it had merely acted as an issuing
agent for the ticket covering the Hong Kong-Manila leg of respondent’s journey. In support of its Decision,
the CA quoted a purported ruling of this Court in KLM Royal Dutch Airlines v. Court of Appeals8 as follows:
"Article 30 of the Warsaw providing that in case of transportation to be performed by various successive
carriers, the passenger can take action only against the carrier who performed the transportation during
which the accident or the delay occurred presupposes the occurrence of either an accident or delay in
the course of the air trip, and does not apply if the damage is caused by the willful misconduct on the
part of the carrier’s 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 carrier’s 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 PAL’s 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 airline’s 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 RTC’s 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 latter’s 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 PAL’s 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. PAL’s Motion for Reconsideration was denied with finality on January 21, 2002.
Only the appeal of CAL11 remains in this Court.
Issues
In its Memorandum, petitioner raises the following issues for the Court’s 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 petitioner’s Motion for Reconsideration on a mere syllabus,
unofficial at that.
"2. The Court of Appeals committed an error of law when it did not apply applicable precedents on the
case before it.
"3. The Court of Appeals committed a non sequitur when it did not rule on the cross-claim of the
petitioner."12
The Court’s 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 Court’s ruling in KLM v. CA. Moreover, such misconduct was allegedly
aggravated when the CA, in an attempt to justify its action, held that the difference between the actual
ruling and the syllabus was "more apparent than real."13
We agree with petitioner that the CA committed a lapse when it relied merely on the unofficial syllabus of
our ruling in KLM v. CA. Indeed, lawyers and litigants are mandated to quote decisions of this Court
accurately.14 By the same token, judges should do no less by strictly abiding by this rule when they quote
cases that support their judgments and decisions. Canon 3 of the Code of Judicial Conduct enjoins them to
perform official duties diligently by being faithful to the law and maintaining their professional competence.
However, since this case is not administrative in nature, we cannot rule on the CA justices’ administrative
liability, if any, for this lapse. First, due process requires that in administrative proceedings, the respondents
must first be given an opportunity to be heard before sanctions can be imposed. Second, the present action
is an appeal from the CA’s Decision, not an administrative case against the magistrates concerned. These two
suits are independent of and separate from each other and cannot be mixed in the same proceedings.
By merely including the lapse as an assigned error here without any adequate and proper administrative
case therefor, petitioner cannot expect the imposition of an administrative sanction.
In the case at bar, we can only determine whether the error in quotation would be sufficient to reverse or
modify the CA Decision.
Applicability of KLM v. CA
In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their world tour. The tour
included a Barcelona-Lourdes route, which was serviced by the Irish airline Aer Lingus. At the KLM office in
Frankfurt, Germany, they obtained a confirmation from Aer Lingus of their seat reservations on its Flight 861.
On the day of their departure, however, the airline rudely off-loaded them.
When sued for breach of contract, KLM sought to be excused for the wrongful conduct of Aer Lingus by
arguing that its liability for damages was limited only to occurrences on its own sectors. To support its
argument, it cited Article 30 of the Warsaw Convention, stating that when transportation was to be
performed by various successive carriers, the passenger could take action only against the carrier that had
performed the transportation when the accident or delay occurred.
In holding KLM liable for damages, we ruled as follows:
"1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be
sustained. That article presupposes the occurrence of either an accident or a delay, neither of which
took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus, through its
manager there, refused to transport the respondents to their planned and contracted destination.
"2. The argument that the KLM should not be held accountable for the tortious conduct of Aer Lingus
because of the provision printed on the respondents' tickets expressly limiting the KLM's liability for
damages only to occurrences on its own lines is unacceptable. As noted by the Court of Appeals that
condition was printed in letters so small that one would have to use a magnifying glass to read the
words. Under the circumstances, it would be unfair and inequitable to charge the respondents with
automatic knowledge or notice of the said condition so as to preclude any doubt that it was fairly and
freely agreed upon by the respondents when they accepted the passage tickets issued to them by the
KLM. As the airline which issued those tickets with the knowledge that the respondents would be flown
on the various legs of their journey by different air carriers, the KLM was chargeable with the duty and
responsibility of specifically informing the respondents of conditions prescribed in their tickets or, in the
very least, to ascertain that the respondents read them before they accepted their passage tickets. A
thorough search of the record, however, inexplicably fails to show that any effort was exerted by the
KLM officials or employees to discharge in a proper manner this responsibility to the respondents.
Consequently, we hold that the respondents cannot be bound by the provision in question by which
KLM unilaterally assumed the role of a mere ticket-issuing agent for other airlines and limited its liability
only to untoward occurrences on its own lines.
"3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of the
respondents provide that the carriage to be performed thereunder by several successive carriers ‘is to
be regarded as a single operation,’ which is diametrically incompatible with the theory of the KLM that
the respondents entered into a series of independent contracts with the carriers which took them on
the various segments of their trip. This position of KLM we reject. The respondents dealt exclusively with
the KLM which issued them tickets for their entire trip and which in effect guaranteed to them that they
would have sure space in Aer Lingus flight 861. The respondents, under that assurance of the
internationally prestigious KLM, naturally had the right to expect that their tickets would be honored by
Aer Lingus to which, in the legal sense, the KLM had indorsed and in effect guaranteed the performance
of its principal engagement to carry out the respondents' scheduled itinerary previously and mutually
agreed upon between the parties.
"4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct of an
official of the Aer Lingus which the KLM had engaged to transport the respondents on the
Barcelona-Lourdes segment of their itinerary. It is but just and in full accord with the policy expressly
embodied in our civil law which enjoins courts to be more vigilant for the protection of a contracting
party who occupies an inferior position with respect to the other contracting party, that the KLM should
be held responsible for the abuse, injury and embarrassment suffered by the respondents at the hands
of a supercilious boor of the Aer Lingus."15
In the instant case, the CA ruled that under the contract of transportation, petitioner -- as the ticket-issuing
carrier (like KLM) -- was liable regardless of the fact that PAL was to perform or had performed the actual
carriage. It elucidated on this point as follows:
"By the very nature of their contract, defendant-appellant CAL is clearly liable under the contract of
 carriage with [respondent] and remains to be so, regardless of those instances when actual carriage was
to be performed by another carrier. The issuance of a confirmed CAL ticket in favor of [respondent]
covering his entire trip abroad concretely attests to this. This also serves as proof that
defendant-appellant CAL, in effect guaranteed that the carrier, such as defendant-appellant PAL would
honor his ticket, assure him of a space therein and transport him on a particular segment of his trip."16
Notwithstanding the errant quotation, we have found after careful deliberation that the assailed Decision is
supported in substance by KLM v. CA. The misquotation by the CA cannot serve as basis for the reversal of its
ruling.
Nonetheless, to avert similar incidents in the future, this Court hereby exhorts members of the bar and the
bench to refer to and quote from the official repository of our decisions, the Philippine Reports, whenever
practicable.17 In the absence of this primary source, which is still being updated, they may resort to unofficial
sources like the SCRA.18We remind them that the Court’s ponencia, when used to support a judgment or
ruling, should be quoted accurately.19
Second Issue: Liability of the Ticket-Issuing Airline
We now come to the main issue of whether CAL is liable for damages. Petitioner posits that the CA Decision
must be annulled, not only because it was rooted on an erroneous quotation, but also because it
disregarded jurisprudence, notably China Airlines v. Intermediate Appellate Court20 and China Airlines v. Court
of Appeals.21
Jurisprudence Supports CA Decision
It is significant to note that the contract of air transportation was between petitioner and respondent, with
the former endorsing to PAL the Hong Kong-to-Manila segment of the journey. Such contract of carriage has
always been treated in this jurisdiction as a single operation. This jurisprudential rule is supported by the
Warsaw Convention,22to 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
petitioner’s 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 petitioner’s undertaking should be taken as part of a single operation under the contract of
carriage executed by the private respondent and Singapore Airlines in Manila."25
Likewise, as the principal in the contract of carriage, the petitioner in British Airways v. Court of Appeals26
was held liable, even when the breach of contract had occurred, not on its own flight, but on that of another
airline. The Decision followed our ruling in Lufthansa German Airlines v. Court of Appeals,27 in which we had
held that the obligation of the ticket-issuing airline remained and did not cease, regardless of the fact that
another airline had undertaken to carry the passengers to one of their destinations.
In the instant case, following the jurisprudence cited above, PAL acted as the carrying agent of CAL. In the
same way that we ruled against British Airways and Lufthansa in the aforementioned cases, we also rule that
CAL cannot evade liability to respondent, even though it may have been only a ticket issuer for the Hong
Kong-Manila sector.
Moral and Exemplary Damages
Both the trial and the appellate courts found that respondent had satisfactorily proven the existence of the
factual basis for the damages adjudged against petitioner and PAL. As a rule, the findings of fact of the CA
affirming those of the RTC will not be disturbed by this Court.28 Indeed, the Supreme Court is not a trier of
facts. As a rule also, only questions of law -- as in the present recourse -- may be raised in petitions for
review under Rule 45.
Moral damages cannot be awarded in breaches of carriage contracts, except in the two instances
contemplated in Articles 1764 and 2220 of the Civil Code, which we quote:
"Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII
of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by
the breach of contract by a common carrier.
"Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith."
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 carrier’s 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 airline’s fault. However, no serious attempt was made by PAL to secure the all-important
transportation of respondent to Manila on the following day. To make matters worse, PAL allowed a group of
non-revenue passengers, who had no confirmed tickets or reservations, to board Flight PR 307.33
Time and time again, this Court has stressed that the business of common carriers is imbued with public
interest and duty; therefore, the law governing them imposes an exacting standard.34 In Singson v. Court of
Appeals,35 we said:
"x x x [T]he carrier's utter lack of care and sensitivity to the needs of its passengers, clearly constitutive
of gross negligence, recklessness and wanton disregard of the rights of the latter, [are] acts evidently
indistinguishable or no different from fraud, malice and bad faith. As the rule now stands, where in
breaching the contract of carriage the defendant airline is shown to have acted fraudulently, with malice
or in bad faith, the award of moral and exemplary damages, in addition to actual damages, is proper."36
(Italics supplied)
In Saludo v. Court of Appeals,37 the Court reminded airline companies that due to the nature of their
business, they must not merely give cursory instructions to their personnel to be more accommodating
towards customers, passengers and the general public; they must require them to be so.
The acts of PAL’s employees, particularly Chan, clearly fell short of the extraordinary standard of care that the
law requires of common carriers.38 As narrated in Chan’s 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.
Under the foregoing circumstances, we cannot apply our 1989 ruling in China Airlines v. Intermediate
Appellate Court,44 which petitioner urges us to adopt. In that case, the breach of contract and the negligence
of the carrier in effecting the immediate flight connection for therein private respondent was incurred in
good faith.45 Having found no gross negligence or recklessness, we thereby deleted the award of moral and
exemplary damages against it.46
This Court’s 1992 ruling in China Airlines v. Court of Appeals47 is likewise inapplicable. In that case, we found
no bad faith or malice in the airline’s breach of its contractual obligation.48 We held that, as shown by the
flow of telexes from one of the airline’s 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 respondent’s 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
respondent’s name had been entered in PAL’s computer.
Since the status of respondent on Flight PR 311 was "OK," as a matter of right testified to by PAL’s 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 carrier’s offices where he was consistently assured of a seat thereon -- PAL’s negligence was so gross and
reckless that it amounted to bad faith.
In view of the foregoing, we rule that moral and exemplary50 damages were properly awarded by the lower
courts.51
Third Issue: Propriety of the Cross-Claim
We now look into the propriety of the ruling on CAL’s 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 PAL’s employees who
had acted negligently.
Section 8 of Rule 6 of the Rules of Court reads: "Sec. 8. Cross-claim. - A cross claim is any claim by one party
against a co-party arising out of the transaction or occurrence that is the subject matter either of the original
action or of a counterclaim therein. Such cross-claim may include a claim that the party against whom it is
asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the
cross-claimant."
For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA Finance Corporation v. CA,52
the Court stated: "x x x. An indispensable party is one whose interest will be affected by the court’s action in
the litigation, and without whom no final determination of the case can be had. The party’s 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.
"Without the presence of indispensable parties to a suit or proceeding, judgment of a court cannot
attain real finality."
PAL’s interest may be affected by any ruling of this Court on CAL’s 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 petitioner’s co-party in the case before the RTC and the CA, petitioner failed to include the
airline in the present recourse. Hence, the Court has no jurisdiction over it. Consequently, to make any ruling
on the cross-claim in the present Petition would not be legally feasible because PAL, not being a party in the
present case, cannot be bound thereby.53
WHEREFORE, the Petition is DENIED. Costs against petitioner.
 G.R. No. 147246 August 19, 2003
ASIA LIGHTERAGE AND SHIPPING, INC.,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC.
On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195 and February 21, 2001
Resolution2 affirming with modification the April 6, 1994 Decision3 of the Regional Trial Court of Manila
which found petitioner liable to pay private respondent the amount of indemnity and attorney's fees.
First, the facts.
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at US$423,192.354 was
shipped by Marubeni American Corporation of Portland, Oregon on board the vessel M/V NEO CYMBIDIUM
V-26 for delivery to the consignee, General Milling Corporation in Manila, evidenced by Bill of Lading No.
PTD/Man-4.5The shipment was insured by the private respondent Prudential Guarantee and Assurance, Inc.
against loss or damage for P14,621,771.75 under Marine Cargo Risk Note RN 11859/90.6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the custody of the
petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by the consignee as carrier to
deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced by Lighterage
Receipt No. 03647 for delivery to consignee. The cargo did not reach its destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a warning of an
incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the barge to Engineering Island off
Baseco to seek shelter from the approaching typhoon. PSTSI III was tied down to other barges which arrived
ahead of it while weathering out the storm that night. A few days after, the barge developed a list because of
a hole it sustained after hitting an unseen protuberance underneath the water. The petitioner filed a Marine
Protest on August 28, 1990.8 It likewise secured the services of Gaspar Salvaging Corporation which refloated
the barge.9 The hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the consignee's wharf on
September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge again ran aground due to strong
current. To avoid the complete sinking of the barge, a portion of the goods was transferred to three other
barges.10
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely, resulting in the total
loss of the remaining cargo.11 A second Marine Protest was filed on September 7, 1990.12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved and loaded on
the three other barges.13 The total proceeds from the sale of the salvaged cargo was P201,379.75.14
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and another letter
dated September 18, 1990 to the private respondent for the value of the lost cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount of
P4,104,654.22.15Thereafter, as subrogee, it sought recovery of said amount from the petitioner, but to no
avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of the amount
of indemnity, attorney's fees and cost of suit.16 Petitioner filed its answer with counterclaim.17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its Decision
states:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendant Asia Lighterage &
Shipping, Inc. liable to pay plaintiff Prudential Guarantee & Assurance Co., Inc. the sum of P4,104,654.22
with interest from the date complaint was filed on July 3, 1991 until fully satisfied plus 10% of the
amount awarded as and for attorney's fees. Defendant's counterclaim is hereby DISMISSED. With costs
against defendant.18
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The appellate court
affirmed the decision of the trial court with modification. The dispositive portion of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in the sense that the
salvage value of P201,379.75 shall be deducted from the amount of P4,104,654.22. Costs against
appellant.
Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the appellate court in a
Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the appellate court, viz:19
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR
WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT HELD THAT PETITIONER IS A
COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR
WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT AFFIRMED THE FINDING OF THE
LOWER COURT A QUO THAT ON THE BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO
COMMON CARRIERS, "THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL CASES
EXCEPT IN THE FIVE (5) CASES ENUMERATED."
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD WITH LAW AND/OR
WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT EFFECTIVELY CONCLUDED THAT
PETITIONER FAILED TO EXERCISE DUE DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY
OF THE CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary diligence in its care
and custody of the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers as persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no fixed and publicly
known route, maintains no terminals, and issues no tickets. It points out that it is not obliged to carry
indiscriminately for any person. It is not bound to carry goods unless it consents. In short, it does not hold
out its services to the general public.20
We disagree.
In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in Article 1732 of the
Civil Code makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity. We also did not distinguish
between a person or enterprise offering transportation service on a regular or scheduled basis and one
offering such service on an occasional, episodic or unscheduled basis. Further, we ruled that Article 1732
does not distinguish between a carrier offering its services to the general public, and one who offers services
or solicits business only from a narrow segment of the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and drayage22 and it offers its
barges to the public for carrying or transporting goods by water for compensation. Petitioner is clearly a
common carrier. In De Guzman, supra,23 we considered private respondent Ernesto Cendaña to be a
common carrier even if his principal occupation was not the carriage of goods for others, but that of buying
used bottles and scrap metal in Pangasinan and selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an irregular
rather than scheduled manner, and with an only limited clientele. A common carrier need not have fixed and
publicly known routes. Neither does it have to maintain terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of Appeals.24 The test
to determine a common carrier is "whether the given undertaking is a part of the business engaged in by the
carrier which he has held out to the general public as his occupation rather than the quantity or extent of
the business transacted."25 In the case at bar, the petitioner admitted that it is engaged in the business of
shipping and lighterage,26 offering its barges to the public, despite its limited clientele for carrying or
transporting goods by water for compensation.27
On the second issue, we uphold the findings of the lower courts that petitioner failed to exercise
extraordinary diligence in its care and custody of the consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported
by them.28 They are presumed to have been at fault or to have acted negligently if the goods are lost,
destroyed or deteriorated.29 To overcome the presumption of negligence in the case of loss, destruction or
deterioration of the goods, the common carrier must prove that it exercised extraordinary diligence. There
are, however, exceptions to this rule. Article 1734 of the Civil Code enumerates the instances when the
presumption of negligence does not attach:
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
In the case at bar, the barge completely sank after its towing bits broke, resulting in the total loss of its cargo.
Petitioner claims that this was caused by a typhoon, hence, it should not be held liable for the loss of the
cargo. However, petitioner failed to prove that the typhoon is the proximate and only cause of the loss of the
goods, and that it has exercised due diligence before, during and after the occurrence of the typhoon to
prevent or minimize the loss.30 The evidence show that, even before the towing bits of the barge broke, it
had already previously sustained damage when it hit a sunken object while docked at the Engineering Island.
It even suffered a hole. Clearly, this could not be solely attributed to the typhoon. The partly-submerged
vessel was refloated but its hole was patched with only clay and cement. The patch work was merely a
provisional remedy, not enough for the barge to sail safely. Thus, when petitioner persisted to proceed with
the voyage, it recklessly exposed the cargo to further damage. A portion of the cross-examination of Alfredo
Cunanan, cargo-surveyor of Tan-Gatue Adjustment Co., Inc., states:
CROSS-EXAMINATION BY ATTY. DONN LEE:31
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they tried to pull out
the barge from the place of the accident, and bring it to the anchor terminal for safety, then after
deciding if the vessel is stabilized, they tried to pull it to the consignee's warehouse, now while on route
another accident occurred, now this time the barge totally hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the second
accident?
a - The sinking, sir.
q - Can you tell the nature . . . can you tell the court, if you know what caused the sinking?
a - Mostly it was related to the first accident because there was already a whole (sic) on the
bottom part of the barge.
This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an incoming typhoon.
During the time that the barge was heading towards the consignee's wharf on September 5, 1990, typhoon
"Loleng" has already entered the Philippine area of responsibility.32 A part of the testimony of Robert Boyd,
Cargo Operations Supervisor of the petitioner, reveals:
DIRECT-EXAMINATION BY ATTY. LEE:33
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the Barge to lie
where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling Corporation, the
consignee) as I have said was in a hurry for their goods to be delivered at their Wharf since they needed
badly the wheat that was loaded in PSTSI-3. It was needed badly by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.
CROSS-EXAMINATION BY ATTY. IGNACIO:34
q - And then from ISLOFF Terminal you proceeded to the premises of the GMC? Am I
correct?
a - The next day, in the morning, we hired for additional two (2) tugboats as I have stated.
q - Despite of the threats of an incoming typhoon as you testified a while ago?
a - It is already in an inner portion of Pasig River. The typhoon would be coming and it would
be dangerous if we are in the vicinity of Manila Bay.
q - But the fact is, the typhoon was incoming? Yes or no?
a - Yes.
q - And yet as a standard operating procedure of your Company, you have to secure a sort of
Certification to determine the weather condition, am I correct?
a - Yes, sir.
 q - So, more or less, you had the knowledge of the incoming typhoon, right?
a - Yes, sir.
q - And yet you proceeded to the premises of the GMC?
a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if you are
already inside the vicinity or inside Pasig entrance, it is a safe place to tow upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to escape liability
for the loss sustained by the private respondent. Surely, meeting a typhoon head-on falls short of due
diligence required from a common carrier. More importantly, the officers/employees themselves of
petitioner admitted that when the towing bits of the vessel broke that caused its sinking and the total loss of
the cargo upon reaching the Pasig River, it was no longer affected by the typhoon. The typhoon then is not
the proximate cause of the loss of the cargo; a human factor, i.e., negligence had intervened.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 49195
dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
 G.R. No. 138334 August 25, 2003
ESTELA L. CRISOSTOMO,
Vs.
The Court of Appeals and CARAVAN TRAVEL & TOURS INTERNATIONAL, INC.,
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and Tours
International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed
"Jewels of Europe". The package tour included the countries of England, Holland, Germany, Austria,
Liechstenstein, Switzerland and France at a total cost of P74,322.70. Petitioner was given a 5% discount on
the amount, which included airfare, and the booking fee was also waived because petitioner’s niece, Meriam
Menor, was respondent company’s ticketing manager.
Pursuant to said contract, Menor went to her aunt’s residence on June 12, 1991 – a Wednesday – to deliver
petitioner’s travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment for the
package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on Saturday, two
hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take the
flight for the first leg of her journey from Manila to Hongkong. To petitioner’s dismay, she discovered that the
flight she was supposed to take had already departed the previous day. She learned that her plane ticket was
for the flight scheduled on June 14, 1991. She thus called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour – the "British Pageant" – which included
England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked anew to pay
US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave respondent US$300 or
P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioner’s return from Europe, she demanded from respondent the reimbursement of P61,421.70,
representing the difference between the sum she paid for "Jewels of Europe" and the amount she owed
respondent for the "British Pageant" tour. Despite several demands, respondent company refused to
reimburse the amount, contending that the same was non-refundable.1 Petitioner was thus constrained to
file a complaint against respondent for breach of contract of carriage and damages, which was docketed as
Civil Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of Makati City.
In her complaint,2 petitioner alleged that her failure to join "Jewels of Europe" was due to respondent’s fault
since it did not clearly indicate the departure date on the plane ticket. Respondent was also negligent in
informing her of the wrong flight schedule through its employee Menor. She insisted that the "British
Pageant" was merely a substitute for the "Jewels of Europe" tour, such that the cost of the former should be
properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioner’s failure to join the first tour. Chipeco insisted that petitioner was informed of the
correct departure date, which was clearly and legibly printed on the plane ticket. The travel documents were
given to petitioner two days ahead of the scheduled trip. Petitioner had only herself to blame for missing the
flight, as she did not bother to read or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for "Jewels of Europe", considering
that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd., which had already
billed the same even if petitioner did not join the tour. Lotus’ European tour organizer, Insight International
Tours Ltd., determines the cost of a package tour based on a minimum number of projected participants. For
this reason, it is accepted industry practice to disallow refund for individuals who failed to take a booked
tour.3
Lastly, respondent maintained that the "British Pageant" was not a substitute for the package tour that
petitioner missed. This tour was independently procured by petitioner after realizing that she made a
mistake in missing her flight for "Jewels of Europe". Petitioner was allowed to make a partial payment of only
US$300.00 for the second tour because her niece was then an employee of the travel agency. Consequently,
respondent prayed that petitioner be ordered to pay the balance of P12,901.00 for the "British Pageant"
package tour.
After due proceedings, the trial court rendered a decision,4 the dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three Thousand
Nine Hundred Eighty Nine Pesos and Forty Three Centavos (P53,989.43) with legal interest thereon at
the rate of twelve percent (12%) per annum starting January 16, 1992, the date when the complaint was
filed;
2. Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00) Pesos as and for
reasonable attorney’s fees;
3. Dismissing the defendant’s counterclaim, for lack of merit; and
4. With costs against the defendant.
SO ORDERED.5
The trial court held that respondent was negligent in erroneously advising petitioner of her departure date
through its employee, Menor, who was not presented as witness to rebut petitioner’s testimony. However,
petitioner should have verified the exact date and time of departure by looking at her ticket and should have
simply not relied on Menor’s verbal representation. The trial court thus declared that petitioner was guilty of
contributory negligence and accordingly, deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at fault. However, the
appellate court held that petitioner is more negligent than respondent because as a lawyer and well-traveled
person, she should have known better than to simply rely on what was told to her. This being so, she is not
entitled to any form of damages. Petitioner also forfeited her right to the "Jewels of Europe" tour and must
therefore pay respondent the balance of the price for the "British Pageant" tour. The dispositive portion of
the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995 is hereby
REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-appellee to pay to the
defendant-appellant the amount of P12,901.00, representing the balance of the price of the British Pageant
Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per annum, to be computed
from the time the counterclaim was filed until the finality of this decision. After this decision becomes final
and executory, the rate of TWELVE PERCENT (12%) interest per annum shall be additionally imposed on the
total obligation until payment thereof is satisfied. The award of attorney’s fees is DELETED. Costs against the
plaintiff-appellee.
SO ORDERED.6
Upon denial of her motion for reconsideration,7 petitioner filed the instant petition under Rule 45 on the
following grounds:
I. It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in
reversing and setting aside the decision of the trial court by ruling that the petitioner is not entitled to a
 refund of the cost of unavailed "Jewels of Europe" tour she being equally, if not more, negligent than the
private respondent, for in the contract of carriage the common carrier is obliged to observe utmost care
and extra-ordinary diligence which is higher in degree than the ordinary diligence required of the
passenger. Thus, even if the petitioner and private respondent were both negligent, the petitioner
cannot be considered to be equally, or worse, more guilty than the private respondent. At best,
petitioner’s negligence is only contributory while the private respondent [is guilty] of gross negligence
making the principle of pari delicto inapplicable in the case;
II. The Honorable Court of Appeals also erred in not ruling that the "Jewels of Europe" tour was not
indivisible and the amount paid therefor refundable;
III. The Honorable Court erred in not granting to the petitioner the consequential damages due her as a
result of breach of contract of carriage.8
Petitioner contends that respondent did not observe the standard of care required of a common carrier
when it informed her wrongly of the flight schedule. She could not be deemed more negligent than
respondent since the latter is required by law to exercise extraordinary diligence in the fulfillment of its
obligation. If she were negligent at all, the same is merely contributory and not the proximate cause of the
damage she suffered. Her loss could only be attributed to respondent as it was the direct consequence of its
employee’s gross negligence.
Petitioner’s contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or association of
persons obligate themselves to transport persons, things, or news from one place to another for a fixed
price.9 Such person or association of persons are regarded as carriers and are classified as private or special
carriers and common or public carriers.10 A common carrier is defined under Article 1732 of the Civil Code as
persons, corporations, firms or associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water or air, for compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner from one place to another since its covenant with its
customers is simply to make travel arrangements in their behalf. Respondent’s services as a travel agency
include procuring tickets and facilitating travel permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company, this does
not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as an agent of the
airline, with whom petitioner ultimately contracted for her carriage to Europe. Respondent’s obligation to
petitioner in this regard was simply to see to it that petitioner was properly booked with the airline for the
appointed date and time. Her transport to the place of destination, meanwhile, pertained directly to the
airline.
The object of petitioner’s contractual relation with respondent is the latter’s service of arranging and
facilitating petitioner’s booking, ticketing and accommodation in the package tour. In contrast, the object of
a contract of carriage is the transportation of passengers or goods. It is in this sense that the contract
between the parties in this case was an ordinary one for services and not one of carriage. Petitioner’s
submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the degree of
care required in the performance of the latter’s obligation under the contract. For reasons of public policy, a
common carrier in a contract of carriage is bound by law to carry passengers as far as human care and
foresight can provide using the utmost diligence of very cautious persons and with due regard for all the
circumstances.11 As earlier stated, however, respondent is not a common carrier but a travel agency. It is thus
not bound under the law to observe extraordinary diligence in the performance of its obligation, as
petitioner claims.
Since the contract between the parties is an ordinary one for services, the standard of care required of
respondent is that of a good father of a family under Article 1173 of the Civil Code.12 This connotes
reasonable care consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. The test to determine whether negligence attended the performance of
an obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of
negligence.13
In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner of the
wrong day of departure. Petitioner’s testimony was accepted as indubitable evidence of Menor’s alleged
negligent act since respondent did not call Menor to the witness stand to refute the allegation. The lower
court applied the presumption under Rule 131, Section 3 (e)14 of the Rules of Court that evidence willfully
suppressed would be adverse if produced and thus considered petitioner’s uncontradicted testimony to be
sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains that
petitioner’s assertion is belied by the evidence on record. The date and time of departure was legibly written
on the plane ticket and the travel papers were delivered two days in advance precisely so that petitioner
could prepare for the trip. It performed all its obligations to enable petitioner to join the tour and exercised
due diligence in its dealings with the latter.
We agree with respondent.
Respondent’s failure to present Menor as witness to rebut petitioner’s testimony could not give rise to an
inference unfavorable to the former. Menor was already working in France at the time of the filing of the
complaint,15 thereby making it physically impossible for respondent to present her as a witness. Then too,
even if it were possible for respondent to secure Menor’s testimony, the presumption under Rule 131,
Section 3(e) would still not apply. The opportunity and possibility for obtaining Menor’s testimony belonged
to both parties, considering that Menor was not just respondent’s employee, but also petitioner’s niece. It
was thus error for the lower court to invoke the presumption that respondent willfully suppressed evidence
under Rule 131, Section 3(e). Said presumption would logically be inoperative if the evidence is not
intentionally omitted but is simply unavailable, or when the same could have been obtained by both
parties.16
In sum, we do not agree with the finding of the lower court that Menor’s negligence concurred with the
negligence of petitioner and resultantly caused damage to the latter. Menor’s negligence was not sufficiently
proved, considering that the only evidence presented on this score was petitioner’s uncorroborated
narration of the events. It is well-settled that the party alleging a fact has the burden of proving it and a mere
allegation cannot take the place of evidence.17 If the plaintiff, upon whom rests the burden of proving his
cause of action, fails to show in a satisfactory manner facts upon which he bases his claim, the defendant is
under no obligation to prove his exception or defense.18
Contrary to petitioner’s claim, the evidence on record shows that respondent exercised due diligence in
performing its obligations under the contract and followed standard procedure in rendering its services to
petitioner. As correctly observed by the lower court, the plane ticket19 issued to petitioner clearly reflected
the departure date and time, contrary to petitioner’s contention. The travel documents, consisting of the
tour itinerary, vouchers and instructions, were likewise delivered to petitioner two days prior to the trip.
Respondent also properly booked petitioner for the tour, prepared the necessary documents and procured
the plane tickets. It arranged petitioner’s hotel accommodation as well as food, land transfers and
sightseeing excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as everything else
that was essential to book petitioner for the tour. Had petitioner exercised due diligence in the conduct of
her affairs, there would have been no reason for her to miss the flight. Needless to say, after the travel
papers were delivered to petitioner, it became incumbent upon her to take ordinary care of her concerns.
This undoubtedly would require that she at least read the documents in order to assure herself of the
important details regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for damages for the
resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise due
care and prudence in the performance of the obligation as the nature of the obligation so demands.20 There
is no fixed standard of diligence applicable to each and every contractual obligation and each case must be
determined upon its particular facts. The degree of diligence required depends on the circumstances of the
specific obligation and whether one has been negligent is a question of fact that is to be determined after
taking into account the particulars of each case.21 1âwphi1
The lower court declared that respondent’s employee was negligent. This factual finding, however, is not
supported by the evidence on record. While factual findings below are generally conclusive upon this court,
the rule is subject to certain exceptions, as when the trial court overlooked, misunderstood, or misapplied
some facts or circumstances of weight and substance which will affect the result of the case.22
In the case at bar, the evidence on record shows that respondent company performed its duty diligently and
did not commit any contractual breach. Hence, petitioner cannot recover and must bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in CA-G.R.
CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of P12,901.00
representing the balance of the price of the British Pageant Package Tour, with legal interest thereon at the
rate of 6% per annum, to be computed from the time the counterclaim was filed until the finality of this
Decision. After this Decision becomes final and executory, the rate of 12% per annum shall be imposed until
the obligation is fully settled, this interim period being deemed to be by then an equivalent to a forbearance
of credit.23
 G.R. No. 135377 October 7, 2003
DSR-SENATOR LINES AND C.F. SHARP AND COMPANY, INC.
Vs.
FEDERAL PHOENIX ASSURANCE CO., INC.
Before us is a petition for review on certiorari1 assailing the Decision2 dated June 5, 1998 of the Court of
Appeals in CA-G.R. CV No. 50833 which affirmed the Decision of the Regional Trial Court (RTC), Manila City,
Branch 16, in Civil Case No. 94-69699, "Federal Phoenix Assurance Company, Inc. vs. DSR-Senator Lines and
C.F. Sharp & Co., Inc.," for damages arising from the loss of cargo while in transit.
Berde Plants, Inc. (Berde Plants) delivered 632 units of artificial trees to C.F. Sharp and Company, Inc. (C.F.
Sharp), the General Ship Agent of DSR-Senator Lines, a foreign shipping corporation, for transportation and
delivery to the consignee, Al-Mohr International Group, in Riyadh, Saudi Arabia. C.F. Sharp issued
International Bill of Lading No. SENU MNL-265483 for the cargo with an invoice value of $34,579.60. Under
the Bill of Lading, the port of discharge for the cargo was at the Khor Fakkan port and the port of delivery
was Riyadh, Saudi Arabia, via Port Dammam. The cargo was loaded in M/S "Arabian Senator."
Federal Phoenix Assurance Company, Inc. (Federal Phoenix Assurance) insured the cargo against all risks in
the amount of ₱941,429.61.4
On June 7, 1993, M/S "Arabian Senator" left the Manila South Harbor for Saudi Arabia with the cargo on
board. When the vessel arrived in Khor Fakkan Port, the cargo was reloaded on board DSR-Senator Lines’
feeder vessel, M/V "Kapitan Sakharov," bound for Port Dammam, Saudi Arabia. However, while in transit, the
vessel and all its cargo caught fire.
On July 5, 1993, DSR-Senator Lines informed Berde Plants that M/V "Kapitan Sakharov" with its cargo was
gutted by fire and sank on or about July 4, 1993. On December 16, 1993, C.F. Sharp issued a certification to
that effect.
Consequently, Federal Phoenix Assurance paid Berde Plants ₱941,429.61 corresponding to the amount of
insurance for the cargo. In turn Berde Plants executed in its favor a "Subrogation Receipt"5 dated January 17,
1994.
On February 8, 1994, Federal Phoenix Assurance sent a letter to C.F. Sharp demanding payment of
₱941,429.61 on the basis of the Subrogation Receipt. C.F. Sharp denied any liability on the ground that such
liability was extinguished when the vessel carrying the cargo was gutted by fire.
Thus, on March 11, 1994, Federal Phoenix Assurance filed with the RTC, Branch 16, Manila a complaint for
damages against DSR-Senator Lines and C.F. Sharp, praying that the latter be ordered to pay actual damages
of ₱941,429.61, compensatory damages of ₱100,000.00 and costs.
On August 22, 1995, the RTC rendered a Decision in favor of Federal Phoenix Assurance, the dispositive
portion of which reads:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the
defendants who are hereby ordered jointly and severally to pay plaintiff:
I. The amount of ₱941,439.61 (should be ₱941,429.616 ) with legal interest of 6% per annum from the
date of the letter of demand of February 8, 1993 (EXH. L) and 12% per annum from the date the
judgment becomes final and executory until its satisfaction (Eastern Shipping Lines vs. Court of Appeals,
G.R. No. 97412, July 12, 1994);
II. The amount of ₱15,000.00 by way of reasonable attorney’s fees; and
 III. To pay costs.
"The counterclaim of defendants is DISMISSED.
"SO ORDERED."7
On appeal, the Court of Appeals rendered a Decision dated June 5, 1998, affirming the RTC Decision, thus:
"In the present recourse, the appellant carrier was presumed to have acted negligently for the fire that
gutted the feeder vessel and the consequent loss or destruction of the cargo. Hence, the appellant carrier is
liable for appellee’s claim under the New Civil Code of the Philippines.
"Contrary to C.F. Sharp and Co., Inc.’s pose, its liability as ship agent continued and remained until the cargo
was delivered to the consignee. The status of the appellant as ship agent subsisted and its liability as a ship
agent was co-terminous with and subsisted as long as the cargo was not delivered to the consignee under
the terms of the Bill of Lading.
"IN LIGHT OF ALL THE FOREGOING, the appeal of the appellants is DISMISSED. The Decision appealed from is
affirmed. With costs against the appellants.

On September 7, 1998, the Court of Appeals denied the motion for reconsideration of DSR-Senator Lines
and C.F. Sharp, prompting them to file with this Court the instant petition.
We find the petition bereft of merit.
Article 1734 of the Civil Code provides:
"Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless
the same is due to any of the following causes only:
(1)Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority."
Fire is not one of those enumerated under the above provision which exempts a carrier from liability for loss
or destruction of the cargo.
In Eastern Shipping Lines, Inc. vs. Intermediate Appellate Court,9 we ruled that since the peril of fire is not
comprehended within the exceptions in Article 1734, then the common carrier shall be presumed to have
been at fault or to have acted negligently, unless it proves that it has observed the extraordinary diligence
required by law.
Even if fire were to be considered a natural disaster within the purview of Article 1734, it is required under
Article 173910 of the same Code that the natural disaster must have been the proximate and only cause of
the loss, and that the carrier has exercised due diligence to prevent or minimize the loss before, during or
after the occurrence of the disaster.
We have held that a common carrier’s duty to observe the requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or unconditionally placed in the possession of, and received by,
the carrier for transportation until delivered to or until the lapse of a reasonable time for their acceptance by
the person entitled to receive them. When the goods shipped either are lost or arrive in damaged condition,
a presumption arises against the carrier of its failure to observe that diligence, and there need not be an
express finding of negligence to hold it liable.11 1awphi1.néts
Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported
by them. Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are
lost, destroyed or deteriorated. There are very few instances when the presumption of negligence does not
attach and these instances are enumerated in Article 1734. In those cases where the presumption is applied,
the common carrier must prove that it exercised extraordinary diligence in order to overcome the
presumption.12
Respondent Federal Phoenix Assurance raised the presumption of negligence against petitioners. However,
they failed to overcome it by sufficient proof of extraordinary diligence.
WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals dated June 5,
1998, in CA-G.R. CV No. 50833 is hereby AFFIRMED.
SO ORDERED.
 G.R. No. 142305 December 10, 2003
SINGAPORE AIRLINES LIMITED,
vs.
ANDION FERNANDEZ
This is a petition for review on certiorari assailing the Decision1 of the Court of Appeals which affirmed in
toto the decision2 of the Regional Trial Court of Pasig City, Branch 164 in Civil Case No. 60985 filed by the
respondent for damages.
The Case for the Respondent
Respondent Andion Fernandez is an acclaimed soprano here in the Philippines and abroad. At the time of
the incident, she was availing an educational grant from the Federal Republic of Germany, pursuing a
Master’s Degree in Music majoring in Voice.3
She was invited to sing before the King and Queen of Malaysia on February 3 and 4, 1991. For this singing
engagement, an airline passage ticket was purchased from petitioner Singapore Airlines which would
transport her to Manila from Frankfurt, Germany on January 28, 1991. From Manila, she would proceed to
Malaysia on the next day.4 It was necessary for the respondent to pass by Manila in order to gather her
wardrobe; and to rehearse and coordinate with her pianist her repertoire for the aforesaid performance.
The petitioner issued the respondent a Singapore Airlines ticket for Flight No. SQ 27, leaving Frankfurt,
Germany on January 27, 1991 bound for Singapore with onward connections from Singapore to Manila.
Flight No. SQ 27 was scheduled to leave Frankfurt at 1:45 in the afternoon of January 27, 1991, arriving at
Singapore at 8:50 in the morning of January 28, 1991. The connecting flight from Singapore to Manila, Flight
No. SQ 72, was leaving Singapore at 11:00 in the morning of January 28, 1991, arriving in Manila at 2:20 in
the afternoon of the same day.5
On January 27, 1991, Flight No. SQ 27 left Frankfurt but arrived in Singapore two hours late or at about
11:00 in the morning of January 28, 1991. By then, the aircraft bound for Manila had left as scheduled,
leaving the respondent and about 25 other passengers stranded in the Changi Airport in Singapore.6
Upon disembarkation at Singapore, the respondent approached the transit counter who referred her to the
nightstop counter and told the lady employee thereat that it was important for her to reach Manila on that
day, January 28, 1991. The lady employee told her that there were no more flights to Manila for that day and
that respondent had no choice but to stay in Singapore. Upon respondent’s persistence, she was told that
she can actually fly to Hong Kong going to Manila but since her ticket was non-transferable, she would have
to pay for the ticket. The respondent could not accept the offer because she had no money to pay for it.7 Her
pleas for the respondent to make arrangements to transport her to Manila were unheeded.8
The respondent then requested the lady employee to use their phone to make a call to Manila. Over the
employees’ reluctance, the respondent telephoned her mother to inform the latter that she missed the
connecting flight. The respondent was able to contact a family friend who picked her up from the airport for
her overnight stay in Singapore.9
The next day, after being brought back to the airport, the respondent proceeded to petitioner’s counter
which says: "Immediate Attention To Passengers with Immediate Booking." There were four or five
passengers in line. The respondent approached petitioner’s male employee at the counter to make
arrangements for immediate booking only to be told: "Can’t you see I am doing something." She explained
her predicament but the male employee uncaringly retorted: "It’s your problem, not ours."10
The respondent never made it to Manila and was forced to take a direct flight from Singapore to Malaysia on
January 29, 1991, through the efforts of her mother and travel agency in Manila. Her mother also had to
travel to Malaysia bringing with her respondent’s wardrobe and personal things needed for the performance
that caused them to incur an expense of about P50,000.11
As a result of this incident, the respondent’s performance before the Royal Family of Malaysia was below par.
Because of the rude and unkind treatment she received from the petitioner’s personnel in Singapore, the
respondent was engulfed with fear, anxiety, humiliation and embarrassment causing her to suffer mental
fatigue and skin rashes. She was thereby compelled to seek immediate medical attention upon her return to
Manila for "acute urticaria."12
On June 15, 1993, the RTC rendered a decision with the following dispositive portion:
ACCORDINGLY and as prayed for, defendant Singapore Airlines is ordered to pay herein plaintiff Andion H.
Fernandez the sum of:
1. FIFTY THOUSAND (P50,000.00) PESOS as compensatory or actual damages;
2. TWO HUNDRED and FIFTY THOUSAND (P250,000.00) PESOS as moral damages considering plaintiff’s
professional standing in the field of culture at home and abroad;
3. ONE HUNDRED THOUSAND (P100,000.00) PESOS as exemplary damages;
4. SEVENTY-FIVE THOUSAND (P75,000.00) PESOS as attorney’s fees; and
5. To pay the costs of suit.
SO ORDERED.13
The petitioner appealed the decision to the Court of Appeals.
On June 10, 1998, the CA promulgated the assailed decision finding no reversible error in the appealed
decision of the trial court.14
Forthwith, the petitioner filed the instant petition for review, raising the following errors:
1. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION OF THE TRIAL
COURT THAT AWARDED DAMAGES TO RESPONDENT FOR THE ALLEGED FAILURE OF THE PETITIONER TO
EXERCISE EXTRAORDINARY DILIGENCE.
2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER ACTED IN BAD FAITH.
3. THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE PETITIONER’S COUNTERCLAIMS.15
The petitioner assails the award of damages contending that it exercised the extraordinary diligence required
by law under the given circumstances. The delay of Flight No. SQ 27 from Frankfurt to Singapore on January
28, 1991 for more than two hours was due to a fortuitous event and beyond petitioner’s control. Inclement
weather prevented the petitioner’s plane coming from Copenhagen, Denmark to arrive in Frankfurt on time
on January 27, 1991. The plane could not take off from the airport as the place was shrouded with fog. This
delay caused a "snowball effect" whereby the other flights were consequently delayed. The plane carrying
the respondent arrived in Singapore two (2) hours behind schedule.16 The delay was even compounded
when the plane could not travel the normal route which was through the Middle East due to the raging Gulf
War at that time. It had to pass through the restricted Russian airspace which was more congested.17
Under these circumstances, petitioner therefore alleged that it cannot be faulted for the delay in arriving in
Singapore on January 28, 1991 and causing the respondent to miss her connecting flight to Manila.
The petitioner further contends that it could not also be held in bad faith because its personnel did their
best to look after the needs and interests of the passengers including the respondent. Because the
respondent and the other 25 passengers missed their connecting flight to Manila, the petitioner
automatically booked them to the flight the next day and gave them free hotel accommodations for the
night. It was respondent who did not take petitioner’s offer and opted to stay with a family friend in
Singapore.
The petitioner also alleges that the action of the respondent was baseless and it tarnished its good name
and image earned through the years for which, it was entitled to damages in the amount of ₱1,000,000;
exemplary damages of ₱500,000; and attorney’s fees also in the amount of ₱500,000.18
The petition is barren of merit.
When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract
of carriage arises. The passenger then has every right to expect that he be transported on that flight and on
that date. If he does not, then the carrier opens itself to a suit for a breach of contract of carriage.19
The contract of air carriage is a peculiar one. Imbued with public interest, the law requires common carriers
to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of
very cautious persons with due regard for all the circumstances.20 In an action for breach of contract of
carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent.
All that is necessary to prove is the existence of the contract and the fact of its non-performance by the
carrier.21
In the case at bar, it is undisputed that the respondent carried a confirmed ticket for the two-legged trip
from Frankfurt to Manila: 1) Frankfurt-Singapore; and 2) Singapore-Manila. In her contract of carriage with
the petitioner, the respondent certainly expected that she would fly to Manila on Flight No. SQ 72 on January
28, 1991. Since the petitioner did not transport the respondent as covenanted by it on said terms, the
petitioner clearly breached its contract of carriage with the respondent. The respondent had every right to
sue the petitioner for this breach. The defense that the delay was due to fortuitous events and beyond
petitioner’s control is unavailing. In PAL vs. CA,22 we held that:
.... Undisputably, PAL’s diversion of its flight due to inclement weather was a fortuitous event. Nonetheless,
such occurrence did not terminate PAL’s contract with its passengers. Being in the business of air carriage
and the sole one to operate in the country, PAL is deemed to be equipped to deal with situations as in the
case at bar. What we said in one case once again must be stressed, i.e., the relation of carrier and passenger
continues until the latter has been landed at the port of destination and has left the carrier’s premises.
Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding the comfort,
convenience and safety of its stranded passengers until they have reached their final destination...
"...If the cause of non-fulfillment of the contract is due to a fortuitous event, it has to be the sole and only
cause (Art. 1755 C.C., Art. 1733 C.C.). Since part of the failure to comply with the obligation of common
carrier to deliver its passengers safely to their destination lay in the defendant’s failure to provide comfort
and convenience to its stranded passengers using extraordinary diligence, the cause of non-fulfillment is not
solely and exclusively due to fortuitous event, but due to something which defendant airline could have
prevented, defendant becomes liable to plaintiff."
Indeed, in the instant case, petitioner was not without recourse to enable it to fulfill its obligation to
transport the respondent safely as scheduled as far as human care and foresight can provide to her
destination. Tagged as a premiere airline as it claims to be and with the complexities of air travel, it was
certainly well-equipped to be able to foresee and deal with such situation. The petitioner’s indifference and
negligence by its absence and insensitivity was exposed by the trial court, thus:
(a) Under Section 9.1 of its Traffic Manual (Exhibit 4) "…flights can be delayed to await the uplift of
connecting cargo and passengers arriving on a late in-bound flight…" As adverted to by the trial
court,…"Flight SQ-27/28 maybe delayed for about half an hour to transfer plaintiff to her connecting
 flight. As pointed out above, delay is normal in commercial air transportation" (RTC Decision, p. 22); or
(b) Petitioner airlines could have carried her on one of its flights bound for Hongkong and arranged for a
connecting flight from Hongkong to Manila all on the same date. But then the airline personnel who
informed her of such possibility told her that she has to pay for that flight. Regrettably, respondent did
not have sufficient funds to pay for it. (TSN, 30 March 1992, pp.8-9; RTC Decision, pp. 22-23) Knowing
the predicament of the respondent, petitioner did not offer to shoulder the cost of the ticket for that
flight; or
(c) As noted by the trial court from the account of petitioner’s witness, Bob Khkimyong, that "a
passenger such as the plaintiff could have been accommodated in another international airline such as
Lufthansa to bring the plaintiff to Singapore early enough from Frankfurt provided that there was prior
communication from that station to enable her to catch the connecting flight to Manila because of the
urgency of her business in Manila…(RTC Decision, p. 23)
The petitioner’s diligence in communicating to its passengers the consequences of the delay in their flights
was wanting. As elucidated by the trial court:
It maybe that delay in the take off and arrival of commercial aircraft could not be avoided and may be caused
by diverse factors such as those testified to by defendant’s pilot. However, knowing fully well that even
before the plaintiff boarded defendant’s Jumbo aircraft in Frankfurt bound for Singapore, it has already
incurred a delay of two hours. Nevertheless, defendant did not take the trouble of informing plaintiff, among
its other passengers of such a delay and that in such a case, the usual practice of defendant airline will be
that they have to stay overnight at their connecting airport; and much less did it inquire from the plaintiff
and the other 25 passengers bound for Manila whether they are amenable to stay overnight in Singapore
and to take the connecting flight to Manila the next day. Such information should have been given and
inquiries made in Frankfurt because even the defendant airline’s manual provides that in case of urgency to
reach his or her destination on the same date, the head office of defendant in Singapore must be informed
by telephone or telefax so as the latter may make certain arrangements with other airlines in Frankfurt to
bring such a passenger with urgent business to Singapore in such a manner that the latter can catch up with
her connecting flight such as S-27/28 without spending the night in Singapore…23
The respondent was not remiss in conveying her apprehension about the delay of the flight when she was
still in Frankfurt. Upon the assurance of petitioner’s personnel in Frankfurt that she will be transported to
Manila on the same date, she had every right to expect that obligation fulfilled. She testified, to wit:
Q: Now, since you were late, when the plane that arrived from Frankfurt was late, did you not make
arrangements so that your flight from Singapore to Manila would be adjusted?
A: I asked the lady at the ticket counter, the one who gave the boarding pass in Frankfurt and I asked her,
"Since my flight going to Singapore would be late, what would happen to my Singapore-Manila flight?" and
then she said, "Don’t worry, Singapore Airlines would be responsible to bring you to Manila on the same
date." And then they have informed the name of the officer, or whatever, that our flight is going to be late.24
When a passenger contracts for a specific flight, he has a purpose in making that choice which must be
respected. This choice, once exercised, must not be impaired by a breach on the part of the airline without
the latter incurring any liability.25 For petitioner’s failure to bring the respondent to her destination, as
scheduled, we find the petitioner clearly liable for the breach of its contract of carriage with the respondent.
We are convinced that the petitioner acted in bad faith.1âwphi1 Bad faith means a breach of known duty
through some motive of interest or ill will. Self-enrichment or fraternal interest, and not personal ill will, may
well have been the motive; but it is malice nevertheless.26 Bad faith was imputed by the trial court when it
found that the petitioner’s employees at the Singapore airport did not accord the respondent the attention
and treatment allegedly warranted under the circumstances. The lady employee at the counter was unkind
and of no help to her. The respondent further alleged that without her threats of suing the company, she
was not allowed to use the company’s phone to make long distance calls to her mother in Manila. The male
employee at the counter where it says: "Immediate Attention to Passengers with Immediate Booking" was
rude to her when he curtly retorted that he was busy attending to other passengers in line. The trial court
concluded that this inattentiveness and rudeness of petitioner’s personnel to respondent’s plight was gross
enough amounting to bad faith. This is a finding that is generally binding upon the Court which we find no
reason to disturb.
Article 2232 of the Civil Code provides that in a contractual or quasi-contractual relationship, exemplary
damages may be awarded only if the defendant had acted in a "wanton, fraudulent, reckless, oppressive or
malevolent manner." In this case, petitioner’s employees acted in a wanton, oppressive or malevolent
manner. The award of exemplary damages is, therefore, warranted in this case.
WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals is AFFIRMED.
 G.R. No. 146173 December 11, 2003
CECILIA YAMBAO
Vs.
MELCHORITA C. ZUÑIGA, LEOVIGILDO C. ZUÑIGA, REGINALDO C. ZUÑIGA, AND THE MINORS,
HERMINIGILDO C. ZUÑIGA, JR., AND LOVELY EMILY C. ZUÑIGA - both represented by their legal guardian, the
aforenamed MELCHORITA C. ZUÑIGA
This petition for review on certiorari seeks to reverse and set aside the decision1 of the Court of Appeals,
dated September 8, 2000, in CA-G.R. CV No. 52275. The appellate court affirmed the judgment2 of the
Regional Trial Court (RTC) of Malolos City, Bulacan, Branch 8, in Civil Case No. 581-M-92, finding herein
petitioner, among others, liable for the untimely death of Herminigildo Zuñiga in a vehicular accident and
ordering her to indemnify his legal heirs, the respondents herein. Also challenged in this petition is the
resolution3 of the Court of Appeals, dated November 27, 2000, denying the petitioner’s Motion for
Reconsideration.
Petitioner Cecilia Yambao is the registered owner of "Lady Cecil and Rome Trans" passenger bus with Plate
No. CVK 606, with a public transport franchise to ply the Novaliches-via Quirino-Alabang route.
The respondents are the legal heirs of the late Herminigildo Zuñiga. Melchorita Zuñiga is the surviving
spouse, while Leovigildo, Reginaldo, Herminigildo, Jr., and Lovely Emily are their children.
The facts, as established by the trial court and affirmed by the appellate court, are as follows:
At around 3:30 p.m. of May 6, 1992, the bus owned by the petitioner was being driven by her driver, one
Ceferino G. Venturina along the northbound lane of Epifanio delos Santos Avenue (EDSA), within the vicinity
of Bagong Barrio, Kalookan City. With Venturina was the bus conductor, Fernando Dumaliang. Suddenly, the
bus bumped Herminigildo Zuñiga, a pedestrian. Such was the force of the impact that the left side of the
front windshield of the bus was cracked. Zuñiga was rushed to the Quezon City General Hospital where he
was given medical attention, but due to the massive injuries sustained, he succumbed shortly thereafter.
Private respondents, as heirs of the victim, filed a Complaint4 against petitioner and her driver, Venturina, for
damages, docketed as Civil Case No. 581-M-92 at the RTC of Malolos City. The complaint essentially alleged
that Venturina drove the bus in a reckless, careless and imprudent manner, in violation of traffic rules and
regulations, without due regard to public safety, thus resulting in the victim’s premature death.
In her Answer, the petitioner vehemently denied the material allegations of the complaint. She tried to shift
the blame for the accident upon the victim, theorizing that Herminigildo bumped into her bus, while
avoiding an unidentified woman who was chasing him. She further alleged that she was not liable for any
damages because as an employer, she exercised the proper diligence of a good father of a family, both in the
selection and supervision of her bus driver.
On September 8, 1995, the trial court rendered judgment, the dispositive portion of which reads:
In view of the foregoing consideration, judgment is hereby rendered in favor of the plaintiffs and against the
defendants ordering the herein defendants jointly and severally, with Plaridel Surety & Insurance Co., and
Times Surety & Insurance Co. Inc. to the extent of their respective liabilities under their respective insurance
policies to pay the herein plaintiffs the following sums of money:
1. ₱50,000.00 as indemnity for the death of Herminigildo Zuñiga;
2. ₱92,000.00 as funeral expenses;
3. ₱200,000.00 as moral damages;
 4. ₱30,000.00 as exemplary damages;
5. ₱30,000.00 as attorney’s fees;
6. ₱5,000.00 as litigation expenses; and
7. To pay the cost of the suit
to be paid by all the herein defendants and third party defendants within thirty (30) days from receipt of this
Decision.
The counterclaim of the defendant Cecilia Yambao is hereby dismissed for lack of merit.
In finding for the respondents herein, the trial court observed:
[T]he allegations and evidence presented by the defendants that it was the victim Herminigildo Zuñiga who
bumped the bus owned by defendant Cecilia Yambao and her husband… is incredible if not preposterous. No
sane person would bump his head or body against a running bus along a big highway like EDSA at Bagong
Barrio, Caloocan City and neither did any of the defendants presented (sic) any evidence or proof to show
that the victim was mentally deranged at the time of the accident and the presumption therefore is that he
was in his normal senses.6
In holding the petitioner liable for Herminigildo’s death, the trial court applied Article 17567 of the Civil Code,
observing that petitioner had failed to prove that she observed the diligence required by Articles 17338 and
17559 of the said Code.
Dissatisfied, Yambao filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 52275, faulting
the trial court for failing to appreciate that: (a) it was the victim who ran into her bus, and (b) she had
exercised the proper diligence of a bonus pater familias in the selection and supervision of her employee,
the driver of said bus.
On September 8, 2000, the Court of Appeals decided CA-G.R. CV No. 52275 as follows:
WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been
reached by the trial court, its Decision dated September 8, 1995 is hereby AFFIRMED.
Costs against defendant-appellant.
SO ORDERED.10
While sustaining the trial court’s findings that Venturina had been reckless and negligent in driving the
petitioner’s bus, thus hitting the victim with fatal results, the appellate court, however, found the trial court’s
reliance on Articles 1755 and 1756 of the Civil Code misplaced. It held that this was a case of quasi-delict,
there being no pre-existing contractual relationship between the parties. Hence, the law on common carriers
was inapplicable. The court a quo then found the petitioner directly and primarily liable as Venturina’s
employer pursuant to Article 2180 of the Civil Code as she failed to present evidence to prove that she has
observed the diligence of a good father of a family in the selection and supervision of her employees.
Yambao then duly moved for reconsideration, but her motion was denied for want of merit.11
Hence, this petition for review, anchored on the following formulation of issues:
1) WHETHER OR NOT THE ALLEGATIONS AND EVIDENCE PRESENTED BY THE PETITIONER, THE VICTIM
HERMINIGILDO ZUÑIGA WAS THE ONE WHO BUMPED THE BUS OWNED BY HEREIN PETITIONER CECILIA
YAMBAO AND HER HUSBAND AND WHO DISREGARDED THE TRAFFIC RULES AND REGULATIONS AT THE
PLACE AND TIME OF THE INCIDENT WHICH UNDOUBTEDLY AND CONCLUSIVELY PROVED THAT IT WAS
THE PLAINTIFF’S OWN NEGLIGENCE THAT WAS THE IMMEDIATE AND PROXIMATE CAUSE OF HIS DEATH.
2) WHETHER OR NOT, PETITIONER CECILIA YAMBAO IS NOT LIABLE FOR ANY DAMAGES AND THAT SHE
EXERCISED THE PROPER DILIGENCE OF A GOOD FATHER OF THE FAMILY, BOTH IN THE SELECTION AND
SUPERVISION OF HER DRIVER AND/OR EMPLOYEE.12
At the outset, we must state that the first issue raised by the petitioner is a factual one. Whether a person is
negligent or not is a question of fact,13 which this Court cannot pass upon in a petition for review on
certiorari, as our jurisdiction is limited to reviewing errors of law.14 The resolution of factual issues is the
function of the trial court and its findings on these matters are, as a general rule, binding on this Court,15
more so where these have been affirmed by the Court of Appeals.16 We have carefully examined and
weighed the petitioner’s arguments on the first issue submitted, as well as the evidence on record, and find
no cogent reason to disregard the cited general rule, much less to reverse the factual findings of the trial
court as upheld by the court a quo. Hence, we sustain the trial court’s finding, as affirmed by the Court of
Appeals, that it was Venturina’s reckless and imprudent driving of petitioner’s bus, which is the proximate
cause of the victim’s death.
To our mind, therefore, the only issue before the Court properly is whether petitioner exercised the diligence
of a good father of a family in the selection and supervision of her employees, thus absolving her from any
liability.
Petitioner contends that as an employer, she observed the proper diligence of a good father of a family, both
in the selection and supervision of her driver and therefore, is relieved from any liability for the latter’s
misdeed. To support her claim, she points out that when Venturina applied with her as a driver in January
1992, she required him to produce not just his driver’s license, but also clearances from the National Bureau
of Investigation (NBI), the Philippine National Police, and the barangay where he resides. She also required
him to present his Social Security System (SSS) Number prior to accepting him for employment. She likewise
stresses that she inquired from Venturina’s previous employer about his employment record, and only hired
him after it was shown to her satisfaction that he had no blot upon his record.
The petitioner’s arguments ring hollow and fail to sway this Court.
The law governing petitioner’s liability, as the employer of bus driver Venturina, is Article 2180 of the Civil
Code, the full text of which reads:
Art. 2180. The obligation imposed by Article 217617 is demandable not only for one’s own acts or omissions,
but also for those of persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the
minor children who live in their company.
Guardians are liable for damages caused by the minors or incapacitated persons who are under their
authority and live in their company.
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by
their employees in the service of the branches in which the latter are employed or on the occasion of their
functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or industry.
The State is responsible in like manner when it acts through a special agent; but not when the damage has
been caused by the official to whom the task done properly pertains, in which case what is provided in
Article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their
pupils and students or apprentices, so long as they remain in their custody.
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage. (Italics ours)
The "diligence of a good father" referred to in the last paragraph of the aforecited statute means diligence in
the selection and supervision of employees.18 Thus, when an employee, while performing his duties, causes
damage to persons or property due to his own negligence, there arises the juris tantum presumption that
the employer is negligent, either in the selection of the employee or in the supervision over him after the
selection.19 For the employer to avoid the solidary liability for a tort committed by his employee, an
employer must rebut the presumption by presenting adequate and convincing proof that in the selection
and supervision of his employee, he or she exercises the care and diligence of a good father of a family.20 In
the instant case, we find that petitioner has failed to rebut the presumption of negligence on her part.
Petitioner’s claim that she exercised due diligence in the selection and supervision of her driver, Venturina,
deserves but scant consideration. Her allegation that before she hired Venturina she required him to submit
his driver’s license and clearances is worthless, in view of her failure to offer in evidence certified true copies
of said license and clearances. Bare allegations, unsubstantiated by evidence, are not equivalent to proof
under the rules of evidence.21Moreover, as the court a quo aptly observed, petitioner contradicts herself.
She declared that Venturina applied with her sometime in January 1992 and she then required him to
submit his license and clearances. However, the record likewise shows that she did admit that Venturina
submitted the said requirements only on May 6, 1992, or on the very day of the fatal accident itself (italics
for emphasis). In other words, petitioner’s own admissions clearly and categorically show that she did not
exercise due diligence in the selection of her bus driver.
In any case, assuming arguendo that Venturina did submit his license and clearances when he applied with
petitioner in January 1992, the latter still fails the test of due diligence in the selection of her bus driver. Case
law teaches that for an employer to have exercised the diligence of a good father of a family, he should not
be satisfied with the applicant’s mere possession of a professional driver’s license; he must also carefully
examine the applicant for employment as to his qualifications, his experience and record of service.22
Petitioner failed to present convincing proof that she went to this extent of verifying Venturina’s
qualifications, safety record, and driving history. The presumption juris tantum that there was negligence in
the selection of her bus driver, thus, remains unrebutted.
Nor did petitioner show that she exercised due supervision over Venturina after his selection. For as pointed
out by the Court of Appeals, petitioner did not present any proof that she drafted and implemented training
programs and guidelines on road safety for her employees. In fact, the record is bare of any showing that
petitioner required Venturina to attend periodic seminars on road safety and traffic efficiency. Hence,
petitioner cannot claim exemption from any liability arising from the recklessness or negligence of Venturina.
In sum, petitioner’s liability to private respondents for the negligent and imprudent acts of her driver,
Venturina, under Article 2180 of the Civil Code is both manifest and clear. Petitioner, having failed to rebut
the legal presumption of negligence in the selection and supervision of her driver, is responsible for damages,
the basis of the liability being the relationship of pater familias or on the employer’s own negligence.23 Thus,
this Court has no option but to uphold the ruling of the appellate court.
WHEREFORE, the instant petition is DENIED. The assailed decision of the Court of Appeals, dated September
8, 2000, in CA-G.R. CV No. 52275, as well as its resolution dated November 27, 2000, denying petitioner
Cecilia Yambao’s motion for reconsideration are hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.
 ___________________________________________________________________________________2004
G.R. No. 118030 January 15, 2004
PROVIDENT INSURANCE CORP.
vs.
HONORABLE COURT OF APPEALS and AZUCAR SHIPPING CORP.
This is a petition for review under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals
dated November 15, 1994, which affirmed the appealed Orders dated August 12, 1991 and February 4, 1992
issued by the Regional Trial Court of Manila, Branch 51, in Civil Case No. 91-56167.
The pertinent facts as culled from the stipulation of facts submitted by the parties are as follows:
On or about June 5, 1989, the vessel MV "Eduardo II" took and received on board at Sangi, Toledo City a
shipment of 32,000 plastic woven bags of various fertilizer in good order and condition for transportation to
Cagayan de Oro City. The subject shipment was consigned to Atlas Fertilizer Corporation, and covered by Bill
of Lading No. 01 and Marine Insurance Policy No. CMI-211/89-CB.
Upon its arrival at General Santos City on June 7, 1989, the vessel MV "Eduardo II" was instructed by the
consignee's representative to proceed to Davao City and deliver the shipment to its Davao Branch in Tabigao.
On June 10, 1989, the MV "Eduardo II" arrived in Davao City where the subject shipment was unloaded. In
the process of unloading the shipment, three bags of fertilizer fell overboard and 281 bags were considered
to be unrecovered spillages. Because of the mishandling of the cargo, it was determined that the consignee
incurred actual damages in the amount of P68,196.16.
As the claims were not paid, petitioner Provident Insurance Corporation indemnified the consignee Atlas
Fertilizer Corporation for its damages. Thereafter, petitioner, as subrogee of the consignee, filed on June 3,
1991 a complaint against respondent carrier seeking reimbursement for the value of the losses/damages to
the cargo. Respondent carrier moved to dismiss the complaint on the ground that the claim or demand by
petitioner has been waived, abandoned or otherwise extinguished for failure of the consignee to comply
with the required claim for damages set forth in the first sentence of Stipulation No. 7 of the bill of lading,
the full text of which reads – 7. All claims for damages to the goods must be made to the carrier at the time
of delivery to the consignee or his agent if the package or containers show exterior sign of damage,
otherwise to be made in writing to the carrier within twenty-four hours from the time of delivery. Notice of
loss due to delay must be given in writing to the carrier within 30 days from the time the goods were ready
for delivery, or in case of non-delivery or misdelivery of shipment the written notice must be given within 30
days after the arrival at the port of discharge of the vessels on which the goods were received in case of the
failure of the vessel on which the goods were shipped to arrived at the port of discharge, misdelivery must
be presented in writing to the carrier within two months after the arrival of the vessel of the port of
discharge or in case of the failure of the vessel in which the goods were shipped to arrive at the port of
discharge written claims shall be made within 30 days of the time the vessel should have arrived. The giving
of notice and the filing of claims as above provided shall be conditions precedent to the securing of the right
of actions against the carrier for losses due to delay, non-delivery, or misdelivery. In the case of damage to
goods, the filing of the suit based upon claims arising from damage, delay, non-delivery or mis-delivery shall
be instituted within one year from the date of the accrual of the right of action. Failure to institute judicial
proceedings as herein provided shall constitute a waiver of the claim or right of action, and no agent nor
employee of the carrier shall have authority to waive any of the provisions or requirements of this bill of
lading. Any action by the ship owner or its agents or attorneys in considering or dealing with claims where
the provisions or requirements of this bill of lading have not been complied with shall not be considered a
waiver of such requirements and they shall not be considered as waived except by an express waiver.1 (Italics
Supplied)
The trial court, in an Order dated August 12, 1991, found the motion to dismiss well taken and accordingly,
dismissed the complaint.2
Petitioner filed a motion for reconsideration which the trial court, in an Order dated February 4, 1992,
denied.3 Aggrieved by the lower court's decision, petitioner appealed to the Court of Appeals. On November
15, 1994, the Court of Appeals rendered the assailed decision which affirmed the lower court's Orders dated
August 12, 1991 and February 4, 1992.4 Hence, this petition raising the lone error that –
THE HONORABLE COURT OF APPEALS HAS DECIDED THE QUESTION IN ISSUE NOT IN ACCORDANCE WITH
THE PURPOSE FOR WHICH THE LAW WAS ESTABLISHED AND CONTRARY TO THE EXISTING JURISPRUDENCE.5
In support of its petition, petitioner contends that it is unreasonable for the consignee Atlas Fertilizer
Corporation to be required to abide by the provisions of Stipulation No. 7 of the bill of lading. According to
petitioner, since the place of delivery was remote and inaccessible, the consignee cannot be expected to
have been able to immediately inform its main office and make the necessary claim for damages for the
losses and unrecovered spillages in the subject cargo.
Petitioner further argues that the contents of the bill of lading are printed in small letters that no one would
bother to read them, as they are difficult to read.
Finally, petitioner avers that from June 13 to 18, 1987, the vessel's Chief Officer supervised the unloading of
the shipment and thereafter signed a discharging report attesting to the fact of loss and unrecovered
spillages on the cargo. Thus, petitioner argues that respondent carrier's knowledge of the loss and spillages
was substantial compliance with the notice of claim required under Stipulation No. 7 of the bill of lading.
The petition is bereft of merit. It is a fact admitted by both parties that the losses and damages were caused
by the mishandling of the cargo by respondent carrier. There is also no dispute that the consignee failed to
strictly comply with Stipulation No. 7 of the Bill of Lading in not making claims for damages to the goods
within the twenty-four hour period from the time of delivery, and that there was no exterior sign of damage
of the goods. Consequently, the only issue left to be resolved is whether the failure to make the prompt
notice of claim as required is fatal to the right of petitioner to claim indemnification for damages.
The bill of lading defines the rights and liabilities of the parties in reference to the contract of carriage.
Stipulations therein are valid and binding in the absence of any showing that the same are contrary to law,
morals, customs, public order and public policy. Where the terms of the contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control.
In light of the foregoing, there can be no question about the validity and enforceability of Stipulation No. 7 in
the bill of lading. The twenty-four hour requirement under the said stipulation is, by agreement of the
contracting parties, a sine qua non for the accrual of the right of action to recover damages against the
carrier. The wisdom of this kind of proviso has been succinctly explained in Consunji v. Manila Port Service,
where it was held: Carriers and depositaries sometimes require presentation of claims within a short time
after delivery as a condition precedent to their liability for losses. Such requirement is not an empty
formalism. It has a definite purpose, i.e., to afford the carrier or depositary a reasonable opportunity and
facilities to check the validity of the claims while the facts are still fresh in the minds of the persons who took
part in the transaction and the document are still available.6
Considering that a prompt demand was necessary to foreclose the possibility of fraud or mistake in
ascertaining the validity of claims, there was a need for the consignee or its agent to observe the conditions
provided for in Stipulation No. 7. Hence, petitioner's insistence that respondent carrier had knowledge of the
damage because one of respondent carrier's officers supervised the unloading operations and signed a
discharging report, cannot be construed as sufficient compliance with the aforementioned proviso. The
Discharge Report is not the notice referred to in Stipulation No. 7, hence, its accomplishment cannot be
considered substantial compliance of the requirement embodied therein. Moreover, a reading of the first
paragraph of Stipulation No. 7 will readily show that upon the consignee or its agent rests the obligation to
make the necessary claim within the prescribed period and not merely rely on the supposed knowledge of
the damages by the carrier.
Petitioner also makes much of the fact that it had nothing to do with the preparation of the bill of lading.
Worse, according to petitioner, the bill of lading, particularly Stipulation No. 7, was printed in very small
letters that no one would be minded to closely examine the contents thereof and understand its legal
implications.
We are not persuaded. A bill of lading is in the nature of a contract of adhesion, defined as one where one of
the parties imposes a ready-made form of contract which the other party may accept or reject, but which
the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the
opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as
binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it
entirely.7
After it received the bill of lading without any objection, consignee Atlas Fertilizer Corporation was presumed
to have knowledge of its contents and to have assented to the terms and conditions set forth therein. The
pronouncement by this Court in Magellan Manufacturing Marketing Corp. v. Court of Appeals may be cited
by analogy –
The holding in most jurisdictions has been that a shipper who receives a bill of lading without objection after
an opportunity to inspect it, and permits the carrier to act on it by proceeding with the shipment is
presumed to have accepted it as correctly stating the contract and to have assented to its terms. In other
words, the acceptance of the bill without dissent raises the presumption that all the 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.8 (Italics Supplied)
In this regard, we also quote with approval the lower court's view on the matter when it said:
It is very clear that the Bill of Lading provides for the time or period within which a claim should be made or
suit filed in Court. Plaintiff or Atlas Fertilizer Corporation failed on this score. Moreover, Atlas Fertilizer
Corporation could not claim ignorance of the contents of the Bill of Lading just because the printed letters
are so small that they are hard to read or that the shipper did not sign it for Atlas Fertilizer Corporation being
a regular shipper and a big corporation.Plaintiff is presumed to know the contents thereof for the reason
that this is the very document (Annex "A" of the complaint) where plaintiff relied its suit.9
We are likewise not inclined to lend credence to petitioner's allegation that the lack of communications
facilities in the place of delivery prevented the consignee from making a prompt claim for recovery of
damages as prescribed by Stipulation No. 7. It is indeed hard to believe that Atlas Fertilizer Corporation,
being an established corporation and a regular shipper, would be so inept as not to have the necessary
facilities to at least monitor, in the form of communications equipment, the condition of its large shipment
involving 32,000 bags of fertilizer. As pointed out by the appellate court, at this day and age of advanced
telecommunications and modern transportation, even in the year 1989, the time limitation provided for in
Stipulation No. 7 are just and reasonable.
WHEREFORE, in view of all the foregoing, the petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 36498 is AFFIRMED in toto. SO ORDERED.
 G.R. No. 147724 June 8, 2004
LORENZO SHIPPING CORP.
vs.
CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE CARRIERS, INC.,
On appeal is the Court of Appeals’ August 14, 2000 Decision1 in CA-G.R. CV No. 61334 and March 28, 2001
Resolution2 affirming the March 19, 1998 Decision3 of the Regional Trial Court of Manila which found
petitioner liable to pay respondent Chubb and Sons, Inc. attorney's fees and costs of suit.
Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a domestic corporation engaged in
coastwise shipping, was the carrier of 581 bundles of black steel pipes, the subject shipment, from Manila to
Davao City. From Davao City, respondent Gearbulk, Ltd., a foreign corporation licensed as a common carrier
under the laws of Norway and doing business in the Philippines through its agent, respondent Philippine
Transmarine Carriers, Inc. (Transmarine Carriers, for short), a domestic corporation, carried the goods on
board its vessel M/V San Mateo Victory to the United States, for the account of Sumitomo Corporation. The
latter, the consignee, is a foreign corporation organized under the laws of the United States of America. It
insured the shipment with respondent Chubb and Sons, Inc., a foreign corporation organized and licensed to
engage in insurance business under the laws of the United States of America.
The facts are as follows:
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581 bundles of ERW
black steel pipes worth US$137,912.844 on board the vessel M/V Lorcon IV, owned by petitioner Lorenzo
Shipping, for shipment to Davao City. Petitioner Lorenzo Shipping issued a clean bill of lading designated
as Bill of Lading No. T-35 for the account of the consignee, Sumitomo Corporation of San Francisco,
California, USA, which in turn, insured the goods with respondent Chubb and Sons, Inc.6
The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December 2, 1987. Respondent Transmarine
Carriers received the subject shipment which was discharged on December 4, 1987, evidenced by Delivery
Cargo Receipt No. 115090.7 It discovered seawater in the hatch of M/V Lorcon IV, and found the steel pipes
submerged in it. The consignee Sumitomo then hired the services of R.J. Del Pan Surveyors to inspect the
shipment prior to and subsequent to discharge. Del Pan’s Survey Report8 dated December 4, 1987 showed
that the subject shipment was no longer in good condition, as in fact, the pipes were found with rust
formation on top and/or at the sides. Moreover, the surveyor noted that the cargo hold of the M/V Lorcon IV
was flooded with seawater, and the tank top was "rusty, thinning, and with several holes at different places."
The rusty condition of the cargo was noted on the mate’s receipts and the checker of M/V Lorcon IV signed
his conforme thereon.9
After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V San Mateo Victory, for
carriage to the United States. It issued Bills of Lading Nos. DAV/OAK 1 to 7,10 covering 364 bundles of steel
pipes to be discharged at Oakland, U.S.A., and Bills of Lading Nos. DAV/SEA 1 to 6,11 covering 217 bundles of
steel pipes to be discharged at Vancouver, Washington, U.S.A. All bills of lading were marked "ALL UNITS
HEAVILY RUSTED."
While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent a letter12 of intent
dated December 7, 1987, to petitioner Lorenzo Shipping, which the latter received on December 9, 1987.
Sumitomo informed petitioner Lorenzo Shipping that it will be filing a claim based on the damaged cargo
once such damage had been ascertained. The letter reads:
Please be advised that the merchandise herein below noted has been landed in bad order ex-Manila
voyage No. 87-19 under B/L No. T-3 which arrived at the port of Davao City on December 2, 1987.
The extent of the loss and/or damage has not yet been determined but apparently all bundles are corroded.
We reserve the right to claim as soon as the amount of claim is determined and the necessary supporting
documents are available.
Please find herewith a copy of the survey report which we had arranged for after unloading of our cargo
from your vessel in Davao.
We trust that you shall make everything in order.
On January 17, 1988, M/V San Mateo Victory arrived at Oakland, California, U.S.A., where it unloaded 364
bundles of the subject steel pipes. It then sailed to Vancouver, Washington on January 23, 1988 where it
unloaded the remaining 217 bundles. Toplis and Harding, Inc. of San Franciso, California, surveyed the steel
pipes, and also discovered the latter heavily rusted. When the steel pipes were tested with a silver nitrate
solution, Toplis and Harding found that they had come in contact with salt water. The survey report,13 dated
January 28, 1988 states:
We entered the hold for a close examination of the pipe, which revealed moderate to heavy amounts of
patchy and streaked dark red/orange rust on all lifts which were visible. Samples of the shipment were
tested with a solution of silver nitrate revealing both positive and occasional negative chloride reactions,
indicating pipe had come in contact with salt water. In addition, all tension applied metal straps were
very heavily rusted, and also exhibited chloride reactions on testing with silver nitrate.
It should be noted that subject bills of lading bore the following remarks as to conditions of goods: "ALL
UNITS HEAVILY RUSTED." Attached herein is a copy of a survey report issued by Del Pan Surveyors of
Davao City, Philippines dated, December 4, 1987 at Davao City, Philippines, which describes conditions
of the cargo as sighted aboard the vessel "LORCON IV," prior to and subsequent to discharge at Davao
City. Evidently, the aforementioned rust damages were apparently sustained while the shipment was in
the custody of the vessel "LORCON IV," prior to being laden on board the vessel "SAN MATEO VICTORY"
in Davao.
Due to its heavily rusted condition, the consignee Sumitomo rejected the damaged steel pipes and
declared them unfit for the purpose they were intended.14 It then filed a marine insurance claim with
respondent Chubb and Sons, Inc. which the latter settled in the amount of US$104,151.00.15
On December 2, 1988, respondent Chubb and Sons, Inc. filed a complaint16 for collection of a sum of money,
docketed as Civil Case No. 88-47096, against respondents Lorenzo Shipping, Gearbulk, and Transmarine.
Respondent Chubb and Sons, Inc. alleged that it is not doing business in the Philippines, and that it is suing
under an isolated transaction.
On February 21, 1989, respondents Gearbulk and Transmarine filed their answer17 with counterclaim and
cross-claim against petitioner Lorenzo Shipping denying liability on the following grounds: (a) respondent
Chubb and Sons, Inc. has no capacity to sue before Philippine courts; (b) the action should be dismissed on
the ground of forum non conveniens; (c) damage to the steel pipes was due to the inherent nature of the
goods or to the insufficiency of packing thereof; (d) damage to the steel pipes was not due to their fault or
negligence; and, (e) the law of the country of destination, U.S.A., governs the contract of carriage.
Petitioner Lorenzo Shipping filed its answer with counterclaim on February 28, 1989, and amended it on May
24, 1989. It denied liability, alleging, among others: (a) that rust easily forms on steel by mere exposure to air,
moisture and other marine elements; (b) that it made a disclaimer in the bill of lading; (c) that the goods
were improperly packed; and, (d) prescription, laches, and extinguishment of obligations and actions had set
in.
The Regional Trial Court ruled in favor of the respondent Chubb and Sons, Inc., finding that: (1) respondent
Chubb and Sons, Inc. has the right to institute this action; and, (2) petitioner Lorenzo Shipping was negligent
in the performance of its obligations as a carrier. The dispositive portion of its Decision states:
WHEREFORE, the judgment is hereby rendered ordering Defendant Lorenzo Shipping Corporation to pay
the plaintiff the sum of US$104,151.00 or its equivalent in Philippine peso at the current rate of
exchange with interest thereon at the legal rate from the date of the institution of this case until fully
paid, the attorney’s fees in the sum of ₱50,000.00, plus the costs of the suit, and dismissing the
plaintiff’s complaint against defendants Gearbulk, Ltd. and Philippine Transmarine Carriers, Inc., for lack
of merit, and the two defendants’ counterclaim, there being no showing that the plaintiff had filed this
case against said defendants in bad faith, as well as the two defendants’ cross-claim against Defendant
Lorenzo Shipping Corporation, for lack of factual basis.18
Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting that: (a) respondent Chubb and Sons
does not have capacity to sue before Philippine courts; and, (b) petitioner Lorenzo Shipping was not
negligent in the performance of its obligations as carrier of the goods. The appellate court denied the
petition and affirmed the decision of the trial court.
The Court of Appeals likewise denied petitioner Lorenzo Shipping’s Motion for Reconsideration19 dated
September 3, 2000, in a Resolution20 promulgated on March 28, 2001.
Hence, this petition. Petitioner Lorenzo Shipping submits the following issues for resolution:
(1) Whether or not the prohibition provided under Art. 133 of the Corporation Code applies to
respondent Chubb, it being a mere subrogee or assignee of the rights of Sumitomo Corporation, likewise
a foreign corporation admittedly doing business in the Philippines without a license;
(2) Whether or not Sumitomo, Chubb’s predecessor-in-interest, validly made a claim for damages
against Lorenzo Shipping within the period prescribed by the Code of Commerce;
(3) Whether or not a delivery cargo receipt without a notation on it of damages or defects in the
shipment, which created a prima facie presumption that the carrier received the shipment in good
condition, has been overcome by convincing evidence;
(4) Assuming that Lorenzo Shipping was guilty of some lapses in transporting the steel pipes, whether or
not Gearbulk and Transmarine, as common carriers, are to share liability for their separate negligence in
handling the cargo.21
In brief, we resolve the following issues:
(1) whether respondent Chubb and Sons has capacity to sue before the Philippine courts; and,
(2) whether petitioner Lorenzo Shipping is negligent in carrying the subject cargo.
Petitioner argues that respondent Chubb and Sons is a foreign corporation not licensed to do business in the
Philippines, and is not suing on an isolated transaction. It contends that because the respondent Chubb and
Sons is an insurance company, it was merely subrogated to the rights of its insured, the consignee Sumitomo,
after paying the latter’s policy claim. Sumitomo, however, is a foreign corporation doing business in the
Philippines without a license and does not have capacity to sue before Philippine courts. Since Sumitomo
does not have capacity to sue, petitioner then concludes that, neither the subrogee-respondent Chubb and
Sons could sue before Philippine courts.
We disagree with petitioner.
In the first place, petitioner failed to raise the defense that Sumitomo is a foreign corporation doing business
in the Philippines without a license. It is therefore estopped from litigating the issue on appeal especially
because it involves a question of fact which this Court cannot resolve. Secondly, assuming arguendo that
Sumitomo cannot sue in the Philippines, it does not follow that respondent, as subrogee, has also no
capacity to sue in our jurisdiction.
Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right,
so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its
remedies or securities.22 The principle covers the situation under which an insurer that has paid a loss under
an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party
with respect to any loss covered by the policy.23 It contemplates full substitution such that it places the party
subrogated in the shoes of the creditor, and he may use all means which the creditor could employ to
enforce payment.24
The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for
whom he is substituted – he cannot acquire any claim, security, or remedy the subrogor did not have.25 In
other words, a subrogee cannot succeed to a right not possessed by the subrogor.26 A subrogee in effect
steps into the shoes of the insured and can recover only if insured likewise could have recovered.
However, when the insurer succeeds to the rights of the insured, he does so only in relation to the debt. The
person substituted (the insurer) will succeed to all the rights of the creditor (the insured), having reference
to the debt due the latter.27 In the instant case, the rights inherited by the insurer, respondent Chubb and
Sons, pertain only to the payment it made to the insured Sumitomo as stipulated in the insurance contract
between them, and which amount it now seeks to recover from petitioner Lorenzo Shipping which caused
the loss sustained by the insured Sumitomo. The capacity to sue of respondent Chubb and Sons could not
perchance belong to the group of rights, remedies or securities pertaining to the payment respondent
insurer made for the loss which was sustained by the insured Sumitomo and covered by the contract of
insurance. Capacity to sue is a right personal to its holder. It is conferred by law and not by the parties. Lack
of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have the
necessary qualification to appear in the case, or does not have the character or representation he claims. It
refers to a plaintiff’s general disability to sue, such as on account of minority, insanity, incompetence, lack of
juridical personality, or any other disqualifications of a party.28 Respondent Chubb and Sons who was plaintiff
in the trial court does not possess any of these disabilities. On the contrary, respondent Chubb and Sons has
satisfactorily proven its capacity to sue, after having shown that it is not doing business in the Philippines,
but is suing only under an isolated transaction, i.e., under the one (1) marine insurance policy issued in favor
of the consignee Sumitomo covering the damaged steel pipes.
The law on corporations is clear in depriving foreign corporations which are doing business in the Philippines
without a license from bringing or maintaining actions before, or intervening in Philippine courts. Art. 133 of
the Corporation Code states:
Doing business without a license. – No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action,
suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of
action recognized under Philippine laws.
The law does not prohibit foreign corporations from performing single acts of business. A foreign corporation
needs no license to sue before Philippine courts on an isolated transaction.29 As held by this Court in the
case of Marshall-Wells Company vs. Elser & Company:30
The object of the statute (Secs. 68 and 69, Corporation Law) was not to prevent the foreign corporation
from performing single acts, but to prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the local courts . . . the implication of
the law (being) that it was never the purpose of the legislature to exclude a foreign corporation which
 happens to obtain an isolated order for business for the Philippines, from seeking redress in the
Philippine courts.
Likewise, this Court ruled in Universal Shipping Lines, Inc. vs. Intermediate Appellate Court31 that:
. . . The private respondent may sue in the Philippine courts upon the marine insurance policies issued
by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no
license to do business in this country, for it is not the lack of the prescribed license (to do business in the
Philippines) but doing business without such license, which bars a foreign corporation from access to
our courts.
We reject the claim of petitioner Lorenzo Shipping that respondent Chubb and Sons is not suing under an
isolated transaction because the steel pipes, subject of this case, are covered by two (2) bills of lading; hence,
two transactions. The stubborn fact remains that these two (2) bills of lading spawned from the single
marine insurance policy that respondent Chubb and Sons issued in favor of the consignee Sumitomo,
covering the damaged steel pipes. The execution of the policy is a single act, an isolated transaction. This
Court has not construed the term "isolated transaction" to literally mean "one" or a mere single act. In Eriks
Pte. Ltd. vs. Court of Appeals, this Court held that:32
. . . What is determinative of "doing business" is not really the number or the quantity of the
transactions, but more importantly, the intention of an entity to continue the body of its business in the
country. The number and quantity are merely evidence of such intention. The phrase "isolated
transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from
the common business of a foreign enterprise in the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of the business organization. Whether a foreign
corporation is "doing business" does not necessarily depend upon the frequency of its transactions, but
more upon the nature and character of the transactions. [Emphasis supplied.]
In the case of Gonzales vs. Raquiza, et al.,33 three contracts, hence three transactions were challenged as
void on the ground that the three American corporations which are parties to the contracts are not licensed
to do business in the Philippines. This Court held that "one single or isolated business transaction does not
constitute doing businesswithin the meaning of the law. Transactions which are occasional, incidental, and
casual — not of a character to indicate a purpose to engage in business — do not constitute the doing or
engaging in business as contemplated by law. Where the three transactions indicate no intent by the foreign
corporation to engage in a continuity of transactions, they do not constitute doing business in the
Philippines."
Furthermore, respondent insurer Chubb and Sons, by virtue of the right of subrogation provided for in the
policy of insurance,34 is the real party in interest in the action for damages before the court a quo against the
carrier Lorenzo Shipping to recover for the loss sustained by its insured. Rule 3, Section 2 of the 1997 Rules
of Civil Procedure defines a real party in interest as one who is entitled to the avails of any judgment
rendered in a suit, or who stands to be benefited or injured by it. Where an insurance company as subrogee
pays the insured of the entire loss it suffered, the insurer-subrogee is the only real party in interest and must
sue in its own name35 to enforce its right of subrogation against the third party which caused the loss. This is
because the insurer in such case having fully compensated its insured, which payment covers the loss in full,
is subrogated to the insured’s claims arising from such loss. The subrogated insurer becomes the owner of
the claim and, thus entitled to the entire fruits of the action.36 It then, thus possesses the right to enforce
the claim and the significant interest in the litigation.37 In the case at bar, it is clear that respondent insurer
was suing on its own behalf in order to enforce its right of subrogation.
On the second issue, we affirm the findings of the lower courts that petitioner Lorenzo Shipping was
negligent in its care and custody of the consignee’s goods.
The steel pipes, subject of this case, were in good condition when they were loaded at the port of origin
(Manila) on board petitioner Lorenzo Shipping’s M/V Lorcon IV en route to Davao City. Petitioner Lorenzo
Shipping issued clean bills of lading covering the subject shipment. A bill of lading, aside from being a
contract38 and a receipt,39 is also a symbol40 of the goods covered by it. A bill of lading which has no notation
of any defect or damage in the goods is called a "clean bill of lading."41 A clean bill of lading constitutes prima
facie evidence of the receipt by the carrier of the goods as therein described.42
The case law teaches us that mere proof of delivery of goods in good order to a carrier and the subsequent
arrival in damaged condition at the place of destination raises a prima facie case against the carrier.43 In the
case at bar, M/V Lorcon IV of petitioner Lorenzo Shipping received the steel pipes in good order and
condition, evidenced by the clean bills of lading it issued. When the cargo was unloaded from petitioner
Lorenzo Shipping’s vessel at the Sasa Wharf in Davao City, the steel pipes were rusted all over. M/V San
Mateo Victory of respondent Gearbulk, Ltd, which received the cargo, issued Bills of Lading Nos. DAV/OAK 1
to 7 and Nos. DAV/SEA 1 to 6 covering the entire shipment, all of which were marked "ALL UNITS HEAVILY
RUSTED." R.J. Del Pan Surveyors found that the cargo hold of the M/V Lorcon IV was flooded with seawater,
and the tank top was rusty, thinning and perforated, thereby exposing the cargo to sea water. There can be
no other conclusion than that the cargo was damaged while on board the vessel of petitioner Lorenzo
Shipping, and that the damage was due to the latter’s negligence. In the case at bar, not only did the legal
presumption of negligence attach to petitioner Lorenzo Shipping upon the occurrence of damage to the
cargo.44 More so, the negligence of petitioner was sufficiently established. Petitioner Lorenzo Shipping failed
to keep its vessel in seaworthy condition. R.J. Del Pan Surveyors found the tank top of M/V Lorcon IV to be
"rusty, thinning, and with several holes at different places." Witness Captain Pablo Fernan, Operations
Manager of respondent Transmarine Carriers, likewise observed the presence of holes at the deck of M/V
Lorcon IV.45 The unpatched holes allowed seawater, reaching up to three (3) inches deep, to enter the
flooring of the hatch of the vessel where the steel pipes were stowed, submerging the latter in sea water.46
The contact with sea water caused the steel pipes to rust. The silver nitrate test, which Toplis and Harding
employed, further verified this conclusion.47 Significantly, petitioner Lorenzo Shipping did not even attempt
to present any contrary evidence. Neither did it offer any proof to establish any of the causes that would
exempt it from liability for such damage.48 It merely alleged that the: (1) packaging of the goods was
defective; and (2) claim for damages has prescribed.
To be sure, there is evidence that the goods were packed in a superior condition. John M. Graff, marine
surveyor of Toplis and Harding, examined the condition of the cargo on board the vessel San Mateo Victory.
He testified that the shipment had superior packing "because the ends were covered with plastic, woven
plastic. Whereas typically they would not go to that bother ... Typically, they come in with no plastic on the
ends. They might just be banded, no plastic on the ends ..."49
On the issue of prescription of respondent Chubb and Sons’ claim for damages, we rule that it has not yet
prescribed at the time it was made.
Art. 366 of the Code of Commerce states:
Within the twenty-four hours following the receipt of the merchandise, the claim against the carrier for
damage or average, which may be found therein upon the opening of the packages, may be made,
provided that the indications of the damage or average which gives rise to the claim cannot be
ascertained from the outside part of such package, in which case the claim shall be admitted only at the
time of the receipt.
After the periods mentioned have elapsed, or transportation charges have been paid, no claim shall be
admitted against the carrier with regard to the condition in which the goods transported were delivered.
A somewhat similar provision is embodied in the Bill of Lading No. T-3 which reads:50
 NOTE: No claim for damage or loss shall be honored twenty-four (24) hours after delivery.
(Ref. Art. 366 C Com.)
The twenty-four-hour period prescribed by Art. 366 of the Code of Commerce within which claims must be
presented does not begin to run until the consignee has received such possession of the merchandise that
he may exercise over it the ordinary control pertinent to ownership.51 In other words, there must be delivery
of the cargo by the carrier to the consignee at the place of destination.52 In the case at bar, consignee
Sumitomo has not received possession of the cargo, and has not physically inspected the same at the time
the shipment was discharged from M/V Lorcon IV in Davao City. Petitioner Lorenzo Shipping failed to
establish that an authorized agent of the consignee Sumitomo received the cargo at Sasa Wharf in Davao
City. Respondent Transmarine Carriers as agent of respondent Gearbulk, Ltd., which carried the goods from
Davao City to the United States, and the principal, respondent Gearbulk, Ltd. itself, are not the authorized
agents as contemplated by law. What is clear from the evidence is that the consignee received and took
possession of the entire shipment only when the latter reached the United States’ shore. Only then was
delivery made and completed. And only then did the 24-hour prescriptive period start to run.
Finally, we find no merit to the contention of respondents Gearbulk and Transmarine that American law
governs the contract of carriage because the U.S.A. is the country of destination. Petitioner Lorenzo Shipping,
through its M/V Lorcon IV, carried the goods from Manila to Davao City. Thus, as against petitioner Lorenzo
Shipping, the place of destination is Davao City. Hence, Philippine law applies.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 61334
dated August 14, 2000 and its Resolution dated March 28, 2001 are hereby AFFIRMED. Costs against
petitioner.
 G.R. No. 160286 July 30, 2004
SPOUSES FRANCISCO M. HERNANDEZ and ANICETA ABEL-HERNANDEZ and JUAN GONZALES
vs.
SPOUSES LORENZO DOLOR and MARGARITA DOLOR, FRED PANOPIO, JOSEPH SANDOVAL, RENE CASTILLO,
SPOUSES FRANCISCO VALMOCINA and VIRGINIA VALMOCINA, SPOUSES VICTOR PANOPIO and MARTINA
PANOPIO, and HON. COURT OF APPEALS
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision1 of the
Court of Appeals, dated April 29, 2003, in CA-G.R. CV No. 60357, which affirmed with modification the
amount of damages awarded in the November 24, 1997 decision2 of the Regional Trial Court of Batangas City,
Branch IV.
The undisputed facts are as follows:
At about 3:00 p.m. of December 19, 1986, Lorenzo Menard "Boyet" Dolor, Jr. was driving an owner-type
jeepney with plate no. DEB 804 owned by her mother, Margarita, towards Anilao, Batangas. As he was
traversing the road at Barangay Anilao East, Mabini, Batangas, his vehicle collided with a passenger jeepney
bearing plate no. DEG 648, driven by petitioner Juan Gonzales and owned by his co-petitioner Francisco
Hernandez, which was travelling towards Batangas City.
Boyet Dolor and his passenger, Oscar Valmocina, died as a result of the collision. Fred Panopio, Rene Castillo
and Joseph Sandoval, who were also on board the owner-type jeep, which was totally wrecked, suffered
physical injuries. The collision also damaged the passenger jeepney of Francisco Hernandez and caused
physical injuries to its passengers, namely, Virgie Cadavida, Fiscal Artemio Reyes and Francisca Corona.3
Consequently, respondents commenced an action4 for damages against petitioners before the Regional Trial
Court of Batangas City, alleging that driver Juan Gonzales was guilty of negligence and lack of care and that
the Hernandez spouses were guilty of negligence in the selection and supervision of their employees.5
Petitioners countered that the proximate cause of the death and injuries sustained by the passengers of both
vehicles was the recklessness of Boyet Dolor, the driver of the owner-type jeepney, who was driving in a
zigzagging manner under the influence of alcohol. Petitioners also alleged that Gonzales was not the
driver-employee of the Hernandez spouses as the former only leased the passenger jeepney on a daily basis.
The Hernandez spouses further claimed that even if an employer-employee relationship is found to exist
between them, they cannot be held liable because as employers they exercised due care in the selection and
supervision of their employee.
During the trial of the case, it was established that the drivers of the two vehicles were duly licensed to drive
and that the road where the collision occurred was asphalted and in fairly good condition.6 The owner-type
jeep was travelling uphill while the passenger jeepney was going downhill. It was further established that the
owner-type jeep was moderately moving and had just passed a road bend when its passengers, private
respondents Joseph Sandoval and Rene Castillo, saw the passenger jeepney at a distance of three meters
away. The passenger jeepney was traveling fast when it bumped the owner type jeep.7 Moreover, the
evidence presented by respondents before the trial court showed that petitioner Juan Gonzales obtained his
professional driver's license only on September 24, 1986, or three months before the accident. Prior to this,
he was holder of a student driver's permit issued on April 10, 1986.8
On November 24, 1997, the trial court rendered a decision in favor of respondents, the dispositive portion of
which states:
Premises duly considered and the plaintiffs having satisfactorily convincingly and credibly presented
evidence clearly satisfying the requirements of preponderance of evidence to sustain the complaint, this
 Court hereby declares judgment in favor of the plaintiffs and against the defendants.
Defendants-spouses Francisco Hernandez and Aniceta Abel Hernandez and Juan Gonzales are therefore
directed to pay jointly and severally, the following:
1) To spouses Lorenzo Dolor and Margarita Dolor:
a) P50,000.00 – for the death of their son, Lorenzo Menard "Boyet" Dolor, Jr.;
b) P142,000.00 – as actual and necessary funeral expenses;
c) P50,000.00 – reasonable value of the totally wrecked owner-type jeep with plate no. DEB 804 Phil
'85;
d) P20,000.00 – as moral damages;
e) P20,000.00 as reasonable litigation expenses and attorney's fees.
2) To spouses Francisco Valmocina and Virginia Valmocina:
a) P50,000.00 – for the death of their son, Oscar Balmocina (sic);
b) P20,000.00 – as moral damages;
c) P18,400.00 – for funeral expenses;
d) P10,000.00 – for litigation expenses and attorney's fees.
3) To spouses Victor Panopio and Martina Panopio:
a) P10,450.00 – for the cost of the artificial leg and crutches being used by their son Fred Panopio;
b) P25,000.00 – for hospitalization and medical expenses they incurred for the treatment of their
son, Fred Panopio.
4) To Fred Panopio:
a) P25,000.00 – for the loss of his right leg;
b) P10,000.00 – as moral damages.
5) To Joseph Sandoval:
a) P4,000.00 for medical treatment.
The defendants are further directed to pay the costs of this proceedings.
SO ORDERED.9
Petitioners appealed10 the decision to the Court of Appeals, which affirmed the same with modifications as
to the amount of damages, actual expenses and attorney's fees awarded to the private respondents. The
decretal portion of the decision of the Court of Appeals reads:
WHEREFORE, the foregoing premises considered, the appealed decision is AFFIRMED. However, the
award for damages, actual expenses and attorney's fees shall be MODIFIED as follows:
1) To spouses Lorenzo Dolor and Margarita Dolor:
a) P50,000.00 – civil indemnity for their son Lorenzo Menard Dolor, Jr.;
b) P58,703.00 – as actual and necessary funeral expenses;
c) P25,000,00 – as temperate damages;
d) P100,000.00 – as moral damages;
 e) P20,000.00 – as reasonable litigation expenses and attorney's fees.
2) To Spouses Francisco Valmocina and Virginia Valmocina:
a) P50,000.00 – civil indemnity for the death of their son, Oscar Valmocina;
b) P100,000.00 – as moral damages;
c) P10,000.00 – as temperate damages;
d) P10,000.00 – as reasonable litigation expenses and attorney's fees.
3) To Spouses Victor Panopio and Martina Panopio:
a) P10,352.59 – as actual hospitalization and medical expenses;
b) P5,000.00 – as temperate damages.
4) To Fred Panopio:
a) P50,000.00 – as moral damages.
5) To Joseph Sandoval:
a) P3,000.00 as temperate damages.
SO ORDERED.11
Hence the present petition raising the following issues:
1. Whether the Court of Appeals was correct when it pronounced the Hernandez spouses as solidarily
liable with Juan Gonzales, although it is of record that they were not in the passenger jeepney driven by
latter when the accident occurred;
2. Whether the Court of Appeals was correct in awarding temperate damages to private respondents
namely the Spouses Dolor, Spouses Valmocina and Spouses Panopio and to Joseph Sandoval, although
the grant of temperate damages is not provided for in decision of the court a quo;
3. Whether the Court of Appeals was correct in increasing the award of moral damages to respondents,
Spouses Dolor, Spouses Valmocina and Fred Panopio;
4. Whether the Court of Appeals was correct in affirming the grant of attorney's fees to Spouses Dolor
and to Spouses Valmocina although the lower court did not specify the fact and the law on which it is
based.
Petitioners contend that the absence of the Hernandez spouses inside the passenger jeepney at the time of
the collision militates against holding them solidarily liable with their co-petitioner, Juan Gonzales, invoking
Article 2184 of the Civil Code, which provides:
ARTICLE 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who
was in the vehicle, could have, by the use of the due diligence, prevented the misfortune. It is disputably
presumed that a driver was negligent, if he had been found guilty of reckless driving or violating traffic
regulations at least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.
The Hernandez spouses argues that since they were not inside the jeepney at the time of the collision, the
provisions of Article 2180 of the Civil Code, which does not provide for solidary liability between employers
and employees, should be applied.
We are not persuaded.
Article 2180 provides:
ARTICLE 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by
the minor children who live in their company.
Guardians are liable for damages caused by the minors or incapacitated persons who are under their
authority and live in their company.
The owners and managers of an establishment or enterprise are likewise responsible for damages
caused by their employees in the service of the branches in which the latter are employed or on the
occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry.
The State is responsible in like manner when it acts through a special agent; but not when the damage
has been caused by the official to whom the task done properly pertains, in which case what is provided
in article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their
pupils and students or apprentices, so long as they remain in their custody.
The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage. (Underscoring supplied)
On the other hand, Article 2176 provides –
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
While the above provisions of law do not expressly provide for solidary liability, the same can be inferred
from the wordings of the first paragraph of Article 2180 which states that the obligation imposed by article
2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is
responsible.
Moreover, Article 2180 should be read with Article 2194 of the same Code, which categorically states that
the responsibility of two or more persons who are liable for quasi-delict is solidary. In other words, the
liability of joint tortfeasors is solidary.12 Verily, under Article 2180 of the Civil Code, an employer may be held
solidarily liable for the negligent act of his employee.13
The solidary liability of employers with their employees for quasi-delicts having been established, the next
question is whether Julian Gonzales is an employee of the Hernandez spouses. An affirmative answer will put
to rest any issue on the solidary liability of the Hernandez spouses for the acts of Julian Gonzales. The
Hernandez spouses maintained that Julian Gonzales is not their employee since their relationship relative to
the use of the jeepney is that of a lessor and a lessee. They argue that Julian Gonzales pays them a daily
rental of P150.00 for the use of the jeepney.14 In essence, petitioners are practicing the "boundary system"
of jeepney operation albeit disguised as a lease agreement between them for the use of the jeepney.
We hold that an employer-employee relationship exists between the Hernandez spouses and Julian
Gonzales.
Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary system"
on the ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service Law,
but also to place the riding public at the mercy of reckless and irresponsible drivers — reckless because the
measure of their earnings depends largely upon the number of trips they make and, hence, the speed at
which they drive; and irresponsible because most if not all of them are in no position to pay the damages
they might cause.15
Anent the award of temperate damages to the private respondents, we hold that the appellate court
committed no reversible error in awarding the same to the respondents.
Temperate or moderate damages are damages which are more than nominal but less than compensatory
which may be recovered when the court finds that some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be proved with certainty.16 Temperate damages are awarded for those
cases where, from the nature of the case, definite proof of pecuniary loss cannot be offered, although the
court is convinced that there has been such loss. A judge should be empowered to calculate moderate
damages in such cases, rather than the plaintiff should suffer, without redress, from the defendant's
wrongful act.17 The assessment of temperate damages is left to the sound discretion of the court provided
that such an award is reasonable under the circumstances.18
We have gone through the records of this case and we find that, indeed, respondents suffered losses which
cannot be quantified in monetary terms. These losses came in the form of the damage sustained by the
owner type jeep of the Dolor spouses; the internment and burial of Oscar Valmocina; the hospitalization of
Joseph Sandoval on account of the injuries he sustained from the collision and the artificial leg and crutches
that respondent Fred Panopio had to use because of the amputation of his right leg. Further, we find that
the amount of temperate damages awarded to the respondents were reasonable under the circumstances.
As to the amount of moral damages which was awarded to respondents, a review of the records of this case
shows that there exists no cogent reason to overturn the action of the appellate court on this aspect.
Under Article 2206, the "spouse, legitimate and illegitimate descendants and ascendants of the deceased
may demand moral damages for mental anguish for the death of the deceased." The reason for the grant of
moral damages has been explained, thus:
. . . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual
status quo ante; and therefore, it must be proportionate to the suffering inflicted. The intensity of the
pain experienced by the relatives of the victim is proportionate to the intensity of affection for him and
bears no relation whatsoever with the wealth or means of the offender.19
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are
awarded to allow the former to obtain means, diversion or amusements that will serve to alleviate the moral
suffering he has undergone due to the defendant's culpable action and must, perforce, be proportional to
the suffering inflicted.20
Truly, the pain of the sudden loss of one's offspring, especially of a son who was in the prime of his youth,
and who holds so much promise waiting to be fulfilled is indeed a wellspring of intense pain which no parent
should be made to suffer. While it is true that there can be no exact or uniform rule for measuring the value
of a human life and the measure of damages cannot be arrived at by a precise mathematical calculation,21
we hold that the Court of Appeals' award of moral damages of P100,000.00 each to the Spouses Dolor and
Spouses Valmocina for the death of their respective sons, Boyet Dolor and Oscar Valmocina, is in full accord
with prevailing jurisprudence.22
With respect to the award of attorney's fees to respondents, no sufficient basis was established for the grant
thereof.
It is well settled that attorney's fees should not be awarded in the absence of stipulation except under the
instances enumerated in Article 2208 of the Civil Code. As we have held in Rizal Surety and Insurance
Company v. Court of Appeals:23
Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its claimant is
compelled to litigate with third persons or to incur expenses to protect his interest by reason of an
unjustified act or omission of the party from whom it is sought. While judicial discretion is here extant,
an award thereof demands, nevertheless, a factual, legal or equitable justification. The matter cannot
and should not be left to speculation and conjecture (Mirasol vs. De la Cruz, 84 SCRA 337; Stronghold
Insurance Company, Inc. vs. Court of Appeals, 173 SCRA 619).
In the case at bench, the records do not show enough basis for sustaining the award for attorney's fees
and to adjudge its payment by petitioner. x x x.
Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals that:
"In Abrogar v. Intermediate Appellate Court G.R. No. 67970, January 15, 1988, 157 SCRA 57], the
Court had occasion to state that '[t]he reason for the award of attorney's fees must be stated in the
text of the court's decision, otherwise, if it is stated only in the dispositive portion of the decision,
the same must be disallowed on appeal.' x x x."24
WHEREFORE, the petition is DENIED. The assailed decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that the grant of attorney's fees is DELETED for lack of basis.
Costs against petitioners.
 G.R. No. 138060 September 1, 2004
WILLIAM TIU, doing business under the name and style of "D’ Rough Riders," and VIRGILIO TE LAS PIÑAS
vs.
PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY AND
INSURANCE, INC.
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision1 of the Court
of Appeals in CA-G.R. CV No. 54354 affirming with modification the Decision2 of the Regional Trial Court, 7th
Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of contract of carriage, damages
and attorney’s fees, and the Resolution dated February 26, 1999 denying the motion for reconsideration
thereof.
The following facts are undisputed:
At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks and General
Merchandise" bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu
City. Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge,
one of its rear tires exploded. The driver, Sergio Pedrano, then parked along the right side of the national
highway and removed the damaged tire to have it vulcanized at a nearby shop, about 700 meters away.3
Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed the latter
to place a spare tire six fathoms away4 behind the stalled truck to serve as a warning for oncoming
vehicles. The truck’s tail lights were also left on. It was about 12:00 a.m., March 16, 1987.
At about 4:45 a.m., D’ Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te Laspiñas
was cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was
also bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among its passengers were the
Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the bus,
about three (3) or four (4) places from the front seat.
As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about 25 meters
away.5 He applied the breaks and tried to swerve to the left to avoid hitting the truck. But it was too late; the
bus rammed into the truck’s left rear. The impact damaged the right side of the bus and left several
passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right colles.6 His wife,
Felisa, was brought to the Danao City Hospital. She was later transferred to the Southern Island Medical
Center where she died shortly thereafter.7
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and
attorney’s fees before the Regional Trial Court of Cebu City, Branch 20, against the petitioners, D’ Rough
Riders bus operator William Tiu and his driver, Virgilio Te Laspiñas on May 27, 1987. The respondent alleged
that the passenger bus in question was cruising at a fast and high speed along the national road, and that
petitioner Laspiñas did not take precautionary measures to avoid the accident.8 Thus:
6. That the accident resulted to the death of the plaintiff’s wife, Felisa Pepito Arriesgado, as evidenced
by a Certificate of Death, a xerox copy of which is hereto attached as integral part hereof and marked as
ANNEX – "A", and physical injuries to several of its passengers, including plaintiff himself who suffered a
"COLLES FRACTURE RIGHT," per Medical Certificate, a xerox copy of which is hereto attached as integral
part hereof and marked as ANNEX – "B" hereof.
7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspiñas of the said Rough
Riders passenger bus, plaintiff and his wife, Felisa Pepito Arriesgado, failed to safely reach their
destination which was Cebu City, the proximate cause of which was defendant-driver’s failure to observe
utmost diligence required of a very cautious person under all circumstances.
 8. That defendant William Tiu, being the owner and operator of the said Rough Riders passenger bus
which figured in the said accident, wherein plaintiff and his wife were riding at the time of the accident,
is therefore directly liable for the breach of contract of carriage for his failure to transport plaintiff and
his wife safely to their place of destination which was Cebu City, and which failure in his obligation to
transport safely his passengers was due to and in consequence of his failure to exercise the diligence of
a good father of the family in the selection and supervision of his employees, particularly
defendant-driver Virgilio Te Laspiñas.9
The respondent prayed that judgment be rendered in his favor and that the petitioners be condemned to
pay the following damages:
1). To pay to plaintiff, jointly and severally, the amount of ₱30,000.00 for the death and untimely demise
of plaintiff’s wife, Felisa Pepito Arriesgado;
2). To pay to plaintiff, jointly and severally, the amount of ₱38,441.50, representing actual expenses
incurred by the plaintiff in connection with the death/burial of plaintiff’s wife;
3). To pay to plaintiff, jointly and severally, the amount of ₱1,113.80, representing
medical/hospitalization expenses incurred by plaintiff for the injuries sustained by him;
4). To pay to plaintiff, jointly and severally, the amount of ₱50,000.00 for moral damages;
5). To pay to plaintiff, jointly and severally, the amount of ₱50,000.00 by way of exemplary damages;
6). To pay to plaintiff, jointly and severally, the amount of ₱20,000.00 for attorney’s fees;
7). To pay to plaintiff, jointly and severally, the amount of ₱5,000.00 for litigation expenses.
PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN LAW AND EQUITY.10
The petitioners, for their part, filed a Third-Party Complaint11 on August 21, 1987 against the following:
respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent
Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano, the driver of the
truck. They alleged that petitioner Laspiñas was negotiating the uphill climb along the national highway of
Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It was further alleged that the truck
was parked in a slanted manner, its rear portion almost in the middle of the highway, and that no early
warning device was displayed. Petitioner Laspiñas promptly applied the brakes and swerved to the left to
avoid hitting the truck head-on, but despite his efforts to avoid damage to property and physical injuries on
the passengers, the right side portion of the bus hit the cargo truck’s left rear. The petitioners further alleged,
thus:
5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered in the name of
the third-party defendant Benjamin Condor and was left unattended by its driver Sergio Pedrano, one of
the third-party defendants, at the time of the incident;
6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked (sic) "Condor
Hollow Blocks & General Merchandise," with Plate No. GBP-675 which was recklessly and imprudently
parked along the national highway of Compostela, Cebu during the vehicular accident in question, and
third-party defendant Benjamin Condor, as the registered owner of the cargo truck who failed to
exercise due diligence in the selection and supervision of third-party defendant Sergio Pedrano, are
jointly and severally liable to the third-party plaintiffs for whatever liability that may be adjudged against
said third-party plaintiffs or are directly liable of (sic) the alleged death of plaintiff’s wife;
7. That in addition to all that are stated above and in the answer which are intended to show reckless
imprudence on the part of the third-party defendants, the third-party plaintiffs hereby declare that
 during the vehicular accident in question, third-party defendant was clearly violating Section 34, par. (g)
of the Land Transportation and Traffic Code…
…
10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William Tiu, is covered
by a common carrier liability insurance with Certificate of Cover No. 054940 issued by Philippine
Phoenix Surety and Insurance, Inc., Cebu City Branch, in favor of third-party plaintiff William Tiu which
covers the period from July 22, 1986 to July 22, 1987 and that the said insurance coverage was valid,
binding and subsisting during the time of the aforementioned incident (Annex "A" as part hereof);
11. That after the aforesaid alleged incident, third-party plaintiff notified third-party defendant
Philippine Phoenix Surety and Insurance, Inc., of the alleged incident hereto mentioned, but to no avail;
12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be adversely adjudged,
they stand to pay damages sought by the plaintiff and therefore could also look up to the Philippine
Phoenix Surety and Insurance, Inc., for contribution, indemnification and/or reimbursement of any
liability or obligation that they might [be] adjudged per insurance coverage duly entered into by and
between third-party plaintiff William Tiu and third-party defendant Philippine Phoenix Surety and
Insurance, Inc.;…12
The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu, but averred
that it had already attended to and settled the claims of those who were injured during the incident.13 It
could not accede to the claim of respondent Arriesgado, as such claim was way beyond the scheduled
indemnity as contained in the contract of insurance.14
After the parties presented their respective evidence, the trial court ruled in favor of respondent Arriesgado.
The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff as against
defendant William Tiu ordering the latter to pay the plaintiff the following amounts:
1 - The sum of FIFTY THOUSAND PESOS (₱50,000.00) as moral damages;
2 - The sum of FIFTY THOUSAND PESOS (₱50,000.00) as exemplary damages;
3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE PESOS (₱38,441.00) as
actual damages;
4 - The sum of TWENTY THOUSAND PESOS (₱20,000.00) as attorney’s fees;
5 - The sum of FIVE THOUSAND PESOS (₱5,000.00) as costs of suit;
SO ORDERED.15
According to the trial court, there was no dispute that petitioner William Tiu was engaged in business as a
common carrier, in view of his admission that D’ Rough Rider passenger bus which figured in the accident
was owned by him; that he had been engaged in the transportation business for 25 years with a sole
proprietorship; and that he owned 34 buses. The trial court ruled that if petitioner Laspiñas had not been
driving at a fast pace, he could have easily swerved to the left to avoid hitting the truck, thus, averting the
unfortunate incident. It then concluded that petitioner Laspiñas was negligent.
The trial court also ruled that the absence of an early warning device near the place where the truck was
parked was not sufficient to impute negligence on the part of respondent Pedrano, since the tail lights of the
truck were fully on, and the vicinity was well lighted by street lamps.16 It also found that the testimony of
petitioner Tiu, that he based the selection of his driver Laspiñas on efficiency and in-service training, and
that the latter had been so far an efficient and good driver for the past six years of his employment, was
insufficient to prove that he observed the diligence of a good father of a family in the selection and
supervision of his employees.
After the petitioner’s motion for reconsideration of the said decision was denied, the petitioners elevated
the case to the Court of Appeals on the following issues:
I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS RECKLESS AND IMPRUDENT WHEN HE
PARKED THE CARGO TRUCK IN AN OBLIQUE MANNER;
II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND SEVERALLY LIABLE DIRECTLY TO
PLAINTIFF-APPELLEE OR TO DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT MAY BE
ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS;
III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIÑAS WAS GUILTY OF GROSS NEGLIGENCE;
IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED THE DUE DILIGENCE OF A GOOD
FATHER OF A FAMILY IN THE SELECTION AND SUPERVISION OF HIS DRIVERS;
V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-APPELLANT WILLIAM TIU IS LIABLE TO
PLAINTIFF-APPELLEE, WHETHER THERE IS LEGAL AND FACTUAL BASIS IN AWARDING EXCESSIVE MORAL
DAMAGES, EX[E]MPLARY DAMAGES, ATTORNEY’S FEES AND LITIGATION EXPENSES TO
PLAINTIFF-APPELLEE;
VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. IS LIABLE TO
DEFENDANT- APPELLANT WILLIAM TIU.17
The appellate court rendered judgment affirming the trial court’s decision with the modification that the
awards for moral and exemplary damages were reduced to ₱25,000. The dispositive portion reads:
WHEREFORE, the appealed Decision dated November 6, 1995 is hereby MODIFIED such that the awards
for moral and exemplary damages are each reduced to ₱25,000.00 or a total of ₱50,000.00 for both.
The judgment is AFFIRMED in all other respects.
SO ORDERED.18
According to the appellate court, the action of respondent Arriesgado was based not on quasi-delict but on
breach of contract of carriage. As a common carrier, it was incumbent upon petitioner Tiu to prove that
extraordinary diligence was observed in ensuring the safety of passengers during transportation. Since the
latter failed to do so, he should be held liable for respondent Arriesgado’s claim. The CA also ruled that no
evidence was presented against the respondent PPSII, and as such, it could not be held liable for respondent
Arriesgado’s claim, nor for contribution, indemnification and/or reimbursement in case the petitioners were
adjudged liable.
The petitioners now come to this Court and ascribe the following errors committed by the appellate court:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING RESPONDENTS BENJAMIN CONDOR
AND SERGIO PEDRANO GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A.
ARRIESGADO OR TO PETITIONERS FOR WHATEVER LIABILITY THAT MAY BE ADJUDGED AGAINST THEM.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS GUILTY OF NEGLIGENCE AND
HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO.
III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONER WILLIAM TIU LIABLE FOR
EXEMPLARY DAMAGES, ATTORNEY’S FEES AND LITIGATION EXPENSES.
IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT PHILIPPINE PHOENIX
 SURETY AND INSURANCE, INC. LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONER
WILLIAM TIU.19
According to the petitioners, the appellate court erred in failing to appreciate the absence of an early
warning device and/or built-in reflectors at the front and back of the cargo truck, in clear violation of Section
34, par. (g) of the Land Transportation and Traffic Code. They aver that such violation is only a proof of
respondent Pedrano’s negligence, as provided under Article 2185 of the New Civil Code. They also question
the appellate court’s failure to take into account that the truck was parked in an oblique manner, its rear
portion almost at the center of the road. As such, the proximate cause of the incident was the gross
recklessness and imprudence of respondent Pedrano, creating the presumption of negligence on the part of
respondent Condor in supervising his employees, which presumption was not rebutted. The petitioners then
contend that respondents Condor and Pedrano should be held jointly and severally liable to respondent
Arriesgado for the payment of the latter’s claim.
The petitioners, likewise, aver that expert evidence should have been presented to prove that petitioner
Laspiñas was driving at a very fast speed, and that the CA could not reach such conclusion by merely
considering the damages on the cargo truck. It was also pointed out that petitioner Tiu presented evidence
that he had exercised the diligence of a good father of a family in the selection and supervision of his drivers.
The petitioners further allege that there is no legal and factual basis to require petitioner Tiu to pay
exemplary damages as no evidence was presented to show that the latter acted in a fraudulent, reckless and
oppressive manner, or that he had an active participation in the negligent act of petitioner Laspiñas.
Finally, the petitioners contend that respondent PPSII admitted in its answer that while it had attended to
and settled the claims of the other injured passengers, respondent Arriesgado’s claim remained unsettled as
it was beyond the scheduled indemnity under the insurance contract. The petitioners argue that said
respondent PPSII should have settled the said claim in accordance with the scheduled indemnity instead of
just denying the same.
On the other hand, respondent Arriesgado argues that two of the issues raised by the petitioners involved
questions of fact, not reviewable by the Supreme Court: the finding of negligence on the part of the
petitioners and their liability to him; and the award of exemplary damages, attorney’s fees and litigation
expenses in his favor. Invoking the principle of equity and justice, respondent Arriesgado pointed out that if
there was an error to be reviewed in the CA decision, it should be geared towards the restoration of the
moral and exemplary damages to ₱50,000 each, or a total of ₱100,000 which was reduced by the Court of
Appeals to ₱25,000 each, or a total of only ₱50,000.
Respondent Arriesgado also alleged that respondents Condor and Pedrano, and respondent Phoenix Surety,
are parties with whom he had no contract of carriage, and had no cause of action against. It was pointed out
that only the petitioners needed to be sued, as driver and operator of the ill-fated bus, on account of their
failure to bring the Arriesgado Spouses to their place of destination as agreed upon in the contract of
carriage, using the utmost diligence of very cautious persons with due regard for all circumstances.
Respondents Condor and Pedrano point out that, as correctly ruled by the Court of Appeals, the proximate
cause of the unfortunate incident was the fast speed at which petitioner Laspiñas was driving the bus owned
by petitioner Tiu. According to the respondents, the allegation that the truck was not equipped with an early
warning device could not in any way have prevented the incident from happening. It was also pointed out
that respondent Condor had always exercised the due diligence required in the selection and supervision of
his employees, and that he was not a party to the contract of carriage between the petitioners and
respondent Arriesgado.
Respondent PPSII, for its part, alleges that contrary to the allegation of petitioner Tiu, it settled all the claims
of those injured in accordance with the insurance contract. It further avers that it did not deny respondent
Arriesgado’s claim, and emphasizes that its liability should be within the scheduled limits of indemnity under
the said contract. The respondent concludes that while it is true that insurance contracts are contracts of
indemnity, the measure of the insurer’s liability is determined by the insured’s compliance with the terms
thereof.
The Court’s Ruling
At the outset, it must be stressed that this Court is not a trier of facts.20 Factual findings of the Court of
Appeals are final and may not be reviewed on appeal by this Court, except when the lower court and the CA
arrived at diverse factual findings.21 The petitioners in this case assail the finding of both the trial and the
appellate courts that petitioner Laspiñas was driving at a very fast speed before the bus owned by petitioner
Tiu collided with respondent Condor’s stalled truck. This is clearly one of fact, not reviewable by the Court in
a petition for review under Rule 45.22
On this ground alone, the petition is destined to fail.
However, considering that novel questions of law are likewise involved, the Court resolves to examine and
rule on the merits of the case.
Petitioner Laspiñas Was negligent in driving The Ill-fated bus
In his testimony before the trial court, petitioner Laspiñas claimed that he was traversing the two-lane road
at Compostela, Cebu at a speed of only forty (40) to fifty (50) kilometers per hour before the incident
occurred.23 He also admitted that he saw the truck which was parked in an "oblique position" at about 25
meters before impact,24and tried to avoid hitting it by swerving to the left. However, even in the absence of
expert evidence, the damage sustained by the truck25 itself supports the finding of both the trial court and
the appellate court, that the D’ Rough Rider bus driven by petitioner Laspiñas was traveling at a fast pace.
Since he saw the stalled truck at a distance of 25 meters, petitioner Laspiñas had more than enough time to
swerve to his left to avoid hitting it; that is, if the speed of the bus was only 40 to 50 kilometers per hour as
he claimed. As found by the Court of Appeals, it is easier to believe that petitioner Laspiñas was driving at a
very fast speed, since at 4:45 a.m., the hour of the accident, there were no oncoming vehicles at the
opposite direction. Petitioner Laspiñas could have swerved to the left lane with proper clearance, and, thus,
could have avoided the truck.26 Instinct, at the very least, would have prompted him to apply the breaks to
avert the impending disaster which he must have foreseen when he caught sight of the stalled truck. As we
had occasion to reiterate:
A man must use common sense, and exercise due reflection in all his acts; it is his duty to be cautious,
careful and prudent, if not from instinct, then through fear of recurring punishment. He is responsible
for such results as anyone might foresee and for acts which no one would have performed except
through culpable abandon. Otherwise, his own person, rights and property, and those of his fellow
beings, would ever be exposed to all manner of danger and injury.27
We agree with the following findings of the trial court, which were affirmed by the CA on appeal:
A close study and evaluation of the testimonies and the documentary proofs submitted by the parties
which have direct bearing on the issue of negligence, this Court as shown by preponderance of evidence
that defendant Virgilio Te Laspiñas failed to observe extraordinary diligence as a driver of the common
carrier in this case. It is quite hard to accept his version of the incident that he did not see at a
reasonable distance ahead the cargo truck that was parked when the Rough Rider [Bus] just came out of
the bridge which is on an (sic) [more] elevated position than the place where the cargo truck was parked.
With its headlights fully on, defendant driver of the Rough Rider was in a vantage position to see the
cargo truck ahead which was parked and he could just easily have avoided hitting and bumping the
 same by maneuvering to the left without hitting the said cargo truck. Besides, it is (sic) shown that there
was still much room or space for the Rough Rider to pass at the left lane of the said national highway
even if the cargo truck had occupied the entire right lane thereof. It is not true that if the Rough Rider
would proceed to pass through the left lane it would fall into a canal considering that there was much
space for it to pass without hitting and bumping the cargo truck at the left lane of said national highway.
The records, further, showed that there was no incoming vehicle at the opposite lane of the national
highway which would have prevented the Rough Rider from not swerving to its left in order to avoid
hitting and bumping the parked cargo truck. But the evidence showed that the Rough Rider instead of
swerving to the still spacious left lane of the national highway plowed directly into the parked cargo
truck hitting the latter at its rear portion; and thus, the (sic) causing damages not only to herein plaintiff
but to the cargo truck as well.28
Indeed, petitioner Laspiñas’ negligence in driving the bus is apparent in the records. By his own admission,
he had just passed a bridge and was traversing the highway of Compostela, Cebu at a speed of 40 to 50
kilometers per hour before the collision occurred. The maximum speed allowed by law on a bridge is only 30
kilometers per hour.29And, as correctly pointed out by the trial court, petitioner Laspiñas also violated
Section 35 of the Land Transportation and Traffic Code, Republic Act No. 4136, as amended:1avvphil.net
Sec. 35. Restriction as to speed. – (a) Any person driving a motor vehicle on a highway shall drive the
same at a careful and prudent speed, not greater nor less than is reasonable and proper, having due
regard for the traffic, the width of the highway, and or any other condition then and there existing; and
no person shall drive any motor vehicle upon a highway at such speed as to endanger the life, limb and
property of any person, nor at a speed greater than will permit him to bring the vehicle to a stop within
the assured clear distance ahead.30
Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of the
mishap, he was violating any traffic regulation.31
Petitioner Tiu failed to Overcome the presumption Of negligence against him as One engaged in the
business Of common carriage
The rules which common carriers should observe as to the safety of their passengers are set forth in the Civil
Code, Articles 1733,32 175533 and 1756.34 In this case, respondent Arriesgado and his deceased wife
contracted with petitioner Tiu, as owner and operator of D’ Rough Riders bus service, for transportation
from Maya, Daanbantayan, Cebu, to Cebu City for the price of ₱18.00.35 It is undisputed that the respondent
and his wife were not safely transported to the destination agreed upon. In actions for breach of contract,
only the existence of such contract, and the fact that the obligor, in this case the common carrier, failed to
transport his passenger safely to his destination are the matters that need to be proved.36 This is because
under the said contract of carriage, the petitioners assumed the express obligation to transport the
respondent and his wife to their destination safely and to observe extraordinary diligence with due regard
for all circumstances.37 Any injury suffered by the passengers in the course thereof is immediately
attributable to the negligence of the carrier.38 Upon the happening of the accident, the presumption of
negligence at once arises, and it becomes the duty of a common carrier to prove that he observed
extraordinary diligence in the care of his passengers.39 It must be stressed that in requiring the highest
possible degree of diligence from common carriers and in creating a presumption of negligence against them,
the law compels them to curb the recklessness of their drivers.40
While evidence may be submitted to overcome such presumption of negligence, it must be shown that the
carrier observed the required extraordinary diligence, which means that the carrier must show the utmost
diligence of very cautious persons as far as human care and foresight can provide, or that the accident was
caused by fortuitous event.41 As correctly found by the trial court, petitioner Tiu failed to conclusively rebut
such presumption. The negligence of petitioner Laspiñas as driver of the passenger bus is, thus, binding
against petitioner Tiu, as the owner of the passenger bus engaged as a common carrier.42
The Doctrine of Last Clear Chance Is Inapplicable in the Case at Bar
Contrary to the petitioner’s contention, the principle of last clear chance is inapplicable in the instant case,
as it only applies in a suit between the owners and drivers of two colliding vehicles. It does not arise where a
passenger demands responsibility from the carrier to enforce its contractual obligations, for it would be
inequitable to exempt the negligent driver and its owner on the ground that the other driver was likewise
guilty of negligence.43 The common law notion of last clear chance permitted courts to grant recovery to a
plaintiff who has also been negligent provided that the defendant had the last clear chance to avoid the
casualty and failed to do so. Accordingly, it is difficult to see what role, if any, the common law of last clear
chance doctrine has to play in a jurisdiction where the common law concept of contributory negligence as
an absolute bar to recovery by the plaintiff, has itself been rejected, as it has been in Article 2179 of the Civil
Code.44
Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgado’s wife due to the
negligence of petitioner Laspiñas, his employee, on this score.
Respondents Pedrano and Condor were likewise Negligent
In Phoenix Construction, Inc. v. Intermediate Appellate Court,45 where therein respondent Dionisio sustained
injuries when his vehicle rammed against a dump truck parked askew, the Court ruled that the improper
parking of a dump truck without any warning lights or reflector devices created an unreasonable risk for
anyone driving within the vicinity, and for having created such risk, the truck driver must be held responsible.
In ruling against the petitioner therein, the Court elucidated, thus:
… In our view, Dionisio’s negligence, although later in point of time than the truck driver’s negligence,
and therefore closer to the accident, was not an efficient intervening or independent cause. What the
petitioners describe as an "intervening cause" was no more than a foreseeable consequence of the risk
created by the negligent manner in which the truck driver had parked the dump truck. In other words,
the petitioner truck driver owed a duty to private respondent Dionisio and others similarly situated not
to impose upon them the very risk the truck driver had created. Dionisio’s negligence was not that of an
independent and overpowering nature as to cut, as it were, the chain of causation in fact between the
improper parking of the dump truck and the accident, nor to sever the juris vinculum of liability. …
…
We hold that private respondent Dionisio’s negligence was "only contributory," that the "immediate and
proximate cause" of the injury remained the truck driver’s "lack of due care."…46
In this case, both the trial and the appellate courts failed to consider that respondent Pedrano was also
negligent in leaving the truck parked askew without any warning lights or reflector devices to alert oncoming
vehicles, and that such failure created the presumption of negligence on the part of his employer,
respondent Condor, in supervising his employees properly and adequately. As we ruled in Poblete v. Fabros:47
It is such a firmly established principle, as to have virtually formed part of the law itself, that the
negligence of the employee gives rise to the presumption of negligence on the part of the employer.
This is the presumed negligence in the selection and supervision of employee. The theory of presumed
negligence, in contrast with the American doctrine of respondeat superior, where the negligence of the
employee is conclusively presumed to be the negligence of the employer, is clearly deducible from the
last paragraph of Article 2180 of the Civil Code which provides that the responsibility therein mentioned
shall cease if the employers prove that they observed all the diligence of a good father of a family to
 prevent damages. …48
The petitioners were correct in invoking respondent Pedrano’s failure to observe Article IV, Section 34(g) of
the Rep. Act No. 4136, which provides:1avvphil.net
(g) Lights when parked or disabled. – Appropriate parking lights or flares visible one hundred meters
away shall be displayed at a corner of the vehicle whenever such vehicle is parked on highways or in
places that are not well-lighted or is placed in such manner as to endanger passing traffic.
The manner in which the truck was parked clearly endangered oncoming traffic on both sides, considering
that the tire blowout which stalled the truck in the first place occurred in the wee hours of the morning. The
Court can only now surmise that the unfortunate incident could have been averted had respondent Condor,
the owner of the truck, equipped the said vehicle with lights, flares, or, at the very least, an early warning
device.49 Hence, we cannot subscribe to respondents Condor and Pedrano’s claim that they should be
absolved from liability because, as found by the trial and appellate courts, the proximate cause of the
collision was the fast speed at which petitioner Laspiñas drove the bus. To accept this proposition would be
to come too close to wiping out the fundamental principle of law that a man must respond for the
foreseeable consequences of his own negligent act or omission. Indeed, our law on quasi-delicts seeks to
reduce the risks and burdens of living in society and to allocate them among its members. To accept this
proposition would be to weaken the very bonds of society.50
The Liability of Respondent PPSII as Insurer
The trial court in this case did not rule on the liability of respondent PPSII, while the appellate court ruled
that, as no evidence was presented against it, the insurance company is not liable.
A perusal of the records will show that when the petitioners filed the Third-Party Complaint against
respondent PPSII, they failed to attach a copy of the terms of the insurance contract itself. Only Certificate of
Cover No. 05494051 issued in favor of "Mr. William Tiu, Lahug, Cebu City" signed by Cosme H. Boniel was
appended to the third-party complaint. The date of issuance, July 22, 1986, the period of insurance, from
July 22, 1986 to July 22, 1987, as well as the following items, were also indicated therein:

SCHEDULED VEHICLE

MAKE TYPE OF BODY COLOR

MODEL BLT FILE NO.
Isuzu Forward Bus blue mixed

PLATE NO. SERIAL/CHASSIS NO. MOTOR NO. AUTHORIZED CAPACITY UNLADEN WEIGHT
PBP-724 SER450-1584124 677836 50 6 Cyls. Kgs.

SECTION 1/11
*LIMITS OF LIABILITY
₱50,000.00
A. THIRD PARTY LIABILITY PREMIUMS PAID
₱540.0052
Per Person Per Accident
B. PASSENGER LIABILITY
₱12,000.00 ₱50,000

In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted the existence of the contract of
insurance, in view of its failure to specifically deny the same as required under then Section 8(a), Rule 8 of
the Rules of Court,54 which reads:
Sec. 8. How to contest genuineness of such documents. When an action or defense is founded upon a
written instrument copied in or attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall be deemed admitted unless the
adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but
the requirement of an oath does not apply when the adverse party does not appear to be a party to the
instrument or when compliance with an order for inspection of the original instrument is refused.
In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it was liable
thereon. It claimed, however, that it had attended to and settled the claims of those injured during the
incident, and set up the following as special affirmative defenses:
Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and incorporates
by way of reference the preceding paragraphs and further states THAT:-
8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali Palces who
sustained injuries during the incident in question. In fact, it settled financially their claims per
vouchers duly signed by them and they duly executed Affidavit[s] of Desistance to that effect, xerox
copies of which are hereto attached as Annexes 1, 2, 3, 4, 5, and 6 respectively;
9. With respect to the claim of plaintiff, herein answering third party defendant through its
authorized insurance adjuster attended to said claim. In fact, there were negotiations to that effect.
Only that it cannot accede to the demand of said claimant considering that the claim was way
beyond the scheduled indemnity as per contract entered into with third party plaintiff William Tiu
and third party defendant (Philippine Phoenix Surety and Insurance, Inc.). Third party Plaintiff
William Tiu knew all along the limitation as earlier stated, he being an old hand in the transportation
business;55…
Considering the admissions made by respondent PPSII, the existence of the insurance contract and the
salient terms thereof cannot be dispatched. It must be noted that after filing its answer, respondent PPSII no
longer objected to the presentation of evidence by respondent Arriesgado and the insured petitioner Tiu.
Even in its Memorandum56 before the Court, respondent PPSII admitted the existence of the contract, but
averred as follows:
Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification and/or
reimbursement. This has no basis under the contract. Under the contract, PPSII will pay all sums
necessary to discharge liability of the insured subject to the limits of liability but not to exceed the limits
of liability as so stated in the contract. Also, it is stated in the contract that in the event of accident
involving indemnity to more than one person, the limits of liability shall not exceed the aggregate
amount so specified by law to all persons to be indemnified.57
As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the
Compulsory Motor Vehicle Liability Insurance Law. It was expressly provided therein that the limit of the
insurer’s liability for each person was ₱12,000, while the limit per accident was pegged at ₱50,000. An
insurer in an indemnity contract for third party liability is directly liable to the injured party up to the extent
specified in the agreement but it cannot be held solidarily liable beyond that amount.58 The respondent PPSII
could not then just deny petitioner Tiu’s claim; it should have paid ₱12,000 for the death of Felisa
Arriesgado,59 and respondent Arriesgado’s hospitalization expenses of ₱1,113.80, which the trial court found
to have been duly supported by receipts. The total amount of the claims, even when added to that of the
other injured passengers which the respondent PPSII claimed to have settled,60 would not exceed the
₱50,000 limit under the insurance agreement.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to
provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a
result of the negligent operation and use of motor vehicles. The victims and/or their dependents are assured
of immediate financial assistance, regardless of the financial capacity of motor vehicle owners.61 As the Court,
speaking through Associate Justice Leonardo A. Quisumbing, explained in Government Service Insurance
System v. Court of Appeals:62
However, although the victim may proceed directly against the insurer for indemnity, the third party
liability is only up to the extent of the insurance policy and those required by law. While it is true that
where the insurance contract provides for indemnity against liability to third persons, and such persons
can directly sue the insurer, the direct liability of the insurer under indemnity contracts against third
party liability does not mean that the insurer can be held liable in solidum with the insured and/or the
other parties found at fault. For the liability of the insurer is based on contract; that of the insured
carrier or vehicle owner is based on tort. …
Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract
of insurance, in accordance with the CMVLI law. At the time of the incident, the schedule of indemnities
for death and bodily injuries, professional fees and other charges payable under a CMVLI coverage was
provided for under the Insurance Memorandum Circular (IMC) No. 5-78 which was approved on
November 10, 1978. As therein provided, the maximum indemnity for death was twelve thousand
(₱12,000.00) pesos per victim. The schedules for medical expenses were also provided by said IMC,
specifically in paragraphs (C) to (G).63
Damages to be Awarded
The trial court correctly awarded moral damages in the amount of ₱50,000 in favor of respondent
Arriesgado. The award of exemplary damages by way of example or correction of the public good,64 is
likewise in order. As the Court ratiocinated in Kapalaran Bus Line v. Coronado:65
…While the immediate beneficiaries of the standard of extraordinary diligence are, of course, the
passengers and owners of cargo carried by a common carrier, they are not the only persons that the law
seeks to benefit. For if common carriers carefully observed the statutory standard of extraordinary
diligence in respect of their own passengers, they cannot help but simultaneously benefit pedestrians
and the passengers of other vehicles who are equally entitled to the safe and convenient use of our
roads and highways. The law seeks to stop and prevent the slaughter and maiming of people (whether
passengers or not) on our highways and buses, the very size and power of which seem to inflame the
minds of their drivers. Article 2231 of the Civil Code explicitly authorizes the imposition of exemplary
damages in cases of quasi-delicts "if the defendant acted with gross negligence."…66
The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is entitled to
indemnity in the amount of ₱50,000.00.67
The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly and severally
liable for said amount, conformably with the following pronouncement of the Court in Fabre, Jr. vs. Court of
Appeals:68
The same rule of liability was applied in situations where the negligence of the driver of the bus on
which plaintiff was riding concurred with the negligence of a third party who was the driver of another
vehicle, thus causing an accident. In Anuran v. Buño, Batangas Laguna Tayabas Bus Co. v. Intermediate
Appellate Court, and Metro Manila Transit Corporation v. Court of Appeals, the bus company, its driver,
the operator of the other vehicle and the driver of the vehicle were jointly and severally held liable to
 the injured passenger or the latter’s heirs. The basis of this allocation of liability was explained in Viluan v.
Court of Appeals, thus:
"Nor should it make difference that the liability of petitioner [bus owner] springs from contract
while that of respondents [owner and driver of other vehicle] arises from quasi-delict. As early as
1913, we already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger
due to the negligence of the driver of the bus on which he was riding and of the driver of another
vehicle, the drivers as well as the owners of the two vehicles are jointly and severally liable for
damages. Some members of the Court, though, are of the view that under the circumstances they
are liable on quasi-delict."69
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATIONS:
(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu are ORDERED to
pay, jointly and severally, respondent Pedro A. Arriesgado the total amount of ₱13,113.80;
(2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano are ORDERED to pay,
jointly and severally, respondent Pedro A. Arriesgado ₱50,000.00 as indemnity; ₱26,441.50 as actual
damages; ₱50,000.00 as moral damages; ₱50,000.00 as exemplary damages; and ₱20,000.00 as
attorney’s fees.
 G.R. No. 150751 September 20, 2004
CENTRAL SHIPPING COMPANY, INC.
vs.
INSURANCE COMPANY OF NORTH AMERICA,
A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or
deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one of the
causes enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary diligence to prevent or
minimize the loss. In the present case, the weather condition encountered by petitioner’s vessel was not a
"storm" or a natural disaster comprehended in the law. Given the known weather condition prevailing during
the voyage, the manner of stowage employed by the carrier was insufficient to secure the cargo from the
rolling action of the sea. The carrier took a calculated risk in improperly securing the cargo. Having lost that
risk, it cannot now disclaim any liability for the loss.
The Case
Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse and set
aside the March 23, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 48915. The assailed
Decision disposed as follows:
"WHEREFORE, the decision of the Regional Trial Court of Makati City, Branch 148 dated August 4, 1994 is
hereby MODIFIED in so far as the award of attorney’s fees is DELETED. The decision is AFFIRMED in all
other respects."3
The CA denied petitioner’s Motion for Reconsideration in its November 7, 2001 Resolution.4
The Facts
The factual antecedents, summarized by the trial court and adopted by the appellate court, are as follows:
"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the M/V
‘Central Bohol’, 376 pieces [of] Philippine Apitong Round Logs and undertook to transport said shipment
to Manila for delivery to Alaska Lumber Co., Inc.
"The cargo was insured for ₱3,000,000.00 against total loss under [respondent’s] Marine Cargo Policy
No. MCPB-00170.
"On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and commenced the
voyage to Manila.
"At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10 degrees
starboardside, due to the shifting of logs in the hold.
"At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship captain
ordered his men to abandon ship and at about 0130 hours of the same day the vessel completely sank.
Due to the sinking of the vessel, the cargo was totally lost.
"[Respondent] alleged that the total loss of the shipment was caused by the fault and negligence of the
[petitioner] and its captain and as direct consequence thereof the consignee suffered damage in the
sum of ₱3,000,000.00.
"The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the
[petitioner] but the latter failed and refused to settle the claim, hence [respondent], being the insurer,
paid said claim and now seeks to be subrogated to all the rights and actions of the consignee as against
the [petitioner].
 "[Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel was fully
manned, fully equipped and in all respects seaworthy; that all the logs were properly loaded and
secured; that the vessel’s master exercised due diligence to prevent or minimize the loss before, during
and after the occurrence of the storm.
"It raised as its main defense that the proximate and only cause of the sinking of its vessel and the loss
of its cargo was a natural disaster, a tropical storm which neither [petitioner] nor the captain of its vessel
could have foreseen."5
The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or any
other caso fortuito. It noted that monsoons, which were common occurrences during the months of July to
December, could have been foreseen and provided for by an ocean-going vessel. Applying the rule of
presumptive fault or negligence against the carrier, the trial court held petitioner liable for the loss of the
cargo. Thus, the RTC deducted the salvage value of the logs in the amount of ₱200,000 from the principal
claim of respondent and found that the latter was entitled to be subrogated to the rights of the insured. The
court a quo disposed as follows:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent] and
against the [petitioner] ordering the latter to pay the following:
1) the amount of ₱2,800,000.00 with legal interest thereof from the filing of this complaint up to
and until the same is fully paid;
2) ₱80,000.00 as and for attorney’s fees;
3) Plus costs of suit."6
Ruling of the Court of Appeals
The CA affirmed the trial court’s finding that the southwestern monsoon encountered by the vessel was not
unforeseeable. Given the season of rains and monsoons, the ship captain and his crew should have
anticipated the perils of the sea. The appellate court further held that the weather disturbance was not the
sole and proximate cause of the sinking of the vessel, which was also due to the concurrent shifting of the
logs in the hold that could have resulted only from improper stowage. Thus, the carrier was held responsible
for the consequent loss of or damage to the cargo, because its own negligence had contributed thereto.
The CA found no merit in petitioner’s assertion of the vessel’s seaworthiness. It held that the Certificates of
Inspection and Drydocking were not conclusive proofs thereof. In order to consider a vessel to be seaworthy,
it must be fit to meet the perils of the sea.
Found untenable was petitioner’s insistence that the trial court should have given greater weight to the
factual findings of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest filed by the
ship captain, Enriquito Cahatol. The CA further observed that what petitioner had presented to the court a
quo were mere excerpts of the testimony of Captain Cahatol given during the course of the proceedings
before the BMI, not the actual findings and conclusions of the agency. Citing Arada v. CA,7 it said that findings
of the BMI were limited to the administrative liability of the owner/operator, officers and crew of the vessel.
However, the determination of whether the carrier observed extraordinary diligence in protecting the cargo
it was transporting was a function of the courts, not of the BMI.
The CA concluded that the doctrine of limited liability was not applicable, in view of petitioner’s negligence --
particularly its improper stowage of the logs.
Hence, this Petition.8
Issues: In its Memorandum, petitioner submits the following issues for our consideration:
 "(i) Whether or not the weather disturbance which caused the sinking of the vessel M/V Central Bohol
was a fortuitous event.
"(ii) Whether or not the investigation report prepared by Claimsmen Adjustment Corporation is hearsay
evidence under Section 36, Rule 130 of the Rules of Court.
"(iii) Whether or not the finding of the Court of Appeals that ‘the logs in the hold shifted and such
shifting could only be due to improper stowage’ has a valid and factual basis.
"(iv) Whether or not M/V Central Bohol is seaworthy.
"(v) Whether or not the Court of Appeals erred in not giving credence to the factual finding of the Board
of Marine Inquiry (BMI), an independent government agency tasked to conduct inquiries on maritime
accidents.
"(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at bar."9
The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2) whether the
doctrine of limited liability is applicable. These issues involve a determination of factual questions of whether
the loss of the cargo was due to the occurrence of a natural disaster; and if so, whether its sole and
proximate cause was such natural disaster or whether petitioner was partly to blame for failing to exercise
due diligence in the prevention of that loss.
The Court’s Ruling
The Petition is devoid of merit.
First Issue: Liability for Lost Cargo
From the nature of their business and for reasons of public policy, common carriers are bound to observe
extraordinary diligence over the goods they transport, according to all the circumstances of each case.10 In
the event of loss, destruction or deterioration of the insured goods, common carriers are responsible; that is,
unless they can prove that such loss, destruction or deterioration was brought about -- among others -- by
"flood, storm, earthquake, lightning or other natural disaster or calamity."11 In all other cases not specified
under Article 1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence.12
In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the occurrence of
a "storm" under Article 1734(1). It attributes the sinking of its vessel solely to the weather condition
between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990.
At the outset, it must be stressed that only questions of law13 may be raised in a petition for review on
certiorari under Rule 45 of the Rules of Court. Questions of fact are not proper subjects in this mode of
appeal,14 for "[t]he Supreme Court is not a trier of facts."15 Factual findings of the CA may be reviewed on
appeal16 only under exceptional circumstances such as, among others, when the inference is manifestly
mistaken,17 the judgment is based on a misapprehension of facts,18 or the CA manifestly overlooked certain
relevant and undisputed facts that, if properly considered, would justify a different conclusion.19
In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion of
the CA that the weather encountered by the vessel was not a "storm" as contemplated by Article 1734(1).
Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central
Bohol encountered a southwestern monsoon in the course of its voyage.
The Note of Marine Protest,20 which the captain of the vessel issued under oath, stated that he and his crew
encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another monsoon about
2400 hours on July 26, 1990. Even petitioner admitted in its Answer that the sinking of M/V Central Bohol
had been caused by the strong southwest monsoon.21 Having made such factual representation, it cannot
now be allowed to retreat and claim that the southwestern monsoon was a "storm."
The pieces of evidence with respect to the weather conditions encountered by the vessel showed that there
was a southwestern monsoon at the time. Normally expected on sea voyages, however, were such
monsoons, during which strong winds were not unusual. Rosa S. Barba, weather specialist of the Philippine
Atmospheric Geophysical and Astronomical Services Administration (PAGASA), testified that a thunderstorm
might occur in the midst of a southwest monsoon. According to her, one did occur between 8:00 p.m. on
July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA Weather Bureau.22
Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as a
"storm" within the absolutory causes enumerated in the law. Significantly, no typhoon was observed within
the Philippine area of responsibility during that period.23
According to PAGASA, a storm has a wind force of 48 to 55 knots,24 equivalent to 55 to 63 miles per hour or
10 to 11 in the Beaufort Scale. The second mate of the vessel stated that the wind was blowing around force
7 to 8 on the Beaufort Scale.25 Consequently, the strong winds accompanying the southwestern monsoon
could not be classified as a "storm." Such winds are the ordinary vicissitudes of a sea voyage.26
Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the
Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and only cause
of the loss. Human agency must be entirely excluded from the cause of injury or loss. In other words, the
damaging effects blamed on the event or phenomenon must not have been caused, contributed to, or
worsened by the presence of human participation.27 The defense of fortuitous event or natural disaster
cannot be successfully made when the injury could have been avoided by human precaution.28
Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the circumstances of
the particular case demand -- to prevent or minimize the loss before, during and after the occurrence of the
natural disaster, the carrier shall be deemed to have been negligent. The loss or injury is not, in a legal sense,
due to a natural disaster under Article 1734(1).29
We also find no reason to disturb the CA’s finding that the loss of the vessel was caused not only by the
southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been due only to
improper stowage. The assailed Decision stated:
"Notably, in Master Cahatol’s account, the vessel encountered the first southwestern monsoon at about
1[0]:00 in the evening. The monsoon was coupled with heavy rains and rough seas yet the vessel
withstood the onslaught. The second monsoon attack occurred at about 12:00 midnight. During this
occasion, the master ‘felt’ that the logs in the hold shifted, prompting him to order second mate Percival
Dayanan to look at the bodega. Complying with the captain’s order, 2nd mate Percival Dayanan found
that there was seawater in the bodega. 2nd mate Dayanan’s account was:
‘14.T – Kung inyo pong natatandaan ang mga pangyayari, maari mo bang isalaysay ang naganap na
paglubog sa barkong M/V Central Bohol?
‘S – Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ng umaga (dst) habang kami ay
nagnanabegar patungong Maynila sa tapat ng Cadlao Island at Cauayan Island sakop ng El Nido,
Palawan, inutusan ako ni Captain Enriquito Cahatol na tingnan ko ang bodega; nang ako ay nasa
bodega, nakita ko ang loob nang bodega na maraming tubig at naririnig ko ang malakas na agos ng
tubig-dagat na pumapasok sa loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito
Cahatol at sinabi ko ang malakas na pagpasok ng tubig-dagat sa loob nang bodega ng barko na ito ay
naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby engine at
tinawag ang lahat ng mga officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid
 at ito ay tuloy-tuloy ang pagtatagilid na ang ilan sa mga officials ay naka-hawak na sa barandilla ng
barko at di-nagtagal sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay nagkanya-kanya
nang talunan at languyan sa dagat na malakas ang alon at nang ako ay lumingon sa barko ito ay di ko
na nakita.’
"Additionally, [petitioner’s] own witnesses, boatswain Eduardo Viñas Castro and oiler Frederick Perena,
are one in saying that the vessel encountered two weather disturbances, one at around 10 o’clock to 11
o’clock in the evening and the other at around 12 o’clock midnight. Both disturbances were coupled
with waves and heavy rains, yet, the vessel endured the first and not the second. Why? The reason is
plain. The vessel felt the strain during the second onslaught because the logs in the bodega shifted and
there were already seawater that seeped inside."30
The above conclusion is supported by the fact that the vessel proceeded through the first southwestern
monsoon without any mishap, and that it began to list only during the second monsoon immediately after
the logs had shifted and seawater had entered the hold. In the hold, the sloshing of tons of water back and
forth had created pressures that eventually caused the ship to sink. Had the logs not shifted, the ship could
have survived and reached at least the port of El Nido. In fact, there was another motor launch that had
been buffeted by the same weather condition within the same area, yet it was able to arrive safely at El
Nido.31
In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the latter’s
Complaint "[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V ‘Central Bohol’
listed about 10 degrees starboardside, due to the shifting of logs in the hold." Further, petitioner averred
that "[t]he vessel, while navigating through this second southwestern monsoon, was under extreme stress.
At about 0125 hours, 26 July 1990, a thud was heard in the cargo hold and the logs therein were felt to have
shifted. The vessel thereafter immediately listed by ten (10) degrees starboardside."32
Yet, petitioner now claims that the CA’s conclusion was grounded on mere speculations and conjectures. It
alleges that it was impossible for the logs to have shifted, because they had fitted exactly in the hold from
the port to the starboard side.
After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that they
had been improperly loaded.
According to the boatswain’s testimony, the logs were piled properly, and the entire shipment was lashed to
the vessel by cable wire.33 The ship captain testified that out of the 376 pieces of round logs, around 360 had
been loaded in the lower hold of the vessel and 16 on deck. The logs stored in the lower hold were not
secured by cable wire, because they fitted exactly from floor to ceiling. However, while they were placed side
by side, there were unavoidable clearances between them owing to their round shape. Those loaded on
deck were lashed together several times across by cable wire, which had a diameter of 60 millimeters, and
were secured from starboard to port.34
It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not sufficient
to secure the logs in the event the ship should roll in heavy weather. Notably, they were of different lengths
ranging from 3.7 to 12.7 meters.35 Being clearly prone to shifting, the round logs should not have been
stowed with nothing to hold them securely in place. Each pile of logs should have been lashed together by
cable wire, and the wire fastened to the side of the hold. Considering the strong force of the wind and the
roll of the waves, the loose arrangement of the logs did not rule out the possibility of their shifting. By force
of gravity, those on top of the pile would naturally roll towards the bottom of the ship.
The adjuster’s Report, which was heavily relied upon by petitioner to strengthen its claim that the logs had
not shifted, stated that "the logs were still properly lashed by steel chains on deck." Parenthetically, this
statement referred only to those loaded on deck and did not mention anything about the condition of those
placed in the lower hold. Thus, the finding of the surveyor that the logs were still intact clearly pertained
only to those lashed on deck.
The evidence indicated that strong southwest monsoons were common occurrences during the month of
July. Thus, the officers and crew of M/V Central Bohol should have reasonably anticipated heavy rains, strong
winds and rough seas. They should then have taken extra precaution in stowing the logs in the hold, in
consonance with their duty of observing extraordinary diligence in safeguarding the goods. But the carrier
took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot now escape
responsibility for the loss.
Second Issue: Doctrine of Limited Liability
The doctrine of limited liability under Article 587 of the Code of Commerce36 is not applicable to the present
case. This rule does not apply to situations in which the loss or the injury is due to the concurrent negligence
of the shipowner and the captain.37 It has already been established that the sinking of M/V Central Bohol
had been caused by the fault or negligence of the ship captain and the crew, as shown by the improper
stowage of the cargo of logs. "Closer supervision on the part of the shipowner could have prevented this
fatal miscalculation."38 As such, the shipowner was equally negligent. It cannot escape liability by virtue of
the limited liability rule.
WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against
petitioner.
 G.R. No. 159636 November 25, 2004
VICTORY LINER, INC.,
vs.
ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD and DIANA FRANCES P.
GAMMAD
Assailed in this petition for review on certiorari is the April 11, 2003 decision1 of the Court of Appeals in
CA-G.R. CV No. 63290 which affirmed with modification the November 6, 1998 decision2 of the Regional Trial
Court of Tuguegarao, Cagayan, Branch 5 finding petitioner Victory Liner, Inc. liable for breach of contract of
carriage in Civil Case No. 5023.
The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife Marie Grace
Pagulayan-Gammad,3 was on board an air-conditioned Victory Liner bus bound for Tuguegarao, Cagayan
from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine somewhere in
Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in the death of Marie Grace and physical injuries to
other passengers.4
On May 14, 1996, respondent heirs of the deceased filed a complaint5 for damages arising from culpa
contractual against petitioner. In its answer,6 the petitioner claimed that the incident was purely accidental
and that it has always exercised extraordinary diligence in its 50 years of operation.
After several re-settings,7 pre-trial was set on April 10, 1997.8 For failure to appear on the said date,
petitioner was declared as in default.9 However, on petitioner’s motion10 to lift the order of default, the same
was granted by the trial court.11
At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the deceased
was a passenger of the Victory Liner Bus which fell on the ravine and that she was issued Passenger Ticket
No. 977785. Respondents, for their part, did not accept petitioner’s proposal to pay P50,000.00.12
After respondent Rosalito Gammad completed his direct testimony, cross-examination was scheduled for
November 17, 199713 but moved to December 8, 1997,14 because the parties and the counsel failed to
appear. On December 8, 1997, counsel of petitioner was absent despite due notice and was deemed to have
waived right to cross-examine respondent Rosalito.15
Petitioner’s motion to reset the presentation of its evidence to March 25, 199816 was granted. However, on
March 24, 1998, the counsel of petitioner sent the court a telegram17 requesting postponement but the
telegram was received by the trial court on March 25, 1998, after it had issued an order considering the case
submitted for decision for failure of petitioner and counsel to appear.18
On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive portion of
which reads:
WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in favor of
the plaintiffs and against the defendant Victory Liner, Incorporated, ordering the latter to pay the
following:
1. Actual Damages -------------------- P 122,000.00
2. Death Indemnity --------------------- 50,000.00
3. Exemplary and Moral Damages----- 400,000.00
4. Compensatory Damages ---------- 1,500,000.00
5. Attorney’s Fees --------------------- 10% of the total amount granted
 6. Cost of the Suit.
SO ORDERED.19
On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with modification as
follows:
[T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby
adjudged in favor of plaintiffs-appellees:
1. Actual Damages in the amount of P88,270.00;
2. Compensatory Damages in the amount of P1,135,536,10;
3. Moral and Exemplary Damages in the amount of P400,000.00; and
4. Attorney’s fees equivalent to 10% of the sum of the actual, compensatory, moral, and exemplary
damages herein adjudged.
The court a quo’s judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED.
SO ORDERED.20
Represented by a new counsel, petitioner on May 21, 2003 filed a motion for reconsideration praying that
the case be remanded to the trial court for cross- examination of respondents’ witness and for the
presentation of its evidence; or in the alternative, dismiss the respondents’ complaint.21 Invoking APEX
Mining, Inc. v. Court of Appeals,22 petitioner argues, inter alia, that the decision of the trial court should be
set aside because the negligence of its former counsel, Atty. Antonio B. Paguirigan, in failing to appear at the
scheduled hearings and move for reconsideration of the orders declaring petitioner to have waived the right
to cross-examine respondents’ witness and right to present evidence, deprived petitioner of its day in court.
On August 21, 2003, the Court of Appeals denied petitioner’s motion for reconsideration.23
Hence, this petition for review principally based on the fact that the mistake or gross negligence of its
counsel deprived petitioner of due process of law. Petitioner also argues that the trial court’s award of
damages were without basis and should be deleted.
The issues for resolution are: (1) whether petitioner’s counsel was guilty of gross negligence; (2) whether
petitioner should be held liable for breach of contract of carriage; and (3) whether the award of damages
was proper.
It is settled that the negligence of counsel binds the client. This is based on the rule that any act performed
by a counsel within the scope of his general or implied authority is regarded as an act of his client.
Consequently, the mistake or negligence of counsel may result in the rendition of an unfavorable judgment
against the client. However, the application of the general rule to a given case should be looked into and
adopted according to the surrounding circumstances obtaining. Thus, exceptions to the foregoing have been
recognized by the court in cases where reckless or gross negligence of counsel deprives the client of due
process of law, or when its application will result in outright deprivation of the client’s liberty or property or
where the interests of justice so require, and accord relief to the client who suffered by reason of the
lawyer’s gross or palpable mistake or negligence.24
The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan filed an Answer
and Pre-trial Brief for petitioner. Although initially declared as in default, Atty. Paguirigan successfully moved
for the setting aside of the order of default. In fact, petitioner was represented by Atty. Paguirigan at the
pre-trial who proposed settlement for P50,000.00. Although Atty. Paguirigan failed to file motions for
reconsideration of the orders declaring petitioner to have waived the right to cross-examine respondents’
witness and to present evidence, he nevertheless, filed a timely appeal with the Court of Appeals assailing
the decision of the trial court. Hence, petitioner’s claim that it was denied due process lacks basis.
Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default for not
appearing at the pre-trial, three notices (dated October 23, 1996,25 January 30, 1997,26 and March 26,
1997,27 ) requiring attendance at the pre-trial were sent and duly received by petitioner. However, it was only
on April 27, 1997, after the issuance of the April 10, 1997 order of default for failure to appear at the
pre-trial when petitioner, through its finance and administrative manager, executed a special power of
attorney28 authorizing Atty. Paguirigan or any member of his law firm to represent petitioner at the pre-trial.
Petitioner is guilty, at the least, of contributory negligence and fault cannot be imputed solely on previous
counsel.
The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at bar. In APEX, the
negligent counsel not only allowed the adverse decision against his client to become final and executory, but
deliberately misrepresented in the progress report that the case was still pending with the Court of Appeals
when the same was dismissed 16 months ago.29 These circumstances are absent in this case because Atty.
Paguirigan timely filed an appeal from the decision of the trial court with the Court of Appeals.
In Gold Line Transit, Inc. v. Ramos,30 the Court was similarly confronted with the issue of whether or not the
client should bear the adverse consequences of its counsel’s negligence. In that case, Gold Line Transit, Inc.
(Gold Line) and its lawyer failed to appear at the pre-trial despite notice and was declared as in default. After
the plaintiff’s presentation of evidence ex parte, the trial court rendered decision ordering Gold Line to pay
damages to the heirs of its deceased passenger. The decision became final and executory because counsel of
Gold Line did not file any appeal. Finding that Goldline was not denied due process of law and is thus bound
by the negligence of its lawyer, the Court held as follows –
This leads us to the question of whether the negligence of counsel was so gross and reckless that
petitioner was deprived of its right to due process of law. We do not believe so. It cannot be denied that
the requirements of due process were observed in the instant case. Petitioner was never deprived of its
day in court, as in fact it was afforded every opportunity to be heard. Thus, it is of record that notices
were sent to petitioner and that its counsel was able to file a motion to dismiss the complaint, an
answer to the complaint, and even a pre-trial brief. What was irretrievably lost by petitioner was its
opportunity to participate in the trial of the case and to adduce evidence in its behalf because of
negligence.
In the application of the principle of due process, what is sought to be safeguarded against is not the
lack of previous notice but the denial of the opportunity to be heard. The question is not whether
petitioner succeeded in defending its rights and interests, but simply, whether it had the opportunity to
present its side of the controversy. Verily, as petitioner retained the services of counsel of its choice, it
should, as far as this suit is concerned, bear the consequences of its choice of a faulty option. Its plea
that it was deprived of due process echoes on hollow ground and certainly cannot elicit approval nor
sympathy.
To cater to petitioner’s arguments and reinstate its petition for relief from judgment would put a
premium on the negligence of its former counsel and encourage the non-termination of this case by
reason thereof. This is one case where petitioner has to bear the adverse consequences of its counsel’s
act, for a client is bound by the action of his counsel in the conduct of a case and he cannot thereafter
be heard to complain that the result might have been different had his counsel proceeded differently.
The rationale for the rule is easily discernible. If the negligence of counsel be admitted as a reason for
opening cases, there would never be an end to a suit so long as a new counsel could be hired every time
it is shown that the prior counsel had not been sufficiently diligent, experienced or learned.31
Similarly, in Macalalag v. Ombudsman,32 a Philippine Postal Corporation employee charged with dishonesty
was not able to file an answer and position paper. He was found guilty solely on the basis of complainant’s
evidence and was dismissed with forfeiture of all benefits and disqualification from government service.
Challenging the decision of the Ombudsman, the employee contended that the gross negligence of his
counsel deprived him of due process of law. In debunking his contention, the Court said –
Neither can he claim that he is not bound by his lawyer’s actions; it is only in case of gross or palpable
negligence of counsel when the courts can step in and accord relief to a client who would have suffered
thereby. If every perceived mistake, failure of diligence, lack of experience or insufficient legal
knowledge of the lawyer would be admitted as a reason for the reopening of a case, there would be no
end to controversy. Fundamental to our judicial system is the principle that every litigation must come to
an end. It would be a clear mockery if it were otherwise. Access to the courts is guaranteed, but there
must be a limit to it.
Viewed vis-à-vis the foregoing jurisprudence, to sustain petitioner’s argument that it was denied due process
of law due to negligence of its counsel would set a dangerous precedent. It would enable every party to
render inutile any adverse order or decision through the simple expedient of alleging gross negligence on
the part of its counsel. The Court will not countenance such a farce which contradicts long-settled doctrines
of trial and procedure.33
Anent the second issue, petitioner was correctly found liable for breach of contract of carriage. A common
carrier is bound to carry its passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard to all the circumstances. In a contract of carriage,
it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured.
Unless the presumption is rebutted, the court need not even make an express finding of fault or negligence
on the part of the common carrier. This statutory presumption may only be overcome by evidence that the
carrier exercised extraordinary diligence.34
In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of
Marie Grace’s death was the negligence of petitioner. Hence, the courts below correctly ruled that petitioner
was guilty of breach of contract of carriage.
Nevertheless, the award of damages should be modified.
Article 176435 in relation to Article 220636 of the Civil Code, holds the common carrier in breach of its
contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity for
death, (2) indemnity for loss of earning capacity, and (3) moral damages.
In the present case, respondent heirs of the deceased are entitled to indemnity for the death of Marie Grace
which under current jurisprudence is fixed at P50,000.00.37
The award of compensatory damages for the loss of the deceased’s earning capacity should be deleted for
lack of basis. As a rule, documentary evidence should be presented to substantiate the claim for damages for
loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded despite
the absence of documentary evidence when (1) the deceased is self-employed earning less than the
minimum wage under current labor laws, and judicial notice may be taken of the fact that in the deceased’s
line of work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker
earning less than the minimum wage under current labor laws.38
In People v. Oco,39 the evidence presented by the prosecution to recover damages for loss of earning
capacity was the bare testimony of the deceased’s wife that her husband was earning P8,000.00 monthly as
a legal researcher of a private corporation. Finding that the deceased was neither self-employed nor
employed as a daily-wage worker earning less than the minimum wage under the labor laws existing at the
time of his death, the Court held that testimonial evidence alone is insufficient to justify an award for loss of
earning capacity.
Likewise, in People v. Caraig,40 damages for loss of earning capacity was not awarded because the
circumstances of the 3 deceased did not fall within the recognized exceptions, and except for the testimony
of their wives, no documentary proof about their income was presented by the prosecution. Thus –
The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were not
self-employed or employed as daily-wage workers earning less than the minimum wage under the labor
laws existing at the time of their death. Placido Agustin was a Social Security System employee who
received a monthly salary of P5,000. Roberto Raagas was the President of Sinclair Security and Allied
Services, a family owned corporation, with a monthly compensation of P30,000. Melencio Castro Jr. was
a taxi driver of New Rocalex with an average daily earning of P500 or a monthly earning of P7,500.
Clearly, these cases do not fall under the exceptions where indemnity for loss of earning capacity can be
given despite lack of documentary evidence. Therefore, for lack of documentary proof, no indemnity for
loss of earning capacity can be given in these cases. (Emphasis supplied)
Here, the trial court and the Court of Appeals computed the award of compensatory damages for loss of
earning capacity only on the basis of the testimony of respondent Rosalito that the deceased was 39 years of
age and a Section Chief of the Bureau of Internal Revenue, Tuguergarao District Office with a salary of
P83,088.00 per annum when she died.41 No other evidence was presented. The award is clearly erroneous
because the deceased’s earnings does not fall within the exceptions.
However, the fact of loss having been established, temperate damages in the amount of P500,000.00 should
be awarded to respondents. Under Article 2224 of the Civil Code, temperate or moderate damages, which
are more than nominal but less than compensatory damages, may be recovered when the court finds that
some pecuniary loss has been suffered but its amount can not, from the nature of the case, be proved with
certainty.
In Pleno v. Court of Appeals,42 the Court sustained the trial court’s award of P200,000.00 as temperate
damages in lieu of actual damages for loss of earning capacity because the income of the victim was not
sufficiently proven, thus –
The trial court based the amounts of damages awarded to the petitioner on the following circumstances:
...
"As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent[re]preneur and
the founder of his own corporation, the Mayon Ceramics Corporation. It appears also that he is an
industrious and resourceful person with several projects in line, and were it not for the incident, might
have pushed them through. On the day of the incident, Pleno was driving homeward with geologist
Longley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual income
however has not been sufficiently established so that this Court cannot award actual damages, but, an
award of temperate or moderate damages may still be made on loss or impairment of earning capacity.
That Pleno sustained a permanent deformity due to a shortened left leg and that he also suffers from
double vision in his left eye is also established. Because of this, he suffers from some inferiority complex
and is no longer active in business as well as in social life. In similar cases as in Borromeo v. Manila
Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et al., L-11037, Dec. 29, 1960, and in Araneta,
et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of damages were given."
...
We rule that the lower court’s awards of damages are more consonant with the factual circumstances of
 the instant case. The trial court’s findings of facts are clear and well-developed. Each item of damages is
adequately supported by evidence on record.
Article 2224 of the Civil Code was likewise applied in the recent cases of People v. Singh43 and People v.
Almedilla,44 to justify the award of temperate damages in lieu of damages for loss of earning capacity which
was not substantiated by the required documentary proof.
Anent the award of moral damages, the same cannot be lumped with exemplary damages because they are
based on different jural foundations.45 These damages are different in nature and require separate
determination.46 In culpa contractual or breach of contract, moral damages may be recovered when the
defendant acted in bad faith or was guilty of gross negligence (amounting to bad faith) or in wanton
disregard of contractual obligations and, as in this case, when the act of breach of contract itself constitutes
the tort that results in physical injuries. By special rule in Article 1764 in relation to Article 2206 of the Civil
Code, moral damages may also be awarded in case the death of a passenger results from a breach of
carriage.47 On the other hand, exemplary damages, which are awarded by way of example or correction for
the public good may be recovered in contractual obligations if the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner.48
Respondents in the instant case should be awarded moral damages to compensate for the grief caused by
the death of the deceased resulting from the petitioner’s breach of contract of carriage. Furthermore, the
petitioner failed to prove that it exercised the extraordinary diligence required for common carriers, it is
presumed to have acted recklessly.49 Thus, the award of exemplary damages is proper. Under the
circumstances, we find it reasonable to award respondents the amount of P100,000.00 as moral damages
and P100,000.00 as exemplary damages. These amounts are not excessive.50
The actual damages awarded by the trial court reduced by the Court of Appeals should be further reduced.
In People v. Duban,51 it was held that only substantiated and proven expenses or those that appear to have
been genuinely incurred in connection with the death, wake or burial of the victim will be recognized. A list
of expenses (Exhibit "J"),52 and the contract/receipt for the construction of the tomb (Exhibit "F")53 in this
case, cannot be considered competent proof and cannot replace the official receipts necessary to justify the
award. Hence, actual damages should be further reduced to P78,160.00,54 which was the amount supported
by official receipts.
Pursuant to Article 220855 of the Civil Code, attorney’s fees may also be recovered in the case at bar where
exemplary damages are awarded. The Court finds the award of attorney’s fees equivalent to 10% of the total
amount adjudged against petitioner reasonable.
Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals,56 it was held that when an obligation, regardless of
its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for payment of interest in the concept of actual and compensatory damages, subject to the
following rules, to wit –
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
 demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit. (Emphasis supplied).
In the instant case, petitioner should be held liable for payment of interest as damages for breach of contract
of carriage. Considering that the amounts payable by petitioner has been determined with certainty only in
the instant petition, the interest due shall be computed upon the finality of this decision at the rate of 12%
per annum until satisfaction, per paragraph 3 of the aforecited rule.57
WHEREFORE, in view of all the foregoing, the petition is partially granted. The April 11, 2003 decision of the
Court of Appeals in CA-G.R. CV No. 63290, which modified the decision of the Regional Trial Court of
Tuguegarao, Cagayan in Civil Case No. 5023, is AFFIRMED with MODIFICATION. As modified, petitioner
Victory Liner, Inc., is ordered to pay respondents the following: (1) P50,000.00 as indemnity for the death of
Marie Grace Pagulayan-Gammad; (2) P100,000.00 as moral damages; (3) P100,000.00 as exemplary
damages; (4) P78,160.00 as actual damages; (5) P500,000.00 as temperate damages; (6) 10% of the total
amount as attorneys fees; and the costs of suit.
Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of 12% per annum
computed from the finality of this decision until fully paid.
SO ORDERED.
 G.R. No. 147079 December 21, 2004
A.F. SANCHEZ BROKERAGE INC.
vs.
THE HON. COURT OF APPEALS and FGU INSURANCE CORPORATION
Before this Court on a petition for Certiorari is the appellate court’s Decision1 of August 10, 2000 reversing
and setting aside the judgment of Branch 133, Regional Trial Court of Makati City, in Civil Case No. 93-76B
which dismissed the complaint of respondent FGU Insurance Corporation (FGU Insurance) against petitioner
A.F. Sanchez Brokerage, Inc. (Sanchez Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of KLM Royal Dutch Airlines at
Dusseldorf, Germany oral contraceptives consisting of 86,800 Blisters Femenal tablets, 14,000 Blisters
Nordiol tablets and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor of the consignee,
Wyeth-Suaco Laboratories, Inc.2The Femenal tablets were placed in 124 cartons and the Nordiol tablets were
placed in 20 cartons which were packed together in one (1) LD3 aluminum container, while the Trinordial
tablets were packed in two pallets, each of which contained 30 cartons.3
Wyeth-Suaco insured the shipment against all risks with FGU Insurance which issued Marine Risk Note No.
4995 pursuant to Marine Open Policy No. 138.4
Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino International Airport (NAIA),5 it was
discharged "without exception"6 and delivered to the warehouse of the Philippine Skylanders, Inc. (PSI)
located also at the NAIA for safekeeping.7
In order to secure the release of the cargoes from the PSI and the Bureau of Customs, Wyeth-Suaco engaged
the services of Sanchez Brokerage which had been its licensed broker since 1984.8 As its customs broker,
Sanchez Brokerage calculates and pays the customs duties, taxes and storage fees for the cargo and
thereafter delivers it to Wyeth-Suaco.9
On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of Sanchez Brokerage, paid PSI
storage fee amounting to P8,572.35 a receipt for which, Official Receipt No. 016992,10 was issued. On the
receipt, another representative of Sanchez Brokerage, M. Sison,11 acknowledged that he received the
cargoes consisting of three pieces in good condition.12
Wyeth-Suaco being a regular importer, the customs examiner did not inspect the cargoes13 which were
thereupon stripped from the aluminum containers14 and loaded inside two transport vehicles hired by
Sanchez Brokerage.15
Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben Alonso and
Tony Akas,16 employees of Elite Adjusters and Surveyors Inc. (Elite Surveyors), a marine and cargo surveyor
and insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon Laboratories Inc. in Antipolo City for
quality control check.17 The delivery receipt, bearing No. 07037 dated July 29, 1992, indicated that the
delivery consisted of one container with 144 cartons of Femenal and Nordiol and 1 pallet containing
Trinordiol.18
On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco, acknowledged the delivery of the cargoes
by affixing his signature on the delivery receipt.19 Upon inspection, however, he, together with Ruben Alonzo
of Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol tablets were in bad order.20 He
thus placed a note above his signature on the delivery receipt stating that 44 cartons of oral contraceptives
were in bad order. The remaining 160 cartons of oral contraceptives were accepted as complete and in good
order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a survey report21 dated July 31, 1992
stating that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were "wetted" (sic).22
The Elite Surveyors later issued Certificate No. CS-0731-1538/9223 attached to which was an "Annexed
Schedule" whereon it was indicated that prior to the loading of the cargoes to the broker’s trucks at the
NAIA, they were inspected and found to be in "apparent good condition."24 Also noted was that at the time
of delivery to the warehouse of Hizon Laboratories Inc., slight to heavy rains fell, which could account for the
wetting of the 44 cartons of Femenal and Nordiol tablets.25
On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction Report26 confirming that 38 x 700 blister
packs of Femenal tablets, 3 x 700 blister packs of Femenal tablets and 3 x 700 blister packs of Nordiol tablets
were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials Rejection27 of 38 cartons of Femenal and 3
cartons of Nordiol on the ground that they were "delivered to Hizon Laboratories with heavy water damaged
(sic) causing the cartons to sagged (sic) emitting a foul order and easily attracted flies."28
Wyeth-Suaco later demanded, by letter29 of August 25, 1992, from Sanchez Brokerage the payment of
P191,384.25 representing the value of its loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco filed an insurance claim against FGU
Insurance which paid Wyeth-Suaco the amount of P181,431.49 in settlement of its claim under Marine Risk
Note Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt30 in favor of FGU Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco, Sanchez
Brokerage, by letter31 of January 7, 1993, disclaimed liability for the damaged goods, positing that the
damage was due to improper and insufficient export packaging; that when the sealed containers were
opened outside the PSI warehouse, it was discovered that some of the loose cartons were wet,32 prompting
its (Sanchez Brokerage’s) representative Morales to inform the Import-Export Assistant of Wyeth-Suaco,
Ramir Calicdan, about the condition of the cargoes but that the latter advised to still deliver them to Hizon
Laboratories where an adjuster would assess the damage.33
Hence, the filing by FGU Insurance of a complaint for damages before the Regional Trial Court of Makati City
against the Sanchez Brokerage.
The trial court, by Decision34 of July 29, 1996, dismissed the complaint, holding that the Survey Report
prepared by the Elite Surveyors is bereft of any evidentiary support and a mere product of pure guesswork.35
On appeal, the appellate court reversed the decision of the trial court, it holding that the Sanchez Brokerage
engaged not only in the business of customs brokerage but also in the transportation and delivery of the
cargo of its clients, hence, a common carrier within the context of Article 1732 of the New Civil Code.36
Noting that Wyeth-Suaco adduced evidence that the cargoes were delivered to petitioner in good order and
condition but were in a damaged state when delivered to Wyeth-Suaco, the appellate court held that
Sanchez Brokerage is presumed negligent and upon it rested the burden of proving that it exercised
extraordinary negligence not only in instances when negligence is directly proven but also in those cases
when the cause of the damage is not known or unknown.37
The appellate court thus disposed:
IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is GRANTED. The Decision of the
Court a quo is REVERSED. Another Decision is hereby rendered in favor of the Appellant and against the
Appellee as follows:
 1. The Appellee is hereby ordered to pay the Appellant the principal amount of P181, 431.49, with
interest thereupon at the rate of 6% per annum, from the date of the Decision of the Court, until
the said amount is paid in full;
2. The Appellee is hereby ordered to pay to the Appellant the amount of P20,000.00 as and by way
of attorney’s fees; and
3. The counterclaims of the Appellee are DISMISSED.38
Sanchez Brokerage’s Motion for Reconsideration having been denied by the appellate court’s Resolution of
December 8, 2000 which was received by petitioner on January 5, 2001, it comes to this Court on petition
for certiorari filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave and reversible error tantamount to
abuse of discretion when it found petitioner a "common carrier" within the context of Article 1732 of the
New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course of action which petitioner should
have taken was to file a petition for review on certiorari since the sole office of a writ of certiorari is the
correction of errors of jurisdiction including the commission of grave abuse of discretion amounting to lack
or excess of jurisdiction and does not include correction of the appellate court’s evaluation of the evidence
and factual findings thereon.
On the merits, respondent FGU Insurance contends that petitioner, as a common carrier, failed to overcome
the presumption of negligence, it being documented that petitioner withdrew from the warehouse of PSI
the subject shipment entirely in good order and condition.39
The petition fails.
Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any case, i.e., regardless
of the nature of the action or proceedings involved, may be appealed to this Court by filing a petition for
review, which would be but a continuation of the appellate process over the original case.40
The Resolution of the Court of Appeals dated December 8, 2000 denying the motion for reconsideration of
its Decision of August 10, 2000 was received by petitioner on January 5, 2001. Since petitioner failed to
appeal within 15 days or on or before January 20, 2001, the appellate court’s decision had become final and
executory. The filing by petitioner of a petition for certiorari on March 6, 2001 cannot serve as a substitute
for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the petitioner must prove not merely
reversible error but also grave abuse of discretion amounting to lack or excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting aside the decision of the trial court
based on its finding that petitioner is liable for the damage to the cargo as a common carrier. What
petitioner is ascribing is an error of judgment, not of jurisdiction, which is properly the subject of an ordinary
appeal.
Where the issue or question involves or affects the wisdom or legal soundness of the decision – not the
jurisdiction of the court to render said decision – the same is beyond the province of a petition for
certiorari.41 The supervisory jurisdiction of this Court to issue a cert writ cannot be exercised in order to
review the judgment of lower courts as to its intrinsic correctness, either upon the law or the facts of the
case.42
Procedural technicalities aside, the petition still fails.
The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as
defined under Article 1732 of the Civil Code, to wit:
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering
their services to the public.
Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez Brokerage, himself testified that the
services the firm offers include the delivery of goods to the warehouse of the consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and those upon approval of the
importer, we prepare the entry together for processing and claims from customs and finally deliver the
goods to the warehouse of the importer.43
Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and
one who does such carrying only as an ancillary activity.44 The contention, therefore, of petitioner that it is
not a common carrier but a customs broker whose principal function is to prepare the correct customs
declaration and proper shipping documents as required by law is bereft of merit. It suffices that petitioner
undertakes to deliver the goods for pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under Article 173345 of the Civil Code,
extraordinary diligence in the vigilance over the goods it transports according to all the circumstances of
each case. In the event that the goods are lost, destroyed or deteriorated, it is presumed to have been at
fault or to have acted negligently, unless it proves that it observed extraordinary diligence.46
The concept of "extra-ordinary diligence" was explained in Compania Maritima v. Court of Appeals:47
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common
carrier to know and to follow the required precaution for avoiding damage to, or destruction of the
goods entrusted to it for sale, carriage and delivery. It requires common carriers to render service with
the greatest skill and foresight and "to use all reasonable means to ascertain the nature and
characteristics of goods tendered for shipment, and to exercise due care in the handling and stowage,
including such methods as their nature requires."48
In the case at bar, it was established that petitioner received the cargoes from the PSI warehouse in NAIA in
good order and condition;49 and that upon delivery by petitioner to Hizon Laboratories Inc., some of the
cargoes were found to be in bad order, as noted in the Delivery Receipt50 issued by petitioner, and as
indicated in the Survey Report of Elite Surveyors51 and the Destruction Report of Hizon Laboratories, Inc.52
In an attempt to free itself from responsibility for the damage to the goods, petitioner posits that they were
damaged due to the fault or negligence of the shipper for failing to properly pack them and to the inherent
characteristics of the goods53 ; and that it should not be faulted for following the instructions of Calicdan of
Wyeth-Suaco to proceed with the delivery despite information conveyed to the latter that some of the
cartons, on examination outside the PSI warehouse, were found to be wet.54
While paragraph No. 4 of Article 173455 of the Civil Code exempts a common carrier from liability if the loss
or damage is due to the character of the goods or defects in the packing or in the containers, the rule is that
if the improper packing is known to the carrier or his employees or is apparent upon ordinary observation,
but he nevertheless accepts the same without protest or exception notwithstanding such condition, he is
not relieved of liability for the resulting damage.56
If the claim of petitioner that some of the cartons were already damaged upon delivery to it were true, then
it should naturally have received the cargo under protest or with reservations duly noted on the receipt
issued by PSI. But it made no such protest or reservation.57
Moreover, as observed by the appellate court, if indeed petitioner’s employees only examined the cargoes
outside the PSI warehouse and found some to be wet, they would certainly have gone back to PSI, showed
to the warehouseman the damage, and demanded then and there for Bad Order documents or a
certification confirming the damage.58 Or, petitioner would have presented, as witness, the employees of the
PSI from whom Morales and Domingo took delivery of the cargo to prove that, indeed, part of the cargoes
was already damaged when the container was allegedly opened outside the warehouse.59
Petitioner goes on to posit that contrary to the report of Elite Surveyors, no rain fell that day. Instead, it
asserts that some of the cargoes were already wet on delivery by PSI outside the PSI warehouse but such
notwithstanding Calicdan directed Morales to proceed with the delivery to Hizon Laboratories, Inc.
While Calicdan testified that he received the purported telephone call of Morales on July 29, 1992, he failed
to specifically declare what time he received the call. As to whether the call was made at the PSI warehouse
when the shipment was stripped from the airport containers, or when the cargoes were already in transit to
Antipolo, it is not determinable. Aside from that phone call, petitioner admitted that it had no documentary
evidence to prove that at the time it received the cargoes, a part of it was wet, damaged or in bad
condition.60
The 4-page weather data furnished by PAGASA61 on request of Sanchez Brokerage hardly impresses, no
witness having identified it and interpreted the technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories, Inc., the oral contraceptives were
damaged by rainwater while in transit to Antipolo City is more likely then. Sanchez himself testified that in
the past, there was a similar instance when the shipment of Wyeth-Suaco was also found to be wet by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral contraceptives, that arrived at the NAIA
were damaged and claimed by the Wyeth-Suaco without any question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-Suaco did not claim
anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon (sic) wetted (sic) up
to the bottom are wet specially during rainy season.62
Since petitioner received all the cargoes in good order and condition at the time they were turned over by
the PSI warehouseman, and upon their delivery to Hizon Laboratories, Inc. a portion thereof was found to be
in bad order, it was incumbent on petitioner to prove that it exercised extraordinary diligence in the carriage
of the goods. It did not, however. Hence, its presumed negligence under Article 1735 of the Civil Code
remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
 G.R. No. 154305 December 9, 2004
MACONDRAY & CO., INC.
vs.
PROVIDENT INSURANCE CORPORATION
Hornbook is the doctrine that the negligence of counsel binds the client. Also settled is the rule that clients
should take the initiative of periodically checking the progress of their cases, so that they could take timely
steps to protect their interest.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the February 28,
2002 Decision2 and the July 12, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 57077. The
dispositive portion of the Decision reads as follows:
"WHEREFORE, premises considered, the assailed Decision dated September 17, 1996 is hereby
REVERSED and SET ASIDE. Accordingly, [Petitioner] Macondray & Co., Inc., is hereby ORDERED to pay the
[respondent] the amount of P1,657,700.95."
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The CA adopted the factual antecedents narrated by the trial court, as follows:
"x x x. On February 16, 1991, at Vancouver, B.C. Canada, CANPOTEX SHIPPING SERVICES LIMITED INC., of
Saskatoon, Saskatchewan, (hereinafter the SHIPPER), shipped and loaded on board the vessel M/V
'Trade Carrier', 5000 metric tons of Standard Grade Muriate of Potash in bulk for transportation to and
delivery at the port of Sangi, Toledo City, Cebu, in favor of ATLAS FERTILIZER CORPORATION, (hereinafter
CONSIGNEE) covered by B/L Nos. VAN-SAN-1 for the 815.96 metric tons and VAN-SAN-2 for the 4,184.04
metric tons. Subject shipments were insured with [respondent] against all risks under and by virtue of an
Open Marine Policy No. MOP-00143 and Certificate of Marine Insurance No. CMI-823-91.
"When the shipment arrived, CONSIGNEE discovered that the shipment sustained losses/shortage of
476.140 metric tons valued at One Million Six Hundred Fifty Seven Thousand Seven Hundred Pesos and
Ninety Five Centavos (P1,657,700.95), Philippine Currency. Provident paid losses. Formal claims was
then filed with Trade & Transport and Macondray but the same refused and failed to settle the same.
Hence, this complaint.
"As per Officer's Return dated 4 June 1992, summons was UNSERVED to defendant TRADE AND
TRANSPORT at the given address for reason that TRADE AND TRANSPORT is no longer connected with
Macondray & Co. Inc., and is not holding office at said address as alleged by Ms. Guadalupe Tan. For
failure to effect service of summons the case against TRADE & TRANSPORT was considered dismissed
without prejudice.
"Defendant MACONDRAY filed ANSWER, denying liability over the losses, having NO absolute relation
with defendant TRADE AND TRANSPORT, the alleged operator of the vessel who transported the subject
shipment; that accordingly, MACONDRAY is the local representative of the SHIPPER; the charterer of
M/V TRADE CARRIER and not party to this case; that it has no control over the acts of the captain and
crew of the Carrier and cannot be held responsible for any damage arising from the fault or negligence
of said captain and crew; that upon arrival at the port of Sangi, Toledo City, Cebu, the M/V Trade Carrier
discharged the full amount of shipment, as shown by the draft survey with a total quantity of 5,033.59
metric tons discharged from the vessel and delivered to the CONSIGNEE.
 "ISSUES: Whether or not Macondray and Co. Inc., as an agent is responsible for any loss sustained by any
party from the vessel owned by defendant Trade and Transport. "Whether or not Macondray is liable for
loss which was allegedly sustained by the plaintiff in this case.
"EVIDENCE FOR THE PLAINTIFF
"Plaintiff presented the testimonies of Marina Celerina P. Aguas and depositions of Alberto Milan and
Alfonso Picson submitted as additional witnesses for PROVIDENT to prove the material facts of the
complaint are deemed admitted by defendant MACONDRAY, on their defense that it is not an agent of
TRADE AND TRANSPORT.
"EVIDENCE FOR THE DEFENDANT MACONDRAY:
"Witness Ricardo de la Cruz testified as Supercargo of MACONDRAY, that MACONDRAY was not an agent
of defendant TRADE AND TRANSPORT; that his functions as Supercargo was to prepare a notice of
readiness, statement of facts, sailing notice and custom's clearance in order to attend to the formalities
and the need of the vessel; that MACONDRAY is performing functions in behalf of CANPOTEX and was
appointed as local agent of the vessel, which duty includes arrangement of the entrance and clearance
of the vessel."
The trial court, in the decision dated September 17, 1996 earlier adverted to, ruled in favor of the
[petitioner] x x x, the dispositive portion of which reads:
"WHEREFORE, PREMISES CONSIDERED, the case as against [petitioner] MACONDRAY is hereby
DISMISSED.
"No pronouncement as to costs."4
Ruling of the Court of Appeals
The CA affirmed the trial court's finding that petitioner was not the agent of Trade and Transport. The
appellate court ruled, however, that petitioner could still be held liable for the shortages of the shipment,
because the latter was the ship agent of Canpotex Shipping Services Ltd. -- the shipper and charterer of the
vessel M/V Trade Carrier.
All told, the CA held petitioner "liable for the losses incurred in the shipment of the subject cargoes to the
[respondent], who, being the insurer of the risk, was subrogated to the rights and causes of action which the
consignee, Atlas Fertilizer Corporation, had against the [petitioner]."5
Hence, this Petition.6
The Issues: Petitioner raises the following issues for our consideration:
"Whether or not liability attached to petitioner despite the unequivocal factual findings, that it was not a
ship agent.
"Whether or not the 28 February 2002 Decision of the Court of Appeals has attained finality.
"Whether or not by filing the instant Petition for Review on Certiorari, petitioner is guilty of
forum-shopping."7
The Court's Ruling: The Petition has no merit.
First Issue: Petitioner's Liability
As a rule, factual findings of the Court of Appeals -- when not in conflict with those of the trial court -- are
not disturbed by this Court,8 to which only questions of law may be raised in an appeal by certiorari.9
In the present case, we find no compelling reason to overturn the Court of Appeals in its categorical finding
that petitioner was the ship agent. Such factual finding was not in conflict with the trial court's ruling, which
had merely stated that petitioner was not the agent of Trade and Transport. Indeed, although it is not an
agent of Trade and Transport, petitioner can still be the ship agent of the vessel M/V Trade Carrier.
Article 586 of the Code of Commerce states that a ship agent is "the person entrusted with provisioning or
representing the vessel in the port in which it may be found."
Hence, whether acting as agent of the owner10 of the vessel or as agent of the charterer,11 petitioner will be
considered as the ship agent12 and may be held liable as such, as long as the latter is the one that provisions
or represents the vessel.
The trial court found that petitioner "was appointed as local agent of the vessel, which duty includes
arrangement for the entrance and clearance of the vessel."13 Further, the CA found and the evidence shows
that petitioner represented the vessel. The latter prepared the Notice of Readiness, the Statement of Facts,
the Completion Notice, the Sailing Notice and Custom's Clearance.14 Petitioner's employees were present at
Sangi, Toledo City, one day before the arrival of the vessel, where they stayed until it departed. They were
also present during the actual discharging of the cargo.15 Moreover, Mr. de la Cruz, the representative of
petitioner, also prepared for the needs of the vessel, like money, provision, water and fuel.16
These acts all point to the conclusion that it was the entity that represented the vessel in the Port of Manila
and was the ship agent17 within the meaning and context of Article 586 of the Code of Commerce.
As ship agent, it may be held civilly liable in certain instances. The Code of Commerce provides:
"Article 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and for
the obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditor
proves that the amount claimed was invested for the benefit of the same."
"Article 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 equipments and the freight it
may have earned during the voyage."
Petitioner does not dispute the liabilities of the ship agent for the loss/shortage of 476.140 metric tons of
standard-grade Muriate of Potash valued at P1,657,700.95. Hence, we find no reason to delve further into
the matter or to disturb the finding of the CA holding petitioner, as ship agent, liable to respondent for the
losses sustained by the subject shipment.
Second Issue: Finality of the CA Decision
Petitioner claims that it picked up the February 28, 2002 Decision of the CA on May 14, 2002, after receiving
the postal notice the day before. It further attributes gross negligence to its previous counsel for not
informing the CA of his change of address. It thus contends that notice of the assailed Decision given to the
previous counsel cannot be considered as notice to petitioner.
We are not persuaded. "It is well-settled that when a party is represented by counsel, notice should be made
upon the counsel of record at his given address to which notices of all kinds emanating from the court
should be sent in the absence of a proper and adequate notice to the court of a change of address."18
In the present case, service of the assailed Decision was made on petitioner's counsels of record, Attys.
Moldez and Galoz, on March 6, 2002. That copy of the Decision was, however, returned to the sender for the
reason that the addressee had "move[d] out." If counsel moves to another address without informing the
court of that change, such omission or neglect is inexcusable and will not stay the finality of the decision.19
"The court cannot be expected to take judicial notice of the new address of a lawyer who has moved or to
ascertain on its own whether or not the counsel of record has been changed and who the new counsel could
possibly be or where he probably resides or holds office."20
It is unfortunate that the lawyer of petitioner neglected his duties to the latter. Be that as it may, the
negligence of counsel binds the client.21 Service made upon the present counsel of record at his given
address is service to petitioner. Hence, the assailed Decision has already become final and unappealable.
In the present case, there is no compelling reason to overturn well-settled jurisprudence or to interpret the
rules liberally in favor of petitioner, who is not entirely blameless. It should have taken the initiative of
periodically keeping in touch with its counsel, checking with the court, and inquiring about the status of its
case.22 In so doing, it could have taken timely steps to neutralize the negligence of its chosen counsel and to
protect its interests. "Litigants represented by counsel should not expect that all they need to do is sit back,
relax and await the outcome of their case."23
In view of the foregoing, there is no necessity of passing upon the third issue raised by petitioner.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
 ___________________________________________________________________________________2005
G.R. No. 143866 August 22, 2005
POLIAND INDUSTRIAL LIMITED,
vs.
NATIONAL DEVELOPMENT COMPANY, DEVELOPMENT BANK OF THE PHILIPPINES, and THE HONORABLE
COURT OF APPEALS (Fourteenth Division) respondents.
G.R. No. 143877 August 22, 2005
NATIONAL DEVELOPMENT COMPANY
vs.
POLIAND INDUSTRIAL LIMITED
Before this Court are two Rule 45 consolidated petitions for review seeking the review of the Decision1 of the
Court of Appeals (Fourth Division) in CA-G.R. CV No. 53257, which modified the Decision of the Regional Trial
Court, Branch 61, Makati City in Civil Case No. 91-2798. Upon motion of the Development Bank of the
Philippines (DBP), the two petitions were consolidated since both assail the same Decision of the Court of
Appeals.
In G.R. No. 143866, petitioner Poliand Industrial Limited (POLIAND) seeks judgment declaring the National
Development Company (NDC) and the DBP solidarily liable in the amount of US$2,315,747.32, representing
the maritime lien in favor of POLIAND and the net amount of loans incurred by Galleon Shipping Corporation
(GALLEON). It also prays that NDC and DBP be ordered to pay the attorney’s fees and costs of the
proceedings as solidary debtors. In G.R. No. 143877, petitioner NDC seeks the reversal of the Court of
Appeals’ Decision ordering it to pay POLIAND the amount of One Million Nine Hundred Twenty Thousand
Two Hundred Ninety-Eight and 56/100 United States Dollars (US$1,920,298.56), corresponding to the
maritime lien in favor of POLIAND, plus interest.
ANTECEDENTS
The following factual antecedents are matters of record.
Between October 1979 and March 1981, Asian Hardwood Limited (Asian Hardwood), a Hong Kong
corporation, extended credit accommodations in favor of GALLEON totaling US$3,317,747.32.2 At that time,
GALLEON, a domestic corporation organized in 1977 and headed by its president, Roberto Cuenca, was
engaged in the maritime transport of goods. The advances were utilized to augment GALLEON’s working
capital depleted as a result of the purchase of five new vessels and two second-hand vessels in 1979 and
competitiveness of the shipping industry. GALLEON had incurred an obligation in the total amount of
US$3,391,084.91 in favor of Asian Hardwood.
To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders, namely, Taiyo
Kobe Bank, Ltd., Mitsui Bank Ltd. and Marubeni Benelux. On October 10, 1979, GALLEON, through Cuenca,
and DBP executed a Deed of Undertaking3 whereby DBP guaranteed the prompt and punctual payment of
GALLEON’s borrowings from the Japanese lenders. To secure DBP’s guarantee under the Deed of
Undertaking, GALLEON promised, among others, to secure a first mortgage on the five new vessels and on
the second-hand vessels. Thus, GALLEON executed on January 25, 1982 a mortgage contract over five of its
vessels namely, M/V "Galleon Honor," M/V "Galleon Integrity," M/V "Galleon Dignity," M/V "Galleon Pride,"
and M/V "Galleon Trust" in favor of DBP.4
Meanwhile, on January 21, 1981, President Ferdinand Marcos issued Letter of Instruction (LOI) No. 1155,
directing NDC to acquire the entire shareholdings of GALLEON for the amount originally contributed by its
shareholders payable in five (5) years without interest cost to the government. In the same LOI, DBP was to
advance to GALLEON within three years from its effectivity the principal amount and the interest thereon of
GALLEON’s maturing obligations.
On August 10, 1981, GALLEON, represented by its president, Cuenca, and NDC, represented by Minister of
Trade Roberto Ongpin, forged a Memorandum of Agreement,5 whereby NDC and GALLEON agreed to
execute a share purchase agreement within sixty days for the transfer of GALLEON’s shareholdings.
Thereafter, NDC assumed the management and operations of GALLEON although Cuenca remained
president until May 9, 1982.6 Using its own funds, NDC paid Asian Hardwood on January 15, 1982 the
amount of US$1,000,000.00 as partial settlement of GALLEON’s obligations.7
On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the mortgage on the five vessels.
For failure of GALLEON to pay its debt despite repeated demands from DBP, the vessels were extrajudicially
foreclosed on various dates and acquired by DBP for the total amount of ₱539,000,000.00. DBP
subsequently sold the vessels to NDC for the same amount.8
On April 22, 1982, the Board of Directors of GALLEON amended the Articles of Incorporation changing the
corporate name from Galleon Shipping Corporation to National Galleon Shipping Corporation and increasing
the number of directors from seven to nine.9
Asian Hardwood assigned its rights over the outstanding obligation of GALLEON of US$2,315,747.32 to
World Universal Trading and Investment Company, S.A. (World Universal), embodied in a Deed of Assignment
executed on April 29, 1989.10 World Universal, in turn, assigned the credit to petitioner POLIAND sometime
in July 1989.11
On March 24, 1988, then President Aquino issued Administrative Order No. 64, directing NDC and Philippine
Export and Foreign Loan Guarantee Corporation (now Trade and Investment Development Corporation of
the Philippines) to transfer some of their assets to the National Government, through the Asset Privatization
Trust (APT) for disposition. Among those transferred to the APT were the five GALLEON vessels sold at the
foreclosure proceedings.
On September 24, 1991, POLIAND made written demands on GALLEON, NDC, and DBP for the satisfaction of
the outstanding balance in the amount of US$2,315,747.32.12 For failure to heed the demand, POLIAND
instituted a collection suit against NDC, DBP and GALLEON filed on October 10, 1991 with the Regional Trial
Court, Branch 61, Makati City. POLIAND claimed that under LOI No. 1155 and the Memorandum of
Agreement between GALLEON and NDC, defendants GALLEON, NDC, and DBP were solidarily liable to
POLIAND as assignee of the rights of the credit advances/loan accommodations to GALLEON. POLIAND also
claimed that it had a preferred maritime lien over the proceeds of the extrajudicial foreclosure sale of
GALLEON’s vessels mortgaged by NDC to DBP. The complaint prayed for judgment ordering NDC, DBP, and
GALLEON to pay POLIAND jointly and severally the balance of the credit advances/loan accommodations in
the amount of US$2,315,747.32 and attorney’s fees of ₱100,000.00 plus 20% of the amount recovered. By
way of an alternative cause of action, POLIAND sought reimbursement from NDC and DBP for the preferred
maritime lien of US$1,193,298.56.13
In its Answer with Compulsory Counterclaim and Cross-claim, DBP denied being a party to any of the alleged
loan transactions. Accordingly, DBP argued that POLIAND’s complaint stated no cause of action against DBP
or was barred by the Statute of Frauds because DBP did not sign any memorandum to act as guarantor for
the alleged credit advances/loan accommodations in favor of POLIAND. DBP also denied any liability under
LOI No. 1155, which it described as immoral and unconstitutional, since it was rescinded by LOI No. 1195. By
way of its Affirmative Allegations and Defenses, DBP countered that it was unaware of the maritime lien on
the five vessels mortgaged in its favor and that as far as GALLEON’s foreign borrowings are concerned, DBP
agreed to act as guarantor thereof only under the conditions laid down under the Deed of Undertaking. DBP
prayed for the award of actual, moral and exemplary damages and attorney’s fees against POLIAND as
compulsory counterclaim. In the event that it be adjudged liable for the payment of the loan
accommodations and the maritime liens, DBP prayed that its co-defendant GALLEON be ordered to
indemnify DBP for the full amount.14
For its part, NDC denied any participation in the execution of the loan accommodations/credit advances and
acquisition of ownership of GALLEON, asserting that it acted only as manager of GALLEON. NDC specifically
denied having agreed to the assumption of GALLEON’s liabilities because no purchase and sale agreement
was executed and the delivery of the required shares of stock of GALLEON did not take place.15
Upon motion by POLIAND, the trial court dropped GALLEON as a defendant, despite vigorous oppositions
from NDC and DBP. At the pre-trial conference on April 29, 1993, the trial court issued an Order limiting the
issues to the following: (1) whether or not GALLEON has an outstanding obligation in the amount of
US$2,315,747.32; (2) whether or not NDC and DBP may be held solidarily liable therefor; and (3) whether or
not there exists a preferred maritime lien of ₱1,000,000.00 in favor of POLIAND.16
After trial on the merits, the court a quo rendered a decision on August 9, 1996 in favor of POLIAND. Finding
that GALLEON’s loan advances/credit accommodations were duly established by the evidence on record, the
trial court concluded that under LOI No. 1155, DBP and NDC are liable for those obligations. The trial court
also found NDC liable for GALLEON’s obligations based on the Memorandum of Agreement dated August
1981 executed between GALLEON and NDC, where it was provided that NDC shall prioritize repayments of
GALLEON’s valid and subsisting liabilities subject of a meritorious lawsuit or which have been arranged and
guaranteed by Cuenca. The trial court was of the opinion that despite the subsequent issuance of LOI No.
1195, NDC and DBP’s obligation under LOI No. 1155 subsisted because "vested rights of the parties have
arisen therefrom." Accordingly, the trial court interpreted LOI No. 1195’s directive to "limit and protect" to
mean that "DBP and NDC should not assume or incur additional exposure with respect to GALLEON."17
The trial court dismissed NDC’s argument that the Memorandum of Agreement was merely a preliminary
agreement, noting that under paragraph nine thereof, the only condition for the payment of GALLEON’s
subsisting loans by NDC was the determination by the latter that those obligations were incurred in the
ordinary course of GALLEON’s business. The trial court did not regard the non-execution of the stock
purchase agreement as fatal to POLIAND’s cause since its non-happening was solely attributable to NDC. The
trial court also ruled that POLIAND had preference to the maritime lien over the proceeds of the extrajudicial
foreclosure sale of GALLEON’s vessels since the loan advances/credit accommodations utilized for the
payment of expenses on the vessels were obtained prior to the constitution of the mortgage in favor of DBP.
In sum, NDC and DBP were ordered to pay POLIAND as follows:
WHEREFORE, premises above considered, judgment is hereby rendered for plaintiff as against defendants
DBP and NDC, who are hereby ORDERED as follows:
1. To jointly and severally PAY plaintiff POLIAND the amount of TWO MILLION THREE HUNDRED FIFTEEN
THOUSAND SEVEN HUNDRED FORTY SEVEN AND 21/100 [sic] United States Dollars (US$2,315,747.32)
computed at the official exchange rate at the time of payment, plus interest at the rate of 12% per annum
from 25 September 1991 until fully paid; 2. To PAY the amount of ONE MILLION (₱1,000,000.) Pesos,
Philippine Currency, for and as attorney’s fees; and 3. To PAY the costs of the proceedings.
Both NDC and DBP appealed the trial court’s decision.
The Court of Appeals rendered a modified judgment, absolving DBP of any liability in view of POLIAND’s
failure to clearly prove its action against DBP. The appellate court also discharged NDC of any liability arising
from the credit advances/loan obligations obtained by GALLEON on the ground that NDC did not acquire
ownership of GALLEON but merely assumed control over its management and operations. However, NDC
was held liable to POLIAND for the payment of the preferred maritime lien based on LOI No. 1195 which
directed NDC to "discharge such maritime liens as may be necessary to allow the foreclosed vessels to
engage on the international shipping business," as well as attorney’s fees and costs of suit. The dispositive
portion of the Decision reads:
WHEREFORE, the assailed decision is MODIFIED, in accordance with the foregoing findings, as follows:
The case against defendant-appellant DBP is hereby DISMISSED.
Defendant-appellant NDC is hereby ordered to pay plaintiff-appellee POLIAND the amount of
US$1,920,298.56 plus legal interest effective September 12, 1984.
The award of attorney’s fees and cost of suit is addressed only against NDC.
Costs against defendant-appellant NDC.
SO ORDERED.19
Not satisfied with the modified judgment, both POLIAND and NDC elevated it to this Court via two separate
petitions for review on certiorari. In G.R. No. 143866 filed on August 21, 2000, petitioner POLIAND raises the
following arguments:
RESPONDENT COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERRORS IN ITS QUESTIONED
DECISION DATED 29 JUNE 2000 AND DECIDED QUESTIONS CONTRARY TO LAW AND THE APPLICABLE
DECISIONS OF THE HONORABLE COURT WHEN IT MODIFIED THE DECISION DATED 09 AUGUST 1996
RENDERED BY THE REGIONAL TRIAL COURT (BRANCH 61) CONSIDERING THAT:
a. CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, RESPONDENT NDC NOT ONLY TOOK
OVER TOTALLY THE MANAGEMENT AND CONTROL OF GALLEON BUT ALSO ASSUMED OWNERSHIP OF
GALLEON PURSUANT TO LOI NO. 1155 AND THE MEMORANDUM OF AGREEMENT DATED 10 AUGUST
1981; THUS, RESPONDENT NDC’S ACQUISITION OF FULL OWNERSHIP AND CONTROL OF GALLEON
CARRIED WITH IT THE ASSUMPTION OF THE LATTER’S LIABILITIES TO THIRD PARTIES SUCH AS ASIAN
HARDWOOD, PETITIONER POLIAND’S PREDECESSOR-IN-INTEREST.
b. RESPONDENT COURT OF APPEALS, IN VIOLATION OF THE CONSTITUTION AND THE RULES OF COURT,
DISMISSED THE CASE AGAINST RESPONDENT DBP WITHOUT STATING CLEARLY AND DISTINCTLY THE
REASONS FOR SUCH A DISMISSAL.
c. CONTRARY TO THE FINDINGS OF RESPONDENT COURT OF APPEALS, PETITIONER POLIAND WAS ABLE TO
ESTABLISH THAT RESPONDENT DBP IS SOLIDARILY LIABLE, TOGETHER WITH RESPONDENT NDC, WITH
RESPECT TO THE NET TOTAL AMOUNT OWING TO PETITIONER POLIAND.
d. RESPONDENT COURT OF APPEALS GRAVELY ERRED ALSO IN NOT FINDING THAT RESPONDENT DBP IS
JOINTLY AND SOLIDARILY LIABLE WITH RESPONDENT NDC FOR THE PAYMENT OF MARITIME LIENS PLUS
INTEREST PURSUANT TO SECTION 17 OF PRESIDENTIAL DECREEE 1521.20
On August 25, 2000, NDC filed its petition, docketed as G.R. No. 143877, imputing the following errors to the
Court of Appeals:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER NDC IS LIABLE TO PAY GALLEON’S
OUTSTANDING OBLIGATION TO RESPONDENT POLIAND IN THE AMOUNT OF US$ 1,920,298.56, TO SATISFY
THE PREFERRED MARITIME LIENS OVER THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE GALLEON
VESSELS.
(A) PRESIDENTIAL DECREE NO. 1521 OTHERWISE KNOWN AS THE ‘SHIP MORTGAGE DECREE OF 1978 IS NOT
APPLICABLE IN THE CASE AT BAR.
(B) PETITIONER NDC DOES NOT HOLD THE PROCEEDS OF THE FORECLOSURE SALE OF THE FIVE (5) GALLEON
VESSELS.
(C) THE FORECLOSURE SALE OF THE FIVE (5) GALLEON VESSELS EXTINGUISHES ALL CLAIMS AGAINST THE
VESSELS.
II. THE COURT OF APPEALS ERRED IN AWARDING ATTORNEY’S FEES TO RESPONDENT POLIAND.21
The two petitions were consolidated considering that both petitions assail the same Court of Appeals’
Decision, although on different fronts. In G.R. No. 143866, POLIAND questions the appellate court’s finding
that neither NDC nor DBP can be held liable for the loan accommodations to GALLEON. In G.R. No. 143877,
NDC asserts that it is not liable to POLIAND for the preferred maritime lien.
ISSUES: The bone of contention revolves around two main issues, namely: (1) Whether NDC or DBP or both
are liable to POLIAND on the loan accommodations and credit advances incurred by GALLEON, and (2)
Whether POLIAND has a maritime lien enforceable against NDC or DBP or both.
RULING of the COURT
I. Liability on loan accommodations and credit advances incurred by GALLEON
The Court of Appeals reversed the trial court’s conclusion that NDC and DBP are both liable to POLIAND for
GALLEON’s debts on the basis of LOI No. 1155 and the Memorandum of Agreement. It ratiocinated thus:
With respect to appellant NDC, resolution of the matters raised in its assignment of errors hinges on
whether or not it acquired the shareholdings of GALLEON as directed by LOI 1155; and if in the negative,
whether or not it is liable to pay GALLEON’s outstanding obligation.
The Court answers the issue in the negative. The MOA executed by GALLEON and NDC following the issuance
of LOI 1155 called for the execution of a "formal share purchase agreement and the transfer of all the
shareholdings of seller to Buyer." Since no such execution and consequent transfer of shareholdings took
place, NDC did not acquire ownership of GALLEON. It merely assumed "actual control over the management
and operations" of GALLEON in the exercise of which it, on January 15, 1982, after being satisfied of the
existence of GALLEON’s obligation to ASIAN HARDWOOD, partially paid the latter One Million ($1,000,000.00)
US dollars.22
With respect to defendant-appellant DBP, POLIAND failed to clearly prove its cause of action against it. This
leaves it unnecessary to dwell on DBP’s other assigned errors, including that bearing on its claim for
damages and attorney’s fees which does not persuade.23
POLIAND’s cause of action against NDC is premised on the theory that when NDC acquired all the
shareholdings of GALLEON, the former also assumed the latter’s liabilities, including the loan
advances/credit accommodations obtained by GALLEON from POLIAND’s predecessors-in-interest. In G.R. No.
143866, POLIAND argues that NDC acquired ownership of GALLEON pursuant to paragraphs 1 and 2 of LOI
No. 1155, which was implemented through the execution of the Memorandum of Agreement. It believes
that no conditions were required prior to the assumption by NDC of GALLEON’s ownership and subsisting
loans. Even assuming that conditions were set, POLIAND opines that the conditions were deemed fulfilled
pursuant to Article 1186 of the Civil Code because of NDC’s apparent intent to prevent the execution of the
share purchase agreement.24
On the other hand, NDC asserts that it could not have acquired GALLEON’s equity and, consequently, its
liabilities because LOI No. 1155 had been rescinded by LOI No. 1195, and therefore, became inoperative and
non-existent. Moreover, NDC, relying on the pronouncements in Philippine Association of Service Exporters,
Inc. et al. v. Ruben D. Torres25 and Parong, et al. v. Minister Enrile,26 is of the opinion that LOI No. 1155 does
not have the force and effect of law and cannot be a valid source of obligation.27 NDC denies POLIAND’s
contention that it deliberately prevented the execution of the share purchase agreement considering that
Cuenca remained GALLEON’s president seven months after the signing of the Memorandum of Agreement.28
NDC contends that the Memorandum of Agreement was a mere preliminary agreement between Cuenca
and Ongpin for the intended purchase of GALLEON’s equity, prescribing the manner, terms and conditions of
said purchase.29
NDC, not liable under LOI No. 1155
As a general rule, letters of instructions are simply directives of the President of the Philippines, issued in the
exercise of his administrative power of control, to heads of departments and/or officers under the executive
branch of the government for observance by the officials and/or employees thereof.30 Being administrative in
nature, they do not have the force and effect of a law and, thus, cannot be a valid source of obligation.
However, during the period when then President Marcos exercised extraordinary legislative powers, he
issued certain decrees, orders and letters of instruction which the Court has declared as having the force and
effect of a statute. As pointed out by the Court in Legaspi v. Minister of Finance,31 paramount considerations
compelled the grant of extraordinary legislative power to the President at that time when the nation was
beset with threats to public order and the purpose for which the authority was granted was specific to meet
the exigencies of that period, thus:
True, without loss of time, President Marcos made it clear that there was no military take-over of the
government, and that much less was there being established a revolutionary government, even as he
declared that said martial law was of a double-barrelled type, unfamiliar to traditional constitutionalists and
political scientists—for two basic and transcendental objectives were intended by it: (1) the quelling of
nation-wide subversive activities characteristic not only of a rebellion but of a state of war fanned by a
foreign power of a different ideology from ours, and not excluding the stopping effectively of a brewing, if
not a strong separatist movement in Mindanao, and (2) the establishment of a New Society by the institution
of disciplinary measures designed to eradicate the deep-rooted causes of the rebellion and elevate the
standards of living, education and culture of our people, and most of all the social amelioration of the poor
and underprivileged in the farms and in the barrios, to the end that hopefully insurgency may not rear its
head in this country again.32
Thus, before a letter of instruction is declared as having the force and effect of a statute, a determination of
whether or not it was issued in response to the objectives stated in Legaspi is necessary. Parong, et al. v.
Minister Enrile33differentiated between LOIs in the nature of mere administrative issuances and those
forming part of the law of the land. The following conditions must be established before a letter of
instruction may be considered a law:
To form part of the law of the land, the decree, order or LOI must be issued by the President in the exercise
of his extraordinary power of legislation as contemplated in Section 6 of the 1976 amendments to the
Constitution, whenever in his judgment, there exists a grave emergency or threat or imminence thereof, or
whenever the interim Batasan Pambansa or the regular National Assembly fails or is unable to act
adequately on any matter for any reason that in his judgment requires immediate action.34
Only when issued under any of the two circumstances will a decree, order, or letter be qualified as having
the force and effect of law. The decree or instruction should have been issued either when there existed a
grave emergency or threat or imminence or when the Legislature failed or was unable to act adequately on
the matter. The qualification that there exists a grave emergency or threat or imminence thereof must be
interpreted to refer to the prevailing peace and order conditions because the particular purpose the
President was authorized to assume legislative powers was to address the deteriorating peace and order
situation during the martial law period.
There is no doubt that LOI No. 1155 was issued on July 21, 1981 when then President Marcos was vested
with extraordinary legislative powers. LOI No. 1155 was specifically directed to DBP, NDC and the Maritime
Industry Authority to undertake the following tasks:
LETTER OF INSTRUCTIONS NO. 1155
DEVELOPMENT BANK OF THE PHILIPPINES
NATIONAL DEVELOPMENT COMPANY
MARITIME INDUSTRY AUTHORITY
DIRECTING A REHABILITATION PLAN FOR GALLEON SHIPPING CORPORATION
1. NDC shall acquire 100% of the shareholdings of Galleon Shipping Corporation from its present owners for
the amount of ₱46.7 million which is the amount originally contributed by the present shareholders, payable
after five years with no interest cost.
2. NDC to immediately infuse ₱30 million into Galleon Shipping Corporation in lieu of is previously approved
subscription to Philippine National Lines. In addition, NDC is to provide additional equity to Galleon as may
be required.
3. DBP to advance for a period of three years from date hereof both the principal and the interest on
Galleon's obligations falling due and to convert such advances into 12% preferred shares in Galleon Shipping
Corporation.
4. DBP and NDC to negotiate a restructuring of loans extended by foreign creditors of Galleon.
5. MARINA to provide assistance to Galleon by mandating a rational liner shipping schedule considering
existing freight volumes and to immediately negotiate a bilateral agreement with the United States in
accordance with UNCTAD resolutions.
Although LOI No. 1155 was undoubtedly issued at the time when the President exercised legislative powers
granted under Amendment No. 6 of the 1973 Constitution, the language and purpose of LOI No. 1155
precludes this Court from declaring that said LOI had the force and effect of law in the absence of any of the
conditions set out in Parong. The subject matter of LOI No. 1155 is not connected, directly or remotely, to a
grave emergency or threat to the peace and order situation of the nation in particular or to the public
interest in general. Nothing in the language of LOI No. 1155 suggests that it was issued to address the
security of the nation. Obviously, LOI No. 1155 was in the nature of a mere administrative issuance directed
to NDC, DBP and MARINA to undertake a policy measure, that is, to rehabilitate a private corporation.
NDC, not liable under the Corporation Code
The Court cannot accept POLIAND’s theory that with the effectivity of LOI No. 1155, NDC ipso facto acquired
the interests in GALLEON without disregarding applicable statutory requirements governing the acquisition
of a corporation. Ordinarily, in the merger of two or more existing corporations, one of the combining
corporations survives and continues the combined business, while the rest are dissolved and all their rights,
properties and liabilities are acquired by the surviving corporation.35 The merger, however, does not become
effective upon the mere agreement of the constituent corporations.36
As specifically provided under Section 7937 of said Code, the merger shall only be effective upon the issuance
of a certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior
determination that the merger is not inconsistent with the Code or existing laws. Where a party to the
merger is a special corporation governed by its own charter, the Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be obtained. The issuance of the
certificate of merger is crucial because not only does it bear out SEC’s approval but also marks the moment
whereupon the consequences of a merger take place. By operation of law, upon the effectivity of the merger,
the absorbed corporation ceases to exist but its rights, and properties as well as liabilities shall be taken and
deemed transferred to and vested in the surviving corporation.38
The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions were
required prior to the assumption by NDC of ownership of GALLEON and its subsisting loans. Compliance with
the statutory requirements is a condition precedent to the effective transfer of the shareholdings in
GALLEON to NDC. In directing NDC to acquire the shareholdings in GALLEON, the President could not have
intended that the parties disregard the requirements of law. In the absence of SEC approval, there was no
effective transfer of the shareholdings in GALLEON to NDC. Hence, NDC did not acquire the rights or
interests of GALLEON, including its liabilities.
DBP, not liable under LOI No. 1155
POLIAND argues that paragraph 3 of LOI No. 1155 unequivocally obliged DBP to advance the obligations of
GALLEON.39 DBP argues that POLIAND has no cause of action against it under LOI No. 1155 which is void and
unconstitutional.40
The Court affirms the appellate court’s ruling that POLIAND does not have any cause of action against DBP
under LOI No. 1155. Being a mere administrative issuance, LOI No. 1155 cannot be a valid source of
obligation because it did not create any privity of contract between DBP and POLIAND or its
predecessors-in-interest. At best, the directive in LOI No. 1155 was in the nature of a grant of authority by
the President on DBP to enter into certain transactions for the satisfaction of GALLEON’s obligations. There is,
however, nothing from the records of the case to indicate that DBP had acted as surety or guarantor, or had
otherwise accommodated GALLEON’s obligations to POLIAND or its predecessors-in-interest.
II. Liability on maritime lien
On the second issue of whether or not NDC is liable to POLIAND for the payment of maritime lien, the
appellate court ruled in the affirmative, to wit:
Non-acquisition of ownership of GALLEON notwithstanding, NDC is liable to pay ASIAN HARDWOOD’s
successor-in-interest POLIAND the equivalent of US$1,930,298.56 representing the proceeds of the loan
from Asian Hardwood which were spent by GALLEON for ship modification and salaries of crew, to satisfy the
preferred maritime liens over the proceeds of the foreclosure sale of the 5 vessels.41
POLIAND contends that NDC can no longer raise the issue on the latter’s liability for the payment of the
maritime lien considering that upon appeal to the Court of Appeals, NDC did not assign it as an error.42
Generally, an appellate court may only pass upon errors assigned. However, this rule is not without
exceptions. In the following instances, the Court ruled that an appellate court is accorded a broad
discretionary power to waive the lack of assignment of errors and consider errors not assigned:
a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;
b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation
of law;
c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the interests of a justice or to avoid dispensing
piecemeal justice;
d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of
record having some bearing on the issue submitted which the parties failed to raise or which the lower
court ignored;
e) Matters not assigned as errors on appeal but closely related to an error assigned;
f) Matters not assigned as errors on appeal but upon which the determination of a question properly
 assigned, is dependent.43
It is noteworthy that the question of NDC and DBP’s liability on the maritime lien had been raised by
POLIAND as an alternative cause of action against NDC and DBP and was passed upon by the trial court. The
Court of Appeals, however, reversed the trial court’s finding that NDC and DBP are liable to POLIAND for the
payment of the credit advances and loan accommodations and instead found NDC to be solely liable on the
preferred maritime lien although NDC did not assign it as an error.
The records, however, reveal that the issue on the liability on the preferred maritime lien had been properly
raised and argued upon before the Court of Appeals not by NDC but by DBP who was also adjudged liable
thereon by the trial court. DBP’s appellant’s brief44 pointed out POLIAND’s failure to present convincing
evidence to prove its alternative cause of action, which POLIAND disputed in its appellee’s brief.45 The issue
on the maritime lien is a matter of record having been adequately ventilated before and passed upon by the
trial court and the appellate court. Thus, by way of exception, NDC is not precluded from again raising the
issue before this Court even if it did not specifically assign the matter as an error before the Court of Appeals.
Besides, this Court is clothed with ample authority to review matters, even if they are not assigned as errors
in the appeal if it finds that their consideration is necessary in arriving at a just decision of the case.46
Articles 578 and 580 of the Code of Commerce, not applicable
NDC cites Articles 57847 and 58048 of the Code of Commerce to bolster its argument that the foreclosure of
the vessels extinguished all claims against the vessels including POLIAND’s claim.49 Article 578 of the Code of
Commerce is not relevant to the facts of the instant case because it governs the sale of vessels in a foreign
port. Said provision outlines the formal and registration requirements in order that a sale of a vessel on
voyage or in a foreign port becomes effective as against third persons. On the other hand, the resolution of
the instant case depends on the determination as to which creditor is entitled to the proceeds of the
foreclosure sale of the vessels. Clearly, Article 578 of the Code of Commerce is inapplicable.
Article 580, while providing for the order of payment of creditors in the event of sale of a vessel, had been
repealed by the pertinent provisions of Presidential Decree (P.D.) No. 1521, otherwise known as the Ship
Mortgage Decree of 1978. In particular, Article 580 provides that in case of the judicial sale of a vessel for the
payment of creditors, the debts shall be satisfied in the order specified therein. On the other hand, Section
17 of P.D. No. 152150 also provides that in the judicial or extrajudicial sale of a vessel for the enforcement of a
preferred mortgage lien constituted in accordance with Section 2 of P.D. No. 1521, such preferred mortgage
lien shall have priority over all pre-existing claims against the vessel, save for those claims enumerated under
Section 17, which have preference over the preferred mortgage lien in the order stated therein. Since P.D. No.
1521 is a subsequent legislation and since said law in Section 17 thereof confers on the preferred mortgage
lien on the vessel superiority over all other claims, thereby engendering an irreconcilable conflict with the
order of preference provided under Article 580 of the Code of Commerce, it follows that the Code of
Commerce provision is deemed repealed by the provision of P.D. No. 1521, as the posterior law.51
P.D. No. 1521 is applicable, not the Civil Code provisions on concurrence/preference of credits
Whether or not the order of preference under Section 17, P.D. No. 1521 may be properly applied in the
instant case depends on the classification of the mortgage on the GALLEON vessels, that is, if it falls within
the ambit of Section 2, P.D. No. 1521, defining how a preferred mortgage is constituted.
NDC and DBP both argue that POLIAND’s claim cannot prevail over DBP’s mortgage credit over the
foreclosed vessels because the mortgage executed in favor of DBP pursuant to the October 10, 1979 Deed of
Undertakingsigned by GALLEON and DBP was an ordinary ship mortgage and not a preferred one, that is, it
was not given in connection with the construction, acquisition, purchase or initial operation of the vessels,
but for the purpose of guaranteeing GALLEON’s foreign borrowings.52
Section 2 of P.D. No. 1521 recognizes the constitution of a mortgage on a vessel, to wit:
SECTION 2. Who may Constitute a Ship Mortgage. — Any citizen of the Philippines, or any association or
corporation organized under the laws of the Philippines, at least sixty per cent of the capital of which is
owned by citizens of the Philippines may, for the purpose of financing the construction, acquisition, purchase
of vessels or initial operation of vessels, freely constitute a mortgage or any other lien or encumbrance on
his or its vessels and its equipment with any bank or other financial institutions, domestic or foreign.
If the mortgage on the vessel is constituted for the purpose stated under Section 2, the mortgage obtains a
preferred status provided the formal requisites enumerated under Section 453 are complied with. Upon
enforcement of the preferred mortgage and eventual foreclosure of the vessel, the proceeds of the sale shall
be first applied to the claim of the mortgage creditor unless there are superior or preferential liens, as
enumerated under Section 17, namely:
SECTION 17. Preferred Maritime Lien, Priorities, Other Liens. — (a) Upon the sale of any mortgaged vessel in
any extra-judicial sale or by order of a district court of the Philippines in any suit in rem in admiralty for the
enforcement of a preferred mortgage lien thereon, all pre-existing claims in the vessel, including any
possessory common-law lien of which a lienor is deprived under the provisions of Section 16 of this Decree,
shall be held terminated and shall thereafter attach in like amount and in accordance with the priorities
established herein to the proceeds of the sale. The preferred mortgage lien shall have priority over all claims
against the vessel, except the following claims in the order stated: (1) expenses and fees allowed and costs
taxed by the court and taxes due to the Government; (2) crew's wages; (3) general average; (4) salvage
including contract salvage; (5) maritime liens arising prior in time to the recording of the preferred mortgage;
(6) damages arising out of tort; and (7) preferred mortgage registered prior in time.
(b) If the proceeds of the sale should not be sufficient to pay all creditors included in one number or grade,
the residue shall be divided among them pro rata. All credits not paid, whether fully or partially shall subsist
as ordinary credits enforceable by personal action against the debtor. The record of judicial sale or sale by
public auction shall be recorded in the Record of Transfers and Encumbrances of Vessels in the port of
documentation. (Emphasis supplied.)
There is no question that the mortgage executed in favor of DBP is covered by P.D. No. 1521. Contrary to
NDC’s assertion, the mortgage constituted on GALLEON’s vessels in favor of DBP may appropriately be
characterized as a preferred mortgage under Section 2, P.D. No. 1521 because GALLEON constituted the
same for the purpose of financing the construction, acquisition, purchase of vessels or initial operation of
vessels. While it is correct that GALLEON executed the mortgage in consideration of DBP’s guarantee of the
prompt payment of GALLEON’s obligations to the Japanese lenders, DBP’s undertaking to pay the Japanese
banks was a condition sine qua non to the acquisition of funds for the purchase of the GALLEON vessels.
Without DBP’s guarantee, the Japanese lenders would not have provided the funds utilized in the purchase
of the GALLEON vessels. The mortgage in favor of DBP was therefore constituted to facilitate the acquisition
of funds necessary for the purchase of the vessels.
NDC adds that being an ordinary ship mortgage, the Civil Code provisions on concurrence and preference of
credits and not P.D. No. 1521 should govern. NDC contends that under Article 2246, in relation to Article
2241 of the Civil Code, the credits guaranteed by a chattel mortgage upon the thing mortgaged shall enjoy
preference (with respect to the thing mortgaged), to the exclusion of all others to the extent of the value of
the personal property to which the preference exists.54 Following NDC’s theory, DBP’s mortgage credit, which
is fourth in the order of preference under Article 2241, is superior to POLIAND’s claim, which enjoys no
preference.
NDC’s argument does not persuade the Court. The provision of P.D. No. 1521 on the order of preference in
the satisfaction of the claims against the vessel is the more applicable statute to the instant case compared
to the Civil Code provisions on the concurrence and preference of credit. General legislation must give way
to special legislation on the same subject, and generally be so interpreted as to embrace only cases in which
the special provisions are not applicable.55
POLIAND’s alternative cause of action for the payment of maritime liens is based on Sections 17 and 21 of
P.D. No. 1521. POLIAND also contends that by virtue of the directive in LOI No. 1195 on NDC to discharge
maritime liens to allow the vessels to engage in international business, NDC is liable therefor.56
POLIAND’s maritime lien is superior to DBP’s mortgage lien
Before POLIAND’s claim may be classified as superior to the mortgage constituted on the vessel, it must be
shown to be one of the enumerated claims which Section 17, P.D. No. 1521 declares as having preferential
status in the event of the sale of the vessel. One of such claims enumerated under Section 17, P.D. No. 1521
which is considered to be superior to the preferred mortgage lien is a maritime lien arising prior in time to
the recording of the preferred mortgage. Such maritime lien is described under Section 21, P.D. No. 1521,
which reads:
SECTION 21. Maritime Lien for Necessaries; persons entitled to such lien. — Any person furnishing repairs,
supplies, towage, use of dry dock or marine railway, or other necessaries to any vessel, whether foreign or
domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a
maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or
prove that credit was given to the vessel.
Under the aforequoted provision, the expense must be incurred upon the order of the owner of the vessel
or its authorized person and prior to the recording of the ship mortgage. Under the law, it must be
established that the credit was extended to the vessel itself.57
The trial court found that GALLEON’s advances obtained from Asian Hardwood were used to cover for the
payment of bunker oil/fuel, unused stores and oil, bonded stores, provisions, and repair and docking of the
GALLEON vessels.58 These expenses clearly fall under Section 21, P.D. No. 1521.
The trial court also found that the advances from Asian Hardwood were spent for ship modification cost and
the crew’s salary and wages. DBP contends that a ship modification cost is omitted under Section 17, P.D. No.
1521, hence, it does not have a status superior to DBP’s preferred mortgage lien.
As stated in Section 21, P.D. No. 1521, a maritime lien may consist in "other necessaries spent for the vessel."
The ship modification cost may properly be classified under this broad category because it was a necessary
expenses for the vessel’s navigation. As long as an expense on the vessel is indispensable to the maintenance
and navigation of the vessel, it may properly be treated as a maritime lien for necessaries under Section 21,
P.D. No. 1521.
With respect to the claim for salary and wages of the crew, there is no doubt that it is also one of the
enumerated claims under Section 17, P.D. No. 1521, second only to judicial costs and taxes due the
government in preference and, thus, having a status superior to DBP’s mortgage lien.
All told, the determination of the existence and the amount of POLIAND’s claim for maritime lien is a finding
of fact which is within the province of the courts below. Findings of fact of lower courts are deemed
conclusive and binding upon the Supreme Court except when the findings are grounded on speculation,
surmises or conjectures; when the inference made is manifestly mistaken, absurd or impossible; when there
is grave abuse of discretion in the appreciation of facts; when the factual findings of the trial and appellate
courts are conflicting; when the Court of Appeals, in making its findings, has gone beyond the issues of the
case and such findings are contrary to the admissions of both appellant and appellee; when the judgment of
the appellate court is premised on a misapprehension of facts or when it has failed to notice certain relevant
facts which, if properly considered, will justify a different conclusion; when the findings of fact are
conclusions without citation of specific evidence upon which they are based; and when findings of fact of
the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on
record.59 The Court finds no sufficient justification to reverse the findings of the trial court and the appellate
court in respect to the existence and amount of maritime lien.
Only NDC is liable on the maritime lien
POLIAND maintains that DBP is also solidarily liable for the payment of the preferred maritime lien over the
proceeds of the foreclosure sale by virtue of Section 17, P.D. No. 1521. It claims that since the lien was
incurred prior to the constitution of the mortgage on January 25, 1982, the preferred maritime lien attaches
to the proceeds of the sale of the vessels and has priority over all claims against the vessels in accordance
with Section 17, P.D. No. 1521.60
In its defense, DBP reiterates the following arguments: (1) The salary and crew’s wages cannot be claimed by
POLIAND or its predecessors-in-interest because none of them is a sailor or mariner;61 (2) Even if conceded,
POLIAND’s preferred maritime lien is unenforceable pursuant to Article 1403 of the Civil Code; and (3)
POLIAND’s claim is barred by prescription and laches.62
The first argument is absurd. Although POLIAND or its predecessors-in-interest are not sailors entitled to
wages, they can still make a claim for the advances spent for the salary and wages of the crew under the
principle of legal subrogation. As explained in Philippine National Bank v. Court of Appeals,63 a third person
who satisfies the obligation to an original maritime lienor may claim from the debtor because the third
person is subrogated to the rights of the maritime lienor over the vessel. The Court explained as follows:
From the foregoing, it is clear that the amount used for the repair of the vessel M/V "Asean Liberty" was
advanced by Citibank and was utilized for the purpose of paying off the original maritime lienor, Hong Kong
United Dockyards, Ltd. As a person not interested in the fulfillment of the obligation between PISC and Hong
Kong United Dockyards, Ltd., Citibank was subrogated to the rights of Hong Kong United Dockyards, Ltd. as a
maritime lienor over the vessel, by virtue of Article 1302, par. 2 of the New Civil Code. By definition,
subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his
rights. Considering that Citibank paid off the debt of PISC to Hong Kong United Dockyards, Ltd. it became the
transferee of all the rights of Hong Kong Dockyards, Ltd. as against PISC, including the maritime lien over the
vessel M/V "Asian Liberty."64
DBP’s reliance on the Statute of Frauds is misplaced. Article 1403 (2) of the Civil Code, which enumerates the
contracts covered by the Statue of Frauds, is inapplicable. To begin with, there is no privity of contract
between POLIAND or its predecessors-in-interest, on one hand, and DBP, on the other. POLIAND hinges its
claim on the maritime lien based on LOI No. 1195 and P.D. No. 1521, and not on any contract or agreement.
Neither can DBP invoke prescription or laches against POLIAND. Under Article 1144 of the Civil Code, an
action upon an obligation created by law must be brought within ten years from the time the right of action
accrues. The right of action arose after January 15, 1982, when NDC partially paid off GALLEON’s obligations
to POLIAND’s predecessor-in-interest, Asian Hardwood. At that time, the prescriptive period for the
enforcement by action of the balance of GALLEON’s outstanding obligations had commenced. Prescription
could not have set in because the prescriptive period was tolled when POLIAND made a written demand for
the satisfaction of the obligation on September 24, 1991, or before the lapse of the ten-year prescriptive
period. Laches also do not lie because there was no unreasonable delay on the part of POLIAND in asserting
its rights. Indeed, it instituted the instant suit seasonably.
All things considered, however, the Court finds that only NDC is liable for the payment of the maritime lien. A
maritime lien is akin to a mortgage lien in that in spite of the transfer of ownership, the lien is not
extinguished. The maritime lien is inseparable from the vessel and until discharged, it follows the vessel.
Hence, the enforcement of a maritime lien is in the nature and character of a proceeding quasi in rem.65 The
expression "action in rem" is, in its narrow application, used only with reference to certain proceedings in
courts of admiralty wherein the property alone is treated as responsible for the claim or obligation upon
which the proceedings are based.66 Considering that DBP subsequently transferred ownership of the vessels
to NDC, the Court holds the latter liable on the maritime lien. Notwithstanding the subsequent transfer of
the vessels to NDC, the maritime lien subsists.
This is a unique situation where the extrajudicial foreclosure of the GALLEON vessels took place without the
intervention of GALLEON’s other creditors including POLIAND’s predecessors-in-interest who were
apparently left in the dark about the foreclosure proceedings. At that time, GALLEON was already a failing
corporation having borrowed large sums of money from banks and financial institutions. When GALLEON
defaulted in the payment of its obligations to DBP, the latter foreclosed on its mortgage over the GALLEON
ships. The other creditors, including POLIAND’s predecessors-in-interest who apparently had earlier or
superior rights over the foreclosed vessels, could not have participated as they were unaware and were not
made parties to the case.
On this note, the Court believes and so holds that the institution of the extrajudicial foreclosure proceedings
was tainted with bad faith. It took place when NDC had already assumed the management and operations of
GALLEON. NDC could not have pleaded ignorance over the existence of a prior or preferential lien on the
vessels subject of foreclosure. As aptly held by the Court of Appeals:
NDC’s claim that even if maritime liens existed over the proceeds of the foreclosure sale of the vessels which
it subsequently purchased from DBP, it is not liable as it was a purchaser in good faith fails, given the fact
that in its "actual control over the management and operations" of GALLEON, it was put on notice of the
various obligations of GALLEON including those secured from ASIAN HARDWOOD as in fact it even paid
ASIAN HARDWOOD US$1,000,000.00 in partial settlement of GALLEON’s obligations, before it (NDC)
mortgaged the 5 vessels to DBP on January 25, 1982.
Parenthetically, LOI 1195 directed NDC to "discharge such maritime liens as may be necessary to allow the
foreclosed vessels to engage on the international shipping business."
In fine, it is with respect to POLIAND’s claim for payment of US$1,930,298.56 representing part of the
proceeds of GALLEON’s loan which was spent by GALLEON "for ship modification and salaries of crew" that
NDC is liable.67
Thus, NDC cannot claim that it was a subsequent purchaser in good faith because it had knowledge that the
vessels were subject to various liens. At the very least, to evince good faith, NDC could have inquired as to
the existence of other claims against the vessels apart from DBP’s mortgage lien. Considering that NDC was
also in a position to know or discover the financial condition of GALLEON when it took over its management,
the lack of notice to GALLEON’s creditors suggests that the extrajudicial foreclosure was effected to prejudice
the rights of GALLEON’s other creditors.
NDC also cannot rely on Administrative Order No. 64,68 which directed the transfer of the vessels to the APT,
on its hypothesis that such transfer extinguished the lien. APT is a mere conduit through which the assets
acquired by the National Government are provisionally held and managed until their eventual disposal or
privatization. Administrative Order No. 64 did not divest NDC of its ownership over the GALLEON vessels
because APT merely holds the vessels in trust for NDC until the same are disposed. Even if ownership was
transferred to APT, that would not be sufficient to discharge the maritime lien and deprive POLIAND of its
recourse based on the lien. Such denouement would smack of denial of due process and taking of property
without just compensation.
NDC’s liability for attorney’s fees
The lower court awarded attorney’s fees to POLIAND in the amount of ₱1,000,000.00 on account of the
amount involved in the case and the protracted character of the litigation.69 The award was affirmed by the
Court of Appeals as against NDC only.70
This Court finds no reversible error with the award as upheld by the appellate court. Under Article 220871 of
the Civil Code, attorney’s fees may be awarded inter alia when the defendant’s act or omission has
compelled the plaintiff to incur expenses to protect his interest or in any other case where the court deems
it just and equitable that attorney’s fees and expenses of litigation be recovered.
One final note. There is a discrepancy between the dispositive portion of the Court of Appeals’ Decision and
the body thereof with respect to the amount of the maritime lien in favor of POLIAND. The dispositive
portion ordered NDC to pay POLIAND "the amount of US$1,920,298.56" plus interest72 despite a finding that
NDC’s liability to POLIAND represents the maritime lien73 which according to the complaint74 is the
alternative cause of action of POLIAND in the smaller amount of US$1,193,298.56, as prayed for by POLIAND
in its complaint.
The general rule is that where there is conflict between the dispositive portion or the fallo and the body of
the decision, the fallo controls. This rule rests on the theory that the fallo is the final order while the opinion
in the body is merely a statement ordering nothing. However, where the inevitable conclusion from the body
of the decision is so clear as to show that there was a mistake in the dispositive portion, the body of the
decision will prevail.75 In the instant case, it is clear from the trial court records and the Court of Appeals’
Rollo that the bigger amount awarded in the dispositive portion of the Court of Appeals’ Decision was a
typographical mistake. Considering that the appellate court’s Decision merely affirmed the trial court’s
finding with respect to the amount of maritime lien, the bigger amount stated in the dispositive portion of
the Court of Appeals’ Decision must have been awarded through indavertence.
WHEREFORE, both Petitions in G.R. No. 143866 and G.R. No. 143877 are DENIED. The Decision of the Court
of Appeals in CA-G.R. CV No. 53257 is MODIFIED to the extent that National Development Company is liable
to Poliand Industrial Limited for the amount of One Million One Hundred Ninety Three Thousand Two
Hundred Ninety Eight US Dollars and Fifty-Six US Cents (US$ 1,193,298.56), plus interest of 12% per annum
computed from 25 September 1991 until fully paid. In other respects, said Decision is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
 G.R. No. 155014 November 11, 2005
CRESCENT PETROLEUM, LTD.
vs.
M/V "LOK MAHESHWARI," THE SHIPPING CORPORATION OF INDIA, and PORTSERV LIMITED and/or
TRANSMAR SHIPPING, INC.
This petition for review on certiorari under Rule 45 seeks the (a) reversal of the November 28, 2001 Decision
of the Court of Appeals in CA-G.R. No. CV-54920,1 which dismissed for "want of jurisdiction" the instant case,
and the September 3, 2002 Resolution of the same appellate court,2 which denied petitioner’s motion for
reconsideration, and (b) reinstatement of the July 25, 1996 Decision3 of the Regional Trial Court (RTC) in Civil
Case No. CEB-18679, which held that respondents were solidarily liable to pay petitioner the sum prayed for
in the complaint.
The facts are as follows: Respondent M/V "Lok Maheshwari" (Vessel) is an oceangoing vessel of Indian
registry that is owned by respondent Shipping Corporation of India (SCI), a corporation organized and
existing under the laws of India and principally owned by the Government of India. It was time-chartered by
respondent SCI to Halla Merchant Marine Co. Ltd. (Halla), a South Korean company. Halla, in turn,
sub-chartered the Vessel through a time charter to Transmar Shipping, Inc. (Transmar). Transmar further
sub-chartered the Vessel to Portserv Limited (Portserv). Both Transmar and Portserv are corporations
organized and existing under the laws of Canada.
On or about November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd. (Crescent), a
corporation organized and existing under the laws of Canada that is engaged in the business of selling
petroleum and oil products for the use and operation of oceangoing vessels, to deliver marine fuel oils
(bunker fuels) to the Vessel. Petitioner Crescent granted and confirmed the request through an advice via
facsimile dated November 2, 1995. As security for the payment of the bunker fuels and related services,
petitioner Crescent received two (2) checks in the amounts of US$100,000.00 and US$200,000.00. Thus,
petitioner Crescent contracted with its supplier, Marine Petrobulk Limited (Marine Petrobulk), another
Canadian corporation, for the physical delivery of the bunker fuels to the Vessel.
On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels amounting to US$103,544
inclusive of barging and demurrage charges to the Vessel at the port of Pioneer Grain, Vancouver, Canada.
The Chief Engineer Officer of the Vessel duly acknowledged and received the delivery receipt. Marine
Petrobulk issued an invoice to petitioner Crescent for the US$101,400.00 worth of the bunker fuels.
Petitioner Crescent issued a check for the same amount in favor of Marine Petrobulk, which check was duly
encashed.
Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice dated November 21, 1995 to
"Portserv Limited, and/or the Master, and/or Owners, and/or Operators, and/or Charterers of M/V ‘Lok
Maheshwari’" in the amount of US$103,544.00 with instruction to remit the amount on or before December
1, 1995. The period lapsed and several demands were made but no payment was received. Also, the checks
issued to petitioner Crescent as security for the payment of the bunker fuels were dishonored for
insufficiency of funds. As a consequence, petitioner Crescent incurred additional expenses of US$8,572.61
for interest, tracking fees, and legal fees.
On May 2, 1996, while the Vessel was docked at the port of Cebu City, petitioner Crescent instituted before
the RTC of Cebu City an action "for a sum of money with prayer for temporary restraining order and writ of
preliminary attachment" against respondents Vessel and SCI, Portserv and/or Transmar. The case was raffled
to Branch 10 and docketed as Civil Case No. CEB-18679.
On May 3, 1996, the trial court issued a writ of attachment against the Vessel with bond at ₱2,710,000.00.
Petitioner Crescent withdrew its prayer for a temporary restraining order and posted the required bond.
On May 18, 1996, summonses were served to respondents Vessel and SCI, and Portserv and/or Transmar
through the Master of the Vessel. On May 28, 1996, respondents Vessel and SCI, through Pioneer Insurance
and Surety Corporation (Pioneer), filed an urgent ex-parte motion to approve Pioneer’s letter of undertaking,
to consider it as counter-bond and to discharge the attachment. On May 29, 1996, the trial court granted the
motion; thus, the letter of undertaking was approved as counter-bond to discharge the attachment.
For failing to file their respective answers and upon motion of petitioner Crescent, the trial court declared
respondents Vessel and SCI, Portserv and/or Transmar in default. Petitioner Crescent was allowed to present
its evidence ex-parte.
On July 25, 1996, the trial court rendered its decision in favor of petitioner Crescent, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff [Crescent] and against
the defendants [Vessel, SCI, Portserv and/or Transmar].
Consequently, the latter are hereby ordered to pay plaintiff jointly and solidarily, the following:
(a) the sum of US$103,544.00, representing the outstanding obligation;
(b) interest of US$10,978.50 as of July 3, 1996, plus additional interest at 18% per annum for the period
thereafter, until the principal account is fully paid;
(c) attorney’s fees of ₱300,000.00; and
(d) ₱200,000.00 as litigation expenses.
On August 19, 1996, respondents Vessel and SCI appealed to the Court of Appeals. They attached copies of
the charter parties between respondent SCI and Halla, between Halla and Transmar, and between Transmar
and Portserv. They pointed out that Portserv was a time charterer and that there is a clause in the time
charters between respondent SCI and Halla, and between Halla and Transmar, which states that "the
Charterers shall provide and pay for all the fuel except as otherwise agreed." They submitted a copy of Part II
of the Bunker Fuel Agreement between petitioner Crescent and Portserv containing a stipulation that New
York law governs the "construction, validity and performance" of the contract. They likewise submitted
certified copies of the Commercial Instruments and Maritime Lien Act of the United States (U.S.), some U.S.
cases, and some Canadian cases to support their defense.
On November 28, 2001, the Court of Appeals issued its assailed Decision, which reversed that of the trial
court, viz:
WHEREFORE, premises considered, the Decision dated July 25, 1996, issued by the Regional Trial Court of
Cebu City, Branch 10, is hereby REVERSED and SET ASIDE, and a new one is entered DISMISSING the instant
case for want of jurisdiction.
The appellate court denied petitioner Crescent’s motion for reconsideration explaining that it "dismissed the
instant action primarily on the ground of forum non conveniens considering that the parties are foreign
corporations which are not doing business in the Philippines."
Hence, this petition submitting the following issues for resolution, viz:
1. Philippine courts have jurisdiction over a foreign vessel found inside Philippine waters for the enforcement
of a maritime lien against said vessel and/or its owners and operators;
2. The principle of forum non conveniens is inapplicable to the instant case;
3. The trial court acquired jurisdiction over the subject matter of the instant case, as well as over the res and
over the persons of the parties;
4. The enforcement of a maritime lien on the subject vessel is expressly granted by law. The Ship Mortgage
Acts as well as the Code of Commerce provides for relief to petitioner for its unpaid claim;
5. The arbitration clause in the contract was not rigid or inflexible but expressly allowed petitioner to enforce
its maritime lien in Philippine courts provided the vessel was in the Philippines;
6. The law of the state of New York is inapplicable to the present controversy as the same has not been
properly pleaded and proved;
7. Petitioner has legal capacity to sue before Philippine courts as it is suing upon an isolated business
transaction;
8. Respondents were duly served summons although service of summons upon respondents is not a
jurisdictional requirement, the action being a suit quasi in rem;
9. The trial court’s decision has factual and legal bases; and,
10. The respondents should be held jointly and solidarily liable.
In a nutshell, this case is for the satisfaction of unpaid supplies furnished by a foreign supplier in a foreign
port to a vessel of foreign registry that is owned, chartered and sub-chartered by foreign entities.
Under Batas Pambansa Bilang 129, as amended by Republic Act No. 7691, RTCs exercise exclusive original
jurisdiction "(i)n all actions in admiralty and maritime where the demand or claim exceeds two hundred
thousand pesos (₱200,000) or in Metro Manila, where such demand or claim exceeds four hundred
thousand pesos (₱400,000)." Two (2) tests have been used to determine whether a case involving a contract
comes within the admiralty and maritime jurisdiction of a court - the locational test and the subject matter
test. The English rule follows the locational test wherein maritime and admiralty jurisdiction, with a few
exceptions, is exercised only on contracts made upon the sea and to be executed thereon. This is totally
rejected under the American rule where the criterion in determining whether a contract is maritime
depends on the nature and subject matter of the contract, having reference to maritime service and
transactions.4 In International Harvester Company of the Philippines v. Aragon,5 we adopted the American
rule and held that "(w)hether or not a contract is maritime depends not on the place where the contract is
made and is to be executed, making the locality the test, but on the subject matter of the contract, making
the true criterion a maritime service or a maritime transaction."
A contract for furnishing supplies like the one involved in this case is maritime and within the jurisdiction of
admiralty.6 It may be invoked before our courts through an action in rem or quasi in rem or an action in
personam. Thus: 7
"Articles 579 and 584 [of the Code of Commerce] provide a method of collecting or enforcing not only the
liens created under Section 580 but also for the collection of any kind of lien whatsoever."8 In the Philippines,
we have a complete legislation, both substantive and adjective, under which to bring an action in rem
against a vessel for the purpose of enforcing liens. The substantive law is found in Article 580 of the Code of
Commerce. The procedural law is to be found in Article 584 of the same Code. The result is, therefore, that
in the Philippines any vessel – even though it be a foreign vessel – found in any port of this Archipelago may
be attached and sold under the substantive law which defines the right, and the procedural law contained in
the Code of Commerce by which this right is to be enforced.9 x x x. But where neither the law nor the
contract between the parties creates any lien or charge upon the vessel, the only way in which it can be
seized before judgment is by pursuing the remedy relating to attachment under Rule 59 [now Rule 57] of the
Rules of Court.10
But, is petitioner Crescent entitled to a maritime lien under our laws? Petitioner Crescent bases its claim of a
maritime lien on Sections 21, 22 and 23 of Presidential Decree No. 1521 (P.D. No. 1521), also known as the
Ship Mortgage Decree of 1978, viz: Sec. 21. Maritime Lien for Necessaries; persons entitled to such lien. -
Any person furnishing repairs, supplies, towage, use of dry dock or maritime railway, or other necessaries, to
any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person
authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and
it shall be necessary to allege or prove that credit was given to the vessel.
Sec. 22. Persons Authorized to Procure Repairs, Supplies and Necessaries. - The following persons shall be
presumed to have authority from the owner to procure repairs, supplies, towage, use of dry dock or marine
railway, and other necessaries for the vessel: The managing owner, ship’s husband, master or any person to
whom the management of the vessel at the port of supply is entrusted. No person tortuously or unlawfully
in possession or charge of a vessel shall have authority to bind the vessel.
Sec. 23. Notice to Person Furnishing Repairs, Supplies and Necessaries. - The officers and agents of a vessel
specified in Section 22 of this Decree shall be taken to include such officers and agents when appointed by a
charterer, by an owner pro hac vice, or by an agreed purchaser in possession of the vessel; but nothing in
this Decree shall be construed to confer a lien when the furnisher knew, or by exercise of reasonable
diligence could have ascertained, that because of the terms of a charter party, agreement for sale of the
vessel, or for any other reason, the person ordering the repairs, supplies, or other necessaries was without
authority to bind the vessel therefor.
Petitioner Crescent submits that these provisions apply to both domestic and foreign vessels, as well as
domestic and foreign suppliers of necessaries. It contends that the use of the term "any person" in Section
21 implies that the law is not restricted to domestic suppliers but also includes all persons who supply
provisions and necessaries to a vessel, whether foreign or domestic. It points out further that the law does
not indicate that the supplies or necessaries must be furnished in the Philippines in order to give petitioner
the right to seek enforcement of the lien with a Philippine court.11
Respondents Vessel and SCI, on the other hand, maintain that Section 21 of the P.D. No. 1521 or the Ship
Mortgage Decree of 1978 does not apply to a foreign supplier like petitioner Crescent as the provision refers
only to a situation where the person furnishing the supplies is situated inside the territory of the Philippines
and not where the necessaries were furnished in a foreign jurisdiction like Canada.12
We find against petitioner Crescent.
I. P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted "to accelerate the growth and
development of the shipping industry" and "to extend the benefits accorded to overseas shipping under
Presidential Decree No. 214 to domestic shipping."13 It is patterned closely from the U.S. Ship Mortgage Act
of 1920 and the Liberian Maritime Law relating to preferred mortgages.14 Notably, Sections 21, 22 and 23 of
P.D. No. 1521 or the Ship Mortgage Decree of 1978 are identical to Subsections P, Q, and R, respectively, of
the U.S. Ship Mortgage Act of 1920, which is part of the Federal Maritime Lien Act. Hence, U.S.
jurisprudence finds relevance to determining whether P.D. No. 1521 or the Ship Mortgage Decree of 1978
applies in the present case.
The various tests used in the U.S. to determine whether a maritime lien exists are the following:
One. "In a suit to establish and enforce a maritime lien for supplies furnished to a vessel in a foreign port,
whether such lien exists, or whether the court has or will exercise jurisdiction, depends on the law of the
country where the supplies were furnished, which must be pleaded and proved."15 This principle was laid
down in the 1888 case of The Scotia,16 reiterated in The Kaiser Wilhelm II17 (1916), in The Woudrichem18
(1921) and in The City of Atlanta19 (1924).
Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which replaced such single-factor methodologies as the
law of the place of supply.20
In Lauritzen v. Larsen,21 a Danish seaman, while temporarily in New York, joined the crew of a ship of Danish
flag and registry that is owned by a Danish citizen. He signed the ship’s articles providing that the rights of
the crew members would be governed by Danish law and by the employer’s contract with the Danish
Seamen’s Union, of which he was a member. While in Havana and in the course of his employment, he was
negligently injured. He sued the shipowner in a federal district court in New York for damages under the
Jones Act. In holding that Danish law and not the Jones Act was applicable, the Supreme Court adopted a
multiple-contact test to determine, in the absence of a specific Congressional directive as to the statute’s
reach, which jurisdiction’s law should be applied. The following factors were considered: (1) place of the
wrongful act; (2) law of the flag; (3) allegiance or domicile of the injured; (4) allegiance of the defendant
shipowner; (5) place of contract; (6) inaccessibility of foreign forum; and (7) law of the forum.
Several years after Lauritzen, the U.S. Supreme Court in the case of Romero v. International Terminal
Operating Co.22 again considered a foreign seaman’s personal injury claim under both the Jones Act and the
general maritime law. The Court held that the factors first announced in the case of Lauritzen were
applicable not only to personal injury claims arising under the Jones Act but to all matters arising under
maritime law in general.23
Hellenic Lines, Ltd. v. Rhoditis24 was also a suit under the Jones Act by a Greek seaman injured aboard a ship
of Greek registry while in American waters. The ship was operated by a Greek corporation which has its
largest office in New York and another office in New Orleans and whose stock is more than 95% owned by a
U.S. domiciliary who is also a Greek citizen. The ship was engaged in regularly scheduled runs between
various ports of the U.S. and the Middle East, Pakistan, and India, with its entire income coming from either
originating or terminating in the U.S. The contract of employment provided that Greek law and a Greek
collective bargaining agreement would apply between the employer and the seaman and that all claims
arising out of the employment contract were to be adjudicated by a Greek court. The U.S. Supreme Court
observed that of the seven factors listed in the Lauritzen test, four were in favor of the shipowner and
against jurisdiction. In arriving at the conclusion that the Jones Act applies, it ruled that the application of
the Lauritzen test is not a mechanical one. It stated thus: "[t]he significance of one or more factors must be
considered in light of the national interest served by the assertion of Jones Act jurisdiction. (footnote omitted)
Moreover, the list of seven factors in Lauritzen was not intended to be exhaustive. x x x [T]he shipowner’s
base of operations is another factor of importance in determining whether the Jones Act is applicable; and
there well may be others."
The principles enunciated in these maritime tort cases have been extended to cases involving unpaid
supplies and necessaries such as the
cases of Forsythe International U.K., Ltd. v. M/V Ruth Venture,25 and Comoco Marine Services v. M/V El
Centroamericano.26
Three. The factors provided in Restatement (Second) of Conflicts of Law have also been applied, especially in
resolving cases brought under the Federal Maritime Lien Act. Their application suggests that in the absence
of an effective choice of law by the parties, the forum contacts to be considered include: (a) the place of
contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the
subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place
of business of the parties.27
In Gulf Trading and Transportation Co. v. The Vessel Hoegh Shield,28 an admiralty action in rem was brought
by an American supplier against a vessel of Norwegian flag owned by a Norwegian Company and chartered
by a London time charterer for unpaid fuel oil and marine diesel oil delivered while the vessel was in U.S.
territory. The contract was executed in London. It was held that because the bunker fuel was delivered to a
foreign flag vessel within the jurisdiction of the U.S., and because the invoice specified payment in the U.S.,
the admiralty and maritime law of the U.S. applied. The U.S. Court of Appeals recognized the modern
approach to maritime conflict of law problems introduced in the Lauritzen case. However, it observed that
Lauritzen involved a torts claim under the Jones Act while the present claim involves an alleged maritime lien
arising from unpaid supplies. It made a disclaimer that its conclusion is limited to the unique circumstances
surrounding a maritime lien as well as the statutory directives found in the Maritime Lien Statute and that
the initial choice of law determination is significantly affected by the statutory policies surrounding a
maritime lien. It ruled that the facts in the case call for the application of the Restatement (Second) of
Conflicts of Law. The U.S. Court gave much significance to the congressional intent in enacting the Maritime
Lien Statute to protect the interests of American supplier of goods, services or necessaries by making
maritime liens available where traditional services are routinely rendered. It concluded that the Maritime
Lien Statute represents a relevant policy of the forum that serves the needs of the international legal system
as well as the basic policies underlying maritime law. The court also gave equal importance to the
predictability of result and protection of justified expectations in a particular field of law. In the maritime
realm, it is expected that when necessaries are furnished to a vessel in an American port by an American
supplier, the American Lien Statute will apply to protect that supplier regardless of the place where the
contract was formed or the nationality of the vessel.
The same principle was applied in the case of Swedish Telecom Radio v. M/V Discovery I29 where the
American court refused to apply the Federal Maritime Lien Act to create a maritime lien for goods and
services supplied by foreign companies in foreign ports. In this case, a Swedish company supplied radio
equipment in a Spanish port to refurbish a Panamanian vessel damaged by fire. Some of the contract
negotiations occurred in Spain and the agreement for supplies between the parties indicated Swedish
company’s willingness to submit to Swedish law. The ship was later sold under a contract of purchase
providing for the application of New York law and was arrested in the U.S. The U.S. Court of Appeals also held
that while the contacts-based framework set forth in Lauritzen was useful in the analysis of all maritime
choice of law situations, the factors were geared towards a seaman’s injury claim. As in Gulf Trading, the lien
arose by operation of law because the ship’s owner was not a party to the contract under which the goods
were supplied. As a result, the court found it more appropriate to consider the factors contained in Section 6
of the Restatement (Second) of Conflicts of Law. The U.S. Court held that the primary concern of the Federal
Maritime Lien Act is the protection of American suppliers of goods and services.
The same factors were applied in the case of Ocean Ship Supply, Ltd. v. M/V Leah.30
II. Finding guidance from the foregoing decisions, the Court cannot sustain petitioner Crescent’s insistence
on the application of P.D. No. 1521 or the Ship Mortgage Decree of 1978 and hold that a maritime lien exists.
First. Out of the seven basic factors listed in the case of Lauritzen, Philippine law only falls under one – the
law of the forum. All other elements are foreign – Canada is the place of the wrongful act, of the allegiance
or domicile of the injured and the place of contract; India is the law of the flag and the allegiance of the
defendant shipowner. Balancing these basic interests, it is inconceivable that the Philippine court has any
interest in the case that outweighs the interests of Canada or India for that matter.
Second. P.D. No. 1521 or the Ship Mortgage Decree of 1978 is inapplicable following the factors under
Restatement (Second) of Conflict of Laws. Like the Federal Maritime Lien Act of the U.S., P.D. No. 1521 or the
Ship Mortgage Decree of 1978 was enacted primarily to protect Filipino suppliers and was not intended to
create a lien from a contract for supplies between foreign entities delivered in a foreign port.
Third. Applying P.D. No. 1521 or the Ship Mortgage Decree of 1978 and rule that a maritime lien exists would
not promote the public policy behind the enactment of the law to develop the domestic shipping industry.
Opening up our courts to foreign suppliers by granting them a maritime lien under our laws even if they are
not entitled to a maritime lien under their laws will encourage forum shopping.
Finally. The submission of petitioner is not in keeping with the reasonable expectation of the parties to the
contract. Indeed, when the parties entered into a contract for supplies in Canada, they could not have
intended the laws of a remote country like the Philippines to determine the creation of a lien by the mere
accident of the Vessel’s being in Philippine territory.
III. But under which law should petitioner Crescent prove the existence of its maritime lien?
In light of the interests of the various foreign elements involved, it is clear that Canada has the most
significant interest in this dispute. The injured party is a Canadian corporation, the sub-charterer which
placed the orders for the supplies is also Canadian, the entity which physically delivered the bunker fuels is in
Canada, the place of contracting and negotiation is in Canada, and the supplies were delivered in Canada.
The arbitration clause contained in the Bunker Fuel Agreement which states that New York law governs the
"construction, validity and performance" of the contract is only a factor that may be considered in the
choice-of-law analysis but is not conclusive. As in the cases of Gulf Trading and Swedish Telecom, the lien
that is the subject matter of this case arose by operation of law and not by contract because the shipowner
was not a party to the contract under which the goods were supplied.
It is worthy to note that petitioner Crescent never alleged and proved Canadian law as basis for the existence
of a maritime lien. To the end, it insisted on its theory that Philippine law applies. Petitioner contends that
even if foreign law applies, since the same was not properly pleaded and proved, such foreign law must be
presumed to be the same as Philippine law pursuant to the doctrine of processual presumption.
Thus, we are left with two choices: (1) dismiss the case for petitioner’s failure to establish a cause of action31
or (2) presume that Canadian law is the same as Philippine law. In either case, the case has to be dismissed.
It is well-settled that a party whose cause of action or defense depends upon a foreign law has the burden of
proving the foreign law. Such foreign law is treated as a question of fact to be properly pleaded and
proved.32Petitioner Crescent’s insistence on enforcing a maritime lien before our courts depended on the
existence of a maritime lien under the proper law. By erroneously claiming a maritime lien under Philippine
law instead of proving that a maritime lien exists under Canadian law, petitioner Crescent failed to establish a
cause of action.33
Even if we apply the doctrine of processual presumption, the result will still be the same. Under P.D. No.
1521 or the Ship Mortgage Decree of 1978, the following are the requisites for maritime liens on necessaries
to exist: (1) the "necessaries" must have been furnished to and for the benefit of the vessel; (2) the
"necessaries" must have been necessary for the continuation of the voyage of the vessel; (3) the credit must
have been extended to the vessel; (4) there must be necessity for the extension of the credit; and (5) the
necessaries must be ordered by persons authorized to contract on behalf of the vessel.34 These do not avail
in the instant case.
First. It was not established that benefit was extended to the vessel. While this is presumed when the master
of the ship is the one who placed the order, it is not disputed that in this case it was the sub-charterer
Portserv which placed the orders to petitioner Crescent.35 Hence, the presumption does not arise and it is
incumbent upon petitioner Crescent to prove that benefit was extended to the vessel. Petitioner did not.
Second. Petitioner Crescent did not show any proof that the marine products were necessary for the
continuation of the vessel.
Third. It was not established that credit was extended to the vessel. It is presumed that "in the absence of
fraud or collusion, where advances are made to a captain in a foreign port, upon his request, to pay for
necessary repairs or supplies to enable his vessel to prosecute her voyage, or to pay harbor dues, or for
pilotage, towage and like services rendered to the vessel, that they are made upon the credit of the vessel as
well as upon that of her owners."36 In this case, it was the sub-charterer Portserv which requested for the
delivery of the bunker fuels. The issuance of two checks amounting to US$300,000 in favor of petitioner
Crescent prior to the delivery of the bunkers as security for the payment of the obligation weakens
petitioner Crescent’s contention that credit was extended to the Vessel.
We also note that when copies of the charter parties were submitted by respondents in the Court of Appeals,
the time charters between respondent SCI and Halla and between Halla and Transmar were shown to
contain a clause which states that "the Charterers shall provide and pay for all the fuel except as otherwise
agreed." This militates against petitioner Crescent’s position that Portserv is authorized by the shipowner to
contract for supplies upon the credit of the vessel.
Fourth. There was no proof of necessity of credit. A necessity of credit will be presumed where it appears
that the repairs and supplies were necessary for the ship and that they were ordered by the master. This
presumption does not arise in this case since the fuels were not ordered by the master and there was no
proof of necessity for the supplies.
Finally. The necessaries were not ordered by persons authorized to contract in behalf of the vessel as
provided under Section 22 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 - the managing owner, the
ship’s husband, master or any person with whom the management of the vessel at the port of supply is
entrusted. Clearly, Portserv, a sub-charterer under a time charter, is not someone to whom the management
of the vessel has been entrusted. A time charter is a contract for the use of a vessel for a specified period of
time or for the duration of one or more specified voyages wherein the owner of the time-chartered vessel
retains possession and control through the master and crew who remain his employees.37 Not enjoying the
presumption of authority, petitioner Crescent should have proved that Portserv was authorized by the
shipowner to contract for supplies. Petitioner failed.
A discussion on the principle of forum non conveniens is unnecessary.
IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. No. CV 54920, dated November 28, 2001,
and its subsequent Resolution of September 3, 2002 are AFFIRMED. The instant petition for review on
certiorari is DENIED for lack of merit. Cost against petitioner.
SO ORDERED.
 G.R. No. 161730 January 28, 2005
JAPAN AIRLINES
vs.
MICHAEL ASUNCION and JEANETTE ASUNCION,
This petition for review seeks to reverse and set aside the October 9, 2002 decision1 of the Court of Appeals
and its January 12, 2004 resolution,2 which affirmed in toto the June 10, 1997 decision of the Regional Trial
Court of Makati City, Branch 61 in Civil Case No. 92-3635.3
On March 27, 1992, respondents Michael and Jeanette Asuncion left Manila on board Japan Airlines’ (JAL)
Flight 742 bound for Los Angeles. Their itinerary included a stop-over in Narita and an overnight stay at Hotel
Nikko Narita. Upon arrival at Narita, Mrs. Noriko Etou-Higuchi of JAL endorsed their applications for shore
pass and directed them to the Japanese immigration official.4 A shore pass is required of a foreigner aboard
a vessel or aircraft who desires to stay in the neighborhood of the port of call for not more than 72 hours.
During their interview, the Japanese immigration official noted that Michael appeared shorter than his
height as indicated in his passport. Because of this inconsistency, respondents were denied shore pass
entries and were brought instead to the Narita Airport Rest House where they were billeted overnight.
The immigration official also handed Mrs. Higuchi a Notice5 where it was stated that respondents were to be
"watched so as not to escape".
Mr. Atsushi Takemoto of the International Service Center (ISC), the agency tasked by Japan’s Immigration
Department to handle passengers who were denied shore pass entries, brought respondents to the Narita
Airport Rest House where they stayed overnight until their departure the following day for Los Angeles.
Respondents were charged US$400.00 each for their accommodation, security service and meals.
On December 12, 1992, respondents filed a complaint for damages6 claiming that JAL did not fully apprise
them of their travel requirements and that they were rudely and forcibly detained at Narita Airport.
JAL denied the allegations of respondents. It maintained that the refusal of the Japanese immigration
authorities to issue shore passes to respondents is an act of state which JAL cannot interfere with or prevail
upon. Consequently, it cannot impose upon the immigration authorities that respondents be billeted at
Hotel Nikko instead of the airport resthouse.7
On June 10, 1997, the trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiffs ordering defendant
JAL to pay plaintiffs as follows:
1. the sum of US$800.00 representing the expenses incurred at the Narita Airport with interest at 12%
per annum from March 27, 1992 until the sum is fully paid;
2. the sum of P200,000.00 for each plaintiff as moral damages;
3. the amount of P100,000.00 for each plaintiff as exemplary damages;
4. the amount of P100,000.00 as attorney’s fees; and
5. costs of suit.
SO ORDERED.8
The trial court dismissed JAL’s counterclaim for litigation expenses, exemplary damages and attorney’s fees.
On October 9, 2002, the Court of Appeals affirmed in toto the decision of the trial court. Its motion for
reconsideration having been denied,9 JAL now files the instant petition.
The basic issue for resolution is whether JAL is guilty of breach of contract.
Under Article 1755 of the Civil Code, a common carrier such as JAL is bound to carry its passengers safely as
far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances. When an airline issues a ticket to a passenger, confirmed for a particular
flight on a certain date, a contract of carriage arises. The passenger has every right to expect that he be
transported on that flight and on that date and it becomes the carrier’s obligation to carry him and his
luggage safely to the agreed destination.10 If the passenger is not so transported or if in the process of
transporting he dies or is injured, the carrier may be held liable for a breach of contract of carriage.11
We find that JAL did not breach its contract of carriage with respondents. It may be true that JAL has the
duty to inspect whether its passengers have the necessary travel documents, however, such duty does not
extend to checking the veracity of every entry in these documents. JAL could not vouch for the authenticity
of a passport and the correctness of the entries therein. The power to admit or not an alien into the country
is a sovereign act which cannot be interfered with even by JAL. This is not within the ambit of the contract of
carriage entered into by JAL and herein respondents. As such, JAL should not be faulted for the denial of
respondents’ shore pass applications.
Prior to their departure, respondents were aware that upon arrival in Narita, they must secure shore pass
entries for their overnight stay. Respondents’ mother, Mrs. Imelda Asuncion, insisted though that Ms. Linda
Villavicencio of JAL assured her that her children would be granted the passes.12 This assertion was
satisfactorily refuted by Ms. Villavicencio’s testimony during the cross examination, to wit:
ATTY. GONZAGA:
Q I will show to you Exh. 9 which is the TIM and on page 184 hereof, particularly number 10, and I quote,
"Those holding tickets with confirmed seats and other documents for their onward journey and
continuing their journey to a third country provided that they obtain an indorsement with an application
of shore pass or transit pass from the airline ground personnel before clearing the immigration
formality?"
WITNESS:
A Yes, Sir.
Q Did you tell this provision to Mrs. Asuncion?
A Yes, Sir. I did.
Q Are you sure?
A Yes, Sir.
Q Did you give a copy?
A No, Sir, I did not give a copy but verbally I explained to her the procedure they have to undergo when
they get to narita airport.
….
Q And you read the contents of this [TIM]?
A No, Sir, I did not read it to her but I explained to her the procedure that each passenger has to go
through before when they get to narita airport before they line up in the immigration counter.
Q In other words, you told Mrs. Asuncion the responsibility of securing shore passes bears solely on the
passengers only?
 A Yes, Sir.
Q That the airline has no responsibility whatsoever with regards (sic) to the application for shore passes?
A Yes, Sir.13
Next, respondents claimed that petitioner breached its contract of carriage when it failed to explain to the
immigration authorities that they had overnight vouchers at the Hotel Nikko Narita. They imputed that JAL
did not exhaust all means to prevent the denial of their shore pass entry applications.
To reiterate, JAL or any of its representatives have no authority to interfere with or influence the immigration
authorities. The most that could be expected of JAL is to endorse respondents’ applications, which Mrs.
Higuchi did immediately upon their arrival in Narita.
As Mrs. Higuchi stated during her deposition:
ATTY. QUIMBO
Q: Madam Witness, what assistance did you give, if any, to the plaintiffs during this interview?
A: No, I was not present during their interview. I cannot assist.
Q: Why not?
A: It is forbidden for a civilian personnel to interfere with the Immigration agent’s duties.14
….
Q: During the time that you were in that room and you were given this notice for you to sign, did you tell
the immigration agent that Michael and Jeanette Asuncion should be allowed to stay at the Hotel Nikko
Narita because, as passengers of JAL, and according to the plaintiff, they had vouchers to stay in that
hotel that night?
A: No, I couldn’t do so.
Q: Why not?
A: This notice is evidence which shows the decision of immigration authorities. It shows there that the
immigration inspector also designated Room 304 of the Narita Airport Resthouse as the place where the
passengers were going to wait for their outbound flight.1awphi1.nét I cannot interfere with that
decision.15
Mrs. Higuchi did all she could to assist the respondents. Upon being notified of the denial of respondents’
applications, Mrs. Higuchi immediately made reservations for respondents at the Narita Airport Rest House
which is really more a hotel than a detention house as claimed by respondents.16
More importantly, nowhere in respondent Michael’s testimony did he state categorically that Mrs. Higuchi or
any other employee of JAL treated them rudely or exhibited improper behavior throughout their stay. We
therefore find JAL not remiss in its obligations as a common carrier.1awphi1.nét
Moral damages may be recovered in cases where one willfully causes injury to property, or in cases of breach
of contract where the other party acts fraudulently or in bad faith. Exemplary damages are imposed by way
of example or correction for the public good, when the party to a contract acts in wanton, fraudulent,
oppressive or malevolent manner. Attorney’s fees are allowed when exemplary damages are awarded and
when the party to a suit is compelled to incur expenses to protect his interest.17 There being no breach of
contract nor proof that JAL acted in wanton, fraudulent or malevolent manner, there is no basis for the
award of any form of damages.
Neither should JAL be held liable to reimburse respondents the amount of US$800.00. It has been
sufficiently proven that the amount pertained to ISC, an agency separate and distinct from JAL, in payment
for the accommodations provided to respondents. The payments did not in any manner accrue to the
benefit of JAL.
However, we find that the Court of Appeals correctly dismissed JAL’s counterclaim for litigation expenses,
exemplary damages and attorney’s fees. The action was filed by respondents in utmost good faith and not
manifestly frivolous. Respondents honestly believed that JAL breached its contract. A person’s right to litigate
should not be penalized by holding him liable for damages. This is especially true when the filing of the case
is to enforce what he believes to be his rightful claim against another although found to be erroneous.18
WHEREFORE, in view of the foregoing, the instant petition is PARTLY GRANTED. The October 9, 2002 decision
of the Court of Appeals and its January 12, 2004 resolution in CA-G.R. CV No. 57440, are REVERSED and SET
ASIDE insofar as the finding of breach on the part of petitioner and the award of damages, attorney’s fees
and costs of the suit in favor of respondents is concerned. Accordingly, there being no breach of contract on
the part of petitioner, the award of actual, moral and exemplary damages, as well as attorney’s fees and
costs of the suit in favor of respondents Michael and Jeanette Asuncion, is DELETED for lack of basis.
However, the dismissal for lack of merit of petitioner’s counterclaim for litigation expenses, exemplary
damages and attorney’s fees, is SUSTAINED. No pronouncement as to costs.
SO ORDERED.
 G.R. No. 153563 February 07, 2005
NATIONAL TRUCKING AND FORWARDING CORPORATION,
vs.
LORENZO SHIPPING CORPORATION
For review on certiorari are the Decision1 dated January 16, 2002, of the Court of Appeals, in CA-G.R. CV No.
48349, and its Resolution,2 of May 13, 2002, denying the motion for reconsideration of herein petitioner
National Trucking and Forwarding Corporation (NTFC). The impugned decision affirmed in toto the
judgment3 dated November 14, 1994 of the Regional Trial Court (RTC) of Manila, Branch 53, in Civil Case No.
90-52102.
The undisputed facts, as summarized by the appellate court, are as follows:
On June 5, 1987, the Republic of the Philippines, through the Department of Health (DOH), and the
Cooperative for American Relief Everywhere, Inc. (CARE) signed an agreement wherein CARE would acquire
from the United States government donations of non-fat dried milk and other food products from January 1,
1987 to December 31, 1989. In turn, the Philippines would transport and distribute the donated
commodities to the intended beneficiaries in the country.
The government entered into a contract of carriage of goods with herein petitioner National Trucking and
Forwarding Corporation (NTFC). Thus, the latter shipped 4,868 bags of non-fat dried milk through herein
respondent Lorenzo Shipping Corporation (LSC) from September to December 1988. The consignee named
in the bills of lading issued by the respondent was Abdurahman Jama, petitioner’s branch supervisor in
Zamboanga City.
On reaching the port of Zamboanga City, respondent’s agent, Efren Ruste4 Shipping Agency, unloaded the
4,868 bags of non-fat dried milk and delivered the goods to petitioner’s warehouse. Before each delivery,
Rogelio Rizada and Ismael Zamora, both delivery checkers of Efren Ruste Shipping Agency, requested
Abdurahman to surrender the original bills of lading, but the latter merely presented certified true copies
thereof. Upon completion of each delivery, Rogelio and Ismael asked Abdurahman to sign the delivery
receipts. However, at times when Abdurahman had to attend to other business before a delivery was
completed, he instructed his subordinates to sign the delivery receipts for him.
Notwithstanding the precautions taken, the petitioner allegedly did not receive the subject goods. Thus, in a
letter dated March 11, 1989, petitioner NTFC filed a formal claim for non-delivery of the goods shipped
through respondent.
In its letter of April 26, 1989, the respondent explained that the cargo had already been delivered to
Abdurahman Jama. The petitioner then decided to investigate the loss of the goods. But before the
investigation was over, Abdurahman Jama resigned as branch supervisor of petitioner.
Noting but disbelieving respondent’s insistence that the goods were delivered, the government through the
DOH, CARE, and NTFC as plaintiffs filed an action for breach of contract of carriage, against respondent as
defendant, with the RTC of Manila.
After trial, the RTC resolved the case as follows:
WHEREFORE, judgment is hereby rendered in favor of the defendant and against the plaintiffs, dismissing
the latter’s complaint, and ordering the plaintiffs, pursuant to the defendant’s counterclaim, to pay, jointly
and solidarily, to the defendant, actual damages in the amount of ₱50,000.00, and attorney’s fees in the
amount of ₱70,000.00, plus the costs of suit.
SO ORDERED.5
Dissatisfied with the foregoing ruling, herein petitioner appealed to the Court of Appeals. It faulted the lower
court for not holding that respondent failed to deliver the cargo, and that respondent failed to exercise the
extraordinary diligence required of common carriers. Petitioner also assailed the lower court for denying its
claims for actual, moral, and exemplary damages, and for awarding actual damages and attorney’s fees to
the respondent.6
The Court of Appeals found that the trial court did not commit any reversible error. It dismissed the appeal,
and affirmed the assailed decision in toto.
Undaunted, petitioner now comes to us, assigning the following errors:
1. THE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO APPRECIATE AND APPLY THE LEGAL
STANDARD OF EXTRAORDINARY DILIGENCE IN THE SHIPMENT AND DELIVERY OF GOODS TO THE
RESPONDENT AS A COMMON CARRIER, AS WELL AS THE ACCOMPANYING LEGAL PRESUMPTION OF
FAULT OR NEGLIGENCE ON THE PART OF THE COMMON CARRIER, IF THE GOODS ARE LOST, DESTROYED
OR DETERIORATED, AS REQUIRED UNDER THE CIVIL CODE.
2. THE COURT OF APPEALS GRAVELY ERRED WHEN IT SUSTAINED THE BASELESS AND ARBITRARY AWARD
OF ACTUAL DAMAGES AND ATTORNEY’S FEES INASMUCH AS THE ORIGINAL COMPLAINT WAS FILED IN
GOOD FAITH, WITHOUT MALICE AND WITH THE BEST INTENTION OF PROTECTING THE INTEREST AND
INTEGRITY OF THE GOVERNMENT AND ITS CREDIBILITY AND RELATIONSHIP WITH INTERNATIONAL
RELIEF AGENCIES AND DONOR STATES AND ORGANIZATION.7
The issues for our resolution are: (1) Is respondent presumed at fault or negligent as common carrier for the
loss or deterioration of the goods? and (2) Are damages and attorney’s fees due respondent?
Anent the first issue, petitioner contends that the respondent is presumed negligent and liable for failure to
abide by the terms and conditions of the bills of lading; that Abdurahman Jama’s failure to testify should not
be held against petitioner; and that the testimonies of Rogelio Rizada and Ismael Zamora, as employees of
respondent’s agent, Efren Ruste Shipping Agency, were biased and could not overturn the legal presumption
of respondent’s fault or negligence.
For its part, the respondent avers that it observed extraordinary diligence in the delivery of the goods. Prior
to releasing the goods to Abdurahman, Rogelio and Ismael required the surrender of the original bills of
lading, and in their absence, the certified true copies showing that Abdurahman was indeed the consignee
of the goods. In addition, they required Abdurahman or his designated subordinates to sign the delivery
receipts upon completion of each delivery.
We rule for respondent.
Article 17338 of the Civil Code demands that a common carrier observe extraordinary diligence over the
goods transported by it. Extraordinary diligence is that extreme measure of care and caution which persons
of unusual prudence and circumspection use for securing and preserving their own property or rights.9 This
exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the
scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged
for shipment. Hence, in case of loss of goods in transit, the common carrier is presumed under the law to
have been at fault or negligent.10 However, the presumption of fault or negligence, may be overturned by
competent evidence showing that the common carrier has observed extraordinary diligence over the goods.
In the instant case, we agree with the court a quo that the respondent adequately proved that it exercised
extraordinary diligence. Although the original bills of lading remained with petitioner, respondent’s agents
demanded from Abdurahman the certified true copies of the bills of lading. They also asked the latter and in
his absence, his designated subordinates, to sign the cargo delivery receipts.
This practice, which respondent’s agents testified to be their standard operating procedure, finds support in
Article 353 of the Code of Commerce:
ART. 353. . . . After the contract has been complied with, the bill of lading which the carrier has issued shall
be returned to him, and by virtue of the exchange of this title with the thing transported, the respective
obligations and actions shall be considered cancelled, ….
In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the carrier,
because of its loss or of any other cause, he must give the latter a receipt for the goods delivered, this
receipt producing the same effects as the return of the bill of lading. (Emphasis supplied)
Conformably with the aforecited provision, the surrender of the original bill of lading is not a condition
precedent for a common carrier to be discharged of its contractual obligation. If surrender of the original bill
of lading is not possible, acknowledgment of the delivery by signing the delivery receipt suffices. This is what
respondent did.
We also note that some delivery receipts were signed by Abdurahman’s subordinates and not by
Abdurahman himself as consignee. Further, delivery checkers Rogelio and Ismael testified that Abdurahman
was always present at the initial phase of each delivery, although on the few occasions when Abdurahman
could not stay to witness the complete delivery of the shipment, he authorized his subordinates to sign the
delivery receipts for him. This, to our mind, is sufficient and substantial compliance with the requirements.
We further note that, strangely, petitioner made no effort to disapprove Abdurahman’s resignation until
after the investigation and after he was cleared of any responsibility for the loss of the goods. With
Abdurahman outside of its reach, petitioner cannot now pass to respondent what could be Abdurahman’s
negligence, if indeed he were responsible.
On the second issue, petitioner submits there is no basis for the award of actual damages and attorney’s fees.
It maintains that its original complaint for sum of money with damages for breach of contract of carriage was
not fraudulent, in bad faith, nor malicious. Neither was the institution of the action rash nor precipitate.
Petitioner avers the filing of the action was intended to protect the integrity and interest of the government
and its relationship and credibility with international relief agencies and donor states.
On the other hand, respondent maintains that petitioner’s suit was baseless and malicious because instead
of going after its absconding employee, petitioner wanted to recoup its losses from respondent. The trial
court and the Court of Appeals were justified in granting actual damages and reasonable attorney’s fees to
respondent.
On this point, we agree with petitioner.
The right to litigate should bear no premium. An adverse decision does not ipso facto justify an award of
attorney’s fees to the winning party.11 When, as in the instant case, petitioner was compelled to sue to
protect the credibility of the government with international organizations, we are not inclined to grant
attorney’s fees. We find no ill motive on petitioner’s part, only an erroneous belief in the righteousness of its
claim.
Moreover, an award of attorney’s fees, in the concept of damages under Article 2208 of the Civil Code,12
requires factual and legal justifications. While the law allows some degree of discretion on the part of the
courts in awarding attorney’s fees and expenses of litigation, the discretion must be exercised with great care
approximating as closely as possible, the instances exemplified by the law.13 We have searched but found
nothing in petitioner’s suit that justifies the award of attorney’s fees.
Respondent failed to show proof of actual pecuniary loss, hence, no actual damages are due in favor of
respondent.14
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision and resolution of the Court of
Appeals in CA-G.R. CV No. 48349 dated January 16, 2002 and May 13, 2002 respectively, denying petitioner’s
claim for actual, moral and exemplary damages are AFFIRMED. The award of actual damages and attorney’s
fees to respondent pursuant to the latter’s counterclaim in the trial court is DELETED.
SO ORDERED.
 G.R. No. 150255 April 22, 2005
SCHMITZ TRANSPORT & BROKERAGE CORPORATION
vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA SHIPPING AND
DODWELL now INCHCAPE SHIPPING SERVICES
On petition for review is the June 27, 2001 Decision1 of the Court of Appeals, as well as its Resolution2 dated
September 28, 2001 denying the motion for reconsideration, which affirmed that of Branch 21 of the
Regional Trial Court (RTC) of Manila in Civil Case No. 92-631323 holding petitioner Schmitz Transport
Brokerage Corporation (Schmitz Transport), together with Black Sea Shipping Corporation (Black Sea),
represented by its ship agent Inchcape Shipping Inc. (Inchcape), and Transport Venture (TVI), solidarily liable
for the loss of 37 hot rolled steel sheets in coil that were washed overboard a barge.
On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on board M/V
"Alexander Saveliev" (a vessel of Russian registry and owned by Black Sea) 545 hot rolled steel sheets in coil
weighing 6,992,450 metric tons.
The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little Giant Steel
Pipe Corporation (Little Giant),4 were insured against all risks with Industrial Insurance Company Ltd.
(Industrial Insurance) under Marine Policy No. M-91-3747-TIS.5
The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority (PPA)
assigned it a place of berth at the outside breakwater at the Manila South Harbor.6
Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to receive the
cargoes from the shipside, and to deliver them to its (the consignee’s) warehouse at Cainta, Rizal,7 in turn
engaged the services of TVI to send a barge and tugboat at shipside.
On October 26, 1991, around 4:30 p.m., TVI’s tugboat "Lailani" towed the barge "Erika V" to shipside.8
By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the vessel, left and
returned to the port terminal.9 At 9:00 p.m., arrastre operator Ocean Terminal Services Inc. commenced to
unload 37 of the 545 coils from the vessel unto the barge.
By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to an
approaching storm, the unloading unto the barge of the 37 coils was accomplished.10 No tugboat pulled the
barge back to the pier, however.
At around 5:30 a.m. of October 27, 1991, due to strong waves,11 the crew of the barge abandoned it and
transferred to the vessel. The barge pitched and rolled with the waves and eventually capsized, washing the
37 coils into the sea.12 At 7:00 a.m., a tugboat finally arrived to pull the already empty and damaged barge
back to the pier.13
Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the lost
cargoes proved futile.14
Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of ₱5,246,113.11.
Little Giant thereupon executed a subrogation receipt15 in favor of Industrial Insurance.
Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea through its
representative Inchcape (the defendants) before the RTC of Manila, for the recovery of the amount it paid to
Little Giant plus adjustment fees, attorney’s fees, and litigation expenses.16
Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while typhoon
signal No. 1 was raised in Metro Manila.17
By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for unloading the
cargoes outside of the breakwater notwithstanding the storm signal.18 The dispositive portion of the decision
reads:
WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering the
defendants to pay plaintiff jointly and severally the sum of ₱5,246,113.11 with interest from the date the
complaint was filed until fully satisfied, as well as the sum of ₱5,000.00 representing the adjustment fee plus
the sum of 20% of the amount recoverable from the defendants as attorney’s fees plus the costs of suit. The
counterclaims and cross claims of defendants are hereby DISMISSED for lack of [m]erit.19
To the trial court’s decision, the defendants Schmitz Transport and TVI filed a joint motion for
reconsideration assailing the finding that they are common carriers and the award of excessive attorney’s
fees of more than ₱1,000,000. And they argued that they were not motivated by gross or evident bad faith
and that the incident was caused by a fortuitous event. 20
By resolution of February 4, 1998, the trial court denied the motion for reconsideration. 21
All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001, affirmed in toto the
decision of the trial court, 22 it finding that all the defendants were common carriers — Black Sea and TVI for
engaging in the transport of goods and cargoes over the seas as a regular business and not as an isolated
transaction,23 and Schmitz Transport for entering into a contract with Little Giant to transport the cargoes
from ship to port for a fee.24
In holding all the defendants solidarily liable, the appellate court ruled that "each one was essential such that
without each other’s contributory negligence the incident would not have happened and so much so that
the person principally liable cannot be distinguished with sufficient accuracy."25
In discrediting the defense of fortuitous event, the appellate court held that "although defendants obviously
had nothing to do with the force of nature, they however had control of where to anchor the vessel, where
discharge will take place and even when the discharging will commence."26
The defendants’ respective motions for reconsideration having been denied by Resolution27 of September 28,
2001, Schmitz Transport (hereinafter referred to as petitioner) filed the present petition against TVI,
Industrial Insurance and Black Sea.
Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal, consignee
Little Giant, hence, the transportation contract was by and between Little Giant and TVI.28
By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI were required
to file their respective Comments.29
By its Comment, Black Sea argued that the cargoes were received by the consignee through petitioner in
good order, hence, it cannot be faulted, it having had no control and supervision thereover.30
For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and transferred
them unto the barge upon the instruction of petitioner.31
In issue then are:
(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of negligence on
the part of petitioner Black Sea and TVI, and
(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and TVI.
When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all liability
arising therefrom:
ART. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which though foreseen, were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with his obligation, must be independent of human will; (2)
it must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen it must
be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in any manner; and (4) the obligor must be free from any participation in the aggravation of the
injury resulting to the creditor.32
[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely
by the violence of nature. Human intervention is to be excluded from creating or entering into the cause of
the mischief. When the effect is found to be in part the result of the participation of man, whether due to his
active intervention or neglect or failure to act, the whole occurrence is then humanized and removed from
the rules applicable to the acts of God.33
The appellate court, in affirming the finding of the trial court that human intervention in the form of
contributory negligence by all the defendants resulted to the loss of the cargoes,34 held that unloading
outside the breakwater, instead of inside the breakwater, while a storm signal was up constitutes
negligence.35 It thus concluded that the proximate cause of the loss was Black Sea’s negligence in deciding to
unload the cargoes at an unsafe place and while a typhoon was approaching.36
From a review of the records of the case, there is no indication that there was greater risk in loading the
cargoes outside the breakwater. As the defendants proffered, the weather on October 26, 1991 remained
normal with moderate sea condition such that port operations continued and proceeded normally.37
The weather data report,38 furnished and verified by the Chief of the Climate Data Section of PAG-ASA and
marked as a common exhibit of the parties, states that while typhoon signal No. 1 was hoisted over Metro
Manila on October 23-31, 1991, the sea condition at the port of Manila at 5:00 p.m. - 11:00 p.m. of October
26, 1991 was moderate. It cannot, therefore, be said that the defendants were negligent in not unloading
the cargoes upon the barge on October 26, 1991 inside the breakwater.
That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30 in the
morning39 is, however, a material fact which the appellate court failed to properly consider and appreciate40
— the proximate cause of the loss of the cargoes. Had the barge been towed back promptly to the pier, the
deteriorating sea conditions notwithstanding, the loss could have been avoided. But the barge was left
floating in open sea until big waves set in at 5:30 a.m., causing it to sink along with the cargoes.41 The loss
thus falls outside the "act of God doctrine."
The proximate cause of the loss having been determined, who among the parties is/are responsible
therefor?
Contrary to petitioner’s insistence, this Court, as did the appellate court, finds that petitioner is a common
carrier. For it undertook to transport the cargoes from the shipside of "M/V Alexander Saveliev" to the
consignee’s warehouse at Cainta, Rizal. As the appellate court put it, "as long as a person or corporation
holds [itself] to the public for the purpose of transporting goods as [a] business, [it] is already considered a
common carrier regardless if [it] owns the vehicle to be used or has to hire one."42 That petitioner is a
common carrier, the testimony of its own Vice-President and General Manager Noel Aro that part of the
services it offers to its clients as a brokerage firm includes the transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President and General
Manager of said Company?
Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the company. I also
handle the various division heads of the company for operation matters, and all other related functions that
the President may assign to me from time to time, Sir.
Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell the Honorable
Court if you came to know the company by the name Little Giant Steel Pipe Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.
Q: And since when have you been the brokerage firm of that company, if you can recall?
A: Since 1990, Sir.
Q: Now, you said that you are the brokerage firm of this Company. What work or duty did you perform in
behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs. We [are] also in-charged of
the delivery of the goods to their warehouses. We also handled the clearances of their shipment at the
Bureau of Customs, Sir.
Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with regards to
this shipment? What work did you do with this shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the] cargo[es]
from lighter to BASECO then to the truck and to the warehouse, Sir.
Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to perform, what
equipment do (sic) you require or did you use in order to effect this unloading, transfer and delivery to the
warehouse?
A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to lighter, and on
this we hired or we sub-contracted with [T]ransport Ventures, Inc. which [was] in-charged (sic) of the barges.
Also, in BASECO compound we are leasing cranes to have the cargo unloaded from the barge to trucks, [and]
then we used trucks to deliver [the cargoes] to the consignee’s warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignee’s warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.
ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to contract for the
barges of Transport Ventures Incorporated in this particular operation?
A: Firstly, we don’t own any barges. That is why we hired the services of another firm whom we know
[al]ready for quite sometime, which is Transport Ventures, Inc. (Emphasis supplied)43
It is settled that under a given set of facts, a customs broker may be regarded as a common carrier. Thus, this
Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals,44 held:
The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as
defined under Article 1732 of the Civil Code, to wit,
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their
services to the public.
Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and
one who does such carrying only as an ancillary activity. The contention, therefore, of petitioner that it is not
a common carrier but a customs broker whose principal function is to prepare the correct customs
declaration and proper shipping documents as required by law is bereft of merit. It suffices that petitioner
undertakes to deliver the goods for pecuniary consideration.45
And in Calvo v. UCPB General Insurance Co. Inc.,46 this Court held that as the transportation of goods is an
integral part of a customs broker, the customs broker is also a common carrier. For to declare otherwise
"would be to deprive those with whom [it] contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for [its] customers, is part and parcel of
petitioner’s business."47
As for petitioner’s argument that being the agent of Little Giant, any negligence it committed was deemed
the negligence of its principal, it does not persuade.
True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes. In effecting the
transportation of the cargoes from the shipside and into Little Giant’s warehouse, however, petitioner was
discharging its own personal obligation under a contact of carriage.
Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler48 to provide the
barge and the tugboat. In their Service Contract,49 while Little Giant was named as the consignee, petitioner
did not disclose that it was acting on commission and was chartering the vessel for Little Giant.50 Little Giant
did not thus automatically become a party to the Service Contract and was not, therefore, bound by the
terms and conditions therein.
Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it can
maintain a cause of action for negligence.51
In the case of TVI, while it acted as a private carrier for which it was under no duty to observe extraordinary
diligence, it was still required to observe ordinary diligence to ensure the proper and careful handling, care
and discharge of the carried goods.
Thus, Articles 1170 and 1173 of the Civil Code provide:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required
by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of
the place. When negligence shows bad faith, the provisions of articles 1171 and 2202, paragraph 2, shall
apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required.
Was the reasonable care and caution which an ordinarily prudent person would have used in the same
situation exercised by TVI?52
This Court holds not. TVI’s failure to promptly provide a tugboat did not only increase the risk that might
have been reasonably anticipated during the shipside operation, but was the proximate cause of the loss. A
man of ordinary prudence would not leave a heavily loaded barge floating for a considerable number of
hours, at such a precarious time, and in the open sea, knowing that the barge does not have any power of its
own and is totally defenseless from the ravages of the sea. That it was nighttime and, therefore, the
members of the crew of a tugboat would be charging overtime pay did not excuse TVI from calling for one
such tugboat.
As for petitioner, for it to be relieved of liability, it should, following Article 173953 of the Civil Code, prove
that it exercised due diligence to prevent or minimize the loss, before, during and after the occurrence of the
storm in order that it may be exempted from liability for the loss of the goods.
While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-check the operations of
TVI, it failed to take all available and reasonable precautions to avoid the loss. After noting that TVI failed to
arrange for the prompt towage of the barge despite the deteriorating sea conditions, it should have
summoned the same or another tugboat to extend help, but it did not.
This Court holds then that petitioner and TVI are solidarily liable56 for the loss of the cargoes. The following
pronouncement of the Supreme Court is instructive:
The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises
from the breach of that contract by reason of its failure to exercise the high diligence required of the
common carrier. In the discharge of its commitment to ensure the safety of passengers, a carrier may choose
to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake
the task. In either case, the common carrier is not relieved of its responsibilities under the contract of
carriage.
Should Prudent be made likewise liable? If at all, that liability could only be for tort under the provisions of
Article 2176 and related provisions, in conjunction with Article 2180 of the Civil Code. x x x [O]ne might ask
further, how then must the liability of the common carrier, on one hand, and an independent contractor, on
the other hand, be described? It would be solidary. A contractual obligation can be breached by tort and
when the same act or omission causes the injury, one resulting in culpa contractual and the other in culpa
aquiliana, Article 2194 of the Civil Code can well apply. In fine, a liability for tort may arise even under a
contract, where tort is that which breaches the contract. Stated differently, when an act which constitutes a
breach of contract would have itself constituted the source of a quasi-delictual liability had no contract
existed between the parties, the contract can be said to have been breached by tort, thereby allowing the
rules on tort to apply.57
As for Black Sea, its duty as a common carrier extended only from the time the goods were surrendered or
unconditionally placed in its possession and received for transportation until they were delivered actually or
constructively to consignee Little Giant.58
Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the services
rendered by the carrier. In the case at bar, Bill of Lading No. 2 covering the shipment provides that delivery
be made "to the port of discharge or so near thereto as she may safely get, always afloat."59 The delivery of
the goods to the consignee was not from "pier to pier" but from the shipside of "M/V Alexander Saveliev"
and into barges, for which reason the consignee contracted the services of petitioner. Since Black Sea had
constructively delivered the cargoes to Little Giant, through petitioner, it had discharged its duty.60
In fine, no liability may thus attach to Black Sea.
Respecting the award of attorney’s fees in an amount over ₱1,000,000.00 to Industrial Insurance, for lack of
factual and legal basis, this Court sets it aside. While Industrial Insurance was compelled to litigate its rights,
such fact by itself does not justify the award of attorney’s fees under Article 2208 of the Civil Code. For no
sufficient showing of bad faith would be reflected in a party’s persistence in a case other than an erroneous
conviction of the righteousness of his cause.61 To award attorney’s fees to a party just because the judgment
is rendered in its favor would be tantamount to imposing a premium on one’s right to litigate or seek judicial
redress of legitimate grievances.62
On the award of adjustment fees: The adjustment fees and expense of divers were incurred by Industrial
Insurance in its voluntary but unsuccessful efforts to locate and retrieve the lost cargo. They do not
constitute actual damages.63
As for the court a quo’s award of interest on the amount claimed, the same calls for modification following
the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals64 that when the demand cannot be reasonably
established at the time the demand is made, the interest shall begin to run not from the time the claim is
made judicially or extrajudicially but from the date the judgment of the court is made (at which the time the
quantification of damages may be deemed to have been reasonably ascertained).65
WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport & Brokerage Corporation,
and Transport Venture Incorporation jointly and severally liable for the amount of ₱5,246,113.11 with the
MODIFICATION that interest at SIX PERCENT per annum of the amount due should be computed from the
promulgation on November 24, 1997 of the decision of the trial court.
Costs against petitioner.
SO ORDERED.
 G.R. No. 140349 June 29, 2005
SULPICIO LINES, INC.
vs.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION
Before Us is a Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals reversing the
Decision2 of the Regional Trial Court (RTC) of Manila, Branch XIV, dismissing the complaint for damages for
failure of the plaintiff to prove its case with a preponderance of evidence. Assailed as well is the Resolution3
of the Court of Appeals denying petitioner’s Motion for Reconsideration.
THE FACTS
On 25 February 1992, Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper) entered
into a contract, evidenced by Bill of Lading No. CEB/SIN-008/92 issued by the latter in favor of the owner of
the goods, for Delbros, Inc. to transport a shipment of goods consisting of three (3) wooden crates
containing one hundred thirty-six (136) cartons of inductors and LC compound on board the V Singapore V20
from Cebu City to Singapore in favor of the consignee, Taiyo Yuden Singapore Pte, Ltd.
For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged the services of the vessel
M/V Philippine Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier). The vessel arrived at
the North Harbor, Manila, on 24 February 1992.
During the unloading of the shipment, one crate containing forty-two (42) cartons dropped from the cargo
hatch to the pier apron. The owner of the goods examined the dropped cargo, and upon an alleged finding
that the contents of the crate were no longer usable for their intended purpose, they were rejected as a
total loss and returned to Cebu City.
The owner of the goods filed a claim with herein petitioner-carrier for the recovery of the value of the
rejected cargo which was refused by the latter. Thereafter, the owner of the goods sought payment from
respondent First Lepanto-Taisho Insurance Corporation (insurer) under a marine insurance policy issued to
the former. Respondent-insurer paid the claim less thirty-five percent (35%) salvage value or P194, 220.31.
The payment of the insurance claim of the owner of the goods by the respondent-insurer subrogated the
latter to whatever right or legal action the owner of the goods may have against Delbros, Inc. and
petitioner-carrier, Sulpicio Lines, Inc. Thus, respondent-insurer then filed claims for reimbursement from
Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. which were subsequently denied.
On 04 November 1992, respondent-insurer filed a suit for damages docketed as Civil Case No. 92-63337 with
the trial court against Delbros, Inc. and herein petitioner-carrier. On 05 February 1993, petitioner-carrier
filed its Answer with Counterclaim. Delbros, Inc. filed on 15 April 1993 its Answer with Counterclaim and
Cross-claim, alleging that assuming the contents of the crate in question were truly in bad order, fault is with
herein petitioner-carrier which was responsible for the unloading of the crates.
Petitioner-carrier filed its Answer to Delbros, Inc.’s cross-claim asserting that it observed extraordinary
diligence in the handling, storage and general care of the shipment and that subsequent inspection of the
shipment by the Manila Adjusters and Surveyors Company showed that the contents of the third crate that
had fallen were found to be in apparent sound condition, except that "2 cello bags each of 50 pieces ferri
inductors No. LC FL 112270K-60 (c) were unaccounted for and missing as per packaging list."
After hearing, the trial court dismissed the complaint for damages as well as the counterclaim filed by
therein defendant Sulpicio Lines, Inc. and the cross-claim filed by Delbros, Inc. According to the RTC:
The plaintiff has failed to prove its case. The first witness for the plaintiff merely testified about the payment
of the claim based on the documents accompanying the claim which were the Packing List, Commercial
Invoices, Bill of Lading, Claims Statement, Marine Policies, Survey Report, Marine Risk Note, and the letter to
Third Party carriers and shipping lines (Exhibit A-J).
The check was paid and delivered to the assured as evidenced by the check voucher and the subrogation
receipt.
On cross-examination by counsel for the Sulpicio Lines, he said that their company paid the claim less 35%
salvage value based on the adjuster report. This testimony is hearsay.
The second witness for the plaintiff, Arturo Valdez, testified, among others, that he, together with a
co-surveyor and a representative of Sulpicio Lines had conducted a survey of the shipment at the compound
of Sulpicio Lines. He prepared a survey report (Exhibits G and G-1) and took a picture of shipment (Exhibit
G-2).
On cross-examination, he said that two cartons were torn at the sides with top portion flaps opened and the
41 cartons were properly sealed and in good order conditions. Two cartons were already opened and slightly
damaged. He merely looked at them but did not conduct an inspection of the contents. What he was
referring to as slightly damaged were the cartons only and not the contents.
From the foregoing evidence, it is apparent that the plaintiff had failed to prove its case with a
preponderance of evidence.
….
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered dismissing the Complaint,
defendant Sulpicio Lines’ counterclaim and defendant Delbros Inc.’s cross-claim.4
A Motion for Reconsideration was then filed by herein respondent-insurer and subsequently denied by the
trial court in an Order dated 07 February 1995 on the ground that it did not raise any new issue. Thus,
respondent-insurer instituted an appeal with the Court of Appeals, which reversed the dismissal of the
complaint by the lower court, the decretal portion of which reads:
WHEREFORE, the appeal is granted. The decision appealed from is REVERSED. Defendants-appellees Delbros
and Sulpicio Lines are hereby ordered to pay, jointly and severally, plaintiff-appellant the sum of P194,220.31
representing actual damages, plus legal interest counted from the filing of the complaint until fully paid.5
The appellate court disposed of the issues in the case in this wise:
Furthermore, the evidence shows that one of the three crates fell during the unloading at the pier in Manila.
The wooden crate which fell was damaged such that this particular crate was not anymore sent to Singapore
and was instead shipped back to Cebu from Manila. Upon examination, it was found that two (2) cartons of
the forty-two (42) cartons contained in this crate were externally damaged. They were torn at the sides and
their top portions or flaps were open. These facts were admitted by all the parties. Defendant-appellees,
however, insist that it was only the external packaging that was damaged, and that there was no actual
damage to the goods such that would make them liable to the shipper. This theory is erroneous. When the
goods are placed at a common carrier’s possession for delivery to a specified consignee, they are in good
order and condition and are supposed to be transported and delivered to the consignee in the same state. In
the case herein, the goods were received by defendant-appellee Delbros in Cebu properly packed in
cardboard cartons and then placed in wooden crates, for delivery to the consignee in Singapore. However,
before the shipment reached Singapore (while it was in Manila) one crate and 2 cartons contained therein
were not anymore in their original state. They were no longer fit to be sent to Singapore.
….
As We have already found, there is damage suffered by the goods of the shipper. This consists in the
destruction of one wooden crate and the tearing of two of the cardboard boxes therein rendering then unfit
to be sent to Singapore. Defendant-appellee Sulpicio Lines admits that this crate fell while it was being
unloaded at the Manila pier. Falling of the crate was negligence on the part of defendant-appellee Sulpicio
Lines under the doctrine of res ipsa loquitur. Defendant-appellee Sulpicio Lines cannot exculpate itself from
liability because it failed to prove that it exercised due diligence in the selection and supervision of its
employees to prevent the damage.6
On 21 June 1999, herein petitioner-carrier filed its Motion for Reconsideration of the decision of the Court of
Appeals which was subsequently denied in a Resolution dated 13 October 1999. Hence, the instant petition.
During the pendency of the appeal before this Court, Delbros, Inc. filed a manifestation stating that its
appeal7 filed before this Court had been dismissed for being filed out of time and thus the case as against it
was declared closed and terminated. As a consequence, it paid in full the amount of the damages awarded
by the appellate court to the respondent-insurer. Before this Court, Delbros, Inc. prays for reimbursement,
contribution, or indemnity from its co-defendant, herein petitioner-carrier Sulpicio Lines, Inc. for whatever it
had paid to respondent-insurer in consonance with the decision of the appellate court declaring both
Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. jointly and severally liable.
ISSUES
Petitioner-carrier raises the following issues in its petition:
1. The Court of Appeals erred in not holding that the trial court justly and correctly dismissed the
complaint against Sulpicio Lines, which dismissal is already final.
2. The Court of Appeals erred in not dismissing the appeal for failure of appellant to comply with the
technical requirement of the Rules of Court.
RULING OF THE COURT
We shall first address the procedural issue raised by petitioner-carrier, Sulpicio Lines, Inc. that the Court of
Appeals should have dismissed the appeal for failure of respondent-insurer to attach a copy of the decision
of the trial court to its appellant’s brief in violation of Rule 44, Section 13(h) of the Rules of Civil Procedure.8
A perusal of the records will show, however, that in a Resolution9 dated 13 August 1996, the Court of
Appeals required herein respondent-insurer to submit seven (7) copies of the questioned decision within
five (5) days from notice. Said Resolution was properly complied with.
As a rule, the right to appeal is a statutory right and one who seeks to avail of that right must comply with
the manner required by the pertinent rules for the perfection of an appeal. Nevertheless, this Court has
allowed the filing of an appeal upon subsequent compliance with the requirements imposed by law, where a
strict application of the technical rules will impair the proper administration of justice. As enunciated by the
Court in the case of Jaro v. Court of Appeals:10
There is ample jurisprudence holding that the subsequent and substantial compliance of an appellant may
call for the relaxation of the rules of procedure. In Cusi-Hernandez vs. Diaz [336 SCRA 113] and Piglas-Kamao
vs. National Labor Relations Commission [357SCRA 640], we ruled that the subsequent submission of the
missing documents with the motion for reconsideration amounts to substantial compliance. The reasons
behind the failure of the petitioners in these two cases to comply with the required attachments were no
longer scrutinized.11
We see no error, therefore, on the part of the Court of Appeals when it gave due course to the appeal after
respondent-insurer had submitted copies of the RTC decision, albeit belatedly.
We now come to the substantial issues alleged by petitioner-carrier. The pivotal question to be considered in
the resolution of this issue is whether or not, based on the evidence presented during the trial, the owner of
the goods, respondent-insurer’s predecessor-in-interest, did incur damages, and if so, whether or not
petitioner-carrier is liable for the same.
It cannot be denied that the shipment sustained damage while in the custody of petitioner-carrier. It is not
disputed that one of the three (3) crates did fall from the cargo hatch to the pier apron while
petitioner-carrier was unloading the cargo from its vessel. Neither is it impugned that upon inspection, it was
found that two (2) cartons were torn on the side and the top flaps were open and that two (2) cello bags,
each of 50 pieces ferri inductors, were missing from the cargo.
Petitioner-carrier contends that its liability, if any, is only to the extent of the cargo damage or loss and
should not include the lack of fitness of the shipment for transport to Singapore due to the damaged packing.
This is erroneous. Petitioner-carrier seems to belabor under the misapprehension that a distinction must be
made between the cargo packaging and the contents of the cargo. According to it, damage to the packaging
is not tantamount to damage to the cargo. It must be stressed that in the case at bar, the damage sustained
by the packaging of the cargo while in petitioner-carrier’s custody resulted in its unfitness to be transported
to its consignee in Singapore. Such failure to ship the cargo to its final destination because of the ruined
packaging, indeed, resulted in damages on the part of the owner of the goods.
The falling of the crate during the unloading is evidence of petitioner-carrier’s negligence in handling the
cargo. As a common carrier, it is expected to observe extraordinary diligence in the handling of goods placed
in its possession for transport.12 The standard of extraordinary diligence imposed upon common carriers is
considerably more demanding than the standard of ordinary diligence, i.e., the diligence of a good
paterfamilias established in respect of the ordinary relations between members of society.13 A common
carrier is bound to transport its cargo and its passengers safely "as far as human care and foresight can
provide, using the utmost diligence of a very cautious person, with due regard to all circumstances."14 The
extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier
to know and to follow the required precaution for avoiding the damage to, or destruction of, the goods
entrusted to it for safe carriage and delivery.15 It requires common carriers to render service with the
greatest skill and foresight and "to use all reasonable means to ascertain the nature and characteristic of
goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods
as their nature requires."16
Thus, when the shipment suffered damages as it was being unloaded, petitioner-carrier is presumed to have
been negligent in the handling of the damaged cargo. Under Articles 173517 and 175218 of the Civil Code,
common carriers are presumed to have been at fault or to have acted negligently in case the goods
transported by them are lost, destroyed or had deteriorated. To overcome the presumption of liability for
loss, destruction or deterioration of goods under Article 1735, the common carrier must prove that they
observed extraordinary diligence as required in Article 173319 of the Civil Code.20
Petitioner-carrier miserably failed to adduce any shred of evidence of the required extraordinary diligence to
overcome the presumption that it was negligent in transporting the cargo.
Coming now to the issue of the extent of petitioner-carrier’s liability, it is undisputed that respondent-insurer
paid the owner of the goods under the insurance policy the amount of P194,220.31 for the alleged damages
the latter has incurred. Neither is there dispute as to the fact that Delbros, Inc. paid P194,220.31 to
respondent-insurer in satisfaction of the whole amount of the judgment rendered by the Court of Appeals.
The question then is: To what extent is Sulpicio Lines, Inc., as common carrier, liable for the damages
suffered by the owner of the goods?
Upon respondent-insurer’s payment of the alleged amount of loss suffered by the insured (the owner of the
goods), the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have
against the common carrier whose negligence or wrongful act caused the loss.21 Subrogation is the
substitution of one person in the place of another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or
securities.22 The rights to which the subrogee succeeds are the same as, but not greater than, those of the
person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did
not have.23 In other words, a subrogee cannot succeed to a right not possessed by the subrogor.24 A
subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have
recovered.25
As found by the Court of Appeals, there was damage suffered by the goods which consisted in the
destruction of one wooden crate and the tearing of two (2) cardboard boxes therein which rendered them
unfit to be sent to Singapore.26 The falling of the crate was negligence on the part of Sulpicio Lines, Inc. for
which it cannot exculpate itself from liability because it failed to prove that it exercised extraordinary
diligence.27
Hence, we uphold the ruling of the appellate court that herein petitioner-carrier is liable to pay the amount
paid by respondent-insurer for the damages sustained by the owner of the goods.
As stated in the manifestation filed by Delbros, Inc., however, respondent-insurer had already been paid the
full amount granted by the Court of Appeals, hence, it will be tantamount to unjust enrichment for
respondent-insurer to again recover damages from herein petitioner-carrier.
With respect to Delbros, Inc.’s prayer contained in its manifestation that, in case the decision in the instant
case be adverse to petitioner-carrier, a pronouncement as to the matter of reimbursement, indemnification
or contribution in favor of Delbros, Inc. be included in the decision, this Court will not pass upon said issue
since Delbros, Inc. has no personality before this Court, it not being a party to the instant case.
Notwithstanding, this shall not bar any action Delbros, Inc. may institute against petitioner-carrier Sulpicio
Lines, Inc. with respect to the damages the latter is liable to pay.
WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated 26 May 1999 and its
Resolution dated 13 October 1999 are hereby AFFIRMED. No costs.
SO ORDERED.
 G.R. No. 161833. July 8, 2005
PHILIPPINE CHARTER INSURANCE CORPORATION
vs.
UNKNOWN OWNER OF THE VESSEL M/V "NATIONAL HONOR," NATIONAL SHIPPING CORPORATION OF THE
PHILIPPINES and INTERNATIONAL CONTAINER SERVICES, INC.
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure assailing the
Decision1dated January 19, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 57357 which affirmed the
Decision dated February 17, 1997 of the Regional Trial Court (RTC) of Manila, Branch 37, in Civil Case No.
95-73338.
The Antecedent
On November 5, 1995, J. Trading Co. Ltd. of Seoul, Korea, loaded a shipment of four units of parts and
accessories in the port of Pusan, Korea, on board the vessel M/V "National Honor," represented in the
Philippines by its agent, National Shipping Corporation of the Philippines (NSCP). The shipment was for
delivery to Manila, Philippines. Freight forwarder, Samhwa Inter-Trans Co., Ltd., issued Bill of Lading No.
SH94103062 in the name of the shipper consigned to the order of Metropolitan Bank and Trust Company
with arrival notice in Manila to ultimate consignee Blue Mono International Company, Incorporated (BMICI),
Binondo, Manila.
NSCP, for its part, issued Bill of Lading No. NSGPBSML5125653 in the name of the freight forwarder, as
shipper, consigned to the order of Stamm International Inc., Makati, Philippines. It is provided therein that:
12. This Bill of Lading shall be prima facie evidence of the receipt of the Carrier in apparent good order and
condition except as, otherwise, noted of the total number of Containers or other packages or units
enumerated overleaf. Proof to the contrary shall be admissible when this Bill of Lading has been transferred
to a third party acting in good faith. No representation is made by the Carrier as to the weight, contents,
measure, quantity, quality, description, condition, marks, numbers, or value of the Goods and the Carrier
shall be under no responsibility whatsoever in respect of such description or particulars.
13. The shipper, whether principal or agent, represents and warrants that the goods are properly described,
marked, secured, and packed and may be handled in ordinary course without damage to the goods, ship, or
property or persons and guarantees the correctness of the particulars, weight or each piece or package and
description of the goods and agrees to ascertain and to disclose in writing on shipment, any condition,
nature, quality, ingredient or characteristic that may cause damage, injury or detriment to the goods, other
property, the ship or to persons, and for the failure to do so the shipper agrees to be liable for and fully
indemnify the carrier and hold it harmless in respect of any injury or death of any person and loss or damage
to cargo or property. The carrier shall be responsible as to the correctness of any such mark, descriptions or
representations.4
The shipment was contained in two wooden crates, namely, Crate No. 1 and Crate No. 2, complete and in
good order condition, covered by Commercial Invoice No. YJ-73564 DTD5 and a Packing List.6 There were no
markings on the outer portion of the crates except the name of the consignee.7 Crate No. 1 measured 24
cubic meters and weighed 3,620 kgs. It contained the following articles: one (1) unit Lathe Machine
complete with parts and accessories; one (1) unit Surface Grinder complete with parts and accessories; and
one (1) unit Milling Machine complete with parts and accessories. On the flooring of the wooden crates
were three wooden battens placed side by side to support the weight of the cargo. Crate No. 2, on the other
hand, measured 10 cubic meters and weighed 2,060 kgs. The Lathe Machine was stuffed in the crate. The
shipment had a total invoice value of US$90,000.00 C&F Manila.8 It was insured for ₱2,547,270.00 with the
Philippine Charter Insurance Corporation (PCIC) thru its general agent, Family Insurance and Investment
Corporation,9 under Marine Risk Note No. 68043 dated October 24, 1994.10
The M/V "National Honor" arrived at the Manila International Container Terminal (MICT) on November 14,
1995. The International Container Terminal Services, Incorporated (ICTSI) was furnished with a copy of the
crate cargo list and bill of lading, and it knew the contents of the crate.11 The following day, the vessel started
discharging its cargoes using its winch crane. The crane was operated by Olegario Balsa, a winchman from
the ICTSI,12 the exclusive arrastre operator of MICT.
Denasto Dauz, Jr., the checker-inspector of the NSCP, along with the crew and the surveyor of the ICTSI,
conducted an inspection of the cargo.13 They inspected the hatches, checked the cargo and found it in
apparent good condition.14 Claudio Cansino, the stevedore of the ICTSI, placed two sling cables on each end
of Crate No. 1.15 No sling cable was fastened on the mid-portion of the crate. In Dauz’s experience, this was a
normal procedure.16 As the crate was being hoisted from the vessel’s hatch, the mid-portion of the wooden
flooring suddenly snapped in the air, about five feet high from the vessel’s twin deck, sending all its contents
crashing down hard,17 resulting in extensive damage to the shipment.
BMICI’s customs broker, JRM Incorporated, took delivery of the cargo in such damaged condition.18 Upon
receipt of the damaged shipment, BMICI found that the same could no longer be used for the intended
purpose. The Mariners’ Adjustment Corporation hired by PCIC conducted a survey and declared that the
packing of the shipment was considered insufficient. It ruled out the possibility of taxes due to insufficiency
of packing. It opined that three to four pieces of cable or wire rope slings, held in all equal setting, never
by-passing the center of the crate, should have been used, considering that the crate contained heavy
machinery.19
BMICI subsequently filed separate claims against the NSCP,20 the ICTSI,21 and its insurer, the PCIC,22 for
US$61,500.00. When the other companies denied liability, PCIC paid the claim and was issued a Subrogation
Receipt23 for ₱1,740,634.50.
On March 22, 1995, PCIC, as subrogee, filed with the RTC of Manila, Branch 35, a Complaint for
Damages24against the "Unknown owner of the vessel M/V National Honor," NSCP and ICTSI, as defendants.
PCIC alleged that the loss was due to the fault and negligence of the defendants. It prayed, among others –
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment be rendered ordering
defendants to pay plaintiff, jointly or in the alternative, the following:
1. Actual damages in the amount of ₱1,740,634.50 plus legal interest at the time of the filing of this
complaint until fully paid;
2. Attorney’s fees in the amount of ₱100,000.00;
3. Cost of suit.25
ICTSI, for its part, filed its Answer with Counterclaim and Cross-claim against its co-defendant NSCP, claiming
that the loss/damage of the shipment was caused exclusively by the defective material of the wooden
battens of the shipment, insufficient packing or acts of the shipper.
At the trial, Anthony Abarquez, the safety inspector of ICTSI, testified that the wooden battens placed on the
wooden flooring of the crate was of good material but was not strong enough to support the weight of the
machines inside the crate. He averred that most stevedores did not know how to read and write; hence, he
placed the sling cables only on those portions of the crate where the arrow signs were placed, as in the case
of fragile cargo. He said that unless otherwise indicated by arrow signs, the ICTSI used only two cable slings
on each side of the crate and would not place a sling cable in the mid-section.26 He declared that the crate
fell from the cranes because the wooden batten in the mid-portion was broken as it was being lifted.27 He
concluded that the loss/damage was caused by the failure of the shipper or its packer to place wooden
battens of strong materials under the flooring of the crate, and to place a sign in its mid-term section where
the sling cables would be placed.
The ICTSI adduced in evidence the report of the R.J. Del Pan & Co., Inc. that the damage to the cargo could
be attributed to insufficient packing and unbalanced weight distribution of the cargo inside the crate as
evidenced by the types and shapes of items found.28
The trial court rendered judgment for PCIC and ordered the complaint dismissed, thus:
WHEREFORE, the complaint of the plaintiff, and the respective counterclaims of the two defendants are
dismissed, with costs against the plaintiff.
SO ORDERED.29
According to the trial court, the loss of the shipment contained in Crate No. 1 was due to the internal defect
and weakness of the materials used in the fabrication of the crates. The middle wooden batten had a hole
(bukong-bukong). The trial court rejected the certification30 of the shipper, stating that the shipment was
properly packed and secured, as mere hearsay and devoid of any evidentiary weight, the affiant not having
testified.
Not satisfied, PCIC appealed31 to the CA which rendered judgment on January 19, 2004 affirming in toto the
appealed decision, with this fallo –
WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 35, dated February 17, 1997, is
AFFIRMED.

The appellate court held, inter alia, that it was bound by the finding of facts of the RTC, especially so where
the evidence in support thereof is more than substantial. It ratiocinated that the loss of the shipment was
due to an excepted cause – "[t]he character of the goods or defects in the packing or in the containers" and
the failure of the shipper to indicate signs to notify the stevedores that extra care should be employed in
handling the shipment.33 It blamed the shipper for its failure to use materials of stronger quality to support
the heavy machines and to indicate an arrow in the middle portion of the cargo where additional slings
should be attached.34 The CA concluded that common carriers are not absolute insurers against all risks in
the transport of the goods.35
Hence, this petition by the PCIC, where it alleges that:
I. THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT HOLDING THAT
RESPONDENT COMMON CARRIER IS LIABLE FOR THE DAMAGE SUSTAINED BY THE SHIPMENT IN THE
POSSESSION OF THE ARRASTRE OPERATOR.
II. THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT APPLYING THE STATUTORY
PRESUMPTION OF FAULT AND NEGLIGENCE IN THE CASE AT BAR.
III. THE COURT OF APPEALS GROSSLY MISCOMPREHENDED THE FACTS IN FINDING THAT THE DAMAGE
SUSTAINED BY THE [SHIPMENT] WAS DUE TO ITS DEFECTIVE PACKING AND NOT TO THE FAULT AND
NEGLIGENCE OF THE RESPONDENTS.36
The petitioner asserts that the mere proof of receipt of the shipment by the common carrier (to the carrier)
in good order, and their arrival at the place of destination in bad order makes out a prima facie case against
it; in such case, it is liable for the loss or damage to the cargo absent satisfactory explanation given by the
carrier as to the exercise of extraordinary diligence. The petitioner avers that the shipment was sufficiently
packed in wooden boxes, as shown by the fact that it was accepted on board the vessel and arrived in Manila
safely. It emphasizes that the respondents did not contest the contents of the bill of lading, and that the
respondents knew that the manner and condition of the packing of the cargo was normal and barren of
defects. It maintains that it behooved the respondent ICTSI to place three to four cables or wire slings in
equal settings, including the center portion of the crate to prevent damage to the cargo:
… [A] simple look at the manifesto of the cargo and the bill of lading would have alerted respondents of the
nature of the cargo consisting of thick and heavy machinery. Extra-care should have been made and
extended in the discharge of the subject shipment. Had the respondent only bothered to check the list of its
contents, they would have been nervous enough to place additional slings and cables to support those
massive machines, which were composed almost entirely of thick steel, clearly intended for heavy industries.
As indicated in the list, the boxes contained one lat[h]e machine, one milling machine and one grinding
machine-all coming with complete parts and accessories. Yet, not one among the respondents were cautious
enough. Here lies the utter failure of the respondents to observed extraordinary diligence in the handling of
the cargo in their custody and possession, which the Court of Appeals should have readily observed in its
appreciation of the pertinent facts.37
The petitioner posits that the loss/damage was caused by the mishandling of the shipment by therein
respondent ICTSI, the arrastre operator, and not by its negligence.
The petitioner insists that the respondents did not observe extraordinary diligence in the care of the goods.
It argues that in the performance of its obligations, the respondent ICTSI should observe the same degree of
diligence as that required of a common carrier under the New Civil Code of the Philippines. Citing Eastern
Shipping Lines, Inc. v. Court of Appeals,38 it posits that respondents are liable in solidum to it, inasmuch as
both are charged with the obligation to deliver the goods in good condition to its consignee, BMICI.
Respondent NSCP counters that if ever respondent ICTSI is adjudged liable, it is not solidarily liable with it. It
further avers that the "carrier cannot discharge directly to the consignee because cargo discharging is the
monopoly of the arrastre." Liability, therefore, falls solely upon the shoulder of respondent ICTSI, inasmuch
as the discharging of cargoes from the vessel was its exclusive responsibility. Besides, the petitioner is raising
questions of facts, improper in a petition for review on certiorari.39
Respondent ICTSI avers that the issues raised are factual, hence, improper under Rule 45 of the Rules of
Court. It claims that it is merely a depository and not a common carrier; hence, it is not obliged to exercise
extraordinary diligence. It reiterates that the loss/damage was caused by the failure of the shipper or his
packer to place a sign on the sides and middle portion of the crate that extra care should be employed in
handling the shipment, and that the middle wooden batten on the flooring of the crate had a hole. The
respondent asserts that the testimony of Anthony Abarquez, who conducted his investigation at the site of
the incident, should prevail over that of Rolando Balatbat. As an alternative, it argues that if ever adjudged
liable, its liability is limited only to ₱3,500.00 as expressed in the liability clause of Gate Pass CFS-BR-GP No.
319773.
The petition has no merit. The well-entrenched rule in our jurisdiction is that only questions of law may be
entertained by this Court in a petition for review on certiorari. This rule, however, is not ironclad and admits
certain exceptions, such as when (1) the conclusion is grounded on speculations, surmises or conjectures; (2)
the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no
citation of specific evidence on which the factual findings are based; (7) the findings of absence of facts are
contradicted by the presence of evidence on record; (8) the findings of the Court of Appeals are contrary to
those of the trial court; (9) the Court of Appeals manifestly overlooked certain relevant and undisputed facts
that, if properly considered, would justify a different conclusion; (10) the findings of the Court of Appeals are
beyond the issues of the case; and (11) such findings are contrary to the admissions of both parties.40
We have reviewed the records and find no justification to warrant the application of any exception to the
general rule.
We agree with the contention of the petitioner that common carriers, from the nature of their business and
for reasons of public policy, are mandated 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.41
The Court has defined extraordinary diligence in the vigilance over the goods as follows:
The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common
carrier to know and to follow the required precaution for avoiding damage to, or destruction of the goods
entrusted to it for sale, carriage and delivery. It requires common carriers to render service with the greatest
skill and foresight and "to use all reasonable means to ascertain the nature and characteristic of goods
tendered for shipment, and to exercise due care in the handling and stowage, including such methods as
their nature requires."42
The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the time
the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for
transportation until delivered to, or until the lapse of a reasonable time for their acceptance, by the person
entitled to receive them.43 When the goods shipped are either lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and there need not be an
express finding of negligence to hold it liable.44 To overcome the presumption of negligence in the case of
loss, destruction or deterioration of the goods, the common carrier must prove that it exercised
extraordinary diligence.45
However, under Article 1734 of the New Civil Code, the presumption of negligence does not apply to any of
the following causes:
1. Flood, storm, earthquake, lightning or other natural disaster or calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the containers;
5. Order or act of competent public authority.
It bears stressing that the enumeration in Article 1734 of the New Civil Code which exempts the common
carrier for the loss or damage to the cargo is a closed list.46 To exculpate itself from liability for the
loss/damage to the cargo under any of the causes, the common carrier is burdened to prove any of the
aforecited causes claimed by it by a preponderance of evidence. If the carrier succeeds, the burden of
evidence is shifted to the shipper to prove that the carrier is negligent.47
"Defect" is the want or absence of something necessary for completeness or perfection; a lack or absence of
something essential to completeness; a deficiency in something essential to the proper use for the purpose
for which a thing is to be used.48 On the other hand, inferior means of poor quality, mediocre, or second
rate.49 A thing may be of inferior quality but not necessarily defective. In other words, "defectiveness" is not
synonymous with "inferiority."
In the present case, the trial court declared that based on the record, the loss of the shipment was caused by
the negligence of the petitioner as the shipper:
The same may be said with respect to defendant ICTSI. The breakage and collapse of Crate No. 1 and the
total destruction of its contents were not imputable to any fault or negligence on the part of said defendant
in handling the unloading of the cargoes from the carrying vessel, but was due solely to the inherent defect
and weakness of the materials used in the fabrication of said crate.
The crate should have three solid and strong wooden batten placed side by side underneath or on the
flooring of the crate to support the weight of its contents. However, in the case of the crate in dispute,
although there were three wooden battens placed side by side on its flooring, the middle wooden batten,
which carried substantial volume of the weight of the crate’s contents, had a knot hole or "bukong-bukong,"
which considerably affected, reduced and weakened its strength. Because of the enormous weight of the
machineries inside this crate, the middle wooden batten gave way and collapsed. As the combined strength
of the other two wooden battens were not sufficient to hold and carry the load, they too simultaneously
with the middle wooden battens gave way and collapsed (TSN, Sept. 26, 1996, pp. 20-24).
Crate No. 1 was provided by the shipper of the machineries in Seoul, Korea. There is nothing in the record
which would indicate that defendant ICTSI had any role in the choice of the materials used in fabricating this
crate. Said defendant, therefore, cannot be held as blame worthy for the loss of the machineries contained
in Crate No. 1.50
The CA affirmed the ruling of the RTC, thus:
The case at bar falls under one of the exceptions mentioned in Article 1734 of the Civil Code, particularly
number (4) thereof, i.e., the character of the goods or defects in the packing or in the containers. The trial
court found that the breakage of the crate was not due to the fault or negligence of ICTSI, but to the
inherent defect and weakness of the materials used in the fabrication of the said crate.
Upon examination of the records, We find no compelling reason to depart from the factual findings of the
trial court.
It appears that the wooden batten used as support for the flooring was not made of good materials, which
caused the middle portion thereof to give way when it was lifted. The shipper also failed to indicate signs to
notify the stevedores that extra care should be employed in handling the shipment.
Claudio Cansino, a stevedore of ICTSI, testified before the court their duties and responsibilities:
Appellant’s allegation that since the cargo arrived safely from the port of [P]usan, Korea without defect, the
fault should be attributed to the arrastre operator who mishandled the cargo, is without merit. The cargo fell
while it was being carried only at about five (5) feet high above the ground. It would not have so easily
collapsed had the cargo been properly packed. The shipper should have used materials of stronger quality to
support the heavy machines. Not only did the shipper fail to properly pack the cargo, it also failed to indicate
an arrow in the middle portion of the cargo where additional slings should be attached. At any rate, the issue
of negligence is factual in nature and in this regard, it is settled that factual findings of the lower courts are
entitled to great weight and respect on appeal, and, in fact, accorded finality when supported by substantial
evidence.51
We agree with the trial and appellate courts.
The petitioner failed to adduce any evidence to counter that of respondent ICTSI. The petitioner failed to
rebut the testimony of Dauz, that the crates were sealed and that the contents thereof could not be seen
from the outside.52While it is true that the crate contained machineries and spare parts, it cannot thereby be
concluded that the respondents knew or should have known that the middle wooden batten had a hole, or
that it was not strong enough to bear the weight of the shipment.
There is no showing in the Bill of Lading that the shipment was in good order or condition when the carrier
received the cargo, or that the three wooden battens under the flooring of the cargo were not defective or
insufficient or inadequate. On the other hand, under Bill of Lading No. NSGPBSML512565 issued by the
respondent NSCP and accepted by the petitioner, the latter represented and warranted that the goods were
properly packed, and disclosed in writing the "condition, nature, quality or characteristic that may cause
damage, injury or detriment to the goods." Absent any signs on the shipment requiring the placement of a
sling cable in the mid-portion of the crate, the respondent ICTSI was not obliged to do so.
The statement in the Bill of Lading, that the shipment was in apparent good condition, is sufficient to sustain
a finding of absence of defects in the merchandise. Case law has it that such statement will create a prima
facie presumption only as to the external condition and not to that not open to inspection.53
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit.
 G.R. No. 161745 September 30, 2005
LEA MER INDUSTRIES, INC.
vs.
MALAYAN INSURANCE CO., INC.
ommon carriers are bound to observe extraordinary diligence in their vigilance over the goods entrusted to
them, as required by the nature of their business and for reasons of public policy. Consequently, the law
presumes that common carriers are at fault or negligent for any loss or damage to the goods that they
transport. In the present case, the evidence submitted by petitioner to overcome this presumption was
sorely insufficient.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9, 2002
Decision2 and the December 29, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 66028. The
challenged Decision disposed as follows:
"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the Regional Trial Court of Manila,
Branch 42 in Civil Case No. 92-63159 is hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the
[herein respondent] the value of the lost cargo in the amount of ₱565,000.00. Costs against the [herein
petitioner]."4
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment of 900
metric tons of silica sand valued at ₱565,000.5 Consigned to Vulcan Industrial and Mining Corporation, the
cargo was to be transported from Palawan to Manila. On October 25, 1991, the silica sand was placed on
board Judy VII, a barge leased by Lea Mer.6 During the voyage, the vessel sank, resulting in the loss of the
cargo.7
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.8 To recover the amount paid
and in the exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer, which
refused to comply. Consequently, Malayan instituted a Complaint with the Regional Trial Court (RTC) of
Manila on September 4, 1992, for the collection of ₱565,000 representing the amount that respondent had
paid Vulcan.9
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the loss was a
fortuitous event.10 The RTC noted that the vessel had sunk because of the bad weather condition brought
about by Typhoon Trining. The court ruled that petitioner had no advance knowledge of the incoming
typhoon, and that the vessel had been cleared by the Philippine Coast Guard to travel from Palawan to
Manila.11
Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for Manila. Thus, the
loss of the cargo was occasioned by petitioner’s fault, not by a fortuitous event.12
Hence, this recourse.13
The Issues: Petitioner states the issues in this wise:
"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been presented as a
witness of the said report during the trial of this case before the lower court can be admitted in evidence to
prove the alleged facts cited in the said report.
"B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the finding of fact of the
Regional Trial Court which clearly and unequivocally held that the loss of the cargo subject of this case was
caused by fortuitous event for which herein petitioner could not be held liable.
"C. Whether or not the respondent, Court of Appeals, had committed serious error and grave abuse of
discretion in disregarding the testimony of the witness from the MARINA, Engr. Jacinto Lazo y Villegal, to the
effect that the vessel ‘Judy VII’ was seaworthy at the time of incident and further in disregarding the
testimony of the PAG-ASA weather specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon ‘Trining’
did not hit Metro Manila or Palawan."14
In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and (2)
whether the survey report of Jesus Cortez is admissible in evidence.
The Court’s Ruling: The Petition has no merit.
First Issue: Liability for Loss of Cargo

Question of Fact. The resolution of the present case hinges on whether the loss of the cargo was due to a
fortuitous event. This issue involves primarily a question of fact, notwithstanding petitioner’s claim that it
pertains only to a question of law. As a general rule, questions of fact may not be raised in a petition for
review.15 The present case serves as an exception to this rule, because the factual findings of the appellate
and the trial courts vary.16 This Court meticulously reviewed the records, but found no reason to reverse the
CA.
Rule on Common Carriers. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods, or both -- by land, water, or air -- when this service
is offered to the public for compensation.17 Petitioner is clearly a common carrier, because it offers to the
public its business of transporting goods through its vessels.18
Thus, the Court corrects the trial court’s finding that petitioner became a private carrier when Vulcan
chartered it.19Charter parties are classified as contracts of demise (or bareboat) and affreightment, which
are distinguished as follows:
"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner for
the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in effect,
the owner pro hac vice, subject to liability to others for damages caused by negligence. To create a demise,
the owner of a vessel must completely and exclusively relinquish possession, command and navigation
thereof to the charterer; anything short of such a complete transfer is a contract of affreightment (time or
voyage charter party) or not a charter party at all."20
The distinction is significant, because a demise or bareboat charter indicates a business undertaking that is
privatein character. 21 Consequently, the rights and obligations of the parties to a contract of private carriage
are governed principally by their stipulations, not by the law on common carriers.22
The Contract in the present case was one of affreightment, as shown by the fact that it was petitioner’s crew
that manned the tugboat M/V Ayalit and controlled the barge Judy VII.23 Necessarily, petitioner was a
common carrier, and the pertinent law governs the present factual circumstances.
Extraordinary Diligence Required. Common carriers are bound to observe extraordinary diligence in their
vigilance over the goods and the safety of the passengers they transport, as required by the nature of their
business and for reasons of public policy.24Extraordinary diligence requires rendering service with the
greatest skill and foresight to avoid damage and destruction to the goods entrusted for carriage and
delivery.25
Common carriers are presumed to have been at fault or to have acted negligently for loss or damage to the
goods that they have transported.26 This presumption can be rebutted only by proof that they observed
extraordinary diligence, or that the loss or damage was occasioned by any of the following causes:27
"(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
"(2) Act of the public enemy in war, whether international or civil;
"(3) Act or omission of the shipper or owner of the goods;
"(4) The character of the goods or defects in the packing or in the containers;
"(5) Order or act of competent public authority."28

Rule on Fortuitous Events. Article 1174 of the Civil Code provides that "no person shall be responsible for a
fortuitous event which could not be foreseen, or which, though foreseen, was inevitable." Thus, if the loss or
damage was due to such an event, a common carrier is exempted from liability.
Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been impossible to
foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it
impossible for the debtors to fulfill their obligation in a normal manner; and (d) the obligor must have been
free from any participation in the aggravation of the resulting injury to the creditor.29
To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate and
only cause of the loss.30 Moreover, it should have exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the fortuitous event.31

Loss in the Instant Case. There is no controversy regarding the loss of the cargo in the present case. As the
common carrier, petitioner bore the burden of proving that it had exercised extraordinary diligence to avoid
the loss, or that the loss had been occasioned by a fortuitous event -- an exempting circumstance.
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that the loss of
the cargo was due to the bad weather condition brought about by Typhoon Trining.32 Evidence was
presented to show that petitioner had not been informed of the incoming typhoon, and that the Philippine
Coast Guard had given it clearance to begin the voyage.33 On October 25, 1991, the date on which the
voyage commenced and the barge sank, Typhoon Trining was allegedly far from Palawan, where the storm
warning was only "Signal No. 1."34
The evidence presented by petitioner in support of its defense of fortuitous event was sorely insufficient. As
required by the pertinent law, it was not enough for the common carrier to show that there was an
unforeseen or unexpected occurrence. It had to show that it was free from any fault -- a fact it miserably
failed to prove.
First, petitioner presented no evidence that it had attempted to minimize or prevent the loss before, during
or after the alleged fortuitous event.35 Its witness, Joey A. Draper, testified that he could no longer
remember whether anything had been done to minimize loss when water started entering the barge.36 This
fact was confirmed during his cross-examination, as shown by the following brief exchange:
"Atty. Baldovino, Jr.: Other than be[a]ching the barge Judy VII, were there other precautionary measure[s]
exercised by you and the crew of Judy VII so as to prevent the los[s] or sinking of barge Judy VII?
Atty. Baldovino, Jr.: Your Honor, what I am asking [relates to the] action taken by the officers and crew of
tugboat Ayalit and barge Judy VII x x x to prevent the sinking of barge Judy VII?
Court: Mr. witness, did the captain of that tugboat give any instruction on how to save the barge Judy VII?
Joey Draper: I can no longer remember sir, because that happened [a] long time ago."37
Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a
preponderance of evidence that the barge was not seaworthy when it sailed for Manila.38 Respondent was
able to prove that, in the hull of the barge, there were holes that might have caused or aggravated the
sinking.39 Because the presumption of negligence or fault applied to petitioner, it was incumbent upon it to
show that there were no holes; or, if there were, that they did not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna, testified
that the barge was in "tip-top" or excellent condition,40 but that he had not personally inspected it when it
left Palawan.41
The submission of the Philippine Coast Guard’s Certificate of Inspection of Judy VII, dated July 31, 1991, did
not conclusively prove that the barge was seaworthy.42 The regularity of the issuance of the Certificate is
disputably presumed.43 It could be contradicted by competent evidence, which respondent offered.
Moreover, this evidence did not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.44
Second Issue: Admissibility of the Survey Report. Petitioner claims that the Survey Report45 prepared by Jesus
Cortez, the cargo surveyor, should not have been admitted in evidence. The Court partly agrees. Because he
did not testify during the trial,46 then the Report that he had prepared was hearsay and therefore
inadmissible for the purpose of proving the truth of its contents.
The Survey Report Not the Sole Evidence. The facts reveal that Cortez’s Survey Report was used in the
testimonies of respondent’s witnesses -- Charlie M. Soriano; and Federico S. Manlapig, a cargo marine
surveyor and the vice-president of Toplis and Harding Company.47 Soriano testified that the Survey Report
had been used in preparing the final Adjustment Report conducted by their company.48 The final Report
showed that the barge was not seaworthy because of the existence of the holes. Manlapig testified that he
had prepared that Report after taking into account the findings of the surveyor, as well as the pictures and
the sketches of the place where the sinking occurred.49 Evidently, the existence of the holes was proved by
the testimonies of the witnesses, not merely by Cortez’ Survey Report.
Rule on Independently: Relevant Statement. That witnesses must be examined and presented during the
trial,50 and that their testimonies must be confined to personal knowledge is required by the rules on
evidence, from which we quote:
"Section 36. Testimony generally confined to personal knowledge; hearsay excluded. –A witness can testify
only to those facts which he knows of his personal knowledge; that is, which are derived from his own
perception, except as otherwise provided in these rules."51
On this basis, the trial court correctly refused to admit Jesus Cortez’s Affidavit, which respondent had offered
as evidence.52 Well-settled is the rule that, unless the affiant is presented as a witness, an affidavit is
considered hearsay.53
An exception to the foregoing rule is that on "independently relevant statements." A report made by a
person is admissible if it is intended to prove the tenor, not the truth, of the statements.54 Independent of
the truth or the falsity of the statement given in the report, the fact that it has been made is relevant. Here,
the hearsay rule does not apply.55
In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of the
testimonies of respondent’s witnesses. The referral to Cortez’s Report was in relation to Manlapig’s final
Adjustment Report. Evidently, it was the existence of the Survey Report that was testified to. The
admissibility of that Report as part of the testimonies of the witnesses was correctly ruled upon by the trial
court.
At any rate, even without the Survey Report, petitioner has already failed to overcome the presumption of
fault that applies to common carriers.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against
petitioner.
SO ORDERED.