Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 138334 August 25, 2003
ESTELA L. CRISOSTOMO, Petitioner,
vs.
The Court of Appeals and CARAVAN TRAVEL & TOURS INTERNATIONAL,
INC., Respondents.
D E C I S I O N
YNARES-SANTIAGO, J.:
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
petitioners niece, Meriam Menor, was respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a
Wednesday to deliver petitioners 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
petitioners 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 petitioners 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 respondents 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 petitioners 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 attorneys fees;
3. Dismissing the defendants 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 petitioners 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 Menors
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 attorneys 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, petitioners
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
employees gross negligence.
Petitioners 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. Respondents 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. Respondents 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 petitioners contractual relation with respondent is the latters service of
arranging and facilitating petitioners 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. Petitioners 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 latters 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. Petitioners testimony was accepted as
indubitable evidence of Menors 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 petitioners uncontradicted testimony
to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and
maintains that petitioners 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.
Respondents failure to present Menor as witness to rebut petitioners 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 Menors testimony, the presumption under Rule 131, Section
3(e) would still not apply. The opportunity and possibility for obtaining Menors
testimony belonged to both parties, considering that Menor was not just respondents
employee, but also petitioners 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 Menors negligence
concurred with the negligence of petitioner and resultantly caused damage to the latter.
Menors negligence was not sufficiently proved, considering that the only evidence
presented on this score was petitioners 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 petitioners 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 ticket
19
issued to petitioner clearly reflected the departure date and
time, contrary to petitioners 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 petitioners 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
1wphi1
The lower court declared that respondents 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

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


Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 125948 December 29, 1998
FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and
ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas,
respondents.

MARTINEZ, J.:
This petition for review on certiorari assails the Decision of the Court of Appeals dated
November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional
Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed
petitioners' complaint for a business tax refund imposed by the City of Batangas.
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended,
to contract, install and operate oil pipelines. The original pipeline concession was
granted in 1967
1
and renewed by the Energy Regulatory Board in 1992.
2

Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the
Mayor of Batangas City. However, before the mayor's permit could be issued, the
respondent City Treasurer required petitioner to pay a local tax based on its gross
receipts for the fiscal year 1993 pursuant to the Local Government Code
3
. The
respondent City Treasurer assessed a business tax on the petitioner amounting to
P956,076.04 payable in four installments based on the gross receipts for products
pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order
not to hamper its operations, petitioner paid the tax under protest in the amount of
P239,019.01 for the first quarter of 1993.
On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City
Treasurer, the pertinent portion of which reads:
Please note that our Company (FPIC) is a pipeline operator with a
government concession granted under the Petroleum Act. It is engaged in
the business of transporting petroleum products from the Batangas
refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our
Company is exempt from paying tax on gross receipts under Section 133 of
the Local Government Code of 1991 . . . .
Moreover, Transportation contractors are not included in the enumeration of
contractors under Section 131, Paragraph (h) of the Local Government Code.
Therefore, the authority to impose tax "on contractors and other
independent contractors" under Section 143, Paragraph (e) of the Local
Government Code does not include the power to levy on transportation
contractors.
The imposition and assessment cannot be categorized as a mere fee
authorized under Section 147 of the Local Government Code. The said
section limits the imposition of fees and charges on business to such
amounts as may be commensurate to the cost of regulation, inspection, and
licensing. Hence, assuming arguendo that FPIC is liable for the license fee,
the imposition thereof based on gross receipts is violative of the aforecited
provision. The amount of P956,076.04 (P239,019.01 per quarter) is not
commensurate to the cost of regulation, inspection and licensing. The fee is
already a revenue raising measure, and not a mere regulatory imposition.
4

On March 8, 1994, the respondent City Treasurer denied the protest contending that
petitioner cannot be considered engaged in transportation business, thus it cannot claim
exemption under Section 133 (j) of the Local Government Code.
5

On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a
complaint
6
for tax refund with prayer for writ of preliminary injunction against
respondents City of Batangas and Adoracion Arellano in her capacity as City Treasurer.
In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of
the business tax on its gross receipts violates Section 133 of the Local Government
Code; (2) the authority of cities to impose and collect a tax on the gross receipts of
"contractors and independent contractors" under Sec. 141 (e) and 151 does not include
the authority to collect such taxes on transportation contractors for, as defined under
Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the
City Treasurer illegally and erroneously imposed and collected the said tax, thus
meriting the immediate refund of the tax paid.
7

Traversing the complaint, the respondents argued that petitioner cannot be exempt from
taxes under Section 133 (j) of the Local Government Code as said exemption applies
only to "transportation contractors and persons engaged in the transportation by hire
and common carriers by air, land and water." Respondents assert that pipelines are not
included in the term "common carrier" which refers solely to ordinary carriers such as
trucks, trains, ships and the like. Respondents further posit that the term "common
carrier" under the said code pertains to the mode or manner by which a product is
delivered to its destination.
8

On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling
in this wise:
. . . Plaintiff is either a contractor or other independent contractor.
. . . the exemption to tax claimed by the plaintiff has become unclear. It is a
rule that tax exemptions are to be strictly construed against the taxpayer,
taxes being the lifeblood of the government. Exemption may therefore be
granted only by clear and unequivocal provisions of law.
Plaintiff claims that it is a grantee of a pipeline concession under Republic
Act 387. (Exhibit A) whose concession was lately renewed by the Energy
Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession
grant any tax exemption upon the plaintiff.
Even the Local Government Code imposes a tax on franchise holders under
Sec. 137 of the Local Tax Code. Such being the situation obtained in this
case (exemption being unclear and equivocal) resort to distinctions or other
considerations may be of help:
1. That the exemption granted under Sec. 133 (j)
encompasses onlycommon carriers so as not to
overburden the riding public or commuters with
taxes. Plaintiff is not a common carrier, but a special
carrier extending its services and facilities to a single
specific or "special customer" under a "special
contract."
2. The Local Tax Code of 1992 was basically enacted
to give more and effective local autonomy to local
governments than the previous enactments, to make
them economically and financially viable to serve the
people and discharge their functions with a
concomitant obligation to accept certain devolution
of powers, . . . So, consistent with this policy even
franchise grantees are taxed (Sec. 137) and
contractors are also taxed under Sec. 143 (e) and
151 of the Code.
9

Petitioner assailed the aforesaid decision before this Court via a petition for review. On
February 27, 1995, we referred the case to the respondent Court of Appeals for
consideration and adjudication.
10
On November 29, 1995, the respondent court rendered
a decision
11
affirming the trial court's dismissal of petitioner's complaint. Petitioner's
motion for reconsideration was denied on July 18, 1996.
12

Hence, this petition. At first, the petition was denied due course in a Resolution dated
November 11, 1996.
13
Petitioner moved for a reconsideration which was granted by this
Court in a Resolution
14
of January 22, 1997. Thus, the petition was reinstated.
Petitioner claims that the respondent Court of Appeals erred in holding that (1) the
petitioner is not a common carrier or a transportation contractor, and (2) the exemption
sought for by petitioner is not clear under the law.
There is merit in the petition.
A "common carrier" may be defined, broadly, as one who holds himself out to the public
as engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally.
Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm
or association engaged in the business of carrying or transporting passengers or goods
or both, by land, water, or air, for compensation, offering their services to the public."
The test for determining whether a party is a common carrier of goods is:
1. He must be engaged in the business of carrying
goods for others as a public employment, and must
hold himself out as ready to engage in the
transportation of goods for person generally as a
business and not as a casual occupation;
2. He must undertake to carry goods of the kind to
which his business is confined;
3. He must undertake to carry by the method by
which his business is conducted and over his
established roads; and
4. The transportation must be for hire.
15

Based on the above definitions and requirements, there is no doubt that petitioner is a
common carrier. It is engaged in the business of transporting or carrying goods, i.e.
petroleum products, for hire as a public employment. It undertakes to carry for all
persons indifferently, that is, to all persons who choose to employ its services, and
transports the goods by land and for compensation. The fact that petitioner has a limited
clientele does not exclude it from the definition of a common carrier. In De Guzman vs.
Court of Appeals
16
we ruled that:
The above article (Art. 1732, 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 (in local idiom, as a "sideline"). Article
1732 . . . avoids making any distinction between a person or
enterprise offering transportation service on
a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to
the "general public," i.e., the general community or population,
and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article
1877 deliberately refrained from making such distinctions.
So understood, the concept of "common carrier" under Article
1732 may be seen to coincide neatly with the notion of "public
service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law
on common carriers set forth in the Civil Code. Under Section
13, paragraph (b) of the Public Service Act, "public service"
includes:
every person that now or hereafter may own,
operate. manage, or control in the Philippines, for
hire or compensation, with general or limited
clientele, whether permanent, occasional or
accidental, and done for general business purposes,
any common carrier, railroad, street railway, traction
railway, subway motor vehicle, either for freight or
passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or
steamship line, pontines, ferries and water
craft, engaged in the transportation of passengers or
freight or both, shipyard, marine repair shop, wharf
or dock, ice plant, ice-refrigeration plant, canal,
irrigation system gas, electric light heat and power,
water supply and power petroleum, sewerage
system, wire or wireless communications systems,
wire or wireless broadcasting stations and other
similar public services. (Emphasis Supplied)
Also, respondent's argument that the term "common carrier" as used in Section 133 (j)
of the Local Government Code refers only to common carriers transporting goods and
passengers through moving vehicles or vessels either by land, sea or water, is
erroneous.
As correctly pointed out by petitioner, the definition of "common carriers" in the Civil
Code makes no distinction as to the means of transporting, as long as it is by land,
water or air. It does not provide that the transportation of the passengers or goods
should be by motor vehicle. In fact, in the United States, oil pipe line operators are
considered common carriers.
17

Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a
"common carrier." Thus, Article 86 thereof provides that:
Art. 86. Pipe line concessionaire as common carrier. A pipe
line shall have the preferential right to utilize installations for the
transportation of petroleum owned by him, but is obligated to
utilize the remaining transportation capacity pro rata for the
transportation of such other petroleum as may be offered by
others for transport, and to charge without discrimination such
rates as may have been approved by the Secretary of
Agriculture and Natural Resources.
Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of
Article 7 thereof provides:
that everything relating to the exploration for and exploitation of
petroleum . . . and everything relating to the manufacture,
refining, storage, or transportation by special methods of
petroleum, is hereby declared to be a public utility. (Emphasis
Supplied)
The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In
BIR Ruling No. 069-83, it declared:
. . . since [petitioner] is a pipeline concessionaire that is engaged
only in transporting petroleum products, it is considered a
common carrier under Republic Act No. 387 . . . . Such being the
case, it is not subject to withholding tax prescribed by Revenue
Regulations No. 13-78, as amended.
From the foregoing disquisition, there is no doubt that petitioner is a "common carrier"
and, therefore, exempt from the business tax as provided for in Section 133 (j), of the
Local Government Code, to wit:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
xxx xxx xxx
(j) Taxes on the gross receipts of
transportation contractors and persons
engaged in the transportation of
passengers or freight by hire and
common carriers by air, land or water,
except as provided in this Code.
The deliberations conducted in the House of Representatives on the Local Government
Code of 1991 are illuminating:
MR. AQUINO (A). Thank you, Mr. Speaker.
Mr. Speaker, we would like to proceed to page 95, line
1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on
the Taxing Powers of Local Government Units." . . .
MR. AQUINO (A.). Thank you Mr. Speaker.
Still on page 95, subparagraph 5, on taxes on the business of
transportation. This appears to be one of those being deemed to
be exempted from the taxing powers of the local government
units. May we know the reason why the transportation business
is being excluded from the taxing powers of the local
government units?
MR. JAVIER (E.). Mr. Speaker, there is an exception contained in
Section 121 (now Sec. 131), line 16, paragraph 5. It states that
local government units may not impose taxes on the business of
transportation, except as otherwise provided in this code.
Now, Mr. Speaker, if the Gentleman would care to go to page 98
of Book II, one can see there that provinces have the power to
impose a tax on business enjoying a franchise at the rate of not
more than one-half of 1 percent of the gross annual receipts. So,
transportation contractors who are enjoying a franchise would be
subject to tax by the province. That is the exception, Mr.
Speaker.
What we want to guard against here, Mr. Speaker, is the
imposition of taxes by local government units on the carrier
business. Local government units may impose taxes on top of
what is already being imposed by the National Internal Revenue
Code which is the so-called "common carriers tax." We do not
want a duplication of this tax, so we just provided for an
exception under Section 125 [now Sec. 137] that a province may
impose this tax at a specific rate.
MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. .
. .
18

It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a
duplication of the so-called "common carrier's tax."
Petitioner is already paying three (3%) percent common carrier's tax on its gross
sales/earnings under the National Internal Revenue Code.
19
To tax petitioner again on
its gross receipts in its transportation of petroleum business would defeat the purpose of
the Local Government Code.
WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of
Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET
ASIDE.
SO ORDERED.
Bellosillo, Puno and Mendoza, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 112287 December 12, 1997
NATIONAL STEEL CORPORATION, petitioner,
vs.
COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents.
G.R. No. 112350 December 12, 1997
VLASONS SHIPPING, INC., petitioner,
vs.
COURT OF APPEALS AND NATIONAL STEEL CORPORATION, respondents.

PANGANIBAN, J.:
The Court finds occasion to apply the rules on the seaworthiness of private carrier, its
owner's responsibility for damage to the cargo and its liability for demurrage and
attorney's fees. The Court also reiterates the well-known rule that findings of facts of
trial courts, when affirmed by the Court of Appeals, are binding on this Court.
The Case
Before us are two separate petitions for review filed by National Steel Corporation (NSC)
and Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of
the Court of Appeals.
1
The Court of Appeals modified the decision of the Regional Trial
Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as
follows:
WHEREFORE, judgment is hereby rendered in favor of defendant and against the
plaintiff dismissing the complaint with cost against plaintiff, and ordering plaintiff
to pay the defendant on the counterclaim as follows:
1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with
interest at the legal rate on both amounts from April 7, 1976 until the same shall
have been fully paid;
2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and
3. Costs of suit.
SO ORDERED.
2

On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the decision appealed from is modified by
reducing the award for demurrage to P44,000.00 and deleting the award for
attorney's fees and expenses of litigation. Except as thus modified, the decision is
AFFIRMED. There is no pronouncement as to costs.
SO ORDERED.
3

The Facts
The MV Vlasons I is a vessel which renders tramping service and, as such, does not
transport cargo or shipment for the general public. Its services are available only to
specific persons who enter into a special contract of charter party with its owner. It is
undisputed that the ship is a private carrier. And it is in the capacity that its owner,
Vlasons Shipping, Inc., entered into a contract of affreightment or contract of voyage
charter hire with National Steel Corporation.
The facts as found by Respondent Court of Appeals are as follows:
(1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and
defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of
Voyage Charter Hire (Exhibit "B"; also Exhibit "1") whereby NSC hired VSI's
vessel, the MV "VLASONS I" to make one (1) voyage to load steel products at
Iligan City and discharge them at North Harbor, Manila, under the following terms
and conditions, viz:
1. . . .
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less
at Master's option.
3. . . .
4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation
of Bill of Lading within fifteen (15) days.
5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974.
6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of
24 consecutive hours, Sundays and Holidays Included).
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
8. . . .
9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes.
Shipowners not responsible for losses/damages except on proven willful
negligence of the officers of the vessel.
10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other
internationally recognized Charter Party Agreement shall form part of this
Contract.
xxx xxx xxx
The terms "F.I.O.S.T." which is used in the shipping business is a standard
provision in the NANYOZAI Charter Party which stands for "Freight In and Out
including Stevedoring and Trading", which means that the handling, loading and
unloading of the cargoes are the responsibility of the Charterer. Under Paragraph
5 of the NANYOZAI Charter Party, it states, "Charterers to load, stow and
discharge the cargo free of risk and expenses to owners. . . . (Emphasis supplied).
Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the
beginning of the voyage, exercise due diligence to make the vessel seaworthy and
properly manned, equipped and supplied and to make the holds and all other parts
of the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation. Owners shall not be liable for loss of or damage of the cargo arising
or resulting from: unseaworthiness unless caused by want of due diligence on the
part of the owners to make the vessel seaworthy, and to secure that the vessel is
properly manned, equipped and supplied and to make the holds and all other parts
of the vessel in which cargo is carried, fit and safe for its reception, carriage and
preservation; . . . ; perils, dangers and accidents of the sea or other navigable
waters; . . . ; wastage in bulk or weight or any other loss or damage arising from
inherent defect, quality or vice of the cargo; insufficiency of packing; . . . ; latent
defects not discoverable by due diligence; any other cause arising without the
actual fault or privity of Owners or without the fault of the agents or servants of
owners."
Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall
not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master and crew."
(2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage
Charter Hire, the MV "VLASONS I" loaded at plaintiffs pier at Iligan City, the NSC's
shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total
of 1,769 packages with a total weight of about 2,481.19 metric tons for carriage to
Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate
Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the
cargo on board and signed the corresponding bill of lading, B.L.P.P. No. 0233
(Exhibit "D") on August 8, 1974.
(3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August
12, 1974. The following day, August 13, 1974, when the vessel's three (3) hatches
containing the shipment were opened by plaintiff's agents, nearly all the skids of
tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo
was discharged and unloaded by stevedores hired by the Charterer. Unloading was
completed only on August 24, 1974 after incurring a delay of eleven (11) days due
to the heavy rain which interrupted the unloading operations. (Exhibit "E")
(4) To determine the nature and extent of the wetting and rusting, NSC called for
a survey of the shipment by the Manila Adjusters and Surveyors Company
(MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit "G"), MASCO made
a report of its ocular inspection conducted on the cargo, both while it was still on
board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila
where the cargo was taken and stored. MASCO reported that it found wetting and
rusting of the packages of hot rolled sheets and metal covers of the tinplates; that
tarpaulin hatch covers were noted torn at various extents; that container/metal
casings of the skids were rusting all over. MASCO ventured the opinion that
"rusting of the tinplates was caused by contact with SEA WATER sustained while
still on board the vessel as a consequence of the heavy weather and rough seas
encountered while en route to destination (Exhibit "F"). It was also reported that
MASCO's surveyors drew at random samples of bad order packing materials of the
tinplates and delivered the same to the M.I.T. Testing Laboratories for analysis. On
August 31, 1974, the M.I.T. Testing Laboratories issued Report No. 1770 (Exhibit
"I") which in part, states, "The analysis of bad order samples of packing materials
. . . shows that wetting was caused by contact with SEA WATER".
(5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff
filed with the defendant its claim for damages suffered due to the downgrading of
the damaged tinplates in the amount of P941,145.18. Then on October 3, 1974,
plaintiff formally demanded payment of said claim but defendant VSI refused and
failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976 which
was docketed as Civil Case No. 23317, CFI, Rizal.
(6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid
amount of P941,145.18 as a result of the act, neglect and default of the master
and crew in the management of the vessel as well as the want of due diligence on
the part of the defendant to make the vessel seaworthy and to make the holds and
all other parts of the vessel in which the cargo was carried, fit and safe for its
reception, carriage and preservation all in violation of defendant's undertaking
under their Contract of Voyage Charter Hire.
(7) In its answer, defendant denied liability for the alleged damage claiming that
the MV "VLASONS I" was seaworthy in all respects for the carriage of plaintiff's
cargo; that said vessel was not a "common carrier" inasmuch as she was under
voyage charter contract with the plaintiff as charterer under the charter party;
that in the course of the voyage from Iligan City to Manila, the MV "VLASONS I"
encountered very rough seas, strong winds and adverse weather condition,
causing strong winds and big waves to continuously pound against the vessel and
seawater to overflow on its deck and hatch covers, that under the Contract of
Voyage Charter Hire, defendant shall not be responsible for losses/damages
except on proven willful negligence of the officers of the vessel, that the officers of
said MV "VLASONS I" exercised due diligence and proper seamanship and were
not willfully negligent; that furthermore the Voyage Charter Party provides that
loading and discharging of the cargo was on FIOST terms which means that the
vessel was free of risk and expense in connection with the loading and discharging
of the cargo; that the damage, if any, was due to the inherent defect, quality or
vice of the cargo or to the insufficient packing thereof or to latent defect of the
cargo not discoverable by due diligence or to any other cause arising without the
actual fault or privity of defendant and without the fault of the agents or servants
of defendant; consequently, defendant is not liable; that the stevedores of plaintiff
who discharged the cargo in Manila were negligent and did not exercise due care
in the discharge of the cargo; land that the cargo was exposed to rain and
seawater spray while on the pier or in transit from the pier to plaintiff's warehouse
after discharge from the vessel; and that plaintiff's claim was highly speculative
and grossly exaggerated and that the small stain marks or sweat marks on the
edges of the tinplates were magnified and considered total loss of the cargo.
Finally, defendant claimed that it had complied with all its duties and obligations
under the Voyage Charter Hire Contract and had no responsibility whatsoever to
plaintiff. In turn, it alleged the following counterclaim:
(a) That despite the full and proper performance by defendant of its
obligations under the Voyage Charter Hire Contract, plaintiff failed and
refused to pay the agreed charter hire of P75,000.00 despite demands
made by defendant;
(b) That under their Voyage Charter Hire Contract, plaintiff had agreed
to pay defendant the sum of P8,000.00 per day for demurrage. The
vessel was on demurrage for eleven (11) days in Manila waiting for
plaintiff to discharge its cargo from the vessel. Thus, plaintiff was
liable to pay defendant demurrage in the total amount of P88,000.00.
(c) For filing a clearly unfounded civil action against defendant,
plaintiff should be ordered to pay defendant attorney's fees and all
expenses of litigation in the amount of not less than P100,000.00.
(8) From the evidence presented by both parties, the trial court came out with the
following findings which were set forth in its decision:
(a) The MV "VLASONS I" is a vessel of Philippine registry engaged in
the tramping service and is available for hire only under special
contracts of charter party as in this particular case.
(b) That for purposes of the voyage covered by the Contract of Voyage
Charter Hire (Exh. "1"), the MV VLASONS I" was covered by the
required seaworthiness certificates including the Certification of
Classification issued by an international classification society, the
NIPPON KAIJI KYOKAI (Exh. "4"); Coastwise License from the Board of
Transportation (Exh. "5"); International Loadline Certificate from the
Philippine Coast Guard (Exh. "6"); Cargo Ship Safety Equipment
Certificate also from the Philippine Coast Guard (Exh. "7"); Ship Radio
Station License (Exh. "8"); Certificate of Inspection by the Philippine
Coast Guard (Exh. "12"); and Certificate of Approval for Conversion
issued by the Bureau of Customs (Exh. "9"). That being a vessel
engaged in both overseas and coastwise trade, the MV "VLASONS I"
has a higher degree of seaworthiness and safety.
(c) Before it proceeded to Iligan City to perform the voyage called for
by the Contract of Voyage Charter Hire, the MV "VLASONS I"
underwent drydocking in Cebu and was thoroughly inspected by the
Philippine Coast Guard. In fact, subject voyage was the vessel's first
voyage after the drydocking. The evidence shows that the MV
"VLASONS I" was seaworthy and properly manned, equipped and
supplied when it undertook the voyage. It has all the required
certificates of seaworthiness.
(d) The cargo/shipment was securely stowed in three (3) hatches of
the ship. The hatch openings were covered by hatchboards which were
in turn covered by two or double tarpaulins. The hatch covers were
water tight. Furthermore, under the hatchboards were steel beams to
give support.
(e) The claim of the plaintiff that defendant violated the contract of
carriage is not supported by evidence. The provisions of the Civil Code
on common carriers pursuant to which there exists a presumption of
negligence in case of loss or damage to the cargo are not applicable.
As to the damage to the tinplates which was allegedly due to the
wetting and rusting thereof, there is unrebutted testimony of witness
Vicente Angliongto that tinplates "sweat" by themselves when packed
even without being in contract (sic) with water from outside especially
when the weather is bad or raining. The trust caused by sweat or
moisture on the tinplates may be considered as a loss or damage but
then, defendant cannot be held liable for it pursuant to Article 1734 of
the Civil Case which exempts the carrier from responsibility for loss or
damage arising from the "character of the goods . . ." All the 1,769
skids of the tinplates could not have been damaged by water as
claimed by plaintiff. It was shown as claimed by plaintiff that the
tinplates themselves were wrapped in kraft paper lining and
corrugated cardboards could not be affected by water from outside.
(f) The stevedores hired by the plaintiff to discharge the cargo of
tinplates were negligent in not closing the hatch openings of the MV
"VLASONS I" when rains occurred during the discharging of the cargo
thus allowing rainwater to enter the hatches. It was proven that the
stevedores merely set up temporary tents to cover the hatch openings
in case of rain so that it would be easy for them to resume work when
the rains stopped by just removing the tent or canvas. Because of this
improper covering of the hatches by the stevedores during the
discharging and unloading operations which were interrupted by rains,
rainwater drifted into the cargo through the hatch openings. Pursuant
to paragraph 5 of the NANYOSAI [sic] Charter Party which was
expressly made part of the Contract of Voyage Charter Hire, the
loading, stowing and discharging of the cargo is the sole responsibility
of the plaintiff charterer and defendant carrier has no liability for
whatever damage may occur or maybe [sic] caused to the cargo in the
process.
(g) It was also established that the vessel encountered rough seas and
bad weather while en route from Iligan City to Manila causing sea
water to splash on the ship's deck on account of which the master of
the vessel (Mr. Antonio C. Dumlao) filed a "Marine Protest" on August
13, 1974 (Exh. "15"); which can be invoked by defendant as a force
majeure that would exempt the defendant from liability.
(h) Plaintiff did not comply with the requirement prescribed in
paragraph 9 of the Voyage Charter Hire contract that it was to insure
the cargo because it did not. Had plaintiff complied with the
requirement, then it could have recovered its loss or damage from the
insurer. Plaintiff also violated the charter party contract when it loaded
not only "steel products", i.e. steel bars, angular bars and the like but
also tinplates and hot rolled sheets which are high grade cargo
commanding a higher freight. Thus plaintiff was able to ship grade
cargo at a lower freight rate.
(i) As regards defendant's counterclaim, the contract of voyage charter
hire under Paragraph 4 thereof, fixed the freight at P30.00 per metric
ton payable to defendant carrier upon presentation of the bill of lading
within fifteen (15) days. Plaintiff has not paid the total freight due of
P75,000.00 despite demands. The evidence also showed that the
plaintiff was required and bound under paragraph 7 of the same
Voyage Charter Hire contract to pay demurrage of P8,000.00 per day
of delay in the unloading of the cargoes. The delay amounted to
eleven (11) days thereby making plaintiff liable to pay defendant for
demurrage in the amount of P88,000.00.
Appealing the RTC decision to the Court of Appeals, NSC alleged six errors:
I
The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly
manned, equipped and supplied, and that there is no proof of willful negligence of
the vessel's officers.
II
The trial court erred in finding that the rusting of NSC's tinplates was due to the
inherent nature or character of the goods and not due to contact with seawater.
III
The trial court erred in finding that the stevedores hired by NSC were negligent in
the unloading of NSC's shipment.
IV
The trial court erred in exempting VSI from liability on the ground of force
majeure.
V
The trial court erred in finding that NSC violated the contract of voyage charter
hire.
VI
The trial court erred in ordering NSC to pay freight, demurrage and attorney's
fees, to VSI.
4

As earlier stated, the Court of Appeals modified the decision of the trial court by
reducing the demurrage from P88,000.00 to P44,000.00 and deleting the award of
attorneys fees and expenses of litigation. NSC and VSI filed separate motions for
reconsideration. In a Resolution
5
dated October 20, 1993, the appellate court denied
both motions. Undaunted, NSC and VSI filed their respective petitions for review before
this Court. On motion of VSI, the Court ordered on February 14, 1994 the consolidation
of these petitions.
6

The Issues
In its petition
7
and memorandum,
8
NSC raises the following questions of law and fact:
Questions of Law
1. Whether or not a charterer of a vessel is liable for demurrage due to cargo
unloading delays caused by weather interruption;
2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5",
"6", "7", "8", "9", "11" and "12") were admissible in evidence and constituted
evidence of the vessel's seaworthiness at the beginning of the voyages; and
3. Whether or not a charterer's failure to insure its cargo exempts the shipowner
from liability for cargo damage.
Questions of Fact
1. Whether or not the vessel was seaworthy and cargo-worthy;
2. Whether or not vessel's officers and crew were negligent in handling and caring
for NSC's cargo;
3. Whether or not NSC's cargo of tinplates did sweat during the voyage and,
hence, rusted on their own; and
4. Whether or not NSC's stevedores were negligent and caused the
wetting[/]rusting of NSC's tinplates.
In its separate petition,
9
VSI submits for the consideration of this Court the following
alleged errors of the CA:
A. The respondent Court of Appeals committed an error of law in reducing the
award of demurrage from P88,000.00 to P44,000.00.
B. The respondent Court of Appeals committed an error of law in deleting the
award of P100,000 for attorney's fees and expenses of litigation.
Amplifying the foregoing, VSI raises the following issues in its memorandum:
10

I. Whether or not the provisions of the Civil Code of the Philippines on common
carriers pursuant to which there exist[s] a presumption of negligence against the
common carrier in case of loss or damage to the cargo are applicable to a private
carrier.
II. Whether or not the terms and conditions of the Contract of Voyage Charter
Hire, including the Nanyozai Charter, are valid and binding on both contracting
parties.
The foregoing issues raised by the parties will be discussed under the following
headings:
1. Questions of Fact
2. Effect of NSC's Failure to Insure the Cargo
3. Admissibility of Certificates Proving Seaworthiness
4. Demurrage and Attorney's Fees.
The Court's Ruling
The Court affirms the assailed Decision of the Court of Appeals, except in respect of the
demurrage.
Preliminary Matter: Common Carrier or Private Carrier?
At the outset, it is essential to establish whether VSI contracted with NSC as a common
carrier or as a private carrier. The resolution of this preliminary question determines the
law, standard of diligence and burden of proof applicable to the present case.
Article 1732 of the Civil Code defines a common carrier 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
has been held that the true test of a common carrier is the carriage of passengers or
goods, provided it has space, for all who opt to avail themselves of its transportation
service for a fee.
11
A carrier which does not qualify under the above test is deemed a
private carrier. "Generally, private carriage is undertaken by special agreement and the
carrier does not hold himself out to carry goods for the general public. The most typical,
although not the only form of private carriage, is the charter party, a maritime contract
by which the charterer, a party other than the shipowner, obtains the use and service of
all or some part of a ship for a period of time or a voyage or voyages."
12

In the instant case, it is undisputed that VSI did not offer its services to the general
public. As found by the Regional Trial Court, it carried passengers or goods only for
those it chose under a "special contract of charter party."
13
As correctly concluded by
the Court of Appeals, the MV Vlasons I "was not a common but a private
carrier."
14
Consequently, the rights and obligations of VSI and NSC, including their
respective liability for damage to the cargo, are determined primarily by stipulations in
their contract of private carriage or charter party.
15
Recently, in Valenzuela Hardwood
and Industrial Supply, Inc., vs. Court of Appeals and Seven Brothers Shipping
Corporation,
16
the Court ruled:
. . . in a contract of private carriage, the parties may freely stipulate their duties
and obligations which perforce would be binding on them. Unlike in a contract
involving a common carrier, private carriage does not involve the general public.
Hence, the stringent provisions of the Civil Code on common carriers protecting
the general public cannot justifiably be applied to a ship transporting commercial
goods as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection
given by law in contracts involving common carriers.
17

Extent of VSI's Responsibility and
Liability Over NSC's Cargo
It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that
VSI "shall not be responsible for losses except on proven willful negligence of the officers
of the vessel." The NANYOZAI Charter Party, which was incorporated in the parties'
contract of transportation further provided that the shipowner shall not be liable for loss
of or a damage to the cargo arising or resulting from unseaworthiness, unless the same
was caused by its lack of due diligence to make the vessel seaworthy or to ensure that
the same was "properly manned, equipped and supplied," and to "make the holds and
all other parts of the vessel in which cargo [was] carried, fit and safe for its reception,
carriage and preservation."
18
The NANYOZAI Charter Party also provided that "[o]wners
shall not be responsible for split, chafing and/or any damage unless caused by the
negligence or default of the master or crew."
19

Burden of Proof
In view of the aforementioned contractual stipulations, NSC must prove that the damage
to its shipment was caused by VSI's willful negligence or failure to exercise due diligence
in making MV Vlasons I seaworthy and fit for holding, carrying and safekeeping the
cargo. Ineluctably, the burden of proof was placed on NSC by the parties' agreement.
This view finds further support in the Code of Commerce which pertinently provides:
Art. 361. Merchandise shall be transported at the risk and venture of the shipper,
if the contrary has not been expressly stipulated.
Therefore, the damage and impairment suffered by the goods during the
transportation, due to fortuitous event, force majeure, or the nature and inherent
defect of the things, shall be for the account and risk of the shipper.
The burden of proof of these accidents is on the carrier.
Art. 362. The carrier, however, shall be liable for damages arising from the cause
mentioned in the preceding article if proofs against him show that they occurred
on account of his negligence or his omission to take the precautions usually
adopted by careful persons, unless the shipper committed fraud in the bill of
lading, making him to believe that the goods were of a class or quality different
from what they really were.
Because the MV Vlasons I was a private carrier, the shipowner's obligations are
governed by the foregoing provisions of the Code of Commerce and not by the Civil
Code which, as a general rule, places the prima faciepresumption of negligence on a
common carrier. It is a hornbook doctrine that:
In an action against a private carrier for loss of, or injury to, cargo, the burden is
on the plaintiff to prove that the carrier was negligent or unseaworthy, and the
fact that the goods were lost or damaged while in the carrier's custody does not
put the burden of proof on the carrier.
Since . . . a private carrier is not an insurer but undertakes only to exercise due
care in the protection of the goods committed to its care, the burden of proving
negligence or a breach of that duty rests on plaintiff and proof of loss of, or
damage to, cargo while in the carrier's possession does not cast on it the burden
of proving proper care and diligence on its part or that the loss occurred from an
excepted cause in the contract or bill of lading. However, in discharging the
burden of proof, plaintiff is entitled to the benefit of the presumptions and
inferences by which the law aids the bailor in an action against a bailee, and since
the carrier is in a better position to know the cause of the loss and that it was not
one involving its liability, the law requires that it come forward with the
information available to it, and its failure to do so warrants an inference or
presumption of its liability. However, such inferences and presumptions, while they
may affect the burden of coming forward with evidence, do not alter the burden of
proof which remains on plaintiff, and, where the carrier comes forward with
evidence explaining the loss or damage, the burden of going forward with the
evidence is again on plaintiff.
Where the action is based on the shipowner's warranty of seaworthiness, the
burden of proving a breach thereof and that such breach was the proximate cause
of the damage rests on plaintiff, and proof that the goods were lost or damaged
while in the carrier's possession does not cast on it the burden of proving
seaworthiness. . . . Where the contract of carriage exempts the carrier from
liability for unseaworthiness not discoverable by due diligence, the carrier has the
preliminary burden of proving the exercise of due diligence to make the vessel
seaworthy.
20

In the instant case, the Court of Appeals correctly found the NSC "has not taken the
correct position in relation to the question of who has the burden of proof. Thus, in its
brief (pp. 10-11), after citing Clause 10 and Clause 12 of the NANYOZAI Charter Party
(incidentally plaintiff-appellant's [NSC's] interpretation of Clause 12 is not even correct),
it argues that 'a careful examination of the evidence will show that VSI miserably failed
to comply with any of these obligation's as if defendant-appellee [VSI] had the burden
of
proof."
21

First Issue: Questions of Fact
Based on the foregoing, the determination of the following factual questions is
manifestly relevant: (1) whether VSI exercised due diligence in making MV Vlasons
I seaworthy for the intended purpose under the charter party; (2) whether the damage
to the cargo should be attributed to the willful negligence of the officers and crew of the
vessel or of the stevedores hired by NSC; and (3) whether the rusting of the tinplates
was caused by its own "sweat" or by contact with seawater.
These questions of fact were threshed out and decided by the trial court, which had the
firsthand opportunity to hear the parties' conflicting claims and to carefully weigh their
respective evidence. The findings of the trial court were subsequently affirmed by the
Court of Appeals. Where the factual findings of both the trial court and the Court of
Appeals coincide, the same are binding on this Court.
22
We stress that, subject to some
exceptional instances,
23
only questions of law not questions of fact may be raised
before this Court in a petition for review under Rule 45 of the Rules of Court. After a
thorough review of the case at bar, we find no reason to disturb the lower court's factual
findings, as indeed NSC has not successfully proven the application of any of the
aforecited exceptions.
Was MV Vlasons I Seaworthy?
In any event, the records reveal that VSI exercised due diligence to make the ship
seaworthy and fit for the carriage of NSC's cargo of steel and tinplates. This is shown by
the fact that it was drylocked and inspected by the Philippine Coast Guard before it
proceeded to Iligan City for its voyage to Manila under the contract of voyage charter
hire.
24
The vessel's voyage from Iligan to Manila was the vessel's first voyage after
drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted
and equipped; it met all requirements for trading as cargo vessel.
25
The Court of Appeals
itself sustained the conclusion of the trial court that MV Vlasons I was seaworthy. We
find no reason to modify or reverse this finding of both the trial and the appellate courts.
Who Were Negligent:
Seamen or Stevedores?
As noted earlier, the NSC had the burden of proving that the damage to the cargo was
caused by the negligence of the officers and the crew of MV Vlasons I in making their
vessel seaworthy and fit for the carriage of tinplates. NSC failed to discharge this
burden.
Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn
tarpaulin or canvas to cover the hatches through which the cargo was loaded into the
cargo hold of the ship. It faults the Court of Appeals for failing to consider such claim as
an "uncontroverted fact"
26
and denies that MV Vlasons I "was equipped with new canvas
covers in tandem with the old ones as indicated in the Marine Protest . . ."
27
We
disagree.
The records sufficiently support VSI's contention that the ship used the old tarpaulin,
only in addition to the new one used primarily to make the ship's hatches watertight.
The foregoing are clear from the marine protest of the master of the MV Vlasons I,
Antonio C. Dumlao, and the deposition of the ship's boatswain, Jose Pascua. The salient
portions of said marine protest read:
. . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August
8, 1974, loaded with approximately 2,487.9 tons of steel plates and tin plates
consigned to National Steel Corporation; that before departure, the vessel was
rigged, fully equipped and cleared by the authorities; that on or about August 9,
1974, while in the vicinity of the western part of Negros and Panay, we
encountered very rough seas and strong winds and Manila office was advised by
telegram of the adverse weather conditions encountered; that in the morning of
August 10, 1974, the weather condition changed to worse and strong winds and
big waves continued pounding the vessel at her port side causing sea water to
overflow on deck andhatch (sic) covers and which caused the first layer of the
canvass covering to give way while the new canvass covering still holding on;
That the weather condition improved when we reached Dumali Point protected by
Mindoro; that we re-secured the canvass covering back to position; that in the
afternoon of August 10, 1974, while entering Maricaban Passage, we were again
exposed to moderate seas and heavy rains; that while approaching Fortune Island,
we encountered again rough seas, strong winds and big waves which caused the
same canvass to give way and leaving the new canvass holding on;
xxx xxx xxx
28

And the relevant portions of Jose Pascua's deposition are as follows:
q What is the purpose of the canvas cover?
a So that the cargo would not be soaked with water.
q And will you describe how the canvas cover was secured on the
hatch opening?
WITNESS
a It was placed flat on top of the hatch cover, with a little canvas
flowing over the sides and we place[d] a flat bar over the canvas on
the side of the hatches and then we place[d] a stopper so that the
canvas could not be removed.
ATTY DEL ROSARIO
q And will you tell us the size of the hatch opening? The length and the
width of the hatch opening.
a Forty-five feet by thirty-five feet, sir.
xxx xxx xxx
q How was the canvas supported in the middle of the hatch opening?
a There is a hatch board.
ATTY DEL ROSARIO
q What is the hatch board made of?
a It is made of wood, with a handle.
q And aside from the hatch board, is there any other material there to
cover the hatch?
a There is a beam supporting the hatch board.
q What is this beam made of?
a It is made of steel, sir.
q Is the beam that was placed in the hatch opening covering the whole
hatch opening?
a No, sir.
q How many hatch beams were there placed across the opening?
a There are five beams in one hatch opening.
ATTY DEL ROSARIO
q And on top of the beams you said there is a hatch board. How many
pieces of wood are put on top?
a Plenty, sir, because there are several pieces on top of the hatch
beam.
q And is there a space between the hatch boards?
a There is none, sir.
q They are tight together?
a Yes, sir.
q How tight?
a Very tight, sir.
q Now, on top of the hatch boards, according to you, is the canvass
cover. How many canvas covers?
a Two, sir.
29

That due diligence was exercised by the officers and the crew of the MV Vlasons I was
further demonstrated by the fact that, despite encountering rough weather twice, the
new tarpaulin did not give way and the ship's hatches and cargo holds remained
waterproof. As aptly stated by the Court of Appeals, ". . . we find no reason not to
sustain the conclusion of the lower court based on overwhelming evidence, that the MV
'VLASONS I' was seaworthy when it undertook the voyage on August 8, 1974 carrying
on board thereof plaintiff-appellant's shipment of 1,677 skids of tinplates and 92
packages of hot rolled sheets or a total of 1,769 packages from NSC's pier in Iligan City
arriving safely at North Harbor, Port Area, Manila, on August 12, 1974; . . .
30

Indeed, NSC failed to discharge its burden to show negligence on the part of the officers
and the crew of MV Vlasons I. On the contrary, the records reveal that it was the
stevedores of NSC who were negligent in unloading the cargo from the ship.
The stevedores employed only a tent-like material to cover the hatches when strong
rains occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-
like covering, however, was clearly inadequate for keeping rain and seawater away from
the hatches of the ship. Vicente Angliongto, an officer of VSI, testified thus:
ATTY ZAMORA:
Q Now, during your testimony on November 5, 1979, you stated on
August 14 you went on board the vessel upon notice from the National
Steel Corporation in order to conduct the inspection of the cargo.
During the course of the investigation, did you chance to see the
discharging operation?
WITNESS:
A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates
already discharged on the pier but majority of the tinplates were inside
the hall, all the hatches were opened.
Q In connection with these cargoes which were unloaded, where is the
place.
A At the Pier.
Q What was used to protect the same from weather?
ATTY LOPEZ:
We object, your Honor, this question was already asked. This
particular matter . . . the transcript of stenographic notes shows the
same was covered in the direct examination.
ATTY ZAMORA:
Precisely, your Honor, we would like to go on detail, this is the serious
part of the testimony.
COURT:
All right, witness may answer.
ATTY LOPEZ:
Q What was used in order to protect the cargo from the weather?
A A base of canvas was used as cover on top of the tin plates, and
tents were built at the opening of the hatches.
Q You also stated that the hatches were already opened and that there
were tents constructed at the opening of the hatches to protect the
cargo from the rain. Now, will you describe [to] the Court the tents
constructed.
A The tents are just a base of canvas which look like a tent of an
Indian camp raise[d] high at the middle with the whole side separated
down to the hatch, the size of the hatch and it is soaks [sic] at the
middle because of those weather and this can be used only to
temporarily protect the cargo from getting wet by rains.
Q Now, is this procedure adopted by the stevedores of covering tents
proper?
A No, sir, at the time they were discharging the cargo, there was a
typhoon passing by and the hatch tent was not good enough to hold all
of it to prevent the water soaking through the canvass and enter the
cargo.
Q In the course of your inspection, Mr. Anglingto [sic], did you see in
fact the water enter and soak into the canvass and tinplates.
A Yes, sir, the second time I went there, I saw it.
Q As owner of the vessel, did you not advise the National Steel
Corporation [of] the procedure adopted by its stevedores in
discharging the cargo particularly in this tent covering of the hatches?
A Yes, sir, I did the first time I saw it, I called the attention of the
stevedores but the stevedores did not mind at all, so, called the
attention of the representative of the National Steel but nothing was
done, just the same. Finally, I wrote a letter to them.
31

NSC attempts to discredit the testimony of Angliongto by questioning his failure to
complain immediately about the stevedores' negligence on the first day of unloading,
pointing out that he wrote his letter to petitioner only seven days later.
32
The Court is
not persuaded. Angliongto's candid answer in his aforequoted testimony satisfactorily
explained the delay. Seven days lapsed because he first called the attention of the
stevedores, then the NSC's representative, about the negligent and defective procedure
adopted in unloading the cargo. This series of actions constitutes a reasonable response
in accord with common sense and ordinary human experience. Vicente Angliongto could
not be blamed for calling the stevedores' attention first and then the NSC's
representative on location before formally informing NSC of the negligence he had
observed, because he was not responsible for the stevedores or the unloading
operations. In fact, he was merely expressing concern for NSC which was ultimately
responsible for the stevedores it had hired and the performance of their task to unload
the cargo.
We see no reason to reverse the trial and the appellate courts' findings and conclusions
on this point, viz:
In the THIRD assigned error, [NSC] claims that the trial court erred in finding that
the stevedores hired by NSC were negligent in the unloading of NSC's shipment.
We do not think so. Such negligence according to the trial court is evident in the
stevedores hired by [NSC], not closing the hatch of MV 'VLASONS I' when rains
occurred during the discharging of the cargo thus allowing rain water and seawater
spray to enter the hatches and to drift to and fall on the cargo. It was proven that
the stevedores merely set up temporary tents or canvas to cover the hatch
openings when it rained during the unloading operations so that it would be easier
for them to resume work after the rains stopped by just removing said tents or
canvass. It has also been shown that on August 20, 1974, VSI President Vicente
Angliongto wrote [NSC] calling attention to the manner the stevedores hired by
[NSC] were discharging the cargo on rainy days and the improper closing of the
hatches which allowed continuous heavy rain water to leak through and drip to the
tinplates' covers and [Vicente Angliongto] also suggesting that due to four (4)
days continuos rains with strong winds that the hatches be totally closed down and
covered with canvas and the hatch tents lowered. (Exh. "13"). This letter was
received by [NSC] on 22 August 1974 while discharging operations were still going
on (Exhibit "13-A").
33

The fact that NSC actually accepted and proceeded to remove the cargo from the ship
during unfavorable weather will not make VSI liable for any damage caused thereby. In
passing, it may be noted that the NSC may seek indemnification, subject to the laws on
prescription, from the stevedoring company at fault in the discharge operations. "A
stevedore company engaged in discharging cargo . . . has the duty to load the cargo . . .
in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its
negligence . . . and where the officers and members and crew of the vessel do nothing
and have no responsibility in the discharge of cargo by stevedores . . . the vessel is not
liable for loss of, or damage to, the cargo caused by the negligence of the
stevedores . . ."
34
as in the instant case.
Do Tinplates "Sweat"?
The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates
'sweat' by themselves when packed even without being in contact with water from
outside especially when the weather is bad or
raining . . ."
35
The Court of Appeals affirmed the trial court's finding.
A discussion of this issue appears inconsequential and unnecessary. As previously
discussed, the damage to the tinplates was occasioned not by airborne moisture but by
contact with rain and seawater which the stevedores negligently allowed to seep in
during the unloading.
Second Issue: Effect of NSC's Failure to
Insure the Cargo
The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter
Hire is totally separate and distinct from the contractual or statutory responsibility that
may be incurred by VSI for damage to the cargo caused by the willful negligence of the
officers and the crew of MV Vlasons I. Clearly, therefore, NSC's failure to insure the
cargo will not affect its right, as owner and real party in interest, to file an action against
VSI for damages caused by the latter's willful negligence. We do not find anything in the
charter party that would make the liability of VSI for damage to the cargo contingent on
or affected in any manner by NSC's obtaining an insurance over the cargo.
Third Issue: Admissibility of Certificates
Proving Seaworthiness
NSC's contention that MV Vlasons I was not seaworthy is anchored on the alleged
inadmissibility of the certificates of seaworthiness offered in evidence by VSI. The said
certificates include the following:
1. Certificate of Inspection of the Philippines Coast Guard at Cebu
2. Certificate of Inspection from the Philippine Coast Guard
3. International Load Line Certificate from the Philippine Coast Guard
4. Coastwise License from the Board of Transportation
5. Certificate of Approval for Conversion issued by the Bureau of Customs
36

NSC argues that the certificates are hearsay for not having been presented in
accordance with the Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are
"not written records or acts of public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are
not "evidenced by official publications or certified true copies" as required by Sections 25
and 26, Rule 132, of the Rules of Court.
37

After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7,
8, 9 and 12 are inadmissible, for they have not been properly offered as evidence.
Exhibits 3 and 4 are certificates issued by private parties, but they have not been proven
by one who saw the writing executed, or by evidence of the genuineness of the
handwriting of the maker, or by a subscribing witness. Exhibits, 5, 6, 7, 8, 9, and 12 are
photocopies, but their admission under the best evidence rule have not been
demonstrated.
We find, however, that Exhibit 11 is admissible under a well-settled exception to the
hearsay rule per Section 44 of Rule 130 of the Rules of Court, which provides that
"(e)ntries in official records made in the performance of a duty by a public officer of the
Philippines, or by a person in the performance of a duty specially enjoined by law,
areprima facie evidence of the facts therein stated."
38
Exhibit 11 is an original certificate
of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to
the effect that "the vessel 'VLASONS I' was drydocked . . . and PCG Inspectors were
sent on board for inspection . . . After completion of drydocking and duly inspected by
PCG Inspectors, the vessel 'VLASONS I', a cargo vessel, is in seaworthy condition, meets
all requirements, fitted and equipped for trading as a cargo vessel was cleared by the
Philippine Coast Guard and sailed for Cebu Port on July 10, 1974." (sic) NSC's claim,
therefore, is obviously misleading and erroneous.
At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons
I was not seaworthy. As observed earlier, the vessel was a private carrier and, as such,
it did not have the obligation of a common carrier to show that it was seaworthy.
Indeed, NSC glaringly failed to discharge its duty of proving the willful negligence of VSI
in making the ship seaworthy resulting in damage to its cargo. Assailing the genuineness
of the certificate of seaworthiness is not sufficient proof that the vessel was not
seaworthy.
Fourth Issue: Demurrage and Attorney's Fees
The contract of voyage charter hire provides inter alia:
xxx xxx xxx
2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less
at Master's option.
xxx xxx xxx
6. Loading/Discharging Rate: 750 tons per WWDSHINC.
7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
39

The Court defined demurrage in its strict sense as the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the laytime or that
period of time agreed on for loading and unloading of cargo.
40
It is given to compensate
the shipowner for the nonuse of the vessel. On the other hand, the following is well-
settled:
Laytime runs according to the particular clause of the charter party. . . . If laytime
is expressed in "running days," this means days when the ship would be run
continuously, and holidays are not excepted. A qualification of "weather
permitting" excepts only those days when bad weather reasonably prevents the
work contemplated.
41

In this case, the contract of voyage charter hire provided for a four-day laytime; it also
qualified laytime as WWDSHINC or weather working days Sundays and holidays
included.
42
The running of laytime was thus made subject to the weather, and would
cease to run in the event unfavorable weather interfered with the unloading of
cargo.
43
Consequently, NSC may not be held liable for demurrage as the four-day
laytime allowed it did not lapse, having been tolled by unfavorable weather condition in
view of the WWDSHINC qualification agreed upon by the parties. Clearly, it was error for
the trial court and the Court of Appeals to have found and affirmed respectively that
NSC incurred eleven days of delay in unloading the cargo. The trial court arrived at this
erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to
August 24, 1974, the only day of unloading unhampered by unfavorable weather or rain,
which was August 22, 1974. Based on our previous discussion, such finding is a
reversible error. As mentioned, the respondent appellate court also erred in ruling that
NSC was liable to VSI for demurrage, even if it reduced the amount by half.
Attorney's Fees
VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees.
We disagree. While VSI was compelled to litigate to protect its rights, such fact by itself
will not justify an award of attorney's fees under Article 2208 of the Civil Code when ". .
. 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 . . ."
44
Moreover,
attorney's fees may not be awarded to a party for the reason alone that the judgment
rendered was favorable to the latter, as this is tantamount to imposing a premium on
one's right to litigate or seek judicial redress of legitimate grievances.
45

Epilogue
At bottom, this appeal really hinges on a factual issue: when, how and who caused the
damage to the cargo? Ranged against NSC are two formidable truths. First, both lower
courts found that such damage was brought about during the unloading process when
rain and seawater seeped through the cargo due to the fault or negligence of the
stevedores employed by it. Basic is the rule that factual findings of the trial court, when
affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are
settled exceptions, NSC has not satisfactorily shown that this case is one of them.
Second, the agreement between the parties the Contract of Voyage Charter Hire
placed the burden of proof for such loss or damage upon the shipper, not upon the
shipowner. Such stipulation, while disadvantageous to NSC, is valid because the parties
entered into a contract of private charter, not one of common carriage. Basic too is the
doctrine that courts cannot relieve a parry from the effects of a private contract freely
entered into, on the ground that it is allegedly one-sided or unfair to the plaintiff. The
charter party is a normal commercial contract and its stipulations are agreed upon in
consideration of many factors, not the least of which is the transport price which is
determined not only by the actual costs but also by the risks and burdens assumed by
the shipper in regard to possible loss or damage to the cargo. In recognition of such
factors, the parties even stipulated that the shipper should insure the cargo to protect
itself from the risks it undertook under the charter party. That NSC failed or neglected to
protect itself with such insurance should not adversely affect VSI, which had nothing to
do with such failure or neglect.
WHEREFORE, premises considered, the instant consolidated petitions are hereby
DENIED. The questioned Decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that the demurrage awarded to VSI is deleted. No pronouncement as to
costs.
SO ORDERED.
Narvasa, C.J., Romero, Melo and Francisco, JJ., concur.

Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. No. 150255. April 22, 2005
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, Petitioners,
vs.
TRANSPORT VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., and BLACK SEA
SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES, Respondents.
D E C I S I O N
CARPIO-MORALES, J.:
On petition for review is the June 27, 2001 Decision
1
of the Court of Appeals, as well as
its Resolution
2
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.
92-63132
3
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
consignees) 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., TVIs 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 P5,246,113.11. Little Giant thereupon executed a subrogation receipt
15
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, attorneys 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 P5,246,113.11
with interest from the date the complaint was filed until fully satisfied, as well as the
sum of P5,000.00 representing the adjustment fee plus the sum of 20% of the amount
recoverable from the defendants as attorneys 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 courts 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 attorneys fees of more thanP1,000,000. 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 others 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
Resolution
27
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 Seas 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 morning
39
is, however, a material fact which the appellate court
failed to properly consider and appreciate
40
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 petitioners 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 consignees 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.
x x x
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 consignees warehouse, Sir.
Q: And whose trucks do you use from BASECO compound to the consignees warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.
x x x
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 dont 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.
x x x
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 petitioners
business."
47

As for petitioners 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
Giants 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
handler
48
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.
TVIs 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 1739
53
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 checkers
54
and a supervisor
55
on board the vessel to counter-check
the operations of TVI, itfailed 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 liable
56
for the loss of the
cargoes. The following pronouncement of the Supreme Court is instructive:
The foundation of LRTAs 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 attorneys fees in an amount over P1,000,000.00 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 attorneys fees under Article 2208 of the Civil Code. For no sufficient showing
of bad faith would be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause.
61
To award attorneys fees to a party just
because the judgment is rendered in its favor would be tantamount to imposing a
premium on ones 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 quos award of interest on the amount claimed, the same calls for
modification following the ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals
64
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 P5,246,113.11 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.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.


FIRST DIVISION
[G.R. No. 131621. September 28, 1999]
LOADSTAR SHIPPING CO., INC., petitioner, vs. COURT OF APPEALS and THE MANILA
INSURANCE CO., INC., respondents.
D E C I S I O N
DAVIDE, JR., C.J.:
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for
review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse
and set aside the following: (a) the 30 January 1997 decision
[1]
of the Court of Appeals
in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991
[2]
of the
Regional Trial Court of Manila, Branch 16, in Civil Case No. 85-29110, ordering
LOADSTAR to pay private respondent Manila Insurance Co. (hereafter MIC) the amount
of P6,067,178, with legal interest from the filing of the complaint until fully paid, P8,000
as attorneys fees, and the costs of the suit; and (b) its resolution of 19 November
1997,
[3]
denying LOADSTARs motion for reconsideration of said decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board its M/V Cherokee (hereafter,
the vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and others; and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount with MIC
against various risks including TOTAL LOSS BY TOTAL LOSS OF THE VESSEL. The
vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI)
for P4 million. On 20 November 1984, on its way to Manila from the port of Nasipit,
Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result
of the total loss of its shipment, the consignee made a claim with LOADSTAR which,
however, ignored the same. As the insurer, MIC paid P6,075,000 to the insured in full
settlement of its claim, and the latter executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging
that the sinking of the vessel was due to the fault and negligence of LOADSTAR and its
employees. It also prayed that PGAI be ordered to pay the insurance proceeds from the
loss of the vessel directly to MIC, said amount to be deducted from MICs claim from
LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shippers goods and
claimed that the sinking of its vessel was due to force majeure. PGAI, on the other
hand, averred that MIC had no cause of action against it, LOADSTAR being the party
insured. In any event, PGAI was later dropped as a party defendant after it paid the
insurance proceeds to LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC,
prompting LOADSTAR to elevate the matter to the Court of Appeals, which, however,
agreed with the trial court and affirmed its decisionin toto.
In dismissing LOADSTARs appeal, the appellate court made the following
observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground that
there was a single shipper on that fateful voyage. The court noted that the
charter of the vessel was limited to the ship, but LOADSTAR retained control
over its crew.
[4]

2) As a common carrier, it is the Code of Commerce, not the Civil Code, which
should be applied in determining the rights and liabilities of the parties.
3) The vessel was not seaworthy because it was undermanned on the day of the
voyage. If it had been seaworthy, it could have withstood the natural and
inevitable action of the sea on 20 November 1984, when the condition of the
sea was moderate. The vessel sank, not because of force majeure, but
because it was not seaworthy. LOADSTARS allegation that the sinking was
probably due to the convergence of the winds, as stated by a PAGASA
expert, was not duly proven at the trial. The limited liability rule, therefore,
is not applicable considering that, in this case, there was an actual finding of
negligence on the part of the carrier.
[5]

4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply
because said provisions bind only the shipper/consignee and the carrier. When
MIC paid the shipper for the goods insured, it was subrogated to the latters
rights as against the carrier, LOADSTAR.
[6]

5) There was a clear breach of the contract of carriage when the shippers goods
never reached their destination. LOADSTARs defense of diligence of a good
father of a family in the training and selection of its crew is unavailing
because this is not a proper or complete defense in culpa contractual.
6) Art. 361 (of the Code of Commerce) has been judicially construed to mean
that when goods are delivered on board a ship in good order and condition,
and the shipowner delivers them to the shipper in bad order and condition, it
then devolves upon the shipowner to both allege and prove that the goods
were damaged by reason of some fact which legally exempts him from
liability. Transportation of the merchandise at the risk and venture of the
shipper means that the latter bears the risk of loss or deterioration of his
goods arising from fortuitous events, force majeure, or the inherent nature and
defects of the goods, but not those caused by the presumed negligence or fault
of the carrier, unless otherwise proved.
[7]

The errors assigned by LOADSTAR boil down to a determination of the following
issues:
(1) Is the M/V Cherokee a private or a common carrier?
(2) Did LOADSTAR observe due and/or ordinary diligence in these premises?
Regarding the first issue, LOADSTAR submits that the vessel was a private carrier
because it was not issued a certificate of public convenience, it did not have a regular
trip or schedule nor a fixed route, and there was only one shipper, one consignee for a
special cargo.
In refutation, MIC argues that the issue as to the classification of the M/V Cherokee
was not timely raised below; hence, it is barred by estoppel. While it is true that the
vessel had on board only the cargo of wood products for delivery to one consignee, it
was also carrying passengers as part of its regular business. Moreover, the bills of
lading in this case made no mention of any charter party but only a statement that the
vessel was a general cargo carrier. Neither was there any special arrangement
between LOADSTAR and the shipper regarding the shipment of the cargo. The singular
fact that the vessel was carrying a particular type of cargo for one shipper is not
sufficient to convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier, it cannot be
presumed to have been negligent, and the burden of proving otherwise devolved upon
MIC.
[8]

LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage
on 19 November 1984, the vessel was allegedly dry docked at Keppel Philippines
Shipyard and was duly inspected by the maritime safety engineers of the Philippine
Coast Guard, who certified that the ship was fit to undertake a voyage. Its crew at the
time was experienced, licensed and unquestionably competent. With all these
precautions, there could be no other conclusion except that LOADSTAR exercised the
diligence of a good father of a family in ensuring the vessels seaworthiness.
LOADSTAR further claims that it was not responsible for the loss of the cargo, such
loss being due to force majeure. It points out that when the vessel left Nasipit, Agusan
del Norte, on 19 November 1984, the weather was fine until the next day when the
vessel sank due to strong waves. MICs witness, Gracelia Tapel, fully established the
existence of two typhoons, WELFRING and YOLING, inside the Philippine area of
responsibility. In fact, on 20 November 1984, signal no. 1 was declared over Eastern
Visayas, which includes Limasawa Island. Tapel also testified that the convergence of
winds brought about by these two typhoons strengthened wind velocity in the area,
naturally producing strong waves and winds, in turn, causing the vessel to list and
eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its
liability, such as what transpired in this case, is valid. Since the cargo was being
shipped at owners risk, LOADSTAR was not liable for any loss or damage to the
same. Therefore, the Court of Appeals erred in holding that the provisions of the bills of
lading apply only to the shipper and the carrier, and not to the insurer of the goods,
which conclusion runs counter to the Supreme Courts ruling in the case of St. Paul Fire
& Marine Insurance Co. v. Macondray & Co., Inc.,
[9]
and National Union Fire Insurance
Company of Pittsburg v. Stolt-Nielsen Phils., Inc.
[10]

Finally, LOADSTAR avers that MICs claim had already prescribed, the case having
been instituted beyond the period stated in the bills of lading for instituting the same
suits based upon claims arising from shortage, damage, or non-delivery of shipment
shall be instituted within sixty days from the accrual of the right of action. The vessel
sank on 20 November 1984; yet, the case for recovery was filed only on 4 February
1985.
MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the
loss of the cargo was due to force majeure, because the same concurred with
LOADSTARs fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court below;
hence, the same must be deemed waived.
Thirdly, the limited liability theory is not applicable in the case at bar because
LOADSTAR was at fault or negligent, and because it failed to maintain a seaworthy
vessel. Authorizing the voyage notwithstanding its knowledge of a typhoon is
tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not
necessary that the carrier be issued a certificate of public convenience, and this public
character is not altered by the fact that the carriage of the goods in question was
periodic, occasional, episodic or unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co.
v. American Steamship Agencies, Inc.,
[11]
where this Court held that a common carrier
transporting special cargo or chartering the vessel to a special person becomes a private
carrier that is not subject to the provisions of the Civil Code. Any stipulation in the
charter party absolving the owner from liability for loss due to the negligence of its
agent is void only if the strict policy governing common carriers is upheld. Such policy
has no force where the public at large is not involved, as in the case of a ship totally
chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and
Industrial Supply, Inc. v. Court of Appeals
[12]
and National Steel Corp. v. Court of
Appeals,
[13]
both of which upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar for simple
reason that the factual settings are different. The records do not disclose that the M/V
Cherokee, on the date in question, undertook to carry a special cargo or was chartered
to a special person only. There was no charter party. The bills of lading failed to show
any special arrangement, but only a general provision to the effect that the M/V
Cherokee was a general cargo carrier.
[14]
Further, the bare fact that the vessel was
carrying a particular type of cargo for one shipper, which appears to be purely
coincidental, is not reason enough to convert the vessel from a common to a private
carrier, especially where, as in this case, it was shown that the vessel was also carrying
passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits the
definition of a common carrier under Article 1732 of the Civil Code. In the case of De
Guzman v. Court of Appeals,
[15]
the Court juxtaposed the statutory definition of
common carriers with the peculiar circumstances of that case, viz.:
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is
the carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as a sideline. Article 1732 also carefully avoids
making any distinction between a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on an occasional, episodic or
unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the general public, i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from making such
distinctions.
x x x
It appears to the Court that private respondent is properly characterized as a common
carrier even though he merely back-hauled goods for other merchants from Manila to
Pangasinan, although such backhauling was done on a periodic or occasional rather than
regular or scheduled manner, and even though private respondents principal occupation
was not the carriage of goods for others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that that fee frequently fell below
commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of
public convenience, and concluded he was not a common carrier. This is palpable
error. A certificate of public convenience is not a requisite for the incurring of liability
under the Civil Code provisions governing common carriers. That liability arises the
moment a person or firm acts as a common carrier, without regard to whether or not
such carrier has also complied with the requirements of the applicable regulatory statute
and implementing regulations and has been granted a certificate of public convenience
or other franchise. To exempt private respondent from the liabilities of a common
carrier because he has not secured the necessary certificate of public convenience,
would be offensive to sound public policy; that would be to reward private respondent
precisely for failing to comply with applicable statutory requirements. The business of a
common carrier impinges directly and intimately upon the safety and well being and
property of those members of the general community who happen to deal with such
carrier. The law imposes duties and liabilities upon common carriers for the safety and
protection of those who utilize their services and the law cannot allow a common carrier
to render such duties and liabilities merely facultative by simply failing to obtain the
necessary permits and authorizations.
Moving on to the second assigned error, we find that the M/V Cherokee was not
seaworthy when it embarked on its voyage on 19 November 1984. The vessel was not
even sufficiently manned at the time. For a vessel to be seaworthy, it must be
adequately equipped for the voyage and manned with a sufficient number of competent
officers and crew. The failure of a common carrier to maintain in seaworthy condition its
vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article
1755 of the Civil Code.
[16]

Neither do we agree with LOADSTARs argument that the limited liability theory
should be applied in this case. The doctrine of limited liability does not apply where
there was negligence on the part of the vessel owner or agent.
[17]
LOADSTAR was at
fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel
to sail despite knowledge of an approaching typhoon. In any event, it did not sink
because of any storm that may be deemed as force majeure, inasmuch as the wind
condition in the area where it sank was determined to be moderate. Since it was remiss
in the performance of its duties, LOADSTAR cannot hide behind the limited liability
doctrine to escape responsibility for the loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss
of the goods, in utter disregard of this Courts pronouncements in St. Paul Fire & Marine
Ins. Co. v. Macondray & Co., Inc.,
[18]
and National Union Fire Insurance v. Stolt-Nielsen
Phils., Inc.
[19]
It was ruled in these two cases that after paying the claim of the insured
for damages under the insurance policy, the insurer is subrogated merely to the rights of
the assured, that is, it can recover only the amount that may, in turn, be recovered by
the latter. Since the right of the assured in case of loss or damage to the goods is
limited or restricted by the provisions in the bills of lading, a suit by the insurer as
subrogee is necessarily subject to the same limitations and restrictions. We do not
agree. In the first place, the cases relied on by LOADSTAR involved a limitation on the
carriers liability to an amount fixed in the bill of lading which the parties may enter into,
provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the
other hand, the stipulation in the case at bar effectively reduces the common carriers
liability for the loss or destruction of the goods to a degree less than extraordinary
(Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to
shipments made at owners risk. Such stipulation is obviously null and void for being
contrary to public policy.
[20]
It has been said:
Three kinds of stipulations have often been made in a bill of lading. The first is one
exempting the carrier from any and all liability for loss or damage occasioned by its own
negligence. The second is one providing for an unqualified limitation of such liability to
an agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and pays a higher rate of
freight. According to an almost uniform weight of authority, the first and second kinds
of stipulations are invalid as being contrary to public policy, but the third is valid and
enforceable.
[21]

Since the stipulation in question is null and void, it follows that when MIC paid the
shipper, it was subrogated to all the rights which the latter has against the common
carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was barred by
prescription. MICs cause of action had not yet prescribed at the time it was
concerned. Inasmuch as neither the Civil Code nor the Code of Commerce states a
specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)
which provides for a one-year period of limitation on claims for loss of, or damage to,
cargoes sustained during transit may be applied suppletorily to the case at bar. This
one-year prescriptive period also applies to the insurer of the good.
[22]
In this case, the
period for filing the action for recovery has not yet elapsed. Moreover, a stipulation
reducing the one-year period is null and void;
[23]
it must, accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision of 30
January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs
against petitioner.
SO ORDERED.
Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 144274 September 20, 2004
NOSTRADAMUS VILLANUEVA, petitioner,
vs.
PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO, respondents.
D E C I S I O N
CORONA, J.:
This is a petition to review the decision
1
of the Court of Appeals in CA-G.R. CV No.
52203 affirming in turn the decision of the trial court finding petitioner liable to
respondent for damages. The dispositive portion read:
WHEREFORE, the appealed decision is hereby AFFIRMED except the award of
attorneys fees including appearance fees which is DELETED.
SO ORDERED.
2

The facts of the case, as summarized by the Court of Appeals, are as follows:
[Respondent] Priscilla R. Domingo is the registered owner of a silver Mitsubishi
Lancer Car model 1980 bearing plate No. NDW 781 91 with [co-respondent]
Leandro Luis R. Domingo as authorized driver. [Petitioner] Nostradamus Villanueva
was then the registered "owner" of a green Mitsubishi Lancer bearing Plate No.
PHK 201 91.
On 22 October 1991 at about 9:45 in the evening, following a green traffic light,
[respondent] Priscilla Domingos silver Lancer car with Plate No. NDW 781 91 then
driven by [co-respondent] Leandro Luis R. Domingo was cruising along the middle
lane of South Superhighway at moderate speed from north to south. Suddenly, a
green Mitsubishi Lancer with plate No. PHK 201 91 driven by Renato Dela Cruz
Ocfemia darted from Vito Cruz Street towards the South Superhighway directly
into the path of NDW 781 91 thereby hitting and bumping its left front portion. As
a result of the impact, NDW 781 91 hit two (2) parked vehicles at the roadside,
the second hitting another parked car in front of it.
Per Traffic Accident Report prepared by Traffic Investigator Pfc. Patrocinio N.
Acido, Renato dela Cruz Ocfemia was driving with expired license and positive for
alcoholic breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua
recommended the filing of information for reckless imprudence resulting to (sic)
damage to property and physical injuries.
The original complaint was amended twice: first, impleading Auto Palace Car
Exchange as commercial agent and/or buyer-seller and second, impleading Albert
Jaucian as principal defendant doing business under the name and style of Auto
Palace Car Exchange.
Except for Ocfemia, all the defendants filed separate answers to the complaint.
[Petitioner] Nostradamus Villanueva claimed that he was no longer the owner of
the car at the time of the mishap because it was swapped with a Pajero owned by
Albert Jaucian/Auto Palace Car Exchange. For her part, Linda Gonzales declared
that her presence at the scene of the accident was upon the request of the actual
owner of the Mitsubishi Lancer (PHK 201 91) [Albert Jaucian] for whom she had
been working as agent/seller. On the other hand, Auto Palace Car Exchange
represented by Albert Jaucian claimed that he was not the registered owner of the
car. Moreover, it could not be held subsidiary liable as employer of Ocfemia
because the latter was off-duty as utility employee at the time of the incident.
Neither was Ocfemia performing a duty related to his employment.
3

After trial, the trial court found petitioner liable and ordered him to pay respondent
actual, moral and exemplary damages plus appearance and attorneys fees:
WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering
Nostradamus Villanueva to pay the amount of P99,580 as actual
damages, P25,000.00 as moral damages, P25,000.00 as exemplary damages and
attorneys fees in the amount of P10,000.00 plus appearance fees of P500.00 per
hearing with legal interest counted from the date of judgment. In conformity with
the law on equity and in accordance with the ruling in First Malayan Lending and
Finance Corporation vs. Court of Appeals (supra), Albert Jaucian is hereby ordered
to indemnify Nostradamus Villanueva for whatever amount the latter is hereby
ordered to pay under the judgment.
SO ORDERED.
4

The CA upheld the trial courts decision but deleted the award for appearance and
attorneys fees because the justification for the grant was not stated in the body of the
decision. Thus, this petition for review which raises a singular issue:
MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE FOR
DAMAGES ARISING FROM A VEHICULAR ACCIDENT INVOLVING HIS MOTOR
VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS BUYER WITHOUT
THE LATTERS CONSENT AND KNOWLEDGE?
5

Yes.
We have consistently ruled that the registered owner of any vehicle is directly and
primarily responsible to the public and third persons while it is being operated.
6
The
rationale behind such doctrine was explained way back in 1957 in Erezo vs. Jepte
7
:
The principle upon which this doctrine is based is that in dealing with vehicles registered
under the Public Service Law, the public has the right to assume or presume that the
registered owner is the actual owner thereof, for it would be difficult for the public to
enforce the actions that they may have for injuries caused to them by the vehicles being
negligently operated if the public should be required to prove who the actual owner is.
How would the public or third persons know against whom to enforce their rights in case
of subsequent transfers of the vehicles? We do not imply by his doctrine, however, that
the registered owner may not recover whatever amount he had paid by virtue of his
liability to third persons from the person to whom he had actually sold, assigned or
conveyed the vehicle.
Under the same principle the registered owner of any vehicle, even if not used for
a public service, should primarily be responsible to the public or to third persons
for injuries caused the latter while the vehicle is being driven on the highways or
streets. The members of the Court are in agreement that the defendant-appellant
should be held liable to plaintiff-appellee for the injuries occasioned to the latter
because of the negligence of the driver, even if the defendant-appellant was no
longer the owner of the vehicle at the time of the damage because he had
previously sold it to another. What is the legal basis for his (defendant-appellants)
liability?
There is a presumption that the owner of the guilty vehicle is the defendant-appellant as
he is the registered owner in the Motor Vehicles Office. Should he not be allowed to
prove the truth, that he had sold it to another and thus shift the responsibility for the
injury to the real and actual owner? The defendant holds the affirmative of this
proposition; the trial court held the negative.
The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle
may be used or operated upon any public highway unless the same is property
registered. It has been stated that the system of licensing and the requirement that
each machine must carry a registration number, conspicuously displayed, is one of the
precautions taken to reduce the danger of injury to pedestrians and other travelers from
the careless management of automobiles. And to furnish a means of ascertaining the
identity of persons violating the laws and ordinances, regulating the speed and operation
of machines upon the highways (2 R.C.L. 1176). Not only are vehicles to be registered
and that no motor vehicles are to be used or operated without being properly registered
for the current year, but that dealers in motor vehicles shall furnish thee Motor Vehicles
Office a report showing the name and address of each purchaser of motor vehicle during
the previous month and the manufacturers serial number and motor number. (Section
5(c), Act No. 3992, as amended.)
Registration is required not to make said registration the operative act by which
ownership in vehicles is transferred, as in land registration cases, because the
administrative proceeding of registration does not bear any essential relation to the
contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888),
but to permit the use and operation of the vehicle upon any public highway (section 5
[a], Act No. 3992, as amended). The main aim of motor vehicle registration is to identify
the owner so that if any accident happens, or that any damage or injury is caused by the
vehicle on the public highways, responsibility therefore can be fixed on a definite
individual, the registered owner. Instances are numerous where vehicles running on
public highways caused accidents or injuries to pedestrians or other vehicles without
positive identification of the owner or drivers, or with very scant means of identification.
It is to forestall these circumstances, so inconvenient or prejudicial to the public, that
the motor vehicle registration is primarily ordained, in the interest of the determination
of persons responsible for damages or injuries caused on public highways:
One of the principal purposes of motor vehicles legislation is identification of the vehicle
and of the operator, in case of accident; and another is that the knowledge that means
of detection are always available may act as a deterrent from lax observance of the law
and of the rules of conservative and safe operation. Whatever purpose there may be in
these statutes, it is subordinate at the last to the primary purpose of rendering it certain
that the violator of the law or of the rules of safety shall not escape because of lack of
means to discover him. The purpose of the statute is thwarted, and the displayed
number becomes a "share and delusion," if courts would entertain such defenses as that
put forward by appellee in this case. No responsible person or corporation could be held
liable for the most outrageous acts of negligence, if they should be allowed to pace a
"middleman" between them and the public, and escape liability by the manner in which
they recompense servants. (King vs. Brenham Automobile Co., Inc. 145 S.W. 278, 279.)
With the above policy in mind, the question that defendant-appellant poses is: should
not the registered owner be allowed at the trial to prove who the actual and real owner
is, and in accordance with such proof escape or evade responsibility by and lay the same
on the person actually owning the vehicle? We hold with the trial court that the law does
not allow him to do so; the law, with its aim and policy in mind, does not relieve him
directly of the responsibility that the law fixes and places upon him as an incident or
consequence of registration. Were a registered owner allowed to evade responsibility by
proving who the supposed transferee or owner is, it would be easy for him, by collusion
with others or otherwise, to escape said responsibility and transfer the same to an
indefinite person, or to one who possesses no property with which to respond financially
for the damage or injury done. A victim of recklessness on the public highways is usually
without means to discover or identify the person actually causing the injury or damage.
He has no means other than by a recourse to the registration in the Motor Vehicles
Office to determine who is the owner. The protection that the law aims to extend to him
would
become illusory were the registered owner given the opportunity to escape liability by
disproving his ownership. If the policy of the law is to be enforced and carried out, the
registered owner should not be allowed to prove the contrary to the prejudice of the
person injured, that is, to prove that a third person or another has become the owner,
so that he may thereby be relieved of the responsibility to the injured person.
The above policy and application of the law may appear quite harsh and would seem to
conflict with truth and justice. We do not think it is so. A registered owner who has
already sold or transferred a vehicle has the recourse to a third-party complaint, in the
same action brought against him to recover for the damage or injury done, against the
vendee or transferee of the vehicle. The inconvenience of the suit is no justification for
relieving him of liability; said inconvenience is the price he pays for failure to comply
with the registration that the law demands and requires.
In synthesis, we hold that the registered owner, the defendant-appellant herein, is
primarily responsible for the damage caused to the vehicle of the plaintiff-appellee, but
he (defendant-appellant) has a right to be indemnified by the real or actual owner of the
amount that he may be required to pay as damage for the injury caused to the plaintiff-
appellant.
8

Petitioner insists that he is not liable for damages since the driver of the vehicle at the
time of the accident was not an authorized driver of the new (actual) owner of the
vehicle. He claims that the ruling in First Malayan Leasing and Finance Corporation vs.
CA
9
implies that to hold the registered owner liable for damages, the driver of the
vehicle must have been authorized, allowed and permitted by its actual owner to
operate and drive it. Thus, if the vehicle is driven without the knowledge and consent of
the actual owner, then the registered owner cannot be held liable for damages.
He further argues that this was the underlying theory behind Duavit vs. CA
10
wherein
the court absolved the registered owner from liability after finding that the vehicle was
virtually stolen from the owners garage by a person who was neither authorized nor
employed by the owner. Petitioner concludes that the ruling in Duavit and not the one
in First Malayan should be applicable to him.
Petitioners argument lacks merit. Whether the driver is authorized or not by the actual
owner is irrelevant to determining the liability of the registered owner who the law holds
primarily and directly responsible for any accident, injury or death caused by the
operation of the vehicle in the streets and highways. To require the driver of the vehicle
to be authorized by the actual owner before the registered owner can be held
accountable is to defeat the very purpose why motor vehicle legislations are enacted in
the first place.
Furthermore, there is nothing in First Malayan which even remotely suggests that the
driver must be authorized before the registered owner can be held accountable. In First
Malayan, the registered owner, First Malayan Corporation, was held liable for damages
arising from the accident even if the vehicle involved was already owned by another
party:
This Court has consistently ruled that regardless of who the actual owner is of a
motor vehicle might be, the registered owner is the operator of the same with
respect to the public and third persons, and as such, directly and primarily
responsible for the consequences of its operation. In contemplation of law, the
owner/operator of record is the employer of the driver, the actual operator and
employer being considered merely as his agent (MYC-Agro-Industrial Corporation
vs. Vda. de Caldo, 132 SCRA 10, citing Vargas vs. Langcay, 6 SCRA 174; Tamayo
vs. Aquino, 105 Phil. 949).
We believe that it is immaterial whether or not the driver was actually
employed by the operator of record. It is even not necessary to prove who
the actual owner of the vehicle and the employer of the driver is. Granting
that, in this case, the father of the driver is the actual owner and that he is
the actual employer, following the well-settled principle that the operator of
record continues to be the operator of the vehicle in contemplation of law, as
regards the public and third person, and as such is responsible for the
consequences incident to its operation, we must hold and consider such
owner-operator of record as the employer, in contemplation of law, of the
driver. And, to give effect to this policy of law as enunciated in the above
cited decisions of this Court, we must now extend the same and consider the
actual operator and employer as the agent of the operator of record.
11

Contrary to petitioners position, the First Malayan ruling is applicable to him since the
case involves the same set of facts the registered owner had previously sold the
vehicle to someone else and was being driven by an employee of the new (actual)
owner. Duavit is inapplicable since the vehicle there was not transferred to another; the
registered and the actual owner was one and the same person. Besides, in Duavit, the
defense of the registered owner, Gilberto Duavit, was that the vehicle was practically
stolen from his garage by Oscar Sabiano, as affirmed by the latter:
Defendant Sabiano, in his testimony, categorically admitted that he took the jeep
from the garage of defendant Duavit without the consent and authority of the
latter. He testified further that Duavit even filed charges against him for the theft
of the jeep but which Duavit did not push through as his (Sabianos) parents
apologized to Duavit on his behalf.
12

As correctly pointed out by the CA, the Duavit ruling is not applicable to petitioners case
since the circumstance of unauthorized use was not present. He in fact voluntarily
delivered his car to Albert Jaucian as part of the downpayment for a vehicle he
purchased from Jaucian. Thus, he could not claim that the vehicle was stolen from him
since he voluntarily ceded possession thereof to Jaucian. It was the latter, as the new
(actual) owner, who could have raised the defense of theft to prove that he was not
liable for the acts of his employee Ocfemia. Thus, there is no reason to apply
the Duavit ruling to this case.
The ruling in First Malayan has been reiterated in BA Finance Corporation vs. CA
13
and
more recently in Aguilar, Sr. vs. Commercial Savings Bank.
14
In BA Finance, we held the
registered owner liable even if, at the time of the accident, the vehicle was leased by
another party and was driven by the lessees employee. In Aguilar, the registered
owner-bank answered for damages for the accident even if the vehicle was being driven
by the Vice-President of the Bank in his private capacity and not as an officer of the
Bank, as claimed by the Bank. We find no reason to deviate from these decisions.
The main purpose of vehicle registration is the easy identification of the owner who can
be held responsible for any accident, damage or injury caused by the vehicle. Easy
identification prevents inconvenience and prejudice to a third party injured by one who
is unknown or unidentified. To allow a registered owner to escape liability by claiming
that the driver was not authorized by the new (actual) owner results in the public
detriment the law seeks to avoid.
Finally, the issue of whether or not the driver of the vehicle during the accident was
authorized is not at all relevant to determining the liability of the registered owner. This
must be so if we are to comply with the rationale and principle behind the registration
requirement under the motor vehicle law.
WHEREFORE, the petition is hereby DENIED. The January 26, 2000 decision of the Court
of Appeals isAFFIRMED.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, and Carpio Morales
*
, JJ., concur.

THIRD DIVISION
[G.R. No. 143360. September 5, 2002]
EQUITABLE LEASING CORPORATION, petitioner, vs. LUCITA SUYOM, MARISSA ENANO,
MYRNA TAMAYO and FELIX OLEDAN, respondents.
D E C I S I O N
PANGANIBAN, J.:
In an action based on quasi delict, the registered owner of a motor vehicle is
solidarily liable for the injuries and damages caused by the negligence of the driver, in
spite of the fact that the vehicle may have already been the subject of an unregistered
Deed of Sale in favor of another person. Unless registered with the Land Transportation
Office, the sale -- while valid and binding between the parties -- does not affect third
parties, especially the victims of accidents involving the said transport equipment. Thus,
in the present case, petitioner, which is the registered owner, is liable for the acts of the
driver employed by its former lessee who has become the owner of that vehicle by
virtue of an unregistered Deed of Sale.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the
May 12, 2000 Decision
[1]
of the Court of Appeals
[2]
(CA) in CA-GR CV No. 55474. The
decretal portion of the Decision reads as follows:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of
merit. The assailed decision, dated May 5, 1997, of the Regional Trial Court of Manila,
Branch 14, in Civil Case No. 95-73522, is hereby AFFIRMED with MODIFICATION that
the award of attorneys fees is DELETED.
[3]

On the other hand, in Civil Case No. 95-73522, the Regional Trial Court (RTC) of
Manila (Branch 14) had earlier disposed in this wise:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant Equitable Leasing Corporation ordering said defendant to pay to the plaintiffs
the following:
A. TO MYRNA TAMAYO
1. the sum of P50,000.00 for the death of Reniel Tamayo;
2. P50,000.00 as moral damages; and
3. P56,000.00 for the damage to the store and its contents, and funeral expenses.
B. TO FELIX OLEDAN
1. the sum of P50,000.00 for the death of Felmarie Oledan;
2. P50,000.00 as moral damages; and
3. P30,000.00 for medical expenses, and funeral expenses.
C. TO MARISSA ENANO
1. P7,000.00 as actual damages
D. TO LUCITA SUYOM
1. The sum of P5,000.00 for the medical treatment of her two sons.
The sum of P120,000.00 as and for attorneys fees.
[4]

The Facts
On July 17, 1994, a Fuso Road Tractor driven by Raul Tutor rammed into the house
cum store of Myrna Tamayo located at Pier 18, Vitas, Tondo, Manila. A portion of the
house was destroyed. Pinned to death under the engine of the tractor were Respondent
Myrna Tamayos son, Reniel Tamayo, and Respondent Felix Oledans daughter, Felmarie
Oledan. Injured were Respondent Oledan himself, Respondent Marissa Enano, and two
sons of Respondent Lucita Suyom.
Tutor was charged with and later convicted of reckless imprudence resulting in
multiple homicide and multiple physical injuries in Criminal Case No. 296094-SA,
Metropolitan Trial Court of Manila, Branch 12.
[5]

Upon verification with the Land Transportation Office, respondents were furnished a
copy of Official Receipt No. 62204139
[6]
and Certificate of Registration No.
08262797,
[7]
showing that the registered owner of the tractor was Equitable Leasing
Corporation/leased to Edwin Lim. On April 15, 1995, respondents filed against Raul
Tutor, Ecatine Corporation (Ecatine) and Equitable Leasing Corporation (Equitable) a
Complaint
[8]
for damages docketed as Civil Case No. 95-73522 in the RTC of Manila,
Branch 14.
The trial court, upon motion of plaintiffs counsel, issued an Order dropping Raul
Tutor, Ecatine and Edwin Lim from the Complaint, because they could not be located and
served with summonses.
[9]
On the other hand, in its Answer with
Counterclaim,
[10]
petitioner alleged that the vehicle had already been sold to Ecatine and
that the former was no longer in possession and control thereof at the time of the
incident. It also claimed that Tutor was an employee, not of Equitable, but of Ecatine.
After trial on the merits, the RTC rendered its Decision ordering petitioner to pay
actual and moral damages and attorneys fees to respondents. It held that since the
Deed of Sale between petitioner and Ecatine had not been registered with the Land
Transportation Office (LTO), the legal owner was still Equitable.
[11]
Thus, petitioner was
liable to respondents.
[12]

Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioner was still to be legally deemed the
owner/operator of the tractor, even if that vehicle had been the subject of a Deed of
Sale in favor of Ecatine on December 9, 1992. The reason cited by the CA was that the
Certificate of Registration on file with the LTO still remained in petitioners name.
[13]
In
order that a transfer of ownership of a motor vehicle can bind third persons, it must be
duly recorded in the LTO.
[14]

The CA likewise upheld respondents claim for moral damages against petitioner
because the appellate court considered Tutor, the driver of the tractor, to be an agent of
the registered owner/operator.
[15]

Hence, this Petition.
[16]

Issues
In its Memorandum, petitioner raises the following issues for the Courts
consideration:
I
Whether or not the Court of Appeals and the trial court gravely erred when they
decided and held that petitioner [was] liable for damages suffered by private
respondents in an action based on quasi delict for the negligent acts of a driver who
[was] not the employee of the petitioner.
II
Whether or not the Court of Appeals and the trial court gravely erred when they
awarded moral damages to private respondents despite their failure to prove that the
injuries they suffered were brought by petitioners wrongful act.
[17]

This Courts Ruling
The Petition has no merit.
First Issue:
Liability for Wrongful Acts
Petitioner contends that it should not be held liable for the damages sustained by
respondents and that arose from the negligence of the driver of the Fuso Road Tractor,
which it had already sold to Ecatine at the time of the accident. Not having employed
Raul Tutor, the driver of the vehicle, it could not have controlled or supervised him.
[18]

We are not persuaded. In negligence cases, the aggrieved party may sue the
negligent party under (1) Article 100
[19]
of the Revised Penal Code, for civil liability ex
delicto; or (2) under Article 2176
[20]
of the Civil Code, for civil liability ex quasi
delicto.
[21]

Furthermore, under Article 103 of the Revised Penal Code, employers may be
held subsidiarily liable for felonies committed by their employees in the discharge of the
latters duties.
[22]
This liability attaches when the employees who are convicted of crimes
committed in the performance of their work are found to be insolvent and are thus
unable to satisfy the civil liability adjudged.
[23]

On the other hand, under Article 2176 in relation to Article 2180
[24]
of the Civil Code,
an action predicated on quasi delict may be instituted against the employer for an
employees act or omission. The liability for the negligent conduct of the subordinate
is direct and primary, but is subject to the defense of due diligence in the selection and
supervision of the employee.
[25]
The enforcement of the judgment against the employer
for an action based on Article 2176 does not require the employee to be insolvent, since
the liability of the former is solidary -- the latter being statutorily considered a joint
tortfeasor.
[26]
To sustain a claim based on quasi delict, the following requisites must be
proven: (a) damage suffered by the plaintiff, (b) fault or negligence of the defendant,
and (c) connection of cause and effect between the fault or negligence of the defendant
and the damage incurred by the plaintiff.
[27]

These two causes of action (ex delicto or ex quasi delicto) may be availed
of, subject to the caveat
[28]
that the offended party cannot recover damages twice for
the same act or omission or under both causes.
[29]
Since these two civil liabilities are
distinct and independent of each other, the failure to recover in one will not necessarily
preclude recovery in the other.
[30]

In the instant case, respondents -- having failed to recover anything in the criminal
case -- elected to file a separate civil action for damages, based on quasi delict under
Article 2176 of the Civil Code.
[31]
The evidence is clear that the deaths and the injuries
suffered by respondents and their kins were due to the fault of the driver of the Fuso
tractor.
Dated June 4, 1991, the Lease Agreement
[32]
between petitioner and Edwin Lim
stipulated that it is the intention of the parties to enter into a FINANCE LEASE
AGREEMENT.
[33]
Under such scheme, ownership of the subject tractor was to be
registered in the name of petitioner, until the value of the vehicle has been fully paid by
Edwin Lim.
[34]
Further, in the Lease Schedule,
[35]
the monthly rental for the tractor was
stipulated, and the term of the Lease was scheduled to expire on December 4, 1992.
After a few months, Lim completed the payments to cover the full price of the
tractor.
[36]
Thus, on December 9, 1992, a Deed of Sale
[37]
over the tractor was executed
by petitioner in favor of Ecatine represented by Edwin Lim. However, the Deed was not
registered with the LTO.
We hold petitioner liable for the deaths and the injuries complained of, because it
was the registered owner of the tractor at the time of the accident on July 17,
1994.
[38]
The Court has consistently ruled that, regardless of sales made of a motor
vehicle, the registered owner is the lawful operator insofar as the public and third
persons are concerned; consequently, it is directly and primarily responsible for the
consequences of its operation.
[39]
In contemplation of law, the owner/operator of record
is the employer of the driver, the actual operator and employer being considered as
merely its agent.
[40]
The same principle applies even if the registered owner of any
vehicle does not use it for public service.
[41]

Since Equitable remained the registered owner of the tractor, it could not escape
primary liability for the deaths and the injuries arising from the negligence of the
driver.
[42]

The finance-lease agreement between Equitable on the one hand and Lim or Ecatine
on the other has already been superseded by the sale. In any event, it does not bind
third persons. The rationale for this rule has been aptly explained in Erezo v.
Jepte,
[43]
which we quote hereunder:
x x x. The main aim of motor vehicle registration is to identify the owner so that if any
accident happens, or that any damage or injury is caused by the vehicle on the public
highways, responsibility therefor can be fixed on a definite individual, the registered
owner. Instances are numerous where vehicles running on public highways caused
accidents or injuries to pedestrians or other vehicles without positive identification of the
owner or drivers, or with very scant means of identification. It is to forestall these
circumstances, so inconvenient or prejudicial to the public, that the motor vehicle
registration is primarily ordained, in the interest of the determination of persons
responsible for damages or injuries caused on public highways.
[44]

Further, petitioners insistence on FGU Insurance Corp. v. Court of Appeals is
misplaced.
[45]
First, in FGU Insurance, the registered vehicle owner, which was engaged
in a rent-a-car business, rented out the car. In this case, the registered owner of the
truck, which is engaged in the business of financing motor vehicle acquisitions, has
actually sold the truck to Ecatine, which in turn employed Tutor. Second, in FGU
Insurance, the registered owner of the vehicle was not held responsible for the negligent
acts of the person who rented one of its cars, because Article 2180 of the Civil Code was
not applicable. We held that no vinculum juris as employer and employee existed
between the owner and the driver.
[46]
In this case, the registered owner of the tractor is
considered under the law to be the employer of the driver, while the actual operator is
deemed to be its agent.
[47]
Thus, Equitable, the registered owner of the tractor, is -- for
purposes of the law on quasi delict -- the employer of Raul Tutor, the driver of the
tractor. Ecatine, Tutors actual employer, is deemed as merely an agent of Equitable.
[48]

True, the LTO Certificate of Registration, dated 5/31/91, qualifies the name of the
registered owner as EQUITABLE LEASING CORPORATION/Leased to Edwin Lim. But
the lease agreement between Equitable and Lim has been overtaken by the Deed of Sale
on December 9, 1992, between petitioner and Ecatine. While this Deed does not affect
respondents in this quasi delict suit, it definitely binds petitioner because, unlike them, it
is a party to it.
We must stress that the failure of Equitable and/or Ecatine to register the sale with
the LTO should not prejudice respondents, who have the legal right to rely on the legal
principle that the registered vehicle owner is liable for the damages caused by the
negligence of the driver. Petitioner cannot hide behind its allegation that Tutor was the
employee of Ecatine. This will effectively prevent respondents from recovering their
losses on the basis of the inaction or fault of petitioner in failing to register the sale. The
non-registration is the fault of petitioner, which should thus face the legal consequences
thereof.
Second Issue:
Moral Damages
Petitioner further claims that it is not liable for moral damages, because respondents
failed to establish or show the causal connection or relation between the factual basis of
their claim and their wrongful act or omission, if any.
[49]

Moral damages are not punitive in nature, but are designed to compensate
[50]
and
alleviate in some way the physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury unjustly caused a person.
[51]
Although incapable of pecuniary computation, moral
damages must nevertheless be somehow proportional to and in approximation of the
suffering inflicted.
[52]
This is so because moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered, not to impose a penalty
on the wrongdoer.
[53]

Viewed as an action for quasi delict, the present case falls squarely within the
purview of Article 2219 (2),
[54]
which provides for the payment of moral damages in
cases of quasi delict.
[55]
Having established the liability of petitioner as the registered
owner of the vehicle,
[56]
respondents have satisfactorily shown the existence of the
factual basis for the award
[57]
and its causal connection to the acts of Raul Tutor, who is
deemed as petitioners employee.
[58]
Indeed, the damages and injuries suffered by
respondents were the proximate result of petitioners tortious act or omission.
[59]

Further, no proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court.
[60]
The
evidence gives no ground for doubt that such discretion was properly and judiciously
exercised by the trial court.
[61]
The award is in fact consistent with the rule that moral
damages are not intended to enrich the injured party, but to alleviate the moral
suffering undergone by that party by reason of the defendants culpable action.
[62]

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
Puno, (Chairman), Corona, and Carpio-Morales, JJ., concur.
Sandoval-Gutierrez, J., on leave.


Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 152122 July 30, 2003
CHINA AIRLINES, petitioner,
vs.
DANIEL CHIOK, respondent.
PANGANIBAN, J.:
A common carrier has a peculiar relationship with and an exacting responsibility to its
passengers. For reasons of public interest and policy, the ticket-issuing airline acts as
principal in a contract of carriage and is thus liable for the acts and the omissions of any
errant carrier to which it may have endorsed any sector of the entire, continuous trip.
The Case
Before the Court is a Petition for Review on Certiorari
1
under Rule 45 of the Rules of
Court, seeking to reverse the August 7, 2001 Decision
2
and the February 7, 2002
Resolution
3
of the Court of Appeals (CA) in CA-GR CV No. 45832. The challenged
Decision disposed as follows:
"WHEREFORE, premises considered, the assailed Decision dated July 5, 1991 of
Branch 31, Regional Trial Court, National Capital Judicial Region, Manila, in Civil
Case No. 82-13690, is hereby MODIFIED by deleting that portion regarding
defendants-appellants liabilities for the payment of the actual damages amounting
to HK$14,128.80 and US$2,000.00 while all other respects are AFFIRMED. Costs
against defendants-appellants."
4

The assailed Resolution denied Petitioners Motion for Partial Reconsideration.
The Facts
The facts are narrated by the CA
5
as follows:
"On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased
from China Airlines, Ltd. (CAL for brevity) airline passenger ticket number
297:4402:004:278:5 for air transportation covering Manila-Taipei-Hongkong-
Manila. Said ticket was exclusively endorseable to Philippine Airlines, Ltd. (PAL for
brevity).
"Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei
using [the] CAL ticket. Before he left for said trip, the trips covered by the ticket
were pre-scheduled and confirmed by the former. When he arrived in Taipei, he
went to the CAL office and confirmed his Hongkong to Manila trip on board PAL
Flight No. PR 311. The CAL office attached a yellow sticker appropriately indicating
that his flight status was OK.
"When Chiok reached Hongkong, he went to the PAL office and sought to
reconfirm his flight back to Manila. The PAL office confirmed his return trip on
board Flight No. PR 311 and attached its own sticker. On November 24, 1981,
Chiok proceeded to Hongkong International Airport for his return trip to Manila.
However, upon reaching the PAL counter, Chiok saw a poster stating that PAL
Flight No. PR 311 was cancelled because of a typhoon in Manila. He was then
informed that all the confirmed ticket holders of PAL Flight No. PR 311 were
automatically booked for its next flight, which was to leave the next day. He then
informed PAL personnel that, being the founding director of the Philippine
Polysterene Paper Corporation, he ha[d] to reach Manila on November 25, 1981
because of a business option which he ha[d] to execute on said date.
"On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess Lok
Chan (hereafter referred to as Lok) ha[d] taken and received Chioks plane ticket
and his luggage. Lok called the attention of Carmen Chan (hereafter referred to as
Carmen), PALs terminal supervisor, and informed the latter that Chioks name
was not in the computer list of passengers. Subsequently, Carmen informed Chiok
that his name did not appear in PALs computer list of passengers and therefore
could not be permitted to board PAL Flight No. PR 307.
"Meanwhile, Chiok requested Carmen to put into writing the alleged reason why he
was not allowed to take his flight. The latter then wrote the following, to wit: PAL
STAFF CARMEN CHAN CHKD WITH R/C KENNY AT 1005H NO SUCH NAME IN
COMPUTER FOR 311/24 NOV AND 307/25 NOV. The latter sought to recover his
luggage but found only 2 which were placed at the end of the passengers line.
Realizing that his new Samsonite luggage was missing, which contained cosmetics
worth HK$14,128.80, he complained to Carmen.
"Thereafter, Chiok proceeded to PALs Hongkong office and confronted PALs
reservation officer, Carie Chao (hereafter referred to as Chao), who previously
confirmed his flight back to Manila. Chao told Chiok that his name was on the list
and pointed to the latter his computer number listed on the PAL confirmation
sticker attached to his plane ticket, which number was R/MN62.
"Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5 and
asked Chao if this ticket could be used to book him for the said flight. The latter,
once again, booked and confirmed the formers trip, this time on board PAL Flight
No. PR 311 scheduled to depart that evening. Later, Chiok went to the PAL check-
in counter and it was Carmen who attended to him. As this juncture, Chiok had
already placed his travel documents, including his clutch bag, on top of the PAL
check-in counter.
"Thereafter, Carmen directed PAL personnel to transfer counters. In the ensuing
commotion, Chiok lost his clutch bag containing the following, to wit: (a)
$2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e) a three-
piece set of gold (18 carats) cross pens valued at P3,500; (f) a Cartier watch
worth about P7,500.00; (g) a tie clip with a garnet birthstone and diamond worth
P1,800.00; and (h) a [pair of] Christian Dior reading glasses. Subsequently, he
was placed on stand-by and at around 7:30 p.m., PAL personnel informed him that
he could now check-in.
"Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 for
damages, against PAL and CAL, as defendants, docketed as Civil Case No. 82-
13690, with Branch 31, Regional Trial Court, National Capital Judicial Region,
Manila.
"He alleged therein that despite several confirmations of his flight, defendant PAL
refused to accommodate him in Flight No. 307, for which reason he lost the
business option aforementioned. He also alleged that PALs personnel, specifically
Carmen, ridiculed and humiliated him in the presence of so many people. Further,
he alleged that defendants are solidarily liable for the damages he suffered, since
one is the agent of the other."
6

The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and severally liable to
respondent. It did not, however, rule on their respective cross-claims. It disposed as
follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the
defendants to jointly and severally pay:
1. Actual damages in the amount of HK$14,128.80 or its equivalent in Philippine
Currency at the time of the loss of the luggage consisting of cosmetic products;
2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag
containing the money;
3. P200,000.00 by way of moral damages;
4. P50,000.00 by way of exemplary damages or corrective damages;
5. Attorney[]s fees equivalent to 10% of the amounts due and demandable and
awarded in favor of the plaintiff; and
6. The costs of this proceedings."
7

The two carriers appealed the RTC Decision to the CA.
Ruling of the Court of Appeals
Affirming the RTC, the Court of Appeals debunked petitioners claim that it had merely
acted as an issuing agent for the ticket covering the Hong Kong-Manila leg of
respondents journey. In support of its Decision, the CA quoted a purported ruling of this
Court in KLM Royal Dutch Airlines v. Court of Appeals
8
as follows:
"Article 30 of the Warsaw providing that in case of transportation to be performed
by various successive carriers, the passenger can take action only against the
carrier who performed the transportation during which the accident or the delay
occurred presupposes the occurrence of either an accident or delay in the course
of the air trip, and does not apply if the damage is caused by the willful
misconduct on the part of the carriers employee or agent acting within the scope
of his employment.
"It would be unfair and inequitable to charge a passenger with automatic
knowledge or notice of a condition which purportedly would excuse the carrier
from liability, where the notice is written at the back of the ticket in letters so
small that one has to use a magnifying glass to read the words. To preclude any
doubt that the contract was fairly and freely agreed upon when the passenger
accepted the passage ticket, the carrier who issued the ticket must inform the
passenger of the conditions prescribed in the ticket or, in the very least, ascertain
that the passenger read them before he accepted the passage ticket. Absent any
showing that the carriers officials or employees discharged this responsibility to
the passenger, the latter cannot be bound by the conditions by which the carrier
assumed the role of a mere ticket-issuing agent for other airlines and limited its
liability only to untoward occurrences in its own lines.
"Where the passage tickets provide that the carriage to be performed thereunder
by several successive carriers is to be regarded as a single operation, the carrier
which issued the tickets for the entire trip in effect guaranteed to the passenger
that the latter shall have sure space in the various carriers which would ferry him
through the various segments of the trip, and the ticket-issuing carrier assumes
full responsibility for the entire trip and shall be held accountable for the breach of
that guaranty whether the breach occurred in its own lines or in those of the other
carriers."
9

On PALs appeal, the appellate court held that the carrier had reneged on its obligation
to transport respondent when, in spite of the confirmations he had secured for Flight PR
311, his name did not appear in the computerized list of passengers. Ruling that the
airlines negligence was the proximate cause of his excoriating experience, the appellate
court sustained the award of moral and exemplary damages.
The CA, however, deleted the RTCs award of actual damages amounting to
HK$14,128.80 and US$2,000.00, because the lost piece of luggage and clutch bag had
not actually been "checked in" or delivered to PAL for transportation to Manila.
On August 28, 2001, petitioner filed a Motion for Partial Reconsideration, contending
that the appellate court had erroneously relied on a mere syllabus of KLM v. CA, not on
the actual ruling therein. Moreover, it argued that respondent was fully aware that the
booking for the PAL sector had been made only upon his request; and that only PAL, not
CAL, was liable for the actual carriage of that segment. Petitioner likewise prayed for a
ruling on its cross-claim against PAL, inasmuch as the latters employees had acted
negligently, as found by the trial court.
Denying the Motion, the appellate court ruled that petitioner had failed to raise any new
matter or issue that would warrant a modification or a reversal of the Decision. As to the
alleged misquotation, the CA held that while the portion it had cited appeared to be
different from the wording of the actual ruling, the variance was "more apparent than
real since the difference [was] only in form and not in substance."
10

CAL and PAL filed separate Petitions to assail the CA Decision. In its October 3, 2001
Resolution, this Court denied PALs appeal, docketed as GR No. 149544, for failure to
serve the CA a copy of the Petition as required by Section 3, Rule 45, in relation to
Section 5(d) of Rule 56 and paragraph 2 of Revised Circular No. 1-88 of this Court. PALs
Motion for Reconsideration was denied with finality on January 21, 2002.
Only the appeal of CAL
11
remains in this Court.
Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
"1. The Court of Appeals committed judicial misconduct in finding liability against
the petitioner on the basis of a misquotation from KLM Royal Dutch Airlines vs.
Court of Appeals, et al., 65 SCRA 237 and in magnifying its misconduct by denying
the petitioners Motion for Reconsideration on a mere syllabus, unofficial at that.
"2. The Court of Appeals committed an error of law when it did not apply
applicable precedents on the case before it.
"3. The Court of Appeals committed a non sequitur when it did not rule on the
cross-claim of the petitioner."
12

The Courts Ruling
The Petition is not meritorious.
First Issue:
Alleged Judicial Misconduct
Petitioner charges the CA with judicial misconduct for quoting from and basing its ruling
against the two airlines on an unofficial syllabus of this Courts ruling in KLM v. CA.
Moreover, such misconduct was allegedly aggravated when the CA, in an attempt to
justify its action, held that the difference between the actual ruling and the syllabus was
"more apparent than real."
13

We agree with petitioner that the CA committed a lapse when it relied merely on the
unofficial syllabus of our ruling in KLM v. CA. Indeed, lawyers and litigants are mandated
to quote decisions of this Court accurately.
14
By the same token, judges should do no
less by strictly abiding by this rule when they quote cases that support their judgments
and decisions. Canon 3 of the Code of Judicial Conduct enjoins them to perform official
duties diligently by being faithful to the law and maintaining their professional
competence.
However, since this case is not administrative in nature, we cannot rule on the CA
justices administrative liability, if any, for this lapse. First, due process requires that in
administrative proceedings, the respondents must first be given an opportunity to be
heard before sanctions can be imposed. Second, the present action is an appeal from
the CAs Decision, not an administrative case against the magistrates concerned. These
two suits are independent of and separate from each other and cannot be mixed in the
same proceedings.
By merely including the lapse as an assigned error here without any adequate and
proper administrative case therefor, petitioner cannot expect the imposition of an
administrative sanction.
In the case at bar, we can only determine whether the error in quotation would be
sufficient to reverse or modify the CA Decision.
Applicability of KLM v. CA
In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their
world tour. The tour included a Barcelona-Lourdes route, which was serviced by the Irish
airline Aer Lingus. At the KLM office in Frankfurt, Germany, they obtained a confirmation
from Aer Lingus of their seat reservations on its Flight 861. On the day of their
departure, however, the airline rudely off-loaded them.
When sued for breach of contract, KLM sought to be excused for the wrongful conduct of
Aer Lingus by arguing that its liability for damages was limited only to occurrences on its
own sectors. To support its argument, it cited Article 30 of the Warsaw Convention,
stating that when transportation was to be performed by various successive carriers, the
passenger could take action only against the carrier that had performed the
transportation when the accident or delay occurred.
In holding KLM liable for damages, we ruled as follows:
"1. The applicability insisted upon by the KLM of article 30 of the Warsaw
Convention cannot be sustained. That article presupposes the occurrence of either
an accident or a delay, neither of which took place at the Barcelona airport; what
is here manifest, instead, is that the Aer Lingus, through its manager there,
refused to transport the respondents to their planned and contracted destination.
"2. The argument that the KLM should not be held accountable for the tortious
conduct of Aer Lingus because of the provision printed on the respondents' tickets
expressly limiting the KLM's liability for damages only to occurrences on its own
lines is unacceptable. As noted by the Court of Appeals that condition was printed
in letters so small that one would have to use a magnifying glass to read the
words. Under the circumstances, it would be unfair and inequitable to charge the
respondents with automatic knowledge or notice of the said condition so as to
preclude any doubt that it was fairly and freely agreed upon by the respondents
when they accepted the passage tickets issued to them by the KLM. As the airline
which issued those tickets with the knowledge that the respondents would be
flown on the various legs of their journey by different air carriers, the KLM was
chargeable with the duty and responsibility of specifically informing the
respondents of conditions prescribed in their tickets or, in the very least, to
ascertain that the respondents read them before they accepted their passage
tickets. A thorough search of the record, however, inexplicably fails to show that
any effort was exerted by the KLM officials or employees to discharge in a proper
manner this responsibility to the respondents. Consequently, we hold that the
respondents cannot be bound by the provision in question by which KLM
unilaterally assumed the role of a mere ticket-issuing agent for other airlines and
limited its liability only to untoward occurrences on its own lines.
"3. Moreover, as maintained by the respondents and the Court of Appeals, the
passage tickets of the respondents provide that the carriage to be performed
thereunder by several successive carriers is to be regarded as a single operation,
which is diametrically incompatible with the theory of the KLM that the
respondents entered into a series of independent contracts with the carriers which
took them on the various segments of their trip. This position of KLM we reject.
The respondents dealt exclusively with the KLM which issued them tickets for their
entire trip and which in effect guaranteed to them that they would have sure space
in Aer Lingus flight 861. The respondents, under that assurance of the
internationally prestigious KLM, naturally had the right to expect that their tickets
would be honored by Aer Lingus to which, in the legal sense, the KLM had indorsed
and in effect guaranteed the performance of its principal engagement to carry out
the respondents' scheduled itinerary previously and mutually agreed upon
between the parties.
"4. The breach of that guarantee was aggravated by the discourteous and highly
arbitrary conduct of an official of the Aer Lingus which the KLM had engaged to
transport the respondents on the Barcelona-Lourdes segment of their itinerary. It
is but just and in full accord with the policy expressly embodied in our civil law
which enjoins courts to be more vigilant for the protection of a contracting party
who occupies an inferior position with respect to the other contracting party, that
the KLM should be held responsible for the abuse, injury and embarrassment
suffered by the respondents at the hands of a supercilious boor of the Aer
Lingus."
15

In the instant case, the CA ruled that under the contract of transportation, petitioner --
as the ticket-issuing carrier (like KLM) -- was liable regardless of the fact that PAL was
to perform or had performed the actual carriage. It elucidated on this point as follows:
"By the very nature of their contract, defendant-appellant CAL is clearly liable
under the contract of carriage with [respondent] and remains to be so, regardless
of those instances when actual carriage was to be performed by another carrier.
The issuance of a confirmed CAL ticket in favor of [respondent] covering his entire
trip abroad concretely attests to this. This also serves as proof that defendant-
appellant CAL, in effect guaranteed that the carrier, such as defendant-appellant
PAL would honor his ticket, assure him of a space therein and transport him on a
particular segment of his trip."
16

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

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

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

Article 15 of IATA-Recommended Practice similarly provides:
"Carriage to be performed by several successive carriers under one ticket, or
under a ticket and any conjunction ticket issued therewith, is regarded as a single
operation."
In American Airlines v. Court of Appeals,
24
we have noted that under a general pool
partnership agreement, the ticket-issuing airline is the principal in a contract of carriage,
while the endorsee-airline is the agent.
"x x x Members of the IATA are under a general pool partnership agreement
wherein they act as agent of each other in the issuance of tickets to contracted
passengers to boost ticket sales worldwide and at the same time provide
passengers easy access to airlines which are otherwise inaccessible in some parts
of the world. Booking and reservation among airline members are allowed even by
telephone and it has become an accepted practice among them. A member airline
which enters into a contract of carriage consisting of a series of trips to be
performed by different carriers is authorized to receive the fare for the whole trip
and through the required process of interline settlement of accounts by way of the
IATA clearing house an airline is duly compensated for the segment of the trip
serviced. Thus, when the petitioner accepted the unused portion of the conjunction
tickets, entered it in the IATA clearing house and undertook to transport the
private respondent over the route covered by the unused portion of the
conjunction tickets, i.e., Geneva to New York, the petitioner tacitly recognized its
commitment under the IATA pool arrangement to act as agent of the principal
contracting airline, Singapore Airlines, as to the segment of the trip the petitioner
agreed to undertake. As such, the petitioner thereby assumed the obligation to
take the place of the carrier originally designated in the original conjunction ticket.
The petitioners argument that it is not a designated carrier in the original
conjunction tickets and that it issued its own ticket is not decisive of its liability.
The new ticket was simply a replacement for the unused portion of the conjunction
ticket, both tickets being for the same amount of US$ 2,760 and having the same
points of departure and destination. By constituting itself as an agent of the
principal carrier the petitioners undertaking should be taken as part of a single
operation under the contract of carriage executed by the private respondent and
Singapore Airlines in Manila."
25

Likewise, as the principal in the contract of carriage, the petitioner in British Airways v.
Court of Appeals
26
was held liable, even when the breach of contract had occurred, not
on its own flight, but on that of another airline. The Decision followed our ruling
in Lufthansa German Airlines v. Court of Appeals,
27
in which we had held that the
obligation of the ticket-issuing airline remained and did not cease, regardless of the fact
that another airline had undertaken to carry the passengers to one of their destinations.
In the instant case, following the jurisprudence cited above, PAL acted as the carrying
agent of CAL. In the same way that we ruled against British Airways and Lufthansa in
the aforementioned cases, we also rule that CAL cannot evade liability to respondent,
even though it may have been only a ticket issuer for the Hong Kong-Manila sector.
Moral and Exemplary Damages
Both the trial and the appellate courts found that respondent had satisfactorily proven
the existence of the factual basis for the damages adjudged against petitioner and PAL.
As a rule, the findings of fact of the CA affirming those of the RTC will not be disturbed
by this Court.
28
Indeed, the Supreme Court is not a trier of facts. As a rule also, only
questions of law -- as in the present recourse -- may be raised in petitions for review
under Rule 45.
Moral damages cannot be awarded in breaches of carriage contracts, except in the two
instances contemplated in Articles 1764 and 2220 of the Civil Code, which we quote:
"Article 1764. Damages in cases comprised in this Section shall be awarded in
accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall
also apply to the death of a passenger caused by the breach of contract by a
common carrier.
x x x x x x x x x
"Article 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith." (Italics supplied)
There is no occasion for us to invoke Article 1764 here. We must therefore determine if
CAL or its agent (PAL) is guilty of bad faith that would entitle respondent to moral
damages.
In Lopez v. Pan American World Airways,
29
we defined bad faith as a breach of a known
duty through some motive of interest or ill will.
In the case at bar, the known duty of PAL was to transport herein respondent from Hong
Kong to Manila. That duty arose when its agent confirmed his reservation for Flight PR
311,
30
and it became demandable when he presented himself for the trip on November
24, 1981.
It is true that due to a typhoon, PAL was unable to transport respondent on Flight PR
311 on November 24, 1981. This fact, however, did not terminate the carriers
responsibility to its passengers. PAL voluntarily obligated itself to automatically transfer
all confirmed passengers of PR 311 to the next available flight, PR 307, on the following
day.
31
That responsibility was subsisting when respondent, holding a confirmed ticket for
the former flight, presented himself for the latter.
The records amply establish that he secured repeated confirmations of his PR 311 flight
on November 24, 1981. Hence, he had every reason to expect that he would be put on
the replacement flight as a confirmed passenger. Instead, he was harangued and
prevented from boarding the original and the replacement flights. Thus, PAL breached its
duty to transport him. After he had been directed to pay the terminal fee, his pieces of
luggage were removed from the weighing-in counter despite his protestations.
32

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

Time and time again, this Court has stressed that the business of common carriers is
imbued with public interest and duty; therefore, the law governing them imposes an
exacting standard.
34
In Singson v. Court of Appeals,
35
we said:
"x x x [T]he carrier's utter lack of care and sensitivity to the needs of its
passengers, clearly constitutive of gross negligence, recklessness and wanton
disregard of the rights of the latter, [are] acts evidently indistinguishable or no
different from fraud, malice and bad faith. As the rule now stands, where in
breaching the contract of carriage the defendant airline is shown to have acted
fraudulently, with malice or in bad faith, the award of moral and exemplary
damages, in addition to actual damages, is proper."
36
(Italics supplied)
In Saludo v. Court of Appeals,
37
the Court reminded airline companies that due to the
nature of their business, they must not merely give cursory instructions to their
personnel to be more accommodating towards customers, passengers and the general
public; they must require them to be so.
The acts of PALs employees, particularly Chan, clearly fell short of the extraordinary
standard of care that the law requires of common carriers.
38
As narrated in Chans oral
deposition,
39
the manner in which the airline discharged its responsibility to respondent
and its other passengers manifested a lack of the requisite diligence and due regard for
their welfare. The pertinent portions of the Oral Deposition are reproduced as follows:
"Q Now you said that flight PR 311 on 24th November was cancelled due to
[a] typhoon and naturally the passengers on said flight had to be accommodated
on the first flight the following day or the first flight subsequently. [W]ill you tell
the Honorable Deposition Officer the procedure followed by Philippine Airlines in
the handling of passengers of cancelled flight[s] like that of PR 311 which was
cancelled due to [a] typhoon?
A The procedure will be: all the confirmed passengers from [PR] 311 24th
November [are] automatically transfer[red] to [PR] 307, 25th November[,] as a
protection for all disconfirmed passengers.
Q Aside from this procedure[,] what do you do with the passengers on the
cancelled flight who are expected to check-in on the flights if this flight is cancelled
or not operating due to typhoon or other reasons[?] In other words, are they not
notified of the cancellation?
A I think all these passengers were not notified because of a typhoon and
Philippine Airlines Reservation were [sic] not able to call every passenger by
phone.
Atty. Fruto:
Q Did you say were not notified?
A I believe they were not, but believe me, I was on day-off.
Atty. Calica:
Q Per procedure, what should have been done by Reservations Office when a
flight is cancelled for one reason or another?
A If there is enough time, of course, Reservations Office x x x call[s] up all
the passengers and tell[s] them the reason. But if there [is] no time[,] then the
Reservations Office will not be able to do that."
40

x x x x x x x x x
"Q I see. Miss Chan, I [will] show you a ticket which has been marked as
Exh. A and A-1. Will you please go over this ticket and tell the court whether this
is the ticket that was used precisely by Mr. Chiok when he checked-in at [F]light
307, 25 November 81?
A [Are you] now asking me whether he used this ticket with this sticker?
Q No, no, no. That was the ticket he used.
A Yes, [are you] asking me whether I saw this ticket?
Atty. Fruto: Yes.
A I believe I saw it.
Q You saw it, O.K. Now of course you will agree with me Miss Chan that this
yellow stub here which has been marked as Exh. A-1-A, show[s] that the status on
flight 311, 24th November, is O.K., correct?
A Yes.
Q You agree with me. And you will also agree with me that in this ticket of
flight 311, on this, another sticker Exh. A-1-B for 24 November is O.K.?
A May I x x x look at them. Yes, it says O.K. x x x, but [there is] no
validation.
Q O.K. Miss Chan what do you understand by these entries here R bar M N 6
V?
41

A This is what we call a computer reference.
Q I see. This is a computer reference showing that the name of Mr. Chiok
has been entered in Philippine Airlines computer, and this is his computer
number.
A Yes.
Q Now you stated in your answer to the procedure taken, that all confirmed
passengers on flight 311, 24 November[,] were automatically transferred to 307
as a protection for the passengers, correct?
A Correct.
Q So that since following the O.K. status of Mr. Chioks reservation [on] flight
311, [he] was also automatically transferred to flight 307 the following day?
A Should be.
Q Should be. O.K. Now do you remember how many passengers x x x were
transferred from flight 311, 24 November to flight 307, 25 November 81?
A I can only give you a very brief idea because that was supposed to be air
bus so it should be able to accommodate 246 people; but how many [exactly], I
dont know."
42

x x x x x x x x x
"Q So, between six and eight oclock in the evening of 25 November 81, Mr.
Chiok already told you that he just [came] from the Swire Building where
Philippine Airlines had [its] offices and that he told you that his space for 311 25
November 81 was confirmed?
A Yes.
Q That is what he told you. He insisted on that flight?
A Yes.
Q And did you not try to call up Swire Building-- Philippine Airlines and verify
indeed if Mr. Chiok was there?
A Swire House building is not directly under Philippine Airlines. it is just an
agency for selling Philippine Airlines ticket. And besides around six o clock theyre
close[d] in Central.
Q So this Swire Building is an agency authorized by Philippine Airlines to
issue tickets for and on behalf of Philippine Airlines and also...
A Yes.
Q And also to confirm spaces for and on behalf of Philippine Airlines.
A Yes."
43

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

This Courts 1992 ruling in China Airlines v. Court of Appeals
47
is likewise inapplicable. In
that case, we found no bad faith or malice in the airlines breach of its contractual
obligation.
48
We held that, as shown by the flow of telexes from one of the airlines
offices to the others, petitioner therein had exercised diligent efforts in assisting the
private respondent change his flight schedule. In the instant case, petitioner failed to
exhibit the same care and sensitivity to respondents needs.
In Singson v. Court of Appeals,
49
we said:
"x x x Although the rule is that moral damages predicated upon a breach of
contract of carriage may only be recoverable in instances where the mishap results
in the death of a passenger, or where the carrier is guilty of fraud or bad faith,
there are situations where the negligence of the carrier is so gross and reckless as
to virtually amount to bad faith, in which case, the passenger likewise becomes
entitled to recover moral damages."
In the present case, we stress that respondent had repeatedly secured confirmations of
his PR 311 flight on November 24, 1981 -- initially from CAL and subsequently from the
PAL office in Hong Kong. The status of this flight was marked "OK" on a validating
sticker placed on his ticket. That sticker also contained the entry "RMN6V." Ms Chan
explicitly acknowledged that such entry was a computer reference that meant that
respondents name had been entered in PALs computer.
Since the status of respondent on Flight PR 311 was "OK," as a matter of right testified
to by PALs witness, he should have been automatically transferred to and allowed to
board Flight 307 the following day. Clearly resulting from negligence on the part of PAL
was its claim that his name was not included in its list of passengers for the November
24, 1981 PR 311 flight and, consequently, in the list of the replacement flight PR 307.
Since he had secured confirmation of his flight -- not only once, but twice -- by
personally going to the carriers offices where he was consistently assured of a seat
thereon -- PALs negligence was so gross and reckless that it amounted to bad faith.
In view of the foregoing, we rule that moral and exemplary
50
damages were properly
awarded by the lower courts.
51

Third Issue:
Propriety of the Cross-Claim
We now look into the propriety of the ruling on CALs cross-claim against PAL. Petitioner
submits that the CA should have ruled on the cross-claim, considering that the RTC had
found that it was PALs employees who had acted negligently.
Section 8 of Rule 6 of the Rules of Court reads:
"Sec. 8. Cross-claim. - A cross claim is any claim by one party against a co-party
arising out of the transaction or occurrence that is the subject matter either of the
original action or of a counterclaim therein. Such cross-claim may include a claim
that the party against whom it is asserted is or may be liable to the cross-claimant
for all or part of a claim asserted in the action against the cross-claimant."
For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA Finance
Corporation v. CA,
52
the Court stated:
"x x x. An indispensable party is one whose interest will be affected by the courts
action in the litigation, and without whom no final determination of the case can
be had. The partys interest in the subject matter of the suit and in the relief
sought are so inextricably intertwined with the other parties that his legal
presence as a party to the proceeding is an absolute necessity. In his absence
there cannot be a resolution of the dispute of the parties before the court which is
effective, complete, or equitable.
x x x x x x x x x
"Without the presence of indispensable parties to a suit or proceeding, judgment
of a court cannot attain real finality."
PALs interest may be affected by any ruling of this Court on CALs cross-claim. Hence, it
is imperative and in accordance with due process and fair play that PAL should have
been impleaded as a party in the present proceedings, before this Court can make a
final ruling on this matter.
Although PAL was petitioners co-party in the case before the RTC and the CA, petitioner
failed to include the airline in the present recourse. Hence, the Court has no jurisdiction
over it. Consequently, to make any ruling on the cross-claim in the present Petition
would not be legally feasible because PAL, not being a party in the present case, cannot
be bound thereby.
53

WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED.
Puno, Corona, and Carpio-Morales, JJ., concur.
Sandoval-Gutierrez, J., on official leave.


Republic of the Philippines
SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 170141 April 22, 2008
JAPAN AIRLINES, petitioner,
vs.
JESUS SIMANGAN, respondent.
D E C I S I O N
REYES R.T., J.:
WHEN an airline issues a ticket to a passenger confirmed on a particular flight on a
certain date, a contract of carriage arises, and the passenger has every right to expect
that he would fly on that flight and on that date. If he does not, then the carrier opens
itself to a suit for breach of contract of carriage.
1

The power to admit or not an alien into the country is a sovereign act which cannot be
interfered with even by Japan Airlines (JAL).
2

In this petition for review on certiorari,
3
petitioner JAL appeals the: (1) Decision
4
dated
May 31, 2005 of the Court of Appeals (CA) ordering it to pay respondent Jesus
Simangan moral and exemplary damages; and (2) Resolution
5
of the same court dated
September 28, 2005 denying JAL's motion for reconsideration.
The Facts
In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin,
Loreto Simangan, in UCLA School of Medicine in Los Angeles, California, U.S.A. Upon
request of UCLA, respondent undertook a series of laboratory tests at the National
Kidney Institute in Quezon City to verify whether his blood and tissue type are
compatible with Loreto's.
6
Fortunately, said tests proved that respondent's blood and
tissue type were well-matched with Loreto's.
7

Respondent needed to go to the United States to complete his preliminary work-up and
donation surgery. Hence, to facilitate respondent's travel to the United States, UCLA
wrote a letter to the American Consulate in Manila to arrange for his visa. In due time,
respondent was issued an emergency U.S. visa by the American Embassy in Manila.
8

Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket
from petitioner JAL for US$1,485.00 and was issued the corresponding boarding
pass.
9
He was scheduled to a particular flight bound for Los Angeles, California, U.S.A.
via Narita, Japan.
10

On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International
Airport in the company of several relatives and friends.
11
He was allowed to check-in at
JAL's counter.
12
His plane ticket, boarding pass, travel authority and personal articles
were subjected to rigid immigration and security routines.
13
After passing through said
immigration and security procedures, respondent was allowed by JAL to enter its
airplane.
14

While inside the airplane, JAL's airline crew suspected respondent of carrying a falsified
travel document and imputed that he would only use the trip to the United States as a
pretext to stay and work in Japan.
15
The stewardess asked respondent to show his travel
documents. Shortly after, the stewardess along with a Japanese and a Filipino haughtily
ordered him to stand up and leave the plane.
16
Respondent protested, explaining that he
was issued a U.S. visa. Just to allow him to board the plane, he pleaded with JAL to
closely monitor his movements when the aircraft stops over in Narita.
17
His pleas were
ignored. He was then constrained to go out of the plane.
18
In a nutshell, respondent was
bumped off the flight.
Respondent went to JAL's ground office and waited there for three hours. Meanwhile, the
plane took off and he was left behind.
19
Afterwards, he was informed that his travel
documents were, indeed, in order.
20
Respondent was refunded the cost of his plane
ticket less the sum of US$500.00 which was deducted by JAL.
21
Subsequently,
respondent's U.S. visa was cancelled.
22

Displeased by the turn of events, respondent filed an action for damages against JAL
with the Regional Trial Court (RTC) in Valenzuela City, docketed as Civil Case No. 4195-
V-93. He claimed he was not able to donate his kidney to Loreto; and that he suffered
terrible embarrassment and mental anguish.
23
He prayed that he be awarded P3 million
as moral damages, P1.5 million as exemplary damages and P500,000.00 as attorney's
fees.
24

JAL denied the material allegations of the complaint. It argued, among others, that its
failure to allow respondent to fly on his scheduled departure was due to "a need for his
travel documents to be authenticated by the United States Embassy"
25
because no one
from JAL's airport staff had encountered a parole visa before.
26
It posited that the
authentication required additional time; that respondent was advised to take the flight
the following day, July 30, 1992. JAL alleged that respondent agreed to be rebooked on
July 30, 1992.
27

JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution of
the complaint. It prayed for litigation expenses, exemplary damages and attorney's
fees.
28

On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its decision
in favor of respondent (plaintiff), disposing as follows:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the
plaintiff the amount ofP1,000,000.00 as moral damages, the amount
of P500,000.00 as exemplary damages and the amount ofP250,000.00 as
attorney's fees, plus the cost of suit.
29

The RTC explained:
In summarily and insolently ordering the plaintiff to disembark while the latter was
already settled in his assigned seat, the defendant violated the contract of
carriage; that when the plaintiff was ordered out of the plane under the pretext
that the genuineness of his travel documents would be verified it had caused him
embarrassment and besmirched reputation; and that when the plaintiff was finally
not allowed to take the flight, he suffered more wounded feelings and social
humiliation for which the plaintiff was asking to be awarded moral and exemplary
damages as well as attorney's fees.
The reason given by the defendant that what prompted them to investigate the
genuineness of the travel documents of the plaintiff was that the plaintiff was not
then carrying a regular visa but just a letter does not appear satisfactory. The
defendant is engaged in transporting passengers by plane from country to country
and is therefore conversant with the travel documents. The defendant should not
be allowed to pretend, to the prejudice of the plaintiff not to know that the travel
documents of the plaintiff are valid documents to allow him entry in the United
States.
The foregoing act of the defendant in ordering the plaintiff to deplane while
already settled in his assigned seat clearly demonstrated that the defendant
breached its contract of carriage with the plaintiff as passenger in bad faith and as
such the plaintiff is entitled to moral and exemplary damages as well as to an
award of attorney's fees.
30

Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not
guilty of breach of contract of carriage, hence, not liable for damages.
31
It posited that it
is the one entitled to recover on its counterclaim.
32

CA Ruling
In a Decision
33
dated May 31, 2005, the CA affirmed the decision of the RTC with
modification in that it lowered the amount of moral and exemplary damages and deleted
the award of attorney's fees. The fallo of the CA decision reads:
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant
JAPAN AIR LINES is ordered to pay appellee JESUS SIMANGAN the reduced sums,
as follows: Five Hundred Thousand Pesos (P500,000.00) as moral damages, and
Two Hundred Fifty Thousand Pesos (P250,000.00) as exemplary damages. The
award of attorney's fees is hereby DELETED.
34

The CA elucidated that since JAL issued to respondent a round trip plane ticket for a
lawful consideration, "there arose a perfected contract between them."
35
It found that
respondent was "haughtily ejected"
36
by JAL and that "he was certainly embarrassed and
humiliated"
37
when, in the presence of other passengers, JAL's airline staff "shouted at
him to stand up and arrogantly asked him to produce his travel papers, without the least
courtesy every human being is entitled to";
38
and that "he was compelled to deplane on
the grounds that his papers were fake."
39

The CA ratiocinated:
While the protection of passengers must take precedence over convenience, the
implementation of security measures must be attended by basic courtesies.
In fact, breach of the contract of carriage creates against the carrier a
presumption of liability, by a simple proof of injury, relieving the injured passenger
of the duty to establish the fault of the carrier or of his employees; and placing on
the carrier the burden to prove that it was due to an unforeseen event or toforce
majeure.
That appellee possessed bogus travel documents and that he might stay illegally in
Japan are allegations without substantiation. Also, appellant's attempt to rebook
appellee the following day was too late and did not relieve it from liability. The
damage had been done. Besides, its belated theory of novation, i.e., that
appellant's original obligation to carry appellee to Narita and Los Angeles on July
29, 1992 was extinguished by novation when appellant and appellant agreed that
appellee will instead take appellant's flight to Narita on the following day, July 30,
1992, deserves little attention. It is inappropriate at bar. Questions not taken up
during the trial cannot be raised for the first time on appeal.
40
(Underscoring ours
and citations were omitted)
Citing Ortigas, Jr. v. Lufthansa German Airlines,
41
the CA declared that "(i)n contracts of
common carriage, inattention and lack of care on the part of the carrier resulting in the
failure of the passenger to be accommodated in the class contracted for amounts to bad
faith or fraud which entitles the passengers to the award of moral damages in
accordance with Article 2220 of the Civil Code."
42

Nevertheless, the CA modified the damages awarded by the RTC. It explained:
Fundamental in the law on damages is that one injured by a breach of a contract,
or by a wrongful or negligent act or omission shall have a fair and just
compensation commensurate to the loss sustained as consequence of the
defendant's act. Being discretionary on the court, the amount, however, should
not be palpably and scandalously excessive.
Here, the trial court's award of P1,000,000.00 as moral damages appears to be
overblown. No other proof of appellee's social standing, profession, financial
capabilities was presented except that he was single and a businessman. To Us,
the sum of 500,000.00 is just and fair. For, moral damages are emphatically not
intended to enrich a complainant at the expense of the defendant. They are
awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to alleviate the moral suffering he has undergone, by
reason of the defendant's culpable action.
Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced
to a reasonable level. The award of exemplary damages is designed to permit the
courts to mould behavior that has socially deleterious consequences and its
imposition is required by public policy to suppress the wanton acts of the offender.
Hence, the sum of P250,000.00 is adequate under the circumstances.
The award of P250,000.00 as attorney's fees lacks factual basis. Appellee was
definitely compelled to litigate in protecting his rights and in seeking relief from
appellant's misdeeds. Yet, the record is devoid of evidence to show the cost of the
services of his counsel and/or the actual expenses incurred in prosecuting his
action.
43
(Citations were omitted)
When JAL's motion for reconsideration was denied, it resorted to the petition at bar.
Issues
JAL poses the following issues -
I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT
RESPONDENT WAS ENTITLED TO MORAL DAMAGES, CONSIDERING THAT:
A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.
B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT CASES
ONLY WHEN THE BREACH IS ATTENDED BY FRAUD OR BAD FAITH.
ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT
ACT FRAUDULENTLY OR IN BAD FAITH AS TO ENTITLE RESPONDENT TO
MORAL DAMAGES.
C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED IN GOOD
FAITH FROM ONE ATTENDED BY BAD FAITH.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT
RESPONDENT WAS ENTITLED TO EXEMPLARY DAMAGES CONSIDERING THAT:
A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF CONTRACT
OF CARRIAGE UNLESS THE CARRIER IS GUILTY OF WANTON, FRAUDULENT,
RECKLESS, OPPRESSIVE OR MALEVOLENT CONDUCT.
B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT
ACT IN A WANTON FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT
MANNER AS TO ENTITLE RESPONDENT TO EXEMPLARY DAMAGES.
III.
ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD OF
DAMAGES, WHETHER OR NOT THE COURT OF APPEALS AWARD OF P750,000 IN
DAMAGES WAS EXCESSIVE AND UNPRECEDENTED.
IV.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR JAL ON
ITSCOUNTERCLAIM.
44
(Underscoring Ours)
Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of
contract of carriage; (2) whether or not respondent is entitled to moral and exemplary
damages; and (3) whether or not JAL is entitled to its counterclaim for damages.
Our Ruling
This Court is not a trier of facts.
Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The
CA also gave its nod to the reasoning of the RTC except as to the awards of damages,
which were reduced, and that of attorney's fees, which was deleted.
We are not a trier of facts. We generally rely upon, and are bound by, the conclusions on
this matter of the lower courts, which are better equipped and have better opportunity
to assess the evidence first-hand, including the testimony of the witnesses.
45

We have repeatedly held that the findings of fact of the CA are final and conclusive and
cannot be reviewed on appeal to the Supreme Court provided they are based on
substantial evidence.
46
We have no jurisdiction, as a rule, to reverse their
findings.
47
Among the exceptions to this rule are: (a) when the conclusion is a finding
grounded entirely on speculations, surmises or conjectures; (b) when the inference
made is manifestly mistaken, absurd or impossible; (c) where there is grave abuse of
discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the
findings of facts are conflicting; (f) when the CA, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both appellant and
appellee.
48

The said exceptions, which are being invoked by JAL, are not found here. There is no
indication that the findings of the CA are contrary to the evidence on record or that vital
testimonies of JAL's witnesses were disregarded. Neither did the CA commit
misapprehension of facts nor did it fail to consider relevant facts. Likewise, there was no
grave abuse of discretion in the appreciation of facts or mistaken and absurd inferences.
We thus sustain the coherent facts as established by the courts below, there being no
sufficient showing that the said courts committed reversible error in reaching their
conclusions.
JAL is guilty of breach of
contract of carriage.
That respondent purchased a round trip plane ticket from JAL and was issued the
corresponding boarding pass is uncontroverted.
49
His plane ticket, boarding pass, travel
authority and personal articles were subjected to rigid immigration and security
procedure.
50
After passing through said immigration and security procedure, he was
allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita,
Japan.
51
Concisely, there was a contract of carriage between JAL and respondent.
Nevertheless, JAL made respondent get off the plane on his scheduled departure on July
29, 1992. He was not allowed by JAL to fly. JAL thus failed to comply with its obligation
under the contract of carriage.
JAL justifies its action by arguing that there was "a need to verify the authenticity of
respondent's travel document."
52
It alleged that no one from its airport staff had
encountered a parole visa before.
53
It further contended that respondent agreed to fly
the next day so that it could first verify his travel document, hence, there was
novation.
54
It maintained that it was not guilty of breach of contract of carriage as
respondent was not able to travel to the United States due to his own voluntary
desistance.
55

We cannot agree. JAL did not allow respondent to fly. It informed respondent that there
was a need to first check the authenticity of his travel documents with the U.S.
Embassy.
56
As admitted by JAL, "the flight could not wait for Mr. Simangan because it
was ready to depart."
57

Since JAL definitely declared that the flight could not wait for respondent, it gave
respondent no choice but to be left behind. The latter was unceremoniously bumped off
despite his protestations and valid travel documents and notwithstanding his contract of
carriage with JAL. Damage had already been done when respondent was offered to fly
the next day on July 30, 1992. Said offer did not cure JAL's default.
Considering that respondent was forced to get out of the plane and left behind against
his will, he could not have freely consented to be rebooked the next day. In short, he did
not agree to the alleged novation. Since novation implies a waiver of the right the
creditor had before the novation, such waiver must be express.
58
It cannot be supposed,
without clear proof, that respondent had willingly done away with his right to fly on July
29, 1992.
Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was
that JAL personnel imputed that respondent would only use the trip to the United States
as a pretext to stay and work in Japan.
59

Apart from the fact that respondent's plane ticket, boarding pass, travel authority and
personal articles already passed the rigid immigration and security routines,
60
JAL, as a
common carrier, ought to know the kind of valid travel documents respondent carried.
As provided in Article 1755 of the New Civil Code: "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."
61
Thus,
We find untenable JAL's defense of "verification of respondent's documents" in its breach
of contract of carriage.
It bears repeating that the power to admit or not an alien into the country is a sovereign
act which cannot be interfered with even by JAL.
62

In an action for breach of contract of carriage, all that is required of plaintiff is to prove
the existence of such contract and its non-performance by the carrier through the
latter's failure to carry the passenger safely to his destination.
63
Respondent has
complied with these twin requisites.
Respondent is entitled to moral and exemplary damages and attorney's fees plus legal
interest.
With reference to moral damages, JAL alleged that they are not recoverable in actions
ex contractu except only when the breach is attended by fraud or bad faith. It is
contended that it did not act fraudulently or in bad faith towards respondent, hence, it
may not be held liable for moral damages.
As a general rule, moral damages are not recoverable in actions for damages predicated
on a breach of contract for it is not one of the items enumerated under Article 2219 of
the Civil Code.
64
As an exception, such damages are recoverable: (1) in cases in which
the mishap results in the death of a passenger, as provided in Article 1764, in relation to
Article 2206(3) of the Civil Code; and (2) in the cases in which the carrier is guilty of
fraud or bad faith, as provided in Article 2220.
65

The acts committed by JAL against respondent amounts to bad faith. As found by the
RTC, JAL breached its contract of carriage with respondent in bad faith. JAL personnel
summarily and insolently ordered respondent to disembark while the latter was already
settled in his assigned seat. He was ordered out of the plane under the alleged reason
that the genuineness of his travel documents should be verified.
These findings of facts were upheld by the CA, to wit:
x x x he was haughtily ejected by appellant. He was certainly embarrassed and
humiliated when, in the presence of other passengers, the appellant's airline staff
shouted at him to stand up and arrogantly asked him to produce his travel papers,
without the least courtesy every human being is entitled to. Then, he was
compelled to deplane on the grounds that his papers were fake. His protestation of
having been issued a U.S. visa coupled with his plea to appellant to closely
monitor his movements when the aircraft stops over in Narita, were
ignored. Worse, he was made to wait for many hours at the office of appellant only
to be told later that he has valid travel documents.
66
(Underscoring ours)
Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are
recoverable in suits predicated on breach of a contract of carriage where it is proved
that the carrier was guilty of fraud or bad faith, as in this case. Inattention to and lack of
care for the interests of its passengers who are entitled to its utmost consideration,
particularly as to their convenience, amount to bad faith which entitles the passenger to
an award of moral damages. What the law considers as bad faith which may furnish the
ground for an award of moral damages would be bad faith in securing the contract and
in the execution thereof, as well as in the enforcement of its terms, or any other kind of
deceit.
67

JAL is also liable for exemplary damages as its above-mentioned acts constitute wanton,
oppressive and malevolent acts against respondent. Exemplary damages, which are
awarded by way of example or correction for the public good, may be recovered in
contractual obligations, as in this case, if defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner.
68

Exemplary damages are designed by our civil law to permit the courts to reshape
behaviour that is socially deleterious in its consequence by creating negative incentives
or deterrents against such behaviour. In requiring compliance with the standard of
extraordinary diligence, a standard which is, in fact, that of the highest possible degree
of diligence, from common carriers and in creating a presumption of negligence against
them, the law seeks to compel them to control their employees, to tame their reckless
instincts and to force them to take adequate care of human beings and their property.
69

Neglect or malfeasance of the carrier's employees could give ground for an action for
damages. Passengers have a right to be treated by the carrier's employees with
kindness, respect, courtesy and due consideration and are entitled to be protected
against personal misconduct, injurious language, indignities and abuses from such
employees.
70

The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary
damages in respondent's favor is, in Our view, reasonable and realistic. This award is
reasonably sufficient to indemnify him for the humiliation and embarrassment he
suffered. This also serves as an example to discourage the repetition of similar
oppressive acts.
With respect to attorney's fees, they may be awarded when defendant's act or omission
has compelled plaintiff to litigate with third persons or to incur expenses to protect his
interest.
71
The Court, in Construction Development Corporation of the Philippines v.
Estrella,
72
citing Traders Royal Bank Employees Union-Independent v. National Labor
Relations Commission,
73
elucidated thus:
There are two commonly accepted concepts of attorney's fees, the so-called
ordinary and extraordinary. In its ordinary concept, an attorney's fee is the
reasonable compensation paid to a lawyer by his client for the legal services he
has rendered to the latter. The basis of this compensation is the fact of his
employment by and his agreement with the client.
In its extraordinary concept, an attorney's fee is an indemnity for damages
ordered by the court to be paid by the losing party in a litigation. The basis of this
is any of the cases provided by law where such award can be made, such as those
authorized in Article 2208, Civil Code, and is payable not to the lawyer but to the
client, unless they have agreed that the award shall pertain to the lawyer as
additional compensation or as part thereof.
74

It was therefore erroneous for the CA to delete the award of attorney's fees on the
ground that the record is devoid of evidence to show the cost of the services of
respondent's counsel. The amount is actually discretionary upon the Court so long as it
passes the test of reasonableness. They may be recovered as actual or compensatory
damages when exemplary damages are awarded and whenever the court deems it just
and equitable,
75
as in this case.
Considering the factual backdrop of this case, attorney's fees in the amount
of P200,000.00 is reasonably modest.
The above liabilities of JAL in the total amount of P800,000.00 earn legal interest
pursuant to the Court's ruling inConstruction Development Corporation of the Philippines
v. Estrella,
76
citing Eastern Shipping Lines, Inc. v. Court of Appeals,
77
to wit:
Regarding the imposition of legal interest at the rate of 6% from the time of the
filing of the complaint, we held in Eastern Shipping Lines, Inc. v. Court of Appeals,
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.
78
(Emphasis supplied and citations
omitted)
Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay
respondent legal interest. Pursuant to the above ruling of the Court, the legal interest is
6% and it shall be reckoned from September 21, 2000 when the RTC rendered its
judgment. From the time this Decision becomes final and executory, the interest rate
shall be 12% until its satisfaction.
JAL is not entitled to its counterclaim for damages.
The counterclaim of JAL in its Answer
79
is a compulsory counterclaim for damages and
attorney's fees arising from the filing of the complaint. There is no mention of any other
counter claims.
This compulsory counterclaim of JAL arising from the filing of the complaint may not be
granted inasmuch as the complaint against it is obviously not malicious or unfounded. It
was filed by respondent precisely to claim his right to damages against JAL. Well-settled
is the rule that the commencement of an action does not per se make the action
wrongful and subject the action to damages, for the law could not have meant to impose
a penalty on the right to litigate.
80

We reiterate case law that if damages result from a party's exercise of a right, it
is damnum absque injuria.
81
Lawful acts give rise to no injury. Walang perhuwisyong
maaring idulot ang paggamit sa sariling karapatan.
During the trial, however, JAL presented a witness who testified that JAL suffered further
damages. Allegedly, respondent caused the publications of his subject complaint against
JAL in the newspaper for which JAL suffered damages.
82

Although these additional damages allegedly suffered by JAL were not incorporated in its
Answer as they arose subsequent to its filing, JAL's witness was able to testify on the
same before the RTC.
83
Hence, although these issues were not raised by the pleadings,
they shall be treated in all respects as if they had been raised in the pleadings.
As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by the
pleadings are tried with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings."
Nevertheless, JAL's counterclaim cannot be granted.
JAL is a common carrier. JAL's business is mainly with the traveling public. It invites
people to avail themselves of the comforts and advantages it offers.
84
Since JAL deals
with the public, its bumping off of respondent without a valid reason naturally drew
public attention and generated a public issue.
The publications involved matters about which the public has the right to be informed
because they relate to a public issue. This public issue or concern is a legitimate topic of
a public comment that may be validly published.
Assuming that respondent, indeed, caused the publication of his complaint, he may not
be held liable for damages for it. The constitutional guarantee of freedom of the speech
and of the press includes fair commentaries on matters of public interest. This is
explained by the Court in Borjal v. Court of Appeals,
85
to wit:
To reiterate, fair commentaries on matters of public interest are privileged and
constitute a valid defense in an action for libel or slander. The doctrine of fair
comment means that while in general every discreditable imputation publicly made
is deemed false, because every man is presumed innocent until his guilt is
judicially proved, and every false imputation is deemed malicious,
nevertheless, when the discreditable imputation is directed against a public person
in his public capacity, it is not necessarily actionable. In order that such
discreditable imputation to a public official may be actionable, it must either be a
false allegation of fact or a comment based on a false supposition. If the comment
is an expression of opinion, based on established facts, then it is immaterial that
the opinion happens to be mistaken, as long as it might reasonably be inferred
from the facts.
86
(Citations omitted and underscoring ours)
Even though JAL is not a public official, the rule on privileged commentaries on matters
of public interest applies to it. The privilege applies not only to public officials but
extends to a great variety of subjects, and includes matters of public concern, public
men, and candidates for office.
87

Hence, pursuant to the Borjal case, there must be an actual malice in order that a
discreditable imputation to a public person in his public capacity or to a public official
may be actionable. To be considered malicious, the libelous statements must be shown
to have been written or published with the knowledge that they are false or in reckless
disregard of whether they are false or not.
88

Considering that the published articles involve matters of public interest and that its
expressed opinion is not malicious but based on established facts, the imputations
against JAL are not actionable. Therefore, JAL may not claim damages for them.
WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals
is AFFIRMED WITH MODIFICATION. As modified, petitioner Japan Airlines is ordered to
pay respondent Jesus Simangan the following: (1) P500,000.00 as moral damages;
(2) P100,000.00 as exemplary damages; and (3) P200,000.00 as attorney's fees.
The total amount adjudged shall earn legal interest at the rate of 6% per annum from
the date of judgment of the Regional Trial Court on September 21, 2000 until the finality
of this Decision. From the time this Decision becomes final and executory, the unpaid
amount, if any, shall earn legal interest at the rate of 12% per annum until its
satisfaction.
SO ORDERED.
RUBEN T. REYES
Associate Justice

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 155550 January 31, 2008
NORTHWEST AIRLINES, INC., petitioner,
vs.
STEVEN P. CHIONG, respondent.
D E C I S I O N
NACHURA, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking the reversal of the Court of Appeals (CA) Decision
1
in CA-G.R. CV No.
50308
2
which affirmed in toto the Regional Trial Court (RTC) Decision
3
holding petitioner
Northwest Airlines, Inc. (Northwest) liable for breach of contract of carriage.
On March 14, 1989, Philimare Shipping and Seagull Maritime Corporation (Philimare), as
the authorized Philippine agent of TransOcean Lines (TransOcean), hired respondent
Steven Chiong as Third Engineer of TransOceans vessel M/V Elbia at the San Diego,
California Port. Under the service crew agreement, Chiong was guaranteed
compensation at a monthly salary of US$440.00 and a monthly overtime pay of
US$220.00, or a total of US$7,920.00 for one year.
Subsequently, on March 27, 1989, Philimare dispatched a Letter of Guarantee to CL
Hutchins & Co., Inc., TransOceans agent at the San Diego Port, confirming Chiongs
arrival thereat in time to board the M/V Elbiawhich was set to sail on April 1, 1989
(California, United States time). For this purpose, Philimare purchased for Chiong a
Northwest plane ticket for San Diego, California with a departure date of April 1, 1989
from Manila. Ten (10) days before his scheduled departure, Chiong fetched his entire
family from Samar and brought them to Manila to see him off at the airport.
On April 1, 1989, Chiong arrived at the Manila International Airport
4
(MIA), at about
6:30 a.m., three (3) hours before the scheduled time of departure. Marilyn Calvo,
Philimares Liaison Officer, met Chiong at the departure gate, and the two proceeded to
the Philippine Coast Guard (PCG) Counter to present Chiongs seaman service record
book for clearance. Thereafter, Chiongs passport was duly stamped, after complying
with government requirements for departing seafarers.
Calvo remained at the PCG Counter while Chiong proceeded to queue at the Northwest
check-in counter. When it was Chiongs turn, the Northwest personnel
5
informed him
that his name did not appear in the computers list of confirmed departing passengers.
Chiong was then directed to speak to a "man in barong" standing outside Northwests
counters from whom Chiong could allegedly obtain a boarding pass. Posthaste, Chiong
approached the "man in barong" who demanded US$100.00 in exchange therefor.
Without the said amount, and anxious to board the plane, Chiong queued a number of
times at Northwests Check-in Counter and presented his ticket. However, the Northwest
personnel at the counter told him to simply wait and that he was being a pest.
Frustrated, Chiong went to Calvo at the PCG counter and inquired if she had money so
he could obtain a boarding pass from the "man in barong." Calvo, who already saw that
something was amiss, insisted that Chiongs plane ticket was confirmed and as such, he
could check-in smoothly and board the plane without shelling out US$100.00 for a
boarding pass. Ultimately, Chiong was not allowed to board Northwest Flight No. 24
bound for San Diego that day and, consequently, was unable to work at the M/V Elbia by
April 1, 1989 (California, U.S.A. time).
It appears that Chiongs name was crossed out and substituted with "W. Costine" in
Northwests Air Passenger Manifest.
6

In a letter dated April 3, 1989, Chiongs counsel demanded as recompense: (1) the
amount equivalent to Chiongs salary under the latters Crew Agreement
7
with
TransOcean; (2) P15,000.00 for Chiongs expenses in fetching and bringing his family
from Samar to Manila; (3) P500,000.00 as moral damages; and (4) P500,000.00 as
legal fees.
8

Northwest demurred. Thus, on May 24, 1989, Chiong filed a Complaint for breach of
contract of carriage before the RTC. Northwest filed a Motion to Dismiss
9
the complaint
citing the trial courts lack of jurisdiction over the subject matter of the case, but the
trial court denied the same.
10

In its Answer,
11
Northwest contradicted the claim that it breached its contract of carriage
with Chiong, reiterating that Chiong had no cause of action against it because per its
records, Chiong was a "no-show" passenger for Northwest Flight No. 24 on April 1,
1989.
In the RTCs Pre-trial Order
12
based on the parties respective Pre-trial Briefs,
13
the
triable issues were limited to the following:
(a) Whether [Chiong] was bumped-off by [Northwest] from Flight NW 24 or
whether [Chiong] "no-showed" for said flight.
(b) If defendant is found guilty of having breached its contract of carriage with
plaintiff, what damages are awardable to plaintiff and how much.
In the course of proceedings, Northwest, on September 14, 1990, filed a separate
criminal complaint for False Testimony
14
against Chiong based on the latters testimony
that he did not leave the Philippines after April 1, 1989 contrary to the notations in his
seaman service record book that he had left the country on April 17, 1989, and returned
on October 5 of the same year. Chiong did not participate in the preliminary
investigation; thus, on December 14, 1990, the City Prosecutor of Manila filed an
Information against Chiong with the RTC Manila, Branch 54, docketed as Criminal Case
No. 90-89722.
In the meantime, after a flurry of motions filed by Northwest in the civil case were
denied by the RTC, Northwest filed a Petition for Certiorari before the CA imputing grave
abuse of discretion to the RTC.
15
Correlatively, Northwest moved for a suspension of the
proceedings before the trial court. However, both the Petition forCertiorari and Motion
for Suspension of the proceedings were denied by the CA and RTC, respectively.
16

After trial, the RTC rendered a Decision finding preponderance of evidence in favor of
Chiong, and holding Northwest liable for breach of contract of carriage. The RTC ruled
that the evidence adduced by the parties supported the conclusion that Chiong was
deliberately prevented from checking-in and his boarding pass unjustifiably withheld to
accommodate an American passenger by the name of W. Costine.
The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, in consideration of all the foregoing, judgment
is hereby rendered, ordering the defendant liable to plaintiff in damages by reason
of the latters inability to take defendants NW Flight No. 24 on April 1, 1989, for
the following amounts:
1) U.S.$8,447.00
17
or its peso equivalent at the time of finality of this
judgment with legal interests until fully paid, representing compensatory
damages due to plaintiffs loss of income for one (1) year as a direct result
of defendants breach of contract of carriage;
2) P15,000.00, Philippine Currency, representing plaintiffs actual incurred
damages as a consequence of his failure to avail of defendants Flight No. 24
on April 1, 1989;
3) P200,000.00, Philippine Currency, representing moral damages suffered
and sustained by the plaintiff as a result of defendants breach of contract of
carriage;
4) P200,000.00, Philippine Currency, representing exemplary or punitive
damages due to plaintiff from defendant, owing to the latters breach of
contract of carriage with malice and fraud; and
5) P200,000.00, Philippine Currency, for and as attorneys fees, plus costs of
suit.
SO ORDERED.
On appeal, the CA affirmed in toto the ruling of the RTC. Identical to the RTCs findings,
those of the CA were as follows: on April 1, 1989, Chiong was at the MIA three hours
before the 10:15 a.m. departure time for Northwest Flight No. 24. Contrary to
Northwests claim that Chiong was a "no-show" passenger, the CA likewise concluded, as
the RTC did, that Chiong was not allowed to check-in and was not issued a boarding
pass at the Northwest check-in counter to accommodate a certain W. Costine. As for
Northwests defense that Chiong had left the country after April 1, 1989 and worked
for M/V Elbia, the CA ruled that Northwests failure to raise this defense in its Answer or
Motion to Dismiss is equivalent to a waiver thereof. The CA declared that, in any event,
Northwest failed to present any evidence to prove that Chiong had worked under the
original crew agreement.
Hence, this recourse.
Northwest ascribes grievous errors to the CA when the appellate court ruled that: (1)
Northwest breached the contract of carriage with Chiong who was present at the MIA on
April 1, 1989 to board Northwests Flight No. 24; (2) As a result of the breach,
Northwest is liable to Chiong for compensatory, actual, moral and exemplary damages,
attorneys fees, and costs of suit; and (3) Northwests Exhibits "2" and "3," the Flight
Manifest and the Passenger Name Record, respectively, were hearsay evidence and
ought to be excluded from the records.
The petition must fail.
We are in complete accord with the common ruling of the lower courts that Northwest
breached the contract of carriage with Chiong, and as such, he is entitled to
compensatory, actual, moral and exemplary damages, attorneys fees and costs of suit.
Northwest contends that Chiong, as a "no-show" passenger on April 1, 1989, already
defaulted in his obligation to abide by the terms and conditions of the contract of
carriage;
18
and thus, Northwest could not have been in breach of its reciprocal obligation
to transport Chiong. In sum, Northwest insists that Chiongs testimony is a complete
fabrication, supposedly demonstrated by the following: (1) Chiongs seaman service
record book reflects that he left the Philippines after April 1, 1989, specifically on April
17, 1989, to board the M/V Elbia, and was discharged therefrom upon his personal
request; (2) the Information filed against Chiong for False Testimony; and (3) the Flight
Manifest and the Passenger Name Record both indicate that he was a "no-show"
passenger.
We are not convinced.
The records reveal that Chiong, as plaintiff in the trial court, satisfied the burden of
proof required in civil cases, i.e., preponderance of evidence. Section 1 of Rule 133
provides:
SECTION 1. Preponderance of evidence, how determined. In civil cases, the
party having the burden of proof must establish his case by a preponderance of
evidence. In determining where the preponderance or superior weight of evidence
on the issues involved lies, the court may consider all the facts and circumstance
of the case, the witnesses manner of testifying, their intelligence, their means and
opportunity of knowing the facts to which they are testifying, the nature of the
facts to which they testify, the probability or improbability of their testimony, their
interest or want of interest, and also their personal credibility so far as the same
may legitimately appear upon the trial. The court may also consider the number of
witnesses, though preponderance is not necessarily with the greater number.
In this regard, the Court notes that, in addition to his testimony, Chiongs evidence
consisted of a Northwest ticket for the April 1, 1989 Flight No. 24, Chiongs passport and
seaman service record book duly stamped at the PCG counter, and the testimonies of
Calvo, Florencio Gomez,
19
and Philippine Overseas Employment and Administration
(POEA) personnel who all identified the signature and stamp of the PCG on Chiongs
passport.
We have scoured the records, and found no reason to depart from the well-settled rule
that factual findings of the lower courts deserve the utmost respect and are not to be
disturbed on appeal.
20
Indeed, Chiongs Northwest ticket for Flight No. 24 on April 1,
1989, coupled with the PCG stamps on his passport showing the same date, is direct
evidence that he was present at MIA on said date as he intended to fly to the United
States on board that flight. As testified to by POEA personnel and officers, the PCG
stamp indicates that a departing seaman has passed through the PCG counter at the
airport, surrendered the exit pass, and complied with government requirements for
departing seafarers. Calvo, Philimares liaison officer tasked to assist Chiong at the
airport, corroborated Chiongs testimony on the latters presence at the MIA and his
check-in at the PCG counter without a hitch. Calvo further testified that she purposely
stayed at the PCG counter to confirm that Chiong was able to board the plane, as it was
part of her duties as Philimares liaison officer, to confirm with their principal,
TransOcean in this case, that the seafarer had left the country and commenced travel to
the designated port where the vessel is docked.
21
Thus, she had observed that Chiong
was unable to check-in and board Northwest Flight No. 24, and was actually being given
the run-around by Northwest personnel.
It is of no moment that Chiongs witnesses who all corroborated his testimony on his
presence at the airport on, and flight details for, April 1, 1989, and that he was
subsequently bumped-off are, likewise, employees of Philimare which may have an
interest in the outcome of this case. We intoned in Philippine Airlines, Inc. v. Court of
Appeals,
22
thus:
(T)his Court has repeatedly held that a witness relationship to the victim does not
automatically affect the veracity of his or her testimony. While this principle is
often applied in criminal cases, we deem that the same principle may apply in this
case, albeit civil in nature. If a witness relationship with a party does not ipso
facto render him a biased witness in criminal cases where the quantum of
evidence required is proof beyond reasonable doubt, there is no reason why the
same principle should not apply in civil cases where the quantum of evidence is
only preponderance of evidence.
The foregoing documentary and testimonial evidence, taken together, amply establish
the fact that Chiong was present at MIA on April 1, 1989, passed through the PCG
counter without delay, proceeded to the Northwest check-in counter, but when he
presented his confirmed ticket thereat, he was not issued a boarding pass, and
ultimately barred from boarding Northwest Flight No. 24 on that day.
In stark contrast is Northwests bare-faced claim that Chiong was a "no-show"
passenger, and was scheduled to leave the country only on April 17, 1989. As previously
discussed, the records belie this assertion. It is also noteworthy that Northwest did not
present any evidence to support its belated defense that Chiong departed from the
Philippines on April 17, 1989 to work as Third Engineer on board M/V Elbia under the
original crew agreement.
It is true that Chiongs passport and seaman service record book indicate that he had
left the country on April 17, 1989 and come back on October 5 of the same year.
However, this evidence fails to debunk the facts established to have transpired on April
1, 1989, more particularly, Chiongs presence at the airport and his subsequent
bumping-off by Northwest despite a confirmed ticket. Although initially, the burden of
proof was with Chiong to prove that there was a breach of contract of carriage, the
burden of evidence shifted to Northwest when Chiong adduced sufficient evidence to
prove the facts he had alleged. At that point, Northwest had the burden of going
forward
23
to controvert Chiongs prima facie case. As the party asserting that Chiong
was a "no-show" passenger, Northwest then had the burden of evidence to establish its
claim. Regrettably, Northwest failed to do so.
Furthermore, it has not escaped our attention that Northwest, despite the declaration in
its Pre-Trial Brief, did not present as a witness their check-in agent on that contentious
date.
24
This omission was detrimental to Northwests case considering its claim that
Chiong did not check-in at their counters on said date. It simply insisted that Chiong was
a "no-show" passenger and totally relied on the Flight Manifest, which, curiously,
showed a horizontal line drawn across Chiongs name, and the name W. Costine written
above it. The reason for the insertion, or for Chiongs allegedly being a "no-show"
passenger, is not even recorded on the remarks column of the Flight Manifest beside the
Passenger Name column. Clearly, the categorical declaration of Chiong and his other
witnesses, coupled with the PCG stamp on his passport and seaman service record book,
prevails over Northwests evidence, particularly the Flight Manifest. Thus, we are
perplexed why, despite the evidence presented by Chiong, and the RTCs specific order
to Northwests counsel to present the person(s) who prepared the Flight Manifest and
Passenger Name Record for a proper identification of, and to testify on, those
documents, Northwest still insisted on presenting Gonofredo Mendoza and Amelia Meris
who were, admittedly, not competent to testify thereon.
25

In its desperate attempt to evade liability for the breach, Northwest claims that Chiong
worked at M/V Elbia when he left the Philippines on April 17, 1989. The argument was
not only belatedly raised, as we have repeatedly stated, but is off-tangent.
On this point, we uphold the RTCs and CAs ruling that the failure of Northwest to raise
the foregoing defense in its Motion to Dismiss or Answer constituted a waiver thereof.
Section 1, Rule 9 of the Rules of Court provides:
SECTION 1. Defenses and objections not pleaded. Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived.
However, when it appears from the pleadings or the evidence on record that the
court has no jurisdiction over the subject matter, that there is another action
pending between the same parties for the same cause, or that the action is barred
by a prior judgment or by statute of limitations, the court shall dismiss the claim.
(Emphasis supplied)
Similarly, Section 8, Rule 15 of the Rules of Court reads:
SECTION 8. Omnibus Motion. Subject to the provisions of section 1 of Rule 9, a
motion attacking a pleading, order, judgment, or proceeding shall include all
objections then available, and all objections not so included shall be deemed
waived.
Moreover, Northwest paints a scenario that ostensibly transpired on a different date.
Even if Chiong left the Philippines on April 17, 1989, it would not necessarily prove that
Chiong was a "no-show" on April 1, 1989. Neither does it negate the already established
fact that Chiong had a confirmed ticket for April 1, 1989, and first passed through the
PCG counter without delay, then reached and was at the Northwest check-in counters on
time for the scheduled flight.
Essentially, Northwest argues that Chiong was a "no-show" passenger on two (2)
separate occasions, March 28 and April 1, 1989 because he was actually scheduled to
depart for the US on April 17, 1989 as ostensibly evidenced by his passport and seaman
record book. Had this new matter alleged been proven by Northwest, it would prevent or
bar recovery by Chiong. Unfortunately, Northwest was unsuccessful in proving not only
the "no-show" claim, but that Chiong, likewise, worked under the original crew
agreement.
Northwest likewise insists now that there is a pending criminal case for False
Testimony against Chiong that a falsified part of Chiongs testimony would indicate the
falsity of his entire testimony, consistent with the "falsus in uno, falsus in
omnibus"
26
doctrine. Following Northwests flawed logic, this would invariably lead to the
conclusion that the corroborating testimonies of Chiongs witnesses are also false.
The legal maxim falsus in uno, falsus in omnibus, cited by Northwest, is not a positive
rule of law and is not strictly applied in this jurisdiction. Before this maxim can be
applied, the witness must be shown to have willfully falsified the truth on one or more
material points. The principle presupposes the existence of a positive testimony on a
material point contrary to subsequent declarations in the testimony. However, the
records show that Chiongs testimony did not contain inconsistencies on what occurred
on April 1, 1989. Yet, Northwest never even attempted to explain or impugn the
evidence that Chiong passed through the PCG counter on April 1, 1989, and that his
passport was accordingly stamped, obviously for purposes of his departure on that day.
As to the criminal case, it is well to note that there is no final determination, as yet, of
Chiongs guilt by the courts. But even if Chiong is adjudged guilty, it will have little effect
on the outcome of this case. As we held in Leyson v. Lawa:
27

The testimony of a witness must be considered in its entirety instead of in
truncated parts. The technique in deciphering a testimony is not to consider only
its isolated parts and anchor a conclusion on the basis of said parts. In
ascertaining the facts established by a witness, everything stated by him on direct,
cross and redirect examinations must be calibrated and considered.
It must be stressed that facts imperfectly or erroneously stated in answer to one
question may be supplied or explained as qualified by his answer to other
question. The principle falsus in uno, falsus in omnibus is not strictly applied in this
jurisdiction. The doctrine deals only with the weight of evidence and is not a
positive rule of law, and the same is not an inflexible one of universal application.
The testimony of a witness can be believed as to some facts and disbelieved as to
others:
x x x x
Professor Wigmore gives the following enlightening commentary:
It may be said, once for all, that the maxim is in itself worthless first, in
point of validity, because in one form it merely contains in loose fashion a
kernel of truth which no one needs to be told, and in the others, it is
absolutely false as a maxim of life; and secondly, in point of utility, because
it merely tells the jury what they may do in any event, not what they must
do or must not do, and therefore it is a superfluous form of words. It is also
in practice pernicious, first, because there is frequently a misunderstanding
of its proper force, and secondly, because it has become in the hands of
many counsel a mere instrument for obtaining new trials upon points wholly
unimportant in themselves.
From the foregoing disquisition, the ineluctable conclusion is that Northwest breached its
contract of carriage with Chiong.
Time and again, we have declared that a contract of carriage, in this case, air transport,
is primarily intended to serve the traveling public and thus, imbued with public interest.
The law governing common carriers consequently imposes an exacting standard of
conduct. As the aggrieved party, Chiong only had to prove the existence of the contract
and the fact of its non-performance by Northwest, as carrier, in order to be awarded
compensatory and actual damages.
We reiterate that Northwest failed to prove its claim that Chiong worked on M/V
Elbia from April 17 to October 5, 1989 under the original crew agreement. Accordingly,
we affirm the lower courts finding on Chiongs entitlement to actual and compensatory
damages.
We, likewise, uphold the findings of both courts on Northwests liability for moral and
exemplary damages, and attorneys fees.
Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in
breaches of contract, is in order upon a showing that the defendant acted fraudulently or
in bad faith. Bad faith does not simply connote bad judgment or negligence.
28
It imports
a dishonest purpose or some moral obliquity and conscious doing of a wrong.
29
It means
breach of a known duty through some motive, interest or ill will that partakes of the
nature of fraud.
30
Bad faith is in essence a question of intention.
31

In the case at bench, the courts carefully examined the evidence as to the conduct and
outward acts of Northwest indicative of its inward motive. It is borne out by the records
that Chiong was given the run-around at the Northwest check-in counter, instructed to
deal with a "man in barong" to obtain a boarding pass, and eventually barred from
boarding Northwest Flight No. 24 to accommodate an American, W. Costine, whose
name was merely inserted in the Flight Manifest, and did not even personally check-in at
the counter.
32

Under the foregoing circumstances, the award of exemplary damages is also correct
given the evidence that Northwest acted in an oppressive manner towards Chiong.
33

As for the award of attorneys fees, while we recognize that it is sound policy not to set a
premium on the right to litigate,
34
we sustain the lower courts award thereof.
Attorneys fees may be awarded when a party is compelled to litigate or incur expenses
to protect his interest,
35
or where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiffs plainly valid, just and demandable claim.
36
In the case
at bench, Northwest deliberately breached its contract of carriage with Chiong and then
repeatedly refused to satisfy Chiongs valid, just and demandable claim. This unjustified
refusal constrained Chiong to not only lose income under the crew agreement, but to
further incur expenses and exert effort for almost two (2) decades in order to protect his
interests and vindicate his right. Therefore, this Court deems it just and equitable to
grant Chiong P200,000.00 as attorneys fees. The award is reasonable in view of the
time it has taken for this case to be resolved.
37

Finally, the issue of the exclusion of Northwests Exhibits "2" and "3" need not detain us
long. Suffice it to state that the RTC and CA correctly excluded these documents as
hearsay evidence. We quote with favor the CAs holding thereon, thus:
As a rule, "entries made at, or near the time of the transactions to which they
refer, by a person deceased, or unable to testify, who was in a position to know
the facts therein stated, may be received as prima facie evidence, if such person
made the entries in his professional capacity or in the performance of a duty and
in the ordinary or regular course of business or duty". [Rule 130, Section 43,
Revised Rules of Court]
Otherwise stated, in order to be admissible as entries in the course of business, it
is necessary that: (a) the person who made the entry must be dead or unable to
testify; (b) the entries were made at or near the time of the transactions to which
they refer; (c) the entrant was in a position to know the facts stated in the
entries; (d) the entries were made in his professional capacity or in the
performance of a duty; and (e) the entries were made in the ordinary or regular
course of business or duty.
Tested by these requirements, we find the manifest and passenger name record to
be mere hearsay evidence. While there is no necessity to bring into court all the
employees who individually made the entries, it is sufficient that the person who
supervised them while they were making the entries testify that the account was
prepared under his supervision and that the entries were regularly entered in the
ordinary course of business. In the case at bench, while MENDOZA was the
supervisor on-duty on April 1, 1989, he has no personal knowledge of the entries
in the manifest since he did not supervise the preparation thereof. More
importantly, no evidence was presented to prove that the employee who made the
entries was dead nor did the defendant-appellant set forth the circumstances that
would show the employees inability to testify.
38

WHEREFORE, premises considered, the petition is hereby DENIED. The ruling of the
Court of Appeals in CA-G.R. CV No. 50308 is hereby AFFIRMED. Costs against the
petitioner.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice


SECOND DIVISION
[G.R. No. 142305. December 10, 2003]
SINGAPORE AIRLINES LIMITED, petitioner, vs. ANDION FERNANDEZ, respondent.
D E C I S I O N
CALLEJO, SR., J.:
This is a petition for review on certiorari assailing the Decision
[1]
of the Court of
Appeals which affirmed in toto the decision
[2]
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 Masters 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 fromSingapore 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 respondents 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
petitioners counter which says: Immediate Attention To Passengers with Immediate
Booking. There were four or five passengers in line. The respondent approached
petitioners male employee at the counter to make arrangements for immediate booking
only to be told: Cant you see I am doing something. She explained her predicament
but the male employee uncaringly retorted: Its 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
respondents 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 respondents performance before the Royal Family of
Malaysia was below par. Because of the rude and unkind treatment she received from
the petitioners 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 plaintiffs 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 attorneys 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:
I
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.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER
ACTED IN BAD FAITH.
III
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE PETITIONERS
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 fromFrankfurt to Singapore on January 28, 1991 for more than two
hours was due to a fortuitous event and beyond petitioners control. Inclement weather
prevented the petitioners plane coming fromCopenhagen, 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 petitioners 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 P1,000,000; exemplary damages of P500,000; and
attorneys fees also in the amount of P500,000.
[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 petitioners control is unavailing. In PAL
vs. CA,
[22]
we held that:
.... Undisputably, PALs diversion of its flight due to inclement weather was a fortuitous
event. Nonetheless, such occurrence did not terminate PALs 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 carriers 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 defendants 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 petitioners 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 petitioners 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 petitioners 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 defendants
pilot. However, knowing fully well that even before the plaintiff boarded defendants
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 airlines 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 petitioners 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,
Dont 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
petitioners 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. 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
petitioners 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
companys 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 petitioners personnel to respondents 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,
petitioners 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.
SO ORDERED.
Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 127897 November 15, 2001
DELSAN TRANSPORT LINES, INC., petitioner,
vs.
THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE
CORPORATION, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision
1
of the Court of Appeals in
CA-G.R. CV No. 39836 promulgated on June 17, 1996, reversing the decision of the
Regional Trial Court of Makati City, Branch 137, ordering petitioner to pay private
respondent the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos
and Fifty-Seven Centavos (P5,096,635.57) and costs and the Resolution
2
dated January
21, 1997 which denied the subsequent motion for reconsideration.
The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of
affreightment with the petitioner, Delsan Transport Lines, Inc., for a period of one year
whereby the said common carrier agreed to transport Caltexs industrial fuel oil from the
Batangas-Bataan Refinery to different parts of the country. Under the contract,
petitioner took on board its vessel, MT Maysun 2,277.314 kiloliters of industrial fuel oil of
Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was
insured with the private respondent, American Home Assurance Corporation.
On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City.
Unfortunately, the vessel sank in the early morning of August 16, 1986 near Panay Gulf
in the Visayas taking with it the entire cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six
Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.67)
representing the insured value of the lost cargo. Exercising its right of subrogation under
Article 2207 of the New Civil Code, the private respondent demanded of the petitioner
the same amount it paid to Caltex.1wphi1.nt
Due to its failure to collect from the petitioner despite prior demand, private respondent
filed a complaint with the Regional Trial Court of Makati City, Branch 137, for collection
of a sum of money. After the trial and upon analyzing the evidence adduced, the trial
court rendered a decision on November 29, 1990 dismissing the complaint against
herein petitioner without pronouncement as to cost. The trial court found that the
vessel, MT Maysum, was seaworthy to undertake the voyage as determined by the
Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon inspection
during its annual dry-docking and that the incident was caused by unexpected inclement
weather condition or force majeure, thus exempting the common carrier (herein
petitioner) from liability for the loss of its cargo.
3

The decision of the trial court, however, was reversed, on appeal, by the Court of
Appeals. The appellate court gave credence to the weather report issued by the
Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA
for brevity) which showed that from 2:00 oclock to 8:oo oclock in the morning on
August 16, 1986, the wind speed remained at 10 to 20 knots per hour while the waves
measured from .7 to two (2) meters in height only in the vicinity of the Panay Gulf
where the subject vessel sank, in contrast to herein petitioners allegation that the
waves were twenty (20) feet high. In the absence of any explanation as to what may
have caused the sinking of the vessel coupled with the finding that the same was
improperly manned, the appellate court ruled that the petitioner is liable on its obligation
as common carrier
4
to herein private respondent insurance company as subrogee of
Caltex. The subsequent motion for reconsideration of herein petitioner was denied by
the appellate court.
Petitioner raised the following assignments of error in support of the instant petition,
5
to
wit:
I
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL
TRIAL COURT.
II
THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE
LEGAL PRESUMPTION THAT THE VESSEL MT "MAYSUN" WAS SEAWORTHY.
III
THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE
SUPREME COURT IN THE CASE OF HOME INSURANCE CORPORATION V. COURT OF
APPEALS.
Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the
Insurance Code of the Philippines, which states that in every marine insurance upon a
ship or freight, or freightage, or upon any thin which is the subject of marine insurance
there is an implied warranty by the shipper that the ship is seaworthy. Consequently,
the insurer will not be liable to the assured for any loss under the policy in case the
vessel would later on be found as not seaworthy at the inception of the insurance. It
theorized that when private respondent paid Caltex the value of its lost cargo, the act of
the private respondent is equivalent to a tacit recognition that the ill-fated vessel was
seaworthy; otherwise, private respondent was not legally liable to Caltex due to the
latters breach of implied warranty under the marine insurance policy that the vessel was
seaworthy.
The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was
not seaworthy on the ground that the marine officer who served as the chief mate of the
vessel, Francisco Berina, was allegedly not qualified. Under Section 116 of the Insurance
Code of the Philippines, the implied warranty of seaworthiness of the vessel, which the
private respondent admitted as having been fulfilled by its payment of the insurance
proceeds to Caltex of its lost cargo, extends to the vessels complement. Besides,
petitioner avers that although Berina had merely a 2
nd
officers license, he was qualified
to act as the vessels chief officer under Chapter IV(403), Category III(a)(3)(ii)(aa) of
the Philippine Merchant Marine Rules and Regulations. In fact, all the crew and officers
of MT Maysun were exonerated in the administrative investigation conducted by the
Board of Marine Inquiry after the subject accident.
6

In any event, petitioner further avers that private respondent failed, for unknown
reason, to present in evidence during the trial of the instant case the subject marine
cargo insurance policy it entered into with Caltex. By virtue of the doctrine laid down in
the case of Home Insurance Corporation vs. CA,
7
the failure of the private respondent to
present the insurance policy in evidence is allegedly fatal to its claim inasmuch as there
is no way to determine the rights of the parties thereto.
Hence, the legal issues posed before the Court are:
I
Whether or not the payment made by the private respondent to Caltex for the
insured value of the lost cargo amounted to an admission that the vessel was
seaworthy, thus precluding any action for recovery against the petitioner.
II
Whether or not the non-presentation of the marine insurance policy bars the
complaint for recovery of sum of money for lack of cause of action.
We rule in the negative on both issues.
The payment made by the private respondent for the insured value of the lost cargo
operates as waiver of its (private respondent) right to enforce the term of the implied
warranty against Caltex under the marine insurance policy. However, the same cannot
be validly interpreted as an automatic admission of the vessels seaworthiness by the
private respondent as to foreclose recourse against the petitioner for any liability under
its contractual obligation as a common carrier. The fact of payment grants the private
respondent subrogatory right which enables it to exercise legal remedies that would
otherwise be available to Caltex as owner of the lost cargo against the petitioner
common carrier.
8
Article 2207 of the New civil Code provides that:
Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
The right of subrogation has its roots in equity. It is designed to promote and to
accomplish justice and is the mode which equity adopts to compel the ultimate payment
of a debt by one who in justice and good conscience ought to pay.
9
It is not dependent
upon, nor does it grow out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment by the insurance company of the insurance
claim.
10
Consequently, the payment made by the private respondent (insurer) to Caltex
(assured) operates as an equitable assignment to the former of all the remedies which
the latter may have against the petitioner.
From the nature of their business and for reasons of public policy, common carriers are
bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of passengers transported by them, according to all the circumstance of each
case.
11
In the event of loss, destruction or deterioration of the insured goods, common
carriers shall be responsible unless the same is brought about, among others, by flood,
storm, earthquake, lightning or other natural disaster or calamity.
12
In all other cases, if
the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence.
13

In order to escape liability for the loss of its cargo of industrial fuel oil belonging to
Caltex, petitioner attributes the sinking of MT Maysun to fortuitous even or force
majeure. From the testimonies of Jaime Jarabe and Francisco Berina, captain and chief
mate, respectively of the ill-fated vessel, it appears that a sudden and unexpected
change of weather condition occurred in the early morning of August 16, 1986; that at
around 3:15 oclock in the morning a squall ("unos") carrying strong winds with an
approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to
twenty (20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water
and eventually sink with its cargo.
14
This tale of strong winds and big waves by the said
officers of the petitioner however, was effectively rebutted and belied by the weather
report
15
from the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA), the independent government agency charged with monitoring
weather and sea conditions, showing that from 2:00 oclock to 8:00 oclock in the
morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots
per hour while the height of the waves ranged from .7 to two (2) meters in the vicinity
of Cuyo East Pass and Panay Gulf where the subject vessel sank. Thus, as the appellate
court correctly ruled, petitioners vessel, MT Maysun, sank with its entire cargo for the
reason that it was not seaworthy. There was no squall or bad weather or extremely poor
sea condition in the vicinity when the said vessel sank.
The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe
and Francisco Berina, ship captain and chief mate, respectively, of the said vessel, could
not be expected to testify against the interest of their employer, the herein petitioner
common carrier.
Neither may petitioner escape liability by presenting in evidence certificates
16
that tend
to show that at the time of dry-docking and inspection by the Philippine Coast Guard,
the vessel MT Maysun, was fit for voyage. These pieces of evidence do not necessarily
take into account the actual condition of the vessel at the time of the commencement of
the voyage. As correctly observed by the Court of appeals:
At the time of dry-docking and inspection, the ship may have appeared fit. The
certificates issued, however, do not negate the presumption of unseaworthiness
triggered by an unexplained sinking. Of certificates issued in this regard,
authorities are likewise clear as to their probative value, (thus):
Seaworthiness relates to a vessels actual condition. Neither the granting of
classification or the issuance of certificates established seaworthiness. (2-A
Benedict on Admiralty, 7-3, Sec. 62).
And also:
Authorities are clear that diligence in securing certificates of seaworthiness
does not satisfy the vessel owners obligation. Also securing the approval of
the shipper of the cargo, or his surveyor, of the condition of the vessel or
her stowage does not establish due diligence if the vessel was in fact
unseaworthy, for the cargo owner has no obligation in relation to
seaworthiness. (Ibid.)
17

Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine
Inquiry merely concerns their respective administrative liabilities. It does not in any way
operate to absolve the petitioner common carrier from its civil liabilities. It does not in
any way operate to absolve the petitioner common carrier from its civil liability arising
from its failure to observe extraordinary diligence in the vigilance over the goods it was
transporting and for the negligent acts or omissions of its employees, the determination
of which properly belongs to the courts.
18
In the case at bar, petitioner is liable for the
insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to
rebut the presumption of fault or negligence as common carrier
19
occasioned by the
unexplained sinking of its vessel, MT Maysun, while in transit.
Anent the second issue, it is our view and so hold that the presentation in evidence of
the marine insurance policy is not indispensable in this case before the insurer may
recover from the common carrier the insured value of the lost cargo in the exercise of its
subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only
the relationship of herein private respondent as insurer and Caltex, as the assured
shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the
insurance claim. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim.
20

The presentation of the insurance policy was necessary in the case of Home Insurance
Corporation v. CA
21
(a case cited by petitioner) because the shipment therein (hydraulic
engines) passed through several stages with different parties involved in each stage.
First, from the shipper to the port of departure; second, from the port of departure to
the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific
Conveyor; fourth, from the M/S Pacific Conveyor to the port or arrival; fifth, from the
port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler,
Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to
the consignee. We emphasized in that case that in the absence of proof of stipulations to
the contrary, the hauler can be liable only for any damage that occurred from the time it
received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be
held responsible for the handling of the cargo before it actually received it. The
insurance contract, which was not presented in evidence in that case would have
indicated the scope of the insurers liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the cargo was sustained.
Hence, our ruling on the presentation of the insurance policy in the said case of Home
Insurance Corporation is not applicable to the case at bar. In contrast, there is no doubt
that the cargo of industrial fuel oil belonging to Caltex, in the case at bar, was lost while
on board petitioners vessel, MT Maysun, which sank while in transit in the vicinity of
Panay Gulf and Cuyo East Pass in the early morning of August 16, 1986.
WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the
Court of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner.
SO ORDERED.1wphi1.nt
Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 159636 November 25, 2004
VICTORY LINER, INC., petitioner,
vs.
ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD and DIANA
FRANCES P. GAMMAD, respondents.


D E C I S I O N


YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the April 11, 2003 decision
1
of the
Court of Appeals in CA-G.R. CV No. 63290 which affirmed with modification the
November 6, 1998 decision
2
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 complaint
5
for damages
arising from culpa contractual against petitioner. In its answer,
6
the petitioner claimed
that the incident was purely accidental and that it has always exercised extraordinary
diligence in its 50 years of operation.
After several re-settings,
7
pre-trial was set on April 10, 1997.
8
For failure to appear on
the said date, petitioner was declared as in default.
9
However, on petitioners
motion
10
to lift the order of default, the same was granted by the trial court.
11

At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation
that the deceased was a passenger of the Victory Liner Bus which fell on the ravine and
that she was issued Passenger Ticket No. 977785. Respondents, for their part, did not
accept petitioners proposal to pay P50,000.00.
12

After respondent Rosalito Gammad completed his direct testimony, cross-examination
was scheduled for November 17, 1997
13
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

Petitioners motion to reset the presentation of its evidence to March 25, 1998
16
was
granted. However, on March 24, 1998, the counsel of petitioner sent the court a
telegram
17
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. Attorneys 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. Attorneys fees equivalent to 10% of the sum of the actual,
compensatory, moral, and exemplary damages herein adjudged.
The court a quos judgment of the cost of the suit against defendant-appellant is
hereby AFFIRMED.
SO ORDERED.
20

Represented by a new counsel, petitioner on May 21, 2003 filed a motion for
reconsideration praying that the case be remanded to the trial court for cross-
examination of respondents witness and for the presentation of its evidence; or in the
alternative, dismiss the respondents complaint.
21
Invoking APEX Mining, Inc. v. Court of
Appeals,
22
petitioner argues, inter alia, that the decision of the trial court should be set
aside because the negligence of its former counsel, Atty. Antonio B. Paguirigan, in failing
to appear at the scheduled hearings and move for reconsideration of the orders
declaring petitioner to have waived the right to cross-examine respondents witness and
right to present evidence, deprived petitioner of its day in court.
On August 21, 2003, the Court of Appeals denied petitioners motion for
reconsideration.
23

Hence, this petition for review principally based on the fact that the mistake or gross
negligence of its counsel deprived petitioner of due process of law. Petitioner also argues
that the trial courts award of damages were without basis and should be deleted.
The issues for resolution are: (1) whether petitioners counsel was guilty of gross
negligence; (2) whether petitioner should be held liable for breach of contract of
carriage; and (3) whether the award of damages was proper.
It is settled that the negligence of counsel binds the client. This is based on the rule that
any act performed by a counsel within the scope of his general or implied authority is
regarded as an act of his client. Consequently, the mistake or negligence of counsel may
result in the rendition of an unfavorable judgment against the client. However, the
application of the general rule to a given case should be looked into and adopted
according to the surrounding circumstances obtaining. Thus, exceptions to the foregoing
have been recognized by the court in cases where reckless or gross negligence of
counsel deprives the client of due process of law, or when its application will result in
outright deprivation of the clients liberty or property or where the interests of justice so
require, and accord relief to the client who suffered by reason of the lawyers gross or
palpable mistake or negligence.
24

The exceptions, however, are not present in this case. The record shows that Atty.
Paguirigan filed an Answer and Pre-trial Brief for petitioner. Although initially declared as
in default, Atty. Paguirigan successfully moved for the setting aside of the order of
default. In fact, petitioner was represented by Atty. Paguirigan at the pre-trial who
proposed settlement for P50,000.00. Although Atty. Paguirigan failed to file motions for
reconsideration of the orders declaring petitioner to have waived the right to cross-
examine respondents witness and to present evidence, he nevertheless, filed a timely
appeal with the Court of Appeals assailing the decision of the trial court. Hence,
petitioners claim that it was denied due process lacks basis.
Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as
in default for not appearing at the pre-trial, three notices (dated October 23,
1996,
25
January 30, 1997,
26
and March 26, 1997,
27
) requiring attendance at the pre-trial
were sent and duly 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 attorney
28
authorizing Atty. Paguirigan or any member of his law firm to
represent petitioner at the pre-trial. Petitioner is guilty, at the least, of contributory
negligence and fault cannot be imputed solely on previous counsel.
The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at
bar. In APEX, the negligent counsel not only allowed the adverse decision against his
client to become final and executory, but deliberately misrepresented in the progress
report that the case was still pending with the Court of Appeals when the same was
dismissed 16 months ago.
29
These circumstances are absent in this case because Atty.
Paguirigan timely filed an appeal from the decision of the trial court with the Court of
Appeals.
In Gold Line Transit, Inc. v. Ramos,
30
the Court was similarly confronted with the issue
of whether or not the client should bear the adverse consequences of its counsels
negligence. In that case, Gold Line Transit, Inc. (Gold Line) and its lawyer failed to
appear at the pre-trial despite notice and was declared as in default. After the plaintiffs
presentation of evidence ex parte, the trial court rendered decision ordering Gold Line to
pay damages to the heirs of its deceased passenger. The decision became final and
executory because counsel of Gold Line did not file any appeal. Finding that Goldline was
not denied due process of law and is thus bound by the negligence of its lawyer, the
Court held as follows
This leads us to the question of whether the negligence of counsel was so gross
and reckless that petitioner was deprived of its right to due process of law. We do
not believe so. It cannot be denied that the requirements of due process were
observed in the instant case. Petitioner was never deprived of its day in court, as
in fact it was afforded every opportunity to be heard. Thus, it is of record that
notices were sent to petitioner and that its counsel was able to file a motion to
dismiss the complaint, an answer to the complaint, and even a pre-trial brief.
What was irretrievably lost by petitioner was its opportunity to participate in the
trial of the case and to adduce evidence in its behalf because of negligence.
In the application of the principle of due process, what is sought to be safeguarded
against is not the lack of previous notice but the denial of the opportunity to be
heard. The question is not whether petitioner succeeded in defending its rights and
interests, but simply, whether it had the opportunity to present its side of the
controversy. Verily, as petitioner retained the services of counsel of its choice, it
should, as far as this suit is concerned, bear the consequences of its choice of a
faulty option. Its plea that it was deprived of due process echoes on hollow ground
and certainly cannot elicit approval nor sympathy.
To cater to petitioners arguments and reinstate its petition for relief from
judgment would put a premium on the negligence of its former counsel and
encourage the non-termination of this case by reason thereof. This is one case
where petitioner has to bear the adverse consequences of its counsels act, for a
client is bound by the action of his counsel in the conduct of a case and he cannot
thereafter be heard to complain that the result might have been different had his
counsel proceeded differently. The rationale for the rule is easily discernible. If the
negligence of counsel be admitted as a reason for opening cases, there would
never be an end to a suit so long as a new counsel could be hired every time it is
shown that the prior counsel had not been sufficiently diligent, experienced or
learned.
31

Similarly, in Macalalag v. Ombudsman,
32
a Philippine Postal Corporation employee
charged with dishonesty was not able to file an answer and position paper. He was found
guilty solely on the basis of complainants evidence and was dismissed with forfeiture of
all benefits and disqualification from government service. Challenging the decision of the
Ombudsman, the employee contended that the gross negligence of his counsel deprived
him of due process of law. In debunking his contention, the Court said
Neither can he claim that he is not bound by his lawyers actions; it is only in case
of gross or palpable negligence of counsel when the courts can step in and accord
relief to a client who would have suffered thereby. If every perceived mistake,
failure of diligence, lack of experience or insufficient legal knowledge of the lawyer
would be admitted as a reason for the reopening of a case, there would be no end
to controversy. Fundamental to our judicial system is the principle that every
litigation must come to an end. It would be a clear mockery if it were otherwise.
Access to the courts is guaranteed, but there must be a limit to it.
Viewed vis--vis the foregoing jurisprudence, to sustain petitioners argument that it
was denied due process of law due to negligence of its counsel would set a dangerous
precedent. It would enable every party to render inutile any adverse order or decision
through the simple expedient of alleging gross negligence on the part of its counsel. The
Court will not countenance such a farce which contradicts long-settled doctrines of trial
and procedure.
33

Anent the second issue, petitioner was correctly found liable for breach of contract of
carriage. A common carrier is bound to carry its passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with due
regard to all the circumstances. In a contract of carriage, it is presumed that the
common carrier was at fault or was negligent when a passenger dies or is injured.
Unless the presumption is rebutted, the court need not even make an express finding of
fault or negligence on the part of the common carrier. This statutory presumption may
only be overcome by evidence that the carrier exercised extraordinary diligence.
34

In the instant case, there is no evidence to rebut the statutory presumption that the
proximate cause of Marie Graces death was the negligence of petitioner. Hence, the
courts below correctly ruled that petitioner was guilty of breach of contract of carriage.
Nevertheless, the award of damages should be modified.
Article 1764
35
in relation to Article 2206
36
of the Civil Code, holds the common carrier in
breach of its contract of carriage that results in the death of a passenger liable to pay
the following: (1) indemnity for death, (2) indemnity for loss of earning capacity, and
(3) moral damages.
In the present case, respondent heirs of the deceased are entitled to indemnity for the
death of Marie Grace which under current jurisprudence is fixed at P50,000.00.
37

The award of compensatory damages for the loss of the deceaseds earning capacity
should be deleted for lack of basis. As a rule, documentary evidence should be
presented to substantiate the claim for damages for loss of earning capacity. By way of
exception, damages for loss of earning capacity may be awarded despite the absence of
documentary evidence when (1) the deceased is self-employed earning less than the
minimum wage under current labor laws, and judicial notice may be taken of the fact
that in the deceaseds line of work no documentary evidence is available; or (2) the
deceased is employed as a daily wage worker earning less than the minimum wage
under current labor laws.
38

In People v. Oco,
39
the evidence presented by the prosecution to recover damages for
loss of earning capacity was the bare testimony of the deceaseds wife that her husband
was earning P8,000.00 monthly as a legal researcher of a private corporation. Finding
that the deceased was neither self-employed nor employed as a 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 deceaseds earnings does not fall within the exceptions.
However, the fact of loss having been established, temperate damages in the amount of
P500,000.00 should be awarded to respondents. Under Article 2224 of the Civil Code,
temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary
loss has been suffered but its amount can not, from the nature of the case, be proved
with certainty.
In Pleno v. Court of Appeals,
42
the Court sustained the trial courts award of
P200,000.00 as temperate damages in lieu of actual damages for loss of earning
capacity because the income of the victim was not sufficiently proven, thus
The trial court based the amounts of damages awarded to the petitioner on the following
circumstances:
...
"As to the loss or impairment of earning capacity, there is no doubt that Pleno is
an ent[re]preneur and the founder of his own corporation, the Mayon Ceramics
Corporation. It appears also that he is an industrious and resourceful person with
several projects in line, and were it not for the incident, might have pushed them
through. On the day of the incident, Pleno was driving homeward with geologist
Longley after an ocular inspection of the site of the Mayon Ceramics Corporation.
His actual income however has not been sufficiently established so that this Court
cannot award actual damages, but, an award of temperate or moderate damages
may still be made on loss or impairment of earning capacity. That Pleno sustained
a permanent deformity due to a shortened left leg and that he also suffers from
double vision in his left eye is also established. Because of this, he suffers from
some inferiority complex and is no longer active in business as well as in social
life. In similar cases as in Borromeo v. Manila Electric Railroad Co., 44 Phil 165;
Coriage, et al. v. LTB Co., et al., L-11037, Dec. 29, 1960, and in Araneta, et al. v.
Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of damages were
given."
...
We rule that the lower courts awards of damages are more consonant with the
factual circumstances of the instant case. The trial courts findings of facts are
clear and well-developed. Each item of damages is adequately supported by
evidence on record.
Article 2224 of the Civil Code was likewise applied in the recent cases of People v.
Singh
43
and People v. Almedilla,
44
to justify the award of temperate damages in lieu of
damages for loss of earning capacity which was not substantiated by the required
documentary proof.
Anent the award of moral damages, the same cannot be lumped with exemplary
damages because they are based on different jural foundations.
45
These damages are
different in nature and require separate determination.
46
In culpa contractual or breach
of contract, moral damages may be recovered when the defendant acted in bad faith or
was guilty of gross negligence (amounting to bad faith) or in wanton disregard of
contractual obligations and, as in this case, when the act of breach of contract itself
constitutes the tort that results in physical injuries. By special rule in Article 1764 in
relation to Article 2206 of the Civil Code, moral damages may also be awarded in case
the death of a passenger results from a breach of carriage.
47
On the other hand,
exemplary damages, which are awarded by way of example or correction for the public
good may be recovered in contractual obligations if the defendant acted in wanton,
fraudulent, reckless, oppressive, or malevolent manner.
48

Respondents in the instant case should be awarded moral damages to compensate for
the grief caused by the death of the deceased resulting from the petitioners breach of
contract of carriage. Furthermore, the petitioner failed to prove that it exercised the
extraordinary diligence required for common carriers, it is presumed to have acted
recklessly.
49
Thus, the award of exemplary damages is proper. Under the circumstances,
we find it reasonable to award respondents the amount of P100,000.00 as moral
damages and P100,000.00 as exemplary damages. These amounts are not excessive.
50

The actual damages awarded by the trial court reduced by the Court of Appeals should
be further reduced. In People v. Duban,
51
it was held that only substantiated and proven
expenses or those that appear to have been genuinely incurred in connection with the
death, wake or burial of the victim will be recognized. A list of expenses (Exhibit
"J"),
52
and the contract/receipt for the construction of the tomb (Exhibit "F")
53
in this
case, cannot be considered competent proof and cannot replace the official receipts
necessary to justify the award. Hence, actual damages should be further reduced to
P78,160.00,
54
which was the amount supported by official receipts.
Pursuant to Article 2208
55
of the Civil Code, attorneys fees may also be recovered in the
case at bar where exemplary damages are awarded. The Court finds the award of
attorneys fees equivalent to 10% of the total amount adjudged against petitioner
reasonable.
Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals,
56
it was held that when an
obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for payment of interest in the
concept of actual and compensatory damages, subject to the following rules, to wit
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit. (Emphasis supplied).
In the instant case, petitioner should be held liable for payment of interest as damages
for breach of contract of carriage. Considering that the amounts payable by petitioner
has been determined with certainty only in the instant petition, the interest due shall be
computed upon the finality of this decision at the rate of 12% per annum until
satisfaction, per paragraph 3 of the aforecited rule.
57

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

Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. No. 161745 September 30, 2005
LEA MER INDUSTRIES, INC., Petitioners,
vs.
MALAYAN INSURANCE CO., INC.,
*
Respondent.
D E C I S I O N
PANGANIBAN, J.:
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 Review
1
under Rule 45 of the Rules of Court, assailing the
October 9, 2002 Decision
2
and the December 29, 2003 Resolution
3
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 P565,000.00. 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 P565,000.
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 P565,000 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 petitioners 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 Courts 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
petitioners 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 courts finding that petitioner became a private carrier
when Vulcan chartered it.
19
Charter 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 isprivate in 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 petitioners 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.
24
Extraordinary 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?
x x x x x x x x x
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?
x x x x x x x x x
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 Guards 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 Report
45
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 Cortezs Survey Report was used in the testimonies of respondents
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 Cortezs 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 respondents witnesses. The referral to Cortezs Report was
in relation to Manlapigs 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.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 95582 October 7, 1991
DANGWA TRANSPORTATION CO., INC. and THEODORE LARDIZABAL y
MALECDAN, petitioners,
vs.
COURT OF APPEALS, INOCENCIA CUDIAMAT, EMILIA CUDIAMAT BANDOY, FERNANDO
CUDLAMAT, MARRIETA CUDIAMAT, NORMA CUDIAMAT, DANTE CUDIAMAT, SAMUEL
CUDIAMAT and LIGAYA CUDIAMAT, all Heirs of the late Pedrito Cudiamat represented by
Inocencia Cudiamat, respondents.
Francisco S. Reyes Law Office for petitioners.
Antonio C. de Guzman for private respondents.

REGALADO, J.:p
On May 13, 1985, private respondents filed a complaint 1 for damages against
petitioners for the death of Pedrito Cudiamat as a result of a vehicular accident which
occurred on March 25, 1985 at Marivic, Sapid, Mankayan, Benguet. Among others, it
was alleged that on said date, while petitioner Theodore M. Lardizabal was driving a
passenger bus belonging to petitioner corporation in a reckless and imprudent manner
and without due regard to traffic rules and regulations and safety to persons and
property, it ran over its passenger, Pedrito Cudiamat. However, instead of bringing
Pedrito immediately to the nearest hospital, the said driver, in utter bad faith and
without regard to the welfare of the victim, first brought his other passengers and cargo
to their respective destinations before banging said victim to the Lepanto Hospital where
he expired.
On the other hand, petitioners alleged that they had observed and continued to observe
the extraordinary diligence required in the operation of the transportation company and
the supervision of the employees, even as they add that they are not absolute insurers
of the safety of the public at large. Further, it was alleged that it was the victim's own
carelessness and negligence which gave rise to the subject incident, hence they prayed
for the dismissal of the complaint plus an award of damages in their favor by way of a
counterclaim.
On July 29, 1988, the trial court rendered a decision, effectively in favor of petitioners,
with this decretal portion:
IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that
Pedrito Cudiamat was negligent, which negligence was the proximate cause
of his death. Nonetheless, defendants in equity, are hereby ordered to pay
the heirs of Pedrito Cudiamat the sum of P10,000.00 which approximates
the amount defendants initially offered said heirs for the amicable
settlement of the case. No costs.
SO ORDERED. 2
Not satisfied therewith, private respondents appealed to the Court of Appeals which, in a
decision 3 in CA-G.R. CV No. 19504 promulgated on August 14, 1990, set aside the
decision of the lower court, and ordered petitioners to pay private respondents:
1. The sum of Thirty Thousand (P30,000.00) Pesos by way of indemnity for
death of the victim Pedrito Cudiamat;
2. The sum of Twenty Thousand (P20,000.00) by way of moral damages;
3. The sum of Two Hundred Eighty Eight Thousand (P288,000.00) Pesos as
actual and compensatory damages;
4. The costs of this suit. 4
Petitioners' motion for reconsideration was denied by the Court of Appeals in its
resolution dated October 4, 1990,5 hence this petition with the central issue herein
being whether respondent court erred in reversing the decision of the trial court and in
finding petitioners negligent and liable for the damages claimed.
It is an established principle that the factual findings of the Court of Appeals as a rule
are final and may not be reviewed by this Court on appeal. However, this is subject to
settled exceptions, one of which is when the findings of the appellate court are contrary
to those of the trial court, in which case a reexamination of the facts and evidence may
be undertaken. 6
In the case at bar, the trial court and the Court of Appeal have discordant positions as to
who between the petitioners an the victim is guilty of negligence. Perforce, we have had
to conduct an evaluation of the evidence in this case for the prope calibration of their
conflicting factual findings and legal conclusions.
The lower court, in declaring that the victim was negligent, made the following findings:
This Court is satisfied that Pedrito Cudiamat was negligent in trying to board
a moving vehicle, especially with one of his hands holding an umbrella. And,
without having given the driver or the conductor any indication that he
wishes to board the bus. But defendants can also be found wanting of the
necessary diligence. In this connection, it is safe to assume that when the
deceased Cudiamat attempted to board defendants' bus, the vehicle's door
was open instead of being closed. This should be so, for it is hard to believe
that one would even attempt to board a vehicle (i)n motion if the door of
said vehicle is closed. Here lies the defendant's lack of diligence. Under such
circumstances, equity demands that there must be something given to the
heirs of the victim to assuage their feelings. This, also considering that
initially, defendant common carrier had made overtures to amicably settle
the case. It did offer a certain monetary consideration to the victim's heirs. 7
However, respondent court, in arriving at a different opinion, declares that:
From the testimony of appellees'own witness in the person of Vitaliano
Safarita, it is evident that the subject bus was at full stop when the victim
Pedrito Cudiamat boarded the same as it was precisely on this instance
where a certain Miss Abenoja alighted from the bus. Moreover, contrary to
the assertion of the appellees, the victim did indicate his intention to board
the bus as can be seen from the testimony of the said witness when he
declared that Pedrito Cudiamat was no longer walking and made a sign to
board the bus when the latter was still at a distance from him. It was at the
instance when Pedrito Cudiamat was closing his umbrella at the platform of
the bus when the latter made a sudden jerk movement (as) the driver
commenced to accelerate the bus.
Evidently, the incident took place due to the gross negligence of the
appellee-driver in prematurely stepping on the accelerator and in not waiting
for the passenger to first secure his seat especially so when we take into
account that the platform of the bus was at the time slippery and wet
because of a drizzle. The defendants-appellees utterly failed to observe their
duty and obligation as common carrier to the end that they should observe
extra-ordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them according to the circumstances of each
case (Article 1733, New Civil Code). 8
After a careful review of the evidence on record, we find no reason to disturb the above
holding of the Court of Appeals. Its aforesaid findings are supported by the testimony of
petitioners' own witnesses. One of them, Virginia Abalos, testified on cross-examination
as follows:
Q It is not a fact Madam witness, that at bunkhouse 54, that is
before the place of the incident, there is a crossing?
A The way going to the mines but it is not being pass(ed) by the
bus.
Q And the incident happened before bunkhouse 56, is that not
correct?
A It happened between 54 and 53 bunkhouses. 9
The bus conductor, Martin Anglog, also declared:
Q When you arrived at Lepanto on March 25, 1985, will you
please inform this Honorable Court if there was anv unusual
incident that occurred?
A When we delivered a baggage at Marivic because a person
alighted there between Bunkhouse 53 and 54.
Q What happened when you delivered this passenger at this
particular place in Lepanto?
A When we reached the place, a passenger alighted and I
signalled my driver. When we stopped we went out because I
saw an umbrella about a split second and I signalled again the
driver, so the driver stopped and we went down and we saw
Pedrito Cudiamat asking for help because he was lying down.
Q How far away was this certain person, Pedrito Cudiamat, when
you saw him lying down from the bus how far was he?
A It is about two to three meters.
Q On what direction of the bus was he found about three meters
from the bus, was it at the front or at the back?
A At the back, sir. 10 (Emphasis supplied.)
The foregoing testimonies show that the place of the accident and the place where one
of the passengers alighted were both between Bunkhouses 53 and 54, hence the finding
of the Court of Appeals that the bus was at full stop when the victim boarded the same
is correct. They further confirm the conclusion that the victim fell from the platform of
the bus when it suddenly accelerated forward and was run over by the rear right tires of
the vehicle, as shown by the physical evidence on where he was thereafter found in
relation to the bus when it stopped. Under such circumstances, it cannot be said that the
deceased was guilty of negligence.
The contention of petitioners that the driver and the conductor had no knowledge that
the victim would ride on the bus, since the latter had supposedly not manifested his
intention to board the same, does not merit consideration. When the bus is not in
motion there is no necessity for a person who wants to ride the same to signal his
intention to board. A public utility bus, once it stops, is in effect making a continuous
offer to bus riders. Hence, it becomes the duty of the driver and the conductor, every
time the bus stops, to do no act that would have the effect of increasing the peril to a
passenger while he was attempting to board the same. The premature acceleration of
the bus in this case was a breach of such duty. 11
It is the duty of common carriers of passengers, including common carriers by railroad
train, streetcar, or motorbus, to stop their conveyances a reasonable length of time in
order to afford passengers an opportunity to board and enter, and they are liable for
injuries suffered by boarding passengers resulting from the sudden starting up or jerking
of their conveyances while they are doing so. 12
Further, even assuming that the bus was moving, the act of the victim in boarding the
same cannot be considered negligent under the circumstances. As clearly explained in
the testimony of the aforestated witness for petitioners, Virginia Abalos, th bus had "just
started" and "was still in slow motion" at the point where the victim had boarded and
was on its platform. 13
It is not negligence per se, or as a matter of law, for one attempt to board a train or
streetcar which is moving slowly. 14 An ordinarily prudent person would have made the
attempt board the moving conveyance under the same or similar circumstances. The
fact that passengers board and alight from slowly moving vehicle is a matter of common
experience both the driver and conductor in this case could not have been unaware of
such an ordinary practice.
The victim herein, by stepping and standing on the platform of the bus, is already
considered a passenger and is entitled all the rights and protection pertaining to such a
contractual relation. Hence, it has been held that the duty which the carrier passengers
owes to its patrons extends to persons boarding cars as well as to those alighting
therefrom. 15
Common carriers, from the nature of their business and reasons of public policy, are
bound to observe extraordina diligence for the safety of the passengers transported by
the according to all the circumstances of each case. 16 A common carrier is bound to
carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence very cautious persons, with a due regard for all the circumstances. 17
It has also been repeatedly held that in an action based on a contract of carriage, the
court need not make an express finding of fault or negligence on the part of the carrier
in order to hold it responsible to pay the damages sought by the passenger. By contract
of carriage, the carrier assumes the express obligation to transport the passenger to his
destination safely and observe extraordinary diligence with a due regard for all the
circumstances, and any injury that might be suffered by the passenger is right away
attributable to the fault or negligence of the carrier. This is an exception to the general
rule that negligence must be proved, and it is therefore incumbent upon the carrier to
prove that it has exercised extraordinary diligence as prescribed in Articles 1733 and
1755 of the Civil Code. 18
Moreover, the circumstances under which the driver and the conductor failed to bring
the gravely injured victim immediately to the hospital for medical treatment is a patent
and incontrovertible proof of their negligence. It defies understanding and can even be
stigmatized as callous indifference. The evidence shows that after the accident the bus
could have forthwith turned at Bunk 56 and thence to the hospital, but its driver instead
opted to first proceed to Bunk 70 to allow a passenger to alight and to deliver a
refrigerator, despite the serious condition of the victim. The vacuous reason given by
petitioners that it was the wife of the deceased who caused the delay was tersely and
correctly confuted by respondent court:
... The pretension of the appellees that the delay was due to the fact that
they had to wait for about twenty minutes for Inocencia Cudiamat to get
dressed deserves scant consideration. It is rather scandalous and deplorable
for a wife whose husband is at the verge of dying to have the luxury of
dressing herself up for about twenty minutes before attending to help her
distressed and helpless husband. 19
Further, it cannot be said that the main intention of petitioner Lardizabal in going to
Bunk 70 was to inform the victim's family of the mishap, since it was not said bus driver
nor the conductor but the companion of the victim who informed his family
thereof. 20 In fact, it was only after the refrigerator was unloaded that one of the
passengers thought of sending somebody to the house of the victim, as shown by the
testimony of Virginia Abalos again, to wit:
Q Why, what happened to your refrigerator at that particular
time?
A I asked them to bring it down because that is the nearest
place to our house and when I went down and asked somebody
to bring down the refrigerator, I also asked somebody to call the
family of Mr. Cudiamat.
COURT:
Q Why did you ask somebody to call the family of Mr. Cudiamat?
A Because Mr. Cudiamat met an accident, so I ask somebody to
call for the family of Mr. Cudiamat.
Q But nobody ask(ed) you to call for the family of Mr. Cudiamat?
A No sir. 21
With respect to the award of damages, an oversight was, however, committed by
respondent Court of Appeals in computing the actual damages based on the gross
income of the victim. The rule is that the amount recoverable by the heirs of a victim of
a tort is not the loss of the entire earnings, but rather the loss of that portion of the
earnings which the beneficiary would have received. In other words, only net earnings,
not gross earnings, are to be considered, that is, the total of the earnings less expenses
necessary in the creation of such earnings or income and minus living and other
incidental expenses. 22
We are of the opinion that the deductible living and other expense of the deceased may
fairly and reasonably be fixed at P500.00 a month or P6,000.00 a year. In adjudicating
the actual or compensatory damages, respondent court found that the deceased was 48
years old, in good health with a remaining productive life expectancy of 12 years, and
then earning P24,000.00 a year. Using the gross annual income as the basis, and
multiplying the same by 12 years, it accordingly awarded P288,000. Applying the
aforestated rule on computation based on the net earnings, said award must be, as it
hereby is, rectified and reduced to P216,000.00. However, in accordance with prevailing
jurisprudence, the death indemnity is hereby increased to P50,000.00. 23
WHEREFORE, subject to the above modifications, the challenged judgment and
resolution of respondent Court of Appeals are hereby AFFIRMED in all other respects.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20761 July 27, 1966
LA MALLORCA, petitioner,
vs.
HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET AL., respondents.
G. E. Yabut, R. Monterey and M.C. Lagman for petitioner.
Ahmed Garcia for respondents.
BARRERA, J.:
La Mallorca seeks the review of the decision of the Court of Appeals in CA-G.R. No.
23267-R, holding it liable for quasi-delict and ordering it to pay to respondents Mariano
Beltran, et al., P6,000.00 for the death of his minor daughter Raquel Beltran, plus
P400.00 as actual damages.
The facts of the case as found by the Court of Appeals, briefly are:
On December 20, 1953, at about noontime, plaintiffs, husband and wife, together
with their minor daughters, namely, Milagros, 13 years old, Raquel, about 4
years old, and Fe, over 2 years old, boarded the Pambusco Bus No. 352, bearing
plate TPU No. 757 (1953 Pampanga), owned and operated by the defendant, at
San Fernando, Pampanga, bound for Anao, Mexico, Pampanga. At the time, they
were carrying with them four pieces of baggages containing their personal
belonging. The conductor of the bus, who happened to be a half-brother of plaintiff
Mariano Beltran, issued three tickets (Exhs. A, B, & C) covering the full fares of
the plaintiff and their eldest child, Milagros. No fare was charged on Raquel and
Fe, since both were below the height at which fare is charged in accordance with
the appellant's rules and regulations.
After about an hour's trip, the bus reached Anao whereat it stopped to allow the
passengers bound therefor, among whom were the plaintiffs and their children to
get off. With respect to the group of the plaintiffs, Mariano Beltran, then carrying
some of their baggages, was the first to get down the bus, followed by his wife
and his children. Mariano led his companions to a shaded spot on the left
pedestrians side of the road about four or five meters away from the vehicle.
Afterwards, he returned to the bus in controversy to get his other bayong, which
he had left behind, but in so doing, his daughter Raquel followed him, unnoticed
by her father. While said Mariano Beltran was on the running board of the bus
waiting for the conductor to hand him his bayong which he left under one of its
seats near the door, the bus, whose motor was not shut off while unloading,
suddenly started moving forward, evidently to resume its trip, notwithstanding the
fact that the conductor has not given the driver the customary signal to start,
since said conductor was still attending to the baggage left behind by Mariano
Beltran. Incidentally, when the bus was again placed into a complete stop, it had
travelled about ten meters from the point where the plaintiffs had gotten off.
Sensing that the bus was again in motion, Mariano Beltran immediately jumped
from the running board without getting his bayong from the conductor. He landed
on the side of the road almost in front of the shaded place where he left his wife
and children. At that precise time, he saw people beginning to gather around the
body of a child lying prostrate on the ground, her skull crushed, and without life.
The child was none other than his daughter Raquel, who was run over by the bus
in which she rode earlier together with her parents.
For the death of their said child, the plaintiffs commenced the present suit against
the defendant seeking to recover from the latter an aggregate amount of P16,000
to cover moral damages and actual damages sustained as a result thereof and
attorney's fees. After trial on the merits, the court below rendered the judgment in
question.
On the basis of these facts, the trial court found defendant liable for breach of contract
of carriage and sentenced it to pay P3,000.00 for the death of the child and P400.00 as
compensatory damages representing burial expenses and costs.
On appeal to the Court of Appeals, La Mallorca claimed that there could not be a breach
of contract in the case, for the reason that when the child met her death, she was no
longer a passenger of the bus involved in the incident and, therefore, the contract of
carriage had already terminated. Although the Court of Appeals sustained this theory, it
nevertheless found the defendant-appellant guilty of quasi-delict and held the latter
liable for damages, for the negligence of its driver, in accordance with Article 2180 of the
Civil Code. And, the Court of Appeals did not only find the petitioner liable, but increased
the damages awarded the plaintiffs-appellees to P6,000.00, instead of P3,000.00
granted by the trial court.
In its brief before us, La Mallorca contends that the Court of Appeals erred (1) in holding
it liable for quasi-delict, considering that respondents complaint was one for breach of
contract, and (2) in raising the award of damages from P3,000.00 to P6,000.00 although
respondents did not appeal from the decision of the lower court.
Under the facts as found by the Court of Appeals, we have to sustain the judgement
holding petitioner liable for damages for the death of the child, Raquel Beltran. It may
be pointed out that although it is true that respondent Mariano Beltran, his wife, and
their children (including the deceased child) had alighted from the bus at a place
designated for disembarking or unloading of passengers, it was also established that the
father had to return to the vehicle (which was still at a stop) to get one of his bags
or bayong that was left under one of the seats of the bus. There can be no controversy
that as far as the father is concerned, when he returned to the bus for hisbayong which
was not unloaded, the relation of passenger and carrier between him and the petitioner
remained subsisting. For, the relation of carrier and passenger does not necessarily
cease where the latter, after alighting from the car, aids the carrier's servant or
employee in removing his baggage from the car.
1
The issue to be determined here is
whether as to the child, who was already led by the father to a place about 5 meters
away from the bus, the liability of the carrier for her safety under the contract of
carriage also persisted.
It has been recognized as a rule that the relation of carrier and passenger does not
cease at the moment the passenger alights from the carrier's vehicle at a place selected
by the carrier at the point of destination, but continues until the passenger has had a
reasonable time or a reasonable opportunity to leave the carrier's premises. And, what is
a reasonable time or a reasonable delay within this rule is to be determined from all the
circumstances. Thus, a person who, after alighting from a train, walks along the station
platform is considered still a passenger.
2
So also, where a passenger has alighted at his
destination and is proceeding by the usual way to leave the company's premises, but
before actually doing so is halted by the report that his brother, a fellow passenger, has
been shot, and he in good faith and without intent of engaging in the difficulty, returns
to relieve his brother, he is deemed reasonably and necessarily delayed and thus
continues to be a passenger entitled as such to the protection of the railroad and
company and its agents.
3

In the present case, the father returned to the bus to get one of his baggages which was
not unloaded when they alighted from the bus. Raquel, the child that she was, must
have followed the father. However, although the father was still on the running board of
the bus awaiting for the conductor to hand him the bag or bayong, the bus started to
run, so that even he (the father) had to jump down from the moving vehicle. It was at
this instance that the child, who must be near the bus, was run over and killed. In the
circumstances, it cannot be claimed that the carrier's agent had exercised the "utmost
diligence" of a "very cautions person" required by Article 1755 of the Civil Code to be
observed by a common carrier in the discharge of its obligation to transport safely its
passengers. In the first place, the driver, although stopping the bus, nevertheless did
not put off the engine. Secondly, he started to run the bus even before the bus
conductor gave him the signal to go and while the latter was still unloading part of the
baggages of the passengers Mariano Beltran and family. The presence of said
passengers near the bus was not unreasonable and they are, therefore, to be considered
still as passengers of the carrier, entitled to the protection under their contract of
carriage.
But even assuming arguendo that the contract of carriage has already terminated,
herein petitioner can be held liable for the negligence of its driver, as ruled by the Court
of Appeals, pursuant to Article 2180 of the Civil Code. Paragraph 7 of the complaint,
which reads
That aside from the aforesaid breach of contract, the death of Raquel Beltran,
plaintiffs' daughter, was caused by the negligence and want of exercise of the
utmost diligence of a very cautious person on the part of the defendants and their
agent, necessary to transport plaintiffs and their daughter safely as far as human
care and foresight can provide in the operation of their vehicle.
is clearly an allegation for quasi-delict. The inclusion of this averment for quasi-delict,
while incompatible with the other claim under the contract of carriage, is permissible
under Section 2 of Rule 8 of the New Rules of Court, which allows a plaintiff to allege
causes of action in the alternative, be they compatible with each other or not, to the end
that the real matter in controversy may be resolved and determined.
4

The plaintiffs sufficiently pleaded the culpa or negligence upon which the claim was
predicated when it was alleged in the complaint that "the death of Raquel Beltran,
plaintiffs' daughter, was caused by the negligence and want of exercise of the utmost
diligence of a very cautious person on the part of the defendants and their agent." This
allegation was also proved when it was established during the trial that the driver, even
before receiving the proper signal from the conductor, and while there were still persons
on the running board of the bus and near it, started to run off the vehicle. The
presentation of proof of the negligence of its employee gave rise to the presumption that
the defendant employer did not exercise the diligence of a good father of the family in
the selection and supervision of its employees. And this presumption, as the Court of
Appeals found, petitioner had failed to overcome. Consequently, petitioner must be
adjudged peculiarily liable for the death of the child Raquel Beltran.
The increase of the award of damages from P3,000.00 to P6,000.00 by the Court of
Appeals, however, cannot be sustained. Generally, the appellate court can only pass
upon and consider questions or issues raised and argued in appellant's brief. Plaintiffs
did not appeal from that portion of the judgment of the trial court awarding them on
P3,000.00 damages for the death of their daughter. Neither does it appear that, as
appellees in the Court of Appeals, plaintiffs have pointed out in their brief the
inadequacy of the award, or that the inclusion of the figure P3,000.00 was merely a
clerical error, in order that the matter may be treated as an exception to the general
rule.
5
Herein petitioner's contention, therefore, that the Court of Appeals committed error
in raising the amount of the award for damages is, evidently, meritorious.1wph1.t
Wherefore, the decision of the Court of Appeals is hereby modified by sentencing, the
petitioner to pay to the respondents Mariano Beltran, et al., the sum of P3,000.00 for
the death of the child, Raquel Beltran, and the amount of P400.00 as actual damages.
No costs in this instance. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Bengzon, J.P., Zaldivar, Sanchez and
Castro, JJ., concur.
Makalintal, J., concurs in the result.