THIRD DIVISION

G.R. No. 85331 August 25, 1989

KAPALARAN BUS LINE, petitioner, vs.
ANGEL CORONADO, LOPE GRAJERA, DIONISIO SHINYO,
and THE COURT OF APPEALS, respondents,
FELICIANO, J.:
Petitioner Kapalaran Bus Line ("Kapalaran") seeks the reversal
or modification of the Court of Appeals' decision in CA G.R. CV
No. 12476 and the absolution of petitioner from all liability
arising from the collision between one of petitioner's buses and
a jeepney owned by respondent Coronado, driven by
respondent Grajera and in which jeepney respondent Shinyo
was a passenger.
The facts of this case as found by the trial court and adopted
by the Court of Appeals, are summarized in the trial court's
decision and quoted in the Court of Appeals' own judgment in
the following terms:
The accident happened on the National Highway at 10:30 A.M.
on August 2, 1982. The jeepney driven by Lope Grajera was
then corning from Pila, Laguna on its way towards the
direction of Sta. Cruz, traversing the old highway. As it reached
the intersection where there is a traffic sign 'yield,' it stopped
and cautiously treated the intersection as a "Thru Stop' street,
which it is not. The KBL bus was on its way from Sta. Cruz,
Laguna, driven by its regular driver Virgilio Llamoso, on its way
towards Manila. The regular itinerary of the KBL bus is
through the town proper of Pila, Laguna, but at times it avoids
this if a bus is already fully loaded with passengers and can no
longer accommodate additional passengers. As the KBL bus
neared the intersection, Virgilio Llamoso inquired from his
conductor if they could still accommodate passengers and
learning that they were already full, he decided to bypass Pila

and instead, to proceed along the national highway. Virgilio

Llamoso admitted that there was another motor vehicle ahead
of him.
The general rule is that the vehicle on the national highway
has the right-of-way as against a feeder road. Another general
rule is that the vehicle coming from the right has the right-ofway over the vehicle coming from the left. The general rules on
right-of-way may be invoked only if both vehicles approach the
intersection at almost the same time. In the case at bar, both
roads are national roads. Also, the KBL bus was still far from
the intersection when the jeepney reached the same. As
testified to by Atty. Conrado L. Manicad who was driving a
Mustang car coming from the direction of Sta. Cruz and
proceeding towards the direction of Manila, he stopped at the
intersection to give way to the jeepney driven by Grajera.
Behind Manicad were two vehicles, a car of his client and
another car. A Laguna Transit bus had just entered the town of
Pila ahead of Atty. Manicad.
The sketch marked Exhibit 'E' indicates very clearly that the
jeepney had already traversed the intersection when it met the
KBL bus head-on. It is also obvious that the point of impact
was on the right lane of the highway which is the lane properly
belonging to the jeepney. As testified to by Lope Grajera, the
KBL bus ignored the stopped vehicles of Atty. Manicad and the
other vehicles behind Atty. Manicad and overtook both vehicles
at the intersection, therefore, causing the accident.
Judging from the testimony of Atty. Conrado L. Manicad and
the sketch (Exhibit 'E'), the sequence of events shows that the
first vehicle to arrive at the intersection was the jeepney. Seeing
that the road was clear, the jeepney which had stopped at the
intersection began to move forward, and for his part, Atty.
Manicad stopped his car at the intersection to give way to the
jeepney. At about this time, the KBL bus was approaching the
intersection and its driver was engaged in determining from his

conductor if they would still pass through the town proper of

Pila. Upon learning that they were already full, he turned his
attention to the road and found the stopped vehicles at the
intersection with the jeepney trying to cross the intersection.
The KBL bus had no more room within which to stop without
slamming into the rear of the vehicle behind the car of Atty.
Manicad. The KBL driver chose to gamble on proceeding on its
way, unfortunately, the jeepney driven by Grajera, which had
the right-of-way, was about to cross the center of the highway
and was directly on the path of the KBL bus. The gamble made
by Llamoso did not pay off. The impact indicates that the KBL
bus was travelling at a fast rate of speed because, after the
collision, it did not stop; it travelled for another 50 meters and
stopped only when it hit an electric post (pp. 3-4, Decision; pp.
166167, Record). 1
On 14 September 1982, Kapalaran, apparently believing that
the best defense was offense, filed a complaint for damage to
property and physical injuries through reckless imprudence
against respondents Angel Coronado and Lope Grajera in the
Regional Trial Court, Branch 27, Sta. Cruz, Laguna.
Respondents answered with their own claims (counter-claims)
for damages. A third-party complaint and/or a complaint for
intervention was also filed in the same case against Kapalaran
by jeepney passenger Dionisio Shinyo.
On 15 October 1986, after trial, the trial court rendered a
judgment in favor of private respondents and ordering
Kapalaran
(a) to pay Angel Coronado the sum of P40,000.00 as
compensation for the totally wrecked jeepney, plus the sum of
P5,000.00 as attorney's fees and litigation expenses, and
(b) to Dionisio Shinyo the sum of P35,000.00 representing the
expenses incurred by said intervenor for his treatment
including his car-hire, the further sum of P30,000.00

representing the expenses said defendant will incur for his

second operation to remove the intramedulary nail from his
femur, the additional sum of P50,000.00 to serve as moral
damages for the pain and suffering inflicted on said defendant,
plus the sum of P10,000.00 in the concept of exemplary
damages to serve as a deterrent to others who, like the
plaintiff, may be minded to induce accident victims to perjure
themselves in a sworn statement, and the sum of P15,000.00
as attorney's fees and litigation expenses.
From the above judgment, Kapalaran appealed to the Court of
Appeals assailing the trial court's findings on the issue of fault
and the award of damages. The Court of Appeals, on 28 June
1988, affirmed the decision of the trial court but modified the
award of damages by setting aside the grant of exemplary
damages as well as the award of attomey's fee and litigation
expenses made to Dionisio Shinyo. 2
This decision of the Court of Appeals is now before us on a
Petition for Review, a motion for reconsideration by Kapalaran
having been denied by that court on 13 October 1988.
Kapalaran assails the findings of fact of the Regional Trial
Court and of the Court of Appeals, and insists before this
Court that respondent Grajera, driver of the jeepney, was at
fault and not the driver of Kapalaran's bus. It must be
remembered that it is not the function of this Court to analyze
and weigh evidence presented by the parties all over again and
that our jurisdiction is in principle limited to reviewing errors
of law that might have been committed by the Court of
Appeals. Kapalaran has made no compelling showing of any
misapprehension of facts on the part of the Court of Appeals
that would require us to review and overturn the factual
findings of that court. On the contrary, examination of the
record shows that not only are the conclusions of fact of the
Court of Appeals and the trial court on who the bus driver
or the jeepney driver had acted negligently and was at fault

in the collision of their vehicles, amply supported by the

evidence of record, but also that Kapalaran's bus driver was
grossly negligent and had acted wantonly and in obvious
disregard of the applicable rules on safety on the highway.

visible, and is free of oncoming traffic for a sufficient distance

ahead to permit such overtaking or passing to be made in safety.

Kapalaran's driver had become aware that some vehicles ahead

of the bus and travelling in the same direction had already
stopped at the intersection obviously to give way either to
pedestrians or to another vehicle about to enter the
intersection. The bus driver, who was driving at a speed too
high to be safe and proper at or near an intersection on the
highway, and in any case too high to be able to slow down and
stop behind the cars which had preceded it and which had
stopped at the intersection, chose to swerve to the left lane and
overtake such preceding vehicles, entered the intersection and
directly smashed into the jeepney within the intersection.
Immediately before the collision, the bus driver was actually
violating the following traffic rules and regulations, among
others, in the Land Transportation and Traffic Code, Republic
Act No. 4136, as amended:

(c) The driver of a vehicle shall not overtake or pass any other
vehicle proceeding in the same direction, at any railway grade
crossing, or at any intersection of highways, unless such
intersection or crossing is controlled by traffic signal, or unless
permitted to do so by a watchman or a peace officer, except on a
highway having two or more lanes for movement of traffic in
one direction where the driver of a vehicle may overtake or pass
another vehicle on the right. Nothing in this section shall be
construed to prohibit a driver overtaking or passing, upon the
right, another vehicle which is making or about to make a left
turn.

Sec. 35. Restriction as to speed. (a) Any person driving a

motor vehicle on a highway shall drive the same at a careful
and prudent speed, not greater nor less than is reasonable and
proper, having due regard for the traffic, the width of the
highway, and or any other condition then and there existing;
and no person shall drive any motor vehicle upon a highway at
such a speed as to endanger the life, limb and property of any
person, nor at a speed greater than will permit him to bring the
vehicle to a stop within the assured clear distance ahead.
xxx xxx xxx
Sec. 41. Restrictions on overtaking and passing. _1 (a) The
driver of a vehicle shall not drive to the left side of the center line
of a highway in overtaking or passing another vehicle,
proceeding in the same direction, unless such left side is clearly

xxx xxx xxx

xxx xxx xxx

(Emphasis supplied)
Thus, a legal presumption arose that the bus driver was
negligent 3 a presumption Kapalaran was unable to overthrow.
Petitioner's contention that the jeepney should have stopped
before entering the "Y-intersection" because of the possibility
that another vehicle behind the cars which had stopped might
not similarly stop and might swerve to the left to proceed to the
highway en route to Manila, is more ingenious than
substantial. It also offers illustration of the familiar litigation
tactic of shifting blame from one's own shoulders to those of
the other party. But the jeepney driver, seeing the cars closest
to the intersection on the opposite side of the highway come to
a stop to give way to him, had the right to assume that other
vehicles further away and behind the stopped cars would
similarly come to a stop and not seek illegally to overtake the
stopped vehicles and come careening into the intersection at an
unsafe speed. 4 Petitioner's bus was still relatively far away

from the intersection when the jeepney entered the same; the
bus collided head on into the jeepney because the bus had
been going at an excessively high velocity immediately before
and at the time of overtaking the stopped cars, and so caught
the jeepney within the intersection. It was also the
responsibility of the bus driver to see to it, when it overtook the
two (2) cars ahead which had stopped at the intersection, that
the left lane of the road within the intersection and beyond was
clear. The point of impact was on the left side of the
intersection (the light lane so far as concerns the jeepney
coming from the opposite side), which was precisely the lane or
side on which the jeepney had a right to be.
Petitioner Kapalaran also assails the award of moral damages
against itself, upon the ground that its own bus driver, thirdparty defendant, was apparently not held liable by the trial
court . 5 Hence, Kapalaran argues that there was no
justification for holding it, the employer, liable for damages,
considering that such liability was premised upon the bus
driver's negligence and that petitioner "as mere employer" was
not guilty of such negligence or imprudence. 6 This contention
in thoroughly unpersuasive. The patent and gross negligence
on the part of the petitioner Kapalaran's driver raised the legal
presumption that Kapalaran as employer was guilty of
negligence either in the selection or in the supervision of its
bus driver, 7 Where the employer is held liable for damages, it
has of course a right of recourse against its own negligent
employee. If petitioner Kapalaran was interested in maintaining
its right of recourse against or reimbursement from its own
driver, 8 it should have appealled from that portion of the trial
court's decision which had failed to hold the bus driver is not
"merely subsidiary," and is not limited to cases where the
employee "cannot pay his liability" nor are private respondents
compelled frist to proceed against the bus driver. The liability of
the employer under Article 2180 of the Civil Code is direct and
immediate; it is not conditioned upon prior recourse against

the negligent employee and a prior showing of the insolvency of

such employee. 9 So far as the record shows, petitioner
Kapalaran was unable to rebut the presumption of negligence
on its own part. The award of moral damages against petitioner
Kapalaran is not only entirely in order; it is also quite modest
consideirng Dionisio Shinyo's death during the pendency of
this petition, a death hastened by, if not directly due to, the
grievous injuries sustained by him in the violent collision.
The Court of Appeals deleted the award of exemplary damages which
the trial court had granted in order "to serve as a deterrent to others
who, like the plaintiff [Kapalaran], may be minded to induce accident
victims to perjure themselves in a sworn statement." The Court of
Appeals held that htere was no basis for this award of exemplary
damages, stating that it was not "such a reprehensible act to try to
gather witnesses for one's cause" and that there was no evidence of
use of "presure or influence" to induce the accident victims to perjure
themselves While that might have been so, both the trial court and
the Court of Appeals overlook another and far more compelling basis
for the award of exemplary damages against petitioner Kapalaran in
this case. There is no question that petitioner's bus driver was
grossly and very probably criminally negligent in his reckless
disregard of the rights of other vehicles and their pasangers and of
pedestrian as well The Court is entitled to take judicial notice of the
gross negligence and the appalling disregard of the physical safety
and property of others so commonly exhibited today by the drivers of
passanger bussses and similar vehicles on our highways. The law
requires petitioner as common carrier to exercise extraordinary
diligence incarrying and transporting their passanger safely "as far
as human care and foresight can proved, using the utmost diligence of
very cautious persons, with due regard for all circumstances." 10 In
requiring the highest possible degree of diligence from common
carriers and creating a presumption of negligence against them, the
law compels them to curb the recklessness of their drivers. 11 While
the immediate beneficiaries of the standard of extraordinary diligence
are, of course, the passengers and owners of cargo carried by a
common carrier, they are not only persons that the law seeks to
benefit. For if common carriers carefully observed the statutory
standard of extraordinary diligence in respect of of their own

passengers, they cannot help but simultaneously benefit pedestrians

and the owners and passengers of other vehicles who are equally
entitled to the safe and convenient use of our roads and
highways. 12 The law seeks to stop and prevent the slaughter and
maiming of people (whether passengers or not) and the destruction of
property (whether freight or not) on our highways by buses, the very
size and power of which seem often to inflame the minds of their
drivers. Article 2231 of the Civil Code explicitly authorizes the
imposition of exemplary damages in cases of quasi-delicts "if the
defendant acted with gross negligence." Thus we believe that the
award of exemplary damages by the trial court was quite proper,
although granted for the wrong reason, and should not only be
restored but augmented in the present case. The Court is aware that
respondent Shinyo did not file a separate petition for review to set
aside that portion of the Court of Appeals'decision which deleted the
grant by the trial court of exemplary damages. It is settled, however,
that issues which must be resolved if substantial justice is to be
rendered to the parties, may and should be considered and decided
by this Court even if those issues had not been explicitly raised by
the party affected. 13 In the instant case, it is not only the demands of
substantial justice but also the compelling considerations of public
policy noted above, which impel us to the conclusion that the trial
court's award of exemplary damages was erroneously deleted and
must be restored and brought more nearly to the level which public
policy and substantial justice require.
In much the same vein, we believe that the award by the trial court of
P15,000.00 as attorney's fees and litigation expenses, deleted by the
Court of Appeals, should similarly be restored, being both authorized
by law 14 and demanded by substantial justice in the instant case.
WHEREFORE, the Petition for Review on certiorari is DENIED for
lack of merit and the Decision of the Court of Appeals is hereby
AFFIRMED, except (1) that the award of exemplary damages to
Dionisio Shinyo shall be restored and increased from P10,000.00 to
P25,000.00, and (2) that the grant of attorney's fees and litigation
expenses in the sum of P15,000.00 to Dionisio Shinyo shall similarly
be restored. Costs against petitioner.
SO ORDERED.

THIRD DIVISION
G.R. No. 168402

August 6, 2008

ABOITIZ SHIPPING CORPORATION, petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the
insurer of the insurance claims by the assured. As subrogee,
the insurer steps into the shoes of the assured and may
exercise only those rights that the assured may have against
the wrongdoer who caused the damage.
Before Us is a petition for review on certiorari of the Decision1 of
the Court of Appeals (CA) which reversed the Decision2 of the
Regional Trial Court (RTC). The CA ordered petitioner Aboitiz
Shipping Corporation to pay the sum of P280,176.92 plus
interest and attorney's fees in favor of respondent Insurance
Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or
Associated and/or Subsidiary Companies (MSAS) procured a
marine insurance policy from respondent ICNA UK Limited of
London. The insurance was for a transshipment of certain
wooden work tools and workbenches purchased for the
consignee Science Teaching Improvement Project (STIP),
Ecotech Center, Sudlon Lahug, Cebu City, Philippines.3 ICNA
issued an "all-risk" open marine policy,4 stating:

This Company, in consideration of a premium as agreed and

subject to the terms and conditions printed hereon, does
insure for MSAS Cargo International Limited &/or Associated
&/or Subsidiary Companies on behalf of the title holder: Loss, if any, payable to the Assured or order.5
The cargo, packed inside one container van, was shipped
"freight prepaid" from Hamburg, Germany on board M/S
Katsuragi. A clean bill of lading6 was issued by Hapag-Lloyd
which stated the consignee to be STIP, Ecotech Center, Sudlon
Lahug, Cebu City.
The container van was then off-loaded at Singapore and
transshipped on board M/S Vigour Singapore. On July 18,
1993, the ship arrived and docked at the Manila International
Container Port where the container van was again off-loaded.
On July 26, 1993, the cargo was received by petitioner Aboitiz
Shipping Corporation (Aboitiz) through its duly authorized
booking representative, Aboitiz Transport System. The bill of
lading7 issued by Aboitiz contained the notation "grounded
outside warehouse."
The container van was stripped and transferred to another
crate/container van without any notation on the condition of
the cargo on the Stuffing/Stripping Report.8 On August 1,
1993, the container van was loaded on board petitioner's
vessel, MV Super Concarrier I. The vessel left Manila en
route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and
discharged onto a receiving apron of the Cebu International
Port. It was then brought to the Cebu Bonded Warehousing
Corporation pending clearance from the Customs authorities.
In the Stripping Report9 dated August 5, 1993, petitioner's
checker noted that the crates were slightly broken or cracked at
the bottom.

On August 11, 1993, the cargo was withdrawn by the

representative of the consignee, Science Teaching Improvement
Project (STIP) and delivered to Don Bosco Technical High
School, Punta Princesa, Cebu City. It was received by Mr.
Bernhard Willig. On August 13, 1993, Mayo B. Perez, then
Claims Head of petitioner, received a telephone call from Willig
informing him that the cargo sustained water damage. Perez,
upon receiving the call, immediately went to the bonded
warehouse and checked the condition of the container and
other cargoes stuffed in the same container. He found that the
container van and other cargoes stuffed there were completely
dry and showed no sign of wetness.10
Perez found that except for the bottom of the crate which was
slightly broken, the crate itself appeared to be completely dry
and had no water marks. But he confirmed that the tools
which were stored inside the crate were already corroded. He
further explained that the "grounded outside warehouse"
notation in the bill of lading referred only to the container van
bearing the cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the
damage noticed upon opening of the cargo.12 The letter stated
that the crate was broken at its bottom part such that the
contents were exposed. The work tools and workbenches were
found to have been completely soaked in water with most of the
packing cartons already disintegrating. The crate was properly
sealed off from the inside with tarpaper sheets. On the outside,
galvanized metal bands were nailed onto all the edges. The
letter concluded that apparently, the damage was caused by
water entering through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for
insurance claims. On August 21, 1993, the Claimsmen
Adjustment Corporation (CAC) conducted an ocular inspection
and survey of the damage. CAC reported to ICNA that the

goods sustained water damage, molds, and corrosion which

were discovered upon delivery to consignee.13
On September 21, 1993, the consignee filed a formal
claim14 with Aboitiz in the amount of P276,540.00 for the
damaged condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC
reported to ICNA that based on official weather report from the
Philippine Atmospheric, Geophysical and Astronomical
Services Administration, it would appear that heavy rains on
July 28 and 29, 1993 caused water damage to the shipment.
CAC noted that the shipment was placed outside the
warehouse of Pier No. 4, North Harbor, Manila when it was
delivered on July 26, 1993. The shipment was placed outside
the warehouse as can be gleaned from the bill of lading issued
by Aboitiz which contained the notation "grounded outside
warehouse." It was only on July 31, 1993 when the shipment
was stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA
paid the amount of P280,176.92 to consignee. A subrogation
receipt was duly signed by Willig. ICNA formally advised Aboitiz
of the claim and subrogation receipt executed in its favor.
Despite follow-ups, however, no reply was received from Aboitiz.
RTC Disposition

ICNA filed a civil complaint against Aboitiz for collection of

actual damages in the sum of P280,176.92, plus interest and
attorney's fees.16 ICNA alleged that the damage sustained by
the shipment was exclusively and solely brought about by the
fault and negligence of Aboitiz when the shipment was left
grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had
no factual and legal bases. It countered that the complaint
stated no cause of action, plaintiff ICNA had no personality to
institute the suit, the cause of action was barred, and the suit
was premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against
ICNA. The dispositive portion of the decision17 states:
WHEREFORE, premises considered, the court holds that
plaintiff is not entitled to the relief claimed in the complaint for
being baseless and without merit. The complaint is hereby
DISMISSED. The defendant's counterclaims are, likewise,
DISMISSED for lack of basis.18
The RTC ruled that ICNA failed to prove that it is the real
party-in-interest to pursue the claim against Aboitiz. The trial
court noted that Marine Policy No. 87GB 4475 was issued by
ICNA UK Limited with address at Cigna House, 8 Lime Street,
London EC3M 7NA. However, complainant ICNA Phils. did not
present any evidence to show that ICNA UK is its predecessorin-interest, or that ICNA UK assigned the insurance policy to
ICNA Phils. Moreover, ICNA Phils.' claim that it had been
subrogated to the rights of the consignee must fail because the
subrogation receipt had no probative value for being hearsay
evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued
by Insurance Company of North America (U.K.) Limited (ICNA
UK) with address at Cigna House, 8 Lime Street, London EC3M
7NA, no evidence has been adduced which would show that

ICNA UK is the same as or the predecessor-in-interest of plaintif

Insurance Company of North America ICNA with office address
at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi
Village, Makati, Metro Manila or that ICNA UK assigned the
Marine Policy to ICNA. Second, the assured in the Marine
Policy appears to be MSAS Cargo International Limited &/or
Associated &/or Subsidiary Companies. Plaintiff's witness,
Francisco B. Francisco, claims that the signature below the
name MSAS Cargo International is an endorsement of the
marine policy in favor of Science Teaching Improvement
Project. Plaintif's witness, however, failed to identify whose
signature it was and plaintif did not present on the witness
stand or took (sic) the deposition of the person who made that
signature. Hence, the claim that there was an endorsement of
the marine policy has no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the
rights and interest of Science Teaching Improvement Project as
shown by the Subrogation Form (Exhibit "K") allegedly signed
by a representative of Science Teaching Improvement Project.
Such representative, however, was not presented on the
witness stand. Hence, the Subrogation Form is self-serving and
has no probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence
that it was a foreign corporation duly licensed to do business
in the Philippines. Thus, it lacked the capacity to sue before
Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its
complaint that it is a foreign insurance company duly
authorized to do business in the Philippines. This
allegation was, however, denied by the defendant. In fact, in the
Pre-Trial Order of 12 March 1996, one of the issues defined by
the court is whether or not the plaintiff has legal capacity to
sue and be sued. Under Philippine law, the condition is that a
foreign insurance company must obtain licenses/authority to do

business in the Philippines. These licenses/authority are

obtained from the Securities and Exchange Commission, the
Board of Investments and the Insurance Commission. If it fails to
obtain these licenses/authority, such foreign corporation doing
business in the Philippines cannot sue before Philippine courts.
Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis
supplied)
CA Disposition
ICNA appealed to the CA. It contended that the trial court
failed to consider that its cause of action is anchored on the
right of subrogation under Article 2207 of the Civil Code. ICNA
said it is one and the same as the ICNA UK Limited as made
known in the dorsal portion of the Open Policy.20
On the other hand, Aboitiz reiterated that ICNA lacked a cause
of action. It argued that the formal claim was not filed within
the period required under Article 366 of the Code of
Commerce; that ICNA had no right of subrogation because the
subrogation receipt should have been signed by MSAS, the
assured in the open policy, and not Willig, who is merely the
representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC
ruling, disposing as follows:
WHEREFORE, premises considered, the present appeal is
hereby GRANTED. The appealed decision of the Regional Trial
Court of Makati City in Civil Case No. 94-1590 is hereby
REVERSED and SET ASIDE. A new judgment is hereby
rendered ordering defendant-appellee Aboitiz Shipping
Corporation to pay the plaintiff-appellant Insurance Company
of North America the sum of P280,176.92 with interest thereon
at the legal rate from the date of the institution of this case
until fully paid, and attorney's fees in the sum of P50,000, plus
the costs of suit.21

The CA opined that the right of subrogation accrues simply

upon payment by the insurance company of the insurance
claim. As subrogee, ICNA is entitled to reimbursement from
Aboitiz, even assuming that it is an unlicensed foreign
corporation. The CA ruled:

CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL

CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD
PRESCRIBED BY ARTICLE 366 OF THE CODE OF
COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE
BY A WRONG CLAIMANT.

At any rate, We find the ground invoked for the dismissal of the
complaint as legally untenable. Even assuming arguendo that
the plaintiff-insurer in this case is an unlicensed foreign
corporation, such circumstance will not bar it from claiming
reimbursement from the defendant carrier by virtue of
subrogation under the contract of insurance and as recognized
by Philippine courts. x x x

(2) THE HONORABLE COURT OF APPEALS COMMITTED A

REVERSIBLE ERROR IN RULING THAT THE SUIT FOR
REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED
BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF
THE INSURANCE COMPANY OF NORTH AMERICA (U.K.)
("ICNA UK").

xxxx
Plaintiff insurer, whether the foreign company or its duly
authorized Agent/Representative in the country, as subrogee of
the claim of the insured under the subject marine policy, is
therefore the real party in interest to bring this suit and
recover the full amount of loss of the subject cargo shipped by
it from Manila to the consignee in Cebu City. x x x22
The CA ruled that the presumption that the carrier was at fault
or that it acted negligently was not overcome by any
countervailing evidence. Hence, the trial court erred in
dismissing the complaint and in not finding that based on the
evidence on record and relevant provisions of law, Aboitiz is
liable for the loss or damage sustained by the subject cargo.
Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE
OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF
SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE

(3) THE HONORABLE COURT OF APPEALS COMMITTED A

REVERSIBLE ERROR IN RULING THAT THERE WAS PROPER
INDORSEMENT OF THE INSURANCE POLICY FROM THE
ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED
("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE
SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA
IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO
PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELFSERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A
REPRESENTATIVE OF STIP TO IDENTIFY AND
AUTHENTICATE THE SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT THE EXTENT AND
KIND OF DAMAGE SUSTAINED BY THE SUBJECT
CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF
ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central
questions: (a) Is respondent ICNA the real party-in-interest that
possesses the right of subrogation to claim reimbursement
from petitioner Aboitiz? (b) Was there a timely filing of the
notice of claim as required under Article 366 of the Code of
Commerce? (c) If so, can petitioner be held liable on the claim
for damages?

Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the
Philippines is not absolutely incapacitated from filing a
suit in local courts. Only when that foreign corporation is
"transacting" or "doing business" in the country will a license
be necessary before it can institute suits.24 It may, however,
bring suits on isolated business transactions, which is not
prohibited under Philippine law.25Thus, this Court has held
that a foreign insurance company may sue in Philippine courts
upon the marine insurance policies issued by it abroad to
cover international-bound cargoes shipped by a Philippine
carrier, even if it has no license to do business in this country.
It is the act of engaging in business without the prescribed
license, and not the lack of license per se, which bars a foreign
corporation from access to our courts.26
In any case, We uphold the CA observation that while it was
the ICNA UK Limited which issued the subject marine policy,
the present suit was filed by the said company's authorized
agent in Manila. It was the domestic corporation that brought
the suit and not the foreign company. Its authority is expressly
provided for in the open policy which includes the ICNA office
in the Philippines as one of the foreign company's agents.
As found by the CA, the RTC erred when it ruled that there
was no proper indorsement of the insurance policy by MSAS,
the shipper, in favor of STIP of Don Bosco Technical High
School, the consignee.
The terms of the Open Policy authorize the filing of any claim
on the insured goods, to be brought against ICNA UK, the
company who issued the insurance, or against any of its listed
agents worldwide.27 MSAS accepted said provision when it
signed and accepted the policy. The acceptance operated as an

acceptance of the authority of the agents. Hence, a formal

indorsement of the policy to the agent in the Philippines was
unnecessary for the latter to exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and
subject to the terms and conditions printed hereon, does
insure MSAS Cargo International Limited &/or Associates &/or
Subsidiary Companies in behalf of the title holder: - Loss, if
any, payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder,
including the consignee, who may file claims on behalf of the
assured. This is in keeping with Section 57 of the Insurance
Code which states:
A policy may be so framed that it will inure to the benefit of
whosoever, during the continuance of the risk, may become
the owner of the interest insured. (Emphasis added)
Respondent's cause of action is founded on it being
subrogated to the rights of the consignee of the damaged
shipment. The right of subrogation springs from Article 2207
of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and
he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance
Corporation v. Court of Appeals,28 payment by the insurer to the

assured operates as an equitable assignment of all remedies

the assured may have against the third party who caused the
damage. Subrogation is not dependent upon, nor does it grow
out of, any privity of contract or upon written assignment of
claim. It accrues simply upon payment of the insurance claim
by the insurer.29
Upon payment to the consignee of indemnity for damage to the
insured goods, ICNA's entitlement to subrogation equipped it
with a cause of action against petitioner in case of a
contractual breach or negligence.30 This right of subrogation,
however, has its limitations. First, both the insurer and the
consignee are bound by the contractual stipulations under the
bill of lading.31 Second, the insurer can be subrogated only to
the rights as the insured may have against the wrongdoer. If by
its own acts after receiving payment from the insurer, the
insured releases the wrongdoer who caused the loss from
liability, the insurer loses its claim against the latter.32
The giving of notice of loss or injury is a condition
precedent to the action for loss or injury or the right to
enforce the carrier's liability. Circumstances peculiar to
this case lead Us to conclude that the notice requirement
was complied with. As held in the case of Philippine American
General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice
requirement protects the carrier by affording it an opportunity
to make an investigation of the claim while the matter is still
fresh and easily investigated. It is meant to safeguard the
carrier from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be
made within twenty four (24) hours from receipt of the cargo if
the damage is not apparent from the outside of the package.
For damages that are visible from the outside of the package,
the claim must be made immediately. The law provides:

Article 366. Within twenty four hours following the receipt of the
merchandise, the claim against the carrier for damages or
average which may be found therein upon opening the
packages, may be made, provided that the indications of the
damage or average which give rise to the claim cannot be
ascertained from the outside part of such packages, in which
case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the
transportation charges have been paid, no claim shall be
admitted against the carrier with regard to the condition in
which the goods transported were delivered. (Emphasis
supplied)
The periods above, as well as the manner of giving notice may
be modified in the terms of the bill of lading, which is the
contract between the parties. Notably, neither of the parties in
this case presented the terms for giving notices of claim under
the bill of lading issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the
letter informing the carrier of the damage was dated August
15, 1993, that letter, together with the notice of claim, was
received by petitioner only on September 21, 1993. But
petitioner admits that even before it received the written notice
of claim, Mr. Mayo B. Perez, Claims Head of the company, was
informed by telephone sometime in August 13, 1993. Mr. Perez
then immediately went to the warehouse and to the delivery
site to inspect the goods in behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v.
Chemoil Lighterage Corporation,35the notice was allegedly made
by the consignee through telephone. The claim for damages
was denied. This Court ruled that such a notice did not comply
with the notice requirement under the law. There was no
evidence presented that the notice was timely given. Neither

was there evidence presented that the notice was relayed to the
responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the
instant case that constrain Us to rule differently from the PCIC
case, albeit this ruling is being made pro hac vice, not to be
made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a
condition precedent to the right of recovery from a carrier must
be given a reasonable and practical construction, adapted to
the circumstances of the case under adjudication, and their
application is limited to cases falling fairly within their object
and purpose.36
Bernhard Willig, the representative of consignee who received
the shipment, relayed the information that the delivered goods
were discovered to have sustained water damage to no less
than the Claims Head of petitioner, Mayo B. Perez.
Immediately, Perez was able to investigate the claims himself
and he confirmed that the goods were, indeed, already
corroded.
Provisions specifying a time to give notice of damage to
common carriers are ordinarily to be given a reasonable and
practical, rather than a strict construction.37 We give due
consideration to the fact that the final destination of the
damaged cargo was a school institution where authorities are
bound by rules and regulations governing their actions.
Understandably, when the goods were delivered, the necessary
clearance had to be made before the package was opened.
Upon opening and discovery of the damaged condition of the
goods, a report to this effect had to pass through the proper
channels before it could be finalized and endorsed by the
institution to the claims department of the shipping company.
The call to petitioner was made two days from delivery, a
reasonable period considering that the goods could not have

corroded instantly overnight such that it could only have

sustained the damage during transit. Moreover, petitioner was
able to immediately inspect the damage while the matter was
still fresh. In so doing, the main objective of the prescribed
time period was fulfilled. Thus, there was substantial
compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of
the consignee, is the real party in interest to institute the claim
for damages against petitioner; and pro hac vice, that a valid
notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained
by the shipment. The rule as stated in Article 1735 of the
Civil Code is that in cases where the goods are lost,
destroyed or deteriorated, common carriers are presumed
to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence
required by law.38 Extraordinary diligence is that extreme
measure of care and caution which persons of unusual
prudence and circumspection use for securing and preserving
their own property rights.39 This standard is intended to grant
favor to the shipper who is at the mercy of the common carrier
once the goods have been entrusted to the latter for
shipment.40
Here, the shipment delivered to the consignee sustained water
damage. We agree with the findings of the CA that petitioner
failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco
Technical High School by a representative from Trabajo
Arrastre, and the crates opened, it was discovered that the
workbenches and work tools suffered damage due to "wettage"
although by then they were already physically dry. Appellee
carrier having failed to discharge the burden of proving that it
exercised extraordinary diligence in the vigilance over such

goods it contracted for carriage, the presumption of fault or

negligence on its part from the time the goods were
unconditionally placed in its possession (July 26, 1993) up to
the time the same were delivered to the consignee (August 11,
1993), therefore stands. The presumption that the carrier was
at fault or that it acted negligently was not overcome by any
countervailing evidence. x x x41 (Emphasis added)
The shipment arrived in the port of Manila and was received by
petitioner for carriage on July 26, 1993. On the same day, it
was stripped from the container van. Five days later, on July
31, 1993, it was re-stuffed inside another container van. On
August 1, 1993, it was loaded onto another vessel bound for
Cebu. During the period between July 26 to 31, 1993, the
shipment was outside a container van and kept in storage by
petitioner.
The bill of lading issued by petitioner on July 31, 1993
contains the notation "grounded outside warehouse,"
suggesting that from July 26 to 31, the goods were kept outside
the warehouse. And since evidence showed that rain fell over
Manila during the same period, We can conclude that this was
when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must
do more than merely show the possibility that some other
party could be responsible for the damage. It must prove that it
used "all reasonable means to ascertain the nature and
characteristic of the goods tendered for transport and that it
exercised due care in handling them.42 Extraordinary diligence
must include safeguarding the shipment from damage coming
from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse"
notation referred not to the crate for shipment but only to the
carrier van, petitioner failed to mention where exactly the
goods were stored during the period in question. It failed to

show that the crate was properly stored indoors during the
time when it exercised custody before shipment to Cebu. As
amply explained by the CA:
On the other hand, the supplemental report submitted by the
surveyor has confirmed that it was rainwater that seeped into
the cargo based on official data from the PAGASA that there
was, indeed, rainfall in the Port Area of Manila from July 26 to
31, 1993. The Surveyor specifically noted that the subject
cargo was under the custody of appellee carrier from the time
it was delivered by the shipper on July 26, 1993 until it was
stuffed inside Container No. ACCU-213798-4 on July 31,
1993. No other inevitable conclusion can be deduced from the
foregoing established facts that damage from "wettage" sufered
by the subject cargo was caused by the negligence of appellee
carrier in grounding the shipment outside causing rainwater to
seep into the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility
for causing "wettage" to the subject goods by claiming that the
notation "GROUNDED OUTSIDE WHSE." actually refers to the
container and not the contents thereof or the cargoes. And yet it
presented no evidence to explain where did they place or store
the subject goods from the time it accepted the same for
shipment on July 26, 1993 up to the time the goods were
stripped or transferred from the container van to another
container and loaded into the vessel M/V Supercon Carrier I on
August 1, 1993 and left Manila for Cebu City on August 2, 1993.
x x x If the subject cargo was not grounded outside prior to
shipment to Cebu City, appellee provided no explanation as to
where said cargo was stored from July 26, 1993 to July 31,
1993. What the records showed is that the subject cargo was
stripped from the container van of the shipper and transferred
to the container on August 1, 1993 and finally loaded into the
appellee's vessel bound for Cebu City on August 2, 1993. The
Stuffing/Stripping Report (Exhibit "D") at the Manila port did
not indicate any such defect or damage, but when the

container was stripped upon arrival in Cebu City port after

being discharged from appellee's vessel, it was noted that only
one (1) slab was slightly broken at the bottom allegedly hit by a
forklift blade (Exhibit "F").43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the
goods due to its failure to satisfactorily prove that it exercised
the extraordinary diligence required of common carriers.

SECOND DIVISION

WHEREFORE, the petition is DENIED and the appealed

Decision AFFIRMED.

WILLIAM TIU, doing business under the name and style of

"D Rough Riders," and VIRGILIO TE LAS PIASpetitioners,
vs.
PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO
PEDRANO and PHILIPPINE PHOENIX SURETY AND
INSURANCE, INC., respondents.

SO ORDERED.

G.R. No. 138060

September 1, 2004

DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court from the Decision1 of the Court of Appeals in
CA-G.R. CV No. 54354 affirming with modification the
Decision2 of the Regional Trial Court, 7th Judicial Region,
Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of
contract of carriage, damages and attorneys fees, and the
Resolution dated February 26, 1999 denying the motion for
reconsideration thereof.
The following facts are undisputed:
At about 10:00 p.m. of March 15, 1987, the cargo truck
marked "Condor Hollow Blocks and General Merchandise"
bearing plate number GBP-675 was loaded with firewood in
Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies,
Poblacion, Compostela, Cebu, just as the truck passed over a
bridge, one of its rear tires exploded. The driver, Sergio
Pedrano, then parked along the right side of the national

highway and removed the damaged tire to have it vulcanized at

a nearby shop, about 700 meters away.3Pedrano left his helper,
Jose Mitante, Jr. to keep watch over the stalled vehicle, and
instructed the latter to place a spare tire six fathoms
away4 behind the stalled truck to serve as a warning for
oncoming vehicles. The trucks tail lights were also left on. It
was about 12:00 a.m., March 16, 1987.
At about 4:45 a.m., D Rough Riders passenger bus with plate
number PBP-724 driven by Virgilio Te Laspias was cruising
along the national highway of Sitio Aggies, Poblacion,
Compostela, Cebu. The passenger bus was also bound for
Cebu City, and had come from Maya, Daanbantayan, Cebu.
Among its passengers were the Spouses Pedro A. Arriesgado
and Felisa Pepito Arriesgado, who were seated at the right side
of the bus, about three (3) or four (4) places from the front seat.
As the bus was approaching the bridge, Laspias saw the
stalled truck, which was then about 25 meters away.5He
applied the breaks and tried to swerve to the left to avoid
hitting the truck. But it was too late; the bus rammed into the
trucks left rear. The impact damaged the right side of the bus
and left several passengers injured. Pedro Arriesgado lost
consciousness and suffered a fracture in his right colles.6 His
wife, Felisa, was brought to the Danao City Hospital. She was
later transferred to the Southern Island Medical Center where
she died shortly thereafter.7
Respondent Pedro A. Arriesgado then filed a complaint for
breach of contract of carriage, damages and attorneys fees
before the Regional Trial Court of Cebu City, Branch 20,
against the petitioners, D Rough Riders bus operator William
Tiu and his driver, Virgilio Te Laspias on May 27, 1987. The
respondent alleged that the passenger bus in question was
cruising at a fast and high speed along the national road, and
that petitioner Laspias did not take precautionary measures
to avoid the accident.8 Thus:

6. That the accident resulted to the death of the plaintiffs wife,

Felisa Pepito Arriesgado, as evidenced by a Certificate of Death,
a xerox copy of which is hereto attached as integral part hereof
and marked as ANNEX "A", and physical injuries to several of
its passengers, including plaintiff himself who suffered a
"COLLES FRACTURE RIGHT," per Medical Certificate, a xerox
copy of which is hereto attached as integral part hereof and
marked as ANNEX "B" hereof.
7. That due to the reckless and imprudent driving by defendant
Virgilio Te Laspias of the said Rough Riders passenger bus,
plaintiff and his wife, Felisa Pepito Arriesgado, failed to safely
reach their destination which was Cebu City, the proximate
cause of which was defendant-drivers failure to observe utmost
diligence required of a very cautious person under all
circumstances.
8. That defendant William Tiu, being the owner and operator of
the said Rough Riders passenger bus which figured in the said
accident, wherein plaintiff and his wife were riding at the time
of the accident, is therefore directly liable for the breach of
contract of carriage for his failure to transport plaintiff and his
wife safely to their place of destination which was Cebu City,
and which failure in his obligation to transport safely his
passengers was due to and in consequence of his failure to
exercise the diligence of a good father of the family in the
selection and supervision of his employees, particularly
defendant-driver Virgilio Te Laspias.9
The respondent prayed that judgment be rendered in his favor
and that the petitioners be condemned to pay the following
damages:
1). To pay to plaintiff, jointly and severally, the amount
of P30,000.00 for the death and untimely demise of plaintiffs
wife, Felisa Pepito Arriesgado;

2). To pay to plaintiff, jointly and severally, the amount

of P38,441.50, representing actual expenses incurred by the
plaintiff in connection with the death/burial of plaintiffs wife;
3). To pay to plaintiff, jointly and severally, the amount
of P1,113.80, representing medical/hospitalization expenses
incurred by plaintiff for the injuries sustained by him;
4). To pay to plaintiff, jointly and severally, the amount
of P50,000.00 for moral damages;
5). To pay to plaintiff, jointly and severally, the amount
of P50,000.00 by way of exemplary damages;
6). To pay to plaintiff, jointly and severally, the amount
of P20,000.00 for attorneys fees;
7). To pay to plaintiff, jointly and severally, the amount
of P5,000.00 for litigation expenses.
PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS
AND REMEDIES IN LAW AND EQUITY.10

The petitioners, for their part, filed a Third-Party

Complaint11 on August 21, 1987 against the following:
respondent Philippine Phoenix Surety and Insurance, Inc.
(PPSII), petitioner Tius insurer; respondent Benjamin Condor,
the registered owner of the cargo truck; and respondent Sergio
Pedrano, the driver of the truck. They alleged that petitioner
Laspias was negotiating the uphill climb along the national
highway of Sitio Aggies, Poblacion, Compostela, in a moderate
and normal speed. It was further alleged that the truck was
parked in a slanted manner, its rear portion almost in the
middle of the highway, and that no early warning device was
displayed. Petitioner Laspias promptly applied the brakes and
swerved to the left to avoid hitting the truck head-on, but
despite his efforts to avoid damage to property and physical
injuries on the passengers, the right side portion of the bus hit
the cargo trucks left rear. The petitioners further alleged, thus:
5. That the cargo truck mentioned in the aforequoted
paragraph is owned and registered in the name of the thirdparty defendant Benjamin Condor and was left unattended by
its driver Sergio Pedrano, one of the third-party defendants, at
the time of the incident;
6. That third-party defendant Sergio Pedrano, as driver of the
cargo truck with marked (sic) "Condor Hollow Blocks & General
Merchandise," with Plate No. GBP-675 which was recklessly
and imprudently parked along the national highway of
Compostela, Cebu during the vehicular accident in question,
and third-party defendant Benjamin Condor, as the registered
owner of the cargo truck who failed to exercise due diligence in
the selection and supervision of third-party defendant Sergio
Pedrano, are jointly and severally liable to the third-party
plaintiffs for whatever liability that may be adjudged against
said third-party plaintiffs or are directly liable of (sic) the
alleged death of plaintiffs wife;

7. That in addition to all that are stated above and in the

answer which are intended to show reckless imprudence on the
part of the third-party defendants, the third-party plaintiffs
hereby declare that during the vehicular accident in question,
third-party defendant was clearly violating Section 34, par. (g)
of the Land Transportation and Traffic Code

10. That the aforesaid passenger bus, owned and operated by

third-party plaintiff William Tiu, is covered by a common
carrier liability insurance with Certificate of Cover No. 054940
issued by Philippine Phoenix Surety and Insurance, Inc., Cebu
City Branch, in favor of third-party plaintiff William Tiu which
covers the period from July 22, 1986 to July 22, 1987 and that
the said insurance coverage was valid, binding and subsisting
during the time of the aforementioned incident (Annex "A" as
part hereof);
11. That after the aforesaid alleged incident, third-party
plaintiff notified third-party defendant Philippine Phoenix
Surety and Insurance, Inc., of the alleged incident hereto
mentioned, but to no avail;
12. That granting, et arguendo et arguendi, if herein thirdparty plaintiffs will be adversely adjudged, they stand to pay
damages sought by the plaintiff and therefore could also look
up to the Philippine Phoenix Surety and Insurance, Inc., for
contribution, indemnification and/or reimbursement of any
liability or obligation that they might [be] adjudged per
insurance coverage duly entered into by and between thirdparty plaintiff William Tiu and third-party defendant Philippine
Phoenix Surety and Insurance, Inc.;12
The respondent PPSII, for its part, admitted that it had an
existing contract with petitioner Tiu, but averred that it had
already attended to and settled the claims of those who were
injured during the incident.13 It could not accede to the claim

of respondent Arriesgado, as such claim was way beyond the

scheduled indemnity as contained in the contract of
insurance.14
After the parties presented their respective evidence, the trial
court ruled in favor of respondent Arriesgado. The dispositive
portion of the decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered in favor of plaintiff as against defendant William Tiu
ordering the latter to pay the plaintiff the following amounts:
1 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as
moral damages;
2 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as
exemplary damages;
3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED
FORTY-ONE PESOS (P38,441.00) as actual damages;
4 - The sum of TWENTY THOUSAND PESOS (P20,000.00) as
attorneys fees;
5 - The sum of FIVE THOUSAND PESOS (P5,000.00) as costs
of suit;
SO ORDERED.15
According to the trial court, there was no dispute that
petitioner William Tiu was engaged in business as a common
carrier, in view of his admission that D Rough Rider passenger
bus which figured in the accident was owned by him; that he
had been engaged in the transportation business for 25 years
with a sole proprietorship; and that he owned 34 buses. The
trial court ruled that if petitioner Laspias had not been
driving at a fast pace, he could have easily swerved to the left
to avoid hitting the truck, thus, averting the unfortunate

incident. It then concluded that petitioner Laspias was

negligent.
The trial court also ruled that the absence of an early warning
device near the place where the truck was parked was not
sufficient to impute negligence on the part of respondent
Pedrano, since the tail lights of the truck were fully on, and the
vicinity was well lighted by street lamps.16 It also found that the
testimony of petitioner Tiu, that he based the selection of his
driver Laspias on efficiency and in-service training, and that
the latter had been so far an efficient and good driver for the
past six years of his employment, was insufficient to prove that
he observed the diligence of a good father of a family in the
selection and supervision of his employees.
After the petitioners motion for reconsideration of the said
decision was denied, the petitioners elevated the case to the
Court of Appeals on the following issues:
I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO
WAS RECKLESS AND IMPRUDENT WHEN HE PARKED THE
CARGO TRUCK IN AN OBLIQUE MANNER;
II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY
AND SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE
OR TO DEFENDANTS-APPELLANTS FOR WHATEVER
LIABILITY THAT MAY BE ADJUDGED TO THE SAID
DEFENDANTS-APPELLANTS;
III WHETHER DEFENDANT-APPELLANT VIRGILIO TE
LASPIAS WAS GUILTY OF GROSS NEGLIGENCE;
IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD
EXERCISED THE DUE DILIGENCE OF A GOOD FATHER OF A
FAMILY IN THE SELECTION AND SUPERVISION OF HIS
DRIVERS;

V GRANTING FOR THE SAKE OF ARGUMENT THAT

DEFENDANT-APPELLANT WILLIAM TIU IS LIABLE TO
PLAINTIFF-APPELLEE, WHETHER THERE IS LEGAL AND
FACTUAL BASIS IN AWARDING EXCESSIVE MORAL
DAMAGES, EX[E]MPLARY DAMAGES, ATTORNEYS FEES AND
LITIGATION EXPENSES TO PLAINTIFF-APPELLEE;
VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC. IS LIABLE TO
DEFENDANT- APPELLANT WILLIAM TIU.17
The appellate court rendered judgment affirming the trial
courts decision with the modification that the awards for
moral and exemplary damages were reduced to P25,000. The
dispositive portion reads:
WHEREFORE, the appealed Decision dated November 6, 1995
is hereby MODIFIED such that the awards for moral and
exemplary damages are each reduced to P25,000.00 or a total
of P50,000.00 for both. The judgment is AFFIRMED in all other
respects.
SO ORDERED.18
According to the appellate court, the action of respondent
Arriesgado was based not on quasi-delict but on breach of
contract of carriage. As a common carrier, it was incumbent
upon petitioner Tiu to prove that extraordinary diligence was
observed in ensuring the safety of passengers during
transportation. Since the latter failed to do so, he should be
held liable for respondent Arriesgados claim. The CA also ruled
that no evidence was presented against the respondent PPSII,
and as such, it could not be held liable for respondent
Arriesgados claim, nor for contribution, indemnification
and/or reimbursement in case the petitioners were adjudged
liable.

The petitioners now come to this Court and ascribe the

following errors committed by the appellate court:

and severally liable to respondent Arriesgado for the payment

of the latters claim.

I. THE HONORABLE COURT OF APPEALS ERRED IN NOT

DECLARING RESPONDENTS BENJAMIN CONDOR AND
SERGIO PEDRANO GUILTY OF NEGLIGENCE AND HENCE,
LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO
PETITIONERS FOR WHATEVER LIABILITY THAT MAY BE
ADJUDGED AGAINST THEM.

The petitioners, likewise, aver that expert evidence should have

been presented to prove that petitioner Laspias was driving at
a very fast speed, and that the CA could not reach such
conclusion by merely considering the damages on the cargo
truck. It was also pointed out that petitioner Tiu presented
evidence that he had exercised the diligence of a good father of
a family in the selection and supervision of his drivers.

II. THE HONORABLE COURT OF APPEALS ERRED IN

FINDING PETITIONERS GUILTY OF NEGLIGENCE AND
HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO.
III. THE HONORABLE COURT OF APPEALS ERRED IN
FINDING PETITIONER WILLIAM TIU LIABLE FOR EXEMPLARY
DAMAGES, ATTORNEYS FEES AND LITIGATION EXPENSES.
IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT
FINDING RESPONDENT PHILIPPINE PHOENIX SURETY AND
INSURANCE, INC. LIABLE TO RESPONDENT PEDRO A.
ARRIESGADO OR TO PETITIONER WILLIAM TIU.19
According to the petitioners, the appellate court erred in failing
to appreciate the absence of an early warning device and/or
built-in reflectors at the front and back of the cargo truck, in
clear violation of Section 34, par. (g) of the Land Transportation
and Traffic Code. They aver that such violation is only a proof
of respondent Pedranos negligence, as provided under Article
2185 of the New Civil Code. They also question the appellate
courts failure to take into account that the truck was parked
in an oblique manner, its rear portion almost at the center of
the road. As such, the proximate cause of the incident was the
gross recklessness and imprudence of respondent Pedrano,
creating the presumption of negligence on the part of
respondent Condor in supervising his employees, which
presumption was not rebutted. The petitioners then contend
that respondents Condor and Pedrano should be held jointly

The petitioners further allege that there is no legal and factual

basis to require petitioner Tiu to pay exemplary damages as no
evidence was presented to show that the latter acted in a
fraudulent, reckless and oppressive manner, or that he had an
active participation in the negligent act of petitioner Laspias.
Finally, the petitioners contend that respondent PPSII admitted
in its answer that while it had attended to and settled the
claims of the other injured passengers, respondent
Arriesgados claim remained unsettled as it was beyond the
scheduled indemnity under the insurance contract. The
petitioners argue that said respondent PPSII should have
settled the said claim in accordance with the scheduled
indemnity instead of just denying the same.
On the other hand, respondent Arriesgado argues that two of
the issues raised by the petitioners involved questions of fact,
not reviewable by the Supreme Court: the finding of negligence
on the part of the petitioners and their liability to him; and the
award of exemplary damages, attorneys fees and litigation
expenses in his favor. Invoking the principle of equity and
justice, respondent Arriesgado pointed out that if there was an
error to be reviewed in the CA decision, it should be geared
towards the restoration of the moral and exemplary damages
to P50,000 each, or a total of P100,000 which was reduced by
the Court of Appeals to P25,000 each, or a total of
only P50,000.

Respondent Arriesgado also alleged that respondents Condor

and Pedrano, and respondent Phoenix Surety, are parties with
whom he had no contract of carriage, and had no cause of
action against. It was pointed out that only the petitioners
needed to be sued, as driver and operator of the ill-fated bus,
on account of their failure to bring the Arriesgado Spouses to
their place of destination as agreed upon in the contract of
carriage, using the utmost diligence of very cautious persons
with due regard for all circumstances.

lower court and the CA arrived at diverse factual

findings.21 The petitioners in this case assail the finding of both
the trial and the appellate courts that petitioner Laspias was
driving at a very fast speed before the bus owned by petitioner
Tiu collided with respondent Condors stalled truck. This is
clearly one of fact, not reviewable by the Court in a petition for
review under Rule 45.22

Respondents Condor and Pedrano point out that, as correctly

ruled by the Court of Appeals, the proximate cause of the
unfortunate incident was the fast speed at which petitioner
Laspias was driving the bus owned by petitioner Tiu.
According to the respondents, the allegation that the truck was
not equipped with an early warning device could not in any
way have prevented the incident from happening. It was also
pointed out that respondent Condor had always exercised the
due diligence required in the selection and supervision of his
employees, and that he was not a party to the contract of
carriage between the petitioners and respondent Arriesgado.

However, considering that novel questions of law are likewise

involved, the Court resolves to examine and rule on the merits
of the case.

Respondent PPSII, for its part, alleges that contrary to the

allegation of petitioner Tiu, it settled all the claims of those
injured in accordance with the insurance contract. It further
avers that it did not deny respondent Arriesgados claim, and
emphasizes that its liability should be within the scheduled
limits of indemnity under the said contract. The respondent
concludes that while it is true that insurance contracts are
contracts of indemnity, the measure of the insurers liability is
determined by the insureds compliance with the terms thereof.
The Courts Ruling
At the outset, it must be stressed that this Court is not a trier
of facts.20 Factual findings of the Court of Appeals are final and
may not be reviewed on appeal by this Court, except when the

On this ground alone, the petition is destined to fail.

Petitioner Laspias
Was negligent in driving
The Ill-fated bus
In his testimony before the trial court, petitioner Laspias
claimed that he was traversing the two-lane road at
Compostela, Cebu at a speed of only forty (40) to fifty (50)
kilometers per hour before the incident occurred.23 He also
admitted that he saw the truck which was parked in an
"oblique position" at about 25 meters before impact,24and tried
to avoid hitting it by swerving to the left. However, even in the
absence of expert evidence, the damage sustained by the
truck25 itself supports the finding of both the trial court and
the appellate court, that the D Rough Rider bus driven by
petitioner Laspias was traveling at a fast pace. Since he saw
the stalled truck at a distance of 25 meters, petitioner Laspias
had more than enough time to swerve to his left to avoid hitting
it; that is, if the speed of the bus was only 40 to 50 kilometers
per hour as he claimed. As found by the Court of Appeals, it is
easier to believe that petitioner Laspias was driving at a very
fast speed, since at 4:45 a.m., the hour of the accident, there
were no oncoming vehicles at the opposite direction. Petitioner
Laspias could have swerved to the left lane with proper

clearance, and, thus, could have avoided the truck.26 Instinct,

at the very least, would have prompted him to apply the breaks
to avert the impending disaster which he must have foreseen
when he caught sight of the stalled truck. As we had occasion
to reiterate:
A man must use common sense, and exercise due reflection in
all his acts; it is his duty to be cautious, careful and prudent, if
not from instinct, then through fear of recurring punishment.
He is responsible for such results as anyone might foresee and
for acts which no one would have performed except through
culpable abandon. Otherwise, his own person, rights and
property, and those of his fellow beings, would ever be exposed
to all manner of danger and injury.27
We agree with the following findings of the trial court, which
were affirmed by the CA on appeal:
A close study and evaluation of the testimonies and the
documentary proofs submitted by the parties which have direct
bearing on the issue of negligence, this Court as shown by
preponderance of evidence that defendant Virgilio Te Laspias
failed to observe extraordinary diligence as a driver of the
common carrier in this case. It is quite hard to accept his
version of the incident that he did not see at a reasonable
distance ahead the cargo truck that was parked when the
Rough Rider [Bus] just came out of the bridge which is on an
(sic) [more] elevated position than the place where the cargo
truck was parked. With its headlights fully on, defendant driver
of the Rough Rider was in a vantage position to see the cargo
truck ahead which was parked and he could just easily have
avoided hitting and bumping the same by maneuvering to the
left without hitting the said cargo truck. Besides, it is (sic)
shown that there was still much room or space for the Rough
Rider to pass at the left lane of the said national highway even
if the cargo truck had occupied the entire right lane thereof. It
is not true that if the Rough Rider would proceed to pass

through the left lane it would fall into a canal considering that
there was much space for it to pass without hitting and
bumping the cargo truck at the left lane of said national
highway. The records, further, showed that there was no
incoming vehicle at the opposite lane of the national highway
which would have prevented the Rough Rider from not
swerving to its left in order to avoid hitting and bumping the
parked cargo truck. But the evidence showed that the Rough
Rider instead of swerving to the still spacious left lane of the
national highway plowed directly into the parked cargo truck
hitting the latter at its rear portion; and thus, the (sic) causing
damages not only to herein plaintiff but to the cargo truck as
well.28
Indeed, petitioner Laspias negligence in driving the bus is
apparent in the records. By his own admission, he had just
passed a bridge and was traversing the highway of Compostela,
Cebu at a speed of 40 to 50 kilometers per hour before the
collision occurred. The maximum speed allowed by law on a
bridge is only 30 kilometers per hour.29 And, as correctly
pointed out by the trial court, petitioner Laspias also violated
Section 35 of the Land Transportation and Traffic Code,
Republic Act No. 4136, as amended:1avvphil.net
Sec. 35. Restriction as to speed. (a) Any person driving a
motor vehicle on a highway shall drive the same at a careful
and prudent speed, not greater nor less than is reasonable and
proper, having due regard for the traffic, the width of the
highway, and or any other condition then and there existing;
and no person shall drive any motor vehicle upon a highway at
such speed as to endanger the life, limb and property of any
person, nor at a speed greater than will permit him to bring
the vehicle to a stop within the assured clear distance ahead. 30
Under Article 2185 of the Civil Code, a person driving a vehicle
is presumed negligent if at the time of the mishap, he was
violating any traffic regulation.31

Petitioner Tiu failed to

Overcome the presumption
Of negligence against him as
One engaged in the business
Of common carriage
The rules which common carriers should observe as to the
safety of their passengers are set forth in the Civil Code,
Articles 1733,32 175533 and 1756.34 In this case, respondent
Arriesgado and his deceased wife contracted with petitioner
Tiu, as owner and operator of D Rough Riders bus service, for
transportation from Maya, Daanbantayan, Cebu, to Cebu City
for the price of P18.00.35 It is undisputed that the respondent
and his wife were not safely transported to the destination
agreed upon. In actions for breach of contract, only the
existence of such contract, and the fact that the obligor, in this
case the common carrier, failed to transport his passenger
safely to his destination are the matters that need to be
proved.36 This is because under the said contract of carriage,
the petitioners assumed the express obligation to transport the
respondent and his wife to their destination safely and to
observe extraordinary diligence with due regard for all
circumstances.37 Any injury suffered by the passengers in the
course thereof is immediately attributable to the negligence of
the carrier.38 Upon the happening of the accident, the
presumption of negligence at once arises, and it becomes the
duty of a common carrier to prove that he observed
extraordinary diligence in the care of his passengers.39 It must
be stressed that in requiring the highest possible degree of
diligence from common carriers and in creating a presumption
of negligence against them, the law compels them to curb the
recklessness of their drivers.40
While evidence may be submitted to overcome such
presumption of negligence, it must be shown that the carrier
observed the required extraordinary diligence, which means

that the carrier must show the utmost diligence of very

cautious persons as far as human care and foresight can
provide, or that the accident was caused by fortuitous
event.41 As correctly found by the trial court, petitioner Tiu
failed to conclusively rebut such presumption. The negligence
of petitioner Laspias as driver of the passenger bus is, thus,
binding against petitioner Tiu, as the owner of the passenger
bus engaged as a common carrier.42
The Doctrine of
Last Clear Chance
Is Inapplicable in the
Case at Bar
Contrary to the petitioners contention, the principle of last
clear chance is inapplicable in the instant case, as it only
applies in a suit between the owners and drivers of two
colliding vehicles. It does not arise where a passenger demands
responsibility from the carrier to enforce its contractual
obligations, for it would be inequitable to exempt the negligent
driver and its owner on the ground that the other driver was
likewise guilty of negligence.43 The common law notion of last
clear chance permitted courts to grant recovery to a plaintiff
who has also been negligent provided that the defendant had
the last clear chance to avoid the casualty and failed to do so.
Accordingly, it is difficult to see what role, if any, the common
law of last clear chance doctrine has to play in a jurisdiction
where the common law concept of contributory negligence as
an absolute bar to recovery by the plaintiff, has itself been
rejected, as it has been in Article 2179 of the Civil Code.44
Thus, petitioner Tiu cannot escape liability for the death of
respondent Arriesgados wife due to the negligence of petitioner
Laspias, his employee, on this score.

Respondents Pedrano and

Condor were likewise
Negligent
In Phoenix Construction, Inc. v. Intermediate Appellate
Court,45 where therein respondent Dionisio sustained injuries
when his vehicle rammed against a dump truck parked askew,
the Court ruled that the improper parking of a dump truck
without any warning lights or reflector devices created an
unreasonable risk for anyone driving within the vicinity, and
for having created such risk, the truck driver must be held
responsible. In ruling against the petitioner therein, the Court
elucidated, thus:
In our view, Dionisios negligence, although later in point of
time than the truck drivers negligence, and therefore closer to
the accident, was not an efficient intervening or independent
cause. What the petitioners describe as an "intervening cause"
was no more than a foreseeable consequence of the risk
created by the negligent manner in which the truck driver had
parked the dump truck. In other words, the petitioner truck
driver owed a duty to private respondent Dionisio and others
similarly situated not to impose upon them the very risk the
truck driver had created. Dionisios negligence was not that of
an independent and overpowering nature as to cut, as it were,
the chain of causation in fact between the improper parking of
the dump truck and the accident, nor to sever the juris
vinculum of liability.

We hold that private respondent Dionisios negligence was

"only contributory," that the "immediate and proximate cause"
of the injury remained the truck drivers "lack of due care."46
In this case, both the trial and the appellate courts failed to
consider that respondent Pedrano was also negligent in leaving
the truck parked askew without any warning lights or reflector

devices to alert oncoming vehicles, and that such failure

created the presumption of negligence on the part of his
employer, respondent Condor, in supervising his employees
properly and adequately. As we ruled in Poblete v. Fabros:47
It is such a firmly established principle, as to have virtually
formed part of the law itself, that the negligence of the
employee gives rise to the presumption of negligence on the
part of the employer. This is the presumed negligence in the
selection and supervision of employee. The theory of presumed
negligence, in contrast with the American doctrine of
respondeat superior, where the negligence of the employee is
conclusively presumed to be the negligence of the employer, is
clearly deducible from the last paragraph of Article 2180 of the
Civil Code which provides that the responsibility therein
mentioned shall cease if the employers prove that they
observed all the diligence of a good father of a family to prevent
damages. 48
The petitioners were correct in invoking respondent Pedranos
failure to observe Article IV, Section 34(g) of the Rep. Act No.
4136, which provides:1avvphil.net
(g) Lights when parked or disabled. Appropriate parking lights
or flares visible one hundred meters away shall be displayed at
a corner of the vehicle whenever such vehicle is parked on
highways or in places that are not well-lighted or is placed in
such manner as to endanger passing traffic.
The manner in which the truck was parked clearly endangered
oncoming traffic on both sides, considering that the tire
blowout which stalled the truck in the first place occurred in
the wee hours of the morning. The Court can only now surmise
that the unfortunate incident could have been averted had
respondent Condor, the owner of the truck, equipped the said
vehicle with lights, flares, or, at the very least, an early warning
device.49 Hence, we cannot subscribe to respondents Condor

and Pedranos claim that they should be absolved from liability

because, as found by the trial and appellate courts, the
proximate cause of the collision was the fast speed at which
petitioner Laspias drove the bus. To accept this proposition
would be to come too close to wiping out the fundamental
principle of law that a man must respond for the foreseeable
consequences of his own negligent act or omission. Indeed, our
law on quasi-delicts seeks to reduce the risks and burdens of
living in society and to allocate them among its members. To
accept this proposition would be to weaken the very bonds of
society.50

The trial court in this case did not rule on the liability of
respondent PPSII, while the appellate court ruled that, as no
evidence was presented against it, the insurance company is
not liable.
A perusal of the records will show that when the petitioners
filed the Third-Party Complaint against respondent PPSII, they
failed to attach a copy of the terms of the insurance contract
itself. Only Certificate of Cover No. 05494051 issued in favor of
"Mr. William Tiu, Lahug, Cebu City" signed by Cosme H. Boniel
was appended to the third-party complaint. The date of
issuance, July 22, 1986, the period of insurance, from July 22,
1986 to July 22, 1987, as well as the following items, were also
indicated therein:
SCHEDULED VEHICLE
MAKE
Isuzu Forward

PLATE
NO.
PBP724

SERIAL/CHAS
SIS NO.
SER4501584124

SECTION 1/11

MOTOR
NO.
677836

AUTHORIZ
ED
CAPACITY
50

*LIMITS OF LIABILITY
P50,000.00

A. THIRD PARTY
LIABILITY

The Liability of
Respondent PPSII
as Insurer

MODE
L

Bus

TYPE OF
BODY

COLOR
blue mixed

BLT FILE
NO.

B. PASSENGER
LIABILITY

Per
Person
P12,000.
00

UNLADE
N
WEIGHT
6 Cyls.
Kgs.
PREMIUM
S PAID
P540.0052

Per
Accident
P50,000

In its Answer53 to the Third-Party Complaint, the respondent

PPSII admitted the existence of the contract of insurance, in
view of its failure to specifically deny the same as required
under then Section 8(a), Rule 8 of the Rules of Court,54 which
reads:
Sec. 8. How to contest genuineness of such documents. When
an action or defense is founded upon a written instrument
copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due
execution of the instrument shall be deemed admitted unless
the adverse party, under oath, specifically denies them, and
sets forth what he claims to be the facts; but the requirement
of an oath does not apply when the adverse party does not
appear to be a party to the instrument or when compliance

with an order for inspection of the original instrument is

refused.
In fact, respondent PPSII did not dispute the existence of such
contract, and admitted that it was liable thereon. It claimed,
however, that it had attended to and settled the claims of those
injured during the incident, and set up the following as special
affirmative defenses:
Third party defendant Philippine Phoenix Surety and
Insurance, Inc. hereby reiterates and incorporates by way of
reference the preceding paragraphs and further states THAT:8. It has attended to the claims of Vincent Canales, Asuncion
Batiancila and Neptali Palces who sustained injuries during
the incident in question. In fact, it settled financially their
claims per vouchers duly signed by them and they duly
executed Affidavit[s] of Desistance to that effect, xerox copies of
which are hereto attached as Annexes 1, 2, 3, 4, 5, and 6
respectively;

insured petitioner Tiu. Even in its Memorandum56 before the

Court, respondent PPSII admitted the existence of the contract,
but averred as follows:
Petitioner Tiu is insisting that PPSII is liable to him for
contribution, indemnification and/or reimbursement. This has
no basis under the contract. Under the contract, PPSII will pay
all sums necessary to discharge liability of the insured subject
to the limits of liability but not to exceed the limits of liability
as so stated in the contract. Also, it is stated in the contract
that in the event of accident involving indemnity to more than
one person, the limits of liability shall not exceed the aggregate
amount so specified by law to all persons to be indemnified.57

9. With respect to the claim of plaintiff, herein answering third

party defendant through its authorized insurance adjuster
attended to said claim. In fact, there were negotiations to that
effect. Only that it cannot accede to the demand of said
claimant considering that the claim was way beyond the
scheduled indemnity as per contract entered into with third
party plaintiff William Tiu and third party defendant
(Philippine Phoenix Surety and Insurance, Inc.). Third party
Plaintiff William Tiu knew all along the limitation as earlier
stated, he being an old hand in the transportation
business;55

As can be gleaned from the Certificate of Cover, such insurance

contract was issued pursuant to the Compulsory Motor Vehicle
Liability Insurance Law. It was expressly provided therein that
the limit of the insurers liability for each person was P12,000,
while the limit per accident was pegged at P50,000. An insurer
in an indemnity contract for third party liability is directly
liable to the injured party up to the extent specified in the
agreement but it cannot be held solidarily liable beyond that
amount.58 The respondent PPSII could not then just deny
petitioner Tius claim; it should have paid P12,000 for the
death of Felisa Arriesgado,59 and respondent Arriesgados
hospitalization expenses of P1,113.80, which the trial court
found to have been duly supported by receipts. The total
amount of the claims, even when added to that of the other
injured passengers which the respondent PPSII claimed to have
settled,60 would not exceed the P50,000 limit under the
insurance agreement.

Considering the admissions made by respondent PPSII, the

existence of the insurance contract and the salient terms
thereof cannot be dispatched. It must be noted that after filing
its answer, respondent PPSII no longer objected to the
presentation of evidence by respondent Arriesgado and the

Indeed, the nature of Compulsory Motor Vehicle Liability

Insurance is such that it is primarily intended to provide
compensation for the death or bodily injuries suffered by
innocent third parties or passengers as a result of the negligent
operation and use of motor vehicles. The victims and/or their

dependents are assured of immediate financial assistance,

regardless of the financial capacity of motor vehicle
owners.61 As the Court, speaking through Associate Justice
Leonardo A. Quisumbing, explained in Government Service
Insurance System v. Court of Appeals:62
However, although the victim may proceed directly against the
insurer for indemnity, the third party liability is only up to the
extent of the insurance policy and those required by law. While
it is true that where the insurance contract provides for
indemnity against liability to third persons, and such persons
can directly sue the insurer, the direct liability of the insurer
under indemnity contracts against third party liability does not
mean that the insurer can be held liable in solidum with the
insured and/or the other parties found at fault. For the liability
of the insurer is based on contract; that of the insured carrier
or vehicle owner is based on tort.
Obviously, the insurer could be held liable only up to the
extent of what was provided for by the contract of insurance, in
accordance with the CMVLI law. At the time of the incident, the
schedule of indemnities for death and bodily injuries,
professional fees and other charges payable under a CMVLI
coverage was provided for under the Insurance Memorandum
Circular (IMC) No. 5-78 which was approved on November 10,
1978. As therein provided, the maximum indemnity for death
was twelve thousand (P12,000.00) pesos per victim. The
schedules for medical expenses were also provided by said IMC,
specifically in paragraphs (C) to (G).63
Damages to be
Awarded
The trial court correctly awarded moral damages in the amount
of P50,000 in favor of respondent Arriesgado. The award of exemplary
damages by way of example or correction of the public good,64 is
likewise in order. As the Court ratiocinated in Kapalaran Bus Line v.
Coronado:65

While the immediate beneficiaries of the standard of extraordinary

diligence are, of course, the passengers and owners of cargo carried
by a common carrier, they are not the only persons that the law
seeks to benefit. For if common carriers carefully observed the
statutory standard of extraordinary diligence in respect of their own
passengers, they cannot help but simultaneously benefit pedestrians
and the passengers of other vehicles who are equally entitled to the
safe and convenient use of our roads and highways. The law seeks to
stop and prevent the slaughter and maiming of people (whether
passengers or not) on our highways and buses, the very size and
power of which seem to inflame the minds of their drivers. Article
2231 of the Civil Code explicitly authorizes the imposition of
exemplary damages in cases of quasi-delicts "if the defendant acted
with gross negligence."66
The respondent Pedro A. Arriesgado, as the surviving spouse and
heir of Felisa Arriesgado, is entitled to indemnity in the amount
of P50,000.00.67
The petitioners, as well as the respondents Benjamin Condor and
Sergio Pedrano are jointly and severally liable for said amount,
conformably with the following pronouncement of the Court in Fabre,
Jr. vs. Court of Appeals:68
The same rule of liability was applied in situations where the
negligence of the driver of the bus on which plaintiff was riding
concurred with the negligence of a third party who was the driver of
another vehicle, thus causing an accident. In Anuran v. Buo,
Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court,
and Metro Manila Transit Corporation v. Court of Appeals, the bus
company, its driver, the operator of the other vehicle and the driver of
the vehicle were jointly and severally held liable to the injured
passenger or the latters heirs. The basis of this allocation of liability
was explained in Viluan v. Court of Appeals, thus:
"Nor should it make difference that the liability of petitioner [bus
owner] springs from contract while that of respondents [owner and
driver of other vehicle] arises from quasi-delict. As early as 1913, we
already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of
injury to a passenger due to the negligence of the driver of the bus on
which he was riding and of the driver of another vehicle, the drivers

as well as the owners of the two vehicles are jointly and severally
liable for damages. Some members of the Court, though, are of the
view that under the circumstances they are liable on quasi-delict."69
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATIONS:
(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and
petitioner William Tiu are ORDERED to pay, jointly and severally,
respondent Pedro A. Arriesgado the total amount of P13,113.80;
(2) The petitioners and the respondents Benjamin Condor and Sergio
Pedrano are ORDERED to pay, jointly and severally, respondent Pedro
A. Arriesgado P50,000.00 as indemnity; P26,441.50 as actual
damages; P50,000.00 as moral damages; P50,000.00 as exemplary
damages; and P20,000.00 as attorneys fees.
SO ORDERED.

April 20, 1990

DR. HERMAN ARMOVIT, DORA ARMOVIT and JACQUELINE

ARMOVIT, petitioners,
vs.
COURT OF APPEALS, and NORTHWEST AIRLINES,
INC., respondents.
Law Firm of Raymundo A. Armovit for petitioners.
Quisumbing, Torres & Evangelista for private respondent.

GANGAYCO, J.:

In October 1981, the petitioners decided to spend their

Christmas holidays with relatives and friends in the
Philippines, so they purchased from private respondent,
(Northwest Airlines, Inc.) three (3) round trip airline tickets
from the U.S. to Manila and back, plus three (3) tickets for the
rest of the children, though not involved in the suit. Each ticket
of the petitioners which was in the handwriting of private
respondent's tickets sales agent contains the following entry on
the Manila to Tokyo portion of the return flight:
from Manila to Tokyo, NW flight 002, date 17 January, time
10:30 A.M. Status, OK. 1

FIRST DIVISION
G.R. No. 88561

This is a case which involves a Filipino physician and his

family residing in the United States who came home to the
Philippines on a Christmas visit. They were bumped off at the
Manila International Airport on their return flight to the U.S.
because of an erroneous entry in their plane tickets relating to
their time of departure.

On their return trip from Manila to the U.S. scheduled on

January 17, 1982, petitioner arrived at the check-in counter of
private respondent at the Manila International Airport at 9:15
in the morning, which is a good one (1) hour and fifteen (15)
minutes ahead of the 10:30 A.M. scheduled flight time recited
in their tickets. Petitioners were rudely informed that they
cannot be accommodated inasmuch as Flight 002 scheduled at
9:15 a.m. was already taking off and the 10:30 A.M. flight time
entered in their plane tickets was erroneous.
Previous to the said date of departure petitioners re-confirmed
their reservations through their representative Ernesto
Madriaga who personally presented the three (3) tickets at the
private respondent's Roxas Boulevard office. 2 The departure
time in the three (3) tickets of petitioners was not changed
when re-confirmed. The names of petitioners appeared in the
passenger manifest and confirmed as Passenger Nos. 306, 307,
and 308, Flight 002. 3

Herein petitioner Dr. Armovit protested in extreme agitation

that because of the bump-off he will not be able to keep his
appointments with his patients in the U.S. Petitioners suffered
anguish, wounded feelings, and serious anxiety day and night
of January 17th until the morning of January 18th when they
were finally informed that seats will be available for them on
the flight that day.
Because of the refusal of the private respondent to heed the
repeated demands of the petitioners for compensatory damages
arising from the aforesaid breach of their air-transport
contracts, 4 petitioners were compelled to file an action for
damages in the Regional Trial Court of Manila.
After trial on the merits, a decision was rendered on July 2,
1985, the dispositive part of which reads as follows:
WHEREFORE, in view of the foregoing considerations,
judgment is hereby rendered ordering defendant to pay
plaintiffs actual, moral, exemplary and nominal damages, plus
attorney's fees, as follows:
a) Actual damages in favor of Dr. Herman Armovit in the sum
of P1,300.00, with interest at the legal rate from January 17,
1982;
b) Moral damages of P500,000.00, exemplary damages of
P500,000.00, and nominal damages of P100,000.00 in favor of
Dr. Herman Armovit;
c) Moral damages of P300,000.00, exemplary damages of
P300,000.00, and nominal damages of P50,000.00 in favor of
Mrs. Dora Armovit;
d) Moral damages of P300,000.00, exemplary damages of
P300,000.00, and nominal damages of P50,000.00 in favor of
Miss Jacqueline Armovit; and

e) Attorney's fees of 5% of the total awards under the above

paragraphs.
plus costs of suit.

Not satisfied therewith, private respondent interposed an

appeal to the Court of Appeals wherein in due course a
decision was rendered on June 20, 1989, the relevant portion
and dispositive part of which read as follows:
Plaintiffs-appellees had complied with the "72-hour
reconfirmation rule." They had obtained reconfirmation from
defendant-appellant of the time and date of their flight, as
indicated in their tickets. The trial court said so and We find
nothing significance to warrant a disturbance of such finding.
On the allowance of damages, the trial court has discretion to
grant and fix the amounts to be paid the prevailing party. In
this case, there was gross negligence on the part of defendantappellant in reconfirming the time and date of departure of
Flight No. 002 as indicated in the three (3) tickets (Exhibits A,
A-1 and A-2). And, as admitted by defendant-appellant,
plaintiffs-appellees had arrived at the airport at 9:15 A.M. or
one (1) hour before departure time of 10:30 A.M.
Appellees' actual damages in the amount of P1,300.00 is
maintained for being unrebutted by the Appellant.
However, We modify the allowance of the other awards made by
the trial court.
The moral damages of P900,000.00 awarded to Appellees must
be eliminated considering the following:
1. That the appellees did not take the witness stand to testify
on their "social humiliation, wounded feelings and anxiety" and
the breach of contract was not malicious or fraudulent. (Art.
2220, Civil Code). It has been held that:

Nor was there error in the appealed decision in denying moral

damages, not only on account of the plaintiffs failure to take
the witness stand and testify to her social humiliation,
wounded feelings, anxiety, etc., as the decision holds, but
primarily because a breach of contract like that of defendant
not being malicious or fraudulent, does not warrant the award
of moral damages under Article 2220 of the Civil Code (Ventilla
vs. Centeno, L-14333, 28 Jan. 1961; Fores vs. Miranda, L12163; 4 March 1959 Francisco vs. GSIS, 7 SCRA 577).

to be eliminated since we are already awarding actual loss.

Nominal damages cannot co-exist with actual or compensatory
damages (Vda. de Medina, et al. v. Cresencia, et al., 99 Phil.
506).

2. Furthermore, moral damages, though incapable of

pecuniary estimation, are in the category of an award designed
to compensate the claimant for actual injury suffered and not
to impose a penalty on the wrongdoer (San Andres vs. Court of
Appeals, 116 SCRA 85). In a later case, the Supreme Court
held that moral damages are emphatically not intended to
enrich a complainant at the expense of the defendant (R & B
Surety vs. IAC, 129 SCRA 745) citing Grand Union
Supermarket, Inc. vs. Espino, Jr. 94 SCRA 966).

A motion for reconsideration thereof filed by the petitioners was

denied in a resolution dated May 29, 1989. 7

However, there is no question that appellant acted with

negligence in not informing appellees about the change of hour
of departure. To provide an example or correction for the public
good, therefore, the award of exemplary damages is proper (Art.
2229 & 2231 Civil Code; Lopez v. Pan American World Airways,
16 SCRA 431; Prudenciado vs. Alliance Transport, 148 SCRA
440). Nonetheless, the awards granted by the trial court are far
too exhorbitant and excessive compared to the actual loss of
P1,300.00. The authority of the Court of Appeals to modify or
change the amounts of awards has been upheld in a long line
of decisions. We reduce the award of exemplary damages from
P500,000.00 to P100,000.00 in favor of Dr. Herman Armovit,
from P500,000.00 to P50,000.00 in favor of Mrs. Dora Armovit;
and from P300,000.00 to P20,000.00 in favor of Miss
Jacqueline Armovit. (Gellada vs. Warner Barnes, 57 O.G. (4)
7347, Sadie vs. Bachrach, 57 O.G. (4) 636, Prudenciado vs.
Alliance Transport, supra). The award of nominal damages has

The award of 5% of the total damages as attorney's fees is

reasonable.
3. WHEREFORE, with the above modifications, the decision
appealed from is hereby AFFIRMED in all other respects. 6

Both petitioners and private respondent elevated the matter to

this Court for review by certiorari.
The petition of private respondent was docketed as G.R. No.
86776. It was denied in a resolution of this Court dated July
10, 1989, and the motion for reconsideration thereof was
denied in a resolution dated September 6, 1989. On October
12, 1989 this Court ordered the entry of judgment in this case
and for the records to be remanded to the court of origin for
prompt execution of the judgment.
In the herein petition for review on certiorari filed by petitioner
they claim that the questioned decision and resolution of the
Court of Appeals should be struck down as an unlawful,
unjust and reasonless departure from the decisions of this
Court as far as the award for moral damages and the drastic
reduction of the exemplary damages are concerned.
The petition is impressed with merit.
The appellate court observed that private respondent was
guilty of gross negligence not only in the issuance of the tickets
by the erroneous entry of the date of departure and without
changing or correcting the error when the said three (3) tickets
were presented for re-confirmation. Nevertheless it deleted the

award of moral damages on the ground that petitioners did not

take the witness stand to testify on "their social humiliation,
wounded feelings and anxiety, and that the breach of contract
was not malicious or fraudulent." 8
We disagree.
In Air France vs. Carrascoso, 9 Lopez vs. Pan American World
Airways, 10 and Zulueta vs. Pan American World Airways, 11 this
Court awarded damages for the gross negligence of the airline
which amounted to malice and bad faith and which tainted the
breach of air transportation contract.
Thus in Air France, this Court observed:
A contract to transport passengers is quite different in kind
and degree from any other contractual relation. And this,
because of the relation which an air carrier sustains with the
public. Its business is mainly with the traveling public. It
invites people to avail of the comforts and advantages it
offers. The contract of air carriage, therefore, generates a
relation attended with a public duty. Neglect or malfeasance of
the carrier's employees, naturally, could give ground for an
action for damages.
Passengers do not contract merely for transportation. They
have the right to be treated by the carrier's employees with
kindness, respect, courtesy and due consideration. They are
entitled to be protected against personal misconduct, injurious
language, indignities and abuses from such employees. So it is,
that any rude or discourteous conduct on the part of employees
towards a passenger gives the latter an action for damages
against the carrier.12
The gross negligence committed by private respondent in the
issuance of the tickets with entries as to the time of the flight,
the failure to correct such erroneous entries and the manner
by which petitioners were rudely informed that they were

bumped off are clear indicia of such malice and bad faith and
establish that private respondent committed a breach of
contract which entitles petitioners to moral damages.
The appellate court observed that the petitioners failed to take
the witness stand and testify on the matter.1wphi1 It
overlooked however, that the failure of the petitioner to appear
in court to testify was explained by them. The assassination of
Senator Benigno Aquino, Jr. on August 21, 1983 following the
year they were bumped off caused a turmoil in the country.
This turmoil spilled over to the year 1984 when they were
scheduled to testify. However, the violent demonstrations in the
country were sensationalized in the U.S. media so petitioners
were advised to refrain from returning to the Philippines at the
time.
Nevertheless, Atty. Raymund Armovit, brother of petitioner Dr.
Armovit, took the witness stand as he was with the petitioners
from the time they checked in up to the time of their ultimate
departure. He was a witness when the check-in officer rudely
informed the petitioners that their flight had already taken off,
while petitioner Dr. Armovit remonstrated that their tickets
reflected their flight time to be 10:30 A.M.; that in anger and
frustration, Dr. Armovit told the said check-in-officer that he
had to be accommodated that morning so that he could attend
to all his appointments in the U.S.; that petitioner Jacqueline
Armovit also complained about not being able to report for
work at the expiration of her leave of absence; that while
petitioner had to accept private respondent's offer for hotel
accommodations at the Philippine Village Hotel so that they
could follow up and wait for their flight out of Manila the
following day, petitioners did not use their meal coupons
supplied because of the limitations thereon so they had to
spend for lunch, dinner, and breakfast in the sum of P1,300.00
while waiting to be flown out of Manila; that Dr. Armovit had to
forego the professional fees for the medical appointments he
missed due to his inability to take the January 17 flight; that

the petitioners were finally able to fly out of Manila on January

18, 1982, but were assured of this flight only on the very
morning of that day, so that they experienced anxiety until
they were assured seats for that flight. 13
No doubt Atty. Raymund Armovit's testimony adequately and
sufficiently established the serious anxiety, wounded feelings
and social humiliation that petitioners suffered upon having
been bumped off. However, considering the circumstances of
this case whereby the private respondent attended to the plight
of the petitioners, taking care of their accommodations while
waiting and boarding them in the flight back to the U.S. the
following day, the Court finds that the petitioners are entitled
to moral damages in the amount of P100,000.00 each.
By the same token to provide an example for the public good,
an award of exemplary damages is also proper. 14The award of
the appellate court is adequate.
Nevertheless, the deletion of the nominal damages by the
appellate court is well-taken since there is an award of actual
damages. Nominal damages cannot co-exist with actual or
compensatory damages. 15

WHEREFORE, the petition is GRANTED. The questioned

judgment of the Court of Appeals is hereby modified such that
private respondent shall pay the following:
(a) actual damages in favor of Dr. Armovit in the sum of
P1,300.00 with interest at the legal rate from January 17,
1982;
(b) moral damages at P100,000.00 and exemplary damages and
P100,000.00 in favor of Dr. Armovit;
(c) moral damages of P100,000.00 and exemplary damages of
P50,000.00 in favor of Mrs. Dora Armovit;
(d) moral damages of P100,000.00 and exemplary damages in
the amount of P20,000.00 in favor of Miss Jacqueline Armovit;
and
(e) attorney's fees at 5% of the total awards under the above
paragraphs, plus the cost of suit.
SO ORDERED.