2008

Philippine Charter Insurance Corporation

vs. Neptune Orient Lines/Overseas Agency Services, Inc.
June 12, 2008

Facts:

L.T. Garments Manufacturing Corp. Ltd. shipped from Hong Kong three sets of warp yarn aboard
respondent Neptune Orient Lines’ vessel, M/V Baltimar Orion, for transport and delivery to
Fukuyama Manufacturing Corporation in Manila. Fukuyama insured the shipment with petitioner
Philippine Charter Insurance Corporation for P.228M.

During the course of the voyage, the container with the cargoes fell overboard and was lost.

Thus, Fukuyama wrote to respondent Overseas Agency Services, Inc., the agent of Neptune
Orient Lines in Manila, and claimed for the value of the lost cargoes. However, Overseas Agency
ignored the claim. Hence, Fukuyama sought payment from its insurer, PCIC, for the insured value
of the cargoes.

PCIC demanded reimbursement from respondents, but respondents refused. PCIC filed a
complaint for damages against respondents with the Regional Trial Court (RTC) of Manila.

Respondents filed an answer denying liability. They alleged that during the voyage, the vessel
encountered strong winds and heavy seas making the vessel pitch and roll, which caused the
subject container with the cargoes to fall overboard. Respondents contended that the occurrence
was a fortuitous event which exempted them from any liability, and that their liability, if any,
should not exceed US$500 or the limit of liability in the bill of lading, whichever is lower.

The RTC held that respondents, as common carrier, failed to prove that they observed the
required extraordinary diligence to prevent loss of the subject cargoes. Respondents sought
reconsideration but was denied.

Respondents appealed to the CA. The CA affirmed the RTC decision with
modification. Respondents moved for reconsideration arguing that their liability was only
US$1,500 or US$500 per package under the limited liability provision of the Carriage of Goods by
Sea Act (COGSA).The CA found the said argument of respondents to be meritorious, hence, this
petition.

Issue:

Whether or not the CA was correct in awarding respondents damages subject to the US$500 per
package limitation.

Held:
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YES.

The petition was DENIED. The resolution of the CA was AFFIRMED.

Mercantile Law; Carriage of Goods by Sea Act; The rights and obligations of respondent common
carrier are governed by the provision of the Civil Code, and the Carriage of Goods by Sea Act
(COGSA), which is a special law, applies suppletorily.—Since the subject cargoes were lost while
being transported by respondent common carrier from Hong Kong to the Philippines, Philippine
law applies pursuant to the Civil Code which provides: Art. 1753. The law of the country to which
the goods are to be transported shall govern the liability of the common carrier for their loss,
destruction or deterioration. Art. 1766. In all matters not regulated by this Code, the rights and
obligations of common carriers shall be governed by the Code of Commerce and by special laws.
The rights and obligations of respondent common carrier are thus governed by the provisions of
the Civil Code, and the COGSA, which is a special law, applies suppletorily.

Same; Same; Bill of Lading; Stipulation in the bill of lading limiting respondent’s liability for the
loss of the subject cargoes is allowed under Article 1749 of the Civil Code, and Sec. 4, paragraph
(5) of the Carriage of Goods by Sea Act (COGSA).—The bill of lading submitted in evidence by
petitioner did not show that the shipper in Hong Kong declared the actual value of the goods as
insured by Fukuyama before shipment and that the said value was inserted in the Bill of Lading,
and so no additional charges were paid. Hence, the stipulation in the bill of lading that the
carrier’s liability shall not exceed US$500 per package applies. Such stipulation in the bill of lading
limiting respondents’ liability for the loss of the subject cargoes is allowed under Art. 1749 of the
Civil Code, and Sec. 4, paragraph (5) of the COGSA. Everett Steamship Corporation v. Court of
Appeals, 297 SCRA 496 (1998) held: A stipulation in the bill of lading limiting the common carrier’s
liability for loss or destruction of a cargo to a certain sum, unless the shipper or owner declares
a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code.
2008
2008

Philippine Airlines, Inc. vs. Savillo

Facts:

Savillo was a judg of the RTC of Iloilo. He was invited to participate in the 1993 ASEAN Senior
Annual Golf Tournamant in Jakarta Indonesia. So, in order to take part in such event, he
purchased a ticket from PAL with the following itinerary: Manila-Singapore-Jakarta-Singapore-
Manila. PAL would take them from Manila to Singapore, Singapore Airlines would take them
from Singapore to Jakarta. When they arrived in Singapore, Singapore Airlines rejected the
tickets of Savillo because they were not endorsed by PAL. It was explained that if Singapore
Airlines honoured the tickets without PAL’s endorsement, PAL would not pay Singapore Airlines
for their passage. Savillo demanded compensation from both PAL and Singapore Airlines, but
his efforts were futile. He then sued PAL after 3 years, demanding moral damages. PAL, in its
MTD, claimed that the cause of action has already prescribed invoking the Warsaw Convention
which provides for a 2 year prescriptive period. Both RTC and CA ruled against PAL.

Issue:

What is the applicable law, the Civil code or the Warsaw Convention?

Is the action prescribed?

Ruling:

The Civil Code is applicable. Therefore the action has not yet prescribed.

The Warsaw Convention applies to “all international transportation of persons, baggage or

goods performed by any aircraft for hire.” It seeks to accommodate or balance the interests of
passengers seeking recovery for personal injuries and the interests of air carriers seeking to
limit potential liability. It employs a scheme of strict liability favoring passengers and imposing
damage caps to benefit air carriers. The cardinal purpose of the Warsaw Convention is to
provide uniformity of rules governing claims arising from international air travel; thus, it
precludes a passenger from maintaining an action for personal injury damages under local law
when his or her claim does not satisfy the conditions of liability under the Convention. Article
19 of the Warsaw Convention provides for liability on the part of a carrier for “damages
occasioned by delay in the transportation by air of passengers, baggage or goods. Article 24
excludes other remedies by further providing that “(1) in the cases covered by articles 18 and
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19, any action for damages, however founded, can only be brought subject to the conditions
and limits set out in this convention.” Therefore, a claim covered by the Warsaw Convention
can no longer be recovered under local law, if the statue of limitations of two years has elapsed.

Nevertheless, this Court notes that jurisprudence in the Philippines and the United States also
recognizes that the Warsaw Convention does not “exclusively regulate” the relationship
between passenger and carrier on an international flight.
In U.S. v. Uy, this Court distinguished between the (1) damage to the passenger’s baggage and
(2) humiliation he suffered at the hands of the airline’s employees. The First cause of action
was covered by the Warsaw Convention which prescribes in two years, while the second was
covered by the provisions of the Civil Code on torts, which prescribes in four years.

In the Petition at bar, Savillo’s Complaint alleged that both PAL and Singapore Airlines were
guilty of gross negligence, which resulted in his being subjected to “humiliation,
embarrassment, mental anguish, serious anxiety, fear and distress” therefore this case is not
covered by the Warsaw Convention.

Singapore Airlines barred Savillo from boarding the Singapore Airlines flight because PAL
allegedly failed to endorse the tickets of private respondent and his companions, despite PAL’s
assurances to Savillo that Singapore Airlines had already confirmed their passage. While this
fact still needs to heard and established by adequate proof before the RTC, an action based on
these allegations will not fall under the Warsaw Convention, since the purported negligence
on the party of PAL did not occur during the performance of the contract of carriage but days
before the scheduled flight. Thus, the present action cannot be dismissed based on the Statue
of Limitations provided under Article 29 of the Warsaw Convention.
2008
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Philippine Airlines, Incorporated vs. Court of Appeals

September 22, 2008

Facts:

Private respondents’ spouses Manuel and Aurora Buncio purchased from petitioner Philippine
Airlines, two plane tickets for their two minor children, Deanna and Nikolai. Since Deanna and
Nikolai will travel as unaccompanied minors, petitioner required private respondents to
accomplish, sign and submit to it an indemnity bond. Petitioner agreed to transport Deanna and
Nikolai from Manila to San Francisco, USA, through one of its planes. Petitioner also agreed that
upon the arrival of Deanna and Nikolai in San Francisco Airport, it would again transport the two
through a connecting flight from San Francisco to Los Angeles another airline. Deanna and Nikolai
then will be met by their grandmother, Mrs. Josefa Regalado at the Los Angeles Airport.

Deanna and Nikolai arrived at the San Francisco Airport. However, the staff of United Airways
refused to take them aboard for their connecting flight to Los Angeles because petitioner’s
personnel in San Francisco could not produce the indemnity bond accomplished and submitted
by private respondents. The said indemnity bond was lost by petitioner’s personnel during the
previous stop-over in Honolulu, Hawaii. Deanna and Nikolai were then left stranded at the San
Francisco Airport.

Mr. Edwin Strigl, petitioner’s personnel extended help to Deanna and Nikolai to San Francisco
Airport where the two boarded a plane bound for Los Angeles. Deanna and Nikolai arrived at the
Los Angeles Airport where they were met by Mrs. Regalado. Petitioner’s personnel had previously
informed Mrs. Regalado of the late arrival of Deanna and Nikolai.

Private respondents sent a letter to petitioner demanding payment of P1M as damages for the
gross negligence of its employees in transporting Deanna and Nikolai. Petitioner did not heed the
demand.

Private respondents filed a complaint for damages against petitioner before the RTC. The RTC
rendered a decision holding petitioner liable for damages for breach of contract of carriage. It
ruled that petitioner should pay moral and exemplary damages, plus attorney’s fees and costs of
suit.

Petitioner appealed to the Court of Appeals. The appellate court promulgated its decision
affirming in toto the RTC decision.

Issue:

Whether or not the CA erred in sustaining the RTC award of moral and exemplary damages as
well as attorney’s fees and costs.

Held:
2008

YES – moral and exemplary damages

NO – Attorney’s fees

The Petition was PARTLY GRANTED. The Decision of the CA was AFFIRMED with MODIFICATIONS
that the award of attorney’s fees was deleted.

Common Carriers; Air Transportation; Contract of Carriage; When an airline issues a ticket to a
passenger, confirmed for a particular flight on a certain date, a contract of carriage arises—the
passenger has every right to expect that he be transported on that flight and on that date, and it
becomes the airline’s obligation to carry him and his luggage safely to the agreed destination
without delay.—When an airline issues a ticket to a passenger, confirmed for a particular flight
on a certain date, a contract of carriage arises. The passenger has every right to expect that he
be transported on that flight and on that date, and it becomes the airline’s obligation to carry
him and his luggage safely to the agreed destination without delay. If the passenger is not so
transported or if in the process of transporting, he dies or is injured, the carrier may be held liable
for a breach of contract of carriage.

Same; Same; Same; Damages; Words and Phrases; “Gross Negligence,” Explained; In breach of
contract of air carriage, moral damages may be recovered where the negligence of the carrier is
so gross and reckless as to virtually amount to bad faith.—In breach of contract of air carriage,
moral damages may be recovered where (1) the mishap results in the death of a passenger; or
(2) where the carrier is guilty of fraud or bad faith; or (3) where the negligence of the carrier is
so gross and reckless as to virtually amount to bad faith. Gross negligence implies a want or
absence of or failure to exercise even slight care or diligence, or the entire absence of care. It
evinces a thoughtless disregard of consequences without exerting any effort to avoid them.

Same; Same; Same; A common carrier is bound by law to exercise extraordinary diligence and
utmost care in ensuring for the safety and welfare of its passengers with due regard for all the
circumstances.—It is worth emphasizing that petitioner, as a common carrier, is bound by law to
exercise extraordinary diligence and utmost care in ensuring for the safety and welfare of its
passengers with due regard for all the circumstances. The negligent acts of petitioner signified
more than inadvertence or inattention and thus constituted a radical departure from the
extraordinary standard of care required of common carriers.

Same; Same; Same; Damages; The award of exemplary damages is warranted where the air
carrier acted recklessly and malevolently in transporting the passengers, and its gross negligence
amounting to bad faith entitled the latter to moral damages.—Article 2232 of the Civil Code
provides that exemplary damages may be awarded in a breach of contract if the defendant acted
in a wanton, fraudulent, reckless, oppressive or malevolent manner. In addition, Article 2234
thereof states that the plaintiff must show that he is entitled to moral damages before he can be
awarded exemplary damages. As we have earlier found, petitioner breached its contract of
carriage with private respondents, and it acted recklessly and malevolently in transporting
2008

Deanna and Nikolai as unaccompanied minors and in handling their indemnity bond. We have
also ascertained that private respondents are entitled to moral damages because they have
sufficiently established petitioner’s gross negligence which amounted to bad faith. This being the
case, the award of exemplary damages is warranted.

Judgments; Attorney’s Fees; The matter of attorney’s fees cannot be dealt with only in the
dispositive portion of the decision—the text of the decision must state the reason behind the
award of attorney’s fees.—Current jurisprudence instructs that in awarding attorney’s fees, the
trial court must state the factual, legal, or equitable justification for awarding the same, bearing
in mind that the award of attorney’s fees is the exception, not the general rule, and it is not sound
public policy to place a penalty on the right to litigate; nor should attorney’s fees be awarded
every time a party wins a lawsuit. The matter of attorney’s fees cannot be dealt with only in the
dispositive portion of the decision. The text of the decision must state the reason behind the
award of attorney’s fees. Otherwise, its award is totally unjustified. In the instant case, the award
of attorney’s fees was merely cited in the dispositive portion of the RTC decision without the RTC
stating any legal or factual basis for said award. Hence, the Court of Appeals erred in sustaining
the RTC’s award of attorney’s fees.
2008
2008

Yrasuegui vs. Philippine Airlines, Inc.

Facts:
Complainant was an international flight steward who was dismissed because of his failure to
adhere to the weight standards of the company.
In Consequence thereof, petitioner filed a complaint for illegal dismissal against PAL before the
Labor Arbiter. The Labor Arbiter ruled that the petitioner was illegally dismissed. It also issued a
writ of execution directing the reinstatement of the petitioner without loss of security and other
benefits, and also the payment of backwages. Respondent PAL appealed to the NLRC which
affirmed the Labor Arbiter’s decision. Respondent PAL appealed the CA. CA reversed the NLRC
case.

Issue:
WON the dismissal of the petitioner valid?

Ruling:
Yes. SC upheld the legality of dismissal. Separation pay, however, should be awarded in favor of
the employee as an act of social justice or based on equity. This is so because his dismissal is not
for serious misconduct. Neither is it reflective of his moral character.
The obesity of petitioner, when placed in the context of his work as flight attendant, becomes an
analogous cause under Article 282(e) of the Labor Code. His obesity may not be unintended, but
is nonetheless voluntary. “[V]oluntariness basically means that the just cause is solely
attributable to the employee without any external force influencing or controlling his actions.
This element runs through all just causes under Article 282, whether they be in the nature of a
wrongful action or omission. Gross and habitual neglect, a recognized just cause, is considered
voluntary although it lacks the element of intent found in Article 282(a), (c), and (d).”
Employment in particular jobs may not be limited to persons of a particular sex, religion, or
national origin unless the employer can show that sex, religion, or national origin is an actual
qualification for performing the job.