G.R. No.

L-11037 December 29, 1960

EDGARDO CARIAGA, ET AL., Plaintiffs-Appellants, vs. LAGUNA TAYABAS BUS COMPANY, Defendant-
Appellant.
MANILA RAILROAD COMPANY, Defendant-Appellee.

Ozaeta, Lichauco and Picazo for defendant and appellant.

E.A. Fernandez and L.H. Fernandez for plaintiffs and appellants.
Gov't. Corp. Counsel A. Padilla and Atty. F.A. Umali for appellee.

DIZON, J.:

At about 1:00 p.m. on June 18, 1952, Bus No. 133 of the Laguna Tayabas Bus
Co. - hereinafter referred to as the LTB - driven by Alfredo Moncada, left its station at Azcarraga St.,
Manila, for Lilio, Laguna, with Edgardo Cariaga, a fourth-year medical student of the University of Santo
Tomas, as one of its passengers. At about 3:00 p.m., as the bus reached that part of the poblacion of
Bay, Laguna, where the national highway crossed a railroad track, it bumped against the engine of a
train then passing by with such terrific force that the first six wheels of the latter were derailed, the
engine and the front part of the body of the bus was wrecked, the driver of the bus died instantly, while
many of its passengers, Edgardo among them, were severely injured. Edgardo was first confined at the
San Pablo City Hospital from 5:00 p.m., June 18, 1952, to 8:25 a.m., June 20 of the same year when he
was taken to the De los Santos Clinic, Quezon City. He left that clinic on October 14 to be transferred to
the University of Santo Tomas Hospital where he stayed up to November 15. On this last date he was
taken back to the De los Santos Clinic where he stayed until January 15, 1953. He was unconscious
during the first 35 days after the accident; at the De los Santos Clinic Dr. Gustilo removed the fractured
bones which lacerated the right frontal lobe of his brain and at the University of Santo Tomas Hospital
Dr. Gustilo performed another operation to cover a big hole on the right frontal part of the head with a
tantalum plate.chanroblesvirtualawlibrary chanrobles virtual law library

The LTB paid the sum of P16,964.45 for all the hospital, medical and miscellaneous expenses incurred
from June 18, 1952 to April, 1953. From January 15, 1953 up to April of the same year Edgardo stayed in
a private house in Quezon, City, the LTB having agreed to give him a subsistence allowance of P10.00
daily during his convalescence, having spent in this connection the total sum of P775.30 in addition to
the amount already referred to.chanroblesvirtualawlibrary chanrobles virtual law library

On April 24, 1953 the present action was filed to recover for Edgardo Cariaga, from the LTB and the MRR
Co., and total sum of P312,000.00 as actual, compensatory, moral and exemplary damages, and for his
parents, the sum of P18,00.00 in the same concepts. The LTB disclaimed liability claiming that the
accident was due to the negligence of its co-defendant, the Manila Railroad Company, for not providing
a crossing bar at the point where the national highway crossed the railway track, and for this reason
filed the corresponding cross-claim against the latter company to recover the total sum of P18,194.75
representing the expenses paid to Edgardo Cariaga. The Manila Railroad Company, in turn, denied
liability upon the complaint and cross-claim alleging that it was the reckless negligence of the bus driver
that caused the accident.chanroblesvirtualawlibrary chanrobles virtual law library

The lower court held that it was the negligence of the bus driver that caused the accident and, as a
result, rendered judgment sentencing the LTB to pay Edgardo Cariaga the sum of P10,490.00 as
compensatory damages, with interest at the legal rate from the filing of the complaint, and dismissing
the cross-claim against the Manila Railroad Company. From this decision the Cariagas and the LTB
appealed.chanroblesvirtualawlibrary chanrobles virtual law library

The Cariagas claim that the trial court erred: in awarding only P10,490.00 as compensatory damages to
Edgardo; in not awarding them actual and moral damages, and in not sentencing appellant LTB to pay
attorney's fees.chanroblesvirtualawlibrary chanrobles virtual law library

On the other hand, the LTB's principal contention in this appeal is that the trial court should have held
that the collision was due to the fault of both the locomotive driver and the bus driver and erred, as a
consequence, in not holding the Manila Railroad Company liable upon the cross-claim filed against
it.chanroblesvirtualawlibrary chanrobles virtual law library

We shall first dispose of the appeal of the bus company. Its first contention is that the driver of the train
locomotive, like the bus driver, violated the law, first, in sounding the whistle only when the collision
was about to take place instead of at a distance at least 300 meters from the crossing, and second, in
not ringing the locomotive bell at all. Both contentions are without
merits.chanroblesvirtualawlibrary chanrobles virtual law library

After considering the evidence presented by both parties the lower court expressly found:

. . . While the train was approximately 300 meters from the crossing, the engineer sounded two long and
two short whistles and upon reaching a point about 100 meters from the highway, he sounded a long
whistle which lasted up to the time the train was about to cross it. The bus proceeded on its way
without slackening its speed and it bumped against the train engine, causing the first six wheels of the
latter to be derailed.

chanrobles virtual law library

. . . that the train whistle had been sounded several times before it reached the crossing. All witnesses
for the plaintiffs and the defendants are uniform in stating that they heard the train whistle sometime
before the impact and considering that some of them were in the bus at the time, the driver thereof
must have heard it because he was seated on the left front part of the bus and it was his duty and
concern to observe such fact in connection with the safe operation of the vehicle. The other L.T.B. bus
which arrived ahead at the crossing, heeded the warning by stopping and allowing the train to pass and
so nothing happened to said vehicle. On the other hand, the driver of the bus No. 133 totally ignored the
whistle and noise produced by the approaching train and instead he tried to make the bus pass the
crossing before the train by not stopping a few meters from the railway track and in proceeding ahead.

The above findings of the lower court are predicated mainly upon the testimony of Gregorio Ilusondo, a
witness for the Manila Railroad Company. Notwithstanding the efforts exerted by the LTB to assail his
credibility, we do not find in the record any fact or circumstance sufficient to discredit his testimony. We
have, therefore, no other alternative but to accept the findings of the trial court to the effect, firstly,
that the whistle of locomotive was sounded four times - two long and two short - "as the train was
approximately 300 meters from the crossing"; secondly, that another LTB bus which arrived at the
crossing ahead of the one where Edgardo Cariaga was a passenger, paid heed to the warning and
stopped before the "crossing", while - as the LTB itself now admits (Brief p. 5) - the driver of the bus in
question totally disregarded the warning.chanroblesvirtualawlibrary chanrobles virtual law library

But to charge the MRR Co. with contributory negligence, the LTB claims that the engineer of the
locomotive failed to ring the bell altogether, in violation of the section 91 of Article 1459, incorporated
in the charter of the said MRR Co. This contention - as is obvious - is the very foundation of the cross-
claim interposed by the LTB against its
co-defendant. The former, therefore, had the burden of proving it affirmatively because a violation of
law is never presumed. The record discloses that this burden has not been satisfactorily
discharged.chanroblesvirtualawlibrary chanrobles virtual law library

The Cariagas, as appellants, claim that the award of P10,000.00 compensatory damages to Eduardo is
inadequate considering the nature and the after effects of the physical injuries suffered by him. After a
careful consideration of the evidence on this point we find their contentions to be well-
founded.chanroblesvirtualawlibrary chanrobles virtual law library

From the deposition of Dr. Romeo Gustilo, a neurosurgeon, it appears that, as a result of the injuries
suffered by Edgardo, his right forehead was fractured necessitating the removal of practically all of the
right frontal lobe of his brain. From the testimony of Dr. Jose A. Fernandez, a psychiatrist, it may be
gathered that, because of the physical injuries suffered by Edgardo, his mentality has been so reduced
that he can no longer finish his studies as a medical student; that he has become completely misfit for
any kind of work; that he can hardly walk around without someone helping him, and has to use a brace
on his left leg and feet.chanroblesvirtualawlibrary chanrobles virtual law library

Upon the whole evidence on the matter, the lower court found that the removal of the right frontal lobe
of the brain of Edgardo reduced his intelligence by about 50%; that due to the replacement of the right
frontal bone of his head with a tantalum plate Edgardo has to lead a quite and retired life because "if
the tantalum plate is pressed in or dented it would cause his death."chanrobles virtual law library

The impression one gathers from this evidence is that, as a result of the physical injuries suffered by
Edgardo Cariaga, he is now in a helpless condition, virtually an invalid, both physically and
mentally.chanroblesvirtualawlibrary chanrobles virtual law library

Appellant LTB admits that under Art. 2201 of the Civil Code the damages for which the obligor, guilty of
a breach of contract but who acted in good faith, is liable shall be those that are the natural and
probable consequences of the breach and which the parties had forseen or could have reasonably
forseen at the time the obligation was constituted, provided such damages, according to Art. 2199 of
the same Code, have been duly proved. Upon this premise it claims that only the actual damages
suffered by Edgardo Cariaga consisting of medical, hospital and other expenses in the total sum of
P17,719.75 are within this category. We are of the opinion, however, that the income which Edgardo
Cariaga could earn if he should finish the medical course and pass the corresponding board
examinations must be deemed to be within the same category because they could have reasonably
been foreseen by the parties at the time he boarded the bus No. 133 owned and operated by the LTB. At
that time he was already a fourth-year student in medicine in a reputable university. While his scholastic
may not be first rate (Exhibits 4, 4-A to 4-C), it is, nevertheless, sufficient to justify the assumption that
he could have passed the board test in due time. As regards the income that he could possibly earn as a
medical practitioner, it appears that, according to Dr. Amado Doria, a witness for the LTB, the amount of
P300.00 could easily be expected as the minimum monthly income of Edgardo had he finished his
studies.chanroblesvirtualawlibrary chanrobles virtual law library

Upon consideration of all the facts mentioned heretofore this Court is of the opinion, and so holds, that
the compensatory damages awarded to Edgardo Cariaga should be increased to
P25,000.00.chanroblesvirtualawlibrary chanrobles virtual law library

Edgardo Cariaga's claim for moral damages and attorney's fees was denied by the trial court, the
pertinent portion of its decision reading as follows:

Plaintiffs' claim for moral damages cannot also be granted. Article 2219 of the Civil Code enumerates the
instances when moral damages may be covered and the case under consideration does not fall under
any one of them. The present action cannot come under paragraph 2 of said article because it is not one
of the quasi-delict and cannot be considered as such because of the pre-existing contractual relation
between the Laguna Tayabas Bus Company and Edgardo Cariaga. Neither could defendant Laguna
Tayabas Bus Company be held liable to pay moral damages to Edgardo Cariaga under Article 2220 of the
Civil Code on account of breach of its contract of carriage because said defendant did not act
fraudulently or in bad faith in connection therewith. Defendant Laguna Tayabas Bus Company had
exercised due diligence in the selection and supervision of its employees like the drivers of its buses in
connection with the discharge of their duties and so it must be considered an obligor in good
faith.chanroblesvirtualawlibrary chanrobles virtual law library

The plaintiff Edgardo Cariaga is also not entitled to recover for attorney's fees, because this case does
not fall under any of the instances enumerated in Article 2208 of the Civil Code.

We agree with the trial court and, to the reason given above, we add those given by this Court in
Cachero vs. Manila Yellow Taxicab Co., Inc.(101 Phil., 523, 530, 533):

A mere perusal of plaintiff's complaint will show that this action against the defendant is predicated on
an alleged breach of contract of carriage, i.e., the failure of the defendants to bring him "safely and
without mishaps" to his destination, and it is to be noted that the chauffeur of defendant's taxicab that
plaintiff used when he received the injuries involved herein, Gregorio Mira, has not even made a party
defendant to this case.chanroblesvirtualawlibrary chanrobles virtual law library

Considering, therefore, the nature of plaintiff's action in this case, is he entitled to compensation for
moral damages? Article 2219 of the Civil Code says the following:chanrobles virtual law library

Art. 2219. Moral damages may be recovered in the following and analogous cases:chanrobles virtual law
library

(1) A criminal offense resulting in physical injuries;chanrobles virtual law library

(2) Quasi-delicts causing physical injuries;chanrobles virtual law library

(3) Seduction, abduction, rape, or other lascivious acts;chanrobles virtual law library

(4) Adultery or concubinage;chanrobles virtual law library

(5) Illegal or arbitrary detention or arrest;chanrobles virtual law library

(6) Illegal search;chanrobles virtual law library

(7) Libel, slander or any other form of defamation;chanrobles virtual law library

(8) Malicious prosecution;chanrobles virtual law library

(9) Acts mentioned in Article 309;chanrobles virtual law library

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

chanrobles virtual law library

Of course enumerated in the just quoted Article 2219 only the first two may have any bearing on the
case at bar. We find, however, with regard to the first that the defendant herein has not committed in
connection with this case any "criminal offense resulting in physical injuries". The one that committed
the offense against the plaintiff is Gregorio Mira, and that is why he has been already prosecuted and
punished therefor. Altho (a) owners and managers of an establishment and enterprise are responsible
for damages caused by their employees in the service of the branches in which the latter are employed
or on the occasion of their functions; (b) employers are likewise liable for damages caused by their
employees and household helpers acting within the scope of their assigned task (Article 218 of the Civil
Code); and (c) employers and corporations engaged in any kind of industry are subsidiary civilly liable for
felonies committed by their employees in the discharge of their duties (Art. 103, Revised Penal Code),
plaintiff herein does not maintain this action under the provisions of any of the articles of the codes just
mentioned and against all the persons who might be liable for the damages caused, but as a result of an
admitted breach of contract of carriage and against the defendant employer alone. We, therefore, hold
that the case at bar does not come within the exception of paragraph 1, Article 2219 of the Civil
Code.chanroblesvirtualawlibrary chanrobles virtual law library

The present complaint is not based either on a "quasi-delict causing physical injuries" (Art. 2219, par. 2
of the Civil Code). From the report of the Code Commission on the new Civil Code. We copy the
following:chanrobles virtual law library

A question of nomenclature confronted the Commission. After a careful deliberation, it was agreed to
use the term "quasi-delict" for those obligations which do not arise from law, contracts, quasi-contracts,
or criminal offenses. They are known in Spanish legal treaties as "culpa aquiliana", "culpa-extra-
contractual" or "cuasi-delitos". The phrase "culpa-extra-contractual" or its translation "extra-
contractual-fault" was eliminated because it did not exclude quasi-contractual or penal obligations.
"Aquilian fault" might have been selected, but it was thought inadvisable to refer to so ancient a law as
the "Lex Aquilia". So "quasi-delict" was chosen, which more nearly corresponds to the Roman Law
classification of the obligations and is in harmony with the nature of this kind of
liability.chanroblesvirtualawlibrary chanrobles virtual law library

The Commission also thought of the possibility of adopting the word "tort" from Anglo-American law.
But "tort" under that system is much broader than the Spanish-Philippine concept of obligations arising
from non-contractual negligence. "Tort" in Anglo-American jurisprudence includes not only negligence,
but also intentional criminal act, such as assault and battery, false imprisonment and deceit. In the
general plan of the Philippine legal system, intentional and malicious acts are governed by the Penal
Code, although certain exceptions are made in the Project. (Report of the Code Commission, pp. 161-
162).chanroblesvirtualawlibrary chanrobles virtual law library
In the case of Cangco, vs. Manila Railroad, 38 Phil. 768, We established the distinction between
obligation derived from negligence and obligation as a result of a breach of contract. Thus, we
said:chanrobles virtual law library

It is important to note that the foundation of the legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if at all,
from the breach of that contract by reason of the failure of defendant to exercise due care in its
performance. That is to say, its liability is direct and immediate, differing essentially in the legal
viewpoint from the presumptive responsibility for the negligence of its servants, imposed by Article 1903
of the Civil Code (Art. 2180 of the new), which can be rebutted by proof of the exercise of due care in
their selection of supervision. Article 1903 is not applicable to obligations arising EX CONTRACTU, but
only to extra-contractual obligations - or to use the technical form of expression, that article relates only
to CULPA AQUILIANA' and not to CULPA CONTRACTUAL.chanroblesvirtualawlibrary chanrobles virtual
law library

The decisions in the cases of Castro vs. Acro Taxicab Co., (82 Phil., 359; 46 Off. Gaz., No. 5, p. 2023);
Lilius, et al. vs. Manila Railroad, 59 Phil., 758) and others, wherein moral damages were awarded to the
plaintiffs, are not applicable to the case at bar because said decision were rendered before the
effectivity of the new Civil Code (August 30, 1950) and for the further reason that the complaints filed
therein were based on different causes of action.chanroblesvirtualawlibrary chanrobles virtual law
library

In view of the foregoing the sum of P2,000 was awarded as moral damages by the trial court has to be
eliminated, for under the law it is not a compensation awardable in a case like the one at bar.

What has been said heretofore relative to the moral damages claimed by Edgardo Cariaga obviously
applies with greater force to a similar claim (4th assignment of error) made by his
parents.chanroblesvirtualawlibrary chanrobles virtual law library

The claim made by said spouses for actual and compensatory damages is likewise without merits. As
held by the trial court, in so far as the LTB is concerned, the present action is based upon a breach of
contract of carriage to which said spouses were not a party, and neither can they premise their claim
upon the negligence or quasi-delict of the LTB for the simple reason that they were not themselves
injured as a result of the collision between the LTB bus and train owned by the Manila Railroad
Company.chanroblesvirtualawlibrary chanrobles virtual law library

Wherefore, modified as above indicated, the appealed judgement is hereby affirmed in all other
respects, with costs against appellant LTB.chanroblesvirtualawlibrary chanr

142 Phil. 494

CONCEPCION, C.J.:

Petitioner, Villa Rey Transit, Inc., seeks the review by certiorari of a decision of the Court of Appeals
affirming that of the Court of First Instance of Pangasinan. The basic facts are set forth in said decision
of the Court of Appeals, from which We quote:
"At about 1:30 in the morning of March 17, 1960, an Izuzu First Class passenger bus owned and
operated by the defendant, bearing Plate No. TPU-14871-Bulacan and driven by Laureano Casim,
left Lingayen, Pangasinan, for Manila. Among its paying passengers was the
deceased, Policronio Quintos, Jr. who sat on the first seat, second row, right side of the bus. At
about 4:55 o'clock a.m. when the vehicle was nearing the northern approach of the Sadsaran Bridge on
the national highway in barrio Sto. Domingo, municipality of Minalin, Pampanga, it frontally hit the rear
side of a bullcart filled with hay. As a result the end of a bamboo pole placed on top of the hayload and
tied to the cart to hold it in place, hit the right side of the windshield of the bus. The protruding end of
the bamboo pole, about 8 feet long from the rear of the bullcart, penetrated through the glass
windshield and landed on the face of Policronio Quintos, Jr. who, because of the impact, fell from his
seat and was sprawled on the floor. The pole landed on his left eye and the bone of the left side of his
face was fractured. He suffered other multiple wounds and was rendered unconscious due, among
other causes to severe cerebral concussion. A La Mallorca passenger bus going in the opposite direction
towards San Fernando, Pampanga, reached the scene of the mishap and it was stopped by
Patrolman Felino Bacani of the municipal police force of Minalin who, in the meantime, had gone to the
scene to investigate. Patrolman Bacani placed Policronio Quintos, Jr. and three other injured men who
rode on the bullcart aboard the La Mallorca bus and brought them to the provincial hospital
of Pampanga at San Fernando for medical assistance. Notwithstanding such
assistance, Policronio Quintos, Jr. died at 3:15 p.m. on the same day, March 17, 1960, due to traumatic
shock due to cerebral injuries."

The private respondents, Trinidad, Prima and Junta, all surnamed Quintos, are the sisters and only
surviving heirs of Policronio Quintos, Jr., who died single, leaving no descendants nor ascendants. Said
respondents herein brought this action against herein petitioner, Villa Rey Transit, Inc., as owner and
operator of said passenger bus, bearing Plate No. TPU-14871-Bulacan, for breach of the contract of
carriage between said petitioner and the deceased Policronio Quintos, Jr., to recover the aggregate sum
of P63,750.00 as damages, including attorney's fees. Said petitioner - defendant in the court of first
instance - contended that the mishap was due to a fortuitous event, but this pretense was rejected by
the trial court and the Court of Appeals, both of which found that the accident and the death
of Policronio had been due to the negligence of the bus driver, for whom petitioner was liable under its
contract of carriage with the deceased. In the language of His Honor, the trial Judge:

"The mishap was not the result of any unforeseeable fortuitous event or emergency but was the direct
result of the negligence of the driver of the defendant. The defendant must, therefore, respond for
damages resulting from its breach of contract for carriage. As the complaint alleged a total damage of
only P63,750.00 although as elsewhere shown in this decision the damages for wake and burial ex-
penses, loss of income, death of the victim, and attorneys fee reach the aggregate of P79,615.95,this
Court finds it just that said damages be assessed at total of only P63, 750.00 as prayed for in plaintiffs'
amended complaint."

The dispositive part of the decision of the trial Court reads:

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay to the plaintiffs the amount
of P63,750.00 as damages for breach of contact of carriage resulting from the death
of Policronio Quintos, Jr."
which, as above indicated, was affirmed by the Court of Appeals. Hence, the present petition for review
on certiorari, filed by Villa Rey Transit, Inc.

The only issue raised in this appeal is the amount of damages recoverable by private respondents
herein. The determination of such amount depends, mainly upon two (2) factors, namely: (1) the num-
ber of years on the basis of which the damages shall be computed; and (2) the rate at which the losses
sustained by said respondents should be fixed.

The first factor was based by the trial court - the view of which was concurred in by the Court of Appeals
- upon the life expectancy of Policronio Quintos, Jr., which was placed at 33-1/3 years - he being over 29
years of age (or around 30 years for purposes of computation) at the time of his demise - by applying
the formula (2/3 x [80-30] = life expectancy) adopted in the American Expectancy Table of Mortality or
the actuarial or Combined Experience Table of Mortality. Upon the other hand, petitioner maintains
that the lower courts had erred in adopting said formula and in not acting in accordance
with Alcantara v. Surro[1] in which the damages were computed on a four (4) year basis, despite the fact
that the victim therein was 39 years old, at the time of his death, and had a life expectancy of 28.90
years.

The case cited is not, however, controlling in the one at bar. In the Alcantara case, none of the parties
had questioned the propriety of the four-year basis adopted by the trial court in making its award of
damages. Both parties appealed, but only as regards the amount thereof. The plaintiffs assailed the
non-inclusion, in its computation, of the bonus that the corporation, which was the victim's employer,
had awarded to deserving officers and employees, based upon the profits earned less than two (2)
months before the accident that resulted in his death. The defendants in turn, objected to the sum
awarded for the fourth year, which was treble that of the previous years, based upon the increases
given, in that fourth year, to other employees of the same corporation. Neither this objection nor said
claim for inclusion of the bonus was sustained by this Court. Accordingly, the same had not thereby laid
down any rule on the length of time to be used in the computation of damages. On the contrary, it
declared:

"The determination of the indemnity to be awarded to the heirs of a deceased person has therefore no
fixed basis. Much is left to the discretion of the court considering the moral and material damages
involved, and so it has been said that '(t)here can be no exact or uniform rule for measuring the value of
a human life and the measure of damages cannot be arrived at by precise mathematical calculation,
but the amount recoverable depends on the particular facts and circumstances of each case. The life
expectancy of the deceased or of the beneficiary, whichever is shorter, is an important factor.' (25 C.J.S.
1241.) Other factors that are usually considered are: (1) pecuniary loss to plaintiff or beneficiary (25
C.J.S. 1243-1250); (2) loss of support (25 C.J.S., 1250-1251); (3) loss of service (25 C.J.S. 1251-1254); (4)
loss of society (25 C.J.S. 1254-1255); (5) mental suffering of beneficiaries (25 C.J.S., 1258-1259); and (6)
medical and funeral expenses (25 C.J.S., 1254-1260)."[2]

Thus, life expectancy is, not only relevant, but, also, an important element in fixing the amount
recoverable by private respondents herein. Although it is not the sole element determinative of said
amount, no cogent reason has been given to warrant its disregard and the adoption, in the case at bar,
of a purely arbitrary standard, such as a four-year rule. In short, the Court of Appeals has not erred in
basing the computation of petitioner's liability upon the life expectancy of Policronio Quintos, Jr.
With respect to the rate at which the damages shall be computed, petitioner impugns the decision
appealed from upon the ground that the damages awarded therein will have to be paid now, whereas
most of those sought to be indemnified will be suffered years later. This argument is basically true, and
this is, perhaps, one of the reasons why the Alcantara case points out the absence of a "fixed basis" for
the ascertainment of the damages recoverable in litigations like the one at bar. Just the same, the force
of the said argument of petitioner herein is offset by the fact that, although payment of the award in the
case at bar will have to take place upon the finality of the decision therein, the liability of petitioner
herein had been fixed at the rate only of P2,184.00 a year, which is the annual salary
of Policronio Quintos, Jr. at the time of his death, as a young "training assistant" in the Bacnotan Cement
Industries, Inc. In other words, unlike the Alcantara case, on which petitioner relies, the lower courts did
not consider, in the present case, Policronio's potentiality and capacity to increase his future
income. Indeed, upon the conclusion of his training period, he was supposed to have a better job and
be promoted from time to time, and, hence, to earn more, if not - considering the growing importance
of trade, commerce and industry and the concomitant rise in the income level of officers and employees
therein - much more.

At this juncture, it should be noted, also, that We are mainly concerned with the determination of the
losses or damages sustained by the private respondents, as dependents and intestate heirs of the
deceased, and that said damages consist, not of the full amount of his earnings, but of the support they
received or would have received from him had he not died in consequence of the negligence of peti-
tioner's agent. In fixing the amount of that support, We must reckon with the "necessary expenses of
his own living", which should be deducted from his earnings. Thus, it has been consistently held that
earning capacity, as an element of damages to one's estate for his death by wrongful act is necessarily
his net earning capacity or his capacity to acquire money, 'less the necessary expense for his own
living."[3] Stated otherwise, the amount recoverable is not the loss of the entire earning, but rather the
loss of that portion of the earnings which the beneficiary would have received.[4] In other words, only
net earnings, not gross earning, are to be considered,[5] that is, the total of the earnings less expenses
necessary in the creation of such earnings or income[6] and less living and other incidental expenses.[7]

All things considered, We are of the opinion that it is fair and reasonable to fix the deductible living and
other expenses of the deceased at the sum of P1,184.00 a year, or about P100.00 a month, and that,
consequently, the loss sustained by his sisters may be roughly estimated at P1,000.00 a year or
P33,333.33 for the 33-1/3 years of his life expectancy. To this sum of P33,333.33, the following should
be added: (a) P12,000.00, pursuant to Arts. 104 and 107 of the Revised Penal Code, in relation to Article
2206 of our Civil Code, as construed and applied by this Court;[8] (b) P1,727.95, actually spent by private
respondents for medical and burial expenses; and (c) attorney's fees, which was fixed by the trial court,
at P500.00, but which, in view of the appeal taken by petitioner herein, first to the Court of Appeals and
later to this Supreme Court, should be increased to P2,500.00. In other words, the amount adjudged in
the decision appealed from should be reduced to the aggregate sum of P49,561.28, with interest
thereon, at the legal rate, from December 29, 1961, date of the promulgation of the decision of the trial
court.

Thus modified, said decision and that of the Court of Appeals are hereby affirmed, in all other respects,
with costs against petitioner, Villa Rey Transit, Inc.

IT IS SO ORDERED.
105 Phil. 266

REYES, J.B.L., J.:

Defendant-petitioner Paz Fores brings this petition for review of the decision of the Court of Appeals
(C. A. Case No. 1437-R) awarding to the plaintiff-respondent Ireneo Miranda the sums of P5,000
by way of actual damages and counsel fees, and P10,000 as moral damages, with costs.

Respondent was one of the passengers on a jeepney driven by Eugenio Luga. While the vehicle was
descending the Sta. Mesa bridge at an excessive rate of speed, the driver lost control thereof, causing it
to swerve and to hit the bridge wall. The accident occurred on the morning of March 22, 1953. Five
of the passengers were injured, including the respondent who suffered a fracture of the upper
right humerus. He was taken to the National Orthopedic Hospital for treatment, and later was
subjected to a series of operations; the first on May 23, 1953, when wire loops were wound around
the broken bones and screwed into place; a second, effected to insert a metal splint, and
a third one to remove such splint. At the time of the trial, it appears that respondent had not yet
recovered the use of his right arm.

The driver was charged with serious physical injuries through reckless imprudence, and upon
interposing a plea of guilty was sentenced accordingly.

The contention that the evidence did not sufficiently establish the identity of the vehicle as that
belonging to the petitioner was rejected by the appellate court which found, among other things, that it
carried plate No. TPU-1163, series of 1952, Quezon City, registered in the name of Paz Fores,
(appellant herein) and that the vehicle even had the name of "Dona Paz" painted
below its windshield. No evidence to the contrary was introduced by the petitioner, who relied on an
attack upon the credibility of the two policemen who went to the scene of the incident.

A point to be further remarked is petitioner's contention that on March 21, 1953, or one day before
the accident happened, she allegedly sold the passenger jeep that was involved therein to a certain
Carmen Sackerman.

The initial problem raised by the petitioner in this appeal may be formulated thus "Is the approval of
the Public Service Commission necessary for the sale of a public service vehicle even without
conveying therewith the authority to operate the same?" Assuming the dubious sale to be a fact, the
Court of Appeals answered the query in the affirmative. The ruling should be upheld. Section 20 of
the Public Service Act (Commonwealth Act No. 146) provides:

"SEC. 20. Subject to established limitations and exceptions and saving provisions to the contrary, it
shall be unlawful for any public service or for the owner, lessee or operator thereof, without the
previous approval and authority of the Commission previously had
* * * * * * *

(g) To sell, alienate, mortgage, encumber or lease its property, franchises,

certificates, privileges, or rights, or any part thereof; or merge or consolidate its property, franchises,
privileges or rights, or any part thereof, with those of any other public service. The approval herein
required shall be given, after notice to the public and after hearing the persons interested at a public
hearing, if it be shown that there are just and reasonable grounds for making the mortgage or
encumbrance, for liabilities of more than one year maturity, or the sale, alienation, lease, merger, or
consolidation to be approved and that the same are not detrimental to the public interest, and in case
of. a sale, the date on which the same is to be consummated shall be fixed in the order of
approval: Provided, however, That nothing herein contained shall be construed to prevent
the transaction from being negotiated or completed before its approval or to prevent the sale,
alienation, or lease by any public service of any of its property in the ordinary course of its business."

Interpreting the effects of this particular provision of law, we have held in the recent cases
of Montoya vs. Ignacio,[* ]50 Off. Gaz. No. 1, p. 108; Timbol vs. Osias, et al., G. R. No. L-7547, April
30, 1955, and Medina vs. Cresencia, 99 Phil, 506; 52 Off. Gaz. No. 10, p. 4606, that a transfer
contemplated by the law, if made without the requisite approval of the Public Service Commission, is
not effective and binding in so far as the responsibility of the grantee under the franchise in relation to
the public is concerned. Petitioner assails, however, the applicability of these rulings to the
instant case, contending that m those cases, the operator did not convey, by lease or by sale, the
vehicle independently of his rights under the franchise. This line of reasoning does not find support in
the law. The provisions of the statute are clear and prohibit the sale, alienation, lease, or encumbrance
of the property, franchise, certificate, privileges or rights, or any part thereof of the owner or operator
of the public service without approval or authorization of the Public
Service Commission. The law was designed primarily for the protection of the public interest; and
until the approval of the Public Service Commission is obtained the vehicle is, in contemplation of
law, still under the service of the owner or operator standing in the records of the Commission which
the public has a right to rely upon.

The proviso contained in the aforequoted law, to the effect that nothing therein shall
be construed "to prevent the transaction from being negotiated or completed before its approval",
means only that the sale without the required approval is still valid and binding between the parties
(Montoya vs. Ignacio, supra). The phrase "in the ordinary course of its business" found in the other
proviso "or to prevent the sale, alienation, or lease by any public service of any of its property",
as correctly observed by the lower court, could not have been intended to include the sale of the
vehicle itself, but at most may refer only to such property that may be conceivably disposed or by the
carrier in the ordinary course of its business, like junked equipment or spare parts.

The case of Indalecio de Torres vs. Vicente Ona (63 Phil., 594, 597) is enlightening; and there, it was
held:

"Under the law, the Public Service Commission has not only general supervision and regulation of,
but also full jurisdiction and control over all public utilities including the property, equipment and
facilities used, and the property rights and franchises enjoyed by every individual and company
engaged in the performance of a public service in the sense this phrase is used in the Public Service Act
or Act No. 3108 (sec. 1308). By virtue of the provisions of said Act, motor vehicles used in the
performance of a service, as the transportation of freight from one point to another, have to this
date been considered and they cannot but be so considered public service property; and, by reason
of its own nature, a TH truck, which means that the operator thereof places it at the disposal
of anybody who is willing to pay a rental for its use, when he desires to transfer or carry his effects,
merchandise or any other cargo from one place to another, is necessarily a public service
property." (Emphasis supplied)

Of course, this Court has held in the case of Bachrach Motor Co. vs. Zamboanga Transportation Co., 52
Phil., 244, that there may be a mine pro tune authorization which has the effect of having the
approval retroact to the date of the transfer; but such outcome cannot prejudice rights intervening in
the meantime. It appears that no such approval was given by the Commission before the accident
occurred.

The P10,000 actual damages awarded by the Court of First Instance of Manila were reduced by
the Court of Appeals to only P2,000, on the ground that a review of the records failed to disclose a
sufficient basis for the trial court's appraisal, since the only evidence presented on this point consisted
of respondent's bare statement that his expenses and loss of income amounted to P20,000. On the
other hand, "it cannot be denied," the lower court said, "that appellee (respondent) did incur
expenses." It is well to note further that respondent was a painter by profession and a
professor of Fine Arts, so that the amount of P2,000 awarded cannot be said
to be excessive (see Arts. 2224 and 2225, Civil Code of the Philippines). The attorney's fees in
the sum of P3,000 also awarded to the respondent are assailed on the ground that the Court of First
Instance did not provide for the same, and since no appeal was interposed by said respondent, it was
allegedly error for the Court of Appeals to award them motu proprio. Petitioner fails to note that
attorney's fees are included in the concept of actual damages under the Civil Code and may
be awarded whenever the court deems it just and equitable (Art. 2208, Civil Code of the
Philippines). We see no reason to alter these awards.

Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We
have repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil., 523; 54 Off. Gaz., [26],
6599; Necesito, et al vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23] 4023, that moral damages are not
recoverable in damage actions predicated on a breach of the contract of transportation, in view of
Articles 2219 and 2220 of the new Civil Code, which provide as follows:

"Art. 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

* * * * * * *
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith."

By contrasting the provisions of these two articles it immediately becomes apparent that:

(a) In case of breach of contract (including one of transportation) proof of bad faith or fraud (dolus),
i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral damages; and

(b) That a breach of contract can not be considered included in the descriptive term "analogous cases"
used in Art. 2219; not only because Art. 2220 specifically provides for the damages that are caused by
contractual breach, but because the definition of quasi-delict in Art. 2176 of the Code
expressly excludes the cases where there is a "preexisting contractual relation between the parties."

"Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter."

The exception to the basic rule of damages now under consideration is a mishap resulting in the death
of a passenger, in which case Article 1764 makes the common carrier expressly subject to the rule of
Art. 2206, that entitles the spouse, descendants and ascendants of the deceased passenger to
"demand moral damages for mental anguish by reason of the death of the deceased"
(Necesito vs. Paras, 104 Phil., 84, Resolution on motion to reconsider, September 11, 1958). But
the exceptional rule of Art. 1764 makes it all the more evident that where the injured passenger does
not die, moral damages are not recoverable unless it is proved that the carrier was guilty of malice or
bad faith. We think it is clear that the mere carelessness of the carrier's driver does not per se
constitute or justify an inference of malice or bad faith on the part of the carrier; and in the case at
bar there is no other evidence of such malice to support the award of moral damages by the Court of
Appeals. To award moral damages for breach of contract, therefore, without proof of bad faith or
malice on the part of the defendant, as required by Art. 2220", would be to violate the clear provisions
of the law, and constitute unwarranted judicial legislation.

The Court of Appeals has invoked our rulings in Castro vs. Aero Taxicab Co-, R. G. No. 49155, December
14, 1948 and Layda vs. Court of Appeals, 90 Phil., 724; but these doctrines were predicated upon our
former law of damages, before judicial discretion in fixing them became limited by the express
provisions of the new Civil Code (previously quoted). Hence, the aforesaid rulings are now
inapplicable.

Upon the other hand, the advantageous position of a party suing a carrier for breach of the contract of
transportation explains, to some extent, the limitations imposed by the new Code on the amount of
the recovery. The action for breach of contract imposes on the defendant carrier a presumption of
liability upon mere proof of injury to the passenger; that latter is relieved from the duty to establish the
fault of the carrier, or of his employees, and the burden is placed on the carrier to prove that it was
due to an unforseen event or to force majeure (Cangco vs. Manila Railroad Co., 38 Phil, 768,
777). Moreover, the carrier, unlike in suits for quasi-delict, may not escape liability by proving that it
has exercised due diligence in the selection and supervision of its employees (Art. 1759, new Civil
Code; Cangco vs. Manila Railroad Co., supra; Prado vs. Manila Electric Co., 51 Phil., 900).

The difference in conditions, defenses and proof, as well as the codal concept of quasi-delict as
essentially extra contractual negligence, compel us to differentiate between action ex contractu, and
actions quasi ex delicto, and prevent us from viewing the action for breach of contract as
simultaneously embodying an action on tort. Neither can this action be taken as one to enforce
on employee's liability under Art. 103 of the Revised Penal Code, since the responsibility is not alleged
to be subsidiary, nor is there on record any averment or proof that the driver of appellant was
insolvent. In fact, he is not even made a party to the suit.

It is also suggested that a carrier's violation of its engagement to safely transport the passenger
involves a breach of the passenger's confidence, and therefore should be regarded as a
breach of contract in bad faith, justifying recovery of moral damages under Art. 2220. This theory is
untenable, for under it the carrier would always be deemed in bad faith, in every case its obligation to
the passenger is infringed, and it would be never accountable for simple negligence; while under the
law (Art. 1756). the presumption is that common carriers acted negligently (and not maliciously), and
Art. 1762 speaks of negligence of the common carrier.

"Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence
as prescribed in articles 1733 and 1755."

"Art. 1762. The contributory negligence of the passenger does not bar recovery of damages for his
death or injuries, if the proximate cause thereof is the negligence of the common carrier, but the
amount of damages shall be equitably reduced."

The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong doing and
negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts. 1170-1172);
their consequences being clearly differentiated by the Code.

"Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonably foreseen at the time
the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation."

It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in
the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages to breaches of
contract in bad faith. It is true that negligence may be occasionally so gross as to amount to malice; but
that fact must be shown in evidence, and a carrier's bad faith is not to be lightly inferred from
a mere finding that the contract was breached through negligence of the carrier's employees.

In view of the foregoing considerations, the decision of the Court of Appeals is modified by eliminating
the award of P5.000.00 by way of moral damages (Court of Appeals Resolution
of May 5, 1957). In all other respects, the judgment is affirmed. No costs in this instance. So
ordered.

FIRST DIVISION

[G.R. NO. 159636 : November 25, 2004]

VICTORY LINER, INC., Petitioner, v. ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P.
GAMMAD and DIANA FRANCES P. GAMMAD, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this Petition for Review on Certiorari is the April 11, 2003 decision1 of the Court of Appeals in
CA-G.R. CV No. 63290 which affirmed with modification the November 6, 1998 decision2 of the Regional
Trial Court of Tuguegarao, Cagayan, Branch 5 finding petitioner Victory Liner, Inc. liable for breach of
contract of carriage in Civil Case No. 5023.

The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife Marie
Grace Pagulayan-Gammad,3 was on board an air-conditioned Victory Liner bus bound for Tuguegarao,
Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine
somewhere in Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in the death of Marie Grace and
physical injuries to other passengers.4

On May 14, 1996, respondent heirs of the deceased filed a complaint5 for damages arising from culpa
contractual against petitioner. In its answer,6 the petitioner claimed that the incident was purely
accidental and that it has always exercised extraordinary diligence in its 50 years of operation.

After several re-settings,7 pre-trial was set on April 10, 1997.8 For failure to appear on the said date,
petitioner was declared as in default.9 However, on petitioner's motion10 to lift the order of default, the
same was granted by the trial court.11

At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the
deceased was a passenger of the Victory Liner Bus which fell on the ravine and that she was issued
Passenger Ticket No. 977785. Respondents, for their part, did not accept petitioner's proposal to pay
P50,000.00.12

After respondent Rosalito Gammad completed his direct testimony, cross-examination was scheduled
for November 17, 199713 but moved to December 8, 1997,14 because the parties and the counsel failed
to appear. On December 8, 1997, counsel of petitioner was absent despite due notice and was deemed
to have waived right to cross-examine respondent Rosalito.15

Petitioner's motion to reset the presentation of its evidence to March 25, 199816 was granted. However,
on March 24, 1998, the counsel of petitioner sent the court a telegram17 requesting postponement but
the telegram was received by the trial court on March 25, 1998, after it had issued an order considering
the case submitted for decision for failure of petitioner and counsel to appear.18

On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive
portion of which reads:

WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in favor of
the plaintiffs and against the defendant Victory Liner, Incorporated, ordering the latter to pay the
following:

1. Actual Damages - - - - - - - - - - - - - - - - - - - - P 122,000.00

2. Death Indemnity - - - - - - - - - - - - - - - - - - - - - 50,000.00

3. Exemplary and Moral Damages - - - - - 400,000.00

4. Compensatory Damages - - - - - - - - - - 1,500,000.00

5. Attorney's Fees - - - - - - - - - - - - - - - - - - - - - 10% of the total amount granted

6. Cost of the Suit.

SO ORDERED.19

On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with modification
as follows:

[T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby
adjudged in favor of plaintiffs-appellees:

1. Actual Damages in the amount of P88,270.00;

2. Compensatory Damages in the amount of P1,135,536,10;

3. Moral and Exemplary Damages in the amount of P400,000.00; andcralawlibrary

4. Attorney's fees equivalent to 10% of the sum of the actual, compensatory, moral, and exemplary
damages herein adjudged.

The court a quo's judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED.

SO ORDERED.20

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

On August 21, 2003, the Court of Appeals denied petitioner's motion for reconsideration.23
Hence, this Petition for Review principally based on the fact that the mistake or gross negligence of its
counsel deprived petitioner of due process of law. Petitioner also argues that the trial court's award of
damages were without basis and should be deleted.

The issues for resolution are: (1) whether petitioner's counsel was guilty of gross negligence; (2)
whether petitioner should be held liable for breach of contract of carriage; and (3) whether the award of
damages was proper.

It is settled that the negligence of counsel binds the client. This is based on the rule that any act
performed by a counsel within the scope of his general or implied authority is regarded as an act of his
client. Consequently, the mistake or negligence of counsel may result in the rendition of an unfavorable
judgment against the client. However, the application of the general rule to a given case should be
looked into and adopted according to the surrounding circumstances obtaining. Thus, exceptions to the
foregoing have been recognized by the court in cases where reckless or gross negligence of counsel
deprives the client of due process of law, or when its application will result in outright deprivation of the
client's liberty or property or where the interests of justice so require, and accord relief to the client
who suffered by reason of the lawyer's gross or palpable mistake or negligence.24

The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan filed an
Answer and Pre-trial Brief for petitioner. Although initially declared as in default, Atty. Paguirigan
successfully moved for the setting aside of the order of default. In fact, petitioner was represented by
Atty. Paguirigan at the pre-trial who proposed settlement for P50,000.00. Although Atty. Paguirigan
failed to file motions for reconsideration of the orders declaring petitioner to have waived the right to
cross-examine respondents' witness and to present evidence, he nevertheless, filed a timely appeal with
the Court of Appeals assailing the decision of the trial court. Hence, petitioner's claim that it was denied
due process lacks basis.

Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default for
not appearing at the pre-trial, three notices (dated October 23, 1996,25 January 30, 1997,26 and March
26, 1997,27 ) requiring attendance at the pre-trial were sent and duly received by petitioner. However, it
was only on April 27, 1997, after the issuance of the April 10, 1997 order of default for failure to appear
at the pre-trial when petitioner, through its finance and administrative manager, executed a special
power of attorney28 authorizing Atty. Paguirigan or any member of his law firm to represent petitioner
at the pre-trial. Petitioner is guilty, at the least, of contributory negligence and fault cannot be imputed
solely on previous counsel.

The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at bar. In APEX, the
negligent counsel not only allowed the adverse decision against his client to become final and executory,
but deliberately misrepresented in the progress report that the case was still pending with the Court of
Appeals when the same was dismissed 16 months ago.29 These circumstances are absent in this case
because Atty. Paguirigan timely filed an appeal from the decision of the trial court with the Court of
Appeals.

In Gold Line Transit, Inc. v. Ramos,30 the Court was similarly confronted with the issue of whether or not
the client should bear the adverse consequences of its counsel's negligence. In that case, Gold Line
Transit, Inc. (Gold Line) and its lawyer failed to appear at the pre-trial despite notice and was declared as
in default. After the plaintiff's presentation of evidence ex parte, the trial court rendered decision
ordering Gold Line to pay damages to the heirs of its deceased passenger. The decision became final and
executory because counsel of Gold Line did not file any appeal. Finding that Goldline was not denied due
process of law and is thus bound by the negligence of its lawyer, the Court held as follows '

This leads us to the question of whether the negligence of counsel was so gross and reckless that
petitioner was deprived of its right to due process of law. We do not believe so. It cannot be denied that
the requirements of due process were observed in the instant case. Petitioner was never deprived of its
day in court, as in fact it was afforded every opportunity to be heard. Thus, it is of record that notices
were sent to petitioner and that its counsel was able to file a motion to dismiss the complaint, an
answer to the complaint, and even a pre-trial brief. What was irretrievably lost by petitioner was its
opportunity to participate in the trial of the case and to adduce evidence in its behalf because of
negligence.

In the application of the principle of due process, what is sought to be safeguarded against is not the
lack of previous notice but the denial of the opportunity to be heard. The question is not whether
petitioner succeeded in defending its rights and interests, but simply, whether it had the opportunity to
present its side of the controversy. Verily, as petitioner retained the services of counsel of its choice, it
should, as far as this suit is concerned, bear the consequences of its choice of a faulty option. Its plea
that it was deprived of due process echoes on hollow ground and certainly cannot elicit approval nor
sympathy.

To cater to petitioner's arguments and reinstate its petition for relief from judgment would put a
premium on the negligence of its former counsel and encourage the non-termination of this case by
reason thereof. This is one case where petitioner has to bear the adverse consequences of its counsel's
act, for a client is bound by the action of his counsel in the conduct of a case and he cannot thereafter
be heard to complain that the result might have been different had his counsel proceeded differently.
The rationale for the rule is easily discernible. If the negligence of counsel be admitted as a reason for
opening cases, there would never be an end to a suit so long as a new counsel could be hired every time
it is shown that the prior counsel had not been sufficiently diligent, experienced or learned.31

Similarly, in Macalalag v. Ombudsman,32 a Philippine Postal Corporation employee charged with

dishonesty was not able to file an answer and position paper. He was found guilty solely on the basis of
complainant's evidence and was dismissed with forfeiture of all benefits and disqualification from
government service. Challenging the decision of the Ombudsman, the employee contended that the
gross negligence of his counsel deprived him of due process of law. In debunking his contention, the
Court said '

Neither can he claim that he is not bound by his lawyer's actions; it is only in case of gross or palpable
negligence of counsel when the courts can step in and accord relief to a client who would have suffered
thereby. If every perceived mistake, failure of diligence, lack of experience or insufficient legal
knowledge of the lawyer would be admitted as a reason for the reopening of a case, there would be no
end to controversy. Fundamental to our judicial system is the principle that every litigation must come
to an end. It would be a clear mockery if it were otherwise. Access to the courts is guaranteed, but there
must be a limit to it.

Viewed vis - Ã -vis the foregoing jurisprudence, to sustain petitioner's argument that it was denied due
process of law due to negligence of its counsel would set a dangerous precedent. It would enable every
party to render inutile any adverse order or decision through the simple expedient of alleging gross
negligence on the part of its counsel. The Court will not countenance such a farce which contradicts
long-settled doctrines of trial and procedure.33

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

In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of
Marie Grace's death was the negligence of petitioner. Hence, the courts below correctly ruled that
petitioner was guilty of breach of contract of carriage.

Nevertheless, the award of damages should be modified.

Article 176435 in relation to Article 220636 of the Civil Code, holds the common carrier in breach of its
contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity for
death, (2) indemnity for loss of earning capacity, and (3) moral damages.

In the present case, respondent heirs of the deceased are entitled to indemnity for the death of Marie
Grace which under current jurisprudence is fixed at P50,000.00.37

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

In People v. Oco,39 the evidence presented by the prosecution to recover damages for loss of earning
capacity was the bare testimony of the deceased's wife that her husband was earning P8,000.00
monthly as a legal researcher of a private corporation. Finding that the deceased was neither self-
employed nor employed as a daily-wage worker earning less than the minimum wage under the labor
laws existing at the time of his death, the Court held that testimonial evidence alone is insufficient to
justify an award for loss of earning capacity.

Likewise, in People v. Caraig,40 damages for loss of earning capacity was not awarded because the
circumstances of the 3 deceased did not fall within the recognized exceptions, and except for the
testimony of their wives, no documentary proof about their income was presented by the prosecution.
Thus '

The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were not
self-employed or employed as daily-wage workers earning less than the minimum wage under the labor
laws existing at the time of their death. Placido Agustin was a Social Security System employee who
received a monthly salary of P5,000. Roberto Raagas was the President of Sinclair Security and Allied
Services, a family owned corporation, with a monthly compensation of P30,000. Melencio Castro Jr. was
a taxi driver of New Rocalex with an average daily earning of P500 or a monthly earning of P7,500.
Clearly, these cases do not fall under the exceptions where indemnity for loss of earning capacity can be
given despite lack of documentary evidence. Therefore, for lack of documentary proof, no indemnity for
loss of earning capacity can be given in these cases. (Emphasis supplied)cralawlibrary

Here, the trial court and the Court of Appeals computed the award of compensatory damages for loss of
earning capacity only on the basis of the testimony of respondent Rosalito that the deceased was 39
years of age and a Section Chief of the Bureau of Internal Revenue, Tuguergarao District Office with a
salary of P83,088.00 per annum when she died.41 No other evidence was presented. The award is clearly
erroneous because the deceased's earnings does not fall within the exceptions.

However, the fact of loss having been established, temperate damages in the amount of P500,000.00
should be awarded to respondents. Under Article 2224 of the Civil Code, temperate or moderate
damages, which are more than nominal but less than compensatory damages, may be recovered when
the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of
the case, be proved with certainty.

In Pleno v. Court of Appeals,42 the Court sustained the trial court's award of P200,000.00 as temperate
damages in lieu of actual damages for loss of earning capacity because the income of the victim was not
sufficiently proven, thus'

The trial court based the amounts of damages awarded to the petitioner on the following
circumstances:

...

"As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent[re]preneur and
the founder of his own corporation, the Mayon Ceramics Corporation. It appears also that he is an
industrious and resourceful person with several projects in line, and were it not for the incident, might
have pushed them through. On the day of the incident, Pleno was driving homeward with geologist
Longley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual income
however has not been sufficiently established so that this Court cannot award actual damages, but, an
award of temperate or moderate damages may still be made on loss or impairment of earning capacity.
That Pleno sustained a permanent deformity due to a shortened left leg and that he also suffers from
double vision in his left eye is also established. Because of this, he suffers from some inferiority complex
and is no longer active in business as well as in social life. In similar cases as in Borromeo v. Manila
Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et al., L-11037, Dec. 29, 1960, and in Araneta,
et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of damages were given."

...

We rule that the lower court's awards of damages are more consonant with the factual circumstances of
the instant case. The trial court's findings of facts are clear and well-developed. Each item of damages is
adequately supported by evidence on record.
Article 2224 of the Civil Code was likewise applied in the recent cases of People v. Singh43 and People v.
Almedilla,44 to justify the award of temperate damages in lieu of damages for loss of earning capacity
which was not substantiated by the required documentary proof.

Anent the award of moral damages, the same cannot be lumped with exemplary damages because they
are based on different jural foundations.45 These damages are different in nature and require separate
determination.46 In culpa contractual or breach of contract, moral damages may be recovered when the
defendant acted in bad faith or was guilty of gross negligence (amounting to bad faith) or in wanton
disregard of contractual obligations and, as in this case, when the act of breach of contract itself
constitutes the tort that results in physical injuries. By special rule in Article 1764 in relation to Article
2206 of the Civil Code, moral damages may also be awarded in case the death of a passenger results
from a breach of carriage.47 On the other hand, exemplary damages, which are awarded by way of
example or correction for the public good may be recovered in contractual obligations if the defendant
acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.48

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

The actual damages awarded by the trial court reduced by the Court of Appeals should be further
reduced. In People v. Duban,51 it was held that only substantiated and proven expenses or those that
appear to have been genuinely incurred in connection with the death, wake or burial of the victim will
be recognized. A list of expenses (Exhibit "J"),52 and the contract/receipt for the construction of the
tomb (Exhibit "F")53 in this case, cannot be considered competent proof and cannot replace the official
receipts necessary to justify the award. Hence, actual damages should be further reduced to
P78,160.00,54 which was the amount supported by official receipts.

Pursuant to Article 220855 of the Civil Code, attorney's fees may also be recovered in the case at bar
where exemplary damages are awarded. The Court finds the award of attorney's fees equivalent to 10%
of the total amount adjudged against petitioner reasonable.

Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals,56 it was held that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for payment of interest in the concept of actual and compensatory
damages, subject to the following rules, to wit '

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit. (Emphasis supplied).

In the instant case, petitioner should be held liable for payment of interest as damages for breach of
contract of carriage. Considering that the amounts payable by petitioner has been determined with
certainty only in the instant petition, the interest due shall be computed upon the finality of this
decision at the rate of 12% per annum until satisfaction, per paragraph 3 of the aforecited rule.57

WHEREFORE, in view of all the foregoing, the petition is partially granted. The April 11, 2003 decision of
the Court of Appeals in CA-G.R. CV No. 63290, which modified the decision of the Regional Trial Court of
Tuguegarao, Cagayan in Civil Case No. 5023, is AFFIRMED with MODIFICATION. As modified, petitioner
Victory Liner, Inc., is ordered to pay respondents the following: (1) P50,000.00 as indemnity for the
death of Marie Grace Pagulayan-Gammad; (2) P100,000.00 as moral damages; (3) P100,000.00 as
exemplary damages; (4) P78,160.00 as actual damages; (5) P500,000.00 as temperate damages; (6) 10%
of the total amount as attorneys fees; and the costs of suit.

Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of 12% per
annum computed from the finality of this decision until fully paid.

SO ORDERED.

123 Phil. 256

BENGZON, J.P., J.:

Plaintiffs and defendant appeal from a decision of the Court of First Instance of Rizal. Since the value in
controversy exceeds P200,000 the appeals were taken directly to this Court upon all questions involved
(Sec. 17, par. 3[5], Judiciary Act).

Stated briefly the facts not in dispute are as follows. Reservations for first class accommodations in
Flight No. 2 of Pan American World Airways hereinafter otherwise called PAN AM from Tokyo to San
Francisco on May 24, 1960 were made with PAN AM on March 29, 1960, by "Your Travel Guide" agency,
specifically, by Delfin Faustino, for then Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law
Alfredo Montelibano, Jr., and his daughter Mrs. Alfredo Montelibano, Jr. (Milagros Lopez Montelibano).
PAN AM's San Francisco head office confirmed the reservations on March 31, 1960.

First class tickets for the abovementioned flight were subsequently issued by PAN AM on May 21 and
23, 1960, in favor of Senator Lopez and his party. The total fare of P9,444 for all of them was fully paid
before the tickets were issued.

As scheduled Senator Lopez and party left Manila by Northwest Airlines on May 24, 1960, arriving in
Tokyo at 5:30 P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego of the
Philippine Embassy to contact PAN AM's Tokyo office regarding their first class accommodations for that
evening's flight. For the given reason that the first class seats therein were all booked up, however, PAN
AM's Tokyo office informed Minister Busuego that PAN AM could not accommodate Senator Lopez and
party in that trip as first class passengers. Senator Lopez thereupon gave their first class tickets to
Minister Busuego for him to show the same to PAN AM's Tokyo office, but the latter firmly reiterated
that there was no accommodation for them in the first class, stating that they could not go in that flight
unless they took the tourist class therein.

Due to pressing engagements awaiting Senator Lopez and his wife in the United States he had to attend
a business conference in San Francisco the next day and she had to undergo a medical check-up in Mayo
Clinic, Rochester, Minnesota, on May 28, 1960 and needed three days rest before that in San Francisco
Senator Lopez and party were constrained to take PAN AM's flight from Tokyo to San Francisco as
tourist passengers. Senator Lopez however made it clear, as indicated in his letter to PAN AM's Tokyo
office on that date (Exh. A), that they did so "under protest" and without prejudice to further action
against the airline.

Suit for damages was thereafter filed by Senator Lopez and party against PAN AM on June 2, 1960 in the
Court of First Instance of Rizal. Alleging breach of contracts in bad faith by defendant, plaintiffs asked for
P500,000 actual and moral damages, P100,000 exemplary damages, P25,000 attorney's fees, plus costs.
PAN AM filed its answer on June 22, 1960, asserting that its failure to provide first class
accommodations to plaintiffs was due to honest error of its employees. It also interposed a
counterclaim for attorney's fees of P25,000.

Subsequently, further pleadings were filed, thus: plaintiffs' answer to the counterclaim, on July 25, 1960;
plaintiffs' reply attached to motion for its admittance, on December 2, 1961; defendant's supplemental
answer, on March 8, 1962; plaintiffs' reply to supplemental answer, on March 10, 1962; and defendant's
amended supplemental answer, on July 10, 1962.

After trial which took twenty-two (22) days ranging from November 25, 1960 to January 5, 1963 the
Court of First Instance rendered its decision on November 13, 1963, the dispositive portion stating:

"IN VIEW OF THE FOREGOING CONSIDERATION, judgment is hereby rendered in favor of the plaintiffs
and against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a)
P100,000.00 as moral damages; (b) P20,000.00 as exemplary damages; (c) P25,000.00 as attorney's fees,
and the costs of this action.

"So ordered."
Plaintiffs, however, on November 21, 1963, moved for reconsideration of said judgment, asking that
moral damages be increased to P400,000 and that six per cent (6%) interest per annum on the amount
of the award be granted. And defendant opposed the same. Acting thereon the trial court issued an
order on December 14, 1963, reconsidering the dispositive part of its decision to read as follows:

"IN VIEW OF THE FOREGOING CONSIDERATION, judgment is hereby rendered in favor of the plaintiffs
and against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a)
P150,000.00 as moral damages; (b) P25,000.00 as exemplary damages; with legal interest on both from
the date of the filing of the complaint until paid; and (c) P25,000.00 as attorney's fees; and the costs of
this action.

"So ordered."

It is from said judgment, as thus reconsidered, that both parties have appealed.

Defendant, as stated, has from the start admitted that it breached its contracts with plaintiffs to provide
them with first class accommodations in its Tokyo-San Francisco flight of May 24, 1960. In its appeal,
however, it takes issue with the finding of the court a quo that it acted in bad faith in the breach of said
contracts. Plaintiffs, on the other hand, raise questions on the amount of damages awarded in their
favor, seeking that the same be increased to a total of P650,000.

Anent the issue of bad faith the records show the respective contentions of the parties as follows.

According to plaintiffs, defendant acted in bad faith because it deliberately refused to comply with its
contract to provide first class accommodations to plaintiffs, out of racial prejudice against Orientals. And
in support of its contention that what was done to plaintiffs is an oft-repeated practice of defendant,
evidence was adduced relating to two previous instances of alleged racial discrimination by defendant
against Filipinos in favor of "white" passengers. Said previous occasions are what allegedly happened to
(1) Benito Jalbuena and (2) Cenon S. Cervantes and his wife.

And from plaintiffs' evidence this is what allegedly happened. Jalbuena bought a first class ticket from
PAN AM on April 13, 1960; he confirmed it on April 15, 1960 as to the Tokyo-Hongkong flight of April 20,
1960; PAN AM similarly confirmed it on April 20, 1960. At the airport, he and another Oriental Mr. Tung
- were asked to step aside while other passengers including "white" passengers boarded PAN AM's
plane. Then PAN AM officials told them that one of them had to stay behind. Since Mr. Tung was going
all the way to London, Jalbuena was chosen to be left behind. PAN AM's officials could only explain by
saying there was "some mistake". Jalbuena thereafter wrote PAN AM to protest the incident (Exh. B).

As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN AM on September 29, 1958 from
Bangkok to Hongkong, he and his wife had to take tourist class, although they had first class tickets,
which they had previously confirmed, because their seats in first class were given to "passengers from
London."

Against the foregoing, however, defendant's evidence would seek to establish its theory of honest
mistake, thus:

The first class reservations of Senator Lopez and party were made on March 29, 1960 together with
those of four members of the Rufino family, for a total of eight (8) seats, as shown in their joint
reservation card (Exh. 1). Subsequently, on March 30, 1960, two other Rufinos secured reservations and
were given a separate reservation card (Exh. 2). A new reservation card consisting of two pages (Exhs. 3
and 4) was then made for the original group of eight passengers, namely, Senator Lopez and party and
four members of the Rufino family, the first page (Exh. 3) referring to 2 Lopezes, 2 Montelibanos and 1
Rufino and the second page (Exh. 4) referring to 3 Rufinos. On April 18, 1960 "Your Travel Guide" agency
cancelled the reservations of the Rufinos. A telex message was thereupon sent on that date to PAN AM's
head office at San Francisco by Mariano Herranz, PAN AM's reservations employee at its office in
Escolta, Manila. (Annex A-Acker's to Exh. 6) In said message, however, Herranz mistakenly cancelled all
the seats that had been reserved, that is, including those of Senator Lopez and party.

The next day April 19 Herranz discovered his mistake, upon seeing the reservation card newly prepared
by his co-employee Pedro Asensi for Senator Lopez and party to the exclusion of the Rufinos (Exh. 5). It
was then that Herranz sent another telex wire to the San Francisco head office, stating his error and
asking for the reinstatement of the four (4) first class seats reserved for Senator Lopez and party (Annex
A-Velasco's to Exh. 6). San Francisco head office replied on April 22, 1960 that Senator Lopez and party
are waitlisted and that said office is unable to reinstate them (Annex B-Velasco's to Exh. 6).

Since the flight involved was still more than a month away and confident that reinstatement would be
made, Herranz forgot the matter and told no one about it except his co-employee, either Armando
Davila or Pedro Asensi or both of them (Tsn., 123-124, 127, Nov. 17, 1961).

Subsequently, on April 27, 1960, Armando Davila, PAN AM's reservations employee working in the same
Escolta office as Herranz, phoned PAN AM's ticket sellers at its other office in the Manila Hotel, and
confirmed the reservations of Senator Lopez and party.

PAN AM's reservations supervisor, Alberto Jose, discovered Herranz's mistake after "Your Travel Guide"
phoned on May 18, 1960 to state that Senator Lopez and party were going to depart as scheduled.
Accordingly, Jose sent a telex wire on that date to PAN AM's head office at San Francisco to report the
error and asked said office to continue holding the reservations of Senator Lopez and party (Annex B-
Acker's to Exh. 6). Said message was reiterated by Jose in his telex wire of May 19, 1960 (Annex C-
Acker's to Exh. 6). San Francisco head office replied on May 19, 1960 that it regrets being unable to
confirm Senator Lopez and party for the reason that the flight was solidly booked (Exh. 7). Jose sent a
third telex wire on May 20, 1960 addressed to PAN AM's offices at San Francisco, New York (Idlewild
Airport), Tokyo and Hongkong, asking all-out assistance towards restoring the cancelled spaces and for
report of cancellations at their end (Annex D-Acker's to Exh. 6). San Francisco head office reiterated on
May 20, 1960 that it could not reinstate the spaces and referred Jose to the Tokyo and Hongkong offices
(Exh. 8). Also on May 20, the Tokyo office of PAN AM wired Jose stating it will do everything possible
(Exh. 9).

Expecting that some cancellations of bookings would be made before the flight time, Jose decided to
withhold from Senator Lopez and party, or their agent, the information that their reservations had been
cancelled.

Armando Davila having previously confirmed Senator Lopez and party's first class reservations to PAN
AM's ticket sellers at its Manila Hotel office, the latter sold and issued in their favor the corresponding
first class tickets on the 21st and 23rd of May, 1960.
From the foregoing evidence of defendant it is in effect admitted that defendant through its agents first
cancelled plaintiffs' reservations by mistake and thereafter deliberately and intentionally withheld from
plaintiffs or their travel agent the fact of said cancellation, letting them go on believing that their first
class reservations stood valid and confirmed. In so misleading plaintiffs into purchasing first class tickets
in the conviction that they had confirmed reservations for the same, when in fact they had none,
defendant wilfully and knowingly placed itself into the position of having to breach its aforesaid
contracts with plaintiffs should there be no last-minute cancellation by other passengers before flight
time, as it turned out in this case. Such actuation of defendant may indeed have been prompted by
nothing more than the promotion of its self-interest in holding on to Senator Lopez and party as
passengers in its flight and foreclosing on their chances to seek the services of other airlines that may
have been able to afford them first class accommodations. All the time, in legal contemplation such
conduct already amounts to action in bad faith. For bad faith means a breach of a known duty through
some motive of interest or ill will (Spiegel v. Beacon Participations 8 NE 2d 895, 907). As stated in Kamm
v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R. 1, 7: "Self-enrichment or fraternal interest, and not personal
ill will, may well have been the motive; but it is malice nevertheless."

As of May 18, 1960 defendant's reservations supervisor Alberto Jose knew that plaintiffs' reservations
had been cancelled. As of May 20 he knew that the San Francisco head office stated with finality that it
could not reinstate plaintiffs' cancelled reservations. And yet said reservations supervisor made the
"decision" to use his own word to withhold the information from the plaintiffs. Said Alberto Jose in his
testimony:

"Q Why did you not notify them?

"A Well, you see, sir, in my fifteen (15) years of service with the air lines business my experience is that
even if the flights are solidly booked months in advance, usually the flight departs with plenty of empty
seats both on the first class and tourist class. This is due to late cancellation of passengers, or because
passengers do not show up in the airport, and it was our hope others come in from another flight and,
therefore, are delayed and, therefore, missed their connections. This experience of mine, coupled with
that wire from Tokyo that they would do everything possible prompted me to withhold the information,
but unfortunately, instead of the first class seat that I was hoping for and which I anticipated only the
tourists class was open on which Senator and Mrs. Lopez, Mr. and Mrs. Montelibano were
accommodated. Well, I fully realize now the gravity of my decision in not advising Senator and Mrs.
Lopez, Mr. and Mrs. Montelibano nor their agents about the erroneous cancellation and for which I
would like them to know that I am very sorry.

* * * * * * *

"Q So it was not your duty to notify Sen. Lopez and parties that their reservations had been cancelled
since May 18, 1960?

"A As I said before it was my duty. It was my duty but as I said again with respect to that duty I have the
power to make a decision or use my discretion and judgment whether I should go ahead and tell the
passenger about the cancellation." (Tsn., pp. 17-19, 28-29, March 15, 1962)

At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known duty, made
plaintiffs believe that their reservations had not been cancelled. An additional indication of this is the
fact that upon the face of the two tickets of record, namely, the ticket issued to Alfredo Montelibano, Jr.
on May 21, 1960 (Exh. 22) and that issued to Mrs. Alfredo Montelibano, Jr., on May 23, 1960 (Exh. 23),
the reservation status is stated as "OK". Such wilfull non-disclosure of the cancellation or pretense that
the reservations for plaintiffs stood and not simply the erroneous cancellation itself is the factor to
which is attributable the breach of the resulting contracts. And, as above-stated, in this respect
defendant clearly acted in bad faith.

As if to further emphasize its bad faith on the matter, defendant subsequently promoted the employee
who cancelled plaintiffs' reservations and told them nothing about it. The record shows that said
employee Mariano Herranz was not subjected to investigation and suspension by defendant but instead
was given a reward in the form of an increase of salary in June of the following year (Tsn., 86-88, Nov.
20, 1961).

At any rate, granting all the mistakes advanced by the defendant, there would at least be negligence so
gross and reckless as to amount to malice or bad faith (Fores vs. Miranda,105 Phil. 266;
Necesito vs. Paras, 104 Phil. 75). Firstly, notwithstanding the entries in the reservation cards (Exhs. 1 &
3) that the reservations cancelled are those of the Rufinos only, Herranz made the mistake, after reading
said entries, of sending a wire cancelling all the reservations, including those of Senator Lopez and party
(Tsn., pp. 103-108, Nov. 17, 1961). Secondly, after sending a wire to San Francisco head office on April
19, 1960 stating his error and asking for reinstatement, Herranz simply forgot about the matter.
Notwithstanding the reply of San Francisco head office on April 22, 1960 that it cannot reinstate Senator
Lopez and party (Annex B-Velasco's to Exh. 6), it was assumed and taken for granted that reinstatement
would be made. Thirdly, Armando Davila confirmed plaintiffs' reservations in a phone call on April 27,
1960 to defendant's ticket sellers, when at the time it appeared in plaintiffs' reservation card (Exh. 5)
that they were only waitlisted passengers. Fourthly,defendant's ticket sellers issued plaintiffs' tickets on
May 21 and 23, 1960, without first checking their reservations just before issuing said tickets. And,
finally, no one among defendant's agents notified Senator Lopez and party that their reservations had
been cancelled, a precaution that could have averted their entering with defendant into contracts that
the latter had already placed beyond its power to perform.

Accordingly, there being a clear admission in defendant's evidence of facts amounting to bad faith on its
part in regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further discuss the
evidence adduced by plaintiffs to establish defendant's bad faith. For what is admitted in the course of
the trial does not need to be proved (Sec. 2, Rules 129, Rules of Court).

Addressing ourselves now to the question of damages, it is well to state at the outset these rules and
principles. First, moral damages are recoverable in breach of contracts where the defendant acted
fraudulently or in bad faith (Art. 2220, New Civil Code). Second, in addition to moral damages,
exemplary or corrective damages may be imposed by way of example or correction for the public good,
in breach of contract where the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner (Articles 2229, 2232, New Civil Code). And, third, a written contract for an attorney's
services shall control the amount to be paid therefor unless found by the court to be unconscionable or
unreasonable (Sec. 24, Rule 138, Rules of Court).

First, then, as to moral damages. As a proximate result of defendant's breach in bad faith of its contracts
with plaintiffs, the latter suffered social humiliation, wounded feelings, serious anxiety and mental
anguish. For plaintiffs were travelling with first class tickets issued by defendant and yet they were given
only the tourist class. At stop-overs, they were expected to be among the first-class passengers by those
awaiting to welcome them, only to be found among the tourist passengers. It may not be humiliating to
travel as tourist passengers; it is humiliating to be compelled to travel as such, contrary to what is
rightfully to be expected from the contractual undertaking.

Senator Lopez was then Senate President Pro Tempore. International carriers like defendant know the
prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine Congress, but
the nation's treaty-ratifying body. It may also be mentioned that in his aforesaid office Senator Lopez
was in a position to preside in impeachment cases should the Senate sit as Impeachment Tribunal. And
he was former Vice-President of the Philippines. Senator Lopez was going to the United States to attend
a private business conference of the Binalbagan-Isabela Sugar Company; but his aforesaid rank and
position were by no means left behind, and in fact he had a second engagement awaiting him in the
United States; a banquet tendered by Filipino friends in his honor as Senate President Pro
Tempore (Tsn., pp. 14-15, Nov. 25, 1960). For the moral damages sustained by him, therefore, an award
of P100,000.00 is appropriate.

Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. In
addition, she suffered physical discomfort during the 13-hour trip (5 hours from Tokyo to Honolulu and
8 hours from Honolulu to San Francisco). Although Senator Lopez stated that "she was quite well" (Tsn.,
p. 22, Nov. 25, 1960) - he obviously meant relatively well, since the rest of his statement is that two
months before, she was attacked by severe flu and lost 10 pounds of weight and that she was advised by
Dr. Sison to go to the United States as soon as possible for medical check-up and relaxation (Ibid.). In
fact, Senator Lopez stated, as shown a few pages after in the transcript of his testimony, that Mrs. Lopez
was sick when she left the Philippines:

"A Well, my wife really felt very bad during the entire trip from Tokyo to San Francisco. In the first place,
she was sick when we left the Philippines, and then with that discomfort which she[experienced] or
suffered during that evening, it was her worst experience. I myself, who was not sick, could not sleep
because of the discomfort." (Tsn., pp. 27-28, Nov. 25, 1960)

It is not hard to see that in her condition then a physical discomfort sustained for thirteen hours may
well be considered a physical suffering. And even without regard to the noise and trepidation inside the
plane which defendant contends, upon the strength of expert testimony, to be practically the same in
first class and tourist class the fact that the seating spaces in the tourist class are quite narrower than in
first class, there being six seats to a row in the former as against four to a row in the latter, and that in
tourist class there is very little space for reclining in view of the closer distance between rows (Tsn., p.
24, Nov. 25, 1960), will suffice to show that the aforesaid passenger indeed experienced physical
suffering during the trip. Added to this, of course, was the painful thought that she was deprived by
defendant after having paid for and expected the same of the most suitable place for her, the first
class,where evidently the best of everything would have been given her, the best seat, service, food and
treatment. Such difference in comfort between first class and tourist class is too obvious to be
recounted, is in fact the reason for the former's existence, and is recognized by the airline in charging a
higher fare for it and by the passengers in paying said higher rate. Accordingly, considering the totality
of her suffering and humiliation, an award to Mrs. Maria J. Lopez of P50,000.00 for moral damages will
be reasonable.
Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate members of the family of Senator
Lopez. They formed part of the Senator's party as shown also by the reservation cards of PAN AM. As
such they likewise shared his prestige and humiliation. Although defendant contends that a few weeks
before the flight they had asked their reservations to be changed from first class to tourist class which
did not materialize due to alleged full booking in the tourist class the same does not mean they suffered
no shame in having to take tourist class during the flight. For by that time they had already been made
to pay for first class seats and therefore to expect first class accommodations. As stated, it is one thing
to take the tourist class by free choice; a far different thing to be compelled to take it notwithstanding
having paid for first class seats. Plaintiffs-appellants now ask P37,500.00 each for the two but we note
that in their motion for reconsideration filed in the court a quo, they were satisfied with P25,000.00
each for said persons. (Record on Appeal, p. 102) For their social humiliation, therefore, the award to
them of P25,000.00 each is reasonable.

The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or
correction for public good. Defendant having breached its contracts in bad faith, the court, as stated
earlier, may award exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil
Code).

In view of its nature, it should be imposed in such an amount as to sufficiently and effectively deter
similar breach of contracts in the future by defendant or other airlines. In this light, we find it just to
award P75,000.00 as exemplary or corrective damages.

Now, as to attorney's fees, the record shows a written contract of services executed on June 1, 1960
(Exh. F) whereunder plaintiffs-appellants engaged the services of their counsel Atty. Vicente J. Francisco
and agreed to pay the sum of P25,000.00 as attorney's fees upon the termination of the case in the
Court of First Instance, and an additional sum of P25,000.00 in the event the case is appealed to the
Supreme Court. As said earlier, a written contract for attorney's services shall control the amount to be
paid therefor unless found by the court to be unconscionable or unreasonable. A consideration of the
subject matter of the present controversy, of the professional standing of the attorney for plaintiffs-
appellants, and of the extent of the services rendered by him, shows that said amount provided for in
the written agreement is reasonable. Said lawyer whose prominence in the legal profession is well
known studied the case, prepared and filed the complaint, conferred with witnesses, analyzed
documentary evidence, personally appeared at the trial of the case in twenty-two days, during a period
of three years, prepared four sets of cross-interrogatories for deposition taking, prepared several
memoranda and the motion for reconsideration, filed a joint record on appeal with defendant, filed a
brief for plaintiffs as appellants consisting of 45 printed pages and a brief for plaintiffs as appellees
consisting of 265 printed pages. And we are further convinced of its reasonableness because
defendant's counsel likewise valued at P50,000.00 the proper compensation for his services rendered to
defendant in the trial court and on appeal.

In concluding, let it be stressed that the amount of damages awarded in this appeal has been
determined by adequately considering the official, political, social, and financial standing of the
offended parties on one hand, and the business and financial position of the offender on the other
(Domingding vs. Ng, 55 Off. Gaz. 10). And further considering the present rate of exchange and the
terms at which the amount of damages awarded would approximately be in U.S. dollars, this Court is all
the more of the view that said award is proper and reasonable.
WHEREFORE, the judgment appealed from is hereby modified so as to award in favor of plaintiffs and
against defendant, the following: (1) P200,000.00 as moral damages, divided among plaintiffs, thus:
P100,000.00 for Senate President Pro Tempore Fernando Lopez; P50,000.00 for his wife Maria J. Lopez;
P25,000.00 for his son-in-law Alfredo Montelibano, Jr.; and P25,000.00 for his daughter Mrs. Alfredo
Montelibano, Jr; (2) P75,000.00 as exemplary or corrective damages; (3) interest at the legal rate of 6%
per annum on the moral and exemplary damages afore-stated, from December 14, 1963, the date of the
amended decision of the court a quo, until said damages are fully paid; (4) P50,000.00 as attorney's fees;
and (5) the costs. Counterclaim dismissed.

159-A Phil. 863

BARREDO, J.:

Direct appeals of both parties plaintiff, Francisco Ortigas, and defendant Lufthansa German Airlines,
from the decision of the Court of First Instance of Manila, Branch X, "condemning the defendant to pay
the plaintiff the amount of P100,000 as moral damages, P30,000 as exemplary or corrective damages,
with interest on both sums at the legal rate from the commencement of this suit until fully paid, P20,000
as attorney's fees and the costs" for the former's failure to "comply with its obligation to give first class
accommodation to (the latter) a (Filipino) passenger holding a first class ticket," aggravated by the giving
of the space instead to a Belgian and the improper conduct of its agents in dealing with him during the
occasion of such discriminatory violation of its contract of carriage.

Defendant buttresses its appeal on the following:

"ASSIGNMENT OF ERRORS

THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN DENYING THE DEFENDANTS URGENT-
MOTION FOR POSTPONEMENT DATED SEPTEMBER 24, 1966.

II

THE LOWER COURT CONSEQUENTLY ERRED IN ORDERING THE STRIKING FROM THE RECORDS THE
TESTIMONY OF WITNESS IVO LAZZARI AND IN DEEMING THE CASE SUBMITTED FOR DECISION ON THE
EVIDENCE OF THE PLAINTIFF ALONE.
III

THE LOWER COURT ERRED IN CONDEMNING DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT OF
P100,000.00 AS MORAL DAMAGES, P30,000.00 AS EXEMPLARY OR CORRECTIVE DAMAGES, WITH
INTEREST ON BOTH SUMS AT THE LEGAL RATE FROM THE COMMENCEMENT OF THIS SUIT UNTIL FULLY
PAID, P20,000.00 AS ATTORNEY'S FEES, AND COSTS."

(Pp. 12-13, p. 118, Record.)

On the other hand, plaintiffs sole ground for his appeal is that "the trial court erred in ordering
Lufthansa to pay Ortigas only P100,000 as moral damages, P30,000 as exemplary or corrective damages,
and P20,000 as attorney's fees." (Plaintiff-Appellant's Brief, p.a.) Thus, apart from the contention of
defendant that it has been denied its full day in court, the only issue raised by both appellants relate to
the amount of the damages awarded by the trial court, plaintiff claiming it is less than he is entitled to
and the defendant insisting on the opposite.

Lufthansa maintains it has not had its full day in court because the trial court abruptly ended the trial by
denying its last motion for postponement notwithstanding it was well founded and forthwith ordering
the striking out of the testimony of its absent witness whose cross-examination had not been finished
and then declaring the case submitted for decision. In this connection, the record reveals the following
facts:

Plaintiff's complaint was filed with the court below on December 24, 1963 and after issues were joined,
a pretrial was held, the parties submitted a partial stipulation of facts and thereafter went to trial, the
last day of which was on September 28, 1966. As to what happened in between, a detailed account is
made in the brief of Ortigas as plaintiff-appellee as follows:

". . . Thereafter the case was set for hearing twenty four (24) times, or on April 27, 1964, July 9, 1964,
August 20, 1964, October 1, 1964, November 11, 1964, December 22, 1964, February 3, 1965, March 18,
1965, May 5, 1965, June 11, 1965, July 22, 1965, August 26, 1965 and September 8, 1965, September
22, 1965, November 3, 1965, November 24, 1965, December 17, 1965, December 29, 1965, January 14,
1966, February 2, 1966, April 19, 1966, April 20, 1966, July 5, 6 and 7, 1966, August 25, 1966 and
September 28, 1966.

One (1) hearing, or that of August 25, 1966, was cancelled because the trial judge, Hon. Jose L. Moya,
was then sick. Other postponements were as follows:

Postponements at instance of plaintiff

Three (3) settings were cancelled upon motion of plaintiff on grounds that defendant's counsel (Atty.
Crispin Baizas) himself must have found sufficient, for he gave his conformity thereto. These were the
hearings set for:

July 9, 1964 postponed upon plaintiff's motion, dated June 27, 1964, or 12 days before the hearing, on
the ground that he had to attend an important business matter in Mindanao, which was so urgent that
'for plaintiff to even make a flying trip to Manila for the scheduled hearing might jeopardize and render
to naught a project to which plaintiff has already expended considerable time, money and effort' (RA pp.
28-29. Note: All reference herein will be to plaintiff's Record on Appeal).

August 26, 1965 postponed upon plaintiffs motion, dated August 23, 1965, for the reason that he was in
London for business reasons and could not return to the Philippines on time for the hearing. This
motion is not reproduced in any Record on Appeal but is admitted.

July 5-7, 1966 18 days before the dates set for the hearing, counsel for plaintiff filed a motion, dated
June 17, 1966, for postponement on the ground that Atty. Rodegelio M. Jalandoni, who had been
personally handling this case was then in Washington, D.C. on business and would not be back until the
middle part of August, 1966. Considering that the trial of the case was far advanced, it would be difficult
for another lawyer to substitute for Atty. Jalandoni. Defendant's counsel agreed to the motion (RA pp.
50-51).

Postponements at instance of both parties

Four (4) settings, or those of August 20, 1964, October 1, 1964, November 11, 1964 and December 22,
1964, were cancelled upon the joint motion of the parties on the ground that negotiations for the
possible settlement of this case were pending (RA pp. 31-34).

While both attorneys for plaintiff and defendant signed the joint motions for postponement, the
initiative to have the hearings cancelled actually came from defendant's counsel who claimed that he
needed time to consult with his client. Plaintiff welcomed the possibility of compromise and acceded to
join the requests for postponement but became impatient at and suspicious of the attempt to delay so
that in the motion to postpone the December 22, 1964 hearing, plaintiff insisted on the insertion of the
phrase 'be postponed for the last time' (RA p. 34). These took place after the pre-trial but before
plaintiff had started presenting his evidence.

Postponements at instance of defendant

Of the remaining 16 settings, at least TEN (10) were postponed or could not proceed except for a few
minutes because either Atty. Crispin Baizas, counsel for defendant, was not available or needed time to
prepare or had to attend a meeting somewhere else, or, as in the case of September 28, 1966,
defendant's witnesses wanted to avoid the inconvenience of coming to the Philippines. The situation
became such that on two (2) occasions the Court a quo warned the defendant and/or its counsel that it
was postponing the trial 'for the last time' and 'definitely for the last time.' Thus:

February 3, 1965 On this date, although plaintiff was ready to present his evidence and the Court to
hear the parties, Atty. Baizas asked for postponement for the reason that he had to be somewhere
else. The undersigned graciously obliged by not objecting, albeit the motion was made without warning
and in open court.

March 18, 1965 Once again the hearing scheduled for this date was postponed on motion of Atty. Baizas
in open court. The undersigned did not object because, as far as he can now recall, the excuse given
was that opposite counsel had another appointment.

June 11, 1965 The Court was free the whole morning of this day and plaintiff actually took the witness
stand. After plaintiff was through with his direct testimony, Atty. Zaida R. Alberto, who appeared for the
defendant, asked that the cross-examination be postponed for the next hearing, on the ground that
Atty. Baizas knew more of the defense. The following appears of record:

'ATTY. ALBERTO:

If Your Honor please, may I request to allow the cross examination at the next hearing.

COURT:

You can handle the cross examination now.

ATTY. ALBERTO:

The defense are more in the knowledge of Atty. Baizas.

COURT:

If you postpone the cross examination we will forget the testimony and will be spending much time
referring to his testimony, so you better cross-examine him while his testimony is still fresh.

ATTY. ALBERTO:

May I ask for a reconsideration, Your Honor, anyway it is past 11:00 o'clock I do not think there will
be enough time.
COURT:

We still have one hour.

ATTY. ALBERTO:

I ask for reconsideration, Your Honor.

COURT:

On motion of the defendant's counsel, the continuation of the trial is postponed to July 22, 1965, at
8:30 a.m. The parties were notified in open court of this new assignment.' (t.s.n., pp. 43-44, June 11,
1965)

Notwithstanding there was an hour left, which was precious considering the crowded calendar of the
Court, and Judge Moya wanted to hear the cross-examination because plaintiff's testimony was fresh
the Court pleased counsel for the defendant and postponed the hearing to July 22, 1965.

September 22, 1965 At this hearing the undersigned requested that Dr. Isidro Pertiera be permitted to
take the witness stand. He is a heart specialist and it was difficult to bring him to court because of his
many patients. His direct testimony did not take long, after which Atty. Baizas asked for postponement,
for the reason that he did not expect Dr. Pertiera to testify and since the subject of the testimony was
important and technical, he needed time to be able to cross-examine. The undersigned, understanding
the predicament of Atty. Baizas, did not offer any objection.

November 3, 1965 This scheduled hearing was postponed upon motion dated October 7, 1965; of Atty.
Baizas on the ground that he was leaving on a business trip abroad. The undersigned again did not
object.

November 24, 1965 It will be recalled that the hearing of September 22, 1965 supra, was postponed to
enable Atty. Baizas to prepare for his cross-examination of Dr. Pertiera. On this date, November 24,
1965, Atty. Baizas cross-examined briefly the doctor, but announced:

'ATTY. BAIZAS:

May I announce, Your Honor, that after I cross-examine the Doctor I will ask for a postponement of
my cross-examination of Atty. Ortigas because I will have to attend a meeting of the PAL Board of
Directors this morning. My cross examination will not be very long.' (t.s.n., pp. 3-4, November 24,
1965)
The PAL Board of Directors' meeting was certainly not more important than the occupation of the Court,
and it was still early, but counsel was insistent. The Court was beginning to be perturbed by the dilatory
motions, yet it granted counsel's requested postponement but 'for the last time.' Thus:

'ATTY. BAIZAS:

That is all. May I make that request, Your Honor, that it is simply that I have to be present at the
meeting. I wish to finish my cross examination on Atty. Ortigas but it is merely that the meeting is
held for today at 10:00 o'clock and I would like to ask for a postponement to continue the cross
examination.

COURT:

I will grant this for the last time. On motion of Atty. Baizas, the continuation of the hearing is
postponed for the last time to December 17, 1965, at 8:30 a.m. by agreement between him and
Atty. Jalandoni.' (t.s.n., p. 17, November 24, 1965)

December 17, 1965 Although at the hearing of November 24, 1965 trial was postponed for the last time
to December 17, 1965, the Court's warning did not seem to register because on December 7, 1965
defendant's counsel filed another motion for postponement alleging that he had received a telegram to
the effect that the meeting of the Legal Committee of IATA that he was attending, originally scheduled
for December 10-15, had been deferred and would begin on December 13 and as it was for 5 days, it
would not be possible for him to return for the December 17 hearing; hence, he requested that said
hearing be reset for December 27 and 29. In his undated motion filed on December 7, 1965 counsel
averred that:

'There is no intention whatever to delay the case but because of the circumstances above-stated,
undersigned counsel is constrained to ask, for the last time, for the cancellation of the hearing on
December 17 and for its resetting on such dates as may be convenient to this Honorable Court,
preferably December 27 and 29.' (RA- p. 41)

The undersigned opposed said motion and alleged:

'That this case has been pending since December 24, 1963, or almost two years now, and trial thereof
has been repeatedly suspended and/or postponed;

That at the hearing of November 24, 1965, this Honorable Court precisely postponed continuation of the
trial thereof for the last time to December 17, a date which was fixed by agreement of the parties;

That when counsel for defendant left, as alleged, on December 6, 1965 he did so with full knowledge of
the intransferable character of the trial set for December 17;

That defendant can well be represented by Atty. Baizas' associate, Atty. Alberto, who, as a matter of
fact, handled this case when trial started on June 11, 1965 and has been actively collaborating with Atty.
Baizas since then;

Then when plaintiff testified on direct examination on June 11, 1965 said Atty. Alberto appeared for
defendant and that plaintiff is now merely due for further cross-examination.' (RA p. 43)

In spite of said opposition, the Trial Court once more granted defendant's request but was more
categorical this time with its admonition against further postponements and used the word 'definitely'
in its order which read:

ORDER

For the reasons stated in the defendant's motion for postponement and in view of the fact that it seeks
a deferment of the hearing for only a few days, the continuation of the trial is postponed definitely for
the last time to December 29, 1965, at 8:30 a.m.

'SO ORDERED.

'Manila, Philippines, December 11, 1965.

JOSE MOYA

Judge

(RA p. 46)

March 10, 1966 The hearing on this date lasted for only a few minutes with the undersigned offering the
documentary evidence for the plaintiff. Thereupon, defendant's counsel again asked for postponement
so he could go over said evidence. Since he had no witnesses to present, the Court once more
postponed the trial to April 19, 1966 without any objection on the part of the undersigned.

April 19, 1966 The hearing for this day was called upon motion of defendant's counsel (RA-p. 49) on his
representation that defendant's witness Ivo Lazzari had arrived from Italy at midnight of April 18, 1966
and was not in a condition to take the witness stand. The Court again accommodatingly transferred the
hearing to the following day, April 20, 1966, although it had other cases scheduled for that date and the
case at bar was not among them, just so Lazzari's trip would not be useless. The undersigned likewise
did not oppose the transfer of hearing. " (Pp. 2-13 Brief, p. 132 Record.)

Defendant does not seriously deny these facts. Seemingly, the controversy between the parties revolves
around defendant's motion for postponement of the hearing set for September 28, 1966 which was
denied by the trial court. It is this denial that is the subject of the first above-quoted alleged errors
assigned by Lufthansa in its brief as defendant-appellant.

At the time this incident of postponement arose, plaintiff had already closed his evidence, and so it was
the turn of the defendant to prove its defenses. The starting date for this was April 19, 1966, but, upon
motion of defendant's counsel, it was deferred to the next day, April 20, 1966, on which date
defendant's first witness, Ivo Lazzari, took the witness stand. His testimony, however, was not finished
in the morning and afternoon of that day nor during the whole day of April 22, 1966. Atty. Rodegelio M.
Jalandoni was still cross-examining him when the hearing was continued "to the first available date in
the calendar". Eventually, the next continuation of the trial was set at first for July 5, 6 and 7, 1966, but
upon motion of plaintiffs counsel, it was reset for August 25, 1966, on which date, in spite of the
presence of Lazzari who came from Rome purposely for the trial together with another expected
witness, Severino Caselli, and still another witness, C.H. Dehio, who came from Hongkong, no trial could
be held because of the absence of the judge. Hence, another date, September 28, 1966 was fixed with
notice to the parties received by them respectively the month previous.

On September 24, 1966, defendant's counsel filed a motion for postponement thus:

"COMES NOW the defendant by undersigned counsel and to this Honorable Court respectfully states:

The above-entitled case is set for hearing on September 28, 1966 at 8:00 o'clock in the morning.

The witnesses who are scheduled to testify for the defendant at said hearing are to come from Rome,
Italy;
3

Word has been received from the defendant that said witnesses will not be able to come for the hearing
aforementioned.

WHEREFORE, it is respectfully prayed that the hearing of this case scheduled for September 28 be
postponed to some other date most convenient to this Honorable Court, preferably on any of the
following dates: October 21, 17; November 3, 8, 9 or 11, 1966. . . ." (Page 53, Record on Appeal, p. 29,
Rec.)

On September 27, 1966, plaintiff's counsel filed the following opposition to the above motion:

"COMES NOW plaintiff, through undersigned counsel and, in opposition to defendant's urgent motion
for postponement, dated September 24, 1966, to this Honorable Court respectfully states:

That this case has been pending since December, 1963;

That defendant's aforesaid motion does not give any valid reason for postponing the hearing, since it
does not state why defendant's witnesses cannot come to Manila on the scheduled dates of
continuation of trial;

That the convenience and motive of defendant and its witnesses in not exerting every effort to testify
are not the concern of the plaintiff, and more so of this Honorable Court, and that the speedy and
proper administration of justice dictates that the hearing proceed irrespective of defendant's obvious
disregard of the need thereof;

That defendant's attitude is aggravated by the fact that, being an airline company, it has all facilities to
have its employees available as witnesses at any time it desires.

WHEREFORE, it is respectfully prayed that defendant's aforesaid motion for postponement be denied.
…" (Pp. 55-56, id.)

In view of this opposition, on the same day, His Honor issued an order of denial:
"No reason whatsoever having been alleged or shown why the defendant's witnesses will not be able to
come from Rome to Manila on the day of the hearing, and this case having been pending since
December, 1963, the motion for postponement is denied." (Pp. 56-57, id.)

On the day set for the hearing, September 28, 1966, Atty. Zaida Ruby S. Alberto appeared for defendant
and verbally moved for reconsideration of the foregoing order of denial. She argued that:

"Actually, it is not intended to delay the termination of this case. As a matter of fact, on August 15,
1966, the date set for the hearing of this case, we were ready with the presentation of our evidence as
our two witnesses from Rome were here. But unfortunately, Your Honor was indisposed, so the hearing
was postponed to this date. I really do not know why our witnesses failed to come. However, I intend
to make an inquiry about the matter so that I could file the corresponding explanation for their failure to
appear in Court today. May I, therefore, reiterate my motion for reconsideration, with the reservation
that I be allowed to file my explanation for the failure of these two witnesses coming from Rome to
appear for today's hearing." (Page 2, t.s.n., Sept. 28/66.)

But as counsel could not give the exact reason why defendant's witness scheduled to testify were
absent, the trial court denied the motion; ruling that "no ground has been alleged in support thereof".
(p. 6, t.s.n., September 28, 1966.)

This order was immediately followed by a motion of plaintiff's counsel for the striking out of the entire
testimony of the witness, Ivo Lazzari, upon the ground that counsel had not yet finished his cross-
examination of him and his absence was unexplained. No objection appears to have been made to such
motion, albeit counsel for defendant tried to point out that Atty. Jalandoni had already finished his
cross-examination of the witness. After verifying from the records that such was not the case, His Honor
issued the following order:

"The witness Ivo Lazzari not having appeared at the hearing set for today, for which reason his cross-
examination cannot be continued, on motion of the plaintiffs counsel, his testimony is striken from the
record, and this case is deemed submitted for decision on the evidence already presented." (Pp. 57-58,
Rec. on Ap., id.)

Thus the trial ended and parties were allowed to submit their respective memoranda.

On October 19, 1966, however, defendant's counsel filed the following motion for reconsideration:

"MOTION FOR RECONSIDERATION

COMES NOW defendant by undersigned counsel this Honorable Court moving for a reconsideration of
the orders dated September 27 and September 28, 1966, respectively, respectfully states:

On September 26, 1966 a motion for postponement of the hearing on September 28, 1966 was filed by
undersigned counsel for the reason that word had just been received from the defendant that the
witnesses who were scheduled to testify at the said hearing and who were to come from Rome, Italy,
would not be able to come to the Philippines for said hearing. This motion was denied in the order of
September 27, 1966;

No reason could be stated in the aforesaid motion for postponement because at the time it was
prepared, counsel for defendant did not really know the specific reasons for the inability of said
witnesses to come. A simple telex message had been sent by the Far East Manager of the defendant
company to defendant's representatives in Manila advising the latter that the witnesses in question
could not come. Copy of said telex message is attached to and made part of this motion for
reconsideration as Annex "I";

For this reason on September 28,1966, when the case was called, counsel for the defendant reiterated
the motion for postponement and requested this Honorable Court for time to submit an explanation on
the failure of defendant's witnesses to come as a letter elaborating on the matter would surely follow
the telex message. This request was however denied by the Honorable Court and upon motion of
plaintiffs counsel, another order was issued striking out from the record the testimony of defendant's
only witness so far, Ivo Lazzari, whose cross-examination was to be continued that date, for the latter's
failure to appear at the hearing, and deeming the case submitted for decision;

4
It is alleged by opposing counsel that the witnesses did not come for the hearing of September 28, 1966
because it was inconvenient for them and for defendant. This accusation is absolutely without basis and
malicious;

If inconvenience were the only reason for the witnesses' failure to come, then they would not also have
come previously because it was just as inconvenient for them then. It will be recalled that Ivo Lazzari
had been here in April 1966, when he was presented on direct examination and partly on cross-
examination. On August 25, 1966, the case was also scheduled for hearing. All of defendant's witnesses
came here from Rome, Italy for said hearing. Even Mr. C. H. . Dehio was also here to
testify. Unfortunately, the Presiding (Judge) of this Honorable Court was indisposed on that particular
morning and so the hearing on said date was cancelled. We mention this only to show that the failure
of the witnesses to come for the hearing on September 28 was not caused by mere inconvenience;

Defendant had and had no intention to delay the proceedings whatsoever. The witnesses in question
could not come because of certain circumstances that rendered their coming over virtually
impossible. Both witnesses, Ivo Lazzari and Saverino Casilli are employees of defendant company at the
Rome office. The air traffic in Rome has been particularly heavy this season. Some of the personnel of
the Lufthansa Rome office were on leave and these two employees had to assume some of the duties of
those employees who were on leave, aside from performing their own regular duties. If they were to
leave their posts to come for the hearing on September 28, there would be grave disruption to the
public service and for this reason they were not able to come. These facts are contained in a letter
dated September 29, 1966 written to undersigned counsel by C. H. Dehio, IATA Agency Manager, Far
East and Australasia, Lufthansa German Air Lines, copy of which is attached to and made part of this
motion for reconsideration as Annex '2'. The envelope in which said letter was contained is likewise
attached to and made part of this motion as Annex '2-A';

Witness Ivo Lazzari had finished his testimony on direct examination and on September 28, 1966,
opposing counsel was to continue cross-examination of said witness. The other witness Saverino Casili
was to be presented after lvo Lazarri would have finished testifying. Both witnesses are material for the
defense and no other person could testify on the facts that are the subject of their testimony. The
inability of said witnesses to come for the hearing on September 28 was not due to any fault or neglect
on the part of defendant who in fact had exerted every effort to have them come, but because of the
supervening circumstances above-described, their coming over could not have been possible without
seriously disrupting public service;

There is no question that the granting or denial of a motion for postponement rests upon the sound
discretion of the court. We submit however that under the circumstances, the ends of justice would
have been better served by granting the motion in question. The reason for defendant's motion for
postponement is valid and meritorious, and the grant of a postponement based on such ground would
not have adversely affected the substantial rights of plaintiffs.

'Continuances and postponements of trial are part and parcel of our judicial system of justice, and
where no substantial rights are affected and the intention to delay is not manifest, it is sound judicial
discretion to allow them. (Rexwell vs. Canlas, No. L-16746, Dec. 30, 1961)

There is even authority for the view that the right to a speedy trial is not violated by granting a
continuance on the ground of absence of material witnesses. (People vs. Romero, G.R. No. L-4517-20,
May 25, 1953)

'The lower court erred in denying a motion for postponement filed by defense to await arrival of a
material witness." (People vs. Narsolis, et al. G.R. No. L-2764, March 24, 1950)

'A miscarriage of justice may result from the accidental or excusable absence of a material witness,
where presence can be secured by the grant of a reasonable continuance.' (Luna vs. Arcenas, 34 Phil. 80,
98-99)

Defendant has a valid and meritorious defense, and if given opportunity to present its side of the case, it
would certainly diminish if not altogether disprove plaintiff's claim.
'... court litigations are primarily for the search of truth. . . . A trial by which both parties are given the
chance to adduce truth is the best way to find out such truth. A denial of this chance would be too
technical. The dispensation of justice and the vindication of grievances should not be barred by
technicalities.' (Ronquillo vs. Marasigan, L-11621, May 21, 1962; Santiago vs. Joaquin, L-15237, May 31,
1963, italics ours.)

'Judicial experience dictates that it is better that cases are tried on the merits even with a little delay
than the substantial rights of a party litigant be sacrificed on the altar of technicality.' (Uy vs. Demetillo,
CA-G.R. No. 32665-R, Jan. 14, 1964.)

10

An affidavit of merit by Clarita C. de la Riva, Manager, Rocha & Cia., Inc., General Sales Agents, Lufthansa
German Airlines is likewise attached to and made an integral part of this motion for reconsideration as
Annex "3";

11

The order dated September 27, denying defendant's motion for postponement and the order of
September 28, 1966 striking off from the records the testimony on direct examination of the witness Ivo
Lazzari and holding the case submitted for decision on the evidence presented would unduly prejudice
defendant's stand, and would amount to a denial of due process to defendant.

'The paramount interests of justice demand such reasonable allowances as would prevent, without
doing an injustice to the opposing party, the loss by a litigant of his chance to duly present his side of the
case before the court. With a view of avoiding a possible miscarriage of justice, the exercise of the
court's discretion ought to lean, in a reasonable degree toward bringing about a presentation of
evidence on both sides. ...' (Gerona vs. Calada, CA-G.R. No. 23955-R March 30, 1963, Tormes vs.
Balzado, CA-G.R. No. 32019-R, April 17, 1964.)

WHEREFORE, it is respectfully prayed that the orders of the Honorable Court dated September 27, and
September 28, 1966, respectively, be reconsidered and set aside; that the testimony of defendant's
witness Ivo Lazzari be allowed to remain on record and that a date be set for the continuation of
defendant's evidence.

Manila, Philippines, October 19, 1966.

CRISPIN D. BAIZAS & ASSOCIATES

By: s/t/ Crispin D. Baizas

Counsel for the defendant

Suite 305 Shurdut Building

Intramuros, Manila

VERIFICATION

I, CRISPIN D. BAIZAS, after having been sworn according to law, depose and say:

I am the counsel for the defendant in the above-entitled case;

I have prepared the foregoing motion for reconsideration and all the allegations contained therein are
true and correct of my own knowledge and to the best of my information and belief.

s/t CR/SPIN D. BAIZAS

SUBSCRIBED AND SWORN TO BEFORE ME this 19th day of October, 1966 in the City of Manila, affiant
exhibiting to me his Res. Cert. No. A-5892423 issued on January 28, 1966 at Makati, Rizal.

s/ (Illigible)

NOTARY PUBLIC

Until December 31, 1967

Doc. No. 1377
Page No. 77
Book No. Ill
Series of 1966."

(Pages 58-67, Record on Appeal, id.)

to which, plaintiffs counsel filed the following opposition:

"COMES NOW plaintiff, through undersigned counsel, and, in opposition to defendant's motion for
reconsideration, dated October 19, 1966, to this Honorable Court respectfully states that:

1. This is in effect the second motion for reconsideration that defendant has filed against the order of
September 27, 1966 denying its motion for postponement of the hearing of September 28. The first
motion for reconsideration was made in open court by Atty. Zaida S. Alberto and denied on the same
date.

2. Defendant now claims that it did not intend to delay the trial of this case and seeks to justify the
failure of its witnesses, Ivo Lazzari and Saverino Casilli, to appear on September 28 on the ground that:

'. . .The air traffic in Rome has been particularly heavy this season. Some of the personnel of the
Lufthansa Rome office were on leave and these two employees had to assume some of the duties of
these employees who were on leave, aside from performing their own regular duties. If they were to
leave their posts to come for the hearing on September 28, there would be grave disruption to the
public service and for this reason they were not able to come...' (p. 3, Defendant's Motion for
Reconsideration.)

3. Note that the above alleged facts are contained in a mere letter that was written by a certain Mr.
C.H. Dehio, an employee of defendant in Hongkong, to its counsel on September 29, 1966, or one day
after the hearing of September 28, when presumably defendant's aforesaid employee had already been
informed that this Honorable Court had denied the postponement and considered this case as
submitted for decision. Defendant is an airline company and has all the telex facilities to communicate
in a matter of minutes with its various agencies. The ground for failure to appear, to wit, supposed
pressure of work of said employees, is as easy to conceive and gratuitously state as to flick one's fingers.
We wish to call attention to the significant fact that the statement of Mr. Dehio in his letter is not under
oath. Incorporating said statement in the body of the motion for reconsideration that is sworn to by
counsel merely 'to the best of his information and belief', or in an affidavit of Mrs. Clarita C. de la Riva
(Annex 3) who was only referring to hearsay information derived from Mr. Dehio's aforesaid letter, is
insufficient verification of the motion for reconsideration under Section 6, Rule 7 of the Rules of
Court. Even Mr. Dehio had he executed the affidavit himself, would have been disqualified to swear to
the facts because he is stationed in Hongkong. So that, when defendant's counsel and Mrs. de la Riva
verified the motion on 'information and belief' derived from Mr. Dehio's letter, their statements were
hearsay thrice removed.

4. But assuming said facts to be true, did this justify the failure of defendant's witnesses to appear at
the scheduled hearing or constitute a valid excuse for defendant's inability to present evidence? We
respectfully submit that they do not. The September 28 hearing was set as early as August 25, 1966, or
more than one (1) month previous, to suit the schedules not only of this Honorable Court but of the
parties as well. Surely, it was incumbent on defendant, if it has deference to this Honorable Court and
our administration of justice, to see to it that its witnesses, particularly Ivo Lazzari who was on the
witness stand and due for cross-examination, would be available, rather than granting leave to its other
employees and burdening the two needed witnesses with additional work. Defendant is not a neophyte
in the airline business. Assuming arguendo that it is true that the volume of air traffic in Europe was
high in 'September and early October', it should have foreseen the situation and taken appropriate
measures to assure compliance with its obligation to this Honorable Court. The witnesses are
defendant's employees and subject to its exclusive control. Instead, defendant allegedly rendered itself
short handed by granting leave to its other employees, and now comes to the court with a lame excuse
requesting that it be extricated from a predicament that it has deliberately brought upon itself. For, the
excuse that with the workload for Mr. Lazzari and Mr. Casilli becoming heavier than usual 'it would
seriously disrupt our service to the travelling public if, during this time, they were to leave their jobs for
several days' (Please see Mr. Dehio's letter, Annex '2'), is lame, by any standard. The local newspapers
are constantly carrying news articles of how large and expanded is the Lufthansa as an airline
outfit. Surely, of its hundred (if not thousands) of available employees, two like Lazzari and Casilli could
have been dispensed from their work temporarily to defend the company against the just grievance
asserted by an injured passenger before a court of justice. At the most,defendant was after the
promotion of its own interest in holding the two employees to their jobs, and is not avoiding 'grave
disruption to the public service' as counsel exaggerates Mr. Dehio's expression 'seriously disrupt our
service to the travelling public' two distinct ideas, the latter signifying self-interest as distinguished from
public necessity. This Honorable Court can take judicial notice that there are many other airlines
operating in the same areas as does Lufthansa and competing with it.

5. As we explained at the September 28 hearing, the truth of the matter is that, contrary to the
unverified representations of defendant, the reason for the non-attendance of defendant's witnesses
was to avoid the inconvenience of coming to the Philippines to testify. In other words, after Ivo Lazzari
and Saverino Casilli were unable to testify last August 25, 1966, defendant thought of avoiding having
said witnesses come again to Manila. We say this because sometime on September 20, 1966, Atty.
Leonardo P. Valmonte (an assistant attorney of plaintiff who is helping in this case) had a telephone
conversation with defendant's counsel, Atty. Zaida S. Alberto in connection with the former's request for
a copy of a certain exhibit, and in the course of their conversation Atty. Alberto informed Atty. Valmonte
that the trial scheduled for September 28, 1966 would not proceed because they were intending 'to
secure the permission of the court to take the testimonies of their witnesses by way of depositions'. In
short, even before the receipt of the alleged telex (Annex "I" of Motion) by defendant's counsel on
September 22, 1966, said counsel announcing that the trial could not proceed because they were going
to resort to deposition of their witnesses in Rome, rather than have said witnesses come to Manila. The
decision to take deposition having been made on or before September 20, it was an easy matter to have
Lufthansa's Hongkong office sent the telex of September 22 stating that they would be unable to
provide witnesses on September 28. No reason was given why witnesses could not be provided 6 or 7
days thence. If in truth there was unexpected increase in air traffic, surely 6 or 7 days were more than
sufficient to make the necessary arrangements so that the work of Lazzari and Casilli could be taken
over temporarily just so these witnesses could appear before this Honorable Court at the appointed
date. Attached hereto as Annex "A" is the affidavit of Atty. Leonardo P. Valmonte on his aforesaid
conversation with Atty. Alberto.

6. At the hearing on September 28, when we made reference to the above-referred to conversation
between Attys. Valmonte and Alberto, the latter did not deny that she had in truth spoken to Atty.
Valmonte in the tenor above related. As a matter of fact, she admitted that defendant was intending to
take the depositions of its witnesses in Rome.

7. When this Honorable Court denied the motion for postponement on September 28, 1966, it did so in
the exercise of its sound judicial discretion, for no valid reason was given why the witnesses could not
appear, whereas this case had been pending for about three (3) years and had been postponed several
times with repeated warnings or defendant that said postponements were for the last time. And now,
in its motion for reconsideration, defendant has failed to effectively allege the ground for the failure of
said witnesses to come, and even if said ground be admitted as true for argument's sake, it merely
showed 'inofficiousness, lack of resourcefulness and diligence, if not total indifference' on the part of
defendant to protect in court its interests and to prevent needless delays in the discharge of judicial
business.

'Postponement not based on valid reasons. Where a party seeks postponement of the hearing of this
case for reasons caused by his own inofficiousness, lack of resourcefulness and diligence if not total
indifference to his own interests or to the interests of those he represents, thereby resulting in his
failure to present his own evidence, the court would not extend to him its mantle of protection. If it was
he who created the situation that brought about the resulting adverse consequences, he cannot plead
for his day in court nor claim that he was so denied of it.' (De Leon vs. People's Homesite and Housing
Corporation, CA-G.R. No. 31169-R, Aug. 31, 1963.)

8. In the case of Hap Hong Hardware Co. vs. Philippine Company, G.R. No. L-16773 (May 23, 1961), the
Supreme Court, in sustaining the trial court's denial of a motion for postponement and on the ground
that the defendant's witnesses, officers of the company, had not come because it was the beginning of
the milling season in the municipality of San Jose, Mindoro Occidental and their presence in the Central
was very necessary, held that the trial court was perfectly justified in denying said motion for
postponement because the reason adduced was 'not unavoidable and one that could not have been
foreseen.' Said the Supreme Court:
'The reason adduced in support of the motion for postponement is not unavoidable and one that could
not have been foreseen. Defendant ought to have known long before the date of trial that the milling
season would start when the trial of the case would be held. The motion should have been presented
long in advance of the hearing, so that the court could have taken steps to postpone the trial without
inconvenience to the adverse party. As it is, however, the motion was presented on the day of the trial.
knowing as it should have known that postponements lie in the court's discretion and there being no
apparent reason why the defendant could not have presented the motion earlier, thus avoiding
inconvenience to the adverse party, the appellant cannot claim that the trial court erred in denying
postponement. Under all the circumstances we hold that the court was perfectly justified in denying the
motion for postponement.' In the case at bar, the same unjustified excuse is adduced that the
witnesses, who are employees (not even officers) of defendant, had work to do, albeit date of trial was
set one month previous.

9. The cases cited by defendant are not in point, the facts, involved therein being very different from
those attending the case at bar. For example, in the cited case of Lino Luna vs. Arcenas, 34 Phil. 93, the
trial judge declined to grant a continuance of a few hours to give counsel an opportunity to secure the
presence of the defendant. The Supreme Court held that considering that it did not appear that
defendant was indulging in dilatory tactics, the denial of the motion for short postponement was
improper. Again, in the case of People vs. Romero, G.R. No. L-4517, May 25, 1953, the prosecution
witnesses, although subpoenaed, failed to appear; whereupon the fiscal asked that they be ordered
arrested and that in the meantime the trial be postponed. The Supreme Court likewise held that the
denial of the postponement was improper. These fact situations, however, as can immediately be seen
are completely different from that of Lufthansa whose non-presentation of its employees-witnesses was
motivated by the desire to avoid inconvenience to them, hence its frustrated plan to have their
depositions taken in Rome.

10. Complaints' regarding delays in the disposition of court cases are prevalent, and have recently
found expression not only in executive pronouncements but in judicial admonitions. The unclogging of
court dockets remains a pressing problem to the despair of litigants. As the Court of Appeals put it:

'The records reveals that the trial of the case was postponed five times at the instance of appellants
themselves, and for this reason the trial was delayed for more than one year and three months. In
granting these several postponements, the trial judge was over liberal already, and to have allowed
another postponement would have been to jeopardize plaintiffs interest. Obviously courts cannot
unduly protect the interests of one party to the detriment of the other. Already, there are complaints
regarding delays in the disposition of court cases. The unclogging of our court dockets still remains a
pressing problem in the despair of many a litigant. However to eliminate, at least minimize, these
delays is as much our concern and any act of trial courts conducive towards this purposeful end will be
encouraged by appellate courts.' (Rosario vs. De Leon, CA-G.R. No. 6495-R, April 25,1941; 40 O.G. 752.)
11. Prejudice will be occasioned plaintiff if defendant's belated motion for reconsideration is granted.
Notwithstanding defendant's counsel's receipt of Mr. Dehio's letter, dated September 25, 1966, a few
days after said date, defendant delayed the filing of its motion for consideration until after about three
(3) weeks later. In the meantime, it knew as of September 28 that this Honorable Court had striken out
the testimony of Ivo Lazzari, considered the case submitted for decision on the evidence on record, and
given plaintiffs counsel 7 days to present his memorandum. Plaintiff and his counsel exerted all efforts
and worked overtime just so to be able to submit his memorandum within the short period
allowed. Said memorandum was finished on time, and has been served on defendant's counsel add
submitted to Court. In other words, defendant purposely waited until the submission of plaintiff's
memorandum before presenting its motion for reconsideration based on alleged information received
three (3) weeks previous. To grant defendant's instant motion for reconsideration would place plaintiff
at a great disadvantage, because defendant is now fully aware of every facet of plaintiffs cause and can
simply tailor its defenses and evidence in refutation thereof.

12. Defendant claims that plaintiff is taking undue advantage of a technicality and that it should not be
deprived of its day in court on this ground. Suffice it to state that it is never technical to invoke one's
rights, and that while the Rules of Court should be liberally construed, their strict observance has been
considered indispensable to the prevention of needless delays and the orderly and speedy discharge of
judicial business. Thus:

'Although the Rules of Court should be liberally construed, however their strict observance which have
been considered indispensable to the prevention of needless delays and to the orderly and speedy
discharge of judicial business, is as imperative necessity. Thus, the rules prescribing the time within
which certain act must be done, or certain proceedings taken, are considered absolutely indispensable
to the prevention of needless delays and to the orderly and speedy discharge of judicial business, is as
imperative necessity. Thus, the rules prescribing the time within which certain act must be done, or
certain proceedings taken, are considered proceedings taken, are considered absolutely indispensable
to the prevention of needless delays and to the orderly and speedy discharge of judicial business and
therefore must be strictly complied with.' (Alvero vs. De la Rosa, 76 Phil. 428, cited in Francisco on Civil
Procedure, Vol. 1, p. 89)

'Rules of Courts, promulgated by authority of law, have the force and effect of law; and rules of court
prescribing the time within which certain acts must be done, or certain proceedings taken are
considered absolutely indispensable to the prevention of needless delays and to the orderly and speedy
discharge of judicial business.' Conlu vs. Court of Appeals, et al., G.R. No. L-14027, January 29, 1960,
citing Shioji vs. Harvey, 43 Phil. 333; Alvero vs. De la Rosa, et al., 42 Off. Gaz., p. 316, (supra.)

WHEREFORE, it is respectfully prayed that defendant's motion for reconsideration, dated October 19,
1966, be denied. Manila, October 31, 1966." (Pages 74-88, Record on Appeal, id.)

By way of reply to the above opposition, defendant's counsel alleged:

"Defendant couId have from the beginning taken depositions in Rome, but so as to avoid any
inconvenience to plaintiff and that the court may see and hear the witnesses testify to better determine
the credibility of their testimony defendant had been bringing the witnesses here. As a matter of fact,
defendant even without leave of court may take the repositions of its witnesses by merely giving the
Court notice of its intention to do so.

'After answer hast been filed no leave of court is required as a prerequisite to taking depositions . . .
(Marzo vs. Moore McCormick Line, Inc. 8 Fed. Rules of Service, p. 560; cited in Moran Comments on
Rules of Court Vol. II, p. 18)

'After issue is joined, depositions may be taken without leave of court. (Lyons vs. Bronx Towing Line,
Inc., 1 Fed. Service p. 341)

'After answer is served, depositions may be taken as of course and application should not be made to
the court for leave. (Schultz vs. State Mutual Life Assurance Company, I Fed. Rules of Service, p. 340, US
Dist. Ct. Dist. of Oregon, Oct. 14, 1938)

The statements made by Atty. Valmonte are false and malicious. An affidavit executed by Atty. Zaida
Ruby Alberto is attached to and made part of this Reply as Annex '1'." (Pages 92-93, Record on
Appeal, id.)

On October 24, 1966, the trial court resolved the incident in a brief order holding that "(f)or the reasons
stated in the plaintiffs opposition to the motion for reconsideration, it is denied."

In its appeal, defendant reiterates insistently its position that the denial of its motion for postponement
as well as the order striking out the testimony of Ivo Lazzari were issued in grave abuse of discretion and
should be set aside. Before going any further, however, it may be mentioned that since defendant has
not assigned as error, although it discusses in its brief, the denial of its last motion for reconsideration,
plaintiff contends that such failure constitutes a bar to any further consideration of the merits of the
arguments of defendant relative to the main denial-of-postponement and striking-out orders. To be
sure, there is technical plausibility in such pose of plaintiff, but considering the importance of the other
matters involved in this case, it would serve the interests of justice more if We passed on the merits of
the substantial issues in this controversy. After all, "this Court is clothed with ample authority to review
matters, even if they are not assigned as errors in the appeal, if it finds that their consideration is
necessary in arriving at a just decision of the case." (Saura Import & Export Co., Inc. vs. Philippine
International Surety Co., Inc., L15184, May 31,1963, 8 SCRA 143.) And considering the interrelation
between the omitted assignment of error and those actually assigned and discussed by defendant's
counsel, We can apply here the ruling in Hernandez vs. Andal, 78 Phil. 196, to the effect that "an
unassigned error closely related to an error properly assigned, or upon which the determination of the
question raised by the error properly assigned is dependent, will be considered by the appellate court
notwithstanding the failure to assign it as an error." (at pp. 209-210.)

Now, with respect to defendant's first assignment of error, We feel that the rather extended recital We
have made above of the incidents and proceedings related to the trial court's order denying defendant's
motion for postponement of the hearing set for September 28, 1966 is self-revealing. It argues against
the charge that His Honor's order of denial was improper and unjustified.

The case has been pending for about three years and had actually suffered during that period even more
than the usually permissible number of continuances, quite often to suit the convenience of defendant's
counsel. Notice of the September 28, 1966 schedule had been served on counsel the month previous. It
must be assumed that due preparations and arrangements were to be made since the receipt of that
notice to insure the presence in Manila of the expected witnesses on the date set. Under the
circumstances, the excuse given by defendant that the witnesses could not leave their respective
stations and places of work to attend the trial is plainly unacceptable. There was enough time and
opportunity for defendant to have made the corresponding adjustments in the assignments of its
personnel so as to enable its witnesses to be in court. The trouble is that defendant relied on the
assumption that the court could be made to wait until the volume and other conditions of its business
would permit it to comply with the schedule of the court. For an airline company engaged in
international transportation and presumably having all the facilities to have any of its employees
available practically anywhere in the world at a moment's notice, if it only took due care to do this,
defendant's attitude cannot be countenanced.

What is more, the motion of September 24, 1966 gave no reason at all why defendant's witnesses
supposed to come from Rome would be unable to be at the trial. Even as late as the day of the hearing,
September 28, 1966, the court could not be told the reason for such inability. All that counsel could say
was that she "intend(ed) to inquire and file the explanation" later. This was not as it should have been,
for the telex advising the Manila office that the witnesses would not be available was received on
September 22nd yet, and certainly there was enough time to investigate and find out the reason for such
unavailability. And as no justifiable reason could be advanced in support of the verbal motion for
reconsideration. We cannot say that His Honor acted improperly when he denied the same.

We reiterate, the case had been pending for more than three years, with so many postponements, and
the least that defendant should have done to merit favorable action on the part of the trial judge was to
be ready with an explanation of its inability to proceed with the trial, giving the detailed and good
reasons therefor. As it is, there was actually no basis at all for the exercise of discretion on the part of
the trial judge in a manner favorable to it. Trials may be postponed because of the absence of evidence
only when such absence is justified. Mere absence is not a justification in itself. Section 4 of Rule 22 is
sufficiently clear on this point. It provides that "A motion to postpone a trial on the ground of absence
of evidence can be granted only upon affidavit showing the materiality of evidence expected to be
obtained, and that due diligence has been used to procure it." This means that it must be shown to the
court that due diligence had been exercised in either securing the presence of the evidence (witnesses)
or preventing the absence thereof.
There is, of course, defendant's motion for reconsideration of October 19, 1966 praying for the setting
aside of the court's order of denial as well as the other order striking out the testimony of witness
Lazzari. But, as already noted, the only excuse given in said motion is that:

"...The witnesses in question could not come because of certain circumstances that rendered their
coming over virtually impossible. Both witnesses, Ivo Lazzari and Saverino Casilli are employees of
defendant company at the Rome office. The air traffic in Rome has been particularly heavy this
season. Some of the personnel of the Lufthansa Rome office were on leave and these two employees
had to assume some of the duties of those employees who were on leave, aside from performing their
own regular duties. If they were to leave their posts to come for the hearing on September 28, there
would be grave disruption to the public service and for, this reason they were not able to come. . ."
(Page 47, Rec. on Ap., p. 32, Record.)

Indeed, even if such reason were given earlier on September 24, 1966, the court would have been as
well justified in denying the requested postponement. We cannot see any reason why, despite its having
knowledge of the date of the hearing about a month before, defendant did not see to it that its
expected witnesses were not assigned to do duty on the day they were supposed to appear in
court. We cannot believe Lufthansa could be so undermanned that such a simple adjustment of its
personnel had to be "impossible."

Moreover, the Rome based witnesses were not the only possible witnesses of defendant. To begin with,
Mr. C.H. Dehio, the IATA Agency Manager, Far East and Australasia, Lufthansa German Air Lines, who,
according to the record, had already attended previous hearings as a prospective witness could have
been made to go to court. There is nothing in the record to show that he was also rendered incapable
of doing so. Then, there could still be local witnesses. It is no excuse that presenting other witnesses
would have disrupted the presentation of defendant's case, for parties may be allowed to maintain their
own way of presenting their evidence only where this can be done without injury to the expeditious
disposition of the case arid the best interests of the administration of justice.

Coming now to the second assigned error regarding the striking out of the unfinished testimony of
Lazzari, the Court is also of the opinion and so holds that the trial court's action cannot be categorized as
arbitrary or oppressive or as amounting to a grave abuse of discretion. To be sure, this second order
was but a logical consequence of the previous order denying defendant's motion for
postponement. With such denial, the next thing in order was to declare the presentation of evidence of
the defendant terminated. Accordingly, it was necessary to determine what evidence could be
considered to be for the defendant. And so when counsel for plaintiff asked the court to strike out the
testimony so far given by Lazzari, there was practically no alternative for the court but to grant the
same. Indeed, defendant's counsel could not and did not offer any objection thereto.

Oral testimony may be taken into account only when it is complete, that is, if the witness has been
wholly cross-examined by the adverse party or the right to cross-examine is lost wholly or in part thru
the fault of such adverse party. But when cross-examination is not and cannot be done or completed
due to causes attributable to the party offering the witness, the uncompleted testimony is thereby
rendered incompetent.

The right of a party to cross-examine the witnesses of his adversary is invaluable as it is inviolable in civil
cases, no less than the right of the accused in criminal cases. The express recognition of such right of
the accused in the Constitution does not render the right thereto of parties in civil cases less
constitutionally based, for it is an indispensable part of the due process guaranteed by the fundamental
law. Subject to appropriate supervision by the judge in order to avoid unnecessary delays on account of
its being unduly protracted and to needed injunctions protective of the right of the witness against self-
incrimination and oppressive and unwarranted harassment and embarrassment, a party is absolutely
entitled to a full cross-examination as prescribed in Section 8 of Rule 132 thus: "Upon the termination of
the direct examination, the witness may be cross-examined by the adverse party as to any matters
stated in the direct examination, or connected therewith, with sufficient fullness and freedom to test his
accuracy and truthfulness and freedom from interest or bias, or the reverse, and to elicit all important
facts bearing upon the issue." Until such cross-examination has been finished, the testimony of the
witness cannot be considered as complete and may not, therefore, be allowed to form part of the
evidence to be considered by the court in deciding the case.

In the case at bar, however, We have opted but to rely exclusively on the foregoing considerations. In
order to satisfy Ourselves as to whether or not defendant stands to be irreparably prejudiced by the
impugned action of the trial court relative to the testimony of Lazzari, We have just the same gone over
the transcript thereof. After considering the same, however, We are of the impression that even his
direct testimony, without taking into account anymore his answers to the cross-examination questions
of counsel for plaintiff, cannot be of much weight in establishing the defenses in defendant's
answer. But it would seem more appropriate to elaborate on this point when We come to the
discussion of the mutual accusation of the parties that the trial court erred in the portion of its decision
awarding damages to plaintiff.

The last issue submitted for Our resolution relates to the award of damages made by the trial court in
favor of Ortigas against Lufthansa in the amounts aforestated, as to which, as already noted at the
outset, both parties have appealed taking opposite positions. In this respect, the appealed decision
made the following findings and discussion of the material facts:

"In October, 1963, the Sharp Travel Service, the travel department of C.F. Sharp, Inc., the majority
interest in which is held by Rocha y Cia., Inc., General Agents of the defendant, Lufthansa German
Airlines, issued to the plaintiff First Class Pan American Ticket- No. 026492 147076 to 81 which would
take him from Manila, the place of departure, to Hongkong, various cities in the United States, Europe,
Asia, the Far East, and then back to Manila, the place of destination. Ortigas' ticket for all these different
legs of his journey was first class.

He left Manila October 12, 1963, as scheduled. In New York, he decided to leave out some cities,
included in his original itinerary, to be in Hongkong on the 19th day of November, 1963, for several
appointments he had there. He went to the Trans World Airlines and had his Pan American ticket
changed with First Class TWA Ticket No. 115-460-451-878 to 881. His TWA ticket was also first class for
the entire trip from New York to several European cities, including Rome, and thence to the Far East,
with Manila also as the place of destination.

Ortigas arrived in due course in Rome. To be sure he could fly first class to Hongkong on November 18,
1963, for his appointments there the next day, Ortigas repaired to the office of the Alitalia on Saturday,
November 16, 1963, to book passage. The man at the counter of the Alitalia office told him it had no
flight on Monday but the Lufthansa had. The man thereupon called up the office of the Lufthansa and,
after talking to an employee thereof, told Ortigas that the Lufthansa had no first class, but only
economy, seats available on its Monday flight.

Ortigas answered that he was not willing to take an economy seat and requested the employee to call
up other airlines. Then the phone rang. The employee answered and afterwards informed Ortigas that
the Lufthansa had a first class seat available for its Monday flight. Ortigas immediately asked him to get
the seat and to see to it that his ticket be confirmed and validated for the flight and a first class
seat. The man thereafter asked for Ortigas' passport and other travel papers and attached a validating
sticker (Exhibit 'D-1') on flight coupon No. 4 (Exhibit 'B') which corresponded to the Rome-Hongkong leg
of his TWA Ticket No. 115-460-451-878. The sticker recites:

Flight Res.

Carrier No. Date Time Status

LH 646 18 Nov. 12:35 P.M. O.K.

Wishing to be doubly sure, Ortigas again requested the Alitalia employee to call back the Lufthansa
office to recheck whether his ticket was really confirmed and validated. The man did so, after which he
told Ortigas that his ticket had been checked, validated, and confirmed as shown by the word 'O.K.' on
the sticker. The same employee later wrote on the cover of the plaintiff's ticket '10.15 Terminal-36, Via
Gioliti' (Exhibits 'C' and 'C-1') and told him to be in the air terminal on Monday, November 18, at 10:00
A.M.

The following Monday, Ortigas checked out of his hotel and took a taxi to the terminal, arriving there
about 9:30 A.M. He unloaded his baggage and proceeded to the counter in charge of the Lufthansa
passengers. The lady at the counter told him the Lufthansa had no space for him that day. Ortigas
requested her to check with her main office, which she did by calling it up. After calling, she apologized
and said the plaintiff's ticket was in order and would be confirmed and validated. On her request,
Ortigas had his luggage weighed and was given the free luggage allowance of a first class passenger. He
was furthermore asked to pay 800 liras for bus fare and 700 liras as embarkation tax. Then Ortigas,
along with other passengers, one of whom was Amado Castro of the Development Bank of the
Philippines, boarded a bus for the airport.

At the airport, the plaintiff handed over his ticket to the man behind the Lufthansa counter, who told
him everything was all right. At that juncture, the plaintiff heard his name called. He inquired if he was
being called from an employee of the Lufthansa and, on receiving an affirmative answer, said he was
Ortigas. The employee asked for his passport and other papers and, after examining his passport, where
his Filipino nationality appears, said he could not board the plane that day because his seat would be
given to a Belgian. Ortigas asked the man why he was doing that to him when his ticket was confirmed
and validated first class. The Lufthansa employee replied he was sorry but Ortigas could not leave.

Fearing he would have a recurrence of his heart ailment, Ortigas took a nitroglycerin pill which his
doctor advised him to take on occasions of stress. The plaintiff then told the Lufthansa man to bring the
Belgian over so that his papers may be examined to determine whether he had a preferred right to
Ortigas' seat but the Lufthansa employee turned down the request, raised his voice, and said if the
plaintiff desired, he could take an economy seat and he would be allowed a refund. Ortigas retorted he
was not interested in a refund and what he wanted was to travel first class in accordance with his ticket.

This argument occurred in the presence of the other passengers, one of whom was Amado Castro, and
the plaintiff felt embarrassed and humiliated because the Lufthansa employee was shouting at him and
treating him the way he did. Ortigas made another request, namely, that the employee call other
airlines to inquire if they had flights to Hongkong that day but he once more turned down the plea and
insisted that Ortigas travel economy, with the promise that he will be transferred to first class in Cairo
and onward to Hongkong.

After promising so, the man went inside a room and, after a while, came out and assured the plaintiff he
would travel first class from Cairo to Hongkong because he sent a communication that it should be
done. He then jotted down some letters on Ortigas' ticket. The plaintiff replied he was not satisfied with
the arrangement but was constrained to agree to it because he had to be in Hongkong the next day, his
luggage was in all probability already inside the plane, he was not certain he could still secure a hotel
reservation, the manager of the hotel where he stayed having told him it would be hard for him to get
another reservation once he checks out, and he was assured he would be given first class passage from
Cairo onward.

Upon arrival in Cairo, the plaintiff requested the Lufthansa agent to transfer him to first class but the
agent said he could not and that he did not receive any communication from Rome to that
effect. Ortigas also requested the man to find out if there were other airlines having planes leaving that
day but his request was likewise denied. The man, however, promised that at Dharham, Ortigas will be
transferred to first class. Ortigas had no alternative but to continue traveling as before but he did so
again under protest.

At Dharham, the plaintiff once more requested a transfer to first class but was also told by the Lufthansa
agent that he had not received any communication about the change and the request could not be
granted. The plaintiff had to travel perforce economy from Dharham. In Calcutta, Ortigas once again
requested a transfer or that he be assisted in booking passage on other planes but was also refused. It
was only in Bangkok when the chief steward asked him if he wanted to move over to first class but
having been already embarrassed and humiliated and the trip to Hongkong being only three hours, he
said he would not as a sign of protest.

In Hongkong, Ortigas protested against the treatment given him but was told by the Lufthansa office he
had to file his protest in Manila, it being the point of destination. He did so by means of a letter, dated
November 25, 1963 (Exhibit "F"), followed by another letter, dated December 20, 1963 (Exhibit "C"), and
not having received any definite answer, he brought his suit.

Although Ortigas' ticket for the flight from Rome to Hongkong was validated and confirmed by the
Alitalia, its act bound and obligated the Lufthansa. The Alitalia and Lufthansa are members of the
International Air Transport Association (IATA). It is admited that as such member, the Alitalia can issue
tickets for other members of the association like the Lufthansa, Pan American World Airways, and
others. Par. 10, Order of April 29, 1964, and Exhibit "H", certification of the manager of the
Alitalia. Aside from being members of the IATA, the Alitalia and Lufthansa are pool partners and
conduct joint service with interchangeable flights for the European-Far East-and Australia sectors. Par.
11, Order of April 29, 1964. Under the pool agreement (Exhibit "DD") they undertake to adhere to the
appropriate IATA regulations and to take measures to provide district sales offices with every possibility
for close cooperation in the promotion of the pool services covered by the agreement, including
"reservation and booking". They furthermore, in effect confirm in the agreement that tickets of one,
other than free and reduced tickets, may be validated by the other.

Finally, Manuel Otayza, general manager of Filital, Inc., which is the general agent of the Alitalia in the
Philippines, testified that space reservation through telephone calls between airlines is permitted by
IATA's, 'Manual of Traffic Conference Resolutions' and that telephone calls for reservation by one airline
to another is in fact accepted procedure in accordance with the official airline guide of the Air Traffic
Conference and International Air Transport Association (Exhibit "W").

The placing by the Alitalia of a sticker of the plaintiff's ticket obligated the Lufthansa to give him a first
class seat on its flight from Rome to Hongkong on November 18, 1963. The same witness, Manuel
Otayza, testified that the placing of a validating sticker on a ticket is standard airline procedure; that a
sticker changes are status of a reservation; that consequently while Ortigas' ticket was "open", that is, it
had no reservation for a particular flight between Rome and Hongkong, the moment a validating sticker
was placed thereon, stating the flight number of the airline, the day and hour of departure, with the
letters "O.K.", his ticket was clanged from an "open" to a "confirmed" or "validated" ticket; and that the
sticker on Ortigas' ticket meant that first class space was confirmed for him on Lufthansa flight 646 to
Hongkong on November 18, 1963, at 12:35 P.M.

Aside from Otayza's testimony, it is admitted that in the stipulation of facts that "the letters 'O.K.'
(Exhibit D-2) appearing on the 'Res. Status' box of the sticker (Exhibit D-1) attached to Flight Coupon No.
4 of TWA Ticket No. 015-410:451-880 (Exhibit "D") means 'space confirmed', per IATA Resolution 275,
page 4, Issue 2, a photostatic copy of which is attached hereto as Exhibit 'O'; that "'validate' means to
stamp or write on the passenger ticket an indication that the passenger ticket has been officially issued
by the carrier; that "the placing of a sticker on a flight coupon is a revalidation thereof for the flight
mentioned in said sticker and is an alteration effected on said coupon, in accordance with the procedure
laid down in IATA Resolution 275d, Page 1, Issue 1, a photostatic copy of which is attached thereto as
Exhibit "S"; and that "prior endorsement was not necessary for Alitalia to revalidate TWA Ticket No. 015-
410880 Exhibit "D") because Alitalia is the carrier originally designated in the 'Via carrier' box of said
ticket, in accordance with IATA Resolution No. 279, photostatic copy of which is attached hereto as
Exhibit 'T'".

There was, therefore, a valid and binding contract between Lufthansa and the plaintiff to transport him
as a first class passenger from Rome to Hongkong on November 18, 1963, and this agreement the
defendant violated by compelling the plaintiff to travel as an economy passenger. It cannot be said the
breach was the result of an honest mistake or excusable negligence. There is evidence the defendant
acted with bad faith and in wilful disregard of the plaintiff's rights.

Ortigas' ticket was confirmed on the early morning of November 16, 1963, more than 48 hours before
his departure on the afternoon of November 18. There was, therefore, ample, time to send a telex
message from Rome to the defendant's main office in Frankfurt, which is only about 2-1 / 2 flying hours
away, to reserve a first class seat for the plaintiff.

At the terminal on Via Gioliti, he was again told that he had a first class seat, his luggage was checked in
divesting him of control thereof, and transported to the airport some 37 kilometers distant. He was in
this manner deprived of the opportunity of availing himself of the facilities of other airlines and
compelled to take the Lufthansa flight even against his will.

In the airport, although he was found entitled to fly first class, he was told after his Filipino passport was
seen, that his seat would be given to a Belgian, without any reason or explanation whatsoever. His
simple request that the Belgian's ticket be produced and examined to see who had a better right to a
first class seat was turned down. So was his equally simple request that other airlines be called to find
out if any of them could accept him as a first class passenger to Hongkong that day. He was deceived
into boarding the Lufthansa plane at Rome by falsely assuring him he will be transferred to first class at
Cairo, the next stop in the flight. The same false and deceptive promise was given him at Dharham and
Calcutta.

Indubitable proof of the defendant's bad faith is found in the fact that while its employee was assuring
the plaintiff he would be transferred to first class in Cairo, he was at the same time writing on his ticket
the following notation: 'TRVLDY /c ROME HEG ROME ST', which means 'Travelled economy class Rome
to Hongkong St', thereby barring Ortigas from asserting any right to demand first class
accommodation. The defendant's employee, therefore, knew all along the plaintiff would not travel first
class, and yet he deliberately made him believe he would be transferred to first class from Cairo to
Hongkong.

From the circumstances, it is clear that the defendant not only breached its duty to the plaintiff but also
did not want to release him as a passenger and wished to hold on to him even if it would cause him
inconvenience and embarrassment." (Pages 97-109, Record on Appeal.)

Disputing the foregoing conclusions, Lufthansa claims firstly that the Alitalia employee who validated
and confirmed Ortigas' reservation must have made a mistake because actually, he was informed by the
Lufthansa Rome office that Ortigas could only be waitlisted. Assuming, however, there was such an
error, it has been indisputably proven that under the so-called pool arrangement among different airline
companies pursuant to the International Air Transport Association (IATA) agreement of which Alitalia
and Lufthansa are signatories, both companies are constituted thereby as agents of each other in the
issuing of tickets and other matters pertaining to their relations with those who would need their
services, and since there can be no question that on its face, the annotations made by Alitalia on the
ticket here in dispute cannot have any other meaning than that the reservation of Ortigas for the Rome
Hongkong flight was validated and confirmed, Lufthansa's disclaimer is unavailing. Besides, it appears
that when Ortigas checked in at the airport, the Lufthansa lady employee thereat told him, after making
the proper verification, that the reservation was correct. What is more, in the unconcluded testimony of
Ivo Lazzari, the striking out of which is questioned by Lufthansa, he admitted that it was a fact that the
said reservation of plaintiff for first class was confirmed, albeit he qualified that this was done already in
the morning of November 18th, the day of the flight, almost at the last hour. What seems to have
happened was that somehow the first class recommendations for that flight were overbooked and
Lufthansa tried to solve the problem by downgrading Ortigas to the economy class in favor of a Belgian,
as Ortigas was told by the Lufthansa employee who paged him over the public address system for the
purpose just as he was about to go to the departure area, with his luggage already checked and his
overweight fees duly paid, so much so that they were already loaded in the plane. Verily, such
treatment given to plaintiff was completely wrong and absolutely unjustifiable. Nobody, much less a
common carrier who is under constant special obligation to give utmost consideration to the
convenience of its customers, may be permitted to relieve itself from any difficult situation created by
its own lack of diligence in the conduct of its affairs in a manner prejudicial to such customers. It is Our
considered view that when it comes to contracts of common carriage, inattention and lack of care on
the part of the carrier resulting in the failure of the passenger to be accommodated in the class
contracted for amounts to bad faith or fraud which entitles the passenger to the award of moral
damages in accordance with Article 2220 of the Civil Code. But in the instant case, the breach appears
to be of graver nature, since the preference given to the Belgian passenger over plaintiff was done
willfully and in wanton disregard of plaintiff's rights and his dignity as a human being and as a Filipino,
who may not be discriminated against with impunity.

Lufthansa contends, however, that there could not have been any possible discrimination by reason of
race against Ortigas because from his appearance, said plaintiff can easily be taken for a European or
white more than his own witness Amado Castro and besides, there were other orientals in the same
flight on that occasion. It is argued that any such policy would be self-defeating, since it would certainly
be damaging to its own business. Again, this ratiocination cannot carry the day for Lufthansa, for what
appears from the evidence in this case is not really a case of a general policy of discriminating against
orientals or non-whites, but a specific act of Lufthansa's employee at the airport of giving preference to
a Belgian after examining Ortigas' passport wherein his Filipino nationality is noted. Indeed, the fact
that despite plaintiffs protestations and demand that he be shown how it could happen that somebody
else, particularly that Belgian, should be given his place when his reservation was validated and
confirmed and actually, he had already checked in and his luggage was already in the plane, nothing was
done to satisfy him, merely infused bad faith into the breach of contract already committed of depriving
plaintiff of his reserved accommodation. In other words, from the legal standpoint, such preference
given to a European surely aggravated the damage or injury suffered by plaintiff, but the very act alone
of deliberately downgrading him despite his confirmed reservation for first class accommodation is
sufficient ground for relief. And considering that there are already recorded cases in this Court wherein
Filipinos have been similarly discriminated against by foreign airline company employees in the
treatment of passengers, this new instance can easily be believed and correspondingly dealt with in
fixing and assessing the liability of herein defendant.

As found by the court below, what worsened the situation of Ortigas was that Lufthansa succeeded in
keeping him as its passenger by assuring him that he would be given first class accommodation at Cairo,
the next station, the proper arrangements therefor having been made already, when in truth such was
not the case. Thus, instead of complying with the request of Ortigas that other airlines be contacted to
find out if they had first class space for him, the Lufthansa employee who had indifferently told him
about his downgrading paid very little attention if ever to said request. And to keep him from giving the
business to another company, he was made to believe that he would be given first class accommodation
at Cairo. Although molested and embarrassed to the point that he had to take nitroglycerine pills to
ward off a possible heart attack, Ortigas hardly had any choice, since his luggage was already in the
plane. To his disappointment, when the plane reached Cairo, he was told by the Lufthansa office there
that no word at all had been received from Rome and they had no space for him in first class. Worse,
similar false representations were made to him at Dharham and Calcutta. It was only at Bangkok where
for the first time, Ortigas was at last informed that he could have a first class seat in that leg of the flight,
from Bangkok to Hongkong. This Ortigas rejected, if only to make patent his displeasure and indignation
at being so inconsiderately treated in the earlier part of his journey.

Lufthansa insists in its brief that it could have proven that there was no such "entrapment of a captive
passenger" had it been allowed the postponement it sought of the September 28, 1966 hearing. It is
argued that there could have been no way by which its Rome office could have assured Ortigas about
what he would be given in Cairo, the flight being fully booked as it was without any assurance of any
first class seat being vacated by then. We are not impressed. In view of the insistence of plaintiff that
he be given the first class accommodation he had contracted and paid for, the least that the Rome office
should have done was to communicate with Cairo and strongly urge that all possible effort be made to
comply with his well grounded request. As it happened, however, the Cario office informed Ortigas
when he arrived there that they had not received any word at all from Rome. On the contrary, as
pointed out by the trial court, contrary to the verbal assurance given Ortigas, the Lufthansa employee
made annotations on his ticket that he was travelling economy class from Rome to Hongkong. lf, as
contended by Lufthansa, Ortigas was duly advised to make arrangements for transfer to first class as
soon as he arrived at each station on the way, why was such notation made that he was travelling up to
Hongkong in economy class? All these only go to show that any evidence of defendant tending to
disprove the testimony of Ortigas would in any event have been inconclusive or unreliable.

Likewise, Lufthansa maintains that it could have proven that Ortigas did not take offense at being
downgraded, as in fact, according to Lufthansa, he was in jovial mood throughout the trip enjoying his
conversation and exchange of amenities with his seatmate, who by strange coincidence happened to be
the Manager of Lufthansa German Airlines for the district of Australia and New Zealand holding said
position since 1962.[1] Moreover, it is argued, the economy class accommodations are not much
different from first class and Ortigas was not delayed in his trip. We cannot see the point. A passenger
contracts for first class accommodations for many reasons peculiar to himself and pays a higher price
therefor, and it is certainly not for the airline to say later, after it deprives him of his space in order to
favor another passenger, that economy class is anyway just as good as first class. That Ortigas was
rightfully indignant is not difficult to imagine. No person in his normal senses and possessed of human
dignity would have been unperturbed and unruffled by the treatment he had received. More, he was
under express admonition of his doctor taking care of his ailing coronary condition to travel only in first
class. Indeed, that he complained and made himself emphatically clear while still in Rome is sufficiently
substantiated in the record, as it was more or less admitted by defendant's witness Lazzari when he
testified that he heard-about plaintiff's complaint that same day, November 18, 1963.

In the light of all the foregoing, there can be no doubt as to the right of Ortigas to damages, both moral
and exemplary. Precedents We have consistently adhered to so dictate. Beginning with
Cuenca,[2] wherein the Court rejected the theory that an air carrier is liable only in the event of death or
injury suffered by a passenger, because, according to the Court, to so hold would be tantamount to
declaring the carrier "exempt from any liability for damages in the event of its absolute refusal, in bad
faith, to comply with a contract of carriage, which is absurd", We have uniformly upheld the right of a
passenger to damages in all cases wherein, after having contracted and paid for first class
accommodations duly confirmed and validated, he is transferred over his objection to economy class,
which he has to take in order to be able to arrive at his destination on his scheduled time.

In the case of Nicolas L. Cuenca, then Commissioner of Public Highways of the Philippines, he boarded a
Northwest plane in Manila with a first class ticket to Tokyo, but upon arrival at Okinawa, an agent of the
company rudely compelled him, over his protest, to move over to the tourist class, which he had to do,
so he could reach the international conference he was attending on time. Under these facts, the Court
held that the P20,000 awarded by the lower court to Cuenca "may well be considered as nominal and
also as exemplary, the Court of Appeals having modified the trial court's designation thereof as moral,
saying it should have been nominal.

In Lopez,[3] Honorable Fernando Lopez, then an incumbent senator and former Vice President of the
Philippines, together with his wife and his daughter and son-in-law, made first class reservations with
the Pan American World Airways in its Tokyo-San Francisco flight. The reservation having been
confirmed, first class tickets were subsequently issued in their favor. Mistakenly, however, defendant's
agent cancelled said reservation, but expecting some cancellations before the flight scheduled about a
month later, the reservations supervisor decided to withhold the information from them, with the result
that upon arrival in Tokyo, the Lopezes discovered they had no first class accommodations and were
thus compelled to take the tourist class, just so the senator could be on time for his pressing
engagements in the United States. In the light of these facts, the Court held there was a breach of the
contract of carriage and viewed as the element of bad faith entitling the plaintiffs to moral damages for
such contractual breach, the failure of the agents of the defendant to inform the plaintiffs on time that
their reservation for first class had long before been cancelled by mistake. According to the Court, such
omission placed plaintiffs in a predicament that enabled the company to keep the plaintiffs as their
passengers in the tourist class, thereby retaining the business and promoting the company's self-interest
at the expense of, embarrassment, discomfort and humiliation on the part of the plaintiffs.

In Air France vs. Carrascoso,[4] plaintiff Mr. Rafael Carrascoso, a civil engineer who was going to Lourdes,
France, as a member of a religious group of pilgrims was issued by the Philippine Air Lines, as agent of
the defendant Air France, a ticket for first class round trip from Manila to Rome. From Manila,
Carrascoso travelled first class, as per said ticket, but at Bangkok, the Manager of the defendant airline
forced him to vacate the first class seat because there was a white man who allegedly had a better right
thereto, without, however, showing him the basis for such preference. Upon these factual premises, the
Court held:

"It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use
the term 'bad faith'. But can it be doubted that the recital of facts therein points to bad faith? The
manager not only prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed
his arbitrary will; he forcibly ejected him from his seat, made him suffer the humiliation of having to go
to the tourist class compartment just to give way to another passenger whose right thereto has not
been established. Certainly, this is bad faith. Unless, of course, bad faith has assumed a meaning
different from what is understood in law. For, 'bad faith' contemplates a 'state of mind affirmatively
operating with furtive design or with some motive of self-interest or ill will or for ulterior purpose.'
(Words & Phrases, Perm. Ed., Vol. 5, p. 13, citing Warfield Natural Gas Co. vs. Allen, 59 S.W. (2d) 534,
538.)

And if the foregoing were not yet sufficient, there is the express finding of bad faith in the judgment of
the Court of First Instance, thus:

'The evidence shows that defendant violated its contract of transportation with plaintiff in badfaith,
with the aggravating circumstances that defendant's Manager in Bangkok went to the extent of
threatening the plaintiff in the presence of many passengers to have him thrown out of the airplane to
give the 'first class' seat that he was occupying to, again using the words of the witness Ernesto G.
Cuento, a 'white man' whom he (defendant's Manager) wished to accommodate, and the defendant has
not proven that this 'white man' had any 'better right' to occupy the 'first class' seat that the plaintiff
was occupying, duly paid for, and for which the corresponding 'first class' ticket was issued by the
defendant to him.' (R.A. p. 74; italics supplied.) (at pp. 166-167.)

These precedents, as may be seen, apply four-square to herein plaintiff's case. Defendant's liability for
willful and wanton breach of its contract of carriage with plaintiff is, therefore, indubitable.

Coming now to the amount that should be awarded by way of damages to the plaintiff, it is also the
teaching of the cases aforecited that defendant is liable not only for moral but also for exemplary
damages. As earlier stated, the court below fixed the compensation for moral damages at P100,000 and
the exemplary at P30,000. The Court believes that these amounts are not enough.

According to the lower court:

"Although the plaintiff has not held any elective public office, he has however, a distinguished record as
a private citizen, a lawyer, businessman, a civic and religious leader, a member of numerous government
boards and organizations as well as of local and international bodies, and is the recipient of awards and
citations for outstanding services and achievements.

He was, and still is, moreover suffering from a heart ailment and has been advised by his physician to
travel first class because it is more relaxing and comfortable. His position as chairman of the boards of
directors of the corporation he represented also required that he travel in that manner. He was,
furthermore, carrying a special passport issued by the Philippine Government to represent it and
business corporations abroad.

His sickness and the need for him to travel in the most comfortable manner possible were made known
to the defendant's employee, but he paid no heed to them. Instead, he engaged Ortigas in a heated
discussion, summarily brushed off his protests and pleas, humiliated him, and tricked him into boarding
his employer's plane, endangering thereby his health and obliging him to take medicine to forestall an
attack.

There is, finally, evidence that he was discriminated against because of his nationality, for he was told to
yield his first class seat to a Belgian only after his passport was examined and his Filipino citizenship
must have been noted.

"Under the circumstances and measured by the criterion jurisprudence has followed, the compensation
the plaintiff should be entitled to receive must be fixed at P100,000 as moral damages, P30,000.00 as
exemplary or corrective damages, and P20,000.00 as attorney's fees." (Pp. 111-113, Record on Appeal.)

We have reviewed the evidence and We are convinced there is more than ample basis for these
findings. But under the circumstances revealed in the record, it is Our considered opinion that the
award of moral damages should be increased to P150,000.

We cannot go along with defendant's pose that in Cuenca the amount awarded was only P20,000, for
the very obvious reason that in that case what was involved was only one leg of the flight contracted for,
namely, that from Okinawa to Tokyo, whereas in the case now at bar, the offense was repeated four
times, at Rome, Cairo, Dharham and Calcutta, with apparent cold indifference of defendant's agents to
plaintiff's plight. Besides, it appears that Cuenca did not appeal from the trial court's decision fixing said
amount, hence there was no occasion for the Supreme Court to award more. This was also what
happened in the Carrascoso case, where the plaintiff did not complain against the award of only
P25,000-moral-and-P10,000-exemplary damages made by the trial court. It was Air France who claimed
that these were even excessive. Verily, however, such discriminatory acts of the defendants in those
cases which were not only violative of their contractual obligations but also offensive to human dignity
and national or racial pride constitute about the most justifiable ground for the award of moral
damages, for the resulting injury therefrom cannot but cause immense mental anguish, besmirched
reputation, wounded feelings, moral shock and social humiliation. (See Article 2217 of the Civil Code.)
We reiterate, they are to be considered as infecting with bad faith the breach of contract committed,
under Article 2220 of the same Code. (Lopez vs. Pan Am., supra.)

Lufthansa suggests that compared to the P100,000 awarded to Vice President Lopez in the case
aforementioned, the P100,000 given by the trial court to Ortigas are "grossly excessive". It does not
appear to Us to be so. As pointed out by His Honor, "although plaintiff has not held any elective public
office, he has, however, a distinguished record as a private citizen, a lawyer, businessman, a civic and
religious leader, a member of numerous boards and organizations as well as local and international
bodies, and is the recipient of awards and citations for outstanding services and achievements." Indeed,
under the proven facts in the record, We cannot regard plaintiff to be in any inferior position vis-a-
vis Vice President Lopez in the highest circles of Philippine society and in the business and religious
world, not to speak of his standing in government officialdom.

Besides, there is again the disparity between the Lopez case and this one that here the offense, which,
as in Cuenca, is aggravated by the Lufthansa employee at Rome having falsely noted on the ticket that
Ortigas was travelling in economy from Rome to Hongkong,[5] was repeated four times in the same trip,
namely, in Rome, Cairo, Dharham and Calcutta. More importantly, unlike in the case of Lopez, Ortigas
was suffering from a weak heart and was under doctor's advice to travel only in first class, hence, his
being compelled to stay in economy or tourist class during the major part of his trip, must have given
him added apprehensive feelings about his safety. And, moreover, it is to be noted that in the Lopez
case, which was decided in 1966,aside from taking into account the personal circumstances of the
plaintiff, the Court considered "the present rate of exchange and the terms at which the amount of
damages awarded would approximately be in U.S. dollars", hence, We may not justifiably do differently
here.

Furthermore, it may not be amiss to mention here that in Zulueta vs. Pan American World Airways,
Inc., 43 SCRA 397, the Court awarded the plaintiffs: Zulueta, the husband, his wife and a minor
daughter, a total of P775,000 as damages, consisting of P500,000 as moral, P200,000 as exemplary and
P75,000 as attorney's fees, apart from actual damages. In that case, the Zuluetas were coming home to
Manila from Honolulu in a Pan-American plane. At Wake, however, where the plane arrived at 4:00
o'clock in the morning, Zulueta could not be found at flight time because, without letting anyone know,
not even his wife or daughter, he had relieved himself, according to him, at the beach behind the
terminal. When at last, he was found, the Pan-Am employee who first met him while walking back from
the beach remonstrated him thus: "What in the hell do you think you are? Get on that plane". This
angered Zulueta who engaged the said employee in an exchange of angry words. In the meanwhile, the
pilot who had been tipped by a "man from the State Department", also a passenger in that flight, that
there might be a bomb in the plane and expressed apprehension for the safety of the flight unless
Zulueta could be found, ordered the unloading of the bags of the Zuluetas, and when three of the four
of them had already been unloaded, he ordered Zulueta to open them, but the latter refused. Another
exchange of angry words followed, in the course of which, according to Zulueta's evidence, the pilot
went to the extent of referring to him and his family as "those monkeys". Ultimately, the plane left
without Zulueta, albeit his wife and daughter were on board, because the captain refused to allow
Zulueta to board until after his bags were opened and inspected, which Zulueta refused entirely to
do. Although, said decision is not yet final, because of the pendency of a second motion for
reconsideration the Court has not yet resolved, the Court has already allowed the partial execution of
the judgment, thus enabling the Zuluetas to collect already one-half of the amount or over P335,000,
which amount, according to the concurring and dissenting opinion there of the writer of the instant
decision could be the least that should anyway be allowed. Of course, the Court did not itemize the
award but granted the same to the family as a whole, but it is evident that in the final distribution,
Zulueta would get for himself from at least P150,000 to not more than P200,000.[6]

We hold that the foregoing considerations justify the increase of the award of moral damages from
P100,000 to P150,000.

Finally, We have the dispute regarding the amount of exemplary damages awarded. In this respect, it is
Our considered opinion that defendant should pay P100,000 instead of the P30,000 awarded by the trial
court. The record of this case taken together with what are revealed in the other similar cases decided
by this Court, those aforediscussed, convinces Us that defendant, as an airline, should be made to pay
an amount that can really serve as a deterrent against a seeming pattern of indifference and unconcern,
and what is worse, of discrimination for racial reasons, discernible in the treatment of air
passengers. This is not the first case, and unless the proper sanctions are applied, it does not appear it is
going to be the last yet, of instances wherein Filipino passengers having validated and confirmed tickets
for first class would be shoved to the economy class, over their valid objections and without any regard
at all to their feelings and convenience, only to favor other passengers presumed by the airlines to be of
superior race, hence, deserving preference. It is high time everyone concerned were made to realize
that the laws of the Philippines do not permit any act of discrimination against its citizens, specially
when this accompanies a clear breach of contractual obligations of common carriers whose business is
affected with public interest and must be directed to serve the convenience and comfort of the
passengers. When any disregard of such laws is committed, the Supreme Court, as the interpreter of
such laws, must exact the commensurate liability which they contemplate.

"Exemplary damages are required by public policy, for wanton acts must be repressed. They are an
antidote so that the poison of wickedness may not run through the body politic." (Report of Code
Commission, pp. 75-76) By authority of the decided cases aforediscussed,[7] acts of similar nature as
those herein involved fall within the category of those justifying the imposition of exemplary damages
pursuant to the codal concept just stated.

"The rationale behind exemplary or corrective damages is, as the name implies, to provide an example
or correction for public good. . . In view of its nature, it should be imposed in such an amount as to
sufficiently and effectively deter similar breach of contracts by defendant or other airlines." (Lopez vs.
Pan-American World Airways, supra; see also Rotea vs. Halili, 109 Phil. 495; People vs. Medroso Jr., G.R.
No. L-37633, Jan. 31, 1975, 62 SCRA 245; Cotabato Timberland Co. Inc. vs. Plaridel Lumber Co., Inc., 13
SCRA 235) Thus, all relevant matters considered, P100,000 of exemplary damages, which practically
amounts only to not more than $15,000 U.S. under the present rate of exchange, would serve the ends
for which the liability has been conceived.

WHEREFORE, the judgment appealed from is modified by raising the award of moral and exemplary
damages to plaintiff Ortigas to P150,000.00 and P100,000.00, respectively. In all other respects,
including as to the payment of interests on the said amounts, the same is affirmed.

[ G.R. No. 150843, March 14, 2003 ]

CATHAY PACIFIC AIRWAYS, LTD., PETITIONER, VS. SPOUSES DANIEL VAZQUEZ AND MARIA LUISA
MADRIGAL VAZQUEZ, RESPONDENTS.

DECISION

DAVIDE JR., C.J.:

Is an involuntary upgrading of an airline passenger's accommodation from one class to a more superior
class at no extra cost a breach of contract of carriage that would entitle the passenger to an award of
damages? This is a novel question that has to be resolved in this case.

The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay Pacific
Airways, Ltd., (hereinafter Cathay) are as follows:

Cathay is a common carrier engaged in the business of transporting passengers and goods by air. Among
the many routes it services is the Manila-Hongkong-Manila course. As part of its marketing strategy,
Cathay accords its frequent flyers membership in its Marco Polo Club. The members enjoy several
privileges, such as priority for upgrading of booking without any extra charge whenever an opportunity
arises. Thus, a frequent flyer booked in the Business Class has priority for upgrading to First Class if the
Business Class Section is fully booked.

Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent
flyers of Cathay and are Gold Card members of its Marco Polo Club. On 24 September 1996, the
Vazquezes, together with their maid and two friends Pacita Cruz and Josefina Vergel de Dios, went to
Hongkong for pleasure and business.

For their return flight to Manila on 28 September 1996, they were booked on Cathay's Flight CX-905,
with departure time at 9:20 p.m. Two hours before their time of departure, the Vazquezes and their
companions checked in their luggage at Cathay's check-in counter at Kai Tak Airport and were given
their respective boarding passes, to wit, Business Class boarding passes for the Vazquezes and their two
friends, and Economy Class for their maid. They then proceeded to the Business Class passenger lounge.

When boarding time was announced, the Vazquezes and their two friends went to Departure Gate No.
28, which was designated for Business Class passengers. Dr. Vazquez presented his boarding pass to the
ground stewardess, who in turn inserted it into an electronic machine reader or computer at the gate.
The ground stewardess was assisted by a ground attendant by the name of Clara Lai Han Chiu. When
Ms. Chiu glanced at the computer monitor, she saw a message that there was a "seat change" from
Business Class to First Class for the Vazquezes.

Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes' accommodations were upgraded to
First Class. Dr. Vazquez refused the upgrade, reasoning that it would not look nice for them as hosts to
travel in First Class and their guests, in the Business Class; and moreover, they were going to discuss
business matters during the flight. He also told Ms. Chiu that she could have other passengers instead
transferred to the First Class Section. Taken aback by the refusal for upgrading, Ms. Chiu consulted her
supervisor, who told her to handle the situation and convince the Vazquezes to accept the upgrading.
Ms. Chiu informed the latter that the Business Class was fully booked, and that since they were Marco
Polo Club members they had the priority to be upgraded to the First Class. Dr. Vazquez continued to
refuse, so Ms. Chiu told them that if they would not avail themselves of the privilege, they would not be
allowed to take the flight. Eventually, after talking to his two friends, Dr. Vazquez gave in. He and Mrs.
Vazquez then proceeded to the First Class Cabin.

Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to Cathay's Country
Manager, demanded that they be indemnified in the amount of P1million for the "humiliation and
embarrassment" caused by its employees. They also demanded "a written apology from the
management of Cathay, preferably a responsible person with a rank of no less than the Country
Manager, as well as the apology from Ms. Chiu" within fifteen days from receipt of the letter.

In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathay's Country Manager Argus Guy
Robson, informed the Vazquezes that Cathay would investigate the incident and get back to them within
a week's time.

On 8 November 1996, after Cathay's failure to give them any feedback within its self-imposed deadline,
the Vazquezes instituted before the Regional Trial Court of Makati City an action for damages against
Cathay, praying for the payment to each of them the amounts of P250,000 as temperate
damages; P500,000 as moral damages; P500,000 as exemplary or corrective damages; and P250,000 as
attorney's fees.

In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they preferred to stay
in Business Class, Ms. Chiu "obstinately, uncompromisingly and in a loud, discourteous and harsh voice
threatened" that they could not board and leave with the flight unless they go to First Class, since the
Business Class was overbooked. Ms. Chiu's loud and stringent shouting annoyed, embarrassed, and
humiliated them because the incident was witnessed by all the other passengers waiting for boarding.
They also claimed that they were unjustifiably delayed to board the plane, and when they were finally
permitted to get into the aircraft, the forward storage compartment was already full. A flight stewardess
instructed Dr. Vazquez to put his roll-on luggage in the overhead storage compartment. Because he was
not assisted by any of the crew in putting up his luggage, his bilateral carpal tunnel syndrome was
aggravated, causing him extreme pain on his arm and wrist. The Vazquezes also averred that they
"belong to the uppermost and absolutely top elite of both Philippine Society and the Philippine financial
community, [and that] they were among the wealthiest persons in the Philippine[s]."
In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade passengers to
the next better class of accommodation, whenever an opportunity arises, such as when a certain section
is fully booked. Priority in upgrading is given to its frequent flyers, who are considered favored
passengers like the Vazquezes. Thus, when the Business Class Section of Flight CX-905 was fully booked,
Cathay's computer sorted out the names of favored passengers for involuntary upgrading to First Class.
When Ms. Chiu informed the Vazquezes that they were upgraded to First Class, Dr. Vazquez refused. He
then stood at the entrance of the boarding apron, blocking the queue of passengers from boarding the
plane, which inconvenienced other passengers. He shouted that it was impossible for him and his wife
to be upgraded without his two friends who were traveling with them. Because of Dr. Vazquez's
outburst, Ms. Chiu thought of upgrading the traveling companions of the Vazquezes. But when she
checked the computer, she learned that the Vazquezes' companions did not have priority for upgrading.
She then tried to book the Vazquezes again to their original seats. However, since the Business Class
Section was already fully booked, she politely informed Dr. Vazquez of such fact and explained that the
upgrading was in recognition of their status as Cathay's valued passengers. Finally, after talking to their
guests, the Vazquezes eventually decided to take the First Class accommodation.

Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing with the
Vazquezes; none of them shouted, humiliated, embarrassed, or committed any act of disrespect against
them (the Vazquezes). Assuming that there was indeed a breach of contractual obligation, Cathay acted
in good faith, which negates any basis for their claim for temperate, moral, and exemplary damages and
attorney's fees. Hence, it prayed for the dismissal of the complaint and for payment of P100,000 for
exemplary damages and P300,000 as attorney's fees and litigation expenses.

During the trial, Dr. Vazquez testified to support the allegations in the complaint. His testimony was
corroborated by his two friends who were with him at the time of the incident, namely, Pacita G. Cruz
and Josefina Vergel de Dios.

For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms. Chiu; Norma
Barrientos, Comptroller of its retained counsel; and Mr. Robson. Yuen and Robson testified on Cathay's
policy of upgrading the seat accommodation of its Marco Polo Club members when an opportunity
arises. The upgrading of the Vazquezes to First Class was done in good faith; in fact, the First Class
Section is definitely much better than the Business Class in terms of comfort, quality of food, and service
from the cabin crew. They also testified that overbooking is a widely accepted practice in the airline
industry and is in accordance with the International Air Transport Association (IATA) regulations. Airlines
overbook because a lot of passengers do not show up for their flight. With respect to Flight CX-905,
there was no overall overbooking to a degree that a passenger was bumped off or downgraded. Yuen
and Robson also stated that the demand letter of the Vazquezes was immediately acted upon. Reports
were gathered from their office in Hong Kong and immediately forwarded to their counsel Atty. Remollo
for legal advice. However, Atty. Remollo begged off because his services were likewise retained by the
Vazquezes; nonetheless, he undertook to solve the problem in behalf of Cathay. But nothing happened
until Cathay received a copy of the complaint in this case. For her part, Ms. Chiu denied that she shouted
or used foul or impolite language against the Vazquezes. Ms. Barrientos testified on the amount of
attorney's fees and other litigation expenses, such as those for the taking of the depositions of Yuen and
Chiu.
In its decision[1] of 19 October 1998, the trial court found for the Vazquezes and decreed as follows:

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby
rendered in favor of plaintiffs Vazquez spouses and against defendant Cathay Pacific Airways, Ltd.,
ordering the latter to pay each plaintiff the following:12345

a) Nominal damages in the amount of P100,000.00 for each plaintiff;

b) Moral damages in the amount of P2,000,000.00 for each plaintiff;

c) Exemplary damages in the amount of P5,000,000.00 for each plaintiff;

Attorney's fees and expenses of litigation in the amount of P1,000,000.00 for each plaintiff;
d)
and

e) Costs of suit.

SO ORDERED.

According to the trial court, Cathay offers various classes of seats from which passengers are allowed to
choose regardless of their reasons or motives, whether it be due to budgetary constraints or whim. The
choice imposes a clear obligation on Cathay to transport the passengers in the class chosen by them.
The carrier cannot, without exposing itself to liability, force a passenger to involuntarily change his
choice. The upgrading of the Vazquezes' accommodation over and above their vehement objections was
due to the overbooking of the Business Class. It was a pretext to pack as many passengers as possible
into the plane to maximize Cathay's revenues. Cathay's actuations in this case displayed deceit, gross
negligence, and bad faith, which entitled the Vazquezes to awards for damages.

On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001,[2] deleted the award
for exemplary damages; and it reduced the awards for moral and nominal damages for each of the
Vazquezes to P250,000 and P50,000, respectively, and the attorney's fees and litigation expenses
to P50,000 for both of them.

The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay novated the
contract of carriage without the former's consent. There was a breach of contract not because Cathay
overbooked the Business Class Section of Flight CX-905 but because the latter pushed through with the
upgrading despite the objections of the Vazquezes.

However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be
discourteous to, Dr. Vazquez, although it might seemed that way to the latter, who was a member of the
elite in Philippine society and was not therefore used to being harangued by anybody. Ms. Chiu was a
Hong Kong Chinese whose fractured Chinese was difficult to understand and whose manner of speaking
might sound harsh or shrill to Filipinos because of cultural differences. But the Court of Appeals did not
find her to have acted with deliberate malice, deceit, gross negligence, or bad faith. If at all, she was
negligent in not offering the First Class accommodations to other passengers. Neither can the flight
stewardess in the First Class Cabin be said to have been in bad faith when she failed to assist Dr.
Vazquez in lifting his baggage into the overhead storage bin. There is no proof that he asked for help and
was refused even after saying that he was suffering from "bilateral carpal tunnel syndrome." Anent the
delay of Yuen in responding to the demand letter of the Vazquezes, the Court of Appeals found it to
have been sufficiently explained.

The Vazquezes and Cathay separately filed motions for a reconsideration of the decision, both of which
were denied by the Court of Appeals.

Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for moral
damages has no basis, since the Court of Appeals found that there was no "wanton, fraudulent, reckless
and oppressive" display of manners on the part of its personnel; and that the breach of contract was not
attended by fraud, malice, or bad faith. If any damage had been suffered by the Vazquezes, it
was damnum absque injuria, which is damage without injury, damage or injury inflicted without
injustice, loss or damage without violation of a legal right, or a wrong done to a man for which the law
provides no remedy. Cathay also invokes our decision in United Airlines, Inc. v. Court of Appeals[3] where
we recognized that, in accordance with the Civil Aeronautics Board's Economic Regulation No. 7, as
amended, an overbooking that does not exceed ten percent cannot be considered deliberate and done
in bad faith. We thus deleted in that case the awards for moral and exemplary damages, as well as
attorney's fees, for lack of proof of overbooking exceeding ten percent or of bad faith on the part of the
airline carrier.

On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting awards for
moral and nominal damages and attorney's fees in view of the breach of contract committed by Cathay
for transferring them from the Business Class to First Class Section without prior notice or consent and
over their vigorous objection. They likewise argue that the issuance of passenger tickets more than the
seating capacity of each section of the plane is in itself fraudulent, malicious and tainted with bad faith.

The key issues for our consideration are whether (1) by upgrading the seat accommodation of the
Vazquezes from Business Class to First Class Cathay breached its contract of carriage with the
Vazquezes; (2) the upgrading was tainted with fraud or bad faith; and (3) the Vazquezes are entitled to
damages.

We resolve the first issue in the affirmative.

A contract is a meeting of minds between two persons whereby one agrees to give something or render
some service to another for a consideration. There is no contract unless the following requisites concur:
(1) consent of the contracting parties; (2) an object certain which is the subject of the contract; and (3)
the cause of the obligation which is established.[4] Undoubtedly, a contract of carriage existed between
Cathay and the Vazquezes. They voluntarily and freely gave their consent to an agreement whose object
was the transportation of the Vazquezes from Manila to Hong Kong and back to Manila, with seats in
the Business Class Section of the aircraft, and whose cause or consideration was the fare paid by the
Vazquezes to Cathay.
The only problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did it
constitute a breach of contract?

Breach of contract is defined as the "failure without legal reason to comply with the terms of a
contract."[5] It is also defined as the "[f]ailure, without legal excuse, to perform any promise which forms
the whole or part of the contract."[6]

In previous cases, the breach of contract of carriage consisted in either the bumping off of a passenger
with confirmed reservation or the downgrading of a passenger's seat accommodation from one class to
a lower class. In this case, what happened was the reverse. The contract between the parties was for
Cathay to transport the Vazquezes to Manila on a Business Class accommodation in Flight CX-905. After
checking-in their luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were given boarding cards
indicating their seat assignments in the Business Class Section. However, during the boarding time,
when the Vazquezes presented their boarding passes, they were informed that they had a seat change
from Business Class to First Class. It turned out that the Business Class was overbooked in that there
were more passengers than the number of seats. Thus, the seat assignments of the Vazquezes were
given to waitlisted passengers, and the Vazquezes, being members of the Marco Polo Club, were
upgraded from Business Class to First Class.

We note that in all their pleadings, the Vazquezes never denied that they were members of Cathay's
Marco Polo Club. They knew that as members of the Club, they had priority for upgrading of their seat
accommodation at no extra cost when an opportunity arises. But, just like other privileges, such priority
could be waived. The Vazquezes should have been consulted first whether they wanted to avail
themselves of the privilege or would consent to a change of seat accommodation before their seat
assignments were given to other passengers. Normally, one would appreciate and accept an upgrading,
for it would mean a better accommodation. But, whatever their reason was and however odd it might
be, the Vazquezes had every right to decline the upgrade and insist on the Business Class
accommodation they had booked for and which was designated in their boarding passes. They clearly
waived their priority or preference when they asked that other passengers be given the upgrade. It
should not have been imposed on them over their vehement objection. By insisting on the upgrade,
Cathay breached its contract of carriage with the Vazquezes.

We are not, however, convinced that the upgrading or the breach of contract was attended by fraud or
bad faith. Thus, we resolve the second issue in the negative.

Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked, and that is why they are never presumed.
They amount to mere slogans or mudslinging unless convincingly substantiated by whoever is alleging
them.

Fraud has been defined to include an inducement through insidious machination. Insidious machination
refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with
intent to deceive, conceals or omits to state material facts and, by reason of such omission or
concealment, the other party was induced to give consent that would not otherwise have been given.[7]

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or
interest or ill will that partakes of the nature of fraud.[8]

We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree
to the upgrading through insidious words or deceitful machination or through willful concealment of
material facts. Upon boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded
to First Class in view of their being Gold Card members of Cathay's Marco Polo Club. She was honest in
telling them that their seats were already given to other passengers and the Business Class Section was
fully booked. Ms. Chiu might have failed to consider the remedy of offering the First Class seats to other
passengers. But, we find no bad faith in her failure to do so, even if that amounted to an exercise of
poor judgment.

Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by
Mr. Robson, the First Class Section is better than the Business Class Section in terms of comfort, quality
of food, and service from the cabin crew; thus, the difference in fare between the First Class and
Business Class at that time was $250.[9] Needless to state, an upgrading is for the better condition and,
definitely, for the benefit of the passenger.

We are not persuaded by the Vazquezes' argument that the overbooking of the Business Class Section
constituted bad faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil
Aeronautics Board, as amended, provides:

Sec 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to its
operation of flights or portions of flights originating from or terminating at, or serving a point within the
territory of the Republic of the Philippines insofar as it denies boarding to a passenger on a flight, or
portion of a flight inside or outside the Philippines, for which he holds confirmed reserved space.
Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and
excludes deliberate and willful acts of non-accommodation. Provided, however, that overbooking not
exceeding 10% of the seating capacity of the aircraft shall not be considered as a deliberate and willful
act of non-accommodation.

It is clear from this section that an overbooking that does not exceed ten percent is not considered
deliberate and therefore does not amount to bad faith.[10] Here, while there was admittedly an
overbooking of the Business Class, there was no evidence of overbooking of the plane beyond ten
percent, and no passenger was ever bumped off or was refused to board the aircraft.

Now we come to the third issue on damages.

The Court of Appeals awarded each of the Vazquezes moral damages in the amount of P250,000. Article
2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith.

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Although incapable of
pecuniary computation, moral damages may be recovered if they are the proximate result of the
defendant's wrongful act or omission.[11] Thus, case law establishes the following requisites for the
award of moral damages: (1) there must be an injury clearly sustained by the claimant, whether
physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3)
the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the
claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the
Civil Code.[12]

Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances
where the carrier is guilty of fraud or bad faith or where the mishap resulted in the death of a
passenger.[13] Where in breaching the contract of carriage the airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of
the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In such a
case the liability does not include moral and exemplary damages.[14]

In this case, we have ruled that the breach of contract of carriage, which consisted in the involuntary
upgrading of the Vazquezes' seat accommodation, was not attended by fraud or bad faith. The Court of
Appeals' award of moral damages has, therefore, no leg to stand on.

The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a requisite in
the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done
in wanton, fraudulent or malevolent manner.[15] Such requisite is absent in this case. Moreover, to be
entitled thereto the claimant must first establish his right to moral, temperate, or compensatory
damages.[16] Since the Vazquezes are not entitled to any of these damages, the award for exemplary
damages has no legal basis. And where the awards for moral and exemplary damages are eliminated, so
must the award for attorney's fees.[17]

The most that can be adjudged in favor of the Vazquezes for Cathay's breach of contract is an award for
nominal damages under Article 2221 of the Civil Code, which reads as follows:

Article 2221 of the Civil Code provides:

Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.

Worth noting is the fact that in Cathay's Memorandum filed with this Court, it prayed only for the
deletion of the award for moral damages. It deferred to the Court of Appeals' discretion in awarding
nominal damages; thus:

As far as the award of nominal damages is concerned, petitioner respectfully defers to the Honorable
Court of Appeals' discretion. Aware as it is that somehow, due to the resistance of respondents-spouses
to the normally-appreciated gesture of petitioner to upgrade their accommodations, petitioner may
have disturbed the respondents-spouses' wish to be with their companions (who traveled to Hong Kong
with them) at the Business Class on their flight to Manila. Petitioner regrets that in its desire to provide
the respondents-spouses with additional amenities for the one and one-half (1 1/2) hour flight to
Manila, unintended tension ensued.[18]

Nonetheless, considering that the breach was intended to give more benefit and advantage to the
Vazquezes by upgrading their Business Class accommodation to First Class because of their valued status
as Marco Polo members, we reduce the award for nominal damages to P5,000.

Before writing finis to this decision, we find it well-worth to quote the apt observation of the Court of
Appeals regarding the awards adjudged by the trial court:

We are not amused but alarmed at the lower court's unbelievable alacrity, bordering on the scandalous,
to award excessive amounts as damages. In their complaint, appellees asked for P1 million as moral
damages but the lower court awarded P4 million; they asked for P500,000.00 as exemplary damages but
the lower court cavalierly awarded a whooping P10 million; they asked for P250,000.00 as attorney's
fees but were awarded P2 million; they did not ask for nominal damages but were
awarded P200,000.00. It is as if the lower court went on a rampage, and why it acted that way is beyond
all tests of reason. In fact the excessiveness of the total award invites the suspicion that it was the result
of "prejudice or corruption on the part of the trial court."

The presiding judge of the lower court is enjoined to hearken to the Supreme Court's admonition
in Singson vs. CA (282 SCRA 149 [1997]), where it said:

The well-entrenched principle is that the grant of moral damages depends upon the discretion of the
court based on the circumstances of each case. This discretion is limited by the principle that the
amount awarded should not be palpably and scandalously excessive as to indicate that it was the result
of prejudice or corruption on the part of the trial court….

and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:

Nonetheless, we agree with the injunction expressed by the Court of Appeals that passengers must not
prey on international airlines for damage awards, like "trophies in a safari." After all neither the social
standing nor prestige of the passenger should determine the extent to which he would suffer because of
a wrong done, since the dignity affronted in the individual is a quality inherent in him and not conferred
by these social indicators. [19]
We adopt as our own this observation of the Court of Appeals.

WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of the Court of Appeals of 24
July 2001 in CA-G.R. CV No. 63339 is hereby MODIFIED, and as modified, the awards for moral damages
and attorney's fees are set aside and deleted, and the award for nominal damages is reduced to P5,000.

No pronouncement on costs.

SO ORDERED.

[G.R. No. 165266 : December 15, 2010]

AIR FRANCE, PETITIONER, VS. BONIFACIO H. GILLEGO, SUBSTITUTED BY HIS SURVIVING HEIRS
REPRESENTED BY DOLORES P. GILLEGO, RESPONDENT.

DECISION

VILLARAMA, JR., J.:

For review is the Decision[1] dated June 30, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 56587
which affirmed the Decision[2] dated January 3, 1996 of the Regional Trial Court (RTC) of Makati City,
Branch 137 in Civil Case No. 93-2328.

The facts follow:

Sometime in April 1993, respondent Bonifacio H. Gillego,[3] then incumbent Congressman of the Second
District of Sorsogon and Chairman of the House of Representatives Committee on Civil, Political and
Human Rights, was invited to participate as one of the keynote speakers at the 89th Inter-Parliamentary
Conference Symposium on Parliament Guardian of Human Rights to be held in Budapest, Hungary and
Tokyo, Japan from May 19 to 22, 1993. The Philippines is a member of the Inter-Parliamentary Union
which organized the event.[4]

On May 16, 1993, respondent left Manila on board petitioner Air France's aircraft bound for Paris,
France. He arrived in Paris early morning of May 17, 1993 (5:00 a.m.). While waiting at the De' Gaulle
International Airport for his connecting flight to Budapest scheduled at 3:15 p.m. that same day,
respondent learned that petitioner had another aircraft bound for Budapest with an earlier departure
time (10:00 a.m.) than his scheduled flight. He then went to petitioner's counter at the airport and
made arrangements for the change in his booking. He was given a corresponding ticket and boarding
pass for Flight No. 2024 and also a new baggage claim stub for his checked-in luggage.[5]

However, upon arriving in Budapest, respondent was unable to locate his luggage at the claiming
section. He sought assistance from petitioner's counter at the airport where petitioner's representative
verified from their computer that he had indeed a checked-in luggage. He was advised to just wait for
his luggage at his hotel and that petitioner's representatives would take charge of delivering the same to
him that same day. But said luggage was never delivered by petitioner's representatives despite follow-
up inquiries by respondent.

Upon his return to the Philippines, respondent's lawyer immediately wrote petitioner's Station Manager
complaining about the lost luggage and the resulting damages he suffered while in
Budapest. Respondent claimed that his single luggage contained his personal effects such as clothes,
toiletries, medicines for his hypertension, and the speeches he had prepared, including the notes and
reference materials he needed for the conference. He was thus left with only his travel documents,
pocket money and the clothes he was wearing. Because petitioner's representatives in Budapest failed
to deliver his luggage despite their assurances and his repeated follow-ups, respondent was forced to
shop for personal items including new clothes and his medicines. Aside from these unnecessary
expenditures of about $1,000, respondent had to prepare another speech, in which he had difficulty due
to lack of data and information. Respondent thus demanded the sum of P1,000,000.00 from the
petitioner as compensation for his loss, inconvenience and moral damages.[6] Petitioner, however,
continued to ignore respondent's repeated follow-ups regarding his lost luggage.

On July 13, 1993, respondent filed a complaint[7] for damages against the petitioner alleging that by
reason of its negligence and breach of obligation to transport and deliver his luggage, respondent
suffered inconvenience, serious anxiety, physical suffering and sleepless nights. It was further alleged
that due to the physical, mental and emotional strain resulting from the loss of his luggage, aggravated
by the fact that he failed to take his regular medication, respondent had to be taken to a medical clinic
in Tokyo, Japan for emergency treatment. Respondent asserted that as a common carrier which
advertises and offers its services to the public, petitioner is under obligation to observe extraordinary
diligence in the vigilance over checked-in luggage and to see to it that respondent's luggage entrusted to
petitioner's custody would accompany him on his flight and/or could be claimed by him upon arrival at
his point of destination or delivered to him without delay. Petitioner should therefore be held liable for
actual damages ($2,000.00 or P40,000.00), moral damages (P1,000,000.00), exemplary damages
(P500,000.00), attorney's fees (P50,000.00) and costs of suit.

Petitioner filed its answer[8] admitting that respondent was issued tickets for the flights mentioned, his
subsequent request to be transferred to another flight while at the Paris airport and the loss of his
checked-in luggage upon arrival at Budapest, which luggage has not been retrieved to date and the
respondent's repeated follow-ups ignored. However, as to the rest of respondent's allegations,
petitioner said it has no knowledge and information sufficient to form a belief as to their truth. As
special and affirmative defense, petitioner contended that its liability for lost checked-in baggage is
governed by the Warsaw Convention for the Unification of Certain Rules Relating to International
Carriage. Under the said treaty, petitioner's liability for lost or delayed registered baggage of
respondent is limited to 250 francs per kilogram or US$20.00, which constitutes liquidated damages and
hence respondent is not entitled to any further damage.

Petitioner averred that it has taken all necessary measures to avoid loss of respondent's baggage, the
contents of which respondent did not declare, and that it has no intent to cause such loss, much less
knew that such loss could occur. The loss of respondent's luggage is due to or occasioned by force
majeure or fortuitous event or other causes beyond the carrier's control. Diligent, sincere and timely
efforts were exerted by petitioner to locate respondent's missing luggage and attended to his problem
with utmost courtesy, concern and dispatch. Petitioner further asserted that it exercised due diligence
in the selection and supervision of its employees and acted in good faith in denying respondent's
demand for damages. The claims for actual, moral and exemplary damages and attorney's fees
therefore have no basis in fact and in law, and are, moreover speculative and unconscionable.

In his Reply,[9] respondent maintained that the loss of his luggage cannot be attributed to anything
other than petitioner's simple negligence and its failure to perform the diligence required of a common
carrier.

On January 3, 1996, the trial court rendered its decision in favor of respondent and against the
petitioner, as follows:

WHEREFORE, premises considered, judgment is rendered ordering defendant to pay plaintiff:

1. The sum of P1,000,000.00 as moral damages;

2. The sum of P500,000.00 as exemplary damages;

3. The sum of P50,000.00 as attorney's fees; and

4. The costs.

SO ORDERED.[10]

The trial court found there was gross negligence on the part of petitioner which failed to retrieve
respondent's checked-in luggage up to the time of the filing of the complaint and as admitted in its
answer, ignored respondent's repeated follow-ups. It likewise found petitioner guilty of willful
misconduct as it persistently disregarded the rights of respondent who was no ordinary individual but a
high government official. As to the applicability of the limited liability for lost baggage under the Warsaw
Convention, the trial court rejected the argument of petitioner citing the case of Alitalia v. Intermediate
Appellate Court.[11]

Petitioner appealed to the CA, which affirmed the trial court's decision. The CA noted that in the
memorandum submitted by petitioner before the trial court it was mentioned that respondent's luggage
was eventually found and delivered to him, which was not denied by respondent and thus resulted in
the withdrawal of the claim for actual damages. As to the trial court's finding of gross negligence, bad
faith and willful misconduct which justified the award of moral and exemplary damages, the CA
sustained the same, stating thus:

It bears stressing that defendant-appellant committed a breach of contract by its failure to deliver the
luggage of plaintiff-appellee on time despite demand from plaintiff-appellee. The unreasonable delay
in the delivery of the luggage has not been satisfactorily explained by defendant-appellant, either in
its memorandum or in its appellant's brief. Instead of justifying the delay, defendant-appellant took
refuge under the provisions of the Warsaw Convention to escape liability. Neither was there any
showing of apology on the part of defendant-appellant as to the delay. Furthermore, the unapologetic
defendant-appellant even faulted plaintiff-appellee for not leaving a local address in Budapest in
order for the defendant-appellant to contact him (plaintiff-appellee) in the event the luggage is
found. This actuation of defendant-appellant is a clear showing of willful misconduct and a deliberate
design to avoid liability. It amounts to bad faith. As elucidated by Chief Justice Hilario Davide, Jr.,
"[b]ad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or
interest or ill will that partakes of the nature of fraud."[12] (Emphasis supplied.)

Its motion for reconsideration having been denied, petitioner filed the present Rule 45 petition raising
the following grounds:

I.

THE AMOUNTS AWARDED TO RESPONDENT AS MORAL AND EXEMPLARY DAMAGES ARE EXCESSIVE,
UNCONSCIONABLE AND UNREASONABLE.

II.

THERE IS NO LEGAL AND FACTUAL BASIS TO THE FINDINGS OF THE TRIAL COURT AND THE COURT OF
APPEALS THAT PETITIONER'S ACTIONS WERE ATTENDED BY GROSS NEGLIGENCE, BAD FAITH AND
WILLFUL MISCONDUCT AND THAT IT ACTED IN A WANTON, FRAUDULENT, RECKLESS, OPPRESSIVE OR
MALEVOLENT MANNER, TO JUSTIFY THE AWARD OF MORAL AND EXEMPLARY DAMAGES.[13]

Petitioner assails the trial and appellate courts for awarding extravagant sums to respondent that
already tend to punish the petitioner and enrich the respondent, which is not the function at all of moral
damages. Upon the facts established, the damages awarded are definitely not proportionate or
commensurate to the wrong or injury supposedly inflicted. Without belittling the problems respondent
experienced in Budapest after losing his luggage, petitioner points out that despite the unfortunate
incident, respondent was able to reconstruct the speeches, notes and study guides he had earlier
prepared for the conference in Budapest and Tokyo, and to attend, speak and participate therein as
scheduled. Since he prepared the research and wrote his speech, considering his acknowledged and
long-standing expertise in the field of human rights in the Philippines, respondent should have had no
difficulty delivering his speech even without his notes. In addition, there is no evidence that members
of the Inter-Parliamentary Union made derogatory statements or even knew that he was unprepared for
the conference. Bearing in mind that the actual damages sought by respondent was only $2,000.00,
then clearly the trial court went way beyond that amount in determining the appropriate damages,
inspite of the fact that the respondent eventually got back his baggage.[14]

Comparing the situation in this case to other cases awarding similar damages to the aggrieved passenger
as a result of breaches of contract by international carriers, petitioner argues that even assuming that
respondent was entitled to moral and exemplary damages, the sums adjudged should be modified or
reduced. It is stressed that petitioner or its agents were never rude or discourteous toward respondent;
he was not subjected to humiliating treatment or comments as in the case of Lopez, et al. v. Pan
American World Airways,[15] Ortigas, Jr. v. Lufthansa German Airlines[16] and Zulueta v. Pan American
World Airways, Inc.[17] . The mere fact that respondent was a Congressman should not result in an
automatic increase in the moral and exemplary damages recoverable. As held in Kierulf v. Court of
Appeals[18] the social and financial standing of a claimant may be considered only if he or she was
subjected to contemptuous conduct despite the offender's knowledge of his or her social and financial
standing.[19]

In any event, petitioner invokes the application of the exception to the rule that only questions of law
may be entertained by this Court in a petition for review under Rule 45 as to allow a factual review of
the case. First, petitioner contends that it has always maintained that the "admission" in its answer was
only made out of inadvertence, considering that it was inconsistent with the special and affirmative
defenses set forth in the same pleading. The trial court incorrectly concluded that petitioner had not
prepared a Property Irregularity Report (PIR) but fabricated one only as an afterthought. A PIR can only
be initiated upon the instance of a passenger whose baggage had been lost, and in this case it was
prepared by the station where the loss was reported. The PIR in this case was automatically and
chronologically recorded in petitioner's computerized system. Respondent himself admitted in his
testimony that he gave his Philippine address and telephone number to the lady in charge of petitioner's
complaint desk in Budapest. It was not necessary to furnish a passenger with a copy of the PIR since its
purpose is for the airline to trace a lost baggage. What respondent ought to have done was to make a
xerox copy thereof for himself.[20]

Petitioner reiterates that there was no bad faith or negligence on its part and the burden is on the
respondent to prove by clear and convincing evidence that it acted in bad faith. Respondent in his
testimony miserably failed to prove that bad faith, fraud or ill will motivated or caused the delay of his
baggage. This Court will surely agree that mere failure of a carrier to deliver a passenger's baggage at
the agreed place and time did not ipso facto amount to willful misconduct as to make it liable for moral
and exemplary damages. Petitioner adduced evidence showing that it exerted diligent, sincere and
timely efforts to locate the missing baggage, eventually leading to its recovery. It attended to
respondent's problem with utmost courtesy, concern and dispatch. Respondent, moreover, never
alleged that petitioner's employees were at anytime rude, mistreated him or in anyway showed
improper behavior.[21]

The petition is partly meritorious.

A business intended to serve the travelling public primarily, a contract of carriage is imbued with public
interest.[22] The law governing common carriers consequently imposes an exacting standard. Article
1735 of the Civil Code provides that in case of lost or damaged goods, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required by Article 1733. Thus, in an action based on a breach of contract of carriage, the
aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that
he has to prove is the existence of the contract and the fact of its non-performance by the carrier.[23]

That respondent's checked-in luggage was not found upon arrival at his destination and was not
returned to him until about two years later[24] is not disputed. The action filed by the respondent is
founded on such breach of the contract of carriage with petitioner who offered no satisfactory
explanation for the unreasonable delay in the delivery of respondent's baggage. The presumption of
negligence was not overcome by the petitioner and hence its liability for the delay was sufficiently
established. However, upon receipt of the said luggage during the pendency of the case in the trial
court, respondent did not anymore press on his claim for actual or compensatory damages and neither
did he adduce evidence of the actual amount of loss and damage incurred by such delayed delivery of
his luggage. Consequently, the trial court proceeded to determine only the propriety of his claim for
moral and exemplary damages, and attorney's fees.

In awarding moral damages for breach of contract of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted fraudulently or with malice or bad faith.[25] Not
every case of mental anguish, fright or serious anxiety calls for the award of moral damages.[26] Where
in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable consequences of the breach of the obligation
which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not
include moral and exemplary damages.[27]

Bad faith should be established by clear and convincing evidence. The settled rule is that the law always
presumes good faith such that any person who seeks to be awarded damages due to the acts of another
has the burden of proving that the latter acted in bad faith or with ill motive.[28]

In the case of Tan v. Northwest Airlines, Inc.,[29] we sustained the CA's deletion of moral and exemplary
damages awarded to a passenger whose baggage were loaded to another plane with the same expected
date and time of arrival but nevertheless not delivered to her on time. We found that respondent carrier
was not motivated by malice or bad faith in doing so due to weight and balance restrictions as a safety
measure. In another case involving the off-loading of private respondents' baggage to another
destination, taken together with petitioner airline's neglect in providing the necessary accommodations
and assistance to its stranded passengers, aggravated by the discourteous acts of its employees, we
upheld the CA in sustaining the trial court's decision awarding moral and exemplary damages and
attorney's fees. We pointed out that it is PAL's duty to provide assistance to private respondents and to
any other passenger similarly inconvenienced due to delay in the completion of the transport and the
receipt of their baggage.[30]

After a careful review, we find that petitioner is liable for moral damages.

Petitioner's station manager, Ma. Lourdes Reyes, testified that upon receiving the letter-complaint of
respondent's counsel, she immediately began working on the PIR from their computerized data. Based
on her testimony, a PIR is issued at the airline station upon complaint by a passenger concerning missing
baggage. From the information obtained in the computer-printout, it appears that a PIR[31] was initiated
at petitioner's Budapest counter. A search telex for the missing luggage was sent out on the following
dates: May 17, May 21 and May 23, 1993. As shown in the PIR printout, the information respondent
supposedly furnished to petitioner was only his Philippine address and telephone number, and not the
address and contact number of the hotel where he was billeted at Budapest. According to the witness,
PIR usually is printed in two originals, one is kept by the station manager and the other copy given to the
passenger. The witness further claimed that there was no record or entry in the PIR of any follow-up call
made by the respondent while in Budapest.[32] Respondent, on the other hand, claimed that he was not
given a copy of this PIR and that his repeated telephone calls to inquire about his lost luggage were
ignored.

We hold that the trial and appellate courts did not err in finding that petitioner acted in bad faith in
repeatedly ignoring respondent's follow-up calls. The alleged entries in the PIR deserve scant
consideration, as these have not been properly identified or authenticated by the airline station
representative in Budapest who initiated and inputed the said entries. Furthermore, this Court cannot
accept the convenient excuse given by petitioner that respondent should be faulted in allegedly not
giving his hotel address and telephone number. It is difficult to believe that respondent, who had just
lost his single luggage containing all his necessities for his stay in a foreign land and his reference
materials for a speaking engagement, would not give an information so vital such as his hotel address
and contact number to the airline counter where he had promptly and frantically filed his
complaint. And even assuming arguendo that his Philippine address and contact number were the only
details respondent had provided for the PIR, still there was no explanation as to why petitioner never
communicated with respondents concerning his lost baggage long after respondent had already
returned to the Philippines. While the missing luggage was eventually recovered, it was returned to
respondent only after the trial of this case.

Furthermore, the alleged copy of the PIR confirmed that the only action taken by the petitioner to locate
respondent's luggage were telex searches allegedly made on May 17, 21 and 23, 1993. There was not
even any attempt to explain the reason for the loss of respondent's luggage. Clearly, petitioner did not
give the attention and care due to its passenger whose baggage was not transported and delivered to
him at his travel destination and scheduled time. Inattention to and lack of care for the interest of its
passengers who are entitled to its utmost consideration, particularly as to their convenience, amount to
bad faith which entitles the passenger to an award of moral damages.[33] What the law considers as bad
faith which may furnish the ground for an award of moral damages would be bad faith in securing the
contract and in the execution thereof, as well as in the enforcement of its terms, or any other kind of
deceit.[34]

While respondent failed to cite any act of discourtesy, discrimination or rudeness by petitioner's
employees, this did not make his loss and moral suffering insignificant and less deserving of
compensation. In repeatedly ignoring respondent's inquiries, petitioner's employees exhibited an
indifferent attitude without due regard for the inconvenience and anxiety he experienced after realizing
that his luggage was missing. Petitioner was thus guilty of bad faith in breaching its contract of carriage
with the respondent, which entitles the latter to the award of moral damages.

However, we agree with petitioner that the sum of P1,000,000.00 awarded by the trial court is
excessive and not proportionate to the loss or suffering inflicted on the passenger under the
circumstances. As in Trans World Airlines v. Court of Appeals[35] where this Court after considering the
social standing of the aggrieved passenger who is a lawyer and director of several companies, the
amount of P500,000.00 awarded by the trial court as moral damages was still reduced to P300,000.00,
the moral damages granted to herein respondent should likewise be adjusted.
The purpose of awarding moral damages is to enable the injured party to obtain means, diversion or
amusement that will serve to alleviate the moral suffering he has undergone by reason of defendant's
culpable action. On the other hand, the aim of awarding exemplary damages is to deter serious
wrongdoings.[36] Article 2216 of the Civil Code provides that assessment of damages is left to the
discretion of the court according to the circumstances of each case. This discretion is limited by the
principle that the amount awarded should not be palpably excessive as to indicate that it was the result
of prejudice or corruption on the part of the trial court. Simply put, the amount of damages must be fair,
reasonable and proportionate to the injury suffered.[37]

Where as in this case the air carrier failed to act timely on the passenger's predicament caused by its
employees' mistake and more than ordinary inadvertence or inattention, and the passenger failed to
show any act of arrogance, discourtesy or rudeness committed by the air carrier's employees, the
amounts of P200,000.00, P50,000.00 and P30,000.00 as moral damages, exemplary damages and
attorney's fees would be sufficient and justified.[38]

WHEREFORE, the petition is DENIED. The Decision dated June 30, 2004 of the Court of Appeals in CA-
G.R. CV No. 56587 is hereby AFFIRMED with MODIFICATION in that the award of moral damages,
exemplary damages and attorney's fees are hereby reduced to P200,000.00, P50,000.00 and
P30,000.00, respectively.

With costs against the petitioner.

SO ORDERED.

259 Phil. 556

FELICIANO, J.:

At 6:20 o'clock in the morning of 22 April 1980, the M/T "Tacloban City," a barge-type oil tanker of
Philippine registry, with a gross tonnage of 1,241.68 tons, owned by the Philippine National Oil Company
(PNOC) and operated by the PNOC Shipping and Transport Corporation (PNOC Shipping), having
unloaded its cargo of petroleum products, left Amlan, Negros Occidental, and headed
towards Bataan. At about 1:00 o'clock in the afternoon of that same day, the M/V "Don Juan," an inter-
island vessel, also of Philippine registry, of 2,391.31 tons gross weight, owned and operated by
the Negros Navigation Co., Inc. (Negros Navigation) left Manila bound for Bacolod with seven hundred
fifty (750) passengers listed in its manifest, and a complete set of officers and crew members.

On the evening of that same day, 22 April 1980, at about 10:30 o'clock, the "Tacloban City" and the "Don
Juan" collided at the Talbas Strait near Maestra de Campo Island in the vicinity of the island
of Mindoro. When the collision occurred, the sea was calm, the weather fair and visibility good. As a
result of this collision, the M/V "Don Juan" sank and hundreds of its passengers perished. Among the ill-
fated passengers were the parents of petitioners, the spouses Perfecto Mecenas and Sofia Mecenas,
whose bodies were never found despite intensive search by petitioners.
On 29 December 1980, petitioners filed a complaint in the then Court of First Instance of Quezon City,
docketed as Civil Case No. Q-31525, against private respondents Negros Navigation and Capt.
Roger Santisteban, the captain of the "Don Juan" without, however, impleading either PNOC or PNOC
Shipping. In their complaint, petitioners alleged that they were the seven (7) surviving legitimate
children of Perfecto Mecenas and Sofia Mecenas and that the latter spouses perished in the collision
which had resulted from the negligence of Negros Navigation and Capt. Santisteban. Petitioners prayed
for actual damages of not less than P100,000.00 as well as moral and exemplary damages in such
amount as the Court may deem reasonable to award to them.

Another complaint, docketed as Civil Case No. Q-33932, was filed in the same court by
Lilia Ciocon claiming damages against Negros Navigation, PNOC and PNOC Shipping for the death of her
husband Manuel Ciocon, another of the luckless passengers of the "Don Juan." Manuel Ciocon's body,
too, was never found.

The two (2) cases were consolidated and heard jointly by the Regional Trial Court of Quezon City, Branch
82. On 17 July 1986, after trial, the trial court rendered a decision, the dispositive part of which read as
follows:

"WHEREFORE, the Court hereby renders judgment ordering:

a) The defendant Negros Navigation Co., Inc. and Capt. Roger Santisteban jointly and severally liable to
pay plaintiffs in Civil Case No. Q-31525, the sum of P400,000.00 for the death of plaintiffs' parents,
Perfecto A. Mecenas and Sofia P. Mecenas; to pay said plaintiffs the sum of P15,000.00 as and for
attorney's fees; plus costs of the suit.

b) Each of the defendants Negros Navigation Co, Inc. and Philippine National Oil Company/PNOC
Shipping and Transportation Company, to pay the plaintiff in Civil Case No. Q-33932, the sum
of P100,000.00 for the death of Manuel Ciocon, to pay said plaintiff jointly and severally, the sum of
P15,000.00 as and for attorney's fees, plus costs of the suit."[1]

Negros Navigation, Capt. Santisteban, PNOC and PNOC Shipping appealed the trial court's decision to
the Court of Appeals. Later, PNOC and PNOC Shipping withdrew their appeal citing a compromise
agreement reached by them with Negros Navigation; the Court of Appeals granted the motion by a
resolution dated 5 September 1988, subject to the reservation made by Lilia Ciocon that she could not
be bound by the compromise agreement and would enforce the award granted her by the trial court.

In time, the Court of Appeals rendered a decision dated 26 January 1989 which decreed the following:

"WHEREFORE, in view of the foregoing, the decision of the court a quo is hereby affirmed as modified
with respect to Civil Case No. 31525, wherein defendant appellant Negros Navigation Co. Inc. and Capt.
Roger Santisteban are held jointly and severally liable to pay the plaintiffs the amount of P100,000.00 as
actual and compensatory damages and P15,000.00 as attorney's fees and the cost of the suit."[2]

The issue to be resolved in this Petition for Review is whether or not the Court of Appeals had erred in
reducing the amount of the damages awarded by the trial court to the petitioners from P400,000.00 to
P100,000.00.

We note that the trial court had granted petitioners the sum of P400,000.00 "for the death of [their
parents]" plus P15,000.00 as attorney's fees, while the Court of Appeals awarded them P100,000.00 "as
actual and compensatory damages" and P15,000.00 as attorney's fees. To determine whether such
reduction of the damages awarded was proper, we must first determine whether petitioners were
entitled to an award of damages other than actual or compensatory damages, that is, whether they
were entitled to award of moral and exemplary damages.

We begin by noting that both the trial court and the Court of Appeals considered the action (Civil Case
No. Q-31525) brought by the sons and daughters of the deceased Mecenas spouses
against Negros Navigation as based on quasi-delict. We believe that that action is more appropriately
regarded as grounded on contract, the contract of carriage between the Mecenas spouses as regular
passengers who paid for their boat tickets and Negros Navigation; the surviving children while not
themselves passengers are in effect suing the carrier in representation of their deceased
parents.[3] Thus, the suit (Civil Case No. Q-33932) filed by the widow Lilia Ciocon was correctly treated by
the trial and appellate courts as based on contract (vis-a-vis Negros Navigation) and as well on quasi-
delict (vis-a-vis PNOC and PNOC Shipping). In an action based upon a breach of the contract of carriage,
the carrier under our civil law is liable for the death of passengers arising from the negligence
or wilful act of the carrier's employees although such employees may have acted beyond the scope of
their authority or even in violation of the instructions of the carrier[4], which liability may include liability
for moral damages.[5] It follows that petitioners would be entitled to moral damages so long as the
collision with the "Tacloban City" and the sinking of the "Don Juan" were caused or attended by
negligence on the part of private respondents.

In respect of the petitioners' claim for exemplary damages, it is only necessary to refer to Article 2232 of
the Civil Code:

"Article 2332. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner."[6]

Thus, whether petitioners are entitled to exemplary damages as claimed must depend upon whether or
not private respondents acted recklessly, that is, with gross negligence.

We turn, therefore, to a consideration of whether or not Negros Navigation and Capt. Santisteban were
grossly negligent during the events which culminated in the collision with "Tacloban City" and the
sinking of the "Don Juan" and the resulting heavy loss of lives.

The then Commandant of the Philippine Coast Guard, Commodore B.C. Ochoco, in a decision dated 2
March 1981, held that the "Tacloban City" was "primarily and solely [sic] at fault and responsible for the
collision."[7] Initially, the Minister of National Defense upheld the decision of Commodore Ochoco.[8] On
Motion for Reconsideration, however, the Minister of National Defense reversed himself and held
that both vessels had been at fault:

"It is therefore evident from a close and thorough review of the evidence that fault is imputable to both
vessels for the collision. Accordingly, the decision dated March 12, 1982, subject of the Motion for
Reconsideration filed by counsel of M/T Tacloban City, is hereby reversed. However, the administrative
penalties imposed on both vessels and their respective crew concerned are hereby affirmed.[9]

The trial court, after a review of the evidence submitted during the trial, arrived at the same conclusion
that the Minister of National Defense had reached that both the "Tacloban City" and the "Don Juan"
were at fault in the collision. The trial court summarized the testimony and evidence of PNOC and PNOC
Shipping as well as of Negros Navigation in the following terms:

"Defendant PNOC's version of the incident:

"M/V Don Juan was first sighted at about 5 or 6 miles from Tacloban City (TSN, January 21, 1985, p. 13);
it was on the starboard (right) side of Tacloban City. This was a visual contact; not picked up by radar (p.
15, ibid). Tacloban City was travelling 310 degrees with a speed of 6 knots, estimated speed of Don Juan
of 16 knots (TSN, May 9, pp. 5-6). As Don Juan approached, Tacloban City gave a leeway of 10 degrees
to the left. 'The purpose was to enable Tacloban to see the direction of Don Juan (p. 19, ibid). Don Juan
switched to green light, signifying that it will pass Tacloban City's right side; it will be a starboard to
starboard passing (p. 21, ibid).' Tacloban City's purpose in giving a leeway of 10 degrees at this point, is
to give Don Juan more space for her passage (p. 22, ibid). This was increased by Tacloban City to an
additional 15 degrees towards the left (p. 22, ibid). The way was clear and Don Juan has not changed its
course (TSN, May 9, 1985, p. 39).

"When Tacloban City altered its course the second time, from 300 degrees to 285 degrees, Don Juan was
about 4.5 miles away (TSN, May 9, 1985, p. 7).

"Despite executing a hardport maneuver, the collision nonetheless occurred. Don Juan rammed
the Tacloban City near the starboard bow (p. 7, ibid)."

NENACO's [Negros Navigation] version.

"Don Juan first sighted Tacloban City 4 miles away, as shown by radar (p. 13, May 24,
1983). Tacloban City showed its red and green lights twice; it proceeded to, and will cross, the path of
Don Juan. Tacloban was on the left side of Don Juan (TSN, April 20, 1983, p. 4).

"Upon seeing Tacloban's red and green lights, Don Juan executed hard starboard (TSN, p. 4, ibid). This
maneuver is in conformity with the rule that 'when both vessels are head on or nearly head on, each
vessel must turn to the right in order to avoid each other.' (p. 5, ibid). Nonetheless, Tacloban appeared
to be heading towards Don Juan (p. 6, ibid).

"When Don Juan executed hard starboard, Tacloban was about 1,500 feet away (TSN, May 24, 1983, p.
6). Don Juan, after execution of hard starboard, will move forward 200 meters before the vessel will
respond to such maneuver (p. 7, ibid). The speed of Don Juan at that time was 17 knots; Tacloban City
6.3 knots.

"Between 9 to 15 seconds from execution of hard starboard, collision occurred (p. 8, ibid). (pp. 3-4
Decision)."[10]

The trial court concluded:

"M/V Don Juan and Tacloban City became aware of each other's presence in the area by visual contact
at a distance of something like 6 miles from each other. They were fully aware that if they continued on
their course, they will meet head on. Don Juan steered to the right; Tacloban City continued its course
to the left. There can be no excuse for them not to realize that, with such maneuvers, they will
collide. They executed maneuvers inadequate, and too late, to avoid collision.
"The Court is of the considered view that the defendants are equally negligent and are liable for
damages. (p. 4, Decision)."[11]

The Court of Appeals, for its part, reached the same conclusion.[12]

There is, therefore, no question that the "Don Juan" was at least as negligent as the M/T "Tacloban City"
in the events leading up to the collision and the sinking of the "Don Juan." The remaining question is
whether the negligence on the part of the "Don Juan" reached that level of recklessness or gross
negligence that our Civil Code requires for the imposition of exemplary damages. Our own review of the
record in the case at bar requires us to answer this in the affirmative.

In the first place, the report of the Philippine Coast Guard Commandant (Exhibit "10"), while holding the
"Tacloban City" as "primarily and solely [sic] at fault and responsible for the collision," did itself set out
that there had been fault or negligence on the part of Capt. Santisteban and his officers and crew before
the collision and immediately after contact of the two (2) vessels. The decision of
Commodore Ochoco said:

"x x x xxx xxx

MS Don Juan's Master, Capt. Rogelio Santisteban, was playing mahjong before and up to the time of
collision. Moreover, after the collision, he failed to institute appropriate measures to delay the sinking
of MS Don Juan and to supervise properly the execution of his order of abandonship. As regards the
officer on watch, Senior 3rd Mate Rogelio Devera, he admitted that he failed or did not call or inform
Capt. Santisteban of the imminent danger of collision and of the actual collision itself. Also, he failed to
assist his master to prevent the fast sinking of the ship. The record also indicates that Auxiliary Chief
Mate Antonio Labordo displayed laxity in maintaining order among the passengers after the collision.

xxx xxx x x x."[13]

We believe that the behaviour of the captain of the "Don Juan" in this instance -- playing mahjong
"before and up to the time of collision" -- constitutes behaviour that is simply unacceptable on the part
of the master of a vessel to whose hands the lives and welfare of at least seven hundred fifty (750)
passengers had been entrusted. Whether or not Capt. Santisteban was "off-duty" or "on-duty" at or
around the time of actual collision is quite immaterial; there is, both realistically speaking and in
contemplation of law, no such thing as "off-duty" hours for the master of a vessel at sea that is a
common carrier upon whom the law imposes the duty of extraordinary diligence --?

"[t]he duty to carry the passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with a due regard for all the circumstances.[14]

The record does not show that that was the first or only time that Capt. Santisteban had entertained
himself during a voyage by playing mahjong with his officers and passengers; Negros Navigation in
permitting, or in failing to discover and correct such behaviour, must be deemed grossly negligent.

Capt. Santisteban was also faulted in the Philippine Coast Guard decision for failing after the collision,
"to institute appropriate measures to delay the sinking of M/V Don Juan." This appears to us to be a
euphemism for failure to maintain the seaworthiness or the water-tight integrity of the "Don Juan." The
record shows that the "Don Juan" sank within ten (10) to fifteen (15) minutes after initial contact with
the "Tacloban City."[15] While the failure of Capt. Santisteban to supervise his officers and crew in the
process of abandoning the ship and his failure to avail of measures to prevent the too rapid sinking of
his vessel after collision, did not cause the collision by themselves, such failures doubtless contributed
materially to the consequent loss of life and, moreover, were indicative of the kind and level of diligence
exercised by Capt. Santisteban in respect of his vessel and his officers and men prior to actual contact
between the two (2) vessels. The officer-on-watch in the "Don Juan" admitted that he had failed to
inform Capt. Santisteban not only of the "imminent danger of collision" but even of "the actual collision
itself."

There is also evidence that the "Don Juan" was carrying more passengers than she had been
certified as allowed to carry. The Certificate of Inspection,[16] dated 27 August 1979, issued by the
Philippine Coast Guard Commander at Iloilo City, the Don Juan's home port, states:

Passengers allowed : 810

Total Persons Allowed : 864

The report of the Philippine Coast Guard (Exhibit "10") stated that the "Don Juan" had been "officially
cleared with 878 passengers on-board when she sailed from the port of Manila on April 22, 1980 at
about 1:00 p.m." This head-count of the passengers "did not include the 126 crew members, children
below three (3) years old and two (2) half-paying passengers" which had been counted as one adult
passenger.[17] Thus, the total number of persons on board the "Don Juan" on that ill-starred night of 22
April 1980 was 1,004, or 140 persons more than the maximum number that could be safely carried by
the "Don Juan," per its own Certificate of Inspection.[18] We note in addition, that only 750 passengers
had been listed in its manifest for its final voyage; in other words, at least 128 passengers on board
had not even been entered into the "Don Juan's" manifest. The "Don Juan's Certificate of Inspection
showed that she carried life boat and life raft accommodations for only 864 persons, the maximum
number of persons she was permitted to carry; in other words, she did not carry enough boats and life
rafts for all the persons actually on board that tragic night of 22 April 1980.

We hold that under these circumstances, a presumption of gross negligence on the part of the vessel
(her officers and crew) and of its shipowner arises; this presumption was never rebutted
by Negros Navigation.

The grossness of the negligence of the "Don Juan" is underscored when one considers the foregoing
circumstances in the context of the following facts: Firstly, the "Don Juan" was more than twice as fast
as the "Tacloban City." The "Don Juan's" top speed was 17 knots; while that of the "Tacloban City" was
6.3 knots.[19] Secondly, the "Don Juan" carried the full complement of officers and crew members
specified for a passenger vessel of her class. Thirdly, the "Don Juan" was equipped with radar which was
functioning that night. Fourthly, the "Don Juan's" officer on-watch had sighted the "Tacloban City" on
his radar screen while the latter was still four (4) nautical miles away. Visual confirmation of radar
contact was established by the "Don Juan" while the "Tacloban City" was still 2.7 miles away.[20] In the
total set of circumstances which existed in the instant case, the "Don Juan," had it taken seriously its
duty of extraordinary diligence, could have easily avoided the collision with the "Tacloban City." Indeed,
the "Don Juan" might well have avoided the collision even if it had exercised ordinary diligence merely.

It is true that the "Tacloban City" failed to follow Rule 18 of the International Rules of the Road which
requires two (2) power-driven vessels meeting end on or nearly end on each to alter her course to
starboard (right) so that each vessel may pass on the port side (left) of the other.[21] The "Tacloban City,"
when the two (2) vessels were only three-tenths (0.3) of a mile apart, turned (for the second
time) 15º to port side while the "Don Juan" veered hard to starboard. This circumstance, while it may
have made the collision immediately inevitable, cannot, however, be viewed in isolation from the rest of
the factual circumstances obtaining before and up to the collision. In any case, Rule 18 like all other
International Rules of the Road, are not to be obeyed and construed without regard to all the
circumstances surrounding a particular encounter between two (2) vessels.[22] In ordinary circumstances,
a vessel discharges her duty to another by a faithful and literal observance of the Rules of
Navigation,[23] and she cannot be held at fault for so doing even though a different course would have
prevented the collision. This rule, however, is not to be applied where it is apparent, as in the instant
case, that her captain was guilty of negligence or of a want of seamanship in not perceiving the necessity
for, or in so acting as to create such necessity for, a departure from the rule and acting accordingly.[24] In
other words, "rote observance" of the International Rules of the Road will not relieve a vessel from
responsibility if the collision could have been avoided by proper care and skill on her part or even by a
departure from the rules.[25]

In the petition at bar, the "Don Juan" having sighted the "Tacloban City" when it was still a long way off
was negligent in failing to take early preventive action and in allowing the two (2) vessels to come to
such close quarters as to render the collision inevitable when there was no necessity for passing so near
to the "Tacloban City" as to create that hazard or inevitability, for the "Don Juan" could choose its own
distance.[26] It is noteworthy that the "Tacloban City," upon turning hard to port shortly before the
moment of collision, signalled its intention to do so by giving two (2) short blasts with its horn.26A The
"Don Juan" gave no answering horn blast to signal its own intention and proceeded to turn hard to
starboard.26B

We conclude that Capt. Santisteban and Negros Navigation are properly held liable for gross negligence
in connection with the collision of the "Don Juan" and "Tacloban City" and the sinking of the "Don Juan"
leading to the death of hundreds of passengers. We find no necessity for passing upon the degree of
negligence or culpability properly attributable to PNOC and PNOC Shipping or the master of the
"Tacloban City," since they were never impleaded here.

It will be recalled that the trial court had rendered a lump sum of P400,000.00 to petitioners for the
death of their parents in the "Don Juan" tragedy. Clearly, the trial court should have included a
breakdown of the lump sum award into its component parts: compensatory damages, moral damages
and exemplary damages. On appeal, the Court of Appeals could have and should have itself broken
down the lump sum award of the trial court into its constituent parts; perhaps, it did, in its own mind. In
any case, the Court of Appeals apparently relying upon Manchester Development Corporation v. Court
of Appeals[27] reduced the P400,000.00 lump sum award into a P100,000.00 for actual and
compensatory damages only.

We believe that the Court of Appeals erred in doing so. It is true that the petitioners' complaint before
the trial court had in the body indicated that the petitioner-plaintiffs believed that moral damages in the
amount of at least P1,400,000.00 were properly due to them (not P12,000,000.00 as the Court of
Appeals erroneously stated) as well as exemplary damages in the sum of P100,000.00 and that in the
prayer of their complaint, they did not specify the amount of moral and exemplary damages sought
from the trial court. We do not believe, however, that the Manchester doctrine, which has been
modified and clarified in subsequent decision by the Court in Sun Insurance Office, Ltd. (SIOL), et al. v.
Asuncion, et al.,[28] can be applied in the instant case so as to work a striking out of that portion of the
trial court's award which could be deemed notionally to constitute an award of moral and exemplary
damages. Manchester was promulgated by the Court on 7 May 1987. Circular No. 7 of this Court, which
embodied the doctrine in Manchester, is dated 24 March 1988. Upon the other hand, the complaint in
the case at bar was filed on 29 December 1980, that is, long before either Manchester or Circular No. 7
of 24 March 1988 emerged. The decision of the trial court was itself promulgated on 17 July 1986,
again, before Manchester and Circular No. 7 were promulgated. We do not believe
that Manchester should have been applied retroactively to this case where a decision on the merits had
already been rendered by the trial court, even though such decision was then under appeal and had not
yet reached finality. There is no indication at all that petitioners here sought simply to evade payment
of the court's filing fees or to mislead the court in the assessment of the filing fees. In any event, we
apply Manchester as clarified and amplified by Sun Insurance Office Ltd. (SIOL), by holding that the
petitioners shall pay the additional filing fee that is properly payable given the award specified below,
and that such additional filing fee shall constitute a lien upon the judgment.

We consider, finally, the amount of damages -- compensatory, moral and exemplary -- properly
imposable upon private respondents in this case. The original award of the trial court of P400,000.00
could well have been disaggregated by the trial court and the Court of Appeals in the following manner:

(1) actual or compensatory damages proved in the course of trial consisting of actual expenses incurred
by petitioners in their search for their parents' bodies -- P126,000.00

(2) actual or compensatory damages in case of wrongful death (P30,000.00 x 2)

-- P 60,000.00[29]

(3) moral damages -- P107,000.00

(4) exemplary damages -- P107,000.00

Total -- P400,000.00

vvvvvvvvvvvv

Considering that petitioners, legitimate children of the deceased spouses Mecenas, are seven (7) in
number and that they lost both father and mother in one fell blow of fate, and considering the pain and
anxiety they doubtless experienced while searching for their parents among the survivors and the
corpses recovered from the sea or washed ashore, we believe that an additional amount of P200,000.00
for moral damages, making a total of P307,000.00 as moral damages, would be quite reasonable.

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is
socially deleterious in its consequence by creating negative incentives or deterrents against
such behaviour. In requiring compliance with the standard of extraordinary diligence, a standard which
is in fact that of the highest possible degree of diligence, from common carriers and in creating a
presumption of negligence against them, the law seeks to compel them to control their employees, to
tame their reckless instincts and to force them to take adequate care of human beings and their
property. The Court will take judicial notice of the dreadful regularity with which grievous maritime
disasters occur in our waters with massive loss of life. The bulk of our population is too poor to afford
domestic air transportation. So it is that notwithstanding the frequent sinking of passenger vessels in
our waters, crowds of people continue to travel by sea. This Court is prepared to use the instruments
given to it by the law for securing the ends of law and public policy. One of those instruments is the
institution of exemplary damages; one of those ends, of special importance in an archipelagic state like
the Philippines, is the safe and reliable carriage of people and goods by sea. Considering the foregoing,
we believe that an additional award in the amount of P200,000.00 as exemplary damages, making a
total award of P307,000.00 as exemplary damages, is quite modest.

The Court is aware that petitioners here merely asked for the restoration of the P400,000.00 award of
the trial court. We underscore once more, however, the firmly settled doctrine that this Court may
consider and resolve all issues which must be decided in order to render substantial justice to the
parties, including issues not explicitly raised by the party affected. In the case at bar, as in Kapalaran Bus
Line v. Coronado, et al.,[30] both the demands of substantial justice and the imperious requirements of
public policy compel us to the conclusion that the trial court's implicit award of moral and exemplary
damages was erroneously deleted and must be restored and augmented and brought more nearly to
the level required by public policy and substantial justice.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED and the Decision of the Court of
Appeals insofar as it reduced the amount of damages awarded to petitioners to P100,000.00 is hereby
REVERSED and SET ASIDE. The award granted by the trial court is hereby RESTORED and AUGMENTED
as follows:

(a) P126,000.00 for actual damages;

(b) P60,000.00 as compensatory damages for wrongful death;

(c) P307,000.00 as moral damages;

(d) P307,000.00 as exemplary damages making a total of P800,000.00; and

(e) P15,000.00 as attorney's fees.

Petitioners shall pay the additional filing fees properly due and payable in view of the award here made,
which fees shall be computed by the Clerk of Court of the trial court and shall constitute a lien upon the
judgment here awarded. Costs against private respondents.

SO ORDERED.

Fernan, C.J., (Chairman), Gutierrez, Jr., Bidin, and Cortes, JJ., concur.

[G.R. No. 71929 : December 4, 1990.]

192 SCRA 9

ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO, Respondents.

DECISION
NARVASA, J.:

Dr. Felipa Pablo — an associate professor in the University of the Philippines, 1 and a research grantee
of the Philippine Atomic Energy Agency — was invited to take part at a meeting of the Department of
Research and Isotopes of the Joint FAO-IAEA Division of Atomic Energy in Food and Agriculture of the
United Nations in Ispra, Italy. 2 She was invited in view of her specialized knowledge in "foreign
substances in food and the agriculture environment." She accepted the invitation, and was then
scheduled by the organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating
Vegetable Crops." 3 The program announced that she would be the second speaker on the first day of
the meeting. 4 To fulfill this engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA.

She arrived in Milan on the day before the meeting in accordance with the itinerary and time table set
for her by ALITALIA. She was however told by the ALITALIA personnel there at Milan that her luggage
was "delayed inasmuch as the same . . . (was) in one of the succeeding flights from Rome to Milan." 5
Her luggage consisted of two (2) suitcases: one contained her clothing and other personal items; the
other, her scientific papers, slides and other research material. But the other flights arriving from Rome
did not have her baggage on board.

By then feeling desperate, she went to Rome to try to locate her bags herself. There, she inquired about
her suitcases in the domestic and international airports, and filled out the forms prescribed by ALITALIA
for people in her predicament. However, her baggage could not be found. Completely distraught and
discouraged, she returned to Manila without attending the meeting in Ispra, Italy. : nad

Once back in Manila she demanded that ALITALIA make reparation for the damages thus suffered by
her. ALITALIA offered her "free airline tickets to compensate her for any alleged damages. . . ." She
rejected the offer, and forthwith commenced the action 6 which has given rise to the present appellate
proceedings.

As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy, but only on
the day after her scheduled appearance and participation at the U.N. meeting there. 8 Of course Dr.
Pablo was no longer there to accept delivery; she was already on her way home to Manila. And for some
reason or other, the suitcases were not actually restored to Prof. Pablo by ALITALIA until eleven (11)
months later, and four (4) months after institution of her action. 9

After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr. Pablo's
favor: 10

"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND PESOS
(P20,000.00), Philippine Currency, by way of nominal damages;

(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine
Currency, as and for attorney's fees; (and)

(3) Ordering the defendant to pay the costs of the suit."

ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the judgment.
11 Indeed, the Appellate Court not only affirmed the Trial Court's decision but also increased the award
of nominal damages payable by ALITALIA to P40,000.00. 12 That increase it justified as follows: 13

"Considering the circumstances, as found by the Trial Court and the negligence committed by
defendant, the amount of P20,000.00 under present inflationary conditions as awarded . . . to the
plaintiff as nominal damages, is too little to make up for the plaintiff's frustration and disappointment in
not being able to appear at said conference; and for the embarrassment and humiliation she suffered
from the academic community for failure to carry out an official mission for which she was singled out
by the faculty to represent her institution and the country. After weighing carefully all the
considerations, the amount awarded to the plaintiff for nominal damages and attorney's fees should be
increased to the cost of her round trip air fare or at the present rate of peso to the dollar at P40,000,00."

ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the same points it
tried to make before the Trial Court and the Intermediate Appellate Court, i.e.:

1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability; and

2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal damages and
attorney's fees. 14

In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to have refused to
pass on all the assigned errors and in not stating the facts and the law on which its decision is based. 15

Under the Warsaw Convention, 16 an air carrier is made liable for damages for:

1) the death, wounding or other bodily injury of a passenger if the accident causing it took place on
board the aircraft or in the course of its operations of embarking or disembarking; 17

2) the destruction or loss of, or damage to, any registered luggage or goods, if the occurrence causing it
took place during the carriage by air;" 18 and

3) delay in the transportation by air of passengers, luggage or goods. 19

In these cases, it is provided in the Convention that the "action for damages, however, founded, can
only be brought subject to conditions and limits set out" therein. 20

The Convention also purports to limit the liability of the carriers in the following manner: 21

1. In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of
250,000 francs . . . Nevertheless, by special contract, the carrier and the passenger may agree to a
higher limit of liability.: nad

2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a sum of
250 francs per kilogramme, unless the passenger or consignor has made, at the time when the package
was handed over to the carrier, a special declaration of interest in delivery at destination and has paid a
supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not
exceeding the declared sum, unless he proves that sum is greater than the actual value to the consignor
at delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained
therein, the weight to be taken into consideration in determining the amount to which the carrier's
liability is limited shall be only the total weight of the package or packages concerned. Nevertheless,
when the loss, damage or delay of a part of the registered baggage or cargo, or of an object contained
therein, affects the value of other packages covered by the same baggage check or the same air way bill,
the total weight of such package or packages shall also be taken into consideration in determining the
limit of liability.

3. As regards objects of which the passenger takes charge himself the liability of the carrier is limited to
5000 francs per passenger.

4. The limits prescribed . . shall not prevent the court from awarding, in accordance with its own law, in
addition, the whole or part of the court costs and of the other expenses of litigation incurred by the
plaintiff. The foregoing provision shall not apply if the amount of the damages awarded, excluding court
costs and other expenses of the litigation, does not exceed the sum which the carrier has offered in
writing to the plaintiff within a period of six months from the date of the occurrence causing the
damage, or before the commencement of the action, if that is later.

The Warsaw Convention however denies to the carrier availment "of the provisions which exclude or
limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in
accordance with the law of the court seized of the case, is considered to be equivalent to wilful
misconduct," or "if the damage is (similarly) caused . . by any agent of the carrier acting within the scope
of his employment." 22 The Hague Protocol amended the Warsaw Convention by removing the
provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself
completely, 23 and declaring the stated limits of liability not applicable "if it is proved that the damage
resulted from an act or omission of the carrier, its servants or agents, done with intent to cause damage
or recklessly and with knowledge that damage would probably result." The same deletion was effected
by the Montreal Agreement of 1966, with the result that a passenger could recover unlimited damages
upon proof of wilful misconduct. 24

The Convention does not thus operate as an exclusive enumeration of the instances of an airline's
liability, or as an absolute limit of the extent of that liability. Such a proposition is not borne out by the
language of the Convention, as this Court has now, and at an earlier time, pointed out. 25 Moreover,
slight reflection readily leads to the conclusion that it should be deemed a limit of liability only in those
cases where the cause of the death or injury to person, or destruction, loss or damage to property or
delay in its transport is not attributable to or attended by any wilful misconduct, bad faith, recklessness,
or otherwise improper conduct on the part of any official or employee for which the carrier is
responsible, and there is otherwise no special or extraordinary form of resulting injury. The Convention's
provisions, in short, do not "regulate or exclude liability for other breaches of contract by the carrier" 26
or misconduct of its officers and employees, or for some particular or exceptional type of damage.
Otherwise, "an air carrier would be exempt from any liability for damages in the event of its absolute
refusal, in bad faith, to comply with a contract of carriage, which is absurd." 27 Nor may it for a moment
be supposed that if a member of the aircraft complement should inflict some physical injury on a
passenger, or maliciously destroy or damage the latter's property, the Convention might successfully be
pleaded as the sole gauge to determine the carrier's liability to the passenger. Neither may the
Convention be invoked to justify the disregard of some extraordinary sort of damage resulting to a
passenger and preclude recovery therefor beyond the limits set by said Convention. It is in this sense
that the Convention has been applied, or ignored, depending on the peculiar facts presented by each
case.:-cralaw

In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention was applied as
regards the limitation on the carrier's liability, there being a simple loss of baggage without any
otherwise improper conduct on the part of the officials or employees of the airline or other special
injury sustained by the passenger.

On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not restrictive of
the carrier's liability, where there was satisfactory evidence of malice or bad faith attributable to its
officers and employees. 29 Thus, an air carrier was sentenced to pay not only compensatory but also
moral and exemplary damages, and attorney's fees, for instance, where its employees rudely put a
passenger holding a first-class ticket in the tourist or economy section, 30 or ousted a brown Asiatic
from the plane to give his seat to a white man, 31 or gave the seat of a passenger with a confirmed
reservation to another, 32 or subjected a passenger to extremely rude, even barbaric treatment, as by
calling him a "monkey." 33

In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of
petitioner airline; and Dr. Pablo's luggage was eventually returned to her, belatedly, it is true, but
without appreciable damage. The fact is, nevertheless, that some special species of injury was caused to
Dr. Pablo because petitioner ALITALIA misplaced her baggage and failed to deliver it to her at the time
appointed — a breach of its contract of carriage, to be sure — with the result that she was unable to
read the paper and make the scientific presentation (consisting of slides, autoradiograms or films, tables
and tabulations) that she had painstakingly labored over, at the prestigious international conference, to
attend which she had traveled hundreds of miles, to her chagrin and embarrassment and the
disappointment and annoyance of the organizers. She felt, not unreasonably, that the invitation for her
to participate at the conference, extended by the Joint FAO/IAEA Division of Atomic Energy in Food and
Agriculture of the United Nations, was a singular honor not only to herself, but to the University of the
Philippines and the country as well, an opportunity to make some sort of impression among her
colleagues in that field of scientific activity. The opportunity to claim this honor or distinction was
irretrievably lost to her because of Alitalia's breach of its contract.

Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and anxiety, which
gradually turned to panic and finally despair, from the time she learned that her suitcases were missing
up to the time when, having gone to Rome, she finally realized that she would no longer be able to take
part in the conference. As she herself put it, she "was really shocked and distraught and confused."

Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be
restricted to that prescribed by the Warsaw Convention for delay in the transport of baggage.

She is not, of course, entitled to be compensated for loss or damage to her luggage. As already
mentioned, her baggage was ultimately delivered to her in Manila, tardily but safely. She is however
entitled to nominal damages — which, as the law says, is adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be vindicated and recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered — and this Court agrees that the
respondent Court of Appeals correctly set the amount thereof at P40,000.00. As to the purely technical
argument that the award to her of such nominal damages is precluded by her omission to include a
specific claim therefor in her complaint, it suffices to draw attention to her general prayer, following her
plea for moral and exemplary damages and attorney's fees, "for such other and further just and
equitable relief in the premises," which certainly is broad enough to comprehend an application as well
for nominal damages. Besides, petitioner should have realized that the explicit assertion, and proof, that
Dr. Pablo's right had been violated or invaded by it — absent any claim for actual or compensatory
damages, the prayer thereof having been voluntarily deleted by Dr. Pablo upon the return to her of her
baggage — necessarily raised the issue of nominal damages.: rd

This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees to Dr. Pablo,
and the amount of P5,000.00 set by it is reasonable in the premises. The law authorizes recovery of
attorney's fees inter alia where, as here, "the defendant's act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest," 34 or "where the court deems it
just and equitable." 35

WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals, it appearing
on the contrary to be entirely in accord with the facts and the law, said decision is hereby AFFIRMED,
with costs against the petitioner.

SO ORDERED.

[G.R. No. 95536. March 23, 1992.]

ANICETO G. SALUDO, JR., MARIA SALVACION SALUDO, LEOPOLDO G. SALUDO and SATURNINO G.
SALUDO, Petitioners, v. HON. COURT OF APPEALS, TRANS WORLD AIRLINES, INC., and PHILIPPINE
AIRLINES, INC., Respondents.

Ledesma, Saludo & Associates, for Petitioners.

Quisumbing, Torres & Evangelista for Trans World Airlines, Inc.

Siguion Reyna, Montecillo & Ongsiako for Phil. Airlines, Inc.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; AS A GENERAL RULE; FACTUAL FINDINGS OF THE COURT OF APPEALS ARE
FINAL AND CONCLUSIVE AND CANNOT BE REVIEWED BY THE SUPREME COURT; EXCEPTIONS. — At the
outset and in view of the spirited exchanges of the parties on this aspect, it is to be stressed that only
questions of law may be raised in a petition filed in this Court to review on certiorari the decision of the
Court of Appeals. This being so, the factual findings of the Court of Appeals are final and conclusive and
cannot be reviewed by the Supreme Court. The rule, however, admits of established exceptions, to wit:
(a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on speculations,
surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or impossible; (d)
when the judgment of the Court of Appeals was based on a misapprehension of facts; (e) when the
factual findings are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the
issues of the case and the same are contrary to the admissions of both appellant and appellee; (g) when
the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which,
if properly considered, would justify a different conclusion; and (h) where the findings of fact of the
Court of Appeals are contrary to those of the trial court, or are mere conclusions without citation of
specific evidence, or where the facts set forth by the petitioner are not disputed by the respondent, or
where the findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.

2. ID.; ID.; QUESTION OF LAW; DISTINGUISHED FROM QUESTION OF FACT. — To distinguish, a question
of law is one which involves a doubt or controversy on what the law is on a certain state of facts; and, a
question of fact, contrarily, is one in which there is a doubt or difference as to the truth or falsehood of
the alleged facts. One test, it has been held, is whether the appellate court can determine the issue
raised without reviewing or evaluating the evidence, in which case it is a question of law, otherwise it
will be a question of fac6t.

3. ID.; ID.; RULES ON ADMISSIBILITY; INTERPRETATION OF DOCUMENT; WRITEEN WORDS CONTROL

PRINTED; WORDS NOT APPLICABLE IN CASE AT BAR. — Petitioners’ invocation of the interpretative rule
in the Rules of Court that written words control printed words in documents, to bolster their assertion
that the typewritten provisions regarding the routing and flight schedule prevail over the printed
conditions, is tenuous. Said rule may be considered only when there is inconsistency between the
written and printed words of the contract. As previously stated, we find no ambiguity in,the contract
subject of this case that would call for the application of said rule. In any event, the contract has
provided for such a situation by explicitly stating that the above condition remains effective
"notwithstanding that the same (fixed time for completion of carriage, specified aircraft, or any
particular route or schedule) may be stated on the face hereof." While petitioners hinge private
respondents’ culpability on the fact that the carrier "certifies goods described below were received for
carriage," they may have overlooked that the statement on the face of the airway bill properly and
completely reads — "Carrier certifies goods described below were received for carriage subject to the
Conditions on the reverse hereof the goods then being in apparent good order and condition except as
noted hereon." Private respondents further aptly observe that the carrier’s certification regarding
receipt of the goods for carriage "was of a Waybill, including Condition No. 5 — and thus if plaintiffs-
appellants had recognized the former, then with more reason they were aware of the latter." In the
same vein, it would also be incorrect to accede to the suggestion of petitioners that the typewritten
specifications of the flight, routes and dates of departures and arrivals on the face of the airway bill
constitute a special contract which modifies the printed conditions at the back thereof. We reiterate
that typewritten provisions of the contract are to be read and understood subject to and in view of the
printed conditions, fully reconciling and giving effect to the manifest intention of the parties to the
agreement.

4. COMMERCIAL LAW; COMMERCIAL CONTRACT FOR TRANSPORTATION; BILL OF LADING; DEFINED. — A

bill of lading is a written acknowledgment of the receipt of the goods and an agreement to transport and
deliver them at a specified place to a person named or on his order. Such instrument may be called a
shipping receipt, forwarder’s receipt and receipt for transportation. The designation, however, is
immaterial. It has been held that freight tickets for bus companies as well as receipts for cargo
transported by all forms of transportation, whether by sea or land, fall within the definition. Under the
Tariff and Customs Code, a bill of lading includes airway bills of lading (4 Alcantara, Commercial Laws of
the Philippines, 118 [1987]).

5. ID.; ID.; ID.; TWO-FOLD CHARACTER THEREOF. — The two-fold character of a bill of lading is all too
familiar: it is a receipt as to the quantity and description of the goods shipped and a contract to
transport the goods to the consignee or other person therein designated, on the terms specified in such
instrument.

6. ID.; ID.; ID.; PRIMA FACIE EVIDENCE OF DELIVERY OF THE GOODS TO THE CARRIER. — Logically, since a
bill of lading acknowledges receipt of goods to be transported, delivery of the goods to the carrier
normally precedes the issuance of the bill; or, to some extent, delivery of the goods and issuance of the
bill are regarded in commercial practice as simultaneous acts. However, except as may be prohibited by
law, there is nothing to prevent an inverse order of events, that is, the execution of the bill, of lading
even prior to actual possession and control by the carrier of the cargo to be transported. There is no law
which requires that the delivery of the goods for carriage and the issuance of the covering bill of lading
must coincide in point of time or, for that matter, that the former should precede the latter. Ordinarily,
a receipt is not essential to a complete delivery of goods to the carrier for transportation but, when
issued, is competent and prima facie, but not conclusive, evidence of delivery to the carrier. A bill of
lading, when properly executed and delivered to a shipper, is evidence that the carrier has received the
goods described therein for shipment. Except as modified by statute, it is a general rule as to the parties
to a contract of carriage of goods in connection with which a bill of lading is issued reciting that goods
have been received for transportation, that the recital being in essence a receipt alone, is not
conclusive, but may be explained, varied or contradicted by parol or other evidence.

7. ID.; ID.; ID.; BETWEEN THE SHIPPER AND THE CARRIER; WHEN NO GOODS HAVE BEEN DELIVERED FOR
SHIPMENT; NO RECITAL IN THE BILL CAN ESTOP THE CARRIER FROM SHOWING THE TRUE FACTS. —
While we agree with petitioners’ statement that "an airway hill estops the carrier from denying receipt
of goods of the quantity and quality described in the bill," a further reading and a more faithful
quotation of the authority cited would reveal that" (a) bill of lading may contain constituent elements of
estoppel and thus become something more than a contract between the shipper and the carrier. . . .
(However), as between the shipper and the carrier, when no goods have been delivered for shipment no
recitals in the bill can estop the carrier from showing the true facts . . .. Between the consignor of goods
and a receiving carrier, recitals in a bill of lading as to the goods shipped raise only a rebuttable
presumption that such goods were delivered for shipment. As between the consignor and a receiving
carrier, the fact must outweigh the recital."cralaw virtua1aw library

8. ID.; ID.; ID.; ACCEPTANCE THEREOF WITHOUT DISSENT; PRESUMPTION. — There is a holding in most
jurisdictions that the acceptance of a bill of lading without dissent raises a presumption that all terms
therein were brought to the knowledge of the shipper and agreed to by him, and in the absence of fraud
or mistake, he is estopped from thereafter denying that he assented to such terms. This rule applies
with particular force where a shipper accepts a bill of lading with full knowledge of its contents, and
acceptance, under such circumstances makes it a binding contract. In order that any presumption of
assent to a stipulation in a bill of lading limiting the liability of a carrier may arise, it must appear that the
clause containing this exemption from liability plainly formed a part of the contract contained in the bill
of lading. A stipulation printed on the back of a receipt or bill of lading or on papers attached to such
receipt will be quite as effective as if printed on its face, if it is shown that the consignor knew of its
terms. Thus, where a shipper accepts a receipt which states that its conditions are to be found on the
back, such receipt comes within the general rule, and the shipper is held to have accepted and to be
bound by the conditions there to be found.

9. ID.; COMMON CARRIER; EXTRAORDINARY RESPONSIBILITY THEREOF OVER THE GOODS BEGINS FROM
THE TIME THE GOODS ARE DELIVERED THERETO. — Explicit is the rule under Article 1736 of the Civil
Code that the extraordinary responsibility of the common carrier begins from the time the goods are
delivered to the carrier. This responsibility remains in full force and effect even when they are
temporarily unloaded or stored in transit, unless the shipper or owner exercises the right of stoppage in
transitu, and terminates only after the lapse of a reasonable time for the acceptance of the goods by the
consignee or such other person entitled to receive them. And, there is delivery to the carrier when the
goods are ready for and have been placed in the exclusive possession, custody and control of the carrier
for the purpose of their immediate transportation and the carrier has accepted them. Where such a
delivery has thus been accepted by the carrier, the liability of the common carrier commences eo
instanti.

10. ID.; ID.; ID.; FACT OF DELIVERY MUST BE UNEQUIVOCABLY ESTABLISHED. — While we agree with
petitioners that the extraordinary diligence statutorily required to be observed by the carrier
instantaneously commences upon delivery of the goods thereto, for such duty to commence there must
in fact have been delivery of the cargo subject of the contract of carriage. Only when such fact of
delivery has been unequivocally established can the liability for loss, destruction or deterioration of
goods in the custody of the carrier, absent the excepting causes under Article 1734, attach and the
presumption of fault of the carrier under Article 1735 be invoked.

11. ID.; ID.; NOT LIABLE FOR EVENTS PRIOR TO THE DELIVERY OF THE GOODS THERETO. — The facts in
the case at bar belie the averment that there was delivery of the cargo to the carrier on October 26,
1976. Rather, as earlier explained, the body intended to be shipped as agreed upon was, really placed in
the possession and control of PAL on October 28, 1976 and it was from that date that private
respondents became responsible for the agreed cargo under their undertakings in PAL Airway Bill No.
079-01180454. Consequently, for the switching of caskets prior thereto which was not caused by them.,
and subsequent events caused thereby, private respondents cannot be held liable.

12. ID.; ID.; PROHIBITED FROM OPENING A CASKET FOR FURTHER VERIFICATION. — Petitioners,
proceeding on the premise that there was delivery of the cargo to private respondents on October 26,
1976 and that the latter’s extraordinary responsibility had by then become operative, insist on foisting
the blame on private respondents for the switching of the two caskets which occurred on October 27,
1976. It is argued that since there is no clear evidence establishing the fault of Continental Mortuary Air
Services (CMAS) for the mix-up, private respondents are presumably negligent pursuant to Article 1735
of the Civil Code and, for failure to rebut such presumption, they must necessarily be held liable; or,
assuming that CMAS was at fault, the same does not absolve private respondents of liability because
whoever brought the cargo to the airport, or loaded it on the plane did so as agent of private
respondents. This contention is without merit. As pithily explained by the Court of Appeals: . . .
"Consequently, when the cargo was received from C.M.A.S. at the Chicago airport terminal for
shipment, which was supposed to contain the remains of Crispina Saludo, Air Care International and/or
TWA, had no way of determining its actual contents, since the casket was hermetically sealed by the
Philippine Vice-Consul in Chicago and in an air pouch of C.M.A.S., to the effect that Air Care International
and/or TWA had to rely on the information furnished by the shipper regarding the cargo’s content.
Neither could Air Care International and/or TWA open the casket for further verification, since they
were not only without authority to do so, but even prohibited. "Thus, under said circumstances, no fault
and/or negligence can be attributed to PAL (even if Air Care International should be considered as an
agent of PAL) and/or TWA, the entire fault or negligence being exclusively with C.M.A.S." It can correctly
and logically be concluded, therefore that the switching occurred or, more accurately, was discovered
on October 27, 1976; and based on the above findings of the Court of Appeals, it happened while the
cargo was still with CMAS, well before the same was placed in the custody of private respondents.

13. ID.; ID.; FAILURE TO VERIFY AND IDENTIFY THE CONTENTS OF THE CARGO; DOES NOT CONSTITUTE
NEGLIGENCE; CASE AT BAR. — Petitioners consider TWA’s statement that it had to rely on the
information furnished by the shipper" a lame, excuse and that its failure to prove that its personnel
verified and identified the contents of the casket before loading the same constituted negligence on the
part of TWA. We uphold the favorable consideration by the Court of Appeals of the following findings of
the trial court: "It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered
the casket containing the remains of Crispina Saludo. TWA would have no knowledge therefore that the
remains of Crispina Saludo were not the ones inside the casket that was being presented to it for
shipment. TWA would have to rely on the representations of C.M.A.S. The casket was hermetically
sealed and also sealed by the Philippine Vice Consul in Chicago. TWA or any airline for that matter would
not have opened such sealed casket just for the purpose of ascertaining whose body was inside and to
make sure that the remains inside were those of the particular person indicated to be by C.M.A.S. TWA
had to accept whatever information was being furnished by the shipper or by the one presenting the
casket for shipment.And so as a matter of fact, TWA carried to San Francisco and transferred to
defendant PAL a shipment covered by or under PAL Airway Bill No. 079-ORD-01180454, the airway bill
for the shipment of the casketed remains of Crispina Saludo. Only, it turned out later, while the casket
was already with PAL, that what was inside the casket was not the body of Crispina Saludo so much so
that it had to be withdrawn by C.M.A.S from PAL. The body of Crispina Saludo had been shipped to
Mexico. The casket containing the remains of Crispina Saludo was transshipped from Mexico and arrived
in San Francisco the following day on board American Airlines. It was immediately loaded by PAL on its
flight for Manila. The foregoing points at C.M.A.S., not defendant TWA much less defendant PAL, as the
ONE responsible for the switching or mix-up of the two bodies at the Chicago Airport terminal, and
started a chain reaction of the misshipment of the body of Crispina Saludo and a one-day delay in the
delivery thereof to its destination. Verily, no amount of inspection by respondent airline companies
could have guarded against the switching that had already taken place. Or, granting that they could have
opened the casket to inspect its contents, private respondents had no means of ascertaining whether
the body therein contained was indeed that of Crispina Saludo except, possibly, if the body was that of a
male person and such fact was visually apparent upon opening the casket. However, to repeat, private
respondents had no authority to unseal and open the same nor did they have any reason or justification
to resort thereto.

14. ID.; ID.; RIGHT TO REQUIRE GOOD FAITH ON THE PART OF THE PERSONS DELIVERING THE GOODS TO
BE CARRIED AND ENTER INTO CONTRACT WITH CARRIER; SCOPE. — It is the right of the carrier to
require good faith on the part of those persons who deliver goods to be carried, ar enter into contracts
with it, and inasmuch as the freight may depend on the value of the article to be carried, the carrier
ordinarily has the right to inquire as to its value. Ordinarily, too, it is the duty of the carrier to make
inquiry as to the general nature of the articles shipped and of their value before it consents to carry
them; and its failure to do so cannot defeat the shipper’s right to recovery of the full value of the
package if lost, in the absence of showing of fraud or deceit on the part of the shipper. In the absence of
more definite information, the carrier has the right to accept shipper’s marks as to the contents of the
package offered for transportation and is not bound to inquire particularly about them in order to take
advantage of a false classification and where a shipper expressly represents the contents of a package to
be of a designated character, it is not the duty of the carrier to ask for a repetition of the statement nor
disbelieve it and open the box and see for itself. However, where a common carrier has reasonable
ground to suspect that the offered goods are of a dangerous or illegal character, the carrier has the right
to know the character of such goods and to insist on an inspection, if reasonable and practical under the
circumstances, as a condition of receiving and transporting such goods.

15. ID.; ID.; ENTITLED TO FAIR REPRESENTATION OF THE NATURE AND VALUE OF THE GOODS TO BE
CARRIED; CASE AT BAR. — It can safely be said then that a common carrier is entitled to fair
representation of the nature and value of the goods to be carried, with the concomitant right to rely
thereon, and further noting at this juncture that a carrier has no obligation to inquire into the
correctness or sufficiency of such information. The consequent duty to conduct an inspection thereof
arises in the event that there should be reason to doubt the veracity of such representations. Therefore,
to be subjected to unusual search, other than the routinary inspection procedure customarily
undertaken, there must exist proof that would justify cause for apprehension that the baggage is
dangerous as to warrant exhaustive inspection, or even refusal to accept carriage of the same; and it is
the failure of the carrier to act accordingly in the face of such proof that constitutes the basis of the
common carrier’s liability. In the case at bar, private respondents had no reason whatsoever to doubt
the truth of the shipper’s representations. The airway bill expressly providing that "carrier certifies
goods received below were received for carriage," and that the cargo contained "casketed human
remains of Crispina Saludo," was issued on the basis of such representations. The reliance thereon by
private respondents was reasonable and, for so doing, they cannot be said to have acted negligently.
Likewise, no evidence was adduced to suggest even an iota of suspicion that the cargo presented for
transportation was anything other than what it was declared to be, as would require more than routine
inspection or call for the carrier to insist that the same be opened for scrutiny of its contents per
declaration.

16. ID.; ID.; FORWARDER OF THE GOODS THERETO, NOT AN AGENT THEREOF BUT THAT OF THE
SHIPPER. — Private respondents cannot be held accountable on the basis of petitioners’ preposterous
proposition that whoever brought the cargo to the airport or loaded it on the airplane did so as agent of
private respondents, so that even if CMAS whose services were engaged for the transit arrangements
for the remains was indeed at fault, the liability therefor would supposedly still be attributable to
private respondents. While we agree that the actual participation of CMAS has been sufficiently and
correctly established, to hold that it acted as agent for private respondents would be both an inaccurate
appraisal and an unwarranted categorization of the legal position it held in the entire transaction. It
bears repeating that CMAS was hired to handle all the necessary shipping arrangements for the
transportation of the human remains of Crispina Saludo to Manila. Hence, it was to CMAS that the
Pomierski & Son Funeral Home, as shipper, brought the remains of petitioners’ mother for shipment,
with Maria Saludo as consignee. Thereafter, CMAS booked the shipment with PAL through the carrier’s
agent, Air Care International. With its aforestated functions, CMAS may accordingly be classified as a
forwarder which, by accepted commercial practice, is regarded as an agent of the shipper and not of the
carrier. As such, it merely contracts for the transportation of goods by carriers, and has no interest in the
freight but receives compensation from the shipper as his agent.

17. ID.; ID.; NOT LIABLE FOR DELAY IN THE ABSENCE OF SPECIAL CONTRACT. — The oft-repeated rule
regarding a carrier’s liability for delay is that in the absence of a special contract, a carrier is not an
insurer against delay in transportation of goods. When a common carrier undertakes to convey goods,
the law implies a contract that they shall be delivered at destination within a reasonable time, in the
absence of any agreement as to the time of delivery. But where a carrier has made an express contract
to transport and deliver property within a specified time, it is bound to fulfill its contract and is liable for
any delay, no matter from what cause it may have arisen. This result logically follows from the well-
settled rule that where the law creates a duty or charge, and the party is disabled from performing it
without any default in himself, and has no remedy over, then the law will excuse him, but where the
party by his own contract creates a duty or charge upon himself, he is bound to make it good
notwithstanding any accident or delay by inevitable necessity because he might have provided against it
by contract. Whether or not there has been such an undertaking on the part of the carrier is to be
determined from the circumstances surrounding the case and by application of the ordinary rules for
the interpretation of contracts.

18. ID.; ID.; ID.; SPECIFICATION OF THE FLIGHT AND DATES OF DEPARTURE; NOT A SPECIAL CONTRACT
THAT COULD PREVAIL OVER THE PRINTED STIPULATION. — Also, the theory of petitioners that the
specification of the flights and dates of departures and arrivals constitute a special contract that could
prevail over the printed stipulations at the back of the airway bill is vacuous. To countenance such a
postulate would unduly burden the common carrier for that would have the effect of unilaterally
transforming every single bill of lading or trip ticket into a special contract by the simple expedient of
filling it up with the particulars of the flight, trip or voyage, and thereby imposing upon the carrier duties
and/or obligations which it may not have been ready or willing to assume had it been timely advised
thereof. Neither does the fact that the challenged condition No. 5 was printed at the back of the airway
bill militate against its binding effect on petitioners as parties to the contract, for there were sufficient
indications on the face of said bill that would alert them to the presence of such additional condition to
put them on their guard. Ordinary prudence on the part of any person entering or contemplating to
enter into a contract would prompt even a cursory examination of any such conditions, terms and/or
stipulations.
19. ID.; ID.; CHANGES IN ROUTE; FLIGHTS AND SCHEDULE; WHEN JUSTIFIED. — Just because we have
said that Condition No. 5 of the airway bill is binding upon the parties to and fully operative in this
transaction, it does not mean, and let this serve as fair warning to respondent carriers, that they can at
all times whimsically seek refuge from liability in the exculpatory sanctuary of said Condition No. 5 or
arbitrarily vary routes, flights and schedules to the prejudice of their customers. This condition only
serves to insulate the carrier from liability in those instances when changes in routes, flights and
schedules are clearly justified by the peculiar circumstances of a particular case, or by general
transportation practices, customs and usages, or by contingencies or emergencies in aviation such as
weather turbulence, mechanical failure, requirements of national security and the like. And even as it is
conceded that specific routing and other navigational arrangements for a trip, flight or voyage, or
variations therein, generally lie within the discretion of the carrier in the absence of specific routing
instructions or directions by the shipper, it is plainly incumbent upon the carrier to exercise its rights
with due deference to the rights, interests and convenience of its customers.

20. ID.; ID.; LIABLE FOR DAMAGES IN CASE OF UNREASONABLE DELAY AS IMMEDIATE AND PROXIMATE
RESULT FROM NEGLECT OF DUTY. — A common carrier undertaking to transport property has the
implicit duty to carry and deliver it within a reasonable time, absent any particular stipulation regarding
time of delivery, and to guard against delay. In case of any unreasonable delay, the carrier shall be liable
for damages immediately and proximately resulting from such neglect of duty.

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

22. ID.; CONTRACTS; CONSTRUCTION AND INTERPRETATION THEREOF; RULE. — The hornbook rule on
interpretation of contracts consecrates the primacy of the intention of the parties, the same having the
force of law between them. When the terms of the agreement are clear and explicit, that they do not
justify an attempt to read into any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract. The various stipulations of a contract shall be
interpreted together and such a construction is to be adopted as will give effect to all provisions thereof.
A contract cannot be construed by parts, but its clauses should be interpreted in relation to one
another. The whole contract must be interpreted or read together in order to arrive at its true meaning.
Certain stipulations cannot be segregated and then made to control; neither do particular words or
phrases necessarily determine the character of a contract. The legal effect of the contract is not to be
determined alone by any particular provision disconnected from all others, but in the ruling intention of
the parties as gathered from all the language they have used and from their contemporaneous and
subsequent acts.

23. ID.; ID.; CONTRACT OF ADHESION; AS A GENERAL RULE, MUST BE STRICTLY CONSTRUED AGAINST
THE PARTY WHO DRAFTED THE SAME; EXCEPTION. — Granting arguendo that Condition No. 5 partakes
of the nature of a contract of adhesion and as such must be construed strictly against the party who
drafted the same or gave rise to any ambiguity therein, it should be borne in mind that a contract of
adhesion may be struck down as void and unenforceable, for being subversive of public policy, only
when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to
the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal
footing. However, Ong Yiu v. Court of Appeals, Et Al., instructs us that contracts of adhesion are not
entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent. Accordingly, Petitioners, far from being the weaker party in this situation,
duly signified their presumed assent to all terms of the contract through their acceptance of the airway
bill and are consequently bound thereby. It cannot be gainsaid that petitioners were not without several
choices as to carriers in Chicago with its numerous airways and airlines servicing the same.

24. ID.; DAMAGES; MORAL DAMAGES; MAY BE AWARDED FOR WILLFUL OR FRAUDULENT BREACH OF
CONTRACT AND SUCH BREACH IS ATTENDED BY MALICE OR BAD FAITH. — The uniform decisional tenet
in our jurisdiction holds that moral damages may be awarded for willful or fraudulent breach of contract
or when such breach is attended by malice or bad faith. However, in the absence of strong and positive
evidence of fraud, malice or bad faith, said damages cannot be awarded. Neither can, there be an award
of exemplary damages nor of attorney’s fees as an item of damages in the absence of proof that
defendant acted with malice, fraud or bad faith.

25. ID.; ID.; NOMINAL DAMAGES; INTENDED FOR THE VINDICATION OR RECOGNITION OF A RIGHT
VIOLATED OR INVADED. — The censurable conduct of TWA’s employees cannot, however, be said to
have approximated the dimensions of fraud, malice or bad faith. It can be said to be more of a lethargic
reaction produced and engrained in some people by the mechanically routine nature of their work and a
racial or societal culture which stultifies what would have been their accustomed human response to a
human need under a former and different ambience. Nonetheless, the facts show that petitioners’ right
to be treated with due courtesy in accordance with the degree of diligence required by law to be
exercised by every common carrier was violated by TWA and this entitles them, at least, to nominal
damages from TWA alone. Articles 2221 and 2222 of the Civil Code make it clear that nominal damages
are not intended for indemnification of loss suffered but for the vindication or recognition of a right
violated or invaded. They are recoverable where some injury has been done but the amount of which
the evidence fails to show, the assessment of damages being left to the discretion of the court according
to the circumstances of the case. In the exercise of our discretion, we find an award of P40,000.00 as
nominal damages in favor of petitioners to be a reasonable amount under the circumstances of the
case.

DECISION
REGALADO, J.:

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

The facts, as recounted by the court a quo and adopted by respondent court after "considering the
evidence on record," are as follows:jgc:chanrobles.com.ph

"After the death of plaintiffs’ mother, Crispina Galdo Saludo, in Chicago, Illinois, (on) October 23, 1976
(Exh. A), Pomierski and Son Funeral Home of Chicago, made the necessary preparations and
arrangements for the shipment of the remains from Chicago to the Philippines. The funeral home had
the remains embalmed (Exh. D) and secured a permit for the disposition of dead human body on
October 25, 1976 (Exh. C). Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m.
on October 26, 1976 at the Pomierski & Son Funeral Home, sealed the shipping case containing a
hermetically sealed casket that is airtight and waterproof wherein was contained the remains of Crispina
Saludo Galdo (sic) (Exh. B). On the same date, October 26, 1976, Pomierski brought the remains to
C.M.A.S. (Continental Mortuary Air Services) at the airport (Chicago) which made the necessary
arrangements such as flights, transfers, etc.; C.M.A.S. is a national service used by undertakers
throughout the nation (U.S.A.), they furnish the air pouch which the casket is enclosed in, and they see
that the remains are taken to the proper air freight terminal (Exh. 6-TWA). C.M.A.S. booked the
shipment with PAL thru the carrier’s agent Air Care International, with Pomierski F.H. as the shipper and
Mario (Maria) Saludo as the consignee. PAL Airway Bill No. 079-01180454 Ordinary was issued wherein
the requested routing was from Chicago to San Francisco on board TWA Flight 131 of October 27, 1976,
and from San Francisco to Manila on board PAL Flight No. 107 of the same date, and from Manila to
Cebu on board PAL Flight 149 of October 29, 1976 (See Exh. E, also Exh. 1-PAL).

"In the meantime, plaintiffs Maria Salvacion Saludo and Saturnino Saludo, thru a travel agent, were
booked with United Airlines from Chicago to California, and with PAL from California to Manila. She then
went to the funeral director of Pomierski Funeral Home who had her mother’s remains and she told the
director that they were booked with United Airlines. But the director told her that the remains were
booked with TWA flight to California. This upset her, and she and her brother had to change
reservations from UA to the TWA flight after she confirmed by phone that her mother’s remains would
be on that TWA flight. They went to the airport and watched from the look-out area. She saw no body
being brought. So, she went to the TWA counter again, and she was told there was no body on that
flight. Reluctantly, they took the TWA flight upon assurance of her cousin, Ani Bantug, that he would
look into the matter and inform her about it on the plane or have it radioed to her. But no confirmation
from her cousin reached her that her mother was on the West Coast.
"Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA counter there to inquire about
her mother’s remains. She was told they did not know anything about it.

"She then called Pomierski that her mother’s remains were not at the West Coast terminal, and
Pomierski immediately called C.M.A.S., which in a matter of 10 minutes informed him that the remains
were on a place to Mexico City, that there were two bodies at the terminal, and somehow they were
switched; he relayed this information to Miss Saludo in California; later C.M.A.S. called and told him they
were sending the remains back to California via Texas (see Exh. 6-TWA).

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

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

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

In a letter dated December 15, 1976, 4 petitioners’ counsel informed private respondent Trans World
Airlines (TWA) of the misshipment and eventual delay in the delivery of the cargo containing the
remains of the late Crispina Saludo, and of the discourtesy of its employees to petitioners Maria
Salvacion Saludo and Saturnino Saludo. In a separate letter on June 10, 1977 addressed to co-
respondent Philippine Airlines (PAL), 5 petitioners stated that they were holding PAL liable for said delay
in delivery and would commence judicial action should no favorable explanation be given.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph

Both private respondents denied liability. Thus, a damage suit 6 was filed by petitioners before the then
Court of First Instance, Branch III, Leyte, praying for the award of actual damages of P50,000.00, moral
damages of P1,000,000.00, exemplary damages, attorney’s fees and costs of suit.
As earlier stated, the court below absolved the two respondent airline companies of liability. The Court
of Appeals affirmed the decision of the lower court in toto, and in a subsequent resolution, 7 denied
herein petitioners’ motion for reconsideration for lack of merit.

In predictable disagreement and dissatisfaction with the conclusions reached by respondent appellate
court, petitioners now urge this Court to review the appealed decision and to resolve whether or not (1)
the delay in the delivery of the casketed remains of petitioners’ mother was due to the fault of
respondent airline companies, (2) the one-day delay in the delivery of the same constitutes contractual
breach as would entitle petitioners to damages, (3) damages are recoverable by petitioners for the
humiliating, arrogant and indifferent acts of the employees of TWA and PAL, and (4) private respondents
should be held liable for actual. moral and exemplary damages, aside from attorney’s fees and litigation
expenses. 8

At the outset and in view of the spirited exchanges of the parties on this aspect, it is to be stressed that
only questions of law may be raised in a petition filed in this Court to review on certiorari the decision of
the Court of Appeals. 9 This being so, the factual findings of the Court of Appeals are final and conclusive
and cannot be reviewed by the Supreme Court. The rule, however, admits of established exceptions, to
wit: (a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on
speculations, surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or
impossible; (d) when the judgment of the Court of Appeals was based on a misapprehension of facts; (e)
when the factual findings are conflicting; (f) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same are contrary to the admissions of both appellant and
appellee; 10 (g) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by
the parties and which, if properly considered, would justify a different conclusion; 11 and (h) where the
findings of fact of the Court of Appeals are contrary to those of the trial court, or are mere conclusions
without citation of specific evidence, or where the facts set forth by the petitioner are not disputed by
the respondent, or where the findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record. 12

To distinguish, a question of law is one which involves a doubt or controversy on what the law is on a
certain state of facts; and, a question of fact, contrarily, is one in which there is a doubt or difference as
to the truth or falsehood of the alleged facts. 13 One test, it has been held, is whether the appellate
court can determine the issue raised without reviewing or evaluating the evidence, in which case it is a
question of law, otherwise it will be a question of fact. 14 Respondent airline companies object to the
present recourse of petitioners on the ground that this petition raises only factual questions. 15
petitioners maintain otherwise or, alternatively, they are of the position that, assuming that the petition
raises factual questions, the same are within the recognized exceptions to the general rule as would
render the petition cognizable and worthy of review by the Court. 16

Since it is precisely the soundness of the inferences or conclusions that may be drawn from the factual
issues which are here being assayed, we find that the issues raised in the instant petition indeed warrant
a second look if this litigation is to come to a reasonable denouement. A discussion seriatim of said
issues will further reveal that the sequence of the events involved is in effect disputed. Likewise to be
settled is whether or not the conclusions of the Court of Appeals subject of this review indeed find
evidentiary and legal support.chanrobles virtual lawlibrary

I. Petitioners fault respondent court for "not finding that private respondents failed to exercise
extraordinary diligence required by law which resulted in the switching and/or misdelivery of the
remains of Crispina Saludo to Mexico causing gross delay in its shipment to the Philippines, and
consequently, damages to petitioners." 17

Petitioners allege that private ‘respondents received the casketed remains of petitioners’ mother on
October 26, 1976, as evidenced by the issuance of PAL Air Way-bill No. 079-01180454 18 by Air Care
International as carrier’s agent; and from said date, private respondents were charged with the
responsibility to exercise extraordinary diligence so much so that for the alleged switching of the caskets
on October 27, 1976, or one day after private respondents received the cargo, the latter must
necessarily be liable.

To support their assertion, petitioners rely on the jurisprudential dictum, both under American and
Philippine law, that" (t)he issuance of a bill of lading carries the presumption that the goods were
delivered to the carrier issuing the bill, for immediate shipment, and it is nowhere questioned that a bill
of lading is prima facie evidence of the receipt of the goods by the carrier. . . . In the absence of
convincing testimony establishing mistake, recitals in the bill of lading showing that the carrier received
the goods for shipment on a specified date control (13 C.J.S. 235)." 19

A bill of lading is a written acknowledgment of the receipt of the goods and an agreement to transport
and deliver them at a specified place to a person named or on his order. Such instrument may be called
a shipping receipt, forwarder’s receipt and receipt for transportation. 20 The designation, however, is
immaterial. It has been held that freight tickets for bus companies as well as receipts for cargo
transported by all forms of transportation, whether by sea or land, fall within the definition. Under the
Tariff and Customs Code, a bill of lading includes airway bills of lading. 21 The two-fold character of a bill
of lading is all too familiar: it is a receipt as to the quantity and description of the goods shipped and a
contract to transport the goods to the consignee or other person therein designated, on the terms
specified in such instrument. 22

Logically, since a bill of lading acknowledges receipt of goods to be transported, delivery of the goods to
the carrier normally precedes the issuance of the bill; or, to some extent, delivery of the goods and
issuance of the bill are regarded in commercial practice as simultaneous acts. 23 However, except as
may be prohibited by law, there is nothing to prevent an inverse order of events, that is, the execution
of the bill, of lading even prior to actual possession and control by the carrier of the cargo to be
transported. There is no law which requires that the delivery of the goods for carriage and the issuance
of the covering bill of lading must coincide in point of time or, for that matter, that the former should
precede the latter.

Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for transportation but,
when issued, is competent and prima facie, but not conclusive, evidence of delivery to the carrier. A bill
of lading, when properly executed and delivered to a shipper, is evidence that the carrier has received
the goods described therein for shipment. Except as modified by statute, it is a general rule as to the
parties to a contract of carriage of goods in connection with which a bill of lading is issued reciting that
goods have been received for transportation, that the recital being in essence a receipt alone, is not
conclusive, but may be explained, varied or contradicted by parol or other evidence. 24

While we agree with petitioners’ statement that "an airway hill estops the carrier from denying receipt
of goods of the quantity and quality described in the bill," a further reading and a more faithful
quotation of the authority cited would reveal that" (a) bill of lading may contain constituent elements of
estoppel and thus become something more than a contract between the shipper and the carrier. . . .
(However), as between the shipper and the carrier, when no goods have been delivered for shipment no
recitals in the bill can estop the carrier from showing the true facts . . . Between the consignor of goods
and a receiving carrier, recitals in a bill of lading as to the goods shipped raise only a rebuttable
presumption that such goods were delivered for shipment. As between the consignor and a receiving
carrier, the fact must outweigh the recital." 25 (Emphasis supplied.)

For this reason, we must perforce allow explanation by private respondents why, despite the issuance of
the airway bill and the date thereof, they deny having received the remains of Crispina Saludo on
October 26, 1976 as alleged by petitioners.

The findings of the trial court, as favorably adopted by the Court of Appeals and which we have earlier
quoted, provide us with the explanation that sufficiently overcomes the presumption relied on by
petitioners in insisting that the remains of their mother were delivered to and received by private
respondents on October 26, 1976. Thus —

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

Moreover, we are persuaded to believe private respondent PAL’s account as to what transpired on
October 26, 1976:jgc:chanrobles.com.ph

". . . pursuant thereto, on 26 October 1976, CMAS acting upon the instruction of Pomierski, F.H., the
shipper requested booking of the casketed remains of Mrs. Cristina (sic) Saludo on board PAL’s San
Francisco-Manila Flight No. PR 107 on October 27, 1976.
"2. To signify acceptance and confirmation of said booking, PAL issued to said Pomierski F.H., PAL Airway
Bill No. 079-01180454 dated October 27, 1976 (sic, ‘10/26/76’). PAL confirmed the booking and
transporting of the shipment on board of its Flight PR 107 on October 27, 1976 on the basis of the
representation of the shipper and/or CMAS that. the said cargo would arrive in San Francisco from
Chicago on board United Airlines Flight US 121 on 27 October 1976." 27

In other words,, on October 26, 1976 the cargo containing the casketed remains of Crispina Saludo was
booked for PAL Flight Number PR-107 leaving San Francisco for Manila on October 27, 1976. PAL Airway
Bill No. 079-01180454 was issued, not as evidence of receipt of delivery of the Cargo on October 26,
1976, but merely as a confirmation of the booking thus made for the San Francisco-Manila flight
scheduled on October 27, 1976. Actually, it was not until October 28, 1976 that PAL received physical
delivery of the body at San Francisco, as duly evidenced by the Interline Freight Transfer Manifest of the
American Airline Freight System and signed for by Virgilio Rosales at 1945H, or 7:45 P.M. on said date.
28

Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the
common carrier begins from the time the goods are delivered to the carrier. This responsibility remains
in full force and effect even when they are temporarily unloaded or stored in transit, unless the shipper
or owner exercises the right of stoppage in transitu, 29 and terminates only after the lapse of a
reasonable time for the acceptance of the goods by the consignee or such other person entitled to
receive them. 30 And, there is delivery to the carrier when the goods are ready for and have been
placed in the exclusive possession, custody and control of the carrier for the purpose of their immediate
transportation and the carrier has accepted them. 31 Where such a delivery has thus been accepted by
the carrier, the liability of the common carrier commences eo instanti. 32

Hence, while we agree with petitioners that the extraordinary diligence statutorily required to be
observed by the carrier instantaneously commences upon delivery of the goods thereto, for such duty to
commence there must in fact have been delivery of the cargo subject of the contract of carriage. Only
when such fact of delivery has been unequivocally established can the liability for loss, destruction or
deterioration of goods in the custody of the carrier, absent the excepting causes under Article 1734,
attach and the presumption of fault of the carrier under Article 1735 be invoked.

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

Petitioners, proceeding on the premise that there was delivery of the cargo to private respondents on
October 26, 1976 and that the latter’s extraordinary responsibility had by then become operative, insist
on foisting the blame on private respondents for the switching of the two caskets which occurred on
October 27, 1976. It is argued that since there is no clear evidence establishing the fault of Continental
Mortuary Air Services (CMAS) for the mix-up, private respondents are presumably negligent pursuant to
Article 1735 of the Civil Code and, for failure to rebut such presumption, they must necessarily be held
liable; or, assuming that CMAS was at fault, the same does not absolve private respondents of liability
because whoever brought the cargo to the airport, or loaded it on the plane did so as agent of private
respondents.

This contention is without merit. As pithily explained by the Court of Appeals:jgc:chanrobles.com.ph

"The airway bill expressly provides that ‘Carrier certifies goods described below were received for
carriage’, and said cargo was ‘casketed human remains of Crispina Saludo’, with ‘Maria Saludo as
Consignee: Pomierski F.H. as Shipper;: Air Care International as carrier’s agent.’ On the face of the said
airway bill, the specific flight numbers, specific routes of shipment and dates of departure and arrival
were typewritten, to wit: Chicago TWA Flight 131/27 to San Francisco and from San Francisco by PAL
107 on October 27, 1976 to Philippines and to Cebu via PAL Flight 149 on October 29, 1976. The airway
bill also contains the following typewritten words, as follows: ‘all documents have been examined (sic).
Human remains of Crispina Saludo. Please return back (sic) first available flight to SFO.

"But, as it turned out and was discovered later the casketed human remains which was issued PAL
Airway Bill #079-1180454 was not the remains of Crispina Saludo, the casket containing her remains
having been shipped to Mexico City.

"However, it should be noted that, Pomierski F.H., the shipper of Mrs. Saludo’s remains, hired
Continental Mortuary Services (hereafter referred to as C.M.A.S.), which is engaged in the business of
transporting and forwarding human remains. Thus, C.M.A.S. made all the necessary arrangements —
such as flights, transfers, etc. — for shipment of the remains of Crispina Saludo.

‘The remains were taken on October 26th, 1976, to C.M.A.S. at the airport. These people made al l the
necessary arrangements, such as flights, transfers, etc. This is a national service used by undertakers
throughout the nation. They furnished the air pouch which the casket is enclosed in, and they see that
the remains are taken to the proper air freight terminal. I was very surprised when Miss Saludo called
me to say that the remains were not at the west coast terminal. I immediately called C.M.A.S. They
called me back in a matter of ten minutes to inform me that the remains were on a plane to Mexico City.
The man said that there were two bodies at the terminal, and somehow they were switched. . . (Exh. 6-
’TWA’, which is the memo or incident report enclosed in the stationery of Walter Pomierski & Sons Ltd.)’

"Consequently, when the cargo was received from C.M.A.S. at the Chicago airport terminal for
shipment, which was supposed to contain the remains of Crispina Saludo, Air Care International and/or
TWA, had no way of determining its actual contents, since the casket was hermetically sealed by the
Philippine Vice-Consul in Chicago and in an air pouch of C.M.A.S., to the effect that Air Care International
and/or TWA had to rely on the information furnished by the shipper regarding the cargo’s content.
Neither could Air Care International and/or TWA open the casket for further verification, since they
were not only without authority to do so, but even prohibited.

"Thus, under said circumstances, no fault and/or negligence can be attributed to PAL (even if Air Care
International should be considered as an agent of PAL) and/or TWA, the entire fault or negligence being
exclusively with C.M.A.S." 33 (Emphasis supplied.)

It can correctly and logically be concluded, therefore that the switching occurred or, more accurately,
was discovered on October 27, 1976; and based on the above findings of the Court of Appeals, it
happened while the cargo was still with CMAS, well before the same was placed in the custody of
private respondents.

Thus, while the Air Cargo Transfer Manifest of TWA of October 27, 1976 34 was signed by Garry Marcial
of PAL at 1400H, or 2:00 P.M., on the same date, thereby indicating acknowledgment by PAL of the
transfer to them by TWA of what was in truth the erroneous cargo, said misshipped cargo was in fact
withdrawn by CMAS from PAL as shown by the notation on another copy of said manifest 35 stating
"Received by CMAS — Due to switch in Chicago 10/27-1805H," the authenticity of which was never
challenged. This shows that said misshipped cargo was in fact withdrawn by CMAS from PAL and the
correct shipment containing the body of Crispina Saludo was received by PAL only on October 28, 1976,
at 1945H, or 7:45 P.M., per American Airlines Interline Freight Transfer Manifest No. AA204312. 36

Witness the deposition of TWA’s ramp serviceman, Michael Giosso, on this

matter:jgc:chanrobles.com.ph

"ATTY. JUAN COLLAS, JR.:chanrob1es virtual 1aw library

On that date, do (sic) you have occasion to handle or deal with the transfer of cargo from TWA Flight No.
603 to PAL San Francisco?

MICHAEL GIOSSO:chanrob1es virtual 1aw library

Yes, I did.

ATTY. JUAN COLLAS, JR.:chanrob1es virtual 1aw library

What was your participation with the transfer of the cargo?

MICHAEL GIOSSO:chanrob1es virtual 1aw library

I manifested the freight on a transfer manifest and physically moved it to PAL and concluded the
transfer by signing it off.

ATTY. JUAN COLLAS, JR.:chanrob1es virtual 1aw library

You brought it there yourself?

MICHAEL GIOSSO:chanrob1es virtual 1aw library

Yes sir.

ATTY. JUAN COLLAS, JR.:chanrob1es virtual 1aw library

Do you have anything to show that PAL received the cargo from TWA on October 27, 1976?

MICHAEL GIOSSO:chanrob1es virtual 1aw library

Yes, I do.(Witness presenting a document)

ATTY. JUAN COLLAS, JR.:chanrob1es virtual 1aw library

For purposes of clarity, Exhibit I is designated as Exhibit I-TWA.

x x x

ATTY. JUAN COLLAS, JR.:chanrob1es virtual 1aw library

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

MICHAEL GIOSSO:chanrob1es virtual 1aw library

It shows transfer of manifest on 10-27-76 to PAL at 1400 and verified with two signatures as it
completed the transfer.

ATTY. JUAN COLLAS, JR.:chanrob1es virtual 1aw library

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

MICHAEL GIOSSO:chanrob1es virtual 1aw library

The name is Garry Marcial." 37

The deposition of Alberto A. Lim. PAL’s cargo supervisor at San Francisco, as deponent-witness for PAL,
makes this further clarification:jgc:chanrobles.com.ph

"ATTY. CESAR P. MANALAYSAY:chanrob1es virtual 1aw library

You mentioned Airway Bill, Mr. Lim. I am showing to you a PAL Airway Bill Number 01180454 which for
purposes of evidence, I would like to request that the same be marked as evidence Exhibit I for PAL.

x x x
In what circumstances did you encounter Exhibit I-PAL?

ALBERTO A. LIM:chanrob1es virtual 1aw library

If I recall correctly, I was queried by Manila, our Manila office with regard to a certain complaint that a
consignee filed that this shipment did not arrive on the day that the consignee expects the shipment to
arrive.

ATTY. CESAR P. MANALAYSAY:chanrob1es virtual 1aw library

Okay. Now, upon receipt of that query from your Manila office, did you conduct any investigation to
pinpoint the possible causes of mishandling?

ALBERTO A. LIM:chanrob1es virtual 1aw library

Yes.

x x x

ATTY. CESAR P. MANALAYSAY:chanrob1es virtual 1aw library

What is the result of your investigation?

ALBERTO A. LIM:chanrob1es virtual 1aw library

In the course of my investigation, I found that we received the body on October 28, 1976, from
American Airlines.

ATTY. CESAR P. MANALAYSAY:chanrob1es virtual 1aw library

What body are you referring to?

x x x

ALBERTO A. LIM:chanrob1es virtual 1aw library

The remains of Mrs. Cristina (sic) Saludo.

ATTY. CESAR P. MANALAYSAY:chanrob1es virtual 1aw library

Is that the same body mentioned in this Airway Bill?

ALBERTO A. LIM:chanrob1es virtual 1aw library

Yes.

ATTY. CESAR P MANALAYSAY:chanrob1es virtual 1aw library

What time did you receive said body on October 28, 1976?

ALBERTO A. LIM:chanrob1es virtual 1aw library

If I recall correctly, approximately 7:45 of October 28, 1976.

ATTY. CESAR P. MANALAYSAY:chanrob1es virtual 1aw library

Do you have any proof with you to back the statement?

ALBERTO A. LIM:chanrob1es virtual 1aw library

Yes. We have on our records a Transfer Manifest from American Airlines Number 204312 showing that
we received a human remains shipment belong to Mrs. Cristina (sic) Saludo or the human remains of
Mrs. Cristina (sic) Saludo.

ATTY. CESAR P. MANALAYSAY:chanrob1es virtual 1aw library

At this juncture, may I request that the Transfer Manifest referred to by the witness be marked as an
evidence as Exhibit II-PAL.

x x x

Mr. Lim, yesterday your co-defendant TWA presented as their Exhibit I evidence tending to show that on
October 27, 1976 at about 2:00 in the afternoon they delivered to you a cargo bearing human remains.
Could you go over this Exhibit I and please give us your comments as to that exhibit?

ATTY. ALBERTO C. MENDOZA:chanrob1es virtual 1aw library

That is a vague question. I would rather request that counsel propound specific questions rather than
asking for comments on Exhibit I-TWA.

ATTY. CESAR P. MANALAYSAY:chanrob1es virtual 1aw library

In that case, I will reform my question. Could you tell us whether TWA in fact delivered to you the
human remains as indicated in that Transfer Manifest?

ALBERTO A. LIM:chanrob1es virtual 1aw library

Yes, they did.

ATTY. CESAR P. MANALAYSAY:chanrob1es virtual 1aw library

I noticed that the Transfer Manifest of TWA marked as Exhibit I-TWA bears the same numbers or the
same entries as the Airway Bill marked as Exhibit I-A PAL tending to show that this is the human remains
of Mrs. Cristina (sic) Saludo. Could you tell us whether this is true?

ALBERTO A. LIM:chanrob1es virtual 1aw library

It is true that we received human remains shipment from TWA as indicated on this Transfer Manifest.
But in the course of investigation, it was found out that the human remains transferred to us is not the
remains of Mrs. Cristina (sic) Saludo which is the reason why we did not board it on our flight." 38

Petitioners consider TWA’s statement that it had to rely on the information furnished by the shipper" a
lame, excuse and that its failure to prove that its personnel verified and identified the contents of the
casket before loading the same constituted negligence on the part of TWA. 39

We uphold the favorable consideration by the Court of Appeals of the following findings of the trial
court:jgc:chanrobles.com.ph

"It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered the casket
containing the remains of Crispina Saludo. TWA would have no knowledge therefore that the remains of
Crispina Saludo were not the ones inside the casket that was being presented to it for shipment. TWA
would have to rely on the representations of C.M.A.S. The casket was hermetically sealed and also
sealed by the Philippine Vice Consul in Chicago. TWA or any airline for that matter would not have
opened such sealed casket just for the purpose of ascertaining whose body was inside and to make sure
that the remains inside were those of the particular person indicated to be by C.M.A.S. TWA had to
accept whatever information was being furnished by the shipper or by the one presenting the casket for
shipment.And so as a matter of fact, TWA carried to San Francisco and transferred to defendant PAL a
shipment covered by or under PAL Airway Bill No. 079-ORD-01180454, the airway bill for the shipment
of the casketed remains of Crispina Saludo. Only, it turned out later, while the casket was already with
PAL, that what was inside the casket was not the body of Crispina Saludo so much so that it had to be
withdrawn by C.M.A.S. from PAL. The body of Crispina Saludo had been shipped to Mexico. The casket
containing the remains of Crispina Saludo was transshipped from Mexico and arrived in San Francisco
the following day on board American Airlines. It was immediately loaded by PAL on its flight for Manila.

"The foregoing points at C.M.A.S., not defendant TWA much less defendant PAL, as the ONE responsible
for the switching or mix-up of the two bodies at the Chicago Airport terminal, and started a chain
reaction of the misshipment of the body of Crispina Saludo and a one-day delay in the delivery thereof
to its destination. 40

Verily, no amount of inspection by respondent airline companies could have guarded against the
switching that had already taken place. Or, granting that they could have opened the casket to inspect
its contents, private respondents had no means of ascertaining whether the body therein contained was
indeed that of Crispina Saludo except, possibly, if the body was that of a male person and such fact was
visually apparent upon opening the casket. However, to repeat, private respondents had no authority to
unseal and open the same nor did they have any reason or justification to resort thereto.

It is the right of the carrier to require good faith on the part of those persons who deliver goods to be
carried, ar enter into contracts with it, and inasmuch as the freight may depend on the value of the
article to be carried, the carrier ordinarily has the right to inquire as to its value. Ordinarily, too, it is the
duty of the carrier to make inquiry as to the general nature of the articles shipped and of their value
before it consents to carry them; and its failure to do so cannot defeat the shipper’s right to recovery of
the full value of the package if lost, in the absence of showing of fraud or deceit on the part of the
shipper. In the absence of more definite information, the carrier has the right to accept shipper’s marks
as to the contents of the package offered for transportation and is not bound to inquire particularly
about them in order to take advantage of a false classification and where a shipper expressly represents
the contents of a package to be of a designated character, it is not the duty of the carrier to ask for a
repetition of the statement nor disbelieve it and open the box and see for itself. 41 However, where a
common carrier has reasonable ground to suspect that the offered goods are of a dangerous or illegal
character, the carrier has the right to know the character of such goods and to insist on an inspection, if
reasonable and practical under the circumstances, as a condition of receiving and transporting such
goods. 42

It can safely be said then that a common carrier is entitled to fair representation of the nature and value
of the goods to be carried, with the concomitant right to rely thereon, and further noting at this juncture
that a carrier has no obligation to inquire into the correctness or sufficiency of such information. 43 The
consequent duty to conduct an inspection thereof arises in the event that there should be reason to
doubt the veracity of such representations. Therefore, to be subjected to unusual search, other than the
routinary inspection procedure customarily undertaken, there must exist proof that would justify cause
for apprehension that the baggage is dangerous as to warrant exhaustive inspection, or even refusal to
accept carriage of the same; and it is the failure of the carrier to act accordingly in the face of such proof
that constitutes the basis of the common carrier’s liability. 44

In the case at bar, private respondents had no reason whatsoever to doubt the truth of the shipper’s
representations. The airway bill expressly providing that "carrier certifies goods received below were
received for carriage," and that the cargo contained "casketed human remains of Crispina Saludo," was
issued on the basis of such representations. The reliance thereon by private respondents was
reasonable and, for so doing, they cannot be said to have acted negligently. Likewise, no evidence was
adduced to suggest even an iota of suspicion that the cargo presented for transportation was anything
other than what it was declared to be, as would require more than routine inspection or call for the
carrier to insist that the same be opened for scrutiny of its contents per declaration.
Neither can private respondents he held accountable on the basis of petitioners’ preposterous
proposition that whoever brought the cargo to the airport or loaded it on the airplane did so as agent of
private respondents, so that even if CMAS whose services were engaged for the transit arrangements
for the remains was indeed at fault, the liability therefor would supposedly still be attributable to
private respondents.

While we agree that the actual participation of CMAS has been sufficiently and correctly established, to
hold that it acted as agent for private respondents would be both an inaccurate appraisal and an
unwarranted categorization of the legal position it held in the entire transaction.

It bears repeating that CMAS was hired to handle all the necessary shipping arrangements for the
transportation of the human remains of Crispina Saludo to Manila. Hence, it was to CMAS that the
Pomierski & Son Funeral Home, as shipper, brought the remains of petitioners’ mother for shipment,
with Maria Saludo as consignee. Thereafter, CMAS booked the shipment with PAL through the carrier’s
agent, Air Care International. 45 With its aforestated functions, CMAS may accordingly be classified as a
forwarder which, by accepted commercial practice, is regarded as an agent of the shipper and not of the
carrier. As such, it merely contracts for the transportation of goods by carriers, and has no interest in the
freight but receives compensation from the shipper as his agent. 46

At this point, it can be categorically stated that, as culled from the findings of both the trial court and
appellate courts, the entire chain of events which culminated in the present controversy was not due to
the fault or negligence of private respondents. Rather, the facts of the case would point to CMAS as the
culprit. Equally telling of the more likely possibility of CMAS’ liability is petitioners’ letter to and
demanding an explanation from CMAS regarding the statement of private respondents laying the blame
on CMAS for the incident, portions of which, reading as follows:jgc:chanrobles.com.ph

". . . we were informed that the unfortunate a mix-up occurred due to your negligence. . .

"Likewise, the two airlines pinpoint the responsibility upon your agents. Evidence were presented to
prove that allegation.

"On the face of this overwhelming evidence we could and should have filed a case against you. . ." 47

clearly allude to CMAS as the party at fault. This is tantamount to an admission by petitioners that they
consider private respondents without fault, or is at the very least indicative of the fact that petitioners
entertained serious doubts as to whether herein private respondents were responsible for the
unfortunate turn of events.

Undeniably, petitioners’ grief over the death of their mother was aggravated by the unnecessary
inconvenience and anxiety that attended their efforts to bring her body home for a decent burial. This is
unfortunate and calls for sincere commiseration with petitioners. But, much as we would like to give
them consolation for their undeserved distress, we are barred by the inequity of allowing recovery of
the damages prayed for by them at the expense of private respondents whose fault or negligence in the
very acts imputed to them has not been convincingly and legally demonstrated.
Neither are we prepared to delve into, much less definitively rule on, the possible liability of CMAS as
the evaluation and adjudication of the same is not what is presently at issue here and is best deferred to
another time and addressed to another forum.

II. Petitioners further fault the Court of Appeals for ruling that there was no contractual breach on the
part of private respondents as would entitle petitioners to damages.

Petitioners hold that respondent TWA, by agreeing to transport the remains of petitioners’ mother on
its Flight 131 from Chicago to San Francisco on October 27, 1976, made itself a party to the contract of
carriage and, therefore, was bound by the terms of the issued airway bill. When TWA undertook to ship
the remains on its Flight 603, ten hours earlier than scheduled, it supposedly violated the express
agreement embodied in the airway bill. It was allegedly this breach of obligation which compounded, if
not directly caused, the switching of the caskets.

In addition, petitioners maintain that since there is no evidence as to who placed the body on board
Flight 603, or that CMAS actually put the cargo on that flight, or that the two caskets at the Chicago
airport were to be transported by the same airline, or that they came from the same funeral home, or
that both caskets were received by CMAS, then the employees or agents of TWA presumably caused the
mix-up by loading the wrong casket on the plane. For said error, they contend, TWA must necessarily be
presumed negligent and this presumption of negligence stands undisturbed unless rebutting evidence is
presented to show that the switching or misdelivery was due to circumstances that would exempt the
carrier from liability.

Private respondent TWA professes otherwise. Having duly delivered or transferred the cargo to its co-
respondent PAL on October 27, 1976 at 2:00 P.M., as supported by the TWA Transfer Manifest, TWA
faithfully complied with its obligation under the airway bill. Said faithful compliance was not affected by
the fact that the remains were shipped on an earlier flight as there was no fixed time for completion of
carriage stipulated on. Moreover, the carrier did not undertake to carry the cargo aboard any specified
aircraft, in view of the condition on the back of the airway bill which provides:jgc:chanrobles.com.ph

"CONDITIONS OF CONTRACT

x x x

"It is agreed that no time is fixed for the completion of carriage hereunder and that Carrier may without
notice substitute alternate carriers or aircraft. Carrier assumes no obligation to carry the goods by any
specified aircraft or over any particular route or routes or to make connection at any point according to
any particular schedule, and Carrier is hereby authorized to select, or deviate from the route or routes of
shipment, notwithstanding that the same may be stated on the face hereof. The shipper guarantees
payment of all charges and advances." 48

Hence, when respondent TWA shipped the body on an earlier flight and on a different aircraft, it was
acting well within its rights. We find this argument tenable.

The contention that there was contractual breach on the part of private respondents is founded on the
postulation that there was ambiguity in the terms of the airway bill, hence petitioners’ insistence on the
application of the rules on interpretation of contracts and documents. We find no such ambiguity. The
terms are clear enough as to preclude the necessity to probe beyond the apparent intendment of the
contractual provisions.

The hornbook rule on interpretation of contracts consecrates the primacy of the intention of the parties,
the same having the force of law between them. When the terms of the agreement are clear and
explicit, that they do not justify an attempt to read into any alleged intention of the parties, the terms
are to be understood literally just as they appear on the face of the contract. 49 The various stipulations
of a contract shall be interpreted together 50 and such a construction is to be adopted as will give effect
to all provisions thereof. 51 A contract cannot be construed by parts, but its clauses should be
interpreted in relation to one another. The whole contract must be interpreted or read together in order
to arrive at its true meaning. Certain stipulations cannot be segregated and then made to control;
neither do particular words or phrases necessarily determine the character of a contract. The legal effect
of the contract is not to be determined alone by any particular provision disconnected from all others,
but in the ruling intention of the parties as gathered from all the language they have used and from their
contemporaneous and subsequent acts. 52

Turning to the terms of the contract at hand, as presented by PAL Air Waybill No. 079-01180454,
respondent court approvingly quoted the trial court’s disquisition on the aforequoted condition
appearing on the reverse side of the airway bill and its disposition of this particular assigned
error:jgc:chanrobles.com.ph

"The foregoing stipulation fully answers plaintiffs’ objections to the one-day delay and the shipping of
the remains in TWA Flight 603 instead of TWA Flight 131. Under the stipulation, parties agreed that no
time was fixed to complete the contract of carriage and that the carrier may, without notice, substitute
alternate carriers or aircraft. The carrier did not assume the obligation to carry the shipment on any
specified aircraft.

x x x

"Furthermore, contrary to the claim of plaintiffs-appellants, the conditions of the Air Waybill are big
enough to be read and noticed. Also, the mere fact that the cargo in question was shipped in TWA Flight
603, a flight earlier on the same day than TWA Flight 131, did not in any way cause or add to the one-
day delay complained of and/or the switching or mix-up of the bodies." 53

Indubitably, that private respondent can use substitute aircraft even without notice and without the
assumption of any obligation whatsoever to carry the goods on any specified aircraft is clearly
sanctioned by the contract of carriage as specifically provided for under the conditions thereof.
Petitioners’ invocation of the interpretative rule in the Rules of Court that written words control printed
words in documents, 54 to bolster their assertion that the typewritten provisions regarding the routing
and flight schedule prevail over the printed conditions, is tenuous. Said rule may be considered only
when there is inconsistency between the written and printed words of the contract.

As previously stated, we find no ambiguity in,the contract subject of this case that would call for the
application of said rule. In any event, the contract has provided for such a situation by explicitly stating
that the above condition remains effective "notwithstanding that the same (fixed time for completion of
carriage, specified aircraft, or any particular route or schedule) may be stated on the face hereof." While
petitioners hinge private respondents’ culpability on the fact that the carrier "certifies goods described
below were received for carriage," they may have overlooked that the statement on the face of the
airway bill properly and completely reads —

"Carrier certifies goods described below were received for carriage subject to the Conditions on the
reverse hereof the goods then being in apparent good order and condition except as noted hereon." 55
(Emphasis supplied.)

Private respondents further aptly observe that the carrier’s certification regarding receipt of the goods
for carriage "was of a Waybill, including Condition No. 5 — and thus if plaintiffs-appellants had
recognized the former, then with more reason they were aware of the latter." 56

In the same vein, it would also be incorrect to accede to the suggestion of petitioners that the
typewritten specifications of the flight, routes and dates of departures and arrivals on the face of the
airway bill constitute a special contract which modifies the printed conditions at the back thereof. We
reiterate that typewritten provisions of the contract are to be read and understood subject to and in
view of the printed conditions, fully reconciling and giving effect to the manifest intention of the parties
to the agreement.cralawnad

The oft-repeated rule regarding a carrier’s liability for delay is that in the absence of a special contract, a
carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to
convey goods, the law implies a contract that they shall be delivered at destination within a reasonable
time, in the absence of any agreement as to the time of delivery. 57 But where a carrier has made an
express contract to transport and deliver property within a specified time, it is bound to fulfill its
contract and is liable for any delay, no matter from what cause it may have arisen. 58 This result logically
follows from the well-settled rule that where the law creates a duty or charge, and the party is disabled
from performing it without any default in himself, and has no remedy over, then the law will excuse him,
but where the party by his own contract creates a duty or charge upon himself, he is bound to make it
good notwithstanding any accident or delay by inevitable necessity because he might have provided
against it by contract. Whether or not there has been such an undertaking on the part of the carrier is to
be determined from the circumstances surrounding the case and by application of the ordinary rules for
the interpretation of contracts. 59

Echoing the findings of the trial court, the respondent court correctly declared that —
"In a similar case of delayed delivery of air cargo under a very similar stipulation contained in the airway
bill which reads: ‘The carrier does not obligate itself to carry the goods by any specified aircraft or on a
specified time. Said carrier being hereby authorized to deviate from the route of the shipment without
any liability therefore’, our Supreme Court ruled that common carriers are not obligated by law to carry
and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless such
common carriers previously assume the obligation. Said rights and obligations are created by a specific
contract entered into by the parties (Mendoza v. PAL, 90 Phil. 836).

"There is no showing by plaintiffs that such a special or specific contract had been entered into between
them and the defendant airline companies.

"And this special contract for prompt delivery should call the attention of the carrier to the
circumstances surrounding the case and the approximate amount of damages to be suffered in case of
delay (See Mendoza v. PAL, supra). There was no such contract entered into in the instant case." 60

Also, the theory of petitioners that the specification of the flights and dates of departures and arrivals
constitute a special contract that could prevail over the printed stipulations at the back of the airway bill
is vacuous. To countenance such a postulate would unduly burden the common carrier for that would
have the effect of unilaterally transforming every single bill of lading or trip ticket into a special contract
by the simple expedient of filling it up with the particulars of the flight, trip or voyage, and thereby
imposing upon the carrier duties and/or obligations which it may not have been ready or willing to
assume had it been timely advised thereof.

Neither does the fact that the challenged condition No. 5 was printed at the back of the airway bill
militate against its binding effect on petitioners as parties to the contract, for there were sufficient
indications on the face of said bill that would alert them to the presence of such additional condition to
put them on their guard. Ordinary prudence on the part of any person entering or contemplating to
enter into a contract would prompt even a cursory examination of any such conditions, terms and/or
stipulations.

There is a holding in most jurisdictions that the acceptance of a bill of lading without dissent raises a
presumption that all terms therein were brought to the knowledge of the shipper and agreed to by him,
and in the absence of fraud or mistake, he is estopped from thereafter denying that he assented to such
terms. This rule applies with particular force where a shipper accepts a bill of lading with full knowledge
of its contents, and acceptance, under such circumstances makes it a binding contract. In order that any
presumption of assent to a stipulation in a bill of lading limiting the liability of a carrier may arise, it must
appear that the clause containing this exemption from liability plainly formed a part of the contract
contained in the bill of lading. A stipulation printed on the back of a receipt or bill of lading or on papers
attached to such receipt will be quite as effective as if printed on its face, if it is shown that the
consignor knew of its terms. Thus, where a shipper accepts a receipt which states that its conditions are
to be found on the back, such receipt comes within the general rule, and the shipper is held to have
accepted and to be bound by the conditions there to be found. 61

Granting arguendo that Condition No. 5 partakes of the nature of a contract of adhesion and as such
must be construed strictly against the party who drafted the same or gave rise to any ambiguity therein,
it should be borne in mind that a contract of adhesion may be struck down as void and unenforceable,
for being subversive of public policy, only when the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal footing. 62 However, Ong Yiu v. Court of Appeals, Et. Al.
63 instructs us that contracts of adhesion are not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his consent. Accordingly, Petitioners,
far from being the weaker party in this situation, duly signified their presumed assent to all terms of the
contract through their acceptance of the airway bill and are consequently bound thereby. It cannot be
gainsaid that petitioners were not without several choices as to carriers in Chicago with its numerous
airways and airlines servicing the same.chanrobles law library : red

We wish to allay petitioners’ apprehension that Condition No. 5 of the airway bill is productive of
mischief as it would validate delay in delivery, sanction violations of contractual obligations with
impunity or put a premium on breaches of contract.

Just because we have said that Condition No. 5 of the airway bill is binding upon the parties to and fully
operative in this transaction, it does not mean, and let this serve as fair warning to respondent carriers,
that they can at all times whimsically seek refuge from liability in the exculpatory sanctuary of said
Condition No. 5 or arbitrarily vary routes, flights and schedules to the prejudice of their customers. This
condition only serves to insulate the carrier from liability in those instances when changes in routes,
flights and schedules are clearly justified by the peculiar circumstances of a particular case, or by general
transportation practices, customs and usages, or by contingencies or emergencies in aviation such as
weather turbulence, mechanical failure, requirements of national security and the like. And even as it is
conceded that specific routing and other navigational arrangements for a trip, flight or voyage, or
variations therein, generally lie within the discretion of the carrier in the absence of specific routing
instructions or directions by the shipper, it is plainly incumbent upon the carrier to exercise its rights
with due deference to the rights, interests and convenience of its customers.

A common carrier undertaking to transport property has the implicit duty to carry and deliver it within a
reasonable time, absent any particular stipulation regarding time of delivery, and to guard against delay.
In case of any unreasonable delay, the carrier shall be liable for damages immediately and proximately
resulting from such neglect of duty. 64 As found by the trial court, the delay in the delivery of the
remains of Crispina Saludo, undeniable and regrettable as it was, cannot be attributed to the fault,
negligence or malice of private respondents, 65 a conclusion concurred in by respondent court and
which we are not inclined to disturb.

We are further convinced that when TWA opted to ship the remains of Crispina Saludo on an earlier
flight, it did so in the exercise of sound discretion and with reasonable prudence, as shown by the
explanation of its counsel in his letter of February 19, 1977 in response to petitioners’ demand
letter:jgc:chanrobles.com.ph

"Investigation of TWA’s handling of this matter reveals that although the shipment was scheduled on
TWA Flight 131 of October 27, 1976, it was actually boarded on TWA Flight 603 of the same day,
approximately 10 hours earlier, in order to assure that the shipment would be received in San Francisco
in sufficient time for transfer to PAL. This transfer was effected in San Francisco at 2:00 P.M. on October
27, 1976. 66

Precisely, private respondent TWA knew of the urgency of the shipment by reason of this notation on
the lower portion of the airway bill: "All documents have been certified. Human remains of Cristina (sic)
Saludo. Please return bag first available flight to SFO." Accordingly, TWA took it upon itself to carry the
remains of Crispina Saludo on an earlier flight, which we emphasize it could do under the terms of the
airway bill, to make sure that there would be enough time for loading said remains on the transfer flight
on board PAL.

III. Petitioners challenge the validity of respondent court’s finding that private respondents are not liable
for tort on account of the humiliating, arrogant and indifferent acts of their officers and personnel. They
posit that since their mother’s remains were transported ten hours earlier than originally scheduled,
there was no reason for private respondents’ personnel to disclaim knowledge of the arrival or
whereabouts of the same other than their sheer arrogance, indifference and extreme insensitivity to the
feelings of petitioners. Moreover, being passengers and not merely consignors of goods, petitioners had
the right to be treated with courtesy, respect, kindness and due consideration.

In riposte, TWA claims that its employees have always dealt politely with all clients, customers and the
public in general. PAL, on the other hand, declares that in the performance of its obligation to the riding
public, other customers and clients, it has always acted with justice, honesty, courtesy and good faith.

Respondent appellate court found merit in and reproduced the trial court’s refutation of this assigned
error:jgc:chanrobles.com.ph

"About the only evidence of plaintiffs that may have reference to the manner with which the personnel
of defendants treated the two plaintiffs at the San Francisco Airport are the following pertinent portions
of Maria Saludo’s testimony:chanrob1es virtual 1aw library

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

A I immediately went to the TWA counter and I inquired about whether my mother was there or if they
knew anything about it.

Q What was the answer?

A They said they do not know. So, we waited.

Q About what time was that when you reached San Francisco from Chicago?

A I think 5 o’clock. Somewhere around that in the afternoon.

Q You made inquiry it was immediately thereafter?

A Right after we got off the plane.

Q Up to what time did you stay in the airport to wait until the TWA people could tell you the
whereabouts?

A Sorry, Sir, but the TWA did not tell us anything We stayed there until about 9 o’clock. They have not
heard anything about it. They did not say anything.

Q Do you want to convey to the Court that from 5 up to 9 o’clock in the evening you yourself went back
to the TWA and they could not tell you where the remains of your mother were?

A Yes sir.

Q And after nine o’clock, what did you do?

A I told my brother my Mom was supposed to be on the Philippine Airlines flight.’Why don’t we check
with PAL instead to see if she was there?’ We tried to comfort each other. I told him anyway that was a
shortest flight from Chicago to California. We will be with our mother on this longer flight. So, we
checked with the PAL.

Q What did you find?

A We learned, Yes, my Mom would be on the flight.

Q Who was that brother?

A Saturnino Saludo.

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

A I do not know the number. It was the evening flight of the Philippine Airline(s) from San Francisco to
Manila.

Q You took that flight with your mother?

A We were scheduled to, Sir.

Q Now, you could not locate the remains of your mother in San Francisco could you tell us what did you
feel?

A After we were told that my mother was not there?

Q After you learned that your mother could not fly with you from Chicago to California?
A Well, I was very upset. Of course, I wanted the confirmation that my mother was in the West Coast.
The flight was about 5 hours from Chicago to California. We waited anxiously all that time on the plane. I
wanted to be assured about my mother’s remains. But there was nothing and we could not get any
assurance from anyone about it.

Q Your feeling when you reached San Francisco and you could not find out from the TWA the
whereabouts of the remains, what did you feel?

A Something nobody would be able to describe unless he experiences it himself. It is a kind of panic. I
think it’s a feeling you are about to go crazy. It is something do not want to live through again.’ (Inting,
t.s.n., Aug. 9, 1983, pp. 14-18).

"The foregoing does not show any humiliating or arrogant manner with which the personnel of both
defendants treated the two plaintiffs. Even their alleged indifference is not clearly established. The
initial answer of the TWA personnel at the counter that they did not know anything about the remains,
and later, their answer that they have not heard anything about the remains, and the inability of the
TWA counter personnel to inform the two plaintiffs of the whereabouts of the remains, cannot be said
to be total or complete indifference to the said plaintiffs. At any rate, it is any rude or discourteous
conduct, malfeasance or neglect, the use of abusive or insulting language calculated to humiliate and
shame passenger or bad faith by or on the part of the employees of the carrier that gives the passenger
an action for damages against the carrier (Zulueta v. Pan American World Airways, 43 SCRA 397; Air
France v. Carrascoso, Et Al., 18 SCRA 155; Lopez, Et. Al. v. Pan American World Airways, 16 SCRA 431;
Northwest Airlines, Inc. v. Cuenca, 14 SCRA 1063), and none of the above is obtaining in the instant
case." 67

We stand by respondent court’s findings on this point, but only to the extent where it holds that the
manner in which private respondent TWA’s employees dealt with petitioners was not grossly
humiliating, arrogant or indifferent as would assume the proportions of malice or bad faith and lay the
basis for an award of the damages claimed. It must however, be pointed out that the lamentable
actuations of respondent TWA’s employees leave much to be desired, particularly so in the face of
petitioners’ grief over the death of their mother, exacerbated by the tension and anxiety wrought by the
impasse and confusion over the failure to ascertain over an appreciable period of time what happened
to her remains.chanrobles lawlibrary : rednad

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

The records reveal that petitioners, particularly Maria and Saturnino Saludo, agonized for nearly five
hours, over the possibility of losing their mother’s mortal remains, unattended to and without any
assurance from the employees of TWA that they were doing anything about the situation. This is not to
say that petitioners were to be regaled with extra special attention. They were, however, entitled to the
understanding and humane consideration called for by and commensurate with the extraordinary
diligence required of common carriers, and not the cold insensitivity to their predicament. It is hard to
believe that the airline’s counter personnel were totally helpless about the situation. Common Sense
could and should have dictated that they exert a little extra effort in making a more extensive inquiry, by
themselves or through their superiors, rather than just shrug off the problem with a callous and
uncaring remark that they had no knowledge about it. With all the modern communications equipment
readily available to them, which could have easily facilitated said inquiry and which are used as a matter
of course by airline companies in their daily operations, their apathetic stance while not legally
reprehensible is morally deplorable.

Losing a loved one, especially one’s parent, is a painful experience. Our culture accords the tenderest
human feelings toward and in reverence to the dead. That the remains of the deceased were
subsequently delivered, albeit belatedly, and eventually laid in her final resting place is of little
consolation. The imperviousness displayed by the airline’s personnel, even for just that fraction of time,
was especially condemnable particularly in the hour of bereavement of the family of Crispina Saludo,
intensified by anguish due to the uncertainty of the whereabouts of their mother’s remains. Hence, it is
quite apparent that private respondents’ personnel were remiss in the observance of that genuine
human concern and professional attentiveness required and expected of them.

The foregoing observations, however, do not appear to be applicable or imputable to respondent PAL or
its employees. No attribution of discourtesy or indifference has been made against PAL by petitioners
and, in fact, petitioner Maria Saludo testified that it was to PAL that they repaired after failing to receive
proper attention from TWA. It was from PAL that they received confirmation that their mother’s
remains would be on the same flight to Manila with them.

We find the following substantiation on this particular episode from the deposition of Alberto A. Lim,
PAL’s cargo supervisor earlier adverted to, regarding their investigation of and the action taken on
learning of petitioner’s problem:jgc:chanrobles.com.ph

"ATTY. ALBERTO C. MENDOZA:chanrob1es virtual 1aw library

Yes.

Mr. Lim, what exactly was your procedure adopted in your so called investigation?

ALBERTO A. LIM:chanrob1es virtual 1aw library

I called the lead agent on duty at that time and requested for a copy of airway bill, transfer manifest and
other documents concerning the shipment.

ATTY. ALBERTO C. MENDOZA:chanrob1es virtual 1aw library

Then, what?

ALBERTO A. LIM:chanrob1es virtual 1aw library

They proceeded to analyze exactly where PAL failed, if any, in forwarding the human remains of Mrs.
Cristina (sic) Saludo. And found out that there was not (sic) delay in shipping the remains of Mrs. Saludo
to Manila. Since we received the body from American Airlines on 28 October at 7:45 and we expedited
the shipment so that it could have been loaded on our flight leaving at 9:00 in the evening or just barely
one hour and 15 minutes prior to the departure of the aircraft. That is so (sic) being the case, I reported
to Manila these circumstances." 70

IV. Finally, petitioners insist, as a consequence of the delay in the shipment of their mother’s remains
allegedly caused by willful contractual breach, on their entitlement to actual, moral and exemplary
damages as well as attorney’s fees, litigation expenses, and legal interest.

The uniform decisional tenet in our jurisdiction holds that moral damages may be awarded for willful or
fraudulent breach of contract 71 or when such breach is attended by malice or bad faith. 72 However, in
the absence of strong and positive evidence of fraud, malice or bad faith, said damages cannot be
awarded. 73 Neither can, there be an award of exemplary damages 74 nor of attorney’s fees 75 as an
item of damages in the absence of proof that defendant acted with malice, fraud or bad faith.

The censurable conduct of TWA’s employees cannot, however, be said to have approximated the
dimensions of fraud, malice or bad faith. It can be said to be more of a lethargic reaction produced and
engrained in some people by the mechanically routine nature of their work and a racial or societal
culture which stultifies what would have been their accustomed human response to a human need
under a former and different ambience.

Nonetheless, the facts show that petitioners’ right to be treated with due courtesy in accordance with
the degree of diligence required by law to be exercised by every common carrier was violated by TWA
and this entitles them, at least, to nominal damages from TWA alone. Articles 2221 and 2222 of the Civil
Code make it clear that nominal damages are not intended for indemnification of loss suffered but for
the vindication or recognition of a right violated or invaded. They are recoverable where some injury has
been done but the amount of which the evidence fails to show, the assessment of damages being left to
the discretion of the court according to the circumstances of the case. 76 In the exercise of our
discretion, we find an award of P40,000.00 as nominal damages in favor of petitioners to be a
reasonable amount under the circumstances of this case.

WHEREFORE, with the modification that an award or P40,000.00 as and by way of nominal damages is
hereby granted in favor of petitioners to be paid by respondent Trans World Airlines, the appealed
decision is AFFIRMED in all other respects.

SO ORDERED.

G. R. No. 151783 - July 8, 2003

VICTORINO SAVELLANO, VIRGINIA B. SAVELLANO and DEOGRACIAS B. SAVELLANO, Petitioners,

vs. NORTHWEST AIRLINES, Respondent.

PANGANIBAN, J.:

When, as a result of engine malfunction, a commercial airline is unable to ferry its passengers on the
original contracted route, it nonetheless has the duty of fulfilling its responsibility of carrying them to
their contracted destination on the most convenient route possible. Failing in this, it cannot just
unilaterally shuttle them, without their consent, to other routes or stopping places outside of the
contracted sectors. However, moral damages cannot be awarded without proof of the carrier's bad
faith, ill will, malice or wanton conduct. Neither will actual damages be granted in the absence of
convincing and timely proof of loss. But nominal damages may be allowed under the circumstances in
the case herein.

The Case

Before the Court is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the
June 29, 2001 Decision1 of the Court of Appeals2 (CA) in CA-GR CV No. 47165. The dispositive part of the
Decision reads:

"WHEREFORE, the judgment of July 29, 1994 is hereby REVERSED and SET ASIDE and another rendered
DISMISSING [petitioners'] Complaint. No pronouncement as to costs."3

On the other hand, the dispositive portion of the Regional Trial Court (RTC) Decision4 that was reversed
by the CA disposed thus:

"WHEREFORE, premises considered, decision is hereby rendered in favor of the plaintiffs and against the
defendant, sentencing the latter to pay to the former, the following amounts:

1. P500,000.00 as actual damages;

2. P3,000,000.00 as moral damages;

3. P500,000.00 as exemplary damages; and

4. P500,000.00 as attorney's fees;

"All such sums shall bear legal interest, i.e., 6% per annum pursuant to Article 2209 of the Civil Code
(Reformina vs. Tomol, 139 SCRA 260) from the date of the filing of the complaint until fully paid. Costs
against the x x x Northwest Airlines, Inc.

"[Respondent's] counterclaim is ordered dismissed, for lack of merit."5

The Facts

The facts of the case are summarized by the CA as follows:

"[Petitioner] Victorino Savellano (Savellano) was a Cabugao, Ilocos Sur mayor for many terms, former
Chairman of the Commission on Elections and Regional Trial Court (RTC) judge. His wife, [Petitioner]
Virginia is a businesswoman and operates several rural banks in Ilocos Sur. The couple's x x x son
[Petitioner] Deogracias was, at the time [of] the incident subject of the case, the Vice-Governor of Ilocos
Sur.

"On October 27, 1991, at around 1:45 p.m., [petitioners] departed from San Francisco, USA on board
Northwest Airlines (NW) Flight 27, Business Class, bound for Manila, Philippines using the NW round-trip
tickets which were issued at [respondent's] Manila ticketing office.

"[Petitioners] were expected to arrive at the Ninoy Aquino International Airport (NAIA), Manila on
October 29, 1991 (Manila time) or after twelve (12) hours of travel.

"After being airborne for approximately two and one-half (2) hours or at about 4:15 p.m. of the same
day, October 27, 1991 (Seattle, USA time), NW Flight 27's pilot made an emergency landing in Seattle
after announcing that a fire had started in one of the plane's engines.

"[Petitioners] and the other passengers proceeded to Gate 8 of the Seattle Airport where they were
instructed to go home to Manila the next day, 'using the same boarding passes with the same seating
arrangements'.

"[Respondent's] shuttle bus thereafter brought all passengers to the Seattle Red Lion Hotel where they
were billeted by, and at the expense of [respondent].

"[Petitioners] who were travelling as a family were assigned one room at the hotel. At around 12:00
midnight, they were awakened by a phone call from [respondent's] personnel who advised them to be
at the Seattle Airport by 7:00 a.m. (Seattle time) the following day, October 28, 1991, for departure. To
reach the airport on time, the NW shuttle bus fetched them early, making them skip the 6:30 a.m. hotel
breakfast.

"Prior to leaving the hotel, however, [petitioners] met at the lobby Col. Roberto Delfin, a Filipino co-
passenger who was also travelling Business Class, who informed them that he and some passengers
were leaving the next day, October 29, 1991, on board the same plane with the same itinerary.

"On account of the 'engine failure' of the plane, [petitioner] Virginia developed nervousness. On getting
wind of information that they were 'bumped off', she took 'valium' to calm her nerves and 'cough syrup'
for the fever and colds she had developed during the trip.

"When [petitioners] reached the Seattle Airport, [respondent's] ground stewardess belatedly advised
them that instead of flying to Manila they would have to board NW Flight 94, a DC-10 plane, bound for a
3-hour flight to Los Angeles for a connecting flight to Manila. When [Petitioner] Savellano insisted theirs
was a direct flight to Manila, the female ground stewardess just told them to hurry up as they were the
last passengers to board.

"In Los Angeles, [petitioners] and the other passengers became confused for while 'there was a sort of a
board' which announced a Seoul-Bangkok flight, none was posted for a Manila flight. It was only after
they complained to the NW personnel that the latter 'finally changed the board to include Manila.'
"Before boarding NW Flight 23 for Manila via Seoul, [petitioners] encountered another problem. Their
three small handcarried items which were not padlocked as they were merely closed by zippers were
'not allowed' to be placed inside the passengers' baggage compartments of the plane by an arrogant
NW ground stewardess.

"On [petitioners'] arrival at the NAIA, Manila where they saw Col. Delfin and his wife as well as the other
passengers of the distressed flight who unlike them [petitioners] who left Seattle on October 28, 1991,
left Seattle on October 29, 1991, they were teased for taking the longer and tiresome route to the
Philippines.

"When [petitioners] claimed their luggage at the baggage carousel, they discovered that the would-
have-been handcarried items which were not allowed to be placed inside the passengers' baggage
compartment had been ransacked and the contents thereof stolen. Virginia was later to claim having
lost her diamond earrings costing P300,000.00, two (2) Perry Gan shoes worth US$250.00, four (4)
watches costing US$40.00 each, two (2) pieces of Tag Heuer watch and three (3) boxes of Elizabeth
Arden [perfumes]. Deogracias, on the other hand, claimed to have lost two (2) pairs of Cole Haan shoes
which he bought for his wife, and the clothes, camera, personal computer, and jeans he bought for his
children.

"By letter of November 22, 1991, [petitioners] through counsel demanded from [respondent] the
amount of P3,000,000.00 as damages for what they claimed to be the humiliation and inconvenience
they suffered in the hands of its personnel. [Respondent] did not accede to the demand, however,
impelling [petitioners] to file a case for damages at the RTC of Cabugao, Ilocos Sur subject of the present
appeal.

"[Petitioners] concede that they were not downgraded in any of the flights on their way home to
Manila. Their only complaint is that they suffered inconvenience, embarrassment, and humiliation for
taking a longer route.

"During the trial, the [RTC], on motion of [petitioners], issued on October 29, 1993 a subpoena duces
tecum directing [respondent] to submit the passengers' manifest of the distressed flight from San
Francisco to Tokyo on October 27, 1991, the passengers' manifest of the same distressed plane from
Seattle to Tokyo which took off on October 29, 1991, and the passenger manifest of the substitute plane
from Seattle to Los Angeles and Los Angeles to Seoul enroute to Manila which took off on October 28,
1991.

"The subpoena duces tecum was served on December 1, 1993 but was not complied with, however, by
[respondent], it proffering that its Minneapolis head office retains documents only for one year after
which they are destroyed.

" x x x Branch 24 of the RTC of Cabugao, Ilocos Sur rendered judgment in favor of [petitioners] x x x.

"In granting moral and actual damages to [petitioners], the [RTC] credited [petitioners'] claim that they
were excluded from the Seattle-Tokyo-Manila flight to accommodate several Japanese passengers
bound for Japan. And as basis of its award of actual damages arising from the allegedly lost articles
contained in the would-have-been handcarried [luggage], the [RTC], passing on the lack of receipts
covering the same, took judicial notice of the Filipinos' practice of often bringing home pasalubong for
friends and relatives."6
Ruling of the Court of Appeals

The CA ruled that petitioners had failed to show respondent's bad faith, negligence or malice in
transporting them via the Seattle-Los Angeles-Seoul-Manila route. Hence, it held that there was no basis
for the RTC's award of moral and exemplary damages. Neither did it find any reason to grant attorney's
fees.

It further ruled:

"[Petitioners'] testimonial claim of losses is unsupported by any other evidence at all. It is odd and even
contrary to human experience for [petitioner] Virginia not to have taken out a P300,000.00 pair of
diamond earrings from an unlocked small luggage after such luggage was not allowed to be placed
inside the passenger's baggage compartment, given the ease with which it could have been done as the
small luggage was merely closed by zipper. Just as it is odd why no receipts for alleged purchases for
valuable pasalubongs including Tag Huer watches, camera and personal computer were presented x x x
"7

Thus, even the trial court's award of actual damages was reversed by the appellate court.

Hence this Petition.8

Issues

In their appeal, petitioners ask this Court to rule on these issues:

" x x x [W]hether or not petitioners' discriminatory bump-off from NW Flight No. 0027 on 28 October
1991 (not the diversion of the distressed plane to Seattle the day before, i.e. NW Flight 27 on 27 October
1991) constitutes breach by respondent airline of its air-carriage contract?

"And if so, whether or not petitioners are entitled to actual, moral and exemplary damages including
attorney's fees as a consequence?"9

The Court's Ruling

The Petition is partly meritorious.

First Issue:
Breach of Contract

Petitioners' contract of carriage with Northwest was for the San Francisco-Tokyo (Narita)-Manila flights
scheduled for October 27, 1991. This itinerary was not followed when the aircraft used for the first
segment of the journey developed engine trouble. Petitioners stress that they are questioning, not the
cancellation of the original itinerary, but its substitution, which they allegedly had not contracted for or
agreed to. They insist that, like the other passengers of the distressed flight, they had the right to be
placed on Flight 27, which had a connecting flight from Japan to Manila. They add that in being treated
differently and shabbily, they were being discriminated against.

A contract is the law between the parties.10 Thus, in determining whether petitioners' rights were
violated, we must look into its provisions, which are printed on the airline ticket. Condition 9 in the
agreement states that a " x x x [c]arrier may without notice substitute alternate carriers or aircraft, and
may alter or omit stopping places shown on the ticket in case of necessity. x x x ."11
The basis of the Complaint was the way respondent allegedly treated petitioners like puppets that could
be shuttled to Manila via Los Angeles and Seoul without their consent.12 Undeniably, it did not take the
time to explain how it would be meeting its contractual obligation to transport them to their final
destination. Its employees merely hustled the confused petitioners into boarding one plane after
another without giving the latter a choice from other courses of action that were available. It unilaterally
decided on the most expedient way for them to reach their final destination.

Passengers' Consent

After an examination of the conditions printed on the airline ticket, we find nothing there authorizing
Northwest to decide unilaterally, after the distressed flight landed in Seattle, what other stopping
places petitioners should take and when they should fly. True, Condition 9 on the ticket allowed
respondent to substitute alternate carriers or aircraft without notice. However, nothing there permits
shuttling passengers without so much as a by your-leave to stopping places that they have not been
previously notified of, much less agreed to or been prepared for. Substituting aircrafts or
carriers without notice is entirely different from changing stopping places or connecting cities without
notice.

The ambiguities in the contract, being one of adhesion, should be construed against the party that
caused its preparation in this case, respondent.13 Since the conditions enumerated on the ticket do not
specifically allow it to change stopping places or to fly the passengers to alternate connecting cities
without consulting them, then it must be construed to mean that such unilateral change was not
permitted.

Proof of Necessity of Alteration

Furthermore, the change in petitioners' flight itinerary does not fall under the situation covered by the
phrase "may alter or omit stopping places shown on the ticket in case of necessity."14 A case of necessity
must first be proven. The burden of proving it necessarily fell on respondent. This responsibility it failed
to discharge.

Petitioners do not question the stop in Seattle, so we will not delve into this matter. The airplane engine
trouble that developed during the flight bound for Tokyo from San Francisco definitely merited the
"necessity" of landing the plane at some place for repair in this case, Seattle but not that of shuttling
petitioners to other connecting points thereafter without their consent.

Northwest failed to show a "case of necessity" for changing the stopping place from Tokyo to Los
Angeles and Seoul. It is a fact that some of the passengers on the distressed flight continued on to the
Tokyo (Narita) connecting place. No explanation whatsoever was given to petitioners as to why they
were not similarly allowed to do so. It may be that the Northwest connecting flight from Seattle to
Tokyo to Manila could no longer accommodate them. Yet it may also be that there were other carriers
that could have accommodated them for these sectors of their journey, and whose route they might
have preferred to the more circuitous one unilaterally chosen for them by respondent.

In the absence of evidence as to the actual situation, the Court is hard pressed to determine if there was
a "case of necessity" sanctioning the alteration of the Tokyo stopping place in the case of petitioners.
Thus, we hold that in the absence of a demonstrated necessity thereof and their rerouting to Los
Angeles and Seoul as stopping places without their consent, respondent committed a breach of the
contract of carriage.

Second Issue:
Damages

Being guilty of a breach of their contract, respondent may be held liable for damages suffered by
petitioners in accordance with Articles 1170 and 2201 of the Civil Code, which state:

"Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay
and those who in any manner contravene the tenor thereof are liable for damages." (Emphasis supplied)

"Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith
is liable shall be those that are the natural and probable consequences of the breach of the obligation,
and which the parties have foreseen or could have reasonably foreseen at the time the obligation was
constituted."

"In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
which may be reasonably attributed to the non-performance of the obligation."

As a general rule, the factual findings of the CA when supported by substantial evidence on record are
final and conclusive and may not be reviewed on appeal.15 An exception to this rule is when the lower
court and the CA arrive at different factual findings.16 In this case, the trial court found the presence of
bad faith and hence awarded moral and exemplary damages; while the CA found none and hence
deleted the award of damages. Thus, the Court is now behooved to review the basis for sustaining the
award or deletion of damages.

Petitioners impute oppression, discrimination, recklessness and malevolence to respondent. We are not
convinced. There is no persuasive evidence that they were maliciously singled out to fly the Seattle-Los
Angeles-Seoul-Manila route. It appears that the passengers of the distressed flight were randomly
divided into two groups. One group was made to take the Tokyo-Manila flight; and the other, the Los
Angeles-Seoul-Manila flight. The selection of who was to take which flight was handled via the computer
reservation system, which took into account only the passengers' final destination.17

The records show that respondent was impelled by sincere motives to get petitioners to their final
destination by whatever was the most expeditious course in its judgment, if not in theirs. Though they
claim that they were not accommodated on Flight 27 from Seattle to Tokyo because respondent had
taken on Japanese passengers, petitioners failed to present convincing evidence to back this allegation.
In the absence of convincing evidence, we cannot find respondent guilty of bad faith.

Lopez, Zulueta and Ortigas Rulings Not Applicable

Petitioners cite the cases of Lopez v. Pan American World Airways,18 Zulueta v. Pan American World
Airways, Inc.19 and Ortigas Jr. v. Lufthansa German Airlines20 to support their claim for moral and
exemplary damages.

In Lopez, Honorable Fernando Lopez, then an incumbent senator and former Vice President of the
Philippines together with his wife, his daughter and his son-in-law made first-class reservations with the
Pan American World Airways on its Tokyo-San Francisco flight. The reservation having been confirmed,
first-class tickets were subsequently issued in their favor. Mistakenly, however, defendant's agent
cancelled the reservation. But expecting other cancellations before the flight scheduled a month later,
the reservations supervisor decided to withhold the information from them, with the result that upon
arrival in Tokyo, the Lopezes discovered they had no first-class accommodations. Thus, they were
compelled to take the tourist class, just so the senator could be on time for his pressing engagements in
the United States.

In the light of these facts, the Court held there was a breach of the contract of carriage. The failure of
the defendant to inform the plaintiffs on time that their reservations for the first class had long been
cancelled was considered as the element of bad faith entitling them to moral damages for the
contractual breach. According to the Court, such omission had placed them in a predicament that
enabled the company to keep them as their passengers in the tourist class. Thus, the defendant was
able to retain the business and to promote its self-interest at the expense of embarrassment, discomfort
and humiliation on their part.

In Zulueta, the passenger was coming home to Manila from Honolulu via a Pan-American flight. The
plane had a stopover at Wake Island, where Rafael Zulueta went down to relieve himself. At flight time,
he could not be located immediately. Upon being found, an altercation ensued between him and the
Pan-Am employees. One of them remonstrated: "What in the hell do you think you are? Get on that
plane." An exchange of angry words followed, and the pilot went to the extent of referring to the
Zuluetas as "those monkeys." Subsequently, for his "belligerent" attitude, Rafael Zulueta was
intentionally off-loaded and left at Wake Island with the prospect of being stranded there for a week,
with malice aforethought. The Court awarded to the Zuluetas P500,000.00 as moral damages,
P200,000.00 as exemplary damages and P75,000.00 as attorney's fees, apart from the actual damages of
P5,502.85.

In Ortigas, Francisco Ortigas Jr. had a confirmed and validated first-class ticket for Lufthansa's Flight No.
646. His reserved first class seat was, however, given to a Belgian. As a result, he was forced to take
economy class on the same flight. Lufthansa succeeded in keeping him as a passenger by assuring him
that he would be given first-class accommodation at the next stop. The proper arrangements therefor
had supposedly been made already, when in truth such was not the case. In justifying the award of
moral and exemplary damages, the Court explained.

" x x x [W]hen it comes to contracts of common carriage, inattention and lack of care on the part of the
carrier resulting in the failure of the passenger to be accommodated in the class contracted for amounts
to bad faith or fraud which entitles the passenger to the award of moral damages in accordance with
Article 2220 of the Civil Code. But in the instant case, the breach appears to be of graver nature, since
the preference given to the Belgian passenger over plaintiff was done willfully and in wanton disregard
of plaintiff's rights and his dignity as a human being and as a Filipino, who may not be discriminated
against with impunity."

To summarize, in Loipez despite sufficient time one month to inform the passengers of what had
happened to their booking, the airline agent intentionally withheld that information from them.
In Zulueta, the passenger was deliberately off-loaded after being gravely insulted during an altercation.
And in Ortigas, the passenger was intentionally downgraded in favor of a European.
These cases are different from and inapplicable to the present case. Here, there is no showing that the
breach of contract was done with the same entrepreneurial motive or self-interest as in Lopez or with ill
will as in Zulueta and Ortigas. Petitioners have failed to show convincingly that they were rerouted by
respondent to Los Angeles and Seoul because of malice, profit motive or self-interest. Good faith is
presumed, while bad faith is a matter of fact that needs to be proved21 by the party alleging it.

In the absence of bad faith, ill will, malice or wanton conduct, respondent cannot be held liable for
moral damages. Article 2219 of the Civil Code22 enumerates the instances in which moral damages may
be awarded. In a breach of contract, such damages are not awarded if the defendant is not shown to
have acted fraudulently or with malice or bad faith.23 Insufficient to warrant the award of moral
damages is the fact that complainants suffered economic hardship, or that they worried and
experienced mental anxiety.24

Neither are exemplary damages proper in the present case. The Civil Code provides that "[i]n contracts
and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner."25 Respondent has not been proven to have
acted in that manner. At most, it can only be found guilty of having acted without first considering and
weighing all other possible courses of actions it could have taken, and without consulting petitioners
and securing their consent to the new stopping places.

The unexpected and sudden requirement of having to arrange the connecting flights of every single
person in the distressed plane in just a few hours, in addition to the Northwest employees' normal
workload, was difficult to satisfy perfectly. We cannot find respondent liable for exemplary damages for
its imperfection of neglecting to consult with the passengers beforehand.

Nevertheless, herein petitioners will not be totally deprived of compensation. Nominal damages may be
awarded as provided by the Civil Code, from which we quote:

"Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him."

"Art. 2222. The court may award nominal damages in every obligation arising from any source
enumerated in article 1157, or in every case where any property right has been invaded."

Nominal damages are recoverable if no actual, substantial or specific damages were shown to have
resulted from the breach.26 The amount of such damages is addressed to the sound discretion of the
court, taking into account the relevant circumstances.27

In the present case, we must consider that petitioners suffered the inconvenience of having to wake up
early after a bad night and having to miss breakfast; as well as the fact that they were business class
passengers. They paid more for better service; thus, rushing them and making them miss their small
comforts was not a trivial thing. We also consider their social and official status. Victorino Savellano was
a former mayor, regional trial court judge and chairman of the Commission on Elections. Virginia B.
Savellano was the president of five rural banks, and Deogracias Savellano was then the incumbent vice
governor of Ilocos Sur. Hence, it will be proper to grant one hundred fifty thousand pesos (P150,000) as
nominal damages28 to each of them, in order to vindicate and recognize their right29 to be notified and
consulted before their contracted stopping place was changed.
A claim for the alleged lost items from the baggage of petitioners cannot prosper, because they failed to
give timely notice of the loss to respondent. The Conditions printed on the airline ticket plainly read:

"2. Carriage hereunder is subject to the rules and limitations relating to liability established by the
Warsaw Convention unless such carriage is not `International carriage' as defined by that Convention.

xxx - xxx - xxx

"7. Checked baggage will be delivered to bearer of the baggage check. In case of damage to baggage
moving in international transportation complaint must be made in writing to carrier forthwith after
discovery of damage, and at the latest, within 7 days from receipt; in case of delay, complaint must be
made within 21 days from date the baggage was delivered. x x x ."30

The pertinent provisions of the Rules Relating to International Carriage by Air (Warsaw Convention)
state:

"Article 26

1. Receipt by the person entitled to delivery of luggage or goods without complaint is prima
facie evidence that the same have been delivered in good condition and in accordance with the
document of carriage.

2. In case of damage, the person entitled to delivery must complain to the carrier forthwith after the
discovery of the damage, and, at the latest, within three days from the date of receipt in the case of
luggage and seven days from date of receipt in the case of goods. In the case of delay the complaint
must be made at the latest within fourteen days from the date on which the luggage or goods have been
placed at his disposal.

3. Every complaint must be made in writing upon the document of carriage or by separate notice in
writing dispatched within the times aforesaid.

4. Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of
fraud on his part."

After allegedly finding that their luggage had been ransacked, petitioners never lodged a complaint with
any Northwest airport personnel. Neither did they mention the alleged loss of their valuables in their
November 22, 1991 demand letter.31 Hence, in accordance with the parties' contract of carriage, no
claim can be heard or admitted against respondent with respect to alleged damage to or loss of
petitioners' baggage.

WHEREFORE, the Petition is hereby PARTIALLY GRANTED, and the assailed Decision MODIFIED.
Respondent is ORDERED to pay one hundred fifty thousand pesos (P150,000) to each of the three
petitioners as nominal damages. No. pronouncement as to costs.

SO ORDERED.

[G.R. No. 95529. August 22, 1991.]

MAGELLAN MANUFACTURING MARKETING CORPORATION, *, Petitioner, v. COURT OF APPEALS,

ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG, INC. respondents.
Jose F. Manacop for Petitioner.

Camacho & Associates for Private Respondents.

SYLLABUS

1. COMMERCIAL LAW; MARITIME LAW; TRANSHIPMENT IS NOT DEPENDENT UPON THE OWNERSHIP OF
THE TRANSPORTING SHIPS OR CONVEYANCES OR IN THE CHANGE OF CARRIER. — Transhipment, in
maritime law, is defined as "the act of taking cargo out of one ship and loading it in another," or "the
transfer of goods from the vessel stipulated in the contract of affreightment to another vessel before
the place of destination named in the contract has been reached." or "the transfer for further
transportation from one ship or conveyance to another." Clearly, either in its ordinary or its strictly legal
acceptation, there is transhipment whether or not the same person, firm or entity owns the vessels. In
other words, the fact of transhipment is not dependent upon the ownership of the transporting ships or
conveyances or in the change of carriers, as the petitioner seems to suggest, but rather on the fact of
actual physical transfer of cargo from one vessel to another.

2. ID.; ID.; BILL OF LADING; OPERATES BOTH AS A RECEIPT AND AS A CONTRACT. — It is a long standing
jurisprudential rule that a bill of lading operates both as a receipt and as a contract. It is a receipt for the
goods shipped and a contract to transport and deliver the same as therein stipulated. As a contract, it
names the parties, which includes the consignee, fixes the route, destination, and freight rates or
charges, and stipulates the rights and obligations assumed by the parties. Being a contract, it is the law
between the parties who are bound by its terms and conditions provided that these are not contrary to
law, morals, good customs, public order and public policy. A bill of lading usually becomes effective
upon its delivery to and acceptance by the shipper. It is presumed that the stipulations of the bill were in
the absence of fraud, concealment or improper conduct, known to the shipper, and he is generally
bound by his acceptance whether he reads the bill or not.

3. ID.; ID.; ID.; A SHIPPER WHO RECEIVES A BILL OF LADING WITHOUT OBJECTION IS PRESUMED TO
HAVE ASSENTED TO ALL ITS TERMS. — The holding in most jurisdictions has been that a shipper who
receives a bill of lading without objection after an opportunity to inspect it, and permits the carrier to
act on it by proceeding with the shipment is presumed to have accepted it as correctly stating the
contract and to have assented it its terms. In other words, the acceptance of the bill without dissent
raises the presumption that all the terms therein were brought to the knowledge of the shipper and
agreed to by him and, in the absence of fraud or mistake, he is estopped from thereafter denying that
he assented to such terms. This rule applies with particular force where a shipper accepts a bill of lading
with full knowledge of its contents and acceptance under such circumstances makes it a binding
contract.
4. ID.; ID.; TRANSHIPMENT WITHOUT LEGAL EXCUSE IS A VIOLATION OF CONTRACT. — Moreover, it is a
well-known commercial usage that transhipment of freight without legal excuse, however, competent
and safe the vessel into which the transfer is made, is a violation of the contract and an infringement of
the right of the shipper, and subjects the carrier to liability if the freight is lost even by a cause otherwise
excepted. It is highly improbable to suppose that private respondents, having been engaged in the
shipping business for so long, would be unaware of such a custom of the trade as to have undertaken
such transhipment without petitioner’s consent and unnecessarily expose themselves to a possible
liability. Verily, they could only have undertaken transhipment with the shipper’s permission, as
evidenced by the signature of James Cu.

5. ID.; ID.; ON BOARD OF LADING AND RECEIVED FOR SHIPMENT BILL OF LADING, DISTINGUISHED. — An
on board bill of lading is one in which it is stated that the goods have been received on board the vessel
which is to carry the goods, whereas a received for shipment bill of lading is one in which it is stated that
the goods have been received for shipment with or without specifying the vessel by which the goods are
to be shipped. Received for shipment bills of lading are issued whenever conditions are not normal and
there is insufficiency of shipping space. An on board bill of lading is issued when the goods have been
actually placed aboard the ship with every reasonable expectation that the shipment is as good as on its
way. It is, therefore, understandable that a party to a maritime contract would require an on board bill
of lading because of its apparent guaranty of certainty of shipping as well as the seaworthiness of the
vessel which is to carry the goods.

6. ID.; ID.; DEMURRAGE IS A CLAIM FOR DAMAGES FOR FAILURE TO ACCEPT DELIVERY AND EXISTS ONLY
WHEN EXPRESSLY STIPULATED. — Demurrage, in its strict sense, is the compensation provided for in the
contract of affreightment for the detention of the vessel beyond the time agreed on for loading and
unloading. Essentially, demurrage is the claim for damages for failure to accept delivery. In a broad
sense, every improper detention of a vessel may be considered a demurrage. Liability for demurrage,
using the word in its strictly technical sense, exists only when expressly stipulated in the contract. Using
the term in its broader sense, damages in the nature of demurrage are recoverable for a breach of the
implied obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom
the duty is owed and only against one who is a party to the shipping contract. Notice of arrival of vessels
or conveyances, or of their placement for purposes of unloading is often a condition precedent to the
right to collect demurrage charges.

7. ID.; ID.; BILL OF LADING; CONTENTS THEREOF EVIDENCING INTENTION PREVAILS OVER SHIPPER’S
THESIS. — As between such stilted thesis of petitioner and the contents of the bill of lading evidencing
the intention of the parties, it is irremissible that the latter must prevail. Petitioner conveniently
overlooks the first paragraph of the very article that he cites which provides that" (ii the terms of the
contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning
of the stipulations shall control." In addition, Article 1371 of the same Code provides that" (i)n order to
judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be
principally considered."cralaw virtua1aw library

8. REMEDIAL LAW; EVIDENCED; PAROL EVIDENCE RULE; MUST BE RAISED INCEPTIVELY IN THE
COMPLAINT. — Under the parol evidence rule, the terms of a contract are rendered conclusive upon the
parties, and evidence aliunde is not admissible to vary or contradict a complete and enforceable
agreement embodied in a document, subject to well defined exceptions which do not obtain in this
case. The parol evidence rule is based on the consideration that when the parties have reduced their
agreement on a particular matter into writing, all their previous and contemporaneous agreements on
the matter are merged therein. Accordingly, evidence of a prior or contemporaneous verbal agreement
is generally not admissible to vary, contradict or defeat the operation of a valid instrument. The mistake
contemplated as an exception to the parol evidence rule is one which is a mistake of fact mutual to the
parties. Furthermore, the rules on evidence, as amended, require that in order that parol evidence may
be admitted, said mistake must be put in issue by the pleadings, such that if not raised inceptively in the
complaint or in the answer, as the case may be, a party can not later on be permitted to introduce parol
evidence thereon.

9. CIVIL LAW; CONTRACTS; MUTUALITY OF CONTRACT IS VIOLATED IF PARTY IS ALLOWED TO BACK OUT
OF THE OFFER. — There is no dispute that private respondents expressly and on their own volition
granted petitioner an option with respect to the satisfaction of freightage and demurrage charges.
Having given such option, especially since it was accepted by petitioner, private respondents are
estopped from reneging thereon. Petitioner, on its part, was well within its right to exercise said option.
Private respondents, in giving the option, and petitioner, in exercising that option, are concluded by
their respective actions. To allow either of them to unilaterally back out on the offer and on the exercise
of the option would be to countenance abuse of rights as an order of the day, doing violence to the long
entrenched principle of mutuality of contracts.

DECISION

REGALADO, J.:

Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of respondent
Court of Appeals in CA-G.R. CV No. 18781, 1 affirming in part the decision of the trial court, 2 the
dispositive portion of which reads:jgc:chanrobles.com.ph

"Premises considered, the decision appealed from is affirmed insofar as it dismisses the complaint. On
the counter-claim, however, appellant is ordered to pay appellees the amount of P52,102.45 with legal
interest from date of extrajudicial demand. The award of attorney’s fees is deleted." 3

The facts as found by respondent appellate court are as follows:jgc:chanrobles.com.ph

"On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC) entered into a
contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in consideration of
$23,220.00. As payment thereof, a letter of credit was issued to plaintiff MMMC by the buyer. Through
its president, James Cu, MMMC then contracted F.E. Zuellig, a shipping agent, through its solicitor, one
Mr. King, to ship the anahaw fans through the other appellee, Orient Overseas Container Lines, Inc.,
(OOCL) specifying that he needed an on-board bill of lading and that transshipment is not allowed under
the letter of credit (Exh. B-1). On June 30, 1980, appellant MMMC paid F.E. Zuellig the freight charges
and secured a copy of the bill of lading which was presented to Allied Bank. The bank then credited the
amount of US$23 ,220.00 covered by the letter of credit to appellant’s account. However, when
appellant’s president James Cu, went back to the bank later, he was informed that the payment was
refused by the buyer allegedly because there was no on-board bill of lading, and there was a
transshipment of goods. As a result of the refusal of the buyer to accept, upon appellant’s request, the
anahaw fans were shipped back to Manila by appellees, for which the latter demanded from appellant
payment of P246,043.43. Appellant abandoned the whole cargo and asked appellees for
damages.chanrobles lawlibrary : rednad

"In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 cartons of 136,000
pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers was loaded at Manila on board the MV
`Pacific Despatcher’ freight prepaid, and duly covered by Bill of Lading No. MNYK 201T dated June 27,
1980 issued by OOCL; that the shipment was delivered at the port of discharge on July 19, 1980, but was
subsequently returned to Manila after the consignee refused to accept/pay the same." 4

Elaborating on the above findings of fact of respondent court and without being disputed by herein
private respondents, petitioner additionally avers that:jgc:chanrobles.com.ph

"When petitioner informed private respondents about what happened, the latter issued a certificate
stating that its bill of lading it issued is an on board bill of lading and that there was no actual
transshipment of the fans. According to private respondents when the goods are transferred from one
vessel to another which both belong to the same owner which was what happened to the Anahaw fans,
then there is (no) transshipment. Petitioner sent this certification to Choju Co., Ltd., but the said
company still refused to accept the goods which arrived in Japan on July 19, 1980.

"Private respondents billed petitioner in the amount of P16,342.21 for such shipment and P34,928.71
for demurrage in Japan from July 26 up to August 31, 1980 or a total of P51,271.02. In a letter dated
March 20, 1981, private respondents gave petitioner the option of paying the sum of P51,271.02 or to
abandon the Anahaw fans to enable private respondents to sell them at public auction to cover the cost
of shipment and demurrage’s. Petitioner opted to abandon the goods. However, in a letter dated June
22, 1981 private respondents demanded for payment of P298,150.93 from petitioner which represents
the freight charges from Japan to Manila, demurrage incurred in Japan and Manila from October 22,
1980 up to May 20, 1981; and charges for stripping the container van of the Anahaw fans on May 20,
1981.

"On July 20, 1981 petitioner filed the complaint in this case praying that private respondents be ordered
to pay whatever petitioner was not able to earn from Choju Co., Ltd., amounting to P174,150.00 and
other damages like attorney’s fees since private respondents are to blame for the refusal of Choju Co.,
Ltd. to accept the Anahaw fans. In answer thereto the private respondents alleged that the bill of lading
clearly shows that there will be a transshipment and that petitioner was well aware that MV (Pacific)
Despatcher was only up to Hongkong where the subject cargo will be transferred to another vessel for
Japan. Private respondents a so filed a counterclaim praying that petitioner be ordered to pay freight
charges from Japan to Manila and the demurrage’s in Japan and Manila amounting to P298,150.93.

"The lower court decided the case in favor of private respondents. It dismissed the complaint on the
ground that petitioner had given its consent to the contents of the bill of lading where it is clearly
indicated that there will be transshipment. The lower court also said that petitioner is liable to pay to
private respondent the freight charges from Japan to Manila and demurrage’s since it was the former
which ordered the reshipment of the cargo from Japan to Manila.

"On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to a
transshipment of the goods was affirmed but the finding that petitioner is liable for P298,150.93 was
modified. It was reduced to P52,102.45 which represents the freight charges and demurrage’s incurred
in Japan but not for the demurrage’s incurred in Manila. According to the respondent (court) the
petitioner can not be held liable for the demurrage’s incurred in Manila because private respondents did
not timely inform petitioner that the goods were already in Manila in addition to the fact that private
respondent had given petitioner the option of abandoning the goods in exchange for the demurrage’s."
5

Petitioner, being dissatisfied with the decision of respondent court and the motion for reconsideration
thereof having been denied, invokes the Court’s review powers for the resolution of the issues as to
whether or not respondent court erred (1) in affirming the decision of the trial court which dismissed
petitioner’s complaint; and (2) in holding petitioner liable to private respondents in the amount of
P52,102.45. 6

I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd., to take
delivery of the exported anahaw fans resulting in a loss of P174,150.00 representing the purchase price
of the said export items because of violation of the terms and conditions of the letter of credit issued in
favor of the former which specified the requirement for an on board bill of lading and the prohibition
against transshipment of goods, inasmuch as the bill of lading issued by the latter bore the notation
"received for shipment" and contained an entry indicating transhipment in Hongkong.

We find no fault on the part of private respondents. On the matter of transshipment, petitioner
maintains that." . . while the goods were transferred in Hongkong from MV Pacific Despatcher, the
feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot be considered
transshipment because both vessels belong to the same shipping company, the private respondent
Orient Overseas Container Lines, Inc." 7 Petitioner emphatically goes on to say: "To be sure, there was
no actual transshipment of the Anahaw fans. The private respondents have executed a certification to
the effect that while the Anahaw fans were transferred from one vessel to another in Hong Kong, since
the two vessels belong to one and the same company then there was no transshipment." 8

Transshipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading it in
another," 9 or "the transfer of goods from the vessel stipulated in the contract of affreightment to
another vessel before the place of destination named in the contract has been reached," 10 or "the
transfer for further transportation from one ship or conveyance to another." 11 Clearly, either in its
ordinary or its strictly legal acceptation, there is transshipment whether or not the same person, firm or
entity owns the vessels. In other words, the fact of transhipment is not dependent upon the ownership
of the transporting ships or conveyances or in the change of camera, as the petitioner seems to suggest,
but rather on the fact of actual physical transfer of cargo from one vessel to another.

That there was transhipment within this contemplation is the inescapable conclusion, as there
unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space labeled
"Transshipment," which can only mean that transshipment actually took place. 12 This fact is further
bolstered by the certification 13 issued by private respondent F.E. Zuellig, Inc. dated July 19, 1980,
although it carefully used the term "transfer" instead of transshipment. Nonetheless, no amount of
semantic juggling can mask the fact that transshipment in truth occurred in this case.

Petitioner insists that" (c)onsidering that there was no actual transshipment of the Anahaw fans, then
there is no occasion under which the petitioner can agree to the transshipment of the Anahaw fans
because there is nothing like that to agree to" and" (i)f there is no actual transshipment but there
appears to be a transshipment in the bill of lading, then there can be no possible reason for it but a
mistake on the part of the private respondents." 14

Petitioner, in effect, is saying that since there was a mistake in documentation on the part of private
respondents, such a mistake militates against the conclusiveness of the bill of lading insofar as it reflects
the terms of the contract between the parties, as an exception to the parol evidence rule, and would
therefore permit it to explain or present evidence to vary or contradict the terms of the written
agreement, that is, the bill of lading involved herein.cralawnad

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a contract.
It is a receipt for the goods shipped and a contract to transport and deliver the same as therein
stipulated. As a contract, it names the parties, which includes the consignee, fixes the route, destination,
and freight rates or charges, and stipulates the rights and obligations assumed by the parties. 15 Being a
contract, it is the law between the parties who are bound by its terms and conditions provided that
these are not contrary to law, morals, good customs, public order and public policy. 16 A bill of lading
usually becomes effective upon its delivery to and acceptance by the shipper. It is presumed that the
stipulations of the bill were, in the absence of fraud, concealment or improper conduct, known to the
shipper, and he is generally bound by his acceptance whether he reads the bill or not. 17

The holding in most jurisdictions has been that a shipper who receives a bill of lading without objection
after an opportunity to inspect it, and permits the carrier to act on it by proceeding with the shipment is
presumed to have accepted it as correctly stating the contract and to have assented to its terms. In
other words, the acceptance of the bill without dissent raises the presumption that all the terms therein
were brought to the knowledge of the shipper and agreed to by him and, in the absence of fraud or
mistake, he is estopped from thereafter denying that he assented to such terms. This rule applies with
particular force where a shipper accepts a bill of lading with full knowledge of its contents and
acceptance under such circumstances makes it a binding contract. 18
In the light of the series of events that transpired in the case at bar, there can be no logical conclusion
other than that the petitioner had full knowledge of, and actually consented to, the terms and
conditions of the bill of lading thereby making the same conclusive as to it, and it cannot now be heard
to deny having assented thereto. As borne out by the records, James Cu himself, in his capacity as
president of MMMC, personally received and signed the bill of lading. On practical considerations, there
is no better way to signify consent than by voluntarily signing the document which embodies the
agreement. As found by the Court of Appeals —

"Contrary to appellant’s allegation that it did not agree to the transshipment, it could be gleaned from
the record that the appellant actually consented to the transshipment when it received the bill of lading
personally at appellee’s (F.E. Zuellig’s) office. There clearly appears on the face of the bill of lading under
column "PORT OF TRANSSHIPMENT" an entry "HONGKONG" (Exhibits ‘G-1’). Despite said entries he still
delivered his voucher (Exh. F) and the corresponding check in payment of the freight (Exhibit D),
implying that he consented to the transshipment (Decision, p. 6, Rollo)." 19

Furthermore and particularly on the matter of whether or not there was transshipment, James Cu, in his
testimony on cross-examination, categorically stated that he knew for a fact that the shipment was to
be unloaded in Hong Kong from the MV Pacific Despatcher to be transferred to a mother vessel, the MV
oriental Researcher in this wise:jgc:chanrobles.com.ph

"Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or transshipped at the
port of Hongkong?

A I know. It’s not transport, they relay, not trans.. yes, that is why we have an agreement if they should
not put a transshipment in Hongkong, that’s why they even stated in the certification.

x x x

Q In layman’s language, would you agree with me that transshipment is the transfer of a cargo from one
vessel to the other?

A As a layman, yes.

Q So you know for a fact that your shipment is going to be unloaded in Hongkong from M.V. Dispatcher
(sic) and then transfer (sic) to another vessel which was the Oriental Dispatcher, (sic) you know that for
a fact?

A Yes, sir. (Emphasis supplied.) 20

Under the parol evidence rule, 21 the terms of a contract are rendered conclusive upon the parties, and
evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement
embodied in a document, subject to well defined exceptions which do not obtain in this case. The parol
evidence rule is based on the consideration that when the parties have reduced their agreement on a
particular matter into writing, all their previous and contemporaneous agreements on the matter are
merged therein. Accordingly, evidence of a prior or contemporaneous verbal agreement is generally not
admissible to vary, contradict or defeat the operation of a valid instrument. 22 The mistake
contemplated as an exception to the parol evidence rule is one which is a mistake of fact mutual to the
parties. 23 Furthermore, the rules on evidence, as amended, require that in order that parol evidence
may be admitted, said mistake must be put in issue by the pleadings, such that if not raised inceptively
in the complaint or in the answer, as the case may be, a party can not later on be permitted to introduce
parol evidence thereon. 24

Needless to say, the mistake adverted to by herein petitioner, and by its own admission, was supposedly
committed by private respondents only and was raised by the former rather belatedly only in this
instant petition. Clearly then, and for failure to comply even only with the procedural requirements
thereon, we cannot admit evidence to prove or explain the alleged mistake in documentation imputed
to private respondents by petitioner.

Petitioner further argues that assuming that there was transshipment, it cannot be deemed to have
agreed thereto even if it signed the bill of lading containing such entry because it had made known to
private respondents from the start that transshipment was prohibited under the letter of credit and
that, therefore, it had no intention to allow transshipment of the subject cargo. In support of its stand,
petitioner relies on the second paragraph of Article 1370 of the Civil Code which states that" (i)f the
words appear to be contrary to the evident intention of the parties, the latter shall prevail over the
former," as well as the supposed ruling in Caltex Phil., Inc. v. Intermediate Appellate Court, Et. Al. 25 that
"where the literal interpretation of a contract is contrary to the evident intention of the parties, the
latter shall prevail." chanrobles law library

As between such stilted thesis of petitioner and the contents of the bill of lading evidencing the
intention of the parties, it is irremissible that the latter must prevail. Petitioner conveniently overlooks
the first paragraph of the very article that he cites which provides that" (i)f the terms of the contract are
clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the
stipulations shall control." In addition, Article 1371 of the same Code provides that" (i)n order to judge
the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered."cralaw virtua1aw library

The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for any
interpretation. The intention of the parties which is the carriage of the cargo under the terms specified
thereunder and the wordings of the bill of lading do not contradict each other. The terms of the contract
being conclusive upon the parties and judging from the contemporaneous and subsequent actuations of
petitioner, to wit, personally receiving and signing the bill of lading and paying the freight charges, there
is no doubt that petitioner must necessarily be charged with full knowledge and unqualified acceptance
of the terms of the bill of lading and that it intended to be bound thereby.

Moreover, it is a well-known commercial usage that transshipment of freight without legal excuse,
however competent and safe the vessel into which the transfer is made, is a violation of the contract
and an infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost
even by a cause otherwise excepted. 26 It is highly improbable to suppose that private respondents,
having been engaged in the shipping business for so long, would be unaware of such a custom of the
trade as to have undertaken such transshipment without petitioner’s consent and unnecessarily expose
themselves to a possible liability. Verily, they could only have undertaken transshipment with the
shipper’s permission, as evidenced by the signature of James Cu.

Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was that the
bill of lading that was issued was not an on board bill of lading, in clear violation of the terms of the
letter of credit issued in favor of petitioner. On cross-examination, it was likewise established that
petitioner, through its aforesaid president, was aware of this fact, thus:jgc:chanrobles.com.ph

"Q If the container van, the loaded container van, was transported back to South Harbor on June 27,
1980, would you tell us, Mr. Cu, when the Bill of Lading was received by you?

A I received on June 30, 1980. I received at the same time so then I gave the check.

x x x

Q So that in exchange of the Bill of Lading you issued your check also dated June 30, 1980?

A Yes, sir.

Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of Lading states:
`Received for shipment’ only?

A Yes, sir.

Q What did you say?

A I requested to issue me on board bill of lading.

Q When?

A In the same date of June 30.

Q What did they say?

A They said, they cannot.

x x x
Q Do you know the difference between a "received for shipment bill of lading" and "on board bill of
lading" ?

A Yes, sir.

Q What’s the difference?

A Received for shipment, you can receive the cargo even you don’t ship on board, that is placed in the
warehouse; while on-board bill of lading means that is loaded on the vessel, the goods.

x x x

Q In other words, it was not yet on board the vessel?

A During that time, not yet.

x x x

Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a vessel you can
demand an on-board bill of lading not only a received for shipment bill of lading?

A Yes sir.

Q And did you demand from F.E. Zuellig the substitution of that received for shipment bill of lading with
an on-board bill of lading?

A Of course, instead they issue me a certification.

Q They give you a . . .?

A . . . a certification that it was loaded on board on June 30.

x x x

Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that there should be no
transshipment and that it should also get an on board bill of lading?

A Yes sir." 27

Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly required that
there be an on board bill of lading, obviously due to the guaranty afforded by such a bill of lading over
any other kind of bill of lading. The buyer could not have insisted on such a stipulation on a pure whim
or caprice, but rather because of its reliance on the safeguards to the cargo that having an on board bill
of lading ensured. Herein petitioner cannot feign ignorance of the distinction between an "or board"
and a "received for shipment" bill of lading, as manifested by James Cu’s testimony. It is only to be
expected that those long engaged in the export industry should be familiar with business usages and
customs.

In its petition, MMMC avers that "when petitioner learned of what happened, it saw private respondent
F.E. Zuellig which, in turn, issued a certification that as of June 30, 1980, the Anahaw fans were already
on board MV Pacific Despatcher (which means that the bill of lading is an on-board-bill of lading or
‘shipped’ bill of lading as distinguished from a ‘received for shipment’ bill of lading as governed by Sec.
3, par. 7, Carriage of Goods by Sea Act) . . . ." 28 What the petitioner would suggest is that said
certification issued by F.E. Zuellig, Inc., dated July 19, 1980, had the effect of converting the original
"received for shipment only" bill of lading into an "on board" bill of lading as required by the buyer and
was, therefore, by substantial compliance, not violative of the contract.

An on board bill of lading is one in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is
stated that the goods have been received for shipment with or without specifying the vessel by which
the goods are to be shipped. Received for shipment bills of lading are issued whenever conditions are
not normal and there is insufficiency of shipping space. 29 An on board bill of lading is issued when the
goods have been actually placed aboard the ship with every reasonable expectation that the shipment is
as good as on its way. 30 It is, therefore, understandable that a party to a maritime contract would
require an on board bill of lading because of its apparent guaranty of certainty of shipping as well as the
seaworthiness of the vessel which is to carry the goods.chanrobles.com:cralaw:red

It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the bill of
lading, as originally issued, into an on board bill of lading as required by the terms of the letter of credit
issued in favor of petitioner. For one, the certification was issued only on July 19, 1980, way beyond the
expiry date of June 30, 1980 specified in the letter of credit for the presentation of an on board bill of
lading. Thus, even assuming that by a liberal treatment of the certification it could have the effect of
converting the received for shipment bill of lading into an on board of bill of lading, as petitioner would
have us believe, such an effect may be achieved only as of the date of its issuance, that is, on July 19,
1980 and onwards.

The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading was
presented by petitioner in compliance with the terms of the letter of credit and this default
consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to operate
retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is,
reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it
would indubitably be stretching the concept of substantial compliance too far.

Neither can petitioner escape liability by adverting to the bill of lading as a contract of adhesion, thus
warranting a more liberal consideration in its favor to the extent of interpreting ambiguities against
private respondents as allegedly being the parties who gave rise thereto. The bill of lading is clear on its
face. There is no occasion to speak of ambiguities or obscurities whatsoever. All of its terms and
conditions are plainly worded and commonly understood by those in the business.

It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on May 20,
1980 or over a month before the expiry date of the letter of credit on June 30, 1980, thus giving it more
than ample time to find a carrier that could comply with the requirements of shipment under the letter
of credit. It is conceded that bills of lading constitute a class of contracts of adhesion. However, as ruled
in the earlier case of Ong Yiu us. (Court of Appeals, Et. Al. 31 and reiterated in Servando, Et. Al. v.
Philippine Steam Navigation Co., 32 plane tickets as well as bills of lading are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent. The respondent court correctly observed in the present case that "when the appellant
received the bill of lading, it was tantamount to appellant’s adherence to the terms and conditions as
embodied therein." 33

In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions clearly
violative of the requirements of the letter of credit. Nonetheless, perhaps in its eagerness to conclude
the transaction with its Japanese buyer and in a race to beat the expiry date of the letter of credit,
petitioner took the risk of accepting the bill of lading even if it did not conform with the indicated
specifications, possibly entertaining a glimmer of hope and imbued with a touch of daring that such
violations may be overlooked, if not disregarded, so long as the cargo is delivered on time.
Unfortunately, the risk did not pull through as hoped for. Any violation of the terms and conditions of
the letter of credit as would defeat its right to collect the proceeds thereof was, therefore, entirely of
the petitioner’s making for which it must bear the consequences. As finally averred by private
respondents, and with which we agree,." . . the questions of whether or not there was a violation of the
terms and conditions of the letter of credit, or whether or not such violation was the cause or motive for
the rejection by petitioner’s Japanese buyer should not affect private respondents therein since they
were not privies to the terms and conditions of petitioner’s letter of credit and cannot therefore be held
liable for any violation thereof by any of the parties thereto." 34

II. Petitioner contends that respondent court erred in holding it liable to private respondents for
P52,102.45 despite its exercise of its option to abandon the cargo. It will be recalled that the trial court
originally found petitioner liable for P298,150.93, which amount consists of P51,271.02 for freight,
demurrage and other charges during the time that the goods were in Japan and for its reshipment to
Manila, P831.43 for charges paid to the Manila International Port Terminal, and P246,043.43 for
demurrage in Manila from October 22, 1980 to June 18, 1981.

On appeal, the Court of Appeals limited petitioner’s liability to P52,102.45 when it

ruled:jgc:chanrobles.com.ph

"As regards the amount of P51,271.02, which represents the freight charges for the return shipment to
Manila and the demurrage charges in Japan, the same is supported by appellant’s own letter request
(Exh. 2) for the return of the shipment to Manila at its (appellant’s) expense, and hence, it should be
held liable therefor. The amount of P831.43 was paid to the Manila International Port Terminal upon
arrival of the shipment in Manila for appellant’s account. It should property be charged to said
appellant." 35

However, respondent court modified the trial court’s decision by excluding the award for P246,043.43
for demurrage in Manila from October 22, 1980 to June 18, 1981.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph

Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the
detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is
the claim for damages for failure to accept delivery. In a broad sense, every improper detention of a
vessel may be considered a demurrage. Liability for demurrage, using the word in its strictly technical
sense, exists only when expressly stipulated in the contract. Using the term in its broader sense,
damages in the nature of demurrage are recoverable for a breach of the implied obligation to load or
unload the cargo with reasonable dispatch, but only by the party to whom the duty is owed and only
against one who is a party to the shipping contract. 36 Notice of arrival of vessels or conveyances, or of
their placement for purposes of unloading is often a condition precedent to the right to collect
demurrage charges.

Private respondents, admittedly, have adopted the common practice of requiring prior notice of arrival
of the goods shipped before the shipper can be held liable for demurrage, as declared by Wilfredo Hans,
head of the accounting department of F.E. Zuellig, Inc., on cross-examination as a witness for private
respondents:jgc:chanrobles.com.ph

"Q . . . you will agree with me that before one could be charged with demurrage the shipper should be
notified of the arrival of the shipment?

A Yes sir.

Q Without such notification, there is no way by which the shipper would know (of such arrival?

A Yes.

Q And no charges of demurrage before the arrival of the cargo?

A Yes sir." 37

Accordingly, on this score, respondent court ruled:jgc:chanrobles.com.ph

"However, insofar as the demurrage charges of P246,043.43 from October up to May 1980, arriv(al) in
Manila, are concerned, We are of the view that appellant should not be made to shoulder the same, as
it was not at fault nor was it responsible for said demurrage charges. Appellee’s own witness (Mabazsa)
testified that while the goods arrived in Manila in October 1980, appellant was notified of said arrival
only in March 1981. No explanation was given for the delay in notifying appellant. We agree with
appellant that before it could be charged for demurrage charges it should have been notified of the
arrival of the goods first. Without such notification it could not be so charged because there was no way
by which it would snow that the goods had already arrived for it to take custody of them. Considering
that it was only in March 1981 (Exh. K) that appellant was notified of the arrival of the goods, although
the goods had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14), appellant cannot be
charged for demurrage from October 1980 to March 1981. . . ." 38

While being satisfied with the exclusion of demurrage charges in Manila for the period from October 22,
1980 to June 18, 1981, petitioner nevertheless assails the Court of Appeals’ award of P52,102.43 in favor
of private respondents, consisting of P51,271.01 as freight and demurrage charges in Japan and P831.43
for charges paid at the Manila International Port Terminal.

Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to allow private
respondents to sell the same at a public auction and to apply the proceeds thereof as payment for the
shipping and demurrage charges, it was released from liability for the sum of P52,102.43 since such
amount represents the shipping and demurrage charges from which it is considered to have been
released due to the abandonment of goods. It further argues that the shipping and demurrage charges
from which it was released by the exercise of the option to abandon the goods in favor of private
respondents could not have referred to the demurrage charges in Manila because respondent court
ruled that the same were not chargeable to petitioner. Private respondents would rebut this contention
by saying in their memorandum that the abandonment of goods by petitioner was too late and made in
bad faith. 39

On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to the fact
that the shipment was made for its benefit or under its direction and, correspondingly, the carrier is
entitled to collect charges for its shipping services. This is particularly true in this case where the
reshipment of the goods was made at the instance of petitioner in its letter of August 29, 1980. 40

However, in a letter dated March 20, 1981, 41 private respondents belatedly informed petitioner of the
arrival of its goods from Japan and that if it wished to take delivery of the cargo it would have to pay
P51,271.02, but with the last paragraph thereof stating as follows:chanrobles virtual lawlibrary

"Please can you advise within 15 days of receipt of this letter whether you intend to take delivery of this
shipment, as alternatively we will have to take legal proceedings in order to have the cargo auctioned to
recover the costs involved, as well as free the container which are (sic) urgently required for export
cargoes."cralaw virtua1aw library

Clearly, therefore, private respondents unequivocally offered petitioner the option of paying the
shipping and demurrage charges in order to take delivery of the goods or of abandoning the same so
that private respondents could sell them at public auction and thereafter apply the proceeds in payment
of the shipping and other charges.

Responding thereto, in a letter dated April 3,1981, petitioner seasonably communicated its decision to
abandon to the goods in favor of private respondents with the specific instruction that any excess of the
proceeds over the legal costs and charges be turned over to petitioner. Receipt of said letter was
acknowledged by private respondents, as revealed by the testimony of Edwin Mabazza, a claim officer
of F.E. Zuellig, Inc., on cross-examination. 42

Despite petitioner’s exercise of the option to abandon the cargo, however, private respondents sent a
demand letter on June 22, 1981 43 insisting that petitioner should pay the entire amount of
P298,150.93 and, in another letter dated April 30, 1981, 44 they stated that they will not accept the
abandonment of the goods and demanded that the outstanding account be settled. The testimony of
said Edwin Mabazza definitely admits and bears this out. 45

Now, there is no dispute that private respondents expressly and on their own volition granted petitioner
an option with respect to the satisfaction of freightage and demurrage charges. Having given such
option, especially since it was accepted by petitioner, private respondents are estopped from reneging
thereon. Petitioner, on its part, was well within its right to exercise said option. Private respondents, in
giving the option, and petitioner, in exercising that option, are concluded by their respective actions. To
allow either of them to unilaterally back out on the offer and on the exercise of the option would be to
countenance abuse of rights as an order of the day, doing violence to the long entrenched principle of
mutuality of contracts.

It will be remembered that in overland transportation, an unreasonable delay in the delivery of

transported goods is sufficient ground for the abandonment of goods. By analogy, this can also apply to
maritime transportation. Further, with much more reason can petitioner in the instant case properly
abandon the goods, not only because of the unreasonable delay in its delivery but because of the option
which was categorically granted to and exercised by it as a means of settling its liability for the cost and
expenses of reshipment. And, said choice having been duly communicated, the same is binding upon the
parties on legal and equitable considerations of estoppel.

WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with the MODIFICATION that
petitioner is likewise absolved of any liability and the award of P52,102.45 with legal interest granted by
respondent court on private respondents’ counterclaim is SET ASIDE, said counterclaim being hereby
DISMISSED, without pronouncement as to costs.

SO ORDERED.