THIRD DIVISION
CARDIA. 10
[G.R. No. 171591. June 25, 2012.]
ACE NAVIGATION CO., INC., petitioner, vs. FGU INSURANCE CORPORATION and
PIONEER INSURANCE AND SURETY CORPORATION, respondents.
DECISION
PERLAS-BERNABE, J p:
This is an appeal under Rule 45 of the Rules of Court seeking to reverse the June 22, 2004
Decision 1 and February 17, 2006 Resolution 2 of the Court of Appeals (CA) ordering petitioner
Ace Navigation Co., Inc., jointly and severally with Cardia Limited, to pay respondents FGU
Insurance Corp. and Pioneer Insurance and Surety Corp. the sum of P213,518.20 plus interest
at the rate of six percentum (6%) from the filing of the complaint until paid.
The Facts
On July 19, 1990, Cardia Limited (CARDIA) shipped on board the vessel M/V Pakarti Tiga at
Shanghai Port China, 8,260 metric tons or 165,200 bags of Grey Portland Cement to be
discharged at the Port of Manila and delivered to its consignee, Heindrich Trading Corp.
(HEINDRICH). The subject shipment was insured with respondents, FGU Insurance Corp. (FGU)
and Pioneer Insurance and Surety Corp. (PIONEER), against all risks under Marine Open Policy
No. 062890275 for the amount of P18,048,421.00. 3
The subject vessel is owned by P.T. Pakarti Tata (PAKARTI) which it chartered to Shinwa Kaiun
Kaisha Ltd. (SHINWA). 4 Representing itself as owner of the vessel, SHINWA entered into a
charter party contract with Sky International, Inc. (SKY), an agent of Kee Yeh Maritime Co. (KEE
YEH), 5 which further chartered it to Regency Express Lines S.A. (REGENCY). Thus, it was
REGENCY that directly dealt with consignee HEINDRICH, and accordingly, issued Clean Bill of
Lading No. SM-1. 6 aDcHIS
On July 23, 1990, the vessel arrived at the Port of Manila and the shipment was discharged.
However, upon inspection of HEINDRICH and petitioner Ace Navigation Co., Inc. (ACENAV),
agent of CARDIA, it was found that out of the 165,200 bags of cement, 43,905 bags were in
bad order and condition. Unable to collect the sustained damages in the amount of
P1,423,454.60 from the shipper, CARDIA, and the charterer, REGENCY, the respondents, as co-
insurers of the cargo, each paid the consignee, HEINDRICH, the amounts of P427,036.40 and
P284,690.94, respectively, 7 and consequently became subrogated to all the rights and causes
of action accruing to HEINDRICH.
Thus, on August 8, 1991, respondents filed a complaint for damages against the following
defendants: "REGENCY EXPRESS LINES, S.A./UNKNOWN CHARTERER OF THE VESSEL 'PAKARTI
TIGA'/UNKNOWN OWNER and/or DEMIFE (sic) CHARTERER OF THE VESSEL 'PAKARTI TIGA',
SKY INTERNATIONAL, INC. and/or ACE NAVIGATION COMPANY, INC." 8 which was docketed as
Civil Case No. 90-2016.
In their answer with counterclaim and cross-claim, PAKARTI and SHINWA alleged that the suits
against them cannot prosper because they were not named as parties in the bill of lading. 9
Similarly, ACENAV claimed that, not being privy to the bill of lading, it was not a real party-in-
interest from whom the respondents can demand compensation. It further denied being the
local ship agent of the vessel or REGENCY and claimed to be the agent of the shipper,
For its part, SKY denied having acted as agent of the charterer, KEE YEH, which chartered the
vessel from SHINWA, which originally chartered the vessel from PAKARTI. SKY also averred that
it cannot be sued as an agent without impleading its alleged principal, KEE YEH. 11
On September 30, 1991, HEINDRICH filed a similar complaint against the same parties and
Commercial Union Assurance Co. (COMMERCIAL), docketed as Civil Case No. 91-2415, which
was later consolidated with Civil Case No. 91-2016. However, the suit against COMMERCIAL was
subsequently dismissed on joint motion by the respondents and COMMERCIAL. 12
Proceedings Before the RTC and the CA
In its November 26, 2001 Decision, 13 the RTC dismissed the complaint, the fallo of which
reads: HTCDcS
WHEREFORE, premises considered, plaintiffs' complaint is DISMISSED. Defendants' counter-
claim against the plaintiffs are likewise dismissed, it appearing that plaintiff[s] did not act in
evident bad faith in filing the present complaint against them.
Defendant Pakarti and Shinwa's cross-claims against their co-defendants are likewise dismissed
for lack of sufficient evidence.
No costs.
SO ORDERED.
Dissatisfied, the respondents appealed to the CA which, in its assailed June 22, 2004
Decision, 14 found PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily liable for 70% of
the respondents' claim, with the remaining 30% to be shouldered solidarity by CARDIA and its
agent, ACENAV, thus:
WHEREFORE, premises considered, the Decision dated November 26, 2001 is hereby MODIFIED
in the sense that:
a) defendant-appellees P.T. Pakarti Tata, Shinwa Kaiun Kaisha, Ltd., Kee Yeh Maritime Co., Ltd.
and the latter's agent Sky International, Inc. are hereby declared jointly and severally liable, and
are DIRECTED to pay FGU Insurance Corporation the amount of Two Hundred Ninety Eight
Thousand Nine Hundred Twenty Five and 45/100 (P298,925.45) Pesos and Pioneer Insurance
and Surety Corp. the sum of One Hundred Ninety Nine Thousand Two Hundred Eighty Three
and 66/100 (P199,283.66) Pesos representing Seventy (70%) percentum of their respective
claims as actual damages plus interest at the rate of six (6%) percentum from the date of the
filing of the complaint; and
b) defendant Cardia Ltd. and defendant-appellee Ace Navigation Co., Inc. are DECLARED jointly
and severally liable and are hereby DIRECTED to pay FGU Insurance Corporation One Hundred
Twenty Eight Thousand One Hundred Ten and 92/100 (P128,110.92) Pesos and Pioneer
Insurance and Surety Corp. Eighty Five Thousand Four Hundred Seven and 28/100 (P85,407.28)
Pesos representing thirty (30%) percentum of their respective claims as actual damages, plus
interest at the rate of six (6%) percentum from the date of the filing of the complaint.
SO ORDERED.
Finding that the parties entered into a time charter party, not a demise or bareboat charter
where the owner completely and exclusively relinquishes possession, command and navigation
to the charterer, the CA held PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily liable for
70% of the damages sustained by the cargo. This solidarity liability was borne by their failure to
prove that they exercised extraordinary diligence in the vigilance over the bags of cement
entrusted to them for transport. On the other hand, the CA passed on the remaining 30% of the
amount claimed to the shipper, CARDIA, and its agent, ACENAV, upon a finding that the
damage was partly due to the cargo's inferior packing.
With respect to REGENCY, the CA affirmed the findings of the RTC that it did not acquire
jurisdiction over its person for defective service of summons.
PAKARTI's, SHINWA's, SKY's and ACENAV's respective motions for reconsideration were
subsequently denied in the CA's assailed February 17, 2006 Resolution. CAScIH
Issues Before the Court
PAKARTI, SHINWA, SKY and ACENAV filed separate petitions for review on certiorari before the
Court, docketed as G.R. Nos. 171591, 171614, and 171663, which were ordered consolidated in
the Court's Resolution dated July 31, 2006. 15
On April 21, 2006, SKY manifested 16 that it will no longer pursue its petition in G.R. No.
171614 and has preferred to await the resolution in G.R. No. 171663 filed by PAKARTI and
SHINWA. Accordingly, an entry of judgment 17 against it was made on August 18, 2006.
Likewise, on November 29, 2007, PAKARTI and SHINWA moved 18 for the withdrawal of their
petitions for lack of interest, which the Court granted in its January 21, 2008 Resolution. 19 The
corresponding entry of judgment 20 against them was made on March 17, 2008.
Thus, only the petition of ACENAV remained for the Court's resolution, with the lone issue of
whether or not it may be held liable to the respondents for 30% of their claim.
Maintaining that it was not a party to the bill of lading, ACENAV asserts that it cannot be held
liable for the damages sought to be collected by the respondents. It also alleged that since its
principal, CARDIA, was not impleaded as a party-defendant/respondent in the instant suit, no
liability can therefore attach to it as a mere agent. Moreover, there is dearth of evidence
showing that it was responsible for the supposed defective packing of the goods upon which the
award was based.
The Court's Ruling
A bill of lading is defined as "an instrument in writing, signed by a carrier or his agent,
describing the freight so as to identify it, stating the name of the consignor, the terms of the
contract for carriage, and agreeing or directing that the freight to be delivered to the order or
assigns of a specified person at a specified place." 21 It operates both as a receipt and as a
contract. As a receipt, it recites the date and place of shipment, describes the goods as to
quantity, weight, dimensions, identification marks and condition, quality, and value. As a
contract, it names the contracting parties, which include the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the rights and obligations assumed by
the parties. 22 As such, it shall only be binding upon the parties who make them, their assigns
and heirs. 23
In this case, the original parties to the bill of lading are: (a) the shipper CARDIA; (b) the carrier
PAKARTI; and (c) the consignee HEINDRICH. However, by virtue of their relationship with
PAKARTI under separate charter arrangements, SHINWA, KEE YEH and its agent SKY likewise
became parties to the bill of lading. In the same vein, ACENAV, as admitted agent of CARDIA,
also became a party to the said contract of carriage.
The respondents, however, maintain 24 that ACENAV is a ship agent and not a mere agent of
CARDIA, as found by both the CA 25 and the RTC. 26
The Court disagrees. ETDHaC
Article 586 of the Code of Commerce provides:
ART. 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and
for the obligations contracted by the latter to repair, equip, and provision the vessel, provided
the creditor proves that the amount claimed was invested therein.
By ship agent is understood the person entrusted with the provisioning of a vessel, or who
represents her in the port in which she may be found. (Emphasis supplied)
Records show that the obligation of ACENAV was limited to informing the consignee HEINDRICH
of the arrival of the vessel in order for the latter to immediately take possession of the goods.
No evidence was offered to establish that ACENAV had a hand in the provisioning of the vessel
or that it represented the carrier, its charterers, or the vessel at any time during the unloading
of the goods. Clearly, ACENAV's participation was simply to assume responsibility over the cargo
when they were unloaded from the vessel. Hence, no reversible error was committed by the
courts a quo in holding that ACENAV was not a ship agent within the meaning and context of
Article 586 of the Code of Commerce, but a mere agent of CARDIA, the shipper.
On this score, Article 1868 of the Civil Code states:
ART. 1868. By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter.
Corollarily, Article 1897 of the same Code provides that an agent is not personally liable to the
party with whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers.
Both exceptions do not obtain in this case. Records are bereft of any showing that ACENAV
exceeded its authority in the discharge of its duties as a mere agent of CARDIA. Neither was it
alleged, much less proved, that ACENAV's limited obligation as agent of the shipper, CARDIA,
was not known to HEINDRICH.
Furthermore, since CARDIA was not impleaded as a party in the instant suit, the liability
attributed upon it by the CA 27 on the basis of its finding that the damage sustained by the
cargo was due to improper packing cannot be borne by ACENAV. As mere agent, ACENAV
cannot be made responsible or held accountable for the damage supposedly caused by its
principal. 28
Accordingly, the Court finds that the CA erred in ordering ACENAV jointly and severally liable
with CARDIA to pay 30% of the respondents' claim.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby REVERSED. The complaint against petitioner Ace Navigation Co., Inc. is
hereby DISMISSED. SCIacA
SO ORDERED.

FIRST DIVISION
[G.R. No. 116863. February 12, 1998.]
KENG HUA PAPER PRODUCTS CO. INC., petitioner, vs. COURT OF APPEALS, REGIONAL
TRIAL COURT OF MANILA, BR. 21, and SEA-LAND SERVICE, INC., respondents.
Cabio Rabanes Law Office and Romeo B. Perez for petitioner.
Sycip Salazar Hernandez & Gatmaitan for private respondents.
SYNOPSIS
Sea-Land Service, Inc. (petitioner herein) received at its Hong Kong terminal a sealed container,
containing seventy-six bales of "unsorted waste paper" for shipment to defendant, Keng Hua
Paper Products. Co. in Manila. A bill of lading to cover the shipment was issued by Sea-Land.
Notices of arrival were transmitted to Keng Hua but the latter failed to discharge the shipment
from the container during the "free time" or grace period. The said shipment remained inside
the plaintiff's container from the moment the free time period expired until the time when the
shipment was unloaded from the container. During the period, demurrage charges accrued.
Numerous demands were made on Keng Hua but the obligation remained unpaid. Sea-Land
thereafter commenced this civil action for collection and damages. The RTC found petitioner
liable for demurrage, attorney's fees and expenses of litigation. The petitioner appealed to the
Court of Appeals. Respondent Court of Appeals denied the appeal and affirmed the lower court's
decision in toto. It also denied the petitioner's motion for reconsideration. Hence, this petition
for review. In the main, the case revolves around the question of whether petitioner was bound
by the bill of lading.
The assailed decision was affirmed by the Supreme Court with modification as to the rate of
interest paid. Both lower courts held that the bill of lading was a valid and perfected contract
between the shipper (Ho Kee), the consignee (Keng Hua), and the carrier (Sea-Land). In the
case at bar, the prolonged failure of petitioner to receive and discharge the cargo from the
private respondent's vessel constitutes a violation of the terms of the bill of lading. It should
thus be liable for demurrage to the former. As to the rate of interest, this case involves an
obligation not arising from a loan or forbearance of money; thus, pursuant to Article 2209 of the
Civil Code, the applicable interest rate is six percent per annum, computed from the date of the
trial court's decision. TEDaAc
SYLLABUS
1. COMMERCIAL LAW; CODE OF COMMERCE; BILL OF LADING, CONSTRUED. — A bill of lading
serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which
three parties, namely, the shipper, the carrier, and the consignee undertake specific
responsibilities and assume stipulated obligations. A "bill of lading delivered and accepted
constitutes the contract of carriage even though not signed," because the "(a)cceptance of a
paper containing the terms of a proposed contract generally constitutes an acceptance of the
contract and of all of its terms and conditions of which the acceptor has actual or constructive
notice." In a nutshell, the acceptance of a bill of lading by the shipper and the consignee, with
full knowledge of its contents, gives rise to the presumption that the same was a perfected and
binding contract. IEcaHS
2. ID.; ID.; DEMURRAGE, DEFINED. — In The Apollon, 22 U.S. (9 Wheat.) 362; 6L Ed. 111
(1824) Justice Story made the following relevant comment on the nature of demurrage: "In
truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel.
It is often a matter of contract, but not necessarily so. The very circumstance that in ordinary
commercial voyages, a particular sum is deemed by the parties a fair compensation for delays,
is the very reason why it is, and ought to be, adopted as a measure of compensation, in
cases ex delicto. What fairer rule can be adopted than that which founds itself upon mercantile
usage as to indemnity, and fixes a recompense upon the deliberate consideration of all the
circumstances attending the usual earnings and expenditures in common voyages? It appears to
us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere
detention, for that allowance has reference to the ship's expenses, wear and tear, and common
employment." (22 U.S. at 378.)
3. ID.; TRANSPORTATION; LETTER OF CREDIT; NATURE THEREOF; CASE AT BAR. — In a letter
of credit, there are three distinct and independent contracts: (1) the contract of sale between
the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter
of credit proper in which the bank promises to pay the seller pursuant to the terms and
conditions stated therein. "Few things are more clearly settled in law than that of the three
contracts which make up the letter of credit arrangement are to be maintained in a state of
perpetual separation." A transaction involving the purchase of goods may also require, apart
from a letter of credit, a contract of transportation specially when the seller and the buyer are
not in the same locale or country, and the goods purchased have to be transported to the latter.
Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be
treated independently of the contract of sale between the seller and the buyer, and the contract
for the issuance of a letter of credit between the buyer and the issuing bank. Any discrepancy
between the amount of the goods described in the commercial invoice in the contract of sale
and the amount allowed in the letter of credit will not affect the validity and enforceability of the
contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look
beyond the documents presented to it by the seller pursuant to the letter of credit, neither can
the carrier be expected to go beyond the representations of the shipper in the bill of lading and
to verify their accuracy vis-a-vis the commercial invoice and the letter of credit.
4. CIVIL LAW; OBLIGATIONS; INTEREST; LEGAL RATE; WHEN APPLICABLE. — Jurisprudence
teaches us: "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."
5. ID.; DAMAGES; LEGAL INTEREST RATE; APPLICATION IN CASE AT BAR. — The case before
us involves an obligation not arising from a loan or forbearance of money; thus, pursuant to
Article 2209 of the Civil Code, the applicable interest rate is six percent per annum. Since the bill
of lading did not specify the amount of demurrage, and the sum claimed by private respondent
increased as the days went by, the total amount demanded cannot be deemed to have been
established with reasonable certainty until the trial court rendered its judgment. Indeed,
"(u)nliquidated damages or claims, it is said, are those which are not or cannot be known until
definitely ascertained, assessed and determined by the courts after presentation of proof."
Consequently, the legal interest rate is six percent, to be computed from September 28, 1990,
the date of the trial court's decision. And in accordance with Philippine National Bank, 263 SCRA
at 772, and Eastern Shipping, 234 SCRA at 97, the rate of twelve percent per annum shall be
charged on the total then outstanding, from the time the judgment becomes final and executory
until its satisfaction.
6. ID.; ID.; ATTORNEY'S FEES; TEXT OF DECISION SHOULD STATE REASON FOR THE AWARD;
ABSENT IN CASE AT BAR. — The Court notes that the matter of attorney's fees was taken up
only in the dispositive portion of the trial court's decision. This falls short of the settled
requirement that the text of the decision should state the reason for the award of attorney's
fees, for without such justification, its award would be a "conclusion without a premise, its basis
being improperly left to speculation and conjecture." aIcTCS
DECISION
PANGANIBAN, J p:
What is the nature of a bill of lading? When does a bill of lading become binding on a
consignee? Will an alleged overshipment justify the consignee's refusal to receive the goods
described in the bill of lading? When may interest be computed on unpaid demurrage
charges? LLphil
Statement of the Case
These are the main questions raised in this petition assailing the Decision 1 of the Court of
Appeals 2 promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953 affirming in toto the
decision 3 dated September 28, 1990 in Civil Case No. 85-33269 of the Regional Trial Court of
Manila, Branch 21. The dispositive portion of the said RTC decision reads:
"WHEREFORE, the Court finds by preponderance of evidence that Plaintiff has proved its cause
of action and right to relief. Accordingly, judgment is hereby rendered in favor of the Plaintiff
and against Defendant, ordering the Defendant to pay plaintiff:
1. The sum of P67,340.00 as demurrage charges, with interest at the legal rate from the date of
the extrajudicial demand until fully paid;
2. A sum equivalent to ten (10%) percent of the total amount due as Attorney's fees and
litigation expenses.
Send copy to respective counsel of the parties.
SO ORDERED." 4
The Facts
The factual antecedents of this case as found by the Court of Appeals are as follows:
"Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to
do business in the Philippines. On June 29, 1982, plaintiff received at its Hong Kong terminal a
sealed container, Container No. SEAU 67523, containing seventy-six bales of "unsorted waste
paper" for shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in Manila. A
bill of lading (Exh. A) to cover the shipment was issued by the plaintiff.
On July 9, 1982, the shipment was discharged at the Manila International Container Port.
Notices of arrival were transmitted to the defendant but the latter failed to discharge the
shipment from the container during the "free time" period or grace period. The said shipment
remained inside the plaintiff's container from the moment the free time period expired on July
29, 1982 until the time when the shipment was unloaded from the container on November 22,
1983, or a total of four hundred eighty-one (481) days. During the 481-day period, demurrage
charges accrued. Within the same period, letters demanding payment were sent by the plaintiff
to the defendant who, however, refused to settle its obligation which eventually amounted to
P67,340.00. Numerous demands were made on the defendant but the obligation remained
unpaid. Plaintiff thereafter commenced this civil action for collection and damages.
In its answer, defendant, by way of special and affirmative defense, alleged that it purchased
fifty (50) tons of waste paper from the shipper in Hong Kong, Ho Kee Waste Paper, as
manifested in Letter of Credit No. 824858 (Exh. 7, p. 110, Original Record) issued by Equitable
Banking Corporation, with partial shipment permitted; that under the letter of credit, the
remaining balance of the shipment was only ten (10) metric tons as shown in Invoice No. H-
15/82 (Exh. 8, p. 111, Original Record); that the shipment plaintiff was asking defendant to
accept was twenty (20) metric tons which is ten (10) metric tons more than the remaining
balance; that if defendant were to accept the shipment, it would be violating Central Bank rules
and regulations and custom and tariff laws; that plaintiff had no cause of action against the
defendant because the latter did not hire the former to carry the merchandise; that the cause of
action should be against the shipper which contracted the plaintiff's services and not against
defendant; and that the defendant duly notified the plaintiff about the wrong shipment through
a letter dated January 24, 1983 (Exh. D for plaintiff, Exh. 4 for defendant, p. 5. Folder of
Exhibits)."
As previously mentioned, the RTC found petitioner liable for demurrage, attorney's fees and
expenses of litigation. The petitioner appealed to the Court of Appeals, arguing that the lower
court erred in (1) awarding the sum of P67,340 in favor of the private respondent, (2) rejecting
petitioner's contention that there was overshipment, (3) ruling that petitioner's recourse was
against the shipper, and (4) computing legal interest from date of extrajudicial demand. 5
Respondent Court of Appeals denied the appeal and affirmed the lower court's decision in toto.
In a subsequent resolution, 6 it also denied the petitioner's motion for reconsideration. cdphil
Hence, this petition for review. 7
The Issues
In its memorandum, petitioner submits the following issues:
"I. Whether or not petitioner had accepted the bill of lading;
II. Whether or not the award of the sum of P67,340.00 to private respondent was proper;
III. Whether or not petitioner was correct in not accepting the overshipment;
IV. Whether or not the award of legal interest from the date of private respondent's extrajudicial
demand was proper." 8
In the main, the case revolves around the question of whether petitioner was bound by the bill
of lading. We shall, thus, discuss the above four issues as they intertwine with this main
question.
The Court's Ruling
The petition is partly meritorious. We affirm petitioner's liability for demurrage, but modify the
interest rate thereon.
Main Issue: Liability Under the Bill of Lading
A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a
contract by which three parties, namely, the shipper, the carrier, and the consignee undertake
specific responsibilities and assume stipulated obligations. 9 A "bill of lading delivered and
accepted constitutes the contract of carriage even though not signed," 10 because the
"(a)cceptance of a paper containing the terms of a proposed contract generally constitutes an
acceptance of the contract and of all of its terms and conditions of which the acceptor has
actual or constructive notice." 11 In a nutshell, the acceptance of a bill of lading by the shipper
and the consignee, with full knowledge of its contents, gives rise to the presumption that the
same was a perfected and binding contract. 12
In the case at bar, both lower courts held that the bill of lading was a valid and perfected
contract between the shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier
(Private Respondent Sea-Land). Section 17 of the bill of lading provided that the shipper and the
consignee were liable for the payment of demurrage charges for the failure to discharge the
containerized shipment beyond the grace period allowed by tariff rules. Applying said stipulation,
both lower courts found petitioner liable. The aforementioned section of the bill of lading reads:
"17. COOPERAGE FINES. The shipper and consignee shall be liable for, indemnify the carrier and
ship and hold them harmless against, and the carrier shall have a lien on the goods for, all
expenses and charges for mending cooperage, baling, repairing or reconditioning the goods, or
the van, trailers or containers, and all expenses incurred in protecting, caring for or otherwise
made for the benefit of the goods, whether the goods be damaged or not, and for any payment,
expense, penalty fine, dues, duty, tax or impost, loss, damage, detention, demurrage, or liability
of whatsoever nature, sustained or incurred by or levied upon the carrier or the ship in
connection with the goods or by reason of the goods being or having been on board, or because
of shipper's failure to procure consular or other proper permits, certificates or any papers that
may be required at any port or place or shipper's failure to supply information or otherwise to
comply with all laws, regulations and requirements of law in connection with the goods of from
any other act or omission of the shipper or consignee." (Emphasis supplied.)
Petitioner contends, however, that it should not be bound by the bill of lading because it never
gave its consent thereto. Although petitioner admits "physical acceptance" of the bill of lading, it
argues that its subsequent actions belie the finding that it accepted the terms and conditions
printed therein. 13 Petitioner cites as support the "Notice of Refused or On Hand Freight" it
received on November 2, 1982 from private respondent, which acknowledged that petitioner
declined to accept the shipment. Petitioner adds that it sent a copy of the said notice to the
shipper on December 29, 1982. Petitioner points to its January 24, 1983 letter to the private
respondent, stressing "that its acceptance of the bill of lading would be tantamount to an act of
smuggling as the amount it had imported (with full documentary support) was only (at that
time) for 10,000 kilograms and not for 20,313 kilograms as stated in the bill of lading" and
"could lay them vulnerable to legal sanctions for violation of customs and tariff as well as
Central Bank laws." 14 Petitioner further argues that the demurrage "was a consequence of the
shipper's mistake" of shipping more than what was bought. The discrepancy in the amount of
waste paper it actually purchased, as reflected in the invoice vis-a-vis the excess amount in the
bill of lading, allegedly justifies its refusal to accept the shipment. 15
Petitioner Bound by
the Bill of Lading
We are not persuaded. Petitioner admits that it "received the bill of lading immediately after the
arrival of the shipment" 16 on July 8, 1982. 17 Having been afforded an opportunity to examine
the said document, petitioner did not immediately object to or dissent from any term or
stipulation therein. It was only six months later, on January 24, 1983, that petitioner sent a
letter to private respondent saying that it could not accept the shipment. Petitioner's inaction for
such a long period conveys the clear inference that it accepted the terms and conditions of the
bill of lading. Moreover, said letter spoke only of petitioner's inability to use the delivery
permit, i.e. to pick up the cargo, due to the shipper's failure to comply with the terms and
conditions of the letter of credit, for which reason the bill of lading and other shipping
documents were returned by the "banks" to the shipper. 18 The letter merely proved
petitioner's refusal to pick up the cargo, not its rejection of the bill of lading.
Petitioner's reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance
of the bill of lading, is of no consequence. Said notice was not written by petitioner; it was sent
by private respondent to petitioner in November 1982, or four months after petitioner received
the bill of lading. If the notice has any legal significance at all, it is to highlight petitioner's
prolonged failure to object to the bill of lading. Contrary to petitioner's contention, the notice
and the letter support — not belie — the findings of the two lower courts that the bill of lading
was impliedly accepted by petitioner.
As aptly stated by Respondent Court of Appeals:
"In the instant case, (herein petitioner) cannot and did not allege non-receipt of its copy of the
bill of lading from the shipper. Hence, the terms and conditions as well as the various entries
contained therein were brought to its knowledge. (Herein petitioner) accepted the bill of lading
without interposing any objection as to its contents. This raises the presumption that (herein
petitioner) agreed to the entries and stipulations imposed therein.
Moreover, it is puzzling that (herein petitioner) allowed months to pass, six (6) months to be
exact, before notifying (herein private respondent) of the 'wrong shipment.' It was only on
January 24, 1983 that (herein petitioner) sent (herein private respondent) such a letter of
notification (Exh. D for plaintiff, Exh. 4 for defendant; p. 5, Folder of Exhibits). Thus, for the
duration of those six months (herein private respondent never knew the reason for (herein
petitioner's) refusal to discharge the shipment. LLpr
After accepting the bill of lading, receiving notices of arrival of the shipment, failing to object
thereto, (herein petitioner) cannot now deny that it is bound by the terms in the bill of lading. If
it did not intend to be bound, (herein petitioner) would not have waited for six months to lapse
before finally bringing the matter to (herein private respondent's attention. The most logical
reaction in such a case would be to immediately verify the matter with the other parties
involved. In this case, however, (herein petitioner) unreasonably detained (herein private
respondent's) vessel to the latter's prejudice." 19
Petitioner's attempt to evade its obligation to receive the shipment on the pretext that this may
cause it to violate customs, tariff and central bank laws must likewise fail. Mere apprehension of
violating said laws, without a clear demonstration that taking delivery of the shipment has
become legally impossible, 20 cannot defeat the petitioner's contractual obligation and liability
under the bill of lading.
In any event, the issue of whether petitioner accepted the bill of lading was raised for the first
time only in petitioner's memorandum before this Court. Clearly, we cannot now entertain an
issue raised for the very first time on appeal, in deference to the well-settled doctrine that "(a)n
issue raised for the first time on appeal and not raised timely in the proceedings in the lower
court is barred by estoppel. Questions raised on appeal must be within the issues framed by the
parties and, consequently, issues not raised in the trial court cannot be raised for the first time
on appeal." 21
In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from
the private respondent's vessel constitutes a violation of the terms of the bill of lading. It should
thus be liable for demurrage to the former.
In The Apollon, 22 Justice Story made the following relevant comment on the nature of
demurrage:
"In truth, demurrage is merely an allowance or compensation for the delay or detention of a
vessel. It is often a matter of contract, but not necessarily so. The very circumstance that in
ordinary commercial voyages, a particular sum is deemed by the parties a fair compensation for
delays, is the very reason why it is, and ought to be, adopted as a measure of compensation, in
cases ex delicto. What fairer rule can be adopted than that which founds itself upon mercantile
usage as to indemnity, and fixes a recompense upon the deliberate consideration of all the
circumstances attending the usual earnings and expenditures in common voyages? It appears to
us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere
detention, for that allowance has reference to the ship's expenses, wear and tear, and common
employment." 23
Amount of Demurrage Charges
Petitioner argues that it is not obligated to pay any demurrage charges because, prior to the
filing of the complaint, private respondent made no demand for the sum of P67,340. Moreover,
private respondent's loss and prevention manager, Loi Gillera, demanded P50,260; but its
counsel, Sofronio Larcia, subsequently asked for a different amount of P37,800. cda
Petitioner's position is puerile. The amount of demurrage charges in the sum of P67,340 is a
factual conclusion of the trial court that was affirmed by the Court of Appeals and, thus, binding
on this Court. 24 Besides, such factual finding is supported by the extant evidence. 25 The
apparent discrepancy was a result of the variance of the dates when the two demands were
made. Necessarily, the longer the cargo remained unclaimed, the higher the demurrage. Thus,
while in his letter dated April 24, 1983, 26 private respondent's counsel demanded payment of
only P37,800, the additional demurrage incurred by petitioner due to its continued refusal to
receive delivery of the cargo ballooned to P67,340 by November 22, 1983. The testimony of
Counsel Sofronio Larcia as regards said letter of April 24, 1983 elucidates, viz:
"Q Now, after you sent this letter, do you know what happened?
A Defendant continued to refuse to take delivery of the shipment and the shipment stayed at
the port for a longer period.
Q So, what happened to the shipment?
A The shipment incurred additional demurrage charges which amounted to P67,340.00 as of
November 22, 1983 or more than a year after — almost a year after the shipment arrived at the
port.
Q So, what did you do?
A We requested our collection agency to pursue the collection of this amount." 27
Bill of Lading Separate from
Other Letter of Credit Arrangements
In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale
between the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3)
the letter of credit proper in which the bank promises to pay the seller pursuant to the terms
and conditions stated therein. "Few things are more clearly settled in law than that the three
contracts which make up the letter of credit arrangement are to be maintained in a state of
perpetual separation." 28 A transaction involving the purchase of goods may also require, apart
from a letter of credit, a contract of transportation specially when the seller and the buyer are
not in the same locale or country, and the goods purchased have to be transported to the latter.
Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be
treated independently of the contract of sale between the seller and the buyer, and the contract
for the issuance of a letter of credit between the buyer and the issuing bank. Any discrepancy
between the amount of the goods described in the commercial invoice in the contract of sale
and the amount allowed in the letter of credit will not affect the validity and enforceability of the
contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look
beyond the documents presented to it by the seller pursuant to the letter of credit,  29 neither
can the carrier be expected to go beyond the representations of the shipper in the bill of lading
and to verify their accuracy vis-a-vis the commercial invoice and the letter of credit. Thus, the
discrepancy between the amount of goods indicated in the invoice and the amount in the bill of
lading cannot negate petitioner's obligation to private respondent arising from the contract of
transportation. Furthermore, private respondent, as carrier, had no knowledge of the contents
of the container. The contract of carriage was under the arrangement known as "Shipper's Load
And Count," and the shipper was solely responsible for the loading of the container while the
carrier was oblivious to the contents of the shipment. Petitioner's remedy in case of
overshipment lies against the seller/shipper, not against the carrier. prLL
Payment of Interest
Petitioner posits that it "first knew" of the demurrage claim of P67,340 only when it received, by
summons, private respondent's complaint. Hence, interest may not be allowed to run from the
date of private respondent's extrajudicial demands on March 8, 1983 for P50,260 or on April 24,
1983 for P37,800, considering that, in both cases, "there was no demand for interest."  30 We
agree.
Jurisprudence teaches us:
"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." 31

The case before us involves an obligation not arising from a loan or forbearance of money; thus,
pursuant to Article 2209 of the Civil Code, the applicable interest rate is six percent per annum.
Since the bill of lading did not specify the amount of demurrage, and the sum claimed by private
respondent increased as the days went by, the total amount demanded cannot be deemed to
have been established with reasonable certainty until the trial court rendered its judgment.
Indeed, "(u)nliquidated damages or claims, it is said, are those which are not or cannot be
known until definitely ascertained, assessed and determined by the courts after presentation of
proof." 32 Consequently, the legal interest rate is six percent, to be computed from September
28, 1990, the date of the trial court's decision. And in accordance with Philippine National
Bank 33 and Eastern Shipping, 34 the rate of twelve percent per annum shall be charged on
the total then outstanding, from the time the judgment becomes final and executory until its
satisfaction.

Finally, the Court notes that the matter of attorney's fees was taken up only in the dispositive
portion of the trial court's decision. This falls short of the settled requirement that the text of the
decision should state the reason for the award of attorney's fees, for without such justification,
its award would be a "conclusion without a premise, its basis being improperly left to
speculation and conjecture." 35

WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal
interest of six percent per annum shall be computed from September 28, 1990 until its full
payment before finality of judgment. The rate of interest shall be adjusted to twelve percent per
annum, computed from the time said judgment became final and executory until full
satisfaction. The award of attorney's fees is DELETED. LLphil

SO ORDERED.

Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ ., concur.

||| (Keng Hua Paper Products Co. Inc. v. Court of Appeals, G.R. No. 116863, [February 12,
1998], 349 PHIL 925-942)

SECOND DIVISION
[G.R. No. L-37750. May 19, 1978.]
SWEET LINE, INC., petitioner, vs. HON. BERNARDO TEVES, Presiding Judge, CFI of
Misamis Oriental, Branch VII, LEOVIGILDO TANDOG, JR., and ROGELIO
TIRO, respondents.
Filiberto Leonardo, Abelardo C. Almario & Samuel B. Abadiano for petitioner.
Leovigildo Vallar for private respondents.
SYNOPSIS
Two passengers of an inter-island vessel sued petitioner company in the Court o First Instance
of Misamis Oriental for breach of contract of carriage. Petitioner moved to dismiss the complaint
on the ground of improper venue. The motion was premised on the condition printed att he
back of the tickets that actions arising from "the provisions of this ticket shall be filed in the
competent courts in the City oif Cebu.
The trial court denied the motion to dismiss as well as the motion for reconsideration. The
Supreme Court sustained the trial court and declared the condition void and unenforceable as
contrary to public policy which is to make the courts accessible to all who may have need of
their services.
SYLLABUS
1. CONTRACT; CONTRACTS OF ADHESION, VALIDITY OF. — The validity or enforceability of
contracts of adhesion are to be determined by the peculiar circumstances obtaining in each case
and the nature and conditions or terms sought to be enforced. For, while generally, stipulations
in a contract come about after deliberate drafting by the parties thereto, in a contract of
adhesion, however, all its provisions have been drafted only by one party, usually a corporation,
and the only participation of the other party is the signing of his signature or his adhesion
thereto.
2. CIVIL ACTIONS; VENUE; SUBJECT TO PARTIES' AGREEMENT. — A written agreement of the
parties as to venue, as authorized by Section 3, Rule 4, is not only binding between the parties
but also enforceable by the courts. After an action has been filed, change or transfer of venue
by agreement of the parties is controllable in the discretion of the court.
3. ID.; ID.; ID.; WHEN CONTRARY TO PUBLIC POLICY. — The Court may declare the
agreement as to venue to be in effect contrary to public policy, — despite that in general,
changes and transfers of venue by written agreement of the parties are allowable — whenever
it is shown that a stipulation as to venue works injustice by practically denying to the party
concerned designated by the rules.
DECISION
SANTOS, J p:
This is an original action for Prohibition with Preliminary Injunction filed October 3, 1973 to
restrain respondent Judge from proceeding further with Civil Case No. 4091, entitled "Leovigildo
D. Tandog, Jr. and Rogelio Tiro v. Sweet Lines, Inc." after he denied petitioner's Motion to
Dismiss the complaint, and the Motion for Reconsideration of said order. 1
Briefly, the facts of record follow. Private respondents Atty. Leovigildo Tandog and Rogelio Tiro,
a contractor by professions, bought tickets Nos. 0011736 and 011737 for Voyage 90 on
December 31, 1971 at the branch office of petitioner, a shipping company transporting inter-
island passengers and cargoes, at Cagayan de Oro City. Respondents were to board petitioner's
vessel, M/S "Sweet Hope" bound for Tagbilaran City via the port of Cebu. Upon learning that the
vessel was not proceeding to Bohol, since many passengers were bound for Surigao, private
respondents per advice, went to the branch office for proper relocation to M/S "Sweet Town".
Because the said vessel was already filed to capacity, they were forced to agree "to hide at the
cargo section to avoid inspection of the officers of the Philippine Coastguard." Private
respondents alleged that they were, during the trip," "exposed to the scorching heat of the sun
and the dust coming from the ship's cargo of corn grits," and that the tickets they bought at
Cagayan de Oro City for Tagbilaran were not honored and they were constrained to pay for
other tickets. In view thereof, private respondents sued petitioner for damages and for breach
of contract of carriage in the alleged sum of P110,000.00 before respondents Court of First
Instance of Misamis Oriental. 2
Petitioner moved to dismiss the complaint on the ground of improper venue. This motion was
premised on the condition printed at the back of the tickets, i.e., Condition No. 14, which
reads: cdrep
"14. It is hereby agreed and understood that any and all actions arising out of the conditions
and provisions of this ticket, irrespective of where it is issued, shall be filed in the competent
courts in the City of Cebu." 3
The motion was denied by the trial court. 4 Petitioner moved to reconsider the order of denial,
but to no avail. 5 Hence, this instant petition for prohibition with preliminary injunction, alleging
that the respondent judge had departed from the "accepted and usual course of judicial
proceeding" and "had acted without or in excess or in error of his jurisdiction or in gross abuse
of discretion." 6
In Our resolution of November 20, 1973, We restrained respondent Judge from proceeding
further with the case and required respondents to comment. 7 On January 18, 1974, We gave
due course to the petition and required respondents to answer. 8 Thereafter, the parties
submitted their respective memoranda in support of their respective contentions. 9
Presented thus for Our resolution is a question which, to all appearances, is one of first
impression, to wit — Is Condition No. 14 printed at the back of the petitioner's passage tickets
purchased by private respondents, which limits the venue of actions arising from the contract of
carriage to the Court of First Instance of Cebu, valid and enforceable? Otherwise stated, may a
common carrier engaged in inter-island shipping stipulate thru a condition printed at the back of
passage tickets to its vessels that any and all actions arising out of the contract of carriage
should be filed only in a particular province or city, in this case the City of Cebu, to the exclusion
of all others?
Petitioner contends that Condition No. 14 is valid and enforceable, since private respondents
acceded to it when they purchased passage tickets at its Cagayan de Oro branch office and took
its vessel M/S "Sweet Town" for passage to Tagbilaran, Bohol; that the condition fixing the
venue of actions in the City of Cebu is proper since venue may be validly waived, citing
cases; 10 that is an effective waiver of venue, valid and binding as such, since it is printed in
bold and capital letters and not in fine print and merely assigns the place where the action
arising from the contract is instituted, likewise citing cases; 11 and that condition No. 14 is
unequivocal and mandatory, the words and phrases "any and all", "irrespective of where it is
issued," and "shall" leave no doubt that the intention of Condition No. 14 is to fix the venue in
the City of Cebu, to the exclusion of all other places; that the orders of the respondent Judge
are an unwarranted departure from established jurisprudence governing the case, and that he
acted without or in excess of his jurisdiction in issuing the orders complained of. 12
On the other band, private respondents claim that Condition No. 14 is not valid; that the same is
not an essential element of the contract of carriage, being in itself a different agreement which
requires the mutual consent of the parties to it; that they had no say in its preparation, the
existence of which they could not refuse, hence, they had no choice but to pay for the tickets
and to avail of petitioner's shipping facilities out of necessity; that the carrier "has been exacting
too much from the public by inserting impositions in the passage tickets too burdensome to
bear;" that the condition which was printed in fine letters is an imposition on the riding public
and does not bind respondents, citing cases; 13 that while venue of actions may be transferred
from one province to another, such arrangement requires the "written agreement of the
parties", not to be imposed unilaterally; and that assuming that the condition is valid, it is not
exclusive and does not, therefore, exclude the filing of the action in Misamis Oriental, 14
There is no question that there was a valid contract of carriage entered into by petitioner and
private respondents and that the passage tickets, upon which the latter based their complaint,
are the best evidence thereof. All the essential elements of a valid contract, i.e., consent, cause
or consideration and object, are present. As held in Peralta de Guerrero, et al. v. Madrigal
Shipping Co., Inc., 15
"It is a matter of common knowledge that whenever a passenger boards a ship for
transportation from one place to another he is issued a ticket by the shipper which has all the
elements of a written contract, Namely: (1) the consent of the contracting parties manifested by
the fact that the passenger boards the ship and the shipper consents or accepts him in the ship
for transportation; (2) cause or consideration which is the fare paid by the passenger as stated
in the ticket; (3) object, which is the transportation of the passenger from the place of
departure to the place of destination which are stated in the ticket."
It should be borne in mind, however, that with respect to the fourteen (14) conditions — one of
which is "Condition No. 14" which is in issue in this case — printed at the back of the passage
tickets, these are commonly known as "contracts of adhesion," the validly and/or enforceability
of which will have to be determined by the peculiar circumstances obtaining in each case and
the nature of the conditions or terms sought to be enforced. For, "(W)hile generally, stipulations
in a contract come about after deliberate drafting by the parties thereto, . . . there are certain
contracts almost all the provisions of which have been drafted only by one party, usually a
corporation. Such contracts are called contracts of adhesion, because the only participation of
the party is the signing of his signature or his 'adhesion' thereto. Insurance contracts, bills of
lading, contracts of sale of lots on the installment plan fall into this category." 16 
By the peculiar circumstances under which contracts of adhesion are entered into — namely,
that it is drafted only by one party, usually the corporation, and is sought to be accepted or
adhered to by the other party, in this instance the passengers, private respondents, who cannot
change the same and who are thus made to adhere thereto on the "take it or leave it" basis -
certain guidelines in the determination of their validity and/or enforceability have been
formulated in order to insure that justice and fair play characterize the relationship of the
contracting parties. Thus, this Court speaking through Justice J.B.L. Reyes in Qua Chee Gan v.
Law Union and Rock Insurance Co., 17 and later through Justice Fernando in Fieldman
Insurance v. Vargas, 18 held —
"The courts cannot ignore that nowadays, monopolies, cartels and concentration of capital,
endowed with overwhelming economic power, manage to impose upon parties dealing with
them cunningly prepared 'agreements that the weaker party may not change one whit, his
participation in the 'agreement' being reduced to the alternative 'to take it or leave it,' labelled
since Raymond Saleilles 'contracts by adherence' (contracts d' adhesion) in contrast to those
entered into by parties bargaining on an equal footing. Such contracts (of which policies of
insurance and international bill of lading are prime examples) obviously call for greater strictness
and vigilance on the part of the courts of justice with a view to protecting the weaker party from
abuses and imposition, and prevent their becoming traps for the unwary."
To the same effect and import, and, in recognition of the peculiar character of contracts of this
kind, the protection of the disadvantaged is expressly enjoined by the New Civil Code —
"In all contractual, property or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, is ignorance, indigence, mental weakness, tender age and
other handicap, the courts must be vigilant for his protection." 19
Considered in the light of the foregoing norms and in the context of circumstances prevailing in
the inter-island shipping industry in the country today, We find and hold that Condition No. 14
printed at the back of the passage tickets should be held as void and unenforceable for the
following reasons — first, under circumstances obtaining in the inter-island shipping industry, it
is not just and fair to bind passengers to the terms of the conditions printed at the back of the
passage tickets, on which Condition No. 14 is printed in fine letters, and second, Condition No.
14 subverts the public policy on transfer of venue of proceedings of this nature, since the same
will prejudice rights and interests of innumerable passengers in different parts of the country
who, under Condition No. 14, will have to file suits against petitioner only in the City of Cebu.
1. It is a matter of public knowledge, of which We can take judicial notice, that there is a dearth
of and acute shortage in inter-island vessels plying between the country's several islands, and
the facilities they offer leave much to be desired. Thus, even under ordinary circumstances, the
piers are congested with passengers and their cargo waiting to be transported, The conditions
are even worse at peak and/or the rainy seasons, when passengers literally scramble to secure
whatever accommodations may be availed of, even through circuitous routes, and/or at the risk
of their safety — their immediate concern, for the moment, being to be able to board vessels
with the hope of reaching their destinations. The schedules are — as often as not if not more so
— delayed or altered. This was precisely the experience of private respondents when they were
relocated to M/S "Sweet Town" from M/S "Sweet Hope" and then allegedly "exposed to the
scorching heat of the sun and the dust coming from the ship's cargo of corn grits," because
even the latter vessel was filled to capacity.
Under these circumstances, it is hardly just and proper to expect the passengers to examine
their tickets received from crowded/congested counters, more often than not during rush hours,
for conditions that may be printed thereon, much less charge them with having consented to
the conditioner so printed, especially if there are a number of such conditions in fine print, as in
this case. 20
Again, it should be noted that Condition No. 14 was prepared solely at the instance of the
petitioner; respondents had no say in its preparation. Neither did the latter have the opportunity
to take the same into account prior to the purchase of their tickets. For, unlike the small print
provisions of insurance contracts — the common example of contracts of adherence — which
are entered into by the insured in full awareness of said conditions, since the insured is afforded
the opportunity to examine and consider the same, passengers of inter-island vessels do not
have the same chance, since their alleged adhesion is presumed only from the fact that they
purchased the passage tickets.
It should also be stressed that shipping companies are franchise holders of certificates of public
convenience and, therefore, possess a virtual monopoly over the business of transporting
passengers between the ports covered by their franchise. This being so, shipping companies,
like petitioner, engaged in inter-island shipping, have a virtual monopoly of the business of
transporting passengers and may thus dictate their terms of passage, leaving passengers with
no choice but to buy their tickets and avail of their vessels and facilities. Finally, judicial notice
may be taken of the fact that the bulk of those who board these inter-island vessels come from
the low-income groups and are less literate, and who have little or no choice but to avail of
petitioner's vessels. cdphil
2. Condition No. 14 is subversive of public policy on transfers of venue of actions. For, although
venue may be changed or transferred from one province to another by agreement of the parties
in writing pursuant to Rule 4, Section 3, of the Rules of Court, such an agreement will not be
held valid where it practically negates the action of the claimants, such as the private
respondents herein. The philosophy underlying the provisions on transfer of venue of actions is
the convenience of the plaintiffs as well as his witnesses and to promote the ends of
justice. 21 Considering the expense and trouble a passenger residing outside of Cebu City
would incur to prosecute a claim in the City of Cebu, he would most probably decide not to file
the action at all. The condition will thus defeat, instead of enhance, the ends of justice. Upon
the other hand, petitioner has branches or offices in the respective ports of call of its vessels
and can afford to litigate in any of these places. Hence, the filing of the suit in the CFI of
Misamis Oriental, as was done in the instant case, will not cause inconvience to, much less
prejudice, petitioner.
change of venue are enforceable, there may be instances where for equitable considerations
and in the better interest of justice, a court may justify the laying of the venue in the place fixed
by the rules instead of following written stipulation of the parties.
In the particular case at bar, there is actually no written agreement as to venue between the
parties in the sense contemplated in Section 3 of Rule 4, which governs the matter. I take it that
the importance that a stipulation regarding change of the venue fixed by law entails is such that
nothing less than mutually conscious agreement as to it must be what the rule means. In the
instant case, as well pointed out in the main opinion, the ticket issued to private respondents by
petitioner constitutes at best a "contract of adhesion". In other words, it is not that kind of a
contract where the parties sit down to deliberate, discuss and agree specifically on all its terms,
but rather, one which respondents took no part at all in preparing, since it was just imposed
upon them when they paid for the fare for the freight they wanted to ship. It is common
knowledge that individuals who avail of common carriers hardly read the fine prints on such
tickets to note anything more than the price thereof and the destination designated therein. llcd
Under these circumstances, it would seem that, since this case is already in respondent court
and there is no showing that, with its more or less known resources as owner of several inter-
island vessels plying between the different ports of the Philippines for sometime already,
petitioner would be greatly inconvenienced by submitting to the jurisdiction of said respondent
court, it is best to allow the proceedings therein to continue. I cannot conceive of any juridical
injury such a step can cause to anyone concerned.
 
||| (Sweet Line, Inc. v. Teves, G.R. No. L-37750, [May 19, 1978], 172 PHIL 674-684)

Public policy is ". . . that principle of the law which holds that no subject or citizen can lawfully
do that which has a tendency to be injurious to the public or against the public
good . . .". 22 Under this principle ". . . freedom of contract or private dealing is restricted by
law for the good of the public." 23 Clearly, Condition No. 14, if enforced, will be subversive of
the public good or interest, since it will frustrate in meritorious cases, actions of passenger
claimants outside of Cebu City, thus placing petitioner company at a decided advantage over
said persons, who may have perfectly legitimate claims against it. The said condition should,
therefore, be declared void and unenforceable, as contrary to public policy — to make the courts
accessible to all who may have need of their services.

WHEREFORE, the petition for prohibition is DISMISSED. The restraining order issued on
November 20, 1973, is hereby LIFTED and SET ASIDE. Costs against petitioner.

Fernando (Chairman), Aquino, Concepcion, Jr., JJ., concur.

Antonio, J., reserves his vote.

Separate Opinions

BARREDO, J.: concurring:

I concur in the dismissal of the instant petition.

Only a few days ago, in Hoechst Philippines, Inc. vs. Francisco Torres, et al., G. R. No. L-44351,
promulgated May 18, 1978, We made it clear that although generally, agreements regarding

EN BANC
[G.R. No. L-20099. July 7, 1966.]
PARMANAND SHEWARAM, plaintiff-appellee, vs. PHILIPPINE AIR LINES,
INC., defendant-appellant.
Ponce Enrile, Siguion Reyna, Montecillo & Belo, for defendant-appellant.
Climaco and Associates for plaintiff-appellee.
SYLLABUS
1. COMMON CARRIER; LIMITATION OF LIABILITY CLAUSE; ITS EFFECT; CASE AT BAR. — the
only issue in this case is whether or not the limitation of pecuniary liability clause printed at the
back of the ticket stubs is binding upon plaintiff-appellee. Held: Under the provisions of Article
1750 of the new Civil Code, the pecuniary liability of a common carrier may, by contract, be
limited to a fixed amount. It is required, however, that the contract must be reasonable and just
under the circumstances and has been fairly and freely agreed upon. In the instant case, the
fact that the conditions are printed at the back of the ticket stub in letters so small that they are
hard to read would not warrant the presumption that the appellee was aware of those
conditions such that he had "fairly and freely agreed" to those conditions. Appellee, therefore, is
not and cannot be bound, by the conditions of carriage found at the back of the ticket stub
issued to him when he made the flight on appellant's plane on November 23, 1959.
2. ID.; ID.; ID.; WHEN NEGLIGENCE OF CARRIER IS CAUSE OF LOSS; LIABILITY OF CARRIER.
— It having been clearly found by the trial court that the transistor radio and the camera of the
appellee were lost as a result of the negligence of the appellant as a common carrier, the
liability of the appellant is clear — it must pay the appellee the value of those two articles. This
court had laid down the rule that the carrier cannot limit its liability for injury to or loss of goods
shipped where such injury or loss was caused by its own negligence. (Ysmael and Co. vs.
Barretto, 51 Phil. 90).
DECISION
ZALDIVAR, J p:
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram
instituted an action to recover damages suffered by him due to the alleged failure of defendant-
appellant Philippine Air Lines, Inc. to observe extraordinary diligence in the vigilance and
carriage of his luggage. After trial the municipal court of Zamboanga City rendered judgment
ordering the appellant to pay appellee P373.00 as actual damages, P100.00 as exemplary
damages, P150.00 as attorney's fees, and the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After
hearing the Court of First Instance of Zamboanga City modified the judgment of the inferior
court by ordering the appellant to pay the appellee only the sum of P373.00 as actual damages,
with legal interest from May 6, 1960, and the sum of P150.00 as attorney's fees, eliminating the
award of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this
Court on a question of law, assigning two errors allegedly committed by the court a quo, to wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions of the
tariff regulations filed by defendant-appellant with the civil aeronautics board and the conditions
of carriage printed at the back of the plane ticket stub.
2. The lower court erred in not dismissing this case or limiting the liability of the defendant-
appellant to P100.00
The facts of this case, as found by the trial court, quoted from the decision appealed from, are
as follows:
"That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying
passenger with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga
City bound for Manila; that defendant is a common carrier engaged in air line transportation in
the Philippines, offering its services to the public to carry and transport passengers and cargoes
from and to different points in the Philippines; that on the above-mentioned date of November
23, 1959, he checked in (3) pieces of baggages — a suitcase and two (2) other pieces; that the
suitcase was mistagged by defendant's personnel in Zamboanga City, as I.G.N. (for Iligan) with
claim check No. B-3883, instead of MNL (for Manila). When plaintiff Parmanand Shewaram
arrived in Manila on the date of November 23, 1959, his suitcase did not arrive with his flight
because it was sent to Iligan. So, he made a claim with defendant's personnel in Manila airport
and another suitcase similar to his own which was the only baggage left for that flight, the rest
having been claimed and released to the other passengers of said flight, was given to the
plaintiff for him to take delivery but he did not and refused to take delivery of the same on the
ground that it was not his, alleging that all his clothes were white and the National transistor 7
and a Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol
which he did not have nor placed inside his suitcase; that after inquiries made by defendant's
personnel in Manila from different airports where the suitcase in question must have been sent,
it was found to have reached Iligan and the station agent of the PAL. in Iligan caused the same
to be sent to Manila for delivery to Mr. Shewaram and which suitcase belonging to the plaintiff
herein arrived in Manila airport on November 24, 1959; that it was also found out that the
suitcase shown to and given to the plaintiff for delivery which he refused to take delivery
belonged to a certain Del Rosario who was bound for Iligan in the same flight with Mr.
Shewaram; that when the plaintiff's suitcase arrived in Manila as stated above on November 24,
1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent of the Manila airport
of the arrival of his suitcase but of course minus his Transistor Radio 7 and the Rollflex camera;
that Shewaram made demand for these two (2) items or for the value thereof but the same was
not complied with by defendant."
xxx xxx xxx
"It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN.
The tampering of the suitcase is more apparent when on November 24, 1959, when the suitcase
arrived in Manila, defendant's personnel could open the same in spite of the fact that plaintiff
had it under key when he delivered the suitcase to defendant's personnel in Zamboanga City.
Moreover, it was established during the hearing that there was space in the suitcase where the
two items in question could have been placed. It was also shown that as early as November 24,
1959, when plaintiff was notified by phone of the arrival of the suitcase, plaintiff asked that a
check of the things inside his suitcase be made and defendant admitted that the two items
could not be found inside the suitcase. There was no evidence on record sufficient to show that
plaintiff's suitcase was never opened during the time it was placed in defendant's possession
and prior to its recovery by the plaintiff. However, defendant had presented evidence that it had
authority to open passengers' baggage to verify and find its ownership or identity. Exhibit "1" of
the defendant would show that the baggage that was offered to plaintiff as his own was opened
and the plaintiff denied ownership of the contents of the baggage. This proven fact that
baggage may and could be opened without the necessary authorization and presence of its
owner, applied too, to the suitcase of plaintiff which was missent to Iligan City because of
mistagging. The possibility of what happened in the baggage of Mr. del Rosario at the Manila
Airport in his absence could have also happened to plaintiff's suitcase at Iligan City in the
absence of plaintiff. Hence, the Court believes that these two items were really in plaintiff's
suitcase and defendant should be held liable for the same by virtue of its contract of carriage."
It is clear from the above quoted portions of the decision of the trial court that said court had
found that the suitcase of the appellee was tampered, and the transistor radio and the camera
contained therein were lost, and that the loss of those articles was due to the negligence of the
employees of the appellant. The evidence shows that the transistor radio costs P197.00 and the
camera costs P176.00, so the total value of the two lost articles was P373.00
There is no question that the appellant is a common carrier. 1 As such common carrier the
appellant, from the nature of its business and for reasons of public policy, is bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by it according to the circumstances of each case. 2 It having been shown that the
loss of the transistor radio and the camera of the appellee, costing P373.00, was due to the
negligence of the employees of the appellant, it is clear that the appellant should be held liable
for the payment of said loss. 3
It is, however, contended by the appellant that its liability should be limited to the amount
stated in the conditions of carriage printed at the back of the plane ticket stub which was issued
to the appellee, which conditions are embodied in Domestic Tariff Regulations No. 2 which was
filed with the Civil Aeronautics Board. One of those conditions, which is pertinent to the issue
raised by the appellant in this case, provides as follows:
"The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof
is limited to its value and, unless the passenger declares in advance a higher valuation and pay
an additional charge therefor, the value shall be conclusively deemed not to exceed P100.00 for
each ticket."
The appellant maintains that in view of the failure of the appellee to declare a higher value for
his luggage, and pay the freight on the basis of said declared value when he checked such
luggage at the Zamboanga City airport, pursuant to the above-quoted condition, appellee can
not demand payment from the appellant of an amount in excess of P100.00
 
The law that may be invoked, in this connection, is Article 1750 of the New Civil Code which
provides as follows:
"A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon."
In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the
pecuniary liability of a common carrier may, by contract, be limited to a fixed amount. It is
required, however, that the contract must be "reasonable and just under the circumstances and
has been fairly and freely agreed upon."
The requirements provided in Article 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or
deterioration of the goods it has undertaken to transport. In the case before us We believe that
the requirements of said article have not been met. It can not be said that the appellee had
actually entered into a contract with the appellant, embodying the conditions as printed at the
back of the ticket stub that was issued by the appellant to the appellee. The fact that those
conditions are printed at the back of the ticket stub in letters so small that they are hard to read
would not warrant the presumption that the appellee was aware of those conditions such that
he had "fairly and freely agreed" to those conditions. The trial court has categorically stated in
its decision that the "Defendant admits that passengers do not sign the ticket, much less did
plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold,
therefore, that the appellee is not, and can not be, bound by the conditions of carriage found at
the back of the ticket stub issued to him when he made the flight on appellant's plane on
November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of Articles
1734 and 1735 of the new Civil Code, which We quote as follows:
"Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or Civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority"
"Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required in Article 1733."
It having been clearly found by the trial court that the transistor radio and the camera of the
appellee were lost as a result of the negligence of the appellant as a common carrier, the
liability of the appellant is clear — it must pay the appellee the value of those two articles.
In the case of Ysmael and Co. vs. Barretto, 51 Phil. 90, cited by the trial court in support of its
decision, this Court had laid down the rule that the carrier can not limit its liability for injury to
or loss of goods shipped where such injury or loss was caused by its own negligence.
"Corpus Juris, volume 10, p. 154, says:
'Par. 194. 6. Reasonableness of Limitation. — The validity of stipulations limiting the carrier's
liability is to be determined by their reasonableness and their conformity to the sound public
policy, in accordance with which the obligations of the carrier to the public are settled. It cannot
lawfully stipulate for exemption from liability, unless such exemption is just and reasonable, and
unless the contract is freely and fairly made. No contractual limitation is reasonable which is
subversive of public policy.
'Par. 195. 7. What Limitations of Liability Permissible. —
a. Negligence — (1) Rule in America — (a) In Absence of Organic or Statutory Provisions
Regulating Subject — aa. Majority Rule. — In the absence of statute, it is settled by the weight
of authority in the United States, that whatever limitations against its common-law liability are
permissible to a carrier, it cannot limit its liability for injury to or loss of goods shipped, where
such injury or loss is caused by its own negligence. This is the common law doctrine and it
makes no difference that there is no statutory prohibition against contracts of this character.

'Par. 196. bb. Considerations on which Rule Based. —

The rule, it is said, rests on considerations of public policy. The undertaking is to carry the
goods, and to relieve the shipper from all liability for loss or damage arising from negligence in
performing its contract is to ignore the contract itself. The natural effect of a limitation of liability
against negligence is to induce want of care on the part of the carrier in the performance of its
duty. The shipper and the common carrier are not on equal terms; the shipper must send his
freight by the common carrier, or not at all; he is therefore entirely at the mercy of the carrier
unless protected by the higher power of the law against being forced into contracts limiting the
carrier's liability. Such contracts are wanting in the element of voluntary assent.

'Par. 197. cc. Application and Extent of Rule. —

(aa) Negligence of Servants. — The rule prohibiting limitation of liability for negligence is often
stated as a prohibition of any contract relieving the carrier from loss or damage caused by its
own negligence or misfeasance, or that of its servants; and it has bean specifically decided in
many cases that no contract limitation will relieve the carrier from responsibility for the
negligence, unskillfulness, or carelessness of its employees.'" (Cited in Ysmael and Co. vs.
Barretto, 51 Phil. 90, 98, 99)

In view of the foregoing, the decision appealed from is affirmed, with costs against the
appellant.

Concepcion, C.J., J.B.L. Reyes, Barrera, Dizon, Regala, Makalintal, J.P. Bengzon and Sanchez,

JJ., concur.

||| (Shewaram v. Philippine Air Lines, Inc., G.R. No. L-20099, [July 7, 1966], 124 PHIL 6-14)

SECOND DIVISION
[G.R. No. 152158. February 7, 2003.]
WALLEM PHILIPPINES SHIPPING INC. and SEACOAST MARITIME
CORPORATION, petitioners, vs. PRUDENTIAL GUARANTEE & ASSURANCE INC. and
COURT OF APPEALS, respondents.
Del Rosario & Del Rosario for petitioners.
Macamay Law Office for private respondent.
SYNOPSIS
Private respondent Prudential Guarantee & Assurance Inc. (Prudential) brought an action for
damages and attorney's fees against Wallem Philippines Shipping, Inc. (Wallem) and Seacoast
Maritime Corporation (Seacoast). Prudential sought the recovery of the sum of P995,677.00,
representing the amount it had paid to its insured, General Milling Corporation (GMC), for
alleged shortage incurred in the shipment of "Indian Toasted Soyabean Extraction Meal, Yellow,"
with 6% legal interest thereon from the date of filing of the complaint up to and until the same
is fully paid, and 25% of the claim as attorney's fees. The trial court ruled that private
respondent Prudential failed to prove by clear, convincing, and competent evidence that there
was a shortage in the shipment. The trial court said that private respondent Prudential failed to
establish by competent evidence the genuineness and due execution of the bill of lading and the
true and exact weight of the shipment when it was loaded unto the vessel. Accordingly, the trial
court dismissed both the complaint and the counterclaim. On appeal, the Court of Appeals
reversed the decision of the trial court. Hence, the present petition. CHIEDS
The Supreme Court reversed the decision and resolution of the Court of Appeals and reinstated
the decision of the trial court. The appellate court erred in finding that a shortage had taken
place. Josephine Suarez, Prudential's claims processor, merely identified the papers submitted to
her in connection with GMC's claim. Ms. Suarez had no personal knowledge of the contents of
the said documents and could only surmise as to the actual weight of the cargo loaded on M/V
Gao Yang. She admitted that she had no participation in the preparation of the papers upon
which Prudential based its cause of action against Wallem. Ms. Suarez's testimony regarding the
contents of the documents is thus hearsay, based as it is on the knowledge of another person
not presented on the witness stand. Nor has the genuineness and due execution of the said
documents been established. In the absence of clear, convincing, and competent evidence to
prove that the shipment indeed weighed 4,415.35 metric tons at the port of origin when it was
loaded on the M/V Gao Yang, it cannot be determined whether there was a shortage of the
shipment upon its arrival in Batangas. The Court also ruled that even if the shortage can be
definitively determined, Wallem still cannot be held liable because of the failure of Prudential to
present the contract of insurance or a copy thereof. Prudential claimed that it is subrogated to
the rights of GMC pursuant to their insurance contract. For the said purpose, it submitted a
subrogation receipt and a marine cargo risk note. However, as the trial court pointed out, it is
not sufficient. As GMC's subrogee, Prudential can exercise only those rights granted to GMC
under the insurance contract and, therefore, the contract of insurance must be presented in
evidence to indicate the extent of its coverage.
SYLLABUS
1. MERCANTILE LAW; INSURANCE; CONTRACT OF INDEMNITY; THE COURT OF APPEALS
ERRED IN FINDING THAT A SHORTAGE HAD TAKEN PLACE; NO CLEAR, CONVINCING AND
COMPETENT EVIDENCE WAS PRESENTED TO ESTABLISH ALLEGED SHORTAGE. — We find that
the Court of Appeals erred in finding that a shortage had taken place. Josephine Suarez,
Prudential's claims processor, merely identified the papers submitted to her in connection with
GMC's claim (Bill of Lading BEDI/1 (Exh. B), Commercial Invoice No. 1401 issued by Toepfer
International Asia Pte, Ltd. (Exh. C), SGS Certificate of Quality (Exh. F-1), and SGS Certificate of
Weight (Exh. F-3)). Ms. Suarez had no personal knowledge of the contents of the said
documents and could only surmise as to the actual weight of the cargo loaded on M/V Gao
Yang. She admitted that she had no participation in the preparation of the papers upon which
Prudential based its cause of action against Wallem. Ms. Suarez's testimony regarding the
contents of the documents is thus hearsay, based as it is on the knowledge of another person
not presented on the witness stand. Nor has the genuineness and due execution of these
documents been established. In the absence of clear, convincing, and competent evidence to
prove that the shipment indeed weighed 4,415.35 metric tons at the port of origin when it was
loaded on the M/V Gao Yang, it cannot be determined whether there was a shortage of the
shipment upon its arrival in Batangas.
2. ID.; ID.; ID.; THE COURT OF APPEALS ERRED IN RULING THAT THE CONTENTS OF THE
BILL OF LADING CANNOT BE CONTROVERTED BY EVIDENCE TO THE CONTRARY BECAUSE IT
WAS PRIMA FACIE EVIDENCE OF THE GOODS DESCRIBED THEREIN. — The Court of Appeals
erred in ruling that the contents of the bill of lading cannot be controverted by evidence to the
contrary because it was "prima facie evidence of the goods therein described." Wallem's
evidence casts doubt on the veracity of the documents upon which Prudential bases its claim. As
the Private and Confidential Final Report, dated October 12, 1990 (Exhs. G to G-8). There could
have been no spillage while the shipment was on board the vessel because, according to
Prudential's witness Cunanan, the hatches were closed. Moreover, it was shown that, after the
shipment was unloaded from the vessel, it was weighed with the use of GMC's weighing scale,
which was later found to be defective. Indeed, it is likely that there was again spillage of the
shipment when it was reweighed after its unloading in the same manner that there was spillage
when the shipment was unloaded from the vessel. It should also be noted that the reweighing
was conducted only on April 26, 1990, five days after the shipment was put in the storage of the
consignee. Indeed, as the bill of lading indicated that the contract of carriage was under a "said
to weigh" clause, the shipper is solely responsible for the loading while the carrier is oblivious of
the contents of the shipment.
3. ID.; ID.; ID.; THE CONTRACT OF INSURANCE MUST BE PRESENTED IN EVIDENCE TO
INDICATE THE EXTENT OF ITS COVERAGE. — Even if the shortage can be definitively
determined, Wallem still cannot be held liable because of the failure of Prudential to present the
contract of insurance or a copy thereof. Prudential claims that it is subrogated to the rights of
GMC pursuant to their insurance contract. For this purpose, it submitted a subrogation receipt
(Exh. J) and a marine cargo risk note (Exh. D). However, as the trial court pointed out, this is
not sufficient. As GMC's subrogee, Prudential can exercise only those rights granted to GMC
under the insurance contract. The contract of insurance must be presented in evidence to
indicate the extent of its coverage. As there was no determination of rights under the insurance
contract, this Court's ruling in Home Insurance Corporation v. Court of Appeals is
applicable. HScDIC
DECISION
MENDOZA, J p:
This is a petition for review on certiorari of the decision, dated January 31, 2001, and resolution,
dated February 14, 2002, of the Court of Appeals, 1 which reversed the decision, dated
September 21, 1995, of the Regional Trial Court, Branch 134, Makati City in Civil Case No. 91-
1053, entitled "Prudential Guarantee & Assurance Inc. v. Wallem Philippines Shipping Inc. and
Seacoast Maritime Corporation."
The background of this case is as follows:
On April 17, 1991, private respondent Prudential Guarantee & Assurance Inc. (Prudential)
brought an action for damages and attorney's fees against Wallem Philippines Shipping, Inc.
(Wallem) and Seacoast Maritime Corporation (Seacoast). The complaint was filed with the
Regional Trial Court of Makati City, where it was docketed as Civil Case No. 91-1053, and
assigned to Branch 134 thereof. Private respondent Prudential sought the recovery of the sum
of P995,677.00, representing the amount it had paid to its insured, General Milling Corporation
(GMC), for alleged shortage incurred in the shipment of "Indian Toasted Soyabean Extraction
Meal, Yellow," with 6% legal interest thereon from the date of filing of the complaint up to and
until the same is fully paid, and 25% of the claim as attorney's fees. 2
In its answer, Wallem denied liability for damage or loss to the shipment. It was alleged that the
complaint did not state a cause of action against it; that Prudential, Wallem, and Seacoast were
not the real parties-in-interest; that the action had prescribed; that the damage or loss, if any,
was due to the inherent vice or defect of the goods, or to perils, dangers, and accidents of the
sea, for which Wallem was not liable; that the damage or loss to the shipment was due to an
act or omission of Prudential or the owner of the goods or their representative, or to pre-
shipment damage, for which Wallem was not liable; that the shipment was carried on a
"shipper's description of packages and contents," "said to weigh," "in bulk," and "free out" basis;
that based on the provisions of the bill of lading, Prudential had the burden of proving the actual
quantity of cargo loaded at the loading port; that Prudential had no contract with Wallem, which
acted as a mere agent of a disclosed principal; that Wallem had observed the diligence required
under the law in the care of the shipment; that the shipment was discharged in the same
quantity as when it was loaded at the port of loading; that any loss incurred during and after
discharge from the vessel was no longer the responsibility of the carrier; that Wallem could not
be made liable for the loss or damage, if any, of the goods which happened whilst the same
were not in its possession and control; that Prudential's claim was excessive and exaggerated;
that Wallem's liability, if any, should not exceed the invoice value of the alleged loss or the
applicable package limitation, whichever was lower, or the limit of liability set in the bill of
lading. ECcaDT
Wallem filed a compulsory counterclaim against Prudential as the complaint was allegedly a
clearly unfounded civil action. Wallem filed a crossclaim against its co-defendant Seacoast, in
the event that it was made liable to Prudential. 3 Upon motion of Prudential's counsel,
defendant Seacoast was declared in default. 4 After termination of the pre-trial conference, this
case was tried on the merits.
To prove its claim for indemnity, Prudential presented two witnesses: Josephine Suarez and
Alfredo Cunanan.
Josephine Suarez, the claims processor of Prudential, testified that in March 1991 she received a
claim from GMC in connection with its shipment which arrived on board M/V Gao Yang (Exh. A).
Upon receipt of the claim and its supporting papers, she referred the same to Tan-Gatue
Adjustment Company, Inc. (Tan-Gatue), which submitted a report (Exhs. G to G-8). Upon her
recommendation, Prudential paid GMC the sum of P995,677.09, as evidenced by receipts and a
voucher (Exhs. H, I, and K). GMC then issued a subrogation receipt to Prudential (Exh. J), which
in turn sent a demand letter to Wallem (Exh. L).
On cross-examination, Ms. Suarez admitted that she had no participation in the preparation of
the documents (Exhs. A to G) submitted to her, and that she had based her recommendation to
pay GMC's claim on said documents. She also admitted that she did not do anything to verify
the genuineness of Bill of Lading BEDI/1(Exh. B) and Commercial Invoice No. 1401 (Exh. C).
She said that GMC had been paid 20% more than its alleged loss. 5
Alfredo Cunanan, senior cargo surveyor of Tan-Gatue declared that he conducted in March 1990
a survey of the shipment on board M/V Gao Yang at GMC's warehouse at Tabangao, Batangas.
Cunanan was present during the unloading of the shipment. He saw the cargo discharged from
the vessel by the use of a suction device, wherein the cargo passed into a conveyor and
weighed unto GMC's automatic scale. The quantity recorded on GMC's scale was thereafter
compared with that indicated in the bill of lading. At that point a shortage was discovered. The
survey report prepared by Cunanan stated in pertinent part:
RECAPITULATION
1) Shipment Per Stowage Plan — 4,417.000 M/Tons
  Outturn Per Consignee's Scale — 4,121.318 M/Tons
      ———————
  Shortage — 295,682 M/Tons
2) Shipment Per Bill of Lading — 4,415.350 M/Tons
  Outturn Per Consignee's Scale — 4,121.318 M/Tons
      ———————
  Shortage — 294,032 M/Tons 6
On cross-examination, Cunanan testified that no cargo was left on the M/V Gao Yang after the
discharging process. He admitted that his basis for determining the weight of the shipment prior
to unloading was the Certificate of Weight (Exh. F-3) furnished by GMC, as to which preparation
he did not participate. He further explained that, as per the Certificate of Weight, the cargo had
been packed in bags at the port of origin. The bags were then conveyed to midstream in barges
alongside the vessel and hauled up onto the steamer. The bags were later cut open at their
mouths and the contents emptied onto the ship's storage areas, specifically Hatch Nos. One
Lower Hold, One Tween Deck, Five Lower Hold, Five Tween Deck, Two Tween Deck, and Four
Tween Deck. 7 He also admitted that the lack of a draft survey due to the absence of a
surveyor appointed by Wallem was based merely on information gathered from one of his
surveyors. DTcASE
In the course of the discharging and weighing operations, one of Tan-Gatue's assigned
surveyors registered a protest as there were blurred notations on GMC's weighing scale. They
found that the scale had not been properly calibrated and that it showed a discrepancy of
approximately 130 metric tons. Upon recommendation of Tan-Gatue, a reweighing was done on
April 26, 1990 with the use of another scale. Wallem's representative was not notified of this
reweighing, which was made by loading the cargo on the truck for delivery to consignee's
receivers. Reloading on the trucks was also made through the use of a suction tube. An alleged
shortage of 164.4 metric tons was found, which was significantly lower than the shortage stated
in the recapitulation above. 8
Part of Cunanan's report contained an opinion stating that the shortage may be attributed to the
spillage incurred during the transit and loading of the shipment to the vessel at the port of origin
for the following reasons: (1) the said shipment was originally packed in bags prior to loading to
carrier vessel; (2) the weighing of the said shipment made prior to its loading to the carrier
vessel became the basis of the quantity stated in the bill of lading; and (3) the bagged
shipment, after weighing over the weighbridge scale, was conveyed to midstream in barges
alongside the vessel and hauled up onto the steamer, after which the mouths of the bags were
cut open and the contents emptied into ship hatches. 9
After weighing in Batangas, the bagged shipment was delivered to GMC's warehouse in Bo.
Ugong, Pasig, Metro Manila, and to Filstream and Universal Robina Corp., as direct receivers of
GMC. 10 Because of the shortage, GMC filed a claim against Prudential, being its insurer.
For its part, petitioner Wallem, as defendant below, presented three witnesses: Romualdo De
Belen, manager of its documentations department, Rio Puriran, marine cargo surveyor of
Oceanica Cargo Marine Surveyor (Oceanica), and Edilberto Mendoza, Wallem's operations
manager.
Romualdo De Belen testified that he was the claims supervisor for Wallem from January 1991 to
August 1991. As such, he was tasked to gather all documents of a claim and to submit them to
the Protective and Indemnity Club (P&I), which in turn handles all claims pertaining to a vessel
which is a member thereof. In connection with the claim subject matter of this case, De Belen
collected the pertinent documents, like the bill of lading (Exh. 1), the general statement of facts
(Exhs. 2 and 2-A), the survey certificate (Exhs. 3 and 3-A), and the inward foreign manifest
(Exh. 4). 11
After his investigation, he found that the weight stated in the bill of lading was less than what
was actually discharged. The bill of lading stated that the weight of the cargo was 4,415 metric
tons, but the actual weight discharged was 4,418 metric tons. The overage was based on the
bill of lading, which contained the weight as declared by the shipper, and the survey certificate,
which contained the weight of the total cargo discharged representing the difference between
the initial and final displacement of the vessel. 12
De Belen noted that the bulk cargo declared in the bill of lading was "said to weigh" 4,415.35
metric tons. He explained that the phrase "said to weigh" means that nobody really knows the
actual weight of the cargo; the weight of the cargo written on the bill of lading and on the
manifest being based only on the declaration of the shipper. 13
On cross-examination, De Belen admitted that he collected the documents respecting GMC's
claim only upon receipt of the summons in this case. He also stated that he based his finding of
overage on the survey certificate (Exh. 3). 14
Rio Puriran, an employee of Oceanica, described the procedure in preparing the draft survey
which would become the basis for the survey certificate. He testified that the draft mark is taken
and the known cargo weight is sounded so that the displacement of the ship may be computed
and the weight of the cargo unloaded known. He identified the signatures of Cornelio Damaso,
Oceanica's operations manager, and Arnel Plaza, the surveyor assigned to the vessel on the
survey certificate (Exh. 3-A). On cross-examination, he admitted that he had no participation in
conducting the survey covered by the survey certificate marked as Exhibits 3 to 3-A. 15
Edilberto Mendoza, Wallem's operations manager, declared that a representative was sent to
oversee the discharging of its cargo when the M/V Gao Yang arrived in Batangas. He tendered a
Notice of Readiness (Exh. 6) to GMC and assigned Oceanica to conduct a draft survey and issue
a survey certificate (Exhs. 3 to 3-B). The unloading of the cargo was undertaken by GMC per the
"free out" notation on the bill of lading (Exh. 1-A). Mendoza stated that "free out" means that
the vessel is free from any expenses and discharging operations for the cargo. It is the cargo
receiver who has the responsibility to get their cargo. After discharge of the cargo, Wallem's
representative prepared a general statement of facts (Exhs. 5 and 5-A). 16
On cross-examination, Mendoza admitted that he was not present when the cargo was
discharged from the vessel and that he had no participation in the preparation of the general
statement of facts (Exhs. 5 to 5-A) and the notice of readiness (Exh. 6). 17
The trial court resolved whether there was indeed a shortage in the shipment and whether
Wallem could be held liable for the shortage. 18 The trial court ruled that private respondent
Prudential failed to prove by clear, convincing, and competent evidence that there was a
shortage in the shipment. The trial court said that private respondent Prudential failed to
establish by competent evidence the genuineness and due execution of the bill of lading and,
therefore, the true and exact weight of the shipment when it was loaded unto the vessel.
Hence, there was no way by which a shortage could be determined. The trial court ruled that
the shortage, if any, could only have been incurred either before the loading of the shipment, as
stated in the final report (Exhs. G to G-8), or after the unloading of the shipment from the
vessel, the latter instance being admitted by Prudential's own witness, Mr. Alfredo Cunanan.
Accordingly, the trial court dismissed both the complaint and the counterclaim. cDAISC
On appeal, the Court of Appeals reversed. The dispositive portion of its decision reads:
WHEREFORE, judgment is hereby rendered REVERSING the appealed decision. A new one is
entered ordering defendants-appellees Wallem and Seacoast to pay, jointly and severally,
plaintiff-appellant Prudential the amount of P796,541.672, plus 6% interest from April 17, 1991,
date of filing of the complaint, until fully paid, plus costs of the suit.
SO ORDERED. 19
The Court of Appeals ruled that the bill of lading was prima facie evidence of the goods therein
described, both notations "said to contain" and "weight unknown" on the bill of lading being
inapplicable to shipments in bulk. Contrary to the opinion of the trial court, it was ruled by the
appeals court that losses were incurred during the loading operations, and that these losses
were the liability of the carrier. Finally, the Court of Appeals held that the principle of indemnity
is violated if the insured is paid a benefit more than the loss incurred in the light of the
admission of a 20% mark-up on the indemnity paid to GMC.
Petitioner Wallem moved for reconsideration, but its motion was denied. 20 Hence, this appeal.
Petitioner contends that the Court of Appeals erred —
I. WHEN IT HELD THAT THE QUANTITY OF THE CARGO REFLECTED IN THE BILL OF LADING
IS CONCLUSIVE AS TO THE ACTUAL CARGO OF THE CONSIGNEE NOTWITHSTANDING THE
FACT THAT SAID CARGO WAS SHIPPED ON A "SAID TO WEIGH" BASIS. SAID DECISION IS
CONTRARY TO ESTABLISHED PRINCIPLES IN MARITIME LAW AND SEC. 11 OF THE CARRIAGE
OF GOODS BY SEAS ACT WHERE IT IS STATED THAT:
When under the custom of any trade the weight of any bulk cargo inserted in the bill of lading is
a weight ascertained or accepted by a third party other than the carrier or the shipper and the
fact that the weight as ascertained or accepted is stated in the bill of lading, then
notwithstanding anything in this Act, the bill of lading shall not be deemed prima facie evidence
against the carrier of the receipt of goods of the weight so inserted in the bill of lading, and the
accuracy thereof at the time of shipment shall not be deemed to have been guaranteed by the
shipper."
I.A IN DISREGARDING THE WELL ESTABLISHED PRINCIPLE IN ADMIRALTY LAW THAT THE
BURDEN OF PROOF RESTS ON THE PLAINTIFF THAT THE WEIGHT OR QUANTITY ALLEGED
HAD IN FACT BEEN SHIPPED, OTHERWISE, THE DEFENDANT IS UNDER NO OBLIGATION TO
PROVE HIS EXCEPTION OR DEFENSE AS HELD IN THE CASE OF BELEN VS. BELEN, 13 PHIL.
202.
I.B IN RULING THAT THE PRINCIPLE ON PRESUMED NEGLIGENCE IS APPLICABLE IN THIS
CASE CONSIDERING THAT THE FACT OF SHORTAGE WAS NEVER DULY PROVEN. AS HELD
IN PLANTERS PRODUCTS, INC. VS. CA, 226 SCRA 476, IT IS ONLY AFTER THE SHIPPER HAS
ESTABLISHED LOSS OF CARGO WHILE IN THE CUSTODY OF THE VESSEL WILL THE BURDEN
OF PROOF SHIFT TO THE COMMON CARRIER FOR IT TO PROVE THAT IT HAS EXERCISED
EXTRAORDINARY DILIGENCE IN THE TRANSPORTATION OF GOODS OR THAT THE LOSS WAS
UNDER THE EXCEPTIONS PROVIDED BY LAW.
II. IN RULING THAT THE SHORTAGE WAS ATTRIBUTABLE TO THE FAULT OF HEREIN
PETITIONER CONTRARY TO THE EVIDENCE PRESENTED WHICH WAS MADE AS BASIS FOR
THE TRIAL COURT'S DECISION. MOREOVER, THE HONORABLE COURT OF APPEALS GRAVELY
ERRED WHEN IT STATED THAT THERE WAS NO LOSS THAT OCCURRED DURING THE
DISCHARGING OPERATIONS. AS CORRECTLY POINTED OUT BY THE TRIAL COURT IN ITS
DECISION, THE SHORTAGE, IF ANY, WAS OCCASIONED DURING THE DISCHARGING
OPERATIONS CITING AS BASIS HEREIN RESPONDENT'S OWN WITNESS.
III. IN GRANTING RELIEF TO RESPONDENT-INSURER WHEN THE LATTER FAILED TO
ESTABLISH HIS RIGHT OF ACTION AGAINST HEREIN PETITIONER THROUGH CONVINCING
AND COMPETENT EVIDENCE AS THE ORIGINAL OF THE INSURANCE POLICY WAS NEVER
PRESENTED IN COURT. SAID RULING RUNS COUNTER TO THE CASE OF HOME INSURANCE
CORPORATION VS. CA, 225 SCRA 411 WHERE THIS HONORABLE COURT HELD THAT:
"The insurance contract has not been presented. It may be assumed for the sake of argument
that the subrogation receipt may nevertheless be used to establish the relationship between the
petitioner and the consignee and the amount paid to settle the claim. But that is all the
document can do. By itself alone, the subrogation receipt is not sufficient to prove the
petitioner's claim . . .
It is curious that the petitioner disregarded this rule, knowing that the best evidence of the
insurance contract was its original copy, which was presumably in the possession of Home itself.
Failure to present this original (or even a copy of it), for reasons the Court cannot comprehend,
must prove fatal to this petition."
We find petitioner's contentions to be meritorious. EIAaDC
First. Although this Court's jurisdiction in a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure is limited to the review of errors of law, we are constrained to
review the evidence in view of the conflicting findings of fact made by the trial court and the
appellate court. 21
The trial court held that private respondent Prudential failed to prove by clear, convincing, and
competent evidence that there was a shortage in the shipment. Hence, petitioner Wallem could
not be held liable for the indemnity paid by Prudential to GMC. Prudential's own witnesses
admitted that they had no participation in the preparation of the documents upon which they
base their claim. They even testified that the loss, if indeed there was any, might have been due
to the loading process or by the unloading operations conducted by GMC. However, the Court of
Appeals ruled that on the basis of the weight stated on the bill of lading, there was indeed a
shortage, and held that the loss was caused in the loading process alone.
We find that the Court of Appeals erred in finding that a shortage had taken place. Josephine
Suarez, Prudential's claims processor, merely identified the papers submitted to her in
connection with GMC's claim (Bill of Lading BEDI/1 (Exh. B), Commercial Invoice No. 1401
issued by Toepfer International Asia Pte, Ltd. (Exh. C), SGS Certificate of Quality (Exh. F-1), and
SGS Certificate of Weight (Exh. F-3)). Ms. Suarez had no personal knowledge of the contents of
the said documents and could only surmise as to the actual weight of the cargo loaded on M/V
Gao Yang. She admitted that she had no participation in the preparation of the papers upon
which Prudential based its cause of action against Wallem.
ATTY. DEL ROSARIO ON CROSS-EXAMINATION
Q Miss Witness, I would like to refer you to Exhibits A, B, C, will you please tell us Madam
Witness, if you have any participation in the preparation of these documents?
A No sir.
Q How about Exhibits E, G, and F, did you have any participation in the preparation of these
documents?
A No sir.
Q And in fact these documents were just given to you, is that correct?
A Yes sir.
Q And based on these documents, you made a recommendation for the payment of the claim of
your assured, is that correct?
A Yes sir. 22
Ms. Suarez's testimony regarding the contents of the documents is thus hearsay, based as it is
on the knowledge of another person not presented on the witness stand. 23
Nor has the genuineness and due execution of these documents been established. In the
absence of clear, convincing, and competent evidence to prove that the shipment indeed
weighed 4,415.35 metric tons at the port of origin when it was loaded on the M/V Gao Yang, it
cannot be determined whether there was a shortage of the shipment upon its arrival in
Batangas.
Second. The Court of Appeals erred in ruling that the contents of the bill of lading cannot be
controverted by evidence to the contrary because it was "prima facie evidence of the goods
therein described." Wallem's evidence casts doubt on the veracity of the documents upon which
Prudential bases its claim. As the Private and Confidential Final Report, dated October 12, 1990
(Exhs. G to G-8), stated:
[W]e are of the opinion that [the] shortage may be attributed to the spillage incurred during the
transit/loading of the shipment to the vessel at the Port of Origin for the following reasons:
1. The said shipment was originally packed in bags prior to loading to carrier vessel.
2. The weighing was made prior to loading to carrier vessel which is the basis of the Bill of
Lading quantity.
3. The bag[ged] shipment, after weighing over [the] weighbridge scale, [was] conveyed to
midstream alongside vessel in barges, hauled up on the [steamer], cut open the mouth[s] of the
bags and [the] contents emptied into ship hatches. 24
There could have been no spillage while the shipment was on board the vessel because,
according to Prudential's witness Cunanan, the hatches were closed. 25 Moreover, it was shown
that, after the shipment was unloaded from the vessel, it was weighed with the use of GMC's
weighing scale, which was later found to be defective. Cunanan stated in his report:
During the course of discharging/weighing operation, we noted some minor discrepancy on the
weighing scale, hence, we registered our protest.
We suggest to the assured to conduct another reweighing to determine the correct quantity of
the soyabean meal unloaded from the vessel. 26
Cunanan later testified:
Q And based on this blurred notations, you presumed that there was something wrong in the
weighing scale, is that correct?
A It is a minor discrepancy sir, on the weighing scale.
Q And by minor discrepancy, you are actually referring to about 130.000 metric tons
discrepancy?
A 130 metric tons discrepancy, more or less.
xxx xxx xxx
Q And how was the reweighing made Mr. Cunanan?
A The reweighing was made by truck because the cargo was unloaded from the vessel, and it
was stored in the big storage, storage of the consignee. Now, after hearing our protest, that
there are some minor discrepancy on the weighing scale, we suggest for a reweighing. The
reweighing was made by loading this cargo on board the truck for delivery to their receivers or
to the consignees in Manila.
xxx xxx xxx
Q In the conveyors, did you see any spillages, on the sides, as far as these cargoes are
concerned?
A There were sir, but they were also removed and weighed.
Q And these spillages were also accumulated and made part of the cargo?
A That's correct sir.
xxx xxx xxx
Q During the reweighing procedure, during loading to trucks, these trucks were open?
 
A Yes sir, they were open.
Q And the tarpaulin placed only after the trucks are full?
A That's correct, sir. 27
Indeed, it is likely that there was again spillage of the shipment when it was reweighed after its
unloading in the same manner that there was spillage when the shipment was unloaded from
the vessel. It should also be noted that the reweighing was conducted only on April 26, 1990,
five days after the shipment was put in the storage of the consignee. CcTIAH
Indeed, as the bill of lading indicated that the contract of carriage was under a "said to weigh"
clause, the shipper is solely responsible for the loading while the carrier is oblivious of the
contents of the shipment. 28
Third. Even if the shortage can be definitively determined, Wallem still cannot be held liable
because of the failure of Prudential to present the contract of insurance or a copy thereof.
Prudential claims that it is subrogated to the rights of GMC pursuant to their insurance contract.
For this purpose, it submitted a subrogation receipt (Exh. J) and a marine cargo risk note (Exh.
D). However, as the trial court pointed out, this is not sufficient. As GMC's subrogee, Prudential
can exercise only those rights granted to GMC under the insurance contract. The contract of
insurance must be presented in evidence to indicate the extent of its coverage. As there was no
determination of rights under the insurance contract, this Court's ruling in Home Insurance
Corporation v. Court of Appeals 29 is applicable:
The insurance contract has not been presented. It may be assumed for the sake of argument
that the subrogation receipt may nevertheless be used to establish the relationship between the
petitioner [Home Insurance Corporation] and the consignee [Nestlé Phil.] and the amount paid
to settle the claim. But that is all the document can do. By itself alone, the subrogation receipt is
not sufficient to prove the petitioner's claim holding the respondent [Mabuhay Brokerage Co.,
Inc.] liable for the damage to the engine.
xxx xxx xxx
It is curious that the petitioner disregarded this rule, knowing that the best evidence of the
insurance contract was its original copy, which was presumably in the possession of Home itself.
Failure to present this original (or even a copy of it), for reasons the Court cannot comprehend,
must prove fatal to this petition.
WHEREFORE, the decision and resolution of the Court of Appeals is REVERSED and the decision
of the Regional Trial Court, Branch 134, Makati City, dismissing the complaint and the
counterclaim, is REINSTATED. No pronouncement as to costs.
SO ORDERED.
Bellosillo, Quisumbing, Austria-Martinez and Callejo, Sr., JJ., concur.
||| (Wallem Philippines Shipping Inc. v. Prudential Guarantee & Assurance Inc., G.R. No.
152158, [February 7, 2003], 445 PHIL 136-154)

THIRD DIVISION
[G.R. No. 130030. June 25, 1999.]
EXPERTRAVEL & TOURS, INC., petitioner, vs. THE HON. COURT OF APPEALS and
RICARDO LO, respondents.
Purita Hontanosas-Cortes for petitioner.
Arturo M. Catacutan for private respondent.
SYNOPSIS
As culled from the records, petitioner Expertravel and Tours, Inc. filed a suit for recovery of a
sum of money plus damages against private respondent Ricardo Lo for four round-trip plane
tickets for Hongkong petitioner issued to respondent Lo, together with hotel accommodations
and transfers, for a total cost of P39,677.20 which respondent Lo failed to pay. Respondent Lo
in his answer alleged that his account with petitioner had already been fully paid. The trial court
rendered judgment dismissing the suit and ordering petitioner to pay moral damages. According
to said court, payment made by the private respondent to petitioner's chairperson was valid and
binding on petitioner. The Court of Appeals affirmed the judgment in toto. Hence, this petition
for review on certiorari, wherein Expertravel sought for the deletion of the moral damages
awarded the respondent.
Petition granted. Moral damages are not punitive in nature but are designed to compensate and
alleviate in some way the physical suffering, mental anguish, social humiliation and similar injury
unjustly caused to a person. ECcaDT
Although the institution of a clearly unfounded civil suit can at times be a legal justification for
an award of attorney's fees, such filing, however, has almost invariably been held not to be a
ground for an award of moral damages. The law could not have meant to impose a penalty on
the right to litigate.
SYLLABUS
1. CIVIL LAW; DAMAGES; MORAL DAMAGES; BASIS OF AWARD. — Moral damages are not
punitive in nature but are designed to compensate and alleviate in some way the physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury unjustly caused to a person. Although
incapable of pecuniary computation, moral damages, nevertheless, must somehow be
proportional to and in approximation of the suffering inflicted. Such damages, to be recoverable,
must be the proximate result of a wrongful act or omission the factual basis for which is
satisfactorily established by the aggrieved party.
2. ID.; ID.; ID.; CONDITIONS FOR AWARD. — An award of moral damages would require
certain conditions to be met; to wit: (1) First, there must be an injury, whether physical, mental
or psychological, clearly sustained by the claimant; (2) second, there must be a culpable act or
omission factually established; (3) third, the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) fourth, the award of damages
is predicated on any of the cases stated in Article 2219.
3. ID.; ID.; ID.; LEGAL PROVISIONS MANDATING AWARD. — Under the provisions of this law,
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 his contractual obligation and, exceptionally, when the act of breach of
contract itself is constitutive of tort resulting 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. In culpa aquiliana, or quasi-delict, (a)
when an act or omission causes physical injuries, or (b) where the defendant is guilty
of intentional tort, moral damages may aptly be recovered. This rule also applies, as
aforestated, to contracts when breached by tort. In culpa criminal, moral damages could be
lawfully due when the accused is found guilty of physical injuries, lascivious acts, adultery or
concubinage, illegal or arbitrary detention, illegal arrest, illegal search, or defamation. The term
"analogous cases," referred to in Article 2219, following the ejusdem generis rule, must be held
similar to those expressly enumerated by the law.
4. ID.; ID.; ID.; NOT RECOVERABLE ON CLEARLY UNFOUNDED SUIT; RATIONALE. — Although
the institution of a clearly unfounded civil suit can at times be a legal justification for an award
of attorney's fees, such filing, however, has almost invariably been held not to be a ground for
an award of moral damages. The rationale for the rule is that the law could not have meant to
impose a penalty on the right to litigate. The anguish suffered by a person for having been
made a defendant in a civil suit would be no different from the usual worry and anxiety suffered
by anyone who is haled to court, a situation that cannot by itself be a cogent reason for the
award of moral damages. If the rule were otherwise, then moral damages must every time be
awarded in favor of the prevailing defendant against an unsuccessful plaintiff. IADaSE
DECISION
VITUG, J p:
Petitioner, Expertravel and Tours, Inc., seeks in the instant petition for review on certiorari a
modification of the decision, dated 20 March 1997, of the Court of Appeals affirming  in toto the
07th November 1994 judgment of the Regional Trial Court (Branch 5) of Manila, the dispositive
portion of which reads: llcd
"WHEREFORE, in view of all the foregoing, judgment is rendered declaring the instant suit
DISMISSED, and hereby orders the plaintiff to pay defendant Ricardo Lo moral damages in the
amount of P30,000.00; attorney's fees in the amount of P10,000.00, and to pay the costs of the
suit.
"No pronouncement as to other damages for lack of evidence to warrant the same." 1
The factual and case settings of the controversy are culled from the pleadings on record and the
assailed decision of the appellate court and that of the court a quo.
On 07 October 1987, Expertravel & Tours, Inc., ("Expertravel"), a domestic corporation engaged
in the travel agency business, issued to private respondent Ricardo Lo four round-trip plane
tickets for Hongkong, together with hotel accommodations and transfers, for a total cost of
P39,677.20. Alleging that Lo had failed to pay the amount due, Expertravel caused several
demands to be made. Since the demands were ignored by Lo, Expertravel filed a court
complaint for recovery of the amount claimed plus damages.
Respondent Lo explained, in his answer, that his account with Expertravel had already been fully
paid. The outstanding account was remitted to Expertravel through its then Chairperson, Ms.
Ma. Rocio de Vega, who was theretofore authorized to deal with the clients of Expertravel. The
payment was evidenced by a Monte de Piedad Check No. 291559, dated 06 October 1987, for
P42,175.20 for which Ms. de Vega, in turn, issued City Trust Check No. 417920 in favor of
Expertravel for the amount of P50,000.00, with the notation "placement advance for Ricardo Lo,
etc." Per its own invoice, Expertravel received the sum on 10 October 1987.
The trial court, affirmed by the appellate court, held that the payment made by Lo was valid and
binding on petitioner Expertravel. Even on the assumption that Ms. de Vega had not been
specifically authorized by Expertravel, both courts said, the fact that the amount "delivered to
the latter remain(ed) in its possession up to the present, mean(t) that the amount redounded to
the benefit of petitioner Expertravel, in view of the second paragraph of Article 1241 of the Civil
Code to the effect that payment made to a third person shall also be valid in so far as it has
redounded to the benefit of the creditor." dctai
In this recourse, petitioner confines itself to the following related legal issues; viz:
"I. Can moral damages be recovered in a clearly unfounded suit?
"II. Can moral damages be awarded for negligence or quasi-delict that did not result to physical
injury to the offended party?" 2
when an act or omission causes physical injuries, or (b) where the defendant is guilty
of intentional tort, 8 moral damages may aptly be recovered. This rule also applies, as
aforestated, to contracts when breached by tort. In culpa criminal, moral damages could be
lawfully due when the accused is found guilty of physical injuries, lascivious acts, adultery or
concubinage, illegal or arbitrary detention, illegal arrest, illegal search, or defamation. Malicious
prosecution can also give rise to a claim for moral damages. The term "analogous cases,"
referred to in Article 2219, following the ejusdem generis rule, must be held similar to those
expressly enumerated by the law. 9 llcd
Although the institution of a clearly unfounded civil suit can at times be a legal justification for
an award of attorney's fees, 10 such filing, however, has almost invariably been held not to be
a ground for an award of moral damages. 11 The rationale for the rule is that the law could not
have meant to impose a penalty on the right to litigate. The anguish suffered by a person for
having been made a defendant in a civil suit would be no different from the usual worry and
anxiety suffered by anyone who is haled to court, a situation that cannot by itself be a cogent
reason for the award of moral damages. 12 If the rule were otherwise, then moral damages
must every time be awarded in favor of the prevailing defendant against an unsuccessful
plaintiff. 13
The Court confirms, once again, the foregoing rules.
WHEREFORE, the petition is GRANTED and the award of moral damages to respondent Ricardo
Lo under the assailed decision is DELETED. In its other aspects, the appealed decision shall
remain undisturbed. No costs. cdasia
SO ORDERED.
Panganiban, Purisima and Gonzaga-Reyes, JJ., concur.
Romero, J., on official business leave abroad.
 

There is merit in the petition. ||| (ExpertTravel & Tours, Inc. v. Court of Appeals, G.R. No. 130030, [June 25, 1999], 368 PHIL
444-450)
Moral damages are not punitive in nature but are designed to compensate 3 and alleviate in
some way the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury unjustly caused to a
person. Although incapable of pecuniary computation, moral damages, nevertheless, must
somehow be proportional to and in approximation of the suffering inflicted. 4 Such damages, to
be recoverable, must be the proximate result of a wrongful act or omission the factual basis for
which is satisfactorily established by the aggrieved party. 5 An award of moral damages would
require certain conditions to be met; to wit: (1) First, there must be an injury, whether physical,
mental or psychological, clearly sustained by the claimant; (2) second, there must be a culpable
act or omission factually established; (3) third, the wrongful act or omission of the defendant is
the proximate cause of the injury sustained by the claimant; and (4) fourth, the award of
damages is predicated on any of the cases stated in Article 2219. 6 Under the provisions of this
law, 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 his contractual obligation and, exceptionally, when the act of breach of
contract itself is constitutive of tort resulting in physical injuries. 7 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. In culpa aquiliana, or quasi-delict, (a)

SECOND DIVISION
[G.R. No. 156087. May 8, 2009.]
KUWAIT AIRWAYS, CORPORATION, petitioner, vs. PHILIPPINE AIRLINES,
INC., respondent.
DECISION
TINGA, J p:
This petition for review 1 filed by the duly designated air carrier of the Kuwait Government
assails a decision 2 dated 25 October 2002 of the Makati Regional Trial Court (RTC), Branch 60,
ordering Kuwait Airways to pay respondent Philippine Airlines the amount of US$1,092,690.00,
plus interest, attorney's fees, and cost of suit. 3 The principal liability represents the share to
Philippine Airlines in the revenues the foreign carrier had earned for the uplift of passengers and
cargo in its flights to and from Kuwait and Manila which the foreign carrier committed to remit
as a contractual obligation. SAHITC
On 21 October 1981, Kuwait Airways and Philippine Airlines entered into a Commercial
Agreement, 4 annexed to which was a Joint Services Agreement 5 between the two airlines.
The Commercial Agreement covered a twice weekly Kuwait Airways flight on the route Kuwait-
Bangkok-Manila and vice versa. 6 The agreement stipulated that "only 3rd and 4th freedom
traffic rights between Kuwait and Manila and vice versa will be exercised. No 5th freedom traffic
rights will be exercised between Manila on the one hand and Bangkok on the other." 7
The "freedom traffic rights" referred to in the Agreement are the so-called "five freedoms"
contained in the International Air Transport Agreement (IATA) signed in Chicago on 7 December
1944. Under the IATA, each contracting State agreed to grant to the other contracting states,
five "freedoms of air". Among these freedoms were "[t]he privilege to put down passengers,
mail and cargo taken on in the territory of the State whose nationality the aircraft possesses"
(Third Freedom); "[t]he privilege to take on passengers, mail or cargo destined for the territory
of the State whose nationality the aircraft possesses" (Fourth Freedom); and the right to carry
passengers from one's own country to a second country, and from that country to a third
country (Fifth Freedom). In essence, the Kuwait Airways flight was authorized to board
passengers in Kuwait and deplane them in Manila, as well as to board passengers in Manila and
deplane them in Kuwait. At the same time, with the limitation in the exercise of Fifth Freedom
traffic rights, the flight was barred from boarding passengers in Bangkok and deplaning them in
Manila, or boarding passengers in Manila and deplaning them in Bangkok. TAcCDI
The Commercial Agreement likewise adverted to the annexed Joint Services Agreement covering
the Kuwait-Manila (and vice versa) route, which both airlines had entered into "[i]n order to
reflect the high level of friendly relationships between [Kuwait Airways] and [Philippine Airlines]
and to assist each other to develop traffic on the route". 8 The Agreement likewise stipulated
that "[u]ntil such time as [Philippine Airlines] commences its operations to or via Kuwait, the
Joint Services shall be operated with the use of [Kuwait Airways] aircraft and crew."  9 By virtue
of the Joint Services Agreement, Philippine Airlines was entitled to seat allocations on specified
Kuwait Airways sectors, special prorates for use by Philippine Airlines to specified Kuwait
Airways sectors, joint advertising by both carriers in each other's timetables and other general
advertising, and mutual assistance to each other with respect to the development of traffic on
the route. 10
Most pertinently for our purposes, under Article 2.1 of the Commercial Agreement, Kuwait
Airways obligated itself to "share with Philippine Airlines revenue earned from the uplift of
passengers between Kuwait and Manila and vice versa". 11 The succeeding paragraphs of
Article 2 stipulated the basis for the shared revenue earned from the uplift of passengers.
The Commercial Agreement and the annexed Joint Services Agreement was subsequently
amended by the parties six times between 1981 and 1994. At one point, in 1988, the agreement
was amended to authorize Philippine Airlines to operate provisional services, referred to as "ad
hoc joint services", on the Manila-Kuwait (and vice versa) route for the period between April to
June 1988. 12 In 1989, another amendment was agreed to by the parties, subjecting the uplift
of cargo between Kuwait and Manila to the same revenue sharing arrangement as the uplift of
passengers. 13 From 1981 until when the present incidents arose in 1995, there seems to have
been no serious disagreements relating to the contract.
In April of 1995, delegations from the Philippines and Kuwait (Philippine Panel and Kuwait
Panel) met in Kuwait. The talks culminated in a Confidential Memorandum of Understanding
(CMU) entered into in Kuwait on 12 April 1995. Among the members of the Philippine Panel
were officials of the Civil Aeronautics Board (CAB), the Department of Foreign Affairs (DFA), and
four officials of Philippine Airlines: namely its Vice-President for Marketing, Director for
International Relations, Legal Counsel, and a Senior International Relations Specialist. Dr. Victor
S. Linlingan, * the Head of the Delegation and Executive Director of the CAB, signed the CMU in
behalf of the Government of the Republic of the Philippines.
The present controversy stems from the fourth paragraph of the CMU, which read:
4. The two delegations agreed that the unilateral operation and the exercise of third and fourth
freedom traffic rights shall not be subject to any royalty payment or commercial arrangements,
as from the date of signing of this [CMU]. ICcDaA
The aeronautical authorities of the two Contracting Parties will bless and encourage any
cooperation between the two designated airlines.
The designated airlines shall enter into commercial arrangements for the unilateral exercise of
fifth freedom traffic rights. Such arrangements will be subject to the approval of the
aeronautical authorities of both contracting parties. 14
On 15 May 1995, Philippine Airlines received a letter from Dawoud M. Al-Dawoud, the Deputy
Marketing & Sales Director for International Affairs of Kuwait Airways, addressed to Ms. Socorro
Gonzaga, the Director for International Relations of Philippine Airlines. 15 Both Al-Dawoud and
Gonzaga were members of their country's respective delegations that had met in Kuwait the
previous month. The letter stated in part:
Regarding the [Kuwait Airways/Philippine Airlines] Commercial Agreement, pursuant to item 4 of
the new MOU[,] we will advise our Finance Department that the Agreement concerning royalty
for 3rd/4th freedom traffic will be terminated effective April 12, 1995. Although the royalty
agreement will no longer be valid, we are very keen on seeing that [Philippine Airlines]
continues to enjoy direct participation in the Kuwait/Philippines market through the Block Space
Agreement and to that extent we would like to maintain the Jt. Venture (Block Space)
Agreement, although with some minor modifications. 16
To this, Gonzaga replied to Kuwait Airways in behalf of Philippine Airlines in a letter dated 22
June 1995. 17 Philippine Airlines called attention to Section 6.5 of the Commercial Agreement,
which read:
This agreement may be terminated by either party by giving ninety (90) days notice in writing to
the other party. However, any termination date must be the last day of any traffic period, e.g.[,]
31st March or 31st October. 18 DCScaT
Pursuant to this clause, Philippine Airlines acknowledged the 15 May 1995 letter as the requisite
notice of termination. However, it also pointed out that the agreement could only be effectively
terminated on 31 October 1995, or the last day of the then current traffic period. Thus,
Philippine Airlines insisted that the provisions of the Commercial Agreement "shall continue to be
enforced until such date." 19
Subsequently, Philippine Airlines insisted that Kuwait Airways pay it the principal sum of
US$1,092,690.00 as revenue for the uplift of passengers and cargo for the period 13 April 1995
until 28 October 1995. 20 When Kuwait Airways refused to pay, Philippine Airlines filed a
Complaint 21 against the foreign airline with the Regional Trial Court (RTC) of Makati City,
seeking the payment of the aforementioned sum with interest, attorney's fees, and costs of suit.
In its Answer, 22 Kuwait Airways invoked the CMU and argued that its obligations under the
Commercial Agreement were terminated as of the effectivity date of the CMU, or on 12 April
1995. Philippine Airlines countered in its Reply that it was "not privy to the [CMU]", 23 though it
would eventually concede the existence of the CMU. 24
An exhaustive trial on the merits was had. On 25 October 2002, the RTC rendered a Decision in
favor of Philippine Airlines. The RTC noted that "the only issue to resolve in this case is a legal
one", particularly whether Philippine Airlines is entitled to the sums claimed under the terms of
the Commercial Agreement. The RTC also considered as a corollary issue whether Kuwait
Airways "validly terminated the Commercial Agreement . . ., plaintiff's contention being that
[Kuwait Airways] had not complied with the terms of termination provided for in the Commercial
Agreement."
The bulk of the RTC's discussion centered on the Philippine Airlines' claim that the execution of
the CMU could not prejudice its existing rights under the Commercial Agreement, and that the
CMU could only be deemed effective only after 31 October 1995, the purported effectivity date
of termination under the Commercial Agreement. The rationale for this position of Philippine
Airlines was that the execution of the CMU could not divest its proprietary rights under the
Commercial Agreement. cHDEaC
On this crucial point, the RTC agreed with Philippine Airlines. It asserted the obligatory force of
contracts between contracting parties as the source of vested rights which may not be modified
or impaired. After recasting Kuwait Airway's arguments on this point as being that "the
Confidential Memorandum of Understanding is superior to the Commercial Agreement[,] the
same having been supposedly executed by virtue of the state's sovereign power," the RTC
rejected the argument, holding that "[t]he fact that the [CMU] may have been executed by a
Philippine Panel consisting of representative [sic] of CAB, DFA, etc. does not necessarily give rise
to the conclusion that the [CMU] is a superior contract[,] for the exercise of the State's
sovereign power cannot be arbitrarily and indiscriminately utilized specifically to impair
contractual vested rights." 25
Instead, the RTC held that "[t]he Commercial Agreement and its specific provisions on revenue
sharing having been freely and voluntarily agreed upon by the affected parties . . . has the force
of law between the parties and they are bound to the fulfillment of what has been expressly
stipulated therein." 26 Accordingly, "the provision of the [CMU] must be applied in such a
manner that it does not impair the vested rights of the parties".
From this Decision, Kuwait Airways directly filed with this Court the present Petition for Review,
raising pure questions of law. Kuwait Airways poses three questions of law for resolution:
whether the designated air carrier of the Republic of the Philippines can have better rights than
the government itself; whether the bilateral agreement between the Republic of the Philippines
and the State of Kuwait is superior to the Commercial Agreement; and whether the enforcement
of the CMU violates the non-impairment clause of the Constitution.
Let us review the factual backdrop to appreciate the underlying context behind the Commercial
Agreement and the CMU. The Commercial Agreement was entered into in 1981 at a time when
Philippine Airlines had not provided a route to Kuwait while Kuwait Airways had a route to
Manila. The Commercial Agreement established a joint commercial arrangement whereby
Philippine Airlines and Kuwait Airways were to jointly operate the Manila-Kuwait (and vice versa)
route, utilizing the planes and services of Kuwait Airways. Based on the preambular paragraphs
of the Joint Services Agreement, as of 1981, Kuwait Airways was interested in establishing a
"second frequency" (or an increase of its Manila flights to two) and that "as a result of cordial
and frank discussions the concept of a joint service emerged as the most desirable alternative
option." 27 cEHSIC
As a result, the revenue-sharing agreement was reached between the two airlines, an
agreement which stood as an alternative to both carriers offering competing flights servicing the
Manila-Kuwait route. An apparent concession though by Philippine Airlines was the preclusion of
the exercise of one of the fundamental air traffic rights, the Fifth Freedom traffic rights with
respect to the Manila-Bangkok-Kuwait, thereby precluding the deplaning of passengers from
Manila in Bangkok and the boarding in Bangkok of passengers bound for Manila.
The CMU effectively sought to end the 1981 agreement between Philippine Airlines and Kuwait
Airways, by precluding any commercial arrangements in the exercise of the Third and Fourth
freedom traffic rights. As a result, both Kuwait and the Philippines had the respective right to
board passengers from their respective countries and deplane them in the other country,
without having to share any revenue or enter into any commercial arrangements to exercise
such rights. In exchange, the designated airline or airlines of each country was entitled to
operate six frequencies per week in each direction. In addition, the designated airlines were
allowed to enter into commercial arrangements for the unilateral exercise of the Fifth Freedom
traffic rights.
Another notable point, one not touched upon by the parties or the trial court. It is well known
that at the time of the execution of the 1981 agreements, Philippine Airlines was controlled by
the Philippine government, with the Government Service Insurance System (GSIS) holding the
majority of shares. However, in 1992, Philippine Airlines was privatized, with a private
consortium acquiring 67% of the shares of the carrier. 28 Thus, at the time of the signing of the
CMU, Philippine Airlines was a private corporation no longer controlled by the Government. This
fact is significant. Had Philippine Airlines remained a government owned or controlled
corporation at the time the CMU was executed in 1995, its status as such would have bound
Philippine Airlines to the commitments made in the document by no less than the Philippine
government. However, since Philippine Airlines had already become a private corporation at that
juncture, the question of impairment of private rights may come into consideration. cACDaH
In this regard, we observe that the RTC appears to have been under the impression that the
CMU was brought about by machinations of the Philippine Panel and the Kuwait Panel of which
Philippine Airlines was not aware or in which it had a part. This impression is not exactly borne
by the record since no less than four of the nine members of the Philippine Panel were officials
of Philippine Airlines. It should be noted though that one of these officials, Senior International
Relations Specialist Arnel Vibar, testified for Philippine Airlines that the airline voiced its
opposition to the withdrawal of the commercial agreements under the CMU even months before
the signing of the CMU, but the objections were overruled.
Now, the arguments raised in the petition.
One line of argument raised by Kuwait Airways can be dismissed outright. Kuwait Airways points
out that the third Whereas clause of the 1981 Commercial Agreement stated: "NOW, it is hereby
agreed, subject to and without prejudice to any existing or future agreements between the
Government Authorities of the Contracting Parties hereto . . ." That clause, it is argued, evinces
acknowledgement that from the beginning Philippine Airlines had known fully well that its rights
under the Commercial Agreement would be limited by whatever agreements the Philippine and
Kuwait governments may enter into later. STcaDI
But can a perambulatory clause, which is what the adverted "Whereas" clause is, impose a
binding obligation or limitation on the contracting parties? In the case of statutes, while a
preamble manifests the reasons for the passage of the statute and aids in the interpretation of
any ambiguities within the statute to which it is prefixed, it nonetheless is not an essential part
of an act, and it neither enlarges nor confers powers. 29 Philippine Airlines submits that the
same holds true as to the preambular whereas clauses of a contract.
What was the intention of the parties in forging the "Whereas" clause and the contexts the
parties understood it in 1981? In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered, 30 and in doing so, the
courts may consider the relations existing between the parties and the purpose of the
contract. 31 In 1981, Philippine Airlines was still owned by the Philippine government. In that
context, it is evident that the Philippine government, as owner Philippine Airlines, * could enter
into agreements with the Kuwait government that would supersede the Commercial Agreement
entered into by one of its GOCCs, a scenario that changed once Philippine Airlines fell to private
ownership. Philippine Airlines argues before us that the cited preambular stipulation is in fact
superfluous, and we can agree in the sense that as of the time of the execution of the
Commercial Agreement, it was evident, without need of stipulation, that the Philippine
government could enter into an agreement with the Kuwait government that would prejudice
the terms of the commercial arrangements between the two airlines. After all, Philippine Airlines
then would not have been in a position to challenge the wishes of its then majority stockholder
— the Philippine government. HAaDTI
Yet by the time ownership of Philippine Airlines was transferred into private hands, the
controverted "Whereas" clause had taken on a different complexion, for it was newly evident
that an act of the Philippine government negating the commercial arrangement between the two
airlines would infringe the vested rights of a private individual. The original intention of the
"Whereas" clause was to reflect what was then a given fact relative to the nationalized status of
Philippine Airlines. With the change of ownership of Philippine Airlines, the "Whereas" clause had
ceased to be reflective of the current situation as it now stands as a seeming invitation to the
Philippine government to erode private vested rights. We would have no problem according the
interpretation preferred by Kuwait Airways of the "Whereas" clause had it been still reflective of
the original intent to waive vested rights of private persons, rather than the rights in favor of the
government by a GOCC. That is not the case, and we are not inclined to give effect to the
"Whereas" clause in a manner that does not reflect the original intention of the contracting
parties.
Thusly, the proper focus of our deliberation should be whether the execution of the CMU
between the Philippine and Kuwait governments could have automatically terminated the
Commercial Agreement, as well as the Joint Services Agreement between Philippine Airlines and
Kuwait Airways.
Philippine Airlines is the grantee of a legislative franchise authorizing it to provide domestic and
international air services. 32 Its initial franchise was granted in 1935 through Act No. 4271,
which underwent substantial amendments in 1959 through Republic Act No. 2360. 33 It was
granted a new franchise in 1979 through Presidential Decree No. 1590, wherein statutory
recognition was accorded to Philippine Airlines as the "national flag carrier". P.D. No. 1590 also
recognized that the "ownership, control, and management" of Philippine Airlines had been
reacquired by the Government. Section 19 of P.D. No. 1590 authorized Philippine Airlines to
contract loans, credits and indebtedness from foreign sources, including foreign governments,
with the unconditional guarantee of the Republic of the Philippines. CSHEAI
At the same time, Section 8 of P.D. No. 1590 subjects Philippine Airlines "to the laws of the
Philippines now existing or hereafter enacted". After pointing to this provision, Kuwait Airways
correlates it to Republic Act (R.A.) No. 776, or the Civil Aeronautics Act of the Philippines, which
grants the Civil Aeronautics Board (CAB) "the power to regulate the economic aspect of air
transportation, [its] general supervision and regulation of, and jurisdiction and control over, air
carriers as well as their property, property rights, equipment, facilities, and franchise."  R.A. No.
776 also mandates that the CAB "shall take into consideration the obligation assumed by the
Republic of the Philippines in any treaty, convention or agreement with foreign countries on
matters affecting civil aviation."
There is no doubt that Philippine Airlines forebears under several regulatory perspectives. First,
its authority to operate air services in the Philippines derives from its legislative franchise and is
accordingly bound by whatever limitations that are presently in place or may be subsequently
incorporated in its franchise. Second, Philippine Airlines is subject to the other laws of the
Philippines, including R.A. No. 776, which grants regulatory power to the CAB over the economic
aspect of air transportation. Third, there is a very significant public interest in state regulation of
air travel in view of considerations of public safety, domestic and international commerce, as
well as the fact that air travel necessitates steady traversal of international boundaries, the
amity between nations.
At the same time, especially since Philippine Airlines was already under private ownership at the
time the CMU was entered into, we cannot presume that any and all commitments made by the
Philippine government are unilaterally binding on the carrier even if this comes at the expense
of diplomatic embarrassment. While it may have been, prior to the privatization of Philippine
Airlines, that the Philippine Government had the authority to bind the airline in its capacity as
owner of the airline, under the post-privatization era, however, whatever authority of the
Philippine Government to bind Philippine Airlines can only come in its capacity as regulator.
As with all regulatory subjects of the government, infringement of property rights can only avail
with due process of law. Legislative regulation of public utilities must not have the effect of
depriving an owner of his property without due process of law, nor of confiscating or
appropriating private property without due process of law, nor of confiscating or appropriating
private property without just compensation, nor of limiting or prescribing irrevocably vested
rights or privileges lawfully acquired under a charter or franchise. The power to regulate is
subject to these constitutional limits. 34 SCEDaT
We can deem that the CAB has ample power under its organizing charter, to compel Philippine
Airlines to terminate whatever commercial agreements the carrier may have. After all, Section
10 of R.A. No. 776 grants to the CAB the "general supervision and regulation of, and jurisdiction
and control over, air carriers as well as their property, property rights, equipment,
facilities and franchise", and this power correlates to Section 4 (c) of the same law, which
mandates that the Board consider in the exercise of its functions "the regulation of air
transportation in such manner as to recognize and preserve the inherent advantages of, assure
the highest degree of safety in, and foster sound economic condition in, such transportation,
and to improve the relations between, and coordinate transportation by air carriers."
We do not doubt that the CAB, in the exercise of its statutory mandate, has the power to
compel Philippine Airlines to immediately terminate its Commercial Agreement with Kuwait
Airways pursuant to the CMU. Considering that it is the Philippine government that has the sole
authority to charter air policy and negotiate with foreign governments with respect to air traffic
rights, the government through the CAB has the indispensable authority to compel local air
carriers to comply with government determined policies, even at the expense of economic
rights. The airline industry is a sector where government abjuration is least desired.
However, this is not a case where the CAB had duly exercised its regulatory authority over a
local airline in order to implement or further government air policy. What happened instead was
an officer of the CAB, acting in behalf not of the Board but of the Philippine government, had
committed to a foreign nation the immediate abrogation of Philippine Airlines's commercial
agreement with Kuwait Airways. And while we do not question that ability of that member of the
CAB to represent the Philippine government in signing the CMU, we do question whether such
member could have bound Philippine Airlines in a manner that can be accorded legal recognition
by our courts.
Imagine if the President of the Philippines, or one of his alter egos, acceded to the demands of
a foreign counterpart and agreed to shut down a particular Filipino business or enterprise, going
as far as to co-sign a document averring that the business "will be shut down immediately".
Granting that there is basis in Philippine law for the closure of such business, could the mere
declaration of the President have the legal effect of immediately rendering business operations
illegal? We, as magistrates in a functioning democratic State with a fully fleshed Bill of Rights
and a Constitution that emphatically rejects "l'etat cest moi" as the governing philosophy, think
not. There is nothing to prevent the Philippine government from utilizing all the proper channels
under law to enforce such closure, but unless and until due process is observed, it does not
have legal effect in this jurisdiction. Even granting that the "agreement" between the two
governments or their representatives creates a binding obligation under international law, it
remains incumbent for each contracting party to adhere to its own internal law in the process of
complying with its obligations. HSDaTC
The promises made by a Philippine president or his alter egos to a foreign monarch are not
transubstantiated by divine right so as to ipso facto render legal rights of private persons
obviated. Had Philippine Airlines remained a government-owned or controlled corporation, it
would have been bound, as part of the executive branch, to comply with the dictates of the
President or his alter egos since the President has executive control and supervision over the
components of the executive branch. Yet Philippine Airlines has become, by this time, a private
corporation — one that may have labored under the conditions of its legislative franchise that
allowed it to conduct air services, but private in character nonetheless. The President or his alter
egos do not have the legal capacity to dictate insuperable commands to private persons. And
that undesirable trait would be refuted on the President had petitioner's position prevailed, since
it is imbued with the presumption that the commitment made to a foreign government becomes
operative without complying with the internal processes for the divestiture of private rights.
Herein, we do not see why the Philippine government could not have observed due process of
law, should it have desired to see the Commercial Agreement immediately terminated in order
to adhere to its apparent commitment to the Kuwait government. The CAB, with its ample
regulatory power over the economic affairs of local airliners, could have been called upon to
exercise its jurisdiction to make it so. A remedy even exists in civil law — the judicial annulment
or reformation of contracts — which could have been availed of to effect the immediate
termination of the Commercial Agreement. No such remedy was attempted by the government.
Nor can we presume, simply because Dr. Linlingan, * Executive Director of the CAB had signed
the CMU in behalf of the Philippine Panel, that he could have done so bearing the authority of
the Board, in the exercise of regulatory jurisdiction over Philippine Airlines. For one, the CAB is a
collegial body composed of five members, 35 and no one member — even the chairman — can
act in behalf of the entire Board. The Board is disabled from performing as such without a
quorum. For another, the Executive Director of the CAB is not even a member of the Board,
per R.A. No. 776, as amended.
Even granting that the police power of the State, as given flesh in the various laws governing
the regulation of the airline industry in the Philippines, may be exercised to impair the vested
rights of privately-owned airlines, the deprivation of property still requires due process of law. In
order to validate petitioner's position, we will have to concede that the right to due process may
be extinguished by executive command. While we sympathize with petitioner, who reasonably
could rely on the commitment made to it by the Philippine government, we still have to respect
the segregate identity of the government and that of a private corporation and give due
meaning to that segregation, vital as it is to the very notion of democracy. CSTcEI
WHEREFORE, the petition is DENIED. No pronouncement as to costs.
SO ORDERED.
Carpio Morales, * Velasco, Jr., Leonardo-de Castro ** and Brion, JJ., concur.
||| (Kuwait Airways Corp. v. Philippine Airlines, Inc., G.R. No. 156087, [May 8, 2009], 605 PHIL
474-494)

SECOND DIVISION
[G.R. No. 119706. March 14, 1996.]
PHILIPPINE AIRLINES, INC., petitioner, vs. COURT OF APPEALS and GILDA C.
MEJIA, respondents.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
Emmanuel G. Vinco for private respondent.
SYLLABUS
1. COMMERCIAL LAW; COMMON CARRIERS; BILLS OF LADING; PROVISION LIMITING
LIABILITY; VALIDITY UPHELD BUT WITH CAUTION. — Contracts of adhesion are not invalid per
se. The Court has on numerous occasions upheld the binding effect thereof. The peculiar nature
of such contracts behooves the Court to closely scrutinize the factual milieu to which the
provisions are intended to apply. Thus, just as consistently and unhesitatingly, but without
categorically invalidating such contracts, the Court has construed obscurities and ambiguities in
the restrictive provisions of contracts of adhesion strictly albeit not unreasonably against the
drafter thereof when justified in light of the operative facts and surrounding circumstances. The
validity of provisions limiting the liability of carriers contained in bills of lading have been
consistently upheld for the following reason: ". . . The stipulation in the bill of lading limiting the
common carrier's liability to the value of goods appearing in the bill, unless the shipper or owner
declares a greater value, is valid and binding. The limitation of the carrier's liability is sanctioned
by the freedom of the contracting parties to establish such stipulations, clauses, terms, or
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs and public policy. . . . ." However, the Court has likewise cautioned against blind
reliance on adhesion contracts where the facts and circumstances warrant that they should be
disregarded.
2. ID.; ID.; OBLIGATION UPON CARGOES; ACCEPTANCE OF CARGO AS PACKED WITH ADVICE
AGAINST THE NEED TO DECLARE ITS ACTUAL VALUE DOES NOT PRECLUDE RECOVERY OF
HIGHER AMOUNT OF DAMAGES. — There is no absolute obligation on the part of a carrier to
accept a cargo. Where a common carrier accepts a cargo for shipment for valuable
consideration, it takes the risk of delivering it in good condition as when it was loaded. And if
the fact of improper packing is known to the carrier or its personnel, or apparent upon
observation but it accepts the goods notwithstanding such condition, it is not relieved of liability
for loss or injury resulting therefrom. The acceptance in due course by PAL of private
respondent's cargo as packed and its advice against the need for declaration of its actual value
operated as an assurance to private respondent that in fact there was no need for such a
declaration. Petitioner, therefore, is estopped from blaming private respondent for not declaring
the value of the cargo shipped and which would have otherwise entitled her to recover a higher
amount of damages.
3. ID.; ID.; FORMAL CLAIM FOR DAMAGES; REQUIREMENT OF ITS IMMEDIATE FILING
DEEMED COMPLIED WITH WHEN DELAY WAS CAUSED BY COMMON CARRIER ITSELF. —
Private respondent complied with the requirement for the immediate filing of a formal claim for
damages as required in the air waybill or, at least, we find that there was substantial compliance
therewith. If there was any failure at all to file the formal claim within the prescriptive period
contemplated in the air waybill, this was largely because of PAL'S own doing, the consequences
of which cannot, in all fairness, be attributed to private respondent. Even if the claim for
damages was conditioned on the timely filing of a formal claim, under Article 1186 of the  Civil
Code that condition was deemed fulfilled, considering that the collective action of PAL'S
personnel in tossing around the claim and leaving it unresolved for an indefinite period of time
was tantamount to "voluntarily preventing its fulfillment." On grounds of equity, the filing of the
baggage freight claim, which sufficiently informed PAL of the damage sustained by private
respondent's cargo, constituted substantial compliance with the requirement in the contract for
the filing of a formal claim.
4. ID.; ID.; LIABILITY; WARSAW CONVENTION; RECOGNITION THEREOF DOES NOT
PRECLUDE APPLICATION OF LOCAL LAWS. — While the facts and circumstances of this case do
not call for the direct application of the provisions of the Warsaw Convention, indeed,
recognition of the Warsaw Convention does not preclude the operation of the Civil Code and
other pertinent laws in the determination of the extent of liability of the common carrier. The
Warsaw Convention, being a treaty to which the Philippines is a signatory, is as much a part of
Philippine law as the Civil Code, Code of Commerce and other municipal special laws. The
provisions therein contained, specifically on the limitation of carrier's liability, are operative in
the Philippines but only in appropriate situations.
5. ID.; ID.; PRESUMPTION OF NEGLIGENCE PRESENT WHEN ITEM RECEIVED IN GOOD
CONDITION AND DELIVERED WITH DAMAGE WITHOUT EXPLANATION AS TO CAUSE; BAD
FAITH PRESUMED FOR THE UNEXPLAINED DELAY IN ACTING ON CLAIM FOR DAMAGES. —
Inasmuch as the subject item was received in apparent good condition, no contrary notation or
exception having been made on the air waybill upon its acceptance for shipment, the fact that it
was delivered with a broken glass door raises the presumption that PAL's personnel were
negligent in the carriage and handling of the cargo. Furthermore, there was glaringly no attempt
whatsoever on the part of petitioner to explain the cause of the damage to the oven. The
unexplained cause of damage to private respondent's cargo constitutes gross carelessness or
negligence which by itself justifies the present award of damages. The equally unexplained and
inordinate delay in acting on the claim upon referral thereof to the claims officer, Atty. Paco, and
the noncommittal responses to private respondent's entreaties for settlement of her claim for
damages belies petitioner's pretension that there was no bad faith on its part. This
unprofessional indifference of PAL's personnel despite full and actual knowledge of the damage
to private respondent's cargo, just to be exculpated from liability on pure technicality and
bureaucratic subterfuge, smacks of willful misconduct and insensitivity to a passenger's plight
tantamount to bad faith and renders unquestionable petitioner's liability for damages.
DECISION
REGALADO, J p:
This is definitely not a case of first impression. The incident which eventuated in the present
controversy is a drama of common contentious occurrence between passengers and carriers
whenever loss is sustained by the former. Withal, the exposition of the factual ambiance and the
legal precepts in this adjudication may hopefully channel the assertiveness of passengers and
the intransigence of carriers into the realization that at times a bad extrajudicial compromise
could be better than a good judicial victory.
Assailed in this petition for review is the decision of respondent Court of Appeals in CA-G.R. CV
No. 42744 1 which affirmed the decision of the lower court 2 finding petitioner Philippine Air
Lines, Inc. (PAL) liable as follows:
"ACCORDINGLY, judgment is hereby rendered ordering defendant Philippine Air Lines, Inc., to
pay plaintiff Gilda C. Mejia:
(1) P30,000.00 by way of actual damages of the microwave oven;
(2) P10,000.00 by way of moral damages;
(3) P20,000.00 by way of exemplary damages;
(4) P10,000.00 as attorney's fee;
all in addition to the costs of the suit.
Defendant's counterclaim is hereby dismissed for lack of merit." 3
The facts as found by respondent Court of Appeals are as follows:
"On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant, Philippine Airlines, one (1)
unit microwave oven, with a gross weight of 33 kilograms from San Francisco, U.S.A. to Manila,
Philippines. Upon arrival, however, of said article in Manila, Philippines, plaintiff discovered that
its front glass door was broken and the damage rendered it unserviceable. Demands both oral
and written were made by plaintiff against the defendant for the reimbursement of the value of
the damaged microwave oven, and transportation charges paid by plaintiff to defendant
company. But these demands fell on deaf ears.
"On September 25, 1990, plaintiff Gilda C. Mejia filed the instant action for damages against
defendant in the lower court.
"In its answer, defendant Airlines alleged inter alia, by way of special and affirmative defenses,
that the court has no jurisdiction over the case; that plaintiff has no valid cause of action against
defendant since it acted only in good faith and in compliance with the requirements of the law,
regulations, conventions and contractual commitments; and that defendant had always
exercised the required diligence in the selection, hiring and supervision of its employees." 4
What had therefore transpired at the trial in the court a quo is narrated as follows:
"Plaintiff Gilda Mejia testified that sometime on January 27, 1990, she took defendant's plane
from San Francisco, U.S.A. for Manila, Philippines (Exh. 'F'). Amongst her baggages (sic) was a
slightly used microwave oven with the brand name 'Sharp' under PAL Air Waybill No. 0-79-
1013008-3 (Exh. 'A'). When shipped, defendant's office at San Francisco inspected it. It was in
good condition with its front glass intact. She did not declare its value upon the advice of
defendant's personnel at San Francisco.
"When she arrived in Manila, she gave her sister Concepcion C. Diño authority to claim her
baggag(e) (Exh. 'G') and took a connecting flight for Bacolod City.
"When Concepcion C. Dino claimed the baggag(e) (Exh. 'B') with defendant, then with the
Bureau of Customs, the front glass of the microwave oven was already broken and cannot be
repaired because of the danger of radiation. They demanded from defendant thru Atty. Paco
P30,000.00 for the damages although a brand new one costs P40,000.00, but defendant refused
to pay.
"Hence, plaintiff engaged the services of counsel. Despite demand (Exh. 'E') by counsel,
defendant still refused to pay.
"The damaged oven is still with defendant. Plaintiff is engaged in (the) catering and restaurant
business. Hence, the necessity of the oven. Plaintiff suffered sleepless nights when defendant
refused to pay her (for) the broken oven and claims P10,000.00 moral damages, P20,000.00
exemplary damages, P10,000.00 attorney's fees plus P300.00 per court appearance and
P15,000.00 monthly loss of income in her business beginning February, 1990.
"Defendant Philippine Airlines thru its employees Rodolfo Pandes and Vicente Villaruz posited
that plaintiff's claim was not investigated until after the filing of the formal claim on August 13,
1990 (Exh. '6' also Exh. 'E'). During the investigations, plaintiff failed to submit positive proof on
the value of the cargo. Hence her claim was denied.
"Also plaintiff's claim was filed out of time under paragraph 12, a(1) of the Air Waybill (Exh. 'A',
also Exh. '1') which provides: '(a) the person entitled to delivery must make a complaint to the
carrier in writing in case: (1) of visible damage to the goods, immediately after discovery of the
damage and at the latest within 14 days from the receipt of the goods." 5
As stated at the outset, respondent Court of Appeals similarly ruled in favor of private
respondent by affirming in full the trial court's judgment in Civil Case No. 6210, with costs
against petitioner. 6 Consequently, petitioner now impugns respondent appellate court's ruling
insofar as it agrees with (1) the conclusions of the trial court that since the air waybill is a
contract of adhesion, its provisions should be strictly construed against herein petitioner; (2) the
finding of the trial court that herein petitioner's liability is not limited by the provisions of the air
waybill; and (3) the award by the trial court to private respondent of moral and exemplary
damages, attorney's fees and litigation expenses.
The trial court relied on the ruling in the case of Fieldmen's Insurance Co., Inc. vs. Vda. De
Songco, et al. 7 in finding that the provisions of the air waybill should be strictly construed
against petitioner. More particularly, the court below stated its findings thus:
"In this case, it is seriously doubted whether plaintiff had read the printed conditions at the back
of the Air Waybill (Exh. '1'), or even if she had, if she was given a chance to negotiate on the
conditions for loading her microwave oven. Instead she was advised by defendant's employee at
San Francisco, U.S.A., that there is no need to declare the value of her oven since it is not brand
new. Further, plaintiff testified that she immediately submitted a formal claim for P30,000.00
with defendant. But their claim was referred from one employee to another th(e)n told to come
back the next day, and the next day, until she was referred to a certain Atty. Paco. When they
got tired and frustrated of coming without a settlement of their claim in sight, they consulted a
lawyer who demanded from defendant on August 13, 1990 (Exh. 'E", an[d] Exh. '6').
"The conclusion that inescapably emerges from the above findings of fact is to concede it with
credence . . . ." 8
Respondent appellate court approved said findings of the trial court in this manner:
"We cannot agree with defendant-appellant's above contention. Under our jurisprudence, the Air
Waybill is a contract of adhesion considering that all the provisions thereof are prepared and
drafted only by the carrier (Sweet Lines vs. Teves, 83 SCRA 361). The only participation left of
the other party is to affix his signature thereto (BPI Credit Corporation vs. Court of Appeals, 204
SCRA 601; Saludo, Jr. vs. C.A., 207 SCRA 498; Maersk vs. Court of Appeals, 222 SCRA 108,
among the recent cases). In the earlier case of Angeles v. Calasanz, 135 SCRA 323, the
Supreme Court ruled that 'the terms of a contract (of adhesion) must be interpreted against the
party who drafted the same.' . . ." 9
Petitioner airlines argues that the legal principle enunciated in Fieldmen's Insurance does not
apply to the present case because the provisions of the contract involved here are neither
ambiguous nor obscure. The front portion of the air waybill contains a simple warning that the
shipment is subject to the conditions of the contract on the dorsal portion thereof regarding the
limited liability of the carrier unless a higher valuation is declared, as well as the reglementary
period within which to submit a written claim to the carrier in case of damage or loss to the
cargo. Granting that the air waybill is a contract of adhesion, it has been ruled by the Court that
such contracts are not entirely prohibited and are in fact binding regardless of whether or not
respondent herein read the provisions thereof. Having contracted the services of petitioner
carrier instead of other airlines, private respondent in effect negotiated the terms of the contract
and thus became bound thereby. 10
Counsel for private respondent refutes these arguments by saying that due to her eagerness to
ship the microwave oven to Manila, private respondent assented to the terms and conditions of
the contract without any opportunity to question or change its terms which are practically on a
"take-it-or-leave-it" basis, her only participation therein being the affixation of her signature.
Further, reliance on the Fieldmen's Insurance case is misplaced since it is not the ambiguity or
obscurity of the stipulation that renders necessary the strict interpretation of a contract of
adhesion against the drafter, but the peculiarity of the transaction wherein one party, normally a
corporation, drafts all the provisions of the contract without any participation whatsoever on the
part of the other party other than affixment of signature. 11
A review of jurisprudence on the matter reveals the consistent holding of the Court that
contracts of adhesion are not invalid per se and that it has on numerous occasions upheld the
binding effect thereof. 12 As explained in Ong Yiu vs. Court of Appeals, et al., supra:
". . . . Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter's lack of knowledge or assent to the
regulation. It is what is known as a contract of 'adhesion,' in regards which it has been said that
contracts of adhesion wherein one party imposes a ready-made form of contract on the other,
as the plane ticket in the case at bar, 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 . . . , a
contract limiting liability upon an agreed valuation does not offend against the policy of the law
forbidding one from contracting against his own negligence."
As rationalized in Saludo, Jr. vs. Court of Appeals, et al., supra:
". . . , 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 . . . ."
but subject to the caveat that —
". . . 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 . . . ."
The peculiar nature of such contracts behooves the Court to closely scrutinize the factual milieu
to which the provisions are intended to apply. Thus, just as consistently and unhesitatingly, but
without categorically invalidating such contracts, the Court has construed obscurities and
ambiguities in the restrictive provisions of contracts of adhesion strictly albeit not unreasonably
against the drafter thereof when justified in light of the operative facts and surrounding
circumstances. 13
We find nothing objectionable about the lower court's reliance upon the Fieldmen's
Insurance case, the principles wherein squarely apply to the present petition. The parallelism
between the aforementioned case and this one is readily apparent for, just as in the instant
case, it is the binding effect of the provisions in a contract of adhesion (an insurance policy
in Fieldmen's Insurance) that is put to test.
A judicious reading of the case reveals that what was pivotal in the judgment of liability against
petitioner insurance company therein, and necessarily interpreting the provisions of the
insurance policy as ineffective, was the finding that the representations made by he agent of the
insurance company rendered it impossible to comply with the conditions of the contract in
question, rather than the mere ambiguity of its terms. The extended pronouncements regarding
strict construction of ambiguous provisions in an adhesion contract against its drafter, which
although made by the Court as an aside but has perforce evolved into a judicial tenet over time,
was actually an incidental statement intended to emphasize the duty of the court to protect the
weaker, as against the more dominant, party to a contract, as well as to prevent the iniquitous
situation wherein the will of one party is imposed upon the other in the course of negotiation.
Thus, there can be no further question as to the validity of the terms of the air waybill, even if
the same constitutes a contract of adhesion. Whether or not the provisions thereof particularly
on the limited liability of the carrier are binding on private respondent in this instance must be
determined from the facts and circumstances involved vis-a-vis the nature of the provisions
sought to be enforced, taking care that equity and fair play should characterize the transaction
under review.
On petitioner's insistence that its liability for the damage to private respondent's microwave
oven, if any, should be limited by the provisions of the air waybill, the lower court had this to
say:
"By and large, defendant's evidence is anchored principally on plaintiff's alleged failure to
comply with paragraph 12, a(1) (Exh. '1-C-2') of the Air waybill (Exh. 'A,' also Exh. '1'), by filing
a formal claim immediately after discovery of the damage. Plaintiff filed her formal claim only on
August 13, 1990 (Exh. '6', also Exh. 'E'). And, failed to present positive proof on the value of the
damaged microwave oven. Hence, the denial of her claim.
"This Court has misgivings about these pretensions of defendant.
xxx xxx xxx
"Finally, the Court finds no merit to defendant's contention that under the Warsaw Convention, "Q Did you declare the value of the shipment?
its liability if any, cannot exceed U.S. $20.00 based on weight as plaintiff did not declare the
contents of her baggage nor pay additional charges before the flight." 14 A No. I was advised not to.

The appellate court declared correct the non-application by the trial court of the limited liability
of therein defendant-appellant under the "Conditions of the Contract" contained in the air
waybill, based on the ruling in Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al., 15 which
substantially enunciates the rule that while the Warsaw Convention has the force and effect of
law in the Philippines, being a treaty commitment by the government and as a signatory
thereto, the same does not operate as an exclusive enumeration of the instances when a carrier
shall be liable for breach of contract or as an absolute limit of the extent of liability, nor does it
preclude the operation of the Civil Code or other pertinent laws.
Petitioner insists that both respondent court and the trial court erred in finding that petitioner's
liability, if any, is not limited by the provisions of the air waybill, for, as evidence of the contract
of carriage between petitioner and private respondent, it substantially states that the shipper
certifies to the correctness of the entries contained therein and accepts that the carrier's liability
is limited to US$20 per kilogram of goods lost, damaged or destroyed unless a value is declared
and a supplementary charge paid. Inasmuch as no such declaration was made by private
respondent, as she admitted during cross-examination, the liability of petitioner, if any, should
be limited to 28 kilograms multiplied by US$20, or $560. Moreover, the validity of these
conditions has been upheld in the leading case of Ong Yiu vs. Court of Appeals, et al., supra,
and subsequent cases, for being a mere reiteration of the limitation of liability under the Warsaw
Convention, which treaty has the force and effect of law. 16
It is additionally averred that since private respondent was merely advised, not ordered, that
she need not declare a higher value for her cargo, the final decision of refraining from making
such a declaration fell on private respondent and should not put the petitioner in estoppel from
invoking its limited liability. 17
In refutation, private respondent explains that the reason for the absence of a declaration of a
higher value was precisely because petitioner's personnel in San Francisco, U.S.A. advised her
not to declare the value of her cargo, which testimony has not at all been rebutted by petitioner.
This being so, petitioner is estopped from faulting private respondent for her failure to declare
the value of the microwave oven. 18
The validity of provisions limiting the liability of carriers contained in bills of lading have been
consistently upheld for the following reason:
Q Who advised you?
A At the PAL Air Cargo." 21
It cannot be denied that the attention of PAL through its personnel in San Francisco was
sufficiently called to the fact that private respondent's cargo was highly susceptible to breakage
as would necessitate the declaration of its actual value. Petitioner had all the opportunity to
check the condition and manner of packing prior to acceptance for shipment, 22 as well as
during the preparation of the air waybill by PAL's Acceptance Personnel based on information
supplied by the shipper, 23 and to reject the cargo if the contents or the packing did not meet
the company's required specifications. Certainly, PAL could not have been otherwise prevailed
upon to merely accept the cargo.
While Vicente Villaruz, officer-in-charge of the PAL Import Section at the time of incident,
posited that there may have been inadequate and improper packing of the cargo, 24 which by
itself could be a ground for refusing carriage of the goods presented for shipment, he
nonetheless admitted on cross-examination that private respondent's cargo was accepted by
PAL in its San Francisco office:
"ATTY. VINCO
 So that, be that as it may, my particular concern is that, it is the PAL personnel that accepts the
baggage?
WITNESS
 Yes, sir.
ATTY. VINCO
 Also, if he comes from abroad like in this particular case, it is the PAL personnel who accepts
the baggage?
WITNESS
 Yes, sir.

". . . . The stipulation in the bill of lading limiting the common carrier's liability to the value of ATTY. VINCO
goods appearing in the bill, unless the shipper or owner declares a greater value, is valid and
binding. The limitation of the carrier's liability is sanctioned by the freedom of the contracting  And the PAL personnel may or may not accept the baggage?
parties to establish such stipulations, clauses, terms, or conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs and public WITNESS
policy. . . ." 19
 Yes, sir.
However, the Court has likewise cautioned against blind reliance on adhesion contracts where
ATTY. VINCO
the facts and circumstances warrant that they should be disregarded. 20
 According to what is stated as in the acceptance of the cargo, it is to the best interest of the
In the case at bar, it will be noted that private respondent signified an intention to declare the
airlines, that is, he want(s) also that the airlines would be free from any liability. Could that be
value of the microwave oven prior to shipment, but was explicitly advised against doing so by
one of the grounds for not admitting a baggage?
PAL's personnel in San Francisco, U.S.A., as borne out by her testimony in court:
WITNESS
xxx xxx xxx
 Safety is number one (1)
xxx xxx xxx
ATTY. VINCO
 So, this baggage was accepted and admitted in San Francisco?
WITNESS
 Yes, sir.
ATTY. VINCO
 And you could not show any document to the Court that would suggest that this baggage was
denied admittance by your office at San Francisco?
WITNESS
 No, I cannot show.
ATTY. VINCO
 Now, can you show any document that would suggest that there was insufficient pac(k)aging
on this particular baggage from abroad?
WITNESS
 No, sir." 25
In response to the trial court's questions during the trial, he also stated that while the
passenger's declaration regarding the general or fragile character of the cargo is to a certain
extent determinative of its classification, PAL nevertheless has and exercises discretion as to the
manner of handling required by the nature of the cargo it accepts for carriage. He further
opined that the microwave oven was only a general, not a fragile, cargo which did not require
any special handling. 26
There is no absolute obligation on the part of a carrier to accept a cargo. Where a common
carrier accepts a cargo for shipment for valuable consideration, it takes the risk of delivering it in
good condition as when it was loaded. And if the fact of improper packing is known to the
carrier or its personnel, or apparent upon observation but it accepts the goods notwithstanding
such condition, it is not relieved of liability for loss or injury resulting therefrom. 27
The acceptance in due course by PAL of private respondent's cargo as packed and its advice
against the need for declaration of its actual value operated as an assurance to private
respondent that in fact the was no need for such a declaration. Petitioner can hardly be faulted
for relying on the representations of PAL's own personnel.
In other words, private respondent Mejia could and would have complied with the conditions
stated in the air waybill, i.e., declaration of a higher value and payment of supplemental
transportation charges, entitling her to recovery of damages beyond the stipulated limit of
US$20 per kilogram of cargo in the event of loss or damage, had she not been effectively
prevented from doing so upon the advice of PAL's personnel for reasons best known to
themselves.
As pointed out by private respondent, the aforestated facts were not denied by PAL in any of its
pleadings nor rebutted by way of evidence presented in the course of the trial, and thus in
effect it judicially admitted that such an advice was given by its personnel in San Francisco,
U.S.A. Petitioner, therefore, is estopped from blaming private respondent for not declaring the
value of the cargo shipped and which would have otherwise entitled her to recover a higher
amount of damages. The Court's bidding in the Fieldmen's Insurance case once again rings true:
". . . As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that
will befall an innocent party due to its injurious reliance, the failure to apply it in this case would
result in gross travesty of justice."
We likewise uphold the lower court's finding that private respondent complied with the
requirement for the immediate filing of a formal claim for damages as required in the air waybill
or, at least, we find that there was substantial compliance therewith.
Private respondent testified that she authorized her sister, Concepcion Diño, to claim her cargo
consisting of a microwave oven since the former had to take a connecting flight to Bacolod City
on the very same afternoon of the day of her arrival. 28 As instructed, Concepcion Diño
promptly proceeded to PAL's Import Section the next day to claim the oven. Upon discovering
that the glass door was broken, she immediately filed a claim by way of the baggage freight
claim 29 on which was duly annotated the damage sustained by the oven. 30
Her testimony relates what took place thereafter:
"ATTY. VINCO
 So, after that inspection, what did you do?
WITNESS
 After that annotation placed by Mr. Villaruz, I went home and I followed it up the next day with
the Clerk of PAL cargo office.
ATTY. VINCO
 What did the clerk tell you?
WITNESS
 She told me that the claim was being processed and I made several phone calls after that. I
started my follow-ups February up to June 1990.
ATTY. VINCO
 And what results did those follow-ups produce?
WITNESS
 All they said (was) that the document was being processed, that they were waiting for Atty.
Paco to report to the office and they could refer the matter to Atty. Paco.
ATTY. VINCO
 Who is this Atty. Paco?
WITNESS
 He was the one in-charge of approving our claim. WITNESS:

ATTY. VINCO A Yes, sir.

 Were you able to see Atty. Paco? ATTY. VINCO:

WITNESS Q And you know that the plaintiff thru her authorized representative Concepcion Diño, who is
her sister had many times gone to Atty. Paco, in connection with this claim of her sister?
 Yes, sir. I personally visited Atty. Paco together with my auntie who was a former PAL
employee. WITNESS:

xxx xxx xxx A Yes, sir.

ATTY. VINCO ATTY. VINCO:

 So, what did you do, did you make a report or did you tell Atty. Paco of your scouting around Q As a matter of fact even when the complaint was already filed here in Court the claimant had
for a possible replacement? continued to call about the settlement of her claim with Atty. Paco, is that correct?

WITNESS xxx xxx xxx

 I did call him back at his office. I made a telephone call. WITNESS:

ATTY. VINCO A Yes, sir.

 And what answer did Atty. Paco make after you have reported back to him? ATTY. VINCO:

WITNESS Q You know this fact because a personnel saw you in one of the pre-trial here when this case
was heard before the sala of Judge Moscardon, is that correct?
 They told me that they were going to process the claim based on the price that I gave them
but there was no definite result. WITNESS:

ATTY. VINCO A Yes.

 How many times did you go and see Atty. Paco regarding the claim of your sister? ATTY. VINCO:

WITNESS
 I made one personal visit and several follow-up calls. With Atty. Paco, I made one phone call
but I made several phone calls with his secretary or the clerk at PAL cargo office and I was
trying to locate him but unfortunately, he was always out of his office." 31
PAL claims processor, Rodolfo Pandes, * confirmed having received the baggage freight claim
on January 30, 1990 32 and the referral to and extended pendency of the private respondent's
claim with the office of Atty. Paco, to wit:
"ATTY. VINCO:
Q And you did instruct the claimant to see the Claim Officer of the company, right?
Q In other words, the plaintiff rather had never stop(ped) in her desire for your company to
settle this claim, right?
WITNESS
A Yes, sir." 33
Considering the abovementioned incidents and private respondent Mejia's own zealous efforts in
following up the claim, 34 it was clearly not her fault that the letter of demand for damages
could only be filed, after months of exasperating follow-up of the claim, on August 13,
1990. 35 If there was any failure at all to file the formal claim within the prescriptive period
contemplated in the air waybill, this was largely because of PAL's own doing, the consequences
of which cannot, in all fairness, be attributed to private respondent.

WITNESS: Even if the claim for damages was conditioned on the timely filing of a formal claim,
under Article 1186 of the Civil Code that condition was deemed fulfilled, considering that the
A Yes, sir.
collective action of PAL's personnel in tossing around the claim and leaving it unresolved for an
ATTY. VINCO: indefinite period of time was tantamount to "voluntarily preventing its fulfillment." On grounds
of equity, the filing of the baggage freight claim, which sufficiently informed PAL of the damage
Q And the Claim Officer happened to be Atty. Paco? sustained by private respondent's cargo, constituted substantial compliance with the
requirement in the contract for the filing of a formal claim.
All told, therefore, respondent appellate court did not err in ruling that the provision on limited
liability is not applicable in this case. We, however, note in passing that while the facts and
circumstances of this case do not call for the direct application of the provisions of the Warsaw
Convention, it should be stressed that, indeed, recognition of the Warsaw Convention does not
preclude the operation of the Civil Code and other pertinent laws in the determination of the
extent of liability of the common carrier. 36
The Warsaw Convention, being a treaty to which the Philippines is a signatory, is as much a part
of Philippine law as the Civil Code, Code of Commerce and other municipal special laws. 37 The
provisions therein contained, specifically on the limitation of carrier's liability, are operative in
the Philippines but only in appropriate situations.
Petitioner ascribes ultimate error in the award of moral exemplary damages and attorney's fees
in favor of private respondent in that other than the statement of the trial court that petitioner
acted in bad faith in denying private respondent's claim, which was affirmed by the Court of
Appeals, there is no evidence on record that the same is true. The denial of private respondent's
claim was supposedly in the honest belief that the same had prescribed, there being no timely
formal claim filed, and despite having been given an opportunity to submit positive proof of the
value of the damaged microwave oven, no such proof was submitted. Petitioner insists that its
failure to deliver the oven in the condition in which it was shipped could hardly be considered as
amounting to bad faith. 38
Private respondent counters that petitioner's failure to deliver the microwave oven in the
condition in which it was received can be described as gross negligence amounting to bad faith;
on the further consideration that it failed to prove that it exercised the extraordinary diligence
required by law, and that no explanation whatsoever was given as to why the front glass of the
oven was broken. 39
The trial court justified its award of actual, moral and exemplary damages, and attorney's fees
in favor of private respondent in this wise:
"Since the plaintiff's baggage destination was the Philippines, Philippine law governs the liability
of the defendant for damages for the microwave oven.
"The provisions of the New Civil Code on common carriers are Article(s) 1733, 1735 and 1753 . .
..
xxx xxx xxx
"In this case, defendant failed to overcome, not only the presumption but more importantly,
plaintiff's evidence that defendant's negligence was the proximate cause of the damages of the
microwave oven. Further, plaintiff has established that defendant acted in bad faith when it
denied the former's claim on the ground that the formal claim was filed beyond the period as
provided in paragraph 12 (a-1) (Exh. '1-C-2') of the Air Waybill (Exh. '1', also Exh 'A'), when
actually, Concepcion Diño, sister of plaintiff has immediately filed the formal claim upon
discovery of the damage." 40
Respondent appellate court was in full agreement with the trial court's finding of bad faith on
the part of petitioner as a basis for the award of the aforestated damages, declaring that:
"As to the last assigned error, a perusal of the facts and law of the case reveals that the lower
court's award of moral and exemplary damages, attorney's fees and costs of suit to plaintiff-
appellee is in accordance with current laws and jurisprudence on the matter. Indeed, aside from
the fact that defendant-appellant acted in bad faith in breaching the contract and in denying
plaintiff's valid claim for damages, plaintiff-appellee underwent profound distress, sleepless
nights, and anxiety upon knowledge of her damaged microwave oven in possession of
defendant-appellant, entitling her to the award of moral and exemplary damages (Cathay Pacific
Airways, Ltd. vs. C.A., supra; Arts. 2219 & 2221, New Civil Code), and certainly plaintiff-
appellant's unjust refusal to comply with her valid demand for payment, thereby also entitling
her to reasonable attorney's fees [Art. 2208 (2) and (11), id.]." 41
It will be noted that petitioner never denied that the damage to the microwave oven was
sustained while the same was in its custody. The possibility that said damage was due to causes
beyond the control of PAL has effectively been ruled out since the entire process in handling of
the cargo — from the unloading thereof from the plane, the towing and transfer to the PAL
warehouse, the transfer to the Customs examination area, and its release thereafter to the
shipper — was done almost exclusively by, and with the intervention or, at the very least, under
the direct supervision of a responsible PAL personnel. 42
The very admissions of PAL, through Vicente Villaruz of its Import Section, as follows:
"ATTY. VINCO
 So that, you now claim, Mr. Witness, that from the time the cargo was unloaded from the plane until the time
it reaches the Customs counter where it was inspected, all the way, it was the PAL personnel who did all
these things?
WITNESS
 Yes, however, there is also what we call the Customs storekeeper and the Customs guard along with the
cargo.
ATTY. VINCO
 You made mention about a locator?
WITNESS
 Yes, sir.
ATTY. VINCO
 This locator, is he an employee of the PAL or the Customs?
WITNESS
 He is a PAL employee." 4 3
lead to the inevitable conclusion that whatever damage may have been sustained by the cargo
is due to causes attributable to PAL's personnel or, at all events, under their responsibility.
Moreover, the trial court underscored the fact that petitioner was not able to overcome the
statutory presumption of negligence in Article 1735 which, as a common carrier, it was laboring
under in case of loss, destruction or deterioration of goods, through proper showing of the
exercise of extraordinary diligence. Neither did it prove that the damage to the microwave oven
was because of any of the excepting causes under Article 1734, all of the same Code. Inasmuch
as the subject item was received in apparent good condition, no contrary notation or exception
having been made on the air waybill upon its acceptance for shipment, the fact that it was
delivered with a broken glass door raises the presumption that PAL's personnel were negligent
in the carriage and handling of the cargo. 44
Furthermore, there was glaringly no attempt what so ever on the part of petitioner to explain
the cause of the damage to the oven. The unexplained cause of damage to private respondent's
cargo constitutes gross carelessness or negligence which by itself justifies the present award of
damages. 45 The equally unexplained and inordinate delay in acting on the claim upon referral
thereof to the claims officer, Atty. Paco, and the noncommittal responses to private respondent's
entreaties for settlement of her claim for damages belies petitioner's pretension that there was
no bad faith on its part. This unprofessional indifference of PAL's personnel despite full and
actual knowledge of the damage to private respondent's cargo, just to be exculpated from
liability on pure technicality and bureaucratic subterfuge, smacks of willful misconduct and
insensitivity to a passenger's plight tantamount to bad faith 46 and renders unquestionable
petitioner's liability for damages. In sum, there is no reason to disturb the findings of the trial
court in this case, especially with its full affirmance by respondent Court of Appeals.
On this note, the case at bar goes into the annals of our jurisprudence after six years and
recedes into the memories of our legal experience as just another inexplicable inevitability. We
will never know exactly how many man-hours went into the preparation, litigation and
adjudication of this simple dispute over an oven, which the parties will no doubt insist they
contested as a matter of principle. One thing, however, is certain. As long as the first letter in
"principle" is somehow outplaced by the peso sign, the courts will always have to resolve similar
controversies although mutual goodwill could have dispensed with judicial recourse.
IN VIEW OF ALL THE FOREGOING, the assailed judgment of respondent Court of Appeals is
AFFIRMED in toto. SO ORDERED.
SECOND DIVISION
[G.R. No. 127768. November 19, 1999.]
UNITED AIRLINES, petitioner, vs. WILLIE J. UY, respondent.
Quisumbing Torres & Evangelista for petitioner.
Ramon U. Ampil for private respondent.
SYNOPSIS
Respondent herein was a passenger of petitioner United Airlines' Flight No. 819 for the San
Francisco-Manila route. Before embarking for his trip to Manila, he suffered insult,
embarrassment and humiliating treatment in the hands of petitioner's employees. Upon arrival
in Manila, he discovered that one of his bags had been slashed and its contents stolen.
Respondent notified petitioner of his loss and requested reimbursement thereof. Respondent
instead mailed a check representing payment of his loss based on the maximum liability of
US$9.70 per pound. Thinking that the amount was grossly inadequate respondent through his
lawyer demanded an out-of-court settlement of P1,000,000.00. Petitioner did not accede to his
demand. Respondent filed a complaint for damages against petitioner United Airlines. Petitioner
filed a complaint on the ground that respondent's cause of action had prescribed, invoking Art.
29 of the Warsaw Convention. The trial court ordered the dismissal of the action. Despite the
late filing of his notice of appeal, the Court of Appeals entertained the appeal based on equity
and justice, and reversed the decision of the trial court. The issues to be resolved in this petition
for review on certiorari are whether the notice of appeal to the appellate court was timely filed,
and whether Art. 29 of the Warsaw Convention should apply herein.
The Supreme Court ruled that although the notice of appeal was filed two days late, the case
should be given due course because of the unique and peculiar facts of the case and the serious
question of law it poses. Respondent filed his complaint beyond the period prescribed by the
Warsaw Convention for filing a claim for damages. However, it is obvious that respondent was
forestalled from immediately filing an action because petitioner airline gave him the runaround,
answering his letters but not giving in to his demands. Hence, despite the express mandate of
Art. 29 of the Warsaw Convention that an action for damages should be filed within two years
from arrival to the place of destination, such rule shall not be applied in the instant case
because of the delaying tactics employed by petitioner airline itself. The assailed decision of the
Court of Appeals was affirmed and the case was remanded to the court of origin for further
proceedings.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; LIMITATION OF THE PERIOD; PURPOSE
THEREOF. — Section 1 of Rule 45 of the 1997 Rules of Civil Procedure provides that "a party
may appeal by certiorari, from a judgment of the Court of Appeals, by filing with the Supreme
Court a petition for certiorari, within fifteen (15) days from notice of judgment or of the denial
of his motion for reconsideration filed in due time . . ." This Rule however should not be
interpreted as "to sacrifice the substantial right of the appellant in the sophisticated altar of
technicalities with impairment of the sacred principles of justice." It should be borne in mind
that the real purpose behind the limitation of the period of appeal is to forestall or avoid an
unreasonable delay in the administration of justice. Thus, the Court has ruled that delay in the
filing of a notice of appeal does not justify the dismissal of the appeal where the circumstances
of the case show that there is no intent to delay the administration of justice on the part of
appellant's counsel, or when there are no substantial rights affected, or when appellant's
counsel committed a mistake in the computation of the period of appeal, an error not
attributable to negligence or bad faith.
2. ID.; ID.; ID.; ID.; WHEN NOT APPLICABLE. — In the instant case, respondent filed his notice
of appeal two (2) days later than the prescribed period. Although his counsel failed to give the
reason for the delay, the Court is inclined to give due course to his appeal due to the unique
and peculiar facts of the case and the serious question of law it poses. In the now almost trite
but still good principle, technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration.
3. CIVIL LAW; TRANSPORTATION; WARSAW CONVENTION; DOES NOT PRECLUDE THE
OPERATION OF THE CIVIL CODE AND OTHER PERTINENT LAWS. — American jurisprudence
has declared that "Art. 29 (2) of the Warsaw Convention was not intended to permit forums to
consider local limitation tolling provisions but only to let local law determine whether an action
had been commenced within the two-year period, since the method of commencing a suit varies
from country to country." Within our jurisdiction the Court has held that the Warsaw Convention
can be applied, or ignored, depending on the peculiar facts presented by each case. Thus, this
Court has ruled that the Convention's provisions do not regulate or exclude liability for other
breaches of contract by the carrier or misconduct of its officers and employees, or for some
particular or exceptional type of damage. 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. Likewise, this Court has held that the
Convention does not preclude the operation of the Civil Code and other pertinent laws. It does
not regulate, much less exempt, the carrier from liability for damages for violating the rights of
its passengers under the contract of carriage, especially if willful misconduct on the part of the
carrier's employees is found or established.
4. ID.; ID.; ID.; TWO-YEAR LIMITATION; WHEN MAY NOT BAR ACTION; CASE AT BAR. —
Respondent's failure to file his complaint within the two (2)-year limitation of the Warsaw
Convention does not bar his action since petitioner airline may still be held liable for breach of
other provisions of the Civil Code which prescribe a different period or procedure for instituting
the action, specifically, Art. 1146 thereof which prescribes four (4) years for filing an action
based on torts.
5. ID.; ID.; ID.; ID.; APPLICATION THEREOF CONSTRUED; NOT PRESENT IN CASE AT BAR. —
The travaux preparatories of the Warsaw Convention reveal that the delegates thereto intended
the two (2)-year limitation incorporated in Art. 29 as an absolute bar to suit and not to be made
subject to the various tolling provisions of the laws of the forum. This therefore forecloses the
application of our own rules on interruption of prescriptive periods. Article 29, par. (2), was
intended only to let local laws determine whether an action had been commenced within the
two (2)-year period, and within our jurisdiction an action shall be deemed commenced upon the
filing of a complaint. Since it is indisputable that respondent filed the present action beyond the
two (2)-year time frame his second cause of action must be barred. Nonetheless, it cannot be
doubted that respondent exerted efforts to immediately convey his loss to petitioner, even
employed the services of two (2) lawyers to follow up his claims, and that the filing of the action
itself was delayed because of petitioner's evasion. Respondent filed his complaint more than two
(2) years later, beyond the period of limitation prescribed by the Warsaw Convention for filing a
claim for damages. However, it is obvious that respondent was forestalled from immediately
filing an action because petitioner airline gave him the runaround, answering his letters but not
giving in to his demands. True, respondent should have already filed an action at the first
instance when his claims were denied by petitioner but the same could only be due to his desire
to make an out-of-court settlement for which he cannot be faulted. Hence, despite the express
mandate of Art. 29 of the Warsaw Convention that an action for damages should be filed within
two (2) years from the arrival at the place of destination, such rule shall not be applied in the
instant case because of the delaying tactics employed by petitioner airline itself. Thus, private
respondent's second cause of action cannot be considered as time-barred under Art. 29 of the
Warsaw Convention. IDSaTE
DECISION
BELLOSILLO, J p:
UNITED AIRLINES assails in this petition for review on certiorari under Rule 45 the 29 August
1995 Decision of the Court of Appeals in CA-G.R. CV No. 39761 which reversed the 7 August
1992 order issued by the trial court in Civil Case No. Q-92-12410 1 granting petitioner's motion
to dismiss based on prescription of cause of action. The issues sought to be resolved are
whether the notice of appeal to the appellate court was timely filed, and whether Art. 29 of the
Warsaw Convention 2 should apply to the case at bar. prcd
On 13 October 1989 respondent Willie J. Uy, a revenue passenger on United Airlines Flight No.
819 for the San Francisco — Manila route, checked in together with his luggage one piece of
which was as found to be overweight at the airline counter. To his utter humiliation, an
employee of petitioner rebuked him saying that he should have known the maximum weight
allowance to be 70 kgs. per bag and that he should have packed his things accordingly. Then, in
a loud voice in front of the milling crowd, she told respondent to repack his things and transfer
some of them from the overweight luggage to the lighter ones. Not wishing to create further
scene, respondent acceded only to find his luggage still overweight. The airline then billed him
overweight charges which he offered to pay with a miscellaneous charge order (MCO) or an
airline pre-paid credit. However, the airline's employee, and later its airport supervisor,
adamantly refused to honor the MCO pointing out that there were conflicting figures listed on it.
Despite the explanation from respondent that the last figure written on the MCO represented his
balance, petitioner's employees did not accommodate him. Faced with the prospect of leaving
without his luggage, respondent paid the overweight charges with his American Express credit
card.
Respondent's troubles did not end there. Upon arrival in Manila, he discovered that one of his
bags had been slashed and its contents stolen. He particularized his losses to be around US
$5,310.00. In a letter dated 16 October 1989 respondent bewailed the insult, embarrassment
and humiliating treatment he suffered in the hands of United Airlines employees, notified
petitioner of his loss and requested reimbursement thereof. Petitioner United Airlines, through
Central Baggage Specialist Joan Kroll, did not refute any of respondent's allegations and mailed
a check representing the payment of his loss based on the maximum liability of US $9.70 per
pound. Respondent, thinking the amount to be grossly inadequate to compensate him for his
losses, as well as for the indignities he was subjected to, sent two (2) more letters to petitioner
airline, one dated 4 January 1990 through a certain Atty. Pesigan, and another dated 28
October 1991 through Atty. Ramon U. Ampil demanding an out-of-court settlement of
P1,000,000.00. Petitioner United Airlines did not accede to his demands.
Consequently, on 9 June 1992 respondent filed a complaint for damages against United Airlines
alleging that he was a person of good station, sitting in the board of directors of several top 500
corporations and holding senior executive positions for such similar firms; 3 that petitioner
airline accorded him ill and shabby treatment to his extreme embarrassment and humiliation;
and, as such he should be paid moral damages of at least P1,000,000.00, exemplary damages
of at least P500,000.00, plus attorney's fees of at least P50,000.00. Similarly, he alleged that the
damage to his luggage and its stolen contents amounted to around $5,310.00, and requested
reimbursement therefor.
United Airlines moved to dismiss the complaint on the ground that respondent's cause of action
had prescribed, invoking Art. 29 of the Warsaw Convention which provides —
Art. 29 (1) The right to damages shall be extinguished if an action is not brought within two (2)
years, reckoned from the date of arrival at the destination, or from the date on which the
aircraft ought to have arrived, or from the date on which the transportation stopped.
(2) The method of calculating the period of limitation shall be determined by the law of the
court to which the case is submitted.
Respondent countered that par. (1) of Art. 29 of the Warsaw Convention must be reconciled
with par. (2) thereof which states that "the method of calculating the period of limitation shall
be determined by the law of the court to which the case is submitted." Interpreting thus,
respondent noted that according to Philippine laws the prescription of actions is interrupted
"when they are filed before the court, when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgment of the debt by the debtor." 4 Since he
made several demands upon United Airlines: first, through his personal letter dated 16 October
1989; second, through a letter dated 4 January 1990 from Atty. Pesigan; and, finally, through a
letter dated 28 October 1991 written for him by Atty. Ampil, the two (2)-year period of limitation
had not yet been exhausted. prLL
On 2 August 1992 the trial court ordered the dismissal of the action holding that the language of
Art. 29 is clear that the action must be brought within two (2) years from the date of arrival at
the destination. It held that although the second paragraph of Art. 29 speaks of deference to
the law of the local court in "calculating the period of limitation," the same does not refer to the
local forum's rules in interrupting the prescriptive period but only to the rules of determining the
time in which the action may be deemed commenced, and within our jurisdiction the action shall
be deemed "brought" or commenced by the filing of a complaint. Hence, the trial court
concluded that Art. 29 excludes the application of our interruption rules.
Respondent received a copy of the dismissal order on 17 August 1992. On 31 August 1992, or
fourteen (14) days later, he moved for the reconsideration of the trial court's order. The trial
court denied the motion and respondent received copy of the denial order on 28 September
1992. Two (2) days later, on 1 October 1992 respondent filed his notice of appeal.
United Airlines once again moved for the dismissal of the case this time pointing out that
respondent's fifteen (15)-day period to appeal had already elapsed. Petitioner argued that
having used fourteen (14) days of the reglementary period for appeal, respondent Uy had only
one (1) day remaining to perfect his appeal, and since he filed his notice of appeal two (2) days
later, he failed to meet the deadline.
In its questioned Decision dated 29 August 1995 5 the appellate court gave due course to the
appeal holding that respondent's delay of two (2) days in filing his notice of appeal did not
hinder it from reviewing the appealed order of dismissal since jurisprudence dictates that an
appeal may be entertained despite procedural lapses anchored on equity and justice.
On the applicability of the Warsaw Convention, the appellate court ruled that the Warsaw
Convention did not preclude the operation of the Civil Code and other pertinent laws.
Respondent's failure to file his complaint within the two (2)-year limitation provided in the
Warsaw Convention did not bar his action since he could still hold petitioner liable for breach of
other provisions of the Civil Code which prescribe a different period or procedure for instituting
an action. Further, under Philippine laws, prescription of actions is interrupted where, among
others, there is a written extrajudicial demand by the creditors, and since respondent Uy sent
several demand letters to petitioner United Airlines, the running of the two (2)-year prescriptive
period was in effect suspended. Hence, the appellate court ruled that respondent's cause of
action had not yet prescribed and ordered the records remanded to the Quezon City trial court
for further proceedings.
Petitioner now contends that the appellate court erred in assuming jurisdiction over
respondent's appeal since it is clear that the notice of appeal was filed out of time. It argues
that the courts relax the stringent rule on perfection of appeals only when there are
extraordinary circumstances, e.g., when the Republic stands to lose hundreds of hectares of
land already titled and used for educational purposes; when the counsel of record was already
dead; and wherein appellant was the owner of the trademark for more than thirty (30) years,
and the circumstances of the present case do not compare to the above exceptional cases. 6
Section 1 of Rule 45 of the 1997 Rules of Civil Procedure provides that "a party may appeal
by certiorari, from a judgment of the Court of Appeals, by filing with the Supreme Court a
petition for certiorari, within fifteen (15) days from notice of judgment or of the denial of his
motion for reconsideration filed in due time . . ." This Rule however should not be interpreted as
"to sacrifice the substantial right of the appellant in the sophisticated altar of technicalities with
impairment of the sacred principles of justice." 7 It should be borne in mind that the real
purpose behind the limitation of the period of appeal is to forestall or avoid an unreasonable
delay in the administration of justice. Thus, we have ruled that delay in the filing of a notice of
appeal does not justify the dismissal of the appeal where the circumstances of the case show
that there is no intent to delay the administration of justice on the part of appellant's
counsel, 8 or when there are no substantial rights affected, 9 or when appellant's counsel
committed a mistake in the computation of the period of appeal, an error not attributable to
negligence or bad faith. 10
In the instant case, respondent filed his notice of appeal two (2) days later than the prescribed
period. Although his counsel failed to give the reason for the delay, we are inclined to give due
course to his appeal due to the unique and peculiar facts of the case and the serious question of
law it poses. In the now almost trite but still good principle, technicality, when it deserts its
proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves
scant consideration. 11
Petitioner likewise contends that the appellate court erred in ruling that respondent's cause of
action has not prescribed since delegates to the Warsaw Convention clearly intended the two
(2)-year limitation incorporated in Art. 29 as an absolute bar to suit and not to be made subject
to the various tolling provisions of the laws of the forum. Petitioner argues that in construing the
second paragraph of Art. 29 private respondent cannot read into it Philippine rules on
interruption of prescriptive periods and state that his extrajudicial demand has interrupted the
period of prescription. 12 American jurisprudence has declared that "Art. 29 (2) was not
intended to permit forums to consider local limitation tolling provisions but only to let local law
determine whether an action had been commenced within the two-year period, since the
method of commencing a suit varies from country to country." 13
Within our jurisdiction we have held that the Warsaw Convention can be applied, or ignored,
depending on the peculiar facts presented by each case. 14 Thus, we have ruled that the
Convention's provisions do not regulate or exclude liability for other breaches of contract by the
carrier or misconduct of its officers and employees, or for some particular or exceptional type of
damage. 15 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. 16 Likewise, we have held that the Convention does not
preclude the operation of the Civil Code and other pertinent laws. 17 It does not regulate, much
less exempt, the carrier from liability for damages for violating the rights of its passengers under
the contract of carriage, especially if willful misconduct on the part of the carrier's employees is
found or established. 18
Respondent's complaint reveals that he is suing on two (2) causes of action: (a) the shabby and
humiliating treatment he received from petitioner's employees at the San Francisco Airport
which caused him extreme embarrassment and social humiliation; and, (b) the slashing of his
luggage and the loss of his personal effects amounting to US $5,310.00.
While his second cause of action — an action for damages arising from theft or damage to
property or goods — is well within the bounds of the Warsaw Convention, his first cause of
action — an action for damages arising from the misconduct of the airline employees and the
violation of respondent's rights as passenger — clearly is not.
Consequently, insofar as the first cause of action is concerned, respondent's failure to file his
complaint within the two (2)-year limitation of the Warsaw Convention does not bar his action
since petitioner airline may still be held liable for breach of other provisions of the Civil Code
which prescribe a different period or procedure for instituting the action, specifically,  Art. 1146
thereof which prescribes four (4) years for filing an action based on torts. cdrep
As for respondent's second cause of action, indeed the travaux preparatories of the Warsaw
Convention reveal that the delegates thereto intended the two (2)-year limitation incorporated
in Art. 29 as an absolute bar to suit and not to be made subject to the various tolling provisions
of the laws of the forum. This therefore forecloses the application of our own rules on
interruption of prescriptive periods. Article 29, par. (2), was intended only to let local laws
determine whether an action had been commenced within the two (2)-year period, and within
our jurisdiction an action shall be deemed commenced upon the filing of a complaint. Since it is
indisputable that respondent filed the present action beyond the two (2)-year time frame, his
second cause of action must be barred. Nonetheless, it cannot be doubted that respondent
exerted efforts to immediately convey his loss to petitioner, even employed the services of two
(2) lawyers to follow up his claims, and that the filing of the action itself was delayed because of
petitioner's evasion.

In this regard, Philippine Airlines, Inc. v. Court of Appeals 19 is instructive. In this case of PAL,
private respondent filed an action for damages against petitioner airline for the breakage of the
front glass of the microwave oven which she shipped under PAL Air Waybill No. 0-79-1013008-
3. Petitioner averred that, the action having been filed seven (7) months after her arrival at her
port of destination, she failed to comply with par. 12, subpar. (a) (1), of the Air Waybill which
expressly provided that the person entitled to delivery must make a complaint to the carrier in
writing in case of visible damage to the goods, immediately after discovery of the damage and
at the latest within 14 days from receipt of the goods. Despite non-compliance therewith the
Court held that by private respondent's immediate submission of a formal claim to petitioner,
which however was not immediately entertained as it was referred from one employee to
another, she was deemed to have substantially complied with the requirement. The Court noted
that with private respondent's own zealous efforts in pursuing her claim it was clearly not her
fault that the letter of demand for damages could only be filed, after months of exasperating
follow-up of the claim, on 13 August 1990, and that if there was any failure at all to file the
formal claim within the prescriptive period contemplated in the Air Waybill, this was largely
because of the carrier's own doing, the consequences of which could not in all fairness be
attributed to private respondent.

In the same vein must we rule upon the circumstances brought before us. Verily, respondent
filed his complaint more than two (2) years later, beyond the period of limitation prescribed by
the Warsaw Convention for filing a claim for damages. However, it is obvious that respondent
was forestalled from immediately filing an action because petitioner airline gave him the
runaround, answering his letters but not giving in to his demands. True, respondent should have
already filed an action at the first instance when his claims were denied by petitioner but the
same could only be due to his desire to make an out-of-court settlement for which he cannot be
faulted. Hence, despite the express mandate of Art. 29 of the Warsaw Convention that an action
for damages should be filed within two (2) years from the arrival at the place of destination,
such rule shall not be applied in the instant case because of the delaying tactics employed by
petitioner airline itself. Thus, private respondent's second cause of action cannot be considered
as time-barred under Art. 29 of the Warsaw Convention.

WHEREFORE, the assailed Decision of the Court of Appeals reversing and setting aside the
appealed order of the trial court granting the motion to dismiss the complaint, as well as its
Resolution denying reconsideration, is AFFIRMED. Let the records of the case be remanded to
the court of origin for further proceedings taking its bearings from this disquisition.

SO ORDERED. cdtai

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

||| (United Airlines v. Uy, G.R. No. 127768, [November 19, 1999], 376 PHIL 688-700)

THIRD DIVISION
[G.R. No. 121824. January 29, 1998.]
BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP MAHTANI, and
PHILIPPINE AIRLINES, respondents.
Quasha Ancheta Peña & Nolasco for petitioner.
Siguion Reyna Montecillo & Ongsiako for Philippine Airlines.
SYNOPSIS
Private respondent decided to visit his relative in Bombay, India. Since petitioner had no direct
flights from Manila to Bombay, private respondent had to take a flight to Hongkong via PAL, and
upon arrival in Hongkong he had to take a connecting flight to Bombay on board the petitioner.
Prior to his departure, private respondent checked in at respondent PAL's counter in Manila his
two pieces of luggage confident that upon reaching Hongkong, the same would be transferred
to the petitioner's flight bound for Bombay. When private respondent arrived in Bombay he
discovered that his luggage was missing and that upon inquiry from the petitioner's
representative, he was told that the same might have been diverted to London. After waiting for
his luggage for one week, petitioner finally advised him to file a claim. Back in the Philippines,
private respondent filed with the trial court his complaint for damages and attorney's fees
against petitioner. Petitioner contends that that private respondent did not have a cause of
action against it. Petitioner likewise filed a third-party complaint against respondent PAL as the
non-transfer of his luggage was due to the latter's late arrival in Hongkong. Respondent PAL
disclaimed any liability. The trial court rendered its decision in favor of the private respondent.
The third-party complaint against third-party defendant PAL was dismissed for lack of cause of
action. Petitioner appealed to the Court of Appeals which, however, affirmed the trial court's
findings in toto.
The Court of Appeals' ruling regarding the actual value of the luggage is a question of fact, a
finding not reviewable by the Supreme Court. The Court cannot agree with the dismissal of the
third-complaint. The contractual relationship between petitioner and respondent PAL is one of
agency, the former being the principal, since it was the one which issued the confirmed ticket,
and the latter the agent. Since the instant petition was based on breach of contract of carriage,
private respondent can only sue petitioner alone, and not respondent PAL, since the latter was
not a party to the contract. However, respondent PAL is not relieved from any liability due to
any of its negligent acts. It is but logical, fair and equitable to allow petitioner to sue respondent
PAL for indemnification, if it is proven that the latter's negligence was the proximate cause of
private respondent's unfortunate experience, instead of totally absolving respondent PAL from
any liability.
SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; AIRLINE'S CONTRACT OF CARRIAGE; TYPES. — The
nature of an airline's contract of carriage partakes of two types, namely: a contract to deliver a
cargo or merchandise to its destination and a contract to transport passengers to their
destination. A business intended to serve the travelling public primarily, it is imbued with public
interest, hence, the law governing common carriers imposes an exacting standard. Neglect or
malfeasance by the carrier's employees could predictably furnish bases for an action for
damages. cDTCIA
2. ID.; ID.; ID.; DAMAGES, LIABILITY OF AIRLINE FOR MISPLACED LUGGAGE. — In the instant
case, it is apparent that the contract of carriage was between Mahtani and BA. Moreover, it is
indubitable that his luggage never arrived in Bombay on time. Therefore, as in a number of
cases we have assessed the airlines' culpability in the form of damages for breach of contract
involving misplaced luggage.
3. ID.; ID.; ID.; ID.; ID.; CLAIMANT MUST SATISFACTORILY PROVE EXISTENCE OF FACTUAL
BASIS. — In determining the amount of compensatory damages in this kind of cases, it is vital
that the claimant satisfactorily prove during the trial the existence of the factual basis of the
damages and its causal connection to defendant's acts.
4. ID.; ID.; ID.; LIABILITY NOT LIMITED BY ARTICLE 22(1) OF THE WARSAW CONVENTION. —
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is
needed to recover a greater amount. (Article 22[1] of the Warsaw Convention). American
jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount in
excess of the limits specified in the tariff which was filed with the proper authorities, such tariff
being binding on the passenger regardless of the passenger's lack of knowledge thereof or
assent thereto. This doctrine is recognized in this jurisdiction. Notwithstanding the foregoing, we
have, nevertheless, ruled against blind reliance on adhesion contracts where the facts and
circumstances justify that they should be disregarded.
5. ID.; ID.; ID.; BENEFITS OF LIMITED LIABILITY, SUBJECT TO WAIVER; CASE AT BAR. —
Benefits of limited liability are subject to waiver such as when the air carrier failed to raise timely
objections during the trial when questions and answers regarding the actual claims and
damages sustained by the passenger were asked. Given the foregoing postulates, the
inescapable conclusion is that BA had waived the defense of limited liability when it allowed
Mahtani to testify as to the actual damages he incurred due to the misplacement of his luggage,
without any objection. It is a well-settled doctrine that where the proponent offers evidence
deemed by counsel of the adverse party to be inadmissible for any reason, the latter has the
right to object. However, such right is a mere privilege which can be waived. Necessarily, the
objection must be made at the earliest opportunity, lest silence when there is opportunity to
speak may operate as a waiver of objections. BA has precisely failed in this regard. To
compound matters for BA, its counsel failed, not only to interpose a timely objection, but even
conducted his own cross-examination as well.
6. REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF THE TRIAL COURT, AFFIRMED BY THE
COURT OF APPEALS, ENTITLED TO GREAT RESPECT. — Needless to say, factual findings of the
trial court, as affirmed by the Court of Appeals, are entitled to great respect. Since the actual
value of the luggage involved appreciation of evidence, a task within the competence of the
Court of Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a finding
not reviewable by this Court.
7. ID.; ACTIONS; THIRD-PARTY COMPLAINT, NATURE. — In Firestone Tire and Rubber
Company of the Philippines v. Tempengko, we expounded on the nature of a third-party
complaint thus: "The third-party complaint is, therefore, a procedural device whereby a 'third
party' who is neither a party nor privy to the act or deed complained of by the plaintiff may be
brought into the case with leave of court, by the defendant who acts as third-party plaintiff to
enforce against such third-party defendant a right for contribution, indemnity, subrogation or
any other relief, in respect of the plaintiff's claim. The third-party complaint is actually
independent of and separate and distinct from the plaintiff's complaint. Were it not for this
provision of the Rules of Court, it would have to be filed independently and separately from the
original complaint by the defendant against the third-party. But the Rules permit defendant to
bring in a third-party defendant or so to speak, to litigate his separate cause of action in respect
of plaintiff's claim against a third party in the original and principal case with the object of
avoiding circuitry of action and unnecessary proliferation of law suits and of disposing
expeditiously in one litigation the entire subject matter arising from one particular set of facts.
8. CIVIL LAW; COMMON CARRIERS; AIRLINE'S CONTRACT OF CARRIAGE; CARRIAGE
PERFORMED BY SUCCESSIVE CARRIER, REGARDED AS SINGLE OPERATION; CARRIER ISSUING
TICKET CONSIDERED THE PRINCIPAL WHILE THE OTHERS ARE SUB-CONTRACTORS OR
AGENTS. — The contract of air transportation was exclusively between Mahtani and BA, the
latter merely endorsing the Manila to Hongkong leg of the former's journey to PAL, as its
subcontractor or agent. In fact, the fourth paragraph of the "Conditions of Contracts" of the
ticket issued by BA to Mahtani confirms that the contract was one of continuous air
transportation from Manila to Bombay. "4. . . . carriage to be performed hereunder by several
successive carriers is regarded as a single operation." Prescinding from the above discussion, it
is undisputed that PAL, in transporting Mahtani from Manila to Hongkong, acted as the agent of
BA.
tickets and other matters pertaining to their relationship. Therefore, in the instant case, the
contractual relationship between BA and PAL is one of agency, the former being the principal,
since it was the one which issued the confirmed ticket, and the latter the agent.
10. REMEDIAL LAW; ACTIONS; THIRD-PARTY COMPLAINT; PROCEDURAL REMEDY AVAILABLE
TO PRINCIPAL CARRIER FOR CLAIMS FILED BY PASSENGER FOR LOSS OF LUGGAGE IN AGENT
CARRIER. — Since the instant petition was based on breach of contract of carriage, Mahtani can
only sue BA alone, and not PAL, since the latter was not a party to the contract. However, this is
not to say that PAL is relieved from any liability due to any of its negligent acts. In China Air
Lines, Ltd. v. Court of Appeals, while not exactly in point, the case, however, illustrates the
principle which governs this particular situation. In that case, we recognized that a carrier (PAL),
acting as an agent of another carrier, is also liable for its own negligent acts or omission in the
performance of its duties. Accordingly, to deny BA the procedural remedy of filing a third-party
complaint against PAL for the purpose of ultimately determining who was primarily at fault as
between them, is without legal basis. After all, such proceeding is in accord with the doctrine
against multiplicity of cases which would entail receiving the same or similar evidence for both
cases and enforcing separate judgments therefor. It must be borne in mind that the purpose of
a third-party complaint is precisely to avoid delay and circuity of action and to enable the
controversy to be disposed of in one suit. It is but logical, fair and equitable to allow BA to sue
PAL for indemnification, if it is proven that the latter's negligence was the proximate cause of
Mahtani's unfortunate experience, instead of totally absolving PAL from any liability. IHaCDE
DECISION
ROMERO, J p:
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of
respondent Court of Appeals 1 promulgated on September 7, 1995, which affirmed the award of
damages and attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial Region,
Branch 7, in favor of private respondent GOP Mahtani as well as the dismissal of its third-party
complaint against Philippine Airlines (PAL). 2
The material and relevant facts are as follows: prLL
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his
visit, he obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in
turn, purchased a ticket from BA where the following itinerary was indicated: 3
  CARRIER FLIGHT  DATE TIME STATUS
           
"MANILA MNL PR 310Y 16 APR. 1730 OK
HONGKONG HKG BA 20M 16 APR. 2100 OK

9. ID.; ID.; ID.; ID.; ID.; AGENT RESPONSIBLE FOR ANY NEGLIGENCE AND LIABLE FOR BOMBAY BOM BA 19M 23 APR. 0840 OK
DAMAGES WHICH THE PRINCIPAL MAY SUFFER. — Parenthetically, the Court of Appeals should
have been cognizant of the well-settled rule that an agent is also responsible for any negligence HONGKONG HKG PR 311Y      
in the performance of its function and is liable for damages which the principal may suffer by
MANILA MNL"        
reason of its negligent act. Hence, the Court of Appeals erred when it opined that BA, being the
principal, had no cause of action against PAL, its agent or sub-contractor. Also, it is worth Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong
mentioning that both BA and PAL are members of the International Air Transport Association via PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board
(IATA), wherein member airlines are regarded as agents of each other in the issuance of the BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of
luggage containing his clothings and personal effects, confident that upon reaching Hongkong,
the same would be transferred to the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and
that upon inquiry from the BA representatives, he was told that the same might have been
diverted to London. After patiently waiting for his luggage for one week, BA finally advised him
to file a claim by accomplishing the "Property Irregularity Report." 4
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages
and attorney's fees 5 against BA and Mr. Gumar before the trial court, docketed as Civil Case
No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim 6 to the complaint raising, as
special and affirmative defenses, that Mahtani did not have a cause of action against it.
Likewise, on November 9, 1990, BA filed a third-party complaint 7 against PAL alleging that the
reason for the non-transfer of the luggage was due to the latter's late arrival in Hongkong, thus
leaving hardly any time for the proper transfer of Mahtani's luggage to the BA aircraft bound for
Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed
any liability, arguing that there was, in fact, adequate time to transfer the luggage to BA
facilities in Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities should
be considered as transfer to BA. 8
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in
favor of Mahtani, 9 the dispositive portion of which reads as follows:
"WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the
defendant for which defendant is ordered to pay plaintiff the sum of Seven Thousand
(P7,000.00) Pesos for the value of the two (2) suit cases; Four Hundred U.S. ($400.00) Dollars
representing the value of the contents of plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos
for moral and actual damages and twenty percent (20%) of the total amount imposed against
the defendant for attorney's fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for
lack of cause of action.
SO ORDERED."
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's
findings. Thus:
"WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to
be in accordance with law and evidence, the same is hereby AFFIRMED in toto, with costs
against defendant-appellant.
SO ORDERED." 10
BA is now before us seeking the reversal of the Court of Appeals' decision.
In essence, BA assails the award of compensatory damages and attorney's fees, as well as the
dismissal of its third-party complaint against PAL. 11
Regarding the first assigned issue, BA asserts that the award of compensatory damages in the
separate sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was without basis
since Mahtani in his complaint 12 stated the following as the value of his personal belongings:
"8. On said travel, plaintiff took with him the following items and its corresponding value, to wit:
1. personal belonging P10,000.00
2. gifts for his parents and relatives $5,000.00"
Moreover, he failed to declare a higher valuation with respect to his luggage, a condition
provided for in the ticket, which reads: 13
"Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in
advance and additional charges are paid:
1. For most international travel (including domestic corporations of international journeys) the
liability limit is approximately U.S. $9.07 per pound (U.S. $20.00) per kilo for checked baggage
and U.S. $400 per passenger for unchecked baggage."
Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's
contract of carriage partakes of two types, namely: a contract to deliver a cargo or merchandise
to its destination and a contract to transport passengers to their destination. A business
intended to serve the travelling public primarily, it is imbued with public interest, hence, the law
governing common carriers imposes an exacting standard. 14 Neglect or malfeasance by the
carrier's employees could predictably furnish bases for an action for damages. 15
In the instant case, it is apparent that the contract of carriage was between Mahtani and BA.
Moreover, it is indubitable that his luggage never arrived in Bombay on time. Therefore, as in a
number of cases 16 we have assessed the airlines' culpability in the form of damages for breach
of contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital that the
claimant satisfactorily prove during the trial the existence of the factual basis of the damages
and its causal connection to defendant's acts. 17
In this regard, the trial court granted the following award as compensatory damages:
"Since plaintiff did not declare the value of the contents in his luggage and even failed to show
receipts of the alleged gifts for the members of his family in Bombay, the most that can be
expected for compensation of his lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per
kilo, or a combined value of Four Hundred ($400.00) U.S. Dollars for Twenty kilos representing
the contents plus Seven Thousand (P7,000.00) Pesos representing the purchase price of the two
(2) suit cases."
However, as earlier stated, it is the position of BA that there should have been no separate
award for the luggage and the contents thereof since Mahtani failed to declare a separate
higher valuation for the luggage, 18 and therefore, its liability is limited, at most, only to the
amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is
needed to recover a greater amount. Article 22(1) of the Warsaw Convention, 19 provides as
follows:
"xxx xxx xxx
(2) In the transportation of checked baggage and goods, the liability of the carrier shall be
limited to a sum of 250 francs per kilogram, unless the consignor has made, at the time the
package was handed over to the carrier, a special declaration of the value at delivery 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 the sum is greater than the actual
value to the consignor at delivery."
American jurisprudence provides that an air carrier is not liable for the loss of baggage in an
amount in excess of the limits specified in the tariff which was filed with the proper authorities,
such tariff being binding on the passenger regardless of the passenger's lack of knowledge
thereof or assent thereto. 20 This doctrine is recognized in this jurisdiction. 21
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion
contracts where the facts and circumstances justify that they should be disregarded. 22
In addition, we have held that benefits of limited liability are subject to waiver such as when the
air carrier failed to raise timely objections during the trial when questions and answers regarding
the actual claims and damages sustained by the passenger were asked. 23
Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of
limited liability when it allowed Mahtani to testify as to the actual damages he incurred due to
the misplacement of his luggage, without any objection. In this regard, we quote the pertinent
transcript of stenographic notes of Mahtani's direct testimony: 24
Q: How much are you going to ask from this court?
A: P100,000.00.
Q: What else?
A: Exemplary damages.
Q: How much?
A: P100,000.00.
Q: What else?
A: The things I lost, $5,000.00 for the gifts I lost and my personal belongings, P10,000.00.
Q: What about the filing of this case?
A: The court expenses and attorney's fees is 30%."
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by
counsel of the adverse party to be inadmissible for any reason, the latter has the right to object.
However, such right is a mere privilege which can be waived. Necessarily, the objection must be
made at the earliest opportunity, lest silence when there is opportunity to speak may operate as
a waiver of objections. 25 BA has precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection, but
even conducted his own cross-examination as well. 26 In the early case of Abrenica
v. Gonda, 27 we ruled that:
". . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against
the admission of any evidence must be made at the proper time, and that if not so made it will
be understood to have been waived. The proper time to make a protest or objection is when,
from the question addressed to the witness, or from the answer thereto, or from the
presentation of proof, the inadmissibility of evidence is, or may be inferred."
Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are
entitled to great respect. 28 Since the actual value of the luggage involved appreciation of
evidence, a task within the competence of the Court of Appeals, its ruling regarding the amount
is assuredly a question of fact, thus, a finding not reviewable by this Court. 29
As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals
justified its ruling in this wise, and we quote: 30
"Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint against
PAL. prcd
The contract of air transportation in this case pursuant to the ticket issued by appellant to
plaintiff-appellee was exclusively between the plaintiff Mahtani and defendant-appellant BA.
When plaintiff boarded the PAL plane from Manila to Hongkong, PAL was merely acting as a
subcontractor or agent of BA. This is shown by the fact that in the ticket issued by appellant to
plaintiff-appellee, it is specifically provided on the "Conditions of Contract," paragraph 4 thereof
that:
4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single
operation.
The rule that carriage by plane although performed by successive carriers is regarded as a
single operation and that the carrier issuing the passenger's ticket is considered the principal
party and the other carrier merely subcontractors or agent, is a settled issue."
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko, 31 we expounded on
the nature of a third-party complaint thus:
"The third-party complaint is, therefore, a procedural device whereby a 'third party' who is
neither a party nor privy to the act or deed complained of by the plaintiff, may be brought into
the case with leave of court, by the defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity, subrogation or any other
relief, in respect of the plaintiff's claim. The third-party complaint is actually independent of and
separate and distinct from the plaintiff's complaint. Were it not for this provision of the Rules of
Court, it would have to be filed independently and separately from the original complaint by the
defendant against the third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim
against a third-party in the original and principal case with the object of avoiding circuitry of
action and unnecessary proliferation of law suits and of disposing expeditiously in one litigation
the entire subject matter arising from one particular set of facts."
Undeniably, for the loss of his luggage; Mahtani is entitled to damages from BA, in view of their
contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL
which the latter naturally denies. In other words, BA and PAL are blaming each other for the
incident.
In resolving this issue, it is worth observing that the contract of air transportation was which would entail receiving the same or similar evidence for both cases and enforcing separate
exclusively between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of judgments therefor. It must be borne in mind that the purpose of a third-party complaint is
the former's journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the precisely to avoid delay and circuity of action and to enable the controversy to be disposed of in
"Conditions of Contracts" of the ticket 32 issued by BA to Mahtani confirms that the contract one suit. 38 It is but logical, fair and equitable to allow BA to sue PAL for indemnification, if it is
was one of continuous air transportation from Manila to Bombay. proven that the latter's negligence was the proximate cause of Mahtani's unfortunate
experience, instead of totally absolving PAL from any liability.
"4. . . . carriage to be performed hereunder by several successive carriers is regarded as a
single operation." WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No.
43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed
Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from by British Airways dated November 9, 1990 against Philippine Airlines. No costs. LLpr
Manila to Hongkong acted as the agent of BA.
SO ORDERED.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an
agent is also responsible for any negligence in the performance of its function 33 and is liable Narvasa, C .J ., Melo and Francisco, JJ ., concur.
for damages which the principal may suffer by reason of its negligent act. 34 Hence, the Court
of Appeals erred when it opined that BA, being the principal, had no cause of action against Panganiban, J ., concurs in the result.
PAL, its agent or sub-contractor.
 
Also, it is worth mentioning that both BA and PAL are members of the International Air
||| (British Airways v. Court of Appeals, G.R. No. 121824, [January 29, 1998], 349 PHIL 379-
Transport Association (IATA), wherein member airlines are regarded as agents of each other in
394)
the issuance of the tickets and other matters pertaining to their relationship. 35 Therefore, in
the instant case, the contractual relationship between BA and PAL is one of agency, the former
being the principal, since it was the one which issued the confirmed ticket, and the latter the
agent.

Our pronouncement that BA is the principal is consistent with our ruling in  Lufthansa German
Airlines v. Court of Appeals. 36 In that case, Lufthansa issued a confirmed ticket to Tirso
Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the
airlines which was to carry Antiporda to a specific destination "bumped" him off.

An action for damages was filed against Lufthansa which, however, denied any liability,
contending that its responsibility towards its passenger is limited to the occurrence of a mishap
on its own line. Consequently, when Antiporda transferred to Air Kenya, its obligation as a
principal in the contract of carriage ceased; from there on, it merely acted as a ticketing agent
for Air Kenya:

In rejecting Lufthansa's argument, we ruled:

"In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage
with Antiporda and remains to be so, regardless of those instances when actual carriage was to
be performed by various carriers. The issuance of confirmed Lufthansa ticket in favor of
Antiporda covering his entire five-leg trip aboard successive carriers concretely attest to this."

Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA
alone, and not PAL, since the latter was not a party to the contract. However, this is not to say
that PAL is relieved from any liability due to any of its negligent acts. In China Air Lines,
Ltd. v. Court of Appeals, 37 while not exactly in point, the case, however, illustrates the
principle which governs this particular situation. In that case, we recognized that a carrier (PAL),
acting as an agent of another carrier, is also liable for its own negligent acts or omission in the
performance of its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for
the purpose of ultimately determining who was primarily at fault as between them, is without
legal basis. After all, such proceeding is in accord with the doctrine against multiplicity of cases

SECOND DIVISION
[G.R. No. 119641. May 17, 1996.]
PHILIPPINE AIRLINES, INC., petitioner, vs. COURT OF APPEALS, DR. JOSEFINO
MIRANDA and LUISA MIRANDA, respondents.
Siguion Reyna Montecillo & Ongsiako for petitioner.
Noel P. Catre for private respondents.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF AIR CARRIAGE; A RELATION
ATTENDED WITH PUBLIC DUTY; DISCOURTEOUS CONDUCT TOWARDS A PASSENGER GIVES
RISE FOR AN ACTION FOR DAMAGES. — The Court has time and again ruled, and it cannot be
over-emphasized, that a contract of air carriage generates a relation attended with a public duty
and any discourteous conduct on the part of a carrier's employee toward a passenger gives the
latter an action for damages and, more so, where there is bad faith. While it may be true that
there was no direct evidence on record of blatant rudeness on the part of PAL employees
towards the Mirandas, the fact that private respondents were practically compelled to haggle for
accommodations, a situation unbefitting persons of their stature, is rather demeaning and it
partakes of discourtesy magnified by PAL's condescending attitude. Moreover, it cannot be
denied that the PAL employees herein concerned were definitely less than candid, to put it
mildly, when they withheld information from private respondents that they could actually be
accommodated in a hotel of their choice.
2. REMEDIAL LAW; EVIDENCE; FINDINGS OF THE TRIAL AND APPELLATE COURT ON THE
EXISTENCE OF BAD FAITH ON THE PART OF THE CARRIER, GENERALLY NOT DISTURBED ON
APPEAL. — It is settled that bad faith must be duly proved and not merely presumed. The
existence of bad faith, being a factual question, and the Supreme Court not being a trier of
facts, the findings thereon of the trial court as well as of the Court of Appeals shall not be
disturbed on appeal and are entitled to great weight and respect. Said findings are final and
conclusive upon the Supreme Court except, inter alia, where the findings of the Court of Appeals
and the trial court are contrary to each other.
3. ID.; ID.; ID.; CASE AT BAR. — It is evident that the issues raised in this petition are the
correctness of the factual findings of the Court of Appeals of bad faith on the part of petitioner
and the award of damages against it. This Court has consistently held that the findings of the
Court of Appeals and the other lower courts are as a rule binding upon it, subject to certain
exceptions created by case law. As nothing in the record indicates any of such exceptions, the
factual conclusions of the appellate court must be affirmed.
4. CIVIL LAW; DAMAGES; MORAL DAMAGES; RECOVERABLE IN A BREACH OF CONTRACT
ATTENDED WITH FRAUD OR BAD FAITH; INATTENTION TO AND LACK OF CARE FOR
INTERESTS OF PASSENGERS AMOUNTS TO BAD FAITH. — It is now firmly settled that moral
damages are recoverable in suits predicated on breach of a contract of carriage where it is
proved that the carrier was guilty of fraud or bad faith. Inattention to and lack of care for the
interests of its passengers who are entitled to its utmost consideration, particularly as to their
convenience, amount to bad faith which entitles the passenger to an award of moral damages.
What the law considers as bad faith which may furnish the ground for an award of moral
damages would be bad faith in securing the contract and in the execution thereof, as well as in
the enforcement of its terms, or any other kind of deceit. Such unprofessional and prescribed
conduct is attributable to petitioner airline in the case at bar and the adverse doctrinal rule is
accordingly applicable to it.
5. ID.; ID.; ID.; AWARDED TO COMPENSATE PLAINTIFF'S INJURIES. — It must, of course, be
borne in mind that moral damages are not awarded to penalize the defendant but to
compensate the plaintiff for the injuries he may have suffered.
6. ID.; ID.; EXEMPLARY DAMAGES; AWARDED WHERE DEFENDANT ACTED IN WANTON,
FRAUDULENT AND OPPRESSIVE MANNER. — In a contractual or quasi-contractual relationship,
exemplary damages, on the other hand, may be awarded only if the defendant had acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner.
7. ID.; ID.; ATTORNEY'S FEES; AWARDED WHERE THERE IS A FINDING OF BAD FAITH; CASE
AT BAR. — Attorney's fees in the concept of damages may be awarded where there is a finding
of bad faith. The evidence on record amply sustains, and we correspondingly find, that the
awards assessed against petitioner on the aforestated items of damages are justified and
reasonable.
8. ID.; OBLIGATIONS AND CONTRACTS; CONTRACT OF AIR CARRIAGE; LIABILITY OF CARRIER
NOT LIMITED BY THE PROVISIONS OF WARSAW CONVENTION. — Although the Warsaw
Convention has the force and effect of law in this country, being a treaty commitment assumed
by the Philippine government, said convention does not operate as an exclusive enumeration of
the instances for declaring a carrier liable for breach of contract of carriage or as an absolute
limit of the extent of that liability. The Warsaw Convention declares the carrier liable in the
enumerated cases and under certain limitations. However, it must not be construed to preclude
the operation of the Civil Code and pertinent laws. It does not regulate, much less exempt, the
carrier from liability for damages for violating the rights of its passengers under the contract of
carriage, especially if willful misconduct on the part of the carrier's employees is found or
established. (Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al., G.R. No. 60501, March 5,
1993)
DECISION
REGALADO, J p:
In this appeal by certiorari, petitioner Philippine Airlines, Inc. (PAL) assails the decision of
respondent Court of Appeals in CA-G.R. CV No. 29147 1 which affirmed the judgment of the
trial court finding herein petitioner liable as follows:
"Wherefore, premises considered, judgment is hereby rendered ordering the defendant,
Philippine Airlines or PAL, to pay to the plaintiffs, Dr. Josefino Miranda and Luisa Miranda, the
sum of P100,000.00 as moral damages; P30,000.00 as exemplary or corrective damages;
P10,000.00 as attorney's fees; and the costs." 2
The factual antecedents of the present petition reveal that sometime in May, 1988, Dr. Josefino
Miranda and his wife, Luisa, who were residents of Surigao City, went to the United States of
America on a regular flight of Philippine Airlines, Inc. (PAL). On June 19, 1988, after a stay of
over a month there, they obtained confirmed bookings from PAL's San Francisco Office for PAL
Flight PR 101 from San Francisco to Manila via Honolulu on June 21, 1988; PAL Flight PR 851
from Manila to Cebu on June 24, 1988; and PAL Flight PR 905 from Cebu to Surigao also on
June 24, 1988.
Accordingly, on June 21, 1988, private respondents boarded PAL Flight PR 101 in San Francisco
with five (5) pieces of baggage. After a stopover at Honolulu, and upon arrival in Manila on June
23, 1988, they were told by the PAL personnel that their baggage consisting of
two balikbayan boxes, two pieces of luggage and one fishing rod case were off-loaded at
Honolulu, Hawaii due to weight limitations. Consequently, private respondents missed their
connecting flight from Manila to Cebu City, as originally scheduled, since they had to wait for
their baggage which arrived the following day, June 24, 1988, after their pre-scheduled
connecting flight had left. They consequently also missed their other scheduled connecting flight
from Cebu City to Surigao City.
On June 25, 1988, they departed for Cebu City and therefrom private respondents had to
transfer to PAL Flight 471 for Surigao City. On the way to Surigao City, the pilot announced that
they had to return to Mactan Airport due to some mechanical problem. While at Mactan Airport,
the passengers were provided by PAL with lunch and were booked for the afternoon flight to
Surigao City. However, said flight was also canceled.
Since there were no more flights for Surigao City that day, private respondents asked to be
billeted at the Cebu Plaza Hotel where they usually stay whenever they happen to be in Cebu
City. They were, however, told by the PAL employees that they could not be accommodated at
said hotel supposedly because it was fully booked. Contrarily, when Dr. Miranda called the hotel,
he was informed that he and his wife could be accommodated there. Although reluctant at first,
PAL eventually agreed to private respondents' overnight stay at said hotel. Oscar Jereza, PAL
duty manager, approved the corresponding hotel authority with standard meals. It was only
after private respondents' insistence that their meals be ordered a la carte that they were
allowed to do so by PAL provided that they sign for their orders.
Inasmuch as the shuttle bus had already left by the time private respondents were ready to go
to the hotel, PAL offered them P150.00 to include the fare for the return trip to the airport. Dr.
Miranda asked for P150.00 more as he and his wife, along with all of their baggage, could not
be accommodated in just one taxi, aside from the need for tipping money for hotel boys. Upon
refusal of this simple request, Dr. Miranda then declared that he would forego the amenities
offered by PAL. Thus, the voucher for P150.00 and the authority for the hotel accommodations
prepared by PAL were voided due to private respondents' decision not to avail themselves
thereof.
To aggravate the muddled situation, when private respondents tried to retrieve their baggage,
they were told this time that the same were loaded on another earlier PAL flight to Surigao City.
Thus, private respondents proceeded to the hotel sans their baggage and of which they were
deprived for the remainder of their trip. Private respondents were finally able to leave on board
the first PAL flight to Surigao City only on June 26, 1988. Thereafter, they instituted an action
for damages which, after trial as well as on appeal, was decided in their favor.
Petitioner PAL has come to us via the instant petition for review on certiorari, wherein it
challenges the affirmatory decision of respondent Court of Appeals 3 (1) for applying Articles
2220, 2232 and 2208 of the Civil Code when it sustained the award of the court a quo for moral
and exemplary damages and attorney's fees despite absence of bad faith on its part; and (2) for
not applying the express provisions of the contract of carriage and pertinent provisions of the
Warsaw Convention limiting its liability to US$20.00 per kilo of baggage.
1. Anent the first issue, petitioner argues that there was no bad faith on its part for while there
was admittedly a delay in fulfilling its obligation under the contract of carriage with respect to
the transport of passengers and the delivery of their baggage, such delay was justified by the
paramount consideration of ensuring the safety of its passengers. It likewise maintains that its
employees treated private respondents fairly and with courtesy to the extent of acceding to
most of their demands in order to mitigate the inconvenience occasioned by the measures
undertaken by the airline to ensure passenger safety. 4
It reiterated its position that the off-loading of private respondents' baggage was due to "weight
limitations," as lengthily explained by petitioner from an aeronautically technical
viewpoint, 5 taking into consideration such variable factors as flight distance, weather, air
resistance, runway condition and fuel requirement. Given the variable weather conditions, it
claimed that the weight limitation for each flight can only be ascertained shortly before take-off.
While admittedly there would be a resulting inconvenience in the accommodations of the
passengers and the handling of their cargo, the same is outweighed by the paramount concern
for the safety of the flight.
Petitioner moreover impugns the Court of Appeal's allegedly improper reliance on the inaccurate
interpretation of the testimony of PAL's baggage service representative, Edgar Mondejar, * that
private respondents' baggage were off-loaded to give preference to baggage and/or cargo
originating from Honolulu. PAL argues that Mondejar's knowledge of what transpired in Honolulu
was merely based on the telex report forwarded to PAL's Manila station stating that the off-
loading was due to weight limitations. 6
Petitioner enumerates the following incidents as indicative of its good faith in dealing with
private respondents: (1) The cancellation of the flight to Surigao City due to mechanical/engine
trouble was to ensure the safety of passengers and cargo; (2) PAL offered to shoulder private
respondents' preferred accommodations, meals and transportation while in Cebu City with more
than the usual amenities given in cases of flight disruption, and gave them priority in the
following day's flight to Surigao City; (3) PAL employees did not act rudely towards private
respondents and its managerial personnel even gave them special attention; (4) It was
reasonable for PAL to limit the transportation expense to P150.00, considering that the fare
between the airport and the hotel was only P75.00, and they would be picked up by the shuttle
bus from the hotel to the airport, while the request for money for tips could not be justified; and
(5) The inadvertent loading of private respondents' baggage on the replacement flight to
Surigao City was at most simple and excusable negligence due to the numerous flight
disruptions and large number of baggages on that day.
Petitioner strenuously, and understandably, insists that its employees did not lie to private
respondents regarding the want of accommodations at the latter's hotel of preference. The only
reason why Cebu Plaza Hotel was not initially offered to them by PAL was because of the earlier
advice of the hotel personnel that not all the stranded PAL passengers could be accommodated
therein. It claimed that it was in accordance with the airline's policy of housing all affected
passengers in one location for easy communication and transportation, which accommodations
in this instance could be provided by Magellan Hotel. However, upon insistence of the Mirandas
on their preference for Cebu Plaza Hotel, Jeremias Tumulak, PAL's passenger relations officer,
told them that they could use the office phone and that if they could arrange for such
accommodation PAL would shoulder the expenses. This concession, so petitioner avers, negates
any malicious intent on its part.
Crucial to the determination of the propriety of the award of damages in this case is the lower
court's findings on the matter of bad faith, which deserves to be quoted at length:
"These claims were reasonable and appeared to be supported by the evidence. Thus it cannot
be denied that plaintiffs had to undergo some personal inconveniences in Manila for lack of their
baggage. It is also highly probable that plaintiffs' scheduled return to Surigao City was upset
because of their having to wait for one day for their missing things. Consequently, it was quite
evident that the off-loading of plaintiffs' baggage in Honolulu was the proximate cause of
plaintiffs' subsequent inconveniences for which they claimed to have suffered social humiliation,
wounded feelings, frustration and mental anguish.
xxx xxx xxx
"In the present case there was a breach of contract committed in bad faith by the defendant
airlines. As previously noted, plaintiffs had a confirmed booking on PAL Flight PR 101 from San
Francisco to Manila. Therefore plaintiffs were entitled to an assured passage not only for
themselves but for their baggage as well. They had a legal right to rely on this.
"The evidence showed that plaintiffs' baggage were properly loaded and stowed in the plane
when it left San Francisco for Honolulu. The off-loading or bumping off by defendant airlines of
plaintiffs' baggage to give way to other passengers or cargo was an arbitrary and oppressive act
which clearly amounted to a breach of contract committed in bad faith and with malice. In the
aforecited case, the Supreme Court defined bad faith as a breach of a known duty through
some motive of interest or ill will. Self-enrichment or fraternal interest, and not personal ill will,
may have been the motive, but it is malice nevertheless (infra).
"As correctly pointed out in the Memorandum for Plaintiffs dated June 18, 1990 (pp. 4-5), the
following excerpt from the testimony of Edgar Mondejar clearly demonstrated the act of
discrimination perpetrated by defendant on the herein plaintiffs (TSN, Edgar Mondejar, Feb. 28,
1990, pp. 26-28), thus:
Q: Before a plane departs, your office will see to it the plane loads the exact weight limitation
insofar as the cargoes (sic) and passengers are concerned, is that correct?
A: Yes.
Q: And so with the PR 101 flight starting mainland USA, it complied with the weight limitation,
passengers and baggages (sic) limitation, is that correct?
A: Yes.
Q: In other words the trip from the mainland USA started in Hawaii to off-load cargoes (sic), you
complied with the weight limitation and so on?
A: Yes.
Q: But you are saying upon arriving in Honolulu certain containers were off-loaded?
A: Yes.
Q: That would be therefore some containers were off-loaded to give way to some other
containers starting from Honolulu towards Manila?
A: Yes.
Q: In other words Mr. Mondejar, preference was given to cargoes (sic) newly loaded at Honolulu
instead of the cargoes (sic) already from mainland USA, is that correct?
A: Yes.
"The aforesaid testimony constituted a clear admission in defendant's evidence of facts
amounting to a breach of contract in bad faith. This being so, defendant must be held liable in
damages for the consequences of its action." 7 (Corrections indicated in original text.)
The trial court further found that the situation was aggravated by the following incidents: the
poor treatment of the Mirandas by the PAL employees during the stopover at Mactan Airport in
Cebu; the cavalier and dubious response of petitioner's personnel to the Miranda spouses'
request to be billeted at the Cebu Plaza Hotel by denying the same allegedly because it was fully
booked, which claim was belied by the fact that Dr. Miranda was easily able to arrange for
accommodations thereat; and, the PAL employees' negligent, almost malicious, act of sending
off the baggage of private respondents to Surigao City, while they were still in Cebu, without
any explanation for this gross oversight. 8
The Court of Appeals affirmed these findings of the trial court by stating that —
"While we recognize an airline's prerogative to off-load baggag(e) to conform with weight
limitations for the purpose of ensuring the safety of passengers, We, however, cannot sanction
the motion (sic) and manner it was carried out in this case.
"It is uncontroverted that appellees' baggag(e) were properly weighed and loaded in the plane
when it left San Francisco for Honolulu. When they reached Honolulu, they were not informed
that their baggag(e) would be off-loaded. Ironically, if the purpose of the off-loading was to
conform with the weight limitations, why were other containers loaded in Honolulu? The real
reason was revealed by Edgar Mondejar, baggage service representative of the appellant. . . . 9
xxx xxx xxx
"As earlier noted, the off-loading of appellees' baggag(e) was done in bad faith because it was
not really for the purpose of complying with weight limitations but to give undue preference to
newly-loaded baggag(e) in Honolulu. This was followed by another mishandling of said
baggag(e) in the twice-cancelled connecting flight from Cebu to Surigao. Appellees' sad
experience was further aggravated by the misconduct of appellant's personnel in Cebu, who lied
to appellees in denying their request to be billeted at Cebu Plaza Hotel.'' 10
The Court has time and again ruled, and it cannot be over-emphasized, that a contract of air
carriage generates a relation attended with a public duty and any discourteous conduct on the
part of a carrier's employee toward a passenger gives the latter an action for damages and,
more so, where there is bad faith. 11
It is settled that bad faith must be duly proved and not merely presumed. The existence of bad
faith, being a factual question, and the Supreme Court not being a trier of facts, the findings
thereon of the trial court as well as of the Court of Appeals shall not be disturbed on appeal and
are entitled to great weight and respect. 12 Said findings are final and conclusive upon the
Supreme Court except, inter alia, where the findings of the Court of Appeals and the trial court
are contrary to each other. 13
 
It is evident that the issues raised in this petition are the correctness of the factual findings of
the Court of Appeals of bad faith on the part of petitioner and the award of damages against it.
This Court has consistently held that the findings of the Court of Appeals and the other lower
courts are as a rule binding upon it, subject to certain exceptions created by case law. As
nothing in the record indicates any of such exceptions, the factual conclusions of the appellate
court must be affirmed. 14
It is now firmly settled that moral damages are recoverable in suits predicated on breach of a
contract of carriage where it is proved that the carrier was guilty of fraud or bad
faith. 15 Inattention to and lack of care for the interests of its passengers who are entitled to its
utmost consideration, particularly as to their convenience, amount to bad faith which entitles the
passenger to an award of moral damages. What the law considers as bad faith which may
furnish the ground for an award of moral damages would be bad faith in securing the contract
and in the execution thereof, as well as in the enforcement of its terms, or any other kind of
deceit. 16 Such unprofessional and proscribed conduct is attributable to petitioner airline in the
case at bar and the adverse doctrinal rule is accordingly applicable to it.
In Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al., 17 a case which is virtually on all
fours with the present controversy, we stated:
"In the case at bar, both the trial court and the appellate court found that CATHAY was grossly
negligent and reckless when it failed to deliver the luggage of petitioner at the appointed place
and time. We agree. . . . .While the mere failure of CATHAY to deliver respondent's luggage at
the agreed place and time did not ipso facto amount to willful misconduct since the luggage was
eventually delivered to private respondent, albeit belatedly, We are persuaded that the
employees of CATHAY acted in bad faith. . . .
". . . if the defendant airline is shown to have acted fraudulently or in bad faith, the award of
moral and exemplary damages is proper."
It must, of course, be borne in mind that moral damages are not awarded to penalize the
defendant but to compensate the plaintiff for the injuries he may have suffered. 18 In a
contractual or quasi-contractual relationship, exemplary damages, on the other hand, may be
awarded only if the defendant had acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. 19 Attorney's fees in the concept of damages may be awarded where there
is a finding of bad faith. 20 The evidence on record amply sustains, and we correspondingly
find, that the awards assessed against petitioner on the aforestated items of damages are
justified and reasonable.
At this juncture, it may also be pointed out that it is PAL's duty to provide assistance to private
respondents and, for that matter, any other passenger similarly inconvenienced due to delay in
the completion of the transport and the receipt of their baggage. Therefore, its unilateral and
voluntary act of providing cash assistance is deemed part of its obligation as an air carrier, and
is hardly anything to rave about. Likewise, arrangements for and verification of requested hotel
accommodations for private respondents could and should have been done by PAL employees
themselves, and not by Dr. Miranda. It was rather patronizing of PAL to make much of the fact
that they allowed Dr. Miranda to use its office telephone in order to get a hotel room.
While it may be true that there was no direct evidence on record of blatant rudeness on the part
of PAL employees towards the Mirandas, the fact that private respondents were practically
compelled to haggle for accommodations, a situation unbefitting persons of their stature, is
rather demeaning and it partakes of discourtesy magnified by PAL's condescending attitude.
Moreover, it cannot be denied that the PAL employees herein concerned were definitely less
than candid, to put it mildly, when they withheld information from private respondents that they
could actually be accommodated in a hotel of their choice.
Indeed, the flamboyant testimony of Oscar Jereza, * as PAL's duty manager, merely pays lip-
service to, without putting into reality, the avowed company policy of invariably making
available and always granting the requests for the kind and standard of accommodations
demanded by and appropriate for its passengers. 21 Certainly, a more efficient service, and not
a lackadaisical and disorganized system, is expected of the nations's flag carrier, especially on
an international flight.
For, on the picayune matter of transportation expenses, PAL was obviously and unduly
scrimping even on the small amount to be given to the Mirandas. PAL failed to consider that
they were making arrangements for two paying round-trip passengers, not penny-ante
freeloaders, who had been inconvenienced by the numerous delays in flight services and
careless handling of their belongings by PAL. The niggardly attitude of its personnel in this
unfortunate incident, as well as their hair-splitting attempts at justification, is a disservice to the
image which our national airline seeks to project in its costly advertisements.
We agree with the findings of the lower court that the request of private respondents for
monetary assistance of P300.00 for taxi fare was indeed justified, considering that there were
two of them and they had several pieces of luggage which had to be ferried between the airport
and the hotel. Also, the request for a small additional sum for tips is equally reasonable since
tipping, especially in a first-rate hotel, is an accepted practice, of which the Court can take
judicial notice. This is aside from the fact that private respondents, having just arrived from an
extended trip abroad, had already run out of Philippine currency, which predicament was
exacerbated by their additional stay in Manila due to the off-loading of their baggage. All these
inconveniences should have warranted a commonsensical and more understanding treatment
from PAL, considering that private respondents found themselves in this unpleasant situation
through no fault of theirs.
the carrier liable in the enumerated cases and under certain limitations. However, it must not be
construed to preclude the operation of the Civil Code and pertinent laws. It does not regulate,
much less exempt, the carrier from liability for damages for violating the rights of its passengers
under the contract of carriage, especially if willful misconduct on the part of the carrier's
employees is found or established, which is the case before Us. . . ."

2. On its second issue, petitioner avers that the express provisions on private respondents' ACCORDINGLY, finding no reversible error, the challenged judgment of respondent Court of
tickets stipulating that liability for delay in delivery of baggage shall be limited to US$20.00 per Appeals is hereby AFFIRMED in toto.
kilo of baggage delayed, unless the passenger declares a higher valuation, constitutes the
contract of carriage between PAL and private respondents. SO ORDERED.

It further contends that these express provisions are in compliance with the provisions of the Romero, Puno, Mendoza and Torres, Jr., JJ ., concur.
Warsaw Convention for the Unification of Rules Relating to International Carrier by Air, to which
 
the Philippines is a signatory. Thereunder, it is asserted that PAL flight PR 101 from San
Francisco, U.S.A. to Manila, Philippines is an "international transportation" well within the ||| (Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 119641, [May 17, 1996], 326 PHIL
coverage of the Warsaw Convention. 823-841)
Petitioner obstinately insists on the applicability of the provisions of the Warsaw Convention
regarding the carrier's limited liability since the off-loading was supposedly justified and not
attended by bad faith. Neither was there any claim for loss of baggage as in fact private
respondents' baggage were, albeit delayed, received by them in good condition. 22

The court a quo debunked petitioner's arguments by this holding:

"The defense raised by defendant airlines that it can be held liable only under the terms of the
Warsaw Convention (Answer, Special and Affirmative Defenses, dated October 26, 1988) is of
no moment. For it has also been held that Articles 17, 18 and 19 of the Warsaw Convention of
1929 merely declare the air carriers liable for damages in the cases enumerated therein, if the
conditions specified are present. Neither the provisions of said articles nor others regulate or
exclude liability for other breaches of contract by air carriers (Northwest Airlines, Inc. vs. Nicolas
Cuenca, et al., 14 SCRA 1063)." 23

This ruling of the trial court was affirmed by respondent Court of Appeals, thus:

"We are not persuaded. Appellees do not seek payment for loss of any baggage. They are
claiming damages arising from the discriminatory off-loading of their baggag(e). That cannot be
limited by the printed conditions in the tickets and baggage checks. Neither can the Warsaw
Convention exclude nor regulate the liability for other breaches of contract by air carriers. A
recognition of the Warsaw Convention does not preclude the operation of our Civil Code and
related laws in determining the extent of liability of common carriers in breach of contract of
carriage, particularly for willful misconduct of their employees." 24

The congruent finding of both the trial court and respondent court that there was discriminatory
off-loading being a factual question is, as stated earlier, binding upon and can no longer be
passed upon by this Court, especially in view of and in deference to the affirmance of the same
by respondent appellate court.

There was no error on the part of the Court of Appeals when it refused to apply the provisions
of the Warsaw Convention, for in the words of this Court in the aforequoted Cathay Pacific case:

". . . although the Warsaw Convention has the force and effect of law in this country, being a
treaty commitment assumed by the Philippine government, said convention does not operate as
an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of
carriage or as an absolute limit of the extent of that liability. The Warsaw Convention declares
 1. CIVIL LAW; CONTRACT OF CARRIAGE; BREACH THEREOF; PETITIONER BREACHED ITS
CONTRACT OF CARRIAGE WITH PRIVATE RESPONDENT WHEN IT FAILED TO DELIVER HIS
LUGGAGE AT THE DESIGNATED PLACE AND TIME. — Petitioner breached its contract of
carriage with private respondent when it failed to deliver his luggage at the designated place
and time, it being the obligation of a common carrier to carry its passengers and their luggage
safely to their destination, which includes the duty not to delay their transportation, and the
evidence shows that petitioner acted fraudulently or in bad faith.

2. DAMAGES; MORAL AND EXEMPLARY DAMAGES PREDICATED UPON A BREACH OF

CONTRACT OF CARRIAGE; RECOVERABLE ONLY IN INSTANCES WHERE THE MISHAP RESULTS
IN DEATH OF A PASSENGER, OR WHERE THE CARRIER IS GUILTY OF FRAUD OR BAD FAITH;
THE CONDUCT OF PETITIONER'S REPRESENTATIVE TOWARDS RESPONDENT JUSTIFIES THE
GRANT OF MORAL AND EXEMPLARY DAMAGES IN CASE AT BAR. — Moral damages predicated
upon a breach of contract of carriage may only be recoverable in instances where the mishap
results in death of a passenger, or where the carrier is guilty of fraud or bad faith. The language
and conduct of petitioner's representative towards respondent Alcantara was discourteous or
arbitrary to justify the grant of moral damages. The CATHAY representative was not only
indifferent and impatient; he was also rude and insulting. He simply advised Alcantara to buy
anything he wanted. But even that was not sincere because the representative knew that the
passenger was limited only to $20.00 which, certainly, was not enough to purchase comfortable
clothings appropriate for an executive conference. Considering that Alcantara was not only a
revenue passenger but even paid for a first class airline accommodation and accompanied at the
time by the Commercial Attache of the Philippine Embassy who was assisting him in his
problem, petitioner or its agents should have been more courteous and accommodating to
private respondent, instead of giving him a curt reply, "What can we do, the baggage is missing.
I cannot do anything . . . Anyhow, you can buy anything you need, charged to Cathay Pacific."
Where in breaching the contract of carriage the defendant 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 obligation which the parties had foreseen or could have
reasonably foreseen. In that case, such liability does not include moral and exemplary damages.
Conversely, if the defendant airline is shown to have acted fraudulently or in bad faith, the
award of moral and exemplary damages is proper.

3. TEMPERATE DAMAGES; RECOVERABLE ONLY UPON PROOF THAT THE CLAIMANT

SUSTAINED SOME PECUNIARY LOSS. — However, respondent Alcantara is not entitled to
temperate damages, contrary to the ruling of the court a quo, in the absence of any showing
that he sustained some pecuniary loss. It cannot be gainsaid that respondent's luggage was
ultimately delivered to him without serious or appreciable damage.

4. WARSAW CONVENTION; DOES NOT OPERATE AS AN EXCLUSIVE ENUMERATION OF THE

FIRST DIVISION INSTANCES FOR DECLARING A CARRIER LIABLE FOR BREACH OF CONTRACT OF CARRIAGE OR
AS AN ABSOLUTE LIMIT OF THE EXTENT OF THAT LIABILITY; DOES NOT PRECLUDE THE
[G.R. No. 60501. March 5, 1993.]
OPERATION OF THE CIVIL CODE AND OTHER PERTINENT LAWS. — As We have repeatedly
CATHAY PACIFIC AIRWAYS, LTD, petitioner, vs. COURT OF APPEALS and TOMAS L. held, although the Warsaw Convention has the force and effect of law in this country, being a
ALCANTARA, respondents. treaty commitment assumed by the Philippine government, said convention does not operate as
an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of
Siguion-Reyna, Montecillo & Ongsiako and Tomacruz, Manguiat & Associates for petitioner. carriage or as an absolute limit of the extent of that liability. The Warsaw Convention declares
the carrier liable for damages in the enumerated cases and under certain limitations. However, it
Tanjuatco, Oreta, Tanjuatco, Berenger & Corpus for private respondent. must not be construed to preclude the operation of the Civil Code and other pertinent laws. It
does not regulate, much less exempt, the carrier from liability for damages for violating the
SYLLABUS
rights of its passengers under the contract of carriage, especially if wilfull misconduct on the
part of the carrier's employees is found or established, which is clearly the case before Us.
DECISION
BELLOSILLO, J p:
This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed
with modification that of the trial court by increasing the award of damages in favor of private
respondent Tomas L. Alcantara.
The facts are undisputed: On 19 October 1975, respondent Tomas L. Alcantara was a first class
passenger of petitioner Cathay Pacific Airways, Ltd. (CATHAY for brevity) on its Flight No. CX-
900 from Manila to Hongkong and onward from Hongkong to Jakarta on Flight No. CX-711. The
purpose of his trip was to attend the following day, 20 October 1975, a conference with the
Director General of Trade of Indonesia, Alcantara being the Executive Vice-President and
General Manager of Iligan Cement Corporation, Chairman of the Export Committee of the
Philippine Cement Corporation, and representative of the Cement Industry Authority and the
Philippine Cement Corporation. He checked in his luggage which contained not only his clothing
and articles for personal use but also papers and documents he needed for the conference.
Upon his arrival in Jakarta, respondent discovered that his luggage was missing. When he
inquired about his luggage from CATHAY's representative in Jakarta, private respondent was
told that his luggage was left behind in Hongkong. For this, respondent Alcantara was offered
$20.00 as "inconvenience money" to buy his immediate personal needs until the luggage could
be delivered to him.
His luggage finally reached Jakarta more than twenty four (24) hours after his arrival. However,
it was not delivered to him at his hotel but was required by petitioner to be picked up by an
official of the Philippine Embassy.
On 1 March 1976, respondent filed his complaint against petitioner with the Court of First
Instance (now Regional Trial Court) of Lanao del Norte praying for temperate, moral and
exemplary damages, plus attorney's fees.
On 18 April 1976, the trial court rendered its decision ordering CATHAY to pay Plaintiff
P20,000.00 for moral damages, P5,000.00 for temperate damages, P10,000.00 for exemplary
damages, and P25,000.00 for attorney's fees, and the costs. 1
Both parties appealed to the Court of Appeals. CATHAY assailed the conclusion of the trial court
that it was accountable for breach of contract and questioned the non-application by the court
of the Warsaw Convention as well as the excessive damages awarded on the basis of its finding
that respondent Alcantara was rudely treated by petitioner's employees during the time that his
luggage could not be found. For his part, respondent Alcantara assigned as error the failure of
the trial court to grant the full amount of damages sought in his complaint.
On 11 November 1981, respondent Court of Appeals rendered its decision affirming the findings
of fact of the trial court but modifying its award by increasing the moral damages to P80,000.00,
exemplary damages to P20,000.00 and temperate or moderate damages to P10,000.00. The
award of P25,000.00 for attorney's fees was maintained.
The same grounds raised by petitioner in the Court of Appeals are reiterated before Us. CATHAY
contends that: (1) the Court of Appeals erred in holding petitioner liable to respondent Alcantara
for moral, exemplary and temperate damages as well as attorney's fees; and, (2) the Court of
Appeals erred in failing to apply the Warsaw Convention on the liability of a carrier to its
passengers.
On its first assigned error, CATHAY argues that although it failed to transport respondent
Alcantara's luggage on time, the one-day delay was not made in bad faith so as to justify moral,
exemplary and temperate damages. It submits that the conclusion of respondent appellate court
that private respondent was treated rudely and arrogantly when he sought assistance from
CATHAY's employees has no factual basis, hence, the award of moral damages has no leg to
stand on.
Petitioner's first assigned error involves findings of fact which are not reviewable by this
Court. 2 At any rate, it is not impressed with merit. Petitioner breached its contract of carriage
with private respondent when it failed to deliver his luggage at the designated place and time, it
being the obligation of a common carrier to carry its passengers and their luggage safely to their
destination, which includes the duty not to delay their transportation, 3 and the evidence shows
that petitioner acted fraudulently or in bad faith.
Moral damages predicated upon a breach of contract of carriage may only be recoverable in
instances where the mishap results in death of a passenger, 4 or where the carrier is guilty of
fraud or bad faith. 5
In the case at bar, both the trial court and the appellate court found that CATHAY was grossly
negligent and reckless when it failed to deliver the luggage of petitioner at the appointed place
and time. We agree. CATHAY alleges that as a result of mechanical trouble, all pieces of luggage
on board the first aircraft bound for Jakarta were unloaded and transferred to the second
aircraft which departed an hour and a half later. Yet, as the Court of Appeals noted, petitioner
was not even aware that it left behind private respondent's luggage until its attention was called
by the Hongkong Customs authorities. More, bad faith or otherwise improper conduct may be
attributed to the employees of petitioner. While the mere failure of CATHAY to deliver
respondent's luggage at the agreed place and time did not ipso facto amount to willful
misconduct since the luggage was eventually delivered to private respondent, albeit
belatedly, 6 We are persuaded that the employees of CATHAY acted in bad faith. We refer to
the deposition of Romulo Palma, Commercial Attache of the Philippine Embassy at Jakarta, who
was with respondent Alcantara when the latter sought assistance from the employees of
CATHAY. This deposition was the basis of the findings of the lower courts when both awarded
moral damages to private respondent. Hereunder is part of Palma's testimony —
"Q: What did Mr. Alcantara say, if any?
A. Mr. Alcantara was of course . . . . I could understand his position. He was furious for the
experience because probably he was thinking he was going to meet the Director-General the
following day and, well, he was with no change of proper clothes and so, I would say, he was
not happy about the situation.
Q: What did Mr. Alcantara say?
A: He was trying to press the fellow to make the report and if possible make the delivery of his
baggage as soon as possible.
Q: And what did the agent or duty officer say, if any?
A: The duty officer, of course, answered back saying 'What can we do, the baggage is missing. I
cannot do anything.' something like it. 'Anyhow you can buy anything you need, charged to
Cathay Pacific.'
Q: What was the demeanor or comportment of the duty officer of Cathay Pacific when he said on his part as, in accordance with the law of the court to which the case is submitted, is
to Mr. Alcantara 'You can buy anything chargeable to Cathay Pacific'? considered to be equivalent to wilfull misconduct."

A: If I had to look at it objectively, the duty officer would like to dismiss the affair as soon as (2) Similarly the carrier shall not be entitled to avail himself of the said provisions, if the damage
possible by saying indifferently 'Don't worry. It can be found.'" 7 is caused under the same circumstances by any agent of the carrier acting within the scope of
his employment."
Indeed, the aforequoted testimony shows that the language and conduct of petitioner's
representative towards respondent Alcantara was discourteous or arbitrary to justify the grant of When petitioner airline misplaced respondent's luggage and failed to deliver it to its passenger
moral damages. The CATHAY representative was not only indifferent and impatient; he was also at the appointed place and time, some special species of injury must have been caused to him.
rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was For sure, the latter underwent profound distress and anxiety, and the fear of losing the
not sincere because the representative knew that the passenger was limited only to $20.00 opportunity to fulfill the purpose of his trip. In fact, for want of appropriate clothings for the
which, certainly, was not enough to purchase comfortable clothings appropriate for an executive occasion brought about by the delay of the arrival of his luggage, to his embarrassment and
conference. Considering that Alcantara was not only a revenue passenger but even paid for a consternation respondent Alcantara had to seek postponement of his pre-arranged conference
first class airline accommodation and accompanied at the time by the Commercial Attache of the with the Director General of Trade of the host country.
Philippine Embassy who was assisting him in his problem, petitioner or its agents should have
been more courteous and accommodating to private respondent, instead of giving him a curt In one case, 13 this Court observed that a traveller would naturally suffer mental anguish,
reply, "What can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy anxiety and shock when he finds that his luggage did not travel with him and he finds himself in
anything you need, charged to Cathay Pacific." CATHAY's employees should have been more a foreign land without any article of clothing other than what he has on.
solicitous to a passenger in distress and assuaged his anxieties and apprehensions. To
Thus, respondent is entitled to moral and exemplary damages. We however find the award by
compound matters, CATHAY refused to have the luggage of Alcantara delivered to him at his
the Court of Appeals of P80,000.00 for moral damages excessive, hence, We reduce the amount
hotel; instead, he was required to pick it up himself and an official of the Philippine Embassy.
to P30,000.00. The exemplary damages of P20,000.00 being reasonable is maintained, as well
Under the circumstances, it is evident that petitioner was remiss in its duty to provide proper
as the attorney's fees of P25,000.00 considering that petitioner's act or omission has compelled
and adequate assistance to a paying passenger, more so one with first class accommodation.
Alcantara to litigate with third persons or to incur expenses to protect his interest. 14
Where in breaching the contract of carriage the defendant airline is not shown to have acted
WHEREFORE, the assailed decision of respondent Court of Appeals is AFFIRMED with the
fraudulently or in bad faith, liability for damages is limited to the natural and probable
exception of the award of temperate damages of P10,000.00 which is deleted, while the award
consequences of the breach of obligation which the parties had foreseen or could have
of moral damages of P80,000.00 is reduced to P30,000.00. The award of P20,000.00 for
reasonably foreseen. In that case, such liability does not include moral and exemplary
exemplary damages is maintained as reasonable together with the attorney's fees of
damages. 8 Conversely, if the defendant airline is shown to have acted fraudulently or in bad
P25,000.00. The moral and exemplary damages shall earn interest at the legal rate from 1
faith, the award of moral and exemplary damages is proper.
March 1976 when the complaint was filed until full payment.
However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of
SO ORDERED.
the court a quo, in the absence of any showing that he sustained some pecuniary loss. 9 It
cannot be gainsaid that respondent's luggage was ultimately delivered to him without serious or Cruz, Griño-Aquino and Quiason, JJ ., concur.
appreciable damage.
||| (Cathay Pacific Airways, Ltd. v. Court of Appeals, G.R. No. 60501, [March 5, 1993])
As regards its second assigned error, petitioner airline contends that the extent of its liability for
breach of contract should be limited absolutely to that set forth in the Warsaw Convention. We
do not agree. As We have repeatedly held, although the Warsaw Convention has the force and
effect of law in this country, being a treaty commitment assumed by the Philippine government,
said convention does not operate as an exclusive enumeration of the instances for declaring a
carrier liable for breach of contract of carriage or as an absolute limit of the extent of that
liability. 10 The Warsaw Convention declares the carrier liable for damages in the enumerated
cases and under certain limitations. 11 However, it must not be construed to preclude the
operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt,
the carrier from liability for damages for violating the rights of its passengers under the contract
of carriage, 12 especially if wilfull misconduct on the part of the carrier's employees is found or
established, which is clearly the case before Us. For, the Warsaw Convention itself provides in
Art. 25 that —

"(1) The carrier shall not be entitled to avail himself of the provisions of this convention which
exclude or limit his liability, if the damage is caused by his wilfull misconduct or by such default
 the applicability of the Warsaw convention the airline carrier's liability for the lost baggage of
private respondent Pangan is limited to $20.00 per kilo or $600.00, as stipulated at the back of
the ticket as the latter did not declare a higher value for his baggage and pay the corresponding
additional charges, the case of Ong Yiu v. Court of Appeals (G.R. No. L-40597, June 29, 1979,
91 SCRA 223) is squarely applicable to the instant case.

2. REMEDIAL LAW; EVIDENCE; CONCLUSION AND FINDINGS OF THE TRIAL COURT AND

THE COURT OF APPEALS, REVERSED AND SET ASIDE. — The Court set aside the decision of the
trial court and affirmed by the Court of Appeals, awarding private respondent's damages as for
and for lost profits when their contracts to show the films in Guam and San Francisco, California
were cancelled. Applying the ruling in Mendoza v. Philippine Airlines, Inc. (90 Phil. 836),
petitioner cannot be held liable for the cancellation of respondents' contracts in the absence of
showing that petitioner's attention was called to the special circumstances requiring prompt
delivery of the respondent's luggage on or before a certain date.

DECISION

CORTES, J p:

Before the Court is a petition filed by an international air carrier seeking to limit its liability for
lost baggage, containing promotional and advertising materials for films to be exhibited in Guam
and the U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount specified
in the airline ticket absent a declaration of a higher valuation and the payment of additional
charges. LLjur

The undisputed facts of the case, as found by the trial court and adopted by the appellate court,
are as follows:

On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs
Sotang Bastos and Archer Productions, while in San Francisco, California and Primo Quesada of
Prime Films, San Francisco, California, entered into an agreement (Exh. A) whereby the former,
for and in consideration of the amount of US $2,500.00 per picture, bound himself to supply the
latter with three films. 'Ang Mabait, Masungit at ang Pangit,' 'Big Happening with Chikiting and
Iking,' and 'Kambal Dragon' for exhibition in the United States. It was also their agreement that
plaintiffs would provide the necessary promotional and advertising materials for said films on or
before May 30, 1978.

THIRD DIVISION
[G.R. No. 70462. August 11, 1988.]
PAN AMERICAN WORLD
INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG
BASTOS PRODUCTIONS and ARCHER PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.
On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo
Slutchnick of the Hafa Adai Organization. Plaintiff Pangan likewise entered into a verbal
agreement with Slutchnick for the exhibition of two of the films above-mentioned at the Hafa
Adai Theater in Guam on May 30, 1978 for the consideration of P7,000.00 per picture (p. 11,
tsn, June 20, 1979). Plaintiff Pangan undertook to provide the necessary promotional and
AIRWAYS, advertising materials for said films on or before the exhibition date on May 30, 1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the requisite
promotional handbills and still pictures for which he paid the total sum of P12,900.00 (Exhs. B,
B-1, C and C-1). Likewise in preparation for his trip abroad to comply with his contracts, plaintiff
Pangan purchased fourteen clutch bags, four capiz lamps and four barong tagalog, with a total
value of P4,400.00 (Exhs. D, D-1, E, and F).

SYLLABUS On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office, through the
Your Travel Guide, an economy class airplane ticket with No. 0269207406324 (Exh. G) for
1. WARSAW CONVENTION; CIVIL LAW; ACTUAL DAMAGES; LIABILITY OF AIRLINE CARRIER. — passage from Manila to Guam on defendant's Flight No. 842 of May 27, 1978, upon payment by
On the basis of the stipulations printed at the back of the Airline ticket, specifically referring to
said plaintiff of the regular fare. The Your Travel Guide is a tour and travel office owned and
managed by plaintiff's witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was at the defendant's
ticket counter at the Manila International Airport and presented his ticket and checked in his two
luggages, for which he was given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and
H-1). The two luggages contained the promotional and advertising materials, the clutch bags,
barong tagalog and his personal belongings. Subsequently, Pangan was informed that his name
was not in the manifest and so he could not take Flight No. 842 in the economy class. Since
there was no space in the economy class, plaintiff Pangan took the first class because he
wanted to be on time in Guam to comply with his commitment, paying an additional sum of
$112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did not
arrive with his flight, as a consequence of which his agreements with Slutchnick and Quesada
for the exhibition of the films in Guam and in the United States were cancelled (Exh. L).
Thereafter, he filed a written claim (Exh. J) for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary
representations to protest as to the treatment which he received from the employees of the
defendant and the loss of his two luggages (Exh. M, O, Q, S, and T). Defendant  Pan Am assured
plaintiff Pangan that his grievances would be investigated and given its immediate consideration
(Exhs. N, P and R). Due to the defendant's failure to communicate with Pangan about the action
taken on his protests, the present complaint was filed by the plaintiff. (Pages 4-7, Record On
Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and rendered
judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum of
P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum from
December 6, 1978, when the complaint was filed, until the same is fully paid, plus the further
sum of P10,000.00 as attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan the
sum of P8,123.34, for additional actual damages, with interest thereon at the rate of 14% per
annum from December 6, 1978, until the same is fully paid;
(3) Dismissing the counterclaim interposed by defendant Pan American World Airways, Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo, pp.
106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their respective
memoranda. In due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the following
errors:
1. The respondent court erred as a matter of law in affirming the trial court's award of actual
damages beyond the limitation of liability set forth in the Warsaw Convention and the contract
of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's award of actual
damages consisting of alleged lost profits in the face of this Court's ruling concerning special or
consequential damages as set forth in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim.
1. The airline ticket (Exh. "G") contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other than the
country of departure the Warsaw Convention may be applicable and the Convention governs
and in most cases limits the liability of carriers for death or personal injury and in respect of loss
of or damage to baggage. See also notice headed "Advice to International Passengers on
Limitation of Liability."
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and baggage check of which
these conditions and the notices form part, "carriage" is equivalent to "transportation," "carrier"
means all air carriers that carry or undertake to carry the passenger or his baggage hereunder
or perform any other service incidental to such air carriage. "WARSAW CONVENTION" means
the convention for the Unification of Certain Rules Relating to International Carriage by Air
signed at Warsaw, 12th October 1929, or that Convention as amended at The Hague, 28th
September 1955, whichever may be applicable.
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.
3. To the extent not in conflict with the foregoing carriage and other services performed by each
carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier's
conditions of carriage and related regulations which are made part hereof (and are available on
application at the offices of carrier), except in transportation between a place in the United
States or Canada and any place outside thereof to which tariffs in force in those countries apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is
declared in advance and additional charges are paid: (1) for most international travel (including
domestic portions of international journeys) to approximately $9.70 per pound ($20.00 per kilo)
for checked baggage and $400 per passenger for unchecked baggage: (2) for travel wholly
between U.S. points, to $750 per passenger on most carriers (a few have lower limits). Excess
valuation may not be declared on certain types of valuable articles. Carriers assume no liability
for fragile or perishable articles further information may be obtained from the carrier. [Emphasis
supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends
that its liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00
x 30 kilos) as the latter did not declare a higher value for his baggage and pay the
corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-
40597, June 29, 1979, 91 SCRA 223), where the Court sustained the validity of a printed
stipulation at the back of an airline ticket limiting the liability of the carrier for lost baggage to a
specified amount and ruled that the carrier's liability was limited to said amount since the
passenger did not declare a higher value, much less pay additional charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court,
through Justice Melencio-Herrera, stated:
Petitioner further contends that respondent Court committed grave error when it limited PAL's
carriage liability to the amount of P100.00 as stipulated at the back of the ticket . . .
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of
the plane ticket reads:
8. BAGGAGE LIABILITY . . . The total liability of the Carrier for lost or damage baggage of the
passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation
in excess of P100.00, but not in excess, however, of a total valuation of P1,000.00 and
additional charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less
did he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered
into a contract with PAL limiting the latter's liability for loss or delay of the baggage of its
passengers, and that Article 1750 * of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of
the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack
of knowledge or assent to the regulation." [Tannebaum v. National Airline, Inc., 13 Misc. 2d
450, 176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air
Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of "adhesion," in regards
which it has been said that contracts of adhesion wherein one party imposes a ready made form
of contract on the other, as the plane ticket in the case at bar, 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, [Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice
J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And as held in
Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein v. Trans World
Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability upon an agreed valuation does not
offend against the policy of the law forbidding one from contracting against his own
negligence."
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he
cannot be permitted a recovery in excess of P100.00.
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July
2, 1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's liability to
a specified amount was invalid, finds no application in the instant case, as the ruling in said case
was premised on the finding that the conditions printed at the back of the ticket were so small
and hard to read that they would not warrant the presumption that the passenger was aware of
the conditions and that he had freely and fairly agreed thereto. In the instant case, similar facts
that would make the case fall under the exception have not been alleged, much less shown to
exist. LibLex
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00,
as stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state
that the Court of Appeals' reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R.
No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw
Convention which limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in cases
of contractual breach of carriage ** is against public policy" is utterly misplaced, to say the
least. In said case, while the Court, as quoted in the Intermediate Appellate Court's decision,
said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event of
death of a passenger or injury suffered by him, or of destruction or loss of, or damages to any
checked baggage or any goods, or of delay in the transportation by air of passengers, baggage
or goods. This pretense is not borne out by the language of said Articles. The same merely
declare the carrier liable for damages in enumerated cases, if the conditions therein specified
are present. Neither said provisions nor others in the aforementioned Convention regulate or
exclude liability for other breaches of contract by the carrier. Under petitioner's theory, 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.
it prefaced this statement by explaining that:
. . . The case is now before us on petition for review by certiorari, upon the ground that the
lower court has erred: (1) in holding that the Warsaw Convention of October 12, 1929, relative
to transportation by air is not in force in the Philippines: (2) in not holding that respondent has
no cause of action; and (3) in awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the first assignment of error because the same is the
basis of the second assignment of error, and the latter is devoid of merit, even if we assumed
the former to be well-taken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the
validity of provisions of the Warsaw Convention. Consequently, by no stretch of the imagination
may said quotation from Northwest be considered as supportive of the appellate court's
statement that the provisions of the Warsaw Convention limited a carrier's liability are against
public policy.
2. The Court finds itself unable to agree with the decision of the trial court, and affirmed by
the Court of Appeals, awarding private respondents damages as and for lost profits when their
contracts to show the films in Guam and San Francisco, California were cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any
clearer:
. . . Under Art. 1107 of the Civil Code, a debtor in good faith like the defendant herein, may be
held liable only for damages that were foreseen or might have been foreseen at the time the
contract of transportation was entered into. The trial court correctly found that the defendant
company could not have foreseen the damages that would be suffered by Mendoza upon failure WHEREFORE, the Petition is hereby GRANTED and the Decision of
to deliver the can of film on the 17th of September, 1948 for the reason that the plans of the Intermediate Appellate Court is SET ASIDE and a new judgment is rendered ordering
Mendoza to exhibit that film during the town fiesta and his preparations, specially the petitioner to pay private respondents damages in the amount of US$600.00 or its equivalent in
announcement of said exhibition by posters and advertisement in the newspaper, were not Philippine currency at the time of actual payment. LLjur
called to the defendant's attention.
SO ORDERED.
In our research for authorities we have found a case very similar to the one under
consideration. In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, Fernan, C.J., Feliciano and Bidin, JJ., concur.
New York, delivered motion picture films to the defendant Fargo, an express company,
Gutierrez, Jr., J., no part as I was on leave during the deliberation.
consigned and to be delivered to him in Utica. At the time of shipment the attention of the
express company was called to the fact that the shipment involved motion picture films to be  
exhibited in Utica, and that they should be sent to their destination, rush. There was delay in
their delivery and it was found that the plaintiff because of his failure to exhibit the film in Utica ||| (Pan American World Airways, Inc. v. Intermediate Appellate Court, G.R. No. 70462, [August
due to the delay suffered damages or loss of profits. But the highest court in the State of New 11, 1988], 247 PHIL 231-242)
York refused to award him special damages. Said appellate court observed:

But before defendant could be held to special damages such as the present alleged loss of
profits on account of delay or failure of delivery it must have appeared that he had notice at the
time of delivery to him of the particular circumstances attending the shipment and which
probably would lead to such special loss if he defaulted. Or, as the rule has been stated in
another form in order to impose on the defaulting party further liability than for damages
naturally and directly i.e., in the ordinary course of things arising from a breach of contract such
unusual or extraordinary damages must have been brought within the contemplation of the
parties as the probable result of breach at the time of or prior to contracting. Generally notice
then of any special circumstances which will show that the damages to be anticipated from a
breach would be enhanced has been held sufficient far this effect.

As may be seen, that New York case is a stronger one than the present case for the reason that
the attention of the common carrier in said case was called to the nature of the articles shipped,
the purpose of shipment, and the desire to rush the shipment, circumstances and facts absent
in the present case. [Emphasis supplied.]

Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing
that petitioner's attention was called to the special circumstances requiring prompt delivery of
private respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of
private respondents' contracts as it could not have foreseen such an eventuality when it
accepted the luggages for transit. prLL

The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down

in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages
based on the finding that "[t]he undisputed fact is that the contracts of the plaintiffs for the
exhibition of the films in Guam and California were cancelled because of the loss of the two
luggages in question." [Rollo, p. 36] The evidence reveals that the proximate cause of the
cancellation of the contracts was private respondent Pangan's failure to deliver the promotional
and advertising materials on the dates agreed upon. For this petitioner cannot be held liable.
Private respondent Pangan had not declared the value of the two luggages he had checked in
and paid additional charges. Neither was petitioner privy to respondents' contracts nor was its
attention called to the condition therein requiring delivery of the promotional and advertising
materials on or before a certain date.

3. With the Court's holding that petitioner's liability is limited to the amount stated in the ticket,
the award of attorney's fees, which is grounded on the alleged unjustified refusal of petitioner to
satisfy private respondent's just and valid claim, loses support and must be set aside.
 SYNOPSIS

Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are
frequent flyers of petitioner Cathay Pacific Airways, Ltd., and are Gold Card members of its
Marco Polo Club. 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, they were booked on Cathay's Flight CX-905 Business Class Section. When boarding
time was announced, a ground attendant 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. Dr. Vazquez continued to refuse, so the ground stewardess 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. Upon their return to Manila, the Vazquezes
instituted before the Regional Trial Court of Makati City an action for damages against Cathay.
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. The trial court found for the Vazquezes
and awarded them damages. On appeal by the petitioner, the Court of Appeals 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. Hence this petition.

The Supreme Court partly granted the petition. According to the Court, 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. The Court,
however, was not convinced that the upgrading or the breach of contract was attended by fraud
or bad faith. The Vazquezes were not induced to agree to the upgrading through insidious
words or deceitful machination or through willful concealment of material facts. The attendant
was honest in telling them that their seats were already given to other passengers and the
Business Class Section was fully booked. The attendant might have failed to consider the
remedy of offering the First. Class seats to other passengers. But, the Court found no bad faith
in her failure to do so, even if that amounted to an exercise of poor judgment. The Court set
FIRST DIVISION aside and deleted the award of moral damages and attorney's fees and reduced the award for
nominal damages to P5,000.
[G.R. No. 150843. March 14, 2003.]
SYLLABUS
CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL VAZQUEZ and
MARIA LUISA MADRIGAL VAZQUEZ, respondents. 1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT; DEFINED. — A contract is a meeting of
minds between two persons whereby one agrees to give something or render some service to
Quasha Ancheta Peña Nolasco for petitioner. 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
Candelaria Candelaria & Candelaria Law Firm and Bello Gozon Elma Parel Asuncion & Lucila for (3) the cause of the obligation which is established. Undoubtedly, a contract of carriage existed
private respondents. 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." It is also defined as the "[f]ailure, without legal excuse, to perform any
promise which forms the whole or part of the contract." acIASE
2. ID.; ID.; ID.; BY INSISTING ON THE UPGRADE, PETITIONER BREACHED ITS CONTRACT OF
CARRIAGE WITH THE RESPONDENTS. — 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.
3. ID.; ID.; NO PROOF OF FRAUD OR BAD FAITH ON THE PART OF PETITIONER AIRLINE'S
EMPLOYEE. — 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. 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. 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. Needless to state, an upgrading is for the better condition and, definitely, for the
benefit of the passenger.
4. CIVIL LAW; DAMAGES; MORAL DAMAGES; NOT APPLICABLE IN CASE AT BAR; AIRLINE NOT
SHOWN TO HAVE 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. 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. 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. 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. 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.
 
5. ID.; ID.; EXEMPLARY DAMAGES; REQUISITE THAT THE ACT OF THE OFFENDER WAS
ACCOMPANIED BY BAD FAITH OR DONE IN WANTON, FRAUDULENT OR MALEVOLENT
MANNER, ABSENT IN CASE AT BAR. — 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. 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. 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.
6. ID.; ID.; NOMINAL DAMAGES; REDUCED. — 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. 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. 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. EIAaDC
DECISION
DAVIDE, JR., C.J p:
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:
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;
d) Attorney's fees and expenses of litigation in the amount of P1,000,000.00 for each plaintiff;
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. DSCIEa
No pronouncement on costs.
SO ORDERED.
Vitug, Carpio and Azcuna, JJ., concur.
Ynares-Santiago, J., is on leave.
 
||| (Cathay Pacific Airways Ltd. v. Spouses Vazquez, G.R. No. 150843, [March 14, 2003], 447
PHIL 306-327)
 [G.R. No. L-22415. March 30, 1966.]

FERNANDO LOPEZ, ET AL., plaintiffs-appellants, vs. PAN AMERICAN WORLD

AIRWAYS, defendant-appellant.

Ross, Selph & Carrascoso for the defendant and appellant.

Vicente J. Francisco for the plaintiffs and appellants.

SYLLABUS

1. CASHIERS; BREACH OF CONTRACT TO PROVIDE FIRST CLASS ACCOMMODATIONS; CASE AT

BAR. — Plaintiffs made first class reservations with defendant in its Tokyo-San Francisco flight.
The reservations having been confirmed, first class tickets were subsequently issued in favor of
plaintiffs. Through mistake, however, defendant's agents cancelled the said reservations.
Expecting that some cancellations of bookings would be made before the flight time, the
reservations supervisor decided to withhold from plaintiffs the information that their reservations
had been cancelled. Upon arrival in Tokyo, defendant informed plaintiffs that there was no
accommodation for them in the first class, stating that they could not go unless they take the
tourist class. Due to pressing engagements in the United States, plaintiffs were constrained to
take the flight as tourist passengers, but they did so under protest. Query: Whether defendant
acted in bad faith in the breach of its contract with plaintiffs. Held: 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 the plaintiffs 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 same, in legal contemplation such conduct already amounts to action
in bad faith.

2. ID.; ID.; MORAL DAMAGES RECOVERABLE. - 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.

3. ID.; ID.; RATIONALE BEHIND EXEMPLARY OR CORRECTIVE DAMAGES. — The rationable

behind exemplary or corrective rationale is, as the name implies, to provide an example or
correction for public good. Defendant having breached its contracts in bad faith, the court 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.

4. ATTORNEY'S FEES; WHEN WRITTEN CONTRACT FOR ATTORNEY'S SERVICES SHALL

CONTROL THE AMOUNT TO BE PAID THEREFORE. — 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
EN BANC
professional standing the attorney for plaintiffs-appellants, and of the extent of the service
rendered by him, shows that the amount provided for in the written agreement is reasonable.
DECISION
BENGZON, J.P., J p:
Plaintiffs and defendants 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; plaintiff's 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 considerations, 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 damage; (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 considerations, 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.
Defendants, 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 record shows 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 (Exh. 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 Lopez , 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 1960 — 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 same, 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 vs. Reacon Participations (8 NE 2d 895, 907). As
stated in Kamm vs. 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 plaintiff's
reservations had been cancelled. As of May 20 he knew that the San Francisco head office
stated with finality that it could not reinstate plaintiff' 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.
xxx xxx xxx
"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 willful 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, L-
12163, March 4, 1959; Necesito vs. Paras, L-10605-06, June 30, 1958). Firstly, notwithstanding
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 in 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 plaintiff's reservation 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 wait-listed 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, non 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, Rule 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 plaintiff's 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
Binalbangan-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 P100,000,000 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 traveling 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 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 O. G. 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 judgments appealed from is hereby modified so as to award in favor of plaintiffs
and against defendants, 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. So ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala, Makalintal,
Zaldivar and Sanchez, JJ., concur.
Dizon, J., is on leave.
EN BANC
[G.R. No. L-21438. September 28, 1966.]
AIR FRANCE, petitioner, vs. RAFAEL CARRASCOSO and THE HONORABLE COURT OF
APPEALS, respondents.
Lichauco, Picazo & Agcaoili for petitioner.
Bengzon, Villegas & Zarraga for respondent R. Carrascoso.
SYLLABUS
1. JUDGMENT; FINDINGS OF FACT; REQUIREMENT OF LAW. — Courts of justice are not
burdened with the obligation to specify in the sentence every bit and piece of evidence
presented by the parties upon the issues raised. The law solely insists that a decision state the
"essential ultimate facts" upon which the court's conclusion is drawn.
2. ID.; ID.; ID.; APPEAL AND ERROR; FAILURE TO MAKE FINDINGS ON EVIDENCE AND
CONTENTIONS OF ONE PARTY, EFFECT OF; DECISION NOT TO BE CLOGGED WITH DETAILS.
— The mere failure to make specific findings of fact on the evidence presented for the defense
or to specify in the decision the contentions of the appellant and the reasons for refusing to
believe them is not sufficient to hold the same contrary to the requirement of the law and the
Constitution. There is no law that so requires. A decision is not to be clogged with details such
that prolixity, if not confusion, may result.
3. ID.; ID.; ID.; FINDINGS OF FACT BY COURTS DEFINED. — Findings of fact may be defined
as the written statement of the ultimate facts as found by the court and essential to support the
decision and judgment rendered thereon; they consist of the court's "conclusions with respect to
the determinative facts on issue."
4. ID.; ID.; ID.; QUESTION OF LAW EXPLAINED. — A question of law is "one which does not
call for an examination of the probative value of the evidence presented by the parties."
5. PLEADING AND PRACTICE; APPEAL; WHAT MAY BE RAISED ON APPEAL FROM COURT OF
APPEALS. — It is not appropriately the business of the Supreme Court to alter the facts or to
review the questions of fact because, by statute, only questions of law may be raised in an
appeal by certiorari from a judgment of the Court of Appeals, which judgment is conclusive as to
the facts.
6. ID.; ID.; EFFECT OF AFFIRMANCE BY COURT OF APPEALS OF TRIAL COURT'S DECISION. —
When the Court of Appeals affirms a judgment of the trial court, and the findings of fact of said
appellate court are not in any way at war with those of the trial court, nor is said affirmance
upon a ground or grounds different from those which were made the basis of the trial court's
conclusions, such judgment of affirmance is (1) a determination by the Court of Appeals that the
proceeding in the lower court was free from prejudicial error; (7) that all questions raised by the
assignments of error and all questions that might have been so raised have been finally
adjudicated as free from all error.
7. ID.; COMPLAINT; SPECIFIC MENTION OF THE TERM "BAD FAITH" IN THE COMPLAINT NOT
REQUIRED. — Although there is no specific mention of the term bad faith in the complaint, the
inference of bad faith may be drawn from the facts and circumstances set forth therein. 8.
EVIDENCE; FINDING OF COURT OF APPEALS THAT RESPONDENT WAS ENTITLED TO A FIRST
CLASS SEAT. — The Court of Appeals properly found that a first class-ticket holder is entitled to
first class seat, given the fact that seat availability in specific flights is therein confirmed;
otherwise, an air passenger will be placed in the hollow of the hands of an airline, because it will
always be easy for an airline to strike out the very stipulations in the ticket and say that there
was verbal agreement to the contrary. If only to achieve stability in the relations between
passenger and air carrier, adherence to the ticket so issued is desirable.
9. ID.; LACK OF SPECIFIC AVERMENT OF BAD FAITH CURED BY NOTICE TO DEFENDANT OF
WHAT PLAINTIFF INTENDS TO PROVE AND BY EVIDENCE PRESENTED WITHOUT OBJECTION;
AMENDMENT OF COMPLAINT TO CONFORM TO EVIDENCE UNNECESSARY. — If there was lack
of specific averment of bad faith in the complaint, such deficiency was cured by notice, right at
the start of the trial, by plaintiff's counsel to defendant as to what plaintiff intended to prove:
while in the plane in Bangkok, plaintiff was ousted by defendant's manager who gave his seat to
a white man; and by evidence of bad faith in the fulfillment of the contract presented without
objection on the part of the defendant. An amendment of the complaint to conform to the
evidence is not even required.
10. ID.; ADMISSIBILITY OF TESTIMONY ON AN ENTRY IN A NOTEBOOK; TESTIMONY NOT
COVERED BY BEST EVIDENCE RULE. — The testimony of a witness that the purser made an
entry in his notebook reading "First Class passenger was forced to go to the tourist class against
his will and that the captain refused to intervene," is competent and admissible because the
subject of the inquiry is not the entry but the ouster incident. It does not come within the
prescription of the best evidence rule.
11. CONTRACT OF CARRIAGE; QUASI-DELICT; LIABILITY OF COMMON CARRIERS; CASE AT
BAR. — Neglect or malfeasance of the carrier's employees could give ground for an action for
damages. Damages here are proper because the stress of respondent's action is placed upon his
wrongful expulsion, which is a violation of a public duty by petitioner-aircarrier — a case of
quasi-delict.
12. ID.; ID.; ID.; AWARD OF MORAL DAMAGES FOR BREACH OF CONTRACT. — Award of moral
damages is proper, despite petitioner's argument that respondent's action is planted upon
breach of contract, where the stress of the action is put on wrongful expulsion, the contract
having been averred only to establish the relation between the parties.
13. ID.; ID.; ID.; EMPLOYER IS RESPONSIBLE FOR TORTIOUS ACTS OF HIS EMPLOYEE; CASE
AT BAR. — The responsibility of an employer for the tortious act of his employees is well settled
in law. (Art. 2130, Civil Code). Petitioner-aircarrier must answer for the willful, malevolent act of
its manager.
14. ID.; ID.; ID.; LIABILITY FOR EXEMPLARY DAMAGES; POWER OF COURTS TO GRANT; CASE
AT BAR. — The Civil Code gives the court ample power to grant exemplary damages, the only
condition being that defendant should have "acted in a wanton, fraudulent, reckless, oppressive,
or malevolent manner." As the manner of ejectment of plaintiff from his first class seat fits into
this legal precept, exemplary damages are well awarded, in addition to moral damages.
15. ID.; ID.; LIABILITY FOR ATTORNEY'S FEES; COURT DISCRETION WELL EXERCISED
SHOULD NOT BE DISTURBED. — The grant of exemplary damages justifies a similar judgment
for attorney's fees. The court below felt that it is but just and equitable that attorney's fees be
given and the Supreme Court does not intend to break faith with the tradition that discretion
well-exercised — as it is here should not be disturbed.
16. ID.; RIGHTS OF PASSENGERS. — Passengers do not contract merely for transportation.
They have a right to be treated by the carrier's employees with kindness, respect, courtesy and
due consideration. They are entitled to be protected against personal misconduct, injurious
language, indignities and abuses from such employees. So, any rude or discourteous conduct on
the part of employees towards a passenger gives the latter an action for damages against the
carrier. (4 R. C. L-1174-1175).
17. ID.; BREACH OF CONTRACT MAY BE A TORT. — Although the relation of passenger and
carrier is contractual both in origin and nature, nevertheless, the act that breaks the contract
may also be a tort.
18. WORDS AND PHRASES; BAD FAITH DEFINED. — "Bad faith", as understood in law,
contemplates a state of mind affirmatively operating with furtive design or with some motive of
self-interest or ill will or for ulterior purpose
DECISION
SANCHEZ, J p:
The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael
Carrascoso P25,000.00 by way of moral damages; P10,000.00 as exemplary damages; P393.20
representing the difference in fare between first class and tourist class for the portion of the trip
Bangkok-Rome, these various amounts with interest at the legal rate, from the date of the filing
of the complaint until paid; plus P3,000.00 for attorneys' fees; and the costs of suit.
On appeal, 2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane
ticket from P393.20 to P383.10, and voted to affirm the appealed decision "in all other
respects", with costs against petitioner.
The case is now before us for review on certiorari.
The facts declared by the Court of Appeals as "fully supported by the evidence of record", are:
"Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila for
Lourdes on March 30, 1958.
On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines,
Inc., issued to plaintiff a 'first class' round trip airplane ticket from Manila to Rome. From Manila
to Bangkok, plaintiff traveled in 'first class', but at Bangkok, the Manager of the defendant
airline forced plaintiff to vacate the 'first class' seat that he was occupying because, in the words
of the witness Ernesto G. Cuento, there was a 'white man', who, the Manager alleged, had a
'better right to the seat. When asked to vacate his 'first class' seat, the plaintiff, as was to be
expected, refused, and told defendant's Manager that his seat would be taken over his dead
body; a commotion ensued, and, according to said Ernesto G. Cuento, many of the Filipino
passengers got nervous in the tourist class; when they found out that Mr. Carrascoso was
having a hot discussion with the white man [manager], they came all across to Mr. Carrascoso
and pacified Mr. Carrascoso to give his seat to the 'white man' (Transcript, p. 12, Hearing of
May 26, 1959); and plaintiff reluctantly gave his 'first class' seat in the plane." 3
1. The thrust of the relief petitioner now seeks is that we review "all the findings" 4 of
respondent Court of Appeals. Petitioner charges that respondent court failed to make complete
findings of fact on all the issues properly laid before it. We are asked to consider facts favorable
to petitioner, and then, to overturn the appellate court's decision.
Coming into focus is the constitutional mandate that "No decision shall be rendered by any court
of record without expressing therein clearly and distinctly the facts and the law on which it is
based". 5 This is echoed in the statutory demand that a judgment determining the merits of the
case shall state "clearly and distinctly the facts and the law on which it is based", 6 and that
"Every decision of the Court of Appeals shall contain complete findings of fact on all issues
properly raised before it." 7
A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law,
however, solely insists that a decision state the "essential ultimate facts" upon which the court's
conclusion is drawn. 9 A court of justice is not hidebound to write in its decision every bit and
piece of evidence 10 presented by one party and the other upon the issues raised. Neither is it
to be burdened with the obligation "to specify in the sentence the facts" which a party
"considered as proved". 11 This is but a part of the mental process from which the Court draws
the essential ultimate facts. A decision is not to be so clogged with details such that prolixity, if
not confusion, may result. So long as the decision of the Court of Appeals contains the
necessary facts to warrant its conclusions, it is no error for said court to withhold therefrom "any
specific finding of facts with respect to the evidence for the defense". Because, as this Court
well observed, "There is no law that so requires". 12 Indeed, "the mere failure to specify (in the
decision) the contentions of the appellant and the reasons for refusing to believe them is not
sufficient to hold the same contrary to the requirements of the provisions of law and the
Constitution". It is in this setting that in Manigque, it was held that the mere fact that the
findings "were based entirely on the evidence for the prosecution without taking into
consideration or even mentioning the appellant's side in the controversy as shown by his own
testimony", would not vitiate the judgment. 13 If the court did not recite in the decision the
testimony of each witness for, or each item of evidence presented by, the defeated party, it
does not mean that the court has overlooked such testimony or such item of evidence. 14 At
any rate, the legal presumptions are that official duty has been regularly performed, and that all
the matters within an issue in a case were laid before the court and passed upon by it. 15
Findings of fact, which the Court of Appeals is required to make, may be defined as "the written
statement of the ultimate facts as found by the court . . . and essential to support the decision
and judgment rendered thereon". 16 They consist of the court's "conclusions with respect to
the determinative facts in issue" 17 A question of law, upon the other hand, has been declared
as "one which does not call for an examination of the probative value of the evidence presented
by the parties." 18
2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment
of the Court of Appeals 19 That judgment is conclusive as to the facts. It is not appropriately
the business of this Court to alter the facts or to review the questions of fact. 20
With these guideposts, we now face the problem of whether the findings of fact of the Court of
Appeals support its judgment.
3. Was Carrascoso entitled to the first class seat he claims?
It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a
first class ticket. But petitioner asserts that said ticket did not represent the true and complete
intent and agreement of the parties; that said respondent knew that he did not have confirmed
reservations for first class on any specific flight, although he had tourist class protection; that,
accordingly, the issuance of a first class ticket was no guarantee that he would have a first class
ride, but that such would depend upon the availability of first class seats.
These are matters which petitioner has thoroughly presented and discussed in its brief before
the Court of Appeals under its third assignment of error, which reads: "The trial court erred in
finding that plaintiff had confirmed reservations for, and a right to, first class seats on the
'definite' segments of his journey, particularly that from Saigon to Beirut." 21
And, the Court of Appeals disposed of this contention thus:
"Defendant seems to capitalize on the argument that the issuance of a first-class ticket was no
guarantee that the passenger to whom the same had been issued, would be accommodated in
the first-class compartment, for as in the case of plaintiff he had yet to make arrangements
upon arrival at every station for the necessary first class reservation. We are not impressed by
such a reasoning. We cannot understand how a reputable firm like defendant airplane company
could have the indiscretion to give out ticket it never meant to honor at all. It received the
corresponding amount in payment of first-class tickets end yet it allowed the passenger to be at
the mercy of its employees. It is more in keeping with the ordinary course of business that the
company should know whether or not the tickets it issues are to be honored or not." 22
Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's
contention, thus:
"On the fact that plaintiff paid for, and was issued a 'First class ticket, there can be no question.
Apart from his testimony, see plaintiffs Exhibits 'A', 'A-1' 'B', 'B-1', 'B-2', 'C' and 'C-1', and
defendant's own witness, Rafael Altonaga, confirmed plaintiff's testimony and testified as
follows:
Q. In these tickets there are marks 'O.K.' From what you know, what does this O.K. mean?
A. That the space is confirmed.
Q. Confirmed for first class?
A. Yes, 'first class'. (Transcript, p. 169)
xxx xxx xxx
"Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga
that although plaintiff paid for, and was issued a 'first class' airplane ticket, the ticket was
subject to confirmation in Hongkong. The court cannot give credit to the testimony of said
witnesses. Oral evidence cannot prevail over written evidence, and plaintiff's Exhibits 'A', 'A1',
'B', 'B-1', 'C' and 'C- 1' belie the testimony of said witnesses, and clearly show that the plaintiff
was issued, and paid for, a first class ticket without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the
reservation for a 'first class' accommodation for the plaintiff was confirmed. The court cannot
believe that after such confirmation ,defendant had a verbal understanding with plaintiff that the
'first class' ticket issued to him by defendant would be subject to confirmation in Hongkong." 23
We have heretofore adverted to the fact that except for a slight difference of a few pesos in the
amount refunded on Carrascoso's ticket, the decision of the Court of First Instance was affirmed
by the Court of Appeals in all other respects. We hold the view that such a judgment of
affirmance has merged the judgment of the lower court. 24 Implicit in that affirmance is a
determination by the Court of Appeals that the proceeding in the Court of First Instance was
free from prejudicial error and that 'all questions raised by the assignments of error and all
questions that might have been so raised are to be regarded as finally adjudicated against the
appellant". So also, the judgment affirmed "must be regarded as free from all error" 25 We
reached this policy construction because nothing in the decision of the Court of Appeals on this
point would suggest that its findings of fact are in any way at war with those of the trial court.
Nor was said affirmance by the Court of Appeals upon a ground or grounds different from those
which were made the basis of the conclusions of the trial court. 26
If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat,
notwithstanding the fact that seat availability in specific flights is therein confirmed, then an air
passenger is placed in the hollow of the hands of an airline. What security then can a passenger
have? It will always be an easy matter for an airline aided by its employees, to strike out the
very stipulations in the ticket, and say that there was a verbal agreement to the contrary. What
if the passenger had a schedule to fulfill? We have long learned that, as a rule, a written
document speaks a uniform language; that spoken word could be notoriously unreliable. If only
to achieve stability in the relations between passenger and air carrier, adherence to the ticket so
issued is desirable. Such is the case here. The lower courts refused to believe the oral evidence
intended to defeat the covenants in the ticket.
The foregoing are the considerations which point to the conclusion that there are facts upon
which the Court of Appeals predicated the finding that respondent Carrascoso had a first class
ticket and was entitled to a first class seat at Bangkok, which is a stopover in the Saigon to
Beirut leg of the flight, 27 We perceive no "welter of distortions by the Court of Appeals of
petitioner's statement of its position", as charged by petitioner. 28 Nor do we subscribe to
petitioners accusation that respondent Carrascoso "surreptitiously took a first class seat to
provoke an issue". 29 And this because, as petitioner states, Carrascoso went to see the
Manager at his office in Bangkok "to confirm my seat and because from Saigon I was told again
to see the Manager. 30 Why, then, was he allowed to take a first class seat in the plane at
Bangkok, if he had no seat? Or, if another had a better right to the seat?
4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is
that Carrascoso's action is planted upon breach of contract; that to authorize an award for moral
damages there must be an averment of fraud or bad faith; 31 and that the decision of the Court
of Appeals fails to make a finding of bad faith. The pivotal allegations in the complaint bearing
on this issue are:
"3. That . . . plaintiff entered into a contract of air carriage with the Philippine Air Lines for a
valuable consideration, the latter acting as general agents for and in behalf of the defendant,
under which aid contract, plaintiff was entitled to, as defendant agreed to furnish plaintiff, First
Class passage on defendant's plane during the entire duration of plaintiff's tour of Europe with
Hongkong as starting point up to and until plaintiff's return trip to Manila, . . .
4. That during the first two legs of the trip from Hongkong to Saigon and from Saigon to
Bangkok, defendant furnished to the plaintiff First Class accommodation but only after
protestations, arguments and/or insistence were made by the plaintiff with defendant's
employees.
5. That finally, defendant failed to provide First Class passage, but instead furnished plaintiff
only Tourist Class accommodations from Bangkok to Teheran and/or Casablanca, . . . the
plaintiff has been compelled by defendant's employees to leave the First Class accommodation
berths at Bangkok after he was already seated.
6. That consequently, the plaintiff, desiring no repetition of the inconvenience and
embarrassments brought by defendant's breach of contract was forced to take a Pan American
World Airways plane on his return trip from Madrid to Manila. 32
xxx xxx xxx
2. That likewise, as a result of defendant's failure to furnish First Class accommodations
aforesaid, plaintiff suffered inconveniences, embarrassments, and humiliations, thereby causing
plaintiff mental anguish, serious anxiety, wounded feelings, social humiliation, and the like
injury, resulting in moral damages in the amount of P30,000.00." 33
xxx xxx xxx
The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish
plaintiff a first class passage covering, amongst others, the Bangkok-Teheran leg; Second, That
said contract was breached when petitioner failed to furnish first class transportation at
Bangkok; and Third, That there was bad faith when petitioner's employee compelled Carrascoso
to leave his first class accommodation berth "after he was already seated" and to take a seat in
the tourist class, by reason of which he suffered inconvenience, embarrassments and
humiliations, thereby causing him mental anguish, serious anxiety, wounded feelings and social
humiliation, resulting in moral damages. It is true that there is no specific mention of the
term bad faith in the complaint. But, the inference of bad faith is there; it may be drawn from
the facts and circumstances set forth therein. 34 The contract was averred to establish the
relation between the parties. But the stress of the action is put on wrongful expulsion.
Quite apart from the foregoing is that (a) right at the start of the trial, respondent's counsel
placed petitioner on guard on what Carrascoso intended to prove: That while sitting in the plane
in Bangkok, Carrascoso was ousted by petitioner's manager who gave his seat to a white
man; 35 and (b) evidence of bad faith in the fulfillment of the contract was presented without
objection on the part of the petitioner. It is, therefore, unnecessary to inquire as to whether or
not there is sufficient averment in the complaint to justify an award for moral damages.
Deficiency in the complaint, if any, was cured by the evidence. An amendment thereof to
conform to the evidence is not even required. 36 On the question of bad faith, the Court of
Appeals declared:
"That the plaintiff was forced out of his seat in the first class compartment of the plane
belonging to the defendant Air France while at Bangkok, and was transferred to the tourist class
not only without his consent but against his will, has been sufficiently established by plaintiff in
his testimony before the court, corroborated by the corresponding entry made by the purser of
the plane in his notebook which notation reads as follows:
'First-class passenger was forced to go to the tourist class against his will and that the captain
refused to intervene',
and by the testimony of an eye-witness Ernesto G. Cuento, who was a co-passenger. The
captain of the plane who was asked by the manager of defendant company at Bangkok to
intervene even refused to do so. It is noteworthy that no one on behalf of defendant ever
contradicted or denied this evidence for the plaintiff. It could have been easy for defendant to
present its manager at Bangkok to testify at the trial of the case, or yet to secure his deposition;
but defendant did neither. 37
The Court of Appeals further stated —
"Neither is there evidence as to whether or ,not a prior reservation was made by the white man.
Hence, if the employees of the defendant at Bangkok sold a first-class ticket to him when all the
seats had already been taken, surely the plaintiff should not have been picked out as the one to
suffer the consequences and to be subjected to the humiliation and indignity of being ejected
from his seat in the presence of others. Instead of explaining to the white man the improvidence
committed by defendant's employees, the manager adopted the more drastic step of ousting the
plaintiff who was then safely ensconced in his rightful seat. We are strengthened in our belief
that this probably was what happened there, by the testimony of defendant's witness Rafael
Altonaga who, when asked to explain the meaning of the letters 'O.K., appearing on the tickets
of plaintiff, said that 'the space is confirmed' for first class. Likewise, Zenaida Faustino, another
witness for defendant, who was the chief of the Reservation Office of defendant, testified as
follows:
'Q. How does the person in the ticket-issuing office know what reservation the passenger has
arranged with you?
A. They call us up by phone and ask for the confirmation.' (t.s.n., p. 247, June 19, 1959)
In this connection, we quote with approval what the trial Judge has said on this point:
'Why did the, using the words of witness Ernesto G. Cuento, 'white man' have a 'better right' to
the seat occupied by Mr. Carrascoso? The record is silent. The defendant airline did not prove
'any better', nay, any right on the part of the 'white man' to the 'First class' seat that the plaintiff
was occupying and for which he paid and was issued a corresponding 'first class' ticket.
'If there was a justified reason for the action of the defendant's Manager in Bangkok, the
defendant could have easily proven it by having taken the testimony of the said Manager by
deposition, but defendant did not do so; the presumption is that evidence willfully suppressed
would be adverse if produced [Sec. 69, par. (e) Rules of Court]; and, under the circumstances,
the Court is constrained to find, as it does find, that the Manager of the defendant airline in
Bangkok not merely asked but threatened the plaintiff to throw him out of the plane if he did
not give up his 'first class' seat because the said Manager wanted to accommodate using the
words of the witness Ernesto G. Cuento, the 'white man'." 38
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 purposes." 39
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 bad
faith, 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
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." 40
5. The responsibility of an employer for the tortuous act of its employees-need not be essayed.
It is well settled in law. 41 For the willful malevolent act of petitioner's manager, petitioner's his
employer, must answer. Article 21 of the Civil Code says:
"Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage."
In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the
provisions of Article 2219 (10), Civil Code, moral damages are recoverable. 42
6. A contract to transport passengers is quite different in kind and degree from any other
contractual relation. 43 And this, because of the relation which an air-carrier sustains with the
public. Its business is mainly with the travelling public. It invites people to avail of the comforts
and advantages it offers. The contract of air carriage, therefore, generates a relation attended
with a public duty. Neglect or malfeasance of the carrier's employees, naturally, could give
ground for an action for damages.
Passengers do not contract merely for transportation. They have a light to be treated by the
carrier's employees with kindness, respect, courtesy and due consideration. They are entitled to
be protected against personal misconduct, injurious language, indignities and abuses from such
employees. So it is, that any rude or discourteous conduct on the part of employees towards a
passenger gives the latter an action for damages against the carrier. 44
Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of
contract and a tort, giving a right of action for its agent in the presence of third persons to
falsely notify her that the check was worthless and demand payment under threat of ejection,
though the language used was not insulting and she was not ejected. 46 And this, because,
altho the relation of passenger and carrier is "contractual both in origin and nature" nevertheless
"the act that breaks the contract may be also a tort". 47 And in another case, "Where a
passenger on a railroad train, when the conductor came to collect his fare, tendered him the
cash fare to a point where the train was scheduled not to stop, and told him that as soon as the
train reached such point he would pay the cash fare from that point to destination, there was
nothing in the conduct of the passenger which justified the conductor in using insulting
language to him, as by calling him a lunatic," 48 and the Supreme Court of South Carolina there
held the carrier liable for the mental suffering of said passenger.
Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's
action as we have said, is placed upon his wrongful expulsion. This is a violation of public duty
by the petitioner-air carrier — a case of quasi-delict. Damages are proper.
7. Petitioner draws our attention to respondent Carrascoso's testimony, thus —
"Q. You mentioned about an attendant. Who is that attendant and purser?
A. When we left already — that was already in the trip — I could not help it. So one of the flight
attendants approached me and requested from me my ticket and I said, What for? and she said,
'We will note that you were transferred to the tourist class'. I said, 'Nothing of that kind. That is
tantamount to accepting my transfer.' And I also said, You are not going to note anything there
because I am protesting to this transfer.
Q. Was she able to note it?
A. No, because I did not give my ticket.
Q. About that purser?
A. Well, the seats there are so close that you feel uncomfortable and you don't have enough leg
room, I stood up and I went to the pantry that was next to me and the purser was there. He
told me, 'I have recorded the incident in my notebook.' He read it and translated it to me —
because it was recorded in French — 'First class passenger was forced to go to the tourist class
against his will, and that the captain refused to intervene.'
MR. VALTE —
 I move to strike out the last part of the testimony of the witness because the best evidence
would be the notes. Your Honor.
COURT —
 I will allow that as part of his testimony." 49
Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his
notebooks reading "First class passenger was forced to go to the tourist class against his will,
and that the captain refused to intervene" is predicated upon evidence [Carrascoso's testimony
above] which is incompetent. We do not think so. The subject of inquiry is not the entry, but the
ouster incident. Testimony of the entry does not come within the proscription of the best
evidence rule. Such testimony is admissible. 49
Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact
of the startling occurrence was still fresh and continued to be felt. The excitement had not as
yet died down. Statements then, in this environment, are admissible as part of the res
gestae. 50 For, they grow "out of the nervous excitement and mental and physical condition of
the declarant". 51 The utterance of the purser regarding his entry in the notebook was
spontaneous, and related to the circumstances of the ouster incident. Its trustworthiness has
been guaranteed. 52 It thus escapes the operation of the hearsay rule. It forms part of the res
gestae.
At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It
would have been an easy matter for petitioner to have contradicted Carrascoso's testimony. If it
were really true that no such entry was made, the deposition of the purser could have cleared
up the matter.
We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.
8. Exemplary damages are well awarded. The Civil Code gives the Court ample power to grant
exemplary damages — in contracts and quasi-contracts. The only condition is that defendant
should have "acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner". 53 The manner of ejectment of respondent Carrascoso from his first class seat fits
into this legal precept. And this, in addition to moral damages. 54
9. The right to attorneys' fees is fully established. The grant of exemplary damages justifies a
similar judgment for attorneys' fees. The least that can be said is that the courts below felt that
it is but just and equitable that attorneys' fees be given. 55 We do not intend to break faith with
the tradition that discretion well exercised — as it was here —should not be disturbed.
10. Questioned as excessive are the amounts decreed by both the trial court and the Court of
Appeals, thus: P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and
P3,000.00 as attorney's fees. The task of fixing these amounts is primarily with the trial-
court. 56 The Court of Appeals did not interfere with the same. The dictates of good sense
suggest that we give our imprimatur thereto. Because, the facts and circumstances point to the
reasonableness thereof. 57
On balance, we say that the judgment of the Court of Appeals does not suffer from reversible
error. We accordingly vote to affirm the same. Costs against petitioner. So ordered.
Concepcion, C.J., Reyes J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and Castro,
JJ., concur.
Bengzon, J.P., J., did not take part.
SECOND DIVISION
[G.R. No. L-28589. February 29, 1972.]
RAFAEL ZULUETA, ET AL., plaintiffs-appellee, vs.  PAN AMERICAN WORLD AIRWAYS,
INC., defendant-appellant.
Jose W. Diokno  for plaintiffs-appellees.
Ross, Salcedo, Del Rosario, Bito & Misa  for defendant-appellant.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; MOTIONS, RULE 22, SEC. 4 REVISED RULES OF COURT
APPLICABLE TO MOTION FOR OTHER HEARING DATES. — Rule 22, Sec. 4, referring to motions
"to postpone trial" applies with equal force to motions like the one under consideration wherein
defendant PANAM moves that it be granted additional hearing dates about two months from
Oct. 20, 1966 to present its other witnesses or their depositions. Hence, the latter can be
granted only upon showing of the materiality of the evidence expected to be obtained and that
due diligence has been used to procure it.
2. ID.; ID.; ID.; ID.; DENIAL OF MOTION, JUSTIFIED. — That defendant PANAM knew, as early
as August 2, 1966 that its turn to present evidence would take place as agreed upon about two
and a half months later; that it has not offered any valid excuse for its failure to bring to court
the witnesses mentioned in said motion nor exerted efforts to bring the "other witnesses" or to
take or submit their depositions, justify the denial by the trial judge of said motion.
3. CIVIL. LAW; CONTRACTS; COMMON CARRIERS, BREACH OF CONTRACT; RIGHT OF
PASSENGER TO DAMAGES; DELIBERATE ACT OF CARRIER IN LEAVING PASSENGER. — It is
urged that plaintiff is, at most, entitled to actual damages only, because he was the first to
commit a breach of contract, for having gone over 200 yards away from the terminal where he
could not expect to be paged. But PANAM has not pointed out what part of the contract has
been violated thereby, apart from the fact that the award for damages made in the decision
appealed from was due, not to PANAM's failure to so page the plaintiff, but to the former's
deliberate act of leaving at Wake Island, and the embarrassment and humiliation caused to him
and his family in the presence of many other person.
4. ID.; ID.; ID.; ID.; ID.; NO CONTRIBUTORY NEGLIGENCE IN INSTANT CASE. — The failure of
the plaintiff to reboard the plane within the time announced before the passengers debarked
therefrom did not constitute contributory negligence for he had actually shown up before the
plane had taken off. Despite this appearance, he was nevertheless off-loaded intentionally and
with malice aforethought, for his "belligerent" attitude; for his having dared to answer the
captain after being referred to as one of "three monkeys"; and for his categorical refusal to have
his bags opened without a search warrant.
5. ID.; ID.; ID.; ID.; RIGHT TO MORAL AND EXEMPLARY DAMAGES. — The rude and rough
reception plaintiff's receive at the hands of the airline officers; the abusive language and highly
scornful reference to them as "monkeys" by one of PANAM's employees; the unfriendly attitude;
the ugly stares and unkind remarks to which they were subjected; their being cordoned by men
in uniform as if they were subjected; their being cordoned by men in uniform as if they were
criminals; the airline officials' refusal to allow Mr. Zulueta to board the plane on the pretext that
he was hiding a bomb in his luggage and their arbitrary and high-handed decision, to leave him
in Wake; Mrs. Zulueta's having suffered a nervous breakdown for which she was hospitalized as
a result of the insults and humiliations to which they were exposed by the conduct of PANAM's
employees; Miss Zulueta's having suffered shame and embarrassment for the treatment
received by her parents at the airport — all justify an award for moral damages.
6. ID.; ID.; ID.; ID.; ID.; REDUCTIONS IN INSTANT CASE. — To some extent, plaintiff had
contributed to the gravity of the situation because of the extreme belligerance with which he
had reacted on the occasion. Although PANAM agents had taken an arrogant and over-bearing
attitude towards him, just the same, there is every reason to believe that, in all probability,
things would not have turned out as bad as they became had plaintiff not allowed himself, in a
way, to be dragged to the level or plane on which PANAM's personnel had placed themselves. In
view of this circumstance the Court deems it proper that the moral and exemplary damages
aside from the attorney's fees awarded by the lower court, should be reduced.
7. ID.; ID.; ID.; ID.; RIGHT TO MORAL DAMAGES; FACTORS CONSIDERED. — It has been held
that the discretion in fixing moral damages lies in the trial court. Among the factors courts take
into account in assessing moral damages are the professional, social, political and financial
standing of the offended parties on one hand, and the business and financial position of the
offender on the other.
8. ID.; PERSONS AND FAMILY RELATIONS; SUITS AGAINST HUSBAND AND WIFE; REAL PARTY
IN INTEREST; ART. 113, (2) CIVIL CODE OF THE PHILIPPINES, NOT APPLICABLE IN INSTANT
CASE. — Relying on Art. 113(2) of the Civil Code of the Philippines which permits the filing of a
suit by the wife without being joined by her husband, as a result of a separation de
facto between them, Mrs. Zulueta filed a motion to dismiss the case insofar as she is concerned,
after a settlement of all her differences with PANAM. Said provision cannot possibly apply to a
case, like the one at bar, in which the husband is the main party in interest, both as the person
aggrieved and as the administrator of the original partnership.
9. ID.; ID.; ID.; ART. 113 (2) CIVIL CODE OF THE PHILIPPINES. — The suit contemplated in
Art. 113 of the Civil Code of the Philippines, pursuant to which "the husband must be joined in
all suits by or against the wife except . . . (2) if they have in fact been separated for at least one
year", is one in which the wife is the real party — either plaintiff or defendant — in interest,
and, in which, without being so, the husband must be joined as a party, by reason only of his
relations of affinity with her.
DECISION
CONCEPCION, J  p:
Appeal, taken by defendant Pan American World Airways, Inc., from a decision of the Court of
First Instance of Rizal, sentencing said defendant to pay herein plaintiff — Rafael Zulueta, Telly
Albert Zulueta and Carolinda Zulueta — "the sum of P5,502.85, as actual damages; plus the
further sum of P1,000,000.00 as moral damages; the further sum of P400,000.00 as exemplary
damages; and attorney's fees in the sum of P100,000.00," with the costs against said
defendant, hereinafter referred to as PANAM, for the sake of brevity.
It is not disputed that, on October 23, 1964, the spouses Rafael Zulueta and Telly Albert Zulueta
— hereinafter referred to as plaintiff and Mrs. Zulueta, respectively — as well as their daughter,
Carolinda Zulueta — hereinafter referred to as Miss Zulueta — were passengers aboard a
PANAM plane, on Flight No. 841-23, from Honolulu to Manila, the first leg of which was Wake
Island. As the plane landed on said Island, the passengers were advised that they could
disembark for a stopover of about 30 minutes. Shortly before reaching that place, the flight was,
according to the plaintiffs, "very rough." Testifying for PANAM, its purser, Miss Schmitz,
asserted, however, that it was "very calm"; but her notes, Exhibit 7 — prepared, upon the
request of Captain Zentner, on account of the incident involved in this case — state that there
was "unusually small amount of roughness," which His Honor, the Trial Judge, considered
properly as "an admission that there was roughness, only the degree thereof is in dispute." In
any event, plaintiff testified that, having found the need to relieve himself, he went to the men's
comfort room at the terminal building, but found it full of soldiers, in view of which he walked
down the beach some 100 yards away.
Meanwhile, the flight was called and when the passengers had boarded the plane, plaintiff's
absence was noticed. The take-off was, accordingly, delayed and a search for him was
conducted by Mrs. Zulueta, Miss Zulueta and other persons. Minutes later, plaintiff was seen
walking back from the beach towards the terminal. Heading towards the ramp of the plane,
plaintiff remarked, "You people almost made me miss your flight. You have a defective
announcing system and I was not paged." At this point, the decision appealed from has the
following to say:
"(1) Plaintiffs were on their way to the plane in order to board it, but defendant's employees —
Kenneth Sitton, defendant's airport manager, according to plaintiffs; Wayne Pendleton,
defendant's airport customer service supervisor, according to defendant - stopped them at the
gate. This is what the report of Wayne Pendleton, the airport customer service supervisor, says:
"'. . . I made no comment to the passenger but turned and led the group toward the ramp. Just
as we reached the boarding gate, Mr. Zulueta spoke to me for the first time saying, 'You people
almost made me miss your flight. You have a defective announcing system and I was not
paged.'
"'I was about to make some reply when I noticed the captain of the flight standing on the ramp,
midway between the gate and the aircraft, and talking with the senior maintenance supervisor
and several other persons. The captain motioned for me to join him which I did, indicating to
the Zulueta family that they should wait for a moment at the gate.'
— Exh. 5
"(2) Thereafter, one of defendant's employees — Mr. Sitton, according to plaintiffs; Mr.
Pendleton, according to defendants — asked plaintiffs to turn over their baggage claim checks.
Plaintiffs did so, handing him four (4) claim checks.
"(3) However, only three (3) bags were located and segregated from the rest of the passenger's
luggage. The items handcarried by plaintiffs, except for plaintiff's (overcoat) were also brought
down. These handcarried items, however, were not opened or inspected; later, plaintiffs Mrs.
Zulueta and Miss Zulueta were permitted to reboard the plane with their handcarried luggage;
and when the plane took off, about two and a half hours later, it carried plaintiff's fourth bag,
his overcoat and the handcarried luggage.
"(4) Once three bags had been identified, and while the search was going on for the fourth bag,
Mr. Sitton, defendant's airport manager, demanded that plaintiffs open the bags (actually, they
were closed, but not locked) and allow defendant's employees to inspect them. Plaintiff Rafael
Zulueta refused and warned that defendant could open the bags only by force and at its peril of
a law suit.
"(5) Mr. Sitton, defendant's manager, then told plaintiff that he would not be allowed to proceed
to Manila or board the plane and handed Zulueta the following letters:
"'24 October 1964
Wake Island
"'Mr. Zulueta:
Passenger aboard flight 84123
Honolulu/Manila
Sir:
We are forced to offload you from flight 84123 due to the fact that you have refused to open
your checked baggage for Inspection as requested.
During your stay on Wake Island, which will be for a minimum of one week, you will be charged
$13.30 per day for each member of your party.
K. Sitton
Airport Manager, Wake Island
Pan American World Airways, Inc.'
— Exh. D.
"(6) All this happened in plain view and within earshot of the other passengers on the plane,
many of whom were Filipinos who knew plaintiffs;
"The departure of the plane was delayed for about two hours.
"(7) Though originally all three plaintiffs had been off loaded, plaintiff requested that his wife
and daughter be permitted to continue with the flight. This was allowed but they were required
to leave the three bags behind. Nevertheless, the plane did fly with the plaintiff's fourth bag; it
was found among all other passengers' luggage flown to Manila upon the plane's arrival here.
"(8) Upon arrival at Manila, Mrs. Zulueta demanded of defendant's Manila office that it re-route
plaintiff Rafael Zulueta to Manila at the earliest possible time, by the fastest route, and at its
expense; defendant refused; so plaintiffs were forced to pay for his ticket and to send him
money as he was without funds.
"(9) On October 27, 1964, plaintiff Zulueta finally arrived at Manila, after spending two nights at
Wake, going back to Honolulu, and from Honolulu flying thru Tokyo to Manila.
"(10) On December 21, 1964, plaintiffs demanded that defendant reimburse them in the sum of
P1,505,502.85 for damages; but defendants refused to do so; hence this action."
In its brief, PANAM maintains that the trial court erred: (1) "in not granting defendant additional
hearing dates (not a postponement) for the presentation of its other witnesses"; (2) "in
assuming it to be true that the reason plaintiff Rafael Zulueta did not come aboard when the
passengers were reboarded was that he had gone to the beach to relieve himself"; (3) "in not
holding that the real reason why plaintiff Rafael Zulueta did not reboard the plane, when the
announcement to do so was made, was that he had a quarrel with his wife and after he was
found at the beach and his intention to be left behind at Wake was temporarily thwarted he did
everything calculated to compel Pan American personnel to leave him behind"; (4) "in accepting
as true plaintiff Rafael Zulueta's claim of what occurred when he arrived at the terminal after he
was found at the beach"; (5) "in not holding that the captain was entitled to an explanation for
Zulueta's failure to reboard and not having received a reasonable explanation and because of
Zulueta's irrational behavior and refusal to have his bags examined, the captain had the right
and duty to leave Zulueta behind"; (6) "in condemning the defendant to pay plaintiffs P5,502.85
as actual damages plus the further sum of P1,000,000.00 as moral damages, and the further
sum of P400,000.00 as exemplary damages, and attorneys' fees in the sum of P100,000.00";
and (7) "in not granting defendant's counterclaim of attorney's fees and expenses of litigation."
PANAM's first assignment of error refers to the denial of its motion, dated October 20, 1966,
that it "be granted other hearing dates about two months from today so as to be able to present
defendant's other witnesses or their depositions."
It appears that the complaint in this case was filed on September 30, 1965. It was amended on
December 1, 1965, and again on April 14, 1966. PANAM answered the second amended
complaint on May 6, 1966. After a pre-trial conference, held on May 28, 1966, the case was set
for hearing on June 1, 2 and 3, 1966. By subsequent agreement of the parties, the hearing was,
on June 3, 1966, reset for August 1, 2 and 3, 1966. Plaintiffs rested their case on August 2,
1966, whereupon it was agreed that PANAM's witnesses would be presented "at a later date,"
months later, because they would "come from far-flung places like Wake Island, San Francisco,
Seattle and it will take time to arrange for their coming here." Accordingly the case was reset for
October 17, 18 and 19, 1966, at 8: 30 a.m. On motion of the plaintiffs, the trial scheduled for
October 17 was cancelled, without any objection on the part of PANAM; but, to offset said
action, additional hearings were set for October 18 and 19, in the afternoon, apart from those
originally set in the morning of these dates. Before the presentation of PANAM's evidence, in the
morning of October 18, 1966, plaintiffs' counsel asked for the names of the former's witnesses,
so that those not on the witness stand could be excluded from the courtroom. PANAM's counsel
announced that his witnesses were Marshall Stanley Ho, Kenneth Sitton, Michael Thomas,
Wayne S. Pendleton, Capt. Robert Zentner and Miss Carol Schmitz.
The defense then proceeded to introduce the testimony of said witnesses, and consumed
therefor the morning and afternoon of October 18 and the morning of October 19. Upon the
conclusion, that morning, of the testimony of the last witness for the defense, its counsel asked
that it "be given an opportunity to present our other witnesses who are not present today, at
the convenience of the Court." The motion was denied, but, said counsel sought a
reconsideration and the court gave PANAM a last chance to present its "other witnesses" the
next day, October 20. Instead of doing so, PANAM filed a written motion reiterating its prayer
for "other hearing dates about two months from today so as to be able to present defendant's
other witnesses or their depositions." Upon denial of this motion, PANAM made an offer of the
testimony it expected from one Edgardo Gavino, an unnamed meteorologist, either Sue Welby
and/or Helga Schley, and John C. Craig, Ida V. Pomeroy, Herman Jaffe, Gerry Cowles and Col.
Nilo de Guia.
His Honor, the Trial Judge, did not commit a reversible error in denying said motion of October
20, 1966. PANAM knew, as early as August 2, 1966, that its turn to present evidence would take
place, as agreed upon, about two (2) months and a half later, or on October 17, 18 and 19,
1966. PANAM has not offered any valid excuse for its failure to bring to court the witnesses
mentioned in said motion, despite the assurance given by its counsel, on August 2, 1966, that
the defense would "spare no effort to bring them here," or, if they could not be brought due to
circumstances beyond PANAM's control, to "submit their deposition." The records do not show
that any such effort to bring the aforementioned witnesses had been exerted. The defense has
not even tried to explain why the deposition of said witnesses was not taken. What is worse, the
proffered explanation — that the six (6) persons who testified for the defense 1 were believed,
by defense counsel, to be enough for the three (3) days of October set for the reception of his
evidence 2 — indicates that no effort whatsoever had been made either to bring the "other
witnesses" 3 or to take and submit their depositions.
Besides, the testimony allegedly expected of said other witnesses for the defense — namely: (1)
that there was, according to official records, no turbulence in the flight from San Francisco to
Honolulu, on which the testimony of Carol Schmitz had touched; (2) that Ida V. Pomeroy and
John C. Craig would say that the passengers were advised not to go beyond the terminal and
that the stopover would be for about 30 minutes only, on which duration of the stopover Miss
Schmitz had, also testified, as she could have similarly testified on said advice, had it been
given; (3) that either Helga Schley or Sue Welby would narrate the sympathy with which Mrs.
Zulueta was allegedly treated during the flight from Wake Island to Manila, which is not
particularly relevant or material in the case at bar; (4) that Herman Jaffe, Gerry Cowles and Nilo
de Guia were, also, expected to corroborate the testimony of Capt. Zentner; and (5) that
Edgardo Gavino was expected to corroborate Michael Thomas regarding the remarks made by
the plaintiff to Mrs. Zulueta and Miss Zulueta when they and other members of the searching
party found him in the early morning of October 23, 1964 - were merely cumulative in nature.
Then, again, PANAM did not comply with section 4 of Rule 22 of the Rules of Court, reading:
"SEC. 4. Requisites of motion to postpone trial for absence of evidence.  — A motion to postpone
a trial on the ground of absence 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. But if the
adverse party admits the facts to be given in evidence, even if he objects or reserves the right
to object to their admissibility, the trial must not be postponed."
Although this provision refers to motions "to postpone trial," it applies with equal force to
motions like the one under consideration, there being no plausible reason to distinguish
between the same and a motion for postponement owing to the "absence of evidence."
The second, third and fourth assignments of error are interrelated. They refer to the question
whether the reason why plaintiff went to the beach was to relieve himself, as testified to by him,
or to remain in Wake Island because he had quarreled with his wife, as contended by PANAM's
counsel.
The latter contention, however, is utterly devoid of merit. To begin with, plaintiff's testimony
about what he did upon reaching the beach is uncontradicted. Secondly, other portions of his
testimony — such as, for instance, that the flight was somewhat rough, shortly before reaching
Wake Island; that there were quite a number of soldiers in the plane and, later, in the terminal
building; that he did not voluntarily remain in Wake Island, but was "off-loaded" by PANAM's
agent therein — are borne out by the very evidence for the defense. Thirdly, PANAM's efforts to
show that plaintiff had decided to remain in the Island because he had quarreled with Mrs.
Zulueta — which is ridiculous — merely underscores the artificious nature of PANAM's
contention.
Fourthly, there is absolutely no direct evidence about said alleged quarrel. Nobody testified
about it. Counsel for the defense has, in effect, merely concluded that there must have
been such quarrel because, when the searching party located plaintiff, he — according to
Stanley Ho — was "shouting in a loud tone of voice" — not at his wife, but — "towards his
wife and daughter," who headed said party and to which the words spoken were addressed,
according to plaintiff. Capt. Zentner said that plaintiff was "angry with them" — Mrs.
Zulueta and Miss Zulueta — who — Michael Thomas affirmed — were saying "I am sorry, I am
sorry"; whereas, Wayne S. Pendleton declared that Gavino told him that this " seems to stem
from a domestic issue" between Mr. and Mrs. Zulueta. Surely, this alleged surmise, not even by
Pendleton, but by Gavino — who was not placed on the witness stand — cannot be taken as
competent evidence that plaintiff had quarreled with his wife, apart from the circumstance that
such quarrel — if it took place and there is absolutely no evidence or offer to prove that
anything had transpired between husband and wife before reaching Wake Island  which may
suggest a misunderstanding between them — does not warrant jumping at the conclusion that
plaintiff had decided to remain in the Island, for he would gain nothing thereby.
Needless to say, if plaintiff's purpose in going to the beach was to hide from Mrs. and Miss
Zulueta and PANAM's personnel, so that he may be left in the Island, he, surely, would not have
walked back from the beach to the terminal, before the plane had resumed its flight to Manila,
thereby exposing his presence to the full view of those who were looking for him.
Then, again, the words uttered by him as he saw the search party and approached the plane —
"You people almost made me miss your flight. You have a defective announcing system and I
was not paged" — and the "belligerent" manner — according to Captain Zentner — in which he
said it revealed his feeling of distress at the thought that the plane could have left without
him. 4
The second, third and fourth assignments of error are thus clearly untenable.
In connection with the fifth assignment of error, PANAM's witness, Captain Zentner, testified
that, while he was outside the plane, waiting for the result of the search, a "man" approached
him and expressed concern over the situation; that the "man" said he was with the State
Department; that he, his wife and their children, who were on board the aircraft, would not
want to continue the flight unless the missing person was found; that the "man" expressed fear
of a "bomb," a word he used reluctantly, because he knew it is violative of a Federal law when
said at the wrong time; that when plaintiff came, Zentner asked him. "why did you not want to
get on the airplane?"; that plaintiff then became "very angry" and spoke to him "in a way I have
not been spoken to in my whole adult life"; that the witness explained: "I am Captain of the
aircraft and it is my duty to see to the flight's safety"; that he (Zentner) then told Wayne
Pendleton — PANAM's Customer Service Supervisor — to get plaintiff's "bags off the plane to
verify . . . about the bomb"; that PANAM's airport manager (K. Sitton) "got three bags of Mr.
Zulueta"; that his fourth bag could not be located despite a thorough search; that believing that
it must have been left behind, in Honolulu, "we took off"; and that he (Zentner) would not have
done so had he thought it was still aboard.
The lower court did not err in giving no credence to this testimony.
Indeed, Captain Zentner did not explain why he seemingly assumed that the alleged
apprehension of his informant was justified. He did not ask the latter whether he knew anything
in particular about plaintiff herein, although some members of the crew would appear to have a
notion that plaintiff is an impresario. Plaintiff himself intimated to them that he was well known
to the U.S. State Department. Apparently, Captain Zentner did not even know the informant's
name. Neither did the captain know whether the informant was really working for or in the State
Department. In other words, there was nothing — absolutely nothing — to justify the belief that
the luggage of the missing person should be searched, in order to ascertain whether there was
a bomb in it; that, otherwise, his presence in the aircraft would be inimical to its safety; and
that, consequently, he should be off-loaded.
In fact, PANAM has not given the name of that "man" of the State Department. Neither has the
defense tried to explain such omission. Surely, PANAM's records would have disclosed the
identity of said "man," if he were not a mere figment of the imagination. The list of passengers
has been marked as Exh. A, and yet PANAM has not pointed out who among them is the
aforementioned "man".
The trial court did not believe the testimony of Captain Zentner and rejected the theory of the
defense, for the following reasons:
"(1) The defendant had contracted to transport plaintiff from Honolulu to Manila. It was its legal
obligation to do so, and it could be excused from complying with the obligation only, if the
passenger had refused to continue with the trip or it had become legally or physically
impossible, without the carrier's fault, to transport him.
"(2) In this case, it is plain that Zulueta was desirous of continuing with the trip. Although
defendant's witnesses claim that Zulueta refused to board the plane, its own evidence belies this
claim. The letter, Exh. 'D', shows that it was defendant who off-loaded Zulueta; not Zulueta who
resisted from continuing the trip. In his testimony before the Court, Capt. Zentner, defendant's
pilot, said that if a passenger voluntarily left the plane, the term used would be 'desistance,' but
the term 'off-load' means that it is the decision of the Captain not to allow the passenger or
luggage to continue the flight. However, Capt. Zentner admitted on his testimony that 'his
drunkenness . . . was of no consequence in my report; (it) . . . had nothing to do with his being
belligerent and unfriendly in his attitude towards me and the rest of the members of the crew.'
The written report of Capt. Zentner made in transit from Wake to Manila 'intimated he might
possibly continue;' but 'due to drinking, belligerent attitude, he was off-loaded along with his
locked bags.' (Exh. 10). In a later report, Zentner admitted, ' The decision to leave Mr. Zulueta
and his locked luggage in Wake was mine and mine alone. ' (Exh. 9). Defendant's airport
customer service supervisor, W.S. Pendleton, reported that:
"'After the search for Mr. Zulueta had continued for almost 20 minutes and it was apparent that
he was not to be found in the terminal building or immediate vicinity, I proceeded to the parking
lot and picked up my jeep to continue the search in more remote areas. Just as I was getting
underway, a small group of persons approached from the direction of the beach and a voice
called out that the passenger had been found. Having parked the jeep again, I walked toward
the group and was met by PAA fleet-serviceman E. Gavino who was walking somewhat ahead of
the others. Mr. Gavino remarked to me privately that the trouble seemed to have stemmed from
some domestic difference between the passenger and his wife who was not at his side and
returning with him to the gate.
"'On hearing Mr. Gavino's remark, I made no comment to the passenger but turned and led the
group toward the ramp. Just as we reached the boarding gate, Mr. Zulueta spoke to me for the
first time saying, 'You people almost made me miss your flight. You have a defective
announcing system and was not paged.'
— Exh. 5.
"Evidently, these could not have been the words of a man who refused to board the plane.
"(3) There was no legal or physical impossibility for defendant to transport plaintiff Zulueta from
Wake to Manila, as it had contracted to do. Defendant claims that the safety of its craft and of
the other passengers demanded that it inspect Zulueta's luggage and when he refused to allow
inspection that it had no recourse but to leave him behind. The truth is that, knowing that of
plaintiff's four pieces of luggage, one could still have been — as it was — aboard, defendant's
plane still flew on to Manila. Surely, if the defendant's pilot and employees really believed that
Zulueta had planted a bomb in one of the bags they would not have flown on until they had
made sure that the fourth bag had been left behind at Honolulu or until enough time had lapsed
for the bomb to have been exploded, since presumably it had to have been set to go off before
they reached Manila.
"At any rate, it was quite evident that Zulueta had nothing to hide; for the report of defendant's
witness, Mr. Stanley L. E. Ho, U.S. Marshall on Wake, has this to say:
"'About twenty minutes later while an attempt was being made to locate another piece of Mr.
Zulueta's luggage, his daughter, Carolinda approached her father and wanted to get some
clothes from one of the suitcases. Mr. Zulueta asked the undersigned if it was alright if he
opened the suitcases and get the necessary clothes. To this I stated he was free to open his
luggage and obtain whatever he needed. Mr. Zulueta opened a suitcase and took the dress for
her then boarded the aircraft.'
— Exh. 2B.
"(4) What is evident to the Court is that defendant — acted in a manner deliberately calculated
to humiliate and shame plaintiffs. Although the plane was held up to wait for plaintiff — for, as
the Captain admitted in his testimony, he did so because he knew that it would be a week
before another plane would come in for Manila (t.s.n., 18 Oct. 1966, pp. 59-62) — when plaintiff
did come, he was met and treated roughly by defendant's manager Sitton. Here is what Zulueta
testified to:
"'Q. — When you saw your wife and daughter what happened? A. — Then I started going
towards the airplane. At the ramp, I do not know what they call it, as soon as they arrived
there, there was a man who subsequently identified himself as Kenneth Sitton. He identified
himself as the Airport Manager of Wake Island. He did not ask me what happened, was I sick,
he looked at me and said, what in the hell do you think you are? Get on that plane. Then I said,
what right have you to talk to me that way, I am a paying passenger, Do not treat me this. And
this started the altercation, and then he said, do you know you held up the plane? And I
answered, this is not my fault, I was sick. Did it not occur to you to ask me how I feel; then he
said get on that plane.
"'Q. — What happened? A. — we started discussing kept saying, 'You get on that plane' and
then I said, 'I don't have to get on that plane.' After a prolonged discussion, he said, give me
your baggage tags and I gave him four baggage tickets or tags. I did not realize what he was
up to until finally, I saw people coming down the airplane and police cars arrived and people
were coming down the ramp. I gave him the four baggage tags and a few minutes late, he
brought three baggages and said, open them up. I said, to begin with, there is one baggage
missing and that missing bag is my bag. Then I said you cannot make me open these baggages
unless you are United States customs authorities and when I arrive in the Philippines they can
be opened by the Philippine Customs authorities. But an Airport Manager cannot make me open
my bags unless you do exactly the same thing to all the passengers. Open the bags of all the
other passengers and I will open my bag.
"'Q. — What did he say: A. — He just kept on saying, open your bag, and I drew up my hands
and said, if you want, you open yourself or give me a search warrant and I shall open this bag
but give me a search warrant and then I asked, who is the Chief of Police, and he said, 'I am
the Chief of Police,' then I said how can you be the Chief of Police and Airport Manager and
then he started to talk about double compensation and by this time we were both quarreling
and he was shouting and so with me. Then there was a man who came around and said 'open
the bag' and I said, show the warrant of arrest and do all the checking and the discussion kept
on going, and finally, I said, look, my fourth bag is missing and he said, 'I don't give a damn.'
People at the time were surrounding us and staring at us and also the passengers. My wife and
daughter all along had been made to sit on a railing and this man screaming and looking at my
wife and daughter. Then he said, will you pull these three monkeys out of here? And then I
said, will you send my wife and daughter up to the plane which he did. However, they have
come down in their slippers and when they were allowed to return to the plane none of the
defendant's personnel who had brought down the overcoats, shoes and handcarried items of my
wife and daughter ever offered to bring back these items to the plane, until I demanded that
one of the defendants should help my wife and daughter which he did. And then one man told
me, because you refused to open your bag, 'we shall hold you here in Wake Island.' And then I
asked, are we under arrest? and the man answered, no. And further stated, your wife and
daughter can continue their flight but you will not go to this flight and we will charge you $13.30
a day. Then I said, who are you to tell all these things, and he answered, I am the manager. I
said, put it in writing, then left and in a few minutes he came back and handed me this letter
(witness referring to Exhibit D).'
— t.s.n., August 1, 1966, pp. 15-21.
"Anyone in Zulueta's position would have reached the same way if he had had a sense of
dignity. Evidently, angered by Zulueta's reaction, irked by the delay he had caused them,
defendant's employees decided to teach him a lesson by forcing him to open his bags when
there was no justifiable reason to do so:
"(a) Defendant did not make any attempt to inquire from any passenger or even the crew who
knew Mr. Zulueta what his character and reputation are, before demanding that he open the
bags; if it had done so, Miss Schmitz, the purser, and Col. Villamor would have vouched for
plaintiffs; for Miss Schmitz believed she had flown before with the Zuluetas and they had been
very nice people.
"(b) Worse, defendant's manager Sitton admits that Zulueta had told him who he was and his
social position in Manila; still he insisted that the bags be opened. Moreover, some passengers
had informed the supervisor that Zulueta was 'the impresario'; but they persisted in their
demands.
"(c) Defendant never identified the alleged State Department men who reportedly approached
the Captain and expressed fear about a bomb, nor did they confront him — if he existed — with
Mr. Zulueta despite Mr. Zulueta's request.
"(d) Defendant did not take any steps to put the luggage off-loaded far from its passengers and
plane, a strange procedure if it really believed the luggage contained a bomb;
"(e) Defendant continued with the flight knowing one bag — Zulueta's bag himself — had not
been located and without verifying from Honolulu if the bag had been found there, nor even
advising Honolulu that a bag possibly containing a bomb had been left there, again an
inexplicable procedure if they sincerely believed that Zulueta had planted a bomb;
"(f) Defendant's manager himself took Zulueta and his off-loaded bags, in his own car, from the
terminal building to the hotel, which is also inconsistent with a serious belief that the luggages
contained a bomb;
"(g) Defendant knew that while Zulueta's bags were on the ground, he had opened one of them
with the permission and in the presence of the U.S. Marshall in order to enable his daughter to
get a dress from the bag; nothing suspicious was seen; still, defendant insisted on refusing to
allow Zulueta to continue unless he opened and allowed inspection of the bags by them;
"(h) Defendant completely changed his tone and behavior towards the Zuluetas after the plane
had arrived at Manila and the Captain learned that its Manila manager, Mr. Oppenheimer, was a
friend of Zulueta;
"(i) Meantime, the attitude of Pan American towards the Zuluetas caused other passengers to
resent Zulueta (See reports of Stewardesses and of Captain Zentner, Exhs. 7, 8, 9 and 10).
'Many passengers were angry towards the 'missing passenger,' says Miss Schmitz's report. 'A
few inquisitive PA (passengers) — one woman quite rudely stared once we were airborne and
left Mr. Zulueta behind . . . anyway I told the woman to sit down — so did Helga — so did the
man near her,' saw Miss Schmitz's personal notes. This confirms the testimony of plaintiffs that,
all the while the search and discussions were going on, they were the subject of stares, remarks
and whispered comments from the passengers and other persons around the plane.
"(j) Defendant did not allow plaintiff Zulueta to board the plane at all, even though it was aware
that some of his personal belongings, such as his overcoat were on the plane. Plaintiffs so
testified; and though defendant's witness Mr. Sitton denied it, claiming that plaintiff was always
free to board the plane, this denial is belied by the report of defendant's own witness, U.S.
Marshall Ho, who said that:
"'Ten minutes later, Mr. Zulueta asked if he could talk to his wife who was aboard the aircraft. I
then accompanied him and as we got to the ramp, we met Mr. Sitton who stated he would
summon Mrs. Zulueta from the aircraft. Mr. Sitton summoned Mrs. Zulueta and she met her
husband at the foot of the ramp. Mr. Zulueta then asked his wife and himself to which I replied
I was not concerned what he had to say.'
— Exh. 2-B.
"(k) Finally, to add further humiliation and heap indignity on plaintiffs, when Mrs. Zulueta
arrived at Manila and appealed to defendant's Manila manager, Mr. Oppenheimer, to see to it
that her husband got back as soon as possible and was made as comfortable as possible, at
defendant's expense, Mr. Oppenheimer refused to acknowledge any obligation to transport Mr.
Zulueta back to Manila and forcing Mrs. Zulueta to send her husband $100.00 for pocket money
and pay for his fare from Wake to Manila, thru Honolulu and Tokyo."
Upon a review of the record, We are satisfied that the foregoing findings of His Honor, the Trial
Judge, are supported by a preponderance of the evidence.
The last two (2) assignments of error are mere consequences of those already disposed of, and,
hence, need no extended discussion.
It is urged, however, that plaintiff is, at most, entitled to actual damages only, because he was
the first to commit a breach of contract, for having gone over 200 yards away from the terminal,
where he could not expect to be paged. But, PANAM has not pointed out what part of the
contract has been violated thereby, apart from the fact that the award for damages made in the
decision appealed from was due, not to PANAM's failure to so page the plaintiff, but to the
former's deliberate act of leaving him at Wake Island, and the embarrassment and humiliation
caused to him and his family in the presence of many other persons. Then, also, considering the
flat nature of the terrain in Wake Island, and the absence of buildings and structures, other than
the terminal and a modest "hotel," as well as plaintiff's need of relieving himself, he had to find
a place beyond the view of the people and near enough the sea to wash himself up before
going back to the plane.
It is next argued that plaintiff was, also, guilty of contributory negligence for failure to reboard
the plane within the 30 minutes announced before the passengers debarked therefrom. This
might have justified a reduction of the damages, had plaintiff been unwittingly left by the plane,
owing to the negligence of PANAM personnel, or even, perhaps, wittingly, if he could not be
found before the plane's departure. It does not, and can not have such justification in the case
at bar, plaintiff having shown up before the plane had taken off, and he having been off-
loaded intentionally and with malice aforethought, for his "belligerent" attitude, according to
Captain Zentner; for having dared — despite his being one of "three monkeys," — the term
used by Captain Zentner to refer to the Zulueta family — to answer him back — when he
(Captain Zentner) 5 said: "what in the hell do you think you are?" — in a way he had "not been
spoken to" in his "whole adult life," in the presence of the passengers and other PANAM
employees; for having responded to a command of either Zentner or Sitton to open his
(plaintiff's) bags, with a categorical refusal and a challenge for Zentner or Sitton to open the
bags without a search warrant therefor, thereby making manifest the lack of authority of the
aforementioned representative of PANAM to issue said command and exposing him to ridicule
before said passengers and employees. Besides, PANAM's own witness and employee, Wayne
Pendleton, testified that the plane could not take off at 4:30, as scheduled, because "we were
still waiting for two (2) local passengers."
Article 2201 of our Civil Code reads:
"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."
This responsibility applies to common carriers. Pursuant to Article 1759 of the same Code:
"ART. 1759. Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former's employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common carriers.
"This liability of the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees."
Referring now to the specific amounts to damages due to plaintiffs herein, We note that the
sum of P5,502.85 awarded to them as actual damages is not seriously disputed by PANAM.
As regards the moral and exemplary damages claimed by the plaintiffs, our Civil Code provides:
"ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage."
"ART. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant's wrongful act or omission."
"ART. 2229. Exemplary or corrective damages are imposed, by way of example or correction for
the public good, in addition to the moral, temperate liquidated or compensatory damages."
"ART. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner."
The records amply establish plaintiffs' right to recover both moral and exemplary damages.
Indeed, the rude and rough reception plaintiff received at the hands of Sitton or Captain Zentner
when the latter met him at the ramp ("what in the hell do you think you are? Get on that
plane"); the menacing attitude of Zentner or Sitton and the supercilious manner in which he had
asked plaintiff to open his bags ("open your bag," and when told that a fourth bag was missing,
"I don't give a damn"); the abusive language and highly scornful reference to plaintiffs as
monkeys by one of PANAM's employees (who turning to Mrs. Zulueta and Miss Zulueta
remarked, "will you pull these three monkeys out of here?"); the unfriendly attitude, the ugly
stares and unkind remarks to which plaintiffs were subjected, and their being cordoned by men
in uniform as if they were criminals, while plaintiff was arguing with Sitton; the airline officials'
refusal to allow plaintiff to board the plane on the pretext that he was hiding a bomb in his
luggage and their arbitrary and high-handed decision to leave him in Wake; Mrs. Zulueta's
having suffered a nervous breakdown for which she was hospitalized as a result of the
embarrassment, insults and humiliations to which plaintiffs were exposed by the conduct of
PANAM's employees; Miss Zulueta's having suffered shame, humiliation and embarrassment for
the treatment received by her parents at the airport 6 — all these justify an award for moral
damages resulting from mental anguish, serious anxiety, wounded feelings, moral shock, and
social humiliation thereby suffered by plaintiffs.
"The relation between carrier and passenger involves special and peculiar obligations and duties,
differing in kind and degree, from those of almost every other legal or contractual relation. On
account of the peculiar situation of the parties the law implies a promise and imposes upon the
carrier the corresponding duty of protection and courteous treatment. Therefore, the carrier is
under the absolute duty of protecting his passengers from assault or insult by himself or his
servants." 7
"A contract to transport passengers is quite different in kind and degree from any other
contractual relation. And this, because of the relation which an air-carrier sustains with the
public. Its business is mainly with the travelling public. It invites people to avail of the comforts
and advantages it offers. The contract of air carriage, therefore, generates a relation attended
with a public duty. Neglect or malfeasance of the carrier's employees naturally could give
ground for an action for damages.
"Passengers do not contract merely for transportation. They have a right to be treated by the
carrier's employees with kindness, respect, courtesy and due consideration. They are entitled to
be protected against personal misconduct, injurious language, indignities and abuses from such
employees. So it is, that any rude or discourteous conduct on the part of employees towards a
passenger gives the latter an action for damages against the carrier." 8
"A carrier of passengers is as much bound to protect them from humiliation and insult as from
physical injury. . . . It is held in nearly all jurisdictions, if not universally, that a carrier is liable to
a passenger for humiliation and mental suffering caused by abusive or insulting language
directed at such passenger by an employee of the carrier." 9
"Where a conductor uses language to a passenger which is calculated to insult, humiliate, or
wound the feelings of a person of ordinary feelings and sensibilities, the carrier is liable, because
the contract of carriage impliedly stipulates for decent, courteous, and respectful treatment, at
hands of the carrier's employees." 10
"The general rule that a carrier owes to a passenger the highest degree of care has been held to
include the duty to protect the passenger from abusive language by the carrier's agents, or by
others if under such circumstances that the carrier's agents should have known about it and
prevented it. Some of the courts have mentioned the implied duty of the carrier, arising out of
the contract of carriage, not to insult the passenger, or permit him to be insulted, and even
where no mention is made of this basis for liability, it is apparent that it is the ground upon
which recovery is allowed." 11
The question is whether the award of P1,000,000 as moral damages was proper and justified by
the circumstances. It has been held that the discretion in fixing moral damages lies in the trial
court. 12 Among the factors courts take into account in assessing moral damages are the
professional, social, political and financial standing of the offended parties on one hand, and the
business and financial position of the offender on the other. 13
In comparatively recent cases in this jurisdiction, also involving breach of contract of air
carriage, this Court awarded the amount of P25,000, where plaintiff, a first-class passenger in
an Air France plane from Manila to Rome was, in Bangkok, forced by the manager of the airline
company to leave his first class accommodation after he was already seated because there was
a white man who, the manager alleged, had a "better right" to the seat 14 ; the amount of
P200,000, where plaintiffs, upon confirmation of their reservation in defendant airline's flight
from Tokyo to San Francisco were issued first class tickets, but upon arrival in Tokyo were
informed that there was no accommodation for them in the first class compartment and told
they could not go unless they took the tourist class 15 — in both of which cases the Court
found the airline companies to have acted in bad faith, or in a wanton, reckless and oppressive
manner, justifying likewise the award of exemplary damages.
None of the passengers involved in said cases was, however, off-loaded, much less in a place as
barren and isolated as Wake Island, with the prospect of being stranded there for a week. The
aforementioned passengers were merely constrained to take a tourist or third class
accommodation in lieu of the first class passage they were entitled to. Then, also, in none of
said cases had the agents of the carrier acted with the degree of malice or bad faith of those of
PANAM in the case at bar, or caused to the offended passengers a mental suffering arising from
injuries to feelings, fright and shock due to abusive, rude and insulting language used by the
carrier's employees in the presence and within the hearing of others, comparable to that caused
by PANAM's employees to plaintiffs herein.
 
To some extent, however, plaintiff had contributed to the gravity of the situation because of the
extreme belligerence with which he had reacted on the occasion. We do not overlook the fact
that he justly believed he should uphold and defend his dignity and that of the people of this
country; that the discomfort, the difficulties, and, perhaps, the ordeal through which he had
gone to relieve himself — which were unknown to PANAM's agents — were such as to put him
in no mood to be understanding of the shortcomings of others; and that said PANAM agents
should have first inquired, with an open mind, about the cause of his delay, instead of assuming
that he was at fault and of taking an arrogant and overbearing attitude, as if they were dealing
with an inferior. Just the same, there is every reason to believe that, in all probability, things
would not have turned out as bad as they became had he not allowed himself, in a way, to be
dragged to the level or plane on which PANAM's personnel had placed themselves.
In view of this circumstance, We feel that the moral and exemplary damages collectible by the
plaintiffs should be reduced to one-half of the amounts awarded by the lower court, that is, to
P500,000 for moral damages, and P200,000 for exemplary damages, aside from the attorney's
fees which should, likewise, be reduced to P75,000.
On April 22, 1971, Mrs. Zulueta filed a motion alleging that she had, for more than two (2)
years, been actually living separately from her husband, plaintiff Rafael Zulueta, and that she
had decided to settle separately with PANAM and had reached a full and complete settlement of
all her differences with said defendant, and praying, accordingly, that this case be dismissed
insofar as she is concerned. Required to comment on said motion, PANAM expressed no
objection thereto.
Upon the other hand, plaintiff prayed that the motion be denied, upon the ground that the case
at bar is one for damages for breach of a contract of carriage, owing to the off-loading of
plaintiff Rafael Zulueta, the husband and administrator of the conjugal partnership, with the
funds of which the PANAM had been paid under said contract; that the action was filed by the
plaintiffs as a family and the lower court had awarded damages to them as such family; that,
although PANAM had questioned the award of damages, it had not raised the question whether
the lower court should have specified what portion of the award should go to each plaintiff; that
although Mr. and Mrs. Zulueta had, for sometime, been living separately, this has been without
judicial approval; that Mrs. Zulueta may not, therefore, bind the conjugal partnership or settle
this case separately; and that the sum given by PANAM to Mrs. Zulueta is believed to be
P50,000, which is less than 3-1/2% of the award appealed from, thereby indicating the
advisability of denying her motion to dismiss, for her own protection.
Pursuant to a resolution, dated June 10, 1971, deferring action on said motion to dismiss until
the case is considered on the merits. We now hold that the motion should be, as it is hereby
denied. Indeed, "(t)he wife cannot bind the conjugal partnership without the husband's consent,
except in cases provided by law," 16 and it has not been shown that this is one of the cases so
provided. Article 113 of our Civil Code, pursuant to which " (t)he husband must be joined in all
suits by or against the wife, except: . . . (2) If they have in fact been separated for at least one
year . . ." — relied upon by PANAM — does not warrant the conclusion drawn therefrom by the
latter. Obviously the suit contemplated in subdivision (2) of said Article 113 is one in which the
wife is the real party — either plaintiff or defendant — in interest, and, in which, without being
so, the husband must be joined as a party, by reason only of his relation of affinity with her.
Said provision cannot possibly apply to a case, like the one at bar, in which the husband is the
main party in interest, both as the person principally aggrieved and as administrator of the
conjugal partnership. Moreover, he having acted in this capacity in entering into the contract of
carriage with PANAM and paid the amount due to the latter, under the contract, with funds of
the conjugal partnership, the damages recoverable for breach of such contract belongs to said
partnership.

Modified, as above stated, in the sense that plaintiffs shall recover from defendant, Pan
American World Airways, Inc., the sums of P500,000 as moral damages, P200,000 as exemplary
damages, and P75,000 as attorney's fees, apart from P5,502.85 as actual damages, and without
prejudice to deducting the aforementioned sum of P50,000 already paid to Mrs. Zulueta, the
decision appealed from is hereby affirmed in all other respects, with the costs against said
defendant.

Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Barredo, Villamor  and Makasiar, JJ., concur.

Castro and Teehankee, JJ., did not take part.

||| (Zulueta v. Pan American World Airways, Inc., G.R. No. L-28589, [February 29, 1972], 150
PHIL 465-495)

THIRD DIVISION

[G.R. No. 152122. July 30, 2003.]

CHINA AIRLINES, petitioner, vs. DANIEL CHIOK, respondent.

Balgos & Perez  for petitioner.

Padilla Jimenez Kintanar & Asuncion Law Offices  for respondent.

SYNOPSIS

Petitioner China Airlines (CAL) issued tickets to respondent for his Manila-Taipei-Hongkong-
Manila tour. Said ticket was exclusively endorseable to Philippine Airlines, Ltd. (PAL). In Taipei,
petitioner CAL confirmed respondent's Hongkong to Manila trip on board PAL Flight No. PR 311.
In Hongkong, the PAL office likewise confirmed respondent's return trip to Manila on board
Flight No. PR 311. On November 24, 1981, the day of the departure, PAL was unable to
transport respondent on Flight PR 311 due to typhoon. However, PAL informed that all the
confirmed passengers of PR311 were automatically booked to the next available flight, PR 307,
on the following day. However, on November 25, respondent was harangued and prevented
from boarding PR 307 because his name did not appear from the computerized passenger list
despite his confirmed flight tickets. Thus, PAL's refusal to accommodate the respondent in Flight
No. 307 resulted in the loss of the business option which respondent has to execute on that day.
Consequently, respondent filed a complaint for damages against petitioner CAL and PAL before
the Regional Trial Court (RTC) of Manila. The RTC, after due trial, ruled in favor of the
respondent and found petitioner and PAL jointly and severally liable to respondent for the
payment of actual, moral, and exemplary damages and attorney's fees. The Court of Appeals
affirmed the RTC but with modification deleting the award of actual damages.
Hence, this petition for review on certiorari.
Among others, petitioner claimed that it had merely acted as an issuing agent for the ticket
covering the Hongkong-Manila leg of respondent's journey. It argued that only PAL was liable
for the actual carriage of that segment.
In denying the petition, the Supreme Court ruled that petitioner cannot evade liability to
respondent. even though it may have been only a ticket issuer for the HongKong-Manila sector.
Although the contract of air transportation was between petitioner and respondent, with the
former endorsing to PAL the Hongkong-to-Manila segment of the journey, such contract of
carriage has always been treated in this jurisdiction as a single operation. According to the
Court, for reasons of public interest and policy, the ticket-issuing airline acts as principal in a
contract of carriage and is thus liable for the acts and the omissions of any errant carrier to
which it may have endorsed any sector of the entire, continuous trip. The Court likewise
affirmed the award of moral and exemplary damages. Both the trial and appellate courts found
that the respondent had satisfactorily proven the existence of the factual basis for the damages
adjudged against petitioner CAL and PAL. HSIDTE
SYLLABUS
1. JUDICIAL ETHICS; JUDGES; ENJOINED TO QUOTE DECISION OF THE SUPREME COURT
ACCURATELY WHEN USED TO SUPPORT JUDGMENT/RULING IN A CASE. — We agree with
petitioner that the CA committed a lapse when it relied merely on the unofficial syllabus of our
ruling in KLM v. CA. Indeed, lawyers and litigants are mandated to quote decisions of this Court
accurately. By the same token, judges should do no less by strictly abiding by this rule when
they quote cases that support their judgments and decisions. Canon 3 of the Code of Judicial
Conduct enjoins them to perform official duties diligently by being faithful to the law and
maintaining their professional competence. To avert similar incidents in the future, this Court
hereby exhorts members of the bar and the bench to refer to and quote from the official
repository of our decisions, the Philippine Reports, whenever practicable. In the absence of this
primary source, which is still being updated, they may resort to unofficial sources like the SCRA.
2. COMMERCIAL LAW; COMMON CARRIERS; CONTRACT OF CARRIAGE; TICKET-ISSUING
AIRLINE ACTS AS PRINCIPAL IN THE CONTRACT AND IS LIABLE EVEN WHEN THE BREACH
THEREOF HAD OCCURRED NOT ON ITS OWN FLIGHT BUT ON THAT OF ANOTHER AIRLINE. —
It is significant to note that the contract of air transportation was between petitioner and
respondent, with the former endorsing to PAL the Hong Kong-to-Manila segment of the journey.
Such contract of carriage has always been treated in this jurisdiction as a single operation. This
jurisprudential rule is supported by the Warsaw Convention, to which the Philippines is a party,
and by the existing practices of the International Air Transport Association (IATA). In American
Airlines v. Court of Appeals, we have noted that under a general pool partnership agreement,
the ticket-issuing airline is the principal in a contract of carriage, while the endorsee-airline is the
agent. Likewise, as the principal in the contract of carriage, the petitioner in British Airways
v. Court of Appeals was held liable, even when the breach of contract had occurred, not on its
own flight, but on that of another airline. The Decision followed our ruling in Lufthansa German
Airlines v. Court of Appeals, in which we had held that the obligation of the ticket-issuing airline
remained and did not cease, regardless of the fact that another airline had undertaken to carry
the passengers to one of their destinations. In the instant case, following the jurisprudence cited
above, PAL acted as the carrying agent of CAL. In the same way that we ruled against British
Airways and Lufthansa in the aforementioned cases, we also rule that CAL cannot evade liability
to respondent, even though it may have been only a ticket issuer for the Hong Kong-Manila
sector. IHDCcT
3. CIVIL CODE; DAMAGES; MORAL AND EXEMPLARY DAMAGES; AWARD THEREOF IS PROPER
WHERE CARRIER IN BREACHING THE CONTRACT OF CARRIAGE IS SHOWN TO HAVE ACTED
FRAUDULENTLY, WITH MALICE OR IN BAD FAITH. — Time and time again, this Court has
stressed that the business of common carriers is imbued with public interest and duty;
therefore, the law governing them imposes an exacting standard. In Singson v. Court of
Appeals, we said: ". . . [T]he carrier's utter lack of care and sensitivity to the needs of its
passengers, clearly constitutive of gross negligence, recklessness and wanton disregard of the
rights of the latter, [are] acts evidently indistinguishable or no different from fraud, malice and
bad faith. As the rule now stands, where in breaching the contract of carriage the defendant
airline is shown to have acted fraudulently, with malice or in bad faith, the award of moral and
exemplary damages, in addition to actual damages, is proper."
4. ID.; ID.; ID.; CASE AT BAR. — The acts of PAL's employees particularly Chan, clearly fell
short of the extraordinary standard of care that the law requires of common carriers. As
narrated in Chan's oral deposition, the manner in which the airline discharged its responsibility
to respondent and its other passengers manifested a lack of the requisite diligence and due
regard for their welfare. . . .. We stress that respondent had repeatedly secured confirmations of
his PR 311 flight on November 24, 1981 — initially from CAL and subsequently from the PAL
office in Hong Kong. The status of this flight was marked "OK" on a validating sticker placed on
his ticket. That sticker also contained the entry "RMN6V." Ms. Chan explicitly acknowledged that
such entry was a computer reference that meant that respondent's name had been entered in
PAL's computer. Since the status of respondent on Flight PR 311 was "OK," as a matter of right
testified to by PAL's witness, he should have been automatically transferred to and allowed to
board Flight 307 the following day. Clearly resulting from negligence on the part of PAL was its
claim that his name was not included in its list of passengers for the November 24, 1981 PR 311
flight and, consequently, in the list of the replacement flight PR 307. Since he had secured
confirmation of his flight — not only once, but twice — by personally going to the carrier's
offices where he was consistently assured of a seat thereon — PAL's negligence was so gross
and reckless that it amounted to bad faith. In view of the foregoing, we rule that moral and
exemplary damages were properly awarded by the lower courts.
5. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF APPEALS AFFIRMING
THOSE OF THE REGIONAL TRIAL COURT WILL NOT BE DISTURBED. — Both the trial and the
appellate courts found that respondent had satisfactorily proven the existence of the factual
basis for the damages adjudged against petitioner and PAL. As a rule, the findings of fact of the
CA affirming those of the RTC will not be disturbed by this Court. Indeed, the Supreme Court is
not a trier of facts. As a rule also, only questions of law — as in the present recourse — may be
raised in petitions for review under Rule 45.
6. ID.; ACTIONS; PARTIES; INDISPENSABLE PARTY; ELUCIDATED. — For purposes of a ruling
on the cross-claim, PAL is an indispensable party. In BA Finance Corporation v. CA, the Court
stated: ". . . . An indispensable party is one whose interest will be affected by the court's action
in the litigation, and without whom no final determination of the case can be had. The party's
interest in the subject matter of the suit and in the relief sought are so inextricably intertwined
with the other parties that his legal presence as a party to the proceeding is an absolute
necessity. In his absence there cannot be a resolution of the dispute of the parties before the
court which is effective, complete, or equitable. . . . "Without the presence of indispensable
parties to a suit or proceeding, judgment of a court cannot attain real finality." PAL's interest
may be affected by any ruling of this Court on CAL's cross-claim. Hence, it is imperative and in
accordance with due process and fair play that PAL should have been impleaded as a party in
the present proceedings, before this Court can make a final ruling on this matter. Although PAL
was petitioner's co-party in the case before the RTC and the CA, petitioner failed to include the
airline in the present recourse. Hence, the Court has no jurisdiction over it. Consequently, to
make any ruling on the cross-claim in the present Petition would not be legally feasible because
PAL, not being a party in the present case, cannot be bound thereby.
DECISION
PANGANIBAN, J  p:
A common carrier has a peculiar relationship with and an exacting responsibility to its
passengers. For reasons of public interest and policy, the ticket-issuing airline acts as principal in
a contract of carriage and is thus liable for the acts and the omissions of any errant carrier to
which it may have endorsed any sector of the entire, continuous trip.
The Case
Before the Court is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court,
seeking to reverse the August 7, 2001 Decision 2 and the February 7, 2002 Resolution 3 of the
Court of Appeals (CA) in CA-GR CV No. 45832. The challenged Decision disposed as follows:
"WHEREFORE, premises considered, the assailed Decision dated July 5, 1991 of Branch 31,
Regional Trial Court, National Capital Judicial Region, Manila, in Civil Case No. 82-13690, is
hereby MODIFIED by deleting that portion regarding defendants-appellants' liabilities for the
payment of the actual damages amounting to HK$14,128.80 and US$2,000.00 while all other
respects are AFFIRMED. Costs against defendants-appellants." 4
The assailed Resolution denied Petitioner's Motion for Partial Reconsideration.
The Facts
The facts are narrated by the CA 5 as follows:
"On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased from China
Airlines, Ltd. (CAL for brevity) airline passenger ticket number 297:4402:004:278:5 for air
transportation covering Manila-Taipei-Hongkong-Manila. Said ticket was exclusively endorseable
to Philippine Airlines, Ltd. (PAL for brevity).
"Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei using [the] CAL
ticket. Before he left for said trip, the trips covered by the ticket were pre-scheduled and
confirmed by the former. When he arrived in Taipei, he went to the CAL office and confirmed his
Hongkong to Manila trip on board PAL Flight No. PR 311. The CAL office attached a yellow
sticker appropriately indicating that his flight status was OK.
"When Chiok reached Hongkong, he went to the PAL office and sought to reconfirm his flight
back to Manila. The PAL office confirmed his return trip on board Flight No. PR 311 and attached
its own sticker. On November 24, 1981, Chiok proceeded to Hongkong International Airport for
his return trip to Manila. However, upon reaching the PAL counter, Chiok saw a poster stating
that PAL Flight No. PR 311 was cancelled because of a typhoon in Manila. He was then informed
that all the confirmed ticket holders of PAL Flight No. PR 311 were automatically booked for its
next flight, which was to leave the next day. He then informed PAL personnel that, being the
founding director of the Philippine Polysterene Paper Corporation, he ha[d] to reach Manila on
November 25, 1981 because of a business option which he ha[d] to execute on said date.
"On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess Lok Chan
(hereafter referred to as Lok) ha[d] taken and received Chiok's plane ticket and his luggage. Lok
called the attention of Carmen Chan (hereafter referred to as Carmen), PAL's terminal
supervisor, and informed the latter that Chiok's name was not in the computer list of
passengers. Subsequently, Carmen informed Chiok that his name did not appear in PAL's
computer list of passengers and therefore could not be permitted to board PAL Flight No. PR
307.
"Meanwhile, Chiok requested Carmen to put into writing the alleged reason why he was not
allowed to take his flight. The latter then wrote the following, to wit: ' PAL STAFF CARMEN CHAN
CHKD WITH R/C KENNY AT 1005H NO SUCH NAME IN COMPUTER FOR 311/24 NOV AND
307/25 NOV,' The latter sought to recover his luggage but found only 2 which were placed at
the end of the passengers line. Realizing that his new Samsonite luggage was missing, which
contained cosmetics worth HK$14,128.80, he complained to Carmen.
"Thereafter, Chiok proceeded to PAL's Hongkong office and confronted PAL's reservation officer,
Carie Chao (hereafter referred to as Chao), who previously confirmed his flight back to Manila.
Chao told Chiok that his name was on the list and pointed to the latter his computer number
listed on the PAL confirmation sticker attached to his plane ticket, which number was ' R/MN62'.
"Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5 and asked Chao if
this ticket could be used to book him for the said flight. The latter, once again, booked and
confirmed the former's trip this time on board PAL Flight No. PR 311 scheduled to depart that
evening. Later, Chiok went to the PAL check-in counter and it was Carmen who attended to him.
As this juncture, Chiok had already placed his travel documents, including his clutch bag, on top
of the PAL check-in counter.
"Thereafter, Carmen directed PAL personnel to transfer counters. In the ensuing commotion,
Chiok lost his clutch bag containing the following, to wit: (a) $2,000.00; (b) HK$2,000.00; (c)
Taipei $8,000.00; (d) P2,000.00; (e) a three-piece set of gold (18 carats) cross pens valued at
P3,500; (f) a Cartier watch worth about P7,500.00; (g) a tie clip with a garnet birthstone and
diamond worth P1,800.00; and (h) a [pair of] Christian Dior reading glasses. Subsequently, he
was placed on stand-by and at around 7:30 p.m., PAL personnel informed him that he could
now check-in.
"Consequently, Chiok as plaintiff, filed a Complaint  on November 9, 1982 for damages, against
PAL and CAL, as defendants, docketed as Civil Case No. 82-13690, with Branch 31, Regional
Trial Court, National Capital Judicial Region, Manila.
"He alleged therein that despite several confirmations of his flight, defendant PAL refused to
accommodate him in Flight No. 307, for which reason he lost the business option
aforementioned. He also alleged that PAL's personnel, specifically Carmen, ridiculed and
humiliated him in the presence of so many people. Further, he alleged that defendants are
solidarily liable for the damages he suffered, since one is the agent of the other." 6
The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and severally liable to
respondent. It did not, however, rule on their respective cross-claims. It disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants to
jointly and severally pay:
1. Actual damages in the amount of HK$14,128.80 or its equivalent in Philippine Currency at the
time of the loss of the luggage consisting of cosmetic products;
2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag containing the money;
3. P200,000.00 by way of moral damages;
4. P50,000.00 by way of exemplary damages or corrective damages;
5. Attorney[']s fees equivalent to 10% of the amounts due and demandable and awarded in
favor of the plaintiff; and
6. The costs of this proceedings." 7
The two carriers appealed the RTC Decision to the CA.
Ruling of the Court of Appeals
Affirming the RTC, the Court of Appeals debunked petitioner's claim that it had merely acted as
an issuing agent for the ticket covering the Hong Kong-Manila leg of respondent's journey. In
support of its Decision, the CA quoted a purported ruling of this Court in  KLM Loyal Dutch
Airlines v. Court of Appeals 8 as follows:
"Article 30 of the Warsaw providing that in case of transportation to be performed by various
successive carriers, the passenger can take action only against the carrier who performed the
transportation during which the accident or the delay occurred presupposes the occurrence of
either an accident or delay in the course of the air trip, and does not apply if the damage is
caused by the willful misconduct on the part of the carrier's employee or agent acting within the
scope of his employment.
"It would be unfair and inequitable to charge a passenger with automatic knowledge or notice of
a condition which purportedly would excuse the carrier from liability, where the notice is written
at the back of the ticket in letters so small that one has to use a magnifying glass to read the
words. To preclude any doubt that the contract was fairly and freely agreed upon when the
passenger accepted the passage ticket, the carrier who issued the ticket must inform the
passenger of the conditions prescribed in the ticket or, in the very least, ascertain that the
passenger read them before he accepted the passage ticket. Absent any showing that the
carrier's officials or employees discharged this responsibility to the passenger, the latter cannot
be bound by the conditions by which the carrier assumed the role of a mere ticket-issuing agent
for other airlines and limited its liability only to untoward occurrences in its own lines.
"Where the passage tickets provide that the carriage to be performed thereunder by several
successive carriers 'is to be regarded as a single operation,' the carrier which issued the tickets
for the entire trip in effect guaranteed to the passenger that the latter shall have sure space in
the various carriers which would ferry him through the various segments of the trip, and the
ticket-issuing carrier assumes full responsibility for the entire trip and shall be held accountable
for the breach of that guaranty whether the breach occurred in its own lines or in those of the
other carriers." 9
On PAL's appeal, the appellate court held that the carrier had reneged on its obligation to
transport respondent when, in spite of the confirmations he had secured for Flight PR 311, his
name did not appear in the computerized list of passengers. Ruling that the airline's negligence
was the proximate cause of his excoriating experience, the appellate court sustained the award
of moral and exemplary damages.
The CA, however, deleted the RTC's award of actual damages amounting to HK$14,128.80 and
US$2,000.00, because the lost piece of luggage and clutch bag had not actually been "checked
in" or delivered to PAL for transportation to Manila.
On August 28, 2001, petitioner filed a Motion for Partial Reconsideration, contending that the
appellate court had erroneously relied on a mere syllabus of KLM v. CA, not on the actual ruling
therein. Moreover, it argued that respondent was fully aware that the booking for the PAL sector
had been made only upon his request; and that only PAL, not CAL, was liable for the actual
carriage of that segment. Petitioner likewise prayed for a ruling on its cross-claim against PAL,
inasmuch as the latter's employees had acted negligently, as found by the trial court.
Denying the Motion, the appellate court ruled that petitioner had failed to raise any new matter
or issue that would warrant a modification or a reversal of the Decision. As to the alleged
misquotation, the CA held that while the portion it had cited appeared to be different from the
wording of the actual ruling, the variance was "more apparent than real since the difference
[was] only in form and not in substance." 10
CAL and PAL filed separate Petitions to assail the CA Decision. In its October 3, 2001 Resolution,
this Court denied PAL's appeal, docketed as GR No. 149544, for failure to serve the CA a copy of
the Petition as required by Section 3, Rule 45, in relation to Section 5(d) of Rule 56 and
paragraph 2 of Revised Circular No. 1-88 of this Court. PAL's Motion for Reconsideration was
denied with finality on January 21, 2002.
Only the appeal of CAL 11 remains in this Court.
Issues
In its Memorandum, petitioner raises the following issues for the Court's consideration:
"1. The Court of Appeals committed judicial misconduct in finding liability against the petitioner
on the basis of a misquotation from KLM Royal Dutch Airlines vs. Court of Appeals, et al. , 65
SCRA 237 and in magnifying its misconduct by denying the petitioner's Motion for
Reconsideration on a mere syllabus, unofficial at that.
"2. The Court of Appeals committed an error of law when it did not apply applicable precedents
on the case before it.
"3. The Court of Appeals committed a non sequitur when it did not rule on the cross-claim of the
petitioner." 12
The Court's Ruling
The Petition is not meritorious.
First Issue:
Alleged Judicial Misconduct
Petitioner charges the CA with judicial misconduct for quoting from and basing its ruling against
the two airlines on an unofficial syllabus of this Court's ruling in KLM v. CA. Moreover, such
misconduct was allegedly aggravated when the CA, in an attempt to justify its action, held that
the difference between the actual ruling and the syllabus was "more apparent than real." 13
We agree with petitioner that the CA committed a lapse when it relied merely on the unofficial
syllabus of our ruling in KLM v. CA. Indeed, lawyers and litigants are mandated to quote
decisions of this Court accurately. 14 By the same token, judges should do no less by strictly
abiding by this rule when they quote cases that support their judgments and decisions. Canon 3
of the Code of Judicial Conduct enjoins them to perform official duties diligently by being faithful
to the law and maintaining their professional competence.
However, since this case is not administrative in nature, we cannot rule on the CA justices'
administrative liability, if any, for this lapse. First, due process requires that in administrative
proceedings, the respondents must first be given an opportunity to be heard before sanctions
can be imposed. Second, the present action is an appeal from the CA's Decision, not an
administrative case against the magistrates concerned. These two suits are independent of and
separate from each other and cannot be mixed in the same proceedings.
By merely including the lapse as an assigned error here without any adequate and proper
administrative case therefor, petitioner cannot expect the imposition of an administrative
sanction.
In the case at bar, we can only determine whether the error in quotation would be sufficient to
reverse or modify the CA Decision.
Applicability of KLM v. CA
In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their world tour.
The tour included a Barcelona-Lourdes route, which was serviced by the Irish airline Aer Lingus.
At the KLM office in Frankfurt, Germany, they obtained a confirmation from Aer Lingus of their
seat reservations on its Flight 861. On the day of their departure, however, the airline rudely
off-loaded them.
When sued for breach of contract, KLM sought to be excused for the wrongful conduct of Aer
Lingus by arguing that its liability for damages was limited only to occurrences on its own
sectors. To support its argument, it cited Article 30 of the Warsaw Convention, stating that
when transportation was to be performed by various successive carriers, the passenger could
take action only against the carrier that had performed the transportation when the accident or
delay occurred.
In holding KLM liable for damages, we ruled as follows:
"1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be
sustained. That article presupposes the occurrence of either an accident or a delay, neither of
which took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus,
through its manager there, refused to transport the respondents to their planned and contracted
destination.
"2. The argument that the KLM should not be held accountable for the tortious conduct of Aer
Lingus because of the provision printed on the respondents' tickets expressly limiting the KLM's
liability for damages only to occurrences on its own lines is unacceptable. As noted by the Court
of Appeals that condition was printed in letters so small that one would have to use a
magnifying glass to read the words. Under the circumstances, it would be unfair and inequitable
to charge the respondents with automatic knowledge or notice of the said condition so as to
preclude any doubt that it was fairly and freely agreed upon by the respondents when they
accepted the passage tickets issued to them by the KLM. As the airline which issued those
tickets with the knowledge that the respondents would be flown on the various legs of their
journey by different air carriers, the KLM was chargeable with the duty and responsibility of
specifically informing the respondents of conditions prescribed in their tickets or, in the very
least, to ascertain that the respondents read them before they accepted their passage tickets. A
thorough search of the record, however, inexplicably fails to show that any effort was exerted
by the KLM officials or employees to discharge in a proper manner this responsibility to the
respondents. Consequently, we hold that the respondents cannot be bound by the provision in
question by which KLM unilaterally assumed the role of a mere ticket-issuing agent for other
airlines and limited its liability only to untoward occurrences on its own lines.
"3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets
of the respondents provide that the carriage to be performed thereunder by several successive
carriers 'is to be regarded as a single operation,' which is diametrically incompatible with the
theory of the KLM that the respondents entered into a series of independent contracts with the
carriers which took them on the various segments of their trip. This position of KLM we reject.
The respondents dealt exclusively with the KLM which issued them tickets for their entire trip
and which in effect guaranteed to them that they would have sure space in Aer Lingus flight
861. The respondents, under that assurance of the internationally prestigious KLM, naturally had
the right to expect that their tickets would be honored by Aer Lingus to which, in the legal
sense, the KLM had indorsed and in effect guaranteed the performance of its principal
engagement to carry out the respondents' scheduled itinerary previously and mutually agreed
upon between the parties.
"4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary
conduct of an official of the Aer Lingus which the KLM had engaged to transport the
respondents on the Barcelona-Lourdes segment of their itinerary, it is but just and in full accord
with the policy expressly embodied in our civil law which enjoins courts to be more vigilant for
the protection of a contracting party who occupies an inferior position with respect to the other
contracting party, that the KLM should be held responsible for the abuse, injury and
embarrassment suffered by the respondents at the hands of a supercilious boor of the Aer
Lingus." 15
In the instant case, the CA ruled that under the contract of transportation, petitioner — as the
ticket-issuing carrier (like KLM) — was liable regardless of the fact that PAL was to perform or
had performed the actual carriage. It elucidated on this point as follows:
"By the very nature of their contract, defendant-appellant CAL is clearly liable under the contract
of carriage with [respondent] and remains to be so, regardless of those instances when actual
carriage was to be performed by another carrier. The issuance of a confirmed CAL ticket in favor
of [respondent] covering his entire trip abroad concretely attests to this. This also serves as
proof that defendant-appellant CAL, in effect guaranteed that the carrier, such as defendant-
appellant PAL would honor his ticket, assure him of a space therein and transport him on a
particular segment of his trip." 16
Notwithstanding the errant quotation, we have found after careful deliberation that the assailed
Decision is supported in substance by KLM v. CA. The misquotation by the CA cannot serve as
basis for the reversal of its ruling.
Nonetheless, to avert similar incidents in the future, this Court hereby exhorts members of the
bar and the bench to refer to and quote from the official repository of our decisions,
the Philippine Reports, whenever practicable. 17 In the absence of this primary source, which is
still being updated, they may resort to unofficial sources like the SCRA. 18 We remind them that
the Court's ponencia, when used to support a judgment or ruling, should be quoted
accurately. 19
Second Issue:
Liability of the Ticket-Issuing Airline
We now come to the main issue of whether CAL is liable for damages. Petitioner posits that the
CA Decision must be annulled, not only because it was rooted on an erroneous quotation, but
also because it disregarded jurisprudence, notably China Airlines v. Intermediate Appellate
Court 20 and China Airlines v. Court of Appeals. 21
Jurisprudence Supports CA Decision
It is significant to note that the contract of air transportation was between petitioner and
respondent, with the former endorsing to PAL the Hong Kong-to-Manila segment of the journey.
Such contract of carriage has always been treated in this jurisdiction as a single operation. This
jurisprudential rule is supported by the Warsaw Convention, 22 to which the Philippines is a
party, and by the existing practices of the International Air Transport Association (IATA).
Article 1, Section 3 of the Warsaw Convention states:
"Transportation to be performed by several successive air carriers shall be deemed, for the
purposes of this Convention, to be one undivided transportation, if it has been regarded by the
parties as a single operation, whether it has been agreed upon under the form of a single
contract or of a series of contracts, and it shall not lose its international character merely
because one contract or a series of contracts is to be performed entirely within a territory
subject to the sovereignty, suzerainty, mandate, or authority of the same High Contracting
Party." 23
Article 15 of IATA-Recommended Practice similarly provides:
"Carriage to be performed by several successive carriers under one ticket, or under a ticket and
any conjunction ticket issued therewith, is regarded as a single operation."
In American Airlines v. Court of Appeals , 24 we have noted that under a general pool
partnership agreement, the ticket-issuing airline is the principal in a contract of carriage, while
the endorsee-airline is the agent.
". . . Members of the IATA are under a general pool partnership agreement wherein they act as
agent of each other in the issuance of tickets to contracted passengers to boost ticket sales
worldwide and at the same time provide passengers easy access to airlines which are otherwise
inaccessible in some parts of the world. Booking and reservation among airline members are
allowed even by telephone and it has become and accepted practice among them. A member
airline which enters into a contract of carriage consisting of a series of trips to be performed by
different carriers is authorized to receive the fare for the whole trip and through the required
process of interline settlement of accounts by way of the IATA clearing house an airline is duly
compensated for the segment of the trip serviced. Thus, when the petitioner accepted the
unused portion of the conjunction tickets, entered it in the IATA clearing house and undertook
to transport the private respondent over the route covered by the unused portion of the
conjunction tickets, i.e., Geneva to New York, the petitioner tacitly recognized its commitment
under the IATA pool arrangement to act as agent of the principal contracting airline, Singapore
Airlines, as to the segment of the trip the petitioner agreed to undertake. As such, the petitioner
thereby assumed the obligation to take the place of the carrier originally designated in the
original conjunction ticket. The petitioner's argument that it is not a designated carrier in the
original conjunction tickets and that it issued its own ticket is not decisive of its liability. The new
ticket was simply a replacement for the unused portion of the conjunction ticket, both tickets
being for the same amount of US$2,760 and having the same points of departure and
destination. By constituting itself as an agent of the principal carrier the petitioner's undertaking
should be taken as part of a single operation under the contract of carriage executed by the
private respondent and Singapore Airlines in Manila." 25
Likewise, as the principal in the contract of carriage, the petitioner in British Airways v. Court of
Appeals 26 was held liable, even when the breach of contract had occurred, not on its own
flight, but on that of another airline. The Decision followed our ruling in Lufthansa German
Airlines v. Court of Appeals, 27 in which we had held that the obligation of the ticket-issuing
airline remained and did not cease, regardless of the fact that another airline had undertaken to
carry the passengers to one of their destinations.
In the instant case, following the jurisprudence cited above, PAL acted as the carrying agent of
CAL. In the same way that we ruled against British Airways and Lufthansa in the
aforementioned cases, we also rule that CAL cannot evade liability to respondent, even though it
may have been only a ticket issuer for the Hong Kong-Manila sector.
Moral and Exemplary Damages
Both the trial and the appellate courts found that respondent had satisfactorily proven the
existence of the factual basis for the damages adjudged against petitioner and PAL. As a rule,
the findings of fact of the CA affirming those of the RTC will not be disturbed by this
Court. 28 Indeed, the Supreme Court is not a trier of facts. As a rule also, only questions of law
— as in the present recourse — may be raised in petitions for review under Rule 45.
Moral damages cannot be awarded in breaches of carriage contracts, except in the two
instances contemplated in Articles 1764 and 2220 of the Civil Code, which we quote:
"Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with
Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a
passenger caused by the breach of contract by a common carrier.
xxx xxx xxx
"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 ."
(Emphasis supplied)
There is no occasion for us to invoke Article 1764 here. We must therefore determine if CAL or
its agent (PAL) is guilty of bad faith that would entitle respondent to moral damages.
In Lopez v. Pan American World Airways , 29 we defined bad faith  as a breach of a known duty
through some motive of interest or ill will.
In the case at bar, the known duty of PAL was to transport herein respondent from Hong Kong
to Manila. That duty arose when its agent confirmed his reservation for Flight PR 311,  30 and it
became demandable when he presented himself for the trip on November 24, 1981.
It is true that due to a typhoon, PAL was unable to transport respondent on Flight PR 311 on
November 24, 1981. This fact, however, did not terminate the carrier's responsibility to its
passengers. PAL voluntarily obligated itself to automatically transfer all confirmed passengers of
PR 311 to the next available flight, PR 307, on the following day. 31 That responsibility was
subsisting when respondent, holding a confirmed ticket for the former flight, presented himself
for the latter.
The records amply establish that he secured repeated confirmations of his PR 311 flight on
November 24, 1981. Hence, he had every reason to expect that he would be put on the
replacement flight as a confirmed passenger. Instead, he was harangued and prevented from
boarding the original and the replacement flights. Thus, PAL breached its duty to transport him.
After he had been directed to pay the terminal fee, his pieces of luggage were removed from
the weighing-in counter despite his protestations. 32
It is relevant to point out that the employees of PAL were utterly insensitive to his need to be in
Manila on November 25, 1981, and to the likelihood that his business affairs in the city would be
jeopardized because of a mistake on their part. It was that mistake that had caused the
omission of his name from the passenger list despite his confirmed flight ticket. By merely
looking at his ticket and validation sticker, it is evident that the glitch was the airline's fault.
However, no serious attempt was made by PAL to secure the all-important transportation of
respondent to Manila on the following day. To make matters worse, PAL allowed a group of
non-revenue passengers, who had no confirmed tickets or reservations, to board Flight PR
307. 33
Time and time again, this Court has stressed that the business of common carriers is imbued
with public interest and duty; therefore, the law governing them imposes an exacting
standard. 34 In Singson v. Court of Appeals, 35 we said:
". . . [T]he carrier's utter lack of care and sensitivity to the needs of its passengers, clearly
constitutive of gross negligence, recklessness and wanton disregard of the rights of the latter,
[are] acts evidently indistinguishable or no different from fraud, malice and bad faith . As the
rule now stands, where in breaching the contract of carriage the defendant airline is shown to
have acted fraudulently, with malice or in bad faith, the award of moral and exemplary
damages, in addition to actual damages, is proper." 36 (Emphasis supplied)
In Saludo v. Court of Appeals, 37 the Court reminded airline companies that due to the nature
of their business, they must not merely give cursory instructions to their personnel to be more
accommodating towards customers, passengers and the general public; they must require  them
to be so.
The acts of PAL's employees, particularly Chan, clearly fell short of the extraordinary standard of
care that the law requires of common carriers. 38 As narrated in Chan's oral deposition, 39 the
manner in which the airline discharged its responsibility to respondent and its other passengers
manifested a lack of the requisite diligence and due regard for their welfare. The pertinent
portions of the Oral Deposition are reproduced as follows:
"Q Now you said that flight PR 311 on 24th November was cancelled due to [a] typhoon and
naturally the passengers on said flight had to be accommodated on the first flight the following
day or the first flight subsequently. [W]ill you tell the Honorable Deposition Officer the
procedure followed by Philippine Airlines in the handling of passengers of cancelled flight[s] like
that of PR 311 which was cancelled due to [a] typhoon?
A The procedure will be: all the confirmed passengers from [PR] 311 24th November [are]
automatically transfer[red] to [PR] 307, 25th November[,] as a protection for all disconfirmed
passengers.
Q Aside from this procedure[,] what do you do with the passengers on the cancelled flight who
are expected to check-in on the flights if this flight is cancelled or not operating due to typhoon
or other reasons[?] In other words, are they not notified of the cancellation?
A I think all these passengers were not notified because of a typhoon and Philippine Airlines
Reservation were [sic] not able to call every passenger by phone.
Atty. Fruto:
Q Did you say "were not notified?'
A I believe they were not, but believe me, I was on day-off.
Atty. Calica:
Q Per procedure, what should have been done by Reservations Office when a flight is cancelled
for one reason or another?
A If there is enough time, of course, Reservations Office . . . call[s] up all the passengers and
tell[s] them the reason. But if there [is] no time[,] then the Reservations Office will not be able
to do that." 40
xxx xxx xxx
"Q I see. Miss Chan, I [will] show you a ticket which has been marked as Exh. A and A-1. Will
you please go over this ticket and tell the court whether this is the ticket that was used precisely
by Mr. Chiok when he checked-in at [F]light 307, 25 November '81?
A [Are you] now asking me whether he used this ticket with this sticker?
Q No, no, no. That was the ticket he used.
A Yes, [are you] asking me whether I saw this ticket?
Atty. Fruto: Yes.
A I believe I saw it.
Q You saw it, O.K. Now of course you will agree with me Miss Chan that this yellow stub here
which has been marked as Exh. A-1-A, show[s] that the status on flight 311, 24th November, is
O.K., correct?
A Yes.
Q You agree with me. And you will also agree with me that in this ticket of flight 311, on this,
another sticker Exh. A-1-B for 24 November is O.K.?
A May I . . . look at them. Yes, it says O.K. . . .; but [there is] no validation.
Q O.K. Miss Chan what do you understand by these entries here R bar M N 6 V? 41
A This is what we call a computer reference.
Q I see. This is a computer reference showing that the name of Mr. Chiok has been entered in
Philippine Airline's computer, and this is his computer number.
A Yes.
Q Now you stated in your answer to the procedure taken, that all confirmed passengers on flight
311, 24 November[,] were automatically transferred to 307 as a protection for the passengers,
correct?
A Correct.
Q So that since following the O.K. status of Mr. Chiok's reservation [on] flight 311, [he] was also
automatically transferred to flight 307 the following day?
A Should be.
Q Should be. O.K. Now do you remember how many passengers . . . were transferred from
flight 311, 24 November to flight 307, 25 November 81?
A I can only give you a very brief idea because that was supposed to be air bus so it should be
able to accommodate 246 people; but how many [exactly], I don't know." 42
xxx xxx xxx
"Q So, between six and eight o'clock in the evening of 25 November '81, Mr. Chiok already told
you that he just [came] from the Swire Building where Philippine Airlines had [its] offices and
that he told you that his space for 311 25 November 81 was confirmed?
A Yes.
Q That is what he told you. He insisted on that flight?
A Yes.
Q And did you not try to call up Swire Building — Philippine Airlines and verify indeed if Mr.
Chiok was there?
A Swire House building is not directly under Philippine Airlines. It is just an agency for selling
Philippine Airlines ticket. And besides around six o'clock they're close[d] in Central.
Q So this Swire Building is an agency authorized by Philippine Airlines to issue tickets for and on
behalf of Philippine Airlines and also . . .
A Yes.
Q And also to confirm spaces for and on behalf of Philippine Airlines.
A Yes." 43
Under the foregoing circumstances, we cannot apply our 1989 ruling in China Airlines v.
Intermediate Appellate Court, 44 which petitioner urges us to adopt. In that case, the breach of
contract and the negligence of the carrier in effecting the immediate flight connection for therein
private respondent was incurred in good faith. 45 Having found no gross negligence or
recklessness, we thereby deleted the award of moral and exemplary damages against it. 46
This Court's 1992 ruling in China Airlines v. Court of Appeals  47 is likewise inapplicable. In that
case, we found no bad faith or malice in the airline's breach of its contractual obligation.  48 We
held that, as shown by the flow of telexes from one of the airline's offices to the others,
petitioner therein had exercised diligent efforts in assisting the private respondent change his
flight schedule. In the instant case, petitioner failed to exhibit the same care and sensitivity to
respondent's needs.
In Singson v. Court of Appeals, 49 we said:
". . . Although the rule is that moral damages predicated upon a breach of contract of carriage
may only be recoverable in instances where the mishap results in the death of a passenger, or
where the carrier is guilty of fraud or bad faith, there are situations where the negligence of the
carrier is so gross and reckless as to virtually amount to bad faith, in which case, the passenger
likewise becomes entitled to recover moral damages."
In the present case, we stress that respondent had repeatedly secured confirmations of his PR
311 flight on November 24, 1981 — initially from CAL and subsequently from the PAL office in
Hong Kong. The status of this flight was marked "OK" on a validating sticker placed on his
ticket. That sticker also contained the entry "RMN6V." Ms Chan explicitly acknowledged that
such entry was a computer reference that meant that respondent's name had been entered in
PAL's computer.
Since the status of respondent on Flight PR 311 was "OK," as a matter of right testified to by
PAL's witness, he should have been automatically transferred to and allowed to board Flight 307
the following day. Clearly resulting from negligence on the part of PAL was its claim that his
name was not included in its list of passengers for the November 24, 1981 PR 311 flight and,
consequently, in the list of the replacement flight PR 307. Since he had secured confirmation of
his flight — not only once, but twice — by personally going to the carrier's offices where he was
consistently assured of a seat thereon — PAL's negligence was so gross and reckless that it
amounted to bad faith.
In view of the foregoing, we rule that moral and exemplary 50 damages were properly awarded
by the lower courts. 51
Third Issue:
Propriety of the Cross-Claim
We now look into the propriety of the ruling on CAL's cross-claim against PAL. Petitioner submits
that the CA should have ruled on the cross-claim, considering that the RTC had found that it
was PAL's employees who had acted negligently.
Section 8 of Rule 6 of the Rules of Court reads:
"Sec. 8. Cross-claim. — A cross claim is any claim by one party against a co-party arising out of
the transaction or occurrence that is the subject matter either of the original action or of a
counterclaim therein. Such cross-claim may include a claim that the party against whom it is
asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action
against the cross-claimant."
For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA Finance
Corporation v. CA, 52 the Court stated:
". . .. An indispensable party is one whose interest will be affected by the court's action in the
litigation, and without whom no final determination of the case can be had. The party's interest
in the subject matter of the suit and in the relief sought are so inextricably intertwined with the
other parties that his legal presence as a party to the proceeding is an absolute necessity. In his
absence there cannot be a resolution of the dispute of the parties before the court which is
effective, complete, or equitable.

xxx xxx xxx

"Without the presence of indispensable parties to a suit or proceeding, judgment of a court

cannot attain real finality."

PAL's interest may be affected by any ruling of this Court on CAL's cross-claim. Hence, it is
imperative and in accordance with due process and fair play that PAL should have been
impleaded as a party in the present proceedings, before this Court can make a final ruling on
this matter. DSAEIT

Although PAL was petitioner's co-party in the case before the RTC and the CA, petitioner failed
to include the airline in the present recourse. Hence, the Court has no jurisdiction over it.
Consequently, to make any ruling on the cross-claim in the present Petition would not be legally
feasible because PAL, not being a party in the present case, cannot be bound thereby. 53

WHEREFORE, the Petition is DENIED. Costs against petitioner.

SO ORDERED.

Puno, Corona and Carpio-Morales, JJ ., concur.

Sandoval-Gutierrez, J ., on official leave.

||| (China Airlines v. Chiok, G.R. No. 152122, [July 30, 2003], 455 PHIL 169-195)