G.R. No.

L-16598 October 3, 1921

H. E. HEACOCK COMPANY, plaintiff-appellant,

vs.

MACONDRAY & COMPANY, INC., defendant-appellant.

Fisher & DeWitt for plaintiff-appellant.

Wolfson, Wolfson & Schwarzkopf for defendant-appellant.

JOHNSON, J.:

This action was commenced in the Court of First Instance of the City of Manila to recover the sum of P240 together
with interest thereon. The facts are stipulated by the parties, and are, briefly, as follows:

(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board of steamship Bolton Castle,
then in the harbor of New York, four cases of merchandise one of which contained twelve (12) 8-day Edmond clocks
properly boxed and marked for transportation to Manila, and paid freight on said clocks from New York to Manila in
advance. The said steampship arrived in the port of Manila on or about the 10th day of September, 1919, consigned
to the defendant herein as agent and representative of said vessel in said port. Neither the master of said vessel nor
the defendant herein, as its agent, delivered to the plaintiff the aforesaid twelve 8-day Edmond clocks, although
demand was made upon them for their delivery.

(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New York was P22 and the market value
of the same in the City of Manila at the time when they should have been delivered to the plaintiff was P420.

(3) The bill of lading issued and delivered to the plaintiff by the master of the said steamship Bolton Castle
contained, among others, the following clauses:

1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton, or, in
proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid thereon.

9. Also, that in the event of claims for short delivery of, or damage to, cargo being made, the carrier shall not be
liable for more than the net invoice price plus freight and insurance less all charges saved, and any loss or damage
for which the carrier may be liable shall be adjusted pro rata on the said basis.
(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet, and the freight ton value
thereof was $1,480, U. S. currency.

(5) No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff on the aforesaid clocks,
and no ad valorem freight was paid thereon.

(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the proportionate freight ton value
of the aforesaid twelve 8-day Edmond clocks, in payment of plaintiff's claim, which tender plaintiff rejected.

The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered judgment in favor of the
plaintiff against the defendant for the sum of P226.02, this being the invoice value of the clocks in question plus the
freight and insurance thereon, with legal interest thereon from November 20, 1919, the date of the complaint,
together with costs. From that judgment both parties appealed to this court.

The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of the clocks in
question, to wit: the sum of P420. The defendant-appellant, on the other hand, contends that, in accordance with
clause 1 of the bill of lading, the plaintiff is entitled to recover only the sum of P76.36, the proportionate freight ton
value of the said clocks. The claim of the plaintiff is based upon the argument that the two clause in the bill of lading
above quoted, limiting the liability of the carrier, are contrary to public order and, therefore, null and void. The
defendant, on the other hand, contends that both of said clauses are valid, and the clause 1 should have been applied
by the lower court instead of clause 9.

I. The appeal of the plaintiff presents this question; May a common carrier, by stipulations inserted in the bill of
lading, limit its liability for the loss of or damage to the cargo to an agreed valuation of the latter? 1awph!l.net

Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from any
and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified
limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost
uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy,
but the third is valid and enforceable.

The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of February 13, 1893]:
Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express Co., 4 McAr., 124; 48 Am. Rep., 742)
support the proposition that the first and second stipulations in a bill of lading are invalid which either exempt the
carrier from liability for loss or damage occasioned by its negligence, or provide for an unqualified limitation of
such liability to an agreed valuation.

A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that the present case falls
within the third stipulation, to wit: That a clause in a bill of lading limiting the liability of the carrier to a certain
amount unless the shipper declares a higher value and pays a higher rate of freight, is valid and enforceable. This
proposition is supported by a uniform lien of decisions of the Supreme Court of the United States rendered both
prior and subsequent to the passage of the Harter Act, from the case of Hart vs. Pennsylvania R. R. Co. (decided
Nov. 24, 1884; 112 U. S., 331), to the case of the Union Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921, Advance
Opinions, 1920-1921, p. 318).

In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of carriage, signed by the
shipper, is fairly made with a railroad company, agreeing on a valuation of the property carried, with the rate of
freight based on the condition that the carrier assumes liability only to the extent of the agreed valuation, even in
case of loss or damage by the negligence of the carrier, the contract will be upheld as proper and lawful mode of
securing a due proportion between the amount for which the carrier may be responsible and the freight he receives,
and protecting himself against extravagant and fanciful valuations."

In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases, from the decision in Hart
vs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed., 717; 5 Sup. Ct. Rep., 151, decided in 1884), to Boston and M.
R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it
has been declared to be the settled Federal law that if a common carrier gives to a shipper the choice of two rates,
the lower of the conditioned upon his agreeing to a stipulated valuation of his property in case of loss, even by the
carrier's negligence, if the shipper makes such a choice, understandingly and freely, and names his valuation, he
cannot thereafter recover more than the value which he thus places upon his property. As a matter of legal
distinction, estoppel is made the basis of this ruling, — that, having accepted the benefit of the lower rate, in
common honesty the shipper may not repudiate the conditions on which it was obtained, — but the rule and the
effect of it are clearly established."

The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement with a shipper, limit its
liability in case of the loss by negligence of an interstate shipment to less than the real value thereof, unless the
shipper is given a choice of rates, based on valuation."

A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with any sound principle
of public policy; and it is not conformable to plain principles of justice that a shipper may understate value in order
to reduce the rate and then recover a larger value in case of loss. (Adams Express Co. vs. Croninger 226 U. S. 491,
492.) See also Reid vs. Farbo (130 C. C. A., 285); Jennings vs. Smith (45 C. C. A., 249); George N. Pierce Co. vs.
Wells, Fargo and Co. (227 U. S., 278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S., 469).

It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading here in question are not
contrary to public order. Article 1255 of the Civil Code provides that "the contracting parties may establish any
agreements, terms and conditions they may deem advisable, provided they are not contrary to law, morals or public
order." Said clauses of the bill of lading are, therefore, valid and binding upon the parties thereto.

II. The question presented by the appeal of the defendant is whether clause 1 or clause 9 of the bill of lading here in
question is to be adopted as the measure of defendant's liability. Clause 1 provides as follows:

1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton, or, in
proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid thereon.
Clause 9 provides:
9. Also, that in the even of claims for short delivery of, or damage to, cargo being made, the carrier shall not be
liable for more than the net invoice price plus freight and insurance less all charges saved, and any loss or damage
for which the carrier may be liable shall be adjusted pro rata on the said basis.

The defendant-appellant contends that these two clauses, if construed together, mean that the shipper and the carrier
stipulate and agree that the value of the goods receipted for does not exceed $500 per freight ton, but should the
invoice value of the goods be less than $500 per freight ton, then the invoice value governs; that since in this case
the invoice value is more than $500 per freight ton, the latter valuation should be adopted and that according to that
valuation, the proportionate value of the clocks in question is only P76.36 which the defendant is ready and willing
to pay to the plaintiff.

It will be noted, however, that whereas clause 1 contains only an implied undertaking to settle in case of loss on the
basis of not exceeding $500 per freight ton, clause 9 contains an express undertaking to settle on the basis of the net
invoice price plus freight and insurance less all charges saved. "Any loss or damage for which the carrier may be
liable shall be adjusted pro rata on the said basis," clause 9 expressly provides. It seems to us that there is an
irreconcilable conflict between the two clauses with regard to the measure of defendant's liability. It is difficult to
reconcile them without doing violence to the language used and reading exceptions and conditions into the
undertaking contained in clause 9 that are not there. This being the case, the bill of lading in question should be
interpreted against the defendant carrier, which drew said contract. "A written contract should, in case of doubt, be
interpreted against the party who has drawn the contract." (6 R. C. L. 854.) It is a well-known principle of
construction that ambiguity or uncertainty in an agreement must be construed most strongly against the party
causing it. (6 R. C. L., 855.) These rules as applicable to contracts contained in bills of lading. "In construing a bill
of lading given by the carrier for the safe transportation and delivery of goods shipped by a consignor, the contract
will be construed most strongly against the carrier, and favorably to the consignor, in case of doubt in any matter of
construction." (Alabama, etc. R. R. Co. vs. Thomas, 89 Ala., 294; 18 Am. St. Rep., 119.)

It follows from all of the foregoing that the judgment appealed from should be affirmed, without any finding as to
costs. So ordered.

G.R. No. L-20099 July 7, 1966

PARMANAND SHEWARAM, plaintiff and appellee,

vs.

PHILIPPINE AIR LINES, INC., defendant and appellant.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant.
Climaco and Associates for plaintiff and appellee.

ZALDIVAR, J.:

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 Philippines 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 lower 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 three (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 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 mis-sent 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 plaintiffs 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 cost P197.00 and the camera cost P176.00, so the total value of the two 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 abovequoted 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 carries 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.1äwphï1.ñët

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. Barreto, 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 Limitations. — 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 been specifically decided in many
cases that no contract limitation will relieve the carrier from responsibility for the negligence, unskillfulness, or
carelessness of its employer." (Cited in Ysmael and Co. vs. Barreto, 51 Phil. 90, 98, 99).

G.R. No. L-40597 June 29, 1979

AGUSTINO B. ONG YIU, petitioner,

vs.

HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC., respondents.

MELENCIO-HERRERA, J.:

PAL NOT NEGLIGENT; DILIGENT IN FINDING THE LOST LUGGAGE; 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.

In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a reversal of the
Decision of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his claim for damages for breach of
contract of transportation.

FACTS: The facts are as follows:

On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines, Inc. (PAL), on board
Flight No. 463-R, from Mactan Cebu, bound for Butuan City. He was scheduled to attend the trial of Civil Case No.
1005 and Spec. Procs. No. 1125 in the Court of First Instance, Branch II, thereat, set for hearing on August 28-31,
1967. As a passenger, he checked in one piece of luggage, a blue "maleta" for which he was issued Claim Check No.
2106-R (Exh. "A"). The plane left Mactan Airport, Cebu, at about 1:00 o'clock P.M., and arrived at Bancasi airport,
Butuan City, at past 2:00 o'clock P.M., of the same day. Upon arrival, petitioner claimed his luggage but it could
not be found. According to petitioner, it was only after reacting indignantly to the loss that the matter was attended
to by the porter clerk, Maximo Gomez, which, however, the latter denies, At about 3:00 o'clock P.M., PAL Butuan,
sent a message to PAL, Cebu, inquiring about the missing luggage, which message was, in turn relayed in full to the
Mactan Airport teletype operator at 3:45 P.M. (Exh. "2") that same afternoon. It must have been transmitted to
Manila immediately, for at 3:59 that same afternoon, PAL Manila wired PAL Cebu advising that the luggage had
been over carried to Manila aboard Flight No. 156 and that it would be forwarded to Cebu on Flight No. 345 of the
same day. Instructions were also given that the luggage be immediately forwarded to Butuan City on the first
available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent a message to PAL Butuan that the
luggage would be forwarded on Fright No. 963 the following day, August 27, 196'(. However, this message was not
received by PAL Butuan as all the personnel had already left since there were no more incoming flights that
afternoon.

In the meantime, petitioner was worried about the missing luggage because it contained vital documents needed for
trial the next day. At 10:00 o'clock that evening, petitioner wired PAL Cebu demanding the delivery of his baggage
before noon the next day, otherwise, he would hold PAL liable for damages, and stating that PAL's gross negligence
had caused him undue inconvenience, worry, anxiety and extreme embarrassment (Exh. "B"). This telegram was
received by the Cebu PAL supervisor but the latter felt no need to wire petitioner that his luggage had already been
forwarded on the assumption that by the time the message reached Butuan City, the luggage would have arrived.

Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to inquire about his
luggage. He did not wait, however, for the morning flight which arrived at 10:00 o'clock that morning. This flight
carried the missing luggage. The porter clerk, Maximo Gomez, paged petitioner, but the latter had already left. A
certain Emilio Dagorro a driver of a "colorum" car, who also used to drive for petitioner, volunteered to take the
luggage to petitioner. As Maximo Gomez knew Dagorro to be the same driver used by petitioner whenever the latter
was in Butuan City, Gomez took the luggage and placed it on the counter. Dagorro examined the lock, pressed it,
and it opened. After calling the attention of Maximo Gomez, the "maleta" was opened, Gomez took a look at
its contents, but did not touch them. Dagorro then delivered the "maleta" to petitioner, with the information that
the lock was open. Upon inspection, petitioner found that a folder containing certain exhibits, transcripts and private
documents in Civil Case No. 1005 and Sp. Procs. No. 1126 were missing, aside from two gift items for his
parents-in-law. Petitioner refused to accept the luggage. Dagorro returned it to the porter clerk, Maximo
Gomez, who sealed it and forwarded the same to PAL Cebu.

Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of his documents,
which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to Cebu City on August 28, 1967. In a
letter dated August 29, 1967 addressed to PAL, Cebu, petitioner called attention to his telegram (Exh. "D"),
demanded that his luggage be produced intact, and that he be compensated in the sum of P250,000,00 for actual and
moral damages within five days from receipt of the letter, otherwise, he would be left with no alternative but to file
suit (Exh. "D").

On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner's office to deliver
the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel Maranga the contents were listed and receipted for
by petitioner (Exh. "E").

On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of the investigation
which Messrs. de Leon, Navarsi, and Agustin had promised to conduct to pinpoint responsibility for the
unauthorized opening of the "maleta" (Exh. "F").

The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:

Dear Atty. Ong Yiu:

This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting Manager, Southern
Philippines.

First of all, may we apologize for the delay in informing you of the result of our investigation since we visited you in
your office last August 31, 1967. Since there are stations other than Cebu which are involved in your case, we
have to communicate and await replies from them. We regret to inform you that to date we have not found
the supposedly lost folder of papers nor have we been able to pinpoint the personnel who allegedly pilferred
your baggage.

You must realize that no inventory was taken of the cargo upon loading them on any plane. Consequently, we
have no way of knowing the real contents of your baggage when same was loaded.

We realized the inconvenience you encountered of this incident but we trust that you will give us another
opportunity to be of better service to you.

Very truly yours,

PHILIPPINE AIR LINES, INC.

(Sgd) JEREMIAS S. AGUSTIN

Branch Supervisor

Cebu

(Exhibit G, Folder of Exhibits) 1

On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of contract of
transportation with the Court of First Instance of Cebu, Branch V, docketed as Civil Case No. R-10188, which PAL
traversed. After due trial, the lower Court found PAL to have acted in bad faith and with malice and declared
petitioner entitled to moral damages in the sum of P80,000.00, exemplary damages of P30,000.00, attorney's fees of
P5,000.00, and costs.

Both parties appealed to the Court of Appeals — petitioner in so far as he was awarded only the sum of P80,000.00
as moral damages; and defendant because of the unfavorable judgment rendered against it.
On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple negligence, reversed the
judgment of the trial Court granting petitioner moral and exemplary damages, but ordered PAL to pay plaintiff the
sum of P100.00, the baggage liability assumed by it under the condition of carriage printed at the back of the ticket.

Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the following
Assignments of Error:

I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL GUILTY ONLY OF
SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF ITS CONTRACT OF
TRANSPORTATION WITH PETITIONER.

ISSUE: II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND THE LAW
WHEN IT REVERSED THE DECISION OF THE LOWER COURT AWARDING TO PETITIONER MORAL
DAMAGES IN THE AMOUNT OF P80,000.00, EXEMPLARY DAMAGES OF P30,000.00, AND P5,000.00
REPRESENTING ATTORNEY'S FEES, AND ORDERED RESPONDENT PAL TO COMPENSATE PLAINTIFF
THE SUM OF P100.00 ONLY, CONTRARY TO THE EXPLICIT PROVISIONS OF ARTICLES 2220, 2229, 2232
AND 2234 OF THE CIVIL CODE OF THE PHILIPPINES.

On July 16, 1975, this Court gave due course to the Petition.

There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. ISSUE: The question is the
correctness of respondent Court's conclusion that there was no gross negligence on the part of PAL and that it had
not acted fraudulently or in bad faith as to entitle petitioner to an award of moral and exemplary damages.

SC: PAL NO BAD FAITH. From the facts of the case, we agree with respondent Court that PAL had not acted in
bad faith. Bad faith means a breach of a known duty through some motive of interest or ill will. 2 It was the duty of
PAL to look for petitioner's luggage which had been miscarried. PAL exerted due diligence in complying with such
duty.

As aptly stated by the appellate Court:

We do not find any evidence of bad faith in this. On the contrary, We find that the defendant had exerted diligent
effort to locate plaintiff's baggage. The trial court saw evidence of bad faith because PAL sent the telegraphic
message to Mactan only at 3:00 o'clock that same afternoon, despite plaintiff's indignation for the non-arrival of his
baggage. The message was sent within less than one hour after plaintiff's luggage could not be located. Efforts had
to be exerted to locate plaintiff's maleta. Then the Bancasi airport had to attend to other incoming passengers and to
the outgoing passengers. Certainly, no evidence of bad faith can be inferred from these facts. Cebu office
immediately wired Manila inquiring about the missing baggage of the plaintiff. At 3:59 P.M., Manila station agent at
the domestic airport wired Cebu that the baggage was over carried to Manila. And this message was received in
Cebu one minute thereafter, or at 4:00 P.M. The baggage was in fact sent back to Cebu City that same afternoon . His
Honor stated that the fact that the message was sent at 3:59 P.M. from Manila and completely relayed to Mactan at
4:00 P.M., or within one minute, made the message appear spurious. This is a forced reasoning. A radio message of
about 50 words can be completely transmitted in even less than one minute depending upon atmospheric
conditions. Even if the message was sent from Manila or other distant places, the message can be received
within a minute. that is a scientific fact which cannot be questioned. 3

Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith, The telegram (Exh.
B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The PAL supervisor at Mactan Airport
was notified of it only in the morning of the following day. At that time the luggage was already to be forwarded to
Butuan City. There was no bad faith, therefore, in the assumption made by said supervisor that the plane carrying the
bag would arrive at Butuan earlier than a reply telegram. Had petitioner waited or caused someone to wait at the
Bancasi airport for the arrival of the morning flight, he would have been able to retrieve his luggage sooner.

NO MORAL DAMAGES: In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is
not entitled to moral damages.

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 of omission.

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

NOT ENTITLED TO EXEMPLARY DAMAGES: Petitioner is neither entitled to exemplary damages. In contracts,
as provided for in Article 2232 of the Civil Code, exemplary damages can be granted if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner, which has not been proven in this case.

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. In this connection, respondent Court opined:

RE: LIABILITY: As a general proposition, the plaintiff's maleta having been pilfered while in the custody of the
defendant, it is presumed that the defendant had been negligent. The liability, however, of PAL for the loss, in
accordance with the stipulation written on the back of the ticket, Exhibit 12, is limited to P100.00 per baggage,
plaintiff not having declared a greater value, and not having called the attention of the defendant on its true value
and paid the tariff therefor. The validity of this stipulation is not questioned by the plaintiff. They are printed in
reasonably and fairly big letters, and are easily readable. Moreover, plaintiff had been a frequent passenger of PAL
from Cebu to Butuan City and back, and he, being a lawyer and businessman, must be fully aware of these
conditions. 4

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 damaged 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.

EVEN IF NOT SIGNED THE PLANE TICKET, STILL BOUND: 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". 5 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. 6 And as held in Randolph v. American Airlines, 103
Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. 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.Besides, passengers are advised not to place valuable items inside
their baggage but "to avail of our V-cargo service " (Exh. "1"). I t is likewise to be noted that there is nothing
in the evidence to show the actual value of the goods allegedly lost by petitioner.

There is another matter involved, raised as an error by PAL — the fact that on October 24, 1974 or two months after
the promulgation of the Decision of the appellate Court, petitioner's widow filed a Motion for Substitution claiming
that petitioner died on January 6, 1974 and that she only came to know of the adverse Decision on October 23, 1974
when petitioner's law partner informed her that he received copy of the Decision on August 28, 1974. Attached to
her Motion was an Affidavit of petitioner's law partner reciting facts constitutive of excusable negligence. The
appellate Court noting that all pleadings had been signed by petitioner himself allowed the widow "to take such
steps as she or counsel may deem necessary." She then filed a Motion for Reconsideration over the opposition of
PAL which alleged that the Court of Appeals Decision, promulgated on August 22, 1974, had already become final
and executory since no appeal had been interposed therefrom within the reglementary period.

Under the circumstances, considering the demise of petitioner himself, who acted as his own counsel, it is best that
technicality yields to the interests of substantial justice. Besides, in the 'last analysis, no serious prejudice has been
caused respondent PAL.

In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are not erroneous.
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be reviewed
hereby affirmed in toto.

G.R. No. 70462 August 11, 1988

PAN AMERICAN WORLD AIRWAYS, 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.

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 ; PAN-AM ALSO NOT LIABLE FOR FAILURE OF THE FILMS
TO BE SHOWN BECAUSE IT WAS NOT INFORMED OF THE URGENCY OF THE NEED TO FLY THE
MATERIALS TO GUAMs

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.

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

FACTS: On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs Sotang Bastos
and Archer Production while in San Francisco, Califonia 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.

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 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 C1). 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).

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 passage from Manila to Guam
on defendant's Flight No. 842 of May 27,1978, upon payment by said plaintiff of the regular fare. The Your
Travel Guide is a tour and travel office owned and managed by plaintiffs 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.

ISSUE: 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.

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 $9.07 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.].

CONTENTION OF PAN AM: 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.

ONG YU CASE APPLICABLE: 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 Pl,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 (lid 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."

APPLICATION: 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.

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
Appeal's 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.

WARSAW CONVENTION: 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

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. RE FAILURE TO SHOW THE FILMS: 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 to deliver the can of film on the 17th of September, 1948 for the reason
that the plans of Mendoza to exhibit that film during the town fiesta and his preparations, specially the
announcement of said exhibition by posters and advertisement in the newspaper, were not called to the defendant's
attention.

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, New York, delivered motion picture films to the
defendant Fargo, an express company, 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 due to the delay suffered damages or loss of
profits. But the highest court in the State of New 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 purpose 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 for 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.]

APPLICATION: 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.

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 "[tlhe
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.

WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate Court is SET
ASIDE and a new judgment is rendered ordering petitioner to pay private respondents damages in the amount of US
$600.00 or its equivalent in Philippine currency at the time of actual payment.

SO ORDERED.

G.R. No. 94761 May 17, 1993

MAERSK LINE, petitioner,

vs.

COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the name and style of Ethegal
Laboratories, respondents.

Bito, Lozada, Ortega & Castillo for petitioner.

Humberto A. Jambora for private respondent.

BIDIN, J.:

FACTS: Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the Philippines
through its general agent Compania General de Tabacos de Filipinas.

Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal Laboratories, a firm engaged in the
manutacture of pharmaceutical products.

On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto Rico through its (Eli Lilly, Inc.'s)
agent in the Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his pharmaceutical
products. The capsules were placed in six (6) drums of 100,000 capsules each valued at US $1,668.71.
Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of Exhibits, pp. 5-6), the shipper Eli
Lilly, Inc. of Puerto Rico advised private respondent as consignee that the 600,000 empty gelatin capsules in six (6)
drums of 100,000 capsules each, were already shipped on board MV "Anders Maerskline" under Voyage No. 7703
for shipment to the Philippines via Oakland, California. In said Memorandum, shipper Eli Lilly, Inc. specified the
date of arrival to be April 3, 1977.

MISSHIPPED: For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond,
Virginia, USA and then transported back Oakland, Califorilia. The goods finally arrived in the Philippines on
June 10, 1977 or after two (2) months from the date specified in the memorandum. As a consequence, private
respondent as consignee refused to take delivery of the goods on account of its failure to arrive on time.

Private respondent alleging gross negligence and undue delay in the delivery of the goods, filed an action before the
court a quo for rescission of contract with damages against petitioner and Eli Lilly, Inc. as defendants.

CONTENTION OF PETITIONER: Denying that it committed breach of contract, petitioner alleged in its that
answer that the subject shipment was transported in accordance with the provisions of the covering bill of
lading and that its liability under the law on transportation of good attaches only in case of loss, destruction
or deterioration of the goods as provided for in Article 1734 of Civil Code (Rollo, p. 16).

Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and cross-claim. In its cross-claim, it
alleged that the delay in the arrival of the the subject merchandise was due solely to the gross negligence of
petitioner Maersk Line.

The issues having been joined, private respondent moved for the dismissal of the complaint against Eli Lilly, Inc.on
the ground that the evidence on record shows that the delay in the delivery of the shipment was attributable solely to
petitioner.

Acting on private respondent's motion, the trial court dismissed the complaint against Eli Lilly, Inc.
Correspondingly, the latter withdraw its cross-claim against petitioner in a joint motion dated December 3, 1979.

After trial held between respondent and petitioner, the court a quo rendered judgment dated January 8, 1982 in favor
of respondent Castillo, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that there was a breach in the
performance of their obligation by the defendant Maersk Line consisting of their negligence to ship the 6 drums of
empty Gelatin Capsules which under their own memorandum shipment would arrive in the Philippines on April 3,
1977 which under Art. 1170 of the New Civil Code, they stood liable for damages.

Considering that the only evidence presented by the defendant Maersk line thru its agent the Compania de Tabacos
de Filipinas is the testimony of Rolando Ramirez who testified on Exhs. "1" to "5" which this Court believe (sic) did
not change the findings of this Court in its decision rendered on September 4, 1980, this Court hereby renders
judgment in favor of the plaintiff Efren Castillo as against the defendant Maersk Line thru its agent, the COMPANIA
GENERAL DE TABACOS DE FILIPINAS and ordering:

(a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE HUNDRED SIXTY NINE THOUSAND
PESOS, (P369,000.00) as unrealized profit;.

(b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS (P200,000.00), as moral damages;

(c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00) as exemplary damages;

(d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED EIGHTY PESOS AND NINETY
SEVEN CENTAVOS (P11,680.97) as cost of credit line; and

(e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00), as attorney's fees and to pay the
costs of suit.

That the above sums due to the plaintiff will bear the legal rate of interest until they are fully paid from the time the
case was filed.

SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).

On appeal, respondent court rendered its decision dated August 1, 1990 affirming with modifications the lower
court's decision as follows:

WHEREFORE, the decision appealed from is affirmed with a modification, and, as modified, the judgment in this
case should read as follows:

Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay plaintiff-appellee (1) compensatory
damages of P11,680.97 at 6% annual interest from filing of the complaint until fully paid, (2) moral damages of
P50,000.00, (3) exemplary damages of P20,000,00, (3) attorney's fees, per appearance fees, and litigation expenses
of P30,000.00, (4) 30% of the total damages awarded except item (3) above, and the costs of suit.

SO ORDERED. (Rollo, p. 50)

In its Memorandum, petitioner submits the following "issues" for resolution of the court :

Whether or not the respondent Court of Appeals committed an error when it ruled that a defendant's cross-claim
against a co-defendant survives or subsists even after the dismissal of the complaint against defendant-cross
claimant.

II

ISSUE: Whether or not respondent Castillo is entitled to damages resulting from delay in the delivery of the
shipment in the absence in the bill of lading of a stipulation on the period of delivery.

III

ISSUE: Whether or not the respondent appellate court erred in awarding actual, moral and exemplary damages and
attorney's fees despite the absence of factual findings and/or legal bases in the text of the decision as support for
such awards.

IV

Whether or not the respondent Court of Appeals committed an error when it rendered an ambiguous and unexplained
award in the dispositive portion of the decision which is not supported by the body or the text of the decision.
(Rollo, pp.94-95).

With regard to the first issue raised by petitioner on whether or not a defendant's cross-claim against co-defendant
(petitioner herein) survives or subsists even after the dismissal of the complaint against defendant-cross-claimant
(petitioner herein), we rule in the negative.

Apparently this issue was raised by reason of the declaration made by respondent court in its questioned decision, as
follows:

Re the first assigned error: What should be rescinded in this case is not the "Memorandum of Shipment" but the
contract between appellee and defendant Eli Lilly (embodied in three documents, namely: Exhs. A, A-1 and A-2)
whereby the former agreed to buy and the latter to sell those six drums of gelatin capsules. It is by virtue of the
cross-claim by appellant Eli Lilly against defendant Maersk Line for the latter's gross negligence in diverting the
shipment thus causing the delay and damage to appellee that the trial court found apellant Maersk Line liable. . .

Re the fourth assigned error: Appellant Maersk Line's insistence that appellee has no cause of action against it and
appellant Eli Lilly because the shipment was delivered in good order and condition, and the bill of lading in question
contains "stipulations, exceptions and conditions" Maersk Line's liability only to the "loss, destruction or
deterioration," indeed, this issue of lack of cause of action has already been considered in our foregoing discussion
on the second assigned error, and our resolution here is still that appellee has a cause of action against appellant Eli
Lilly. Since the latter had filed a cross-claim against appellant Maersk Line, the trial court committed no error,
therefore, in holding the latter appellant ultimately liable to appellee. (Rollo, pp. 47-50; Emphasis supplied)

Reacting to the foregoing declaration, petitioner submits that its liability is predicated on the cross-claim filed its co-
defendant Eli Lilly, Inc. which cross-claim has been dismissed, the original complaint against it should likewise be
dismissed. We disagree. It should be recalled that the complaint was filed originally against Eli Lilly, Inc. as shipper-
supplier and petitioner as carrier. Petitioner being an original party defendant upon whom the delayed shipment is
imputed cannot claim that the dismissal of the complaint against Eli Lilly, Inc. inured to its benefit.

Respondent court, erred in declaring that the trial court based petitioner's liability on the cross-claim of Eli Lilly, Inc.
As borne out by the record, the trial court anchored its decision on petitioner's delay or negligence to deliver the six
(6) drums of gelatin capsules within a reasonable time on the basis of which petitioner was held liable for damages
under Article 1170 of the New Civil Code which provides that those who in the performance of their obligations are
guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for
damages.

RELEVANT ISSUE: Nonetheless, petitioner maintains that it cannot be held for damages for the alleged delay
in the delivery of the 600,000 empty gelatin capsules since it acted in good faith and there was no special
contract under which the carrier undertook to deliver the shipment on or before a specific date (Rollo, p.
103).

On the other hand, private respondent claims that during the period before the specified date of arrival of the goods,
he had made several commitments and contract of adhesion. Therefore, petitioner can be held liable for the damages
suffered by private respondent for the cancellation of the contracts he entered into.

We have carefully reviewed the decisions of respondent court and the trial court and both of them show that,
in finding petitioner liable for damages for the delay in the delivery of goods, reliance was made on the rule
that contracts of adhesion are void. Added to this, the lower court stated that the exemption against liability
for delay is against public policy and is thus, void. Besides, private respondent's action is anchored on Article
1170 of the New Civil Code and not under the law on Admiralty (AC-GR CV No. 10340, Rollo, p. 14).

The bill of lading covering the subject shipment among others, reads:

6. GENERAL

(1) The Carrier does not undertake that the goods shall arive at the port of discharge or the place of delivery at any
particular time or to meet any particular market or use and save as is provided in clause 4 the Carrier shall in no
circumstances be liable for any direct, indirect or consequential loss or damage caused by delay. If the Carrier
should nevertheless be held legally liable for any such direct or indirect or consequential loss or damage caused by
delay, such liability shall in no event exceed the freight paid for the transport covered by this Bill of Lading. (Exh.
"1-A"; AC-G.R. CV No. 10340, Folder of Exhibits, p. 41)

It is not disputed that the aforequoted provision at the back of the bill of lading, in fine print, is a contract of
adhesion. Generally, contracts of adhesion are considered void since almost all the provisions of these types of
contracts are prepared and drafted only by one party, usually the carrier (Sweet Lines v. Teves, 83 SCRA 361
[1978]). The only participation left of the other party in such a contract is the affixing of his signature thereto, hence
the term "Adhesion" (BPI Credit Corporation v. Court of Appeals, 204 SCRA 601 [1991]; Angeles v. Calasanz, 135
SCRA 323 [1985]).

RULE RE: CONTRACTS OF ADHESION AND BILLS OF LADING: Nonetheless, settled is the rule that bills of
lading are contracts not entirely prohibited (Ong Yiu v. Court of Appeals, et al., 91 SCRA 223 [1979]; Servando, et
al. v. Philippine Steam Navigation Co., 117 SCRA 832 [1982]). One who adheres to the contract is in reality free to
reject it in its entirety; if he adheres, he gives his consent (Magellan Manufacturing Marketing Corporation v. Court
of Appeals, et al., 201 SCRA 102 [1991]).

In Magellan, (supra), we ruled:

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as contract to
transport and deliver the same a therein stipulated. As a contract, it names the parties, which includes the
consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations
assumed by the parties. Being a contract, it is the law between the parties who are bound by its terms and
conditions provided that these are not contrary to law, morals, good customs, public order and public policy. A bill
of lading usually becomes effective upon its delivery to and acceptance by the shipper. It is presumed that the
stipulations of the bill were, in the absence of fraud, concealment or improper conduct, known to the shipper,
and he is generally bound by his acceptance whether he reads the bill or not. (Emphasis supplied)

BUT IN THE CASE AT BAR, ABSURDITY RESULTS: However, the aforequoted ruling applies only if such
contracts will not create an absurd situation as in the case at bar. The questioned provision in the subject bill
of lading has the effect of practically leaving the date of arrival of the subject shipment on the sole
determination and will of the carrier.

While it is true that common carriers are not obligated by law to carry and to deliver merchandise, and
persons are not vested with the right to prompt delivery, unless such common carriers previously assume the
obligation to deliver at a given date or time (Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836 [1952]),
delivery of shipment or cargo should at least be made within a reasonable time.

In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held:

The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a carrier is
not an insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the law
implies a contract that they shall be delivered at destination within a reasonable time, in the absence, of any
agreement as to the time of delivery. But where a carrier has made an express contract to transport and deliver
properly within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what
cause it may have arisen. This result logically follows from the well-settled rule that where the law creates a duty or
charge, and the default in himself, and has no remedy over, then his own contract creates a duty or charge upon
himself, he is bound to make it good notwithstanding any accident or delay by inevitable necessity because he might
have provided against it by contract. Whether or not there has been such an undertaking on the part of the carrier is
to be determined from the circumstances surrounding the case and by application of the ordinary rules for the
interpretation of contracts.

An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340, Folder of Exhibits, p. 41) shows
that the subject shipment was estimated to arrive in Manila on April 3, 1977. While there was no special
contract entered into by the parties indicating the date of arrival of the subject shipment, petitioner
nevertheless, was very well aware of the specific date when the goods were expected to arrive as indicated in
the bill of lading itself. In this regard, there arises no need to execute another contract for the purpose as it
would be a mere superfluity.

DELAY OF 2 MONTHSSSS IS UNREASONABLE: In the case before us, we find that a delay in the delivery of
the goods spanning a period of two (2) months and seven (7) days falls was beyond the realm of reasonableness.
Described as gelatin capsules for use in pharmaceutical products, subject shipment was delivered to, and left in, the
possession and custody of petitioner-carrier for transport to Manila via Oakland, California. But through petitioner's
negligence was mishipped to Richmond, Virginia. Petitioner's insitence that it cannot be held liable for the delay
finds no merit.

Petition maintains that the award of actual, moral and exemplary dames and attorney's fees are not valid since there
are no factual findings or legal bases stated in the text of the trial court's decision to support the award thereof.

Indeed, it is settled that actual and compensataory damages requires substantial proof (Capco v. Macasaet. 189
SCRA 561 [1990]). In the case at bar, private respondent was able to sufficiently prove through an invoice (Exh. 'A-
1'), certification from the issuer of the letter of credit (Exh.'A-2') and the Memorandum of Shipment (Exh. "B"), the
amount he paid as costs of the credit line for the subject goods. Therefore, respondent court acted correctly in
affirming the award of eleven thousand six hundred eighty pesos and ninety seven centavos (P11,680.97) as costs of
said credit line.

As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that moral damages may
be awarded in "breaches of contract where the defendant acted fraudulently or in bad faith" (Pan American World
Airways v. Intermediate Appellate Court, 186 SCRA 687 [1990]).

In the case before us, we that the only evidence presented by petitioner was the testimony of Mr. Rolando Ramirez, a
claims manager of its agent Compania General de Tabacos de Filipinas, who merely testified on Exhs. '1' to '5' (AC-
GR CV No. 10340, p. 2) and nothing else. Petitioner never even bothered to explain the course for the delay, i.e.
more than two (2) months, in the delivery of subject shipment. Under the circumstances of the case, we hold that
petitioner is liable for breach of contract of carriage through gross negligence amounting to bad faith. Thus, the
award of moral damages if therefore proper in this case.

In line with this pronouncement, we hold that exemplary damages may be awarded to the private respondent. In
contracts, exemplary damages may be awarded if the defendant acted in a wanton, fraudulent, reckless, oppresive or
malevolent manner. There was gross negligence on the part of the petitioner in mishiping the subject goods destined
for Manila but was inexplicably shipped to Richmond, Virginia, U.S.A. Gross carelessness or negligence contitutes
wanton misconduct, hence, exemplary damages may be awarded to the aggrieved party (Radio Communication of
the Phils., Inc. v. Court of Appeals, 195 SCRA 147 [1991]).

Although attorney's fees are generally not recoverable, a party can be held lible for such if exemplary damages are
awarded (Artice 2208, New Civil Code). In the case at bar, we hold that private respondent is entitled to reasonable
attorney`s fees since petitioner acte with gross negligence amounting to bad faith.

However, we find item 4 in the dispositive portion of respondent court`s decision which awarded thirty (30) percent
of the total damages awarded except item 3 regarding attorney`s fees and litigation expenses in favor of private
respondent, to be unconsionable, the same should be deleted.

WHEREFORE, with the modification regarding the deletion of item 4 of respondent court`s decision, the appealed
decision is is hereby AFFIRMED in all respects.