initialed by the latter at the bottom left corner.
[2] The first invoice was for
[ G.R. No. 70876, July 19, 1990 ]
MA. LUISA BENEDICTO, PETITIONER, VS. HON. INTERMEDIATE
APPELLATE COURT AND GREENHILLS WOOD INDUSTRIES
COMPANY, INC., RESPONDENTS.
DECISION
FELICIANO, J.:
This Petition for Review asks us to set aside the Decision of the then
Intermediate Appellate Court dated 30 January 1985 in A.C. - G.R. CV
No. 01454, which affirmed in toto the decision of the Regional Trial Court
("RTC") of Dagupan City in Civil Case No. 5206. There, the RTC held
petitioner Ma. Luisa Benedicto liable to pay private
respondent Greenhills Wood Industries Company, Inc. ("Greenhills") the
amounts of P16,016.00 and P2,000.00 representing the cost of Greenhills'
lost sawn lumber and attorney's fees, respectively.
Private respondent Greenhills, a lumber manufacturing firm with
business address at Dagupan City, operates a
sawmill in Maddela, Quirino.
Sometime in May 1980, private respondent bound itself to sell and
deliver to Blue Star Mahogany, Inc. ("Blue Star"), a company with
business operations in Valenzuela, Bulacan, 100,000 board feet of sawn
lumber with the understanding that an initial delivery would be made on
15 May 1980.[1] To effect its first delivery, private respondent's resident
manager in Maddela, Dominador Cruz, contracted Virgilio Licuden, the
driver of a cargo truck bearing Plate No. 225 GA TH to transport its sawn
lumber to the consignee Blue Star in Valenzuela, Bulacan. This cargo
truck was registered in the name of petitioner Ma. Luisa Benedicto, the
proprietor of Macoven Trucking, a business enterprise engaged in
hauling freight, with main office in B.F. Homes Paranaque.
On 15 May 1980, Cruz in the presence and with the consent of
driver Licuden, supervised the loading of 7,690 board feet of sawn
lumber with invoice value of P16,918.00 aboard the cargo truck. Before
the cargo truck left Maddela for Valenzuela, Bulacan, Cruz issued
to Licuden Charge Invoices Nos. 3259 and 3260 both of which were
the amount of P11,822.80 representing the value of 5,374 board feet of
sawn lumber, while the other set out the amount of P5,095.20 as the value
of 2,316 board feet. Cruz instructed Licuden to give the original copies of
the two (2) invoices to the consignee upon arrival in
Valenzuela, Bulacan[3] and to retain the duplicate copies in order that he
could afterwards claim the freightage from private
respondent's Manila office.[4]
On 16 May 1980, the Manager of Blue Star called up by Iong distance
telephone Greenhills' president, Henry Lee Chuy, informing him that the
sawn lumber on board the subject cargo truck had not yet arrived in
Valenzuela, Bulacan. The latter in turn informed Greenhills' resident
manager in its Maddela sawmill of what had happened. In a
letter[5] dated 18 May 1980, Blue Star's administrative and personnel
manager, Manuel R. Bautista, formally informed Greenhills' president
and general manager that Blue Star still had not received the sawn
lumber which was supposed to arrive on 15 May 1980 and because of this
delay, "they were constrained to look for other suppliers."
On 25 June 1980, after confirming the above with Blue Star and after
trying vainly to persuade it to continue with their contract, private
respondent Greenhills filed Criminal Case No. 668 against
driver Licuden for estafa. Greenhills also filed against
petitioner Benedicto Civil Case No. D-5206 for recovery of the value of
the lost sawn lumber plus damages before the RTC of Dagupan City.
In her answer,[6] petitioner Benedicto denied liability alleging that she
was a complete stranger to the contract of carriage, the subject truck
having been earlier sold by her to Benjamin Tee on 28 February 1980 as
evidenced by a deed of sale.[7] She claimed that the truck had remained
registered in her name notwithstanding its earlier sale to Tee because the
latter had paid her only P50,000.00 out of the total agreed price of
P68,000.00. However, she averred that Tee had been operating the said
truck in Central Luzon from that date (28 February 1980) onwards, and
that, therefore, Licuden was Tee's employee and not hers.
On 20 June 1983, based on the finding that petitioner Benedicto was still
the registered owner of the subject truck, and holding
that Licuden was her employee, the trial court adjudged as follows:
1
"WHEREFORE, in the light of the foregoing considerations, this Court
hereby renders judgment against defendant Maria Luisa Benedicto,
ordering her to pay the Greenhills Wood Industries Co. Inc., thru its
President and General Manager, the amount of P16,016 cost of the sawn
lumber loaded on the cargo truck, with legal rate of interest from the
filing of the complaint; to pay attorney's fees in the amount of P2,000.00;
and to pay the costs of this suit.
SO ORDERED."[8]
On 30 January 1985, upon appeal by petitioner, the Intermediate
Appellate Court affirmed[9] the decision of the trial court in toto. Like the
trial court, the appellate court held that since petitioner was the
registered owner of the subject vehicle, Licuden, the driver of the truck,
was her employee, and that accordingly petitioner should be responsible
for the negligence of said driver and bear the loss of the sawn lumber
plus damages. Petitioner moved for reconsideration, without success. [10]
In the present Petition for Review, the sole issue raised is whether or not
under the facts and applicable law, the appellate court was correct in
finding that petitioner, being the registered owner of the carrier, should
be held liable for the value of the undelivered or lost sawn lumber.
Petitioner urges that she could not be held answerable for the loss of the
cargo, because the doctrine which makes the registered owner of a
common carrier vehicle answerable to the public for the negligence of the
driver despite the sale of the vehicle to another person, applies only to
cases involving death of or injury to passengers. What applies in the
present case, according to petitioner, is the rule that a contract of carriage
requires proper delivery of the goods to and acceptance by the
carrier. Thus, petitioner contends that the delivery to a person falsely
representing himself to be an agent of the carrier prevents liability from
attaching to the registered owner.
The Court considers that petitioner has failed to show that appellate
court committed reversible error in affirming the trial court's holding that
petitioner was liable for the cost of the sawn lumber plus damages.
There is no dispute that petitioner Benedicto has been holding herself out
to the public as engaged in the business of hauling or transporting goods
for hire or compensation. Petitioner Benedicto is, in brief, a common
carrier.
The prevailing doctrine on common carriers makes the registered owner
liable for consequences flowing from the operations of the carrier, even
though the specific vehicle involved may already have been transferred
to another person. This doctrine rests upon the principle that in dealing
with vehicles registered under the Public Service Law, the public has the
right to assume that the registered owner is the actual or lawful owner
thereof. It would be very difficult and often impossible as a practical
matter, for members of the general public to enforce the rights of action
that they may have for injuries inflicted by the vehicles being negligently
operated if they should be required to prove who the actual owner
is.[11] The registered owner is not allowed to deny liability by proving the
identity of the alleged transferee. Thus, contrary to petitioner's claim,
private respondent is not required to go beyond the vehicle's certificate of
registration to ascertain the owner of the carrier. In this regard, the letter
presented by petitioner allegedly written by Benjamin Tee admitting
that Licuden was his driver, had no evidentiary value not only because
Benjamin Tee was not presented in court to testify on this matter but also
because of the aforementioned doctrine. To permit the ostensible or
registered owner to prove who the actual owner is, would be to set at
naught the purpose or public policy which infuses that doctrine.
In fact, private respondent had no reason at all to doubt the authority
of Licuden to enter into a contract of carriage on behalf of the registered
owner. It appears that, earlier, in the first week of May 1980, private
respondent Greenhills had contracted Licuden who was then driving the
same cargo truck to transport and carry a load of sawn lumber from
the Maddella sawmill to Dagupan City.[12] No one came forward to
question that contract or the authority of Licuden to represent the owner
of the carrier truck.
Moreover, assuming the truth of her story, petitioner Benedicto retained
registered ownership of the freight truck for her own benefit and
convenience, that is, to secure the payment of the balance of the selling
price of the truck. She may have been unaware of the legal security
device of chattel mortgage; or she, or her buyer, may have been unwilling
to absorb the expenses of registering a chattel mortgage over the
truck. In either case, considerations both of public policy and of equity
require that she bear the consequences flowing from registered
ownership of the subject vehicle.
2
Petitioner Benedicto, however, insists that the said principle should
apply only to cases involving negligence and resulting injury to or death
of passengers, and not to cases involving merely carriage of goods. We
believe otherwise.
A common carrier, both from the nature of its business and for insistent
reasons of public policy, is burdened by the law with the duty of
exercising extraordinary diligence not only in ensuring the safety
of passengers but also in caring for goods transported by it.[13] The loss or
destruction or deterioration of goods turned over to the common carrier
for conveyance to a designated destination, raises instantly a
presumption of fault or negligence on the part of the carrier, save only
where such loss, destruction or damage arises from extreme
circumstances such as a natural disaster or calamity or act of the public
enemy in time of war, or from an act or omission of the shipper himself
or from the character of the goods or their packaging or container. [14]
This presumption may be overcome only by proof of extraordinary
diligence on the part of the carrier. [15] Clearly, to permit a common carrier
to escape its responsibility for the passengers or goods transported by it
by proving a prior sale of the vehicle or means of transportation to an
alleged vendee would be to attenuate drastically the carrier's duty of
extraordinary diligence. It would also open wide the door to collusion
between the carrier and the supposed vendee and to shifting liability
from the carrier to one without financial capability to respond for the
resulting damages. In other words, the thrust of the public policy here
involved is as sharp and real in the case of carriage of goods as it is in the
transporting of human beings. Thus, to sustain
petitioner Benedicto's contention, that is, to require the shipper to go
behind a certificate of registration of a public utility vehicle, would be
utterly subversive of the purpose of the law and doctrine.
Petitioner further insists that there was no perfected contract of carriage
for the reason that there was no proof that her consent or that of Tee had
been obtained; no proof that the driver, Licuden, was authorized to bind
the registered owner; and no proof that the parties had agreed on the
freightage to be paid.
Once more, we are not persuaded by petitioner's arguments which
appear to be a transparent attempt to evade statutory
responsibilities. Driver Licuden was entrusted with possession and
control of the freight truck by the registered owner (and by the alleged
secret owner, for that matter). Driver Licuden, under the circumstances,
was clothed with at least implied authority to contract to carry goods and
to accept delivery of such goods for carriage to a specified
destination. That the freight to be paid may not have been fixed before
loading and carriage, did not prevent the contract of carriage from
arising, since the freight was at least determinable if not fixed by the tariff
schedules in petitioner's main business office. Put in somewhat different
terms, driver Licuden is in law regarded as the employee and agent of
the petitioner, for whose acts petitioner must respond. A contract of
carriage of goods was shown; the sawn lumber was loaded on board the
freight truck; loss or non-delivery of the lumber at Blue Star's premises in
Valenzuela, Bulacan was also proven; and petitioner has not proven
either that she had exercised extraordinary diligence to prevent such loss
or non-delivery or that the loss or non-delivery was due to some casualty
or force majeure inconsistent with her liability.[16] Petitioner's liability to
private respondent Greenhills was thus fixed and complete, without
prejudice to petitioner's right to proceed against her putative transferee
Benjamin Tee and driver Licuden for reimbursement or contribution.[17]
WHEREFORE, the Petition for Review is DENIED for lack of merit and
the Decision of the former Intermediate Appellate Court dated 30
January 1985 is hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
[ GR No. 100727, Mar 18, 1992 ]
COGEO-CUBAO OPERATORS v. CA +
MEDIALDEA, J. :
This is a petition for review on certiorari of the decision of the Court of
Appeals which affirmed with modification the decision of the Regional
Trial Court awarding damages in favor of
respondent Lungsod Silangan Transport Services Corp., Inc.
(Lungsod Corp. for brevity).
The antecedent facts of this case are as follows:
3
"It appears that a certificate of public-convenience to operate
a jeepney service was ordered to be issued in favor
of Lungsod Silangan to ply the Cogeo-Cubao route sometime in 1983 on
the justification that public necessity and convenience will best be served,
and in the absence of existing authorized operators on the line applied
for x x x. On the other hand, defendant-Association was registered as a
non-stock, non-profit organization with the Securities and Exchange
Commission on October 30, 1985 x x x with the main purpose of
representing plaintiff-appellee for whatever contract and/ or agreement
it will have regarding the ownership of units, and the like, of the
members of the Association x x x.'
"Perturbed by plaintiffs' Board Resolution No. 9 x x x adopting a Bandera
System under which a member of the cooperative is permitted to queue
for passengers at the disputed pathway in exchange for a ticket worth
twenty pesos, the proceed of which shall be utilized for Christmas
programs of the drivers and other benefits, and on the strength of
defendants' registration as a collective body with the Securities and
Exchange Commission, defendants-appellants, led by
Romeo Oliva decided to form a human barricade on November 11, 1985
and assumed the dispatching of passenger jeepneys x x x. This
development as initiated by defendants-appellants gave rise to the suit
for damages.
"Defendant-Association's Answer contained vehement denials to the
insinuation of take over and the same time raised as defense the
circumstances that the organization was formed not to compete with the
plaintiff-cooperative. It, however admitted that is not authorized to
transport passengers x x x." (pp. 15-16, Rollo)
On July 31, 1989, the trial court rendered a decision in favor of
respondent Lungsod Corp., the dispositive portion of which states:
"WHEREFORE FROM THE FOREGOING CONSIDERATION, the Court
hereby renders judgment in favor of the plaintiff and against the
defendants as follows:
"1. Ordering defendants to pay plaintiff the amount of P50,000.00 as
actual damages;
"2. Ordering the defendants to pay the plaintiff the amount of
p10,000.00 as attorney's fees.
"SO ORDERED." (p. 39, Rollo)
Not satisfied with the decision, petitioner Association appealed with the
Court of Appeals. On May 27, 1991, respondent appellate court rendered
its decision affirming the findings of the trial court except with regard to
the award of actual damages in the amount of P50,000.00 and attorney's
fees in the amount of P10,000.00. The Court of Appeals however,
awarded nominal damages to petitioner in the amount of, P10,000.00.
Hence, this petition was filed with the petitioner assigning the following
errors of the appellate court:
"I. THE RESPONDENT COURT ERRED IN MERELY MODIFYING THE
JUDGMENT OF THE TRIAL COURT
"II. THE RESPONDENT COURT ERRED IN HOLDING THAT THE
PETITIONER USURPED THE PROPERTY RIGHT OF THE: PRIVATE
RESPONDENT.
"III. AND THE RESPONDENT COURT ERRED IN DENYING THE
MOTION FOR RECONSIDERATION.
Since the assigned errors are interrelated, this Court shall discuss them
jointly. The main issue raised by the petitioner is whether or not the
petitioner usurped the property right of the respondent which shall
entitle the latter to the award of nominal damages.
Petitioner contends that the association was formed not to compete with
the respondent corporation in the latter's operation as a common carrier;
that the same was organized for the common protection of drivers from
abusive traffic officers who extort money from them and for the
elimination of the practice f respondent corporation of
requiring jeepney owners to execute deeds of sale in favor of the
corporation to show that the latter is the owner of the jeeps under its
certificate of public convenience. Petitioner also argues that in organizing
the association, the members thereof are merely exercising their freedom
or right to redress their grievances.
We find the petition devoid of merit.
Under the Public Service Law, a certificate of public convenience is an
authorization issued by the Public Service Commission for the operation
of public services for which no franchise is required by law. In the instant
case, a certificate of public convenience was issued to respondent
corporation on January 24, 1983 to operate a public utility jeepney service
4
on the Cogeo-Cubao route. As found by the trial court, the certificate was
issued pursuant to a decision passed by the Board of Transportation in
BOT Case No. 82-565.
A certificate of public convenience is included in the term "property" in
the broad sense of the term. Under the Public Service Law, a certificate of
public convenience can be sold by the holder thereof because it has
considerable material value and is considered a valuable asset
(Raymundo v. Luneta Motor Co., et al., 58 Phil 889). Although there is no
doubt that it is private property, it is affected with a public interest and
must be submitted to the control of the government for the common
good (Pangasinan Transportation Co. v. PSC, 70 Phil 221). Hence, insofar
as the interest of the State is involved, a certificate of public convenience
does not confer upon the holder any proprietary right or interest or
franchise in the route covered thereby and in the public highways
(Lugue V. Villegas, L-22545, Nov. 28, 1969, 30 SCRA 409). However, with
respect to other persons and other public utilities, a certificate of public
convenience as property, which represents the right and authority to
operate its facilities for public service cannot be taken or interfered with
without due process of law. Appropriate actions may be maintained in
courts by the holder of the certificate against those who have not been
authorized to operate in competition with the former and those who
invade the rights which the former has pursuant to the authority granted
by the Public Service Commission (A.L. Ammen Transportation Co.
v. Golingco, 43 Phil. 280).
In the case at bar, the trial court found that petitioner association forcibly
took over the operation of the jeepney service in the Cogeo-Cubao route
without any authorization from the Public Service Commission and in
violation of the right of respondent corporation to operate its services in
the said route under its certificate of public convenience. These were its
findings which were affirmed by the appellate court:
"The Court from the testimony of plaintiff's witnesses as well as the
documentary evidences presented is convinced that the actions taken by
defendant herein though it admits that it did not have the authority to
transport passengers did in fact assume the role as a common carrier
engaged in the transport of passengers within that span of ten days
beginning November 11, 1985 when it unilaterally took upon itself the
operation and dispatching of jeepneys at St. Mary's St. The president of
the defendant corporation, Romeo Oliva himself in his testimony
confirmed that there was indeed a takeover of the operations at St.
Mary's St. xxx." (p. 36, Rollo)
The findings of the trial court especially if affirmed by the appellate court
bear great weight and will not be disturbed on appeal before this Court.
Although there is no question that petitioner can exercise their
constitutional right to redress their grievances with
respondent Lungsod Corp., the manner by which this constitutional right
is to be exercised should not undermine public peace and order nor
should it violate the legal rights of other persons. Article 21 of the Civil
Code provides that 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. The provision covers a
situation where a person has a legal right which was violated by another
in a manner contrary to morals, good customs or public policy. It
presupposes loss or injury, material or otherwise, which one may suffer
as a result of such violation. It is clear from the facts of this case that
petitioner formed a barricade and forcibly took over the motor units and
personnel of the respondent corporation. This paralyzed the usual
activities and earnings of the latter during the period of ten days and
violated the right of respondent Lungsod Corp. to conduct its operations
thru its authorized officers.
As to the propriety of damages in favor of respondent Lungsod Corp.,
the respondent appellate court stated:
"x x x it does not necessarily follow that plaintiff-appellee is entitled
to actual damages and attorney's fees. While there may have been
allegations from plaintiff-cooperative showing that it did in fact suffer
some form of injury x x x, at is legally unprecise to order the payment of
P50,000.00 as actual damages for lack of concrete proof therefor. There is,
however, no denying of the act of usurpation by defendants-appellants
which constituted an invasion of plaintiffs'-appellees' property right. For
this nominal damages in the amount of P10,000.00 may be granted
(Article 2221, Civil Code)." (p. 18, Rollo)
No compelling reason exists to justify the reversal of the ruling of the
respondent appellate court in the case at bar. Article 2222 of the Civil
Code states that the court may award nominal damages in every
obligation arising from any source enumerated in Article 1157, or in
every case where any property right has been invaded. Considering the
5
circumstances of the case, the respondent corporation is entitled to the
award of nominal damages.
ACCORDINGLY, the petition is DENIED and the assailed decision of
the respondent appellant court dated May 27, 1991 is AFFIRMED.
SO ORDERED.
G.R. No. 104235 November 18, 1993
SPOUSES CESAR & SUTHIRA ZALAMEA and LIANA
ZALAMEA, petitioners,
vs.
HONORABLE COURT OF APPEALS and TRANSWORLD AIRLINES,
INC., respondents.
NOCON, J.:
Disgruntled over TransWorld Airlines, Inc.'s refusal to accommodate them
in TWA Flight 007 departing from New York to Los Angeles on June 6,
1984 despite possession of confirmed tickets, petitioners filed an action for
damages before the Regional Trial Court of Makati, Metro Manila, Branch
145. Advocating petitioner's position, the trial court categorically ruled
that respondent TransWorld Airlines (TWA) breached its contract of
carriage with petitioners and that said breach was "characterized by bad
faith." On appeal, however, the appellate court found that while there was
a breach of contract on respondent TWA's part, there was neither fraud
nor bad faith because under the Code of Federal Regulations by the Civil
Aeronautics Board of the United States of America it is allowed to
overbook flights.
The factual backdrop of the case is as follows:
Petitioners-spouses Cesar C. Zalamea and Suthira Zalamea, and their
daughter, Liana Zalamea, purchased three (3) airline tickets from the
Manila agent of respondent TransWorld Airlines, Inc. for a flight to New
York to Los Angeles on June 6, 1984. The tickets of petitioners-spouses
were purchased at a discount of 75% while that of their daughter was a full
fare ticket. All three tickets represented confirmed reservations.
While in New York, on June 4, 1984, petitioners received notice of the
reconfirmation of their reservations for said flight. On the appointed date,
however, petitioners checked in at 10:00 a.m., an hour earlier than the
scheduled flight at 11:00 a.m. but were placed on the wait-list because the
number of passengers who had checked in before them had already taken
all the seats available on the flight. Liana Zalamea appeared as the No. 13
on the wait-list while the two other Zalameas were listed as "No. 34,
showing a party of two." Out of the 42 names on the wait list, the first 22
names were eventually allowed to board the flight to Los Angeles,
including petitioner Cesar Zalamea. The two others, on the other hand, at
No. 34, being ranked lower than 22, were not able to fly. As it were, those
holding full-fare tickets were given first priority among the wait-listed
passengers. Mr. Zalamea, who was holding the full-fare ticket of his
daughter, was allowed to board the plane; while his wife and daughter,
who presented the discounted tickets were denied boarding. According to
Mr. Zalamea, it was only later when he discovered the he was holding his
daughter's full-fare ticket.
Even in the next TWA flight to Los Angeles Mrs. Zalamea and her
daughter, could not be accommodated because it was also fully booked.
Thus, they were constrained to book in another flight and purchased two
tickets from American Airlines at a cost of Nine Hundred Eighteen
($918.00) Dollars.
Upon their arrival in the Philippines, petitioners filed an action for
damages based on breach of contract of air carriage before the Regional
Trial Court of Makati, Metro Manila, Branch 145. As aforesaid, the lower
court ruled in favor of petitioners in its decision 1dated January 9, 1989 the
dispositive portion of which states as follows:
WHEREFORE, judgment is hereby rendered ordering the
defendant to pay plaintiffs the following amounts:
(1) US $918.00, or its peso equivalent at the time of payment
representing the price of the tickets bought by Suthira and
Liana Zalamea from American Airlines, to enable them to
fly to Los Angeles from New York City;
6
 (2) US $159.49, or its peso equivalent at the time of
payment, representing the price of Suthira Zalamea's ticket
for TWA Flight 007;
(3) Eight Thousand Nine Hundred Thirty-Four Pesos and
Fifty Centavos (P8,934.50, Philippine Currency,
representing the price of Liana Zalamea's ticket for TWA
Flight 007,
(4) Two Hundred Fifty Thousand Pesos (P250,000.00),
Philippine Currency, as moral damages for all the
plaintiffs'
(5) One Hundred Thousand Pesos (P100,000.00),
Philippine Currency, as and for attorney's fees; and
(6) The costs of suit.
SO ORDERED. 2
On appeal, the respondent Court of Appeals held that moral damages are
recoverable in a damage suit predicated upon a breach of contract of
carriage only where there is fraud or bad faith. Since it is a matter of record
that overbooking of flights is a common and accepted practice of airlines
in the United States and is specifically allowed under the Code of Federal
Regulations by the Civil Aeronautics Board, no fraud nor bad faith could
be imputed on respondent TransWorld Airlines.
Moreover, while respondent TWA was remiss in not informing petitioners
that the flight was overbooked and that even a person with a confirmed
reservation may be denied accommodation on an overbooked flight,
nevertheless it ruled that such omission or negligence cannot under the
circumstances be considered to be so gross as to amount to bad faith.
Finally, it also held that there was no bad faith in placing petitioners in the
wait-list along with forty-eight (48) other passengers where full-fare first
class tickets were given priority over discounted tickets.
The dispositive portion of the decision of respondent Court of
Appeals 3dated October 25, 1991 states as follows:
WHEREFORE, in view of all the foregoing, the decision
under review is hereby MODIFIED in that the award of
moral and exemplary damages to the plaintiffs is
eliminated, and the defendant-appellant is hereby ordered
to pay the plaintiff the following amounts:
(1) US$159.49, or its peso equivalent at the time of the
payment, representing the price of Suthira Zalamea's ticket
for TWA Flight 007;
(2) US$159.49, or its peso equivalent at the time of the
payment, representing the price of Cesar Zalamea's ticket
for TWA Flight 007;
(3) P50,000.00 as and for attorney's fees.
(4) The costs of suit.
SO ORDERED. 4
Not satisfied with the decision, petitioners raised the case on petition for
review on certiorari and alleged the following errors committed by the
respondent Court of Appeals, to wit:
I.
. . . IN HOLDING THAT THERE WAS NO FRAUD OR
BAD FAITH ON THE PART OF RESPONDENT TWA
BECAUSE IT HAS A RIGHT TO OVERBOOK FLIGHTS.
II.
. . . IN ELIMINATING THE AWARD OF EXEMPLARY
DAMAGES.
III.
. . . IN NOT ORDERING THE REFUND OF LIANA
ZALAMEA'S TWA TICKET AND PAYMENT FOR THE
AMERICAN AIRLINES
TICKETS. 5
7
That there was fraud or bad faith on the part of respondent airline when it
did not allow petitioners to board their flight for Los Angeles in spite of
confirmed tickets cannot be disputed. The U.S. law or regulation allegedly
authorizing overbooking has never been proved. Foreign laws do not
prove themselves nor can the courts take judicial notice of them. Like any
other fact, they must be alleged and proved. 6 Written law may be
evidenced by an official publication thereof or by a copy attested by the
officer having the legal custody of the record, or by his deputy, and
accompanied with a certificate that such officer has custody. The certificate
may be made by a secretary of an embassy or legation, consul general,
consul, vice-consul, or consular agent or by any officer in the foreign
service of the Philippines stationed in the foreign country in which the
record is kept, and authenticated by the seal of his office. 7
Respondent TWA relied solely on the statement of Ms. Gwendolyn Lather,
its customer service agent, in her deposition dated January 27, 1986 that
the Code of Federal Regulations of the Civil Aeronautics Board allows
overbooking. Aside from said statement, no official publication of said
code was presented as evidence. Thus, respondent court's finding that
overbooking is specifically allowed by the US Code of Federal Regulations
has no basis in fact.
Even if the claimed U.S. Code of Federal Regulations does exist, the same
is not applicable to the case at bar in accordance with the principle of lex
loci contractus which require that the law of the place where the airline
ticket was issued should be applied by the court where the passengers are
residents and nationals of the forum and the ticket is issued in such State
by the defendant airline. 8 Since the tickets were sold and issued in the
Philippines, the applicable law in this case would be Philippine law.
Existing jurisprudence explicitly states that overbooking amounts to bad
faith, entitling the passengers concerned to an award of moral damages.
In Alitalia Airways v. Court of Appeals, 9 where passengers with confirmed
bookings were refused carriage on the last minute, this Court held that
when an airline issues a ticket to a passenger confirmed on a particular
flight, on a certain date, a contract of carriage arises, and the passenger has
every right to expect that he would fly on that flight and on that date. If he
does not, then the carrier opens itself to a suit for breach of contract of
carriage. Where an airline had deliberately overbooked, it took the risk of
having to deprive some passengers of their seats in case all of them would
show up for the check in. For the indignity and inconvenience of being
refused a confirmed seat on the last minute, said passenger is entitled to
an award of moral damages.
Similarly, in Korean Airlines Co., Ltd. v. Court of Appeals, 10 where private
respondent was not allowed to board the plane because her seat had
already been given to another passenger even before the allowable period
for passengers to check in had lapsed despite the fact that she had a
confirmed ticket and she had arrived on time, this Court held that
petitioner airline acted in bad faith in violating private respondent's rights
under their contract of carriage and is therefore liable for the injuries she
has sustained as a result.
In fact, existing jurisprudence abounds with rulings where the breach of
contract of carriage amounts to bad faith. In Pan American World Airways,
Inc. v. Intermediate Appellate Court, 11 where a would-be passenger had the
necessary ticket, baggage claim and clearance from immigration all clearly
and unmistakably showing that she was, in fact, included in the passenger
manifest of said flight, and yet was denied accommodation in said flight,
this Court did not hesitate to affirm the lower court's finding awarding her
damages.
A contract to transport passengers is quite different in kind and degree
from any other contractual relation. So ruled this Court in Zulueta v. Pan
American World Airways, Inc. 12 This is so, for a contract of carriage
generates a relation attended with public duty — a duty to provide public
service and convenience to its passengers which must be paramount to
self-interest or enrichment. Thus, it was also held that the switch of planes
from Lockheed 1011 to a smaller Boeing 707 because there were only 138
confirmed economy class passengers who could very well be
accommodated in the smaller planes, thereby sacrificing the comfort of its
first class passengers for the sake of economy, amounts to bad faith. Such
inattention and lack of care for the interest of its passengers who are
entitled to its utmost consideration entitles the passenger to an award of
moral damages. 13
Even on the assumption that overbooking is allowed, respondent TWA is
still guilty of bad faith in not informing its passengers beforehand that it
could breach the contract of carriage even if they have confirmed tickets if
there was overbooking. Respondent TWA should have incorporated
8
stipulations on overbooking on the tickets issued or to properly inform its
passengers about these policies so that the latter would be prepared for
such eventuality or would have the choice to ride with another airline.
Respondent TWA contends that Exhibit I, the detached flight coupon upon
which were written the name of the passenger and the points of origin and
destination, contained such a notice. An examination of Exhibit I does not
bear this out. At any rate, said exhibit was not offered for the purpose of
showing the existence of a notice of overbooking but to show that Exhibit
I was used for flight 007 in first class of June 11, 1984 from New York to
Los Angeles.
Moreover, respondent TWA was also guilty of not informing its
passengers of its alleged policy of giving less priority to discounted tickets.
While the petitioners had checked in at the same time, and held confirmed
tickets, yet, only one of them was allowed to board the plane ten minutes
before departure time because the full-fare ticket he was holding was given
priority over discounted tickets. The other two petitioners were left
behind.
It is respondent TWA's position that the practice of overbooking and the
airline system of boarding priorities are reasonable policies, which when
implemented do not amount to bad faith. But the issue raised in this case
is not the reasonableness of said policies but whether or not said policies
were incorporated or deemed written on petitioners' contracts of carriage.
Respondent TWA failed to show that there are provisions to that effect.
Neither did it present any argument of substance to show that petitioners
were duly apprised of the overbooked condition of the flight or that there
is a hierarchy of boarding priorities in booking passengers. It is evident
that petitioners had the right to rely upon the assurance of respondent
TWA, thru its agent in Manila, then in New York, that their tickets
represented confirmed seats without any qualification. The failure of
respondent TWA to so inform them when it could easily have done so
thereby enabling respondent to hold on to them as passengers up to the
last minute amounts to bad faith. Evidently, respondent TWA placed its
self-interest over the rights of petitioners under their contracts of carriage.
Such conscious disregard of petitioners' rights makes respondent TWA
liable for moral damages. To deter breach of contracts by respondent TWA
in similar fashion in the future, we adjudge respondent TWA liable for
exemplary damages, as well.
Petitioners also assail the respondent court's decision not to require the
refund of Liana Zalamea's ticket because the ticket was used by her father.
On this score, we uphold the respondent court. Petitioners had not shown
with certainty that the act of respondent TWA in allowing Mr. Zalamea to
use the ticket of her daughter was due to inadvertence or deliberate act.
Petitioners had also failed to establish that they did not accede to said
agreement. The logical conclusion, therefore, is that both petitioners and
respondent TWA agreed, albeit impliedly, to the course of action taken.
The respondent court erred, however, in not ordering the refund of the
American Airlines tickets purchased and used by petitioners Suthira and
Liana. The evidence shows that petitioners Suthira and Liana were
constrained to take the American Airlines flight to Los Angeles not
because they "opted not to use their TWA tickets on another TWA flight"
but because respondent TWA could not accommodate them either on the
next TWA flight which was also fully booked. 14 The purchase of the
American Airlines tickets by petitioners Suthira and Liana was the
consequence of respondent TWA's unjustifiable breach of its contracts of
carriage with petitioners. In accordance with Article 2201, New Civil Code,
respondent TWA should, therefore, be responsible for all damages which
may be reasonably attributed to the non-performance of its obligation. In
the previously cited case of Alitalia Airways v. Court of Appeals, 15 this Court
explicitly held that a passenger is entitled to be reimbursed for the cost of
the tickets he had to buy for a flight to another airline. Thus, instead of
simply being refunded for the cost of the unused TWA tickets, petitioners
should be awarded the actual cost of their flight from New York to Los
Angeles. On this score, we differ from the trial court's ruling which
ordered not only the reimbursement of the American Airlines tickets but
also the refund of the unused TWA tickets. To require both prestations
would have enabled petitioners to fly from New York to Los Angeles
without any fare being paid.
The award to petitioners of attorney's fees is also justified under Article
2208(2) of the Civil Code which allows recovery when the defendant's act
or omission has compelled plaintiff to litigate or to incur expenses to
protect his interest. However, the award for moral damages and
exemplary damages by the trial court is excessive in the light of the fact
that only Suthira and Liana Zalamea were actually "bumped off." An
award of P50,000.00 moral damages and another P50,000.00 exemplary
9
damages would suffice under the circumstances obtaining in the instant
case.
WHEREFORE, the petition is hereby GRANTED and the decision of the
respondent Court of Appeals is hereby MODIFIED to the extent of
adjudging respondent TransWorld Airlines to pay damages to petitioners
in the following amounts, to wit:
(1) US$918.00 or its peso equivalent at the time of payment representing
the price of the tickets bought by Suthira and Liana Zalamea from
American Airlines, to enable them to fly to Los Angeles from New York
City;
(2) P50,000.00 as moral damages;
(3) P50,000.00 as exemplary damages;
(4) P50,000.00 as attorney's fees; and
(5) Costs of suit.
SO ORDERED.
G.R. No. 119641 May 17, 1996
PHILIPPINE AIRLINES, INC., petitioner,
vs.
COURT OF APPEALS, DR. JOSEFINO MIRANDA and LUISA
MIRANDA, respondents.
REGALADO, J.:
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 1which 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 lights 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
10
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.
I. 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, 5taking 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
baggage on that day.
11
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.
12
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 Montejar, 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
13
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 nation'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
14
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.
2. On its second issue, petitioner avers that the express provisions on
private respondents' tickets stipulating that liability for delay in delivery
of baggage shall be limited to US$20.00 per kilo of baggage delayed, unless
the passenger declares a higher valuation, constitutes the contract of
carriage between PAL and private respondents.
It further contends that these express provisions are in compliance with
the provisions of the 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 coverage of the Warsaw Convention.
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
15
 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,
which is the case before Us. . . .
ACCORDINGLY, finding no reversible error, the challenged judgment of
respondent Court of Appeals is hereby AFFIRMED in toto.
SO ORDERED.
G.R. No. 120262 July 17, 1997
PHILIPPINE AIRLINES, INC., petitioner,
vs.
COURT OF APPEALS and LEOVIGILDO A. PANTEJO, respondents.
REGALADO, J.:
In this appeal by certiorari, petitioner Philippine Airlines, Inc. (PAL) seeks
to set aside the decision of respondent Court of Appeals, 1 promulgated on
December 29, 1994, which affirmed the award for damages made by the
trial court in favor of herein private respondent Leovegildo A. Pantejo.
On October 23, 1988, private respondent Pantejo, then City Fiscal of
Surigao City, boarded a PAL plane in Manila and disembarked in Cebu
City where he was supposed to take his connecting flight to Surigao City
However, due to typhoon Osang, the connecting flight to Surigao City was
cancelled.
To accommodate the needs of its stranded passengers, PAL initially gave
out cash assistance of P100.00 and, the next day, P200.00, for their expected
stay of two days in Cebu. Respondent Pantejo requested instead that he be
billeted in a hotel at PAL's expense because he did not have cash with him
at that time, but PAL refused. Thus, respondent Pantejo was forced to seek
and accept the generosity of a co-passenger, an engineer named Andoni
Dumlao, and he shared a room with the latter at Sky View Hotel with the
promise to pay his share of the expenses upon reaching Surigao.
On October 25, 1988 when the flight for Surigao was resumed, respondent
Pantejo came to know that the hotel expenses of his co-passengers, one
Superintendent Ernesto Gonzales and a certain Mrs. Gloria Rocha, an
auditor of the Philippine National Bank, were reimbursed by PAL. At this
point, respondent Pantejo informed Oscar Jereza, PAL's Manager for
Departure Services at Mactan Airport and who was in charge of cancelled
flights, that he was going to sue the airline for discriminating against him.
It was only then that Jereza offered to pay respondent Pantejo P300.00
which, due to the ordeal and anguish he had undergone, the latter decline.
On March 18, 1991, the Regional Trial Court of Surigao City, Branch 30,
rendered judgment in the action for damages filed by respondent Pantejo
against herein petitioner, Philippine Airlines, Inc., ordering the latter to
pay Pantejo P300.00 for actual damages, P150,000.00 as moral damages,
P100,000.00 as exemplary damages, P15,000.00 as attorney's fees, and 6%
interest from the time of the filing of the complaint until said amounts shall
have been fully paid, plus costs of suit. 2 On appeal, respondent court
affirmed the decision of the court a quo, but with the exclusion of the award
of attorney's fees and litigation expenses.
The main issue posed for resolution is whether petitioner airlines acted in
bad faith when it failed and refused to provide hotel accommodations for
respondent Pantejo or to reimburse him for hotel expenses incurred by
reason of the cancellation of its connecting flight to Surigao City due to
force majeure.
16
To begin with, it must be emphasized that a contract to transport
passengers is quite different in kind and degree from any other contractual
relation, and this is because of the relation which an air carrier sustain 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. 3
In ruling for respondent Pantejo, both the trial court and the Court of
Appeals found that herein petitioner acted in bad faith in refusing to
provide hotel accommodations for respondent Pantejo or to reimburse him
for hotel expenses incurred despite and in contrast to the fact that other
passengers were so favored.
In declaring that bad faith existed, respondent court took into
consideration the following factual circumstances:
1. Contrary to petitioner's claim that cash assistance was given instead
because of non-availability of rooms in hotels where petitioner had
existing tie-ups, the evidence shows that Sky View Hotel, where
respondent Pantejo was billeted, had plenty of rooms available.
2. It is not true that the P300.00 Paid to Ernesto Gonzales, a co-passenger
of respondent, was a refund for his plane ticket, the truth being that it was
a reimbursement for hotel and meal expenses.
3. It is likewise not denied that said Gonzales and herein respondent came
to know about the reimbursements only because another passenger, Mrs.
Rocha, informed them that she was able to obtain the refund for her own
hotel expenses.
4. Petitioner offered to pay P300.00 to private respondent only after he had
confronted the airline's manager about the discrimination committed
against him, which the latter realized was an actionable wrong.
5. Service Voucher No. 199351, presented by petitioner to prove that it gave
cash assistance to its passengers, was based merely on the list of
passengers already given cash assistance and was purportedly prepared
at around 10:00 A.M. of October 23, 1988. This was two
hours before respondent came to know of the cancellation of his flight to
Surigao, hence private respondent could not have possibly refused the
same. 4
It must be stressed that these factual findings, which are supported by
substantial evidence, are binding, final and conclusive upon this Court
absent any reason, and we find none, why this settled evidential rule
should not apply.
Petitioner theorizes that the hotel accommodations or cash assistance
given in case a flight is cancelled is in the nature of an amenity and is
merely a privilege that may be extended at its own discretion, but never a
right that may be demanded by its passengers. Thus, when respondent
Pantejo was offered cash assistance and he refused it, petitioner cannot be
held liable for whatever befell respondent Pantejo on that fateful day,
because it was merely exercising its discretion when it opted to just give
cash assistance to its passengers.
Assuming arguendo that the airline passengers have no vested right to
these amenities in case a flight is cancelled due to force majeure, what
makes petitioner liable for damages in this particular case and under the
facts obtaining herein is its blatant refusal to accord the so-called amenities
equally to all its stranded passengers who were bound for Surigao City.
No compelling or justifying reason was advanced for such discriminatory
and prejudicial conduct.
More importantly, it has been sufficiently established that it is petitioner's
standard company policy, whenever a flight has been cancelled, to extend
to its hapless passengers cash assistance or to provide them
accommodations in hotels with which it has existing tie-ups. In fact,
petitioner's Mactan Airport Manager for departure services, Oscar Jereza,
admitted that PAL has an existing arrangement with hotels to
accommodate stranded passengers, 5 and that the hotel bills of Ernesto
Gonzales were reimbursed 6 obviously pursuant to that policy.
Also, two witnesses presented by respondent, Teresita Azarcon and Nerie
Bol, testified that sometime in November, 1988, when their flight from
Cebu to Surigao was cancelled, they were billeted at Rajah Hotel for two
nights and three days at the expense of PAL. 7This was never denied by
PAL.
17
Further, Ernesto Gonzales, the aforementioned co-passenger of
respondent on that fateful flight, testified that based on his previous
experience hotel accommodations were extended by PAL to its stranded
passengers either in Magellan or Rajah Hotels, or even in Cebu Plaza.
Thus, we view as impressed with dubiety PAL's present attempt to
represent such emergency assistance as being merely ex gratia and not ex
debito.
While petitioner now insists that the passengers were duly informed that
they would be reimbursed for their hotel expenses, it miserably and
significantly failed to explain why the other passengers were given
reimbursement while private respondent was not. Although Gonzales was
subsequently given a refund, this was only so because he came to know
about it by accident through Mrs. Rocha, as earlier explained.
Petitioner could only offer the strained and flimsy pretext that possibly the
passengers were not listening when the announcement was made. This is
absurd because when respondent Pantejo came to know that his flight had
been cancelled, he immediately proceeded to petitioner's office and
requested for hotel accommodations. He was not only refused
accommodations, but he was not even informed that he may later on be
reimbursed for his hotel expenses. This explains why his co-passenger,
Andoni Dumlao, offered to answer for respondent's hotel bill and the latter
promised to pay him when they arrive in Surigao. Had both know that
they would be reimbursed by the airline, such arrangement would not
have been necessary.
Respondent Court of Appeals thus correctly concluded that the refund of
hotel expenses was surreptitiously and discriminatorily made by herein
petitioner since the same was not made known to everyone, except
through word of mouth to a handful of passengers. This is a sad
commentary on the quality of service and professionalism of an airline
company, which is the country's flag carrier at that.
On the bases of all the foregoing, the inescapable conclusion is that
petitioner acted in bad faith in disregarding its duties as a common carrier
to its passengers and in discriminating against herein respondent Pantejo.
It was even oblivious to the fact that this respondent was exposed to
humiliation and embarrassment especially because of his government
position and social prominence, which altogether necessarily subjected
him to ridicule, shame and anguish. It remains uncontroverted that at the
time of the incident, herein respondent was then the City Prosecutor of
Surigao City, and that he is a member of the Philippine Jaycee Senate, past
Lt. Governor of the Kiwanis Club of Surigao, a past Master of the Mount
Diwata Lodge of Free Masons of the Philippines, member of the Philippine
National Red Cross, Surigao Chapter,
and past Chairman of the Boy Scouts of the Philippines, Surigao del Norte
Chapter. 8
It is likewise claimed that the moral and exemplary damages awarded to
respondent Pantejo are excessive and unwarranted on the ground that
respondent is not totally blameless because of his refusal to accept the
P100.00 cash assistance which was inceptively offered to him. It bears
emphasis that respondent Pantejo had every right to make such refusal
since it evidently could not meet his needs and that was all that PAL
claimed it could offer.
His refusal to accept the P300.00 proffered as an afterthought when he
threatened suit was justified by his resentment when he belatedly found
out that his co-passengers were reimbursed for hotel expenses and he was
not. Worse, he would not even have known about it were it not for a co-
passenger who verbally told him that she was reimbursed by the airline
for hotel and meal expenses. It may even be said that the amounts, the time
and the circumstances under which those amounts were offered could not
salve the moral wounds inflicted by PAL on private respondent but even
approximated insult added to injury.
The discriminatory act of petitioner against respondent ineludibly makes
the former liable for moral damages under Article 21 in relation to Article
2219 (10) of the Civil Code. 9 As held in Alitalia Airways vs. CA, et
al., 10 such inattention to and lack of care by petitioner airline for the
interest of its passengers who are entitled to its utmost consideration,
particularly as to their convenience, amount to bad faith which entitles the
passenger to the award of moral damages.
Moral damages are emphatically not intended to enrich a plaintiff at the
expense of the defendant. They are awarded only to allow the former to
obtain means, diversion, or amusements that will serve to alleviate the
moral suffering he has undergone due to the defendant's culpable action
and must, perforce, be proportional to the suffering inflicted. 11 However,
18
substantial damages do not translate into excessive damages. 12Except for WHEREFORE, the challenged judgment of respondent Court of Appeals
attorney's fees and costs of suit, it will be noted that the Court of Appeals is hereby AFFIRMED, subject to the MODIFICATION regarding the
affirmed point by point the factual findings of the lower court upon which computation of the 6% legal rate of interest on the monetary awards
the award of damages had been based. 13 We, therefore, see no reason to granted therein to private respondent
modify the award of damages made by the trial court.
SO ORDERED.
Under the peculiar circumstances of this case, we are convinced that the
awards for actual, moral and exemplary damages granted in the judgment
of respondent court, for the reasons meticulously analyzed and thoroughly
explained in its decision, are just and equitable. It is high time that the
travelling public is afforded protection and that the duties of common
carriers, long detailed in our previous laws and jurisprudence and
thereafter collated and specifically catalogued in our Civil Code in 1950,
be enforced through appropriate sanctions.

We agree, however, with the contention that the interest of 6% imposed by

respondent court should be computed from the date of rendition of
judgment and not from the filing of the complaint. The rule has been laid
down in Eastern Shipping Lines, Inc. vs. Court of Appeals, et al. 14 that:

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 G.R. No. 119995 November 18, 1997
cannot be so reasonably established at the time the demand is
CARLOS SINGSON, petitioner,
made, the interest shall begin to run only from the date the
vs.
judgment of the court is made (at which time the quantification of
COURT OF APPEALS and CATHAY PACIFIC AIRWAY,
damages may be deemed to have been reasonably ascertained).
INC., respondents.
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
BELLOSILLO, J.:
This is because at the time of the filing of the complaint, the amount of
A contract of air carriage is a peculiar one. Imbued with public interest,
damages to which plaintiff may be entitled remains unliquidated and not
common carriers are required by law to carry passengers safely as far a
known, until it is definitely ascertained, assessed and determined by the
human care and foresight can provide, using the utmost diligence of a very
court, and only after the presentation of proof thereon. 15
cautious person, with due regard for all the circumstances. 1 A contract to
19
transport passengers is quite different in kind and degree from any other
contractual relation. And this because its business is mainly with the
traveling public. In invites people to avail of the comforts and advantages
it offers. The contract of carriage, therefore, generates a relation attended
with a public duty. 2 Failure of the carrier to observe this high degree of
care and extraordinary diligence renders it liable for any damage that may
be sustained by its passengers.
The instant case is an illustration of the exacting standard demanded by
the law of common carriers: On 24 May 1988 CARLOS SINGSON and his
cousin Crescentino Tiongson bought from Cathay Pacific Airways, Ltd.
(CATHAY), at its Metro Manila ticket outlet two (2) open-dated,
identically routed, round trip plane tickets for the purpose of spending
their vacation in the United States. Each ticket consisted of six (6) flight
coupons corresponding to this itinerary: flight coupon no. 1 — Manila to
Hongkong; flight coupon no. 2 — Hongkong to San Francisco; flight
coupon no. 3 — San Francisco to Los Angeles; flight coupon no. 4 — Los
Angeles back to San Francisco; flight coupon no. 5 — San Francisco to
Hongkong; and, finally, flight coupon no. 6 — Hongkong to Manila. The
procedure was that at the start of each leg of the trip a flight coupon
corresponding to the particular sector of the travel would be removed from
the ticket booklet so that at the end of the trip no more coupon would be
left in the ticket booklet.
On 6 June 1988 CARLOS SINGSON and Crescentino Tiongson left Manila
on board CATHAY's Flight No. 902. They arrived safely in Los Angeles
and after staying there for about three (3) weeks they decided to return to
the Philippines. On 30 June 1988 they arranged for their return flight at
CATHAY's Los Angeles Office and chose 1 July 1988, a Friday, for their
departure. While Tiongson easily got a booking for the flight, SINGSON
was not as lucky. It was discovered that his ticket booklet did not have
flight coupon no. 5 corresponding to the San Francisco-Hongkong leg of
the trip. Instead, what was in his ticket was flight coupon no. 3 — San
Francisco to Los Angeles — which was supposed to have been used and
removed from the ticket booklet. It was not until 6 July 1988 that CATHAY
was finally able to arrange for his return flight to Manila.
On 26 August 1988 SINGSON commenced an action for damages against
CATHAY before the Regional Trial Court of Vigan, Ilocos Sur. 3 He
claimed that he insisted on CATHAY's confirmation of his return flight
reservation because of very important and urgent business engagements
in the Philippines. But CATHAY allegedly shrugged off his protestations
and arrogantly directed him to go to San Francisco himself and do some
investigations on the matter or purchase a new ticket subject to refund if it
turned out that the missing coupon was still unused or subsisting. He
remonstrated that it was the airline's agent/representative who must have
committed the mistake of tearing off the wrong flight coupon; that he did
not have enough money to buy new tickets; and, CATHAY could conclude
the investigation in a matter of minutes because of its facilities. CATHAY,
allegedly in scornful insolence, simply dismissed him like an impertinent
"brown pest." Thus he and his cousin Tiongson, who deferred his own
flight to accompany him, were forced to leave for San Francisco on the
night of 1 July 1988 to verify the missing ticket.
CATHAY denied these allegations and averred that since petitioner was
holding an "open-dated" ticket, which meant that he was not booked on a
specific flight on a particular date, there was no contract of carriage yet
existing such that CATHAY's refusal to immediately book him could not
be construed as breach of contract of carriage. Moreover, the coupon had
been missing for almost a month hence CATHAY must first verify its
status, i.e., whether the ticket was still valid and outstanding, before it
could issue a replacement ticket to petitioner. For that purpose, it sent a
request by telex on the same day, 1 July 1988, to its Hongkong
Headquarters where such information could be
retrieved. 4 However, due to the time difference between Los Angeles and
Hongkong, no response from the Hongkong office was immediately
received. Besides, since 2 and 3 July 1988 were a Saturday and a Sunday,
respectively, and 4 July 1988 was an official holiday being U.S.
Independence Day, the telex response of CATHAY Hongkong was not
read until 5 July 1988. Lastly, CATHAY denied having required SINGSON
to make a trip back to San Francisco; on the other hand, it was the latter
who informed CATHAY that he was making a side trip to San Francisco.
Hence, CATHAY advised him that the response of Hongkong would be
copied in San Francisco so that he could conveniently verify thereat should
he wish to.
The trial court rendered a decision in favor of petitioner herein holding
that CATHAY was guilty of gross negligence amounting to malice and bad
faith for which it was adjudged to pay petitioner P20,000.00 for actual
damages with interest at the legal rate of twelve percent (12%) per
20
annum from 26 August 1988 when the complaint was filed until fully paid,
P500,000.00 for moral damages, P400,000.00 for exemplary damages,
P100,000.00 for attorney's fees, and, to pay the costs.
On appeal by CATHAY, the Court of Appeals reversed the trial court's
finding that there was gross negligence amounting to bad faith or fraud
and, accordingly, modified its judgment by deleting the awards for moral
and exemplary damages, and the attorney's fees as well. Reproduced
hereunder are the pertinent portions of the decision of the appellate
court 5 —
There is enough merit in this appeal to strike down the trial court's
award of moral and exemplary damages and attorney's fees . . . .
In this material respect, the appellant correctly underscores the fact
that the appellee held an open dated ticket for his return flight
from San Francisco to manila via Hongkong and that, as a
consequence, the latter was not actually confirmed on the July 1,
1988 flight or, for that matter, any of the appellant's flight . . . . . The
appellant certainly committed no breach of contract of carriage
when it refused the appellee the booking he requested on the said
July 1, 1988 flight. As a "chance passenger," the latter had no
automatic right to fly on that flight and on that date.
Even assuming arguendo that a breach of contract of carriage may
be attributed the appellant, the appellee's travails were directly
traceable to the mistake in detaching the San Francisco-Hongkong
flight coupon of his plane ticket which led to the appellant's refusal
to honor his plane ticket. While that may constitute negligence on
the part of the air carrier, the same cannot serve as basis for an
award of moral damages. The rule is that moral damages are
recoverable in a damage suit predicated upon a breach of contract
of carriage only where (a) the mishap results in the death of a
passenger and (b) it is proved that the carrier was guilty of fraud
and bad faith even if death does not result . . . . In disallowing the
trial court's award of moral damages, the Court takes appropriate
note of the necessity for the appellant's verification of the status of
the missing flight coupon as well as the justifiable delay thereto
attendant . . . . Contrary to the appellee's allegation that he was
peremptorily refused confirmation of his flight, and arrogantly
told to verify the missing flight coupon on his own, the record
shows that the appellant adopted such measures as were
reasonably required under the circumstances. Even the
testimonies offered by the appellee and his witnesses collectively
show no trace of fraud or bad faith as would justify the trial court's
award of moral damages.
The basis for the award of moral damages discounted, there exists
little or no reason to allow the exemplary damages and attorney's
fees adjudicated in favor of the appellee.
Petitioner's subsequent motion for reconsideration having been denied for
lack of merit and for being pro forma he came to use for review. He claims
that the trial court found CATHAY guilty of gross negligence amounting
to malice and bad faith in: (a) detaching the wrong coupon; (b) using that
error to deny confirmation of his return flight; and, (c) directing petitioner
to prematurely return to San Francisco to verify his missing coupon. He
also underscores the scornful and demeaning posture of CATHAY's
employees toward him. He argues that since findings of fact of the trial
court are entitled to the highest degree of respect from the appellate courts,
especially when they were supported by evidence, it was erroneous for the
Court of Appeals to strike out the award of moral and exemplary damages
as well as attorney's fees allegedly for lack of basis.
In its Comment, CATHAY firmly maintains that it did not breach its
contract of carriage with petitioner. It argues that it is only when passenger
is confirmed on a particular flight and on a particular date specifically
stated in his ticket that its refusal to board the passenger will result in a
breach of contract. And even assuming that there was breach of contract,
there was no fraud or bad faith on the part of CATHAY as to justify the
award of moral and exemplary damages plus attorney's fees in favor of
petitioner.
There are two (2) main issues that confront the Court: first, whether a
breach of contract was committed by CATHAY when it failed to confirm
the booking of petitioner for its 1 July 1988 flight; and, second, whether the
carrier was liable not only for actual damages but also for moral and
exemplary damages, and attorney's fees for failing to book petitioner on
his return flight to the Philippines.
21
We find merit in the petition. CATHAY undoubtedly committed a breach
of contract when it refused to confirm petitioner's flight reservation back
to the Philippines on account of his missing flight coupon. Its contention
that there was no contract of carriage that was breached because
petitioner's ticket was open-dated is untenable. To begin with, the round
trip ticket issued by the carrier to the passenger was in itself a complete
written contract by and between the carrier and the passenger. It has all
the elements of a complete written contract, to wit: (a) the consent of the
contracting parties manifested by the fact that the passenger agreed to be
transported by the carrier to and from Los Angeles via San Francisco and
Hongkong back to the Philippines, and the carrier's acceptance to bring
him to his destination and then back home; (b) cause or consideration,
which was the fare paid by the passenger as stated in his ticket; and, (c)
object, which was the transportation of the passenger from the place of
departure to the place of destination and back, which are also stated in his
ticket. 6 In fact, the contract of carriage in the instant case was already
partially executed as the carrier complied with its obligation to transport
the passenger to his destination, i.e., Los Angeles. Only the performance of
the other half of the contract — which was to transport the passenger back
to the Philippines — was left to be done. Moreover, Timothy Remedios,
CATHAY's reservation and ticketing agent, unequivocally testified that
petitioner indeed had reservations booked for travel —
Q: Were you able to grant what they wanted, if not,
please state why?
A: I was able to obtain a record of Mr. Singson's
computer profile from my flight reservations
computer. I verified that Mr. Singson did indeed
have reservations booked for travel: Los Angeles to San
Francisco, San Francisco to Hongkong to Manila. I
then proceeded to revalidate their tickets but was
surprised to observe that Mr. Singson's ticket did
not contain a flight coupon for San Francisco to
Hongkong. His ticket did, however, contain a
flight coupon for San Francisco to Los Angeles
which was supposed to have been utilized already,
that is, supposed to have been removed by U.S. Air
when he checked in San Francisco for his flight
from San Francisco to Los Angeles 7 (emphasis
supplied).
Clearly therefore petitioner was not a mere "chance passenger with no
superior right to be boarded on a specific flight," as erroneously claimed
by CATHAY and sustained by the appellate court.
Interestingly, it appears that CATHAY was responsible for the loss of the
ticket. One of two (2) things may be surmised from the circumstances of
this case: first, US Air (CATHAY's agent) had mistakenly detached the San
Francisco-Hongkong flight coupon thinking that it was the San Francisco-
Los Angeles portion; or, second, petitioner's booklet of tickets did not from
issuance include a San Francisco-Hongkong flight coupon. In either case,
the loss of the coupon was attributed to the negligence of CATHAY's agents
and was the proximate cause of the non-confirmation of petitioner's return
flight on 1 July 1988. It virtually prevented petitioner from demanding the
fulfillment of the carrier's obligations under the contract. Had CATHAY's
agents been diligent in double checking the coupons they were supposed
to detach from the passengers' tickets, there would have been no reason
for CATHAY not to confirm petitioner's booking as exemplified in the case
of his cousin and flight companion Tiongson whose ticket booklet was
found to be in order. Hence, to hold that no contractual breach was
committed by CATHAY and totally absolve it from any liability would in
effect put a premium on the negligence of its agent, contrary to the policy
of the law requiring common carriers to exercise extraordinary diligence.
With regard to the second issue, we are of the firm view that the appellate
court seriously erred in disallowing moral and exemplary damages.
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, 8 or where the carrier is guilty of fraud
or bad faith, 9 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. 10
In the instant case, the following circumstances attended the breach of
contract by CATHAY, to wit: First, as heretofore discussed, the ticket
coupon corresponding to the San Francisco-Hongkong flight was missing
either due to the negligence of CATHAY's agents in improperly detaching
petitioner's flight coupons or failing to issue the flight coupon for San
22
Francisco-Hongkong in the ticket booklet; second, petitioner and his cousin
presented their respective ticket booklets bearing identical itineraries to
prove that there had been a mistake in removing the coupons of petitioner.
Furthermore, CATHAY's Timothy Remedios testified that he was able to
ascertain from his flight reservations computer that petitioner indeed had
reservations booked for travel on their return flight, but CATHAY
apparently ignored the clear evidential import of these facts and
peremptorily refused to confirm petitioner's flight — while ready to
confirm his traveling companion's identically routed plane ticket — on the
lame and flimsy excuse that the existence and validity of the missing ticket
must first be verified; third, petitioner was directed by CATHAY to go to
its San Francisco office and make the necessary verification concerning the
lost coupon himself. This, notwithstanding the fact that CATHAY was
responsible for the loss of the ticket and had all the necessary equipment,
e.g., computers, fax and telex machines and telephones which could
facilitate the verification right there at its Los Angeles Office.
CATHAY's allegation that it never required petitioner to go to San
Francisco is unpersuasive. Petitioner categorically testified that a lady
employee of CATHAY in Los Angeles "insisted that we take the matter
(up) with their office in San Francisco." 11 In fact, it even appeared from the
evidence that it was the San Francisco office which arranged for his return
flight to the Philippines and not the Los Angeles office. 12 Moreover, due
deference must be accorded the trial court's finding that petitioner was
indeed sent by CATHAY to its San Francisco office to verify. For good and
sound reasons, this Court has consistently affirmed that review of the
findings of fact of the trial court is not a function that appellate courts
ordinarily undertake, such findings being as a rule binding and
conclusive. 13 It is true that certain exceptions have become familiar.
However, nothing in the records warrants a review based on any of these
well-recognized exceptions; and, fourth, private respondent endeavored to
show that it undertook the verification of the lost coupon by sending a
telex to its Hongkong Office. It likewise tried to justify the five (5) days
delay in completing the verification process, claiming that it was due to
the time difference between Hongkong and Los Angeles and the
coinciding non-working days in the United States. The following dialogue
between Consul Cortez
and Cathay's reservation and ticketing agent Timothy Remedios can be
enlightening —
Q: What official action did you in turn take?
A: While Mr. Singson was still in my office I sent a
telex out at approximately 10:00 a.m. on 30 June
1988 to Hongkong Accounting Office and copied
San Francisco ticket office since Mr. Singson
advised he might not be able to return to my office
but would be going to San Francisco. 10:00 a.m. 30
June 1988 in Los Angeles is however 2:00 a.m. on 1
July 1988 in Hongkong and since office hours start
at 9:00 a.m. in Hongkong, no reply was instantly
sent back to me. The response was sent out from
Hongkong on 2 July 1988 at approximately 12:00
noon (Hongkong time) and was received
immediately by the Los Angeles telex machine.
However, 12:00 noon 2 July 1988 Hongkong time
was 8:00 p.m. 1 July 1988 in Los Angeles where
office hours close at 5: pm.. The Los Angeles office
was closed on 2 and 3 July 1988 being Saturday and
Sunday and also closed 4 July 1988 for a public
holiday (Independence day) so the reply from
Hongkong was not read until 5 July 1988, 8:30 Los
Angeles time. 14
But far from helping private respondent's cause, the foregoing testimony
only betrayed another act of negligence committed by its employees in
Hongkong. It will be observed that CATHAY's Hongkong Office received
the telex from Los Angeles on 1 July 1988 at approximately 2:00 a.m.
(Hongkong time) and sent out their response only on 2 July 1988 at 12:00
noon. In spite of the fact that they had access to all records and facilities
that would enable them to verify in a matter of minutes, it strangely took
them more than twenty-four (24) hours to complete the verification
process and to sent their reply to Los Angeles. The inevitable conclusion is
that CATHAY's Hongkong personnel never acted promptly and timely on
the request for verification.
Besides, to be stranded for five (5) days in a foreign land because of an air
carrier's negligence is too exasperating an experience for a plane
passenger. For sure, petitioner underwent profound distress and anxiety,
not to mention the worries brought by the thought that he did not have
23
enough money to sustain himself, and the embarrassment of having been
forced to seek the generosity of relatives and friends.
Anent the accusation that private respondent's personnel were rude and
arrogant, petitioner failed to adduce sufficient evidence to substantiate his
claim. Nonetheless, such fact will not in any manner affect the disposition
of this case. Private respondent's mistake in removing the wrong coupon
was compounded by several other independent acts of negligence above-
enumerated. Taken together, they indubitably signify more than ordinary
inadvertence or inattention and thus constitute a radical departure from
the extraordinary standard of care required of common carriers. Put
differently, these circumstances reflect the 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,
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. 15
However, the P500,000.00 moral damages and P400,000.00 exemplary
damages awarded by the trial court have to be reduced. 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. 16 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. 17 Damages are not
intended to enrich the complainant at the expense of the defendant. They
are awarded only to alleviate the moral suffering that the injured partly
had undergone by reason of the defendant's culpable action. 18 There is not
hard-and-fast rule in the determination of what would be a fair amount of
moral damages since each case must be governed by its own peculiar facts.
In the instant case, the injury suffered by petitioner is not so serious or
extensive as to warrant an award amounting to P900,000.00. The
assessment of P200,000.00 as moral damages and P50,000.00 as exemplary
damages in his favor is, in our view, reasonable and realistic.
On the issue of actual damages, we agree with the Court of Appeals that
the amount of P20,000.00 granted by the trial court to petitioner should not
be disturbed. Petitioner categorically testified that he incurred the amount
during the period of his delay in departing from the United States —
Q: Will you kindly tell the Court what expenses if
any did you incur for these . . . days from July 1
until you were able to leave on July 6, 1988?
A: Well, it is true we stayed in the house of my
nephew but still we had to spend for our food and
I left him some around five hundred dollars for our
stay for around five days.
Q: How about your meals?
A: For our meals, we have to eat outside.
Q: Will you tell, more or less, how much you spent
for your meals?
xxx xxx xxx
A: For every meal we spend around thirty dollars
each.
Q: And this is for how many days?
A: From July 1, up to the 6th in the morning, sir.
Q: So more or less how many in pesos did you
spend for this period of waiting from July 1 to 6?
A: Twenty thousand pesos, sir. 19
In the absence of any countervailing evidence from private respondent,
and in view of the negligence attributable to it, the foregoing testimony
suffices as basis for actual damages as determined by the court a quo.
As regards attorney's fees, they may be awarded when the defendant's act
or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest. It was therefore erroneous for the
Court of Appeals to delete the award made by the trial court;
24
consequently, petitioner should be awarded attorney's fees and the
amount of P25,000.00, instead of P100,000.00 earlier awarded, may be
considered rational, fair and reasonable.
WHEREFORE, the petition is GRANTED and the 14 July 1994 Decision of
the Court of Appeals is REVERSED. Private respondent is ordered to pay
petitioner P20,000.00 for actual damages as fixed by the trial court, plus
P200,000.00 for moral damages, P50,000.00 for exemplary damages and
P25,000.00 for attorney's fees. No costs.
SO ORDERED.
G.R. No. 131621 September 28, 1999
LOADSTAR SHIPPING CO., INC., petitioner,
vs.
COURT OF APPEALS and THE MANILA INSURANCE CO.,
INC., respondents.
DAVIDE, JR., C.J.:
Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this
petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, seeks to reverse and set aside the following: (a) the 30 January
1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which
affirmed the decision of 4 October 1991 2 of the Regional Trial Court of
Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay
private respondent Manila Insurance Co. (hereafter MIC) the amount of
P6,067,178, with legal interest from the filing of the compliant until fully
paid, P8,000 as attorney's fees, and the costs of the suit; and (b) its
resolution of 19 November 1997, 3 denying LOADSTAR's motion for
reconsideration of said decision.
The facts are undisputed.
On 19 November 1984, LOADSTAR received on board its M/V "Cherokee"
(hereafter, the vessel) the following goods for shipment:
a) 705 bales of lawanit hardwood;
b) 27 boxes and crates of tilewood assemblies and the
others ;and
c) 49 bundles of mouldings R & W (3) Apitong Bolidenized.
The goods, amounting to P6,067,178, were insured for the same amount
with MIC against various risks including "TOTAL LOSS BY TOTAL OF
THE LOSS THE VESSEL." The vessel, in turn, was insured by Prudential
Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20
November 1984, on its way to Manila from the port of Nasipit, Agusan del
Norte, the vessel, along with its cargo, sank off Limasawa Island. As a
result of the total loss of its shipment, the consignee made a claim with
LOADSTAR which, however, ignored the same. As the insurer, MIC paid
P6,075,000 to the insured in full settlement of its claim, and the latter
executed a subrogation receipt therefor.
On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI,
alleging that the sinking of the vessel was due to the fault and negligence
of LOADSTAR and its employees. It also prayed that PGAI be ordered to
pay the insurance proceeds from the loss the vessel directly to MIC, said
amount to be deducted from MIC's claim from LOADSTAR.
In its answer, LOADSTAR denied any liability for the loss of the shipper's
goods and claimed that sinking of its vessel was due to force majeure. PGAI,
on the other hand, averred that MIC had no cause of action against it,
LOADSTAR being the party insured. In any event, PGAI was later
dropped as a party defendant after it paid the insurance proceeds to
LOADSTAR.
As stated at the outset, the court a quo rendered judgment in favor of MIC,
prompting LOADSTAR to elevate the matter to the court of Appeals,
which, however, agreed with the trial court and affirmed its decision in
toto.
In dismissing LOADSTAR's appeal, the appellate court made the
following observations:
1) LOADSTAR cannot be considered a private carrier on the sole ground
that there was a single shipper on that fateful voyage. The court noted that
25
the charter of the vessel was limited to the ship, but LOADSTAR retained
control over its crew. 4
2) As a common carrier, it is the Code of Commerce, not the Civil Code,
which should be applied in determining the rights and liabilities of the
parties.
3) The vessel was not seaworthy because it was undermanned on the day
of the voyage. If it had been seaworthy, it could have withstood the
"natural and inevitable action of the sea" on 20 November 1984, when the
condition of the sea was moderate. The vessel sank, not because of force
majeure, but because it was not seaworthy. LOADSTAR'S allegation that
the sinking was probably due to the "convergence of the winds," as stated
by a PAGASA expert, was not duly proven at the trial. The "limited
liability" rule, therefore, is not applicable considering that, in this case,
there was an actual finding of negligence on the part of the carrier. 5
4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do
not apply because said provisions bind only the shipper/consignee and
the carrier. When MIC paid the shipper for the goods insured, it was
subrogated to the latter's rights as against the carrier, LOADSTAR. 6
5) There was a clear breach of the contract of carriage when the shipper's
goods never reached their destination. LOADSTAR's defense of "diligence
of a good father of a family" in the training and selection of its crew is
unavailing because this is not a proper or complete defense in culpa
contractual.
6) "Art. 361 (of the Code of Commerce) has been judicially construed to
mean that when goods are delivered on board a ship in good order and
condition, and the shipowner delivers them to the shipper in bad order
and condition, it then devolves upon the shipowner to both allege and
prove that the goods were damaged by reason of some fact which legally
exempts him from liability." Transportation of the merchandise at the risk
and venture of the shipper means that the latter bears the risk of loss or
deterioration of his goods arising from fortuitous events, force majeure, or
the inherent nature and defects of the goods, but not those caused by the
presumed negligence or fault of the carrier, unless otherwise proved. 7
The errors assigned by LOADSTAR boil down to a determination of the
following issues:
(1) Is the M/V "Cherokee" a private or a
common carrier?
(2) Did LOADSTAR observe due and/or
ordinary diligence in these premises.
Regarding the first issue, LOADSTAR submits that the vessel was a private
carrier because it was not issued certificate of public convenience, it did
not have a regular trip or schedule nor a fixed route, and there was only
"one shipper, one consignee for a special cargo."
In refutation, MIC argues that the issue as to the classification of the M/V
"Cherokee" was not timely raised below; hence, it is barred by estoppel.
While it is true that the vessel had on board only the cargo of wood
products for delivery to one consignee, it was also carrying passengers as
part of its regular business. Moreover, the bills of lading in this case made
no mention of any charter party but only a statement that the vessel was a
"general cargo carrier." Neither was there any "special arrangement"
between LOADSTAR and the shipper regarding the shipment of the cargo.
The singular fact that the vessel was carrying a particular type of cargo for
one shipper is not sufficient to convert the vessel into a private carrier.
As regards the second error, LOADSTAR argues that as a private carrier,
it cannot be presumed to have been negligent, and the burden of proving
otherwise devolved upon MIC. 8
LOADSTAR also maintains that the vessel was seaworthy. Before the
fateful voyage on 19 November 1984, the vessel was allegedly dry docked
at Keppel Philippines Shipyard and was duly inspected by the maritime
safety engineers of the Philippine Coast Guard, who certified that the ship
was fit to undertake a voyage. Its crew at the time was experienced,
licensed and unquestionably competent. With all these precautions, there
could be no other conclusion except that LOADSTAR exercised the
diligence of a good father of a family in ensuring the vessel's
seaworthiness.
26
LOADSTAR further claims that it was not responsible for the loss of the
cargo, such loss being due to force majeure. It points out that when the
vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather
was fine until the next day when the vessel sank due to strong waves.
MCI's witness, Gracelia Tapel, fully established the existence of two
typhoons, "WELFRING" and "YOLING," inside the Philippine area of
responsibility. In fact, on 20 November 1984, signal no. 1 was declared over
Eastern Visayas, which includes Limasawa Island. Tapel also testified that
the convergence of winds brought about by these two typhoons
strengthened wind velocity in the area, naturally producing strong waves
and winds, in turn, causing the vessel to list and eventually sink.
LOADSTAR goes on to argue that, being a private carrier, any agreement
limiting its liability, such as what transpired in this case, is valid. Since the
cargo was being shipped at "owner's risk," LOADSTAR was not liable for
any loss or damage to the same. Therefore, the Court of Appeals erred in
holding that the provisions of the bills of lading apply only to the shipper
and the carrier, and not to the insurer of the goods, which conclusion runs
counter to the Supreme Court's ruling in the case of St. PaulFire & Marine
Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance Company of
Pittsburgh v. Stolt-Nielsen Phils., Inc. 10
Finally, LOADSTAR avers that MIC's claim had already prescribed, the
case having been instituted beyond the period stated in the bills of lading
for instituting the same — suits based upon claims arising from shortage,
damage, or non-delivery of shipment shall be instituted within sixty days
from the accrual of the right of action. The vessel sank on 20 November
1984; yet, the case for recovery was filed only on 4 February 1985.
MIC, on the other hand, claims that LOADSTAR was liable,
notwithstanding that the loss of the cargo was due to force majeure, because
the same concurred with LOADSTAR's fault or negligence.
Secondly, LOADSTAR did not raise the issue of prescription in the court
below; hence, the same must be deemed waived.
Thirdly, the " limited liability " theory is not applicable in the case at bar
because LOADSTAR was at fault or negligent, and because it failed to
maintain a seaworthy vessel. Authorizing the voyage notwithstanding its
knowledge of a typhoon is tantamount to negligence.
We find no merit in this petition.
Anent the first assigned error, we hold that LOADSTAR is a common
carrier. It is not necessary that the carrier be issued a certificate of public
convenience, and this public character is not altered by the fact that the
carriage of the goods in question was periodic, occasional, episodic or
unscheduled.
In support of its position, LOADSTAR relied on the 1968 case of Home
Insurance Co. v. American Steamship Agencies, Inc., 11 where this Court held
that a common carrier transporting special cargo or chartering the vessel
to a special person becomes a private carrier that is not subject to the
provisions of the Civil Code. Any stipulation in the charter party absolving
the owner from liability for loss due to the negligence of its agent is void
only if the strict policy governing common carriers is upheld. Such policy
has no force where the public at is not involved, as in the case of a ship
totally chartered for the use of a single party. LOADSTAR also
cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of
Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which
upheld the Home Insurance doctrine.
These cases invoked by LOADSTAR are not applicable in the case at bar
for the simple reason that the factual settings are different. The records do
not disclose that the M/V "Cherokee," on the date in question, undertook
to carry a special cargo or was chartered to a special person only. There
was no charter party. The bills of lading failed to show any special
arrangement, but only a general provision to the effect that the
M/V"Cherokee" was a "general cargo carrier." 14 Further, the bare fact that
the vessel was carrying a particular type of cargo for one shipper, which
appears to be purely coincidental, is not reason enough to convert the
vessel from a common to a private carrier, especially where, as in this case,
it was shown that the vessel was also carrying passengers.
Under the facts and circumstances obtaining in this case, LOADSTAR fits
the definition of a common carrier under Article 1732 of the Civil Code. In
the case of De Guzman v. Court of Appeals, 15 the Court juxtaposed the
statutory definition of "common carriers" with the peculiar circumstances
of that case, viz.:
The Civil Code defines "common carriers" in the following terms:
27
 Art. 1732. Common carriers are persons,
corporations, firms or associations
engaged in the business of carrying or
transporting passengers or goods or both,
by land, water, or air for compensation,
offering their services to the public.
The above article makes no distinction between one
whose principal business activity is the carrying of persons
or goods or both, and one who does such carrying only
as ancillary activity (in local idiom, as "a sideline". Article
1732 also carefully avoids making any distinction between
a person or enterprise offering transportation service on
a regular or scheduled basis and one offering such service on
an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its
services to the "general public," i.e., the general community
or population, and one who offers services or solicits
business only from a narrow segment of the general
population. We think that Article 1733 deliberately
refrained from making such distinctions.
xxx xxx xxx
It appears to the Court that private respondent is properly
characterized as a common carrier even though he merely
"back-hauled" goods for other merchants from Manila to
Pangasinan, although such backhauling was done on a
periodic or occasional rather than regular or scheduled
manner, and eventhough private
respondent's principal occupation was not the carriage of
goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their
goods; that fee frequently fell below commercial freight
rates is not relevant here.
The Court of Appeals referred to the fact that private
respondent held no certificate of public convenience, and
concluded he was not a common carrier. This is palpable
error. A certificate of public convenience is not a requisite
for the incurring of liability under the Civil Code
provisions governing common carriers. That liability arises
the moment a person or firm acts as a common carrier,
without regard to whether or not such carrier has also
complied with the requirements of the applicable
regulatory statute and implementing regulations and has
been granted a certificate of public convenience or other
franchise. To exempt private respondent from the
liabilities of a common carrier because he has not secured
the necessary certificate of public convenience, would be
offensive to sound public policy; that would be to reward
private respondent precisely for failing to comply with
applicable statutory requirements The business of a
common carrier impinges directly and intimately upon the
safety and well being and property of those members of
the general community who happen to deal with such
carrier. The law imposes duties and liabilities upon
common carriers for the safety and protection of those who
utilize their services and the law cannot allow a common
carrier to render such duties and liabilities merely
facultative by simply failing to obtain the necessary
permits and authorizations.
Moving on to the second assigned error, we find that the M/V "Cherokee"
was not seaworthy when it embarked on its voyage on 19 November 1984.
The vessel was not even sufficiently manned at the time. "For a vessel to
be seaworthy, it must be adequately equipped for the voyage and manned
with a sufficient number of competent officers and crew. The failure of a
common carrier to maintain in seaworthy condition its vessel involved in
a contract of carriage is a clear breach of its duty prescribed in Article 1755
of the Civil Code." 16
Neither do we agree with LOADSTAR's argument that the "limited
liability" theory should be applied in this case. The doctrine of limited
liability does not apply where there was negligence on the part of the
vessel owner or agent. 17 LOADSTAR was at fault or negligent in not
maintaining a seaworthy vessel and in having allowed its vessel to sail
despite knowledge of an approaching typhoon. In any event, it did not
sink because of any storm that may be deemed as force majeure, inasmuch
as the wind condition in the performance of its duties, LOADSTAR cannot
28
hide behind the "limited liability" doctrine to escape responsibility for the
loss of the vessel and its cargo.
LOADSTAR also claims that the Court of Appeals erred in holding it liable
for the loss of the goods, in utter disregard of this Court's pronouncements
in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc., 18 and National
Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two
cases that after paying the claim of the insured for damages under the
insurance policy, the insurer is subrogated merely to the rights of the
assured, that is, it can recover only the amount that may, in turn, be
recovered by the latter. Since the right of the assured in case of loss or
damage to the goods is limited or restricted by the provisions in the bills
of lading, a suit by the insurer as subrogee is necessarily subject to the same
limitations and restrictions. We do not agree. In the first place, the cases
relied on by LOADSTAR involved a limitation on the carrier's liability to
an amount fixed in the bill of lading which the parties may enter into,
provided that the same was freely and fairly agreed upon (Articles 1749-
1750). On the other hand, the stipulation in the case at bar effectively
reduces the common carrier's liability for the loss or destruction of the
goods to a degree less than extraordinary (Articles 1744 and 1745), that is,
the carrier is not liable for any loss or damage to shipments made at
"owner's risk." Such stipulation is obviously null and void for being
contrary to public policy." 20 It has been said:
Three kinds of stipulations have often been made in a bill
of lading. The first 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. 21
Since the stipulation in question is null and void, it follows that
when MIC paid the shipper, it was subrogated to all the rights
which the latter has against the common carrier, LOADSTAR.
Neither is there merit to the contention that the claim in this case was
barred by prescription. MIC's cause of action had not yet prescribed at the
time it was concerned. Inasmuch as neither the Civil Code nor the Code of
Commerce states a specific prescriptive period on the matter, the Carriage
of Goods by Sea Act (COGSA) — which provides for a one-year period of
limitation on claims for loss of, or damage to, cargoes sustained during
transit — may be applied suppletorily to the case at bar. This one-year
prescriptive period also applies to the insurer of the goods. 22 In this case,
the period for filing the action for recovery has not yet elapsed. Moreover,
a stipulation reducing the one-year period is null and void; 23 it must,
accordingly, be struck down.
WHEREFORE, the instant petition is DENIED and the challenged decision
of 30 January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is
AFFIRMED. Costs against petitioner.
SO ORDERED.
[G.R. No. 143360. September 5, 2002.]
EQUITABLE LEASING CORPORATION, Petitioner, v. LUCITA
SUYOM, MARISSA ENANO, MYRNA TAMAYO and FELIX
OLEDAN, Respondents.
DECISION
PANGANIBAN, J.:
In an action based on quasi delict, the registered owner of a motor vehicle
is solidarily liable for the injuries and damages caused by the negligence
of the driver, in spite of the fact that the vehicle may have already been
the subject of an unregistered Deed of Sale in favor of another person.
Unless registered with the Land Transportation Office, the sale — while
valid and binding between the parties — does not affect third parties,
especially the victims of accidents involving the said transport
equipment. Thus, in the present case, Petitioner, which is the registered
owner, is liable for the acts of the driver employed by its former lessee
who has become the owner of that vehicle by virtue of an unregistered
29
Deed of Sale.chanrob1es virtua1 1aw 1ibrary
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court,
assailing the May 12, 2000 Decision 1 of the Court of Appeals 2 (CA) in
CA-G.R. CV No. 55474. The decretal portion of the Decision reads as
follows:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, the instant appeal is hereby
DISMISSED for lack of merit. The assailed decision, dated May 5, 1997, of
the Regional Trial Court of Manila, Branch 14, in Civil Case No. 95-73522,
is hereby AFFIRMED with MODIFICATION that the award of attorney’s
fees is DELETED." 3
On the other hand, in Civil Case No. 95-73522, the Regional Trial Court
(RTC) of Manila (Branch 14) had earlier disposed in this
wise:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and against the defendant Equitable Leasing Corporation ordering said
defendant to pay to the plaintiffs the following:chanrob1es virtual 1aw
library
A. TO MYRNA TAMAYO
1. the sum of P50,000.00 for the death of Reniel Tamayo;
2. P50,000.00 as moral damages; and
3. P56,000.00 for the damage to the store and its contents, and funeral
expenses.
B. TO FELIX OLEDAN
1. the sum of P50,000.00 for the death of Felmarie Oledan;
2. P50,000.00 as moral damages; and
3. P30,000.00 for medical expenses, and funeral expenses.
C. TO MARISSA ENANO
1. P7,000.00 as actual damages
D. TO LUCITA SUYOM
1. The sum of P5,000.00 for the medical treatment of her two sons.
The sum of P120,000.00 as and for attorney’s fees." 4
The Facts
On July 17, 1994, a Fuso Road Tractor driven by Raul Tutor rammed into
the house cum store of Myrna Tamayo located at Pier 18, Vitas, Tondo,
Manila. A portion of the house was destroyed. Pinned to death under the
engine of the tractor were Respondent Myrna Tamayo’s son, Reniel
Tamayo, and Respondent Felix Oledan’s daughter, Felmarie Oledan.
Injured were Respondent Oledan himself, Respondent Marissa Enano,
and two sons of Respondent Lucita Suyom.chanrob1es virtua1 1aw
1ibrary
Tutor was charged with and later convicted of reckless imprudence
resulting in multiple homicide and multiple physical injuries in Criminal
Case No. 296094-SA, Metropolitan Trial Court of Manila, Branch 12. 5
Upon verification with the Land Transportation Office, respondents were
furnished a copy of Official Receipt No. 62204139 6 and Certificate of
Registration No. 08262797, 7 showing that the registered owner of the
tractor was "Equitable Leasing Corporation/leased to Edwin Lim." On
April 15, 1995, respondents filed against Raul Tutor, Ecatine Corporation
("Ecatine") and Equitable Leasing Corporation ("Equitable") a Complaint
8 for damages docketed as Civil Case No. 95-73522 in the RTC of Manila,
Branch 14.
The trial court, upon motion of plaintiffs’ counsel, issued an Order
dropping Raul Tutor, Ecatine and Edwin Lim from the Complaint,
because they could not be located and served with summonses. 9 On the
other hand, in its Answer with Counterclaim, 10 petitioner alleged that
30
the vehicle had already been sold to Ecatine and that the former was no
longer in possession and control thereof at the time of the incident. It also
claimed that Tutor was an employee, not of Equitable, but of Ecatine.
After trial on the merits, the RTC rendered its Decision ordering
petitioner to pay actual and moral damages and attorney’s fees to
respondents. It held that since the Deed of Sale between petitioner and
Ecatine had not been registered with the Land Transportation Office,
(LTO), the legal owner was still Equitable. 11 Thus, petitioner was liable
to respondents. 12
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioner was still to be legally
deemed the owner/operator of the tractor, even if that vehicle had been
the subject of a Deed of Sale in favor of Ecatine on December 9, 1992. The
reason cited by the CA was that the Certificate of Registration on file with
the LTO still remained in petitioner’s name. 13 In order that a transfer of
ownership of a motor vehicle can bind third persons, it must be duly
recorded in the LTO. 14
The CA likewise upheld respondents’ claim for moral damages against
petitioner because the appellate court considered Tutor, the driver of the
tractor, to be an agent of the registered owner/operator. 15
Hence, this Petition. 16chanrob1es virtua1 1aw 1ibrary
Issues
In its Memorandum, petitioner raises the following issues for the Court’s
consideration:chanrob1es virtual 1aw library
I employees who are convicted of crimes committed in the performance of
"Whether or not the Court of Appeals and the trial court gravely erred
when they decided and held that petitioner [was] liable for damages
suffered by private respondents in an action based on quasi delict for the
negligent acts of a driver who [was] not the employee of the petitioner.
II
"Whether or not the Court of Appeals and the trial court gravely erred
when they awarded moral damages to private respondents despite their
failure to prove that the injuries they suffered were brought by
petitioner’s wrongful act." 17
This Court’s Ruling
The Petition has no merit.
First Issue:
Liability for Wrongful Acts
Petitioner contends that it should not be held liable for the damages
sustained by respondents and that arose from the negligence of the
driver of the Fuso Road Tractor, which it had already sold to Ecatine at
the time of the accident. Not having employed Raul Tutor, the driver of
the vehicle, it could not have controlled or supervised him. 18
We are not persuaded. In negligence cases, the aggrieved party may sue
the negligent party under (1) Article 100 19 of the Revised Penal Code,
for civil liability ex delicto; or (2) under Article 2176 20 of the Civil Code,
for civil liability ex quasi delicto. 21chanrob1es virtua1 1aw 1ibrary
Furthermore, under Article 103 of the Revised Penal Code, employers
may be held subsidiarily liable for felonies committed by their employees
in the discharge of the latter’s duties. 22 This liability attaches when the
their work are found to be insolvent and are thus unable to satisfy the
civil liability adjudged. 23
On the other hand, under Article 2176 in relation to Article 2180 24 of the
Civil Code, an action predicated on quasi delict may be instituted against
31
the employer for an employee’s act or omission. The liability for the
negligent conduct of the subordinate is direct and primary, but is subject
to the defense of due diligence in the selection and supervision of the
employee. 25 The enforcement of the judgment against the employer for
an action based on Article 2176 does not require the employee to be
insolvent, since the liability of the former is solidary — the latter being
statutorily considered a joint tortfeasor. 26 To sustain a claim based on
quasi delict, the following requisites must be proven: (a) damage suffered
by the plaintiff, (b) fault or negligence of the defendant, and (c)
connection of cause and effect between the fault or negligence of the
defendant and the damage incurred by the plaintiff. 27
These two causes of action (ex delicto or ex quasi delicto) may be availed
of, subject to the caveat 28 that the offended party cannot "recover
damages twice for the same act or omission" or under both causes. 29
Since these two civil liabilities are distinct and independent of each other,
the failure to recover in one will not necessarily preclude recovery in the
other. 30chanrob1es virtua1 1aw 1ibrary
In the instant case, respondents — having failed to recover anything in
the criminal case — elected to file a separate civil action for damages,
based on quasi delict under Article 2176 of the Civil Code. 31 The
evidence is clear that the deaths and the injuries suffered by respondents
and their kins were due to the fault of the driver of the Fuso tractor.
Dated June 4, 1991, the Lease Agreement 32 between petitioner and
Edwin Lim stipulated that "it is the intention of the parties to enter into a
FINANCE LEASE AGREEMENT." 33 Under such scheme, ownership of
the subject tractor was to be registered in the name of petitioner, until the
value of the vehicle has been fully paid by Edwin Lim. 34 Further, in the
"Lease Schedule," 35 the monthly rental for the tractor was stipulated,
and the term of the Lease was scheduled to expire on December 4, 1992.
After a few months, Lim completed the payments to cover the full price
of the tractor. 36 Thus, on December 9, 1992, a Deed of Sale 37 over the
tractor was executed by petitioner in favor of Ecatine represented by
Edwin Lim. However, the Deed was not registered with the LTO.cralaw :
red
We hold petitioner liable for the deaths and the injuries complained of,
because it was the registered owner of the tractor at the time of the
accident on July 17, 1994. 38 The Court has consistently ruled that,
regardless of sales made of a motor vehicle, the registered owner is the
lawful operator insofar as the public and third persons are concerned;
consequently, it is directly and primarily responsible for the
consequences of its operation 39 In contemplation of law, the
owner/operator of record is the employer of the driver, the actual
operator and employer being considered as merely its agent. 40 The same
principle applies even if the registered owner of any vehicle does not use
it for public service 41
Since Equitable remained the registered owner of the tractor, it could not
escape primary liability for the deaths and the injuries arising from the
negligence of the driver. 42
The finance-lease agreement between Equitable on the one hand and Lim
or Ecatine on the other has already been superseded by the sale. In any
event, it does not bind third persons. The rationale for this rule has been
aptly explained in Erezo v. Jepte, 43 which we quote hereunder:
". . . .The main aim of motor vehicle registration is to identify the owner
so that if any accident happens, or that any damage or injury is caused by
the vehicle on the public highways, responsibility therefor can be fixed
on a definite individual, the registered owner. Instances are numerous
where vehicles running on public highways caused accidents or injuries
to pedestrians or other vehicles without positive identification of the
owner or drivers, or with very scant means of identification. It is to
forestall these circumstances, so inconvenient or prejudicial to the public,
that the motor vehicle registration is primarily ordained, in the interest of
the determination of persons responsible for damages or injuries caused
on public highways."
Further, petitioner’s insistence on FGU Insurance Corp. v. Court of
Appeals 45 is misplaced. First, in FGU Insurance, the registered vehicle
owner, which was engaged in a rent-a-car business, rented out the car. In
this case, the registered owner of the truck, which is engaged in the
business of financing motor vehicle acquisitions, has actually sold the
truck to Ecatine, which in turn employed Tutor. Second, in FGU
Insurance, the registered owner of the vehicle was not held responsible
for the negligent acts of the person who rented one of its cars, because
Article 2180 of the Civil Code was not applicable. We held that no
32
vinculum juris as employer and employee existed between the owner
and the driver. 46 In this case, the registered owner of the tractor is
considered under the law to be the employer of the driver, while the
actual operator is deemed to be its agent. 47 Thus, Equitable, the
registered owner of the tractor, is — for purposes of the law on quasi
delict — the employer of Raul Tutor, the driver of the tractor. Ecatine,
Tutor’s actual employer, is deemed as merely an agent of Equitable. 48
True, the LTO Certificate of Registration, dated "5/31/91," qualifies the
name of the registered owner as "EQUITABLE LEASING
CORPORATION/Leased to Edwin Lim." But the lease agreement
between Equitable and Lim has been overtaken by the Deed of Sale on
December 9, 1992, between petitioner and Ecatine. While this Deed does
not affect respondents in this quasi delict suit, it definitely binds
petitioner because, unlike them, it is a party to it.
We must stress that the failure of Equitable and/or Ecatine to register the
sale with the LTO should not prejudice respondents, who have the legal
right to rely on the legal principle that the registered vehicle owner is
liable for the damages caused by the negligence of the driver. Petitioner
cannot hide behind its allegation that Tutor was the employee of Ecatine.
This will effectively prevent respondents from recovering their losses on
the basis of the inaction or fault of petitioner in failing to register the sale.
The non-registration is the fault of petitioner, which should thus face the
legal consequences thereof.
Second Issue:
Moral Damages
Petitioner further claims that it is not liable for moral damages, because
respondents failed to establish or show the causal connection or relation
between the factual basis of their claim and their wrongful act or
omission, if any. 49
Moral damages are not punitive in nature, but are designed to
compensate 50 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 a person. 51 Although incapable of pecuniary computation, moral
damages must nevertheless be somehow proportional to and in
approximation of the suffering inflicted. 52 This is so because moral
damages are in the category of an award designed to compensate the
claimant for actual injury suffered, not to impose a penalty on the
wrongdoer.
Viewed as an action for quasi delict, the present case falls squarely within
the purview of Article 2219 (2), 54 which provides for the payment of
moral damages in cases of quasi delict. 55 Having established the liability
of petitioner as the registered owner of the vehicle, 56 respondents have
satisfactorily shown the existence of the factual basis for the award 57
and its causal connection to the acts of Raul Tutor, who is deemed as
petitioner’s employee. 58 Indeed, the damages and injuries suffered by
respondents were the proximate result of petitioner’s tortious act or
omission. 59
Further, no proof of pecuniary loss is necessary in order that moral
damages may be awarded, the amount of indemnity being left to the
discretion of the court. 60 The evidence gives no ground for doubt that
such discretion was properly and judiciously exercised by the trial court.
61 The award is in fact consistent with the rule that moral damages are
not intended to enrich the injured party, but to alleviate the moral
suffering undergone by that party by reason of the defendant’s culpable
action. 62chanrob1es virtua1 1aw 1ibrary
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 145804 February 6, 2003
LIGHT RAIL TRANSIT AUTHORITY & RODOLFO
ROMAN, petitioners,
vs.
MARJORIE NAVIDAD, Heirs of the Late NICANOR NAVIDAD &
PRUDENT SECURITY AGENCY, respondents.
DECISION
33
VITUG, J.:
The case before the Court is an appeal from the decision and resolution of
the Court of Appeals, promulgated on 27 April 2000 and 10 October 2000,
respectively, in CA-G.R. CV No. 60720, entitled "Marjorie Navidad and
Heirs of the Late Nicanor Navidad vs. Rodolfo Roman, et. al.," which has
modified the decision of 11 August 1998 of the Regional Trial Court,
Branch 266, Pasig City, exonerating Prudent Security Agency (Prudent)
from liability and finding Light Rail Transit Authority (LRTA) and Rodolfo
Roman liable for damages on account of the death of Nicanor Navidad.
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants Prudent Security and Junelito Escartin ordering the
latter to pay jointly and severally the plaintiffs the following:
"a) 1) Actual damages of P44,830.00;
2) Compensatory damages of P443,520.00;
3) Indemnity for the death of Nicanor Navidad in the sum of
P50,000.00;

On 14 October 1993, about half an hour past seven o’clock in the evening, "b) Moral damages of P50,000.00;
Nicanor Navidad, then drunk, entered the EDSA LRT station after
purchasing a "token" (representing payment of the fare). While Navidad "c) Attorney’s fees of P20,000;
was standing on the platform near the LRT tracks, Junelito Escartin, the
security guard assigned to the area approached Navidad. A "d) Costs of suit.
misunderstanding or an altercation between the two apparently ensued
that led to a fist fight. No evidence, however, was adduced to indicate how "The complaint against defendants LRTA and Rodolfo Roman are
the fight started or who, between the two, delivered the first blow or how dismissed for lack of merit.
Navidad later fell on the LRT tracks. At the exact moment that Navidad
"The compulsory counterclaim of LRTA and Roman are likewise
fell, an LRT train, operated by petitioner Rodolfo Roman, was coming in.
dismissed."1
Navidad was struck by the moving train, and he was killed
instantaneously.
Prudent appealed to the Court of Appeals. On 27 August 2000, the
appellate court promulgated its now assailed decision exonerating
On 08 December 1994, the widow of Nicanor, herein respondent Marjorie
Prudent from any liability for the death of Nicanor Navidad and, instead,
Navidad, along with her children, filed a complaint for damages against
holding the LRTA and Roman jointly and severally liable thusly:
Junelito Escartin, Rodolfo Roman, the LRTA, the Metro Transit
Organization, Inc. (Metro Transit), and Prudent for the death of her
"WHEREFORE, the assailed judgment is hereby MODIFIED, by
husband. LRTA and Roman filed a counterclaim against Navidad and a
exonerating the appellants from any liability for the death of Nicanor
cross-claim against Escartin and Prudent. Prudent, in its answer, denied
Navidad, Jr. Instead, appellees Rodolfo Roman and the Light Rail Transit
liability and averred that it had exercised due diligence in the selection and
Authority (LRTA) are held liable for his death and are hereby directed to
supervision of its security guards.
pay jointly and severally to the plaintiffs-appellees, the following amounts:
The LRTA and Roman presented their evidence while Prudent and
a) P44,830.00 as actual damages;
Escartin, instead of presenting evidence, filed a demurrer contending that
Navidad had failed to prove that Escartin was negligent in his assigned b) P50,000.00 as nominal damages;
task. On 11 August 1998, the trial court rendered its decision; it adjudged:
c) P50,000.00 as moral damages;

34
 d) P50,000.00 as indemnity for the death of the deceased;
and
e) P20,000.00 as and for attorney’s fees."2
The appellate court ratiocinated that while the deceased might not have
then as yet boarded the train, a contract of carriage theretofore had already
existed when the victim entered the place where passengers were
supposed to be after paying the fare and getting the corresponding token
therefor. In exempting Prudent from liability, the court stressed that there
was nothing to link the security agency to the death of Navidad. It said
that Navidad failed to show that Escartin inflicted fist blows upon the
victim and the evidence merely established the fact of death of Navidad
by reason of his having been hit by the train owned and managed by the
LRTA and operated at the time by Roman. The appellate court faulted
petitioners for their failure to present expert evidence to establish the fact
that the application of emergency brakes could not have stopped the train.
The appellate court denied petitioners’ motion for reconsideration in its
resolution of 10 October 2000.
In their present recourse, petitioners recite alleged errors on the part of the
appellate court; viz:
"I.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED BY
DISREGARDING THE FINDINGS OF FACTS BY THE TRIAL COURT
"II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
FINDING THAT PETITIONERS ARE LIABLE FOR THE DEATH OF
NICANOR NAVIDAD, JR.
"III.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
FINDING THAT RODOLFO ROMAN IS AN EMPLOYEE OF LRTA." 3
Petitioners would contend that the appellate court ignored the evidence
and the factual findings of the trial court by holding them liable on the
basis of a sweeping conclusion that the presumption of negligence on the
part of a common carrier was not overcome. Petitioners would insist that
Escartin’s assault upon Navidad, which caused the latter to fall on the
tracks, was an act of a stranger that could not have been foreseen or
prevented. The LRTA would add that the appellate court’s conclusion on
the existence of an employer-employee relationship between Roman and
LRTA lacked basis because Roman himself had testified being an
employee of Metro Transit and not of the LRTA.
Respondents, supporting the decision of the appellate court, contended
that a contract of carriage was deemed created from the moment Navidad
paid the fare at the LRT station and entered the premises of the latter,
entitling Navidad to all the rights and protection under a contractual
relation, and that the appellate court had correctly held LRTA and Roman
liable for the death of Navidad in failing to exercise extraordinary
diligence imposed upon a common carrier.
Law and jurisprudence dictate that a common carrier, both from the nature
of its business and for reasons of public policy, is burdened with the duty
of exercising utmost diligence in ensuring the safety of passengers. 4 The
Civil Code, governing the liability of a common carrier for death of or
injury to its passengers, provides:
"Article 1755. A common carrier is bound to carry the passengers safely as
far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with a due regard for all the circumstances.
"Article 1756. In case of death of or injuries to passengers, common carriers
are presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence as prescribed in articles
1733 and 1755."
"Article 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."
35
"Article 1763. A common carrier is responsible for injuries suffered by a
passenger on account of the willful acts or negligence of other passengers
or of strangers, if the common carrier’s employees through the exercise of
the diligence of a good father of a family could have prevented or stopped
the act or omission."
The law requires common carriers to carry passengers safely using the
utmost diligence of very cautious persons with due regard for all
circumstances.5 Such duty of a common carrier to provide safety to its
passengers so obligates it not only during the course of the trip but for so
long as the passengers are within its premises and where they ought to be
in pursuance to the contract of carriage. 6 The statutory provisions render
a common carrier liable for death of or injury to passengers (a) through the
negligence or wilful acts of its employees or b) on account of wilful acts or
negligence of other passengers or of strangers if the common carrier’s
employees through the exercise of due diligence could have prevented or
stopped the act or omission.7 In case of such death or injury, a carrier is
presumed to have been at fault or been negligent, and 8 by simple proof of
injury, the passenger is relieved of the duty to still establish the fault or
negligence of the carrier or of its employees and the burden shifts upon the
carrier to prove that the injury is due to an unforeseen event or to force
majeure.9 In the absence of satisfactory explanation by the carrier on how
the accident occurred, which petitioners, according to the appellate court,
have failed to show, the presumption would be that it has been at
fault,10 an exception from the general rule that negligence must be
proved.11
The foundation of LRTA’s liability is the contract of carriage and its
obligation to indemnify the victim arises from the breach of that contract
by reason of its failure to exercise the high diligence required of the
common carrier. In the discharge of its commitment to ensure the safety of
passengers, a carrier may choose to hire its own employees or avail itself
of the services of an outsider or an independent firm to undertake the task.
In either case, the common carrier is not relieved of its responsibilities
under the contract of carriage.
Should Prudent be made likewise liable? If at all, that liability could only
be for tort under the provisions of Article 217612 and related provisions, in
conjunction with Article 2180,13 of the Civil Code. The premise, however,
for the employer’s liability is negligence or fault on the part of the
employee. Once such fault is established, the employer can then be made
liable on the basis of the presumption juris tantum that the employer failed
to exercise diligentissimi patris families in the selection and supervision of
its employees. The liability is primary and can only be negated by showing
due diligence in the selection and supervision of the employee, a factual
matter that has not been shown. Absent such a showing, one might ask
further, how then must the liability of the common carrier, on the one
hand, and an independent contractor, on the other hand, be described? It
would be solidary. A contractual obligation can be breached by tort and
when the same act or omission causes the injury, one resulting in culpa
contractual and the other in culpa aquiliana, Article 2194 14 of the Civil
Code can well apply.15 In fine, a liability for tort may arise even under a
contract, where tort is that which breaches the contract. 16 Stated
differently, when an act which constitutes a breach of contract would have
itself constituted the source of a quasi-delictual liability had no contract
existed between the parties, the contract can be said to have been breached
by tort, thereby allowing the rules on tort to apply.17
Regrettably for LRT, as well as perhaps the surviving spouse and heirs of
the late Nicanor Navidad, this Court is concluded by the factual finding of
the Court of Appeals that "there is nothing to link (Prudent) to the death
of Nicanor (Navidad), for the reason that the negligence of its employee,
Escartin, has not been duly proven x x x." This finding of the appellate
court is not without substantial justification in our own review of the
records of the case.
There being, similarly, no showing that petitioner Rodolfo Roman himself
is guilty of any culpable act or omission, he must also be absolved from
liability. Needless to say, the contractual tie between the LRT and Navidad
is not itself a juridical relation between the latter and Roman; thus, Roman
can be made liable only for his own fault or negligence.
The award of nominal damages in addition to actual damages is untenable.
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.18 It is an established rule that nominal damages
cannot co-exist with compensatory damages.19
36
WHEREFORE, the assailed decision of the appellate court is AFFIRMED
with MODIFICATION but only in that (a) the award of nominal damages
is DELETED and (b) petitioner Rodolfo Roman is absolved from liability.
No costs.
SO ORDERED.
G.R. No. 142305 December 10, 2003
SINGAPORE AIRLINES LIMITED, petitioner,
vs.
ANDION FERNANDEZ, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari assailing the Decision1 of the
Court of Appeals which affirmed in toto the decision2 of the Regional Trial
Court of Pasig City, Branch 164 in Civil Case No. 60985 filed by the
respondent for damages.
The Case for the Respondent
Respondent Andion Fernandez is an acclaimed soprano here in the
Philippines and abroad. At the time of the incident, she was availing an
educational grant from the Federal Republic of Germany, pursuing a
Master’s Degree in Music majoring in Voice. 3
She was invited to sing before the King and Queen of Malaysia on
February 3 and 4, 1991. For this singing engagement, an airline passage
ticket was purchased from petitioner Singapore Airlines which would
transport her to Manila from Frankfurt, Germany on January 28, 1991.
From Manila, she would proceed to Malaysia on the next day. 4 It was
necessary for the respondent to pass by Manila in order to gather her
wardrobe; and to rehearse and coordinate with her pianist her repertoire
for the aforesaid performance.
The petitioner issued the respondent a Singapore Airlines ticket for Flight
No. SQ 27, leaving Frankfurt, Germany on January 27, 1991 bound for
Singapore with onward connections from Singapore to Manila. Flight No.
SQ 27 was scheduled to leave Frankfurt at 1:45 in the afternoon of January
27, 1991, arriving at Singapore at 8:50 in the morning of January 28, 1991.
The connecting flight from Singapore to Manila, Flight No. SQ 72, was
leaving Singapore at 11:00 in the morning of January 28, 1991, arriving in
Manila at 2:20 in the afternoon of the same day. 5
On January 27, 1991, Flight No. SQ 27 left Frankfurt but arrived in
Singapore two hours late or at about 11:00 in the morning of January 28,
1991. By then, the aircraft bound for Manila had left as scheduled, leaving
the respondent and about 25 other passengers stranded in the Changi
Airport in Singapore.6
Upon disembarkation at Singapore, the respondent approached the transit
counter who referred her to the nightstop counter and told the lady
employee thereat that it was important for her to reach Manila on that day,
January 28, 1991. The lady employee told her that there were no more
flights to Manila for that day and that respondent had no choice but to stay
in Singapore. Upon respondent’s persistence, she was told that she can
actually fly to Hong Kong going to Manila but since her ticket was non-
transferable, she would have to pay for the ticket. The respondent could
not accept the offer because she had no money to pay for it. 7 Her pleas for
the respondent to make arrangements to transport her to Manila were
unheeded.8
The respondent then requested the lady employee to use their phone to
make a call to Manila. Over the employees’ reluctance, the respondent
telephoned her mother to inform the latter that she missed the connecting
flight. The respondent was able to contact a family friend who picked her
up from the airport for her overnight stay in Singapore. 9
The next day, after being brought back to the airport, the respondent
proceeded to petitioner’s counter which says: "Immediate Attention To
Passengers with Immediate Booking." There were four or five passengers
in line. The respondent approached petitioner’s male employee at the
counter to make arrangements for immediate booking only to be told:
"Can’t you see I am doing something." She explained her predicament but
the male employee uncaringly retorted: "It’s your problem, not ours." 10
The respondent never made it to Manila and was forced to take a direct
flight from Singapore to Malaysia on January 29, 1991, through the efforts
37
of her mother and travel agency in Manila. Her mother also had to travel
to Malaysia bringing with her respondent’s wardrobe and personal things
needed for the performance that caused them to incur an expense of about
P50,000.11
As a result of this incident, the respondent’s performance before the Royal
Family of Malaysia was below par. Because of the rude and unkind
treatment she received from the petitioner’s personnel in Singapore, the
respondent was engulfed with fear, anxiety, humiliation and
embarrassment causing her to suffer mental fatigue and skin rashes. She
was thereby compelled to seek immediate medical attention upon her
return to Manila for "acute urticaria." 12
On June 15, 1993, the RTC rendered a decision with the following
dispositive portion:
ACCORDINGLY and as prayed for, defendant Singapore Airlines is
ordered to pay herein plaintiff Andion H. Fernandez the sum of:
1. FIFTY THOUSAND (P50,000.00) PESOS as compensatory or
actual damages;
2. TWO HUNDRED and FIFTY THOUSAND (P250,000.00) PESOS
as moral damages considering plaintiff’s professional standing in
the field of culture at home and abroad;
3. ONE HUNDRED THOUSAND (P100,000.00) PESOS as
exemplary damages;
4. SEVENTY-FIVE THOUSAND (P75,000.00) PESOS as attorney’s
fees; and
5. To pay the costs of suit.
SO ORDERED.13
The petitioner appealed the decision to the Court of Appeals.
On June 10, 1998, the CA promulgated the assailed decision finding no
reversible error in the appealed decision of the trial court.14
Forthwith, the petitioner filed the instant petition for review, raising the
following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING IN
TOTO THE DECISION OF THE TRIAL COURT THAT AWARDED
DAMAGES TO RESPONDENT FOR THE ALLEGED FAILURE OF THE
PETITIONER TO EXERCISE EXTRAORDINARY DILIGENCE.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THE PETITIONER ACTED IN BAD FAITH.
III
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE
PETITIONER’S COUNTERCLAIMS.15
The petitioner assails the award of damages contending that it exercised
the extraordinary diligence required by law under the given
circumstances. The delay of Flight No. SQ 27 from Frankfurt to Singapore
on January 28, 1991 for more than two hours was due to a fortuitous event
and beyond petitioner’s control. Inclement weather prevented the
petitioner’s plane coming from Copenhagen, Denmark to arrive in
Frankfurt on time on January 27, 1991. The plane could not take off from
the airport as the place was shrouded with fog. This delay caused a
"snowball effect" whereby the other flights were consequently delayed.
The plane carrying the respondent arrived in Singapore two (2) hours
behind schedule.16 The delay was even compounded when the plane could
not travel the normal route which was through the Middle East due to the
raging Gulf War at that time. It had to pass through the restricted Russian
airspace which was more congested.17
Under these circumstances, petitioner therefore alleged that it cannot be
faulted for the delay in arriving in Singapore on January 28, 1991 and
causing the respondent to miss her connecting flight to Manila.
The petitioner further contends that it could not also be held in bad faith
because its personnel did their best to look after the needs and interests of
38
the passengers including the respondent. Because the respondent and the
other 25 passengers missed their connecting flight to Manila, the petitioner
automatically booked them to the flight the next day and gave them free
hotel accommodations for the night. It was respondent who did not take
petitioner’s offer and opted to stay with a family friend in Singapore.
The petitioner also alleges that the action of the respondent was baseless
and it tarnished its good name and image earned through the years for
which, it was entitled to damages in the amount of P1,000,000; exemplary
damages of P500,000; and attorney’s fees also in the amount of P500,000.18
The petition is barren of merit.
When an airline issues a ticket to a passenger, confirmed for a particular
flight on a certain date, a contract of carriage arises. The passenger then
has every right to expect that he be transported on that flight and on that
date. If he does not, then the carrier opens itself to a suit for a breach of
contract of carriage.19
The contract of air carriage is a peculiar one. Imbued with public interest,
the law requires common carriers to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons with due regard for all the circumstances. 20 In an action
for breach of contract of carriage, the aggrieved party does not have to
prove that the common carrier was at fault or was negligent. All that is
necessary to prove is the existence of the contract and the fact of its non-
performance by the carrier.21
In the case at bar, it is undisputed that the respondent carried a confirmed
ticket for the two-legged trip from Frankfurt to Manila: 1) Frankfurt-
Singapore; and 2) Singapore-Manila. In her contract of carriage with the
petitioner, the respondent certainly expected that she would fly to Manila
on Flight No. SQ 72 on January 28, 1991. Since the petitioner did not
transport the respondent as covenanted by it on said terms, the petitioner
clearly breached its contract of carriage with the respondent. The
respondent had every right to sue the petitioner for this breach. The
defense that the delay was due to fortuitous events and beyond
petitioner’s control is unavailing. In PAL vs. CA, 22 we held that:
.... Undisputably, PAL’s diversion of its flight due to inclement weather
was a fortuitous event. Nonetheless, such occurrence did not terminate
PAL’s contract with its passengers. Being in the business of air carriage
and the sole one to operate in the country, PAL is deemed to be equipped
to deal with situations as in the case at bar. What we said in one case once
again must be stressed, i.e., the relation of carrier and passenger continues
until the latter has been landed at the port of destination and has left the
carrier’s premises. Hence, PAL necessarily would still have to exercise
extraordinary diligence in safeguarding the comfort, convenience and
safety of its stranded passengers until they have reached their final
destination...
...
"...If the cause of non-fulfillment of the contract is due to a fortuitous event,
it has to be the sole and only cause (Art. 1755 C.C., Art. 1733 C.C.). Since
part of the failure to comply with the obligation of common carrier to
deliver its passengers safely to their destination lay in the defendant’s
failure to provide comfort and convenience to its stranded passengers
using extraordinary diligence, the cause of non-fulfillment is not solely
and exclusively due to fortuitous event, but due to something which
defendant airline could have prevented, defendant becomes liable to
plaintiff."
Indeed, in the instant case, petitioner was not without recourse to enable
it to fulfill its obligation to transport the respondent safely as scheduled as
far as human care and foresight can provide to her destination. Tagged as
a premiere airline as it claims to be and with the complexities of air travel,
it was certainly well-equipped to be able to foresee and deal with such
situation. The petitioner’s indifference and negligence by its absence and
insensitivity was exposed by the trial court, thus:
(a) Under Section 9.1 of its Traffic Manual (Exhibit 4) "…flights can
be delayed to await the uplift of connecting cargo and passengers
arriving on a late in-bound flight…" As adverted to by the trial
court,…"Flight SQ-27/28 maybe delayed for about half an hour to
transfer plaintiff to her connecting flight. As pointed out above,
delay is normal in commercial air transportation" (RTC Decision,
p. 22); or
39
 (b) Petitioner airlines could have carried her on one of its flights
bound for Hongkong and arranged for a connecting flight from
Hongkong to Manila all on the same date. But then the airline
personnel who informed her of such possibility told her that she
has to pay for that flight. Regrettably, respondent did not have
sufficient funds to pay for it. (TSN, 30 March 1992, pp.8-9; RTC
Decision, pp. 22-23) Knowing the predicament of the respondent,
petitioner did not offer to shoulder the cost of the ticket for that
flight; or
(c) As noted by the trial court from the account of petitioner’s
witness, Bob Khkimyong, that "a passenger such as the plaintiff
could have been accommodated in another international airline
such as Lufthansa to bring the plaintiff to Singapore early enough
from Frankfurt provided that there was prior communication from
that station to enable her to catch the connecting flight to Manila
because of the urgency of her business in Manila…(RTC Decision,
p. 23)
The petitioner’s diligence in communicating to its passengers the
consequences of the delay in their flights was wanting. As elucidated by
the trial court:
It maybe that delay in the take off and arrival of commercial aircraft could
not be avoided and may be caused by diverse factors such as those testified
to by defendant’s pilot. However, knowing fully well that even before the
plaintiff boarded defendant’s Jumbo aircraft in Frankfurt bound for
Singapore, it has already incurred a delay of two hours. Nevertheless,
defendant did not take the trouble of informing plaintiff, among its other
passengers of such a delay and that in such a case, the usual practice of
defendant airline will be that they have to stay overnight at their
connecting airport; and much less did it inquire from the plaintiff and the
other 25 passengers bound for Manila whether they are amenable to stay
overnight in Singapore and to take the connecting flight to Manila the next
day. Such information should have been given and inquiries made in
Frankfurt because even the defendant airline’s manual provides that in
case of urgency to reach his or her destination on the same date, the head
office of defendant in Singapore must be informed by telephone or telefax
so as the latter may make certain arrangements with other airlines in
Frankfurt to bring such a passenger with urgent business to Singapore in
such a manner that the latter can catch up with her connecting flight such
as S-27/28 without spending the night in Singapore…23
The respondent was not remiss in conveying her apprehension about the
delay of the flight when she was still in Frankfurt. Upon the assurance of
petitioner’s personnel in Frankfurt that she will be transported to Manila
on the same date, she had every right to expect that obligation fulfilled.
She testified, to wit:
Q: Now, since you were late, when the plane that arrived from Frankfurt
was late, did you not make arrangements so that your flight from
Singapore to Manila would be adjusted?
A: I asked the lady at the ticket counter, the one who gave the boarding
pass in Frankfurt and I asked her, "Since my flight going to Singapore
would be late, what would happen to my Singapore-Manila flight?" and
then she said, "Don’t worry, Singapore Airlines would be responsible to
bring you to Manila on the same date." And then they have informed the
name of the officer, or whatever, that our flight is going to be late. 24
When a passenger contracts for a specific flight, he has a purpose in
making that choice which must be respected. This choice, once exercised,
must not be impaired by a breach on the part of the airline without the
latter incurring any liability.25 For petitioner’s failure to bring the
respondent to her destination, as scheduled, we find the petitioner clearly
liable for the breach of its contract of carriage with the respondent.
We are convinced that the petitioner acted in bad faith. Bad faith means a
breach of known duty through some motive of interest or ill will. Self-
enrichment or fraternal interest, and not personal ill will, may well have
been the motive; but it is malice nevertheless. 26 Bad faith was imputed by
the trial court when it found that the petitioner’s employees at the
Singapore airport did not accord the respondent the attention and
treatment allegedly warranted under the circumstances. The lady
employee at the counter was unkind and of no help to her. The respondent
further alleged that without her threats of suing the company, she was not
allowed to use the company’s phone to make long distance calls to her
mother in Manila. The male employee at the counter where it says:
"Immediate Attention to Passengers with Immediate Booking" was rude to
her when he curtly retorted that he was busy attending to other passengers
40
in line. The trial court concluded that this inattentiveness and rudeness of
petitioner’s personnel to respondent’s plight was gross enough amounting
to bad faith. This is a finding that is generally binding upon the Court
which we find no reason to disturb.
Article 2232 of the Civil Code provides that in a contractual or quasi-
contractual relationship, exemplary damages may be awarded only if the
defendant had acted in a "wanton, fraudulent, reckless, oppressive or
malevolent manner." In this case, petitioner’s employees acted in a
wanton, oppressive or malevolent manner. The award of exemplary
damages is, therefore, warranted in this case.
WHEREFORE, the Petition is DENIED. The Decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 150843 March 14, 2003
CATHAY PACIFIC AIRWAYS, LTD., petitioner,
vs.
SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL
VAZQUEZ, respondents.
DAVIDE, JR., C.J.:
Is an involuntary upgrading of an airline passenger’s accommodation
from one class to a more superior class at no extra cost a breach of contract
of carriage that would entitle the passenger to an award of damages? This
is a novel question that has to be resolved in this case.
The facts in this case, as found by the Court of Appeals and adopted by
petitioner Cathay Pacific Airways, Ltd., (hereinafter Cathay) are as
follows:
Cathay is a common carrier engaged in the business of transporting
passengers and goods by air. Among the many routes it services is the
Manila-Hongkong-Manila course. As part of its marketing strategy,
Cathay accords its frequent flyers membership in its Marco Polo Club. The
members enjoy several privileges, such as priority for upgrading of
booking without any extra charge whenever an opportunity arises. Thus,
a frequent flyer booked in the Business Class has priority for upgrading to
First Class if the Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa
Madrigal Vazquez are frequent flyers of Cathay and are Gold Card
members of its Marco Polo Club. On 24 September 1996, the Vazquezes,
together with their maid and two friends Pacita Cruz and Josefina Vergel
de Dios, went to Hongkong for pleasure and business.
For their return flight to Manila on 28 September 1996, they were booked
on Cathay’s Flight CX-905, with departure time at 9:20 p.m. Two hours
before their time of departure, the Vazquezes and their companions
checked in their luggage at Cathay’s check-in counter at Kai Tak Airport
and were given their respective boarding passes, to wit, Business Class
boarding passes for the Vazquezes and their two friends, and Economy
Class for their maid. They then proceeded to the Business Class passenger
lounge.
When boarding time was announced, the Vazquezes and their two friends
went to Departure Gate No. 28, which was designated for Business Class
passengers. Dr. Vazquez presented his boarding pass to the ground
stewardess, who in turn inserted it into an electronic machine reader or
computer at the gate. The ground stewardess was assisted by a ground
attendant by the name of Clara Lai Han Chiu. When Ms. Chiu glanced at
the computer monitor, she saw a message that there was a "seat change"
from Business Class to First Class for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes’
accommodations were upgraded to First Class. Dr. Vazquez refused the
upgrade, reasoning that it would not look nice for them as hosts to travel
in First Class and their guests, in the Business Class; and moreover, they
were going to discuss business matters during the flight. He also told Ms.
Chiu that she could have other passengers instead transferred to the First
Class Section. Taken aback by the refusal for upgrading, Ms. Chiu
consulted her supervisor, who told her to handle the situation and
convince the Vazquezes to accept the upgrading. Ms. Chiu informed the
latter that the Business Class was fully booked, and that since they were
Marco Polo Club members they had the priority to be upgraded to the First
Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they
would not avail themselves of the privilege, they would not be allowed to
41
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
42
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 decision1 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
43
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 Appeals3 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.
44
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
45
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
46
Nonetheless, considering that the breach was intended to give more
benefit and advantage to the Vazquezes by upgrading their Business Class
accommodation to First Class because of their valued status as Marco Polo
members, we reduce the award for nominal damages to P5,000.
Before writing finis to this decision, we find it well-worth to quote the apt
observation of the Court of Appeals regarding the awards adjudged by the
trial court:
We are not amused but alarmed at the lower court’s unbelievable alacrity,
bordering on the scandalous, to award excessive amounts as damages. In
their complaint, appellees asked for P1 million as moral damages but the
lower court awarded P4 million; they asked for P500,000.00 as exemplary
damages but the lower court cavalierly awarded a whooping P10 million;
they asked for P250,000.00 as attorney’s fees but were awarded P2 million;
they did not ask for nominal damages but were awarded P200,000.00. It is
as if the lower court went on a rampage, and why it acted that way is
beyond all tests of reason. In fact the excessiveness of the total award
invites the suspicion that it was the result of "prejudice or corruption on
the part of the trial court."
The presiding judge of the lower court is enjoined to hearken to the
Supreme Court’s admonition in Singson vs. CA (282 SCRA 149
[1997]), where it said:
The well-entrenched principle is that the grant of moral
damages depends upon the discretion of the court based
on the circumstances of each case. This discretion is limited
by the principle that the amount awarded should not be
palpably and scandalously excessive as to indicate that it was the
result of prejudice or corruption on the part of the trial court….
and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was
held:
Nonetheless, we agree with the injunction expressed by the
Court of Appeals that passengers must not prey on
international airlines for damage awards, like "trophies in
a safari." After all neither the social standing nor prestige
of the passenger should determine the extent to which he
would suffer because of a wrong done, since the dignity
affronted in the individual is a quality inherent in him and
not conferred by these social indicators. 19
We adopt as our own this observation of the Court of Appeals.
WHEREFORE, the instant petition is hereby partly GRANTED. The
Decision of the Court of Appeals of 24 July 2001 in CA-G.R. CV No. 63339
is hereby MODIFIED, and as modified, the awards for moral damages and
attorney’s fees are set aside and deleted, and the award for nominal
damages is reduced to P5,000.
No pronouncement on costs.
SO ORDERED.
facts; but the requirement of an oath does not apply when the
adverse party does not appear to be a party to the instrument or
when compliance with an order for inspection of the original
instrument is refused.
In fact, respondent PPSII did not dispute the existence of such contract,
and admitted that it was liable thereon. It claimed, however, that it had
attended to and settled the claims of those injured during the incident, and
set up the following as special affirmative defenses:
Third party defendant Philippine Phoenix Surety and Insurance,
Inc. hereby reiterates and incorporates by way of reference the
preceding paragraphs and further states THAT:-
8. It has attended to the claims of Vincent Canales,
Asuncion Batiancila and Neptali Palces who sustained
injuries during the incident in question. In fact, it settled
financially their claims per vouchers duly signed by them
and they duly executed Affidavit[s] of Desistance to that
effect, xerox copies of which are hereto attached as
Annexes 1, 2, 3, 4, 5, and 6 respectively;
9. With respect to the claim of plaintiff, herein answering
third party defendant through its authorized insurance
47
 adjuster attended to said claim. In fact, there were
negotiations to that effect. Only that it cannot accede to the
demand of said claimant considering that the claim was
way beyond the scheduled indemnity as per contract
entered into with third party plaintiff William Tiu and
third party defendant (Philippine Phoenix Surety and
Insurance, Inc.). Third party Plaintiff William Tiu knew all
along the limitation as earlier stated, he being an old hand
in the transportation business; 55…
Considering the admissions made by respondent PPSII, the existence of
the insurance contract and the salient terms thereof cannot be dispatched.
It must be noted that after filing its answer, respondent PPSII no longer
objected to the presentation of evidence by respondent Arriesgado and the
insured petitioner Tiu. Even in its Memorandum56 before the Court,
respondent PPSII admitted the existence of the contract, but averred as
follows:
Petitioner Tiu is insisting that PPSII is liable to him for
contribution, indemnification and/or reimbursement. This has no
basis under the contract. Under the contract, PPSII will pay all
sums necessary to discharge liability of the insured subject to the
limits of liability but not to exceed the limits of liability as so stated
in the contract. Also, it is stated in the contract that in the event of
accident involving indemnity to more than one person, the limits
of liability shall not exceed the aggregate amount so specified by
law to all persons to be indemnified.57
As can be gleaned from the Certificate of Cover, such insurance contract
was issued pursuant to the Compulsory Motor Vehicle Liability Insurance
Law. It was expressly provided therein that the limit of the insurer’s
liability for each person was P12,000, while the limit per accident was
pegged at P50,000. An insurer in an indemnity contract for third party
liability is directly liable to the injured party up to the extent specified in
the agreement but it cannot be held solidarily liable beyond that
amount.58 The respondent PPSII could not then just deny petitioner Tiu’s
claim; it should have paid P12,000 for the death of Felisa Arriesgado,59 and
respondent Arriesgado’s hospitalization expenses of P1,113.80, which the
trial court found to have been duly supported by receipts. The total
amount of the claims, even when added to that of the other injured
passengers which the respondent PPSII claimed to have settled, 60 would
not exceed the P50,000 limit under the insurance agreement.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is
such that it is primarily intended to provide compensation for the death or
bodily injuries suffered by innocent third parties or passengers as a result
of the negligent operation and use of motor vehicles. The victims and/or
their dependents are assured of immediate financial assistance, regardless
of the financial capacity of motor vehicle owners. 61 As the Court, speaking
through Associate Justice Leonardo A. Quisumbing, explained in
Government Service Insurance System v. Court of Appeals: 62
However, although the victim may proceed directly against the
insurer for indemnity, the third party liability is only up to the
extent of the insurance policy and those required by law. While it
is true that where the insurance contract provides for indemnity
against liability to third persons, and such persons can directly sue
the insurer, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the
insurer can be held liable in solidum with the insured and/or the
other parties found at fault. For the liability of the insurer is based
on contract; that of the insured carrier or vehicle owner is based on
tort. …
Obviously, the insurer could be held liable only up to the extent of
what was provided for by the contract of insurance, in accordance
with the CMVLI law. At the time of the incident, the schedule of
indemnities for death and bodily injuries, professional fees and
other charges payable under a CMVLI coverage was provided for
under the Insurance Memorandum Circular (IMC) No. 5-78 which
was approved on November 10, 1978. As therein provided, the
maximum indemnity for death was twelve thousand (P12,000.00)
pesos per victim. The schedules for medical expenses were also
provided by said IMC, specifically in paragraphs (C) to (G).63
Damages to be Awarded
The trial court correctly awarded moral damages in the amount of P50,000
in favor of respondent Arriesgado. The award of exemplary damages by
48
way of example or correction of the public good, 64 is likewise in order. As
the Court ratiocinated in Kapalaran Bus Line v. Coronado: 65
…While the immediate beneficiaries of the standard of
extraordinary diligence are, of course, the passengers and owners
of cargo carried by a common carrier, they are not the only persons
that the law seeks to benefit. For if common carriers carefully
observed the statutory standard of extraordinary diligence in
respect of their own passengers, they cannot help but
simultaneously benefit pedestrians and the passengers of other
vehicles who are equally entitled to the safe and convenient use of
our roads and highways. The law seeks to stop and prevent the
slaughter and maiming of people (whether passengers or not) on
our highways and buses, the very size and power of which seem
to inflame the minds of their drivers. Article 2231 of the Civil Code
explicitly authorizes the imposition of exemplary damages in cases
of quasi-delicts "if the defendant acted with gross negligence."… 66
The respondent Pedro A. Arriesgado, as the surviving spouse and heir of
Felisa Arriesgado, is entitled to indemnity in the amount of P50,000.00.67
The petitioners, as well as the respondents Benjamin Condor and Sergio
Pedrano are jointly and severally liable for said amount, conformably with
the following pronouncement of the Court in Fabre, Jr. vs. Court of
Appeals:68
The same rule of liability was applied in situations where the
negligence of the driver of the bus on which plaintiff was riding
concurred with the negligence of a third party who was the driver
of another vehicle, thus causing an accident. In Anuran v. Buño,
Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate
Court, and Metro Manila Transit Corporation v. Court of Appeals,
the bus company, its driver, the operator of the other vehicle and
the driver of the vehicle were jointly and severally held liable to
the injured passenger or the latter’s heirs. The basis of this
allocation of liability was explained in Viluan v. Court of Appeals,
thus:
"Nor should it make difference that the liability of
petitioner [bus owner] springs from contract while that of
respondents [owner and driver of other vehicle] arises
from quasi-delict. As early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury
to a passenger due to the negligence of the driver of the bus
on which he was riding and of the driver of another
vehicle, the drivers as well as the owners of the two
vehicles are jointly and severally liable for damages. Some
members of the Court, though, are of the view that under
the circumstances they are liable on quasi-delict."69
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATIONS:
(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and
petitioner William Tiu are ORDERED to pay, jointly and severally,
respondent Pedro A. Arriesgado the total amount of P13,113.80;
(2) The petitioners and the respondents Benjamin Condor and
Sergio Pedrano are ORDERED to pay, jointly and severally,
respondent Pedro A. Arriesgado P50,000.00 as
indemnity; P26,441.50 as actual damages; P50,000.00 as moral
damages; P50,000.00 as exemplary damages; and P20,000.00 as
attorney’s fees.
SO ORDERED.
WILLIAM TIU, doing business under the name and style of "D’ Rough
Riders," and VIRGILIO TE LAS PIÑAS petitioners,
vs.
PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO
PEDRANO and PHILIPPINE PHOENIX SURETY AND INSURANCE,
INC., respondents.
DECISION
CALLEJO, SR., J.:
49
This is a petition for review on certiorari under Rule 45 of the Rules of
Court from the Decision1 of the Court of Appeals in CA-G.R. CV No. 54354
affirming with modification the Decision2 of the Regional Trial Court, 7th
Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for
breach of contract of carriage, damages and attorney’s fees, and the
Resolution dated February 26, 1999 denying the motion for
reconsideration thereof.
The following facts are undisputed:
At about 10:00 p.m. of March 15, 1987, the cargo truck marked
"Condor Hollow Blocks and General Merchandise" bearing plate
number GBP-675 was loaded with firewood in Bogo, Cebu and left
for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela,
Cebu, just as the truck passed over a bridge, one of its rear tires
exploded. The driver, Sergio Pedrano, then parked along the right
side of the national highway and removed the damaged tire to
have it vulcanized at a nearby shop, about 700 meters
away.3 Pedrano left his helper, Jose Mitante, Jr. to keep watch over
the stalled vehicle, and instructed the latter to place a spare tire six
fathoms away4 behind the stalled truck to serve as a warning for
oncoming vehicles. The truck’s tail lights were also left on. It was
about 12:00 a.m., March 16, 1987.
At about 4:45 a.m., D’ Rough Riders passenger bus with plate number PBP-
724 driven by Virgilio Te Laspiñas was cruising along the national
highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus
was also bound for Cebu City, and had come from Maya, Daanbantayan,
Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and
Felisa Pepito Arriesgado, who were seated at the right side of the bus,
about three (3) or four (4) places from the front seat.
As the bus was approaching the bridge, Laspiñas saw the stalled truck,
which was then about 25 meters away.5 He applied the breaks and tried to
swerve to the left to avoid hitting the truck. But it was too late; the bus
rammed into the truck’s left rear. The impact damaged the right side of the
bus and left several passengers injured. Pedro Arriesgado lost
consciousness and suffered a fracture in his right colles. 6 His wife, Felisa,
was brought to the Danao City Hospital. She was later transferred to the
Southern Island Medical Center where she died shortly thereafter.7
Respondent Pedro A. Arriesgado then filed a complaint for breach of
contract of carriage, damages and attorney’s fees before the Regional Trial
Court of Cebu City, Branch 20, against the petitioners, D’ Rough Riders
bus operator William Tiu and his driver, Virgilio Te Laspiñas on May 27,
1987. The respondent alleged that the passenger bus in question was
cruising at a fast and high speed along the national road, and that
petitioner Laspiñas did not take precautionary measures to avoid the
accident.8 Thus:
6. That the accident resulted to the death of the plaintiff’s wife,
Felisa Pepito Arriesgado, as evidenced by a Certificate of Death, a
xerox copy of which is hereto attached as integral part hereof and
marked as ANNEX - "A", and physical injuries to several of its
passengers, including plaintiff himself who suffered a "COLLES
FRACTURE RIGHT," per Medical Certificate, a xerox copy of
which is hereto attached as integral part hereof and marked as
ANNEX - "B" hereof.
7. That due to the reckless and imprudent driving by defendant
Virgilio Te Laspiñas of the said Rough Riders passenger bus,
plaintiff and his wife, Felisa Pepito Arriesgado, failed to safely
reach their destination which was Cebu City, the proximate cause
of which was defendant-driver’s failure to observe utmost
diligence required of a very cautious person under all
circumstances.
8. That defendant William Tiu, being the owner and operator of
the said Rough Riders passenger bus which figured in the said
accident, wherein plaintiff and his wife were riding at the time of
the accident, is therefore directly liable for the breach of contract of
carriage for his failure to transport plaintiff and his wife safely to
their place of destination which was Cebu City, and which failure
in his obligation to transport safely his passengers was due to and
in consequence of his failure to exercise the diligence of a good
father of the family in the selection and supervision of his
employees, particularly defendant-driver Virgilio Te Laspiñas.9
The respondent prayed that judgment be rendered in his favor and that
the petitioners be condemned to pay the following damages:
50
 1). To pay to plaintiff, jointly and severally, the amount
of P30,000.00 for the death and untimely demise of plaintiff’s wife,
Felisa Pepito Arriesgado;
2). To pay to plaintiff, jointly and severally, the amount
of P38,441.50, representing actual expenses incurred by the
plaintiff in connection with the death/burial of plaintiff’s wife;
3). To pay to plaintiff, jointly and severally, the amount
of P1,113.80, representing medical/hospitalization expenses
incurred by plaintiff for the injuries sustained by him;
4). To pay to plaintiff, jointly and severally, the amount
of P50,000.00 for moral damages;
5). To pay to plaintiff, jointly and severally, the amount
of P50,000.00 by way of exemplary damages;
6). To pay to plaintiff, jointly and severally, the amount
of P20,000.00 for attorney’s fees;
7). To pay to plaintiff, jointly and severally, the amount
of P5,000.00 for litigation expenses.
PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND
REMEDIES IN LAW AND EQUITY. 10
The petitioners, for their part, filed a Third-Party Complaint11 on August
21, 1987 against the following: respondent Philippine Phoenix Surety and
Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent Benjamin
Condor, the registered owner of the cargo truck; and respondent Sergio
Pedrano, the driver of the truck. They alleged that petitioner Laspiñas was
negotiating the uphill climb along the national highway of Sitio Aggies,
Poblacion, Compostela, in a moderate and normal speed. It was further
alleged that the truck was parked in a slanted manner, its rear portion
almost in the middle of the highway, and that no early warning device was
displayed. Petitioner Laspiñas promptly applied the brakes and swerved
to the left to avoid hitting the truck head-on, but despite his efforts to avoid
damage to property and physical injuries on the passengers, the right side
portion of the bus hit the cargo truck’s left rear. The petitioners further
alleged, thus:
5. That the cargo truck mentioned in the aforequoted paragraph is
owned and registered in the name of the third-party defendant
Benjamin Condor and was left unattended by its driver Sergio
Pedrano, one of the third-party defendants, at the time of the
incident;
6. That third-party defendant Sergio Pedrano, as driver of the
cargo truck with marked (sic) "Condor Hollow Blocks & General
Merchandise," with Plate No. GBP-675 which was recklessly and
imprudently parked along the national highway of Compostela,
Cebu during the vehicular accident in question, and third-party
defendant Benjamin Condor, as the registered owner of the cargo
truck who failed to exercise due diligence in the selection and
supervision of third-party defendant Sergio Pedrano, are jointly
and severally liable to the third-party plaintiffs for whatever
liability that may be adjudged against said third-party plaintiffs or
are directly liable of (sic) the alleged death of plaintiff’s wife;
7. That in addition to all that are stated above and in the answer
which are intended to show reckless imprudence on the part of the
third-party defendants, the third-party plaintiffs hereby declare
that during the vehicular accident in question, third-party
defendant was clearly violating Section 34, par. (g) of the Land
Transportation and Traffic Code…
…
10. That the aforesaid passenger bus, owned and operated by
third-party plaintiff William Tiu, is covered by a common carrier
liability insurance with Certificate of Cover No. 054940 issued by
Philippine Phoenix Surety and Insurance, Inc., Cebu City Branch,
in favor of third-party plaintiff William Tiu which covers the
period from July 22, 1986 to July 22, 1987 and that the said
insurance coverage was valid, binding and subsisting during the
time of the aforementioned incident (Annex "A" as part hereof);
51
 11. That after the aforesaid alleged incident, third-party plaintiff
notified third-party defendant Philippine Phoenix Surety and
Insurance, Inc., of the alleged incident hereto mentioned, but to no
avail;
12. That granting, et arguendo et arguendi, if herein third-party
plaintiffs will be adversely adjudged, they stand to pay damages
sought by the plaintiff and therefore could also look up to the
Philippine Phoenix Surety and Insurance, Inc., for contribution,
indemnification and/or reimbursement of any liability or
obligation that they might [be] adjudged per insurance coverage
duly entered into by and between third-party plaintiff William Tiu
and third-party defendant Philippine Phoenix Surety and
Insurance, Inc.;…12
The respondent PPSII, for its part, admitted that it had an existing contract
with petitioner Tiu, but averred that it had already attended to and settled
the claims of those who were injured during the incident.13 It could not
accede to the claim of respondent Arriesgado, as such claim was way
beyond the scheduled indemnity as contained in the contract of
insurance.14
After the parties presented their respective evidence, the trial court ruled
in favor of respondent Arriesgado. The dispositive portion of the decision
reads:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered in favor of plaintiff as against defendant William Tiu
ordering the latter to pay the plaintiff the following amounts:
1 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as
moral damages;
2 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as
exemplary damages;
3 - The sum of THIRTY-EIGHT THOUSAND FOUR
HUNDRED FORTY-ONE PESOS (P38,441.00) as actual
damages;
4 - The sum of TWENTY THOUSAND PESOS (P20,000.00)
as attorney’s fees;
5 - The sum of FIVE THOUSAND PESOS (P5,000.00) as
costs of suit;
SO ORDERED.15
According to the trial court, there was no dispute that petitioner William
Tiu was engaged in business as a common carrier, in view of his admission
that D’ Rough Rider passenger bus which figured in the accident was
owned by him; that he had been engaged in the transportation business
for 25 years with a sole proprietorship; and that he owned 34 buses. The
trial court ruled that if petitioner Laspiñas had not been driving at a fast
pace, he could have easily swerved to the left to avoid hitting the truck,
thus, averting the unfortunate incident. It then concluded that petitioner
Laspiñas was negligent.
The trial court also ruled that the absence of an early warning device near
the place where the truck was parked was not sufficient to impute
negligence on the part of respondent Pedrano, since the tail lights of the
truck were fully on, and the vicinity was well lighted by street lamps.16 It
also found that the testimony of petitioner Tiu, that he based the selection
of his driver Laspiñas on efficiency and in-service training, and that the
latter had been so far an efficient and good driver for the past six years of
his employment, was insufficient to prove that he observed the diligence
of a good father of a family in the selection and supervision of his
employees.
After the petitioner’s motion for reconsideration of the said decision was
denied, the petitioners elevated the case to the Court of Appeals on the
following issues:
I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO
WAS RECKLESS AND IMPRUDENT WHEN HE PARKED THE
CARGO TRUCK IN AN OBLIQUE MANNER;
II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY
AND SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-
APPELLEE OR TO DEFENDANTS-APPELLANTS FOR
52
 WHATEVER LIABILITY THAT MAY BE ADJUDGED TO THE
SAID DEFENDANTS-APPELLANTS;
III WHETHER DEFENDANT-APPELLANT VIRGILIO
LASPIÑAS WAS GUILTY OF GROSS NEGLIGENCE;
IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD
EXERCISED THE DUE DILIGENCE OF A GOOD FATHER OF A
FAMILY IN THE SELECTION AND SUPERVISION OF HIS
DRIVERS;
V GRANTING FOR THE SAKE OF ARGUMENT THAT
DEFENDANT-APPELLANT WILLIAM TIU IS LIABLE TO
PLAINTIFF-APPELLEE, WHETHER THERE IS LEGAL AND
FACTUAL BASIS IN AWARDING EXCESSIVE MORAL
DAMAGES, EX[E]MPLARY DAMAGES, ATTORNEY’S FEES
AND LITIGATION EXPENSES TO PLAINTIFF-APPELLEE;
not be held liable for respondent Arriesgado’s claim, nor for contribution,
indemnification and/or reimbursement in case the petitioners were
adjudged liable.
TE
The petitioners now come to this Court and ascribe the following errors
committed by the appellate court:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT
DECLARING RESPONDENTS BENJAMIN CONDOR AND
SERGIO PEDRANO GUILTY OF NEGLIGENCE AND HENCE,
LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO
PETITIONERS FOR WHATEVER LIABILITY THAT MAY BE
ADJUDGED AGAINST THEM.
II. THE HONORABLE COURT OF APPEALS ERRED IN
FINDING PETITIONERS GUILTY OF NEGLIGENCE AND
HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO.

VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC. IS LIABLE TO
DEFENDANT- APPELLANT WILLIAM TIU.17
The appellate court rendered judgment affirming the trial court’s decision
with the modification that the awards for moral and exemplary damages
were reduced to P25,000. The dispositive portion reads:
WHEREFORE, the appealed Decision dated November 6, 1995 is
hereby MODIFIED such that the awards for moral and exemplary
damages are each reduced to P25,000.00 or a total of P50,000.00 for
both. The judgment is AFFIRMED in all other respects.
SO ORDERED.18
According to the appellate court, the action of respondent Arriesgado was
based not on quasi-delict but on breach of contract of carriage. As a
common carrier, it was incumbent upon petitioner Tiu to prove that
extraordinary diligence was observed in ensuring the safety of passengers
during transportation. Since the latter failed to do so, he should be held
liable for respondent Arriesgado’s claim. The CA also ruled that no
evidence was presented against the respondent PPSII, and as such, it could
III. THE HONORABLE COURT OF APPEALS ERRED IN
FINDING PETITIONER WILLIAM TIU LIABLE FOR
EXEMPLARY DAMAGES, ATTORNEY’S FEES AND
LITIGATION EXPENSES.
IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT
FINDING RESPONDENT PHILIPPINE PHOENIX SURETY AND
INSURANCE, INC. LIABLE TO RESPONDENT PEDRO A.
ARRIESGADO OR TO PETITIONER WILLIAM TIU. 19
According to the petitioners, the appellate court erred in failing to
appreciate the absence of an early warning device and/or built-in
reflectors at the front and back of the cargo truck, in clear violation of
Section 34, par. (g) of the Land Transportation and Traffic Code. They aver
that such violation is only a proof of respondent Pedrano’s negligence, as
provided under Article 2185 of the New Civil Code. They also question the
appellate court’s failure to take into account that the truck was parked in
an oblique manner, its rear portion almost at the center of the road. As
such, the proximate cause of the incident was the gross recklessness and
imprudence of respondent Pedrano, creating the presumption of
negligence on the part of respondent Condor in supervising his
employees, which presumption was not rebutted. The petitioners then

53
contend that respondents Condor and Pedrano should be held jointly and
severally liable to respondent Arriesgado for the payment of the latter’s
claim.
The petitioners, likewise, aver that expert evidence should have been
presented to prove that petitioner Laspiñas was driving at a very fast
speed, and that the CA could not reach such conclusion by merely
considering the damages on the cargo truck. It was also pointed out that
petitioner Tiu presented evidence that he had exercised the diligence of a
good father of a family in the selection and supervision of his drivers.
The petitioners further allege that there is no legal and factual basis to
require petitioner Tiu to pay exemplary damages as no evidence was
presented to show that the latter acted in a fraudulent, reckless and
oppressive manner, or that he had an active participation in the negligent
act of petitioner Laspiñas.
Finally, the petitioners contend that respondent PPSII admitted in its
answer that while it had attended to and settled the claims of the other
injured passengers, respondent Arriesgado’s claim remained unsettled as
it was beyond the scheduled indemnity under the insurance contract. The
petitioners argue that said respondent PPSII should have settled the said
claim in accordance with the scheduled indemnity instead of just denying
the same.
On the other hand, respondent Arriesgado argues that two of the issues
raised by the petitioners involved questions of fact, not reviewable by the
Supreme Court: the finding of negligence on the part of the petitioners and
their liability to him; and the award of exemplary damages, attorney’s fees
and litigation expenses in his favor. Invoking the principle of equity and
justice, respondent Arriesgado pointed out that if there was an error to be
reviewed in the CA decision, it should be geared towards the restoration
of the moral and exemplary damages to P50,000 each, or a total of P100,000
which was reduced by the Court of Appeals to P25,000 each, or a total of
only P50,000.
Respondent Arriesgado also alleged that respondents Condor and
Pedrano, and respondent Phoenix Surety, are parties with whom he had
no contract of carriage, and had no cause of action against. It was pointed
out that only the petitioners needed to be sued, as driver and operator of
the ill-fated bus, on account of their failure to bring the Arriesgado Spouses
to their place of destination as agreed upon in the contract of carriage,
using the utmost diligence of very cautious persons with due regard for all
circumstances.
Respondents Condor and Pedrano point out that, as correctly ruled by the
Court of Appeals, the proximate cause of the unfortunate incident was the
fast speed at which petitioner Laspiñas was driving the bus owned by
petitioner Tiu. According to the respondents, the allegation that the truck
was not equipped with an early warning device could not in any way have
prevented the incident from happening. It was also pointed out that
respondent Condor had always exercised the due diligence required in the
selection and supervision of his employees, and that he was not a party to
the contract of carriage between the petitioners and respondent
Arriesgado.
Respondent PPSII, for its part, alleges that contrary to the allegation of
petitioner Tiu, it settled all the claims of those injured in accordance with
the insurance contract. It further avers that it did not deny respondent
Arriesgado’s claim, and emphasizes that its liability should be within the
scheduled limits of indemnity under the said contract. The respondent
concludes that while it is true that insurance contracts are contracts of
indemnity, the measure of the insurer’s liability is determined by the
insured’s compliance with the terms thereof.
The Court’s Ruling
At the outset, it must be stressed that this Court is not a trier of
facts.20 Factual findings of the Court of Appeals are final and may not be
reviewed on appeal by this Court, except when the lower court and the CA
arrived at diverse factual findings.21 The petitioners in this case assail the
finding of both the trial and the appellate courts that petitioner Laspiñas
was driving at a very fast speed before the bus owned by petitioner Tiu
collided with respondent Condor’s stalled truck. This is clearly one of fact,
not reviewable by the Court in a petition for review under Rule 45.22
On this ground alone, the petition is destined to fail.
54
However, considering that novel questions of law are likewise involved,
the Court resolves to examine and rule on the merits of the case.
Petitioner Laspiñas Was negligent in driving The Ill-fated bus
In his testimony before the trial court, petitioner Laspiñas claimed that he
was traversing the two-lane road at Compostela, Cebu at a speed of only
forty (40) to fifty (50) kilometers per hour before the incident
occurred.23 He also admitted that he saw the truck which was parked in an
"oblique position" at about 25 meters before impact, 24 and tried to avoid
hitting it by swerving to the left. However, even in the absence of expert
evidence, the damage sustained by the truck25 itself supports the finding
of both the trial court and the appellate court, that the D’ Rough Rider bus
driven by petitioner Laspiñas was traveling at a fast pace. Since he saw the
stalled truck at a distance of 25 meters, petitioner Laspiñas had more than
enough time to swerve to his left to avoid hitting it; that is, if the speed of
the bus was only 40 to 50 kilometers per hour as he claimed. As found by
the Court of Appeals, it is easier to believe that petitioner Laspiñas was
driving at a very fast speed, since at 4:45 a.m., the hour of the accident,
there were no oncoming vehicles at the opposite direction. Petitioner
Laspiñas could have swerved to the left lane with proper clearance, and,
thus, could have avoided the truck. 26 Instinct, at the very least, would have
prompted him to apply the breaks to avert the impending disaster which
he must have foreseen when he caught sight of the stalled truck. As we
had occasion to reiterate:
A man must use common sense, and exercise due reflection in all
his acts; it is his duty to be cautious, careful and prudent, if not
from instinct, then through fear of recurring punishment. He is
responsible for such results as anyone might foresee and for acts
which no one would have performed except through culpable
abandon. Otherwise, his own person, rights and property, and
those of his fellow beings, would ever be exposed to all manner of
danger and injury.27
We agree with the following findings of the trial court, which were
affirmed by the CA on appeal:
A close study and evaluation of the testimonies and the
documentary proofs submitted by the parties which have direct
bearing on the issue of negligence, this Court as shown by
preponderance of evidence that defendant Virgilio Te Laspiñas
failed to observe extraordinary diligence as a driver of the common
carrier in this case. It is quite hard to accept his version of the
incident that he did not see at a reasonable distance ahead the
cargo truck that was parked when the Rough Rider [Bus] just came
out of the bridge which is on an (sic) [more] elevated position than
the place where the cargo truck was parked. With its headlights
fully on, defendant driver of the Rough Rider was in a vantage
position to see the cargo truck ahead which was parked and he
could just easily have avoided hitting and bumping the same by
maneuvering to the left without hitting the said cargo truck.
Besides, it is (sic) shown that there was still much room or space
for the Rough Rider to pass at the left lane of the said national
highway even if the cargo truck had occupied the entire right lane
thereof. It is not true that if the Rough Rider would proceed to pass
through the left lane it would fall into a canal considering that
there was much space for it to pass without hitting and bumping
the cargo truck at the left lane of said national highway. The
records, further, showed that there was no incoming vehicle at the
opposite lane of the national highway which would have
prevented the Rough Rider from not swerving to its left in order to
avoid hitting and bumping the parked cargo truck. But the
evidence showed that the Rough Rider instead of swerving to the
still spacious left lane of the national highway plowed directly into
the parked cargo truck hitting the latter at its rear portion; and
thus, the (sic) causing damages not only to herein plaintiff but to
the cargo truck as well.28
Indeed, petitioner Laspiñas’ negligence in driving the bus is apparent in
the records. By his own admission, he had just passed a bridge and was
traversing the highway of Compostela, Cebu at a speed of 40 to 50
kilometers per hour before the collision occurred. The maximum speed
allowed by law on a bridge is only 30 kilometers per hour. 29 And, as
correctly pointed out by the trial court, petitioner Laspiñas also violated
Section 35 of the Land Transportation and Traffic Code, Republic Act No.
4136, as amended:
Sec. 35. Restriction as to speed. - (a) Any person driving a motor
vehicle on a highway shall drive the same at a careful and prudent
55
 speed, not greater nor less than is reasonable and proper, having
due regard for the traffic, the width of the highway, and or any
other condition then and there existing; and no person shall drive
any motor vehicle upon a highway at such speed as to endanger
the life, limb and property of any person, nor at a speed greater
than will permit him to bring the vehicle to a stop within the
assured clear distance ahead. 30
Under Article 2185 of the Civil Code, a person driving a vehicle is
presumed negligent if at the time of the mishap, he was violating any
traffic regulation.31
Petitioner Tiu failed to Overcome the presumption Of negligence against
him as One engaged in the business Of common carriage
The rules which common carriers should observe as to the safety of their
passengers are set forth in the Civil Code, Articles 1733, 32 175533 and
1756.34 In this case, respondent Arriesgado and his deceased wife
contracted with petitioner Tiu, as owner and operator of D’ Rough Riders
bus service, for transportation from Maya, Daanbantayan, Cebu, to Cebu
City for the price of P18.00.35 It is undisputed that the respondent and his
wife were not safely transported to the destination agreed upon. In actions
for breach of contract, only the existence of such contract, and the fact that
the obligor, in this case the common carrier, failed to transport his
passenger safely to his destination are the matters that need to be
proved.36 This is because under the said contract of carriage, the
petitioners assumed the express obligation to transport the respondent
and his wife to their destination safely and to observe extraordinary
diligence with due regard for all circumstances. 37 Any injury suffered by
the passengers in the course thereof is immediately attributable to the
negligence of the carrier.38 Upon the happening of the accident, the
presumption of negligence at once arises, and it becomes the duty of a
common carrier to prove that he observed extraordinary diligence in the
care of his passengers.39 It must be stressed that in requiring the highest
possible degree of diligence from common carriers and in creating a
presumption of negligence against them, the law compels them to curb the
recklessness of their drivers.40
While evidence may be submitted to overcome such presumption of
negligence, it must be shown that the carrier observed the required
extraordinary diligence, which means that the carrier must show the
utmost diligence of very cautious persons as far as human care and
foresight can provide, or that the accident was caused by fortuitous
event.41 As correctly found by the trial court, petitioner Tiu failed to
conclusively rebut such presumption. The negligence of petitioner
Laspiñas as driver of the passenger bus is, thus, binding against petitioner
Tiu, as the owner of the passenger bus engaged as a common carrier.42
The Doctrine of Last Clear Chance Is Inapplicable in the Case at Bar
Contrary to the petitioner’s contention, the principle of last clear chance is
inapplicable in the instant case, as it only applies in a suit between the
owners and drivers of two colliding vehicles. It does not arise where a
passenger demands responsibility from the carrier to enforce its
contractual obligations, for it would be inequitable to exempt the negligent
driver and its owner on the ground that the other driver was likewise
guilty of negligence.43 The common law notion of last clear chance
permitted courts to grant recovery to a plaintiff who has also been
negligent provided that the defendant had the last clear chance to avoid
the casualty and failed to do so. Accordingly, it is difficult to see what role,
if any, the common law of last clear chance doctrine has to play in a
jurisdiction where the common law concept of contributory negligence as
an absolute bar to recovery by the plaintiff, has itself been rejected, as it
has been in Article 2179 of the Civil Code. 44
Thus, petitioner Tiu cannot escape liability for the death of respondent
Arriesgado’s wife due to the negligence of petitioner Laspiñas, his
employee, on this score.
Respondents Pedrano and Condor were likewise Negligent
In Phoenix Construction, Inc. v. Intermediate Appellate Court, 45 where
therein respondent Dionisio sustained injuries when his vehicle rammed
against a dump truck parked askew, the Court ruled that the improper
parking of a dump truck without any warning lights or reflector devices
created an unreasonable risk for anyone driving within the vicinity, and
for having created such risk, the truck driver must be held responsible. In
ruling against the petitioner therein, the Court elucidated, thus:
56
 … In our view, Dionisio’s negligence, although later in point of
time than the truck driver’s negligence, and therefore closer to the
accident, was not an efficient intervening or independent cause.
What the petitioners describe as an "intervening cause" was no
more than a foreseeable consequence of the risk created by the
negligent manner in which the truck driver had parked the dump
truck. In other words, the petitioner truck driver owed a duty to
private respondent Dionisio and others similarly situated not to
impose upon them the very risk the truck driver had created.
Dionisio’s negligence was not that of an independent and
overpowering nature as to cut, as it were, the chain of causation in
fact between the improper parking of the dump truck and the
accident, nor to sever the juris vinculum of liability. …
… vehicle with lights, flares, or, at the very least, an early warning
We hold that private respondent Dionisio’s negligence was "only
contributory," that the "immediate and proximate cause" of the
injury remained the truck driver’s "lack of due care."…46
In this case, both the trial and the appellate courts failed to consider that
respondent Pedrano was also negligent in leaving the truck parked askew
without any warning lights or reflector devices to alert oncoming vehicles,
and that such failure created the presumption of negligence on the part of
his employer, respondent Condor, in supervising his employees properly
and adequately. As we ruled in Poblete v. Fabros: 47
It is such a firmly established principle, as to have virtually formed
part of the law itself, that the negligence of the employee gives rise
to the presumption of negligence on the part of the employer. This
is the presumed negligence in the selection and supervision of
employee. The theory of presumed negligence, in contrast with the
American doctrine of respondeat superior, where the negligence
of the employee is conclusively presumed to be the negligence of
the employer, is clearly deducible from the last paragraph of
Article 2180 of the Civil Code which provides that the
responsibility therein mentioned shall cease if the employers prove
that they observed all the diligence of a good father of a family to
prevent damages. …48
The petitioners were correct in invoking respondent Pedrano’s failure to
observe Article IV, Section 34(g) of the Rep. Act No. 4136, which provides:
(g) Lights when parked or disabled. - Appropriate parking lights or
flares visible one hundred meters away shall be displayed at a
corner of the vehicle whenever such vehicle is parked on highways
or in places that are not well-lighted or is placed in such manner as
to endanger passing traffic.
The manner in which the truck was parked clearly endangered oncoming
traffic on both sides, considering that the tire blowout which stalled the
truck in the first place occurred in the wee hours of the morning. The Court
can only now surmise that the unfortunate incident could have been
averted had respondent Condor, the owner of the truck, equipped the said
device.49 Hence, we cannot subscribe to respondents Condor and
Pedrano’s claim that they should be absolved from liability because, as
found by the trial and appellate courts, the proximate cause of the collision
was the fast speed at which petitioner Laspiñas drove the bus. To accept
this proposition would be to come too close to wiping out the fundamental
principle of law that a man must respond for the foreseeable consequences
of his own negligent act or omission. Indeed, our law on quasi-delicts seeks
to reduce the risks and burdens of living in society and to allocate them
among its members. To accept this proposition would be to weaken the
very bonds of society.50
The Liability of Respondent PPSII as Insurer
The trial court in this case did not rule on the liability of respondent PPSII,
while the appellate court ruled that, as no evidence was presented against
it, the insurance company is not liable.
A perusal of the records will show that when the petitioners filed the
Third-Party Complaint against respondent PPSII, they failed to attach a
copy of the terms of the insurance contract itself. Only Certificate of Cover
No. 05494051 issued in favor of "Mr. William Tiu, Lahug, Cebu City" signed
by Cosme H. Boniel was appended to the third-party complaint. The date
of issuance, July 22, 1986, the period of insurance, from July 22, 1986 to July
22, 1987, as well as the following items, were also indicated therein:
57
 Third party defendant Philippine Phoenix Surety and Insurance,
SCHEDULED VEHICLE Inc. hereby reiterates and incorporates by way of reference the
preceding paragraphs and further states THAT:-
MODEL MAKE TYPE OF COLOR BLT FILE
Isuzu Forward BODY blue mixed NO. 8. It has attended to the claims of Vincent Canales,
Bus Asuncion Batiancila and Neptali Palces who sustained
injuries during the incident in question. In fact, it settled
PLATE SERIAL/CHASSIS MOTOR AUTHORIZED UNLADEN financially their claims per vouchers duly signed by them
NO. NO. NO. CAPACITY WEIGHT and they duly executed Affidavit[s] of Desistance to that
PBP-724 SER450-1584124 677836 50 6 Cyls. Kgs. effect, xerox copies of which are hereto attached as
Annexes 1, 2, 3, 4, 5, and 6 respectively;
SECTION 1/11 *LIMITS OF LIABILITY PREMIUMS
9. With respect to the claim of plaintiff, herein answering
P50,000.00 PAID
third party defendant through its authorized insurance
A. THIRD PARTY P540.0052
adjuster attended to said claim. In fact, there were
LIABILITY negotiations to that effect. Only that it cannot accede to the
demand of said claimant considering that the claim was
B. PASSENGER LIABILITY Per Per Accident way beyond the scheduled indemnity as per contract
Person P50,000 entered into with third party plaintiff William Tiu and
P12,000.00 third party defendant (Philippine Phoenix Surety and
Insurance, Inc.). Third party Plaintiff William Tiu knew all
In its Answer53 to the Third-Party Complaint, the respondent PPSII
along the limitation as earlier stated, he being an old hand
admitted the existence of the contract of insurance, in view of its failure to
in the transportation business; 55…
specifically deny the same as required under then Section 8(a), Rule 8 of
the Rules of Court,54 which reads:
Considering the admissions made by respondent PPSII, the existence of
the insurance contract and the salient terms thereof cannot be dispatched.
Sec. 8. How to contest genuineness of such documents. When an
It must be noted that after filing its answer, respondent PPSII no longer
action or defense is founded upon a written instrument copied in
objected to the presentation of evidence by respondent Arriesgado and the
or attached to the corresponding pleading as provided in the
insured petitioner Tiu. Even in its Memorandum56 before the Court,
preceding section, the genuineness and due execution of the
respondent PPSII admitted the existence of the contract, but averred as
instrument shall be deemed admitted unless the adverse party,
follows:
under oath, specifically denies them, and sets forth what he claims
to be the facts; but the requirement of an oath does not apply when
Petitioner Tiu is insisting that PPSII is liable to him for
the adverse party does not appear to be a party to the instrument
contribution, indemnification and/or reimbursement. This has no
or when compliance with an order for inspection of the original
basis under the contract. Under the contract, PPSII will pay all
instrument is refused.
sums necessary to discharge liability of the insured subject to the
limits of liability but not to exceed the limits of liability as so stated
In fact, respondent PPSII did not dispute the existence of such contract,
in the contract. Also, it is stated in the contract that in the event of
and admitted that it was liable thereon. It claimed, however, that it had
accident involving indemnity to more than one person, the limits
attended to and settled the claims of those injured during the incident, and
set up the following as special affirmative defenses:
58
 of liability shall not exceed the aggregate amount so specified by
law to all persons to be indemnified.57
As can be gleaned from the Certificate of Cover, such insurance contract
was issued pursuant to the Compulsory Motor Vehicle Liability Insurance
Law. It was expressly provided therein that the limit of the insurer’s
liability for each person was P12,000, while the limit per accident was
pegged at P50,000. An insurer in an indemnity contract for third party
liability is directly liable to the injured party up to the extent specified in
the agreement but it cannot be held solidarily liable beyond that
amount.58 The respondent PPSII could not then just deny petitioner Tiu’s
claim; it should have paid P12,000 for the death of Felisa Arriesgado,59 and
respondent Arriesgado’s hospitalization expenses of P1,113.80, which the
trial court found to have been duly supported by receipts. The total
amount of the claims, even when added to that of the other injured
passengers which the respondent PPSII claimed to have settled, 60 would
not exceed the P50,000 limit under the insurance agreement.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is
such that it is primarily intended to provide compensation for the death or
bodily injuries suffered by innocent third parties or passengers as a result
of the negligent operation and use of motor vehicles. The victims and/or
their dependents are assured of immediate financial assistance, regardless
of the financial capacity of motor vehicle owners. 61 As the Court, speaking
through Associate Justice Leonardo A. Quisumbing, explained in
Government Service Insurance System v. Court of Appeals: 62
However, although the victim may proceed directly against the
insurer for indemnity, the third party liability is only up to the
extent of the insurance policy and those required by law. While it
is true that where the insurance contract provides for indemnity
against liability to third persons, and such persons can directly sue
the insurer, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the
insurer can be held liable in solidum with the insured and/or the
other parties found at fault. For the liability of the insurer is based
on contract; that of the insured carrier or vehicle owner is based on
tort. …
Obviously, the insurer could be held liable only up to the extent of
what was provided for by the contract of insurance, in accordance
with the CMVLI law. At the time of the incident, the schedule of
indemnities for death and bodily injuries, professional fees and
other charges payable under a CMVLI coverage was provided for
under the Insurance Memorandum Circular (IMC) No. 5-78 which
was approved on November 10, 1978. As therein provided, the
maximum indemnity for death was twelve thousand (P12,000.00)
pesos per victim. The schedules for medical expenses were also
provided by said IMC, specifically in paragraphs (C) to (G). 63
Damages to be Awarded
The trial court correctly awarded moral damages in the amount of P50,000
in favor of respondent Arriesgado. The award of exemplary damages by
way of example or correction of the public good, 64 is likewise in order. As
the Court ratiocinated in Kapalaran Bus Line v. Coronado: 65
…While the immediate beneficiaries of the standard of
extraordinary diligence are, of course, the passengers and owners
of cargo carried by a common carrier, they are not the only persons
that the law seeks to benefit. For if common carriers carefully
observed the statutory standard of extraordinary diligence in
respect of their own passengers, they cannot help but
simultaneously benefit pedestrians and the passengers of other
vehicles who are equally entitled to the safe and convenient use of
our roads and highways. The law seeks to stop and prevent the
slaughter and maiming of people (whether passengers or not) on
our highways and buses, the very size and power of which seem
to inflame the minds of their drivers. Article 2231 of the Civil Code
explicitly authorizes the imposition of exemplary damages in cases
of quasi-delicts "if the defendant acted with gross negligence."…66
The respondent Pedro A. Arriesgado, as the surviving spouse and heir of
Felisa Arriesgado, is entitled to indemnity in the amount of P50,000.00.67
The petitioners, as well as the respondents Benjamin Condor and Sergio
Pedrano are jointly and severally liable for said amount, conformably with
the following pronouncement of the Court in Fabre, Jr. vs. Court of
Appeals:68
59
 The same rule of liability was applied in situations where the
negligence of the driver of the bus on which plaintiff was riding
concurred with the negligence of a third party who was the driver
of another vehicle, thus causing an accident. In Anuran v. Buño,
Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate
Court, and Metro Manila Transit Corporation v. Court of Appeals,
the bus company, its driver, the operator of the other vehicle and
the driver of the vehicle were jointly and severally held liable to
the injured passenger or the latter’s heirs. The basis of this
allocation of liability was explained in Viluan v. Court of Appeals,
thus:
"Nor should it make difference that the liability of
petitioner [bus owner] springs from contract while that of
respondents [owner and driver of other vehicle] arises
from quasi-delict. As early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury
to a passenger due to the negligence of the driver of the bus
on which he was riding and of the driver of another
vehicle, the drivers as well as the owners of the two
vehicles are jointly and severally liable for damages. Some
members of the Court, though, are of the view that under
the circumstances they are liable on quasi-delict."69
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATIONS:
(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and
petitioner William Tiu are ORDERED to pay, jointly and severally,
respondent Pedro A. Arriesgado the total amount of P13,113.80;
(2) The petitioners and the respondents Benjamin Condor and
Sergio Pedrano are ORDERED to pay, jointly and severally,
respondent Pedro A. Arriesgado P50,000.00 as
indemnity; P26,441.50 as actual damages; P50,000.00 as moral
damages; P50,000.00 as exemplary damages; and P20,000.00 as
attorney’s fees.
SO ORDERED.
[G.R. NO. 123238 : September 22, 2008]
PHILIPPINE AIRLINES, INCORPORATED, Petitioner, v. COURT OF
APPEALS AND SPOUSES MANUEL S. BUNCIO AND AURORA R.
BUNCIO, MINORS DEANNA R. BUNCIO AND NIKOLAI R.
BUNCIO, ASSISTED BY THEIR FATHER, MANUEL S. BUNCIO,
AND JOSEFA REGALADO, REPRESENTED BY HER ATTORNEY-IN-
FACT, MANUEL S. BUNCIO, Respondents.
CHICO-NAZARIO, J.:
Before Us is a Petition for Review[1] on Certiorari under Rule 45 of the
Rules of Court seeking to set aside the Decision,[2] dated 20 December
1995, of the Court of Appeals in CA-G.R. CV No. 26921 which affirmed in
toto the Decision,[3] dated 2 April 1990, of the Quezon City Regional Trial
Court (RTC), Branch 90, in Civil Case No. Q-33893.
The undisputed facts are as follows:
Sometime before 2 May 1980, private respondents spouses Manuel S.
Buncio and Aurora R. Buncio purchased from petitioner Philippine
Airlines, Incorporated, two plane tickets[4] for their two minor children,
Deanna R. Buncio (Deanna), then 9 years of age, and Nikolai R. Buncio
(Nikolai), then 8 years old. Since Deanna and Nikolai will travel as
unaccompanied minors, petitioner required private respondents to
accomplish, sign and submit to it an indemnity bond. [5] Private
respondents complied with this requirement. For the purchase of the said
two plane tickets, petitioner agreed to transport Deanna and Nikolai on 2
May 1980 from Manila to San Francisco, California, United States of
America (USA), through one of its planes, Flight 106. Petitioner also
agreed that upon the arrival of Deanna and Nikolai in San Francisco
Airport on 3 May 1980, it would again transport the two on that same
day through a connecting flight from San Francisco, California, USA, to
Los Angeles, California, USA, via another airline, United Airways 996.
Deanna and Nikolai then will be met by their grandmother, Mrs. Josefa
Regalado (Mrs. Regalado), at the Los Angeles Airport on their scheduled
arrival on 3 May 1980.
On 2 May 1980, Deanna and Nikolai boarded Flight 106 in Manila.
60
On 3 May 1980, Deanna and Nikolai arrived at the San Francisco Airport.
However, the staff of United Airways 996 refused to take aboard Deanna
and Nikolai for their connecting flight to Los Angeles because petitioner's
personnel in San Francisco could not produce the indemnity bond
accomplished and submitted by private respondents. The said indemnity
bond was lost by petitioner's personnel during the previous stop-over of
Flight 106 in Honolulu, Hawaii. Deanna and Nikolai were then left
stranded at the San Francisco Airport. Subsequently, Mr. Edwin Strigl
(Strigl), then the Lead Traffic Agent of petitioner in San Francisco,
California, USA, took Deanna and Nikolai to his residence in San
Francisco where they stayed overnight.
Meanwhile, Mrs. Regalado and several relatives waited for the arrival of
Deanna and Nikolai at the Los Angeles Airport. When United Airways
996 landed at the Los Angeles Airport and its passengers disembarked,
Mrs. Regalado sought Deanna and Nikolai but she failed to find them.
Mrs. Regalado asked a stewardess of the United Airways 996 if Deanna
and Nikolai were on board but the stewardess told her that they had no
minor passengers. Mrs. Regalado called private respondents and
informed them that Deanna and Nikolai did not arrive at the Los Angeles
Airport. Private respondents inquired about the location of Deanna and
Nikolai from petitioner's personnel, but the latter replied that they were
still verifying their whereabouts.
On the morning of 4 May 1980, Strigl took Deanna and Nikolai to San
Francisco Airport where the two boarded a Western Airlines plane
bound for Los Angeles. Later that day, Deanna and Nikolai arrived at the
Los Angeles Airport where they were met by Mrs. Regalado. Petitioner's
personnel had previously informed Mrs. Regalado of the late arrival of
Deanna and Nikolai on 4 May 1980.
On 17 July 1980, private respondents, through their lawyer, sent a
letter[6] to petitioner demanding payment of 1 million pesos as damages
for the gross negligence and inefficiency of its employees in transporting
Deanna and Nikolai. Petitioner did not heed the demand.
On 20 November 1981, private respondents filed a complaint [7] for
damages against petitioner before the RTC. Private respondents
impleaded Deanna, Nikolai and Mrs. Regalado as their co-plaintiffs.
Private respondents alleged that Deanna and Nikolai were not able to
take their connecting flight from San Francisco to Los Angeles as
scheduled because the required indemnity bond was lost on account of
the gross negligence and malevolent conduct of petitioner's personnel. As
a consequence thereof, Deanna and Nikolai were stranded in San
Francisco overnight, thereby exposing them to grave danger. This
dilemma caused Deanna, Nikolai, Mrs. Regalado and private
respondents to suffer serious anxiety, mental anguish, wounded feelings,
and sleepless nights. Private respondents prayed the RTC to render
judgment ordering petitioner: (1) to pay Deanna and Nikolai P100,000.00
each, or a total of P200,000.00, as moral damages; (2) to pay private
respondents P500,000.00 each, or a total of P1,000,000,00, as moral
damages; (3) to pay Mrs. Regalado P100,000.00 as moral damages; (4) to
pay Deanna, Nikolai, Mrs. Regalado and private respondents P50,000.00
each, or a total of P250,000.00 as exemplary damages; and (5) to pay
attorney's fees equivalent to 25% of the total amount of damages
mentioned plus costs of suit.
In its answer[8] to the complaint, petitioner admitted that Deanna and
Nikolai were not allowed to take their connecting flight to Los Angeles
and that they were stranded in San Francisco. Petitioner, however,
denied that the loss of the indemnity bond was caused by the gross
negligence and malevolent conduct of its personnel. Petitioner averred
that it always exercised the diligence of a good father of the family in the
selection, supervision and control of its employees. In addition, Deanna
and Nikolai were personally escorted by Strigl, and the latter exerted
efforts to make the connecting flight of Deanna and Nikolai to Los
Angeles possible. Further, Deanna and Nikolai were not left unattended
from the time they were stranded in San Francisco until they boarded
Western Airlines for a connecting flight to Los Angeles. Petitioner asked
the RTC to dismiss the complaint based on the foregoing averments.
After trial, the RTC rendered a Decision on 2 April 1990 holding
petitioner liable for damages for breach of contract of carriage. It ruled
that petitioner should pay moral damages for its inattention and lack of
care for the welfare of Deanna and Nikolai which, in effect, amounted to
bad faith, and for the agony brought by the incident to private
respondents and Mrs. Regalado. It also held that petitioner should pay
exemplary damages by way of example or correction for the public good
under Article 2229 and 2232 of the Civil Code, plus attorney's fees and
costs of suit. In sum, the RTC ordered petitioner: (1) to pay Deanna and
61
Nikolai P50,000.00 each as moral damages and P25,000.00 each as
exemplary damages; (2) to pay private respondent Aurora R. Buncio, as
mother of Deanna and Nikolai, P75,000.00 as moral damages; (3) to pay
Mrs. Regalado, as grandmother of Deanna and Nikolai, P30,000.00 as
moral damages; and (4) to pay an amount of P38,250.00 as attorney's fees
and the costs of suit. Private respondent Manuel S. Buncio was not
awarded damages because his court testimony was disregarded, as he
failed to appear during his scheduled cross-examination. The dispositive
portion of the RTC Decision reads:
ACCORDINGLY, judgment is hereby rendered:
1. Ordering defendant Philippines Airlines, Inc. to pay Deanna R.
Buncio and Nikolai R. Buncio the amount of P50,000.00 each as
moral damages; and the amount of P25,000.00 each as exemplary
damages;
2. Ordering said defendant to pay the amount of P75,000.00 to
Aurora R. Buncio, mother of Deanna and Nikolai, as moral
damages; and the amount of P30,000.00 to Josefa Regalado,
grandmother of Deanna and Nikolai, as moral damages; and
3. Ordering said defendant to pay P38,250.00 as attorney's fees and
also the costs of the suit.[9]
Petitioner appealed to the Court of Appeals. On 20 December 1995, the
appellate court promulgated its Decision affirming in toto the RTC
Decision, thus:
WHEREFORE, the decision appealed is hereby AFFIRMED in toto and
the instant appeal DISMISSED.[10]
Petitioner filed the instant petition before us assigning the following
errors[11]:
I.
THE COURT OF APPEALS ERRED IN SUSTAINING THE RTC AWARD
OF MORAL DAMAGES.
II.
THE COURT OF APPEALS ERRED IN SUSTAINING THE RTC AWARD
OF EXEMPLARY DAMAGES.
III.
THE COURT OF APPEALS ERRED IN SUSTAINING THE RTC AWARD
OF ATTORNEY'S FEES AND ORDER FOR PAYMENT OF COSTS.
Anent the first assigned error, petitioner maintains that moral damages
may be awarded in a breach of contract of air carriage only if the mishap
results in death of a passenger or if the carrier acted fraudulently or in
bad faith, that is, by breach of a known duty through some motive of
interest or ill will, some dishonest purpose or conscious doing of wrong;
if there was no finding of fraud or bad faith on its part; if, although it lost
the indemnity bond, there was no finding that such loss was attended by
ill will, or some motive of interest, or any dishonest purpose; and if there
was no finding that the loss was deliberate, intentional or consciously
done.[12]
Petitioner also claims that it cannot be entirely blamed for the loss of the
indemnity bond; that during the stop-over of Flight 106 in Honolulu,
Hawaii, USA, it gave the indemnity bond to the immigration office
therein as a matter of procedure; that the indemnity bond was in the
custody of the said immigration office when Flight 106 left Honolulu,
Hawaii, USA; that the said immigration office failed to return the
indemnity bond to petitioner's personnel before Flight 106 left Honolulu,
Hawaii, USA; and that even though it was negligent in overlooking the
indemnity bond, there was still no liability on its part because mere
carelessness of the carrier does not per se constitute or justify an
inference of malice or bad faith.[13]
When an airline issues a ticket to a passenger, confirmed for a particular
flight on a certain date, a contract of carriage arises. The passenger has
every right to expect that he be transported on that flight and on that
date, and it becomes the airline's obligation to carry him and his luggage
safely to the agreed destination without delay. If the passenger is not so
transported or if in the process of transporting, he dies or is injured, the
carrier may be held liable for a breach of contract of carriage. [14]
62
Private respondents and petitioner entered into a contract of air carriage
when the former purchased two plane tickets from the latter. Under this
contract, petitioner obliged itself (1) to transport Deanna and Nikolai, as
unaccompanied minors, on 2 May 1980 from Manila to San Francisco
through one of its planes, Flight 106; and (2) upon the arrival of Deanna
and Nikolai in San Francisco Airport on 3 May 1980, to transport them on
that same day from San Francisco to Los Angeles via a connecting flight
on United Airways 996. As it was, petitioner failed to transport Deanna
and Nikolai from San Francisco to Los Angeles on the day of their arrival
at San Francisco. The staff of United Airways 996 refused to take aboard
Deanna and Nikolai for their connecting flight to Los Angeles because
petitioner's personnel in San Francisco could not produce the indemnity
bond accomplished and submitted by private respondents. Thus, Deanna
and Nikolai were stranded in San Francisco and were forced to stay there
overnight. It was only on the following day that Deanna and Nikolai
were able to leave San Francisco and arrive at Los Angeles via another
airline, Western Airlines. Clearly then, petitioner breached its contract of
carriage with private respondents.
In breach of contract of air carriage, moral damages may be recovered
where (1) the mishap results in the death of a passenger; or (2) where the
carrier is guilty of fraud or bad faith; or (3) where the negligence of the
carrier is so gross and reckless as to virtually amount to bad faith.[15]
Gross negligence implies a want or absence of or failure to exercise even
slight care or diligence, or the entire absence of care. It evinces a
thoughtless disregard of consequences without exerting any effort to
avoid them.[16]
In Singson v. Court of Appeals,[17] we ruled that a carrier's utter lack of care
for and sensitivity to the needs of its passengers constitutes gross
negligence and is no different from fraud, malice or bad faith. Likewise,
in Philippine Airlines, Inc. v. Court of Appeals,[18] we held that a carrier's
inattention to, and lack of care for, the interest of its passengers who are
entitled to its utmost consideration, particularly as to their convenience,
amount to bad faith and entitles the passenger to an award of moral
damages.
It was established in the instant case that since Deanna and Nikolai
would travel as unaccompanied minors, petitioner required private
respondents to accomplish, sign and submit to it an indemnity bond.
Private respondents complied with this requirement. Petitioner gave a
copy of the indemnity bond to one of its personnel on Flight 106, since it
was required for the San Francisco-Los Angeles connecting flight of
Deanna and Nikolai. Petitioner's personnel lost the indemnity bond
during the stop-over of Flight 106 in Honolulu, Hawaii. Thus, Deanna
and Nikolai were not allowed to take their connecting flight.
Evidently, petitioner was fully aware that Deanna and Nikolai would
travel as unaccompanied minors and, therefore, should be specially taken
care of considering their tender age and delicate situation. Petitioner also
knew well that the indemnity bond was required for Deanna and Nikolai
to make a connecting flight from San Francisco to Los Angeles, and that it
was its duty to produce the indemnity bond to the staff of United
Airways 996 so that Deanna and Nikolai could board the connecting
flight. Yet, despite knowledge of the foregoing, it did not exercise utmost
care in handling the indemnity bond resulting in its loss in Honolulu,
Hawaii. This was the proximate cause why Deanna and Nikolai were not
allowed to take the connecting flight and were thus stranded overnight in
San Francisco. Further, petitioner discovered that the indemnity bond
was lost only when Flight 106 had already landed in San Francisco
Airport and when the staff of United Airways 996 demanded the
indemnity bond. This only manifests that petitioner did not check or
verify if the indemnity bond was in its custody before leaving Honolulu,
Hawaii for San Francisco.
The foregoing circumstances reflect petitioner's utter lack of care for and
inattention to the welfare of Deanna and Nikolai as unaccompanied
minor passengers. They also indicate petitioner's failure to exercise even
slight care and diligence in handling the indemnity bond. Clearly, the
negligence of petitioner was so gross and reckless that it amounted to
bad faith.
It is worth emphasizing that petitioner, as a common carrier, is bound by
law to exercise extraordinary diligence and utmost care in ensuring for
the safety and welfare of its passengers with due regard for all the
circumstances.[19] The negligent acts of petitioner signified more than
inadvertence or inattention and thus constituted a radical departure from
the extraordinary standard of care required of common carriers.
63
Petitioner's claim that it cannot be entirely blamed for the loss of the
indemnity bond because it gave the indemnity bond to the immigration
office of Honolulu, Hawaii, as a matter of procedure during the stop-
over, and the said immigration office failed to return the indemnity bond
to petitioner's personnel before Flight 106 left Honolulu, Hawaii,
deserves scant consideration. It was petitioner's obligation to ensure that
it had the indemnity bond in its custody before leaving Honolulu,
Hawaii for San Francisco. Petitioner should have asked for the indemnity
bond from the immigration office during the stop-over instead of partly
blaming the said office later on for the loss of the indemnity bond.
Petitioner's insensitivity on this matter indicates that it fell short of the
extraordinary care that the law requires of common carriers.
Petitioner, nonetheless, insists that the following circumstances negate
gross negligence on its part: (1) Strigl requested the staff of United
Airways 996 to allow Deanna and Nikolai to board the plane even
without the indemnity bond; (2) Strigl took care of the two and brought
them to his house upon refusal of the staff of the United Airways 996 to
board Deanna and Nikolai; (3) private respondent Aurora R. Buncio and
Mrs. Regalado were duly informed of Deanna and Nikolai's predicament;
and (4) Deanna and Nikolai were able to make a connecting flight via an
alternative airline, Western Airlines. [20] We do not agree. It was
petitioner's duty to provide assistance to Deanna and Nikolai for the
inconveniences of delay in their transportation. These actions are deemed
part of their obligation as a common carrier, and are hardly anything to
rave about.[21]
Apropos the second and third assigned error, petitioner argues that it
was not liable for exemplary damages because there was no wanton,
fraudulent, reckless, oppressive, or malevolent manner on its part.
Further, exemplary damages may be awarded only if it is proven that the
plaintiff is entitled to moral damages. Petitioner contends that since there
was no proof that private respondents were entitled to moral damages,
then they are also not entitled to exemplary damages. [22]
Petitioner also contends that no premium should be placed on the right
to litigate; that an award of attorney's fees and order of payment of costs
must be justified in the text of the decision; that such award cannot be
imposed by mere conclusion without supporting explanation; and that
the RTC decision does not provide any justification for the award of
attorney's fees and order of payment of costs. [23]
Article 2232 of the Civil Code provides that exemplary damages may be
awarded in a breach of contract if the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner. In addition,
Article 2234 thereof states that the plaintiff must show that he is entitled
to moral damages before he can be awarded exemplary damages.
As we have earlier found, petitioner breached its contract of carriage with
private respondents, and it acted recklessly and malevolently in
transporting Deanna and Nikolai as unaccompanied minors and in
handling their indemnity bond. We have also ascertained that private
respondents are entitled to moral damages because they have sufficiently
established petitioner's gross negligence which amounted to bad faith.
This being the case, the award of exemplary damages is warranted.
Current jurisprudence[24] instructs that in awarding attorney's fees, the
trial court must state the factual, legal, or equitable justification for
awarding the same, bearing in mind that the award of attorney's fees is
the exception, not the general rule, and it is not sound public policy to
place a penalty on the right to litigate; nor should attorney's fees be
awarded every time a party wins a lawsuit. The matter of attorney's fees
cannot be dealt with only in the dispositive portion of the decision. The
text of the decision must state the reason behind the award of attorney's
fees. Otherwise, its award is totally unjustified.[25]
In the instant case, the award of attorney's fees was merely cited in the
dispositive portion of the RTC decision without the RTC stating any legal
or factual basis for said award. Hence, the Court of Appeals erred in
sustaining the RTC's award of attorney's fees.
Since we have already resolved that the RTC and Court of Appeals were
correct in awarding moral and exemplary damages, we shall now
determine whether their corresponding amounts were proper.
The purpose of awarding moral damages is to enable the injured party to
obtain means, diversion or amusement that will serve to alleviate the
moral suffering he has undergone by reason of defendant's culpable
action.[26] On the other hand, the aim of awarding exemplary damages is
to deter serious wrongdoings.[27]
64

Article 2216 of the Civil Code provides that assessment of damages is left
to the discretion of the court according to the circumstances of each case.
This discretion is limited by the principle that the amount awarded
should not be palpably excessive as to indicate that it was the result of
prejudice or corruption on the part of the trial court. [28] Simply put, the
amount of damages must be fair, reasonable and proportionate to the
injury suffered.
The RTC and the Court of Appeals ordered petitioner to pay Deanna and
Nikolai P50,000.00 each as moral damages. This amount is reasonable
considering the harrowing experience they underwent at their tender age
and the danger they were exposed to when they were stranded in San
Francisco. Both of them testified that they were afraid and were not able
to eat and sleep during the time they were stranded in San
Francisco.[29] Likewise, the award of P25,000.00 each to Deanna and
Nikolai as exemplary damages is fair so as to deter petitioner and other
common carriers from committing similar or other serious wrongdoings.
Both courts also directed petitioner to pay private respondent Aurora R.
Buncio P75,000.00 as moral damages. This is equitable and proportionate
considering the serious anxiety and mental anguish she experienced as a
mother when Deanna and Nikolai were not allowed to take the
connecting flight as scheduled and the fact that they were stranded in a
foreign country and in the company of strangers. Private respondent
Aurora R. Buncio testified that she was very fearful for the lives of
Deanna and Nikolai when they were stranded in San Francisco, and that
by reason thereof she suffered emotional stress and experienced upset
stomach.[30] Also, the award of P30,000.00 as moral damages to Mrs.
Regalado is appropriate because of the serious anxiety and wounded
feelings she felt as a grandmother when Deanna and Nikolai, whom she
was to meet for the first time, did not arrive at the Los Angeles Airport.
Mrs. Regalado testified that she was seriously worried when Deanna and
Nikolai did not arrive in Los Angeles on 3 May 1980, and she was hurt
when she saw the two crying upon arriving in Los Angeles on 4 May
1980.[31] The omission of award of damages to private respondent Manuel
S. Buncio was proper for lack of basis. His court testimony was rightly
disregarded by the RTC because he failed to appear in his scheduled
cross-examination.[32]
On another point, we held in Eastern Shipping Lines, Inc. v. Court of
Appeals,[33] that 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 rate of 6% per annum. We further declared that
when the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether it is a loan/forbearance
of money or not, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be then equivalent to a
forbearance of credit.
In the instant case, petitioner's obligation arose from a contract of
carriage and not from a loan or forbearance of money. Thus, an interest of
6% per annum should be imposed on the damages awarded, to be
computed from the time of the extra-judicial demand on 17 July 1980 up
to the finality of this Decision. In addition, the interest shall become 12%
per annum from the finality of this Decision up to its satisfaction.
Finally, the records[34] show that Mrs. Regalado died on 1 March 1995 at
the age of 74, while Deanna passed away on 8 December 2003 at the age
of 32. This being the case, the foregoing award of damages plus interests
in their favor should be given to their respective heirs.
WHEREFORE, the Petition is PARTLY GRANTED. The Decision of the
Court of Appeals, dated 20 December 1995, in CA-G.R. CV No. 26921, is
hereby AFFIRMED with the following MODIFICATIONS: (1) the
award of attorney's fees is deleted; (2) an interest of 6% per annum is
imposed on the damages awarded, to be computed from 17 July 1980 up
to the finality of this Decision; and (3) an interest of 12% per annum is
also imposed from the finality of this Decision up to its satisfaction. The
damages and interests granted in favor of deceased Mrs. Regalado and
deceased Deanna are hereby awarded to their respective heirs. Costs
against petitioner.
SO ORDERED.
65
 of the jeepney, Ruben Reinoso, Sr. (Reinoso), was killed. The
passenger jeepney was owned by Ponciano Tapales (Tapales) and driven by
Alejandro Santos (Santos), while the truck was owned by Jose
Guballa (Guballa) and driven by Mariano Geronimo (Geronimo).

On November 7, 1979, the heirs of Reinoso (petitioners) filed a complaint

for damages against Tapales and Guballa. In turn, Guballa filed a third
party complaint against Filwriters Guaranty Assurance Corporation
(FGAC) under Policy Number OV-09527.

On March 22, 1988, the RTC rendered a decision in favor of the petitioners
G.R. No. 116121 July 18, 2011 and against Guballa. The decision in part, reads:

THE HEIRS OF THE LATE RUBEN REINOSO, SR., represented by In favor of herein plaintiffs and against defendant Jose Guballa:
Ruben Reinoso Jr., Petitioners,
vs.
1. For the death of Ruben Reinoso, Sr. ……………… P 30,000.00
COURT OF APPEALS, PONCIANO TAPALES, JOSE GUBALLA, and
FILWRITERS GUARANTY ASSURANCE
CORPORATION,** Respondent. 2. Loss of earnings (monthly income at the time of
death (P 2,000.00 Court used P 1,000.00 only per
DECISION month (or P 12,000.00 only per year) & victim then
being 55 at death had ten (10) years life
MENDOZA, J.: expectancy……………………………………………… 120,000.00

Before the Court is a petition for review assailing the May 20, 1994 3. Mortuary, Medical & funeral expenses and all
Decision1 and June 30, 1994 Resolution2 of the Court of Appeals (CA), in incidental expenses in the wake in serving those who
CA-G.R. CV No. 19395, which set aside the March 22, 1988 Decision of the condoled ………… 15,000.00
Regional Trial Court, Branch 8, Manila (RTC) for non-payment of docket
fees. The dispositive portion of the CA decision reads: 4. Moral damages …………………………………….. 50,000.00

IN VIEW OF ALL THE FOREGOING, the decision appealed from is SET

5. Exemplary damages ………………………………… 25,000.00
ASIDE and REVERSED and the complaint in this case is ordered
DISMISSED.
6. Litigation expenses …………………………………. 15,000.00
No costs pronouncement.
7. Attorney’s fees ……………………………………… 25,000.00
SO ORDERED.
Or a total of P 250,000.00
The complaint for damages arose from the collision of a
passenger jeepney and a truck at around 7:00 o’clock in the evening of June For damages to property:
14, 1979 along E. Rodriguez Avenue, Quezon City. As a result, a passenger
66
In favor of defendant Ponciano Tapales and against defendant Jose In favor of defendant Ponciano Tapales due to damage of his passenger
Guballa: jeepney …………. P 44,000.00;

In favor of defendant Jose Guballa under Policy No. OV-

1. Actual damages for repair is already awarded to
09527………………………………… P 60,000.00;
defendant-cross-claimant Ponciano Tapales by Br. 9,
All the specified accounts with 6% legal rate of interest per annum from
RTC-Malolos, Bulacan (Vide: Exh. 1-G-Tapales);
date of complaint until fully paid (Reformina vs. Tomol, 139 SCRA 260;
hence, cannot recover twice.
and finally;

2. Compensatory damages (earnings at P 150.00 per day) Costs of suit.

and for two (2) months jeepney stayed at the repair
shop………………………………………. P 9,000.00 SO ORDERED.3

3. Moral damages ………………………... 10,000.00 On appeal, the CA, in its Decision dated May 20, 1994, set aside and
reversed the RTC decision and dismissed the complaint on the ground of
4. Exemplary damages …………………. 10,000.00 non-payment of docket fees pursuant to the doctrine laid down
in Manchester v. CA.4 In addition, the CA ruled that since prescription had
set in, petitioners could no longer pay the required docket fees. 5
5. Attorney’s fees………………………… 15,000.00
Petitioners filed a motion for reconsideration of the CA decision but it was
or a total of P 44,000.00 denied in a resolution dated June 30, 1994. 6 Hence, this appeal, anchored
Under the 3rd party complaint against 3rd party defendant Filwriters on the following
Guaranty Assurance Corporation, the Court hereby renders judgment in
favor of said 3rd party plaintiff by way of 3rd party liability under policy GROUNDS:
No. OV-09527 in the amount of P 50,000.00 undertaking plus P 10,000.00
as and for attorney’s fees. A. The Court of Appeals MISAPPLIED THE RULING of the
Supreme Court in the case of Manchester Corporation vs. Court of
For all the foregoing, it is the well considered view of the Court that Appeals to this case.
plaintiffs, defendant Ponciano Tapales and 3rd Party plaintiff Jose Guballa
established their claims as specified above, respectively. Totality of B. The issue on the specification of the damages appearing in the
evidence preponderance in their favor. prayer of the Complaint was NEVER PLACED IN ISSUE BY ANY
OF THE PARTIES IN THE COURT OF ORIGIN (REGIONAL
JUDGMENT TRIAL COURT) NOR IN THE COURT OF APPEALS.

WHEREFORE, in view of the foregoing, judgment is hereby rendered as
follows:
In favor of plaintiffs for the death of Ruben Reinoso,
Sr………………………………………….P 250,000.00;
C. The issues of the case revolve around the more substantial issue
as to the negligence of the private respondents and their
culpability to petitioners."7
The petitioners argue that the ruling in Manchester should not have been
applied retroactively in this case, since it was filed prior to the
promulgation of the Manchester decision in 1987. They plead that though
67
this Court stated that failure to state the correct amount of damages would
lead to the dismissal of the complaint, said doctrine should be applied
prospectively.
Moreover, the petitioners assert that at the time of the filing of the
complaint in 1979, they were not certain of the amount of damages they
were entitled to, because the amount of the lost income would still be
finally determined in the course of the trial of the case. They claim that the
jurisdiction of the trial court remains even if there was failure to pay the
correct filing fee as long as the correct amount would be paid
subsequently.
Finally, the petitioners stress that the alleged defect was never put in issue
either in the RTC or in the CA.
The Court finds merit in the petition.
The rule is that payment in full of the docket fees within the prescribed
period is mandatory.8 In Manchester v. Court of Appeals,9 it was held that a
court acquires jurisdiction over any case only upon the payment of the
prescribed docket fee. The strict application of this rule was, however,
relaxed two (2) years after in the case of Sun Insurance Office, Ltd. v.
Asuncion,10 wherein the Court decreed that where the initiatory pleading
is not accompanied by the payment of the docket fee, the court may allow
payment of the fee within a reasonable period of time, but in no case
beyond the applicable prescriptive or reglementary period. This ruling
was made on the premise that the plaintiff had demonstrated his
willingness to abide by the rules by paying the additional docket fees
required.11 Thus, in the more recent case of United Overseas Bank v.
Ros,12 the Court explained that where the party does not deliberately
intend to defraud the court in payment of docket fees, and manifests its
willingness to abide by the rules by paying additional docket fees when
required by the court, the liberal doctrine enunciated in Sun Insurance
Office, Ltd., and not the strict regulations set in Manchester, will apply. It
has been on record that the Court, in several instances, allowed the
relaxation of the rule on non-payment of docket fees in order to afford the
parties the opportunity to fully ventilate their cases on the merits. In the
case of La Salette College v. Pilotin,13 the Court stated:
Notwithstanding the mandatory nature of the requirement of payment of
appellate docket fees, we also recognize that its strict application is
qualified by the following: first, failure to pay those fees within the
reglementary period allows only discretionary, not automatic,
dismissal; second, such power should be used by the court in conjunction
with its exercise of sound discretion in accordance with the tenets of justice
and fair play, as well as with a great deal of circumspection in
consideration of all attendant circumstances. 14
While there is a crying need to unclog court dockets on the one hand, there
is, on the other, a greater demand for resolving genuine disputes fairly and
equitably,15 for it is far better to dispose of a case on the merit which is a
primordial end, rather than on a technicality that may result in injustice.
In this case, it cannot be denied that the case was litigated before the RTC
and said trial court had already rendered a decision. While it was at that
level, the matter of non-payment of docket fees was never an issue. It was
only the CA which motu propio dismissed the case for said reason.
Considering the foregoing, there is a need to suspend the strict application
of the rules so that the petitioners would be able to fully and finally
prosecute their claim on the merits at the appellate level rather than fail to
secure justice on a technicality, for, indeed, the general objective of
procedure is to facilitate the application of justice to the rival claims of
contending parties, bearing always in mind that procedure is not to hinder
but to promote the administration of justice. 16
The Court also takes into account the fact that the case was filed before
the Manchester ruling came out. Even if said ruling could be applied
retroactively, liberality should be accorded to the petitioners in view of the
recency then of the ruling. Leniency because of recency was applied to the
cases of FarEastern Shipping Company v. Court of Appeals17 and Spouses
Jimmy and Patri Chan v. RTC of Zamboanga. 18 In the case of Mactan Cebu
International Airport Authority v. Mangubat (Mactan),19 it was stated that the
"intent of the Court is clear to afford litigants full opportunity to comply
with the new rules and to temper enforcement of sanctions in view of
the recency of the changes introduced by the new rules." In Mactan, the
Office of the Solicitor General (OSG) also failed to pay the correct docket
fees on time.
68
We held in another case:
x x x It bears stressing that the rules of procedure are merely tools designed
to facilitate the attainment of justice. They were conceived and
promulgated to effectively aid the court in the dispensation of justice.
Courts are not slaves to or robots of technical rules, shorn of judicial
discretion. In rendering justice, courts have always been, as they ought to
be, conscientiously guided by the norm that, on the balance, technicalities
take a backseat against substantive rights, and not the other way around.
Thus, if the application of the Rules would tend to frustrate rather than
promote justice, it is always within the power of the Court to suspend the
Rules, or except a particular case from its operation. 20
The petitioners, however, are liable for the difference between the actual
fees paid and the correct payable docket fees to be assessed by the clerk of
court which shall constitute a lien on the judgment pursuant to Section 2
of Rule 141 which provides:
SEC. 2. Fees in lien. - Where the court in its final judgment awards a claim
not alleged, or a relief different from, or more than that claimed in the
pleading, the party concerned shall pay the additional fees which shall
constitute a lien on the judgment in satisfaction of said lien. The clerk of
court shall assess and collect the corresponding fees.
As the Court has taken the position that it would be grossly unjust if
petitioners’ claim would be dismissed on a strict application of
the Manchester doctrine, the appropriate action, under ordinary
circumstances, would be for the Court to remand the case to the CA.
Considering, however, that the case at bench has been pending for more
than 30 years and the records thereof are already before this Court, a
remand of the case to the CA would only unnecessarily prolong its
resolution. In the higher interest of substantial justice and to spare the
parties from further delay, the Court will resolve the case on the merits.
The facts are beyond dispute. Reinoso, the jeepney passenger, died as a
result of the collision of a jeepney and a truck on June 14, 1979 at around
7:00 o’clock in the evening along E. Rodriguez Avenue, Quezon City. It
was established that the primary cause of the injury or damage was the
negligence of the truck driver who was driving it at a very fast pace. Based
on the sketch and spot report of the police authorities and the narration of
the jeepney driver and his passengers, the collision was brought about
because the truck driver suddenly swerved to, and encroached on, the left
side portion of the road in an attempt to avoid a wooden barricade, hitting
the passenger jeepney as a consequence. The analysis of the RTC appears in
its decision as follows:
Perusal and careful analysis of evidence adduced as well as proper
consideration of all the circumstances and factors bearing on the issue as
to who is responsible for the instant vehicular mishap convince and
persuade this Court that preponderance of proof is in favor of plaintiffs
and defendant Ponciano Tapales. The greater mass of evidence spread on
the records and its influence support plaintiffs’ plaint including that of
defendant Tapales.
The Land Transportation and Traffic Rule (R.A. No. 4136), reads as
follows:
"Sec. 37. Driving on right side of highway. - Unless a different course of
action is required in the interest of the safety and the security of life, person
or property, or because of unreasonable difficulty of operation in
compliance therewith, every person operating a motor vehicle or an
animal drawn vehicle on highway shall pass to the right when meeting
persons or vehicles coming toward him, and to the left when overtaking
persons or vehicles going the same direction, and when turning to the left
in going from one highway to another, every vehicle shall be conducted to
the right of the center of the intersection of the highway."
Having in mind the foregoing provision of law, this Court is convinced of
the veracity of the version of the passenger jeepney driver Alejandro
Santos, (plaintiffs’ and Tapales’ witness) that while running on lane No. 4
westward bound towards Ortigas Avenue at between 30-40 kms. per hour
(63-64 tsn, Jan. 6, 1984) the "sand & gravel" truck from the opposite
direction driven by Mariano Geronimo, the headlights of which the former
had seen while still at a distance of about 30-40 meters from the wooden
barricade astride lanes 1 and 2, upon reaching said wooden block
suddenly swerved to the left into lanes 3 and 4 at high speed "napakabilis
po ng dating ng truck." (29 tsn, Sept. 26, 1985) in the process hitting them
(Jeepney passenger) at the left side up to where the reserve tire was in an
oblique manner "pahilis" (57 tsn, Sept. 26, 1985). The jeepney after it was
bumped by the truck due to the strong impact was thrown "resting on its
69
right side while the left side was on top of the Bangketa (side walk)". The
passengers of the jeepney and its driver were injured including two
passengers who died. The left side of the jeepney suffered considerable
damage as seen in the picture (Exhs. 4 & 5-Tapales, pages 331-332, records)
taken while at the repair shop.
The Court is convinced of the narration of Santos to the effect that the
"gravel & sand" truck was running in high speed on the good portion of E.
Rodriguez Avenue (lane 1 & 2) before the wooden barricade and (having
in mind that it had just delivered its load at the Corinthian Gardens) so
that when suddenly confronted with the wooden obstacle before it had to
avoid the same in a manner of a reflex reaction or knee-jerk response by
forthwith swerving to his left into the right lanes (lanes 3 & 4). At the time
of the bumping, the jeepney was running on its right lane No. 4 and even
during the moments before said bumping, moving at moderate speed
thereon since lane No. 3 was then somewhat rough because being repaired
also according to Mondalia who has no reason to prevaricate being herself
one of those seriously injured. The narration of Santos and Mondalia are
convincing and consistent in depicting the true facts of the case untainted
by vacillation and therefore, worthy to be relied upon. Their story is
forfeited and confirmed by the sketch drawn by the investigating officer
Pfc. F. Amaba, Traffic Division, NPD, Quezon City who rushed to the
scene of the mishap (Vide: Resolution of Asst fiscal Elizabeth B. Reyes
marked as Exhs. 7, 7-A, 7-B-Tapales, pp. 166-168, records; the Certified
Copy found on pages 598-600, ibid, with the attached police sketch of Pfc.
Amaba, marked as Exh. 8-Tapales on page 169, ibid; certified copy of
which is on page 594, ibid) indicating the fact that the bumping indeed
occurred at lane No. 4 and showing how the ‘gavel & sand’ truck is
positioned in relation to the jeepney. The said police sketch having been
made right after the accident is a piece of evidence worthy to be relied
upon showing the true facts of the bumping-occurrence. The rule that
official duty had been performed (Sec.5(m), R-131, and also Sec. 38, R-a30,
Rev. Rules of Court) - there being no evidence adduced and made of record
to the contrary - is that said circumstance involving the two vehicles had
been the result of an official investigation and must be taken as true by this
Court.21
While ending up on the opposite lane is not conclusive proof of fault in
automobile collisions,22 the position of the two vehicles, as depicted in the
sketch of the police officers, clearly shows that it was the truck that hit
the jeepney. The evidentiary records disclosed that the truck was speeding
along E. Rodriguez, heading towards Santolan Street, while the
passenger jeepney was coming from the opposite direction. When the truck
reached a certain point near the Meralco Post No. J9-450, the front portion
of the truck hit the left middle side portion of the passenger jeepney,
causing damage to both vehicles and injuries to the driver and passengers
of the jeepney. The truck driver should have been more careful, because, at
that time, a portion of E. Rodriguez Avenue was under repair and a
wooden barricade was placed in the middle thereof.
The Court likewise sustains the finding of the RTC that the truck owner,
Guballa, failed to rebut the presumption of negligence in the hiring and
supervision of his employee. Article 2176, in relation to Article 2180 of the
Civil Code, provides:
Art. 2176. Whoever by act or omission causes damage to another, there
being fault or negligence is obliged to pay for the damage done. Such fault
or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter.
xxxx
Art. 2180. The obligation imposed by Art. 2176 is demandable not only for
one’s own acts or omissions but also for those of persons for whom one is
responsible.
xxxx
Employers shall be liable for the damage caused by their employees and
household helpers acting within the scope of their assigned tasks even
though the former are not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons
herein mentioned prove that they observed all the diligence of a good
father of a family to prevent damage.
Whenever an employee’s negligence causes damage or injury to another,
there instantly arises a presumption juris tantum that the employer failed
70
to exercise diligentissimi patris families in the selection or supervision of his G.R. No. 170125
employee.23 Thus, in the selection of prospective employees, employers
are required to examine them as to their qualification, experience and G & S TRANSPORT CORPORATION, Petitioner,
service record. With respect to the supervision of employees, employers
must formulate standard operating procedures, monitor their - versus -
implementation, and impose disciplinary measures for breaches thereof.
These facts must be shown by concrete proof, including documentary HEIRS OF JOSE MARCIAL K. OCHOA namely: RUBY B. OCHOA,
MICAELA B. OCHOA and JOMAR B. OCHOA, Respondents.
evidence.24 Thus, the RTC committed no error in finding that the evidence
presented by respondent Guballa was wanting. It ruled:
RESOLUTION
x x x. As expected, defendant Jose Guballa, attempted to overthrow this
presumption of negligence by showing that he had exercised the due DEL CASTILLO, J.:
diligence required of him by seeing to it that the driver must check the vital
parts of the vehicle he is assigned to before he leaves the compound like Before us is the Motion for Reconsideration of our March 9, 2011 Decision
the oil, water, brakes, gasoline, horn (9 tsn, July 17, 1986); and that filed by G & S Transport Corporation (G & S).
Geronimo had been driving for him sometime in 1976 until the collision in
Brief Background
litigation came about (5-6 tsn, ibid); that whenever his trucks gets out of
the compound to make deliveries, it is always accompanied with two (2)
On March 9, 2011, we rendered a Decision in the consolidated petitions of
helpers (16-17 tsn, ibid). This was all which he considered as selection and
G & S and of the heirs. These petitions stemmed from a Complaint for
supervision in compliance with the law to free himself from any
Damages filed by the heirs against G & S with the Regional Trial Court
responsibility. This Court then cannot consider the foregoing as equivalent
(RTC), Pasig City, Branch 164 on account of Jose Marcial’s death while
to an exercise of all the care of a good father of a family in the selection and
onboard a taxicab owned and operated by G & S.
supervision of his driver Mariano Geronimo." 25
The RTC adjudged G & S guilty of breach of contract of carriage and
WHEREFORE, the petition is GRANTED. The May 20, 1994 Decision and
ordered it to pay the heirs the following amounts:
June 30, 1994 Resolution of the Court of Appeals are REVERSED and SET
ASIDE and the March 22, 1988 Decision of the Regional Trial Court, Branch
1. P50,000 as civil indemnity;
8, Manila, is REINSTATED. SO ORDERED.
2. P6,537,244.96 for loss of earning capacity of the deceased;
G.R. No. 170071
3. P100,000.00 for attorney’s fees; and,
HEIRS OF JOSE MARCIAL K. OCHOA namely: RUBY B. OCHOA,
4. costs of litigation.
MICAELA B. OCHOA and JOMAR B. OCHOA, Petitioners,
Acting upon the heirs’ Partial Motion for Reconsideration,
- versus -

G & S TRANSPORT CORPORATION, Respondent. the RTC also ordered G & S to pay the heirs the following:
1. P300,000.00 as moral damages;

2. P50,000.00 as exemplary damages.

71
On appeal, the Court of Appeals (CA) affirmed the RTC Decision but with
the modifications that the awards for loss of income in the amount of
P6,537,244.96 be deleted and that moral damages be reduced to
P200,000.00.
The deletion was ordered on the ground that the income certificate issued
by Jose Marcial’s employer, the United States Agency for International
Development (USAID), is self-serving, unreliable and biased, and that the
same was not supported by competent evidence such as income tax returns
or receipts. With respect to moral damages, the CA found the same
excessive and disproportionate to the award of P50,000.00 exemplary
damages. Thus, the same was reduced to P200,000.00.
The parties’ respective appeals from the CA Decision became the subject
of this Court’s March 9, 2011 Decision which denied G & S’s petition and
partly granted that of the heirs. The Court affirmed the assailed CA
Decision with the modifications that G & S is ordered to pay the heirs
P6,611,634.59 for loss of earning capacity of the deceased, as well as moral
damages in the reduced amount of P100,000.00. The dispositive portion of
our March 9, 2011 Decision, reads:
WHEREFORE, the petition for review on certiorari in G.R. No. 170071 is
PARTLY GRANTED while the petition in G.R. No. 170125 is DENIED. The
assailed Decision and Resolution dated June 29, 2005 and October 12, 2005
of the Court of Appeals in CA-G.R. CV No. 75602 are AFFIRMED with the
MODIFICATIONS that G & S is ordered to pay the heirs of Jose Marcial K.
Ochoa the sum of P6,611,634.59 for loss of earning capacity of the deceased
and P100,000.00 as moral damages.
SO ORDERED.
G & S’s Motion for Reconsideration
G & S filed a Motion for Reconsideration arguing that the USAID
Certification used as basis in computing the award for loss of income is
inadmissible in evidence because it was not properly authenticated and
identified in court by the signatory thereof; that it exercised the diligence
of a good father of a family in the selection and supervision of its
employees and, hence, was able to overcome the presumption of fault
imputed to it; and, that while settled is the rule that this Court is not a trier
of facts, G & S can seek a review of facts even if it did not particularly state
under which exception to such rule its case falls.
The heirs’ Comment to the Motion for Reconsideration
In their Comment, the heirs point out that G & S’s arguments have already
been squarely passed upon by this Court and by the lower courts.
Moreover, these arguments involve questions of fact which cannot be
reviewed in a petition for review on certiorari. As to the USAID
Certification, the heirs aver that the same was properly admitted in
evidence. This is because Jose Marcial’s widow, witness Ruby Bueno
Ochoa, was able to competently testify as to the authenticity and due
execution of the said Certification since the signatory thereof, Jonas Cruz
(Cruz), personally issued and handed the same to her. In addition, the
accuracy of the contents of the Certification was never questioned by G &
S as, in fact, it did not present evidence to dispute its contents.
The Court’s Ruling
The Motion for Reconsideration is denied.
The requirement of authentication of documentary evidence applies only to a
private document.
It is true that before a private document offered as authentic be received in
evidence, its due execution and authenticity must first be proved.
However, it must be remembered that this requirement of authentication
only pertains to private documents and "does not apply to public
documents, these being admissible without further proof of their due
execution or genuineness. Two reasons may be advanced in support of this
rule, namely: said documents have been executed in the proper registry
and are presumed to be valid and genuine until the contrary is shown by
clear and convincing proof; and, second, because public documents are
authenticated by the official signature and seals which they bear and of
which seals, courts may take judicial notice."
Hence, in a case, the Court held that in the presentation of public
documents as evidence, due execution and authenticity thereof are
already presumed.
72
The subject USAID Certification is a public document, hence, does not require
authentication.
It therefore becomes necessary to first ascertain whether the subject USAID
Certification is a private or public document before this Court can rule
upon the correctness of its admission and consequent use as basis for the
award of loss of income in these cases.
Sec. 19, Rule 132 of the Rules of Court classifies documents as either public
or private, viz:
Sec. 19. Classes of Documents - For the purpose of their presentation in
evidence, documents are either public or private.
Public documents are:
(a) The written official acts, or records of the official acts of the sovereign
authority, official bodies and tribunals, and public officers, whether of the
Philippines, or of a foreign country;
(b) Documents acknowledged before a notary public except last wills and
testaments; and (c) Public records, kept in the Philippines, of private
documents required by law to be entered therein.
All other writings are private. (Emphasis supplied.)
Paragraph (a) of the above-quoted provision classifies the written official
acts, or records of the official acts of the sovereign authority, official bodies
and tribunals, and public officers, whether of the Philippines, or of a
foreign country, as public documents. As mentioned in our March 9, 2011
Decision, USAID is the principal United States agency that extends
assistance to countries recovering from disaster, trying to escape poverty,
and engaging in democratic reforms and that it is an independent federal
government agency that receives over-all foreign policy guidance from the
Secretary of State of the United States.
A further research on said agency shows that it was created through
Executive Order 10973
by President John F. Kennedy on November 3, 1961 pursuant to the
Foreign Assistance Act of 1961. It is headed by an Administrator and
Deputy Administrator, both appointed by the President of the Unites
States and confirmed by its Senate. From these, there can be no doubt
that the USAID is an official government agency of a foreign country, the
United States. Hence, Cruz, as USAID’s Chief of the Human Resources
Division in the Philippines, is actually a public officer. Apparently,
Cruz’s issuance of the subject USAID Certification was made in the
performance of his official functions, he having charge of all employee
files and information as such officer. In view of these, it is clear that the
USAID Certification is a public document pursuant to paragraph (a), Sec.
19, Rule 132 of the Rules of Court. Hence, and consistent with our above
discussion, the authenticity and due execution of said Certification are
already presumed. Moreover, as a public document issued in the
performance of a duty by a public officer, the subject USAID Certification
is prima facie evidence of the facts stated therein. And, there being no
clear and sufficient evidence presented by G & S to overcome these
presumptions, the RTC is correct when it admitted in evidence the said
document. The USAID Certification could very well be used as basis for
the award for loss of income to the heirs.
G & S failed to overcome the presumption that "the common carrier is at
fault or is negligent when a passenger dies or is injured."
G & S insists that it exercised the required diligence of a good father of a
family when it hired and continued to employ Bibiano Padilla, Jr. (the
driver of the ill-fated Avis taxicab). It claims that it was able to prove this
through the documentary exhibits it submitted before the trial court and
that the same are sufficient to relieve it from liability to the heirs.
The reasons advanced by G & S in support of this argument are mere
rehash if not a repetition of those raised in its petition which have already
been considered and passed upon in our March 9, 2011 Decision and,
hence, do not require reconsideration. The conclusion therefore that G & S
failed to overcome the presumption that the common carrier is at fault or
is negligent when a passenger dies or is injured stands.
There is no compelling reason to re-examine the factual findings of the lower
courts.
G & S questions the portion of our March 9, 2011 Decision which reads:
73
In this case, the said three issues boil down to the determination of the
following questions: What is the proximate cause of the death of Jose Marcial?Is
the testimony of prosecution witness Clave credible? Did G & S exercise the
diligence of a good father of a family in the selection and supervision of its
employees? Suffice it to say that these are all questions of fact which require
this Court to inquire into the probative value of the evidence presented
before the trial court. As we have consistently held, "[t]his Court is not a
trier of facts. It is not a function of this court to analyze or weigh evidence.
When we give due course to such situations, it is solely by way of
exception. Such exceptions apply only in the presence of extremely
meritorious cases." Here, we note that although G & S enumerated in its
Consolidated Memorandum the exceptions to the rule that a petition for
review on certiorari should only raise questions of law, it nevertheless did
not point out under what exception its case falls. And, upon review of the
records of the case, we are convinced that it does not fall under any. Hence,
we cannot proceed to resolve said issues and disturb the findings and
conclusions of the CA with respect thereto. x x x
(Emphasis supplied.)
G & S avers that its failure to indicate the specific ground/exception for
this Court to review the facts of the case should not be taken against it. It
contends that even if it failed to specify which of the exceptions is
applicable here, the Court should have nonetheless determined the
existence of any of the said exceptions on its own.
This matter has been properly addressed in our March 9, 2011 Decision.
While we indeed mentioned that G & S failed to indicate under which of
the exceptions its case falls, the line following that portion states that "And,
uponreview of the records of the case, we are convinced that it does not fall under
any." It is plain from this statement that although G & S failed to specify
the reason why we should resolve factual questions in these cases, we
nevertheless have carefully studied the records to ascertain whether there
exists sufficient justification for us to re-examine the factual findings of the
lower courts. And convinced that there is none, we adhered to the settled
principle that a review of the factual findings of the lower courts is outside
the province of a Petition for Review on Certiorari.
The award of attorney’s fees and cost of litigation should be deleted.
While we are constrained to deny the present Motion for Reconsideration
for the reasons above-stated, we cannot, however, end without discussing
the awards of attorney’s fees and costs of litigation.
In Mercury Drug Corporation v. Banking,
the Court held, viz:
On the matter of attorney’s fees and expenses of litigation, it is settled that
the reasons or grounds for the award thereof must be set forth in the
decision of the court. Since the trial court’s decision did not give the basis
of the award, the same must be deleted. In Vibram Manufacturing
Corporation v. Manila Electric Company, we held:
Likewise, the award for attorney’s fees and litigation expenses should de
deleted. Well-enshrined is that an award for attorney’s fees must be stated
in the text of the court’s decision and not in the dispositive portion
only (Consolidated Bank and Trust Corporation Solidbank v. Court of
Appeals, 246 SCRA 193 1995 and Keng Hua Paper Products, Inc. v. Court of
Appeals. 286 SCRA 257 1998). This is also true with the litigation expenses
where the body of the decision discusses nothing for its basis.
The text of the court a quo’s Decision is bereft of any factual or legal
justification for the awards of attorney’s fees and costs of litigation. It
merely declared the grant of said awards to the heirs in the dispositive
portion of its decision. Hence, the same should be declared.
WHEREFORE, the awards of attorney’s fees and costs of litigation are
DELETED. G & S’s Motion for Reconsideration is DENIED with
FINALITY.
SO ORDERED.
G.R. No. 185565
LOADSTAR SHIPPING COMPANY, INCORPORATED and
LOADSTAR INTERNATIONAL SHIPPING COMPANY,
INCORPORATED, Petitioners,
- versus -
74
 MALAYAN INSURANCE COMPANY, INCORPORATED,
Respondent.
DECISION
REYES, J.:
This is a Petition for Review on Certiorari filed by Loadstai Shipping
Company, Incorporated and Loadstar International Shipping Company,
Incorporated (petitioners) against Malayan Insurance Company,
Incorporated (Malayan) seeking to set aside the Decision dated April 14,
2008 and Resolution dated December 11, 2008 of the Court of Appeals (CA)
in CA-G.R. CV No. 82758, which reversed and set aside the Decision dated
March 31, 2004 of the Regional Trial Court of Manila, Branch 34, in Civil
Case No. 01-101885.
The facts as found by the CA, are as follows:
Loadstar International Shipping, Inc.(Loadstar Shipping) and Philippine
Associated Smelting and Refining Corporation (PASAR) entered into a
Contract of Affreightment for domestic bulk transport of the latter’s
copper concentrates for a period of one year from November 1, 1998 to
October 31, 1999. The contract was extended up to the end of October 2000.
On September 10, 2000, 5,065.47 wet metric tons (WMT) of copper
concentrates were loaded in Cargo Hold Nos. 1 and 2 of MV "Bobcat", a
marine vessel owned by Loadstar International Shipping Co., Inc.
(Loadstar International) and operated by Loadstar Shipping under a
charter party agreement. The shipper and consignee under the Bill of
Lading are Philex Mining Corporation (Philex) and PASAR, respectively.
The cargo was insured with Malayan Insurance Company, Inc. (Malayan)
under Open Policy No. M/OP/2000/001-582. P & I Association is the third
party liability insurer of Loadstar Shipping.
On said date (September 10, 2000), MV "Bobcat" sailed from Poro Point,
San Fernando, La Union bound for Isabel, Leyte. On September 12, 2000,
while in the vicinity of Cresta de Gallo, the vessel’s chief officer on routine
inspection found a crack on starboard sideof the main deck which caused
seawater to enter and wet the cargo inside Cargo Hold No. 2 forward/aft.
The cracks at the top deck starboard side of Cargo Hold No. 2, measuring
1.21 meters long x 0.39 meters wide, and at top deck aft section starboard
side on other point, measuring 0.82 meters long x 0.32 meters wide, were
welded.
Immediately after the vessel arrived at Isabel, Leyte anchorage area, on
September 13, 2000, PASAR and Philex’s representatives boarded and
inspected the vessel and undertook sampling of the copper concentrates.
In its preliminary report dated September 15, 2000, the Elite Adjusters and
Surveyor, Inc. (Elite Surveyor) confirmed that samples of copper
concentrates from Cargo Hold No. 2 were contaminated by seawater.
Consequently, PASAR rejected 750 MT of the 2,300 MT cargo discharged
from Cargo Hold No. 2.
On November 6, 2000, PASAR sent a formal notice of claim in the amount
of [P]37,477,361.31 to Loadstar Shipping. In its final report dated
November 16, 2000, Elite Surveyor recommended payment to the assured
the amount of [P]32,351,102.32 as adjusted. On the basis of such
recommendation, Malayan paid PASAR the amount of [P]32,351,102.32.
Meanwhile, on November 24, 2000, Malayan wrote Loadstar Shipping
informing the latter of a prospective buyer for the damaged copper
concentrates and the opportunity to nominate/refer other salvage buyers
to PASAR. On November 29, 2000, Malayan wrote Loadstar Shipping
informing the latter of the acceptance of PASAR’s proposal to take the
damaged copper concentrates at a residual value of US$90,000.00. On
December 9, 2000, Loadstar Shipping wrote Malayan requesting for the
reversal of its decision to accept PASAR’s proposal and the conduct of a
public bidding to allow Loadstar Shipping to match or top PASAR’s bid
by 10%.
On January 23, 2001, PASAR signed a subrogation receipt in favor of
Malayan. To recover the amount paid and in the exercise of its right of
subrogation, Malayan demanded reimbursement from Loadstar Shipping,
which refused to comply. Consequently, on September 19, 2001, Malayan
instituted with the RTC a complaint for damages. The complaint was later
amended to include Loadstar International as party defendant.
In its amended complaint, Malayan mainly alleged that as a direct and
natural consequence of the unseaworthiness of the vessel, PASAR suffered
loss of the cargo. It prayed for the amount of [P]33,934,948.75, representing
75
actual damages plus legal interest fromdate of filing of the complaint until
fully paid, and attorney’s fees in the amount of not less than [P]500,000.00.
It also sought to declare the bill of lading as void since it violates the
provisions of Articles 1734 and 1745 of the Civil Code.
On October 30, 2002, Loadstar Shipping and Loadstar International filed
their answer with counterclaim, denying plaintiff appellant’s allegations
and averring as follows: that they are not engaged in the business as
common carriers but as private carriers; that the vessel was seaworthy and
defendants-appellees exercised the required diligence under the law; that
the entry of water into Cargo Hold No. 2 must have been caused by force
majeureor heavy weather; that due to the inherent nature of the cargo and
the use of water in its production process, the same cannot be considered
damaged or contaminated; that defendants-appellees were denied
reasonable opportunity to participate in the salvage sale; that the claim had
prescribed in accordance with the bill of lading provisions and the Code
of Commerce; that plaintiff-appellant’s claim is excessive, grossly
overstated, unreasonable and unsubstantiated; that their liability, if any,
should not exceed the CIFvalue of the lost/damaged cargo as set forth in
the bill of lading, charter party or customary rules of trade; and that the
arbitration clause in the contract of affreightment should be followed.
After trial, and considering that the billof lading, which was marked as
Exhibit "B", is unreadable, the RTC issued on February 17, 2004 an order
directing the counsel for Malayan to furnish it with a clearer copy of the
same within three (3) days from receipt of the order. On February 23, 2004,
Malayan filed a compliance attaching thereto copy of the bill of lading.
On March 31, 2004, the RTC rendered a judgment dismissing the
complaint as well as the counterclaim. The RTC was convinced that the
vessel was seaworthy at the time of loading and that the damage was
attributable to the perils of the sea (natural disaster) and not due to the
fault or negligence of Loadstar Shipping.
The RTC found that although contaminated by seawater, the copper
concentrates can still be used. Itgave credence to the testimony of Francisco
Esguerra, defendants-appellees’ expert witness, that despite high chlorine
content, the copper concentrates remain intact and will not lose their value.
The gold and silver remain with the grains/concentrates even if soaked
with seawater and does not melt. The RTC observed that the purchase
agreement between PASAR and Philex contains a penalty clause and has
no rejection clause. Despite this agreement, the parties failed to sit down
and assess the penalty.
The RTC also found that defendants-appellees were not afforded the
opportunity to object or participate or nominate a participant in the sale of
the contaminated copper concentrates to lessen the damages to be paid.
No record was presented to show that a public bidding was conducted.
Malayan sold the contaminated copper concentrates to PASAR at a low
price then paid PASAR the total value of the damaged concentrate without
deducting anything from the claim.
Finally, the RTC denied the prayer to declare the Bill of Lading null and
void for lack of basis because what was attached to Malayan’s compliance
was still an unreadable machine copy thereof.
(Citations omitted)
Ruling of the CA
On April 14, 2008, the CA rendered its Decision, the dispositive portion of
which reads: WHEREFORE, the appeal is GRANTED. The Decision dated
March 31, 2004 of the RTC, Branch 34, Manila in Civil Case No. 01-101885,
is REVERSED and SET ASIDE. In lieu thereof, a new judgment is entered,
ORDERING defendants-appellees to pay plaintiff-appellant
₱33,934,948.75 as actual damages, plus legal interest at 6% annually from
the date of the trial court’s decision. Upon the finality of the decision, the
total amount of the judgment shall earn annual interest at 12% until full
payment.
SO ORDERED.
On December 11, 2008, the CA modified the above decision through a
Resolution, the fallo thereof states:
WHEREFORE, the Motion for Reconsiderationis PARTLY GRANTED. The
decision of this Court dated April 14, 2008 is PARTIALLY
RECONSIDERED and MODIFIED. Defendants-appellees are ORDERED
to pay to plaintiff-appellant ₱33,934,948.74 as actual damages, less
US$90,000.00, computed at the exchange rate prevailing on November 29,
2000, plus legal interest at 6% annually from the date of the trial court’s
76
decision. Upon the finality of the decision, the total amount of the
judgment shall earn annual interest at 12% until full payment.
SO ORDERED.
The CA discussed that the amount of US$90,000.00 should have been
deducted from Malayan’s claim against the petitioners in order to prevent
undue enrichment on the part of Malayan. Otherwise, Malayan would
recover from the petitioners not merely the entire amount of 33,934,948.74
as actual damages, but would also end up unjustly enriching itself in the
amount of US$90,000.00 - the residual value of the subject copper
concentrates it sold to Philippine Associated Smelting and Refining
Corporation (PASAR) on November 29, 2000.
Issues
In sum, the grounds presented by the petitioners for the Court’s
consideration are the following:
I.
THE [CA] HAS NO BASIS IN REVERSING THE DECISION OF THE
TRIAL COURT. THERE IS NOTHING IN THE DECISION OF THE
HONORABLE COURT THAT REVERSED THE FACTUAL FINDINGS
AND CONCLUSIONS OF THE TRIAL COURT, THAT THERE WAS NO
ACTUAL LOSS OR DAMAGE TO THE CARGO OF COPPER
CONCENTRATES WHICH WOULD MAKE LOADSTAR AS THE
SHIPOWNER LIABLE FOR A CARGO CLAIM. CONSEQUENTLY,
THERE IS NO BASIS FOR THE COURT TO ORDER LOADSTAR TO PAY
ACTUAL DAMAGES IN THE AMOUNT OF PH₱33 MILLION.
II.
M/V BOBCAT IS A PRIVATE CARRIER, THE HONORABLE COURT
HAD NO BASIS IN RULING THAT IT IS A COMMON CARRIER. THE
DECISION OF THE TRIAL COURT IS BEREFT OF ANY CATEGORICAL
FINDING THAT M/V BOBCAT IS A COMMON CARRIER.
III.
THE HONORABLE COURT OFAPPEALS COMMITTED A REVERSIBLE
ERROR IN RULING THAT RESPONDENT’S PAYMENT TO PASAR, ON
THE BASIS OF THE LATTER’S FRAUDULENT CLAIM, ENTITLED
RESPONDENT AUTOMATIC RIGHT OF RECOVERY BY VIRTUE OF
SUBROGATION.
Ruling of the Court
I. Proof of actual damages
It is not disputed that the copper concentrates carried by M/V Bobcat from
Poro Point, La Union to Isabel, Leyte were indeed contaminated with
seawater. The issue lies on whether such contamination resulted to
damage, and the costs thereof, if any,incurred by the insured PASAR.
The petitioners argued that the copper concentrates, despite being
dampened with seawater, is neither subject to penalty nor rejection. Under
the Philex Mining Corporation (Philex)-PASAR Purchase Contract
Agreement, there is no rejection clause. Instead, there is a pre-agreed
formula for the imposition of penalty in case other elements exceeding the
provided minimum level would be found on the concentrates.
Since the chlorine content on the copper concentrates is still below the
minimum level provided under the Philex-PASAR purchase contract, no
penalty may be imposed against the petitioners. Malayan opposed the
petitioners’ invocation of the Philex-PASAR purchase agreement, stating
that the contract involved in this case is a contract of affreightment
between the petitioners and PASAR, not the agreement between Philex
and PASAR, which was a contract for the sale of copper concentrates. On
this score, the Court agrees withMalayan that contrary to the trial court’s
disquisition, the petitioners cannot validly invoke the penalty clause
under the Philex-PASAR purchase agreement, where penalties are to be
imposed by the buyer PASAR against the seller Philex if some elements
exceeding the agreed limitations are found on the copper concentrates
upon delivery. The petitioners are not privy tothe contract of sale of the
copper concentrates. The contract between PASAR and the petitioners is
a contract of carriage of goods and not a contract of sale. Therefore, the
petitioners and PASAR are bound by the laws on transportation of goods
and their contract of affreightment. Since the Contract of Affreightment
between the petitioners and PASAR is silent as regards the computation
of damages, whereas the bill of lading presented before the trial court is
77
undecipherable, the New Civil Code and the Code ofCommerce shall
govern the contract between the parties.
Malayan paid PASAR the amount of 32,351,102.32 covering the latter’s
claim of damage to the cargo.
This is based on the recommendation of Elite Adjustors and Surveyors,
Inc. (Elite) which both Malayan and PASAR agreed to. The computation
of Elite is presented as follows:
Computation of Loss Payable.We computed for the insured value of the
loss and loss payable, based on the following pertinent data:
1) Total quantity shipped - 5,065.47 wet metric tons and at risk or (Risk
Note and B/L) 4,568.907 dry metric tons
2) Total sum insured - [P]212,032,203.77 (Risk Note and Endorsement)
3) Quantity damaged: 777.290 wet metric tons or (Pasar Laboratory Cert.
& 696.336 dry metric tons discharge & sampling Cert.dated September 21,
2000)
Computation:
Total sum insured x Qty. damaged= Insured value of damage
Total Qty. in DMT (DMT) (DMT)
[P] 212,032,203.77 x 696.336 DMT = [P]32,315,312.32
4,568.907 DMT
Insured value of damage = [P] 32,315,312.32
Based on the preceding computation, the sum of ₱32,315,312.32 represents
damages for the total loss ofthat portion of the cargo which were
contaminated with seawater and not merely the depreciation in its value.
Strangely though, after claiming damages for the total loss of that portion,
PASAR bought back the contaminated copper concentrates from Malayan
at the price of US$90,000.00. The fact of repurchase is enough to conclude
that the contamination of the copper concentrates cannot be considered as
total loss on the part of PASAR.
The following provisions of the Code of Commerce state how damages on
goods delivered by the carrier should be appraised:
Article 361. The merchandise shall be transported at the risk and venture
of the shipper, if the contrary has not been expressly stipulated. As a
consequence, all the losses and deteriorations which the goods may suffer
during the transportation by reason of fortuitous event, force majeure, or
the inherent nature and defect of the goods, shall be for the account and
risk of the shipper. Proof of these accidents is incumbent upon the carrier.
Article 362. Nevertheless, the carrier shall be liable for the losses and
damages resulting from the causes mentioned in the preceding article if it
is proved, as against him, that they arose through his negligence or by
reason of his having failed to take the precautions which usage has
established among careful persons, unless the shipper has committed
fraud in the bill of lading, representing the goods to be of a kind or quality
different from what they really were.
If, notwithstanding the precautions referred to in this article, the goods
transported run the risk of being lost, on account of their nature or by
reason of unavoidable accident, there being no time for their owners to
dispose of them, the carrier may proceed to sell them, placing them for this
purpose at the disposal of the judicial authority or of the officials
designated by special provisions.
xxxx
Article 364. If the effect of the damage referred to in Article 361 is merely
a diminution in the value of the goods, the obligation of the carrier shall
be reduced to the payment of the amount which, in the judgment of
experts, constitutes such difference in value.
Article 365. If, in consequence of the damage, the goods are rendered
useless for sale and consumption for the purposes for which they are
properly destined, the consignee shall not be bound to receive them, and
he may have them in the hands of the carrier, demanding of the latter their
value at the current price on that day.
If among the damaged goods there should be some pieces in good
condition and without any defect, the foregoing provision shall be
applicable with respect to those damaged and the consignee shall receive
78
those which are sound, this segregation to be made by distinct and
separate pieces and without dividing a single object, unless the consignee
proves the impossibility of conveniently making use of them in this form.
The same rule shall be applied to merchandise in bales or packages,
separating those parcels which appear sound.
From the above-cited provisions, if the goods are delivered but arrived at
the destination in damaged condition, the remedies to be pursued by the
consignee depend on the extent of damage on the goods.
If the goods are rendered useless for sale, consumption or for the intended
purpose, the consignee may reject the goods and demand the payment of
such goods at their marketprice on that day pursuant to Article 365. In case
the damaged portion of the goods can be segregated from those delivered
in good condition, the consignee may reject those in damaged condition
and accept merely those which are in good condition. But if the consignee
is able to prove that it is impossible to use those goods which were
delivered in good condition without the others, then the entire shipment
may be rejected. To reiterate, under Article 365, the nature of damage must
be such that the goods are rendered useless for sale, consumption or
intended purpose for the consignee to be able to validly reject them.
If the effect of damage on the goods consisted merely of diminution in
value, the carrier is bound to pay only the difference between its price on
that day and its depreciated value as provided under Article 364.
Malayan, as the insurer of PASAR, neither stated nor proved that the
goods are rendered useless or unfit for the purpose intended by PASAR
due to contamination with seawater. Hence, there is no basis for the goods’
rejection under Article 365 of the Code of Commerce. Clearly, it is
erroneous for Malayan to reimburse PASAR as though the latter suffered
from total loss of goods in the absence of proof that PASAR sustained such
kind of loss. Otherwise, there will be no difference inthe indemnification
of goods which were not delivered at all; or delivered but rendered useless,
compared against those which were delivered albeit, there is diminution
in value.
Malayan also failed to establish the legal basis of its decision to sell back
the rejected copper concentrates to PASAR. It cannot be ascertained how
and when Malayan deemed itself asthe owner of the rejected copper
concentrates to have these validly disposed of. If the goods were rejected,
it only means there was no acceptance on the part of PASAR from the
carrier. Furthermore, PASAR and Malayan simply agreed on the purchase
price of US$90,000.00 without any allegation or proof that the said price
was the depreciated value based on the appraisal of experts as provided
under Article 364 of the Code of Commerce.
II. Subrogation of Malayan to the rights of PASAR
Malayan’s claim against the petitioners is based on subrogation to the
rights possessed by PASAR as consignee of the allegedly damaged goods.
The right of subrogation stems from Article 2207 of the New Civil Code
which states:
Art. 2207. If the plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrong doer or
the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing
the loss or injury.
"The right of subrogation is not dependent upon, nor does it grow out of,
any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by the insurer."
The right of subrogation is however, not absolute. "There are a few
recognized exceptions to this rule. For instance, if the assured by his own
act releases the wrongdoer or third party liable for the loss or damage,
from liability, the insurer’s right of subrogation is defeated. x x x
Similarly, where the insurer pays the assured the value of the lostgoods
without notifying the carrier who has in good faith settled the assured’s
claim for loss, the settlement is binding on both the assured and the
insurer, and the latter cannot bring an action against the carrier on his
right of subrogation. x x x And where the insurer pays the assured for a
loss which is not a risk covered by the policy, thereby effecting ‘voluntary
payment,’ the former has no right of subrogation against the third party
liable for the loss x x x."
79
The rights of a subrogee cannot be superior to the rights possessed by a
subrogor. "Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The rights to which the subrogee
succeeds are the same as, but not greaterthan, those of the person for
whom he is substituted, that is, he cannot acquire any claim, security or
remedy the subrogor did not have. In other words, a subrogee cannot
succeed to a right not possessed by the subrogor. A subrogee in effect steps
into the shoes of the insured and can recover only ifthe insured likewise
could have recovered."
Consequently, an insurer indemnifies the insured based on the loss or
injury the latter actually suffered from. If there is no loss or injury, then
there is no obligation on the part of the insurer to indemnify the insured.
Should the insurer pay the insured and it turns out that indemnification
is not due, or if due, the amount paid is excessive, the insurer takes the
risk of not being able to seek recompense from the alleged wrongdoer.
This is because the supposed subrogor did not possessthe right to be
indemnified and therefore, no right to collect is passed on to the
subrogee. As regards the determination of actual damages, "[i]t is
axiomatic that actual damages must be proved with reasonable degree of
certainty and a party is entitled only to such compensation for the
pecuniary loss that was duly proven."
Article 2199 of the New Civil Code speaks of how actual damages are
awarded:
Art. 2199. Except as provided by law or by stipulation, one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he
has duly proved. Such compensation is referred to as actual or
compensatory damages.
Whereas the CA modified its Decision dated April 14, 2008 by deducting
the amount of US$90,000.00 fromthe award, the same is still iniquitous for
the petitioners because PASAR and Malayan never proved the actual
damages sustained by PASAR. It is a flawed notion to merely accept that
the salvage value of the goods is US$90,000.00, since the price was
arbitrarily fixed between PASAR and Malayan. Actual damages to
PASAR, for example, could include the diminution in value as appraised
by experts or the expenses which PASAR incurred for the restoration of
the copper concentrates to its former condition, ifthere is damage and
rectification is still possible.
It is also note worthy that when the expert witness for the petitioners,
Engineer Francisco Esguerra (Esguerra), testified as regards the lack of any
adverse effect of seawater on copper concentrates, Malayan never
presented evidence of its own in refutation to Esguerra’s testimony. And,
even if the Court will disregard the entirety of his testimony, the effect on
Malayan’s cause of action is nil. As Malayan is claiming for actual
damages, it bears the burden of proof to substantiate its claim.
"The burden of proof is on the party who would be defeated if no evidence
would be presented on either side. The burden is to establish one’s case by
a preponderance of evidence which means that the evidence, as a whole,
adduced by one side, is superior tothat of the other. Actual damages are
not presumed. The claimant must prove the actual amount of loss with a
reasonable degree of certainty premised upon competent proof and on the
best evidence obtainable. Specific facts that could afford a basis for
measuring whatever compensatory or actual damages are borne must be
pointed out. Actual damages cannot be anchored on mere surmises,
speculations or conjectures."
Having ruled that Malayan did not adduce proof of pecuniary loss to
PASAR for which the latter was questionably indemnified, there is no
necessity to expound further on the other issues raised by the petitioners
and Malayan in this case.
WHEREFORE, the petition is GRANTED. The Decision dated April 14,
2008 and Resolution dated December 11, 2008 of the Court of Appeals in
CA-G.R. CV No. 82758 are hereby REVERSED and SET ASIDE. The
Decision dated March 31, 2004 of the Regional Trial Comi of Manila,
Branch 34 in Civil Case No·. 01-101885 is REINSTATED.
SO ORDERED.
SPOUSES JESUS FERNANDO AND ELIZABETH S. FERNANDO,
PETITIONERS, VS. NORTHWEST AIRLINES, INC. RESPONDENT.
[G.R. No. 212043]
80
 NORTHWEST AIRLINES, INC. PETITIONER, VS. SPOUSES JESUS
FERNANDO AND ELIZABETH S. FERNANDO, RESPONDENTS.
DECISION
PERALTA, J.:
Before us are consolidated petitions for review on certiorari under Rule 45
of the Rules of Court assailing the Decision[1] dated August 30, 2013, and
Resolution[2] dated March 31, 2014 of the Court of Appeals (CA) in CA-
G.R. CV No. 93496 which affirmed the Decision[3] dated September 9,
2008 of the Regional Trial Court (RTC), Branch 97, Quezon City in Civil
Case No. Q-N-02-46727 finding Northwest Airlines, Inc. (Northwest) liable
for breach of contract of carriage.
The spouses Jesus and Elizabeth S. Fernando (Fernandos) are frequent
flyers of Northwest Airlines, Inc. and are holders of Elite Platinum World
Perks Card, the highest category given to frequent flyers of the
carrier.[4] They are known in the musical instruments and sports
equipments industry in the Philippines being the owners of JB Music and
JB Sports with outlets all over the country. They likewise own the five (5)
star Hotel Elizabeth in Baguio City and Cebu City, and the chain of Fersal
Hotels and Apartelles in the country. [5]
The Fernandos initiated the filing of the instant case which arose from
two (2) separate incidents: first, when Jesus Fernando arrived at Los
Angeles (LA) Airport on December 20, 2001; second, when the Fernandos
were to depart from the LA Airport on January 29, 2002. The factual
antecedents are as follows:
Version of Spouses Jesus and Elizabeth S. Fernando:
a.) The arrival at Los Angeles Airport on December 20, 2001
Sometime on December 20, 2001, Jesus Fernando arrived at the LA
Airport via Northwest Airlines Flight No. NW02 to join his family who
flew earlier to the said place for a reunion for the Christmas holidays. [6]
When Jesus Fernando presented his documents at the immigration
counter, he was asked by the Immigration Officer to have his return
ticket verified and validated since the date reflected thereon is August
2001. So he approached a Northwest personnel who was later identified
as Linda Puntawongdaycha, but the latter merely glanced at his ticket
without checking its status with the computer and peremptorily said that
the ticket has been used and could not be considered as valid. He then
explained to the personnel that he was about to use the said ticket on
August 20 or 21, 2001 on his way back to Manila from LA but he could
not book any seat because of some ticket restrictions so he, instead,
purchased new business class ticket on the said date. [7] Hence, the ticket
remains unused and perfectly valid.
To avoid further arguments, Jesus Fernando gave the personnel the
number of his Elite Platinum World Perks Card for the latter to access the
ticket control record with the airline's computer and for her to see that
the ticket is still valid. But Linda Puntawongdaycha refused to check the
validity of the ticket in the computer but, instead, looked at Jesus
Fernando with contempt, then informed the Immigration Officer that the
ticket is not valid because it had been used. [8]
The Immigration Officer brought Jesus Fernando to the interrogation
room of the Immigration and Naturalization Services (INS) where he was
asked humiliating questions for more than two (2) hours. When he was
finally cleared by the Immigration Officer, he was granted only a twelve
(12)-day stay in the United States (US), instead of the usual six (6)
months.[9]
When Jesus Fernando was finally able to get out of the airport, to the
relief of his family, Elizabeth Fernando proceeded to a Northwest Ticket
counter to verify the status of the ticket. The personnel manning the
counter courteously assisted her and confirmed that the ticket remained
unused and perfectly valid. To avoid any future problems that may be
encountered on the validity of the ticket, a new ticket was issued to Jesus
Fernando.[10]
Since Jesus Fernando was granted only a twelve (12)-day stay in the US,
his scheduled plans with his family as well as his business commitments
were disrupted. He was supposed to stay with his family for the entire
duration of the Christmas season because his son and daughter were then
studying at Pepperton University in California. But he was forced to fly
back to Manila before the twelve (12)-day stay expired and flew back to
the US on January 15, 2002. The Fernandos were, likewise, scheduled to
attend the Musical Instrument Trade Show in LA on January 17, 2002 and
81
the Sports Equipment Trade Show in Las Vegas on January 21 to 23, 2002
which were both previously scheduled. Hence, Jesus Fernando had to
spend additional expenses for plane fares and other related expenses,
and missed the chance to be with his family for the whole duration of the
Christmas holidays.[11]
b.) The departure from the Los Angeles Airport on January 29, 2002.
On January 29, 2002, the Fernandos were on their way back to the
Philippines. They have confirmed bookings on Northwest Airlines NW
Flight No. 001 for Narita, Japan and NW 029 for Manila. They checked in
with their luggage at the LA Airport and were given their respective
boarding passes for business class seats and claim stubs for six (6) pieces
of luggage. With boarding passes, tickets and other proper travel
documents, they were allowed entry to the departure area and joined
their business associates from Japan and the Philippines who attended
the Musical Instrument Trade Show in LA on January 17, 2002 and the
Sports Equipment Trade Show in Las Vegas on January 21 to 23, 2002.
When it was announced that the plane was ready for boarding, the
Fernandos joined the long queue of business class passengers along with
their business associates.[12]
When the Fernandos reached the gate area where boarding passes need
to be presented, Northwest supervisor Linda Tang stopped them and
demanded for the presentation of their paper tickets (coupon type). They
failed to present the same since, according to them, Northwest issued
electronic tickets (attached to the boarding passes) which they showed to
the supervisor.[13] In the presence of the other passengers, Linda Tang
rudely pulled them out of the queue. Elizabeth Fernando explained to
Linda Tang that the matter could be sorted out by simply verifying their
electronic tickets in her computer and all she had to do was click and
punch in their Elite Platinum World Perks Card number. But Linda Tang
arrogantly told them that if they wanted to board the plane, they should
produce their credit cards and pay for their new tickets, otherwise
Northwest would order their luggage off-loaded from the plane.
Exasperated and pressed for time, the Fernandos rushed to the
Northwest Airline Ticket counter to clarify the matter. They were assisted
by Northwest personnel Jeanne Meyer who retrieved their control
number from her computer and was able to ascertain that the Fernandos'
electronic tickets were valid and they were confirmed passengers on both
NW Flight No. 001 for Narita Japan and NW 029 for Manila on that day.
To ensure that the Fernandos would no longer encounter any problem
with Linda Tang, Jeanne Meyer printed coupon tickets for them who
were then advised to rush back to the boarding gates since the plane was
about to depart. But when the Fernandos reached the boarding gate, the
plane had already departed. They were able to depart, instead, the day
after, or on January 30, 2002, and arrived in the Philippines on January
31, 2002.[14]
Version of Northwest Airlines, Inc.:
a.) The arrival at the Los Angeles Airport on December 20, 2001.
Northwest claimed that Jesus Fernando travelled from Manila to LA on
Northwest Airlines on December 20, 2001. At the LA Airport, it was
revealed that Jesus Fernando's return ticket was dated August 20 or 21,
2001 so he encountered a problem in the Immigration Service. About an
hour after the aircraft had arrived, Linda Puntawongdaycha, Northwest
Customer Service Agent, was called by a US Immigration Officer named
"Nicholas" to help verify the ticket of Jesus Fernando. Linda
Puntawongdaycha then asked Jesus Fernando to "show" her "all the
papers." Jesus Fernando only showed her the passenger receipt of his
ticket without any ticket coupon attached to it. The passenger receipt
which was labelled "Passenger Receipt" or "Customer Receipt" was dated
August 2001. Linda Puntawongdaycha asked Jesus Fernando several
times whether he had any other ticket, but Jesus Fernando insisted that
the "receipt" was "all he has", and the passenger receipt was his ticket. He
failed to show her any other document, and was not able to give any
other relevant information about his return ticket. Linda
Puntawongdaycha then proceeded to the Interline Department and
checked Jesus Fernando ss Passenger Name Record (PNR) and his
itinerary. The itinerary only showed his coming from Manila to Tokyo
and Los Angeles; nothing would indicate about his flight back to Manila.
She then looked into his record and checked whether he might have had
an electronic ticket but she could not find any. For failure to find any
other relevant information regarding Fernando's return ticket, she then
printed out Jesus Fernando's PNR and gave the document to the US
Immigration Officer. Linda Puntawongdaycha insisted that she did her
best to help Jesus Fernando get through the US Immigration.[15]
82
b.) The departure from the Los Angeles Airport on January 29, 2002.
On January 29, 2002, the Fernandos took Northwest for their flight back
to Manila. In the trip, the Fernandos used electronic tickets but the tickets
were dated January 26, 2002 and August 21, 2001. They reached the
boarding gate few minutes before departure. Northwest personnel Linda
Tang was then the one assigned at the departure area. As a standard
procedure, Linda Tang scanned the boarding passes and collected tickets
while the passengers went through the gate. When the Fernandos
presented their boarding passes, Linda Tang asked for their tickets
because there were no tickets stapled on their boarding passes. She
explained that even though the Fernandos had electronic tickets, they
had made "several changes on their ticket over and over". And when they
made the booking/reservation at Northwest, they never had any ticket
number or information on the reservation. [16]
When the Fernandos failed to show their tickets, Linda Tang called Yong
who was a supervisor at the ticket counter to verify whether the
Fernandos had checked in, and whether there were any tickets found at
the ticket counter. Upon verification, no ticket was found at the ticket
counter, so apparently when the Fernandos checked in, there were no
tickets presented. Linda Tang also checked with the computer the
reservation of the Fernandos, but again, she failed to see any electronic
ticket number of any kind, and/or any ticket record. So as the Fernandos
would be able to get on with the flight considering the amount of time
left, she told them that they could purchase tickets with their credit cards
and deal with the refund later when they are able to locate the tickets and
when they reach Manila. Linda Tang believed that she did the best she
could under the circumstances. [17]
However, the Fernandos did not agree with the solution offered by Linda
Tang. Instead, they went back to the Northwest ticket counter and were
attended to by Jeanne Meyer who was "courteous" and "was very kind
enough" to assist them. Jeanne Meyer verified their bookings and
"printed paper tickets" for them. Unfortunately, when they went back to
the boarding gate, the plane had departed. Northwest offered alternative
arrangements for them to be transported to Manila on the same day on
another airline, either through Philippine Airlines or Cathay Pacific
Airways, but they refused. Northwest also offered them free hotel
accommodations but they, again, rejected the offer [18] Northwest then
made arrangements for the transportation of the Fernandos from the
airport to their house in LA, and booked the Fernandos on a Northwest
flight that would leave the next day, January 30, 2002. On January 30,
2002, the Fernandos flew to Manila on business class seats.[19]
On April 30, 2002, a complaint for damages[20] was instituted by the
Fernandos against Northwest before the RTC, Branch 97, Quezon City.
During the trial of the case, the Fernandos testified to prove their claim.
On the part of Northwest, Linda Tang-Mochizuki and Linda
Puntawongdaycha testified through oral depositions taken at the Office
of the Consulate General, Los Angeles City. The Northwest Manager for
HR-Legal Atty. Cesar Veneracion was also presented and testified on the
investigation conducted by Northwest as a result of the letters sent by
Elizabeth Fernando and her counsel prior to the filing of the complaint
before the RTC.[21]
On September 9, 2008, the RTC issued a Decision, the dispositive portion
of which states, thus:
WHEREFORE, in view of the foregoing, this Court rendered judgment in
favor of the plaintiffs and against defendant ordering defendant to pay
the plaintiffs, the following:
1. Moral damages in the amount of Two Hundred Thousand Pesos
(P200,000.00);
2. Actual or compensatory damages in the amount of Two Thousand US
Dollars ($2,000.00) or its corresponding Peso equivalent at the time the
airline ticket was purchased;
3. Attorney's fees in the amount of Fifty Thousand pesos (P50,000.00);
and,
4. Cost of suit.
SO ORDERED.[22]
Both parties filed their respective appeals which were dismissed by the
CA in a Decision dated August 30, 2013, and affirmed the RTC Decision.
The Fernandos and Northwest separately filed motions for a
reconsideration of the Decision, both of which were denied by the CA on
March 31, 2014.
83
The Fernandos filed a petition for review on certiorari[23] before this court
docketed as G.R. No. 212038. Northwest followed suit and its
petition[24] was docketed as G.R. No. 212043. Considering that both
petitions involved similar parties, emanated from the same Civil Case
No. Q-N-02-46727 and assailed the same CA judgment, they were
ordered consolidated in a Resolution[25] dated June 18, 2014.
In G.R. No. 212038, the Fernandos raised the following issues:
WHETHER OR NOT THE ACTS OF THE PERSONNEL AND THAT OF
DEFENDANT NORTHWEST ARE WANTON, MALICIOUS, RECKLESS,
DELIBERATE AND OPPRESSIVE IN CHARACTER, AMOUNTING TO
FRAUD AND BAD FAITH;
WHETHER OR NOT PETITIONER SPOUSES ARE ENTITLED TO
MORAL DAMAGES IN AN AMOUNT MORE THAN THAT
AWARDED BY THE TRIAL COURT;
WHETHER OR NOT DEFENDANT NORTHWEST IS LIABLE TO
PETITIONER SPOUSES FOR EXEMPLARY DAMAGES; [and]
WHETHER OR NOT THE PETITIONER SPOUSES ARE ENTITLED TO
ATTORNEY'S FEES IN AN AMOUNT MORE THAN THAT AWARDED
BY THE TRIAL COURT.[26]
In G.R. No. 212043, Northwest anchored its petition on the following
assigned errors:
I ticket remained unused and valid for a period of one (1) year, or until
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT NORTHWEST COMMITTED A BREACH OF
CONTRACT OF CARRIAGE;
II
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT NORTHWEST IS LIABLE FOR DAMAGES AND THE
AWARDS FOR MORAL DAMAGES AND ATTORNEY'S FEES ARE
APPROPRIATE;
III
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT NORTHWEST IS NOT ENTITLED TO RECOVER ON
ITS COUNTERCLAIMS.[27]
The Issues
The arguments proffered by the parties can be summed up into the
following issues: (1) whether or not there was breach of contract of
carriage and whether it was done In a wanton, malevolent or reckless
manner amounting to bad faith; (2) whether or not Northwest is liable for
the payment of moral damages and attorney's fees and whether it is
liable to pay more than that awarded by the RTC; (3) whether or not
Northwest is liable for the payment of exemplary damages; and (4)
whether or not Northwest Airlines is entitled to recover on its
counterclaim.
In their petition, the Fernandos contended that it was the personal
misconduct, gross negligence and the rude and abusive attitude of
Northwest employees Linda Puntawongdaycha and Linda Tang which
subjected them to indignities, humiliation and embarrassment. The
attitude of the aforesaid employees was wanton and malevolent
allegedly amounting to fraud and bad faith. According to the Fernandos,
if only Linda Puntawongdaycha had taken the time to verify the validity
of the ticket in the computer, she would have not given the wrong
information to the Immigration Officer because the August 2001 return
August 2002. The wrong information given by Linda Puntawongdaycha
aroused doubts and suspicions on Jesus Fernando's travel plans. The
latter was then subjected to two (2) hours of questioning which allegedly
humiliated him. He was even suspected of being an "illegal alien". The
negligence of Linda Puntawongdaycha was allegedly so gross and
reckless amounting to malice or bad faith.
As to the second incident, the Fernandos belied the accusation of
Northwest that they did not present any tickets. They presented their
electronic tickets which were attached to their boarding passes. If they
had no tickets, the personnel at the check-in counter would have not
issued them their boarding passes and baggage claim stubs. That's why
they could not understand why the coupon-type ticket was still
demanded by Northwest.
84

On the award of moral damages, the Fernandos referred to the testimony
of Elizabeth Fernando that she could not sleep and had a fever the night
after the second incident. Thus, the Fernandos demanded that they
should be given more than the "token amount" granted by the RTC which
was affirmed by the CA. They stated that their status in the society and in
the business circle should also be considered as a factor in awarding
moral damages. They averred that they are well-known in the musical
instruments and sports equipment industry in the country being the
owners of JB Music and JB Sports with outlets all over the country. They
own hotels, a chain of apartelles and a parking garage building in
Indiana, USA. And since the breach of contract allegedly amounted to
fraud and bad faith, they likewise demanded for the payment of
exemplary damages and attorney's fees more than the amount awarded
by the RTC.
On the other hand, Northwest stated in its petition that Linda
Puntawongdaycha tried her best to help Jesus Fernando get through the
US Immigration. Notwithstanding that Linda Puntawongdaycha was not
able to find any relevant information on Jesus Fernando's return ticket,
she still went an extra mile by printing the PNR of Jesus Fernando and
handling the same personally to the Immigration Officer. It pointed out
that the Immigration Officer "noticed in the ticket that it was dated
sometime August 20 or 21, 2001, although it was already December 2001."
As to the incident with Linda Tang, Northwest explained that she was
only following Northwest standard boarding procedures when she asked
the Fernandos for their tickets even if they had boarding passes. Thus,
the conduct cannot be construed as bad faith. The dates indicated on the
tickets did not match the booking. Elizabeth Fernando was using an
electronic ticket dated August 21, 2001, while the electronic ticket of Jesus
Fernando was dated January 26, 2002. According to Northwest, even if
the Fernandos had electronic tickets, the same did not discount the fact
that, on the face of the tickets, they were for travel on past dates. Also, the
electronic tickets did not contain the ticket number or any information
regarding the reservation. Hence, the alleged negligence of the Fernandos
resulted in the confusion in the procedure in boarding the plane and the
eventual failure to take their flight.
Northwest averred that the award of moral damages and attorney's fees
were exorbitant because such must be proportionate to the suffering
inflicted. It argued that it is not obliged to give any "special treatment" to
the Fernandos just because they are good clients of Northwest, because
the supposed obligation does not appear in the contract of carriage. It
further averred that it is entitled to its counterclaim in the amount of
P500,000.00 because the Fernandos allegedly acted in bad faith in
prosecuting the case which it believed are baseless and unfounded.
In the Comment[28] of Northwest, it insisted that assuming a mistake was
committed by Linda Tang and Linda Puntawongdaycha, such mistake
alone, without malice or ill will, is not equivalent to fraud or bad faith
that would entitle the Fernandos to the payment of moral damages.
In the Reply[29] of the Fernandos, they asserted that it was a lie on the part
of Linda Puntawongdaycha to claim that she checked the passenger
name or PNR of Jesus Fernando from the computer and, as a result, she
was not allegedly able to find any return ticket for him. According to
Jesus Fernando, Linda Puntawongdaycha merely looked at his ticket and
declared the same to be invalid. The Fernandos reiterated that after Jesus
Fernando was released by the US Immigration Service, Elizabeth
Fernando proceeded to a Northwest Ticket counter to verify the status of
the ticket. The personnel manning the counter courteously assisted her
and confirmed that the ticket remained unused and perfectly valid. The
personnel merely punched the Elite Platinum World Perks Card number
of Jesus Fernando and was able to verify the status of the ticket. The
Fernandos further argued that if there was a discrepancy with the tickets
or reservations, they would not have been allowed to check in, and since
they were allowed to check in then they were properly booked and were
confirmed passengers of Northwest.
Our Ruling
We find merit in the petition of the Spouses Jesus and Elizabeth
Fernando.
The Fernandos' cause of action against Northwest stemmed from a
breach of contract of carriage. 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
85
object certain which is the subject of the contract; and (3) the cause of the
obligation which is established.[30]
A contract of carriage is defined as one whereby a certain person or
association of persons obligate themselves to transport persons, things, or
goods from one place to another for a fixed price. Under Article 1732 of
the Civil Code, this "persons, corporations, firms, or associations engaged
in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the
public" is called a common carrier.[31] Undoubtedly, a contract of carriage
existed between Northwest and the Fernandos. They voluntarily and
freely gave their consent to an agreement whose object was the
transportation of the Fernandos from LA to Manila, and whose cause or
consideration was the fare paid by the Fernandos to Northwest. [32]
In Alitalia Airways v. CA, et al.,[33] We held that when an airline issues a
ticket to a passenger confirmed for a particular flight on a certain date, a
contract of carriage arises. The passenger then has every right to expect
that he would fly on that flight and on that date. If he does not, then the
carrier opens itself to a suit for breach of contract of carnage. [34]
When Northwest confirmed the reservations of the Fernandos, it bound
itself to transport the Fernandos on their flight on 29 January 2002. We
note that the witness[35] of Northwest admitted on cross-examination that
based on the documents submitted by the Fernandos, they were
confirmed passengers on the January 29, 2002 flight.[36]
In an action based on a breach of contract of carriage, the aggrieved party
does not have to prove that the common carrier was at fault or was
negligent. All that he has to prove is the existence of the contract and the
fact of its non-performance by the carrier.[37] As the aggrieved party, the
Fernandos only had to prove the existence of the contract and the fact of
its non-performance by Northwest, as carrier, in order to be awarded
compensatory and actual damages. [38]
Therefore, having proven the existence of a contract of carriage between
Northwest and the Fernandos, and the fact of non-performance by
Northwest of its obligation as a common carrier, it is clear that Northwest
breached its contract of carriage with the Fernandos. Thus, Northwest
opened itself to claims for compensatory, actual, moral and exemplary
damages, attorney's fees and costs of suit. [39]
Moreover, Article 1733 of the New Civil Code provides that common
carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over
the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case. Also, Article 1755 of the
same Code states that a common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the
circumstances.
We, thus, sustain the findings of the CA and the RTC that Northwest
committed a breach of contract "in failing to provide the spouses with the
proper assistance to avoid any inconvenience" and that the actuations of
Northwest in both subject incidents "fall short of the utmost diligence of a
very cautious person expected of it". Both ruled that considering that the
Fernandos are not just ordinary passengers but, in fact, frequent flyers of
Northwest, the latter should have been more courteous and
accommodating to their needs so that the delay and inconveniences they
suffered could have been avoided. Northwest was remiss in its duty to
provide the proper and adequate assistance to them.
Nonetheless, We are not in accord with the common finding of the CA
and the RTC when both ruled out bad faith on the part of Northwest.
While We agree that the discrepancy between the date of actual travel
and the date appearing on the tickets of the Fernandos called for some
verification, however, the Northwest personnel failed to exercise the
utmost diligence in assisting the Fernandos. The actuations of Northwest
personnel in both subject incidents are constitutive of bad faith.
On the first incident, Jesus Fernando even gave the Northwest personnel
the number of his Elite Platinum World Perks Card for the latter to access
the ticket control record with the airline's computer for her to see that the
ticket is still valid. But Linda Puntawongdaycha refused to check the
validity of the ticket in the computer. As a result, the Immigration Officer
brought Jesus Fernando to the interrogation room of the INS where he
was interrogated for more than two (2) hours. When he was finally
cleared by the Immigration Officer, he was granted only a twelve (12)-
day stay in the United States (US), instead of the usual six (6) months. [40]
86

As in fact, the RTC awarded actual or compensatory damages because of
the testimony of Jesus Fernando that he had to go back to Manila and
then return again to LA, USA, two (2) days after requiring him to
purchase another round trip ticket from Northwest in the amount of
$2,000.00 which was not disputed by Northwest. [41] In ignoring Jesus
Fernando's pleas to check the validity of the tickets in the computer, the
Northwest personnel exhibited an indifferent attitude without due
regard for the inconvenience and anxiety Jesus Fernando might have
experienced.
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 rule or discourteous conduct on the part of
employees towards a passenger gives the latter an action for damages
against the carrier.[42]
In requiring compliance with the standard of extraordinary diligence, a
Standard which is, in fact, that of the highest possible degree of diligence,
from common carriers and in creating a presumption of negligence
against them, the law seeks to compel them to control their employees, to
tame their reckless instincts and to force them to take adequate care of
human beings and their property.[43]
Notably, after the incident, the Fernandos proceeded to a Northwest
Ticket counter to verify the status of the ticket and they were assured that
the ticked remained unused and perfectly valid. And, to avoid any future
problems that may be encountered on the validity of the ticket, a new
ticket was issued to Jesus Fernando. The failure to promptly verify the
validity of the ticket connotes bad faith on the part of Northwest.
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. It means breach of a known duty through some motive, interest
or ill will that partakes of the nature of fraud. A finding of bad faith
entitles the offended party to moral damages. [44]
As to the second incident, there was likewise fraud or bad faith on the
part of Northwest when it did not allow the Fernandos to board their
flight for Manila on January 29, 2002, in spite of confirmed tickets. We
need to stress that they have confirmed bookings on Northwest Airlines
NW Flight No. 001 for Narita, Japan and NW 029 for Manila. They
checked in with their luggage at LA Airport and were given their
respective boarding passes for business class seats and claim stubs for six
(6) pieces of luggage. With boarding passes and electronic tickets,
apparently, they were allowed entry to the departure area; and, they
eventually joined the long queue of business class passengers along with
their business associates.
However, in the presence of the other passengers, Northwest personnel
Linda Tang pulled the Fernandos out of the queue and asked for paper
tickets (coupon type). Elizabeth Fernando explained to Linda Tang that the
matter could be sorted out by simply verifying their electronic tickets in
her computer and all she had to do was click and punch in their Elite
Platinum World Perks Card number. Again, the Northwest personnel
refused to do so; she, instead, told them to pay for new tickets so they
could board the plane. Hence, the Fernandos rushed to the Northwest
Airline Ticket counter to clarify the matter. They were assisted by
Northwest personnel Jeanne Meyer who retrieved their control number
from her computer and was able to ascertain that the Fernandos'
electronic tickets were valid, and they were confirmed passengers on
both NW Flight No. 001 for Narita Japan and NW 029 for Manila on that
day.
In Ortigas, Jr. v. Lufthansa German Airlines,[45] this Court declared that "(i)n
contracts of common carriage, in attention and lack of care on the part of
the carrier resulting in the failure of the passenger to be accommodated
in the class contracted for amounts to bad faith or fraud which entitles
the passengers to the award of moral damages in accordance with Article
2220 of the Civil Code."
In Pan American World Airways, Inc. v. Intermediate Appellate
Court,[46] where a would-be passenger had the necessary ticket, baggage
claim and clearance from immigration, all clearly and unmistakably
showing that she was, in fact, included in the passenger manifest of said
flight, and yet was denied accommodation in said flight, this Court did not
hesitate to affirm the lower court's finding awarding her damages on the
ground that the breach of contract of carriage amounted to bad
87
faith.[47] For the indignity and inconvenience of being refused a
confirmed seat on the last minute, said passenger is entitled to an award
of moral damages.[48]
In this case, We need to stress that the personnel who assisted the
Fernandos even printed coupon tickets for them and advised them to
rush back to the boarding gates since the plane was about to depart. But
when the Fernandos reached the boarding gate, the plane had already
departed. They were able to depart, instead, the day after, or on January
30, 2002.
In Japan Airlines v. Jesus Simangan,[49] this Court held that the acts
committed by Japan Airlines against Jesus Simangan amounted to bad
faith, thus:
x x x JAL did not allow respondent to fly. It informed respondent that
there was a need to first check the authenticity of his travel documents
with the U.S. Embassy. As admitted by JAL, "the flight could not wait
for Mr. Simangan because it was ready to depart."
Since JAL definitely declared that the flight could not wait for
respondent, it gave respondent no choice but to be left behind. The latter
was unceremoniously bumped off despite his protestations and valid
travel documents and notwithstanding his contract of carriage with
JAL. Damage had already been done when respondent was offered to
fly the next day on July 30, 1992. Said offer did not cure JAL's
default.[50]
Similarly, in Korean Airlines Co., Ltd. v. Court of Appeals,[51] where private
respondent was not allowed to board the plane because her seat had
already been given to another passenger even before the allowable
period for passengers to check in had lapsed despite the fact that she
had a confirmed ticket and she had arrived on time, this Court held that
petitioner airline acted in bad faith in violating private respondent's
rights under their contract of carriage and is, therefore, liable for the
injuries she has sustained as a result. [52]
Under Article 2220[53] of the Civil Code of the Philippines, an award of
moral damages, in breaches of contract, is in order upon a showing that
the defendant acted fraudulently or in bad faith. [54] Clearly, in this case,
the Femandos are entitled to an award of moral damages. The purpose of
awarding moral damages is to enable the injured party to obtain means,
diversion or amusement that will serve to alleviate the moral suffering he
has undergone by reason of defendant's culpable action. [55]
We note that even if both the CA and the RTC ruled out bad faith on the
part of Northwest, the award of "some moral damages" was recognized.
Both courts believed that considering that the Fernandos are good clients
of Northwest for almost ten (10) years being Elite Platinum World Perks
Card holders, and are known in their business circle, they should have
been given by Northwest the corresponding special treatment. [56] They
own hotels and a chain of apartelles in the country, and a parking garage
building in Indiana, USA. From this perspective, We adopt the said view.
We, thus, increase the award of moral damages to the Fernandos in the
amount of P3,000,000.00.
As held in Kierulf v. Court of Appeals,[57] the social and financial standing
of a claimant may be considered if he or she was subjected to
contemptuous conduct despite the offender's knowledge of his or her
social and financial standing.
In Trans World Airlines v. Court of Appeals,[58] this Court considered the
social standing of the aggrieved passenger:
At the time of this unfortunate incident, the private respondent was
a practicing lawyer, a senior partner of a big law firm in Manila. He
was a director of several companies and was active in civic and social
organizations in the Philippines. Considering the circumstances of this
case and the social standing of private respondent in the community, he
is entitled to the award of moral and exemplary damages. x x x This
award should be reasonably sufficient to indemnify private respondent
for the humiliation and embarrassment that he suffered and to serve as
an example to discourage the repetition of similar oppressive and
discriminatory acts.[59]
Exemplary damages, which are awarded by way of example or correction
for the public good, may be recovered in contractual obligations, if
defendant acted in wanton, fraudulent, reckless, oppressive, or
malevolent manner.[60] They are designed by our civil law to permit the
courts to reshape behavior that is socially deleterious in its consequence
by creating negative incentives or deterrents against such
behavior.[61] Hence, given the facts and circumstances of this case, We
hold Northwest liable for the payment of exemplary damages in the
amount of P2,000,000.00.
88

In the case of Northwest Airlines, Inc. v. Chiong,[62] Chiong was given the
run-around at the Northwest check-in counter, instructed to deal with a
man in barong to obtain a boarding pass, and eventually barred from
boarding a Northwest flight to accommodate an American passenger
whose name was merely inserted in the Flight Manifest, and did not even
personally check-in at the counter. Under the foregoing circumstances,
the award of moral and exemplary damages was given by this Court.
Time and again, We have declared that a contract of carriage, in this case,
air transport, is primarily intended to serve the traveling public and thus,
imbued with public interest. The law governing common carriers
consequently imposes an exacting standard of conduct. [63] A contract to
transport passengers is quite different in kind and degree from any other
contractual relation 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.[64]
As to the payment of attorney's fees, We sustain the award thereof on the
ground that the Fernandos were ultimately compelled to litigate and
incurred expenses to protect their rights and interests, and because the
Fernandos are entitled to an award for exemplary damages. Pursuant to
Article 2208 of the Civil Code, attorney's fees may be awarded when
exemplary damages are awarded, or a party is compelled to litigate or
incur expenses to protect his interest, or where the defendant acted in
gross and evident bad faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim.
Records show that the Fernandos demanded payment for damages from
Northwest even before the filing of this case in court. Clearly, the
Fernandos were forced to obtain the services of counsel to enforce a just
claim, for which they should be awarded attorney's fees. [65] We deem it
just and equitable to grant an award of attorney's fees equivalent to 10%
of the damages awarded.
Lastly, the counterclaim of Northwest in its Answer [66] is a compulsory
counterclaim for damages and attorney's fees arising from the filing of
the complaint. This compulsory counterclaim of Northwest arising from
the filing of the complaint may not be granted inasmuch as the complaint
against it is obviously not malicious or unfounded. It was filed by the
Fernandos precisely to claim their right to damages against Northwest.
Well-settled is the rule that the commencement of an action does not per
se make the action wrongful and subject the action to damages, for the
law could not have meant to impose a penalty on the right to litigate. [67]
WHEREFORE, the Decision dated August 30, 2013 and the Resolution
dated March 31, 2014 of the Court of Appeals, in CA-GR. CV No. 93496
are hereby AFFIRMED WITH MODIFICATION. The award of moral
damages and attorney's fees are hereby increased to P3,000,000.00 and
ten percent (10%) of the damages awarded, respectively. Exemplary
damages in the amount of P2,000,000.00 is also awarded. Costs against
Northwest Airlines.
The total amount adjudged shall earn legal interest at the rate of twelve
percent (12%) per annum computed from judicial demand or from April
30, 2002 to June 30, 2013, and six percent (6%) per annum from July 1, 2013
until their full satisfaction.
SO ORDERED.
G.R. No. 209969, September 27, 2017
JOSE SANICO AND VICENTE CASTRO, Petitioners, v. WERHERLINA
P. COLIPANO, Respondent.
DECISION
CAGUIOA, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of
the Rules of Court filed by petitioners Jose Sanico (Sanico) and Vicente
Castro (Castro), assailing the Decision2 dated September 30, 2013 of the
Court of Appeals (CA) in CA-G.R. CEB-CV No. 01889. The CA affirmed
with modification the Decision3 dated October 27, 2006 of the Regional
Trial Court, Branch 25, Danao City (RTC) which found Sanico and Castro
liable for breach of' contract of carriage and awarded actual and
89
compensatory damages for loss of income in favor of respondent
Werherlina P. Colipano (Colipano). The CA reduced the compensatory
damages that the RTC awarded.
Antecedents
Colipano filed a complaint on January 7, 1997 for breach of contract of
carriage and damages against Sanico and Castro. 4 In her complaint,
Colipano claimed that at 4:00 P.M. more or less of December 25,
1993, Christmas Day, she and her daughter were; paying passengers in
the jeepney operated by Sanico, which was driven by Castro. 5 Colipano
claimed she was made to sit on an empty beer case at the edge of the rear
entrance/exit of the jeepney with her sleeping child on her lap. 6 And, at
an uphill incline in the road to Natimao-an, Carmen, Cebu, the jeepney
slid backwards because it did not have the power to reach the
top.7 Colipano pushed both her feet against the step board to prevent
herself and her child from being thrown out of the exit, but because the
step board was wet, her left foot slipped and got crushed between the
step board and a coconut tree which the jeepney bumped, causing the
jeepney to stop its backward movement. 8 Colipano's leg was badly
injured and was eventually amputated. 9 Colipano prayed for actual
damages, loss of income, moral damages, exemplary damages, and
attorney's fees.10
In their answer, Sanico and Castro admitted that Colipano's leg was
crushed and amputated but claimed that it! was Colipano's fault that her
leg was crushed.11 They admitted that the jeepney slid backwards
because the jeepney lost power.12 The conductor then instructed everyone
not to panic but Colipano tried to disembark and her foot got caught in
between the step board and the coconut tree. 13 Sanico claimed that he
paid for all the hospital and medical expenses of Colipano, 14 and that
Colipano eventually freely and voluntarily executed an Affidavit of
Desistance and Release of Claim.15
After trial, the RTC found that Sanico and Castro breached the contract of
carriage between them and Colipano but only awarded actual and
compensatory damages in favor of Colipano. The dispositive portion of
the RTC Decision states:
WHEREFORE, premises considered, this Court finds the
defendants LIABLE for breach of contract of carriage and are solidarily
liable to pay plaintiff:
1. Actual damages in the amount of P2,098.80; and
2. Compensatory damages for loss of income in the amount
of P360,000.00.
No costs.
SO ORDERED.16
Only Sanico and Castro appealed to the CA, which affirmed with
modification the RTC Decision. The dispositive portion of the CA
Decision states:
IN LIGHT OF ALL THE FOREGOING, the instant appeal is PARTIALLY
GRANTED. The Decision dated October 27, 2006 of the Regional Trial
Court, Branch 25, Danao City, in Civil Case No. DNA-418, is AFFIRMED
with MODIFICATION in that the award for compensatory damages for
loss of income in paragraph 2 of the dispositive portion of the RTC's
decision, is reduced to P200,000.00.
SO ORDERED.17
Without moving for the reconsideration of the CA Decision, Sanico and
Castro filed this petition before the Court assailing the CA Decision.
Issues
a. Whether the CA erred in finding that Sanico and Castro
breached the contract of carriage with Colipano;
b. Whether the Affidavit of Desistance and Release of Claim
is binding on Colipano; and
c. Whether the CA erred in the amount of damages
awarded.
The Court's Ruling
The Court partly grants the petition.
90
Only Sanico breached the contract of carriage.
Here, it is beyond dispute that Colipano was injured while she was a
passenger in the jeepney owned and operated by Sanico that was being
driven by Castro. Both the CA and RTC found Sanico and Castro jointly
and severally liable. This, however, is erroneous because only Sanico was
the party to the contract of carriage with Colipano.
Since the cause of action is based on a breach of a contract of carriage, the
liability of Sanico is direct as the contract is between him and Colipano.
Castro, being merely the driver of Sanico's jeepney, cannot be made liable
as he is not a party to the contract of carriage.
In Soberano v. Manila Railroad Co.,18 the Court ruled that a complaint for
breach of a contract of carriage is dismissible as against the employee
who was driving the bus because the parties to the contract of carriage
are only the passenger, the bus owner, and the operator, viz.:
The complaint against Caccam was therefore properly dismissed. He was
not a party to the contract; he was a mere employee of the BAL. The parties
to that contract are Juana Soberano, the passenger, and the MRR and its
subsidiary, the BAL, the bus owner and operator, respectively; and
consequent to the inability of the defendant companies to carry Juana
Soberano and her baggage arid personal effects securely and safely to her
destination as imposed by law (art. 1733, in relation to arts. 1736 and 1755,
N.C.C.), their liability to her becomes direct and immediate. 19
Since Castro was not a party to the contract of carriage, Colipano had no
cause of action against him and the pomplaint against him should be
dismissed. Although he was driving the jeepney, he was a mere employee
of Sanico, who was the operator and owner of the jeepney. The obligation
to carry Colipano safely to her destination was with Sanico. In fact, the
elements of a contract of carriage existeid between Colipano and
Sanico: consent, as shown when Castro, as employee of Sanico, accepted
Colipano as a passenger when he allowed Colipano to board the jeepney,
and as to Colipano, when she boarded the jeepney; cause or consideration,
when Colipano, for her part, paid her fare; and, object, the transportation
of Colipano from the place of departure to the place of destination. 20
Having established that the contract of carriage was only between Sanico
and Colipano and that therefore Colipano had no cause of action against
Castro, the Court next determines whether Sanico breached his obligations
to Colipano under the contract.
Sanico is liable as operator and owner of a common carrier.
Specific to a contract of carriage, ithe Civil Code requires common carriers
to observe extraordinary diligence in safely transporting their passengers.
Article 1733 of the Civil Code states:
ART. 1733. Common carriers, fijpm the nature of their business and for
reasons of public policy, are bbund to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further
expressed in Articles 1734, 1735 and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the passengers is further set forth
in Articles 1755 and 1756.
This extraordinary diligence, following Article 1755 of the Civil Code,
means that common carriers have the obligation to carry passengers safely
as far as human care and foresight can provide, using the utmost diligence
of very cautious persons, with due regard for all the circumstances.
In case of death of or injury to their passengers, Article 1756 of the Civil
Code provides that common carriers are presumed to have been at fault or
negligent, and this presumption can be overcome only by proof of the
extraordinary diligence exercised to ensure the safety of the passengers. 21
Being an operator and owner of a common carrier, Sanico was required to
observe extraordinary diligence in safely transporting Colipano. When
Colipano's leg was injured while she was a passenger in Sanico's jeepney,
the presumption of fault or negligence on Sanico's part arose and he had
the burden to prove that he exercised the extraordinary diligence required
of him. He failed to do this.
In Calalas v. Court of Appeals,22 the Court found that allowing the
respondent in that case to be seated in an extension seat, which was a
wooden stool at the rear of the jeepney, "placed [the respondent] in a peril
greater than that to which the other passengers were exposed." 23 The Court
further ruled that the petitioner in Calalas was not only "unable to
91
overcome the presumption of negligence imposed on him for the injury
sustained by [the respondent], but also, the evidence shows he was
actually negligent in transporting passengers." 24
Calalas squarely applies here. Sanico failed to rebut the presumption of
fault or negligence under the Civil Code. More than this, the evidence
indubitably established Sanico's negligence when Castro made Colipano
sit on an empty beer case at the edge of the rear entrance/exit of the
jeepney with her sleeping child on her lap, which put her and her child in
greater peril than the other passengers. As the CA correctly held:
For the driver, Vicente Castro, to allow a seat extension made of an empty
case of beer clearly indicates lack of prudence. Permitting Werherlina to
occupy an improvised seat in the rear portion of the jeepney, with a child
on her lap to boot, exposed her and her child in a peril greater than that to
which the other passengers were exposed. The use of an improvised seat
extension is undeniable, in view of the testimony of plaintiffs witness,
which is consistent with Werherlina's testimonial assertion. Werherlina
and her witness's testimony were accorded belief by the RTC. Factual
findings of the trial court are entitled to great weight on appeal and should
not be disturbed except for strong and valid reasons, because the trial court
ip in a better position to examine the demeanor of the witnesses while
testifying.25
The CA also correctly held that the!defense of engine failure, instead of
exonerating Sanico, only aggravated his already precarious position.26 The
engine failure "hinted lack of regular check and maintenance to ensure that
the engine is at its best, considering that the jeepney regularly passes
through a mountainous area."27 This failure to ensure that the jeepney can
safely transport passengers through its route which required navigation
through a mountainous area is proof of fault on Sanico's part. In the face
of such evidence, there is no question as to Sanico's fault or negligence.
Further, common carriers may also be liable for damages when they
contravene the tenor of their obligations. Article 1170 of the Civil Code
states:
ART. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages.
In Magat v. Medialdea,28 the Court ruled: "The phrase 'in any manner
contravene the tenor' of the obligation includes any illicit act or omission
which impairs the strict and faithful fulfillment of the obligation and every
kind of defective performance."29 There is no question here that making
Colipano sit on the empty beer case was a clear showing of how Sanico
contravened the tenor of his obligation to safely transport Colipano from
the place of departure to the place of destination as far as human care and
foresight can provide, using the utmost diligence of very cautious persons,
and with due regard for all the circumstances.
Sanico's attempt to evade liability by arguing that he exercised
extraordinary diligence when he hired; Castro, who was allegedly an
experienced and time-tested driver, whom he had even accompanied on a
test-drive and in whom he was personally convinced of the driving
skills,30 are not enough to exonerate him from liability - because the
liability of common carriers does not cease upon p!roof that they exercised
all the diligence of a good father of a family irii the selection. and
supervision of their employees. This is the express mandate of Article 1759
of the Civil 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.
The only defenses available to common carriers are (1) proof that they
observed extraordinary diligence as prescribed in Article 1756, 31 and (2)
following Article 1174 of the Civil Code, proof that the injury or death was
brought about by an event which "could not be foreseen, or which, though
foreseen, were inevitable," or a fortuitous event.
The Court finds that neither of these defenses obtain. Thus, Sanico is liable
for damages to Colipano because of the injury that Colipano suffered as a
passenger of Sanico's jeepney.
The Affidavit of Desistance and Release of Claim is void.
Sanico cannot be exonerated from liability under the Affidavit of
Desistance and Release of Claim32and his payment of the hospital and
medical bills of Colipano amounting to P44,900.00. 33
92
The RTC ruled that "the Affidavit of Desistance and Release of Claim is not
binding on plaintiff [Colipano] in the absence of proof that the contents
thereof were sufficiently translated and explained to her." 34 The CA
affirmed the findings of the RTC and ruled that the document was not
binding on Colipano, as follows:
Finally, We sustain the RTC's finding that the affidavit of desistance and
release of claim, offered by defendants-appellants, are not binding on
Werherlina, quoting with approval its reflection on the matter, saying:
xxx this Court finds that the Affidavit of Desistance and Release of Claim
is not binding on plaintiff in the absence of proof that the contents thereof
were sufficiently explained to her. It is clear from the plaintiffs
circumstances that she is not able to understand English, more so
stipulations stated in the said Affidavit and Release. It is understandable
that in her pressing need, the plaintiff may have been easily convinced to
sign the document with the promise that she will be compensated for her
injuries.35
The Court finds no reason to depart from these findings of the CA and the
RTC.
For there to be a valid waiver, the following requisites are essential:
(1) that the person making the waiver possesses the right, (2) that he has
the capacity and power to dispose of the right, (3) that the waiver must be
clear and unequivocal although it may be made expressly or impliedly,
and (4) that the waiver is not contrary to law, public policy, public order,
morals, good customs or prejudicial to a third person with a right
recognized by law.36
While the first two requirements can be said to exist in this case, the third
and fourth requirements are, however, lacking.
For the waiver to be clear and unequivocal, the person waiving the right
should understand what she is waiving and the effect of such waiver. Both
the CA and RTC made the factual deitermination that Colipano was not
able to understand English and that there was no proof that the documents
and their contents and effects were explained to her. These findings of the
RTC, affirmed by the CA, are entitled to great weight and respect. 37 As this
Court held in Philippine National Railways Corp. v. Vizcara38:
It is a well-established rule that factual fill dings by the CA are conclusive
on the parties and are not reviewable byj this Court. They are entitled to
great weight and respect, even finality, especially when, as in this case, the
CA affirmed the factual findings arrived at by the trial court. 39
Although there are exceptions to this rule, 40 the exceptions are absent here.
Colipano could not have clearly and unequivocally waived her right to
claim damages when she had no understanding of the right she was
waiving and the extent of that right. Worse, she was made to sign a
document written in a language she did not understand.
The fourth requirement for a valid waiver is also lacking as the waiver,
based on the attendant facts, can only be construed as contrary to public
policy. The doctrine in Gatchalian v. Delim,41 which the CA correctly
cited,42 is applicable here:
Finally, because what is involved here is the liability of a common carrier
for injuries sustained by passengers in respect of whose safety a common
carrier must exercise extraordinary diligence, we must construe any such
purported waiver most strictly against the common carrier. For a waiver
to be valid and effective, it must not be contrary to law, morals, public
policy or good customs. To uphold a supposed waiver of any right to claim
damages by an injured passenger, under circumstances like those
exhibited in this case, would be to dilute and weaken the standard of
extraordinary diligence exacted by the law from common carriers and
hence to render that standard unenforceable. We believe such a purported
waiver is offensive to public policy.43
"[P]ublic policy refers to the aims of the state to promote the social and
general well-being of the inhabitants."44 The Civil Code requires
extraordinary diligence from common carriers because the nature of their
business requires the public to put their safety and lives in the hands of
these common carriers. The State imposes this extraordinary diligence to
promote the well-being of the public who avail themselves of the services
of common carriers. Thus, in instances of injury or death, a waiver of the
right to claim damages is strictly construed against the common carrier so
as not to dilute or weaken the public policy behind the required standard
of extraordinary diligence.
It was for this reason that in Gatchalian, the waiver was considered
offensive to public policy because it was shown that the passenger was still
in the hospital and was dizzy when she signed the document. It was also
shown that when she saw the other passengers signing the document, she
signed it without reading it.
Similar to Gatchalian, Colipano testified that she did not understand the
93
document she signed.45 She also did not understand the nature and extent
of her waiver as the content of the document was not explained to
her.46 The waiver is therefore void because it is contrary to public policy.47
The Court reiterates that waivers executed under similar circumstances are
indeed contrary to public policy and are void. 48 To uphold waivers taken
from injured passengers who have no knowledge of their entitlement
under the law and the extent of liability of common carriers would indeed
dilute the extraordinary diligence required from common carriers, and
contravene a public policy reflected in the Civil Code.
Amount of compensatory damages granted is incorrect.
On the amount of damages, the RiTC awarded P2,098.80 as actual damages
and P360,000.00 as compensatoiy damages for loss of income, as follows:
[T]his Court can only award actual damages in the amount that is duly
supported by receipts, that is, P2,098.80 mid not P7,277.80 as prayed for by
plaintiff as there is no basis for the amount prayed for. However,
considering that plaintiff has suffered the loss of one leg which has caused
her to be limited in her movement thus resulting in loss of livelihood, she
is entitled to compensatory damages for lost income at the rate of
P12,000.00/year for thirty years in the amount of P360,000.00. 49
The CA, on the other hand, modified the award of the RTC by reducing
the compensatory damages from P360,000.00 to P200,000.00, thus:
By virtue of their negligence, defendants-appellants are liable to pay
Werheiiina compensatory damages for loss of earning capacity. In arriving
at the proper amount, the Supremip Court has consistently used the
following formula:
Net Earning Capacity
= ground as any hearsay evidence, that is, lack of opportunity for cross-
Life Expectancy x [Gross Annual Income - Living Expenses (50% of gross
annual income)]
where life expectancy
= that it is self-serving.53
2/3 (80 - the age of the deceased).
Based on the stated formula, the damages due to Werherlina for loss of
earning capacity is:
Net Earning Capacity
=
[2/3 x (80-30)] x (P12,000.00 x (50%)
=
(2/3 x 50) x P6,000.00
=
33.33 x P6,000.00
=
P200,000.00
The award of the sum of P200,000.00 as compensatory damages for loss of
earning capacity is in order, notwithstanding the objections of defendants-
appellants with respect to lack of evidence on Werherlina's age and annual
income.50
Sanico argues that Colipano failed to present documentary evidence to
support her age and her income, so that her testimony is self-serving and
that there was no basis for the award of compensatory damages in her
favor.51 Sanico is gravely mistaken.
The Court has held in Heirs of Pedro Clemeña y Zurbano v. Heirs of Irene
B. Bien52 that testimonial evidence cannot be objected to on the ground of
being self-serving, thus:
"Self-serving evidence" is not to be taken literally to mean any evidence
that serves its proponent's interest. The term, if used with any legal sense,
refers only to acts or declarations made by a party in his own interest at
some place and time out of court, and it does not include testimony that
he gives as a witness in court. Evidence of this sort is excluded on the same
examination by the adverse party and on the consideration that its
admission would open the door to fraud and fabrication. In contrast, a
party's testimony in court is sworn and subject to cross-examination by the
other party, and therefore, not susceptible to an objection on the ground
Colipano was subjected to cross-examination and both the RTC and CA
believed her testimony on her age and annual income. In fact, as these are
94
questions of facts, these findings of the RTC and CA are likewise binding
on the Court.54
Further, although as a general rule, documentary evidence is required to
prove loss of earning capacity, Colipano's testimony on her annual
earnings of P12,000.00 is an allowed exception. There are two exceptions
to the general rule and Colipano's testimonial evidence falls under the
second exception, viz.:
By way of exception, damages for loss of earning capacity may be awarded
despite the absence of documentary evidence when (1) the deceased is self-
employed earning less than the minimum wage under current labor laws,
and judicial notice may be taken of the fact that in the deceased's line of
work no documentary evidence is available; or (2) the deceased is
employed as a daily wage worker earning less than the minimum wage
under current labor laws.55
The CA applied the correct formula for computing the loss of Colipano's
earning capacity:
Net earning capacity = Life expectancy x [Gross Annual Income - Living
Expenses (50% of gross annual income)], where life expectancy = 2/3 (80-
the age of the deceased).56
However, the CA erred when it used Colipano's age at the time she
testified as basis for computing the loss of earning capacity. 57 The loss of
earning capacity commenced when Colipano's leg was crushed on
December 25, 1993. Given that Colipano was 30 years old when she
testified on October 14, 1997, she was roughly 27 years old on December
25, 1993 when the injury was sustained. Following the foregoing formula,
the net earning capacity of Colipano is P212,000.00. 58
Sanico is liable to pay interest.
Interest is a form of actual or compensatory damages as it belongs to
Chapter 259 of Title XVIII on Damages of the Civil Code. Under Article
2210 of the Civil Code, "[i]nterest may, in the discretion of the court, be
allowed upon damages awarded for breach of contract." Here, given the
gravity of the breach of the contract of carriage causing the serious injury
to the leg of Colipano that resulted in its amputation, the Court deems it
just and equitable to award interest from the date of the RTC decision.
Since the award of damages was given by the RTC in its Decision dated
October 27, 2006, the interest on the amount awarded shall be deemed to
run beginning October 27, 2006.
As to the rate of interest, in Eastern Shipping Lines, Inc. v. Court of
Appeals,60 the Court ruled that "[w]hen 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."61 Further, upon finality of the judgment awarding a
sum of money, the rate of interest shall be 12% per annum from such
finality until satisfaction because the interim period is considered a
forbearance of credit.62 Subsequently, in Nacar v. Gallery Frames,63 the
rate of legal interest for loans or forbearance of any money, goods or
credits and the rate allowed in judgments was lowered from 12% to 6%.
Thus, the applicable rate of interest to the award of damages to Colipano
is 6%.
WHEREFORE, premises considered, the petition for review is
hereby PARTLY GRANTED. As to petitioner Vicente Castro, the Decision
of the Court of Appeals dated September 30, 2013 is REVERSED and SET
ASIDE and the complaint against him is dismissed for lack of cause of
action. As to petitioner Jose Sanico, the Decision of the Court of Appeals is
hereby AFFIRMED with MODIFICATIONS, Petitioner Jose Sanico is liable
and ordered to pay respondent Werherlina Colipano the following
amounts:Actual damages in the amount of P2,098.80;
Compensatory damages for loss of income in the amount of P212,000.00;
Interest on the total amount of the damages awarded in 1 and 2 at the rate
of 6% per annum reckoned from October 27, 2006 until finality of this
Decision. The total amount of the foregoing shall, in turn, earn interest at
the rate of 6% per annum from finality of this Decision until full payment
thereof.
SO ORDERED.
G.R. No. 172682, July 27, 2016
95
 SULPICIO LINES, INC., Petitioner, v. NAPOLEON SESANTE, NOW
SUBSTITUTED BY MARIBEL ATILANO, KRISTEN MARIE,
CHRISTIAN IONE, KENNETH KERRN AND KARISNA KATE, ALL
SURNAMED SESANTE, Respondent.
DECISION
BERSAMIN, J.:
Moral damages are meant to enable the injured party to obtain the
means, diversions or amusements in order to alleviate the moral
suffering. Exemplary damages are designed to permit the courts to
reshape behavior that is socially deleterious in its consequence by
creating negative incentives or deterrents against such behavior.
The Case
This appeal seeks to undo and reverse the adverse decision promulgated
on June 27, 2005,1 whereby the Court of Appeals (CA) affirmed with
modification the judgment of the Regional Trial Court (RTC), Branch 91,
in Quezon City holding the petitioner liable to pay temperate and moral
damages due to breach of contract of carriage.2chanrobleslaw
Antecedents
On September 18, 1998, at around 12:55 p.m., the M/V Princess of the
Orient, a passenger vessel owned and operated by the petitioner, sank
near Fortune Island in Batangas. Of the 388 recorded passengers, 150
were lost.3 Napoleon Sesante, then a member of the Philippine National
Police (PNP) and a lawyer, was one of the passengers who survived the
sinking. He sued the petitioner for breach of contract and
damages.4chanrobleslaw
Sesante alleged in his complaint that the M/V Princess of the Orient left
the Port of Manila while Metro Manila was experiencing stormy weather;
that at around 11:00 p.m., he had noticed the vessel listing starboard, so
he had gone to the uppermost deck where he witnessed the strong winds
and big waves pounding the vessel; that at the same time, he had seen
how the passengers had been panicking, crying for help and frantically
scrambling for life jackets in the absence of the vessel's officers and crew;
that sensing danger, he had called a certain Vency Ceballos through his
cellphone to request him to inform the proper authorities of the situation;
that thereafter, big waves had rocked the vessel, tossing him to the floor
where he was pinned by a long steel bar; that he had freed himself only
after another wave had hit the vessel;5 that he had managed to stay afloat
after the vessel had sunk, and had been carried by the waves to the
coastline of Cavite and Batangas until he had been rescued; that he had
suffered tremendous hunger, thirst, pain, fear, shock, serious anxiety and
mental anguish; that he had sustained injuries, 6 and had lost money,
jewelry, important documents, police uniforms and the .45 caliber pistol
issued to him by the PNP; and that because it had committed bad faith in
allowing the vessel to sail despite the storm signal, the petitioner should
pay him actual and moral damages of P500,000.00 and P1,000,000.00,
respectively.7chanrobleslaw
In its defense, the petitioner insisted on the seaworthiness of the M/V
Princess of the Orient due to its having been cleared to sail from the Port
of Manila by the proper authorities; that the sinking had been due to force
majeure; that it had not been negligent; and that its officers and crew had
also not been negligent because they had made preparations to abandon
the vessel because they had launched life rafts and had provided the
passengers assistance in that regard. 8chanrobleslaw
Decision of the RTC
On October 12, 2001, the RTC rendered its judgment in favor of the
respondent,9 holding as follows:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby rendered in favor of plaintiff
Napoleon Sesante and against defendant Sulpicio Lines, Inc., ordering
said defendant to pay plaintiff:
1. Temperate damages in the amount of P400,000.00;
2. Moral damages in the amount of One Million Pesos
(P1,000,000.00);
3. Costs of suit.
SO ORDERED.10chanroblesvirtuallawlibrary
96
The RTC observed that the petitioner, being negligent, was liable to
Sesante pursuant to Articles 1739 and 1759 of the Civil Code; that the
petitioner had not established its due diligence in the selection and
supervision of the vessel crew; that the ship officers had failed to inspect
the stowage of cargoes despite being aware of the storm signal; that the
officers and crew of the vessel had not immediately sent a distress signal
to the Philippine Coast Guard; that the ship captain had not called for
then "abandon ship" protocol; and that based on the report of the Board
of Marine Inquiry (BMI), the erroneous maneuvering of the vessel by the
captain during the extreme weather condition had been the immediate
and proximate cause of the sinking.
The petitioner sought reconsideration, but the RTC only partly granted
its motion by reducing the temperate damages from P500,000.00 to
P300,000.00.11chanrobleslaw
Dissatisfied, the petitioner appealed. 12 It was pending the appeal in the
CA when Sesante passed away. He was substituted by his
heirs.13chanrobleslaw
Judgment of the CA
On June 27, 2005, the CA promulgated its assailed decision. It lowered
the temperate damages to P120,000.00, which approximated the cost of
Sesante's lost personal belongings; and held that despite the
seaworthiness of the vessel, the petitioner remained civilly liable because
its officers and crew had been negligent in performing their
duties.14chanrobleslaw
Sttill aggrieved, Sulpicio Lines moved for reconsideration, but the CA
denied the motion.
Hence, this appeal.
Issues
The petitioner attributes the following errors to the CA, to
wit:ChanRoblesVirtualawlibrary
I INCIDENT16chanroblesvirtuallawlibrary
THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF
MORAL DAMAGES, AS THE INSTANT CASE IS FOR ALLEGED
PERSONAL INJURIES PREDICATED ON BREACH OF CONTRACT OF
CARRIAGE, AND THERE BEING NO PROOF OF BAD FAITH ON THE
PART OF SULPICIO
II
THE ASSAILED DECISION ERRED IN SUSTAINING THE AMOUNT
OF MORAL DAMAGES AWARDED, THE SAME BEING
UNREASONABLE, EXCESSIVE AND UNCONSCIONABLE, AND
TRANSLATES TO UNJUST ENRICHMENT AGAINST SULPICIO
III
THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF
TEMPERATE DAMAGES AS THE SAME CANNOT SUBSTITUTE FOR
A FAILED CLAIM FOR ACTUAL DAMAGES, THERE BEING NO
COMPETENT PROOF TO WARRANT SAID AWARD
IV
THE AWARD OF TEMPERATE DAMAGES IS UNTENABLE AS THE
REQUISITE NOTICE UNDER THE LAW WAS NOT GIVEN TO
SULPICIO IN ORDER TO HOLD IT LIABLE FOR THE ALLEGED LOSS
OF SESANTE'S PERSONAL BELONGINGS
V
THE ASSAILED DECISION ERRED IN SUBSTITUTING THE HEIRS OF
RESPONDENT SESANTE IN THE INSTANT CASE, THE SAME BEING
A PERSONAL ACTION WHICH DOES NOT SURVIVE
VI
THE ASSAILED DECISION ERRED IN APPLYING ARTICLE 1759 OF
THE NEW CIVIL CODE AGAINST SULPICIO SANS A CLEAR-CUT
FINDING OF SULPICIO'S BAD FAITH IN THE
97
In other words, to be resolved are the following, namely: (1) Is the
complaint for breach of contract and damages a personal action that does
not survive the death of the plaintiff?; (2) Is the petitioner liable for
damages under Article 1759 of the Civil Code?; and (3) Is there sufficient
basis for awarding moral and temperate damages?
Ruling of the Court
The appeal lacks merit.
I for funeral expenses and those for the last sickness of the decedent; (2)
An action for breach of contract of carriage survives the death of the
plaintiff
The petitioner urges that Sesante's complaint for damages was purely
personal and cannot be transferred to his heirs upon his death. Hence,
the complaint should be dismissed because the death of the plaintiff
abates a personal action.
The petitioner's urging is unwarranted.
Section 16, Rule 3 of the Rules of Court lays down the proper procedure in
the event of the death of a litigant, viz.:ChanRoblesVirtualawlibrary
Section 16. Death of party; duty of counsel. - Whenever a party to a pending
action dies, and the claim is not thereby extinguished, it shall be the
duty of his counsel to inform the court within thirty (30) days after such
death of the fact thereof, and to give the name and address of his legal
representative or representatives. Failure of counsel to comply with his
duty shall be a ground for disciplinary action.
The heirs of the deceased may be allowed to be substituted for the
deceased, without requiring the appointment of an executor or
administrator and the court may appoint a guardian ad litem for the
minor heirs.
xxxx
Substitution by the heirs is not a matter of jurisdiction, but a requirement
of due process.17 It protects the right of due process belonging to any
party, that in the event of death the deceased litigant continues to be
protected and properly represented in the suit through the duly
appointed legal representative of his estate. 18chanrobleslaw
The application of the rule on substitution depends on whether or not the
action survives the death of the litigant. Section 1, Rule 87 of the Rules of
Court enumerates the following actions that survive the death of a party,
namely: (1) recovery of real or personal property, or an interest from the
estate; (2) enforcement of liens on the estate; and (3) recovery of damages
for an injury to person or property. On the one hand, Section 5, Rule 86 of
the Rules of Court lists the actions abated by death as including: (1) claims
judgments for money; and (3) all claims for money against the deceased,
arising from contract, express or implied.
A contract of carriage generates a relation attended with public duty,
neglect or malfeasance of the carrier's employees and gives ground for an
action for damages.19 Sesante's claim against the petitioner involved his
personal injury caused by the breach of the contract of carriage. Pursuant
to the aforecited rules, the complaint survived his death, and could be
continued by his heirs following the rule on substitution.
II
The petitioner is liable for breach of contract of carriage
The petitioner submits that an action for damages based on breach of
contract of carriage under Article 1759 of the Civil Code should be read in
conjunction with Article 2201 of the same code; that although Article 1759
only provides for a presumption of negligence, it does not envision
automatic liability; and that it was not guilty of bad faith considering that
the sinking of M/V Princess of the Orient had been due to a fortuitous
event, an exempting circumstance under Article 1174 of the Civil Code.
The submission has no substance.
Article 1759 of the Civil Code does not establish a presumption of
negligence because it explicitly makes the common carrier liable in the
event of death or injury to passengers due to the negligence or fault of the
common carrier's employees. It reads:
98
Article 1759. Common carriers are liable for the death 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.
The liability of common carriers under Article 1759 is demanded by the
duty of extraordinary diligence required of common carriers in safely
carrying their passengers.20chanrobleslaw
On the other hand, Article 1756 of the Civil Code lays down the
presumption of negligence against the common carrier in the event of
death or injury of its passenger, viz.:
Article 1756. In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as
prescribed in Articles 1733 and 1755.
Clearly, the trial court is not required to make an express finding of the
common carrier's fault or negligence.21 Even the mere proof of injury
relieves the passengers from establishing the fault or negligence of the
carrier or its employees.22 The presumption of negligence applies so long
as there is evidence showing that: (a) a contract exists between the
passenger and the common carrier; and (b) the injury or death took place
during the existence of such contract. 23 In such event, the burden shifts to
the common carrier to prove its observance of extraordinary diligence,
and that an unforeseen event or force majeure had caused the injury.24
Sesante sustained injuries due to the buffeting by the waves and
consequent sinking of M/V Princess of the Orient where he was a
passenger. To exculpate itself from liability, the common carrier vouched
for the seaworthiness of M/V Princess of the Orient, and referred to the
BMI report to the effect that the severe weather condition - a force
majeure - had brought about the sinking of the vessel.
The petitioner was directly liable to Sesante and his heirs.
A common carrier may be relieved of any liability arising from a
fortuitous event pursuant to Article 117425cralawred of the Civil Code. But
while it may free a common carrier from liability, the provision still
requires exclusion of human agency from the cause of injury or
loss.26 Else stated, for a common carrier to be absolved from liability in
case of force majeure, it is not enough that the accident was caused by a
fortuitous event. The common carrier must still prove that it did not
contribute to the occurrence of the incident due to its own or its
employees' negligence.27 We explained in Schmitz Transport & Brokerage
Corporation v. Transport Venture, Inc.,28 as
In order to be considered a fortuitous event, however, (1) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to
comply with his obligation, must be independent of human will; (2) it
must be impossible to foresee the event which constitute the caso fortuito,
or if it can be foreseen it must be impossible to avoid; (3) the occurrence
must be such as to render it impossible for the debtor to fulfill his
obligation in any manner; and (4) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor.
[T]he principle embodied in the act of God doctrine strictly requires
that the act must be occasioned solely by the violence of nature. Human
intervention is to be excluded from creating or entering into the cause
of the mischief. When the effect is found to be in part the result of the
participation of man, whether due to his active intervention or neglect
or failure to act, the whole occurrence is then humanized and removed
from the rules applicable to the acts of God.29 (bold underscoring
supplied for emphasis)
The petitioner has attributed the sinking of the vessel to the storm
notwithstanding its position on the seaworthiness of M/V Princess of the
Orient. Yet, the findings of the BMI directly contradicted the petitioner's
attribution, as follows:
7. The Immediate and the Proximate Cause of the Sinking
The Captain's erroneous maneuvers of the M/V Princess of the
Orient minutes before she sunk [sic] had caused the accident. It should be
noted that during the first two hours when the ship left North Harbor,
she was navigating smoothly towards Limbones Point. During the same
period, the ship was only subjected to the normal weather stress
prevailing at the time. She was then inside Manila Bar. The waves were
observed to be relatively small to endanger the safety of the ship. It was
only when the MV Princess of the Orient had cleared Limbones Pt. while
99
navigating towards the direction of the Fortune Island when this
agonizing misfortune struck the ship.
Initially, a list of three degrees was observed. The listing of the ship to her
portside had continuously increased. It was at this point that the captain
had misjudged the situation. While the ship continuously listed to her
portside and was battered by big waves, strong southwesterly winds,
prudent judgement [sic] would dictate that the Captain should have
considerably reduced the ship's speed. He could have immediately
ordered the Chief Engineer to slacken down the speed. Meanwhile,
the winds and waves continuously hit the ship on her starboard side. The
waves were at least seven to eight meters in height and the wind velocity
was a[t] 25 knots. The MV Princess of the Orient being a close-type ship
(seven decks, wide and high superstructure) was vulnerable and exposed
to the howling winds and ravaging seas. Because of the excessive
movement, the solid and liquid cargo below the decks must have shifted
its weight to port, which could have contributed to the tilted position of
the ship.
Minutes later, the Captain finally ordered to reduce the speed of the ship
to 14 knots. At the same time, he ordered to put ballast water to the
starboard-heeling tank to arrest the continuous listing of the ship. This
was an exercise in futility because the ship was already listing between 15
to 20 degrees to her portside. The ship had almost reached the maximum
angle of her loll. At this stage, she was about to lose her stability.
Despite this critical situation, the Captain executed several starboard
maneuvers. Steering the course of the Princess to starboard had greatly
added to her tilting. In the open seas, with a fast speed of 14 knots,
advance maneuvers such as this would tend to bring the body of the ship
in the opposite side. In navigational terms, this movement is described as
the centripetal force. This force is produced by the water acting on the
side of the ship away from the center of the turn. The force is considered
to act at the center of lateral resistance which, in this case, is the centroid
of the underwater area of the ship's side away from the center of the turn.
In the case of the Princess, when the Captain maneuvered her to
starboard, her body shifted its weight to port. Being already inclined to
an angle of 15 degrees, coupled with the instantaneous movement of the
ship, the cargoes below deck could have completely shifted its position
and weight towards portside. By this time, the ship being ravaged
simultaneously by ravaging waves and howling winds on her starboard
side, finally lost her grip.30chanroblesvirtuallawlibrary
Even assuming the seaworthiness of the MA/ Princess of the Orient, the
petitioner could not escape liability considering that, as borne out by the
aforequoted findings of the BMI, the immediate and proximate cause of
the sinking of the vessel had been the gross negligence of its captain in
maneuvering the vessel.
The Court also notes that Metro Manila was experiencing Storm Signal
No. 1 during the time of the sinking. 31 The BMI observed that a vessel
like the M/V Princess of the Orient, which had a volume of 13.734 gross
tons, should have been capable of withstanding a Storm Signal No. 1
considering that the responding fishing boats of less than 500 gross tons
had been able to weather through the same waves and winds to go to the
succor of the sinking vessel and had actually rescued several of the
latter's distressed passengers.32
III
The award of moral damages and temperate damages is proper
The petitioner argues that moral damages could be meted against a
common carrier only in the following instances, to wit: (1) in the
situations enumerated by Article 2201 of the Civil Code; (2) in cases of the
death of a passenger; or (3)where there was bad faith on the part of the
common carrier. It contends that none of these instances obtained herein;
hence, the award should be deleted.
We agree with the petitioner that moral damages may be recovered in an
action upon breach of contract of carriage only when: (a) death of a
passenger results, or (b) it is proved that the carrier was guilty of fraud
and bad faith, even if death does not result. 33 However, moral damages
may be awarded if the contractual breach is found to be wanton and
deliberately injurious, or if the one responsible acted fraudulently or with
malice or bad faith.34
The CA enumerated the negligent acts committed by the officers and
crew of M/V Princess of the Orient, viz.:
100
x x x. [W]hile this Court yields to the findings of the said investigation
report, yet it should be observed that what was complied with by
Sulpicio Lines were only the basic and minimal safety standards which
would qualify the vessel as seaworthy. In the same report however it also
revealed that the immediate and proximate cause of the sinking of the
M/V Princess of the Orient was brought by the following: erroneous
maneuvering command of Captain Esrum Mahilum and due to the
weather condition prevailing at the time of the tragedy. There is no doubt
that under the circumstances the crew of the vessel were negligent in
manning it. In fact this was clearly established by the investigation of the
Board of Marine Inquiry where it was found that:
The Chief Mate, when interviewed under oath, had attested that he was
not able to make stability calculation of the ship vis-a-vis her cargo. He
did not even know the metacentric height (GM) of the ship whether it be
positive or negative.
As cargo officer of the ship, he failed to prepare a detailed report of the
ship's cargo stowage plan.
He likewise failed to conduct the soundings (measurement) of the ballast
tanks before the ship departed from port. He readily presumed that the
ship was full of ballast since the ship was fully ballasted when she left
Cebu for Manila on 16 September 1998 and had never discharge[d] its
contents since that time.
Being the officer-in-charge for emergency situation (sic) like this, he
failed to execute and supervise the actual abandonship (sic) procedure.
There was no announcement at the public address system of
abandonship (sic), no orderly distribution of life jackets and no orderly
launching of life rafts. The witnesses have confirmed this finding on their
sworn statements.
There was miscalculation in judgment on the part of the Captain when he
erroneously navigated the ship at her last crucial moment. x x x
To aggravate his case, the Captain, having full command and
responsibility of the MV Princess of the Orient, had failed to ensure the
proper execution of the actual abandoning of the ship.
The deck and engine officers (Second Mate, Third Mate, Chief Engineers,
Second Engineer, Third Engineer and Fourth Engineer), being in charge
of their respective abandonship (sic) post, failed to supervise the crew
and passengers in the proper execution of abandonship (sic) procedure.
The Radio Officer (spark) failed to send the SOS message in the
internationally accepted communication network (VHF Channel 16).
Instead, he used the Single Side Band (SSB) radio in informing the
company about the emergency situation. x x x
x35chanroblesvirtuallawlibrary
The aforestated negligent acts of the officers and crew of M/V Princess of
the Orient could not be ignored in view of the extraordinary duty of the
common carrier to ensure the safety of the passengers. The totality of the
negligence by the officers and crew of M/V Princess of the Orient,
coupled with the seeming indifference of the petitioner to render
assistance to Sesante,36 warranted the award of moral damages.
While there is no hard-and-fast rule in determining what is a fair and
reasonable amount of moral damages, the discretion to make the
determination is lodged in the trial court with the limitation that the
amount should not be palpably and scandalously excessive. The trial
court then bears in mind that moral damages are not intended to impose
a penalty on the wrongdoer, or to enrich the plaintiff at the expense of
the defendant.37 The amount of the moral damages must always
reasonably approximate the extent of injury and be proportional to the
wrong committed.38chanrobleslaw
The Court recognizes the mental anguish, agony and pain suffered by
Sesante who fought to survive in the midst of the raging waves of the sea
while facing the immediate prospect of losing his life. His claim for moral
and economic vindication is a bitter remnant of that most infamous
tragedy that left hundreds of families broken in its wake. The anguish
and moral sufferings he sustained after surviving the tragedy would
always include the memory of facing the prospect of his death from
drowning, or dehydration, or being preyed upon by sharks. Based on the
established circumstances, his survival could only have been a miracle
wrought by God's grace, by which he was guided in his desperate swim
for the safety of the shore. But even with the glory of survival, he still had
to grapple with not just the memory of having come face to face with
almost certain death, but also with having to answer to the instinctive
guilt for the rest of his days of being chosen to live among the many who
101
perished in the tragedy.39
While the anguish, anxiety, pain and stress experienced by Sesante
during and after the sinking cannot be quantified, the moral damages to
be awarded should at least approximate the reparation of all the
consequences of the petitioner's negligence. With moral damages being
meant to enable the injured party to obtain the means, diversions or
amusements in order to alleviate his moral and physical sufferings, 40 the
Court is called upon to ensure that proper recompense be allowed to
him, through his heirs. For this purpose, the amount of P1,000,000.00, as
granted by the RTC and affirmed by the CA, is maintained.
The petitioner contends that its liability for the loss of Sesante's personal
belongings should conform with Article 1754, in relation to Articles 1998,
2000 to 2003 of the Civil Code, which provide:
Article 1754. The provisions of Articles 1733 to 1753 shall apply to the
passenger's baggage which is not in his personal custody or in that of his
employees. As to other baggage, the rules in Articles 1998 and 2000 to
2003 concerning the responsibility of hotel-keepers shall be applicable.
xxxx
Article 1998. The deposit of effects made by travellers in hotels or inns
shall also be regarded as necessary. The keepers of hotels or inns shall be
responsible for them as depositaries, provided that notice was given to
them, or to their employees, of the effects brought by the guests and that,
on the part of the latter, they take the precautions which said hotel-
keepers or their substitutes advised relative to the care and vigilance of
their effects.
xxxx
Article 2000. The responsibility referred to in the two preceding articles
shall include the loss of, or injury to the personal property of the guests
caused by the servants or employees of the keepers of hotels or inns as
well as by strangers; but not that which may proceed from any force
majeure. The fact that travellers are constrained to rely on the vigilance of
the keeper of the hotel or inn shall be considered in determining the
degree of care required of him.
Article 2001. The act of a thief or robber, who has entered the hotel is not
deemed force majeure, unless it is done with the use of arms or through an
irresistible force.
Article 2002. The hotel-keeper is not liable for compensation if the loss is
due to the acts of the guest, his family, servants or visitors, or if the loss
arises from the character of the things brought into the hotel.
Article 2003. The hotel-keeper cannot free himself from responsibility by
posting notices to the effect that he is not liable for the articles brought by
the guest. Any stipulation to the contrary between the hotel-keeper and
the guest whereby the responsibility of the former as set forth in Articles
1998 to 2001 is suppressed or diminished shall be void.
The petitioner denies liability because Sesante's belongings had remained
in his custody all throughout the voyage until the sinking, and he had not
notified the petitioner or its employees about such belongings. Hence,
absent such notice, liability did not attach to the petitioner.
Is notification required before the common carrier becomes liable for lost
belongings that remained in the custody of the passenger?
We answer in the negative.
The rule that the common carrier is always responsible for the
passenger's baggage during the voyage needs to be emphasized. Article
1754 of the Civil Code does not exempt the common carrier from liability
in case of loss, but only highlights the degree of care required of it
depending on who has the custody of the belongings. Hence, the law
requires the common carrier to observe the same diligence as the hotel
keepers in case the baggage remains with the passenger; otherwise,
extraordinary diligence must be exercised. 41 Furthermore, the liability of
the common carrier attaches even if the loss or damage to the belongings
resulted from the acts of the common carrier's employees, the only
exception being where such loss or damages is due to force majeure.42
In YHT Realty Corporation v. Court of Appeals,43 we declared the actual
delivery of the goods to the innkeepers or their employees as
unnecessary before liability could attach to the hotelkeepers in the event
of loss of personal belongings of their guests considering that the
102
personal effects were inside the hotel or inn because the hotelkeeper shall
remain accountable.44 Accordingly, actual notification was not necessary
to render the petitioner as the common carrier liable for the lost personal
belongings of Sesante. By allowing him to board the vessel with his
belongings without any protest, the petitioner became sufficiently
notified of such belongings. So long as the belongings were brought
inside the premises of the vessel, the petitioner was thereby effectively
notified and consequently duty-bound to observe the required diligence
in ensuring the safety of the belongings during the voyage. Applying
Article 2000 of the Civil Code, the petitioner assumed the liability for loss
of the belongings caused by the negligence of its officers or crew. In view
of our finding that the negligence of the officers and crew of the
petitioner was the immediate and proximate cause of the sinking of the
M/V Princess of the Orient, its liability for Sesante's lost personal
belongings was beyond question.
The petitioner claims that temperate damages were erroneously awarded
because Sesante had not proved pecuniary loss; and that the CA merely
relied on his self-serving testimony.
The award of temperate damages was proper.
Temperate damages may be recovered when some pecuniary loss has
been suffered but the amount cannot, from the nature of the case, be
proven with certainty.45 Article 222446 of the Civil Code expressly
authorizes the courts to award temperate damages despite the lack of
certain proof of actual damages.
Indubitably, Sesante suffered some pecuniary loss from the sinking of the
vessel, but the value of the loss could not be established with certainty.
The CA, which can try facts and appreciate evidence, pegged the value of
the lost belongings as itemized in the police report at P120,000.00. The
valuation approximated the costs of the lost belongings. In that context,
the valuation of P120,000.00 is correct, but to be regarded as temperate
damages.
In fine, the petitioner, as a common carrier, was required to observe
extraordinary diligence in ensuring the safety of its passengers and their
personal belongings. It being found herein short of the required diligence
rendered it liable for the resulting injuries and damages sustained by
Sesante as one of its passengers.
Should the petitioner be further held liable for exemplary damages?
In contracts and quasi-contracts, the Court has the discretion to award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner. 48 Indeed, exemplary
damages cannot be recovered as a matter of right, and it is left to the
court to decide whether or not to award them. 49 In consideration of these
legal premises for the exercise of the judicial discretion to grant or deny
exemplary damages in contracts and quasi-contracts against a defendant
who acted in a wanton, fraudulent,' reckless, oppressive, or malevolent
manner, the Court hereby awards exemplary damages to Sesante.
First of all, exemplary damages did not have to be specifically pleaded or
proved, because the courts had the discretion to award them for as long
as the evidence so warranted. In Marchan v. Mendoza,50 the Court has
relevantly discoursed:
x x x. It is argued that this Court is without jurisdiction to adjudicate
this exemplary damages since there was no allegation nor prayer, nor
proof, nor counterclaim of error for the same by the appellees. It is to
be observed however, that in the complaint, plaintiffs "prayed for such
other and further relief as this Court may deem just and equitable."
Now, since the body of the complaint sought to recover damages
against the defendant-carrier wherein plaintiffs prayed for
indemnification for the damages they suffered as a result of the
negligence of said Silverio Marchan who is appellant's employee; and
since exemplary damages is intimately connected with general
damages, plaintiffs may not be expected to single out by express term
the kind of damages they are trying to recover against the defendant's
carrier. Suffice it to state that when plaintiffs prayed in their complaint
for such other relief and remedies that may be availed of under the
premises, in effect, therefore, the court is called upon to exercise and
use its discretion whether the imposition of punitive or exemplary
damages even though not expressly prayed or pleaded in the plaintiffs'
complaint.
x x x It further appears that the amount of exemplary damages need not
be proved, because its determination depends upon the amount of
compensatory damages that may be awarded to the claimant. If the
103
amount of exemplary damages need not be proved, it need not also be
alleged, and the reason is obvious because it is merely incidental or
dependent upon what the court may award as compensatory damages.
Unless and until this premise is determined and established, what may
be claimed as exemplary damages would amount to a mere surmise or
speculation. It follows as a necessary consequence that the amount of
exemplary damages need not be pleaded in the complaint because the
same cannot be predetermined. One can merely ask that it be
determined by the court if in the use of its discretion the same is
warranted by the evidence, and this is just what appellee has
done. (Bold underscoring supplied for emphasis)
And, secondly, exemplary damages are designed by our civil law to
"permit the courts to reshape behavior that is socially deleterious in its
consequence by creating negative incentives or deterrents against such
behavior."51 The nature and purpose for this kind of damages have been
well-stated in People v. Dalisay,52 to wit:
Also known as 'punitive' or 'vindictive' damages, exemplary or
corrective damages are intended to serve as a deterrent to serious
wrong doings, and as a vindication of undue sufferings and wanton
invasion of the rights of an injured or a punishment for those guilty of
outrageous conduct. These terms are generally, but not always, used
interchangeably. In common law, there is preference in the use of
exemplary damages when the award is to account for injury to feelings
and for the sense of indignity and humiliation suffered by a person as a
result of an injury that has been maliciously and wantonly inflicted, the
theory being that there should be compensation for the hurt caused by
the highly reprehensible conduct of the defendant - associated with such
circumstances as willfulness, wantonness, malice, gross negligence or
recklessness, oppression, insult or fraud or gross fraud - that intensifies
the injury. The terms punitive or vindictive damages are often used to
refer to those species of damages that may be awarded against a person
to punish him for his outrageous conduct. In either case, these damages
are intended in good measure to deter the wrongdoer and others like
him from similar conduct in the future. (Bold underscoring supplied for
emphasis)
The BMI found that the "erroneous maneuvers" during the ill-fated
voyage by the captain of the petitioner's vessel had caused the sinking.
After the vessel had cleared Limbones Point while navigating towards
the direction of Fortune Island, the captain already noticed the listing of
the vessel by three degrees to the portside of the vessel, but, according to
the BMI, he did not exercise prudence as required by the situation in
which his vessel was suffering the battering on the starboard side by big
waves of seven to eight meters high and strong southwesterly winds of
25 knots. The BMI pointed out that he should have considerably reduced
the speed of the vessel based on his experience about the vessel - a close-
type ship of seven decks, and of a wide and high superstructure - being
vulnerable if exposed to strong winds and high waves. He ought to have
also known that maintaining a high speed under such circumstances
would have shifted the solid and liquid cargo of the vessel to port,
worsening the tilted position of the vessel. It was only after a few minutes
thereafter that he finally ordered the speed to go down to 14 knots, and to
put ballast water to the starboard-heeling tank to arrest the continuous
listing at portside. By then, his moves became an exercise in futility
because, according to the BMI, the vessel was already listing to her
portside between 15 to 20 degrees, which was almost the maximum angle
of the vessel's loll. It then became inevitable for the vessel to lose her
stability.
The BMI concluded that the captain had executed several starboard
maneuvers despite the critical situation of the vessel, and that the
maneuvers had greatly added to the tilting of the vessel. It observed:
x x x In the open seas, with a fast speed of 14 knots, advance maneuvers
such as this would tend to bring the body of the ship in the opposite
side. In navigational terms, this movement is described as the
centripetal force. This force is produced by the water acting on the side
of the ship away from the center of the turn. The force is considered to
act at the center of lateral resistance which, in this case, is the centroid
of the underwater area of the ship's side away from the center of the
turn. In the case of the Princess, when the Captain maneuvered her to
starboard, her body shifted its weight to port. Being already inclined to
an angle of 15 degrees, coupled with the instantaneous movement of
the ship, the cargoes below deck could have completely shifted its
position and weight towards portside. By this time, the ship being
ravaged simultaneously by ravaging waves and howling winds on her
starboard side, finally lost her grip. 53
Clearly, the petitioner and its agents on the scene acted wantonly and
recklessly. Wanton and reckless are virtually synonymous in meaning as
respects liability for conduct towards others. 54Wanton means
104
characterized by extreme recklessness and utter disregard for the rights
of others; or marked by or manifesting arrogant recklessness of justice or
of rights or feelings of others.55 Conduct is reckless when it is an extreme
departure from ordinary care, in a situation in which a high degree of
danger is apparent. It must be more than any mere mistake resulting
from inexperience, excitement, or confusion, and more than mere
thoughtlessness or inadvertence, or simple inattention. 56
The actuations of the petitioner and its agents during the incident
attending the unfortunate sinking of the M/V Princess of the Orient were
far below the standard of care and circumspection that the law on
common carriers demanded. Accordingly, we hereby fix the sum of
P1,000,000.00 in order to serve fully the objective of exemplarity among
those engaged in the business of transporting passengers and cargo by
sea. The amount would not be excessive, but proper. As the Court put it
in Pereña v. Zarate:57
Anent the P1,000,000.00 allowed as exemplary damages, we should not
reduce the amount if only to render effective the desired example for the
public good. As a common carrier, the Perenas needed to be vigorously
reminded to observe their duty to exercise extraordinary diligence to
prevent a similarly senseless accident from happening again. Only by an
award of exemplary damages in that amount would suffice to instill in
them and others similarly situated like them the ever-present need for
greater and constant vigilance in the conduct of a business imbued with
public interest.58 (Bold underscoring supplied for emphasis)
WHEREFORE, the Court AFFIRMS the decision promulgated on June
27, 2005 with the MODIFICATIONS that: (a) the amount of moral
damages is fixed at P1,000,000.00; (b) the amount of P1,000,000.00 is
granted as exemplary damages; and (c) the sum of P120,000.00 is allowed
as temperate damages, all to be paid to the heirs of the late Napoleon
Sesante. In addition, all the amounts hereby awarded shall earn interest
of 6% per annum from the finality of this decision until fully paid. Costs of
suit to be paid by the petitioner. SO ORDERED.
G.R. No. 213418, September 21, 2016
ALFREDO S.RAMOS, CONCHITA S. RAMOS, BENJAMIN B.
RAMOS, NELSON T. RAMOS AND ROBINSON T.
RAMOS, Petitioners, v. CHINA SOUTHERN AIRLINES CO.
LTD., Respondent.
DECISION
PEREZ, J.:
For resolution of the Court is this Petition for Review on Certiorari1 filed
by petitioners Alfredo S. Ramos, Conchita S. Ramos, Benjamin B. Ramos,
Nelson T. Ramos and Robinson T. Ramos, seeking to reverse and set
aside the Decision2 dated 19 March 2013 and Resolution3 dated 9 July
2014 of the Court of Appeals (CA) in CA-G.R. CV. No. 94561. The
assailed decision and resolution affirmed with modification the 23 March
2009 Decision4 of the Regional Trial Court (RTC) of Manila, Branch 36,
which ordered respondent China Southern Airlines to pay petitioners the
amount of P692,000.00, representing the amount of damages and
attorney's fees. On appeal, the appellate court affirmed the award of
actual damages but deleted the order for payment of moral and
exemplary damages in the amount of P600,000.00. 5chanrobleslaw
The Facts
On 7 August 2003, petitioners purchased five China Southern Airlines
roundtrip plane tickets from Active Travel Agency for $985.00. 6 It is
provided in their itineraries that petitioners will be leaving Manila on 8
August 2003 at 0900H and will be leaving Xiamen on 12 August 2003 at
1920H.7 Nothing eventful happened during petitioners' flight going to
Xiamen as they were able to successfully board the plane which carried
them to Xiamen International Airport. On their way back to the Manila,
however, petitioners were prevented from taking their designated flight
despite the fact that earlier that day an agent from Active Tours informed
them that their bookings for China Southern Airlines 1920H flight are
confirmed.8 The refusal came after petitioners already checked in all their
baggages and were given the corresponding claim stubs and after they
had paid the terminal fees. According to the airlines' agent with whom
they spoke at the airport, petitioners were merely chance passengers but
they may be allowed to join the flight if they are willing to pay an
additional 500 Renminbi (RMB) per person. When petitioners refused to
defray the additional cost, their baggages were offloaded from the plane
and China Southern Airlines 1920H flight then left Xiamen International
105
Airport without them.9 Because they have business commitments waiting
for them in Manila, petitioners were constrained to rent a car that took
them to Chuan Chio Station where they boarded the train to
Hongkong.10 Upon reaching Hong Kong, petitioners purchased new
plane tickets from Philippine Airlines (PAL) that flew them back to
Manila.11chanrobleslaw
Upon arrival in Manila, petitioners went to Active Travel to inform them
of their unfortunate fate with China Southern Airlines. In their effort to
avoid lawsuit, Active Travel offered to refund the price of the plane
tickets but petitioners refused to accept the offer. Petitioners then went to
China Southern Airlines to demand for the reimbursement of their airfare
and travel expenses in the amount of P87,375.00. When the airline refused
to accede to their demand, petitioners initiated an action for damages
before the RTC of Manila against China Southern Airlines and Active
Travel. In their Complaint docketed as Civil Case No. 04-109574,
petitioners sought for the payment of the amount of P87,375.00 as actual
damages, P500,000.00 as moral damages, P500,000.00 as exemplary
damages and cost of the suit.12chanrobleslaw
In their Answer,13 China Southern Airlines denied liability by alleging
that petitioners were not confirmed passengers of the airlines but were
merely chance passengers. According to the airlines, it was specifically
provided in the issued tickets that petitioners are required to re-confirm
all their bookings at least 72 hours before their scheduled time of
departures but they failed to do so which resulted in the automatic
cancellation of their bookings.
The RTC then proceeded with the reception of evidence after the pre-trial
conference.
On 23 March 2009, the RTC rendered a Decision14 in favor of the
petitioners and ordered Chkia Southern Airlines to pay damages in the
amount of P692,000.00, broken down as
follows:ChanRoblesVirtualawlibrary
"WHEREFORE, judgment is hereby rendered ordering the defendant
[China Southern Airlines] to pay [petitioners]:
1. The sum of [P]62,000.00 as actual damages;
2. The sum of [P]300,000.00 as moral damages;
3. The sum of [P]300,000.00 as exemplary damages; and cralawlawlibrary
4. The sum of [P]30,000.00 for attorney's fees.
The defendants' counterclaim against plaintiffs are [hereby] dismissed for
insufficiency of evidence [enough] to sustain the damages claimed." 15
On appeal, however, the CA modified the RTC Decision by deleting the
award for moral and exemplary damages. According to the appellate
court, petitioners failed to prove that China Southern Airlines' breach of
contractual obligation was attended with bad faith. 16 The disquisition of
the CA reads:
"xxx. Where in breaching the contract, the defendant 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 and
which the parties had foreseen or could reasonably have foreseen; and in
that case, such liability would not include liability for moral and
exemplary damages.
In this case, We are not persuaded that [China Southern Airlines] breach
of contractual obligation had been attended by bad faith or malice or
gross negligence amounting to bad faith. On the contrary, it appears that
despite [petitioner's] failure to "re-confirm" their bookings, [China
Southern Airlines] exerted diligent efforts to comply with its obligation to
[petitioners]. If at the outset, [China Southern Airlines] simply did not
intend to comply with its promise to transport [petitioners] back to
Manila, it would not have taken the trouble of proposing that the latter
could still board the plane as "chance passengers" provided [that] they
will pay the necessary pay and penalties.
Thus, We believe and so hold that the damages recoverable by
[petitioners] are limited to the peso value of the PAL ticket they had
purchased for their return flight from Xiamen, plus attorney's fees, in the
amount of [P]30,000.00, considering that [petitioners] were ultimately
compelled to litigate their claim[s] against [China Southern Airlines]." 17
Since China Southern, Airlines' refusal to let petitioners board the plane
was not attended by bad faith, the appellate court decided not to award
petitioners moral and exemplary damages. The CA disposed in this wise:
106
"WHEREFORE, premises considered, the instant appeal is
hereby AFFIRMED with MODIFICATION in that the award of moral
and exemplary damages are hereby DELETED."18
Dissatisfied, petitioners timely interposed a Motion for Partial
Reconsideration which was partially granted by the CA in a
Resolution19 dated 9 July 2014, to wit:
"ACCORDINGLY, the instant Motion is PARTIALLY GRANTED. The
Decision dated 19 March 2013 rendered by this Court in CA-G.R. CV No.
94561 is hereby MODIFIED in that [China Southern Airlines]
is ORDERED to pay [petitioners] interest of 6% per annum on the
P62,000.00 as actual damages from the finality of this Court's Decision
until the same is fully satisfied."20
Unflinching, petitioners elevated the matter before the Court by filing the
instant Petition for Review on Certiorari assailing the CA Decision and
Resolution on the following grounds:
The Issues
I.
THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS
ERROR WHEN IT DELETED THE AWARDS OF MORAL AND
EXEMPLARY DAMAGES, A DEPARTURE FROM ESTABLISHED
DOCTRINES THAT PASSENGERS WHO ARE BUMPED-OFF ARE
ENTITLED TO MORAL AND EXEMPLARY DAMAGES;
I.
THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS
ERROR WHEN IT DECLARED THAT BUMPING OFF OF THE
PETITIONERS WAS NOT ATTENDED BY BAD FAITH AND MALICE
CONTRARY TO THE FINDINGS OF THE LOWER COURT;
III.
THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS
ERROR WHEN IT HELD THAT THE LEGAL INTEREST COMMENCE
ONLY FROM THE FINALITY OF THE DECISION INSTEAD OF FROM
THE DATE OF EXTRA-JUDICIAL DEMAND ON 18 AUGUST 2003. 21
The Court's Ruling
We resolve to grant the petition.
A contract of carriage, in this case, air transport, is intended to serve the
traveling public and thus, imbued with public interest.22 The law
governing common carriers consequently imposes an exacting standard
of conduct,23viz:
"1755 of the New Civil Code. A common carrier is bound to carry
passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with due regard for all the
circumstances."
When an airline issues a ticket to a passenger confirmed on a particular
flight, on a certain date, a contract of carriage arises, and the passenger
has every right to expect that he would fly on that flight and on that date.
If that does not happen, then the carrier opens itself to a suit for breach of
contract of carriage.24 In an action based on a breach of contract of
carriage, the aggrieved party does not have to prove that the common
carrier was at fault or was negligent.25cralawred All he has to prove is the
existence of the contract and the fact of its non-performance by the
carrier, through the latter's failure to carry the passenger to its
destination.26
It is beyond question in the case at bar that petitioners had an existing
contract of air carriage with China Southern Airlines as evidenced by the
airline tickets issued by Active Travel. When they showed up at the
airport and after they went through the routine security check including
the checking in of their luggage and the payment of the corresponding
terminal fees, petitioners were not allowed by China Southern Airlines to
board on the plane. The airlines' claim that petitioners do not have
confirmed reservations cannot be given credence by the Court. The
petitioners were issued two-way tickets with itineraries indicating the
date and time of their return flight to Manila. These are binding contracts
of carriage.27 China Southern Airlines allowed petitioners to check in
their luggage and issued the necessary claim stubs showing that they
107
were part of the flight. It was only after petitioners went through all the
required check-in procedures that they were informed by the airlines that
they were merely chance passengers. Airlines companies do not, as a
practice, accept pieces of luggage from passengers without confirmed
reservations. Quite tellingly, all the foregoing circumstances lead us to
the inevitable conclusion that petitioners indeed were bumped off from
the flight. We cannot from the records of this case deduce the true reason
why the airlines refused to board petitioners back to Manila. What we
can be sure of is the unacceptability of the proffered reason that rightfully
gives rise to the claim for damages.
The prologue shapes the body of the petitioners' rights, that is, that they
are entitled to damages, actual, moral and exemplary.
There is no doubt that petitioners are entitled to actual or compensatory
damages. Both the RTC and the CA uniformly held that there was a
breach of contract committed by China Southern Airlines when it failed
to deliver petitioners to their intended destination, a factual finding that
we do not intend to depart from in the absence of showing that it is
unsupported by evidence. As the aggrieved parties, petitioners had
satisfactorily proven the existence of the contract and the fact of its non-
performance by China Southern Airlines; the concurrence of these
elements called for the imposition of actual or compensatory damages.
With respect to moral damages, the following provision of the New Civil
Code is instructive:
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.
Bad faith does not simply connote bad judgment or negligence. It imports
dishonest purpose or some moral obliquity and conscious doing of a
wrong. It means breach of a known duty through some motive, interest
or ill will that partakes the nature of fraud. Bad faith is in essence a
question of intention.28
In Japan Airlines v. Simangan,29 the Court took the occasion to expound on
the meaning of bad faith in a breach of contract of carriage that merits the
award of moral damages:
"Clearly, JAL is liable for moral damages. It is 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, as in this case. 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."
Applying the foregoing yardstick in the case at bar, We find that the
airline company acted in bad faith in insolently bumping petitioners off
the flight after they have completed all the pre-departure routine. Bad
faith is evident when the ground personnel of the airline company
unjustly and unreasonably refused to board petitioners to the plane
which compelled them to rent a car and take the train to the nearest
airport where they bought new sets of plane tickets from another airline
that could fly them home. Petitioners have every reason to expect that
they would be transported to their intended destination after they had
checked in their luggage and had gone through all the security checks.
Instead, China Southern Airlines offered to allow them to join the flight if
they are willing to pay additional cost; this amount is on top of the
purchase price of the plane tickets. The requirement to pay an additional
fare was insult upon injury. It is an aggravation of the breach of contract.
Undoubtedly, petitioners are entitled to the award of moral damages.
The purpose of awarding moral damages is to enable the injured party to
obtain means, diversion or amusement that will serve to alleviate the
moral suffering [that] he has undergone by reason of defendant['s]
culpable action.30
China Southern Airlines is also liable for exemplary damages as it acted
in a wantonly oppressive manner as succinctly discussed above against
the petitioners. Exemplary damages which are awarded by way of
example or correction for the public good, may be recovered in
contractual obligations, as in this case, if defendant acted in wanton,
fraudulent, reckless, oppressive or malevolent manner. 31
108
Article 2216 of the Civil Code provides that assessment of damages is left
to the discretion of the court according to the circumstances of each case.
This discretion is limited by the principle that the amount awarded
should not be palpably excessive as to indicate that it was the result of
prejudice or corruption on the part of the trial court. Simply put, the
amount of damages must be fair, reasonable and proportionate to the
injury suffered.32 With fairness as the benchmark, We find adequate the
amount of P300,000.00 each for moral and exemplary damages imposed
by the trial court.
The last issue is the reckoning point of the 6% interest on the money
judgment. Following this Court's ruling in Nacar v. Gallery Frames,33 we
agree with the petitioners that the 6% rate of interest per annum shall be
reckoned from the date of their extrajudicial demand on 18 August 2003
until the date of finality of this judgment. The total amount shall
thereafter earn interest at the rate of six percent (6%) per annum from
such finality of judgment until its satisfaction.
WHEREFORE, premises considered, the petition is GRANTED. The
Court hereby AWARDS petitioners the following amounts:
(a) P62,000.00 as actual damages, with 6% interest per annum
from date of extrajudicial demand on 18 August 2003 until
finality of this judgment, and the total amount to thereafter
earn interest at 6% per annum from finality of judgment until
full satisfaction;
(b) P300,000.00 as moral damages; and
(c) P300,000.00 as exemplary damages.
SO ORDERED.
G. R. No. 188283, July 20, 2016
CATHAY PACIFIC AIRWAYS, LTD., Petitioner, v. SPOUSES
ARNULFO AND EVELYN FUENTEBELLA, Respondents.
DECISION
SERENO, C.J.:
This is a Petition for Review on Certiorari filed by Cathay Pacific Airways
Ltd. from the Court of Appeals (CA) Decision1 and Resolution2 in CA-
G.R. CV No. 87698. The CA affirmed with modification the
Decision 3 issued by the Regional Trial Court (RTC) Branch 30 in San
Jose, Camarines Sur, in Civil Case No. T-635.
The Case
The case originated from a Complaint4 for damages filed by respondents
Arnulfo and Evelyn Fuentebella against petitioner Cathay Pacific
Airways Ltd., a foreign corporation licensed to do business in the
Philippines. Respondents prayed for a total of PI3 million in damages for
the alleged besmirched reputation and honor, as well as the public
embarrassment they had suffered as a result of a series of involuntary
downgrades of their trip from Manila to Sydney via Hong Kong on 25
October 1993 and from Hong Kong to Manila on 2 November 1993. 5 In its
Answer,6 petitioner maintained that respondents had flown on the
sections and sectors they had booked and confirmed.
The RTC ruled in favor of respondents and awarded P5 million as moral
damages, PI million as exemplary damages, and P500,000 as attorney's
fees. Upon review, the CA upheld the disposition and the awards, with
the modification that the attorney's fees be reduced to P100,000.
109
Petitioner prays that the Complaint be dismissed, or in the alternative,
that the damages be substantially and equitably reduced. 7
Facts
In 1993, the Speaker of the House authorized Congressmen Arnulfo
Fuentebella (respondent Fuentebella), Alberto Lopez (Cong. Lopez) and
Leonardo Fugoso (Cong. Fugoso) to travel on official business to Sydney,
Australia, to confer with their counterparts in the Australian Parliament
from 25 October to 6 November 1993. 8
On 22 October 1993, respondents bought Business Class tickets for
Manila to Sydney via Hong Kong and back. 9 They changed their minds,
however, and decided to upgrade to First Class. 10 From this point, the
parties presented divergent versions of facts. The overarching
disagreement was on whether respondents should have been given First
Class seat accommodations for all the segments of their itinerary.
According to respondents, their travel arrangements, including the
request for the upgrade of their seats from Business Class to First Class,
were made through Cong. Lopez. 11 The congressman corroborated this
allegation. 12 On the other hand, petitioner claimed that a certain Carol
Dalag had transacted on behalf of the congressmen and their spouses for
the purchase of airline tickets for Manila-Hong Kong-Sydney-Hong
Kong- Manila. 13 According to petitioner, on 23 October 1993, one of the
passengers called to request that the booking be divided into two: one for
the Spouses Lopez and Spouses Fugoso, and a separate booking for
respondents.14 Cong. Lopez denied knowing a Carol Dalag. 15 He was not
questioned regarding the request for two separate bookings. 16 However,
in his testimony, he gave the impression that the travel arrangements had
been made for them as one group. 17 He admitted that he had called up
petitioner, but only to request an upgrade of their tickets from Business
Class to First Class. 18 He testified that upon assurance that their group
would be able to travel on First Class upon cash payment of the fare
difference, he sent a member of his staff that same afternoon to pay. 19
Petitioner admits that First Class tickets were issued to respondents, but
clarifies that the tickets were open-dated (waitlisted). 20 There was no
showing whether the First Class tickets issued to Sps. Lopez and Sps.
Fugoso were open-dated or otherwise, but it appears that they were able
to fly First Class on all the segments of the trip, while respondents were
not.21
On 25 October 1993, respondents queued in front of the First Class
counter in the airport. 22 They were issued boarding passes for Business
Class seats on board CX 902 bound for Hong Kong from Manila and
Economy Class seats on board CX 101 bound for Sydney from Hong
Kong.23 They only discovered that they had not been given First Class
seats when they were denied entry into the First Class
lounge.24 Respondent Fuentebella went back to the check-in counter to
demand that they be given First Class seats or at the very least, access to
the First Class Lounge. He recalled that he was treated by the ground
staff in a discourteous, arrogant and rude manner. 25cralawred He was
allegedly told that the plane would leave with or without them. 26 Both
the trial court and the CA gave credence to the testimony of respondent
Fuentebella.
During trial, petitioner offered the transcript of the deposition of its
senior reservation supervisor, Nenita Montillana (Montillana). 27 She said
that based on the record locator, respondents had confirmed reservations
for Business Class seats for the Manila-Hong Kong, Sydney-Hong Kong,
and Hong Kong-Manila flights; but the booking for Business Class seats
for the Hong Kong-Sydney leg was "under request;" and due to the flight
being full, petitioner was not able to approve the request. 28
Montillana admitted that First Class tickets had been issued to
respondents, but qualified that those tickets were open-dated. 29 She
referred to the plane tickets, which bore the annotations "OPEN F OPEN"
for all sectors of the flight.30 Petitioner explained that while respondents
expressed their desire to travel First Class, they could not be
accommodated because they had failed to confirm and the sections were
full on the date and time of their scheduled and booked
flights.31 Petitioner also denied that its personnel exhibited arrogance in
dealing with respondents; on the contrary, it was allegedly respondent
Fuentebella who was hostile in dealing with the ground staff. 32
Respondents alleged that during transit through the Hong Kong airport
on 25 October 1993, they were treated with far less respect and courtesy
by the ground staff.33 In fact, the first employee they approached
completely ignored them and turned her back on them. 34 The second one
110
did not even give them any opportunity to explain why they should be
given First Class seats, but instead brushed aside their complaints and
told them to just fall in line in Economy Class. 35 The third employee they
approached shoved them to the line for Economy Class passengers in
front of many people. 36
Petitioner used the deposition of Manuel Benipayo (Benipayo), airport
service officer, and Raquel Galvez-Leonio (Galvez-Leonio), airport
services supervisor, to contradict the claims of respondents. Benipayo
identified himself as the ground staff who had dealt with respondents'
complaint. 37 He testified that around five o'clock on 25 October 1993,
respondent Fuentebella loudly insisted that he be accommodated on First
Class. But upon checking their records, he found out that respondents
were only booked on Business Class. 38 Benipayo tried to explain this to
respondents in a very polite manner, 39 and he exerted his best effort to
secure First Class seats for them, but the plane was already full. 40 He
presented a telex sent to their Hong Kong office, in which he requested
assistance to accommodate respondents in First Class for the Hong Kong-
Sydney flight. 41 He claimed that he was intimidated by respondent
Fuentebella into making the notations "Involuntary Downgrading" and
"fare difference to be refunded" on the tickets. 42
For her part, Galvez-Leonio testified that it was company policy not to
engage passengers in debates or drawn-out discussions, but to address
their concerns in the best and proper way.43 She admitted, however, that
she had no personal knowledge of compliance in airports other than
NAIA.44
Respondents narrated that for their trip from Hong Kong to Sydney, they
were squeezed into very narrow seats for eight and a half hours and, as a
result, they felt groggy and miserable upon landing. 45
Respondents were able to travel First Class for their trip from Sydney to
Hong Kong on 30 October 1993. 46 However, on the last segment of the
itinerary from Hong Kong to Manila on 2 November 1993, they were
issued boarding passes for Business Class. 47
Upon arrival in the Philippines, respondents demanded a formal apology
and payment of damages from petitioner. 48 The latter conducted an
investigation, after which it maintained that no undue harm had been
done to them. 49
Ruling of the Regional Trial Court
In resolving the case, the trial court first identified the ticket as a contract
of adhesion whose terms, as such, should be construed against
petitioner.50 It found that respondents had entered into the contract
because of the assurance that they would be given First Class seats.
The RTC gave full faith and credence to the testimonies of respondents
and Cong. Fugoso, who testified in open court:
[T]he court was able to keenly observe [the] demeanor [of respondents'
witnesses] on the witness stand and they appear to be frank,
spontaneous, positive and forthright neither destroyed nor rebutted in
the course of the entire trial...The court cannot state the same observation
in regard to those witnesses who testified by way of deposition [namely,
Cong. Lopez all the witnesses of petitioner], except those appearing in
the transcript of records. And on record, it appears [that] witness Nenita
Montillana was reading a note.52
xxxx
[Montillana's] credibility, therefore, is affected and taking together [her]
whole testimony based on the so-called locator record of the plaintiffs
spouses from the defendant Cathay Pacific Airways, the same has
become less credible, if not, doubtful, to say the least.53
The trial court ordered petitioner to pay P5 million as moral damages, P1
million as exemplary damages, and P500,000 as attorney's fees. In setting
the award for moral damages, the RTC considered the prestigious
position held by respondent Fuentebella, as well as the bad faith
exhibited by petitioner.54 According to the trial court, the contract was
flagrantly violated in four instances: first, when respondents were denied
entry to the First Class lounge; second, at the check-in counter when the
airport services officer failed to adequately address their concern; third,
at the Hong Kong airport when they were ignored; and fourth, when
respondents became the butt of jokes upon their arrival in Sydney. 55
111
 RULING OF THE COURT OF APPEALS
The CA affirmed the RTC Decision with the modification that the
attorney's fees be reduced to P100,000. The appellate court reviewed the
records and found that respondents were entitled to First Class
accommodation throughout their trip. 56 It gave weight to the testimony
of Cong. Lopez that they had paid the fare difference to upgrade their
Business Class tickets to First Class. 57 It also considered the handwritten
notation on the First Class tickets stating "fare difference to be refunded"
as proof that respondents had been downgraded.58
With regard to the question of whether respondents had confirmed their
booking, the CA considered petitioner's acceptance of the fare difference
and the issuance of the First Class tickets as proof that the request for
upgrade had been approved.59 It noted that the tickets bore the
annotation that reconfirmation of flights is no longer necessary, further
strengthening the fact of confirmation. 60
The C A found that there were no conditions stated on the face of the
tickets; hence, respondents could not be expected to know that the tickets
they were holding were open-dated and were subject to the availability
of seats.61 It applied the rule on contracts of adhesion, and construed the
terms against petitioner.
sustained pursuant to Article 2208(2) of the Civil Code which allows
recovery thereof when an act or omission of the defendant compelled the
plaintiff to litigate or incur expense to protect the latter's interest. 67
RULING OF THE COURT
There was a breach of contract.
In Air France v. Gillego68 this Court ruled that in an action based on a
breach of contract of carriage, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent; all that he has to
prove is the existence of the contract and the fact of its nonperformance
by the carrier. In this case, both the trial and appellate courts found that
respondents were entitled to First Class accommodations under the
contract of carriage, and that petitioner failed to perform its obligation.
We shall not delve into this issue more deeply than is necessary because
We have decided to accord respect to the factual findings of the trial and
appellate courts. We must, however, point out a crucial fact We have
uncovered from the records that further debunks petitioner's
suggestion69 that two sets of tickets were issued to respondents - one for
Business Class and another for open-dated First Class tickets with the
following entries:70

Finding that there was a breach of contract when petitioner assigned

Business Class and Economy Class seats to First Class ticket holders, the Business Class First Class Tickets Actual
CA proceeded to determine whether respondents were entitled to moral Tickets Date of Issue: Date of Issue: 5 Class
damages. It said that bad faith can be inferred from the inattentiveness Segme 23 October 1993 October 1993 Boarde
and lack of concern shown by petitioner's personnel to the predicament nt d
of respondents. 62 The court also considered as a badge of bad faith the Fligh Clas Statu Fligh Clas Statu
fact that respondents had been downgraded due to overbooking. 63 t s s t s s

As regards the amount of moral damages awarded by the RTC, the CA Manila CX90 C OK OPE F - Busines
found no prejudice or corruption that might be imputed to the trial court -Hong 2 N s
in light of the circumstances.64 The appellate court pointed out that the Kong
trial court only awarded half of what had been prayed for. 65
Hong CX C RQ OPE F - Econom
The award of exemplary damages was sustained to deter a similar Kong- 101 N y
shabby treatment of passengers and a wanton and reckless refusal to Sydney
honor First Class tickets. 66 The award for attorney's fees was likewise
112
 not been made; or his "restitution interest." which is his interest in having
Sydney CX C OK OPE F - First
restored to him any benefit that he has conferred on the other party.
-Hong 100 N
Kong
According to Montillana, a reservation is deemed confirmed when there
is a seat available on the plane.74 When asked how a passenger was
Hong CX90 C OK OPE F - Busines informed of the confirmation, Montillana replied that computer records
Kong- 1 N s were consulted upon inquiry.75 By its issuance of First Class tickets on the
Manila same day of the flight in place of Business Class tickets that indicated the
preferred and confirmed flight, petitioner led respondents to believe that
their request for an upgrade had been approved.
The First Class tickets issued on 25 October 1993 indicate that they were
Petitioner tries to downplay the factual finding that no explanation was
"issued in exchange for Ticket Nos. 160-401123987 and 160-
given to respondents with regard to the types of ticket that were issued to
4474920334/5."71 The latter set of tickets numbered 160-4474920334/5
them. It ventured that respondents were seasoned travelers and therefore
correspond to the Business Class tickets issued on 23 October 1993, which
familiar with the concept of open-dated tickets.76 Petitioner attempts to
in turn originated from Ticket No. 160-4011239858 issued on 22 October
draw a parallel with Sarreal, Jr. v. JAL,77 in which this Court ruled that the
1993.72
airline could not be faulted for the negligence of the passenger, because
the latter was aware of the restrictions carried by his ticket and the usual
With this information, We can conclude that petitioner may have been
procedure for travel. In that case, though, records showed that the
telling the truth that the passengers made many changes in their booking.
plaintiff was a well- travelled person who averaged two trips to Europe
However, their claim that respondents held both Business Class tickets
and two trips to Bangkok every month for 34 years. In the present case,
and the open-dated First Class tickets is untrue. We can also conclude
no evidence was presented to show that respondents were indeed
that on the same day of the flight, petitioner still issued First Class tickets
familiar with the concept of open-dated ticket. In fact, the tickets do not
to respondents. The incontrovertible fact, therefore, is that respondents
even contain the term "open-dated."
were holding First Class tickets on 25 October 1993.
There is basis for the award of moral and exemplary
In FGU Insurance Corporation v. G.P. Sarmiento Trucking Corporation,73 We
damages; however, the amounts were excessive.
recognized the interests of the injured party in breach of contract cases:
Moral and exemplary damages are not ordinarily awarded in breach of
xxx. The law, recognizing the obligatory force of contracts, will not
contract cases. This Court has held that damages may be awarded only
permit a party to be set free from liability for any kind of misperformance
when the breach is wanton and deliberately injurious, or the one
of the contractual undertaking or a contravention of the tenor thereof. A
responsible had acted fraudulently or with malice or bad faith. 78 Bad
breach upon the contract confers upon the injured party a valid cause for
faith is a question of fact that must be proven by clear and convincing
recovering that which may have been lost or suffered. The remedy serves
evidence. 79 Both the trial and the appellate courts found that petitioner
to preserve the interests of the promissee that may include his
had acted in bad faith. After review of the records, We find no reason to
" expectation Interest," which is his interest in having the benefit of his
deviate from their finding.
bargain by being put in as good a position as he would have been in had
the contract been performed, or his " reliance interest." which is his
Petitioner argues that the testimonial evidence of the treatment accorded
interest in being reimbursed for loss caused by reliance on the contract by
by its employees to respondents is self-serving and, hence, should not
being put in as good a position as he would have been in had the contract
have been the basis for the finding of bad faith. 80 We do not agree. The
113
Rules of Court do not require that the testimony of the injured party be
corroborated by independent evidence. In fact, in criminal cases in which
the standard of proof is higher, this Court has ruled that the testimony of
even one witness may suffice to support a conviction. What more in the
present case, in which petitioner has had adequate opportunity to
controvert the testimonies of respondents.

In Singapore Airlines Limited v. Fernandez,81 bad faith was imputed by the

trial court when it found that the ground staff had not accorded the
attention and treatment warranted under the circumstances. This Court
found no reason to disturb the finding of the trial court that the
inattentiveness and rudeness of the ground staff were gross enough to
amount to bad faith. The bad faith in the present case is even more
pronounced because petitioner's ground staff physically manhandled the
passengers by shoving them to the line, after another staff had insulted
them by turning her back on them.

However, the award of P5 million as moral damages is excessive,

considering that the highest amount ever awarded by this Court for
moral damages in cases involving airlines is P500,000.82 As We said in Air
France v. Gillego,83 the mere fact that respondent was a Congressman
should not result in an automatic increase in the moral and exemplary
damages."
We find that upon the facts established, the amount of P500,000 as moral
damages is reasonable to obviate the moral suffering that respondents
have undergone. With regard to exemplary damages, jurisprudence
shows that P50,000 is sufficient to deter similar acts of bad faith
attributable to airline representatives.
WHEREFORE, the Petition is PARTIALLY GRANTED. The Court of
Appeals Decision dated 31 March 2009 in CA-G.R. CV No. 87698 is
hereby AFFIRMED with MODIFICATION in that moral and exemplary
damages are hereby reduced to P500,000 and P50,000, respectively. These
amounts shall earn legal interest of 6% per annum from the finality of
this Decision until full payment.
SO ORDERED.
G.R. No. 208590, October 03, 2018
SULPICIO LINES, INC. (NOW KNOWN AS PHILIPPINE SPAN ASIA
CARRIER CORPORATION), Petitioner, v. MAJOR VICTORIO
KARAAN, SPOUSES NAPOLEON LABRAGUE AND HERMINIA
LABRAGUE, AND ELY LIVA, Respondents.
DECISION
TIJAM, J.:
Before us is a petition for review on certiorari1 under Rule 45 of the Rules
of Court assailing the Decision2 dated October 25, 2012 and the
Resolution3 dated July 16, 2013 of the Court of Appeals (CA) in CA-G.R.
CV No. 03059, which modified the amounts of the damages awarded by
the Regional Trial Court (RTC) of Cebu City, Branch 19 in its Order dated
June 5, 2008 in Civil Case No. CEB-24140.
Antecedent Facts

114
Respondents Major Victorio Karaan (Major Karaan), Napoleon Labrague
(Napoleon) and Herminia Labrague (Herminia) (Spouses Labrague), and
Ely Liva (Liva) were passengers of M/V Princess of the Orient owned by
petitioner Sulpicio Lines, Inc. (now known as Philippine Span Asia
Carrier Corporation) when it sank on September 18, 1998 somewhere
between Cavite and Batangas, near Fortune Island. 4
On June 30, 1999, respondents lodged a Complaint5 based on breach of
contract of carriage against petitioner praying for various amounts of
damages as passengers/survivors of the sinking of petitioner's vessel, as
follows:
a) Actual damages in favor of [Major Karaan] in the sum of
P200,000.00. Moral damage[s] the sum P600,000.00; Exemplary
damages of P300,000.00 and Nominal damages of P300,000.00;
b) Actual damages in favor of [Spouses Labrague] in the sum of
P300,000.00. Moral Damages in the sum of P1,500,000.00;
Exemplary damages of P500,000.00 and Nominal damages of
P400,000.00;
c) Actual damages in favor of [Liva] the sum of P50,000.00. Moral
damages also in the sum of P100,000.00. Exemplary damages of
P30,000.00 and Nominal damages of P30,000.00; [and]
d) And attorney's fee of 5% of the total awards under the above
paragraph.6
During trial, the respondents was presented as witnesses. Their
testimonies were summarized by the CA as follows:
[Major Karaan], a retired soldier, deposed that at about 8:00p.m. on
September 18, 1998, he boarded M/V Princess of the Orient bound for
Cebu City from Manila. He was at Cabin No. 601 along with another
passenger. The travel commenced smoothly although there was a
typhoon at that time. However, about two (2) hours after, while he was
lying in his cabin, he heard a loud sound which lasted for about 30
minutes. It sounded like something heavy fell somewhere below the
cabin. Then, the ship started to tilt, the lights went out and the engine
shut down. He went out of his cabin and saw the passengers already
panicking. He saw no SLI crew assisting them. He went to the upper
level where he grabbed a life jacket. He stayed there until the ship
eventually sank. He went with the ship underwater but was able to swim
therefrom and hold on to a life raft. He could not see much at that time as
it was very dark and the rain poured heavily. He was rescued by a
chopper at about 2:30 or 3:00 in the afternoon of the next day after being
in the water for about 15 hours. He was brought to the station and then to
the hospital where he was discharged the next day.
Apart from losing P5,000.00 cash, shoes, documents and his uniform,
[Major Karaan] also lost his Seiko watch and his brother's land title
allegedly worth P3,000.00 and about P15,000.00 respectively. Apart from
the hospital bill, SLI paid him P2,000.00.
[Major Karaan] attested he saw life rafts secured to the vessel when he
boarded the same.
[Napoleon], likewise a retired soldier and passenger of the ill-fated M/V
Princess of the Orient, testified that about 10:45 p.m., he heard a loud
sound coming from below the deck. It sounded like a container van
falling and thereafter, the vessel lifted to its side. He woke his wife
Herminia, their eight (8) year old daughter, Karen Hope, and their helper
[Liva] and got them life jackets before moving out to the stairway. They
held on to the gangplank near the stairway while water was rushing
inside the ship. During those times, no vessel crew could be seen. Oil was
dripping from the ship's hull and when the ship was about to sink, they
jumped into the sea. He was then holding his daughter but waves struck
them apart. He was able to grab a life raft loaded with three (3) other
passengers. He heard his wife calling for help and lifted her to the raft
but he lost touch of their daughter. They were rescued the next day at
about 12:30 noon. They were then brought to the Municipal Hall where
they were fed and then to the SLI office at the port area where they were
given clothes. Their daughter's lifeless body was recovered in Tanza,
115
Cavite. Consequently, he felt very sad consdering that she was their only
child. He also lost P26,000.00 cash and a video camera.
[Herminia] affirmed Napoleon's recount of events. She recalled that
while sleeping, she heard a loud sound and the things inside their cabin
started to fall. That was when her husband woke them up. They wore
their life jackets and tried to contact the ships's crew through the
intercom but to no avail. Since the ship continued to capsize, they
decided to go out to the upper deck but could not make it because of the
oil spilling all over them. They instead went down and seeing that the
water was already inside the ship, they dived into the sea. They were
separated from each other when a big wave hit them. Nobody was there
to help them nor was there any order to abandon the ship. She was able
to take hold of the raft but they could not use its broken paddle. The raft
had medicines but they chose not to use them as they could not read the
directions. They were rescued at noon the following day.
On her cross-examination, she maintained that when they went out of
their cabin, she only saw passengers but not a single crew from SLI. The
spouses are claiming moral damages of P750,000.00 each.
[Liva] corroborated her bosses' story. She further added that when she
was awakened by her boss, she saw bottles and mirrors falling on the
floor and blocking the cabin door which delayed their exit therefrom. 7
For its defense, petitioner adapted the testimonies of its witnesses in a
related case in RTC Branch 12, docketed as Civil Case No. CEB 24783
involving a different plaintiff. The appellate court summarized their
testimonies as follows:
Nelson Sato was employed by [petitioner] since 1995. He was assigned
as the second mate of M/V Princess of the Orient in charge of the
navigation, the preparation before and after the trip ensuring the
condition of the equipments and the charts to be used during the voyage.
His duty used to start from 12:00 to 4:00p.m. and then 12:00 midnight to
4:00a.m. He maintained that the vessel had the required number of fire
extinguishers and hose and per inspection, the equipments were all
functional. However, he was not able to examine the passengers'
manifest or the list of the passengers who boarded thereon When the trip
commenced, he was at the stem of the vessel maneuvering it together
with five (5) other crew members. He recounted that it was raining and
windy that the vessel even sideswiped the pier but he averred that the
ship did not sustain any damage as the fender was made of rubber. They
were cleared for departure after the PCG inspected the vessel. After
securing the ropes, he returned to his cabin at level 7 to sleep. He did not
notice that the ship was constantly being battered by big waves nor did
he notice it listing until about 10:15 p.m. [W]hen he awoke and felt the
ship li[f]ted to one side at about 20 degrees. He went out to the
navigation bridge where he handed life vests to more or less 20
passengers and led them to the exit. The rest of the crew released the life
rafts. Before the ship sank, he heard seven (7) short blasts and one long
blast, the signal to abandon the ship. He also heard the general alarm
which indicated that there was an emergency. When the water rushed
into the vessel, he merely floated away from the ship. He stayed in the
waters for about 18 hours and was rescued by a fishing boat at around
6[:00] p.m. the following day. He was brought to the hospital and after he
was discharged, he immediately filed a Marine Protest.
He attested that there were about 40 stewards in charge of the
passengers' safety. His fellow crew members who survived the incident
told him that there was an announcement by the captain to abandon ship
but he failed to hear it due to the strong wind. He ensured that the
Captain did his best to recover the vessel.
Atty. Geraldine Jorda, the defendant's Personnel Officer, was presented
to negate any derogatory records on Captain Esrum Mahilum who led
M/V Princess of the Orient. Her records show that the Captain was never
subjected to any disciplinary actions. She further confirmed that Captain
Mahilum was one of their best masters, thus assigned to handle the
company's best vessel. Captain Mahilum resigned as a Master from the
company in December 23, 1992[,] but was rehired in 1993 as an Auxiliary
Master.
Engr. Perry Chan is a Third Engineer assigned at M/V Princess of the
Orient with office duties at 8:00a.m. to 12:00 noon and from 8:00 p.m. to
12:00 midnight. He was in charge of the generator maintenance, cleans its
filter and assists the Chief Engineer. Upon his inspection of the ill-fated
vessel, he found its engine in good condition. However, after about two
hours from their departure, the vessel capsized. All the time[,] he was at
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the engine room monitoring the pressure and the temperature together
with the Fourth Engineer Auxiliary, the Oiler and two (2) Apprentice
Engineers, who were roving and checking up. Chan received orders to
reduce the revolution per minute from 400 to 390 then 360 reducing the
vessel's speed. When the vessel was about to sink, they were ordered to
move up as the engine room was located on the lowest portion of the
vessel. From the inclinometer, Chan knew the ship was already listing 22
degrees. When he went up, he saw the passengers in their life jackets,
crying and panicking. He pacified them. He jumped into the water
immediately before the vessel sank. He was able to hold on to a bamboo
scaffolding and stayed in the waters for 12 hours until he was rescued by
a fishing boat.
Edgar Samson was the Radio Operator in charge of receiving weather
report and its updates and monitoring the international frequency and
the vessel's back up power supply in case of emergency. On that fateful
evening, he was at M/V Princess of the Orient's Radio Room. Earlier, at
about 4:12 p.m., he received a weather report regarding a tropical
depression which he submitted to Captain Maghilum. The Captain made
plots based on the said report and concluded the storm was still far. He
was then told to follow up the weather updates every six (6) hours. By
the time the vessel left, it was not that windy nor the waves that big until
they reached Fortune Island at about 10:20 p.m. when the waves were too
big for the ship. The Captain called for the Chief Mate and the Chief
Steward and thereafter announced through the pager for the
abandonment. The crew was assisting the passengers to abandon the
ship. Samson was ordered to make a district call for assistance which he
heeded but he could hardly hear the response due to weak signal. He
called up SLI Cebu and Manila offices but their response was addressed
directly to the Captain. The Captain advised him to go down and bring
the portable radio and contact all stations within the vicinity. Samson
heard the blast, the emergency alarm to abandon ship. Samson recalled
that among the ships that left the port on September 18, 1998, their vessel
was the biggest yet the only one that sank.
Captain Anito Alfajardo from the Philippine Coastguard was in charge
of clearing the vessels and ensuring that it possessed the required
government documentation and that it is sea worthy. Per inspection of
the subject vessel, the vessel's plimsol mark was still visible entailing that
it was not overloaded. Further, it was in good trim which means that it
was not leaning on either side or it was on its upright position. His team
then boarded the vessel and inspected the crew's licenses, the required
government documents, the navigational equipments, the number of
passengers and the cargoes. The results were all satisfactory. The cargoes
were well-lashed and secured, the life-saving equipments were all
working and the number of passengers is still within its limit. The crew
was in the condition to navigate the ship. The Master's Oath of Safety
Departure was cleared affirming that the vessel was sea worthy and
could proceed to the point of destination. Despite the typhoon, the
clearance was issued as the vessel weighed about 13,000 tons and it
proceeded to an area away from the path of the typhoon.
Salvacion Buaron, the Vice-President for passenger service of SLI, was
presented to prove that SLI rendered financial assistance to the victims.
They conducted the search and rescue operations and provided them
with the necessary assistance like hospitalization and burial, among
others. She deposed that when they learned of the incident, they created
an emergency response team as early as 6:00 a.m. the following day
sending people to assist the coast guard and the passengers coordinating
with DSWD and the presidential assistance group. They provided the
passengers with food and clothing including their fare if they opted to go
back to Cebu. Per records of SLI, they were able to shell out about
P3,100,000.00 for funeral and burial expenses and P50,000.00 as
indemnity for death.8
Ruling of the RTC
On June 5, 2008, the RTC issued an Order modifying its Decision9 dated
May 15, 2008, the dispositive portion of the Order reads as follows:
WHEREFORE, judgment is hereby rendered by ordering [petitioner] to
pay:
a. [Major Karaan] the sum of Php 100,000.00 actual damages. Moral
damages [in] the sum of Php 300,000.00; Exemplary damages of Php
100,000.00 and Nominal damages of Php 50,000.00.
b. On the part of [Spouses Labrague] the sum of Php 200,000.00 actual
damages, Moral damages in the sum of Php 500,000.00 and the death of
117
minor Karen Hope; Exemplary damages of Php 200,000.00 and Nominal
damages of Php 100,000.00
c. To [Liva] the sum of Php 50,000.00 actual damages. Moral damages
also in the sum of Php 100,000.00; Exemplary damages of Php 30,000.00
and Nominal damages of Php 20,000.00.
d. And to pay Attorney's fees the amount equivalent to 5% of the total
amount awarded by the court to all the [respondents] with cost against
the [petitioner].
SO ORDERED.10
Ruling of the CA
As aforesaid, when the case reached the CA, the latter modified the
damages awarded to respondents in a Decision11 dated October 25, 2012,
the dispositive portion of the Decision reads as follows:
WHEREFORE, the May 15, 2008 Decision of the [RTC], Branch 19, Cebu
City in Civil Case No. CEB-24140 and its June 5, 2008 Order
are MODIFIED. [Petitioner] is ORDERED to pay:
1) [Major Karaan]
A.) moral damages- P200,000.00;
B.) temperate damages in lieu of actual damages- P200,000.00;
C.) exemplary damages- P100,000.00;
2) Napoleon Labrague
A.) moral damages- P200,000.00;
B.) temperate damages in lieu of actual damages- P200,000.00;
C.) exemplary damages- P100,00.00;
3) Herminia Labrague
A.) moral damages- P200,000.00;
B.) temperate damages in lieu of actual damages- P200,000.00;
C.) exemplary damages- P100,000.00;
D.) for the death of Karen Hope, an indemnity of P50,000.00, moral
damages of P100,000.00 and exemplary damages of P100,000.00;
4) Ely Liva
A.) moral damages- P100,000.00;
B.) temperate damages in lieu of actual damages- P50,000.00; and
C.) exemplary damages- P100,000.00.
5) Attorney's fees of 5% of the total amount awarded herein.
Nominal damages are DELETED.
The total amount adjudged against [petitioner] shall earn interest at the
rate of 12% per annum computed from the finality of this decision until
full payment.
SO ORDERED.12
Issues
Hence, the instant petition where petitioner submits the following issues:
1. May temperate damages be awarded when the claim for actual
damages was proven?
2. May exemplary damages be awarded when the conditionality for
awarding it under Article 2232 of the Civil Code is absent? 13
Petitioner contests the CA's award of temperate damages in lieu of actual
damages, which was purportedly testified to and duly proven by the
respondents.
Citing Article 2232, Petitioner also objects to the CA's award of
exemplary damages, claiming that the Court did not find any specific
acts of negligent or "wanton, fraudulent, reckless, oppressive or
malevolent conduct."
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 Ruling of the Court
The petition lacks merit.
The award of temperate damages was proper
At the outset, petitioner's argument that the CA erroneously deleted the
award of actual damages, despite the amounts having been duly proven,
and imposing temperate damages in its stead, is inaccurate and
misleading.
Our reading of the CA Decision reveals that the CA imposed temperate
damages because it deemed the amounts put forth by the respondents'
insufficiently proven. Verily, the CA stated, "[t]he respondents, except for
their own testimonies, were not able to proffer any other evidence of
their loss. Sans the receipts and the documents supporting their claims of
actual damages, the same cannot be awarded." 14
Undoubtedly, the law sanctions the award of temperate damages in case
of insufficiency of evidence of actual loss suffered. Article 2224 of the
Civil Code states:
Article 2224. Temperate or moderate damages, which are more than
nominal but less than compensatory damages, may be recovered when
the court finds that some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be provided with certainty.
In this case, we find that no egregious error on the part of the CA in
imposing temperate damages. The records of the case, which remain
uncontroverted, undoubtedly establishes that respondents suffered loss
during the unfortunate sinking of M/V Princess of the Orient. However,
no independent proof, other than respondents' bare claims, were
presented to provide a numerical value to their loss. Absent a contrary
proof which would justify decreasing or otherwise modifying the amount
pegged by the CA, this Court is constrained to affirm the amounts it
imposed as temperate damages.
The award of exemplary damages was proper
The Civil Code provides for the rules concerning the award of exemplary
damages, as follows:
Article. 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.
Article. 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.
Article. 2233. Exemplary damages cannot be recovered as a matter of
right; the court will decide whether or not they should be adjudicated.
Article. 2234. While the amount of the exemplary damages need not be
proved, the plaintiff must show that he is entitled to moral, temperate or
compensatory damages before the court may consider the question of
whether or not exemplary damages should be awarded. In case
liquidated damages have been agreed upon, although no proof of loss is
necessary in order that such liquidated damages may be recovered,
nevertheless, before the court may consider the question of granting
exemplary in addition to the liquidated damages, the plaintiff must show
that he would be entitled to moral, temperate or compensatory damages
were it not for the stipulation for liquidated damages.
In this case, we see no error in the award of exemplary damages
considering the lower courts' consistent finding that respondents are
entitled to moral and temperate damages for the sinking of M/V Princess
of the Orient.
Moreover, the CA is correct when it stated that since petitioner failed to
prove that it had exercised the degree of extraordinary diligence required
of common carriers, it should be presumed to have acted in a reckless
manner. We see no reason to depart from this Court's ruling in Sulpicio
Lines, Inc. v. Sesante et. al.15 involving similar claims against petitioner for
the sinking of M/V Princess of the Orient, viz.:
Should the petitioner be further held liable for exemplary damages?
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In contracts and quasi-contracts, the Court has the discretion to award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner. Indeed, exemplary damages
cannot be recovered as a matter of right, and it is left to the court to
decide whether or not to award them. In consideration of these legal
premises for the exercise of the judicial discretion to grant or deny
exemplary damages in contracts and quasi-contracts against a defendant
who acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner, the Court hereby awards exemplary damages to Sesante.
First of all, exemplary damages did not have to be specifically pleaded or
proved, because the courts had the discretion to award them for as long
as the evidence so warranted. In Marchan v. Mendoza, the Court has
relevantly discoursed:
x x x. It is argued that this Court is without jurisdiction to adjudicate this
exemplary damages since there was no allegation nor prayer, nor proof,
nor counterclaim of error for the same by the appellees. It is to be
observed however, that in the complaint, plaintiffs "prayed for such other
and further relief as this Court may deem just and equitable." Now, since
the body of the complaint sought to recover damages against the
defendant-carrier wherein plaintiffs prayed for indemnification for the
damages they suffered as a result of the negligence of said Silverio
Marchan who is appellant's employee; and since exemplary damages is
intimately connected with general damages, plaintiffs may not be
expected to single out by express term the kind of damages they are
trying to recover against the defendant's carrier. Suffice it to state that
when plaintiffs prayed in their complaint for such other relief and
remedies that may be availed of under the premises, in effect, therefore,
the court is called upon to exercise and use its discretion whether the
imposition of punitive or exemplary damages even though not expressly
prayed or pleaded in the plaintiffs' complaint."
x x x It further appears that the amount of exemplary damages need not
be proved, because its determination depends upon the amount of
compensatory damages that may be awarded to the claimant. If the
amount of exemplary damages need not be proved, it need not also be
alleged, and the reason is obvious because it is merely incidental or
dependent upon what the court may award as compensatory damages.
Unless and until this premise is determined and established, what may
be claimed as exemplary damages would amount to a mere surmise or
speculation. It follows as a necessary consequence that the amount of
exemplary damages need not be pleaded in the complaint because the
same cannot be predetermined. One can merely ask that it be determined
by the court if in the use of its discretion the same is warranted by the
evidence, and this is just what appellee has done.
xxxx
The BMI found that the "erroneous maneuvers" during the ill-fated
voyage by the captain of the petitioner's vessel had caused the sinking.
After the vessel had cleared Limbones Point while navigating towards
the direction of Fortune Island, the captain already noticed the listing of
the vessel by three degrees to the portside of the vessel, but, according to
the BMI, he did not exercise prudence as required by the situation in
which his vessel was suffering the battering on the starboard side by
big waves of seven to eight meters high and strong southwesterly winds
of 25 knots. The BMI pointed out that he should have considerably
reduced the speed of the vessel based on his experience about the
vessel — a close-type ship of seven decks, and of a wide and high
superstructure — being vulnerable if exposed to strong winds and high
waves. He ought to have also known that maintaining a high speed
under such circumstances would have shifted the solid and liquid cargo
of the vessel to port, worsening the tilted position of the vessel. It was
only after a few minutes thereafter that he finally ordered the speed to go
down to 14 knots, and to put ballast water to the starboard-heeling tank
to arrest the continuous listing at portside. By then, his moves became an
exercise in futility because, according to the BMI, the vessel was already
listing to her portside between 15 to 20 degrees, which was almost the
maximum angle of the vessel's loll. It then became inevitable for the
vessel to lose her stability.
The BMI concluded that the captain had executed several starboard
maneuvers despite the critical situation of the vessel, and that the
maneuvers had greatly added to the tilting of the vessel. It observed:
x x x In the open seas, with a fast speed of 14 knots, advance maneuvers
such as this would tend to bring the body of the ship in the opposite side.
In navigational terms, this movement is described as the centripetal force.
This force is produced by the water acting on the side of the ship away
120
from the center of the turn. The force is considered to act at the center of
lateral resistance which, in this case, is the centroid of the underwater
area of the ship's side away from the center of the turn. In the case of
the Princess, when the Captain maneuvered her to starboard, her body
shifted its weight to port. Being already inclined to an angle of 15
degrees, coupled with the instantaneous movement of the ship, the
cargoes below deck could have completely shifted its position and
weight towards portside. By this time, the ship being ravaged
simultaneously by ravaging waves and howling winds on her
starboard side, finally lost her grip.
Clearly, the petitioner and its agents on the scene acted wantonly and
recklessly. Wanton and reckless are virtually synonymous in meaning
as respects liability for conduct towards others. Wanton means
characterized by extreme recklessness and utter disregard for the rights
of others; or marked by or manifesting arrogant recklessness of justice
or of rights or feelings of others. Conduct is reckless when it is an
extreme departure from ordinary care, in a situation in which a high
degree of danger is apparent. It must be more than any mere mistake
resulting from inexperience, excitement, or confusion, and more than
mere thoughtlessness or inadvertence, or simple inattention. 16 (Citations
omitted, emphasis and italics in the original, and emphasis ours)
It also bears to emphasize that the records of the case support the
conclusion that petitioner was extremely remiss before and during the
time of the vessel's sinking. Petitioner did not endeavor to dispute the
CA's finding that the vessel's Captain erroneously navigated the ship,
and failed to reduce its speed considering the ship's size and the weather
conditions. The crew members were also negligent when they did not
make any stability calculations, and prepare a detailed report of the
vessel's cargo stowage plan. The radio officer failed to send an SOS
message in the internationally accepted communication network but
instead used the Single Side Band informing the company about the
emergency situation.
"Exemplary damages are designed by our civil law to permit the courts to
reshape behavior that is socially deleterious in its consequence by
creating negative incentives or deterrents against such
behavior."17 Verily, the above-mentioned conduct, from the Captain and
Crew of a common carriers should be corrected. They carry not only
cargo, but are in charge of the lives of its passengers. In this case, their
recklessness cost the loss of 150 lives. Considering the foregoing, this
Court finds that the CA properly imposed exemplary damages.
The award of damages is subject to 6% per annum reckoned from the
promulgation of the decision until fully paid
This Court modifies the applicable interest rate on the monetary award.
We impose an interest rate of six percent (6%) per annum on the total
amount of monetary award pursuant to the guidelines enunciated
in Eastern Shipping Lines, Inc. v. CA,18 as modified by Nacar v. Gallery
Frames, et al.19 The interest rate shall commence to run from the
promulgation of this decision, the date when the amount of damages has
been determined with certainty.
WHEREFORE, premises considered, the Petition is DENIED. The
Decision dated October 25, 2012 and the Resolution dated July 16, 2013 of
the Court of Appeals in CA-G.R. CV No. 03059
are AFFIRMED with MODIFICATION as to the interest rate. Petitioner
Sulpicio Lines, Inc. (now known as Philippine Span Asia Carrier
Corporation) is ORDERED to pay respondents Major Victorio Karaan,
Spouses Napoleon Labrague and Herminia Labrague, and Ely Liva, as
follows:
1) Major Karaan
a) Moral damages - Php 200,000.00;
b) Temperate damages in lieu of actual damages Php 200,000.00; and
c) Exemplary damages - Php 100,000.00.
2) Napoleon Labrague
a) Moral damages- Php 200,000.00;
b) Temperate damages in lieu of actual damages Php 200,000.00; and
c) Exemplary damages- Php 100,000.00.
3) Herminia Labrague
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a) Moral damages- Php 200,000.00;
b) Temperate damages in lieu of actual damages Php 200,000.00;
c) Exemplary damages- Php 100,000.00; and
d) for the death of Karen Hope, an indemnity of Php 50,000.00, moral
damages of Php 100,000.00 and exemplary damages of Php 100,000.00;
4) Ely Liva
a) Moral damages - Php 100,000.00;
b) Temperate damages in lieu of actual damages Php 50,000.00; and
c) Exemplary damages - Php 100,000.00.
5) Attorney's fees of 5% of the total amount awarded herein.
The total amount adjudged against petitioner shall earn interest at the
rate of six percent (6%) per annum computed from the finality of this
Decision until full payment.
SO ORDERED.
G.R. No. 211876, June 25, 2018
ASIAN TERMINALS, INC., Petitioner, v. PADOSON STAINLESS
STEEL CORPORATION, Respondent.
DECISION
TIJAM, J.:
Before Us is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court filed by petitioner Asian Terminals, Inc. (ATI) assailing
the Decision2 dated July 23, 2013 and Resolution3 dated March 26, 2014 of
the Court of the Appeals (CA) in CA-G.R. CV No. 99435, which affirmed
the Decision4 dated July 16, 2012 of the Regional Trial Court (RTC) of
Manila, Branch 41 in Civil Case No. 06-115638.
Factual Antecedents
Respondent Padoson Stainless Steel Corporation (Padoson) hired ATI to
provide arrastre, wharfage and storage services at the South Harbor, Port
of Manila. ATI rendered storage services in relation to a shipment,
consisting of nine stainless steel coils and 72 hot-rolled steel coils which
were imported on October 5, 2001 and October 30, 2001, respectively in
favor of Padoson, as consignee. The shipments were stored within ATI's
premises until they were discharged on July 29, 2006. 5
Meanwhile, the shipments became the subject of a Hold-Order6 issued by
the Bureau of Customs (BOC) on September 7, 2001. This was an offshoot
of a Customs case filed by the BOC against Padoson due to the latter's tax
liability over its own shipments. The Customs case, docketed as Civil
Case No. 01-102440, was pending with the RTC of Manila, Branch 173. 7
For the storage services it rendered, ATI made several demands from
Padoson for the payment of arrastre, wharfage and storage services
(heretofore referred to as storage fees), in the following amounts:
P540,474.48 for the nine stainless steel coils which were stored at ATI's
premises from October 12, 2001 to July 29, 2006; and P8,374,060.80 for the
72 hot-rolled steel coils stored at ATI's premises from November 8, 2001
to July 29, 2006.8
The demands, however, went unheeded. Thus, on August 4, 2006, ATI
filed a Complaint9 with the RTC of Manila, Branch 41 for a Sum of
Money and Damages with Prayer for the Issuance of Writ of Preliminary
Attachment against Padoson, docketed as Civil Case No. 06-115638. ATI
ultimately prayed that Padoson be ordered to pay the following amounts:
122
P8,914,535.28 plus legal interest, representing the unpaid storage fees;
P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.
In its Answer with Compulsory Counterclaim with Opposition to
Application for Writ of Preliminary Attachment,10 Padoson claimed
among others, that: (1) during the time when the shipments were in ATI's
custody and possession, they suffered material and substantial
deterioration; (2) ATI failed to exercise the extraordinary diligence
required of an arrastre operator and thus it should be held responsible
for the damages; (3) the Hold-Order issued by the BOC was merely a
leverage to claim Padoson's alleged unpaid duties; (4) relative to the
Customs case pending with RTC, Branch 173, Padoson filed a Motion for
Ocular Inspection11 and in the course of the inspection, Sheriff Romeo V.
Diaz (Sheriff Diaz) discovered that the shipments were found in an open
area and were in a deteriorating state; (5) due to this, Padoson was
compelled to file a Manifestation and Motion dated January 27, 2004
praying for the release of the shipments, which was in turn, granted by
the RTC on June 25, 2004;12 (6) on April 17, 2006, the RTC issued a
Resolution,13 granting Padoson's Motion for Issuance of Writ of
Execution and accordingly issued the Writ of Execution, allowing
Padoson to take possession of the shipment; (7) Sheriff Diaz in his
Sheriff's Partial Return on Execution14 dated August 8, 2006, stated that
one of the nine steel coils which were part of the shipments, were
missing; and (8) That due to the deterioration of the 72 hot-rolled steel
coils, their value depreciated and when Padoson sold the same, he
incurred a loss of P13.8 Million in lost profits. As to the stainless steel
coils, he incurred a total loss of P2,992,000.00 corresponding to the value
of the one steel coil lost (P882,000.00) and the lost profits for the sale of
the remaining steel coils (P2,110,000.00). 15
In its Answer to Compulsory Counterclaim, ATI countered that it
exercise due diligence in the storage of the shipments and that the same
were withdrawn from its custody in the same condition and quantity as
when they they were unloaded from the vessel. 16
Pre-trial was scheduled on August 12, 2009. 17 Thereafter, trial ensued.
During the trial, Padoson presented a certain Mr. Gregory Ventura
(Ventura), who allegedly took pictures of the shipments. The pictures,
however, were not pre-marked during the pre-trial. Consequently, the
RTC issued an Order18 dated September 8, 2011, disallowing the marking
of the said pictures and Ventura's testimony thereon. To assail the said
order, Padoson filed a Petition for Certiorari before the CA but the same
was denied in the CA Decision19 dated July 1, 2013, which became final
and executory on July 24, 2013.20
ATI called to the witness stand its Cash Billing Supervisor, Mr. Samuel
Goutana (Goutana) to explain how ATI computed the amount of storage
fees prayed for in its Complaint against Padoson. 21
On July 16, 2012, the RTC rendered its Decision, 22 dismissing ATI's
complaint and Padoson's counterclaim. The RTC held that although the
computation of storage fees to be paid by Padoson as prayed for in ATI's
complaint to the tune of P8,914,535.28 plus legal interest, were "clear and
unmistakable" and which Padoson never denied, the liability to pay the
same should be borne by the BOC. Relying on the case of Subic Bay
Metropolitan Authority v. Rodriguez, et al.23 (SBMA), the RTC reasoned out
that by virtue of the Hold-Order over Padoson's shipments, the BOC has
acquired constructive possession over the same. Consequently, the BOC
should be the one liable to ATI's money claims. The RTC, however,
pointed out that since ATI did not implead the BOC in its complaint, the
BOC cannot be held to answer for the payment of the storage fees.
ATI appealed the RTC decision, but the same was denied by the CA in its
Decision24 dated July 23, 2013. TheCA ruled that the RTC did not err in
holding that Padoson's shipments were under the BOC's constructive
possession upon its issuance of the Hold-Order. The CA, likewise, ruled
that there is substantial evidence to prove that the shipments suffered
loss and deterioration or damage while they were stored in ATI's
premises. But since the BOC had acquired constructive possession over
the shipments, the CA ruled that neither ATI could be held liable for
damages nor Padoson be held liable for the storage fees. Lastly, the CA
pronounced that the RTC was correct in holding that no relief may be
given to both ATI and Padoson since the BOC was not impleaded in
ATI's complaint.
Aggrieved, ATI filed a Motion for Reconsideration, 25 stating among
others, that: (1) the documents attached to Padoson's Answer are
inadmissible and insufficient to prove that the shipments were damaged
while in ATI's premises; (2) those documents were related to the Customs
123
case in which ATI was not impleaded as a party, and thus, was not given
an opportunity to contest them; (3) with respect to the photographs over
the shipments allegedly taken on January 16, 2004, the same should be
inadmissible for lack of authentication; (4) that Padoson's witness, a
certain Mary Jane Lorenzo (Lorenzo), was not competent to testify on the
photographs since she admitted that she was not the one who took the
photographs and that the same do not indicate that they pertain to
Padoson's shipment; (5) Sheriff Dizon's declaration in his Report on
Ocular Inspection that the shipments, were "already in a deteriorating
condition," were merely conclusory; and (6) Sheriff Dizon who prepared
the Partial Return on Execution dated August 8, 2006, was not called to
the witness stand to testify on the contents of the said Return. 26
On March 26, 2014, the CA issued a Resolution27 denying ATI's motion
for reconsideration.
Hence, this petition for review on certiorari which submits the following
arguments in support thereof:
A. The [CA] erred in ruling that the Subject Shipments were in the
constructive possession of the [BOC]; 28]
B. The [CA] erred in ruling that Padoson can no longer be held
liable to ATI for arrastre, wharfage and storage fees because of
said constructive possession[;]29]
C. Padoson failed to establish that the Subject Shipments sustained
damage while in ATI's custody[;]30]
D. ATI is entitled to an award of damages[; and]31]
E. The instant case should be decided on its merits. It should not
have been dismissed based on the theory of constructive
possession proposed by the trial court and adopted by the [CA.] 32
Ruling of the Court
The petition is granted.
Essentially, the issue posed before us is whether or not the CA erred in
affirming the RTC decision.
We answer in the affirmative.
While this Court is not a trier of facts, still when the inference drawn by
the CA from the facts is manifestly mistaken, as in the present case, we
can, in the interest of justice, review the evidence to allow us to arrive at
the correct factual conclusions based on the record. 33
The CA and the RTC misapplied the case of SBMA
In SBMA,34 we dealt with the following issues: (1) which court has the
exclusive original jurisdiction over seizure and forfeiture proceedings;
and (2) the propriety of the issuance by the RTC of a Temporary
Restraining Order against the BOC. In ruling that it is the BOC, and not
the RTC, which has exclusive original jurisdiction over seizure and
forfeiture of the subject shipment, this Court explained that:
The Collector of Customs sitting in seizure and forfeiture proceedings
has exclusive jurisdiction to hear and determine all questions touching on
the seizure and forfeiture of dutiable goods. Regional trial courts are
devoid of any competence to pass upon the validity or regularity of
seizure and forfeiture proceedings conducted by the BOC and to enjoin
or otherwise interfere with these proceedings. x x x
x x x [T]he rule is that from the moment imported goods are actually in
the possession or control of the Customs authorities, even if no warrant
for seizure or detention had previously been issued by the Collector of
Customs in connection with the seizure and forfeiture proceedings, the
BOC acquires exclusive jurisdiction over such imported goods for the
purpose of enforcing the customs laws, subject to appeal to the Court of
Tax Appeals whose decisions are appealable to this Court. x x
x.35 (Citations omitted and emphasis ours)
Nowhere in the SBMA case did we exclaim that the moment a Hold-
Order has been issued, the BOC acquires constructive possession over the
subject shipment. On the contrary, what we stated is that once the BOC
is actually in possession of the subject shipment by virtue of a Hold-
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Order, it acquires exclusive jurisdiction over the same for the purpose of
enforcing the customs laws. In fact, in SBMA, it is clear that the BOC's
issuance of the Hold-Order was to direct the port officers to hold the
delivery of the shipment and to transfer the same to the security
warehouse.36 The BOC, thus, had actual and not constructive possession
over the subject shipment in said case. Here, the actual possession over
Padoson's shipment remained with ATI since they were stored at its
premises.
Likewise, in the SBMA case, We emphasize that the BOC's exclusive
jurisdiction over the subject shipment is for the purpose of enforcing
customs laws, so as to render effective and efficient the collection of
import and export duties due the State.37 It has nothing to do with the
collection by a private company, like ATI in this case, of the storage fees
for the services it rendered to its client, Padoson.
Further, there is no implication in the SBMA case that the BOC's mere
issuance of a Hold-Over directed against the subject shipment constitutes
constructive possession, which may exculpate the private consignee from
its storage fee obligation with the arrastre operator.
Accordingly, there is no basis for the CA in holding that the RTC
did not err in declaring that the subject shipments were deemed placed
under BOC's constructive possession by its issuance of a Hold-Order
over Padoson's shipment.
The alleged constructive possession by virtue of BOC's Hold-Order
of Padoson's shipment was not even raised as an issue in this case
The matter concerning the BOC's alleged constructive possession was
erroneously considered by the RTC and the CA in their respective
decisions. The records show that this matter was neither alleged in
Padoson's Answer nor was it raised in the stipulation of facts contained
in the RTC's pre-trial Order dated August 12, 2009. Padoson never made
an assertion to the effect that it could not be held liable for the storage
fees because of the BOC's Hold-Order against its shipment. The
disclosure that Padoson's shipments were subject of the BOC's Hold-
Order was never raised in relation to Padoson's affirmative defense that
it should not pay for the storage fees which arose from its contract of
services with ATI.38 In fact, it was the RTC, through its July 16, 2012
Decision, that brought up the concept of constructive possession by
misapplying the SBMA case, as explained earlier.
As held in LICOMCEN, Inc. v. Engr. Abainza:39
Although a pre-trial order is not meant to catalogue each issue that the
parties may take up during the trial, issues not included in the pre-trial
order may be considered only if they are impliedly included in the issues
raised or inferable from the issues raised by necessary implication. The
basis of the rule is simple. Petitioners are bound by the delimitation of
the issues during the pre-trial because they themselves agreed to the
same.40 (Citation omitted)
As already elucidated, the theory of constructive possession espoused by
the RTC and concurred in by the CA cannot be deemed to be impliedly
included in the issue raised by ATI in its complaint, since it was not even
touched upon in the RTC's pre-trial order.
Padoson, and not BOC, is liable to ATI for the payment of storage
fees for the services rendered by ATI
First, granting, without admitting, that the BOC has constructive
possession over Padoson's shipment, this does not, in itself release
Padoson from its obligation to pay the storage fees due to ATI. It has
been established that Padoson engaged ATI to perform arrastre,
wharfage and storage services over its shipments from October 12, 2001
and November 8, 2001, until it was discharged from ATI's premises on
July 29, 2006. Although Padoson's shipments were the subject of BOC's
Hold-Order dated September 7, 2001, the fact remains that it was
Padoson, and not BOC, that entered into a contract of service with ATI
and consequently was the one who was benefited therefrom.
The basic principle of relativity of contracts is that contracts can only
bind the parties who entered into it, and cannot favor or prejudice a third
person, even if he is aware of such contract and has acted with
125
knowledge thereof.41 Indeed, "[w]here there is no privity of contract,
there is likewise no obligation or liability to speak about."42
Guided by this doctrine, Padoson, cannot shift the burden of paying the
storage fees to BOC since the latter has never been privy to the contract of
service between Padoson and ATI. To rule otherwise would create an
absurd situation wherein a private party may free itself from liability
arising from a contract of service, by merely invoking that the BOC has
constructive possession over its shipment by the issuance of a Hold-
Order.
Second, the BOC's Hold-Order is not in any way related to the contract of
service between ATI and Padoson. Rather, it is directed at Padoson's
shipment by reason of Padoson's tax liability and which triggered the
filing of the Customs Case. The BOC's exclusive jurisdiction over the
shipment is solely for the purpose of enforcing customs laws against
Padoson's tax delinquency. The BOC's interest over the shipment was
limited to discharging its duty to collect Padoson's tax liability. Put a bit
differently, the BOC's Hold-Order is extraneous to Padoson's obligation
to pay the storage fees in favor of ATI. Even Padoson admitted that the
Hold-Order was issued by the BOC merely as a leverage to claim
Padoson's alleged unpaid duties. 43 Clearly, Padoson has two monetary
obligations, albeit of different characters – one is its liability for storage
fees with ATI based on its contract of service, and the other is its tax
liability with the BOC which is the subject of the Customs case pending
with the RTC.
Third, the RTC's pronouncement which was affirmed by the CA, to the
effect that the BOC, and not Padoson, should have been held liable for
the storage fees had it been impleaded in ATI's complaint, is erroneous.
This presupposes that BOC is an indispensable party, which it is not
. In the consolidated case of PNB v. Heirs of Militar,44 the Court explained
that:
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.
Conversely, a party is not indispensable to the suit if his interest in the
controversy or subject matter is distinct and divisible from the interest of
the other parties and will not necessarily be prejudiced by a judgment
which does complete justice to the parties in court. He is not
indispensable if his presence would merely permit complete relief
between him and those already parties to the action or will simply avoid
multiple litigation.45 (Citations omitted)
In this case, the ultimate relief sought by ATI in its complaint for a sum of
money with damages, is the recovery of the storage fees from Padoson,
which arose from the contract of service which they have validly entered
into. BOC, as explained earlier, was never privy to this contract. It was
Padoson who engaged ATI's storage services. It was Padoson who
benefited from ATI's storage services. It was Padoson who subsequently
sold the shipments and suffered losses.
Recall too, that ATI was not a party to the Customs case filed by BOC
against Padoson for the latter's tax delinquency. BOC's interest over the
shipment which is the subject matter of the Customs case is merely to
collect from Padoson its tax dues; it is separate and distinct from the
claim of ATI in its complaint for a sum of money – which is to demand
from Padoson the payment of storage fees based on their contract of
service. The BOC's Hold-Order did not have the effect of relieving
Padoson from its contractual obligation with ATI.
These facts reveal that BOC's interest over the shipments is not
inextricably intertwined with ATI's collection suit against Padoson, so as
to require its legal presence as a party to the proceeding. In other words,
complete relief can still be afforded to ATI without the presence of the
BOC and the case can still be decided on the merits without prejudicing
BOC's rights. Thus, the BOC is not an indispensable party to the
complaint for a sum of money filed by ATI against Padoson.
126

Padoson failed to prove that its shipment sustained damage while in
ATI's custody
To substantiate its claim that ATI failed to exercise due diligence over the
shipments causing them to be in a dismal condition, Padoson presented
photographs which were allegedly taken by Ventura.
In particular, the sheriffs declaration in the Sheriffs Report on Ocular
Inspection that the steel coils which were part of the shipment, were
"already in a deteriorating condition," is a mere uncorroborated
conclusion for having no evidence to back it up. There is no showing that
Sheriff Diaz had personal knowledge of the original condition of the
shipment, for him to arrive at the conclusion that it deteriorated while it
was docked at ATI's premises.50 Mere allegation and speculation is not
evidence, and is not equivalent to proof. 51

During the trial, however, the RTC observed that the said photographs
So too, the Sheriffs Partial Return on Execution is a document solely
were not pre-marked as evidence and that the pre-trial orders did not
prepared by the sheriff. Padoson, however, did not present Sheriff Diaz
contain a reservation for presentation of additional evidence for Padoson.
to testify on the contents thereof. Evidently, ATI was not given a chance
Consequently, in its September 8, 2011 Order, the RTC disallowed the
to cross-examine him to test the truthfulness of the allegations made in
identification of the unmarked photographs. Padoson moved for a
the said Return.52
reconsideration of the order, but it was denied. Its subsequent petition
for certiorari was likewise denied by the CA in its Decision dated July 1,
Anent the photographs on the shipment allegedly taken on January 16,
2013, which became final and executory. Thus, at the time the CA
2004, the same were not properly authenticated and identified.53 "Indeed,
rendered its July 23, 2013 Decision, the RTC had already ruled that the
photographs, when presented in evidence, must be identified by the
photographs were inadmissible and were not admitted in evidence. Yet,
photographer as to its production and he must testify as to the
this fact was clearly disregarded by the CA when it promulgated its
circumstances under which they were produced." 54 "The value of this
assailed decision. This runs counter to the "rule that evidence which has
kind of evidence lies in its being a correct representation or reproduction
not been admitted cannot be validly considered by the courts in arriving
of the original."55 However, in this case, Padoson's witness, Ms. Lorenzo
at their judgments."46
simply admitted that she did not take the pictures and that the same do
not indicate that they pertain to the shipments. 56
Likewise, in support of its allegation of damage to the shipments,
Padoson relied on the following documents: Sheriffs Report on Ocular
Additionally, we have observed from the records that Padoson did not
Inspection; Manifestation and Motion dated January 27, 2004; Resolution
present any evidence on the supposed condition of the shipment at the
dated June 25, 2004; Resolution dated April 17, 2006; Sheriffs Partial
time they were already discharged from the vessels. As such, there can be
Return on Execution dated August 8, 2006; and the photographs
no basis for Padoson to claim that its shipments deteriorated while they
allegedly taken on January 16, 2004. These documents, however, relate to
were in ATI's possession and custody up to the time they were
the Customs case. Notably, ATI was not impleaded and has no
withdrawn from ATI's premises. Thus, Padoson cannot impute
participation in the Customs case.47 As such, it would be unfair that ATI
negligence upon ATI.
be bound by the RTC's proceedings and findings of fact in the Customs
case without giving it the chance to hear its side. To rule otherwise would
deprive ATI of due process. The essence of due process is the Padoson is liable to pay the amount prayed for in ATI's Complaint
opportunity to be heard, logically preconditioned on prior notice, before
judgment is rendered.48 Indeed, "[n]o man shall be affected by any
proceeding to which he is a stranger." 49 In its complaint, ATI demanded from Padoson to pay the total amount of
P8,914,535.28 plus legal interest, representing the unpaid storage fees,
consisting of the nine stainless steel coils and the 72 hot-rolled steel coils.
127
During the trial, ATI's Cash Billing Supervisor, Goutana testified on the
breakdown of the said amount. As to the nine stainless steel coils,
Goutana explained, thus:
Q: And for this particular cargo, Mr. witness, comprising of nine
(9) stainless steel coils, what was the metric ton of the said
shipment?
A: For nine (9) coils, we have 36.725 metric tons, sir.
xxxx
Q: So how [did] you arrive at the amount of Five Hundred Forty
Thousand Four Hundred Seventy Four and Forty Eighty
Centavos (P540,474.48), Mr. [W]itness?
A: Total metric tons 36.725 x 7.50, the rates and the number of
days 1,752 plus 12% VAT, so we arrived in the amount of Five
Hundred Forty Thousand Four Hundred Seventy Four and
Forty Eighty Centavos (P540,474.48), sir. 57
With respect to the 72 hot-rolled steel coils, Goutana narrated, thus:
Atty. Braceros:
And how did you come up with this particular total, Mr.
Witness?
A: To arrive at this amount of Eight Million Three Hundred
Seventy Four Thousand Sixty Pesos and Eighty Centavos
(P8,374,060.80), we have the metric ton – 577.920 metric tons x
number of days – 1725 days and the rate is 7.50 plus 12% VAT,
sir.58
It bears stressing that the computation of the amount ATI sought from
Padoson for the latter's payment of storage fees has already been found
by the RTC, which in turn was concurred in by the CA, as "clear and
unmistakable." In fact, as correctly observed by the RTC, even Padoson,
has never denied its obligation with ATI. Thus:
Deduced from the foregoing, the computation of the amounts sought to
be paid by [ATI] are clear and unmistakable. Notably,
likewise, [Padoson] never denied such obligation, only that, it turned
the table against [ATI].59 (Emphasis ours)
Clearly, in order to evade its liability, Padoson merely turned the table
against ATI by arguing in the RTC that due to the dismal condition of the
shipment, ATI should be held liable. But, as We have explained earlier,
Padoson did hot adduce sufficient evidence to prove that ATI was
negligent in the storage of the shipment so as to entitle Padoson to
recover damages. To put it differently, Padoson's obligation with ATI for
the storage fees and its computation thereon has already been settled by
the RTC and was no longer raised as an issue by Padoson. Thus, Padoson
cannot now renege on its obligation by merely attributing negligence to
ATI.
Corollarily, as to the interest rate applicable, we explained in Nacar v.
Gallery Frames, et al., that:60
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
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1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of
the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit. 61 (Citations omitted and
italics in the original)
It should be noted, however, that the new rate of six percent (6%) 62per
annum could only be applied prospectively and not retroactively.
Consequently, the former rate of twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013, the new
rate of six percent (6%) per annum shall be the prevailing rate of interest
when applicable.63
Nonetheless, the need to determine whether the obligation involved in
this case is a loan and forbearance of money exists.
"The term 'forbearance,' within the context of usury law, has been
described as a contractual obligation of a lender or creditor to refrain,
during a given period of time, from requiring the borrower or debtor to
repay the loan or debt then due and payable." 64 "Forbearance of money,
goods or credits, should therefore refer to arrangements other than loan
agreements, where a person acquiesces to the temporary use of his
money, goods or credits pending happening of certain events or
fulfillment of certain conditions."65 Consequently, if those conditions are
breached, said person is entitled not only to the return of the principal
amount paid, but also to compensation for the use of his money which
would be the same rate of legal interest applicable to a loan since the use
or deprivation of funds therein is similar to a loan. 66
This case, however, does not involve an acquiescence to the temporary
use of a party's money but merely a failure to pay the storage fees arising
from a valid contract of service entered into between ATI and Padoson.
Considering that there is an absence of any stipulation as to interest in
the agreement between the parties herein, the matter of interest award
arising from the dispute in this case would actually fall under the
category of an "obligation, not constituting a loan or forbearance of
money" as aforecited. Consequently, this necessitates the imposition of
interest at the rate of 6%. The six percent (6%) interest rate shall further
be imposed from the finality of the judgment herein until satisfaction
thereof, in light of our recent ruling in Nacar.67
Thus, guided by aforementioned disquisition, the rate of interest on the
amount of P8,914,535.28, representing the unpaid storage fees shall be
twelve percent (12%) from August 4, 2006, the date when ATI made a
judicial demand by filing its complaint against Padoson, to June 30, 2013.
From July 1, 2013, the effective date of BSP-MB Circular No. 799, until full
satisfaction of the monetary award, the rate of interest shall be six percent
(6%).68
ATI is not entitled to exemplary damages and attorney's fees
Pursuant to Articles 222969 and 223470 of the Civil Code, exemplary
damages may be awarded only in addition to moral, temperate,
129
liquidated, or compensatory damages. Since ATI is not entitled to either
moral, temperate, liquidated, or compensatory damages, then their claim
for exemplary damages is bereft of merit. It has been held that as a
requisite for the award of exemplary damages, the act must be
accompanied by bad faith or done in wanton, fraudulent or malevolent
manner71 — circumstances which are absent in this case.

Finally, considering the absence of any of the circumstances under Article

220872 of the Civil Code where attorney's fees may be awarded, the same
cannot be granted to ATI.

From the foregoing, we hold that the CA erred in affirming the RTC's
decision. Accordingly, it is Padoson and not the BOC, that is liable to ATI
for the payment of storage fees on the basis of the contract of service
between Padoson and ATI.

WHEREFORE, premises considered, the petition is GRANTED. The

Decision dated July 23, 2013 and Resolution dated March 26, 2014 of the
Court of Appeals in CA-G.R. CV No. 99435 are REVERSED and SET
ASIDE. Respondent Padoson Stainless Steel Corporation
is ORDERED to pay Asian Terminals Inc. the amount of P8,914,535.28,
plus interest thereon at twelve percent (12%) per annum, computed from
August 4, 2006 to June 30, 2013, and six percent (6%) per annum, from July
1, 2013, until full satisfaction of the judgment award.

SO ORDERED.

130