G.R. No.
122494 October 8, 1998
EVERETT STEAMSHIP CORPORATION, petitioner,
vs.
COURT OF APPEALS and HERNANDEZ TRADING CO. INC., respondents.
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for review, seeks the reversal of the
decision1 of the Court of Appeals, dated June 14, 1995, in CA-G.R. No. 428093, which affirmed the
decision of the Regional Trial Court of Kalookan City, Branch 126, in Civil Case No. C-15532, finding
petitioner liable to private respondent Hernandez Trading Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO
C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman
Trading), a foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from
Nagoya, Japan to Manila on board "ADELFAEVERETTE," a vessel owned by petitioner's principal,
Everett Orient Lines. The said crates were covered by Bill of Lading No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was
missing. This was confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to
private respondent, which thereafter made a formal claim upon petitioner for the value of the lost
cargo amounting to One Million Five Hundred Fifty Two Thousand Five Hundred (Y1,552,500.00)
Yen, the amount shown in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner
offered to pay only One Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated
under Clause 18 of the covering bill of lading which limits the liability of petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil
Case No. C-15532, against petitioner before the Regional Trial Court of Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial evidence to offer
and agreed instead to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment 2 in favor of private respondent, ordering
petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual
value of the lost cargo and the material and packaging cost; (c) 10% of the total amount as an award
for and as contingent attorney's fees; and (d) to pay the cost of the suit. The trial court ruled:
Considering defendant's categorical admission of loss and its failure to overcome the
presumption of negligence and fault, the Court conclusively finds defendant liable to the
plaintiff. The next point of inquiry the Court wants to resolve is the extent of the liability of the
defendant. As stated earlier, plaintiff contends that defendant should be held liable for the
whole value for the loss of the goods in the amount of Y1,552,500.00 because the terms
appearing at the back of the bill of lading was so written in fine prints and that the same was
not signed by plaintiff or shipper thus, they are not bound by clause stated in paragraph 18
of the bill of lading. On the other hand, defendant merely admitted that it lost the shipment
but shall be liable only up to the amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code —
Art. 1750. "A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon."
It is required, however, that the contract must be reasonable and just under the
circumstances and has been fairly and freely agreed upon. The requirements provided
in Art. 1750 of the New Civil Code must be complied with before a common carrier can
claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of
the goods it has undertaken to transport.
In the case at bar, the Court is of the view that the requirements of said article have not
been met. The fact that those conditions are printed at the back of the bill of lading in
letters so small that they are hard to read would not warrant the presumption that the
plaintiff or its supplier was aware of these conditions such that he had "fairly and freely
agreed" to these conditions. It can not be said that the plaintiff had actually entered into
a contract with the defendant, embodying the conditions as printed at the back of the bill
of lading that was issued by the defendant to plaintiff.
On appeal, the Court of Appeals deleted the award of attorney's fees but affirmed the trial court's
findings with the additional observation that private respondent can not be bound by the terms and
conditions of the bill of lading because it was not privy to the contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show that the appellee
(Hernandez Trading Co.) consented to the terms of the Bill of Lading. The shipper
named in the Bill of Lading is Maruman Trading Co., Ltd. whom the appellant (Everett
Steamship Corp.) contracted with for the transportation of the lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the
terms of the bill of lading when it delivered the cargo to the appellant, still it does not
necessarily follow that appellee Hernandez Trading, Company as consignee is bound
thereby considering that the latter was never privy to the shipping contract.
x x x           x x x          x x x
Never having entered into a contract with the appellant, appellee should therefore not be
bound by any of the terms and conditions in the bill of lading.
Hence, it follows that the appellee may recover the full value of the shipment lost, the
basis of which is not the breach of contract as appellee was never a privy to the any
contract with the appellant, but is based on Article 1735 of the New Civil Code, there
being no evidence to prove satisfactorily that the appellant has overcome the
presumption of negligence provided for in the law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the consent of
the consignee to the terms and conditions of the bill of lading is necessary to make such stipulations
binding upon it; (2) in holding that the carrier's limited package liability as stipulated in the bill of
lading does not apply in the instant case; and (3) in allowing private respondent to fully recover the
full alleged value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.
A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a
cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law,
particularly Articles 1749 and 1750 of the Civil Code which provide:
Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding.
1
 Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the
loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a number of
cases.3 Thus, in Sea Land Service, Inc. vs. Intermediate Appellate Court 4, we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not
exist, the validity and binding effect of the liability limitation clause in the bill of lading here
are nevertheless fully sustainable on the basis alone of the cited Civil Code Provisions. That
said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself
in providing a limit to liability only if a greater value is not declared for the shipment in the bill
of lading. To hold otherwise would amount to questioning the justness and fairness of the
law itself, and this the private respondent does not pretend to do. But over and above that
consideration, the just and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding accrual of liability limitation by the simple and surely
far from onerous expedient of declaring the nature and value of the shipment in the bill of
lading.
Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common
carrier's liability for loss must be "reasonable and just under the circumstances, and has been freely
and fairly agreed upon."
The bill of lading subject of the present controversy specifically provides, among others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of
the shipper's net invoice cost plus freight and insurance premiums, if paid, and in no event
shall the carrier be liable for any loss of possible profits or any consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection with,
goods in an amount exceeding One Hundred thousand Yen in Japanese Currency
(Y100,000.00) or its equivalent in any other currency per package or customary freight unit
(whichever is least) unless the value of the goods higher than this amount is declared in
writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of
Lading and extra freight is paid as required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it
clear that its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the
shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was
higher than the limited liability of the carrier. Considering that the shipper did not declare a higher
valuation, it had itself to blame for not complying with the stipulations.
The trial court's ratiocination that private respondent could not have "fairly and freely" agreed to the
limited liability clause in the bill of lading because the said conditions were printed in small letters
does not make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals5 that the "jurisprudence on the matter reveals the
consistent holding of the court that contracts of adhesion are not invalid per se and that it has on
numerous occasions upheld the binding effect thereof." Also, in Philippine American General
Insurance Co., Inc. vs. Sweet Lines, Inc.  6 this Court, speaking through the learned Justice Florenz
D. Regalado, held:
. . . Ong Yiu vs. Court of Appeals, et. al., instructs us that "contracts of adhesion wherein
one party imposes a ready-made form of contract on the other . . . are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if the
adheres he gives his consent." In the present case, not even an allegation of ignorance of a
party excuses non-compliance with the contractual stipulations since the responsibility for
ensuring full comprehension of the provisions of a contract of carriage devolves not on the
carrier but on the owner, shipper, or consignee as the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs. Court of Appeals 7 that stipulations in contracts of adhesion
are valid and binding.
While it may be true that petitioner had not signed the plane
ticket . . ., he is nevertheless bound by the provisions thereof. "Such provisions have been
held to be a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation." It is what is known
as a contract of "adhesion," in regards which it has been said that contracts of adhesion
wherein one party imposes a ready-made form of contract on the other, as the plane ticket
in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract
is in reality free to reject it entirely; if he adheres, he gives his consent. . . ., a contract
limiting liability upon an agreed valuation does not offend against the policy of the law
forbidding one from contracting against his own negligence. (Emphasis supplied)
Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that
the said contracts must be carefully scrutinized "in order to shield the unwary (or weaker party) from
deceptive schemes contained in ready-made covenants,"8 such as the bill of lading in question. The
stringent requirement which the courts are enjoined to observe is in recognition of Article 24 of the
Civil Code which mandates that "(i)n all contractual, property or other relations, when one of the
parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant for his protection."
The shipper, Maruman Trading, we assume, has been extensively engaged in the trading business.
It can not be said to be ignorant of the business transactions it entered into involving the shipment of
its goods to its customers. The shipper could not have known, or should know the stipulations in the
bill of lading and there it should have declared a higher valuation of the goods shipped. Moreover,
Maruman Trading has not been heard to complain that it has been deceived or rushed into agreeing
to ship the cargo in petitioner's vessel. In fact, it was not even impleaded in this case.
The next issue to be resolved is whether or not private respondent, as consignee, who is not a
signatory to the bill of lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held that even if the
consignee was not a signatory to the contract of carriage between the shipper and the carrier, the
consignee can still be bound by the contract. Speaking through Mr. Chief Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a bill of lading
to recover from the carrier or shipper for loss of, or damage to goods being transported
under said bill, although that document may have been-as in practice it oftentimes is-drawn
up only by the consignor and the carrier without the intervention of the
onsignee. . . . .
. . . the right of a party in the same situation as respondent here, to recover for loss of a
shipment consigned to him under a bill of lading drawn up only by and between the shipper
and the carrier, springs from either a relation of agency that may exist between him and the
shipper or consignor, or his status as stranger in whose favor some stipulation is made in
said contract, and who becomes a party thereto when he demands fulfillment of that
stipulation, in this case the delivery of the goods or cargo shipped. In neither capacity can
he assert personally, in bar to any provision of the bill of lading, the alleged circumstance
that fair and free agreement to such provision was vitiated by its being in such fine print as
to be hardly readable. Parenthetically, it may be observed that in one comparatively recent
2
 case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15) where this
Court found that a similar package limitation clause was "printed in the smallest type on the
back of the bill of lading," it nonetheless ruled that the consignee was bound thereby on the
strength of authority holding that such provisions on liability limitation are as much a part of
a bill of lading as through physically in it and as though placed therein by agreement of the
parties.

There can, therefore, be no doubt or equivocation about the validity and enforceability of
freely-agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of
the carrier to an agreed valuation unless the shipper declares a higher value and inserts it
into said contract or bill. This proposition, moreover, rests upon an almost uniform weight of
authority. (Emphasis supplied).

When private respondent formally claimed reimbursement for the missing goods from petitioner and
subsequently filed a case against the latter based on the very same bill of lading, it (private
respondent) accepted the provisions of the contract and thereby made itself a party thereto, or at
least has come to court to enforce it.9 Thus, private respondent cannot now reject or disregard the
carrier's limited liability stipulation in the bill of lading. In other words, private respondent is bound by
the whole stipulations in the bill of lading and must respect the same.

Private respondent, however, insists that the carrier should be liable for the full value of the lost
cargo in the amount of Y1,552,500.00, considering that the shipper, Maruman Trading, had "fully
declared the shipment . . ., the contents of each crate, the dimensions, weight and value of the
contents," 10 as shown in the commercial Invoice No. MTM-941.

This claim was denied by petitioner, contending that it did not know of the contents, quantity and
value of "the shipment which consisted of three pre-packed crates described in Bill of Lading No.
NGO-53MN merely as '3 CASES SPARE PARTS.'" 11

The bill of lading in question confirms petitioner's contention. To defeat the carrier's limited liability,
the aforecited Clause 18 of the bill of lading requires that the shipper should have declared in writing
a higher valuation of its goods before receipt thereof by the carrier and insert the said declaration in
the bill of lading, with extra freight paid. These requirements in the bill of lading were never complied
with by the shipper, hence, the liability of the carrier under the limited liability clause stands. The
commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show that petitioner
has knowledge of the value of the cargo as contended by private respondent. No other evidence
was proffered by private respondent to support is contention. Thus, we are convinced that petitioner
should be liable for the full value of the lost cargo.

In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand
(Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.

WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R. CV No.
42803 is hereby REVERSED and SET ASIDE.

SO ORDERED.

3
G.R. No. 102316 June 30, 1997 In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984
resulting in the loss of the plaintiff's insured logs.
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner,
vs. On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION, respondents. and documentary stamps due on the policy was tendered due to the insurer but was not
accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the
insurance policy it issued as of the date of the inception for non-payment of the premium
PANGANIBAN, J.:
due in accordance with Section 77 of the Insurance Code.

Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss, split, short-
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and
landing, breakages and any kind of damages to the cargo" 1 valid? This is the main question raised
Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied
in this petition for review assailing the Decision of Respondent Court of Appeals 2 in CA-G.R. No.
liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven
CV-20156 promulgated on October 15, 1991. The Court of Appeals modified the judgment of the
Brothers Shipping Corporation for the value of the lost logs but the latter denied the
Regional Trial Court of Valenzuela, Metro Manila, Branch 171, the dispositive portion of which
claim.
reads:

After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance
against defendants. Both defendants shipping corporation and the surety company
Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) representing
appealed.
the value of the policy of the lost logs with legal interest thereon from the date of
demand on February 2, 1984 until the amount is fully paid or in the alternative,
defendant Seven Brothers Shipping Corporation to pay plaintiff the amount of TWO Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a
MILLION PESOS (2,000,000.00) representing the value of lost logs plus legal interest quo the following assignment of errors, to wit:
from the date of demand on April 24, 1984 until full payment thereof; the reasonable
attorney's fees in the amount equivalent to five (5) percent of the amount of the claim
A. The lower court erred in holding that the proximate cause of the sinking of the vessel
and the costs of the suit.
Seven Ambassadors, was not due to fortuitous event but to the negligence of the
captain in stowing and securing the logs on board, causing the iron chains to snap and
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the the logs to roll to the portside.
sum of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing the
balance of the stipulated freight charges.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers
Shipping Corporation from logs (sic) of the cargo stipulated in the charter party is void
Defendant South Sea Surety and Insurance Company's counterclaim is hereby for being contrary to public policy invoking article 1745 of the New Civil Code.
dismissed.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping
In its assailed Decision, Respondent Court of Appeals held: Corporation liable in the alternative and ordering/directing it to pay plaintiff-appellee the
amount of two million (2,000,000.00) pesos representing the value of the logs plus legal
interest from date of demand until fully paid.
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as
the liability of the Seven Brothers Shipping Corporation to the plaintiff is concerned
which is hereby REVERSED and SET ASIDE. 3 D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping
Corporation to pay appellee reasonable attorney's fees in the amount equivalent to 5%
of the amount of the claim and the costs of the suit.
The Facts

E. The lower court erred in not awarding defendant-appellant Seven Brothers

The factual antecedents of this case as narrated in the Court of Appeals Decision are as follows:
Corporation its counter-claim for attorney's fees.

It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial

F. The lower court erred in not dismissing the complaint against Seven Brothers
Supply, Inc.) entered into an agreement with the defendant Seven Brothers (Shipping
Shipping Corporation.
Corporation) whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the former's lauan round logs numbering 940 at the port of Maconacon,
Isabela for shipment to Manila. Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following errors:

On 20 January 1984, plaintiff insured the logs against loss and/or damage with
defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter
issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua.
A. The trial court erred in holding that Victorio Chua was an agent of defendant-
appellant South Sea Surety and Insurance Company, Inc. and likewise erred in not
holding that he was the representative of the insurance broker Columbia Insurance
Brokers, Ltd.
4
 B. The trial court erred in holding that Victorio Chua received compensation/commission
on the premiums paid on the policies issued by the defendant-appellant South Sea
Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the "receipt of payment clause" attached to and
forming part of the Marine Cargo Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of
premium and documentary stamps to be paid on the policy by the plaintiff-appellee.
The Court is now called upon to resolve the petition for review filed by Valenzuela assailing the CA
Decision which exempted Seven Brothers from any liability for the lost cargo.
The Issue
Petitioner Valenzuela's arguments resolve around a single issue: "whether or not respondent Court
(of Appeals) committed a reversible error in upholding the validity of the stipulation in the charter
party executed between the petitioner and the private respondent exempting the latter from liability
for the loss of petitioner's logs arising from the negligence of its (Seven Brothers') captain." 9
The Court's Ruling

F. The trial court erred in disregarding the endorsement of cancellation of the policy due The petition is not meritorious.
to non-payment of premium and documentary stamps.
Validity of Stipulation is Lis Mota
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance
Company, Inc. to pay plaintiff-appellee P2,000,000.00 representing value of the policy
The charter party between the petitioner and private respondent stipulated that the "(o)wners shall
with legal interest from 2 February 1984 until the amount is fully paid,
not be responsible for loss, split, short-landing, breakages and any kind of damages to the
cargo." 10 The validity of this stipulation is the lis mota of this case.
H. The trial court erred in not awarding to the defendant-appellant the attorney's fees
alleged and proven in its counterclaim.
It should be noted at the outset that there is no dispute between the parties that the proximate cause
of the sinking of M/V Seven Ambassadors resulting in the loss of its cargo was the "snapping of the
The primary issue to be resolved before us is whether defendants shipping corporation iron chains and the subsequent rolling of the logs to the portside due to the negligence of the
and the surety company are liable to the plaintiff for the latter's lost logs. 4 captain in stowing and securing the logs on board the vessel and not due to fortuitous
event." 11 Likewise undisputed is the status of Private Respondent Seven Brothers as a private
carrier when it contracted to transport the cargo of Petitioner Valenzuela. Even the latter admits this
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of South Sea
in its petition. 12
Surety and Insurance Company ("South Sea"), but modified it by holding that Seven Brothers
Shipping Corporation ("Seven Brothers") was not liable for the lost cargo. 5 In modifying the RTC
judgment, the respondent appellate court ratiocinated thus: The trial court deemed the charter party stipulation void for being contrary to public policy, 13 citing
Article 1745 of the Civil Code which provides:
It appears that there is a stipulation in the charter party that the ship owner would be
exempted from liability in case of loss. Art. 1745. Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:
The court a quo erred in applying the provisions of the Civil Code on common carriers to
establish the liability of the shipping corporation. The provisions on common carriers (1) That the goods are transported at the risk of the owner or shipper;
should not be applied where the carrier is not acting as such but as a private carrier.
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of
Under American jurisprudence, a common carrier undertaking to carry a special cargo the goods;
or chartered to a special person only, becomes a private carrier.
(3) That the common carrier need not observe any diligence in the custody of the goods;
As a private carrier, a stipulation exempting the owner from liability even for the
negligence of its agent is valid (Home Insurance Company, Inc. vs. American Steamship
(4) That the common carrier shall exercise a degree of diligence less than that of a good
Agencies, Inc., 23 SCRA 24).
father of a family, or of a man of ordinary prudence in the vigilance over the movables
transported;
The shipping corporation should not therefore be held liable for the loss of the logs. 6
(5) That the common carrier shall not be responsible for the acts or omissions of his or
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc. ("Valenzuela") its employees;
filed separate petitions for review before this Court. In a Resolution dated June 2, 1995, this Court
denied the petition of South
(6) That the common carrier's liability for acts committed by thieves, or of robbers who
Sea. 7 There the Court found no reason to reverse the factual findings of the trial court and the Court
do not act with grave or irresistible threat, violence or force, is dispensed with or
of Appeals that Chua was indeed an authorized agent of South Sea when he received Valenzuela's
diminished;
premium payment for the marine cargo insurance policy which was thus binding on the insurer. 8

5
 (7) That the common carrier is not responsible for the loss, destruction, or deterioration and in fact it usually does — enter into a free and voluntary agreement. In practice, the parties in a
of goods on account of the defective condition of the car, vehicle, ship, airplane or other contract of private carriage can stipulate the carrier's obligations and liabilities over the shipment
equipment used in the contract of carriage. which, in turn, determine the price or consideration of the charter. Thus, a charterer, in exchange for
convenience and economy, may opt to set aside the protection of the law on common carriers.
When the charterer decides to exercise this option, he takes a normal business risk.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586 and 587 of
the Code of Commerce 14 and Articles 1170 and 1173 of the Civil Code. Citing Article 1306 and
paragraph 1, Article 1409 of the Civil Code, 15 petitioner further contends that said stipulation "gives Petitioner contends that the rule in Home Insurance is not applicable to the present case because it
no duty or obligation to the private respondent to observe the diligence of a good father of a family in "covers only a stipulation exempting a private carrier from liability for the negligence of his agent, but
the custody and transportation of the cargo." it does not apply to a stipulation exempting a private carrier like private respondent from the
negligence of his employee or servant which is the situation in this case." 20 This contention of
petitioner is bereft of merit, for it raises a distinction without any substantive difference. The
The Court is not persuaded. As adverted to earlier, it is undisputed that private respondent had
case Home Insurance specifically dealt with "the liability of the shipowner for acts or negligence of
acted as a private carrier in transporting petitioner's lauan logs. Thus, Article 1745 and other Civil
its captain and crew" 21 and a charter party stipulation which "exempts the owner of the vessel from
Code provisions on common carriers which were cited by petitioner may not be applied unless
any loss or damage or delay arising from any other source, even from the neglect or fault of the
expressly stipulated by the parties in their charter party. 16
captain or crew or some other person employed by the owner on
board, for whose acts the owner would ordinarily be liable except for said
In a contract of private carriage, the parties may validly stipulate that responsibility for the cargo paragraph." 22 Undoubtedly, Home Insurance is applicable to the case at bar.
rests solely on the charterer, exempting the shipowner from liability for loss of or damage to the
cargo caused even by the negligence of the ship captain. Pursuant to Article 1306 17 of the Civil
The naked assertion of petitioner that the American rule enunciated in Home Insurance is not the
Code, such stipulation is valid because it is freely entered into by the parties and the same is not
rule in the Philippines 23 deserves scant consideration. The Court there categorically held that said
contrary to law, morals, good customs, public order, or public policy. Indeed, their contract of private
rule was "reasonable" and proceeded to apply it in the resolution of that case. Petitioner miserably
carriage is not even a contract of adhesion. We stress that in a contract of private carriage, the
failed to show such circumstances or arguments which would necessitate a departure from a well-
parties may freely stipulate their duties and obligations which perforce would be binding on them.
settled rule. Consequently, our ruling in said case remains a binding judicial precedent based on the
Unlike in a contract involving a common carrier, private carriage does not involve the general public.
doctrine of stare decisis and Article 8 of the Civil Code which provides that "(j)udicial decisions
Hence, the stringent provisions of the Civil Code on common carriers protecting the general public
applying or interpreting the laws or the Constitution shall form part of the legal system of the
cannot justifiably be applied to a ship transporting commercial goods as a private carrier.
Philippines."
Consequently, the public policy embodied therein is not contravened by stipulations in a charter
party that lessen or remove the protection given by law in contracts involving common carriers.
In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier, a stipulation
exempting the owner from liability even for the negligence of its agents is valid." 24
The issue posed in this case and the arguments raised by petitioner are not novel; they were
resolved long ago by this Court in Home Insurance Co. vs. American Steamship Agencies, Inc. 18 In
that case, the trial court similarly nullified a stipulation identical to that involved in the present case Other Arguments
for being contrary to public policy based on Article 1744 of the Civil Code and Article 587 of the
Code of Commerce. Consequently, the trial court held the shipowner liable for damages resulting for
On the basis of the foregoing alone, the present petition may already be denied; the Court, however,
the partial loss of the cargo. This Court reversed the trial court and laid down, through Mr. Justice
will discuss the other arguments of petitioner for the benefit and satisfaction of all concerned.
Jose P. Bengzon, the following well-settled observation and doctrine:

Articles 586 and 587, Code of Commerce

The provisions of our Civil Code on common carriers were taken from Anglo-American
law. Under American jurisprudence, a common carrier undertaking to carry a special
cargo or chartered to a special person only, becomes a private carrier. As a private
carrier, a stipulation exempting the owner from liability for the negligence of its agent is
not against public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers
should not be applied where the carrier is not acting as such but as a private
carrier. The stipulation in the charter party absolving the owner from liability for loss due
to the negligence of its agent would be void if the strict public policy governing common
carriers is applied. Such policy has no force where the public at large is not involved, as
in this case of a ship totally chartered for the used of a single party. 19 (Emphasis
supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general public
enters into a contract of transportation with common carriers without a hand or a voice in the
preparation thereof. The riding public merely adheres to the contract; even if the public wants to, it
cannot submit its own stipulations for the approval of the common carrier. Thus, the law on common
carriers extends its protective mantle against one-sided stipulations inserted in tickets, invoices or
other documents over which the riding public has no understanding or, worse, no choice. Compared
to the general public, a charterer in a contract of private carriage is not similarly situated. It can —
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586 and 587 of
the Code of Commerce which confer on petitioner the right to recover damages from the shipowner
and ship agent for the acts or conduct of the captain. 25 We are not persuaded. Whatever rights
petitioner may have under the aforementioned statutory provisions were waived when it entered into
the charter party.
Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is contrary to law,
public order, public policy, morals, or good customs, or prejudicial to a person with a right
recognized by law." As a general rule, patrimonial rights may be waived as opposed to rights to
personality and family rights which may not be made the subject of waiver. 26 Being patently and
undoubtedly patrimonial, petitioner's right conferred under said articles may be waived. This, the
petitioner did by acceding to the contractual stipulation that it is solely responsible or any damage to
the cargo, thereby exempting the private carrier from any responsibility for loss or damage thereto.
Furthermore, as discussed above, the contract of private carriage binds petitioner and private
respondent alone; it is not imbued with public policy considerations for the general public or third
persons are not affected thereby.
Articles 1170 and 1173, Civil Code

6
Petitioner likewise argues that the stipulation subject of this controversy is void for being contrary to stipulation in the charter party expressly exempting the shipowner form responsibility for any
Articles 1170 and 1173 of the Civil Code 27 which read: damage to the cargo.

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
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances
of the persons, of the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action against it because
this Court has earlier affirmed the liability of South Sea for the loss suffered by petitioner. Private
respondent submits that petitioner is not legally entitled to collect twice for a single loss. 41 In view of
the above disquisition upholding the validity of the questioned charter party stipulation and holding
that petitioner may not recover from private respondent, the present issue is moot and academic. It
suffices to state that the Resolution of this Court dated June 2, 1995 42 affirming the liability of South
Sea does not, by itself, necessarily preclude the petitioner from proceeding against private
respondent. An aggrieved party may still recover the deficiency for the person causing the loss in
the event the amount paid by the insurance company does not fully cover the loss. Article 2207 of
the Civil Code provides:

The Court notes that the foregoing articles are applicable only to the obligor or the one with an
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity for
obligation to perform. In the instant case, Private Respondent Seven Brothers is not an obligor in
the insurance company for the injury or loss arising out of the wrong or breach of
respect of the cargo, for this obligation to bear the loss was shifted to petitioner by virtue of the
contract complained of, the insurance company shall be subrogated to the rights of the
charter party. This shifting of responsibility, as earlier observed, is not void. The provisions cited by
insured against the wrongdoer or the person who has violated the contract. If the
petitioner are, therefore, inapplicable to the present case.
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency form the person causing the
Moreover, the factual milieu of this case does not justify the application of the second paragraph of loss or injury.
Article 1173 of the Civil Code which prescribes the standard of diligence to be observed in the event
the law or the contract is silent. In the instant case, Article 362 of the Code of Commerce 28 provides
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure to show any
the standard of ordinary diligence for the carriage of goods by a carrier. The standard of diligence
reversible error on the part of Respondent Court. The assailed Decision is AFFIRMED.
under this statutory provision may, however, be modified in a contract of private carriage as the
petitioner and private respondent had done in their charter party.
SO ORDERED.
Cases Cited by Petitioner Inapplicable

Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan Ysmael &

Co. vs. Gabino Barreto & Co. 30 and argues that the public policy considerations stated there vis-a-
vis contractual stipulations limiting the carrier's liability be applied "with equal force" to this case. 31 It
also cites Manila Railroad Co. vs. Compañia Transatlantica  32 and contends that stipulations
exempting a party from liability for damages due to negligence "should not be countenanced" and
should be "strictly construed" against the party claiming its benefit. 33 We disagree.

The cases of Shewaram and Ysmael both involve a common carrier; thus, they necessarily justify
the application of such policy considerations and concomitantly stricter rules. As already discussed
above, the public policy considerations behind the rigorous treatment of common carriers are absent
in the case of private carriers. Hence, the stringent laws applicable to common carriers are not
applied to private carries. The case of Manila Railroad is also inapplicable because the action for
damages there does not involve a contract for transportation. Furthermore, the defendant therein
made a "promise to use due care in the lifting operations" and, consequently, it was "bound by its
undertaking"'; besides, the exemption was intended to cover accidents due to hidden defects in the
apparatus or other unforseeable occurrences" not caused by its "personal negligence." This promise
was thus constructed to make sense together with the stipulation against liability for damages. 34 In
the present case, we stress that the private respondent made no such promise. The agreement of
the parties to exempt the shipowner from responsibility for any damage to the cargo and place
responsibility over the same to petitioner is the lone stipulation considered now by this Court.

Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter A. Smith &
Co. vs. Cadwallader Gibson Lumber Co., 36 N. T . Hashim and Co. vs. Rocha and Co., 37 Ohta
Development Co. vs. Steamship "Pompey"  38 and Limpangco Sons vs. Yangco Steamship Co. 39 in
support of its contention that the shipowner be held liable for damages. 40 These however are not on
all fours with the present case because they do not involve a similar factual milieu or an identical

7
G.R. No. 119706 March 14, 1996
PHILIPPINE AIRLINES, INC., petitioner,
vs.
COURT OF APPEALS and GILDA C. MEJIA, respondents.
REGALADO, J.:p
This is definitely not a case of first impression. The incident which eventuated in the present
controversy is a drama of common contentious occurrence between passengers and carriers
whenever loss is sustained by the former. Withal, the exposition of the factual ambience and the
legal precepts in this adjudication may hopefully channel the assertiveness of passengers and the
intransigence of carriers into the realization that at times a bad extrajudicial compromise could be
better than a good judicial victory.
Assailed in this petition for review is the decision of respondent Court of Appeals in CA-G.R. CV No.
427441 which affirmed the decision of the lower court 2 finding petitioner Philippine Air Lines, Inc.
(PAL) liable as follows:
ACCORDINGLY, judgment is hereby rendered ordering defendant Philippine Air Lines,
Inc., to pay plaintiff Gilda C. Mejia:
(1) P30,000.00 by way of actual damages of the microwave oven;
(2) P10,000.00 by way of moral damages;
(3) P20,000.00 by way of exemplary damages;
(4) P10,000.00 as attorney's fee;
all in addition to the costs of the suit.
Defendant's counterclaim is hereby dismissed for lack of merit.3
The facts as found by respondent Court of Appeals are as follows:
On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant, Philippine Airlines,
one (1) unit microwave oven, with a gross weight of 33 kilograms from San Francisco,
U.S.A. to Manila, Philippines. Upon arrival, however, of said article in Manila,
Philippines, plaintiff discovered that its front glass door was broken and the damage
rendered it unserviceable. Demands both oral and written were made by plaintiff against
the defendant for the reimbursement of the value of the damaged microwave oven, and
transportation charges paid by plaintiff to defendant company. But these demands fell
on deaf ears.
On September 25, 1990, plaintiff Gilda C. Mejia filed the instant action for damages
against defendant in the lower court.
In its answer, defendant Airlines alleged inter alia, by way of special and affirmative
defenses, that the court has no jurisdiction over the case; that plaintiff has no valid
cause of action against defendant since it acted only in good faith and in compliance
with the requirements of the law, regulations, conventions and contractual commitments;
and that defendant had always exercised the required diligence in the selection, hiring
and supervision of its employees.4
What had theretofore transpired at the trial in the court a quo is narrated as follows:
Plaintiff Gilda Mejia testified that sometime on January 27, 1990, she took defendant's
plane from San Francisco, U.S.A. for Manila, Philippines (Exh. "F"). Amongst her
baggages (sic) was a slightly used microwave oven with the brand name "Sharp" under
PAL Air Waybill No. 0-79-1013008-3 (Exh. "A"). When shipped, defendant's office at
San Francisco inspected it. It was in good condition with its front glass intact. She did
not declare its value upon the advice of defendant's personnel at San Francisco.
When she arrived in Manila, she gave her sister Concepcion C. Diño authority to claim
her baggag(e) (Exh. "G") and took a connecting flight for Bacolod City.
When Concepcion C. Diño claimed the baggag(e) (Exh. "B") with defendant, then with
the Bureau of Customs, the front glass of the microwave oven was already broken and
cannot be repaired because of the danger of radiation. They demanded from defendant
thru Atty. Paco P30,000.00 for the damages although a brand new one costs
P40,000.00, but defendant refused to pay.
Hence, plaintiff engaged the services of counsel. Despite demand (Exh. "E") by counsel,
defendant still refused to pay.
The damaged oven is still with defendant. Plaintiff is engaged in (the) catering and
restaurant business. Hence, the necessity of the oven. Plaintiff suffered sleepless nights
when defendant refused to pay her (for) the broken oven and claims P10,000.00 moral
damages, P20,000.00 exemplary damages, P10,000.00 attorney's fees plus P300.00
per court appearance and P15,000.00 monthly loss of income in her business beginning
February, 1990.
Defendant Philippine Airlines thru its employees Rodolfo Pandes and Vicente Villaruz
posited that plaintiff's claim was not investigated until after the filing of the formal claim
on August 13, 1990 (Exh. "6" also Exh. "E"). During the investigations, plaintiff failed to
submit positive proof of the value of the cargo. Hence her claim was denied.
Also plaintiff's claim was filed out of time under paragraph 12, a (1) of the Air Waybill
(Exh. "A", also Exh. "1") which provides: "(a) the person entitled to delivery must make a
complaint to the carrier in writing in case: (1) of visible damage to the goods,
immediately after discovery of the damage and at the latest within 14 days from the
receipt of the goods. 5
As stated at the outset, respondent Court of Appeals similarly ruled in favor of private respondent by
affirming in full the trial court's judgment in Civil Case No. 6210, with costs against
petitioner.6 Consequently, petitioner now impugns respondent appellate court's ruling insofar as it
agrees with (1) the conclusions of the trial court that since the air waybill is a contract of adhesion,
its provisions should be strictly construed against herein petitioner; (2) the finding of the trial court
that herein petitioner's liability is not limited by the provisions of the air waybill; and (3) the award by
the trial court to private respondent of moral and exemplary damages, attorney's fees and litigation
expenses.
The trial court relied on the ruling in the case of Fieldmen's Insurance Co., Inc. vs. Vda. De Songco,
et al.7 in finding that the provisions of the air waybill should be strictly construed against petitioner.
More particularly, the court below stated its findings thus:
8
 In this case, it is seriously doubted whether plaintiff had read the printed conditions at the
back of the Air Waybill (Exh. "1"), or even if she had, if she was given a chance to
negotiate on the conditions for loading her microwave oven. Instead she was advised by
defendant's employee at San Francisco, U.S.A., that there is no need to declare the value
of her oven since it is not brand new. Further, plaintiff testified that she immediately
submitted a formal claim for P30,000.00 with defendant. But their claim was referred from
one employee to another th(e)n told to come back the next day, and the next day, until
she was referred to a certain Atty. Paco. When they got tired and frustrated of coming
without a settlement of their claim in sight, they consulted a lawyer who demanded from
defendant on August 13, 1990 (Exh. "E", an[d] Exh. "6").
The conclusion that inescapably emerges from the above findings of fact is to concede it
with credence. . . . .8
Respondent appellate court approved said findings of the trial court in this manner:
We cannot agree with defendant-appellant's above contention. Under our jurisprudence,
the Air Waybill is a contract of adhesion considering that all the provisions thereof are
prepared and drafted only by the carrier (Sweet Lines v. Teves, 83 SCRA 361). The only
participation left of the other party is to affix his signature thereto (BPI Credit Corporation
vs. Court of Appeals, 204 SCRA 601; Saludo, Jr. vs. C.A., 207 SCRA 498; Maersk vs.
Court of Appeals, 222 SCRA 108, among the recent cases). In the earlier case of Angeles
v. Calasanz, 135 SCRA 323, the Supreme Court ruled that "the terms of a contract [of
adhesion] must be interpreted against the party who drafted the same." . . . .9
Petitioner airlines argues that the legal principle enunciated in Fieldmen's Insurance does not apply
to the present case because the provisions of the contract involved here are neither ambiguous nor
obscure. The front portion of the air waybill contains a simple warning that the shipment is subject to
the conditions of the contract on the dorsal portion thereof regarding the limited liability of the carrier
unless a higher valuation is declared, as well as the reglementary period within which to submit a
written claim to the carrier in case of damage or loss to the cargo. Granting that the air waybill is a
contract of adhesion, it has been ruled by the Court that such contracts are not entirely prohibited
and are in fact binding regardless of whether or not respondent herein read the provisions thereof.
Having contracted the services of petitioner carrier instead of other airlines, private respondent in
effect negotiated the terms of the contract and thus became bound thereby. 10
Counsel for private respondent refutes these arguments by saying that due to her eagerness to ship
the microwave oven to Manila, private respondent assented to the terms and conditions of the
contract without any opportunity to question or change its terms which are practically on a "take-it-
or-leave-it" basis, her only participation therein being the affixation of her signature. Further, reliance
on the Fieldmen's Insurance case is misplaced since it is not the ambiguity or obscurity of the
stipulation that renders necessary the strict interpretation of a contract of adhesion against the
drafter, but the peculiarity of the transaction wherein one party, normally a corporation, drafts all the
provisions of the contract without any participation whatsoever on the part of the other party other
than affixment of signature. 11
A review of jurisprudence on the matter reveals the consistent holding of the Court that contracts of
adhesion are not invalid per se and that it has on numerous occasions upheld the binding effect
thereof. 12 As explained in Ong Yiu vs. Court of Appeals, et al., supra:
. . . . Such provisions have been held to be a part of the contract of carriage, and valid and
binding upon the passenger regardless of the latter's lack of knowledge or assent to the
regulation. It is what is known as a contract of "adhesion," in regards which it has been
said that contracts of adhesion wherein one party imposes a ready-made form of contract
on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent. . . , a contract limiting liability upon an agreed valuation does not offend
against the policy of the law forbidding one from contracting against his own negligence.
As rationalized in Saludo, Jr. vs. Court of Appeals, et al., supra:
. . . , it should be borne in mind that a contract of adhesion may be struck down as void
and unenforceable, for being subversive of public policy, only when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
equal footing. . . . .
but subject to the caveat that —
. . . . Just because we have said that Condition No. 5 of the airway bill is binding upon the
parties to and fully operative in this transaction, it does not mean, and let this serve as fair
warning to respondent carriers, that they can at all times whimsical seek refuge from
liability in the exculpatory sanctuary of said Condition No. 5 . . . .
The peculiar nature of such contracts behooves the Court to closely scrutinize the factual milieu to
which the provisions are intended to apply. Thus, just as consistently and unhesitatingly, but without
categorically invalidating such contracts, the Court has construed obscurities and ambiguities in the
restrictive provisions of contracts of adhesion strictly albeit not unreasonably against the drafter
thereof when justified in light of the operative facts and surrounding circumstances. 13
We find nothing objectionable about the lower court's reliance upon the Fieldmen's Insurance case,
the principles wherein squarely apply to the present petition. The parallelism between the
aforementioned case and this one is readily apparent for, just as in the instant case, it is the binding
effect of the provisions in a contract of adhesion (an insurance policy in Fieldmen's Insurance) that is
put to test.
A judicious reading of the case reveals that what was pivotal in the judgment of liability against
petitioner insurance company therein, and necessarily interpreting the provisions of the insurance
policy as ineffective, was the finding that the representations made by the agent of the insurance
company rendered it impossible to comply with the conditions of the contract in question, rather than
the mere ambiguity of its terms. The extended pronouncements regarding strict construction of
ambiguous provisions in an adhesion contract against its drafter, which although made by the Court
as an aside but has perforce evolved into a judicial tenet over time, was actually an incidental
statement intended to emphasize the duty of the court to protect the weaker, as against the more
dominant, party to a contract, as well as to prevent the iniquitous situation wherein the will of one
party is imposed upon the other in the course of negotiation.
Thus, there can be no further question as to the validity of the terms of the air waybill, even if the
same constitutes a contract of adhesion. Whether or not the provisions thereof particularly on the
limited liability of the carrier are binding on private respondent in this instance must be determined
from the facts and circumstances involved vis-a-vis the nature of the provisions sought to be
enforced, taking care that equity and fair play should characterize the transaction under review.
On petitioner's insistence that its liability for the damage to private respondent's microwave oven, if
any, should be limited by the provisions of the air waybill, the lower court had this to say:
By and large, defendant's evidence is anchored principally on plaintiff's alleged failure to
comply with paragraph 12, a(1) (Exh. "1-C-2") of the Air waybill (Exh. "A," also Exh. "1"),
by filing a formal claim immediately after discovery of the damage. Plaintiff filed her formal
claim only on August 13, 1990 (Exh. "6", also Exh. "E"). And, failed to present positive
proof on the value of the damaged microwave oven. Hence, the denial of her claim.
9
 This Court has misgivings about these pretensions of defendant. In the case at bar, it will be noted that private respondent signified an intention to declare the value
of the microwave oven prior to shipment, but was explicitly advised against doing so by PAL's
personnel in San Francisco, U.S.A., as borne out by her testimony in court:
xxx xxx xxx

x x x           x x x          x x x
Finally, the Court finds no merit to defendant's contention that under the Warsaw
Convention, its liability if any, cannot exceed U.S. $20.00 based on weight as plaintiff did
not declare the contents of her baggage nor pay additional charges before the flight. 14 Q Did you declare the value of the shipment?

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

It is additionally averred that since private respondent was merely advised, not ordered, that she
ATTY. VINCO: So that, be that as it may, my particular concern is that, it is the PAL
need not declare a higher value for her cargo, the final decision of refraining from making such a
personnel that accepts the baggage?
declaration fell on private respondent and should not put the petitioner in estoppel from invoking its
limited liability.17
WITNESS: Yes, sir.
In refutation, private respondent explains that the reason for the absence of a declaration of a higher
value was precisely because petitioner's personnel in San Francisco, U.S.A. advised her not to ATTY. VINCO: Also, if he comes from abroad like in this particular case, it is the PAL
declare the value of her cargo, which testimony has not at all been rebutted by petitioner. This being personnel who accepts the baggage?
so, petitioner is estopped from faulting private respondent for her failure to declare the value of the
microwave oven. 18
WITNESS: Yes, sir.

The validity of provisions limiting the liability of carriers contained in bills of lading have been
consistently upheld for the following reason: ATTY. VINCO: And the PAL personnel may or may not accept the baggage?

. . . . The stipulation in the bill of lading limiting the common carrier's liability to the value WITNESS: Yes, sir.
of goods appearing in the bill, unless the shipper or owner declares a greater value, is
valid and binding. The limitation of the carrier's liability is sanctioned by the freedom of ATTY. VINCO: According to what is stated as in the acceptance of the cargo, it is to the best
the contracting parties to establish such stipulations, clauses, terms, or conditions as interest of the airlines, that is, he want(s) also that the airlines would be free from any
they may deem convenient, provided they are not contrary to law, morals, good customs liability. Could that be one of the grounds for not admitting a baggage?
and public policy. . . . . 19
WITNESS: Safety is number one (1)
However, the Court has likewise cautioned against blind reliance on adhesion contracts where
the facts and circumstances warrant that they should be disregarded. 20
x x x           x x x          x x x

ATTY. VINCO: So, this baggage was accepted and admitted in San Francisco?

10
 WITNESS: Yes, sir. door was broken, she immediately filed a claim by way of the baggage freight claim 29 on which was
duly annotated the damage sustained by the oven. 30
ATTY. VINCO: And you could not show any document to the Court that would suggest that
this baggage was denied admittance by your office at San Francisco? Her testimony relates what took place thereafter:

WITNESS: No, I cannot show. ATTY. VINCO: So, after that inspection, what did you do?

ATTY. VINCO: Now, can you show any document that would suggest that there was WITNESS: After that annotation placed by Mr. Villaruz, I went home and I followed it up the
insufficient pac(k)aging on this particular baggage from abroad? next day with the Clerk of PAL cargo office.

WITNESS: No, sir. 25 ATTY. VINCO: What did the clerk tell you?

In response to the trial court's questions during the trial, he also stated that while the passenger's WITNESS: She told me that the claim was being processed and I made several phone calls
declaration regarding the general or fragile character of the cargo is to a certain extent determinative after that. I started my follow-ups February up to June 1990.
of its classification, PAL nevertheless has and exercises discretion as to the manner of handling
required by the nature of the cargo it accepts for carriage. He further opined that the microwave
ATTY. VINCO: And what results did those follow-ups produce?
oven was only a general, not a fragile, cargo which did not require any special handling. 26

WITNESS: All they said (was) that the document was being processed, that they were
There is no absolute obligation on the part of a carrier to accept a cargo. Where a common carrier
waiting for Atty. Paco to report to the office and they could refer the matter to Atty. Paco.
accepts a cargo for shipment for valuable consideration, it takes the risk of delivering it in good
condition as when it was loaded. And if the fact of improper packing is known to the carrier or its
personnel, or apparent upon observation but it accepts the goods notwithstanding such condition, it ATTY. VINCO: Who is this Atty. Paco?
is not relieved of liability for loss or injury resulting therefrom. 27
WITNESS: He was the one in-charge of approving our claim.
The acceptance in due course by PAL of private respondent's cargo as packed and its advice
against the need for declaration of its actual value operated as an assurance to private respondent
ATTY. VINCO: Were you able to see Atty. Paco?
that in fact there was no need for such a declaration. Petitioner can hardly be faulted for relying on
the representations of PAL's own personnel.
WITNESS: Yes, sir. I personally visited Atty. Paco together with my auntie who was a former
PAL employee.
In other words, private respondent Mejia could and would have complied with the conditions stated
in the air waybill, i.e., declaration of a higher value and payment of supplemental transportation
charges, entitling her to recovery of damages beyond the stipulated limit of US $20 per kilogram of x x x           x x x          x x x
cargo in the event of loss or damage, had she not been effectively prevented from doing so upon the
advice of PAL's personnel for reasons best known to themselves.
ATTY. VINCO: So, what did you do, did you make a report or did you tell Atty. Paco of your
scouting around for a possible replacement?
As pointed out by private respondent, the aforestated facts were not denied by PAL in any of its
pleadings nor rebutted by way of evidence presented in the course of the trial, and thus in effect it
judicially admitted that such an advice was given by its personnel in San Francisco, U.S.A. WITNESS: I did call him back at his office. I made a telephone call.
Petitioner, therefore, is estopped from blaming private respondent for not declaring the value of the
cargo shipped and which would have otherwise entitled her to recover a higher amount of damages. ATTY. VINCO: And what answer did Atty. Paco make after you have reported back to him?
The Court's bidding in the Fieldmen's Insurance case once again rings true:
WITNESS: They told me that they were going to process the claim based on the price that I
. . . As estoppel is primarily based on the doctrine of good faith and the avoidance of harm gave them but there was no definite result.
that will befall an innocent party due to its injurious reliance, the failure to apply it in this
case would result in gross travesty of justice.
ATTY. VINCO: How many times did you go and see Atty. Paco regarding the claim of your
sister?
We likewise uphold the lower court's finding that private respondent complied with the requirement
for the immediate filing of a formal claim for damages as required in the air waybill or, at least, we
find that there was substantial compliance therewith. WITNESS: I made one personal visit and several follow-up calls. With Atty. Paco, I made
one phone call but I made several phone calls with his secretary or the clerk at PAL cargo
office and I was trying to locate him but unfortunately, he was always out of his office. 31
Private respondent testified that she authorized her sister, Concepcion Diño, to claim her cargo
consisting of a microwave oven since the former had to take a connecting flight to Bacolod City on
the very same afternoon of the day of her arrival. 28 As instructed, Concepcion Diño promptly PAL claims processor, Rodolfo Pandes, * confirmed having received the baggage freight
proceeded to PAL's Import Section the next day to claim the oven. Upon discovering that the glass claim on January 30, 1990 32 and the referral to and extended pendency of the private
respondent's claim with the office of Atty. Paco, to wit:
11
 ATTY. VINCO: And you did instruct the claimant to see the Claim Officer of the company,
right?
WITNESS: Yes, sir.
ATTY. VINCO: And the Claim Officer happened to be Atty. Paco?
WITNESS: Yes, sir.
ATTY. VINCO: And you know that the plaintiff thru her authorized representative
Concepcion Diño, who is her sister had many times gone to Atty. Paco, in connection with
this claim of her sister?
WITNESS: Yes, sir.
ATTY. VINCO: As a matter of fact even when the complaint was already filed here in Court
the claimant had continued to call about the settlement of her claim with Atty. Paco, is that
correct?
x x x           x x x          x x x
WITNESS: Yes, sir.
ATTY. VINCO: You know this fact because a personnel saw you in one of the pre-trial here
when this case was heard before the sala of Judge Moscardon, is that correct?
WITNESS: Yes.
ATTY. VINCO: In other words, the plaintiff rather had never stop(ped) in her desire for your
company to settle this claim, right?
33
WITNESS: Yes, sir. 
Considering the abovementioned incidents and private respondent Mejia's own zealous efforts in
following up the claim, 34 it was clearly not her fault that the letter of demand for damages could only
be filed, after months of exasperating follow-up of the claim, on August 13, 1990. 35 If there was any
failure at all to file the formal claim within the prescriptive period contemplated in the air waybill, this
was largely because of PAL's own doing, the consequences of which cannot, in all fairness, be
attributed to private respondent.
Even if the claim for damages was conditioned on the timely filing of a formal claim, under Article
1186 of the Civil Code that condition was deemed fulfilled, considering that the collective action of
PAL's personnel in tossing around the claim and leaving it unresolved for an indefinite period of time
was tantamount to "voluntarily preventing its fulfillment." On grounds of equity, the filing of the
baggage freight claim, which sufficiently informed PAL of the damage sustained by private
respondent's cargo, constituted substantial compliance with the requirement in the contract for the
filing of a formal claim.
All told, therefore, respondent appellate court did not err in ruling that the provision on limited liability
is not applicable in this case. We, however, note in passing that while the facts and circumstances of
this case do not call for the direct application of the provisions of the Warsaw Convention, it should
be stressed that, indeed, recognition of the Warsaw Convention does not preclude the operation of
the Civil Code and other pertinent laws in the determination of the extent of liability of the common
carrier. 36
The Warsaw Convention, being a treaty to which the Philippines is a signatory, is as much a part of
Philippine law as the Civil Code, Code of Commerce and other municipal special laws. 3 7 The
provisions therein contained, specifically on the limitation of carrier's liability, are operative in the
Philippines but only in appropriate situations.
Petitioner ascribes ultimate error in the award of moral and exemplary damages and attorney's fees
in favor of private respondent in that other than the statement of the trial court that petitioner acted in
bad faith in denying private respondent's claim, which was affirmed by the Court of Appeals, there is
no evidence on record that the same is true. The denial of private respondent's claim was
supposedly in the honest belief that the same had prescribed, there being no timely formal claim
filed; and despite having been given an opportunity to submit positive proof of the value of the
damaged microwave oven, no such proof was submitted. Petitioner insists that its failure to deliver
the oven in the condition in which it was shipped could hardly be considered as amounting to bad
faith. 38
Private respondent counters that petitioner's failure to deliver the microwave oven in the condition in
which it was received can be described as gross negligence amounting to bad faith, on the further
consideration that it failed to prove that it exercised the extraordinary diligence required by law, and
that no explanation whatsoever was given as to why the front glass of the oven was broken. 39
The trial court justified its award of actual, moral and exemplary damages, and attorney's fees in
favor of private respondent in this wise:
Since the plaintiff's baggage destination was the Philippines, Philippine law governs the
liability of the defendant for damages for the microwave oven.
The provisions of the New Civil Code on common carriers are Article(s) 1733, 1735 and
1753 . . . .
xxx xxx xxx
In this case, defendant failed to overcome, not only the presumption but more importantly,
plaintiff's evidence that defendant's negligence was the proximate cause of the damages of
the microwave oven. Further plaintiff has established that defendant acted in bad faith when
it denied the former's claim on the ground that the formal claim was filed beyond the period
as provided in paragraph 12 (a-1) (Exh. "1-C-2") of the Air Waybill (Exh. "1", also Exh. "A"),
when actually, Concepcion Diño, sister of plaintiff has immediately filed the formal claim
upon discovery of the damage. 40
Respondent appellate court was in full agreement with the trial court's finding of bad faith on the part
of petitioner as a basis for the award of the aforestated damages, declaring that:
As to the last assigned error, a perusal of the facts and law of the case reveals that the
lower court's award of moral and exemplary damages, attorney's fees and costs of suit to
plaintiff-appellee is in accordance with current laws and jurisprudence on the matter. Indeed,
aside from the fact that defendant-appellant acted in bad faith in breaching the contract and
in denying plaintiff's valid claim for damages, plaintiff-appellee underwent profound distress,
sleepless nights, and anxiety upon knowledge of her damaged microwave oven in
possession of defendant-appellant, entitling her to the award of moral and exemplary
damages (Cathay Pacific Airways, Ltd. vs. C.A., supra; Arts. 2219 & 2221, New Civil Code),
and certainly plaintiff-appellant's unjust refusal to comply with her valid demand for payment,
thereby also entitling her to reasonable attorney's fees [Art. 2208 (2) and (11), id.]. 41
12
It will be noted that petitioner never denied that the damage to the microwave oven was sustained principle. One thing, however, is certain. As long as the first letter in "principle" is somehow
while the same was in its custody. The possibility that said damage was due to causes beyond the outplaced by the peso sign, the courts will always have to resolve similar controversies although
control of PAL has effectively been ruled out since the entire process in handling of the cargo — mutual goodwill could have dispensed with judicial recourse.
from the unloading thereof from the plane, the towing and transfer to the PAL warehouse, the
transfer to the Customs examination area, and its release thereafter to the shipper — was done
IN VIEW OF ALL OF THE FOREGOING, the assailed judgment of respondent Court of Appeals is
almost exclusively by, and with the intervention or, at the very least, under the direct supervision of a
AFFIRMED in toto.
responsible PAL personnel. 42

SO ORDERED.
The very admissions of PAL, through Vicente Villaruz of its Import Section, as follows:

ATTY. VINCO: So that, you now claim, Mr. Witness, that from the time the cargo was
unloaded from the plane until the time it reaches the Customs counter where it was
inspected, all the way, it was the PAL personnel who did all these things?

WITNESS: Yes, however, there is also what we call the Customs storekeeper and the
Customs guard along with the cargo.

ATTY. VINCO: You made mention about a locator?

WITNESS: Yes, sir.

ATTY. VINCO: This locator, is he an employee of the PAL or the Customs?

WITNESS: He is a PAL employee. 43

lead to the inevitable conclusion that whatever damage may have been sustained by the cargo
is due to causes attributable to PAL's personnel or, at all events, under their responsibility.

Moreover, the trial court underscored the fact that petitioner was not able to overcome the statutory
presumption of negligence in Article 1735 which, as a common carrier, it was laboring under in case
of loss, destruction or deterioration of goods, through proper showing of the exercise of
extraordinary diligence. Neither did it prove that the damage to the microwave oven was because of
any of the excepting causes under Article 1734, all of the same Code. Inasmuch as the subject item
was received in apparent good condition, no contrary notation or exception having been made on
the air waybill upon its acceptance for shipment, the fact that it was delivered with a broken glass
door raises the presumption that PAL's personnel were negligent in the carriage and handling of the
cargo. 44

Furthermore, there was glaringly no attempt whatsoever on the part of petitioner to explain the
cause of the damage to the oven. The unexplained cause of damage to private respondent's cargo
constitutes gross carelessness or negligence which by itself justifies the present award of
damages. 45 The equally unexplained and inordinate delay in acting on the claim upon referral
thereof to the claims officer, Atty. Paco, and the noncommittal responses to private respondent's
entreaties for settlement of her claim for damages belies petitioner's pretension that there was no
bad faith on its part. This unprofessional indifference of PAL's personnel despite full and actual
knowledge of the damage to private respondent's cargo, just to be exculpated from liability on pure
technicality and bureaucratic subterfuge, smacks of willful misconduct and insensitivity to a
passenger's plight tantamount to bad faith 46 and renders unquestionable petitioner's liability for
damages. In sum, there is no reason to disturb the findings of the trial court in this case, especially
with its full affirmance by respondent Court of Appeals.

On this note, the case at bar goes into the annals of our jurisprudence after six years and recedes
into the memories of our legal experience as just another inexplicable inevitability. We will never
know exactly how many man-hours went into the preparation, litigation and adjudication of this
simple dispute over an oven, which the parties will no doubt insist they contested as a matter of

13
G.R. No. 114167 July 12, 1995
COASTWISE LIGHTERAGE CORPORATION, petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.
FRANCISCO, R., J.:
This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17,
1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is
liable to pay herein private respondent the amount of P700,000.00, plus legal interest thereon,
another sum of P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to
Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb
barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long"1 As a consequence, the molasses at
the cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted
the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter,
Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent,
Philippine General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner,
Coastwise Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which paid the
consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing the value of the damaged
cargo of molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of
Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the
latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims
which the consignee may have against the carrier, which is presumed to have violated the contract
of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the
Court of Appeals, the award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment which it
entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a
private carrier, did it exercise the ordinary diligence to which a private carrier is in turn bound?
Second, whether or not the insurer was subrogated into the rights of the consignee against the
carrier, upon payment by the insurer of the value of the consignee's goods lost while on board one
of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it
was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the
shipment of molasses from Negros Oriental to Manila and refers to this contract as a "charter
agreement". It then proceeds to cite the case of Home Insurance Company vs. American Steamship
Agencies, Inc.2 wherein this Court held: ". . . a common carrier undertaking to carry a special cargo
or chartered to a special person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the
court are as follows:
Accordingly, the charter party contract is one of affreightment over the whole vessel, rather
than a demise. As such, the liability of the shipowner for acts or negligence of its captain
and crew, would remain in the absence of stipulation.3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals,4 wherein
we ruled:
Under the demise or bareboat charter of the vessel, the charterer will generally be regarded
as the owner for the voyage or service stipulated. The charterer mans the vessel with his
own people and becomes the owner pro hac vice, subject to liability to others for damages
caused by negligence. To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the
charterer, anything short of such a complete transfer is a contract of affreightment (time or
voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of the vessel leases
part or all of its space to haul goods for others. It is a contract for special service to be
rendered by the owner of the vessel and under such contract the general owner retains the
possession, command and navigation of the ship, the charterer or freighter merely having
use of the space in the vessel in return for his payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the property of the
charterer, remains liable as carrier and must answer for any breach of duty as to the care,
loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same however is
not true in a contract of affreightment on account of the aforementioned distinctions between the
two.
Petitioner admits that the contract it entered into with the consignee was one of affreightment.5 We
agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one
point to another, but the possession, command and navigation of the vessels remained with
petitioner Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the
contract of affreightment, was not converted into a private carrier, but remained a common carrier
and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in
good order to a carrier and the subsequent arrival of the same goods at the place of destination in
bad order makes for a prima facie case against the carrier.
It follows then that the presumption of negligence that attaches to common carriers, once the goods
it transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.
14
The records show that the damage to the barge which carried the cargo of molasses was caused by
its hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a
submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause
of the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any
effort to prepare a chart to indicate the location of sunken derelicts within Manila North Harbor to
avoid navigational accidents"6 effectively contributed to the happening of this mishap. Thus, being
unaware of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the
same. Nothing could have prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence.
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other
than the assured, then the insurer, upon payment to the assured will be subrogated to the
rights of the assured to recover from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operated as an equitable
assignment to the former of all remedies which the latter may have against the third party
whose negligence or wrongful act caused the loss. 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.

However, petitioner's assertion is belied by the evidence on record where it appeared that far from
having rendered service with the greatest skill and utmost foresight, and being free from fault, the
carrier was culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by
the provisions of the Civil Code) provides:
Art. 609. — Captains, masters, or patrons of vessels must be Filipinos, have legal capacity
to contract in accordance with this code, and prove the skill capacity and qualifications
necessary to command and direct the vessel, as established by marine and navigation laws,
ordinances or regulations, and must not be disqualified according to the same for the
discharge of the duties of the position. . . .
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-
asa Sales, Inc., the consignee of the cargo of molasses totally damaged while being transported by
petitioner Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales,
Inc. may have had against the carrier, herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming
the order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to
pay respondent Philippine General Insurance Company the "principal amount of P700,000.00 plus
interest thereon at the legal rate computed from March 29, 1989, the date the complaint was filed
until fully paid and another sum of P100,000.00 as attorney's fees and costs"10 is likewise hereby
AFFIRMED
SO ORDERED.

Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates
this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful
accident. It may also logically, follow that a person without license to navigate, lacks not just the skill
to do so, but also the utmost familiarity with the usual and safe routes taken by seasoned and legally
authorized ones. Had the patron been licensed, he could be presumed to have both the skill and the
knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay on their
way to Pier 18.

As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported, by
proof of its exercise of extraordinary diligence.

On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more
rule against the petitioner. We have already found petitioner liable for breach of the contract of
carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of
the cargo which petitioner-carrier was transporting, it was not the carrier which paid the value
thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent PhilGen.

Article 2207 of the Civil Code is explicit on this point:

Art. 2207. If the plaintiffs 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 wrongdoer or the person who violated the contract. . . .

This legal provision containing the equitable principle of subrogation has been applied in a long line
of cases including Compania Maritima v. Insurance Company of North America;7 Fireman's Fund
Insurance Company v. Jamilla & Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court
of Appeals,9 wherein this Court explained:

15
G.R. No. 166250               July 26, 2010
UNSWORTH TRANSPORT INTERNATIONAL (PHILS.), INC., Petitioner,
vs.
COURT OF APPEALS and PIONEER INSURANCE AND SURETY
CORPORATION, Respondents.
DECISION
NACHURA, J.:
For review is the Court of Appeals (CA) Decision1 dated April 29, 2004 and Resolution2 dated
November 26, 2004. The assailed Decision affirmed the Regional Trial Court (RTC) decision3 dated
February 22, 2001; while the assailed Resolution denied petitioner Unsworth Transport International
(Philippines), Inc., American President Lines, Ltd. (APL), and Unsworth Transport International,
Inc.’s (UTI’s) motion for reconsideration.
The facts of the case are:
On August 31, 1992, the shipper Sylvex Purchasing Corporation delivered to UTI a shipment of 27
drums of various raw materials for pharmaceutical manufacturing, consisting of: "1) 3 drums (of)
extracts, flavoring liquid, flammable liquid x x x banana flavoring; 2) 2 drums (of) flammable liquids x
x x turpentine oil; 2 pallets. STC: 40 bags dried yeast; and 3) 20 drums (of) Vitabs: Vitamin B
Complex Extract."4 UTI issued Bill of Lading No. C320/C15991-2,5 covering the aforesaid shipment.
The subject shipment was insured with private respondent Pioneer Insurance and Surety
Corporation in favor of Unilab against all risks in the amount of ₱1,779,664.77 under and by virtue of
Marine Risk Note Number MC RM UL 0627 926 and Open Cargo Policy No. HO-022-RIU.7
On the same day that the bill of lading was issued, the shipment was loaded in a sealed 1x40
container van, with no. APLU-982012, boarded on APL’s vessel M/V "Pres. Jackson," Voyage 42,
and transshipped to APL’s M/V "Pres. Taft"8 for delivery to petitioner in favor of the consignee United
Laboratories, Inc. (Unilab).
On September 30, 1992, the shipment arrived at the port of Manila. On October 6, 1992, petitioner
received the said shipment in its warehouse after it stamped the Permit to Deliver Imported
Goods9 procured by the Champs Customs Brokerage.10 Three days thereafter, or on October 9,
1992, Oceanica Cargo Marine Surveyors Corporation (OCMSC) conducted a stripping survey of the
shipment located in petitioner’s warehouse. The survey results stated:
2-pallets STC 40 bags Dried Yeast, both in good order condition and properly sealed
19- steel drums STC Vitamin B Complex Extract, all in good order condition and properly
sealed
1-steel drum STC Vitamin B Complex Extra[ct] with cut/hole on side, with approx. spilling
of 1%11
On October 15, 1992, the arrastre Jardine Davies Transport Services, Inc. (Jardine)
issued Gate Pass No. 761412 which stated that "22 drums13 Raw Materials for
Pharmaceutical Mfg." were loaded on a truck with Plate No. PCK-434 facilitated by
Champs for delivery to Unilab’s warehouse. The materials were noted to be complete and
in good order in the gate pass.14 On the same day, the shipment arrived in Unilab’s
warehouse and was immediately surveyed by an independent surveyor, J.G. Bernas
Adjusters & Surveyors, Inc. (J.G. Bernas). The Report stated:
1-p/bag torn on side contents partly spilled
1-s/drum #7 punctured and retaped on bottom side content lacking
5-drums shortship/short delivery15
On October 23 and 28, 1992, the same independent surveyor conducted final inspection surveys
which yielded the same results. Consequently, Unilab’s quality control representative rejected one
paper bag containing dried yeast and one steel drum containing Vitamin B Complex as unfit for the
intended purpose.16
On November 7, 1992, Unilab filed a formal claim17 for the damage against private respondent and
UTI. On November 20, 1992, UTI denied liability on the basis of the gate pass issued by Jardine that
the goods were in complete and good condition; while private respondent paid the claimed amount
on March 23, 1993. By virtue of the Loss and Subrogation Receipt18 issued by Unilab in favor of
private respondent, the latter filed a complaint for Damages against APL, UTI and petitioner with the
RTC of Makati.19 The case was docketed as Civil Case No. 93-3473 and was raffled to Branch 134.
After the termination of the pre-trial conference, trial on the merits ensued. On February 22, 2001,
the RTC decided in favor of private respondent and against APL, UTI and petitioner, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintif PIONEER INSURANCE & SURETY
CORPORATION and against the defendants AMERICAN PRESIDENT LINES and UNSWORTH
TRANSPORT INTERNATIONAL (PHILS.), INC. (now known as JUGRO TRANSPORT INT’L.,
PHILS.), ordering the latter to pay, jointly and severally, the former the following amounts:
1. The sum of SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE and 27/100
(Php76,231.27) with interest at the legal rate of 6% per annum to be computed starting
from September 30, 1993 until fully paid, for and as actual damages;
2. The amount equivalent to 25% of the total sum as attorney’s fees;
3. Cost of this litigation.
SO ORDERED.20
On appeal, the CA affirmed the RTC decision on April 29, 2004. The CA rejected UTI’s defense that
it was merely a forwarder, declaring instead that it was a common carrier. The appellate court added
that by issuing the Bill of Lading, UTI acknowledged receipt of the goods and agreed to transport
and deliver them at a specific place to a person named or his order. The court further concluded that
upon the delivery of the subject shipment to petitioner’s warehouse, its liability became similar to
that of a depositary. As such, it ought to have exercised ordinary diligence in the care of the goods.
And as found by the RTC, the CA agreed that petitioner failed to exercise the required diligence.
The CA also rejected petitioner’s claim that its liability should be limited to $500 per package
pursuant to the Carriage of Goods by Sea Act (COGSA) considering that the value of the shipment
was declared pursuant to the letter of credit and the pro forma invoice. As to APL, the court
considered it as a common carrier notwithstanding the non-issuance of a bill of lading inasmuch as a
bill of lading is not indispensable for the execution of a contract of carriage.21
Unsatisfied, petitioner comes to us in this petition for review on certiorari, raising the following
issues:
16
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN UPHOLDING THE
DECISION OF THE REGIONAL TRIAL COURT DATED 22 FEBRUARY 2001, AWARDING THE
SUM OF SEVENTY SIX THOUSAND TWO HUNDRED THIRTY ONE AND 27/100 PESOS
(PHP76,231.27) WITH LEGAL INTEREST AT 6% PER ANNUM AS ACTUAL DAMAGES AND 25%
AS ATTORNEY’S FEES.
2. WHETHER OR NOT PETITIONER UTI IS A COMMON CARRIER.
3. WHETHER OR NOT PETITIONER UTI EXERCISED THE REQUIRED ORDINARY DILIGENCE.
4. WHETHER OR NOT THE PRIVATE RESPONDENT SUFFICIENTLY ESTABLISHED THE
ALLEGED DAMAGE TO ITS CARGO.22
Petitioner admits that it is a forwarder but disagrees with the CA’s conclusion that it is a common
carrier. It also questions the appellate court’s findings that it failed to establish that it exercised
extraordinary or ordinary diligence in the vigilance over the subject shipment. As to the damages
allegedly suffered by private respondent, petitioner counters that they were not sufficiently proven.
Lastly, it insists that its liability, in any event, should be limited to $500 pursuant to the package
limitation rule. Indeed, petitioner wants us to review the factual findings of the RTC and the CA and
to evaluate anew the evidence presented by the parties.
The petition is partly meritorious.
Well established is the rule that factual questions may not be raised in a petition for review on
certiorari as clearly stated in Section 1, Rule 45 of the Rules of Court, viz.:
Section 1. Filing of petition with Supreme Court. – A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial
Court or other courts whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of law which must be distinctly
set forth.
Admittedly, petitioner is a freight forwarder. The term "freight forwarder" refers to a firm holding itself
out to the general public (other than as a pipeline, rail, motor, or water carrier) to provide
transportation of property for compensation and, in the ordinary course of its business, (1) to
assemble and consolidate, or to provide for assembling and consolidating, shipments, and to
perform or provide for break-bulk and distribution operations of the shipments; (2) to assume
responsibility for the transportation of goods from the place of receipt to the place of destination; and
(3) to use for any part of the transportation a carrier subject to the federal law pertaining to common
carriers.231avvphi1
A freight forwarder’s liability is limited to damages arising from its own negligence, including
negligence in choosing the carrier; however, where the forwarder contracts to deliver goods to their
destination instead of merely arranging for their transportation, it becomes liable as a common
carrier for loss or damage to goods. A freight forwarder assumes the responsibility of a carrier,
which actually executes the transport, even though the forwarder does not carry the merchandise
itself.24
It is undisputed that UTI issued a bill of lading in favor of Unilab. Pursuant thereto, petitioner
undertook to transport, ship, and deliver the 27 drums of raw materials for pharmaceutical
manufacturing to the consignee.
A bill of lading is a written acknowledgement of the receipt of goods and an agreement to transport
and to deliver them at a specified place to a person named or on his or her order.25 It operates both
as a receipt and as a contract. It is a receipt for the goods shipped and a contract to transport and
deliver the same as therein stipulated. As a receipt, it recites the date and place of shipment,
describes the goods as to quantity, weight, dimensions, identification marks, condition, quality, and
value. As a contract, it names the contracting parties, which include the consignee; fixes the route,
destination, and freight rate or charges; and stipulates the rights and obligations assumed by the
parties.26
Undoubtedly, UTI is liable as a common carrier. Common carriers, as a general rule, are presumed
to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed.
That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In
order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that
they observed such diligence.27 Mere proof of delivery of the goods in good order to a common
carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or
negligence against the carrier. If no adequate explanation is given as to how the deterioration, loss,
or destruction of the goods happened, the transporter shall be held responsible.28
Though it is not our function to evaluate anew the evidence presented, we refer to the records of the
case to show that, as correctly found by the RTC and the CA, petitioner failed to rebut the prima
facie presumption of negligence in the carriage of the subject shipment.
First, as stated in the bill of lading, the subject shipment was received by UTI in apparent good order
and condition in New York, United States of America. Second, the OCMSC Survey Report stated
that one steel drum STC Vitamin B Complex Extract was discovered to be with a cut/hole on the
side, with approximate spilling of 1%. Third, though Gate Pass No. 7614, issued by Jardine, noted
that the subject shipment was in good order and condition, it was specifically stated that there were
22 (should be 27 drums per Bill of Lading No. C320/C15991-2) drums of raw materials for
pharmaceutical manufacturing. Last, J.G. Bernas’ Survey Report stated that "1-s/drum was
punctured and retaped on the bottom side and the content was lacking, and there was a short
delivery of 5-drums."
All these conclusively prove the fact of shipment in good order and condition, and the consequent
damage to one steel drum of Vitamin B Complex Extract while in the possession of petitioner which
failed to explain the reason for the damage. Further, petitioner failed to prove that it observed the
extraordinary diligence and precaution which the law requires a common carrier to exercise and to
follow in order to avoid damage to or destruction of the goods entrusted to it for safe carriage and
delivery.29
However, we affirm the applicability of the Package Limitation Rule under the COGSA, contrary to
the RTC and the CA’s findings.
It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed amount
per package. In all matters not regulated by the Civil Code, the rights and obligations of common
carriers are governed by the Code of Commerce and special laws. Thus, the COGSA supplements
the Civil Code by establishing a provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading.30 Section 4(5) of the COGSA provides:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to
or in connection with the transportation of goods in an amount exceeding $500 per package of lawful
money of the United States, or in case of goods not shipped in packages, per customary freight unit,
or the equivalent of that sum in other currency, unless the nature and value of such goods have
been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if
embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the
carrier.
17
In the present case, the shipper did not declare a higher valuation of the goods to be shipped.
Contrary to the CA’s conclusion, the insertion of the words "L/C No. LC No. 1-187-008394/ NY
69867 covering shipment of raw materials for pharmaceutical Mfg. x x x" cannot be the basis of
petitioner’s liability.31 Furthermore, the insertion of an invoice number does not in itself sufficiently
and convincingly show that petitioner had knowledge of the value of the cargo.32

In light of the foregoing, petitioner’s liability should be limited to $500 per steel drum. In this case, as
there was only one drum lost, private respondent is entitled to receive only $500 as damages for the
loss. In addition to said amount, as aptly held by the trial court, an interest rate of 6% per annum
should also be imposed, plus 25% of the total sum as attorney’s fees.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals
Decision dated April 29, 2004 and Resolution dated November 26, 2004 are AFFIRMED with
MODIFICATION by reducing the principal amount due private respondent Pioneer Insurance and
Surety Corporation from ₱76,231.27 to $500, with interest of 6% per annum from date of demand,
and 25% of the amount due as attorney’s fees.

The other aspects of the assailed Decision and Resolution STAND.

SO ORDERED.

18
G.R. No. 165647               March 26, 2009
PHILIPPINES FIRST INSURANCE CO., INC., Petitioner,
vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN CHARTERER OF
THE VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI FAREAST SHIP BUSINESS
COMPANY," Respondents.
DECISION
TINGA, J.:
Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and Resolution3 of the
Court of Appeals in CA-G.R. No. 61885. The Court of Appeals reversed the Decision4 of the
Regional Trial Court (RTC) of Manila, Branch 55 in Civil Case No. 96-80298, dismissing the
complaint for sum of money.
The facts of the case follow.5
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on board M/S
Offshore Master a shipment consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min.
(shipment), complete and in good order for transportation to and delivery at the port of Manila for
consignee, L.G. Atkimson Import-Export, Inc. (consignee), covered by a Clean Bill of Lading. The
Bill of Lading reflects the gross weight of the total cargo at 500,200 kilograms.6 The Owner and/or
Charterer of M/V Offshore Master is unknown while the shipper of the shipment is Shanghai Fareast
Ship Business Company. Both are foreign firms doing business in the Philippines, thru its local ship
agent, respondent Wallem Philippines Shipping, Inc. (Wallem).7
On or about 16 October 1995, the shipment arrived at the port of Manila on board the vessel M/S
Offshore Master from which it was subsequently discharged. It was disclosed during the discharge
of the shipment from the carrier that 2,426 poly bags (bags) were in bad order and condition, having
sustained various degrees of spillages and losses. This is evidenced by the Turn Over Survey of
Bad Order Cargoes (turn-over survey) of the arrastre operator, Asian Terminals, Inc. (arrastre
operator).8 The bad state of the bags is also evinced by the arrastre operator’s Request for Bad
Order Survey.9
Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from the pier to the
consignee’s warehouse in Quezon City,10 while the final inspection was conducted jointly by the
consignee’s representative and the cargo surveyor. During the unloading, it was found and noted
that the bags had been discharged in damaged and bad order condition. Upon inspection, it was
discovered that 63,065.00 kilograms of the shipment had sustained unrecovered spillages, while
58,235.00 kilograms had been exposed and contaminated, resulting in losses due to depreciation
and downgrading.11
On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the damaged
shipment, to no avail. Since the shipment was insured with petitioner Philippines First Insurance Co.,
Inc. against all risks in the amount of ₱2,470,213.50,12 the consignee filed a formal claim13 with
petitioner for the damage and losses sustained by the shipment. After evaluating the invoices, the
turn-over survey, the bad order certificate and other documents,14 petitioner found the claim to be in
order and compensable under the marine insurance policy. Consequently, petitioner paid the
consignee the sum of ₱397,879.69 and the latter signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem for the recovery
of the amount paid by petitioner to the consignee. However, despite receipt of the letter, Wallem did
not settle nor even send a response to petitioner’s claim.15
Consequently, petitioner instituted an action before the RTC for damages against respondents for
the recovery of ₱397,879.69 representing the actual damages suffered by petitioner plus legal
interest thereon computed from the time of the filing of the complaint until fully paid and attorney’s
fees equivalent to 25% of the principal claim plus costs of suit.
In a decision16 dated 3 November 1998, the RTC ordered respondents to pay petitioner ₱397,879.69
with 6% interest plus attorney’s fees and costs of the suit. It attributed the damage and losses
sustained by the shipment to the arrastre operator’s mishandling in the discharge of the shipment.
Citing Eastern Shipping Lines, Inc. v. Court of Appeals,17 the RTC held the shipping company and
the arrastre operator solidarily liable since both the arrastre operator and the carrier are charged
with and obligated to deliver the goods in good order condition to the consignee. It also ruled that
the ship functioned as a common carrier and was obliged to observe the degree of care required of
a common carrier in handling cargoes. Further, it held that a notice of loss or damage in writing is
not required in this case because said goods already underwent a joint inspection or survey at the
time of receipt thereof by the consignee, which dispensed with the notice requirement.
The Court of Appeals reversed and set aside the RTC’s decision.18 According to the appellate court,
there is no solidary liability between the carrier and the arrastre operator because it was clearly
established by the court a quo that the damage and losses of the shipment were attributed to the
mishandling by the arrastre operator in the discharge of the shipment. The appellate court ruled that
the instant case falls under an exception recognized in Eastern
Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the
carrier’s duties extend to the obligation to safely discharge the cargo from the vessel;
2. Whether or not the carrier should be held liable for the cost of the damaged shipment;
3. Whether or not Wallem’s failure to answer the extra judicial demand by petitioner for the
cost of the lost/damaged shipment is an implied admission of the former’s liability for said
goods;
4. Whether or not the courts below erred in giving credence to the testimony of Mr.
Talens.
It is beyond question that respondent’s vessel is a common carrier.20 Thus, the standards for
determining the existence or absence of the respondent’s liability will be gauged on the degree of
diligence required of a common carrier. Moreover, as the shipment was an exercise of international
trade, the provisions of the Carriage of Goods
by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce, shall apply.22
The first and second issues raised in the petition will be resolved concurrently since they are
interrelated.
It is undisputed that the shipment was damaged prior to its receipt by the insured consignee. The
damage to the shipment was documented by the turn-over survey23 and Request for Bad Order
Survey.24 The turn-over survey, in particular, expressly stipulates that 2,426 bags of the shipment
were received by the arrastre operator in damaged condition. With these documents, petitioner
insists that the shipment incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre operator.
19
The trial court, however, found through the testimony of Mr. Maximino Velasquez Talens, a cargo In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc.35 the Court explained the relationship
surveyor of Oceanica Cargo Marine Surveyors Corporation, that the losses and damage to the and responsibility of an arrastre operator to a consignee of a cargo, to quote:
cargo were caused by the mishandling of the arrastre operator. Specifically, that the torn cargo bags
resulted from the use of steel hooks/spikes in piling the cargo bags to the pallet board and in
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
pushing the bags by the stevedores of the arrastre operator to the tug boats then to the ports.25 The
and warehouseman. The relationship between the consignee and the common carrier is similar to
appellate court affirmed the finding of mishandling in the discharge of cargo and it served as its
that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good
basis for exculpating respondents from liability, rationalizing that with the fault of the arrastre
care of the goods that are in its custody and to deliver them in good condition to the consignee, such
operator in the unloading of the cargo established it should bear sole liability for the cost of the
responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
damaged/lost cargo.
therefore charged with and obligated to deliver the goods in good condition to the consignee.
(Emphasis supplied) (Citations omitted)
While it is established that damage or losses were incurred by the shipment during the unloading, it
is disputed who should be liable for the damage incurred at that point of transport. To address this
The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of
issue, the pertinent laws and jurisprudence are examined.
Appeals36 with the clarification that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.
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 transported by them.26 Subject to
Thus, in this case the appellate court is correct insofar as it ruled that an arrastre operator and a
certain exceptions enumerated under Article 173427 of the Civil Code, common carriers are
carrier may not be held solidarily liable at all times. But the precise question is which entity had
responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of
custody of the shipment during its unloading from the vessel?
the common carrier lasts from the time the goods are unconditionally placed in the possession of,
and received by the carrier for transportation until the same are delivered, actually or constructively,
by the carrier to the consignee, or to the person who has a right to receive them.28 The aforementioned Section 3(2) of the COGSA states that among the carriers’ responsibilities are
to properly and carefully load, care for and discharge the goods carried. The bill of lading covering
the subject shipment likewise stipulates that the carrier’s liability for loss or damage to the goods
For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable for
ceases after its discharge from the vessel. Article 619 of the Code of Commerce holds a ship
the cargo from the time it is turned over to him at the dock or afloat alongside the vessel at the port
captain liable for the cargo from the time it is turned over to him until its delivery at the port of
of loading, until he delivers it on the shore or on the discharging wharf at the port of unloading,
unloading.
unless agreed otherwise. In Standard Oil Co. of New York v. Lopez Castelo,29 the Court interpreted
the ship captain’s liability as ultimately that of the shipowner by regarding the captain as the
representative of the ship owner. In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it was ruled that
like the duty of seaworthiness, the duty of care of the cargo is non-delegable,38 and the carrier is
accordingly responsible for the acts of the master, the crew, the stevedore, and his other agents. It
Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea, the
has also been held that it is ordinarily the duty of the master of a vessel to unload the cargo and
carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such
place it in readiness for delivery to the consignee, and there is an implied obligation that this shall be
goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities
accomplished with sound machinery, competent hands, and in such manner that no unnecessary
set forth in the Act.30 Section 3 (2) thereof then states that among the carriers’ responsibilities are to
injury shall be done thereto.39 And the fact that a consignee is required to furnish persons to assist in
properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
unloading a shipment may not relieve the carrier of its duty as to such unloading.40

The above doctrines are in fact expressly incorporated in the bill of lading between the shipper
The exercise of the carrier’s custody and responsibility over the subject shipment during the
Shanghai Fareast Business Co., and the consignee, to wit:
unloading actually transpired in the instant case during the unloading of the shipment as testified by
Mr. Talens, the cargo surveyor, to quote:
4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from the time
when the goods are loaded on board the vessel and shall cease when they are discharged from the
Atty. Repol:
vessel.

- Do you agree with me that Wallem Philippines is a shipping [company]?

The Carrier shall not be liable of loss of or damage to the goods before loading and after discharging
from the vessel, howsoever such loss or damage arises.31
A Yes, sir.
On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on
the wharf or between the establishment of the consignee or shipper and the ship's tackle.32 Being Q And, who hired the services of the stevedores?
the custodian of the goods discharged from a vessel, an arrastre operator's duty is to take good care
of the goods and to turn them over to the party entitled to their possession.33
A The checker of the vessel of Wallem, sir.41

Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees
xxx
should observe the standards and measures necessary to prevent losses and damage to shipments
under its custody.34
Q Mr. Witness, during the discharging operation of this cargo, where was the master of
the vessel?

20
 A On board the vessel, supervising, sir. Contrary to petitioner’s stance on the third issue, Wallem’s failure to respond to its demand letter
does not constitute an implied admission of liability. To borrow the words of Mr. Justice Oliver
Wendell Holmes, thus:
Q And, observed the discharging operation?

A man cannot make evidence for himself by writing a letter containing the statements that he wishes
A Yes, sir.
to prove. He does not make the letter evidence by sending it to the party against whom he wishes to
prove the facts [stated therein]. He no more can impose a duty to answer a charge than he can
Q And, what did the master of the vessel do when the cargo was being unloaded from the impose a duty to pay by sending goods. Therefore a failure to answer such adverse assertions in
vessel? the absence of further circumstances making an answer requisite or natural has no effect as an
admission.47
A He would report to the head checker, sir.
With respect to the attorney’s fees, it is evident that petitioner was compelled to litigate this matter to
protect its interest. The RTC’s award of ₱20,000.00 as attorney’s fees is reasonable.
Q He did not send the stevedores to what manner in the discharging of the cargo from the
vessel?
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2004
and its Resolution dated 11 October 2004 are REVERSED and SET ASIDE. Wallem is ordered to
A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir.42 pay petitioner the sum of ₱397,879.69, with interest thereon at 6% per annum from the filing of the
complaint on 7 October 1996 until the judgment becomes final and executory. Thereafter, an interest
xxx rate of 12% per annum shall be imposed.48 Respondents are also ordered to pay petitioner the
amount of ₱20,000.00 for and as attorney’s fees, together with the costs of the suit.
Q Is he [the head checker] an employee of the company?
SO ORDERED.
43
A He is a contractor/checker of Wallem Philippines, sir.

Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in the Bad Order Inspection, to
wit:

"The bad order torn bags, was due to stevedores[‘] utilizing steel hooks/spikes in piling the cargo to
[the] pallet board at the vessel’s cargo holds and at the pier designated area before and after
discharged that cause the bags to torn [sic]."44 (Emphasis supplied)

The records are replete with evidence which show that the damage to the bags happened before
and after their discharge45 and it was caused by the stevedores of the arrastre operator who were
then under the supervision of Wallem.1awphi1.net

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under
the custody of the carrier. In the instant case, the damage or losses were incurred during the
discharge of the shipment while under the supervision of the carrier. Consequently, the carrier is
liable for the damage or losses caused to the shipment. As the cost of the actual damage to the
subject shipment has long been settled, the trial court’s finding of actual damages in the amount of
₱397,879.69 has to be sustained.

On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing credibility of
witnesses is well-settled:

x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct and entitled to
the highest respect because it is more competent to so conclude, having had the opportunity to
observe the witnesses' demeanor and deportment on the stand, and the manner in which they gave
their testimonies. The trial judge therefore can better determine if such witnesses were telling the
truth, being in the ideal position to weigh conflicting testimonies. Therefore, unless the trial judge
plainly overlooked certain facts of substance and value which, if considered, might affect the result
of the case, his assessment on credibility must be respected.46

21
G.R. No. 171468               August 24, 2011
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,
vs.
NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP
INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES, INC., MARINA
PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN
INSURANCE CO., INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 174241
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,
vs.
SEABOARD-EASTERN INSURANCE CO., INC., Respondent.
DECISION
ABAD, J.:
These consolidated petitions involve a cargo owner’s right to recover damages from the loss of
insured goods under the Carriage of Goods by Sea Act and the Insurance Code.
The Facts and the Case
Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT
Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency
generator sets worth US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International,
Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California,
where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping
Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading,
declaring that it received the goods in good condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also
owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang
whose captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993
respecting the loss and damage that the goods on board his vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator,
received the shipment on October 7, 1993. Upon inspection of the three container vans separately
carrying the generator sets, two vans bore signs of external damage while the third van appeared
unscathed. The shipment remained at Pier 3’s Container Yard under Marina’s care pending
clearance from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities
allowed petitioner’s customs broker, Serbros Carrier Corporation (Serbros), to withdraw the
shipment and deliver the same to petitioner New World’s job site in Makati City.
An examination of the three generator sets in the presence of petitioner New World’s
representatives, Federal Builders (the project contractor) and surveyors of petitioner New World’s
insurer, Seaboard–Eastern Insurance Company (Seaboard), revealed that all three sets suffered
extensive damage and could no longer be repaired. For these reasons, New World demanded
recompense for its loss from respondents NYK, DMT, Advatech, LEP Profit, LEP International
Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the
demand, both denied liability for the loss.
Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a
formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required
petitioner New World to submit to it an itemized list of the damaged units, parts, and accessories,
with corresponding values, for the processing of the claim. But petitioner New World did not submit
what was required of it, insisting that the insurance policy did not include the submission of such a
list in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim.
On October 11, 1994 petitioner New World filed an action for specific performance and damages
against all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil
Case 94-2770.
On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability
with the exception of NYK. The RTC found that the generator sets were damaged during transit
while in the care of NYK’s vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the
degree of diligence required of it in the face of a foretold raging typhoon in its path.
The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK
beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). New World filed
its complaint on October 11, 1994 when the deadline for filing the action (on or before October 7,
1994) had already lapsed. The RTC held that the one-year period should be counted from the date
the goods were delivered to the arrastre operator and not from the date they were delivered to
petitioner’s job site.1
As regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter
cannot be faulted for denying the claim against it since New World refused to submit the itemized list
that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing of the
complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,2 affirming the RTC’s
rulings except with respect to Seaboard’s liability. The CA held that petitioner New World can still
recoup its loss from Seaboard’s marine insurance policy, considering a) that the submission of the
itemized listing is an unreasonable imposition and b) that the one-year prescriptive period under the
COGSA did not affect New World’s right under the insurance policy since it was the Insurance Code
that governed the relation between the insurer and the insured.
Although petitioner New World promptly filed a petition for review of the CA decision before the
Court in G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision. On
August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claim
against Seaboard. The CA held that the submission of the itemized listing was a reasonable
requirement that Seaboard asked of New World. Further, the CA held that the one-year prescriptive
period for maritime claims applied to Seaboard, as insurer and subrogee of New World’s right
against the vessel owner. New World’s failure to comply promptly with what was required of it
prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before
the Court in G.R. 174241, assailing the CA’s amended decision.
The Issues Presented
The issues presented in this case are as follows:
22
 a) In G.R. 171468, whether or not the CA erred in affirming the RTC’s release from liability
of respondents DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who were at one
time or another involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboard’s request from
petitioner New World for an itemized list is a reasonable imposition and did not violate the
insurance contract between them; and 2) whether or not the CA erred in failing to rule that
the one-year COGSA prescriptive period for marine claims does not apply to petitioner
New World’s prosecution of its claim against Seaboard, its insurer.
The Court’s Rulings
In G.R. 171468 --
Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina
and Serbros in handling and transporting its shipment from Wisconsin to Manila collectively resulted
in the damage to the same, rendering such respondents solidarily liable with NYK, the vessel owner.
But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a
proper subject of a petition for review on certiorari. And petitioner New World has been unable to
make out an exception to this rule.3 Consequently, the Court will not disturb the finding of the RTC,
affirmed by the CA, that the generator sets were totally damaged during the typhoon which beset the
vessel’s voyage from Hong Kong to Manila and that it was her negligence in continuing with that
journey despite the adverse condition which caused petitioner New World’s loss.
That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil
Code, does not automatically relieve the common carrier of liability. The latter had the burden of
proving that the typhoon was the proximate and only cause of loss and that it exercised due
diligence to prevent or minimize such loss before, during, and after the disastrous typhoon.4 As
found by the RTC and the CA, NYK failed to discharge this burden.
In G.R. 174241 --
One. The Court does not regard as substantial the question of reasonableness of Seaboard’s
additional requirement of an itemized listing of the damage that the generator sets suffered. The
record shows that petitioner New World complied with the documentary requirements evidencing
damage to its generator sets.
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy
insured against all causes of conceivable loss or damage except when otherwise excluded or when
the loss or damage was due to fraud or intentional misconduct committed by the insured. The policy
covered all losses during the voyage whether or not arising from a marine peril.5
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in
voyage, or vessels unseaworthiness, among others.6 But Seaboard had been unable to show that
petitioner New World’s loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not verify the damage that New
World’s goods suffered going by the documents that it already submitted, namely, (1) copy of the
Supplier’s Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading
01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of
Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier and Insurance
Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of Received Formal
Claim from the following: a) LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c)
Serbros Carrier Corporation.7 Notably, Seaboard’s own marine surveyor attended the inspection of
the generator sets.
Seaboard cannot pretend that the above documents are inadequate since they were precisely the
documents listed in its insurance policy.8 Being a contract of adhesion, an insurance policy is
construed strongly against the insurer who prepared it. The Court cannot read a requirement in the
policy that was not there.
Further, it appears from the exchanges of communications between Seaboard and Advatech that
submission of the requested itemized listing was incumbent on the latter as the seller DMT’s local
agent. Petitioner New World should not be made to suffer for Advatech’s shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the
ship shall be discharged from all liability in case of loss or damage unless the suit is brought within
one year after delivery of the goods or the date when the goods should have been delivered.
But whose fault was it that the suit against NYK, the common carrier, was not brought to court on
time? The last day for filing such a suit fell on October 7, 1994. The record shows that petitioner
New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to
take, as early as November 16, 1993 or about 11 months before the suit against NYK would have
fallen due.
In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would
have been subrogated to petitioner New World’s right to recover from NYK. And it could have then
filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on
February 14, 1994 for an itemized list of the damaged units, parts, and accessories, with
corresponding values when it appeared settled that New World’s loss was total and when the
insurance policy did not require the production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand for the list, Seaboard
against whom a formal claim was pending should not have remained obstinate in refusing to
process that claim. It should have examined the same, found it unsubstantiated by documents if that
were the case, and formally rejected it. That would have at least given petitioner New World a clear
signal that it needed to promptly file its suit directly against NYK and the others. Ultimately, the fault
for the delayed court suit could be brought to Seaboard’s doorstep.
Section 241 of the Insurance Code provides that no insurance company doing business in the
Philippines shall refuse without just cause to pay or settle claims arising under coverages provided
by its policies. And, under Section 243, the insurer has 30 days after proof of loss is received and
ascertainment of the loss or damage within which to pay the claim. If such ascertainment is not had
within 60 days from receipt of evidence of loss, the insurer has 90 days to pay or settle the claim.
And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall be
entitled to interest on the proceeds of the policy for the duration of delay at the rate of twice the
ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as
Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay in payment
of the claim is created by the failure of the insurer to pay the claim within the time fixed in Section
243.
Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the
delay until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary
Board. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of 12%
per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116.9 Section 244
of the Insurance Code also provides for an award of attorney’s fees and other expenses incurred by
the assured due to the unreasonable withholding of payment of his claim.
23
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court
regarded as proper an award of 10% of the insurance proceeds as attorney’s fees. Such amount is
fair considering the length of time that has passed in prosecuting the claim.11 Pursuant to the Court’s
ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest per annum from the
finality of judgment until full satisfaction of the claim should likewise be imposed, the interim period
equivalent to a forbearance of credit.1avvphi1

Petitioner New World is entitled to the value stated in the policy which is commensurate to the value
of the three emergency generator sets or US$721,500.00 with double interest plus attorney’s fees
as discussed above.

WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals
decision of January 31, 2006 insofar as petitioner New World International Development (Phils.),
Inc. is not allowed to recover against respondents DMT Corporation, Advatech Industries, Inc., LEP
International Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros
Carrier Corporation.

With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the
Court of Appeals Amended Decision of August 17, 2006. The Court DIRECTS Seaboard-Eastern
Insurance Company, Inc. to pay petitioner New World International Development (Phils.), Inc.
US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration of delay
in accordance with Sections 243 and 244 of the Insurance Code and attorney’s fees equivalent to
10% of the insurance proceeds. Seaboard shall also pay, from finality of judgment, a 12% interest
per annum on the total amount due to petitioner until its full satisfaction.

SO ORDERED.

24
G.R. No. L-7311             September 30, 1955
NEW ZEALAND INSURANCE CO., LTD., plaintiff-appellant,
vs.
ADRIANO CHOA JOY, ETC., defendant-appellee.
BAUTISTA ANGELO, J.:
This is an action for the recovery of the sum of P5,196.20 with legal interest thereon from the date of
the filing of the complaint.
On May 20, 1950, the ship "Jupiter", on her voyage No. 149, received on board at Carangian,
Samar, in good order and condition, 107 bundles of first class loose weight hemp weighing 8,273
kilos, of 130.80 piculs, valued at P6,736.20, from Lee Teh & Co., Inc., for transportation and delivery
to Manila, under a bill of lading issued by the carrier to the shipper. The ship was owned by Adriano
Choa Joy, doing business under the name of South Sea Shipping Line, while the cargo was shipped
by the branch office of Lee Teh & Co., Inc. at Carangian, Samar, for transportation and delivery to its
main office at Manila.
The cargo failed to arrive in Manila because the vessel ran aground while entering the Laoang Bay,
Samar, on May 20, 1950, due to the negligence of its captain, Jose Molina, who, in the investigation
conducted by the Marine Board of Inquiry, was found negligent of his duties and was suspended
from office for a period of three months. Of the cargo, only 7,590 kilos, or 120 piculs of hemp, were
saved and because of their damaged condition, they were sold for the sum of P2,040, the consignor
having spent P500 for their salvage, thereby causing Lee Teh & Co., Inc. losses in the sum of
P5,196.20.
The cargo was insured by the New Zealand Insurance Co., Ltd., and because of the damage
caused to said cargo while in transit, the losses were paid by said company to the shipper. The
carrier having refused to reimburse these damages despite demands made to that effect, the
insurance company, as subrogee of the shipper instituted the present action before the Court of First
Instance of Manila.
After the parties had presented their evidence, the court found that, while the shipper had suffered
damages because of the inability of the carrier to transport the cargo as agreed upon, however, the
liability of the carrier did not attach because of the failure of the shipper or of the consignee to file its
claim for damages within 24 hours from receipt of the cargo as required by law. Consequently, the
court dismissed the case, with costs against the plaintiff. Plaintiff brought this case on appeal directly
to this Court.
Appellant poses in this appeal the following issue: "Whether Lee Teh & Co., Inc, of Manila, as
consignee, or Lee Teh & Co., Inc. of Catarman, Samar, as consignor, should have filed its claim for
damages to the cargo with the shipping company, herein defendant, within twenty four hours from
the date the said cargo was salvaged by the consignor, in accordance with Article 366 of the Code
of Commerce for this action to prosper, or that neither the said consignee nor the said consignor
was under the obligation to file the said claim within the said period, as they are not bound by the
provisions of Article 366 of the Code of Commerce."
Article 366 of the Code of Commerce, which was applied by the court, provides:
Within twenty-four hours following the receipt of the merchandise, the claim against the
carrier for damage or average which may be found therein upon opening the packages,
may be made, provided that the indications of the damage or average which gives rise to
the claim cannot be ascertained from the outside part of such packages, in which case the
claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid,
no claim shall be admitted against the carrier with regard to the condition in which the
goods transported were delivered.
It would appear from the above that in order that the condition therein provided may be demanded
there should be a consignment of goods, through a common carrier, by a consignor in one place to
a consignee in another place. And said article provides that the claim for damages must be made
"within twenty-four hours following the receipt of the merchandise" by the consignee from the carrier.
In other words, there must be delivery of the merchandise by the carrier to the consignee at the
place of destination. In the instant case, the consignor is the branch office of Lee Teh & Co., Inc., at
Catarman, Samar, which placed the cargo on board the ship Jupiter, and the consignee, its main
office at Manila. The lower court found that the cargo never reached Manila, its destination, nor was
it ever delivered to the consignee, the office of the shipper in Manila, because the ship ran aground
upon entering Laoang Bay, Samar on the same day of the shipment. Such being the case, it follows
that the aforesaid article 366 does not have application because the cargo was never received by
the consignee. Moreover, under the bill of lading issued by the carrier (Exhibit C), it was the letter's
undertaking to bring the cargo to its destination—Manila,—and deliver it to consignee, which
undertaking was never complied with. The carrier, therefore, breached its contract, and, as such, it
forfeited its right to invoke in its favor the conditions required by article 366.
One case parallel to the present is Roldan vs. Lim Ponzo & Co., 37 Phil., 285. In that case, plaintiff
sought to recover damages for failure of defendant to transport 2,244 packages of sugar from
plaintiff's hacienda to Iloilo. It was proven that the cargo did not reach its destination because
the lorcha carrying it was wrecked in the river Jalaud through the negligence and lack of skill of the
master of the lorcha. And of the total cargo of 2,244 packages of sugar, only 1,022 were saved in
damaged condition through the efforts made by the shipper. Because plaintiff failed to comply with
the requirement of article 366 of the Code of Commerce, the lower court found for defendant and
dismissed the case. But this Court held that said article "is limited to cases of claims for damages to
goods actually received by the consignee; it has no application in cases wherein the goods
entrusted to the carrier are not delivered to the consignee by the carrier in pursuance of the terms of
the carriage contract." Elaborating on this point, this Court commented:
Article 366 of the Commercial Code is limited to cases of claims for damages to goods
actually turned over by the carrier and received by the consignee, whether those damages
be apparent from an examination of the packages in which the goods are delivered, or of
such character that the nature and extend of the damage is not apparent until the
packages are opened and the contents examined. Clearly it has no application in cases
wherein the goods entrusted to the carrier are not delivered by the carrier to the
consignee. In such cases there can be no question of a claim for damages suffered by the
goods while in transport, since the claim for damages arises exclusively out of the failure
to make delivery. . . .
We are of opinion, however, that the necessity for making the claim in accordance with
that article did not arise if, as it is alleged, these 1,022 packages, of sugar were recovered
from the wreck by the plaintiff, himself, in an effort, by his own activities, to save his
property from total loss. The measures to be taken under the terms of Article 367 of the
Code when the parties are unable to arrive at an amicable settlement of claims for
damages set up in accordance with Article 366, quite clearly indicate that the necessity for
the presentation of claims under this article arises only in those cases wherein the carrier
makes delivery and the consignee receives the goods in pursuance of the terms of the
contract.
It is true that in the instant case there is some disagreement as to whether the salvage of the portion
of the cargo that was saved was due to the efforts of the carrier itself or to the combined efforts of
the latter and the shipper as a result of which the salvaged cargo was placed in possession of the
shipper who sold it and deducted its proceeds from the liability of the carrier. But this discrepancy, in
our opinion, would seem to be immaterial because the law as well as the contract contemplates
delivery of the cargo to the consignee at its port of destination in order that the benefit of the law
25
may be availed of. The liability of the carrier must be determined in the light of the carriage contract,
and since that contract calls for reciprocal obligations, the carrier cannot demand fulfillment of its
part from the shipper or consignee unless it first complies with its own obligation. (Article 1100, old
Civil Code.) The fact that the consignor is but the branch office of the company that shipped the
goods, and the consignee is the main office at Manila, is of no moment, because the duties of each
party under the law are different. Moreover, even if the consignor and the consignee be considered
as one and the same party, still the carrier cannot disclaim responsibility under its contract for the
simple reason that it failed to comply with its obligation to bring the cargo to its destination. This
breach alone justifies its liability under the carriage contract.

Wherefore, the decision appealed from is hereby reversed, and another one will be entered ordering
the defendant to pay the plaintiff the sum of P5,196.20, with legal interest thereon from the filing of
the complaint, with costs against appellee.

26
G.R. No. 124050 June 19, 1997
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES
DEPARTMENT, petitioners,
vs.
COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER
INSURANCE CORPORATION, respondents.
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of
Appeals dated December 14, 1995 1 and its Resolution dated February 22, 1996 2 in CA-G.R. CV
No. 45805 entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies Department
v. South Sea Surety Insurance Co., Inc. and The Charter Insurance Corporation. 3
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner
Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings.
From August to October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by
Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022. 4
Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private
respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp.
(Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total
amount of US$212,772.09 were insured with respondent South Sea, while those covered by Invoice
Nos. 1020, 1017 and 1022 with a total amount of US$149,470.00 were insured with respondent
Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-
party inspector to examine whether the pipes and fittings are manufactured in accordance with the
specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good
order condition before they were loaded in the vessel. Nonetheless, when the goods reached
Hongkong, it was discovered that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance contract.
Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded
payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes.
Private respondents refused to pay because the insurance surveyor's report allegedly showed that
the damage is a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the sum of
HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay
the amount claimed by petitioners because the damage to the goods is due to factory defects which
are not covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to
manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and
private respondents are "all risks" policies which insure against all causes of conceivable loss or
damage. The only exceptions are those excluded in the policy, or those sustained due to fraud or
intentional misconduct on the part of the insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly and
severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30, with legal rate of interest
as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED. 5
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the damage is not due to factory defect
and that it was covered by the "all risks" insurance policies issued by private respondents to
petitioner Mayer. However, it set aside the decision of the trial court and dismissed the complaint on
the ground of prescription. It held that the action is barred under Section 3(6) of the Carriage of
Goods by Sea Act since it was filed only on April 17, 1986, more than two years from the time the
goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides
that "the carrier and the ship shall be discharged from all liability in respect of loss or damage unless
suit is brought within one year after delivery of the goods or the date when the goods should have
been delivered." Respondent court ruled that this provision applies not only to the carrier but also to
the insurer, citing Filipino Merchants Insurance Co., Inc. v. Alejandro. 6
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners' cause of action had
already prescribed on the mistaken application of the Carriage of Goods by Sea Act and
the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
2. The respondent Court of Appeals committed an error in dismissing the complaint. 7
The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage
of Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be
discharged from all liability for loss or damage to the goods if no suit is filed within one year after
delivery of the goods or the date when they should have been delivered. Under this provision, only
the carrier's liability is extinguished if no suit is brought within one year. But the liability of the insurer
is not extinguished because the insurer's liability is based not on the contract of carriage but on the
contract of insurance. A close reading of the law reveals that the Carriage of Goods by Sea Act
governs the relationship between the carrier on the one hand and the shipper, the consignee and/or
the insurer on the other hand. It defines the obligations of the carrier under the contract of carriage.
It does not, however, affect the relationship between the shipper and the insurer. The latter case is
governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro 8 and the other cases 9 cited therein
does not support respondent court's view that the insurer's liability prescribes after one year if no
action for indemnity is filed against the carrier or the insurer. In that case, the shipper filed a
complaint against the insurer for recovery of a sum of money as indemnity for the loss and damage
sustained by the insured goods. The insurer, in turn, filed a third-party complaint against the carrier
for reimbursement of the amount it paid to the shipper. The insurer filed the third-party complaint on
January 9, 1978, more than one year after delivery of the goods on December 17, 1977. The court
held that the insurer was already barred from filing a claim against the carrier because under the
Carriage of Goods by Sea Act, the suit against the carrier must be filed within one year after delivery
of the goods or the date when the goods should have been delivered. The court said that "the
coverage of the Act includes the insurer of the goods." 10
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the
insurer which filed a claim against the carrier for reimbursement of the amount it paid to the shipper.
27
In the case at bar, it was the shipper which filed a claim against the insurer. The basis of the
shipper's claim is the "all risks" insurance policies issued by private respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the
shipper, the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of
the Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper,
may no longer file a claim against the carrier beyond the one-year period provided in the law. But it
does not mean that the shipper may no longer file a claim against the insurer because the basis of
the insurer's liability is the insurance contract. An insurance contract is a contract whereby one
party, for a consideration known as the premium, agrees to indemnify another for loss or damage
which he may suffer from a specified peril. 11 An "all risks" insurance policy covers all kinds of loss
other than those due to willful and fraudulent act of the insured. 12 Thus, when private respondents
issued the "all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in
case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance
with Article 1144 of the New Civil Code. 13

IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated
December 14, 1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and the
Decision of the Regional Trial Court is hereby REINSTATED. No costs.

SO ORDERED.

28
G.R. No. L-24064             February 29, 1968           Again, our statute of limitations of action cannot be applied to the present case because the
corresponding bill of lading — which is the contract and, hence, the law between the parties —
expressly stipulates that it is "subject to the Provisions of the Carriage by Sea Act of the U.S. of
RIZAL SURETY & INSURANCE, CO., plaintiff-appellant,
America, approved April 16, 1936, which shall be deemed to be incorporated" therein.
vs.
MACONDRAY & CO., INC., defendant-appellee.
          The lower court held and, correctly, that, inasmuch as the "SS Tai Ping" arrived at the Port of
Manila on November 2, 1962 and left it on November 4, 1962, it was on the latter date that the
CONCEPCION, C.J.:
carrier had the last opportunity to deliver the goods; that the period of one year within which the
carrier could be sued commenced to run, therefore, from November 5, 1962 and expired on
          Plaintiff, Rizal Surety & Insurance Company seeks the reversal of a decision of the Court of November 4, 1963; and that said period has expired before this action was commenced on February
First Instance of Manila dismissing the complaint herein, with costs. 10, 1964.

          Plaintiff seeks to recover from defendant, Macondray & Co., Inc., as authorized agent, in           WHEREFORE, the decision appealed from should be, as it is hereby, affirmed, with costs
Manila, of Barber Steamship Line Inc., which operates the vessel "SS Tai Ping," the sum of against plaintiff-appellant. It is so ordered.
P2,000.00 representing the maximum value recoverable — under the corresponding bill of lading —
of some machinery parts shipped, on board said vessel, at New York, and consigned to Edwardson
Manufacturing Corporation, in Manila, but not discharged by the vessel in Manila, in view of which
the plaintiff had to pay, pursuant to its contract of insurance with the consignee, the value of said
effects to the latter.

          In its answer, the defendant set up the defense of prescription which the lower court
sustained. Hence, the dismissal of the complaint, which has been appealed directly to this Court.

          Defendant's plea is predicated upon Section 3, Title I, of the Carriage of Goods by Sea Act,
the penultimate paragraph of subparagraph 6 of which reads; 1äwphï1.ñët

          In any event the carrier and the ship shall be discharged from all liability in respect
to loss or damages unless suit is brought within one year after delivery of the goods or the
date when the goods should have been delivered: Provided, That if a notice of loss or
damage, either apparent or concealed, is not given as provided for in this section, that fact
shall not affect or prejudice the right of the shipper to bring suit within one year after the
delivery of the goods or the date when the goods should have been delivered.

          The only question submitted for our determination is whether the period of prescription in the
foregoing provision is controlling in the case at bar, considering the conditions obtaining therein.

          Plaintiff maintains the negative view, upon the theory that the above-quoted provision cannot
apply when the shipment in question has not been discharged from the carrying vessel, as in the
case at bar. In such event, it claims, our general statute of limitations of action should apply.

          We find no merit in this contention. The aforementioned provision contemplates not only the
case of damage, but, also, that of loss. It goes without saying that there could be no possible
discharge of goods lost during the voyage and before reaching the destination. Then again, said
provision, likewise, anticipates two (2) other possibilities, viz.: 1) that delivery has been made, in
which case the action should be brought "within one year after delivery of the goods;" or 2) that no
delivery has taken place, in which event said period should be computed from "the date when the
goods should have been delivered." In the latter contingency, the cause of such non-delivery — that
is to say, whether the goods have been discharged from the vessel or not — is immaterial. If the
goods have not been discharged from the vessel, the non-delivery is imputable to the carrier. So
would it be, if the goods had been unloaded from the vessel, but not delivered to the consignee.
Indeed, in such case of discharge of the goods from the vessel, the carrier would still be liable for
non-delivery of the goods, because the same would be due to its own omission, if it undertook to
make the delivery by itself, or to the omission of its agent, if the carrier entrusted the custody of the
goods and/or its delivery to a third party.

29
G.R. No. L-27798 June 15, 1977 The case was submitted for decision on the basis of a stipulation of facts. The trial court in its
decision of January 15, 1964 dismissed the case as to the carrier's agent on the ground that the
action had already prescribed because it was not "brought within one year after delivery of the
UNION CARBIDE PHILIPPINES, INC. (formerly National Carbon Philippines, Inc.), plaintiff-
goods", as contemplated in section 3(6) of the Carriage of Goods by Sea Act. The one-year period
appellant,
was counted from December 19, 1961 when the cargo was delivered to the arrastre operator. As
vs.
above stated, the action was brought on December 21, 196'2 or two days late, according to the trial
MANILA RAILROAD CO., substituted by the PHILIPPINE NATIONAL RAILWAYS, MANILA
court's reckoning (Civil Case No. 52562).
PORT SERVICE and AMERICAN STEAMSHIP AGENCIES, INC., defendants- appellees..

With respect to the consignee's claim against the arrastre operator, the trial court found that the
AQUINO, J.:
provisional claim was filed within the fifteen-day period fixed in paragraph 15 of the arrastre contract.
Yet, in spite of that finding, the trial court dismissed the action against the arrastre operator (p. 65,
This is an admiralty and arrastre case. On December 18, 1961 the vessel Daishin Maru arrived in Record on Appeal).
Manila with a cargo of 1,000 bags of synthetic resin consigned to General Base Metals, Inc. which
later sold the cargo to Union Carbide Philippines, Inc.
Union Carbide appealed to the Court of Appeals on questions of fact and of law, That Appellate
Court elevated the case to this Court because in its opinion the appeal raises only the legal issue of
On the following day, December 19, that cargo was delivered to the Manila Port Service in good prescription (Resolution of May 10, 1967 in CA-G. R. No. 33743-R).
order and condition except for twenty- five bags which were in bad order (Par. IV and Annexes C to
C-25 of Stipulation of Facts).
Union Carbide contends that the trial court erred (1) in finding that its action was barred by the
statute of limitations and (2) in not holding that the carrier and the arrastre operator were liable for
On January 20 and February 6 and 8, 1962 eight hundred ninety-eight (898) bags of resin (out of the the value of the undelivered and damaged cargo.
1,000 bags) were delivered by the customs broker to the consignee. One hundred two bags were
missing. The contents of twenty-five bags were damaged or pilfered while they were in the custody
Claim against the carrier's agent.-There is no question that, as shown in the twenty-five tally sheets,
of the arrastre operator (Par. XII and Annexes D and H of Stipulation of Facts All in all fifty bags out
975 bags of resin were delivered by the carrier in good order to the arrastre operator and that only
of the 898 bags were damaged (Annex D-5).
twenty-five (25) bags were damaged while in the carrier's custody (Annexes C to C-25 and K-1 of
Stipulation of Facts).
The 152 bags of resin (102 missing and 50 damaged) were valued at $12.65 a bag or a total value
of $1,992.80, which amount at the prevailing rate of exchange of P3.85 to the American dollar, is
The one-year period within which the consignee should sue the carrier is computed from "the
equivalent to P7,402.78 (Annex I of Stipulation of Facts).
delivery of the goods or the date when the goods should have been delivered". The Carriage of
Goods by Sea Act provides:
The consignee, through the customs broker, filed on January 3, 1962 with the Manila Port Service,
as arrastre operator, and the American Steamship Agencies, Inc., as agent of the carrier, a
RESPONSIBILITIES AND LIABILITIES
provisional claim advising them that the shipment in question was "shorthanded, short delivered
and/or landed in bad order" (Annexes E and F of Stipulation of Facts).
SEC. 3. xxx xxx xxx
Formal claims dated June 11, 1962 were made by the consignee with the arrastre operator and the
agent of the carrier (Annexes I and I-1 of Stipulation of Facts The claims were reiterated by the (6) Unless notice of loss or damage and the general nature of such loss or damage be given
consignee's lawyer in his letters dated September 26, 1962 which were received by the carrier's in writing to the carrier or hi agent at the port of discharge before or at the time of the
agent and the arrastre operator on October 4, 1962 (Annexes J and J-1 of Stipulation of Facts). removal of the goods into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier
of the goods as described in the bill of lading. If the loss or damage is not apparent, the
As the claims were not paid, Union Carbide Philippines, Inc. filed a complaint on December 21, 1962
notice must be given within three days of the delivery.
in the Court of First Instance of Manila against the Manila Railroad Company, the Manila Port
Service and the American Steamship Agencies, Inc. for the recovery of damages amounting to
P7,402.78 as the value of the undelivered 102 bags of resin and the damaged 50 bags plus legal Said notice of loss or damage may be endorsed upon the receipt for the goods given by the
rate of interest from the filing of the complaint and P1,000 as attorney's fees. person taking delivery thereof.

Union Carbide's complaint was a double-barrelled action or a joinder of two causes of action. One The notice in writing need not be given if the state of the goods has at the time of their
was an action in admiralty under the Carriage of Goods by Sea Act against the carrier's agent for the receipt been the subject of joint survey or inspection.
recovery of P1,217.56 as the value of twenty-five bags of resin which were damaged before they
were landed (Annex C-25).
In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when
The other was an action under the management contract between the Bureau of Customs and the the goods should have been delivered:
Manila Port Service, a subsidiary of the Manila Railroad Company, for the recovery of P6,185.22 as
the value of the undelivered 102 bags of resin and twenty-five bags, the contents of which were
Provided, That if a notice of loss or damage, either apparent or concealed, is not given as
damaged or pilfered while in the custody of the arrastre operator.
provided for in this section, that fact shall not affect or prejudice the right of the shipper to

30
 bring suit within one year after the delivery of the goods or the date when the goods should
have been delivered.
In the case of any actual or apprehended loss or damage the carrier and the receiver shall
give all reasonable facilities to each other for inspecting and tallying the goods.
(Commonwealth Act No. 65, adopting U.S. Public Act No. 521 of April 16,1936).
What is the meaning of "delivery" in section 3(6) of the Carriage of Goods by Sea Act The trial court
construed delivery as referring to the discharge or landing of the cargo.
Union Carbide contends that "delivery" does not mean the discharge of goods or the delivery thereof
to the arrastre operator but the actual delivery of the goods to the consignee by the customs broker.
The carrier contends that delivery means discharge from the vessel into the custody of the customs
arrastre operator because under sections 1201 and 1206 of the Tariff and Customs Code
merchandise cannot be directly delivered by the carrier to the consignee but should first pass
through the customhouse at a port of entry for the collection of customs duties.
The carrier cites the following provisions of the bill of lading to support its contention:
9. Delivery. The Carrier retains the option of delivery at all times from ship's side or from
craft, hulk, custom house, warehouse, wharf or quay at the risk of the shippers, consignees
or owners of the goods, and all expenses incurred by delivery otherwise than from ship's
side shall be borne by the shippers, consignee or owners of the goods.
11. Discharge of Goods. The goods may be discharge without notice, as soon as the ship is
ready to unload, continuously day and night, Sundays and holidays included, on to wharf or
quay or into warehouse, or into hulk, lazaretto or craft or on any other place and be stored
there at the risk and expense of the shippers, consignees or owners of the goods, any
custom of the port to the contrary notwithstanding. In any case, the Carrier's liability is to
cease as soon as the goods are lifted from ship's deck or leave the ship's tackle, any
custom of the port to the contrary notwithstanding. Consignees to pay charges for sorting
and stocking the goods on wharf or in shed.
If the consignees fail to take delivery of their goods immediately the ship is ready to
discharge them, the Carrier shall be at liberty to land and warehouse or discharge the said
goods into hulk or craft, or at any other place at the risk and expense of the shippers,
consignees or owners of the goods without notice.
15. Notice of Claim. Any claim for loss of or damage to the goods must be preferred in
writing to the Carrier's Agents at the place of delivery within 3 days after the ship's discharge
thereof, and before the goods are removed from the quay or ship's " or place of discharge,
and in the event of such claim not being preferred as above specified, the claim shall be
deemed as waived, and the Carrier shall be discharged therefrom.
Suit for the recovery of loss or damage shall not in any event be maintainable against the
Carrier or the ship unless instituted within one year after the delivery of the written notice
above specified. The amount of claim shall be restricted to the Cash Value of the goods at
the place and time of original shipment plus all charges actually paid thereon, and all claims
for either partial or total loss or damage shall be entertained and adjusted upon this basis of
value. (Annex B).
In this connection, it is pertinent to state that the Tarifff and Customs Code allows the delivery of
imported merchandise to the arrastre operator:
SEC. 1213. Receiving Handling Custody and Delivery of Articles. — The Bureau of
Customs shall have "elusive supervision and control over the receiving, handling, custody
and delivery of articles on the wharves and piers at all ports of entry and in the exercise of
its functions it is hereby authorized to acquire, take over, operate and superintend such
plants and facilities as may be necessary for the receiving, handling, custody and delivery
of articles, and the convenience and comfort of passengers and the handling of baggage,
as well as to acquire fire protection equipment for use in the piers:
Provided, That whenever in his judgment the receiving, handling, custody and delivery of
articles can be carried on by private parties with greater efficiency, the Commissioner
may, after public bidding and subject to the approval of the department head, contract with
any private party for the service of receiving, handling, custody and delivery of articles,
and in such event, the contract may include the sale or lease of government-owned
equipment and facilities used in such service.
The sensible and practical interpretation is that delivery within the meaning of section 3(6) of the
Carriage of Goods by Sea Law means delivery to the arrastre operator. That delivery is evidenced
by tally sheets which show whether the goods were landed in good order or in bad order, a fact
which the consignee or shipper can easily ascertain through the customs broker.
To use as basis for computing the one-year period the delivery to the consignee would be unrealistic
and might generate confusion between the loss or damage sustained by the goods while in the
carrier's custody and the loss or damage caused to the goods while in the arrastre operator's
possession.
Apparently, section 3(6) adheres to the common-law rule that the duty imposed water carriers was
merely to transport from wharf to wharf and that the carrier was not bound to deliver the goods at the
warehouse of the consignee (Tan Hi vs. United States, 94 Fed. Supp. 432,435).
In the Tan Hi case, it was held that a requirement of Philippine law that all cargo unloaded at Manila
be delivered to the consignee through the arrastre operator acting as customs' agent was not
unreasonable. The common-law requirements as to the proper delivery of goods by water carrier
apply only when customs regulations at the port of destination do not otherwise provide. The
delivery must be in accordance with the usages of the port in order that such delivery would
discharge the carrier of responsibility. (Notes 50 and 51, 80 C.J.S. 922; 58 C. J. 372 note 24. See 70
Am. Jur 2nd 613, note 19).
Under the facts of this case, we held that the one-year period was correctly reckoned by the trial
court from December 19, 1961, when, as agreed upon by the parties and as shown in the tally
sheets, the cargo was discharged from the carrying vessel and delivered to the Manila Port Service.
That one-year period expired on December 19, 1962. Inasmuch as the action was filed on
December 21, 1962, it was barred by the statute of limitations.
Defendant American Steamship Agencies, Inc., as agent of the carrier, has no more liability to the
consignee's assignee, Union Carbide Philippines, Inc., in connection with the damaged twenty-five
bags of resin.
Prescription was duly pleaded by the said defendant in its answer and motion to dismiss. That
defense was correctly entertained by trial court.
Claim against the arrastre operator. — The liability of the arrastre contractor has a factual and legal
basis different from that of the carrier's. The management contract between the Manila Port Service
and the Bureau of Customs provides:
31
 15. ... ; in any event the CONTRACTOR hall be relieved and released of any and all
responsibility or liability for loss, damage, misdelivery, and/or non-delivery of goods, unless
suit in the court of proper jurisdiction is brought within a period of one (1) year from the date
of the discharge of the goods, or from the date when the claim for the value of such goods
have been rejected or denied by the CONTRACTOR, provided that such claim shall have
been filed with the CONTRACTOR within fifteen (15) days from the date of discharge of the
last package from the carrying vessel. ... (Annex A of Stipulation of Facts
Carbide Philippines, Inc. the sum of P6,185.22, as the value of the 127 bags of resin (102 bags
missing and 25 bags damaged), with legal rate of interest from the filing of the complaint on
December 21, 1962 up to the date of payment, Plus P1,000 as attorney's fees and litigation
expenses, and the costs.
SO ORDERED.

Under the foregoing contractual provisions, the action against the arrastre operator to enforce
liability for loss of the cargo or damage thereto should be filed within one year from the date of the
discharge of the goods or from the date when the claim for the value of such goods has been
rejected or denied by the arrastre operator.

However, before such action can be filed a condition precedent should be complied with and that is,
that a claim (provisional or final) shall have been previously filed with the arrastre operator within
fifteen days from the date of the discharge of the last package from the carrying vessel (Continental
Insurance Company vs. Manila Port Service, L-22208, March 30,1966,16 SCRA 425).

In this case, the consignee's customs broker filed with the Manila Port Service as provisional claim
advising the latter that the cargo was "short, short delivered and/or landed in bad order". That claim
was filed on January 3, 1962 or on the fifteenth day following December 19, 1961, the date of the
discharge of the last package from the carrying vessel. That claim was never formally rejected or
denied by the Manila Port Service.

Having complied with the condition precedent for the filing of a claim within the fifteen- day period,
Union Carbide could file the court action within one year, either from December 19, 1961 or
from December 19, 1962. This second date is regarded as the expiration of the period within which
the Manila Port Service should have acted on the claim (Philippine Education Co., Inc. vs. Manila
Port Service, L-24091, 21 SCRA, 174, 178).

In other words, the claimant or consignee has a two-year prescriptive period, counted from the date
of the discharge of the goods, within which to file the action in the event that the arrastre contractor,
as in this case, has not rejected nor admitted liability (Continental Insurance Company vs. Manila
Port Service, supra. Philippine Education Company vs. Manila Port Service, L-23444, October 29,
1971, 42 SCRA 31).

Since the action in this case against the arrastre operator was filed on December 21, 1962, or within
the two-year period expiring on December 19, 1963, that action was filed on time. The trial court
erred in dismissing the action against the Manila Port Service and its principal, the Manila Railroad
Company.

As shown in the statement of facts, the arrastre operator is responsible for the value of 102 bags of
resin which were not delivered, and twenty-five bags, which were damaged, or a total of one
hundred twenty-seven bags valued at P6,185.22.

The arrastre operator should pay attorney's fees to the plaintiff for not having satisfied its plainly
valid, just and demandable claim (Art. 2208, Civil Code). We fix the attorney's fees and the litigation
expenses in the sum of one thousand pesos.

WHEREFORE, the trial court's judgment is affirmed insofar as it dismissed plaintiff-appellant's claim

against defendant American Steamship Agencies, Inc. on the ground of prescription.

The trial court's decision is reversed insofar as it dismissed plaintiff's claim against the Manila
Railroad Company, as arrastre operator. The Philippine National Railways, as the successor of the
Manila Railroad Company (See. 22, Republic Act No. 4156), is hereby ordered to pay plaintiff Union

32
G.R. No. L-22491           January 27, 1967
DOMINGO ANG, plaintiff-appellant,
vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.
BENGZON, J.P., J.:
Yau Yue Commercial Bank Ltd. of Hongkong, referred to hereafter as Yau Yue agreed to sell 140
packages of galvanized steel durzinc sheets to one Herminio G. Teves (the date of said agreement
is not shown in the record here) for the sum of $32,458.26 (US). Said agreement was subject to the
following terms and arrangements: (a) the purchase price should be covered by a bank draft for the
corresponding amount which should be paid by Herminio G. Teves in exchange for the delivery to
him of the corresponding bill of lading to be deposited with a local bank, the Hongkong & Shanghai
Bank of Manila (b) upon arrival of the articles in Manila, Teves would be notified and he would have
to pay the amount called for in the corresponding demand draft, after which the bill of lading would
be delivered to him; and (c) Teves would present said bill of lading to the carrier's agent, American
Steamship Agencies, Inc. which would then issue the corresponding "Permit To Deliver Imported
Articles" to be presented to the Bureau of Customs to obtain the release of the articles.
Pursuant to said terms and arrangements, Yau Yue through Tokyo Boeki Ltd. of Tokyo, Japan,
shipped the articles at Yawata, Japan, on April 30, 1961 aboard the S.S. TENSAI MARU, Manila,
belonging to the Nissho Shipping Co., Ltd. of Japan, of which the American Steamship Agencies,
Inc. is the agent in the Philippines, under a shipping agreement, Bill of Lading No. WM-2 dated April
30, 1961, consigned "to order of the shipper with Herminio G. Teves as the party to be notified of the
arrival of the 140 packages of galvanized steel durzinc sheets in Manila.
The bill of lading was indorsed to the order of and delivered to Yau Yue by the shipper. Upon receipt
thereof, Yau Yue drew a demand draft together with the bill of lading against Herminio G. Teves,
through the Hongkong & Shanghai Bank.
When the articles arrived in Manila on or about May 9, 1961, Hongkong & Shanghai Bank notified
Teves, the "notify party" under the bill of lading, of the arrival of the goods and requested payment of
the demand draft representing the purchase price of the articles. Teves, however, did not pay the
demand draft, prompting the bank to make the corresponding protest. The bank likewise returned
the bill of lading and demand draft to Yau Yue which indorsed the said bill of lading to Domingo Ang.
Meanwhile, despite his non-payment of the purchase price of the articles, Teves was able to obtain
a bank guaranty in favor of the American Steamship Agencies, Inc., as carrier's agent, to the effect
that he would surrender the original and negotiable bill of lading duly indorsed by Yau Yue. On the
strength of this guaranty, Teves succeeded in securing a "Permit To Deliver Imported Articles" from
the carrier's agent, which he presented to the Bureau of Customs which in turn released to him the
articles covered by the bill of lading.
Subsequently, Domingo Ang claimed for the articles from American Steamship Agencies, Inc., by
presenting the indorsed bill of lading, but he was informed by the latter that it had delivered the
articles to Teves.
On October 30, 1963 Domingo Ang filed a complaint in the Court of First Instance of Manila against
the American Steamship Agencies, Inc., for having allegedly wrongfully delivered and/or converted
the goods covered by the bill of lading belonging to plaintiff Ang, to the damage and prejudice of the
latter.
On December 2, 1963, defendant filed a motion to dismiss upon the ground that plaintiff's cause of
action has prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65), more
particularly Section 3 (6), paragraph 4, which provides:
In any event, the carrier and the ship shall be discharged from all liability in respect to loss
or damage unless suit is brought within one year, after delivery of the goods or the date
when the goods should have been delivered.
It argued that the cargo should have been delivered to the person entitled to the delivery
thereof (meaning the plaintiff) on May 9, 1961, the date of the vessel's arrival in Manila,
and that even allowing a reasonable time (even one month) after such arrival within which
to make delivery, still, the action commenced on October 30, 1963 was filed beyond the
prescribed period of one year.
By order dated December 21, 1963, copy of which was received by plaintiff on December 26, 1963,
the lower court dismissed the action on the ground of prescription. His motion for reconsideration
dated December 26, 1963 having been denied by the lower court in its order dated January 13,
1964, plaintiff appealed directly to this Court on a question of law: Has plaintiff-appellant's cause of
action prescribed under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act?
The provision of law involved in this case speaks of "loss or damage". That there was no damage
caused to the goods which were delivered intact to Herminio G. Teves who did not file any notice of
damage, is admitted by both parties in this case. What is to be resolved — in order to determine the
applicability of the prescriptive period of one year to the case at bar — is whether or not there was
"loss" of the goods subject matter of the complaint.
Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse must be had to
the Civil Code which provides in Article 18 thereof that, "In matters which are governed by the Code
of Commerce and special laws, their deficiency shall be supplied by the provisions of this Code."
Article 1189 of the Civil Code defines the word "loss" in cases where conditions have been imposed
with the intention of suspending the efficacy of an obligation to give. The contract of carriage under
consideration entered into by and between American Steamship Agencies, Inc. and the Yau Yue
(which later on endorsed the bill of lading covering the shipment to plaintiff herein Domingo Ang), is
one involving an obligation to give or to deliver the goods "to the order of shipper", that is, upon the
presentation and surrender of the bill of lading. This being so, said article can be applied to the
present controversy, more specifically paragraph 2 thereof which provides that, "... it is understood
that a thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its
existence unknown or it cannot be recovered."
As defined in the Civil Code and as applied to Section 3 (6) paragraph 4 of the Carriage of Goods by
Sea Act, "loss" contemplates merely a situation where no delivery at all was made by the shipper of
the goods because the same had perished, gone out of commerce, or disappeared that their
existence is unknown or they cannot be recovered. It does not include a situation where there was
indeed delivery — but delivery to the wrong person, or a misdelivery, as alleged in the complaint in
this case.
The distinction between non-delivery and misdelivery has reference to bills of lading. As this Court
shall in Tan Pho vs. Hassamal Dalamal, 67 Phil. 555, 557-558:
Considering that the bill of lading covering the goods in question has been made to order,
which means that said goods cannot be delivered without previous payment of the value
thereof, it is evident that, the said goods having been delivered to Aldeguer without paying
the price of the same, these facts constitute misdelivery and not nondelivery, because
their was in fact delivery of merchandise. We do not believe it can be seriously and
reasonably argued that what took place, as contended of by the petitioner, is a case of
33
 misdelivery with respect to Aldeguer and at the same time nondelivery with respect to the
PNB who had the bill of lading, because the only thing to consider in this question is
whether Enrique Aldeguer was entitled to get the merchandise or whether, on the
contrary, the PNB is the one entitled thereto. Under the facts, the defendant petitioner
should not have delivered the goods to Aldeguer but to the Philippine National Bank.
Having made the delivery to Aldeguer, the delivery is a case of misdelivery. If the goods
have been delivered, it cannot at the same time be said that they have not been delivered.
According to the bill of lading which was issued in the case at bar to the order of the
shipper, the carrier was under a duty not to deliver the merchandise mentioned in the bill
of lading except upon presentation of the bill of lading duly endorsed by the shipper. (10
C.J., 259) Hence, the defendant-petitioner Tan Pho having delivered the goods to Enrique
Aldeguer without the presentation by the latter of the bill of lading duly endorsed to him by
the shipper, the said defendant made a misdelivery and violated the bill of lading,
because his duty was not only to transport the goods entrusted to him safely, but to
deliver them to the person indicated in the bill of lading. (Emphasis supplied)
period of limitation is designed to meet the exigencies of maritime hazards. In a case where the
goods shipped were neither last nor damaged in transit but were, on the contrary, delivered in port
to someone who claimed to be entitled thereto, the situation is different, and the special need for the
short period of limitation in cases of loss or damage caused by maritime perils does not obtain.
It follows that for suits predicated not upon loss or damage but on alleged misdelivery (or
conversion) of the goods, the applicable rule on prescription is that found in the Civil Code, namely,
either ten years for breach of a written contract or four years for quasi-delict. (Arts. 1144[1], 1146,
Civil Code) In either case, plaintiff's cause of action has not vet prescribed, since his right of action
would have accrued at the earliest on May 9, 1961 when the ship arrived in Manila and he filed suit
on October 30, 1963.
Wherefore, the dismissal order appealed from is hereby reversed and set aside and this case is
remanded to the court a quo for further proceedings. No costs. So ordered.

Now, it is well settled in this jurisdiction that when a defendant files a motion to dismiss, he thereby
hypothetically admits the truth of the allegations of fact contained in the complaint (Philippine
National Bank v. Hipolito, et al., L-16463, Jan. 30, 1965; Republic v. Ramos, L-15484, Jan. 31,
1963; Pascual v. Secretary of Public Works & Communications, L-10405, Dec. 29, 1960; Pangan v.
Evening News Publishing Co., Inc., L-13308, Dec. 29, 1960). Thus, defendant-appellant having filed
a motion to dismiss, it is deemed to have admitted, hypothetically, paragraphs 6, 7 and 8 of the
complaint, and these alleges:

6. — That, when the said articles arrived in Manila, the defendant authorized the delivery
thereof to Herminio G. Teves, through the issuance of the corresponding Permit To
Deliver Imported Articles, without the knowledge and consent of the plaintiff, who is the
holder in due course of said bill of lading, notwithstanding the fact that the said Herminio
G. Teves could not surrender the corresponding bill of lading; .

7. — That, without any evidence of the fact that Herminio G. Teves is the holder of the
corresponding bill of lading in due course; without the surrender of the bill of lading without
the knowledge and consent of the plaintiff, as holder thereof in due course, and in
violation of the provision on the bill of lading which requires that the articles are only to be
delivered to the person who is the holder in due course of the said bill of lading, or his
order, the defendant issued the corresponding 'Permit To Deliver Imported Articles' in
favor of the defendant, without the knowledge and consent of the plaintiff as holder in due
course of said bill of lading, which, originally was Yau Yue subsequently, the plaintiff
Domingo Ang;

8. — That, as a result of the issuance by the defendant of said permit, Herminio G. Teves
was able to secure the release of the articles from the Bureau of Customs, which is not
legally possible without the presentation of said permit to the said Bureau; ...

From the allegations of the complaint, therefore, the goods cannot be deemed "lost". They were
delivered to Herminio G. Teves, so that there can only be either delivery, if Teves really was entitled
to receive them, or misdelivery, if he was not so entitled. It is not for Us now to resolve whether or
not delivery of the goods to Teves was proper, that is, whether or not there was rightful delivery or
misdelivery.

The point that matters here is that the situation is either delivery or misdelivery, but not nondelivery.
Thus, the goods were either rightly delivered or misdelivered, but they were not lost. There being no
loss or damage to the goods, the aforequoted provision of the Carriage of Good by Sea Act stating
that "In any event, the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered," does not apply. The reason is not difficult to see. Said one-year

34
G.R. No. L-24515      November 18, 1967
THE AMERICAN INSURANCE COMPANY, plaintiff-appellant,
vs.
COMPAÑIA MARITIMA, ET AL., defendants.
MAKALINTAL, J.:
Appeal from the order of the Court of First Instance of Manila (Civil Case No. 55056) dismissing, on
the ground of prescription, the amended complaint of plaintiff-appellant, The American Insurance
Company as against alternative defendant Macondray & Co., Inc.
On August 11, 1962, a certain cargo insured with plaintiff corporation was shipped in New York, U.S.
aboard "M/S TOREADOR", of which the general agent in the Philippines is appellee Macondray &
Co., Inc. (hereinafter referred to as Macondray). The cargo, with an invoice value of $3,539.61 CIF
Cebu, was consigned to the order of the importer Atlas Consolidated Mining and Development
Corporation.
Inasmuch as the final port of call of the " M/S TOREADOR" was Manila, the carrier, in accepting the
cargo at the point of shipment, agreed to transship the same, after its discharge in Manila, aboard
an inter-island vessel to its destination in Cebu.
On September 18, 1962, the " M/S TOREADOR" arrived at the port of Manila and on the same date
discharged the cargo in question. Pursuant to the arrangement the cargo was subsequently loaded
aboard the "SS SIQUIJOR", an inter-island vessel. The shipment was finally discharged in Cebu on
September 24, 1962.
When the consignee took delivery of the shipment it was found to be short of two (2) pieces of
tractor parts worth $2,834.88, or P11,063.12 at the exchange rate of P3.9025. Plaintiff paid the
insured value of the lost merchandise to the consignee. To recover the said sum of P11,063.12
plaintiff, as subrogee of the consignee rights, filed on September 24, 1963 a complaint against the
Compañia Maritima and the Visayan Cebu Terminal Co., Inc. as alternative defendants. The former
was sued as operator and owner of "SS SIQUIJOR" and the latter as operator of the arrastre service
at the port of Cebu charged with the care and custody of all cargo discharged there.
In view of Maritima's allegation in its answer that the lost merchandise had not actually been
delivered to it, plaintiff filed on November 6, 1964 a motion to admit its amended complaint
impleading Macondray and Luzon Brokerage Corporation as additional defendants and eliminating
the Visayan Cebu Terminal Co., Inc. According to plaintiff, "the amended complaint is necessary in
view of defendant Maritima's assertion and records tending to show that the lost merchandise was
not delivered to it, contrary to Macondray's representation, even after the filing of the original
complaint, that the cargo was delivered to Maritima." The amended complaint was admitted on
November 14, 1964.
On December 23, 1964 Macondray moved to dismiss the amended complaint against it on the
ground that plaintiff's action had already prescribed under the provisions of the Carriage of Goods
by Sea Act1 which provides in section 3 (6):
In any event, the carrier and the ship shall be discharged from all liability in respect of loss
or damage unless suit is brought within one year after delivery of the goods or the date
when the goods shall have been delivered: . . .
Macondray contended that since the amended complaint in which it was impleaded for the first time
was filed only on November 6, 1964 and admitted on November 14, 1964, the period of one year
had expired whether reckoned from one or the other of two dates, namely September 18, 1962,
when the "M/S TOREADOR" arrived at the port of Manila and discharged the cargo for
transshipment to Cebu on board the "SS SIQUIJOR," and September 24, 1962, when the shipment
finally arrived in Cebu and was discharged the same day.
The motion to dismiss was granted and plaintiff interposed the present appeal from the order of
dismissal. Plaintiff avers that the one year prescriptive period provided for in the Carriage of Goods
by Sea Act does not apply in this case, which should be governed by the statute of limitations in the
Civil Code. In support of this contention it is pointed out that the cargo in question was
transshipment cargo; that the discharge thereof in Manila terminated the obligation of Macondray as
carrier; and that its obligation to transship the cargo to Cebu was merely that of a "forwarding agent"
of the shipper. Reliance is placed on Clause 11 of the bill of lading which states:
This carrier, in making arrangements for any transshipping or forwarding vessel or means
of transportation not operated by this carrier shall be considered solely the forwarding
agent of the shipper and without any other responsibility.
We do not see that the use of the term "forwarding agent of the shipper" is decisive of the issue.
According to paragraph 4 of the amended complaint the cargo was loaded on board the "M/S
TOREADOR" in New York, "freight prepaid to Cebu City . . . pursuant to the bill of lading No. 13." In
other words, the action is based on the contract of carriage up to the final port of destination, which
was Cebu City, for which the corresponding freight had been prepaid. The following provisions of the
bill of lading are the ones directly in point:
1. This bill of lading shall have effect subject to the provisions of the Carriage of Goods by
Sea Act of the United States of America, approved April 16, 1936, which shall be deemed
to be incorporated herein and nothing herein contained shall be deemed a surrender by
the Carrier of any of its rights or immunities or an increase of any of its responsibilities or
liabilities under said Act. The provisions stated in said Act (except as may be otherwise
specifically provided herein) shall govern before the goods are loaded on and after they
are discharged from the ship and throughout the entire time the goods are in the custody
of the Carrier. . . .
19. In any event the Carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after delivery of the goods or the
date when the goods should have been delivered. . . .
The transshipment of the cargo from Manila to Cebu was not a separate transaction from that
originally entered into by Macondray, as general agent for the "M/S TOREADOR". It was part of
Macondray's obligation under the contract of carriage and the fact that the transshipment was made
via an inter-island vessel did not operate to remove the transaction from the operation of the
Carriage of Goods by Sea Act. (See Go Chang & Co., Inc. vs. Aboitiz & Co., Inc., 98 Phil. 197).
WHEREFORE, the order appealed from is hereby affirmed, with costs.
35
G.R. No. L-54140 October 14, 1986
FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,
vs.
HONORABLE JOSE ALEJANDRO, Presiding Judge of Branch XXVI of the Court of First
Instance of Manila and FROTA OCEANICA BRASILIERA, respondents.
G.R. No. L-62001 October 14, 1986
FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,
vs.
HONORABLE ALFREDO BENIPAYO, Presiding Judge of Branch XVI of the Court of First
Instance of Manila and AUSTRALIA-WEST PACIFIC LINE, respondents.
GUTIERREZ, JR., J.:
These consolidated petitions raise the issue of whether or not the one-year period within which to
file a suit against the carrier and theship, in case of damage or loss as provided for in the Carriage
of Goods by Sea Act applies to the insurer of the goods.
On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint, docketed as Civil Case No. 109911,
against the petitioner before the then Court of First Instance of Manila for recovery of a sum of
money under the marine insurance policy on cargo. Mr. Choa alleged that the goods he insured with
the petitioner sustained loss and damage in the amount of P35,987.26. The vessel SS Frotario
which was owned and operated by private respondent Frota Oceanica Brasiliera, (Frota) discharged
the goods at the port of Manila on December 13, 1976. The said goods were delivered to the
arrastre operator E. Razon, Inc., on December 17, 1976 and on the same date were received by the
consignee-plaintiff.
On December 19, 1977, the petitioner filed its amended answer disclaiming liability, imputing against
the plaintiff the commission of fraud and counterclaiming for damages.
On January 9, 1978, the petitioner filed a third-party complaint against the carrier, private
respondent Frota and the arrastre contractor, E. Razon, Inc. for indemnity, subrogation, or
reimbursement in the event that it is held liable to the plaintiff.
Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar complaint against the petitioner
which was docketed as Civil Case No. 110061, for recovery under the marine insurance policy for
cargo alleging that the goods insured with the petitioner sustained loss and damage in the sum of
P55,996.49.
The goods were delivered to the plaintiff-consignee on or about January 25-28, 1977.
On May 31, 1978, the petitioner filed its answer. On September 28, 1978, it filed an amended third-
party complaint against respondent carrier, the Australia-West Pacific Line (Australia-West).
In both cases, the private respondents filed their respective answers and subsequently filed a
motion for preliminary hearing on their affirmative defense of prescription. The private respondents
alleged in their separate answers that the petitioner is already barred from filing a claim because
under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within one year
after delivery of the goods or the date when the goods should have been delivered...
The petitioner contended that the provision relied upon by the respondents applies only to the
shipper and not to the insurer of the goods.
On April 30, 1980, the respondent judge in Civil Case No. 109911, upheld respondent Frota and
dismissed the petitioner's third-party complaint. Likewise, on August 31, 1982, the respondent judge
in Civil Case No. 110061 dismissed the petitioner's third-party complaint against respondent
Australia-West on the ground that the same was filed beyond the prescriptive period provide in
Section 3 (6) of the Carriage of Goods by Sea Act of 1936. These both cases, the petitioner
appealed to us on a pure question of law, raising the issue of whether or not the prescriptive period
of one year under the said Act also applies to an insurer such as herein petitioner.
The petitioner maintains that the one-year prescriptive period cannot cover an insurer which has not
settled the claim of its insured because it cannot be considered as the person referred to in the
applicable provision of the said Act that has the duty or right to give notice of loss or damage to the
carrier or to sue such carrier within the period of one year and that where an insurer does not settle
the claim of its insured it cannot be considered as subrogated to the rights of said insured that would
then authorize it to sue the carrier within the time-bar of one year. The petitioner further contends
that the period for the filing of a third-party complaint must be reckoned from the date when the
principal action was filed, that is, from the time the insured filed a suit against the petitioner, because
the third-party complaint is merely an incident of the main action.
On the other hand, the respondents argue that the one-year prescriptive period within which to file a
case against the carrier also applies to a claim filed by an insurer who stands as a subrogee to the
insured and that the third-party complaint filed by the petitioner cannot be reckoned from the firing of
the main action because such complaint is independent of, and separate and distinct from the
insured's action against the petitioner.
The lower courts did not err.
Section 3(b) of the Carriage of Goods by Sea Act provides:
(6) Unless notice of loss or damage and the general nature of such loss or damage be given
in writing to the carrier or his agent at the port of discharge before or at the time of the
removal of the goods into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier
of the goods as described in the bill of lading. If the loss or damage is not apparent, the
notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given by the
person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when
the goods should have been delivered: Provided, that if a notice of loss or damage, either
apparent or concealed, is not given as provided for in this section, that fact shall not affect or
prejudice the right of the shipper to bring the suit within one year after the delivery of the
goods or the date when the goods should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier and the receiver shall
give all reasonable facilities to each other for inspecting and tallying the goods. (Emphasis
supplied) Philippine Permanent and General Statutes (Revised Edition, Vol. 1, pp. 663-666).
Chua Kuy v. Everett Steamship Corporation (93 Phil 207, 213-214), expounds on the extent of the
applicability of the aforequoted provision. We ruled:
36
 Neither do we find tenable the claim that the prescriptive period contained in said act can
only be invoked by the shipper, excluding all other parties to the transaction. While
apparently the proviso contained in the portion of section 3(6) of the act we have quoted
gives the impression that the right to file suit within one year after delivery of the goods
applies to the shipper alone, however, reading the proviso in conjunction with the rest of
section 3(6), it at once becomes apparent that the conclusion drawn by petitioner is
unwarranted. In the first place, said section provides that the notice of loss or damage for
which a claim for indemnity may be made should be given in writing to the carrier at the port
of discharge before or at the time of the removal of the goods, and if the loss or damage is
not apparent said notice should be given 'within three days on delivery.' From the language
of this section, it seems clear that the notice of loss or damage is required to be filed not
necessarily by the shipper but also by the consignee or any legal holder of the bill of lading.
In fact, said section requires that the notice be given at the port of discharge and the most
logical party to file the notice is either the consignee or the endorsee of the bill of lading. In
the second place, a study of the historical background of this particular provision will show
that although the word shipper is used in the proviso referred to by the petitioner, the
intention of the law was not to exclude the consignee or endorsee of the bill of lading from
bringing the action but merely to limit the filing of the same within one year after the delivery
of the goods at the port of discharge. [The Southern Cross, 1940, A. M. C. 59 (SDNY);
Lindgren v. Farley, 1938 A. M. C. 805 (SDNY)].
Arnold W. Knauth, an eminent authority on admiralty, commenting on this proviso, says:
xxx xxx xxx
a third-party complaint is but ancilliary to the main action (Eastern Assurance and Surety
Corporation v. Cui 105 SCRA 622), it cannot abridge, enlarge, nor modify the substantive rights of
any litigant. It creates no substantive rights. Thus, unless there is some substantive basis for the
third-party Plaintiff's claim, he cannot utilized the filing of such action to acquire any right of action
against the third-party defendant. (See also Francisco, The Revised Rules of Court in the
Philippines, Vol. 1, 1973 Ed., p. 507). The petitioner can only rightfully file a third-party complaint
against the respondents if, in the first place, it can still validly maintain an action against the latter.
In the case at bar, the petitioner's action has prescribed under the provisions of the Carriage of
Goods by Sea Act. Hence, whether it files a third-party complaint or chooses to maintain an
independent action against herein respondents is of no moment. Had the plaintiffs in the civil cases
below filed an action against the petitioner after the one-year prescriptive period, then the latter
could have successfully denied liability on the ground that by their own doing, the plaintiffs had
prevented the petitioner from being subrogated to their respective rights against the herein
respondents by filing a suit after the one-year prescriptive period. The situation, however, does not
obtain in the present case. The plaintiffs in the civil cases below gave extra-judicial notice to their
respective carriers and filed suit against the petitioner well within one year from their receipt of the
goods. The petitioner had plenty of time within which to act. In Civil Case No. 109911, the petitioner
had more than four months to file a third-party complaint while in Civil Case No. 110061, it had more
than five months to do so. In both instances, however, the petitioner failed to file the appropriate
action.
WHEREFORE, IN VIEW OF THE FOREGOING, the petitions in G. R. No. 54140 and G. R. No.
62001 are hereby DISMISSED for lack of merit. Costs against the petitioner.

It seems evident that this language does not alter the sense of the text of the Hague Rules; SO ORDERED.
it merely reiterates in another form the rule already laid down. Curiously, the proviso seems
limited to the rights of shippers, and might strictly be construed not to give any rights to
consignees, representatives, or subrogated parties; whereas the Hague Rules phraseology
is broader. As the Act contains both phrases, it would seem to be as broad as the broader of
the two forms of words. (Ocean Bills of Lading, by Knauth, p. 229).

Clearly, the coverage of the Act includes the insurer of the goods. Otherwise, what the Act intends to
prohibit after the lapse of the one-year prescriptive period can be done indirectly by the shipper or
owner of the goods by simply filing a claim against the insurer even after the lapse of one year. This
would be the result if we follow the petitioner's argument that the insurer can, at any time, proceed
against the carrier and the ship since it is not bound by the time-bar provision. In this situation, the
one-year limitation will be practically useless. This could not have been the intention of the law
which has also for its purpose the protection of the carrier and the ship from fraudulent claims by
having "matters affecting transportation of goods by sea be decided in as short a time as possible"
and by avoiding incidents which would "unnecessarily extend the period and permit delays in the
settlement of questions affecting the transportation." (See The Yek Tong Fire and Marine Insurance
Co., Ltd., v. American President Lines, Inc., 103 Phil. 1125-1126).

In the case of Aetna Insurance Co. v. Luzon Stevedoring Corporation (62 SCRA 11, 15), we denied
the appeal of an insurance company which filed a suit against the carrier after the lapse of one year.
We ruled:

There is no merit in the appeal. The trial court correctly held that the one-year statutory and
contractual prescriptive period had already expired when appellant company filed on April 7,
1965 its action against Barber Line Far East Service. The one-year period commenced on
February 25, 1964 when the damaged cargo was delivered to the consignee. (See Chua
Kuy v. Everrett Steamship Corporation, 93 Phil. 207; Yek Tong Fire & Marine Insurance Co.,
Ltd. v. American President Lines, Inc., 103 Phil. 1125).

We likewise agree with the respondents that the third-party complaint of the petitioner cannot be
considered to have been filed upon the filing of the main action because although it can be said that

37
G.R. No. L-61352 February 27, 1987
DOLE PHILIPPINES, INC., plaintiff-appellant,
vs.
MARITIME COMPANY OF THE PHILIPPINES, defendant-appellee
NARVASA, J.:
This appeal, which was certified to the Court by the Court of Appeals as involving only questions of
law, 1 relates to a claim for loss and/or damage to a shipment of machine parts sought to be
enforced by the consignee, appellant Dole Philippines, Inc. (hereinafter caged Dole) against the
carrier, Maritime Company of the Philippines (hereinafter called Maritime), under the provisions of
the Carriage of Goods by Sea Act. 2
The basic facts are succinctly stated in the order of the Trial Court 3 dated March 16, 1977, the
relevant portion of which reads:
xxx xxx xxx
Before the plaintiff started presenting evidence at today's trial at the instance of the Court
the lawyers entered into the following stipulation of facts:
1. The cargo subject of the instant case was discharged in Dadiangas unto the custody of
the consignee on December 18, 1971;
2. The corresponding claim for the damages sustained by the cargo was filed by the plaintiff
with the defendant vessel on May 4, 1972;
3. On June 11, 1973 the plaintiff filed a complaint in the Court of First Instance of Manila,
docketed therein as Civil Case No. 91043, embodying three (3) causes of action involving
three (3) separate and different shipments. The third cause of action therein involved the
cargo now subject of this present litigation;
4. On December 11, 1974, Judge Serafin Cuevas issued an Order in Civil Case No. 91043
dismissing the first two causes of action in the aforesaid case with prejudice and without
pronouncement as to costs because the parties had settled or compromised the claims
involved therein. The third cause of action which covered the cargo subject of this case now
was likewise dismissed but without prejudice as it was not covered by the settlement. The
dismissal of that complaint containing the three causes of action was upon a joint motion to
dismiss filed by the parties;
5. Because of the dismissal of the (complaint in Civil Case No. 91043 with respect to the
third cause of action without prejudice, plaintiff instituted this present complaint on January
6, 1975.
xxx xxx xxx 4
To the complaint in the subsequent action Maritime filed an answer pleading inter alia the
affirmative defense of prescription under the provisions of the Carriage of Goods by Sea Act, 5 and
following pre-trial, moved for a preliminary hearing on said defense. 6 The Trial Court granted the
motion, scheduling the preliminary hearing on April 27, 1977. 7 The record before the Court does not
show whether or not that hearing was held, but under date of May 6, 1977, Maritime filed a formal
motion to dismiss invoking once more the ground of prescription. 8 The motion was opposed by
Dole 9 and the Trial Court, after due consideration, resolved the matter in favor of Maritime and
dismissed the complaint 10 Dole sought a reconsideration, which was denied, 11 and thereafter took
the present appeal from the order of dismissal.
The pivotal issue is whether or not Article 1155 of the Civil Code providing that the prescription of
actions is interrupted by the making of an extrajudicial written demand by the creditor is applicable to
actions brought under the Carriage of Goods by Sea Act which, in its Section 3, paragraph 6,
provides that:
*** the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods
should have been delivered; Provided, That, if a notice of loss or damage, either apparent
or conceded, is not given as provided for in this section, that fact shall not affect or prejudice
the right of the shipper to bring suit within one year after the delivery of the goods or the
date when the goods should have been delivered.
xxx xxx xxx
Dole concedes that its action is subject to the one-year period of limitation prescribe in the above-
cited provision. 12 The substance of its argument is that since the provisions of the Civil Code are, by
express mandate of said Code, suppletory of deficiencies in the Code of Commerce and special
laws in matters governed by the latter, 13 and there being "*** a patent deficiency *** with respect to
the tolling of the prescriptive period ***" provided for in the Carriage of Goods by Sea
Act, 14 prescription under said Act is subject to the provisions of Article 1155 of the Civil Code on
tolling and because Dole's claim for loss or damage made on May 4, 1972 amounted to a written
extrajudicial demand which would toll or interrupt prescription under Article 1155, it operated to toll
prescription also in actions under the Carriage of Goods by Sea Act. To much the same effect is the
further argument based on Article 1176 of the Civil Code which provides that the rights and
obligations of common carriers shag be governed by the Code of Commerce and by special laws in
all matters not regulated by the Civil Code.
These arguments might merit weightier consideration were it not for the fact that the question has
already received a definitive answer, adverse to the position taken by Dole, in The Yek Tong Lin Fire
& Marine Insurance Co., Ltd. vs. American President Lines, Inc. 15 There, in a parallel factual
situation, where suit to recover for damage to cargo shipped by vessel from Tokyo to Manila was
filed more than two years after the consignee's receipt of the cargo, this Court rejected the
contention that an extrajudicial demand toiled the prescriptive period provided for in the Carriage of
Goods by Sea Act, viz:
In the second assignment of error plaintiff-appellant argues that it was error for the court a
quo not to have considered the action of plaintiff-appellant suspended by the extrajudicial
demand which took place, according to defendant's own motion to dismiss on August 22,
1952. We notice that while plaintiff avoids stating any date when the goods arrived in
Manila, it relies upon the allegation made in the motion to dismiss that a protest was filed on
August 22, 1952 — which goes to show that plaintiff-appellant's counsel has not been laying
the facts squarely before the court for the consideration of the merits of the case. We have
already decided that in a case governed by the Carriage of Goods by Sea Act, the general
provisions of the Code of Civil Procedure on prescription should not be made to apply.
(Chua Kuy vs. Everett Steamship Corp., G.R. No. L-5554, May 27, 1953.) Similarly, we now
hold that in such a case the general provisions of the new Civil Code (Art. 1155) cannot be
made to apply, as such application would have the effect of extending the one-year period of
prescription fixed in the law. It is desirable that matters affecting transportation of goods by
sea be decided in as short a time as possible; the application of the provisions of Article
1155 of the new Civil Code would unnecessarily extend the period and permit delays in the
settlement of questions affecting transportation, contrary to the clear intent and purpose of
the law. * * *
38
Moreover, no different result would obtain even if the Court were to accept the proposition that a
written extrajudicial demand does toll prescription under the Carriage of Goods by Sea Act. The
demand in this instance would be the claim for damage-filed by Dole with Maritime on May 4, 1972.
The effect of that demand would have been to renew the one- year prescriptive period from the date
of its making. Stated otherwise, under Dole's theory, when its claim was received by Maritime, the
one-year prescriptive period was interrupted — "tolled" would be the more precise term — and
began to run anew from May 4, 1972, affording Dole another period of one (1) year counted from
that date within which to institute action on its claim for damage. Unfortunately, Dole let the new
period lapse without filing action. It instituted Civil Case No. 91043 only on June 11, 1973, more than
one month after that period has expired and its right of action had prescribed.

Dole's contention that the prescriptive period "*** remained tolled as of May 4, 1972 *** (and that) in
legal contemplation *** (the) case (Civil Case No. 96353) was filed on January 6, 1975 *** well within
the one-year prescriptive period in Sec. 3(6) of the Carriage of Goods by Sea Act." 16 equates tolling
with indefinite suspension. It is clearly fallacious and merits no consideration.

WHEREFORE, the order of dismissal appealed from is affirmed, with costs against the appellant,
Dole Philippines, Inc.

SO ORDERED.

39
G.R. No. 119571 March 11, 1998
MITSUI O.S.K. LINES LTD., represented by MAGSAYSAY AGENCIES, INC., petitioner,
vs.
COURT OF APPEALS and LAVINE LOUNGEWEAR MFG. CORP., respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the January 25, 1995 decision of the Court of
Appeals1 and its resolution of March 22, 1995 denying petitioner's motion for reconsideration. The
appellate court upheld orders of Branch 68 (Pasig) of the Regional Trial Court, National Capital
Judicial Region, denying petitioner's motion to dismiss in the original action filed against petitioner by
private respondent.
The facts are not in dispute.2
Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines by its
agent, Magsaysay Agencies. It entered into a contract of carriage through Meister Transport, Inc.,
an international freight forwarder, with private respondent Lavine Loungewear Manufacturing
Corporation to transport goods of the latter from Manila to Le Havre, France. Petitioner undertook to
deliver the goods to France 28 days from initial loading. On July 24, 1991, petitioner's vessel loaded
private respondent's container van for carriage at the said port of origin.
However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with the result that
the shipment arrived in Le Havre only on November 14, 1991. The consignee allegedly paid only
half the value of the said goods on the ground that they did not arrive in France until the "off season"
in that country. The remaining half was allegedly charged to the account of private respondent which
in turn demanded payment from petitioner through its agent.
As petitioner denied private respondent's claim, the latter filed a case in the Regional Trial Court on
April 14, 1992. In the original complaint, private respondent impleaded as defendants Meister
Transport, Inc. and Magsaysay Agencies, Inc., the latter as agent of petitioner Mitsui O.S.K. Lines
Ltd. On May 20, 1993, it amended its complaint by impleading petitioner as defendant in lieu of its
agent. The parties to the case thus became private respondent as plaintiff, on one side, and Meister
Transport Inc. and petitioner Mitsui O.S.K. Lines Ltd. as represented by Magsaysay Agencies, Inc.,
as defendants on the other.
Petitioner filed a motion to dismiss alleging that the claim against it had prescribed under the
Carriage of Goods by Sea Act.
The Regional Trial Court, as aforesaid, denied petitioner's motion as well as its subsequent motion
for reconsideration. On petition for certiorari, the Court of Appeals sustained the trial court's orders.
Hence this petition containing one assignment of error:
THE RESPONDENT COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN
RULING THAT PRIVATE RESPONDENT'S AMENDED COMPLAINT IS (sic) NOT
PRESCRIBED PURSUANT TO SECTION 3(6) OF THE CARRIAGE OF GOODS BY SEA
ACT.
The issue raised by the instant petition is whether private respondent's action is for "loss or damage"
to goods shipped, within the meaning of §3(6) of the Carriage of Goods by Sea Act (COGSA).
Section 3 provides:
(6) Unless notice of loss or damage and the general nature of such loss or damage be given
in writing to the carrier or his agent at the port of discharge or at the time of the removal of
the goods into the custody of the person entitled to delivery thereof under the contract of
carriage, such removal shall be prima facie evidence of the delivery by the carrier of the
goods as described in the bill of lading. If the loss or damage is not apparent, the notice
must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given by the
person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when
the goods should have been delivered: Provided, that, if a notice of loss or damage, either
apparent or concealed, is not given as provided for in this section, that fact shall not affect or
prejudice the right of the shipper to bring suit within one year after the delivery of the goods
or the date when the goods should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier and the receiver shall
give all reasonable facilities to each other for inspecting and tallying the goods.
In Ang v. American Steamship Agencies, Inc., the question was whether an action for the value of
goods which had been delivered to a party other than the consignee is for "loss or damage" within
the meaning of §3(6) of the COGSA. It was held that there was no loss because the goods had
simply been misdelivered. "Loss" refers to the deterioration or disappearance of goods.3
As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of
Goods by Sea Act, "loss" contemplates merely a situation where no delivery at all was made
by the shipper of the goods because the same had perished, gone out of commerce, or
disappeared in such a way that their existence is unknown or they cannot be recovered.4
Conformably with this concept of what constitutes "loss" or "damage," this Court held in another
case5 that the deterioration of goods due to delay in their transportation constitutes "loss" or
"damage" within the meaning of §3(6), so that as suit was not brought within one year the action
was barred:
Whatever damage or injury is suffered by the goods while in transit would result in loss or
damage to either the shipper or the consignee. As long as it is claimed, therefore, as it is
done here, that the losses or damages suffered by the shipper or consignee were due to the
arrival of the goods in damaged or deteriorated condition, the action is still basically one for
damage to the goods, and must be filed within the period of one year from delivery or
receipt, under the above-quoted provision of the Carriage of Goods by Sea Act.6
But the Court allowed that —
There would be some merit in appellant's insistence that the damages suffered by him as a
result of the delay in the shipment of his cargo are not covered by the prescriptive provision
of the Carriage of Goods by Sea Act above referred to, if such damages were due, not to
the deterioration and decay of the goods while in transit, but to other causes independent of
the condition of the cargo upon arrival, like a drop in their market value. . . .7
40
The rationale behind limiting the said definitions to such parameters is not hard to find or fathom. As
this Court held in Ang:

Said one-year period of limitation is designed to meet the exigencies of maritime hazards. In
a case where the goods shipped were neither lost nor damaged in transit but were, on the
contrary, delivered in port to someone who claimed to be entitled thereto, the situation is
different, and the special need for the short period of limitation in cases of loss or damage
caused by maritime perils does not obtain.8

In the case at bar, there is neither deterioration nor disappearance nor destruction of goods caused
by the carrier's breach of contract. Whatever reduction there may have been in the value of the
goods is not due to their deterioration or disappearance because they had been damaged in transit.

Petitioner contends:

Although we agree that there are places in the section (Article III) in which the phrase need
have no broader meaning than loss or physical damage to the goods, we disagree with the
conclusion that it must so be limited wherever it is used. We take it that the phrase has a
uniform meaning, not merely in Section 3, but throughout the Act; and there are a number of
places in which the restricted interpretation suggested would be inappropriate. For example
Section 4(2) [Article IV(2) (sic) exempts exempts (sic) the carrier, the ship (sic), from liability
"loss or damage" (sic) resulting from certain courses beyond their control.9

Indeed, what is in issue in this petition is not the liability of petitioner for its handling of goods as
provided by §3(6) of the COGSA, but its liability under its contract of carriage with private
respondent as covered by laws of more general application.

Precisely, the question before the trial court is not the particular sense of "damages" as it refers to
the physical loss or damage of a shipper's goods as specifically covered by §3(6) of COGSA but
petitioner's potential liability for the damages it has caused in the general sense and, as such, the
matter is governed by the Civil Code, the Code of Commerce and COGSA, for the breach of its
contract of carriage with private respondent.

We conclude by holding that as the suit below is not for "loss or damage" to goods contemplated in
§3(6), the question of prescription of action is governed not by the COGSA but by Art. 1144 of the
Civil Code which provides for a prescriptive period of ten years.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

41
G.R. No. 161849               July 9, 2010
WALLEM PHILIPPINES SHIPPING, INC., Petitioner,
vs.
S.R. FARMS, INC., Respondent.
DECISION
PERALTA, J.:
1 2
Assailed in the present petition for review on certiorari are the Decision  and Resolution  of the Court
of Appeals (CA) dated June 2, 2003 and January 15, 2004, respectively, in CA-G.R. CV No. 65857.
The CA Decision reversed and set aside the Decision3 dated October 8, 1999 of the Regional Trial
Court (RTC) of Manila, Branch 11, in Civil Case No. 93-65021, while the CA Resolution denied
petitioners’ Motion for Reconsideration.
The facts of the case, as found by the RTC and affirmed by the CA, are as follows:
x x x On March 25, 1992, Continental Enterprises, Ltd. loaded on board the vessel M/V "Hui Yang,"
at Bedi Bunder, India, a shipment of Indian Soya Bean Meal, for transportation and delivery to
Manila, with plaintiff [herein respondent] as consignee/notify party. The said shipment is said to
weigh 1,100 metric tons and covered by Bill of Lading No. BEDI 4 dated March 25, 1992 (Exhibit A;
also Exhibit I). The vessel is owned and operated by defendant Conti-Feed, with defendant [herein
petitioner] Wallem as its ship agent.
The subject cargo is part of the entire shipment of Indian Soya Bean Meal/India Rapeseed Meal
loaded in bulk on board the said vessel for delivery to several consignees. Among the consignees
were San Miguel Corporation and Vitarich Corporation, including the herein plaintiff (Exhibit A;
Exhibits 1 to 6; TSN, p. 13, June 28, 1996).
On April 11, 1992, the said vessel, M/V "Hui Yang" arrived at the port of Manila, Pier 7 South
Harbor. Thereafter, the shipment was discharged and transferred into the custody of the receiving
barges, the NorthFront-333 and NorthFront-444. The offloading of the shipment went on until April
15, 1992 and was handled by [Ocean Terminal Services, Inc.] OTSI using its own manpower and
equipment and without the participation of the crew members of the vessel. All throughout the entire
period of unloading operation, good and fair weather condition prevailed.
At the instance of the plaintiff, a cargo check of the subject shipment was made by one Lorenzo
Bituin of Erne Maritime and Allied Services, Co. Inc., who noted a shortage in the shipment which
was placed at 80.467 metric tons based on draft survey made on the NorthFront-33 and NorthFront-
444 showing that the quantity of cargo unloaded from the vessel was only 1019.53 metric tons.
Thus, per the bill of lading, there was an estimated shortage of 80.467.
Upon discovery thereof, the vessel chief officer was immediately notified of the said short shipment
by the cargo surveyor, who accordingly issued the corresponding Certificate of Discharge dated
April 15, 1992 (Exhibit D). The survey conducted and the resultant findings thereon are embodied in
the Report of Superintendence dated April 21, 1992 (Exhibits C to C-2) and in the Barge Survey
Report both submitted by Lorenzo Bituin (Exhibits C-3 and C-4). As testified to by Lorenzo Bituin,
this alleged shortage of 80.467 metric tons was arrived at using the draft survey method which calls
for the measurement of the light and loaded condition of the barge in relation to the weight of the
water supposedly displaced.4
Petitioner then filed a Complaint for damages against Conti-Feed & Maritime Pvt. Ltd., a foreign
corporation doing business in the Philippines and the owner of M/V "Hui Yang"; RCS Shipping
Agencies, Inc., the ship agent of Conti-Feed; Ocean Terminal Services, Inc. (OTSI), the arrastre
operator at Anchorage No. 7, South Harbor, Manila; and Cargo Trade, the customs broker.5
On June 7, 1993, respondent filed an Amended Complaint impleading herein petitioner as defendant
alleging that the latter, and not RCS, was the one which, in fact, acted as Conti-Feed’s ship agent.6
On June 22, 1993, the complaint against Cargo Trade was dismissed at the instance of respondent
on the ground that it has no cause of action against the former.7
Subsequently, upon motion of RCS, the case against it was likewise dismissed for lack of cause of
action.8
Meanwhile, defendant OTSI filed its Answer with Counterclaim and Crossclaim9 denying the material
allegations of the Complaint and alleging that it exercised due care and diligence in the handling of
the shipment from the carrying vessel unto the lighters; no damage or loss whatsoever was
sustained by the cargo in question while being discharged by OTSI; petitioner’s claim had been
waived, abandoned or barred by laches or estoppels; liability, if any, is attributable to its co-
defendants.
For its part, petitioner denied the allegations of respondent claiming, among others, that it is not
accountable nor responsible for any alleged shortage sustained by the shipment while in the
possession of its co-defendants; the alleged shortage was due to negligent or faulty loading or
unloading of the cargo by the stevedores/shipper/consignee; the shortage, if any, was due to pre-
shipment damage, inherent nature, vice or defect of the cargo for which herein petitioner is not
liable; respondent’s claim is already barred by laches and/or prescription.10
Conti-Feed did not file an Answer.
Pre-Trial Conference was conducted, after which trial ensued.
On October 8, 1999, the RTC rendered its Decision11 dismissing respondent’s complaint, as well as
the opposing parties’ counterclaims and crossclaims.
Aggrieved by the RTC Decision, respondent filed an appeal with the CA.
On June 2, 2003, the CA rendered its presently assailed Decision disposing as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and another one
entered ordering defendants-appellees Conti-Feed and Maritime Pvt. Ltd. and Wallem Philippines
Shipping, Inc., to pay the sum representing the value of the 80.467 metric tons of Indian Soya Beans
shortdelivered, with legal interest from the time the judgment becomes final until full payment, plus
attorney’s fees and expenses of litigation of ₱10,000.00, as well as the cost of suit.
SO ORDERED.12
Petitioner filed a Motion for Reconsideration.
On July 8, 2003, respondent filed a Motion for a More Definite Dispositive Portion13 praying that the
value of the 80.467 metric tons of Indian Soya Beans, which petitioner and Conti-Feed were ordered
to pay, be specified in the dispositive portion of the CA Decision.
Petitioner filed its Comment/Opposition14 to private respondent’s Motion.
42
On January 15, 2004, the CA issued a Resolution denying petitioner’s Motion for Reconsideration
and modifying the dispositive portion of its Decision, thus:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and another one
entered ordering defendants-appellees Conti-Feed and Maritime Pvt. Ltd. and Wallem Shipping,
Inc., to pay the sum of $19,070.06 representing the value of the 80.467 metric tons of Indian Soya
Beans shortdelivered, with legal interest from the time the judgment becomes final until full payment,
plus attorney’s fees and expenses of litigation of ₱10,000.00, as well as the costs of suit.
SO ORDERED.15
Hence, the instant petition based on the following Assignment of Errors:
I
THE COURT OF APPEALS ERRED IN APPLYING THE PRESUMPTION OF NEGLIGENCE
UNDER ARTICLE 1735 OF THE CIVIL CODE. THIS PROVISION DOES NOT APPLY IN THIS
CASE BECAUSE THERE WAS NO LOSS OR SHORTAGE OR SHORTDELIVERY.
II
THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO THE CASE CONSIDERING
THAT:
A. THE CLAIM WAS ALREADY TIME-BARRED WHEN THE CASE WAS
FILED AGAINST HEREIN PETITIONER ON 8 MAY 1993, AS PROVIDED IN
SECTION 3 (6) OF THE COGSA. THE ONE-YEAR PRESCRIPTIVE PERIOD
COMMENCED ON 15 APRIL 1992 WHEN THE SUBJECT SHIPMENT WAS
DELIVERED TO PRIVATE RESPONDENT AND LAPSED ON 15 APRIL 1993;
AND
B. [RESPONDENT] WAIVED ITS RIGHT OF ACTION WHEN IT DID NOT GIVE
A WRITTEN NOTICE OF LOSS TO THE PETITIONER WITHIN THREE (3)
DAYS FROM DISCHARGE OF THE SUBJECT SHIPMENT AS PROVIDED IN
SECTION 3 (6) OF THE COGSA.
III
IN THE REMOTE POSSIBILITY OF LOSS OR SHORTAGE OR SHORTDELIVERY, THE COURT
OF APPEALS ERRED IN IMPUTING NEGLIGENCE AGAINST THE PETITIONER WHICH WAS
NOT RESPONSIBLE IN LOADING AND/OR DISCHARGING THE SUBJECT SHIPMENT.
IV
THE COURT OF APPEALS ERRED IN GRANTING [RESPONDENT’S] MOTION FOR A MORE
DEFINITE DISPOSITIVE PORTION WITHOUT STATING IN THE DECISION, THE LEGAL BASES
FOR DOING SO.
V
THE COURT OF APPEALS ERRED IN GRANTING THE MOTION FOR A MORE DEFINITE
DISPOSITIVE PORTION BECAUSE [RESPONDENT] FILED SAID MOTION MORE THAN
FIFTEEN (15) DAYS AFTER [RESPONDENT] RECEIVED THE DECISION OF THE COURT OF
APPEALS. THE COURT OF APPEALS FURTHER ERRED IN INSERTING A DEFINITE
MONETARY VALUE OF THE ALLEGED SHORTAGE BECAUSE THERE WAS NO FACTUAL
FINDING, BOTH IN THE TRIAL COURT AND IN THE COURT OF APPEALS, AS TO THE
SPECIFIC AMOUNT OF THE ALLEGED SHORTDELIVERED CARGO.16
The Court finds it proper to resolve first the question of whether the claim against petitioner was
timely filed.
With respect to the prescriptive period involving claims arising from shortage, loss of or damage to
cargoes sustained during transit, the law that governs the instant case is the Carriage of Goods by
Sea Act17 (COGSA), Section 3 (6) of which provides:
Unless notice of loss or damage and the general nature of such loss or damage be given in writing
to the carrier or his agent at the port of discharge or at the time of the removal of the goods into the
custody of the person entitled to delivery thereof under the contract of carriage, such removal shall
be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If
the loss or damage is not apparent, the notice must be given within three days of delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person
taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their receipt been
the subject of joint survey or inspection.
In any event, the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered; Provided, That, if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right
of the shipper to bring suit within one year after the delivery of the goods or the date when the goods
should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all
reasonable facilities to each other for inspecting and tallying the goods.
Petitioner claims that pursuant to the above-cited provision, respondent should have filed its Notice
of Loss within three days from delivery. It asserts that the cargo was fully discharged from the vessel
on April 15, 1992, but that respondent failed to file any written notice of claim. Petitioner also avers
that, pursuant to the same provision of the COGSA, respondent’s claim had already prescribed
because the complaint for damages was filed more than one year after the shipment was
discharged.
The Court agrees.
Under Section 3 (6) of the COGSA, notice of loss or damages must be filed within three days of
delivery. Admittedly, respondent did not comply with this provision.
Under the same provision, however, a failure to file a notice of claim within three days will not bar
recovery if a suit is nonetheless filed within one year from delivery of the goods or from the date
when the goods should have been delivered.18
In Loadstar Shipping Co., Inc. v. Court of Appeals,19 the Court ruled that a claim is not barred by
prescription as long as the one-year period has not lapsed. Thus, in the words of the ponente, Chief
Justice Hilario G. Davide Jr.:
43
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.20

In the instant case, the Court is not persuaded by respondent’s claim that the complaint against
petitioner was timely filed. Respondent argues that the suit for damages was filed on March 11,
1993, which is within one year from the time the vessel carrying the subject cargo arrived at the Port
of Manila on April 11, 1993, or from the time the shipment was completely discharged from the
vessel on April 15, 1992.

There is no dispute that the vessel carrying the shipment arrived at the Port of Manila on April 11,
1992 and that the cargo was completely discharged therefrom on April 15, 1992. However,
respondent erred in arguing that the complaint for damages, insofar as the petitioner is concerned,
was filed on March 11, 1993.1awph!l

As the records would show, petitioner was not impleaded as a defendant in the original complaint
filed on March 11, 1993.21 It was only on June 7, 1993 that the Amended Complaint, impleading
petitioner as defendant, was filed.

Respondent cannot argue that the filing of the Amended Complaint against petitioner should retroact
to the date of the filing of the original complaint.

The settled rule is that the filing of an amended pleading does not retroact to the date of the filing of
the original; hence, the statute of limitation runs until the submission of the amendment.22 It is true
that, as an exception, this Court has held that an amendment which merely supplements and
amplifies facts originally alleged in the complaint relates back to the date of the commencement of
the action and is not barred by the statute of limitations which expired after the service of the original
complaint.23 The exception, however, would not apply to the party impleaded for the first time in the
amended complaint.24

The rule on the non-applicability of the curative and retroactive effect of an amended complaint,
insofar as newly impleaded defendants are concerned, has been established as early as in the case
of Aetna Insurance Co. v. Luzon Stevedoring Corporation.25 In the said case, the defendant Barber
Lines Far East Service was impleaded for the first time in the amended complaint which was filed
after the one-year period of prescription. The order of the lower court dismissing the amended
complaint against the said defendant on ground of prescription was affirmed by this Court.

In the instant case, petitioner was only impleaded in the amended Complaint of June 7, 1993, or one
(1) year, one (1) month and twenty-three (23) days from April 15, 1992, the date when the subject
cargo was fully unloaded from the vessel. Hence, reckoned from April 15, 1992, the one-year
prescriptive period had already lapsed.

Having ruled that the action against petitioner had already prescribed, the Court no longer finds it
necessary to address the other issues raised in the present petition.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals dated June
2, 2003 and its Resolution dated January 15, 2004 in CA-G.R. CV No. 65857 are MODIFIED by
dismissing the complaint against petitioner. In all other respects, the challenged Decision and
Resolution of the CA are AFFIRMED.

SO ORDERED.

44
G.R. No. L-16598             October 3, 1921
H. E. HEACOCK COMPANY, plaintiff-appellant,
vs.
MACONDRAY & COMPANY, INC., defendant-appellant.
JOHNSON, J.:
This action was commenced in the Court of First Instance of the City of Manila to recover the sum of
P240 together with interest thereon. The facts are stipulated by the parties, and are, briefly, as
follows:
(1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board of
steamship Bolton Castle, then in the harbor of New York, four cases of merchandise one
of which contained twelve (12) 8-day Edmond clocks properly boxed and marked for
transportation to Manila, and paid freight on said clocks from New York to Manila in
advance. The said steampship arrived in the port of Manila on or about the 10th day of
September, 1919, consigned to the defendant herein as agent and representative of said
vessel in said port. Neither the master of said vessel nor the defendant herein, as its
agent, delivered to the plaintiff the aforesaid twelve 8-day Edmond clocks, although
demand was made upon them for their delivery.
(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New York was
P22 and the market value of the same in the City of Manila at the time when they should
have been delivered to the plaintiff was P420.
(3) The bill of lading issued and delivered to the plaintiff by the master of the said
steamship Bolton Castle contained, among others, the following clauses:
1. It is mutually agreed that the value of the goods receipted for above does not
exceed $500 per freight ton, or, in proportion for any part of a ton, unless the
value be expressly stated herein and ad valorem freight paid thereon.
9. Also, that in the event of claims for short delivery of, or damage to, cargo
being made, the carrier shall not be liable for more than the net invoice price
plus freight and insurance less all charges saved, and any loss or damage for
which the carrier may be liable shall be adjusted pro rata on the said basis.
(4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet,
and the freight ton value thereof was $1,480, U. S. currency.
(5) No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff
on the aforesaid clocks, and no ad valorem freight was paid thereon.
(6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the
proportionate freight ton value of the aforesaid twelve 8-day Edmond clocks, in payment
of plaintiff's claim, which tender plaintiff rejected.
The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered judgment in
favor of the plaintiff against the defendant for the sum of P226.02, this being the invoice value of the
clocks in question plus the freight and insurance thereon, with legal interest thereon from November
20, 1919, the date of the complaint, together with costs. From that judgment both parties appealed
to this court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of the
clocks in question, to wit: the sum of P420. The defendant-appellant, on the other hand, contends
that, in accordance with clause 1 of the bill of lading, the plaintiff is entitled to recover only the sum
of P76.36, the proportionate freight ton value of the said clocks. The claim of the plaintiff is based
upon the argument that the two clause in the bill of lading above quoted, limiting the liability of the
carrier, are contrary to public order and, therefore, null and void. The defendant, on the other hand,
contends that both of said clauses are valid, and the clause 1 should have been applied by the lower
court instead of clause 9.
I. The appeal of the plaintiff presents this question; May a common carrier, by stipulations inserted in
the bill of lading, limit its liability for the loss of or damage to the cargo to an agreed valuation of the
latter? 1awph!l.net
Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the
carrier from any and all liability for loss or damage occasioned by its own negligence. The second is
one providing for an unqualified limitation of such liability to an agreed valuation. And the third is one
limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value
and pays a higher rate of freight. According to an almost uniform weight of authority, the first and
second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and
enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of February 13,
1893]: Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express Co., 4 McAr., 124;
48 Am. Rep., 742) support the proposition that the first and second stipulations in a bill of lading are
invalid which either exempt the carrier from liability for loss or damage occasioned by its negligence,
or provide for an unqualified limitation of such liability to an agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that the
present case falls within the third stipulation, to wit: That a clause in a bill of lading limiting the
liability of the carrier to a certain amount unless the shipper declares a higher value and pays a
higher rate of freight, is valid and enforceable. This proposition is supported by a uniform lien of
decisions of the Supreme Court of the United States rendered both prior and subsequent to the
passage of the Harter Act, from the case of Hart vs. Pennsylvania R. R. Co. (decided Nov. 24, 1884;
112 U. S., 331), to the case of the Union Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921, Advance
Opinions, 1920-1921, p. 318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of carriage,
signed by the shipper, is fairly made with a railroad company, agreeing on a valuation of the
property carried, with the rate of freight based on the condition that the carrier assumes liability only
to the extent of the agreed valuation, even in case of loss or damage by the negligence of the
carrier, the contract will be upheld as proper and lawful mode of securing a due proportion between
the amount for which the carrier may be responsible and the freight he receives, and protecting
himself against extravagant and fanciful valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases, from the
decision in Hart vs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed., 717; 5 Sup. Ct. Rep., 151,
decided in 1884), to Boston and M. R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct.
Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it has been declared to be the settled Federal
law that if a common carrier gives to a shipper the choice of two rates, the lower of the conditioned
upon his agreeing to a stipulated valuation of his property in case of loss, even by the carrier's
negligence, if the shipper makes such a choice, understandingly and freely, and names his
valuation, he cannot thereafter recover more than the value which he thus places upon his property.
As a matter of legal distinction, estoppel is made the basis of this ruling, — that, having accepted the
benefit of the lower rate, in common honesty the shipper may not repudiate the conditions on which
it was obtained, — but the rule and the effect of it are clearly established."
45
The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement with a It follows from all of the foregoing that the judgment appealed from should be affirmed, without any
shipper, limit its liability in case of the loss by negligence of an interstate shipment to less than the finding as to costs. So ordered.
real value thereof, unless the shipper is given a choice of rates, based on valuation."

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

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

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

1. It is mutually agreed that the value of the goods receipted for above does not exceed
$500 per freight ton, or, in proportion for any part of a ton, unless the value be expressly
stated herein and ad valorem freight paid thereon. Clause 9 provides:

9. Also, that in the even of claims for short delivery of, or damage to, cargo being made,
the carrier shall not be liable for more than the net invoice price plus freight and insurance
less all charges saved, and any loss or damage for which the carrier may be liable shall
be adjusted pro rata on the said basis.

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

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

46
G.R. No. L-20099             July 7, 1966
PARMANAND SHEWARAM, plaintiff and appellee,
vs.
PHILIPPINE AIR LINES, INC., defendant and appellant.
ZALDIVAR, J.:
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram instituted an
action to recover damages suffered by him due to the alleged failure of defendant-appellant
Philippines Air Lines, Inc. to observe extraordinary diligence in the vigilance and carriage of his
luggage. After trial the municipal court of Zamboanga City rendered judgment ordering the appellant
to pay appellee P373.00 as actual damages, P100.00 as exemplary damages, P150.00 as
attorney's fees, and the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After
hearing the Court of First Instance of Zamboanga City modified the judgment of the inferior court by
ordering the appellant to pay the appellee only the sum of P373.00 as actual damages, with legal
interest from May 6, 1960 and the sum of P150.00 as attorney's fees, eliminating the award of
exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this Court
on a question of law, assigning two errors allegedly committed by the lower court a quo, to wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions
of the tariff regulations filed by defendant-appellant with the civil aeronautics board and
the conditions of carriage printed at the back of the plane ticket stub.
2. The lower court erred in not dismissing this case or limiting the liability of the defendant-
appellant to P100.00.
The facts of this case, as found by the trial court, quoted from the decision appealed from, are as
follows:
That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying
passenger with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from
Zamboanga City bound for Manila; that defendant is a common carrier engaged in air line
transportation in the Philippines, offering its services to the public to carry and transport
passengers and cargoes from and to different points in the Philippines; that on the above-
mentioned date of November 23, 1959, he checked in three (3) pieces of baggages — a
suitcase and two (2) other pieces; that the suitcase was mistagged by defendant's
personnel in Zamboanga City, as I.G.N. (for Iligan) with claim check No. B-3883, instead
of MNL (for Manila). When plaintiff Parmanand Shewaram arrived in Manila on the date of
November 23, 1959, his suitcase did not arrive with his flight because it was sent to Iligan.
So, he made a claim with defendant's personnel in Manila airport and another suitcase
similar to his own which was the only baggage left for that flight, the rest having been
claimed and released to the other passengers of said flight, was given to the plaintiff for
him to take delivery but he did not and refused to take delivery of the same on the ground
that it was not his, alleging that all his clothes were white and the National transistor 7 and
a Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol
which he did not have nor placed inside his suitcase; that after inquiries made by
defendant's personnel in Manila from different airports where the suitcase in question
must have been sent, it was found to have reached Iligan and the station agent of the PAL
in Iligan caused the same to be sent to Manila for delivery to Mr. Shewaram and which
suitcase belonging to the plaintiff herein arrived in Manila airport on November 24, 1959;
that it was also found out that the suitcase shown to and given to the plaintiff for delivery
which he refused to take delivery belonged to a certain Del Rosario who was bound for
Iligan in the same flight with Mr. Shewaram; that when the plaintiff's suitcase arrived in
Manila as stated above on November 24, 1959, he was informed by Mr. Tomas Blanco,
Jr., the acting station agent of the Manila airport of the arrival of his suitcase but of course
minus his Transistor Radio 7 and the Rollflex Camera; that Shewaram made demand for
these two (2) items or for the value thereof but the same was not complied with by
defendant.
xxx     xxx     xxx
It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as
IGN. The tampering of the suitcase is more apparent when on November 24, 1959, when
the suitcase arrived in Manila, defendant's personnel could open the same in spite of the
fact that plaintiff had it under key when he delivered the suitcase to defendant's personnel
in Zamboanga City. Moreover, it was established during the hearing that there was space
in the suitcase where the two items in question could have been placed. It was also
shown that as early as November 24, 1959, when plaintiff was notified by phone of the
arrival of the suitcase, plaintiff asked that check of the things inside his suitcase be made
and defendant admitted that the two items could not be found inside the suitcase. There
was no evidence on record sufficient to show that plaintiff's suitcase was never opened
during the time it was placed in defendant's possession and prior to its recovery by the
plaintiff. However, defendant had presented evidence that it had authority to open
passengers' baggage to verify and find its ownership or identity. Exhibit "1" of the
defendant would show that the baggage that was offered to plaintiff as his own was
opened and the plaintiff denied ownership of the contents of the baggage. This proven
fact that baggage may and could be opened without the necessary authorization and
presence of its owner, applied too, to the suitcase of plaintiff which was mis-sent to Iligan
City because of mistagging. The possibility of what happened in the baggage of Mr. Del
Rosario at the Manila Airport in his absence could have also happened to plaintiffs
suitcase at Iligan City in the absence of plaintiff. Hence, the Court believes that these two
items were really in plaintiff's suitcase and defendant should be held liable for the same by
virtue of its contract of carriage.
It is clear from the above-quoted portions of the decision of the trial court that said court had found
that the suitcase of the appellee was tampered, and the transistor radio and the camera contained
therein were lost, and that the loss of those articles was due to the negligence of the employees of
the appellant. The evidence shows that the transistor radio cost P197.00 and the camera cost
P176.00, so the total value of the two articles was P373.00.
There is no question that the appellant is a common carrier.1 As such common carrier the appellant,
from the nature of its business and for reasons of public policy, is bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers transported by it
according to the circumstances of each case. 2 It having been shown that the loss of the transistor
radio and the camera of the appellee, costing P373.00, was due to the negligence of the employees
of the appellant, it is clear that the appellant should be held liable for the payment of said loss.3
It is, however, contended by the appellant that its liability should be limited to the amount stated in
the conditions of carriage printed at the back of the plane ticket stub which was issued to the
appellee, which conditions are embodied in Domestic Tariff Regulations No. 2 which was filed with
the Civil Aeronautics Board. One of those conditions, which is pertinent to the issue raised by the
appellant in this case provides as follows:
The liability, if any, for loss or damage to checked baggage or for delay in the delivery
thereof is limited to its value and, unless the passenger declares in advance a higher
valuation and pay an additional charge therefor, the value shall be conclusively deemed
not to exceed P100.00 for each ticket.
47
The appellant maintains that in view of the failure of the appellee to declare a higher value for his
luggage, and pay the freight on the basis of said declared value when he checked such luggage at
the Zamboanga City airport, pursuant to the abovequoted condition, appellee can not demand
payment from the appellant of an amount in excess of P100.00.
The law that may be invoked, in this connection is Article 1750 of the New Civil Code which provides
as follows:
A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary
liability of a common carrier may, by contract, be limited to a fixed amount. It is required, however,
that the contract must be "reasonable and just under the circumstances and has been fairly and
freely agreed upon."
The requirements provided in Article 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or
deterioration of the goods it has undertaken to transport. In the case before us We believe that the
requirements of said article have not been met. It can not be said that the appellee had actually
entered into a contract with the appellant, embodying the conditions as printed at the back of the
ticket stub that was issued by the appellant to the appellee. The fact that those conditions are
printed at the back of the ticket stub in letters so small that they are hard to read would not warrant
the presumption that the appellee was aware of those conditions such that he had "fairly and freely
agreed" to those conditions. The trial court has categorically stated in its decision that the
"Defendant admits that passengers do not sign the ticket, much less did plaintiff herein sign his
ticket when he made the flight on November 23, 1959." We hold, therefore, that the appellee is not,
and can not be, bound by the conditions of carriage found at the back of the ticket stub issued to him
when he made the flight on appellant's plane on November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of Articles
1734 and 1735 of the New Civil Code, which We quote as follows:
ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.1äwphï1.ñët
ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in Article 1733.
It having been clearly found by the trial court that the transistor radio and the camera of the appellee
were lost as a result of the negligence of the appellant as a common carrier, the liability of the
appellant is clear — it must pay the appellee the value of those two articles.
In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its
decision, this Court had laid down the rule that the carrier can not limit its liability for injury to or loss
of goods shipped where such injury or loss was caused by its own negligence.
Corpus Juris, volume 10, p. 154, says:
"Par. 194, 6. Reasonableness of Limitations. — The validity of stipulations limiting the
carrier's liability is to be determined by their reasonableness and their conformity to the
sound public policy, in accordance with which the obligations of the carrier to the public
are settled. It cannot lawfully stipulate for exemption from liability, unless such exemption
is just and reasonable, and unless the contract is freely and fairly made. No contractual
limitation is reasonable which is subversive of public policy.
"Par. 195. 7. What Limitations of Liability Permissible. — a. Negligence — (1) Rule in
America — (a) In Absence of Organic or Statutory Provisions Regulating Subject — aa.
Majority Rule. — In the absence of statute, it is settled by the weight of authority in the
United States, that whatever limitations against its common-law liability are permissible to
a carrier, it cannot limit its liability for injury to or loss of goods shipped, where such injury
or loss is caused by its own negligence. This is the common law doctrine and it makes no
difference that there is no statutory prohibition against contracts of this character.
"Par. 196. bb. Considerations on which Rule Based. — The rule, it is said, rests on
considerations of public policy. The undertaking is to carry the goods, and to relieve the
shipper from all liability for loss or damage arising from negligence in performing its
contract is to ignore the contract itself. The natural effect of a limitation of liability against
negligence is to induce want of care on the part of the carrier in the performance of its
duty. The shipper and the common carrier are not on equal terms; the shipper must send
his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the
carrier unless protected by the higher power of the law against being forced into contracts
limiting the carrier's liability. Such contracts are wanting in the element of voluntary
assent.
"Par. 197. cc. Application and Extent of Rule — (aa) Negligence of Servants. — The rule
prohibiting limitation of liability for negligence is often stated as a prohibition of any
contract relieving the carrier from loss or damage caused by its own negligence or
misfeasance, or that of its servants; and it has been specifically decided in many cases
that no contract limitation will relieve the carrier from responsibility for the negligence,
unskillfulness, or carelessness of its employer." (Cited in Ysmael and Co. vs. Barreto, 51
Phil. 90, 98, 99).
In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.
48
G.R. No. L-40597 June 29, 1979 Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of
his documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to Cebu
City on August 28, 1967. In a letter dated August 29, 1967 addressed to PAL, Cebu, petitioner
AGUSTINO B. ONG YIU, petitioner,
called attention to his telegram (Exh. "D"), demanded that his luggage be produced intact, and that
vs.
he be compensated in the sum of P250,000,00 for actual and moral damages within five days from
HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC., respondents.
receipt of the letter, otherwise, he would be left with no alternative but to file suit (Exh. "D").

MELENCIO-HERRERA, J.:
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner's
office to deliver the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel Maranga the
In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a contents were listed and receipted for by petitioner (Exh. "E").
reversal of the Decision of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his claim
for damages for breach of contract of transportation.
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of the
investigation which Messrs. de Leon, Navarsi, and Agustin had promised to conduct to pinpoint
The facts are as follows: responsibility for the unauthorized opening of the "maleta" (Exh. "F").

On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines, Inc. The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
(PAL), on board Flight No. 463-R, from Mactan Cebu, bound for Butuan City. He was scheduled to
attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of First Instance,
Dear Atty. Ong Yiu:
Branch II, thereat, set for hearing on August 28-31, 1967. As a passenger, he checked in one piece
of luggage, a blue "maleta" for which he was issued Claim Check No. 2106-R (Exh. "A"). The plane
left Mactan Airport, Cebu, at about 1:00 o'clock P.M., and arrived at Bancasi airport, Butuan City, at This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting
past 2:00 o'clock P.M., of the same day. Upon arrival, petitioner claimed his luggage but it could not Manager, Southern Philippines.
be found. According to petitioner, it was only after reacting indignantly to the loss that the matter was
attended to by the porter clerk, Maximo Gomez, which, however, the latter denies, At about 3:00
First of all, may we apologize for the delay in informing you of the result of our investigation
o'clock P.M., PAL Butuan, sent a message to PAL, Cebu, inquiring about the missing luggage,
since we visited you in your office last August 31, 1967. Since there are stations other than
which message was, in turn relayed in full to the Mactan Airport teletype operator at 3:45 P.M. (Exh.
Cebu which are involved in your case, we have to communicate and await replies from
"2") that same afternoon. It must have been transmitted to Manila immediately, for at 3:59 that same
them. We regret to inform you that to date we have not found the supposedly lost folder of
afternoon, PAL Manila wired PAL Cebu advising that the luggage had been over carried to Manila
papers nor have we been able to pinpoint the personnel who allegedly pilferred your
aboard Flight No. 156 and that it would be forwarded to Cebu on Flight No. 345 of the same day.
baggage.
Instructions were also given that the luggage be immediately forwarded to Butuan City on the first
available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent a message to PAL
Butuan that the luggage would be forwarded on Fright No. 963 the following day, August 27, 196'(. You must realize that no inventory was taken of the cargo upon loading them on any plane.
However, this message was not received by PAL Butuan as all the personnel had already left since Consequently, we have no way of knowing the real contents of your baggage when same
there were no more incoming flights that afternoon. was loaded.

In the meantime, petitioner was worried about the missing luggage because it contained vital We realized the inconvenience you encountered of this incident but we trust that you will
documents needed for trial the next day. At 10:00 o'clock that evening, petitioner wired PAL Cebu give us another opportunity to be of better service to you.
demanding the delivery of his baggage before noon the next day, otherwise, he would hold PAL
liable for damages, and stating that PAL's gross negligence had caused him undue inconvenience,
Very truly yours,
worry, anxiety and extreme embarrassment (Exh. "B"). This telegram was received by the Cebu PAL
PHILIPPINE AIR LINES, INC.
supervisor but the latter felt no need to wire petitioner that his luggage had already been forwarded
(Sgd) JEREMIAS S. AGUSTIN
on the assumption that by the time the message reached Butuan City, the luggage would have
Branch Supervisor
arrived.
Cebu

Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to
On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of contract
inquire about his luggage. He did not wait, however, for the morning flight which arrived at 10:00
of transportation with the Court of First Instance of Cebu, Branch V, docketed as Civil Case No. R-
o'clock that morning. This flight carried the missing luggage. The porter clerk, Maximo Gomez,
10188, which PAL traversed. After due trial, the lower Court found PAL to have acted in bad faith
paged petitioner, but the latter had already left. A certain Emilio Dagorro a driver of a "colorum" car,
and with malice and declared petitioner entitled to moral damages in the sum of P80,000.00,
who also used to drive for petitioner, volunteered to take the luggage to petitioner. As Maximo
exemplary damages of P30,000.00, attorney's fees of P5,000.00, and costs.
Gomez knew Dagorro to be the same driver used by petitioner whenever the latter was in Butuan
City, Gomez took the luggage and placed it on the counter. Dagorro examined the lock, pressed it,
and it opened. After calling the attention of Maximo Gomez, the "maleta" was opened, Gomez took a Both parties appealed to the Court of Appeals — petitioner in so far as he was awarded only the
look at its contents, but did not touch them. Dagorro then delivered the "maleta" to petitioner, with sum of P80,000.00 as moral damages; and defendant because of the unfavorable judgment
the information that the lock was open. Upon inspection, petitioner found that a folder containing rendered against it.
certain exhibits, transcripts and private documents in Civil Case No. 1005 and Sp. Procs. No. 1126
were missing, aside from two gift items for his parents-in-law. Petitioner refused to accept the
luggage. Dagorro returned it to the porter clerk, Maximo Gomez, who sealed it and forwarded the On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple negligence,
same to PAL Cebu. reversed the judgment of the trial Court granting petitioner moral and exemplary damages, but

49
ordered PAL to pay plaintiff the sum of P100.00, the baggage liability assumed by it under the
condition of carriage printed at the back of the ticket.
Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the
following Assignments of Error:
I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL
GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF ITS
CONTRACT OF TRANSPORTATION WITH PETITIONER.
II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND THE
LAW WHEN IT REVERSED THE DECISION OF THE LOWER COURT AWARDING TO
PETITIONER MORAL DAMAGES IN THE AMOUNT OF P80,000.00, EXEMPLARY
DAMAGES OF P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY'S FEES, AND
ORDERED RESPONDENT PAL TO COMPENSATE PLAINTIFF THE SUM OF P100.00
ONLY, CONTRARY TO THE EXPLICIT PROVISIONS OF ARTICLES 2220, 2229, 2232
AND 2234 OF THE CIVIL CODE OF THE PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The question is
the correctness of respondent Court's conclusion that there was no gross negligence on the part of
PAL and that it had not acted fraudulently or in bad faith as to entitle petitioner to an award of moral
and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad
faith means a breach of a known duty through some motive of interest or ill will. 2 It was the duty of
PAL to look for petitioner's luggage which had been miscarried. PAL exerted due diligence in
complying with such duty.
As aptly stated by the appellate Court:
We do not find any evidence of bad faith in this. On the contrary, We find that the defendant
had exerted diligent effort to locate plaintiff's baggage. The trial court saw evidence of bad
faith because PAL sent the telegraphic message to Mactan only at 3:00 o'clock that same
afternoon, despite plaintiff's indignation for the non-arrival of his baggage. The message was
sent within less than one hour after plaintiff's luggage could not be located. Efforts had to be
exerted to locate plaintiff's maleta. Then the Bancasi airport had to attend to other incoming
passengers and to the outgoing passengers. Certainly, no evidence of bad faith can be
inferred from these facts. Cebu office immediately wired Manila inquiring about the missing
baggage of the plaintiff. At 3:59 P.M., Manila station agent at the domestic airport wired
Cebu that the baggage was over carried to Manila. And this message was received in Cebu
one minute thereafter, or at 4:00 P.M. The baggage was in fact sent back to Cebu City that
same afternoon. His Honor stated that the fact that the message was sent at 3:59 P.M. from
Manila and completely relayed to Mactan at 4:00 P.M., or within one minute, made the
message appear spurious. This is a forced reasoning. A radio message of about 50 words
can be completely transmitted in even less than one minute depending upon atmospheric
conditions. Even if the message was sent from Manila or other distant places, the message
can be received within a minute. that is a scientific fact which cannot be questioned. 3
Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith, The
telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The PAL
supervisor at Mactan Airport was notified of it only in the morning of the following day. At that time
the luggage was already to be forwarded to Butuan City. There was no bad faith, therefore, in the
assumption made by said supervisor that the plane carrying the bag would arrive at Butuan earlier
than a reply telegram. Had petitioner waited or caused someone to wait at the Bancasi airport for the
arrival of the morning flight, he would have been able to retrieve his luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral
damages.
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are
the proximate result of the defendant's wrongful act of omission.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232 of
the Civil Code, exemplary damages can be granted if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner, which has not been proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited PAL's
carriage liability to the amount of P100.00 as stipulated at the back of the ticket. In this connection,
respondent Court opined:
As a general proposition, the plaintiff's maleta having been pilfered while in the custody of
the defendant, it is presumed that the defendant had been negligent. The liability, however,
of PAL for the loss, in accordance with the stipulation written on the back of the ticket,
Exhibit 12, is limited to P100.00 per baggage, plaintiff not having declared a greater value,
and not having called the attention of the defendant on its true value and paid the tariff
therefor. The validity of this stipulation is not questioned by the plaintiff. They are printed in
reasonably and fairly big letters, and are easily readable. Moreover, plaintiff had been a
frequent passenger of PAL from Cebu to Butuan City and back, and he, being a lawyer and
businessman, must be fully aware of these conditions. 4
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the
plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged baggage of
the passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher
valuation in excess of P100.00, but not in excess, however, of a total valuation of P1,000.00
and additional charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less did he
pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered into a
contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and
that Article 1750* of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless
bound by the provisions thereof. "Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or
assent to the regulation". 5 It is what is known as a contract of "adhesion", in regards which it has
been said that contracts of adhesion wherein one party imposes a ready made form of contract on
the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. 6 And
50
as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs.
Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability upon an agreed valuation
does not offend against the policy of the law forbidding one from contracting against his own
negligence.

Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he
cannot be permitted a recovery in excess of P100.00.Besides, passengers are advised not to place
valuable items inside their baggage but "to avail of our V-cargo service " (Exh. "1"). I t is likewise to
be noted that there is nothing in the evidence to show the actual value of the goods allegedly lost by
petitioner.

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

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

In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are not
erroneous.

WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be
reviewed hereby affirmed in toto.

No costs.

SO ORDERED.

51
G.R. No. L-31150 July 22, 1975 On March 17, 1966 the respondents, referring to KLM as the principal of Aer Lingus, filed a
complaint for damages with the Court of First Instance of Manila arising from breach of contract of
carriage and for the humiliating treatment received by them at the hands of the Aer Lingus manager
KONINKLIJKE LUCHTVAART MAATSHAPPIJ N.V., otherwise known as KLM ROYAL DUTCH
in Barcelona. After due hearing, the trial court awarded damages to the respondents as follows:
AIRLINES, petitioner,
$43.35 or its peso equivalent as actual damages, P10,000 as moral damages, P5,000 as exemplary
vs.
damages, and P5,000 as attorney's fees, and expenses of litigation.
THE HONORABLE COURT OF APPEALS, CONSUELO T. MENDOZA and RUFINO T.
MENDOZA, respondents.
Both parties appealed to the Court of Appeals. The KLM sought complete exoneration; the
respondents prayed for an increase in the award of damages. In its decision of August 14, 1969 the
CASTRO, J.:
Court of Appeals decreed as follows: "Appellant KLM is condemned to pay unto the plaintiffs the
sum of $43.35 as actual damages; P50,000 as moral damages; and P6,000 as attorney's fees and
In this appeal by way of certiorari the Koninklijke Luchtvaart Maatschappij N.V., otherwise known as costs."
the KLM Royal Dutch Airlines (hereinafter referred to as the KLM) assails the award of damages
made by the Court of Appeals in CA-G.R. 40620 in favor of the spouses Rufino T. Mendoza and
Hence, the present recourse by the KLM.
Consuelo T. Mendoza (hereinafter referred to as the respondents).1äwphï1.ñët

The KLM prays for exculpation from damages on the strength of the following particulars which were
Sometime in March 1965 the respondents approached Tirso Reyes, manager of a branch of the
advanced to but rejected by the Court of Appeals:
Philippine Travel Bureau, a travel agency, for consultations about a world tour which they were
intending to make with their daughter and a niece. Reyes submitted to them, after preliminary
discussions, a tentative itinerary which prescribed a trip of thirty-five legs; the respondents would fly (a) The air tickets issued to the respondents stipulate that carriage thereunder is subject to the
on different airlines. Three segments of the trip, the longest, would be via KLM. The respondents "Convention for the Unification of Certain Rules Relating to International Transportation by Air,"
expressed a desire to visit Lourdes, France, and discussed with Reyes two alternate routes, namely, otherwise known as the "Warsaw Convention," to which the Philippine Government is a party by
Paris to Lourdes and Barcelona to Lourdes. The respondents decided on the Barcelona-Lourdes adherence, and which pertinently provides.1
route with knowledge that only one airline, Aer Lingus, serviced it.
ART. 30. (1) In the case of transportation to be performed by various successive carriers
The Philippine Travel Bureau to which Reyes was accredited was an agent for international air and failing within the definition set out in the third paragraph of Article I, each carrier who
carriers which are members of the International Air Transport Association, popularly known as the accepts passengers, baggage, or goods shall be subject to the rules set out in the
"IATA," of which both the KLM and the Aer Lingus are members. convention, and shall be deemed to be one of the contracting parties to the contract of
transportation insofar as the contract deals with that part of transportation which is
performed under his supervision.2
After about two weeks, the respondents approved the itinerary prepared for them, and asked Reyes
to make the necessary plane reservations. Reyes went to the KLM, for which the respondents had
expressed preference. The KLM thereafter secured seat reservations for the respondents and their (2) In the case of transportation of this nature, the passenger or his representative can take
two companions from the carriers which would ferry them throughout their trip, with the exception of action only against the carrier who performed the transportation during which the accident
Aer Lingus. When the respondents left the Philippines (without their young wards who had enplaned or the delay occured, save in the case where, by express agreement, the first carrier has
much earlier), they were issued KLM tickets for their entire trip. However, their coupon for the Aer assumed liability for the whole journey. (emphasis supplied)
Lingus portion (Flight 861 for June 22, 1965) was marked "RQ" which meant "on request".
(b) On the inside front cover of each ticket the following appears under the heading "Conditions of
After sightseeing in American and European cities (they were in the meantime joined by their two Contract":
young companions), the respondents arrived in Frankfurt, Germany. They went to a KLM office
there and obtained a confirmation from Aer Lingus of seat reservations on flight 861. After
1 ... (a) Liability of carrier for damages shall be limited to occurrences on its own line, except
meandering in London, Paris and Lisbon, the foursome finally took wing to Barcelona for their trip to
in the case of checked baggage as to which the passenger also has a right of action against
Lourdes, France.
the first or last carrier. A carrier issuing a ticket or checking baggage for carriage over the
lines of others does so only as agent..
In the afternoon of June 22, 1965 the respondents with their wards went to the Barcelona airport to
take their plane which arrived at 4:00 o'clock. At the airport, the manager of Aer Lingus directed the
(c) All that the KLM did after the respondents completed their arrangements with the travel agency
respondents to check in. They did so as instructed and were accepted for passage. However,
was to request for seat reservations among the airlines called for by the itinerary submitted to the
although their daughter and niece were allowed to take the plane, the respondents were off-loaded
KLM and to issue tickets for the entire flight as a ticket-issuing agent.
on orders of the Aer Lingus manager who brusquely shoved them aside with the aid of a policeman
and who shouted at them, "Conos! Ignorantes Filipinos!"
The respondents rebut the foregoing arguments, thus:
Mrs. Mendoza later called up the manager of Aer Lingus and requested that they provide her and
her husband means to get to Lourdes, but the request was denied. A stranger, however, advised (a) Article 30 of the Warsaw Convention has no application in the case at bar which involves, not an
them to take a train, which the two did; despite the third class accommodations and lack of food accident or delay, but a willful misconduct on the part of the KLM's agent, the Aer Lingus. Under
service, they reached Lourdes the following morning. During the train trip the respondents had to article 25 of the same Convention the following is prescribed:
suffer draft winds as they wore only minimum clothing, their luggage having gone ahead with the Aer
Lingus plane. They spent $50 for that train trip; their plane passage was worth $43.35.

52
 ART. 25. (1) The carrier shall not be entitled to avail himself of the provisions of this under that assurance of the internationally prestigious KLM, naturally had the right to expect that
convention which exclude or limit his liability, if the damage is caused by his willful their tickets would be honored by Aer Lingus to which, in the legal sense, the KLM had indorsed and
misconduct or by such default on his part as, in accordance with the law of the court to in effect guaranteed the performance of its principal engagement to carry out the respondents'
which the case is submitted, is considered to be equivalent to willful misconduct.3 scheduled itinerary previously and mutually agreed upon between the parties.

(2) Similarly, the carrier shall not be entitled to avail himself of the said provisions, if the
damage is caused under the same circumstances by any agent of the carrier acting within
the scope of his employment. (emphasis by respondents)
(b) The condition in their tickets which purportedly excuse the KLM from liability appears in very
small print, to read which, as found by the Court of Appeals, one has practically to use a magnifying
glass.
4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct of
an official of the Aer Lingus which the KLM had engaged to transport the respondents on the
Barcelona-Lourdes segment of their itinerary. It is but just and in full accord with the policy expressly
embodied in our civil law which enjoins courts to be more vigilant for the protection of a contracting
party who occupies an inferior position with respect to the other contracting party, that the KLM
should be held responsible for the abuse, injury and embarrassment suffered by the respondents at
the hands of a supercilious boor of the Aer Lingus.

ACCORDINGLY, the judgment of the Court of Appeals dated August 14, 1969 is affirmed, at KLM's
(c) The first paragraph of the "Conditions of Contract" appearing identically on the KLM tickets
cost.
issued to them idubitably shows that their contract was one of continuous air transportation around
the world:

1 ... "carriage" includes the air carrier issuing this ticket and all carriers that carry or
undertake to carry the passenger or his baggage hereunder or perform any other service
incidental to such air carriage... Carriage to be performed hereunder by several successive
carrier is regarded as a single operation.

(d) The contract of air transportation was exclusively between the respondents and the KLM, the
latter merely endorsing its performance to other carriers, like Aer Lingus, as its subcontractors or
agents, as evidenced by the passage tickets themselves which on their face disclose that they are
KLM tickets. Moreover, the respondents dealt only with KLM through the travel agency.

1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be
sustained. That article presupposes the occurrence of either an accident or a delay, neither of which
took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus, through its
manager there, refused to transport the respondents to their planned and contracted destination.

2. The argument that the KLM should not be held accountable for the tortious conduct of Aer Lingus
because of the provision printed on the respondents' tickets expressly limiting the KLM's liability for
damages only to occurrences on its own lines is unacceptable. As noted by the Court of Appeals
that condition was printed in letters so small that one would have to use a magnifying glass to read
the words. Under the circumstances, it would be unfair and inequitable to charge the respondents
with automatic knowledge or notice of the said condition so as to preclude any doubt that it was
fairly and freely agreed upon by the respondents when they accepted the passage tickets issued to
them by the KLM. As the airline which issued those tickets with the knowledge that the respondents
would be flown on the various legs of their journey by different air carriers, the KLM was chargeable
with the duty and responsibility of specifically informing the respondents of conditions prescribed in
their tickets or, in the very least, to ascertain that the respondents read them before they accepted
their passage tickets. A thorough search of the record, however, inexplicably fails to show that any
effort was exerted by the KLM officials or employees to discharge in a proper manner this
responsibility to the respondents. Consequently, we hold that the respondents cannot be bound by
the provision in question by which KLM unilaterally assumed the role of a mere ticket-issuing agent
for other airlines and limited its liability only to untoward occurrences on its own lines.

3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of the
respondents provide that the carriage to be performed thereunder by several successive carriers "is
to be regarded as a single operation," which is diametrically incompatible with the theory of the KLM
that the respondents entered into a series of independent contracts with the carriers which took
them on the various segments of their trip. This position of KLM we reject. The respondents dealt
exclusively with the KLM which issued them tickets for their entire trip and which in effect
guaranteed to them that they would have sure space in Aer Lingus flight 861. The respondents,

53
G.R. No. L-24031             August 19, 1967
THE AMERICAN INSURANCE COMPANY, plaintiff-appellant,
vs.
MACONDRAY and CO., INC., REPUBLIC OF THE PHILIPPINES and BUREAU OF
CUSTOMS, defendants.
REPUBLIC OF THE PHILIPPINES and BUREAU OF CUSTOMS, defendants-appellees.
ANGELES, J.:
On appeal from an order of the Court of First Instance of Manila, dismissing the complaint in Civil
Case No. 57118 of said court as against the Republic of the Philippines and the Bureau of Customs.
On May 21, 1964, the American Insurance Company filed a complaint against Macondray Co., Inc.
and the Bureau of Customs, as alternative defendants, for the recovery of a sum of money. In its
answer, the Bureau of Customs prayed for the dismissal of the case, one of its defenses being that
"it is not a juridical entity endowed with capacity to sue or be sued, in any case, it cannot be sued
without its consent."
On July 3, 1964, the plaintiff filed an amended complaint, this time including the Republic of the
Philippines as party defendant. The action is for the collection of a sum of money representing an
unsatisfied claim for loss and non-delivery of goods consigned to an importer who was subrogated
by the plaintiff as insurer, upon payment by the latter of the loss. It was alleged that the goods were
loaded on board certain vessels at New York, U.S.A., of which vessels Macondray & Co., Inc. was
the agent in the Philippines, and upon arrival of the goods in Manila, the defendants "either failed to
discharge all the cargoes completely or having discharged the same completely thereafter failed to
take the transhipment of the cargoes, resulting in their loss and non-delivery" to the consignee. The
participation of the Bureau of Customs in the transaction, as alleged in paragraph 4 of the complaint,
is as follows:
4. That since November 21, 1962, defendant Bureau has been operating the arrastre
service at the port of Manila through its division known as Customs Arrastre Service
created for the purpose, charged with the duty of receiving imported cargoes discharged
from ocean carriers and safekeeping and in due course delivering the same to the owners
thereof or to such other parties as are entitled to delivery thereof, upon such delivery
being duly approved.
The claim for the loss was duly filed against the defendants, Macondray & Co., Inc. and the Bureau
of Customs which, according to plaintiff, refused and failed to pay the same.
On August 24, 1964, the Republic of the Philippines and the Bureau of Customs, through counsel,
filed a motion to dismiss the complaint, on the ground that the court had no jurisdiction over the
subject matter of the action as to them, as operator of the arrastre service the amount involved
being less than P10,000.00, falling within the exclusive jurisdiction of the City Court of Manila.
After the consideration of the motion and the opposition thereto, the lower court dismissed the case
with respect to the Government and the Bureau of Customs upon the ground set forth in their
motion.
As above stated, the plaintiff appealed from this order.1äwphï1.ñët
The question raised in appellant's brief is whether a money claim of less than P10,000.00, which
allegedly arose from the failure of the Bureau of Customs in its arrastre service, may be joined with
a subject matter involving admiralty in one suit, filed in the Court of First Instance against alternative
defendants. This is not a novel question. In a string of cases, this Court has ruled in the affirmative
where the money claim and the admiralty aspect of the suit arose, as in the present case, out of one
and the same transaction.1
Paragraph 10 of the complaint discloses that at the time the case was instituted, plaintiff was not
certain as to when and in whose custody the goods were lost, hence, the joinder of alternative
parties and causes of action, which is sanctioned by the following provisions of the Rules of Court:
Joinder of causes of action.—Subject to rules regarding jurisdiction, venue and joinder of
parties, a party may in one pleading state, in the alternative or otherwise, as many causes
of action as he may have against an opposing party (a) if the said causes of action arise
out of the same contract, transaction or relation between the parties, or (b) if the cause of
action are for demands for money, or are of the same nature and character.
In the cases falling under clause (a) of the preceding paragraph, the action shall be filed in
the inferior court unless any of the causes joined falls within the jurisdiction of the Court of
First Instance, in which case it shall be filed in the latter court. (Sec. 5, Rule 2, Rules of
Court.)
Alternative Defendants.—Where the plaintiff is uncertain against which of several persons
he is entitled to relief, he may join any or all of them as defendants in the alternative,
although a right to relief against one may be inconsistent with a right to relief against the
other. (Sec. 13, Rule 3, Rules of Court.)
Applying these rules, this Court in the case of Switzerland General Insurance Co., Ltd. v. Java
Pacific and Hoegh Lines and the Manila Railroad, G.R. No. L-21760, April 30, 1966, stated:
As may be seen, the instant case comes within the purview of the rule above quoted for
therein it is postulated that a party may in one pleading state in the alternative as many
causes of action as he may have against an opposing party if they arise from the same
transaction with the particularity that the case may be filed in the Court of First Instance if
any of said cause of action falls within its jurisdiction. This is precisely what was done in
this particular case. Because of the uncertainty of the place where the disappearance of
the shipment occurred, plaintiff brought the case in the alternative before the Court of First
Instance upon the theory that it may have occurred while the shipment was in transit or
while in the custody of the arrastre operator.
From the allegations in the complaint, it appears that the causes of action against the alternative
defendants arose out of the same transactions and/or contracts, and one of the causes of action —
that of admiralty against the Macondray & Co., Inc. — falls within the jurisdiction of the Court of First
Instance [Sec. 44 (d), Republic Act 296, as amended]. Consequently, the said court has jurisdiction
to try the case in its entirety.
But a matter of transcendental importance remains to be considered in view of the lack of any
allegation in the complaint that the Republic of the Philippines has given its consent to be sued.
While it is true that the absence of such an allegation is not one of the instances in which the
court motu proprio may dismiss the complaint, and although it was not relied upon by the Republic
in its motion to dismiss, since it inherently vitiates the complaint and as it may be passed upon at
any stage of the proceedings, we believe it is within our power to determine at this instance, the
effect of the absence of such an allegation.
Non-suability of the State without its consent is one of the basic principles which underlie our
republican form of government. It derives its force from the will of the people in freely creating a
representative government through which they have agreed to exercise the powers and discharge
the duties of the sovereignty for the common good and general welfare. (Metran vs. Paredes, L-
1232, January 12, 1948) Justice Holmes has aptly stated the basis for the principle thus: "A
sovereign is exempt from suit, not because of any formal conception or obsolete theory, but on the
54
legal and practical ground that there can be no legal right as against the authority that makes the
law on which the right depends." (Kawananakaoa vs. Pdyblank, 206 U.S. 349) A contrary principles
would dissipate the time and energy of the State in endless suits against it, which would be
subversive of the public interest.

It is the duty of a party attempting to show liability on the part of the Government to allege in the
complaint, as basis of the cause of action, that the Republic of the Philippines has consented to be
sued, either by special law covering special subject matter or by general law expressing the terms
on which such consent is given. Such an allegation is essential to create a justiciable cause of
action against the Government, without which the complaint suffers from a fatal defect. In the case
at bar, no such allegation was made. The case against the Republic may therefore be dismissed.
And since the Bureau of Customs is but a finger of the Department of Finance, with no personality of
its own apart from that of the national Government (Mobil Philippines Exploration, Inc. vs. Bureau of
Customs and Arrastre Service, L-23139, December 17, 1966), the complaint as against it may also
be dismissed.

Upon the foregoing considerations, the complaint as against the Republic of the Philippines and the
Bureau of Customs is hereby dismissed. No costs.

55
G.R. No. 66253 August 31, 1992
METRO PORT SERVICE, INC. (FORMERLY E. RAZON, INC.), petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and THE HOME INSURANCE
COMPANY, respondents.
NOCON, J.:
This is a petition for review on certiorari seeking the review of the decision dated October 25, 1983
of the respondent Intermediate Appellate Court and which affirmed the decision of the lower court
adjudging petitioner liable, to pay private respondent the sum of P16,381.97 with interest at the legal
rate, the sum of P1,000.00 as attorney's fees and its proportionate share of the costs, as well as
said court's Resolution dated January 12, 1984 which denied petitioner's motion for reconsideration.
The facts of the case are simple enough.
As insurer-subrogee, private respondent instituted Civil Case No. 90186 before the Court of First
Instance of Manila, entitled "The Home Insurance Co. versus Marchessini Lines, Citadel Lines, Inc.,
and/or E. Razon, Inc. and/or Ajax Customs Brokerage."
The action was to recover from the defendants the amount that private respondent paid American
Wire and Cable Co., Inc. (consignee) under its policy for losses and damages to an insured
shipment, the transportation of which was handled by defendants, one after the other.
The shipment, which was transported from New York to Manila on board the S/S "BURYBATES",
consisted of synthetic resins, insulating materials, machinery and copper wire, contained in several
packages. It arrived in Manila on March 18, 1972 and was discharged dockside unto the care and
custody of petitioner, the arrastre operator in the Port of Manila.
At the time of the discharge of the shipment from the carrying vessel, it was noted that said cargo
had already sustained shortages and that some packages were in bad order and damaged
condition. So when the shipment was turned over to the petitioner, turn-over surveys were jointly
prepared and accomplished by checkers of both the vessel and the arrastre operator. 1
From March 29 to June 1, 1972, deliveries of the shipment were made by petitioner to the
consignee's broker, the defendant Ajax Customs Brokerage. At this stage of the cargo handling, the
shipment had already sustained a shortage of 11 pallets and 28 of the packages delivered to the
broker were already in bad order and damaged condition.
The shortage of 11 pallets was covered by a certificate of delivery 2 issued by petitioner and the 28
bad order packages were covered by bad order certificates 3 also issued by petitioner.
In the meantime, on March 24, 1972, the consignee presented to petitioner a "provisional" claim for
the full value of the shipment.
On September 16, 1972, the consignee submitted to petitioner a "formal" claim for the actual value
of the loss sustained by the shipment.
In the course of the proceedings before the trial court, defendants Marchessini Lines and Citadel
Lines settled the claim for the loss attributed to the vessel. The case, therefore proceeded only
against remaining defendants E. Razon, Inc. (now petitioner) and Ajax Brokerage Corp. who were
adjudged liable to plaintiff, now private respondent.
On appeal to the Intermediate Appellate Court, the decision appealed from was affirmed.
Petitioner E. Razon, Inc. manifested before the Court a quo on November 8, 1975 that its liability, if
any, should be P16,381.97 — per private respondent's computations — instead of P19,931.15 as
per its own
computations. 4
This was taken into consideration in the Court a quo's decision, thus:
With the view thus taken the next in point of inquiry is the extent of E. Razon's liability in the
premises. On this score, it is noteworthy that said defendant does not seriously dispute that
the cargo sustained spillages
and short-delivery while it was in its custody. In fact, by its own computation — and, on the
basis of the invoice value which it correctly claims to be the reckoning point for its liability —
it would fix its liability, if found to be so liable, at P19,930.15. This, significantly, is even
much more than the mere P16,381.97 that plaintiff if is claiming from it. Evidently, therefore,
the liability of defendant E. Razon, Inc. for shortages and spillages imputable to it should be
pegged at the latter amount. 5
At any rate, petitioner disclaims any liability due to the fact that private respondent did not file a
"formal claim" within 30 days from the filing of entry on March 20, 1972 6 as the "formal" claim was
filed on September 16, 1972. Petitioner disregarded the filing of a "provisional" claim on March 24,
1972 on the ground that it is not the claim demanded by the Revised Management Contract, 7 which
E. Razon, Inc. as Arrastre Contractor, entered into with the Bureau of Customs on the 27th day of
January, 1967.
Private respondent, on the other hand, claims that despite the change introduced in the matter of
filing claims, i.e., "formal" claims have to be filed, the purpose is still the same — to afford the
arrastre operator the opportunity to check the validity of the claims.
We find the petition unmeritorious.
The only legal issue to be resolved by this Court is whether under the Revised Management
Contract, the words "formal claim" exclude any "provisional claim".
The Revised Management Contract was the contract applicable as the shipment arrived on March
18, 1967.
Its paragraph . . states:
. . . [B]ut said CONTRACTOR shall not be responsible for the condition of the contents of
any package received nor for the weight, nor for any loss, injury or damage to the said cargo
before or while the goods are being received or remain on the piers or wharves if the loss,
injury or damage is caused by force majeure, or other causes beyond the CONTRACTOR's
control, or capacity to prevent or remedy; PROVIDED, that a formal claim together with the
necessary copies of the bill of lading, invoice, certified packing list, bank certificate showing
the rate of exchange at the time of purchase or opening of letter of credit, and the
computation arrived at covering the loss, damage, or non-delivery of such goods shall have
been filed with the CONTRACTOR within thirty (30) days from the date of filing of
entry; PROVIDED FURTHER, that if the loss, injury or damage is discovered within the last
fifteen (15) days of said period of thirty (30) days, then the formal claim shall be filed within
fifteen (15) days from the date of discovery of the loss, injury or damage. 8 (Emphasis
supplied)
56
In the case at bar, the shipment in question arrived in Manila on March 18, 1972. 9 The import entry
was filed March 20, 1972. 10 The deliveries of this shipment started March 29, 1972 11 and ended on
June 1, 1972. 12 Since the delivery of the last package was made on June 1, 1972 — 73 days after
the filing of the import entry — then a literal compliance under paragraph XX of the Revised
Management Contract would mean that American Wire and Cable Co. (consignee insured by private
respondent) had only until April 20, 1972 to file a "formal claim" for damaged goods. But said ''formal
claim'' would cover only goods delivered as of April 20, 1972 — the cost of goods delivered after
said date (Exhs. 69-72, pp. 125-128, Folder of Exhibits) in a damaged condition or lost — would be
for the consignee's own account.

The Court must stress that petitioner Metro Port Service, Inc. is a public utility, discharging functions
which are heavily invested with a public interest. This provision limiting the liability of said petitioner
through the imposition of a requirement that a "formal claim" must be made within thirty (30) days
from filing of entry must be carefully scrutinized and reasonably construed so as to protect the
legitimate interest of the public which the public utility must serve. 13 It is the Court's duty to tone
down this harsh and unreasonable provision and give it a reasonable interpretation. 14

The filing by the consignee of this "provisional claim" on March 24,

1972 15 — 4 days after the filing of the entry — is substantial compliance with the demand for a
"formal claim" because as of that date the arrastre operator was given the reasonable opportunity to
check the validity of the claim while the facts were still fresh in the minds of the persons who took
part in the transaction and while the pertinent documents were still available. 16 It did not matter that
the provisional claim was for the whole amount of the invoice as a provisional claim — without the
value of the goods stated therein — is sufficient as long as the name of the carrying vessel, its date
of arrival and the corresponding bill of lading are attached. 17 Consignee's "provisional claim" —
aside from the entire value of the invoice — had all three other requirements. 18

WHEREFORE, the petition is hereby DISMISSED. The questioned Decision and Resolution of the
appellate court are affirmed in toto. Costs against the petitioner.

SO ORDERED.

57
G.R. No. 165647               March 26, 2009
PHILIPPINES FIRST INSURANCE CO., INC., Petitioner,
vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN CHARTERER OF
THE VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI FAREAST SHIP BUSINESS
COMPANY," Respondents.
DECISION
TINGA, J.:
Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and Resolution3 of the
Court of Appeals in CA-G.R. No. 61885. The Court of Appeals reversed the Decision4 of the
Regional Trial Court (RTC) of Manila, Branch 55 in Civil Case No. 96-80298, dismissing the
complaint for sum of money.
The facts of the case follow.5
On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on board M/S
Offshore Master a shipment consisting of 10,000 bags of sodium sulphate anhydrous 99 PCT Min.
(shipment), complete and in good order for transportation to and delivery at the port of Manila for
consignee, L.G. Atkimson Import-Export, Inc. (consignee), covered by a Clean Bill of Lading. The
Bill of Lading reflects the gross weight of the total cargo at 500,200 kilograms.6 The Owner and/or
Charterer of M/V Offshore Master is unknown while the shipper of the shipment is Shanghai Fareast
Ship Business Company. Both are foreign firms doing business in the Philippines, thru its local ship
agent, respondent Wallem Philippines Shipping, Inc. (Wallem).7
On or about 16 October 1995, the shipment arrived at the port of Manila on board the vessel M/S
Offshore Master from which it was subsequently discharged. It was disclosed during the discharge
of the shipment from the carrier that 2,426 poly bags (bags) were in bad order and condition, having
sustained various degrees of spillages and losses. This is evidenced by the Turn Over Survey of
Bad Order Cargoes (turn-over survey) of the arrastre operator, Asian Terminals, Inc. (arrastre
operator).8 The bad state of the bags is also evinced by the arrastre operator’s Request for Bad
Order Survey.9
Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from the pier to the
consignee’s warehouse in Quezon City,10 while the final inspection was conducted jointly by the
consignee’s representative and the cargo surveyor. During the unloading, it was found and noted
that the bags had been discharged in damaged and bad order condition. Upon inspection, it was
discovered that 63,065.00 kilograms of the shipment had sustained unrecovered spillages, while
58,235.00 kilograms had been exposed and contaminated, resulting in losses due to depreciation
and downgrading.11
On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the damaged
shipment, to no avail. Since the shipment was insured with petitioner Philippines First Insurance Co.,
Inc. against all risks in the amount of ₱2,470,213.50,12 the consignee filed a formal claim13 with
petitioner for the damage and losses sustained by the shipment. After evaluating the invoices, the
turn-over survey, the bad order certificate and other documents,14 petitioner found the claim to be in
order and compensable under the marine insurance policy. Consequently, petitioner paid the
consignee the sum of ₱397,879.69 and the latter signed a subrogation receipt.
Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem for the recovery
of the amount paid by petitioner to the consignee. However, despite receipt of the letter, Wallem did
not settle nor even send a response to petitioner’s claim.15
Consequently, petitioner instituted an action before the RTC for damages against respondents for
the recovery of ₱397,879.69 representing the actual damages suffered by petitioner plus legal
interest thereon computed from the time of the filing of the complaint until fully paid and attorney’s
fees equivalent to 25% of the principal claim plus costs of suit.
In a decision16 dated 3 November 1998, the RTC ordered respondents to pay petitioner ₱397,879.69
with 6% interest plus attorney’s fees and costs of the suit. It attributed the damage and losses
sustained by the shipment to the arrastre operator’s mishandling in the discharge of the shipment.
Citing Eastern Shipping Lines, Inc. v. Court of Appeals,17 the RTC held the shipping company and
the arrastre operator solidarily liable since both the arrastre operator and the carrier are charged
with and obligated to deliver the goods in good order condition to the consignee. It also ruled that
the ship functioned as a common carrier and was obliged to observe the degree of care required of
a common carrier in handling cargoes. Further, it held that a notice of loss or damage in writing is
not required in this case because said goods already underwent a joint inspection or survey at the
time of receipt thereof by the consignee, which dispensed with the notice requirement.
The Court of Appeals reversed and set aside the RTC’s decision.18 According to the appellate court,
there is no solidary liability between the carrier and the arrastre operator because it was clearly
established by the court a quo that the damage and losses of the shipment were attributed to the
mishandling by the arrastre operator in the discharge of the shipment. The appellate court ruled that
the instant case falls under an exception recognized in Eastern
Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.
Petitioner raises the following issues:
1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the
carrier’s duties extend to the obligation to safely discharge the cargo from the vessel;
2. Whether or not the carrier should be held liable for the cost of the damaged shipment;
3. Whether or not Wallem’s failure to answer the extra judicial demand by petitioner for the
cost of the lost/damaged shipment is an implied admission of the former’s liability for said
goods;
4. Whether or not the courts below erred in giving credence to the testimony of Mr.
Talens.
It is beyond question that respondent’s vessel is a common carrier.20 Thus, the standards for
determining the existence or absence of the respondent’s liability will be gauged on the degree of
diligence required of a common carrier. Moreover, as the shipment was an exercise of international
trade, the provisions of the Carriage of Goods
by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce, shall apply.22
The first and second issues raised in the petition will be resolved concurrently since they are
interrelated.
It is undisputed that the shipment was damaged prior to its receipt by the insured consignee. The
damage to the shipment was documented by the turn-over survey23 and Request for Bad Order
Survey.24 The turn-over survey, in particular, expressly stipulates that 2,426 bags of the shipment
were received by the arrastre operator in damaged condition. With these documents, petitioner
insists that the shipment incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre operator.
58
The trial court, however, found through the testimony of Mr. Maximino Velasquez Talens, a cargo In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc.35 the Court explained the relationship
surveyor of Oceanica Cargo Marine Surveyors Corporation, that the losses and damage to the and responsibility of an arrastre operator to a consignee of a cargo, to quote:
cargo were caused by the mishandling of the arrastre operator. Specifically, that the torn cargo bags
resulted from the use of steel hooks/spikes in piling the cargo bags to the pallet board and in
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
pushing the bags by the stevedores of the arrastre operator to the tug boats then to the ports.25 The
and warehouseman. The relationship between the consignee and the common carrier is similar to
appellate court affirmed the finding of mishandling in the discharge of cargo and it served as its
that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good
basis for exculpating respondents from liability, rationalizing that with the fault of the arrastre
care of the goods that are in its custody and to deliver them in good condition to the consignee, such
operator in the unloading of the cargo established it should bear sole liability for the cost of the
responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
damaged/lost cargo.
therefore charged with and obligated to deliver the goods in good condition to the consignee.
(Emphasis supplied) (Citations omitted)
While it is established that damage or losses were incurred by the shipment during the unloading, it
is disputed who should be liable for the damage incurred at that point of transport. To address this
The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of
issue, the pertinent laws and jurisprudence are examined.
Appeals36 with the clarification that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.
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 transported by them.26 Subject to
Thus, in this case the appellate court is correct insofar as it ruled that an arrastre operator and a
certain exceptions enumerated under Article 173427 of the Civil Code, common carriers are
carrier may not be held solidarily liable at all times. But the precise question is which entity had
responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of
custody of the shipment during its unloading from the vessel?
the common carrier lasts from the time the goods are unconditionally placed in the possession of,
and received by the carrier for transportation until the same are delivered, actually or constructively,
by the carrier to the consignee, or to the person who has a right to receive them.28 The aforementioned Section 3(2) of the COGSA states that among the carriers’ responsibilities are
to properly and carefully load, care for and discharge the goods carried. The bill of lading covering
the subject shipment likewise stipulates that the carrier’s liability for loss or damage to the goods
For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable for
ceases after its discharge from the vessel. Article 619 of the Code of Commerce holds a ship
the cargo from the time it is turned over to him at the dock or afloat alongside the vessel at the port
captain liable for the cargo from the time it is turned over to him until its delivery at the port of
of loading, until he delivers it on the shore or on the discharging wharf at the port of unloading,
unloading.
unless agreed otherwise. In Standard Oil Co. of New York v. Lopez Castelo,29 the Court interpreted
the ship captain’s liability as ultimately that of the shipowner by regarding the captain as the
representative of the ship owner. In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it was ruled that
like the duty of seaworthiness, the duty of care of the cargo is non-delegable,38 and the carrier is
accordingly responsible for the acts of the master, the crew, the stevedore, and his other agents. It
Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea, the
has also been held that it is ordinarily the duty of the master of a vessel to unload the cargo and
carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such
place it in readiness for delivery to the consignee, and there is an implied obligation that this shall be
goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities
accomplished with sound machinery, competent hands, and in such manner that no unnecessary
set forth in the Act.30 Section 3 (2) thereof then states that among the carriers’ responsibilities are to
injury shall be done thereto.39 And the fact that a consignee is required to furnish persons to assist in
properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.
unloading a shipment may not relieve the carrier of its duty as to such unloading.40

The above doctrines are in fact expressly incorporated in the bill of lading between the shipper
The exercise of the carrier’s custody and responsibility over the subject shipment during the
Shanghai Fareast Business Co., and the consignee, to wit:
unloading actually transpired in the instant case during the unloading of the shipment as testified by
Mr. Talens, the cargo surveyor, to quote:
4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from the time
when the goods are loaded on board the vessel and shall cease when they are discharged from the
Atty. Repol:
vessel.

- Do you agree with me that Wallem Philippines is a shipping [company]?

The Carrier shall not be liable of loss of or damage to the goods before loading and after discharging
from the vessel, howsoever such loss or damage arises.31
A Yes, sir.
On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on
the wharf or between the establishment of the consignee or shipper and the ship's tackle.32 Being Q And, who hired the services of the stevedores?
the custodian of the goods discharged from a vessel, an arrastre operator's duty is to take good care
of the goods and to turn them over to the party entitled to their possession.33
A The checker of the vessel of Wallem, sir.41

Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees
xxx
should observe the standards and measures necessary to prevent losses and damage to shipments
under its custody.34
Q Mr. Witness, during the discharging operation of this cargo, where was the master of
the vessel?

59
 A On board the vessel, supervising, sir. Contrary to petitioner’s stance on the third issue, Wallem’s failure to respond to its demand letter
does not constitute an implied admission of liability. To borrow the words of Mr. Justice Oliver
Wendell Holmes, thus:
Q And, observed the discharging operation?

A man cannot make evidence for himself by writing a letter containing the statements that he wishes
A Yes, sir.
to prove. He does not make the letter evidence by sending it to the party against whom he wishes to
prove the facts [stated therein]. He no more can impose a duty to answer a charge than he can
Q And, what did the master of the vessel do when the cargo was being unloaded from the impose a duty to pay by sending goods. Therefore a failure to answer such adverse assertions in
vessel? the absence of further circumstances making an answer requisite or natural has no effect as an
admission.47
A He would report to the head checker, sir.
With respect to the attorney’s fees, it is evident that petitioner was compelled to litigate this matter to
protect its interest. The RTC’s award of ₱20,000.00 as attorney’s fees is reasonable.
Q He did not send the stevedores to what manner in the discharging of the cargo from the
vessel?
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 22 June 2004
and its Resolution dated 11 October 2004 are REVERSED and SET ASIDE. Wallem is ordered to
A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir.42 pay petitioner the sum of ₱397,879.69, with interest thereon at 6% per annum from the filing of the
complaint on 7 October 1996 until the judgment becomes final and executory. Thereafter, an interest
xxx rate of 12% per annum shall be imposed.48 Respondents are also ordered to pay petitioner the
amount of ₱20,000.00 for and as attorney’s fees, together with the costs of the suit.
Q Is he [the head checker] an employee of the company?
SO ORDERED.
43
A He is a contractor/checker of Wallem Philippines, sir.

Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in the Bad Order Inspection, to
wit:

"The bad order torn bags, was due to stevedores[‘] utilizing steel hooks/spikes in piling the cargo to
[the] pallet board at the vessel’s cargo holds and at the pier designated area before and after
discharged that cause the bags to torn [sic]."44 (Emphasis supplied)

The records are replete with evidence which show that the damage to the bags happened before
and after their discharge45 and it was caused by the stevedores of the arrastre operator who were
then under the supervision of Wallem.1awphi1.net

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under
the custody of the carrier. In the instant case, the damage or losses were incurred during the
discharge of the shipment while under the supervision of the carrier. Consequently, the carrier is
liable for the damage or losses caused to the shipment. As the cost of the actual damage to the
subject shipment has long been settled, the trial court’s finding of actual damages in the amount of
₱397,879.69 has to be sustained.

On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing credibility of
witnesses is well-settled:

x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct and entitled to
the highest respect because it is more competent to so conclude, having had the opportunity to
observe the witnesses' demeanor and deportment on the stand, and the manner in which they gave
their testimonies. The trial judge therefore can better determine if such witnesses were telling the
truth, being in the ideal position to weigh conflicting testimonies. Therefore, unless the trial judge
plainly overlooked certain facts of substance and value which, if considered, might affect the result
of the case, his assessment on credibility must be respected.46

60
G.R. No. 84680             February 5, 1996
SUMMA INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS and METRO PORT SERVICE, INC., respondents.
DECISION
PANGANIBAN, J.:
Is an arrastre operator legally liable for the loss of a shipment in its custody? If so, what is the extent
of its liability? These are the two questions that this Court faced in this petition for review
on certiorari of the Decision1 of the Court of Appeals2 in CA-G.R. No. CV 04964 promulgated on April
27, 1988, which affirmed with modification the decision of the Court of First Instance of Manila in
Civil Case No. 82-13988, ordering petitioner to pay private respondent a sum of money, with legal
interest, attorney's fees and the costs of the suit.
The Facts
On November 22, 1981, the S/S "Galleon Sapphire", a vessel owned by the National Galleon
Shipping Corporation (NGSC), arrived at Pier 3, South Harbor, Manila, carrying a shipment
consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as
"notify party". The shipment, including a bundle of PC 8 U blades, was covered by marine insurance
under Certificate No. 82/012-FEZ issued by petitioner and Bill of Lading No. SF/MLA 1014. The
shipment was discharged from the vessel to the custody of private respondent, formerly known as E.
Razon, Inc., the exclusive arrastre operator at the South Harbor. Accordingly, three good-order
cargo receipts were issued by NGSC, duly signed by the ship's checker and a representative of
private respondent.
On February 24, 1982, the forwarder, Sterling International Brokerage Corporation, withdrew the
shipment from the pier and loaded it on the barge "Semirara 8104". The barge arrived at its port of
destination, Semirara Island, on March 9, 1982. When Semirara inspected the shipment at its
warehouse, it discovered that the bundle of PC8U blades was missing.
On March 15, 1982, private respondent issued a short-landed certificate-stating that the bundle of
PC8U blades was already missing when it received the shipment from the NGSC vessel. Semirara
then filed with petitioner, private respondent and NGSC its claim for P280,969.68, the alleged value
of the lost bundle.
On September 29, 1982, petitioner paid Semirara the invoice value of the lost shipment. Semirara
thereafter executed a release of claim and subrogation receipt. Consequently, petitioner filed its
claims with NGSC and private respondent but it was unsuccessful.
Petitioner then filed a complaint (Civil Case No. 8213988) with the Regional Trial Court, Branch
XXIV, Manila, against NGSC and private respondent for collection of a sum of money, damages and
attorney's fees.
On August 2, 1984, the trial court rendered a decision absolving NGSC from any liability but finding
private respondent liable to petitioner. The dispositive portion of the decision reads as follows:
PREMISES CONSIDERED, judgment is hereby rendered ordering defendant Metro Port
Service, Inc. to pay plaintiff Summa Insurance Corporation the sum of P280,969.68 with
legal interest from November 22, 1982, the date of the filing of the complaint, until full
payment, and attorney's fees in the sum of P20,000.00, with costs of suit.
The complaint as against defendant National Galleon Shipping Corporation and the
counterclaim interposed by said defendant are hereby dismissed. (Rollo, p. 32).
In resolving the issue as to who had custody of the shipment when it was lost, the trial court relied
more on the good-order cargo receipts issued by NGSC than on the short-landed certificate issued
by private respondent. The trial court held:
As between the aforementioned two documentary exhibits, the Court is more inclined to
give credence to the cargo receipts. Said cargo receipts were signed by a checker of
defendant NGSC and a representative of Metro Port. It is safe to presume that the cargo
receipts accurately describe the quantity and condition of the shipment when it was
discharged from the vessel. Metro Port's representative would not have signed the cargo
receipts if only four (4) packages were discharged from the vessel and given to the
possession and custody of the arrastre operator. Having been signed by its
representative, the Metro Port is bound by the contents of the cargo receipts.
On the other hand, the Metro Port's shortlanded certificate could not be given much
weight considering that, as correctly argued by counsel for defendant NGSC, it was
issued by Metro Port alone and was not countersigned by the representatives of the
shipping company and the consignee. Besides, the certificate was prepared by Atty.
Servillano V. Dolina, Second Deputy General Manager of Metro Port, and there is no
proof on record that he was present at the time the subject shipment was unloaded from
the vessel and received by the arrastre operator. Moreover, the shortlanded certificate
bears the date of March 15, 1982, more than three months after the discharge of the
cargo from the carrying vessel.
Neither could the Court give probative value to the marine report (Exhibit "J", also Exhibit
"l"-Razon). The attending surveyor who attended the unloading of the shipment did not
take the witness stand to testify on said report. Although Transnational Adjustment Co.'s
general manager, Mariano C. Remorin, was presented as a witness, his testimony is not
competent because he was not present at the time of the discharge of the cargo.
Under the foregoing considerations, the Court finds that the one (1) bundle of PC8U blade
in question was not lost while the cargo was in the custody of the carrying vessel.
Considering that the missing bundle was discharged from the vessel unto the custody of
defendant arrastre operator and considering further that the consignee did not receive this
cargo from the arrastre operator, it is safe to conclude from these facts that said missing
cargo was lost while same was in the possession and control of defendant Metro Port.
Defendant Metro Port has not introduced competent evidence to prove that the loss was
not due to its fault or negligence. Consequently, only the Metro Port must answer for the
value of the missing cargo. Defendant NGSC is absolved of any liability for such loss.
On appeal, the Court of Appeals modified the decision of the trial court and reduced private
respondent's liability to P3,500.00 as follows3 :
WHEREFORE, the judgment appealed from is MODIFIED in that defendant Metro Port
Service, Inc., is ordered to pay plaintiff Summa Insurance Corporation:
(1) the sum of P3,500.00, with legal interest from November 22, 1982, until fully paid; and
(2) the sum of P7,000.00, as and for attorney's fees.
Costs against defendant Metro Port Service, Inc.
61
Petitioner moved for reconsideration of the said decision but the Court of Appeals denied the same.
Hence, the instant petition.
The Issues
The issues brought by the parties could be stated as follows:
(1) Is the private respondent legally liable for the loss of the shipment in question?
(2) If so, what is the extent of its liability?
The First Issue: Liability for Loss of Shipment
Petitioner was subrogated to the rights of the consignee. The relationship therefore between the
consignee and the arrastre operator must be examined. This relationship is much akin to that
existing between the consignee or owner of shipped goods and the common carrier, or that between
a depositor and a warehouseman4 . In the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier and a warehouseman as
enunciated under Article 1733 of the Civil Code and Section 3(8) of the Warehouse Receipts Law,
respectively. Being the custodian of the goods discharged from a vessel, an arrastre operator's duty
is to take good care of the goods and to turn them over to the party entitled to their possession.
In this case, it has been established that the shipment was lost while in the custody of private
respondent. We find private respondent liable for the loss. This is an issue of fact determined by the
trial court and respondent Court, which is not reviewable in a petition under Rule 45 of the Rules of
Court.
The Second Issue: Extent of Liability
In the performance of its job, an arrastre operator is bound by the management contract it had
executed with the Bureau of Customs. However, a management contract, which is a sort of a
stipulation pour autrui within the meaning of Article 1311 of the Civil Code, is also binding on a
consignee because it is incorporated in the gate pass and delivery receipt which must be presented
by the consignee before delivery can be effected to5 .The insurer, as successor-in-interest of the
consignee, is likewise bound by the management contract6 . Indeed, upon taking delivery of the
cargo, a consignee (and necessarily its successor-in-interest) tacitly accepts the provisions of the
management contract, including those which are intended to limit the liability of one of the
contracting parties, the arrastre operator.7
However, a consignee who does not avail of the services of the arrastre operator is not bound by the
management contract8 . Such an exception to the rule does not obtain here as the consignee did in
fact accept delivery of the cargo from the arrastre operator.
Section 1, Article VI of the Management Contract between private respondent and the Bureau of
Customs9 provides:
1. Responsibility and Liability for Losses and Damages The CONTRACTOR shall, at its
own expense handle all merchandise in the piers and other designated places and at its
own expense perform all work undertaken by it hereunder diligently and in a skillful
workmanlike and efficient manner; that the CONTRACTOR shall be solely responsible as
an independent CONTRACTOR, and hereby agrees to accept liability and to promptly
pay to the steamship company, consignee, consignor or other interested party or
parties for the loss, damage, or non-delivery of cargoes to the extent of the actual invoice
value of each package which in no case shall be more than Three Thousand Five
Hundred Pesos (P3,500.00) for each package unless the value of the importation is
otherwise specified or manifested or communicated in writing together with the invoice
value and supported by a certified packing list to the CONTRACTOR by the interested
party or parties before the discharge of the goods, as well as all damage that may be
suffered on account of loss, damage, or destruction of any merchandise while in custody
or under the control of the CONTRACTOR in any pier, shed, warehouse, facility or other
designated place under the supervision of the BUREAU, . . . (Emphasis supplied).
Interpreting a similar provision in the management contract between private respondent's
predecessor, E. Razon, Inc. and the Bureau of Customs, the Court said in E. Razon Inc. vs. Court
of Appeals 10 :
Indeed, the provision in the management contract regarding the declaration of the actual
invoice value "before the arrival of the goods" must be understood to mean a declaration
before the arrival of the goods in the custody of the arrastre operator, whether it be done
long before the landing of the shipment at port, or immediately before turn-over thereof to
the arrastre operator's custody. What is essential is knowledge beforehand of the extent of
the risk to be undertaken by the arrastre operator, as determined by the value of the
property committed to its care that it may define its responsibility for loss or damage to
such cargo and to ascertain compensation commensurate to such risk assumed . . . .
In the same case, the Court added that the advance notice of the actual invoice of the goods
entrusted to the arrastre operator is "for the purpose of determining its liability, that it may obtain
compensation commensurable to the risk it assumes, (and) not for the purpose of determining the
degree of care or diligence it must exercise as a depository or warehouseman" 11 since the arrastre
operator should not discriminate between cargoes of substantial and small values, nor exercise care
and caution only for the handling of goods announced to it beforehand to be of sizeable value, for
that would be spurning the public service nature of its business.
On the same provision limiting the arrastre operator's liability, the Court held in Northern Motors,
Inc. v. Prince Line12 :
Appellant claims that the above quoted provision is null and void, as it limits the liability of
appellee for the loss, destruction or damage of any merchandise, to P500.00 per package,
contending that to sustain the validity of the limitation would be to encourage acts of
conversion and unjust enrichment on the part of the arrastre operator. Appellant, however,
overlooks the fact that the limitation of appellee's liability under said provision, is not
absolute or unqualified, for if the value of the merchandise is specified or manifested by
the consignee, and the corresponding arrastre charges are paid on the basis of the
declared value, the limitation does not apply. Consequently, the questioned provision is
neither unfair nor abitrary, as contended, because the consignee has it in his hands to
hold, if he so wishes, the arrastre operator responsible for the full value of his
merchandise by merely specifying it in any of the various documents required of him, in
clearing the merchandise from the customs. For then, the appellee arrastre operator, by
reasons of the payment to it of a commensurate charge based on the higher declared
value of the merchandise, could and should take extraordinary care of the special or
valuable cargo. In this manner, there would be mutuality. What would, indeed, be unfair
and arbitrary is to hold the arrastre operator liable for the full value of the merchandise
after the consignee has paid the arrastre charges only (on) a basis much lower than the
true value of the goods.
In this case, no evidence was offered by petitioner proving the amount of arrastre fees paid to
private respondent so as to put the latter on notice of the value of the cargo. While petitioner alleged
that prior to the loss of the package, its value had been relayed to private respondent through the
documents the latter had processed, petitioner does not categorically state that among the
submitted documents were the pro forma invoice value and the certified packing list. Neither does
petitioner pretend that these two documents were prerequisites to the issuance of a permit to deliver
or were attachments thereto. Even the permit to deliver, upon which petitioner anchors its
62
arguments, may not be considered by the Court because it was not identified and formally offered in
evidence 13 .

In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on
either side. Said party must establish his case by a preponderance of evidence, which means that
the evidence as a whole adduced by one side is superior to that of the other 14 . Petitioner having
asserted the affirmative of the issue in this case, it should have presented evidence required to
obtain a favorable judgment.

On the other hand, on top of its denial that it had received the invoice value and the packing list
before the discharge of the shipment, private respondent was able to prove that it was apprised of
the value of the cargo only after its discharge from the vessel, ironically through petitioner's claim for
the lost package to which were attached the invoice and packing list. All told, petitioner failed to
convince the Court that the requirement of the management contract had been complied with to
entitle it to recover the actual invoice value of the lost shipment.

Anent the attorney 's fees, we find the award to be proper considering that the acts and omissions of
private respondent have compelled petitioner to litigate or incur expenses to protect its rights 15 .
However, as to the amount of the award, we find no reason to re-examine the appellate court's
determination thereon in view of the amount of the principal obligation. Otherwise, we would be
disregarding the doctrine that discretion, when well exercised, should not be disturbed.

WHEREFORE, the petition for review on certiorari is DENIED and the decision of the Court of
Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

63
G.R. No. 134514 December 8, 1999
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., petitioner,
vs.
PRUDENTIAL GUARANTEE & ASSURANCE CO., INC., respondent.
PANGANIBAN, J.:
When cargo is placed on a vessel at the "shipper's load and count," the arrastre operator is required
only to deliver to the consignee the container van received from the shipper, not to verify or to
compare the contents thereof with those declared by the shipper. A claim for reimbursement for the
loss, damage or misdelivery of goods must be filed within 15 days from the date the consignee
learns of such problem(s).
The Case
For the resolution of the Court is a Petition for Review under Rule 45 of the Rules of Court assailing
the March 10, 1998 Decision and the June 23, 1998 Resolution both promulgated by the Court of
Appeals in CA-GR CV No. 52129 reversing the trial court's dismissal of the Complaint for the
collection of a sum of money filed by Prudential Guarantee & Insurance Co., Inc. (Prudential)
against International Container Terminal Services, Inc. (ICTSI).
The Facts
The challenged Decision sets forth the facts of this case as follows:
On April 25, 1990, mother vessel "Tao He" loaded and received on board in San Francisco,
California, a shipment of five (5) lots of canned foodstuff complete and in good order and
condition for transport to Manila in favor of Duel Food Enterprises ("consignee" for brevity).
China Ocean Shipping Company issued the corresponding bill of lading therefor.
Consignee insured the shipment with Prudential Guarantee and Assurance, Inc. against all
risks for P1,921,827.00 under Marine Insurance Policy No. 20RN-3011/90.
On May 30, 1990, the shipment arrived at the Port of Manila and discharged by [the] vessel
MS "Wei He" in favor of International Container Terminal Services, Inc. for safekeeping.
On June 1, 1990, A. D. Reyna Customs Brokerage ("defendant brokerage" for brevity)
withdrew the shipment and delivered the same to [the] consignee. An inspection thereof
revealed that 161 cartons were missing valued at P85,984.40.
Claim for indemnification of the loss having been denied by [ICTSI] and [the] brokerage,
consignee sought payment from [Prudential] under the marine cargo policy. Consignee
received a compromised sum of P66,730.12 in settlement thereof. As subrogee, [Prudential]
instituted the instant complaint against said defendants [ICTSI and brokerage].
Traversing the complaint, [ICTSI] counters that it observed extraordinary diligence over the
subject shipment while under its custody; that the loss is not attributable to its fault or its
agent, representative or employee; that consignee failed to file a formal claim against it in
accordance with PPA Administrative Order No. 10-81; and that the complaint states no
cause of action. By way of crossclaim, it sought reimbursement from defendant brokerage in
the event it is adjudged to pay the loss.
In its Order dated March 3, 1992, the court a quo upon [Prudential's] motion, declared
defendant brokerage in default for failure to file [it's] answer within the reglementary period.
Acting on [ICTSI's] motion, the court a quo, in its Order dated May 27, 1992, allowed the
former to present its evidence ex-parte against defendant brokerage relative to the cross
claim.
On May 19, 1993, the court a quo rendered a decision dismissing the complaint against
defendant brokerage for lack of evidence.
In its Order of July 12, 1993, the court a quo, upon motion of [ICTSI] and [Prudential],
vacated the decision dated May 19, 1993 and set the case for hearing to give [ICTSI] an
opportunity to cross examine [Prudential's] witnesses. 1
On November 8, 1995, the trial court 2 rendered a Decision dismissing Prudential's Complaint
against ICTSI in this wise: 3
Failure on the part of the consignee to comply with the terms and conditions of the contract
with [ICTSI], [Prudential] is not placed in a better position than the consignee who cannot
claim damages against [ICTSI]. Hence, the complaint is hereby DISMISSED.
Reconsideration was denied by the Regional Trial Court in its Order dated December 27, 1995. 4
Disposing of the appeal, the CA 5 ruled:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and, in
lieu thereof, judgment is hereby rendered ordering [appellee] International [C]ontainer
Terminal Services, Inc. (ICTSI) to pay appellant the sum of P66,730.12 with legal interest
from May 13, 1991, until fully paid, plus 10% of . . . said claim by way of attorney's fee. 6
Reconsideration of the CA Decision was denied in the herein challenged June 23, 1998
Resolution. 7
Ruling of the Court of Appeals
The appellate court found ICTSI negligent in its duty to exercise due diligence over the shipment. It
concluded that the shortage was due to pilferage of the shipment while the sea vans were stored at
the container yard of ICTSI.
It also ruled that the filing of a claim depended on the issuance of a certificate of loss by ICTSI
based on the liability clause printed on the back of the arrastre and wharfage receipt. Since ICTSI
did not issue such a certificate despite being informed of the shortage, the 15-day period given to
the consignee for filing a formal claim never began. By subrogation, Prudential, as insurer of the
consignee, was entitled to hold the ICTSI liable for the shortage.
Assignment of Errors
Petitioner claims that the appellate court committed reversible errors (1) in ruling that ICTSI failed to
adduce convincing evidence to rebut the finding of the independent adjuster and (2) in allowing the
Complaint despite the failure of the consignee to file a formal claim within the period stated on the
dorsal side of the arrastre and wharfage receipt. 8
64
 This Court's Ruling
The Petition is meritorious.
First Issue: Proof of Negligence
The legal relationship between an arrastre operator and a consignee is akin to that between a
warehouseman and a depositor. 9 As to both the nature of the functions and the place of their
performance, an arrastre operator's services are clearly not maritime in character. 10
In a claim for loss filed by a consignee, the burden of proof to show compliance with the obligation to
deliver the goods to the appropriate party devolves upon the arrastre operator. 11 Since the
safekeeping of the goods rests within its knowledge, it must prove that the losses were not due to its
negligence or that of its employees. 12
To discharge this burden, petitioner presented five Arrastre and Wharfage Bill/Receipts, which also
doubled as container yard gate passes, covering the whole shipment in question. The short-landed
shipment was covered by the gate pass marked "Exhibit 5." 13 The latter bore the signature of a
representative of the consignee, acknowledging receipt of the shipment in good order and condition
(Exh. "5-e"). Thus, we see no reason to dispute the finding of the trial court that "the evidence
adduced by the parties will show that the consignee received the container vans . . . in good
condition (Exhs. 1-6)." 14
By its signature on the gate pass and by its failure to protest on time, the consignee is deemed to
have acknowledged receipt of the goods in good order and condition.
Lamberto Cortez, petitioner's witness, testified that he personally examined the shipment and
identified the gate pass which covered the delivery of the shipment and which was countersigned by
the consignee's representative. He explained the import of his examination as follows: 15
A: Before I sign this gate pass, sir, the representative of the consignee [gives] it to me
then I write down the items, the goods to be delivered so that it will be mounted in the
truck of the consignee. After mounting it, it will go to our office then I will check the number
of the container if it is properly padlocked, and if it is okay, I will place there okay and I will
sign it to be countersigned by the representative of the consignee, sir.
Q: In other words, Mr. Witness, you said that this particular shipment was padlocked?
A: Yes, sir.
x x x           x x x          x x x
Q: You also stated that the shipment was okay, will you point to that particular portion of
the gate pass?
A: After the physical check-up, I placed there okay, meaning it ha[d] no damage, sir.
The assailed Decision ruled that the petitioner was negligent as evidenced by the loss of the original
seal and padlock of the container, which were subsequently replaced with safety wire while the
shipment was still stored at the ICTSI compound. 16
The appellate court cites, as proof of petitioner's negligence, the Survey/Final Report of the
independent adjuster, Tan-Gatue Adjustment Company, Inc. (Exh. "F"). 17 The Report stated:
The 3,439 cartons comprising [the] balance of the shipment were found and accepted by
consignee's representative in good order.
In our opinion, shortage sustained by the shipment was due to pilferage whilst the sea vans
containing the shipment were stored at [the] [c]ontainer [y]ard of the [petitioner], [at] North
Harbor, Manila but we cannot categorically state as to when and who undertook [it] due to
the absence of documentary evidence.
The customs safety wire as well as the padlock of Sea Van No. HTMU-803515-6 where the
short (missing) cartons discovered may have been tampered [with]/opened and returned/re-
closed with finesse which [was] unfortunately not noticed during delivery and prior to
opening at consignee's warehouse.
All the sea vans were reportedly full of contents when examined by the customs examiner
for tax evaluation of contents.
The [ship agents] and arrastre contractors['] representative reportedly refused the invitation
of the consignee to witness the stripping/withdrawal of the same from the sea vans at their
warehouse averring that the shipment per Bill of Lading was shipped under ["]Shipper's
Load and Count" hence, loss/damage, if any, to the shipment is not their liability.
We thoroughly investigate[d] this particular case at International Container Terminal
Services, Inc., North Harbor, Manila[,] but up to this time no person(s) and/or group(s) could
be pinpointed liable [for] the shortage of 161 cartons, hence, the delay [in the] issuance of
this report. 18
The adjuster insists that the shipment was complete when the customs examiner opened the sea
vans for tax evaluation. However, the latter's report was not presented. Hence, there is no basis for
comparing the cartons subjected to customs examination and those which were delivered to the
consignee.
More important, the cosigned goods were shipped under "Shipper's Load and Count." This means
that the shipper was solely responsible for the loading of the container, while the carrier was
oblivious to the contents of the
shipment. 19 Protection against pilferage of the shipment was the consignee's lookout. The arrastre
operator was, like any ordinary depositary, duty-bound to take good care of the goods received from
the vessel and to turn the same over to the party entitled to their possession, subject to such
qualifications as may have validly been imposed in the contract between the parties. 20 The arrastre
operator was not required to verify the contents of the container received and to compare them with
those declared by the shipper because, as earlier stated, the cargo was at the shipper's load and
count. The arrastre operator was expected to deliver to the consignee only the container received
from the carrier.
Petitioner claims that the absence of a request for a bad order survey belied the consignee's
assertion that the shipment was filched while in ICTSI's custody, and that such absence did not stop
the 15-day period from running. Normally, a request for a bad order survey is made in case there is
an apparent or presumed loss or damage. The consignee made no such request despite being
provided by the petitioner a form therefor.
The lack of a bad order survey does not toll the prescriptive period for filing a claim for loss, because
the consignee can always file a provisional claim within 15 days from the time it discovers the loss or
damage. Such a claim would place the arrastre operator on notice that the shipment sustained
damage or loss, even if the exact amount thereof could not be specified at the moment. In this
manner, the arrastre operator can immediately verify its culpability and liability. A provisional claim
seasonably filed is sufficient compliance with the liability clause. 21
65
From the foregoing discussion, it is clear that the appellate court erred in concluding that the line of cases has held that the 15-day period for filing claims should be counted from the date the
shortage was due to the negligence of the arrastre operator. consignee learns of the loss, damage or misdelivery of goods. 27

Second Issue:
Period to File a Claim for Loss
Petitioner contends that the appellate court misconstrued the liability clause printed on the dorsal
side of the Arrastre and Wharfage Bill/Receipt. The contentious provision of this document reads:
In the case at bar, the consignee had all the time to make a formal claim from the day it discovered
the shortage in the shipment, which was June 4, 1990, as shown by the records. According to the
independent adjuster, the stripping or opening of the sea vans containing the shipped canned goods
was made at the consignee's place upon receipt of the shipment. After discovering the loss, the
consignee asked the adjuster to investigate the reason for the short-landing of the shipment. By the
time the claim for loss was filed on October 2, 1990, four months had already elapsed from the date
of delivery, June 4, 1990.

"Liability Clause"
The duly authorized representative of herein named CONSIGNEE, and ICTSI hereby certify
to the correctness of the description of the containerized cargo covered by this CY
GATEPASS, the issuance of which constitutes delivery to and receipt by Consignee of the
containerized cargo as described in this CY GATEPASS, in good order and condition,
unless otherwise indicated. This CY GATEPASS is subject to all terms and conditions
defined in the Existing Management Contract between the PPA & ICTSI[;] PPA
Administrative Order No. 10-81, ICTSI shall, however, be liable to the extent of the local
invoice value of each package but not to exceed P3,500 Philippine currency for imported
cargoes and P1,000 for domestic cargoes (consistent with Administrative Order 10-81
unless revised), unless the value thereof is otherwise specified or manifested or
communicated in writing together with the invoice value and supported by a certified packing
list to ICTSI by any interested party/ies before the discharge of the cargo and corresponding
port charges ha[ve] been fully paid. This provision shall only apply upon filing of a formal
claim within 15 days from the date of issuance of the Bad Order Certificate or certificate of
loss, damage or non-delivery by ICTSI. 22
Prudential did not explain the delay. It did not even allege or prove that the discovery of the shortage
was made by the consignee only 15-days before October 2, 1990. The latter had to wait for the
independent adjuster's survey report dated September 7, 1990, before filing the claim with the
former. By that time, however, it was clearly too late, as the 15-day period had expired.
In any event, within 15 days from the time the loss was discovered, the consignee could have filed a
provisional claim, which would have constituted substantial compliance with the rule. 28 Its failure to
do so relieved the arrastre operator of any liability for the nondelivery of the goods. 29 More
specifically, the failure to file a provisional claim bars a subsequent action in court. 30 The rationale
behind the time limit is that, without it, a consignee could too easily concoct or fabricate claims and
deprive the arrastre operator of the best opportunity to probe immediately their veracity.
WHEREFORE, the Petition is hereby GRANTED. The assailed Decision and Resolution are SET
ASIDE, and the trial court's Decision is REINSTATED. No pronouncement as to costs.
SO ORDERED.

Petitioner argues that the 15-day limitation for filing a claim against the arrastre operator should run
from the time of the delivery of the goods to the consignee, and that the latter's failure to file a claim
within said period is sufficient ground to deny the claim for loss.

On the other hand, the appellate court overruled the trial court, because the filing of the claim was
dependent upon the issuance of a certificate of loss, damage or nondelivery. Since the petitioner did
not issue such certificate, the 15-day limit, the CA opined, did not begin to run against the
consignee. Private respondent argues that the clear and unambiguous language of the liability
clause does not support petitioner's construction.

We agree with the petitioner. In order to hold the arrastre operator liable for lost or damaged goods,
the claimant should file with the operator a claim for the value of said goods "within fifteen (15) days
from the date of discharge of the last package from the carrying vessel . . . ." 23 The filing of the claim
for loss within the 15-day period is in the nature of a prescriptive period for bringing an action and is
a condition precedent to holding the arrastre operator liable. This requirement is a defense made
available to the arrastre operator, who may use or waive it as a matter of personal discretion. 24

The said requirement is not an empty formality. It gives the arrastre contractor a reasonable
opportunity to check the validity of the claim, while the facts are still fresh in the minds of the
persons who took part in the transaction, and while the pertinent documents are still available. Such
period is sufficient for the consignee to file a provisional claim after the discharge of the goods from
the vessel. 25 For this reason, we believe that the 15-day limit is reasonable.

We should hasten to add that while a literal reading of the liability clause makes the time limit run
from the moment the shipment is discharged from the carrying vessel, this Court has chosen to
interpret this condition liberally in an endeavor to promote fairness, equity and justness. 26 A long

66
G.R. No. 162104               September 15, 2009 On March 14, 1995, respondent filed a Complaint13 for damages against petitioner with the RTC of
Gapan City, Branch 35 (trial court) for the injuries he sustained as a result of the vehicular accident.
R TRANSPORT CORPORATION, represented by its owner/President RIZALINA
LAMZON, Petitioner, In its Answer,14 petitioner put up the defense that it had always exercised the diligence of a good
vs. father of a family in the selection and supervision of its employees, and that the accident was
EDUARDO PANTE, Respondent. a force majeure for which it should not be held liable.

DECISION At the pre-trial on October 4, 1995, petitioner was declared in default,15 which was reconsidered by
the trial court on December 12, 199516 upon finding that petitioner had earlier filed a Motion to
Transfer Date of Hearing. Trial was first set on February 26, 1996, and from then on trial was
PERALTA, J.:
postponed several times on motion of petitioner.

This is a petition for review on certiorari1 of the Decision dated October 7, 2003 of the Court of
Six years later, on October 24, 2001, respondent’s direct examination was concluded. His cross-
Appeals in CA-G.R. CV No. 76170, and its Resolution dated February 5, 2004, denying petitioner’s
examination was reset to December 5, 2001 due to the absence of petitioner and its counsel.17 It
motion for reconsideration. The Court of Appeals affirmed the Decision of the Regional Trial Court
was again reset to January 23, 200218 upon petitioner’s motion. On January 23, 2002, petitioner,
(RTC) of Gapan City, Branch 35, dated January 26, 2002, holding petitioner liable to respondent for
through its new counsel, asked for another postponement on the ground that he was not ready.
damages for physical injuries sustained by respondent due to a vehicular accident.
Hence, the cross-examination of respondent was reset to March 13, 2002.19

The facts2 are as follows:

Petitioner R Transport Corporation, represented by its owner and president, Rizalina Lamzon,3 is a
common carrier engaged in operating a bus line transporting passengers to Gapan, Nueva Ecija
from Cubao, Quezon City and back.
At about 3:00 a.m. of January 27, 1995, respondent Eduardo Pante rode petitioner’s R. L. Bus Liner
with Plate Number CVW-635 and Body Number 94810 in Cubao, Quezon City bound for Gapan,
Nueva Ecija. Respondent paid the sum of ₱48.00 for his fare, and he was issued bus ticket number
555401.4
On March 13, 2002, petitioner was declared to have waived its right to cross-examine respondent
due to the absence of petitioner and its counsel, and respondent was allowed to offer his exhibits
within five days.20 Petitioner’s motion for reconsideration dated April 4, 200221 was denied on May 7,
2002.22
In the hearing of June 19, 2002, petitioner was declared to have waived its right to present evidence
on motion of respondent’s counsel in view of the unexplained absence of petitioner and its counsel
despite prior notice. The case was declared submitted for decision.23
On June 26, 2002, the trial court rendered a Decision, the dispositive portion of which reads:

While traveling along the Doña Remedios Trinidad Highway in Baliuag, Bulacan, the bus hit a tree
WHEREFORE, premises considered, judgment is hereby rendered finding the plaintiffs to be entitled
and a house due to the fast and reckless driving of the bus driver, Johnny Merdiquia. Respondent
to damages and ordering defendants to [pay]:
sustained physical injuries as a result of the vehicular accident. He was brought by an unidentified
employee of petitioner to the Baliuag District Hospital, where respondent was diagnosed to have
sustained a "laceration frontal area, with fracture of the right humerus,"5 or the bone that extends 1.) ₱39,112.60 as actual damages;
from the shoulder to the elbow of the right arm. Respondent underwent an operation for the fracture
of the right humerus per Certification dated February 17, 1995 issued by Dr. Virginia C. Cabling of
2.) ₱50,000.00 as moral damages;
the Baliuag District Hospital.6

3.) ₱50,000.00 as exemplary damages;

The hospital's Statement of Account showed that respondent’s operation and confinement cost
₱22,870.00.7 Respondent also spent ₱8,072.60 for his medication. He was informed that he had to
undergo a second operation after two years of rest.8 He was unemployed for almost a year after his 4.) Twenty-five percent (25%) of the total of which shall
first operation because Goldilocks, where he worked as a production crew, refused to accept him
with his disability as he could not perform his usual job.9
constitute a lien as contingent fee of plaintiff’s counsel.24

By way of initial assistance, petitioner gave respondent's wife, Analiza P. Pante, the sum of
SO ORDERED.
₱7,000.00, which was spent for the stainless steel instrument used in his fractured arm.10

After the first operation, respondent demanded from petitioner, through its manager, Michael Cando,
the full payment or reimbursement of his medical and hospitalization expenses, but petitioner
refused payment.11
Four years later, respondent underwent a second operation. He spent ₱15,170.00 for medical and
hospitalization expenses.12
The trial court held that the provisions of the Civil Code on common carriers govern this case. Article
1756 of the Civil Code states that "[i]n 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 by Articles 1733 and 1755." The trial court ruled that
since petitioner failed to dispute said presumption despite the many opportunities given to it, such
presumption of negligence stands.
Petitioner appealed the decision of the trial court to the Court of Appeals.

67
In its Decision dated October 7, 2003, the Court of Appeals affirmed the decision of the trial court,
the dispositive portion of which reads:
WHEREFORE, for lack of merit, the appeal is DENIED and the Decision appealed from is
AFFIRMED in toto. With double costs against the appellant.25
Petitioner’s motion for reconsideration was denied for lack of merit in the Resolution of the Court of
Appeals dated February 5, 2004.26
Hence, petitioner filed this petition raising the following issues:
I for reception of its evidence on June 19, 2002. The trial court stated, thus:
THE HONORABLE COURT OF APPEALS, TENTH DIVISION GRAVELY ERRED IN NOT GIVING
DUE COURSE TO THE DEFENDANT-APPELLANT'S MOTION FOR RECONSIDERATION OF
THE DECISION PROMULGATED ON OCTOBER 7, 2003, THEREBY DEPRIVING PETITIONER'S
FUNDAMENTAL RIGHT TO DUE PROCESS.
II
THE HONORABLE COURT OF APPEALS, TENTH DIVISION FURTHER GRAVELY ERRED IN
AFFIRMING IN TOTO THE DECISION OF THE REGIONAL TRIAL COURT OF GAPAN CITY,
BRANCH 35, PARTICULARLY IN AWARDING DAMAGES TO THE RESPONDENT WITHOUT
PRESENTING ANY SUBSTANTIAL EVIDENCE.
III
THE HONORABLE COURT OF APPEALS, TENTH DIVISION, IN AFFIRMING IN TOTO THE
DECISION OF THE REGIONAL TRIAL COURT OF GAPAN CITY, BRANCH 35, HAS COMMITTED
GRAVE AND REVERSIBLE ERROR IN ITS FINDING OF FACTS AND APPLICATION OF [THE]
LAW.27
The main issue is whether or not petitioner is liable to respondent for damages.
The Court affirms the decision of the Court of Appeals that petitioner is liable for damages.
Under the Civil Code, common carriers, like petitioner bus company, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence for the safety
of the passengers transported by them, according to all the circumstances of each case.28 They are
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.29
Article 1756 of the Civil Code states that "[i]n 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 by Articles 1733 and 1755."
Further, Article 1759 of the Civil Code provides that "[c]ommon carriers are liable for the death or
injury 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."30
In this case, the testimonial evidence of respondent showed that petitioner, through its bus driver,
failed to observe extraordinary diligence, and was, therefore, negligent in transporting the
passengers of the bus safely to Gapan, Nueva Ecija on January 27, 1995, since the bus bumped a
tree and a house, and caused physical injuries to respondent. Article 1759 of the Civil Code
explicitly states that the common carrier is liable for the death or injury to passengers through the
negligence or willful acts of its employees, and that such liability does not cease upon proof that the
common carrier exercised all the diligence of a good father of a family in the selection and
supervision of its employees. Hence, even if petitioner was able to prove that it exercised the
diligence of a good father of the family in the selection and supervision of its bus driver, it is still
liable to respondent for the physical injuries he sustained due to the vehicular accident.31
Petitioner cannot complain that it was denied due process when the trial court waived its right to
present evidence, because it only had itself to blame for its failure to attend the hearing scheduled
It is noteworthy to state that during the course of the proceeding of this case, defendant (petitioner)
and its counsel hardly appeared in court and only made innumerable motions to reset the hearings
to the point that this case x x x dragged [on] for seven years from its filing up to the time that it has
been submitted for decision. And for the unexplained absence of counsel for defendant in the
hearing set last June 19, 2002 despite repeated resetting, upon motion of the counsel for plaintiff
(respondent), Atty. Ireneo Romano, its right to present its evidence was considered waived.32
In Silverio, Sr. v. Court of Appeals,33 the Court held that petitioner therein was not denied due
process when the records of the case showed that he was amply given the opportunity to present
his evidence, which he, however, waived. There is no denial of due process where a party was
given an opportunity to be heard.34
Next, petitioner contends that the Court of Appeals erred in denying its motion for reconsideration of
the appellate court’s Decision dated October 7, 2003.
The contention is unmeritorious.
The Court of Appeals has the discretion to deny petitioner’s motion for reconsideration since it found
that there was no cogent reason to warrant reconsideration of its Decision dated October 7, 2003.
According to the appellate court, it had already considered, if not squarely ruled upon, the
arguments raised in petitioner’s motion for reconsideration.35
Moreover, petitioner contends that the Court of Appeals erred in affirming the decision of the trial
court, which awarded actual damages in the amount of ₱22,870.00 based on the statement of
account issued by the Baliuag District Hospital and not based on an official receipt. Petitioner argues
that the statement of account is not the best evidence.
The contention is without merit.
As cited by the Court of Appeals in its Decision, Jarco Marketing Corporation v. Court of
Appeals36 awarded actual damages for hospitalization expenses that was evidenced by a statement
of account issued by the Makati Medical Center. Hence, the statement of account is admissible
evidence of hospital expenses incurred by respondent.
Petitioner also contends that the award of moral damages is not proper, because it is not
recoverable in actions for damages predicated on breach of the contract of transportation under
Articles 2219 and 2220 of the Civil Code.37
The Court is not persuaded.
68
The Court of Appeals correctly sustained the award of moral damages, citing Spouses Ong v. Court
of Appeals,38 which awarded moral damages to paying passengers, who suffered physical injuries
on board a bus that figured in an accident. Spouses Ong held that a person is entitled to the integrity
of his body and if that integrity is violated, damages are due and assessable. Thus, the usual
practice is to award moral damages for physical injuries sustained. In Spouses Ong, the Court
awarded moral damages in the amount of ₱50,000.00 to a passenger who was deemed to have
suffered mental anguish and anxiety because her right arm could not function in a normal manner.
Another passenger, who suffered injuries on his left chest, right knee, right arm and left eye, was
awarded moral damages in the amount of ₱30,000.00 for the mental anxiety and anguish he
suffered from the accident.

In this case, respondent sustained a "laceration frontal area, with fracture of the right humerus" due
to the vehicular accident. He underwent an operation for the fracture of the bone extending from the
shoulder to the elbow of his right arm. After a few years of rest, he had to undergo a second
operation. Respondent, therefore, suffered physical pain, mental anguish and anxiety as a result of
the vehicular accident. Hence, the award of moral damages in the amount of ₱50,000.00 is proper.

Petitioner likewise contends that the award of exemplary damages is improper, because it did not
act in a wanton, fraudulent, reckless, oppressive or malevolent manner.

The contention is without merit.

Article 2232 of the Civil Code states that "[i]n contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. In this case, respondent’s testimonial evidence showed that the bus driver,
Johnny Merdiquia, was driving the bus very fast in a reckless, negligent and imprudent manner;
hence, the bus hit a tree and a house along the highway in Baliuag, Bulacan. The award of
exemplary damages is, therefore, proper. The award of exemplary damages is justified to serve as
an example or as a correction for the public good.39

Further, the Court affirms the award of attorney’s fees to respondent’s counsel. The Court notes that
respondent filed his Complaint for damages on March 14, 1995 as pauper-litigant. The award of
legal fees by the trial court to respondent’s counsel was a contingent fee of 25 percent of the total
amount of damages, which shall constitute a lien on the total amount awarded. The said award was
affirmed by the Court of Appeals. Twenty-five percent of the total damages is equivalent to
₱34,778.15. The award of legal fees is commensurate to the effort of respondent’s counsel, who
attended to the case in the trial court for seven years, and who finally helped secure redress for the
injury sustained by respondent after 14 years.

Lastly, petitioner contends that the medical certificate presented in evidence is without probative
value since respondent failed to present as witness Dr. Virginia Cabling to affirm the content of said
medical certificate.

The contention lacks merit. The Court of Appeals correctly held that the medical certificate is
admissible since petitioner failed to object to the presentation of the evidence.40

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
76170, dated October 7, 2003, and its Resolution dated February 5, 2004, are hereby AFFIRMED.
Petitioner R Transport Corporation is ordered to pay respondent Eduardo Pante ₱39,112.60 as
actual damages; ₱50,000.00 as moral damages; and ₱50,000.00 as exemplary damages. Twenty-
five percent (25%) of the total amount shall constitute a lien as contingent fee of respondent’s
counsel.

Costs against petitioner. SO ORDERED.

69
G.R. No. 121824 January 29, 1998 On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any
liability, arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in
Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities should be considered
BRITISH AIRWAYS, petitioner,
as transfer to BA.8
vs.
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in
favor of Mahtani, 9 the dispositive portion of which reads as follows:
ROMERO, J.:

WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of
defendant for which defendant is ordered to pay plaintiff the sum of Seven Thousand
respondent Court of Appeals1 promulgated on September 7, 1995, which affirmed the award of
(P7,000.00) Pesos for the value of the two (2) suit cases; Four Hundred U.S. ($400.00)
damages and attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial Region, Branch
Dollars representing the value of the contents of plaintiff's luggage; Fifty Thousand
17, in favor of private respondent GOP Mahtani as well as the dismissal of its third-party complaint
(P50,000.00) Pesos for moral and actual damages and twenty percent (20%) of the total
against Philippine Airlines (PAL).2
amount imposed against the defendant for attorney's fees and costs of this action.

The material and relevant facts are as follows:

The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED
for lack of cause of action.
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit,
he obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn,
SO ORDERED.
purchased a ticket from BA where the following itinerary was indicated:3

Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's findings.
CARRIER FLIGHT DATE TIME STATUS Thus:

MANILA MNL PR 310 Y 16 APR. 1730 OK WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed
from to be in accordance with law and evidence, the same is hereby AFFIRMED in toto,
HONGKONG HKG BA 20 M 16 APR. 2100 OK with costs against defendant-appellant.

BOMBAY BOM BA 19 M 23 APR. 0840 OK

SO ORDERED. 10
HONGKONG HKG PR 311 Y
BA is now before us seeking the reversal of the Court of Appeals' decision.
MANILA MNL
In essence, BA assails the award of compensatory damages and attorney's fees, as well as the
dismissal of its third-party complaint against PAL.11
Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via
PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.
Regarding the first assigned issue, BA asserts that the award of compensatory damages in the
separate sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was without basis since
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage Mahtani in his complaint12 stated the following as the value of his personal belongings:
containing his clothings and personal effects, confident that upon reaching Hongkong, the same
would be transferred to the BA flight bound for Bombay.
8. On the said travel, plaintiff took with him the following items and its corresponding
value, to wit:
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and
that upon inquiry from the BA representatives, he was told that the same might have been diverted
to London. After patiently waiting for his luggage for one week, BA finally advised him to file a claim 1. personal belonging P10,000.00
by accomplishing the "Property Irregularity Report."4
2. gifts for his parents and relatives $5,000.00
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and
attorney's fees 5 against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB- Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided
9076. for in the ticket, which reads:13

On September 4, 1990, BA filed its answer with counter claim6 to the complaint raising, as special Liability for loss, delay, or damage to baggage is limited unless a higher value is declared
and affirmative defenses, that Mahtani did not have a cause of action against it. Likewise, on in advance and additional charges are paid:
November 9, 1990, BA filed a third-party complaint 7 against PAL alleging that the reason for the
non-transfer of the luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any
time for the proper transfer of Mahtani's luggage to the BA aircraft bound for Bombay.

70
 1. For most international travel (including domestic corporations of international journeys)
the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000) per kilo for checked
baggage and U.S. $400 per passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's
contract of carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to
its destination and a contract to transport passengers to their destination. A business intended to
serve the traveling public primarily, it is imbued with public interest, hence, the law governing
common carriers imposes an exacting standard.14 Neglect or malfeasance by the carrier's
employees could predictably furnish bases for an action for damages.15
In the instant case, it is apparent that the contract of carriage was between Mahtani and BA.
Moreover, it is indubitable that his luggage never arrived in Bombay on time. Therefore, as in a
number of cases16 we have assessed the airlines' culpability in the form of damages for breach of
contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant
satisfactorily prove during the trial the existence of the factual basis of the damages and its causal
connection to defendant's acts.17
In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even failed to
show receipts of the alleged gifts for the members of his family in Bombay, the most that
can be expected for compensation of his lost luggage (2 suit cases) is Twenty U.S.
Dollars ($20.00) per kilo, or combined value of Four Hundred ($400.00) U.S. Dollars for
Twenty kilos representing the contents plus Seven Thousand (P7,000.00) Pesos
representing the purchase price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that there should have been no separate award
for the luggage and the contents thereof since Mahtani failed to declare a separate higher valuation
for the luggage,18 and therefore, its liability is limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to
recover a greater amount. Article 22(1) of the Warsaw Convention,19 provides as follows:
x x x           x x x          x x x
(2) In the transportation of checked baggage and goods, the liability of the carrier shall be
limited to a sum of 250 francs per kilogram, unless the consignor has made, at time the
package was handed over to the carrier, a special declaration of the value at delivery and
has paid a supplementary sum if the case so requires. In that case the carrier will be liable
to pay a sum not exceeding the declared sum, unless he proves that the sum is greater
than the actual value to the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount
in excess of the limits specified in the tariff which was filed with the proper authorities, such tariff
being binding, on the passenger regardless of the passenger's lack of knowledge thereof or assent
thereto.20 This doctrine is recognized in this jurisdiction.21
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion
contracts where the facts and circumstances justify that they should be disregarded.22
In addition, we have held that benefits of limited liability are subject to waiver such as when the air
carrier failed to raise timely objections during the trial when questions and answers regarding the
actual claims and damages sustained by the passenger were asked.23
Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of
limited liability when it allowed Mahtani to testify as to the actual damages he incurred due to the
misplacement of his luggage, without any objection. In this regard, we quote the pertinent transcript
of stenographic notes of Mahtani's direct testimony:24
Q — How much are you going to ask from this court?
A — P100,000.00.
Q — What else?
A — Exemplary damages.
Q — How much?
A — P100,000.00.
Q — What else?
A — The things I lost, $5,000.00 for the gifts I lost and my personal belongings, P10,000.00.
Q — What about the filing of this case?
A — The court expenses and attorney's fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel of
the adverse party to be inadmissible for any reason, the latter has the right to object. However, such
right is a mere privilege which can be waived. Necessarily, the objection must be made at the
earliest opportunity, lest silence when there is opportunity to speak may operate as a waiver of
objections.25 BA has precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even
conducted his own cross-examination as well.26 In the early case of Abrenica v. Gonda,27 we ruled
that:
. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection
against the admission of any evidence must be made at the proper time, and that if not so
made it will be understood to have been waived. The proper time to make a protest or
objection is when, from the question addressed to the witness, or from the answer thereto,
or from the presentation of proof, the inadmissibility of evidence is, or may be inferred.
Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to
great respect.28 Since the actual value of the luggage involved appreciation of evidence, a task
within the competence of the Court of Appeals, its ruling regarding the amount is assuredly a
question of fact, thus, a finding not reviewable by this Court.29
As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of Appeals
justified its ruling in this wise, and we quote:30
71
 Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint
against PAL.
The contract of air transportation in this case pursuant to the ticket issued by appellant to
plaintiff-appellee was exclusively between the plaintiff Mahtani and defendant-appellant
BA. When plaintiff boarded the PAL plane from Manila to Hongkong, PAL was merely
acting as a subcontractor or agent of BA. This is shown by the fact that in the ticket issued
by appellant to plaintiff-appellee, it is specifically provided on the "Conditions of Contract,"
paragraph 4 thereof that:
4. . . . carriage to be performed hereunder by several successive carriers is
regarded as a single operation.
The rule that carriage by plane although performed by successive carriers is regarded as a single
operation and that the carrier issuing the passenger's ticket is considered the principal party and the
other carrier merely subcontractors or agent, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko,31 we expounded on the
nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a "third party" who is
neither a party nor privy to the act or deed complained of by the plaintiff, may be brought
into the case with leave of court, by the defendant, who acts, as third-party plaintiff to
enforce against such third-party defendant a right for contribution, indemnity, subrogation
or any other relief, in respect of the plaintiff's claim. The third-party complaint is actually
independent of and separate and distinct from the plaintiff's complaint. Were it not for this
provision of the Rules of Court, it would have to be filed independently and separately
from the original complaint by the defendant against the third-party. But the Rules permit
defendant to bring in a third-party defendant or so to speak, to litigate his separate cause
of action in respect of plaintiff's claim against a third-party in the original and principal case
with the object of avoiding circuitry of action and unnecessary proliferation of law suits and
of disposing expeditiously in one litigation the entire subject matter arising from one
particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their
contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which
the latter naturally denies. In other words, BA and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was exclusively
between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the former's
journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of
Contracts" of the ticket32 issued by BA to Mahtani confirms that the contract was one of continuous
air transportation from Manila to Bombay.
4. . . . carriage to be performed hereunder by several successive carriers is regarded as a
single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from
Manila to Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an
agent is also responsible for any negligence in the performance of its function.33 and is liable for
damages which the principal may suffer by reason of its negligent act.34 Hence, the Court of Appeals
erred when it opined that BA, being the principal, had no cause of action against PAL, its agent or
sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International Air Transport
Association (IATA), wherein member airlines are regarded as agents of each other in the issuance
of the tickets and other matters pertaining to their relationship.35 Therefore, in the instant case, the
contractual relationship between BA and PAL is one of agency, the former being the principal, since
it was the one which issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German
Airlines v. Court of Appeals.36 In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda
covering five-leg trip aboard different airlines. Unfortunately, Air Kenya, one of the airlines which was
to carry Antiporda to a specific destination "bumped" him off.
An action for damages was filed against Lufthansa which, however, denied any liability, contending
that its responsibility towards its passenger is limited to the occurrence of a mishap on its own line.
Consequently, when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of
carriage ceased; from there on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansa's argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal in the contract of
carriage with Antiporda and remains to be so, regardless of those instances when actual
carriage was to be performed by various carriers. The issuance of confirmed Lufthansa
ticket in favor of Antiporda covering his entire five-leg trip abroad successive carriers
concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA
alone, and not PAL, since the latter was not a party to the contract. However, this is not to say that
PAL is relieved from any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of
Appeals,37 while not exactly in point, the case, however, illustrates the principle which governs this
particular situation. In that case, we recognized that a carrier (PAL), acting as an agent of another
carrier, is also liable for its own negligent acts or omission in the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the
purpose of ultimately determining who was primarily at fault as between them, is without legal basis.
After all, such proceeding is in accord with the doctrine against multiplicity of cases which would
entail receiving the same or similar evidence for both cases and enforcing separate judgments
therefor. It must be borne in mind that the purpose of a third-party complaint is precisely to avoid
delay and circuitry of action and to enable the controversy to be disposed of in one suit.38 It is but
logical, fair and equitable to allow BA to sue PAL for indemnification, if it is proven that the latter's
negligence was the proximate cause of Mahtani's unfortunate experience, instead of totally
absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No.
43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by
British Airways dated November 9, 1990 against Philippine Airlines. No costs.
SO ORDERED.
72
G.R. No. L-82619 September 15, 1993 passengers agreed to avail of the options and had their respective tickets exchanged for their
onward trips; that it was
only the private respondent who insisted on being given priority in the accommodation; that pieces
PHILIPPINE AIRLINES, INC., petitioner,
of checked-in baggage and had carried items of the Ozamiz City passengers were removed from
vs.
the aircraft; that the reason for their pilot's inability to land at Ozamis City airport was because the
COURT OF APPEALS and PEDRO ZAPATOS, respondents.
runway was wet due to rains thus posing a threat to the safety of both passengers and aircraft; and,
that such reason of force majeure was a valid justification for the pilot to bypass Ozamiz City and
BELLOSILLO, J.: proceed directly to Cotabato City.

This petition for review in certiorari seeks to annul and set aside the decision of the then On 4 June 1981, the trial court rendered its decision 10 the dispositive portion of which states:
Intermediate Appellant Court,1 now Court of Appeals, dated 28 February 1985, in AC-G.R. CV No.
69327 ("Pedro Zapatos v. Philippine Airlines, Inc.") affirming the decision of the then Court of first
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
Instance, now Regional Trial Court, declaring Philippine Airlines, Inc., liable in damages for breach
defendant Philippine AirLines, Inc. ordering the latter to pay:
of contract.

(1) As actual damages, the sum of Two Hundred Pesos (P200.00) representing
On 25 November 1976, private respondent filed a complaint for damages for breach of contract of
plaintiff's expenses for transportation, food and accommodation during his stranded stay
carriage2 against Philippine Airlines, Inc. (PAL), before the then Court of First Instance, now
at Cotabato City; the sum of Forty-Eight Pesos (P48.00) representing his flight fare from
Regional Trial Court, of Misamis Occidental, at Ozamiz City. According to him, on 2 August 1976, he
Cotabato City to Iligan city; the sum of Five Hundred Pesos (P500.00) representing
was among the twenty-one (21) passengers of PAL Flight 477 that took off from Cebu bound for
plaintiff's transportation expenses from Iligan City to Ozamiz City; and the sum of Five
Ozamiz City. The routing of this flight was Cebu-Ozamiz-Cotabato. While on flight and just about
Thousand Pesos (P5,000.00) as loss of business opportunities during his stranded stay
fifteen (15) minutes before landing at Ozamiz City, the pilot received a radio message that the
in Cotabato City;
airport was closed due to heavy rains and inclement weather and that he should proceed to
Cotabato City instead.
(2) As moral damages, the sum of Fifty Thousand Pesos (P50,000.00) for plaintiff's hurt
feelings, serious anxiety, mental anguish and unkind and discourteous treatment
Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to
perpetrated by defendant's employees during his stay as stranded passenger in
return to Cebu on flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or take
Cotabato City;
the next flight to Cebu the following day, or remain at Cotabato and take the next available flight to
Ozamiz City on 5 August 1975.3 The Station Agent likewise informed them that Flight 560 bound for
Manila would make a stop-over at Cebu to bring some of the diverted passengers; that there were (3) As exemplary damages, the sum of Ten Thousand Pesos (P10,000.00) to set a
only six (6) seats available as there were already confirmed passengers for Manila; and, that the precedent to the defendant airline that it shall provide means to give comfort and
basis for priority would be the check-in sequence at Cebu. convenience to stranded passengers;

Private respondent chose to return to Cebu but was not accommodated because he checked-in as (4) The sum of Three Thousand Pesos (P3,000.00) as attorney's fees;
passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed passengers in
the accommodation, but the Station Agent refused private respondent's demand explaining that the
(5) To pay the costs of this suit.
latter's predicament was not due to PAL's own doing but to be a force majeure.4

Private respondent tried to stop the departure of Flight 560 as his personal belongings, including a
package containing a camera which a certain Miwa from Japan asked him to deliver to Mrs. Fe Obid
of Gingoog City, were still on board. His plea fell on deaf ears. PAL then issued to private
respondent a free ticket to Iligan city, which the latter received under protest.5 Private respondent
was left at the airport and could not even hitch a ride in the Ford Fiera loaded with PAL
personnel.6 PAL neither provided private respondent with transportation from the airport to the city
proper nor food and accommodation for his stay in Cotabato City.
The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL
personnel that he would not use the free ticket because he was filing a case against PAL.7 In Iligan
City, private respondent hired a car from the airport to Kolambugan, Lanao del Norte, reaching
Ozamiz City by crossing the bay in a launch.8 His personal effects including the camera, which were
valued at P2,000.00 were no longer recovered.
On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate
private respondent.9 It alleged that there was simply no more seat for private respondent on Flight
560 since there were only six (6) seats available and the priority of accommodation on Flight 560
was based on the check-in sequence in Cebu; that the first six (6) priority passengers on Flight 477
chose to take Flight 560; that its Station Agent explained in a courteous and polite manner to all
passengers the reason for PAL's inability to transport all of them back to Cebu; that the stranded
PAL appealed to the Court of Appeals which on 28 February 1985, finding no reversible error,
affirmed the judgment of the court a quo. 11
PAL then sought recourse to this Court by way of a petition for review on certiorari  12 upon the
following issues: (1) Can the Court of Appeals render a decision finding petitioner (then defendant-
appellant in the court below) negligent and, consequently, liable for damages on a question of
substance which was neither raised on a question nor proved at the trial? (2) Can the Court of
Appeals award actual and moral damages contrary to the evidence and established
jurisprudence? 13
An assiduous examination of the records yields no valid reason for reversal of the judgment on
appeal; only a modification of its disposition.
In its petition, PAL vigorously maintains that private respondent's principal cause of action was its
alleged denial of private respondent's demand for priority over the confirmed passengers on Flight
560. Likewise, PAL points out that the complaint did not impute to PAL neglect in failing to attend to
the needs of the diverted passengers; and, that the question of negligence was not and never put in
issue by the pleadings or proved at the trial.

73
Contrary to the above arguments, private respondent's amended complaint touched on PAL's
indifference and inattention to his predicament. The pertinent portion of the amended
complaint 14 reads:
10. That by virtue of the refusal of the defendant through its agent in Cotabato to
accommodate (sic) and allow the plaintiff to take and board the plane back to Cebu, and by
accomodating (sic) and allowing passengers from Cotabato for Cebu in his stead and place,
thus forcing the plaintiff against his will, to be left and stranded in Cotabato, exposed to the
peril and danger of muslim rebels plundering at the time, the plaintiff, as a consequence,
(have) suffered mental anguish, mental torture, social humiliation, bismirched reputation and
wounded feeling, all amounting to a conservative amount of thirty thousand (P30,000.00)
Pesos.
To substantiate this aspect of apathy, private respondent testified 15
A I did not even notice that I was I think the last passenger or the last person out of the
PAL employees and army personnel that were left there. I did not notice that when I was
already outside of the building after our conversation.
Q What did you do next?
A I banished (sic) because it seems that there was a war not far from the airport. The
sound of guns and the soldiers were plenty.
Q After that what did you do?
A I tried to look for a transportation that could bring me down to the City of Cotabato.
Q Were you able to go there?
A I was at about 7:00 o'clock in the evening more or less and it was a private jeep that I
boarded. I was even questioned why I and who am (sic) I then. Then I explained my
side that I am (sic) stranded passenger. Then they brought me downtown at Cotabato.
Q During your conversation with the Manager were you not offered any vehicle or
transportation to Cotabato airport downtown?
A In fact I told him (Manager) now I am by-passed passenger here which is not my
destination what can you offer me. Then they answered, "it is not my fault. Let us forget
that."
Q In other words when the Manager told you that offer was there a vehicle ready?
A Not yet. Not long after that the Ford Fiera loaded with PAL personnel was passing by
going to the City of Cotabato and I stopped it to take me a ride because there was no
more available transportation but I was not accommodated.
Significantly, PAL did not seem to mind the introduction of evidence which focused on its alleged
negligence in caring for its stranded passengers. Well-settled is the rule in evidence that the protest
or objection against the admission of evidence should be presented at the time the evidence is
offered, and that the proper time to make protest or objection to the admissibility of evidence is when
the question is presented to the witness or at the time the answer thereto is given. 16 There being no
objection, such evidence becomes property of the case and all the parties are amenable to any
favorable or unfavorable effects resulting from the evidence. 17
PAL instead attempted to rebut the aforequoted testimony. In the process, it failed to substantiate its
counter allegation for want of concrete proof 18 —
Atty. Rubin O. Rivera — PAL's counsel:
Q You said PAL refused to help you when you were in Cotabato, is that right?
Private respondent:
A Yes.
Q Did you ask them to help you regarding any offer of transportation or of any other matter
asked of them?
A Yes, he (PAL PERSONNEL) said what is? It is not our fault.
Q Are you not aware that one fellow passenger even claimed that he was given Hotel
accommodation because they have no money?
x x x           x x x          x x x
A No, sir, that was never offered to me. I said, I tried to stop them but they were already
riding that PAL pick-up jeep, and I was not accommodated.
Having joined in the issue over the alleged lack of care it exhibited towards its passengers, PAL
cannot now turn around and feign surprise at the outcome of the case. When issues not raised by
the pleadings are tried by express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. 19
With regard to the award of damages affirmed by the appellate court, PAL argues that the same is
unfounded. It asserts that it should not be charged with the task of looking after the passengers'
comfort and convenience because the diversion of the flight was due to a fortuitous event, and that if
made liable, an added burden is given to PAL which is over and beyond its duties under the contract
of carriage. It submits that granting arguendo that negligence exists, PAL cannot be liable in
damages in the absence of fraud or bad faith; that private respondent failed to apprise PAL of the
nature of his trip and possible business losses; and, that private respondent himself is to be blamed
for unreasonably refusing to use the free ticket which PAL issued.
The contract of air carriage is a peculiar one. Being 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 Air France v. Carrascoso, 21 we held that —
A contract to transport passengers is quite different in kind and degree from any other
contractual relation. And this, because of the relation which an air carrier sustains with the
public. Its business is mainly with the travelling public. It invites people to avail of the
comforts and advantages it offers. The contract of air carriage, therefore, generates a
relation attended with a public duty . . . . ( emphasis supplied).
74
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard Q I understand from you Mr. Zapatos that at the time you were waiting at Cotabato Airport
required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a fortuitous for the decision of PAL, you were not informed of the decision until after the airplane left is
event. Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being in that correct?
the business of air carriage and the sole one to operate in the country, PAL is deemed equipped to
deal with situations as in the case at bar. What we said in one case once again must be
A Yes.
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. 22 Hence, PAL necessarily would still have to
exercise extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded COURT:
passengers until they have reached their final destination. On this score, PAL grossly failed
considering the then ongoing battle between government forces and Muslim rebels in Cotabato City
Q What do you mean by "yes"? You meant you were not informed?
and the fact that the private respondent was a stranger to the place. As the appellate court correctly
ruled —
A Yes, I was not informed of their decision, that they will only accommodate few
passengers.
While the failure of plaintiff in the first instance to reach his destination at Ozamis City in
accordance with the contract of carriage was due to the closure of the airport on account of
rain and inclement weather which was radioed to defendant 15 minutes before landing, it Q Aside from you there were many other stranded passengers?
has not been disputed by defendant airline that Ozamis City has no all-weather airport and
has to cancel its flight to Ozamis City or by-pass it in the event of inclement weather.
Knowing this fact, it becomes the duty of defendant to provide all means of comfort and A I believed, yes.
convenience to its passengers when they would have to be left in a strange place in case of
such by-passing. The steps taken by defendant airline company towards this end has not Q And you want us to believe that PAL did not explain (to) any of these passengers about
been put in evidence, especially for those 7 others who were not accommodated in the the decision regarding those who will board the aircraft back to Cebu?
return trip to Cebu, only 6 of the 21 having been so accommodated. It appears that plaintiff
had to leave on the next flight 2 days later. 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 CC., Art. 1733 C.C.) A No, Sir.
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 Q Despite these facts Mr. Zapatos did any of the other passengers complained (sic)
convenience to its stranded passengers using extra-ordinary diligence, the cause of non- regarding that incident?
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. 23
x x x           x x x          x x x

While we find PAL remiss in its duty of extending utmost care to private respondent while being
stranded in Cotabato City, there is no sufficient basis to conclude that PAL failed to inform him about
his non-accommodation on Flight 560, or that it was inattentive to his queries relative thereto.
On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City that —
A There were plenty of argument and I was one of those talking about my case.
Q Did you hear anybody complained (sic) that he has not been informed of the decision
before the plane left for Cebu?

3. Of the fifteen stranded passengers two pax elected to take F478 on August 05, three pax
opted to take F442 August 03. The remaining ten (10) including subject requested that they
be instead accommodated (sic) on F446 CBO-IGN the following day where they intended to
take the surface transportation to OZC. Mr. Pedro Zapatos had by then been very vocal and
boiceterous (sic) at the counter and we tactfully managed to steer him inside the Station
Agent's office. Mr. Pedro Zapatos then adamantly insisted that all the diverted passengers
should have been given priority over the originating passengers of F560 whether confirmed
or otherwise. We explained our policies and after awhile he seemed pacified and thereafter
took his ticket (in-lieued (sic) to CBO-IGN, COCON basis), at the counter in the presence of
five other passengers who were waiting for their tickets too. The rest of the diverted pax had
left earlier after being assured their tickets will be ready the following day. 24
Aforesaid Report being an entry in the course of business is prima facie evidence of the facts
therein stated. Private respondent, apart from his testimony, did not offer any controverting
evidence. If indeed PAL omitted to give information about the options available to its diverted
passengers, it would have been deluged with complaints. But, only private respondent complained
—
A No. 25
Admittedly, private respondent's insistence on being given priority in accommodation was
unreasonable considering the fortuitous event and that there was a sequence to be observed in the
booking, i.e., in the order the passengers checked-in at their port of origin. His intransigence in fact
was the main cause for his having to stay at the airport longer than was necessary.
Atty. Rivera:
Q And, you were saying that despite the fact that according to your testimony there were at
least 16 passengers who were stranded there in Cotabato airport according to your
testimony, and later you said that there were no other people left there at that time, is that
correct?
A Yes, I did not see anyone there around. I think I was the only civilian who was left there.

Q Why is it that it took you long time to leave that place?

Atty. Rivera (for PAL)

A Because I was arguing with the PAL personnel. 26

75
Anent the plaint that PAL employees were disrespectful and inattentive toward private respondent,
the records are bereft of evidence to support the same. Thus, the ruling of respondent Court of
Appeals in this regard is without basis. 27 On the contrary, private respondent was attended to not
only by the personnel of PAL but also by its Manager." 28

In the light of these findings, we find the award of moral damages of Fifty Thousand Pesos
(P50,000.00) unreasonably excessive; hence, we reduce the same to Ten Thousand Pesos
(P10,000.00). Conformably herewith, the award of exemplary damages is also reduced to five
Thousand Pesos (5,000.00). Moral damages are not intended to enrich the private respondent. They
are awarded only to enable the injured party to obtain means, diversion or amusements that will
serve to alleviate the moral suffering he has undergone by reason of the defendant's culpable
action. 29

With regard to the award of actual damages in the amount of P5,000.00 representing private
respondent's alleged business losses occasioned by his stay at Cotabato City, we find the same
unwarranted. Private respondent's testimony that he had a scheduled business "transaction of shark
liver oil supposedly to have been consummated on August 3, 1975 in the morning" and that "since
(private respondent) was out for nearly two weeks I missed to buy about 10 barrels of shark liver
oil,"30 are purely speculative. Actual or compensatory damages cannot be presumed but must be
duly proved with reasonable degree of certainty. A court cannot rely on speculation, conjecture or
guesswork as to the fact and amount of damages, but must depend upon competent proof that they
have suffered and on evidence of the actual amount thereof. 31

WHEREFORE the decision appealed from is AFFIRMED with modification however that the award
of moral damages of Fifty Thousand Pesos (P50,000.00) is reduced to Ten Thousand Pesos
(P10,000.00) while the exemplary damages of Ten Thousand Pesos (P10,000.00) is also reduced to
Five Thousand Pesos (P5,000.00). The award of actual damages in the amount Five Thousand
Pesos (P5,000.00) representing business losses occasioned by private respondent's being stranded
in Cotabato City is deleted.

SO ORDERED.

76
G.R. No. 135802             March 3, 2000 1. P15,000.00, as actual damages;

PRISCILLA L. TAN, petitioner, 2. P100,000.00, as moral damages;

vs.
NORTHWEST AIRLINES, INC., respondent.
3. P50,000.00, as exemplary damages;

PARDO, J.:
4. P30,000.00, as and for attorney's fees and

Petitioner Priscilla L. Tan appeals via certiorari from the decision of the Court of Appeals 1 affirming
5. Costs.
with modification 2 the decision of the trial court, 3 ordering respondent to pay petitioner the following
amounts: (1) P15,000.00, as actual damages; (2) P100,000.00, as moral damages; (3) P50,000.00,
as exemplary damages; (4) P30,000.00, as and for attorney's fees; and (6) costs. SO ORDERED.

The case before the Court traces its roots from an action for damages for breach of contract of air Given this 10th day of June, 1996 at Makati City.
carriage for failure to deliver petitioner's baggages on the date of her arrival filed on June 29, 1994
with the Regional Trial Court, Makati, Branch 150 against respondent Northwest Airlines, Inc., a
ERNA FALLORAN ALIPOSA
foreign corporation engaged in the business of air transportation.
J u d g e 4

The antecedent facts are as follows:

On May 31, 1994, Priscilla L. Tan and Connie Tan boarded Northwest Airlines Flight 29 in Chicago,
U. S. A. bound for the Philippines, with a stop-over at Detroit, U. S. A. They arrived at the Ninoy
Aquino International Airport (NAIA) on June 1, 1994 at about 10:40 in the evening.
Upon their arrival, petitioner and her companion Connie Tan found that their baggages were
missing. They returned to the airport in the evening of the following day and they were informed that
their baggages might still be in another plane in Tokyo, Japan.
On June 3, 1994, they recovered their baggages and discovered that some of its contents were
destroyed and soiled.
Respondent Northwest Airlines, Inc. appealed from the trial court's decision to the Court of Appeals
contending that the court a quo erred in finding it guilty of breach of contract of carriage and of willful
misconduct and awarded damages which had no basis in fact or were otherwise excessive.
On September 30, 1998, the Court of Appeals promulgated its decision partially granting the appeal
by deleting the award of moral and exemplary damages and reducing the attorney's fees,
specifically providing that:
WHEREFORE, PREMISES CONSIDERED, the appeal is hereby GRANTED partially. The
Decision of the lower court dated June 10, 1996 is AFFIRMED with the modification that
the award of moral and exemplary damages is deleted and the amount of attorney's fees
is reduced to ten thousand pesos (P10,000.00).

Claiming that they "suffered mental anguish, sleepless nights and great damage" because of No pronouncement as to costs.
Northwest's failure to inform them in advance that their baggages would not be loaded on the same
flight they boarded and because of their delayed arrival, they demanded from Northwest Airlines
SO ORDERED. 5
compensation for the damages they suffered. On June 15, 1994 and June 22, 1994, petitioner sent
demand letters to Northwest Airlines, but the latter did not respond. Hence, the filing of the case with
the regional trial court. Hence, this appeal. 6

In its answer to the complaint, respondent Northwest Airlines did not deny that the baggages of The issue is whether respondent is liable for moral and exemplary damages for willful misconduct
petitioners were not loaded on Northwest Flight 29. Petitioner's baggages could not be carried on and breach of the contract of air carriage.
the same flight because of "weight and balance restrictions." However, the baggages were loaded in
another Northwest Airlines flight, which arrived in the evening of June 2, 1994.
The petition is without merit.

When petitioner received her baggages in damaged condition, Northwest offered to either (1)
reimburse the cost or repair of the bags; or (2) reimburse the cost for the purchase of new bags,
upon submission of receipts.
After due trial, on June 10, 1996, the trial court rendered decision finding respondent Northwest
Airlines, Inc. liable for damages, as follows:
WHEREFORE judgment is rendered ordering the defendant to pay the plaintiff the
following amounts:
We agree with the Court of Appeals that respondent was not guilty of willful misconduct. "For willful
misconduct to exist there must be a showing that the acts complained of were impelled by an
intention to violate the law, or were in persistent disregard of one's rights. It must be evidenced by a
flagrantly or shamefully wrong or improper conduct." 7
Contrary to petitioner's contention, there was nothing in the conduct of respondent which showed
that they were motivated by malice or bad faith in loading her baggages on another plane. Due to
weight and balance restrictions, as a safety measure, respondent airline had to transport the
baggages on a different flight, but with the same expected date and time of arrival in the Philippines.
As aptly explained by respondent:

77
 To ensure the safety of each flight, Northwest's personnel determine every flight's
compliance with "weight and balance restrictions." They check the factors like weight of
the aircraft used for the flight gas input, passenger and crew load, baggage weight, all in
relation to the wind factor anticipated on the flight. If there is an overload, i.e., a perceived
safety risk, the aircraft's load will be reduced by off-loading cargo, which will then be
placed on the next available flight. 8

It is admitted that respondent failed to deliver petitioner's luggages on time. However, there was no
showing of malice in such failure. By its concern for safety, respondent had to ship the baggages in
another flight with the same date of arrival.

Hence, the Court of Appeals correctly held that respondent did not act in bad faith. 9

"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 known duty through some motive
or interest or ill-will that partakes of the nature of fraud." 10

"Where in breaching the contract of carriage the defendant airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences
of the breach of obligation which the parties had foreseen or could have reasonably foreseen. In that
case, such liability does not include moral and exemplary damages." 11

Consequently, we have no reason to reverse the decision of the Court of Appeals.

WHEREFORE, the Court DENIES the petition for lack of merit. The Court AFFIRMS the decision of
the Court of Appeals deleting, however, the award of attorney's fees.1âwphi1.nêt

No costs.

SO ORDERED.

78
G.R. No. 119995 November 18, 1997
CARLOS SINGSON, petitioner,
vs.
COURT OF APPEALS and CATHAY PACIFIC AIRWAY, INC., respondents.
BELLOSILLO, J.:
A contract of air carriage is a peculiar one. Imbued with public interest, common carriers are
required by law to carry passengers safely as far a human care and foresight can provide, using the
utmost diligence of a very cautious person, with due regard for all the circumstances.1 A contract to
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
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 court5 —
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
79
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.
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 Angeles7 (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 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
80
 Los Angeles where office hours close at 5: pm.. The Los Angeles office was closed on 2 and Q: How about your meals?
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
A: For our meals, we have to eat outside.
Angeles time.14

Q: Will you tell, more or less, how much you spent for your meals?
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. x x x           x x x          x x x
(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
A: For every meal we spend around thirty dollars each.
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. Q: And this is for how many days?

Besides, to be stranded for five (5) days in a foreign land because of an air carrier's negligence is A: From July 1, up to the 6th in the morning, sir.
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 enough
money to sustain himself, and the embarrassment of having been forced to seek the generosity of Q: So more or less how many in pesos did you spend for this period of waiting from July 1 to
relatives and friends. 6?

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
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;
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.

However, the P500,000.00 moral damages and P400,000.00 exemplary damages awarded by the WHEREFORE, the petition is GRANTED and the 14 July 1994 Decision of the Court of Appeals is
trial court have to be reduced. The well-entrenched principle is that the grant of moral damages REVERSED. Private respondent is ordered to pay petitioner P20,000.00 for actual damages as
depends upon the discretion of the court based on the circumstances of each case.16 This discretion fixed by the trial court, plus P200,000.00 for moral damages, P50,000.00 for exemplary damages
is limited by the principle that the "amount awarded should not be palpably and scandalously and P25,000.00 for attorney's fees. No costs.
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 SO ORDERED.
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.

81
G.R. No. 83612 November 24, 1994 been given to a very important person of Bombay who was attending a religious function in Nairobi.
Antiporda protested, stressing that he had an important professional engagement in Blantyre,
Malawi in the afternoon of September 26, 1984. He requested that the situation be remedied but Air
LUFTHANSA GERMAN AIRLINES, petitioner,
Kenya Flight 203 left for Nairobi without him on board. Stranded in Bombay, Antiporda was booked
vs.
for Nairobi via Addis Ababa only on September 27, 1984. He finally arrived in Blantyre at 9:00
COURT OF APPEALS and TIRSO V. ANTIPORDA, SR., respondents.
o'clock in the evening of September 28, 1984, more than a couple of days late for his appointment
with people from the institution he was to work with in Malawi.
ROMERO, J.:
Consequently, on January 8, 1985, Antiporda's counsel wrote the general manager of Lufthansa in
In this petition for review on certiorari, the Court is confronted with the issue of whether or not Manila demanding P1,000,000 in damages for the airline's "malicious, wanton, disregard of the
petitioner Lufthansa German Airlines which issued a confirmed Lufthansa ticket to private contract of carriage." 2 In reply, Lufthansa general manager Hagen Keilich assured Antiporda that
respondent Antiporda covering a five-leg trip abroad different airlines should be held liable for the matter would be investigated.
damages occasioned by the "bumping-off" of said private respondent Antiporda by Air Kenya, one of
the airlines contracted to carry him to a particular destination of the five-leg trip.
Apparently getting no positive action from Lufthansa, on January 21, 1985, Antiporda filed with the
Regional Trial Court of Quezon City a complaint against Lufthansa which was docketed as Civil
Tirso V. Antiporda, Sr. was an associate director of the Central Bank of the Philippines Case No. Q-43810.
and a registered consultant of the Asian Development Bank, the World Bank and the
UNDP. He was, contracted by Sycip, Gorres, Velayo & Co. (SGV) to be the institutional
The lower court, 3 guided by the Supreme Court ruling in KLM Dutch Airlines v. Court of Appeals, et
financial specialist for the agricultural credit institution project of the Investment and
al., 4 found that Lufthansa breached the contract to transport Antiporda from Manila to Blantyre on a
Development Bank of Malawi in Africa. According to the letter of August 30, 1984
trip of five legs. It said:
addressed to Antiporda from J.F. Singson of SGV, he would render his services to the
Malawi bank as an independent contractor for which he would be paid US$9,167 for a 50-
day period commencing sometime in September 1984. For the engagement, Antiporda The threshold issue that confronts this Court is:
would be provided one round-trip economy ticket from Manila to Blantyre and back with a
maximum travel time of four days per round-trip and, in addition, a travel allowance of $50
Was there a breach of obligation by the defendant in failing to transport the plaintiff from
per day, a travel insurance coverage of P100,000 and major hospitalization with AFIA and
Manila to Blantyre, Malawi, Africa?
an accident insurance coverage of P150,000.1 On September 17, 1984, Lufthansa,
through SGV, issued ticket No. 3477712678 for Antiporda's confirmed flights to Malawi,
Africa. The ticket particularized his itinerary as follows: The defendant admits the issuance and validity of Ticket
No. 3477712678 (Exh. B). However, it denies its obligation to transport the plaintiff to his
point of destination at Blantyre, Malawi, Africa. Defendant claims that it was obligated to
Carrier Flight Date Time Status
transport the plaintiff only up to Bombay.

Manila to SQ 081 25-9-84 1530 OK

This case is one of a contract of carriage. And the ticket issued by the defendant to the
Singapore
plaintiff is the written agreement between the
parties herein. Ticket No. 3477712678 particularizes the itinerary of the plaintiff . . .
Singapore to LH 695 25-9-84 2200 OK
Bombay
xxx xxx xxx

Bombay to KQ 203 26-9-84 0215 OK

From the ticket, therefore, it is indubitably clear that it was the duty and responsibility of the
Nairobi
defendant Lufthansa to transport the plaintiff from Manila to Blantyre, on a trip of five legs.

Nairobi to QM 335 26-9-84 1395 OK

The posture taken by the defendant that it was Air Kenya's, not Lufthansa's, liability to
Lilongwe
transport plaintiff from Bombay to Malawi, is inacceptable. The plaintiff dealt exclusively with
the defendant Lufthansa which issued to him the ticket for his entire trip and which in effect
Lilongwe to QM 031 26-9-84 1600 OK guaranteed to the plaintiff that he would have sure space in Air Kenya's flight to Nairobi.
Blantyre Plaintiff, under that assurance of the defendant, naturally, had the right to expect that his
ticket would be honored by Air Kenya, to which, in the legal sense, Lufthansa had endorsed
and in effect guaranteed the performance of its principal engagement to carry out plaintiff's
Thus, on September 25, 1984, Antiporda took the Lufthansa flight to Singapore from where he
scheduled itinerary previously and mutually agreed upon by the parties. Defendant itself
proceeded to Bombay on board the same airline. He arrived in Bombay as scheduled and waited at
admitted that the flight from Manila, Singapore, Bombay, Nairobi, Lilongwe, Blantyre,
the transit area of the airport for his connecting flight to Nairobi which was, per schedule given him
Malawi, were all confirmed with the stamped letters "OK" thereon. In short, after issuing a
by Lufthansa, to leave Bombay in the morning of September 26, 1984. Finding no representative of
confirmed ticket from Manila to Malawi and receiv(ing) payment from the plaintiff for such
Lufthansa waiting for him at the gate, Antiporda asked the duty officer of Air India how he could get
one whole trip, how can the defendant now deny its contractual obligation by alleging that its
in touch with Lufthansa. He was told to call up Lufthansa which informed him that somebody would
responsibility ceased at the Bombay Airport?
attend to him shortly. Ten minutes later, Gerard Matias, Lufthansa's traffic officer, arrived, asked for
Antiporda's ticket and told him to just sit down and wait. Matias returned with one Leslie Benent,
duty officer of Lufthansa, who informed Antiporda that his seat in Air Kenya Flight 203 to Nairobi had

82
 The contract of air transportation was exclusively between the plaintiff Antiporda and the With costs against the defendant.
defendant Lufthansa, the latter merely endorsing its performance to Air Kenya, as its
subcontractor or agent. The fourth paragraph of the "Conditions of Contracts" of the ticket
Lufthansa elevated the case to the Court of Appeals arguing that it cannot be held liable for the acts
(Exh. B) issued by Lufthansa to plaintiff indubitably shows that the contract was one of
committed by Air Kenya on the basis of the following:
continuous air transportation from Manila to Blantyre, Malawi.

(a) it merely acted as a ticket-issuing agent in behalf of Air Kenya; consequently the contract
4. . . . carriage to be performed hereunder by several successive carriers is
of carriage entered into is between respondent Antiporda and Air Kenya, to the exclusion of
regarded as a single operation.
petitioner Lufthansa;

This condition embodied in the ticket issued to plaintiff is diametrically opposed to the
(b) under sections (1) and (2) Article 30 of the Warsaw Convention, an airline carrier is liable
defense theory that Lufthansa's liability is only limited up to Bombay.
only to untoward occurrences on its own line;

Pursuant to the above reasoning, the lower court held that Lufthansa cannot limit its liability as a
(c) the award of moral and exemplary damages in addition to attorney's fees by the trial
mere ticket issuing agent for other airlines and only to untoward occurrences on its own line.
court is without basis in fact and in law.

The lower court added that under the pool arrangement of the International Air Transport
The Court of Appeals not convinced with Lufthansa's appeal, affirmed the decision on the trial court
Association (IATA), of which Lufthansa and Air Kenya are members, member airlines are agents of
sought to be reviewed.
each other in the issuance of tickets and, therefore, in accordance with Ortigas v. Lufthansa,5 an
airline company is considered bound by the mistakes committed by another member of IATA which,
in behalf of the former, had confirmed a passenger's reservation for accommodation. Explained the Court of Appeals: although the contract of carriage was to be performed by several air
carriers, the same is to be treated as a single operation conducted by Lufthansa because Antiporda
dealt exclusively with it which issued him a Lufthansa ticket for the entire trip. By issuing a confirmed
In justifying its award of moral and exemplary damages, the lower court emphasized that the breach
ticket, Lufthansa in effect guaranteed Antiporda a sure seat with Air Kenya. Private respondent
of contract was "aggravated by the discourteous and highly arbitrary conduct of Gerard Matias, an
Antiporda, maintained the Court of Appeals, had the right to expect that his ticket would be honored
official of petitioner Lufthansa in Bombay." Its factual findings on the matter are the following:
by Air Kenya which, in the legal sense, Lufthansa had endorsed and, in effect, guaranteed the
performance of its principal engagement to carry out his five-leg trip.
. . . . Bumped off from his connecting flight to Nairobi and stranded in the Bombay Airport for
32 hours, when plaintiff insisted on taking his scheduled flight to Nairobi, Gerard Matias got
The appellate court also ruled that Lufthansa cannot rely on Sections (1) and (2), Article 30 of the
angry and threw the ticket and passport on plaintiff's lap and was ordered to go to the
Warsaw Convention 7 because the provisions thereof are not applicable under the circumstances of
basement with his heavy luggages for no reason at all. It was a difficult task for the plaintiff
the case.
to carry three luggages and yet Gerard Matias did not even offer to help him. Plaintiff
requested accommodation but Matias ignored it and just left. Not even Lufthansa office in
Bombay, after learning plaintiff's being stranded in Bombay and his accommodation Sections (1) and (2), Article 30 of the Warsaw Convention provide:
problem, provided any relief to plaintiff's sordid situation. Plaintiff had to stay in the transit
area and could not sleep for fear that his luggages might be lost. Everytime he went to the
Art. 30 (1). In the case of transportation to be performed by various successive carriers and
toilet, he had to drag with him his luggages. He tried to eat the high-seasoned food available
falling within the definition set out in the third paragraph of Article I, each carrier who accepts
at the airport but developed stomach trouble. It was indeed a pathetic sight that the plaintiff,
passengers, baggage, or goods shall be subject to the rules set out in the convention, and
an official of the Central Bank, a multi-awarded institutional expert, tasked to perform
shall be deemed to be one of the contracting parties to the contract of transportation insofar
consultancy work in a World Bank funded agricultural bank project in Malawi instead found
as the contract deals with that part of the transportation which is performed under his
himself stranded in a foreign land where nobody was expected to help him in his
supervision.
predicament except the defendant, who displayed utter lack of concern of its obligation to
the plaintiff and left plaintiff alone in his misery at the Bombay airport.
(2) In the case of transportation of this nature, the passenger or his representative can take
action only against the carrier who performed the transportation during which the accident
Citing Air France v. Carrascoso, 6 the lower court ruled that passengers have a right to be treated
or the delay occurred, save in the case where, by express agreement, the first carrier has
with kindness, respect, courtesy and consideration by the carrier's employees apart from their right
assumed liability for the whole journey. (Emphasis supplied).
to be protected against personal misconduct, injurious language, indignities and abuses from such
employees.
According to the Court of Appeals, Antiporda's cause of action is not premised on the occurrence of
an accident or delay as contemplated under Section 2 of said Article but on Air Kenya's refusal to
Consequently, the trial court ordered Lufthansa to pay Antiporda the following:
transport him in order to accommodate another. To support this ruling, the Court of Appeals cited
the Supreme Court ruling in KLM Royal Dutch Airlines v. Court of Appeals, 8 which held, inter alia,
(a) the amount of P300,000.00 as moral damages; that:

(b) the amount of P200,000.00 as exemplary damages; and 1. The applicability insisted upon by the KLM of Article 30 of the Warsaw Convention cannot
be sustained. That article presupposes the occurrence of either an accident or a delay,
neither of which took place at the Barcelona airport; what is here manifest, instead, is that
(c) the amount of P50,000.00 as reasonable attorney's fees.

83
 the Aer Lingus, through its manager there, refused to transport the respondents to their
planned and contracted destination.
The Court of Appeals concluded that Lufthansa cannot, thus, invoke Sections (1) and (2), Article 30
of the Warsaw Convention to evade liability.
Failing to obtain a favorable decision, Lufthansa filed this petition for review on certiorari anchored
on the following arguments:
1. The respondent court erred as a matter of law in refusing to apply the Warsaw
Convention to the instant case.
2. Respondent court's ruling that Lufthansa had deceived private respondent has no factual
or legal basis.
3. The respondent court erred as a matter of law in affirming the trial court's award of moral
damages in the face of this Court's rulings concerning moral damages in cases of breach of
contract.
4. The respondent court erred as a matter of law in affirming the trial court's award of
exemplary damages for lack of legal or factual basis therefor.
The arguments propounded by petitioner Lufthansa cannot suffice to reverse the appellate court's
decision as prayed for. Lufthansa raised four assignments of error but the focal point at issue has
been defined by us at the inception of this ponencia.
Lufthansa maintains that its liability to any passenger is limited to occurrences in its own line, and,
thus, in the case at bench, its liability to Antiporda is limited to the extent that it had transported him
from Manila to Singapore and from Singapore to Bombay; that therefrom, responsibility for the
performance of the contract of carriage is assumed by the succeeding carriers tasked to transport
him for the remaining leg of his trip because at that stage, its contract of carriage with Antiporda
ceases, with Lufthansa acting, no longer as the principal in the contract of carriage, but merely as a
ticket-issuing agent for the other carriers.
In further advancing this line of defense, Lufthansa invoked Section 2, Article 30 of the Warsaw
Convention9 which expressly stipulates that in cases where the transportation of passengers or
goods is performed by various successive carriers, the passenger can take action only against the
carrier which performed the transportation, during which the accident or delay occurred. Lufthansa
further advanced the theory that this provision of the Warsaw Convention is applicable to the
present case, contrary to the decision of the Court of Appeals which relied on the Supreme Court
ruling in KLM Royal Dutch Lines. 10 For Lufthansa, "bumping-off" is considered delay since delay
would inevitably result therefrom. It implored this Court to re-examine our ruling in KLM and take
heed of jurisprudence 11 in the U.S. where "delay," unlike in our ruling in KLM, contemplates the
instance of "bumping-off." In KLM, we held that the term "delay" does not encompass the instance of
"bumping-off," the latter having been defined as refusal to carry or transport a passenger.
On his part, private respondent Antiporda insists that he entered with Lufthansa an exclusive
contract of carriage, the nature of which is a continuous carriage by air from Manila to Blantyre
Malawi; that it did not enter into a series of independent contracts with the carriers that transported
him for the remaining leg of his trip.
The basis for such claim is well-founded. As ruled by the trial court, with the Court of Appeals
concurring favorably, Antiporda was issued a confirmed Lufthansa ticket all throughout the five-leg
trip. The fourth paragraph of the "Conditions of Contract" stipulated in the ticket indubitably showed
that the contract of carriage was considered as one of continuous air transportation from Manila to
Blantyre, Malawi, thus:
4. . . . carriage to be performed hereunder by several successive carriers is regarded as
a single operation.
In light of the stipulations expressly specified in the ticket defining the true nature of its contract of
carriage with Antiporda, Lufthansa cannot claim that its liability thereon ceased at Bombay Airport
and thence, shifted to the various carriers that assumed the actual task of transporting said private
respondent.
We, therefore, reject Lufthansa's theory that from the time another carrier was engaged to transport
Antiporda on another segment of his trip, it merely acted as a ticket-issuing agent in behalf of said
carrier. In the very nature of their contract, Lufthansa is clearly the principal in the contract of
carriage with Antiporda and remains to be so, regardless of those instances when actual carriage
was to be performed by various carriers. The issuance of a confirmed Lufthansa ticket in favor of
Antiporda covering his entire five-leg trip abroad successive carriers concretely attests to this. This
also serves as proof that Lufthansa, in effect guaranteed that the successive carriers, such as Air
Kenya would honor his ticket; assure him of a space therein and transport him on a particular
segment of his trip. This ruling finds corroboration in the Supreme Court decision in KLM , 12 where
the same issues were confronted, thus:
xxx xxx xxx
The passage tickets of the respondents provide that the carriage to be performed
thereunder by several successive carriers "is to be regarded as a single operation," which is
diametrically incompatible with the theory of the KLM that the respondents entered into a
series of independent contracts with the carriers which took them on the various segments
of their trip. This position of KLM we reject. The respondents dealt exclusively with the KLM
which issued them tickets for their entire trip and which in effect guaranteed to them that
they would have sure space in Aer Lingus flight 861. The respondents, under that assurance
of the internationally prestigious KLM, naturally had the right to expect that their tickets
would be honored by Aer Lingus to which, in the legal sense, the KLM had indorsed and in
effect guaranteed the performance of its principal engagement to carry out the respondents'
scheduled itinerary previously and mutually agreed upon between the parties.
On the issue of whether the Warsaw Convention, particularly Section 2, Article 30 thereof is
applicable herein, we agree with the Court of Appeals in ruling in the negative. We reiterate what
has been settled in KLM:
1. The applicability insisted upon by the KLM of Article 30 of the Warsaw Convention cannot
be sustained. That article presupposes the occurrence of either an accident or a delay,
neither of which took place at the Barcelona airport; what is here manifest, instead, is that
the Aer Lingus, through its manager there, refused to transport the respondents to their
planned and contracted destination. . . .
Lufthansa prays this court to take heed of jurisprudence in the United States where the term "delay"
was interpreted to include "bumping-off" or failure to carry a passenger with a confirmed reservation.
These decisions in the United States are not controlling in this jurisdiction. We are not prepared,
absent reasons of compelling nature, to entertain an extended meaning of the term "delay," which
in KLM was given its ordinary signification. "Construction and interpretation come only after it has
been demonstrated that application is impossible or inadequate without them. The ordinary
language of a statute must be given its ordinary meaning and limited to a reasonable
interpretation." 13 In its ordinary sense, "delay" means to prolong the time of or before; to stop, detain
or hinder for a time, or cause someone or something to be behind in schedule or usual rate of
movement in progress. 14 "Bumping-off," which is the refusal to transport passengers with confirmed
84
reservation to their planned and contracted destinations, totally forecloses said passengers' right to
be transported, whereas delay merely postpones for a time being the enforcement of such right.
Consequently, Section 2, Article 30 of the Warsaw Convention which does not contemplate the
instance of "bumping-off" but merely of simple delay, cannot provide a handy excuse for Lufthansa
as to exculpate it from any liability to Antiporda. The payment of damages is, thus, deemed
warranted by this Court. We find no reversible error in the lower court's award of moral and
exemplary damages, including attorney's fees in favor of Antiporda.
Article 2220 of the Civil Code provides:
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
According to the findings of the appellate court which affirmed that of the lower court, the reasons
given by the witnesses for Lufthansa for private respondent's being "bumped off" at Bombay airport
were conflicting.
Observed the Court of Appeals:
If there was really no seat available because of over-booking, why did Lufthansa confirm the
ticket of the plaintiff-appellee? It has to be pointed out that the confirmed ticket is up to
Blantyre, Malawi, not only to Bombay.
If the plaintiff-appellee was not in the list of passengers of Kenya Airways (the connecting
flight) then Lufthansa must have deceived him in Manila because according to Gerard
Matias, the passengers booked by Kenya Airways for Boeing 707 were 190 passengers
when the plane could accommodate only 144 passengers considering that the name of
plaintiff-appellee was not in the list. If that was the situation, Lufthansa by the issuance of its
ticket should have not assured the plaintiff-appellee that he could get the connecting flights
as scheduled. Surely, Lufthansa before confirming the ticket of the plaintiff-appellee must
have confirmed the flight with Kenya Airways. If it was impossible to get a seat upon its own
investigation in Bombay, then it should have not confirmed the ticket of the plaintiff-appellee.
It is the defendant-appellant who was negligent in the performance of its duties, and plaintiff-
appellee was just plainly deceived.
Since the ticket was marked O.K., meaning confirmed, therefore plaintiff-appellee must have
a definite seat with Kenya Airways but it was lost or given to another person. It is not true
therefore, that plaintiff-appellee's name was not in the list of Kenya Airways. Besides, why
should Lufthansa allow a passenger to depart from the Philippines with a confirmed ticket,
without instructing its Bombay office to reserve a seat with Kenya Airways for its connecting
flight? In spite of the confirmation, Nelda Aquino testified that plaintiff-appellee was stranded
in Bombay because he did not get a seat with Kenya Airways, and his name did not appear
in the list of passengers. Then contrary to the testimonies of
Berndt Loewe and Gerard Matias that the obligation of the
defendant-appellant is only up to Bombay and the reason why plaintiff-appellee was not in
the list of passengers is because of overbooking. Nelda Aquino contrary to the testimonies
of the two, testified that the reason for the bumping-off is that the seat was given to another
passenger, to wit:
Q Did you know or eventually learned later that the name of Antiporda was not in
the list of confirmed passengers?
A I only learned from the office at Bombay that it was given to other
passenger which I only learned from the office at Bombay.
Q Who informed you that the seat of Mr. Antiporda was given to other passenger?
A From our international officer.
Q Who is he?
A Our Sales Manager.
Q Is he your Sales Manager in Bombay?
A Yes, our Manager.
If Nelda Aquino knew that the reason for the bumping-off is that the seat was given to
another, how come Berndt Loewe, passenger Sales Manager of defendant, Gerard Matias,
an employee of defendant-appellant in Bombay did not know the said reason why the name
of plaintiff-appellee did not appear in the list of passengers? It is either they knew the truth
but because they wanted to escape liability they pretended not to know the truth.
Clearly, bad faith attended the performance of the contract of carriage, for even while Antiporda was
in Bombay, representatives of Lufthansa already tried to evade liability first, by claiming that the
contract of carriage between Lufthansa and Antiporda ceased at Bombay airport, in disregard of the
fact that Antiporda was holding a Lufthansa ticket for the entire five-leg trip; second, despite Berndt
Loewe's knowledge that Antiporda's seat was allowed to be given to another passenger, the same
suppressed the information and feigned ignorance of the matter, presenting altogether another
reason why Antiporda was not listed in the manifest, i.e. that Air Kenya Boeing 707 was overbooked,
notwithstanding clear proof that Lufthansa in Manila confirmed his reservation for said flight.
Antiporda is likewise entitled to the award of exemplary damages on the basis of Article 2232 of the
Civil Code which provides:
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
There is every indication that Lufthansa, through its representatives in Bombay, acted in a reckless
and malevolent manner in dealing with Antiporda.
As found by the trial court:
The breach of the guarantee was aggravated by the discourteous and highly arbitrary
conduct of Gerard Matias, an official of Lufthansa in Bombay. Bumped off from his
connecting flight to Nairobi and stranded in the Bombay Airport for 32 hours, when plaintiff
insisted on taking his scheduled flight to Nairobi, Gerard Matias got angry and threw the
ticket and passport on plaintiff's lap and was ordered to go to the basement with his heavy
luggages for no reason at all. It was a difficult task for the plaintiff to carry three luggages
and yet Gerard Matias did not even offer to help him. Plaintiff requested accommodation but
Matias ignored it and just left. Not even Lufthansa office in Bombay, after learning plaintiff's
being stranded in Bombay and his accommodation problem, provided any relief to plaintiff's
sordid situation. Plaintiff has to stay in the transit area and could not sleep for fear that his
luggages might be lost. Everytime he went to the toilet, he had to drag with him his
luggages. He tried to eat the high-seasoned food available at the airport but developed
stomach trouble. It was indeed a pathetic sight that the plaintiff, an official of the Central
85
 Bank, a multi-awarded institutional expert, tasked to perform consultancy work in a World
Bank funded agricultural bank project in Malawi instead found himself stranded in a foreign
land where nobody was expected to help him in his predicament except the defendant, who
displayed utter lack of concern of its obligation to the plaintiff and left plaintiff alone in his
misery at the Bombay airport.

These findings of the trial court were affirmed by the Court of Appeals on the ground that there are
no cogent reasons to justify a contrary finding. The same holds true with this Court. The findings of
fact of lower courts are binding on us and will not be generally disturbed on appeal. 15 In affirming
the lower court's award of damages to Antiporda, we take into account his high position in the
government, coupled with the fact that he failed to meet his professional commitment in Blantyre,
Malawi due to the "bumping-off" incident accompanied by rude and discourteous behavior on the
part of airline officials who should have been the first to attend to his travel needs.

WHEREFORE, the petition for review is hereby DENIED and the decision of the Court of Appeals
AFFIRMED.

Costs against petitioner.

SO ORDERED.

86
G.R. No. 116044-45             March 9, 2000
AMERICAN AIRLINES petitioner,
vs.
COURT OF APPEALS, HON. BERNARDO LL. SALAS and DEMOCRITO
MENDOZA, respondents.
GONZAGA-REYES, J.:
Before us is a petition for review of the decision dated December 24, 1993 rendered by the Court of
Appeals in the consolidated cases docketed as CA-G.R. SP nos. 30946 and 31452 entitled
American Airlines vs. The Presiding Judge Branch 8 of the Regional Trial Court of Cebu and
Democrito Mendoza, petitions for certiorari and prohibition. In SP no. 30946, the petitioner assails
the trial court's order denying the petitioner's motion to dismiss the action for damages filed by the
private respondent for lack of jurisdiction under section 28 (1) of the Warsaw Convention; and in SP
No. 31452 the petitioner challenges the validity of the trial court's order striking off the record the
deposition of the petitioner's security officer taken in Geneva, Switzerland for failure of the said
security officer to answer the cross interrogatories propounded by the private respondent.
The sole issue raised in SP No. 30946 is the questioned jurisdiction of the Regional Trial Court of
Cebu to take cognizance of the action for damages filed by the private respondent against herein
petitioner in view of Art 28 (1) of the Warsaw Convention. 1 It is undisputed that the private
respondent purchased from Singapore Airlines in Manila conjunction tickets for Manila-Singapore-
Athens-Larnaca-Rome-Turin-Zurich-Geneva-Copenhagen-New York. The petitioner was not a
participating airline in any of the segments in the itinerary under the said conjunction tickets. In
Geneva the petitioner decided to forego his trip to Copenhagen and to go straight to New York and
in the absence of a direct flight under his conjunction tickets from Geneva to New York, the private
respondent on June 7, 1989 exchanged the unused portion of the conjunction ticket for a one-way
ticket from Geneva to New York from the petitioner airline. Petitioner issued its own ticket to the
private respondent in Geneva and claimed the value of the unused portion of the conjunction ticket
from the IATA 2 clearing house in Geneva.
In September 1989, private respondent filed an action for damages before the regional trial court of
Cebu for the alleged embarrassment and mental anguish he suffered at the Geneva Airport when
the petitioner's security officers prevented him from boarding the plane, detained him for about an
hour and allowed him to board the plane only after all the other passengers have boarded. The
petitioner filed a motion to dismiss for lack of jurisdiction of Philippine courts to entertain the said
proceedings under Art. 28(1) of the Warsaw Convention. The trial court denied the motion. The
order of denial was elevated to the Court of Appeals which affirmed the ruling of the trial court. Both
the trial and the appellate courts held that the suit may be brought in the Philippines under the pool
partnership agreement among the IATA members, which include Singapore Airlines and American
Airlines, wherein the members act as agents of each other in the issuance of tickets to those who
may need their services. The contract of carriage perfected in Manila between the private
respondent and Singapore Airlines binds the petitioner as an agent of Singapore Airlines and
considering that the petitioner has a place of business in Manila, the third option of the plaintiff under
the Warsaw Convention i.e. the action may be brought in the place where the contract was
perfected and where the airline has a place of business, is applicable. Hence this petition assailing
the order upholding the jurisdiction of Philippine courts over the instant action.
Both parties filed simultaneous memoranda pursuant to the resolution of this Court giving due
course to the petition.
The petitioner's theory is as follows: Under Art 28 (1) of the Warsaw convention an action for
damages must be brought at the option of the plaintiff either before the court of the 1) domicile of the
carrier; 2) the carrier's principal place of business; 3) the place where the carrier has a place of
business through which the contract was made; 4) the place of destination. The petitioner asserts
that the Philippines is neither the domicile nor the principal place of business of the defendant
airline; nor is it the place of destination. As regards the third option of the plaintiff, the petitioner
contends that since the Philippines is not the place where the contract of carriage was made
between the parties herein, Philippine courts do not have jurisdiction over this action for damages.
The issuance of petitioner's own ticket in Geneva in exchange for the conjunction ticket issued by
Singapore Airlines for the final leg of the private respondent's trip gave rise to a separate and distinct
contract of carriage from that entered into by the private respondent with Singapore Airlines in
Manila. Petitioner lays stress on the fact that the plane ticket for a direct flight from Geneva to New
York was purchased by the private respondent from the petitioner by "exchange and cash" which
signifies that the contract of carriage with Singapore Airlines was terminated and a second contract
was perfected. Moreover, the second contract of carriage cannot be deemed to have been an
extension of the first as the petitioner airline is not a participating airline in any of the destinations
under the first contract. The petitioner claims that the private respondent's argument that the
petitioner is bound under the IATA Rules as agent of the principal airline is irrelevant and the alleged
bad faith of the airline does not remove the case from the applicability of the Warsaw Convention.
Further the IATA Rule cited by the private respondent which is admittedly printed on the ticket
issued by the petitioner to him which states, "An air carrier issuing a ticket for carriage over the lines
of another carrier does so only as its agent" does not apply herein, as neither Singapore Airlines nor
the petitioner issued a ticket to the private respondent covering the route of the other. Since the
conjunction tickets issued by Singapore Airlines do not include the route covered by the ticket issued
by the petitioner, the petitioner airline submits that it did not act as an agent of Singapore Airlines.
Private respondent controverts the applicability of the Warsaw Convention in this case. He posits
that under Article 17 of the Warsaw Convention 3 a carrier may be held liable for damages if the
"accident" occurred on board the airline or in the course of "embarking or disembarking" from the
carrier and that under Article 25 (1) 4 thereof the provisions of the convention will not apply if the
damage is caused by the "willful misconduct" of the carrier. He argues that his cause of action is
based on the incident at the pre-departure area of the Geneva airport and not during the process of
embarking nor disembarking from the carrier and that security officers of the petitioner airline acted
in bad faith. Accordingly, this case is released from the terms of the Convention. Private respondent
argues that assuming that the Convention applies, his trip to nine cities in different countries
performed by different carriers under the conjunction tickets issued in Manila by Singapore Airlines
is regarded as a single transaction; as such the final leg of his trip from Geneva to New York with
the petitioner airline is part and parcel of the original contract of carriage perfected in Manila. Thus,
the third option of the plaintiff under Art. 28 (1) e.g., where the carrier has a place of business
through which the contract of carriage was made, applies herein and the case was properly filed in
the Philippines. The private respondent seeks affirmance of the ruling of the lower courts that the
petitioner acted as an agent of Singapore Airlines under the IATA Rules and as an agent of the
principal carrier the petitioner may be held liable under the contract of carriage perfected in Manila,
citing the judicial admission made by the petitioner that it claimed the value of the unused portion of
the private respondent's conjunction tickets from the IATA Clearing House in Geneva where the
accounts of both airlines are respectively credited and debited. Accordingly, the petitioner cannot
now deny the contract of agency with Singapore Airlines after it honored the conjunction tickets
issued by the latter.
The petition is without merit.
The Warsaw Convention to which the Republic of the Philippines is a party and which has the force
and effect of law in this country applies to all international transportation of persons, baggage or
goods performed by an aircraft gratuitously or for hire. 5 As enumerated in the Preamble of the
Convention, one of the objectives is "to regulate in a uniform manner the conditions of international
transportation by air". 6 The contract of carriage entered into by the private respondent with
Singapore Airlines, and subsequently with the petitioner, to transport him to nine cities in different
countries with New York as the final destination is a contract of international transportation and the
provisions of the Convention automatically apply and exclusively govern the rights and liabilities of
the airline and its passengers. 7 This includes section 28 (1) which enumerates the four places
where an action for damages may be brought.
The threshold issue of jurisdiction of Philippine courts under Art 28 (1) must first be resolved before
any pronouncements may be made on the liability of the carrier thereunder. 8 The objections raised
87
by the private respondent that this case is released from the terms of the Convention because the
incident on which this action is predicated did not occur in the process of embarking and
disembarking from the carrier under Art 17 9 and that the employees of the petitioner airline acted
with malice and bad faith under Art 25 (1) 10 pertain to the merits of the case which may be examined
only if the action has first been properly commenced under the rules on jurisdiction set forth in Art.
28 (1).
Art 28 (1) of the Warsaw Convention states:
Art 28 (1) An action for damages must be brought at the option of the plaintiff, in the
territory of one of the High Contracting Parties, either before the court of the domicile of
the carrier or of his principal place of business or where he has a place of business
through which the contract has been made, or before the court at the place of destination.
There is no dispute that petitioner issued the ticket in Geneva which was neither the domicile nor the
principal place of business of petitioner nor the respondent's place of destination.
The question is whether the contract of transportation between the petitioner and the private
respondent would be considered as a single operation and part of the contract of transportation
entered into by the latter with Singapore Airlines in Manila.
simply a replacement for the unused portion of the conjunction ticket, both tickets being for the same
amount of US$2,760 and having the same points of departure and destination. 14 By constituting
itself as an agent of the principal carrier the petitioner's undertaking should be taken as part of a
single operation under the contract of carriage executed by the private respondent and Singapore
Airlines in Manila.
The quoted provision of the Warsaw Convention Art. 1(3) clearly states that a contract of air
transportation is taken as a single operation whether it is founded on a single contract or a series of
contracts. The number of tickets issued does not detract from the oneness of the contract of
carriage as long as the parties regard the contract as a single operation. The evident purpose
underlying this Article is to promote international air travel by facilitating the procurement of a series
of contracts for air transportation through a single principal and obligating different airlines to be
bound by one contract of transportation. Petitioner's acquiescence to take the place of the original
designated carrier binds it under the contract of carriage entered into by the private respondent and
Singapore Airlines in Manila.
The third option of the plaintiff under Art 28 (1) of the Warsaw Convention e.g., to sue in the place of
business of the carrier wherein the contract was made, is therefore, Manila, and Philippine courts
are clothed with jurisdiction over this case. We note that while this case was filed in Cebu and not in
Manila the issue of venue is no longer an issue as the petitioner is deemed to have waived it when it
presented evidence before the trial court.

Petitioner disputes the ruling of the lower court that it is. Petitioner's main argument is that the The issue raised in SP No. 31452 which is whether or not the trial court committed grave abuse of
issuance of a new ticket in Geneva created a contract of carriage separate and distinct from that discretion in ordering the deposition of the petitioner's security officer taken in Geneva to be stricken
entered by the private respondent in Manila. off the record for failure of the said security officer to appear before the Philippine consul in Geneva
to answer the cross-interrogatories filed by the private respondent does not have to be resolved.
The subsequent appearance of the said security officer before the Philippine consul in Geneva on
We find the petitioner's argument without merit. September 19, 1994 and the answer to the cross-interrogatories propounded by the private
respondent was transmitted to the trial court by the Philippine consul in Geneva on September 23,
Art 1(3) of the Warsaw Convention which states: 1994 15 should be deemed as full compliance with the requisites of the right of the private respondent
to cross-examine the petitioner's witness. The deposition filed by the petitioner should be reinstated
as part of the evidence and considered together with the answer to the cross-interrogatories.
Transportation to be performed by several successive carriers shall be deemed, for the
purposes of this convention, to be one undivided transportation, if it has been regarded by
the parties as a single operation, whether it has been agreed upon under the form of a WHEREFORE, the judgment of the appellate court in CA-G.R. SP No. 30946 is affirmed. The case
single contract or a series of contracts, and it shall not lose its international character is ordered remanded to the court of origin for further proceedings. The decision of the appellate
merely because one contract or series of contracts is to be performed entirely within the court in CA-G.R. SP. No. 31452 is set aside. The deposition of the petitioner's security officer is
territory subject of the sovereignty, suzerainty, mandate or authority of the same High reinstated as part of the evidence.
Contracting Party.
SO ORDERED.
The contract of carriage between the private respondent and Singapore Airlines although performed
by different carriers under a series of airline tickets, including that issued by the petitioner,
constitutes a single operation. Members of the IATA are under a general pool partnership
agreement wherein they act as agent of each other in the issuance of tickets 11 to contracted
passengers to boost ticket sales worldwide and at the same time provide passengers easy access
to airlines which are otherwise inaccessible in some parts of the world. Booking and reservation
among airline members are allowed even by telephone and it has become an accepted practice
among them. 12 A member airline which enters into a contract of carriage consisting of a series of
trips to be performed by different carriers is authorized to receive the fare for the whole trip and
through the required process of interline settlement of accounts by way of the IATA clearing house
an airline is duly compensated for the segment of the trip serviced. 13 Thus, when the petitioner
accepted the unused portion of the conjunction tickets, entered it in the IATA clearing house and
undertook to transport the private respondent over the route covered by the unused portion of the
conjunction tickets, i.e., Geneva to New York, the petitioner tacitly recognized its commitment under
the IATA pool arrangement to act as agent of the principal contracting airline, Singapore Airlines, as
to the segment of the trip the petitioner agreed to undertake. As such, the petitioner thereby
assumed the obligation to take the place of the carrier originally designated in the original
conjunction ticket. The petitioner's argument that it is not a designated carrier in the original
conjunction tickets and that it issued its own ticket is not decisive of its liability. The new ticket was

88
G.R. No. 149547             July 4, 2008 1997, private respondent filed a Complaint for Damages before the RTC docketed as Civil Case No.
23773, seeking compensation for moral damages in the amount of P1,000,000.00 and attorney’s
fees.7
PHILIPPINE AIRLINES, INC., petitioner,
vs.
HON. ADRIANO SAVILLO, Presiding Judge of RTC Branch 30 , Iloilo City, and SIMPLICIO Instead of filing an answer to private respondent’s Complaint, PAL filed a Motion to Dismiss8 dated
GRIÑO, respondents. 18 September 1998 on the ground that the said complaint was barred on the ground of prescription
under Section 1(f) of Rule 16 of the Rules of Court.9 PAL argued that the Warsaw
Convention,10 particularly Article 29 thereof,11 governed this case, as it provides that any claim for
DECISION
damages in connection with the international transportation of persons is subject to the prescription
period of two years. Since the Complaint was filed on 15 August 1997, more than three years after
CHICO-NAZARIO, J.: PAL received the demand letter on 25 January 1994, it was already barred by prescription.

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the On 9 June 1998, the RTC issued an Order12 denying the Motion to Dismiss. It maintained that the
Decision1 dated 17 August 2001, rendered by the Court of Appeals in CA-G.R. SP No. 48664, provisions of the Civil Code and other pertinent laws of the Philippines, not the Warsaw Convention,
affirming in toto the Order2 dated 9 June 1998, of Branch 30 of the Regional Trial Court (RTC) of were applicable to the present case.
Iloilo City, dismissing the Motion to Dismiss filed by petitioner Philippine Airlines Inc. (PAL) in the
case entitled, Simplicio Griño v. Philippine Airlines, Inc. and Singapore Airlines, docketed as Civil
The Court of Appeals, in its assailed Decision dated 17 August 2001, likewise dismissed the Petition
Case No. 23773.
for Certiorari filed by PAL and affirmed the 9 June 1998 Order of the RTC. It pronounced that the
application of the Warsaw Convention must not be construed to preclude the application of the Civil
PAL is a corporation duly organized under Philippine law, engaged in the business of providing air Code and other pertinent laws. By applying Article 1144 of the Civil Code,13 which allowed for a ten-
carriage for passengers, baggage and cargo.3 year prescription period, the appellate court declared that the Complaint filed by private respondent
should not be dismissed.14
Public respondent Hon. Adriano Savillo is the presiding judge of Branch 30 of the Iloilo RTC, where
Civil Case No. 23773 was filed; while private respondent Simplicio Griño is the plaintiff in the Hence, the present Petition, in which petitioner raises the following issues:
aforementioned case.
I
The facts are undisputed.
THE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO THE PETITION
Private respondent was invited to participate in the 1993 ASEAN Seniors Annual Golf Tournament AS RESPONDENT JUDGE COMMITED GRAVE ABUSE OF DISCRETION AMOUNTING
held in Jakarta, Indonesia. He and several companions decided to purchase their respective TO LACK OF JURSIDICTION IN DENYING PAL’S MOTION TO DISMISS.
passenger tickets from PAL with the following points of passage: MANILA-SINGAPORE-JAKARTA-
SINGAPORE-MANILA. Private respondent and his companions were made to understand by PAL
II
that its plane would take them from Manila to Singapore, while Singapore Airlines would take them
from Singapore to Jakarta.4
THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF THE
WARSAW CONVENTION DESPITE THE FACT THAT GRIÑO’S CAUSE OF ACTION
On 3 October 1993, private respondent and his companions took the PAL flight to Singapore and
AROSE FROM A BREACH OF CONTRACT FOR INTERNATIONAL AIR TRANSPORT.
arrived at about 6:00 o’clock in the evening. Upon their arrival, they proceeded to the Singapore
Airlines office to check-in for their flight to Jakarta scheduled at 8:00 o’clock in the same evening.
Singapore Airlines rejected the tickets of private respondent and his group because they were not III
endorsed by PAL. It was explained to private respondent and his group that if Singapore Airlines
honored the tickets without PAL’s endorsement, PAL would not pay Singapore Airlines for their
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE COMPLAINT FILED
passage. Private respondent tried to contact PAL’s office at the airport, only to find out that it was
BY GRIÑO BEYOND THE TWO (2)-YEAR PERIOD PROVIDED UNDER THE WARSAW
closed.5
CONVENTION IS ALREADY BARRED BY PRESCRIPTION.15

Stranded at the airport in Singapore and left with no recourse, private respondent was in panic and
The petition is without merit.
at a loss where to go; and was subjected to humiliation, embarrassment, mental anguish, serious
anxiety, fear and distress. Eventually, private respondent and his companions were forced to
purchase tickets from Garuda Airlines and board its last flight bound for Jakarta. When they arrived In determining whether PAL’s Motion to Dismiss should have been granted by the trial court, it must
in Jakarta at about 12:00 o’clock midnight, the party who was supposed to fetch them from the be ascertained if all the claims made by the private respondent in his Complaint are covered by the
airport had already left and they had to arrange for their transportation to the hotel at a very late Warsaw Convention, which effectively bars all claims made outside the two-year prescription period
hour. After the series of nerve-wracking experiences, private respondent became ill and was unable provided under Article 29 thereof. If the Warsaw Convention covers all of private respondent’s
to participate in the tournament. 6 claims, then Civil Case No. 23773 has already prescribed and should therefore be dismissed. On
the other hand, if some, if not all, of respondent’s claims are outside the coverage of the Warsaw
Convention, the RTC may still proceed to hear the case.
Upon his return to the Philippines, private respondent brought the matter to the attention of PAL. He
sent a demand letter to PAL on 20 December 1993 and another to Singapore Airlines on 21 March
1994. However, both airlines disowned liability and blamed each other for the fiasco. On 15 August

89
The Warsaw Convention applies to "all international transportation of persons, baggage or goods
performed by any aircraft for hire." It seeks to accommodate or balance the interests of passengers
seeking recovery for personal injuries and the interests of air carriers seeking to limit potential
liability. It employs a scheme of strict liability favoring passengers and imposing damage caps to
benefit air carriers.16 The cardinal purpose of the Warsaw Convention is to provide uniformity of rules
governing claims arising from international air travel; thus, it precludes a passenger from maintaining
an action for personal injury damages under local law when his or her claim does not satisfy the
conditions of liability under the Convention.17
In the case at hand, Singapore Airlines barred private respondent from boarding the Singapore
Airlines flight because PAL allegedly failed to endorse the tickets of private respondent and his
companions, despite PAL’s assurances to respondent that Singapore Airlines had already confirmed
their passage. While this fact still needs to be heard and established by adequate proof before the
RTC, an action based on these allegations will not fall under the Warsaw Convention, since the
purported negligence on the part of PAL did not occur during the performance of the contract of
carriage but days before the scheduled flight. Thus, the present action cannot be dismissed based
on the statute of limitations provided under Article 29 of the Warsaw Convention.

Article 19 of the Warsaw Convention provides for liability on the part of a carrier for "damages
occasioned by delay in the transportation by air of passengers, baggage or goods." Article 24
excludes other remedies by further providing that "(1) in the cases covered by articles 18 and 19,
any action for damages, however founded, can only be brought subject to the conditions and limits
set out in this convention." Therefore, a claim covered by the Warsaw Convention can no longer be
recovered under local law, if the statute of limitations of two years has already lapsed.
Nevertheless, this Court notes that jurisprudence in the Philippines and the United States also
recognizes that the Warsaw Convention does not "exclusively regulate" the relationship between
passenger and carrier on an international flight. This Court finds that the present case is
substantially similar to cases in which the damages sought were considered to be outside the
coverage of the Warsaw Convention.
Had the present case merely consisted of claims incidental to the airlines’ delay in transporting their
passengers, the private respondent’s Complaint would have been time-barred under Article 29 of
the Warsaw Convention. However, the present case involves a special species of injury resulting
from the failure of PAL and/or Singapore Airlines to transport private respondent from Singapore to
Jakarta – the profound distress, fear, anxiety and humiliation that private respondent experienced
when, despite PAL’s earlier assurance that Singapore Airlines confirmed his passage, he was
prevented from boarding the plane and he faced the daunting possibility that he would be stranded
in Singapore Airport because the PAL office was already closed.
These claims are covered by the Civil Code provisions on tort, and not within the purview of the
Warsaw Convention. Hence, the applicable prescription period is that provided under Article 1146 of
the Civil Code:

In United Airlines v. Uy,18 this Court distinguished between the (1) damage to the passenger’s Art. 1146. The following actions must be instituted within four years:
baggage and (2) humiliation he suffered at the hands of the airline’s employees. The first cause of
action was covered by the Warsaw Convention which prescribes in two years, while the second was
(1) Upon an injury to the rights of the plaintiff;
covered by the provisions of the Civil Code on torts, which prescribes in four years.

(2) Upon a quasi-delict.

Similar distinctions were made in American jurisprudence. In Mahaney v. Air France,19 a passenger
was denied access to an airline flight between New York and Mexico, despite the fact that she held
a confirmed reservation. The court therein ruled that if the plaintiff were to claim damages based Private respondent’s Complaint was filed with the RTC on 15 August 1997, which was less than four
solely on the delay she experienced – for instance, the costs of renting a van, which she had to years since PAL received his extrajudicial demand on 25 January 1994. Thus, private respondent’s
arrange on her own as a consequence of the delay – the complaint would be barred by the two-year claims have not yet prescribed and PAL’s Motion to Dismiss must be denied.
statute of limitations. However, where the plaintiff alleged that the airlines subjected her to unjust
discrimination or undue or unreasonable preference or disadvantage, an act punishable under the
Moreover, should there be any doubt as to the prescription of private respondent’s Complaint, the
United States laws, then the plaintiff may claim purely nominal compensatory damages for
more prudent action is for the RTC to continue hearing the same and deny the Motion to Dismiss.
humiliation and hurt feelings, which are not provided for by the Warsaw Convention. In another
Where it cannot be determined with certainty whether the action has already prescribed or not, the
case, Wolgel v. Mexicana Airlines,20 the court pronounced that actions for damages for the "bumping
defense of prescription cannot be sustained on a mere motion to dismiss based on what appears to
off" itself, rather than the incidental damages due to the delay, fall outside the Warsaw Convention
be on the face of the complaint.24 And where the ground on which prescription is based does not
and do not prescribe in two years.
appear to be indubitable, the court may do well to defer action on the motion to dismiss until after
trial on the merits.25
In the Petition at bar, private respondent’s Complaint alleged that both PAL and Singapore Airlines
were guilty of gross negligence, which resulted in his being subjected to "humiliation,
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed Decision of the Court
embarrassment, mental anguish, serious anxiety, fear and distress."21 The emotional harm suffered
of Appeals in CA-G.R. SP No. 48664, promulgated on 17 August 2001 is AFFIRMED. Costs against
by the private respondent as a result of having been unreasonably and unjustly prevented from
the petitioner.
boarding the plane should be distinguished from the actual damages which resulted from the same
incident. Under the Civil Code provisions on tort,22 such emotional harm gives rise to compensation
where gross negligence or malice is proven. SO ORDERED.

The instant case is comparable to the case of Lathigra v. British Airways.23

In Lathigra, it was held that the airlines’ negligent act of reconfirming the passenger’s reservation
days before departure and failing to inform the latter that the flight had already been discontinued is
not among the acts covered by the Warsaw Convention, since the alleged negligence did not occur
during the performance of the contract of carriage but, rather, days before the scheduled flight.

90
G.R. No. 127768 November 19, 1999 Art. 29 (1) The right to damages shall be extinguished if an action is not brought within two
(2) years, reckoned from the date of arrival at the destination, or from the date on which the
aircraft ought to have arrived, or from the date on which the transportation stopped.
UNITED AIRLINES, petitioner,
vs.
WILLIE J. UY, respondent. (2) The method of calculating the period of limitation shall be determined by the law of the
court to which the case is submitted.
BELLOSILLO, J.:
Respondent countered that par. (1) of Art. 29 of the Warsaw Convention must be reconciled with
par. (2) thereof which states that "the method of calculating the period of limitation shall be
UNITED AIRLINES assails in this petition for review on certiorari under Rule 45 the 29 August 1995
determined by the law of the court to which the case is submitted." Interpreting thus, respondent
Decision of the Court of Appeals in CA-G.R. CV No. 39761 which reversed the 7 August 1992 order
noted that according to Philippine laws the prescription of actions is interrupted "when they are filed
issued by the trial court in Civil Case No. Q-92-12410 1 granting petitioner's motion to dismiss based
before the court, when there is a written extrajudicial demand by the creditors, and when there is
on prescription of cause of action. The issues sought to be resolved are whether the notice of
any written acknowledgment of the debt by the debtor." 4 Since he made several demands upon
appeal to the appellate court was timely filed, and whether Art. 29 of the Warsaw
United Airlines: first, through his personal letter dated 16 October 1989; second, through a letter
Convention 2 should apply to the case at bar.
dated 4 January 1990 from Atty. Pesigan; and, finally, through a letter dated 28 October 1991
written for him by Atty. Ampil, the two (2)-year period of limitation had not yet been exhausted.
On 13 October 1989 respondent Willie J. Uy, a revenue passenger on United Airlines Flight No. 819
for the San Francisco — Manila route, checked in together with his luggage one piece of which was
On 2 August 1992 the trial court ordered the dismissal of the action holding that the language of Art.
found to be overweight at the airline counter. To his utter humiliation, an employee of petitioner
29 is clear that the action must be brought within two (2) years from the date of arrival at the
rebuked him saying that he should have known the maximum weight allowance to be 70 kgs. per
destination. It held that although the second paragraph of Art. 29 speaks of deference to the law of
bag and that he should have packed his things accordingly. Then, in a loud voice in front of the
the local court in "calculating the period of limitation," the same does not refer to the local forum's
milling crowd, she told respondent to repack his things and transfer some of them from the
rules in interrupting the prescriptive period but only to the rules of determining the time in which the
overweight luggage to the lighter ones. Not wishing to create further scene, respondent acceded
action may be deemed commenced, and within our jurisdiction the action shall be deemed "brought"
only to find his luggage still overweight. The airline then billed him overweight charges which he
or commenced by the filing of a complaint. Hence, the trial court concluded that Art. 29 excludes the
offered to pay with a miscellaneous charge order (MCO) or an airline pre-paid credit. However, the
application of our interruption rules.
airline's employee, and later its airport supervisor, adamantly refused to honor the MCO pointing out
that there were conflicting figures listed on it. Despite the explanation from respondent that the last
figure written on the MCO represented his balance, petitioner's employees did not accommodate Respondent received a copy of the dismissal order on 17 August 1992. On 31 August 1992, or
him. Faced with the prospect of leaving without his luggage, respondent paid the overweight fourteen (14) days later, he moved for the reconsideration of the trial court's order. The trial court
charges with his American Express credit card. denied the motion and respondent received copy of the denial order on 28 September 1992. Two (2)
days later, on 1 October 1992 respondent filed his notice of appeal.
Respondent's troubles did not end there. Upon arrival in Manila, he discovered that one of his bags
had been slashed and its contents stolen. He particularized his losses to be around US $5,310.00. United Airlines once again moved for the dismissal of the case this time pointing out that
In a letter dated 16 October 1989 respondent bewailed the insult, embarrassment and humiliating respondent's fifteen (15)-day period to appeal had already elapsed. Petitioner argued that having
treatment he suffered in the hands of United Airlines employees, notified petitioner of his loss and used fourteen (14) days of the reglementary period for appeal, respondent Uy had only one (1) day
requested reimbursement thereof. Petitioner United Airlines, through Central Baggage Specialist remaining to perfect his appeal, and since he filed his notice of appeal two (2) days later, he failed to
Joan Kroll, did not refute any of respondent's allegations and mailed a check representing the meet the deadline.
payment of his loss based on the maximum liability of US $9.70 per pound. Respondent, thinking
the amount to be grossly inadequate to compensate him for his losses, as well as for the indignities
In its questioned Decision dated 29 August 1995 5 the appellate court gave due course to the appeal
he was subjected to, sent two (2) more letters to petitioner airline, one dated 4 January 1990
holding that respondent's delay of two (2) days in filing his notice of appeal did not hinder it from
through a certain Atty. Pesigan, and another dated 28 October 1991 through Atty. Ramon U. Ampil
reviewing the appealed order of dismissal since jurisprudence dictates that an appeal may be
demanding an out-of-court settlement of P1,000,000.00. Petitioner United Airlines did not accede to
entertained despite procedural lapses anchored on equity and justice.
his demands.

On the applicability of the Warsaw Convention, the appellate court ruled that the Warsaw
Consequently, on 9 June 1992 respondent filed a complaint for damages against United Airlines
Convention did not preclude the operation of the Civil Code and other pertinent laws. Respondent's
alleging that he was a person of good station, sitting in the board of directors of several top 500
failure to file his complaint within the two (2)-year limitation provided in the Warsaw Convention did
corporations and holding senior executive positions for such similar firms; 3 that petitioner airline
not bar his action since he could still hold petitioner liable for breach of other provisions of the Civil
accorded him ill and shabby treatment to his extreme embarrassment and humiliation; and, as such
Code which prescribe a different period or procedure for instituting an action. Further, under
he should be paid moral damages of at least P1,000,000.00, exemplary damages of at least
Philippine laws, prescription of actions is interrupted where, among others, there is a written
P500,000.00, plus attorney's fees of at least P50,000.00. Similarly, he alleged that the damage to
extrajudicial demand by the creditors, and since respondent Uy sent several demand letters to
his luggage and its stolen contents amounted to around $5,310.00, and requested reimbursement
petitioner United Airlines, the running of the two (2)-year prescriptive period was in effect
therefor.
suspended. Hence, the appellate court ruled that respondent's cause of action had not yet
prescribed and ordered the records remanded to the Quezon City trial court for further proceedings.
United Airlines moved to dismiss the complaint on the ground that respondent's cause of action had
prescribed, invoking Art. 29 of the Warsaw Convention which provides —
Petitioner now contends that the appellate court erred in assuming jurisdiction over respondent's
appeal since it is clear that the notice of appeal was filed out of time. It argues that the courts relax
the stringent rule on perfection of appeals only when there are extraordinary circumstances, e.g.,

91
when the Republic stands to lose hundreds of hectares of land already titled and used for
educational purposes; when the counsel of record was already dead; and wherein appellant was the
owner of the trademark for more than thirty (30) years, and the circumstances of the present case
do not compare to the above exceptional cases. 6
Sec. 1 of Rule 45 of the 1997 Rules of Civil Procedure provides that "a party may appeal
by certiorari, from a judgment of the Court of Appeals, by filing with the Supreme Court a petition
for certiorari, within fifteen (15) days from notice of judgment or of the denial of his motion for
reconsideration filed in due time . . . ." This Rule however should not be interpreted as "to sacrifice
the substantial right of the appellant in the sophisticated altar of technicalities with impairment of the
sacred principles of justice." 7 It should be borne in mind that the real purpose behind the limitation
of the period of appeal is to forestall or avoid an unreasonable delay in the administration of justice.
Thus, we have ruled that delay in the filing of a notice of appeal does not justify the dismissal of the
appeal where the circumstances of the case show that there is no intent to delay the administration
of justice on the part of appellant's counsel, 8 or when there are no substantial rights affected, 9 or
when appellant's counsel committed a mistake in the computation of the period of appeal, an error
not attributable to negligence or bad faith. 10
In the instant case, respondent filed his notice of appeal two (2) days later than the prescribed
period. Although his counsel failed to give the reason for the delay, we are inclined to give due
course to his appeal due to the unique and peculiar facts of the case and the serious question of law
it poses. In the now almost trite but still good principle, technicality, when it deserts its proper office
as an aid to justice and becomes its great hindrance and chief enemy, deserves scant
consideration. 11
Petitioner likewise contends that the appellate court erred in ruling that respondent's cause of action
has not prescribed since delegates to the Warsaw Convention clearly intended the two (2)-year
limitation incorporated in Art. 29 as an absolute bar to suit and not to be made subject to the various
tolling provisions of the laws of the forum. Petitioner argues that in construing the second paragraph
of Art. 29 private respondent cannot read into it Philippine rules on interruption of prescriptive
periods and state that his extrajudicial demand has interrupted the period of
prescription. 12 American jurisprudence has declared that "Art. 29 (2) was not intended to permit
forums to consider local limitation tolling provisions but only to let local law determine whether an
action had been commenced within the two-year period, since the method of commencing a suit
varies from country to country." 13
Within our jurisdiction we have held that the Warsaw Convention can be applied, or ignored,
depending on the peculiar facts presented by each case. 14 Thus, we have ruled that the
Convention's provisions do not regulate or exclude liability for other breaches of contract by the
carrier or misconduct of its officers and employees, or for some particular or exceptional type of
damage. 15 Neither may the Convention be invoked to justify the disregard of some extraordinary
sort of damage resulting to a passenger and preclude recovery therefor beyond the limits set by said
Convention. 16 Likewise, we have held that the Convention does not preclude the operation of the
Civil Code and other pertinent laws. 17 It does not regulate, much less exempt, the carrier from
liability for damages for violating the rights of its passengers under the contract of carriage,
especially if willful misconduct on the part of the carrier's employees is found or established. 18
Respondent's complaint reveals that he is suing on two (2) causes of action: (a) the shabby and
humiliating treatment he received from petitioner's employees at the San Francisco Airport which
caused him extreme embarrassment and social humiliation; and, (b) the slashing of his luggage and
the loss of his personal effects amounting to US $5,310.00.
While his second cause of action — an action for damages arising from theft or damage to property
or goods — is well within the bounds of the Warsaw Convention, his first cause of action — an
action for damages arising from the misconduct of the airline employees and the violation of
respondent's rights as passenger — clearly is not.
Consequently, insofar as the first cause of action is concerned, respondent's failure to file his
complaint within the two (2)-year limitation of the Warsaw Convention does not bar his action since
petitioner airline may still be held liable for breach of other provisions of the Civil Code which
prescribe a different period or procedure for instituting the action, specifically, Art. 1146 thereof
which prescribes four (4) years for filing an action based on torts.
As for respondent's second cause of action, indeed the travaux preparatories of the Warsaw
Convention reveal that the delegates thereto intended the two (2)-year limitation incorporated in Art.
29 as an absolute bar to suit and not to be made subject to the various tolling provisions of the laws
of the forum. This therefore forecloses the application of our own rules on interruption of prescriptive
periods. Article 29, par. (2), was intended only to let local laws determine whether an action had
been commenced within the two (2)-year period, and within our jurisdiction an action shall be
deemed commenced upon the filing of a complaint. Since it is indisputable that respondent filed the
present action beyond the two (2)-year time frame his second cause of action must be barred.
Nonetheless, it cannot be doubted that respondent exerted efforts to immediately convey his loss to
petitioner, even employed the services of two (2) lawyers to follow up his claims, and that the filing
of the action itself was delayed because of petitioner's evasion.
In this regard, Philippine Airlines, Inc. v. Court of Appeals 19 is instructive. In this case of PAL,
private respondent filed an action for damages against petitioner airline for the breakage of the front
glass of the microwave oven which she shipped under PAL Air Waybill No. 0-79-1013008-3.
Petitioner averred that, the action having been filed seven (7) months after her arrival at her port of
destination, she failed to comply with par. 12, subpar. (a) (1), of the Air Waybill which expressly
provided that the person entitled to delivery must make a complaint to the carrier in writing in case of
visible damage to the goods, immediately after discovery of the damage and at the latest within 14
days from receipt of the goods. Despite non-compliance therewith the Court held that by private
respondent's immediate submission of a formal claim to petitioner, which however was not
immediately entertained as it was referred from one employee to another, she was deemed to have
substantially complied with the requirement. The Court noted that with private respondent's own
zealous efforts in pursuing her claim it was clearly not her fault that the letter of demand for
damages could only be filed, after months of exasperating follow-up of the claim, on 13 August
1990, and that if there was any failure at all to file the formal claim within the prescriptive period
contemplated in the Air Waybill, this was largely because of the carrier's own doing, the
consequences of which could not in all fairness be attributed to private respondent.
In the same vein must we rule upon the circumstances brought before us. Verily, respondent filed
his complaint more than two (2) years later, beyond the period of limitation prescribed by the
Warsaw Convention for filing a claim for damages. However, it is obvious that respondent was
forestalled from immediately filing an action because petitioner airline gave him the runaround,
answering his letters but not giving in to his demands. True, respondent should have already filed an
action at the first instance when his claims were denied by petitioner but the same could only be due
to his desire to make an out-of-court settlement for which he cannot be faulted. Hence, despite the
express mandate of Art. 29 of the Warsaw Convention that an action for damages should be filed
within two (2) years from the arrival at the place of destination, such rule shall not be applied in the
instant case because of the delaying tactics employed by petitioner airline itself. Thus, private
respondent's second cause of action cannot be considered as time-barred under Art. 29 of the
Warsaw Convention.
WHEREFORE, the assailed Decision of the Court of Appeals reversing and setting aside the
appealed order of the trial court granting the motion to dismiss the complaint, as well as its
Resolution denying reconsideration, is AFFIRMED. Let the records of the case be remanded to the
court of origin for further proceedings taking its bearings from this disquisition.
SO ORDERED.
92
G.R. No. 120334 January 20, 1998 b) that when opened in the presence of US Customs agents the box contained
no firearms; and c) that since the baggage which was returned back to Chicago
did not contain any firearms, then the baggage which plaintiff received upon
NORTHWEST AIRLINES, INC. petitioner,
arrival in Manila must have contained the firearms (pp. 3-5, Answer; pp. 32-34,
vs.
Record).
COURT OF APPEALS and ROLANDO I. TORRES, respondents.

After plaintiff had presented its evidence, defendant filed a "Motion to Dismiss
G.R. No. 120337 January 20, 1998
(By Way of Demurrer to the Evidence with Motion for Summary Judgment)"
dated April 24, 1989.
ROLANDO I. TORRES, petitioner,
vs.
In said motion, defendant moved for the "dismissal of the complaint in so far as
COURT OF APPEALS and NORTHWEST AIRLINES, INC., respondents.
it prays for moral, exemplary and temperate damages and attorney's fees" and
further moved for "summary judgment to be rendered awarding the plaintiff
$640.00 as actual damages." (Motion to Dismiss By Way of Demurrer to
Evidence with Motion for Summary Judgment; p. 115, Records).
DAVIDE, JR., J.:
Plaintiff on the other hand, offered no objection to the submission of the case for
1 decision but insisted that he is entitled to damages as prayed for (p. 1,
Unable to accept the decision of the Court of Appeals in CA-G.R. CV No. 24068,   petitioner Comment on Defendant's Motion to Dismiss by Way of Demurrer to Evidence
Northwest Airlines, Inc., (hereafter NORTHWEST) and petitioner Rolando I. Torres (hereafter with Summary Judgment; pp. 136-169, Records).
TORRES) filed separate petitions for review under Rule 45 of the Rules of Court, which were
docketed as G.R. No. 120334 and G.R. No. 120337 and thereafter consolidated.
We add to this summary the following relevant matters:
2
The antecedents of these cases were summarized by the Court of Appeals as follows:
NORTHWEST argued in its motion for summary judgment that the Warsaw Convention and the
contract of carriage limited its liability to US$640 and that the evidence presented by TORRES did
The plaintiff, [Torres], allegedly on a special mission to purchase firearms for not entitle him to moral, exemplary, and temperate damages and attorney's fees.3
the Philippine Senate, purchased a round trip ticket from defendant [Northwest]
for his travel to Chicago and back to Manila. Via defendant's flight, plaintiff left
for United States. Instead of just ruling on NORTHWEST's Motion to Dismiss (By Way of Demurrer to Evidence) with
Motion for Summary Judgment, which it considered submitted for resolution in the order of 14 June
1989, 4 the trial court rendered on 13 September 1989 a full-blown decision 5 ordering
After purchasing firearms and on the way back to Manila, plaintiff checked-in NORTHWEST to pay TORRES the following amounts:
and presented before defendant's representative his two identical baggage, one
of which contained firearms. Defendant's representative required the baggage
to be opened and the supporting evidence to be presented. Plaintiff showed 1. The amount of $9,009.32, with legal interest thereon from the date of the
them his authorization from the Philippine government and the purchase filing of the complaint, in its peso equivalent at the official rate of exchange at
receipts. Plaintiff thereafter sealed the baggage and defendant's representative the time payment is made, representing the value of the goods lost by the
placed a red tag on the baggage with firearms with the marking "CONTAINS plaintiff;
FIREARMS".
2. The amount of P100,000.00 by way of attorney's fees;
Upon arrival in Manila on June 22, 1988 plaintiff was not able to claim one of his
baggages. Plaintiff was informed by defendant's representative that his
3. The amount of P5,181.09 as filing fees paid by the plaintiff and the amount of
baggage containing firearms was recalled back to Chicago by defendant for US
P20,000.00 for expenses of litigation, representing travel expenses and hotel
Customs verification. A telex to this effect was shown to plaintiff.
accommodations of plaintiff's counsels; and

On June 28, 1988, after being advised of the arrival of his other baggage,
4. The amount of P50,000.00 as moral damages.
plaintiff claimed and opened the baggage in the presence of defendant's
representative and found out that the firearms were missing. A Personal
Property Missing Damage Report was issued by defendant to plaintiff. The award of US$9,009.32, representing the value of the lost firearms, was grounded on the trial
court's finding that "the act of [NORTHWEST's] personnel in Tokyo or Narita Airport in just
guessing which baggage contained the firearms was careless and imprudent, amounting to careless
On account of continuous refusal of defendant to settle amicably, plaintiff then
disregard for the safety of the luggage of the passenger." According to the trial court, such act
prayed before the trial court that defendant be ordered to pay actual damages,
constituted willful misconduct which brought the case beyond the application of Section 22(2) of the
moral damages, temperate damages, exemplary damages and attorney's fees
Warsaw Convention, thereby depriving NORTHWEST of the limitation of the liability provided for in
(pp. 1-6, Complaint; p. 1, Record).
said section.

In its answer, defendant pleaded: a) that it was the agents from the US
Customs who ordered for the return of the weapons which plaintiff checked-in;
93
The awards of attorney's fees and expenses of litigation were premised on NORTHWEST's having On 23 May 1995, the Court of Appeals denied 10 NORTHWEST's motion for a partial reconsideration
ignored the demands of TORRES forcing the latter to litigate in order to assert his right. TORRES of the decision.
was also awarded moral damages because of the "inconvenience, anxiety and worry" he suffered by
reason of NORTHWEST's unjustifiable refusal to settle his claim.
Hence, the present petitions.

Both TORRES and NORTHWEST appealed from the decision to the Court of Appeals, which
NORTHWEST contests the right of TORRES to actual damages on the following grounds: (1) the
docketed the case as CA-G.R. CV No. 24068. TORRES assailed the failure of the trial court to
loss of firearms was disputed; (2) the finding of willful misconduct was arbitrary; and (3) TORRES
award the actual, moral, and exemplary damages prayed for by him. 6 NORTHWEST, on the other
failed to produce a United States license for the shipment of the firearms; hence, the importation
hand, alleged that in prematurely resolving the case on the merits the court prevented it from
was illegal and no damages could arise therefrom.
presenting evidence, thereby denying it due process; and that even assuming that the trial court
could resolve the entire case on the merits, it erred in awarding damages, attorney's fees, and
expenses of litigation.7 TORRES, on the other hand, claims that the Court of Appeals erred (1) in setting aside the appealed
decision of the court a quo as to the awards of damages, attorney's fees, and cost of suit; (2) in
remanding the case to the court a quo for further proceedings; and (3) in failing to award other
In its Decision 8 of 14 September 1994, the Court of Appeals sustained the trial court's judgment that
damages for breach of contract and willful misconduct committed by Northwest for mishandling the
TORRES was entitled to actual damages, since NORTHWEST had, in effect, admitted the loss of
cargo.
the firearms when it insisted that its liability was limited to $9.07 per pound or $20 per kilo. The
appellate court then concluded that NORTHWEST's guessing of which luggage contained the
firearms amounted to willful misconduct under Section 25(1) of the Warsaw Convention which NORTHWEST's Motion to Dismiss (By Way of Demurrer to Evidence) with Motion for Summary
entitled TORRES to claim actual damages in excess of the limitation provided for under Section Judgment involved two distinct and separate processes, viz: (1) demurrer to evidence, which was
22(2) of said Convention. then governed by Rule 35, now by Rule 33; and (2) motion for summary judgment, which was then
governed by Rule 34, now Rule 35, of the Rules of Court. The subject of the demurrer were the
claims for moral, exemplary, and temperate damages and attorney's fees; while the target of the
Nevertheless, the Court of Appeals held that while the trial court properly ruled on the right of
motion for summary judgment was the claim for actual damages.
TORRES to actual damages, it erred in determining by way of summary judgment the amount of
damages; for under Section 3 of Rule 34 of the Rules of Court, a summary judgment may be
rendered upon proper motion except as to the amount of damages. We agree with the Court of Appeals in its holding that the trial court erred in deciding the entire case
on its merits. Indeed, as to the demurrer to evidence, the trial court should have been solely guided
by the procedure laid down in the abovementioned rule on demurrer to evidence. It had no choice
As to the trial court's act of disposing of the entire case by way of summary judgment, the Court of
other than to grant or to deny the demurrer. It could not, without committing grave abuse of
Appeals noted that NORTHWEST categorically moved for summary judgment only on the issue of
discretion amounting to excess of jurisdiction, deny the motion and then forthwith grant TORRES'
actual damages, but not on the claims for moral damages and attorney's fees. NORTHWEST moved
claims on a finding that TORRES has established a preponderance of evidence in support of such
for the dismissal of the latter claims by way of demurrer to evidence. That being so, the trial court
claims. In the instant case, the trial court did just that insofar as moral damages, attorney's fees, and
could not, by way of summary judgment, dispose of the case on its entirety. Section 2 of Rule 34 of
expenses of litigation were concerned. What it should have done was to merely deny the demurrer
the Rules of Court required that summary judgment should be issued only after the motion therefor
and set a date for the reception of NORTHWEST's evidence in chief.
has been heard. Since there was no such motion as to the claims for moral damages and attorney's
fees, no summary judgment thereon could be made.
As to the motion for summary judgment, both the trial court and the Court of Appeals were in error.
Summary judgments were formerly governed by Rule 34 of the Rules of Court. The rule is now Rule
Anent the demurrer to evidence, the Court of Appeals held that the trial court had to either grant or
35 of the 1987 Rules of Civil Procedure with the amendments allowing the parties to submit not only
deny it. If granted, no award therefor could have been validly made. If denied, then under Section 1
affidavits but also depositions or admissions in support of their respective contentions. 11 Motions for
of Rule 35 of the Rules of Court, NORTHWEST should have been allowed to present its evidence,
summary judgment may be filed by the claimant or by the defending party. Sections 1, 2, and 3 of
as it was not deemed to have waived that right. This section provided:
the old Rule 34, the governing law in this case, provided as follows:

Sec. 1. Effect of judgment on demurrer to evidence. — After the plaintiff has

Sec. 1. Summary judgment for claimant. — A party seeking to recover upon a
completed the presentation of his evidence, the defendant without waiving his
claim, counterclaim, or cross-claim or to obtain a declaratory relief may, at any
right to offer evidence in the event the motion is not granted, may move for a
time after the pleading in answer thereto has been served, move with
dismissal on the ground that upon facts and the law the plaintiff has shown no
supporting affidavits for a summary judgment in his favor upon all or any part
right to relief. However, if the motion is granted and order of dismissal is
thereof.
reversed on appeal, the movant loses his right to present evidence in his
behalf.9
Sec. 2. Summary judgment for defending party. — A party against whom a
claim, counterclaim, or cross-claim is asserted or a declaratory relief is sought
The Court of Appeals then held that since the demurrer was impliedly denied by the trial court,
may, at any time, move with supporting affidavits for a summary judgment in his
NORTHWEST should have been allowed to present its evidence in accordance with the above rule.
favor as to all or any part thereof.

Accordingly, the Court of Appeals affirmed the trial court's finding as to the right of TORRES to
Sec. 3. Motion and proceedings thereon. — The motion shall be served at least
actual damages but set aside the rest of the appealed decision. It then remanded the case to the
ten (10) days before the time specified for the hearing. The adverse party prior
court a quo for further proceedings.
to the day of hearing may serve opposing affidavits. After the hearing, the
judgment sought shall be rendered forthwith if the pleadings, depositions, and
admissions on file together with the affidavits, show that, except as to the

94
 amount of damages, there is no genuine issue as to any material fact and that No pronouncement as to costs.
the moving party is entitled to a judgment as a matter of law.
SO ORDERED.
NORTHWEST, the defending party, moved for summary judgment on the claim for actual damages
after TORRES had presented his evidence in chief. This was allowed by Section 2 where the motion
may be filed "at any time," as distinguished from section 1 where the claimant, like TORRES, may
file the motion at any time after the answer is filed.

Summary judgment is allowed if, except as to the amount of damages, there is no genuine issue as
to any material fact and the moving party is entitled to a judgment as a matter of law.

In this case, NORTHWEST denied in its Answer the material allegations in the complaint and
asserted, in fact, that it was not liable for actual damages because the box containing the alleged
lost firearms was the one received by TORRES when he arrived in Manila. It likewise contended
that, even granting that the firearms were lost, its liability was limited by the Warsaw Convention and
the contract of transportation to $9.07 per pound, or a total of $640 as the box weighed 70
pounds. 12 It also denied having acted fraudulently or in bad faith. 13

In thus submitting for summary judgment the matter of its liability only to the maximum allowed in
Section 22(2) of the Warsaw Convention, NORTHWEST was deemed to have hypothetically
admitted arguendo that the firearms were lost. It did not waive the presentation of evidence that it
was not in fact liable for the alleged loss of firearms. And even if it was not liable beyond the
maximum provided in said Section 22(2). Notably, TORRES prayed for actual damages in the
amounts of (1) $9,009.32 representing the value of the lost firearms; and (2) P39,065 14 representing
the cost of his place tickets.

Concretely the, there remained a genuine issue on the fact and amount of actual damages. The
motion for summary judgment was not therefore in order. NORTHWEST must have resorted to it, in
like manner as it did in filing the demurrer, to delay the progress of the trial of the case. Verily, it was
grave abuse of discretion on the part of the trial court to grant such motion and award TORRES
actual damages commensurate to the value of the firearms and based on his evidence alone.

We, however, agree with both the trial court and the Court of Appeals that NORTHWEST's liability
for actual damages may not be limited to that prescribed in Section 22(2) of the Warsaw
Convention. In Alitalia v. Intermediate Appellate Court, 15 we held:

The [Warsaw] Convention does not operate as an exclusive enumeration of the

instances of an airline's liability, or as an absolute limit of the extent of that
liability. Such a proposition is not borne out by the language of the Convention,
as this Court has now, and at an earlier time, pointed out. Moreover, slight
reflection readily leads to the conclusion that it should be deemed a limit of
liability only in those cases where the cause of the death or injury to person, or
destruction, loss or damage to property or delay in its transport is not
attributable to or attended by any willful misconduct, bad faith, recklessness, or
otherwise improper conduct on the part of any official or employee for which the
carrier is responsible, and there is otherwise no special or extraordinary form of
resulting injury. The Convention's provisions, in short, do not "regulate or
exclude liability for other breaches of contract by the carrier" or misconduct of its
officers and employees, or for some particular or exceptional type of damage.

IN VIEW WHEREOF, judgment is hereby rendered (1) PARTLY GRANTING the petition in G.R. No.
120334 by setting aside that portion of the challenge decision of the Court of Appeals in CA-G.R. CV
No. 24068 affirming the summary judgment as to the right of respondent ROLANDO I. TORRES to
actual damages; (2) DENYING for want of merit the petition in G.R. No. 120337; and (3)
REMANDING this case to the trial court for the reception of the evidence for Northwest Airlines, Inc.
in Civil Case No. 88-46117 and, thereafter, for the rendition of the judgment therein on the merits.

95