107 Phil.

1010
G.R. No. L-14092, April 29, 1960
SOLEDAD A. VERZOSA, PETITIONER, VS. AUGUSTO BAYTAN, ARMANDO ZACARIAS,
ROSALIO RETENER, HORACIO CUSTODIO, ADORACION CUSTODIO, FELIX ANGELES,
ALEJANDRO BELLEZA, SIMEON JACINTO, PAULA JACINTO AND DOMINADOR
MAGBANUA, RESPONDENTS.

DECISION

CONCEPCION, J.:
This is a petition for review by certiorari of a decision of the Court of Appeals. The main facts are set
forth in said decision from which we quote:
"In 1953, Soledad A. Verzosa was a duly authorized public service operator and possessor of a certificate
of public convenience issued by the Public Service Commission. She was maintaining and operating
passenger buses plying the public highways and roads of Zambales, Bataan, Bulacan, City of Manila and
suburbs; and was doing her transportation business under the name and style of Try-V-Tran. On
September 4, 1953, Augusto Baytan, Armando Zacarias, Rosalio Retcner, Horacio Custodio, Adoracion
Custodio, Felix Angeles, Alejandro Belleza, Simeon Jaointo, Paula Jacmto, and Dominador Magbanua,
boarded in Olongapo, Zambales, one of Verzosa's buses, bearing plate number TPU-505 s/53 (Zambales),
then being driven by Silvino Mangliemot and bound for Manila. Upon reaching sitio Longos, Malolos,
Bulacan, the said bus collided with a freight truck which was coming from the opposite direction, and as a
result thereof, the above named passengers suffered injuries. They were immediately taken to the Malolos
Provincial Hospital for emergency treatment, and later some of them were brought to the National
Orthopedic Hospital for further treatment. All the injured passengers were employed by the U. S. Navy,
"with the exception of Adoracion Custodio, who was a dressmaker, Simeon Jacinto and Paula Jacinto,
who were school teachers. Aside from being rendered unable to report for work for the duration of their
treatment, they also lost some belongings as a consequence of the collision, which likewise destroyed two
carretelas and injured the rig drivers and the horses. Driver Manglicmot was charged with the crime of
'damages to property with multiple physical injuries and abortion thru reckless imprudence' in the Court
of First Instance of Bulacan, where the case was docketed as criminal case numbered 2050. Meanwhile,
the above named passengers filed a complaint with the Court of First Instance of Manila against Soledad
A. Verzosa and Silvino Manglicmot, praying that defendants be condemned to pay, jointly and severally,
each and every one of the plaintiffs:
'(a) Under the first cause of action, the sum of P250.00 (or a total of P2,500.00), for medical attendance
and drugs, plus whatever amount may accrue thenceforth until the time of their complete recovery.
'(b) Under the second cause of action, the sum of P3,896.68, representing lost of income incurred by
plaintiffs up to the date of this complaint as follows:

  August Baytan......................................................................................................... P317.44

  Abelardo Zacarias..................................................................................................... P273.92

  Rosalio Retener........................................................................................................ P396.80

  Horacio Custodio...................................................................................................... P317.44

  Adoracion Custodio................................................................................................... P160.00

  Felix Angeles .......................................................................................................... P396.80

  Alejandro Belleza....................................................................................................... P199.68

  Simeon Jacinto......................................................................................................... P270.00

  Paula Jacinto .......................................................................................................... P270.00

  Dominador Magbanua ................................................................................................ P417.28

'(c) Under the third cause of action, the sum of P1,091.00 representing lost personal belongings of the
plaintiffs, as follows:
Augusto Baytan—  
  1 wrist watch (Lord Elgin) ................................................................................... P180.00
Abelardo Zacarias—
  1 wrist watch (Lord Elgin).................................................................................... P180.00
Rosalio Ketener—
  1 bag of clothes................................................................................................. P 30.00
  commissary goods ............................................................................................. P 30.00
Horacio Custodio—
  cash ............................................................................................................... P 66.00
  1 wrist watch (Gruen) ........................................................................................ P120.00
  1 bag of clothes................................................................................................. P 50.00
Adoracion Custodio—
  5 dresses ......................................................................................................... P 20.00
Felix Angeles—
  1 bag of clothes ................................................................................................ P100.00
Alejandro Belleza—
  1 wrist watch (Lord Elgin) ................................................................................... P180.00
  1 eyeglass ....................................................................................................... P 50.00
Simeon Jacinto—
  1 wrist watch (Bulova)........................................................................................ P140.00
  1 eyeglass ....................................................................................................... P 45.00
  cash ............................................................................................................... P175.00
  1 bag of clothes................................................................................................. P 45.00
Paula Jacinto—
  1 wrist watch (Lady Elgin) ................................................................................... P175.00
  1 eyeglass......................................................................................................... P 45.00
Dominador Magbanua—
  cash ................................................................................................................ P 61.00
  1 bag of clothes.................................................................................................. P 50.00
  commissary goods ............................................................................................... P 20.00
    _________
    Total ...................................................................................................... P 1,691.00
'(d) Under the fourth cause of action, the sum of P15,000.00, each (or a total of P150,000.00), for moral
damages for distress in body and mind, mental anguish and physical deformities.
'(e) Under the fifth cause of action, the sum of P1,800.00, (or a total of P18,000.00), for attorney's fees.
'(f) The sum of P2,500.00 (or a total of P5,000.00), as exemplary damages; and
'(g) To pay the costs of suit.
''Plaintiffs pray for any other and further relief to which they may be entitled under the premises. (pp. 1.0-
13, record on appeal)
"Only defendant Verzosa registered an answer alleging that the driver of her passenger bus exercised all
the diligence of a good father of a family, and that the collision was due to the negligence of Leon
Macabulos, who was then driving cargo truck bearing plate number T-700 s/53 (Pampanga), belonging to
Pablo Narciso, both of whom are the ones responsible for the damages sustained by plaintiffs. Verzosa
consequently prayed for the dismissal of this case. Upon plaintiffs' motion, defendant Manglicmot was
declared in default on January 25, 1954.
"The issues thus joined, several hearings were held, after which the Court below rendered judgment
ordering defendants:
'(a) To pay the herein plaintiffs the sum of P2,500.00 for medical attendance and drugs spent by them for
their complete recovery; (b) the sum of P3,896.68 representing the lost income on which the herein
plaintiffs have failed to receive from the time of the accident to the date of the filing of this complaint; (c)
the sura of P1,691.00 which was the value of the personal belongings of the herein plaintiffs which were
lost and had disappeared by reason of this accident; (d) the sum of P30,000.00 for moral damages for
mental and bodily distress, as well as mental anguish and physical deformities; (e) the sum of P5,000.00
for attorney's fees and to pay the costs of this suit.' (p. 23, record on appeal.)"
On appeal, this decision was affirmed by the Court of Appeals, except as to the amount of the moral
damages, which was reduced altogether to P10,000. Hence, Soledad A. Verzosa filed this petition to
review, upon the ground that the moral damages and attorney's fees awarded in the decision appealed
from are not in accordance with law, particularly Articles 2219 and 2220 of the Civil Code of the
Philippines, and the doctrine laid down in Cachero vs. Itanila Yellow Taxicab, 101 Phil., 523; 54 Off.
Gaz, (26) 6599.
Said Article 2219 reads:
"Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in article 309;
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 84, and 35.
"The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may
also recover moral damages.
"The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9
of this Article, in the order named."
Petitioner maintains that the present action does not fall under said provision and is not analogous to any
of the cases therein enumerated. Upon the other hand, respondents assert the contrary, upon the authority
of Articles 21 and 1170 of said Code, which provide:
"Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage."
"Art. 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."
There is, however, no merit in respondents' pretense, for petitioner has been sued by respondents herein
and was sentenced by the Court of First Instance and the Court of Appeals, not by reason of any act which
is contrary to morals, good customs or public policy, but, merely on account of the fact that she is liable
for the negligence of her agent or driver, which gave occasion for the injuries and damages sustained by
respondents (Articles 1755, 1756, 1757 and 1759, Civil Code of the Philippines). With respect to said
Article 1170, suffice it to say that the same merely sets forth a general principle on damages, and that, as
regards moral damages, Article 2219 is controlling, it being a specific provision thereon, and, as such, it
prevails over Article 1170.
At any rate, the decision of the Court of Appeals correctly held that the liability of petitioner herein arises
from a breach of her contract of carriage with respondents herein, and, in such event, "moral damages are
recoverable only when the defendant acted fraudulently or in bad faith" in the language of Article 2220 of
our Civil Code, In the case at bar, there is neither allegation nor proof that petitioner herein is guilty,
either of fraud, or of bad faith.
In Fores vs. Miranda (105 Phil., 266; 57 Off. Gaz. [44] 7938), this Court, speaking through Mr. Justice
Reyes (J.B.L.), had the following to say:
"Anent the moral damages ordered to be paid to the respondent, the same must be discarded. "We have
repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil., 523; 54 Off. Gaz. 6599;
Necesito, et al. vs. Parais, 104 Phil., 75; 56 Off. Gaz. [23] 4023) that moral damages are not recoverable
in damage actions predicated on a breach of the contract of transportation, in view of Articles 2219 and
2220 of the new Civil Code, which provide as follows:
'Art. 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
*******
'Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to breaches
of contract where the defendant acted fraudulently or in bad faith.'
"By contrasting the provisions of these two articles it immediately becomes apparent that:
(a) In cases of breach of contract (including one of transportation) proof of bad faith or fraud (dolus), i. e.,
wanton or deliberately injurious conduct, is essential to justify an award of moral damages; and
(b) That a breach of contract can not be considered included in the descriptive term 'analogous cases' used
in Art. 2219; not only because Art. 2220 specifically provides for the damages that are caused by
contractual breach, but because the definition of quasi-delict in Art. 2176 of the Code expressly excludes
the cases where there is a 'pre-existing contractual relation between the parties.'
'Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relartion between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.'
The exception to the basic rule of damages now under consideration is a mishap resulting in the death of a
passenger, in which case Article 1764 makes the common carrier expressly subject to the rule of Art.
2206, that entitles the spouse, descendants and ascendants of the deceased passenger to 'demand moral
damages for mental anguish by reason of the death of the deceased' (Necesito vs. Paras, 104 Phil., 75; 56
Off. Gaz. [23] 4023, Eesolution on motion to reconsider, September 11, 1958). But the exceptional rule of
Art. 1764 makes it all the more evident that where the injured passenger does not die, moral damages are
not recoverable unless it is proved that the carrier was guilty of malice or bad faith. We think it is clear
that the mere carelessness of the carrier's driver does not per se constitute or justify an inference of malice
or bad faith on the part of the carrier; and in the case at bar there is no other evidence of such malice to
support the award of moral damages by the Court of Appeals. To award moral damages for breach of
contract, therefore, without proof of bad faith or malice on the part of the defendant, as required by Art.
2220, would be to violate the clear provisions of the law, and constitute unwarranted judicial legislation.
"The Court of Appeals has invoked our rulings in Castro vs. Aero Taxicub Co. G. R. No. 49155,
December 14, 1948 and Layda vs. Court of Appeals, 90 Phil., 724; but these doctrines were predicated
upon our former law of damages, before judicial discretion in fixing them became limited by the express
provisions of the new Civil Code (previously quoted). Hence, the aforesaid rulings are now inapplicable.
"Upon the other hand, the advantageous position of a party suing a carrier for breach of the contract of
transportation explains, to some extent, the limitations imposed by the new Code on the amount of the
recovery. The action for breach of contract imposes on the defendant carrier a presumption of liability
upon mere proof of injury to the passenger; the latter is relieved from the duty to establish the fault of the
carrier, or of his employees, and the burden is placed on the carrier to prove that it was due to an
unforeseen event or to force majeure (Cangco vs. Manila Railroad Co., 38 Phil., 768, 777). Moreover, the
carrier, unlike in suits for quasi-delict, may not escape liability by proving that it has exercised due
diligence in the selection and supervision of its employees (Art. 1759, new Civil Code; Cangeo vs. Manila
Railroad Co., supra; Prado vs. Manila Electric Co., 51 Phil., 900).
"The difference in conditions, defenses and proof, as well as the codal concept of quasi-delict as
essentially extra-contractual negligence, compel us to differentiate between actions ex contractu, and
actions quasi ex delictio, and prevent us from viewing the action for breach of contract as simultaneously
embodying an action on tort. Neither can this action be taken as one to enforce on employer's liability
under Art. 103 of the Revised Penal Code, since the responsibility is not alleged to be subsidiary, nor is
there on record any averment or proof that the driver of appellant was insolvent. In fact, he is not even
made a party to the suit.
"It is also suggested that a carrier's violation of its engagement to safely transport the passenger involves a
breach of the passenger's confidencet and therefore should be regarded as a breach of contract in bad
faith, justifying recovery of moral damages under Art. 2220. This theory is untenable, in every case its
obligation to the passenger is infringed; while under the law (Art. 1756), the presumption is that common
carriers acted negligently (and not maliciously), and Art. 1762 speaks of negligence of the common
carrier.
'ART. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
prescribed in articles 1733 and 1755,'
'ART. 1762. The contributory negligence of the passenger does not bar recovery of damages for his death
or injuries, if the proximate cause thereof is the negligence of the common carrier but the amount of
damages shall be equitably reduced.'
"The distinction between fraud, bad faith or malice (in the sense of deliberate or wanton wrongdoing) and
negligence (as mere carelessness) is too fundamental in our law to be ignored (Arts. 1170-1172); their
consequences being clearly differentiated by the Code.
'ART. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good tfaith
is liable shall bo those that are the natural and probable consequences of the breach of the obligation, and
which the parties have foreseen or could have reasonably foreseen at the time the obligation was
constituted.
'In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
which may he reasonably attributed to the non-performance of the obligation.'
"It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in the
mind of the lawmakers when in Art. 2220 they limited recovery of moral damages to breaches of contract
in bad faith. It is true that negligence may be occasionally so gross as to amount to malice; but that fact
must be shown in evidence, and a carrier's bad faith is not to be lightly inferred from a mere finding that
the contract was breached through negligence of the carrier's employees.
"In view of the foregoing considerations the decision of the Court of Appeals is modified by eliminating
the award of P5,000.00 by way of. moral damages (Court of Appeals Resolution of May 3, 1357)."
It is thus clear, therefore, that respondents herein are not entitled to moral damages.
As regards the attorney's fees, Article 2208 of the afore-mentioned Code ordains:
"In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot
be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the eourt deems it just and equitable that attorney's fees and expenses of
litigation should be recovered.
"In all cases, the attorney's fees and expenses of litigation must he reasonable."
It is urged by petitioner herein that paragraphs 2 and 4 of this provision, which are the only ones having a
bearing on the present case, are inapplicable thereto for, by setting up an aggregate claim of
approximately P200,000, which is manifestly excessive, respondents have, in fact, compelled the
petitioner to reject it. It appears, however, tnat in their letter of demand to petitioner herein, respondents
did not specify any sum of money. What is more, they explicitly stated:
"Extra-judicial settlement of their cases, may still be possible, should you be willing to pay them the
reasonable damages just and proper for each and every one of them to receive."
Again, in the reply thereto, made by the former counsel of petitioner herein, the liability of the latter was
denied, upon the ground that the injury and damages sustained by respondents were due to the negligence,
not of petitioner's driver, but of the driver of the freight truck which collided with petitioner's bus.
Considering, however, that the aggregate amount of the actual and compensatory damages awarded to
respondents herein is a little over P8,000.00, and that, as provided in the above-quoted Article 2208, "in
all cases the attorney's fees and expenses of litigation must be reasonable", this Court is of the opinion
that the attorney's fees in the present case should be reduced from P5,000.00 to P1,000.00.
With the elimination of the award of moral damages and the reduction of the attorney's fees to P1,000.00,
the decision of the Court of Appeals is hereby affirmed, therefore, in all other respects, without special
pronouncement as to costs in this instance. It is so ordered.

123 Phil. 561

G.R. Nos. L-21477-81, April 29, 1966
FRANCISCA VILUAN, PETITIONER, VS. THE COURT OF APPEALS, PATRICIO HUFANA
AND GREGORIO HUFANA, RESPONDENTS.

DECISION

REGALA, J.:
Seven persons were killed and thirteen others were injured in Bangar, La Union, on February 16, 1958,
when a passenger bus on which they were riding caught fire after hitting a post and crashing against a
tree. The bus, owned by petitioner and driven by Hermenegildo Aquino, came from San Fernando, La
Union and was on its way to Candon, Ilocos Sur.
It appears that, as the bus neared the gate of the Gabaldon school building in the municipality of Bangar,
another passenger bus owned by Patricio Hufana and driven by Gregorio Hufana tried to overtake it but
that instead of giving way, Aquino increased the speed of his bus and raced with the overtaking bus.
Aquino lost control of his bus as a result of which it hit a post, crashed against a tree and then burst into
flames.
Among those who perished were Timoteo Mapanao, Francisca Lacsamana, Narcisa Mendoza and
Gregorio Sibayan, whose heirs sued petitioner and the latter's driver, Hermenegildo Aquino, for damages
for breach of contract of carriage. Carolina Sabado, one of those injured, also sued petitioner and the
driver for damages. The complaints were filed in the Court of First Instance of La Union.
In their answer, petitioner and her driver blamed respondent Gregorio Hufana for the accident. With leave
of court, they filed third party complaints against Hufana and the latter's employer, Patricio Hufana.
After trial, the court found that the accident was due to the concurrent negligence of the drivers of the two
buses and held both, together with their respective employers, jointly and severally liable for damages.
The dispositive portion of its decision reads:
"IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered, declaring the plaintiffs entitled to
damages to be paid jointly and severally by the defendants and third-party defendants as follows:
(1) For plaintiff Juliana C. Vda. de Mapanao for the death of her son Timoteo Mapanao, the sum of
P5,000.00 for actual damages, P1,000.00 as moral damages and P250.00 as attorney's fees;
(2) For plaintiff Leon Lacsamana for the death of his daughter Francisca Lacsamana, the sum of
P4,000.00 as actual damages, P1,000.00 as moral damages and P250.00 as attorney's fees;
(3) For plaintiff Juan Mendoza and Magdalena Mendoza for the death of their mother Narcisa Mendoza,
the sum of P4,000.00 for actual damages, P1,000.00 for moral damages, and P250.00 as attorney's fees;
(4) For plaintiffs Agustina Sabado, Quintin Sibayan, Julita Sibayan, Primitivo Sibayan and Avelina
Sibayan, the sum of P4,000.00 for actual damages, P1,500.00 for moral damages and P250.00 as
attorney's fees.
(5) For the injured passenger Carolina Sabado, P649.00 for actual damages, P1,500.00 for moral damages
and P250.00 for attorney's fees.
All such amounts awarded as damages shall bear interest at the legal rate of six per cent (6%) per annum
from the date of this decision until the same shall have been duly paid in full.
Defendants and third-party defendants are further ordered to pay proportionate costs."
Both petitioner and her driver and the respondents therein appealed to the Court of Appeals. While
affirming the finding that the accident was due to the concurrent negligence of the drivers of both the
Viluan and the Hufana buses, the Court of Appeals differed with the trial court in the assessment of
liabilities of the parties. In its view only petitioner Francisca Viluan, as operator of the bus, is liable for
breach of contract of carriage. The driver, Hermenegildo Aquino, cannot be made jointly and severally
liable with petitioner because he is merely the latter's employee and is in no way a party to the contract of
carriage. The court added, however—
"Hermenegildo Aquino is not entirely free from liability. He may be held liable, criminally and civilly,
under the Revised Penal Code (Article 100 and 103), but not in a civil suit for damages predicated upon a
breach of contract, such as this one (Aguas, et al. vs. Vargas, et al., CA G.R. No. 27161-R, Jan. 22, 1963).
Furthermore, the common carrier, Francisca Viluan, could recover from Aquino any damages that she
might have suffered by reason of the latter's negligence."
Neither may respondents Patricio Hufana and Gregorio Hufana be held liable in the opinion of the
appellate court because the plaintiffs did not amend complaints in the main action so as to assert a claim
against respondents as third party defendants.
The appellate court likewise disallowed the award of moral damages for P1,000 to Carolina Sabado, there
being no showing that the common carrier was guilty of fraud or bad faith in the performance of her
obligation. Accordingly, it rendered judgment as follows:
"IN VIEW OF ALL THE FOREGOING, we hereby find defendant-appellant Francisca Viluan solely
liable to the plaintiffs-appellees for the damages and attorney's fees awarded to them by the court below
and further declare null and void the lower court's award of moral damages in the amount of P1,000.00 in
favor of plaintiff Carolina Sabado. Thus modified, the judgment appealed from is affirmed in all other
respects, with costs in this instance against defendant-appellant Francisca Viluan.
From this judgment petitioner brought this appeal. In brief, her position is that since the proximate cause
of the accident was found to be the concurrent negligence of the drivers of the two buses, then she and
respondent Patricio and Gregorio Hufana should have been held equally liable to the plaintiffs in the
damage suits. The fact that the respondents were not sued as principal defendants but were brought into
the cases as third party defendants should not preclude a finding of their liability.
We agree with petitioner's contention. To begin with, the Court of Appeals' ruling is based on section 5 of
Rule 12 of the former Rules of Court,[1] which was adopted from Rule 14-a of the Federal Rules of Civil
Procedure. While the latter provision has indeed been held to preclude a judgment in favor of a plaintiff
and against a third party defendant where the plaintiff has not amended his complaint to assert a claim
against a third party defendant,[2] yet, as held in subsequent decisions, this rule applies only to cases where
the third party defendant is brought in on an allegation of liability to the defendants. The rule does not
apply where a third party defendant is impleaded on the ground of direct liability to the plaintiffs, in
which case no amendment of the plaintiff's complaint is necessary. [3] As explained in the Atlantic Coast
Line R. Co. vs. U.S. Fidelity & Guaranty Co., 52 F. Supp. 177 (1943):
"From the sources of Rule 14 and the decisions herein cited, it is clear that this rule, like the admiralty
rule, 'covers two distinct subjects, the addition of parties defendant to the main cause of action, and the
bringing in of a third party for a defendant's remedy over.' * * *
"If the third party complaint alleges facts showing a third party's direct liability to plaintiff on the claim
set out in plaintiff's petition, then third party "shall" make his defenses as provided in Rule 12 and his
counterclaims against plaintiff as provided in Rule 13. In the case of alleged direct liability, no
amendment is neceesary or required. The subject-matter of the claim is contained in plaintiff's complaint,
the ground of third party's liability on that claim is alleged in third party complaint, and third party's
defense to his alleged liability on the claim is set up in his answer to plaintiff's complaint. At that point
and without amendment, the plaintiff and third party are at issue as to their rights respecting the claim.
"The provision in the rule that, "The third-party defendant may assert any defenses which the third-party
plaintiff may assert to the plaintiff's claim,' applies to the other subject, namely, the alleged liability of
third party defendant. The next sentence in the rule, "The third-party defendant is bound by the
adjudication of the third party plaintiff's liability to the plaintiff, as well as of his own to the plaintiff or to
the third-party plaintiff,' applies to both subjects. If third party is brought in as liable only to defendant
and judgment is rendered adjudicating plaintiff's right to recover against defendant and defendant's right
to recover against third party, he is bound by both adjudications. That part of the sentence refers to the
second subject. If third party is brought in as liable to plaintiff, then third party is bound by the
adjudication as between him and plaintiff. That refers to the first subject. If third party is brought in as
liable to plaintiff and also over to defendant, then third party is bound by both adjudications. The next
sentence in the rule, 'The plaintiff may amend his pleadings to assert against the third-party defendant any
claim which the plaintiff might have asserted against the third-partjr defendant had he been joined
originally as a defendant,' refers to the second subject, that is, to bringing in third party as liable to
defendant only, and does not apply to the alleged liability of third party directly to plaintiff."
In this case the third party complaints filed by petitioner and her driver charged respondents with direct
liability to the plaintiffs. It was contended that the accident was due "to the fault, negligence, carelessness
and imprudence of the third party defendant Gregorio Hufana" and, in petitioner's motion for leave to file
a third party complaint, it was stated that "Patricio Hufana and Gregorio Hufana were not made parties to
this action, although the defendants are entitled to indemnity and/or subrogation against them in respect
of plaintiff's claim."
It should make no difference therefore whether the respondents were brought in as principal defendants or
as third-party defendants. As Moran points out, since the liability of the third-party defendant is already
asserted in the third-party complaint, the amendment of the complaint to assert wuch liability is merely a
matter of form, to insist on which would not be in keeping with the liberal spirit of the Rules of Court. [4]
Nor should it make any difference that the liability of petitioner springs from contract while that of
respondents arises from quasi-delict. As early as 1931, we already ruled in Gutierrez vs. Gutierrez, 56
Phil. 177,[5] that in case of injury to a passenger due to the negligence of the driver of the bus on which he
was riding and of o£ the driver of another vehicle, the drivers as well as the owners of the two vehicles
are jointly and severally liable for damages. Some members of the Court, though, are of the view that
under the circumstances they are liable on quasi-delict.
Wherefore, the decision appealed from is hereby modified in the sense that petitioner as well as
respondents Patricio Hufana and Gregorio Hufana are jointly and severally liable for the damages
awarded by the trial court. The disallowance of moral damages in the amount of P1,000.00 is correct and
should be affirmed. No costs.

132 Phil. 87
G.R. Nos. L-21583 & L-21591, May 20, 1968
DANIEL BULANTE, PETITIONER-APPELLANT, VS. CHU LIANTE, CAPITAL
INSURANCE& SURETY CO., INC., ET AL., RESPONDENTS-APPELLEES.

DECISION

MAKALINTAL, J.:
Shortly before noon on April 19, 1955, a Visayan Transit passenger bus collided with a cargo truck in
barrio Abango, Barugo, Leyte.  The violent impact ripped the left front sides of both vehicles, killed ten
(10) persons and injured seven (7) others.+ The owner of the cargo truck, Chu Liante, the injured
passengers and the heirs of the deceased bus passengers subsequently filed separate actions in the Court
of First Instance of Leyte (Branch VI) for damages and attorney's fees against the operator and registered
owner of the bus, petitioner Daniel Bulante.  Chu Liante's complaint (C.C.No. 237) was based on tort
(culpa aquiliana) while the separate complaints for damages of the injured passengers and the heirs of the
deceased passengers (C. C. Nos. 241 and 243 respectively) were for breach of contract of carriage (culpa
contractual).
Later on, the Capital Insurance & Surety Co., Inc. was allowed to file a complaint in intervention in Civil
Case No. 237.  Claiming to have paid certain amounts to plaintiff Chu Liante by virtue of insurance
contracts it had executed in his favor, the company sought the reimbursement thereof from Daniel
Bulante, plus the other expenses it had incurred as a result of the accident.
In his answers to the respective complaints, defendant denied liability, claiming that it was Chu Liante's
driver who was at fault, that at the time the collision occurred the bus was owned and operated by the
Visayan Bus Transit Co., Inc. of which he was then the president and general manager, and that the bus
was "registered in his name as such with the Motor Vehicles Office (now LTC) at Tacloban City." He
also interposed a counterclaim against Chu Liante.
After a joint trial, the trial court, holding that he preponderance of evidence was in favor of Daniel
Bulante, rendered judgment dismissing all the complaints and ordering Chu Liante to pay him P8,000.00
as moral damages and P2,000.00 as attorney's fees and costs.  All the plaintiffs and the intervenor (now
respondents) appealed to the Court of Appeals, which reversed the trial court and instead ordered Bulante
to pay them various sums aggregating P100,771.50 by way of actual, compensatory and moral damages,
plus costs.  The case is now before us on Bulante's petition for review by certiorari.
There is marked disagreement in the respective versions of the parties as to how the collision actually
came about.  The trial court believed the petitioner's version while the Court of Appeals gave credence to
that of the respondents.
According to the respondents, on the day of the collision the cargo truck loaded with sugar and bound for
Tacloban City reached kilometer 48 at barrio Abango in Barugo, Leyte, shortly before noon.  In front of
the barrio schoolhouse at the place was a narrow culvert, the road over which was only 4.28 meters wide
and just enough for one vehicle to pass through.  Before reaching the culvert and some 50 meters from it
the cargo truck met a speeding passenger bus (Vella).  The truck reduced its speed and then proceeded to
cross over the culvert.  At this point the passenger bus (Visayan Transit) was still a good 90 meters away,
approaching from the opposite direction.  The bus, according to the respondents, was travelling very fast
and occupying part of the lane reserved for the truck.  Before the truck could negotiate a safe distance
after crossing, at a spot some 10 meters from the culvert in the direction of Tacloban City, the collision
occurred.  The impact caused the truck to pivot almost 90 degrees to the left, thus swinging its hind part
towards the right, where it fell into a ditch on that side.  Meanwhile, the passenger bus continued to roll
forward and stopped about 32 meters on the other side of the culvert, towards Carigara.
On the other hand, the version of the petitioner is that the passenger bus approached the culvert at a
regular speed, having just picked up a passenger at barrio Baliri, where the Vella bus hereinbefore
referred to had overtaken and passed it; that the Visayan Transit bus was the first to approach and cross
the culvert, as evidenced by the fact that an oncoming bus, the Sta. Lucia, had to slow down and stop
about 20 to 30 meters from the culvert and on the other side of it, which bus was running ahead of the
cargo truck; but that after the Sta. Lucia bus had stopped, the cargo truck went ahead and at great speed
sought to beat the petitioner's bus to the culvert crossing, colliding with it as a result.  The petitioner also
alleges that, contrary to the story of the respondents, his bus stopped 2 or 3 meters from the place of
impact and that if it was later found parked farther away it was because it had been pushed forward some
15 to 20 meters to clear the way for the Sta. Lucia bus to cross the culvert so that it could take the injured
persons to the hospital in Tacloban City.
In giving credence to the respondents' version and laying the sole blame for the accident on the deceased
driver of the passenger bus, the Court of Appeals took into account a number of pertinent and significant
details, thus:
"The sketch drawn by Tomas Dagalea, a corporal of the Carigara police force, shows that the collision
took place at a point 10.25 meters from the culvert towards Tacloban City and within the lane of the
truck.  According to Dagalea, and as also indicated in the sketch, he found the bodies of Milagros
Marquez and Pelagia Cabaltera and parts of the bus strewn near the point of impact and almost on the
right edge of the road going to Tacloban City.  This supports the claim of appellants' (now respondents)
witnesses that the bus, immediately before the collision, was running at the middle of the road and that
the cargo truck had already passed over the culvert and tried to swerve more to the right of its lane when
it was bumped by the bus.  In the sketch and in the pictures taken of the vehicle, it also appears that the
truck was barely able to go some distance from the point of impact as it pivoted to almost 90 degrees to
the left side of the road facing Tacloban.  On the other hand, the bus stopped only after running 32 meters
more from the place of collision.  The truck was bigger than the bus and must have been heavier as it was
then loaded with 65 sacks of sugar.  Considering these factors, and the fact that it was also moving
forward, a tremendous amount of force is necessary to have it turn 90 degrees.  If, as appellee (now
petitioner) claims, the bus was then running at less than 35 k.p.h., the force generated by it at that speed is
certainly insufficient to overcome the force of the truck generated by its forward motion.  How was it
possible then that the truck was forced to pivot 90 degrees? Applying here the law of physics as regards
collision between two objects, one bigger and heavier than the other, the bus must have been traveling at
a high velocity so much so that it generated a force greater than that of the truck.  Indeed, the unrebutted
testimony of appellants' (now respondents) witnesses who were passengers of the bus is to the effect that
it was racing with another (Vella) bus which it tried to overtake."
After evaluating the evidence and the testimony of petitioner's witnesses, the Court of Appeals further
observed:
"The road over the culvert, as also shown in the sketch, was 4.28 meters wide and the road approaches to
the culvert accordingly narrowed down to that measurement.  Obviously, no two vehicles, particularly
those of the sizes of the two vehicles involved in the accident, going in opposite directions, could
simultaneously cross over the culvert.  One has to give way to the other.  And as it appears that the truck
was first in approaching and passing over the culvert, it was the duty of the driver of the bus to yield the
right of way and bring the bus to a complete stop if necessary.  This he obviously failed to do.  Appellee
(now petitioner), however, would like it to appear that the bus approached the culvert ahead of the truck
but since the truck was running very fast, or faster than the bus, the truck was able to cross the culvert
first.  As regards the speed of the truck, we are more inclined to believe that it was running at a moderate
or regular rate.  It was carrying 65 sacks of sugar which was a heavy enough load to affect its speed.  The
road leading to the culvert coming from Carigara, from which direction the truck came, was curving,
while that coming from Tacloban City, from where the bus approached the culvert, was straight as far as
the eye can see.  As a rule, drivers slow down at curves.  Considering the physical facts revealed in the
record together with the testimonial evidence offered by the parties, we do not hesitate to believe the
version of appellants (now respondents).  We are convinced, and so hold, that the driver of the bus was
guilty of having recklessly driven it at an unreasonably high speed and when confronted with the
emergency created by his own imprudence lost control or failed to control his vehicle."
From review of the record we do not think that the Court of Appeals overlooked any material fact or
circumstance which, if properly considered, would render its conclusion untenable.  The fact, found by
the Court of Appeals, that before the fatal collision the petitioner's bus was racing to overtake the Vella
bus and that the passengers' pleas to the driver to slow down went unheeded, shows the bus driver's
negligence and callous disregard of his duty to look after their safety above all other considerations.  In
support of the petitioner's claim that his bus was the first to approach and cross the culvert he makes
particular mention of the fact that another bus, the Sta. Lucia, had to stop and give way.  This, however, is
an allegation to sustain which no evidence is cited in the petitioner's brief, and hence cannot be relied
upon to overthrow the findings of the Court of Appeals.
The decision appealed from is also assailed insofar as the award of damages is concerned.  It is contended
that the three injured passengers - Rufina Boreres, Juanita Marquez and Valentin Momo - are not entitled
to moral damages.  The contention must be upheld, since their cause of action against the petitioner is
based on breach of contract, and in such a case moral damages may be recovered only where the
defendant acted fraudulently or in bad faith.  (Art. 2220, Civil Code).  The jurisprudence on this point is
well settled.  The petitioner here is not sued vicariously but on his own account as a party to the contract
of carriage, and neither fraud nor bad faith is alleged in the complaint or may be imputed to him merely
by reason of his driver's gross negligence in the manner he was driving the bus when the accident took
place.  The award of moral damages to the aforesaid injured passengers must be eliminated.
The next item objected to refers to the damages awarded to the heirs of the deceased passengers for loss
of earning capacity, separately from the indemnities by reason of death.  The ground for the objection is
that loss of earning capacity was not specifically pleaded or claimed in the complaints.  This item,
however, may be considered included in the prayer for "actual damages" and for other "just and equitable
reliefs," especially if taken in the light of Article 2206, in connection with Article 1764, of the Civil Code,
which allows, in addition to an indemnity of at least P3,000 by reason of death, recovery for loss of
earning capacity on the part of the deceased, the same to be paid to his heirs "in every case...unless the
deceased on account of permanent physical disability not caused by the defendant, had no earning
capacity at the time of his death."
With respect to the indemnity of P6,000 for each of the passengers who died, we do not think the same is
excessive.
The argument that this amount is properly recoverable in case of intentional homicide but not where death
is caused by negligence overlooks the fact that the concept of the indemnity in either situation is civil, not
penal, and that the measure of reparation is not affected by the nature of the causative act, whether a
crime or a mere violation of contract.
Chu Liante, the owner of the cargo truck, has been awarded damages in the sum of P6,991.50, itemized as
follows:
Cost of truck, which was
acquired in July 1954 ………      P9,904.00
Deduct:
Amount of
Insurance...     P3,100.00
Price received
at sale.....          2,800.00              5,900.00
Damages not
covered..................                       4,004.00
Add:
Value of lost tools........................     200.00
Lost Cargo..................................     287.50
Expenses for dead
passengers...........................     500.00
Amount paid to heirs of
driver.....................................  2,000.00
T O T A L........................ P6,991.50
Petitioner first questions the amount paid to the heirs of the driver and the value of lost tools on the
ground that they were not pleaded.  This is not quite true, because the complaint contains a specific
allegation concerning the loss of the tools valued at P200.00.  With respect to the amount paid to the heirs
of the driver, the evidence presented to prove it was admitted by the trial Court without objection on the
part of petitioner, and the claim was properly adjudged under the general prayer for just and equitable
relief.
Coming now to the damage to the truck itself, the award to Chu Liante in the sum of P4,004.00 consists
of the acquisition cost of the truck in 1954 (P9,904.00) minus the amount of insurance (P3,100.00) and
the price received when the truck was sold after the accident (P2,800.00).  The acquisition cost should not
have been made the basis of computation, considering the depreciation of the truck in the meantime. 
Allowing a depreciation of 25% up to the time of the accident in April 1955, the basis should be
P7,426.00.  Deducting therefrom the sums realized by the owner from the insurance and the sale of the
truck, he should be entitled to P1,526.00 which, added to the other items allowed, make a total of
P4,513.50.
WHEREFORE, with the foregoing modifications, namely, the elimination of the award of moral
damages to Rufina Boreres, Juanita Marquez and Valentin Momo, and the reduction of the award to Chu
Liante, the judgment of the Court of Appeals is affirmed.  No pronouncement as to costs.

280 Phil. 137

THIRD DIVISION
G.R. No. 56487, October 21, 1991
REYNALDA GATCHALIAN, PETITIONER, VS. ARSENIO DELIM AND THE HON. COURT
OF APPEALS, RESPONDENTS.

DECISION

FELICIANO, J.:
At noon time on 11 July 1973, petitioner Reynalda Gatchalian boarded, as a paying passenger,
respondent's "Thames" mini-bus at a point in San Eugenio, Aringay, La Union, bound for Bauang, of the
same province. On the way, while the bus was running along the highway in Barrio Payocpoc, Bauang,
La Union, "a snapping sound" was suddenly heard at one part of the bus and, shortly thereafter, the
vehicle bumped a cement flower pot on the side of the road, went off the road, turned turtle and fell into a
ditch. Several passengers, including petitioner Gatchalian, were injured. They were promptly taken to
Bethany Hospital at San Fernando, La Union, for medical treatment. Upon medical examination,
petitioner was found to have sustained physical injuries on the leg, arm and forehead, specifically
described as follows: lacerated wound, forehead; abrasion, elbow, left; abrasion, knee, left; abrasion,
lateral surface, leg, left.[1]
On 14 July 1973, while injured passengers were confined in the hospital, Mrs. Adela Delim, wife of
respondent, visited them and later paid for their hospitalization and medical expenses. She also gave
petitioner P12.00 with which to pay her transportation expense in going home from the hospital.
However, before Mrs. Delim left, she had the injured passengers, including petitioner, sign an already
prepared Joint Affidavit which stated, among other things:
"That we were passengers of Thames with Plate No. 52-222 PUJ Phil. 73 and victims after the said
Thames met an accident at Barrio Payocpoc Norte, Bauang, La Union while passing through the National
Highway No. 3;
That after a thorough investigation the said Thames met the accident due to mechanical defect and went
off the road and turned turtle to the east canal of the road into a creek causing physical injuries to us:
x x x                          x x x                             x x x
That we are no longer interested to file a complaint, criminal or civil against the said driver and owner of
the said Thames, because it was an accident and the said driver and owner of the said Thames have gone
to the extent of helping us to be treated upon our injuries.
x x x                          x x x                            x x x"[2]
(Underscoring supplied)
Notwithstanding this document, petitioner Gatchalian filed with the then Court of First Instance of La
Union an action extra contractu to recover compensatory and moral damages. She alleged in the
complaint that her injuries sustained from the vehicular mishap had left her with a conspicuous white scar
measuring 1 by ½ inches on the forehead, generating mental suffering and an inferiority complex on her
part; and that as a result, she had to retire in seclusion and stay away from her friends. She also alleged
that the scar diminished her facial beauty and deprived her of opportunities for employment. She prayed
for an award of: P10,000.00 for loss of employment and other opportunities; P10,000.00 for the cost of
plastic surgery for removal of the scar on her forehead; P30,000.00 for moral damages; and P1,000.00 as
attorney's fees.
In defense, respondent averred that the vehicular mishap was due to force majeure, and that petitioner had
already been paid and moreover had waived any right to institute any action against him (private
respondent) and his driver, when petitioner Gatchalian signed the Joint Affidavit on 14 July 1973.
After trial, the trial court dismissed the complaint upon the ground that when petitioner Gatchalian signed
the Joint Affidavit, she relinquished any right of action (whether criminal or civil) that she may have had
against respondent and the driver of the mini-bus.
On appeal by petitioner, the Court of Appeals reversed the trial court's conclusion that there had been a
valid waiver, but affirmed the dismissal of the case by denying petitioner's claim for damages:
“We are not in accord, therefore, of (sic) the ground of the trial court's dismissal of the complaint,
although we conform to the trial court's disposition of the case -- its dismissal.
IN VIEW OF THE FOREGOING considerations, there being no error committed by the lower court in
dismissing the plaintiff-appellant's complaint, the judgment of dismissal is hereby affirmed.
Without special pronouncement as to costs.
SO ORDERED.[3]
In the present Petition for Review filed in forma pauperis, petitioner assails the decision of the Court of
Appeals and asks this Court to award her actual or compensatory damages as well as moral damages.
We agree with the majority of the Court of Appeals who held that no valid waiver of her cause of action
had been made by petitioner. The relevant language of the Joint Affidavit may be quoted again:
"That we are no longer interested to file a complaint, criminal or civil against the said driver and owner of
the said Thames, because it was an accident and the said driver and owner of the said Thames have gone
to the extent of helping us to be treated upon our injuries." (Underscoring supplied)
A waiver, to be valid and effective, must in the first place be couched in clear and unequivocal terms
which leave no doubt as to the intention of a person to give up a right or benefit which legally pertains to
him.[4] A waiver may not casually be attributed to a person when the terms thereof do not explicitly and
clearly evidence an intent to abandon a right vested in such person.
The degree of explicitness which this Court has required in purported waivers is illustrated in Yepes and
Susaya v. Samar Express Transit (supra), where the Court in reading and rejecting a purported waiver
said:
"x x x It appears that before their transfer to the Leyte Provincial Hospital, appellees were asked to sign
as, in fact, they signed the document Exhibit I wherein they stated that 'in consideration of the expenses
which said operator has incurred in properly giving us the proper medical treatment, we hereby manifest
our desire to waive any and all claims against the operator of the Samar Express Transit. 'x x x
x x x                          x x x                             x x x
Even a cursory examination of the document mentioned above will readily show that appellees did not
actually waive their right to claim damages from appellant for the latter's failure to comply with their
contract of carriage. All that said document proves is that they expressed a 'desire' to make the waiver --
which obviously is not the same as making an actual waiver of their right. A waiver of the kind invoked
by appellant must be clear and unequivocal (Decision of the Supreme Court of Spain of July 8, 1887) --
which is not the case of the one relied upon in this appeal." (Underscoring supplied)
If we apply the standard used in Yepes and Susaya, we would have to conclude that the terms of the Joint
Affidavit in the instant case cannot be regarded as a waiver cast in "clear and unequivocal" terms.
Moreover, the circumstances under which the Joint Affidavit was signed by petitioner Gatchalian need to
be considered. Petitioner testified that she was still reeling from the effects of the vehicular accident,
having been in the hospital for only three days, when the purported waiver in the form of the Joint
Affidavit was presented to her for signing; that while reading the same, she experienced dizziness but
that, seeing the other passengers who had also suffered injuries sign the document, she too signed without
bothering to read the Joint Affidavit in its entirety. Considering these circumstances, there appears
substantial doubt whether petitioner understood fully the import of the Joint Affidavit (prepared by or at
the instance of private respondent) she signed and whether she actually intended thereby to waive any
right of action against private respondent.
Finally, because what is involved here is the liability of a common carrier for injuries sustained by
passengers in respect of whose safety a common carrier must exercise extraordinary diligence, we must
construe any such purported waiver most strictly against the common carrier. For a waiver to be valid and
effective, it must not be contrary to law, morals, public policy or good customs. [5] To uphold a supposed
waiver of any right to claim damages by an injured passenger, under circumstances like those exhibited in
this case, would be to dilute and weaken the standard of extraordinary diligence exacted by the law from
common carriers and hence to render that standard unenforceable. [6] We believe such a purported waiver
is offensive to public policy.
Petitioner Gatchalian also argues that the Court of Appeals, having by majority vote held that there was
no enforceable waiver of her right of action, should have awarded her actual or compensatory and moral
damages as a matter of course.
We have already noted that a duty to exercise extraordinary diligence in protecting the safety of its
passengers is imposed upon a common carrier. [7] In case of death or injuries to passengers, a statutory
presumption arises that the common carrier was at fault or had acted negligently "unless it proves that it
[had] observed extraordinary diligence as prescribed in Articles 1733 and 1755". [8] In fact, because of this
statutory presumption, it has been held that a court need not even make an express finding of fault or
negligence on the part of the common carrier in order to hold it liable. [9] To overcome this presumption,
the common carrier must show to the court that it had exercised extraordinary diligence to prevent the
injuries.[10] The standard of extraordinary diligence imposed upon common carriers is considerably more
demanding than the standard of ordinary diligence, i.e., the diligence of a good paterfamilias established
in respect of the ordinary relations between members of society. A common carrier is bound to carry its
passengers safely "as far as human care and foresight can provide, using the utmost diligence of a very
cautious person, with due regard to all the circumstances".[11]
Thus, the question which must be addressed is whether or not private respondent has successfully proved
that he had exercised extraordinary diligence to prevent the mishap involving his mini-bus. The records
before the Court are bereft of any evidence showing that respondent had exercised the extraordinary
diligence required by law. Curiously, respondent did not even attempt, during the trial before the court a
quo, to prove that he had indeed exercised the requisite extraordinary diligence. Respondent did try to
exculpate himself from liability by alleging that the mishap was the result of force majeure. But allegation
is not proof and here again, respondent utterly failed to substantiate his defense of force majeure. To
exempt a common carrier from liability for death or physical injuries to passengers upon the ground of
force majeure, the carrier must clearly show not only that the efficient cause of the casualty was entirely
independent of the human will, but also that it was impossible to avoid. Any participation by the common
carrier in the occurrence of the injury will defeat the defense of force majeure. In Servando v. Philippine
Steam Navigation Company,[12] the Court summed up the essential characteristics of force majeure by
quoting with approval from the Enciclopedia Juridical Española:
"Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the
obligor is exempt from liability for non-performance. The Partidas, the antecedent of Article 1174 of the
Civil Code, defines 'caso fortuito' as 'an event that takes place by accident and could not have been
foreseen. Examples of this are destruction of houses, unexpected fire, shipwreck, violence of robbers.'
In its dissertation on the phrase 'caso fortuito' the Enciclopedia Juridical Española says: 'In legal sense
and, consequently, also in relation to contracts, a 'caso fortuito' presents the following essential
characteristics: (1) the cause of the unforeseen and unexpected occurrence, or of the failure of the debtor
to comply with his obligation, must be independent of the human will; (2) it must be impossible to foresee
the event which constitutes the 'caso fortuito', or if it can be foreseen, it must be impossible to avoid; (3)
the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal
manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting
to the creditor."
Upon the other hand, the record yields affirmative evidence of fault or negligence on the part of
respondent common carrier. In her direct examination, petitioner Gatchalian narrated that shortly before
the vehicle went off the road and into a ditch, a "snapping sound" was suddenly heard at one part of the
bus. One of the passengers an old woman, cried out, "What happened?" ("Apay addan samet
nadadaelen?"). The driver replied, nonchalantly, "That is only normal" ("Ugali ti makina dayta"). The
driver did not stop to check if anything had gone wrong with the bus. Moreover, the driver's reply
necessarily indicated that the same "snapping sound" had been heard in the bus on previous occasions.
This could only mean that the bus had not been checked physically or mechanically to determine what
was causing the "snapping sound" which had occurred so frequently that the driver had gotten
accustomed to it. Such a sound is obviously alien to a motor vehicle in good operating condition, and
even a modicum of concern for life and limb of passengers dictated that the bus be checked and repaired.
The obvious continued failure of respondent to look after the roadworthiness and safety of the bus,
coupled with the driver's refusal or neglect to stop the mini-bus after he had heard once again the
"snapping sound" and the cry of alarm from one of the passengers, constituted wanton disregard of the
physical safety of the passengers, and hence gross negligence on the part of respondent and his driver.
We turn to petitioner's claim for damages. The first item in that claim relates to revenue which petitioner
said she failed to realize because of the effects of the vehicular mishap. Petitioner maintains that on the
day that the mini-bus went off the road, she was supposed to confer with the district supervisor of public
schools for a substitute teacher's job, a job which she had held off and on as a "casual employee". The
Court of Appeals, however, found that at the time of the accident, she was no longer employed in a public
school since, being a casual employee and not a Civil Service eligible, she had been laid off. Her
employment as a substitute teacher was occasional and episodic, contingent upon the availability of
vacancies for substitute teachers. In view of her employment status as such, the Court of Appeals held
that she could not be said to have in fact lost any employment after and by reason of the accident. [13] Such
was the factual finding of the Court of Appeals, a finding entitled to due respect from this Court.
Petitioner Gatchalian has not submitted any basis for overturning this finding of fact, and she may not be
awarded damages on the basis of speculation or conjecture. [14]
Petitioner's claim for the cost of plastic surgery for removal of the scar on her forehead, is another matter.
A person is entitled to the physical integrity of his or her body; if that integrity is violated or diminished,
actual injury is suffered for which actual or compensatory damages are due and assessable. Petitioner
Gatchalian is entitled to be placed as nearly as possible in the condition that she was before the mishap. A
scar, especially one on the face of the woman, resulting from the infliction of injury upon her, is a
violation of bodily integrity, giving raise to a legitimate claim for restoration to her conditio ante. If the
scar is relatively small and does not grievously disfigure the victim, the cost of surgery may be expected
to be correspondingly modest. In Araneta, et al. v. Areglado, et al.,[15] this Court awarded actual or
compensatory damages for, among other things, the surgical removal of the scar on the face of a young
boy who had been injured in a vehicular collision. The Court there held:
"We agree with the appellants that the damages awarded by the lower court for the injuries suffered by
Benjamin Araneta are inadequate. In allowing not more that P1,000.00 as compensation for the
'permanent deformity and -- something like an inferiority complex' as well as for the 'pathological
condition on the left side of the jaw' caused to said plaintiff, the court below overlooked the clear
evidence on record that to arrest the degenerative process taking place in the mandible and restore the
injured boy to a nearly normal condition, surgical intervention was needed, for which to doctor's charges
would amount to P3,000.00, exclusive of hospitalization fees, expenses and medicines. Furthermore, the
operation, according to Dr. Diño, would probably have to be repeated in order to effectuate a complete
cure, while removal of the scar on the face obviously demanded plastic surgery.
x x x                          x x x                             x x x
The father's failure to submit his son to a plastic operation as soon as possible does not prove that such
treatment is not called for. The damage to the jaw and the existence of the scar in Benjamin Araneta's face
are physical facts that can not be reasoned out of existence. That the injury should be treated in order to
restore him as far as possible to his original condition is undeniable. The father's delay, or even his
negligence, should not be allowed to prejudice the son who has no control over the parent's action nor
impair his right to a full indemnity.
x x x Still, taking into account the necessity and cost of corrective measures to fully repair the damage;
the pain suffered by the injured party; his feelings of inferiority due to consciousness of his present
deformity, as well as the voluntary character of the injury inflicted; and further considering that a repair,
however skillfully conducted, is never equivalent to the original state, we are of the opinion that the
indemnity granted by the trial court should be increased to a total of P18,000.00. (Underscoring supplied)
Petitioner estimated that the cost of having her scar surgically removed was somewhere between
P10,000.00 to P15,000.00.[16] Upon the other hand, Dr. Fe Tayao Lasam, a witness presented as an expert
by petitioner, testified that the cost would probably be between P5,000.00 to P10,000.00. [17] In view of
this testimony, and the fact that a considerable amount of time has lapsed since the mishap in 1973 which
may be expected to increase not only the cost but also very probably the difficulty of removing the scar,
we consider that the amount of P15,000.00 to cover the cost of such plastic surgery is not unreasonable.
Turning to petitioner's claim for moral damages, the long-established rule is that moral damages may be
awarded where gross negligence on the part of the common carrier is shown. [18] Since we have earlier
concluded that respondent common carrier and his driver had been grossly negligent in connection with
the bus mishap which had injured petitioner and other passengers, and recalling the aggressive maneuvers
of respondent, through his wife, to get the victims to waive their right to recover damages even as they
were still hospitalized for their injuries, petitioner must be held entitled to such moral damages.
Considering the extent of pain and anxiety which petitioner must have suffered as a result of her physical
injuries including the permanent scar on her forehead, we believe that the amount of P30,000.00 would be
a reasonable award. Petitioner's claim for P1,000.00 as attorney fees is in fact even more modest. [19]
WHEREFORE, the Decision of the Court of Appeals dated 24 October 1980, as well as the decision of
the then Court of First Instance of La Union dated 4 December 1975 are hereby REVERSED and SET
ASIDE. Respondent is hereby ORDERED to pay petitioner Reynalda Gatchalian the following sums: 1)
P15,000.00 as actual or compensatory damages to cover the cost of plastic surgery for the removal of the
scar on petitioner's forehead; 2) P30,000.00 as moral damages; and 3) P1,000.00 as attorney's fees, the
aggregate amount to bear interest at the legal rate of 6% per annum counting from the promulgation of
this decision until full payment thereof. Costs against private respondent.
SO ORDERED.
328 Phil. 774
SECOND DIVISION
G.R. No. 111127, July 26, 1996
MR. & MRS. ENGRACIO FABRE, JR.* AND PORFIRIO CABIL, PETITIONERS, VS. COURT
OF APPEALS, THE WORD FOR THE WORLD CHRISTIAN FELLOWSHIP, INC., AMYLINE
ANTONIO, JOHN RICHARDS, GONZALO GONZALES, VICENTE V. QUE, JR., ICLI
CORDOVA, ARLENE GOJOCCO, ALBERTO ROXAS CORDERO, RICHARD BAUTISTA,
JOCELYN GARCIA, YOLANDA CORDOVA, NOEL ROQUE, EDWARD TAN, ERNESTO
NARCISO, ENRIQUETA LOCSIN, FRANCIS NORMAN O. LOPEZ, JULIUS CAESAR
GARCIA, ROSARIO MA. V. ORTIZ, MARIETTA C. CLAVO, ELVIE SENIEL, ROSARIO
MARA-MARA, TERESITA REGALA, MELINDA TORRES, MARELLA MIJARES, JOSEFA
CABATINGAN, MARA NADOC, DIANE MAYO, TESS PLATA, MAYETTE JOCSON,
ARLENE Y. MORTIZ, LIZA MAYO, CARLOS RANARIO, ROSAMARIA T. RADOC AND
BERNADETTE FERRER, RESPONDENTS.

DECISION

MENDOZA, J.:
This is a petition for review on certiorari  of the decision of the Court of Appeals[1] in CA-GR No. 28245,
dated September 30, 1992, which affirmed with modification the decision of the Regional Trial Court of
Makati, Branch 58, ordering petitioners jointly and severally to pay damages to private respondent
Amyline Antonio, and its resolution which denied petitioners’ motion for reconsideration for lack of
merit.

Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus. They used the
bus principally in connection with a bus service for school children which they operated in Manila. The
couple had a driver, Porfirio J. Cabil, whom they hired in 1981, after trying him out for two weeks. His
job was to take school children to and from the St. Scholastica’s College in Malate, Manila.

On November 2, 1984 private respondent Word for the World Christian Fellowship Inc. (WWCF)
arranged with petitioners for the transportation of 33 members of its Young Adults Ministry from Manila
to La Union and back in consideration of which private respondent paid petitioners the amount of
P3,000.00.

The group was scheduled to leave on November 2, 1984, at 5:00 o’clock in the afternoon. However, as
several members of the party were late, the bus did not leave the Tropical Hut at the corner of Ortigas
Avenue and EDSA until 8:00 o’clock in the evening. Petitioner Porfirio Cabil drove the minibus.

The usual route to Caba, La Union was through Carmen, Pangasinan. However, the bridge at Carmen was
under repair, so that petitioner Cabil, who was unfamiliar with the area (it being his first trip to La
Union), was forced to take a detour through the town of Ba-ay in Lingayen, Pangasinan. At 11:30 that
night, petitioner Cabil came upon a sharp curve on the highway, running on a south to east direction,
which he described as "siete." The road was slippery because it was raining, causing the bus, which was
running at the speed of 50 kilometers per hour, to skid to the left road shoulder. The bus hit the left traffic
steel brace and sign along the road and rammed the fence of one Jesus Escano, then turned over and
landed on its left side, coming to a full stop only after a series of impacts. The bus came to rest off the
road. A coconut tree which it had hit fell on it and smashed its front portion.

Several passengers were injured. Private respondent Amyline Antonio was thrown on the floor of the bus
and pinned down by a wooden seat which came off after being unscrewed. It took three persons to safely
remove her from this position. She was in great pain and could not move.

The driver, petitioner Cabil, claimed he did not see the curve until it was too late. He said he was not
familiar with the area and he could not have seen the curve despite the care he took in driving the bus,
because it was dark and there was no sign on the road. He said that he saw the curve when he was already
within 15 to 30 meters of it. He allegedly slowed down to 30 kilometers per hour, but it was too late.

The Lingayen police investigated the incident the next day, November 3, 1984. On the basis of their
finding they filed a criminal complaint against the driver, Porfirio Cabil. The case was later filed with the
Lingayen Regional Trial Court. Petitioners Fabre paid Jesus Escano P1,500.00 for the damage to the
latter’s fence. On the basis of Escano’s affidavit of desistance the case against petitioners Fabre was
dismissed.

Amyline Antonio, who was seriously injured, brought this case in the RTC of Makati, Metro Manila. As a
result of the accident, she is now suffering from paraplegia and is permanently paralyzed from the waist
down. During the trial she described the operations she underwent and adduced evidence regarding the
cost of her treatment and therapy. Immediately after the accident, she was taken to the Nazareth Hospital
in Ba-ay, Lingayen. As this hospital was not adequately equipped, she was transferred to the Sto. Niño
Hospital, also in the town of Ba-ay, where she was given sedatives. An x-ray was taken and the damage
to her spine was determined to be too severe to be treated there. She was therefore brought to Manila, first
to the Philippine General Hospital and later to the Makati Medical Center where she underwent an
operation to correct the dislocation of her spine.

In its decision dated April 17, 1989, the trial court found that:
No convincing evidence was shown that the minibus was properly checked for travel to a long distance
trip and that the driver was properly screened and tested before being admitted for employment. Indeed,
all the evidence presented have shown the negligent act of the defendants which ultimately resulted to the
accident subject of this case.
Accordingly, it gave judgment for private respondents holding:
Considering that plaintiffs Word for the World Christian Fellowship, Inc. and Ms. Amyline Antonio were
the only ones who adduced evidence in support of their claim for damages, the Court is therefore not in a
position to award damages to the other plaintiffs.

WHEREFORE, premises considered, the Court hereby renders judgment against defendants Mr. & Mrs.
Engracio Fabre, Jr. and Porfirio Cabil y Jamil pursuant to articles 2176 and 2180 of the Civil Code of the
Philippines and said defendants are ordered to pay jointly and severally to the plaintiffs the following
amount:

1) P93,657.11 as compensatory and actual damages;

2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages; and

5) 25% of the recoverable amount as attorney’s fees;

6) Costs of suit.

SO ORDERED.
The Court of Appeals affirmed the decision of the trial court with respect to Amyline Antonio but
dismissed it with respect to the other plaintiffs on the ground that they failed to prove their respective
claims. The Court of Appeals modified the award of damages as follows:
1) P93,657.11 as actual damages;

2) P600,000.00 as compensatory damages;

3) P50,000.00 as moral damages;

4) P20,000.00 as exemplary damages;

5) P10,000.00 as attorney’s fees; and

6) Costs of suit.
The Court of Appeals sustained the trial court’s finding that petitioner Cabil failed to exercise due care
and precaution in the operation of his vehicle considering the time and the place of the accident. The
Court of Appeals held that the Fabres were themselves presumptively negligent. Hence, this petition.
Petitioners raise the following issues:
I.    WHETHER OR NOT PETITIONERS WERE NEGLIGENT.

II.   WHETHER OR NOT PETITIONERS WERE LIABLE FOR THE INJURIES SUFFERED BY
PRIVATE RESPONDENTS.

III. WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN THE POSITIVE, UP TO WHAT
EXTENT.
Petitioners challenge the propriety of the award of compensatory damages in the amount of P600,000.00.
It is insisted that, on the assumption that petitioners are liable, an award of P600,000.00 is unconscionable
and highly speculative. Amyline Antonio testified that she was a casual employee of a company called
"Suaco," earning P1,650.00 a month, and a dealer of Avon products, earning an average of P1,000.00
monthly. Petitioners contend that as casual employees do not have security of tenure, the award of
P600,000.00, considering Amyline Antonio’s earnings, is without factual basis as there is no assurance
that she would be regularly earning these amounts.

With the exception of the award of damages, the petition is devoid of merit.

First, it is unnecessary for our purpose to determine whether to decide this case on the theory that
petitioners are liable for breach of contract of carriage or culpa contractual or on the theory of quasi
delict or culpa aquiliana as both the Regional Trial Court and the Court of Appeals held, for although the
relation of passenger and carrier is "contractual both in origin and nature," nevertheless "the act that
breaks the contract may be also a tort."[2] In either case, the question is whether the bus driver, petitioner
Porfirio Cabil, was negligent.

The finding that Cabil drove his bus negligently, while his employer, the Fabres, who owned the bus,
failed to exercise the diligence of a good father of the family in the selection and supervision of their
employee is fully supported by the evidence on record. These factual findings of the two courts we regard
as final and conclusive, supported as they are by the evidence. Indeed, it was admitted by Cabil that on
the night in question, it was raining, and, as a consequence, the road was slippery, and it was dark. He
averred these facts to justify his failure to see that there lay a sharp curve ahead. However, it is undisputed
that Cabil drove his bus at the speed of 50 kilometers per hour and only slowed down when he noticed the
curve some 15 to 30 meters ahead.[3] By then it was too late for him to avoid falling off the road. Given
the conditions of the road and considering that the trip was Cabil’s first one outside of Manila, Cabil
should have driven his vehicle at a moderate speed. There is testimony [4] that the vehicles passing on that
portion of the road should only be running 20 kilometers per hour, so that at 50 kilometers per hour, Cabil
was running at a very high speed.

Considering the foregoing -- the fact that it was raining and the road was slippery, that it was dark, that he
drove his bus at 50 kilometers an hour when even on a good day the normal speed was only 20 kilometers
an hour, and that he was unfamiliar with the terrain, Cabil was grossly negligent and should be held liable
for the injuries suffered by private respondent Amyline Antonio.

Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise to the presumption that his
employers, the Fabres, were themselves negligent in the selection and supervision of their employee.

Due diligence in selection of employees is not satisfied by finding that the applicant possessed a
professional driver’s license. The employer should also examine the applicant for his qualifications,
experience and record of service.[5] Due diligence in supervision, on the other hand, requires the
formulation of rules and regulations for the guidance of employees and the issuance of proper instructions
as well as actual implementation and monitoring of consistent compliance with the rules. [6]

In the case at bar, the Fabres, in allowing Cabil to drive the bus to La Union, apparently did not consider
the fact that Cabil had been driving for school children only, from their homes to the St. Scholastica’s
College in Metro Manila.[7] They had hired him only after a two-week apprenticeship. They had tested
him for certain matters, such as whether he could remember the names of the children he would be taking
to school, which were irrelevant to his qualification to drive on a long distance travel, especially
considering that the trip to La Union was his first. The existence of hiring procedures and supervisory
policies cannot be casually invoked to overturn the presumption of negligence on the part of an employer.
[8]

Petitioners argue that they are not liable because (1) an earlier departure (made impossible by the
congregation’s delayed meeting) could have averted the mishap and (2) under the contract, the WWCF
was directly responsible for the conduct of the trip. Neither of these contentions hold water. The hour of
departure had not been fixed. Even if it had been, the delay did not bear directly on the cause of the
accident. With respect to the second contention, it was held in an early case that:
[A] person who hires a public automobile and gives the driver directions as to the place to which he
wishes to be conveyed, but exercises no other control over the conduct of the driver, is not responsible for
acts of negligence of the latter or prevented from recovering for injuries suffered from a collision between
the automobile and a train, caused by the negligence either of the locomotive engineer or the automobile
driver.[9]
As already stated, this case actually involves a contract of carriage. Petitioners, the Fabres, did not have to
be engaged in the business of public transportation for the provisions of the Civil Code on common
carriers to apply to them. As this Court has held:[10]
Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering
their services to the public.

The above article makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as
"a sideline"). Article 1732 also carefully avoids making any distinction between a person or enterprise
offering transportation service on a regular or scheduled basis and one offering such service on an
occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the "general public," i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general population. We think that Article
1732 deliberately refrained from making such distinctions.
As common carriers, the Fabres were bound to exercise "extraordinary diligence" for the safe
transportation of the passengers to their destination. This duty of care is not excused by proof that they
exercised the diligence of a good father of the family in the selection and supervision of their employee.
As Art. 1759 of the Code provides:
Common carriers are liable for the death of or injuries to passengers through the negligence or wilful acts
of the former’s employees, although such employees may have acted beyond the scope of their authority
or in violation of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised all the diligence of a
good father of a family in the selection and supervision of their employees.
The same circumstances detailed above, supporting the finding of the trial court and of the appellate court
that petitioners are liable under Arts. 2176 and 2180 for quasi delict, fully justify finding them guilty of
breach of contract of carriage under Arts. 1733, 1755 and 1759 of the Civil Code.

Secondly, we sustain the award of damages in favor of Amyline Antonio. However, we think the Court of
Appeals erred in increasing the amount of compensatory damages because private respondents did not
question this award as inadequate.[11] To the contrary, the award of P500,000.00 for compensatory
damages which the Regional Trial Court made is reasonable considering the contingent nature of her
income as a casual employee of a company and as distributor of beauty products and the fact that the
possibility that she might be able to work again has not been foreclosed. In fact she testified that one of
her previous employers had expressed willingness to employ her again.

With respect to the other awards, while the decisions of the trial court and the Court of Appeals do not
sufficiently indicate the factual and legal basis for them, we find that they are nevertheless supported by
evidence in the records of this case. Viewed as an action for quasi delict, this case falls squarely within
the purview of Art. 2219(2) providing for the payment of moral damages in cases of quasi delict. On the
theory that petitioners are liable for breach of contract of carriage, the award of moral damages is
authorized by Art. 1764, in relation to Art. 2220, since Cabil’s gross negligence amounted to bad faith. [12]
Amyline Antonio’s testimony, as well as the testimonies of her father and co-passengers, fully establish
the physical suffering and mental anguish she endured as a result of the injuries caused by petitioners’
negligence.

The award of exemplary damages and attorney’s fees was also properly made. However, for the same
reason that it was error for the appellate court to increase the award of compensatory damages, we hold
that it was also error for it to increase the award of moral damages and reduce the award of attorney’s
fees, inasmuch as private respondents, in whose favor the awards were made, have not appealed. [13]

As above stated, the decision of the Court of Appeals can be sustained either on the theory of quasi delict
or on that of breach of contract. The question is whether, as the two courts below held, petitioners, who
are the owners and driver of the bus, may be made to respond jointly and severally to private respondent.
We hold that they may be. In Dangwa Trans. Co. Inc. v. Court of Appeals,[14] on facts similar to those in
this case, this Court held the bus company and the driver jointly and severally liable for damages for
injuries suffered by a passenger. Again, in Bachelor Express, Inc. v. Court of Appeals[15] a driver found
negligent in failing to stop the bus in order to let off passengers when a fellow passenger ran amuck, as a
result of which the passengers jumped out of the speeding bus and suffered injuries, was held also jointly
and severally liable with the bus company to the injured passengers.

The same rule of liability was applied in situations where the negligence of the driver of the bus on which
plaintiff was riding concurred with the negligence of a third party who was the driver of another vehicle,
thus causing an accident. In Anuran v. Buño,[16] Batangas Laguna Tayabas Bus Co. v. Intermediate
Appellate Court,[17] and Metro Manila Transit Corporation v. Court of Appeals,[18] the bus company, its
driver, the operator of the other vehicle and the driver of the vehicle were jointly and severally held liable
to the injured passenger or the latter’s heirs. The basis of this allocation of liability was explained in
Viluan v. Court of Appeals,[19] thus:
Nor should it make any difference that the liability of petitioner [bus owner] springs from contract while
that of respondents [owner and driver of other vehicle] arises from quasi-delict. As early as 1913, we
already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the
negligence of the driver of the bus on which he was riding and of the driver of another vehicle, the drivers
as well as the owners of the two vehicles are jointly and severally liable for damages. Some members of
the Court, though, are of the view that under the circumstances they are liable on quasi-delict. [20]
It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of Appeals[21] this Court exonerated the jeepney
driver from liability to the injured passengers and their families while holding the owners of the jeepney
jointly and severally liable, but that is because that case was expressly tried and decided exclusively on
the theory of culpa contractual. As this Court there explained:
The trial court was therefore right in finding that Manalo [the driver] and spouses Mangune and Carreon
[the jeepney owners] were negligent. However, its ruling that spouses Mangune and Carreon are jointly
and severally liable with Manalo is erroneous. The driver cannot be held jointly and severally liable with
the carrier in case of breach of the contract of carriage. The rationale behind this is readily discernible.
Firstly, the contract of carriage is between the carrier and the passenger, and in the event of contractual
liability, the carrier is exclusively responsible therefore to the passenger, even if such breach be due to the
negligence of his driver (see Viluan v. The Court of Appeals, et al., G.R. Nos. L-21477-81, April 29,
1966, 16 SCRA 742) . . .[22]
As in the case of BLTB, private respondents in this case and her co-plaintiffs did not stake out their claim
against the carrier and the driver exclusively on one theory, much less on that of breach of contract alone.
After all, it was permitted for them to allege alternative causes of action and join as many parties as may
be liable on such causes of action[23] so long as private respondent and her co-plaintiffs do not recover
twice for the same injury. What is clear from the cases is the intent of the plaintiff there to recover from
both the carrier and the driver, thus justifying the holding that the carrier and the driver were jointly and
severally liable because their separate and distinct acts concurred to produce the same injury.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION as to the
award of damages. Petitioners are ORDERED to PAY jointly and severally the private respondent
Amyline Antonio the following amounts:

1) P93,657.11 as actual damages;

2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages;

5) 25% of the recoverable amount as attorney’s fees; and

6) costs of suit.

SO ORDERED.
FIRST DIVISION
G.R. No. 206468, August 02, 2017
JUDITH D. DARINES AND JOYCE D. DARINES, PETITIONERS, VS. PRESENT: EDUARDO
QUIÑONES AND ROLANDO QUITAN, RESPONDENTS.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari assails the October 29, 2012 Decision[1] of the Court of Appeals
(CA) in CA-G.R. CV No. 95638, which reversed and set aside the July 14, 2010 Decision [2] of the
Regional Trial Court (RTC) of Baguio City, Branch 3 in Civil Case No. 6363-R for "Breach of Contract
of Carriage & Damages." Also challenged is the March 6, 2013 CA Resolution [3] denying the motion for
reconsideration on the assailed Decision.

Factual Antecedents

Judith D. Darines (Judith) and her daughter, Joyce D. Darines (Joyce) (petitioners) alleged in their
Complaint[4] that on December 31, 2005, they boarded the Amianan Bus Line with Plate No. ACM 497
and Body No. 808 as paying passengers enroute from Carmen, Rosales, Pangasinan to Baguio City.
Respondent Rolando M. Quitan (Quitan) was driving the bus at that time. While travelling on Camp 3,
Tuba, Benguet along Kennon Road, the bus crashed into a truck (with Plate No. XSE 578) which was
parked on the shoulder of Kennon Road. As a result, both vehicles were damaged; two passengers of the
bus died; and the other passengers, including petitioners, were injured. In particular, Joyce suffered
cerebral concussion while Judith had an eye wound which required an operation.

Petitioners argued that Quitan and respondent Eduardo Quinones (Quinones), the operator of Amianan
Bus Line, breached their contract of carriage as they failed to bring them safely to their destination. They
also contended that Quitan's reckless and negligent driving caused the collision. Consequently, they
prayed for actual, moral, exemplary and temperate damages, and costs of suit.

For their part, Quinones and Quitan (respondents) countered in their Answer [5] that, during the December
31, 2005 incident, Quitan was driving in a careful, prudent, and dutiful manner at the normal speed of 40
kilometers per hour. According to them, the proximate cause of the incident was the negligence of the
truck driver, Ronald C. Fernandez, who parked the truck at the roadside right after the curve without
having installed any early warning device. They also claimed that Quinones observed due diligence in the
selection and supervision of his employees as he conducted seminars on road safety measures; and Quitan
attended such seminars including those required by the government on traffic safety. They likewise
averred that Quitan was a licensed professional driver who, in his 12 years as a public utility driver, had
not figured in any incident like the one at hand.

During the trial, Judith testified that Quitan was driving at a very fast pace resulting in a collision with the
truck parked at the shoulder of the road.[6] Consequently, the bone holding her right eye was fractured and
had to be operated.[7] She claimed that, as a result of incident, she failed to report for work for two
months.[8]

To prove the actual damages that she suffered, Judith presented receipts for medicine, and a summary of
expenses, which included those incurred for the ritual dao-is. She explained that she and Joyce are
Igorots, being members of Ibaloi, Kankanay-ey, an indigenous tribe;[9] and as their customary practice,
when a member who meets an accident is released from the hospital, they butcher pigs to remove or
prevent bad luck from returning to the family.[10]
Moreover, to support her claim for moral damages, Judith testified that she suffered sleepless nights since
she worried about the result and possible effect of her operation. [11]

On the other hand, respondents presented Ernesto Benitez (Benitez), who, on behalf of respondents,
testified that he bought the medicines and paid petitioners' hospitalization expenses, as evidenced by
receipts he submitted in court.[12]

Ruling of the Regional Trial Court

On July 14, 2010, the RTC rendered its Decision ordering respondents to pay petitioners the following:
1. Moral Damages of One Hundred Thousand Pesos (P100,000.00);
2. Exemplary Damages of Thirty Thousand Pesos (P30,000.00);
3. Attorney's Fees of Fifteen Percent (15%) of the Damages, plus Total Appearance Fees of Sixteen
Thousand Five Hundred Pesos (P16,500.00); and
4. Costs of Suit.[13]
The RTC held that since the respondents already paid the actual damages relating to petitioners' medical
and hospitalization expenses, then the only remaining matters for resolution were: whether respondents
were liable to pay petitioners a) actual damages representing the expenses incurred during the dao-is
ritual; and, Judith's alleged lost income; b) moral and exemplary damages; and, c) attorney's fees.

The RTC noted that petitioners did not present any receipt as regards the expenses they incurred during
the dao-is ritual. As regards their claim for Judith's lost income, the RTC held that petitioners similarly
failed to substantiate the same as there was no showing that Judith's failure to report for work for two
months was because of the incident. Thus, the RTC did not award actual damages for lack of evidence.

However, the RTC awarded moral damages grounded on Judith's testimony regarding her pain and
suffering. It likewise awarded exemplary damages by way of correction, and to serve as example to
common carriers to be extraordinarily diligent in transporting passengers. It also granted petitioners
attorney's fees plus costs of suit on the ground that petitioners were compelled to litigate the case.

Aggrieved, respondents appealed to the CA.

Ruling of the Court of Appeals

In its October 29, 2012 Decision, the CA reversed and set aside the RTC Decision.

The CA stressed that respondents did not dispute that they were liable for breach of contract of carriage;
in fact, they paid for the medical and hospital expenses of petitioners. Nonetheless, the CA deleted the
award of moral damages because petitioners failed to prove that respondents acted fraudulently or in bad
faith, as shown by the fact that respondents paid petitioners' medical and hospitalization expenses. The
CA held that, since no moral damages was awarded, then there was no basis to grant exemplary damages.
Finally, it ruled that because moral and exemplary damages were not granted, then the award of attorney's
fees must also be deleted.

On March 6, 2013, the CA denied petitioners' Motion for Reconsideration.

Issues

Hence, petitioners filed this Petition raising the issues as follows:

 1. WHETHER OR NOT THE CASE OF PETITIONERS FALL[S] UNDER ARTICLES
20,1157,1759, 2176,2180 AND 2219 OF THE CIVIL CODE THEREBY ENTITL[ING THEM]
TO MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES;
2. WHETHER OR NOT THE XXX AWARD OF DAMAGES AND ATTORNEY'S FEES BY
THE TRIAL COURT BECAME FINAL AND EXECUTORY SINCE HEREIN
RESPONDENTS DID NOT QUESTION THE SAME IN THEIR APPEAL BUT MERELY
QUESTIONED THE AMOUNTS OF AWARD [FOR BEING] EXORBITANT. [14]
Petitioners' Arguments

Petitioners maintain that respondents are liable to pay them moral and exemplary damages because the
proximate cause of their injuries was the reckless driving of Quitan. As regards Quinones, his fault is
presumed considering that he did not offer proof that he exercised extraordinary diligence in the selection
and supervision of his employees. They added that the negligence of respondents resulted in the latter's
failure to transport them to their destination thereby constituting a breach of their contract of carriage.
They also argued that the RTC's grant of damages and attorney's fees in their favor already attained
finality because when respondents appealed to the CA, they only questioned the amounts given by the
RTC for being exorbitant, but not the award itself.

Respondents' Arguments

Respondents, on their end, posit that they are not liable to pay moral damages because their acts were not
attended by fraud or bad faith. They add that since petitioners are not entitled to moral damages, then it
follows that they are also not entitled to exemplary damages; and same is true with regard to the grant of
attorney's fees as the same necessitates the grant of moral and exemplary damages.
Our Ruling

The Court denies the Petition.

First of all, petitioners contend that the awards of moral and exemplary damages and attorney's fees by
the RTC already attained finality because respondents did not dispute such grants when they appealed to
the CA but only the fact that the amounts were exorbitant.

Such contention is without merit.

A plain reading of the assigned errors[15] and issues[16] in the Appellants' Brief of respondents with the CA
reveals that they questioned the awards of moral and exemplary damages as well as attorney's fees made
by the RTC to petitioners. Since respondents timely challenged the awards when they interposed an
appeal to the CA, the same had not yet attained finality.

Going now to the main issue, the Court fully agrees with the CA ruling that in an action for breach of
contract, moral damages may be recovered only when a) death of a passenger results; or b) the carrier was
guilty of fraud and bad faith even if death does not result; and that neither of these circumstances were
present in the case at bar. The CA correctly held that, since no moral damages was awarded then, there is
no basis to grant exemplary damages and attorney's fees to petitioners.

To stress, this case is one for breach of contract of carriage (culpa contractual) where it is necessary to
show the existence of the contract between the parties, and the failure of the common carrier to transport
its passenger safely to his or her destination. An action for breach of contract differs from quasi-delicts
(also referred as culpa aquiliana or culpa extra contractual) as the latter emanate from the negligence of
the tort feasor[17] including such instance where a person is injured in a vehicular accident by a party other
than the carrier where he is a passenger.
The principle that, in an action for breach of contract of carriage, moral damages may be awarded only in
case (1) an accident results in the death of a passenger; or (2) the carrier is guilty of fraud or bad faith, is
pursuant to Article 1764, in relation to Article 2206(3) of the Civil Code, and Article 2220 thereof, [18] as
follows:
Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title
XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger
caused by the breach of contract by a common carrier. (Emphasis supplied)

Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three
thousand pesos, even though there may have been mitigating circumstances. In addition:

xxxx

(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand
moral damages for mental anguish by reason of the death of the deceased.

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to breaches
of contract where the defendant acted fraudulently or in bad faith. (Emphasis supplied)
The aforesaid concepts of fraud or bad faith and negligence are basic as they are distinctly differentiated
by law. Specifically, fraud or bad faith connotes "deliberate or wanton wrong doing" [19] or such deliberate
disregard of contractual obligations[20] while negligence amounts to sheer carelessness. [21]

More particularly, fraud includes "inducement through insidious machination." [22] In turn, insidious
machination refers to such deceitful strategy or such plan with an evil purpose. On the other hand, bad
faith does not merely pertain to bad judgment or negligence but relates to a dishonest purpose, and a
deliberate doing of a wrongful act. Bad faith involves "breach of a known duty through some motive or
interest or ill will that partakes of the nature of fraud." [23]

In Viluan v. Court of Appeals,[24] and Bulante v. Chu Liante,[25] the Court disallowed the recovery of moral
damages in actions for breach of contract for lack of showing that the common carrier committed fraud or
bad faith in performing its obligation. Similarly, in Verzosa v. Baytan,[26] the Court did not also grant
moral damages in an action for breach of contract as there was neither allegation nor proof that the
common carrier committed fraud or bad faith. [27] The Court declared that "[t]o award moral damages for
breach of contract, therefore, without proof of bad faith or malice on the part of the defendant, as required
by [Article 2220 of the Civil Code], would be to violate the clear provisions of the law, and constitute
unwarranted judicial legislation.[28]

Meanwhile, in Gatchalian v. Delim,[29] and Mr. & Mrs. Fabre, Jr. v. Court of Appeals,[30] the Court found
the common carriers liable for breach of contract of carriage and awarded moral damages to the injured
passengers on the ground that the common carrier committed gross negligence, which amounted to bad
faith. Particularly, in Mr. & Mrs. Fabre, Jr., the gross negligence of the common carrier was determined
from the fact that its driver was not engaged to drive long distance travels; he was also unfamiliar with the
area where he detoured the bus as it was his first time to ply such route; the road was slippery because it
was raining, yet the bus was running at 50 kilometers per hour resulting in its skidding to the left shoulder
of the road; and the bus hit the steel brace on the road at past 11:30 p.m. The Court also noted that other
than the imputation of gross negligence, the injured passengers therein pursued their claim not on the
theory of breach of contract of carriage alone but also on quasi-delicts.

Clearly, unless it is fully established (and not just lightly inferred) that negligence in an action for breach
of contract is so gross as to amount to malice, then the claim of moral damages is without merit. [31]

Here, petitioners impute negligence on the part of respondents when, as paying passengers, they sustained
injuries when the bus owned and operated by respondent Quinones, and driven by respondent Quitan,
collided with another vehicle. Petitioners propounded on the negligence of respondents, but did not
discuss or impute fraud or bad faith, or such gross negligence which would amount to bad faith, against
respondents. There being neither allegation nor proof that respondents acted in fraud or in bad faith in
performing their duties arising from their contract of carriage, they are then not liable for moral damages.

The Court also sustains the CA's finding that petitioners are not entitled to exemplary damages. Pursuant
to Articles 2229 and 2234[32] of the Civil Code, exemplary damages may be awarded only in addition to
moral, temperate, liquidated, or compensatory damages. Since petitioners are not entitled to either moral,
temperate, liquidated, or compensatory damages, then their claim for exemplary damages is bereft of
merit.

Finally, considering the absence of any of the circumstances under Article 2208 [33] of the Civil Code
where attorney's fees may be awarded, the same cannot be granted to petitioners.

All told, the CA correctly ruled that petitioners are not entitled to moral and exemplary damages as well
as attorney's fees.

WHEREFORE, the Petition is DENIED. The October 29, 2012 Decision and March 6, 2013 Resolution
of the Court of Appeals in CA-G.R. CV No. 95638 are AFFIRMED.

SO ORDERED.

G.R. No. 179446               January 10, 2011

LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,
vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE
CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing the
August 24, 2007 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 82822, entitled "R&B
Insurance Corporation v. Glodel Brokerage Corporation and Loadmasters Customs Services, Inc.,"
which held petitioner Loadmasters Customs Services, Inc. (Loadmasters) liable to respondent Glodel
Brokerage Corporation (Glodel) in the amount of ₱1,896,789.62 representing the insurance indemnity
which R&B Insurance Corporation (R&B Insurance) paid to the insured-consignee, Columbia Wire and
Cable Corporation (Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of Columbia to
insure the shipment of 132 bundles of electric copper cathodes against All Risks. On August 28, 2001, the
cargoes were shipped on board the vessel "Richard Rey" from Isabela, Leyte, to Pier 10, North Harbor,
Manila. They arrived on the same date.
Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and
the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for
the use of its delivery trucks to transport the cargoes to Columbia’s warehouses/plants in Bulacan and
Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its employed
drivers and accompanied by its employed truck helpers. Six (6) truckloads of copper cathodes were to be
delivered to Balagtas, Bulacan, while the other six (6) truckloads were destined for Lawang Bato,
Valenzuela City. The cargoes in six truckloads for Lawang Bato were duly delivered in Columbia’s
warehouses there. Of the six (6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the
destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper cathodes, failed to deliver its
cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper
cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for insurance indemnity
in the amount of ₱1,903,335.39. After the requisite investigation and adjustment, R&B Insurance paid
Columbia the amount of ₱1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel before the
Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-103040. It sought
reimbursement of the amount it had paid to Columbia for the loss of the subject cargo. It claimed that it
had been subrogated "to the right of the consignee to recover from the party/parties who may be held
legally liable for the loss."2
On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for damages for the loss of
the subject cargo and dismissing Loadmasters’ counterclaim for damages and attorney’s fees against
R&B Insurance. The dispositive portion of the decision reads:
WHEREFORE, all premises considered, the plaintiff having established by preponderance of evidence its
claims against defendant Glodel Brokerage Corporation, judgment is hereby rendered ordering the latter:
1. To pay plaintiff R&B Insurance Corporation the sum of ₱1,896,789.62 as actual and compensatory
damages, with interest from the date of complaint until fully paid;
2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the principal amount
recovered as and for attorney’s fees plus ₱1,500.00 per appearance in Court;
3. To pay plaintiff R&B Insurance Corporation the sum of ₱22,427.18 as litigation expenses.
WHEREAS, the defendant Loadmasters Customs Services, Inc.’s counterclaim for damages and
attorney’s fees against plaintiff are hereby dismissed.
With costs against defendant Glodel Brokerage Corporation.
SO ORDERED.4
Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered the assailed decision which reads in part:
Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes to appellant
R&B Insurance Corporation as insurance indemnity must likewise be the amount it shall be paid by
appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the appellee
Loadmasters is likewise held liable to appellant Glodel in the amount of ₱1,896,789.62 representing the
insurance indemnity appellant Glodel has been held liable to appellant R&B Insurance Corporation.
Appellant Glodel’s appeal to absolve it from any liability is herein DISMISSED.
SO ORDERED.5
Hence, Loadmasters filed the present petition for review on certiorari before this Court presenting the
following
ISSUES
1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of the fact that the latter
respondent Glodel did not file a cross-claim against it (Loadmasters)?
2. Under the set of facts established and undisputed in the case, can petitioner Loadmasters be
legally considered as an Agent of respondent Glodel?6
To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it cannot be
considered an agent of Glodel because it never represented the latter in its dealings with the consignee. At
any rate, it further contends that Glodel has no recourse against it for its (Glodel’s) failure to file a cross-
claim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil Procedure.
Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-claim because the latter
was grossly negligent in the transportation of the subject cargo. With respect to Loadmasters’ claim that it
is already estopped from filing a cross-claim, Glodel insists that it can still do so even for the first time on
appeal because there is no rule that provides otherwise. Finally, Glodel argues that its relationship with
Loadmasters is that of Charter wherein the transporter (Loadmasters) is only hired for the specific job of
delivering the merchandise. Thus, the diligence required in this case is merely ordinary diligence or that
of a good father of the family, not the extraordinary diligence required of common carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim against
Loadmasters because it was not prevented from presenting evidence to prove its position even without
amending its Answer. As to the relationship between Loadmasters and Glodel, it contends that a contract
of agency existed between the two corporations. 8
Subrogation is the substitution of one person in the place of another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities.9 Doubtless, R&B Insurance is subrogated to the rights of the insured
to the extent of the amount it paid the consignee under the marine insurance, as provided under Article
2207 of the Civil Code, which reads:
ART. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrong-doer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek
reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort.
The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the amount
of the indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common carriers to
determine their liability for the loss of the subject cargo. Under Article 1732 of the Civil Code, common
carriers are persons, corporations, firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air for compensation, offering their services to
the public.
Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the business
of transporting goods by land, through its trucking service. It is a common carrier as distinguished from a
private carrier wherein the carriage is generally undertaken by special agreement and it does not hold
itself out to carry goods for the general public. 10 The distinction is significant in the sense that "the rights
and obligations of the parties to a contract of private carriage are governed principally by their
stipulations, not by the law on common carriers."11
In the present case, there is no indication that the undertaking in the contract between Loadmasters and
Glodel was private in character. There is no showing that Loadmasters solely and exclusively rendered
services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.12
In the same vein, Glodel is also considered a common carrier within the context of Article 1732. In its
Memorandum,13 it states that it "is a corporation duly organized and existing under the laws of the
Republic of the Philippines and is engaged in the business of customs brokering." It cannot be considered
otherwise because as held by this Court in Schmitz Transport & Brokerage Corporation v. Transport
Venture, Inc.,14 a customs broker is also regarded as a common carrier, the transportation of goods being
an integral part of its business.
Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and
for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods
transported by them according to all the circumstances of such case, as required by Article 1733 of the
Civil Code. When the Court speaks of extraordinary diligence, it is that extreme measure of care and
caution which persons of unusual prudence and circumspection observe for securing and preserving their
own property or rights.15 This exacting standard imposed on common carriers in a contract of carriage of
goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once
the goods have been lodged for shipment.16 Thus, in case of loss of the goods, the common carrier is
presumed to have been at fault or to have acted negligently. 17 This presumption of fault or negligence,
however, may be rebutted by proof that the common carrier has observed extraordinary diligence over the
goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the
exercise of extraordinary diligence 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. 18
Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally
liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the New Civil Code,
"the responsibility of two or more persons who are liable for a quasi-delict is solidary."
Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the consignee
Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a direct contractual
relation with Columbia, but it is liable for tort under the provisions of Article 2176 of the Civil Code on
quasi-delicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc. v.
Phoenix Assurance Company of New York,/McGee & Co., Inc. 19 where this Court held that a tort may
arise despite the absence of a contractual relationship, to wit:
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao
Terminal, from which the present case has arisen, states a cause of action. The present action is based
on quasi-delict, arising from the negligent and careless loading and stowing of the cargoes belonging to
Del Monte Produce. Even assuming that both Phoenix and McGee have only been subrogated in the
rights of Del Monte Produce, who is not a party to the contract of service between Mindanao Terminal
and Del Monte, still the insurance carriers may have a cause of action in light of the Court’s consistent
ruling that the act that breaks the contract may be also a tort. In fine, a liability for tort may arise even
under a contract, where tort is that which breaches the contract. In the present case, Phoenix and McGee
are not suing for damages for injuries arising from the breach of the contract of service but from
the alleged negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte
Produce. Despite the absence of contractual relationship between Del Monte Produce and Mindanao
Terminal, the allegation of negligence on the part of the defendant should be sufficient to establish a
cause of action arising from quasi-delict. [Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own acts or
omissions, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting within
the scope of their assigned tasks, even though the former are not engaged in any business or industry.
It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees
(truck driver and helper) were instrumental in the hijacking or robbery of the shipment. As employer,
Loadmasters should be made answerable for the damages caused by its employees who acted within the
scope of their assigned task of delivering the goods safely to the warehouse.
Whenever an employee’s negligence causes damage or injury to another, there instantly arises a
presumption juris tantum that the employer failed to exercise diligentissimi patris families in the selection
(culpa in eligiendo) or supervision (culpa in vigilando) of its employees. 20 To avoid liability for a quasi-
delict committed by its employee, an employer must overcome the presumption by presenting convincing
proof that he exercised the care and diligence of a good father of a family in the selection and supervision
of his employee.21 In this regard, Loadmasters failed.
Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure that
Loadmasters would fully comply with the undertaking to safely transport the subject cargo to the
designated destination. It should have been more prudent in entrusting the goods to Loadmasters by
taking precautionary measures, such as providing escorts to accompany the trucks in delivering the
cargoes. Glodel should, therefore, be held liable with Loadmasters. Its defense of force majeure is
unavailing.
At this juncture, the Court clarifies that there exists no principal-agent relationship between Glodel and
Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code provides: "By the contract
of agency a person binds himself to render some service or to do something in representation or on behalf
of another, with the consent or authority of the latter." The elements of a contract of agency are: (1)
consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the
agent acts within the scope of his authority. 22
Accordingly, there can be no contract of agency between the parties. Loadmasters never represented
Glodel. Neither was it ever authorized to make such representation. It is a settled rule that the basis for
agency is representation, that is, the agent acts for and on behalf of the principal on matters within the
scope of his authority and said acts have the same legal effect as if they were personally executed by the
principal. On the part of the principal, there must be an actual intention to appoint or an intention
naturally inferable from his words or actions, while on the part of the agent, there must be an intention to
accept the appointment and act on it.23 Such mutual intent is not obtaining in this case.
What then is the extent of the respective liabilities of Loadmasters and Glodel? Each wrongdoer is liable
for the total damage suffered by R&B Insurance. Where there are several causes for the resulting
damages, a party is not relieved from liability, even partially. It is sufficient that the negligence of a party
is an efficient cause without which the damage would not have resulted. It is no defense to one of the
concurrent tortfeasors that the damage would not have resulted from his negligence alone, without the
negligence or wrongful acts of the other concurrent tortfeasor. As stated in the case of Far Eastern
Shipping v. Court of Appeals,24
X x x. Where several causes producing an injury are concurrent and each is an efficient cause without
which the injury would not have happened, the injury may be attributed to all or any of the causes and
recovery may be had against any or all of the responsible persons although under the circumstances of the
case, it may appear that one of them was more culpable, and that the duty owed by them to the injured
person was not the same. No actor's negligence ceases to be a proximate cause merely because it does not
exceed the negligence of other actors. Each wrongdoer is responsible for the entire result and is liable as
though his acts were the sole cause of the injury.
There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable
for the total damage. Where the concurrent or successive negligent acts or omissions of two or more
persons, although acting independently, are in combination the direct and proximate cause of a single
injury to a third person, it is impossible to determine in what proportion each contributed to the injury
and either of them is responsible for the whole injury. Where their concurring negligence resulted in
injury or damage to a third party, they become joint tortfeasors and are solidarily liable for the resulting
damage under Article 2194 of the Civil Code. [Emphasis supplied]
The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having failed to file
a cross-claim against the latter.1avvphi1
Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of contract of service
as the latter is primarily liable for the loss of the subject cargo. In this case, however, it cannot succeed in
seeking judicial sanction against Loadmasters because the records disclose that it did not properly
interpose a cross-claim against the latter. Glodel did not even pray that Loadmasters be liable for any and
all claims that it may be adjudged liable in favor of R&B Insurance. Under the Rules, a compulsory
counterclaim, or a cross-claim, not set up shall be barred.25 Thus, a cross-claim cannot be set up for the
first time on appeal.
For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid on equitable
grounds. "Equity, which has been aptly described as ‘a justice outside legality,’ is applied only in the
absence of, and never against, statutory law or judicial rules of procedure." 26 The Court cannot be a
lawyer and take the cudgels for a party who has been at fault or negligent.
WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the Court of
Appeals is MODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, Inc. and
respondent Glodel Brokerage Corporation jointly and severally liable to respondent R&B Insurance
Corporation for the insurance indemnity it paid to consignee Columbia Wire & Cable Corporation and
ordering both parties to pay, jointly and severally, R&B Insurance Corporation a] the amount of
₱1,896,789.62 representing the insurance indemnity; b] the amount equivalent to ten (10%) percent
thereof for attorney’s fees; and c] the amount of ₱22,427.18 for litigation expenses.
The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against petitioner
Loadmasters Customs Services, Inc. is DENIED.
SO ORDERED.
THIRD DIVISION
G.R. No. 143133, June 05, 2002
BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. AND JARDINE DAVIES
TRANSPORT SERVICES, INC., PETITIONERS, VS. PHILIPPINE FIRST INSURANCE CO.,
INC., RESPONDENT.

DECISION

PANGANIBAN, J.:
Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at their
destination constitutes prima facie fault or negligence on the part of the carrier.  If no adequate
explanation is given as to how the loss, the destruction or the deterioration of the goods happened, the
carrier shall be held liable therefor.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998
Decision[1] and the May 2, 2000  Resolution[2] of the Court of Appeals[3] (CA) in CA-GR CV No. 53571. 
The decretal portion of the Decision reads as follows:
“WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby
REVERSED and SET ASIDE.  Defendants-appellees are ORDERED to jointly and severally pay
plaintiffs-appellants the following:
‘1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as actual
damages, representing the value of the damaged cargo, plus interest at the legal rate from the time of
filing of the complaint on July 25, 1991, until fully paid;

‘2) Attorney’s fees amounting to 20% of the claim; and

‘3) Costs of suit.’”[4]

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which had
disposed as follows:
“WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the complaint, as well
as defendant’s counterclaim.”[5]
The Facts

The factual antecedents of the case are summarized by the Court of Appeals in this wise:
“On June 13, 1990, CMC Trading A.G. shipped on board the MN ‘Anangel Sky’ at Hamburg, Germany
242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila consigned to the
Philippine Steel Trading Corporation.  On July 28, 1990, MN Anangel Sky arrived at the port of Manila
and, within the subsequent days, discharged the subject cargo.  Four (4) coils were found to be in bad
order B.O. Tally sheet No. 154974.  Finding the four (4) coils in their damaged state to be unfit for the
intended purpose, the consignee Philippine Steel Trading Corporation declared the same as total loss.

“Despite receipt of a formal demand, defendants-appellees refused to submit to the consignee’s claim. 
Consequently, plaintiff-appellant paid the consignee five hundred six thousand eighty six & 50/100 pesos
(P506,086.50), and was subrogated to the latter’s rights and causes of action against defendants-appellees.
Subsequently, plaintiff-appellant instituted this complaint for recovery of the amount paid by them, to the
consignee as insured.

“Impugning the propriety of the suit against them, defendants-appellees imputed that the damage and/or
loss was due to pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils,
danger and accidents of the sea, or to insufficiency of packing thereof, or to the act or omission of the
shipper of the goods or their representatives.  In addition thereto, defendants-appellees argued that their
liability, if there be any, should not exceed the limitations of liability provided for in the bill of lading and
other pertinent laws.  Finally, defendants-appellees averred that, in any event, they exercised due
diligence and foresight required by law to prevent any damage/loss to said shipment.” [6]
Ruling of the Trial Court

The RTC dismissed the Complaint because respondent had failed to prove its claims with the quantum of
proof required by law.[7]
It likewise debunked petitioners’ counterclaim, because respondent’s suit was not manifestly frivolous or
primarily intended to harass them.[8]
Ruling of the Court of Appeals

In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the
goods shipped, because they had failed to overcome the presumption of negligence imposed on common
carriers.

The CA further held as inadequately proven petitioners’ claim that the loss or the deterioration of the
goods was due to pre-shipment damage.[9] It likewise opined that the notation “metal envelopes rust
stained and slightly dented” placed on the Bill of Lading had not been the proximate cause of the damage
to the four (4) coils.[10]

As to the extent of petitioners’ liability, the CA held that the package limitation under COGSA was not
applicable, because the words “L/C No. 90/02447” indicated that a higher valuation of the cargo had been
declared by the shipper.  The CA, however, affirmed the award of attorney’s fees.

Hence, this Petition.[11]

Issues

In their Memorandum, petitioners raise the following issues for the Court’s consideration:
I

“Whether or not plaintiff by presenting only one witness who has never seen the subject shipment and
whose testimony is purely hearsay is sufficient to pave the way for the applicability of Article 1735 of the
Civil Code;
II

“Whether or not the consignee/plaintiff filed the required notice of loss within the time required by law;
III

“Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-shipment
damage and to exempt herein defendants from liability;
IV

“Whether or not the “PACKAGE LIMITATION” of liability under Section 4 (5) of COGSA is applicable
to the case at bar.”[12]
In sum, the issues boil down to three:
1. Whether petitioners have overcome the presumption of negligence of a common carrier
2. Whether the notice of loss was timely filed
3. Whether the package limitation of liability is applicable
This Court’s Ruling
The Petition is partly meritorious.
First Issue:
Proof of Negligence

Petitioners contend that the presumption of fault imposed on common carriers should not be applied on
the basis of the lone testimony offered by private respondent. The contention is untenable.

Well-settled is the rule that common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the goods
and the passengers they transport.[13] Thus, common carriers are required to render service with the
greatest skill and foresight and “to use all reason[a]ble means to ascertain the nature and characteristics of
the goods tendered for shipment, and to exercise due care in the handling and stowage, including such
methods as their nature requires.”[14] The extraordinary responsibility lasts from the time the goods are
unconditionally placed in the possession of and received for transportation by the carrier until they are
delivered, actually or constructively, to the consignee or to the person who has a right to receive them. [15]

This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such
contract, the riding public enters into a contract of transportation with common carriers. [16] Even if it
wants to, it cannot submit its own stipulations for their approval. [17] Hence, it merely adheres to the
agreement prepared by them.

Owing to this high degree of diligence required of them, 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. [18]
That is, unless they prove that they exercised extraordinary diligence in transporting the goods. [19] In order
to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they
observed such diligence.[20]

However, the presumption of fault or negligence will not arise [21] if the loss is due to any of the following
causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the
public enemy in war, whether international or civil; (3) an act or omission of the shipper or owner of the
goods; (4) the character of the goods or defects in the packing or the container; or (5) an order or act of
competent public authority.[22] This is a closed list.  If the cause of destruction, loss or deterioration is
other than the enumerated circumstances, then the carrier is liable therefor. [23]

Corollary to the foregoing, 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, the loss or the destruction of
the goods happened, the transporter shall be held responsible. [24]

That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar by
a review of the records and more so by the evidence adduced by respondent. [25]

First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and condition
in Hamburg, Germany.[26]

Second, prior to the unloading of the cargo, an Inspection Report [27] prepared and signed by
representatives of both parties showed the steel bands broken, the metal envelopes rust-stained and
heavily buckled, and the contents thereof exposed and rusty.

Third, Bad Order Tally Sheet No. 154979[28] issued by Jardine Davies Transport Services, Inc., stated that
the four coils were in bad order and condition.  Normally, a request for a bad order survey is made in case
there is an apparent or a presumed loss or damage. [29]
Fourth, the Certificate of Analysis[30] stated that, based on the sample submitted and tested, the steel
sheets found in bad order were wet with fresh water.

Fifth, petitioners -- in a letter[31] addressed to the Philippine Steel Coating Corporation and dated October
12, 1990 -- admitted that they were aware of the condition of the four coils found in bad order and
condition.

These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency. 
Pertinent portions of his testimony are reproduce hereunder:

“Q. Mr. Esmerio, you mentioned that you are a Head Checker.  Will you inform the Honorable
Court with what company you are connected?

A. BM Santos Checkers Agency, sir.

Q. How is BM Santos Checkers Agency related or connected with defendant Jardine Davies
Transport Services?

A. It is the company who contracts the checkers, sir.

Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your
duties and responsibilities?

A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of
cargoes.

   

  x x x                     x x x                     x x x

   

Q. On or about August 1, 1990, were you still connected or employed with BM Santos as a Head
Checker?

A. Yes, sir.

Q. And, on or about that date, do you recall having attended the discharging and inspection of
cold steel sheets in coil on board the MV/AN ANGEL SKY?

A. Yes, sir, I was there.

   

  x x x                     x x x                     x x x

   

Q. Based on your inspection since you were also present at that time, will you inform this
Honorable Court the condition or the appearance of the bad order cargoes that were unloaded
from the MV/ANANGEL SKY?

 
ATTY. MACAMAY:

  Objection, Your Honor, I think the document itself reflects the condition of the cold steel
sheets and the best evidence is the document itself, Your Honor that shows the condition of
the steel sheets.

COURT:

  Let the witness answer.

A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on
the sides.”[32]

All these conclusively prove the fact of shipment in good order and condition and the consequent damage
to the four coils while in the possession of petitioner, [33] who notably failed to explain why.[34]

Further, petitioners failed to prove that they observed the extraordinary diligence and precaution which
the law requires a common carrier to know and to follow, to avoid damage to or destruction of the goods
entrusted to it for safe carriage and delivery. [35]

True, the words “metal envelopes rust stained and slightly dented” were noted on the Bill of Lading;
however, there is no showing that petitioners exercised due diligence to forestall or lessen the loss. [36]
Having been in the service for several years, the master of the vessel should have known at the outset that
metal envelopes in the said state would eventually deteriorate when not properly stored while in transit. [37]
Equipped with the proper knowledge of the nature of steel sheets in coils and of the proper way of
transporting them, the master of the vessel and his crew should have undertaken precautionary measures
to avoid possible deterioration of the cargo.  But none of these measures was taken.[38] Having failed to
discharge the burden of proving that they have exercised the extraordinary diligence required by law,
petitioners cannot escape liability for the damage to the four coils. [39]

In their attempt to escape liability, petitioners further contend that they are exempted from liability under
Article 1734(4) of the Civil Code.  They cite the notation “metal envelopes rust stained and slightly
dented” printed on the Bill of Lading as evidence that the character of the goods or defect in the packing
or the containers was the proximate cause of the damage.  We are not convinced.

From the evidence on record, it cannot be reasonably concluded that the damage to the four coils was due
to the condition noted on the Bill of Lading.[40] The aforecited exception refers to cases when goods are
lost or damaged while in transit as a result of the natural decay of perishable goods or the fermentation or
evaporation of substances liable therefor, the necessary and natural wear of goods in transport, defects in
packages in which they are shipped, or the natural propensities of animals. [41] None of these is present in
the instant case.

Further, even if the fact of improper packing was known to the carrier or its crew or was apparent upon
ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts the
goods notwithstanding such condition.[42] Thus, petitioners have not successfully proven the application of
any of the aforecited exceptions in the present case. [43]
Second Issue:
Notice of Loss
Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act [44]
(COGSA), respondent should have filed its Notice of Loss within three days from delivery.  They assert
that the cargo was discharged on July 31, 1990, but that respondent filed its Notice of Claim only on
September 18, 1990.[45]

We are not persuaded.  First, the above-cited provision of COGSA provides that the notice of claim need
not be given if the state of the goods, at the time of their receipt, has been the subject of a joint inspection
or survey.  As stated earlier, prior to unloading the cargo, an Inspection Report [46] as to the condition of
the goods was prepared and signed by representatives of both parties. [47]

Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar
recovery if it is nonetheless filed within one year. [48] This one-year prescriptive period also applies to the
shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading. [49]

In Loadstar Shipping Co., Inc. v. Court of Appeals,[50] we 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.:
“Inasmuch as the 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.”
In the present case, the cargo was discharged on July 31, 1990, while the Complaint [51] was filed by
respondent on July 25, 1991, within the one-year prescriptive period.
Third Issue:
Package Limitation

Assuming arguendo they are liable for respondent’s claims, petitioners contend that their liability should
be limited to US$500 per package as provided in the Bill of Lading and by Section 4(5) [52] of COGSA.[53]

On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value of
the subject shipment was declared by petitioners beforehand, as evidenced by the reference to and the
insertion of the Letter of Credit or “L/C No. 90/02447” in the said Bill of Lading. [54]

A bill of lading serves two functions.  First, it is a receipt for the goods shipped.[55] Second, it is a contract
by which three parties -- namely, the shipper, the carrier, and the consignee -- undertake specific
responsibilities and assume stipulated obligations. [56] In a nutshell, the acceptance of the bill of lading by
the shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that it
constituted a perfected and binding contract.[57]

Further, a stipulation in the bill of lading limiting to a certain sum the common carrier’s liability for loss
or destruction of a cargo -- unless the shipper or owner declares a greater value [58] -- is sanctioned by law.
[59]
There are, however, two conditions to be satisfied: (1) the contract is reasonable and just under the
circumstances, and (2) it has been fairly and freely agreed upon by the parties. [60] The rationale for, this
rule is to bind the shippers by their agreement to the value (maximum valuation) of their goods. [61]

It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed
amount per package.[62] In all matters not regulated by the Civil Code, the right and the obligations of
common carriers shall be governed by the Code of Commerce and special laws. [63] Thus, the COGSA,
which is suppletory to the provisions of the Civil Code, supplements the latter by establishing a statutory
provision limiting the carrier’s liability in the absence of a shipper’s declaration of a higher value in the
bill of lading.[64] The provisions on limited liability are as much a part of the bill of lading as though
physically in it and as though placed there by agreement of the parties. [65]

In the case before us, there was no stipulation in the Bill of Lading [66] limiting the carrier’s liability. 
Neither did the shipper declare a higher valuation of the goods to be shipped.  This fact notwithstanding,
the insertion of the words “L/C No. 90/02447 cannot be the basis for petitioners’ liability.

First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the
shipper for the importation of steel sheets did not effect a declaration of the value of the goods as required
by the bill.[67] That notation was made only for the convenience of the shipper and the bank processing the
Letter of Credit.[68]

Second, in Keng Hua Paper Products v. Court of Appeals,[69] we held that a bill of lading was separate
from the Other Letter of Credit arrangements.  We ruled thus:
“(T)he contract of carriage, as stipulated in the bill of lading in the present case, must be treated
independently of the contract of sale between the seller and the buyer, and the contract of issuance of a
letter of credit between the amount of goods described in the commercial invoice in the contract of sale
and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract
of carriage as embodied in the bill of lading.  As the bank cannot be expected to look beyond the
documents presented to it by the seller pursuant to the letter of credit, neither can the carrier be expected
to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-à-vis
the commercial invoice and the letter of credit. Thus, the discrepancy between the amount of goods
indicated in the invoice and the amount in the bill of lading cannot negate petitioner’s obligation to
private respondent arising from the contract of transportation.” [70]
In the light of the foregoing, petitioners’ liability should be computed based on US$500 per package and
not on the per metric ton price declared in the Letter of Credit. [71] In Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court[72] we explained the meaning of package:
“When what would ordinarily be considered packages are shipped in a container supplied by the carrier
and the number of such units is disclosed in the shipping documents, each of those units and not the
container constitutes the ‘package’ referred to in the liability limitation provision of Carriage of Goods by
Sea Act.”
Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly
disclosed the contents of the containers, the number of units, as well as the nature of the steel sheets, the
four damaged coils should be considered as the shipping unit subject to the US$500 limitation.

WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners’ liability
is reduced to US$2,000 plus interest at the legal rate of six percent from the time of the filing of the
Complaint on July 25, 1991 until the finality of this Decision, and 12 percent thereafter until fully paid. 
No pronouncement as to costs.

SO ORDERED.

THIRD DIVISION
G.R. No. 146018, June 25, 2003
EDGAR COKALIONG SHIPPING LINES, INC.,PETITIONER, VS. UCPB GENERAL
INSURANCE COMPANY, INC.,RESPONDENT.

DECISION

PANGANIBAN, J.:
The liability of a common carrier for the loss of goods may, by stipulation in the bill of lading, be limited
to the value declared by the shipper.  On the other hand, the liability of the insurer is determined by the
actual value covered by the insurance policy and the insurance premiums paid therefor, and not
necessarily by the value declared in the bill of lading.
The Case

Before the Court is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the
August 31, 2000 Decision[2] and the November 17, 2000 Resolution[3] of the Court of Appeals[4] (CA) in
CA-GR SP No. 62751.  The dispositive part of the Decision reads:
"IN THE LIGHT OF THE FOREGOING, the appeal is GRANTED.  The Decision appealed from is
REVERSED.  [Petitioner] is hereby condemned to pay to [respondent] the total amount of P148,500.00,
with interest thereon, at the rate of 6% per annum, from date of this Decision of the Court. 
[Respondent's] claim for attorney's fees [is] DISMISSED. [Petitioner's] counterclaims are
DISMISSED."[5]
The assailed Resolution denied petitioner's Motion for Reconsideration.

On the other hand, the disposition of the Regional Trial Court's [6] Decision,[7] which was later reversed by
the CA, states:
"WHEREFORE, premises considered, the case is hereby DISMISSED for lack of merit.

"No cost."[8]
The Facts

The facts of the case are summarized by the appellate court in this wise:
"Sometime on December 11, 1991, Nestor Angelia delivered to the Edgar Cokaliong Shipping Lines, Inc.
(now Cokaliong Shipping Lines), [petitioner] for brevity, cargo consisting of one (1) carton of
Christmas décor and two (2) sacks of plastic toys, to be transported on board the M/V Tandag on its
Voyage No. T-189 scheduled to depart from Cebu City, on December 12, 1991, for Tandag, Surigao del
Sur.  [Petitioner] issued Bill of Lading No. 58, freight prepaid, covering the cargo. Nestor Angelia was
both the shipper and consignee of the cargo valued, on the face thereof, in the amount of P6,500.00. 
Zosimo Mercado likewise delivered cargo to [petitioner], consisting of two (2) cartons of plastic toys and
Christmas decor, one (1) roll of floor mat and one (1) bundle of various or assorted goods for
transportation thereof from Cebu City to Tandag, Surigao del Sur, on board the said vessel, and said
voyage. [Petitioner] issued Bill of Lading No. 59 covering the cargo which, on the face thereof, was
valued in the amount of P14,000.00.  Under the Bill of Lading, Zosimo Mercado was both the shipper
and consignee of the cargo.

"On December 12, 1991, Feliciana Legaspi insured the cargo, covered by Bill of Lading No. 59, with the
UCPB General Insurance Co., Inc., [respondent] for brevity, for the amount of P100,000.00 `against all
risks' under Open Policy No. 002/91/254 for which she was issued, by [respondent], Marine Risk Note
No. 18409 on said date.  She also insured the cargo covered by Bill of Lading No. 58, with [respondent],
for the amount of P50,000.00, under Open Policy No. 002/91/254 on the basis of which [respondent]
issued Marine Risk Note No. 18410 on said date.

"When the vessel left port, it had thirty-four (34) passengers and assorted cargo on board, including the
goods of Legaspi.  After the vessel had passed by the Mandaue-Mactan Bridge, fire ensued in the engine
room, and, despite earnest efforts of the officers and crew of the vessel, the fire engulfed and destroyed
the entire vessel resulting in the loss of the vessel and the cargoes therein.  The Captain filed the required
Marine Protest.
"Shortly thereafter, Feliciana Legaspi filed a claim, with [respondent], for the value of the cargo insured
under Marine Risk Note No. 18409 and covered by Bill of Lading No. 59.  She submitted, in support of
her claim, a Receipt, dated December 11, 1991, purportedly signed by Zosimo Mercado, and Order Slips
purportedly signed by him for the goods he received from Feliciana Legaspi valued in the amount of
P110,056.00.  [Respondent] approved the claim of Feliciana Legaspi and drew and issued UCPB Check
No. 612939, dated March 9, 1992, in the net amount of P99,000.00, in settlement of her claim after which
she executed a Subrogation Receipt/Deed, for said amount, in favor of [respondent]. She also filed a
claim for the value of the cargo covered by Bill of Lading No. 58.  She submitted to [respondent] a
Receipt, dated December 11, 1991 and Order Slips, purportedly signed by Nestor Angelia for the goods
he received from Feliciana Legaspi valued at P60,338.00.  [Respondent] approved her claim and remitted
to Feliciana Legaspi the net amount of P49,500.00, after which she signed a Subrogation Receipt/Deed,
dated March 9, 1992, in favor of [respondent].

"On July 14, 1992, [respondent], as subrogee of Feliciana Legaspi, filed a complaint anchored on torts
against [petitioner], with the Regional Trial Court of Makati City, for the collection of the total principal
amount of P148,500.00, which it paid to Feliciana Legaspi for the loss of the cargo, praying that judgment
be rendered in its favor and against the [petitioner] as follows:
`WHEREFORE, it is respectfully prayed of this Honorable Court that after due hearing, judgment be
rendered ordering [petitioner] to pay [respondent] the following.
1.   Actual damages in the amount of P148,500.00 plus interest thereon at the legal rate from the
time of filing of this complaint until fully paid;
2.   Attorney's fees in the amount of P10,000.00; and
3.   Cost of suit.
`[Respondent] further prays for such other reliefs and remedies as this Honorable Court may deem just
and equitable under the premises.'
"[Respondent] alleged, inter alia, in its complaint, that the cargo subject of its complaint was delivered to,
and received by, [petitioner] for transportation to Tandag, Surigao del Sur under `Bill of Ladings,'
Annexes `A' and `B' of the complaint; that the loss of the cargo was due to the negligence of the
[petitioner]; and that Feliciana Legaspi had executed Subrogation Receipts/Deeds in favor of
[respondent] after paying to her the value of the cargo on account of the Marine Risk Notes it issued in
her favor covering the cargo.

"In its Answer to the complaint, [petitioner] alleged that: (a) [petitioner] was cleared by the Board of
Marine Inquiry of any negligence in the burning of the vessel; (b) the complaint stated no cause of action
against [petitioner]; and (c) the shippers/consignee had already been paid the value of the goods as stated
in the Bill of Lading and, hence, [petitioner] cannot be held liable for the loss of the cargo beyond the
value thereof declared in the Bill of Lading.

"After [respondent] rested its case, [petitioner] prayed for and was allowed, by the Court a quo, to take
the depositions of Chester Cokaliong, the Vice-President and Chief Operating Officer of [petitioner], and
a resident of Cebu City, and of Noel Tanyu, an officer of the Equitable Banking Corporation, in Cebu
City, and a resident of Cebu City, to be given before the Presiding Judge of Branch 106 of the Regional
Trial Court of Cebu City. Chester Cokaliong and Noel Tanyu did testify, by way of deposition, before the
Court and declared inter alia, that: [petitioner] is a family corporation like the Chester Marketing, Inc.;
Nestor Angelia had been doing business with [petitioner] and Chester Marketing, Inc., for years, and
incurred an account with Chester Marketing, Inc. for his purchases from said corporation; [petitioner] did
issue Bills of Lading Nos. 58 and 59 for the cargo described therein with Zosimo Mercado and Nestor
Angelia as shippers/consignees, respectively; the engine room of the M/V Tandag caught fire after it
passed the Mandaue/Mactan Bridge resulting in the total loss of the vessel and its cargo; an investigation
was conducted by the Board of Marine Inquiry of the Philippine Coast Guard which rendered a Report,
dated February 13, 1992 absolving [petitioner] of any responsibility on account of the fire, which Report
of the Board was approved by the District Commander of the Philippine Coast Guard; a few days after the
sinking of the vessel, a representative of the Legaspi Marketing filed claims for the values of the goods
under Bills of Lading Nos. 58 and 59 in behalf of the shippers/consignees, Nestor Angelia and Zosimo
Mercado; [petitioner] was able to ascertain, from the shippers/consignees and the representative of the
Legaspi Marketing that the cargo covered by Bill of Lading No. 59 was owned by Legaspi Marketing
and consigned to Zosimo Mercado while that covered by Bill of Lading No. 58 was purchased by Nestor
Angelia from the Legaspi Marketing; that [petitioner] approved the claim of Legaspi Marketing for the
value of the cargo under Bill of Lading No. 59 and remitted to Legaspi Marketing the said amount under
Equitable Banking Corporation Check No. 20230486 dated August 12, 1992, in the amount of P14,000.00
for which the representative of the Legaspi Marketing signed Voucher No. 4379, dated August 12, 1992,
for the said amount of P14,000.00 in full payment of claims under Bill of Lading No. 59; that [petitioner]
approved the claim of Nestor Angelia in the amount of P6,500.00 but that since the latter owed Chester
Marketing, Inc., for some purchases, [petitioner]  merely set off the amount due to Nestor Angelia under
Bill of Lading No. 58 against his account with Chester Marketing, Inc.; [petitioner] lost/[misplaced] the
original of the check after it was received by Legaspi Marketing, hence, the production of the microfilm
copy by Noel Tanyu of the Equitable Banking Corporation; [petitioner]  never knew, before settling with
Legaspi Marketing and Nestor Angelia that the cargo under both Bills of Lading were insured with
[respondent], or that Feliciana Legaspi filed claims for the value of the cargo with [respondent] and that
the latter approved the claims of Feliciana Legaspi and paid the total amount of P148,500.00 to her;
[petitioner]  came to know, for the first time, of the payments by [respondent] of the claims of Feliciana
Legaspi when it was served with the summons and complaint, on October 8, 1992; after settling his claim,
Nestor Angelia x x x executed the Release and Quitclaim, dated July 2, 1993, and Affidavit, dated July
2, 1993 in favor of [respondent]; hence, [petitioner] was absolved of any liability for the loss of the cargo
covered by Bills of Lading Nos. 58 and 59; and even if it was, its liability should not exceed the value of
the cargo as stated in the Bills of Lading.

"[Petitioner] did not anymore present any other witnesses on its evidence-in-chief. x x x" [9] (Citations
omitted)
Ruling of the Court of Appeals

The CA held that petitioner had failed "to prove that the fire which consumed the vessel and its cargo was
caused by something other than its negligence in the upkeep, maintenance and operation of the vessel." [10]

Petitioner had paid P14,000 to Legaspi Marketing for the cargo covered by Bill of Lading No. 59. The
CA, however, held that the payment did not extinguish petitioner's obligation to respondent, because there
was no evidence that Feliciana Legaspi (the insured) was the owner/proprietor of Legaspi Marketing. 
The CA also pointed out the impropriety of treating the claim under Bill of Lading No. 58 — covering
cargo valued therein at P6,500 — as a setoff against Nestor Angelia's account with Chester Enterprises,
Inc.

Finally, it ruled that respondent "is not bound by the valuation of the cargo under the Bills of Lading, x x
x  nor is the value of the cargo under said Bills of Lading conclusive on the [respondent].  This is so
because, in the first place, the goods were insured with the [respondent] for the total amount of
P150,000.00, which amount may be considered as the face value of the goods." [11]

Hence this Petition.[12]

Issues

Petitioner raises for our consideration the following alleged errors of the CA:
"I

"The Honorable Court of Appeals erred, granting arguendo that petitioner is liable, in holding that
petitioner's liability should be based on the `actual insured value' of the goods and not from actual
valuation declared by the shipper/consignee in the bill of lading.
"II

"The Court of Appeals erred in not affirming the findings of the Philippine Coast Guard, as sustained by
the trial court a quo, holding that the cause of loss of the aforesaid cargoes under Bill of Lading Nos. 58
and 59 was due to force majeure and due diligence was [exercised] by petitioner prior to, during and
immediately after the fire on [petitioner's] vessel.
"III

"The Court of Appeals erred in not holding that respondent UCPB General Insurance has no cause of
action against the petitioner."[13]
In sum, the issues are: (1) Is petitioner liable for the loss of the goods?  (2) If it is liable, what is the extent
of its liability?
This Court's Ruling

The Petition is partly meritorious.

First Issue:
Liability for Loss

Petitioner argues that the cause of the loss of the goods, subject of this case, was force majeure. It adds
that its exercise of due diligence was adequately proven by the findings of the Philippine Coast Guard.

We are not convinced.  The uncontroverted findings of the Philippine Coast Guard show that the M/V
Tandag sank due to a fire, which resulted from a crack in the auxiliary engine fuel oil service tank.  Fuel
spurted out of the crack and dripped to the heating exhaust manifold, causing the ship to burst into
flames.  The crack was located on the side of the fuel oil tank, which had a mere two-inch gap from the
engine room walling, thus precluding constant inspection and care by the crew.  

Having originated from an unchecked crack in the fuel oil service tank, the fire could not have been
caused by force majeure.  Broadly speaking, force majeure generally applies to a natural accident, such as
that caused by a lightning, an earthquake, a tempest or a public enemy. [14] Hence, fire is not considered a
natural disaster or calamity.  In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,[15] we
explained:
"x x x.  This must be so as it arises almost invariably from some act of man or by human means.  It does
not fall within the category of an act of God unless caused by lighting or by other natural disaster or
calamity.  It may even be caused by the actual fault or privity of the carrier.

"Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases
or rural lands where a reduction of the rent is allowed when more than one-half of the fruits have been
lost due to such event, considering that the law adopts a protective policy towards agriculture.

"As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article 1735 of the
Civil Code provides that in all cases other than those mentioned in Article 1734, the common carrier shall
be presumed to have been at fault or to have acted negligently, unless it proves that it has observed the
extraordinary diligence required by law."
Where loss of cargo results from the failure of the officers of a vessel to inspect their ship frequently so as
to discover the existence of cracked parts, that loss cannot be attributed to force majeure, but to the
negligence of those officials.[16]

The law provides that a common carrier is presumed to have been negligent if it fails to prove that it
exercised extraordinary vigilance over the goods it transported.  Ensuring the seaworthiness of the vessel
is the first step in exercising the required vigilance. Petitioner did not present sufficient evidence showing
what measures or acts it had undertaken to ensure the seaworthiness of the vessel.   It failed to show when
the last inspection and care of the auxiliary engine fuel oil service tank was made, what the normal
practice was for its maintenance, or some other evidence to establish that it had exercised extraordinary
diligence. It merely stated that constant inspection and care were not possible, and that the last time the
vessel was dry-docked was in November 1990.  Necessarily, in accordance with Article 1735 [17] of the
Civil Code, we hold petitioner responsible for the loss of the goods covered by Bills of Lading Nos. 58
and 59.
Second Issue:
Extent of Liability

Respondent contends that petitioner's liability should be based on the actual insured value of the goods,
subject of this case.  On the other hand, petitioner claims that its liability should be limited to the value
declared by the shipper/consignee in the Bill of Lading.

The records[18] show that the Bills of Lading covering the lost goods contain the stipulation that in case of
claim for loss or for damage to the shipped merchandise or property, "[t]he liability of the common carrier
x x x shall not exceed the value of the goods as appearing in the bill of lading." [19] The attempt by
respondent to make light of this stipulation is unconvincing.  As it had the consignees' copies of the Bills
of Lading,[20] it could have easily produced those copies, instead of relying on mere allegations and
suppositions.  However, it presented mere photocopies thereof to disprove petitioner's evidence showing
the existence of the above stipulation.

A stipulation that limits liability is valid[21] as long as it is not against public policy. In Everett Steamship
Corporation v. Court of Appeals,[22] the Court stated:
"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 provides:

`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.'

`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.  Thus,
in Sea-Land Service, Inc. vs. Intermediate Appellate Court, 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 (¥100,000.00) 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.'
"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."  (Italics supplied)

In the present case, the stipulation limiting petitioner's liability is not contrary to public policy. In fact, its
just and reasonable character is evident.  The shippers/consignees may recover the full value of the goods
by the simple expedient of declaring the true value of the shipment in the Bill of Lading.  Other than the
payment of a higher freight, there was nothing to stop them from placing the actual value of the goods
therein.  In fact, they committed fraud against the common carrier by deliberately undervaluing the goods
in their Bill of Lading, thus depriving the carrier of its proper and just transport fare.

Concededly, the purpose of the limiting stipulation in the Bill of Lading is to protect the common carrier.
Such stipulation obliges the shipper/consignee to notify the common carrier of the amount that the latter
may be liable for in case of loss of the goods.  The common carrier can then take appropriate measures —
getting insurance, if needed, to cover or protect itself.  This precaution on the part of the carrier is
reasonable and prudent. Hence, a shipper/consignee that undervalues the real worth of the goods it seeks
to transport does not only violate a valid contractual stipulation, but commits a fraudulent act when it
seeks to make the common carrier liable for more than the amount it declared in the bill of lading.

Indeed, Zosimo Mercado and Nestor Angelia misled petitioner by undervaluing the goods in their
respective Bills of Lading.  Hence, petitioner was exposed to a risk that was deliberately hidden from it,
and from which it could not protect itself.  

It is well to point out that, for assuming a higher risk (the alleged actual value of the goods) the insurance
company was paid the correct higher premium by Feliciana Legaspi; while petitioner was paid a fee lower
than what it was entitled to for transporting the goods that had been deliberately undervalued by the
shippers in the Bill of Lading.  Between the two of them, the insurer should bear the loss in excess of the
value declared in the Bills of Lading.  This is the just and equitable solution.

In Aboitiz Shipping Corporation v. Court of Appeals,[23] the description of the nature and the value of the
goods shipped were declared and reflected in the bill of lading, like in the present case.  The Court therein
considered this declaration as the basis of the carrier's liability and ordered payment based on such
amount.  Following this ruling, petitioner should not be held liable for more than what was declared by
the shippers/consignees as the value of the goods in the bills of lading.

We find no cogent reason to disturb the CA's finding that Feliciana Legaspi was the owner of the goods
covered by Bills of Lading Nos. 58 and 59.  Undoubtedly, the goods were merely consigned to Nestor
Angelia and Zosimo Mercado, respectively; thus, Feliciana Legaspi or her subrogee (respondent) was
entitled to the goods or, in case of loss, to compensation therefor. There is no evidence showing that
petitioner paid her for the loss of those goods.  It does not even claim to have paid her.

On the other hand, Legaspi Marketing filed with petitioner a claim for the lost goods under Bill of Lading
No. 59, for which the latter subsequently paid P14,000. But nothing in the records convincingly shows
that the former was the owner of the goods. Respondent was, however, able to prove that it was Feliciana
Legaspi who owned those goods, and who was thus entitled to payment for their loss. Hence, the claim
for the goods under Bill of Lading No. 59 cannot be deemed to have been extinguished, because payment
was made to a person who was not entitled thereto.

With regard to the claim for the goods that were covered by Bill of Lading No. 58 and valued at P6,500,
the parties have not convinced us to disturb the findings of the CA that compensation could not validly
take place.  Thus, we uphold the appellate court's ruling on this point.

WHEREFORE, the Petition is hereby PARTIALLY GRANTED.  The assailed Decision is MODIFIED
in the sense that petitioner is ORDERED to pay respondent the sums of P14,000 and P6,500, which
represent the value of the goods stated in Bills of Lading Nos. 59 and 58, respectively.  No costs.

SO ORDERED.
FIRST DIVISION
G.R. No. 172682, July 27, 2016
SULPICIO LINES, INC., PETITIONER, VS. NAPOLEON SESANTE, NOW SUBSTITUTED BY
MARIBEL ATILANO, KRISTEN MARIE, CHRISTIAN IONE, KENNETH KERRN AND
KARISNA KATE, ALL SURNAMED SESANTE, RESPONDENTS.

DECISION

BERSAMIN, J.:
Moral damages are meant to enable the injured party to obtain the means, diversions or amusements in
order to alleviate the moral suffering. Exemplary damages are designed to permit the courts to reshape
behavior that is socially deleterious in its consequence by creating negative incentives or deterrents
against such behavior.
The Case

This appeal seeks to undo and reverse the adverse decision promulgated on June 27, 2005, [1] whereby the
Court of Appeals (CA) affirmed with modification the judgment of the Regional Trial Court (RTC),
Branch 91, in Quezon City holding the petitioner liable to pay temperate and moral damages due to
breach of contract of carriage.[2]
Antecedents

On September 18, 1998, at around 12:55 p.m., the M/V Princess of the Orient, a passenger vessel owned
and operated by the petitioner, sank near Fortune Island in Batangas. Of the 388 recorded passengers, 150
were lost.[3] Napoleon Sesante, then a member of the Philippine National Police (PNP) and a lawyer, was
one of the passengers who survived the sinking. He sued the petitioner for breach of contract and
damages.[4]

Sesante alleged in his complaint that the M/V Princess of the Orient left the Port of Manila while Metro
Manila was experiencing stormy weather; that at around 11:00 p.m., he had noticed the vessel listing
starboard, so he had gone to the uppermost deck where he witnessed the strong winds and big waves
pounding the vessel; that at the same time, he had seen how the passengers had been panicking, crying for
help and frantically scrambling for life jackets in the absence of the vessel's officers and crew; that
sensing danger, he had called a certain Vency Ceballos through his cellphone to request him to inform the
proper authorities of the situation; that thereafter, big waves had rocked the vessel, tossing him to the
floor where he was pinned by a long steel bar; that he had freed himself only after another wave had hit
the vessel;[5] that he had managed to stay afloat after the vessel had sunk, and had been carried by the
waves to the coastline of Cavite and Batangas until he had been rescued; that he had suffered tremendous
hunger, thirst, pain, fear, shock, serious anxiety and mental anguish; that he had sustained injuries, [6] and
had lost money, jewelry, important documents, police uniforms and the .45 caliber pistol issued to him by
the PNP; and that because it had committed bad faith in allowing the vessel to sail despite the storm
signal, the petitioner should pay him actual and moral damages of P500,000.00 and P1,000,000.00,
respectively.[7]

In its defense, the petitioner insisted on the seaworthiness of the M/V Princess of the Orient due to its
having been cleared to sail from the Port of Manila by the proper authorities; that the sinking had been
due to force majeure; that it had not been negligent; and that its officers and crew had also not been
negligent because they had made preparations to abandon the vessel because they had launched life rafts
and had provided the passengers assistance in that regard. [8]
Decision of the RTC
On October 12, 2001, the RTC rendered its judgment in favor of the respondent, [9] holding as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Napoleon Sesante and against
defendant Sulpicio Lines, Inc., ordering said defendant to pay plaintiff:
1. Temperate damages in the amount of P400,000.00;
2. Moral damages in the amount of One Million Pesos (P1,000,000.00);
3. Costs of suit.
SO ORDERED.[10]
The RTC observed that the petitioner, being negligent, was liable to Sesante pursuant to Articles 1739
and 1759 of the Civil Code; that the petitioner had not established its due diligence in the selection and
supervision of the vessel crew; that the ship officers had failed to inspect the stowage of cargoes despite
being aware of the storm signal; that the officers and crew of the vessel had not immediately sent a
distress signal to the Philippine Coast Guard; that the ship captain had not called for then "abandon ship"
protocol; and that based on the report of the Board of Marine Inquiry (BMI), the erroneous maneuvering
of the vessel by the captain during the extreme weather condition had been the immediate and proximate
cause of the sinking.

The petitioner sought reconsideration, but the RTC only partly granted its motion by reducing the
temperate damages from P500,000.00 to P300,000.00.[11]

Dissatisfied, the petitioner appealed.[12] It was pending the appeal in the CA when Sesante passed away.
He was substituted by his heirs.[13]
Judgment of the CA

On June 27, 2005, the CA promulgated its assailed decision. It lowered the temperate damages to
P120,000.00, which approximated the cost of Sesante's lost personal belongings; and held that despite the
seaworthiness of the vessel, the petitioner remained civilly liable because its officers and crew had been
negligent in performing their duties.[14]

Sttill aggrieved, Sulpicio Lines moved for reconsideration, but the CA denied the motion. [15]

Hence, this appeal.

Issues

The petitioner attributes the following errors to the CA, to wit:

I

THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF MORAL DAMAGES, AS

THE INSTANT CASE IS FOR ALLEGED PERSONAL INJURIES PREDICATED ON BREACH OF
CONTRACT OF CARRIAGE, AND THERE BEING NO PROOF OF BAD FAITH ON THE PART OF
SULPICIO
II

THE ASSAILED DECISION ERRED IN SUSTAINING THE AMOUNT OF MORAL DAMAGES

AWARDED, THE SAME BEING UNREASONABLE, EXCESSIVE AND UNCONSCIONABLE,
AND TRANSLATES TO UNJUST ENRICHMENT AGAINST SULPICIO
III

THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF TEMPERATE DAMAGES

AS THE SAME CANNOT SUBSTITUTE FOR A FAILED CLAIM FOR ACTUAL DAMAGES,
THERE BEING NO COMPETENT PROOF TO WARRANT SAID AWARD
IV

THE AWARD OF TEMPERATE DAMAGES IS UNTENABLE AS THE REQUISITE NOTICE

UNDER THE LAW WAS NOT GIVEN TO SULPICIO IN ORDER TO HOLD IT LIABLE FOR THE
ALLEGED LOSS OF SESANTE'S PERSONAL BELONGINGS
V

THE ASSAILED DECISION ERRED IN SUBSTITUTING THE HEIRS OF RESPONDENT SESANTE

IN THE INSTANT CASE, THE SAME BEING A PERSONAL ACTION WHICH DOES NOT
SURVIVE
VI

THE ASSAILED DECISION ERRED IN APPLYING ARTICLE 1759 OF THE NEW CIVIL CODE
AGAINST SULPICIO SANS A CLEAR-CUT FINDING OF SULPICIO'S BAD FAITH IN THE
INCIDENT[16]
In other words, to be resolved are the following, namely: (1) Is the complaint for breach of contract and
damages a personal action that does not survive the death of the plaintiff?; (2) Is the petitioner liable for
damages under Article 1759 of the Civil Code?; and (3) Is there sufficient basis for awarding moral and
temperate damages?
Ruling of the Court

The appeal lacks merit.

I

An action for breach of contract of carriage survives the death of the plaintiff

The petitioner urges that Sesante's complaint for damages was purely personal and cannot be transferred
to his heirs upon his death. Hence, the complaint should be dismissed because the death of the plaintiff
abates a personal action.

The petitioner's urging is unwarranted.

Section 16, Rule 3 of the Rules of Court lays down the proper procedure in the event of the death of a
litigant, viz.:
Section 16. Death of party; duty of counsel. - Whenever a party to a pending action dies, and the
claim is not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty
(30) days after such death of the fact thereof, and to give the name and address of his legal representative
or representatives. Failure of counsel to comply with his duty shall be a ground for disciplinary action.

The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator and the court may appoint a guardian ad litem for the minor
heirs.

xxxx
Substitution by the heirs is not a matter of jurisdiction, but a requirement of due process. [17] It protects the
right of due process belonging to any party, that in the event of death the deceased litigant continues to be
protected and properly represented in the suit through the duly appointed legal representative of his estate.
[18]

The application of the rule on substitution depends on whether or not the action survives the death of the
litigant. Section 1, Rule 87 of the Rules of Court enumerates the following actions that survive the death
of a party, namely: (1) recovery of real or personal property, or an interest from the estate; (2)
enforcement of liens on the estate; and (3) recovery of damages for an injury to person or property. On
the one hand, Section 5, Rule 86 of the Rules of Court lists the actions abated by death as including: (1)
claims for funeral expenses and those for the last sickness of the decedent; (2) judgments for money; and
(3) all claims for money against the deceased, arising from contract, express or implied.

A contract of carriage generates a relation attended with public duty, neglect or malfeasance of the
carrier's employees and gives ground for an action for damages. [19] Sesante's claim against the petitioner
involved his personal injury caused by the breach of the contract of carriage. Pursuant to the aforecited
rules, the complaint survived his death, and could be continued by his heirs following the rule on
substitution.
II

The petitioner is liable for breach of contract of carriage

The petitioner submits that an action for damages based on breach of contract of carriage under Article
1759 of the Civil Code should be read in conjunction with Article 2201 of the same code; that although
Article 1759 only provides for a presumption of negligence, it does not envision automatic liability; and
that it was not guilty of bad faith considering that the sinking of M/V Princess of the Orient had been due
to a fortuitous event, an exempting circumstance under Article 1174 of the Civil Code.

The submission has no substance.

Article 1759 of the Civil Code does not establish a presumption of negligence because it explicitly makes
the common carrier liable in the event of death or injury to passengers due to the negligence or fault of
the common carrier's employees. It reads:
Article 1759. Common carriers are liable for the death or injuries to passengers through the
negligence or willful acts of the former's employees, although such employees may have acted beyond
the scope of their authority or in violation of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised all the diligence of a
good father of a family in the selection and supervision of their employees.
The liability of common carriers under Article 1759 is demanded by the duty of extraordinary diligence
required of common carriers in safely carrying their passengers. [20]

On the other hand, Article 1756 of the Civil Code lays down the presumption of negligence against the
common carrier in the event of death or injury of its passenger, viz.:
Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
prescribed in Articles 1733 and 1755.
Clearly, the trial court is not required to make an express finding of the common carrier's fault or
negligence.[21] Even the mere proof of injury relieves the passengers from establishing the fault or
negligence of the carrier or its employees. [22] The presumption of negligence applies so long as there is
evidence showing that: (a) a contract exists between the passenger and the common carrier; and (b) the
injury or death took place during the existence of such contract. [23] In such event, the burden shifts to the
common carrier to prove its observance of extraordinary diligence, and that an unforeseen event or force
majeure had caused the injury.[24]

Sesante sustained injuries due to the buffeting by the waves and consequent sinking of M/V Princess of
the Orient where he was a passenger. To exculpate itself from liability, the common carrier vouched for
the seaworthiness of M/V Princess of the Orient, and referred to the BMI report to the effect that the
severe weather condition - a force majeure - had brought about the sinking of the vessel.

The petitioner was directly liable to Sesante and his heirs.

A common carrier may be relieved of any liability arising from a fortuitous event pursuant to Article
1174[25] of the Civil Code. But while it may free a common carrier from liability, the provision still
requires exclusion of human agency from the cause of injury or loss. [26] Else stated, for a common carrier
to be absolved from liability in case of force majeure, it is not enough that the accident was caused by a
fortuitous event. The common carrier must still prove that it did not contribute to the occurrence of the
incident due to its own or its employees' negligence. [27] We explained in Schmitz Transport & Brokerage
Corporation v. Transport Venture, Inc.,[28] as follows:
In order to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with his obligation, must be independent of human will;
(2) it must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen it
must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in any manner; and (4) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor.
[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned
solely by the violence of nature. Human intervention is to be excluded from creating or entering
into the cause of the mischief. When the effect is found to be in part the result of the participation of
man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God.[29] (bold underscoring supplied
for emphasis)
The petitioner has attributed the sinking of the vessel to the storm notwithstanding its position on the
seaworthiness of M/V Princess of the Orient. Yet, the findings of the BMI directly contradicted the
petitioner's attribution, as follows:
7. The Immediate and the Proximate Cause of the Sinking

The Captain's erroneous maneuvers of the M/V Princess of the Orient minutes before she sunk [sic] had
caused the accident. It should be noted that during the first two hours when the ship left North Harbor, she
was navigating smoothly towards Limbones Point. During the same period, the ship was only subjected to
the normal weather stress prevailing at the time. She was then inside Manila Bar. The waves were
observed to be relatively small to endanger the safety of the ship. It was only when the MV Princess of
the Orient had cleared Limbones Pt. while navigating towards the direction of the Fortune Island when
this agonizing misfortune struck the ship.

Initially, a list of three degrees was observed. The listing of the ship to her portside had continuously
increased. It was at this point that the captain had misjudged the situation. While the ship continuously
listed to her portside and was battered by big waves, strong southwesterly winds, prudent judgement [sic]
would dictate that the Captain should have considerably reduced the ship's speed. He could have
immediately ordered the Chief Engineer to slacken down the speed. Meanwhile, the winds and waves
continuously hit the ship on her starboard side. The waves were at least seven to eight meters in height
and the wind velocity was a[t] 25 knots. The MV Princess of the Orient being a close-type ship (seven
decks, wide and high superstructure) was vulnerable and exposed to the howling winds and ravaging seas.
Because of the excessive movement, the solid and liquid cargo below the decks must have shifted its
weight to port, which could have contributed to the tilted position of the ship.

Minutes later, the Captain finally ordered to reduce the speed of the ship to 14 knots. At the same time, he
ordered to put ballast water to the starboard-heeling tank to arrest the continuous listing of the ship. This
was an exercise in futility because the ship was already listing between 15 to 20 degrees to her portside.
The ship had almost reached the maximum angle of her loll. At this stage, she was about to lose her
stability.

Despite this critical situation, the Captain executed several starboard maneuvers. Steering the course of
the Princess to starboard had greatly added to her tilting. In the open seas, with a fast speed of 14 knots,
advance maneuvers such as this would tend to bring the body of the ship in the opposite side. In
navigational terms, this movement is described as the centripetal force. This force is produced by the
water acting on the side of the ship away from the center of the turn. The force is considered to act at the
center of lateral resistance which, in this case, is the centroid of the underwater area of the ship's side
away from the center of the turn. In the case of the Princess, when the Captain maneuvered her to
starboard, her body shifted its weight to port. Being already inclined to an angle of 15 degrees, coupled
with the instantaneous movement of the ship, the cargoes below deck could have completely shifted its
position and weight towards portside. By this time, the ship being ravaged simultaneously by ravaging
waves and howling winds on her starboard side, finally lost her grip. [30]
Even assuming the seaworthiness of the MA/ Princess of the Orient, the petitioner could not escape
liability considering that, as borne out by the aforequoted findings of the BMI, the immediate and
proximate cause of the sinking of the vessel had been the gross negligence of its captain in maneuvering
the vessel.

The Court also notes that Metro Manila was experiencing Storm Signal No. 1 during the time of the
sinking.[31] The BMI observed that a vessel like the M/V Princess of the Orient, which had a volume of
13.734 gross tons, should have been capable of withstanding a Storm Signal No. 1 considering that the
responding fishing boats of less than 500 gross tons had been able to weather through the same waves and
winds to go to the succor of the sinking vessel and had actually rescued several of the latter's distressed
passengers.[32]
III

The award of moral damages and temperate damages is proper

The petitioner argues that moral damages could be meted against a common carrier only in the following
instances, to wit: (1) in the situations enumerated by Article 2201 of the Civil Code; (2) in cases of the
death of a passenger; or (3)where there was bad faith on the part of the common carrier. It contends that
none of these instances obtained herein; hence, the award should be deleted.

We agree with the petitioner that moral damages may be recovered in an action upon breach of contract
of carriage only when: (a) death of a passenger results, or (b) it is proved that the carrier was guilty of
fraud and bad faith, even if death does not result. [33] However, moral damages may be awarded if the
contractual breach is found to be wanton and deliberately injurious, or if the one responsible acted
fraudulently or with malice or bad faith.[34]

The CA enumerated the negligent acts committed by the officers and crew of M/V Princess of the Orient,
viz.:
x x x. [W]hile this Court yields to the findings of the said investigation report, yet it should be observed
that what was complied with by Sulpicio Lines were only the basic and minimal safety standards which
would qualify the vessel as seaworthy. In the same report however it also revealed that the immediate and
proximate cause of the sinking of the M/V Princess of the Orient was brought by the following: erroneous
maneuvering command of Captain Esrum Mahilum and due to the weather condition prevailing at the
time of the tragedy. There is no doubt that under the circumstances the crew of the vessel were negligent
in manning it. In fact this was clearly established by the investigation of the Board of Marine Inquiry
where it was found that:
The Chief Mate, when interviewed under oath, had attested that he was not able to make stability
calculation of the ship vis-a-vis her cargo. He did not even know the metacentric height (GM) of the ship
whether it be positive or negative.

As cargo officer of the ship, he failed to prepare a detailed report of the ship's cargo stowage plan.
He likewise failed to conduct the soundings (measurement) of the ballast tanks before the ship departed
from port. He readily presumed that the ship was full of ballast since the ship was fully ballasted when
she left Cebu for Manila on 16 September 1998 and had never discharge[d] its contents since that time.

Being the officer-in-charge for emergency situation (sic) like this, he failed to execute and supervise the
actual abandonship (sic) procedure. There was no announcement at the public address system of
abandonship (sic), no orderly distribution of life jackets and no orderly launching of life rafts. The
witnesses have confirmed this finding on their sworn statements.

There was miscalculation in judgment on the part of the Captain when he erroneously navigated the ship
at her last crucial moment. x x x

To aggravate his case, the Captain, having full command and responsibility of the MV Princess of the
Orient, had failed to ensure the proper execution of the actual abandoning of the ship.

The deck and engine officers (Second Mate, Third Mate, Chief Engineers, Second Engineer, Third
Engineer and Fourth Engineer), being in charge of their respective abandonship (sic) post, failed to
supervise the crew and passengers in the proper execution of abandonship (sic) procedure.

The Radio Officer (spark) failed to send the SOS message in the internationally accepted communication
network (VHF Channel 16). Instead, he used the Single Side Band (SSB) radio in informing the company
about the emergency situation. x x x x[35]
The aforestated negligent acts of the officers and crew of M/V Princess of the Orient could not be ignored
in view of the extraordinary duty of the common carrier to ensure the safety of the passengers. The
totality of the negligence by the officers and crew of M/V Princess of the Orient, coupled with the
seeming indifference of the petitioner to render assistance to Sesante, [36] warranted the award of moral
damages.

While there is no hard-and-fast rule in determining what is a fair and reasonable amount of moral
damages, the discretion to make the determination is lodged in the trial court with the limitation that the
amount should not be palpably and scandalously excessive. The trial court then bears in mind that moral
damages are not intended to impose a penalty on the wrongdoer, or to enrich the plaintiff at the expense
of the defendant.[37] The amount of the moral damages must always reasonably approximate the extent of
injury and be proportional to the wrong committed.[38]

The Court recognizes the mental anguish, agony and pain suffered by Sesante who fought to survive in
the midst of the raging waves of the sea while facing the immediate prospect of losing his life. His claim
for moral and economic vindication is a bitter remnant of that most infamous tragedy that left hundreds of
families broken in its wake. The anguish and moral sufferings he sustained after surviving the tragedy
would always include the memory of facing the prospect of his death from drowning, or dehydration, or
being preyed upon by sharks. Based on the established circumstances, his survival could only have been a
miracle wrought by God's grace, by which he was guided in his desperate swim for the safety of the
shore. But even with the glory of survival, he still had to grapple with not just the memory of having
come face to face with almost certain death, but also with having to answer to the instinctive guilt for the
rest of his days of being chosen to live among the many who perished in the tragedy. [39]

While the anguish, anxiety, pain and stress experienced by Sesante during and after the sinking cannot be
quantified, the moral damages to be awarded should at least approximate the reparation of all the
consequences of the petitioner's negligence. With moral damages being meant to enable the injured party
to obtain the means, diversions or amusements in order to alleviate his moral and physical sufferings, [40]
the Court is called upon to ensure that proper recompense be allowed to him, through his heirs. For this
purpose, the amount of P1,000,000.00, as granted by the RTC and affirmed by the CA, is maintained.

The petitioner contends that its liability for the loss of Sesante's personal belongings should conform with
Article 1754, in relation to Articles 1998, 2000 to 2003 of the Civil Code, which provide:
Article 1754. The provisions of Articles 1733 to 1753 shall apply to the passenger's baggage which is not
in his personal custody or in that of his employees. As to other baggage, the rules in Articles 1998 and
2000 to 2003 concerning the responsibility of hotel-keepers shall be applicable.

xxxx

Article 1998. The deposit of effects made by travellers in hotels or inns shall also be regarded as
necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice
was given to them, or to their employees, of the effects brought by the guests and that, on the part of the
latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care
and vigilance of their effects.

xxxx

Article 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury
to the personal property of the guests caused by the servants or employees of the keepers of hotels or inns
as well as by strangers; but not that which may proceed from any force majeure. The fact that travellers
are constrained to rely on the vigilance of the keeper of the hotel or inn shall be considered in determining
the degree of care required of him.

Article 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it
is done with the use of arms or through an irresistible force.

Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his
family, servants or visitors, or if the loss arises from the character of the things brought into the hotel.

Article 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that
he is not liable for the articles brought by the guest. Any stipulation to the contrary between the hotel-
keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is
suppressed or diminished shall be void.
The petitioner denies liability because Sesante's belongings had remained in his custody all throughout
the voyage until the sinking, and he had not notified the petitioner or its employees about such
belongings. Hence, absent such notice, liability did not attach to the petitioner.

Is notification required before the common carrier becomes liable for lost belongings that remained in the
custody of the passenger?
We answer in the negative.

The rule that the common carrier is always responsible for the passenger's baggage during the voyage
needs to be emphasized. Article 1754 of the Civil Code does not exempt the common carrier from
liability in case of loss, but only highlights the degree of care required of it depending on who has the
custody of the belongings. Hence, the law requires the common carrier to observe the same diligence as
the hotel keepers in case the baggage remains with the passenger; otherwise, extraordinary diligence must
be exercised.[41] Furthermore, the liability of the common carrier attaches even if the loss or damage to the
belongings resulted from the acts of the common carrier's employees, the only exception being where
such loss or damages is due to force majeure.[42]

In YHT Realty Corporation v. Court of Appeals,[43] we declared the actual delivery of the goods to the
innkeepers or their employees as unnecessary before liability could attach to the hotelkeepers in the event
of loss of personal belongings of their guests considering that the personal effects were inside the hotel or
inn because the hotelkeeper shall remain accountable. [44] Accordingly, actual notification was not
necessary to render the petitioner as the common carrier liable for the lost personal belongings of Sesante.
By allowing him to board the vessel with his belongings without any protest, the petitioner became
sufficiently notified of such belongings. So long as the belongings were brought inside the premises of the
vessel, the petitioner was thereby effectively notified and consequently duty-bound to observe the
required diligence in ensuring the safety of the belongings during the voyage. Applying Article 2000 of
the Civil Code, the petitioner assumed the liability for loss of the belongings caused by the negligence of
its officers or crew. In view of our finding that the negligence of the officers and crew of the petitioner
was the immediate and proximate cause of the sinking of the M/V Princess of the Orient, its liability for
Sesante's lost personal belongings was beyond question.

The petitioner claims that temperate damages were erroneously awarded because Sesante had not proved
pecuniary loss; and that the CA merely relied on his self-serving testimony.

The award of temperate damages was proper.

Temperate damages may be recovered when some pecuniary loss has been suffered but the amount
cannot, from the nature of the case, be proven with certainty. [45] Article 2224[46] of the Civil Code
expressly authorizes the courts to award temperate damages despite the lack of certain proof of actual
damages.[47]

Indubitably, Sesante suffered some pecuniary loss from the sinking of the vessel, but the value of the loss
could not be established with certainty. The CA, which can try facts and appreciate evidence, pegged the
value of the lost belongings as itemized in the police report at P120,000.00. The valuation approximated
the costs of the lost belongings. In that context, the valuation of P120,000.00 is correct, but to be regarded
as temperate damages.

In fine, the petitioner, as a common carrier, was required to observe extraordinary diligence in ensuring
the safety of its passengers and their personal belongings. It being found herein short of the required
diligence rendered it liable for the resulting injuries and damages sustained by Sesante as one of its
passengers.

Should the petitioner be further held liable for exemplary damages?

In contracts and quasi-contracts, the Court has the discretion to award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. [48] Indeed, exemplary
damages cannot be recovered as a matter of right, and it is left to the court to decide whether or not to
award them.[49] In consideration of these legal premises for the exercise of the judicial discretion to grant
or deny exemplary damages in contracts and quasi-contracts against a defendant who acted in a wanton,
fraudulent,' reckless, oppressive, or malevolent manner, the Court hereby awards exemplary damages to
Sesante.

First of all, exemplary damages did not have to be specifically pleaded or proved, because the courts had
the discretion to award them for as long as the evidence so warranted. In Marchan v. Mendoza,[50] the
Court has relevantly discoursed:
x x x. It is argued that this Court is without jurisdiction to adjudicate this exemplary damages since
there was no allegation nor prayer, nor proof, nor counterclaim of error for the same by the
appellees. It is to be observed however, that in the complaint, plaintiffs "prayed for such other and
further relief as this Court may deem just and equitable." Now, since the body of the complaint
sought to recover damages against the defendant-carrier wherein plaintiffs prayed for
indemnification for the damages they suffered as a result of the negligence of said Silverio Marchan
who is appellant's employee; and since exemplary damages is intimately connected with general
damages, plaintiffs may not be expected to single out by express term the kind of damages they are
trying to recover against the defendant's carrier. Suffice it to state that when plaintiffs prayed in
their complaint for such other relief and remedies that may be availed of under the premises, in
effect, therefore, the court is called upon to exercise and use its discretion whether the imposition of
punitive or exemplary damages even though not expressly prayed or pleaded in the plaintiffs'
complaint.

x x x It further appears that the amount of exemplary damages need not be proved, because its
determination depends upon the amount of compensatory damages that may be awarded to the
claimant. If the amount of exemplary damages need not be proved, it need not also be alleged, and
the reason is obvious because it is merely incidental or dependent upon what the court may award
as compensatory damages. Unless and until this premise is determined and established, what may
be claimed as exemplary damages would amount to a mere surmise or speculation. It follows as a
necessary consequence that the amount of exemplary damages need not be pleaded in the complaint
because the same cannot be predetermined. One can merely ask that it be determined by the court
if in the use of its discretion the same is warranted by the evidence, and this is just what appellee
has done. (Bold underscoring supplied for emphasis)
And, secondly, exemplary damages are designed by our civil law to "permit the courts to reshape
behavior that is socially deleterious in its consequence by creating negative incentives or deterrents
against such behavior."[51] The nature and purpose for this kind of damages have been well-stated in
People v. Dalisay,[52] to wit:
Also known as 'punitive' or 'vindictive' damages, exemplary or corrective damages are intended to
serve as a deterrent to serious wrong doings, and as a vindication of undue sufferings and wanton
invasion of the rights of an injured or a punishment for those guilty of outrageous conduct. These
terms are generally, but not always, used interchangeably. In common law, there is preference in the use
of exemplary damages when the award is to account for injury to feelings and for the sense of indignity
and humiliation suffered by a person as a result of an injury that has been maliciously and wantonly
inflicted, the theory being that there should be compensation for the hurt caused by the highly
reprehensible conduct of the defendant - associated with such circumstances as willfulness, wantonness,
malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud - that intensifies the
injury. The terms punitive or vindictive damages are often used to refer to those species of damages that
may be awarded against a person to punish him for his outrageous conduct. In either case, these
damages are intended in good measure to deter the wrongdoer and others like him from similar
conduct in the future. (Bold underscoring supplied for emphasis)
The BMI found that the "erroneous maneuvers" during the ill-fated voyage by the captain of the
petitioner's vessel had caused the sinking. After the vessel had cleared Limbones Point while navigating
towards the direction of Fortune Island, the captain already noticed the listing of the vessel by three
degrees to the portside of the vessel, but, according to the BMI, he did not exercise prudence as required
by the situation in which his vessel was suffering the battering on the starboard side by big waves of
seven to eight meters high and strong southwesterly winds of 25 knots. The BMI pointed out that he
should have considerably reduced the speed of the vessel based on his experience about the vessel - a
close-type ship of seven decks, and of a wide and high superstructure - being vulnerable if exposed to
strong winds and high waves. He ought to have also known that maintaining a high speed under such
circumstances would have shifted the solid and liquid cargo of the vessel to port, worsening the tilted
position of the vessel. It was only after a few minutes thereafter that he finally ordered the speed to go
down to 14 knots, and to put ballast water to the starboard-heeling tank to arrest the continuous listing at
portside. By then, his moves became an exercise in futility because, according to the BMI, the vessel was
already listing to her portside between 15 to 20 degrees, which was almost the maximum angle of the
vessel's loll. It then became inevitable for the vessel to lose her stability.

The BMI concluded that the captain had executed several starboard maneuvers despite the critical
situation of the vessel, and that the maneuvers had greatly added to the tilting of the vessel. It observed:
x x x In the open seas, with a fast speed of 14 knots, advance maneuvers such as this would tend to
bring the body of the ship in the opposite side. In navigational terms, this movement is described as
the centripetal force. This force is produced by the water acting on the side of the ship away from
the center of the turn. The force is considered to act at the center of lateral resistance which, in this
case, is the centroid of the underwater area of the ship's side away from the center of the turn. In
the case of the Princess, when the Captain maneuvered her to starboard, her body shifted its weight
to port. Being already inclined to an angle of 15 degrees, coupled with the instantaneous movement
of the ship, the cargoes below deck could have completely shifted its position and weight towards
portside. By this time, the ship being ravaged simultaneously by ravaging waves and howling winds
on her starboard side, finally lost her grip.[53]
Clearly, the petitioner and its agents on the scene acted wantonly and recklessly. Wanton and reckless are
virtually synonymous in meaning as respects liability for conduct towards others. [54] Wanton means
characterized by extreme recklessness and utter disregard for the rights of others; or marked by or
manifesting arrogant recklessness of justice or of rights or feelings of others. [55] Conduct is reckless when
it is an extreme departure from ordinary care, in a situation in which a high degree of danger is apparent.
It must be more than any mere mistake resulting from inexperience, excitement, or confusion, and more
than mere thoughtlessness or inadvertence, or simple inattention. [56]

The actuations of the petitioner and its agents during the incident attending the unfortunate sinking of the
M/V Princess of the Orient were far below the standard of care and circumspection that the law on
common carriers demanded. Accordingly, we hereby fix the sum of P1,000,000.00 in order to serve fully
the objective of exemplarity among those engaged in the business of transporting passengers and cargo by
sea. The amount would not be excessive, but proper. As the Court put it in Pereña v. Zarate:[57]
Anent the P1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only to
render effective the desired example for the public good. As a common carrier, the Perenas needed to be
vigorously reminded to observe their duty to exercise extraordinary diligence to prevent a similarly
senseless accident from happening again. Only by an award of exemplary damages in that amount would
suffice to instill in them and others similarly situated like them the ever-present need for greater and
constant vigilance in the conduct of a business imbued with public interest. [58] (Bold underscoring
supplied for emphasis)
WHEREFORE, the Court AFFIRMS the decision promulgated on June 27, 2005 with the
MODIFICATIONS that: (a) the amount of moral damages is fixed at P1,000,000.00; (b) the amount of
P1,000,000.00 is granted as exemplary damages; and (c) the sum of P120,000.00 is allowed as temperate
damages, all to be paid to the heirs of the late Napoleon Sesante. In addition, all the amounts hereby
awarded shall earn interest of 6% per annum from the finality of this decision until fully paid. Costs of
suit to be paid by the petitioner.

SO ORDERED.
THIRD DIVISION
G.R. NO. 150255, April 22, 2005
SCHMITZ TRANSPORT & BROKERAGE CORPORATION, PETITIONER, VS. TRANSPORT
VENTURE, INC., INDUSTRIAL INSURANCE COMPANY, LTD., AND BLACK SEA SHIPPING
AND DODWELL NOW INCHCAPE SHIPPING SERVICES, RESPONDENTS.

DECISION

CARPIO-MORALES, J.:
On petition for review is the June 27, 2001 Decision[1] of the Court of Appeals, as well as its Resolution[2]
dated September 28, 2001 denying the motion for reconsideration, which affirmed that of Branch 21 of
the Regional Trial Court (RTC) of Manila in Civil Case No. 92-63132 [3] holding petitioner Schmitz
Transport Brokerage Corporation (Schmitz Transport), together with Black Sea Shipping Corporation
(Black Sea), represented by its ship agent Inchcape Shipping Inc. (Inchcape), and Transport Venture
(TVI),  solidarily liable for the loss of 37 hot rolled steel sheets in coil that were washed overboard a
barge.

On September 25, 1991, SYTCO Pte Ltd. Singapore shipped from the port of Ilyichevsk, Russia on board
M/V “Alexander Saveliev” (a vessel of Russian registry and owned by Black Sea) 545 hot rolled steel
sheets in coil weighing 6,992,450 metric tons.

The cargoes, which were to be discharged at the port of Manila in favor of the consignee, Little Giant
Steel Pipe Corporation (Little Giant),[4] were insured against all risks with Industrial Insurance Company
Ltd. (Industrial Insurance) under Marine Policy No. M-91-3747-TIS. [5]

The vessel arrived at the port of Manila on October 24, 1991 and the Philippine Ports Authority (PPA)
assigned it a place of berth at the outside breakwater at the Manila South Harbor.[6]

Schmitz Transport, whose services the consignee engaged to secure the requisite clearances, to receive
the cargoes from the shipside, and to deliver them to its (the consignee’s) warehouse at Cainta, Rizal, [7] in
turn engaged the services of TVI to send a barge and tugboat at shipside.

On October 26, 1991, around 4:30 p.m., TVI’s tugboat “Lailani” towed the barge “Erika V” to shipside. [8]

By 7:00 p.m. also of October 26, 1991, the tugboat, after positioning the barge alongside the vessel, left
and returned to the port terminal.[9] At 9:00 p.m., arrastre operator Ocean Terminal Services Inc.
commenced to unload 37 of the 545 coils from the vessel unto the barge.

By 12:30 a.m. of October 27, 1991 during which the weather condition had become inclement due to an
approaching storm, the unloading unto the barge of the 37 coils was accomplished. [10] No tugboat pulled  
the barge back to the pier, however.

At around 5:30 a.m. of October 27, 1991, due to strong waves,[11] the crew of the barge abandoned it and
transferred to the vessel. The barge pitched and rolled with the waves and eventually capsized, washing
the 37 coils into the sea.[12] At 7:00 a.m., a tugboat finally arrived to pull the already empty and damaged
barge back to the pier.[13]

Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the lost
cargoes proved futile.[14]
Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of
P5,246,113.11.  Little Giant thereupon executed a subrogation receipt [15] in favor of Industrial Insurance.

Industrial Insurance later filed a complaint against Schmitz Transport, TVI, and Black Sea through its
representative Inchcape (the defendants) before the RTC of Manila, for the recovery of the amount it paid
to Little Giant plus adjustment fees, attorney’s fees, and litigation expenses. [16]

Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while typhoon
signal No. 1 was raised in Metro Manila.[17]

By Decision of November 24, 1997, Branch 21 of the RTC held all the defendants negligent for
unloading the cargoes outside of the breakwater notwithstanding the storm signal. [18] The dispositive
portion of the decision reads:
WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, ordering the
defendants to pay plaintiff jointly and severally the sum of P5,246,113.11 with interest from the date the
complaint was filed until fully satisfied, as well as the sum of P5,000.00 representing the adjustment fee
plus the sum of 20% of the amount recoverable from the defendants as attorney’s fees plus the costs of
suit.  The counterclaims and cross claims of defendants are hereby DISMISSED for lack of [m]erit. [19]
To the trial court’s decision, the defendants Schmitz Transport and TVI filed a joint motion for
reconsideration assailing the finding that they are common carriers and the award of excessive attorney’s
fees of more than P1,000,000.  And they argued that they were not motivated by gross or evident bad
faith and that the incident was caused by a fortuitous event. [20]

By resolution of February 4, 1998, the trial court denied the motion for reconsideration. [21]

All the defendants appealed to the Court of Appeals which, by decision of June 27, 2001, affirmed in toto
the decision of the trial court, [22] it finding that all the defendants were common carriers — Black Sea and
TVI for engaging in the transport of goods and cargoes over the seas as a regular business and not as an
isolated transaction,[23] and Schmitz Transport for entering into a contract with Little Giant to transport the
cargoes from ship to port for a fee.[24]

In holding all the defendants solidarily liable, the appellate court ruled that “each one was essential such
that without each other’s contributory negligence the incident would not have happened and so much so
that the person principally liable cannot be distinguished with sufficient accuracy.” [25]

In discrediting the defense of fortuitous event, the appellate court held that “although defendants
obviously had nothing to do with the force of nature, they however had control of where to anchor the
vessel, where discharge will take place and even when the discharging will commence.” [26]

The defendants’ respective motions for reconsideration having been denied by Resolution [27] of September
28, 2001, Schmitz Transport (hereinafter referred to as petitioner) filed the present petition against TVI,
Industrial Insurance and Black Sea.

Petitioner asserts that in chartering the barge and tugboat of TVI, it was acting for its principal, consignee
Little Giant, hence, the transportation contract was by and between Little Giant and TVI. [28]

By Resolution of January 23, 2002, herein respondents Industrial Insurance, Black Sea, and TVI were
required to file their respective Comments. [29]

By its Comment, Black Sea argued that the cargoes were received by the consignee through petitioner in
good order, hence, it cannot be faulted, it having had no control and supervision thereover. [30]

For its part, TVI maintained that it acted as a passive party as it merely received the cargoes and
transferred them unto the barge upon the instruction of petitioner. [31]

In issue then are:

(1) Whether the loss of the cargoes was due to a fortuitous event, independent of any act of negligence on
the part of petitioner Black Sea and TVI, and

(2) If there was negligence, whether liability for the loss may attach to Black Sea, petitioner and TVI.

When a fortuitous event occurs, Article 1174 of the Civil Code absolves any party from any and all
liability arising therefrom:
ART. 1174.  Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which though foreseen, were inevitable.
In order, to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with his obligation, must be independent of human will;
(2) it must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen it
must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in any manner; and (4) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor. [32]
[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned
solely by the violence of nature.  Human intervention is to be excluded from creating or entering into the
cause of the mischief.  When the effect is found to be in part the result of the participation of man,
whether due to his active intervention or neglect or failure to act, the whole occurrence is then humanized
and removed from the rules applicable to the acts of God. [33]
The appellate court, in affirming the finding of the trial court that human intervention in the form of
contributory negligence by all the defendants resulted to the loss of the cargoes, [34] held that unloading
outside the breakwater, instead of inside the breakwater, while a storm signal was up constitutes
negligence.[35] It thus concluded that the proximate cause of the loss was Black Sea’s negligence in
deciding to unload the cargoes at an unsafe place and while a typhoon was approaching. [36]

From a review of the records of the case, there is no indication that there was greater risk in loading the
cargoes outside the breakwater.  As the defendants proffered, the weather on October 26, 1991 remained
normal with moderate sea condition such that port operations continued and proceeded normally. [37]

The weather data report,[38] furnished and verified by the Chief of the Climate Data Section of PAG-ASA
and marked as a common exhibit of the parties, states that while typhoon signal No. 1 was hoisted over
Metro Manila on October 23-31, 1991, the sea condition at the port of Manila at 5:00 p.m. - 11:00 p.m. of
October 26, 1991 was moderate.  It cannot, therefore, be said that the defendants were negligent in not
unloading the cargoes upon the barge on October 26, 1991 inside the breakwater.

That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30 in the
morning[39] is, however, a material fact which the appellate court failed to properly consider and
appreciate[40] — the proximate cause of the loss of the cargoes. Had the barge been towed back promptly
to the pier, the deteriorating sea conditions notwithstanding, the loss could have been avoided.  But the
barge was left floating in open sea until big waves set in at 5:30 a.m., causing it to sink along with the
cargoes.[41] The loss thus falls outside the “act of God doctrine.”

The proximate cause of the loss having been determined, who among the parties is/are responsible
therefor?

Contrary to petitioner’s insistence, this Court, as did the appellate court, finds that petitioner is a common
carrier.  For it undertook to transport the cargoes from the shipside of “M/V Alexander Saveliev” to the
consignee’s warehouse at Cainta, Rizal.  As the appellate court put it,  “as long as a person or corporation
holds [itself] to the public for the purpose of transporting goods as [a] business, [it] is already considered
a common carrier regardless if [it] owns the vehicle to be used or has to hire one.” [42] That petitioner is a
common carrier, the testimony of its own Vice-President and General Manager Noel Aro that part of the
services it offers to its clients as a brokerage firm includes the transportation of cargoes reflects so.
Atty. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President and
General Manager of said Company?

Mr. Aro: Well, I oversee the entire operation of the brokerage and transport business of the company.  I
also handle the various division heads of the company for operation matters, and all other related
functions that the President may assign to me from time to time, Sir.

Q: Now, in connection [with] your duties and functions as you mentioned, will you please tell the
Honorable Court if you came to know the company by the name Little Giant Steel Pipe Corporation?
A: Yes, Sir. Actually, we are the brokerage firm of that Company.

Q: And since when have you been the brokerage firm of that company, if you can recall?
A:  Since 1990, Sir.

Q: Now, you said that you are the brokerage firm of this Company.  What work or duty did you perform
in behalf of this company?
A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs.  We [are] also in-charged
of the delivery of the goods to their warehouses.  We also handled the clearances of their shipment at the
Bureau of Customs, Sir.
xxx

Q: Now, what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with regards
to this shipment? What work did you do with this shipment?
A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the]
cargo[es] from lighter to BASECO then to the truck and to the warehouse, Sir.

Q: Now, in connection with this work which you are doing, Mr. Witness, you are supposed to perform,
what equipment do (sic) you require or did you use in order to effect this unloading, transfer and delivery
to the warehouse?
A: Actually, we used the barges for the ship side operations, this unloading [from] vessel to lighter, and
on this we hired or we sub-contracted with [T]ransport Ventures, Inc. which [was] in-charged (sic) of the
barges.  Also, in BASECO compound we are leasing cranes to have the cargo unloaded from the barge to
trucks, [and] then we used trucks to deliver [the cargoes] to the consignee’s warehouse, Sir.

Q: And whose trucks do you use from BASECO compound to the consignee’s warehouse?
A: We utilized of (sic) our own trucks and we have some other contracted trucks, Sir.
xxx

ATTY. JUBAY: Will you please explain to us, to the Honorable Court why is it you have to contract for
the barges of Transport Ventures Incorporated in this particular operation?
A: Firstly, we don’t own any barges.  That is why we hired the services of another firm whom we know
[al]ready for quite sometime, which is Transport Ventures, Inc.  (Emphasis supplied)[43]
It is settled that under a given set of facts, a customs broker may be regarded as a common carrier.  Thus,
this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals,[44] held:
The appellate court did not err in finding petitioner, a customs broker, to be also a common carrier, as
defined under Article 1732 of the Civil Code, to wit,
Art. 1732.  Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering
their services to the public.
xxx
Article 1732 does not distinguish between one whose principal business activity is the carrying of goods
and one who does such carrying only as an ancillary activity.  The contention, therefore, of petitioner that
it is not a common carrier but a customs broker whose principal function is to prepare the correct customs
declaration and proper shipping documents as required by law is bereft of merit.  It suffices that petitioner
undertakes to deliver the goods for pecuniary consideration. [45]
And in Calvo v. UCPB General Insurance Co. Inc.,[46] this Court held that as the transportation of goods
is an integral part of a customs broker, the customs broker is also a common carrier.  For to declare
otherwise “would be to deprive those with whom [it] contracts the protection which the law affords them
notwithstanding the fact that the obligation to carry goods for [its] customers, is part and parcel of
petitioner’s business.”[47]

As for petitioner’s argument that being the agent of Little Giant, any negligence it committed was deemed
the negligence of its principal, it does not persuade.

True, petitioner was the broker-agent of Little Giant in securing the release of the cargoes.  In effecting
the transportation of the cargoes from the shipside and into Little Giant’s warehouse, however, petitioner
was discharging its own personal obligation under a contact of carriage.

Petitioner, which did not have any barge or tugboat, engaged the services of TVI as handler [48] to provide
the barge and the tugboat.  In their Service Contract,[49] while Little Giant was named as the consignee,
petitioner did not disclose that it was acting on commission and was chartering the vessel for Little Giant.
[50]
  Little Giant did not thus automatically become a party to the Service Contract and was not, therefore,
bound by the terms and conditions therein.

Not being a party to the service contract, Little Giant cannot directly sue TVI based thereon but it can
maintain a cause of action for negligence.[51]

In the case of TVI, while it acted as a private carrier for which it was under no duty to observe
extraordinary diligence, it was still required to observe ordinary diligence to ensure the proper and careful
handling, care and discharge of the carried goods.

Thus, Articles 1170 and 1173 of the Civil Code provide:

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 2202,
paragraph 2, shall apply.

If the law or contract 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.
Was the reasonable care and caution which an ordinarily prudent person would have used in the same
situation exercised by TVI?[52]
This Court holds not.

TVI’s failure to promptly provide a tugboat did not only increase the risk that might have been reasonably
anticipated during the shipside operation, but was the proximate cause of the loss.  A man of ordinary
prudence would not leave a heavily loaded barge floating for a considerable number of hours, at such a
precarious time, and in the open sea, knowing that the barge does not have any power of its own and is
totally defenseless from the ravages of the sea.  That it was nighttime and, therefore, the members of the
crew of a tugboat would be charging overtime pay did not excuse TVI from calling for one such tugboat.

As for petitioner, for it to be relieved of liability, it should, following Article 1739 [53] of the Civil Code,
prove that it exercised due diligence to prevent or minimize the loss, before, during and after the
occurrence of the storm in order that it may be exempted from liability for the loss of the goods.

While petitioner sent checkers[54] and a supervisor[55] on board the vessel to counter-check the operations
of TVI, it failed to take all available and reasonable precautions to avoid the loss.   After noting that TVI
failed to arrange for the prompt towage of the barge despite the deteriorating sea conditions, it should
have summoned the same or another tugboat to extend help, but it did not.

This Court holds then that petitioner and TVI are solidarily liable [56] for the loss of the cargoes.  The
following pronouncement of the Supreme Court is instructive:
The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim
arises from the breach of that contract by reason of its failure to exercise the high diligence required of the
common carrier.  In the discharge of its commitment to ensure the safety of passengers, a carrier may
choose to hire its own employees or avail itself of the services of an outsider or an independent firm to
undertake the task.  In either case, the common carrier is not relieved of its responsibilities under the
contract of carriage.

Should Prudent be made likewise liable?  If at all, that liability could only be for tort under the provisions
of Article 2176 and related provisions, in conjunction with Article 2180 of the Civil Code. x x x [O]ne
might ask further, how then must the liability of the common carrier, on one hand, and an independent
contractor, on the other hand, be described?  It would be solidary.  A contractual obligation can be
breached by tort and when the same act or omission causes the injury, one resulting in culpa contractual
and the other in culpa aquiliana, Article 2194 of the Civil Code can well apply.   In fine, a liability for tort
may arise even under a contract, where tort is that which breaches the contract.   Stated differently, when
an act which constitutes a breach of contract would have itself constituted the source of a quasi-delictual
liability had no contract existed between the parties, the contract can be said to have been breached by
tort, thereby allowing the rules on tort to apply.[57]
As for Black Sea, its duty as a common carrier extended only from the time the goods were surrendered
or unconditionally placed in its possession and received for transportation until they were delivered
actually or constructively to consignee Little Giant. [58]

Parties to a contract of carriage may, however, agree upon a definition of delivery that extends the
services rendered by the carrier.  In the case at bar, Bill of Lading No. 2 covering the shipment provides
that delivery be made “to the port of discharge or so near thereto as she may safely get, always afloat.”[59]
The delivery of the goods to the consignee was not from “pier to pier” but from the shipside of “M/V
Alexander Saveliev” and into barges, for which reason the consignee contracted the services of
petitioner.  Since Black Sea had constructively delivered the cargoes to Little Giant, through petitioner, it
had discharged its duty.[60]

In fine, no liability may thus attach to Black Sea.

Respecting the award of attorney’s fees in an amount over P1,000,000.00 to Industrial Insurance, for lack
of factual and legal basis, this Court sets it aside.  While Industrial Insurance was compelled to litigate its
rights, such fact by itself does not justify the award of attorney’s fees under Article 2208 of the Civil
Code.  For no sufficient showing of bad faith would be reflected in a party’s persistence in a case other
than an erroneous conviction of the righteousness of his cause. [61] To award attorney’s fees to a party just
because the judgment is rendered in its favor would be tantamount to imposing a premium on one’s right
to litigate or seek judicial redress of legitimate grievances. [62]

On the award of adjustment fees: The adjustment fees and expense of divers were incurred by Industrial
Insurance in its voluntary but unsuccessful efforts to locate and retrieve the lost cargo.  They do not
constitute actual damages.[63]

As for the court a quo’s award of interest on the amount claimed, the same calls for modification
following the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals[64] that when the demand cannot
be reasonably established at the time the demand is made, the interest shall begin to run not from the time
the claim is made judicially or extrajudicially but from the date the judgment of the court is made (at
which the time the quantification of damages may be deemed to have been reasonably ascertained). [65]

WHEREFORE, judgment is hereby rendered ordering petitioner Schmitz Transport & Brokerage
Corporation, and Transport Venture Incorporation jointly and severally liable for the amount of
P5,246,113.11 with the MODIFICATION that interest at SIX PERCENT per annum of the amount due
should be computed from the promulgation on November 24, 1997 of the decision of the trial court.

Costs against petitioner.

SO ORDERED.

THIRD DIVISION
G.R. No. 220400, March 20, 2019
ANNIE TAN, PETITIONER, V. GREAT HARVEST ENTERPRISES, INC., RESPONDENT.

DECISION

LEONEN, J.:
Common carriers are obligated to exercise extraordinary diligence over the goods entrusted to their care.
This is due to the nature of their business, with the public policy behind it geared toward achieving
allocative efficiency and minimizing the inherently inequitable dynamics between the parties to the
transaction.
This resolves a Petition for Review on Certiorari [1] filed under Rule 45 of the Rules of Civil Procedure by
Annie Tan (Tan), assailing the Court of Appeals March 13, 2015 Decision [2] and September 15, 2015
Resolution[3] in CA-G.R. CV No. 100412. The assailed judgments upheld the Regional Trial Court
January 3, 2012 Decision[4] in Civil Case No. Q-94-20745, which granted Great Harvest Enterprises,
Inc.'s (Great Harvest) Complaint for sum of money against Tan.
On February 3, 1994, Great Harvest hired Tan to transport 430 bags of soya beans worth P230,000.00
from Tacoma Integrated Port Services, Inc. (Tacoma) in Port Area, Manila to Selecta Feeds in Camarin,
Novaliches, Quezon City.[5]
That same day, the bags of soya beans were loaded into Tan's hauling truck. Her employee, Rannie Sultan
Cabugatan (Cabugatan), then delivered the goods to Selecta Feeds. [6]
At Selecta Feeds, however, the shipment was rejected. Upon learning of the rejection, Great Harvest
instructed Cabugatan to deliver and unload the soya beans at its warehouse in Malabon. Yet, the truck and
its shipment never reached Great Harvest's warehouse. [7]
On February 7, 1994, Great Harvest asked Tan about the missing delivery. At first, Tan assured Great
Harvest that she would verify the whereabouts of its shipment, but after a series of follow-ups, she
eventually admitted that she could not locate both her truck and Great Harvest's goods. [8] She reported her
missing truck to the Western Police District Anti-Carnapping Unit and the National Bureau of
Investigation.[9]
On February 19, 1994, the National Bureau of Investigation informed Tan that her missing truck had been
found in Cavite. However, the truck had been cannibalized and had no cargo in it. [10] Tan spent over
P200,000.00 to have it fixed.[11]
Tan filed a Complaint against Cabugatan and Rody Karamihan (Karamihan), whom she accused of
conspiring with each other to steal the shipment entrusted to her. [12] An Information[13] for theft was filed
against Karamihan, while Cabugatan was charged with qualified theft. [14]
On March 2, 1994, Great Harvest, through counsel, sent Tan a letter demanding full payment for the
missing bags of soya beans. On April 26, 1994, it sent her another demand letter. Still, she refused to pay
for the missing shipment or settle the matter with Great Harvest. [15] Thus, on June 2, 1994, Great Harvest
filed a Complaint for sum of money against Tan.[16]
In her Answer, Tan denied that she entered into a hauling contract with Great Harvest, insisting that she
merely accommodated it. Tan also pointed out that since Great Harvest instructed her driver to change the
point of delivery without her consent, it should bear the loss brought about by its deviation from the
original unloading point.[17]
In its August 4, 2000 Decision,[18] the Regional Trial Court of Manila found Karamihan guilty as an
accessory after the fact of theft, and sentenced him to serve a prison sentence between six (6) months of
arresto mayor maximum to one (1) year of prision correccional minimum. He was also ordered to
indemnify Tan P75,000.00, the amount he had paid Cabugatan for the 430 bags of soya beans. [19]
In its January 3, 2012 Decision,[20] the Regional Trial Court of Quezon City granted Great Harvest's
Complaint for sum of money. It found that Tan entered into a verbal contract of hauling with Great
Harvest, and held her responsible for her driver's failure to deliver the soya beans to Great Harvest. [21] The
dispositive portion of the Decision read:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering
the latter:
1. To pay the sum of P230,000.00 with interest thereon at the rate of 12% per annum starting from
June 2, 1994 (when the case was filed) and until paid;
2. To pay the sum of P50,000.00 as Attorney's fees; and
3. Costs against the defendant.
SO ORDERED.[22]
Tan moved for reconsideration of the January 3, 2012 Decision, but her Motion was denied by the trial
court in its November 21, 2012 Order.[23]
Tan filed an Appeal, but the Court of Appeals dismissed it in its March 13, 2015 Decision. [24]
In affirming the January 3, 2012 Decision, the Court of Appeals found that the parties' standard business
practice when the recipient would reject the cargo was to deliver it to Great Harvest's warehouse. Thus,
contrary to Tan's claim, there was no deviation from the original destination. [25]
The Court of Appeals also held that the cargo loss was due to Tan's failure to exercise the extraordinary
level of diligence required of her as a common carrier, as she did not provide security for the cargo or
take out insurance on it.[26]
The dispositive portion of the Court of Appeals Decision read:
WHEREFORE, the premises considered, the instant appeal is hereby DISMISSED and the assailed
Decision dated January 3, 2012 [is] AFFIRMED in toto.
IT IS SO ORDERED.[27] (Emphasis in the original)
Tan moved for reconsideration, but her Motion was denied by the Court of Appeals in its September 15,
2015 Resolution.[28]
Thus, Tan filed her Petition for Review on Certiorari, [29] maintaining that her Petition falls under the
exceptions to a Rule 45 petition since the assailed Court of Appeals Decision was based on a
misapprehension of facts.[30]
Petitioner contends that she is not liable for the loss of the soya beans and points out that the agreement
with respondent Great Harvest was to deliver them to Selecta Feeds, an obligation with which she
complied. She claims that what happened after that was beyond her control. When Selecta Feeds rejected
the soya beans and respondent directed Cabugatan to deliver the goods to its warehouse, respondent
superseded her previous instruction to Cabugatan to return the goods to Tacoma, the loading point.
Hence, she was no longer required to exercise the extraordinary diligence demanded of her as a common
carrier.[31]
Tan opines that she is not liable for the value of the lost soya beans since the truck hijacking was a
fortuitous event and because "the carrier is not an insurer against all risks of travel." [32]
She prayed for: (1) P500,000.00 in actual damages to compensate for the expenses she incurred in
looking for and fixing her truck; (2) P500,000.00 in moral damages for the stress and mental anguish she
experienced in searching for her truck and the missing soya beans; (3) P500,000.00 in exemplary
damages to deter respondent from filing a similar baseless complaint in the future; and (4) P200,000.00 as
attorney's fees. On the other hand, if she is found liable to respondent, petitioner concedes that her
liability should only be pegged at P75,000.00, the actual price Karamihan paid for respondent's shipment.
[33]

On January 25, 2016,[34] respondent was directed to comment on the petition but it manifested [35] that it
was waiving its right to file a comment.
The sole issue for this Court's resolution is whether or not petitioner Annie Tan should be held liable for
the value of the stolen soya beans.
The Petition must fail.
The Rules of Court is categorical that only questions of law may be raised in petitions filed under Rule
45, as this Court is not a trier of facts. Further, factual findings of appellate courts, when supported by
substantial evidence, are binding upon this Court.[36]
However, these rules do admit of exceptions. [37] In particular, petitioner referred to the exception "[w]hen
the judgment is based on a misapprehension of facts" [38] to justify the questions of fact in her Petition for
Review on Certiorari.
A careful review of the records of this case convinces us that the assailed judgments of the Court of
Appeals are supported by substantial evidence.
Article 1732 of the Civil Code defines common carriers as "persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public." The Civil Code outlines the degree of diligence
required of common carriers in Articles 1733, 1755, and 1756:
ARTICLE 1733. Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.
....
ARTICLE 1755. A common carrier is bound to carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances.
ARTICLE 1756. In case of death of or injuries to passengers, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
prescribed in articles 1733 and 1755.
Law and economics provide the policy justification of our existing jurisprudence. The extraordinary
diligence required by the law of common carriers is primarily due to the nature of their business, with the
public policy behind it geared toward achieving allocative efficiency between the parties to the
transaction.
Allocative efficiency is an economic term that describes an optimal market where customers are willing
to pay for the goods produced.[39] Thus, both consumers and producers benefit and stability is achieved.
The notion of common carriers is synonymous with public service under Commonwealth Act No. 146 or
the Public Service Act.[40] Due to the public nature of their business, common carriers are compelled to
exercise extraordinary diligence since they will be burdened with the externalities or the cost of the
consequences of their contract of carriage if they fail to take the precautions expected of them.
Common carriers are mandated to internalize or shoulder the costs under the contracts of carriage. This is
so because a contract of carriage is structured in such a way that passengers or shippers surrender total
control over their persons or goods to common carriers, fully trusting that the latter will safely and timely
deliver them to their destination. In light of this inherently inequitable dynamics— and the potential harm
that might befall passengers or shippers if common carriers exercise less than extraordinary diligence—
the law is constrained to intervene and impose sanctions on common carriers for the parties to achieve
allocative efficiency.[41]
Here, petitioner is a common carrier obligated to exercise extraordinary diligence [42] over the goods
entrusted to her. Her responsibility began from the time she received the soya beans from respondent's
broker and would only cease after she has delivered them to the consignee or any person with the right to
receive them.[43]
Petitioner's argument is that her contract of carriage with respondent was limited to delivering the soya
beans to Selecta Feeds. Thus, when Selecta Feeds refused to accept the delivery, she directed her driver to
return the shipment to the loading point. Respondent refutes petitioner's claims and asserts that their
standing agreement was to deliver the shipment to respondent's nearest warehouse in case the consignee
refused the delivery.
After listening to the testimonies of both parties, the trial court found that respondent was able to prove its
contract of carriage with petitioner. It also found the testimony of respondent's witness, Cynthia Chua
(Chua), to be more believable over that of petitioner when it came to the details of their contract of
carriage:
Defendant's assertion that the diversion of the goods was done without her consent and knowledge is self-
serving and is effectively belied by the positive testimony of witness Cynthia Chua, Account Officer of
plaintiff corporation (page 23, TSN, March 26, 1996). Equally self-serving is defendant's claim that she is
not liable for the loss of the soyabeans (sic) considering that the plaintiff has no existing contract with her.
Such a sweeping submission is also belied by the testimony of plaintiff's witness Cynthia Chua who
categorically confirmed the existing business relationship of plaintiff and defendant for hauling and
delivery of goods as well as the arrangement to deliver the rejected goods to the plaintiff's nearest
warehouse in the event that goods are rejected by the consignee with prior approval of the consignor
(page 11, TSN, March 26, 1996).[44]
The trial court's appreciation of Chua's testimony was upheld by the Court of Appeals:
Verily, the testimony alone of appellee's Account Officer, Cynthia Chua, dispels the contrary allegations
made by appellant in so far as the nature of their business relationship is concerned. Consistently and
without qualms, said witness narrated the details respecting the company's relations with the appellant and
the events that transpired before, during and after the perfection of the contract and the subsequent loss of
the subject cargo. Said testimony and the documentary exhibits, i.e., the Tacoma waybill and the
appellee's waybill, prove the perfection and existence of the disputed verbal contract.
Emphatically, from the aforesaid waybills, it was duly established that while verbal, the parties herein has
(sic) agreed for the hauling and delivery of the soya beans from the company's broker to the intended
recipient. It was further proven by evidence that appellant had agreed and consented to the delivery of the
soya beans to the company's nearest warehouse in case the cargo goods had been rejected by the recipient
as it had been the practice between the parties. [45] (Citation omitted)
This Court accords the highest respect to the trial court's assessment of a witness' credibility, as it was in a
better position to observe the witness' demeanor while testifying. [46] We see no reason to disturb the
factual findings of the lower courts, especially since they were supported by substantial evidence.
Furthermore, Article 1734 of the Civil Code holds a common carrier fully responsible for the goods
entrusted to him or her, unless there is enough evidence to show that the loss, destruction, or deterioration
of the goods falls under any of the enumerated exceptions:
ARTICLE 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, 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.

Nothing in the records shows that any of these exceptions caused the loss of the soya beans. Petitioner
failed to deliver the soya beans to respondent because her driver absconded with them. She cannot shift
the blame for the loss to respondent's supposed diversion of the soya beans from the loading point to
respondent's warehouse, as the evidence has conclusively shown that she had agreed beforehand to
deliver the cargo to respondent's warehouse if the consignee refused to accept it. [47]
Finally, petitioner's reliance on De Guzman v. Court of Appeals[48] is misplaced. There, the common
carrier was absolved of liability because the goods were stolen by robbers who used "grave or irresistible
threat, violence[,] or force"[49] to hijack the goods. De Guzman viewed the armed hijack as a fortuitous
event:
Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed to divest
or to diminish such responsibility — even for acts of strangers like thieves or robbers, except where such
thieves or robbers in fact acted "with grave or irresistible threat, violence or force." We believe and so
hold that the limits of the duty of extraordinary diligence in the vigilance over the goods carried are
reached where the goods are lost as a result of a robbery which is attended by "grave or irresistible threat,
violence[,] or force."[50]
In contrast to De Guzman, the loss of the soya beans here was not attended by grave or irresistible threat,
violence, or force. Instead, it was brought about by petitioner's failure to exercise extraordinary diligence
when she neglected vetting her driver or providing security for the cargo and failing to take out insurance
on the shipment's value. As the Court of Appeals held:
Besides, as the records would show, appellant did not observe extra-ordinary (sic) diligence in the
conduct of her business as a common carrier. In breach of their agreement, appellant did not provide
security while the goods were in transit and she also did not pay for the insurance coverage of said goods.
These measures could have prevented the hijacking (sic) or could have ensured the payment of the
damages sustained by the appellee.[51]
WHEREFORE, the Petition is DENIED. Petitioner Annie Tan is directed to pay respondent Great
Harvest Enterprises, Inc. the sum of Two Hundred Thirty Thousand Pesos (P230,000.00) with interest at
the rate of twelve percent (12%) per annum from June 2, 1994 until June 30, 2013, and at the rate of six
percent (6%) per annum from July 1, 2013 until its full satisfaction. She is further directed to pay Fifty
Thousand Pesos (P50,000.00) as attorney's fees and the costs of suit.
SO ORDERED.

THIRD DIVISION
G.R. No. 184513, March 09, 2016
DESIGNER BASKETS, INC., PETITIONER, VS. AIR SEA TRANSPORT, INC. AND ASIA
CARGO CONTAINER LINES, INC., RESPONDENTS.

DECISION

JARDELEZA, J.:
This is a Petition for Review on Certiorari[1] of the August 16, 2007 Decision[2] and September 2, 2008
Resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 79790, absolving respondents Air Sea
Transport, Inc. (ASTI) and Asia Cargo Container Lines, Inc. (ACCLI) from liability in the complaint for
sum of money and damages filed by petitioner Designer Baskets, Inc. (DBI).
The Facts

DBI is a domestic corporation engaged in the production of housewares and handicraft items for export. [4]
Sometime in October 1995, Ambiente, a foreign-based company, ordered from DBI [5] 223 cartons of
assorted wooden items (the shipment).[6] The shipment was worth Twelve Thousand Five Hundred Ninety
and Eighty-Seven Dollars (US$12,590.87) and payable through telegraphic transfer. [7] Ambiente
designated ACCLI as the forwarding agent that will ship out its order from the Philippines to the United
States (US). ACCLI is a domestic corporation acting as agent of ASTI, a US based corporation engaged
in carrier transport business, in the Philippines.[8]

On January 7, 1996, DBI delivered the shipment to ACCLI for sea transport from Manila and delivery to
Ambiente at 8306 Wilshire Blvd., Suite 1239, Beverly Hills, California. To acknowledge receipt and to
serve as the contract of sea carriage, ACCLI issued to DBI triplicate copies of ASTI Bill of Lading No.
AC/MLLA601317.[9] DBI retained possession of the originals of the bills of lading pending the payment
of the goods by Ambiente.[10]

On January 23, 1996, Ambiente and ASTI entered into an Indemnity Agreement (Agreement). [11] Under
the Agreement, Ambiente obligated ASTI to deliver the shipment to it or to its order "without the
surrender of the relevant bill(s) of lading due to the non-arrival or loss thereof." [12] In exchange, Ambiente
undertook to indemnify and hold ASTI and its agent free from any liability as a result of the release of the
shipment.[13] Thereafter, ASTI released the shipment to Ambiente without the knowledge of DBI, and
without it receiving payment for the total cost of the shipment. [14]

DBI then made several demands to Ambiente for the payment of the shipment, but to no avail. Thus, on
October 7, 1996, DBI filed the Original Complaint against ASTI, ACCLI and ACCLFs incorporators-
stockholders[15] for the payment of the value of the shipment in the amount of US$12,590.87 or Three
Hundred Thirty-Three and Six Flundred Fifty-Eight Pesos (P333,658.00), plus interest at the legal rate
from January 22, 1996, exemplary damages, attorney's fees and cost of suit. [16]

In its Original Complaint, DBI claimed that under Bill of Lading Number AC/MLLA601317, ASTI
and/or ACCLI is "to release and deliver the cargo/shipment to the consignee, x x x, only after the original
copy or copies of [the] Bill of Lading is or are surrendered to them; otherwise, they become liable to the
shipper for the value of the shipment."[17] DBI also averred that ACCLI should be jointly and severally
liable with its co-defendants because ACCLI failed to register ASTI as a foreign corporation doing
business in the Philippines. In addition, ACCLI failed to secure a license to act as agent of ASTI. [18]

On February 20, 1997, ASTI, ACCLI, and ACCLI's incorporators-stockholders filed a Motion to Dismiss.
[19]
They argued that: (a) they are not the real parties-in-interest in the action because the cargo was
delivered and accepted by Ambiente. The case, therefore, was a simple case of nonpayment of the buyer;
(b) relative to the incorporators-stockholders of ACCLI, piercing the corporate veil is misplaced; (c)
contrary to the allegation of DBI, the bill of lading covering the shipment does not contain a proviso
exposing ASTI to liability in case the shipment is released without the surrender of the bill of lading; and
(d) the Original Complaint did not attach a certificate of non-forum shopping. [20]

DBI filed an Opposition to the Motion to Dismiss,[21] asserting that ASTI and ACCLI failed to exercise
the required extraordinary diligence when they allowed the cargoes to be withdrawn by the consignee
without the surrender of the original bill of lading. ASTI, ACCLI, and ACCLI's incorporators-
stockholders countered that it is DBI who failed to exercise extraordinary diligence in protecting its own
interest. They averred that whether or not the buyer-consignee pays the seller is already outside of their
concern.[22]

Before the trial court could resolve the motion to dismiss, DBI filed an Amended Complaint [23]
impleading Ambiente as a new defendant and praying that it be held solidarity liable with ASTI, ACCLI,
and ACCLFs incorporators-stockholders for the payment of the value of the shipment. DBI alleged that it
received reliable information that the shipment was released merely on the basis of a company guaranty
of Ambiente.[24] Further, DBI asserted that ACCLI's incorporators-stockholders have not yet fully paid
their stock subscriptions; thus, "under the circumstance of [the] case," they should be held liable to the
extent of the balance of their subscriptions. [25]

In their Answer,[26] ASTI, ACCLI, and ACCLI's incorporators-stockholders countered that DBI has no
cause of action against ACCLI and its incorporators-stockholders because the Amended Complaint, on its
face, is for collection of sum of money by an unpaid seller against a buyer. DBI did not allege any act of
the incorporators-stockholders which would constitute as a ground for piercing the veil of corporate
fiction.[27] ACCLI also reiterated that there is no stipulation in the bill of lading restrictively subjecting the
release of the cargo only upon the presentation of the original bill of lading. [28] It regarded the issue of
ASTI's lack of license to do business in the Philippines as "entirely foreign and irrelevant to the issue of
liability for breach of contract" between DBI and Ambiente. It stated that the purpose of requiring a
license (to do business in the Philippines) is to subject the foreign corporation to the jurisdiction of
Philippine courts.[29]

On July 22, 1997, the trial court directed the service of summons to Ambiente through the Department of
Trade and Industry.[30] The summons was served on October 6, 1997[31] and December 18, 1997.[32]
Ambiente failed to file an Answer. Hence, DBI moved to declare Ambiente in default, which the trial
court granted in its Order dated September 15, 1998.[33]
The Ruling of the Trial Court

In a Decision[34] dated July 25, 2003, the trial court found ASTI, ACCLI, and Ambiente solidarity liable to
DBI for the value of the shipment. It awarded DBI the following:
1. US$12,590.87, or the equivalent of [P]333,658.00 at the time of the shipment, plus 12% interest
per annum from 07 January 1996 until the same is fully paid;
2. [P]50,000.00 in exemplary damages;
3. [P]47,000.00 as and for attorney's fees; and,
4. [P]10,000.00 as cost of suit.[35]
The trial court declared that the liability of Ambiente is "very clear." As the buyer, it has an obligation to
pay for the value of the shipment. The trial court noted that "[the case] is a simple sale transaction which
had been perfected especially since delivery had already been effected and with only the payment for the
shipment remaining left to be done."[36]

With respect to ASTI, the trial court held that as a common carrier, ASTI is bound to observe
extraordinary diligence in the vigilance over the goods. However, ASTI was remiss in its duty when it
allowed the unwarranted release of the shipment to Ambiente. [37] The trial court found that the damages
suffered by DBI was due to ASTI's release of the merchandise despite the non-presentation of the bill of
lading. That ASTI entered into an Agreement with Ambiente to release the shipment without the
surrender of the bill of lading is of no moment.[38] The Agreement cannot save ASTI from liability
because in entering into such, it violated the law, the terms of the bill of lading and the right of DBI over
the goods.[39]

The trial court also added that the Agreement only involved Ambiente and ASTI. Since DBI is not privy
to the Agreement, it is not bound by its terms.[40]

The trial court found that ACCLI "has not done enough to prevent the defendants Ambiente and [ASTI]
from agreeing among themselves the release of the goods in total disregard of [DBFs] rights and in
contravention of the country's civil and commercial laws." [41] As the forwarding agent, ACCLI was "well
aware that the goods cannot be delivered to the defendant Ambiente since [DBI] retained possession of
the originals of the bill of lading."[42] Consequently, the trial court held ACCLI solidarily liable with
ASTI.

As regards ACCLFs incorporators-stockholders, the trial court absolved them from liability. The trial
court ruled that the participation of ACCLFs incorporators-stockholders in the release of the cargo is not
as direct as that of ACCLI.[43]

DBI, ASTI and ACCLI appealed to the CA. On one hand, DBI took issue with the order of the trial court
awarding the value of the shipment in Philippine Pesos instead of US Dollars. It also alleged that even
assuming that the shipment may be paid in Philippine Pesos, the trial court erred in pegging its value at
the exchange rate prevailing at the time of the shipment, rather than at the exchange rate prevailing at the
time of payment.[44]

On the other hand, ASTI and ACCLI questioned the trial court's decision finding them solidarily liable
with DBI for the value of the shipment. They also assailed the trial court's award of interest, exemplary
damages, attorney's fees and cost of suit in DBFs favor. [45]
The Ruling of the Court of Appeals

The CA affirmed the trial court's finding that Ambiente is liable to DBI, but absolved ASTI and ACCLI
from liability. The CA found that the pivotal issue is whether the law requires that the bill of lading be
surrendered by the buyer/consignee before the carrier can release the goods to the former. It then
answered the question in the negative, thus:
There is nothing in the applicable laws that require the surrender of bills of lading before the goods
may be released to the buyer/consignee. In fact, Article 353 of the Code of Commerce suggests a
contrary conclusion, viz—
"Art. 353. After the contract has been complied with, the bill of lading which the carrier has issued shall
be returned to him, and by virtue of the exchange of this title with the thing transported, the respective
obligations shall be considered canceled xxx In case the consignee, upon receiving the goods, cannot
return the bill of lading subscribed by the carrier because of its loss or of any other cause, he must give
the latter a receipt for the goods delivered, this receipt producing the same effects as the return of the bill
of lading."
The clear import of the above article is that the surrender of the bill of lading is not an absolute and
mandatory requirement for the release of the goods to the consignee. The fact that the carrier is given
the alternative option to simply require a receipt for the goods delivered suggests that the surrender
of the bill of lading may be dispensed with when it cannot be produced by the consignee for
whatever cause.[46] (Emphasis supplied.)
The CA stressed that DBI failed to present evidence to prove its assertion that the surrender of the bill of
lading upon delivery of the goods is a common mercantile practice. [47] Further, even assuming that such
practice exists, it cannot prevail over law and jurisprudence. [48]

As for ASTI, the CA explained that its only obligation as a common carrier was to deliver the shipment in
good condition. It did not include looking beyond the details of the transaction between the seller and the
consignee, or more particularly, ascertaining the payment of the goods by the buyer Ambiente. [49]

Since the agency between ASTI and ACCLI was established and not disputed by any of the parties,
neither can ACCLI, as a mere agent of ASTI, be held liable. This must be so in the absence of evidence
that the agent exceeded its authority.[50]

The CA, thus, ruled:

WHEREFORE, in view of the foregoing, the Decision dated July 25, 2003 of Branch 255 of the
Regional Trial court of Las [Piñas] City in Civil Case No. LP-96-0235 is hereby AFFIRMED with the
following MODIFICATIONS:
1. Defendants-appellants Air Sea Transport, Inc. and Asia Cargo Container Lines, Inc. are hereby
ABSOLVED from all liabilities;
2. The actual damages to be paid by defendant Ambiente shall be in the amount of US$12,590.87.
Defendant Ambiente's liability may be paid in Philippine currency, computed at the exchange rate
prevailing at the time of payment;[51] and
3. The rate of interest to be imposed on the total amount of US$12,590.87 shall be 6% per annum
computed from the filing of the complaint on October 7, 1996 until the finality of this decision.
After this decision becomes final and executory, the applicable rate shall be 12% per annum until
its full satisfaction.
SO ORDERED.[52]
Hence, this petition for review, which raises the sole issue of whether ASTI and ACCLI may be held
solidarily liable to DBI for the value of the shipment.
Our Ruling
We deny the petition.

A common carrier may release the goods to the consignee even without the surrender of the hill of
lading.

This case presents an instance where an unpaid seller sues not only the buyer, but the carrier and the
carrier's agent as well, for the payment of the value of the goods sold. The basis for ASTI and ACCLI's
liability, as pleaded by DBI, is the bill of lading covering the shipment.

A bill of lading is defined as "a written acknowledgment 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 order." [53] It may also be
defined as an instrument in writing, signed by a carrier or his agent, describing the freight so as to identify
it, stating the name of the consignor, the terms of the contract of carriage, and agreeing or directing that
the freight be delivered to bearer, to order or to a specified person at a specified place. [54]

Under Article 350 of the Code of Commerce, "the shipper as well as the carrier of the merchandise or
goods may mutually demand that a bill of lading be made." A bill of lading, when issued by the carrier to
the shipper, is the legal evidence of the contract of carriage between the former and the latter. It defines
the rights and liabilities of the parties in reference to the contract of carriage. The stipulations in the bill of
lading are valid and binding unless they are contrary to law, morals, customs, public order or public
policy.[55]

Here, ACCLI, as agent of ASTI, issued Bill of Lading No. AC/MLLA601317 to DBI. This bill of lading
governs the rights, obligations and liabilities of DBI and ASTI. DBI claims that Bill of Lading No.
AC/MLLA601317 contains a provision stating that ASTI and ACCLI are "to release and deliver the
cargo/shipment to the consignee, x x x, only after the original copy or copies of the said Bill of Lading is
or are surrendered to them; otherwise they become liable to [DBI] for the value of the shipment." [56] Quite
tellingly, however, DBI does not point or refer to any specific clause or provision on the bill of lading
supporting this claim. The language of the bill of lading shows no such requirement. What the bill of
lading provides on its face is:
Received by the Carrier in apparent good order and condition unless otherwise indicated hereon, the
Container(s) and/or goods hereinafter mentioned to be transported and/or otherwise forwarded from the
Place of Receipt to the intended Place of Delivery upon and [subject] to all the terms and conditions
appearing on the face and back of this Bill of Lading. If required by the Carrier this Bill of Lading
duly endorsed must be surrendered in exchange for the Goods of delivery order. [57] (Emphasis
supplied.)
There is no obligation, therefore, on the part of ASTI and ACCLI to release the goods only upon the
surrender of the original bill of lading.

Further, a carrier is allowed by law to release the goods to the consignee even without the latter's
surrender of the bill of lading. The third paragraph of Article 353 of the Code of Commerce is
enlightening:
Article 353. The legal evidence of the contract between the shipper and the carrier shall be the bills of
lading, by the contents of which the disputes which may arise regarding their execution and performance
shall be decided, no exceptions being admissible other than those of falsity and material error in the
drafting.

After the contract has been complied with, the bill of lading which the carrier has issued shall be returned
to him, and by virtue of the exchange of this title with the thing transported, the respective obligations and
actions shall be considered cancelled, unless in the same act the claim which the parties may wish to
reserve be reduced to writing, with the exception of that provided for in Article 366.
In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the
carrier, because of its loss or any other cause, he must give the latter a receipt for the goods
delivered, this receipt producing the same effects as the return of the bill of lading. (Emphasis
supplied.)
The general rule is that upon receipt of the goods, the consignee surrenders the bill of lading to the carrier
and their respective obligations are considered canceled. The law, however, provides two exceptions
where the goods may be released without the surrender of the bill of lading because the consignee can no
longer return it. These exceptions are when the bill of lading gets lost or for other cause. In either case,
the consignee must issue a receipt to the carrier upon the release of the goods. Such receipt shall produce
the same effect as the surrender of the bill of lading.

We have already ruled that the non-surrender of the original bill of lading does not violate the carrier's
duty of extraordinary diligence over the goods.[58] In Republic v. Lorenzo Shipping Corporation,[59] we
found that the carrier exercised extraordinary diligence when it released the shipment to the consignee,
not upon the surrender of the original bill of lading, but upon signing the delivery receipts and surrender
of the certified true copies of the bills of lading. Thus, we held that the surrender of the original bill of
lading is not a condition precedent for a common carrier to be discharged of its contractual obligation.

Under special circumstances, we did not even require presentation of any form of receipt by the
consignee, in lieu of the original bill of lading, for the release of the goods. In Macam v. Court of
Appeals,[60] we absolved the carrier from liability for releasing the goods to the consignee without the bills
of lading despite this provision on the bills of lading:
"One of the Bills of Lading must be surrendered duly endorsed in exchange for the goods or delivery
order."[61] (Citations omitted.)
In clearing the carrier from liability, we took into consideration that the shipper sent a telex to the carrier
after the goods were shipped. The telex instructed the carrier to deliver the goods without need of
presenting the bill of lading and bank guarantee per the shipper's request since "for prepaid shipt ofrt
charges already fully paid our end x x x."[62] We also noted the usual practice of the shipper to request the
shipping lines to immediately release perishable cargoes through telephone calls.

Also, in Eastern Shipping Lines v. Court of Appeals,[63] we absolved the carrier from liability for releasing
the goods to the supposed consignee, Consolidated Mines, Inc. (CMI), on the basis of an Undertaking for
Delivery of Cargo but without the surrender of the original bill of lading presented by CMI. Similar to the
factual circumstance in this case, the Undertaking in Eastern Shipping Lines guaranteed to hold the
carrier "harmless from all demands, claiming liabilities, actions and expenses." [64] Though the central
issue in that case was who the consignee was in the bill of lading, it is noteworthy how we gave weight to
the Undertaking in ruling in favor of the carrier:
But assuming that CMI may not be considered consignee, the petitioner cannot be faulted for releasing
the goods to CMI under the circumstances, due to its lack of knowledge as to who was the real consignee
in view of CMI's strong representations and letter of undertaking wherein it stated that the bill of lading
would be presented later. This is precisely the situation covered by the last paragraph of Art. 353 of the
[Code of Commerce] to wit:
"If in case of loss or for any other reason whatsoever, the consignee cannot return upon receiving the
merchandise the bill of lading subscribed by the carrier, he shall give said carrier a receipt of the goods
delivered this receipt producing the same effects as the return of the bill of lading." [65]
Clearly, law and jurisprudence is settled that the surrender of the original bill of lading is not absolute;
that in case of loss or any other cause, a common carrier may release the goods to the consignee even
without it.
Here, Ambiente could not produce the bill of lading covering the shipment not because it was lost, but for
another cause: the bill of lading was retained by DBI pending Ambiente's full payment of the shipment.
Ambiente and ASTI then entered into an Indemnity Agreement, wherein the former asked the latter to
release the shipment even without the surrender of the bill of lading. The execution of this Agreement,
and the undisputed fact that the shipment was released to Ambiente pursuant to it, to our mind, operates
as a receipt in substantial compliance with the last paragraph of Article 353 of the Code of Commerce.

Articles 1733, 1734, and 1735 of the Civil Code are not applicable.

DBI, however, challenges the Agreement, arguing that the carrier released the goods pursuant to it,
notwithstanding the carrier's knowledge that the bill of lading should first be surrendered. As such, DBI
claims that ASTI and ACCLI are liable for damages because they failed to exercise extraordinary
diligence in the vigilance over the goods pursuant to Articles 1733, 1734, and 1735 of the Civil Code. [66]

DBI is mistaken.

Articles 1733, 1734, and 1735 of the Civil Code are not applicable in this case. The Articles state:
Article 1733. Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.

Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735, and
1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set
forth in Articles 1755 and 1756.

Article 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, 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.

Article 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.
Articles 1733, 1734, and 1735 speak of the common carrier's responsibility over the goods. They refer to
the general liability of common carriers in case of loss, destruction or deterioration of goods and the
presumption of negligence against them. This responsibility or duty of 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. [67] It is, in fact, undisputed that the goods were timely
delivered to the proper consignee or to the one who was authorized to receive them. DBFs only cause of
action against ASTI and ACCLI is the release of the goods to Ambiente without the surrender of the bill
of lading, purportedly in violation of the terms of the bill of lading. We have already found that Bill of
Lading No. AC/MLLA601317 does not contain such express prohibition. Without any prohibition,
therefore, the carrier had no obligation to withhold release of the goods. Articles 1733, 1734, and 1735 do
not give ASTI any such obligation.
The applicable provision instead is Article 353 of the Code of Commerce, which we have previously
discussed. To reiterate, the Article allows the release of the goods to the consignee even without his
surrender of the original bill of lading. In such case, the duty of the carrier to exercise extraordinary
diligence is not violated. Nothing, therefore, prevented the consignee and the carrier to enter into an
indemnity agreement of the same nature as the one they entered here. No law or public policy is
contravened upon its execution.

Article 1503 of the Civil Code does not apply to contracts for carriage of goods.

In its petition, DBI continues to assert the wrong application of Article 353 of the Code of Commerce to
its Amended Complaint. It alleges that the third paragraph of Article 1503 of the Civil Code is the
applicable provision because: (a) Article 1503 is a special provision that deals particularly with the
situation of the seller retaining the bill of lading; and (b) Article 1503 is a law which is later in point of
time to Article 353 of the Code of Commerce.[68] DBI posits that being a special provision, Article 1503
of the Civil Code should prevail over Article 353 of the Code of Commerce, a general provision that
makes no reference to the seller retaining the bill of lading. [69]

DBFs assertion is untenable. Article 1503 is an exception to the general presumption provided in the first
paragraph of Article 1523, which reads:
Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send
the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for
the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except
in the cases provided for in Articles 1503, first, second and third paragraphs, or unless a contrary
intent appears.

Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of
the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of
the case. If the seller omit so to do, and the goods are lost or damaged in the course of transit, the buyer
may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible
in damages.

Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the
seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as
may enable him to insure them during their transit, and, if the seller fails to do so, the goods shall be
deemed to be at his risk during such transit. (Emphasis supplied.)
Article 1503, on the other hand, provides:
Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the
contract, reserve the right of possession or ownership in the goods until certain conditions have been
fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the
goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer.

Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or
to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if
except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the
goods, the seller's property in the goods shall be deemed to be only for the purpose of securing
performance by the buyer of his obligations under the contract.

Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer
or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller
thereby reserves a right to the possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of
lading together to the buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to
return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains the bill of
lading he acquires no added right thereby. If, however, the bill of lading provides that the goods are
deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer by the
consignee named therein, one who purchases in good faith, for value, the bill of lading, or goods from the
buyer will obtain the ownership in the goods, although the bill of exchange has not been honored,
provided that such purchaser has received delivery of the bill of lading indorsed by the consignee named
therein, or of the goods, without notice of the facts making the transfer wrongful. (Emphasis supplied.)
Articles 1523 and 1503, therefore, refer to a contract of sale between a seller and a buyer. In particular,
they refer to who between the seller and the buyer has the right of possession or ownership over the goods
subject of the sale. Articles 1523 and 1503 do not apply to a contract of carriage between the shipper and
the common carrier. The third paragraph of Article 1503, upon which DBI relies, does not oblige the
common carrier to withhold delivery of the goods in the event that the bill of lading is retained by the
seller. Rather, it only gives the seller a better right to the possession of the goods as against the mere
inchoate right of the buyer. Thus, Articles 1523 and 1503 find no application here. The case before us
does not involve an action where the seller asserts ownership over the goods as against the buyer. Instead,
we are confronted with a complaint for sum of money and damages filed by the seller against the buyer
and the common carrier due to the non-payment of the goods by the buyer, and the release of the goods
by the carrier despite non-surrender of the bill of lading. A contract of sale is separate and distinct from a
contract of carriage. They involve different parties, different rights, different obligations and liabilities.
Thus, we quote with approval the ruling of the CA, to wit:
On the third assigned error, [w]e rule for the defendants-appellants [ASTI and ACCLI]. They are correct
in arguing that the nature of their obligation with plaintiff [DBI] is separate and distinct from the
transaction of the latter with defendant Ambiente. As carrier of the goods transported by plaintiff,
its obligation is simply to ensure that such goods are delivered on time and in good condition. In the
case [Macam v. Court of Appeals], the Supreme Court emphasized that "the extraordinary responsibility
of the common carriers lasts until actual or constructive delivery of the cargoes to the consignee or to the
person who has the right to receive them." x x x

It is therefore clear that the moment the carrier has delivered the subject goods, its responsibility
ceases to exist and it is thereby freed from all the liabilities arising from the transaction. Any
question regarding the payment of the buyer to the seller is no longer the concern of the carrier.
This easily debunks plaintiffs theory of joint liability. [70] x x x (Emphasis supplied; citations omitted.)
The contract between DBI and ASTI is a contract of carriage of goods; hence, ASTI's liability should be
pursuant to that contract and the law on transportation of goods. Not being a party to the contract of sale
between DBI and Ambiente, ASTI cannot be held liable for the payment of the value of the goods sold. In
this regard, we cite Loadstar Shipping Company, Incorporated v. Malayan Insurance Company,
Incorporated,[71] thus:
Malayan opposed the petitioners' invocation of the Philex-PASAR purchase agreement, stating that the
contract involved in this case is a contract of affreightment between the petitioners and PASAR, not the
agreement between Philex and PASAR, which was a contract for the sale of copper concentrates.

On this score, the Court agrees with Malayan that contrary to the trial court's disquisition, the petitioners
cannot validly invoke the penalty clause under the Philex-PASAR purchase agreement, where penalties
are to be imposed by the buyer PASAR against the seller Philex if some elements exceeding the agreed
limitations are found on the copper concentrates upon delivery. The petitioners are not privy to the
contract of sale of the copper concentrates. The contract between PASAR and the petitioners is a
contract of carriage of goods and not a contract of sale. Therefore, the petitioners and PASAR are
bound by the laws on transportation of goods and their contract of affreightment. Since the Contract
of Affreightment between the petitioners and PASAR is silent as regards the computation of damages,
whereas the bill of lading presented before the trial court is undecipherable, the New Civil Code and the
Code of Commerce shall govern the contract between the parties. [72] (Emphasis supplied; citations
omitted.)
In view of the foregoing, we hold that under Bill of Lading No. AC/MLLA601317 and the pertinent law
and jurisprudence, ASTI and ACCLI are not liable to DBI. We sustain the finding of the CA that only
Ambiente, as the buyer of the goods, has the obligation to pay for the value of the shipment. However, in
view of our ruling in Nacar v. Gallery Frames,[73] we modify the legal rate of interest imposed by the CA.
Instead of 12% per annum from the finality of this judgment until its full satisfaction, the rate of interest
shall only be 6% per annum.

WHEREFORE, the petition is DENIED for lack of merit. The August 16, 2007 Decision and the
September 2, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 79790 are hereby
AFFIRMED with the MODIFICATION that from the finality of this decision until its full satisfaction,
the applicable rate of interest shall be 6% per annum.

SO ORDERED.