Transpo Cases and Notes

TRANSPORTATION AND PUBLIC UTILITIES
I.
pinedapcgp,rn,man2015
General Considerations
A. Public Utilities
1. Article XII, Sec. 11, 17, 18, 19, 1987 Const.
ARTICLE XII
SECTION 11. No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, nor
shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by the general public. The participation of
foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.
SECTION 17. In times of national emergency, when the public interest so requires, the State may, during
the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation
of any privately owned public utility or business affected with public interest.
SECTION 18. The State may, in the interest of national welfare or defense, establish and operate vital
industries and, upon payment of just compensation, transfer to public ownership utilities and other private
enterprises to be operated by the Government.
SECTION 19. The State shall regulate or prohibit monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed.
2. CA 146, as amended, Sec 13(b)
Commonwealth Act No. 146
Section 13. (b) The term "public service" includes every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general business purposes, any common carrier,
railroad, street railway, traction railway, sub-way motor vehicle, either for freight or passenger, or both
with or without fixed route and whether may be its classification, freight or carrier service of any class,
express service, steamboat or steamship line, pontines, ferries, and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine railways, marine repair shop, [warehouse]
wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power
water supply and power, petroleum, sewerage system, wire or wireless communications system, wire or
wireless broadcasting stations and other similar public services: Provided, however, That a person engaged
in agriculture, not otherwise a public service, who owns a motor vehicle and uses it personally and/or
enters into a special contract whereby said motor vehicle is offered for hire or compensation to a third
party or third parties engaged in agriculture, not itself or themselves a public service, for operation by the
latter for a limited time and for a specific purpose directly connected with the cultivation of his or their
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farm, the transportation, processing, and marketing of agricultural products of such third party or third
parties shall not be considered as operating a public service for the purposes of this Act.
(a) What is public utility?
(b) What is public service?
Albano v. Reyes, 175 SCRA 264 [G.R. No. 83551. July 11, 1989.]
RODOLFO B. ALBANO, petitioner, vs. HON. RAINERIO O. REYES, PHILIPPINE PORTS AUTHORITY,
INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., E. RAZON, INC., ANSCOR CONTAINER
CORPORATION, and SEALAND SERVICES. LTD., respondents.
Vicente Abad Santos for petitioner.
Bautista, Picazo, Buyco & Tan for private respondents.
SYLLABUS
1.
ADMINISTRATIVE LAW; PHILIPPINE PORTS AUTHORITY; AUTHORIZED TO CONTRACT WITH PRIVATE
ENTITY TO HANDLE CARGOES AND OTHER PORT RELATED SERVICES. While the PPA has been tasked,
under E.O. No. 30, with the management and operation of the Manila International Port Complex and to
undertake the providing of cargo handling and port related services thereat, the law provides that such
shall be "in accordance with P.D. 857 and other applicable laws and regulations." On the other hand, P.D.
No. 857 expressly empowers the PPA to provide services within Port Districts "whether on its own, by
contract, or otherwise" [Sec. 6(a) (v)]. Therefore, under the terms of E.O. No. 30 and P.D. No. 857, the PPA
may contract with the International Container Terminal Services, Inc. (ICTSI) for the management,
operation and development of the MICP. In the instant case, the PPA, in the exercise of the option granted
it by P.D. No. 857, chose to contract out the operation and management of the MICP to a private
corporation. This is clearly within its power to do. Thus, PPA's acts of privatizing the MICT and awarding the
MICT contract to ICTSI are wholly within the jurisdiction of the PPA under its Charter which empowers the
PPA to "supervise, control, regulate, construct, maintain, operate and provide such facilities or services as
are necessary in the ports vested in, or belonging to the PPA." (Section 6(a) ii, P.D. 857).
2.
MERCANTILE LAW; PUBLIC SERVICE ACT; LEGISLATIVE FRANCHISE, NOT ALWAYS NECESSARY IN THE
OPERATION OF PUBLIC UTILITY. Franchises issued by Congress are not required before each and every
public utility may operate. Thus, the law has granted certain administrative agencies the power to grant
licenses for or to authorize the operation of certain public utilities. (See E.O. Nos. 172 and 202)
3.
CONSTITUTIONAL LAW; NATIONAL ECONOMY AND PATRIMONY; POWER TO AMEND, ALTER OR
REPEAL AUTHORIZATION BY CONGRESS FOR OPERATION OF PUBLIC UTILITY, NOT AN IMPLICATION THAT
ONLY CONGRESS HAS POWER TO GRANT AUTHORIZATION. That the Constitution provides in Art. XII, Sec.
11 that the issuance of a franchise, certificate or other form of authorization for the operation of a public
utility shall be subject to amendment, alteration or repeal by Congress does not necessarily imply, as
petitioner posits, that only Congress has the power to grant such authorization. Our statute books are
replete with laws granting specified agencies in the Executive Branch the power to issue such
authorization for certain classes of public utilities.
4.
REMEDIAL LAW; ACTIONS; CAPACITY TO SUE; A TAXPAYER AND MEMBER OF CONGRESS, WITH
CAPACITY TO ASSAIL CONTRACT ENTERED INTO BY THE PHILIPPINE PORTS AUTHORITY. That petitioner
herein is suing as a citizen and taxpayer and as a Member of the House of Representatives, sufficiently
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clothes him with the standing to institute the instant suit questioning the validity of the assailed contract.
While the expenditure of public funds may not be involved under the contract, public interest is definitely
involved considering the important role of the MICP in the economic development of the country and the
magnitude of the financial consideration involved. Consequently, the disclosure provision in the
Constitution would constitute sufficient authority for upholding petitioner's standing. [Cf. Taada v. Tuvera,
G.R. No. 63915, April 24, 1985, 136 SCRA 27, citing Severino v. Governor General, 16 Phil. 366 (1910),
where the Court considered the petitioners with sufficient standing to institute an action where a public
right is sought to be enforced.]
5.
ID.; COURTS; AS A RULE, WILL REFUSE TO INTERFERE WITH ADMINISTRATIVE PROCEEDINGS. The
determination of whether or not the winning bidder is qualified to undertake the contracted service should
be left to the sound judgment of the PPA. The PPA, having been tasked with the formulation of a plan for
the development of port facilities and its implementation [Sec. 6(a) (i)], is the agency in the best position
to evaluate the feasibility of the projections of the bidders and to decide which bid is compatible with the
development plan. Neither the Court, nor Congress, has the time and the technical expertise to look into
this matter. (Manuel v. Villena G.R. No. L-28218, February 27, 1971, 37 SCRA 745)
GUTIERREZ, JR., J., concurring:
ADMINISTRATIVE LAW; PHILIPPINE PORTS AUTHORITY; AUTHORITY TO CONTRACT ARRASTRE SERVICES;
QUALIFICATIONS OF BIDDER, LEFT TO THE SOUND DISCRETION. The determination of whether or not the
winning bidder is qualified to undertake the contracted service should be left to the sound judgment of the
Philippine Ports Authority (PPA). I agree that the PPA is the agency which can best evaluate the
comparative qualifications of the various bidding contractors and that in making such evaluation it has the
technical expertise which neither this Court nor Congress possesses.
DECISION
PARAS, J p:
This is a Petition for Prohibition with prayer for Preliminary Injunction or Restraining Order seeking to
restrain the respondents Philippine Ports Authority (PPA) and the Secretary of the Department of
Transportation and Communications Rainerio O. Reyes from awarding to the International Container
Terminal Services, Inc. (ICTSI) the contract for the development, management and operation of the Manila
International Container Terminal (MICT).
On April 20, 1987, the PPA Board adopted its Resolution No. 850 directing PPA management to prepare the
Invitation to Bid and all relevant bidding documents and technical requirements necessary for the public
bidding of the development, management and operation of the MICT at the Port of Manila, and authorizing
the Board Chairman, Secretary Rainerio O. Reyes, to oversee the preparation of the technical and the
documentation requirements for the MICT leasing as well as to implement this project.
Accordingly, respondent Secretary Reyes, by DOTC Special Order 87-346, created a seven (7) man "Special
MICT Bidding Committee" charged with evaluating all bid proposals, recommending to the Board the best
bid, and preparing the corresponding contract between the PPA and the winning bidder or contractor. The
Bidding Committee consisted of three (3) PPA representatives, two (2) Department of Transportation and
Communications (DOTC) representatives, one (1) Department of Trade and Industry (DTI) representative
and one (1) private sector representative. The PPA management prepared the terms of reference, bid
documents and draft contract which materials were approved by the PPA Board. Cdpr
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The PPA published the Invitation to Bid several times in a newspaper of general circulation which
publication included the reservation by the PPA of "the right to reject any or all bids and to waive any
informality in the bids or to accept such bids which may be considered most advantageous to the
government."
Seven (7) consortia of companies actually submitted bids, which bids were opened on July 17, 1987 at the
PPA Head Office. After evaluation of the several bids, the Bidding Committee recommended the award of
the contract to develop, manage and operate the MICT to respondent International Container Terminal
Services, Inc. (ICTSI) as having offered the best Technical and Financial Proposal. Accordingly, respondent
Secretary declared the ICTSI consortium as the winning bidder.
Before the corresponding MICT contract could be signed, two successive cases were filed against the
respondents which assailed the legality or regularity of the MICT bidding. The first was Special Civil Action
55489 for "Prohibition with Preliminary Injunction" filed with the RTC of Pasig by Basilio H. Alo, an alleged
"concerned taxpayer", and, the second was Civil Case 88-43616 for "Prohibition with Prayer for Temporary
Restraining Order (TRO)" filed with the RTC of Manila by C.F. Sharp Co., Inc., a member of the nine (9) firm
consortium "Manila Container Terminals, Inc." which had actively participated in the MICT Bidding.
Restraining Orders were issued in Civil Case 88-43616 but these were subsequently lifted by this Court in
Resolutions dated March 17, 1988 (in G.R. No. 82218 captioned "Hon. Rainerio O. Reyes etc., et al. vs. Hon.
Doroteo N. Caneba, etc., et al.) and April 14, 1988 (in G.R. No. 81947 captioned "Hon. Rainerio O. Reyes
etc., et al. vs. Court of Appeals, et al.")
On May 18, 1988, the President of the Philippines approved the proposed MICT Contract, with directives
that "the responsibility for planning, detailed engineering, construction, expansion, rehabilitation and
capital dredging of the port, as well as the determination of how the revenues of the port system shall be
allocated for future port works, shall remain with the PPA; and the contractor shall not collect taxes and
duties except that in the case of wharfage or tonnage dues and harbor and berthing fees, payment to the
Government may be made through the contractor who shall issue provisional receipts and turn over the
payments to the Government which will issue the official receipts." (Annex "I").
The next day, the PPA and the ICTSI perfected the MICT Contract (Annex "3") incorporating therein by
"clarificatory guidelines" the aforementioned presidential directives. (Annex "4").
Meanwhile, the petitioner, Rodolfo A. Albano filed the present petition as citizen and taxpayer and as a
member of the House of Representatives, assailing the award of the MICT contract to the ICTSI by the PPA.
The petitioner claims that since the MICT is a public utility, it needs a legislative franchise before it can
legally operate as a public utility, pursuant to Article 12, Section 11 of the 1987 Constitution.
The petition is devoid of merit.
A review of the applicable provisions of law indicates that a franchise specially granted by Congress is not
necessary for the operation of the Manila International Container Port (MICP) by a private entity, a contract
entered into by the PPA and such entity constituting substantial compliance with the law.
1.
Executive Order No. 30, dated July 16, 1986, provides:
WHEREFORE, I, CORAZON C. AQUINO, President of the Republic of the Philippines, by virtue of the powers
vested in me by the Constitution and the law, do hereby order the immediate recall of the franchise
granted to the Manila International Port Terminals, Inc. (MIPTI) and authorize the Philippine Ports Authority
(PPA) to take over, manage and operate the Manila International Port Complex at North Harbor, Manila and
undertake the provision of cargo handling and port related services thereat, in accordance with P.D. 857
and other applicable laws and regulations.
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Section 6 of Presidential Decree No. 857 (the Revised Charter of the Philippine Ports Authority) states:
a)
The corporate duties of the Authority shall be:
xxx
xxx
xxx
(ii)
To supervise, control, regulate, construct, maintain, operate, and provide such facilities or services
as are necessary in the ports vested in, or belonging to the Authority.
xxx
xxx
xxx
(v)
To provide services (whether on its own, by contract, or otherwise) within the Port Districts and the
approaches thereof, including but not limited to
berthing, towing, mooring, moving, slipping, or docking of any vessel;
loading or discharging any vessel;
sorting, weighing, measuring, storing, warehousing, or otherwise handling goods.
xxx
xxx
xxx
b)
The corporate powers of the Authority shall be as follows:
xxx
xxx
xxx
(vi)
To make or enter into contracts of any kind or nature to enable it to discharge its functions under
this Decree.
xxx
xxx
xxx
[Emphasis supplied.]
Thus, while the PPA has been tasked, under E.O. No. 30, with the management and operation of the Manila
International Port Complex and to undertake the providing of cargo handling and port related services
thereat, the law provides that such shall be "in accordance with P.D. 857 and other applicable laws and
regulations." On the other hand, P.D. No. 857 expressly empowers the PPA to provide services within Port
Districts "whether on its own, by contract, or otherwise" [Sec. 6(a) (v)]. Therefore, under the terms of E.O.
No. 30 and P.D. No. 857, the PPA may contract with the International Container Terminal Services, Inc.
(ICTSI) for the management, operation and development of the MICP.
2.
Even if the MICP be considered a public utility, 1 or a public service 2 on the theory that it is a
"wharf" or a "dock" 3 as contemplated under the Public Service Act, its operation would not necessarily
call for a franchise from the Legislative Branch. Franchises issued by Congress are not required before each
and every public utility may operate. Thus, the law has granted certain administrative agencies the power
to grant licenses for or to authorize the operation of certain public utilities. (See E.O. Nos. 172 and 202)
That the Constitution provides in Art. XII, Sec. 11 that the issuance of a franchise, certificate or other form
of authorization for the operation of a public utility shall be subject to amendment, alteration or repeal by
Congress does not necessarily imply, as petitioner posits, that only Congress has the power to grant such
authorization. Our statute books are replete with laws granting specified agencies in the Executive Branch
the power to issue such authorization for certain classes of public utilities. 4
As stated earlier, E.O. No. 30 has tasked the PPA with the operation and management of the MICP, in
accordance with P.D. 857 and other applicable laws and regulations. However, P.D. 857 itself authorizes the
PPA to perform the service by itself, by contracting it out, or through other means. Reading E.O. No. 30 and
P.D. No. 857 together, the inescapable conclusion is that the lawmaker has empowered the PPA to
undertake by itself the operation and management of the MICP or to authorize its operation and
management by another by contract or other means, at its option. The latter power having been delegated
to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate and manage the
MICP becomes unnecessary.
In the instant case, the PPA, in the exercise of the option granted it by P.D. No. 857, chose to contract out
the operation and management of the MICP to a private corporation. This is clearly within its power to do.
Thus, PPA's acts of privatizing the MICT and awarding the MICT contract to ICTSI are wholly within the
jurisdiction of the PPA under its Charter which empowers the PPA to "supervise, control, regulate,
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construct, maintain, operate and provide such facilities or services as are necessary in the ports vested in,
or belonging to the PPA." (Section 6(a) ii, P.D. 857).
The contract between the PPA and ICTSI, coupled with the President's written approval, constitute the
necessary authorization for ICTSI's operation and management of the MICP. The award of the MICT contract
approved by no less than the President of the Philippines herself enjoys the legal presumption of validity
and regularity of official action. In the case at bar, there is no evidence which clearly shows the
constitutional infirmity of the questioned act of government. cdphil
For these reasons the contention that the contract between the PPA and ICTSI is illegal in the absence of a
franchise from Congress appears bereft of any legal basis.
3.
On the peripheral issues raised by the party, the following observations may be made:
A.
That petitioner herein is suing as a citizen and taxpayer and as a Member of the House of
Representatives, sufficiently clothes him with the standing to institute the instant suit questioning the
validity of the assailed contract. While the expenditure of public funds may not be involved under the
contract, public interest is definitely involved considering the important role of the MICP in the economic
development of the country and the magnitude of the financial consideration involved. Consequently, the
disclosure provision in the Constitution 5 would constitute sufficient authority for upholding petitioner's
standing. [Cf. Taada v. Tuvera, G.R. No. 63915, April 24, 1985, 136 SCRA 27, citing Severino v. Governor
General, 16 Phil. 366 (1910), where the Court considered the petitioners with sufficient standing to
institute an action where a public right is sought to be enforced.]
B.
That certain committees in the Senate and the House of Representatives have, in their respective
reports, and the latter in a resolution as well, declared their opinion that a franchise from Congress is
necessary for the operation of the MICP by a private individual or entity, does not necessarily create a
conflict between the Executive and the Legislative Branches needing the intervention of the Judicial
Branch. The court is not faced with a situation where the Executive Branch has contravened an enactment
of Congress. As discussed earlier, neither is the Court confronted with a case of one branch usurping a
power pertaining to another.
C.
Petitioner's contention that what was bid out, i.e., the development, management and operation of
the MICP, was not what was subsequently contracted, considering the conditions imposed by the President
in her letter of approval, thus rendering the bids and projections immaterial and the procedure taken
ineffectual, is not supported by the established facts. The conditions imposed by the President did not
materially alter the substance of the contract, but merely dealt on the details of its implementation.
D.
The determination of whether or not the winning bidder is qualified to undertake the contracted
service should be left to the sound judgment of the PPA. The PPA, having been tasked with the formulation
of a plan for the development of port facilities and its implementation [Sec. 6(a) (i)], is the agency in the
best position to evaluate the feasibility of the projections of the bidders and to decide which bid is
compatible with the development plan. Neither the Court, nor Congress, has the time and the technical
expertise to look into this matter.
Thus, the Court in Manuel v. Villena (G.R. No. L-28218, February 27, 1971, 37 SCRA 745] stated:
[C]ourts, as a rule, refuse to interfere with proceedings undertaken by administrative bodies or officials in
the exercise of administrative functions. This is so because such bodies are generally better equipped
technically to decide administrative questions and that non-legal factors, such as government policy on the
matter, are usually involved in the decisions. rat p. 750.]
In conclusion, it is evident that petitioner has failed to show a clear case of grave abuse of discretion
amounting to lack or excess of jurisdiction as to warrant the issuance of the writ of prohibition.
WHEREFORE, the petition is hereby DISMISSED.
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SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Gancayco, Bidin, Cortes, Grio-Aquino, Medialdea and
Regalado, JJ., concur.
Feliciano, J., concurs in the result.
Padilla, J., took no part in the deliberations.
Sarmiento, J., took no part. One of the respondents was my client.
Separate Opinion
GUTIERREZ, JR., J., concurring:
I concur in the Court's decision that the determination of whether or not the winning bidder is qualified to
undertake the contracted service should be left to the sound judgment of the Philippine Ports Authority
(PPA). I agree that the PPA is the agency which can best evaluate the comparative qualifications of the
various bidding contractors and that in making such evaluation it has the technical expertise which neither
this Court nor Congress possesses.
However, I would feel more comfortable in the thought that the above rulings are not only grounded on
firm legal foundations but are also factually accurate if the PPA shows greater consistency in its
submissions to this Court.
I recall that in E. Razon, Inc. v. Philippine Ports Authority (151 SCRA 233 [1977]), this Court decided the
case in favor of the PPA because, among others, of its submissions that: (1) the petitioner therein
committed violations as to outside stevedoring services, inadequate equipment, delayed submission of
reports, and non-compliance with certain port regulations; (2) respondent Marina Port Services and not the
petitioner was better qualified to handle arrastre services; (3) the petitioner being controlled by Alfredo
Romualdez could not enter into a management contract with PPA and any such contract would be null and
void; and (4) even if the petitioner may not have shared in the illegal intention behind the transfer of
majority shares, it shared in the benefits of the violation of law.
I was surprised during the oral arguments of the present petition to hear the counsel for PPA submit
diametrically different statements regarding the capabilities and worth of E. Razon, Inc., as an arrastre
operator. It now turns out that the Manila International Container Terminal will depend a great deal on the
expertise, reliability and competence of E. Razon, Inc., for its successful operations. The time difference
between the two petitions is insubstantial. After going over the pleadings of the present petition, I am now
convinced that it is the submissions of PPA in this case and not its contentions in G.R. No. 75197 which are
accurate and meritorious. There is the distinct possibility that we may have been unfair in the earlier
petition because of assertions made therein which are contradictory to the submissions in the instant
petition. No such doubts would exist if the Government is more consistent in its pleadings on such
important factual matters as those raised in these two petitions.
Footnotes
1.
A "public utility" is a business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation, telephone or
telegraph service. Apart from statutes which define the public utilities that are within the purview of such
statutes, it would be difficult to construct a definition of a public utility which would fit every conceivable
case. As its name indicates, however, the term public utility implies a public use and service to the public.
(Am. Jur. 2d V. 64, p. 549).
2.
The Public Service Act (C.A. No. 146, as amended) provides that the term public service "includes
every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway, traction railway, sub-way motor
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vehicle, either for freight or passenger, or both with or without fixed route and whatever may be its
classification, freight or carrier service of any class, express service, steamboat, or steamship line,
pontines, ferries, and water craft, engaged in the transportation of passengers and freight or both,
shipyard, marine railway, refrigeration plant, canal, irrigation system, gas, electric light, heat and power,
water supply and power, petroleum, sewerage system, wire or wireless communications system, wire or
wireless broadcasting stations and other similar public services.." [Sec. 13 (b).].
3.
Under P.D. 857 the term dock "includes locks, cuts entrances, graving docks, inclined planes,
slipways, quays, and other works and things appertaining to any dock", while wharf "means a continuous
structure built parallel to along the margin of the sea or alongside riverbanks, canals, or waterways where
vessels may lie alongside to receive or discharge cargo, embark or disembark passengers, or lie at rest."
[Sec. 3(j) and (o).].
4.
Examples of such agencies are:
1.
The Land Transportation Franchising and Regulatory Board created under E.O. No.
202, which is empowered to "issue, amend, revise, suspend or cancel Certificates of Public Convenience or
permits authorizing the operation of public land transportation services provided by motorized vehicles,
and to prescribe the appropriate terms and conditions therefor." [Sec. 5(b).].
2.
The Board of Energy, reconstituted into the Energy Regulatory Board created under
E.O. No. 172, is empowered to license refineries and regulate their capacities and to issue certificates of
public convenience for the operation of electric power utilities and services, except electric cooperatives
[Sec. 9 (d) and (e), P.D. No. 1206.].
5.
Art. II, Sec. 28. Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full disclosure of all its transactions involving public interest.
Tatad v. Garcia, 243 SCRA 538
EN BANC
[G.R. No. 114222. April 6, 1995.]
FRANCISCO S. TATAD, JOHN H. OSMEA and RODOLFO G. BIAZON, petitioners, vs. HON. JESUS B. GARCIA,
JR., in his capacity as the Secretary of the Department of Transportation and Communications, and EDSA
LRT CORPORATION, LTD., respondents.
Brillantes (Nachura) Navarro Jumamil Arcilla & Bello Law Offices for petitioners.
The Solicitor General for respondents.
SYLLABUS
1.
REMEDIAL LAW; CIVIL PROCEDURE; TAXPAYER'S SUITS; PREVAILING DOCTRINE. The prevailing
doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the national
government or government-owned or controlled corporations allegedly in contravention of the law
(Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal
contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA 240
[1989]). For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to
follow it and uphold the legal standing of petitioners as taxpayers to institute the present action.
2.
POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC UTILITY; FACILITIES TO OPERATE A
PUBLIC UTILITY DO NOT NEED A FRANCHISE. Private respondent EDSA LRT Corporation, Ltd. to whom
the contract to construct the EDSA LRT III was awarded by public respondent Secretary of DOTC, is
admittedly a foreign corporation "duly incorporated and existing under the laws of Hongkong." However,
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there is also no dispute that once the EDSA LRT III is constructed, private respondent, as lessor, will turn it
over to DOTC, as lessee, for the latter to operate the system and pay rentals for said use. What private
respondent owns are the rail tracks, rolling stocks like the coaches, rail stations, terminals and the power
plant, not a public utility. While a franchise is needed to operate these facilities to serve the public, they do
not by themselves constitute a public utility. What constitutes a public utility is not their ownership but
their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557558
[1923]). The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a public utility
so long as it does not operate them to serve the public.
3.
ID.; ID.; ID.; ID.; OPERATION OF PUBLIC UTILITY AND OWNERSHIP OF FACILITIES, DISTINGUISHED.
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the
facilities and equipment used to serve the public. Ownership is defined as a relation in law by virtue of
which a thing pertaining to one person is completely subjected to his will in everything not prohibited by
law or the concurrence with the rights of another (Tolentino, II Commentaries and Jurisprudence on the
Civil Code of the Philippines 45 [1992]). The exercise of the rights encompassed in ownership is limited by
law so that a property cannot be operated and used to serve the public as a public utility unless the
operator has a franchise. The operation of a rail system as a public utility includes the transportation of
passengers from one point to another point, their loading and unloading at designated places and the
movement of the trains at pre-scheduled times. The right to operate a public utility may exist
independently and separately from the ownership of the facilities thereof. One can own said facilities
without operating them as a public utility, or conversely, one may operate a public utility without owning
the facilities used to serve the public. The devotion of property to serve the public may be done by the
owner or by the person in control thereof who may not necessarily be the owner thereof. This dichotomy
between the operation of a public utility and the ownership of the facilities used to serve the public can be
very well appreciated when we consider the transportation industry. Enfranchised airline and shipping
companies may lease their aircraft and vessels instead of owning them themselves.
4.
ID.; ID.; ID.; ID.; REQUISITE FILIPINO NATIONALITY DETERMINED WHEN ENTITY APPLIES FOR
FRANCHISE. Private respondent will not run the light rail vehicles and collect fees from the riding public.
It will have no dealings with the public and the public will have no right to demand any services from it.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility. Neither are
owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad
companies considered as public utilities. Even the mere formation of a public utility corporation does not
ipso facto characterize the corporation as one operating a public utility. The moment for determining the
requisite Filipino nationality is when the entity applies for a franchise, certificate or any other form of
authorization for that purpose.
5.
ID.; ID.; ID.; BUILD-OPERATE-AND-TRANSFER (BOT) SCHEME; BUILD-AND-TRANSFER (BT) SCHEME;
DEFINED AND DISTINGUISHED. The BOT scheme is expressly defined as one where the contractor
undertakes the construction and financing of an infrastructure facility, and operates and maintains the
same. The contractor operates the facility for a fixed period during which it may recover its expenses and
investment in the project plus a reasonable rate of return thereon. After the expiration of the agreed term,
the contractor transfers the ownership and operation of the project to the government. In the BT scheme,
the contractor undertakes the construction and financing of the facility, but after completion, the
ownership and operation thereof are turned over to the government. The government, in turn, shall pay
the contractor its total investment on the project in addition to a reasonable rate of return. If payment is to
be effected through amortization payments by the government infrastructure agency or local government
unit concerned, this shall be made in accordance with a scheme proposed in the bid and incorporated in
9|Page
the contract (R.A. No. 6957, Sec. 6). Emphasis must be made that under the BOT scheme, the owner of the
infrastructure facility must comply with the citizenship requirement of the Constitution on the operation of
a public utility. No such a requirement is imposed in the BT scheme.
6.
ID.; ID.; ID.; BUILD-LEASE-AND-TRANSFER (BLT) SCHEME AND RELATED AGREEMENTS; NOT BARRED
IN THE BOT LAW (RA 6957). There is no mention in the BOT Law that the BOT and BT schemes bar any
other arrangement for the payment by the government of the project cost. The law must not be read in
such a way as to rule out or unduly restrict any variation within the context of the two schemes. Indeed, no
statute can be enacted to anticipate and provide all the fine points and details for the multifarious and
complex situations that may be encountered in enforcing the law. The BLT scheme in the challenged
agreements is but a variation of the BT scheme under the law. As a matter of fact, the burden on the
government in raising funds to pay for the project is made lighter by allowing it to amortize payments out
of the income from the operation of the LRT System. In form and substance, the challenged agreements
provide that rentals are to be paid on a monthly basis according to a schedule of rates through and under
the terms of a confirmed Irrevocable Revolving Letter of Credit. At the end of 25 years and when full
payment shall have been made to and received by private respondent, it shall transfer to DOTC, free from
any lien or encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and
Restated Agreement). A lease is a contract where one of the parties binds himself to give to another the
enjoyment or use of a thing for certain price and for a period which may be definite or indefinite but not
longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end
of the lease period. But if the parties stipulate that title to the leased premises shall be transferred to the
lessee at the end of the lease period upon the payment of an agreed sum, the lease becomes a leasepurchase agreement. Furthermore, it is of no significance that the rents shall be paid in United States
currency, not Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and
the National Economic and Development Authority as falling under the Investment Priorities Plan of
Government. It is, therefore, outside the application of the Uniform Currency Act (R.A. No. 529).
7.
ID.; ID.; ID.; AWARD OF CONSTRUCTION MAY BE MADE BY NEGOTIATION. The fact that the
contract for the construction of the EDSA LRT III was awarded through negotiation and before
congressional approval on January 22 and 23, 1992 of the List of National Projects to be undertaken by the
private sector pursuant to the BOT Law does not suffice to invalidate the award. Subsequent congressional
approval of the list including "rail-based projects packaged with commercial development opportunities"
under which the EDSA LRT III project falls, amounts to a ratification of the prior award of the EDSA LRT III
contract under the BOT Law. Indeed, where there is a lack of qualified bidders or contractors, the award of
government infrastructure contracts may be made by negotiation. Presidential Decree No. 1594 is the
general law on government infrastructure contracts while the BOT Law governs particular arrangements or
schemes aimed at encouraging private sector participation in government infrastructure projects. The two
laws are not inconsistent with each other but are in pari materia and should be read together accordingly.
8.
ID.; ID.; RA 7718; QUALIFIED APPLICANT MAY ENTER INTO ANY SCHEME INCLUDING A BLT
ARRANGEMENT. Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof.
Section 5-A of the law, expressly allows direct negotiation of contracts. From the law itself, once an
applicant has prequalified, it can enter into any of the schemes enumerated in Section 2, RA 7718,
including a BLT arrangement, enumerated and defined therein (Sec. 3). Republic Act No. 7718 is a curative
statute. It is intended to provide financial incentives and "a climate of minimum government regulations
and procedures and specific government undertakings in support of the private sector" (Sec. 1). A curative
statute makes valid that which before enactment of the statute was invalid. Thus, whatever doubts and
alleged procedural lapses private respondent and DOTC may have engendered and committed in entering
into the questioned contracts, these have now been cured by R.A. No. 7718.
10 | P a g e
9.
ID.; ID.; ID.; AGREEMENTS BETWEEN PRIVATE RESPONDENT AND DOTC, PRESUMED WELL-TAKEN
AND TO THE ADVANTAGE OF BOTH PARTIES; GOVERNMENT OFFICIALS CONCERNED, PRESUMED TO HAVE
PERFORMED THEIR FUNCTIONS REGULARLY. The determination by the proper administrative agencies
and officials who have acquired expertise, specialized skills and knowledge in the performance of their
functions should be accorded respect, absent any showing of grave abuse of discretion. Government
officials are presumed to perform their functions with regularity and strong evidence is necessary to rebut
this presumption. Petitioners have not presented evidence on the reasonable rentals to be paid by the
parties to each other. The matter of valuation is an esoteric field which is better left to the experts and
which this Court is not eager to undertake. That the grantee of a government contract will profit therefrom
and to that extent the government is deprived of the profits if it engages in the business itself, is not
worthy of being raised as an issue. In all cases where a party enters into a contract with the government,
he does so, not out of charity and not to lose money, but to gain pecuniarily. Definitely, the agreements in
question have been entered into by DOTC in the exercise of its governmental function. DOTC is the primary
policy, planning, programming, regulating and administrative entity of the Executive branch of government
in the promotion, development and regulation of dependable and coordinated networks of transportation
and communications systems as well as in the fast, safe, efficient and reliable postal, transportation and
communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the Executive
department, DOTC in particular, that has the power, authority and technical expertise to determine
whether or not a specific transportation or communications project is necessary, viable and beneficial to
the people. The discretion to award a contract is vested in the government agencies entrusted with that
function.
MENDOZA, J., concurring:
1.
REMEDIAL LAW; CIVIL PROCEDURE; PARTIES; MEMBERS OF CONGRESS, NO LEGAL STANDING TO
SUE IF THEY ALLEGE NO INFRINGEMENT OF PREROGATIVES AS LEGISLATORS. J. Mendoza holds that
petitioners do not have standing to sue. He joins to dismiss the petition in this case. Petitioners do not
have the right to sue, whether as legislators, taxpayers or citizens. As members of Congress, because they
allege no infringement of prerogatives as legislators. As taxpayers because petitioners allege neither an
unconstitutional exercise of the taxing or spending powers of Congress (Art. VI, 24-25 and 29) nor an illegal
disbursement of public money. As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron, 176
SCRA 240, 251-2-(1989) a party suing as taxpayer "must specifically prove that he has sufficient interest in
preventing the illegal expenditure of money raised by taxation and that he will sustain a direct injury as a
result of the enforcement of the questioned statute or contract. It is not sufficient that he has merely a
general interest common to all members of the public." In that case, it was held that a contract, whereby a
local government leased property to a private party with the understanding that the latter would build a
market building and at the end of the lease would transfer the building to the lessor, did not involve a
disbursement of public funds so as to give a taxpayer standing to question the legality of the contract. He
sees no substantial difference, as far as the standing of taxpayers to question public contracts is
concerned, between the contract there and the build-lease-transfer (BLT) contract being questioned by
petitioners in this case. Nor do petitioners have standing to bring this suit as citizens. In the cases in which
citizens were authorized to sue, this Court found standing because it thought the constitutional claims
pressed for decision to be of "transcendental importance," as in fact it subsequently granted relief to
petitioners by invalidating the challenged statutes or governmental actions. But in the case at bar, the
Court precisely finds the opposite by finding petitioners' substantive contentions to be without merit. To
the extent therefore that a party's standing is affected by a determination of the substantive merit of the
case or a preliminary estimate thereof, petitioners in the case at bar must be held to be without standing.
This is in line with our ruling in Lawyers League for a Better Philippines v. Aquino (G.R. Nos. 73748, 73972,
11 | P a g e
73990, May 22, 1986) and In re Bermudez (145 SCRA 160, 1986) where we dismissed citizens' actions on
the ground that petitioners had no personality to sue and their petitions did not state a cause of action.
The holding that petitioners did not have standing followed from the finding that they did not have a cause
of action. In order that citizens' actions may be allowed a party must show that he personally has suffered
some actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is
fairly traceable to the challenged action; and the injury is likely to be redressed by a favorable action.
Todays's holding that a citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and controversy requirement so carefully
embodied in Art. VIII, 5 in defining the jurisdiction of this Court. The result is to convert the Court into an
office of ombudsman for the ventilation of generalized grievances.
FELICIANO, J., dissenting:
1.
POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC UTILITY (EDSA LRT III); PD 1594 ON
BIDDING AND RELATED PROVISIONS; NOT APPLICABLE TO RA 6957 AND RA 7718. Presidential Decree
No. 1594 dated 11 June 1978 entitled: "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts." More specifically, the majority opinion invokes paragraph 1 of
Section 4 of this Degree which refers to Bidding. I understand the unspoken theory in the majority opinion
to be that above Section 4 and presumably the rest of Presidential Decree No. 1594 continue to exist and
to run parallel to the provisions of Republic Act No. 6957, whether in its original form or as amended by
Republic Act No. 7718. A principal difficulty with this approach is that Presidential Decree No. 1594
purports to apply to all "government contracts for infrastructure and other construction projects." But
Republic Act No. 6957 as amended by Republic Act No. 7718, relates only to "infrastructure projects" which
are financed, constructed, operated and maintained "by the private sector" "through the build/operateand-transfer or build-and-transfer scheme" under Republic Act No. 6597 and under a series of other
comparable schemes under Republic Act No. 7718. In other words, Republic Act No. 6957 and Republic Act
No. 7718 must be held, in my view, to be special statutes applicable to a more limited field of
"infrastructure projects" than the wide-ranging scope of application of the general statute, i.e., Presidential
Decree No. 1594. Thus, the high relevance of the point made by Mr. Justice Davide that Republic Act No.
6957 in specific connection with BOT- and BLT-type of contracts imposed an unqualified requirement of
public bidding set out in Section 5 thereof. It should also be pointed out that under Presidential Decree No.
1594, projects may be undertaken "by administration or force account or by negotiated contract only" (1)
"in exceptional cases where time is of the essence"; or (2) "where there is lack of bidders or contractors";
or (3) "where there is a conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, and in accordance with provision[s] of laws and acts of the matter." It must,
upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely no mention of
negotiated contracts being permitted to displace the requirement of public bidding. Upon the other hand,
Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act No. 7718, does not
purport to authorize direct negotiation of contracts except in four (4) situations where there is a lack of
pre-qualified contractors or complying bidders. Thus, even under the amended special statute, entering
into contracts by negotiation is not permissible in the other two (2) categories of cases referred to in
Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of the essence" and
"when there is conclusive evidence that greater economy and efficiency would be achieved through these
arrangements, etc." The result I reach is that insofar as BOT, etc. types of contracts are concerned, the
applicable public bidding requirement is that set out in Republic Act No. 6957 and, with respect to such
type of contracts opened for pre-qualification and bidding after the date of effectivity of republic Act No.
7718, the provisions of Republic Act No. 7718. The assailed contract was entered into before Republic Act
No. 7718 was enacted. The difficulties of applying the provisions of Presidential Decree No. 1594 to the
Edsa LRT-type of contracts are aggravated when one considers the detailed "Implementing Rules and
12 | P a g e
Regulations as amended April 1988" issued under that Presidential Decree. There is no reference at all in
these Presidential Decree No. 1594 Implementing Rules and Regulations to absence of pre-qualified
applicants and bidders as justifying negotiation of contracts as distinguished from requiring public bidding
or a second public bidding. Note also the following provision of the same Implementing Rules and
Regulations: "IB 1 Prequalification. The following may become contractors for government projects: 1.
Filipino a. Citizens (single proprietorship) b. Partnership or corporation duly organized under the laws of the
Philippines, and at least seventy five percent (75%) of the capital stock of which belongs to Filipino
citizens. 2. Contractors forming themselves into a joint venture, i.e., a group of two or more contractors
that intend to be jointly and severally responsible for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside from being currently and properly accredited by the
Philippine Contractors Accreditation Board, shall comply with the provisions of R.A. 4566, provided that
joint ventures in which Filipino ownership is less than seventy five percent (75%) may be prequalified
where the structures to be built require the application of techniques and/or technologies which are not
adequately possessed by a Filipino entity as defined above. The record of this case is entirely silent on the
extent of Philippine equity in the Edsa LRT Corporation; there is no suggestion that this corporation is
organized under Philippine law and is at least seventy-five (75%) percent owned by Philippine citizens.
2.
ID.; ID.; ID.; PUBLIC BIDDING, AN IMPORTANT REQUIREMENT. Public bidding is the normal method
by which a government keeps contractors honest and is able to assure itself that it would be getting the
best possible value for its money in any construction or similar project. It is not for nothing that multilateral
financial organizations like the World Bank and the Asian Development Bank uniformly require projects
financed by them to be implemented and carried out by public bidding. Public bidding is much too
important a requirement casually to loosen by a latitudinarian exercise in statutory construction.
DAVIDE, JR., J., dissenting opinion:
1.
POLITICAL LAW; NATIONAL ECONOMY AND PATRIMONY; PUBLIC UTILITY (EDSA LRT III); RA 6957 (BOT
LAW); BUILD-LEASE-AND-TRANSFER (BLT) SCHEME, NOT INCLUDED THEREIN. Respondents admit that
the assailed contract was entered into under R.A. 6957. This law, fittingly entitled "An Act Authorizing the
Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and
For Other Purposes," recognizes only two (2) kinds of contractual arrangements between the private sector
and government infrastructure agencies: (a) the Build-Operate-and-Transfer (BOT) scheme and (b) the
Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2 thereof which defines only the
BOT and BT schemes, in Section 3 which explicitly provides for said schemes and in Section 5 which
requires public bidding of projects under both schemes. All prior acts and negotiations leading to the
perfection of the challenged contract were clearly intended and pursued for such schemes. A Build-Leaseand-Transfer (BLT) scheme is not authorized under the said law, and none of the aforesaid prior acts and
negotiations were designed for such unauthorized scheme. Hence, the DOTC is without any power or
authority to enter into the BLT contract in question. If it is intended to include a BLT scheme in RA 6957,
then it should have so stated, for contracts of lease are not unknown in our jurisdiction, and Congress has
enacted several laws relating to leases. That the BLT scheme was never intended as a permissible
variation "within the context" of the BOT and BT schemes is conclusively established by the passage of
R.A. No. 7718 which amends: a) Section 2 by adding to the original BOT and BT schemes the following
schemes: (1) Build-own-and operate (BOO) (2) Build-Lease-and-transfer (BLT) (3) Build-transfer-andoperate (BTO) (4) Contract-add-and-operate (CAO) (5) Develop-operate-and-transfer (DOT) (6)
Rehabilitate-operate-and-transfer (ROT) (7) Rehabilitate-own-and-operate (ROO) b) Section 3 of R.A. No.
6957 by deleting therefrom the phrase "through the build-operate-and-transfer or build-and-transfer
scheme."
13 | P a g e
2.
ID.; ID.; ID.; PUBLIC BIDDING THEREIN, MANDATORY ; RA 7718 FOREGOING THE SAME DOES NOT
PROVIDE FOR RETROACTIVE APPLICATION. Public bidding is mandatory in R.A. No. 6957 under Section 5
thereof. The requirement of public bidding is not an idle ceremony. It has been aptly said that in our
jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving at a fair
and reasonable price and ensures that overpricing, favoritism and other anomalous practices are
eliminated or minimized. And any Government contract entered into without the required bidding is null
and void and cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr., A TREATISE
ON GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado Bros.,
96 Phil. 368 [1954]). The Office of the President, through then Executive Secretary Franklin Drilon correctly
disapproved the contract because no public bidding in strict compliance with Section 5 of R.A. No. 6957
was conducted. Secretary Drilon further bluntly stated that the provision of the Implementing Rules of said
law authorizing negotiated contracts was of doubtful legality. Indeed, it is null and void because the law
itself does not recognize or allow negotiated contracts. The mandatory requirement of public bidding
cannot be legally dispensed with simply because only one was qualified to bid during the prequalification
proceedings. Section 5 mandates that the BOT or BT contract should be awarded "to the lowest complying
bidder," which logically means that there must at least be two (2) bidders. If this minimum requirement is
not met, then the proposed bidding should be deferred and a new prequalification proceeding be
scheduled. Even those who were earlier disqualified may by then have qualified because they may have, in
the meantime, exerted efforts to meet all the qualifications. This view of the majority would open the
floodgates to the rigging of prequalification proceedings or to unholy conspiracies among prospective
bidders, which would even include dishonest government officials. They could just agree, for a certain
consideration, that only one of them would qualify in order that the latter would automatically corner the
contract and obtain the award. That Section 5 admits of no exception and that no bidding could be validly
had with only one bidder is likewise conclusively shown by the amendments introduced by R.A. No. 7718.
Per Section 7 thereof, a new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow
direct negotiation of contracts. Can this amendment be given retroactive effect to the challenged contract
so that it may now be considered a permissible negotiated contract? I submit that it cannot be. R.A. No.
7718 does not provide that it should be given retroactive effect to pre-existing contracts. Section 18
thereof says that it "shall take effect fifteen (15) days after its publication in at least two (2) newspapers of
general circulation." If it were the intention of Congress to give said act retroactive effect then it would
have so expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect,
unless the contrary is provided." The presumption is that all laws operate prospectively, unless the
contrary clearly appears or is clearly, plainly, and unequivocally expressed or necessarily implied. In every
case of doubt, the doubt will be resolved against the retroactive application of laws. (Ruben E. Agpalo,
STATUTORY CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing
statute, Sutherland states: In accordance with the rule applicable to original acts, it is presumed that
provisions added by the amendment affecting substantive rights are intended to operate prospectively.
Provisions added by the amendment that affect substantive rights will not be construed to apply to
transactions and events completed prior to its enactment unless the legislature has expressed its intent to
that effect or such intent is clearly implied by the language of the amendment or by the circumstances
surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY
CONSTRUCTION 434-436 [1943 ed.]).
DECISION
QUIASON, J p:
14 | P a g e
This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further
implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail
Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to the 22 April 1992
Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA" dated
May 6, 1993.
Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the Philippine Senate
and are suing in their capacities as Senators and as taxpayers. Respondent Jesus B. Garcia, Jr. is the
incumbent Secretary of the Department of Transportation and Communications (DOTC), while private
respondent EDSA LRT Corporation, Ltd. is a private corporation organized under the laws of Hongkong.
I
In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare in
Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati. The plan,
referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a mass transit system along
EDSA and alleviate the congestion and growing transportation problem in the metropolis.
On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by Elijahu
Levin, to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-Operate-Transfer
(BOT) basis.
On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project with
DOTC.
On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction, Operation
and Maintenance of Infrastructure Projects by the Private Sector, and For Other Purposes," was signed by
President Corazon C. Aquino. Referred to as the Build-Operate-Transfer (BOT) Law, it took effect on October
9, 1990.
Republic Act No. 6957 provides for two schemes for the financing, construction and operation of
government projects through private initiative and investment: Build-Operate-Transfer (BOT) or BuildTransfer (BT).
In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway, DOTC, on
January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-496, respectively
creating the Prequalification Bids and Awards Committee (PBAC) and the Technical Committee.
After its constitution, the PBAC issued guidelines for the prequalification of contractors for the financing
and implementation of the project. The notice, advertising the prequalification of bidders, was published in
three newspapers of general circulation once a week for three consecutive weeks starting February 21,
1991.
The deadline set for submission of prequalification documents was March 21, 1991, later extended to April
1, 1991. Five groups responded to the invitation: namely, ABB Trazione of Italy, Hopewell Holdings, Ltd. of
Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and EDSA LRT Consortium,
composed of ten foreign and domestic corporations: namely, Kaiser Engineers International, Inc., ACER
Consultants (Far East) Ltd., Freeman Fox, Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics,
TCGI Engineering, All Asia Capital and Leasing Corporation, The Salim Group of Jakarta, E.L. Enterprises,
Inc., A.M. Oreta & Co., Inc., Capitol Industrial Construction Group, Inc. and F.F. Cruz & Co., Inc. cdrep
On the last day for submission of prequalification documents, the prequalification criteria proposed by the
Technical Committee were adopted by the PBAC. The criteria, totalling 100 percent, are as follows: (a)
Legal aspects 10 percent; (b) Management/Organizational capability 30 percent; (c) Financial
capability 30 percent; and (d) Technical capability 30 percent (Rollo, p. 122).
On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the Implementing
Rules and Regulations thereof, approved the same.
15 | P a g e
After evaluating the prequalification bids, the PBAC issued a Resolution on May 9, 1991 declaring that of
the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at least 21 points
per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark of at least 82 points"
(Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT contractor-applicant meet the
requirements specified in the Constitution and other pertinent laws (Rollo, p. 114).
Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the Philippines and
was replaced by Secretary Pete Nicomedes Prado. The latter sent to President Aquino two letters dated
May 31, 1991 and June 14, 1991, respectively recommending the award of the EDSA LRT III project to the
sole complying bidder, the EDSA LRT Consortium, and requesting for authority to negotiate with the said
firm for the contract pursuant to paragraph 14(b) of the Implementing Rules and Regulations of the BOT
Law (Rollo, pp. 298-302).
In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive to the
DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium submitted its bid
proposal to DOTC.
Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA LRT
Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to Build, Lease
and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law (Rollo, pp. 147-177).
Secretary Prado, thereafter, requested presidential approval of the contract. LibLex
In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive Secretary
Orbos, informed Secretary Prado that the President could not grant the requested approval for the
following reasons: (1) that DOTC failed to conduct actual public bidding in compliance with Section 5 of the
BOT Law; (2) that the law authorized public bidding as the only mode to award BOT projects, and the
prequalification proceedings was not the public bidding contemplated under the law; (3) that Item 14 of
the Implementing Rules and Regulations of the BOT Law which authorized negotiated award of contract in
addition to public bidding was of doubtful legality; and (4) that congressional approval of the list of priority
projects under the BOT or BT Scheme provided in the law had not yet been granted at the time the
contract was awarded (Rollo, pp. 178-179).
In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-negotiated
the agreement. On April 22, 1992, the parties entered into a "Revised and Restated Agreement to Build,
Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78) inasmuch as "the parties [are]
cognizant of the fact the DOTC has full authority to sign the Agreement without need of approval by the
President pursuant to the provisions of Executive Order No. 380 and that certain events [had] supervened
since November 7, 1991 which necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6,
1992, DOTC, represented by Secretary Jesus Garcia vice Secretary Prado, and private respondent entered
into a "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement to Build, Lease and
Transfer a Light Rail Transit System for EDSA" so as to "clarify their respective rights and responsibilities"
and to "submit [the] Supplemental Agreement to the President of the Philippines for his approval" (Rollo,
pp. 79-80).
Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration and
approval. In a Memorandum to Secretary Garcia on May 6, 1993, President Ramos approved the said
Agreements (Rollo, p. 194).
According to the agreements, the EDSA-LRT III will use light rail vehicles from the Czech and Slovak Federal
Republics and will have a maximum carrying capacity of 450,000 passengers a day, or 150 million a year
to be achieved through 54 such vehicles operating simultaneously. The EDSA LRT III will run at grade, or
street level, on the mid-section of EDSA for a distance of 17.8 kilometers from F.B. Harrison, Pasay City to
North Avenue, Quezon City. The system will have its own power facility (Revised and Restated Agreement,
Sec. 2.3 (ii); Rollo, p. 55). It will also have thirteen (13) passenger stations and one depot in the 16-hectare
government property at North Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
16 | P a g e
Private respondent shall undertake and finance the entire project required for a complete operational light
rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58). Target completion date is
1,080 days or approximately three years from the implementation date of the contract inclusive of
mobilization, site works, initial and final testing of the system (Supplemental Agreement, Sec. 5; Rollo, p.
83). Upon full or partial completion and viability thereof, private respondent shall deliver the use and
possession of the completed portion to DOTC which shall operate the same (Supplemental Agreement,
Sec. 5; Revised and Restated Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private
respondent rentals on a monthly basis through an Irrevocable Letter of Credit. The rentals shall be
determined by an independent and internationally accredited inspection firm to be appointed by the
parties (Supplemental Agreement, Sec. 6; Rollo, pp. 85-86). As agreed upon, private respondent's capital
shall be recovered from the rentals to be paid by the DOTC which, in turn, shall come from the earnings of
the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC shall
have completed payment of the rentals, ownership of the project shall be transferred to the latter for a
consideration of only U.S.$1.00 (Revised and Restated Agreement, Sec. 11.1; Rollo, p. 67). LibLex
On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957, Entitled 'An
Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the
Private Sector, and for Other Purposes'" was signed into law by the President. The law was published in two
newspapers of general circulation on May 12, 1994, and took effect 15 days thereafter or on May 28, 1994.
The law expressly recognizes a BLT scheme and allows direct negotiation of BLT contracts.
II
In their petition, petitioners argued that:
"(1)
THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF MAY 6,
1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN CORPORATION, THE OWNERSHIP
OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL;
"(2)
THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR
RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE, IS ILLEGAL;
"(3)
THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R.A. NO. 6957 AND, HENCE, IS
UNLAWFUL;
"(4)
THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD. VIOLATES
THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF THE BOT LAW AND,
HENCE, IS ILLEGAL;
"(5)
THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO. 380 FOR THEIR FAILURE TO BEAR PRESIDENTIAL
APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND
"(6)
THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT" (Rollo, pp. 15-16).
Secretary Garcia and private respondent filed their comments separately and claimed that:
(1)
Petitioners are not the real parties-in-interest and have no legal standing to institute the present
petition;
(2)
The writ of prohibition is not the proper remedy and the petition requires ascertainment of facts;
(3)
The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT
Law;
(4)
The nationality requirement for public utilities mandated by the Constitution does not apply to
private respondent;
(5)
The Agreements executed by and between respondents have been approved by President Ramos
and are not disadvantageous to the government;
(6)
The award of the contract to private respondent through negotiation and not public bidding is
allowed by the BOT Law; and
17 | P a g e
(7)
Granting that the BOT Law requires public bidding, this has been amended by R.A. No. 7718 passed
by the Legislature on May 12, 1994, which provides for direct negotiation as a mode of award of
infrastructure projects.
III
Respondents claimed that petitioners had no legal standing to initiate the instant action. Petitioners,
however, countered that the action was filed by them in their capacity as Senators and as taxpayers.
The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered into by the
national government or government-owned or controlled corporations allegedly in contravention of the law
(Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the same when only municipal
contracts are involved (Bugnay Construction and Development Corporation v. Laron, 176 SCRA 240
[1989]).
For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to follow it
and uphold the legal standing of petitioners as taxpayers to institute the present action.
IV
In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following reasons:
(1)
the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the
Constitution to Filipino citizens and domestic corporations, not foreign corporations like private respondent;
(2)
the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT scheme
under the law;
(3)
the contract to construct the EDSA LRT III was awarded to private respondent not through public
bidding which is the only mode of awarding infrastructure projects under the BOT law; and
(4)
the agreements are grossly disadvantageous to the government.
1.
Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA LRT III
was awarded by public respondent, is admittedly a foreign corporation "duly incorporated and existing
under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once the EDSA LRT III is
constructed, private respondent, as lessor, will turn it over to DOTC, as lessee, for the latter to operate the
system and pay rentals for said use.
The question posed by petitioners is:
"Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III, a public utility?"
(Rollo, p. 17).
The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail tracks,
rolling stocks like the coaches, rail stations, terminals and the power plant, not a public utility. While a
franchise is needed to operate these facilities to serve the public, they do not by themselves constitute a
public utility. What constitutes a public utility is not their ownership but their use to serve the public (Iloilo
Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557-558 [1923]). LexLib
The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility. However, it
does not require a franchise before one can own the facilities needed to operate a public utility so long as
it does not operate them to serve the public.
Section 11 of Article XII of the Constitution provides:
"No franchise, certificate or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such
franchise, certificate or authorization be exclusive in character or for a longer period than fifty years . . ."
(Italics supplied).
18 | P a g e
In law, there is a clear distinction between the "operation" of a public utility and the ownership of the
facilities and equipment used to serve the public.
Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is completely
subjected to his will in everything not prohibited by law or the concurrence with the rights of another
(Tolentino, II Commentaries and Jurisprudence on the Civil Code of the Philippines 45 [1992]).
The exercise of the rights encompassed in ownership is limited by law so that a property cannot be
operated and used to serve the public as a public utility unless the operator has a franchise. The operation
of a rail system as a public utility includes the transportation of passengers from one point to another
point, their loading and unloading at designated places and the movement of the trains at pre-scheduled
times (cf. Arizona Eastern R.R. Co. v. J.A. Matthews, 20 Ariz 282, 180 P. 159, 7 A.L.R. 1149 [1919]; United
States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]). cdphil
The right to operate a public utility may exist independently and separately from the ownership of the
facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one
may operate a public utility without owning the facilities used to serve the public. The devotion of property
to serve the public may be done by the owner or by the person in control thereof who may not necessarily
be the owner thereof.
This dichotomy between the operation of a public utility and the ownership of the facilities used to serve
the public can be very well appreciated when we consider the transportation industry. Enfranchised airline
and shipping companies may lease their aircraft and vessels instead of owning them themselves.
While private respondent is the owner of the facilities necessary to operate the EDSA LRT III, it admits that
it is not enfranchised to operate a public utility. (Revised and Restated Agreement, Sec. 3.2; Rollo, p. 57). In
view of this incapacity, private respondent and DOTC agreed that on completion date, private respondent
will immediately deliver possession of the LRT system by way of lease for 25 years, during which period
DOTC shall operate the same as a common carrier and private respondent shall provide technical
maintenance and repair services to DOTC (Revised and Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo,
pp. 57-58, 61-62). Technical maintenance consists of providing (1) repair and maintenance facilities for the
depot and rail lines, services for routine clearing and security; and (2) producing and distributing
maintenance manuals and drawings for the entire system (Revised and Restated Agreement, Annex F).
Private respondent shall also train DOTC personnel for familiarization with the operation, use, maintenance
and repair of the rolling stock, power plant, substations, electrical, signalling, communications and all other
equipment as supplied in the agreement (Revised and Restated Agreement, Sec. 10; Rollo, pp. 66-67).
Training consists of theoretical and live training of DOTC operational personnel which includes actual
driving of light rail vehicles under simulated operating conditions, control of operations, dealing with
emergencies, collection, counting and securing cash from the fare collection system (Revised and Restated
Agreement, Annex E, Secs. 2-3). Personnel of DOTC will work under the direction and control of private
respondent only during training (Revised and Restated Agreement, Annex E, Sec. 3.1). The training
objectives, however, shall be such that upon completion of the EDSA LRT III and upon opening of normal
revenue operation, DOTC shall have in their employ personnel capable of undertaking training of all new
and replacement personnel (Revised and Restated Agreement, Annex E, Sec. 5.1). In other words, by the
end of the three-year construction period and upon commencement of normal revenue operation, DOTC
shall be able to operate the EDSA LRT III on its own and train all new personnel by itself.
Fees for private respondent's services shall be included in the rent, which likewise includes the project
cost, cost of replacement of plant equipment and spare parts, investment and financing cost, plus a
reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p. 54).
Since, DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a common
carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent from any losses,
damages, injuries or death which may be claimed in the operation or implementation of the system,
except losses, damages, injury or death due to defects in the EDSA LRT III on account of the defective
19 | P a g e
condition of equipment or facilities or the defective maintenance of such equipment or facilities (Revised
and Restated Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail vehicles and collect fees from the riding public. It will
have no dealings with the public and the public will have no right to demand any services from it.
It is well to point out that the role of private respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case of
Kilosbayan, Inc. v. Guingona, 232-SCRA 110 (1994). Therein, the Contract of Lease between PGMC and the
Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint venture agreement
prescribed under the charter of the PCSO. In the Contract of Lease, PGMC, the lessor obligated itself to
build, at its own expense, all the facilities necessary to operate and maintain a nationwide on-line lottery
system from whom PCSO was to lease the facilities and operate the same. Upon due examination of the
contract, the Court found that PGMC's participation was not confined to the construction and setting up of
the on-line lottery system. It spilled over to the actual operation thereof, becoming indispensable to the
pursuit, conduct, administration and control of the highly technical and sophisticated lottery system. In
effect, the PCSO leased out its franchise to PGMC which actually operated and managed the same.
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility (Providence
and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v. Railroad Commission of
Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate Commerce Commission, Ill. 35 S. Ct.
645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are owners of tank, refrigerator, wine, poultry and
beer cars who supply cars under contract to railroad companies considered as public utilities (Crystal Car
Line v. State Tax Commission, 174 P. 2d 984, 987 [1946]).
Even the mere formation of a public utility corporation does not ipso facto characterize the corporation as
one operating a public utility. The moment for determining the requisite Filipino nationality is when the
entity applies for a franchise, certificate or any other form of authorization for that purpose (People v.
Quasha, 93 Phil. 333 (1953]).
2.
Petitioners further assert that the BLT scheme under the Agreements in question is not recognized
in the BOT Law and its implementing Rules and Regulations.
Section 2 of the BOT Law defines the BOT and BT schemes as follows:
"(a)
Build-operate-and-transfer scheme A contractual arrangement whereby the contractor
undertakes the construction, including financing, of a given infrastructure facility, and the operation and
maintenance thereof. The contractor operates the facility over a fixed term during which it is allowed to
charge facility users appropriate tolls, fees, rentals, and charges sufficient to enable the contractor to
recover its operating and maintenance expenses and its investment in the project plus a reasonable rate of
return thereon. The contractor transfers the facility to the government agency or local government unit
concerned at the end of the fixed term which shall not exceed fifty (50) years. For the construction stage,
the contractor may obtain financing from foreign and/or domestic sources and/or engage the services of a
foreign and/or Filipino constructor [sic]: Provided, That the ownership structure of the contractor of an
infrastructure facility whose operation requires a public utility franchise must be in accordance with the
Constitution: Provided, however, That in the case of corporate investors in the build-operate-and-transfer
corporation, the citizenship of each stockholder in the corporate investors shall be the basis for the
computation of Filipino equity in the said corporation: Provided, further, That, in the case of foreign
constructors [sic], Filipino labor shall be employed or hired in the different phases of the construction
where Filipino skills are available: Provided, furthermore, that the financing of a foreign or foreigncontrolled contractor from Philippine government financing institutions shall not exceed twenty percent
(20%) of the total cost of the infrastructure facility or project: Provided, finally, That financing from foreign
sources shall not require a guarantee by the Government or by government-owned or controlled
corporations. The build-operate-and-transfer scheme shall include a supply-and-operate situation which is
a contractual arrangement whereby the supplier of equipment and machinery for a given infrastructure
20 | P a g e
facility, if the interest of the Government so requires, operates the facility providing in the process
technology transfer and training to Filipino nationals.
(b)
Build-and-transfer scheme A contractual arrangement whereby the contractor undertakes the
construction including financing, of a given infrastructure facility, and its turnover after completion to the
government agency or local government unit concerned which shall pay the contractor its total investment
expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in
the construction of any infrastructure project including critical facilities which for security or strategic
reasons, must be operated directly by the government" (Italics supplied).
The BOT scheme is expressly defined as one where the contractor undertakes the construction and
financing of an infrastructure facility, and operates and maintains the same. The contractor operates the
facility for a fixed period during which it may recover its expenses and investment in the project plus a
reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the
ownership and operation of the project to the government.
In the BT scheme, the contractor undertakes the construction and financing of the facility, but after
completion, the ownership and operation thereof are turned over to the government. The government, in
turn, shall pay the contractor its total investment on the project in addition to a reasonable rate of return.
If payment is to be effected through amortization payments by the government infrastructure agency or
local government unit concerned, this shall be made in accordance with a scheme proposed in the bid and
incorporated in the contract (R.A. No. 6957, Sec. 6).
Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply
with the citizenship requirement of the Constitution on the operation of a public utility. No such a
requirement is imposed in the BT scheme.
There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for the
payment by the government of the project cost. The law must not be read in such a way as to rule out or
unduly restrict any variation within the context of the two schemes. Indeed, no statute can be enacted to
anticipate and provide all the fine points and details for the multifarious and complex situations that may
be encountered in enforcing the law (Director of Forestry v. Muoz, 23 SCRA 1183 [1968]; People v.
Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina, 29 Phil. 119 [1914]).
The BLT scheme in the challenged agreements is but a variation of the BT scheme under the law.
As a matter of fact, the burden on the government in raising funds to pay for the project is made lighter by
allowing it to amortize payments out of the income from the operation of the LRT System.
In form and substance, the challenged agreements provide that rentals are to be paid on a monthly basis
according to a schedule of rates through and under the terms of a confirmed Irrevocable Revolving Letter
of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end of 25 years and when full payment
shall have been made to and received by private respondent, it shall transfer to DOTC, free from any lien
or encumbrances, all its title to, rights and interest in, the project for only U.S. $1.00 (Revised and Restated
Agreement, Sec. 11.1; Supplemental Agreement, Sec. 7; Rollo, pp. 67, 87).
A lease is a contract where one of the parties binds himself to give to another the enjoyment or use of a
thing for a certain price and for a period which may be definite or indefinite but not longer than 99 years
(Civil Code of the Philippines, Art. 1643). There is no transfer of ownership at the end of the lease period.
But if the parties stipulate that title to the leased premises shall be transferred to the lessee at the end of
the lease period upon the payment of an agreed sum, the lease becomes a lease-purchase agreement.
Furthermore, it is of no significance that the rents shall be paid in United States currency, not Philippine
pesos. The EDSA LRT III Project is a high priority project certified by Congress and the National Economic
and Development Authority as falling under the Investment Priorities Plan of Government (Rollo, pp. 310311). It is, therefore, outside the application of the Uniform Currency Act (R.A. No. 529), which reads as
follows:
"Sec. 1.
Every provision contained in, or made with respect to, any domestic obligation to wit, any
obligation contracted in the Philippines which provisions purports to give the obligee the right to require
21 | P a g e
payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, be as it is hereby declared against public policy, and null,
void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation
hereafter incurred. The above prohibition shall not apply to (a) . . .; (b) transactions affecting high-priority
economic projects for agricultural, industrial and power development as may be determined by the
National Economic Council which are financed by or through foreign funds; . . . ."
3.
The fact that the contract for the construction of the EDSA LRT III was awarded through negotiation
and before congressional approval on January 22 and 23, 1992 of the List of National Projects to be
undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312) does not suffice to
invalidate the award.
Subsequent congressional approval of the list including "rail-based projects packaged with commercial
development opportunities" (Rollo, p. 310) under which the EDSA LRT III project falls, amounts to a
ratification of the prior award of the EDSA LRT III contract under the BOT Law.
Petitioners insist that the prequalification process which led to the negotiated award of the contract
appears to have been rigged from the very beginning to do away with the usual open international public
bidding where qualified internationally known applicants could fairly participate.
The records show that only one applicant passed the prequalification process. Since only one was left, to
conduct a public bidding in accordance with Section 5 of the BOT Law for that lone participant will be an
absurd and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49, 61 [1993]).
Contrary to the comments of then Executive Secretary Drilon, Section 5 of the BOT Law in relation to
Presidential Decree No. 1594 allows the negotiated award of government infrastructure projects.
Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for Government
Infrastructure Contracts," allows the negotiated award of government projects in exceptional cases.
Section 4 of the said law reads as follows:
"Bidding. Construction projects shall generally be undertaken by contract after competitive public
bidding. Projects may be undertaken by administration or force account or by negotiated contract only in
exceptional cases where time is of the essence, or where there is lack of qualified bidders or contractors,
or where there is conclusive evidence that greater economy and efficiency would be achieved through this
arrangement, and in accordance with provision of laws and acts on the matter, subject to the approval of
the Minister of Public Works and Transportation and Communications, the Minister of Public Highways, or
the Minister of Energy, as the case may be, if the project cost is less than P1 Million, and the President of
the Philippines, upon recommendation of the Minister, if the project cost is P1 Million or more (Italics
supplied).
xxx
xxx
xxx
Indeed, where there is a lack of qualified bidders or contractors, the award of government infrastructure
contracts may be made by negotiation. Presidential Decree No. 1594 is the general law on government
infrastructure contracts while the BOT Law governs particular arrangements or schemes aimed at
encouraging private sector participation in government infrastructure projects. The two laws are not
inconsistent with each other but are in pari materia and should be read together accordingly. LibLex
In the instant case, if the prequalification process was actually tainted by foul play, one wonders why none
of the competing firms ever brought the matter before the PBAC, or intervened in this case before us (cf.
Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640 [1992]; Bureau Veritas v. Office of
the President, 205 SCRA 705 [1992]). The challenged agreements have been approved by President Ramos
himself. Although then Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease
and Transfer a Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a
contract from renegotiating and modifying in good faith the terms and conditions thereof so as to meet
legal, statutory and constitutional requirements. Under the circumstances, to require the parties to go back
to step one of the prequalification process would just be an idle ceremony. Useless bureaucratic "red tape"
22 | P a g e
should be eschewed because it discourages private sector participation, the "main engine" for national
growth and development (R.A. No. 6957, Sec. 1), and renders the BOT Law nugatory.
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:
"(e)
Build-lease-and-transfer A contractual arrangement whereby a project proponent is authorized to
finance and construct an infrastructure or development facility and upon its completion turns it over to the
government agency or local government unit concerned on a lease arrangement for a fixed period after
which ownership of the facility is automatically transferred to the government agency or local government
unit concerned."
Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:
"Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is only one
complying bidder left as defined hereunder.
"(a)
If, after advertisement, only one contractor applies for prequalification and it meets the
prequalification requirements, after which it is required to submit a bid proposal which is subsequently
found by the agency/local government unit (LGU) to be complying.
"(b)
If, after advertisement, more than one contractor applied for prequalification but only one meets
the prequalification requirements, after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying.
"(c)
If, after prequalification of more than one contractor, only one submits a bid which is found by the
agency/LGU to be complying.
"(d)
If, after prequalification, more than one contractor submit bids but only one is found by the
agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder [sic] may appeal
the decision of the implementing agency/LGUs prequalification bids and awards committee within fifteen
(15) working days to the head of the agency, in case of national projects or to the Department of the
Interior and Local Government, in case of local projects from the date the disqualification was made known
to the disqualified bidder: Provided, furthermore, That the implementing agency/LGUs concerned should
act on the appeal within forty-five (45) working days from receipt thereof." cdrep
Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by the BOT
Law has now been rendered moot and academic by R.A. No. 7718. Sec. 3 of this law authorizes all
government infrastructure agencies, government-owned and controlled corporations and local government
units to enter into contract with any duly prequalified proponent for the financing, construction, operation
and maintenance of any financially viable infrastructure or development facility through a BOT, BT, BLT,
BOO (Build-own-and-operate), BTO (Build-transfer-and-operate), CAO (Contract-add-operate), DOT
(Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO (Rehabilitate-ownoperate) (R.A. No. 7718, Sec. 2 [b-j]).
From the law itself, once an applicant has prequalified, it can enter into any of the schemes in Section 2
thereof, including a BLT arrangement, enumerated and defined therein (Sec. 3).
Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a climate of
minimum government regulations and procedures and specific government undertakings in support of the
private sector" (Sec. 1). A curative statute makes valid that which before enactment of the statute was
invalid. Thus, whatever doubts and alleged procedural lapses private respondent and DOTC may have
engendered and committed in entering into the questioned contracts, these have now been cured by R.A.
No. 7718 (cf. Development Bank of the Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos v.
Duata, 14 SCRA 1041 [1965]; Adong v. Cheong Seng Gee, 43 Phil. 43 [1922]).
4.
Lastly, petitioners claim that the agreements are grossly disadvantageous to the government
because the rental rates are excessive and private respondent's development rights over the 13 stations
and the depot will rob DOTC of the best terms during the most productive years of the project.
It must be noted that as part of the EDSA LRT III project, private respondent has been granted, for a period
of 25 years, exclusive rights over the depot and the air space above the stations for development into
commercial premises for lease, sublease, transfer, or advertising (Supplemental Agreement, Sec. 11; Rollo,
23 | P a g e
pp. 91-92). For and in consideration of these development rights, private respondent shall pay DOTC in
Philippine currency guaranteed revenues generated therefrom in the amounts set forth in the
Supplemental Agreement (Sec. 11; Rollo, p. 93). In the event that DOTC shall be unable to collect the
guaranteed revenues, DOTC shall be allowed to deduct any shortfalls from the monthly rent due private
respondent for the construction of the EDSA LRT III. (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94).
All rights, titles, interests and income over all contracts on the commercial spaces shall revert to DOTC
upon expiration of the 25-year period (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
The terms of the agreements were arrived at after a painstaking study by DOTC. The determination by the
proper administrative agencies and officials who have acquired expertise, specialized skills and knowledge
in the performance of their functions should be accorded respect, absent any showing of grave abuse of
discretion (Felipe Ysmael, Jr. & Co. v Deputy Executive Secretary, 190 SCRA 673 [1990]; Board of Medical
Education v. Alfonso, 176 SCRA 304 [1989]).
Government officials are presumed to perform their functions with regularity and strong evidence is
necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable rentals to
be paid by the parties to each other. The matter of valuation is an esoteric field which is better left to the
experts and which this Court is not eager to undertake.
That the grantee of a government contract will profit therefrom and to that extent the government is
deprived of the profits if it engages in the business itself, is not worthy of being raised as an issue. In all
cases where a party enters into a contract with the government, he does so, not out of charity and not to
lose money, but to gain pecuniarily. cdrep
5.
Definitely, the agreements in question have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy, planning, programming, regulating and administrative
entity of the Executive branch of government in the promotion, development and regulation of dependable
and coordinated networks of transportation and communications systems as well as in the fast, safe,
efficient and reliable postal, transportation and communications services (Administrative Code of 1987,
Book IV, Title XV, Sec. 2). It is the Executive department, DOTC in particular, that has the power, authority
and technical expertise to determine whether or not a specific transportation or communications project is
necessary, viable and beneficial to the people. The discretion to award a contract is vested in the
government agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA 705
[1992]).
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
Bellosillo and Kapunan, JJ., concur.
Narvasa, C.J., Bidin, Melo, Puno, Vitug, and Francisco, JJ., join Justice Mendoza's concurring opinion.
Feliciano and Davide, Jr., JJ., see dissenting opinion.
Padilla and Regalado, JJ., concur in the result.
Romero, J., is on leave.
Mendoza, J., see concurring opinion.
Separate Opinions
DAVIDE, JR., J., dissenting:
After wading through the record of the vicissitudes of the challenged contract and evaluating the issues
raised and the arguments adduced by the parties, I find myself unable to join the majority in the wellwritten ponencia of Mr. Justice Camilo P. Quiason. cdll
I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is an ultravires act of the Department of Transportation and Communications (DOTC) since under R.A. 6957 the DOTC
24 | P a g e
has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and (b) even assuming arguendo
that it has, the contract was entered into without complying with the mandatory requirement of public
bidding.
I
Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly entitled
"An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by
the Private Sector, and For Other Purposes," recognizes only two (2) kinds of contractual arrangements
between the private sector and government infrastructure agencies: (a) the Build-Operate-and-Transfer
(BOT) scheme and (b) the Build-and-Transfer (BT) scheme. This conclusion finds support in Section 2
thereof which defines only the BOT and BT schemes, in Section 3 which explicitly provides for said
schemes thus:
SEC. 3.
Private Initiative in Infrastructure. All government infrastructure agencies, including
government-owned and controlled corporations and local government units, are hereby authorized to enter
into contract with any duly prequalified private contractor for the financing, construction, operation and
maintenance of any financially viable infrastructure facilities through the build-operate-and-transfer or
build-and-transfer scheme, subject to the terms and conditions hereinafter set forth. (Italics supplied).
and in Section 5 which requires public bidding of projects under both schemes.
All prior acts and negotiations leading to the perfection of the challenged contract were clearly intended
and pursued for such schemes.
A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the aforesaid
prior acts and negotiations were designed for such unauthorized scheme. Hence, the DOTC is without any
power or authority to enter into the BLT contract in question.
The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law and that the
BOT and the BT schemes bar any other arrangement for the payment by the government of the project
cost," then "[t]he law must not be read in such a way as to rule out or unduly restrict any variation within
the context of the two schemes." This interpretation would be correct if the law itself provides room for
flexibility. We find no such provision in R.A. No. 6957. If it intended to include a BLT scheme, then it should
have so stated, for contracts of lease are not unknown in our jurisdiction, and Congress has enacted
several laws relating to leases. That the BLT scheme was never intended as a permissible variation "within
the context" of the BOT and BT schemes is conclusively established by the passage of R.A. No. 7718 which
amends:
a)
Section 2 by adding to the original BOT and BT schemes the following schemes:
(1)
Build-own-and operate (BOO)
(2)
Build-lease-and transfer (BLT)
(3)
Build-transfer-and-operate (BTO)
(4)
Contract-add-and-operate (CAO)
(5)
Develop-operate-and-transfer (DOT)
(6)
Rehabilitate-operate-and-transfer (ROT)
(7)
Rehabilitate-own-and-operate (ROO)
b)
Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-operate-and-transfer
or build-and-transfer scheme".
II
Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:
SEC. 5.
Public Bidding of Projects. Upon approval of the projects mentioned in Section 4 of this
Act, the concerned head of the infrastructure agency or local government unit shall forthwith cause to be
25 | P a g e
published, once every week for three (3) consecutive weeks, in at least two (2) newspapers of general
circulation and in at least one (1) local newspaper which is circulated in the region, province, city or
municipality in which the project is to be constructed a notice inviting all duly prequalified infrastructure
contractors to participate in the public bidding for the projects so approved. In the case of a build-operateand-transfer arrangement, the contract shall be awarded to the lowest complying bidder based on the
present value of its proposed tolls, fees, rentals, and charges over a fixed term for the facility to be
constructed, operated, and maintained according to the prescribed minimum design and performance
standards, plans, and specifications. For this purpose, the winning contractor shall be automatically
granted by the infrastructure agency or local government unit the franchise to operate and maintain the
facility, including the collection of tolls, fees, rentals, and charges in accordance with Section 6 hereof.
In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest complying
bidder based on the present value of its proposed, schedule of amortization payments for the facility to be
constructed according to the prescribed minimum design and performance standards, plans and
specifications: Provided, however, That a Filipino constructor who submits an equally advantageous bid
shall be given preference.
A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be submitted to
Congress for its information.
The requirement of public bidding is not an idle ceremony. It has been aptly said that in our jurisdiction
"public bidding is the policy and medium adhered to in Government procurement and construction
contracts under existing laws and regulations. It is the accepted method for arriving at a fair and
reasonable price and ensures that overpricing, favoritism and other anomalous practices are eliminated or
minimized. And any Government contract entered into without the required bidding is null and void and
cannot adversely affect the rights of third parties." (Bartolome C. Fernandez, Jr., A TREATISE ON
GOVERNMENT CONTRACTS UNDER PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado Bros., 96
Phil. 368 [1954]).
The Office of the President, through then Executive Secretary Franklin Drilon correctly disapproved the
contract because no public bidding in strict compliance with Section 5 of R.A. No. 6957 was conducted.
Secretary Drilon further bluntly stated that the provision of the Implementing Rules of said law authorizing
negotiated contracts was of doubtful legality. Indeed, it is null and void because the law itself does not
recognize or allow negotiated contracts.
However, the majority opinion posits the view that since only private respondent EDSA LRT was
prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the
mandatory requirement of public bidding cannot be legally dispensed with simply because only one was
qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT or BT contract
should be awarded "to the lowest complying bidder," which logically means that there must at least be two
(2) bidders. If this minimum requirement is not met, then the proposed bidding should be deferred and a
new prequalification proceeding be scheduled. Even those who were earlier disqualified may by then have
qualified because they may have, in the meantime, exerted efforts to meet all the qualifications.
This view of the majority would open the floodgates to the rigging of prequalification proceedings or to
unholy conspiracies among prospective bidders, which would even include dishonest government officials.
They could just agree, for a certain consideration, that only one of them would qualify in order that the
latter would automatically corner the contract and obtain the award.
That Section 5 admits of no exception and that no bidding could be validly had with only one bidder is
likewise conclusively shown by the amendments introduced by R.A. No. 7718. Per Section 7 thereof, a new
section denominated as Section 5-A was introduced in R.A. No. 6957 to allow direct negotiation of
contracts. This new section reads:
SEC. 5-A.
Direct Negotiation of Contracts. Direct negotiation shall be resorted to when there is only
one complying bidder left as defined hereunder. LLpr
26 | P a g e
(a)
If, after advertisement, only one contractor applies for prequalification requirements, after which it
is required to submit a bid/proposal which is subsequently found by the agency/local government unit
(LGU) to be complying.
(b)
If, after advertisement, more than one contractor applied for prequalification but only one meets
the prequalification requirements, after which it submits bid/proposal which is found by the agency/local
government unit (LGU) to be complying.
(c)
If, after prequalification of more than one contractor, only one submits a bid which is found by the
agency/LGU to be complying.
(d)
If, after prequalification, more than one contractor submit bids but only one is found by the
agency/LGU to be complying: Provided, That, any of the disqualified prospective bidder may appeal the
decision of the implementing agency/LGUs prequalification bids and awards committee within fifteen (15)
working days to the head of the agency, in case of national projects or to the Department of the Interior
and Local Government, in case of local projects from the date the disqualification was made known to the
disqualified bidder: Provided, furthermore, That the implementing agency/LGUs concerned should act on
the appeal within forty-five (45) working days from receipt thereof.
Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not provide
that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says that it "shall
take effect fifteen (15) days after its publication in at least two (2) newspapers of general circulation." If it
were the intention of Congress to give said act retroactive effect then it would have so expressly provided.
Article 4 of the Civil Code provides that "[l]aws shall have no retroactive effect, unless the contrary is
provided."
The presumption is that all laws operate prospectively, unless the contrary clearly appears or is clearly,
plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the doubt will be
resolved against the retroactive application of laws. (Ruben E. Agpalo, STATUTORY CONSTRUCTION 225
[2D. ed, 1990]). As to amendatory acts, or acts which change an existing statute, Sutherland states:
In accordance with the rule applicable to original acts, it is presumed that provisions added by the
amendment that affecting substantive rights will not be construed to apply to transactions and events
completed prior to its enactment unless the legislature has expressed its intent to that effect or such intent
is clearly implied by the language of the amendment or by the circumstances surrounding its enactment.
(1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY CONSTRUCTION 434-436 [1943 ed.])
I vote then to grant the instant petition and to declare void the challenged contract and its supplement.
FELICIANO, J ., dissenting:
After considerable study and effort, and with much reluctance, I find I must dissent in the instant case. I
agree with many of the things set out in the majority opinion written by my distinguished brother in the
Court Quiason, J. At the end of the day, however, I find myself unable to join in the result reached by the
majority.
I join in the dissenting opinion written by Mr. Justice Davide, Jr. which is appropriately drawn on fairly
narrow grounds. At the same time, I wish to address briefly one of the points made by Mr. Justice Quiason
in the majority opinion in his effort to meet the difficulties posed by Davide, Jr., J.
I refer to the invocation of the provisions of Presidential Decree No. 1594 dated 11 June 1978 entitled:
"Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts." More
specifically, the majority opinion invokes paragraph 1 of Section 4 of this Decree which reads as follows:
"Sec. 4.
Bidding. Construction projects shall generally be undertaken by contract after competitive
public bidding. Projects may be undertaken by administration or force account or by negotiated contract
only in exceptional cases where time is of the essence, or where there is lack of qualified bidders or
contractors, or where there is a conclusive evidence that greater economy and efficiency would be
27 | P a g e
achieved through this arrangement, and in accordance with provisions of laws and acts on the matter,
subject to the approval of the Ministry of Public Works, Transportation and Communications, the Minister of
Public Highways, or the Minister of Energy, as the case may be, if the project cost is less than P1 Million,
and of the President of the Philippines, upon the recommendation of the Minister, if the project cost is P1
Million or more.
xxx
xxx
xxx
I understand the unspoken theory in the majority opinion to be that above Section 4 and presumably the
rest of Presidential Decree No. 1594 continue to exist and to run parallel to the provisions of Republic Act
No. 6957, whether in its original form or as amended by Republic Act No. 7718.
A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to all
"government contracts for infrastructure and other construction projects." But Republic Act No. 6957 as
amended by Republic Act No. 7718, relates only to "infrastructure projects" which are financed,
constructed, operated and maintained "by the private sector" "through the build/operate-and-transfer or
build-and-transfer scheme" under Republic Act No. 6597 and under a series of other comparable schemes
under Republic Act No. 7718. In other words, Republic Act No. 6957 and Republic Act No. 7718 must be
held, in my view, to be special statutes applicable to a more limited field of "infrastructure projects" than
the wide-ranging scope of application of the general statute, i.e., Presidential Decree No. 1594. Thus, the
high relevance of the point made by Mr. Justice Davide that Republic Act No. 6957 in specific connection
with BOT- and BLT-type of contracts imposed an unqualified requirement of public bidding set out in
Section 5 thereof. prLL
It should also be pointed out that under Presidential Decree No. 1594, projects may be undertaken "by
administration or force account or by negotiated contract only"
(1)
"in exceptional cases where time is of the essence"; or
(2)
"where there is lack of bidders or contractors"; or
(3)
"where there is a conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, and in accordance with provision[s] of laws and acts on the matter."
It must, upon the one hand, be noted that the special law Republic Act No. 6957 made absolutely no
mention of negotiated contracts being permitted to displace the requirement of public bidding. Upon the
other hand, Section 5-a, inserted in Republic Act No. 6957 by the amending statute Republic Act No. 7718,
does not purport to authorize direct negotiation of contracts except in four (4) situations where there is a
lack of pre-qualified contractors or complying bidders. Thus, even under the amended special statute,
entering into contracts by negotiation is not permissible in the other two (2) categories of cases referred to
in Section 4 of Presidential Decree No. 1594, i.e., "in exceptional cases where time is of the essence" and
"when there is conclusive evidence that greater economy and efficiency would be achieved through these
arrangements, etc."
The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable public
bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type of contracts
opened for pre-qualification and bidding after the date of effectivity of Republic Act No. 7718, the
provisions of Republic Act No. 7718. The assailed contract was entered into before Republic Act No. 7718
was enacted.
The difficulties of applying the provisions of Presidential Decree No. 1594 to the Edsa LRT-type of contracts
are aggravated when one considers the detailed "Implementing Rules and Regulations as amended April
1988" issued under that Presidential Decree. 1 For instance:
"IB [2.5.2] 2.4.2 By Negotiated Contract
xxx
xxx
xxx'
a.
In times of emergencies arising from natural calamities where immediate action is necessary to
prevent imminent loss of life and/or property.
28 | P a g e
b.
Failure to award the contract after competitive public bidding for valid cause or causes [such as
where the prices obtained through public bidding are all above the AAE and the bidders refuse to reduce
their prices to the AAE].
In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified
contractors. Authority to negotiate contracts for projects under these exceptional cases shall be subject to
prior approval by heads of agencies within their limits of approving authority.
c.
Where the subject project is adjacent or contiguous to an on-going project and it could be
economically prosecuted by the same contractor provided that he has no negative slippage and has
demonstrated a satisfactory performance." (Emphasis supplied)
Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules and
Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of contracts as
distinguished from requiring public bidding or a second public bidding. prcd
Note also the following provision of the same Implementing Rules and Regulations:
"IB 1. Prequalification
The following may become contractors for government projects:
1.
Filipino
a.
Citizens (single proprietorship)
b.
Partnership or corporation duly organized under the laws of the Philippines, and at least seventy
five percent (75%) of the capital stock of which belongs to Filipino citizens.
2.
Contractors forming themselves into a joint venture, i.e., a group of two or more contractors that
intend to be jointly and severally responsible for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside from being currently and properly accredited by the
Philippine Contractors Accreditation Board, shall comply with the provisions of R.A. 4566, provided that
joint ventures in which Filipino ownership is less than seventy five percent (75%) may be prequalified
where the structures to be built require the application of techniques and/or technologies which are not
adequately possessed by a Filipino entity as defined above.
[The foregoing shall not negate any existing and future commitments with respect to the bidding and
aware of contracts financed partly or wholly with funds from international lending institutions like the Asian
Development Bank and the World Bank as well as from bilateral and other similar sources.]" (Italics
supplied)
The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT Corporation;
there is no suggestion that this corporation is organized under Philippine law and is at least seventy-five
(75%) percent owned by Philippine citizens.
Public bidding is the normal method by which a government keeps contractors honest and is able to assure
itself that it would be getting the best possible value for its money in any construction or similar project. It
is not for nothing that multilateral financial organizations like the World Bank and the Asian Development
Bank uniformly require projects financed by them to be implemented and carried out by public bidding.
Public bidding is much too important a requirement casually to loosen by a latitudinarian exercise in
statutory construction. LLjur
The instant Petition should be granted and the challenged contract and its supplement should be nullified
and set aside. A true public bidding, complete with a new prequalification proceeding, should be required
for the Edsa LRT Project.
MENDOZA, J ., concurring:
I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have standing to
sue, I join to dismiss the petition in this case. I write only to set forth what I understand the grounds for our
decisions on the doctrine of standing are and, why in accordance with these decisions, petitioners do not
have the right to sue, whether as legislators, taxpayers or citizens. As members of Congress, because they
allege no infringement of prerogatives as legislators. 1 As taxpayers because petitioners allege neither an
unconstitutional exercise of the taxing or spending powers of Congress (Art. VI, 24-25 and 29) 2 nor an
29 | P a g e
illegal disbursement of public money. 3 As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron,
4 a party suing as taxpayer "must specifically prove that he has sufficient interest in preventing the illegal
expenditure of money raised by taxation and that he will sustain a direct injury as a result of the
enforcement of the questioned statute or contract. It is not sufficient that he has merely a general interest
common to all members of the public." In that case, it was held that a contract, whereby a local
government leased property to a private party with the understanding that the latter would build a market
building and at the end of the lease would transfer the building to the lessor, did not involve a
disbursement of public funds so as to give a taxpayer standing to question the legality of the contract. I
see no substantial difference, as far as the standing of taxpayers to question public contracts is concerned,
between the contract there and the build-lease-transfer (BLT) contract being questioned by petitioners in
this case.
Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in fact it subsequently granted relief to petitioners by
invalidating the challenged statutes or governmental actions. Thus in the Lotto case 6 relied upon by the
majority for upholding petitioners' standing, this Court took into account the "paramount public interest"
involved which "immeasurably affect[ed] the social, economic, and moral well-being of the people . . . and
the counter-productive and retrogressive effects of the envisioned on-line lottery system." 7 Accordingly,
the Court invalidated the contract for the operation of lottery. cdrep
But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive contentions
to be without merit. To the extent therefore that a party's standing is affected by a determination of the
substantive merit of the case or a preliminary estimate thereof, petitioners in the case at bar must be held
to be without standing. This is in line with our ruling in Lawyers League for a Better Philippines v. Aquino 8
and In re Bermudez 9 where we dismissed citizens' actions on the ground that petitioners had no
personality to sue and their petitions did not state a cause of action. The holding that petitioners did not
have standing followed from the finding that they did not have a cause of action.
In order that citizens' actions may be allowed a party must show that he personally has suffered some
actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly
traceable to the challenged action; and the injury is likely to be redressed by a favorable action. 10 As the
U.S. Supreme Court has held:
Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation to
ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims asserted. Is
the injury too abstract, or otherwise not appropriate, to be considered judicially cognizable? Is the line of
causation between the illegal conduct and injury too attenuated? Is the prospect of obtaining relief from
the injury as a result of a favorable ruling too speculative? These questions and any others relevant to the
standing inquiry must be answered by reference to the Art III notion that federal courts may exercise
power only "in the last resort, and as a necessity," Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339,
345, 36 L Ed 176, 12 S Ct 400 (1892), and only when adjudication is "consistent with a system of
separated powers and the [dispute is one] traditionally thought to be capable of resolution through the
judicial process," Flast v. Cohen, 392 US 83, 97, 20 L. Ed 2d, 88 S Ct 1942 (1968). See Valley Forge, 454
US, at 472-473, 70 L Ed 2d 700, 102 S Ct 752. 11
Today's holding that a citizen, qua citizen, has standing to question a government contract unduly expands
the scope of public actions and sweeps away the case and controversy requirement so carefully embodied
in Art. VIII, Sec. 5 in defining the jurisdiction of this Court. The result is to convert the Court into an office of
Ombudsman for the ventilation of generalized grievances. Consistent with the view that this case has no
merit I submit with respect that petitioners, as representatives of the public interest, have no standing.
FELICIANO, J., dissenting:
30 | P a g e
1.
Text in 84 Official Gazette, No. 23, pp. 33-37, et seq. (6 June 1988).
MENDOZA, J., concurring:
1.
Philconsa v. Enriquez, 235 SCRA 508 (1994); Gonzales v. Macaraig, 191 SCRA 452 (1990); Tolentino
v. Comelec, 41 SCRA 702 (1971).
2.
Flast v. Cohen, 392 U.S. 83, 20 L. Ed. 2d 947 (1968), cited in Igot v. Comelec, 95 SCRA 392 (1980).
3.
Pascual v. Secretary of Public Works, 110 Phil. 331 (1960); Sanidad v. Comelec, 73 SCRA 333 (1976).
4.
176 SCRA 240, 251-2 (1989).
5.
Emergency Powers Cases [Araneta v. Dinglasan], 84 Phil. 368 (1949), Iloilo Palay and Corn Planters
Ass'n. v. Feliciano, 121 Phil. 358 (1965); Philconsa v. Gimenez, 122 Phil. 894 (1965); CLU v. Executive
Secretary, 194 SCRA 317 (1991)
6.
Kilosbayan, Inc. v. Guingona, 232 SCRA 110 (1994).
7.
Id. at 139.
8.
G.R. Nos. 73748, 73972, and 73990, May 22, 1986. (Questioning the legitimacy of the Provisional
Government of President Aquino).
9.
145 SCRA 160 (1986). (Questioning whether President Aquino and Vice President Laurel were the
"President and Vice-President elected in the February 7, 1986 election" within the meaning of Art. XVIII, 5
of the Constitution).
10.
Valley Forge College v. Americans United, 454 U.S. 464, 70 L. Ed. 2d 700 (1982); Bugnay Const. and
Dev. Corp. v. Laron, supra, note 4.
11.
Allen v. Wright, 468 U.S. 737, 752, 82 l. ed. 2d 556, 170 (1984).
PAL v. CAB, 270 SCRA 538
SECOND DIVISION
[G.R. No. 119528. March 26, 1997.]
PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL
AIRWAYS, INC., respondents.
Estelito P. Mendoza and Alberto E. Valenzuela, Jr. for petitioner.
Belo Gozon Elma Parez Asuncion & Lucila for Grand Air.
SYLLABUS
1.
ADMINISTRATIVE LAW; CIVIL AERONAUTICS BOARD; JURISDICTION ON APPLICATION FOR
TEMPORARY OPERATING PERMIT. The Civil Aeronautics Board has jurisdiction over GrandAir's Application
for a Temporary Operating Permit. This rule has been established in the case of Philippine Air Lines Inc., vs.
Civil Aeronautics Board, promulgated on June 13, 1968. The Board is expressly authorized by Republic Act
776 to issue a temporary operating permit or Certificate of Public Convenience and Necessity, and nothing
contained in the said law negates the power to issue said permit before the completion of the applicant's
evidence and that of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a
temporary permit "upon its own initiative" strongly suggests the power to exercise said authority, even
before the presentation of said evidence has begun. Assuming arguendo that a legislative franchise is
prerequisite to the issuance of a permit, the absence of the same does not affect the jurisdiction of the
Board to hear the application, but tolls only upon the ultimate issuance of the requested permit. There is
nothing in the law nor in the Constitution, which indicates that a Legislative franchise is an indispensable
requirement for an entity to operate as a domestic air transport operator. Although Section 11 of Article XII
recognizes Congress' control over any franchise, certificate or authority to operate a public utility, it does
not mean Congress has exclusive authority to issue the same. Franchise issued by Congress are not
31 | P a g e
required before each and every public utility may operate. In many instances, Congress has seen it fit to
delegate this function to government agencies, specialized particularly in their respective areas of public
service. A reading of Section 10 of RA 776, as amended by PD 1462 reveals the clear intent of Congress to
delegate the authority to regulate the issuance of a license to operate domestic air transport services.
2.
ID; DELEGATION OF POWERS; POWER TO GRANT LICENSE FOR OPERATION OF PUBLIC UTILITIES.
Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the
operation of certain public utilities. With the growing complexity of modern life, the multiplication of the
subjects of governmental regulation, and the increased difficulty of administering the laws, there is a
constantly growing tendency towards the delegation of greater powers by the legislature, and towards the
approval of the practice by the courts. It is generally recognized that a franchise may be derived indirectly
from the state through a duly designated agency, and to this extent, the power to grant franchises has
frequently been delegated, even to agencies other than those of a legislative nature. In pursuance of this,
it has been held that privileges conferred by grant by local authorities as agents for the state constitute as
much a legislative franchise as though the grant had been made by an act of the Legislature. The trend of
modern legislation is to vest the Public Service Commissioner with the power to regulate and control the
operation of public services under reasonable rules and regulations, and as a general rule, courts will not
interfere with the exercise of that discretion when it is just and reasonable and founded upon a legal right.
Congress, by giving the respondent Board the power to issue permits for the operation of domestic
transport services, has delegated to the said body the authority to determine the capability and
competence of a prospective domestic air transport operator to engage in such venture. This is not an
instance of transforming the respondent Board into a mini-legislative body, with unbridled authority to
choose who should be given authority to operate domestic air transport services. Congress, in this
instance, has set specific limitations on how such authority should be exercised, Section 4 of R.A. No. 776,
as amended, sets out guidelines or policies. Section 12 and 21 of the same enumerated the requirements
to determine the competency of a prospective operator to engage in the public service of air
transportation. Furthermore, the procedure for the processing of the application of a Certificate of Public
Convenience and Necessity had been established to ensure the weeding out of those entities that are not
deserving of public service.
3.
ID; CERTIFICATES OF PUBLIC CONVENIENCE; ELUCIDATED. Many and varied are the definitions of
certificates of public convenience which courts and legal writers have drafted. Some statutes use the
terms "convenience and necessity" while others use only the words "public convenience." The terms
"convenience and necessity", if used together in a statute, are usually held not to be separable, but are
construed together. Both words modify each other and must be construed together. The word 'necessity' is
so connected, not as an additional requirement but to modify and qualify what might otherwise be taken
as the strict significance of the word necessity. Public convenience and necessity exists when the proposed
facility will meet a reasonable want of the public and supply a need which the existing facilities do not
adequately afford. It does not mean or require an actual physical necessity or an indispensable thing. The
use of the word "necessity", in conjunction with "public convenience" in a certificate of authorization to a
public service entity to operate, does not in any way modify the nature of such certification, or the
requirements for the issuance of the same. It is the law which determines the requisites for the issuance of
such certification, and not the titled indicating the certificate.
DECISION
TORRES, JR., J p:
This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to prohibit
respondent Civil Aeronautics Board from exercising jurisdiction over private respondent's Application for
the issuance of a Certificate of Public Convenience and Necessity, and to annul and set aside a temporary
32 | P a g e
operating permit issued by the Civil Aeronautics Board in favor of Grand International Airways (GrandAir,
for brevity) allowing the same to engage in scheduled domestic air transportation services, particularly the
Manila-Cebu, Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is the fact that
GrandAir does not possess a legislative franchise authorizing it to engage in air transportation service
within the Philippines or elsewhere. Such franchise is, allegedly, a requisite for the issuance of a Certificate
of Public Convenience or Necessity by the respondent Board, as mandated under Section 11, Article XII of
the Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a requirement for
the issuance of a Certificate of Public Convenience and Necessity or a Temporary Operating Permit,
following the Court's pronouncements in the case of Albano vs. Reyes, 1 as restated by the Court of
Appeals in Avia Filipinas International vs. Civil Aeronautics Board 2 and Silangan Airways, Inc. vs. Grand
International Airways, Inc., and the Hon. Civil Aeronautics Board. 3
On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience and
Necessity with the Board, which application was docketed as CAB Case No. EP-12711. 4 Accordingly, the
Chief Hearing Officer of the CAB issued a Notice of Hearing setting the application for initial hearing on
December 16, 1994, and directing GrandAir to serve a copy of the application and corresponding notice to
all scheduled Philippine Domestic operators. On December 14, 1994, GrandAir filed its Compliance, and
requested for the issuance of a Temporary Operating Permit. Petitioner, itself the holder of a legislative
franchise to operate air transport services, filed an Opposition to the application for a Certificate of Public
Convenience and Necessity on December 16, 1995 on the following grounds:
"A.
The CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a
franchise to operate from Congress.
B.
The petitioner's application is deficient in form and substance in that:
1.
The application does not indicate a route structure including a computation of trunkline, secondary
and rural available seat kilometers (ASK) which shall always be maintained at a monthly level at least 5%
and 20% of the ASK offered into and out of the proposed base of operations for rural and secondary,
respectively.
2.
It does not contain a project/feasibility study, projected profit and loss statements, projected
balance sheet, insurance coverage, list of personnel, list of spare parts inventory, tariff structure,
documents supportive of financial capacity, route flight schedule, contracts on facilities (hangars,
maintenance, lot) etc.
C.
Approval of petitioner's application would violate the equal protection clause of the constitution.
D.
There is no urgent need and demand for the services applied for.
E.
To grant petitioner's application would only result in ruinous competition contrary to Section 4(d) of
R.A. 776." 5
At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the Board to
hear the application because GrandAir did not possess a legislative franchise. cdasia
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's Opposition.
Pertinent portions of the Order read:
"PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter has first
obtained a franchise to operate from Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina vs. CAB, CA
G.R. No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. 776, the Board possesses this specific
power and duty.
In view thereof, the opposition of PAL on this ground is hereby denied.
SO ORDERED."
Meantime, on December 22, 1994, petitioner this time, opposed private respondent's application for a
temporary permit maintaining that:
33 | P a g e
"1.
The applicant does not possess the required fitness and capability of operating the services applied
for under RA 776; and,
2.
Applicant has failed to prove that there is clear and urgent public need for the services applied for."
6
On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a
Temporary Operating Permit in favor of GrandAir 7 for a period of three months, i.e., from December 22,
1994 to March 22, 1994. Petitioner moved for the reconsideration of the issuance of the Temporary
Operating Permit on January 11, 1995, but the same was denied in CAB Resolution No. 02 (95) on February
2, 1995. 8 In the said Resolution, the Board justified its assumption of jurisdiction over GrandAir's
application.
"WHEREAS, the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776 as follows:
'(c)
The Board shall have the following specific powers and duties:
(1)
In accordance with the provision of Chapter IV of this Act, to issue, deny, amend, revise, alter,
modify, cancel, suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own initiative,
any temporary operating permit or Certificate of Public Convenience and Necessity; Provided, however;
that in the case of foreign air carriers, the permit shall be issued with the approval of the President of the
Republic of the Philippines."
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme Court held
that the CAB can even on its own initiative, grant a TOP even before the presentation of evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on October 30, 1991,
held that in accordance with its mandate, the CAB can issue not only a TOP but also a Certificate of Public
Convenience and Necessity (CPCN) to a qualified applicant therefor in the absence of a legislative
franchise, citing therein as basis the decision of Albano vs. Reyes (175 SCRA 264) which provides (inter
alia) that:
a)
Franchises by Congress are not required before each and every public utility may operate when the
law has granted certain administrative agencies the power to grant licenses for or to authorize the
operation of certain public utilities;
b)
The Constitutional provision in Article XII, Section 11 that the issuance of a franchise, certificate or
other form of authorization for the operation of a public utility does not necessarily imply that only
Congress has the power to grant such authorization since our statute books are replete with laws granting
specified agencies in the Executive Branch the power to issue such authorization for certain classes of
public utilities.
WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section 2.1 that a
minimum of two (2) operators in each route/link shall be encouraged and that routes/links presently
serviced by only one (1) operator shall be open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on January 05,
1995 on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand International Airways,
Inc. alleging among others that the CAB has no such jurisdiction, is hereby DENIED, as it hereby denied, in
view of the foregoing and considering that the grounds relied upon by the movant are not indubitable."
On March 21, 1995, upon motion by private respondent, the temporary permit was extended for a period
of six (6) months or up to September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking cognizance
of GrandAir's application for the issuance of a Certificate of Public Convenience and Necessity, and in
issuing a temporary operating permit in the meantime, since GrandAir has not been granted and does not
possess a legislative franchise to engage in scheduled domestic air transportation. A legislative franchise
is necessary before anyone may engage in air transport services, and a franchise may only be granted by
34 | P a g e
Congress. This is the meaning given by the petitioner upon a reading of Section 11, Article XII, 9 and
Section 1, Article VI, 10 of the Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice, which reads:
"Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:
This has reference to your request for opinion on the necessity of a legislative franchise before the Civil
Aeronautics Board ("CAB") may issue a Certificate of Public Convenience and Necessity and/or permit to
engage in air commerce or air transportation to an individual or entity.
You state that during the hearing on the application of Cebu Air for a congressional franchise, the House
Committee on Corporations and Franchises contended that under the present Constitution, the CAB may
not issue the abovestated certificate or permit, unless the individual or entity concerned possesses a
legislative franchise. You believe otherwise, however, for the reason that under R.A. No. 776, as amended,
the CAB is explicitly empowered to issue operating permits or certificates of public convenience and
necessity and that this statutory provision is not inconsistent with the current charter.
We concur with the view expressed by the House Committee on Corporations and Franchises. In an opinion
rendered in favor of your predecessor-in-office, this Department observed that,
". . . it is useful to note the distinction between the franchise to operate and a permit to commence
operation. The former is sovereign and legislative in nature; it can be conferred only by the lawmaking
authority (17 W and P, pp. 691-697). The latter is administrative and regulatory in character (In re
Application of Fort Crook-Bellevue Boulevard Line, 283 NW 223); it is granted by an administrative agency,
such as the Public Service Commission [now Board of Transportation], in the case of land transportation,
and the Civil Aeronautics Board, in case of air services. While a legislative franchise is a pre-requisite to a
grant of a certificate of public convenience and necessity to an airline company, such franchise alone
cannot constitute the authority to commence operations, inasmuch as there are still matters relevant to
such operations which are not determined in the franchise, like rates, schedules and routes, and which
matters are resolved in the process of issuance of permit by the administrative. (Secretary of Justice Opn.
No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public convenience and necessity is an authorization
issued by the appropriate governmental agency for the operation of public services for which a franchise is
required by law (Almario, Transportation and Public Service Law, 1977 Ed., p. 293; Agbayani, Commercial
Law of the Phil., Vol. 4, 1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a business
activity or enterprise of a public nature, whereas a certificate of public convenience and necessity is a
regulatory measure which constitutes the franchise's authority to commence operations. It is thus logical
that the grant of the former should precede the latter.
Please be guided accordingly.
(SGD.) SEDFREY A. ORDOEZ
Secretary of Justice"
Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic Act 776,
which follows the pronouncements of the Court of Appeals in the cases of Avia Filipinas vs. Civil
Aeronautics Board, and Silangan Airways, Inc. vs. Grand International Airways (supra).
35 | P a g e
In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the Certificate
of Public Convenience and Necessity or Temporary Operating Permit to a prospective domestic air
transport operator who does not possess a legislative franchise to operate as such. Relying on the Court's
pronouncement in Albano vs. Reyes (supra), the Court of Appeals upheld the authority of the Board to
issue such authority, even in the absence of a legislative franchise, which authority is derived from Section
10 of Republic Act 776, as amended by P.D. 1462. 11
The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary Operating Permit.
This rule has been established in the case of Philippine Air Lines Inc., vs. Civil Aeronautics Board,
promulgated on June 13, 1968. 12 The Board is expressly authorized by Republic Act 776 to issue a
temporary operating permit or Certificate of Public Convenience and Necessity, and nothing contained in
the said law negates the power to issue said permit before the completion of the applicant's evidence and
that of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit
"upon its own initiative" strongly suggests the power to exercise said authority, even before the
presentation of said evidence has begun. Assuming arguendo that a legislative franchise is prerequisite to
the issuance of a permit, the absence of the same does not affect the jurisdiction of the Board to hear the
application, but tolls only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is admittedly a prerogative of the
legislature, since Congress is that branch of government vested with plenary powers of legislation.
"The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of its
properly constituted instrumentalities. The grant, when made, binds the public, and is, directly or
indirectly, the act of the state." 13
The issue in this petition is whether or not Congress, in enacting Republic Act 776, has delegated the
authority to authorize the operation of domestic air transport services to the respondent Board, such that
Congressional mandate for the approval of such authority is no longer necessary.
approval of the practice by the courts. 14 It is generally recognized that a franchise may be derived
indirectly from the state through a duly designated agency, and to this extent, the power to grant
franchises has frequently been delegated, even to agencies other than those of a legislative nature. 15 In
pursuance of this, it has been held that privileges conferred by grant by local authorities as agents for the
state constitute as much a legislative franchise as though the grant had been made by an act of the
Legislature. 16
The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate and
control the operation of public services under reasonable rules and regulations, and as a general rule,
courts will not interfere with the exercise of that discretion when it is just and reasonable and founded
upon a legal right. 17
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent
issuances governing the Philippine Ports Authority, 18 proves that the PPA is empowered to undertake by
itself the operation and management of the Manila International Container Terminal, or to authorize its
operation and management by another by contract or other means, at its option. The latter power having
been delegated to the PPA, a franchise from Congress to authorize an entity other than the PPA to operate
and manage the MICP becomes unnecessary.
Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a
Certificate of Public Convenience and Necessity, or Temporary Operating Permit to a domestic air transport
operator, who, though not possessing a legislative franchise, meets all the other requirements prescribed
by the law. Such requirements were enumerated in Section 21 of R.A. 776.
36 | P a g e
There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an
indispensable requirement for an entity to operate as a domestic air transport operator. Although Section
11 of Article XII recognizes Congress' control over any franchise, certificate or authority to operate a public
utility, it does not mean Congress has exclusive authority to issue the same. Franchises issued by Congress
are not required before each and every public utility may operate. 19 In many instances, Congress has
seen it fit to delegate this function to government agencies, specialized particularly in their respective
areas of public service.
A reading of Section 10 of the same reveals the clear intent of Congress to delegate the authority to
regulate the issuance of a license to operate domestic air transport services:
SEC. 10.
Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall
have the power to regulate the economic aspect of air transportation, and shall have general supervision
and regulation of, the jurisdiction and control over air carriers, general sales agents, cargo sales agents,
and air freight forwarders as well as their property rights, equipment, facilities and franchise, insofar as
may be necessary for the purpose of carrying out the provision of this Act.
In support of the Board's authority as stated above, it is given the following specific powers and duties:
(C)
(1)
In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter,
modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon its own initiative
any Temporary Operating Permit or Certificate of Public Convenience and Necessity: Provided however,
That in the case of foreign air carriers, the permit shall be issued with the approval of the President of the
Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of Public
Convenience and Necessity", this, according to petitioner, means that a legislative franchise is an absolute
requirement. It cites a number of authorities supporting the view that a Certificate of Public Convenience
and Necessity is issued to a public service for which a franchise is required by law, as distinguished from a
"Certificate of Public Convenience" which is an authorization issued for the operation of public services for
which no franchise, either municipal or legislative, is required by law. 20
This submission relies on the premise that the authority to issue a certificate of public convenience and
necessity is a regulatory measure separate and distinct from the authority to grant a franchise for the
operation of the public utility subject of this particular case, which is exclusively lodged by petitioner in
Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public convenience which courts and legal writers
have drafted. Some statutes use the terms "convenience and necessity" while others use only the words
"public convenience." The terms "convenience and necessity", if used together in a statute, are usually
held not to be separable, but are construed together. Both words modify each other and must be construed
together. The word 'necessity' is so connected, not as an additional requirement but to modify and qualify
what might otherwise be taken as the strict significance of the word necessity. Public convenience and
necessity exists when the proposed facility will meet a reasonable want of the public and supply a need
which the existing facilities do not adequately afford. It does not mean or require an actual physical
necessity or an indispensable thing. 21
"The terms 'convenience' and 'necessity' are to be construed together, although they are not synonymous,
and effect must be given both. The convenience of the public must not be circumscribed by according to
the word 'necessity' its strict meaning or an essential requisites." 22
The use of the word "necessity", in conjunction with "public convenience" in a certificate of authorization to
a public service entity to operate, does not in any way modify the nature of such certification, or the
such certification, and not the title indicating the certificate.
37 | P a g e
choose who should be given authority to operate domestic air transport services.
"To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving
commission" that will give the delegate unlimited legislative authority. It must not be a delegation "running
riot" and "not canalized with banks that keep it from overflowing." Otherwise, the delegation is in legal
effect an abdication of legislative authority, a total surrender by the legislature of its prerogatives in favor
of the delegate." 23
Congress, in this instance, has set specific limitations on how such authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:
"SEC. 4.
Declaration of policies. In the exercise and performance of its powers and duties under this
Act, the Civil Aeronautics Board and the Civil Aeronautics Administrator shall consider the following, among
other things, as being in the public interest, and in accordance with the public convenience and necessity:
(a)
The development and utilization of the air potential of the Philippines;
(b)
The encouragement and development of an air transportation system properly adapted to the
present and future of foreign and domestic commerce of the Philippines, of the Postal Service and of the
National Defense;
(c)
The regulation of air transportation in such manner as to recognize and preserve the inherent
advantages of, assure the highest degree of safety in, and foster sound economic condition in, such
transportation, and to improve the relations between, and coordinate transportation by, air carriers;
(d)
The promotion of adequate, economical and efficient service by air carriers at reasonable charges,
without unjust discriminations, undue preferences or advantages, or unfair or destructive competitive
practices;
(e)
Competition between air carriers to the extent necessary to assure the sound development of an air
transportation system properly adapted to the need of the foreign and domestic commerce of the
Philippines, of the Postal Service, and of the National Defense;
(f)
To promote safety of flight in air commerce in the Philippines; and,
(g)
The encouragement and development of civil aeronautics.
More importantly, the said law has enumerated the requirements to determine the competency of a
prospective operator to engage in the public service of air transportation.
SEC. 12.
Citizenship requirement. Except as otherwise provided in the Constitution and existing treaty
or treaties, a permit authorizing a person to engage in domestic air commerce and/or air transportation
shall be issued only to citizens of the Philippines. 24
SEC. 21.
Issuance of permit. The Board shall issue a permit authorizing the whole or any part of the
service covered by the application, if it finds: (1) that the applicant is fit, willing and able to perform such
service properly in conformity with the provisions of this Act and the rules, regulations, and requirements
issued thereunder; and (2) that such service is required by the public convenience and necessity;
otherwise the application shall be denied.
Furthermore, the procedure for the processing of the application of a Certificate of Public Convenience and
Necessity had been established to ensure the weeding out of those entities that are not deserving of public
service.
In sum, respondent Board should now be allowed to continue hearing the application of GrandAir for the
issuance of a Certificate of Public Convenience and Necessity, there being no legal obstacle to the exercise
of its jurisdiction.
38 | P a g e
ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS the instant petition
for lack of merit. The respondent Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the
application of respondent Grand International Airways, Inc. for the issuance of a Certificate of Public
Convenience and Necessity.
SO ORDERED.
Regalado and Puno, JJ ., concur.
Romero and Mendoza, JJ ., took no part.
Footnotes
1.
G.R. No. 83551, July 11, 1989, 175 SCRA 264.
2.
CA G.R. SP No. 23365, October 30, 1991.
3.
CA G.R. SP No. 36787, July 19, 1995.
4.
Annex "A" Petition, p. 31, Rollo.
5.
Annex "D", Petition, Rollo, pp. 43-44.
6.
Annex "F", Petition, Rollo, pp. 54-63.
7.
Annex "H", Petition, Rollo, p. 79.
8.
Annex "I", Petition, Rollo, pp. 80-81.
9.
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public
years. Neither shall any franchise or right be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires. The state shall
encourage equity participation in public utilities by the general public. The participation of foreign
investors in the governing body of any public utility enterprise shall be limited to their proportionate share
in its capital, and all the executive and managing officers of such corporation or association must be
citizens of the Philippines.
10.
Section 1. The legislative power shall be vested in the Congress of the Philippines, which shall
consist of a Senate and a House of Representatives, except to the extent reserved to the people by the
provision on initiative and referendum.
11.
SEC. 10. Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall
(B)
The Board may perform such acts, conduct such investigation, issue and amend such
orders, and make and amend such general or special rules, regulations, and procedures as it shall deem
necessary to carry out the provisions of this Act.
(C)
(1)
In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend,
revise, alter, modify, cancel, suspend or revoke in whole or in part upon petition or complaint or upon its
own initiative any Temporary Operating Permit or Certificate of Public Convenience and Necessity: Provided
however, That in the case of foreign air carriers, the permit shall be issued with the approval of the
President of the Republic of the Philippines. . . .
12.
G.R. No. L-24219, 23 SCRA 992.
13.
Walla Walla v. Walla Walla Water Co., 172 US 1, 36 Am Jur 2d 734.
39 | P a g e
14.
Pangasinan Transportation Co., Inc. vs. The Public Service Commission, G.R. No. 47065, June 26,
1940, 70 Phil 221.
15.
Dyer vs. Tuskaloosa Bridge Co., 2 Port. 296, 27 Am. D. 655; Christian-Todd Tel. Co. vs.
Commonwealth, 161 S.W. 543, 156 Ky. 557, 37 C.J.S. 158.
16.
Superior Water, Light and Power Co. vs. City of Superior, 181 N.W. 113, 174 Wis. 257, affirmed 183
N.W. 254, 37 C.J.S. 158.
17.
Ynchausti Steamship Co. vs. PUC, 42 Phil 642.
18.
P.D. 857 and Executive Order No. 30.
19.
Albano vs. Reyes, supra.
20.
Memorandum of Petitioner, Rollo, pp. 417-418.
21.
Almario, Transportation and the Public Service Law, 1966 ed., p. 288.
22.
Wisconsin Tel. Co. vs. Railroad Commission, 156 N.W. 614, 162 N.W. 383, 73 C.J.S. 1099.
23.
Cruz, I., Philippine Political Law, 1996. p. 97.
24.
See Section 11, Article XII, Constitution, supra.
25.
See Sections 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, and 24, RA 776.
B. Transportation
1. Definition
2. Public nature
(a) Public Service Act, Secs. 13, 14, 15, 16, 18, 19 and 20 (a), (b), (e), (g), (h) and (i).
Section 13. (a) The Commission shall have jurisdiction, supervision, and control over all public services
and their franchises, equipment, and other properties, and in the exercise of its authority, it shall have the
necessary powers and the aid of the public force: Provided, That public services owned or operated by
government entities or government-owned or controlled corporations shall be regulated by the
Commission in the same way as privately-owned public services, but certificates of public convenience or
certificates of public convenience and necessity shall not be required of such entities or corporations: And
provided, further, That it shall have no authority to require steamboats, motor ships and steamship lines,
whether privately-owned, or owned or operated by any Government controlled corporation or
instrumentality to obtain certificate of public convenience or to prescribe their definite routes or lines of
service.
(b) The term "public service" includes every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or compensation, with general or limited clientele,
whether permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway, sub-way motor vehicle, either for freight
or passenger, or both with or without fixed route and whether may be its classification, freight or
carrier service of any class, express service, steamboat or steamship line, pontines, ferries, and
water craft, engaged in the transportation of passengers or freight or both, shipyard, marine
railways, marine repair shop, [warehouse] wharf or dock, ice plant, ice-refrigeration plant, canal,
irrigation system, gas, electric light, heat and power water supply and power, petroleum, sewerage
system, wire or wireless communications system, wire or wireless broadcasting stations and other
similar public services: Provided, however, That a person engaged in agriculture, not otherwise a
public service, who owns a motor vehicle and uses it personally and/or enters into a special
contract whereby said motor vehicle is offered for hire or compensation to a third party or third
parties engaged in agriculture, not itself or themselves a public service, for operation by the latter
for a limited time and for a specific purpose directly connected with the cultivation of his or their
40 | P a g e
farm, the transportation, processing, and marketing of agricultural products of such third party or
third parties shall not be considered as operating a public service for the purposes of this Act.
(c) The word "person" includes every individual, co-partnership, joint-stock company or corporation,
whether domestic or foreign, their lessees, trustees, or receivers, as well as any municipality,
province, city, government-owned or controlled corporation, or agency of the Government of the
Philippines, and whatever other persons or entities that may own or possess or operate public
services. (As amended by Com. Act 454 and RA No. 2677)
Section 14. The following are exempted from the provisions of the preceding section:
(a) Warehouses;
(b) Vehicles drawn by animals and bancas moved by oar or sail, and tugboats and lighters;
(c) Airships within the Philippines except as regards the fixing of their maximum rates on freight
and passengers;
(d) Radio companies except with respect to the fixing of rates;
(e) Public services owned or operated by any instrumentality of the National Government or by any
government-owned or controlled corporation, except with respect to the fixing of rates. (As
amended by Com. Act 454, RA No. 2031, and RA No. 2677 )
Section 15. With the exception of those enumerated in the preceding section, no public service shall
operate in the Philippines without possessing a valid and subsisting certificate from the Public Service
Commission known as "certificate of public convenience," or "certificate of public convenience and
necessity," as the case may be, to the effect that the operation of said service and the authorization to do
business will promote the public interests in a proper and suitable manner.
The Commission may prescribe as a condition for the issuance of the certificate provided in the preceding
paragraph that the service can be acquired by the Republic of the Philippines or any instrumentality
thereof upon payment of the cost price of its useful equipment, less reasonable depreciation; and likewise,
that the certificate shall be valid only for a definite period of time; and that the violation of any of these
conditions shall produce the immediate cancellation of the certificate without the necessity of any express
action on the part of the Commission.
In estimating the depreciation, the effect of the use of the equipment, its actual condition, the age of the
model, or other circumstances affecting its value in the market shall be taken into consideration.
The foregoing is likewise applicable to any extension or amendment of certificates actually in force and to
those which may hereafter be issued, to permit to modify itineraries and time schedules of public services,
and to authorizations to renew and increase equipment and properties.
Section 16. Proceedings of the Commission, upon notice and hearing. - The Commission shall have power,
upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the
limitations and exceptions mentioned and saving provisions to the contrary :
41 | P a g e
(a) To issue certificates which shall be known as certificates of public convenience, authorizing the
operation of public service within the Philippines whenever the Commission finds that the operation
of the public service proposed and the authorization to do business will promote the public interest
in a proper and suitable manner. Provided, That thereafter, certificates of public convenience and
certificates of public convenience and necessity will be granted only to citizens of the Philippines or
of the United States or to corporations, co-partnerships, associations or joint-stock companies
constituted and organized under the laws of the Philippines; Provided, That sixty per centum of the
stock or paid-up capital of any such corporations, co-partnership, association or joint-stock
company must belong entirely to citizens of the Philippines or of the United States: Provided,
further, That no such certificates shall be issued for a period of more than fifty years.
(b) To approve, subject to constitutional limitations any franchise or privilege granted under the
provisions of Act No. Six Hundred and Sixty-seven, as amended by Act No. One Thousand and
twenty-two, by any political subdivision of the Philippines when, in the judgment of the Commission,
such franchise or privilege will properly conserve the public interests, and the Commission shall in
so approving impose such conditions as to construction, equipment, maintenance, service, or
operation as the public interests and convenience may reasonably require, and to issue certificates
of public convenience and necessity when such is required or provided by any law or franchise.
(c) To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof,
as well as commutation, mileage, kilometrage, and other special rates which shall be imposed
observed and followed thereafter by any public service: Provided, That the Commission may, in its
discretion, approve rates proposed by public services provisionally and without necessity of any
hearing; but it shall call a hearing thereon within thirty days, thereafter, upon publication and notice
to the concerns operating in the territory affected: Provided, further, That in case the public service
equipment of an operator is used principally or secondarily for the promotion of a private business,
the net profits of said private business shall be considered in relation with the public service of such
operator for the purpose of fixing the rates.
(d) To fix just and reasonable standards, classifications, regulations, practices, measurement, or
service to be furnished, imposed, observed, and followed thereafter by any public service.
(e) To ascertain and fix adequate and serviceable standards for the measurement of quantity,
quality, pressure, initial voltage, or other condition pertaining to the supply of the product or service
rendered by any public service, and to prescribe reasonable regulations for the examination and
test of such product or service and for the measurement thereof.
(f) To establish reasonable rules, regulations, instructions, specifications, and standards, to secure
the accuracy of all meters and appliances for measurements.
(g) To compel any public service to furnish safe, adequate, and proper service as regards the
manner of furnishing the same as well as the maintenance of the necessary material and
equipment.
(h) To require any public service to establish, construct, maintain, and operate any reasonable
extension of its existing facilities, where in the judgment of said Commission, such extension is
reasonable and practicable and will furnish sufficient business to justify the construction and
maintenance of the same and when the financial condition of the said public service reasonably
warrants the original expenditure required in making and operating such extension.
42 | P a g e
(i) To direct any railroad, street railway or traction company to establish and maintain at any
junction or point of connection or intersection with any other line of said road or track, or with any
other line of any other railroad, street railway or traction to promote, such just and reasonable
connection as shall be necessary to promote the convenience of shippers of property, or of
passengers, and in like manner direct any railroad, street railway, or traction company engaged in
carrying merchandise, to construct, maintain and operate, upon reasonable terms, a switch
connection with any private sidetrack which may be constructed by any shipper to connect with the
railroad, street railway or traction company line where, in the judgment of the Commission, such
connection is reasonable and practicable and can be out in with safety and will furnish sufficient
business to justify the construction and maintenance of the same.
(j) To authorize, in its discretion, any railroad, street railway or traction company to lay its tracks
across the tracks of any other railroad, street railway or traction company or across any public
highway.
(k) To direct any railroad or street railway company to install such safety devices or about such
other reasonable measures as may in the judgment of the Commission be necessary for the
protection of the public are passing grade crossing of (1) public highways and railroads, (2) public
highways and streets railway, or (3) railways and street railways.
(l) To fix and determine proper and adequate rates of depreciation of the property of any public
service which will be observed in a proper and adequate depreciation account to be carried for the
protection of stockholders, bondholders or creditors in accordance with such rules, regulations, and
form of account as the Commission may prescribe. Said rates shall be sufficient to provide the
amounts required over and above the expense of maintenance to keep such property in a state of
efficiency corresponding to the progress of the industry. Each public service shall conform its
depreciation accounts to the rates so determined and fixed, and shall set aside the moneys so
provided for out of its earnings and carry the same in a depreciation fund. The income from
investments of money in such fund shall likewise be carried in such fund. This fund shall not be
expended otherwise than for depreciation, improvements, new construction, extensions or
conditions to the properly of such public service.
(m) To amend, modify or revoke at any time certificate issued under the provisions of this Act,
whenever the facts and circumstances on the strength of which said certificate was issued have
been misrepresented or materially changed.
(n) To suspend or revoke any certificate issued under the provisions of this Act whenever the holder
thereof has violated or willfully and contumaciously refused to comply with any order rule or
regulation of the Commission or any provision of this Act: Provided, That the Commission, for good
cause, may prior to the hearing suspend for a period not to exceed thirty days any certificate or the
exercise of any right or authority issued or granted under this Act by order of the Commission,
whenever such step shall in the judgment of the Commission be necessary to avoid serious and
irreparable damage or inconvenience to the public or to private interests.
(o) To fix, determine, and regulate, as the convenience of the state may require, a special type for
auto-busses, trucks, and motor trucks to be hereafter constructed, purchased, and operated by
operators after the approval of this Act; to fix and determine a special registration fee for autobuses, trucks, and motor trucks so constructed, purchased and operated: Provided, That said fees
43 | P a g e
shall be smaller than more those charged for auto-busses, trucks, and motor trucks of types not
made regulation under the subsection.
Section 18. It shall be unlawful for any individual, co-partnership, association, corporation or joint-stock
company, their lessees, trustees or receivers appointed by any court whatsoever, or any municipality,
province, or other department of the Government of the Philippines to engage in any public service
business without having first secured from the Commission a certificate of public convenience or certificate
of public convenience and necessity as provided for in this Act, except grantees of legislative franchises
expressly exempting such grantees from the requirement of securing a certificate from this Commission as
well as concerns at present existing expressly exempted from the jurisdiction of the Commission, either
totally or in part, by the provisions of section thirteen of this Act.
Section 19. Unlawful Acts. - It shall be unlawful for any public service:
(a) To provide or maintain any service that is unsafe, improper, or inadequate or withhold or refuse any
service which can reasonably be demanded and furnished, as found and determined by the Commission in
a final order which shall be conclusive and shall take effect in accordance with this Act, upon appeal of
otherwise.
(b) To make or give, directly or indirectly, by itself or through its agents, attorneys or brokers, or any of
them, discounts or rebates on authorized rates, or grant credit for the payment of freight charges, or any
undue or unreasonable preference or advantage to any person of corporation or to any locality or to any
particular description of traffic or service, or subject any particular person or corporation or locality or any
particular description of traffic to any prejudice or disadvantage in any respect whatsoever; to adopt,
maintain, or enforce any regulation, practice or measurement which shall be found or determined by the
Commission to be unjust, unreasonable, unduly preferential or unjustly discriminatory in a final order which
shall be conclusive and shall take effect in accordance with the provisions of this Act, upon repeal or
otherwise.
(c) To refuse or neglect, when requested by the Director of Posts or his authorized representative, to carry
public mail on the regular trips of any public land transportation service maintained or operated by any
such public service; upon such terms and conditions and for a consideration in such amount as may be
agreed upon between the Director of Posts and the public service carrier of fixed by the Commission in the
absence of an agreement between the Director of Posts and the carrier. In case the Director of Posts and
public service carrier are unable to agree on the amount of the compensation to be paid for the carriage of
the mail, the Director of Posts shall forthwith request the Commission to fix a just and reasonable
compensation for such carriage and the same shall be promptly fixed by the Commission in accordance
with Section sixteen of this Act.
Section 20. Acts requiring the approval of the Commission. - Subject to established limitations and
exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the
owner, lessee or operator thereof, without the approval and authorization of the Commission previously
had (a) To adopt, establish, fix, impose, maintain, collect or carry into effect any individual or joint rates,
commutation, mileage or other special rate, toll, fare, charge, classification or itinerary. The
Commission shall approve only those that are just and reasonable and not any that are unjustly
discriminatory or unduly preferential, only upon reasonable notice to the public services and other
parties concerned, giving them a reasonable opportunity to be heard and the burden of the proof to
44 | P a g e
show that the proposed rates or regulations are just and reasonable shall be upon the public service
proposing the same.
(b) To establish, construct, maintain, or operate new units or extend existing facilities or make any
other addition to or general extension of the service.
(e) Hereafter to issue any stock or stock certificates representing an increase of capital; or issue
any share of stock without par value; or issue any bonds or other evidence of indebtedness payable
in more than one year from the issuance thereof, provided that it shall be the duty of the
Commission, after hearing, to approve any such issue maturing in more than one year from the
date thereof, when satisfied that the same is to be made in accordance with law, and the purpose
of such issue be approved by the Commission. (f) To capitalize any franchise in excess of the
amount, inclusive of any tax or annual charge, actually paid to the Government of the Philippines or
any political subdivision thereof as the consideration of said franchise; capitalize any contract for
consolidation, merger or lease, or issue any bonds or other evidence of indebtedness against or as
a lien upon any contract for consolidation, merger, or lease: Provided, however, that the provisions
of this section shall not prevent the issuance of stock, bonds, or other evidence of indebtedness
subject to the approval of the Commission by any lawfully merged or consolidated public services
not in contravention of the provisions of this section.
(g) To sell, alienate, mortgage, encumber or lease its property, franchises, certificates, privileges, or
rights or any part thereof; or merge or consolidate its property, franchises privileges or rights, or
any part thereof, with those of any other public service. The approval herein required shall be given,
after notice to the public and hearing the persons interested at a public hearing, if it be shown that
there are just and reasonable grounds for making the mortgaged or encumbrance, for liabilities of
more than one year maturity, or the sale, alienation, lease, merger, or consolidation to be
approved, and that the same are not detrimental to the public interest, and in case of a sale, the
date on which the same is to be consummated shall be fixed in the order of approval: Provided,
however, that nothing herein contained shall be construed to prevent the transaction from being
negotiated or completed before its approval or to prevent the sale, alienation, or lease by any
public service of any of its property in the ordinary course of its business.
(h) To sell or register in its books the transfer or sale of shares of its capital stock, if the result of
that sale in itself or in connection with another previous sale, shall be to vest in the transferee more
than forty per centum of the subscribed capital of said public service. Any transfer made in violation
of this provision shall be void and of no effect and shall not be registered in the books of the public
service corporation. Nothing herein contained shall be construed to prevent the holding of shares
lawfully acquired. (As amended by Com. Act No. 454.)
(i) To sell, alienate or in any manner transfer shares of its capital stock to any alien if the result of
that sale, alienation, or transfer in itself or in connection with another previous sale shall be the
reduction to less than sixty per centum of the capital stock belonging to Philippine citizens. Such
sale, alienation or transfer shall be void and of no effect and shall be sufficient cause for ordering
the cancellation of the certificate.
Y Transit v. NLRC, 229 SCRA 508

THIRD DIVISION
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[G.R. Nos. 88195-96. January 27, 1994.]

"Y" TRANSIT CO, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION AND YUJUICO TRANSIT
EMPLOYEES UNION (ASSOCIATED LABOR UNION), MANUEL VILLARTA, respondents.
DECISION
ROMERO, J p:
This is a special civil action for certiorari filed by "Y" Transit Co., Inc. for the annulment of the decision of
the National labor Relations Commission, the dispositive portion of which reads as follows:
"WHEREFORE, the appealed Order should be as it is hereby REVERSED reinstating the levy made by the
Sheriff on July 13 and 16, 1982. Accordingly, the sale of the levied properties may proceed pursuant to
existing laws.
SO ORDERED." 1
The antecedent facts of the case are as follows:
In March 1960 and sometime thereafter, Yujuico Transit Co., Inc., mortgaged ten (10) of its buses to the
Development Bank of the Philippines (DBP) to secure a loan in the amount of P2,795,129.36. Thereafter,
the Board of Directors of Yujuico Transit Co., Inc. passed a resolution authorizing its President, Jesus Yujuico
to enter into a dacion en pago arrangement with the DBP, whereby Jesus Yujuico would transfer to the DBP
the Saint Martin Technical Institute in consideration of the full settlement of the obligations of three
companies, one of which was Yujuico Transit Co, Inc. Accordingly, on or about October 24, 1978, the
transfer of the property was made and DBP released the mortgages constituted on the buses of Yujuico
Transit Co., Inc. Consequently, the company transferred the ownership of its mortgaged properties,
including the buses, to Jesus Yujuico.
Meanwhile, sometime in June and July 1979, the Yujuico Transit Employees Union (Associated Labor Union)
filed two (2) consolidated complaints against Yujuico Transit Co., Inc. for Unfair Labor Practice and
violations of Presidential Decrees Nos. 525, 1123, 1614 and 851 (non-payment of living allowances).
On May 21, 1980, Jesus Yujuico sold the subject buses to herein petitioner "Y" Transit Co., Inc. for
P3,485,400.00.
On July 23, 1981, the Labor Arbiter rendered a decision dismissing the complaint for unfair labor practice
but holding Yujuico Transit Co., Inc. liable under the aforementioned Presidential Decrees in the amount of
P142,790.49. On February 9, 1982, a writ of execution for the said amount was issued by the Labor Arbiter.
On June 14, 1982, an alias writ of execution was issued and levy was made upon the ten (10) buses.
Thereafter, "Y" Transit Co., Inc. filed Affidavits of Third Party Claim.
Private respondents herein opposed the Third Party claim on the ground that the transactions leading to
the transfer of the buses to "Y" Transit Co., Inc. were void because they lacked the approval of the BOT as
required by the Public Service Act. They also argued that the buses were still registered in the name of
Yujuico Transit Co. which was, therefore, still the lawful owner thereof.
The Labor Arbiter found that "Y" Transit Co., Inc. had valid title to the buses and that the BOT, by its
subsequent acts had approved the transfer. The decision stated further, thus:
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"The fact that the registration certificates of most of the vehicles in question are still in the name of Yujuico
Transit Co., Inc. at the time of the levy on execution does not militate against the claimant. Registration of
a motor vehicle is not the operative act that transfers ownership, unlike in land registration cases.
Furthermore, the evidence shows that the claimant cannot be faulted for its failure to have the certificates
of registration transferred in its own name. Prior to the levy, claimant had already paid for the transfer fee,
the fee for the cancellation of mortgage and other fees required by the BLT. Moreover, the registration fees
of the vehicles whose last digit of their plate numbers made the vehicles due for registration were already
paid for by the claimant (Exhibits 'N' to 'N-7'). Therefore, there was already a constructive registration
made by the claimant (Mariano B. Arroyo vs. Maria Corazon Yu de Sane, et al., 54 Phil. 511, 518), sufficient
notice to affect the rights of third-parties. It is now ministerial on the part of the BLT to issue the
Registration Certificates in the name of the claimant, but the same was held in abeyance pending the
computerization of the records of BOT on public utility vehicles. On all fours is the ruling of the Supreme
Court in Mariano B. Arroyo vs. Ma. Corazon Yu de Sane, 54 Phil. 511, which upheld the right of PNB as
mortgagee over motorized water vessels as superior over the rights of a judgment creditor who had
already secured a writ of attachment and execution over the vessels, it appearing that the delay was
caused by the Collector of Custom's uncertainty as to the necessity of the registration of the vessels." 2
Accordingly, the Third-Party Claim was granted and the release of all the buses levied for execution was
ordered.
On appeal, the NLRC reversed the labor arbiter's decision on the ground that the transfer of the buses
lacked the BOT approval. It ordered the reinstatement of the levy and the auction of properties.
"Y" Transit Co., Inc. thereafter filed this special civil action for certiorari under Rule 65 of the Rules of Court
praying for the issuance of a Restraining Order and/or a Writ of Preliminary Injunction and for the
annulment of the NLRC decision as it was issued with grave abuse of discretion amounting to lack of
jurisdiction.
In this petition, "Y" Transit Co., Inc. raised the following issue, to writ:
"I
The public respondent NLRC committed palpable legal error and grave abuse of discretion amounting to
lack of jurisdiction when it held that there was no valid transfer of ownership in favor of the petitioner,
completely disregarding the preponderance of evidence and existing jurisprudence which support the
validity of the transfer of ownership to the petitioner. 3
On July 6, 1989, petitioner filed a motion to cite Labor Arbiter Benigno C. Villarente, Jr. for contempt of
court and for the issuance of an order for the immediate release of the property. Petitioner argues that the
Labor Arbiter refused to release the vehicles levied on June 5, 1989 despite notice that a TRO has been
issued by the Supreme Court; that there was no reason to hold on to the levy as petitioner had already
posted a bond to answer for the damages and award in the above-entitled case; that the labor arbiter
wrongly required the payment of storage charges and sheriff's fees before releasing the levied buses.
Did public respondent commit grave abuse of discretion in reinstating the levy on the buses which have
been allegedly transferred to a third party, herein petitioner "Y" Transit Co., Inc.?
We rule in the negative.
The following facts have been established before the NLRC; that the transfer of ownership from Yujuico
Transit Co., Inc. to Jesus Yujuico, and from Jesus Yujuico to "Y" Transit Co., Inc. lacked the prior approval of
the BOT as required by Section 20 of the Public Service Act; 4 that the buses were transferred to "Y" Transit
Co., Inc. during the pendency of the action; and that until the time of the execution, the buses were still
registered in the name of Yujuico Transit Co., Inc.
In Montoya v. Ignacio, 5 we held:
47 | P a g e
". . . The law really requires the approval of the Public Service Commission in order that a franchise, or any
privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee.
The reason is obvious. Since a franchise is personal in nature any transfer or lease thereof should be
notified to the Public Service Commission so that the latter may take proper safeguards to protect the
interest of the public. In fact, the law requires that, before approval is granted, there should be a public
hearing with notice to all interested parties in order that the commission may determine if there are good
and reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if the
sale or lease is detrimental to public interest. Such being the reason and philosophy behind this
requirement, it follows that if the property covered by the franchise is transferred, or leased to another
without obtaining the requisite approval, the transfer is not binding against Public Service Commission and
in contemplation of law, the grantee continues to be responsible under the franchise in relation to the
Commission and to the public. . .
It may be argued that Section 16, paragraph (h) provides in its last part that 'nothing herein contained
shall be construed to prevent the sale, alienation, or lease by any public utility of any of its property in the
ordinary course of business," which gives the impression that the approval of Public Service Commission is
but a mere formality which does not affect the effectivity of the transfer or lease of the property belonging
to a public utility. But such provision only means that even if the approval has not been obtained the
transfer or lease is valid and binding between the parties although not effective against the public and the
Public Service Commission. The approval is only necessary to protect public interest." (Underscoring ours)
There being no prior BOT approval in the transfer of property from Yujuico Transit Co., Inc. to Jesus Yujuico,
it only follows that as far as the BOT and third parties are concerned, Yujuico Transit Co., Inc. still owned
the properties. and Yujuico, and later, "Y" Transit Co., Inc. only held the same as agents of the former. In
Tamayo v. Aquino, 6 the Supreme Court stated, thus:
". . . In operating the truck without transfer thereof having been approved by the Public Service
Commission, the transferee acted merely as agent of the registered owner and should be responsible to
him (the registered owner) for any damages that he may cause the latter by his negligence."
Conversely, where the registered owner is liable for obligations to third parties and vehicles registered
under his name are levied upon to satisfy his obligations, the transferee of such vehicles cannot prevent
the levy by asserting his ownership because as far as the law is concerned, the one whose name the
vehicle is registered remains to be the owner and the transferee merely holds the vehicles for the
registered owner. Thus, "Y" Transit Co., Inc. cannot now argue that the buses could not be levied upon to
satisfy the money judgment in favor of herein respondents. However, this does not deprive the transferee
of the right to recover from the registered owner any damages which may have been incurred by the
former since the . . . transfer or lease is valid and binding between the parties. . . ." 7 Thus, had there been
any real contract between "Y" Transit Co., Inc. and Yujuico Transit Co., Inc. of "Y" Transit Co., Inc. and Jesus
Yujuico regarding the sale or transfer of the buses, the former may avail of its remedies to recover
damages.
Regarding the Motion for Contempt filed by petitioner, we are constrained to deny the same since the
Order to levy upon petitioner's alleged properties was issued even before the issuance by this Court of a
temporary restraining order. From the records, it appeared that Labor Arbiter Villarente ordered the public
auction of the subject properties on May 12, 1989. The sheriff levied on the properties on June 5, 1989. The
Supreme Court issued the Temporary Restraining Order on June 19, 1989 and this was received by the
Labor Arbiter on June 22, 1989. On June 28, 1989, the Labor Arbiter directed the sheriff to release the two
buses already levied upon by him.
48 | P a g e
Likewise, we find no error in requiring petitioner to pay the storage fees prior to the release of the
properties. Storage costs are imposed in accordance with the provisions of Rule IX of the NLRC Manual of
Instructions for Sheriffs, to wit:
"Sec. 3.
Storing of Levied Property. To avoid pilferage of or damage to levied property, the same
shall be inventoried and stored in a bonded warehouse, wherever available, or in a secured place as may
be determined by the sheriff with notice to and conformity of the losing party or third party claimant. In
case of disagreement, the same shall be referred to the Labor Arbiter or proper officer who issued the writ
of execution for proper disposition. For this purpose, sheriffs should inform the Labor Arbiter or proper
officer issuing the writ of corresponding storage fees, furnishing him as well as the parties with a copy of
the inventory. The storage fees shall be shouldered by the losing party."
WHEREFORE, in view of the foregoing, this petition is hereby DISMISSED.
The Motion to Cite Labor Arbiter Benigno Villarente, Jr. is DENIED and petitioner is ordered to PAY storage
costs and sheriff's fees.
This decision is immediately executory.
SO ORDERED.
Feliciano, Bidin and Melo, Vitug, JJ., concur.
Footnotes
1.
Rollo, p. 36.
2.
Rollo, pp. 28-29.
3.
Ibid., p. 11.
4.
Section 20. Acts requiring the approval of the Commission. Subject to established limitations and
exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the
owner, lessee or operator thereof, without the approval and authorization of the Commission previously
had
xxx
xxx
xxx
(g)
To sell, alienate, mortgage, encumber or lease its property, franchises, certificates,
privileges, or rights or any part thereof; or merge or consolidate its property, franchises, privileges or
rights, or any part thereof, with those of any other public service. The approval herein required shall be
given, after notice to the public and after hearing the persons interested at a public hearing, if it be shown
that there are just and reasonable grounds for making the mortgage or encumbrance, for liabilities of more
than one year maturity, or the sale, alienation, lease, merger, or consolidation to be approved, and that
the same are not detrimental to the public interest, and in case of a sale, the date on which the same is to
be consummated shall be fixed in the order of approval: Provided, however, that nothing herein contained
shall be construed to prevent the transaction from being negotiated or completed before its approval or to
prevent the sale, alienation, or lease by any public service of any of its property in the ordinary course of
its business.
xxx
5.
6.
7.
xxx
xxx
94 Phil. 182 (1953).

105 Phil. 949 (1959).
Montoya v. Ignacio, supra.
49 | P a g e
(b) The Certificate of Public Convenience (CPC), the Certificate of Public Convenience and a
Necessity (CPCN), and the Prior Operator Rule.
Raymundo v. Luneta Motor, 58 Phil. 389

EN BANC
[G.R. No. 41292. August 11, 1934.]
RAYMUNDO TRANSPORTATION CO., INC., petitioner-appellant, vs. LUNETA MOTOR CO. and
LAGUNA-TAYABAS BUS CO., respondents-appellees.
A. M. Zarate for appellant.
Jose Agbulos, Harvey & O'Brien and Eugenio Angeles for appellees.
SYLLABUS
1.
PUBLIC SERVICE; RUINOUS COMPETITION. The fact that the original operator did not succeed in
his business, for which reason his certificates were attached and finally sold at public auction, does not
necessarily mean that his failure was due to ruinous competition because it might as well have been due
to some other causes, such as poor management. On the contrary, the acquisition of the same business by
the appellee is an indication that it is not a poor one and that it may be continued with possibilities of
obtaining a reasonable profit.
DECISION
IMPERIAL, J p:
In civil case No. 42168 of the Court of First Instance of Manila, Luneta Motor Co., Inc. vs. Nicanor de
Guzman, the plaintiff attached the defendant's certificates of public convenience and the same were sold
at public auction to said plaintiff. Said sale was approved by the Public Service Commission in cases Nos.
33031 and 35810 and was confirmed by this court in cases Nos. 39902 and 39903. 1
Luneta Motor Co., Inc., sold the same certificates for P4,000 to Laguna-Tayabas Bus Co. and both filed
application in case No. 36603 praying the commission to approve the second sale. It was in this case
where the appellant Raymundo Transportation Co., Inc., opposed the approval of the sale praying that it be
given preference to buy said certificates for the same amount on the ground that it is an operator on the
same Pililla, Rizal-Manila line and that to approve the sale in question would be to sanction a ruinous
competition between it and the buyer. After due hearing, the commission denied the opposition and
approved the sale. The oppositor appealed.
The appellant assigns the following alleged errors in the decision appealed from:
"Error No. 1. That the Public Service Commission erred in permitting and authorizing the appellee,
Laguna-Tayabas Bus Co., to invade the territory of the herein appellant.
"Error No. 2. That the Public Service Commission erred in perpetuating the ruinous competition in the
line Pililla-Manila and in not attempting to protect the old existing operators in the said line, more
particularly the appellant herein, knowing fully well that there is ruinous competition in the said line.
50 | P a g e
"Error No. 3. That the Public Service Commission erred in not holding that the appellant has a
preferential right to acquire the line in question as pioneer operator in the said line, thereby avoiding
ruinous competition.
"Error No. 4. That the Public Service Commission erred in denying the appellant's motion for
reconsideration and rehearing."
In approving the sale, the commission, based its decision on the following considerations, to wit: that the
sale of the certificates to Luneta Motor Co., Inc., already constitutes res judicata on the ground that it was
approved and sanctioned by final judgment; that the appellant had opportunity to acquire the said
certificates at the public auction but it did nothing to that effect; that the circumstances stated did not
show that a ruinous competition would necessarily arise between the operators and that the objection
based on this ground cannot be interposed in the case for the approval of the sale in favor of the appellee
but that it should have been raised when the original operator had applied for the issuance of the said
certificates, and that the appellant cannot successfully invoke the established doctrines on preference,
improvement and increase of equipment on the ground that the case does not involve an application for
new certificates.
This court has carefully examined the record and found nothing to support the appeal. The decision is
supported by the facts and is in accordance with the general principles governing the matter involved in
the case. The fact that the original operator did not succeed in his business for which reason his
certificates were attached and finally sold at public auction, does not necessarily mean that his failure was
due to ruinous competition because it might as well have been due to other causes, such as poor
management. On the contrary, the acquisition of the same business by the appellee is an indication that it
is not a poor one and that it may be continued with possibilities of obtaining a reasonable profit.
Wherefore, the appealed decision is hereby affirmed, with the costs of this instance against the appellant.
So ordered.
Malcolm, Villa-Real, Butte and Goddard, JJ., concur.
Footnotes
1.
Raymundo vs. Luneta Motor Co. (58 Phil., 889).
Batangas Transportation v. Orlanes, 52 Phil. 455
EN BANC
[G.R. No. 28865. December 19, 1928.]
BATANGAS TRANSPORTATION CO., petitioner-appellant, vs. CAYETANO ORLANES, appellee.
L. D. Lockwood and C. de G. Alvear for appellant.
Paredes, Buencamino & Yulo and Menandro Quiogue for appellee.
SYLLABUS
1.
AUTOBUS LINE, PUBLIC UTILITY. An autobus line is a public utility and, as such, is a common
carrier and an important factor in the business affairs of the country.
2.
POWER OF COMMISSION. The Public Service Commission has the power to specify and define the
terms and conditions upon which any public utility shall operate and to make reasonable rules and
regulations for its operation, and to fix the compensation which it shall receive for its service to the public,
and for good cause may suspend or even revoke a license when once granted.
3.
POLICY OF LAW. It is not the policy of the law for a public service commission to issue a
certificate of public convenience to a second operator to cover the same field and in competition with a
first operator who is rendering sufficient, adequate and satisfactory service, and who in all things and
respects is complying with the rules and regulations of the commission.
51 | P a g e
4.
CONDITION PRECEDENT. The power of the Public Service Commission to issue a certificate of
public convenience is founded on the condition precedent that after a full hearing and investigation, it shall
find as a fact that the proposed operation is for the convenience of the public.
5.
PRIOR RIGHT. So long as the first licensee keeps and performs the terms and conditions of its
license and complies with the reasonable rules and regulations of the commission and meets the
reasonable demands of the public, it has more or less of a vested and preferential right over another who
seeks to acquire a later license to operate over the same route.
6.
PURPOSE AND INTENT. To carry out the purpose and intent for which the public service
commission was created, the law contemplates that the first licensee will be protected in his investment
and will not be subjected to a ruinous competition.
7.
PRIMARY PURPOSE. The primary purpose of the Public Service Commission Law is to secure
adequate, sustained service for the public at the least possible cost, and to protect and conserve
investments which have already been made for that purpose.
8.
WHEN SECOND CERTIFICATE SHOULD NOT BE GRANTED. A certificate of convenience and
necessity for the operation of an auto truck line in occupied territory ought not to be granted where there
is no complaint as to existing rates and the company in the field is rendering adequate service.
9.
DUTY OF COMMISSION. The Government having taken over the control and supervision of all
public utilities, so long as an operator under a prior license complies with its terms and conditions and the
reasonable rules and regulations for its operation, and meets the reasonable demands of the public, it is
the duty of the commission to protect rather than to destroy its investment by the granting of the second
license to another person for the same thing over the same route of travel.
STATEMENT
In his application for a permit, the appellee Orlanes alleges that he is the holder of a certificate of public
convenience issued by the Public Service Commission in case No. 7306, to operate an autobus line from
Taal to Lucena, passing through Batangas, Bolbok and Bantilan, in the Province of Batangas, and
Candelaria and Sariaya, in the Province of Tayabas, without any fixed schedule; that by reason of the
requirements of public convenience, he has applied for a fixed schedule from Bantilan to Lucena and
return; that in case No. 7306, he cannot accept passengers or cargo from Taal to any point before Bolbok,
and vice versa; that the public convenience requires that he be converted into what is known as a regular
operator on a fixed schedule between Taal and Bantilan and intermediate points, and for that purpose, he
has submitted to the Commission a proposed schedule for a license to make trips between those and
intermediate points. He then alleges that by reason of increase of traffic, the public convenience also
requires that he be permitted to accept passengers and cargo at points between Taal and Bantilan, and he
asked for authority to establish that schedule, and to accept passengers at all points between Taal and
Bantilan.
To this petition the Batangas Transportation Company appeared and filed an application for a permit, ;n
which it alleged that it is operating a regular service of auto trucks between the principal municipalities of
the Province of Batangas and some of those of the Province of Tayabas; that since 1918, it has been
operating a regular service between Taal and Rosario, and that in 1920, its service was extended to the
municipality of San Juan de Bolbok, with a certificate of public convenience issued by the Public Service
Commission; that in the year 1925 Orlanes obtained from the Commission a certificate of public
convenience to operate an irregular service of auto trucks between Taal, Province of Batangas, and Lucena,
Province of Tayabas, passing through the municipalities of Bauan, Batangas, Ibaan, Rosario, and San Juan
de Bolbok, with the express limitation that he could not accept passengers from intermediate points
between Taal and Bolbok, except those which were going to points beyond San Juan de Bolbok or to the
Province of Tayabas; that he inaugurated this irregular service in March, 1926, but maintained it on that
part of the line between Taal and Bantilan only for about three months, when he abandoned that portion of
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it in the month of June and did not renew it until five days before the hearing of case No. 10301, which was
set for November 24, 1926, in which hearing the Batangas Transportation Company asked for additional
hours for its line between Batangas and Bantilan; that in June, 1926, Orlanes sought to obtain a license as
a regular operator on that portion of the line between Bantilan and Lucena without having asked for a
permit for that portion of the line between Bantilan and Taal; that from June, 1926, Orlanes and the
Batangas Transportation Company were jointly operating a regular service between Bantilan and Lucena,
with trips every half an hour, and Orlanes not having asked for a regular service between Bantilan and
Taal, the Batangas Transportation Company remedied this lack of service under the authority of the
Commission, and increased its trips between Bantilan and Tayabas to make due and timely connections in
Bantilan on a half-hour service between Bantilan and Batangas with connections there for Taal and all other
points in the Province of Batangas. It is then alleged that the service maintained by the company is
sufficient to satisfy the convenience of the public, and that the public convenience does not require the
granting of the permit for the service which Orlanes petitions, and that to do so would result in ruinous
competition and to the grave prejudice of the company and without any benefit to the public, and it prayed
that the petition of Orlanes to operate a regular service be denied.
After the evidence was taken upon such issues, the Public Service Commission granted the petition of
Orlanes, as prayed for, and the company then filed a motion for a rehearing, which was denied, and the
case is now before this court, in which the appellant assigns the following errors:
"The Commission erred in ordering that a certificate of public convenience be issued in favor of Cayetano
Orlanes to operate the proposed service without finding and declaring that the public interests will be
promoted in a proper and suitable manner by the operation of such service, or when the evidence does not
show that the public interests will be so promoted.
"That the Commission erred in denying the motion for a rehearing."
DECISION
JOHNS, J p:
The questions presented involve a legal construction of the powers and duties of the Public Service
Commission, and the purpose and intent for which it was created, and the legal rights and privileges of a
public utility operating under a prior license.
It must be conceded that an autobus line is a public utility, and that in all things and respects, it is what is
legally known as a common carrier, and that it is an important factor in the business conditions of the
Islands, which is daily branching out and growing very fast.
Before such a business can be operated, it must apply for, and obtain, a license or permit from the Public
Service Commission, and comply with certain defined terms and conditions, and when the license is once
granted, the operator must conform to, and comply with, all reasonable rules and regulations of the Public
Service Commission. The object and purpose of such a commission, among other things, is to look out for,
and protect, the interests of the public, and, in the instant case, to provide it with safe and suitable means
of travel over the highways in question, in like manner that a railroad would be operated under like terms
and conditions. To all intents and purposes, the operation of an autobus line is very similar to that of a
railroad, and a license for its operation should be granted or refused on like terms and conditions. For
many and different reasons, it has never been the policy of a public service commission to grant a license
for the operation of a new line of railroad which parallels and covers the same field and territory of another
old established line, for the simple reason that it would result in ruinous competition between the two
lines, and would not be of any benefit or convenience to the public.
The Public Service Commission has ample power and authority to make any and all reasonable rules and
regulations for the operation of any public utility and to enforce compliance with them, and for failure of
such utility to comply with, or conform to, such reasonable rules and regulations, the Commission has
53 | P a g e
power to revoke the license for its operation. It also has ample power to specify and define what is a
reasonable compensation for the services rendered to the traveling public.
That is to say, the Public Service Commission, as such, has the power to specify and define the terms and
conditions upon which the public utility shall be operated, and to make reasonable rules and regulations
for its operation and the compensation which the utility shall receive for its services to the public, and for
any failure to comply with such rules and regulations or the violation of any of the terms and conditions for
which the license was granted, the Commission has ample power to enforce the provisions of the license or
even to revoke it, for any failure or neglect to comply with any of its terms and provisions.
Hence, and for such reasons, the fact that the Commission has previously granted a license to any person
to operate a bus line over a given highway and refuses to grant a similar license to another person over
the same highway, does not in the least create a monopoly in the person of the licensee, for the simple
reason that at all times the Public Service Commission has the power to say what is a reasonable
compensation to the utility, and to make reasonable rules and regulations for the convenience of the
traveling public and to enforce them.
In the instant cases Orlanes seeks to have a certificate of public convenience to operate a line of auto
trucks with fixed times of departure between Taal and Bantilan, in the municipality of Bolbok, Province of
Batangas, with the right to receive passengers and freight from intermediate points. The evidence is
conclusive that at the time of his application, Orlanes was what is known as an irregular operator between
Bantilan and Taal, and that the Batangas Transportation Company was what is known as a regular operator
between Batangas and Rosario. Orlanes now seeks to have his irregular operation changed into a regular
one, with fixed hours of departure and arrival between Bantilan and Taal, and to set aside and nullify the
prohibition against him in his certificate of public convenience, in substance and to the effect that he shall
not have or receive any passengers or freight at any of the points served by the Batangas Transportation
Company for which that company holds a prior license from the Commission. His petition to become such a
regular operator over such conflicting routes is largely based upon the fact that, to comply with the
growing demands of the public, the Batangas Transportation Company, in case No. 10301, applied to the
Commission for a permit to increase the number of trip hours at and between the same places from
Batangas to Rosario, and for an order that all irregular operators be prohibited from operating their
respective licenses, unless they should observe the interval of two hours before, or one hour after, the
regular hours of the Batangas Transportation Company.
In his petition Orlanes sought to be relieved from his prohibition to become a regular operator, and for a
license to become a regular operator with a permission to make three round trips daily between Bantilan
and Taal, the granting of which would make him a regular operator between those points and bring him in
direct conflict and competition over the same points with the Batangas Transportation Company under its
prior license, and in legal effect that was the order which the Commission made, of which the Batangas
Transportation Company now complains.
The appellant squarely plants its case on the proposition:
"Is a certificate of public convenience going to be issued to a second operator to operate a public utility in
a field where, and in competition with, a first operator who is already operating a sufficient, adequate and
satisfactory service?"
There is no claim or pretense that the Batangas Transportation Company has violated any of the terms and
conditions of its license. Neither does the Public Service Commission find as a fact that the granting of a
license to Orlanes as a regular operator between the points in question is required or necessary for the
convenience of the traveling public, or that there is any complaint or criticism by the public of the services
rendered by the Batangas Transportation Company over the route in question.
The law creating the Public Service Commission of the Philippine Islands is known as Act No. 3108, as
amended by Act No. 3316, and under it the supervision and control of public utilities is very broad and
comprehensive.
54 | P a g e
Section 15 of Act No. 3108 provides that the Commission shall have power, after hearing, upon notice, by
order in writing to require every public utility:
(a)
To comply with the laws of the Philippine Islands;
(b)
To furnish safe, adequate, and proper service as regards the manner of furnishing the same as well
as the maintenance of the necessary material and equipment, etc.;
(c)
To establish, construct, maintain, and operate any reasonable extension of its existing facilities,
where such extension is reasonable and practicable and will furnish sufficient business to justify the
construction and maintenance of the same;
(d)
To keep a uniform system of books, records and accounts;
(e)
To make specific answers with regard to any point on which the Commission requires information,
and to furnish annual reports of finances and operations;
(f)
To carry, whenever the Commission may require, a proper and adequate depreciation account;
(g)
To notify the Commission of all accidents;
(h)
That when any public utility proposes to increase or reduce any existing individual rates, it shall
give the Commission written notice thirty days prior to the proposed change; and
(i)
"No public utility as herein defined shall operate in the Philippine Islands without having first
secured from the Commission a certificate, which shall be known as Certificate of Public Convenience, to
the effect that the operation of said public utility and the authorization to do business will promote the
public interests in a proper and suitable manner."
Section 16 specifically prohibits any discrimination in the handling of freight charges.
In construing a similar law of the State of Kansas, the United States Supreme Court, in an opinion written
by Chief Justice Taft, in Wichita Railroad and Light Co. vs. Public Utilities Commission of Kansas (260 U. S.,
48; 67 Law. ed., 124), said:
"The proceeding we are considering is governed by section 13. That is the general section of the act
comprehensively describing the duty of the Commission, vesting it with power to fix and order substituted
new rates for existing rates. The power is expressly made to depend on the condition that, after full
hearing and investigation, the Commission shall find existing rates to be unjust, unreasonable, unjustly
discriminatory, or unduly preferential. We conclude that a valid order of the Commission under the act
must contain a finding of fact after hearing and investigation, upon which the order is founded, and that,
for lack of such a finding, the order in this case was void.
"This conclusion accords with the construction put upon similar statutes in other states. (State Public
Utilities Commission ex rel. Springfield vs. Springfield Gas and E. Co., 291 Ill., 209; P. U. R., 1920C, 640;
125 N. E. 891; State Public Utilities Co. vs. Baltimore and O. S. W. R. Co., 281 Ill., 405; P. U. R., 1918B, 655;
118 N. E., 81.) Moreover, it accords with general principles of constitutional government. The maxim that a
legislature may not delegate legislative power has some qualifications, as in the creation of municipalities,
and also in the creation of administrative boards to apply to the myriad details of rate schedules the
regulatory police power of the state. The latter qualification is made necessary in order that the legislative
power may be effectively exercised. In creating such an administrative agency, the legislature, to prevent
its being a pure delegation of legislative power, must enjoin upon it a certain course of procedure and
certain rules of decision in the performance of its function. It is a wholesome and necessary principle that
such an agency must pursue the procedure and rules enjoined, and show a substantial compliance
therewith, to give validity to its action. When, therefore, such an administrative agency is required, as a
condition precedent to an order, to make a finding of facts, the validity of the order must rest upon the
needed finding. If it is lacking, the order is ineffective.
"It is pressed on us that the lack of an express finding may be supplied by implication and by reference to
the averments of the petition invoking the action of the Commission. We cannot agree to this point. It is
doubtful whether the facts averred in the petition were sufficient to justify a finding that the contract rates
were unreasonably low; but we do not find it necessary to answer this question. We rest our decision on
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the principle that an express finding of unreasonableness by the Commission was indispensable under the
statutes of the state."
That is to say, in legal effect, 'that the power of the Commission to issue a certificate of public convenience
depends on the condition precedent that, after a full hearing and investigation, the Commission shall have
found as a fact that the operation of the proposed public service and its authority to do business must be
based upon the finding that it is for the convenience of the public.
In the Philippine Islands the certificate of public convenience is as follows:
"CERTIFICATE OF PUBLIC CONVENIENCE
"To whom it may concern:
"THIS IS TO CERTIFY, That in pursuance of the power and authority conferred upon it by subsection (i) of
section 15 of Act No. 3108 of the Philippine Legislature,
"THE PUBLIC SERVICE COMMISSION OF THE PHILIPPINE ISLANDS, after having duly considered the
application of ............ for certificate of public convenience the operation of ...................... in connection
with the evidence submitted in support thereof, has rendered its decision on ......................., 192 , in case
No. ........... ........................., declaring that the operation by the applicant....................... of the business
above described will promote the public interests in a proper and suitable manner, and granting ......... to
this effect the corresponding authority, subject to the conditions prescribed in said decision.
"Given at Manila, Philippine Islands, this ........... day of ......................, 192 .......
"PUBLIC SERVICE COMMISSION OF THE
PHILIPPINE ISLANDS
"By ........................................
"Commissioner
"Attested:
.....................................................
"Secretary"
That is to say, that the certificate of public convenience granted to Orlanes in the instant case expressly
recites that it "will promote the public interests in a proper and suitable manner." Yet no such finding of
fact was made by the Commission.
In the instant case, the evidence is conclusive that the Batangas Transportation Company operated its line
five years before Orlanes ever turned a wheel, yet the legal effect of the decision of the Public Service
Commission is to give an irregular operator, who was the last in the field, a preferential right over a regular
operator, who was the first in the field. That is not the law, and there is no legal principle upon which it can
be sustained.
So long as the first licensee keeps and performs the terms and conditions of its license and complies with
the reasonable rules and regulations of the Commission and meets the reasonable demands of the public,
it should have more or less of a vested and preferential right over a person who seeks to acquire another
and a later license over the same route. Otherwise, the first licensee would not have any protection on his
investment, and would be subject to ruinous competition and thus defeat the very purpose and intent for
which the Public Service Commission was created.
It does not appear that the public has ever made any complaint against the Batangas Transportation
Company, yet on its own volition and to meet the increase of its business, it has applied to the Public
Service Commission for authority to increase the number of daily trips to nineteen, thus showing a spirit
that ought to be commended.
Such is the rule laid down in the case of Re B. F. Davis Motor Lines, cited by the Public Service Commission
of Indiana (P. U. R., 1927-B, page 729), in which it was held:
"A motor vehicle operator having received a certificate with a voluntary stipulation not to make stops (that
is, not to carry passengers) on a part of a route served by other carriers, and having contracted with such
56 | P a g e
carriers not to make the stops, will not subsequently be authorized to make such stops where the other
carriers are able to carry all passengers who present themselves for transportation within the restricted
district."
And in Re Mount Bake development Co., the Public Service Commission of Washington (P. U. R., 1925D,
7053, held:
"A certificate authorizing through motor carrier service should not authorize local service between points
served by the holders of a certificate, without first giving the certificate holders an opportunity to render
additional service desired."
In the National Coal Company case (47 Phil., 356), this court said:
"When there is no monopoly. There is no such thing as a monopoly where a property is operated as a
public utility under the rules and regulations of the Public Utility Commission and the terms and provisions
of the Public Utility Act."
Section 775 of Pond on Public Utilities, which is recognized as a standard authority, states the rule thus:
"The policy of regulation, upon which our present public utility commission plan is based and which tends
to do away with competition among public utilities as they are natural monopolies, is at once the reason
and the justification for the holding of our courts that the regulation of an existing system of
transportation, which is properly serving a given field, or may be required to do so, is to be preferred to
competition among several independent systems. While requiring a proper service from a single system for
a city or territory in consideration for protecting it as a monopoly for all the service required and in
conserving its resources, no economic waste results and service may be furnished at the minimum cost.
The prime object and real purpose of commission control is to secure adequate sustained service for the
public at the least possible cost, and to protect and conserve investments already made for this purpose.
Experience has demonstrated beyond any question that competition among natural monopolies is wasteful
economically and results finally in insufficient and unsatisfactory service and extravagant rates."
The rule has been laid down, without dissent in numerous decisions, that where an operator is rendering
good, sufficient and adequate service to the public, that the convenience does not require and the public
interests will not be promoted in a proper and suitable manner by giving another operator a certificate of
public convenience to operate a competing line over the same route.
In Re Haydis (Cal.), P. U. R., 1920A, 923:
"A certificate of convenience and necessity for the operation of an auto truck line in occupied territory will
not be granted, where there is no complaint as to existing rates and the present company is rendering
adequate service."
In Re Chester Auto Bus Line (Pa.), P. U. R., 1923E, 384:
"A Commission should not approve an additional charter and grant an additional certificate to a second
bus company to operate in territory covered by a certificate granted to another bus company as a
subsidiary of a railway company for operation in conjunction with the trolley system where one bus service
would be ample for all requirements."
In Re Branham (Ariz.), P. U. R., 1924C, 500:
"A showing must be clear and affirmative that an existing utility is unable or has refused to maintain
adequate and satisfactory service, before a certificate of convenience and necessity will be granted for the
operation of an additional service."
In Re Lambert (N. H.), P. U. R., 1923D, 572:
"Authority to operate a jitney bus should be refused when permission has been given to other parties to
operate and, from the evidence, they are equipped adequately to accommodate the public in this respect,
no complaints having been received in regard to service rendered."
In Re White (Md.), P. U. R., 1924E, 316:
"A motor vehicle operator who has built up a business between specified points after years of effort should
not be deprived of the fruits of his labor and of the capital he has invested in his operation by a larger
concern desiring to operate between the same points."
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In Re Kocin (Mont.), P. U. R., 1924C, 214:

"A certificate authorizing the operation of passenger motor service should be denied where the record
shows that the admission of another operator into the territory served by present licensees is not
necessary and would render their licenses oppressive and confiscatory because of further division and
depletion of revenues and would defeat the purpose of the statute and disorganize the public service."
In Re Nevada California Stage Co., P. U. R., 1924A, 460:
"The Nevada Commission denied an application for a certificate of convenience and necessity for the
operation of an automobile passenger service in view of the fact that the service within the territory
proposed to be served appeared to be adequate and it was the policy of the Commission to protect the
established line in the enjoyment of business which it had built up, and in view of the further fact that it
was very uncertain whether the applicant could secure sufficient business to enable him to operate
profitably."
In Re Idaho Light & P. Co. (Idaho), P. U. R., 1915A,2:
"Unless it is shown that the utility desiring to enter a competitive field can give such service as will be a
positive advantage to the public, a certificate of convenience will be denied by the Idaho Commission,
provided that the existing utility is furnishing adequate service at reasonable rates at the time of the
threatened competition."
In Scott vs. Latham (N. Y. 2d Dist.), P. U. R., 1921C, 714 :
"Competition between bus lines should be prohibited the same as competition between common carriers."
In Re Portland Taxicab Co. (Me.), P. U. R., 1923E, 772:
"Certificates permitting the operation of motor vehicles for carrying passengers for hire over regular routes
between points served by steam and electric railways should not be granted when the existing service is
reasonable, safe, and adequate as required by statute."
In Re Murphy (Minnesota), P. U. R., 1927C, 807:
"Authority to operate an auto transportation service over a route which is served by another auto
transportation company should be denied if no necessity is shown for additional service."
In Re Hall, editorial notes, P. U. R., 1927E:
"A certificate of convenience and necessity for the operation of a motor carrier service has been denied by
the Colorado Commission where the only ground adduced for the certificate was that competition thereby
afforded to an existing utility would benefit the public by lowering rates. The Commission said: 'Up to the
present time the Commission has never issued a certificate authorizing a duplication of motor vehicle
operation over a given route unless it appeared that the service already rendered was not adequate, that
there was no ruinous competition or that the second applicant could, while operating on a sound
businesslike basis, afford transportation at cheaper rates than those already in effect. There has been no
complaint to date as to the rates now being charged on the routes over which the applicant desires to
serve. Moreover, the Commission stands ready, at any time the unreasonableness of the rates of any
carrier are questioned, to determine their reasonableness and to order them reduced if they are shown to
be unreasonable.' In this case the Commission also expressed its disapproval of the practice of an
applicant securing a certificate for the sole purpose of transferring it to another."
In Re Sumner (Utah), P. U. R., 1927D, 734:
"The operation of an automobile stage line will not be authorized over a route adequately served by a
railroad and other bus line, although the proposed service would be an added convenience to the territory."
In Bartonville Bus Line vs. Eagle Motor Coach Line (Ill. Sup. Court), 157 N. E., 175; P. U. R., 1927E, 333:
"The policy of the state is to compel an established public utility occupying a given field to provide
adequate service and at the same time protect it from ruinous competition, and to allow it an opportunity
to provide additional service when required instead of permitting such service by a newly established
competitor."
Upon the question of "Reasons and Rule for Regulation," in section 775, Pond says:
58 | P a g e
"The policy of regulation, upon which our present public utility commission plan is based and which tends
to do away with competition among public utilities as they are natural monopolies, is at once the reason
and the justification for the holding of our courts that the regulation of an existing system of
transportation, which is properly serving a given field or may be required to do so, is to be preferred to
competition among several independent systems. While requiring a proper service from a single system for
a city or territory in consideration for protecting it as a monopoly for all the service required and in
conserving its resources, no economic waste results and service may be furnished at the minimum cost.
The prime object and real purpose of commission control is to secure adequate sustained service for the
public at the least possible cost, and to protect and conserve investments already made for this purpose.
Experience has demonstrated beyond any question that competition among natural monopolies is wasteful
economically and results finally in insufficient and unsatisfactory service and extravagant rates. Neither
the number of the individuals demanding other service nor the question of the fares constitutes the entire
question, but rather what the proper agency should be to furnish the best service to the public generally
and continuously at the least cost. Anything which tends to cripple seriously or destroy an established
system of transportation that is necessary to a community is not a convenience and necessity for the
public and its introduction would be a handicap rather than a help ultimately in such a field."
That is the legal construction which should be placed on paragraph (e) of section 14, and paragraphs (b)
and (c) of section 15 of the Public Service Law.
We are clearly of the opinion that the order of the Commission granting the petition of Orlanes in question,
for the reasons therein stated, is null and void, and that it is in direct conflict with the underlying and
fundamental principles for which the Commission was created.
The question presented is very important and far-reaching and one of first impression in this court, and for
such reasons we have given this case the careful consideration which its importance deserves. The
Government having taken over the control and supervision of all public utilities, so long as an operator
under a prior license complies with the terms and conditions of his license and reasonable rules and
regulations for its operation and meets the reasonable demands of the public, it is the duty of the
Commission to protect rather than to destroy his investment by the granting of a subsequent license to
another for the same thing over the same route of travel. The granting of such a license does not serve its
convenience or promote the interests of the public.
The decision of the Public Service Commission, granting to Orlanes the license in question, is revoked and
set aside, and the case is remanded to the Commission for such other and further proceedings as are not
inconsistent with this opinion. Neither party to recover costs on this appeal. So ordered.
Johnson, Street, Malcolm and Ostrand, JJ., concur.
Separate Opinions
ROMUALDEZ, J., dissenting:
I believe the Public Service Commission had jurisdiction to try this case and that there is sufficient
evidence of record to sustain the appealed judgment. However, I think there should be no conflict between
the trip hours, and that the Commission could do away with it by making the necessary arrangements.
Order reversed and set aside, and case remanded for further proceedings.
Villa-Real, J., concurs.
Footnotes
1.
The same conclusions were reached in the case of Batangas Transportation Co. vs. Ochoa, G. R. No.
29164, promulgated December 2, 1928, not reported.
San Pablo v. Pantaco, 153 SCRA 199
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FIRST DIVISION
[G.R. Nos. 61461 & 61501. August 21, 1987.]
EPITACIO SAN PABLO (substituted by Heirs of E. San Pablo), petitioners, vs. PANTRANCO SOUTH EXPRESS,
INC., respondent.
CARDINAL SHIPPING CORPORATION, petitioner, vs. HONORABLE BOARD OF TRANSPORTATION and
PANTRANCO SOUTH EXPRESS, INC., respondents.
SYLLABUS
1.
MERCANTILE LAW; PUBLIC SERVICE ACT; COMMON CARRIERS; FERRY SERVICE DISTINGUISHED
FROM INTERISLAND SERVICE. In Javellana case (98 Phil. 964) We made clear distinction between a ferry
service and coastwise or interisland service by holding that:" . . . We are inclined to believe that the
Legislature intended ferry to mean the service either by barges or rafts, even by motor or steam vessels,
between the banks of a river or stream to continue the highway which is interrupted by the body of water,
or in some cases, to connect two points on opposite shores of an arm of the sea such as bay or lake which
does not involve too great a distance or too long a time to navigate. But where the line or service involves
crossing the open sea like the body of water between the province of Batangas and the island of Mindoro
which the oppositors describe thus "the intervening waters between Calapan and Batangas are wide and
dangerous with big waves where small boat, barge or raft are not adapted to the service, then it is more
reasonable to regard said line or service as more properly belonging to interisland or coastwise trade." . . .
2.
ID.; ID.; ID.; CONVEYANCE OF PASSENGERS, TRUCKS AND CARGO TRAVERSING SAN BERNARDINO
STRAIT, AN INTERISLAND SHIPPING SERVICE; CASE AT BAR. This Court takes judicial notice of the fact,
and as shown by an examination of the map of the Philippines, that Matnog which is on the southern tip of
the island of Luzon and within the province of Sorsogon and Allen which is on the northeastern tip of the
island of Samar, is traversed by the San Bernardino Strait which leads towards the Pacific Ocean. The
parties admit that the distance between Matnog and Allen is about 23 kilometers which may be negotiated
by motorboat or vessel in about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to
petitioners. As the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at
times be choppy and rough so that it will not be safe to navigate the same by small boats or barges but
only by such steamboats or vessels as the M/V "Black Double." Considering the environmental
circumstances of the case, the conveyance of passengers, trucks and cargo from Matnog to Allen is
certainly not a ferryboat service but a coastwise or interisland shipping service.
3.
ID.; ID.; ID.; OPEN SEA, NOT A CONTINUATION OF HIGHWAY. Under no circumstance can the sea
between Matnog and Allen be considered a continuation of the highway. While a ferryboat service has been
considered as a continuation of the highway when crossing rivers or even lakes, which are small body of
waters separating the land, however, when as in this case the two terminals, Matnog and Allen are
separated by an open sea it can not be considered as a continuation of the highway.
4.
ID.; ID.; ID.; ID.; SEPARATE CERTIFICATE OF PUBLIC CONVENIENCE MUST BE SECURED.
Respondent PANTRANCO should secure a separate CPC for the operation of an interisland or coastwise
shipping service in accordance with the provisions of law. Its CPC as a bus transportation cannot be merely
amended to include this water service under the guise that it is a mere private ferry service. Thus the
Court holds that the water transport service between Matnog and Allen is not a ferryboat service but a
60 | P a g e
coastwise or interisland shipping service. Before private respondent may be issued a franchise or CPC for
the operation of the said service as a common carrier, it must comply with the usual requirements of filing
an application, payment of the fees, publication, adducing evidence at a hearing and affording the
oppositors the opportunity to be heard, among others, as provided by law.
DECISION
GANCAYCO, J p:
The question that is posed in these petitions for review is whether the sea can be considered as a
continuation of the highway. The corollary issue is whether a land transportation company can be
authorized to operate a ferry service or coastwise or interisland shipping service along its authorized route
as an incident to its franchise without the need of filing a separate application for the same.
The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation
engaged in the land transportation business with PUB service for passengers and freight and various
certificates for public conveniences (CPC) to operate passenger buses from Metro Manila to Bicol Region
and Eastern Samar. On March 27, 1980 PANTRANCO through its counsel wrote to Maritime Industry
Authority (MARINA) requesting authority to lease/purchase a vessel named M/V "Black Double" "to be used
for its project to operate a ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide
service to company buses and freight trucks that have to cross San Bernardo Strait. 1 In a reply of April 29,
1981 PANTRANCO was informed by MARINA that it cannot give due course to the request on the basis of
the following observations:
"1.
The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and Epitacio San Pablo;
MARINA policies on interisland shipping restrict the entry of new operators to Liner trade routes where
these are adequately serviced by existing/authorized operators.
2.
Market conditions in the proposed route cannot support the entry of additional tonnage; vessel
acquisitions intended for operations therein are necessarily limited to those intended for replacement
purposes only." 2
PANTRANCO nevertheless acquired the vessel M/V "Black Double" on May 27, 1981 for P3 Million pesos. It
wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a
ferry service to carry its passenger buses and freight trucks between Allen and Matnog in connection with
its trips to Tacloban City invoking the case of Javellana vs. Public Service Commission. 3 PANTRANCO
claims that it can operate a ferry service in connection with its franchise for bus operation in the highway
from Pasay City to Tacloban City "for the purpose of continuing the highway, which is interrupted by a
small body of water, the said proposed ferry operation is merely a necessary and incidental service to its
main service and obligation of transporting its passengers from Pasay City to Tacloban City. Such being the
case . . . there is no need . . . to obtain a separate certificate for public convenience to operate a ferry
service between Allen and Matnog to cater exclusively to its passenger buses and freight trucks. 4
Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting Chairman
Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the application for hearing on
Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO from operating the M/V "Black
Double" otherwise it will be cited to show cause why its CPC should not be suspended or the pending
application denied. 6
Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are franchise
holders of the ferry service in this area interposed their opposition. They claim they adequately service the
PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked the legal opinion from the
Minister of Justice whether or not a bus company with an existing CPC between Pasay City and Tacloban
61 | P a g e
City may still be required to secure another certificate in order to operate a ferry service between two
terminals of a small body of water. On October 20, 1981 then Minister of Justice Ricardo Puno rendered an
opinion to the effect that there is no need for bus operators to secure a separate CPC to operate a
ferryboat service holding as follows:
"Further, a common carrier which has been granted a certificate of public convenience is expected to
provide efficient, convenient and adequate service to the riding public. (Hocking Valley Railroad Co. vs.
Public Utilities Commission, 110 NE 521; Louiseville and N.R. Co. vs. Railroad Commissioners, 58 SO 543) It
is the right of the public which has accepted the service of a public utility operator to demand that the
service should be conducted with reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-991) Thus,
when the bus company in the case at bar proposes to add a ferry service to its Pasay-Tacloban route, it
merely does so in the discharge of its duty under its current certificate of public convenience to provide
adequate and convenient service to its riders. Requiring said bus company to obtain another certificate to
operate such ferry service when it merely forms a part and constitutes an improvement of its existing
transportation service would simply be duplicitous and superfluous." 7
Thus on October 23, 1981 the BOT rendered its decision holding that the ferryboat service is part of its CPC
to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the same in this
wise:
"Let the original Certificate of public convenience granted to Pantranco South Express Co., Inc. be
amended to embody the grant of authority to operate a private ferryboat service as one of the conditions
for the grant of the certificate subject to the condition that the ferryboat shall be for the exclusive use of
Pantranco buses, its passengers and freight trucks, and should it offer itself to the public for hire other than
its own passengers, it must apply for a separate certificate of public convenience as a public ferryboat
service, separate and distinct from its land transport systems." 8
Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration of said
decision and San Pablo filed a supplemental motion for reconsideration that were denied by the BOT on
July 21, 1981. 9
Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary injunction 10
seeking the revocation of said decision, and pending consideration of the petition, the issuance of a
restraining order or preliminary injunction against the operation by PANTRANCO of said ferry service. San
Pablo raised the following issues:
"A.
DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE PROCESS, THE RULES OF
PROCEDURE AND SECTION 16 (m) OF THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE
THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU PROPIO AMENDED RESPONDENT PANTRANCO'S
PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION OF A SHIPPING SERVICE ON THE ROUTE
MATNOG, SORSOGON ALLEN, SAMAR EVEN AS THERE MUST BE A FORMAL APPLICATION FOR
AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFOR, ASSUMING AMENDMENT IS PROPER?
B.
DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER 23, 1981, THAT THE
SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR
FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR CONTINUATION OF THE HIGHWAY IT
BEING 23 KILOMETERS OF ROUGH AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG
INTER-ISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN FERRY SERVICE?
C.
DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT PANTRANCO'S VESSEL M/V
BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE
(ASSUMING THAT THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF HIGHWAY) EVEN
IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE FARES AND CATERS TO THE PUBLIC EVEN FOR A
LIMITED CLIENTELE?
D.
DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO
OPERATE A SHIPPING SERVICE IN THE FACE OF THE LATTER'S CONTENTION AS AN AFTERTHOUGHT THAT IT
62 | P a g e
NEED NOT APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE MARITIME
INDUSTRY AUTHORITY (MARINA) APPROVAL TO ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR
NO. 8-A AS WELL AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING AUTHORIZATION MAY BE
GRANTED UNDER BOT MARINA AGREEMENT OF AUGUST 10, 1976 AND FEBRUARY 26, 1982?
E.
DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO
OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY SERVICED IF NOT ALREADY 'SATURATED' WITH
THE SERVICES OF TWO (2) EXISTING OPERATORS (PETITIONERS AND CARDINAL SHIPPING CORP.) IN
VIOLATION OF THE PRINCIPLE OF 'PRIOR OPERATOR RULE'?" 11
By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely:
"a.
the decision did not conform to the procedures laid down by law for an amendment of the original
certificate of public convenience, and the authority to operate a private ferry boat service to PANTRANCO
was issued without ascertaining the established essential requisites for such grant, hence, violative of due
process requirements;
b.
the grant to PANTRANCO of authority to operate a ferryboat service as a private carrier on said
route contravenes existing government policies relative to the rationalization of operations of all water
transport utilities;
c.
it contravenes the memorandum of agreement between MARINA and the Board of Transportation;
d.
the grant of authority to operate a ferry service as a private carrier is not feasible; it lessens
PANTRANCO's liability to passengers and cargo to a degree less than extraordinary diligence?
e.
PANTRANCO is not a private carrier when it operates its ferry service;
f.
it runs counter to the 'old operator' doctrine; and
g.
the operation by PANTRANCO of the ferry service constitutes undue competition.
The foregoing considerations constitutes the substantial errors committed by the respondent Board which
would more than amply justify review of the questioned decision by this Honorable Court." 12
Both cases were consolidated and are now admitted for decision.
The resolution of all said issues raised revolves on the validity of the questioned BOT decision.
The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of
the authority originally granted PANTRANCO in the following manner:
"A ferry service, in law, is treated as a continuation of the highway from one side of the water over which
passes to the other side for transportation of passengers or of travellers with their teams vehicles and such
other property as, they may carry or have with them. (U.S. vs. Puget Sound Nev. Co. D.C. Washington, 24 F.
Supp. 431). It may be said to be a necessary service of a specially constructed boat to carry passengers
and property across rivers or bodies of water from a place in one shore to a point conveniently opposite on
the other shore and continuation of the highway making a connection with the thoroughfare at each
terminal (U.S. vs. Canadian Pac, N.Y. Co. 4 P. Supp. 85). It comprises not merely the privilege of
transportation but also the use for that purpose of the respective landings with outlets therefrom. (Nole vs.
Record, 74 OKL. 77; 176 Pac. 756). A ferry service may be a public ferry or a private ferry. A public ferry
service is one which all the public have the right to resort to and for which a regular fare is established and
the ferryman is a common carrier be inbound to take all who apply and bound to keep his ferry in
operation and good repair. (Hudspeth v. Hall, 11 Oa. 510; 36 S.B. 770). A ferry (private) service is mainly
for the use of the owner and though he may take pay for ferriage, he does not follow it as a business. His
ferry is not open to the public at its demand and he may or may not keep it in operation (Hudspeth vs.
Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140 Ark. 158; 215 S.W. 698).
The ferryboat service of Pantranco is a continuation of the highway traversed by its buses from Pasay City
to Samar, Leyte passing through Matnog (Sorsogon) through San Bernardino Strait to Allen (Samar). It is a
private carrier because it will be used exclusively to transport its own buses, passengers and freight trucks
traversing the said route. It will cater exclusively to the needs of its own clientele (passengers on board
Pantranco buses) and will not offer itself indiscriminately for hire or for compensation to the general public.
63 | P a g e
Legally therefore, Pantranco has the right to operate the ferryboat M/V BLACK DOUBLE, along the route
from Matnog (Sorsogon) to Allen (Samar) and vice versa for the exclusive use of its own buses, passengers
and freight trucks without the need of applying for a separate certificate of public convenience or
provisional authority. Since its operation is an integral part of its land transport system, its original
certificate of public convenience should be amended to include the operation of such ferryboat for its own
exclusive use." 13
In Javellana 14 this Court recited the following definition of "ferry":
"The term ' ferry implied the continuation by means of boats, barges, or rafts of a highway or the
connection of highways located on the opposite banks of a stream or other body of water. The term
necessarily implies transportation for a short distance, almost invariably between two points, which is
unrelated to other transportation, (Oppositors' Emphasis.)
The term 'ferry' is often employed to denote the right or franchise granted by the state or its authorized
mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and
to charge toll for the use thereof by the public. In this sense it has also been defined as a privilege, a
liberty, to take tolls for transporting passengers and goods across a lake or stream, or some other body of
water, with no essential difference from a bridge franchise except as to the mode of transportation 22 Am.
Jur. 553.
A 'ferry' has been defined by many courts as 'a public highway or thoroughfare across a stream of water or
river by boat instead of a bridge.' (St. Claire Country v. Interstate Car and Sand Transfer Co., 192 U.S. 464,
48 L. ed. 518; etc.).
'The term ferry is often employed to denote the right or franchise granted by the state or its authorized
mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and
to charge toll for the use thereof by the public.' (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255,
131 P. 864, Ann. Cas. 1914C, 1179; etc.) (Oppositors' Emphasis).
'Ferry' is service necessity for common good to reach point across a stream, lagoon, lake, or bay. (U.S. vs.
Canadian Pac. Ry. Co. D.C. Was., 4 Supp. 851, 853)'
'Ferry' properly means a place of transit across a river or arm of the sea, but in law it is treated as a
franchise, and defined as the exclusive right to carry passengers across a river, or arm of the sea, from one
vill to another, or to connect a continuous line of road leading from township or vill to another. (Canadian
Pac. Ry. Co. vs. C.C.A. Wash., 73 F. 2d. 831, 832)'
'Includes various waters: (1) But an arm of the sea may include various subordinate descriptions of waters,
where the tide ebbs and flows. It may be a river, harbor, creek, basin, or bay; and it is sometimes used to
designate very extensive reaches of waters within the projecting capes or points or a country. (See Rex. vs.
Bruce, Deach, C.C. 1093). (2) In an early case the court said: 'The distinction between rivers navigable and
not navigable, that is, where the sea does, or does not, ebb and flow, is very ancient. Rex. vs. Smith, 2
Dougl. 441, 99 Reprint 283. The former are called arms of the sea, while the latter pass under the
denomination of private or inland rivers' Adams vs. Pease 2 Conn. 481, 484." (Emphasis supplied)
In the cases of Cababa vs. Public Service Commission, 15 Cababa vs. Remigio & Carillo 16 and Municipality
of Gattaran vs. Elizaga 17 this Court considered as ferry service such water service that crosses rivers.
cdrep
However, in Javellana We made clear distinction between a ferry service and coastwise or interisland
service by holding that:
"We are not unmindful of the reasons adduced by the Commission in considering the motorboat service
between Calapan and Batangas as ferry; but from our consideration of the law as it stands, particularly
Commonwealth Act No. 146, known as the Public Service Act and the provisions of the Revised
Administrative Code regarding municipal ferries and those regarding the jurisdiction of the Bureau of
Customs over documentation, registration, licensing, inspection, etc. of steamboats, motorboats or motor
vessels, and the definition of ferry as above quoted, we have the impression and we are inclined to believe
that the Legislature intended ferry to mean the service either by barges or rafts, even by motor or steam
64 | P a g e
vessels, between the banks of a river or stream to continue the highway which is interrupted by the body
of water, or in some cases, to connect two points on opposite shores of an arm of the sea such as bay or
lake which does not involve too great a distance or too long a time to navigate. But where the line or
service involves crossing the open sea like the body of water between the province of Batangas and the
island of Mindoro which the oppositors describe thus "the intervening waters between Calapan and
Batangas are wide and dangerous with big waves where small boat, barge or raft are not adapted to the
service, then it is more reasonable to regard said line or service as more properly belonging to interisland
or coastwise trade". According to the finding of the Commission itself the distance between Calapan and
Batangas is about 24 nautical miles or about 44.5 kilometers. We do not believe that this is the short
distance contemplated by the Legislature in referring to ferries whether within the jurisdiction of a single
municipality or ferries between two municipalities or provinces. If we are to grant that water transportation
between Calapan and Batangas is ferry service, then there would be no reason for not considering the
same service between the different islands of the Philippines, such as Boac, Marinduque and Batangas;
Roxas City of Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao, Surigao;
and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro.
The Commission makes the distinction between ferry service and motorship in the coastwise trade, thus:
cdll
'A ferry service is distinguished from a motorship or motorboat service engaged in the coastwise trade in
that the latter is intended for the transportation of passengers and/or freight for hire or compensation
between ports or places in the Philippines without definite routes or lines of service.'
We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of say the
William Lines, Inc. goes from Manila to Davao City via Cebu, Tagbilaran, Dumaguete, Zamboanga, every
week. It has a definite route, and yet it may not for that reason be regarded as engaged in ferry service.
Again, a vessel of the Compaia Maritima makes the trip from Manila to Tacloban and back, twice a week.
Certainly, it has a definite route. But that service is not ferry service, but rather interisland or coastwise
trade.
We believe that it will be more in consonance with the spirit of the law to consider steamboat or motorboat
service between the different islands, involving more or less great distance and over more or less turbulent
and dangerous waters of the open sea, to be coastwise or inter-island service. Anyway, whether said
service between the different islands is regarded as ferry service or coastwise trade service, as long as the
water craft used are steamboats, motorboats or motor vessels, the result will be the same as far as the
Commission is concerned." 18 (Emphasis supplied)
This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines,
that Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and
Allen which is on the northeastern tip of the island of Samar, is traversed by the San Bernardino Strait
which leads towards the Pacific Ocean. The parties admit that the distance between Matnog and Allen is
about 23 kilometers which may be negotiated by motorboat or vessel in about 1-1/2 hours as claimed by
respondent PANTRANCO to 2 hours according to petitioners. As the San Bernardino Strait which separates
Matnog and Allen leads to the ocean it must at times be choppy and rough so that it will not be safe to
navigate the same by small boats or barges but only by such steamboats or vessels as the M/V "Black
Double." 19
Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo
from Matnog to Allen is certainly not a ferryboat service but a coastwise or interisland shipping service.
Under no circumstance can the sea between Matnog and Allen be considered a continuation of the
highway. While a ferryboat service has been considered as a continuation of the highway when crossing
rivers or even lakes, which are small body of waters separating the land, however, when as in this case the
two terminals, Matnog and Allen are separated by an open sea it can not be considered as a continuation
of the highway. Respondent PANTRANCO should secure a separate CPC for the operation of an interisland
or coastwise shipping service in accordance with the provisions of law. Its CPC as a bus transportation
65 | P a g e
cannot be merely amended to include this water service under the guise that it is a mere private ferry
service.
The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not
as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd.
PANTRANCO does not deny that it charges its passengers separately from the charges for the bus trips and
issues separate tickets whenever they board the M/V "Black Double" that crosses Matnog to Allen, 20
PANTRANCO cannot pretend that in issuing tickets to its passengers it did so as a private carrier and not as
a common carrier. The Court does not see any reason why inspite of its amended franchise to operate a
private ferryboat service it cannot accept walk-in passengers just for the purpose of crossing the sea
between Matnog and Allen. Indeed evidence to this effect has been submitted. 21 What is even more
difficult to comprehend is that while in one breath respondent PANTRANCO claims that it is a private carrier
insofar as the ferryboat service is concerned, in another breath it states that it does not thereby abdicate
from its obligation as a common carrier to observe extraordinary diligence and vigilance in the
transportation of its passengers and goods. Nevertheless, considering that the authority granted to
PANTRANCO is to operate a private ferry, it can still assert that it cannot be held to account as a common
carrier towards its passengers and cargo. Such an anomalous situation that will jeopardize the safety and
interests of its passengers and the cargo owners cannot be allowed. LLjur
What appears clear from the record is that at the beginning PANTRANCO planned to operate such ferryboat
service between Matnog and Allen as a common carrier so it requested authority from MARINA to purchase
the vessel M/V "Black Double" 22 in accordance with the procedure provided for by law for such application
for a certificate of public convenience. 23 However when its request was denied as the said routes "are
adequately serviced by existing/authorized operators," 24 it nevertheless purchased the vessel and
started operating the same. Obviously to go about this obstacle to its operation, it then contrived a novel
theory that what it proposes to operate is a private ferryboat service across a small body of water for the
exclusive use of its buses, trucks and passengers as an incident to its franchise to convey passengers and
cargo on land from Pasay City to Tacloban so that it believes it need not secure a separate certificate of
public convenience. 25 Based on this representation, no less than the Secretary of Justice was led to
render an affirmative opinion on October 20, 1981 26 followed a few days later by the questioned decision
of public respondent of October 23, 1981. 27 Certainly the Court cannot give its imprimatur to such a
situation.
Thus the Court holds that the water transport service between Matnog and Allen is not a ferryboat service
but a coastwise or interisland shipping service. Before private respondent may be issued a franchise or
CPC for the operation of the said service as a common carrier, it must comply with the usual requirements
of filing an application, payment of the fees, publication, adducing evidence at a hearing and affording the
oppositors the opportunity to be heard, among others, as provided by law. 28
WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of
Transportation (BOT) of October 23, 1981 in BOT Case No. 81-348-C and its Order of July 21, 1982 in the
same case denying the motions for reconsideration filed by petitioners are hereby Reversed and set aside
and declared null and void. Respondent PANTRANCO is hereby permanently enjoined from operating the
ferryboat service and/or coastwise/interisland services between Matnog and Allen until it shall have
secured the appropriate Certificate of Public Convenience (CPC) in accordance with the requirements of the
law, with costs against respondent PANTRANCO.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.
Footnotes
1.
Annex "C" to Petition of San Pablo, G.R. No. 61461.
2.
Annex "E" to Petition, Supra.
3.
98 Phils. 964 (1956).
66 | P a g e

4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
Annex "H" to Petition, Supra.

Annex "I" to Petition, Supra.
Annex "1" to Comment of PANTRANCO.
P. 142, Rollo, Annex "1" to Comment of PANTRANCO.
Decision in BOT Case No. 81-348-C, Annex "K" Petition, Supra.
Annex "O" Petition, San Pablo.
Petition, San Pablo, G.R. No. 61461.
Pp. 17-18, Rollo, Petition, San Pablo.
Pp. 20-21, Rollo, Petition, Cardinal Shipping Corp.
Decision, Pp. 85-86.
Supra, pp. 969-970.
102 Phil. 1013.
118 Phil. 56.
91 Phil. 440.
98 Phil. pp. 970-972.
P. 22, San Pablo, Petition.
Annex "N" to the Petition, San Pablo.
Annex "M" to Cardinal Shipping Petition.
Annex "G", San Pablo Petition.
Annex "F", Supra.
Annex "E", Supra.
Annex "H", Supra.
P. 142, Rollo, San Pablo Petition, Annex "1" to Pantranco Comment.
Annex "K", Supra.
Olongapo Jeepney Operators Association vs. PSC, 13 SCRA 303.
PAL v. CAB, GR No. 119528, March 26, 1997

SECOND DIVISION
[G.R. No. 119528. March 26, 1997.]
PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL
AIRWAYS, INC., respondents.
SYLLABUS
1.
67 | P a g e
2.
3.
DECISION
68 | P a g e
TORRES, JR., J p:
the Constitution.
"A.
B.
1.
respectively.
2.
C.
D.
E.
R.A. 776." 5
69 | P a g e
power and duty.
SO ORDERED."
"1.
2.
6
application.
'(c)
(1)
alia) that:
a)
b)
public utilities.
70 | P a g e
Executive Director
Ermita, Manila
Sir:
No. 45, s. 1981)
71 | P a g e
Legislature. 16
72 | P a g e
SEC. 10.
(C)
(1)
Congress.
73 | P a g e
"SEC. 4.
(a)
(b)
National Defense;
(c)
(d)
practices;
(e)
(f)
(g)
SEC. 12.
SEC. 21.
service. 25
of its jurisdiction. cdtai
74 | P a g e
SO ORDERED.
Footnotes
1.
G.R. No. 83551, July 11, 1989, 175 SCRA 264.
2.
3.
CA G.R. SP No. 36787, July 19, 1995.
4.
5.
6.
7.
8.
9.
10.
11.
(B)
(C)
(1)
12.
G.R. No. L-24219, 23 SCRA 992.
13.
14.
1940, 70 Phil 221.
15.
75 | P a g e
16.
N.W. 254, 37 C.J.S. 158.
17.
18.
19.
20.
21.
22.
23.
24.
25.
Teja v. IAC, 148 SCRA 347
SECOND DIVISION
[G.R. No. 65510. March 9, 1987.]
TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner, vs. HONORABLE INTERMEDIATE
APPELLATE COURT * AND PEDRO N. NALE, respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.
DECISION
PARAS, J p:
"'Ex pacto illicito' non oritur actio' (No action arises out of illicit bargain) is the time-honored maxim that
must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek
relief from the courts, and each must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129
SCRA 81.)
The factual background of this case is undisputed. The same is narrated by the respondent court in its now
assailed decision, as follows:
"On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a
sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total
purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would pay plaintiff
the balance within sixty days. The defendant, however, failed to comply with his promise and so upon his
own request, the period of paying the balance was extended to one year in monthly installments until
January 1976 when he stopped paying anymore. The plaintiff made demands but just the same the
defendant failed to comply with the same thus forcing the plaintiff to consult a lawyer and file this action
for his damage in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation. The
plaintiff also claims that as of February 20, 1978, the total account of the defendant was already P2,731,05
as shown in a statement of account (Exhibit "B"). This amount includes not only the balance of P1,700.00
but an additional 12% interest per annum on the said balance from January 26, 1976 to February 27, 1978;
a 2% service charge; and P546.21 representing attorney's fees.
"In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment
of the balance of the purchase price. It has been the practice of financing firms that whenever there is a
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balance of the purchase price the registration papers of the motor vehicle subject of the sale are not given
to the buyer. The records of the LTC show that the motorcycle sold to the defendant was first mortgaged to
the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the same,
because it was made to appear that way only as the defendant had no franchise of his own and he
attached the unit to the plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to
undertake the yearly registration of the motorcycle with the Land Transportation Commission. Pursuant to
this agreement the defendant on February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the
mortgage fee and the P82.00 for the registration fee of the motorcycle. The plaintiff, however failed to
register the motorcycle on that year on the ground that the defendant failed to comply with some
requirements such as the payment of the insurance premiums and the bringing of the motorcycle to the
LTC for stenciling, the plaintiff saying that the defendant was hiding the motorcycle from him. Lastly, the
plaintiff explained also that though the ownership of the motorcycle was already transferred to the
defendant the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of
Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was rediscounted with
the bank.
"On his part the defendant did not dispute the sale and the outstanding balance of P1,700.00 still payable
to the plaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with the side car
because of the condition that the plaintiff would be the one to register every year the motorcycle with the
Land Transportation Commission. In 1976, however, the plaintiff failed to register both the chattel
mortgage and the motorcycle with the LTC notwithstanding the fact that the defendant gave him P90.00
for mortgage fee and registration fee and had the motorcycle insured with La Perla Compaa de Seguros
(Exhibit "6") as shown also by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to
comply with his obligation to register the motorcycle the defendant suffered damages when he failed to
claim any insurance indemnity which would amount to no less than P15,000.00 for the more than two
times that the motorcycle figured in accidents aside from the loss of the daily income of P15.00 as
boundary fee beginning October 1976 when the motorcycle was impounded by the LTC for not being
registered.
"The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle
resulting in its not being registered. The truth being that the motorcycle was being used for transporting
passengers and it kept on travelling from one place to another. The motor vehicle sold to him was
mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and knowledge and the
defendant was not even given a copy of the mortgage deed. The defendant claims that it is not true that
the motorcycle was mortgaged because of re-discounting for re-discounting is only true with Rural Banks
and the Central Bank. The defendant puts the blame on the plaintiff for not registering the motorcycle with
the LTC and for not giving him the registration papers inspite of demands made. Finally, the evidence of
the defendant shows that because of the filing of this case he was forced to retain the services of a lawyer
for a fee on not less than P1,000.00.
xxx
xxx
xxx
". . . it also appears and the Court so finds that defendant purchased the motorcycle in question,
particularly for the purpose of engaging and using the same in the transportation business and for this
purpose said trimobile unit was attached to the plaintiff's transportation line who had the franchise, so
much so that in the registration certificate, the plaintiff appears to be the owner of the unit. Furthermore, it
appears to have been agreed, further between the plaintiff and the defendant, that plaintiff would
undertake the yearly registration of the unit in question with the LTC. Thus, for the registration of the unit
for the year 1976, per agreement, the defendant gave to the plaintiff the amount of P82.00 for its
registration, as well as the insurance coverage of the unit."
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages"
against private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment
in favor of petitioner, the dispositive portion of which reads: LLjur
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"WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to pay
plaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal rate of
interest from the date of the filing of the complaint until the same is fully paid; to pay plaintiff the sum of
P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the
costs.
"SO ORDERED."
On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private
respondent filed a petition for review with the Intermediate Appellate Court and on July 18, 1983. The said
Court promulgated its decision, the pertinent portion of which reads
"However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private
respondent Jaucian, pursuant to what is commonly known as the 'kabit system,' without the prior approval
of the Board of Transportation (formerly the Public Service Commission) was an illegal transaction involving
the fictitious registration of the motor vehicle in the name of the private respondent so that he may traffic
with the privileges of his franchise, or certificate of public convenience, to operate a tricycle service, the
parties being in pari delicto, neither of them may bring an action against the other to enforce their illegal
contract [Art. 1412 (a), Civil Code]."
xxx
xxx
xxx
"WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja Marketing
and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the
Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are
dismissed. No pronouncement as to costs.
"SO ORDERED."
The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian
presenting a lone assignment of error whether or not respondent court erred in applying the doctrine of
"pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit
system" whereby a person who has been granted a certificate of public convenience allows another person
who owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is a
special privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot be
countenanced. The "kabit system" has been identified as one of the root causes of the prevalence of graft
and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being
contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code. It is a
fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave
both where it finds them. Upon this premise it would be error to accord the parties relief from their
predicament. Article 1412 of the Civil Code denies them such aid. It provides:
"Art. 1412.
If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
"1.
When the fault is on the part of both contracting parties, neither may recover that he has given by
virtue of the contract, or demand, the performance of the other's undertaking."
The defect of inexistence of a contract is permanent and cannot be cured by ratification or by prescription.
The mere lapse of time cannot give efficacy to contracts that are null and void. llcd
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WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate
Appellate Court (now the Court of Appeals) is AFFIRMED. No costs.
SO ORDERED.
Fernan, Gutierrez, Jr., Padilla, Bidin and Cortez, JJ ., concur.
Alampay, J ., took no part.
Footnotes
*
Penned by Justice Carolina C. Grino-Aquino; concurred in by Justice Nestor B. Alampay and Reynato
S. Puno.
3. Private nature; rights and obligations of parties inter se arising from transactions
relating to transportation.
(a) Absent a transportation contract
Lara v. Valencia, 104 Phil 65
EN BANC
[G.R. No. L-9907. June 30, 1958.]
LOURDES J. LARA, ET AL., plaintiffs-appellants, vs. BRIGIDO R. VALENCIA, defendant-appellant.
Castillo, Cervantes, Occena, Lozano, Montana, Cunanan, Sison & Castillo and Eligio G. Lagman
for defendant and appellant.
Donato C. Endriga and Emigdio Dakanay for plaintiffs and appellants.
SYLLABUS
1.
DAMAGES; AUTOMOBILE; INVITED GUEST; OWNERS DUTY TO EXERCISE ORDINARY OR REASONABLE
CARE. The owner and driver of a vehicle owes to accommodation passengers or invited guests merely
the duty to exercise reasonable care so that they may be transported safely to their destination. Thus,
"The rule is established by weight of authority that the owner or operator of an automobile owes the duty
to an invited guest to exercise reasonable care in its operation, and not unreasonably to expose him to
danger and injury by increasing the hazard of travel. The owner of the vehicle in the case at bar is only
required to observe ordinary care, and is not in duty bound to exercise extraordinary diligence as required
by our law. (Articles 1755 and 1756, new Civil Code).
2.
ID.; LIABILITY OF CARRIER; PASSENGERS INJURY ON HIS OWN NEGLIGENCE. A passenger must
observe the diligence of a father of a family to avoid injury to himself (Article 1761, new Civil Code) which
means that if the injury to the passenger has been proximately caused by his own negligence, the carrier
cannot be held liable.
DECISION
BAUTISTA ANGELO, J p:
This is an action for damages brought by plaintiffs against defendant in the Court of First Instance of Davao
for the death of one Demetrio Lara, Sr. allegedly caused by the negligent act of defendant. Defendant
denied the charge of negligence and set up certain affirmative defenses and a counterclaim.
The court after hearing rendered judgment ordering defendant to pay the plaintiffs the following amount:
(a) P10,000 as moral damages; (b) P3,000 as exemplary damages; and (c) P1,000 as attorney's fees, in
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addition to the costs of action. Both parties appealed to this Court because the damages claimed in the
complaint exceed the sum of P50,000.
In their appeal, plaintiffs claim that the court a quo erred in disregarding their claim of P41,400 as actual or
compensatory damages and in awarding as attorneys' fees only the sum of P1,000 instead of P3,000 as
agreed upon between plaintiffs and their counsel. Defendant, on the other hand, disputes the finding of the
court a quo that the death of Demetrio Lara, Sr. was due to the negligence of defendant and the portion of
the judgment which orders defendant to pay to plaintiffs moral and exemplary damages as well as
attorneys' fees, said defendant contending that the court should have declared that the death of Lara was
due to unavoidable accident.
The deceased was an inspector of the Bureau of Forestry stationed in Davao with an annual salary of
P1,800. The defendant is engaged in the business of exporting logs from his lumber concession in
Cotabato. Lara went to said concession upon instructions of his chief to classify the logs of defendant
which were about to be loaded on a ship anchored in the port of Parang. The work of Lara lasted for six
days during which he contracted malaria fever. In the morning of January 9, 1954, Lara who then in a hurry
to return to Davao asked defendant if he could take him in his pick-up as there was then no other means of
transportation, to which defendant agreed, and in that same morning the pick-up left Parang bound for
Davao taking along six passengers, including Lara.
The pick-up has a front seat where the driver and two passengers can be accommodated and the back has
a steel flooring enclosed with a steel walling of 16 to 17 inches tall on the sides and with a 19 inches tall
walling at the back. Before leaving Parang, the sitting arrangement was as follows: defendant was at the
wheel and seated with him in the front seat were Mrs. Valencia and Nicanor Quinain; on the back of the
pick-up were two improvised benches placed on each side, and seated on the right bench were Ricardo
Alojipan and Antonio Lagahit, and on the left one Bernardo and Pastor Geronimo. A person by the name of
Leoning was seated on a box located on the left side while in the middle Lara sat on a bag. Before leaving
Parang, defendant invited Lara to sit with him on the front seat but Lara declined. It was their
understanding that upon reaching barrio Samoay, Cotabato, the passengers were to alight and take a bus
bound for Davao, but when they arrived at that place, only Bernardo alighted and the other passengers
requested defendant to allow them to ride with him up to Davao because there was then no available bus
that they could take in going to that place. Defendant again accommodated the passengers.
When they continued their trip, the sitting arrangement of the passengers remained the same, Lara being
seated on a bag in the middle with his arms on a suitcase and his head covered by a jacket. Upon reaching
Km. 96, barrio Catidtuan, Lara accidentally fell from the pick-up and as a result he suffered serious injuries.
Valencia stopped the pick-up to see what happened to Lara. He sought the help of the residents of that
place and applied water to Lara but to no avail. They brought Lara to the nearest place where they could
find a doctor and not having found any they took him to St. Joseph's Clinic of Kidapawan. But when Lara
arrived he was already dead. From there they proceeded to Davao City and immediately notified the local
authorities. An investigation was made regarding the circumstances surrounding the death of Lara but no
criminal action was taken against defendant.
It should be noted that the deceased went to the lumber concession of defendant in Parang, Cotabato
upon instructions of his chief in order to classify the logs of defendant which were then ready to be
exported and to be loaded on a ship anchored in the port of Parang. It took Lara six days to do his work
during which he contracted malaria fever and for that reason he evinced a desire to return immediately to
Davao. At that time, there was no available bus that could take him back to Davao and so he requested the
defendant if he could take him in his own pick-up. Defendant agreed and, together with Lara, other
passengers tagged along, most of them were employees of the Government. Defendant merely
accommodated them and did not charge them any fee for the service. It was also their understanding that
upon reaching barrio Samoay, the passengers would alight and transfer to a bus that regularly makes the
trip to Davao but unfortunately there was none available at the time and so the same passengers,
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including Lara, again requested the defendant to drive them to Davao. Defendant again accommodated
them and upon reaching Km. 96, Lara accidentally fell suffering fatal injuries.
It therefore appears that the deceased, as well as his companions who rode in the pick-up of defendant,
were merely accommodation passengers who paid nothing for the service and so they can be considered
as invited guests within the meaning of the law. As accommodation passengers or invited guests,
defendant as owner and driver of the pick-up owes to them merely the duty to exercise reasonable care so
that they may be transported safely to their destination. Thus, "The rule is established by the weight of
authority that the owner or operator of an automobile owes the duty to an invited guest to exercise
reasonable care in its operation, and not unreasonably to expose him to danger and injury by increasing
the hazard of travel. This rule, as frequently stated by the courts, is that an owner of an automobile owes a
guest the duty to exercise ordinary or reasonable care to avoid injuring him. Since one riding in an
automobile is no less a guest because he asked for the privilege of doing so, the same obligation of care is
imposed upon the driver as in the case of one expressly invited to ride" (5 Am. Jur., 626-627). Defendant,
therefore, is only required to observe ordinary care, and is not in duty bound to exercise extraordinary
diligence as required of a common carrier by our law (Articles 1755 and 1756, new Civil Code).
The question that now arises is: Is there enough evidence to show that defendant failed to observe
ordinary care or diligence in transporting the deceased from Parang to Davao on the date in question?
The trial court answered the question in the affirmative but in so doing it took into account only the
following facts:
"No debe perderse de vista el hecho, que los negocios de exportacion de trozos del demandado tiene un
volumen de P1,200. Lara era empleado de la Oficina de Montes, asalariado por el gobierno, no pagado por
el demandado para classificar los trozos exportados; debido a los trabajos de classificacion que duro 6
das, en su ultimo dia Lara no durmio toda la noche, al da siguiente, Lara fue atacado de malaria, tenia
inflamada y cuerpo, sufria dolores de cabeza con erupciones en la cara y cuerpo; que en la maana del da
8 de enero de 1954, fecha en que Lara salio de Davao para Parang, en aeroplano para clasificar los trozos
del demandado, el automobil de este condujo a aquel al aerodromo de Davao.
xxx
xxx
xxx
"El viaje de Cotabato a Davao no es menos de 8 horas, su carretera esta en malas condiciones,
desnivelada, con piedras salientes y baches, que hacen del vehiculo no estable en su marcha. Lara estaba
enfelmo de cierta gravedad, tenia el cuerpo y cara inflamados, atacado de malaria, con dolores de cabesa
y con erupciones on la cara y cuerpo.
"A la vista de estos hechos, el demandado debia de saber que era sumamente peligroso llevar 5 pasajeros
en la parte trasera del pickup; particularmente, para la salud de Lara; el permitirlo, el demandado no ha
tomado las debidas precausiones, para evitar un posible accidente fatal. La negativa de Lara de ocupar el
asiento delantero del pickup no constituye a juicio del Juzgado una defensa, pues el demandado
conociendo el estado delicado de salud de Lara, no debio de haber permitido que aquel regrese a Davao
en su pickup; si querria prestar a aquel un favor, debio de haber provisto a Lara de un automobil para su
regrese a Davao, ya que el demandado es un millionario; si no podia prestar a aquel este favor, debio de
haber dejado a Lara en Samuay para coger aquel un camion de pasajero de Cotabato a Davao."
Even if we admit as true the facts found by the trial court, still we find that the same are not sufficient to
show that defendant has failed to take the precaution necessary to conduct his passengers safely to their
place of destination for there is nothing there to indicate that defendant has acted with negligence or
without taking the precaution that an ordinary prudent man would have taken under similar circumstances.
It should be noted that Lara went to the lumber concession of defendant in answer to a call of duty which
he was bound to perform because of the requirement of his office and he contracted the malaria fever in
the course of the performance of that duty. It should also be noted that defendant was not in duty bound to
take the deceased in his own pick-up to Davao because from Parang to Cotabato there was a line of
transportation that regularly makes trips for the public, and if defendant agreed to take the deceased in his
own car, it was only to accommodate him considering his feverish condition and his request that he be so
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accommodated. It should also be noted that the passengers who rode in the pick-up of defendant took
their respective seats therein at their own choice and not upon indication of defendant with the
particularity that defendant invited the deceased to sit with him in the front seat but which invitation the
deceased declined. The reason for this can only be attributed to his desire to be at the back so that he
could sit on a bag and travel in a reclining position because such was more convenient for him due to his
feverish condition. All the circumstances thereof clearly indicate that defendant had done what a
reasonable prudent man would have done under the circumstances.
There is every reason to believe that the unfortunate happening was only due to an unforeseen accident
caused by the fact at the time the deceased was half asleep and must have fallen from the pick-up when it
ran into some stones causing it to jerk considering that the road was then bumpy, rough and full of stones.
The finding of the trial court that the pick-up was running at more than 40 kilometers per hour is not
supported by evidence. This is a mere surmise made by the trial court considering the time the pick- up
left barrio Samoay and the time the accident occurred in relation to the distance covered by the pick-up.
And even if this is correct, still we say that such speed is not unreasonable considering that they were
travelling on a national road and the traffic then was not heavy. We may rather attribute the incident to
lack of care on the part of the deceased considering that the pick-up was open and he was then in
crouching position. Indeed the law provides that "A passenger must observe the diligence of a good father
of a family to avoid injury to himself" (Article 1761, new Civil Code), which means that if the injury to the
passenger has been proximately caused by his own negligence, the carrier cannot be held liable.
All things considered, we are persuaded to conclude that the accident occurred not due to the negligence
of defendant but to circumstances beyond his control and so he should be exempt from liability.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.
Paras, C.J., Bengzon, Reyes, A., Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.
(b) Arising from a transportation contract
(i) contract of transportation, defined
(ii) contract of transportation, elements
C. Regulation of the Transportation
1. The Department of Transportation and Communications EO 125, Sec. 4, EO 125-A, Sec. 5
EORGANIZING THE MINISTRY OF TRANSPORTATION AND COMMUNICATIONS
DEFINING ITS POWERS AND FUNCTIONS AND FOR OTHER PURPOSE
RECALLING that the reorganization of the government is mandated expressly in Article II, Section 1(a), and
Article III of the Freedom Constitution:
HAVING IN MIND that pursuant to Executive Order No. 5 (1996), it is directed that necessary and proper
changes in the organizational and functional structures of the government, its agencies and
instrumentalities, be effected in order to promote efficiency and effectiveness in the delivery of public
service:
CONSIDERING that viable and dependable transportation and communication networks are necessary tools
for economic recovery:
CONSIDERING further that rapid technological advances in communication facilities require a distinct
response to the peculiar problem of this field:
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REALIZING that the growing complexity of the transportation sector has necessitated its division into
various sub-sectors to facilitate the regulation and promotion of the sector as a whole: and
REALIZING further that the state needs to regulate this network and promote their continuous upgrading in
order to preserve their viability and enhance their dependability:
NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Philippines , by virtue of powers vested in me
by the sovereign will of the Filipino people and the Freedom Constitution, do hereby order:
SECTION 4. Mandate. The Ministry shall be the primary policy, planning, programming, coordinating,
implementing, regulating, and administrative entity of the Executive Branch of the government in the
promotion, development and regulation of dependable and coordinated networks of transportation and
communication system, as well as in the fast, sale, efficient and reliable postal, transportation and
communication services.
To accomplish such mandate, the Ministry shall have the following objectives:
1. Promote the development of dependable and coordinated networks of transportation and
communication systems;
2. Guide government and private investment in the development of the country's inter- model
transportation and communication systems in a most practical, expeditious, and orderly fashion for
maximum safety, service, and cost effectiveness;
3. Impose appropriate measure so that technical, economic and other condition for the continuing
economic viability of the transportation and communication entities are not jeopardized and do not
encourage inefficiency and distortion of traffic patronage;
4. Develop an integrated plan for a nationwide transmission system in accordance with the national and
international telecommunication service requirement including, among others,radio and television
broadcast relaying, leased channel services and data transmission;
5. Guide government and private investment in the establishment, operation and maintenance of an
international switching system for incoming and outgoing telecommunication services;
6. Encourage the development of a domestic telecommunication industry in coordination with the concern
entities particularly, the manufacture of communications/ electronics equipment and components to
complement and support as much as possible, the expansion, development, operation and maintenance of
the nationwide telecommunications network;
7. Provide for a safe, reliable and efficient postal system for the country.
EO 125-A Sec. 5
Executive Order 125-A Sec. 5
"Sec. 5. Powers and Functions. To accomplish its mandate, the Department shall have the following powers
and functions:
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a. Formulate and recommend national policies and guidelines for the preparation and implementation of
integrated and comprehensive transportation and communications systems at the national, regional and
local levels;
b. Establish and administer comprehensive and integrated programs for transportation and
communications, and for this purpose, may call on any agency, corporation, or organization, whether
public or private, whose development programs include transportation and communications as an integral
part thereof, to participate and assist in the preparation and implementation of such program;
c. Assess, review and provide direction to transportation and communication research and development
programs of the government in coordination with other institutions concerned;
d. Administer and enforce all laws, rules and regulations in the field of transportation and communications;
e. Coordinate with the Department of Public Works and Highways in the design, location, development,
rehabilitation, improvement, construction, maintenance and repair of all infrastructure projects and
facilities of the Department. However, government corporate entities attached to the Department shall be
authorized to undertake specialized telecommunications, ports, airports and railways projects and facilities
as directed by the President of the Philippines or as provided by law;
f. Establish, operate and maintain a nationwide postal system that shall include mail processing, delivery
services, and money order services and promote the art of philately;
g. Issue certificates of public convenience for the operation of public land and rail transportation utilities
and services;
h. Accredit foreign aircraft manufacturers and/or international organizations for aircraft certification in
accordance with established procedures and standards;
i. Establish and prescribe rules and regulations for identification of routes, zones and/or areas of operations
of particular operators of public land services;
j. Establish and prescribe rules and regulations for the establishment, operation and maintenance of such
telecommunications facilities in areas not adequately served by the private sector in order to render such
domestic and overseas services that are necessary with due consideration for advances in technology;
k. Establish and prescribe rules and regulations for the operation and maintenance of a nationwide postal
system that shall include mail processing, delivery services, money order services and promotion of
philately;
l. Establish and prescribe rules and regulations for issuance of certificates of public convenience for public
land transportation utilities, such as motor vehicles, trimobiles and railways;
m. Establish and prescribe rules and regulations for the inspection and registration of air and land
transportation facilities, such as motor vehicles, trimobiles, railways and aircrafts;
n. Establish and prescribe rules and regulations for the issuance of licenses to qualified motor vehicle
drivers, conductors, and airmen;
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o. Establish and prescribe the corresponding rules and regulations for the enforcement of laws governing
land transportation, air transportation and postal services, including the penalties for violations thereof,
and for the deputation of appropriate law enforcement agencies in pursuance thereof;
p. Determine, fix and/or prescribe charges and/or rates pertinent to the operation of public air and land
transportation utility facilities and services, except such rates and/or charges as may be prescribed by the
Civil Aeronautics Board under its charter, and, in cases where charges or rates are established by
international bodies or associations of which the Philippines is a participating member or by bodies or
associations recognized by the Philippine government as the proper arbiter of such charges or rates;
q. Establish and prescribe the rules, regulations, procedures and standards for the accreditation of driving
schools;
r. Administer and operate the Civil Aviation Training Center (CATC) and the National Telecommunications
Training Institute (NTTI); and
s. Perform such other powers and functions as may be prescribed by law, or as may be necessary,
incidental, or proper to its mandate or as may be assigned from time to time by the President of the
Republic of the Philippines ."
(a) Air
(i) Air Transportation Office
EO 125, as amended by EO 125-A Sec. 5, RA 776, as amended
(ii) Civil Aeronautics Board, RA 776, as amended, Sec. 5, 10 (A), (C); Secs. 11, 12
REPUBLIC ACT NO. 776

AN ACT TO REORGANIZE THE CIVIL AERONAUTICS BOARD AND THE CIVIL AERONAUTICS ADMINISTRATION,
TO PROVIDE FOR THE REGULATION OF CIVIL AERONAUTICS IN THE PHILIPPINES AND AUTHORIZING THE
APPROPRIATION OF FUNDS THEREFOR
SECTION 5. Composition of the Board. The Civil Aeronautics Board shall be composed of the Secretary
of Transportation and Communications or his designated representative as Chairman, the Assistant
Secretary for Air Transportation of the Department of Transportation and Communications as ViceChairman, the Commanding General of the Philippine Air Force and two (2) members to be appointed by
the President of the Philippines. They shall hold office at the pleasure of the President.
No member of the Board shall have any pecuniary interest in, or own any stock or bond of, any civil
aeronautics enterprise.
SECTION 10. Powers and duties of the Board.
(A)
Except as otherwise provided herein, the Board shall have the power to regulate the economic
aspect of air transportation, and shall have the general supervision and regulation of, the jurisdiction and
control over air carriers, general sales agents, cargo sales agents, and air freight forwarders as well as
their property, property rights, equipment, facilities and franchise, insofar as may be necessary for the
purpose of carrying out the provision of this Act.
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(C)
(1)
modify, cancel, suspend or revoke, in whole or in part, upon petition or complaint, or upon its own
initiative, any temporary operating permit or Certificate of Public Convenience and Necessity: Provided,
President of the Republic of the Philippines.
(2)
To fix and determine reasonable individual, joint or special rates, charges or fares which an air
carrier may demand, collect or receive for any service in connection with air commerce. The Board may
adopt any original, amended, or new individual, joint or special rates, charges or fares proposed by an air
carrier if the proposed individual, joint, or special rates, charges or fares are not unduly preferential or
unduly discriminatory or unreasonable. The burden of proof to show that the proposed individual, joint or
special rates, charges or fares are just and reasonable shall be upon the air carrier proposing the same.
In fixing rates, charges, or fares under the provisions of this Act, the Board shall take into
consideration, among other factors:
(a)
The effect of such rates upon the movement of traffic;
(b)
The need in the public interest of adequate and efficient transportation of persons and property by
air carriers at the lowest cost consistent with the furnishing of such service;
(c)
Such standards respecting the character and quality of service to be rendered by air carriers as
may be prescribed by or pursuant to law;
(d)
The inherent advantages or transportation by aircraft; and
(e)
The need of each air carrier for revenue sufficient to enable such air carrier, under honest,
economical, and efficient management, to provide adequate and efficient air carrier service.
(C)(3) To authorize any type of charters whether domestic or international and special air services or flight
under such terms and conditions as in its judgment public interest requires. Notwithstanding the existence
of bilateral air agreement, the CAB is authorized to grant any foreign airline increase in frequencies and/or
capacities on international routes when in its judgment the national interest requires it, provided that the
utilization of the increase frequencies and capacities is not more than thirty days. All grants of frequencies
and/or capacities shall be subject to the approval of the President.
(C)(4) To approve or disapprove increase and/or decrease of capital, lease, purchase, sales or aircraft of air
carrier engaged in air commerce, consolidation, merger, purchase, lease and acquisition and control of
operating contracts between domestic air carriers, between domestic and foreign air carrier, or between
domestic air carriers or any persons engaged in any phase of aeronautics
(5)
To inquire into the management of the business of any air carrier and, to the extent reasonably
necessary for such inquiry, to obtain from such carrier, and from any person controlling, or controlled by,
or under common control with, such air carrier, full and complete reports and other information. Such
reports shall be under oath whenever the Board so requires.
(6)
To require annual, monthly, periodical, and special reports from any air carrier; to prescribe the
manner and form in which such reports shall be made; and to require from any air carrier specific answers
to all questions upon which the Board may deem information to be necessary. Such reports shall be under
oath whenever the Board so requires. The Board may also require any air carrier to file with it any contract,
agreement, understanding or arrangement, or a true copy thereof between such air carrier and any other
carrier or person, in relation to any traffic affected by the provisions of this Act.
(7)
To prescribe the forms of any and all accounts, records, and memoranda of the movement of traffic,
as well as of the receipt and expenditures of money, and the length of time such accounts, records and
memoranda shall be preserved: Provided, That any air carrier may keep additional accounts, records and
memoranda if they do not impair the integrity of the accounts, records, or memoranda prescribed or
approved by the Board and do not constitute an undue financial burden on such air carrier.
86 | P a g e
(8)
To require each officer and director of any air carrier to transmit a report describing the shares of
stock or other interest held by such air carrier with any persons engaged in any phase of aeronautics, and
the holding of the stock in, and control of, other persons engaged in any phase of aeronautics.
SECTION 11. Nature, Terms and Conditions. Certificate of Public Convenience and Necessity is a permit
issued by the Board authorizing a person to engage in air commerce and/or air transportation, foreign
and/or domestic. No person shall engage in air commerce unless there is in force a permit issued by the
Board.
No general sales agent, cargo sales agent or aircraft forwarder shall engage in any of the activities
mentioned in Section 3 paragraphs (jj), (kk), and (ll) respectively, unless there is in force a permit or any
other form of authorization issued by the Board.
Any permit may be altered, amended, modified, suspended, cancelled or revoked by the Board in whole or
in part, upon complaint or petition or upon the Board's initiative as hereinafter provided, whenever the
Board finds such action to be in the public interest.
There shall be attached to the exercise of the privileges granted by the permit, or amendment thereto,
such reasonable terms, conditions or limitations as, in the judgment of the Board, the public interest may
require.
No permit shall confer any proprietary, property, or exclusive right in the use of any air space, civil airway,
landing area or government air-navigation facility.
The permit shall, among others, specify the terminal and intermediate points, if any, between which the air
carrier is authorized to operate; the service to be rendered; the time of arrival and departure at each point,
and the frequency of flights: Provided, That no change in routes, rates, schedules, or frequency nor
supplemental or additional flights to those covered by an Air Commerce Permit or franchise shall be
effected without prior approval of the Civil Aeronautics Board. Insofar as the operation is to take place
without the Philippines, the permit shall designate the terminal and intermediate points only insofar as the
Board shall deem practicable, and otherwise shall designate only the general route or routes to be
followed.
No carrier shall abandon any route, or part thereof for which a permit has been issued, unless upon
findings by the Civil Aeronautics Board that such an abandonment is uneconomical and is in the public
interest.
SECTION 12. Citizenship Requirement. Except as otherwise provided in the Constitution and existing
treaty or treaties, a permit authorizing a person to engage in domestic air commerce and/or air
transportation shall be issued only to citizens of the Philippines: Provided, That, under such rules and
regulations to be promulgated by the Civil Aeronautics Administration, foreigners residing in the Philippines
who are members of aero clubs organized purely for recreation, sport, or the development of flying skills,
may be issued permits as a prerequisite to any aeronautical activities within Philippine air space.
PAL v. CAB, 23 SCRA 992

EN BANC
[G.R. No. L-24219. June 13, 1968.]
PHILIPPINE AIR LINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD, and FILIPINAS ORIENT AIRWAYS,
INC., respondents.
Crispin D. Baizas, Edgardo Diaz de Rivera and Cenon S. Cervantes, Jr. for petitioner.
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Solicitor General for respondent Civil Aeronautics Board.

Honorio Poblador and Ramon A. Pedrosa for respondent Filipinas Orient Airways, Inc.
SYLLABUS
1.
PUBLIC UTILITIES; TRANSPORTATION; CIVIL AERONAUTICS BOARD (CAB); POWER TO ISSUE
TEMPORARY OPERATING PERMIT. Section 10-C (1) of Republic Act No. 776 explicitly authorizes the CAB
to issue a temporary operating permit and nothing in the law negates the power to issue said permit
before the completion of the applicant's evidence and that of the oppositor on the main petition. The CAB's
authority to grant a temporary permit upon its own initiative strongly suggests the power to exercise said
authority even before the presentation of evidence has begun.
2.
ID.; ID.; ID.; POLICY OF PUBLIC SERVICE LAW OBSERVED. There is no cogent reason to depart, in
connection with the commercial air transport service, from the policy of public service law which sanctions
the issuance of temporary or provisional permits or certificates of public convenience and necessity before
the submission of the case for decision on the merits. The overriding considerations in both cases are the
same, namely, that the service be required by public convenience and necessity, and that the applicant is
fit, willing and able to render such service properly, conformably with law, rules and regulations.
3.
ID.; ID.; ID.; FINDINGS OF FACT ENTITLED TO RESPECT; EXCEPTION. The legal presumption that
official duty has been duly performed is particularly strong as regards administrative agencies like the CAB
with powers said to be quasi-judicial in nature and related to the enforcement of laws affecting fields of
activity the proper regulation of which requires technical or special training. Courts of justice should
respect the findings of fact of said administrative agencies unless there is absolutely no evidence in
support thereof or such evidence is clearly, manifestly and patently insubstantial. This is but a recognition
of the necessity of permitting the executive department to adjust law enforcement to changing conditions,
without being unduly hampered by the rigidity and delays often attending ordinary court proceedings or
the enactment of new or amendatory legislations.
4.
ID.; ID.; ID.; EX PARTE INTERLOCUTORY ORDER CONSISTENT WITH DUE PROCESS; CASE
DISTINGUISHED FROM ANG TIBAY VS. C.I.R. (60 PHIL., 635). The case of Ang Tibay vs. C.I.R. cited by
petitioner is not in point as it refers to the conditions essential to a valid decision on the merits from the
viewpoint of due process; while the instant case is concerned with an interlocutory order prior to the
rendition of said decision. In fact interlocutory orders may sometimes be issued ex parte, particularly in
administrative proceedings, without previous notice and hearing consistently with due process.
5.
REMEDIAL LAW; JUDGMENTS; CONSTITUTIONAL PROVISION REQUIRING COURTS OF RECORD TO
STATE CLEARLY THE FACTS AND LAW ON WHICH THE DECISION IS BASED, NOT APPLICABLE TO
INTERLOCUTORY ORDERS. The constitutional provision that no decision shall be rendered by any court
of record without expressing therein clearly and distinctly the facts and the law on which it is based applies
not to interlocutory orders but to the determination of the case on the merits.
DECISION
CONCEPCION, J p:
Original petition for certiorari, to set aside and annul a resolution of the Civil Aeronautics Board
hereinafter referred to as CAB granting respondent Filipinas Orient Airways, Inc. hereinafter referred
to as Fairways "provisional authority to operate scheduled and non-scheduled domestic air services with
the use of DC-3 aircrafts", subject to specified conditions.
Pursuant to Republic Act No. 4147, granting thereto "a franchise to establish, operate and maintain
transport services for the carriage of passengers, mail, industrial flights and cargo by air in and between
any and all points and places throughout the Philippines and other countries", on September 16, 1964,
88 | P a g e
Fairways filed with CAB the corresponding application for a "certificate of public convenience and
necessity", which was docketed as economic proceedings (EP) No. 625, and was objected to by herein
petitioner, Philippine Air Lines, Inc., hereinafter referred to as PAL. Subsequently, a CAB hearing officer
began to receive evidence on said application. After several hearings before said officer, or on December
14, 1964, Fairways filed an "urgent petition for provisional authority to operate" under a detailed "program
of implementation" attached to said petition, and for the approval of its bond therefor, as well as the
provisional approval of its "tariff regulations and the conditions of carriage to be printed at the back of the
passenger tickets." Despite PAL's opposition thereto, in a resolution issued on January 5, 1965, CAB
granted said urgent petition of Fairways. The pertinent part of said resolution provides:
"Filipinas Orient Airways, Inc., (FAIRWAYS) having presented to the Board evidence showing prima facie its
fitness, willingness and ability to operate the services applied for and the public need for more air
transportation service, and to encourage and develop commercial air transportation, RESOLVED, to grant,
as the Board hereby grants, the said Filipinas Orient Airways, Inc., provisional authority to operate
scheduled and non-scheduled domestic air services with the use of DC-3 aircraft, subject to the following
conditions:
1.
The term of the provisional authority herein granted shall be until such time as the main application
for a certificate of public convenience and necessity is finally decided or for such period as the Board may
at any time determine;
xxx
xxx
xxx"
A reconsideration of this resolution having been denied, PAL filed the present civil action alleging that, in
issuing said resolution, CAB had acted illegally and in excess of its jurisdiction or with grave abuse of
discretion, because:
(1)
CAB is not empowered to grant any provisional authority to operate, prior to the submission for
decision of the main application for a certificate of public convenience and necessity;
(2)
CAB had no evidence before it that could have justified the granting of the provisional authority
complained of;
(3)
PAL was denied due process when CAB granted said authority before the presentation of its
evidence on Fairways' main application; and
(4)
In granting said provisional authority, the CAB had prejudged the merits of said application.
The first ground is devoid of merit. Section 10-C(1) of Republic Act No. 776, reading:
"(C)
(1)
modify, cancel, suspend or revoke, in whole or in part, upon petitioner complaint, or upon its own initiative,
any temporary operating permit or Certificate of Public Convenience and Necessity; Provided, however,
Republic of the Philippines . . ."
explicitly authorizes CAB to issue a "temporary operating permit," and nothing contained, either in said
section, or in Chapter IV of Republic Act No. 776, negates the power to issue said "permit", before the
completion of the applicant's evidence and that of the oppositor thereto on the main petition. Indeed, the
CAB's authority to grant a temporary permit "upon its own initiative," strongly suggests the power to
exercise said authority, even before the presentation of said evidence has begun.
Moreover, we perceive no cogent reason to depart, in connection with the commercial air transport
service, from the policy of our public service law, which sanctions the issuance of temporary or provisional
permits or certificates of public convenience and necessity, before the submission of a case for decision on
the merits. 1 The overriding considerations in both instances are the same, namely, that the service be
required by public convenience and necessity, and, that the applicant is fit, as well as willing and able to
89 | P a g e
render such service properly, in conformity with law and the pertinent rules, regulations and requirements.
2
As regards PAL's second contention, we have no more than PAL's assertion and conclusion regarding the
absence of substantial evidence in support of the finding, in the order complained of, to the effect that
Fairways' evidence had established " prima facie" its fitness, willingness and ability to operate the services
applied for and the public need for more transportation service . . ." Apart from PAL's assertion being
contradicted by the tenor of said order, there is the legal presumption that official duty has been duly
performed.
Such presumption is particularly strong as regards administrative agencies, like the CAB, vested with
powers said to be quasi-judicial in nature, in connection with the enforcement of laws affecting particular
fields of activity, the proper regulation and/or promotion of which requires a technical or special training,
aside from a good knowledge and grasp of the overall conditions, relevant to said field, obtaining in the
nation. 3 The consequent policy and practice underlying our Administrative Law is that courts of justice
should respect the findings of fact of said administrative agencies, unless there is absolutely no evidence
in support thereof or such evidence is clearly, manifestly and patently insubstantial. 4 This, in turn, is but a
recognition of the necessity of permitting the executive department to adjust law enforcement to changing
conditions, without being unduly hampered by the rigidity and the delays often attending ordinary court
proceedings or the enactment of new or amendatory legislations. In the case at bar, petitioner has not
satisfactorily shown that the aforementioned findings of the CAB are lacking in the necessary evidentiary
support.
Needless to say, the case of Ang Tibay vs. C.I.R. 5 on which petitioner relies, is not in point. Said case
refers to the conditions essential to a valid decision on the merits, from the viewpoint of due process,
whereas, in the case at bar, we are concerned with an interlocutory order prior to the rendition of said
decision. In fact, interlocutory orders may sometimes be issued ex parte, particularly, in administrative
proceedings, without previous notice and hearing, consistently with due process. 6 Again, the
constitutional provision to the effect that "no decision shall be rendered by any court of record without
expressing therein clearly and distinctly the facts and the law on which it is based", 7 applies, not to such
interlocutory orders, but to the determination of the case on the merits. 8
Lastly, the provisional nature of the permit granted to Fairways refutes the assertion that it prejudges the
merits of Fairways' application and PAL's opposition thereto. As stated in the questioned order, CAB's
findings therein made reflect its view merely on the prima facie effect of the evidence so far introduced
and do not connote a pronouncement or an advanced expression of opinion on the merits of the case.
WHEREFORE, the petition herein should be, as it is hereby dismissed, and the writ prayed for denied, with
costs against petitioner, Philippine Air Lines, Inc. It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.
Fernando, J., took no part.
Footnotes
1.
Javellana vs. La Paz Ice Plant & Cold Storage Co., 66 Phil. 893; Ablaza vs. Transportation Co., 88 Phil.
412.
2.
Section 21, Republic Act No. 776; Act No. 3108, Section (1); Batangas Transportation vs. Orlanes, 55
Phil. 659; Manila Electric vs. Pasay Transportation, 57 Phil. 825.
3.
Pangasinan Transportation vs. Public Utility Commission, 70 Phil. 221.
90 | P a g e

4.
5.
6.
7.
8.
Heacock vs. National Labor Union, 95 Phil. 553.

60 Phil. 635.
Cornejo vs. Gabriel, 41 Phil. 188.
Article VIII, Section 12, Constitution of the Philippines.
Soncuya vs. National Loan & Investment Board, 69 Phil. 602.
PAL v. CAB, GR No. 119528
SECOND DIVISION
[G.R. No. 119528. March 26, 1997.]
PHILIPPINE AIRLINES, INC., petitioner, vs. CIVIL AERONAUTICS BOARD and GRAND
INTERNATIONAL AIRWAYS, INC., respondents.
SYLLABUS
1.
2.
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3.
DECISION
TORRES, JR., J p:
92 | P a g e
the Constitution.
"A.
B.
1.
respectively.
2.
C.
D.
E.
R.A. 776." 5
power and duty.
SO ORDERED."
93 | P a g e
"1.
2.
6
application.
'(c)
(1)
alia) that:
a)
b)
public utilities.
94 | P a g e
Executive Director
Ermita, Manila
Sir:
No. 45, s. 1981)
95 | P a g e

Legislature. 16
96 | P a g e
SEC. 10.
(C)
(1)
Congress.
97 | P a g e
"SEC. 4.
(a)
(b)
National Defense;
(c)
(d)
practices;
(e)
(f)
(g)
SEC. 12.
SEC. 21.
98 | P a g e
service. 25
of its jurisdiction.
SO ORDERED.
Footnotes
1.
G.R. No. 83551, July 11, 1989, 175 SCRA 264.
2.
3.
CA G.R. SP No. 36787, July 19, 1995.
4.
5.
6.
7.
8.
9.
10.
11.
(B)
(C)
99 | P a g e
(1)
12.
G.R. No. L-24219, 23 SCRA 992.
13.
14.
1940, 70 Phil 221.
15.
16.
N.W. 254, 37 C.J.S. 158.
17.
18.
19.
20.
21.
22.
23.
24.
25.
(b) Land
(i) Land Transportation Office EO 125-A, Secs. 9, 11, 13(a); Administrative
Code of 1987; Title XV, Sec. 9(1)
Executive Order No. 125-A

AMENDING EXECUTIVE ORDER NO. 125, ENTITLED "REORGANIZING THE MINISTRY OF
TRANSPORTATION AND COMMUNICATIONS. DEFINING ITS POWERS AND FUNCTIONS, AND FOR
OTHER PURPOSES."
"Sec. 9. Assistant Secretaries and Service Chiefs. The Secretary shall also be assisted by eight (8)
Assistant Secretaries appointed by the President upon the recommendation of the Secretary, each of
whom shall respectively be responsible for the following four (4) staff offices composed of eight (8)
services and four (4) line offices, and shall report to the respective Undersecretaries assigned by the
Secretary, which Undersecretary shall have control and supervision over said respective services and
offices:
a. Office of the Assistant Secretary for Administrative and Legal Affairs;
1. Administrative Service, and
100 | P a g e
a. Legal Service
b. Office of the Assistant Secretary for Finance and Comptrollership;
1. Finance and Management Service, and
2. Comptrollership Service
c. Office of the Assistant Secretary for Planning and Project Development;
1. Planning Service, and
2. Project Development Service

d. Office of the Assistant Secretary for Management Information Service and Project
Management;
1. Management Information Service, and
2. Project Management Service

e. Office of the Assistant Secretary for Land Transportation;
f. Office of the Assistant Secretary for Postal Services;
g. Office of the Assistant Secretary for Telecommunications;
h. Office of the Assistant Secretary for Air Transportation.
Each of the above-named services shall be headed by a service chief appointed by the President upon
the recommendation of the Secretary."
"Sec. 11. Department Regional Offices. The Department shall have three (3) Department Regional Offices
in each of the administrative regions of the country: the Department Regional Office for land
Transportation, the Department Regional Office for Telecommunications and the Department Regional
Office for Postal Services. The present Regional Offices of the Land Transportation Commission are hereby
abolished and their functions are transferred to the respective Department Regional Offices for Land
Transportation. The present Regional Offices of the Bureau of Telecommunications are hereby abolished
and their functions are transferred to the respective Department Regional Offices for Telecommunications.
The present Regional Offices of the Bureau of Posts are hereby abolished and their functions are
transferred to the corresponding Department Regional Offices for Postal Services. Each Department
Regional Office shall be headed by a Department Regional Director and assisted by a Department Assistant
101 | P a g e
Regional Director. The present Airport Offices of the Bureau of Air Transportation are hereby abolished and
their functions are transferred to the Department Airport Offices. The abolition of the herein Regional
Offices and the transfer of their functions shall be governed by the provisions of Section 15 (b) hereof.
The Department Regional Offices shall essentially be line in character and shall be responsible for the
delivery of all front line services of the Department.
For such purposes, the Department Regional Offices shall have within their respective administrative
regions, the following functions:
a. Implement laws, and policies, plans, programs, projects, rules and regulations of the Department;
b. Provide efficient, and effective service to the people;
c. Coordinate with regional offices of other departments, offices and agencies;
d. Coordinate with local government units;
f.
Perform such other functions as may be provided by law."
"Sec. 13. Abolition/Transfer/Consolidation:

a. The Land Transportation Commission is hereby abolished and its staff functions are transferred to
the service offices of the Department Proper and its line functions are transferred to the
Department Regional Offices for Land Transportation as provided in Section 11 herein. Such transfer
of functions is subject to the provisions of Section 15 (b) hereof. The quasi-judicial powers and
functions of the Commission are transferred to the Department. The corresponding position
structure and staffing pattern shall be approved and prescribed by the Secretary pursuant to
Section 16 hereof.
b.
Administrative Code of 1987; Title XV, Sec. 9(1)
Title XV
SECTION 9. Line Offices.The Department shall have the following line offices:
(1) The Office of the Assistant Secretary for Land Transportation;
(ii) Land Transportation Franchising and Regulatory Board, EO 202, Secs. 1, 2, 4, 5, 6,

7; Administrative Code of 1987, Title XV, Secs. 15-11
Administrative Code of 1987, Title XV
102 | P a g e
SECTION 15. Land Transportation Franchising and Regulatory Board.The quasi-judicial powers and
functions with respect to land transportation shall be exercised through the Land Transportation and
Regulatory Board, hereinafter referred to as the Board.
SECTION 16. Composition of the Board.The Board shall be composed of a Chairman and two (2)
members with the rank, salary and privileges of an Assistant Secretary, all of whom shall be appointed by
the President of the Philippines upon recommendation of the Secretary of Transportation and
Communications. One (1) member of the Board shall be a member of the Bar and shall have been engaged
in the practice of law in the Philippines for at least five (5) years, another a holder of a degree in civil
engineering, and the other a holder of a degree in economics, finance or management both with the same
number of years of experience and practice.
SECTION 17. Executive Director and Support Staff of the Board.The Board shall have an Executive
Director who shall also be appointed by the President of the Philippines upon the recommendation of the
Secretary of Transportation and Communications. He shall have the rank, salary and privileges of a
Department Service Chief. He shall assist the Board in the performance of its powers and functions.
The Board shall be supported by the Technical Evaluation Division, Legal Division, Management Information
Division, Administrative Division and Finance Division.
SECTION 18. Supervision and Control Over the Board.The Secretary of Transportation and
Communications, through his duly designated Undersecretary, shall exercise administrative supervision
and control over the Land Transportation Franchising and Regulatory Board.
SECTION 19. Powers and Functions of the Land Transportation Franchising and Regulatory Board.The
Board shall:
(1) Prescribe and regulate routes, economically viable capacities, and zones or areas of operation of public
land transportation services provided by motorized vehicles in accordance with the public land
transportation development plans and programs approved by the Department of Transportation and
Communications;
(2) Issue, amend, revise, suspend or cancel Certificates of Public Convenience or permits authorizing the
operation of public land transportation services provided by motorized vehicles, and prescribe the
appropriate terms and conditions therefor;
(3) Determine, prescribe, approve and periodically review and adjust reasonable fares, rates and other
related charges, relative to the operation of public land transportation services provided by motorized
vehicles;
(4) Issue preliminary or permanent injunction, whether prohibitory or mandatory, in all cases in which it
has jurisdiction and in which cases the pertinent provisions of the Rules of Court shall apply;
(5) Punish for contempt of the Board, both direct and indirect, in accordance with the pertinent provisions
of, and the penalties prescribed by, the Rules of Court;
(6) Issue subpoena and subpoena duces tecum and to summon witnesses appear in any proceedings of
the Board, to administer oaths and affirmations, and, in appropriate cases, to order the search and seizure
103 | P a g e
of all vehicles and documents, upon probable cause and as may be necessary for the proper disposition of
the cases before it;
(7) Conduct investigations and hearings of complaints for violation of the public service laws on land
transportation and of the Boards rules and regulations, orders, decisions or rulings and to impose fines or
penalties for such violations;
(8) Review motu proprio the decisions/actions of the Regional Franchising and Regulatory Offices;
(9) Promulgate rules and regulations governing proceedings before the Board and the Regional Franchising
and Regulatory Office. However, except with respect to paragraphs 4, 5, 6 and 7 hereof, the rules of
procedure and evidence prevailing in the courts of law should not be controlling but rather the spirit and
intention of said rules. The Board and the Regional Franchising and Regulatory Offices shall use every and
all reasonable means to ascertain facts in each case speedily and objectively and without regard to
technicalities of law and procedures, all in the interest of due process;
(10) Fix, impose and collect, and periodically review and adjust, reasonable fees and other related charges
for services rendered;
(11) Formulate, promulgate, administer, implement and enforce rules and regulations on land
transportation public utilities, standards of measurements or design, and rules and regulations requiring
operators of any public land transportation service to equip, install and provide in their utilities and in their
stations such devices, equipment, facilities and operating procedures and techniques as may promote
safety, protection, comfort and convenience to persons and property in their charges as well as the safety
of persons and property within their areas of operation;
(12) Coordinate and cooperate with other government agencies and entities concerned with any aspect
involving public land transportation services with the end in view of effecting continuing improvement of
such services; and
(13) Perform such other functions and duties as may be provided by law, or as may be necessary, or
proper or incidental to the purposes and objectives of the Department;
SECTION 20. Decisions of the Board; Appeals therefrom or Review Thereof.The Board, in the exercise of
its powers and functions, shall sit and render its decision en banc. Every such decision, order, or resolution
of the Board must bear the concurrence and signature of at least two (2) members thereof.
The decision, order or resolution of the Board shall be appealable to the Secretary within thirty (30) days
from receipt of the decision. However, the Secretary may motu proprio review any decision or action of the
Board before the same becomes final.
SECTION 21. Regional Franchising and Regulatory Offices.There shall be a Regional Franchising and
Regulatory Office in each of the administrative regions of the country which shall be headed by a Regional
Director having the rank, salary and privileges of a Department Assistant Regional Director. The Regional
Franchising and Regulatory Offices shall hear and decide uncontested applications/petitions for routes,
within their respective administrative regions but that applications/petitions for routes extending beyond
their respective territorial jurisdiction shall be heard and decided by the Board.
104 | P a g e
SECTION 22. Appeals.The decisions, orders or resolutions of the Regional Franchising and Regulatory
Offices shall be appealable to the Board within thirty (30) days from receipt of the decision.
KMU Labor Center v. Garcia, 239 SCRA 386
FIRST DIVISION
[G.R. No. 115381. December 23, 1994.]
KILUSANG MAYO UNO LABOR CENTER, petitioner, vs. HON. JESUS B. GARCIA, JR., the LAND
TRANSPORTATION FRANCHISING AND REGULATORY BOARD, and the PROVINCIAL BUSES OPERATORS
ASSOCIATION OF THE PHILIPPINES, respondents.
DECISION
KAPUNAN, J p:
Public utilities are privately owned and operated businesses whose service are essential to the general
public. They are enterprises which specially cater to the needs of the public and conduce to their comfort
and convenience. As such, public utility services are impressed with public interest and concern. The same
is true with respect to the business of common carrier which holds such a peculiar relation to the public
interest that there is superinduced upon it the right of public regulation when private properties are
affected with public interest, hence, they cease to be juris privati only. When, therefore, one devotes his
property to a use in which the public has an interest, he, in effect grants to the public an interest in that
use, and must submit to the control by the public for the common good, to the extent of the interest he
has thus created. 1
An abdication of the licensing and regulatory government agencies of their functions as the instant petition
seeks to show, is indeed lamentable. Not only is it an unsound administrative policy but it is inimical to
public trust and public interest as well.
The instant petition for certiorari assails the constitutionality and validity of certain memoranda, circulars
and/or orders of the Department of Transportation and Communications (DOTC) and the Land
Transportation Franchising and Regulatory Board LTFRB) 2 which, among others, (a) authorize provincial
bus and jeepney operators to increase or decrease the prescribed transportation fares without application
therefor with the LTFRB and without hearing and approval thereof by said agency in violation of Sec. 16(c)
of Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act, and in derogation
of LTFRB's duty to fix and determine just and reasonable fares by delegating that function to bus operators,
and (b) establish a presumption of public need in favor of applicants for certificates of public convenience
(CPC) and place on the oppositor the burden of proving that there is no need for the proposed service, in
patent violation not only of Sec. 16(c) of CA 146, as amended, but also of Sec. 20(a) of the same Act
mandating that fares should be "just and reasonable." It is, likewise, violative of the Rules of Court which
places upon each party the burden to prove his own affirmative allegations. 3 The offending provisions
contained in the questioned issuances pointed out by petitioner, have resulted in the introduction into our
highways and thoroughfares thousands of old and smoke-belching buses, many of which are right-hand
105 | P a g e
driven, and have exposed our consumers to the burden of spiraling costs of public transportation without
hearing and due process.
The following memoranda, circulars and/or orders are sought to be nullified by the instant petition, viz: (a)
DOTC Memorandum Order 90-395, dated June 26, 1990 relative to the implementation of a fare range
scheme for provincial bus services in the country; (b) DOTC Department Order No. 92-587, dated March 30,
1992, defining the policy framework on the regulation of transport services; (c) DOTC Memorandum dated
October 8, 1992, laying down rules and procedures to implement Department Order No. 92-587; (d) LTFRB
Memorandum Circular No. 92-009, providing implementing guidelines on the DOTC Department Order No.
92-587; and (e) LTFRB Order dated March 24, 1994 in Case No. 94-3112.
The relevant antecedents are as follows:
On June 26, 1990, then Secretary of DOTC, Oscar M. Orbos, issued Memorandum Circular No. 90-395 to
then LTFRB Chairman, Remedios A.S. Fernando allowing provincial bus operators to charge passengers
rates within a range of 15% above and 15% below the LTFRB official rate for a period of one (1) year. The
text of the memorandum order reads in full:
One of the policy reforms and measures that is in line with the thrusts and the priorities set out in the
Medium-Term Philippine Development Plan (MTPDP) 1987 1992) is the liberalization of regulations in the
transport sector. Along this line, the Government intends to move away gradually from regulatory policies
and make progress towards greater reliance on free market forces.
Based on several surveys and observations, bus companies are already charging passenger rates above
and below the official fare declared by LTFRB on many provincial routes. It is in this context that some form
of liberalization on public transport fares is to be tested on a pilot basis.
In view thereof, the LTFRB is hereby directed to immediately publicize a fare range scheme for all
provincial bus routes in country (except those operating within Metro Manila). Transport operators shall be
allowed to charge passengers within a range of fifteen percent (15%) above and fifteen percent (15%)
below the LTFRB official rate for a period of one year.
Guidelines and procedures for the said scheme shall be prepared by LTFRB in coordination with the DOTC
Planning Service.
The implementation of the said fare range scheme shall start on 6 August 1990.
For compliance. (Emphasis ours.)
Finding the implementation of the fare range scheme "not legally feasible," Remedios A.S. Fernando
submitted the following memorandum to Oscar M. Orbos on July 24, 1990, to wit:
With reference to DOTC Memorandum Order No. 90-395 dated 26 June 1990 which the LTFRB received on
19 July 1990, directing the Board "to immediately publicize a fare range scheme for all provincial bus
routes in the country (except those operating within Metro Manila)" that will allow operators "to charge
passengers within a range of fifteen percent (15%) above and fifteen percent (15%) below the LTFRB
official rate for a period of one year" the undersigned is respectfully adverting the Secretary's attention to
the following for his consideration:
1.
Section 16 (c) of the Public Service Act prescribes the following for the fixing and determination of
rates -- (a) the rates to be approved should be proposed by public service operators; (b) there should be a
publication and notice to concerned or affected parties in the territory affected; (c) a public hearing should
be held for the fixing of the rates; hence, implementation of the proposed fare range scheme on August 6
without complying with the requirements of the Public Service Act may not be legally feasible.
2.
To allow bus operators in the country to charge fares fifteen (15%) above the present LTFRB fares in
the wake of the devastation, death and suffering caused by the July 16 earthquake will not be socially
warranted and will be politically unsound; most likely public criticism against the DOTC and the LTFRB will
106 | P a g e
be triggered by the untimely motu propio implementation of the proposal by the mere expedient of
publicizing the fare range scheme without calling a public hearing, which scheme many as early as during
the Secretary's predecessor know through newspaper reports and columnists' comments to be Asian
Development Bank and World Bank inspired.
3.
More than inducing a reduction in bus fares by fifteen percent (15%) the implementation of the
proposal will instead trigger an upward adjustment in bus fares by fifteen percent (15%) at a time when
hundreds of thousands of people in Central and Northern Luzon, particularly in Central Pangasinan, La
Union, Baguio City, Nueva Ecija, and the Cagayan Valley are suffering from the devastation and havoc
caused by the recent earthquake.
4.
In lieu of the said proposal, the DOTC with its agencies involved in public transportation can
consider measures and reforms in the industry that will be socially uplifting, especially for the people in the
areas devastated by the recent earthquake.
In view of the foregoing considerations, the undersigned respectfully suggests that the implementation of
the proposed fare range scheme this year be further studied and evaluated.
On December 5, 1990, private respondent Provincial Bus Operators Association of the Philippines, Inc.
(PBOAP) filed an application for fare rate increase. An across-the-board increase of eight and a half
centavos (P0.085) per kilometer for all types of provincial buses with a minimum-maximum fare range of
fifteen (15%) percent over and below the proposed basic per kilometer fare rate, with the said minimummaximum fare range applying only to ordinary, first class and premium class buses and a fifty-centavo
(P0.50) minimum per kilometer fare for aircon buses, was sought.
On December 6, 1990, private respondent PBOAP reduced its applied proposed fare to an across-the-board
increase of six and a half (P0.065) centavos per kilometer for ordinary buses. The decrease was due to the
drop in the expected price of diesel. llcd
The application was opposed by the Philippine Consumers Foundation, Inc. and Perla C. Bautista alleging
that the proposed rates were exorbitant and unreasonable and that the application contained no allegation
on the rate of return of the proposed increase in rates.
On December 14, 1990, public respondent LTFRB rendered a decision granting the fare rate increase in
accordance with the following schedule of fares on a straight computation method, viz:
AUTHORIZED FARES
LUZON
MIN. OF 5 KMS.
SUCCEEDING KM.
REGULAR
P1.50 P0.37
STUDENT
P1.15 P0.28
VISAYAS/MINDANAO
REGULAR
P1.60 P0.375
STUDENT
P1.20 P0.285
FIRST CLASS (PER KM.)
LUZON P0.385
VISAYAS/MINDANAO P0.395
PREMIERE CLASS (PER KM.)
LUZON P0.395
VISAYAS/ MINDANAO P0.405
AIRCON (PER KM.)
P0.415. 4
On March 30, 1992, then Secretary of the Department of Transportation and Communications Pete
Nicomedes Prado issued Department Order No. 92-587 defining the policy framework on the regulation of
transport services. The full text of the said order is reproduced below in view of the importance of the
provisions contained therein:
107 | P a g e
WHEREAS, Executive Order No. 125 as amended, designates the Department of Transportation and
Communications (DOTC) as the primary policy, planning, regulating and implementing agency on
transportation;
WHEREAS, to achieve the objective of a viable, efficient, and dependable transportation system, the
transportation regulatory agencies under or attached to the DOTC have to harmonize their decisions and
adopt a common philosophy and direction;
WHEREAS, the government proposes to build on the successful liberalization measures pursued over the
last five years and bring the transport sector nearer to a balanced longer term regulatory framework;
NOW, THEREFORE, pursuant to the powers granted by laws to the DOTC, the following policies and
principles in the economic regulation of land, air, and water transportation services are hereby adopted:
1.
Entry into and exit out of the industry. Following the Constitutional dictum against monopoly, no
franchise holder shall be permitted to maintain a monopoly on any route. A minimum of two franchise
holders shall be permitted to operate on any route.
The requirements to grant a certificate to operate, or certificate of public convenience, shall be: proof of
Filipino citizenship, financial capability, public need, and sufficient insurance cover to protect the riding
public.
In determining public need, the presumption of need for a service shall be deemed in favor of the
applicant. The burden of proving that there is no need for a proposed service shall be with the oppositor(s).
In the interest of providing efficient public transport services, the use of the 'prior operator' and the
'priority of filing' rules shall be discontinued. The route measured capacity test or other similar tests of
demand for vehicle/vessel fleet on any route shall be used only as a guide in weighing the merits of each
franchise application and not as a limit to the services offered.
Where there are limitations in facilities, such as congested road space in urban areas, or at airports and
ports, the use of demand management measures in conformity with market principles may be considered.
The right of an operator to leave the industry is recognized as a business decision, subject only to the filing
of appropriate notice and following a phase-out period, to inform the public and to minimize disruption of
services.
2.
Rate and Fare Setting. Freight rates shall be freed gradually from government controls. Passenger
fares shall also be deregulated, except for the lowest class of passenger service (normally third class
passenger transport) for which the government will fix indicative or reference fares. Operators of particular
services may fix their own fares within a range 15% above and below the indicative or reference rate.
Where there is lack of effective competition for services, or on specific routes, or for the transport of
particular commodities, maximum mandatory freight rates or passenger fares shall be set temporarily by
the government pending actions to increase the level of competition.
For unserved or single operator routes, the government shall contract such services in the most
advantageous terms to the public and the government, following public bids for the services. The
advisability of bidding out the services or using other kinds of incentives on such routes shall be studied by
the government.
3.
Special Incentives and Financing for Fleet Acquisition. As a matter of policy, the government shall
not engage in special financing and incentive programs, including direct subsidies for fleet acquisition and
expansion. Only when the market situation warrants government intervention shall programs of this type
be considered. Existing programs shall be phased out gradually.
The Land Transportation Franchising and Regulatory Board, the Civil Aeronautics Board, the Maritime
Industry Authority are hereby directed to submit to the office of the Secretary, within forty-five (45) days of
this Order, the detailed rules and procedures for the Implementation of the policies herein set forth. In the
formulation of such rules, the concerned agencies shall be guided by the most recent studies on the
subjects, such as the Provincial Road Passenger Transport Study, the Civil Aviation Master Plan, the
Presidential Task Force on the Inter-island Shipping Industry, and the Inter-island Liner Shipping Rate
Rationalization Study.
108 | P a g e
For the compliance of all concerned. (Emphasis ours)

On October 8, 1992, public respondent Secretary of the Department of Transportation and Communications
Jesus B. Garcia, Jr. issued a memorandum to the Acting Chairman of the LTFRB suggesting swift action on
the adoption of rules and procedures to implement above-quoted Department Order No. 92-587 that laid
down deregulation and other liberalization policies for the transport sector. Attached to the said
memorandum was a revised draft of the required rules and procedures covering (i) Entry Into and Exit Out
of the Industry and (ii) Rate and Fare Setting, with comments and suggestions from the World Bank
incorporated therein. Likewise, resplendent from the said memorandum is the statement of the DOTC
Secretary that the adoption of the rules and procedures is a pre-requisite to the approval of the Economic
Integration Loan from the World Bank. 5
On February 17, 1993, the LTFRB issued Memorandum Circular No. 92-009 promulgating the guidelines for
the implementation of DOTC Department Order No. 92-587. The Circular provides, among others, the
following challenged portions:
xxx
xxx
xxx
IV.
Policy Guidelines on the Issuance of Certificate of Public Convenience:
The issuance of a Certificate of Public Convenience is determined by public need. The presumption of
public need for a service shall be deemed in favor of the applicant, while burden of proving that there is no
need for the proposed service shall be the oppositor's.
xxx
xxx
xxx
V.
Rate and Fare Setting
The control in pricing shall be liberalized to introduce price competition complementary with the quality of
service, subject to prior notice and public hearing. Fares shall not be provisionally authorized without public
hearing.
A.
On the General Structure of Rates
1.
The existing authorized fare range system of plus or minus 15 per cent for provincial buses and
jeepneys shall be widened to 20% and -25% limit in 1994 with the authorized fare to be replaced by an
indicative or reference rate as the basis for the expanded fare range.
2.
Fare systems for aircon buses are liberalized to cover first class and premier services.
xxx
xxx
xxx
(Emphasis ours).
Sometime in March, 1994, private respondent PBOAP, availing itself of the deregulation policy of the DOTC
allowing provincial bus operators to collect plus 20% and minus 25% of the prescribed fare without first
having filed a petition for the purpose and without the benefit of a public hearing, announced a fare
increase of twenty (20%) percent of the existing fares. Said increased fares were to be made effective on
March 16, 1994.
On March 16, 1994, petitioner KMU filed a petition before the LTFRB opposing the upward adjustment of
bus fares.
On March 24, 1994, the LTFRB issued one of the assailed orders dismissing the petition for lack of merit.
The dispositive portion reads:
PREMISES CONSIDERED, this Board after considering the arguments of the parties, hereby DISMISSES FOR
LACK OF MERIT the petition filed in the above-entitled case. This petition in this case was resolved with
dispatch at the request of petitioner to enable it to immediately avail of the legal remedies or options it is
entitled under existing laws.
SO ORDERED. 6
Hence, the instant petition for certiorari with an urgent prayer for issuance of a temporary restraining
order.
The Court, on June 20, 1994, issued a temporary restraining order enjoining, prohibiting and preventing
respondents from implementing the bus fare rate increase as well as the questioned orders and
memorandum circulars. This meant that provincial bus fares were rolled back to the levels duly authorized
109 | P a g e
by the LTFRB prior to March 16, 1994. A moratorium was likewise enforced on the issuance of franchises
for the operation of buses, jeepneys, and taxicabs.
Petitioner KMU anchors its claim on two (2) grounds. First, the authority given by respondent LTFRB to
provincial bus operators to set a fare range of plus or minus fifteen (15) percent, later increased to plus
twenty (20%) and minus twenty-five (-25%) percent, over and above the existing authorized fare without
having to file a petition for the purpose, is unconstitutional, invalid and illegal. Second, the establishment
of a presumption of public need in favor of an applicant for a proposed transport service without having to
prove public necessity, is illegal for being violative of the Public Service Act and the Rules of Court.
In its Comment, private respondent PBOAP, while not actually touching upon the issues raised by the
petitioner, questions the wisdom and the manner by which the instant petition was filed. It asserts that the
petitioner has no legal standing to sue or has no real interest in the case at bench and in obtaining the
reliefs prayed for.
In their Comment filed by the Office of the Solicitor General, public respondents DOTC Secretary Jesus B.
Garcia, Jr. and the LTFRB asseverate that the petitioner does not have the standing to maintain the instant
suit. They further claim that it is within DOTC and LTFRB's authority to set a fare range scheme and
establish a presumption of public need in applications for certificates of public convenience.
We find the instant petition impressed with merit.
At the outset, the threshold issue of locus standi must be struck. Petitioner KMU has the standing to sue.
The requirement of locus standi inheres from the definition of judicial power. Section 1 of Article VIII of the
Constitution provides:
xxx
xxx
xxx
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which
are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government.
In Lamb v. Phipps, 7 we ruled that judicial power is the power to hear and decide causes pending between
parties who have the right to sue in the courts of law and equity. Corollary to this provision is the principle
of locus standi of a party litigant. One who is directly affected by and whose interest is immediate and
substantial in the controversy has the standing to sue. The rule therefore requires that a party must show
a personal stake in the outcome of the case or an injury to himself that can be redressed by a favorable
decision so as to warrant an invocation of the court's jurisdiction and to justify the exercise of the court's
remedial powers in his behalf. 8
In the case at bench, petitioner, whose members had suffered and continue to suffer grave and irreparable
injury and damage from the implementation of the questioned memoranda, circulars and/or orders, has
shown that it has a clear legal right that was violated and continues to be violated with the enforcement of
the challenged memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains
and jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger
fares. They are part of the millions of commuters who comprise the riding public. Certainly, their rights
must be protected, not neglected nor ignored. cdll
Assuming arguendo that petitioner is not possessed of the standing to sue, this court is ready to brush
aside this barren procedural infirmity and recognize the legal standing of the petitioner in view of the
transcendental importance of the issues raised. And this act of liberality is not without judicial precedent.
As early as the Emergency Powers Cases, this Court had exercised its discretion and waived the
requirement of proper party. In the recent case of Kilosbayan, Inc., et al. v. Teofisto Guingona, Jr., et al., 9
we ruled in the same lines and enumerated some of the cases where the same policy was adopted, viz:
. . . A party's standing before this Court is a procedural technicality which it may, in the exercise of its
discretion, set aside in view of the importance of the issues raised. In the landmark Emergency Powers
Cases, [G.R. No. L-2044 (Araneta v. Dinglasan); G.R. No. L-2756 (Araneta v. Angeles); G.R. No. L-3054
(Rodriguez v. Tesorero de Filipinas); G.R. No. L-3055 (Guerrero v. Commissioner of Customs); and G.R. No. L-
110 | P a g e
3056 (Barredo v. Commission on Elections), 84 Phil. 368 (1949)], this Court brushed aside this technicality
because 'the transcendental importance to the public of these cases demands that they be settled
promptly and definitely, brushing aside, if we must, technicalities of procedure. (Avelino vs. Cuenco, G.R.
No. L-2621).' Insofar as taxpayers' suits are concerned, this Court had declared that it 'is not devoid of
discretion as to whether or not it should be entertained,' (Tan v. Macapagal, 43 SCRA 677, 680 [1972]) or
that it 'enjoys an open discretion to entertain the same or not.' [Sanidad v. COMELEC, 73 SCRA 333
(1976)].
xxx
xxx
xxx
In line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and
even association of planters, and non-profit civic organizations were allowed to initiate and prosecute
actions before this court to question the constitutionality or validity of laws, acts, decisions, rulings, or
orders of various government agencies or instrumentalities. Among such cases were those assailing the
constitutionality of (a) R.A. No. 3836 insofar as it allows retirement gratuity and commutation of vacation
and sick leave to Senators and Representatives and to elective officials of both Houses of Congress
(Philippine Constitution Association, Inc. v. Gimenez, 15 SCRA 479 [1965]); (b) Executive Order No. 284,
issued by President Corazon C. Aquino on 25 July 1987, which allowed members of the cabinet, their
undersecretaries, and assistant secretaries to hold other government offices or positions (Civil Liberties
Union v. Executive Secretary, 194 SCRA 317 [1991]); (c) the automatic appropriation for debt service in the
General Appropriations Act (Guingona v. Carague, 196 SCRA 221 [1991]; (d) R.A. No. 7056 on the holding
of desynchronized elections (Osmea v. Commission on Elections, 199 SCRA 750 [1991]; (e) P.D. No. 1869
(the charter of the Philippine Amusement and Gaming Corporation) on the ground that it is contrary to
morals, public policy, and order (Basco v. Philippine Gaming and Amusement Corp., 197 SCRA 52 [1991]);
and (f) R.A. No. 6975, establishing the Philippine National Police. (Carpio v. Executive Secretary, 206 SCRA
290 [1992]).
Other cases where we have followed a liberal policy regarding locus standi include those attacking the
validity or legality of (a) an order allowing the importation of rice in the light of the prohibition imposed by
R.A. No. 3452 (Iloilo Palay and Corn Planters Association, Inc. v. Feliciano, 13 SCRA 377 [1965]; (b) P.D. Nos.
991 and 1033 insofar as they proposed amendments to the Constitution and P.D. No. 1031 insofar as it
directed the COMELEC to supervise, control, hold, and conduct the referendum-plebiscite on 16 October
1976 (Sanidad v. Commission on Elections, supra); (c) the bidding for the sale of the 3,179 square meters
of land at Roppongi, Minato-ku, Tokyo, Japan (Laurel v. Garcia, 187 SCRA 797 [1990]); (d) the approval
without hearing by the Board of Investments of the amended application of the Bataan Petrochemical
Corporation to transfer the site of its plant from Bataan to Batangas and the validity of such transfer and
the shift of feedstock from naphtha only to naphtha and/or liquefied petroleum gas (Garcia v. Board of
Investments, 177 SCRA 374 [1989]; Garcia v. Board of Investments, 191 SCRA 288 [1990]); (e) the
decisions, orders, rulings, and resolutions of the Executive Secretary, Secretary of Finance, Commissioner
of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives Review Board exempting the
National Power Corporation from indirect tax and duties (Maceda v. Macaraig, 197 SCRA 771 [1991]); (f)
the orders of the Energy Regulatory Board of 5 and 6 December 1990 on the ground that the hearings
conducted on the second provisional increase in oil prices did not allow the petitioner substantial crossexamination; (Maceda v. Energy Regulatory Board, 199 SCRA 454 [1991]); (g) Executive Order No. 478
which levied a special duty of P0.95 per liter of imported oil products (Garcia v. Executive Secretary, 211
SCRA 219 [1992]); (h) resolutions of the Commission on Elections concerning the apportionment, by
district, of the number of elective members of Sanggunians (De Guia vs. Commission on Elections, 208
SCRA 420 [1992]); and (i) memorandum orders issued by a Mayor affecting the Chief of Police of Pasay City
(Pasay Law and Conscience Union, Inc. v. Cuneta, 101 SCRA 662 [1980]).
In the 1975 case of Aquino v. Commission on Elections (62 SCRA 275 [1975]), this Court, despite its
unequivocal ruling that the petitioners therein had no personality to file the petition, resolved nevertheless
to pass upon the issues raised because of the far-reaching implications of the petition. We did no less in De
111 | P a g e
Guia v. COMELEC (Supra) where, although we declared that De Guia 'does not appear to have locus standi,
a standing in law, a personal or substantial interest,' we brushed aside the procedural infirmity 'considering
the importance of the issue involved, concerning as it does the political exercise of qualified voters
affected by the apportionment, and petitioner alleging abuse of discretion and violation of the Constitution
by respondent.'
Now on the merits of the case.
On the fare range scheme.
Section 16 (c) of the Public Service Act, as amended, reads:
Sec. 16.
Proceedings of the Commission, upon notice and hearing. The Commission shall have
power, upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to
the limitations and exceptions mentioned and saving provisions to the contrary:
xxx
xxx
xxx
(c)
To fix and determine individual or joint rates, tolls, charges, classifications, or schedules thereof, as
well as commutation, mileage kilometrage, and other special rates which shall be imposed, observed, and
followed thereafter by any public service: Provided, That the Commission may, in its discretion, approve
rates proposed by public services provisionally and without necessity of any hearing; but it shall call a
hearing thereon within thirty days thereafter, upon publication and notice to the concerns operating in the
territory affected: Provided, further, That in case the public service equipment of an operator is used
principally or secondarily for the promotion of a private business, the net profits of said private business
shall be considered in relation with the public service of such operator for the purpose of fixing the rates.
(Emphasis ours).
xxx
xxx
xxx
Under the foregoing provision, the Legislature delegated to the defunct Public Service Commission the
power of fixing the rates of public services. Respondent LTFRB, the existing regulatory body today, is
likewise vested with the same under Executive Order No. 202 dated June 19, 1987. Section 5 (c) of the said
executive order authorizes LTFRB "to determine, prescribe, approve and periodically review and adjust,
reasonable fares, rates and other related charges, relative to the operation of public land transportation
services provided by motorized vehicles."
Such delegation of legislative power to an administrative agency is permitted in order to adapt to the
increasing complexity of modern life. As subjects for governmental regulation multiply, so does the
difficulty of administering the laws. Hence, specialization even in legislation has become necessary. Given
the task of determining sensitive and delicate matters as route-fixing and rate-making for the transport
sector, the responsible regulatory body is entrusted with the power of subordinate legislation. With this
authority, an administrative body and in this case, the LTFRB, may implement broad policies laid down in a
statute by "filling in" the details which the Legislature may neither have time or competence to provide.
However, nowhere under the aforesaid provisions of law are the regulatory bodies, the PSC and LTFRB
alike, authorized to delegate that power to a common carrier, a transport operator, or other public service.
In the case at bench, the authority given by the LTFRB to the provincial bus operators to set a fare range
over and above the authorized existing fare, is illegal and invalid as it is tantamount to an undue
delegation of legislative authority. Potestas delegata non delegari potest. What has been delegated cannot
be delegated. This doctrine is based on the ethical principle that such as delegated power constitutes not
only a right but a duty to be performed by the delegate through the instrumentality of his own judgment
and not through the intervening mind of another. 10 A further delegation of such power would indeed
constitute a negation of the duty in violation of the trust reposed in the delegate mandated to discharge it
directly. 11 The policy of allowing the provincial bus operators to change and increase their fares at will
would result not only to a chaotic situation but to an anarchic state of affairs. This would leave the riding
public at the mercy of transport operators who may increase fares every hour, every day, every month or
every year, whenever it pleases them or whenever they deem it "necessary" to do so. In Panay Autobus
112 | P a g e
Co. v. Philippine Railway Co., 12 where respondent Philippine Railway Co. was granted by the Public Service
Commission the authority to change its freight rates at will, this Court categorically declared that:
In our opinion, the Public Service Commission was not authorized by law to delegate to the Philippine
Railway Co. the power of altering its freight rates whenever it should find it necessary to do so in order to
meet the competition of road trucks and autobuses, or to change its freight rates at will, or to regard its
present rates as maximum rates, and to fix lower rates whenever in the opinion of the Philippine Railway
Co. it would be to its advantage to do so.
The mere recital of the language of the application of the Philippine Railway Co. is enough to show that it is
untenable. The Legislature has delegated to the Public Service Commission the power of fixing the rates of
public services, but it has not authorized the Public Service Commission to delegate that power to a
common carrier or other public service. The rates of public services like the Philippine Railway Co. have
been approved or fixed by the Public Service Commission, and any change in such rates must be
authorized or approved by the Public Service Commission after they have been shown to be just and
reasonable. The public service may, of course, propose new rates, as the Philippine Railway Co. did in case
No. 31827, but it cannot lawfully make said new rates effective without the approval of the Public Service
Commission, and the Public Service Commission itself cannot authorize a public service to enforce new
rates without the prior approval of said rates by the commission. The commission must approve new rates
when they are submitted to it, if the evidence shows them to be just and reasonable, otherwise it must
disapprove them. Clearly, the commission cannot determine in advance whether or not the new rates of
the Philippine Railway Co. will be just and reasonable, because it does not know what those rates will be.
In the present case the Philippine Railway Co. in effect asked for permission to change its freight rates at
will. It may change them every day or every hour, whenever it deems it necessary to do so in order to
meet competition or whenever in its opinion it would be to its advantage. Such a procedure would create a
most unsatisfactory state of affairs and largely defeat the purposes of the public service law. 13 (Emphasis
ours).
One veritable consequence of the deregulation of transport fares is a compounded fare. If transport
operators will be authorized to impose and collect an additional amount equivalent to 20% over and above
the authorized fare over a period of time, this will unduly prejudice a commuter who will be made to pay a
fare that has been computed in a manner similar to those of compounded bank interest rates.
Picture this situation. On December 14, 1990, the LTFRB authorized provincial bus operators to collect a
thirty-seven (P0.37) centavo per kilometer fare for ordinary buses. At the same time, they were allowed to
impose and collect a fare range of plus or minus 15% over the authorized rate. Thus P0.37 centavo per
kilometer authorized fare plus P0.05 centavos (which is 15% of P0.37 centavo) is equivalent to P0.42
centavos, the allowed rate in 1990. Supposing the LTFRB grants another five (P0.05) centavo increase per
kilometer in 1994, then, the base or reference for computation would have to be P0.47 centavos (which is
P0.42 + P0.05 centavos). If bus operators will exercise their authority to impose an additional 20% over
and above the authorized fare, then the fare to be collected shall amount to P0.56 (that is, P0.47
authorized LTFRB rate plus 20% of P0.47 which is P0.29). In effect, commuters will be continuously subject,
not only to a double fare adjustment but to a compounding fare as well. On their part, transport operators
shall enjoy a bigger chunk of the pie. Aside from fare increase applied for, they can still collect an
additional amount by virtue of the authorized fare range. Mathematically, the situation translates into the
following:
Year * LTFRB Fare Range
Fare to be
authorized
collected
rate **
per kilometer
1990 P0.37 15% (P0.05) P0.42
1994 P0.42 + 0.05 = 0.47 20% (P0.09) P0.56
1998 P0.56 + 0.05 = 0.61 20% (P0.12) P0.73
2002 P0.73 + 0.05 = 0.78 20% (P0.16) P0.94
113 | P a g e
Moreover, rate making or rate fixing is not an easy task. It is a delicate and sensitive government function
that requires dexterity of judgment and sound discretion with the settled goal of arriving at a just and
reasonable rate acceptable to both the public utility and the public. Several factors, in fact, have to be
taken into consideration before a balance could be achieved. A rate should not be confiscatory as would
place an operator in a situation where he will continue to operate at a loss. Hence, the rate should enable
public utilities to generate revenues sufficient to cover operational costs and provide reasonable return on
the investments. On the other hand, a rate which is too high becomes discriminatory. It is contrary to
public interest. A rate, therefore, must be reasonable and fair and must be affordable to the end user who
will utilize the services.
Given the complexity of the nature of the function of rate-fixing and its far-reaching effects on millions of
commuters, government must not relinquish this important function in favor of those who would benefit
and profit from the industry. Neither should the requisite notice and hearing be done away with. The
people, represented by reputable oppositors, deserve to be given full opportunity to be heard in their
opposition to any fare increase.
The present administrative procedure, 14 to our mind, already mirrors an orderly and satisfactory
arrangement for all parties involved. To do away with such a procedure and allow just one party, an
interested party at that, to determine what the rate should be will undermine the right of the other parties
to due process. The purpose of a hearing is precisely to determine what a just and reasonable rate is. 15
Discarding such procedural and constitutional right is certainly inimical to our fundamental law and to
public interest.
On the presumption of public need.
A certificate of public convenience (CPC) is an authorization granted by the LTFRB for the operation of land
transportation services for public use as required by law. Pursuant to Section 16(a) of the Public Service
Act, as amended, the following requirements must be met before a CPC may be granted, to wit: (i) the
applicant must be a citizen of the Philippines, or a corporation or co-partnership, association or joint-stock
company constituted and organized under the laws of the Philippines, at least 60 per centum of its stock or
paid-up capital must belong entirely to citizens of the Philippines; (ii) the applicant must be financially
capable of undertaking the proposed service and meeting the responsibilities incident to its operation; and
(iii) the applicant must prove that the operation of the public service proposed and the authorization to do
business will promote the public interest in a proper and suitable manner. It is understood that there must
be proper notice and hearing before the PSC can exercise its power to issue a CPC.
While adopting in toto the foregoing requisites for the issuance of a CPC, LTFRB Memorandum Circular No.
92-009, Part IV, provides for yet incongruous and contradictory policy guideline on the issuance of a CPC.
The guidelines states:
The issuance of a Certificate of Public Convenience is determined by public need. The presumption of
public need for a service shall be deemed in favor of the applicant, while the burden of proving that there
is no need for the proposed service shall be the oppositor's. (Emphasis ours).
The above-quoted provision is entirely incompatible and inconsistent with Section 16(c)(iii) of the Public
Service Act which requires that before a CPC will be issued, the applicant must prove by proper notice and
hearing that the operation of the public service proposed will promote public interest in a proper and
suitable manner. On the contrary, the policy guideline states that the presumption of public need for a
public service shall be deemed in favor of the applicant. In case of conflict between a statute and an
administrative order, the former must prevail.
By its terms, public convenience or necessity generally means something fitting or suited to the public
need. 16 As one of the basic requirements for the grant of a CPC, public convenience and necessity exists
when the proposed facility or service meets a reasonable want of the public and supply a need which the
existing facilities do not adequately supply. The existence or non-existence of public convenience and
necessity is therefore a question of fact that must be established by evidence, real and/or testimonial;
empirical data; statistics and such other means necessary, in a public hearing conducted for that purpose.
114 | P a g e
The object and purpose of such procedure, among other things, is to look out for, and protect, the interests
of both the public and the existing transport operators.
Verily, the power of a regulatory body to issue a CPC is founded on the condition that after full-dress
hearing and investigation, it shall find, as a fact, that the proposed operation is for the convenience of the
public. 17 Basic convenience is the primary consideration for which a CPC is issued, and that fact alone
must be consistently borne in mind. Also, existing operators is subject routes must be given an opportunity
to offer proof and oppose the application. Therefore, an applicant must, at all times, be required to prove
his capacity and capability to furnish the service which he has undertaken to render. 18 And all this will be
possible only if a public hearing were conducted for that purpose. LLjur
Otherwise stated, the establishment of public need in favor of an applicant reverses well-settled and
institutionalized judicial, quasi-judicial and administrative procedures. It allows the party who initiates the
proceedings to prove, by mere application, his affirmative allegations. Moreover, the offending provisions
of the LTFRB memorandum circular in question would in effect amend the Rules of Court by adding another
disputable presumption in the enumeration of 37 presumptions under Rule 131, Section 5 of the Rules of
Court. Such usurpation of this Court's authority cannot be countenanced as only this Court is mandated by
law to promulgate rules concerning pleading, practice and procedure. 19
Deregulation, while it may be ideal in certain situations, may not be ideal at all in our country given the
present circumstances. Advocacy of liberalized franchising and regulatory process is tantamount to an
abdication by the government of its inherent right to exercise police power, that is, the right of government
to regulate public utilities for protection of the public and the utilities themselves.
While we recognize the authority of the DOTC and the LTFRB to issue administrative orders to regulate the
transport sector, we find that they committed grave abuse of discretion in issuing DOTC Department Order
No. 92-587 defining the policy framework on the regulation of transport services and LTFRB Memorandum
Circular No. 92-009 promulgating the implementing guidelines on DOTC Department Order No. 92-587, the
said administrative issuances being amendatory and violative of the Public Service Act and the Rules of
Court. Consequently, we rule that the twenty (20%) per centum fare increase imposed by respondent
PBOAP on March 16, 1994 without the benefit of a petition and a public hearing is null and void and of no
force and effect. No grave abuse of discretion however was committed in the issuance of DOTC
Memorandum Order No. 90-395 and DOTC Memorandum dated October 8, 1992, the same being merely
internal communications between administrative officers.
WHEREFORE, in view of the foregoing, the instant petition is hereby GRANTED and the challenged
administrative issuances and orders, namely: DOTC Department Order No. 92-587, LTFRB Memorandum
Circular No. 92-009, and the order dated March 24, 1994 issued by respondent LTFRB are hereby
DECLARED contrary to law and invalid insofar as they affect provisions therein (a) delegating to provincial
bus and jeepney operators the authority to increase or decrease the duly prescribed transportation fares;
and (b) creating a presumption of public need for a service in favor of the applicant for a certificate of
public convenience and placing the burden of proving that there is no need for the proposed service to the
oppositor. LexLib
The Temporary Restraining Order issued on June 20, 1994 is hereby MADE PERMANENT insofar as it
enjoined the bus fare rate increase granted under the provisions of the aforementioned administrative
circulars, memoranda and/or orders declared invalid.
No pronouncement as to costs.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Quiason, JJ., concur.
Footnotes
1.
Pantranco v. Public Service Commission, 70 Phil. 221.
115 | P a g e
2.
The 20th century ushered in the birth and growth of public utility regulation in the country. After the
Americans introduced public utility regulation at the turn of the century, various regulatory bodies were
created. They were the Coastwise Rate Commission under Act No. 520 passed by the Philippine
Commission on November 17, 1902; the Board of Rate Regulation under Act No. 1779 dated October 12,
1907; the Board of Public Utility Commission under Act No. 2307 dated December 19, 1913; and the Public
Utility Commission under Act No. 3108 dated March 19, 1923.
During the Commonwealth period, the National Assembly passed a more comprehensive
public utility law. This was Commonwealth Act No. 146, as amended or the Public Service Act, as amended.
Said law created a regulatory and franchising body known as the Public Service Commission (PSC). The
Commission (PSC) existed for thirty-six (36) years from 1936 up to 1972.
On September 24, 1972, Presidential Decree No. 1 was issued and declared "part of the law
of the land." The same effected a major revamp of the executive department. Under Article III, Part X of
P.D. No. 1, the Public Service Commission (PSC) was abolished and replaced by three (3) specialized
regulatory boards. These were the Board of Transportation, the Board of Communications, and the Board of
Power and Waterworks.
The Board of Transportation (BOT) lasted for thirteen (13) years. On March 20, 1985,
Executive Order No. 1011 was issued abolishing the Board of Transportation and the Bureau of Land
Transportation. Their powers and functions were merged into the Land Transportation Commission (LTC).
Two (2) years later, LTC was abolished by Executive Order Nos. 125 dated January 30, 1987
and 125-A dated April 13, 1987 which reorganized the Department of Transportation and Communications.
On June 19, 1987, the Land Transportation Franchising and Regulatory Board (LTFRB) was created by
Executive Order No. 202. The LTFRB, successor of LTC, is the existing franchising and regulatory body for
overland transportation today.
3.
Sec. 1, Rule 131, Rules of Court.
4.
Decision of LTFRB in Case No. 90-4794, p. 4; Rollo, p. 59.
5.
Rollo, p. 42.
6.
Order of LTFRB, p. 4; Rollo, p. 55.
7.
22 Phil. 456 [1912].
8.
Warth v. Seldin, 422 U.S. 490, 498-499, 45 L. Ed. 2d 343, 95 S. Ct. 2197 [1975]; Guzman v. Marrero,
180 U.S. 81, 45 L. Ed. 436, 21 S.Ct. 293 [1901]; McMicken v. United States, 97 U.S. 204, 24 L.Ed. 947
[1978]; Silver Star Citizens' Committee v. Orlando Fla. 194 So. 2d 681 [1967]; In Re Kenison's
Guardianship, 72 S.D. 180, 31 N.W. 2d 326 [1948].
9.
G.R. No. 113375, May 5, 1994.
10.
United States v. Barrias, 11 Phil. 327, 330 [1908]; People v. Vera, 65 Phil. 56, 113 [1937].
11.
Cruz, Philippine Political Law, 1991 Edition, p. 84.
12.
57 Phil. 872 [1933].
13.
Id., at pp. 878-879.
*
Assume a four-year interval in fare adjustment as a constant.
**
Assume further a constant P0.05 centavo increase in fare every four (4) years.
14.
Steps in the Filing of Petition for Rate Increase:
A Petition For Adjustment of Rate (either for increase or reduction) may be filed only by a
grantee of a CPC. Therefore, when franchise/CPC grantees or existing public utility operators foresee that
the new oil price increase, wage hikes or similar factors would threaten the survival and viability of their
operations, they may then institute a petition for increase of rates. Thus in the case of public utilities
engaged in transportation, telecommunications, energy supply (electricity) and others, the following steps
are usually undertaken in seeking, particularly upwards adjustments of rates:
1.
Filing of formal Petition for Rate Increase. This petition alleges therein among
others, the present schedule of rates, the reasons why the same is no longer economically viable and the
revised schedule of rates it proposes to charge. Attached to said Petition for financial statements,
116 | P a g e
projections/studies showing possible losses from oil price or wage hikes under the old or existing rates and
the possible margin of profit (which should be within the 12% allowable limit) under the new or revised
rates;
2.
After the petition is docketed, a date is set for hearing for which a Notice of Hearing is
issued, the same to be published in a newspaper of general circulation in the area;
3.
The parties affected by the application are required to be furnished copies of the
petition and the Notice of Hearing usually by registered mail with return card. The Solicitor General is also
separately notified since he is the counsel for the Government;
4.
The Technical Staff of the regulatory body concerned evaluates the documentary
evidence attached to the petition to determine whether there is warrant to the request for rate revision;
5.
The Commission on Audit (COA) is requested by the regulatory body to conduct an
audit and examination of the books of accounts and other pertinent financial records of the public utility
operator seeking the rate revision if the applicants/petitioners are numerous, a representative number for
examination purposes would do; and the period of operation covered usually ranges from six (6) months
to one (1) year;
COA audit report is compared with that of the regulatory body. Copies of these audit reports
are furnished the petitioners and oppositors may submit their exceptions or objections thereto.
6.
Then hearings are conducted. The petitioners may present accountants or such rate
experts to explain their plea for rate revision. Oppositors are also allowed to rebut such evidence-in-chief
with their own witnesses and documents. After the hearings, the corresponding resolution is issued.
To obviate protracted hearings, the parties may agree to submit their respective Position
Papers in lieu of oral testimonies.
15.
Ynchausti Steamship Co. v. Public Utility Commissioner, 42 Phil. 621, 631 [1922]).
16.
Black's Law Dictionary, 5th Edition, p. 1105.
17.
Batangas Transportation Co. v. Orlanes, 52 Phil. 455 [1928]).
18.
Manila Electric Co. v. Pasay Transportation Co., 57 Phil. 825 [1932]; Please see also Raymundo
Transportation v. Perez, 56 Phil. 274 [1931]; Pampanga Bus Co. v. Enriquez, 38 O.G. 374; Dela Rosa v.
Corpus, 38 O.G. 2069.
19.
Article VIII, Section 6, 1987 Constitution.
(c) Water
(i) Maritime Industry Authority, EO 125 Sec. 14, as amended by EO 125-A, Sec. 3
I.
Common Carriers
(Unless otherwise indicated, reference is to the Civil Code)
A. In General
1. Definitions; essential elements; Art. 1732
ARTICLE 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.
US v. Tan Piaco, 40 Phil 853
FIRST DIVISION
117 | P a g e
[G.R. No. 15122. March 10, 1920.]

THE UNITED STATES, plaintiff-appellee, vs. TAN PIACO, VENTURA ESTUYA, PEDRO HOMERES,
MAXIMINO GALSA and EMILIO LEOPANDO, defendants. TAN PIACO, appellant.
Recaredo Ma. Calvo for appellant.
Attorney-General Paredes for appellee.
SYLLABUS
1.
PUBLIC UTILITY, CONTROL BY PUBLIC UTILITY COMMISSION; CRIMINAL LIABILITY OF
OWNER OF AUTOMOBILE. TRUCK OPERATED UNDER SPECIAL CONTRACT AND NOT FOR GENERAL PUBLIC
BUSINESS. The owner of an automobile truck who operates the same under a special contract for
carrying passengers and freight, in each case, and has not held himself out to carry all passengers and
freight for all persons who might offer, is not a public utility and is not criminally liable for his failure to
obtain a license from the Public Utility Commissioner. If the use is merely optional with the owner, or the
public benefit is merely accidental, it is not a public use, authorizing the exercise of the jurisdiction of the
public utility commission. The true criterion by which to judge of the character of the use is whether the
public may enjoy it by right or only by permission.
DECISION
JOHNSON, J p:
Said defendants were charged with a violation of the Public Utility Law (Act No. 2307 as amended by Acts
Nos. 2362 and 2694), in that they were operating a public utility without permission from the Public Utility
Commissioner.
Upon the complaint presented each of said defendants were arrested and brought to trial. After hearing the
evidence the Honorable Cayetano Lukban, judge, found that the evidence was insufficient to support the
charges against Ventura Estuya, Pedro Homeres, Maximino Galsa and Emilio Leopando, and absolved them
from all liability under the complaint and discharged them from the custody of the law. The lower court
found the defendant Tan Piaco guilty of the crime charged in the complaint and sentence him to pay a fine
of P100, and, in case of insolvency, to suffer subsidiary imprisonment, and to pay one- fifth part of the
costs. :E; rom that sentence Tan Piaco appealed to this court.
The facts proved during the trial of the cause may be stated as follows:
The appellant rented two automobile trucks and was using them upon the highways of the Province of
Leyte for the purpose of carrying some passengers and freight; that he cal ried passengers and freight
under a special contract in each case; that he had not held himself out to carry all passengers and all
freight for all persons who might offer passengers and freight.
The Attorney-General, in a carefully prepared brief, says: "The question is whether the appellant, under the
above facts, was a public utility under the foregoing definitions," and was therefore subject to the control
and regulation of the Public Utility Commission. "We have not found anything in the evidence showing that
the appellant operated the trucks in question for public use. These trucks, so far as indicated by the
evidence and as far as the appellant is concerned, furnished service under special agreements to carry
particular persons and property. . . For all that we can deduce from the evidence, these passengers, or the
owners of the freight, may have controlled the whole vehicles 'both as to contents, direction, and time of
use,' which facts, under all the circumstances of the case, would, in our opinion, take away the defendant's
business from the provisions of the Public Utility Act."
In support of the conclusion of the Attorney-General, he cites the case of Terminal Taxicab Co. vs. Kutz (241
U. S., 252). In that case the Terminal Taxicab Co. furnished automobiles from its central garage on special
orders and did not hold itself out to accommodate any and all persons. The plaintiff reserved to itself the
right to refuse service. The Supreme Court of the United States, speaking through Mr. Justice Holmes, said:
"The bargains made by the plaintiff are individual, and however much they may tend towards uniformity in
price, probably have not the mechanical fixity of charges that attend the use of taxicabs from the stations
to the hotels. The court is of the opinion that that part of the business is not to be regarded as a public
utility. It is true that all business, and, for the matter of that, every life in all its details, has a public aspect,
some bearing upon the welfare of the country in which it is passed." The court held that by virtue of the
fact that said company did not hold itself out to serve any and all persons, it was not a public utility and
was not subject to the jurisdiction of the public utility commission.
118 | P a g e
Upon the facts adduced during the trial of the cause, and for the foregoing reasons, the Attorney-General
recommends that the sentence of the lower court be revoked and that the appellant be absolved from all
liability under the complaint.
Section 14 of Act No. 2307, as amended by section 9 of Act No. 2694, provides that: "The Public Utility
Commission or Commissioners shall have general supervision and regulation of, jurisdiction and control
over, all public utilities. . . The term 'public utility' is hereby defined to include every individual,
copartnership, association, corporation or joint stock company, etc., etc., that now or hereafter may own,
operate, manage, or control any common carrier, railroad, street railway, etc., etc., engaged in the
transportation of passengers, cargo, etc., etc., for public use."
Under the provisions of said section, two things are necessary: (a) The individual, copartnership, etc., etc.,
must be a public utility; and (b) the business in which such individual, copartnership, etc., etc., is engaged
must be for public use. So long as the individual or copartnership, etc., etc., is engaged in a purely private
enterprise, without attempting to render service to all who may apply, he can in no sense be considered a
public utility, for public use.
"Public use" means the same as "use by the public." The essential feature of the public use is that it is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted
quality that gives it its public character. In determining whether a use is public, we must look not only to
the character of the business to be done, but also to the proposed mode of doing it. If the use is merely
optional with the owners, or the public benefit is merely incidental, it is not a public use, authorizing the
exercise of the jurisdiction of the public utility commission. There must be, in general, a right which the law
compels the owner to give to the general public. It is not enough that the general prosperity of the public
is promoted. Public use is not synonymous with public interest. The true criterion by which to judge of the
character of the use is whether the public may enjoy it by right or only by permission.
For all of the foregoing reasons, we agree with the Attorney-General that the appellant was not operating a
public utility, for public use, and was not, therefore, subject to the jurisdiction of the Public Utility
Commission.
Therefore, the sentence of the lower court is hereby revoked, and it is hereby ordered and decreed that the
complaint be dismissed and that the defendant be absolved from all liability under the same, and that he
be discharged from the custody of the law, without any finding as to cost. So ordered.
Arellano, C. J., Torres, Araullo, Street, Malcolm and Avancea, JJ., concur.
Home Ins. Co. v. American Steamship, 23 SCRA 24
EN BANC
[G.R. No. L-25599. April 4, 1968.]
HOME INSURANCE COMPANY, plaintiff-appellee, vs. AMERICAN STEAMSHIP AGENCIES, INC., and
LUZON STEVEDORING CORPORATION, defendants, AMERICAN STEAMSHIP AGENCIES, INC.,
defendant-appellant.
Ross, Selph, Salcedo, del Rosario, Bito and Misa for appellants.
Quasha, Asperilla, Blanco, Zafra and Tayag for appellee.
SYLLABUS
1.CONTRACTS; TRANSPORTATION; CHARTER PARTY; EFFECT WHERE CONTRACT IS ONE OF AFFREIGHTMENT.
Where the charter party contract shows that altho possession and control of the ship were not entirely
transferred to the charterer, the vessel was chartered to its full and complete capacity and the charterer
had the option to go north or south or vice-versa, loading, stowing and discharging at its risk and expense,
said contract is one of affreightment rather than a demise. As such, in the absence of stipulation, the
liability of the shipowner for acts or negligence of its captain and crew would remain.
2.ID.; ID.; ID.; STIPULATION ABSOLVING THE OWNER FROM LIABILITY FOR LOSS DUE TO THE NEGLIGENCE
OF ITS AGENT VALID. The Civil Code provisions on common carriers, taken from Anglo-American law,
119 | P a g e
should, following American jurisprudence on the matter, not be applied where the carrier is not acting as
such but as a private carrier. The stipulation in the charter party absolving the owner from liability for loss
due to the negligence of its agent would be void only if the strict public policy governing common carriers
is applied. Such policy has no force where the public at large is not involved, as in the case of a ship totally
chartered for the use of a single party.
DECISION
BENGZON, J.P., J p:
"Consorcio Pesquero del Peru of South America" shipped freight pre-paid at Chimbate, Peru, 21,740 jute
bags of Peruvian fish meal through SS Crowborough, covered by clean bills of lading Numbers 1 and 2,
both dated January 17, 1963. The cargo, consigned to San Miguel Brewery, Inc., now San Miguel
Corporation, and insured by Home Insurance Company for $202,505, arrived in Manila on March 7, 1963
and was discharged into the lighters of Luzon Stevedoring Company. When the cargo was delivered to
consignee San Miguel Brewery, Inc., there were shortages amounting to P12,033.85, causing the latter to
lay claims against Luzon Stevedoring Corporation, Home Insurance Company and the American Steamship
Agencies, owner and operator of SS Crowborough.
Because the others denied liability, Home Insurance Company paid the consignee P14,870.71 the
insurance value of the loss, as full settlement of the claim. Having been refused reimbursement by both
the Luzon Stevedoring Corporation and American Steamship Agencies, Home Insurance Company, as
subrogee to the consignee, filed against them on March 6, 1964 before the Court of First Instance of Manila
a complaint for recovery of P14,870.71 with legal interest, plus attorney's fees.
In answer, Luzon Stevedoring Corporation alleged that it delivered with due diligence the goods in the
same quantity and quality that it had received the same from the carrier. It also claimed that plaintiff's
claim had prescribed under Article 366 of the Code of Commerce stating that the claim must be made
within 24 hours from receipt of the cargo.
American Steamship Agencies denied liability by alleging that under the provisions of the Charter party
referred to in the bills of lading, the charterer, not the shipowner, was responsible for any loss or damage
of the cargo. Furthermore, it claimed to have exercised due diligence in stowing the goods and that as a
mere forwarding agent, it was not responsible for losses or damages to the cargo.
On November 17, 1965, the Court of First Instance, after trial, absolved Luzon Stevedoring Corporation,
having found the latter to have merely delivered what it received from the carrier in the same condition
and quality, and ordered American Steamship Agencies to pay plaintiff P14,870.71 with legal interest plus
P1,000 attorneys fees. Said court cited the following grounds:
(a)The non-liability claim of American Steamship Agencies under the charter party contract is not tenable
because Article 587 of the Code of Commerce makes the ship agent also civilly liable for damages in favor
of third persons due to the conduct of the captain of the carrier;
(b)The stipulation in the charter party contract exempting the owner from liability is against public policy
under Article 1744 of the Civil Code;
(c)In case of loss, destruction or deterioration of goods, common carriers are presumed at fault or
negligent under Article 1735 of the Civil Code unless they prove extraordinary diligence, and they cannot
by contract exempt themselves from liability resulting from their negligence or that of their servants; and
(d)When goods are delivered to the carrier in good order and the same are in bad order at the place of
destination, the carrier is prima facie liable.
Disagreeing with such judgment, American Steamship Agencies appealed directly to Us. The appeal brings
forth for determination this legal issue: Is the stipulation in the charter party of the owner's non-liability
valid so as to absolve the American Steamship Agencies from liability for loss?
The bills of lading, 1 covering the shipment of Peruvian fish meal provide at the back thereof that the bills
of lading shall be governed by and subject to the terms and conditions of the charter party, if any,
otherwise, the bills of lading prevail over all the agreements. 2 On the face of the bills are stamped
120 | P a g e
"Freight prepaid as per charter party. Subject to all terms, conditions and exceptions of charter party dated
London, Dec. 13, 1962."
A perusal of the charter party 3 referred to shows that while the possession and control of the ship were
not entirely transferred to the charterer, 4 the vessel was chartered to its full and complete capacity (Exh.
3). Furthermore, the charterer had the option to go north or south or vice-versa, 5 loading, stowing and
discharging at its risk and expense. 6 Accordingly, the charter party contract is one of affreightment over
the whole vessel rather than a demise. As such, the liability of the shipowner for acts or negligence of its
captain and crew, would remain in the absence of stipulation.
Section 2, paragraph 2 of the charter party, provides that the owner is liable for loss or damage to the
goods caused by personal want of due diligence on its part or its manager to make the vessel in all
respects seaworthy and to secure that she be properly manned, equipped and supplied or by the personal
act or default of the owner or its manager. Said paragraph, however, exempts the owner of the vessel from
any loss or damage or delay arising from any other source, even from the neglect or fault of the captain or
crew or some other person employed by the owner on board, for whose acts the owner would ordinarily be
liable except for said paragraph.
Regarding the stipulation, the Court of First Instance declared the contract as contrary to Article 587 of the
Code of Commerce making the ship agent civilly liable for indemnities suffered by third persons arising
from acts or omissions of the captain in the care of the goods and Article 1744 of the Civil Code under
which a stipulation between the common carrier and the shipper or owner limiting the liability of the
former for loss or destruction of the goods to a degree less than extraordinary diligence is valid provided it
be reasonable, just and not contrary to public policy. The release from liability in this case was held
unreasonable and contrary to the public policy on common carriers.
The provisions of our Civil Code on common carriers were taken from Anglo-American law. 7 Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier. 8 As a private carrier, a stipulation exempting the owner from
liability for the negligence of its agent is not against public policy, 9 and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should not be applied
where the carrier is not acting as such but as a private carrier. The stipulation in the charter party
absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict
public policy governing common carriers is applied. Such policy has no force where the public at large is
not involved, as in the case of a ship totally chartered for the use of a single party.
And furthermore, in a charter of the entire vessel, the bill of lading issued by the master to the charterer,
as shipper, is in fact and legal contemplation merely a receipt and a document of title, not a contract, for
the contract is the charter party. 10 The consignee may not claim ignorance of said charter party because
the bills of lading expressly referred to the same. Accordingly, the consignees under the bills of lading must
likewise abide by the terms of the charter party. And as stated recovery cannot be had thereunder, for loss
or damage to the cargo, against the shipowners, unless the same is due to personal acts or negligence of
said owner or its manager, as distinguished from its other agents or employees. In this case, no such
personal act or negligence has been proved.
WHEREFORE, the judgment appealed from is hereby reversed and appellant is absolved from liability to
plaintiff. No costs.
SO ORDERED.
Reyes, J.B.L.,(Acting C.J.), Makalintal, Zaldivar, Sanchez, Ruiz Castro, Angeles and Fernando, JJ., concur.
Footnotes
1.Exhibits 1 & 2.
121 | P a g e
2.No. 26 of the bills of lading.

3.Exhibit 3, page 78 of the records.
4.Owner shoulders payment for overtime work of officers and crew (Clauses 17 & 29), duties and taxes on
vessel (Clause 14), and rigging, opening and closing of batches at owner's time and expense (Clause 41).
5.Clause 1, paragraph 2 of contract.
6.Clause 18 of contract.
7.Maranan v. Perez, L-22272, June 26, 1967.
8.80 C.J.S., pp. 692-693.
9.The Crowe, 294 Fed. 506; The Fri, 154 Fed. 333.
10.The Crowe, The Fri, supra.
De Guzman v. CA, 168 SCRA 612
THIRD DIVISION
[G.R. No. L-47822. December 22, 1988.]
PEDRO DE GUZMAN, petitioner, vs. COURT OF APPEALS and ERNESTO CENDAA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
SYLLABUS
1. CIVIL CODE; COMMON CARRIERS; ARTICLE 1732, DEFINITION UNDER ARTICLE 1732 OF THE CODE. The
Civil Code defines "common carriers" in the following terms: "Article 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 1733 deliberately
refrained from making such distinctions.
2. ID.; ID.; ID.; LAW ON COMMON CARRIERS SUPPLEMENTED BY THE PUBLIC SERVICE ACT; SCOPE OF
PUBLIC SERVICE. So understood, the concept of "common carrier" under Article 1732 may be seen to
coincide neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No.
1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil
Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes: ". . . every
person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
general business purposes, any common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its
pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public services . . ."
(Emphasis supplied) It appears to the Court that private respondent is properly characterized as a common
carrier even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan,
although such backhauling was done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the carriage of goods for others. There
is no dispute that private respondent charged his customers a fee for hauling their goods; that fee
frequently fell below commercial freight rates is not relevant here.
122 | P a g e
3. ID.; ID.; ID.; ID.; CERTIFICATE OF PUBLIC CONVENIENCE; NOT A REQUISITE FOR INCURRING LIABILITY AS
A COMMON CARRIER; NATURE OF THE BUSINESS OF A COMMON CARRIER. The Court of Appeals referred
to the fact that private respondent held no certificate of public convenience, and concluded he was not a
common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring
of liability under the Civil Code provisions governing common carriers. That liability arises the moment a
person or firm acts as a common carrier, without regard to whether or not such carrier has also complied
with the requirements of the applicable regulatory statute and implementing regulations and has been
granted a certificate of public convenience or other franchise. To exempt private respondent from the
liabilities of a common carrier because he has not secured the necessary certificate of public convenience,
would be offensive to sound public policy; that would be to reward private respondent precisely for failing
to comply with applicable statutory requirements. The business of a common carrier impinges directly and
intimately upon the safety and well being and property of those members of the general community who
happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the
safety and protection of those who utilize their services and the law cannot allow a common carrier to
render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and
authorizations.
4. ID.; ID.; DEGREE OF DILIGENCE REQUIRED OF, COMMON CARRIERS. Common carriers, "by the nature
of their business and for reasons of public policy," are held to a very high degree of care and diligence
("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of
extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733,
"further expressed in Articles 1734, 1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
5. ID.; ID.; ID.; LIABILITY OF COMMON CARRIERS. Article 1734 establishes the general rule that common
carriers are responsible for the loss, destruction or deterioration of the goods which they carry, "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; and (5) Order or act of competent public authority." It is important to point out that the above
list of causes of loss, destruction or deterioration which exempt the common carrier for responsibility
therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to constitute a
species of force majeure, fall within the scope of Article 1735, which provides as follows: "In all cases
other than those mentioned in numbers 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."
(Emphasis supplied)
6. ID.; ID.; ID.; ID.; COMMON CARRIER'S ARE NOT ABSOLUTE INSURERS AGAINST ALL RISKS; NO LIABILITY
ATTACHES IN CASE OF FORTUITOUS EVENTS. 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." In these circumstances, we
hold that the occurrence of the loss must reasonably be regarded as quite beyond the control of the
common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common
carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not
held liable for acts or events which cannot be foreseen or are inevitable, provided that they shall have
complied with the rigorous standard of extraordinary diligence.
DECISION
FELICIANO, J p:
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Respondent Ernesto Cendaa, a junk dealer, was engaged in buying up used bottles and scrap metal in
Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring such
material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the
material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which
various merchants wanted delivered to differing establishments in Pangasinan. For that service,
respondent charged freight rates which were commonly lower than regular commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman, a merchant and authorized dealer of General
Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of
750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's
establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December 1970, respondent
loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a truck driven by
respondent himself; while 600 cartons were placed on board the other truck which was driven by Manuel
Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached
petitioner, since the truck which carried these boxes was hijacked somewhere along the MacArthur
Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the
cargo.
On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance
of Pangasinan, demanding payment of P22,150.00, the claimed value of the lost merchandise, plus
damages and attorney's fees. Petitioner argued that private respondent, being a common carrier, and
having failed to exercise the extraordinary diligence required of him by the law, should be held liable for
the value of the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and argued that he could not be
held responsible for the value of the lost goods, such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision' finding private respondent to be a common
carrier and holding him liable for the value of the undelivered goods (P22,150.00) as well as for P4,000.00
as damages and P2,000.00 as attorney's fees. cdrep
On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a
common carrier; in finding that he had habitually offered trucking services to the public; in not exempting
him from liability on the ground of force majeure; and in ordering him to pay damages and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged
in transporting return loads of freight "as a casual occupation a sideline to his scrap iron business" and
not as a common carrier.
Petitioner came to this Court by way of a Petition for Review assigning as errors the following conclusions
of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure; and
3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto Cendaa may, under the facts
earlier set forth, be properly characterized as a common carrier.
The Civil Code defines "common carriers" in the following terms:
"Article 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
124 | P a g e
So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with
the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended)
which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section
13, paragraph (b) of the Public Service Act, "public service" includes:
". . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
general business purposes, any common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its
pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage system, wire or wireless
communications systems, wire or wireless broadcasting stations and other similar public services . . ."
(Emphasis supplied)
It appears to the Court that private respondent is properly characterized as a common carrier even though
he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such backhauling
was done on a periodic or occasional rather than regular or scheduled manner, and even though private
respondent's principal occupation was not the carriage of goods for others. There is no dispute that private
respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial
freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no certificate of public convenience,
and concluded he was not a common carrier. This is palpable error. A certificate of public convenience is
not a requisite for the incurring of liability under the Civil Code provisions governing common carriers. That
liability arises the moment a person or firm acts as a common carrier, without regard to whether or not
such carrier has also complied with the requirements of the applicable regulatory statute and
implementing regulations and has been granted a certificate of public convenience or other franchise. To
exempt private respondent from the liabilities of a common carrier because he has not secured the
necessary certificate of public convenience, would be offensive to sound public policy; that would be to
reward private respondent precisely for failing to comply with applicable statutory requirements. The
business of a common carrier impinges directly and intimately upon the safety and well being and property
of those members of the general community who happen to deal with such carrier. The law imposes duties
and liabilities upon common carriers for the safety and protection of those who utilize their services and
the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply
failing to obtain the necessary permits and authorizations. C
We turn then to the liability of private respondent as a common carrier.
Common carriers, "by the nature of their business and for reasons of public policy," 2 are held to a very
high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of
passengers. The specific import of extraordinary diligence in the care of goods transported by a common
carrier is, according to Article 1733, "further expressed in Articles 1734, 1735 and 1745, numbers 5, 6 and
7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or
deterioration of the goods which they carry, "unless the same is due to any of the following causes only:
(1)
(2)
(3)
(4)
Flood, storm, earthquake, lightning, or other natural disaster or calamity;

Act of the public enemy in war, whether international or civil;
Act or omission of the shipper or owner of the goods;
The character of the goods or defects in the packing or in the containers; and
125 | P a g e
(5) Order or act of competent public authority."

It is important to point out that the above list of causes of loss, destruction or deterioration which exempt
the common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list,
even if they appear to constitute a species of force majeure, fall within the scope of Article 1735, which
provides as follows:
"In all cases other than those mentioned in numbers 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."
(Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the
instant case the hijacking of the carrier's truck - does not fall within any of the five (5) categories of
exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle
must be dealt with under the provisions of Article 1735, in other words, that the private respondent as
common carrier is presumed to have been at fault or to have acted negligently. This presumption,
however, may be overthrown by proof of extraordinary diligence on the part of private respondent.
Petitioner insists that private respondent had not observed extraordinary diligence in the care of
petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent should have
hired a security guard presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We
do not believe, however, that in the instant case, the standard of extraordinary diligence required private
respondent to retain a security guard to ride with the truck and to engage brigands in a fire fight at the risk
of his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements of the duty of extraordinary
diligence in the vigilance over the goods carried in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733,
given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5
and 6, Article 1745 provides in relevant part:
"Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public
policy:
xxx
xxx
xxx
(5)that the common carrier shall not be responsible for the acts or omissions of his or its employees;
(6)
that the common carrier's liability for acts committed by thieves, or of robbers who
do not act with grave or irresistible threat, violence or force, is dispensed with or diminished; and
(7)that the common carrier shall not responsible for the loss, destruction or deterioration of goods on
account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the
contract of carriage." (Emphasis supplied)
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."
In the instant case, armed men held up the second truck owned by private respondent which carried
petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of First
Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno,
Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the accused were charged with
willfully and unlawfully taking and carrying away with them the second truck, driven by Manuel Estrada
and loaded with the 600 cartons of Liberty filled milk destined for delivery at petitioner's store in Urdaneta,
Pangasinan. The decision of the trial court shows that the accused acted with grave, if not irresistible,
threat, violence or force. 3 Three (3) of the five (5) hold-uppers were armed with firearms. The robbers not
126 | P a g e
only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for
several days and later releasing them in another province (in Zambales). The hijacked truck was
subsequently found by the police in Quezon City. The Court of First Instance convicted all the accused of
robbery, though not of robbery in band. 4
In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite
beyond the control of the common carrier and properly regarded as a fortuitous event. It is necessary to
recall that even common carriers are not made absolute insurers against all risks of travel and of transport
of goods, and are not held liable for acts or events which cannot be foreseen or are inevitable, provided
that they shall have complied with the rigorous standard of extraordinary diligence.
We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendaa is
not liable for the value of the undelivered merchandise which was lost because of an event entirely beyond
private respondent's control.
ACCORDINGLY, the Petition for Review on Certiorari is hereby DENIED and the Decision of the Court of
Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Corts, JJ., concur.
Footnotes
1.Rollo, p. 14.
2.Article 1733, Civil Code.
3.Rollo, p. 22.
4.The evidence of the prosecution did not show that more than three (3) of the five (5) hold-uppers were
armed. Thus, the existence of a "band" within the technical meaning of Article 306 of the Revised Penal
Code, was not affirmatively proved by the prosecution.
Bascos v. CA, 221 SCRA 318
SECOND DIVISION
[G.R. No. 101089. April 7, 1993.]
ESTRELLITA M. BASCOS, petitioners, vs. COURT OF APPEALS and RODOLFO A. CIPRIANO, respondents.
Modesto S. Bascos for petitioner.
Pelaez, Adriano & Gregorio for private respondent.
SYLLABUS
1. CIVIL LAW; COMMON CARRIERS; DEFINED; TEST TO DETERMINE COMMON CARRIER. Article 1732 of
the Civil Code defines a common carrier as "(a) person, corporation or firm, or association 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 test to determine a common carrier is "whether the given
undertaking is a part of the business engaged in by the carrier which he has held out to the general public
as his occupation rather than the quantity or extent of the business transacted." . . . The holding of the
Court in De Guzman vs. Court of Appeals is instructive. In referring to Article 1732 of the Civil Code, it held
thus: "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 distinguished between a carrier
offering its services to the "general public," i.e., the general community or population, and one who offers
127 | P a g e
services or solicits business only from a narrow segment of the general population. We think that Article
1732
deliberately refrained from making such distinctions."
2. ID.; ID.; DILIGENCE REQUIRED IN VIGILANCE OVER GOODS TRANSPORTED; WHEN PRESUMPTION OF
NEGLIGENCE ARISES; HOW PRESUMPTION OVERCAME; WHEN PRESUMPTION MADE ABSOLUTE. Common
carriers are obliged to observe extraordinary diligence in the vigilance over the goods transported by
them. Accordingly, they are presumed to have been at fault or to have acted negligently if the goods are
lost, destroyed or deteriorated. There are very few instances when the presumption of negligence does not
attach and these instances are enumerated in Article 1734. In those cases where the presumption is
applied, the common carrier must prove that it exercised extraordinary diligence in order to overcome the
presumption . . . The presumption of negligence was raised against petitioner. It was petitioner's burden to
overcome it. Thus, contrary to her assertion, private respondent need not introduce any evidence to prove
her negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the presumption
conclusive against her.
3. ID.; ID.; HIJACKING OF GOODS; CARRIER PRESUMED NEGLIGENT; HOW CARRIER ABSOLVED FROM
LIABILITY. In De Guzman vs. Court of Appeals, the Court held that hijacking, not being included in the
provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus, the common
carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability arising from
hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible threat, violence,
or force. This is in accordance with Article 1745 of the Civil Code which provides: "Art. 1745. Any of the
following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy . . .
(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act with
grave or irresistible threat, violences or force, is dispensed with or diminished"; In the same case, the
Supreme Court also held that: "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 of irresistible threat, violence of
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."
4. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSIONS CONCLUSIVE. In this case, petitioner herself has
made the admission that she was in the trucking business, offering her trucks to those with cargo to move.
Judicial admissions are conclusive and no evidence is required to prove the same.
5. ID.; ID.; BURDEN OF PROOF RESTS WITH PARTY WHO ALLEGES A FACT. Petitioner presented no other
proof of the existence of the contract of lease. He who alleges a fact has the burden of proving it.
6. ID.; ID.; AFFIDAVITS NOT CONSIDERED BEST EVIDENCE IF AFFIANTS AVAILABLE AS WITNESSES. While
the affidavit of Juanito Morden, the truck helper in the hijacked truck, was presented as evidence in court,
he himself was a witness as could be gleaned from the contents of the petition. Affidavits are not
considered the best evidence if the affiants are available as witnesses.
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT IS WHAT LAW DEFINES IT TO BE. Granting that
the said evidence were not self-serving, the same were not sufficient to prove that the contract was one of
lease. It must be understood that a contract is what the law defines it to be and not what it is called by the
contracting parties.
DECISION
CAMPOS, JR., J p:
This is a petition for review on certiorari of the decision
** of the Court of Appeals in "RODOLFO A.
CIPRIANO, doing business under the name CIPRIANO TRADING ENTERPRISES plaintiff-appellee, vs.
128 | P a g e
ESTRELLITA M. BASCOS, doing business under the name of BASCOS TRUCKING, defendant-appellant," C.A.G.R. CV No. 25216, the dispositive portion of which is quoted hereunder:
"PREMISES considered, We find no reversible error in the decision appealed from, which is hereby affirmed
in toto. Costs against appellant." 1
The facts, as gathered by this Court, are as follows:
Rodolfo A. Cipriano representing Cipriano Trading Enterprise (CIPTRADE for short) entered into a hauling
contract 2 with Jibfair Shipping Agency Corporation whereby the former bound itself to haul the latter's
2,000 m/tons of soya bean meal from Magallanes Drive, Del Pan, Manila to the warehouse of Purefoods
Corporation in Calamba, Laguna. To carry out its obligation, CIPTRADE, through Rodolfo Cipriano,
subcontracted with Estrellita Bascos (petitioner) to transport and to deliver 400 sacks of soya bean meal
worth P156,404.00 from the Manila Port Area to Calamba, Laguna at the rate of P50.00 per metric ton.
Petitioner failed to deliver the said cargo. As a consequence of that failure, Cipriano paid Jibfair Shipping
Agency the amount of the lost goods in accordance with the contract which stated that:
"1. CIPTRADE shall be held liable and answerable for any loss in bags due to theft, hijacking and nondelivery or damages to the cargo during transport at market value, . . ." 3
Cipriano demanded reimbursement from petitioner but the latter refused to pay. Eventually, Cipriano filed
a complaint for a sum of money and damages with writ of preliminary attachment 4 for breach of a
contract of carriage. The prayer for a Writ of Preliminary Attachment was supported by an affidavit 5 which
contained the following allegations:
"4.
That this action is one of those specifically mentioned in Sec. 1, Rule 57 the Rules
of Court, whereby a writ of preliminary attachment may lawfully issue, namely:
"(e)
in an action against a party who has removed or disposed of his property, or is
about to do so, with intent to defraud his creditors;"
5.
That there is no sufficient security for the claim sought to be enforced by the
present action;
6.
That the amount due to the plaintiff in the above-entitled case is above all legal
counterclaims;"
The trial court granted the writ of preliminary attachment on February 17, 1987.
In her answer, petitioner interposed the following defenses: that there was no contract of carriage since
CIPTRADE leased her cargo truck to load the cargo from Manila Port Area to Laguna; that CIPTRADE was
liable to petitioner in the amount of P11,000.00 for loading the cargo; that the truck carrying the cargo was
hijacked along Canonigo St., Paco, Manila on the night of October 21, 1988; that the hijacking was
immediately reported to CIPTRADE and that petitioner and the police exerted all efforts to locate the
hijacked properties; that after preliminary investigation, an information for robbery and carnapping were
filed against Jose Opriano, et al.; and that hijacking, being a force majeure, exculpated petitioner from any
liability to CIPTRADE. prLL
After trial, the trial court rendered a decision *** the dispositive portion of which reads as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant ordering the latter
to pay the former:
1. The amount of ONE HUNDRED FIFTY-SIX THOUSAND FOUR HUNDRED FOUR PESOS (P156,404.00) as an
(sic) for actual damages with legal interest of 12% per cent per annum to be counted from December 4,
1986 until fully paid;
2. The amount of FIVE THOUSAND PESOS (P5,000.00) as and for attorney's fees; and
3. The costs of the suit.
The "Urgent Motion To Dissolve/Lift preliminary Attachment" dated March 10, 1987 filed by defendant is
DENIED for being moot and academic.
SO ORDERED." 6
Petitioner appealed to the Court of Appeals but respondent Court affirmed the trial court's judgment.
Consequently, petitioner filed this petition where she makes the following assignment of errors; to wit:
129 | P a g e
"I.
THE RESPONDENT COURT ERRED IN HOLDING THAT THE CONTRACTUAL
RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS CARRIAGE OF GOODS AND NOT
LEASE OF CARGO TRUCK.
II.
GRANTING, EX GRATIA ARGUMENTI, THAT THE FINDING OF THE RESPONDENT
COURT THAT THE CONTRACTUAL RELATIONSHIP BETWEEN PETITIONER AND PRIVATE RESPONDENT WAS
CARRIAGE OF GOODS IS CORRECT, NEVERTHELESS, IT ERRED IN FINDING PETITIONER LIABLE
THEREUNDER BECAUSE THE LOSS OF THE CARGO WAS DUE TO FORCE MAJEURE, NAMELY, HIJACKING.
III.
THE RESPONDENT COURT ERRED IN AFFIRMING THE FINDING OF THE TRIAL COURT
THAT PETITIONER'S MOTION TO DISSOLVE/LIFT THE WRIT OF PRELIMINARY ATTACHMENT HAS BEEN
RENDERED MOOT AND ACADEMIC BY THE DECISION OF THE MERITS OF THE CASE." 7
The petition presents the following issues for resolution: (1) was petitioner a common carrier?; and (2) was
the hijacking referred to a force majeure?
The Court of Appeals, in holding that petitioner was a common carrier, found that she admitted in her
answer that she did business under the name A.M. Bascos Trucking and that said admission dispensed with
the presentation by private respondent, Rodolfo Cipriano, of proofs that petitioner was a common carrier.
The respondent Court also adopted in toto the trial court's decision that petitioner was a common carrier,
Moreover, both courts appreciated the following pieces of evidence as indicators that petitioner was a
common carrier: the fact that the truck driver of petitioner, Maximo Sanglay, received the cargo consisting
of 400 bags of soya bean meal as evidenced by a cargo receipt signed by Maximo Sanglay; the fact that
the truck helper, Juanito Morden, was also an employee of petitioner; and the fact that control of the cargo
was placed in petitioner's care. cdphil
In disputing the conclusion of the trial and appellate courts that petitioner was a common carrier, she
alleged in this petition that the contract between her and Rodolfo A. Cipriano, representing CIPTRADE, was
lease of the truck. She cited as evidence certain affidavits which referred to the contract as "lease". These
affidavits were made by Jesus Bascos 8 and by petitioner herself. 9 She further averred that Jesus Bascos
confirmed in his testimony his statement that the contract was a lease contract. 10 She also stated that:
she was not catering to the general public. Thus, in her answer to the amended complaint, she said that
she does business under the same style of A.M. Bascos Trucking, offering her trucks for lease to those who
have cargo to move, not to the general public but to a few customers only in view of the fact that it is only
a small business. 11
We agree with the respondent Court in its finding that petitioner is a common carrier.
Article 1732 of the Civil Code defines a common carrier as "(a) person, corporation or firm, or association
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 test to determine a common carrier is "whether
the given undertaking is a part of the business engaged in by the carrier which he has held out to the
general public as his occupation rather than the quantity or extent of the business transacted." 12 In this
case, petitioner herself has made the admission that she was in the trucking business, offering her trucks
to those with cargo to move. Judicial admissions are conclusive and no evidence is required to prove the
same. 13
But petitioner argues that there was only a contract of lease because they offer their services only to a
select group of people and because the private respondents, plaintiffs in the lower court, did not object to
the presentation of affidavits by petitioner where the transaction was referred to as a lease contract.
Regarding the first contention, the holding of the Court in De Guzman vs. Court of Appeals 14 is
instructive. In referring to Article 1732 of the Civil Code, it held thus:
"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."
Regarding the affidavits presented by petitioner to the court, both the trial and appellate courts have
dismissed them as self-serving and petitioner contests the conclusion. We are bound by the appellate
court's factual conclusions. Yet, granting that the said evidence were not self-serving, the same were not
sufficient to prove that the contract was one of lease. It must be understood that a contract is what the law
130 | P a g e
defines it to be and not what it is called by the contracting parties. 15 Furthermore, petitioner presented
no other proof of the existence of the contract of lease. He who alleges a fact has the burden of proving it.
16
Likewise, We affirm the holding of the respondent court that the loss of the goods was not due to force
majeure.
Common carriers are obliged to observe extraordinary diligence in the vigilance over the goods
transported by them. 17 Accordingly, they are presumed to have been at fault or to have acted negligently
if the goods are lost, destroyed or deteriorated. 18 There are very few instances when the presumption of
negligence does not attach and these instances are enumerated in Article 1734. 19 In those cases where
the presumption is applied, the common carrier must prove that it exercised extraordinary diligence in
order to overcome the presumption. Cdpr
In this case, petitioner alleged that hijacking constituted force majeure which exculpated her from liability
for the loss of the cargo. In De Guzman vs. Court of Appeals, 20 the Court held that hijacking, not being
included in the provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus,
the common carrier is presumed to have been at fault or negligent. To exculpate the carrier from liability
arising from hijacking, he must prove that the robbers or the hijackers acted with grave or irresistible
threat, violence, or force. This is in accordance with Article 1745 of the Civil Code which provides:
"Art. 1745.
Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy;
xxx
xxx
xxx
(6)
That the common carrier's liability for acts committed by thieves, or of robbers
who do not act with grave or irresistible threat, violences or force, is dispensed with or diminished;"
In the same case, 21 the Supreme Court also held that:
"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."
To establish grave and irresistible force, petitioner presented her accusatory affidavit, 22 Jesus Bascos'
affidavit, 23 and Juanito Morden's 24 "Salaysay". However, both the trial court and the Court of Appeals
have concluded that these affidavits were not enough to overcome the presumption. Petitioner's affidavit
about the hijacking was based on what had been told her by Juanito Morden. It was not a first-hand
account. While it had been admitted in court for lack of objection on the part of private respondent, the
respondent Court had discretion in assigning weight to such evidence. We are bound by the conclusion of
the appellate court. In a petition for review on certiorari, We are not to determine the probative value of
evidence but to resolve questions of law. Secondly, the affidavit of Jesus Bascos did not dwell on how the
hijacking took place. Thirdly, while the affidavit of Juanito Morden, the truck helper in the hijacked truck,
was presented as evidence in court, he himself was a witness as could be gleaned from the contents of the
petition. Affidavits are not considered the best evidence if the affiants are available as witnesses. 25 The
subsequent filing of the information for carnapping and robbery against the accused named in said
affidavits did not necessarily mean that the contents of the affidavits were true because they were yet to
be determined in the trial of the criminal cases.
The presumption of negligence was raised against petitioner. It was petitioner's burden to overcome it.
Thus, contrary to her assertion, private respondent need not introduce any evidence to prove her
negligence. Her own failure to adduce sufficient proof of extraordinary diligence made the presumption
conclusive against her.
Having affirmed the findings of the respondent Court on the substantial issues involved, We find no reason
to disturb the conclusion that the motion to lift/dissolve the writ of preliminary attachment has been
rendered moot and academic by the decision on the merits. llcd
In the light of the foregoing analysis, it is Our opinion that the petitioner's claim cannot be sustained. The
petition is DISMISSED and the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
131 | P a g e
Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.
Footnotes
** July 17, 1991; penned by Associate Justice Nicolas P. Lapea, Jr., and concurred in by Associate Justices
Ricardo L. Pronove, Jr., and Consuelo V. Santiago.
1. Rollo, p. 59.
2. Annex "K" of Memorandum for Petitioner; Rollo, p. 229.
3. Ibid.
4. Civil Case No. 49965; Regional Trial Court, Quezon City, Branch 83.
5. Annex "L" of Memorandum for Petitioner; Rollo, p. 230.
*** Civil Case No. 49965, October 12, 1989. Penned by Judge Reynaldo Roura.
6. Rollo, p. 217.
7. Rollo, p. 16.
8. Petition, pp. 12-13; Rollo, pp. 20-21; Annex "G" of Memorandum for Petitioner; rollo, p. 225.
9. Petition, pp. 13-14; Rollo, pp. 21-22.
10. Ibid.; Rollo, p. 21; Annex "E" of Memorandum for Petitioner; Rollo, p. 222.
11. Court of Appeals Decision, p. 51; Rollo, p. 55.
12. 4 AGBAYANI, COMMENTARIES AND JURISPRUDENCE ON THE COMMERCIAL LAWS OF THE PHILIPPINES, 5
(1987).
13. Solivio vs. Court of Appeals, 182 SCRA 119 (1990).
14.168 SCRA 612 (1988).
15. Schmid and Oberly, Inc. vs. RJL Martinez Fishing Corp., 166 SCRA 493 (1988).
16. Imperial Victory Shipping Agency vs. NLRC, 200 SCRA 178 (1991).
17. "Art. 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."
18. Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if
the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary diligence as required in article
1733."
19. "Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, 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."
20. Supra, note 14.
21. Ibid., p. 621.
22. Annex "G" of Memorandum for Petitioner; Rollo, p. 225; and Juanito Morden's affidavit Annex "H" of
Memorandum for Petitioner; Rollo, p. 226.
23. Annex "E" of Memorandum for Petitioner; Rollo, p. 222.
24. Annex "H" of Memorandum for Petitioner; Rollo, p. 226.
25. Ayco vs. Fernandez, 195 SCRA 328 (1991).
Planters Products Inc. V. Court of Appeals, 226 SCRA 476

FIRST DIVISION
132 | P a g e
[G.R. No. 101503. September 15, 1993.]

PLANTERS PRODUCTS, INC., petitioner, vs. COURT OF APPEALS, SORIAMONT STEAMSHIP
AGENCIES AND KYOSEI KISEN KABUSHIKI KAISHA, respondents.
Gonzales, Sinense, Jimenez & Associates for petitioner.
Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents.
DECISION
BELLOSILLO, J p:
Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private
one as to negate the civil law presumption of negligence in case of loss or damage to its cargo?
Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New York,
U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16 June 1974
aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha
(KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill
of Lading No. KP-1 signed by the master of the vessel and issued on the date of departure.
On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the
Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as
shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to 40 were
attached to the pre-printed agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also
subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively.
Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by the
charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charterparty which reads:
"16.
. . . At loading port, notice of readiness to be accomplished by certificate from
National Cargo Bureau inspector or substitute appointed by charterers for his account certifying the
vessel's readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned and dried at
the vessel's expense and the vessel to be presented clean for use in bulk to the satisfaction of the
inspector before daytime commences" (emphasis supplied).
After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper,
the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with
steel bonds. The hatches remained closed and tightly sealed throughout the entire voyage. 5
Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with
the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steel-bodied dump
trucks which were parked alongside the berth, using metal scoops attached to the ship, pursuant to the
terms and conditions of the charter-party (which provided for an F.I.O.S. clause). 6 The hatches remained
open throughout the duration of the discharge. 7
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported
to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to the warehouse, the
trucks were made to pass through a weighing scale where they were individually weighed for the purpose
of ascertaining the net weight of the cargo. The port area was windy, certain portions of the route to the
warehouse were sandy and the weather was variable, raining occasionally while the discharge was in
progress. 8 The petitioner's warehouse was made of corrugated galvanized iron (GI) sheets, with an
opening at the front where the dump trucks entered and unloaded the fertilizer on the warehouse floor.
Tarpaulins and GI sheets were placed in-between and alongside the trucks to contain spillages of the
fertilizer. 9
It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and
18th). 10 A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by
PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel prior to and
after discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974
revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18
M/T was contaminated with dirt. The same results were contained in a Certificate of Shortage/Damaged
Cargo dated 18 July 1974 prepared by PPI which showed that the cargo delivered was indeed short of
133 | P a g e
94.839 M/T and about 23 M/T were rendered unfit for commerce, having been polluted with sand, rust and
dirt. 12
Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA),
the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in
the goods shipped and the diminution in value of that portion said to have been contaminated with dirt. 13
Respondent SSA explained that they were not able to respond to the consignee's claim for payment
because, according to them, what they received was just a request for shortlanded certificate and not a
formal claim, and that this "request" was denied by them because they "had nothing to do with the
discharge of the shipment." 14 Hence, on 18 July 1975, PPI filed an action for damages with the Court of
First Instance of Manila. The defendant carrier argued that the strict public policy governing common
carriers does not apply to them because they have become private carriers by reason of the provisions of
the charter-party. The court a quo however sustained the claim of the plaintiff against the defendant
carrier for the value of the goods lost or damaged when it ruled thus: 15
". . . Prescinding from the provision of the law that a common carrier is presumed negligent in case of loss
or damage of the goods it contracts to transport, all that a shipper has to do in a suit to recover for loss or
damage is to show receipt by the carrier of the goods and delivery by it of less than what it received. After
that, the burden of proving that the loss or damage was due to any of the causes which exempt him from
liability is shifted to the carrier, common or private he may be. Even if the provisions of the charter-party
aforequoted are deemed valid, and the defendants considered private carriers, it was still incumbent upon
them to prove that the shortage or contamination sustained by the cargo is attributable to the fault or
negligence on the part of the shipper or consignee in the loading, stowing, trimming and discharge of the
cargo. This they failed to do. By this omission, coupled with their failure to destroy the presumption of
negligence against them, the defendants are liable" (italics supplied).
On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for
the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance Co. v.
American Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel M/V "Sun Plum"
owned by private respondent KKKK was a private carrier and not a common carrier by reason of the time
charter-party. Accordingly, the Civil Code provisions on common carriers which set forth a presumption of
negligence do not find application in the case at bar. Thus
". . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to adduce sufficient
evidence to prove the negligence of the defendant carrier as alleged in its complaint. It is an old and well
settled rule that if the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in
a satisfactory manner the facts upon which he bases his claim, the defendant is under no obligation to
prove his exception or defense (Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v.
Belen, 13 Phil. 202).
"But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause of action,
i.e., the alleged negligence of defendant carrier. It appears that the plaintiff was under the impression that
it did not have to establish defendant's negligence. Be that as it may, contrary to the trial court's finding,
the record of the instant case discloses ample evidence showing that defendant carrier was not negligent
in performing its obligations . . ." 18 (emphasis supplied).
Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals.
Petitioner theorizes that the Home Insurance case has no bearing on the present controversy because the
issue raised therein is the validity of a stipulation in the charter-party delimiting the liability of the
shipowner for loss or damage to goods caused by want of due diligence on its part or that of its manager
to make the vessel seaworthy in all respects, and not whether the presumption of negligence provided
under the Civil Code applies only to common carriers and not to private carriers. 19 Petitioner further
argues that since the possession and control of the vessel remain with the shipowner, absent any
stipulation to the contrary, such shipowner should be made liable for the negligence of the captain and
crew. In fine, PPI faults the appellate court in not applying the presumption of negligence against
respondent carrier, and instead shifting the onus probandi on the shipper to show want of due diligence on
the part of the carrier, when he was not even at hand to witness what transpired during the entire voyage.
As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by
reason of a charter-party; in the negative, whether the shipowner in the instant case was able to prove
that he had exercised that degree of diligence required of him under the law.
It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we
find it fitting to first define important terms which are relevant to our discussion.
134 | P a g e
A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by
the owner to another person for a specified time or use; 20 a contract of affreightment by which the owner
of a ship or other vessel lets the whole or a part of her to a merchant or other person for the conveyance
of goods, on a particular voyage, in consideration of the payment of freight. 21 Charter parties are of two
types: (a) contract of affreightment which involves the use of shipping space on vessels leased by the
owner in part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat charter, by
the terms of which the whole vessel is let to the charterer with a transfer to him of its entire command and
possession and consequent control over its navigation, including the master and the crew, who are his
servants. Contract of affreightment may either be time charter, wherein the vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In
both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of
time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of
the master and the crew, and defray the expenses for the maintenance of the ship.
Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The
definition extends to carriers either by land, air or water which hold themselves out as ready to engage in
carrying goods or transporting passengers or both for compensation as a public employment and not as a
casual occupation. The distinction between a "common or public carrier" and a "private or special carrier"
lies in the character of the business, such that if the undertaking is a single transaction, not a part of the
general business or occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier. 24
Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their
business, should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case
of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice.
Moreover, in case of loss, destruction or deterioration of the goods, common carriers are presumed to have
been at fault or to have acted negligently, and the burden of proving otherwise rests on them. 26 On the
contrary, no such presumption applies to private carriers, for whosoever alleges damage to or
deterioration of the goods carried has the onus of proving that the cause was the negligence of the carrier.
It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier,
transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum",
the ship captain, its officers and compliment were under the employ of the shipowner and therefore
continued to be under its direct supervision and control. Hardly then can we charge the charterer, a
stranger to the crew and to the ship, with the duty of caring for his cargo when the charterer did not have
any control of the means in doing so. This is evident in the present case considering that the steering of
the ship, the manning of the decks, the determination of the course of the voyage and other technical
incidents of maritime navigation were all consigned to the officers and crew who were screened, chosen
and hired by the shipowner. 27
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the
whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in
the case of a time-charter or voyage-charter. It is only when the charter includes both the vessel and its
crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular
voyage covering the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter
retains possession and control of the ship, although her holds may, for the moment, be the property of the
charterer. 28
Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies,
supra, is misplaced for the reason that the meat of the controversy therein was the validity of a stipulation
in the charter-party exempting the shipowner from liability for loss due to the negligence of its agent, and
not the effects of a special charter on common carriers. At any rate, the rule in the United States that a
ship chartered by a single shipper to carry special cargo is not a common carrier, 29 does not find
application in our jurisdiction, for we have observed that the growing concern for safety in the
transportation of passengers and/or carriage of goods by sea requires a more exacting interpretation of
admiralty laws, more particularly, the rules governing common carriers.
We quote with approval the observations of Raoul Colinvaux, the learned barrister-at-law 30
"As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is used to
convey the goods of one and of several persons. Where the ship herself is let to a charterer, so that he
takes over the charge and control of her, the case is different; the shipowner is not then a carrier. But
where her services only are let, the same grounds for imposing a strict responsibility exist, whether he is
135 | P a g e
employed by one or many. The master and the crew are in each case his servants, the freighter in each
case is usually without any representative on board the ship; the same opportunities for fraud or collussion
occur; and the same difficulty in discovering the truth as to what has taken place arises . . ."
In an action for recovery of damages against a common carrier on the goods shipped, the shipper or
consignee should first prove the fact of shipment and its consequent loss or damage while the same was in
the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to
prove that he has exercised extraordinary diligence required by law or that the loss, damage or
deterioration of the cargo was due to fortuitous event, or some other circumstances inconsistent with its
liability. 31
To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima facie
presumption of negligence.
The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the
Philippine Consul and Legal Attach in the Philippine Embassy in Tokyo, Japan, testified that before the
fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated. After
completing the loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and
sealed with iron lids, then covered with three (3) layers of serviceable tarpaulins which were tied with steel
bonds. The hatches remained close and tightly sealed while the ship was in transit as the weight of the
steel covers made it impossible for a person to open without the use of the ship's boom. 32
It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the
possibility of spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When
M/V "Sun Plum" docked at its berthing place, representatives of the consignee boarded, and in the
presence of a representative of the shipowner, the foreman, the stevedores, and a cargo surveyor
representing CSCI, opened the hatches and inspected the condition of the hull of the vessel. The
stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the whole
operation on rotation basis. 34
Verily, the presumption of negligence on the part of respondent carrier has been efficaciously overcome by
the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. This was
confirmed by respondent appellate court thus
". . . Be that as it may, contrary to the trial court's finding, the record of the instant case discloses ample
evidence showing that defendant carrier was not negligent in performing its obligations. Particularly, the
following testimonies of plaintiff-appellee's own witnesses clearly show absence of negligence by the
defendant carrier; that the hull of the vessel at the time of the discharge of the cargo was sealed and
nobody could open the same except in the presence of the owner of the cargo and the representatives of
the vessel (TSN, 20 July 1977, p. 14); that the cover of the hatches was made of steel and it was overlaid
with tarpaulins, three layers of tarpaulins and therefore their contents were protected from the weather
(TSN, 5 April 1978, p. 24); and, that to open these hatches, the seals would have to be broken, all the seals
were found to be intact (TSN, 20 July 1977, pp. 15-16)" (italics supplied).
The period during which private respondent was to observe the degree of diligence required of it as a
public carrier began from the time the cargo was unconditionally placed in its charge after the vessel's
holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel reached its
destination and its hull was re-examined by the consignee, but prior to unloading. This is clear from the
limitation clause agreed upon by the parties in the Addendum to the standard "GENCON" time charterparty which provided for an F.I.O.S., meaning, that the loading, stowing, trimming and discharge of the
cargo was to be done by the charterer, free from all risk and expense to the carrier. 35 Moreover, a
shipowner is liable for damage to the cargo resulting from improper stowage only when the stowing is
done by stevedores employed by him, and therefore under his control and supervision, not when the same
is done by the consignee or stevedores under the employ of the latter. 36
Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss,
destruction or deterioration of the goods if caused by the character of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and deteriorations
which the goods may suffer during the transportation by reason of fortuitous event, force majeure, or the
inherent defect of the goods, shall be for the account and risk of the shipper, and that proof of these
accidents is incumbent upon the carrier. 37 The carrier, nonetheless, shall be liable for the loss and
damage resulting from the preceding causes if it is proved, as against him, that they arose through his
negligence or by reason of his having failed to take the precautions which usage has established among
careful persons. 38
136 | P a g e
Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and
the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas
Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and carbon monoxide
compounds which are used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water.
However, during storage, nitrogen and ammonia do not normally evaporate even on a long voyage,
provided that the temperature inside the hull does not exceed eighty (80) degrees centigrade. Mr.
Chupungco further added that in unloading fertilizer in bulk with the use of a clamped shell, losses due to
spillage during such operation amounting to one percent (1%) against the bill of lading is deemed "normal"
or "tolerable." The primary cause of these spillages is the clamped shell which does not seal very tightly.
Also, the wind tends to blow away some of the materials during the unloading process.
The dissipation of quantities of fertilizer, or its deterioration in value, is caused either by an extremely high
temperature in its place of storage, or when it comes in contact with water. When Urea is drenched in
water, either fresh or saline, some of its particles dissolve. But the salvaged portion which is in liquid form
still remains potent and usable although no longer saleable in its original market value.
The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was
made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical
effects of the elements and the grimy condition of the various pieces of equipment used in transporting
and hauling it.
The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into
the vessel's holds during the voyage since the hull of the vessel was in good condition and her hatches
were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the
cargo she was chartered for. If there was loss or contamination of the cargo, it was more likely to have
occurred while the same was being transported from the ship to the dump trucks and finally to the
consignee's warehouse. This may be gleaned from the testimony of the marine and cargo surveyor of CSCI
who supervised the unloading. He explained that the 18 M/T of alleged "bad order cargo" as contained in
their report to PPI was just an approximation or estimate made by them after the fertilizer was discharged
from the vessel and segregated from the rest of the cargo.
The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It
rained from time to time at the harbor area while the cargo was being discharged according to the supply
officer of PPI, who also testified that it was windy at the waterfront and along the shoreline where the
dump trucks passed enroute to the consignee's warehouse.
Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries
with it the risk of loss or damage. More so, with a variable weather condition prevalent during its
unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face. Clearly,
respondent carrier has sufficiently proved the inherent character of the goods which makes it highly
vulnerable to deterioration; as well as the inadequacy of its packaging which further contributed to the
loss. On the other hand, no proof was adduced by the petitioner showing that the carrier was remiss in the
exercise of due diligence in order to minimize the loss or damage to the goods it carried.
WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the
trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance, now
Regional Trial Court, of Manila should be, as it is hereby, DISMISSED.
Costs against petitioner.
SO ORDERED.
Davide, Jr. and Quiason, JJ ., concur.
Cruz, J ., took no part.
Grio-Aquino, J ., is on leave.
Footnotes
1. A charter-party is a contract by which an entire ship or some principal part thereof, is let by the owner
to another person for a specified time or use (70 Am Jur 2d, p. 580, citing Ward v. Thompson, 63 US 330,
137 | P a g e
16 L Ed 249; a contract in which the owner of a vessel lets for consideration the whole or part thereof for
the conveyance of goods and/or passengers on a particular voyage to one or more places or until the
expiration of a specified time and surrenders unto the lessee or charterer the control, by vesting upon the
latter the right to appoint the captain, officers and members of the crew, of the vessel leased or chartered
during the duration of the contract (R.A. 913).
2. The Baltic and International Maritime Uniform General Charter (As Revised 1922 and 1976), Including
"F.I.O.S." Alternative, etc., Code Name: "GENCON" Adopted by the Documentary Committee of the General
Council of British Shipping, London, and the Documentary Committee of the Japan Shipping Exchange, Inc.,
Tokyo.
3. Rollo, pp. 105, 128.
4. Although par. 40 of the Rider (Description of "Sun Plum") states that the vessel has 3 holds/3 hatches,
Hatch No. 4 which usually was not used for cargo, was converted for such purpose. The time sheet for 12
July 1974 shows that Hatch No. 4 was first to be discharged of cargo. This was also testified to by the
master of the vessel, Captain Lee Tae Bo.
5. Id., p. 129.
6. Under the terms and conditions of the charter-party, F.I.O.S. (Free In and Out Shipping/Stevedoring)
means that the shipper takes care of the loading, while the unloading is the sole responsibility of the
consignee (Rollo, pp. 128, 184).
7. TSN, 20 July 1977, p. 17.
8. TSN, 20 July 1977, p. 18.
9. Rollo, p. 130.
10. Id., p. 129; ADDENDUM NO. 4 dated 17 May 1974 provides: "The cargo to be discharged at the average
rate of 1,000 metric tons per day of 24 hours weather working days, Sundays, Holidays excluded unless
used, assuming four (4) sets of vessel's gear simultaneously workable at vessel's berthing side."
11. TSN, 5 April 1978, pp. 7-8. "Drop survey" is the drop of the vessel showing certain meters or
centimeters of the vessel. In the ship there is a draft from one meter upward. When the vessel arrives,
(CSCI) conducted initial draft survey before discharging, together with the ship's representative by getting
the draft forward and aft. They divided it by 2 to get the mean draft and the average draft. After getting
the mean draft, they got the displacement scale of the vessel to show certain tons of the ship, then
deducted the non-cargo weight, like the fuel oil, the fresh water. Finally, the total load of the ship is taken.
After discharging, CSCI went over same procedure to get the weight of the vessel. These figures were then
subtracted from the total load of the ships to get the weight of the cargo.
12. Id., p. 106.
13. Id., pp. 49, 68.
14. TSN, 28 Aug. 1979, pp. 9-10.
15. Id., p. 68; "Planters Products, Inc. v. Soriamont Steamship Agencies, et al.," Civil Case No. 98623, CFI of
Manila, Br. 27, decision penned by Judge E.L. Peralta, 24 March 1980.
16. The Court of Appeals (Twelfth Division) rendered its decision on 13 August 1991 in CA-G.R. CV No.
02736 entitled "Planters Products, Inc. vs. Kyosei Kisen Kabushiki Kaisha & Soriamont Steamship
Agencies." Decision penned by Justice Alfredo L. Benipayo, concurred in by Justices Manuel C. Herrera and
Cancio C. Garcia, Rollo, pp. 13-24.
17. No. L-25599, 4 April 1968, 23 SCRA 24.
18. Rollo, p. 109.
19. Rollo, pp. 8 & 9.
20. Charter Parties; Charters of Demise and Contracts of Affreightment; 70 Am Jur 2d, p. 580; citing Ward v.
Thompson, 63 US 330, 16 L Ed 249; E.R. Harvey Ivamy, Carriage of Goods by Sea, 13th Ed., Chap. 2, pp. 5,
8-10. The term is also defined under R.A. No. 913, known as "An Act Defining 'Lease' or 'Charter' of
Vessels" as to mean a "contract in which the owner of a vessel lets for consideration the whole or principal
part thereof for the conveyance of goods and/or passengers on a particular voyage to one or more places
or until the expiration of a specified time and surrenders unto the lessee or charterer the control, by
vesting upon the latter the right to appoint the captain, officers and members of the crew, of the vessel
leased or chartered during the duration of the contract."
21. Bouvier's Law Dictionary, Third Rev., Vol. I, p. 470.
22. Id. pp. 581-582.
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23. 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.
24. See De Guzman v. Court of Appeals, No. L-47822, 22 December 1988, 168 SCRA 612; U.S. v. Quinajon,
No. 8686, 30 July 1915.
25. Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are
Such extraordinary diligence in the vigilance over the goods is further expressed in
Arts. 1734, 1735 and 1745, Nos. 5, 6 and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in Arts. 1755 and 1756.
26. Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article , if
1733.
27. E.R. Harvey Ivamy, pp. 8-10.
28. 70 Am Jur 2nd, p. 608 S 238, citing Grace v. Palmer, 21 US 605, 5 L Ed 696, and Kerry v. Pacific Marine
Co., 12 CAL 564, 54, p. 89.
29. 30 C.J.S., pp. 269-693.
30. British Shipping Laws, Vol. 2, "Carver's Carriage by Sea," By Raoul Colinvaux, Vol. 1, 12th Ed., Published
by Stevens & Sons Limited of London, Printed in Great Britain, 1971.
31. See Ynchausti Steamship Co. v. Dexter, No. 15652, 41 Phil. 289, 14 Dec. 1920; Mirasol v. Robert Dollar,
Co., No. 29721, 53 Phil. 124, 27 March 1929.
32. Deposition of Capt. Lee Tae Bo, Exh. "4", pp. 22-23.
33. TSN, 20 July 1977, p. 14.
34. TSN, 5 April 1978, pp. 24-25.
35. See Note 6.
36. 70 Am Jur 2d, p. 603 S 230, citing Oxford Paper Co. v. The Nidarholm, 282 US 681, 75L Ed 614, 51 S Ct
266.
37. Art. 361, par. 4, Code of Commerce.
38. Art. 362, par. 1, id.
Fabre v, Court of Appeals, 259 SCRA 426
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 GOJOCO,
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
MARAMARA, 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.
Maria del Valle for petitioners.
Eduardo Claudio II for private respondents.
SYLLABUS
1. CIVIL LAW; TRANSPORTATION; COMMON CARRIERS; UNDER THE PRINCIPLE THAT "THE ACT THAT BREAKS
THE CONTRACT MAY BE ALSO A TORT" PETITIONERS IN THE INSTANT CASES ARE JOINTLY AND SEVERALLY
139 | P a g e
LIABLE FOR THE INJURIES SUFFERED BY THE PRIVATE RESPONDENT. 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."
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. 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 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.
2. ID.; NEGLIGENCE OF AN EMPLOYEE GIVES RISE TO THE PRESUMPTION THAT HIS EMPLOYERS ARE
THEMSELVES NEGLIGENT IN THE SELECTION AND SUPERVISION OF THEIR EMPLOYEE. 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. 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.
3. ID.; CONTRACT OF CARRIAGE; PETITIONERS 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.
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: 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.
4. ID.; PETITIONER'S DUTY TO EXERCISE "EXTRAORDINARY DILIGENCE" IS NOT EXCUSED BY PROOF THAT
THEY EXERCISE THE DILIGENCE OF A GOOD FATHER OF THE FAMILY IN THE SELECTION AND SUPERVISION
OF THEIR EMPLOYEE. 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
140 | P a g e
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.
5. ID.; DAMAGES; COMPENSATORY DAMAGES; THE COURT OF APPEALS ERRED IN INCREASING THE
AMOUNT OF COMPENSATORY DAMAGES BECAUSE PRIVATE RESPONDENT DID NOT QUESTION THIS AWARD
AS INADEQUATE. 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. 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.
6. ID.; MORAL DAMAGES; AWARD OF MORAL DAMAGES IN CASES OF QUASI DELICT IS ALLOWED BY ART.
2219(2); IN CASES OF BREACH OF CONTRACT OF CARRIAGE, THE AWARD OF MORAL DAMAGES IS
AUTHORIZED BY ART. 1764 IN RELATION TO ART. 2220. 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. 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.
7. ID.; OWNERS AND DRIVER OF THE BUS MAY BE MADE JOINTLY AND SEVERALLY LIABLE FOR DAMAGES
FOR INJURIES SUFFERED BY A PASSENGER. 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, 202 SCRA 574
(1991) 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, 188 SCRA 216 (1990) 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. 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.
DECISION
MENDOZA, J p:
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.
141 | P a g e
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. Nio
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;
142 | P a g e

2)
3)
4)
5)
6)
P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;
P20,000.00 as moral damages;
P20,000.00 as exemplary damages; and
25% of the recoverable amount as attorney's fees;
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.
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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
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:
144 | P a g e
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. Buo, 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
145 | P a g e
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)
2)
3)
4)
5)
6)
P93, 657.11 as actual damages;

P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;
P20,000.00 as exemplary damages;
25% of the recoverable amount as attorney's fees; and
costs of suit.
SO ORDERED.
Regalado, Romero, Puno, and Torres, Jr., JJ ., concur.
Footnotes
* The name of petitioner Engracio Fabre, Jr.'s wife cannot be ascertained from the record. Hence she is
unnamed.
1. Per Justice Jainal D. Rasul and concurred in by Justices Emeterio C. Cui and Segundino G. Chua.
2. Air France v. Carrascoso, 18 SCRA 155, 168 (1966). Accord, Singson v. Bank of the Philippine Islands, 23
SCRA 1117, 1119 (1968).
3. Testimony of Porfirio Cabil, TSN, p. 14, Oct. 26, 1987.
4. Testimony of Pat. Chito Esmenda, TSN, pp. 37-38, Sept. 12, 1985.
5. Metro Manila Transit Corp. v. Court of Appeals, 223 SCRA 521 (1993); Campo v. Camarote, 100 Phil. 459
(1956).
6. Filamer Christian Institute v. Intermediate Appellate Court, 212 SCRA 637 (1992).
7. Testimony of Porfirio Cabil, p. 7, Oct. 26, 1987.
8. Supra note 5.
9. Yamada v. Manila Railroad Co., 33 Phil. 8, 14 (1915).
10. De Guzman v. Court of Appeals, 168 SCRA 612, 618 (1988); Bascos v. Court of Appeals, 221 SCRA 318
(1993).
11. Philippine Airlines v. Court of Appeals, 226 423 (1993).
12. Gatchalian v. Delim, 203 SCRA 126 (1991); Prudenciado v. Alliance Transport System, Inc., 148 SCRA
440 (1987).
13. La Mallorca v. Court of Appeals, 175 SCRA 739 (1989).
14. 202 SCRA 574 (1991).
146 | P a g e
15.
16.
17.
18.
19.
20.
21.
22.
23.
188 SCRA 216 (1990).

17 SCRA 224 (1966).
167 SCRA 379 (1988).
223 SCRA 521 (1993).
16 SCRA 742 (1966).
Id., at 747.
189 SCRA 158 (1988).
Id., at 172-173.
La Mallorca v. Court of Appeals, 17 SCRA 739 (1966).
Rule 8, 2 provides: "Alternative causes of action or defenses. A party may
set forth two or more statements of a claim or defense alternatively or hypothetically, either in one cause
of action or defense or in separate causes of action or defenses. When two or more statements are made
in the alternative and one of them if made independently would be sufficient, the pleading is not made
insufficient by the insufficiency of one or more of the alternative statements."
Rule 3, 6 provides: "Permissive joinder of parties. All persons in whom or against whom any right to
relief in respect to or arising out of the same transaction or series of transactions is alleged to exist,
whether jointly, severally, or in the alternative, may except as otherwise provided in these rules, join as
plaintiffs or to be joined as defendants in one complaint, where any question of law or fact common to all
such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as
may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection
with any proceedings in which he may have no interest."
2. Nature of Business; power of State to regulate
Art. 1765
ARTICLE 1765. The Public Service Commission may, on its own motion or on petition of any interested
party, after due hearing, cancel the certificate of public convenience granted to any common carrier that
repeatedly fails to comply with his or its duty to observe extraordinary diligence as prescribed in this
Section.
Pantanco v. PSC, 70 Phil 221
FIRST DIVISION
[G.R. No. 47065. June 26, 1940.]
PANGASINAN TRANSPORTATION CO., INC., petitioner, vs. THE PUBLIC SERVICE COMMISSION,
respondent.
C. de G. Alvear for petitioner.
Evaristo R. Sandoval for respondent.
SYLLABUS
1.
PUBLIC SERVICE COMMISSION; COMMONWEALTH ACT NO. 146 AS AMENDED BY
COMMONWEALTH ACT NO. 454; CONSTITUTIONALITY; DELEGATION OF LEGISLATIVE POWER. Section 8 of
Article XIII of the Constitution provides, among other things, that no franchise, certificate, or any other
form of authorization for the operation of a public utility shall be "for a longer period than fifty years," and
when it was ordained. in section 15 of Commonwealth Act No. 146, as amended by Commonwealth Act No.
454, that the Public Service Commission may prescribe as a condition for the issuance of a certificate that
it "shall be valid only for a definite period of time" and, in section 16 (a) that "no such certificates shall be
issued for a period of more than fifty years," the National Assembly meant to give effect to the aforesaid
constitutional mandate. More than this. it has thereby also declared its will that the period to be fixed by
the Public Service Commission shall not be longer than fifty years. All that has been delegated to the
commission, therefore, is the administrative function, involving the use of discretion, to carry out the will of
the National Assembly having in view, in addition, the promotion of "public interests in a proper and
147 | P a g e
suitable manner." The fact that the National Assembly may itself exercise the function and authority thus
conferred upon the Public Service Commission does not make the provision in question constitutionally
objectionable.
2.
ID.; ID.; ID.; ID. With the growing complexity of modern life, the multiplication of
the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a
constantly growing tendency toward the delegation of greater powers by the legislature, and toward the
approval of the practice by the courts. In harmony with such growing tendency, this court, since the
decision in the case of Compaia General de Tabacos de Filipinas vs. Board of Public Utility Commissioners
(34 Phil., 136), relied upon by the petitioner, has, in instances, extended its seal of approval to the
"delegation of greater powers by the legislature."
3.
ID; ID.; ID.; APPLICABILITY TO EXISTING CERTIFICATES OF PUBLIC CONVENIENCE.
Under the fourth paragraph of section 15 of Commonwealth Act No. 146, as amended by Commonwealth
Act No. 454, the power of the Public Service Commission to prescribe the conditions "that the service can
be acquired by the Commonwealth of the Philippines or by any instrumentality thereof upon payment of
the cost price of its useful equipment, less reasonable depreciation," and "that the certificate shall be valid
only for a definite period of time" is expressly made applicable "to any extension or amendment of
certificates actually in force" and "to authorizations to renew and increase equipment and properties." We
have examined the legislative proceedings on the subject and have found that these conditions were
purposely made applicable to existing certificates of public convenience.
4.
ID.; ID.; ID.; POWER OF NATIONAL ASSEMBLY TO AMEND OR ALTER EXISTING
CERTIFICATES OF PUBLIC CONVENIENCE. The National Assembly, by virtue of the Constitution, logically
succeeded to the Congress of the United States in the power to amend, alter or repeal any franchise or
right granted prior to or after the approval of the Constitution; and when Commonwealth Acts Nos. 146 and
454 were enacted, the National Assembly, to the extent therein provided, has declared its will and purpose
to amend or alter existing certificates of public convenience.
5.
ID.; ID.; ID.; POLICE POWER. Statutes enacted for the regulation of public
utilities, being a proper exercise by the state of its police power, are applicable not only to those public
utilities coming into existence after its passage, but likewise to those already established and in operation.
6.
ID.; ID.; ID.; ID. Commonwealth Acts Nos. 146 and 454 are not only the organic
acts of the Public Service Commission but are "a part of the charter of every utility company operating or
seeking to operate a franchise" in the Philippines. (Streator Aqueduct Co. vs. Smith et al., 295 Fed., 385.)
The business of a common carrier holds such a peculiar relation to the public interest that there is
superinduced upon it the right of public regulation. When private property is "affected with a public
interest it ceases to be juris privati only." When, therefore one devotes his property to a use in which the
public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be
controlled by the public for the common good, to the extent of the interest he has thus created. He may
withdraw his grant by discontinuing the use, but so long as he maintains the use he must submit to
control. Indeed, this right of regulation is so far beyond question that it is well settled that the power of the
state to exercise legislative control over public utilities may be exercised through boards of commissioners.
7.
ID.; ID.; ID.; ID. This right of the state to regulate public utilities is founded upon
the police power, and statutes for the control and regulation of utilities are a legitimate exercise thereof,
for the protection of the public as well as of the utilities themselves. Such statutes are, therefore, not
unconstitutional, either as impairing the obligation of contracts, taking property without due process, or
denying the equal protection of the laws, especially inasmuch as the question whether or not private
property shall be devoted to a public use and the consequent burdens assumed is ordinarily for the owner
to decide; and if he voluntarily places his property in public service he cannot complain that it becomes
subject to the regulatory powers of the state. (51 C. J., sec. 21, pp. 9, 10.) This is the more so in the light of
authorities which hold that a certificate of public convenience constitutes neither a franchise nor a
contract, confers no property right, and is a mere license or privilege.
8.
ID.; ID.; ID.; RIGHT TO BE HEARD AND TO ADDUCE EVIDENCE; CASE REMANDED
FOR FURTHER PROCEEDINGS. Whilst the challenged provisions of Commonwealth Act No. 454 are valid
and constitutional, Held: That the decision of the Public Service Commission should be reversed and the
case remanded thereto for further proceedings for the reason now to be stated. On the matter of limitation
to twenty-five (25) years of the life of its certificates of public convenience, there had been neither notice
nor opportunity given the petitioner to be heard or present evidence. The commission appears to have
taken advantage of the petitioner to augment petitioner's equipment in imposing the limitation of twenty-
148 | P a g e
five (25) years which might as well be twenty or fifteen or any number of years. This is, to say the least,
irregular and should not be sanctioned. There are cardinal primary rights which must be respected even in
proceedings of this character. The first of these rights is the right to a hearing, which includes the right of
the party interested or affected to present his own case and submit evidence in support thereof. In the
language of Chief Justice Hughes, in Morgan vs. U.S. (304 U.S., 1; 58 Sup. Ct., 773, 999; 82 Law. ed., 1129),
'the liberty and property of the citizen shall be protected by the rudimentary requirements of fair play." Not
only must the party be given an opportunity to present his case and to adduce evidence tending to
establish the rights which he asserts but the tribunal must consider the evidence presented.
DECISION
LAUREL, J p:
The petitioner has been engaged for the past twenty years in the business of transporting passengers in
the Provinces of Pangasinan and Tarlac and, to a certain extent, in the Provinces of Nueva Ecija and
Zambales, by means of motor vehicles commonly known as TPU buses, in accordance with the terms and
conditions of the certificates of public convenience issued in its favor by the former Public Utility
Commission in cases Nos. 24948, 30973, 36831, 32014 and 53090. On August 26, 1939, the petitioner
filed with the Public Service Commission an application for authorization to operate ten additional new
Brockway trucks (case No. 56641), on the ground that they were needed to comply with the terms and
conditions of its existing certificates and as a result of the application of the Eight Hour Labor Law. In the
decision of September 26, 1339, granting the petitioner's application for increase of equipment, the Public
Service Commission ordered:
"Y de acuerdo con lo que se provee por el articulo 15 de la Ley No. 146 del Commonwealth, tal como ha
sido enmendada por el articulo 1 de la Ley No. 454, por la presente se enmienda las condiciones de los
certificados de conveniencia publica expedidos en los expedientes Nos. 24948, 30973, 36831, 32014 y la
autorizacion concedida en el expediente No. 53090, asi que se consideran incorporadas en los mismos las
dos siguientes condiciones:
"Que los certificados de conveniencia publica y autorizacion arriba mencionados seran validos y
subsistentes solamente durante el periodo de veinticinco (25) anos, contados desde la fecha de la
promulgacion de esta decision.
"Que la empresa de la solicitante podra ser adquirida por el Commonwealth de Filipinas o por alguna
dependencia del mismo en cualquier tiempo que lo deseare previo pago del precio de costo de su equipo
util, menos una depreciacion razonable que se ha de fijar por la Comision al tiempo de su adquisicion."
Not being agreeable to the two new conditions thus incorporated in its existing certificates, the petitioner
filed on October 9, 1939 a motion for reconsideration which was denied by the Public Service Commission
on November 14, 1939. Whereupon, on November 20, 1939, the present petition for a writ of certiorari was
instituted in this court praying that an order be issued directing the secretary of the Public Service
Commission to certify forthwith to this court the records of all proceedings in case No. 56641; that this
court, after hearing, render a decision declaring section 1 of Commonwealth Act No. 454 unconstitutional
and void; that, if this court should be of the opinion that section 1 of Commonwealth Act No. 454 is
constitutional, a decision be rendered declaring that the provisions thereof are not applicable to valid and
subsisting certificates issued prior to June 8, 1939. Stated in the language of the petitioner, it is contended:
"1.
That the legislative powers granted to the Public Service Commission by section 1
of Commonwealth Act No. 454, without limitation, guide or rule except the unfettered discretion and
judgment of the Commission, constitute a complete and total abdication by the Legislature of its functions
in the premises, and. for that reason, the Act, in so far as those powers are concerned, is unconstitutional
and void.
"2.
That even if it be assumed that section 1 of Commonwealth Act No. 454, is a valid
delegation of legislative powers, the Public Service Commission has exceeded its authority because: (a)
The Act applies only to future certificates and not to valid and subsisting certificates issued prior to June 8,
1939, when said Act took effect, and (b) the Act, as applied by the Commission, violates constitutional
guarantees.
Section 15 of Commonwealth Act No. 146, as amended by section 1 of Commonwealth Act No. 454,
invoked by the respondent Public Service Commission in the decision complained of in the present
proceedings, reads as follows:
149 | P a g e
"With the exception of those enumerated in the preceding section, no public service shall operate in the
Philippines without possessing a valid and subsisting certificate from the Public Service Commission,
known as 'certificate of public convenience,' or 'certificate of convenience and public necessity,' as the
case may be, to the effect that the operation of said service and the authorization to do business will
promote the public interests in a proper and suitable manner.
"The Commission may prescribe as a condition for the issuance of the certificate provided in the preceding
paragraph that the service can be acquired by the Commonwealth of the Philippines or by any
instrumentality thereof upon payment of the cost price of its useful equipment, less reasonable
depreciation; and likewise, that the certificate shall be valid only for a definite period of time; and that the
violation of any of these conditions shall produce the immediate cancellation of the certificate without the
necessity of any express action on the part of the Commission.
"In estimating the depreciation, the effect of the use of the equipment, its actual condition, the age of the
model, or other circumstances affecting its value in the market shall be taken into consideration.
"The foregoing is likewise applicable to any extension or amendment of certificates actually in force and to
those which may hereafter be issued, to permits to modify itineraries and time schedules of public services
and to authorizations to renew and increase equipment and properties."
Under the first paragraph of the aforequoted section 15 of Act No. 146, as amended, no public service can
operate without a certificate of public convenience or certificate of convenience and public necessity to the
effect that the operation of said service and the authorization to do business will promote "public interests
in a proper and suitable manner." Under the second paragraph, one of the conditions which the Public
Service Commission may prescribe for the issuance of the certificate provided for in the first paragraph is
that "the service can be acquired by the Commonwealth of the Philippines or by any instrumentality
thereof upon payment of the cost price of its useful equipment, less reasonable depreciation," a condition
which is virtually a restatement of the principle already embodied the Constitution, section 6 of Article XII,
which provides at "the State may, in the interest of national welfare and defense, establish and operate
industries and means of transportation and communication, and, upon payment of just compensation,
transfer to public ownership utilities d other private enterprises to be operated by the Government."
Another condition which the Commission may prescribe, and which is assailed by the petitioner, is that the
certificate "shall be valid only for a definite period of time." As there is a relation between the first and
second paragraphs of said section 15, the two provisions must be read and interpreted together. That is to
say, in issuing a certificate, the Commission must necessarily be satisfied that the operation of the service
under said certificate during a definite period fixed therein "will promote the public interests in a proper
and suitable manner." Under section 16 (a) of Commonwealth Act No. 146 which is a complement of
section 15, the Commission is empowered to issue certificates of public convenience whenever it "finds
that the operation of the public service proposed and the authorization to do business will promote the
public interests in a proper and suitable manner." Inasmuch as the period to be fixed by the Commission
under section 15 is inseparable from the certificate itself, said period cannot be disregarded by the
Commission in determining the question whether the issuance of the certificate will promote the public
interests in a proper and suitable manner. Conversely, in determining "a definite period of time," the
Commission will be guided by "public interests," the only limitation to its power being that said period shall
not exceed fifty years (sec. 16 (a), Commonwealth Act No. 146; Constitution, Art. XIII, sec. 8. ) We have
already ruled that "public interest" furnishes a sufficient standard. (People vs. Fernandez and Trinidad, G. R.
No. 45655, promulgated June 15, 1938; People vs. Rosenthal and Osmea, G. R. Nos. 46076 and 46077,
promulgated June 12, 1939, citing New York Central Securities Corporation vs. U. S. A., 287 U. S. 12, 24, 25,
77 Law. ed. 138, 145, 146; Schenchter Poultry Corporation vs. U. S., 295 U. S. 495, 540, 79 Law. ed.
1570,1585; Ferrazzini vs. Gsell, 34 Phil., 697, 711-712.)
Section 8 of Article XIII of the Constitution provides, among other things, that no franchise, certificate, or
any other form of authorization for the operation of a public utility shall be "for a longer period than fifty
years," and when it was ordained, in section 15 of Commonwealth Act No. 146, as amended by
Commonwealth Act No. 454, that the Public Service Commission may prescribe as a condition for the
issuance of a certificate that it "shall be valid only for a definite period of time" and, in section 16 (a) that
"no such certificates shall be issued for a period of more than fifty years," the National Assembly meant to
give effect to the aforesaid constitutional mandate. More than this, it has thereby also declared its will that
the period to be fixed by the Public Service Commission shall not be longer than fifty years. All that has
been delegated to the Commission, therefore, is the administrative function, involving the use of
discretion, to carry out the will of the National Assembly having in view, in addition, the promotion of
150 | P a g e
"public interests in a proper and suitable manner." The fact that the National Assembly may itself exercise
the function and authority thus conferred upon the Public Service Commission does not make the provision
in question constitutionally objectionable.
The theory of the separation of powers is designed by its originators to secure action and at the same time
to forestall over action which necessarily results from undue concentration of powers, and thereby obtain
efficiency and prevent despotism. Thereby, the "rule of law" was established which narrows the range of
governmental action and makes it subject to control by certain legal devices. As a corollary, we find the
rule prohibiting delegation of legislative authority, and from the earliest time American legal authorities
have proceeded on the theory that legislative power must be exercised by the legislature alone. It is
frankness, however, to confess that as one delves into the mass of judicial pronouncements, he finds a
great deal of confusion. One thing, however, is apparent in the development of the principle of separation
of powers and that is that the maxim of delegatus non potest delegari or delegata potestas non potest
delegari, attributed to Bracton (De Legibus et Consuetudinious Angliae, edited by G.E. Woodbine, Yale
University Press, 1922, vol. 2, p. 167) but which is also recognized in principle in the Roman Law (D.
17.18.3), has been made to adapt itself to the complexities of modern governments, giving rise to the
adoption, within certain limits, of the principle of "subordinate legislation," not only in the United States
and England but in practically all modern governments. (People vs. Rosenthal and Osmea, G. R. Nos.
46076 and 46077, promulgated June 12, 1939.) Accordingly, with the growing complexity of modern life,
the multiplication of the subjects of governmental regulation, and the increased difficulty of administering
the laws, there is a constantly growing tendency toward the delegation of greater powers by the
legislature, and toward the approval of the practice by the courts. (Dillon Catfish Drainage Dist. vs. Bank of
Dillon, 141 S. E. 274, 275, 143 S. Ct. 178; State vs. Knox County, 54 S. W. 2d. 973, 976, 165 Tenn. 319.) In
harmony with such growing tendency, this Court, since the decision in the case of Compania General de
Tabacos de Filipinas vs. Board of Public Utility Commissioners (34 Phil., 136), relied upon by the petitioner,
has, in instances, extended its seal of approval to the "delegation of greater powers by the legislature."
(Inchausti Steamship Co. vs. Public Utility Commissioner, 44 Phil., 366; Alegre vs. Collector of Customs, 53
Phil., 394; Cebu Autobus Co. vs. De Jesus, 56 Phil., 446; People vs. Fernandez & Trinidad, G. R. No, 45655,
promulgated June 15, 1938 in People vs. Rosenthal & Osmea, G. R. Nos. 46076, 46077, promulgated June
12, 1939; and Robb and Hilscher vs. People, G.R. No. 45866, promulgated June 12, 1939.)
Under the fourth paragraph of section 15 of Commonwealth Act No. 146, as amended by Commonwealth
Act No. 454, the power of the Public Service Commission to prescribe the conditions "that the service can
be acquired by the Commonwealth of the Philippines or by any instrumentality thereof upon payment of
the cost price of its useful equipment, less reasonable depreciation," and "that the certificate shall be valid
only for a definite period of time" is expressly made applicable "to any extension or amendment of
certificates actually in force" and "to authorizations to renew and increase equipment and properties." We
have examined the legislative proceedings on the subject and have found that these conditions were
purposely made applicable to existing certificates of public convenience. The history of Commonwealth Act
No. 454 reveals that there was an attempt to suppress, by way of amendment, the sentence "and likewise,
that the certificate shall be valid only for a definite period of time," but the attempt failed:
xxx
xxx
xxx
"Sr. CUENCO. Senor Presidente, para otra enmienda. En la misma pagina, lineas 23 y 24, pido que se
supriman las palabras 'and likewise, that the certificate shall be valid only for a definite period of time.'
Esta disposicion del proyecto autoriza a la Comision de Servicios Publicos a fijar un plazo de vigencia del
certificado de conveniencia publica. Todo el mundo sabe que no se puede determinar cuando los intereses
del servicio publico requieren la explotacion de un servicio publico y como ha de saber la Comision de
Servicios Publicos, si en un tiempo determinado, la explotacion de algunos buses en cierta ruta ya no tiene
razon de ser, sobre todo, si se tiene en cuenta; que la explotacion de los servicios publicos depende de
condiciones fluctuantes, asi como del volumen del trafico y de otras condiciones. Ademas, el servicio
publico se concede por la Comision de Servicios Publicos cuando el interes publico asi lo exige. El interes
publico no tiene duracion fija, no es permanente; es un proceso mas o menos indefinido en cuanto al
tiempo. Se ha acordado eso en el caucus de anoche.
"El PRESIDENTE PRO TEMPORE. Que dice el Comite?
"Sr. ALANO. El Comite siente tener que rechazar esa enmienda, en vista de que esto de los certificados de
conveniencia publica es igual que la franquicia: se puede extender. Si los servicios prestados por la
compania durante el tiempo de su certificado lo requiere, puede pedir la extension y se le extendera; pero
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no creo conveniente el que nosotros demos un certificado de conveniencia publica de urla manera que
podria pasar de cincuenta anos, porque seria anticonstitucional."
xxx
xxx
xxx
By a majority vote the proposed amendment was defeated. (Sesion de 17 de mayo de 1939, Asamblea
Nacional.)
The petitioner is mistaken in the suggestion that, simply because its existing certificates had been granted
before June 8, 1939, the date when Commonwealth Act No. 454, amendatory of section 15 of
Commonwealth Act No. 146, was approved, it must be deemed to have the right of holding them in
perpetuity. Section 74 of the Philippine Bill provided that "no franchise, privilege, or concession shall be
granted to any corporation except under the conditions that it shall be subject to amendment, alteration,
or repeal by the Congress of the United States." The Jones Law, incorporating a similar mandate, provided,
in section 28, that "no franchise or right shall be granted to any individual, firm, or corporation except
under the conditions that it shall be subject to amendment, alteration, or repeal by the Congress of the
United States." Lastly, the Constitution of the Philippines provides, in section 8 of Article XIII, that "no
franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it
shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so
requires." The National Assembly, by virtue of the Constitution, logically succeeded to the Congress of the
United States in the power to amend, alter or repeal any franchise or right granted prior to or after the
approval of the Constitution; and when Commonwealth Acts Nos. 146 and 454 were enacted, the National
Assembly, to the extent therein provided, has declared its will and purpose to amend or alter existing
certificates of public convenience.
Upon the other hand, statutes enacted for the regulation of public utilities, being a proper exercise by the
state of its police power, are applicable not only to those public utilities coming into existence after its
passage, but likewise to those already established and in operation.
"Nor is there any merit in petitioner's contention, that, because of the establishment of petitioner's
operations prior to May 1, 1917, they are not subject to the regulations of the Commission. Statutes for the
regulation of public utilities are a proper exercise by the state of its police power. As soon as the power is
exercised, all phases of operation of established utilities, become at once subject to the police power thus
called into operation. Producers' Transportation Co. v. Railroad Commission, 251 U. S. 228, 40 Sup. Ct. 131,
64 Law. ed. 239, Law vs. Railroad Commission, 184 Cal. 737, 195 Pac. 423, 14 A. L. R. 249. The statute is
applicable not only to those public utilities coming into existence after its passage, but likewise to those
already established and in operation. The 'Auto Stage and Truck Transportation Act' (Stats. 1917, c. 213) is
a statute passed in pursuance of the police power. The only distinction recognized in the statute between
those established before and those established after the passage of the act is in the method of the
creation of their operative rights. A certificate of public convenience and necessity is required for any new
operation, but no such certificate is required of any transportation company for the operation which was
actually carried on in good faith on May 1, 1917. This distinction in the creation of their operative rights in
no way affects the power of the Commission to supervise and regulate them. Obviously the power of the
Commission to hear and dispose of complaints is as effective against companies securing their operative
rights prior to May 1, 1917, as against those subsequently securing such rights under a certificate of public
convenience and necessity. (Motor Transit Co. et al. vs. Railroad Commission of California et al., 209 Pac.
586.)"
Moreover, Commonwealth Acts Nos. 146 and 454 are not only the organic acts of the Public Service
Commission but are "a part of the charter of every utility company operating or seeking to operate a
franchise" in the Philippines. (Streator Aqueduct Co. v. Smith et al., 295 Fed. 385.) The business of a
common carrier holds such a peculiar relation to the public interest that there is superinduced upon it the
right of public regulation. When private property is "affected with a public interest it ceased to be juris
privati only." When, therefore, one devotes his property to a use in which the public has an interest, he, in
effect, grants to the public an interest in that use, and must submit to be controlled by the public for the
common good, to the extent of the interest he has thus created. He may withdraw his grant by
discontinuing the use, but so long as he maintains the use he must submit to control. Indeed, this right of
regulation is so far beyond question that it is well settled that the power of the state to exercise legislative
control over public utilities may be exercised through boards of commissioners. (Fisher vs. Yangco
Steamship Company, 31 Phil., 1, citing Munn vs. Illinois, 94 U. S. 113; Georgia R. & Bkg. Co. vs. Smith, 128
U. S. 174; Budd vs. New York, 143 U. S. 517; New York etc. R. Co. vs. Bristol, 151 U. S. 556, 571;
Connecticut etc. R. Co. vs. Woodruff, 153 U. S. 689; Louisville etc. Ry Co. vs. Kentucky, 161 U. S. 677, 695.)
152 | P a g e
This right of the state to regulate public utilities is founded upon the police power, and statutes for the
control and regulation of utilities are a legitimate exercise thereof, for the protection of the public as well
as of the utilities themselves. Such statutes are, therefore, not unconstitutional, either as impairing the
obligation of contracts, taking property without due process, or denying the equal protection of the laws,
especially inasmuch as the question whether or not private property shall be devoted to a public use and
the consequent burdens assumed is ordinarily for the owner to decide; and if he voluntarily places his
property in public service he cannot complain that it becomes subject to the regulatory powers of the
state. (51 C. J., sec. 21, pp. 9-10.) This is the more so in the light of authorities which hold that a certificate
of public convenience constitutes neither a franchise nor a contract, confers no property right, and is a
mere license or privilege. (Burgess vs. Mayor & Aldermen of Brockton, 235 Mass. 95, 100, 126 N.E. 456;
Roberto vs. Commissioners of Department of Public Utilities, 262 Mass. 583, 160 N.E. 321, Scheible vs.
Hogan, 113 Ohio St., 83 148 N.E. 581; Matz vs. Curtis [J.L.] Cartage Co., [1937], 132 Ohio St. 271, 7 N.E.
[2d] 220; Manila Yellow Taxicab Co. vs. Sabellano, 59 Phil. 773.)
Whilst the challenge provisions of Commonwealth Act No. 454 are valid and constitutional, we are,
however. of the opinion that the decision of the Public Service Commission should be reversed and the
case remanded thereto for further proceedings for the reason now to be stated. The Public Service
Commission has power, upon proper notice and hearing, "to amend, modify or revoke at any time any
certificate issued under the provisions of this Act, whenever the facts and circumstances of the strength of
which said certificate was issued have been misrepresented or materially changed." (Section 16, par. [m].
Commonwealth Act No. 146.) The petitioner's application here was for an increase of its equipment to
enable it to comply with the conditions of its certificates of public convenience. On the matter of limitation
of twenty five (25) years of the life of its certificates of public convenience, there had been neither notice
not opportunity given the petitioner to be heard or present evidence. The Commission appears to have
taken advantage of the petitioner to augment petitioner's equipment in imposing the limitation to twentyfive (25) years which might as well be twenty of fifteen or any number of years. This is, to say the least,
irregular and should not be sanctioned. There are cardinal primary rights which must be respected even in
proceedings of this character. The first of these rights is the right of a hearing, which includes the right of
the party interested or affected to present his own case and submit evidence in support thereof. In the
language of Chief Justice Hughes, in Morgan vs. U. S., 304 U. S. 1, 58 S. Ct. 773, 999, 82 Law. ed. 1129,
"the liberty and property of the citizen shall be protected by the rudimentary requirements of fair play."
Not only must the party be given an opportunity to present his case and to adduce evidence tending to
establish the rights which he asserts but the tribunal must consider the evidence presented. (Chief Justice
Hughes in Morgan vs. U. S., 298 U. S. 468, 56 S. Ct. 906, 80 Law. ed. 1288.) In the language of this Court in
Edwards vs. McCoy (22 Phil., 598), "the right to adduce evidence, without the corresponding duty on the
part of the board to consider it, is vain. Such right is conspicuously futile if the person or persons to whom
the evidence is presented can thrust it aside without notice or consideration." While the duty to deliberate
does not impose the obligation to decide right, it does imply a necessity which cannot be disregarded,
namely, that of having something to support its decision. A decision with absolutely nothing to support it is
a nullity, at least when directly attacked. (Edwards vs. McCoy, supra.) This principle emanates from the
more fundamental principle that the genius of constitutional government is contrary to the vesting of
unlimited power anywhere. Law is both a grant and a limitation upon power.
The decision appealed from is hereby reversed and the case remanded to the Public Service Commission
for further proceedings in accordance with law and this decision, without any pronouncement regarding
costs. So ordered.
Avancea, C.J., Imperial, Diaz, Concepcion, and Moran, JJ., concur.
3. Nature and Basis of liability
Art 1733
ARTICLE 1733. Common carriers, from the nature of their business and for reasons of public policy, are
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Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735,
and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set
forth in articles 1755 and 1756.
Cangco v. MRR, 38 Phil 767
EN BANC
[G.R. No. 12191. October 14, 1918.]
JOSE CANGCO, plaintiff-appellant, vs. MANILA RAILROAD CO., defendant-appellee.
Ramon Sotelo, for appellant.
Kincaid & Hartigan, for appellee.
SYLLABUS
1.
MASTER AND SERVANT; CONTRACT; NEGLIGENCE. Failure to perform a contract
cannot be excused upon the ground that the breach was due to the negligence of a servant of the obligor,
and that the latter exercised due diligence in the selection and control of the servant.
2.
CONTRACTS; NEGLIGENCE:; CULPA AQUILIANA; CULPA CONTRACTUAL. The
distinction between negligence as the source of an obligation (culpa aquiliana) and negligence in the
performance of a contract (culpa contractual ) pointed out.
3.
CARRIERS; PASSENGERS; NEGLIGENCE; ALIGHTING FROM MOVING TRAIN. It is
not negligence per se for a traveler to alight from a slowly moving train.
DECISION
FISHER, J p:
At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the
employment of the Manila Railroad Company in the capacity of clerk, with a monthly wage of P25. He lived
in the pueblo of San Mateo, in the province of Rizal, which is located upon the line of the defendant
railroad company; and in coming daily by train to the company's office in the city of Manila where he
worked, he used a pass, supplied by the company, which entitled him to ride upon the company's trains
free of charge. Upon the occasion in question, January 20, 1915, the plaintiff was returning home by rail
from his daily labors; and as the train drew up to the station in San Mateo the plaintiff arose from his seat
in the second class-car where he was riding and, making his exit through the door, took his position upon
the steps of the coach, seizing the upright guardrail with his right hand for support.
On the side of the train where passengers alight at the San Mateo station there is a cement platform which
begins to rise with a moderate gradient some distance away from the company's office and extends along
in front of said office for a distance sufficient to cover the length of several coaches. As the train slowed
down another passenger, named Emilio Zuniga, also an employee of the railroad company, got off the
same car, alighting safely at the point where the platform begins to rise from the level of the ground. When
the train had proceeded a little farther the plaintiff Jose Cangco stepped off also, but one or both of his feet
came in contact with a sack of watermelons with the result that his feet slipped from under him and he fell
violently on the platform. His body at once rolled from the platform and was drawn under the moving car,
where his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted from the
train the car moved forward possibly six meters before it came to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was lighted
dimly by a single light located some distance away, objects on the platform where the accident occurred
were difficult to discern, especially to a person emerging from a lighted car.
The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found in
the fact that it was the customary season for harvesting these melons and a large lot had been brought to
the station for shipment to the market. They were contained in numerous tow sacks which had been piled
on the platform in a row one upon another. The testimony shows that this row of sacks was so placed that
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there was a space of only about two feet between the sacks of melons and the edge of the platform; and it
is clear that the fall of the plaintiff was due to the fact that his foot alighted upon one of these melons at
the moment he stepped upon the platform. His statement that he failed to see these objects in the
darkness is readily to be credited.
The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the injuries
which he had received were very serious. He was therefore brought at once to a certain hospital in the city
of Manila where an examination was made and his arm was amputated. The result of this operation was
unsatisfactory, and the plaintiff was then carried to another hospital where a second operation was
performed and the member was again amputated higher up near the shoulder. It appears in evidence that
the plaintiff expended the sum of P790.25 in the form of medical and surgical fees and for other expenses
in connection with the process of his curation.
Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of Manila to
recover damages of the defendant company, founding his action upon the negligence of the servants and
employees of the defendant in placing the sacks of melons upon the platform and in leaving them so
placed as to be a menace to the security of passenger alighting from the company's trains. At the hearing
in the Court of First Instance, his Honor, the trial judge, found the facts substantially as above stated, and
drew therefrom his conclusion to the effect that, although negligence was attributable to the defendant by
reason of the fact that the sacks of melons were so placed as to obstruct passengers passing to and from
the cars, nevertheless, the plaintiff himself had failed to use due caution in alighting from the coach and
was therefore precluded from recovering. Judgment was accordingly entered in favor of the defendant
company, and the plaintiff appealed.
It can not be doubted that the employees of the railroad company were guilty of negligence in piling these
sacks on the platform in the manner above stated; that their presence caused the plaintiff to fall as he
alighted from the train; and that they therefore constituted an effective legal cause of the injuries
sustained by the plaintiff. It necessarily follow s that the defendant company is liable for the damage
thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence. In resolving
this problem it is necessary that each of these conceptions of liability, to-wit, the primary responsibility of
the defendant company and the contributory negligence of the plaintiff should be separately examined.
It is important to note that the foundation of the legal liability of the defendant is the contract of carriage,
and that the obligation to respond for the damage which plaintiff has suffered arises, if at all, from the
breach of that contract by reason of the failure of defendant to exercise due care in its performance. That
is to say, its liability is direct and immediate, differing essentially, in the legal viewpoint from that
presumptive responsibility for the negligence of its servants, imposed by article 1903 of the Civil Code,
which can be rebutted by proof of the exercise of due care in their selection and supervision. Article 1903
of the Civil Code is not applicable to obligations arising ex contractu, but only to extra-contractual
obligations or to use the technical form of expression, that article relates only to culpa aquiliana and not
to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly points
out this distinction, which was also recognized by this Court in its decision in the case of Rakes vs. Atlantic,
Gulf and Pacific Cc. (7 Phil. Rep., 359). In commenting upon article 1093 (vol. 8, p. 30) Manresa clearly
points out the difference between "culpa, substantive and independent, which of itself constitutes the
source of an obligation between persons not formerly connected by any legal tie" and culpa considered as
an "accident in the performance of an obligation already existing . . .."
In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that
article 1903 of the Civil Code is not applicable to acts of negligence which constitute the breach of a
contract.
Upon this point the Court said:
"The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to be
those not growing out of pre-existing duties of the parties to one another But where relations already
formed give rise to duties, whether springing from contract or quasi-contract, then breaches of those
duties are subject to articles 1101, 1103 and 1104 of the same code." (Rakes vs. Atlantic, Gulf and Pacific
Co., 7 Phil. Rep., 359 at p. 365.)
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This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in certain cases
imposed upon employers with respect to damages occasioned by the negligence of their employees to
persons to whom they are not bound by contract, is not based, as in the English Common Law, upon the
principle of respondeat superior if it were, the master would be liable in every case and unconditionally
but upon the principle announced in article 1902 of the Civil Code, which imposes upon all persons who
by their fault or negligence, do injury to another, the obligation of making good the damage caused. One
who places a powerful automobile in the hands of a servant whom he knows to be ignorant of the method
of managing such a vehicle, is himself guilty of an act of negligence which makes him liable for all the
consequences of his imprudence. The obligation to make good the damage arises at the very instant that
the unskillful servant, while acting within the scope of his employment, causes the injury. The liability of
the master is personal and direct. But, if the master has not been guilty of any negligence whatever in the
selection and direction of the servant, he is not liable for the acts of the latter, whether done within the
scope of his employment or not, if the damage done by the servant does not amount to a breach of the
contract between the master and the person injured.
It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves
the master from liability for the latter's acts on the contrary, that proof shows that the responsibility has
never existed. As Manresa says (vol. 8, p. 68) the liability arising from extra-contractual culpa is always
based upon a voluntary act or omission which, without willful intent, but by mere negligence or inattention,
has caused damage to another. A master who exercises all possible care in the selection of his servant,
taking into consideration the qualifications they should possess for the discharge of the duties which it is
his purpose to confide to them, and directs them with equal diligence, thereby performs his duty to third
persons to whom he is bound by no contractual ties, and he incurs no liability whatever if, by reason of the
negligence of his servants, even within the scope of their employment, such third persons suffer damage.
True it is that under article 1903 of the Civil Code the law creates a presumption that he has been
negligent in the selection or direction of his servant, but the presumption is rebuttable and yields to proof
of due care and diligence in this respect.
The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rican Civil Code,
has held that these articles are applicable to cases of extra-contractual culpa exclusively. (Carmona vs.
Cuesta, 20 Porto Rico Reports, 215.)
This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua and
Leynes, (30 Phil. Rep., 624), which was an action brought upon the theory of the extra-contractual liability
of the defendant to respond for the damage caused by the carelessness of his employee while acting
within the scope of his employment The Court, after citing the last paragraph of article 1903 of the Civil
Code, said:
"From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant
or employee there instantly arises a presumption of law that there was negligence on the part of the
master or employer either in the selection of the servant or employee, or in supervision over him after the
selection, or both; and (2) that presumption is juris tantum and not juris et de jure, and consequently, may
be rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in
selection and supervision he has exercised the care and diligence of a good father of a family, the
presumption is overcome and he is relieved from liability.
"This theory bases the responsibility of the master ultimately on his own negligence and not on that of his
servant. This is the notable peculiarity of the Spanish law of negligence. It is, of course, in striking contrast
to the American doctrine that, in relations with strangers, the negligence of the servant is conclusively the
negligence of the master."
The opinion there expressed by this Court, to the effect that in case of extra-contractual culpa based upon
negligence, it is necessary that there shall have been some fault attributable to the defendant personally,
and that the last paragraph of article 1903 merely establishes a rebuttable presumption, is in complete
accord with the authoritative opinion of Manresa, who says (vol. 12, p. 611) that the liability created by
article 1903 is imposed by reason of the breach of the duties inherent in the special relations of authority
or superiority existing between the person called upon to repair the damage and the one who, by his act or
omission, was the cause of it.
On the other hand, the liability of masters and employers for the negligent acts or omissions of their
servants or agents, when such acts or omissions cause damages which amount to the breach of a contract,
is not based upon a mere presumption of the master's negligence in their selection or control, and proof of
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exercise of the utmost diligence and care in this regard does not relieve the master of his liability for the
breach of his contract.
Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual obligation
has its source in the breach or omission of those mutual duties which civilized society imposes upon its
members, or which arise from these relations, other than contractual, of certain members of society to
others, generally embraced in the concept of status. The legal rights of each member of society constitute
the measure of the corresponding legal duties, mainly negative in character, which the existence of those
rights imposes upon all other members of society. The breach of these general duties whether due to
willful intent or to mere inattention, if productive of injury, gives rise to an obligation to indemnify the
injured party. The fundamental distinction between obligations of this character and those which arise from
contract, rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act
or omission itself which creates the vinculum juris, whereas in contractual relations the vinculum exists
independently of the breach of the voluntary duty assumed by the parties when entering into the
contractual relation.
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect and our Legislature has so elected to limit such liability to cases
in which the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for
reasons of public policy, to extend that liability, without regard to the lack of moral culpability, so as to
include responsibility for the negligence of those persons whose acts or omissions are imputable, by a
legal fiction, to others who are in a position to exercise an absolute or limited control over them. The
legislature which adopted our Civil Code has elected to limit extra contractual liability with certain welldefined exceptions to cases in which moral culpability can be directly imputed to the persons to be
charged. This moral responsibility may consist in having failed to exercise due care in one's own acts, or in
having failed to exercise due care in the selection and control of one's agents or servants, or in the control
of persons who, by reason of their status, occupy a position of dependency with respect to the person
made liable for their conduct.
The position of a natural or juridical person who has undertaken by contract to render service to another, is
wholly different from that to which article 1903 relates. When the source of the obligation upon which
plaintiff's cause of action depends is a negligent act or omission, the burden of proof rests upon plaintiff to
prove the negligence if he does not his action fails. But when the facts averred show a contractual
undertaking by defendant for the benefit of plaintiff, and it is alleged that plaintiff has failed or refused to
perform the contract, it is not necessary for plaintiff to specify in his pleadings whether the breach of the
contract is due to willful fault or to negligence on the part of the defendant, or of his servants or agents.
Proof of the contract and of its nonperformance is sufficient prima facie to warrant a recovery.
"As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor should assume
the burden of proof of its existence, as the only fact upon which his action is based; while on the contrary,
in a case of negligence which presupposes the existence of a contractual obligation, if the creditor shows
that it exists and that it has been broken, it is not necessary for him to prove the negligence." (Manresa,
vol. 8, p. 71 [1907 ed., p. 76].)
As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach was
due to the negligent conduct of defendant or of his servants, even though such be in fact the actual cause
of the breach, it is obvious that proof on the part of defendant that the negligence or omission of his
servants or agents caused the breach of the contract would not constitute a defense to the action. If the
negligence of servants or agents could be invoked as a means of discharging the liability arising from
contract, the anomalous result would be that persons acting through the medium of agents or servants in
the performance of their contracts, would be in a better position than those acting in person. If one
delivers a valuable watch to a watchmaker who contracts to repair it, and the bailee, by a personal
negligent act causes its destruction, he is unquestionably liable. Would it be logical to free him from his
liability for the breach of his contract, which involves the duty to exercise due care in the preservation of
the watch, if he shows that it was his servant whose negligence caused the injury? If such a theory could
be accepted, juridical persons would enjoy practically complete immunity from damages arising from the
breach of their contracts if caused by negligent acts of omission or commission on the part of their
servants, as such juridical persons can of necessity only act through agents or servants, and it would no
doubt be true in most instances that reasonable care had been taken in the selection and direction of such
servants. If one delivers securities to a banking corporation as collateral, and they are lost by reason of the
negligence of some clerk employed by the bank, would it be just and reasonable to permit the bank to
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relieve itself of liability for the breach of its contract to return the collateral upon the payment of the debt
by proving that due care had been exercised in the selection and direction of the clerk?
This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a mere
incident to the performance of a contract has frequently been recognized by the supreme court of Spain.
(Sentencias of June 27, 1894; November 20, 1896; and December 13 1896.) In the decision of November
20, 1896, it appeared that plaintiff s action arose ex contractu, but that defendant sought to avail himself
of the provisions of article 1902 of the Civil Code as a defense. The Spanish Supreme Court rejected
defendant's contention, saying:
"These are not cases of injury caused, without any pre-existing obligation, by fault or negligence, such as
those to which article 1902 of the Civil Code relates, but of damages caused by the defendant's failure to
carry out the undertakings imposed by the contracts . . .."
A brief review of the earlier decision of this court involving the liability of employers for damage done by
the negligent acts of their servants will show that in no case has the court ever decided that the
negligence of the defendant's servants [has] been held to constitute a defense to an action for damages
for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was not
liable for the damages caused by the negligence of his driver. In that case the court commented on the
fact that no evidence had been adduced in the trial court that the defendant had been negligent in the
employment of the driver, or that he had any knowledge of his lack of skill or carefulness.
In the case of Baer Senior & Co.'s Successors vs. Compaia Maritima (6 Phil. Rep., 215), the plaintiff sued
the defendant for damages caused by the loss of a barge belonging to plaintiff which was allowed to get
adrift by the negligence of defendant's servants in the course of the performance of a contract of towage.
The court held, citing Manresa (vol. 8, pp. 29, 69) that if the "obligation of the defendant grew out of a
contract made between it and the plaintiff . . . we do not think that the provisions of articles 1902 and
1903 are applicable to the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover
damages for personal injuries caused by the negligence of defendant's chauffeur while driving defendant's
automobile in which defendant was riding at the time. The court found that the damages were caused by
the negligence of the driver of the automobile, but held that the master was not liable, although he was
present at the time, saying:
" . . . unless the negligent acts of the driver are continued for such a length of time as to give the owner a
reasonable opportunity to observe them and to direct the driver to desist therefrom. . . . The act
complained of must be continued in the presence of the owner for such a length of time that the owner by
his acquiescence, makes the driver's acts his own."
In the case of Yamada vs. Manila Railroad Co. and Rachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it is
true that the court rested its conclusion as to the liability of the defendant upon article 1903, although the
facts disclosed that the injury complained of by plaintiff constituted a breach of the duty to him arising out
of the contract of transportation. The express ground of the decision in this case was that article 1903, in
dealing with the liability of a master for the negligent acts of his servants "makes the distinction between
private individuals and public enterprise;" that as to the latter the law creates a rebuttable presumption of
negligence in the selection or direction of the servants; and that in the particular case the presumption of
negligence had not been overcome.
It is evident, therefore, that in its decision in the Yamada case, the court treated plaintiff's action as though
founded in tort rather than as based upon the breach of the contract of carriage, and an examination of
the pleadings and of the briefs shows that the questions of law were in fact discussed upon this theory.
Viewed from the standpoint of the defendant the practical result must have been the same in any event.
The proof disclosed beyond doubt that the defendant's servant was grossly negligent and that his
negligence was the proximate cause of plaintiff's injury. It also affirmatively appeared that defendant had
been guilty of negligence in its failure to exercise proper discretion in the direction of the servant.
Defendant was therefore, liable for the injury suffered by plaintiff, whether the breach of the duty were to
be regarded as constituting culpa aquilina or culpa contractual. As Manresa points out (vol. 8, pp. 29 and
69) whether negligence occurs as an incident in the course of the performance of a contractual
undertaking or is itself the source of an extra-contractual obligation, its essential characteristics are
identical. There is always an act or omission productive of damage due to carelessness or inattention on
the part of the defendant. Consequently, when the court holds that a defendant is liable in damages for
having failed to exercise due care, either directly, or in failing to exercise proper care in the selection and
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direction of his servants, the practical result is identical in either ease. Therefore, it follows that it is not to
be inferred, because the court held in the Yamada ease that the defendant was liable for the damages
negligently caused by its servant to a person to whom it was bound by contract, and made reference to
the fact that the defendant was negligent in the selection and control of its servants, that in such a case
the court would have held that it would have been a good defense to the action, if presented squarely
upon the theory of the breach of the contract, for defendant to have proved that it did in fact exercise care
in the selection and control of the servant.
The true explanation of such cases is to be found by directing the attention to the relative spheres of
contractual and extra-contractual obligations. The field of non-contractual obligation is much more broader
than that of contractual obligation, comprising, as it does, the whole extent of juridical human relations.
These two fields, figuratively speaking, concentric; that is to say, the mere fact that a person is bound to
another by contract does not relieve him from extra-contractual liability to such person. When such a
contractual relation exists the obligor may break the contract under such conditions that the same act
which constitutes a breach of the contract would have constituted the source of an extra-contractual
obligation had no contract existed between the parties.
The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in
safety and to provide safe means of entering and leaving its trains (Civil Code, article 1258). That duty,
being contractual, was direct and immediate, and its non-performance could not be excused by proof that
the fault was morally imputable to defendant's servants.
The railroad company's defense involves the assumption that even granting that the negligent conduct of
its servants in placing an obstruction upon the platform was a breach of its contractual obligation to
maintain safe means of approaching and leaving its trains, the direct and proximate cause of the injury
suffered by plaintiff was his own contributory negligence in failing to wait until the train had come to a
complete stop before alighting. Under the doctrine of comparative negligence announced in the Rakes
case (supra), if the accident was caused by plaintiff's own negligence, no liability is imposed upon
defendant, whereas if the accident was caused by defendant's negligence and plaintiff's negligence merely
contributed to his injury, the damages should be apportioned. It is, therefore, important to ascertain if
defendant was in fact guilty of negligence.
It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the
particular injury suffered by him could not have occurred. Defendant contends, and cites many authorities
in support of the contention, that it is negligence per se for a passenger to alight from a moving train. We
are not disposed to subscribe to this doctrine n its absolute form. We are of the opinion that this
proposition is too broadly stated and is at variance with the experience of every-day life. In this particular
instance, tat the train was barely moving when plaintiff alighted is shown conclusively by the fact that it
came to stop within six meters from the place where he stepped from it. Thousands of persons alight from
trains under these conditions every day of the year, and sustain no injury where the company has kept its
platform free from dangerous obstructions. There is no reason to believe that plaintiff would have suffered
any injury whatever in alighting as he did had it not been for defendant's negligent failure to perform its
duty to provide a safe alighting place.
We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's
work on Negligence (vol. 3, sec. 3010) as follows:
"The test by which to determine whether the passenger has been guilty of negligence in attempting to
alight from a moving railway train, is that of ordinary or reasonable care. It is to be considered whether an
ordinarily prudent person, of the age, sex and condition of the passenger, would have acted as the
passenger acted under the circumstances disclosed by the evidence. This care has been defined to be, not
the care which may or should be used by the prudent man generally, but the care which a man of ordinary
prudence would use under similar circumstances, to avoid injury." (Thompson, Commentaries on
Negligence, vol. 3, sec. 3010.)
Or, if we prefer to adopt the mode of exposition used by this court in Picart vs. Snith (37 Phil. Rep., 809),
we may say that the test is this; Was there anything in the circumstances surrounding the plaintiff at the
time he alighted from the train which would have admonished a person of average prudence that to get off
the train under the conditions then existing was dangerous ? If so, the plaintiff should have desisted from
alighting; and his failure so to desist was contributory negligence.
As the case now before us presents itself, the only fact from which a conclusion can be drawn to the effect
that the plaintiff was guilty of contributory negligence is that he stepped off the car without being able to
discern clearly the condition of the platform and while the train was yet slowly moving. In considering the
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situation thus presented, it should not be overlooked that the plaintiff was, as we find, ignorant of the fact
that the obstruction which was caused by the sacks of melons piled on the platform existed; and as the
defendant was bound by reason of its duty as a public carrier to afford to its passengers facilities for safe
egress from its trains, the plaintiff had a right to assume, in the absence of some circumstance to warn him
to the contrary, that the platform was clear. The place, as we have already stated, was dark, or dimly
lighted, and this also is proof of a failure upon the part of the defendant in the performance of a duty
owing by it to the plaintiff; for if it were by any possibility conceded that it had a right to pile these sacks in
the path of alighting passengers, the placing of them in that position gave rise to the duty to light the
premises adequately so that their presence would be revealed.
As pertinent to the question of contributory negligence on the part of the plaintiff in this case the following
circumstances are to be noted: The company's platform was constructed upon a level higher than that of
the roadbed and the surrounding ground. The distance from the steps of the car to the spot where the
alighting passenger would place his feet on the platform was thus reduced, thereby decreasing the risk
incident to stepping off. The nature of the platform, constructed as it was of cement material, also assured
to the passenger a stable and even surface on which to alight. Furthermore, the plaintiff was possessed of
the vigor and agility of young manhood, and it was by no means so risky for him to get off while the train
was yet moving as the same act would have been in an aged or feeble person. In determining the question
of contributory negligence in performing such act that is to say, whether the passenger acted prudently
or recklessly the age, sex, and physical condition of the passenger are circumstances necessarily
affecting the safety of the passenger, and should be considered. Women, it has been observed, as a
general rule, are less capable than men of alighting with safety under such conditions, as the nature of
their wearing apparel obstructs the free movement of the limbs. Again, it may be noted that the place was
perfectly familiar to the plaintiff, as it was his daily custom to get on and off the train at this station. There
could, therefore, be no uncertainty in his mind with regard either to the length of the step which he was
required to take or the character of the platform where he was alighting. Our conclusion is that the conduct
of the plaintiff in undertaking to alight while the train was yet slightly under way was not characterized by
imprudence and that therefore he was not guilty of contributory negligence.
The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a copyist
clerk, and that the injuries he has suffered have permanently disabled him from continuing that
employment. Defendant has not shown that any other gainful occupation is open to plaintiff. His
expectancy of life, according to the standard mortality tables, is approximately thirty-three years. We are
of the opinion that a fair compensation for the damage suffered by him for his permanent disability is the
sum of P2,500, and that he is also entitled to recover of defendant the additional sum of P790.25 for
medical attention, hospital services, and other incidental expenditures connected with the treatment of his
injuries.
The decision of the lower court is reversed, and judgment is hereby rendered plaintiff for the sum of
P3,290.25, and for the costs of both instances. So ordered.
Arellano, C.J., Torres, Street and Avancea, JJ., concur.
Separate Opinions
MALCOLM, J., dissenting:
With one sentence in the majority decision, we are of full accord, namely, "It may be admitted that had
plaintiff waited until the train had come to a full stop before alighting, the particular injury suffered by him
could not have occurred." With the general rule relative to a passenger's contributory negligence, we are
likewise in full accord, namely, "An attempt to alight from a moving train is negligence per se." Adding
these two points together, we have the logical result the Manila Railroad Co. should be absolved from
the complaint, and judgment affirmed.
Johnson, J., concurs.
Medina v. Crescencia , 99 Phil 506
EN BANC
[G.R. No. L-8194. July 11, 1956.]
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EMERENCIANA M. VDA. DE MEDINA, ET AL., plaintiffs-appellees, vs. GUILLERMO CRESENCIA, ET

AL., defendants. GUILLERMO CRESENCIA, appellant.
Bernardo A. Bunyi for appellant.
Gunlao & Herrera for appellees.
SYLLABUS
1.
FRANCHISE; SALE WITHOUT APPROVAL OF THE PUBLIC SERVICE COMMISSION,
EFFECT OF. The sale of franchise, or any privilege pertaining thereto, without the approval of the Public
Service Commission, is not binding against the public or the Service Commission; and in contemplation of
law, the grantee of record continues to be responsible under the franchise in relation to the Commission
and to the public.
2.
CONTRACT OF CARRIAGE; "CULPA CONTRACTUAL"; NATURE OF LIABILITY OF
CARRIER. Where there is a breach of the carrier's contractual obligation to carry his passengers safely to
their destination (culpa contractual), the liability of the carrier is not merely subsidiary or secondary, but
direct and immediate (Article 1755, 1756, and 1759, New Civil Code).
3.
DAMAGES; NOMINAL DAMAGES; WHEN AWARD IMPROPER. Where the court has
already awarded compensatory and exemplary damages that are in themselves a judicial recognition that
plaintiffs' right was violated, the award of nominal damages is unnecessary and improper. Nominal
damages can not co-exist with compensatory damages.
DECISION
REYES, J.B.L., J p:
Appeal by defendant Guillermo Cresencia from the judgment of the Court of First Instance of Manila in its
civil case No. 19890, sentencing appellant, jointly and severally with his co-defendant Brigido Avorque, to
pay plaintiffs Emerencia M. Vda. de Medina and her minor children damages in the total amount of
P56,000, P5,000 attorneys' fees, and costs.
It appears that on May 31, 1953, passenger jeepney bearing plate No. TPU-2232 (Manila), driven by Brigido
Avorque, smashed into a Meralco post on Azcarraga Street, resulting in the death of Vicente Medina, one of
its passengers. A criminal case for homicide through reckless imprudence was filed against Avorque
(criminal case No. 22775 of the Court of First Instance of Manila), to which he pleaded guilty on September
9, 1953. The heirs of the deceased, however, reserved their right to file a separate action for damages,
and on June 16, 1953, brought suit against the driver Brigido Avorque and appellant Guillermo Cresencia,
the registered owner and operator of the jeepney in question. Defendant Brigido Avorque did not file any
answer; while defendant Cresencia answered, disclaiming liability on the ground that he had sold the
jeepney in question on October 14, 1950 to one Maria A. Cudiamat; that the jeepney had been repeatedly
sold by one buyer after another, until the vehicle was purchased on January 29, 1953 by Rosario Avorque,
the absolute owner thereof at the time of the accident. In view of Cresencia's answer, plaintiffs filed leave,
and was allowed, to amend their complaint making Rosario Avorque a co-defendant; and the latter, by way
of answer, admitted having purchased the aforesaid jeepney on May 31, 1953, but alleged in defense that
she was never the public utility operator thereof. The case then proceeded to trial, during which, after the
plaintiffs had presented their evidence, defendants Guillermo Cresencia and Rosario Avorque made
manifestations admitting that the former was still the registered operator of the jeepney in question in the
records of the Motor Vehicles Office and the Public Service Commission, while the latter was the owner
thereof at the time of the accident; and submitted the case for the decision on the question of who, as
between the two, should be held liable to plaintiffs for damages. The lower court, by Judge Jose Zulueta,
held that as far as the public is concerned, defendant Cresencia, in the eyes of the law, continued to be the
legal owner of the jeepney in question; and rendered judgment against him, jointly and severally with the
driver Brigido Avorque, for P6,000 compensatory damages, P30,000 moral damages, P10,000 exemplary
damages, P10,000 nominal damages, P5,000 attorneys fees, and costs, while defendant Rosario Avorque
was absolved from liability. From this judgment, defendant Cresencia appealed.
We have already held in the case of Montoya vs. Ignacio, 94 Phil., 182 (December 29, 1953), which the
court below cited, that the law (section 20 [g], C. A. No. 146 as amended) requires the approval of the
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Public Service Commission in order that a franchise, or any privilege pertaining thereto, may be sold or
leased without infringing the certificate issued to the grantee; and that if property covered by the franchise
is transferred or leased without this requisite approval, the transfer is not binding against the public or the
Service Commission; and in contemplation of law, the grantee of record continues to be responsible under
the franchise in relation to the Commission and to the public. There we gave the reason for this rule to be
as follows:
". . . Since a franchise is personal in nature any transfer or lease thereof should be notified to the Public
Service Commission so that the latter may take proper safeguards to protect the interest of the public. In
fact, the law requires that, before the approval is granted, there should be a public hearing, with notice to
all interested parties, in order that the Commission may determine if there are good and reasonable
grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease is
detrimental to public interest. . . ."
The above ruling was later reiterated in the cases of Timbol vs. Osias, L-7547, April 30, 1955 and Roque vs.
Malibay Transit Inc., L- 8561, November 18, 1955.
As the sale of the jeepney here in question was admittedly without the approval of the Public Service
Commission, appellant herein, Guillermo Cresencia, who is the registered owner and operator thereof,
continued to be liable to the Commission and the public for the consequences incident to its operation.
Wherefore, the lower court did not err in holding him, and not the buyer Rosario Avorque, responsible for
the damages sustained by plaintiff by reason of the death of Vicente Medina resulting from the reckless
negligence of the jeepney's driver, Brigido Avorque.
Appellant also argues that the basis of plaintiffs' action being the employer's subsidiary liability under the
Revised Penal Code for damages arising from his employee's criminal acts, it is defendant Rosario Avorque
who should answer subsidiarily for the damages sustained by plaintiffs, since she admits that she, and not
appellant, is the employer of the negligent driver Brigido Avorque. The argument is untenable, because
plaintiffs' action for damages is independent of the criminal case filed against Brigido Avorque, and based,
not on the employer's subsidiary liability under the Revised Penal Code, but on a breach of the carrier's
contractual obligation to carry his passengers safely to their destination (culpa contractual). And it is also
for this reason that there is no need of first proving the insolvency of the driver Brigido Avorque before
damages can be recovered from the carrier, for in culpa contractual, the liability of the carrier is not merely
subsidiary or secondary, but direct and immediate (Articles 1755, 1756, and 1759, New Civil Code).
The propriety of the damages awarded has not been questioned, Nevertheless, it is patent upon the record
that the award of P10,000 by way of nominal damages is untenable as a matter of law, since nominal
damages can not co-exist with compensatory damages. The purpose of nominal damages is to vindicate or
recognize a right that has been violated, in order to preclude further contest thereon; "and not for the
purpose of indemnifying the plaintiff for any loss suffered by him" (Articles 2221, 2223, new Civil Code.)
Since the court below has already awarded compensatory and exemplary damages that are in themselves
a judicial recognition that plaintiff's right was violated, the award of nominal damages is unnecessary and
improper. Anyway, ten thousand pesos can not, in common sense, be deemed "nominal".
With the modification that the award of P10,000 nominal damages" be eliminated, the decision appealed
from is affirmed. Costs against appellant. So ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion and Endencia,
JJ., concur.
Isaac v. A.L. Ammen, 101 Phil 1046
EN BANC
[G.R. No. L-9671. August 23, 1957.]
CESAR L. ISAAC, plaintiff-appellant, vs. A. L. AMMEN TRANSPORTATION CO., INC., defendantappellee.
Angel S. Gamboa for appellant.
Manuel O. Chan for appellee.
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SYLLABUS
1.
PUBLIC UTILITIES; PRINCIPLES GOVERNING LIABILITY OF COMMON CARRIER. The
following are the principles governing the liability of a common carrier: (1) the liability of a carrier is
contractual and arises upon breach of its obligation. There is a breach if it fails to exert extraordinary
diligence according to all the circumstances of each case; (2) a carrier is obliged to carry its passenger
with the utmost diligence of a very cautious person, having due regard for all circumstances; (3) a carrier
is presumed to be at fault or to have acted negligently in case of death of, or injury to, passengers, it being
its duty to prove that it exercised extraordinary diligence; and (4) the carrier is not an insurer against all
risks of travel.
2.
ID.; ID.; CONTRIBUTORY NEGLIGENCE OF PASSENGER MILITATES AGAINST HIS
CLAIM; CASE AT BAR. A circumstance which militates against the stand of appellant is the fact borne out
by the evidence that when he boarded the bus in question, he seated himself on the left side thereof
resting his left arm on the window sill but with his left elbow outside the window, this being his position in
the bus when the collision took place. It is for this reason that the collision resulted in the severance of said
left arm from the body of appellant thus doing him a great damage. It is therefore apparent that appellant
is guilty of contributory negligence.
DECISION
BENGZON, J p:
A. L. Ammen Transportation Co., Inc., hereinafter referred to as defendant, is a corporation engaged in the
business of transporting passengers by land for compensation in the Bicol provinces and one of the lines it
operates is the one connecting Legaspi City, Albay with Naga City, Camarines Sur. One of the buses which
defendant was operating is Bus No. 31. On May 31, 1951, plaintiff boarded said bus as a passenger paying
the required fare from Ligao, Albay bound for Pili, Camarines Sur, but before reaching his destination, the
bus collided with a motor vehicle of the pick-up type coming from the opposite direction, as a result of
which plaintiff's left arm was completely severed and the severed portion fell inside the bus. Plaintiff was
rushed to a hospital in Iriga, Camarines Sur where he was given blood transfusion to save his life. After four
days, he was transferred to another hospital in Tabaco, Albay, where he underwent treatment for three
months. He was moved later to the Orthopedic Hospital where he was operated on and stayed there for
another two months. For these services, he incurred expenses amounting to P623.40, excluding medical
fees which were paid by defendant.
As an aftermath, plaintiff brought this action against defendant for damages alleging that the collision
which resulted in the loss of his left arm was mainly due to the gross incompetence and recklessness of the
driver of the bus operated by defendant and that defendant incurred in culpa contractual arising from its
non-compliance with its obligation to transport plaintiff safely to his destination. Plaintiff prays for
judgment against defendant as follows: (1) P5,000 as expenses for his medical treatment, and P3,000 as
the cost of an artificial arm, or a total of P8,000; (2) P6,000 representing loss of earning; (3) P75,000 for
diminution of his earning capacity; (4) P50,000 as moral damages; and (5) P10,000 as attorneys' fees and
costs of suit.
Defendant set up as special defense that the injury suffered by plaintiff was due entirely to the fault or
negligence of the driver of the pick-up car which collided with the bus driven by its driver and to the
contributory negligence of plaintiff himself. Defendant further claims that the accident which resulted in
the injury of plaintiff is one which defendant could not foresee or, though foreseen, was inevitable.
The court after trial found that the collision occurred due to the negligence of the driver of the pick-up car
and not to that of the driver of the bus it appearing that the latter did everything he could to avoid the
same but that notwithstanding his efforts, he was not able to avoid it. As a consequence, the court
dismissed the complaint, with costs against plaintiff. This is an appeal from said decision.
It appears that plaintiff boarded a bus of defendant as paying passenger from Ligao, Albay, bound for Pili,
Camarines Sur, but before reaching his destination, the bus collided with a pick-up car which was coming
from the opposite direction and, as a result, his left arm was completely severed and fell inside the back
part of the bus. Having this background in view, and considering that plaintiff chose to hold defendant
liable on its contractual obligation to carry him safely to his place of destination, it becomes important to
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determine the nature and extent of the liability of a common carrier to a passenger in the light of the law
applicable in this jurisdiction.
In this connection, appellant invokes the rule that, "when an action is based on a contract of carriage, as in
this case, all that is necessary to sustain recovery is proof of the existence of the contract and of the
breach thereof by act or omission", and in support thereof, he cites several Philippine cases. 1 With this
ruling in mind, appellant seems to imply that once the contract of carriage is established and there is proof
that the same was broken by failure of the carrier to transport the passenger safely to his destination, the
liability of the former attaches. On the other hand, appellee claims that that is a wrong presentation of the
rule. It claims that the decisions of this Court in the cases cited do not warrant the construction sought to
be placed upon them by appellant for a mere perusal thereof would show that the liability of the carrier
was predicated not upon mere breach of its contract of carriage but upon the finding that its negligence
was found to be the direct or proximate cause of the injury complained of. Thus, appellee contends that "if
there is no negligence on the part of the common carrier but that the accident resulting in injuries is due to
causes which are inevitable and which could not have been avoided or anticipated notwithstanding the
exercise of that high degree of care and skill which the carrier is bound to exercise for the safety of his
passengers", neither the common carrier nor the driver is liable therefor.
We believe that the law concerning the liability of a common carrier has now suffered a substantial
modification in view of the innovations introduced by the new Civil Code. These innovations are the ones
embodied in Articles 1733, 1755 and 1756 in so far as the relation between a common carrier and its
passengers is concerned, which, for ready reference, we quote hereunder:
"ART. 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 the vigilance over the goods is further expressed in articles 1734, 1735,
forth in articles 1755 and 1756..
"ART. 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."
"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."
The Code Commission, in justifying this extraordinary diligence required of a common carrier, says the
following:
"A common carrier is bound to carry the passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard for all circumstances. This
extraordinary diligence required of common carriers is calculated to protect the passengers from the tragic
mishaps that frequently occur in connection with rapid modern transportation. This high standard of care is
imperatively demanded by the preciousness of human life and by the consideration that every person
must in every way be safeguarded against all injury. (Report of the Code Commission, pr. 35-36)" (Padilla,
Civil Code of the Philippines, Vol. IV, 1956 ed., p. 197).
From the above legal provisions, we can make the following restatement of the principles governing the
liability of a common carrier: (1) the liability of a carrier is contractual and arises upon breach of its
obligation. There is breach if it fails to exert extraordinary diligence according to all the circumstances of
each case; (2) a carrier is obliged to carry its passenger with the utmost diligence of a very cautious
person, having due regard for all the circumstances; (3) a carrier is presumed to be at fault or to have
acted negligently in case of death of, or injury to, passengers, it being its duty to prove that it exercised
extraordinary diligence; and (4) the carrier is not an insurer against all risks of travel.
The question that now arises is: Has defendant observed extraordinary diligence or the utmost diligence of
every cautious person, having due regard for all circumstances, in avoiding the collision which resulted in
the injury caused to the plaintiff?
After examining the evidence in connection with how the collision occurred, the lower court made the
following finding:
"Hemos examinado muy detenidamente las pruebas presentadas en la vista, principalmente, las
declaraciones que hemos acotado arriba, y hemos llegado a la conclusion de que el demandado ha hecho,
todo cuanto estuviere de su parte para evitar el accidente, pero sin embargo, no ha podido evitarlo.
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"El hecho de que el demandado, antes del choque, tuvo que hacer pasar su truck encima de los montones
de grava que estaban depositados en la orilla del camino, sin que haya ido mas alla, por el grave riesgo
que corrian las vidas de sus pasajeros, es prueba concluyente de lo que tenemos dicho, a saber: que el
demandado hizo cuanto estaba de su parte, para evitar el accidente, sin que haya podido evitarlo, por
estar fuera de su control."
The evidence would appear to support the above finding. Thus, it appears that Bus No. 31, immediately
prior to the collision, was running at a moderate speed because it had just stopped at the school zone of
Matacong, Polangui, Albay. The pick-up car was at full speed and was running outside of its proper lane.
The driver of the bus, upon seeing the manner in which the pick-up was then running, swerved the bus to
the very extreme right of the road until its front and rear wheels have gone over the pile of stones or
gravel situated on the rampart of the road. Said driver could not move the bus farther right and run over a
greater portion of the pile, the peak of which was about 3 feet high, without endangering the safety of his
passengers. And notwithstanding all these efforts, the rear left side of the bus was hit by the pick-up car.
Of course, this finding is disputed by appellant who cannot see eye to eye with the evidence for the
appellee and insists that the collision took place because the driver of the bus was going at a fast speed.
He contends that, having seen that a car was coming from the opposite direction at a distance which
allows the use of moderate care and prudence to avoid an accident, and knowing that on the side of the
road along which he was going there was a pile of gravel, the driver of the bus should have stopped and
waited for the vehicle from the opposite direction to pass, and should have proceeded only after the other
vehicle had passed. In other words, according to appellant, the act of the driver of the bus in squeezing his
way through between the oncoming pick-up and the pile of gravel under the circumstances was considered
negligent.
But this matter is one of credibility and evaluation of the evidence. This is the function of the trial court.
The trial court has already spoken on this matter as we have pointed out above. This is also a matter of
appreciation of the situation on the part of the driver. While the position taken by appellant appeals more
to the sense of caution that one should observe in a given situation to avoid an accident or mishap, such
however can not always be expected from one who is placed suddenly in a predicament where he is not
given enough time to take the proper course of action as he should under ordinary circumstances. One
who is placed in such a predicament cannot exercise such coolness or accuracy of judgment as is required
of him under ordinary circumstances and he cannot therefore be expected to observe the same judgment,
care and precaution as in the latter. For this reason, authorities abound where failure to observe the same
degree of care that as ordinary prudent man would exercise under ordinary circumstances when
confronted with a sudden emergency was held to be warranted and a justification to exempt the carrier
from liability. Thus, it was held that "where a carrier's employee is confronted with a sudden emergency,
the fact that he is obliged to act quickly and without a chance for deliberation must be taken into account,
and he is not held to the same degree of care that he would otherwise be required to exercise in the
absence of such emergency but must exercise only such care as any ordinary prudent person would
exercise under like circumstances and conditions, and the failure on his part to exercise the best judgment
the case renders possible does not establish lack of care and skill on his part which renders the company,
liable. . . ." (13 C. J. S., 1412; 10 C. J., 970). Considering all the circumstances, we are persuaded to
conclude that the driver of the bus has done what a prudent man could have done to avoid the collision
and in our opinion this relieves appellee from liability under our law.
A circumstance which militates against the stand of appellant is the fact borne out by the evidence that
when he boarded the bus in question, he seated himself on the left side thereof resting his left arm on the
window sill but with his left elbow outside the window, this being his position in the bus when the collision
took place. It is for this reason that the collision resulted in the severance of said left arm from the body of
appellant thus doing him a great damage. It is therefore apparent that appellant is guilty of contributory
negligence. Had he not placed his left arm on the window sill with a portion thereof protruding outside,
perhaps the injury would have been avoided as is the case with the other passengers. It is to be noted that
appellant was the only victim of the collision.
It is true that such contributory negligence cannot relieve appellee of its liability but will only entitle it to a
reduction of the amount of damage caused (Article 1762, new Civil Code), but this is a circumstance which
further militates against the position taken by appellant in this case.
"It is the prevailing rule that it is negligence per se for a passenger on a railroad voluntarily or
inadvertently to protrude his arm, hand, elbow, or any other part of his body through the window of a
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moving car beyond the outer edge of the window or outer surface of the car, so as to come in contact with
objects or obstacles near the track, and that no recovery can be had for an injury which but for such
negligence would not have been sustained. . . ." (10 C. J. 1139).
"Plaintiff (passenger) while riding on an interurban car, to flick the ashes from his cigar, thrust his hand
over the guard rail a sufficient distance beyond the side line of the car to bring it in contact with the trunk
of a tree standing beside the track; the force of the blow breaking his wrist. Held, that he was guilty of
contributory negligence as a matter of law." (Malakia vs. Rhode Island Co., 89 A., 337.)
Wherefore, the decision appealed from is affirmed, with costs against appellant.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Labrador, Concepcion, Endencia and Felix, JJ., concur.
Fores v. Miranda, 105 Phil 266
EN BANC
[G.R. No. L-12163. March 4, 1959.]
PAZ FORES, petitioner, vs. IRENEO MIRANDA, respondent.
Alberto O. Villaraza for petitioner.
Almazan & Ereneta for respondent.
SYLLABUS
1.
PUBLIC UTILITIES; SALE OF PUBLIC SERVICE VEHICLE; APPROVAL OF PUBLIC
SERVICE COMMISSION; REASON. Transfer of a Public Service Commission, is not effective and binding in
so far as the responsibility of the grantee under the franchise in relation to the public is concerned. The
provisions of Section 20 of the Public Service Act are clear and prohibit the sale, alienation, lease, of an
operator's property, franchise , certificates, privileges or rights, or any part thereof without approval or
authorization of the Public Service Commission. The law was designed primarily for the protection of the
public interest; and until the approval of the Public Service Commission is obtained, the vehicle is in
contemplation of law, still under the service of the owner or operation standing in the records of the
Commission to which the public has a right to rely upon.
2.
STATUTORY CONSTRUCTION; PROVISION OF SECTION 20 (Z) PUBLIC SERVICE ACT
INTERPRETED. The proviso contained in Section 20 (Z) of the Public Service Act, to the effect that
nothing therein shall be construed "to prevent the transaction from being negotiated or completed before
its approval", means only that the sale without the required approval is still valid and binding between the
parties. (Montoya vs. Ignacio 50 Off. Gaz., No. 1, p. 108). the phrase "in ordinary course of its business"
found in the other proviso "or to prevent the sale, alienation, or lease by any public service of any of its
property," could not have been intended to include the sale of the vehicle itself but at most may refer only
to such property that can be conceivably disposed of by the carrier in the ordinary course of its business,
like junked equipment or spare parts.
3.
DAMAGES; ACTUAL DAMAGES; ATTORNEY'S FEES INCLUDED IN THE CONCEPT;
AWARD BY COURT OF APPEALS MOTU PROPRIO. Although the Court of First Instance did not provide for
attorney's fees in the sum of P3,000 and no appeal to the Court of Appeals was interposed on the point, it
was not an error for the Court of Appeals to award them motu propio because attorney's fees are included
in the concept of actual damages under the Civil Code and may be awarded whenever the court deems it
just and equitable.
4.
ID.; MORAL DAMAGES NOT RECOVERABLE IN ACTION ON BREACH OF CONTRACT
OF TRANSPORTATION. Moral damages are generally not recoverable in damage actions predicated on a
breach of contract of transportation in view or the provisions of Articles 2218 and 2220 of the new Civil
Code.
5.
ID.; ID.; EXCEPTION IN CASE OF DEATH OF PASSENGER. The exception to the
basic rule of damages 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, of the Civil Code 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 G. R. No. L-10605, Resolution on motion to
reconsider, Sept. 11, 1958).
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6.
ID.; ID.; NO DEATH; PROOF OF MALICE OR BAD FAITH REQUIRED. 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. 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.
7.
ID.; ID.; NEGLIGENCE; NOT CARRIER'S BAD FAITH. While it is true that
negligence may be occasionally so gross as to amount to malice, that fact must be shown in evidence. 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.
8.
ID.; ID.; FAILURE TO TRANSPORT PASSENGERS SAFELY. The theory that carrier's
violation of its engagement to safely transport the passenger involves a breach of the passenger's
confidence, and therefore should be regarded as a breach of contract in bad faith, justifying recovery of
moral damages, under Article 2220 of the New Code is untenable, for under it the carrier would always be
deemed in bad faith in every case its obligation to the passenger is infringed and it would never be
accountable for simple negligence while under Article 1756 of the Civil Code the presumption is that
common carriers acted negligently and not maliciously, and Article 1762 speaks of negligence of the
common carrier.
9.
ID.; CARRIERS; ACTIONS FOR BREACH OF CONTRACT; WHEN PRESUMPTION OR
CARRIER'S LIABILITY ARISES. An action for breach of contract imposes on the carrier a presumption of
liability upon mere proof of injury of the passenger; the latter does not have 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 (Congco 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, Cangco vs. Manila Railroad
Co. Supra; Prado vs. Manila Electric Co., 51 Phil., 900)
DECISION
REYES, J.B.L., J p:
Defendant-petitioner Paz Fores brings this petition for review of the decision of the Court of Appeals (C. A.
Case No. 1437-R) awarding to the plaintiff-respondent Ireneo Miranda the sums of P5,000 by way of actual
damages and counsel fees, and P10,000 as moral damages, with costs.
Respondent was one of the passengers on a jeepney driven by Eugenio Luga. While the vehicle was
descending the Sta. Mesa bridge at an excessive rate of speed, the driver lost control thereof, causing it to
swerve and to hit the bridge wall. The accident occurred on the morning of March 22, 1953. Five of the
passengers were injured, including the respondent who suffered a fracture of the upper right humerus. He
was taken to the National Orthopedic Hospital for treatment, and later was subjected to a series of
operations; the first on May 23, 1953, when wire loops were wound around the broken bones and screwed
into place; a second, effected to insert a metal splint, and a third one to remove such splint. At the time of
the trial, it appears that respondent had not yet recovered the use of his right arm.
The driver was charged with serious physical injuries through reckless imprudence, and upon interposing a
plea of guilty was sentenced accordingly.
The contention that the evidence did not sufficiently establish the identity of the vehicle as that belonging
to the petitioner was rejected by the appellate court which found, among other things, that it carried plate
No. TPU-1163, series of 1952, Quezon City, registered in the name of Paz Fores, (appellant herein) and that
the vehicle even had the name of "Dona Paz" painted below its windshield. No evidence to the contrary
was introduced by the petitioner, who relied on an attack upon the credibility of the two policemen who
went to the scene of the incident.
A point to be further remarked is petitioner's contention that on March 21, 1953, or one day before the
accident happened, she allegedly sold the passenger jeep that was involved therein to a certain Carmen
Sackerman.
The initial problem raised by the petitioner in this appeal may be formulated thus "Is the approval of the
Public Service Commission necessary for the sale of a public service vehicle even without conveying
therewith the authority to operate the same?" Assuming the dubious sale to be a fact, the Court of Appeals
answered the query in the affirmative. The ruling should be upheld.
Section 20 of the Public Service Act (Commonwealth Act No. 146) provides:
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"SEC. 20.
Subject to established limitations and saving provisions to the contrary, it shall be
unlawful for any public service or for the owner, lessee or operation thereof, without the previous approval
and authority of the Commission previously had
(g)
To sell, alienate, mortgage, encumber or lease its property, franchises, certificates,
privileges, or rights, or any part thereof; or merge or consolidate its property, franchises, privileges or
rights, or any part thereof, with those of any other public service. The approval herein required shall be
given, after notice to the public and after hearing the persons interested at a public hearing, if it be shown
that there are just and reasonable grounds for making the mortgage or encumbrance, for liabilities of more
than one year maturity, or the sale, alienation, lease, merger, or consolidation to be approved and the
same are not detrimental to the public interest, and in case of a sale, the date on which the same is to be
consummated shall be fixed in the order or approval: Provided, however, That nothing herein contained
shall be construed to prevent the transaction from being negotiated or completed before its approval or to
prevent the sale, alienation, or lease by any public service of any of its property in the ordinary course of
its business."
Interpreting the effects of this particular provision of law, we have held in the recent cases of Montoya vs.
Ignacio, * 50 Off. Gaz. No. 1, p. 108; Timbol vs. Osias, et al., G. R. No. L-7547, April 30, 1955, and Medina
vs. Cresencia, 99 Phil, 506; 52 Off. Gaz. No. 10, p. 4606, that a transfer contemplated by the law, if made
without the requisite approval of the Public Service Commission, is not effective and binding in so far as
the responsibility of the grantee under the franchise in relation to the public is concerned. Petitioner assails
case, contending that in those cases, the operator, the operator did not convey, by lease or by sale, the
vehicle independently of his rights under the franchise. This line of reasoning does not find support in the
law. The provisions of the statute are clear and property, franchise, certificate, privileges or rights, or any
part thereof of the owner or operator of the public service without approval or authorization of the Public
Service Commission. The law was designed primarily for the protection of the public interest; and until the
approval of the Public Service Commission is obtained the vehicle is, in contemplation of law, still under
the service of the owner or operator standing in the records of the Commission which the public has a right
to rely upon.
The proviso contained in the aforequoted law, to the effect that nothing therein shall be construed "to
prevent the transaction from being negotiated or completed before its approval", means only that the sale
without the required approval is still valid and binding between the parties (Montoya vs. Ignacio, supra).
The phrase "in the ordinary course of its business" found in the other proviso "or to prevent the sale,
alienation, or lease by any public service of any of its property". as correctly observed by the lower court,
could not have been intended to include the sale of the vehicle itself, but at most may refer only to such
property that may be conceivably disposed or by the carrier in the ordinary course of its business, like
junked equipment or spare parts.
The case of Indalecio de Torres vs. Visente Ona (63 Phil., 594,597) is enlightening;
and there, it was held:
"Under the law, the Public Service Commission has not only general supervision and regulation of, but also
full jurisdiction and control over all public utilities including the property, equipment and facilities used,
and the property rights and franchises enjoyed by every individual and company engaged in the
performance of a public service in the sense this phrase is used in the Public Service Act or Act No. 3108).
By virtue of the provisions of said Act, motor vehicles used in the performance of a service, as the
transportation of freight from one point to another, have to this date been considered and they cannot
but be so considered public service property; and, by reason of its own nature, a TH truck, which means
that the operator thereof places it at the disposal of anybody who is willing to pay a rental for its use, when
he desires to transfer or carry his effects, merchandise or any other cargo from one place to another, is
necessarily a public service property." (Emphasis supplied)
Of course, this Court has held in the case of Bachrach Motor Co. vs. Zamboanga Transportation Co., 52
Phil., 244, that there may be a nunc pro tunc authorization which had the effect of having the approval
retroact to the date of the transfer; but such outcome cannot prejudice rights intervening in the meantime.
It appears that no such approval was given by the Commission before the accident occurred.
The P10,000 actual damages awarded by the Court of First Instance of Manila were reduced by the Court of
Appeals to only P2,000, on the ground that a review of the records failed to disclose a sufficient basis for
the trial court's appraisal, since the only evidence presented on this point consisted of respondent's bare
statement that his expenses and loss of income amounted to P20,000. On the other hand, "it cannot be
denied," the lower court said, "that appellee (respondent ) did incur expenses." It is well to note further
168 | P a g e
that respondent was a painter by profession and a professor of Fine Arts, so that the amount of P2,000
awarded cannot be said to be excessive (see Arts. 2224 and 2225, Civil Code of the Philippines). The
attorney's fees in the sum of P3,000 also awarded to the respondent are assailed on the ground that the
Court of First Instance did not provide for the same, and since no appeal was interposed by said
respondent, it was allegedly error for the Court of Appeals to award them motu proprio. Petitioner fails to
note that attorney's fees are included in the concept of actual damaged under the Civil Code and may be
awarded whenever the court deems it just and equitable (Art. 2208, Civil Code of the Philippines). We see
no reason to alter these awards.
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., [26], 6599;
Necesito, et al vs. Paras, 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;
xxx
xxx
xxx
ART. 2220.
Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstance, 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 case 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 description 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 Act. 2176 of the Code
expressly excludes the cases where there is a "preexisting contractual relation between the parties."
"ART. 2176.
Whoever by act or omission caused damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pro-existing
contractual relation between the parties, is called a quasi-delict and is governed by the provision 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., 84,
Resolution 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 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 ruling in Castro vs. Acro Taxicab Co., R. G. 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 limitation 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; that 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 the 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
169 | P a g e
diligence in the selection and supervision of its employees (Art. 1759, new Civil Code; Cangco 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 action ex contractu, and actions quasi ex
delicto, and prevent us from viewing the action for breach of contract as simultaneously embodying an
action on tort. Neither 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 safety transport the passenger involves a
breach of the passenger's confidence, 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, for under it the
carrier would always be deemed in bad faith, in every case its obligation to the passenger is infringed, and
it would be never accountable for simple negligence; 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 the prove that they observed extraordinary
diligence as prescribed in article 1733 and 1755."
"ART. 1762.
The contributory negligence of the passenger does not bar recovery of damages
for his death or injuries, it 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 wrong doing 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 faith is liable shall be those that are the natural and probable consequence of the breach of the
obligation, and which the parties have foreseen or could have reasonable foreseen at the time the
obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
which may be reasonably attributed to the non-performance of the obligation."
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, 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 5, 1957). In all other
respects, the judgment is affirmed. No costs in this instance. So ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A. Bautista Angelo, Labrador, Concepcion and Endencia,
JJ., concur.
Footnotes
*
94 Phil., 182.
Phil. Rabbot v. IAC, 189 SCRA 159
FIRST DIVISION
[G.R. Nos. 66102-04. August 30, 1990.]
PHILIPPINE RABBIT BUS LINES, INC., petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE
COURT AND CASIANO PASCUA, ET AL. * , respondents.
Santiago & Santiago for petitioner.
Federico R. Vinluan for private respondents.
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DECISION
MEDIALDEA, J p:
This is a petition for review on certiorari of the decision of the Intermediate Appellate Court (now Court of
Appeals) dated July 29, 1983 in AC-G.R. Nos. CV-65885, CV-65886 and CV-65887 which reversed the
decision of the Court of First Instance (now Regional Trial Court) of Pangasinan dated December 27, 1978;
and its resolution dated November 28, 1983 denying the motion for reconsideration.
It is an established principle that the factual findings of the Court of Appeals are final and may not be
reviewed by this Court on appeal. However, this principle is subject to certain exceptions. One of these is
when the findings of the appellate court are contrary to those of the trial court (see Sabinosa v. The
Honorable Court of Appeals, et al., G.R. No. L-47981, July 24, 1989) in which case, a re-examination of the
facts and evidence may be undertaken. This is Our task now.
The antecedent facts are as follows:
About 11:00 o'clock in the morning on December 24, 1966, Catalina Pascua, Caridad Pascua, Adelaida
Estomo, Erlinda Meriales, Mercedes Lorenzo, Alejandro Morales and Zenaida Parejas boarded the jeepney
owned by spouses Isidro Mangune and Guillerma Carreon and driven by Tranquilino Manalo at Dau,
Mabalacat, Pampanga bound for Carmen, Rosales, Pangasinan to spend Christmas at their respective
homes. Although they usually ride in buses, they had to ride in a jeepney that day because the buses were
full. Their contract with Manalo was for them to pay P24.00 for the trip. The private respondents'
testimonial evidence on this contractual relationship was not controverted by Mangune, Carreon and
Manalo, nor by Filriters Guaranty Assurance Corporation, Inc., the insurer of the jeepney, with contrary
evidence. Purportedly riding on the front seat with Manalo was Mercedes Lorenzo. On the left rear
passenger seat were Caridad Pascua, Alejandro Morales and Zenaida Parejas. On the right rear passenger
seat were Catalina Pascua, Adelaida Estomo, and Erlinda Meriales. After a brief stopover at Moncada, Tarlac
for refreshment, the jeepney proceeded towards Carmen, Rosales, Pangasinan. LLpr
Upon reaching barrio Sinayoan, San Manuel, Tarlac, the right rear wheel of the jeepney was detached, so it
was running in an unbalanced position. Manalo stepped on the brake, as a result of which, the jeepney
which was then running on the eastern lane (its right of way) made a U-turn, invading and eventually
stopping on the western lane of the road in such a manner that the jeepney's front faced the south (from
where it came) and its rear faced the north (towards where it was going). The jeepney practically occupied
and blocked the greater portion of the western lane, which is the right of way of vehicles coming from the
north, among which was Bus No. 753 of petitioner Philippine Rabbit Bus Lines, Inc. (Rabbit) driven by
Tomas delos Reyes. Almost at the time when the jeepney made a sudden U-turn and encroached on the
western lane of the highway as claimed by Rabbit and delos Reyes, or after stopping for a couple of
minutes as claimed by Mangune, Carreon and Manalo, the bus bumped from behind the right rear portion
of the jeepney. As a result of the collision, three passengers of the jeepney (Catalina Pascua, Erlinda
Meriales and Adelaida Estomo) died while the other jeepney passengers sustained physical injuries. What
could have been a festive Christmas turned out to be tragic.
The causes of the death of the three jeepney passengers were as follows (p. 101, Record on Appeal):
"The deceased Catalina Pascua suffered the following injuries, to wit: fracture of the left parietal and
temporal regions of the skull; fracture of the left mandible; fracture of the right humenous; compound
fracture of the left radius and ulna, middle third and lower third; fracture of the upper third of the right tibia
and fillnea; avulsion of the head, left internal; and multiple abrasions. The cause of her death was shock,
secondary to fracture and multiple hemorrhage. The fractures were produced as a result of the hitting of
the victim by a strong force. The abrasions could be produced when a person falls from a moving vehicles
(sic) and rubs parts of her body against a cement road pavement. . . .
"Erlinda Mariles (sic) sustained external lesions such as contusion on the left parietal region of the skull;
hematoma on the right upper lid; and abrasions (sic) on the left knee. Her internal lesions were: hematoma
on the left thorax; multiple lacerations of the left lower lobe of the lungs; contusions on the left lower lobe
of the lungs; and simple fractures of the 2nd, 3rd, 4th, 5th, 6th, 7th, and 8th ribs, left. The forcible impact
of the jeep caused the above injuries which resulted in her death. . . .
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"The cause of death of Erlinda or Florida Estomo (also called Adelaida) as per autopsy of Dr. Panlasiqui was
due to shock due to internal hemorrhage, ruptured spleen and trauma. . . ."
Caridad Pascua suffered physical injuries as follows (p. 101, Record on Appeal):
". . . lacerated wound on the forehead and occipital region, hematoma on the forehead, multiple abrasions
on the forearm, right upper arm, back and right leg. . . ."
The police investigators of Tacpal and policemen of San Manuel, Tarlac, Tarlac, upon arrival at the scene of
the mishap, prepared a sketch (common exhibit "K" for private respondents and "19" for Rabbit) showing
the relative positions of the two vehicles as well as the alleged point of impact (p. 100, Record on Appeal):
". . . The point of collision was a cement pave-portion of the Highway, about six (6) meters wide, with
narrow shoulders with grasses beyond which are canals on both sides. The road was straight and points
200 meters north and south of the point of collision are visible and unobstructed. Purportedly, the point of
impact or collision (Exh. `K-4'-Pascua, on the sketch Exh. `K'-Pascua) was on the western lane of the
highway about 3 feet (or one yard) from the center line as shown by the '(sic), dirt and soil (obviously from
the undercarriage of both vehicles) as well as paint, marron (sic) from the Rabbit bus and greenish from
the jeepney. The point of impact encircled and marked with the letter `X' in Exh. `K'-4, Pascua, had a
diameter of two meters, the center of which was about two meters from the western edge of cement
pavement of the roadway. Pictures taken by witness Bisquera in the course of the investigation showed the
relative positions of the point of impact and center line (Exh. `P'-Pascua) the back of the Rabbit bus (Exh.
`P-1-Pascua'), the lifeless body of Catalina Pascua (Exh. `P-2-Pascua'), and the damaged front part of the
Rabbit bus (Exh `P-3-Pascua'). No skid marks of the Rabbit bus was found in the vicinity of the collision,
before or after the point of impact. On the other hand, there was a skid mark about 45 meters long
purportedly of the jeepney from the eastern shoulder of the road south of, and extending up to the point of
impact."
At the time and in the vicinity of the accident, there were no vehicles following the jeepney, neither were
there oncoming vehicles except the bus. The weather condition of that day was fair.
After conducting the investigation, the police filed with the Municipal Court of San Manuel, Tarlac, a
criminal complaint against the two drivers for Multiple Homicide. At the preliminary investigation, a
probable cause was found with respect to the case of Manalo, thus, his case was elevated to the Court of
First Instance. However, finding no sufficiency of evidence as regards the case of delos Reyes, the Court
dismissed it. Manalo was convicted and sentenced to suffer imprisonment. Not having appealed, he served
his sentence.
Complaints for recovery of damages were then filed before the Court of First Instance of Pangasinan. In
Civil Case No. 1136, spouses Casiano Pascua and Juana Valdez sued as heirs of Catalina Pascua while
Caridad Pascua sued in her behalf. In Civil Case No. 1139, spouses Manuel Millares and Fidencia Arcica
sued as heirs of Erlinda Meriales. In Civil Case No. 1140, spouses Mariano Estomo and Dionisia Sarmiento
also sued as heirs of Adelaida Estomo.
In all three cases, spouses Mangune and Carreon, Manalo, Rabbit and delos Reyes were all impleaded as
defendants. Plaintiffs anchored their suits against spouses Mangune and Carreon and Manalo on their
contractual liability. As against Rabbit and delos Reyes, plaintiffs based their suits on their culpability for a
quasi-delict. Filriters Guaranty Assurance Corporation, Inc. was also impleaded as additional defendant in
Civil Case No. 1136 only.
For the death of Catalina Pascua, plaintiffs in Civil Case No. 1136 sought to collect the aggregate amount
of P70,060.00 in damages, itemized as follows: P500.00 for burial expenses; P12,000.00 for loss of wages
for 24 years; P10,000.00 for exemplary damages; P10,000.00 for moral damages; and P3,000.00 for
attorney's fees. In the same case, plaintiff Caridad Pascua claimed P550.00 for medical expenses; P240.00
for loss of wages for two months; P2,000.00 for disfigurement of her face; P3,000.00 for physical pain and
suffering; P2,500.00 as exemplary damages and P2,000.00 for attorney's fees and expenses of litigation.
172 | P a g e
In Civil Case No. 1139, plaintiffs demanded P500.00 for burial expenses; P6,000.00 for the death of Erlinda,
P63,000.00 for loss of income; P10,000.00 for moral damages and P3,000.00 for attorney's fees or total of
P80,000.00.
In Civil Case No. 1140, plaintiffs claimed P500.00 for burial expenses; P6,000.00 for the death of Adelaida,
P56,160.00 for loss of her income or earning capacity; P10,000.00 for moral damages; and P3,000.00 for
attorney's fees.
Rabbit filed a cross-claim in the amount of P15,000.00 for attorney's fees and expenses of litigation. On the
other hand, spouses Mangune and Carreon filed a cross-claim in the amount of P6,168.00 for the repair of
the jeepney and P3,000.00 for its non-use during the period of repairs.
On December 27, 1978, the trial court rendered its decision finding Mangune negligent, the dispositive
portion of which reads (pp. 113-114, Record on Appeal):
"PREMISES CONSIDERED, this Court is of the opinion and so holds:
"1) That defendants Isidro Mangune, Guillerma Carreon and Tranquilino Manalo thru their negligence,
breached contract of carriage with their passengers the plaintiffs' and/or their heirs, and this Court renders
judgment ordering said defendants, jointly and severally, to pay the plaintiffs
'a) In Civil Case No. 1136, for the death of Catalina Pascua, to pay her heirs the amounts of P12,000.00 for
indemnity for loss of her life; P41,760.00 for loss of earnings; P324.40 for actual expenses and P2,000.00
for moral damages;
'b) In the same Civil Case No. 1136 for the injuries of Caridad Pascua, to pay her the amounts of P240.00
for loss of wages, P328.20 for actual expenses and P500.00 for moral damages;
'c) In Civil Case No. 1139 for the death of Erlinda Meriales, to pay her heirs (the plaintiffs) the amount of
P12,000.00 for indemnity for loss of her life; P622.00 for actual expenses, P60,480.00 for loss of wages
or income and P2,000.00 for moral damages;
'd) In Civil Case No. 1140, for the death of Erlinda (also called Florida or Adelaida Estomo), to pay her heirs
(the plaintiffs) the amount of P12,000.00 for indemnity for the loss of her life; P580.00 for actual expenses;
P53,160.00 for loss of wages or income and P2,000.00 for moral damages.'
"2) The defendant Filriters Guaranty Insurance Co., having contracted to ensure and answer for the
obligations of defendants Mangune and Carreon for damages due their passengers, this Court renders
judgment against the said defendants Filriters Guaranty Insurance Co., jointly and severally with said
defendants (Mangune and Carreon) to pay the plaintiffs the amount herein above adjudicated in their favor
in Civil Case No. 1136 only. All the amounts awarded said plaintiffs as set forth in paragraph one (1)
hereinabove;
"3) On the cross claim of Phil. Rabbit Bus Lines, Inc. ordering the defendants Isidro Mangune, Guillerma
Carreon and Tranquilino Manalo, to pay jointly and severally, cross-claimant Phil. Rabbit Bus Lines, Inc., the
amounts of P216.27 as actual damages to its Bus No. 753 and P2,173.60 for loss of its earning.
"All of the above amounts shall bear legal interest from the filing of the complaints.
"Costs are adjudged against defendants Mangune, Carreon and Manalo and Filriters Guaranty.
"SO ORDERED."
On appeal, the Intermediate Appellate Court reversed the above-quoted decision by finding delos Reyes
negligent, the dispositive portion of which reads (pp. 55-57, Rollo):
"WHEREFORE, PREMISES CONSIDERED, the lower court's decision is hereby REVERSED as to item No. 3 of
the decision which reads:
'3) On the cross claim of Philippine Rabbit Bus Lines, Inc. ordering the defendants Isidro Mangune,
Guillerma Carreon and Tranquilino Manalo, to pay jointly and severally, the amounts of P216.27 as actual
damages to its Bus No. 753 and P2,173.60 for loss of its earnings.'
and another judgment is hereby rendered in favor of plaintiffs-appellants Casiana Pascua, Juan Valdez and
Caridad Pascua, ordering the Philippine Rabbit Bus Lines, Inc. and its driver Tomas delos Reyes to pay the
former jointly and severally damages in amounts awarded as follows:
173 | P a g e
"For the death of Catalina Pascua, the parents and/or heirs are awarded:
"Civil Case No. 1136
a) Indemnity for the loss of life
P12,000.00
b) Loss of Salaries or earning capacity
14,000.00
c) Actual damages (burial expenses)
800.00
d) For moral damages
10,000.00
e) Exemplary damages
3,000.00
f) For attorney's fees
3,000.00
Total
P38,200 (sic)
"For the physical injuries suffered by Caridad Pascua:
a) Actual damages (hospitalization expenses)
b) Moral damages (disfigurement of the face
and physical suffering
c) Exemplary damages
Total
P550.00
8,000.00
2,000.00
P10,550.00
"For the death of Erlinda Arcega Meriales, the parents and/or heirs:
a) Indemnity for loss of life
b) Loss of Salary or Earning Capacity
d) Moral damages
f) Attorney's fees
Total
P12,000.00
20,000.00
500.00
15,000.00
15,000.00
3,000.00
P65,500.00
"For the death of Florida Sarmiento Estomo:

"Civil Case No. 1140.
a) Indemnity for loss of life
b) Loss of Salary or Earning capacity
d) Moral damages
f) Attorney's fees
Total
P12,000.00
20,000.00
500.00
3,000.00
3,000.00
3,000.00
P41,500.00
"With costs against the Philippine Rabbit Bus Lines, Inc.

"SO ORDERED."
The motion for reconsideration was denied. Hence, the present petition.
The issue is who is liable for the death and physical injuries suffered by the passengers of the jeepney?.
The trial court, in declaring that Manalo was negligent, considered the following (p. 106, Record on
Appeal):
"(1) That the unrebutted testimony of his passenger plaintiff Caridad Pascua that a long ways (sic) before
reaching the point of collision, the Mangune jeepney was `running fast' that his passengers cautioned
driver Manalo to slow down but did not heed the warning: that the right rear wheel was detached causing
174 | P a g e
the jeepney to run to the eastern shoulder of the road then back to the concrete pavement; that driver
Manalo applied the brakes after which the jeepney made a U-turn (half-turn) in such a manner that it
inverted its direction making it face South instead of north; that the jeepney stopped on the western lane
of the road on the right of way of the oncoming Phil. Rabbit Bus where it was bumped by the latter;
"(2) The likewise unrebutted testimony of Police Investigator Tacpal of the San Manuel (Tarlac) Police who,
upon responding to the reported collision, found the real evidence thereat indicating in his sketch (Exh. K,
Pascua), the tracks of the jeepney of defendant Mangune and Carreon running on the Eastern shoulder
(outside the concrete paved road) until it returned to the concrete road at a sharp angle, crossing the
Eastern lane and the (imaginary) center line and encroaching fully into the western lane where the collision
took place as evidenced by the point of impact;
"(3) The observation of witness Police Corporal Cacalda also of the San Manuel Police that the path of the
jeepney they found on the road and indicated in the sketch (Exh. K-Pascua) was shown by skid marks
which he described as `scratches on the road caused by the iron of the jeep, after its wheel was removed;'
"(4) His conviction for the crime of Multiple Homicide and Multiple Serious Physical Injuries with Damage to
Property thru Reckless Imprudence by the Court of First Instance of Tarlac (Exh. 24-Rabbit) upon the
criminal Information by the Provincial Fiscal of Tarlac (Exh. 23-Rabbit), as a result of the collision, and his
commitment to prison and service of his sentence (Exh. 25-Rabbit) upon the finality of the decision and his
failure to appeal therefrom; and
"(5) The application of the doctrine of res-ipsa loquitar (sic) attesting
occurred (sic) on the right of way of the Phil. Rabbit Bus."
The respondent court had a contrary opinion. Applying primarily (1)
the presumption that drivers who bump the rear of another vehicle
unless contradicted by other evidence, and (3) the substantial factor
negligent.
to the circumstance that the collision

the doctrine of last clear chance, (2)
guilty and the cause of the accident
test, concluded that delos Reyes was
The misappreciation of the facts and evidence and the misapplication of the laws by the respondent court
warrant a reversal of its questioned decision and resolution.
We reiterate that "[t]he principle about the 'last clear chance' would call for application in a suit between
the owners and drivers of the two colliding vehicles. It does not arise where a passenger demands
responsibility from the carrier to enforce its contractual obligations. For it would be inequitable to exempt
the negligent driver of the jeepney and its owners on the ground that the other driver was likewise guilty of
negligence." This was Our ruling in Anuran, et al. v. Buo, et al., G.R. Nos. L-21353 and L-21354, May 20,
1966, 17 SCRA 224. 1 Thus, the respondent court erred in applying said doctrine.
On the presumption that drivers who bump the rear of another vehicle guilty and the cause of the
accident, unless contradicted by other evidence, the respondent court said (p. 49, Rollo):
". . ., the jeepney had already executed a complete turnabout and at the time of impact was already facing
the western side of the road. Thus the jeepney assumed a new frontal position vis a vis, the bus, and the
bus assumed a new role of defensive driving. The spirit behind the presumption of guilt on one who bumps
the rear end of another vehicle is for the driver following a vehicle to be at all times prepared of a pending
accident should the driver in front suddenly come to a full stop, or change its course either through change
of mind of the front driver, mechanical trouble, or to avoid an accident. The rear vehicle is given the
responsibility of avoiding a collision with the front vehicle for it is the rear vehicle who has full control of
the situation as it is in a position to observe the vehicle in front of it."
The above discussion would have been correct were it not for the undisputed fact that the U-turn made by
the jeepney was abrupt (Exhibit "K," Pascua). The jeepney, which was then travelling on the eastern
shoulder, making a straight skid mark of approximately 35 meters, crossed the eastern lane at a sharp
angle, making a skid mark of approximately 15 meters from the eastern shoulder to the point of impact
(Exhibit "K," Pascua). Hence, delos Reyes could not have anticipated the sudden U-turn executed by
Manalo. The respondent court did not realize that the presumption was rebutted by this piece of evidence.
175 | P a g e
With regard to the substantial factor test, it was the opinion of the respondent court that (p. 52, Rollo):
". . . It is the rule under the substantial factor test that if the actor's conduct is a substantial factor in
bringing about harm to another, the fact that the actor neither foresaw nor should have foreseen the
extent of the harm or the manner in which it occurred does not prevent him from being liable
(Restatement, Torts, 2d). Here, We find defendant bus running at a fast speed when the accident occurred
and did not even make the slightest effort to avoid the accident, . . . . The bus driver's conduct is thus a
substantial factor in bringing about harm to the passengers of the jeepney, not only because he was
driving fast and did not even attempt to avoid the mishap, but also because it was the bus which was the
physical force which brought about the injury and death to the passengers of the jeepney."
The speed of the bus was calculated by respondent court as follows (pp. 54-55, Rollo):
"According to the record of the case, the bus departed from Laoag, Ilocos Norte, at 4:00 o'clock A.M. and
the accident took place at approximately around 12:30 P.M., after travelling roughly for 8 hours and 30
minutes. Deduct from this the actual stopover time of two Hours (computed from the testimony of the
driver that he made three 40-minute stopovers), We will have an actual travelling time of 6 hours and 30
minutes.
"Under the circumstances, We calculate that the Laoag-Tarlac route (365 kms.) driving at an average of 56
km. per hour would take 6 hours and 30 minutes. Therefore, the average speed of the bus, give and take
10 minutes, from the point of impact on the highway with excellent visibility factor would be 80 to 90 kms.
per hour, as this is the place where buses would make up for lost time in traversing busy city streets."
Still, We are not convinced. It cannot be said that the bus was travelling at a fast speed when the accident
occurred because the speed of 80 to 90 kilometers per hour, assuming such calculation to be correct, is
yet within the speed limit allowed in highways. We cannot even fault delos Reyes for not having avoided
the collision. As aforestated, the jeepney left a skid mark of about 45 meters, measured from the time its
right rear wheel was detached up to the point of collision. Delos Reyes must have noticed the perilous
condition of the jeepney from the time its right rear wheel was detached or some 90 meters away,
considering that the road was straight and points 200 meters north and south of the point of collision,
visible and unobstructed. Delos Reyes admitted that he was running more or less 50 kilometers per hour at
the time of the accident. Using this speed, delos Reyes covered the distance of 45 meters in 3.24 seconds.
If We adopt the speed of 80 kilometers per hour, delos Reyes would have covered that distance in only
2.025 seconds. Verily, he had little time to react to the situation. To require delos Reyes to avoid the
collision is to ask too much from him. Aside from the time element involved, there were no options
available to him. As the trial court remarked (pp. 107-108, Record on Appeal):
". . . . They (plaintiffs) tried to impress this Court that defendant de los Reyes, could have taken either of
two options: (1) to swerve to its right (western shoulder) or (2) to swerve to its left (eastern lane), and thus
steer clear of the Mangune jeepney. This Court does not so believe, considering the existing exigencies of
space and time.
As to the first option, Phil. Rabbit's evidence is convincing and unrebutted that the Western shoulder of the
road was narrow and had tall grasses which would indicate that it was not passable. Even plaintiffs own
evidence, the pictures (Exhs. P and P-2, Pascua) are mute confirmation of such fact. Indeed, it can be
noticed in the picture (Exh. P-2, Pascua) after the Rabbit bus came to a full stop, it was tilted to right front
side, its front wheels resting most probably on a canal on a much lower elevation that of the shoulder or
paved road. It too shows that all of the wheels of the Rabbit bus were clear of the roadway except the
outer left rear wheel. These observation appearing in said picture (Exh. P-2, Pascua) clearly shows coupled
with the finding the Rabbit bus came to a full stop only five meters from the point of impact (see sketch,
Exh. K-Pascua) clearly show that driver de los Reyes veered his Rabbit bus to the right attempting to avoid
hitting the Mangune's jeepney. That it was not successful in fully clearing the Mangune jeepney as its
(Rabbit's) left front hit said jeepney (see picture Exh. 10-A-Rabbit) must have been due to limitations of
space and time.
"Plaintiffs alternatively claim that defendant delos Reyes of the Rabbit bus could also have swerved to its
left (eastern lane) to avoid bumping the Mangune jeepney which was then on the western lane. Such a
176 | P a g e
claim is premised on the hypothesis (sic) that the eastern lane was then empty. This claim would appear to
be good copy of it were based alone on the sketch made after the collision. Nonetheless, it loses force it
one were to consider the time element involved, for moments before that, the Mangune jeepney was
crossing that very eastern lane at a sharp angle. Under such a situation then, for driver delos Reyes to
swerve to the eastern lane, he would run the greater risk of running smack in the Mangune jeepney either
head on or broadside."
After a minute scrutiny of the factual matters and duly proven evidence, We find that the proximate cause
of the accident was the negligence of Manalo and spouses Mangune and Carreon. They all failed to
exercise the precautions that are needed precisely pro hac vice.
In culpa contractual, the moment a passenger dies or is injured, the carrier is presumed to have been at
fault or to have acted negligently, and this disputable presumption may only be overcome by evidence
that he had observed extra-ordinary diligence as prescribed in Articles 1733, 1755 and 1756 of the New
Civil Code 2 or that the death or injury of the passenger was due to a fortuitous event 3 (Lasam v. Smith,
Jr., 45 Phil. 657).
The negligence of Manalo was proven during the trial by the unrebutted testimonies of Caridad Pascua,
Police Investigator Tacpal, Police Corporal Cacalda, his (Manalo's) conviction for the crime of Multiple
Homicide and Multiple Serious Injuries with Damage to Property thru Reckless Imprudence, and the
application of the doctrine of res ipsa loquitur, supra. The negligence of spouses Mangune and Carreon was
likewise proven during the trial (p. 110, Record on Appeal):
"To escape liability, defendants Mangune and Carreon offered to show thru their witness Natalio Navarro,
an alleged mechanic, that he periodically checks and maintains the jeepney of said defendants, the last on
Dec. 23, the day before the collision, which included the tightening of the bolts. This notwithstanding the
right rear wheel of the vehicle was detached while in transit. As to the cause thereof no evidence was
offered. Said defendant did not even attempt to explain, much less establish, it to be one caused by a caso
fortuito. . . ."
In any event, "[i]n an action for damages against the carrier for his failure to safely carry his passenger to
his destination, an accident caused either by defects in the automobile or through the negligence of its
driver, is not a caso fortuito which would avoid the carrier's liability for damages (Son v. Cebu Autobus
Company, 94 Phil. 892 citing Lasam, et al. v. Smith, Jr., 45 Phil. 657; Necesito, etc. v. Paras, et al., 104 Phil.
75).
The trial court was therefore right in finding that Manalo and spouses Mangune and Carreon 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). In other words,
the carrier can neither shift his liability on the contract to his driver nor share it with him, for his driver's
negligence is his. 4 Secondly, if We make the driver jointly and severally liable with the carrier, that would
make the carrier's liability personal instead of merely vicarious and consequently, entitled to recover only
the share which corresponds to the driver, 5 contradictory to the explicit provision of Article 2181 of the
New Civil Code. 6
We affirm the amount of damages adjudged by the trial court, except with respect to the indemnity for loss
of life. Under Article 1764 in relation to Article 2206 of the New Civil Code, the amount of damages for the
death of a passenger is at least three thousand pesos (P3,000.00). The prevailing jurisprudence has
increased the amount of P3,000.00 to P30,000.00 (see Heirs of Amparo delos Santos, et al. v. Honorable
Court of Appeals, et al., G.R. No. 51165, June 21, 1990 citing De Lima v. Laguna Tayabas Co., G.R. Nos. L35697-99, April 15, 1988, 160 SCRA 70).
ACCORDINGLY, the petition is hereby GRANTED. The decision of the Intermediate Appellate Court dated
July 29, 1983 and its resolution dated November 28, 1983 are SET ASIDE. The decision of the Court of First
Instance dated December 27, 1978 is REINSTATED WITH MODIFICATION that only Isidro Mangune,
177 | P a g e
Guillerma Carreon and Filriters Guaranty Assurance Corporation, Inc. are liable to the victims or their heirs
and that the amount of indemnity for loss of life is increased to thirty thousand pesos (P30,000.00).
SO ORDERED.
Narvasa, Cruz, Gancayco and Grio-Aquino, JJ., concur.
Footnotes
* as it appears in the petition.
1. In this case, an improperly parked passenger jeepney was bumped from behind by a speeding truck
with such violence that three of its passengers died whereas two other passengers suffered injuries. The
representatives of the dead and of the injured passengers filed suits to recover damages against the driver
and the owners of the truck and also against the driver and the owners of the jeepney. The trial court
rendered judgment absolving the driver and the owners of the jeepney but required the driver and the
owners of the truck to compensate the victims. The plaintiffs appealed insisting that the driver and the
owners of the jeepney should also be made liable. The appellate court, relying on the doctrine of last clear
chance, affirmed the trial court's decision. The plaintiffs then filed a petition for review on certiorari before
this Court. We modified the questioned decision by making all the defendants solidarily liable.
2. Articles 1733, 1755 and 1756 of the New Civil Code, respectively provides:
"ART. 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 the vigilance over the goods is further
expressed in articles 1734, 1735, and 1746. Nos. 5, 6, and 7, while the extraordinary diligence for the
safety of the passengers is further set forth in articles 1755 and 1756."
"ART. 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."
"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."
3.
Article 1174 of the New Civil Code provides:
"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."
4. Article 1759 of the New Civil Code provides:
"ART. 1759. Common carriers are liable for the death of or injuries to
passengers through the negligence or willful acts of the former's employees, although such employees
may have acted beyond the scope of their authority or in violation of the orders of the common carriers."
"This liability of the common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the selection and supervision of their employees."
"ART. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.
"He who made the payment may claim from his codebtors only the share
which corresponds to each, with the interest for the payment already made. If the payment is made before
the debt is due, no interest for the intervening period may be demanded.
178 | P a g e
"When one of the solidary debtors cannot, because of his insolvency,

reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in
proportion to the debt of each."
"ART. 2181. Whoever pays for the damage caused by his dependents or
employees may recover from the latter what he has paid or delivered in satisfaction of the claim."
4. Classes of common carriers
Art. 1732, 1733, 1755
Civil Code of the Philippines
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.
Art. 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 the vigilance over the goods is further expressed in Articles 1734, 1735,
forth in Articles 1755 and 1756.
Art. 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.
5. Laws applicable
Arts. 1766, 1753
Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall
be governed by the Code of Commerce and by special laws.
Art. 1753. The law of the country to which the goods are to be transported shall govern the liability of the
common carrier for their loss, destruction or deterioration.
B. Common Carriage of Goods
1.
Liability and pr4esumption of negligence
Arts. 1733, 1734, 1735
179 | P a g e
SUBSECTION 2. - Vigilance Over Goods

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless
the same is due to any of the following causes only:
(3) Act of omission of the shipper or owner of the goods;
(5) Order or act of competent public authority.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if the
goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733.
Ynchausti Steamship Co. v. Dexter, 41 Phil 289

EN BANC
[G.R. No. 15652. December 14, 1920.]
THE YNCHAUSTI STEAMSHIP COMPANY, petitioner, vs. I. B. DEXTER, as Auditor of the Philippine
Islands, and C. E. UNSON, as Acting Purchasing Agent of the Philippine Islands, respondents.
Cohn & Fisher for petitioner.
Attorney-General Paredes and Assistant Attorney-General A. Santos for respondents.
SYLLABUS
1.
COMMON CARRIER; TRANSPORTATION OF GOVERNMENT PROPERTY; NOTATION OF SHORTAGE BY
CONSIGNEE. When Government property is transported by common carrier, it is the duty of the
consignee, under section 646 of the Administrative Code, to make notation of any loss, shortage, or
damage upon the bill of lading, or receipt, before accomplishing it; and where in obedience to this precept
a shortage is noted by the consignee upon the bill of lading at the time of delivery, such notation is
competent evidence to show that the shortage in fact existed.
2.
ID.; LOSS OR DAMAGE TO GOODS IN TRANSIT; LIABILITY OF CARRIER. Proof of the delivery of
goods in good order to a carrier, and of their arrival at the place of destination short or in bad order, makes
out a prima facie case; and it is incumbent on the carrier, in order to exonerate itself, to prove that the loss
or injury was due to some circumstance inconsistent with its liability.
3.
ID.; FREIGHT DUE TO CARRIER; SET-OFF FOR LOSS OR DAMAGE IN TRANSIT. The Purchasing
Agent, under the direction of the Insular Auditor, may properly deduct from the freight due to a common
carrier for the transportation of Government property any sum for which the carrier is liable to the
Government for loss, shortage, or damage occurring in course of the transportation of the same property.
4.
MANDAMUS; COMMON CARRIER; CLAIM AGAINST GOVERNMENT; BURDEN OF PROOF. A common
carrier cannot maintain an action for the writ of mandamus to compel the Purchasing Agent to pay a bill for
freight due to the carrier, under the doctrine enunciated in Compaia General de Tabacos vs. French and
Unson (39 Phil., 34), without showing that the loss, shortage, or damage suffered by the property while in
the hands of the carrier for transportation resulted from some other cause that its own fault or negligence.
DECISION
180 | P a g e
STREET, J p:
This is a petition for a writ of mandamus filed in this court by the Ynchausti Steamship Company to compel
the Purchasing Agent of the Philippine Islands and the Insular Auditor to sign, countersign, and deliver to
the petitioner a warrant upon the Treasurer of the Philippine Islands for the sum of P82.79 in satisfaction of
a claim for that amount, which is alleged to be due the petitioner as a common carrier for freight earned in
transporting for the Government two distinct consignments of mineral oil from Manila to two other ports in
the Philippine Islands. After the defendants had duly answered, denying all the allegations of the petition
except such as relate to the character and places of residence of the parties to the petition (which are
admitted) the controversy was submitted for determination by this court upon an agreed statement of
facts as follows:
"On July 23, 1918, the Government of the Philippine Islands, acting by and through the respondent Insular
Purchasing Agent, employed the services of the petitioner, Ynchausti Steamship Co., a common carrier, for
the transportation, on board the steamship Venus, from the port of Manila to the port of Aparri, Cagayan,
of a consignment of merchandise, consisting of thirty (30) cases of 'White Rose' mineral oil of two fivegallon cans to the case; and on September 18, 1918, the said Government likewise employed the services
of petitioner for the transportation on board the steamship Venus, from Manila to Aparri, Cagayan, of
ninety-six case of 'Cock' brand mineral oil, ten gallons to the case. The goods were delivered by the
shipper to the carrier, which accordingly received them, and to evidence the contract of transportation, the
parties duly executed and delivered what is popularly called the Government bill of lading (General Form 9A), hereto attached, marked Exhibit A and made a part hereof, wherein and whereby it was stipulated that
the carrier, the petitioner Ynchausti & Co., received the above-mentioned supplies in apparent good
condition, obligating itself to carry said supplies to the place agreed upon, in accordance with the
authorized and prescribed rates and classifications, and subject to the law of common carriers in force on
the date of the shipment, and to the conditions prescribed by the Insular Collector of Customs in Philippine
Marine Regulations at page 16 under the heading of 'Bill of Lading Conditions,' hereto attached, marked
Exhibit B and made a part hereof.
"Upon the delivery of the said shipment of 'Cock' brand oil the consignee claimed that one case was
delivered empty, and noted such claim upon the bill of lading; and upon the delivery of the said shipment
of 'White Rose,' brand oil the consignee claimed that one case was delivered empty, and noted said claim
upon the bill of lading.
"Thereafter, notwithstanding the protestations of the petitioner, Ynchausti Steamship Co., that said
shortages were due to causes entirely unknown to it, and were not due to any fault or negligence on its
part, or on the part of its agents or servants, the Acting Insular Purchasing Agent of the Philippine Islands
notified the petitioners herein that after due investigation the Insular Auditor found and decided that the
leakages of the two whole cases were due to its negligence and that the deduction of the sum of P22.53,
the invoice value of the goods lost, and held by the Auditor to be the true value thereof, had been
authorized by the said Insular Auditor.
"Petitioner thereupon protested against the threatened deduction, and demanded that it be paid the full
amount due for the transportation of the two said shipments of merchandise, to wit. the sum of P82.79. as
shown by its transportation voucher presented in this cause, hereto attached marked Exhibit C and made a
part hereof.
"Thereafter, notwithstanding the protest and demand of the petitioner as aforesaid, the Insular Auditor, in
conformity with his ruling, declined and still declines to issue to the petitioner a warrant for the full sum of
P82.79, and has tendered to it a warrant for the sum of P60.26, which the petitioner has refused to accept.
"The sum of P22.53 authorized to be deducted by the Insular Auditor, as appears herein, has not at any
time been liquidated by consent, agreement, or by the judgment of any court of competent jurisdiction."
Upon a perusal of the foregoing agreed statement it will be seen that the present litigation had its origin in
a situation practically identical with that considered by this court in Compaia General de Tabacos vs.
French and Unson (39 Phil., 34). It will be noted, however, that the case mentioned was decided upon
demurrer, while the one now before us is to be heard and determined upon the petition, answer, and the
admitted facts.
181 | P a g e
We note that in this case, as in the case of Compaia General de Tabacos vs. French and Unson (supra),
the petition alleges that the leakage of the lost gasoline was due to causes unknown to the petitioner and
was not due to any fault or negligence of petitioner, its agents, or servants. The respondents, by
demurring to the petition in the earlier case, admitted that allegation. In the case now before us that
allegation is put in issue, and we find nothing in the admitted statement of facts to support it. It results
that if that allegation is material to the relief here sought, the petition must fail.
We are of the opinion that the allegation in question is material and that the relief sought in this case
cannot be granted.
In section 646 of the Administrative Code it is provided that when Government property is transmitted
from one place to another by carrier, it shall be upon proper bill of lading, or receipt, from such carrier; and
it shall be the duty of the consignee, or his representative, to make full notation of any evidence of loss,
shortage, or damage, upon the bill of lading, or receipt, before accomplishing it. It is admitted by the
petitioner in the agreed statement of facts that the consignee, at the time the oil was delivered, noted the
loss in the present case upon the two respective bills of lading. The notation of these losses by the
consignee, in obedience to the precept of section 646 of the Administrative Code, is competent evidence
to show that the shortage in fact existed. As the petitioner admits that the oil was received by it for
carriage and inasmuch as the fact of loss is proved in the manner just stated, it results that there is a
presumption that the petitioner was to blame for the loss; and it was incumbent upon the petitioner in
order to entitle it to relief in this case to rebut that presumption by proving, as is alleged in the petition,
that the loss was not due to any fault or negligence of the petitioner.
The mere proof of delivery of goods in good order to a carrier, and of their arrival at the place of
destination in bad order, makes out a prima facie case against the carrier, so that if no explanation is given
as to how the injury occurred, the carrier must be held responsible. (4 R. C. L., p. 917.) It is incumbent
upon the carrier to prove that the loss was due to accident or some other circumstance inconsistent with
its liability. (Articles 361-363, Code of Commerce. ) Indeed, if the Government of the Philippine Islands had
instituted an action in a court of law against the petitioner to recover the value of the oil lost while these
consignments were in the course of transportation, it would, upon the facts appearing before us, have
been entitled to judgment.
From this it is apparent that the mandamus prayed for cannot be granted. It is a rule of universal
application that a petition for extraordinary relief of the character here sought must show merit. That is,
the petitioner's right to relief must be clear. Such cannot be said to be the case where, as here, a
presumption of responsibility on the part of the petitioner stands unrefuted upon the record.
We are of the opinion that, in the absence of proof showing that the carrier was-not at fault in respect to
the matter under discussion, the Insular Auditor was entitled to withhold, from the amount admittedly due
to the petitioner for the freight charges, a sum sufficient to cover the value of the oil lost in transit.
The petition will be dismissed, with costs against the petitioner. So ordered.
Mapa, C.J., Araullo, Avancea and Villamor, JJ., concur.
Malcolm, J., concurs in the result.
Mirasol v. Dollar, 53 Phil 125
SECOND DIVISION
[G.R. No. 29721. March 27, 1929.]
AMANDO MIRASOL, plaintiff-appellant, vs. THE ROBERT DOLLAR CO., defendant-appellant.
Vicente Hilado for plaintiff-appellant.
J. A. Wolfson for defendant-appellant.
SYLLABUS
182 | P a g e
1.
WHEN SHIPPER IS NOT BOUND. Where it appears that a bill of lading was issued to a shipper
containing a clause limiting the carrier's liability, printed in fine letters on the back of the bill of lading,
which he did not sign and of which he was not advised, in an action for damages, the shipper is not bound
by the clause which limits the carrier's liability.
2.
WHEN BURDEN OF PROOF IS SHIFTED. Shippers who are forced to ship goods on an ocean liner,
have some legal rights, and when goods are delivered on board ship in good order and condition, and the
shipowner delivers them to the shipper in bad order and condition, in an action for damages, the burden of
proof is then shifted, and it devolves upon the shipowner to both allege and prove that the goods were
damaged by reason of some act which legally exempts him from liability.
3.
REASON FOR RULE. As to when and how goods were damaged in transit is a matter peculiarly
within the knowledge of the shipowner and his employees, and to require the plaintiff to prove as to when
and how the damage was done would force him to rely upon the employees of the defendant's ship which
in legal effect would be to say that he cannot recover damages for any reason.
STATEMENT
After the promulgation of the decision rendered by the Second Division on February 13, 1929, 1 the
defendant filed a motion to have the case heard and decided in banc, and inasmuch as the legal questions
involved are important to the shipping interests, the court thought it best to do so.
After the formal pleas, plaintiff alleges that he is the owner and consignee of two cases of books shipped in
good order and condition at New York, U. S. A., on board the defendant's steamship President Garfield, for
transport and delivery to the plaintiff in the City of Manila, all freight charges paid. That the two cases
arrived in Manila on September 1, 1927, in bad order and damaged condition, resulting in the total loss of
one case and a partial loss of the other. That the loss in one case is P1,630, and the other P700, for which
he filed his claims, and defendant has refused and neglected to pay, giving as its reason that the damage
in question "was caused by sea water." That plaintiff never entered into any contract with the defendant
limiting defendant's liability as a common carrier, and when he wrote the letter of September 3, 1927, he
had not then ascertained the contents of the damaged case, and could not determine their value. That he
never intended to ratify or confirm any agreement to limit the liability of the defendant. That on September
9, 1927, when the other case was found, plaintiff filed a claim for the real damage of the books therein
named in the sum of $375.
Plaintiff prays for corresponding judgment, with legal interest from the filing of the complaint and costs.
For answer the defendant made a general and specific denial, and as a separate and special defense
alleges that the steamship President Garfield at all the times alleged was in all respects seaworthy and
properly manned, equipped and supplied, and fit for the voyage. That the damage to plaintiff's
merchandise, if any, was not caused through the negligence of the vessel, its master, agent, officers, crew,
tackle or appurtenances, nor by reason of the vessel being unseaworthy or improperly manned, "but that
such damage, if any, resulted from faults or errors in navigation or in the management of said vessel." As a
second separate and special defense, defendant alleges that in the bill of lading issued by the defendant
to plaintiff, it was agreed in writing that defendant should not be "held liable for any loss of, or damage to,
any of said merchandise resulting from any of the following causes, to wit: Acts of God, perils of the sea or
other waters," and that plaintiff's damage, if any, was caused by "Acts of God" or "perils of the sea." As a
third special defense, defendant quoted clause 13 of the bill of lading, in which it is stated that in no case
shall it be held liable "for or in respect to said merchandise or property beyond the sum of two hundred
and fifty dollars for any piece package or any article not enclosed in a package, unless a higher value is
stated herein and ad valorem freight paid or assessed thereon," and that there was no other agreement.
That on September 3, 1927 the plaintiff wrote the defendant a letter as follows:
"Therefore, I wish to file claim of damage to the meager maximum value that your bills of lading will
indemnify me, that is $250 as per condition 13."
As a fourth special defense, defendant alleges that the damage, if any, was caused by "sea water," and
that the bill of lading exempts defendant from liability for that cause. That damage by "sea water" is a
shipper's risk, and that defendant is not liable.
As a result of the trial upon such issues, the lower court rendered judgment for the plaintiff for P2,080, with
legal interest thereon from the date of the final judgment, with costs, from which both parties appealed,
and the plaintiff assigns the following errors:
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"I.
The lower court erred in holding that plaintiff's damage on account of the loss of the damaged
books in the partially damaged case can be compensated with an indemnity of P450 instead of P750 as
claimed by plaintiff.
"II.
The lower court, consequently, also erred in giving judgment for plaintiff for only P2,080 instead of
P2,380.
"III.
The lower court erred in not sentencing defendant to pay legal interest on the amount of the
judgment, at least, from the date of the rendition of said judgment, namely, January 30, 1928."
The defendant assigns the following errors:
"I.
The lower court erred in failing to recognize the validity of the limited liability clause of the bill of
lading, Exhibit 2.
"II.
The lower court erred in holding defendant liable in any amount and in failing to hold, after its
finding as a fact that the damage was caused by sea water, that the defendant is not liable for such
damage by sea water.
"III
The lower court erred in awarding damages in favor of plaintiff and against defendant for P2,080 or
in any other amount, and in admitting, over objection, Exhibits G, H, I and J."
DECISION
JOHNS, J p:
Plaintiff's contention that he is entitled to P700 for his Encyclopedia Britannica is not tenable. The evidence
shows that with the P400 which the court allowed, he could buy a new set which would contain all of the
material and subject matter of the one which he lost. Plaintiff's third assignment of error is well taken, as
under all of the authorities, he is entitled to legal interest from the date of his judgment rendered in the
lower court and not the date when it becomes final. The lower court found that plaintiff's damage was
P2,080, and that finding is sustained by the evidence. There was a total loss of one case and a partial loss
of the other, and in the very nature of things, plaintiff could not prove his loss in any other way or manner
than he did prove i, and the trial court who heard him testify must have been convinced of the truth of his
testimony.
There is no claim or pretense that the plaintiff signed the bill of lading or that he knew of its contents at
the time it was issued. In that situation he was not legally bound by the clause which purports to limit
defendant's liability. That question was squarely met and decided by this court in banc in Juan Ysmael &
Co., vs. Gabino Barretto & Co. (51 Phil., 90; see numerous authorities there cited).
Among such authorities is the case of The Kensington decided by the Supreme Court of the United States
January 6, 1902 (46 Law. ed., 190), in which the opinion was written by the late Chief Justice White, the
syllabus of which is as follows:
"1.
Restrictions of the liability of a steamship company for its own negligence or failure of duty toward
a passenger, being against the public policy enforced by the courts of the United States, will not be upheld,
though the ticket was issued and accepted in a foreign country and contained a condition making it subject
to the law thereof, which sustain such stipulations.
"2.
A stipulation in a steamship passenger's ticket, which compels him to value his baggage, at a
certain sum, far less than it is worth, or, in order to have a higher value put upon it, to subject it to the
provisions of the Harter Act, by which the carrier would be exempted from all liability therefor from errors
in navigation or management of the vessel or other negligence, is unreasonable and in conflict with public
policy.
"3.
An arbitrary limitation of 250 francs for the baggage of any steamship passenger, unaccompanied
by any right to increase the amount by adequate and reasonable proportional payment, is void as against
public policy."
Both the facts upon which it is based and the legal principles involved are square in point in this case.
The defendant having received the two boxes in good condition, its legal duty was to deliver them to the
plaintiff in the same condition in which it received them. From the time of their delivery to the defendant in
New York until they were delivered to the plaintiff in Manila, the boxes were under the control and
supervision of the defendant and beyond the control of the plaintiff. The defendant having admitted that
the boxes were damaged while in transit and in its possession, the burden of proof then shifted, and it
devolved upon the defendant to both allege and prove that the damage was caused by reason of some
fact which exempted it from liability. As to how the boxes were damaged, when or where, was a matter
184 | P a g e
peculiarly and exclusively within the knowledge of the defendant, and in the very nature of things could
not be in the knowledge of the plaintiff. To require the plaintiff to prove as to when and how the damage
was caused would force him to call and rely upon the employees of the defendant's ship, which in legal
effect would be to say that he could not recover any damage for any reason. That is not the law.
Shippers who are forced to ship goods on an ocean liner or any other ship have some legal rights, and
when goods are delivered on board ship in good order and condition, and the shipowner delivers them to
the shipper in bad order and condition, it then devolves upon the shipowner to both allege and prove that
the goods were damaged by reason of some fact which legally exempts him from liability; otherwise, the
shipper would be left without any redress, no matter what may have caused the damage.
The lower court in its opinion says:
"The defendant has not even attempted to prove that the two cases were wet with sea water by fortuitous
event, force majeure or nature and defect of the things themselves. Consequently, it must be presumed
that it was by causes entirely distinct and in no manner imputable to the plaintiff, and of which the
steamer President Garfield or any of its crew could not have been entirely unaware."
And the evidence for the defendant shows that the damage was largely caused by "sea water," from which
it contends that it is exempt under the provisions of its bill of lading and the provisions of article 361 of the
Code of Commerce, which is as follows:
"Merchandise shall be transported at the risk and venture of the shipper, if the contrary was not expressly
stipulated.
"Therefore, all damages and impairment suffered by the goods during the transportation, by reason of
accident, force majeure, or by virtue of the nature or defect of the articles, shall be for the account and risk
of the shipper.
"The proof of these accidents is incumbent on the carrier."
In the final analysis, the cases were received by the defendant in New York in good order and condition,
and when they arrived in Manila, they were in bad condition, and one was a total loss. The fact that the
cases were damaged by "sea water," standing alone and within itself, is not evidence that they were
damaged by force majeure or for a cause beyond the defendant's control. The words "perils of the sea," as
stated in defendant's brief apply to "all kinds of marine casualties, such as shipwreck, foundering,
stranding," and among other things, it is said: "Tempest rocks, shoals, icebergs and other obstacles are
within the expression," and "where the peril is the proximate cause of the loss, the shipowner is excused."
"Something fortuitous and out of the ordinary course is involved in both words 'peril' or 'accident.'"
Defendant also cites and relies on the case of Government of the Philippine Islands vs. Ynchausti &
Company (40 Phil., 219), but it appears from a reading of that case that the facts are very different and,
hence, it is not in point. In the instant case, there is no claim or pretense that the two cases were not in
good order when received on board the ship, and it is admitted that they were in bad order on their arrival
at Manila. Hence, they must have been damaged in transit. In the very nature of things, if they were
damaged by reason of a tempest, rocks, icebergs, foundering, stranding or the perils of the sea, that would
be a matter exclusively within the knowledge of the officers of defendant's ship, and in the very nature of
things would not be within plaintiff's knowledge, and upon all of such questions, there is a failure of proof.
The judgment of the lower court will be modified, so as to give the plaintiff legal interest on the amount of
his judgment from the date of its rendition in the lower court, and in all other respects affirmed, with costs.
So ordered.
Johnson, Malcolm, Ostrand, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
STREET, J., dissenting in part:
I gave a hesitating adherence to the decision of this case in division, and upon further reflection, I am now
constrained to record my belief that the decision is in part erroneous. I agree with the court that the
defendant is liable to the plaintiff, but I think that its liability is limited, under clause 13, printed on the
back of the bill of lading, to the amount of 250 dollars for each of the two boxes of books comprising this
consignment. While the law does not permit a carrier gratuitously to exempt itself from liability for the
negligence of its servants, it can effectually do so for a valuable consideration; and where freight rates are
adjusted upon the basis of a reasonable limited value per package, where a higher value is not declared by
the shipper, the limitation as to the value is binding. This court in two well considered decisions has
185 | P a g e
heretofore upheld a limitation of exactly the character of that indicated in clause 13 (H. E. Heacock Co. vs.
Macondray & Co., 42 Phil., 205; Freixas & Co. vs. Pacific Mail Steamship Co., 42 Phil., 198); and I am unable
to see any sufficient reason for ignoring those decisions.
Footnotes
1.
Not reported.
2.
(a)
Exception from liability

Natural disaster
Arts. 1734(1), 1739, 1740; Art. 361
Code of Commerce
ARTICLE 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
ARTICLE 1739. In order that the common carrier may be exempted from responsibility, the natural disaster
must have been the proximate and only cause of the loss. However, the common carrier must exercise due
diligence to prevent or minimize loss before, during and after the occurrence of flood, storm or other
natural disaster in order that the common carrier may be exempted from liability for the loss, destruction,
or deterioration of the goods. The same duty is incumbent upon the common carrier in case of an act of
the public enemy referred to in article 1734, No. 2.
ARTICLE 1740. If the common carrier negligently incurs in delay in transporting the goods, a natural
disaster shall not free such carrier from responsibility.
ARTICLE 361. The merchandise shall be transported at the risk and venture of the shipper, if the contrary
has not been expressly stipulated. As a consequence, all the losses and deterioration which the goods may
suffer during the transportation by reason of fortuitous event, force majeure, or the inherent nature and
defect of the goods, shall be for the account and risk of the shipper. Proof of these accidents is incumbent
upon the carrier.
Tan Chiong v. Ynchausti, 22 Phil 153

EN BANC
[G.R. No. 6092. March 8, 1912.]
TAN CHIONG SIAN, plaintiff-appellee, vs. INCHAUSTI & CO., defendant-appellant.
Haussermann, Cohn & Fisher, for appellant.
O'Brien & DeWitt, for appellee.
SYLLABUS
186 | P a g e
1.
COMMON CARRIERS; LOSS OF SHIP AND CARGO; FORCE MAJEURE. Loss of a ship and of its cargo,
in a wreck due to accident or force majeure must, as a general rule, fall upon their respective owners,
except in cases where the wrecking or stranding of the vessel occurred through malice, carelessness or
lack of skill on the part of the captain and in the remaining cases indicated in article 841 of the Code of
Commerce.
2.
ID.; ID.; ID.;-EXEMPTION FROM LIABILITY. Under article the Code of Commerce transportation of
merchandise is for account, risk and hazard of the shipper, unless the contrary has been expressly
stipulated. The carrier is exempt from liability if he prove, as it is incumbent upon him to do, that the loss
or destruction of the merchandise was due to accident and force majeure and not to fraud, fault, or
negligence on the part of the captain or owners of the ship.
DECISION
TORRES, J p:
This is an appeal through bill of exceptions, by counsel for the firm of Inchausti & Co., from a judgment
rendered by the Honorable A. S. Crossfield, judge.
On January 11, 1909, the Chinaman, Tan Chiong Sian or Tan Chinto, filed a written complaint, which was
amended on the 28th of the same month and again amended on October 27 of the same year, against the
said firm, wherein he alleged, among other things, as a cause of action: That, on or about November 25,
1908, the plaintiff delivered to the defendant 205 bundles or cases of general merchandise belonging to
him, which Inchausti & Co., upon receiving, bound themselves to deliver in the pueblo of Catarman,
Province of Samar, to the Chinaman, Ong Bieng Sip, and in consideration of the obligations contracted by
the defendant party, the plaintiff obligated himself to pay to the latter the sum of P250 Philippine currency,
which payment should be made upon the delivery of the said merchandise in the said pueblo of Catarman;
but that the defendant company neither carried nor delivered the aforementioned merchandise to the said
Ong Bieng Sip, in Catarman, but unjustly and negligently failed to do so, with the result that the said
merchandise was almost totally lost; that, had the defendant party complied well and faithfully with its
obligation, according to the agreement made, the merchandise concerned would have had a value of
P20,000 in the said pueblo of Catarman on the date when it should have been delivered there, wherefore
the defendant party owed the plaintiff the said sum of P20,000, which it had not paid him, or any part
thereof, notwithstanding the many demands of the plaintiff; therefore the latter prayed for judgment
against the defendant for the said sum, together with legal interest thereon from November 25, 1908, and
the costs of the suit.
Counsel for the defendant company, in his answer, set forth that he admitted the allegations of paragraphs
1 and 2 of the complaint, amended for the second time, and denied those of paragraphs 3, 4, 5, 6, and 7 of
the same. As his first special defense, he alleged that on or about November 28, 1908, his client, the said
firm, received in Manila from Ong Bieng Sip 205 bundles, bales, or cases of merchandise to be placed on
board the steamer Sorsogon, belonging to the defendant, for shipment to the port of Gubat, Province of
Sorsogon, to be in the said port transshipped into another of the defendant's vessels for transportation to
the port of Catarman, Samar, and delivered to the aforesaid Chinaman, Ong Bieng Sip; that the defendant
company, upon receiving the said merchandise from the latter, Ong Bieng Sip, and on its entering into a
contract of maritime transportation with him did not know and was not notified that the plaintiff, Tan
Chiong Sian, had any interest whatever in the said merchandise and had made with the plaintiff no
contract relative to the transportation of such goods, for, on receiving the latter from the said Ong Bieng
Sip, for transportation, there were made out and delivered to him three bills of lading, Nos. 38, 39, and 76,
which contained a list of the goods received and, printed on the back thereof were the terms of the
maritime transportation contract entered into by and between the plaintiff and the defendant company,
copies of which bills of lading and contract, marked as Exhibits A, B, and C, are of record, attached to and
made an integral part of the said answer; that Ong Bieng Sip accepted the said bills of lading and the
contract extended on the backs thereof; that the merchandise mentioned was put on board the steamer
Sorsogon and carried to the port of Gubat, Province of Sorsogon, where this vessel arrived on November
28, 1908, on which date the lorcha Pilar, into which the said merchandise was to be transshipped for
carriage to Catarman, was not at Gubat, and therefore the goods had to be unloaded and stored in the
defendant company's warehouses at Gubat; that, on the 4th of December of the same year, the lorcha
Pilar arrived at Gubat and, after the termination of certain necessary work, the goods received from the
187 | P a g e
Chinaman, Ong Bieng Sip, were taken aboard the same, together with other merchandise belonging to the
defendant party, for the purpose of transportation to the port of Catarman; that, before the said lorcha
could leave for its destination, a strong wind arose which in the course of the day increased in force until,
early in the morning of the following day, the lorcha was dragged and driven, by the force of the storm,
upon the shore, despite the means employed by the crew to avoid the accident, and notwithstanding the
five anchors that held the craft, which was thus wrecked and completely destroyed and the merchandise
with which it was laden, including the 205 bundles or packages taken aboard for the said Chinaman, was
scattered on the shore; that, on that occasion, the lorcha Pilar was in good condition, provided with all the
proper and necessary equipment and accessories and carried a crew of sufficient number in command of a
skillful patron or master, wherefore the wreck of the said craft was solely due to the irresistible force of the
elements and of the storm which drove it upon the shore; that the defendant company, with the greatest
possible diligence, gathered up the said shipwrecked goods that had been shipped by the Chinaman, Ong
Bieng Sip, but, owing to the damage they had suffered, it was impossible to preserve them, so, after
having offered to deliver them to him, the defendant proceeded, in the presence of a notary, to sell them
at public auction and realized from the sale thereof P1,693.67, the reasonable value of the same in the
condition in which they were after they had been gathered up and salved from the wreck of the lorcha
Pilar; that the expenses occasioned by such salvage and sale of the said goods amounted to P151.35,
which were paid by the defendant party; that the latter offered to the Chinese shipper, the plaintiff, the
amount realized from the sale of the said merchandise, less P151.35, the amount of the expenses, and the
sum of P250, the amount of the freight stipulated, and is still willing to pay such products of the said sale
to the aforementioned Ong Bieng Sip or to any other person who should establish his subrogation to the
rights of the Chinaman, Ong Bieng Sip, with respect to the said amount; that, as his client's second special
defense, the defendant company alleged that one of the conditions of the shipping contract executed
between it and the Chinaman, Ong Bieng Sip, relative to the transportation of the said merchandise, was
that the said firm should not be held liable for more than P25 for any bundle or package, unless the value
of its contents should be stated in the bill of lading, and that the shipper, the Chinaman, Ong Bieng Sip, did
not state in the bill of lading the value of any of the bundles or packages in which the goods shipped by
him were packed. Counsel for the defendant company, therefore, prayed the court to absolve his client
from the complaint, with the costs against the plaintiff.
After the hearing of the case and the introduction of testimony by the parties, judgment was rendered, on
March 18, 1910, in favor of the plaintiff, Tan Chiong Sian or Tan Chinto, against the defendant Inchausti &
Co., for the sum of P14,642.63, with interest at the rate of 6 per cent per annum from January 11, 1909,
and for the costs of the trial. The defendant party appealed from this judgment.
This suit was brought for the purpose of collecting a certain sum which it is alleged the defendant firm
owes the plaintiff for losses and damages suffered by the latter as a result of the former's noncompliance
with the terms of an agreement or contract to transport certain merchandise by sea from this city to the
pueblo of Catarman, Island of Samar, for the sum of P250.
The principal question to be determined is whether the defendant is liable for the loss of the merchandise
and for failure to deliver the same at the place of destination, or whether he is relieved from responsibility
on the ground of force majeure.
Article 1601 of the Civil Code prescribes:
"Carriers of goods by land or by water shall be subject with regard to the keeping and preservation of the
things entrusted to them, to the same obligations as determined for innkeepers by articles 1783 and 1784.
"The provisions of this article shall be understood without prejudice to what is prescribed by the Code of
Commerce with regard to transportation by sea and land.
Article 1602 reads:
"Carriers are also liable for the loss of and damage to the things which they receive, unless they prove that
the loss or damage arose from a fortuitous event or force majeure."
The articles aforecited are as follows:
"ART. 1783. The depositum of goods made by travelers in inns or hostelries shall also be considered a
necessary one. The keepers of inns and hostelries are liable for them as such bailees, provided that notice
thereof may have been given to them or to their employees, and that the travelers on their part take the
precautions which said innkeepers or their substitutes may have advised them concerning the care and
vigilance of said goods.
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"ART. 1784. The liability referred to in the preceding article shall include damages to the goods of the
travelers caused by servants or employees of the keepers of inns or hostelries as well as by strangers, but
not those arising from robbery or which may be caused by any other case of force majeure."
Article 361 of the Code of Commerce provides:
"Merchandise shall be transported at the risk and venture of the shipper, unless the contrary was expressly
stipulated.
"Therefore, all damages and impairment suffered by the goods in transportation, by reason of accident,
force majeure, or by virtue of the nature or defect of the articles, shall be for the account and risk of the
shipper.
"The proof of these accidents is incumbent on the carrier.
"ART. 362.
The carrier, however, shall be liable for the losses and damages arising from the causes
mentioned in the foregoing article if it is proved that they occurred on account of his negligence or
because he did not take the precautions usually adopted by careful persons, unless the shipper committed
fraud in the bill of lading, stating that the goods were of a class or quality different from what they really
were.
"If, notwithstanding the precaution referred to in this article, the goods transported run the risk of being
lost on account of the nature or by reason of an unavoidable accident, without there being time for the
owners of the same to dispose thereof, the carrier shall proceed to their sale placing them for this purpose
at the disposal of the Judicial authority or of the officials determined by special provisions.
"ART. 363.
With the exception of the cases prescribed in the second paragraph of article 361, the
carrier shall be obliged to deliver the goods transported in the same condition in which, according to the
bill of lading, they were at the time of their receipt, without any detriment or impairment, and should he
not do so, he shall be obliged to pay the value of the goods not delivered at the point where they should
have been and at the time the delivery should have taken place.
"If part of the goods transported should be delivered the consignee may refuse to receive them, when he
proves that he can not make use thereof without the others."
On November 25, 1908, Inchausti & Co. received in Manila from the Chinaman, Ong Bieng Sip, 205
bundles, bales or cases of goods to be conveyed by the steamer Sorsogon to the port of Gubat, Province of
Sorsogon, where they were to be transshipped to another vessel belonging to the defendant company and
by the latter transported to the pueblo of Catarman, Island of Samar, there to be delivered to the Chinese
shipper with whom the defendant party made the shipping contract. To this end three bills of lading were
executed, Nos. 38, 39, and 76, copies of which, marked as Exhibits A, B, and C, are found on pages 13, 14,
and 15 of the record.
The steamer Sorsogon, which carried the goods, arrived at the port of Gubat on the 28th of that month and
as the lorcha Pilar, to which the merchandise was to be transshipped for its transportation to Catarman,
was not yet there, the cargo was unloaded and stored in the defendant company's warehouses at that
port.
Several days later, the lorcha just mentioned arrived at Gubat and, after the cargo it carried had been
unloaded, the merchandise belonging to the Chinaman, Ong Bieng Sip, together with other goods owned
by the defendant Inchausti & Co., was taken aboard to be transported to Catarman; but on December 5,
1908, before the Pilar could leave for its destination, towed by the launch Texas, there arose a storm,
which, coming from the Pacific, passed over Gubat and, as a result of the strong wind and heavy sea, the
lorcha was driven upon the shore and wrecked, and its cargo, including the Chinese shipper's 205
packages of goods, scattered on the beach. Laborers or workmen of the defendant company, by its order,
then proceeded to gather up the plaintiff's merchandise and, as it was impossible to preserve it after it was
salved from the wreck of the lorcha, it was sold at public auction before a notary for the sum of P1,693.67.
The contract entered into between the Chinese shipper, Ong Bieng Sip, and the firm of Inchausti & Co.,
provided that transportation should be furnished from Manila to Catarman, although the merchandise
taken aboard the steamer Sorsogon was to be transshipped at Gubat to another vessel which was to
convey it from that port to Catarman; it was not stipulated in the said contract that the Sorsogon should
convey the goods to their final destination, nor that the vessel into which they were to be transshipped,
should be a steamer. The shipper, Ong Bieng Sip, therefore assented to these arrangements and made no
protest when his 205 packages of merchandise were unloaded from the ship and, on account of the
absence of the lorcha Pilar, stored in the warehouses at Gubat nor did he offer any objection to the lading
of his merchandise on to this lorcha as soon as it arrived and was prepared to receive cargo; moreover, he
knew that to reach the port of Catarman with promptness and dispatch, the lorcha had to be towed by
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some vessel like the launch Texas, which the defendant company had been steadily using for similar
operations in those waters.
Hence the shipper, Ong Bieng Sip, made no protest or objection to the methods adopted by the agents of
the defendant for the transportation of his goods to the port of their destination, and the record does not
show that in Gubat the defendant possessed any other means for the conveyance and transportation of
merchandise, at least for Catarman, than the lorcha Pilar, towed by the said launch and exposed during its
passage to all sorts of accidents and perils from the nature and seafaring qualities of a lorcha, from the
circumstances then present and the winds prevailing on the Pacific Ocean during the months of November
and December.
It is to be noted that a lorcha is not easily managed or steered when traveling, for, out at sea, it can only
be moved by wind and sails; and along the coast near the shore and in the estuaries where it customarily
travels, it can only move by poling. For this reason, in order to arrive at the pueblo of Catarman with
promptness and dispatch, the lorcha was usually towed by the launch Texas.
The record does not show that, from the afternoon of the 4th of December, 1908, until the morning of the
following day, the 5th, the patron or master of the lorcha which was anchored in the cove of Gubat,
received any notice from the captain of the steamer Ton Yek, also anchored near by, of the near approach
of a storm. The said captain, Juan Domingo Alberdi, makes no reference in his sworn testimony of having
given any such notice to the patron of the lorcha, nor did the latter, Mariano Gadvilao, testify that he
received such notice from the captain of the Ton Yek or from the person in charge of the Government
observatory. Gadvilao, the patron, testified that only between 10 and 11 o'clock of Saturday morning, the
5th of December, was he informed by Inchausti & Co.'s agent in Gubat that a baguio was approaching; that
thereupon, on account of the condition of the sea, he dropped the four anchors that the lorcha had on
board and immediately went ashore to get another anchor and a new cable in order more securely to hold
the boat in view of the predicted storm. This testimony was corroborated by the said representative,
Melchor Muoz. So the lorcha, when the storm broke upon it, was held fast by five anchors and was, as
testified by the defendant without contradiction or evidence to the contrary, well found and provided with
all proper and necessary equipment and had a sufficient crew for its management and preservation.
The patron of the lorcha testified specifically that at Gubat or in its immediate vicinity there is no port
whatever adequate for the shelter and refuge of vessels in cases of danger, and that, even though there
were, on being advised between 10 and 11 o'clock of the morning of the 5th, of the approach of a storm
from the eastern Pacific, it would have been impossible to spread any sails or weigh anchor on the lorcha
without being dragged or driven against the reefs by the force of the wind. As the craft was not provided
with steam or other motive power, it would not have been possible for it to change its anchorage, nor
move from the place where it lay, even several hours before the notice was received by its patron. A lorcha
can not be compared with a steamer which does not need the help or assistance of any other vessel in its
movements.
Due importance must be given to the testimony of the weather observer, Antonio Rocha, that the notice
received from the Manila Observatory on the afternoon of December 4, with regard to a storm traveling
from the east of the Pelew Islands toward the northwest, was not made known to the people of Gubat and
that he merely left a memorandum notice on the desk of the station, intending to give explanations thereof
to any person who should request them of him. So the notice of the storm sent by the Manila Observatory
was only known to the said observer, and he did not apprise the public of the approach of the storm until
he received another notice from Manila at 20 minutes past 8 o'clock on Saturday morning, December 5.
Then he made a public announcement and advised the authorities of the storm that was coming.
The patron of the lorcha Pilar is charged with gross negligence for not having endeavored to remove his
craft to a safe place in the Sabang River, about half a mile from where it was anchored.
In order to find out whether there was or was not such negligence on the part of the patron, it becomes
necessary to determine, first, whether the lorcha, on the morning of December 5, could be moved by its
own power and without being towed by any steamboat, since it had no steam engine of its own; second,
whether the lorcha, on account of its draft and the shallowness of the mouth of the said river, could have
entered the latter before the storm broke.
The patron, Mariano Gadvilao, stated under oath that the weather during the night of December 4 was not
threatening and he did not believe there would be a storm; that he knew the Sabang River; and that the
lorcha Pilar, when loaded, could not enter as there was not sufficient water in its channel; that, according
to an official chart of the port of Gubat, the bar of the Sabang River was covered by only a foot and a half
of water at ordinary low tide and the lorcha Pilar, when loaded, drew 6 feet and a half; that aside from the
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fact that the condition of the sea would not have permitted the lorcha to take shelter in the said river, even
could it have relied upon the assistance of a towboat, at half past 8 o'clock in the morning the tide was still
low; there was but little water in the river and still less over the bar.
It was proven by the said official chart of the port of Gubat, that the depth of water over the bar or
entrance of the Sabang River is only one foot and a half at ordinary low tide; that the rise and fall of the
tide is about 4 feet, the highest tide being at 2 o'clock in the afternoon of every day; and at that hour, on
the 5th of December, the hurricane had already made its appearance and the wind was blowing with all its
fury and raising great waves.
The lorcha Pilar, loaded as it had been from the afternoon of December 4, even though it could have been
moved by means of poles, without being towed, evidently could not have entered the Sabang River on the
morning of the 5th, when the wind began to increase and the sea to become rough, on account of the low
tide, the shallowness of the channel, and the boat's draft.
The facts stated in the foregoing paragraph were proved by the said chart which was exhibited in evidence
and not rejected or assailed by the plaintiff. They were also supported by the sworn testimony of the
patron of the lorcha, unrebutted by any oral evidence on the part of the plaintiff such as might disprove
the certainty of the facts related, and, according to section 275 of the Code of Civil Procedure, the natural
phenomenon of the tides, mentioned in the official hydrographic map, Exhibit 7, which is prima facie
evidence on the subject, of the hours of its occurrence and of the conditions and circumstances of the port
of Gubat, shall be judicially recognized without the introduction of proof, unless facts to the contrary be
proven, which was not done by the plaintiff, nor was it proven that between the hours of 10 and 11 o'clock
of the morning of December 5, 1908, there did not prevail a state of low tide in the port of Gubat.
The oral evidence adduced by the plaintiff with respect to the depth of the Sabang River, was unable to
overcome that introduced by the defendant, especially the said chart. According to section 320 of the Code
of Civil Procedure, such a chart is prima facie evidence of particulars of general notoriety and interest, such
as the existence of shoals of varying depths in the bar and mouth of the Sabang River and which obstruct
the entrance into the same; the distance, length, and number of the said shoals, with other details
apparently well known to the patron of the lorcha Pilar, to judge from his testimony.
Vessels of considerable draft, larger than the said lorcha, might have entered the Sabang River some
seven or nine years before, according to the testimony of the Chinaman, Antonio B. Yap Cunco, though he
did not state whether they did so at high tide; but, since 1901, or previous years, until 1908, changes may
have taken place in the bed of the river, its mouth and its bar. More shoals may have formed or those in
existence may have increased in extent by the constant action of the sea. This is the reason why the
patron, Gadvilao, who was acquainted with the conditions of the port and cove of Gubat, positively
declared that the lorcha Pilar could not, on account of her draft, enter the Sabang River, on account of low
water.
The patron of the lorcha, after stating (p. 58) that at Gubat or in its vicinity there is no port that affords
shelter, affirmed that it was impossible to hoist the sails or weigh the anchors on the morning of the 5th of
December, owing to the force of the wind and because the boat would immediately have been dragged or
driven upon the shoals; that furthermore the lorcha was anchored in a channel some 300 brazas wide, but,
notwithstanding this width, the Pilar was, for want of motive power, unable to move without being exposed
to be dashed against the coast by the strong wind and the heavy sea then prevailing. The testimony of this
witness was neither impugned nor offset by any evidence whatever; he was a patron of long years of
service and of much practice in seafaring, especially in the port of Gubat and its vicinity, who had
commanded or been intrusted with the command of other crafts similar to the lorcha Pilar and his
testimony was absolutely uncontradicted.
The patron Gadvilao, being cognizant of the duties imposed upon him by rules 14 and 15 of article 612,
and others, of the Code of Commerce, remained with his sailors, during the time the hurricane was raging,
on board the lorcha from the morning of December 5 until early the following morning, the 6th, without
abandoning the boat, notwithstanding the imminent peril to which he was exposed, and kept to his post
until after the wreck and the lorcha had been dashed against the rocks. Then he solicited help from the
captain of the steamer Ton Yek, and, thanks to the relief afforded by a small boat sent by the latter officer,
Gadvilao with his crew succeeded in reaching land and immediately reported the occurrence to the
representative of Inchausti & Co. and to the public official from whom he obtained the document of protest,
Exhibit 1. By such procedure, he showed that, as a patron skilled in the exercise of his vocation, he
performed the duties imposed by law in cases of shipwreck brought about by force majeure.
Treating of shipwrecks, article 840 of the Code of Commerce prescribes:
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"The losses and damages suffered by a vessel and he cargo by reason of shipwreck or stranding shall be
individually for the account of the owners, the part of the wreck which may be saved belonging to them in
the same proportion."
And article 841 of the same code reads:
"If the wreck or stranding should arise through the malice, negligence, or lack of skill of the captain, or
because the vessel put to sea insufficiently repaired and supplied, the owner or the freighters may demand
indemnity of the captain for the damages caused to the vessel or cargo by the accident, in accordance
with the provisions contained in articles 610, 612, 614 and 621."
The general rule established in the first of the foregoing articles is that the loss of the vessel and of its
cargo, as the result of shipwreck, shall fall upon the respective owners thereof, save for the exceptions
specified in the second of the said articles.
These legal provisions are in harmony with those of articles 361 and 362 of the Code of Commerce, and
are applicable whenever it is proved that the loss of, or damage to, the goods was the result of a fortuitous
event or of force majeure; but the carrier shall be liable for the loss or the damage arising from the causes
aforementioned, if it shall have been proven that they occurred through his own fault or negligence or by
his failure to take the same precautions usually adopted by diligent and careful persons.
In the contract made and entered into by and between the owner of the goods and the defendant, no term
was fixed within which the said merchandise should be delivered to the former at Catarman, nor was it
proved that there was any delay in loading the goods and transporting them to their destination. From the
28th of November, when the steamer Sorsogon arrived at Gubat and landed the said goods belonging to
Ong Bieng Sip to await the lorcha Pilar which was to convey them to Catarman, as agreed upon, no vessel
carrying merchandise made the voyage from Gubat to the said pueblo of the Island of Samar, and with
Ong Bieng Sip's merchandise there were also to be shipped goods belonging to the defendant company,
which goods were actually taken on board the said lorcha and suffered the same damage as those
belonging to the Chinaman. So that there was no negligence, abandonment, or delay in the shipment of
Ong Bieng Sip's merchandise, and all that was done by the carrier, Inchausti & Co., was what it regularly
and usually did in the transportation by sea from Manila to Catarman of all classes of merchandise. No
attempt has been made to prove that any course other than the foregoing was pursued by that firm on this
occasion; therefore the defendant party is not liable for the damage occasioned as a result of the wreck or
stranding of the lorcha Pilar because of the hurricane that overtook this craft while it was anchored in the
port of Gubat, on December 5, 1908, ready to be conveyed to that of Catarman.
It is a fact not disputed, and admitted by the plaintiff, that the lorcha Pilar was stranded and wrecked on
the coast of Gubat during the night of the 5th or early in the morning of the 6th of December, 1908, as the
result of a violent storm that came from the Pacific Ocean, and, consequently, it is a proven fact that the
loss or damage of the goods shipped on the said lorcha was due to the force majeure which caused the
wreck of the said craft.
According to the aforecited article 361 of the Code of Commerce, merchandise shall be transported at the
risk and venture of the shipper, unless the contrary be expressly stipulated. No such stipulation appears of
record, therefore, all damages and impairment suffered by the goods in transportation, by reason of
accident, force majeure, or by virtue of the nature or defect of the articles, are for the account and risk of
the shipper.
A final clause of this same article adds that the burden of proof of these accidents is upon the carrier; the
trial record fully discloses that the loss and damage of the goods shipped by the Chinaman, Ong Bieng Sip,
was due to the stranding and wreck of the lorcha Pilar in the heavy storm or hurricane aforementioned;
this the plaintiff did not deny, and admitted that it took place between the afternoon of the 5th and early in
the morning of the 6th of December, 1908, so it is evident that the defendant is exempt from the
obligation imposed by the law to prove the occurrence of the said storm, hurricane, or cyclone in the port
of Gubat, and, therefore, if the said goods were lost or damaged and could not be delivered in Catarman, it
was due to a fortuitous event and a superior, irresistible natural force, or force majeure, which completely
disabled the lorcha intended for their transportation to the said port of the Island of Samar.
The record bears no proof that the said loss or damage caused by the stranding or wreck of the lorcha Pilar
as a result of the storm mentioned, occurred through carelessness or negligence on the part of the
defendant company, its agents or the patron of the said lorcha, or because they did not take the
precautions usually adopted by careful and diligent persons, as required by article 362 of the Code of
Commerce; the defendant company, as well as its agents and the patron of the lorcha, had a natural
interest in preserving the craft and its own goods laden therein an interest equal to that of the Chinese
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shipper in preserving his own which were on board the said lorcha and, in fact, the defendant, his agents
and the patron did take the measures which they deemed necessary and proper in order to save the lorcha
and its cargo from the impending danger; accordingly, the patron, as soon as he was informed that a storm
was approaching, proceeded to clear the boat of all gear which might offer resistance to the wind, dropped
the four anchors he had, and even procured an extra anchor from the land, together with a new cable, and
cast it into the water, thereby adding, in so far as possible, to the stability and security of the craft, in
anticipation of what might occur, as presaged by the violence of the wind and the heavy sea; and Inchausti
& Company's agent furnished the articles requested by the patron of the lorcha for the purpose of
preventing the loss of the boat; thus did they all display all the diligence and care such as might have been
employed by anyone in similar circumstances, especially the patron who was responsible for the lorcha
under his charge; nor is it possible to believe that the latter failed to adopt all the measures that were
necessary to save his own life and those of the crew and to free himself from the imminent peril of
shipwreck.
In view of the fact that the lorcha Pilar had no means of changing its anchorage, even supposing that there
was a better one, and was unable to accept help from any steamer that might have towed it to another
point, as wherever it might have anchored, it would continually have been exposed to the lashing of the
waves and to the fury of the hurricane, for the port of Gubat is a cove or open roadstead with no shelter
whatever from the winds that sweep over it from the Pacific Ocean, and in view of the circumstance that it
was impossible for the said lorcha, loaded as it then was, to have entered the Sabang River, even though
there had been a steamer to tow it, not only because of an insufficient depth of water in its channel, but
also on account of the very high bar at the entrance of the said river, it is incontrovertible that the
stranding and wreck of the lorcha Pilar was due to a fortuitous event or to force majeure and not to the
fault and negligence of the defendant company and its agents or of the patron, Mariano Gadvilao,
inasmuch as the record discloses it to have been duly proved that the latter, in the difficult situation in
which unfortunately the boat under his charge was placed, took all the precautions that any diligent man
should have taken whose duty it was to save the boat and its cargo, and, by the instinct of selfpreservation, his own life and those of the crew of the lorcha; therefore, considering the conduct of the
patron of the lorcha and that of the defendant's agent in Gubat, during the time of the occurrence of the
disaster, the defendant company has not incurred any liability whatever for the loss of the goods, the
value of which is demanded by the plaintiff; it must, besides, be taken into account that the defendant
itself also lost goods of its own and the lorcha too.
From the moment that it is held that the loss of the said lorcha was due to force majeure, a fortuitous
event, with no conclusive proof of negligence or of the failure to take the precautions such as diligent and
careful persons usually adopt to avoid the loss of the boat and its cargo, it is neither just nor proper to
attribute the loss or damage of the goods in question to any fault, carelessness, or negligence on the part
of the defendant company and its agents and, especially, the patron of the lorcha Pilar.
Moreover, it is to be noted that, subsequent to the wreck, the defendant company's agent took all the
requisite measures for the salvage of such of the goods as could be recovered after the accident, which he
did with the knowledge of the shipper, Ong Bieng Sip, and, in effecting their sale, he endeavored to secure
all possible advantage to the Chinese shipper; in all these proceedings, as shown by the record, he acted
in obedience to the law.
From all the foregoing it is concluded that the defendant is not liable for the loss and damage of the goods
shipped on the lorcha Pilar by the Chinaman, Ong Bieng Sip, inasmuch as such loss and damage were the
result of a fortuitous event or force majeure, and there was no negligence or lack of care and diligence on
the part of the defendant company or its agents.
Therefore, we hold it proper to reverse the judgment appealed from, and to absolve, as we hereby do, the
defendant, Inchausti & Co., without special finding as to costs.
Arellano, C.J., Mapa and Johnson, JJ., concur.
Carson and Trent, JJ., dissent.
Separate Opinions
MORELAND, J., dissenting:
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In my opinion the decision of the court below, which this court reverses, is clearly in accordance with law
and in strict conformity with equity and justice. The defendant, a shipowner, agreed with the plaintiff to
transport P14,000 worth of property from Manila to Catarman, Province of Samar. The defendant never
fulfilled its contract. Instead of delivering the property at Catarman, Province of Samar, it left it on board of
a lorcha in the waters of Gubat, a port in the southern part of the Island of Luzon, where, during a storm,
the lorcha foundered and the property was lost.
This court holds that the Chinaman must lose his property. This is the manner in which the defendant lost
the goods of the plaintiff:
The Sorsogon, on which the goods were loaded at Manila, arrived at Gubat about the 28th of November,
1908. A few days later the lorcha Pilar arrived at Gubat, towed by the tug Texas. The lorcha was without
means of locomotion of its own, except its sails, which, from the record, appear never to have been used
and were substantially useless, and could move about and protect itself from the weather only by being
towed or "poled." The only boat on the coast owned by the defendant which could tow the lorcha was the
tug Texas. Sometime before the 5th of December, at least one day before the storm broke, the goods
belonging to the plaintiff were loaded on this lorcha. The tug Texas, under the orders of the defendant, left
the locality where the lorcha was loaded and did not return until after it was wrecked.
Let us see what were the conditions at the time the defendant voluntarily and unnecessarily placed the
property of the plaintiff on the lorcha Pilar:
(1)
It must be remembered that Gubat is located on the Pacific coast. The waters of Gubat are not
protected waters; they are not inclosed; they are not in the form of a bay; they are directly open to the
winds from the Pacific Ocean, without protection or shelter of any kind, except possibly the mouth of the
river, a matter here in dispute and which will be referred to later. They are likewise open to the full sweep
of the waves of the Pacific coming from its widest reaches.
(2)
At the time the plaintiff's goods were loaded upon the lorcha Pilar it was the height of the typhoon
season in that locality. The prevailing winds were from the Pacific. Destructive baguios might reasonably be
expected at any time. It was only with the exercise of diligence and prudence that shipping could be
protected therefrom.
(3)
As I have before indicated, the lorcha Pilar had substantially no means of locomotion of its own and
depended for its protection in stormy weather entirely upon the steam tug Texas or being "poled" into the
mouth of the river by its crew. At the time of the storm which destroyed the lorcha, and for some time prior
thereto and for some days thereafter, the Texas was at the port of Barcelona, on the coast several miles
south of Gubat, having been sent by order of the defendant, its owner.
Summarizing, then, we have the defendant voluntarily placing the property of the plaintiff upon the kind of
craft above described, dispatching to a distant port substantially the only means of locomotion and
protection which that craft had, except, as we have said, by being poled, placing that lorcha in waters
directly exposed to the winds and waves of the Pacific and at the mercy of every baguio that blew; and this
during a season of the year when winds were generally high and destructive baguios might be expected at
any time, and with full knowledge that if a typhoon came while the agents of the defendant were
unprepared the property of the plaintiff would in all probability be lost.
Having these facts in mind, let us see what the agents of the defendant did to protect the property of the
plaintiff which they had voluntarily placed in a situation of such peril.
(4)
At the time of the destruction of the lorcha there was a Government weather observatory at Gubat
which received advices many hours in advance of the approach of a typhoon toward that locality. It had
been there for some years. The purpose of that observatory was to furnish information to the public
concerning the formation and approach of typhoons from the Pacific and of warning the people with
exposed shipping to take such precautions as were necessary for its protection. This was known to the
defendant's agents at Gubat. They knew that the observatory had a public office, open to anybody who
cared to visit it, in which would be found all of the latest information relating to storms and baguios coming
from the Pacific Ocean. They knew that the officials of said observatory were there for the express purpose
of giving such information. The defendant's agents had at Gubat a barometer and all the other instruments
usually kept by seamen and navigators for forecasting the weather.
(5)
As we have said, the storm occurred on the 5th of December. It wrought its greatest havoc late in
the afternoon and the early part of the night. At about 2 o'clock on the day before the storm, that is, on the
4th of December, the observatory at Gubat received notice from the Manila observatory that a baguio was
forming in the Pacific Ocean. At about the same time at Barcelona, only 10 miles south of Gubat, the
barometer on board the Texas dropped so rupidly as to indicate such dangerous weather probabilities that
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the captain of the Texas deemed it unsafe to venture out of the harbor. On the same afternoon the
barometer on board the only steam vessel near Gubat, the Ton Yek, also went down. Although it does not
expressly appear in the evidence, yet it is an inference entirely fair from the record, and against which
nothing whatever can be urged, that the barometer in the possession of the agents of the defendant also
dropped with the same rapidity. In all human probability this could not be otherwise in view of the rapid
and decisive fall of the barometer on board the Texas, only 10 miles away, and the fact that the typhoon
broke over both places equally. At the same time, and more pronounced a little later, every symptom
which men who have to deal with the sea could and would readily observe, and which the captain of the
Ton Yek did observe as a matter of fact, indicated the approach of a heavy storm. These evidences were
heeded by the captain of the Ton Yek, who, early on the morning of the 5th, without waiting for the
appearance of a storm signal at the observatory, sent; a messenger to the observatory for the purpose of
ascertaining with more accuracy what was going to happen. In spite of all of these things, most of which
occurred on the afternoon or evening of the day preceding the storm, the agents of the defendant did
absolutely nothing to inform themselves as to the prospective weather conditions or as to whether or not a
baguio was approaching, and did absolutely nothing to preserve or protect the property which they had
placed in so exposed and dangerous a place.
(6)
The morning of the 5th arrived. As we have already stated, all of the signs which men who have to
do with the sea so readily read indicated unquestionably and decisively the approach of the storm which
the advices received by the observatory at 2 o'clock on the afternoon before told the inhabitants of that
locality was probably coming. Still the agents of the defendant did nothing. The captain of the Ton Yek,
although his vessel was a steam vessel and was able to take care of itself by reason of its machinery,
judging these signs and portents, found it advisable to consult with the observatory early on the morning
of the 5th. The approach of a storm was apparent to him and he took precautions accordingly. Yet the
agents of the defendant did nothing. Although the lorcha on which they had put the property of the
plaintiff was, according to their own admissions, utterly unprotected, and although P14,000 worth of goods
intrusted to their care was in great danger of being lost, still they did absolutely nothing, either by
anticipation or otherwise, to protect that property therefrom.
(7)
On the morning of the 5th at about 8.20 or 8.30 o'clock the observatory ran up the first danger
signal. Still the agents of the defendant noted nothing, did nothing. They paid absolutely no attention to it,
as they had paid no attention whatever to the other indications. They left the lorcha to its fate without
lifting a finger to save it. At 9 o'clock the wind had risen and the waves had commenced to roll. Still
nothing was done. At 9.30 the winds were still stronger and the waves higher. Still nothing was done. At
10.30 the increase in the strength of the wind and of the height of the waves continued. And yet the
agents of the defendant did nothing. It was well toward 11 o'clock before they began to move. At that time
it was too late. The wind and waves were so high that, with the means at hand, the lorcha could not be
moved from the exposed position in which it was, even if it be conceded that there was any safer place
within those waters. The lorcha was prevented from dashing itself immediately upon the rocks only by
virtue of its anchor. At between 10.30 and 11 o'clock the captain of the lorcha came ashore to secure
additional anchors. At that time, however, as we have observed, it was too late to unload the goods and
too late to remove the lorcha to a safe place within the mouth of the river, even if that were possible. The
agents of the defendant, having done absolutely nothing up to this time now found, after they had
awakened from their lethargy, that it was too late to do more than stand by and see the property, which
had been intrusted to their care and for the carrying of which they had been paid, dashed to pieces on the
rock and swallowed up by the sea.
(8)
For nearly eighteen hours prior to the disaster the information that the disaster was coming lay
under the very noses of the agents of the defendant. For nearly eighteen hours the barometer had been
dropping steadily, so much so that their own vessel dared not leave a port only 10 miles distant on the
afternoon before. For eighteen hours every warning which nature could give, indicating the disaster which
subsequently came, had been repeatedly thrust upon them. Yet they did nothing. Having placed the goods
of the plaintiff in an exposed and dangerous position, in waters open to the winds and waves of the Pacific
Ocean, at the height of the typhoon season, in a vessel which had no motive power of its own, and having
sent away that which they themselves substantially admit was its only protection, the agents of the
defendant exercised no care or precaution whatever to the end that they might protect the goods which
they themselves had so recklessly exposed.
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Yet this court, under such circumstances, holds that the defendant may go in peace and that the plaintiff is
the one who must bear the burden of such negligence.
With that decision I can not agree.
An act of God can not be urged for the protection of a person who has been guilty of gross negligence in
not trying to avert its results. One who has accepted responsibility for pay Can not weakly fold his hands
and say that he was prevented from meeting that responsibility by an act of God, when the exercise of
ordinary care end prudence would have averted the results flowing from that act. One who has placed the
property of another, instructed to his care, in an unseaworthy craft, upon dangerous waters, cannot
absolve himself by crying, "an act of God," when every effect which a typhoon produced upon that
property could have been avoided by the exercise of common care and prudence. When the negligence of
the carrier concurs with an act of God in producing a loss, the carrier is not exempted from liability by
showing that the immediate cause of the damage was the act of God; or, as it has been expressed, "when
the loss is caused by the act of God, if the negligence of the carrier mingles with it as an active and
cooperative cause, he is still liable." The loss and damage to perishable articles in consequence of the
weather will not excuse the carrier if it could have been prevented by due care and diligence. The carrier
must not only show that it did all that was usual, but all that was necessary to be done under the
circumstances. (Wing vs. New York, etc., Ry. Co., 1 Hilt. (N. Y.), 235; Philleo vs. Sanford, 17 Tex., 228.) To be
exempt from liability for loss because of an act of God, the common carrier must be free from any previous
negligence or misconduct by which that loss or damage may have been occasioned. For, although the
immediate or proximate cause of a loss in any given instance may have been what is termed an act of
God, yet if the carrier unnecessarily exposed the property to such accident by any culpable act or omission
of his own, he is not excused. (Mcgraw vs. Baltimore and Ohio Ry. Co., 41 Am. Rep., 696.) In the case of
Wolf vs. American Express Co., 43 Mo., 421, Wagner, J., said:
"The act of God which excuses the carrier must not only be the proximate cause of the loss, but the better
opinion is that it must be the sole cause. And where the loss is caused by the 'act of God,' if the negligence
of the carrier mingles with it as an active and cooperative cause, he is still responsible. (Amies vs. Stevens,
1 Stra., 128.)"
Where perishable property, such as potatoes, is received by a common carrier at a season when a very low
temperature may reasonably be apprehended, great diligence should be used in forwarding such property
with dispatch and haste; and where, by a delay of two or three days, the property is damaged by freezing,
the carrier may be held liable for the damage. (Hewett vs. The Chicago, B. & Q. Ry. Co., 63 Ia., 611.) A
carrier is bound to provide a vessel in all respects adequate to the purpose, with a captain and crew of
requisite skill or ability; and, failing in these particulars, though the loss be occasioned by an act of God,
the carrier may not set up a providential calamity to protect himself against what may have arisen from his
own folly. (Hart vs. Allen and Grant, 2 Watts (Pa.), 114.)
This doctrine is fully supported by the Spanish authorities on the subject.
Manresa in his commentaries to section 1105 of the Civil Code-of Spain, volume 8, page 91, says:
"Elucidation of article 1105 and the idea of accident is interesting under the following aspects: Relation
between it and the blame; enumeration of the requisites that must be present; proof of the event and
characterization thereof; and the consequences it produces. Let us, examine them.
"Even when the distinction is simple and reasonable between blame for some exempting circumstance
(because it may not be serious enough to involve such blame, under the law or the obligation) and
accident, since the former admits an imputation which the latter excludes, even when the former may not
be the basis for legal responsibility, and therefore it can not be said that where no responsible blame exists
there the accident commences, yet the latter is undeniably characterized by unexpectedness and
inevitability, circumstances susceptible of relative interpretation, and so whatever relates to the blame
must be taken into account, because, as we shall see, it is in a certain sense, especially in practical
application, connected with the matter under consideration.
"Aside from this statement of ideas, there may be another of consequences, for in the complexity of facts,
in the same obligation, there may be present blame enough to involve such and also accident. When both
causes are present, with separation of time and effects, for partial breach due to one of them may be
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possible and then the other may operate to aggravate or complete these consequences, the distinction is
easy and to each cause may be assigned its own effect for the corresponding result, as neither exemption,
on account of accident, can be extended to what may be imputed nor to what in any way depends upon it
by basing responsibility arising from blame on the fact that the damage is the result thereof.
"The problem becomes more difficult when both causes concur to produce the same effect or when, even
though the effect may be due to accident, the obligor has not exercised necessary diligence, however
blameless he was for the results arising from the breach. In the first of the last two suppositions, the
solution is plain, because when the obligor incurs the blame of actually producing the result, even when it
is not the only cause, or even the principal one, there is still sufficient connection between it and the
consequences to cause them to be imputed to him and, as a voluntary element exists in the causes, there
is lacking the circumstance indispensable to exemption on account of accident. The second supposition
presents a very difficult problem of proof, which rests upon the obligor, and calls for a careful analysis of
the origin of the breach. The difficulty in this case consists in that the blame, in addition to its subjective
aspect for imputing the consequences to the obligor, has an objective aspect, to wit, that these
consequences may arise, that the damage which must be repaired is caused, in such manner that due
diligence may be lacking and yet not extend to the point of involving responsibility, because it produces no
results. Now then, if an accident occurs under these conditions, absolutely independent of the negligence
that may have existed, it may have occurred with or without negligence and therefore any derivation of
consequences was lacking, then it can not be said that responsibility arises therefrom; but to reach this
conclusion there first rests with the obligor proof so difficult that, in addition to overcoming the
presumption of existence of blame, it involves the very fine distinction of the origin of the breach and
perfectly reveals the occurrence of the accident, joined by their coexistence, and demonstrating absolute
lack of consequences and influence of blame.
"In connection with this question, a judgment of November 22, 1904, declares that there are some events
which, independent of the will of the obligor, hinder the fulfillment of the obligation, and yet do not
constitute cases of force majeure for the purposes of such fulfillment, because the possibility that they
would occur could have been foreseen, articles 1101 and 1104 being applicable and not article 1105, since
negligence or blame is also present from not informing the obligee, either at first or later on, of the state of
affairs and the situation, so as to avoid the consequent damage. This was the case of a bull fight that could
not be held because the ring was not completed in time for reasons beyond the control of the contractor,
but the fact that the contract did not state that the ring was unconstructed and the possibility that it would
not be at the time specified, reveals, in the opinion of the court, the lack of foresight or the negligence
which makes article 1105 inapplicable.
"In an essentially analogous way, judgments were pronounced on June 12, 1899 (Tribunal Contencioso
administrativo), and on October 27, 1905 (Sala tercera), against the company leasing the tobacco
monopoly, for losses caused by theft and fire. It was further decided in these cases that the company and
not the State must bear the losses, for while accidental fire in a tobacco factory and theft of stamped
goods stored in a branch house may constitute accidents, yet they do not deserve this characterization
when they occur through omission, neglect or lack of care which imply breach of the contract.
"According to the text of article 1105, which agrees with the rational idea of accident, it is sufficient for the
event to constitute such that it have any of the two characteristics enumerated; if it is foreseen, it is of
little import that it be unavoidable; and if it is unavoidable it does not matter that it may have been
foreseen. The first supposition requires some explanation: an event may be wholly unforeseen, but, after it
has occurred, be very slow in producing effects, and in such case. although it could not have been
foreseen, as there is time before it produces its effects, the latter must be considered.
"Besides this special supposition, in which, if carefully considered, the two characteristics do not concur,
since the idea of unexpectedness, as is seen, is relative, it will be sufficient that one or the other be
present. The possibility of foresight must be weighed rationally with consideration of all the circumstances,
but this general rule has, strictly speaking, an exception when the event, although in a general way very
difficult, almost impossible to be foreseen, should for some reason be known to the obligor in due time.
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"The condition of inevitability can not be understood in so absolute a sense that it should take away the
character of accident from many that are strictly such, because they are undoubtedly causes, however
powerful they may be, whose injurious effects might have been avoided by exercising a number of
precautions, so exaggerated and so out of proportion to the importance of the trouble anticipated, that
they would be unreasonable and not required in law. In such cases, if the means which can and must
rationally be employed are not effective, it will be held to have been unavoidable. So we see demonstrated
how the idea of diligence is related, somewhat in the nature of limitation, to the accident.
"Such was the doctrine established in our ancient law regarding the obligor; the reasons whereof are
theoretically set forth further on; and as a written provision, law 20, title 13, partida 5, which expressly laid
down this principle in connection with pawn-broking contracts, and which was, by analogy, made the basis
for extending a similar provision to the remaining cases.
"That the Civil Code is inspired by the same idea is clearly expressed in article 1183 thereof, the
commentary on which should be consulted. Still such solution depends upon the nature of the proof and of
the accident, since its existence as an abnormal event hindering the fulfillment of the obligation must be
proved and not presumed, and the burden of this proof rests upon the obligor, and not upon the obligee,
whose proof would have to be negative. Moreover since an accident is the basis for exemption from
responsibility, it must be proved by him who will benefit thereby and who objects to the requirement that
he fulfill his obligations. To these reasons are joined those above set forth in connection with the proof of
contractual blame, since they are, according to the same article, 1183, above cited, closely related
questions, so much so that they become two phases of one question presumption against the existence
of accident and of what tends to establish presumption of blame, in the absence of proof to overcome it.
"Proof of accident must include these points: the occurrence of the event, the bearing it has upon breach
of the obligation, and the concurrence of unexpectedness and inevitability. In connection with the first two
points, the proof resting upon the obligor must be specific and exact; but as for the last, although it may
be admitted as a general proposition that, in addition to proving the event, he must also demonstrate that
it involves the condition required to make it an accident, there are some of such magnitude and, by their
nature, of almost impossible prevision, that proof of their occurrence demonstrates their condition.
Undoubtedly, and differently from proof of the accident, the exceptional circumstance that the event
(which should as a general proposition be regarded as unforeseen) was known to the obligor for some
special reason, must be proven by the obligee who asserts it, since the obligation of proof resting upon the
former is fulfilled in this regard by demonstrating that the event ought rationally to be held to have been
unforeseen.
"Since proof of the accident is related to proof of the blame, it is evident that the obligor must also prove,
so far as he is concerned, that he is not to blame for breach of the obligation.
"Exemption from responsibility in accidents established by article 1105 has, according to its text, two
exceptions, whereby an event may be plainly proven, and be unforeseen and unavoidable and still not
produce such exemption, viz, when the exception is either stipulated in the obligation or is expressly
mentioned by the law. The basis for these exceptions rests, according to the cases, either upon the
freedom of contracts, which is opposed to prohibition of a compact, wherein, without immorality, there is
merely an emphasized stipulation, which is meant to guarantee in every case an interest and indirectly to
secure careful and special diligence in the fulfillment of the obligation; or upon the nature of the
obligations when risk is an essential element therein; or finally upon cases whose circumstances, as
happens with that provided for by the last paragraph of article 1096, justify the special strictness of the
law.
"In conclusion, we shall point out that in order to relieve the obligor from his obligation, it must be
remembered that the occurrence of the event does not suffice, but that the impossibility of fulfilling the
obligation must be the direct consequence of the accident, so that when it can be fulfilled it will subsist,
even if only in part, and therefore, in order to see whether or not the accident produces this result the
nature of the obligation must be considered, and according to whether it be specific or general, etc., it will
or will not be extinguished."
To hold the carrier responsible in the case at bar, it is not necessary to go so far as the authorities just
cited. The negligence is so clear that it is not necessary to strain doctrines or even press them to their
limits.
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I do not here argue the assertion of the plaintiff denied by the defendant, that, at any time before nine
o'clock of the day of the destruction of the lorcha, the defendant's agents could have placed the lorcha in
the mouth of the river out of harm's way. I believe that a fair preponderance of the evidence shows that
this could have been done. The defendant denies this, asserting that the water was too shallow.
Nevertheless, fourteen days after the storm, the foundered lorcha, water-logged and undoubtedly
containing water, was " poled" by its crew from the place where it went on the rocks to a place of safety
inside the mouth of the river. It is more than probable that this could have been done at any time before
the storm became too high. At least common prudence would have required the unloading of the lorcha,
which could easily have been accomplished before the storm if the agents of the defendant had awakened
themselves to their duty.
Martini v. Macondray, 39 Phil 934
EN BANC
[G.R. No. 13972. July 28, 1919.]
G. MARTINI, LTD., plaintiff-appellee, vs. MACONDRAY & CO. (INC.), defendant-appellant.
Lawrence & Ross for appellant.
Gabriel La O for appellee.
SYLLABUS
1.
SHIPPING; DECK CARGO; DAMAGE RESULTING FROM ACTION OF ELEMENTS. Where cargo is, with
the owner's consent, transported on the deck of a sea-going vessel upon a bill of lading exempting the
ship's company from liability for damage, the risk of any damage resulting from carriage on deck, such as
the damage caused by rain or the splashing aboard of sea water, must be borne by the owner.
DECISION
STREET, J p:
In September of the year 1916, the plaintiff G. Martini, Ltd., arranged with the defendant company, as
agents of the Eastern and Australian Steamship Company, for the shipment of two hundred and nineteen
cases or packages of chemical products from Manila, Philippine Islands, to Kobe, Japan. The goods were
embarked at Manila on the steamship Eastern, and were carried to Kobe on the deck of that ship. Upon
arrival at the port of destination it was found that the chemicals comprised in the shipment had suffered
damage from the effects of both fresh and salt water; and the present action was instituted by the plaintiff
to recover the amount of the damage thereby occasioned. In the Court of First Instance judgment was
rendered in favor of the plaintiffs for the sum of P34,997.56, with interest from March 24, 1917, and costs
of the proceeding. From this judgment the defendant appealed.
That the damage was caused by water, either falling in the form of rain or splashing aboard by the action
of wind and waves, is unquestionable; and the contention of the plaintiff is that it was the duty of the ship's
company to stow this cargo in the hold and not to place it in an exposed position on the open deck. The
defense is that by the contract of affreightment the cargo in question was to be carried on deck at the
shipper's risk; and attention is directed to the fact that on the face of each bill of lading is clearly stamped
with a rubber stencil in conspicuous letters the words "on deck at shipper's risk." In this connection the
defendant relies upon paragraph 19 of the several bills of lading issued for transportation of this cargo,
which reads as follows:
"19.
Goods signed for on this bill of lading as carried on deck are entirely at shipper's risk, whether
carried on deck or under hatches, and the steamer is not liable for any loss or damage from any cause
whatever. "
The plaintiff insists that the agreement was that the cargo in question should be carried in the ordinary
manner, that is, in the ship's hold, and that the plaintiff never gave its consent for the goods to be carried
on deck. The material facts bearing on this controverted point appear to be these: On September 15, 1916,
the plaintiff applied to the defendant for necessary space on the steamship Eastern, and received a
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shipping order, which constituted authority for the ship's officers to receive the cargo aboard. One part of
this document contained a form which, when signed by the mate, would constitute the "mate's receipt,"
showing that the cargo had been taken on.
Ordinarily the shipper is supposed to produce the mate's receipt to the agents of the ship's company, who
thereupon issue the bill of lading to the shipper. When, however, the shipper, as not infrequently happens,
desires to procure the bill of lading before he obtains the mate's receipt, it is customary for him to enter
into a written obligation, binding himself, among other things, to abide by the terms of the mate's receipt.
In the present instance the mate's receipt did not come to the plaintiff's hand until Monday night, but as
the plaintiff was desirous of obtaining the bills of lading on the Saturday morning preceding in order that
he might negotiate them at the bank, a request was made for the delivery of the bills of lading on that day
To effectuate this, the plaintiff was required to enter into the written obligation, calling itself a "letter of
guarantee," which was introduced in evidence as Exhibit D-C. This document is of the date of September
16, 1916, and of the following tenor:
"In consideration of your signing us clean B/L for the undermentioned cargo per above steamer to be
shipped on or under deck at ship's option, for Kobe without production of the mate's receipt, we hereby
guarantee to hold you free from any responsibility by your doing so, and for any expense should the whole
or part of the cargo be shut out, or otherwise, and to hand you said mate's receipt as soon as it reaches us
and to abide by all clauses and notations on the same."
In conformity with the purpose of this document the bills of lading were issued, and the negotiable copies
were, upon the same day, negotiated at the bank by the plaintiff for 90 per cent of the invoice value of the
goods. As already stated these bills of lading contained on their face, conspicuously stenciled, the words
"on deck at shipper's risks." The mate's receipt, received by the plaintiff two days later also bore the
notation "on deck at shipper's risk," written with pencil, and evidently by the officer who took the cargo on
board and signed the receipt.
The plaintiff insists that it had at no time agreed for the cargo to be carried on deck; and G. Martini,
manager of Martini & Company, says that the first intimation he had of this was when, at about 4 p.m. on
that Saturday afternoon, he examined the nonnegotiable copies of the bills of lading, which had been
retained by the house, and discovered the words "on deck at shipper's risk" stamped thereon. Martini says
that upon seeing this, he at once called the attention of S. Codina thereto, the latter being an employee of
the house whose duty it was to attend to all shipments of merchandise and who in fact had entire control
of all matters relating to the shipping of this cargo. Codina pretends that up to the time when Martini
directed his attention to the fact, he himself was unaware that the cargo was being stowed on deck; and
upon the discovery of this fact the two gentlemen mentioned expressed mutual surprise and
dissatisfaction. Martini says that he told Codina to protest at once to Macondray & Company over the
telephone, while Martini himself proceeded to endite a letter, which appears in evidence as Exhibit D-T of
the defendant and is in its material part as follows:
"MANILA, September 16, 1916.
"MESSRS. MACONDRAY & Co.,
"Manila,
"DEAR SIRS: In re our shipment per steamship Eastern, we are very much surprised to see that the remark
'on deck at shipper's risk' has been stamped on the bills of lading Nos. 8 to 23. . . . and although not
believing that the same have actually been shipped on deck we must hold you responsible for any
consequence, loss, or damage deriving from your action should they have been shipped as stated.
"Yours faithfully,
"G. MARTINI, LTD.
"By S. CODINA."
This letter was followed by another of the same date and of substantially the same tenor but containing
the following additional statement:
"It is the prevailing practice that, whenever a cargo is being carried on deck, shipowners or agents give
advice of it to shippers previous to shipment taking place, and obtain their consent to it. If we had been
advised of it, shipment would not have been effected by us. We regret very much this occurrence, but you
will understand that in view of your having acted in this case on your own responsibility, we shall have to
hold you amenable for any consequences that may be caused from your action."
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The first of these letters was forthwith dispatched by messenger, and upon receiving it, Macondray &
Company called Codina by telephone at about 4.30 p.m. and, referring to the communication just received,
told him that Macondray & Company could not accept the cargo for transportation otherwise than on deck
and that if Martini & Company were dissatisfied, the cargo could be discharged from the ship.
There is substantial conformity in the testimony of the two parties with respect to the time of the
conversation by telephone and the nature of the message which Macondray & Company intended to
convey, though the witnesses differ as to some details and in respect to what occurred immediately
thereafter. Basa, who was in charge of the shipping department of Macondray & Company and who
conducted the conversation on the part of the latter, says that he told Codina that if Martini & Company
was unwilling for the cargo to be carried on deck that they could discharge it and further advised him that
Macondray & Company's empty boats were still at the ship's side ready to receive the cargo. In reply
Codina stated that Martini, the manager, was then out and that he would answer in a few minutes, after
communication with Martini. Within the course of half an hour Codina called Basa up and said that as the
cargo was already stowed on deck, Martini & Company were willing for it to be carried in this way, and that
their protest was a mere formality. Codina admits that he was informed by Basa that the cargo could not
be carried under the hatches, and that if Martini & Company were dissatisfied to have it carried on deck,
they could discharge it. He denies being told that it could be taken off in Macondray & Company's boats.
Codina further states that when the conversation was broken off for the purpose of enabling him to
communicate with Martini, he consulted with the latter, and was directed to say that Martini & Company
did not consent for the cargo to be carried on deck and that it must be discharged. Upon returning to the
telephone, he found that the connection had been broken, and he says that he was thereafter unable to
get Macondray & Company by telephone during that afternoon, although he attempted to do so more than
once.
In the light of all the evidence the conclusion seems clear enough that, although Martini & Company would
have greatly preferred for the cargo to be carried under the hatches, they nevertheless consented for it to
go on deck. Codina, if attentive to the interests of his house, must have known from the tenor of the
guaranty to which his signature is affixed that the defendant had reserved the right to carry it on deck, and
when the bills of lading were delivered to the plaintiff they plainly showed that the cargo would be so
carried.
It must therefore be considered that the plaintiff was duly affected with notice as to the manner in which
the cargo was shipped. No complaint, however, was made until after the bills of lading had been
negotiated at the bank. When the manager of Martini & Company first had his attention drawn to the fact
that the cargo was being carried on deck, he called Codina to account, and the latter found it to his
interest to feign surprise and pretend that he had been deceived by Macondray & Company. Even then
there was time to stop the shipment, but Martini & Company failed to give the necessary instructions,
thereby manifesting acquiescence in the accomplished fact.
In a later letter of October 25, 1916, addressed to Macondray & Company, Martini, referring to the incident
says: "If previous to the mailing of the documents, you had actually notified us by phone or otherwise that
you could not accept our cargo in any other way but on deck, we should have promptly given you
instructions to leave it on the lighters and at our disposal."
From this it is inferable that one reason why the plaintiff allowed the cargo to be carried away without
being discharged, was that the bills had been discounted and to stop the shipment would have entailed
the necessity of refunding the money which the bank had advanced, with the inconveniences incident
thereto. Another reason apparently was that Martini discerned, or thought he discerned the possibility of
shifting the risk so as to make it fall upon the ship's company.
With reference to the practicability of discharging the cargo in the late afternoon or evening of Saturday,
September 16, before the ship departed, as it did at 8 p.m. some evidence was introduced tending to show
that in order to get the cargo off certain formalities were necessary which could not be accomplished, as
for instance, the return of the mate's receipt (which had not yet come to the plaintiff's hands), the securing
of a permit from the customs authorities, and the securing of an order of discharge from the steamship
company. In view of the fact that the plaintiff did nothing whatever looking towards the discharge of the
cargo, not even so much as to notify Macondray & Company that the cargo must come off, the proof
relative to the practicability of discharge is inconclusive. If the plaintiff had promptly informed Macondray
& Company of their resolve to have the cargo discharged, and the latter had nevertheless permitted the
201 | P a g e
ship to sail without discharging it, there would have been some ground for plaintiff's contention that its
consent had not been given for the goods to be carried on deck. Needless to say we attach no weight to
the statement of Codina that he was unable to get Macondray & Company by telephone in order to
communicate directions for the discharge of the cargo.
The evidence submitted in behalf of the defendant shows that there was no space in the hold to take the
cargo; and it was therefore unnecessary to consider whether the chemicals to be shipped were of an
explosive or inflammable character, such as to require stowage on deck. By reason of the fact that the
cargo had to be carried on deck at all events, if carried at all, the guaranty Exhibit D-C was so drawn as to
permit stowage either on or under deck at the ship's option; and the attention of Codina must have been
drawn to this provision because Macondray & Company refused to issue the bills of lading upon a guaranty
signed by Codina upon another form (Exhibit R), which contained no such provision. The messenger
between the two establishments who was sent for the bills of lading accordingly had to make a second trip
and go back for a letter of guaranty signed upon the desired form. The pretense of Codina that he was
deceived into signing a document different from that which he supposed himself to be signing is wholly
unsustained.
The result of the discussion is that Martini & Company must be held to have assented to the shipment of
the cargo on deck and that they are bound by the bills of lading in the form in which they were issued. The
trial court in our opinion erred in holding otherwise, and in particular by ignoring, or failing to give
sufficient weight to the contract of guaranty.
Having determined that the plaintiff consented to the shipment of the cargo on deck, we proceed to
consider whether the defendant can be held liable for the damage which befell the cargo in question. It of
course goes without saying that if a clean bill of lading had been issued and the plaintiff had not consented
for the cargo to go on deck, the ship's company would have been liable for all damage which resulted from
the carriage on deck. In the case of The Paragon (1 Ware, 326; 18 Fed. Cas. No. 10708), decided in 1836 in
one of the district courts of the United States, it appeared that cargo was shipped from Boston,
Massachusetts, to Portland, Maine, upon what is called a clean bill of lading, that is, one in the common
form without any memorandum in the margin or on its face showing that the goods are to be carried on
deck. It was proved that the shipper had not given his consent for carriage on deck. Nevertheless, the
master stowed the goods on deck; and a storm having arisen, it became necessary to jettison them. None
of the cargo in the hold was lost. It was thus evident that although the cargo in question was lost by peril
of the sea, it would not have been lost except for the fact that it was being carried on deck. It was held
that the ship was liable. In the course of the opinion the following language was used:
"It is contended that the goods, in this case, having been lost by the dangers of the seas, both the master
and the vessel are exempted from responsibility within the common exemption in bills of lading; and the
goods having been thrown overboard from necessity, and for the safety of the vessel and cargo, as well as
the lives of the crew, that it presents a case for a general average or contribution, upon the common
principle that when a sacrifice is made for the benefit of all, that the loss shall be shared by all. . . . In
every contract of affreightment, losses by the dangers of the seas are excepted from the risks which the
master takes upon himself, whether the exception is expressed in the contract or not. The exception is
made by the law, and falls within the general principle that no one is responsible for fortuitous events and
accidents of major force. Casus fortuitous nemo praestat. But then the general law is subject to an
exception, that when the inevitable accident is preceded by a fault of the debtor or person bound without
which it would not have happened, then he becomes responsible for it. (Pothier, des Obligations, No. 542;
Pret. a Usage, No. 57; Story, Bailm., c. 4, No. 241; In Majorious casibus si culpa ejus interveniat tenetur;
Dig. 44, 7, 1, s. 4.)
"The master is responsible for the safe and proper stowage of the cargo, and there is no doubt that by the
general maritime law he is bound to secure the cargo safely under deck. . . . If the master carries goods on
deck without the consent of the shipper . . . he does it at his own risk. If they are damaged or lost in
consequence of their being thus exposed, he cannot protect himself from responsibility by showing that
they were damaged or lost by the dangers of the seas. . . . When the shipper consents to his goods being
carried on deck, he takes the risk upon himself of these peculiar perils. . . . This is the doctrine of all the
authorities, ancient and modern. "
Van Horn vs. Taylor (2 La. Ann., 587; 46 Am. Dec., 558), was a case where goods stowed on deck were lost
in a collision. The court found that the ship carrying these goods was not at fault, and that the shipper had
notice of the fact that the cargo was being carried on deck. It was held that the ship was not liable. Said
the court:
202 | P a g e
"It is said that the plaintiff's goods were improperly stowed on deck; that the deck load only was thrown
overboard by the collision, the cargo in the hold not being injured. The goods were thus laden with the
knowledge and implied approbation of the plaintiff. He was a passenger on board the steamer, and does
not appear to have made any objection to the goods being thus carried, though the collision occurred
several days after the steamer commenced her voyage."
In the case of The Thomas P. Thorn (8 Ben., 3; 23 Fed., Cas. No. 13927), decided in the District Court in the
State of New York, it appeared that tobacco was received upon a canal boat, with the understanding that it
was to be carried on deck, covered with tarpaulins. Upon arrival at its destination it was found damaged by
water, for the most part on the top, and evidently as a consequence of rains. At the same time a quantity
of malt stowed below deck on the same voyage was uninjured. In discussing the question whether upon a
contract to carry on deck, the vessel was liable for the wetting of the tobacco, the court said:
"It is manifest that the injury to the tobacco arose simply from the fact that it was carried on deck. The
malt, carried below, although an article easily injured, received no damage, and the voyage was performed
with usual care, and without disaster. Indeed, there is evidence of a statement by the libelant, that tobacco
must of necessity be injured by being carried on deck. But, under a contract to carry upon deck, the risk of
any damage resulting from the place of carriage rests upon the shipper, and, without proof of negligence
causing the damage, there can be no recovery. Here the evidence shows that all reasonable care was
taken of the tobacco during its transportation; that the manner of stowing and covering it was known to
and assented to by the shipper; and the inference is warranted that the injury arose, without fault of the
carrier, from rain, to which merchandise transported on deck must necessarily be in some degree exposed.
Any loss arising from damaged thus occasioned is to be borne by the shipper."
Lawrence vs. Minturn (17 How [U.S,], 100; 15 L ed., 58), was a case where goods stowed on deck with the
consent of the shipper were jettisoned during a storm at sea. In discussing whether this cargo was entitled
to general average, the Supreme Court of the United States said:
"The maritime codes and writers have recognized the distinction between cargo placed on deck, with the
consent of the shipper, and cargo under deck.
"There is not one of them which gives a recourse against the master, the vessel, or the owners, if the
property lost had been placed on deck with the consent of its owner, and they afford very high evidence of
the general and appropriate usages, in this particular, of merchants and shipowners.
"So the courts of this country and England, and the writers on this subject, have treated the owner of
goods on deck, with his consent, as not having a claim on the master or owner of the ship in case of
jettison. The received law, on the point, is expressed by Chancellor Kent, with his usual precision, in 3
Com., 240: 'Nor is the carrier in that case (Jettison of deck load) responsible to the owner, unless the goods
were stowed on deck without the consent of the owner, or a general custom binding him, and then he
would be chargeable with the loss.'"
In Gould vs. Oliver (4 Bing., N. C., 132), decided in the English Court of Common Pleas in 1837, Tindal, C.J.,
said:
"Where the loading on deck has taken place with the consent of the merchant, it is obvious that no remedy
against the shipowner or master for a wrongful loading of the goods on deck can exist. The foreign
authorities are indeed express; on that point. And the general rule of the English law, that no one can
maintain an action for a wrong, where he has consented or contributed to the act which occasioned his
loss, leads to the same conclusion."
The foregoing authorities fully sustain the proposition that where the shipper consents to have his goods
carried on deck he takes the risks of any damage or loss sustained as a consequence of their being so
carried. In the present case it is indisputable that the goods were injured during the voyage and solely as a
consequence of their being on deck, instead of in the ship's hold. The loss must therefore fall on the owner.
And this would be true, under the authorities, even though paragraph 19 of the bills of lading, quoted near
the beginning of this opinion, had not been made a term of the contract.
It is undoubtedly true that, upon general principle, and momentarily ignoring paragraph 19 of these bills of
lading, the ship's owner might be held liable for any damage directly resulting from a negligent failure to
exercise the care properly incident to the carriage of the merchandise on deck. For instance, if it had been
improperly placed or secured, and had been swept overboard as a proximate result of such lack of care,
the ship would be liable, to the same extent as if the cargo had been deliberately thrown over without
justification. So, if it had been shown that, notwithstanding the stowage of these goods on deck, the
damage could have been prevented, by the exercise of proper skill and diligence in the discharge of the
duties incumbent on the ship, the owner might still be held.
203 | P a g e
To put the point concretely, let it be supposed that a custom had been proved among mariners to protect
deck cargo from the elements by putting a tarpaulin over it; or approaching still more to imaginable
conditions in the present case, let it be supposed that the persons charged with the duty of transporting
this cargo, being cognizant of the probability of damage by water, had negligently and without good
reason failed to exercise reasonable care to protect it by covering it with tarpaulins. In such case it could
hardly be denied that the ship's company should be held liable for such damage as might have been
avoided by the use of such precaution.
But it should be borne in mind in this connection that it is incumbent on the plaintiff, if his cause of action
is founded on negligence of this character, to allege and prove that the damage suffered was due to failure
of the persons in charge of the cargo to use the diligence properly incident to carriage under these
conditions.
In Clark vs. Barnwell (12 How. [U.S.], 272; 13 L. ed., 985), the Supreme Court distinguishes with great
precision between the situation where the burden of proof is upon the shipowner to prove that the loss
resulted from an excepted peril and that where the burden of proof is upon the owner of the cargo to prove
that the loss was caused by negligence on the part of the persons employed in the conveyance of the
goods. The first two syllabi in Clark vs. Barnwell read as follows:
"Where goods are shipped and the usual bill of lading given, 'promising to deliver them in good order, the
dangers of the seas excepted,' and they are found to be damaged the onus probandi is upon the owners of
the vessel, to show that the injury was occasioned by one of the excepted causes.
"But, although the injury may have been occasioned by one of the excepted causes, yet still the owners of
the vessel are responsible if the injury might have been avoided, by the exercise of reasonable skill and
attention on the part of the persons employed in the conveyance of the goods. But the onus probandi then
becomes shifted upon the shipper, to show the negligence.
The case just referred to was one where cotton thread, put up in boxes, had deteriorated during a lengthy
voyage in a warm climate, owing to dampness and humidity. In discussing the question of the
responsibility of the ship's owner, the court said:
"Notwithstanding, therefore, the proof was clear that the damage was occasioned by the effect of the
humidity and dampness of the vessel, which is one of the dangers of navigation, it was competent for the
libelants to show that the respondents might have prevented it by proper skill and diligence in the
discharge of their duties; but no such evidence is found in the record. For caught that appears every
precaution was taken that is usual or customary, or known to shipmasters, to avoid the damage in
question. And hence we are obliged to conclude that it is to be attributed exclusively to the dampness of
the atmosphere of the vessel, without negligence or fault on the part of the master or owners."
Exactly the same words might be used as applicable to the facts of the present case; and as it is apparent
that the damage here was caused by rain and sea water the risk of which is inherently incident to
carriage on deck the defendant cannot be held liable. It is not permissible for the court, in the absence
of any allegation or proof of negligence, to attribute negligence to the ship's employees in the matter of
protecting the goods from rains and storms. The complaint on the contrary clearly indicates that the
damage done was due to the mere fact of carriage on deck, no other fault or delinquency on the part of
anybody being alleged.
It will be observed that by the terms of paragraph 19 of the bills of lading, the ship is not to be held liable,
in the case of goods signed for as carried on deck, for any loss or damage from any cause whatever." We
are not to be understood as holding that this provision would have protected the ship from liability for the
consequences of negligent acts, if negligence had been alleged and proved. From the discussion in Manila
Railroad Co. vs. Compania Transatlantica and Atlantic, Gulf & Pacific Co. (38 Phil. Rep., 875), it may be
collected that the carrier would be held liable in such case, notwithstanding the exemption contained in
paragraph 19. But however that may be damages certainly cannot be recovered on the ground of
negligence, even from a carrier, where negligence is neither alleged nor proved.
The judgment appealed from is reversed and the defendant is absolved from the complaint. No express
pronouncement will be made as to the costs of either instance. So ordered.
Arellano, C.J., Torres, Johnson, Araullo, Malcolm, Avancea and Moir, JJ., concur.
204 | P a g e
Eastern Shipping v. IAC, 150 SCRA 463

FIRST DIVISION
[G.R. No. 69044. May 29, 1987.]
EASTERN SHIPPING LINES, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and
DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents.
[G.R. No. 71478. May 29, 1987.]
EASTERN SHIPPING LINES, INC., petitioner, vs. THE NISSHIN FIRE AND MARINE INSURANCE CO.,
and DOWA FIRE & MARINE INSURANCE CO., LTD., respondents.
DECISION
MELENCIO-HERRERA, J p:
These two cases, both for the recovery of the value of cargo insurance, arose from the same incident, the
sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by petitioner
Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at Kobe, Japan for
transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages valued at P256,039.00
consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare parts valued at P92,361.75,
consigned to Central Textile Mills, Inc. Both sets of goods were insured against marine risk for their stated
value with respondent Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of garment fabrics
and accessories, in two (2) containers, consigned to Mariveles Apparel Corporation, and two cases of
surveying instruments consigned to Aman Enterprises and General Merchandise. The 128 cartons were
insured for their stated value by respondent Nisshin Fire & Marine Insurance Co., for US$46,583.00, and
the 2 cases by respondent Dowa Fire & Marine Insurance Co., Ltd., for US$11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of ship and
cargo. The respective respondent Insurers paid the corresponding marine insurance values to the
consignees concerned and were thus subrogated unto the rights of the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Insurance, for
short), having been subrogated unto the rights of the two insured companies, filed suit against petitioner
Carrier for the recovery of the amounts it had paid to the insured before the then Court of First Instance of
Manila, Branch XXX (Civil Case No. 116087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary fortuitous
event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in the amounts
of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 as attorney's fees and
costs. Petitioner Carrier took an appeal to the then Court of Appeals which, on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. (NISSHIN, for short), and Dowa Fire &
Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed suit against Petitioner
205 | P a g e
Carrier for the recovery of the insured value of the cargo lost with the then Court of First Instance of
Manila, Branch II (Civil Case No. 116151), imputing unseaworthiness of the ship and non-observance of
extraordinary diligence by petitioner Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking of the ship
is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by Sea Act (COGSA); and
that when the loss by fire is established, the burden of proving negligence of the vessel is shifted to the
cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in the amounts
of US$46,583.00 and US$11,385.00, respectively, with legal interest, plus attorney's fees of P5,000.00 and
costs. On appeal by petitioner, the then Court of Appeals on September 10, 1984, affirmed with
modification the Trial Court's judgment by decreasing the amount recoverable by DOWA to US$1,000.00
because of $500 per package limitation of liability under the COGSA.
Hence, this Petition for Review on Certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the First
Division, and G.R. No. 71478 on September 25, 1985 by the Second Division. Upon Petitioner Carrier's
Motion for Reconsideration, however, G.R. No. 69044 was given due course on March 25, 1985, and the
parties were required to submit their respective Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the Resolution denying
the Petition for Review and moved for its consolidation with G.R. No. 69044, the lower-numbered case,
which was then pending resolution with the First Division. The same was granted; the Resolution of the
Second Division of September 25, 1985 was set aside and the Petition was given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica but merely a
charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its Petition:
"There are about 22 cases of the 'ASIATICA' pending in various courts where various plaintiffs are
represented by various counsel representing various consignees or insurance companies. The common
defendant in these cases is petitioner herein, being the operator of said vessel. . . ." 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in a party's
pleading are deemed admissions of that party and binding upon it. 2 And an admission in one pleading in
one action may be received in evidence against the pleader or his successor-in-interest on the trial of
another action to which he is a party, in favor of a party to the latter action. 3
The threshold issues in both cases are: (1) which law should govern the Civil Code provisions on
common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof to show
negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the common carrier
in case of their loss, destruction or deterioration. 4 As the cargoes in question were transported from Japan
to the Philippines, the liability of Petitioner Carrier is governed primarily by the Civil Code. 5 However, in all
matters not regulated by said Code, the rights and obligations of common carrier shall be governed by the
Code of Commerce and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is
suppletory to the provisions of the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance over goods, according to all the
circumstances of each case. 8 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)
xxx
Flood, storm, earthquake, lightning or other natural disaster or calamity;

xxx
xxx" 9
206 | P a g e
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the phrase
"natural disaster or calamity." However, we are of the opinion that fire may not be considered a natural
disaster or calamity. This must be so as it arises almost invariably from some act of man or by human
means. 10 It does not fall within the category of an act of God unless caused by lightning 11 or by other
natural disaster or calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of
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. 14
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.
In this case, the respective Insurers, as subrogees of the cargo shippers, have proven that the transported
goods have been lost. Petitioner Carrier has also proven that the loss was caused by fire. The burden then
is upon Petitioner Carrier to prove that it has exercised the extraordinary diligence required by law. In this
regard, the Trial Court, concurred in by the Appellate Court, made the following finding of fact:
"The cargoes in question were, according to the witnesses for the defendant, placed in hatches No. 2 and 3
of the vessel. Boatswain Ernesto Pastrana noticed that smoke was coming out from hatch No. 2 and hatch
No. 3; that when the smoke was noticed, the fire was already big; that the fire must have started twentyfour (24) hours before the same was noticed; that carbon dioxide was ordered released and the crew was
ordered to open the hatch covers of No. 2 hold for commencement of fire fighting by sea water; that all of
these efforts were not enough to control the fire.
"Pursuant to Article 1733, common carriers are bound to observe extraordinary diligence in the vigilance
over the goods. The evidence of the defendant did not show that extraordinary vigilance was observed by
the vessel to prevent the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence did not
likewise show the amount of diligence made by the crew, on orders, in the care of the cargoes. What
appears is that after the cargoes were stored in the hatches, no regular inspection was made as to their
condition during the voyage. Consequently, the crew could not have even explain what could have caused
the fire. The defendant, in the Court's mind, failed to satisfactorily show that extraordinary vigilance and
care had been made by the crew to prevent the occurrence of the fire. The defendant, as a common
carrier, is liable to the consignees for said lack of diligence required of it under Article l733 of the Civil
Code." 15
Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required
by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of the Civil
Code, it is required under Article 1739 of the same Code that the "natural disaster" must have been the
"proximate and only cause of the loss," and that the carrier has "exercised due diligence to prevent or
minimize the loss before, during or after the occurrence of the disaster." This Petitioner Carrier has also
failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act. It is provided
therein that:
"Sec. 4(2).
from.
Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting
'(b)
Fire, unless caused by the actual fault or privity of the carrier.
xxx
xxx
xxx "
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there was "actual
fault" of the carrier shown by "lack of diligence" in that "when the smoke was noticed, the fire was already
big; that the fire must have started twenty-four (24) hours before the same was noticed;" and that "after
the cargoes were stored in the hatches, no regular inspection was made as to their condition during the
voyage." The foregoing suffices to show that the circumstances under which the fire originated and spread
are such as to show that Petitioner Carrier or its servants were negligent in connection therewith.
207 | P a g e
Consequently, the complete defense afforded by the COGSA when loss results from fire is unavailing to
Petitioner Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US$500 per package as provided in
section 4(5) of the COGSA, which reads:
"(5)
Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or
in connection with the transportation of goods in an amount exceeding $500 per package lawful money of
the United States, or in case of goods not shipped in packages, per customary freight unit, or the
equivalent of that sum in other currency, unless the nature and value of such goods have been declared by
the shipper before shipment and inserted in bill of lading. This declaration if embodied in the bill of lading
shall be prima facie evidence, but shall be conclusive on the carrier.
"By agreement between the carrier, master or agent of the carrier, and the shipper another maximum
amount than that mentioned in this paragraph may be fixed: Provided, That such maximum shall not be
less than the figure above named. In no event shall the carrier be liable for more than the amount of
damage actually sustained."
xxx
xxx
xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
"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."
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a fixed
amount per package although the Code expressly permits a stipulation limiting such liability. Thus, the
COGSA, which is suppletory to the provisions of the Civil Code, steps in and supplements the Code by
establishing a statutory provision limiting the carrier's liability in the absence of a declaration of a higher
value of the goods by the shipper in the bill of lading. The provisions of the Carriage of Goods by Sea Act
on limited liability are as much a part of a bill of lading as though physically in it and as much a part
thereof as though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 17
limiting the carrier's liability for the loss or destruction of the goods. Nor is there a declaration of a higher
value of the goods. Hence, Petitioner Carrier's liability should not exceed US$500 per package, or its peso
equivalent, at the time of payment of the value of the goods lost, but in no case "more than the amount of
damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), which was
exactly the amount of the insurance coverage by Development Insurance (Exhibit "A"), and the amount
affirmed to be paid by respondent Court. The goods were shipped in 28 packages (Exhibit "C-2").
Multiplying 28 packages by $500 would result in a product of $14,000 which, at the current exchange rate
of P20.44 to US$1, would be P286,160, or "more than the amount of damage actually sustained."
Consequently, the aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was P92,361.75 (Exhibit
"I"), which is likewise the insured value of the cargo (Exhibit "H") and which amount was affirmed to be
paid by respondent Court. However, multiplying seven (7) cases by $500 per package at the present
prevailing rate of P20.44 to US$1 (US$3,500 x P20.44) would yield P71,540 only, which is the amount that
should be paid by Petitioner Carrier for those spare parts, and not P92,361.75.
In G.R. NO. 71478, in so far as the two (2) cases of surveying instruments are concerned, the amount
awarded to DOWA, which was already reduced to $1,000 by the Appellate Court following the statutory
$500 liability per package, is in order.
208 | P a g e
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured with
NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package and affirmed the
award of $46,583 to NISSHIN. It multiplied 128 cartons (considered as COGSA packages) by $500 to arrive
at the figure of $64,000, and explained that "since this amount is more than the insured value of the
goods, that is $46,583, the Trial Court was correct in awarding said amount only for the 128 cartons, which
amount is less than the maximum limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be considered as the
shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin ingots and
the shipper of floor covering brought action against the vessel owner and operator to recover for loss of
ingots and floor covering, which had been shipped in vessel-supplied containers. The U.S. District Court for
the Southern District of New York rendered judgment for the plaintiffs, and the defendant appealed. The
United States Court of Appeals, Second Division, modified and affirmed holding that:
"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 liability limitation provision of Carriage of Goods by Sea
Act. Carriage of Goods by Sea Act, . . . 4(5), 46 U.S.C.A. . . . 1304(5).
"Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether carrier-furnished
containers whose contents are disclosed should be treated as packages, the interest in securing
international uniformity would suggest that they should not be so treated. Carriage of Goods by Sea Act, . .
. 4(5), 46 U.S.C.A. . . . 1304(5).
". . . After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a container as a
package is inconsistent with the congressional purpose of establishing a reasonable minimum level of
liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes omitted):
Although this approach has not completely escaped criticism, there is, nonetheless, much to commend it.
It gives needed recognition to the responsibility of the courts to construe and apply the statute as enacted,
however great might be the temptation to 'modernize' or reconstitute it by artful judicial gloss. If COGSA's
package limitation scheme suffers from internal illness, Congress alone must undertake the surgery. There
is, in this regard, obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological
advancements, whether or not foreseeable by the COGSA promulgators, do not warrant a distortion or
artificial construction of the statutory term 'package.' A ruling that these large reusable metal pieces of
transport equipment qualify as COGSA packages at least where, as here, they were carrier-owned and
supplied would amount to just such a distortion.
Certainly, if the individual crates or cartons prepared by the shipper and containing his goods can rightly
be considered 'packages' standing by themselves, they do not suddenly lose that character upon being
stowed in a carrier's container. I would liken these containers to detachable stowage compartments of the
ship. They simply serve to divide the ship's overall cargo stowage space into smaller, more serviceable
loci. Shippers' packages are quite literally 'stowed' in the containers utilizing stevedoring practices and
materials analogous to those employed in traditional on board stowage.
"In Yeramex International v. S.S. Tando, 1977 A.M.C. 1807 (E.D. Va.), rev'd on other grounds, 595 F 2d 943
(4 Cir. 1979), another district with many maritime cases followed Judge Beeks' reasoning in Matsushita and
similarly rejected the functional economics test. Judge Kellam held that when rolls of polyester goods are
packed into cardboard cartons which are then placed in containers, the cartons and not the containers are
the packages.
"xxx
xxx
xxx"
The case of Smithgreyhound v. M/V Eurygenes 18 followed the Mitsui test:
"Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons which were
then placed by the shipper into a carrier-furnished container. The number of cartons was disclosed to the
carrier in the bill of lading. Eurygenes followed the Mitsui test and treated the cartons, not the container,
as the COGSA packages. However, Eurygenes indicated that a carrier could limit its liability to $500 per
209 | P a g e
container if the bill of lading failed to disclose the number of cartons or units within the container, or if the
parties indicated, in clear and unambiguous language, an agreement to treat the container as the
package."
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third World Delivery
Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham International Law Journal, Vol. 6,
1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
"2 Containers.
"(128) Cartons)
==========
"Men's Garments Fabrics and Accessories Freight Prepaid.
"Say: Two (2) Containers Only."
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the number
of cartons or units, as well as the nature of the goods, and applying the ruling in the Mitsui and Eurygenes
cases it is clear that the 128 cartons, not the two (2) containers should be considered as the shipping unit
subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were carrier-furnished or not.
Usually, however, containers are provided by the carrier. 19 In this case, the probability is that they were
so furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not
so packed. Thus, at the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in
fine print:
"11.
(Use of Container) Where the goods receipt of which is acknowledged on the face of this Bill of
Lading are not already packed into container(s) at the time of receipt, the Carrier shall be at liberty to pack
and carry them in any type of container(s)."
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of Lading,
meaning that the goods could probably fit in two (2) containers only. It cannot mean that the shipper had
furnished the containers for if so, "Two (2) Containers" appearing as the first entry would have sufficed.
and if there is any ambiguity in the Bill of Lading, it is a cardinal principle in the construction of contracts
that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused
the obscurity. 20 This applies with even greater force in a contract of adhesion where a contract is already
prepared and the other party merely adheres to it, like the Bill of Lading in this case, which is drawn up by
the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044 only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions of its
witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given full opportunity to present its evidence but it failed to do so.
On this point, the Trial Court found:
"xxx
xxx
xxx
"Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from June 27, 1978,
when its answer was prepared and filed in Court, until September 26, 1978, when the pre-trial conference
was conducted for the last time, the defendant had more than nine months to prepare its evidence. Its
belated notice to take deposition on written interrogatories of its witnesses in Japan, served upon the
plaintiff on August 25th, just two days before the hearing set for August 27th, knowing fully well that it was
its undertaking on July 11th that the deposition of the witnesses would be dispensed with if by next time it
had not yet been obtained, only proves the lack of merit of the defendant's motion for postponement, for
which reason it deserves no sympathy from the Court in that regard. The defendant has told the Court
since February 16, 1979, that it was going to take the deposition of its witnesses in Japan. Why did it take
until August 25, 1979, or more than six months, to prepare its written interrogatories. Only the defendant
itself is to blame for its failure to adduce evidence in support of its defenses.
xxx
xxx
xxx" 22
210 | P a g e
Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain now that it
was denied due process when the Trial Court rendered its Decision on the basis of the evidence adduced.
What due process abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court affirmed the
award by the Trial Court of attorney's fees of P35,000.00 in favor of Development Insurance in G.R. No.
69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the amount
of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in G.R. No. 71478 is
affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping Lines shall
pay the Development Insurance and Surety Corporation the amount of P256,039 for the twenty-eight (28)
packages of calorized lance pipes, and P71,540 for the seven (7) cases of spare parts, with interest at the
legal rate from the date of the filing of the Complaint on June 13, 1978, plus P5,000 as attorney's fees, and
the costs.
2)
In G.R. No. 71478, the judgment is hereby affirmed.
SO ORDERED.
Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.
Separate Opinions
YAP, J., concurring and dissenting:
With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile materials, and
not the two (2) containers, should be considered as the shipping unit for the purpose of applying the
$500.00 limitation under the Carriage of Goods by Sea Act (COGSA).
The majority opinion followed and applied the interpretation of the COGSA "package" limitation adopted by
the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs. American Export Lines, Inc., 636
F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes, 666, F 2d, 746. Both cases adopted the rule
that carrier-furnished containers whose contents are fully disclosed are not "packages" within the meaning
of Section 4 (5) of COGSA. prLL
I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the present case, for
the following reasons: (1) The facts in those cases differ materially from those obtaining in the present
case; and (2) the rule laid down in those two cases is by no means settled doctrine.
In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In Mitsui, the
Court held: "Certainly, if the individual crates or cartons prepared by the shipper and containing his goods
can rightly be considered 'packages' standing by themselves, they do not suddenly lose that character
upon being stowed in a carrier's container. I would liken these containers to detachable stowage
compartments of the ship." Cartons or crates placed inside carrier-furnished containers are deemed
stowed in the vessel itself, and do not lose their character as individual units simply by being placed inside
container provided by the carrier, which are merely "detachable stowage compartments of the ship."
In the case at bar, there is no evidence showing that the two containers in question were carrier-supplied.
This fact cannot be presumed. The facts of the case in fact show that this was the only shipment placed in
containers. The other shipment involved in the case, consisting of surveying instruments, was packed in
two "cases."
We cannot speculate on the meaning of the words "Say: Two (2) Containers Only," which appear in the bill
of lading. Absent any positive evidence on this point, we cannot say that those words constitute a mere
estimate that the shipment could fit in two containers, thereby showing that when the goods were
delivered by the shipper, they were not yet placed inside the containers and that it was the petitioner
carrier which packed the goods into its own containers, as authorized under paragraph 11 on the dorsal
side of the bill of lading, Exhibit A. Such assumption cannot be made in view of the following words clearly
stamped in red ink on the face of the bill of lading: "Shipper's Load, Count and Seal Said to Contain." This
clearly indicates that it was the shipper which loaded and counted the goods placed inside the container
and sealed the latter.
211 | P a g e
The two containers were delivered by the shipper to the carrier already sealed for shipment, and the
number of cartons said to be contained inside them was indicated in the bill of lading, on the mere say-so
of the shipper. The freight paid to the carrier on the shipment was based on the measurement (by volume)
of the two containers at $34.50 per cubic meter. The shipper must have saved on the freight charges by
using containers for the shipment. Under the circumstances, it would be unfair to the carrier to have the
limitation of its liability under COGSA fixed on the number of cartons inside the containers, rather than on
the containers themselves, since the freight revenue was based on the latter.
The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of the COGSA
package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem of
applying the statutory limitation under COGSA to containerized shipments. The law was adopted before
modern technological changes have revolutionized the shipping industry. There is need for the law itself to
be updated to meet the changes brought about by the container revolution, but this is a task which should
be addressed by the legislative body. Until then, this Court, while mindful of American jurisprudence on the
subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to
the parties concerned. There is need to balance the interests of the shipper and those of the carrier.
In the case at bar, the shipper opted to ship the goods in two containers, and paid freight charges based
on the freight unit, i.e., cubic meters. The shipper did not declare the value of the shipment, for that would
have entailed higher freight charges; instead of paying higher freight charges, the shipper protected itself
by insuring the shipment. As subrogee, the insurance company can recover from the carrier only what the
shipper itself is entitled to recover, not the amount it actually paid the shipper under the insurance policy.
In our view, under the circumstances, the container should be regarded as the shipping unit or "package"
within the purview of COGSA. However, we realize that this may not be equitable as far as the shipper is
concerned. If the container is not regarded as a "package" within the terms of COGSA, then, the $500.00
liability limitation should be based on "the customary freight unit." Sec. 4 (5) of COGSA provides that in
case of goods not shipped in packages, the limit of the carrier's liability shall be $500.00 "per customary
freight unit." In the case at bar, the petitioner's liability for the shipment in question based on "freight unit"
would be $21,950.00 for the shipment of 43.9 cubic meters.
I concur with the rest of the decision.
Sarmiento, J ., concur.
Footnotes
1.
Petition, p. 6, Rollo of G.R. No. 69044, p. 15.
2.
Granada vs. PNB, 18 SCRA 1 (1966); Gardner vs. CA, 131 SCRA 85 (1984).
3.
P. 51, Vol. 5, Rules of Court by Ruperto G. Martin, citing 31 C.J.S., 1075.
4.
Article 1753, Civil Code.
5.
See Samar Mining Co., Inc. vs. Nordeutscher Lloyd, 132 SCRA 529 (1984).
6.
Art. 1766, Civil Code; Samar Mining Co. Inc. vs. Lloyd, supra.
7.
See American President Lines vs. Klepper, 110 Phil. 243, 248 (1960).
8.
9.
10.
Africa vs. Caltex (Phil.), 16 SCRA 448, 455 (1966).
11.
Lloyd vs. Haugh & K. Storage & Transport Co., 223 Pa. 148, 72 A 516; Forward v. Pittard. ITR 27, 99
Eng. Reprint, 953.
12.
13.
Section 4, Carriage of Goods by Sea Act.
14.
Manresa, cited in p. 147, V. Outline of Civil Law, J.B.L. Reyes and R.C. Puno.
15.
Decision, Court of Appeals in CA-G.R. No. 67848-R, appealed in G.R. No. 71478.
16.
Shackman v. Cunard White Star, D.C. N.Y. 1940, 31 F. Supp. 948, 46 USCA 866; cited in Phoenix
Assurance Company vs. Macondray, 64 SCRA 15 (1975).
17.
Folio of Exhibits, pp. 6 and 23.
18.
666 F. 2d 746, 1982 A.M.C. 320 (2d Cir. 1981).
212 | P a g e
19.
"A container is a permanent reusable article of transport equipment - not packaging of goods
durably made of metal, and equipped with doors for easy access to the goods and for repeated use. It is
designed to facilitate the handling, loading, stowage aboard ship, carriage, discharge from ship,
movement, and transfer of large numbers of packages simultaneously by mechanical means to minimize
the cost and risks of manually processing each package individually. It functions primarily as ship's gear for
cargo handling, and is usually provided by the carrier. (Simon, The Law of Shipping Containers)" (Emphasis
ours).
20.
21.
See Qua Chee Gan vs. Law Union & Rock Ins. Co., Ltd., 98 Phil. 85 (1956).
22.
Amended Record on Appeal, Annex "D," p. 62; Rollo in G.R. No. 69044, p. 89.
23.
Associated Citizens Bank vs. Ople, 103 SCRA 130 (1981).
24.
Tajonera vs. Lamaroza, 110 SCRA 438 (1981).
YAP, J., concurring and dissenting:
1.
See R.M. Sharpe, Jr. and Mark E. Steiner, "The Container as 'Customary Freight Unit', Round Two of
the Container Debate?", South Texas Law Journal Vol. 24, No. 2 (1983).
(b)
Act of public enemy Art. 1734(3), 1739
ARTICLE 1739. In order that the common carrier may be exempted from responsibility, the natural disaster
must have been the proximate and only cause of the loss. However, the common carrier must exercise due
diligence to prevent or minimize loss before, during and after the occurrence of flood, storm or other
natural disaster in order that the common carrier may be exempted from liability for the loss, destruction,
or deterioration of the goods. The same duty is incumbent upon the common carrier in case of an act of
the public enemy referred to in article 1734, No. 2.
(c)
Act or omission of shipper Art. 1734(3), 1741
ARTICLE 1741. If the shipper or owner merely contributed to the loss, destruction or deterioration of the
goods, the proximate cause thereof being the negligence of the common carrier, the latter shall be liable in
damages, which however, shall be equitably reduced.
(d)
Character of goods, etc.

Arts. 1734(4), 1742
Art. 366, Code of Commerce
213 | P a g e
ARTICLE 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers, the common carrier must
exercise due diligence to forestall or lessen the loss.
ARTICLE 366. Within the twenty-four hours following the receipt of the merchandise, the claim against
the carrier for damage or average be found therein upon opening the packages, may be made, provided
that the indications of the damage or average which gives rise to the claim cannot be ascertained from the
outside part of such packages, in which case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be
admitted against the carrier with regard to the condition in which the goods transported were delivered.
Government v. Ynchausti, 40 Phil 219

FIRST DIVISION
[G.R. No. 14191. September 29, 1919.]
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellant, vs. YNCHAUSTI &
COMPANY, defendant-appellee.
Attorney-General Paredes for the appellant.
Charles C. Cohn for the appellee.
SYLLABUS
1.
SHIPPERS AND SHIPPING; COMMON CARRIERS, LIABILITY OF; BILL OF LADING; NEGLIGENCE,
PRESUMPTION OF; WHO MUST PROVE NEGLIGENCE WHEN MERCHANDISE IS DAMAGED. A bill of lading is
a contract and the parties thereto are bound by its terms. Merchandise is transported at the risk and
venture of the shipper, if the contrary does not appear in the bill of lading.
2.
ID.; ID.; ID.; ID. All damages and impairment suffered by merchandise in transportation by reason
of accident, force majeure, or by virtue of the nature or defect of the articles, shall be at the risk and
account of the shipper.
3.
ID.; ID., ID.; ID. The burden of proof that damages were caused by the negligence of the carrier is
upon the shipper. In this jurisdiction there is no presumption of negligence on the part of the common
carrier in cases like the present
DECISION
JOHNSON, J p:
The purpose of this action was to recover the sum of P200 as damages to certain cargo of roofing tiles
shipped by the plaintiff from Manila to Iloilo on a vessel belonging to the defendant. The tiles were
delivered by the defendant to the consignee of the plaintiff at Iloilo. Upon delivery it was found that some
of the tiles had been damaged; that the damage amounted to about P200. Upon a submission of that
question to the lower court a judgment was rendered against the plaintiff in favor of the defendant,
absolving the latter from all liability under the complaint.
There seems to be no dispute about the facts, except whether or not the tiles were broken by the
negligence of the defendant. The defendant denied that the tiles were broken by reason of its negligence.
The defendant proved, and the plaintiff did not attempt to dispute, that the roofing tiles in question were of
a brittle and fragile nature; that they were delivered by the plaintiff to the defendant in bundles of ten
each, tied with bejuco [rattan], without any packing or protective covering. The plaintiff did not even
attempt to prove any negligence on the part of the defendant. On the other hand, the defendant offered
proof to show that there was no negligence on its part, by showing that the tiles were loaded, stowed, and
214 | P a g e
discharged by handlabor, and not by mechanical devices which might have caused the breakage in
question.
It appears from the record that the tiles in question were received by the defendant from the plaintiff, as
represented on a Government bill of lading known as "General Form No. 9-A," which was made out and
submitted by a representative of the Bureau of Supply to the defendant. ( Exhibit A. ) At the head of Exhibit
A is found the following:
"You are hereby authorized to receive, carry, and deliver the following described merchandise to treasurer
of Iloilo at Iloilo in accordance with the authorized and prescribed rates and classifications, and according
to the laws of common carriers in force on the date hereof, settlement and payment of charges to be made
by Bureau of Supply. (Sgd.) T. R. SCHOON, Chief Division of Supplies, Bureau of Supply."
On the said bill of lading we find the following, which was stamped thereon by the defendant:
"The goods have been accepted for transportation subject to the conditions prescribed by the Insular
Collector of Customs in Philippine Marine Regulations, page 16, under the heading 'Bill of Lading
Conditions.' "
The lower court, in discussing the said bill of lading with the two conditions found thereon, reached the
conclusion that the plaintiff was bound by the terms of the bill of lading as issued by the defendant and not
by the terms which the plaintiff attempted to impose, that is to say, that such merchandise was to be
carried at owner's risk only; that there was no presumption of negligence on the part of the defendant from
the fact that the tiles were broken when received by the consignee; and that since the plaintiff I did not
prove negligence on the part of the defendant, the former was not entitled to recover damages from the
latter. The lower court rendered judgment absolving the defendant from all liability under the complaint.
The important questions presented by the appeal are: (a) Were the terms and conditions stamped by the
defendant upon the Government's bill of lading binding upon the plaintiff? (b) Was there a presumption of
negligence on the part of the defendant?
The record shows that ever since the Government began to use the bill of lading, General Form No. 9-A,
the shipowners had always used the "stamp" in question; that in the present case the defendant placed
said stamp upon the bill of lading before the plaintiff shipped the tiles in question; that having shipped the
goods under the said bill of lading, with the terms and conditions of the carriage stamped thereon, the
appellant must be deemed to have assented to the said terms and conditions thereon stamped.
The appellant contends also that it was not bound by the terms and conditions inserted by the appellee,
because (a) the reference made by the appellee to the "Philippine Marine Regulations" prescribed by the
Collector of Customs was vague; that the appellee should have expressed the conditions fully and clearly
on the face of the bill of lading; and (b) that the Insular Collector of Customs had no authority to issue such
regulations.
As to the first contention, it seems that the appellant fully knew the import and significance of the
reference made in said regulations. The appellant attempted to show that prior to the transaction in
question the Government notified the defendant and other shipowners that it would not be bound by the
"stamp" that was placed by the shipowners on the Government's bill of lading.
With reference to the contention of the appellant that the Collector of Customs had no authority to make
such regulations, it may be said in the present ease that the binding effect of the conditions stamped on
the bill of lading did not proceed from the authority of the Collector of Customs but from the actual
contract which the parties made in the present case. Each bill of lading is a contract and the parties
thereto are bound by its terms.
Finding as we do that the tiles in question were shipped at the owner's risk, under the law in this
jurisdiction, the carrier is only liable where the evidence shows that he was guilty of some negligence and
that the damages claimed were the result of such negligence. As was said above, the plaintiff offered no
proof whatever to show negligence on the part of the defendant.
The plaintiff cites some American authorities to support its contention that the carrier is an absolute
insurer of merchandise shipped and that the proof of breakage or damage to goods shipped in the hands of
the carrier makes out a prime facie case of negligence against him, and that the burden of proof is thrown
on him to show due care and diligence.
The law upon that question in this jurisdiction is found in articles 361 and 362 of the Commercial Code.
Article 361 provides:
"ART. 361.
Merchandise shall be transported at the risk and venture of the shipper, if the contrary be
not expressly stipulated.
215 | P a g e
"Therefore, all damages and impairment, suffered by the goods in transportation by reason of accident,
force majeure, or by virtue of the nature or defect of the articles, shall be for the account and risk of the
shipper.
"The proof of these accidents is incumbent upon the carrier."
"ART. 362.
The carrier, however, shall be liable for the losses and damages arising from the causes
mentioned in the foregoing article, if it be proved against him that they occurred on account of his
negligence or because he did not take the precautions usually adopted by careful persons, unless the
shipper committed fraud in the bill of lading stating that the goods were of a class or quality different from
what they really were. . . ."
Under the provisions of article 361 the defendant, in order to free itself from liability, was only obliged to
prove that the damages suffered by the goods were "by virtue of the nature or defect of the articles."
Under the provisions of article 362 the plaintiff, in order to hold the defendant liable, was obliged to prove
that the damages to the goods by virtue of their nature, occurred on account of its negligence or because
the defendant did not take the precaution usually adopted by careful persons.
The defendant herein proved, and the plaintiff did not attempt to dispute, that the tiles in question were of
a brittle and fragile nature and that they were delivered by the plaintiff to the defendant without any
packing or protective covering. The defendant also offered proof to show that there was no negligence on
its part, by showing that the tiles were loaded, stowed, and discharged in a careful and diligent manner.
In this jurisdiction there is no presumption of negligence on the part of the carriers in case like the present.
The plaintiff, not having proved negligence on the part of the defendant, is not entitled to recover
damages.
For the foregoing reasons, the judgment of the lower court is hereby affirmed, with costs. So ordered.
Arellano, C. J., Araullo, Street, Malcolm and Avancea, JJ., concur.
Southern Lines v. CA, 4 SCRA 256
EN BANC
[G.R. No. L-16629. January 31, 1962.]
SOUTHERN LINES, INC., petitioner, vs. COURT OF APPEALS and CITY OF ILOILO, respondents.
Jose Ma. Lopez Vito, Jr. for petitioner.
City Fiscal for respondent.
SYLLABUS
1.
COMMON CARRIERS; LIABILITY FOR DAMAGES TO GOODS; ARTICLES 361 AND 362 OF THE CODE OF
COMMERCE. Under Article 361 of the Code of Commerce, the defendant-carrier, in order to free itself
from liability, was only obliged to prove that the damages suffered by the goods were "by virtue of the
nature or defect of the articles." Under the provisions of Article 362, the plaintiff, in order to hold the
defendant liable, was obliged to prove that the damages to the goods by virtue of their nature, occurred on
account of its negligence or because the defendant did not take the precaution adopted by careful
persons. (Government vs. Ynchausti & Co., 40 Phil., 219, 223).
2.
ID.; ID.; CARRIER NOT RELIEVED FROM LIABILITY IF IMPROPER PACKING OF GOODS WAS APPARENT.
If the fact of improper packing is known to the carrier or his servants, or apparent upon ordinary
observation, but it accepts the goods notwithstanding such condition, it is not relieved of liability for loss or
injury resulting therefrom. (9 am. Jur., 869).
DECISION
DE LEON, J p:
This is a petition to review on certiorari the decision of the Court of Appeals in CA-G. R. No. 15579-R
affirming that of the Court of First Instance of Iloilo which sentenced petitioner Southern Lines, Inc. to pay
respondent City of Iloilo the amount of P4,931.41.
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Sometime in 1948, the City of Iloilo requisitioned for rice from the National Rice and Corn Corporation
(hereinafter referred to as NARIC) in Manila. On August 24 of the same year, NARIC, pursuant to the order,
shipped 1,726 sacks of rice consigned to the City of Iloilo on board the SS "General Wright" belonging to
the Southern Lines, Inc. Each sack of rice weighed 75 kilos and the entire shipment as indicated in the bill
of lading had a total weight of 129,450 kilos. According to the bill of lading, the cost of the shipment was
P63,115.50, itemized and computed as follows:
Unit price per bag P36.25
P62,567.50
Handling at P0.13 per bag 224.38
Trucking at P2.50 per bag
323.62
Total P63,115.50
On September 3, 1948, the City of Iloilo received the shipment and paid the amount of P63,115.50.
However, it was noted at the foot of the bill of lading that the City of Iloilo "Received the above mentioned
merchandise apparently in same condition as when shipped, save as noted below: actually received 1685
sacks with a gross weight of 116,131 kilos upon actual weighing. Total shortage ascertained 13,319 kilos."
The shortage was equivalent to 41 sacks of rice with a net weight of 13,319 kilos, the proportionate value
of which was P6,486.35.
On February 14, 1951, the City of Iloilo filed a complaint in the Court of First Instance of Iloilo against
NARIC and the Southern Lines, Inc. for the recovery of the amount of P6,486.35 representing the value of
the shortage of the shipment of rice. After trial, the lower court absolved NARIC from the complaint, but
sentenced the Southern Lines, Inc. to pay the amount of P4,931.41 which is the difference between the
sum of P6,486.35 and P1,554.94 representing the latter's counterclaim for handling and freight.
The Southern Lines, Inc. appealed to the Court of Appeals which affirmed the judgment of the trial court.
Hence, this petition for review.
The only question to be determined in this petition is whether or not the defendant-carrier, the herein
petitioner, is liable for the loss or shortage of the rice shipped.
Article 361 of the Code of Commerce provides:
"ART. 361. The merchandise shall be transported at the risk and venture of the shipper, if the contrary
has not been expressly stipulated.
As a consequence, all the losses and deteriorations which the goods may suffer during the transportation
by reason of fortuitous event, force majeure, or the inherent nature and defect of the goods, shall be for
the account and risk of the shipper.
Proof of these accidents is incumbent upon the carrier."
Article 362 of the same Code provides:
"ART. 362. Nevertheless, the carrier shall be liable for the losses and damages resulting from the causes
mentioned in the preceding article if it is proved, as against him, that they arose through his negligence or
by reason of his having failed to take the precautions which usage has established among careful persons,
unless the shipper has committed fraud in the bill of lading, representing the goods to be of a kind or
quality different from what they really were.
If, notwithstanding the precautions referred to in this article, the goods transported run the risk of being
lost, on account of their nature or by reason of unavoidable accident, there being no time for their owners
to dispose of them, the carrier may proceed to sell them, placing them for this purpose at the disposal of
the judicial authority or of the officials designated by special provisions."
Under the provisions of Article 361, the defendant - carrier in order to free itself from liability, was only
obliged to prove that the damages suffered by the goods were "by virtue of the nature or defect of the
articles." Under the provisions of Article 362, the plaintiff, in order to hold the defendant liable, was obliged
to prove that the damages to the goods by virtue of their nature, occurred on account of its negligence or
because the defendant did not take the precaution adopted by careful persons. (Government vs. Ynchausti
& Co., 40 Phil., 219, 223).
Petitioner claims exemption from liability by contending that the shortage in the shipment of rice was due
to such factors as the shrinkage, leakage or spillage of the rice on account of the bad condition of the
sacks at the time it received the same and the negligence of the agents of respondent City of Iloilo in
receiving the shipment. The contention is untenable, for, if the fact of improper packing is known to the
217 | P a g e
carrier or his servants, or apparent upon ordinary observation, but it accepts the goods notwithstanding
such condition, it is not relieved of liability for loss or injury resulting therefrom. (9 Am. Jur., 869.)
Furthermore, according to the Court of Appeals, "appellant (petitioner) itself frankly admitted that the
strings that tied the bags of rice were broken; some bags were with holes and plenty of rice were spilled
inside the hull of the boat, and that the personnel of the boat collected no less than 26 sacks of rice which
they had distributed among themselves." This finding, which is binding upon this Court, shows that the
shortage resulted from the negligence of petitioner.
Invoking the provisions of Article 366 of the Code of Commerce and those of the bill of lading, petitioner
further contends that respondent is precluded from filing an action for damages on account of its failure to
present a claim within 24 hours from receipt of the shipment. It also cites the cases of Government vs.
Ynchausti & Co., 24 Phil., 315 and Triton Insurance Co. vs. Jose, 33 Phil., 194, ruling to the effect that the
requirement that the claim for damages must be made within 24 hours from delivery is a condition
precedent to the accrual of the right of action to recover damages. These two cases above-cited are not
applicable to the case at bar. In the first cited case, the plaintiff never presented any claim at all before
filing the action. In the second case, there was payment of the transportation charges which precludes the
presentation of any claim against the carrier. (See Article 366, Code of Commerce.) It is significant to note
that in the American case of Hoye vs. Pennsylvania Railroad Co., 13 Ann. Case. 414, it has been said:
". . . 'It has been held that a stipulation in the contract of shipment requiring the owner of the goods to
present a notice of his claim to the carrier within a specified time after the goods have arrived at their
destination is in the nature of a condition precedent to the owner's right to enforce a recovery, and that he
must show in the first instance that he has complied with the condition, or that the circumstances were
such that to have complied with it would have required him to do an unreasonable thing. The weight of
authority, however, sustains the view that each a stipulation is more in the nature of a limitation upon the
owner's right to recovery, and that the burden of proof is accordingly on the carrier to show that the
limitations was reasonable and in proper form or within the time stated.' (Hutchinson on Carrier, 3rd ed.,
par. 447)." Emphasis Supplied.
In the case at bar, the record shows that petitioner failed to plead this defense in its answer to
respondent's complaint and, therefore, the same is deemed waived (Section 10, Rule 9, Rules of Court) and
cannot be raised for the first time at the trial or on appeal. (Maxilom vs. Tabotabo, 9 Phil., 390.) Moreover,
as the Court of Appeals has said:
". . . the records reveal that the appellee (respondent) filed the present action, within a reasonable time
after the short delivery in the shipment of the rice was made. It should be recalled that the present action
is one for the refund of the amount paid in excess, and not for damages or the recovery of the shortage;
for admittedly the appellee (respondent) had paid the entire value of the 1726 sacks of rice, subject to
subsequent adjustment, as to shortages or losses. The bill of lading does not at all limit the time for filing
an action for the refund of money paid in excess."
WHEREFORE, the decision of the Court of Appeals is hereby affirmed in all respects and the petition for
certiorari denied.
With costs against the petitioner.
Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. Barrera and Dizon, JJ., concur.
Bengzon, C.J., Bautista Angelo and Paredes, JJ., did not take part.
(e)
Order of competent authority

Arts. 1734(5), 1743
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:
(5)
Order or act of competent public authority.
ARTICLE 1743.
If through the order of public authority the goods are seized or destroyed, the
common carrier is not responsible, provided said public authority had power to issue the order.
218 | P a g e
Ganzon v. Court of Appeals, 161 SCRA 646

SECOND DIVISION
[G.R. No. L-48757. May 30, 1988.]
MAURO GANZON, petitioner, vs. COURT OF APPEALS and GELACIO E. TUMAMBING, respondents.
Antonio B. Abinoja for petitioner.
Quijano, Arroyo & Padilla Law Office for respondents.
DECISION
SARMIENTO, J p:
The private respondent instituted in the Court of First Instance of Manila 1 an action against the petitioner
for damages based on culpa contractual. The antecedent facts, as found by respondent Court, 2 are
undisputed:
On November 28, 1956, Gelacio Tumambing contracted the services of Mauro B. Ganzon to haul 305 tons
of scrap iron from Mariveles, Bataan, to the port of Manila on board the lighter LCT "Batman" (Exhibit 1,
Stipulation of Facts, Amended Record on Appeal, p. 38). Pursuant to this agreement, Mauro B. Ganzon sent
his lighter "Batman" to Mariveles where it docked in three feet of water (t.s.n., September 28, 1972, p. 31).
On December 1, 1956, Gelacio Tumambing delivered the scrap iron to defendant Filomeno Niza, captain of
the lighter, for loading which was actually begun on the same date by the crew of the lighter under the
captain's supervision. When about half of the scrap iron was already loaded (t.s.n., December 14, 1972, p.
20), Mayor Jose Advincula of Mariveles, Bataan, arrived and demanded P5,000.00 from Gelacio
Tumambing. The latter resisted the shakedown and after a heated argument between them, Mayor Jose
Advincula drew his gun and fired at Gelacio Tumambing (t.s.n., March 19, 1971, p. 9; September 28, 1972,
pp. 6-7). The gunshot was not fatal but Tumambing had to be taken to a hospital in Balanga, Bataan, for
treatment (t.s.n., March 19, 1971, p. 13; September 28, 1972, p. 15).
After sometime, the loading of the scrap iron was resumed. But on December 4, 1956, Acting Mayor Basilio
Rub, accompanied by three policemen, ordered captain Filomeno Niza and his crew to dump the scrap iron
(t.s.n., June 16, 1972, pp. 8-9) where the lighter was docked (t.s.n., September 28, 1972, p. 31). The rest
was brought to the compound of NASSCO (Record on Appeal, pp. 20-22). Later on Acting Mayor Rub issued
a receipt stating that the Municipality of Mariveles had taken custody of the scrap iron (Stipulation of Facts,
Record on Appeal, p. 40; t.s.n., September 28, 1972, p. 10.)
On the basis of the above findings, the respondent Court rendered a decision, the dispositive portion of
which states: cdphil
WHEREFORE, the decision appealed from is hereby reversed and set aside and a new one entered ordering
defendant-appellee Mauro Ganzon to pay plaintiff-appellant Gelacio E. Tumambing the sum of P5,895.00 as
actual damages, the sum of P5,000.00 as exemplary damages, and the amount of P2,000.00 as attorney's
fees. Costs against defendant-appellee Ganzon. 3
In this petition for review on certiorari, the alleged errors in the decision of the Court of Appeals are:
I
THE COURT OF APPEALS FINDING THE HEREIN PETITIONER GUILTY OF BREACH OF THE CONTRACT OF
TRANSPORTATION AND IN IMPOSING A LIABILITY AGAINST HIM COMMENCING FROM THE TIME THE SCRAP
WAS PLACED IN HIS CUSTODY AND CONTROL HAVE NO BASIS IN FACT AND IN LAW.
II
THE APPELLATE COURT ERRED IN CONDEMNING THE PETITIONER FOR THE ACTS OF HIS EMPLOYEES IN
DUMPING THE SCRAP INTO THE SEA DESPITE THAT IT WAS ORDERED BY THE LOCAL GOVERNMENT
OFFICIAL WITHOUT HIS PARTICIPATION.
III
THE APPELLATE COURT FAILED TO CONSIDER THAT THE LOSS OF THE SCRAP WAS DUE TO A FORTUITOUS
EVENT AND THE PETITIONER IS THEREFORE NOT LIABLE FOR ANY LOSSES AS A CONSEQUENCE THEREOF. 4
The petitioner, in his first assignment of error, insists that the scrap iron had not been unconditionally
placed under his custody and control to make him liable. However, he completely agrees with the
respondent Court's finding that on December 1, 1956, the private respondent delivered the scraps to
Captain Filomeno Niza for loading in the lighter "Batman." That the petitioner, thru his employees, actually
219 | P a g e
received the scraps is freely admitted. Significantly, there is not the slightest allegation or showing of any
condition, qualification, or restriction accompanying the delivery by the private respondent-shipper of the
scraps, or the receipt of the same by the petitioner. On the contrary, soon after the scraps were delivered
to, and received by the petitioner-common carrier, loading was commenced.
By the said act of delivery, the scraps were unconditionally placed in the possession and control of the
common carrier, and upon their receipt by the carrier for transportation, the contract of carriage was
deemed perfected. Consequently, the petitioner-carrier's extraordinary responsibility for the loss,
destruction, or determination of the goods commenced. Pursuant to Art. 1736, such extraordinary
responsibility would cease only upon the delivery, actual or constructive, by the carrier to the consignee,
or to the person who has a right to receive them. 5 The fact that part of the shipment had not been loaded
on board the lighter did not impair the said contract of transportation as the goods remained in the
custody and control of the carrier, albeit still unloaded.
The petitioner has failed to show that the loss of the scraps was due to any of the following causes
enumerated in Article 1734 of the Civil Code, namely:
(1)
(2)
(3)
(4)
The character of the goods or defects in the packing or in the containers;
(5)
Hence, the petitioner is presumed to have been at fault or to have acted negligently. 6 By reason of this
presumption, the court is not even required to make an express finding of fault or negligence before it
could hold the petitioner answerable for the breach of the contract of carriage. Still, the petitioner could
have been exempted from any liability had he been able to prove that he observed extraordinary diligence
in the vigilance over the goods in his custody, according to all the circumstances of the case, or that the
loss was due to an unforeseen event or to force majeure. As it was, there was hardly any attempt on the
part of the petitioner to prove that he exercised such extraordinary diligence. prcd
It is in the second and third assignments of error where the petitioner maintains that he is exempt from
any liability because the loss of the scraps was due mainly to the intervention of the municipal officials of
Mariveles which constitutes a caso fortuito as defined in Article 1174 of the Civil Code. 7
We cannot sustain the theory of caso fortuito. In the courts below, the petitioner's defense was that the
loss of the scraps was due to an "order or act of competent public authority," and this contention was
correctly passed upon by the Court of Appeals which ruled that:
. . . In the second place, before the appellee Ganzon could be absolved from responsibility on the ground
that he was ordered by competent public authority to unload the scrap iron, it must be shown that Acting
Mayor Basilio Rub had the power to issue the disputed order, or that it was lawful, or that it was issued
under legal process of authority. The appellee failed to establish this. Indeed, no authority or power of the
acting mayor to issue such an order was given in evidence. Neither has it been shown that the cargo of
scrap iron belonged to the Municipality of Mariveles. What we have in the record is the stipulation of the
parties that the cargo of scrap iron was accumulated by the appellant through separate purchases here
and there from private individuals (Record on Appeal, pp. 38-39). The fact remains that the order given by
the acting mayor to dump the scrap iron into the sea was part of the pressure applied by Mayor Jose
Advincula to shakedown the appellant for P5,000.00. The order of the acting mayor did not constitute valid
authority for appellee Mauro Ganzon and his representatives to carry out.
Now the petitioner is changing his theory to caso fortuito. Such a change of theory on appeal we cannot,
however, allow. In any case, the intervention of the municipal officials was not of a character that would
render impossible the fulfillment by the carrier of its obligation. The petitioner was not duty bound to obey
the illegal order to dump into the sea the scrap iron. Moreover, there is absence of sufficient proof that the
issuance of the same order was attended with such force or intimidation as to completely overpower the
will of the petitioner's employees. The mere difficulty in the fulfillment of the obligation is not considered
force majeure. We agree with the private respondent that the scraps could have been properly unloaded at
the shore or at the NASSCO compound, so that after the dispute with the local officials concerned was
settled, the scraps could then be delivered in accordance with the contract of carriage. llcd
There is no incompatibility between the Civil Code provisions on common carriers and Articles 361 8 and
362 9 of the Code of Commerce which were the basis for this Court's ruling in Government of the Philippine
Islands vs. Ynchausti & Co. 10 and which the petitioner invokes in this petition. For Art. 1735 of the Civil
Code, conversely stated, means that the shipper will suffer the losses and deterioration arising from the
220 | P a g e
causes enumerated in Art. 1734; and in these instances, the burden of proving that damages were caused
by the fault or negligence of the carrier rests upon him. However, the carrier must first establish that the
loss or deterioration was occasioned by one of the excepted causes or was due to an unforeseen event or
to force majeure. Be that as it may, insofar as Art. 362 appears to require of the carrier only ordinary
diligence, the same is deemed to have been modified by Art. 1733 of the Civil Code.
Finding the award of actual and exemplary damages to be proper, the same will not be disturbed by us.
Besides, these were not sufficiently controverted by the petitioner.
WHEREFORE, the petition is DENIED; the assailed decision of the Court of Appeals is hereby AFFIRMED.
Costs against the petitioner.
This decision is IMMEDIATELY EXECUTORY.
Yap, C.J., Paras and Padilla, JJ., concur.
Separate Opinion
MELENCIO-HERRERA, J ., dissenting:
I am constrained to dissent.
It is my view that petitioner can not be held liable in damages for the loss and destruction of the scrap
iron. The loss of said cargo was due to an excepted cause - an "order or act of competent public authority"
(Article 1734[5], Civil Code). prcd
The loading of the scrap iron on the lighter had to be suspended because of Municipal Mayor Jose
Advincula's intervention, who was a "competent public authority." Petitioner had no control over the
situation as, in fact, Tumambing himself, the owner of the cargo, was impotent to stop the "act" of said
official and even suffered a gunshot wound on the occasion.
When loading was resumed, this time it was Acting Mayor Basilio Rub, accompanied by three policemen,
who ordered the dumping of the scrap iron into the sea right where the lighter was docked in three feet of
water. Again, could the captain of the lighter and his crew have defied said order?
Through the "order" or "act" of "competent public authority," therefore, the performance of a contractual
obligation was rendered impossible. The scrap iron that was dumped into the sea was "destroyed" while
the rest of the cargo was "seized." The seizure is evidenced by the receipt issued by Acting Mayor Rub
stating that the Municipality of Mariveles had taken custody of the scrap iron. Apparently, therefore, the
seizure and destruction of the goods was done under legal process or authority so that petitioner should be
freed from responsibility.
"Art. 1743.
If through order of public authority the goods are seized or destroyed, the common carrier is
not responsible, provided said public authority had power to issue the order."
Footnotes
1.
2.
3.
4.
5.
Presided by Judge Jesus P. Morfe.

Pascual, Chairman, ponente; Agrava and Climaco, concurring.
Decision, 9; Rollo 19.
Petitioner's Brief, 3, 7, 9; Rollo, 41.
Article 1736, Civil Code of the Philippines:
Art. 1736.
The extraordinary responsibility of the common carriers 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, without prejudice to the provisions of article 1738.
6.
Article 1735, supra.
Art. 1735.
In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as
required in Article 1733.
7.
Art. 1174, supra:
221 | P a g e
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.
8.
Article 361, Code of Commerce:
Art. 361.
The merchandise shall be transported at the risk and venture of the shipper, if
the contrary has not been expressly stipulated.
As a consequence, all the losses and deterioration which the goods may suffer during the
transportation by reason of fortuitous event, force majeure, or the inherent nature and defect of the goods,
shall be for the account and risk of the shipper.
Proof of these accidents is incumbent upon the carrier.
9.
Article 362, Code of Commerce:
Art. 362.
Nevertheless, the carrier shall be liable for the losses and damages resulting
from the causes mentioned in the preceding article if it is proved, as against him, that they arose through
his negligence or by reason of his having failed to take the precautions which usage has established
among careful persons, unless the shipper has committed fraud in the bill of lading, representing the
goods to be of a kind or quality different from what they really were.
If, notwithstanding the precautions referred to in this article, the goods transported run the
risk of being lost, on account of their nature or by reason of unavoidable accident, there being no time for
their owners to dispose of them, the carrier may proceed to sell them, placing them for this purpose at the
disposal of the judicial authority or of the officials designated by special provisions.
10.
No. 14191, September 29, 1919, 40 Phil. 219.
3.
Duration of Extraordinary Responsibility
Arts. 1736 to 1738

Art. 1736. The extraordinary responsibility 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, without prejudice to the provisions of Article 1738.
Art. 1737. The common carrier's duty to observe extraordinary diligence over the goods remains in full
force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner
has made use of the right of stoppage in transitu.
Art. 1738. The extraordinary liability of the common carrier continues to be operative even during the
time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has
been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or
otherwise dispose of them.
Compania Maritima v. Insurance Company, 12 SCRA 213

EN BANC
[G.R. No. L-18965. October 30, 1964.]
COMPAIA MARITIMA, petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent.
Rafael Dinglasan for petitioner.
Ozaeta, Gibbs & Ozaeta for respondent.
SYLLABUS
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1.
CONTRACT OF CARRIAGE; WHEN CONTRACT COMPLETED; LOADING OF CARGO ON CARRIER'S
BARGE PREPARATORY TO LOADING ON SHIP. Where the shipper delivered the cargo to the carrier and
the latter took possession thereof by placing it on a lighter or barge manned by its authorized employees,
it is held that there existed a complete contract of carriage the consummation of which had already begun.
2.
ID.; ID.; BILL OF LADING NOT INDISPENSABLE TO CONTRACT. A bill of lading is not indispensable
for the creation of a contract of carriage.
3.
ID.; CARRIER'S LIABILITY FOR DAMAGE TO CARGO; WHEN STORM DEEMED TO EXIST. Winds of 11
miles per hour, although stronger than the average 4.6 miles per hour then prevailing in the damage since
there was no contract of carriage between it and classified as a storm. For according to Beaufort's wind
scale, a storm has wind velocities of from 64 to 75 miles per hour; and by Philippine Weather Bureau
standards winds should have a velocity of from 55 to 74 miles per hour to be classified as a storm.
4.
ID.; ID.; IMPLIED ADMISSION BY CARRIER OF CHARGES IN WAIVING ITS RIGHT TO HAVE BOOKS OF
ACCOUNTS OF SHIPPER PRODUCED IN COURT. The act of the carrier in waiving its right to have the
books of account of the shipper presented in Court is tantamount to an admission that the statements
contained therein concerning the charges the latter made for the loss of the damaged cargo are correct
and their verification not necessary because its main defense was that it was not liable for the damage
since there was no contract of carriage between it and the shipper and the loss caused, if any, was due to
a fortuitous event.
5.
INSURANCE; RIGHT OF INSURER TO SUE CARRIER AS ASSIGNEE OF SHIPPER; DEFECT IN INSURANCE
POLICY ON DEFENSE. An insurance company can sue the carrier under its insurance contract as
assignee of the shipper, and the carrier cannot set up as a defense any defect in the insurance policy.
6.
ID.; ID.; WHEN PROOF OF PERSONALITY OF FOREIGN INSURANCE COMPANY NOT IMPORTANT. The
question of the personality of a foreign insurance company to sue in this jurisdiction becomes of no
importance where the carrier's attorney admitted in open court that it is a foreign insurance company
doing business in the Philippines with a personality to file the present action.
DECISION
Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the services
of the Compaia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the
former's Sasa private pier at Davao City to Manila and for their subsequent transshipment to Boston,
Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral contract was later on confirmed by a
formal and written booking issued by Macleod's branch office in Sasa and hand carried to Compaia
Maritima's branch office in Davao in compliance with which the latter sent to Macleod's private wharf LCT
Nos. 1023 and 1025 on which the loading of the hemp was completed on October 29, 1952. These two
lighters were manned each by a patron and an assistant patron. The patron of both barges issued the
corresponding carrier's receipts and that issued by the patron of Barge No. 1025 reads in part:
"Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF THE
PHILIPPINES, SASA, Davao, for transshipment at Manila onto S.S. Steel Navigator.
"FINAL DESTINATION: Boston"
Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the government's
marginal wharf in the same place to await the arrival of the S.S. Bowline Knot belonging to Compaia
Maritima on which the hemp was to be loaded. During the night of October 29, 1952, or at the early hours
of October 30, LCT No. 1025 sank resulting in the damage or loss of 1,162 bales of hemp loaded therein.
On October 30, 1952, Macleod promptly notified the carrier's main office in Manila and its branch in Davao
advising it of its liability. The damaged hemp was brought to Odell Plantation in Madaum, Davao, for
cleaning, washing, reconditioning, and redrying. During the period from November 1-15, 1952, the carrier's
trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned
hemp out of the original cargo of 1,162 bales weighing 2,324 piculs, which had a total of P116,835.00.
After reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of
P31,947.72. Adding to this last amount the sum of P8,863.30 representing Macleod's expenses in checking,
grading, rebaling, and other fees for washing, cleaning and redrying in the amount of P19,610.00, the total
loss adds up to P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025, were
insured with the Insurance Company of North America against all losses and damages. In due time,
223 | P a g e
Macleod filed a claim for the loss it suffered as above stated with said insurance company, and after the
same had been processed, the sum of P64,018.55 was paid, which was noted down in a document which,
aside from being a receipt of the amount paid, was a subrogation agreement between Macleod and the
insurance company wherein the former assigned to the latter its rights over the insured and damaged
cargo. Having failed to recover from the carrier the sum of P60,421.021, which is the only amount
supported by receipts, the insurance company instituted the present action on October 28, 1953.
After trial, the court a quo rendered judgment ordering the carrier to pay the insurance company the sum
of P60,421.02, with legal interest thereon from the date of the filing of the complaint until fully paid, and
the costs. This judgment was affirmed by the Court of Appeals on December 14, 1960. Hence, this petition
for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier and the shipper
even if the loss occurred when the hemp was loaded on a barge owned by the carrier which was loaned
free of charge and was not actually loaded on the S.S. Bowline Knot which would carry the hemp to Manila
and no bill of lading was issued therefor?; (2) Was the damage caused to the cargo or the sinking of the
barge where it was loaded due to a fortuitous event, storm or natural disaster that would exempt the
carrier from liability?; (3) Can respondent insurance company sue the carrier under its insurance contract
as assignee of Macleod in spite of the fact that the liability of the carrier as insurer is not recognized in this
jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an implied admission by the
carrier of the correctness and sufficiency of the shipper's statement of accounts contrary to the burden of
proof rule?; and (5) Can the insurance company maintain this suit without proof of its personality to do so?
1.
This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and
Company contracted by telephone the services of petitioner to ship the hemp in question from the former's
private pier at Sasa, Davao City, to Manila, to be subsequently transshipped to Boston, Massachusetts,
U.S.A., which oral contract was later confirmed by a formal and written booking issued by the shipper's
branch office, Davao City, in virtue of which the carrier sent two of its lighters to undertake the service. It
also appears that the patrons of said lighters were employees of the carrier with due authority to
undertake the transportation and to sign the documents that may be necessary therefor so much so that
the patron of LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein as follows:
"Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF THE
PHILIPPINES, Sasa, Davao, for transshipment at Manila onto S.S. Steel Navigator.
"FINAL DESTINATION: Boston."
The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa
preparatory to its loading unto the ship Bowline Knot does not in any way impair the contract of carriage
already entered into between the Carrier and the shipper, for that preparatory steps is but a part and
parcel of said contract of carriage. The lighters were merely employed as the first step of the voyage, but
once that step was taken and the hemp delivered to the carrier's employees, the rights and obligations of
the parties attached thereby subjecting them to the principles and usages of the maritime law. In other
words, here we have a complete contract of carriage the consummation of which has already begun: the
shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a
lighter manned by its authorized employees, under which Macleod became entitled to the privilege
secured to him by law for its safe transportation and delivery, and the carrier to the full payment of its
freight upon completion of the voyage.
"The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and
deliver, and if actually no goods are received there can be no contract. The liability and responsibility of
the carrier under a contract for the carriage of goods commence on their actual delivery to, or receipt by,
the carrier or an authorized agent. . . . and delivery to a lighter in charge of a vessel for shipment on the
vessel, where it is the custom to deliver in that way, is a good delivery and binds the vessel receiving the
freight, the liability commencing at the time of delivery to the lighter. . . and, similarly, where there is a
contract to carry goods from one port to another, and they cannot be loaded directly on the vessel, and
lighters are sent by the vessel to bring the goods to it, the lighters are for the time its substitutes, so that
the bill of lading is applicable to the goods as soon as they are placed on the lighters." (80 C.J.S., p. 901,
italics supplied)
". . . The test as to whether the relation of shipper and carrier had been established is, had the control and
possession of the cotton been completely surrendered by the shipper to the railroad company? Whenever
the control and possession of goods passes to the carrier and nothing remains to be done by the shipper,
then it can be said with certainty that the relation of shipper and carrier has been established. Railroad Co.
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vs. Murphy, 60 Ark. 333, 30 S. W. 419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. vs. MaKenzie, 75
Ark. 100, 86 S.W. 834; Mathews & Hood vs. St. L., I. M. & S. R. Co., 123 Ark. 365, 185 S. W. 461, L. R.A.
1916E, 1194." (W. F. Bogart & Co., et al. vs. Wade, et al., 200 S. W. 148).
The claim that there can be no contract of affreightment because the hemp was not actually loaded on the
ship that was to take it from Davao City to Manila is of no moment, for, as already stated, the delivery of
the hemp to the carrier's lighter is in line with the contract. In fact, the receipt signed by the patron of the
lighter that carried the hemp stated that he was receiving the cargo "in behalf of S.S. Bowline Knot in good
order and condition. On the other hand, the authorities are to the effect that a bill of lading is not
indispensable for the creation of a contract of carriage.
"Bill of lading not indispensable to contract of carriage. As to issuance of a bill of lading, although
Article, 350 of the Code of Commerce provides that 'the shipper as well as the carrier of merchandise of
goods may mutually demand that a bill of lading be made,' still, said bill of lading is not indispensable. 'As
regards the form of the contract of carriage it can be said that provided that there is a meeting of the
minds and from such meeting arise rights and obligations, there should be no limitations as to form.' The
bill of lading is not essential to the contract, although it may become obligatory by reason of the
regulations of railroad companies, or as a condition imposed in the contract by the agreement of the
parties themselves. The bill of lading is juridically a documentary proof of the stipulations and conditions
agreed upon by both parties. (Del Viso p. 314-315; Robles vs. Santos, 44 O.G., 2268). In other words, the
Code does not demand, as necessary requisite in the contract of transportation, the delivery of the bill of
lading to the shipper, but gives right to both the carrier and the shipper to mutually demand of each other
the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895)." (Martin, Philippine Commercial Laws, Vol. II,
Revised Edition, pp. 12-13)
"The liability of the carrier as common carrier begins with the actual delivery of the goods for
transportation, and not merely with the formal execution of a receipt or bill of lading; the issuance of a bill
of lading is not necessary to complete delivery and acceptance. Even where it is provided by statute that
liability commences with the issuance of the bill of lading, actual delivery and acceptance are sufficient to
bind the carrier." (13 C.J.S., p. 288)
2.
Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind the
claim of force majeure or storm which occurred on the night of October 29, 1952. But the evidence fails to
bear this out. Rather, it shows that the mishap that caused the damage or loss was due, not to force
majeure, but to lack of adequate precaution or measures taken by the carrier to prevent the loss as may
be inferred from the following findings of the Court of Appeals:
"Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had cracks on its
bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in the same manner as rain entered
'thru tank manholes,' according to the patron of LCT No. 1023 (exh. JJJ-4) conclusively showing that the
barge was not seaworthy it should be noted that on the night of the nautical accident there was no
storm, flood, or other natural disaster or calamity. Certainly, winds of 11 miles per hour, although stronger
than the average 4.6 miles per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot be
classified as storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to 75
miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of from 55 to 74
miles per hour in order to be classified as a storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore
Transportation Co., CA-G. R. No. 23167-R. March 12, 1959)."
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors, attributes the
sinking of LCT No. 1025 to the non-watertight conditions of various buoyancy compartments' (exh. JJJ); and
this report finds confirmation on the above mentioned admission of two witnesses for appellant concerning
the cracks of the lighter's bottom and the entrance of the rain water 'thru manholes.'" We are not prepared
to dispute this finding of the Court of Appeals.
3.
There can also be no doubt that the insurance company can recover from the carrier as assignee of
the owner of the cargo for the insurance amount it paid to the latter under the insurance contract. And this
is so because since the Cargo that was damaged was insured with respondent company and the latter paid
the amount represented by the loss, it is but fair that it be given the right to recover from the party
responsible for the loss. The instant case, therefore, is not one between the insured and the insurer, but
one between the shipper and the carrier, because the insurance company merely stepped into the shoes
of the shipper. And since the shipper has a direct cause of action against the carrier on account of the
damage of the cargo, no valid reason is seen why such action cannot be asserted or availed of by the
insurance company as a subrogee of the shipper. Nor can the carrier set up as a defense any defect in the
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insurance policy not only because it is not a privy to it but also because it cannot avoid its liability to the
shipper under the contract of carriage which binds it to pay any loss that may be caused to the cargo
involved therein. Thus, we find fitting the following comments of the Court of Appeals:
"It was not imperative and necessary for the trial court to pass upon the question of whether or not the
disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-134 issued by appellee. Appellant
was neither a party nor privy to this insurance contract, and therefore cannot avail itself of any defect in
the policy which may constitute a valid reason for appellee, as the insurer, to reject the claim of Macleod,
as the insured. Anyway whatever defect the policy contained, if any, is deemed to have been waived by
the subsequent payment of Macleod's claim by appellee. Besides, appellant is herein sued in its capacity
as a common carrier, and appellee is suing as the assignee of the shipper pursuant to Exhibit M. Since, as
above demonstrated, appellant is liable to Macleod and Company of the Philippines for the loss of or
damage to the 1,162 bales of hemp after these were received in good order and condition by the patron of
appellant's LCT No. 1025, it necessarily follows that appellant is likewise liable to appellee who, as
assignee of Macleod, merely stepped into the shoes of and substituted the latter in demanding from
appellant the payment for the loss and damage aforecited."
4.
It should be recalled in connection with this issue that during the trial of this case the carrier asked
the lower court to order the production of the books of accounts of the Odell Plantation containing the
charges it made for the loss of the damaged hemp for verification of its accountants, but later it desisted
therefrom on the claim that it finds their production no longer necessary. This desistance notwithstanding,
the shipper however presented other documents to prove the damage it suffered in connection with the
cargo and on the strength thereof the court a quo ordered the carrier to pay the sum of P60,421.02. And
having the Court of Appeals affirmed this award upon the theory that the desistance of the carrier from
producing the books of accounts of Odell Plantation implies an admission of the correctness of the
statements of accounts contained therein, petitioner now contends that the Court of Appeals erred in
basing the affirmance of the award on such erroneous interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books of accounts of
Odell Plantation presented in Court is tantamount to an admission that the statements contained therein
are correct and their verification not necessary because its main defense here, as well as below, was that it
is not liable for the loss because there was no contract of carriage between it and the shipper and the loss
caused, if any, was due to a fortuitous event. Hence, under the carrier's theory, the correctness of the
account representing the loss was not so material as would necessitate the presentation of the books in
question. At any rate, even if the books of accounts were not produced, the correctness of the accounts
cannot now be disputed for the same is supported by the original documents on which the entries in said
books were based which were presented by the shipper as part of its evidence. And according to the Court
of Appeals, these documents alone sufficiently establish the award of P60,421.02 made in favor of
respondent.
5.
Finally, with regard to the question concerning the personality of the insurance company to
maintain this action, we find the same of no importance, for the attorney himself of the carrier admitted in
open court that it is a foreign corporation doing business in the Philippines with a personality to file the
present action.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.
Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P. and
Zaldivar, JJ., concur.
Lu Do v. Binamira, 101 Phil, 243
EN BANC
[G.R. No. L-9840. April 22, 1957.]
LU DO & LU YM CORPORATION, petitioner-defendant, vs. I. V. BINAMIRA, respondent-plaintiff .
Ross, Selph, Carrascoso & Janda for petitioner.
I. V. Binamira in his own behalf.
SYLLABUS
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1.
CONTRACT OF CARRIAGE; LIABILITY OF CARRIERS WHILE THE GOODS ARE IN THE CUSTODY OF
CUSTOMS AUTHORITIES. While delivery of the cargo to the customs authorities is not delivery to the
consignee, or "to the person who has a right to receive them" contemplated in Article 1736 of the New
Civil Code, because in such case the goods are still in the hands of the Government and the owner cannot
exercise dominion over them, however the parties may agree to limit the liability of the carrier considering
that the goods have still to go through the inspection of the customs authorities before they are actually
turned over to the consignee. This is a situation where the carrier loses control of the goods because of a
custom regulation and it is unfair that it be made responsible for any loss or damage that may be caused
to the goods during the interregnum.
DECISION
On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu against defendant to recover
the sum of P324.63 as value of certain missing shipment, P150 as actual and compensatory damages, and
P600 as moral and pecuniary damages. After trial, the court rendered judgment ordering defendant to pay
plaintiff the sum of P216.84, with legal interest. On appeal, the Court of Appeals affirmed the judgment,
hence the present petition for review.
On August 10, 1951, the Delta Photo Supply Company of New York shipped on board the M/S "FERNSIDE"
at New York, U.S.A., six cases of films and/or photographic supplies consigned to the order of respondent I.
V. Binamira. For this shipment, Bill of Lading No. 29 was issued. The ship arrived at the port of Cebu on
September 23, 1951 and discharged her cargo on September 23 and 24, 1951, including the shipment in
question, placing it in the possession and custody of the arrastre operator of said port, the Visayan Cebu
Terminal Company, Inc.
Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to unload its cargo. During
the discharge, good order cargo was separated from the bad order cargo on board the ship, and a separate
list of bad order cargo was prepared by Pascual Villamor, checker of the stevedoring company. All the cargo
unloaded was received at the pier by the Visayan Cebu Terminal Company, Inc., arrastre operator of the
port. This terminal company had also its own checker, Romeo Quijano, who also recorded and noted down
the good cargo from the bad one. The shipment in question was not included in the report of bad order
cargo of both checkers, indicating that it was discharged from the ship in good order and condition.
On September 26, 1951, three days after the goods were unloaded from the ship, respondent took delivery
of his six cases of photographic supplies from the arrastre operator. He discovered that the cases showed
signs of pilferage and, consequently, he hired marine surveyors, R. J. del Pan & Company, Inc. to examine
them. The surveyors examined the cases and made a physical count of their contents in the presence of
representatives of petitioner, respondent and the stevedoring company. The finding of the surveyors
showed that some films and photographic supplies were missing valued at P324.63.
It appears from the evidence that the six cases of films and photographic supplies were discharged from
the ship at the port of Cebu by the stevedoring company hired by petitioner as agent of the carrier. All the
unloaded cargo, including the shipment in question, was received by the Visayan Cebu Terminal Company,
Inc., the arrastre operator appointed by the Bureau of Customs. It also appears that during the discharge,
the cargo was checked both by the stevedoring company hired by petitioner as well as by the arrastre
operator of the port, and the shipment in question, when discharged from the ship, was found to be in
good order and condition. But after it was delivered to respondent three days later, the same was
examined by a marine surveyor who found that some films and supplies were missing valued at P324.63.
The question now to be determined is: Is the carrier responsible for the loss considering that the same
occurred after the shipment was discharged from the ship and placed in the possession and custody of the
customs authorities?
The Court of Appeals found for the affirmative, making on this point the following comment:
"In this jurisdiction, a common carrier has the legal duty to deliver goods to a consignee in the same
condition in which it received them. Except where the loss, destruction or deterioration of the merchandise
was due to any of the cases enumerated in Article 1734 of the new Civil Code, a carrier is presumed to
have been at fault and to have acted negligently, unless it could prove that it observed extraordinary
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diligence in the care and handling of the goods (Article 1735, supra). Such presumption and the liability of
the carrier attach until the goods are delivered actually or constructively, to the consignee, or to the
person who has a right to receive them (Article 1736, supra), and we believe delivery to the customs
authorities is not the delivery contemplated by Article 1736, supra, in connection with the second
paragraph of Article 1498, supra, because, in such a case, the goods are then still in the hands of the
Government and their owner could not exercise dominion whatever over them until the duties are paid. In
the case at bar, the presumption against the carrier, represented by appellant as its agent, has not been
successfully rebutted."
It is now contended that the Court of Appeals erred in its finding not only because it made a wrong
interpretation of the law on the matter, but also because it ignored the provisions of the bill of lading
covering the shipment wherein it was stipulated that the responsibility of the carrier is limited only to
losses that may occur while the cargo is still under its custody and control.
We believe this contention is well taken. It is true that, as a rule, a common carrier is responsible for the
loss, destruction or deterioration of the goods it assumes to carry from one place to another unless the
same is due to any of the causes mentioned in Article 1734 of the new Civil Code, and that, if the goods
are lost, destroyed or deteriorated, for causes other than those mentioned, the common carrier is
presumed to have been at fault or to have acted negligently, unless it proves that it has observed
extraordinary diligence in their care (Article 1735, Idem.), and that this extraordinary liability lasts from the
time the goods are placed in the possession of the carrier until they are delivered to the consignee, or "to
the person who has the right to receive them" (Article 1736, Idem.), but these provisions only apply when
the loss, destruction or deterioration takes place while the goods are in the possession of the carrier, and
not after it has lost control of them. The reason is obvious. While the goods are in its possession, it is but
fair that it exercise extraordinary diligence in protecting them from damage, and if loss occurs, the law
presumes that it was due to its fault or negligence. This is necessary to protect the interest of the owner
who is at its mercy. The situation changes after the goods are delivered to the consignee.
While we agree with the Court of Appeals that while delivery of the cargo to the customs authorities is not
delivery to the consignee, or "to the person who has a right to receive them", contemplated in Article
1736, because in such case the goods are still in the hands of the Government and the owner cannot
exercise dominion over them, we believe however that the parties may agree to limit the liability of the
carrier considering that the goods have still to go through the inspection of the customs authorities before
they are actually turned over to the consignee. This is a situation where we may say that the carrier loses
control of the goods because of a custom regulation and it is unfair that it be made responsible for what
may happen during the interregnum. And this is precisely what was done by the parties herein. In the bill
of lading that was issued covering the shipment in question, both the carrier and the consignee have
stipulated to limit the responsibility of the carrier for the loss or damage that may be caused to the goods
before they are actually delivered by inserting therein the following provisions:
1.
". . . The Carrier shall not be liable in any capacity whatsoever for any delay, nondelivery or
misdelivery, or loss of or damage to the goods occurring while the goods are not in the actual custody of
the Carrier. . . . (Italics ours.)
(Paragraph 1, Exhibit "1")
2.
". . . The responsibility of the Carrier in any capacity shall altogether cease and the goods shall be
considered to be delivered and at their own risk and expense in every respect when taken into the custody
of customs or other authorities. The Carrier shall not be required to give any notification of disposition of
the goods . . ."(Italics ours.)
3.
"Any provisions herein to the contrary notwithstanding, goods may be . . . delivered by Carrier at
ship's tackle . . . and delivery beyond ship's tackle shall be entirely at the option of the Carrier and solely at
the expense of the shipper or consignee."
It therefore appears clear that the carrier does not assume liability for any loss or damage to the goods
once they have been "taken into the custody of customs or other authorities", or when they have been
delivered at ship's tackle. These stipulations are clear. They have been adopted precisely to mitigate the
responsibility of the carrier considering the present law on the matter, and we find nothing therein that is
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contrary to morals or public policy that may justify their nullification. We are therefore persuaded to
conclude that the carrier is not responsible for the loss in question, it appearing that the same happened
after the shipment had been delivered to the customs authorities.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.
Bengzon, Padilla, Montemayor, Reyes, A., Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ.,
concur.
APL v. Klepper, 110 Phil. 243
FIRST DIVISION
[G.R. No. L-15671. November 29, 1960.]
AMERICAN PRESIDENT LINES, LTD., petitioner, vs. RICHARD A. KLEPPER, ET AL., respondents.
Ross, Selph & Carrascoso for petitioner.
Ozaeta, Gibbs & Ozaeta for respondent.
J. A. Wolfson as amicus curiae.
SYLLABUS
1.
COMMON CARRIERS; NATURE AND EXTENT OF RESPONSIBILITY. The responsibility of a common
carrier is extraordinary and lasts from the time the goods are placed in its possession until they are
delivered, actually or constructively, to the consignee or to the person who has a right to receive them. It
can only be exempt therefrom for causes enumerated in Article 1734 of the New Civil Code.
2.
ID.; BILL OF LADING; WHEN BINDING UPON CONSIGNEE ALTHOUGH NOT SIGNED BY HIM OR BY HIS
AGENT. Where the bill of lading provides that a shipper or consignee who accepts the bill becomes
bound by all the stipulations contained therein, the said shipper or consignee cannot elude its provisions
simply because they prejudice him and take advantage of those that are beneficial to him. In the case at
bar, the fact that the shipper and consignee paid the corresponding freight on his goods, shows that he
impliedly accepted the bill of lading which was issued in connection with his shipment. Hence, the same is
binding upon him as if it had been actually signed by him or by any person in his behalf.
3.
ID.; ID PROVISION IN CARRIAGE OF GOODS BY SEA ACT LIMITING CARRIER'S LIABILITY TO $500.00.
Article 1753 of the Civil Code provides that the law of the country to which the goods are to be
transported shall govern the liability of the common carrier in case of loss, destruction or deterioration.
This means the law of the Philippines, or the Civil Code. Under Article 1766, "In all matters not regulated by
this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and
by special laws," and in the Civil Code there are provisions that govern said rights and obligations (Articles
1736, 1737 and 1738). Therefore, although Section 4 (5) of the Carriage of Goods by Sea Act states that
the carrier shall not be liable in an amount exceeding $500.00 per package unless the value of the goods
had been declared by the shipper and inserted in the bill of lading, said section is merely suppletory to the
provisions of the Civil Code.
DECISION
Richard A. Klepper brought this action before the Court of First Instance of Manila to recover the sum of
P6,729.50 as damages allegedly sustained by his goods contained in a lift van which fell to the ground
while being unloaded from a ship owned and operated by the American President Lines, Ltd. to the pier,
plus the sum of P2,000.00 as sentimental value of the damaged goods and attorney's fees.
It appears that on February 17, 1955, Klepper shipped on board the S.S. President Cleveland at Yokohama,
Japan one life van under bill of lading No, 82, containing personal and household effects. The ship arrived
in the port of Manila on February 22, 1995 and while the lift van was being unloaded by the Gantry crane
operated by Delgado Brothers, Inc., it fell on the pier and its contents were spilled and scattered. A survey
was made and the result was that Klepper suffered damages totalling P6,729.50 arising out of the
breakage, denting and smashing of the goods.
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The trial court, on November 5, 1957, rendered decision ordering the shipping company to pay plaintiff the
sum of P6,729.50, value of the goods damaged, plus P500.00 as their sentimental value, with legal interest
from the filing of the complaint, and the sum of P1,000.00 as attorney's fees. The court ordered that, once
the judgment is satisfied, co-defendant Delgado Brothers, Inc. should pay the shipping company the same
amounts by way of reimbursement. Both defendants appealed to the Court of Appeals which affirmed in
toto the decision of the trial court. The shipping company interposed the present petition for review.
Anent the liability of petitioner relative to the damage caused to the goods in question, the Court of
Appeals made the following comment: "At the outset, it may be well to state that the party primarily liable
to plaintiff is appellant American President Lines, Ltd., the carrier whose duty it was to deliver the cargo in
good order to the consignee. Articles 1734, 1736, Civil code; Articles 355, 363, Code of Commerce. This
appellant does not question the finding below that the damage to plaintiff's goods was due to negligence."
To this we agree. And we may add that, regardless of its negligence, the shipping company's liability would
attach because being a common carrier its responsibility is extraordinary and lasts from the time the goods
are placed in its possession until they are delivered, actually or constructively, to the consignee or to the
person who has a right to receive them (Article 1736, Idem.) It can only be exempt therefrom for causes
enumerated in Article 1734.
But, while petitioner does not dispute its liability as common carrier, it however contends that the same
cannot exceed $500.00 invoking in its favor the bill of lading Exhibit A and Section 4(5) of the Carriage of
Goods by Sea Act (Commonwealth Act No. 65).
The pertinent provision of the bill of lading alluded to is clause 17 which in part provides:
"17.
In case of any loss or damage to or in connection with goods exceeding in actual value $500 lawful
money of the United States, per package, . . . the value of the goods shall be deemed to be $500 per
package . . . on which basis the freight is adjusted and the Carrier's liability, if any, shall be determined on
the basis of a value of $500 per package . . . or pro rata in case of partial loss or damage, unless the
nature of the goods and a valuation higher than $500 shall have been declared in writing by the shipper
upon delivery to the Carrier and inserted in this bill of lading and extra freight paid if required and in such
case if the actual value of the goods per package . . . shall exceed such declared value, the value shall
nevertheless be deemed to be the declared value and the Carrier's liability, if any, shall not exceed the
declared value and any partial loss or damage shall be adjusted pro rata on the basis of such declared
value."
While it is apparent from the above that the carrier has expressly agreed that in case of any loss or
damage to the goods in question exceeding the sum of $500.00 per package the extent of its liability shall
be deemed to be merely $500.00 per package, and not more, the Court of Appeals ruled out the above
stipulation, holding that the same is not binding upon the shipper. Its reasoning follows: "Neither plaintiff
nor any agent of his signed the bill of lading; neither has agreed to the two clauses just recited. In fact,
plaintiff received the bill of lading only after he had arrived at Manila. In this posture and lifting from the
decision of the Supreme Court in Mirasol vs. Robert Dollar Co., 53 Phil., 124, 128, we hold that plaintiff 'was
not legally bound by the clause which purports to limit defendants' liability'". Petitioner now assigns this
finding as an error.
We are inclined to agree to this contention. Firstly, we cannot but take note of the following clause printed
in red ink that appears on the very face of the bill of lading: "IN ACCEPTING THIS BILL OF LADING the
shipper, consignee and owner of the goods agree to be bound by all its stipulations, exceptions, and
conditions whether written, printed, or stamped on the front or back hereof, any local customs or privileges
to the contrary notwithstanding." This clause is very revealing. It says that a shipper or consignee who
accepts the bill of lading becomes bound by all stipulations contained therein whether on the front or back
thereof. Respondent cannot elude its provisions simply because they prejudice him and take advantage of
those that are beneficial. Secondly, the fact that respondent shipped his goods on board the ship of
petitioner and paid the corresponding freight thereon shows that he impliedly accepted the bill of lading
which was issued in connection with the shipment in question, and so it may be said that the same is
binding upon him as if it has been actually signed by him or by any other person in his behalf. This is more
so where respondent is both the shipper and the consignee of the goods in question. These circumstances
take this case out of our ruling in the Mirasol case (invoked by the Court of Appeals) and places it within
our doctrine in the case of Mendoza vs. Philippines Air Lines, Inc., (90 Phil., 836), where we said:
230 | P a g e
". . . Later, as already said, he says that he was never a party to the contract of transportation and was a
complete stranger to it, and that he is now suing on a tort or a violation of his rights as a stranger (culpa
aquiliana). If he does not invoke the contract of carriage entered into with the defendant company, then he
would hardly have any leg to stand on. His right to prompt delivery of the can of film at the Pili Air Port
stems and is derived from the contract of carriage under which contract, the PAL undertook to carry the
can of film safely and to deliver it to him promptly. Take away or ignore that contract and the obligation to
carry and to deliver the right to prompt delivery disappear. Common carriers are not obligated by law to
carry and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless
such common carriers previously assume the obligation. Said rights and obligations are created by a
specific contract entered into by the parties.
xxx
xxx
xxx
"Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the
stipulations of delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at
the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery in his favor
contained in the contract of carriage, such demand being one for the fulfillment of the contract of carriage
and delivery. In this case he also made himself a party to the contract, or at least has come to court to
enforce it. His cause of action must necessarily be founded on its breach."
With regard to the contention that the Carriage of Goods by Sea Act should also control this case, the same
is of no moment. Article 1753 1 provides that the law of the country to which the goods are to be
transported shall govern the liability of the common carrier in case of loss, destruction or deterioration.
This means the law of the Philippines, or our new Civil Code. Under Article 1766, "In all matters not
regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of
Commerce and by special laws," and here we have provisions that govern said rights and obligations
(Articles 1736, 1737, and 1738). Therefore, although Section 4(5) of the Carriage of Goods by Sea Act
states that the carrier shall not be liable in an amount exceeding $500.00 per package unless the value of
the goods had been declared by the shipper and inserted in the bill of lading, said section is merely
suppletory to the provisions of the Civil Code. In this respect, we agree to the opinion of the Court of
Appeals.
On the strength of the opinion we have above expressed, we are constrained to rule that the liability of the
carrier with regard to the damage of the goods should only be limited to $500.00 contrary to the
conclusion reached by the Court of Appeals.
Wherefore, with the modification that petitioner shipping company should only pay to respondent the sum
of $500.00 as value of the goods damaged, the decision appealed from should be affirmed in all other
respects, without pronouncement as to costs.
Paras, C.J., Bengzon, Padilla, Labrador, Barrera, Gutierrez David, Paredes and Dizon, JJ., concur.
Separate Opinions
REYES, J. B. L., J., concurring.
I concur specifically in view of the difference in requisites between Article 1744 and Article 1749 of the Civil
Code of the Philippines.
Footnotes
1.
New Civil Code.
Eastern Shipping v. CA, 234 SCRA 79
EN BANC
[G.R. No. 97412. July 12, 1994.]
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE
INSURANCE COMPANY, INC., respondents.
231 | P a g e
SYLLABUS
1.
CIVIL LAW; COMMON CARRIERS; TIME FRAME WITHIN WHICH DILIGENCE REQUIRED IN SHIPMENT OF
GOODS LAST. The common carrier's duty to observe the requisite diligence in the shipment of goods
lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their
acceptance, by the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of
Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
2.
ID.; ID.; ID.; PRESUMPTION OF CARRIER'S FAULT ON LOST OR DAMAGED GOODS SHIPPED; CASE AT
BAR NOT AN EXCEPTION. When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and there need not be an
express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court
of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course,
exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article
1734 of the Civil Code, are exclusive, not one of which can be applied to this case.
3.
ID.; DAMAGES; INTEREST AWARDED AS A CONCEPT THEREOF; RATE AND ACCRUAL THEREOF, HOW
DETERMINED. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When
the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When a
obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date of the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount of finally adjudged. 3. When
the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
DECISION
VITUG, J p:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre
operator and the customs broker; (b) whether the payment of legal interest on an award of loss or damage
is to be computed from the time the complaint is filed or from the date the decision appealed from is
rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%). llcd
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts
that have led to the controversy are hereunder reproduced:
"This is an action against defendants shipping company, arrastre operator and broker-forwarded for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the
consignee the value of such losses/damages.
"On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel `SS EASTERN COMET' owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8
(Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
232 | P a g e
"Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Services, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.
"On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro
Port Service, Inc., one drum opened and without seal (per 'Request for Bad Order Survey.' (Exh. D).
"On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to
the consignees' warehouse. The latter excepted to one drum which contained spillages, while the rest of
the contents was adulterated/fake (per 'Bad Order Waybill' No. 10649, Exh. E).
"Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against
defendants who failed and refused to pay the same (Exhs. H, I, J, K, L). Cdpr
"As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under
the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said
consignee against defendants (per 'Form of Subrogation,' 'Release' and Philbanking check, Exhs. M, N, and
O)." (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
"Defendants filed their respective answers, traversing the material allegations of the complaint contending
that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the
vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was
incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport
averred that although subject shipment was discharged unto its custody, portion of the same was already
in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not
having negligent or at fault for the shipment was already in damage and bad order condition when
received by it, but nonetheless, it still exercised extra ordinary care and diligence in he handling/delivery of
the cargo to consignee in the same condition shipment was received by it.
"From the evidence that court found the following:
"'The issues are:
'1.
Whether or not the shipment sustained losses/damages;
'2.
Whether or not these losses/damages were sustained while in the custody of defendants (in whose
respective custody, if determinable); prLL
'3.
Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial
Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).'
'As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad
order.
'Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the
respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator
(Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report
(Exh. G), with its 'Additional Survey Notes,' are considered. In the latter notes, it is stated that when the
shipment was 'landed on vessel' to dock of Pier # 15, South Harbor, Manila on December 12, 1981,' it was
observed that 'one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad order
Tally Sheet No. 86427.' The report further states that when defendant Allied Brokerage withdrew the
shipment, from defendant arrastre operator's custody on January 7, 1982, one drum was found opened
without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report
went on to state that when the drums reached the consignee, one drum was found with adulterated/faked
contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the
consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the
common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and
effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at
the place of destination, until the consignee has been advised and has had reasonable opportunity to
remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the 'Turn-Over
Survey of Bad Order Cargoes' (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found
'open.'
"and thus held:
233 | P a g e
'WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A.
Ordering defendants to pay plaintiff, jointly and severally:
1.
The amount of P19,032.95 with the present legal interest of 12% per annum from October 1, 1982,
the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall
not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate
box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management
Contract); LexLib
2.
P3,000.00 as attorney's fees, and
3.
Costs.
B.
Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage
Corporation.
SO ORDERED.' (p. 207, Record).
"Dissatisfied, defendant's recourse to US.
"The appeal is devoid of merit.
"After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct.
As there is sufficient evidence that the shipment sustained damage while in the successive possession of
appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the
consignee." (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of
discretion on the part of the appellate court when
I.
IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND
CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;
II.
IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF
SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that
novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to. Cdpr
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time
the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier
for transportation until delivered to, or until the lapse of a reasonable time for their acceptance, by the
person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646;
Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and
there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine
National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA
365). There are, of course, exceptional cases when such presumption of fault is not observed but these
cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to
this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained in holding the carrier and the
arrastre operator liable in solidum, thus: Cdpr
"The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee
and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc.
v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the
goods that are in its custody and to deliver them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the
obligation to deliver the goods in goods condition to the consignee."
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
234 | P a g e
Eastern Shipping Lines which, being the carrier and not having been able to rebut the presumption of fault,
is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the
appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage
while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the
liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of
whether there are others solidarily liable with it. llcd
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing
remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, 2 decided 3 on 15 May 1969,
involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case,
appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount
of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was
neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by
the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment
ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee
Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed
on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal
interest. In sustaining the appellants, this Court ruled:
"Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate.
Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted
for judicial demand as the starting point.
"But then upon the provisions of Article 2213 of the Civil Code, interest 'cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable certainty.'
And as was held by this Court in Rivera vs. Perez 4 , L-6998, February 29, 1956, if the suit were for
damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts
after proof (Montilla c. Corporacion de P. P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil. 302),'
then, interest 'should be from the date of the decision.'" (Emphasis supplied). Cdpr
The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury
to Person and Loss of Property." After trial, the lower court decreed:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:
"Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally
the following persons:
"(a)
...
"xxx
xxx
xxx
"(g)
Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of
the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is
the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly
loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already
the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until
paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs."
(Emphasis supplied.)
On appeal of the Court of Appeals, the latter modified the amount of damages awarded but sustained the
trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate
court's decision became final, the case was remanded to the lower court for execution, and this was when
the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article
2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank
Circular No. 416, providing thus Cdpr
"By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express
contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect
immediately." (Emphasis found in the text)
should have, instead, been applied. This Court 6 ruled:
235 | P a g e
"The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any
money, goods or credits. any other kind of monetary judgment which has nothing to do with, nor involving
loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it
is not within the ambit of the authority granted to the Central Bank.
"xxx
xxx
xxx
"Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for
Damages for injury to persons and loss of property and does not involve any loan, much less forbearances
of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the
said case is Article 2209 of the New Civil Code which reads
'ARTICLE 2209.
If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.'"
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986.
The case was for damages occasioned by an injury to person and loss of property. The trial court awarded
private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with
legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol
case, this Court 8 modified the interest award from 12% to 6% interest per annum but sustained the time
computation thereof, i.e., from the filing of the complaint until fully paid. Cdpr
In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising
from the collapse of a building, ordered inter alia, the "defendant United Construction Co., Inc. (one of the
petitioners) . . . to pay the plaintiff, . . ., the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the
modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's
decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus:
"WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta)
a solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar Association of FIVE
MILLION (P5,000,000.00) Pesos to cover all damages (with the exception of attorney's fees) occasioned by
the loss of the building and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such
finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from
finality until paid. Solidary costs against the defendant and third-party defendants (except Roman
Ozaeta)." (Emphasis supplied).
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve
(12%) per cent per annum imposed on the total amount of the monetary award was in contravention of
law." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in
its resolution of 15 April 1988, it explained: LLphil
"There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 .
. . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate
allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any
money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance,
but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the
finality of the judgment. It is delay in the payment of such final judgment, that will cause the imposition of
the interest.
"It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum,
from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly,
they are not applicable to the instant case." (Emphasis supplied)
The subsequent case of American Express International, Inc., vs. International Appellate Court 11 was a
petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate
Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount
of damages awarded by the trial court, i.e., P2,000,000,00 as moral damages and P400,000.00 as
exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In
236 | P a g e
a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to
recover damages, held the award, however, for moral damages by the trial court, later sustained by the
IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court and rendered
a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand
(P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality
of this decision until paid." (Emphasis supplied). Cdpr
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a
breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the
trial court moral and exemplary damages without, however, providing any legal interest thereon. When the
decision was appealed to the Court of Appeals, the latter held:
"WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31,
1972 is affirmed in all respects, with the modification that defendants-appellants, except defendantappellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive
portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest
at the legal rate from the date of the filing of the complaint until fully paid." (Emphasis supplied)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial court,
and an entry of judgment was made. The writ of execution issued by the trial court directed that only
compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint.
Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said
order. This court said:
". . ., it is to be noted that the Court of Appeals ordered the payment of interest 'at the legal rate' from the
time of the filing of the complaint. . . . Said circular [Central Bank Circular No. 416] does not apply to
actions based on a breach of employment contract like the case at bar." (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the time
the complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs.
Angas, 14 decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting
a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private
respondents certain sums of money as just compensation for their lands so expropriated "with legal
interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil
Code, the Court 15 declared: LLpr
". . ., (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation
regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages.
The legal interest required to be paid on the amount of just compensation for the properties expropriated
is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since
the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is
interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall
apply."
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be
classified into two groups according to the similarity of the issues involved and the corresponding rulings
rendered by the court. The " first group" would consist of the cases of Reformina v. Tomol (1985), Philippine
Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In
the "second group" would be Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons v.
Court of Appeals (1988), and American Express International v. Intermediate Appellate Court (1988). LLpr
In the " first group," the basic issue focus on the application of either the 6% (under the Civil Code) or 12%
(under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has
been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only
to loans or forbearance 16 of money, goods or credits, as well as to judgments involving such loan or
forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the
transaction involves the payment of indemnities in the concept of damage arising from the breach of a
delay in the performance of obligations in general. Observe, too, that in these cases, a common time
frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint
is filed until the adjudged amount is fully paid.
The "second group," did not alter the pronounced rule on the application of the 6% or 12% interest per
annum, 17 depending on whether or not the amount involved is a loan or forbearance, on the one hand, or
237 | P a g e
one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained
consistent in holding that the running of the legal interest should be from the time of the filing of the
complaint until fully paid, the "second group" varied on the commencement of the running of the legal
interest. cdll
Malayan held that the amount awarded should bear legal interest from the date of the decision of the court
a quo, explaining that "if the suit were for damages, 'unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of
the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the
6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and
Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the
judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different
applications, guided by the rule that the courts are vested with discretion, depending on the equities of
each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future guidance.
I.
When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20
II.
With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: LibLex
1.
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing. 21
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil
Code.
2.
When a obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per
annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date of the
judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount of finally adjudged. LLjur
3.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION
that the legal interest to be paid is SIX PERCENT(6%) on the amount due computed from the decision,
dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT
(6%), shall be imposed on such amount upon finality of this decision until the payment thereof.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno
and Kapunan, JJ., concur.
Mendoza, J., took no part.
Footnotes
1.
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
(1)
(2)
238 | P a g e
(3)
(4)
(5)
2.
28 SCRA 65.
3.
Penned by Justice Conrado Sanchez, concurred in by Justices Jose B.L. Reyes, Arsenio Dizon,
Querube Makalintal, Calixto Zaldivar, Enrique Fernando, Francisco Capistrano, Claudio Teehankee and
Antonio Barredo, Chief Justice Roberto Concepcion and Justice Fred Ruiz Castro were on official leave.
4.
The correct caption of the case is "Claro Rivera vs. Amadeo Matute, L-6998, 29 February 1956," 98
Phil., 516.
5.
139 SCRA 260, 265.
6.
Penned by Justice Serafin Cuevas, concurred in by Justices Hermogenes Concepcion, Jr., Vicente
Abad Santos, Ameurfina Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo Gutierrez, Jr.,
Buenaventura de la Fuente, Nestor Alampay and Lino Patajo. Justice Ramon Aquino concurred in the result.
Justice Efren Plana filed a concurring and dissenting opinion, concurred in by Justice Claudio Teehankee
while Chief Justice Felix Makasiar concurred with the separate opinion of Justice Plana.
7.
143 SCRA 158.
8.
Penned by then Justice, now Chief Justice, Andres Narvasa, concurred in by Justices Pedro Yap,
Ameurfina Melencio-Herrera, Isagani A. Cruz and Edgardo Paras.
9.
160 SCRA 334.
10.
Penned by Justice Edgardo Paras, with the concurrence of Justices Marcelo Fernan, Teodoro Padilla,
Abdulwahid Bidin, and Irene Cortes. Justice Hugo Gutierrez, Jr., took no part because he was the ponente in
the Court of Appeals.
11.
167 SCRA 209.
12.
Rendered per curiam with the concurrence of then Chief Justice Marcelo Fernan, Justices Andres
Narvasa, Isagani A. Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin, Abraham Sarmiento, Irene
Cortes, CArolina Grino-Aquino, Leo Medialdea and Florenz Regalado. Justices, Ameurfina Melencio-Herrera
and Hugo Gutierrez, Jr., took no part because they did not participate in the deliberations. Justices Edgardo
Paras and Florentino Feliciano also took no part.
13.
170 SCRA 461.
14.
208 SCRA 542.
15.
Penned by Justice Edgardo Paras with the concurrence of Justices Ameurfina Melencio-Herrera,
Teodoro Padilla, Florenz Regalado and Rodolfo Nocon.
16.
Black's Law Dictionary (1990 ed., 644) citing the case of Hafer v. Spaeth, 22 Wash. 2d 378, 156 P.
2d 408, 411 defines the word forbearance, within the context of usury law, as a contractual obligation of
lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or
debt then due and payable.
17.
In the case of Malayan Insurance, the application of the 6% and 12% interest per annum has no
bearing considering that this case was decided upon before the issuance of Circular No. 416 by the Central
Bank.
18.
"ART. 1157. Obligations arise from.
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts."
19.
"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."
20.
"ART. 2195. The provisions of this Title (on Damages) shall be respectively applicable to all
obligations mentioned in article 1157."
21.
"ART. 1956. No interest shall be due unless it has been expressly stipulated in writing."
22.
"ART. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although
the obligation may be silent upon this point."
23.
"ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
"However, the demand by the creditor shall not be necessary in order that delay may exist:
(1)
When the obligation or the law expressly so declare; or
239 | P a g e
(2)
When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or
(3)
When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
"In reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins."
24.
"ART. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for
breach of contract.
"ART. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper
case, be adjudicated in the discretion of the court."
25.
"Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum."
26.
"ART. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the
demand can be established with reasonable certainty."
4.
(a)
Agreement Limiting Liability

As to diligence required
Arts. 1744, 1745, 1751
Art. 1744. A stipulation between the common carrier and the shipper or owner limiting the liability of the
former for the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence
shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered by the common carrier;
and
(3) Reasonable, just and not contrary to public policy.
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable, unjust and
contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of the
goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a good father of a
family, or of a man of ordinary prudence in the vigilance over the movables transported;
(5) That the common carrier shall not be responsible for the acts or omission of his or its
employees;
(6) That the common carrier's liability for acts committed by thieves, or of robbers who do not act
with grave or irresistible threat, violence or force, is dispensed with or diminished;
240 | P a g e
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of goods on
account of the defective condition of the car, vehicle, ship, airplane or other equipment used in the
contract of carriage.
Art. 1751. The fact that the common carrier has no competitor along the line or route, or a part thereof,
to which the contract refers shall be taken into consideration on the question of whether or not a
stipulation limiting the common carrier's liability is reasonable, just and in consonance with public policy.
(b)
As to amount of liability
Arts. 1749 and 1750
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 fairly and freely agreed upon.
Ysmael v. Barreto 51 Phil 90

EN BANC
[G.R. No. 28028. November 25, 1927.]
JUAN YSMAEL & Co., INC., plaintiff-appellee, vs. GABINO BARRETTO & CO., LTD., ET AL.,
defendants. ANDRES H. LIMGENGCO and VICENTE JAVIER, appellants.
Gibbs & McDonough, for appellants.
Felipe Ysmael and Grey & Encarnacion, for appellee.
SYLLABUS
1.
WHAT A COMMON CARRIER CANNOT DO. A common carrier cannot lawfully stipulate for
exemption from liability, unless such exemption is just and reasonable and the contract is freely and fairly
made.
2.
WHEN CANNOT LIMIT ITS LIABILITY. By the weight of modern authority, the carrier cannot limit its
liability for injury to or loss of goods shipped where such injury or loss was caused by its own negligence.
3.
REASON FOR RULE. The rule rests on consideration of public policy, as the contract of the carrier
is to carry and deliver the goods, and a contract that undertakes to relieve the carrier from any liability for
loss or damage accruing or arising from its own negligence would in legal effect nullify the contract.
STATEMENT
In this action plaintiff, a domestic corporation, seeks to recover from the defendants P9,940.95 the alleged
value of four cases of merchandise which it delivered to the steamship Andres on October 25, 1922, at
Manila to be shipped to Surigao, but which were never delivered to Salomon Sharuff, the consignee, or
returned to the plaintiff. The original complaint was amended to include Gabino Barretto and P. E. Soon as
members of the limited partnership of Gabino Barretto & Company, Limited.
In their amended answers defendants make a specific denial of all of the material allegations of the
complaint, and as a special defense allege that the four cases of merchandise in question were never
delivered to them, and that under the provisions of paragraph 7 of the printed conditions appearing on the
back of the bill of lading, plaintiff's right of action is barred for the reason that it was not brought within
sixty days from the time the cause of action accrued. The defendant Soon did not answer the complaint,
and the defendants further alleged:
"I.
That under and by virtue of provision 12 of the bill of lading referred to in plaintiff's amended
complaint, the defendants are not liable in excess of three hundred pesos (P300) for any package of silk
241 | P a g e
unless the value and contents of such packages are correctly declared in the bill of lading at the time of
shipment, etc."
The evidence was taken upon such issues, and the lower court rendered judgment for the plaintiff for the
full amount of its claim, from which the defendants Andres H. Limgengco and Vicente Javier appeal and
assign the following errors:
"I.
The lower court erred in finding that one hundred sixty-four cases of goods were delivered to and
loaded on the steamship Andres.
"II.
The lower court erred in holding that appellee was not bound by the terms of the bills of lading
covering the shipments.
"III.
The trial court erred in failing to take into consideration appellants' special defense based on clause
12 of the bills of lading.
"IV.
The lower court erred in rendering judgment against appellants in the sum of P9,940.95."
DECISION
JOHNS, J p:
The only question involved in the first assignment of error is one of fact upon which in its decision the trial
court said:
"With regard to the first question, plaintiff's testimony, together with the manifest (Exhibit D) signed by 'G.
Barretto, Agents,' for Andres Heras Limgengco covering the shipment of the merchandise in question,
wherein 165 cases of merchandise appear as belonging to the plaintiff corporation and the bills of lading,
Exhibits I, J and K, signed by the second officer, Claro Galleros, for the shipment of the 165 cases, and
Exhibit H, which is a triplicate copy of the bill of lading No. 62, on which the first officer of the steamer
Andres, Francisco Masingsong, made a note that among the merchandise discharged in Surigao were the
four cases in question, clearly shows that the defendants received from the plaintiff corporation 164 cases
of merchandise, and delivered at Surigao only 160 cases of such merchandise, and that defendants failed
to deliver the said four cases in Surigao when plaintiff's representative took delivery of the cargo at that
port, and that the original figure 'l' and the word 'bulto' appearing on the back of Exhibit 1 were changed
by Galleros to read '5' and 'bultos.' The said Galleros admitted as a witness that he had Exhibit 1 in his
possession from the time the steamer sailed from Manila until the cargo was recounted in Surigao in the
presence of the first officer, Francisco Masingsong, Salomon Sharuff, the bodeguero and himself (Galleros).
"The testimony of Claro Galleros to the effect that, according to the tallies made by him on the back of
Exhibit 1 during the course of loading, only 160 cases were loaded on board the steamer Andres stands
uncorroborated, and it is not supported by the tallies themselves, as these tallies give a total of 161 cases.
Mr. Galleros testified that he had shown the annotation on the back of Exhibit 1 reading '5 bultos en duda
de menos' to Salomon Sharuff, and that Salomon Sharuff gave his conformity to the shortage, and that on
this occasion, among others, were present the first officer, Francisco Masingsong, and the bodeguero in
Surigao. Upon this point, besides the testimony of Salomon Sharuff, who denied emphatically the assertion
of Galleros just mentioned, we have the note made and signed by the first officer on the face of Exhibit H
that all the merchandise therein was discharged in Surigao. The said Masingsong certainly would not have
made such annotation after the delivery in Surigao, if Salomon Sharuff had in fact agreed to the shortage
as testified by Galleros, especially when we consider that the four cases, the value of which is claimed by
plaintiff, were included in said Exhibit H, and the fact that said Claro Galleros, in an affidavit signed by him
before the Notary Public, Fernando Viola with regard to the lost of the four cases, did not mention the
conformity of Salomon Sharuff to the said annotation of '5 bultos en duda de menos.' The defendants,
without showing any legal reason therefor, did not present as witnesses the first officer, Francisco
Masingsong, and the helmsman of the steamer Andres and the bodeguero in Surigao to corroborate the
testimony of Claro Galleros."
There is ample evidence to support that finding. In fact it is sustained by a preponderance of the evidence.
The second assignment of error upon which appellants rely is founded upon paragraph 7 of the bill of
lading, which is as follows:
242 | P a g e
"All claims for shortage or damage must be made at the time of delivery to consignee or his agent, if the
packages or containers show exterior signs of damage; otherwise to be made in writing to the carrier
within twenty-four hours from the time of delivery. Claims for nondelivery or shipment must be presented
in writing to the carrier within thirty days from the date of accrual. Suits based upon claims arising from
shortage, damage, or nondelivery of shipment shall be instituted within sixty days from date of accrual of
the right of action. Failure to make claims or to institute judicial proceedings as herein provided shall
constitute a waiver of the claim or right of action."
The goods in question were shipped from Manila on October 25, 1922, to be delivered to Salomon Sharuff
in Surigao. Plaintiff's original complaint was filed on April 17, 1923, or a little less than six months after the
shipment was made.
Appellants cite and rely upon section 505 C, Corpus Juris, vol. 10, pp. 343-344, which is as follows:
"Contractual Limitations As To Time For Bringing Suit. 1. In General. In the absence of any express
statutory prohibition, according to the great weight of authority, it is competent for the parties to a
contract of shipment to agree on a limitation of time shorter than the statutory limitation, within which
action for breach of the contract shall be brought, and such a limitation will be enforced if reasonable,
although there is some authority to the contrary. Nevertheless to be effective such limitation must be
reasonable; and it has been said that the only limitations as to the validity of such contracts are that they
must be reasonable, and that there must be prompt action on the part of the carrier in denying its liability,
to the end that the shipper may be duly apprised of the fact that suit will be necessary. Stipulations of this
character are not opposed to public policy, and do not operate as a restriction on the common-law liability
of the carrier."
Also Ruling Case Law, volume 4, pp. 798-799, which reads:
"256. Stipulations Limiting Time for Bringing Suit. Similar in character to the stipulations just
considered prescribing a certain time within which notice of loss must be given, are the provisions
frequently met with in bills of lading which require that any action to recover for loss or damage to the
article shipped should be begun within a specified period. The parties may, if they see fit, fix by agreement
a shorter time for the bringing of suit on the contract than that provided by the statute of limitations, and if
the period therein limited is reasonable, suit must be brought within that time or the shipper's right of
action will be barred. Such a provision is prohibited by no rule of law nor by any consideration of public
policy. Nor is it at all affected by the existence within the jurisdiction of a statutory or constitutional
prohibition against carriers limiting or restricting their common law liability, since it is held that such a
stipulation does not in any way defeat the complete vestiture of the right to recover, but merely requires
the assertion of that right by action at an earlier period than would be necessary to defeat it through the
operation of the ordinary statute of limitations. But the limitation must be reasonable, and if the period of
time specified is such that under the facts of the particular case the shipper could not with reasonable
diligence be enabled to bring suit before it expired, the attempted limitation is void. Thus, a provision that
suit must be brought within thirty days after the loss or damage occurred has been held unreasonable
where it appeared that the transit might reasonably consume the whole of that time. A period of forty days
has on the other hand been held to be a reasonable limitation."
Upon that question the trial court said:
"Assuming, however, that the above quoted conditions came to the knowledge of the plaintiff, the
Supreme Court of the Philippine Islands, has held that such stipulations in the bill of lading are not
reasonable, and therefore, do not bar an action."
And it also said:
"Granting, without deciding, that said conditions appearing on the back of the originals might have legal
effect, the court is of the opinion that in view of the fact that said conditions are not printed on the
triplicate copies which were delivered to the plaintiff, such conditions are not binding upon the plaintiff."
It appears that the plaintiff made its claim of loss within seven days after receipt of information that 160
cases only were delivered. Its second claim was made on December 29,1922, in which it said that, if the
243 | P a g e
claim was not paid before January 3, 1923, it would be placed in the hands of attorneys for collection. On
January 3, 1923, Gabino Barretto & Company advised the plaintiff that it would not pay the claim, and on
April seventeenth plaintiff filed its complaint.
In the case of Aguinaldo vs. Daza (G. R. No. 25961), 1 in which the printed conditions on the bill of lading
were identical with those in the instant case, the action was not commenced for more than a year after the
delivery of the goods by the plaintiff and the receipt of the bill of lading, and it was there held that:
"We are of the opinion that, having regard to the situation involved in this shipment, and the slowness of
communication between Manila and Catbalogan, the contractual limitation stated in this bill of lading with
respect to the time for presentation of the written claim was insufficient. The same considerations are
necessarily decisive with respect to the time required for the institution of judicial action. It results that the
stipulations relied upon by the defendant-appellee constitute no obstacle to the maintenance of the
present action."
All things considered, we are clearly of the opinion that the action was brought within a "reasonable time"
as those words are specified and defined in the authorities cited. It is true that both the plaintiff and the
defendants are residents of the City of Manila, but it is also true that Surigao where the goods in question
were to be delivered is one of the most distant places from Manila in the Philippine Islands. In the very
nature of things, plaintiff would not want to commence its action until such time as it had made a full and
careful investigation of all of the material facts and even the law of the case, so as to determine whether
or not the defendants were liable for its loss.
In its third assignment of error, appellants rely on clause 12 of the bill of lading, which is as follows:
"It is expressly understood that carrier shall not be liable for loss or damage from any cause or for any
reason to an amount exceeding three hundred pesos (P300) Philippine currency for any single package of
silk or other valuable cargo, nor for an amount exceeding one hundred pesos (P100) Philippine currency for
any single package of other cargo, unless the value and contents of such packages are correctly declared
in this bill of lading at the time of shipment and freight paid in accord with the actual measurement or
weight of the cargo shipped."
That condition is printed on the back of the bill of lading. In disposing of that question, the lower court
points out that the conditions in question "are not printed on the triplicate copies which were delivered to
the plaintiff," and that by reason thereof they "are not binding upon the plaintiff." The clause in question
provides that the carrier shall not be liable for loss or damage from any cause or for any reason to an
amount in excess of P300 "for any single package of silk or other valuable cargo."
The ship in question was a common carrier and, as such, must have been operated as a public utility. It is a
matter of common knowledge that large quantities of silk are imported in the Philippine Islands, and that
after being imported, they are sold by the merchants in Manila and other large seaports, and then shipped
to different points and places in the Islands. Hence, there is nothing unusual about the shipment of silk. In
truth and in fact, it is a matter of usual and ordinary business. There was no fraud or concealment in the
shipment in question. Clause 12 above quoted places a limit of P300 "for any single package of silk." The
evidence shows that 164 "cases" were shipped, and that the value of each case was very near P2,500. In
this situation, the limit of defendants' liability for each case of silk "for loss or damage from any cause or
for any reason" would put it in the power of the defendants to have taken the whole cargo of 164 cases of
silk at a valuation of P300 for each case, or less than one-eighth of its actual value. If that rule of law
should be sustained, no silk would ever be shipped from one island to another in the Philippines. Such a
limitation of value is unconscionable and void as against public policy.
Corpus Juris, volume 10, p. 154, says:
"PAR. 194. 6. Reasonableness of Limitation. The validity of stipulations limiting the carrier's liability is to
be determined by their reasonableness and their conformity to the sound public policy, in accordance with
which the obligations of the carrier to the public are settled. It cannot lawfully stipulate for exemption from
liability, unless such exemption is just and reasonable, and unless the contract is freely and fairly made. No
contractual limitation is reasonable which is subversive of public policy.
244 | P a g e
"PAR. 195. 7. What Limitations of Liability Permissible. a. Negligence (l) Rule in America (a) In
Absence of Organic or Statutory Provisions Regulating Subject aa. Majority Rule. In the absence of
statute, it is settled by the weight of authority in the United States, that whatever limitations against its
common-law liability are permissible to a carrier, it cannot limit its liability for injury to or loss of goods
shipped, where such injury or loss is caused by its own negligence. This is the common law doctrine and it
makes no difference that there is no statutory prohibition against contracts of this character.
"PAR. 196. bb. Considerations on Which Rule Based. The rule, it is said, rests on considerations of public
policy. The undertaking is to carry the goods, and to relieve the shipper from all liability for loss or damage
arising from negligence in performing its contract is to ignore the contract itself. The natural effect of a
limitation of liability against negligence is to induce want of care on the part of the carrier in the
performance of its duty. The shipper and the common carrier are not on equal terms; the shipper must
send his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the carrier,
unless protected by the higher power of the law against being forced into contracts limiting the carrier's
liability. Such contracts are wanting in the element of voluntary assent.
"PAR. 197. cc. Application and Extent of Rule. (aa) Negligence of Servants. The rule prohibiting
limitation of liability for negligence is often stated as a prohibition of any contract relieving the carrier from
loss or damage caused by its own negligence or misfeasance, or that of its servants; and it has been
specifically decided in many cases that no contract limitation will relieve the carrier from responsibility for
the negligence, unskillfulness, or carelessness of its employees."
Based upon the findings of fact of the trial court which are sustained by the evidence, the plaintiff
delivered to the defendants 164 cases of silk consigned and to be delivered by the defendants to Salomon
Sharuff in Surigao. Four of such cases were never delivered, and the evidence shows that their value is the
amount alleged in the complaint.
There is no merit in the appeal. The judgment of the lower court is affirmed, with costs.
Avancea, C.J., Street, Malcolm, Villamor, Ostrand and Villa-Real, JJ., concur.
Footnotes
1.
Promulgated March 1, 1927, not reported.

Heacock v. Macondray 42 Phil 90
SECOND DIVISION
[G.R. No. 16598. October 3, 1921.]
H. E. HEACOCK COMPANY, plaintiff-appellant, vs. MACONDRAY & COMPANY, INC., defendantappellant.
Fisher & DeWitt for plaintiff and appellant.
Wolfson, Wolfson & Schwarzkopf for defendant and appellant.
SYLLABUS
1.
COMMON CARRIER; BILL OF LADING; STIPULATIONS REGARDING LIABILITY OF CARRIER FOR LOSS
OF OR DAMAGE TO CARGO; VALIDITY OF SUCH STIPULATIONS. Three kinds of stipulation have often
been made in a bill of lading. The first is one exempting the carrier from any and all liability for loss or
damage occasioned by its own negligence. The second is one providing for an unqualified limitation of
such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declare a higher value and pays a higher rate of freight. According to an
almost uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary
to public policy, but the third is valid and enforceable.
245 | P a g e
2.
ID.; ID. A stipulation in a bill of lading which either exempts the carrier from liability for loss or
damage occasioned by its negligences or provides for an unqualified limitation of such liability to an
agreed valuation, is invalid as being contrary to public policy.
3.
ID.; ID.; ID. But a stipulation in such bill of lading which limits the liability of the carrier to a
specified amount unless the shipper declares a higher value and pays a higher rate of freight, is valid and
enforceable. Thus, if a common carrier gives to a shipper the choice of two rates, the lower of them
conditioned upon his agreeing to a stipulated valuation of his property in case of loss, even by the carrier's
negligence, if the shipper makes the choice understandingly and freely, and names his valuation, he
cannot thereafter recover more than the value which he thus places upon his property.
4.
CONTRACT; CONSTRUCTION OF, IN CASE OF DOUBT. A written contract, in case of doubt, should
be interpreted against the party who has drawn the contract. It is a well-known principle of construction
that ambiguity or uncertainty in an agreement must be construed most strongly against the party causing
it. There rules are applicable to contracts contained in bills of lading. In construing a bill of lading given by
the carrier for the safe transportation and delivery of goods shipped by a consignor, the contract will be
construed most strongly against the carrier, and favorably to the consignor, in case of doubt in and matter
of construction.
DECISION
JOHNSON, J p:
This action was commenced in the Court of First Instance of the City of Manila to recover the sum of P420
together with interest thereon. The facts are stipulated by the Parties, and are, briefly, as follows:
(1)
On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board the steamship
Bolton Castle, then in the harbor of New York, four cases of merchandise one of which contained twelve
(12) 8-day Edmond clocks, properly boxed and marked for transportation to Manila, and paid freight on
said clocks from New York to Manila in advance. The said steamship arrived in the port of Manila on or
about the 10th day of September, 1919, consigned to the defendant herein as agent and representative of
said vessel in said port. Neither the master of said vessel nor the defendant herein, as its agent, delivered
to the plaintiff the aforesaid twelve 8-day Edmond clocks, although demand was made upon them for their
delivery.
(2)
The invoice value of the said twelve 8-day Edmond clocks in the city of New York was P22 and the
market value of the same in the City of Manila at the time when they should have been delivered to the
plaintiff was P420.
(3)
The bill of lading issued and delivered to the plaintiff by the master of the said steamship Bolton
Castle contained, among others, the following clauses:
"1.
It is mutually agreed that the value of the goods receipted for above does not exceed $500 per
freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein and ad
valorem freight paid thereon."
"9.
Also, that in the event of claims for short delivery of, or damage to, cargo being made, the carrier
shall not be liable for more than the net invoice price plus freight and insurance less all charges saved, and
any loss or damage for which the carrier may be liable shall be adjusted pro rata on the said basis."
(4)
The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet, and the
freight ton value thereof was $1,480, U. S. currency.
(5)
No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff on the
aforesaid clocks, and no ad valorem freight was paid thereon.
(6)
On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the proportionate
freight ton value of the aforesaid twelve 8-day Edmond clocks, in payment of plaintiff's claim, which tender
plaintiff rejected.
The lower court, in accordance with clause 9 or the bill of lading above quoted, rendered judgment in favor
of the plaintiff against the defendant for the sum of P226.02, this being the invoice value of the clocks in
246 | P a g e
question plus the freight and insurance thereon, with legal interest thereon from November 20, 1919, the
date of the complaint, together with costs. From that judgment both parties appealed to this court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of the
clocks in question to wit: the sum of P420. The defendant-appellant, on he other hand, contends that, in
accordance with clause 1 a the bill of lading, the plaintiff is entitled to recover only the sum of P76.36, the
proportionate freight ton value of the said clocks. The claim of the plaintiff is based upon the argument
that the two clauses in the bill of lading above quoted, limiting the liability of the carrier, are contrary to
public order and, therefore, null and void. The defendant, on the other hand, contends that both of said
clauses are valid, and that clause 1 should have been applied by the lower court instead of clause 9.
I.
The appeal of the plaintiff presents this question: May a common carrier, by stipulations inserted in
the bill of lading, limit its liability for the loss of or damage to the cargo to an agreed valuation of the
latter?
Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier
from any and all liability for loss or damage occasioned by its own negligence. The second is one providing
for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting the liability
of the carrier to an agreed valuation unless the shipper declares a higher vale and pays a higher rate of
freight. According to an almost uniform weight of authority, the first and second kinds of stipulations are
invalid as being contrary to public policy, but the third is valid and enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of February 13,
1893]; Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express Co., 4 McAr., 124; 48 Am.
Rep., 742) support the proposition that the first and second stipulations in a bill of lading are invalid which
either exempt the carrier from liability for loss or damage occasioned by its negligences or provide for an
unqualified limitation of such liability to an agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that the present
case falls within the third stipulation, to wit: That a clause in a bill of lading limiting the liability of the
carrier to a certain amount unless the shipper declares a higher value and pays a higher rate of freight, is
valid and enforceable. This proposition is supported by a uniform lien of decisions of the Supreme Court of
the United States rendered both prior and subsequent to the passage of the Harter Act, from the case of
Hart vs. Pennsylvania R. R. Co. (decided Nov. 24, 1884; 112 U. S., 331), to the case of the Union Pacific Ry.
Co. vs. Burke (decided Feb. 28, 1921, Advance Opinions, 1920-1921, p. 318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of carriage, signed
by the shipper, is fairly made with a railroad company, agreeing on a valuation of the property carried,
with the rate of freight based on the condition that the carrier assumes liability only to the extent of the
agreed valuation, even in case of loss or damage by the negligence of the carrier, the contract will be
upheld as proper and lawful mode of recurring a due proportion between the amount for which the carrier
may be responsible and the freight he receives, and protecting himself against extravagant and fanciful
valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases, from the decision
in Hart vs. Pennsylvania R. R. Co. (112 U. S., 331; 28 L. ed., 717; 5 Sup. Ct. Rep., 151, decided in 1884), to
Boston & M. R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469,
decided in 1918), it has been declared to be the settled Federal law that if a common carrier gives to a
shipper the choice of two rates, the lower of them conditioned upon his agreeing to a stipulated valuation
of his property in case of loss, even by the carrier's negligence, if the shipper makes such a choice,
understandingly and freely, and names his valuation, he cannot thereafter recover more than the value
which he thus places upon his property As a matter of legal distinction, estoppel is made the basis of this
ruling, that, having accepted the benefit of the lower rate, in common honesty the shipper may not
repudiate the conditions on which it was obtained, but the rule and the effect of it are clearly
established."
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The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement with a
shipper, limit its liability in case of the loss by negligence of an interstate shipment to less than the real
value thereof, unless the shipper is given a choice of rates, based on valuation."
"A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with any sound
principle of public policy; and it is not conformable to plain principle of justice that a shipper may
understate value in order to reduce the rate and then recover a larger value in case of loss." (Adams
Express Co. vs. Croninger, 226 U. S, 491, 492.) See also Reid vs. Fargo (130 C. C. A., 285); Jennings vs.
Smith (45 C. C. A., 249); George N. Pierce Co. vs. Wells, Fargo & Co. (236 U. S., 278); Wells, Fargo & Co. vs.
Neiman-Marcus Co. (227 U. S., 469).
It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading here in question
are not contrary to public order. Article 1255 of the Civil Code provides that "the contracting parties may
establish any agreements, terms and conditions they may deem advisable, provided they are not contrary
to law, morals or public order." Said clauses of the bill of lading are, therefore, valid and binding upon the
parties thereto.
II.
The question presented by the appeal of the defendant is whether clause 1 or clause 9 of the bill of
lading here in question is to be adopted as the measure of defendant's liability. Clause 1 provides as
follows:
"1.
It is mutually agreed that the value of the goods receipted for above does not exceed $500 per
freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein and ad
valorem freight paid thereon." Clause 9 provides:
"9.
Also, that in the event of claims for short delivery of, or damage to, cargo being made, the carrier
shall not be liable for more than the net invoice price plus freight and insurance less all charges saved, and
any loss or damage for which the carrier may be liable shall be adjusted pro rata on the said basis."
The defendant-appellant contends that these two clauses, if construed together, mean that the shipper
and the carrier stipulate and agree that the value of the goods receipted for does not exceed $500 per
freight ton, but should the invoice value of the goods be less than $500 per freight ton, then the invoice
value governs; that since in this case the invoice value is more than $500 per freight ton, the latter
valuation should be adopted and that according to that valuation, the proportionate value of the clocks in
question is only P76.36, which the defendant is ready and willing to pay to the plaintiff.
It will be noted, however, that whereas clause 1 contains only an implied undertaking to settle in case of
1085 on the basis of not exceeding $500 per freight ton, clause 9 contains an express undertaking to settle
on the basis of the net invoice price plus freight and insurance less all charges saved. "Any loss or damage
for which the carrier may be liable shall be adjusted pro rata on the said basis," clause 9 expressly
provides. It seems to us that there is an irreconcilable conflict between the two clauses with regard to the
measure of defendant's liability. It is difficult to reconcile them without doing violence to the language used
and reading exceptions and conditions into the undertaking contained in clause 9 that are not there. This
being the case, the bill of lading in question should be interpreted against the defendant carrier, which
drew said contract. "A written contract should, in case of doubt, be interpreted against the party who has
drawn the contract." (6 R. C. L., 854.) It is a well-known principle of construction that ambiguity or
uncertainty in an agreement must be construed most strongly against the party causing it. (6 R. C. L.,
855.) These rules are applicable to contracts contained in bills of lading. "In construing a bill of lading given
by the carrier for the safe transportation and delivery of goods shipped by a consignor, the contract will be
construed most strongly against the carrier, and favorably to the consignor, in case of doubt in any matter
of construction." (Alabama, etc. R. R. Co. vs. Thomas, 89 Ala., 294; 18 Am. St. Rep., 119.)
It follows from all of the foregoing that the judgment appealed from should be affirmed, without any finding
as to costs. So ordered.
Araullo, Street, Avancea, and Villamor, JJ., concur.
Shewaram v. Pal 17 SCRA 606
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EN BANC
[G.R. No. L-20099. July 7, 1966.]
PARMANAND SHEWARAM, plaintiff-appellee, vs. PHILIPPINE AIR LINES, INC., defendantappellant.
Ponce Enrile, Siguion Reyna, Montecillo & Belo, for defendant-appellant.
Climaco and Associates for plaintiff-appellee.
SYLLABUS
1.
COMMON CARRIER; LIMITATION OF LIABILITY CLAUSE; ITS EFFECT; CASE AT BAR. the only issue in
this case is whether or not the limitation of pecuniary liability clause printed at the back of the ticket stubs
is binding upon plaintiff-appellee. Held: Under the provisions of Article 1750 of the new Civil Code, the
pecuniary liability of a common carrier may, by contract, be limited to a fixed amount. It is required,
however, that the contract must be reasonable and just under the circumstances and has been fairly and
freely agreed upon. In the instant case, the fact that the conditions are printed at the back of the ticket
stub in letters so small that they are hard to read would not warrant the presumption that the appellee was
aware of those conditions such that he had "fairly and freely agreed" to those conditions. Appellee,
therefore, is not and cannot be bound, by the conditions of carriage found at the back of the ticket stub
issued to him when he made the flight on appellant's plane on November 23, 1959.
2.
ID.; ID.; ID.; WHEN NEGLIGENCE OF CARRIER IS CAUSE OF LOSS; LIABILITY OF CARRIER. It having
been clearly found by the trial court that the transistor radio and the camera of the appellee were lost as a
result of the negligence of the appellant as a common carrier, the liability of the appellant is clear it
must pay the appellee the value of those two articles. This court had laid down the rule that the carrier
cannot limit its liability for injury to or loss of goods shipped where such injury or loss was caused by its
own negligence. (Ysmael and Co. vs. Barretto, 51 Phil. 90).
DECISION
ZALDIVAR, J p:
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram instituted an action
to recover damages suffered by him due to the alleged failure of defendant-appellant Philippine Air Lines,
Inc. to observe extraordinary diligence in the vigilance and carriage of his luggage. After trial the municipal
court of Zamboanga City rendered judgment ordering the appellant to pay appellee P373.00 as actual
damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After hearing the
Court of First Instance of Zamboanga City modified the judgment of the inferior court by ordering the
appellant to pay the appellee only the sum of P373.00 as actual damages, with legal interest from May 6,
1960, and the sum of P150.00 as attorney's fees, eliminating the award of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this Court on a
question of law, assigning two errors allegedly committed by the court a quo, to wit:
1.
The lower court erred in not holding that plaintiff-appellee was bound by the provisions of the tariff
regulations filed by defendant-appellant with the civil aeronautics board and the conditions of carriage
printed at the back of the plane ticket stub.
2.
The lower court erred in not dismissing this case or limiting the liability of the defendant-appellant
to P100.00
The facts of this case, as found by the trial court, quoted from the decision appealed from, are as follows:
"That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying passenger with
ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga City bound for Manila; that
defendant is a common carrier engaged in air line transportation in the Philippines, offering its services to
the public to carry and transport passengers and cargoes from and to different points in the Philippines;
that on the above-mentioned date of November 23, 1959, he checked in (3) pieces of baggages a
suitcase and two (2) other pieces; that the suitcase was mistagged by defendant's personnel in
Zamboanga City, as I.G.N. (for Iligan) with claim check No. B-3883, instead of MNL (for Manila). When
plaintiff Parmanand Shewaram arrived in Manila on the date of November 23, 1959, his suitcase did not
arrive with his flight because it was sent to Iligan. So, he made a claim with defendant's personnel in
Manila airport and another suitcase similar to his own which was the only baggage left for that flight, the
249 | P a g e
rest having been claimed and released to the other passengers of said flight, was given to the plaintiff for
him to take delivery but he did not and refused to take delivery of the same on the ground that it was not
his, alleging that all his clothes were white and the National transistor 7 and a Rollflex camera were not
found inside the suitcase, and moreover, it contained a pistol which he did not have nor placed inside his
suitcase; that after inquiries made by defendant's personnel in Manila from different airports where the
suitcase in question must have been sent, it was found to have reached Iligan and the station agent of the
PAL. in Iligan caused the same to be sent to Manila for delivery to Mr. Shewaram and which suitcase
belonging to the plaintiff herein arrived in Manila airport on November 24, 1959; that it was also found out
that the suitcase shown to and given to the plaintiff for delivery which he refused to take delivery belonged
to a certain Del Rosario who was bound for Iligan in the same flight with Mr. Shewaram; that when the
plaintiff's suitcase arrived in Manila as stated above on November 24, 1959, he was informed by Mr. Tomas
Blanco, Jr., the acting station agent of the Manila airport of the arrival of his suitcase but of course minus
his Transistor Radio 7 and the Rollflex camera; that Shewaram made demand for these two (2) items or for
the value thereof but the same was not complied with by defendant."
xxx
xxx
xxx
"It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN. The
tampering of the suitcase is more apparent when on November 24, 1959, when the suitcase arrived in
Manila, defendant's personnel could open the same in spite of the fact that plaintiff had it under key when
he delivered the suitcase to defendant's personnel in Zamboanga City. Moreover, it was established during
the hearing that there was space in the suitcase where the two items in question could have been placed.
It was also shown that as early as November 24, 1959, when plaintiff was notified by phone of the arrival
of the suitcase, plaintiff asked that a check of the things inside his suitcase be made and defendant
admitted that the two items could not be found inside the suitcase. There was no evidence on record
sufficient to show that plaintiff's suitcase was never opened during the time it was placed in defendant's
possession and prior to its recovery by the plaintiff. However, defendant had presented evidence that it
had authority to open passengers' baggage to verify and find its ownership or identity. Exhibit "1" of the
defendant would show that the baggage that was offered to plaintiff as his own was opened and the
plaintiff denied ownership of the contents of the baggage. This proven fact that baggage may and could be
opened without the necessary authorization and presence of its owner, applied too, to the suitcase of
plaintiff which was missent to Iligan City because of mistagging. The possibility of what happened in the
baggage of Mr. del Rosario at the Manila Airport in his absence could have also happened to plaintiff's
suitcase at Iligan City in the absence of plaintiff. Hence, the Court believes that these two items were really
in plaintiff's suitcase and defendant should be held liable for the same by virtue of its contract of carriage."
It is clear from the above quoted portions of the decision of the trial court that said court had found that
the suitcase of the appellee was tampered, and the transistor radio and the camera contained therein were
lost, and that the loss of those articles was due to the negligence of the employees of the appellant. The
evidence shows that the transistor radio costs P197.00 and the camera costs P176.00, so the total value of
the two lost articles was P373.00
There is no question that the appellant is a common carrier. 1 As such common carrier the appellant, from
the nature of its business and for reasons of public policy, is bound to observe extraordinary diligence in
the vigilance over the goods and for the safety of the passengers transported by it according to the
circumstances of each case. 2 It having been shown that the loss of the transistor radio and the camera of
the appellee, costing P373.00, was due to the negligence of the employees of the appellant, it is clear that
the appellant should be held liable for the payment of said loss. 3
It is, however, contended by the appellant that its liability should be limited to the amount stated in the
conditions of carriage printed at the back of the plane ticket stub which was issued to the appellee, which
conditions are embodied in Domestic Tariff Regulations No. 2 which was filed with the Civil Aeronautics
Board. One of those conditions, which is pertinent to the issue raised by the appellant in this case, provides
as follows:
"The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof is limited to
its value and, unless the passenger declares in advance a higher valuation and pay an additional charge
therefor, the value shall be conclusively deemed not to exceed P100.00 for each ticket."
The appellant maintains that in view of the failure of the appellee to declare a higher value for his luggage,
and pay the freight on the basis of said declared value when he checked such luggage at the Zamboanga
City airport, pursuant to the above-quoted condition, appellee can not demand payment from the
appellant of an amount in excess of P100.00
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The law that may be invoked, in this connection, is Article 1750 of the New Civil Code which provides as
follows:
"A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or
deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly
and freely agreed upon."
In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary liability
of a common carrier may, by contract, be limited to a fixed amount. It is required, however, that the
contract must be "reasonable and just under the circumstances and has been fairly and freely agreed
upon."
The requirements provided in Article 1750 of the New Civil Code must be complied with before a common
carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the
goods it has undertaken to transport. In the case before us We believe that the requirements of said article
have not been met. It can not be said that the appellee had actually entered into a contract with the
appellant, embodying the conditions as printed at the back of the ticket stub that was issued by the
appellant to the appellee. The fact that those conditions are printed at the back of the ticket stub in letters
so small that they are hard to read would not warrant the presumption that the appellee was aware of
those conditions such that he had "fairly and freely agreed" to those conditions. The trial court has
categorically stated in its decision that the "Defendant admits that passengers do not sign the ticket, much
less did plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold, therefore,
that the appellee is not, and can not be, bound by the conditions of carriage found at the back of the ticket
stub issued to him when he made the flight on appellant's plane on November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of Articles 1734 and
1735 of the new Civil Code, which We quote as follows:
"Art. 1734.
Common carriers are responsible for the loss, destruction, or deterioration of the goods,
(1)
Flood, storm, earthquake, or other natural disaster or calamity;
(2)
Act of the public enemy in war, whether international or Civil;
(3)
(4)
(5)
Order or act of competent public authority"
"Art. 1735.
In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if
have acted negligently, unless they prove that they observed extraordinary diligence as required in Article
1733."
It having been clearly found by the trial court that the transistor radio and the camera of the appellee were
lost as a result of the negligence of the appellant as a common carrier, the liability of the appellant is clear
it must pay the appellee the value of those two articles.
In the case of Ysmael and Co. vs. Barretto, 51 Phil. 90, cited by the trial court in support of its decision, this
Court had laid down the rule that the carrier can not limit its liability for injury to or loss of goods shipped
where such injury or loss was caused by its own negligence.
"Corpus Juris, volume 10, p. 154, says:
'Par. 194.
6. Reasonableness of Limitation. The validity of stipulations limiting the carrier's liability is
to be determined by their reasonableness and their conformity to the sound public policy, in accordance
with which the obligations of the carrier to the public are settled. It cannot lawfully stipulate for exemption
from liability, unless such exemption is just and reasonable, and unless the contract is freely and fairly
made. No contractual limitation is reasonable which is subversive of public policy.
'Par. 195.
7. What Limitations of Liability Permissible.
a.
Negligence (1) Rule in America (a) In Absence of Organic or Statutory Provisions Regulating
Subject aa. Majority Rule. In the absence of statute, it is settled by the weight of authority in the
United States, that whatever limitations against its common-law liability are permissible to a carrier, it
cannot limit its liability for injury to or loss of goods shipped, where such injury or loss is caused by its own
negligence. This is the common law doctrine and it makes no difference that there is no statutory
prohibition against contracts of this character.
'Par. 196.
bb. Considerations on which Rule Based.
The rule, it is said, rests on considerations of public policy. The undertaking is to carry the goods, and to
relieve the shipper from all liability for loss or damage arising from negligence in performing its contract is
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to ignore the contract itself. The natural effect of a limitation of liability against negligence is to induce
want of care on the part of the carrier in the performance of its duty. The shipper and the common carrier
are not on equal terms; the shipper must send his freight by the common carrier, or not at all; he is
therefore entirely at the mercy of the carrier unless protected by the higher power of the law against being
forced into contracts limiting the carrier's liability. Such contracts are wanting in the element of voluntary
assent.
'Par. 197.
cc. Application and Extent of Rule.
(aa)
Negligence of Servants. The rule prohibiting limitation of liability for negligence is often stated as
a prohibition of any contract relieving the carrier from loss or damage caused by its own negligence or
misfeasance, or that of its servants; and it has bean specifically decided in many cases that no contract
limitation will relieve the carrier from responsibility for the negligence, unskillfulness, or carelessness of its
employees.'" (Cited in Ysmael and Co. vs. Barretto, 51 Phil. 90, 98, 99)
In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.
Concepcion, C.J., J.B.L. Reyes, Barrera, Dizon, Regala, Makalintal, J.P. Bengzon and Sanchez, JJ., concur.
Footnotes
1.
2.
3.
Article 1732, New Civil Code.

Articles 1733, 1734, 1735 and 1745, New Civil Code.
Articles 1734, 1735, 1736, 1754, New Civil Code.
Ong Yiu v. CA, 91 SCRA 223
FIRST DIVISION
[G.R. No. L-40597. June 29, 1979.]
AUGUSTO B. ONG YIU, petitioner, vs. HONORABLE COURT OF APPEALS and PHILIPPINE AIR
LINES, respondents.
DECISION
In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a reversal
of the Decision of the Court of Appeals in CA.-G.R. No. 45005-R, which reduced his claim for damages for
breach of contract of transportation.
The facts are as follows:
On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines, Inc. (PAL),
on board Flight No. 463-R, from Mactan, Cebu, bound for Butuan City. He was scheduled to attend the trial
of Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of First Instance, Branch II, thereat, set for
hearing on August 28-31, 1967. As a passenger, he checked in one piece of luggage, a blue "maleta" for
which he was issued Claim Check No. 2106-R (Exh. "A"). The plane left Mactan Airport, Cebu, at about 1:00
o'clock P.M., and arrived at Bancasi airport, Butuan City, at past 2:00 o'clock P.M., of the same day. Upon
arrival, petitioner claimed his luggage but it could not be found. According to petitioner, it was only after
reacting indignantly to the loss that the matter was attended to by the porter clerk, Maximo Gomez, which,
however, the latter denies. At about 3:00 o'clock P.M., PAL Butuan, sent a message to PAL, Cebu, inquiring
about the missing luggage, which message was, in turn, relayed in full to the Mactan Airport teletype
operator at 3:45 P.M. (Exh. "2") that same afternoon. It must have been transmitted to Manila immediately,
for at 3:59 that same afternoon, PAL Manila wired PAL Cebu advising that the luggage had been
overcarried to Manila aboard Flight No. 156 and that it would be forwarded to Cebu on Flight No. 345 of the
same day. Instructions were also given that the luggage be immediately forwarded to Butuan City on the
first available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent a message to PAL Butuan
that the luggage would be forwarded on Flight No. 963 the following day, August 27, 1967. However, this
252 | P a g e
message was not received by PAL Butuan as all the personnel had already left since there were no more
incoming flights that afternoon. Cdpr
In the meantime, petitioner was worried about the missing luggage because it contained vital documents
needed for trial the next day. At 10:00 o'clock that evening, petitioner wired PAL Cebu demanding the
delivery of his baggage before noon the next day, otherwise, he would hold PAL liable for damages, and
stating that PAL's gross negligence had caused him undue inconvenience, worry, anxiety and extreme
embarrassment (Exh. "B"). This telegram was received by the Cebu PAL supervisor but the latter felt no
need to wire petitioner that his luggage had already been forwarded on the assumption that by the time
the message reached Butuan City, the luggage would have arrived.
Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to inquire
about his luggage. He did not wait, however, for the morning flight which arrived at 10:00 o'clock that
morning. This flight carried the missing luggage. The porter clerk, Maximo Gomez, paged petitioner, but
the latter had already left. A certain Emilio Dagorro, a driver of a "colorum" car, who also used to drive for
petitioner, volunteered to take the luggage to petitioner. As Maximo Gomez knew Dagorro to be the same
driver used by petitioner whenever the latter was in Butuan City, Gomez took the luggage and placed it on
the counter. Dagorro examined the lock, pressed it, and it opened. After calling the attention of Maximo
Gomez, the "maleta" was opened, Gomez took a look at its contents, but did not touch them. Dagorro then
delivered the "maleta" to petitioner, with the information that the lock was open. Upon inspection,
petitioner found that a folder containing certain exhibits, transcripts and private documents in Civil Case
No. 1005 and Sp. Procs. No. 1126 were missing, aside from two gift items for his parents-in-law. Petitioner
refused to accept the luggage. Dagorro returned it to the porter clerk, Maximo Gomez, who sealed it and
forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of his
documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to Cebu City on
August 28, 1967. In a letter dated August 29, 1967 addressed to PAL, Cebu, petitioner called attention to
his telegram (Exh. "D"), demanded that his luggage be produced intact, and that he be compensated in
the sum of P250,000.00 for actual and moral damages within five days from receipt of the letter,
otherwise, he would be left with no alternative but to file suit (Exh. "D").
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner's office to
deliver the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel Maranga, the contents were listed
and receipted for by petitioner (Exh. "E"). LLphil
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of the
investigation which Messrs. de Leon, Navarsi and Agustin had promised to conduct to pinpoint
responsibility for the unauthorized opening of the "maleta" (Exh. "F").
The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
"Dear Atty. Ong Yiu:
"This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting Manager,
Southern Philippines.
"First of all, may we apologize for the delay in informing you of the result of our investigation since we
visited you in your office last August 31, 1967. Since there are stations other than Cebu which are involved
in your case, we have to communicate and await replies from them. We regret to inform you that to date
we have not found the supposedly lost folder of papers nor have we been able to pinpoint the personnel
who allegedly pilferred your baggage.
"You must realize that no inventory was taken of the cargo upon loading them on any plane. Consequently,
we have no way of knowing the real contents of your baggage when same was loaded.
"We realized the inconvenience you encountered of this incident but we trust that you will give us another
opportunity to be of better service to you.
Very truly yours,
PHILIPPINE AIR LINES, INC.
(Sgd) JEREMIAS S. AGUSTIN
Branch Supervisor
Cebu"
(Exhibit G, Folder of Exhibits)" 1
On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of contract of
transportation with the Court of First Instance of Cebu, Branch V, docketed as Civil Case No. R-10188,
which PAL traversed. After due trial, the lower Court found PAL to have acted in bad faith and with malice
253 | P a g e
and declared petitioner entitled to moral damages in the gum of P80,000.00, exemplary damages of
P30,000.00, attorney's fees of P5,000.00, and costs.
Both parties appealed to the Court of Appeals petitioner in so far as he was awarded only the sum of
P80,000.00 as moral damages; and defendant because of the unfavorable judgment rendered against it.
On August 22, 1974, the Court of Appeals, * finding that PAL was guilty only of simple negligence, reversed
the judgment of the trial Court granting petitioner moral and exemplary damages, but ordered PAL to pay
plaintiff the sum of P100.00, the baggage liability assumed by it under the condition of carriage printed at
the back of the ticket. LLjur
Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the following
Assignments of Error:
"I.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL GUILTY ONLY OF SIMPLE
NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF ITS CONTRACT OF TRANSPORTATION WITH
PETITIONER.
"II.
THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND THE LAW WHEN IT
REVERSED THE DECISION OF THE LOWER COURT AWARDING TO PETITIONER MORAL DAMAGES IN THE
AMOUNT OF P80,000.00, EXEMPLARY DAMAGES OF P30,000.00, AND P5,000.00 REPRESENTING
ATTORNEY'S FEES, AND ORDERED RESPONDENT PAL TO COMPENSATE PLAINTIFF THE SUM OF P100.00
ONLY, CONTRARY TO THE EXPLICIT PROVISIONS OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL
CODE OF THE PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The question is the
correctness of respondent Court's conclusion that there was no gross negligence on the part of PAL and
that it had not acted fraudulently or in bad faith as to entitle petitioner to an award of moral and
exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad faith
means a breach of a known duty through some motive of interest or ill will. 2 It was the duty of PAL to look
for petitioner's luggage which had been miscarried. PAL exerted due diligence in complying with such duty.
As aptly stated by the appellate Court:
"We do not find any evidence of bad faith in this. On the contrary, We find that the defendant had exerted
diligent effort to locate plaintiff's baggage. The trial court saw evidence of bad faith because PAL sent the
telegraphic message to Mactan only at 3:00 o'clock that same afternoon, despite plaintiff's indignation for
the non-arrival of his baggage. The message was sent within less than one hour after plaintiff's luggage
could not be located. Efforts had to be exerted to locate plaintiff's maleta. Then the Bancasi airport had to
attend to other incoming passengers and to the outgoing passengers. Certainly, no evidence of bad faith
can be inferred from these facts. Cebu office immediately wired Manila inquiring about the missing
baggage of the plaintiff. At 3:59 P.M., Manila station agent at the domestic airport wired Cebu that the
baggage was overcarried to Manila. And this message was received in Cebu one minute thereafter, or at
4:00 P.M. The baggage was in fact sent back to Cebu City that same afternoon. His Honor stated that the
fact that the message was sent at 3:59 P.M. from Manila and completely relayed to Mactan at 4:00 P.M., or
within one minute, made the message appear spurious. This is a forced reasoning. A radio message of
about 50 words can be completely transmitted in even less than one minute, depending upon atmospheric
conditions. Even if the message was sent from Manila or other distant places, the message can be received
within a minute that is a scientific fact which cannot be questioned." 3
Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith. The
telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The PAL
supervisor at Mactan Airport was notified of it only in the morning of the following day. At that time the
luggage was already to be forwarded to Butuan City. There was no bad faith, therefore, in the assumption
made by said supervisor that the plane carrying the bag would arrive at Butuan earlier than a reply
telegram. Had petitioner waited or caused someone to wait at the Bancasi airport for the arrival of the
morning flight, he would have been able to retrieve his luggage sooner. LLpr
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral
damages.
"Art. 2217.
Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of
the defendant's wrongful act of omission."
254 | P a g e
"Art. 2220.
Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to breaches
of contract where the defendant acted fraudulently or in bad faith."
Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232 of the Civil
Code, exemplary damages can be granted if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, which has not been proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited PAL's carriage
liability to the amount of P100.00 as stipulated at the back of the ticket. In this connection, respondent
Court opined:
"As a general proposition, the plaintiff's maleta having been pilfered while in the custody of the defendant,
it is presumed that the defendant had been negligent. The liability, however, of PAL for the loss, in
accordance with the stipulation written on the back of the ticket, Exhibit 12, is limited to P100.00 per
baggage plaintiff not having declared a greater value, and not having called the attention of the defendant
on its true value and paid the tariff therefor. The validity of this stipulation is not questioned by the
plaintiff. They are printed in reasonably and fairly big letters, and are easily readable. Moreover, plaintiff
had been a frequent passenger of PAL from Cebu to Butuan City and back, and he, being a lawyer and
businessman, must be fully aware of these conditions." 4
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the plane
ticket reads:
"8.
BAGGAGE LIABILITY . . . The total liability of the Carrier for lost or damaged baggage of the
passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation in excess
of P100.00, but not in excess, however, of a total valuation of P1,000.00 and additional charges are paid
pursuant to Carrier's tariffs."
There is no dispute that petitioner did not declare any higher value for his luggage, much less did he pay
any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered into a
contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and that
Article 1750 * of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless bound
by the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and
valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the
regulation". 5 It is what is known as a contract of "adhesion", in regards which it has been said that
contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane
ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in
reality free to reject it entirely; if he adheres, he gives his consent. 6 And as held in Randolph v. American
Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, "a
contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding
one from contracting against his own negligence."
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be
permitted a recovery in excess of P100.00. Besides, passengers are advised not to place valuable items
inside their baggage but "to avail of our V-cargo service" (Exh. "1"). It is likewise to be noted that there is
nothing in the evidence to show the actual value of the goods allegedly lost by petitioner. LLphil
There is another matter involved, raised as an error by PAL the fact that on October 24, 1974 or two
months after the promulgation of the Decision of the appellate Court, petitioner's widow filed a Motion for
Substitution claiming that petitioner died on January 6, 1974 and that she only came to know of the
adverse Decision on October 23, 1974 when petitioner's law partner informed her that he received copy of
the Decision on August 28, 1974. Attached to her Motion was an Affidavit of petitioner's law partner
reciting facts constitutive of excusable negligence. The appellate Court noting that all pleadings had been
signed by petitioner himself allowed the widow "to take such steps as she or counsel may deem
necessary." She then filed a Motion for Reconsideration over the opposition of PAL which alleged that the
Court of Appeals Decision, promulgated on August 22, 1974, had already become final and executory since
no appeal had been interposed therefrom within the reglementary period.
Under the circumstances, considering the demise of petitioner himself, who acted as his own counsel, it is
best that technicality yields to the interests of substantial justice. Besides, in the last analysis, no serious
prejudice has been caused respondent PAL.
255 | P a g e
In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are not
erroneous.
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be
reviewed hereby affirmed in toto.
No costs.
SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.
Footnotes
1.
pp. 47-48, Rollo.
*
Decision penned by Justice Jose Leuterio, with Justice Roseller Lim and Francisco Tantuico, Jr.,
concurring.
2.
Air France vs. Carrascoso, 18 SCRA 166 (1966); Lopez vs. Pan American World Airways, 16 SCRA
431 (1966).
3.
pp. 12-13, Decision, on pp. 53-54, Rollo.
4.
pp. 8-9, Decision on pp. 27-28, Rollo.
*
"A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction,
or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been
fairly and freely agreed upon."
5.
Tannebaum v. National Airline, Inc. 13 Misc. 2d 450, 176 N.Y.S. 2d 400; Lichten vs. Eastern Airlines,
87 Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla. 63 So. 2d 634.
6.
Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan.
31, 1951, p. 49.
Pan Am v. IAC, 164 SCRA 268
THIRD DIVISION
[G.R. No. 70462. August 11, 1988.]
PAN AMERICAN WORLD AIRWAYS, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, RENE
V. PANGAN, SOTANG BASTOS PRODUCTIONS and ARCHER PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.
SYLLABUS
1.
WARSAW CONVENTION; CIVIL LAW; ACTUAL DAMAGES; LIABILITY OF AIRLINE CARRIER. On the
basis of the stipulations printed at the back of the Airline ticket, specifically referring to the applicability of
the Warsaw convention the airline carrier's liability for the lost baggage of private respondent Pangan is
limited to $20.00 per kilo or $600.00, as stipulated at the back of the ticket as the latter did not declare a
higher value for his baggage and pay the corresponding additional charges, the case of Ong Yiu v. Court of
Appeals (G.R. No. L-40597, June 29, 1979, 91 SCRA 223) is squarely applicable to the instant case.
2.
REMEDIAL LAW; EVIDENCE; CONCLUSION AND FINDINGS OF THE TRIAL COURT AND THE COURT OF
APPEALS, REVERSED AND SET ASIDE. The Court set aside the decision of the trial court and affirmed by
the Court of Appeals, awarding private respondent's damages as for and for lost profits when their
contracts to show the films in Guam and San Francisco, California were cancelled. Applying the ruling in
Mendoza v. Philippine Airlines, Inc. (90 Phil. 836), petitioner cannot be held liable for the cancellation of
respondents' contracts in the absence of showing that petitioner's attention was called to the special
circumstances requiring prompt delivery of the respondent's luggage on or before a certain date.
DECISION
CORTES, J p:
Before the Court is a petition filed by an international air carrier seeking to limit its liability for lost
baggage, containing promotional and advertising materials for films to be exhibited in Guam and the
256 | P a g e
U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount specified in the airline ticket
absent a declaration of a higher valuation and the payment of additional charges. LLjur
The undisputed facts of the case, as found by the trial court and adopted by the appellate court, are as
follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs Sotang Bastos
and Archer Productions, while in San Francisco, California and Primo Quesada of Prime Films, San Francisco,
California, entered into an agreement (Exh. A) whereby the former, for and in consideration of the amount
of US $2,500.00 per picture, bound himself to supply the latter with three films. 'Ang Mabait, Masungit at
ang Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United
States. It was also their agreement that plaintiffs would provide the necessary promotional and advertising
materials for said films on or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo Slutchnick of
the Hafa Adai Organization. Plaintiff Pangan likewise entered into a verbal agreement with Slutchnick for
the exhibition of two of the films above-mentioned at the Hafa Adai Theater in Guam on May 30, 1978 for
the consideration of P7,000.00 per picture (p. 11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide
the necessary promotional and advertising materials for said films on or before the exhibition date on May
30, 1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the requisite promotional
handbills and still pictures for which he paid the total sum of P12,900.00 (Exhs. B, B-1, C and C-1). Likewise
in preparation for his trip abroad to comply with his contracts, plaintiff Pangan purchased fourteen clutch
bags, four capiz lamps and four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office, through the Your Travel
Guide, an economy class airplane ticket with No. 0269207406324 (Exh. G) for passage from Manila to
Guam on defendant's Flight No. 842 of May 27, 1978, upon payment by said plaintiff of the regular fare.
The Your Travel Guide is a tour and travel office owned and managed by plaintiff's witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was at the defendant's ticket counter
at the Manila International Airport and presented his ticket and checked in his two luggages, for which he
was given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two luggages contained
the promotional and advertising materials, the clutch bags, barong tagalog and his personal belongings.
Subsequently, Pangan was informed that his name was not in the manifest and so he could not take Flight
No. 842 in the economy class. Since there was no space in the economy class, plaintiff Pangan took the
first class because he wanted to be on time in Guam to comply with his commitment, paying an additional
sum of $112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did not arrive with
his flight, as a consequence of which his agreements with Slutchnick and Quesada for the exhibition of the
films in Guam and in the United States were cancelled (Exh. L). Thereafter, he filed a written claim (Exh. J)
for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary representations to
protest as to the treatment which he received from the employees of the defendant and the loss of his two
luggages (Exh. M, O, Q, S, and T). Defendant Pan Am assured plaintiff Pangan that his grievances would be
investigated and given its immediate consideration (Exhs. N, P and R). Due to the defendant's failure to
communicate with Pangan about the action taken on his protests, the present complaint was filed by the
plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and rendered judgment as
follows:
(1)
Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum of
P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum from December 6,
1978, when the complaint was filed, until the same is fully paid, plus the further sum of P10,000.00 as
attorney's fees;
(2)
Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan the sum of
P8,123.34, for additional actual damages, with interest thereon at the rate of 14% per annum from
December 6, 1978, until the same is fully paid;
(3)
Dismissing the counterclaim interposed by defendant Pan American World Airways, Inc.; and
(4)
Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo, pp. 106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
257 | P a g e
The petition was given due course and the parties, as required, submitted their respective memoranda. In
due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the following errors:
1.
The respondent court erred as a matter of law in affirming the trial court's award of actual damages
beyond the limitation of liability set forth in the Warsaw Convention and the contract of carriage.
2.
consisting of alleged lost profits in the face of this Court's ruling concerning special or consequential
damages as set forth in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim.
1.
The airline ticket (Exh. "G") contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other than the country of
departure the Warsaw Convention may be applicable and the Convention governs and in most cases limits
the liability of carriers for death or personal injury and in respect of loss of or damage to baggage. See also
notice headed "Advice to International Passengers on Limitation of Liability."
CONDITIONS OF CONTRACT
1.
As used in this contract "ticket" means this passenger ticket and baggage check of which these
conditions and the notices form part, "carriage" is equivalent to "transportation," "carrier" means all air
carriers that carry or undertake to carry the passenger or his baggage hereunder or perform any other
service incidental to such air carriage. "WARSAW CONVENTION" means the convention for the Unification
of Certain Rules Relating to International Carriage by Air signed at Warsaw, 12th October 1929, or that
Convention as amended at The Hague, 28th September 1955, whichever may be applicable.
2.
Carriage hereunder is subject to the rules and limitations relating to liability established by the
Warsaw Convention unless such carriage is not "international carriage" as defined by that Convention.
3.
To the extent not in conflict with the foregoing carriage and other services performed by each
carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier's conditions of
carriage and related regulations which are made part hereof (and are available on application at the offices
of carrier), except in transportation between a place in the United States or Canada and any place outside
thereof to which tariffs in force in those countries apply.
xxx
xxx
xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared in
advance and additional charges are paid: (1) for most international travel (including domestic portions of
international journeys) to approximately $9.70 per pound ($20.00 per kilo) for checked baggage and $400
per passenger for unchecked baggage: (2) for travel wholly between U.S. points, to $750 per passenger on
most carriers (a few have lower limits). Excess valuation may not be declared on certain types of valuable
articles. Carriers assume no liability for fragile or perishable articles further information may be obtained
from the carrier. [Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends that its
liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00 x 30 kilos) as the
latter did not declare a higher value for his baggage and pay the corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597, June
29, 1979, 91 SCRA 223), where the Court sustained the validity of a printed stipulation at the back of an
airline ticket limiting the liability of the carrier for lost baggage to a specified amount and ruled that the
carrier's liability was limited to said amount since the passenger did not declare a higher value, much less
pay additional charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court, through
Justice Melencio-Herrera, stated:
liability to the amount of P100.00 as stipulated at the back of the ticket . . .
ticket reads:
8.
BAGGAGE LIABILITY . . . The total liability of the Carrier for lost or damage baggage of the
pursuant to Carrier's tariffs.
258 | P a g e
regulation." [Tannebaum v. National Airline, Inc., 13 Misc. 2d 450, 176 N.Y.S. 2d 400; Lichten v. Eastern
Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a
contract of "adhesion," in regards which it has been said that contracts of adhesion wherein one party
imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts
not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent, [Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes,
Lawyer's Journal, Jan. 31, 1951, p. 49]. And as held in Randolph v. American Airlines, 103 Ohio App. 172,
144 N.E. 2d 878; Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability
upon an agreed valuation does not offend against the policy of the law forbidding one from contracting
against his own negligence."
permitted a recovery in excess of P100.00.
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July 2, 1966, 17
SCRA 606], where the Court held that the stipulation limiting the carrier's liability to a specified amount
was invalid, finds no application in the instant case, as the ruling in said case was premised on the finding
that the conditions printed at the back of the ticket were so small and hard to read that they would not
warrant the presumption that the passenger was aware of the conditions and that he had freely and fairly
agreed thereto. In the instant case, similar facts that would make the case fall under the exception have
not been alleged, much less shown to exist. LibLex
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00, as
stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state that the
Court of Appeals' reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-22425, August
31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw Convention which limits a carrier's
liability to US$9.07 per pound or US$20.00 per kilo in cases of contractual breach of carriage ** is against
public policy" is utterly misplaced, to say the least. In said case, while the Court, as quoted in the
Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event of death of a
passenger or injury suffered by him, or of destruction or loss of, or damages to any checked baggage or
any goods, or of delay in the transportation by air of passengers, baggage or goods. This pretense is not
borne out by the language of said Articles. The same merely declare the carrier liable for damages in
enumerated cases, if the conditions therein specified are present. Neither said provisions nor others in the
aforementioned Convention regulate or exclude liability for other breaches of contract by the carrier. Under
petitioner's theory, an air carrier would be exempt from any liability for damages in the event of its
absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd.
it prefaced this statement by explaining that:
. . . The case is now before us on petition for review by certiorari, upon the ground that the lower court has
erred: (1) in holding that the Warsaw Convention of October 12, 1929, relative to transportation by air is
not in force in the Philippines: (2) in not holding that respondent has no cause of action; and (3) in
awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the first assignment of error because the same is the basis of the
second assignment of error, and the latter is devoid of merit, even if we assumed the former to be welltaken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the validity of
provisions of the Warsaw Convention. Consequently, by no stretch of the imagination may said quotation
from Northwest be considered as supportive of the appellate court's statement that the provisions of the
Warsaw Convention limited a carrier's liability are against public policy.
259 | P a g e
2.
The Court finds itself unable to agree with the decision of the trial court, and affirmed by the Court
of Appeals, awarding private respondents damages as and for lost profits when their contracts to show the
films in Guam and San Francisco, California were cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any clearer:
. . . Under Art. 1107 of the Civil Code, a debtor in good faith like the defendant herein, may be held liable
only for damages that were foreseen or might have been foreseen at the time the contract of
transportation was entered into. The trial court correctly found that the defendant company could not have
foreseen the damages that would be suffered by Mendoza upon failure to deliver the can of film on the
17th of September, 1948 for the reason that the plans of Mendoza to exhibit that film during the town
fiesta and his preparations, specially the announcement of said exhibition by posters and advertisement in
the newspaper, were not called to the defendant's attention.
In our research for authorities we have found a case very similar to the one under consideration. In the
case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered motion picture
films to the defendant Fargo, an express company, consigned and to be delivered to him in Utica. At the
time of shipment the attention of the express company was called to the fact that the shipment involved
motion picture films to be exhibited in Utica, and that they should be sent to their destination, rush. There
was delay in their delivery and it was found that the plaintiff because of his failure to exhibit the film in
Utica due to the delay suffered damages or loss of profits. But the highest court in the State of New York
refused to award him special damages. Said appellate court observed:
But before defendant could be held to special damages such as the present alleged loss of profits on
account of delay or failure of delivery it must have appeared that he had notice at the time of delivery to
him of the particular circumstances attending the shipment and which probably would lead to such special
loss if he defaulted. Or, as the rule has been stated in another form in order to impose on the defaulting
party further liability than for damages naturally and directly i.e., in the ordinary course of things arising
from a breach of contract such unusual or extraordinary damages must have been brought within the
contemplation of the parties as the probable result of breach at the time of or prior to contracting.
Generally notice then of any special circumstances which will show that the damages to be anticipated
from a breach would be enhanced has been held sufficient far this effect.
As may be seen, that New York case is a stronger one than the present case for the reason that the
attention of the common carrier in said case was called to the nature of the articles shipped, the purpose
of shipment, and the desire to rush the shipment, circumstances and facts absent in the present case.
Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing that
petitioner's attention was called to the special circumstances requiring prompt delivery of private
respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of private respondents'
contracts as it could not have foreseen such an eventuality when it accepted the luggages for transit. prLL
The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down in
Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages based on the
finding that "[t]he undisputed fact is that the contracts of the plaintiffs for the exhibition of the films in
Guam and California were cancelled because of the loss of the two luggages in question." [Rollo, p. 36] The
evidence reveals that the proximate cause of the cancellation of the contracts was private respondent
Pangan's failure to deliver the promotional and advertising materials on the dates agreed upon. For this
petitioner cannot be held liable. Private respondent Pangan had not declared the value of the two luggages
he had checked in and paid additional charges. Neither was petitioner privy to respondents' contracts nor
was its attention called to the condition therein requiring delivery of the promotional and advertising
materials on or before a certain date.
3.
With the Court's holding that petitioner's liability is limited to the amount stated in the ticket, the
award of attorney's fees, which is grounded on the alleged unjustified refusal of petitioner to satisfy private
respondent's just and valid claim, loses support and must be set aside.
WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate Court is SET
ASIDE and a new judgment is rendered ordering petitioner to pay private respondents damages in the
amount of US$600.00 or its equivalent in Philippine currency at the time of actual payment.
SO ORDERED.
Fernan, C.J., Feliciano and Bidin, JJ., concur.
260 | P a g e
Gutierrez, Jr., J., no part as I was on leave during the deliberation.

Footnotes
*
Art. 1750.
A contract fixing the sum that may be recovered by the owner or shipper for the loss,
**
The Warsaw Convention actually provides that "[i]n the transportation of checked baggage and of
goods, the liability of the carrier shall be limited to a sum of 250 francs per kilogram, unless the consignor
has made, at the time when the package was handed over to the carrier, a special declaration of the value
of delivery and has paid a supplementary sum if the case so requires. In that case, the carrier will be liable
to pay a sum not exceeding the declared sum, unless he proves that the sum is greater than the actual
value to the consignor at delivery.. The sums mentioned above shall be deemed to refer to the French
franc consisting of 65-1/2 milligrams of gold at the standard of fineness of nine hundred thousandths.
These sums may be converted into any national currency in round figures." [51 O.G. 5084, 5091.]
Proclamation No. 201, (September 23, 1955) made public the adherence of the Republic of
the Philippines to the Warsaw Convention. [51 O.G. 4933.]
Cathay Pacific v. CA, 219 SCRA 520
FIRST DIVISION
[G.R. No. 60501. March 5, 1993.]
CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. COURT OF APPEALS and TOMAS L. ALCANTARA,
respondents.
Siguion-Reyna, Montecillo & Ongsiako and Tomacruz, Manguiat & Associates for petitioner.
Tanjuatco, Oreta, Tanjuatco, Berenger & Corpus for private respondent.
SYLLABUS
1.
CIVIL LAW; CONTRACT OF CARRIAGE; BREACH THEREOF; PETITIONER BREACHED ITS CONTRACT OF
CARRIAGE WITH PRIVATE RESPONDENT WHEN IT FAILED TO DELIVER HIS LUGGAGE AT THE DESIGNATED
PLACE AND TIME. Petitioner breached its contract of carriage with private respondent when it failed to
deliver his luggage at the designated place and time, it being the obligation of a common carrier to carry
its passengers and their luggage safely to their destination, which includes the duty not to delay their
transportation, and the evidence shows that petitioner acted fraudulently or in bad faith.
2.
DAMAGES; MORAL AND EXEMPLARY DAMAGES PREDICATED UPON A BREACH OF CONTRACT OF
CARRIAGE; RECOVERABLE ONLY IN INSTANCES WHERE THE MISHAP RESULTS IN DEATH OF A PASSENGER,
OR WHERE THE CARRIER IS GUILTY OF FRAUD OR BAD FAITH; THE CONDUCT OF PETITIONER'S
REPRESENTATIVE TOWARDS RESPONDENT JUSTIFIES THE GRANT OF MORAL AND EXEMPLARY DAMAGES IN
CASE AT BAR. Moral damages predicated upon a breach of contract of carriage may only be recoverable
in instances where the mishap results in death of a passenger, or where the carrier is guilty of fraud or bad
faith. The language and conduct of petitioner's representative towards respondent Alcantara was
discourteous or arbitrary to justify the grant of moral damages. The CATHAY representative was not only
indifferent and impatient; he was also rude and insulting. He simply advised Alcantara to buy anything he
wanted. But even that was not sincere because the representative knew that the passenger was limited
only to $20.00 which, certainly, was not enough to purchase comfortable clothings appropriate for an
executive conference. Considering that Alcantara was not only a revenue passenger but even paid for a
first class airline accommodation and accompanied at the time by the Commercial Attach of the
Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been more
courteous and accommodating to private respondent, instead of giving him a curt reply, "What can we do,
the baggage is missing. I cannot do anything . . . Anyhow, you can buy anything you need, charged to
Cathay Pacific." Where in breaching the contract of carriage the defendant airline is not shown to have
acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences
of the breach of obligation which the parties had foreseen or could have reasonably foreseen. In that case,
261 | P a g e
such liability does not include moral and exemplary damages. Conversely, if the defendant airline is shown
to have acted fraudulently or in bad faith, the award of moral and exemplary damages is proper.
3.
TEMPERATE DAMAGES; RECOVERABLE ONLY UPON PROOF THAT THE CLAIMANT SUSTAINED SOME
PECUNIARY LOSS. However, respondent Alcantara is not entitled to temperate damages, contrary to the
ruling of the court a quo, in the absence of any showing that he sustained some pecuniary loss. It cannot
be gainsaid that respondent's luggage was ultimately delivered to him without serious or appreciable
damage.
4.
WARSAW CONVENTION; DOES NOT OPERATE AS AN EXCLUSIVE ENUMERATION OF THE INSTANCES
FOR DECLARING A CARRIER LIABLE FOR BREACH OF CONTRACT OF CARRIAGE OR AS AN ABSOLUTE LIMIT
OF THE EXTENT OF THAT LIABILITY; DOES NOT PRECLUDE THE OPERATION OF THE CIVIL CODE AND OTHER
PERTINENT LAWS. As We have repeatedly held, although the Warsaw Convention has the force and
effect of law in this country, being a treaty commitment assumed by the Philippine government, said
convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for
breach of contract of carriage or as an absolute limit of the extent of that liability. The Warsaw Convention
declares the carrier liable for damages in the enumerated cases and under certain limitations. However, it
must not be construed to preclude the operation of the Civil Code and other pertinent laws. It does not
regulate, much less exempt, the carrier from liability for damages for violating the rights of its passengers
under the contract of carriage, especially if wilfull misconduct on the part of the carrier's employees is
found or established, which is clearly the case before Us.
DECISION
BELLOSILLO, J p:
This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed with
modification that of the trial court by increasing the award of damages in favor of private respondent
Tomas L. Alcantara.
The facts are undisputed: On 19 October 1975, respondent Tomas L. Alcantara was a first class passenger
of petitioner Cathay Pacific Airways, Ltd. (CATHAY for brevity) on its Flight No. CX-900 from Manila to
Hongkong and onward from Hongkong to Jakarta on Flight No. CX-711. The purpose of his trip was to
attend the following day, 20 October 1975, a conference with the Director General of Trade of Indonesia,
Alcantara being the Executive Vice-President and General Manager of Iligan Cement Corporation, Chairman
of the Export Committee of the Philippine Cement Corporation, and representative of the Cement Industry
Authority and the Philippine Cement Corporation. He checked in his luggage which contained not only his
clothing and articles for personal use but also papers and documents he needed for the conference.
Upon his arrival in Jakarta, respondent discovered that his luggage was missing. When he inquired about
his luggage from CATHAY's representative in Jakarta, private respondent was told that his luggage was left
behind in Hongkong. For this, respondent Alcantara was offered $20.00 as "inconvenience money" to buy
his immediate personal needs until the luggage could be delivered to him.
His luggage finally reached Jakarta more than twenty four (24) hours after his arrival. However, it was not
delivered to him at his hotel but was required by petitioner to be picked up by an official of the Philippine
Embassy.
On 1 March 1976, respondent filed his complaint against petitioner with the Court of First Instance (now
Regional Trial Court) of Lanao del Norte praying for temperate, moral and exemplary damages, plus
attorney's fees.
On 18 April 1976, the trial court rendered its decision ordering CATHAY to pay Plaintiff P20,000.00 for moral
damages, P5,000.00 for temperate damages, P10,000.00 for exemplary damages, and P25,000.00 for
attorney's fees, and the costs. 1
Both parties appealed to the Court of Appeals. CATHAY assailed the conclusion of the trial court that it was
accountable for breach of contract and questioned the non-application by the court of the Warsaw
Convention as well as the excessive damages awarded on the basis of its finding that respondent
Alcantara was rudely treated by petitioner's employees during the time that his luggage could not be
found. For his part, respondent Alcantara assigned as error the failure of the trial court to grant the full
amount of damages sought in his complaint.
On 11 November 1981, respondent Court of Appeals rendered its decision affirming the findings of fact of
the trial court but modifying its award by increasing the moral damages to P80,000.00, exemplary
damages to P20,000.00 and temperate or moderate damages to P10,000.00. The award of P25,000.00 for
attorney's fees was maintained.
262 | P a g e
The same grounds raised by petitioner in the Court of Appeals are reiterated before Us. CATHAY contends
that: (1) the Court of Appeals erred in holding petitioner liable to respondent Alcantara for moral,
exemplary and temperate damages as well as attorney's fees; and, (2) the Court of Appeals erred in failing
to apply the Warsaw Convention on the liability of a carrier to its passengers.
On its first assigned error, CATHAY argues that although it failed to transport respondent Alcantara's
luggage on time, the one-day delay was not made in bad faith so as to justify moral, exemplary and
temperate damages. It submits that the conclusion of respondent appellate court that private respondent
was treated rudely and arrogantly when he sought assistance from CATHAY's employees has no factual
basis, hence, the award of moral damages has no leg to stand on.
Petitioner's first assigned error involves findings of fact which are not reviewable by this Court. 2 At any
rate, it is not impressed with merit. Petitioner breached its contract of carriage with private respondent
when it failed to deliver his luggage at the designated place and time, it being the obligation of a common
carrier to carry its passengers and their luggage safely to their destination, which includes the duty not to
delay their transportation, 3 and the evidence shows that petitioner acted fraudulently or in bad faith.
Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances
where the mishap results in death of a passenger, 4 or where the carrier is guilty of fraud or bad faith. 5
In the case at bar, both the trial court and the appellate court found that CATHAY was grossly negligent
and reckless when it failed to deliver the luggage of petitioner at the appointed place and time. We agree.
CATHAY alleges that as a result of mechanical trouble, all pieces of luggage on board the first aircraft
bound for Jakarta were unloaded and transferred to the second aircraft which departed an hour and a half
later. Yet, as the Court of Appeals noted, petitioner was not even aware that it left behind private
respondent's luggage until its attention was called by the Hongkong Customs authorities. More, bad faith
or otherwise improper conduct may be attributed to the employees of petitioner. While the mere failure of
CATHAY to deliver respondent's luggage at the agreed place and time did not ipso facto amount to willful
misconduct since the luggage was eventually delivered to private respondent, albeit belatedly, 6 We are
persuaded that the employees of CATHAY acted in bad faith. We refer to the deposition of Romulo Palma,
Commercial Attach of the Philippine Embassy at Jakarta, who was with respondent Alcantara when the
latter sought assistance from the employees of CATHAY. This deposition was the basis of the findings of the
lower courts when both awarded moral damages to private respondent. Hereunder is part of Palma's
testimony
"Q:
What did Mr. Alcantara say, if any?
A.
Mr. Alcantara was of course . . . . I could understand his position. He was furious for the experience
because probably he was thinking he was going to meet the Director-General the following day and, well,
he was with no change of proper clothes and so, I would say, he was not happy about the situation.
Q:
What did Mr. Alcantara say?
A:
He was trying to press the fellow to make the report and if possible make the delivery of his
baggage as soon as possible.
Q:
And what did the agent or duty officer say, if any?
A:
The duty officer, of course, answered back saying 'What can we do, the baggage is missing. I
cannot do anything.' something like it. 'Anyhow you can buy anything you need, charged to Cathay Pacific.'
Q:
What was the demeanor or comportment of the duty officer of Cathay Pacific when he said to Mr.
Alcantara 'You can buy anything chargeable to Cathay Pacific'?
A:
If I had to look at it objectively, the duty officer would like to dismiss the affair as soon as possible
by saying indifferently 'Don't worry. It can be found.'" 7
Indeed, the aforequoted testimony shows that the language and conduct of petitioner's representative
towards respondent Alcantara was discourteous or arbitrary to justify the grant of moral damages. The
CATHAY representative was not only indifferent and impatient; he was also rude and insulting. He simply
advised Alcantara to buy anything he wanted. But even that was not sincere because the representative
knew that the passenger was limited only to $20.00 which, certainly, was not enough to purchase
comfortable clothings appropriate for an executive conference. Considering that Alcantara was not only a
revenue passenger but even paid for a first class airline accommodation and accompanied at the time by
the Commercial Attach of the Philippine Embassy who was assisting him in his problem, petitioner or its
agents should have been more courteous and accommodating to private respondent, instead of giving him
a curt reply, "What can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy
anything you need, charged to Cathay Pacific." CATHAY's employees should have been more solicitous to a
passenger in distress and assuaged his anxieties and apprehensions. To compound matters, CATHAY
263 | P a g e
refused to have the luggage of Alcantara delivered to him at his hotel; instead, he was required to pick it
up himself and an official of the Philippine Embassy. Under the circumstances, it is evident that petitioner
was remiss in its duty to provide proper and adequate assistance to a paying passenger, more so one with
first class accommodation.
Where in breaching the contract of carriage the defendant airline is not shown to have acted fraudulently
or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of
obligation which the parties had foreseen or could have reasonably foreseen. In that case, such liability
does not include moral and exemplary damages. 8 Conversely, if the defendant airline is shown to have
acted fraudulently or in bad faith, the award of moral and exemplary damages is proper.
However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of the court a
quo, in the absence of any showing that he sustained some pecuniary loss. 9 It cannot be gainsaid that
respondent's luggage was ultimately delivered to him without serious or appreciable damage.
As regards its second assigned error, petitioner airline contends that the extent of its liability for breach of
contract should be limited absolutely to that set forth in the Warsaw Convention. We do not agree. As We
have repeatedly held, although the Warsaw Convention has the force and effect of law in this country,
being a treaty commitment assumed by the Philippine government, said convention does not operate as
an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or
as an absolute limit of the extent of that liability. 10 The Warsaw Convention declares the carrier liable for
damages in the enumerated cases and under certain limitations. 11 However, it must not be construed to
preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt,
the carrier from liability for damages for violating the rights of its passengers under the contract of
carriage, 12 especially if wilfull misconduct on the part of the carrier's employees is found or established,
which is clearly the case before Us. For, the Warsaw Convention itself provides in Art. 25 that
"(1)
The carrier shall not be entitled to avail himself of the provisions of this convention which exclude
or limit his liability, if the damage is caused by his wilfull misconduct or by such default on his part as, in
accordance with the law of the court to which the case is submitted, is considered to be equivalent to
wilfull misconduct."
(2)
Similarly the carrier shall not be entitled to avail himself of the said provisions, if the damage is
caused under the same circumstances by any agent of the carrier acting within the scope of his
employment."
When petitioner airline misplaced respondent's luggage and failed to deliver it to its passenger at the
appointed place and time, some special species of injury must have been caused to him. For sure, the
latter underwent profound distress and anxiety, and the fear of losing the opportunity to fulfill the purpose
of his trip. In fact, for want of appropriate clothings for the occasion brought about by the delay of the
arrival of his luggage, to his embarrassment and consternation respondent Alcantara had to seek
postponement of his pre-arranged conference with the Director General of Trade of the host country.
In one case, 13 this Court observed that a traveller would naturally suffer mental anguish, anxiety and
shock when he finds that his luggage did not travel with him and he finds himself in a foreign land without
any article of clothing other than what he has on.
Thus, respondent is entitled to moral and exemplary damages. We however find the award by the Court of
Appeals of P80,000.00 for moral damages excessive, hence, We reduce the amount to P30,000.00. The
exemplary damages of P20,000.00 being reasonable is maintained, as well as the attorney's fees of
P25,000.00 considering that petitioner's act or omission has compelled Alcantara to litigate with third
persons or to incur expenses to protect his interest. 14
WHEREFORE, the assailed decision of respondent Court of Appeals is AFFIRMED with the exception of the
award of temperate damages of P10,000.00 which is deleted, while the award of moral damages of
P80,000.00 is reduced to P30,000.00. The award of P20,000.00 for exemplary damages is maintained as
reasonable together with the attorney's fees of P25,000.00. The moral and exemplary damages shall earn
interest at the legal rate from 1 March 1976 when the complaint was filed until full payment.
SO ORDERED.
Cruz, Grio-Aquino and Quiason, JJ ., concur.
Footnotes
264 | P a g e
1.
Record on Appeal, pp. 12-23; Rollo, p. 30.
2.
Philippine Air Lines v. Court of Appeals, G.R. No. 92501, 6 March 1992, 207 SCRA 100.
3.
Tan Liao v. American President Lines, 98 Phil 203.
4.
Arts. 1764 and 2206, New Civil Code.
5.
Art. 2220, New Civil Code; China Airlines, Ltd. v. IAC, G.R. No. 73835, 17 January 1989, 169 SCRA
226.
6.
Alitalia v. IAC, G.R. No. 71929, 4 December 1990, 192 SCRA 9.
7.
Records, pp. 12-13.
8.
China Airlines Limited v. Court of Appeals, G.R. No. 94590, 29 July 1992.
9.
Art. 2224, New Civil Code.
10.
See Note 6; Northwest Airlines, Inc. v. Cuenca, No. L-22425, 31 August 1965, 14 SCRA 1063.
11.
Art. 22. 1. In the carriage of passengers the liability of the carrier for each passenger is limited to
the sum of 250,000 francs. . . . Nevertheless, by special contract, the carrier and the passenger may agree
to a higher limit of liability.
"2.a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a
sum of 250 francs per kilogramme, unless the passenger or consignor has made, at the time when the
package was handed over to the carrier, a special declaration of interest in delivery at destination and has
paid a supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not
exceeding the declared sum, unless he proves that the sum is greater than the actual value to the
consignor at delivery.
"2.b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any object
contained therein, the weight to be taken into consideration in determining the amount to which the
carrier's liability is limited shall be only the total weight of the package or packages concerned.
Nevertheless, when the loss, damage or delay of a part of the registered baggage or cargo, or of an object
contained therein, affects the value of other packages covered by the same baggage check or the same air
way bill, the total weight of such package or packages shall also be taken into consideration in determining
the limit of liability."
12.
See Note 6.
13.
Pan American World Airways, Inc. v. IAC, G.R. No. 68988, 21 June 1990, 186 SCRA 687.
14.
Art. 2208, par. (2), New Civil Code.
(c)
Factors affecting agreement

Arts. 1746, 1747, 1748, 1751, 1752, CC
Art. 1746. An agreement limiting the common carrier's liability may be annulled by the shipper or owner
if the common carrier refused to carry the goods unless the former agreed to such stipulation.
Art. 1747. If the common carrier, without just cause, delays the transportation of the goods or changes
the stipulated or usual route, the contract limiting the common carrier's liability cannot be availed of in
case of the loss, destruction, or deterioration of the goods.
Art. 1748. An agreement limiting the common carrier's liability for delay on account of strikes or riots is
valid.
Art. 1751. The fact that the common carrier has no competitor along the line or route, or a part thereof,
to which the contract refers shall be taken into consideration on the question of whether or not a
stipulation limiting the common carrier's liability is reasonable, just and in consonance with public policy.
Art. 1752. Even when there is an agreement limiting the liability of the common carrier in the vigilance
over the goods, the common carrier is disputably presumed to have been negligent in case of their loss,
destruction or deterioration.
5.
Applicable Law in Foreign Trade
Art. 1753
265 | P a g e
Art. 1753. The law of the country to which the goods are to be transported shall govern the liability of the
common carrier for their loss, destruction or deterioration.
6.
Rules on Passenger Baggage
Arts. 1754, 1998, 2000 to 2003
Art. 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 employee. As to other baggage, the rules in Articles 1998 and 2000 to
2003 concerning the responsibility of hotel-keepers shall be applicable.
Art. 1998. The deposit of effects made by the 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. (1783)
Art. 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 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 hotels or inns shall be considered in determining
the degree of care required of him. (1784a)
Art. 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. (n)
Art. 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. (n)
Art. 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 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. (n)
C. Common Carriage of Passengers

1.
Nature and extent of responsibility
Art. 1733, 1755
Art. 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight
circumstances.
Isaac v. A.L. Ammen Trans. Co., supra
266 | P a g e
Landingin v. Pantranco 33 SCRA 284

EN BANC
[G.R. Nos. L-28014-15. May 29, 1970.]
SPOUSES MARCELO LANDINGIN and RACQUEL BOCASAS, plaintiffs-appellees, vs. PANGASINAN
TRANSPORTATION CO. and MARCELO OLIGAN, defendants-appellants.
SPOUSES PEDRO GARCIA and EUFRACIA LANDINGIN, plaintiffs-appellees, vs. PANGASINAN
TRANSPORTATION CO. and MARCELO OLIGAN, defendants-appellants.
Gabriel A. Zabala for plaintiff -appellees.
Vicente M. Erfe Law Office for defendants-appellants.
SYLLABUS
1.
CIVIL LAW; CONTRACTS; CONTRACT OF CARRIAGE; DUTY OF COMMON CARRIER, ARTICLE 1755 NEW
CIVIL CODE. As a common carrier defendant-appellant was duty 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 for all the circumstances."
2.
ID.; ID.; ID.; ID.; DEFECT IN AUTOMOBILE NOT CASE FORTUITO; CASE OF LASAM VS. SMITH. In
Lasam vs. Smith, the court held that an accident caused by defects in the automobile is not a caso fortuito.
The rationale of the carrier's liability is the fact that "the passenger has neither the choice nor control over
the carrier in the selection and use of the equipment and appliances in use by the carrier."
3.
ID.; ID.; ID.; ID.; PRESUMPTION OF NEGLIGENCE REBUTTABLE IN CASE AT BAR. When a passenger
dies or is injured, the presumption is that the common carrier is at fault or that it acted negligently. This
presumption is only rebutted by proof on the carrier's part that it observed the "extraordinary diligence"
required in Article 1733 and the "utmost diligence required of a very cautious person."
4.
ID.; ID.; ID.; ID.; INSTANT CASE. In the instant case it appears that although the day before the
broken joint was duly inspected and found to be in order, due regard for all the circumstances like the bus
was heavily laden with passengers; that it would traverse mountainous, circuitous and ascending roads
were not considered in connection with the said inspection. Unless it is shown that the particular
circumstances under which the bus would travel were also considered, the mere inspection would not
exempt the carrier from liability.
DECISION
VILLAMOR, J p:
Direct appeal on a question of law from the portion of the judgment of the Court of First Instance of Manila
ordering the defendants Pangasinan Transportation Co. (PANTRANCO) and Marcelo Oligan to pay the
plaintiffs in Civil Case No. D-1468 (L-28014) the sum of P6,500.00, and the plaintiffs in Civil Case No. 1470
(L-28015) the sum of P3,500.00.
The complaints in said Civil Cases Nos. D-1468 and D-1470 were filed by the spouses Marcelo Landingin
and Racquel Bocasas, and the spouses Pedro Garcia and Eufracia Landingin, respectively, for damages
allegedly suffered by them in connection with the death of their respective daughter, Leonila Landingin
and Estrella Garcia, due to the alleged negligence of the defendants and/or breach of contract of carriage.
In their complaints, plaintiffs averred, among others, that in the morning of April 20, 1963, their abovementioned daughters were among the passengers in the bus driven by defendant Marcelo Oligan and
owned and operated by defendant PANTRANCO on an excursion trip from Dagupan City to Baguio City and
back, that the bus was open on one side and enclosed on the other, in gross violation of the rules of the
Public Service Commission; that defendant PANTRANCO acted with negligence, fraud and bad faith in
pretending to have previously secured a special permit for the trip when in truth it had not done so; that
upon reaching an uphill point at Camp 8, Kennon Road, Baguio City, on the onward trip, defendant driver,
through utter lack of foresight, experience and driving knowledge, caused the bus to stall and stop for a
few moments; that through the said defendant's fault and mishandling, the motor ceased to function,
causing the bus to slide back unchecked, that when the said defendant suddenly swerved and steered the
bus toward the mountainside, Leonila and Estrella, together with several other passengers, were thrown
out of the bus through its open side unto the road, suffering serious injuries as a result of which Leonila
267 | P a g e
and Estrella died at the hospital on the same day; and that in connection with the incident, defendant
driver had been charged with and convicted of multiple homicide and multiple slight physical injuries on
account of the death of Leonila and Estrella and of the injuries suffered by four others, although it may be
said, by way of parenthesis, that this case is now pending appeal in a higher court. The plaintiffs prayed for
awards of moral, actual and exemplary damages in the total sum of P40,000.00 in Civil Case No. D-1468,
and in the total sum of P25,000.00 in Civil Case No. D-1470 as well as attorney's fees in the amounts of
P5,000.00 and P4,000.00, respectively.
Defendants filed a joint answer to each of the two complaints alleging, among others, that at the time of
the accident, defendant driver was driving the bus at the slow speed of about 10 kilometers per hour; that
while the said defendant was steering his bus toward the mountainside after hearing a sound coming from
under the rear end of the bus, Leonila and Estrella recklessly, and in disobedience to his shouted warnings
and advice, jumped out of the bus causing their heads to hit the road or pavement; that the bus was then
being driven with extraordinary care, prudence and diligence; that defendant PANTRANCO observed the
care and diligence of a good father of a family to prevent the accident as well as in the selection and
supervision of its employees, particularly of defendant driver; and that the decision convicting the said
defendant was not yet final, the same having been appealed to the Court of Appeals where it was still
pending.
By agreement of the parties, the two cases were tried jointly. On October 17, 1966, the court a quo
rendered its decision therein in which it made the following findings; that upon reaching the fatal spot at
Camp 8, a sudden snapping or breaking of metal below the floor of the bus was heard, and the bus
abruptly stopped, rolling back a few moments later; that as a result, some of the passengers jumped out of
the bus, while others stepped down; that defendant driver maneuvered the bus safely to and against the
side of the mountain where its rear end was made to rest, ensuring the safety of the many passengers still
inside the bus; that while defendant driver was steering the bus towards the mountainside, he advised the
passengers not to jump, but to remain seated; that Leonila and Estrella were not thrown out of the bus, but
that they panicked and jumped out; that the malfunctioning of the motor resulted from the breakage of the
cross-joint; that there was no negligence on the part of either of the defendants; that only the day before,
the said cross-joint was duly inspected and found to be in order; and that defendant PANTRANCO had
exercised the requisite care in the selection and supervision of its employees, including the defendant
driver. The court concluded that "the accident was caused by a fortuitous event or an act of God brought
about by some extra-ordinary circumstances independent of the will of the Pantranco or its employees."
One would wonder why in the face of such factual findings and conclusion of the trial court, the
defendants, instead of the plaintiffs, should come to this Court on appeal. The answer lies in the dispositive
portion of the decision, to wit:
"IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment: (a) Absolving the
defendants from any liability on account of negligence on their part and therefore dismissing the
complaints in these two cases; (b) However, as stated above, the Court hereby orders the defendant
Pantranco to pay to the plaintiffs spouses Marcelo Landingin and Racquel Bocasas in Civil Case No. D-1468
the amount of P6,500.00; and the amount of P3,500.00 to the spouses Pedro Garcia and Eufracia Landingin
in Civil Case No. D-1470, not in payment of liability because of any negligence on the part of the
defendants but as an expression of sympathy and goodwill." (Emphasis supplied.)
As to what impelled the court below to include item (b) in the dispositive portion of its decision, can be
gathered from the penultimate paragraph of the decision, which reads:
"However, there is evidence to the effect that an offer of P8,500.00 in the instant cases without any
admission of fault or negligence had been made by the defendant Pantranco and that actually in Civil Case
No. D-1469 for the death of Pacita Descalso, the other deceased passenger of the bus in question, the
heirs of the deceased received P3,000.00 in addition to hospital and medical bills and the coffin of the
deceased for the dismissal of the said case without Pantranco accepting liability. There was as a matter of
fact during the pre-trial of these two cases a continuing offer of settlement on the part of the defendant
Pantranco without accepting any liability for such damages, and the Court understood that the Pantranco
would be willing still to pay said amounts even if these cases were to be tried on the merits. It is wellknown that the defendant Pantranco is zealous in the preservation of its public relations. In the spirit
therefore of the offer of the defendant Pantranco aforesaid, to assuage the feelings of the herein plaintiffs
an award of P6,500.00 for the spouses Marcelo Landingin and Racquel Bocasas in Civil Case No. D-1468
whose daughter Leonila was, when she died, a third-year Commerce student at the Far Eastern University,
and P3,500.00 for the spouses Pedro Garcia and Eufracia Landingin in Civil Case No. D-1470 whose
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daughter Estrella was in the fourth year high at the Dagupan Colleges when she died, is hereby made in
their favor. This award is in addition to what Pantranco might have spent to help the parents of both
deceased after the accident."
Defendants-appellants complain that having found them to be absolutely free from fault or negligence, and
having in fact dismissed the complaints against them, the court should not have ordered them to assume
any pecuniary liability. There would be merit in his argument but for the fact that defendant-appellant
PANTRANCO was guilty of breach of contract of carriage. It will be noted that in each of the two complaints
it is averred that two buses, including the one in which the two deceased girls were riding, were hired to
transport the excursionist passengers from Dagupan City to Baguio City, and return, and that the said two
passengers did not reach destination safely.
As a common carrier, defendant-appellant PANTRANCO was duty bound to carry its 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 1755, Civil Code.) Did defendant-appellant PANTRANCO
measure up to the degree of care and foresight required it under the circumstances? We think not. The
court below found that the cross-joint of the bus in which the deceased were riding broke, which caused
the malfunctioning of the motor, which in turn resulted in panic among some of the passengers. This is a
finding of fact which this Court may not disturb. We are of the opinion, however, that the lower court's
conclusion drawn from that fact, i.e., that "the accident was caused by a fortuitous event or an act of God
brought about by some extraordinary circumstances independent of the will of the Pantranco or its
employees," is in large measure conjectural and speculative, and was arrived at without due regard to all
the circumstances, as required by Article 1755. In Lasam vs. Smith (45 Phil. 660), this Court held that an
accident caused by defects in the automobile is not a caso fortuito. The rationale of the carrier's liability is
the fact that "the passenger has neither the choice nor control over the carrier in the selection and use of
the equipment and appliances in use by the carrier." (Necesito, et al. vs. Paras, et al., 104 Phil. 75)
When a passenger dies or is injured, the presumption is that the common carrier is at fault or that it acted
negligently (Article 1756). This presumption is only rebutted by proof on the carrier's part that it observed
the "extraordinary diligence" required in Article 1733 and the "utmost diligence of very cautious persons"
required in Article 1755 (Article 1756). In the instant case it appears that the court below considered the
presumption rebutted on the strength of defendants-appellants' evidence that only the day before the
incident, the cross-joint in question was duly inspected and found to be in order. It does not appear,
however, that the carrier gave due regard for all the circumstances in connection with the said inspection.
The bus in which the deceased we riding was heavily laden with passengers, and it would be traversing
mountainous, circuitous and ascending roads. Thus the entire bus, including its mechanical parts, would
naturally be taxed more heavily than it would be under ordinary circumstances. The mere fact that the bus
was inspected only recently and found to be in order would not exempt the carrier from liability unless it is
shown that the particular circumstances under which the bus would travel were also considered.
In the premises, it was error for the trial court to dismiss the complaints. The awards made by the court
should be considered in the concept of damages for breach of contracts of carriage.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is modified as indicated
above, and defendant-appellant PANTRANCO is ordered to pay to plaintiffs-appellees the amounts stated in
the judgment appealed from, as damages for breach of contracts, with interest thereon at the legal rate
from the date of the filing of the complaints. Costs against defendant-appellant PANTRANCO.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and Barredo, JJ., concur.
Castro, J., is on official leave.
Landicho v. BTCo. 52 OG 7640
Necesito v. Paras 104 Phil 75
EN BANC
[G.R. No. L-10605. June 30, 1958.]
PRECILLANO NECESITO, ETC., plaintiff-appellant, vs. NATIVIDAD PARAS, ET AL., defendantsappellees.
[G.R. No. L-10606. June 30, 1958.]
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GERMAN NECESITO, ET AL., plaintiffs-appellants, vs. NATIVIDAD PARAS, ET AL., defendantsappellees.

Tomas Besa and Federico Agrava for appellants.
Jose W. Diokno for appellees.
SYLLABUS
1.
CARRIERS; LIABILITY FOR DAMAGES CAUSED BY MECHANICAL DEFECTS. While the carrier is not
an insurer of the safety of the passengers, it should nevertheless be held to answer for the laws its
equipment if such flaws were at all discoverable. In this connection, the manufacturer of the defective
appliance is considered in law the agent of the carrier, and the good repute of the manufacturer will not
relieve the carrier from liability. The rationale of the carrier's liability is the fact that the passenger has no
privity with the manufacturer of the defective equipment; hence, he has no remedy against him, while the
carrier usually has.
2.
DAMAGES; MORAL DAMAGES FOR BREACH OF CONTRACT, WHEN RECOVERABLE. Under Article
2220 of the new Civil Code, in case to suits for breach of contract, moral damages are recoverable only
where the defendant acted fraudulently or in bad faith, and there is none in the case at bar. (But see
Resolution on the Motion to Reconsider.)
3.
CARRIERS; MECHANICAL DEFECTS. A carrier is liable to its passengers for damages caused by
mechanical defects of the conveyance.
4.
ID.; ID.; WHERE INJURY IS PATENT, INDEMNITY CANNOT BE DENIED. Where the injury is patent
and not denied, the court is empowered to calculate moderate damages, although there is no definite
proof of the pecuniary loss suffered by the injured party.
5.
ID.; ID.; RIGHT OF HEIRS OF DECEASED PASSENGER TO RECOVER MORAL DAMAGES. In case of
accident due to a carrier's negligence, the heirs of a deceased passenger may recover moral damages,
even though a passenger who is injured, but manages to survive, is not entitled to them. This special rule
(Arts. 1264 and 2206, No. 3) in case of death controls the general rule of Article 2220.
6.
ATTORNEY'S FEES; LITIGANT CANNOT BE DEPRIVED OF FEE IF HE IS ENTITLED TO RECOVERY. A
litigant who improvidently stipulates higher counsel fees than those to which he is entitled, does not for
that reason earn the right to a larger indemnity; but, by parity of reasoning, he should not be deprived of
counsel fees if by law he is entitled to recover them.
DECISION
REYES, J.B.L., J p:
These cases involve actions ex contractu against the owners and operators of the common carrier known
as Philippine Rabbit Bus Lines, filed by one passenger, and the heirs of another, who were injured as a
result of the fall into a river of the vehicle in which they were riding.
In the morning of January 28, 1954, Severina Garces and her one- year old son, Precillano Necesito,
carrying vegetables, boarded passenger auto truck or bus No. 199 of the Philippine Rabbit Bus Lines at
Agno, Pangasinan. The passenger truck, driven by Francisco Bandonell, then proceeded on its regular run
from Agno to Manila. After passing Mangatarem, Pangasinan, truck No. 199 entered a wooden bridge, but
the front wheels swerved to the right; the driver lost control, and after wrecking the bridge's wooden rails,
the truck fell on its right side into a creek where water was breast deep. The mother, Severina Garces, was
drowned; the son, Precillano Necesito, was injured, suffering abrasions and fracture of the left femur. He
was brought to the Provincial Hospital at Dagupan, where the fracture was set but with fragments one
centimeter out of line. The money, wrist watch and cargo of vegetables were lost.
Two actions for damages and attorney's fees totalling over P85,000 having been filed in the Court of First
Instance of Tarlac (Cases Nos. 908 and 909) against the carrier, the latter pleaded that the accident was
due to "engine or mechanical trouble" independent or beyond the control of the defendants or of the driver
Bandonell.
After joint trial, the Court of First Instance found that the bus was proceeding slowly due to the bad
condition of the road; that the accident was caused by the fracture of the right steering knuckle, which was
defective in that its center or core was not compact but "bubbled and cellulous", a condition that could not
be known or ascertained by the carrier despite the fact that regular thirty-day inspections were made of
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the steering knuckle, since the steel exterior was smooth and shiny to the depth of 3/16 of an inch all
around; that the knuckles are designed and manufactured for heavy duty and may last up to ten years;
that the knuckle of bus No. 199 that broke on January 28, 1954, was last inspected on January 5, 1954, and
was due to be inspected again on February 5th. Hence, the trial court, holding that the accident was
exclusively due to fortuitous event, dismissed both actions. Plaintiffs appealed directly to this Court in view
of the amount in controversy.
We are inclined to agree with the trial court that it is not likely that bus No. 199 of the Philippine Rabbit
Lines was driven over the deeply rutted road leading to the bridge at a speed of 50 miles per hour, as
testified for the plaintiffs. Such conduct on the part of the driver would have provoked instant and
vehement protest on the part of the passengers because of the attendant discomfort, and there is no trace
of any such complaint in the records. We are thus forced to assume that the proximate cause of the
accident was the reduced strength of the steering knuckle of the vehicle caused by defects in casting it.
While appellants hint that the broken knuckle exhibited in court was not the real fitting attached to the
truck at the time of the accident, the records show that they registered no objection on that ground at the
trial below.
The issue is thus reduced to the question whether or not the carrier is liable for the manufacturing defect
of the steering knuckle, and whether the evidence discloses that in regard thereto the carrier exercised the
diligence required by law (Art. 1755, new Civil Code).
"ART. 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."
It is clear that the carrier is not an insurer of the passengers' safety. His liability rests upon negligence, his
failure to exercise the "utmost" degree of diligence that the law requires, and by Art. 1756, in case of a
passenger's death or injury the carrier bears the burden of satisfying the court that he has duly discharged
the duty of prudence required. In the American law, where the carrier is held to the same degree of
diligence as under the new Civil Code, the rule on the liability of carriers for defects of equipment is thus
expressed: "The preponderance of authority is in favor of the doctrine that a passenger is entitled to
recover damages from a carrier for an injury resulting from a defect in an appliance purchased from a
manufacturer, whenever it appears that the defect would have been discovered by the carrier if it had
exercised the degree of care which under the circumstances was incumbent upon it, with regard to
inspection and application of the necessary tests. For the purposes of this doctrine, the manufacturer is
considered as being in law the agent or servant of the carrier, as far as regards the work of constructing
the appliance. According to this theory, the good repute of the manufacturer will not relieve the carrier
from liability" (10 Am. Jur. 205, s, 1324; see a]so Pennsylvania R. Co. vs. Roy, 102 U. S. 451; 20 L. Ed. 141;
Southern R. Co. vs. Hussey, 74 ALR 1172; 42 Fed. 2d 70; and Ed Note, 29 ALR 788; Ann Cas. 1916E 929).
The rationale of the carrier's liability is the fact that the passenger has neither choice nor control over the
carrier in the selection and use of the equipment and appliances in use by the carrier. Having, no privity
whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy
against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not an insurer of
the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such
flaws were at all discoverable. Thus Hannen, J., in Francis vs. Cockrell, LR 5 Q. P. 184, said:
"In the ordinary course of things, the passenger does not know whether the carrier has himself
manufactured the means of carriage, or contracted with someone else for its manufacture. If the carrier
has contracted with someone else the passenger does not usually know who that person is, and in no case
has he any share in the selection. The liability of the manufacturer must depend on the terms of the
contract between him and the carrier, of which the passenger has no knowledge, and over which he can
have no control, while the carrier can introduce what stipulations and take what securities he may think
proper. For injury resulting to the carrier himself by the manufacturer's want of care, the carrier has a
remedy against the manufacturer; but the passenger has no remedy against the manufacturer for damage
arising from a mere breach of contract with the carrier . . . Unless, therefore, the presumed intention of the
parties be that the passenger should, in the event of his being injured by the breach of the manufacturer's
contract, of which he has no knowledge, be without remedy, the only way in which effect can be given to a
different intention is by supposing that the carrier is to be responsible to the passenger, and to look for his
indemnity to the person whom he selected and whose breach of contract has caused the mischief." (29
ALR 789)
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And in the leading case of Morgan vs. Chesapeake & O. R. Co. 15 LRA (NS) 790, 16 Ann. Cas. 608, the
Court, in holding the carrier responsible for damages caused by the fracture of a car axle, due to a "sand
hole" in the course of moulding the axle, made the following observations.
"The carrier, in consideration of certain well-known and highly valuable rights granted to it by the public,
undertakes certain duties toward the public, among them being to provide itself with suitable and safe cars
and vehicles in which to carry the traveling public. There is no such duty on the manufacturer of the cars.
There is no reciprocal legal relation between him and the public in this respect. When the carrier elects to
have another build its cars, it ought not to be absolved by that fact from its duty to the public to furnish
safe care. The carrier cannot lessen its responsibility by shifting its undertaking to another's shoulders. Its
duty to furnish safe care is side by side with its duty to furnish safe track, and to operate them in a safe
manner. None of its duties in these respects can be sublet so as to relieve it from the full measure primarily
exacted of it by law. The carrier selecta the manufacturer of its cars, if it does not itself construct them,
precisely as it does those who grade its road, and lay its tracks, and operate its trains. That it does not
exercise control over the former is because it elects to place that matter in the hands of the manufacturer,
instead of retaining the supervising control itself. The manufacturer should be deemed the agent of the
carrier as respects its duty to select the material out of which its cars and locomotive are built, as well as
in inspecting each step of their construction. If there be tests known to the crafts of ear builders, or iron
moulders, by which such defects might be discovered before the part was incorporated into the car, then
the failure of the manufacturer to make the test will be deemed a failure by the carrier to make it. This is
not a vicarious responsibility. It extends, as the necessity of this business demands, the rule of respondeat
superior to a situation which falls clearly within its scope and spirit. Where an injury is inflicted upon a
passenger by the breaking or wrecking of a part of the train on which he is riding, it is presumably the
result of negligence at some point by the carrier. As stated by Judge Story, in Story on Bailments, sec.
601a: 'When the injury or damage happens to the passenger by the breaking down or overturning of the
coach, or by any other accident occurring on the ground, the presumption prima facie is that it occurred by
the negligence of the coachmen, and onus probandi is on the proprietors of the coach to establish that
there has been no negligence whatever, and that the damage or injury has been occasioned by inevitable
casualty, or by some cause which human care and foresight could not prevent; for the law will, in
tenderness to human life and limb, hold the proprietors liable for the slightest negligence, and will compel
them to repel by satisfactory proofs every imputation thereof.' When the passenger has proved his injury
as the result of a breakage in the car or the wrecking of the train on which he was being carried, whether
the defect was in the particular car in which he was riding or not, the burden is then cast upon the carrier
to show that it was due to a cause or causes which the exercise of the utmost human skill and foresight
could not prevent. And the carrier in this connection must show, if the accident was due to a latent defect
in the material or construction of the car, that not only could it not have discovered the defect by the
exercise of such care, but that the builders could not by the exercise of the same care have discovered the
defect or foreseen the result. This rule applies the same whether the defective car belonged to the carrier
or not."
In the case now before us, the record is to the effect that the only test applied to the steering knuckle in
question was a purely visual inspection every thirty days, to see if any cracks developed. It nowhere
appears that either the manufacturer or the carrier at any time tested the steering knuckle to ascertain
whether its strength was up to standard, or that it had no hidden flaws that would impair that strength.
And yet the carrier must have been aware of the critical importance of the knuckle's resistance; that its
failure or breakage would result in loss of balance and steering control of the bus, with disastrous effects
upon the passengers. No argument is required to establish that a visual inspection could not directly
determine whether the resistance of this critically important part was not impaired. Nor has it been shown
that the weakening of the knuckle was impossible to detect by any known test; on the contrary, there is
testimony that it could be detected. We are satisfied that the periodical visual inspection of the steering
knuckle as practiced by the carrier's agents did not measure up to the required legal standard of "utmost
diligence of very cautious persons" "as far as human care and foresight can provide", and therefore that
the knuckle's failure can not be considered a fortuitous event that exempts the carrier from responsibility
(Lasam vs. Smith, 45 Phil, 607; Son vs. Cebu Autobus Co., 94 Phil., 892.
It may be impracticable, as appellee argues, to require of carriers to test the strength of each and every
part of its vehicles before each trip; but we are of the opinion that a due regard for the carrier's obligations
toward the traveling public demands adequate periodical tests to determine the condition and strength of
those vehicle portions the failure of which may endanger the safety of the passengers.
272 | P a g e
As to the damages suffered by the plaintiffs, we agree with appellee that no allowance may be made for
moral damages, since under Article 2220 of the new Civil Code, in case of suits for breach of contract,
moral damages are recoverable only where the defendant acted fraudulently or in bad faith, and there is
none in the case before us. As to exemp]ary damages, the carrier has not acted in a "wanton, fraudulent,
reckless, oppressive or malevolent manner" to warrant their award. Hence, we believe that for the minor
Precillano Necesito (G. R No. L-10605), an indemnity of P5,000 would be adequate for the abrasions and
fracture of the femur, including medical and hospitalization expenses, there being no evidence that there
would be any permanent impairment of his faculties or bodily functions, beyond the lack of anatomical
symmetry. As for the death of Severina Garces (G. R. No. L-10606) who was 33 years old, with seven minor
children when she died, her heirs are obviously entitled to indemnity not only for the incidental loses of
property (cash, wrist watch and merchandise) worth P394 that she carried at the time of the accident and
for the burial expenses of P490, but also for the loss of her earnings (shown to average P120 a month) and
for the deprivation of her protection, guidance and company. In our judgment, an award of P15,000 would
be adequate (cf Alcantara vs. Surro, 49 Off. Gaz. 2769; 93 Phil., 472).
The low income of the plaintiffs-appellants makes an award for attorney's fees just and equitable (Civil
Code, Art. 2208, par. 11). Considering that the two cases filed were tried jointly, a fee of P3,500 would be
reasonable.
In view of the foregoing, the decision appealed from is reversed, and the defendants-appellees are
sentenced to indemnify the plaintiffs-appellants in the following amounts: P5,000 to Precillano Necesito,
and P15,000 to the heirs of the deceased Severina Garces, plus P3,500 by way of attorney's fees and
litigation expenses. Costs against defendants-appellees. So ordered.
Paras, C.J., Bengzon, Reyes, A., Bautista Angelo, Concepcion and Endencia, JJ., concur.
Felix, J., concurs in the result.
RESOLUTION
September 11, 1958
REYES, J.B.L., J.:
Defendants-appellees have submitted a motion asking this Court to reconsider its decision of June 30,
1958, and that the same be modified with respect to (1) its holding the carrier liable for the breakage of
the steering knuckle that caused the autobus No. 199 to overturn, whereby the passengers riding in it
were injured; (2) the damages awarded, that appellees argue to be excessive; and (3) the award of
attorneys' fees.
(1)
The rule prevailing in this jurisdiction as established in previous decisions of this Court, cited in our
main opinion, is that a carrier is liable to its passengers for damages caused by mechanical defects of the
conveyance. As early as 1924, in Lasam vs. Smith, 45 Phil. 659 this Court ruled:
"As far as the record shows, the accident was caused either by defects in the automobile or else through
the negligence of its driver. That is not caso fortuito."
And in Son vs. Cebu Autobus Company, 94 Phil., 892, this Court held a common carrier liable in damages
to a passenger for injuries caused by an accident due to the breakage of a faulty drag-link spring.
It can be seen that while the courts of the United States are at variance on the question of a carrier's
liability for latent mechanical defects, the rule in this jurisdiction has been consistent in holding the carrier
responsible. This Court has quoted from American and English decisions, not because it felt bound to follow
the same, but merely in approval of the rationale of the rule as expressed therein, since the previous
Philippine cases did not enlarge on the ideas underlying the doctrine established thereby.
The new evidence sought to be introduced do not warrant the grant of a new trial, since the proposed
proof was available when the original trial was held. Said evidence is not newly discovered.
(2)
With regard to the indemnity awarded to the child Precilliano Necesito, the injuries suffered by him
are incapable of accurate pecuniary estimation, particularly because the full effect of the injury is not
ascertainable immediately. This uncertainty, however, does not preclude the right to an indemnity, since
the injury is patent and not denied (Civil Code, Art. 2224). The reasons behind this award are expounded
by the Code Commission in its report:
"There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered,
although the court is convinced that there has been such loss. For instance, injury to one's commercial
credit or to the goodwill of a business firm is often hard to show with certainty in terms of money. Should
damages be denied for that reason? The judge should be empowered to calculate moderate damages in
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such cases, rather than that the plaintiff should suffer, without redress, from the defendant's wrongful act."
(Report of the Code Commission, p. 75)
In awarding to the heirs of the deceased Severina Garces an indemnity for the loss of her "guidance,
protection and company," although it is but moral damage, the Court took into account that the case of a
passenger who dies in the course of an accident, due to the carrier's negligence constitutes an exception
to the general rule. While, as pointed out in the main decision, under Article 2220 of the new Civil Code
there can be no recovery of moral damages for a breach of contract in the absence of fraud malice) or bad
faith, the case of a violation of the contract of carriage leading to a passenger's death escapes this general
rule, in view of Article 1764 in connection with Article 2206, No. 3 of the new Civil Code.
"ART. 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."
"ART. 2206. . . .
(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."
Being a special rule limited to cases of fatal injuries, these articles prevail over the general rule of Art.
2220. Special provisions control general ones (Lichauco & Co. vs. Apstol, 44 Phil. 138; Sancio vs.
Lizarraga, 55 Phil. 601).
It thus appears that under the new Civil Code, in case of accident due to a carrier's negligence, the heirs of
a deceased passenger may recover moral damages, even though a passenger who is injured, but manages
to survive, is not entitled to them. There is, therefore, no conflict between our main decision in the instant
case and that of Cachero vs. Manila Yellow Taxi Cab Co., 101 Phil., 523, where the passenger suffered
injuries, but did not lose his life.
(3)
In the Cachero case this Court disallowed attorneys' fees to the injured plaintiff because the
litigation arose out of his exaggerated and unreasonable demands for an indemnity that was out of
proportion with the compensatory damages to which he was solely entitled. Put in the present case,
plaintiffs' original claims can not be deemed a priori wholly unreasonable, since they had a right to
indemnity for moral damages besides compensatory ones, and moral damages are not determined by set
and invariable bounds.
Neither does the fact that the contract between the passengers and their counsel was on a contingent
basis affect the former's right to counsel fees. As pointed out for appellants, the Court's award is an
indemnity to the party and not to counsel. A litigant who improvidently stipulates higher counsel fees than
those to which he is lawfully entitled, does not for that reason earn the right to a larger indemnity; but, by
parity of reasoning, he should not be deprived of counsel fees if by law he is entitled to recover them.
We find no reason to alter the main decision heretofore rendered. Ultimately, the position taken by this
Court is that a common carrier's contract is not to be regarded as a game of chance wherein the passenger
stakes his limb and life against the carrier's property and profits.
Wherefore, the motion for reconsideration is hereby denied. So ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Concepcion, Endencia and Felix, JJ.,
concur.
PAL v. CA 106 SCRA 391
FIRST DIVISION
[G.R. No. L-46558. July 31, 1981.]
PHILIPPINE AIR LINES, INC., petitioner, vs. THE COURT OF APPEALS and JESUS V. SAMSON,
respondents.
Belo, Abiera, San Juan and Pagunsan for petitioner.
Ruben R. Bala for respondents.
SYNOPSIS
Respondent Jesus V. Samson, a regular co-pilot of the petitioner Philippine Airlines, suffered physical
injuries in the head, in a crash landing of petitioner's aircraft, allegedly due to the gross negligence of
petitioner airlines in allowing Captain Delfin Bustamante who was suffering from a long standing tumor of
the Nasopharynx and who was allowed by Civil Aeronautics Administration to fly only as a co-pilot, to fly
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the plane to Daet as commanding pilot and whose slow reaction and poor judgment resulted in the
accident. Instead of providing private respondent with expert medical assistance as demanded by him to
determine the cause of his periodic attack of dizzy spell and headache, petitioner discharged him on the
ground of physical disability. In a complaint for damages filed by private respondent, the Court of First
Instance of Albay denied petitioner's motion to dismiss claiming that the complaint is essentially a
Workmen's Compensation case not cognizable by the court and rendered a decision awarding
compensatory and moral damages, attorney's fees and costs. On appeal, The Court of Appeals affirmed
the decision of the lower court but modified the award of damages by imposing legal rate of interest on the
unearned income from the filing of the complaint.
On review by certiorari the Supreme Court held that the duty to exercise the utmost diligence on the part
of common carriers as required by Art. 1732 New Civil Code is for the safety of passengers as well as for
the members of the crew or the complement operating the carrier, and agrees with the modification made
by the Court of Appeals in ordering payment of legal interest from the date of judicial demand.
Judgment affirmed.
SYLLABUS
1.
CIVIL LAW; COMMON CARRIERS; DISCHARGE OF DUTY AND BUSINESS OF CARRIAGE; NATURE OF
CARE REQUIRED. The law is clear in requiring a common carrier to exercise the highest degree of care in
the discharge of its duty and business of carriage and transportation under Arts. 1733, 1755 and 1756 of
the New Civil Code.
2.
ID.; ID.; ID.; ID.; COVERAGE; CASE AT BAR. The duty to exercise the utmost diligence on the part
of common carriers is for the safety of passengers as well as for the members of the crew or the
complement operating the carrier, the airplane in the case at bar. And this must be so for any omission,
lapse or neglect thereof will certainly result to the damage, prejudice, and injuries and even death to all
aboard the plane, passengers and crew members alike.
3.
ID.; DAMAGES; COMPENSATORY DAMAGES FOR EMPLOYEE'S INJURY DUE TO GROSS NEGLIGENCE OF
EMPLOYER; JUSTIFIED UNDER THE NEW CIVIL CODE IN CASE AT BAR. The Supreme Court affirms the
award of damages or compensation in the case at bar, under the provisions of Art. 1711 and 1712 of the
New Civil Code where the gross negligence of Philippine Air Lines have been affirmed in allowing Capt.
Delfin Bustamante to fly the plane to Daet on January 8, 1951 whose slow reaction and poor judgment was
the cause of the crash-landing of the plane which resulted in private respondent Samson hitting his head
against the windshield and causing him injuries for which reason Philippine Air Lines terminated his
services and employment as pilot after refusing to provide him with the necessary medical treatment of
respondent's periodic spells, headache and general debility produced from said injuries. The grant of
compensatory damages to the private respondent made by the trial court and affirmed by the appellate
court is justified.
4.
ID.; ID.; MORAL DAMAGES; RECOVERY JUSTIFIED IN QUASI-DELICT; CASE AT BAR. The fact that
private respondent suffered physical injuries in the head when the plane crash-landed due to the
negligence of Capt. Bustamante is undeniable and the negligence of the latter is clearly a quasi-delict
under Article 2219, (2) New Civil Code justifying the recovery of moral damages.
5.
ID.; ID.; ID.; RECOVERY JUSTIFIED WHEN PROVISIONS OF THE CIVIL CODE ON HUMAN RELATIONS
ARE VIOLATED; CASE AT BAR. The justification in the award of moral damages under Article 19 of the
New Civil Code on Human Relations is well taken where respondent appellate court held that "The act of
defendant-appellant in unjustly refusing plaintiff-appellee's demand for special medical service abroad for
the reason that plaintiff-appellee's deteriorating physical condition was not due to the accident violates the
provisions of Article 19 of the Civil Code on human relations" to act with justice, give everyone his due and
observe honesty and good faith and the Supreme Court hereby gives affirmance thereto.
6.
ID.; ID.; ATTORNEY'S FEES; CLAIMANT ENTITLED TO RECOVERY THEREOF, WHEN FORCED TO
LITIGATE TO ENFORCE HIS VALID CLAIM. The award of attorney's fees is correct where as pointed out in
the decision of the Court of Appeals, "the plaintiff is entitled to attorney's fees because he was forced to
litigate in order to enforce his valid claim (Ganaban vs. Bayle, 30 SCRA 365; De la Cruz vs. De la Cruz, 22
SCRA 33; and many others); defendant acted in bad faith in refusing plaintiff's valid claim (Filipino Pipe
Foundry Corporation vs. Central Bank, 23 SCRA 1044); and plaintiff was dismissed and was forced to go to
court to vindicate his right (Nadura vs. Benguet Consolidated, Inc. 5 SCRA 879).
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7.
ID.; ID.; COMPENSATORY DAMAGES; INTEREST BEGINS TO ACCRUE UPON FILING OF DEMAND,
EXTRAJUDICIAL OR JUDICIAL; CASE AT BAR. The Supreme Court agrees with the modification made by
the appellate court in ordering payment of legal interest from the date judicial demand was made by Pilot
Samson against Philippine Air Lines with the filing of the complaint in the lower court and affirms the ruling
of respondent court which reads: "Articles 1169, 2209 and 2212 of the Civil Code govern when interest
shall be computed. Thereunder interest begins to accrue upon demand, extrajudicial or judicial. A
complaint is a judicial demand (Cabarroguis vs. Vicente, 107 Phil. 340). Under Article 2212 of the Civil
Code, interest due shall earn legal interest from the time it is judicially demanded, although the obligation
may be silent upon this point." (CA Resolution pp. 153-154, Records)
DECISION
GUERRERO, J p:
This is a petition for review on certiorari of the decision of the Court of Appeals 1 dated April 18, 1977,
affirming with modification the decision of the Court of First Instance of Albay in Civil Case No. 1279,
entitled "Jesus V. Samson, plaintiff, vs. Philippine Air Lines, Inc., defendant," for damages.
The dispositive portion of the trial court's decision reads:
"WHEREFORE, for all the foregoing considerations, judgment is hereby rendered in favor of the plaintiff and
against the defendant ordering the defendant to pay the plaintiff, the following sums: P1988,000.00 as
unearned income or damages; P50,000.00 for moral damages; P20,000.00 as attorney's fees and
P5,000.00 as expenses of litigation, or a total of P273,000.00. Costs against the defendant."
The appellate court modified the above decision, to wit:
"However, plaintiff-appellee, who has been deprived of his job since 1954, is entitled to the legal rate of
interest on the P198,000.00 unearned income from the filing of the complaint (Sec. 8, Rule 51, Rules of
Court).
WHEREFORE, with the modification indicated above, the judgment appealed from is affirmed, with costs
against defendant-appellant."
The complaint filed on July 1, 1954 by plaintiff Jesus V. Samson, private respondent herein, averred that on
January 8, 1951, he flew as co-pilot on a regular flight from Manila to Legaspi with stops at Daet,
Camarines Norte and Pili, Camarines Sur, with Captain Delfin Bustamante as commanding pilot of a C-47
plane belonging to defendant Philippine Air Lines, Inc., now the herein petitioner; that on attempting to
land the plane at Daet airport, Captain Delfin Bustamante due to his very slow reaction and poor judgment
overshot the airfield and as a result, notwithstanding the diligent efforts of the plaintiff co-pilot to avert an
accident, the airplane crashlanded beyond the runway; that the jolt caused the head of the plaintiff to hit
and break through the thick front windshield of the airplane causing him severe brain concussion, wounds
and abrasions on the forehead with intense pain and suffering (par. 6, complaint). Cdpr
The complaint further alleged that instead of giving plaintiff expert and proper medical treatment called for
by the nature and severity of his injuries, defendant simply referred him to a company physician, a general
medical practitioner, who limited the treatment to the exterior injuries without examining the severe brain
concussion of plaintiff (par. 7, complaint); that several days after the accident, defendant Philippine Air
Lines called back the plaintiff to active duty as co-pilot, and inspite of the latter's repeated request for
expert medical assistance, defendant had not given him any (par. 8, complaint); that as a consequence of
the brain injury sustained by plaintiff from the crash, he had been having periodic dizzy spells and had
been suffering from general debility and nervousness (par. 9, complaint); that defendant airline company
instead of submitting the plaintiff to expert medical treatment, discharged the latter from its employ on
December 21, 1953 on grounds of physical disability, thereby causing plaintiff not only to lose his job but
to become physically unfit to continue as aviator due to defendant's negligence in not giving him the
proper medical attention (pars. 10-11, complaint). Plaintiff prayed for damages in the amount of
P180,000.00 representing his unearned income, P50,000.00 as moral damages, P20,000.00 as attorney's
fees and P5,000.00 as expenses, or a total of P255,000.00.
In its answer filed on July 28, 1954, defendant PAL denied the substantial averments in the complaint,
alleging among others, that the accident was due solely and exclusively to inevitable unforeseen
circumstances whereby plaintiff sustained only superficial wounds and minor injuries which were promptly
treated by defendant's medical personnel (par. 5, answer); that plaintiff did not sustain brain injury or
cerebral concussion from the accident since he passed the annual physical and medical examination given
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thereafter on April 24, 1951; that the headaches and dizziness experienced by plaintiff were due to
emotional disturbance over his inability to pass the required up-grading or promotional course given by
defendant company (par. 6, answer), and that, as confirmed by an expert neuro-surgeon, plaintiff was
suffering-from neurosis and in view of this unfitness and disqualification from continuing as a pilot,
defendant had to terminate plaintiff's employment (pars. 7, 9, answer).
Further, defendant alleged that by the very nature of its business as a common carrier, it is bound to
employ only pilots who are proficient and in good mental, emotional and physical condition; that the pilot,
Captain Delfin Bustamante, was a competent and proficient pilot, and although he was already afflicted
with a tumor of the nasopharynx even before the accident of January 8, 1951, the Civil Aeronautics
Administration, in passing upon the fitness of pilots, gave Capt. Bustamante a waiver of physical standards
to enable him to retain his first class airman certificate since the affliction had not in the least affected his
proficiency (pars. 16-17, answer). By way of counterclaim, defendant prayed for P10,000.00 as expenses
for the litigation.
On March 25, 1958, defendant filed a Motion to Dismiss on the ground that the complaint is essentially a
Workmen's Compensation claim, stating a cause of action not cognizable within the general jurisdiction of
the court. The Motion to Dismiss was denied in the order of April 14, 1958. After the reception of evidence,
the trial court rendered on January 15, 1973 the decision, the dispositive portion of which has been earlier
cited. prcd
The defendant Philippine Air Lines, Inc. appealed the decision to the Court of Appeals as being contrary to
law and unsupported by the evidence. It raised as errors of the trial court (a) the holding that the damages
allegedly suffered by plaintiff are attributable to the accident of January 8, 1951 which was due to the
negligence of defendant in having allowed Capt. Delfin Bustamante to continue flying despite his alleged
slow reaction and poor judgment; (b) the finding that defendant was negligent in not having given plaintiff
proper and adequate expert medical treatment and assistance for the injuries allegedly sustained in the
accident of January 8, 1951; and (c) in ordering defendant to pay actual or compensatory damages, moral
damages and attorney's fees to the plaintiff. cdrep
On April 18, 1977, the Court of Appeals rendered its decision affirming the judgment of the lower court but
modified the award of damages by imposing legal rate of interest on the P198,000.00 unearned income
from the filing of the complaint, citing Sec. 8, Rule 51 of the Rules of Court.
Its motion for reconsideration of the above judgment having been denied, Philippine Air Lines, Inc. filed this
instant petition for certiorari on the ground that the decision is not in accord with law or with the applicable
jurisprudence, aside from its being replete with findings in the nature of speculation, surmises and
conjectures not borne out by the evidence on record thereby resulting to misapprehension of facts and
amounting to a grave abuse of discretion (p. 7, Petition).
Petitioner raises the fundamental question in the case at bar as follows: Is there a causal connection
between the injuries suffered by private respondent during the accident on 8 January 1951 and the
subsequent "periodic dizzy spells, headache and general debility" of which private respondent complained
every now and then, on the one hand, and such "periodic dizzy spells, headache and general debility"
allegedly caused by the accident and private respondent's eventual discharge from employment, on the
other? PAL submits that respondent court's award of damages to private respondent is anchored on
findings in the nature of speculations, surmises and conjectures and not borne out by the evidence on
record, thereby resulting in a misapprehension of facts and amounting to a grave abuse of discretion.
Petitioner's submission is without merit.
As found by the respondent court, the following are the essential facts of the case:
"It appears that plaintiff, a licensee aviator, was employed by defendant a few years prior to January 8,
1951 as a regular co-pilot on a guaranteed basic salary of P750.00 a month. He was assigned to and/or
paired with pilot Delfin Bustamante.
Sometime in December 1950, he complained to defendant through its authorized official about the slow
reaction and poor judgment of pilot Delfin Bustamante. Notwithstanding said complaint, defendant allowed
the pilot to continue flying.
On January 8, 1951, the two manned the regular afternoon flight of defendant's plane from Manila to
Legaspi, with stops at Daet, Camarines Norte, and Pili, Camarines Sur. Upon making a landing at Daet, the
pilot, with his slow reaction and poor judgment, overshot the airfield and, as a result of and
notwithstanding diligent efforts of plaintiff to avert an accident, the airplane crash-landed beyond the
runway into a mangrove. The jolt and impact caused plaintiff to hit his head upon the front windshield of
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the plane thereby causing his brain concussions and wounds on the forehead, with concomitant intense
pain.
Plaintiff was not given proper medical attention and treatment demanded by the nature and severity of his
injuries. Defendant merely referred him to its clinic attended by general practitioners on his external
injuries. His brain injury was never examined, much less treated. On top of that negligence, defendant
recalled plaintiff to active duty as a co-pilot, completely ignoring his plea for expert medical assistance.
Suffering periodic dizzy spells, headache and general debility, plaintiff every now and then complained to
defendant. To make matters worst for plaintiff, defendant discharged him from his employment on
December 21, 1953. In consequence, plaintiff has been beset with additional worries, basically financial.
He is now a liability instead of a provider, of his family.
On July 1, 1954, plaintiff filed a complaint for damages. Defendant vainly sought to dismiss the complaint
after filing an answer. Then, the judgment and this appeal."
Continuing, the respondent Court of Appeals further held:
"There is no question about the employment of plaintiff by defendant, his age and salary, the overshooting
by pilot Bustamante of the airfield and crashlanding in a mangrove, his hitting his head on the front
windshield of the plane, his intermittent dizzy spells, headache and general debility for which he was
discharged from his employment on December 21, 1953. As the lower court aptly stated:
'From the evidence adduced by the parties, the Court finds the following facts to be uncontroverted: That
the plaintiff Jesus V. Samson, on January 8, 1951 and a few years prior thereto, December 21, 1953, was a
duly licensed pilot employed as a regular co-pilot of the defendant with assignment in its domestic air
service in the Philippines; that on January 8, 1951, the defendant's airplane met an accident in
crashlanding at the Daet Airport, Camarines Norte by overshooting the runway and reaching the
mangroves at the edge of the landing strip; that the jolt caused plaintiff's head to hit the front windshield
of the airplane causing him to suffer wounds and abrasion on the forehead; that the defendant, instead of
giving the plaintiff expert and proper medical treatment called for by the nature and severity of the injuries
of the plaintiff, simply referred him to the clinic of the defendant's physicians who are only general medical
practitioners and not brain specialists; that the defendant's physicians limited their treatment to the
exterior injuries on the forehead of the plaintiff and made no examination of the severe concussion of the
brain of the plaintiff; that the Medical Director and Flight Surgeon of the defendant were not able to
definitely determine the cause of the complaint of the plaintiff as to the periodic attack of dizziness, spells
and headache; that due to this laxity of the defendant's physician and the continuous suffering of the
ailment of the plaintiff complained of, he demanded for expert medical assistance for his brain injury and
to send him to the United States, which demand was turned down and in effect denied by the defendant;
that instead the defendant referred the plaintiff to a neurologist, Dr. Victor Reyes; that from the time that
said accident occurred on January 21, 1953, he was ordered grounded on several occasions because of his
complaint of dizzy spells and headache; that instead of submitting the plaintiff to expert medical treatment
as demanded by him and denied by the defendant, he was discharged from its employment on December
21, 1953 on the ground of physical disability, and that the plaintiff, at the time when the defendant's plane
met the accident, up to the time he was discharged, was regularly employed as a co-pilot and receiving a
basic salary of P750.00 a month plus extra pay for flying time, and bonuses amounting to P300.00 a
month.'
Even defendant-appellant itself admits as not controverted the following facts which generally admit what
have been stated above as not controverted.
"In the case at bar, the following facts are not the subject of controversy:
'(1)
First, that from July 1950 to 21 December 1953, plaintiff was employed with defendant company as
a first officer or co-pilot and served in that capacity in defendant's domestic services.
(2)
Second, that on January 1951, plaintiff did fly on defendant's PI-C 94, as first officer or co-pilot, with
the late Capt. Delfin Bustamante in command as pilot; that while making a landing at the Daet airport on
that date, PI-C 94 did meet an accident as stated above.
(3)
Third, that at or about the time of the discharge from defendant company, plaintiff had complained
of "spells of dizziness," "headaches" and "nervousness", by reason of which he was grounded from flight
duty. In short, that at that time, or approximately from November 1953 up to the date of his discharge on
21 December 1953, plaintiff was actually physically unfit to discharge his duties as pilot.
(4)
Fourth, that plaintiff's unfitness for flight duty was properly established after a thorough medical
examination by competent medical experts.' (pp. 11-12, appellant's brief)
hence, there can hardly be an issue, factual, legal or medical."
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Taking exception from "the rest of the essential facts of the case as found by the respondent court" PAL
claims said facts are not fully borne out by the evidence on record and insists that the injuries suffered by
private respondent during the accident on January 8, 1951 were superficial in nature; that the "periodic
spells, headache, and general debility" complaint of every now and then by private respondent subsequent
to the Jan. 8, 1951 incident were due to emotional disturbances and that no negligence can be attributed
to Capt. Delfin Bustamante much less to PAL for the occurrence on January 8, 1951, hence PAL cannot be
held liable for damages.
Petitioner claims absence of any causal connection between private respondent's superficial injuries and
his alleged subsequent "periodic spells, headache and general debility," pointing out that these
subsequent ailments were found by competent physician, including an expert neuro-surgeon, to be due to
emotional disturbances insights the conclusions of Dr. Trajano V. Bernardo that respondent's complaints
were "psychosomatic symptoms" on the basis of declarations made by respondent himself, which
conclusions are supported by similar diagnosis made by Drs. Damaceno J. Ago and Villaraza stating that
respondent Samson was suffering from neurosis as well as the report of Dr. Victor Reyes, a neurological
specialist, indicating that the symptoms were probably, most probably due to psychogenic factors and
have no organic basis. cdll
In claiming that there is no factual basis for the finding of the respondent court that the crash-landing
caused respondent's "brain concussion . . ., with concomitant intense pain, for on the contrary, testimonial
evidence establish the superficiality of the injuries sustained by respondent during the accident of January
8, 1951," petitioner quotes portions of the testimony of Dr. Manuel S. Sayas, who declared that he
removed the band-aid on the forehead of respondent and that he found out after removal that the latter
had two contused superficial wounds over the supra orbiter regions or just above the eyes measuring one
centimeter long and one millimeter deep. He examined and found his blood pressure normal, no
discharges from the nose and ears. Dr. Trajano V. Bernardo also testified that when he examined
respondent Samson three days after the accident, the wound was already healed and found nothing wrong
with his ears, nose and throat so that he was declared fit for duty after the sixth day.
Petitioner goes further. It contends that there is no causal connection between respondent's superficial
injuries sustained during the accident on January 8, 1951 and plaintiff's discharge from employment with
PAL on December 21, 1953. According to PAL, it was the repeated recurrence of respondent's neurasthenic
symptoms (dizzy spells, headache, nervousness) which prompted PAL's Flight Surgeon, Dr. Bernardo, to
recommend that plaintiff be grounded permanently as respondent was "psychologically unfit to resume his
duties as pilot." PAL concludes that respondent's eventual discharge from employment with PAL was
effected for absolutely valid reasons, and only after he was thoroughly examined and found unfit to carry
out his responsibilities and duties as a pilot. Cdpr
We agree with the respondent court in finding that the dizzy spells, headache and general debility of
private respondent Samson was an after-effect of the crash-landing and We find that such holding is
supported by substantial evidence, which We quote from the court's decision, to wit:
"Defendant would imply that plaintiff suffered only superficial wounds which were treated and not brain
injury. It would, by the opinion of its company doctors, Dr. Bernardo and Dr. Reyes, attribute the dizzy
spells and headache to organic or as psychosomatic, neurasthenic or psychogenic, which we find
outlandishly exaggerated.
That plaintiff's condition as psychosomatic rather than organic in nature is allegedly confirmed by the fact
that on six (6) separate occasions after the accident he passed the required CAA physical examination for
airman's certificate. (Exhs. 78, 79, 80, 81, 83 and 92). We noticed, however, that there were other similar
physical examinations conducted by the CAA on the person of plaintiff the report on which were not
presented in evidence. Obviously, only those which suited defendants cause were hand-picked and offered
in evidence.
We hesitate to accept the opinion of the defendant's two physicians, considering that Dr. Bernardo
admittedly referred to Dr. Reyes because he could not determine the cause of the dizzy spells and
headache and the latter admitted that 'it is extremely hard to be certain of the cause of his dizzy spells,'
and suggested a possibility that it 'was due to postraumatic syndrome, evidently due to the injuries
suffered by the plaintiff in hitting the forehead against the windshield of the plane during the accident.'
Judgment are not based on possibilities.
The admitted difficulty of defendant's doctors in determining the cause of the dizzy spells and headache
cannot be a sound basis for finding against the plaintiff and in favor of defendant. Whatever it might be,
the fact is that such dizzy spells, headache and general debility was an after-effect of the crash-landing. Be
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it brain injury or psychosomatic, neurasthenic or psychogenic, there is no gainsaying the fact that it was
caused by the crash-landing. As an effect of the cause, not fabricated or concocted, plaintiff has to be
indemnified. The fact is that such effect caused his discharge.
We are prone to believe the testimony of the plaintiff's doctors.
Dr. Morales, a surgeon, found that blood was coming from plaintiff's ears and nose. He testified that
plaintiff was suffering from cerebral concussion as a result of traumatic injury to the brain caused by his
head hitting on the windshield of the plane during the crash-landing (Exhibit "G").
Dr. Conrado Aramil, a neurologist and psychiatrist with experience in two hospitals abroad, found
abnormality reflected by the electroencephalogram examination in the frontal area on both sides of
plaintiff's head (Exhibits "K", "K-1").
The opinion of these two specialist renders unnecessary that of plaintiff's wife who is a physician in her
own right and because of her relation to the plaintiff, her testimony and opinion may not be discussed
here, although her testimony is crystallized by the opinions of Dr. Ador Dionisio, Dr. Marquez, Dr. Jose O.
Chan, Dr. Yambao and Dr. Sandico.
Even the doctors presented by defendant admit vital facts about plaintiff's brain injury. Dr. Bernardo admits
that due to the incident, the plaintiff continuously complained of his fainting spells, dizziness and headache
everytime he flew as a co-pilot and everytime he went to defendant's clinic no less than 25 times (Exhibits
"15" to "36"), that he complained of the same to Dr. Reyes; that he promised to help send plaintiff to the
United States for expert medical assistance provided that whatever finding thereat should not be
attributed to the crash-landing incident to which plaintiff did not agree and that plaintiff was completely
ignored by the defendant in his plea for expert medical assistance. They admitted that they could not
determine definitely the cause of the fainting spells, dizziness and headache, which justifies the demand
for expert medical assistance."
We also find the imputation of gross negligence by respondent court to PAL for having allowed Capt. Delfin
Bustamante to fly on that fateful day of the accident on January 8, 1951 to be correct, and We affirm the
same, duly supported as it is by substantial evidence, clearly established and cited in the decision of said
court which states as follows:
"The pilot was sick. He admittedly had tumor of the nasopharynx (nose). He is now in the Great Beyond.
The spot is very near the brain and the eyes. Tumor on the spot will affect the sinus, the breathing, the
eyes which are very near it. No one will certify the fitness to fly a plane of one suffering from the disease.
". . . The fact First Pilot Bustamante has a long standing tumor of the Nasopharynx for which reason he was
grounded since November 1947 is admitted in the letter (Exh. 69-A) of Dr. Bernardo to the Medical Director
of the CAA requesting waiver of physical standards. The request for waiver of physical standards is itself a
positive proof that the physical condition of Capt. Bustamante is short of the standard set by the CAA. The
Deputy Administrator of the CAA granted the request relying on the representation and recommendation
made by Dr. Bernardo (See Exh. 69). We noted, however, that the request (Exh. 69-A) says that 'it is
believed that his continuing to fly as a co-pilot does not involve any hazard.' (Italics supplied). Flying as a
First Officer entails a very different responsibility than flying as a mere co-pilot. Defendant requested the
CAA to allow Capt. Bustamante to fly merely as a co-pilot and it is safe to conclude that the CAA approved
the request thus allowing Bustamante to fly only as a co-pilot. For having allowed Bustamante to fly as a
First Officer on January 8, 1951, defendant is guilty of gross negligence and therefore should be made
liable for the resulting accident.
As established by the evidence, the pilot used to get treatments from Dr. Sycangco. He used to complain of
pain in the face more particularly in the nose which caused him to have sleepless nights. Plaintiff's
observation of the pilot was reported to the Chief Pilot who did nothing about it. Captain Carbonel of the
defendant corroborated plaintiff of this matter. The complaint against the slow reaction of the pilot at least
proved the observation. The observation could be disregarded. The fact that the complaint was not in
writing does not detract anything from the seriousness thereof, considering that a miscalculation would not
only cause the death of the crew but also of the passengers.
One month prior to the crash-landing, when the pilot was preparing to land in Daet, plaintiff warned him
that they were not in the vicinity of Daet but above the town of Ligao. The plane hit outside the airstrip. In
another instance, the pilot would hit the Mayon Volcano had not plaintiff warned him. These more than
prove what plaintiff had complained of. Disregard thereof by defendant is condemnable.
To bolster the claim that Capt. Bustamante has not suffered from any kind of sickness which hampered his
flying ability, appellant contends that for at least one or more years following the accident of January 8,
1951, Capt. Bustamante continued to fly for defendant company as a pilot, and did so with great skill and
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proficiency, and without any further accident or mishap, citing tsn. pp. 756-765, January 20, 1965. We
have painstakingly perused the records, particularly the transcript of stenographic notes cited, but found
nothing therein to substantiate appellant's contention. Instead, We discovered that the citation covers the
testimony of Dr. Bernardo on the physical condition of Bustamante and nothing about his skills or
proficiency to fly nor on the mishaps or accidents, matters which are beyond Dr. Bernardo's competence
anyway.
Assuming that the pilot was not sick or that the tumor did not affect the pilot in managing the plane, the
evidence shows that the overshooting of the runway and crash-landing at the mangrove was caused by
the pilot for which acts the defendant must answer for damages caused thereby. And for this negligence of
defendant's employee, it is liable (Joaquin vs. Aniceto, 12 SCRA 308). At least, the law presumes the
employer negligent imposing upon it the burden of proving that it exercised the diligence of a good father
of a family in the supervision of its employees.
Defendant would want to tie plaintiff to the report he signed about the crash-landing. The report was
prepared by his pilot and because the latter pleaded that he had a family too and would have nowhere to
go if he lost his job, plaintiff's compassion would not upturn the truth about the crash-landing. We are for
the truth not logic of any argumentation.
At any rate, it is incorrect to say that the Accident Report (Exh. 12 & 12-A), signed by plaintiff, exculpated
Capt. Bustamante from any fault. We observed that the Report does not categorically state that Capt.
Bustamante was not at fault. It merely relates in chronological sequence what Capt. Bustamante and
plaintiff did from the take-off from Manila to the landing in Daet which resulted in an accident. On the
contrary, We may infer the negligence of Bustamante from the following portion of the Report, to wit:
". . . I felt his brakes strong but as we neared the intersection of the NE-SW runway, the brakes were not as
strong and I glanced at the system pressure which indicated 900 lbs. per sq. m."
It was during the above precise instance that Capt. Bustamante lost his bearing and disposition. Had he
maintained the pressure on the brakes the plane would not have overshot the runway. Verily, Bustamante
displayed slow reaction and poor judgment. (CA decision, pp. 8-12).
This Court is not impressed by, much less can We accept petitioner's invocation to calibrate once again the
evidence testified to in detail and plucked from the voluminous transcript to support petitioner's own
conclusion. It is not the task of this Court to discharge the functions of a trier of facts much less to enter
into a calibration of the evidence, notwithstanding petitioner's wail that the judgment of the respondent
court is based entirely on speculations, surmises and conjectures. We are convinced that respondent
court's judgment is supported by strong, clear and substantial evidence. Cdpr
Petitioner is a common carrier 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, as defined in Art. 1732,
New Civil Code. The law is clear in requiring a common carrier to exercise the highest degree of care in the
discharge of its duty and business of carriage and transportation under Arts. 1733, 1755 and 1756 of the
New Civil Code. These Articles provide:
Art. 1733.
Common carriers, from the nature of their business and for reasons of public policy, are
Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, 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.
Art. 1755.
A common carrier is bound to carry the passenger safely as far as human care and foresight
circumstances.
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.
The duty to exercise the utmost diligence on the part of common carriers is for the safety of passengers as
well as for the members of the crew or the complement operating the carrier, the airplane in the case at
bar. And this must be so for any omission, lapse or neglect thereof will certainly result to the damage,
prejudice, nay injuries and even death to all aboard the plane, passengers and crew members alike.
Now to the damages. The Court of Appeals affirmed the award of damages made by the trial court, stating
that "the damages awarded plaintiff by the lower court are in accordance with the facts, law and
jurisprudence." The court further observed that "defendant-appellant is still fortunate, considering that the
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unearned income was reckoned with only up to 1968 and not up to the present as plaintiff-appellee is still
living. Whatever mathematical error defendant-appellant could show by abstract argumentation, the same
must be compensated by such deficiency of the damages awarded to plaintiff-appellee."
As awarded by the trial court, private respondent was entitled to P198,000.00 as unearned income or
compensatory damages; P50,000.00 for moral damages, P20,000.00 as attorney's fees and P5,000.00 as
expenses of litigation, or a total of P273,000.00.
The trial court arrived at the sum of P198,000.00 as unearned income or damages by considering that
respondent Samson "could have continued to work as airline pilot for fifteen more years, he being only 38
years at the time the services were terminated by the defendant (PAL) and he would have earned
P120,000.00 from 1954 to 1963 or a period of ten (10) years at the rate of one thousand per month
(P750.00 basic salary plus P300.00 extra pay for extra flying time and bonuses; and considering further
that in 1964 the basic pay of defendant's pilot was increased to P12,000.00 annually, the plaintiff could
have earned from 1964 to 1968 the sum of P60,000.00 in the form of salaries and another P18,000.00 as
bonuses and extra pay for extra flying time at the same rate of P300 a month, or a grand total of
P198,000.00 for the entire period. This claim of the plaintiff for loss or impairment of earning capacity is
based on the provision of Article 2205 of the New Civil Code of the Philippines which provides that
"damages may be recovered for loss or impairment of earning capacity in cases of temporary or
permanent personal injury." This provision of law has been construed and interpreted in the case of
Aureliano Ropato, et al. vs. La Mallorca General Partnership, 56 O.G., 7812, which rules that law allows the
recovery of damages for loss or impairment of earning capacity in cases of temporary or permanent
personal injury." (Decision, CFI, pp. 98-99, Record on Appeal) prcd
The respondent appellate court modified the above award by ordering payment of legal interest on the
P198,000.00 unearned income from the filing of the claim, citing Sec. 8, Rule 51 of the Rules of Court.
Petitioner assails the award of the total sum of P198,000.00 as unearned income up to 1968 as being
tenuous because firstly, the trial court's finding affirmed by the respondent court is allegedly based on
pure speculation and conjecture and secondly, the award of P300.00 a month as extra pay for extra flying
time from 1954 to 1968 is likewise speculative. PAL likewise rejects the award of moral damages in the
amount of P50,000.00 on the ground that private respondent's action before the trial court does not fall
under any of the cases enumerated in the law (Art. 2219 of the New Civil Code) for which moral damages
are recoverable and that although private respondent's action gives the appearance that it is covered
under quasi-delict as provided in Art. 21 of the New Civil Code, the definition of quasi-delict in Art. 2176 of
the New Civil Code expressly excludes cases where there is a pre-existing contractual relation between the
parties, as in the case under consideration, where an employer-employee relationship existed between PAL
and private respondent. It is further argued that private respondent's action cannot be deemed to be
covered by Art. 21, inasmuch as there is no evidence on record to show that PAL "wilfully cause(d) loss or
injury to (private respondent) in a manner that is contrary to morals, good customs or public policy . . ."
Nor can private respondent's action be considered "analogous" to either of the foregoing, for the reasons
are obvious that it is not." (Memorandum of petitioner, pp. 418-421, Records)
Having affirmed the gross negligence of PAL in allowing Capt. Delfin Bustamante to fly the plane to Daet on
January 8, 1951 whose slow reaction and poor judgment was the cause of the crash-landing of the plane
which resulted in private respondent Samson hitting his head against the windshield and causing him
injuries for which reason PAL terminated his services and employment as pilot after refusing to provide him
with the necessary medical treatment of respondent's periodic spells, headache and general debility
produced from said injuries, We must necessarily affirm likewise the award of damages or compensation
under the provisions of Art. 1711 and Art. 1712 of the New Civil Code which provide:
Art. 1711.
Owners of enterprises and other employers are obliged to pay compensation for the death or
injuries to their laborers, workmen, mechanics or other employees, even though the event may have been
purely accidental or entirely due to a fortuitous cause, if the death or personal injury arose out of and in
the course of the employment. The employer is also liable for compensation if the employee contracts any
illness or disease caused by such employment or as the result of the nature of the employment. If the
mishap was due to the employee's own notorious negligence, or voluntary act, or drunkenness, the
employer shall not be liable for compensation. When the employee's lack of due care contributed to his
death or injury, the compensation shall be equitably reduced.
Art. 1712.
If the death or injury is due to the negligence of a fellow-worker, the latter and the employer
shall be solidarily liable for compensation. If a fellow-worker's intentional or malicious act is the only cause
282 | P a g e
of the death or injury, the employer shall not be answerable, unless it should be shown that the latter did
not exercise due diligence in the selection or supervision of the plaintiffs fellow-worker.
The grant of compensatory damages to the private respondent made by the trial court and affirmed by the
appellate court by computing his basic salary per annum at P750.00 a month as basic salary and P300.00
a month for extra pay for extra flying time including bonus given in December every year is justified. The
correct computation however should be P750 plus P300 x 12 months = P12,600 per annum x 10 years =
P126,000.00 (not P120,000.00 as computed by the court a quo). The further grant of increase in the basic
pay of the pilots to P12,000 annually for 1964 to 1968 totalling P60,000.00 and another P18,000.00 as
bonuses and extra pay for extra flying time at the same rate of P300.00 a month totals P78,000.00. Adding
P126,000.00 (1964 to 1968 compensation) makes a grand total of P204,000.00 (not P198,000.00 as
originally computed).
As to the grant of moral damages in the sum of P50,000.00 We also approve the same. We have noted and
considered the holding of the appellate court in the matter of bad faith on the part of PAL, stated
hereunder, this wise:
"None of the essential facts material to the determination of the case have been seriously assailed: the
overshooting of runway and crash-landing into the mangroves; the hitting of plaintiff's head to the front
windshield of the plane; the oozing of blood out of his ears, nose and mouth; the intermittent dizzy spells,
headaches and general debility thereafter for which he was discharged from his employment; the condition
of not to attribute the cause of the ailment to the crash-landing imposed in bad faith for a demanded
special medical service abroad; and the resultant brain injury which defendant's doctors could not
understand nor diagnose."
xxx
xxx
xxx
"The act of defendant-appellant in unjustly refusing plaintiff-appellee's demand for special medical service
abroad for the reason that plaintiff-appellee's deteriorating physical condition was not due to the accident
violates the provisions of Article 19 of the Civil Code on human relations "to act with justice, give everyone
his due, and observe honesty and good faith." (CA Resolution, pp. 151-152, Records)
We reject the theory of petitioner that private respondent is not entitled to moral damages. Under the facts
found by the trial court and affirmed by the appellate court and under the law and jurisprudence cited and
applied, the grant of moral damages in the amount of P50,000.00 is proper and justified.
The fact that private respondent suffered physical injuries in the head when the plane crash-landed due to
the negligence of Capt. Bustamante is undeniable. The negligence of the latter is clearly a quasi-delict and
therefore Article 2219, (2) New Civil Code is applicable, justifying the recovery of moral damages.
Even from the standpoint of the petitioner that there is an employer-employee relationship between it and
private respondent arising from the contract of employment, private respondent is still entitled to moral
damages in view of the finding of bad faith or malice by the appellate court, which finding We hereby
affirm, applying the provisions of Art. 2220, New Civil Code which provides that 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.
The justification in the award of moral damages under Art. 19 of the New Civil Code on Human Relations
which requires that every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith, as applied by respondent
court is also well-taken and We hereby give Our affirmance thereto. llcd
With respect to the award of attorney's fees in the sum of P20,000.00 the same is likewise correct. As
pointed out in the decision of the Court of Appeals, "the plaintiff is entitled to attorney's fees because he
was forced to litigate in order to enforce his valid claim (Ganaban vs. Bayle, 30 SCRA 365; De la Cruz vs.
De la Cruz, 22 SCRA 33; and many others); defendant acted in bad faith in refusing plaintiff's valid claim
(Filipino Pipe Foundry Corporation vs. Central Bank, 23 SCRA 1044); and plaintiff was dismissed and was
forced to go to court to vindicate his right (Nadura vs. Benguet Consolidated, Inc., 5 SCRA 879)."
We also agree with the modification made by the appellate court in ordering payment of legal interest from
the date judicial demand was made by Pilot Samson against PAL with the filing of the complaint in the
lower court. We affirm the ruling of the respondent court which reads:
"Lastly, the defendant-appellant claims that the legal rate of interest on the unearned compensation
should be computed from the date of the judgment in the lower court, not from the filing of the complaint,
citing a case where the issue raised in the Supreme Court was limited to when the judgment was rendered
283 | P a g e
in the lower court or in the appellate court, which does not mean that it should not be computed from the
filing of the complaint.
Articles 1169, 2209 and 2212 of the Civil Code govern when interest shall be computed. Thereunder
interest begins to accrue upon demand, extrajudicial or judicial. A complaint is a judicial demand
(Cabarroguis vs. Vicente, 107 Phil. 340). Under Article 2212 of the Civil Code, interest due shall earn legal
interest from the time it is judicially demanded, although the obligation may be silent upon this point." (CA
Resolution, pp. 153-154, Records).
The correct amount of compensatory damages upon which legal interest shall accrue from the filing of the
complaint is P204,000.00 as herein computed and not P198,000.00.
WHEREFORE, in view of all the foregoing, the judgment of the appellate court is hereby affirmed with slight
modification in that the correct amount of compensatory damages is P204,000.00. With costs against
petitioner.
SO ORDERED.
Makasiar and De Castro, JJ., concur.
Teehankee and Melencio-Herrera, JJ., concur in the result.
Footnotes
1.
Eighth Division, Agcaoili, J., ponente; Pascual and Climaco, JJ., concurring.
Sulpicio v. CA, 246 SCRA 299
FIRST DIVISION
[G.R. No. 106279. July 14, 1995.]
SULPICIO LINES, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS (Twelfth Division)
and JACINTA L. PAMALARAN, respondents.
Angara, Abella, Concepcion, Regala, & Cruz Law Offices for petitioner.
Caballero, Armentado, & Hubahilo Law Offices for private respondent.
SYLLABUS
COMMERCIAL LAWS; TRANSPORTATION; CONTRACT OF CARRIAGE; DAMAGES; PARTIES LIABLE. This Court
agrees with the Court of Appeals that although Pamalaran was never a passenger of Sulpicio Lines, Inc.
(herein petitioner) still the latter is liable as a common carrier for his death. The Court of Appeals relied on
Canas v. Dabatos, 8 Court of Appeals Report 918 (1965). Ago Lumber Company (ALC) had a contract of
carriage with petitioner. The presence of the stevedores sent by ALC on board the barge of petitioner was
called for by the contract of carriage. For how else would its lumber be transported unless it is placed on
board? And by whom? Of course, the stevedores. Definitely, petitioner could not expect the shipper itself
to load the lumber without the aid of the stevedores. Furthermore, petitioner knew of the presence and
role of the stevedores in its barge and thus consented to their presence. Hence, petitioner was responsible
for their safety while on board the barge. Petitioner next claims that its employees even warned the
stevedores and tried to prevent their entry into the storeroom. Such argument, again, is demolished by the
findings of the Court of Appeals, thus: ". . .. However, appellant failed to prove that its employees were
actually trained or given specific instructions to see to it that the barge is fit and safe not only in
transporting goods but also for people who would be loading the cargo into the bodega of the barge. It is
not enough that appellant's employees have warned the laborers not to enter the barge after the hatch
was opened. Appellant's employees should have been sufficiently instructed to see to it that the hatch of
the barge is not opened by any unauthorized person and that the hatch is not easily opened by anyone. At
the very least, precautionary measures should have been observed by appellant's employees to see to it
that no one could enter the bodega of the barge until after they have made sure that it is safe for anyone
to enter the same. Failing to exercise due diligence in the supervision of its employees, the lower court was
correct in holding appellant liable for damages."
DECISION
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QUIASON, J p:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse the
Decision dated April 8, 1992 of the Court of Appeals in CA-G.R. CV No. 21919, affirming the decision of the
Regional Trial Court of Bohol, Branch 2, Tagbilaran City, which awarded the claim for damages filed by
private respondent against CBL Timber Corporation.(CBL), AGO Lumber Company (ALC), Sulpicio Lines, Inc.
(SLI) and Ernie Santiago (Civil Case No. 2864). prLL
We deny the petition.
I
A contract of carriage was entered into between petitioner and ALC for the transport of the latter's timber
from Pugad, Lianga, Surigao del Sur.
On March 17, 1976, petitioner sent its tugboat "MT Edmund" and barge "Solid VI" to Lianga to pick up
ALC's timber. However, no loading could be made because of the heavy downpour. The next morning,
several stevedores of CBL, who were hired by ALC, boarded the "Solid VI" and opened its storeroom. The
stevedores were warned of the gas and heat generated by the copra stored in the holds of the ship. Not
heeding the warning, a stevedore entered the storeroom and fell unconscious. Two other stevedores
followed, one of whom was Leoncio L. Pamalaran. He also lost consciousness and eventually died of gas
poisoning.
Thus, Civil Case No. 2864 for damages was filed with the Regional Trial Court of Bohol, Branch 2, Tagbilaran
by Pamalaran's heirs against petitioner CBL, ALC and its manager, Ernie Santiago. The trial court ruled in
favor of plaintiffs, disposing as follows:
"WHEREFORE, finding a preponderance of evidence in favor of the plaintiffs, judgment is hereby rendered:
"Ordering defendants CBL Timber Corporation, AGO Lumber Company, Sulpicio Lines, Inc. and Ernie
Santiago to pay plaintiffs jointly and severally:
1.
Actual and compensatory damages of P40,000.00;
2.
Moral damages of P50,000.00;
3.
Attorney's fees of P20,000.00 and the costs of the suit" (Rollo, p. 57).
On appeal, the Court of Appeals in its Decision dated April 8, 1992 in CA-G.R. No. CV No. 21919, affirmed
the lower court's decision, the dispositive portion of which reads:
"WHEREFORE, WE AFFIRM the appealed judgment there being no justifiable reason that warrants the
reversal thereof. Costs against defendant-appellant" (Rollo, p. 32).
Not satisfied with the appellate court's decision, petitioner filed this petition.
II
Petitioner raises the following arguments:
1.
Pamalaran was never a passenger of petitioner. Therefore, it is not liable as a common carrier;
2.
Petitioner and its employees were not negligent in the series of events which led to the death of
Pamalaran;
3.
Petitioner is not liable under Article 2180 of the New Civil Code;
4.
It is CBL and/or ALC which should be held liable for the death of the victim; and,
5.
Petitioner should have been granted its just and valid counterclaims and cross claims.
We agree with the Court of Appeals that although Pamalaran was never a passenger of petitioner, still the
latter is liable as a common carrier for his death. The Court of Appeals relied on Canas v. Dabatos, 8 Court
of Appeals Report 918 (1965). In said case, 13 persons were on board the vessel of defendant not as
passengers but as 'cargadores' of the shipper's goods. They were there with the consent and knowledge of
the owner of the vessel. Despite the absence of a passenger-carrier relationship between them, the
appellate court, just the same, held the patron thereof liable as a common carrier. The appellate court
ruled:
"There is no debate as to the fact that not one of the thirteen passengers have paid an amount of money
as fare for their conveyance from Hingotanan to Cebu. The undisputed fact, however, is that all of them
were in the boat with the knowledge and consent of the patron. The eleven passengers, other than
Encarnacion and Diosdado, were in the boat because they have helped in loading cargoes in the boat, and
'to serve as cargadores of the cargoes,' presumably, in unloading them at the place of destination. For
those services they were permitted to be in the boat and to proceed to their destination in Cebu. The
services rendered were the valuable consideration in exchange for the transportation fare. 'In onerous
285 | P a g e
contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or
service by the other; . . .'" (at p. 925; Italics supplied).
ALC had a contract of carriage with petitioner. The presence of the stevedores sent by ALC on board the
barge of petitioner was called for by the contract of carriage. For how else would its lumber be transported
unless it is placed on board? And by whom? Of course, the stevedores. Definitely, petitioner could not
expect the shipper itself to load the lumber without the aid of the stevedores. Furthermore, petitioner knew
of the presence and role of the stevedores in its barge and thus consented to their presence. Hence,
petitioner was safety while on board the barge.
Petitioner next claims that its employees even warned the stevedores and tried to prevent their entry into
the storeroom. Such argument, again, is demolished by the findings of the Court of Appeals, thus:
". . .. However, appellant failed to prove that its employees were actually trained or given specific
instructions to see to it that the barge is fit and safe not only in transporting goods but also for people who
would be loading the cargo into the bodega of the barge. It is not enough that appellant's employees have
warned the laborers not to enter the barge after the hatch was opened. Appellant's employees should have
been sufficiently instructed to see to it that the hatch of the barge is not opened by any unauthorized
person and that the hatch is not easily opened by anyone. At the very least, precautionary measures
should have been observed by appellant's employees to see to it that no one could enter the bodega of
the barge until after they have made sure that it is safe for anyone to enter the same. Failing to exercise
due diligence in the supervision of its employees, the lower court was correct in holding appellant liable for
damages" (Rollo, pp. 31-32; Italics supplied).
Inasmuch as the findings of the Court of Appeals are merely an affirmance of the findings of the trial court,
which findings are supported by the evidence, we do not find any reason to reverse the same.
There is no quarrel that ALC and CBL are also liable as they were in fact held liable by both the trial and
appellate courts.
Both the counterclaims and cross-claims of petitioner are without legal basis. The counterclaims and cross
claims were based on the assumption that the other defendants are the ones solely liable. However,
inasmuch as its solidary liability with the other defendants has clearly been established by both the trial
and the appellate courts, which we find to be in order, we cannot make a different conclusion contrary to
that of the said courts. LibLex
Finally, the indemnity for the death of Leoncio L. Pamalaran is increased from P40,000.00 to P50,000.00 in
accordance with our ruling in People v. Flores, 237 SCRA 653 (1994).
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the award of
actual and compensatory damages is increased to P50,000.00.
SO ORDERED.
Padilla, Davide, Jr. and Kapunan, JJ., concur.
Bellosillo, J., on official leave.
2.
Duration of responsibility
Cf. Article 1736, Civil Code;

ARTICLE 1736. The extraordinary responsibility 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, without prejudice to the provisions of article 1738.
Article 17, Warsaw Convention (51 O.G. 5084), Article 698, Code of Commerce
ARTICLE 698.
In case a voyage already begun should be interrupted the passengers shall be
obliged only to pay the passage in proportion to the distance covered, and shall not be entitled to recover
for losses and damages if the interruption is due to an accidental cause or to force majeure, but have a
right to indemnity if the interruption should have been caused by the captain exclusively. If the interruption
286 | P a g e
should be by reason of the disability of the vessel, and the passenger should agree to await her repair, he
can not be required to pay any increased price of passage, but his living expenses during the delay shall
be for his own account.
In case the departure of the vessel is delayed the passengers have a right to remain on board and to be
furnished with food for the account of the vessel, unless the delay is due to an accidental cause or to force
majeure. If the delay should exceed ten days, the passengers who request it shall be entitled to the return
of the passage; and if it were due exclusively to the captain or agent they may furthermore demand
indemnity for losses and damages.
A vessel which is exclusively destined to the transportation of passengers must take them directly to the
port or ports of destination, no matter what the number of passengers may be, making all the stops
indicated in her itinerary.
Cangco v. MRR, supra
Del Prado v. Meralco, 52 Phil 900
EN BANC
[G.R. No. 29462. March 7, 1929.]
IGNACIO DEL PRADO, plaintiff-appellee, vs. MANILA ELECTRIC CO., defendant-appellant.
Ross, Lawrence & Selph and Antonio T. Carrascoso, Jr., for appellant.
Vicente Sotto, for appellee.
SYLLABUS
1.
CARRIERS; STREET RAILWAY; PASSENGER BOARDING MOVING CAR; DUTY OF MOTORMAN NOT TO
INCREASE RISK. Though there is no obligation on the part of a street railway company to stop its cars to
take on intending passengers at other points than those appointed for stoppage, nevertheless when the
motorman sees a person attempting to board the car while in motion, and at a place not appointed for
stopping, he should not do any act to increase the peril of such person; and if, in violation of this duty, the
motorman in charge of a car prematurely accelerates speed while the intending passenger is in the act of
boarding the car, with the result that he slips and gets his foot crushed under the wheel of the moving car,
the company is civilly liable in damages.
2.
ID.; ID.; ID.; OBLIGATION OF COMPANY TO PASSENGER. The relation between a carrier of
passengers for hire and its patrons is of a contractual nature; and the failure upon part of the carrier to use
due care in conveying its passengers safely is a breach of obligation under article 1101, and related
provisions, of the Civil Code. Furthermore, the duty that the carrier of passengers owes to its patrons
extends to persons boarding the cars as well as to those alighting therefrom.
3.
MASTER AND SERVANT; NEGLIGENCE OF SERVANT; BREACH OF CONTRACTUAL DUTY. The
defense indicated in the last paragraph of article 1903 of the Civil Code is not available to the master when
his servant is guilty of a breach of duty under article 1101 and related provisions of said Code.
4.
NEGLIGENCE; CONTRIBUTORY NEGLIGENCE; MITIGATION OF DAMAGES. Contributory negligence
upon part of a plaintiff, not amounting to the proximate cause of his injury, is not completely destructive of
his right of action in cases where liability arises from breach of a contractual duty; but such contributory
negligence goes in mitigation of damages, under article 1103 of the Civil Code.
Per JOHNSON, J., dissenting:
5.
STREET RAILWAY COMPANY, LIABILITY OF, FOR ALLEGED DAMAGES TO PASSENGERS. A street
railway company should not be held liable for damages done to a passenger when the motorman managed
the car carefully and with ordinary prudence at the moment of the alleged accident, and when the
passenger acted with imprudence and lack of care in attempting to board a street car while the same was
in motion. There is nothing in the record in the present case to justify a contribution of damages. One is
not entitled to recover damages for personal injuries which he himself, through his own negligence,
occasioned, without any negligence, imprudence or malice on the part of the person or entity charged with
causing said damages.
DECISION
STREET, J p:
287 | P a g e
This action was instituted in the Court of First Instance of Manila by Ignacio del Prado to recover damages
in the amount of P50,000 for person, injuries alleged to have been caused by the negligence of the
defendant, the Manila Electric Company, in the operation of one of its street cars in the City of Manila.
Upon hearing the cause the trial court awarded to the plaintiff the sum of P10,000, as damages, with costs
of suit, and the defendant appealed.
The appellant, the Manila Electric Company, is engaged in operating street cars in the City of Manila for the
conveyance of passengers; and on the morning of November 18, 1925, one Teodorico Florenciano, as
appellant's motorman, was in charge of car No. 74 running from east to west on R. Hidalgo Street, the
scene of the accident being at a point near the intersection of said street and Mendoza Street. After the car
had stopped at its appointed place for taking on and letting off passengers, just east of the intersection, it
resumed its course at a moderate speed under the guidance of the motorman. The car had proceeded only
a short distance, however, when the plaintiff, Ignacio del Prado, ran across the street to catch the car, his
approach being made from the left. The car was of the kind having entrance and exit at either end, and the
movement of the plaintiff was so timed that he arrived at the front entrance of the car at the moment
when the car was passing.
The testimony of the plaintiff and of Ciriaco Guevara, one of his witnesses, tends to show that the plaintiff,
upon approaching the car, raised his hand as an indication to the motorman of his desire to board the car,
in response to which the motorman eased up a little, without stopping. Upon this the plaintiff seized, with
his left hand, the front perpendicular handpost, at the same time placing his left foot upon the platform.
However, before the plaintiff's position had become secure, and even before his raised right foot had
reached the platform, the motorman applied the power, with the result that the car gave a slight lurch
forward. This sudden impulse to the car caused the plaintiff's foot to slip, and his hand was jerked loose
from the handpost. He therefore fell to the ground, and his right foot was caught and crushed by the
moving car. The next day the member had to be amputated in the hospital. The witness, Ciriaco Guevara,
also stated that, as the plaintiff started to board the car, he grasped the handpost on either side with both
right and left hand. The latter statement may possibly be incorrect as regards the use of his right hand by
the plaintiff, but we are of the opinion that the finding of the trial court to the effect that the motorman
slowed up slightly as the plaintiff was boarding the car and that the plaintiff's fall was due in part at least
to a sudden forward movement at the moment when the plaintiff put his foot on the platform is supported
by the evidence and ought not to be disturbed by us.
The motorman stated at the trial that he did not see the plaintiff attempting to board the car; that he did
not accelerate the speed of the car as claimed by the plaintiff's witnesses; and that he in fact knew nothing
of the incident until after the plaintiff had been hurt and some one called to him to stop. We are not
convinced of the complete candor of this statement, for we are unable to see how a motorman operating
this car could have failed to see a person boarding the car under-the circumstances revealed in this case. It
must be remembered that the front handpost which, as all witnesses agree, was grasped by the plaintiff in
attempting to board the car, was immediately on the left side of the motorman.
With respect to the legal aspects of the case we may observe at the outset that there is no obligation on
the part of a street railway company to stop its cars to let on intending passengers at other points than
those appointed for stoppage. In fact it would be impossible to operate a system of street cars if a
company engaged in this business were required to stop any and everywhere to take on people who are
too indolent, or who imagine themselves to be in too great a hurry, to go to the proper places for boarding
the cars. Nevertheless, although the motorman of this car was not bound to stop to let the plaintiff on, it
was his duty to do no act that would have the effect of increasing the plaintiff's peril while he was
attempting to board the car. The premature acceleration of the car was, in our opinion, a breach of this
duty.
The relation between a carrier of passengers for hire and its patrons is of a contractual nature; and a
failure on the part of the carrier to use due care in carrying its passengers safely is a breach of duty (culpa
contractual) under articles 1101, 1103, and 1104 of the Civil Code. Furthermore, the duty that the carrier
of passengers owes to its patrons extends to persons boarding the cars as well as to those alighting
therefrom. The case of Cangco vs. Manila Railroad Co. (38 Phil., 768), supplies an instance of the violation
of this duty with respect to a passenger who was getting off of a train. In that case the plaintiff stepped off
of a moving train, while it was slowing down in a station, and at a time when it was too dark for him to see
clearly where he was putting his feet. The employees of the company had carelessly left watermelons on
the platform at the place where the plaintiff alighted, with the result that his feet slipped and he fell under
the car, where his right arm was badly injured. This court held that the railroad company was liable for
288 | P a g e
breach of positive duty (culpa contractual), and the plaintiff was awarded damages in the amount of
P2,500 for the loss of his arm. In the opinion in that case the distinction is clearly drawn between a liability
for negligence arising from breach of contractual duty and that arising under articles 1902 and 1903 of the
Civil Code (culpa aquiliana).
The distinction between these two sorts of negligence is important in this jurisdiction, for the reason that
where liability arises from a mere tort (culpa aquiliana), not involving a breach of positive obligation, an
employer, or master, may exculpate himself, under the last paragraph of article 1903 of the Civil Code, by
proving that he had exercised due diligence to prevent the damage; whereas this defense is not available
if the liability of the master arises from a breach of contractual duty (culpa contractual). in the case before
us the company pleaded as a special defense that it had used all the diligence of a good father of a family
to prevent the damage suffered by the plaintiff; and to establish this contention the company introduced
testimony showing that due care had been used in training and instructing the motorman in charge of this
car in his art. But this proof is irrelevant in view of the fact that the liability involved was derived from a
breach of obligation under article 1101 of the Civil Code and related provisions. (Manila Railroad Co. vs.
Compaia Trasatlantica and Atlantic, Gulf & Pacific Co., 38 Phil., 875, 887; De Guia vs. Manila Electric
Railroad & Light Co., 40 Phil., 706, 710.)
Another practical difference between liability for negligence arising under article 1902 of the Civil Code
and liability arising from negligence in the performance of a positive duty, under article 1101 and related
provisions of the Civil Code, is that, in dealing with the latter form of negligence, the court is given a
discretion to mitigate liability according to the circumstances of the case (art 1103). No such general
discretion is given by the Code in dealing with liability arising under article 1902; though possibly the same
end is reached by courts in dealing with the latter form of liability because of the latitude of the
considerations pertinent to cases arising under this article.
As to the contributory negligence of the plaintiff, we are of the opinion that it should be treated, as in
Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil., 359), as a mitigating circumstance under article 1103 of
the Civil Code. It is obvious that the plaintiff's negligence in attempting to board the moving car was not
the proximate cause of the injury. The direct and proximate cause of the injury was the act of appellant's
motorman in putting on the power prematurely. A person boarding a moving car must be taken to assume
the risk of injury from boarding the car under the conditions open to his view, but he cannot fairly be held
to assume the risk that the motorman, having the situation in view, will increase his peril by accelerating
the speed of the car before he is planted safely on the platform. Again, the situation before us is one where
the negligent act of the company's servant succeeded the negligent act of the plaintiff, and the negligence
of the company must be considered the proximate cause of the injury. The rule here applicable seems to
be analogous to, if not identical with that which is sometimes referred to as the doctrine of "the last clear
chance." In accordance with this doctrine, the contributory negligence of the party injured will not defeat
the action if it be shown that the defendant might, by the exercise of reasonable care and prudence, have
avoided the consequences of the negligence of the injured party (20 R. C. L., p. 139; Carr vs. Interurban
Ry. Co., 185 Iowa, 872; 171 N. W., 167). The negligence of the plaintiff was, however, contributory to the
accident and must be considered as a mitigating circumstance.
With respect to the effect of this injury upon the plaintiff's earning power, we note that, although he lost
his foot, he is able to use an artificial member without great inconvenience and his earning capacity has
probably not been reduced by more than 30 per centum. In view of the precedents found in our decisions
with respect to the damages that ought to be awarded for the loss of a limb, and more particularly Rakes
vs. Atlantic, Gulf and Pacific Co. (7 Phil., 359); Cangco vs. Manila Railroad Co. (38 Phil., 768); and
Borromeo vs. Manila Electric Railroad and Light Co. (44 Phil., 165), and in view of all the circumstances
connected with the case, we are of the opinion that the plaintiff will be adequately compensated by an
award of P2,500.
It being understood, therefore, that the appealed judgment is modified by reducing the recovery to the
sum of P2,500, the judgment, as thus modified, is affirmed. So ordered, with costs against the appellant.
Malcolm, Villamor, Ostrand, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
JOHNSON, J., dissenting:
This appeal presents a hard case, whichever way it is decided.
I read the entire record in this case before it was submitted to the second division for decision. I was then
the ponente. I was then convinced, as I am now, after a reexamination of the record, that the judgment of
the lower court should be revoked for the following reasons:
289 | P a g e
(a)
That the motorman managed the car carefully and with ordinary prudence at the moment the
alleged accident occurred;
(b)
That the appellee acted with imprudence and lack of due care in attempting to board a street car
while the same was in motion; and
(c)
That he contributed to his own injury, without and negligence or malice or imprudence on the part
of the defendant.
There is nothing in the record which even remotely justifies a contribution of damages between the
appellee and the appellant. The appellee should be required to suffer the damages which he himself,
through his own negligence, occasioned, without any negligence, imprudence or malice on the part of the
appellant.
Therefore, the judgment of the court a quo should be revoked, and the appellant absolved from all liability
under the complaint.
Johns, J., concurs.
La Mallorca v. Court of Appeals 17 SCRA 739
EN BANC
[G.R. No. L-20761. July 27, 1966.]
LA MALLORCA, petitioner, vs. HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET AL.,
respondents.
G. E. Yabut, R. Monterey and M. C. Lagman for petitioner.
Achmed Garcia for respondents.
SYLLABUS
1.
COMMON CARRIERS; CARRIER - PASSENGER RELATION CONTINUES UNTIL PASSENGER HAS
REASONABLE TIME TO LEAVE CARRIER'S PREMISES. The relation of carrier and passenger does not cease
at the moment the passenger alights from the carrier's vehicle at a place selected by the carrier at the
point of destination, but continues until the passenger has had a reasonable time or a reasonable
opportunity to leave the carrier's premises (Ormond vs. Hayes, 60 Tex. 180, cited in 10 C.J. 626).
2.
ID.; ID.; "REASONABLE TIME" CONSTRUED. What is a reasonable time or a reasonable delay is to
be determined from all the circumstances. Thus, a person who, after alighting from a train, walks along the
station platform, is considered still a passenger (Keefe vs. Boston, etc. R. Co., 142 Mass. 251, 7 N.E. 874).
So also, where a passenger has alighted at his destination and is proceeding by the usual way to leave the
company's premises, but before actually doing so is halted by the report that his brother, a fellow
passenger, has been shot, and he in good faith and without intent of engaging in the difficulty, returns to
relieve his brother, he is deemed reasonably and necessarily delayed and thus continues to be a
passenger entitled as such to the protection of the railroad and company and its agents (Layne vs.
Chesapeake, etc., R. Co., 68 W. Va. 213, 69 S.E. 700, 31 L.R.A., [N.S.] 414).
3.
ID.; ID.; CARRIER'S RESPONSIBILITY FOR NEGLIGENCE; CASE AT BAR. In the present case, the
father returned to the bus to get one of his baggages which was not unloaded when he end other members
of his family alighted from the bus. The victim, one of his minor daughters, must have followed her father.
However, although the father was still on the running board of the bus awaiting for the conductor to hand
to him the bag or bayong, the bus started to run, so that even he (the father) had to jump down from the
moving vehicle. It was at this instance that the child, who must be near the bus, was run over and killed.
Held: In the circumstances, it cannot be claimed that the carrier's agent had exercised the "utmost
diligence" of a "very cautious person" required by Article 1755 of the Civil Code to be observed by a
common carrier in the discharge of its obligation to transport safely its passengers. In the first place, the
driver, although stopping the bus, did not put off the engine. Secondly, he started to run the bus even
before the bus conductor gave him the signal to go and while the latter was still unloading a baggage of
some passengers. The presence of said passengers near the bus was not unreasonable and they are,
therefore, to be considered still as passengers of the carrier, entitled to the protection under their contract
of carriage.
4.
ID.; ID.; ID.; AVERMENT FOR QUASI-DELICT, ALTHOUGH INCOMPATIBLE WITH CLAIM UNDER
CONTRACT OF CARRIAGE, PERMISSIBLE. The inclusion of the averment for quasi-delict in appellee's
complaint in the court a quo, while incompatible with the other claim under the contract of carriage, is
permissible under Section 2, Rule 8 of the new Rules of Court, which allows a plaintiff to allege causes of
290 | P a g e
action in the alternative, be they compatible with each other or not, to the end that the real matter in
controversy may be resolved and determined (Nelayan, et al. vs. Nelayan, et al., 109 Phil., 183).
5.
ID.; ID.; ID.; ID.; EFFECT OF PRESENTATION OF PROOF OF CARRIER'S NEGLIGENCE; CASE AT BAR. The presentation of proof of the negligence of its employee gave rise to the presumption that the
defendant employer did not exercise the diligence of a good father of the family in the selection and
supervision of its employees. This presumption not having been overcome, the employer must be
adjudged pecuniarily liable for the death of the passenger.
6.
ID.; ID.; ID.; ID.; ID.; SUFFICIENT ALLEGATION IN THE COMPLAINT; CASE AT BAR. The allegation in
the complaint to the effect that "the death of Raquel Beltran, plaintiffs' daughter, was caused by the
negligence and want of exercise of the utmost diligence of a very cautious person on the part of the
defendants and their agent," sufficiently pleads the culpa or negligence upon which the claim was
predicated. This allegation was proved when it was established during the trial that the driver, even before
receiving the proper signal from the conductor, and while there were still persons on the running board of
the bus and near it, started to run off the vehicle.
7.
APPEALS; WHAT CAN BE PASSED UPON ON APPEAL; CASE AT BAR. Generally, the appellate court
can only pass upon and consider questions or issues raised and argued in appellant's brief. In the case at
bar, plaintiffs did not appeal from that portion of the judgment of the trial court awarding them only
P3,000.00 as damages for the death of their daughter. Neither did they point out in their brief in the Court
of Appeals that the award was inadequate, or that the inclusion of that figure was merely a clerical error, in
order that the matter may be treated as an exception to the general rule (Section 7, Rule 51, new Rules of
Court). The Court of Appeals therefore erred in raising the amount of the award.
DECISION
BARRERA, J .:
La Mallorca seeks the review of the decision of the Court of Appeals in CA- G. R. No. 23267-R, holding it
liable for quasi-delict and ordering it to pay to respondents Mariano Beltran, et al. P6,000.00 for the death
of his minor daughter Raquel Beltran, plus P400.00 as actual damages. cdrep
The facts of the case, as found by the Court of Appeals, briefly are:
"On December 20, 1953, at about noontime, plaintiffs, husband and wife, together with their minor
daughters, namely Milagros, 13 years old, Raquel, about 4-1/2 years old, and Fe, over 2 years old, boarded
the Pambusco Bus No. 352, bearing plate TPU No. 757 (1953 Pampanga), owned and operated by the
defendant, at San Fernando, Pampanga, bound for Anao, Mexico, Pampanga. At the time, they were
carrying with them four pieces of baggages containing their personal belongings. The conductor of the bus
who happened to be a half-brother of plaintiff Mariano Beltran, issued three tickets (Exhs. A, B, & C)
covering the full fares of the plaintiff and their eldest child, Milagros. No fare was charged on Raquel and
Fe, since both were below the height at which fare is charged in accordance with the appellant's rules and
regulations.
"After about an hour's trip, the bus reached Anao, whereat it stopped to allow the passengers bound
therefor, among whom were the plaintiffs and their children to get off. With respect to the group of the
plaintiffs, Mariano Beltran, then carrying some of their baggages, was the first to get down the bus,
followed by his wife and his children. Mariano led his companions to a shaded spot on the left pedestrians
side of the road about four or five meters away from the vehicle. Afterwards, he returned to the bus in
controversy to get his other bayong, which he had left behind, but in so doing, his daughter Raquel
followed him unnoticed by her father. While said Mariano Beltran was on the running board of the bus
waiting for the conductor to hand him his bayong which he left under one of its seats near the door; the
bus, whose motor was not shut off while unloading, suddenly started moving forward, evidently to resume
its trip, notwithstanding the fact that the conductor has not given the driver the customary signal to start,
since said conductor was still attending to the baggage left behind by Mariano Beltran. Incidentally, when
the bus was again placed into a complete stop, it had travelled about ten meters from the point where the
plaintiffs had gotten off.
"Sensing that the bus was again in motion, Mariano Beltran immediately jumped from the running board
without getting his bayong from the conductor. He landed on the side of the road almost in front of the
shaded place where he left his wife and children. At that precise time, he saw people beginning to gather
around the body of the child lying prostrate on the ground, her skull, crushed, and without life. The child
291 | P a g e
was none other than his daughter Raquel, who was run over by the bus in which she rode earlier together
with her parents.
"For the death of their said child, the plaintiffs commenced the present suit against the defendant seeking
to recover from the latter an aggregate amount of P6,000 to cover moral damages and actual damages
sustained as a result thereof and attorney's fees. After trial on the merits the court below rendered the
judgment in question."
On the basis of these facts, the trial court found defendant liable for breach of contract of carriage and
sentenced it to pay P3,000.00 for the death of the child and P400.00 as compensatory damages
representing burial expenses and costs. LLpr
On appeal to the Court of Appeals, La Mallorca claimed that there could not be a breach of contract in the
case, for the reason that when the child met her death, she was no longer a passenger of the bus involved
in the incident and, therefore, the contract of carriage had already terminated. Although the Court of
Appeals sustained this theory, it nevertheless found the defendant-appellant guilty of quasi- delict and
held the latter liable for damages, for the negligence of its driver, in accordance with Article 2180 of the
Civil Code. And, the Court of Appeals did not only find the petitioner liable, but increased the damages
awarded the plaintiffs-appellees to P6,000.00, instead of P3,000.00 granted by the trial court.
In its brief now before us, La Mallorca contends that the Court of Appeals erred (1) in holding it liable for
quasi- delict, considering that respondents' complaint was one for breach of contract, and (2) in raising the
award of damages from P3,000.00 to P6,000.00 although respondents did not appeal from the decision of
the lower court.
Under the facts as found by the Court of Appeals we have to sustain the judgment holding petitioner liable
for damages for the death of the child, Raquel Beltran. It may be pointed out that although it is true that
respondent Mariano Beltran, his wife, and their children (including the deceased child) had alighted from
the bus at a place designated for disembarking or unloading of passengers, it was also established that the
father had to return to the vehicle (which was still at a stop) to get one of his bags or bayong that was left
under one of the seats of the bus. There can be no controversy that as far as the father is concerned, when
he returned to the bus for his bayong which was not unloaded, the relation of passenger and carrier
between him and the petitioner remained subsisting. For, the relation of carrier and passenger does not
necessarily cease where the latter, after alighting from the car, aids the carrier's servant or employee in
removing his baggage from the car. 1 The issue to be determined here is whether as to the child, who was
already led by the father to a place about 5 meters away from the bus, the liability of the carrier for her
safety under the contract of carriage also persisted. LexLib
It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment
the passenger alights from the carrier's vehicle at a place selected by the carrier at the point of
destination, but continues until the passenger has had a reasonable time or a reasonable opportunity to
leave the carrier's premises. And, what is a reasonable time or a reasonable delay within this rule is to be
determined from all the circumstances. Thus, a person who, after alighting from a train, walks along the
station platform is considered still a passenger. 2 So also, where a passenger has alighted at his
destination and is proceeding by the usual way to leave the company's premises, but before actually doing
so is halted by the report that his brother, a fellow passenger, has been shot, and he in good faith and
without intent of engaging in the difficulty, returns to relieve his brother, he is deemed reasonably and
necessarily delayed and thus continues to be a passenger entitled as such to the protection of the railroad
and company and its agents. 3
In the present case, the father returned to the bus to get one of his baggages which was not unloaded
when they alighted from the bus. Raquel, the child that she was, must have followed the father. However,
although the father was still on the running board of the bus awaiting for the conductor to hand him the
bag or bayong, the bus started to run, so that even he (the father) had to jump down from the moving
vehicle. It was at this instance that the child, who must be near the bus, was run over and killed. In the
circumstances, it cannot be claimed that the carrier's agent had exercised the "utmost diligence" of a
"very cautious person" required by Article 1755 of the Civil Code to be observed by a common carrier in
the discharge of its obligation to transport safely its passengers. In the first place, the driver, although
stopping the bus, nevertheless did not put off the engine. Secondly, he started to run the bus even before
the bus conductor gave him the signal to go and while the latter was still unloading part of the baggages
of the passengers Mariano Beltran and family. The presence of said passengers near the bus was not
unreasonable and they are, therefore, to be considered still as passengers of the carrier, entitled to the
protection under their contract of carriage.
292 | P a g e
But even assuming arguendo that the contract of carriage has already terminated, herein petitioner can be
held liable for the negligence of its driver, as ruled by the Court of Appeals, pursuant to Article 2180 of the
Civil Code. Paragraph 7 of the complaint, which reads
"That aside from the aforesaid breach of contract, the death of Raquel Beltran, plaintiff's daughter, was
caused by the negligence and want of uxorious of the utmost diligence of a very cautious person on the
part of the defendants and their agent, necessary to transport plaintiffs and their daughter safely as far as
human and care and foresight can provide in the operation of their vehicle."
is clearly an allegation for quasi-delict. The inclusion of this averment for quasi-delict, while incompatible
with the other claim under the contract of carriage, is permissible under Section 2 of Rule 8 of the New
Rules of Court, which allows a plaintiff to allege causes of action in the alternative, be they compatible with
each other or not, to the end that the real matter in controversy may be resolved and determined. 4
The plaintiffs sufficiently pleaded the culpa or negligence upon which the claim was predicated when it was
alleged in the complaint that "the death of Raquel Beltran, plaintiffs' daughter, was caused by the
negligence and want of exercise of the utmost diligence of a very cautious person on the part of the
defendants and their agent." This allegation was also proved when it was established during the trial that
the driver, even before receiving the proper signal from the conductor, and while there were still persons
on the running board of the bus and near it, started to run off the vehicle. The presentation of proof of the
negligence of its employee gave rise to the presumption that the defendant employer did not exercise the
diligence of a good father of the family in the selection and supervision of its employees. And this
presumption, as the Court of Appeals found, petitioner had failed to overcome. Consequently, petitioner
must be adjudged pecuniarily liable for the death of the child Raquel Beltran.
The increase of the award of damages from P3,000.00 to P6,000.00 by the Court of Appeals, however,
cannot be sustained. Generally, the appellate court can only pass upon and consider questions or issues
raised and argued in appellant's brief. Plaintiffs did not appeal from that portion of the judgment of the trial
court awarding them only P3,000.00 damages for the death of their daughter. Neither does it appear that,
as appellees in the Court of Appeals, plaintiffs have pointed out in their brief the inadequacy of the award,
or that the inclusion of the figure P3,000.00 was merely a clerical error, in order that the matter may be
treated as an exception to the general rule. 5 Herein petitioner's contention, therefore, that the Court of
Appeals committed error in raising the amount of the award for damages is, evidently, meritorious. cdrep
WHEREFORE, the decision of the Court of Appeals is hereby modified by sentencing the petitioner to pay to
the respondents Mariano Beltran, et al., the sum of P3,000.00 for the death of the child, Raquel Beltran,
and the amount of P400.00 as actual damages. No costs in this instance. So ordered.
Concepcion, C.J ., J.B.L., Reyes, Dizon, Regala, J.P. Bengzon, Zaldivar, Sanchez and Castro, JJ ., concur.
Makalintal, J., concurs in the result.
Footnotes
1.
2.
3.
4.
5.
Ormond vs. Hayer, 60 Tex. 180, cited in 10 C.J. 626.

Keefe vs. Boston, etc., R. Co., 142 Mass. 251, 7 NE 874.
Layne vs. Chesapeake, etc., R. Co., 68 W. Va. 213, 69 SE 700, 31 LRANS 414.
Nelayan, et al. vs. Nelayan, et al., 109 Phil. 183.
Sec. 7, Rule 51, New Rules of Court.
Bataclan v. Medina 104 Phil 181
EN BANC
[G.R. No. L-10126. October 22, 1957.]
SALUD VILLANUEVA VDA. DE BATACLAN and the minors NORMA, LUZVIMINDA, ELENITA, OSCAR
and ALFREDO BATACLAN, represented by their Natural guardian, SALUD VILLANUEVA VDA. DE
BATACLAN, plaintiffs-appellants, vs. MARIANO MEDINA, defendant-appellant.
Lope E. Adriano, Emmanuel Andamo and Jose R. Francisco for plaintiffs-appellants.
Fortunato Jose for defendant-appellant.
SYLLABUS
293 | P a g e
1.
DAMAGES; CARRIER'S LIABILITY; WORDS AND PHRASES; PROXIMATE CAUSE DEFINED. "The
proximate legal cause is that the acting first and producing the injury, either immediately or by setting
other events in motion., all constituting a natural and continuous chain of events, each having a close
causal connection with its immediate predecessor, the final event in the chain immediately affecting the
injury as a natural and probable result of the cause which first acted, under such circumstances that the
person responsible for the first event should, as ordinarily prudent and intelligent person, have reasonable
ground to expect at the moment of his act or default that an injury to some person might be probably
result therefrom."
2.
ID.; ID.; OVERTURNING OF BUS; PROXIMATE CAUSE OF DEATH. When a vehicle turned not only on
its side but completely on its back, the leaking of the gasoline from the tank was not unnatural or
unexpected; that the coming of the men with the lighted torch was in response to the call for help, made
not only by the passengers, but most probably by the driver and the conductor themselves, and that
because it was very dark (about 2:30 in the morning), the rescuers had to carry a light with them; and
coming as they did from a rural area where the lanterns and flashlights were not available, they had to use
a torch the most handy and available; and what was more natural, that said rescuers should innocently
approached the overtuned vehicle to extend the aid and effect the rescue requested from them. Held: That
the proximate cause of the death of B was overturning of the vehicle thru the negligence of defendant and
his agent.
3.
ID.; ID.; CARRIER'S NEGLIGENCE; BURNING OF THE BUS. The burning of the bus wherein some of
the passengers were trapped can also be attributed to the negligence of the carrier, through the driver and
conductor who were on the road walking back and forth. They should and must have known that in the
position in which the overtuned bus was, gasoline could and must have leaked from the gasoline tank and
soaked the area in and around the bus, this aside from the fact that gasoline when spilled, especially over
a large area, can be smelt and detected even from a distance, Held: That the failure of the driver and the
conductor to have cautioned or taken steps to warn the rescuers not to bring the lighted torch too near the
bus, constitute negligence on the part of the agents of the carrier under the provisions of the Civil Code,
particularly, Article 1733, 1759 and 1763 thereof.
DECISION
MONTEMAYOR, J p:
Shortly after midnight, on September 13, 1952, bus No. 30 of the Medina Transportation, operated by its
owner, defendant Mariano Medina, under a certificate of public convenience, left the town of Amadeo,
Cavite, on its way to Pasay City, driven by its regular chauffeur, Conrado Saylon. There were about
eighteen passengers, including the driver and conductor. Among the passengers were Juan Bataclan,
seated beside and to the right of the driver, Felipe Lara, seated to the right of Bataclan, another passenger
apparently from the Visayan Islands whom the witnesses just called Visaya, apparently not knowing his
name, seated on the left side of the driver, and a woman named Natalia Villanueva, seated just behind the
four last mentioned. At about 2 :00 o'clock that same morning, while the bus was running within the
jurisdiction of Imus, Cavite, one of the front tires burst and the vehicle began to zig-zag until it fell into a
canal or ditch on the right side of the road and turned turtle. Some of the passengers managed to leave
the bus the best way they could, others had to be helped or pulled out, while the three passengers seated
beside the driver, named Bataclan, Lara and the Visayan and the woman behind them named Natalia
Villanueva, could not get out of the overturned bus. Some of the passengers, after they had clambered up
to the road, heard groans and moans from inside the bus, particularly, shouts for help from Bataclan and
Lara, who said that they could not get out of the bus. There, is nothing in the evidence to show whether or
not the passengers already free from the wreck, including the driver and the conductor, made any attempt
to pull out or extricate and rescue the four passengers trapped inside the vehicle, but calls or shouts for
help were made to the houses in the neighborhood. After half an hour, came about ten men, one of them
carrying a lighted torch made of bamboo with a wick on one end, evidently fueled with petroleum. These
men presumably approached the overturned bus, and almost immediately, a fierce fire started, burning
and all but consuming the bus, including the four passengers trapped inside it. It would appear that as the
bus overturned, gasoline began to leak and escape from the gasoline tank on the side of the chassis,
spreading over and permeating the body of the bus and the ground under and around it, and that the
lighted torch brought by one of the men who answered the call for help set it on fire.
294 | P a g e
That same day, the charred bodies of the four doomed passengers inside the bus were removed and duly
identified, specially that of Juan Bataclan. By reason of his death, his widow, Salud Villanueva, in her name
and in behalf of her five minor children, brought the present suit to recover from Mariano Medina
compensatory, moral, and exemplary damages and attorney's fees in the total amount of P87,150. After
trial, the Court of First Instance of Cavite awarded P1,000 to the plaintiffs, plus P600 as attorney's fee, plus
P100, the value of the merchandise being carried by Bataclan to Pasay City for sale and which was lost in
the fire. The plaintiffs and the defendants appealed the decision to the Court of Appeals, but the latter
court endorsed the appeal to us because of the value involved in the claim in the complaint.
Our New Civil Code amply provides for the responsibility of a common carrier to its passengers and their
goods. For purposes of reference, we are reproducing the pertinent codal provisions:
"ART. 1733. Common carriers, from the nature of their business and for reasons of public policy, are
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735,
and 1745, Nos. 5, 6, and 7 while the extraordinary diligence for the safety of the passengers is further set
forth in articles 1755 and 1756."
circumstances."
"ART. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at
prescribed in articles 1733 and 1755."
"ART. 1759. 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.
good father of a family in the selection and supervision of their employees."
"ART. 1763. A common carrier is responsible for injuries suffered by a passenger on account of the wilful
acts or negligence of other passengers or of strangers, if the common carrier's employees through the
exercise of the diligence of a good father of a family could have prevented or stopped the act or omission."
We agree with the trial court that the case involves a breach of contract of transportation for hire, the
Medina Transportation having undertaken to carry Bataclan safely to his destination, Pasay City. We also
agree with the trial court that there was negligence on the part of the defendant, through his agent, the
driver Saylon. There is evidence to show that at the time of the blow out, the bus was speeding, as
testified to by one of the passengers, and as shown by the fact that according to the testimony of the
witnesses, including that of the defense, from the point where one of the front tires burst up to the canal
where the bus overturned after zig-zagging, there was a distance of about 150 meters. The chauffeur, after
the blow-out, must have applied the brakes in order to stop the bus, but because of the velocity at which
the bus must have been running, its momentum carried it over a distance of 150 meters before it fell into
the canal and turned turtle.
There is no question that under the circumstances, the defendant carrier is liable. The only question is to
what degree. The trial court was of the opinion that the proximate cause of the death of Bataclan was not
the overturning of the bus, but rather, the fire that burned the bus, including himself and his copassengers who were unable to leave it; that at the time the fire started, Bataclan, though he must have
suffered physical injuries, perhaps serious, was still alive, and so damages were awarded, not for his death,
but for the physical injuries suffered by him. We disagree. A satisfactory definition of proximate cause is
found in Volume 38, pages 695-696 of American Jurisprudence, cited by plaintiffs-appellants in their brief. It
is as follows:
". . . 'that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred.' And more comprehensively,
'the proximate legal cause is that acting first and producing the injury, either immediately or by setting
other events in motion, all constituting a natural and continuous chain of events, each having a close
causal connection with its immediate predecessor, the final event in the chain immediately effecting the
injury as a natural and probable result of the cause which first acted, under such circumstances that the
person responsible for the first event should, as an ordinarily prudent and intelligent person, have
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reasonable ground to expect at the moment of his act or default that an injury to some person might
probably result therefrom."
It may be that ordinarily, when a passenger bus overturns, and pins down a passenger, merely causing him
physical injuries, if through some event, unexpected and extraordinary, the overturned bus is set on fire,
say, by lightning, or if some highwaymen after looting the vehicle sets it on fire, and the passenger is
burned to death, one might still contend that the proximate cause of his death was the fire and not the
overturning of the vehicle. But in the present case and under the circumstances obtaining in the same, we
do not hesitate to hold that the proximate cause of the death of Bataclan was the overturning of the bus,
this for the reason that when the vehicle turned not only on its side but completely on its back, the leaking
of the gasoline from the tank was not unnatural or unexpected; that the coming of the men with a lighted
torch was in response to the call for help, made not only by the passengers, but most probably, by the
driver and the conductor themselves, and that because it was very dark (about 2:30 in the morning), the
rescuers had to carry a light with them; and coming as they did from a rural area where lanterns and
flashlights were not available, they had to use a torch, the most handy and available; and what was more
natural than that said rescuers should innocently approach the overturned vehicle to extend the aid and
effect the rescue requested from them. In other words, the coming of the men with the torch was to be
expected and was a natural sequence of the overturning of the bus, the trapping of some of its passengers
and the call for outside help. What is more, the burning of the bus can also in part be attributed to the
negligence of the carrier, through its driver and its conductor. According to the witnesses, the driver and
the conductor were on the road walking back and forth. They, or at least, the driver should and must have
known that in the position in which the overturned bus was, gasoline could and must have leaked from the
gasoline tank and soaked the area in and around the bus, this aside from the fact that gasoline when
spilled, specially over a large area, can be smelt and detected even from a distance, and yet neither the
driver nor the conductor would appear to have cautioned or taken steps to warn the rescuers not to bring
the lighted torch too near the bus. Said negligence on the part of the agents of the carrier come under the
codal provisions above- reproduced, particularly, Articles 1733, 1759 and 1763.
As regards the damages to which plaintiffs are entitled, considering the earning capacity of the deceased,
as well as the other elements entering into a damage award, we are satisfied that the amount of SIX
THOUSAND (P6,000) PESOS would constitute satisfactory compensation, this to include compensatory,
moral, and other damages. We also believe that plaintiffs are entitled to attorney's fees, and assessing the
legal services rendered by plaintiffs' attorneys not only in the trial court, but also in the course of the
appeal, and not losing sight of the able briefs prepared by them, the attorney's fees may well be fixed at
EIGHT HUNDRED (P800) PESOS. The award made by the trial court of ONE HUNDRED (P100) PESOS for the
loss of the merchandise carried by the deceased in the bus, is adequate and will not be disturbed.
There is one phase of this case which disturbs if it does not shock us. According to the evidence, one of the
passengers who, because of the injuries suffered by her, was hospitalized, and while in the hospital, she
was visited by the defendant Mariano Medina, and in the course of his visit, she overheard him speaking to
one of his bus inspectors, telling said inspector to have the tires of the bus changed immediately because
they were already old, and that as a matter of fact, he had been telling the driver to change the said tires,
but that the driver did not follow his instructions. If this be true, it goes to prove that the driver had not
been diligent and had not taken the necessary precautions to insure the safety of his passengers. Had he
changed the tires, specially those in front, with new ones, as he had been instructed to do, probably,
despite his speeding, as we have already stated, the blow out would not have occurred. All in all, there is
reason to believe that the driver operated and drove his vehicle negligently, resulting in the death of four
of his passengers, physical injuries to others, and the complete loss and destruction of their goods, and yet
the criminal case against him, on motion of the fiscal and with his consent, was provisionally dismissed,
because according to the fiscal, the witnesses on whose testimony he was banking to support the
complaint, either failed to appear or were reluctant to testify. But the record of the case before us shows
that several witnesses, passengers in that bus, willingly and unhesitatingly testified in court to the effect
that the said driver was negligent. In the public interest, the prosecution of said erring driver should be
pursued, this, not only as a matter of justice, but for the promotion of the safety of passengers on public
utility buses. Let a copy of this decision be furnished the Department of Justice and the Provincial Fiscal of
Cavite.
In view of the foregoing, with the modification that the damages awarded by the trial court are increased
from ONE THOUSAND (P1,000) PESOS to SIX THOUSAND (P6,000) PESOS, and from SIX HUNDRED PESOS
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TO EIGHT HUNDRED (P800) PESOS, for the death of Bataclan and for attorney's fees, respectively, the
decision appealed from is hereby affirmed, with costs.
Paras, C. J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion., Reyes, J. B. L., Endencia
and Felix, JJ., concur.
Aboitiz v. CA, 179 SCRA 95
SECOND DIVISION
[G.R. No. 84458. November 6, 1989.]
ABOITIZ SHIPPING CORPORATION, petitioner, vs. HON. COURT OF APPEALS, ELEVENTH
DIVISION, LUCILA C. VIANA, SPS. ANTONIO VIANA and GORGONIA VIANA, and PIONEER
STEVEDORING CORPORATION, respondents.
Herenio E. Martinez for petitioner.
M.R. Villaluz Law Office for private respondent.
SYLLABUS
1.
COMMERCIAL LAW; COMMON CARRIERS; CARRIER-PASSENGER RELATIONSHIP; CONTINUES UNTIL
PASSENGER HAS BEEN LANDED AT THE PORT OF DESTINATION AND HAS LEFT VESSEL OWNER'S DOCK OR
PREMISES. The rule is that the relation of carrier and passenger continues until the passenger has been
landed at the port of destination and has left the vessel owner's dock or premises. Once created, the
relationship will not ordinarily terminate until the passenger has, after reaching his destination, safely
alighted from the carrier's conveyance or had a reasonable opportunity to leave the carrier's premises. All
persons who remain on the premises a reasonable time after leaving the conveyance are to be deemed
passengers, and what is a reasonable time or a reasonable delay within this rule is to be determined from
all the circumstances, and includes a reasonable time to see after his baggage and prepare for his
departure. The carrier-passenger relationship is not terminated merely by the fact that the person
transported has been carried to his destination if, for example, such person remains in the carrier's
premises to claim his baggage.
2.
ID.; ID.; ID.; EXISTENCE OF A REASONABLE CAUSE AS WILL JUSTIFY PRESENCE OF VICTIM ON OR
NEAR PETITIONER'S VESSEL, A PRIMARY FACTOR. It is apparent from the case of La Mallorca vs. Court of
Appeals, et. al. that what prompted the Court to rule as it did in said case is the fact of the passenger's
reasonable presence within the carrier's premises. That reasonableness of time should be made to depend
on the attending circumstances of the case, such as the kind of common carrier, the nature of its business,
the customs of the place, and so forth, and therefore precludes a consideration of the time element per se
without taking into account such other factors. It is thus of no moment whether in the cited case of La
Mallorca there was no appreciable interregnum for the passenger therein to leave the carrier's premises
whereas in the case at bar, an interval of one (1) hour had elapsed before the victim met the accident. The
primary factor to be considered is the existence of a reasonable cause as will justify the presence of the
victim on or near the petitioner's vessel. We believe there exists such a justifiable cause.
3.
ID.; ID.; ID.; PASSENGERS OF VESSELS ARE ALLOTED A LONGER PERIOD OF TIME TO DISEMBARK
FROM SHIP THAN OTHER COMMON CARRIERS; REASON. It is of common knowledge that, by the very
nature of petitioner's business as a shipper, the passengers of vessels are allotted a longer period of time
to disembark from the ship than other common carriers such as a passenger bus. With respect to the bulk
of cargoes and the number of passengers it can load, such vessels are capable of accommodating a bigger
volume of both as compared to the capacity of a regular commuter bus. Consequently, a ship passenger
will need at least an hour as is the usual practice, to disembark from the vessel and claim his baggage
whereas a bus passenger can easily get off the bus and retrieve his luggage in a very short period of time.
Verily, petitioner cannot categorically claim, through the bare expedient of comparing the period of time
entailed in getting the passenger's cargoes, that the ruling in La Mallorca is inapplicable to the case at bar.
On the contrary, if we are to apply the doctrine enunciated therein to the instant petition, we cannot in
reason doubt that the victim Anacleto Viana was still a passenger at the time of the incident. When the
accident occurred, the victim was in the act of unloading his cargoes, which he had every right to do, from
petitioner's vessel. As earlier stated, a carrier is duty bound not only to bring its passengers safely to their
destination but also to afford them a reasonable time to claim their baggage.
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4.
ID.; ID.; ID.; VICTIM RETRIEVING HIS BAGGAGE, DEEMED A PASSENGER OF CARRIER. It is not
definitely shown that one (1) hour prior to the incident, the victim had already disembarked from the
vessel. Petitioner failed to prove this. What is clear to us is that at the time the victim was taking his
cargoes, the vessel had already docked an hour earlier. In consonance with common shipping procedure as
to the minimum time of one (1) hour allowed for the passengers to disembark, it may be presumed that
the victim had just gotten off the vessel when he went to retrieve his baggage. Yet, even if he had already
disembarked an hour earlier, his presence in petitioner's premises was not without cause. The victim had
to claim his baggage which was possible only one (1) hour after the vessel arrived since it was admittedly
standard procedure in the case of petitioner's vessels that the unloading operations shall start only after
that time. Consequently, under the foregoing circumstances, the victim Anacleto Viana is still deemed a
passenger of said carrier at the time of his tragic death.
5.
ID.; ID.; DUTIES THEREOF, CITED. Common carriers are, from the nature of their business and for
reasons of public policy, 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. More
particularly, a common carrier is bound to carry the passengers safely as far as human care and foresight
circumstances.
6.
ID.; ID.; CONTRACT OF CARRIAGE; DEATH OR INJURY OF PASSENGER GIVES RISE TO AN ACTION FOR
BREACH, PROOF REQUIRED TO PROVE BREACH. Where a passenger dies or is injured, the common
carrier is presumed to have been at fault or to have acted negligently. This gives rise to an action for
breach of contract of carriage where all that is required of plaintiff is to prove the existence of the contract
of carriage and its non-performance by the carrier, that is, the failure of the carrier to carry the passenger
safely to his destination, which, in the instant case, necessarily includes its failure to safeguard its
passenger with extraordinary diligence while such relation subsists.
7.
ID.; ID.; ID.; PRESUMPTION OF VESSEL'S NEGLIGENCE; HIGHEST DEGREE OF CARE AND DILIGENCE
REQUIRED. The presumption is, therefore, established by law that in case of a passenger's death or
injury the operator of the vessel was at fault or negligent, having failed to exercise extraordinary diligence,
and it is incumbent upon it to rebut the same. This is in consonance with the avowed policy of the State to
afford full protection to the passengers of common carriers which can be carried out only by imposing a
stringent statutory obligation upon the latter. Concomitantly, this Court has likewise adopted a rigid
posture in the application of the law by exacting the highest degree of care and diligence from common
carriers, bearing utmost in mind the welfare of the passengers who often become hapless victims of
indifferent and profit-oriented carriers. We cannot in reason deny that petitioner failed to rebut the
presumption against it. Under the facts obtaining in the present case, it cannot be gainsaid that petitioner
had inadequately complied with the required degree of diligence to prevent the accident from happening.
8.
ID.; ID.; ID.; EXTRAORDINARY DILIGENCE NOT SHOWN BY PRECAUTIONARY MEASURES OF
PETITIONER. The evidence does not show that there was a cordon of drums around the perimeter of the
crane, as claimed by petitioner. It also adverted to the fact that the alleged presence of visible warning
signs in the vicinity was disputable and not indubitably established. Thus, we are not inclined to accept
petitioner's explanation that the victim and other passengers were sufficiently warned that merely
venturing into the area in question was fraught with serious peril. Definitely, even assuming the existence
of the supposed cordon of drums loosely placed around the unloading area and the guard's admonitions
against entry therein, these were at most insufficient precautions which pale into insignificance if
considered vis-a-vis the gravity of the danger to which the deceased was exposed. There is no showing
that petitioner was extraordinarily diligent in requiring or seeing to it that said precautionary measures
were strictly and actually enforced to subserve their purpose of preventing entry into the forbidden area.
By no stretch of liberal evaluation can such perfunctory acts approximate the "utmost diligence of very
cautious persons" to be exercised "as far as human care and foresight can provide" which is required by
law of common carriers with respect to their passengers.
9.
ID.; ID.; ID.; EVEN IF VICTIM IS CONTRIBUTORILY NEGLIGENT, PROXIMATE AND DIRECT CAUSE OF
VICTIM'S DEATH IS PETITIONER'S FAILURE TO OBSERVE EXTRAORDINARY DILIGENCE. While the victim
was admittedly contributorily negligent, still petitioner's aforesaid failure to exercise extraordinary
diligence was the proximate and direct cause of, because it could definitely have prevented, the former's
death. Moreover, in paragraph 5.6 of its petition, at bar, petitioner has expressly conceded the factual
finding of respondent Court of Appeals that petitioner did not present sufficient evidence in support of its
298 | P a g e
submission that the deceased Anacleto Viana was guilty of gross negligence. Petitioner cannot now be
heard to claim otherwise.
10.
ID.; ID.; NEGLIGENCE; IMPUTATION THEREOF ON PRIVATE RESPONDENT CORPORATION, NOT
PROPER; RATIONALE. Aboitiz joined Pioneer in proving the alleged gross negligence of the victim, hence
its present contention that the death of the passenger was due to the negligence of the crane operator
cannot be sustained both on grounds of estoppel and for lack of evidence on its present theory. Even in its
answer filed in the court below it readily alleged that Pioneer had taken the necessary safeguards insofar
as its unloading operations were concerned, a fact which appears to have been accepted by the plaintiff
therein by not impleading Pioneer as a defendant, and likewise inceptively by Aboitiz by filing its thirdparty complaint only after ten (10) months from the institution of the suit against it. Parenthetically,
Pioneer is not within the ambit of the rule on extraordinary diligence required of, and the corresponding
presumption of negligence foisted on, common carriers like Aboitiz. This, of course, does not detract from
what we have said that no negligence can be imputed to Pioneer but, that on the contrary, the failure of
Aboitiz to exercise extraordinary diligence for the safety of its passenger is the rationale for our finding on
its liability.
DECISION
REGALADO, J p:
In this appeal by certiorari, petitioner Aboitiz Shipping Corporation seeks a review of the decision 1 of
respondent Court of Appeals, dated July 29, 1988, the decretal portion of which reads:
"WHEREFORE, the judgment appealed from as modified by the order of October 27, 1982, is hereby
affirmed with the modification that appellant Aboitiz Shipping is hereby ordered to pay plaintiff-appellees
the amount of P30,000.00 for the death of Anacleto Viana; actual damages of P9,800.00; P160,000.00 for
unearned income; P7,200.00 as support for deceased's parents;-P20,000.00 as moral damages;
P10,000.00 as attorney's fees; and to pay the costs."
The undisputed facts of the case, as found by the court a quo and adopted by respondent court, are as
follows: cdrep
"The evidence disclosed that on May 11, 1975, Anacleto Viana boarded the vessel M/V Antonia, owned by
defendant, at the port at San Jose, Occidental Mindoro, bound for Manila, having purchased a ticket (No.
117392) in the sum of P23.10 (Exh. 'B'). On May 12, 1975, said vessel arrived at Pier 4, North Harbor,
Manila, and the passengers therein disembarked, a gangplank having been provided connecting the side of
the vessel to the pier. Instead of using said gangplank, Anacleto Viana disembarked on the third deck
which was on the level with the pier. After said vessel had landed, the Pioneer Stevedoring Corporation
took over the exclusive control of the cargoes loaded on said vessel pursuant to the Memorandum of
Agreement dated July 26, 1975 (Exh. '2') between the third party defendant Pioneer Stevedoring
Corporation and defendant Aboitiz Shipping Corporation.
"The crane owned by the third party defendant and operated by its crane operator Alejo Figueroa was
placed alongside the vessel and one (1) hour after the passengers of said vessel had disembarked, it
started operation by unloading the cargoes from said vessel. While the crane was being operated, Anacleto
Viana who had already disembarked from said vessel obviously remembering that some of his cargoes
were still loaded in the vessel, went back to the vessel, and it was while he was pointing to the crew of the
said vessel to the place where his cargoes were loaded that the crane hit him, pinning him between the
side of the vessel and the crane. He was thereafter brought to the hospital where he later expired three (3)
days thereafter, on May 15, 1975, the cause of his death according to the Death Certificate (Exh. 'C') being
"hypostatic pneumonia secondary to traumatic fracture of the pubic bone lacerating the urinary bladder"
(See also Exh. 'B'). For his hospitalization, medical, burial and other miscellaneous expenses, Anacleto's
wife, herein plaintiff, spent a total of P9,800.00 (Exhibits 'E', 'E-1', to 'E-5'). Anacleto Viana who was only
forty (40) years old when he met said fateful accident (Exh. 'E') was in good health. His average annual
income as a farmer or a farm supervisor was 400 cavans of palay annually. His parents, herein plaintiffs
Antonio and Gorgonia Viana, prior to his death had been recipient of twenty (20) cavans of palay as
support or P120.00 monthly. Because of Anacleto's death, plaintiffs suffered mental anguish and extreme
worry or moral damages. For the filing of the instant case, they had to hire a lawyer for an agreed fee of
ten thousand (P10,000.00) pesos." 2
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Private respondents Vianas filed a complaint 3 for damages against petitioner corporation (Aboitiz, for
brevity) for breach of contract of carriage.
In its answer, 4 Aboitiz denied responsibility contending that at the time of the accident, the vessel was
completely under the control of respondent Pioneer Stevedoring Corporation (Pioneer, for short) as the
exclusive stevedoring contractor of Aboitiz, which handled the unloading of cargoes from the vessel of
Aboitiz. It is also averred that since the crane operator was not an employee of Aboitiz, the latter cannot be
held liable under the fellow-servant rule. prcd
Thereafter, Aboitiz, as third-party plaintiff, filed a third-party complaint 5 against Pioneer imputing liability
thereto for Anacleto Viana's death as having been allegedly caused by the negligence of the crane
operator who was an employee of Pioneer under its exclusive control and supervision.
Pioneer, in its answer to the third-party complaint, 6 raised the defenses that Aboitiz had no cause of
action against Pioneer considering that Aboitiz is being sued by the Vianas for breach of contract of
carriage to which Pioneer is not a party; that Pioneer had observed the diligence of a good father of a
family both in the selection and supervision of its employees as well as in the prevention of damage or
injury to anyone including the victim Anacleto Viana; that Anacleto Viana's gross negligence was the direct
and proximate cause of his death; and that the filing of the third-party complaint was premature by reason
of the pendency of the criminal case for homicide through reckless imprudence filed against the crane
operator, Alejo Figueroa.
In a decision rendered on April 17, 1980 by the trial court, 7 Aboitiz was ordered to pay the Vianas for
damages incurred, and Pioneer was ordered to reimburse Aboitiz for whatever amount the latter paid the
Vianas. The dispositive portion of said decision provides:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs:
"(1)
ordering defendant Aboitiz Shipping Corporation to pay to plaintiffs the sum of P12,000.00 for the
death of Anacleto Viana; P9,800.00 as actual damages; P533,200.00 value of the 10,664 cavans of palay
computed at P50.00 per cavan; P10,000.00 as attorney's fees; P5,000.00, value of the 100 cavans of palay
as support for five (5) years for deceased (sic) parents, herein plaintiffs Antonio and Gorgonia Viana
computed at P50.00 per cavan; P7,200.00 as support for deceased's parents computed at P120.00 a
month for five years pursuant to Art. 2206, Par. 2, of the Civil Code; P20,000.00 as moral damages, and
costs; and
"(2)
ordering the third party defendant Pioneer Stevedoring Corporation to reimburse defendant and
third party plaintiff-Aboitiz Shipping Corporation the said amounts that it is ordered to pay to herein
plaintiffs."
Both Aboitiz and Pioneer filed separate motions for reconsideration wherein they similarly raised the trial
court's failure to declare that Anacleto Viana acted with gross negligence despite the overwhelming
evidence presented in support thereof. In addition, Aboitiz alleged, in opposition to Pioneer's motion, that
under the memorandum of agreement the liability of Pioneer as contractor is automatic for any damages
or losses whatsoever occasioned by and arising from the operation of its arrastre and stevedoring service.
LLjur
In an order dated October 27, 1982, 8 the trial court absolved Pioneer from liability for failure of the Vianas
and Aboitiz to preponderantly establish a case of negligence against the crane operator which the court a
quo ruled is never presumed, aside from the fact that the memorandum of agreement supposedly refers
only to Pioneer's liability in case of loss or damage to goods handled by it but not in the case of personal
injuries, and, finally, that Aboitiz cannot properly invoke the fellow-servant rule simply because its liability
stems from a breach of contract of carriage. The dispositive portion of said order reads:
"WHEREFORE, judgment is hereby modified insofar as third party defendant Pioneer Stevedoring
Corporation is concerned rendered in favor of the plaintiffs:
"(1)
Ordering defendant Aboitiz Shipping Corporation to pay the plaintiffs the sum of P12,000.00 for the
death of Anacleto Viana; P9,000.00 (sic) as actual damages; P533,200.00 value of the 10,664 cavans of
palay computed at P50.00 per cavan; P10,000.00 as attorney's fees; P5,000.00 value of the 100 cavans of
palay as support for five (5) years for deceased's parents, herein plaintiffs Antonio and Gorgonia Viana,
computed at P50.00 per cavan; P7,200.00 as support for deceased's parents computed at P120.00 a
month for five years pursuant to Art. 2206, Par. 2, of the Civil Code; P20,000.00 as moral damages, and
costs; and"
(2)
Absolving third-party defendant Pioneer Stevedoring Corporation for (sic) any liability for the death
of Anacleto Viana, the passenger of M/V Antonia owned by defendant third party plaintiff Aboitiz Shipping
Corporation it appearing that the negligence of its crane operator has not been established therein."
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Not satisfied with the modified judgment of the trial court, Aboitiz appealed the same to respondent Court
of Appeals which affirmed the findings of the trial court except as to the amount of damages awarded to
the Vianas. llcd
Hence, this petition wherein petitioner Aboitiz postulates that respondent court erred:
"(A)
In holding that the doctrine laid down by this Honorable Court in La Mallorca vs. Court of Appeals, et
al. (17 SCRA 739, July 27, 1966) is applicable to the case in the face of the undisputable fact that the
factual situation under the La Mallorca case is radically different from the facts obtaining in this case;
"(B)
In holding petitioner liable for damages in the face of the finding of the court a quo and confirmed
by the Honorable respondent Court of Appeals that the deceased, Anacleto Viana was guilty of
contributory negligence, which, we respectfully submit, contributory negligence was the proximate cause
of his death; specifically the Honorable respondent Court of Appeals failed to apply Art. 1762 of the New
Civil Code;"
(C)
In the alternative assuming the holding of the Honorable respondent Court of Appeals that
petitioner may be legally condemned to pay damages to the private respondents we respectfully submit
that it committed a reversible error when it dismissed petitioner's third party complaint against private
respondent Pioneer Stevedoring Corporation instead of compelling the latter to reimburse the petitioner for
whatever damages it may be compelled to pay to the private respondents Vianas." 9
At threshold, it is to be observed that both the trial court and respondent Court of Appeals found the victim
Anacleto Viana guilty of contributory negligence, but holding that it was the negligence of Aboitiz in
prematurely turning over the vessel to the arrastre operator for the unloading of cargoes which was the
direct, immediate and proximate cause of the victim's death.
I.
Petitioner contends that since one (1) hour had already elapsed from the time Anacleto Viana
disembarked from the vessel and that he was given more than ample opportunity to unload his cargoes
prior to the operation of the crane, his presence on the vessel was no longer reasonable and he
consequently ceased to be a passenger. Corollarily, it insists that the doctrine in La Mallorca vs. Court of
Appeals, et al. 10 is not applicable to the case at bar.
The rule is that the relation of carrier and passenger continues until the passenger has been landed at the
port of destination and has left the vessel owner's dock or premises. 11 Once created, the relationship will
not ordinarily terminate until the passenger has, after reaching his destination, safely alighted from the
carrier's conveyance or had a reasonable opportunity to leave the carrier's premises. All persons who
remain on the premises a reasonable time after leaving the conveyance are to be deemed passengers, and
what is a reasonable time or a reasonable delay within this rule is to be determined from all the
circumstances, and includes a reasonable time to see after his baggage and prepare for his departure. 12
The carrier-passenger relationship is not terminated merely by the fact that the person transported has
been carried to his destination if, for example, such person remains in the carrier's premises to claim his
baggage. 13
It was in accordance with this rationale that the doctrine in the aforesaid case of La Mallorca was
enunciated, to wit:
"It has been recognized as a rule that the relation of carrier and passenger does not cease at the moment
the passenger alights from the carrier's vehicle at a place selected by the carrier at the point of
destination, but continues until the passenger has had a reasonable time or a reasonable opportunity to
leave the carrier's premises. And, what is a reasonable time or a reasonable delay within this rule is to be
determined from all the circumstances. Thus, a person who, after alighting from a train, walks along the
station platform is considered still a passenger. So also, where a passenger has alighted at his destination
and is proceeding by the usual way to leave the company's premises, but before actually doing so is halted
by the report that his brother, a fellow passenger, has been shot, and he in good faith and without intent of
engaging in the difficulty, returns to relieve his brother, he is deemed reasonably and necessarily delayed
and thus continues to be a passenger entitled as such to the protection of the railroad company and its
agents. llcd
"In the present case, the father returned to the bus to get one of his baggages which was not unloaded
when they alighted from the bus. Racquel, the child that she was, must have followed the father. However,
although the father was still on the running board of the bus waiting for the conductor to hand him the bag
or bayong, the bus started to run, so that even he (the father) had to jump down from the moving vehicle.
It was at this instance that the child, who must be near the bus, was run over and killed. In the
circumstances, it cannot be claimed that the carrier's agent had exercised the 'utmost diligence' of a 'very
cautious person' required by Article 1755 of the Civil Code to be observed by a common carrier in the
301 | P a g e
discharge of its obligation to transport safely its passengers . . . The presence of said passengers near the
bus was not unreasonable and they are, therefore, to be considered still as passengers of the carrier,
entitled to the protection under their contract of carriage." 14
It is apparent from the foregoing that what prompted the Court to rule as it did in said case is the fact of
the passenger's reasonable presence within the carrier's premises. That reasonableness of time should be
made to depend on the attending circumstances of the case, such as the kind of common carrier, the
nature of its business, the customs of the place, and so forth, and therefore precludes a consideration of
the time element per se without taking into account such other factors. It is thus of no moment whether in
the cited case of La Mallorca there was no appreciable interregnum for the passenger therein to leave the
carrier's premises whereas in the case at bar, an interval of one (1) hour had elapsed before the victim met
the accident. The primary factor to be considered is the existence of a reasonable cause as will justify the
presence of the victim on or near the petitioner's vessel. We believe there exists such a justifiable cause.
It is of common knowledge that, by the very nature of petitioner's business as a shipper, the passengers of
vessels are allotted a longer period of time to disembark from the ship than other common carriers such as
a passenger bus. With respect to the bulk of cargoes and the number of passengers it can load, such
vessels are capable of accommodating a bigger volume of both as compared to the capacity of a regular
commuter bus. Consequently, a ship passenger will need at least an hour as is the usual practice, to
disembark from the vessel and claim his baggage whereas a bus passenger can easily get off the bus and
retrieve his luggage in a very short period of time. Verily, petitioner cannot categorically claim, through the
bare expedient of comparing the period of time entailed in getting the passenger's cargoes, that the ruling
in La Mallorca is inapplicable to the case at bar. On the contrary, if we are to apply the doctrine enunciated
therein to the instant petition, we cannot in reason doubt that the victim Anacleto Viana was still a
passenger at the time of the incident. When the accident occurred, the victim was in the act of unloading
his cargoes, which he had every right to do, from petitioner's vessel. As earlier stated, a carrier is duty
bound not only to bring its passengers safely to their destination but also to afford them a reasonable time
to claim their baggage.
It is not definitely shown that one (1) hour prior to the incident, the victim had already disembarked from
the vessel. Petitioner failed to prove this. What is clear to us is that at the time the victim was taking his
cargoes, the vessel had already docked an hour earlier. In consonance with common shipping procedure as
to the minimum time of one (1) hour allowed for the passengers to disembark, it may be presumed that
the victim had just gotten off the vessel when he went to retrieve his baggage. Yet, even if he had already
disembarked an hour earlier, his presence in petitioner's premises was not without cause. The victim had
to claim his baggage which was possible only one (1) hour after the vessel arrived since it was admittedly
standard procedure in the case of petitioner's vessels that the unloading operations shall start only after
that time. Consequently, under the foregoing circumstances, the victim Anacleto Viana is still deemed a
passenger of said carrier at the time of his tragic death. prcd
II.
Under the law, common carriers are, from the nature of their business and for reasons of public
policy, 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. 15 More particularly, 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. 16 Thus,
where a passenger dies or is injured, the common carrier is presumed to have been at fault or to have
acted negligently. 17 This gives rise to an action for breach of contract of carriage where all that is required
of plaintiff is to prove the existence of the contract of carriage and its non-performance by the carrier, that
is, the failure of the carrier to carry the passenger safely to his destination, 18 which, in the instant case,
necessarily includes its failure to safeguard its passenger with extraordinary diligence while such relation
subsists.
The presumption is, therefore, established by law that in case of a passenger's death or injury the operator
of the vessel was at fault or negligent, having failed to exercise extraordinary diligence, and it is
incumbent upon it to rebut the same. This is in consonance with the avowed policy of the State to afford
full protection to the passengers of common carriers which can be carried out only by imposing a stringent
statutory obligation upon the latter. Concomitantly, this Court has likewise adopted a rigid posture in the
application of the law by exacting the highest degree of care and diligence from common carriers, bearing
utmost in mind the welfare of the passengers who often become hapless victims of indifferent and profitoriented carriers. We cannot in reason deny that petitioner failed to rebut the presumption against it.
302 | P a g e
Under the facts obtaining in the present case, it cannot be gainsaid that petitioner had inadequately
complied with the required degree of diligence to prevent the accident from happening.
As found by the Court of Appeals, the evidence does not show that there was a cordon of drums around
the perimeter of the crane, as claimed by petitioner. It also adverted to the fact that the alleged presence
of visible warning signs in the vicinity was disputable and not indubitably established. Thus, we are not
inclined to accept petitioner's explanation that the victim and other passengers were sufficiently warned
that merely venturing into the area in question was fraught with serious peril. Definitely, even assuming
the existence of the supposed cordon of drums loosely placed around the unloading area and the guard's
admonitions against entry therein, these were at most insufficient precautions which pale into
insignificance if considered vis-a-vis the gravity of the danger to which the deceased was exposed. There is
no showing that petitioner was extraordinarily diligent in requiring or seeing to it that said precautionary
measures were strictly and actually enforced to subserve their purpose of preventing entry into the
forbidden area. By no stretch of liberal evaluation can such perfunctory acts approximate the "utmost
diligence of very cautious persons" to be exercised "as far as human care and foresight can provide" which
is required by law of common carriers with respect to their passengers.
While the victim was admittedly contributorily negligent, still petitioner's aforesaid failure to exercise
extraordinary diligence was the proximate and direct cause of, because it could definitely have prevented,
the former's death. Moreover, in paragraph 5.6 of its petition, at bar, 19 petitioner has expressly conceded
the factual finding of respondent Court of Appeals that petitioner did not present sufficient evidence in
support of its submission that the deceased Anacleto Viana was guilty of gross negligence. Petitioner
cannot now be heard to claim otherwise. LLpr
No excepting circumstance being present, we are likewise bound by respondent court's declaration that
there was no negligence on the part of Pioneer Stevedoring Corporation, a confirmation of the trial court's
finding to that effect, hence our conformity to Pioneer's being absolved of any liability.
As correctly observed by both courts, Aboitiz joined Pioneer in proving the alleged gross negligence of the
victim, hence its present contention that the death of the passenger was due to the negligence of the
crane operator cannot be sustained both on grounds of estoppel and for lack of evidence on its present
theory. Even in its answer filed in the court below it readily alleged that Pioneer had taken the necessary
safeguards insofar as its unloading operations were concerned, a fact which appears to have been
accepted by the plaintiff therein by not impleading Pioneer as a defendant, and likewise inceptively by
Aboitiz by filing its third-party complaint only after ten (10) months from the institution of the suit against
it. Parenthetically, Pioneer is not within the ambit of the rule on extraordinary diligence required of, and the
corresponding presumption of negligence foisted on, common carriers like Aboitiz. This, of course, does not
detract from what we have said that no negligence can be imputed to Pioneer but, that on the contrary,
the failure of Aboitiz to exercise extraordinary diligence for the safety of its passenger is the rationale for
our finding on its liability.
WHEREFORE, the petition is DENIED and the judgment appealed from is hereby AFFIRMED in toto.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
Footnotes
1.
Penned by Justice Nicolas P. Lapena, Jr. and concurred in by Associate Justices Fidel P. Purisima and
Segundino G. Chua, Rollo, 79-100.
2.
Rollo, 88-89.
3.
Annex A, Petition; Rollo, 23-27.
4.
Annex B, id.; ibid., 28-30.
5.
Annex C, id.; ibid., 31-32.
6.
Annex D, id.; ibid., 33-38.
7.
Penned by Judge Willelmo C. Fortun; Annex E, id.; ibid., 39-44.
8.
Penned by Judge Jose H. Tecson; Annex F, id.; ibid., 45-61.
9.
Petition, 4; Rollo, 9.
10.
17 SCRA 739 (1966).
11.
80 C.J.S. 1086.
12.
13 C.J.S. 1073.
13.
14 Am. Jur., 2d 250.
14.
Supra, 743-744.
15.
Art. 1733, Civil Code.
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16.
Art 1755, id.
17.
Art. 1756, id.
18.
Castro vs. Acro Taxicab Co., Inc., 82 Phil. 359 (1948); Brito Sy vs. Malate Taxicab and Garage, Inc.,
102 Phil. 482 (1957).
19.
Rollo, 16-17.
Philippine Airlines v. CA, 226 SCRA 423
FIRST DIVISION
[G.R. No. 82619. September 15, 1993.]
PHILIPPINE AIRLINES, INC., petitioner, vs. COURT OF APPEALS AND PEDRO ZAPATOS,
respondents.
Leighton R. Liazon for petitioner.
Balmes L. Ocampo for private respondent.
SYLLABUS
1.
REMEDIAL LAW; EVIDENCE; ADMISSION OF EVIDENCE; PROTEST OR OBJECTION THERETO; RULE.
Significantly, PAL did not seem to mind the introduction of evidence which focused on its alleged
negligence in caring for its stranded passengers. Well-settled is the rule in evidence that the protest or
objection against the admission of evidence should be presented at the time the evidence is offered, and
that the proper time to make protest or objection to the admissibility of evidence is when the question is
presented to the witness or at the time the answer thereto is given. There being no objection, such
evidence becomes property of the case and all the parties are amenable to any favorable or unfavorable
effects resulting from the evidence.
2.
ID.; CIVIL PROCEDURE; PLEADINGS; ISSUES NOT RAISED THEREIN BUT ARE TRIED BY EXPRESS OR
IMPLIED CONSENT OF THE PARTIES; EFFECT. Having joined in the issue over the alleged lack of care it
exhibited towards its passengers, PAL cannot now turn around and feign surprise at the outcome of the
case. When issues not raised by the pleadings are tried by express or implied consent of the parties, they
shall be treated in all respects as if they had been raised in the pleadings. (Sec. 5, Rule 10, Rules of Court)
3.
CIVIL LAW; COMMON CARRIER; OBLIGATION TO OBSERVE EXTRAORDINARY DILIGENCE OVER ITS
PASSENGERS; EXTENT. The contract of air carriage is a peculiar one. Being imbued with public interest,
the law requires common carriers to carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. In
Air France v. Carrascoso, we held that "A contract to transport passengers is quite different in kind and
degree from any other contractual relation. And this, because of the relation which an air carrier sustains
with the public. Its business is mainly with the travelling public. It invites people to avail of the comforts
and advantages it offers. The contract of air carriage, therefore, generates a relation attended with a
public duty . . ." The position taken by PAL in this case clearly illustrates its failure to grasp the exacting
standard required by law. Undisputably, PAL's diversion of its flight due to inclement weather was a
fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being
in the business of air carriage and the sole one to operate in the country, PAL is deemed equipped to deal
with situations as in the case at bar. What we said in one case once again must be stressed, i.e., the
relation of carrier and passenger continues until the latter has been landed at the port of destination and
has left the carrier's premises. Hence, PAL necessarily would still have to exercise extraordinary diligence
in safeguarding the comfort, convenience and safety of its stranded passengers until they have reached
their final destination. On this score, PAL grossly failed considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City and the fact that the private respondent was a
stranger to the place.
4.
ID.; MORAL DAMAGES; AWARD THEREOF; PURPOSE. Moral damages are not intended to enrich
the private respondent. They are awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to alleviate the moral suffering he has undergone by reason of the defendant's
culpable action.
5.
ID.; ACTUAL DAMAGES; MUST BE DULY PROVED WITH REASONABLE DEGREE OF CERTAINTY. With
regard to the award of actual damages in the amount of P5,000.00 representing private respondent's
alleged business losses occasioned by his stay at Cotabato City, we find the same unwarranted. Private
304 | P a g e
respondent's testimony that he had a scheduled business "transaction of shark liver oil supposedly to have
been consummated on August 3, 1975 in the morning" and that "since (private respondent) was out for
nearly two weeks I missed to buy about 10 barrels of shark liver oil," are purely speculative. Actual or
compensatory damages cannot be presumed but must be duly proved with reasonable degree of certainty.
A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but
must depend upon competent proof that they have suffered and on evidence of the actual amount thereof.
DECISION
BELLOSILLO, J p:
This petition for review on certiorari seeks to annul and set aside the decision of the then Intermediate
Appellate Court, 1 now Court of Appeals, dated 28 February 1985, in AC-G.R. CV No. 69327 ("Pedro
Zapatos v. Philippine Airlines, Inc.") affirming the decision of the then Court of First Instance, now Regional
Trial Court, declaring Philippine Airlines, Inc., liable in damages for breach of contract.
On 25 November 1976, private respondent filed a complaint for damages for breach of contract of carriage
2 against Philippine Airlines, Inc. (PAL), before the then Court of First Instance, now Regional Trial Court, of
Misamis Occidental, at Ozamiz City. According to him, on 2 August 1976, he was among the twenty-one
(21) passengers of PAL Flight 477 that took off from Cebu bound for Ozamiz City. The routing of this flight
was Cebu-Ozamiz-Cotabato. While on flight and just about fifteen (15) minutes before landing at Ozamiz
City, the pilot received a radio message that the airport was closed due to heavy rains and inclement
weather and that he should proceed to Cotabato City instead.
Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to return to
Cebu on Flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or take the next flight to
Cebu the following day, or remain at Cotabato and take the next available flight to Ozamiz City on 5
August 1975. 3 The Station Agent likewise informed them that Flight 560 bound for Manila would make a
stop-over at Cebu to bring some of the diverted passengers; that there were only six (6) seats available as
there were already confirmed passengers for Manila; and, that the basis for priority would be the check-in
sequence at Cebu.
Private respondent chose to return to Cebu but was not accommodated because he checked-in as
passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed passengers in the
accommodation, but the Station Agent refused private respondent's demand explaining that the latter's
predicament was not due to PAL's own doing but to a force majeure. 4
Private respondent tried to stop the departure of Flight 560 as his personal belongings, including a
package containing a camera which a certain Miwa from Japan asked him to deliver to Mrs. Fe Obid of
Gingoog City, were still on board. His plea fell on deaf ears. PAL then issued to private respondent a free
ticket to Iligan City, which the latter received under protest. 5 Private respondent was left at the airport
and could not even hitch a ride in the Ford Fiera loaded with PAL personnel. 6 PAL neither provided
private respondent with transportation from the airport to the city proper nor food and accommodation for
his stay in Cotabato City.
The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL personnel that
he would not use the free ticket because he was filing a case against PAL. 7 In Iligan City, private
respondent hired a car from the airport to Kolambugan, Lanao del Norte, reaching Ozamiz City by crossing
the bay in a launch. 8 His personal effects including the camera, which were valued at P2,000.00, were no
longer recovered.
On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate private
respondent. 9 It alleged that there was simply no more seat for private respondent on Flight 560 since
there were only six (6) seats available and the priority of accommodation on Flight 560 was based on the
check-in sequence in Cebu; that the first six (6) priority passengers on Flight 477 chose to take Flight 560;
that its Station Agent explained in a courteous and polite manner to all passengers the reason for PAL's
inability to transport all of them back to Cebu; that the stranded passengers agreed to avail of the options
and had their respective tickets exchanged for their onward trips; that it was only the private respondent
who insisted on being given priority in the accommodation; that pieces of checked-in baggage and handcarried items of the Ozamiz City passengers were removed from the aircraft; that the reason for the pilot's
inability to land at Ozamiz City airport was because the runway was wet due to rains thus posing a threat
305 | P a g e
to the safety of both passengers and aircraft; and, that such reason of force majeure was a valid
justification for the pilot to bypass Ozamiz City and proceed directly to Cotabato City.
On 4 June 1981, the trial court rendered its decision 10 the dispositive portion of which states:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Philippine Air
Lines, Inc. ordering the latter to pay:
(1)
As actual damages, the sum of Two Hundred Pesos (P200.00) representing plaintiff's expenses for
transportation, food and accommodation during his stranded stay at Cotabato City; the sum of Forty-Eight
Pesos (P48.00) representing his flight fare from Cotabato City to Iligan City; the sum of Five Hundred Pesos
(P500.00) representing plaintiff's transportation expenses from Iligan City to Ozamiz City; and the sum of
Five Thousand Pesos (P5,000.00) as loss of business opportunities during his stranded stay in Cotabato
City;
(2)
As moral damages, the sum of Fifty Thousand Pesos (P50,000.00) for plaintiff's hurt feelings, serious
anxiety, mental anguish and unkind and discourteous treatment perpetrated by defendant's employees
during his stay as stranded passenger in Cotabato City;
(3)
As exemplary damages, the sum of Ten Thousand Pesos (P10,000.00) to set a precedent to the
defendant airline that it shall provide means to give comfort and convenience to stranded passengers;
(4)
The sum of Three Thousand Pesos (P3,000.00) as attorney's fees;
(5)
To pay the costs of this suit."
PAL appealed to the Court of Appeals which on 28 February 1985, finding no reversible error, affirmed the
judgment of the court a quo. 11
PAL then sought recourse to this Court by way of a petition for review on certiorari 12 upon the following
issues: (1) Can the Court of Appeals render a decision finding petitioner (then defendant-appellant in the
court below) negligent and, consequently, liable for damages on a question of substance which was
neither raised in the complaint nor proved at the trial? (2) Can the Court of Appeals award actual and
moral damages contrary to the evidence and established jurisprudence? 13
An assiduous examination of the records yields no valid reason for reversal of the judgment on appeal;
only a modification of its disposition.
In its petition, PAL vigorously maintains that private respondent's principal cause of action was its alleged
denial of private respondent's demand for priority over the confirmed passengers on Flight 560. Likewise,
PAL points out that the complaint did not impute to PAL neglect in failing to attend to the needs of the
diverted passengers; and, that the question of negligence was not and never put in issue by the pleadings
or proved at the trial.
Contrary to the above arguments, private respondent's amended complaint touched on PAL's indifference
and inattention to his predicament. The pertinent portion of the amended complaint 14 reads:
"10.
That by virtue of the refusal of the defendant through its agent in Cotabato to accommodate (sic)
and allow the plaintiff to take and board the plane back to Cebu, and by accommodating (sic) and allowing
passengers from Cotabato for Cebu in his stead and place, thus forcing the plaintiff against his will, to be
left and stranded in Cotabato, exposed to the peril and danger of muslim rebels plundering at the time, the
plaintiff, as a consequence, (have) suffered mental anguish, mental torture, social humiliation, bismirched
reputation and wounded feeling, all amounting to a conservative amount of thirty thousand (P30,000.00)
Pesos."
To substantiate this aspect of apathy, private respondent testified 15
"A.
I did not even notice that I was I think the last passenger or the last person out of the PAL
employees and army personnel that were left there. I did not notice that when I was already outside of the
building after our conversation.
Q.
What did you do next?
A.
I banished (sic) because it seems that there was a war not far from the airport. The sound of guns
and the soldiers were plenty.
Q.
After that what did you do?
A.
I tried to look for a transportation that could bring me down to the City of Cotabato.
Q.
Were you able to go there?
A.
I was at about 7:00 o'clock in the evening more or less and it was a private jeep that I boarded. I
was even questioned why I and who am (sic) I then. Then I explained my side that I am (sic) stranded
passenger. Then they brought me downtown at Cotabato.
Q.
During your conversation with the Manager were you not offered any vehicle or transportation to
Cotabato airport downtown?
306 | P a g e
A.
In fact I told him (Manager) now I am by-passed passenger here which is not my destination what
can you offer me. Then they answered, "it is not my fault. Let us forget that.
Q.
In other words when the Manager told you that offer was there a vehicle ready?
A.
Not yet. Not long after that the Ford Fiera loaded with PAL personnel was passing by going to the
City of Cotabato and I stopped it to take me a ride because there was no more available transportation but
I was not accommodated."
Significantly, PAL did not seem to mind the introduction of evidence which focused on its alleged
negligence in caring for its stranded passengers. Well-settled is the rule in evidence that the protest or
objection against the admission of evidence should be presented at the time the evidence is offered, and
that the proper time to make protest or objection to the admissibility of evidence is when the question is
presented to the witness or at the time the answer thereto is given. 16 There being no objection, such
evidence becomes property of the case and all the parties are amenable to any favorable or unfavorable
effects resulting from the evidence. 17
PAL instead attempted to rebut the aforequoted testimony. In the process, it failed to substantiate its
counter allegation for want of concrete proof 18
"Atty. Rubin O. Rivera PAL's counsel:
Q.
You said PAL refused to help you when you were in Cotabato, is that right?
Private respondent:
A.
Yes.
Q.
Did you ask them to help you regarding any offer of transportation or of any other matter asked of
them?
A.
Yes, he (PAL PERSONNEL) said what is? It is not our fault.
Q.
Are you not aware that one fellow passenger even claimed that he was given Hotel accommodation
because they have no money?
xxx
xxx
xxx
A.
No, sir, that was never offered to me. I said, I tried to stop them but they were already riding that
PAL pick-up jeep, and I was not accommodated."
Having joined in the issue over the alleged lack of care it exhibited towards its passengers, PAL cannot now
turn around and feign surprise at the outcome of the case. When issues not raised by the pleadings are
tried by express or implied consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings. 19
With regard to the award of damages affirmed by the appellate court, PAL argues that the same is
unfounded. It asserts that it should not be charged with the task of looking after the passengers' comfort
and convenience because the diversion of the flight was due to a fortuitous event, and that if made liable,
an added burden is given to PAL which is over and beyond its duties under the contract of carriage. It
submits that granting arguendo that negligence exists, PAL cannot be liable in damages in the absence of
fraud or bad faith; that private respondent failed to apprise PAL of the nature of his trip and possible
business losses; and, that private respondent himself is to be blamed for unreasonably refusing to use the
free ticket which PAL issued.
The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires common
carriers to carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the circumstances. 20 In Air France v.
Carrascoso, 21 we held that
"A contract to transport passengers is quite different in kind and degree from any other contractual
relation. And this, because of the relation which an air carrier sustains with the public. Its business is
mainly with the travelling public. It invites people to avail of the comforts and advantages it offers. The
contract of air carriage, therefore, generates a relation attended with a public duty . . ." (emphasis
supplied).
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard required
by law. Undisputably, PAL's diversion of its flight due to inclement weather was a fortuitous event.
Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being in the business
of air carriage and the sole one to operate in the country, PAL is deemed equipped to deal with situations
as in the case at bar. What we said in one case once again must be stressed, i.e., the relation of carrier and
passenger continues until the latter has been landed at the port of destination and has left the carrier's
premises. 22 Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding
the comfort, convenience and safety of its stranded passengers until they have reached their final
307 | P a g e
destination. On this score, PAL grossly failed considering the then ongoing battle between government
forces and Muslim rebels in Cotabato City and the fact that the private respondent was a stranger to the
place. As the appellate court correctly ruled
"While the failure of plaintiff in the first instance to reach his destination at Ozamis City in accordance with
the contract of carriage was due to the closure of the airport on account of rain and inclement weather
which was radioed to defendant 15 minutes before landing, it has not been disputed by defendant airline
that Ozamis City has no all-weather airport and has to cancel its flight to Ozamis City or by-pass it in the
event of inclement weather. Knowing this fact, it becomes the duty of defendant to provide all means of
comfort and convenience to its passengers when they would have to be left in a strange place in case of
such by-passing. The steps taken by defendant airline company towards this end has not been put in
evidence, especially for those 7 others who were not accommodated in the return trip to Cebu, only 6 of
the 21 having been so accommodated. It appears that plaintiff had to leave on the next flight 2 days later.
If the cause of non-fulfillment of the contract is due to a fortuitous event, it has to be the sole and only
cause (Art. 1755 C.C., Art. 1733 C.C.) Since part of the failure to comply with the obligation of common
carrier to deliver its passengers safely to their destination lay in the defendant's failure to provide comfort
and convenience to its stranded passengers using extra-ordinary diligence, the cause of non-fulfillment is
not solely and exclusively due to fortuitous event, but due to something which defendant airline could
have prevented, defendant becomes liable to plaintiff." 23
While we find PAL remiss in its duty of extending utmost care to private respondent while being stranded in
Cotabato City, there is no sufficient basis to conclude that PAL failed to inform him about his nonaccommodation on Flight 560, or that it was inattentive to his queries relative thereto.
On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City that
"3.
Of the fifteen stranded passengers two pax elected to take F478 on August 05, three pax opted to
take F442 August 03. The remaining ten (10) including subject requested that they be instead
accommodated (sic) on F446 CBO-IGN the following day where they intended to take the surface
transportation to OZC. Mr. Pedro Zapatos had by then been very vocal and boiceterous (sic) at the counter
and we tactfully managed to steer him inside the Station Agent's office. Mr. Pedro Zapatos then adamantly
insisted that all the diverted passengers should have been given priority over the originating passengers of
F560 whether confirmed or otherwise. We explained our policies and after awhile he seemed pacified and
thereafter took his ticket (in-lieued (sic) to CBO-IGN, COCON basis) at the counter in the presence of five
other passengers who were waiting for their tickets too. The rest of the diverted pax had left earlier after
being assured that their ticket will be ready the following day." 24
Aforesaid Report being an entry in the course of business is prima facie evidence of the facts therein
stated. Private respondent, apart from his testimony, did not offer any controverting evidence. If indeed
PAL omitted to give information about the options available to its diverted passengers, it would have been
deluged with complaints. But, only private respondent complained
"Atty. Rivera (for PAL)
Q.
I understand from you Mr. Zapatos that at the time you were waiting at Cotabato Airport for the
decision of PAL, you were not informed of that decision until after the airplane left is that correct?
A.
Yes.
COURT:
Q.
What do you mean by "yes"? You meant you were not informed?
A.
Yes, I was not informed of their decision, that they will only accommodate few passengers.
Q.
Aside from you there were many other stranded passengers?
A.
I believed, yes.
Q.
And you want us to believe that PAL did not explain (to) any of these passengers about the decision
regarding those who will board the aircraft back to Cebu?
A.
No, Sir.
Q.
Despite these facts Mr. Zapatos did any of the other passengers complained (sic) regarding that
incident?
xxx
xxx
xxx
A.
There were plenty of arguments and I was one of those talking about my case.
Q.
Did you hear anybody complained (sic) that he has not been informed of the decision before the
plane left for Cebu?
A.
No." 25
308 | P a g e
Admittedly, private respondent's insistence on being given priority in accommodation was unreasonable
considering the fortuitous event and that there was a sequence to be observed in the booking, i.e., in the
order the passengers checked-in at their port of origin. His intransigence in fact was the main cause for his
having to stay at the airport longer than was necessary
"Atty. Rivera:
Q.
And, you were saying that despite the fact that according to your testimony there were at least 16
passengers who were stranded there in Cotabato airport according to your testimony, and later you said
that there were no other people left there at that time, is that correct?
A.
Yes, I did not see anyone there around. I think I was the only civilian who was left there.
Q.
Why is it that it took you long time to leave that place?
A.
Because I was arguing with the PAL personnel." 26
Anent the plaint that PAL employees were disrespectful and inattentive toward private respondent, the
records are bereft of evidence to support the same. Thus, the ruling of respondent Court of Appeals in this
regard is without basis. 27 On the contrary, private respondent was attended to not only by the personnel
of PAL but also by its Manager. 28
In the light of these findings, we find the award of moral damages of Fifty Thousand Pesos (P50,000.00)
unreasonably excessive; hence, we reduce the same to Ten Thousand Pesos (P10,000.00). Conformably
herewith, the award of exemplary damages is also reduced to Five Thousand Pesos (P5,000.00). Moral
damages are not intended to enrich the private respondent. They are awarded only to enable the injured
party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has
undergone by reason of the defendant's culpable action. 29
With regard to the award of actual damages in the amount of P5,000.00 representing private respondent's
alleged business losses occasioned by his stay at Cotabato City, we find the same unwarranted. Private
respondent's testimony that he had a scheduled business "transaction of shark liver oil supposedly to have
been consummated on August 3, 1975 in the morning" and that "since (private respondent) was out for
nearly two weeks I missed to buy about 10 barrels of shark liver oil," 30 are purely speculative. Actual or
compensatory damages cannot be presumed but must be duly proved with reasonable degree of certainty.
A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of damages, but
must depend upon competent proof that they have suffered and on evidence of the actual amount thereof.
31
WHEREFORE the decision appealed from is AFFIRMED with modification however that the award of moral
damages of Fifty Thousand Pesos (P50,000.00) is reduced to Ten Thousand Pesos (P10,000.00) while the
exemplary damages of Ten Thousand Pesos (P10,000.00) is also reduced to Five Thousand Pesos
(P5,000.00). The award of actual damages in the amount Five Thousand Pesos (P5,000.00) representing
business losses occasioned by private respondent's being stranded in Cotabato City is deleted.
SO ORDERED.
Cruz, Grio-Aquino, Davide, Jr. and Quiason, JJ ., concur.
Footnotes
1.
Penned by Justice Floreliana Castro-Bartolome, concurred in by Justices Jorge R. Coquia, Mariano A.
Zosa and Bienvenido C. Ejercito, Third Civil Cases Division.
2.
Rollo, p. 46.
3.
Record of Exhibits, p. 13.
4.
TSN, 15 March 1979, p. 29.
5.
Id., p. 33.
6.
Id., p. 11.
7.
Id., p. 27.
8.
Id., pp. 24-25.
9.
Rollo, pp. 54-56.
10.
Penned by Judge Melecio A. Genato, Court of First Instance of Misamis Occidental, Branch II, Ozamiz
City; Rollo, pp. 37-44.
11.
Rollo, pp. 112-116.
12.
Id., p. 15.
309 | P a g e

13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
102.
23.
24.
25.
26.
27.
28.
29.
30.
31.
Id., pp. 157-158.

Rollo, pp. 49-50.
TSN, 15 March 1979, pp. 10-11.
Arevalo v. Dimayuga, 49 Phil. 894, 897 (1927).
See Beam v. Yatco, 82 Phil. 30, 37-38 (1948).
TSN, 15 March 1979, p. 34.
Sec. 5, Rule 10, Rules of Court.
Art. 1755, New Civil Code of the Philippines.
L-21438, 28 September 1966, 18 SCRA 155, 167-168.
Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 84458, 6 November 1989, 179 SCRA 95,
Rollo, p. 114.
Exh. "7", Record of Exhibits, p. 13.
TSN, 15 March 1979, pp. 21-22.
Ibid. p. 23.
Rollo, p. 114.
TSN, 15 March 1979, pp. 7-10; See also Report dated 3 August 1979, supra.
De Leon v. Court of Appeals, L-31931, 31 August 1988, 165 SCRA 166, 179.
TSN, 15 March 1979, pp. 16-17.
Diokno v. Court of Appeals, G.R. No. 55613, 10 December 1990, 192 SCRA 169, 176.
3.
Presumption of Negligence, Art 1756
Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at
prescribed in Articles 1733 and 1755.
4.
Force Majeure
Bachelor Express v. CA, 188 SCRA 217

THIRD DIVISION
[G.R. No. 85691. July 31, 1990.]
BACHELOR EXPRESS, INCORPORATED, and CRESENCIO RIVERA, petitioners, vs. THE
HONORABLE COURT OF APPEALS (Sixth Division), RICARDO BETER, SERGIA BETER, TEOFILO
RAUTRAUT and ZOETERA RAUTRAUT, respondents.
Aquino W. Gambe for petitioners.
Tranquilino O. Calo, Jr. for private respondents.
DECISION
GUTIERREZ, JR., J p:
This is a petition for review of the decision of the Court of Appeals which reversed and set aside the order
of the Regional Trial Court, Branch I, Butuan City dismissing the private respondents' complaint for
collection of "a sum of money" and finding the petitioners solidarily liable for damages in the total amount
of One Hundred Twenty Thousand Pesos (P120,000.00). The petitioners also question the appellate court's
resolution denying a motion for reconsideration.
On August 1, 1980, Bus No. 800 owned by Bachelor Express, Inc. and driven by Cresencio Rivera was the
situs of a stampede which resulted in the death of passengers Ornominio Beter and Narcisa Rautraut.
The evidence shows that the bus came from Davao City on its way to Cagayan de Oro City passing Butuan
City; that while at Tabon-Tabon, Butuan City, the bus picked up a passenger; that about fifteen (15)
minutes later, a passenger at the rear portion suddenly stabbed a PC soldier which caused commotion and
310 | P a g e
panic among the passengers; that when the bus stopped, passengers Ornominio Beter and Narcisa
Rautraut were found lying down the road, the former already dead as a result of head injuries and the
latter also suffering from severe injuries which caused her death later. The passenger-assailant alighted
from the bus and ran toward the bushes but was killed by the police. Thereafter, the heirs of Ornomino
Beter and Narcisa Rautraut, private respondents herein (Ricardo Beter and Sergia Beter are the parents of
Ornominio while Teofilo Rautraut and Zoetera [should be Zotera] Rautraut are the parents of Narcisa) filed
a complaint for "sum of money" against Bachelor Express, Inc. its alleged owner Samson Yasay, and the
driver Rivera.
In their answer, the petitioners denied liability for the death of Ornominio Beter and Narcisa Rautraut. They
alleged that ". . . the driver was able to transport his passengers safely to their respective places of
destination except Ornominio Beter and Narcisa Rautraut who jumped off the bus without the knowledge
and consent, much less, the fault of the driver and conductor and the defendants in this case; the
defendant corporation had exercised due diligence in the choice of its employees to avoid as much as
possible accidents; the incident on August 1, 1980 was not a traffic accident or vehicular accident, it was
an incident or event very much beyond the control of the defendants; defendants were not parties to the
incident complained of as it was an act of a third party who is not in any way connected with the
defendants and of which the latter have no control and supervision; . . ." (Rollo, pp. 112-113).
After due trial, the trial court issued an order dated August 8, 1985 dismissing the complaint. LibLex
Upon appeal however, the trial court's decision was reversed and set aside. The dispositive portion of the
decision of the Court of Appeals states:
"WHEREFORE, the Decision appealed from is REVERSED and SET ASIDE and a new one entered finding the
appellees jointly and solidarily liable to pay the plaintiffs-appellants the following amounts:
1)
To the heirs of Ornominio Beter, the amount of Seventy Five Thousand Pesos (P75,000.00) in loss of
earnings and support, moral damages, straight death indemnity and attorney's fees; and,
2)
To the heirs of Narcisa Rautraut, the amount of Forty Five Thousand Pesos (P45,000.00) for straight
death indemnity, moral damages and attorney's fees. Costs against appellees." (Rollo, pp. 71-72)
The petitioners now pose the following questions:
"What was the proximate cause of the whole incident? Why were the passengers on board the bus
panicked (sic) and why were they shoving one another? Why did Narcisa Rautraut and Ornominio Beter
jump off from the running bus?"
The petitioners opine that answers to these questions are material to arrive at "a fair, just and equitable
judgment." (Rollo, p. 5) They claim that the assailed decision is based on a misapprehension of facts and
its conclusion is grounded on speculation, surmises or conjectures.
As regards the proximate cause of the death of Ornominio Beter and Narcisa Rautraut, the petitioners
maintain that it was the act of the passenger who ran amuck and stabbed another passenger of the bus.
They contend that the stabbing incident triggered off the commotion and panic among the passengers who
pushed one another and that "presumably out of fear and moved by that human instinct of selfpreservation Beter and Rautraut jumped off the bus while the bus was still running resulting in their
untimely death.' (Rollo, p. 6) Under these circumstances, the petitioners asseverate that they were not
negligent in the performance of their duties and that the incident was completely and absolutely
attributable to a third person, the passenger who ran amuck, for without his criminal act, Beter and
Rautraut could not have been subjected to fear and shock which compelled them to jump off the running
bus. They argue that they should not be made liable for damages arising from acts of third persons over
whom they have no control or supervision.
Furthermore, the petitioners maintain that the driver of the bus, before, during and after the incident was
driving cautiously giving due regard to traffic rules, laws and regulations. The petitioners also argue that
they are not insurers of their passengers as ruled by the trial court.
The liability, if any, of the petitioners is anchored on culpa contractual or breach of contract of carriage.
The applicable provisions of law under the New Civil Code are as follows:
311 | P a g e
"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.
"ART. 1733. Common carriers, from the nature of their business and for reasons of public policy, are
xxx
xxx
xxx
circumstances.
"ART. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at
prescribed in Articles 1733 and 1755."
There is no question that Bachelor Express, Inc. is a common carrier. Hence, from the nature of its business
and for reasons of public policy Bachelor Express, Inc. is bound to carry its 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.
In the case at bar, Ornominio Beter and Narcisa Rautraut were passengers of a bus belonging to petitioner
Bachelor Express, Inc. and, while passengers of the bus, suffered injuries which caused their death.
Consequently, pursuant to Article 1756 of the Civil Code, petitioner Bachelor Express, Inc. is presumed to
have acted negligently unless it can prove that it had observed extraordinary diligence in accordance with
Articles 1733 and 1755 of the New Civil Code.
Bachelor Express, Inc. denies liability for the death of Beter and Rautraut on its posture that the death of
the said passengers was caused by a third person who was beyond its control and supervision. In effect,
the petitioner, in order to overcome the presumption of fault or negligence under the law, states that the
vehicular incident resulting in the death of passengers Beter and Rautraut was caused by force majeure or
caso fortuito over which the common carrier did not have any control.
Article 1174 of the present Civil Code states:
"Except in cases expressly specified by law, or when it is otherwise declared by stipulations, 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."
The above - mentioned provision was substantially copied from Article 1105 of the old Civil Code which
states"
"No one shall be liable for events which could not be foreseen or which, even if foreseen, were inevitable,
with the exception of the cases in which the law expressly provides otherwise and those in which the
obligation itself imposes liability."
In the case of Lasam v. Smith (45 Phil. 657 [1924]), we defined "events" which cannot be foreseen and
which, having been foreseen, are inevitable in the following manner:
". . . The Spanish authorities regard the language employed as an effort to define the term 'caso fortuito'
and hold that the two expressions are synonymous. (Manresa Comentarios al Codigo Civil Espaol, vol. 8,
pp. 88 et seq.; Scaevola, Codigo Civil, vol. 19, pp. 526 et seq.)
The antecedent to Article 1105 is found in Law II, Title 33, Partida 7, which defines caso fortuito as 'ocasion
que acaese por aventura de que non se puede ante ver. E son estos, derrivamientos de casas e fuego que
enciende a so ora, e quebrantamiento de navio, fuerca de ladrones.' (An event that takes place by incident
and could not have been foreseen. Examples of this are destruction of houses, unexpected fire, shipwreck,
violence of robbers. . . .)
Escriche defines caso fortuito as an unexpected event or act of God which could neither be foreseen nor
resisted, such as floods, torrents, shipwrecks, conflagrations, lightning, compulsion, insurrections,
destruction of buildings by unforeseen accidents and other occurrences of a similar nature.
312 | P a g e
In discussing and analyzing the term caso fortuito the Enciclopedia Juridica Espaola says: 'In a 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 (debtor) must be free from any participation in the aggravation of the injury
resulting to the creditor. (5 Enciclopedia Juridica Espaola, 309)
As will be seen, these authorities agree that some extraordinary circumstance independent of the will of
the obligor, or of his employees, is an essential element of a caso fortuito. . . ."
The running amuck of the passenger was the proximate cause of the incident as it triggered off a
commotion and panic among the passengers such that the passengers started running to the sole exit
shoving each other resulting in the falling off the bus by passengers Beter and Rautraut causing them fatal
injuries. The sudden act of the passenger who stabbed another passenger in the bus is within the context
of force majeure.
However, in order that a common carrier may be absolved from liability in case of force majeure, it is not
enough that the accident was caused by force majeure. The common carrier must still prove that it was not
negligent in causing the injuries resulting from such accident. Thus, as early as 1912, we ruled:
"From all the foregoing, it is concluded that the defendant is not liable for the loss and damage of the
goods shipped on the lorcha Pilar by the Chinaman, Ong Bien Sip, inasmuch as such loss and damage were
the result of a fortuitous event or force majeure, and there was no negligence or lack of care and diligence
on the part of the defendant company or its agents." (Tan Chiong Sian v. Inchausti & Co., 22 Phil. 152
[1912] Emphasis supplied).
This principle was reiterated in a more recent case, Batangas Laguna Tayabas Co. v. Intermediate
Appellate Court (167 SCRA 379 [1988]), wherein we ruled:
". . . [F]or their defense of force majeure or act of God to prosper the accident must be due to natural
causes and exclusively without human intervention." (Emphasis supplied)
Therefore, the next question to be determined is whether or not the petitioner's common carrier observed
extraordinary diligence to safeguard the lives of its passengers.
In this regard the trial court and the appellate court arrived at conflicting factual findings.
The trial court found the following facts:
"The parties presented conflicting evidence as to how the two deceased Narcisa Rautruat and Ornominio
Beter met their deaths.
However, from the evidence adduced by the plaintiffs, the Court could not see why the two deceased could
have fallen off the bus when their own witnesses testified that when the commotion ensued inside the bus,
the passengers pushed and shoved each other towards the door apparently in order to get off from the bus
through the door. But the passengers also could not pass through the door because according to the
evidence the door was locked.
On the other hand, the Court is inclined to give credence to the evidence adduced by the defendants that
when the commotion ensued inside the bus, the two deceased panicked and, in state of shock and fear,
they jumped off from the bus by passing through the window. prcd
It is the prevailing rule and settled jurisprudence that transportation companies are not insurers of their
passengers. The evidence on record does not show that defendants' personnel were negligent in their
duties. The defendants' personnel have every right to accept passengers absent any manifestation of
violence or drunkenness. If and when such passengers harm other passengers without the knowledge of
the transportation company's personnel, the latter should not be faulted." (Rollo, pp. 46-47)
A thorough examination of the records, however, show that there are material facts ignored by the trial
court which were discussed by the appellate court to arrive at a different conclusion. These circumstances
313 | P a g e
show that the petitioner common carrier was negligent in the provision of safety precautions so that its
passengers may be transported safely to their destinations. The appellate court states: LibLex
"A critical eye must be accorded the lower court's conclusions of fact in its tersely written ratio decidendi.
The lower court concluded that the door of the bus was closed; secondly, the passengers, specifically the
two deceased, jumped out of the window. The lower court therefore concluded that the defendant common
carrier is not liable for the death of the said passengers which it implicitly attributed to the unforeseen acts
of the unidentified passenger who went amuck.
There is nothing in the record to support the conclusion that the solitary door of the bus was locked as to
prevent the passengers from passing through. Leonila Cullano, testifying for the defense, clearly stated
that the conductor opened the door when the passengers were shouting that the bus stop while they were
in a state of panic. Sergia Beter categorically stated that she actually saw her son fall from the bus as the
door was forced open by the force of the onrushing passengers.
Pedro Collango, on the other hand, testified that he shut the door after the last passenger had boarded the
bus. But he had quite conveniently neglected to say that when the passengers had panicked, he himself
panicked and had gone to open the door. Portions of the testimony of Leonila Cullano, quoted below, are
illuminating:
'xxx
xxx
xxx
Q
When you said the conductor opened the door, the door at the front or rear portion of the bus?
A
Front door.
Q
And these two persons whom you said alighted, where did they pass, the fron(t) door or rear door?
A
Front door.
xxx
xxx
xxx
(Tsn., p. 4, Aug. 8, 1984)
xxx
xxx
xxx
Q
What happened after there was a commotion at the rear portion of the bus?
A
When the commotion occurred, I stood up and I noticed that there was a passenger who was
sounded (sic). The conductor panicked because the passengers were shouting 'stop, stop'. The conductor
opened the bus.'"
(Tsn., p. 3, August 8, 1984).
Accordingly, there is no reason to believe that the deceased passengers jumped from the window when it
was entirely possible for them to have alighted through the door. The lower court's reliance on the
testimony of Pedro Collango, as the conductor and employee of the common carrier, is unjustified, in the
light of the clear testimony of Leonila Cullano as the sole uninterested eyewitness of the entire episode.
Instead we find Pedro Collango's testimony to be infused by bias and fraught with inconsistencies, if not
notably unreliable for lack of veracity. On direct examination, he testified:
xxx
xxx
xxx
Q
So what happened to the passengers inside your bus?
A
Some of the passengers jumped out of the window.
COURT:
Q
While the bus was in motion?
A
Yes, your Honor, but the speed was slow because we have just picked up a passenger.
Atty. Gambe:
Q
You said that at the time of the incident the bus was running slow because you have just picked up
a passenger. Can you estimate what was your speed at that time?.
Atty. Calo:
No basis, your Honor, he is neither a driver nor a conductor.
COURT:
Let the witness answer. Estimate only, the conductor experienced.
Witness:
314 | P a g e
Not less than 30 to 40 miles.

COURT:
Kilometers or miles?
A
Miles.
Atty. Gambe:
Q
That is only your estimate by your experience?
A
Yes, sir, estimate.
(Tsn., pp. 4-5, Oct. 17, 1983).
At such speed of not less than 30 to 40 miles . . ., or about 48 to 65 kilometers per hour, the speed of the
bus could scarcely be considered slow considering that according to Collango himself, the bus had just
come from a full stop after picking a passenger (Tsn, p. 4, id.) and that the bus was still on its second or
third gear (Tsn., p. 12, id.).
In the light of the foregoing, the negligence of the common carrier, through its employees, consisted of the
lack of extraordinary diligence required of common carriers, in exercising vigilance and utmost care of the
safety of its passengers, exemplified by the driver's belated stop and the reckless opening of the doors of
the bus while the same was travelling at an appreciably fast speed. At the same time, the common carrier
itself acknowledged, through its administrative officer, Benjamin Granada, that the bus was commissioned
to travel and take on passengers and the public at large, while equipped with only a solitary door for a bus
its size and loading capacity, in contravention of rules and regulations provided for under the Land
Transportation and Traffic Code (RA 4136 as amended.)" (Rollo, pp. 23-26)
Considering the factual findings of the Court of Appeals the bus driver did not immediately stop the bus
at the height of the commotion; the bus was speeding from a full stop; the victims fell from the bus door
when it was opened or gave way while the bus was still running; the conductor panicked and blew his
whistle after people had already fallen off the bus; and the bus was not properly equipped with doors in
accordance with law it is clear that the petitioners have failed to overcome the presumption of fault and
negligence found in the law governing common carriers.
The petitioners' argument that the petitioners "are not insurers of their passengers" deserves no merit in
view of the failure of the petitioners to prove that the deaths of the two passengers were exclusively due to
force majeure and not to the failure of the petitioners to observe extraordinary diligence in transporting
safely the passengers to their destinations as warranted by law. (See Batangas Laguna Tayabas Co. v.
Intermediate Appellate Court, supra).
The petitioners also contend that the private respondents failed to show to the court that they are the
parents of Ornominio Beter and Narcisa Rautraut respectively and therefore have no legal personality to
sue the petitioners. This argument deserves scant consideration. We find this argument a belated attempt
on the part of the petitioners to avoid liability for the deaths of Beter and Rautraut. The private
respondents were identified as the parents of the victims by witnesses during the trial and the trial court
recognized them as such. The trial court dismissed the complaint solely on the ground that the petitioners
were not negligent.
Finally, the amount of damages awarded to the heirs of Beter and Rautraut by the appellate court is
supported by the evidence. The appellate court stated: prLL
"Ornominio Beter was 32 years of age at the time of his death, single, in good health and rendering
support and service to his mother. As far as Narcisa Rautraut is concerned, the only evidence adduced is to
the effect that at her death, she was 23 years of age, in good health and without visible means of support.
In accordance with Art. 1764 in conjunction with Art. 2206 of the Civil Code, and established jurisprudence,
several factors may be considered in determining the award of damages, namely: 1) life expectancy
(considering the state of health of the deceased and the mortality tables are deemed conclusive) and loss
of earning capacity; (2) pecuniary loss, loss of support and service; and (3) moral and mental suffering
(Alcantara, et al. v. Surro, et al., 93 Phil. 470).
315 | P a g e
In the case of People v. Daniel (No. L-66551, April 25, 1985, 136 SCRA 92, at page 104), the High Tribunal,
reiterating the rule in Villa Rey Transit, Inc. v. Court of Appeals (31 SCRA 511), stated that the amount of
loss of earning capacity is based mainly on two factors, namely, (1) the number of years on the basis of
which the damages shall be computed; and (2) the rate at which the losses sustained by the heirs should
be fixed.
As the formula adopted in the case of Davila v. Philippine Air Lines, 49 SCRA 497, at the age of 30 one's
normal life expectancy is 33 1/3 years based on the American Expectancy Table of Mortality (2/3 x 80-32).
By taking into account the pace and nature of the life of a carpenter, it is reasonable to make allowances
for these circumstances and reduce the life expectancy of the deceased Ornominio Beter to 25 years
(People v. Daniel, supra). To fix the rate of losses it must be noted that Art. 2206 refers to gross earnings
less necessary living expenses of the deceased, in other words, only net earnings are to be considered
(People v. Daniel, supra; Villa Rey Transit, Inc. v. Court of Appeals, supra).
Applying the foregoing rules with respect to Ornominio Beter, it is both just and reasonable, considering his
social standing and position, to fix the deductible, living and incidental expenses at the sum of Four
Hundred Pesos (P400.00) a month, or Four Thousand Eight Hundred Pesos (P4,800.00) annually. As to his
income, considering the irregular nature of the work of a daily wage carpenter which is seasonal, it is safe
to assume that he shall have worked for twenty (20) days a month at Twenty Five Pesos (P25.00) a day or
Five Hundred Pesos (P500.00) a month. Annually, his income would amount to Six Thousand Pesos
(P6,000.00) or One Hundred Fifty Thousand Pesos (P150,000.00) for twenty five years. Deducting
therefrom his necessary expenses, his heirs would be entitled to Thirty Thousand Pesos (P30,000.00)
representing loss of support and service (P150,000.00 less P120,000.00). In addition, his heirs are entitled
to Thirty Thousand Pesos (P30,000.00) as straight death indemnity pursuant to Article 2206 (People v.
Daniel, supra). For damages for their moral and mental anguish, his heirs are entitled to the reasonable
sum of P10,000.00 as an exception to the general rule against moral damages in case of breach of
contract rule Art. 2200 (Necesito v. Paras, 104 Phil. 75). As attorney's fees, Beter's heirs are entitled to
P5,000.00. All in all, the plaintiff-appellants Ricardo and Sergia Beter as heirs of their son Ornominio are
entitled to an indemnity of Seventy Five Thousand Pesos (P75,000.00). cdphil
In the case of Narcisa Rautraut, her heirs are entitled to a straight death indemnity of Thirty Thousand
Pesos (P30,000.00), to moral damages in the amount of Ten Thousand Pesos (P10,000.00) and Five
Thousand Pesos (P5,000.00) as attorneys fees, or a total of Forty Five Thousand Pesos (P45,000.00) as total
indemnity for her death in the absence of any evidence that she had visible means of support." (Rollo, pp.
30-31)
WHEREFORE, the instant petition is DISMISSED. The questioned decision dated May 19, 1988 and the
resolution dated August 1, 1988 of the Court of Appeals are AFFIRMED.
SO ORDERED.
Fernan, C.J., Feliciano, Bidin and Cortes, JJ., concur.
5.
Limitation of Liability; validity of stipulations
Arts. 1757, 1758

Art. 1757. The responsibility of a common carrier for the safety of passengers as required in Articles 1733
and 1755 cannot be dispensed with or lessened by stipulation, by the posting of notices, by statements on
tickets, or otherwise.
Art. 1758. When a passenger is carried gratuitously, a stipulation limiting the common carrier's liability
for negligence is valid, but not for wilful acts or gross negligence.
316 | P a g e
The reduction of fare does not justify any limitation of the common carrier's liability.
6.
Responsibility for acts of employees
Arts. 1759, 1760

Art. 1759. 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.
good father of a family in the selection and supervision of their employees.
Art. 1760. The common carrier's responsibility prescribed in the preceding article cannot be eliminated or
limited by stipulation, by the posting of notices, by statements on the tickets or otherwise.
Bataclan v. Medina, supra

De Gillaco v. MRR, 97 Phil 884
SECOND DIVISION
[G.R. No. L-8034. November 18, 1955.]
CORNELIA A. DE GILLACO, ET AL., plaintiffs-appellees, vs. MANILA RAILROAD COMPANY,
First Assistant Corporate Counsel Federico C. Alikpala and Attorney Higino R. Francisco for
appellant.
Restituto Luna for appellees.
SYLLABUS
1.
CARRIERS; BREACH OF TRANSPORTATION CONTRACT; EXTENT OF CARRIERS' LIABILITY. While a
passenger is entitled to protection from personal violence by the carrier or its agents or employees, sine
the contract of transportation obligates the carrier to transport a passenger safety to this destination, the
responsibility of the carrier extends only to those acts that the carrier could foresee or avoid through the
exercise of the degree of care and diligence required of it.
2.
ID.; ID.; ID.; RULE UNDER THE CIVIL CODE OF 1889. The old Civil Code of 1889 did not impose
upon carriers absolute liability for assaults of their employees upon the passenger.
3.
ID.; ID.; ID.; "CASO FORTUITO" RELIEVES CARRIER OF LIABILITY FOR BREACH OF TRANSPORTATION
CONTRACT. In the present case, the cat of the train guard of the Manila Railroad Company in shooting
the passenger (because of a personal grudge natured against the latter since the Japanese occupation)
was entirely unforseeable by the Manila Railroad Co. The latter had no means to ascertain or anticipate
that the two would meet, nor could it reasonably foresee every personal rancor that might exist between
one of its many employees and any one of the thousands of eventual passengers riding in its trains. The
shooting in question was therefore "caso fortuito" within the definition of Art. 1105 of the old Civil Code
(which is the law applicable), being both unforeseeable and inevitable under the given circumstances; and
pursuant to established doctrine, the resulting breach of the company's contract of safe carriage with the
deceased was excused thereby.
4.
ID.; ID.; ID.; ID.; CARRIER IS EXEMPT FROM LIABILITY FOR ACTS NOT DONE IN LINE OF DUTY.
Where the crime was committed by a train who had no duties to discharge in connection with the
transportation of the victim, the crime stands on the same footing as if committed by a stranger or copassenger, since the killing was not done in line of duty.
317 | P a g e
DECISION
REYES, J.B.L., J p:
The Manila Railroad Company has appealed from a judgment of the Court of First Instance of Laguna
sentencing it to pay P4,000 damages to the appellees herein, the widow and children of the late Tomas
Gillaco, shot by an employee of the Company in April, 1946.
The judgment was rendered upon the following stipulation of facts:
"That at about 7:30 a.m., on the morning of April 1, 1946, Lieut. Tomas Gillaco, husband of the plaintiff,
was a passenger in the early morning train of the Manila Railroad Company from Calamba, Laguna to
Manila;
That when the train reached the Paco Railroad station, Emilio Devesa, a train guard of the Manila Railroad
Company assigned in the Manila-San Fernando, La Union Line, happened to be in said station waiting for
the same train which would take him to Tutuban Station, where he was going to report for duty;
That Devesa's tour of duty on that day was from 9:00 a.m., until the train to which he was assigned
reached La Union at 7:00 p.m. of the same day;.
That Emilio Devesa had a long standing personal grudge against Tomas Gillaco, same dating back during
the Japanese occupation;
That because of this personal grudge, Devesa shot Gillaco with the carbine furnished to him by the Manila
Railroad Company for his use as such train guard, upon seeing him inside the train coach;
That Tomas Gillaco died as a result of the wound which he sustained from the shot fired by Devesa."
It is also undisputed that Devesa was convicted of homicide by final judgment of the Court of Appeals.
Appellant's contention is that, on the foregoing facts, on liability attaches to it as employer of the killer,
Emilio Devesa; that it is not responsible subsidiary ex delicto, under Art. 103 of the Revised Penal Code,
because the crime was not committed while the slayer was in the actual performance of his ordinary duties
and service; nor is it responsible ex contractu, since the complaint did not aver sufficient facts to establish
such liability, and no negligence on appellant's part was shown. The Court below held the Railroad
company responsible on the ground that a contract of transportation implies protection of the passengers
against acts of personal violence by the agents or employees of the carrier.
There can be no quarrel with the principle that a passenger is entitled to protection from personal violence
by the carrier or its agents or employees, since the contract of transportation obligates the carrier to
transport a passenger safely to his destination. But under the law of the case, this responsibility extends
only to those that the carrier could foresee or avoid through the exercise of the degree of care and
diligence required of it.
Discussing the basis of a carrier's liability under the old Civil Code of 1889 (which was in force in 1946,
when Gillaco was shot), this Court said in Lasam vs. Smith (45 Phil., 657):
"In our opinion, the conclusions of the court below are entirely correct. That upon the facts stated the
defendant's liability, if any, is contractual, is well settled by previous decisions of the court, beginning with
the case of Rakes vs. Atlantic, Gulf & Pacific Co. (7 Phil., 359), and the distinction between extracontractual liability and contractual liability has been so ably and exhaustively discussed in various other
cases, that nothing further need here be said upon that subject. (See Cangco vs. Manila Railroad Co., 38
Phil., 768; Manila Railroad vs. Compaia Transatlantica and Atlantic, Gulf & Pacific Co., 38 Phil., 875; De
Guia vs. Manila Electric Railroad & Light Co., 40 Phil., 706). It is sufficient to reiterate that the source of the
defendant's legal liability is the contract of carriage; that by entering into that contract he bound himself to
carry the plaintiff safely and securely to their destination; and that having failed to do so he is liable in
damages unless he shows that the failure to fulfill his obligation was due to causes mentioned in article
1105 of the Civil Code, which reads as follows:
" 'No one shall be liable for events which could not be foreseen or which, even if foreseen, were inevitable,
with the exception of the cases in which the law expressly provides otherwise and those in which the
obligation itself imposes such liability.' "
The act of guard Devesa in shooting passenger Gillaco (because of a personal grudge nurtured against the
latter since the Japanese occupation) was entirely unforseeable by the Manila Railroad Co. The latter had
no means to ascertain or anticipate that the two would meet, nor could it reasonably foresee every
personal rancor that might exist between each one of its many employees and any one of the thousands of
eventual passengers riding in its trains. The shooting in question was therefore "caso fortuito" within the
318 | P a g e
definition of article 1105 of the old Civil Code, being both unforeseeable and inevitable under the given
circumstances; and pursuant to established doctrine, the resulting breach of appellant's contract of safe
carriage with the late Tomas Gillaco was excused thereby.
No doubt that a common carrier is held to a very high degree of care and diligence in the protection of its
passengers; but, considering the vast and complex activities of modern rail transportation, to require of
appellant that it should guard against all possible misunderstanding between each and every one of its
employees and every passenger that might chance to ride in its conveyances at any time, strikes us as
demanding diligence beyond what human care and foresight can provide.
The lower Court and the appellees both relied on the American authorities that particularly hold carriers to
be insurers of the safety of their passengers against willful assault and intentional ill-treatment on the part
of their servants, it being immaterial that the act should be one of private retribution on the part of the
servant, impelled by personal malice toward the passenger (10 Am. Jur. 108; Ed. Note to Gassenheimer vs.
Wester R. Co. 40 LRA (NS), p. 999, et seq.). But as can be inferred from the previous jurisprudence of this
Court, the Civil Code of 1889 did not impose such absolute liability (Lasam vs. Smith, supra). The liability of
a carrier as an insurer was not recognized in this jurisdiction (Government vs. Inchausti & Co., 40 Phil.,
219; Oriental Comm. Co. vs. Naviera Filipina, 38 Off. Gaz., 1020).
Another very important consideration that must be borne in mind is that, when the crime took place, the
guard Devesa had no duties to discharge in connection with the transportation of the deceased from
Calamba to Manila. The stipulation of facts is clear that when Devesa shot and killed Gillaco, Devesa was
assigned to guard the Manila-San Fernando (La Union) trains, and he was at Paco Station awaiting
transportation to Tutuban, the starting point of the train that he was engaged to guard. In fact, his tour of
duty was to start at 9:00 a.m., two hours after the commission of the crime. Devesa was therefore under
no obligation to safeguard the passengers of the Calamba-Manila train, where the deceased was riding;
and the killing of Gillaco was not done in line of duty. The position of Devesa at the time was that of
another would-be passenger, a stranger also awaiting transportation, and not that of an employee
assigned to discharge any of the duties that the Railroad had assumed by its contract with the deceased.
As a result, Devesa's assault cannot be deemed in law a breach of Gillaco's contract of transportation by a
servant or employee of the carrier. We agree with the position taken by the Supreme Court of Texas in a
similar case, where it held:
"The only good reason for making the carrier responsible for the misconduct of the servant perpetrated in
his own interest, and not in that of his employer, or otherwise within the scope of his employment, is that
the servant is clothed with the delegated authority, and charged with the duty by the carrier, to execute
his undertaking with the passenger. And it cannot be said, we think, that there is any such delegation to
the employees at a station with reference to passengers embarking at another or traveling on the train. Of
course, we are speaking only of the principle which holds a carrier responsible for wrongs done to
passengers by servants acting in their own interest, and not in that of the employer. That principle is not
the ordinary rule, respondeat superior, by which the employer is held responsible only for acts or omissions
of the employee in the scope of his employment; but the only reason in our opinion for a broader liability
arises from the fact that the servant, in mistreating the passenger wholly for some private purpose of his
own, in the very act, violates the contractual obligation of the employer for the performance of which he
has put the employee in his place. That reason does not exist where the employee who committed the
assault was never in a position in which it became his duty to his employer to represent him in discharging
any duty of the latter towards the passenger. The proposition that the carrier clothes every employee
engaged in the transportation business with the comprehensive duty of protecting every passenger with
whom he may in any way come in contact, and thereby makes himself liable for every assault committed
by each servant, without regard to the inquiry whether or not the passenger has come within the sphere of
duty of that servant as indicated by the employment, is regarded as not only not sustained by the
authorities, but as being unsound and oppressive both to the employer and the employee. (Houston & T. C.
R. Co. vs. Bush, 32 LRA (NS), p. 1205.)
Wherefore, the judgment appealed from is reversed and the complaint ordered dismissed, without costs.
So ordered.
Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo and Concepcion, JJ., concur.
Maranan v. Perez, 20 SCRA 412
EN BANC
319 | P a g e
[G.R. No. L-22272. June 26, 1967.]

ANTONIA MARANAN, plaintiff-appellant, vs. PASCUAL PEREZ, ET AL., defendants, PASCUAL
PEREZ, defendant-appellant.
Pedro Panganiban for plaintiff-appellant.
Magno T . Bueser for defendant-appellant.
SYLLABUS
1.
CIVIL LAW; COMMON CARRIERS; CASE AT BAR. R.C. was a passenger in a taxicab owned by P. P.
when he was stabbed to death by the driver, S.V. In the subsequent action for damages, P. P. cited Gillaco
vs. MRR, 97 Phil., 884, which ruled that the carrier is under no absolute liability for assaults of its
employees upon the passengers. Held, the Gillaco case does not apply. There, the passenger was killed
outside the scope and course of duty of the guilty employee while here, the killing took place in the course
of duty of the guilty employee and when he was acting within the scope of his duties.
2.
ID.; ID.; OLD AND NEW CIVIL CODES COMPARED. Unlike the old Civil Code, the new Civil Code of
the Philippines in its Article 1759 expressly makes the common carrier liable for intentional assaults
committed by its employees upon its passengers.
3.
ID.; ID.; BASIS OF CARRIER'S LIABILITY FOR ASSAULTS ON PASSENGERS COMMITTED BY ITS
DRIVERS. The Civil Code provisions on the subject of Common Carriers (Sec. 4, Chap. 3, Title VIII, Rep.
Act No. 386) are new and were taken from Anglo-American Law (Report of the Code Commission, 64).
There, the basis of the carrier's liability for assaults on passengers committed by its drivers rest either on
(1) the doctrine of respondeat superior, or (2) the principle that it is the carrier's implied duty to transport
the passenger safely (53 ALR 2d 721-728; 732-734). Under the first, which is the minority view, the carrier
is liable only when the act of the employee is within the scope of his authority and duty. It is not sufficient
that the act be within the course of employment only. Under the second view, upheld by the majority and
also by the later cases, it is enough that the assault happens within the course of the employee's duty. It is
no defense for the carrier that the act was done in excess of authority or in disobedience of the carrier's
orders (10 Am. Jur. 105-107; 263-265). The carrier's liability her is absolute in the sense that it practically
secures the passengers from assaults committed by its own employees (Dixie Motor Coach Corp. vs. Toler,
1997 Ark. 1097, 126 S.W., 2d, 618; Van Hoeffen vs. Columbia Taxicab Co., 179 Mo. App. 591, 162 S.W. 694;
Brockway vs. Mordenti, 199 Misc. 898, 103 N.Y.S. 621; Korner vs. Cosgrove, 141 N.E. 265, 31 A.L.R. 1193).
4.
ID.; ID.; ID.; NEW CIVIL CODE FOLLOWS SECOND VIEW. As can be gleaned from the Article 1759,
the Civil Code of the Philippines evidently follows the rule based on the second view: (1) the special
undertaking of the carrier requires that it furnish its passengers that full measure of protection afforded by
the exercise of the high degree of care prescribed by the law, inter alia from violence and insults at the
hands of strangers and other passengers, but above all, from the acts of the carrier's own servants
charged with the passenger's safety; (2) said liability of the carrier from the servant's violations of duty to
passengers, is the result of the former's confiding in the servant's hands the performance of his contract to
safely transport the passenger, with the utmost care prescribed by law; and (3) as between the carrier and
the passenger, the former must bear the risk of wrongful acts or negligence of the carrier's employees
against passengers, since it, and not the passengers, has power to select and remove them. (Texas
Midland R.R. vs. Monroe 110 Tex 97, 216 S.W. 388, 380, 390; and Haver vs. Central Railroad Co., 43 L.R.A.
84, 85.)
5.
ID.; ID.; CARRIER'S DUTY IN SELECTING ITS DRIVERS AND SIMILAR EMPLOYEES. It is the carrier's
strict obligation to select its drivers and similar employees with due regard not only to their technical
competence and physical ability, but also, no less important, to their total personality, including their
patterns of behavior, moral fibers, and social attitude.
6.
ID.; ID.; ACTUAL AND MORAL DAMAGES FOR PASSENGER'S DEATH. P3,000 is the minimum
compensatory damages recoverable when a breach of contract of carriage results in the passenger's death
(Arts 1764 & 2206, Civil Code) but consistent with the policy of this Court, the minimal award should be
raised to P6,000. In addition, the parents of the decedent are entitled to moral damages to compensate for
the mental anguish they suffered. A claim therefore having been properly made, it becomes the court's
duty to award moral damages (Mercado vs. Lira, L-13328-29 & L-13358, Sept. 29, 1961). Interest upon
such damages are also due to plaintiff-appellant (Art. 2210, Civil Code).
DECISION
BENGZON, J.P., J p:
320 | P a g e
Rogelio Corachea, on October 18, 1960, was a passenger in a taxicab owned and operated by Pascual
Perez when he was stabbed and killed by the driver, Simeon Valenzuela.
Valenzuela was prosecuted for homicide in the Court of First Instance of Batangas. Found guilty, he was
sentenced to suffer imprisonment and to indemnify the heirs of the deceased in the sum of P6,000. Appeal
from said conviction was taken to the Court of Appeals.
On December 6, 1961, while appeal was pending in the Court of Appeals, Antonia Maranan, Rogelio's
mother, filed an action in the Court of First Instance of Batangas to recover damages from Perez and
Valenzuela for the death of her son. Defendants asserted that the deceased was killed in self-defense,
since he first assaulted the driver by stabbing him from behind. Defendant Perez further claimed that the
death was a caso fortuito for which the carrier was not liable.
The court a quo, after trial, found for the plaintiff and awarded her P3,000 as damages against defendant
Perez. The claim against defendant Valenzuela was dismissed. From this ruling, both plaintiff and
defendant Perez appealed to this Court, the former asking for more damages and the latter insisting on
non-liability. Subsequently, the Court of Appeals affirmed the judgment of conviction earlier mentioned,
during the pendency of the herein appeal, and on May 19, 1964, final judgment was entered therein.
(Rollo, p. 33).
Defendant-appellant relies solely on the ruling enunciated in Gillaco vs. Manila Railroad Co., 97 Phil. 884,
that the carrier is under no absolute liability for assaults of its employees upon the passengers. The
attendant facts and controlling law of that case and the one at bar are very different however. In the
Gillaco case, the passenger was killed outside the scope and the course of duty of the guilty employee. As
this Court there found:
". . . when the crime took place, the guard Devesa had 10 duties to discharge in connection with the
transportation of the deceased from Calamba to Manila. The stipulation of facts is clear that when Devesa
shot and killed Gillaco, Devesa, was assigned to guard the Manila-San Fernando (La Union) trains, and he
was at Paco Station awaiting transportation to Tutuban, the starting point of the train he was engaged to
guard. In fact, his tour of duty was to start at 9:00 a.m., two hours after the commission of the crime.
Devesa was therefore under no obligation to safeguard the passengers of the Calamba-Manila train, where
the deceased was riding; and the killing of Gillaco was not done in line of duty. The position of Devesa at
the time was that of another would be passenger, a stranger also awaiting transportation, and not that of
an employee assigned to discharge any of the duties that the Railroad had assumed by its contract with
the deceased. As a result, Devesa's assault can not be deemed in law a breach of Gillaco's contract of
transportation by a servant or employee of the carrier. . . ." (Emphasis supplied)
Now here, the killing was perpetrated by the driver of the very cab transporting the passenger, in whose
hands the carrier had entrusted the duty of executing the contract of carriage. In other words, unlike the
Gillaco case, the killing of the passenger here took place in the course of duty of the guilty employee and
when the employee was acting within the scope of his duties.
Moreover, the Gillaco case was decided under the provisions of the Civil Code of 1889 which, unlike the
present Civil Code, did not impose upon common carriers absolute liability for the safety of passengers
against wilful assaults or negligent acts committed by their employees. The death of the passenger in the
Gillaco case was truly a fortuitous event which exempted the carrier from liability. It is true that Art. 1105
of the old Civil Code on fortuitous events has been substantially reproduced in Art. 1174 of the Civil Code
of the Philippines but both articles clearly remove from their exempting effect the case where the law
expressly provides for liability in spite of the occurrence of force majeure. And herein significantly lies the
statutory difference between the old and present Civil Codes, in the backdrop of the factual situation
before Us, which further accounts for a different result in the Gillaco case. Unlike the old Civil Code, the
new Civil Code of the Philippines expressly makes the common carrier liable for intentional assaults
committed by its employees upon its passengers, by the wording of Art. 1759 which categorically states
that.
"Common carriers are liable for the death of or injuries to passengers although 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."
The Civil Code provisions on the subject of Common Carriers 1 are new and were taken from AngloAmerican Law. 2 There, the basis of the carrier's liability for assaults on passengers committed by its
drivers rests either on (1) the doctrine of respondeat superior or (2) the principle that it is the carrier's
implied duty to transport the passenger safely. 3
321 | P a g e
Under the first, which is the minority view, the carrier is liable only when the act of the employee is within
the scope of his authority and duty. It is not sufficient that the act be within the course of employment only.
4
Under the second view, upheld by the majority and also by the later cases, it is enough that the assault
happens within the course of the employee's duty. It is no defense for the carrier that the act was done in
excess of authority or in disobedience of the carrier's orders. 5 The carrier's liability here is absolute in the
sense that it practically secures the passengers from assaults committed by its own employees. 6
As can be gleaned from Art. 1759, the Civil Code of the Philippines evidently follows the rule based on the
second view. At least three very cogent reasons underlie this rule. As explained in Texas Midland R.R. vs.
Monroe, 110 Tex. 97, 216 S.W. 388, 389-390, and Haver vs. Central Railroad Co., 43 LRA 84, 85; (1) the
special undertaking of the carrier requires that it furnish its passenger that full measure of protection
afforded by the exercise of the high degree of care prescribed by the law, inter alia from violence and
insults at the hands of strangers and other passengers, but above all, from the acts of the carrier's own
servants charged with the passenger's safety; (2) said liability of the carrier for the servant's violation of
duty to passengers, is the result of the former's confiding in the servant's hands the performance of his
contract to safely transport the passenger, delegating therewith the duty of protecting the passenger with
the utmost care prescribed by law; and (3) as between the carrier and the passenger, the former must
bear the risk of wrongful acts or negligence of the carrier's employees against passengers, since it, and not
the passengers, has power to select and remove them.
Accordingly, it is the carrier's strict obligation to select its drivers and similar employees with due regard
not only to their technical competence and physical ability, but also, no less important, to their total
personality, including their patterns of behavior, moral fibers, and social attitude.
Applying this stringent norm to the facts in this case, therefore, the lower court rightly adjudged the
defendant carrier liable pursuant to Art. 1759 of the Civil Code. The dismissal of the claim against the
defendant driver was also correct. Plaintiff's action was predicated on breach of contract of carriage 7 and
the cab driver was not a party thereto. His civil liability is covered in the criminal case wherein he was
convicted by final judgment.
In connection with the award of damages, the court a quo granted only P3,000 to plaintiff-appellant. This is
the minimum compensatory damages amount recoverable under Art. 1764 in connection with Art. 2206 of
the Civil Code when a breach of contract results in the passenger's death. As has been the policy followed
by this Court, this minimal award should be increased to P6,000. As to other alleged actual damages, the
lower court's finding that plaintiff's evidence thereon was not convincing 8 should not be disturbed. Still,
Arts. 2206 and 1764 award moral damages in addition to compensatory damages, to the parents of the
passenger killed to compensate for the mental anguish they suffered. A claim therefor having been
properly made, it becomes the court's duty to award moral damages. 9 Plaintiff demands P5,000 as moral
damages; however, in the circumstances, We consider P3,000 moral damages, in addition to the P6,000
damages afore-stated, as sufficient. Interest upon such damages are also due to plaintiff-appellant. 10
Wherefore, with the modification increasing the award of actual damages in plaintiff's favor to P6,000, plus
P3,000 moral damages, with legal interest on both from the filing of the complaint on December 6, 1961
until the whole amount is paid, the judgment appealed from is affirmed in all other respects. No costs. So
ordered.
Concepcion, C .J ., Reyes, J .B.L., Dizon, Makalintal, Zaldivar, Sanchez and Castro, JJ ., concur.
Footnotes
1.
Section 4, Chapter 3, Title VIII, Republic Act 386.
2.
Report of the Code Commission, p. 64.
3.
For an extensive discussion, see 53 ALR 2d 721-728; 732-734.
4.
Williams vs. Shreveport Yellow Cab Co., 183 So. 120; Southeastern Greyhound Lines vs. Smith, 23
Tenn. App. 627, 136 SW 2d 272.
5.
Am. Jur. 105-107; 263-265.
6.
Dixie Motor Coach Corp. vs. Toler 1997 Ark. 1097,126 SW 2d 618; Van Hoeffen vs. Columbia Taxicab
Co., 179 Mo. App. 591, 162 S.W. 694; Brockway vs. Mordenti, 199 Misc. 898, 103 NYS 2d 621; Korner vs.
Cosgrove, 141 NE 265, 31 ALR 1193.
7.
Plaintiff-Appellants brief, p. 7.
322 | P a g e

8.
9.
10.
Record on Appeal, p. 35.

Mercado vs. Lira, L-13328 & L-13358, Sept. 29, 1961.
Art. 2210, Civil Code.
7.
Responsibility for acts of strangers and co-passengers
Arts. 1763
Art. 1763. A common carrier is responsible for injuries suffered by a passenger on account of the wilful
exercise of the diligence of a good father of a family could have prevented or stopped the act or omission.
Pilapil v. CA, 180 SCRA 546
SECOND DIVISION
[G.R. No. 52159. December 22, 1989.]
JOSE PILAPIL, petitioner, vs. HON. COURT OF APPEALS and ALATCO TRANSPORTATION
COMPANY, INC., respondents.
Eufronio K. Maristela for private respondent.
SYLLABUS
1.
CIVIL LAW; COMMON CARRIERS; EXTRA-ORDINARY DILIGENCE REQUIRED IN THE TRANSPORT OF
PASSENGERS CREATES MERELY A DISPUTABLE PRESUMPTION AGAINST THE CARRIER. The presumption
of fault or negligence against the carrier is only a disputable presumption. It gives in where contrary facts
are established proving either that the carrier had exercised the degree of diligence required by law or the
injury suffered by the passenger was due to a fortuitous event. Where, as in the instant case, the injury
sustained by the petitioner was in no way due to any defect in the means of transport or in the method of
transporting or to the negligent or willful acts of private respondent's employees, and therefore involving
no issue of negligence in its duty to provide safe and suitable cars as well as competent employees, with
the injury arising wholly from causes created by strangers over which the carrier had no control or even
knowledge or could not have prevented, the presumption is rebutted and the carrier is not and ought not
to be held liable.
2.
ID.; ID.; NOT AN ABSOLUTE INSURER OF THE SAFETY OF PASSENGERS. While the law requires the
highest degree of diligence from common carriers in the safe transport of their passengers and creates a
presumption of negligence against them, it does not, however, make the carrier an insurer of the absolute
safety of its passengers. Article 1755 of the Civil Code qualifies the duty of extraordinary care, vigilance
and precaution in the carriage of passengers by common carriers to only such as human care and foresight
can provide. What constitutes compliance with said duty is adjudged with due regard to all the
circumstances. Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part
of the common carrier when its passenger is injured, merely relieves the latter, for the time being, from
introducing evidence to fasten the negligence on the former, because the presumption stands in the place
of evidence. Being a mere presumption, however, the same is rebuttable by proof that the common carrier
had exercised extraordinary diligence as required by law in the performance of its contractual obligation,
or that the injury suffered by the passenger was solely due to a fortuitous event. In fine, we can only infer
from the law the intention of the Code Commission and Congress to curb the recklessness of drivers and
operators of common carriers in the conduct of their business. Thus, it is clear that neither the law nor the
nature of the business of a transportation company makes it an insurer of the passenger's safety, but that
its liability for personal injuries sustained by its passenger rests upon its negligence, its failure to exercise
the degree of diligence that the law requires.
3.
ID.; ID.; DILIGENCE REQUIRED THEREOF REDUCED TO THAT OF "A GOOD FATHER OF A FAMILY"
WHERE INJURY SUSTAINED BY PASSENGER CAUSED BY STRANGERS. Common carriers are bound to
exercise extraordinary diligence in the safe transport of their passengers, it would seem that this is not the
standard by which its liability is to be determined when intervening acts of strangers directly cause the
injury, while the contract of carriage exists. Article 1763 governs: "Article 1763. A common carrier is
responsible for injuries suffered by a passenger on account of the wilful acts or negligence of other
323 | P a g e
passengers or of strangers, if the common carrier's employees through the exercise of the diligence of a
good father of a family could have prevented or stopped the act or omission." Clearly under the above
provision, a tort committed by a stranger which causes injury to a passenger does not accord the latter a
cause of action against the carrier. The negligence for which a common carrier is held responsible is the
negligent omission by the carrier's employees to prevent the tort from being committed when the same
could have been foreseen and prevented by them. Further, under the same provision, it is to be noted that
when the violation of the contract is due to the wilful acts of strangers, as in the instant case, the degree
of care essential to be exercised by the common carrier for the protection of its passenger is only that of a
good father of a family.
4.
ID.; ID.; EXERCISE OF EXTRA-ORDINARY DILIGENCE THEREOF DOES NOT EXTEND TO TAKING OF
DOUBTFUL OR UNREASONABLE PRECAUTIONS. Petitioner has charged respondent carrier of negligence
on the ground that the injury complained of could have been prevented by the common carrier if
something like mesh-work grills had covered the windows of its bus. We do not agree. Although the
suggested precaution could have prevented the injury complained of, the rule of ordinary care and
prudence is not so exacting as to require one charged with its exercise to take doubtful or unreasonable
precautions to guard against unlawful acts of strangers. The carrier is not charged with the duty of
providing or maintaining vehicles as to absolutely prevent any and all injuries to passengers. Where the
carrier uses cars of the most approved type, in general use by others engaged in the same occupation,
and exercises a high degree of care in maintaining them insuitable condition, the carrier cannot be
charged with negligence in this respect.
DECISION
PADILLA, J p:
This is a petition to review on certiorari the decision * rendered by the Court of Appeals dated 19 October
1979 in CA-G.R. No. 57354-R entitled "Jose Pilapil, plaintiff-appellee versus Alatco Transportation Co., Inc.,
defendant-appellant," which reversed and set aside the judgment of the Court of First Instance of
Camarines Sur in Civil Case No. 7230 ordering respondent transportation company to pay to petitioner
damages in the total sum of sixteen thousand three hundred pesos (P16,300.00). cdll
The record discloses the following facts:
Petitioner-plaintiff Jose Pilapil, a paying passenger, boarded respondent-defendant's bus bearing No. 409 at
San Nicolas, Iriga City on 16 September 1971 at about 6:00 P.M. While said bus No. 409 was in due course
negotiating the distance between Iriga City and Naga City, upon reaching the vicinity of the cemetery of
the Municipality of Baao, Camarines Sur, on the way to Naga City, an unidentified man, a bystander along
said national highway, hurled a stone at the left side of the bus, which hit petitioner above his left eye.
Private respondent's personnel lost no time in bringing the petitioner to the provincial hospital in Naga City
where he was confined and treated. prcd
Considering that the sight of his left eye was impaired, petitioner was taken to Dr. Malabanan of Iriga City
where he was treated for another week. Since there was no improvement in his left eye's vision, petitioner
went to V. Luna Hospital, Quezon City where he was treated by Dr. Capulong. Despite the treatment
accorded to him by Dr. Capulong, petitioner lost partially his left eye's vision and sustained a permanent
scar above the left eye.
Thereupon, petitioner instituted before the Court of First Instance of Camarines Sur, Branch I an action for
recovery of damages sustained as a result of the stone-throwing incident. After trial, the court a quo
rendered judgment with the following dispositive part:
"Wherefore, judgment is hereby entered:
1.
Ordering defendant transportation company to pay plaintiff Jose Pilapil the sum of P10,000.00,
Philippine Currency, representing actual and material damages for causing a permanent scar on the face
and injuring the eye-sight of the plaintiff;
2.
Ordering further defendant transportation company to pay the sum of P5,000.00, Philippine
Currency, to the plaintiff as moral and exemplary damages;
3.
Ordering furthermore, defendant transportation company to reimburse plaintiff the sum of P300.00
for his medical expenses and attorney's fees in the sum of P1,000.00, Philippine Currency; and
4.
To pay the costs.
SO ORDERED." 1
324 | P a g e
From the judgment, private respondent appealed to the Court of Appeals where the appeal was docketed
as CA-G.R. No. 57354-R. On 19 October 1979, the Court of Appeals, in a Special Division of Five, rendered
judgment reversing and setting aside the judgment of the court a quo.
Hence the present petition.
In seeking a reversal of the decision of the Court of Appeals, petitioner contends that said court has
decided the issue not in accord with law. Specifically, petitioner argues that the nature of the business of a
transportation company requires the assumption of certain risks, and the stoning of the bus by a stranger
resulting in injury to petitioner-passenger is one such risk from which the common carrier may not exempt
itself from liability.
We do not agree.
In consideration of the right granted to it by the public to engage in the business of transporting
passengers and goods, a common carrier does not give its consent to become an insurer of any and all
risks to passengers and goods. It merely undertakes to perform certain duties to the public as the law
imposes, and holds itself liable for any breach thereof. cdrep
Under Article 1733 of the Civil Code, common carriers are required to observe extraordinary diligence for
the safety of the passenger transported by them, according to all the circumstances of each case. The
requirement of extraordinary diligence imposed upon common carriers is restated in 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 due regard for all the circumstances." Further, in
case of death of or injuries to passengers, the law presumes said common carriers to be at fault or to have
acted negligently. 2
While the law requires the highest degree of diligence from common carriers in the safe transport of their
passengers and creates a presumption of negligence against them, it does not, however, make the carrier
an insurer of the absolute safety of its passengers. 3
Article 1755 of the Civil Code qualifies the duty of extraordinary care, vigilance and precaution in the
carriage of passengers by common carriers to only such as human care and foresight can provide. What
constitutes compliance with said duty is adjudged with due regard to all the circumstances.
Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part of the common
carrier when its passenger is injured, merely relieves the latter, for the time being, from introducing
evidence to fasten the negligence on the former, because the presumption stands in the place of evidence.
Being a mere presumption, however, the same is rebuttable by proof that the common carrier had
exercised extraordinary diligence as required by law in the performance of its contractual obligation, or
that the injury suffered by the passenger was solely due to a fortuitous event. 4
In fine, we can only infer from the law the intention of the Code Commission and Congress to curb the
recklessness of drivers and operators of common carriers in the conduct of their business.
Thus, it is clear that neither the law nor the nature of the business of a transportation company makes it
an insurer of the passenger's safety, but that its liability for personal injuries sustained by its passenger
rests upon its negligence, its failure to exercise the degree of diligence that the law requires 5
Petitioner contends that respondent common carrier failed to rebut the presumption of negligence against
it by proof on its part that it exercised extraordinary diligence for the safety of its passengers.
We do not agree.
First, as stated earlier, the presumption of fault or negligence against the carrier is only a disputable
presumption. It gives in where contrary facts are established proving either that the carrier had exercised
the degree of diligence required by law or the injury suffered by the passenger was due to a fortuitous
event. Where, as in the instant case, the injury sustained by the petitioner was in no way due to any defect
in the means of transport or in the method of transporting or to the negligent or willful acts of private
respondent's employees, and therefore involving no issue of negligence in its duty to provide safe and
suitable cars as well as competent employees, with the injury arising wholly from causes created by
strangers over which the carrier had no control or even knowledge or could not have prevented, the
presumption is rebutted and the carrier is not and ought not to be held liable. To rule otherwise would
make the common carrier the insurer of the absolute safety of its passengers which is not the intention of
the lawmakers. llcd
Second, while as a general rule, common carriers are bound to exercise extraordinary diligence in the safe
transport of their passengers, it would seem that this is not the standard by which its liability is to be
determined when intervening acts of strangers directly cause the injury, while the contract of carriage
exists. Article 1763 governs:
325 | P a g e
"Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the wilful
exercise of the diligence of a good father of a family could have prevented or stopped the act or omission."
Clearly under the above provision, a tort committed by a stranger which causes injury to a passenger does
not accord the latter a cause of action against the carrier. The negligence for which a common carrier is
held responsible is the negligent omission by the carrier's employees to prevent the tort from being
committed when the same could have been foreseen and prevented by them. Further, under the same
provision, it is to be noted that when the violation of the contract is due to the wilful acts of strangers, as in
the instant case, the degree of care essential to be exercised by the common carrier for the protection of
its passenger is only that of a good father of a family.
Petitioner has charged respondent carrier of negligence on the ground that the injury complained of could
have been prevented by the common carrier if something like mesh-work grills had covered the windows
of its bus.
We do not agree.
Although the suggested precaution could have prevented the injury complained of, the rule of ordinary
care and prudence is not so exacting as to require one charged with its exercise to take doubtful or
unreasonable precautions to guard against unlawful acts of strangers. The carrier is not charged with the
duty of providing or maintaining vehicles as to absolutely prevent any and all injuries to passengers.
Where the carrier uses cars of the most approved type, in general use by others engaged in the same
occupation, and exercises a high degree of care in maintaining them in suitable condition, the carrier
cannot be charged with negligence in this respect. 6
Finally, petitioner contends that it is to the greater interest of the State if a carrier were made liable for
such stone-throwing incidents rather than have the bus riding public lose confidence in the transportation
system.
Sad to say, we are not in a position to so hold; such a policy would be better left to the consideration of
Congress which is empowered to enact laws to protect the public from the increasing risks and dangers of
lawlessness in society. LLphil
WHEREFORE, the judgment appealed from is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera, Sarmiento and Regalado, JJ., concur.
Paras, J., took no part.
Footnotes
*
Penned by Justice Hugo E. Gutierrez, Jr., with Justices Edgardo L. Paras, Milagros A. German, Jorge R.
Coquia, concurring. Justice Ramon G. Gaviola, Jr. dissented.
1.
Record on Appeal, Annex "B", Rollo, p. 31.
2.
Article 1756, New Civil Code.
3.
Strong v. Iloilo-Negros Air Express Co., 40 OG Supp. 12 p. 274; Alfaro v. Ayson, 54 OG Dec. 1, 1958,
p. 7920.
4.
Art. 1174, Civil Code; Lasam v. Smith, 45 Phil. 657.
5.
Art. 1170, 1173, Civil Code; Alfaro v. Ayson, Supra; Necesito, et al. vs. Paras, et al., 104 Phil. 75.
6.
Irwin v. Louisville & N.R. Co., 50 Southern Reporter 62.
Bachelor Express, Inc. V. CA, supra
Duty of passenger; effect of contributory negligence
Arts. 1761, 1762
Art. 1761. The passenger must observe the diligence of a good father of a family to avoid injury to
himself.
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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.
Cangco v. MRR, supra

D. Damages Recoverable from Common Carriers
1.
In general
2.
Actual or compensatory
Arts. 2199, 2201, 2203, 1764, 2206
ACTUAL OR COMPENSATORY DAMAGES
Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation only
for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual
or compensatory damages.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is
liable shall be those that are the natural and probable consequences of the breach of the obligation, and
which the parties have foreseen or could have reasonably foreseen at the time the obligation was
constituted.
which may be reasonably attributed to the non-performance of the obligation. (1107a)
Art. 2203. The party suffering loss or injury must exercise the diligence of a good father of a family to
minimize the damages resulting from the act or omission in question.
Art. 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.
Art. 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:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed
and awarded by the court, unless the deceased on account of permanent physical disability not
caused by the defendant, had no earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of Article 291, the
recipient who is not an heir called to the decedent's inheritance by the law of testate or intestate
succession, may demand support from the person causing the death, for a period not exceeding
five years, the exact duration to be fixed by the court;
(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.
Cariaga v. LTBCo. and MRR, 110 Phil 346
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EN BANC
[G.R. No. L-11037. January 30, 1962.]
EDGARDO CARIAGA, ET AL., plaintiffs-appellants, vs. LAGUNA TAYABAS BUS CO., ET AL.,
defendants.
Estanislao A. Fernandez and Leonardo H. Fernandez for plaintiffs-appellants.
Ozaeta, Gibbs & Ozaeta for defendant-appellant.
Government Corporate Counsel for defendants-appellees.
DECISION
DIZON, J p:
The dispositive part of the decision of the Court of First Instance of Laguna in the above-mentioned case
reads as follows:
"WHEREFORE, judgment is rendered as follows:
"(a)
The defendant, Laguna Tayabas Bus Company, is hereby sentenced to pay the plaintiff, Edgardo
Cariaga, the sum of P10,490 as compensatory damages with interest thereon at the legal rate from the
date of the filing of the complaint;
"(b)
The moral damages and attorney's fees claimed by Edgardo Cariaga and his parents Jose and
Maura C. Cariaga, as well as the compensatory damages claimed by the said spouses are hereby
dismissed;
"(c)
Defendant Manila Railroad Company is hereby absolved from the complaint of the plaintiffs and the
cross-claim of defendant, Laguna Tayabas Bus Company;
"(d)
Defendant Laguna Tayabas Bus Company is further ordered to pay the costs."
Upon appeal this Court increased the compensatory damages to P25,000.00 and affirmed the appealed
judgment in all other respects, with costs against appellant Laguna Tayabas Bus Company.
On December 12, 1961 plaintiffs-appellants filed a Motion for Clarification praying "that an order be issued
to clarify what is meant by the decision of this Honorable Court when it increased the payment of
compensatory damages to P25,000 and affirmed the decision appealed from in all other respects, whether
the payment of P25,000 should be with interest or not."
The above motion was denied by our minute resolution of December 14, 1961, but four days thereafter
defendant-appellant filed its answer to the aforesaid motion. In view of the conflicting opinions of the
parties on the question of whether the interests awarded shall be on the increased compensatory damages
or on the amount awarded by the lower court, or whether interests on the amount of the compensatory
damages were awarded at all, we find it necessary to reconsider the minute resolution already mentioned
and to state the following for the guidance of the lower court in the execution of the final judgment
rendered in this case.
Considering that our decision simply increased the compensatory damages from P10,490 to P25,000,
without providing that the "increase" shall also draw interest at the same rate as the original amount; and
considering further that after increasing the amount awarded as compensatory damages, we affirmed the
lower court's decision in all other respects, our decision shall be construed as awarding no interest on the
amount by which the compensatory damages were increased. Consequently, such interest shall be
exclusively on the sum of P10,490.00 as provided in the decision of the lower court.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes and De Leon,
JJ., concur.
Pan Am v. IAC, supra
328 | P a g e
Villa-Rey v. CA, 31 SCRA 511

SECOND DIVISION
[G.R. No. L-25499. February 18, 1970.]
VILLA REY TRANSIT, INC., petitioner, vs. THE COURT OF APPEALS, TRINIDAD A. QUINTOS, PRIMA
A. QUINTOS, AND JULITA A. QUINTOS, respondents.
Laurea & Pison for petitioner.
Bonifacio M. Abad, Jr. for respondents.
SYLLABUS
1.
CIVIL LAW; DAMAGES; INDEMNITY FOR LOSS OF LIFE; FACTORS IN DETERMINING AMOUNT. The
determination of the amount of damages resulting from a death of a passenger due to breach of contract
of carriage recoverable by private respondents, heirs of the deceased, depends, mainly upon two (2)
factors, namely: (1) the number of years on the basis of which the damages shall be computed and (2) the
rate at which the losses sustained by said respondents should be fixed.
2.
ID.; ID.; ID.; ID.; LIFE EXPECTANCY OF VICTIM, IMPORTANT ELEMENT IN FIXING INDEMNITY. Life
expectancy is, not only relevant, but, also, an important element in fixing the amount recoverable by
private respondents herein. Although it is not the sole element determinative of said amount, no cogent
reason has been given to warrant its disregard and the adoption, in the case at bar, of a purely arbitrary
standard. such as a four-year rule.
3.
ID.; ID.; ID.; OTHER FACTORS. Other factors that are usually considered are: (1) pecuniary loss to
plaintiff or beneficiary; (2) loss of support; (3) loss of service; (4) loss of society; (5) mental suffering of
beneficiaries; and (6) medical and funeral expenses.
4.
ID.; ID.; ID.; ID.; DETERMINATION OF INDEMNITY HAS NO FIXED BASIS BUT MUCH IS LEFT TO
DISCRETION OF COURT. The determination of the indemnity to be awarded to the heirs of a deceased
person has therefore no fixed basis. Much is left to the discretion of the court considering the moral and
material damages involved, and so it has been said that "(t)here can be no exact or uniform rule for
measuring the value of a human life and the measure of damages cannot be arrived at by precise
mathematical calculation, but the amount recoverable depends on the particular facts and circumstances
of each case. The life expectancy of the deceased or of the beneficiary, whichever is shorter, is an
important factor.
5.
ID.; ID.; ID.; ID.; ALCANTARA CASE NOT APPLICABLE IN CASE AT BAR. The case of Alcantara v.
Surro, in which the damages were computed on a four (4) year basis, despite the fact that the victim
therein was 39 years old, at the time of his death, and had a life expectancy of 28.90 years, is not
controlling in the one at bar. None of the parties, in sid case, had questioned the propriety of the four-year
basis adopted by the trial court in making its award of damages. Both parties appealed, but only as
regards the amount thereof. The plaintiffs assailed the non-inclusion, in its computation, of the bonus that
the corporation, which was the victim's employer, had awarded to deserving officers and employees,
based upon the profits earned less than two (2) months before the accident that resulted in his death. The
defendants, in turn, objected to the sum awarded for the fourth year, which was treble that of the previous
years, based upon the increases given, in that fourth year, to other employees of the same corporation.
Neither this objection nor said claim for inclusion of the bonus was sustained by this Court. Accordingly,
the same had not thereby laid down any rule on the length of time to be used in the computation of
damages.
6.
ID.; ID.; ID.; ID.; RATE AT WHICH LOSSES SHALL BE FIXED; CASE AT BAR DISTINGUISHED FROM THAT
OF ALCANTARA. Unlike the Alcantara case, on which petitioner relies, the lower courts did not consider,
in the present case, the victim's potentiality and capacity to increase his future income. Indeed, upon the
conclusion of his training period, he was supposed to have a better job and be promoted from time to time,
329 | P a g e
and, hence, to earn more, if not considering the growing importance of trade, commerce and industry
and the concomitant rise in the income level of officers and employees therein much more.
7.
ID.; ID.; ID.; ID.; DETERMINATION OF LOSSES AND DAMAGES SUSTAINED BY DEPENDENTS AND
HEIRS OF DECEASED. In the determination of the losses or damages sustained by the private
respondents, as dependents and intestate heirs of the deceased, said damages consist, not of the full
amount of his earnings, but of the support they received or would have received from him had he not died
in the consequence of the negligence of petitioner's agent. In fixing the amount of that support, the
"necessary expenses of his own living" must be deducted from his earnings. Thus, earning capacity, as an
element of damages to one's estate for his death by wrongful act is necessarily his net earning capacity, or
his capacity to acquire money, "less the necessary expense for his own living."
DECISION
CONCEPCION, C.J p:
Petitioner, Villa Rey Transit, Inc., seeks the review by certiorari of a decision of the Court of Appeals
affirming that of the Court of First Instance of Pangasinan. The basic facts are set forth in said decision of
the Court of Appeals, from which We quote:
"At about 1:30 in the morning of March 17, 1960, an Isuzu First Class passenger bus owned and operated
by the defendant, bearing Plate No. TPU-14871-Bulacan and driven by Laureano Casim, left Lingayen,
Pangasinan, for Manila. Among its paying passengers was the deceased, Policronio Quintos, Jr. who sat on
the first seat, second row, right side of the bus. At about 4:55 o'clock a.m. when the vehicle was nearing
the northern approach of the Sadsaran Bridge on the national highway in barrio Sto. Domingo, municipality
of Minalin, Pampanga, it frontally hit the rear side of a bullcart filled with hay. As a result the end of a
bamboo pole placed on top of the hayload and tied to the cart to hold it in place, hit the right side of the
windshield of the bus. The protruding end of the bamboo pole, about 8 feet long from the rear of the
bullcart, penetrated through the glass windshield and landed on the face of Policronio Quintos, Jr. who,
because of the impact, fell from his seat and was sprawled on the floor. The pole landed on his left eye and
the bone of the left side of his face was fractured. He suffered other multiple wounds and was rendered
unconscious due, among other causes to severe cerebral concussion. A La Mallorca passenger bus going in
the opposite direction towards San Fernando, Pampanga, reached the scene of the mishap and it was
stopped by Patrolman Felino Bacani of the municipal police force of Minalin who, in the meantime, had
gone to the scene to investigate. Patrolman Bacani placed Policronio Quintos, Jr. and three other injured
men who rode on the bullcart aboard the La Mallorca bus and brought them to the provincial hospital of
Pampanga at San Fernando for medical assistance. Notwithstanding such assistance, Policronio Quintos, Jr.
died at 3:15 p.m. on the same day, March 17, 1960, due to traumatic shock due to cerebral injuries."
The private respondents, Trinidad, Prima and Julita, all surnamed Quintos, are the sisters and only surviving
heirs of Policronio Quintos, Jr., who died single, leaving no descendants nor ascendants. Said respondents
herein brought this action against herein petitioner, Villa Rey Transit, Inc., as owner and operator of said
passenger bus, bearing Plate No. TPU-14871-Bulacan, for breach of the contract of carriage between said
petitioner and the deceased Policronio Quintos, Jr., to recover the aggregate sum of P63,750.00 as
damages, including attorney's fees. Said petitioner defendant in the court of first instance contended
that the mishap was due to a fortuitous event, but this pretense was rejected by the trial court and the
Court of Appeals, both of which found that the accident and the death of Policronio had been due to the
negligence of the bus driver, for whom petitioner was liable under its contract of carriage with the
deceased. In the language of His Honor, the trial Judge:
"The mishap was not the result of any unforeseeable fortuitous event or emergency but was the direct
result of the negligence of the driver of the defendant. The defendant must, therefore, respond for
damages resulting from its breach of contract for carriage. As the complaint alleged a total damage of only
330 | P a g e
P63,750.00 although as elsewhere shown in this decision the damages for wake and burial expenses, loss
of income, death of the victim, and attorneys fee reach the aggregate of P79,615.95, this Court finds it just
that said damages be assessed at total of only P63,750.00 as prayed for in plaintiffs' amended complaint."
The dispositive part of the decision of the trial Court reads:
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay to the plaintiffs the amount of
P63,750.00 as damages for breach of contract of carriage resulting from the death of Policronio Quintos, Jr.
which, as above indicated, was affirmed by the Court of Appeals. Hence, the present petition for review on
certiorari, filed by Villa Rey Transit, Inc.
The only issue raised in this appeal is the amount of damages recoverable by private respondents herein.
The determination of such amount depends, mainly upon two (2) factors, namely: (1) the number of years
on the basis of which the damages shall be computed and (2) the rate at which the losses sustained by
said respondents should be fixed.
The first factor was based by the trial court the view of which was concurred in by the Court of Appeals
upon the life expectancy of Policronio Quintos, Jr., which was placed at 33-1/3 years he being over 29
years of age (or around 30 years for purposes of computation) at the time of his demise by applying the
formula (2/3 x [80-30] = life expectancy) adopted in the American Expectancy Table of Mortality or the
actuarial of Combined Experience Table of Mortality. Upon the other hand, petitioner maintains that the
lower courts had erred in adopting said formula and in not acting in accordance with Alcantara v. Surro 1
in which the damages were computed on a four (4) year basis, despite the fact that the victim therein was
39 years old, at the time of his death, and had a life expectancy of 28.90 years.
The case cited is not, however, controlling in the one at bar. In the Alcantara case, none of the parties had
questioned the propriety of the four-year basis adopted by the trial court in making its award of damages.
Both parties appealed, but only as regards the amount thereof. The plaintiffs assailed the non-inclusion, in
its computation, of the bonus that the corporation, which was the victim's employer, had awarded to
deserving officers and employees, based upon the profits earned less than two (2) months before the
accident that resulted in his death. The defendants, in turn, objected to the sum awarded for the fourth
year, which was treble that of the previous years, based upon the increases given, in that fourth year, to
other employees of the same corporation. Neither this objection nor said claim for inclusion of the bonus
was sustained by this Court. Accordingly, the same had not thereby laid down any rule on the length of
time to be used in the computation of damages. On the contrary, it declared:
"The determination of the indemnity to be awarded to the heirs of a deceased person has therefore no
fixed basis. Much is left to the discretion of the court considering the moral and material damages
involved, and so it has been said that "(t)here can be no exact or uniform rule for measuring the value of a
human life and the measure of damages cannot be arrived at by precise mathematical calculation, but the
amount recoverable depends on the particular facts and circumstances of each case. The life expectancy
of the deceased or of the beneficiary, whichever is shorter, is an important factor.' (25 C.J.S. 1241.) Other
factors that are usually considered are: (1) pecuniary loss to plaintiff or beneficiary (25 C.J.S. 1243-1250);
(2) loss of support (25 C.J.S., 1250-1251); (3) loss of service (25 C.J.S. 1251-1254); (4) loss of society (25
C.J.S. 1254-1255); (5) mental suffering of beneficiaries (25 C.J.S. 1258-1259); and (6) medical and funeral
expenses (25 C.J.S. 1254-1260)." 2
Thus, life expectancy is, not only relevant, but, also, an important element in fixing the amount
recoverable by private respondents herein. Although it is not the sole element determinative of said
amount, no cogent reason has been given to warrant its disregard and the adoption, in the case at bar, of
a purely arbitrary standard. such as a four-year rule. In short, the Court of Appeals has not erred in basing
the computation of petitioner's liability upon the life expectancy of Policronio Quintos, Jr.
With respect to the rate at which the damages shall be computed, petitioner impugns the decision
appealed from upon the ground that the damages awarded therein will have to be paid now, whereas most
of those sought to be indemnified will be suffered years later. This argument is basically true, and this is,
331 | P a g e
perhaps, one of the reasons why the Alcantara case points out the absence of a "fixed basis" for the
ascertainment of the damages recoverable in litigations like the one at bar. Just the same, the force of the
said argument of petitioner herein is offset by the fact that, although payment of the award in the case at
bar will have to take place upon the finality of the decision therein, the liability of petitioner herein had
been fixed at the rate only of P2,184.00 a year, which is the annual salary of Policronio Quintos, Jr. at the
time of his death, as a young "training assistant" in the Bacnotan Cement Industries, Inc. In other words,
unlike the Alcantara case, on which petitioner relies, the lower courts did not consider, In the present case,
Policronio's potentiality and capacity to increase his future income. Indeed, upon the conclusion of his
training period, he was supposed to have a better job and be promoted from time to time, and, hence, to
earn more, if not considering the growing importance of trade, commerce and industry and the
concomitant rise in the income level of officers and employees therein much more.
At this juncture, it should be noted, also, that We are mainly concerned with the determination of the
losses or damages sustained by the Private respondents, as dependents and intestate heirs of the
deceased, and that said damages consist, not of the full amount of his earnings, but of the support they
received or would have received from him had he not died in consequence of the negligence of petitioner's
agent. In fixing the amount of that support, We must reckon with the "necessary expenses of his own
living", which should be deducted from his earnings. Thus, it has been consistently held that earning
capacity, as an element of damages to one's estate for his death by wrongful act is necessarily his net
earning capacity or his capacity to acquire money, "less the necessary expense for his own living. 3
Stated otherwise, the amount recoverable is not loss of the entire earning, but rather the loss of that
portion of the earnings which the beneficiary would have received. 4 In other words, only net earnings,
not gross earning, are to be considered 5 that is, the total of the earnings less expenses necessary in
creation of such earnings or income 6 and less living and other incidental expenses. 7
All things considered, We are of the opinion that it is fair and reasonable to fix the deductible living and
other expenses of the deceased at the sum of P1,184.00 a year, or about P100.00 a month, and that,
consequently, the loss sustained by his sisters may be roughly estimated at P1,000.00 a year or
P33,333.33 for the 33-1/3 years of his life expectancy. To this sum of P33,333.33, the following should be
added: (a) P12,000.00, pursuant to Arts. 104 and 107 of the Revised Penal Code, in relation to Article 2206
of our Civil Code, as construed and applied by this Court; 8 (b) P1,727.95, actually spent by private
respondents for medical and burial expenses: and (c) attorney's fee, which was fixed by the trial court, at
P500.00, but which, in view of the appeal taken by petitioner herein, first to the Court of Appeals and later
to this Supreme Court, should be increased to P2,500.00. In other words, the amount adjudged in the
decision appealed from should be reduced to the aggregate sum of P49,561.28, with interest thereon, at
the legal rate, from December 29, 1961, date of the promulgation of the decision of the trial court.
Thus modified, said decision and that of the Court of Appeals are hereby affirmed, in all other respects,
with costs against petitioner, Villa Rey Transit, Inc. It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Teehankee, Barredo and Villamor, JJ.,
concur.
Footnotes
1.
93 Phil. 472.
2.
Italics ours.
3.
Pitman v. Merriman, 117 A. 18, 19, 80 N.31. 295.
4.
Lynch v. Lynch, 195 A. 799; Lockerman v. Hurlock, 125 A. 482, 2 W.W. Harr. 479; Lemmon v.
Broadwater, 108 A. 273, 7 Boyce 472; Louisville & N.R.R. Co. v. Reverman's Adm'x, 15 S.W. 2d 300;
Heppner v. Atchison, T. & S.F. Ry. Co., 297 S.W. 2d 497; Darnell v. Panhandle Co-op. Ass'n 20 N. W. 2d 278
175 Neb. 40.
5.
Meehan v. Central R. Co. of New Jersey, D.C.N.Y., 181, F. Supp. 594.
332 | P a g e
6.
Frasier v. Public Service Interstate Transp. Co., C.A.N.Y., 244 F. 2d. 668.
7.
Hanks v. Norfolk & Western Ry. Co., 52 S.E. 2d 717, 230 N.C. 179; Gardner v. National Bulk Carriers,
Inc., D.C. Va. 221 F. Supp. 243, affirmed, C.A., 333 F. 2d 676; Meehan v. Central R. Co. of New Jersey, D.C.
N.Y., 181 F. Supp. 594; Frazier v. Ewell Engineering & Contracting Co., 62 So. 2d 51. See, also, 2 Cooley on
Torts, 168-169.
8.
People v. Pantoja, L-18793, Oct. 11, 1968; People v. Sangaran, L-21757, Nov. 26, 1968; People v.
Gutierrez, L-25372, Nov. 29, 1968; People v. Buenbrazo, L-27852, Nov. 29, 1968; People v. Bakang, L20908, Jan. 31, 1969 People v. Labutin, L-23513, Jan. 31, 1969; People v. Acabado, L-26104 Jan. 31, 1969;
People v. Vacal, L-20913, Feb. 27, 1969; People v. Gonzales, L-23303-04, May 20, 1969; People v. Tapac, L26491, May 20, 1969; People v. Aranas, L-27851, Oct. 28, 1969.
PAL v. CA, 185 SCRA 110
FIRST DIVISION
[G.R. No. 54470. May 8, 1990.]
PHILIPPINE AIRLINES, INC., petitioner, vs. HON. COURT OF APPEALS and NATIVIDAD VDA. DE
PADILLA, substituted by her legal heirs, namely: AUGUSTO A. PADILLA, ALBERTO A. PADILLA,
CRESENCIO R. ABES (representing the deceased Isabel Padilla Abes), MIGUEL, A. PADILLA and
RAMON A. PADILLA, respondents.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
Ambrosio Padilla, Mempin & Reyes Law Offices for private respondents.
SYLLABUS
1.
CIVIL LAW; ACTUAL DAMAGES; LIFE EXPECTANCY OF THE DECEASED VICTIM AS A BASIS FOR
COMPENSATION. Following the procedure used by the Supreme Court in the case of Davila vs. PAL, 49
SCRA 497, the trial court determined the victim's gross annual income to be P23,100 based on his yearly
salaries of P18,000 from the Padilla Shipping Company and P5,100 from the Allied Overseas Trading
Corporation. Considering that he was single, the court deducted P9,200 as yearly living expenses, resulting
in a net income of P13,900 (not P15,900 as erroneously stated in the decision). Since Nicanor Padilla was
only 29 years old and in good health, the trial court allowed him a life expectancy of 30 years. Multiplying
his annual net income of P13,900 by his life expectancy of 30 years, the product is P417,000 (not
P477,000) which is the amount of death indemnity due his mother and only forced heir.
2.
REMEDIAL LAW; EVIDENCE; TESTIMONY GENERALLY CONFINED TO PERSONAL KNOWLEDGE;
ADMISSIBLE IN CASE AT BAR. The witnesses Mate and Reyes, who were respectively the manager and
auditor of Allied Overseas Trading Company and Padilla Shipping Company, were competent to testify on
matters within their personal knowledge because of their positions, such as the income and salary of the
deceased, Nicanor A. Padilla (Sec. 30, Rule 130, Rules of Court). As observed by the Court of Appeals, since
they were cross-examined by petitioner's counsel, any objections to their competence and the
admissibility of their testimonies, were deemed waived. The payrolls of the companies and the decedent's
income tax returns could, it is true, have constituted the best evidence of his salaries, but there is no rule
disqualifying competent officers of the corporation from testifying on the compensation of the deceased as
an officer of the same corporation, and in any event, no timely objection was made to their testimonies.
3.
ID.; CIVIL PROCEDURE; JUDGMENT; AS A GENERAL RULE, PARTY WHO HAS NOT APPEALED IS NOT
ENTITLED TO AFFIRMATIVE RELIEF OTHER THAN THOSE GRANTED; EXCEPTION; APPLICABLE IN CASE AT
BAR. While as a general rule, an appellee who has not appealed is not entitled to affirmative relief other
than the ones granted in the decision of the court below (Aparri vs. CA, 13 SCRA 611; Dy vs. Kuizon, 113
Phil. 592; Borromeo vs. Zaballero, 109 Phil. 332), we nevertheless find merit in the private respondent's
plea for relief for the long delay this case has suffered on account of the petitioner's multiple appeals.
333 | P a g e
Indeed, because of the 16-year delay in the disposition of this case, the private respondent herself has
already joined her son in the Great Beyond without being able to receive the indemnity she well deserved.
Considering how inflation has depleted the value of the judgment in her favor, in the interest of justice, the
petitioner should pay legal rate of interest on the indemnity due her. The failure of the trial court to award
such interest amounts to a "plain error" which we may rectify on appeal although it was not specified in
the appellee's brief (Sec. 7, Rule 51, Rules of Court).
DECISION
GRIO-AQUINO, J p:
The only legal issue raised by the petitioner in this thirty-year-old case is whether the indemnity for the
death of private respondent's son, the late Nicanor A. Padilla, should be computed on the basis of his life
expectancy, as the trial court and the Court of Appeals did, rather than the life expectancy of private
respondent, his only legal heir, as the petitioner contends.
On November 23, 1960, at 5:30 P.M., Starlight Flight No. 26 of the Philippine Air Lines (hereafter PAL) took
off from the Manduriao Airport in Iloilo, on its way to Manila, with 33 persons on board, including the
plane's complement. The plane did not reach its destination but crashed on Mt. Baco, Mindoro, one hour
and fifteen minutes after take-off. The plane was identified as PI-C133, a DC-3 type aircraft manufactured
in 1942 and acquired by PAL in 1948. It had flown almost 18,000 hours at the time of its ill-fated flight. It
had been certified as airworthy by the Civil Aeronautics Administration.
Among the fatalities was Nicanor Padilla who was a passenger on the star-crossed flight. He was 29 years
old, single. His mother, Natividad A. Vda. de Padilla, was his only legal heir.
As a result of her son's death, Mrs. Padilla filed a complaint (which was amended twice) against PAL,
demanding payment of P600,000 as actual and compensatory damages, plus exemplary damages and
P60,000 as attorney's fees.
In its answer, PAL denied that the accident was caused by its negligence or that of any of the plane's flight
crew, and that, moreover, the damages sought were excessive and speculative. Cdpr
On November 23, 1964, the trial court issued a pre-trial order requiring the parties to file on or before
January 30, 1965 a stipulation of facts, or a negative manifestation in case they failed to submit a
stipulation.
On June 8, 1965, the parties submitted a partial stipulation of facts providing as follows:
"1.
"Plaintiff is the widow of the late Alberto R. Padilla, Filipino, of legal age, and a resident of and with postal
address at No. 970 (formerly No. 247) Gral. Solano St., San Miguel, Manila, while defendant Philippine Air
Lines, Inc. is a corporation duly organized, registered and existing under and by virtue of the laws of the
Philippines, engaged, as a common carrier, in the business of carrying or transporting by air passengers
and goods, offering its services to the public as such for compensation, with offices at Makati Bldg., Makati,
Rizal.
"2.
"Nicanor A. Padilla was born on January 10, 1931. He was a son by lawful marriage of plaintiff and Alberto
R. Padilla, who died on September 2, 1948.
"3.
"Nicanor A. Padilla finished the elementary grades in 1943, high school in 1947, graduated the Reserve
Officer's Course (Infantry Basic Course) Armed Forces of the Philippines in 1949, and graduated with the
degree of Bachelor of Literature in 1951 and the degree of Bachelor of Laws in 1954, all in Ateneo de
Manila.
"4.
334 | P a g e
"He was admitted by the Supreme Court of the Philippines to practice law on January 28, 1955, and from
January 1958, to the time of his death on November 23, 1960, he was associated with the law offices of
Senator Ambrosio Padilla, brother of his father, Alberto R. Padilla.
"5.
"At the time of his death, he was the President and General Manager of the Padilla Shipping Co., Inc. He
was also Vice-President and Treasurer of the Allied Overseas Trading Co., Inc.
"6.
"He was a member of the Board of Directors of the Junior Chamber of Commerce (Jaycees) International
and Chairman of its Committee on Governmental Affairs for the term 1960-1961. This Committee on
Governmental Affairs published a pamphlet entitled 'Good Government is our Business,' for which the
deceased was named 'Jaycee of the Month of January 1960.'
"7.
"Nicanor A. Padilla, while travelling and being transported and flown as a paid passenger on one [of]
defendant's aircraft, a DC-3 with registry No. PI-C133, on 'Star Light Flight' No. 26 bound for Manila from
the City of Iloilo on November 23, 1960, was killed when said plane crashed in the area of Mount Baco,
Oriental Mindoro.
"8.
"Nicanor A. Padilla died single, leaving as his nearest of kin and sole heiress to his estate his mother the
plaintiff herein with whom he was residing at the time of his death at 970 Gral. Solano St., Manila.
"9.
"The aircraft (P1-C133) that crashed on Mt. Baco, Oriental Mindoro, on November 23, 1960, was a twinengine passenger plane of the Philippine Air Lines of the DC-3 type. It was manufactured by Douglas
Aircraft Corporation of the United States for the U.S. Army and was purchased from the latter by the
Commercial Air Lines, Inc., on September 25, 1946. The defendant Philippine Air Lines acquired the plane
from the Commercial Air Lines, Inc., on October 15, 1948. The aircraft was registered by Philippine Air Lines
with the Civil Aeronautics Administration as PI-C142 on May 10, 1949. On October 15, 1953, P1-C142 met
with a non-fatal accident at Pia, Tuguegarao, Cagayan. PAL requested the Civil Aeronautics Administration
for a change in the identification mark. Said request was granted and the registration number was
changed from PI-C142 to PI-C133 on July 29, 1954. As [of] November 22, 1960, the day before the fatal
crash on Mt. Baco, PI-C133 had a total flying time of 17,996:33 hours.
"10.
"PI-C133 was issued a certificate of airworthiness by the Civil Aeronautics Administration on September 13,
1960 which was to expire on September 12, 1961; a copy of which is attached hereto as Exhibit `1' and
made a part of this stipulation.
"11.
"Other facts on which the parties cannot agree will be subject to proof at the trial." (pp. 34-39, Record on
Appeal; p. 117, Rollo.).
On January 15, 1966, the parties submitted another partial stipulation of facts:
"1.
"That in the book written by Salvador B. Salvosa, M.S., University of Michigan and member of the Actuarial
Society of the Philippines, entitled; 'Filipino Experience Mortality Table,' the complete life expectancy of
Filipinos appear on page 3 thereof, a photostat of which is attached hereto as Exhibit 'A.'
"2.
"That in said Exhibit 'A', the columns under the heading 'Age x,' refers to the age of the individual, and the
columns 'oe x' refers to the corresponding number of years the individual is expected to live. Thus, under
the column 'Age x,' a person aged 29, the corresponding life expectancy of said person under column 'oe
x' is '42.60' years; and under said column 'Age x' a person aged 60, corresponding life expectancy of said
person under column 'oe x' is '17.90' years;
"3.
335 | P a g e
"That Salvador B. Salvosa's 'Filipino Experience Mortality Table,' including the table of life expectancy are
used by the Philippine International Life Insurance Co., the Sterling Life Insurance Co., the Cardinal Life
Insurance Co., and Star Life Insurance Co., and that the same has been approved by the Insurance
Commissioner for the use of life insurance companies doing business in the Philippines as shown by a
certificate issued by said Commissioner which is attached hereto as Exhibit 'B;'
"4.
"That the book of Nelson and Warren, Consulting Actuaries of St. Louis and Kansas cities, Missouri, entitled:
'Principal Mortality Tables', contains a table of comparison of complete life expectancy based on principal
mortality tables used by life insurance companies, a photostat of which is likewise attached hereto as
Exhibits 'C', 'C-1', 'C-2' and 'C-3;'
"5.
That of the life expectancy based on the different systems mentioned in said Exhibits 'C', 'C-1', 'C-2' and
'C-3,' the following are also used in the Philippines for life insurance purposes: (a) the American Experience
appearing in Exhibit 'B,' fifth columns on both pages, the first column corresponding to the age of the
individual (pages 12 and 13 of the book); (b) the Standard Industrial, appearing in the same Exhibit 'B,'
sixth column on both pages (pages 12 and 13 of the book); and (c) the 1941 Commissioner Standard
Ordinary, or CSO 1941 for short, appearing in Exhibit 'B-1,' third column, on both pages (pages 14 and 15
of the book).
"6.
"That the materiality and applicability [sic] of the life expectancy tables shown in Exhibit 'A,' or Exhibits 'C,'
'C-1,' 'C-2' and 'C-3' are left to the judgment of the Honorable Court." (pp. 39-42, Record on Appeal; p. 117,
Rollo.)
On March 19, 1970, a third joint partial stipulation of facts was submitted by the parties to the trial court
which reads, thus: LLjur
"JOINT FIRST PARTIAL STIPULATION OF FACTS
"Plaintiff and defendant through their respective counsel, respectfully submit the following partial
stipulation of facts:
"1.
Defendant in November, 1960 and even before was authorized and rated to repair aircrafts of U.S.
and foreign registries and as such holds the following:
Description
Exhibit
a)
US FAA Air Agency
1
Certificate.
b)
US FAA Repair Station
Operations Specifications
(2 pages) PI- 2 and 2-A
c)
CAA Rating Grant to operate
Repair Station with ratings on on
[sic] (i) Aircraft Metal
propeller Hubs Overhaul Shop,
(ii) Aircraft Engine Overhaul Shop. 3
d)
P.I.-CAA Rating Grant to operate
a repair station with ratings on (i)
Aircraft of Composite Construction;
(ii) Aircraft of all Metal Construction;
(iii) Aircraft Instrument.
4
"2.
Defendant maintained and repaired aircrafts of the U.S. Air Force, U.S. Navy and commercial
carriers like PANAM, Northwest Airways, KLM and other foreign airlines.
336 | P a g e
"3.
Also in 1960 defendant was maintaining and following a CAA approved system of aircraft
maintenance control using worksheets and work card which record the specific job on any particular
aircraft. They are:
"a)
Pre-flight inspections consisting of the
(i)
Through Check: the visual inspection of an aircraft prior to flight and performed in stations where
maintenance men are assigned.
(ii)
Terminating Check: the visual inspection of the aircraft performed in stations were aircraft
terminated a flight and where maintenance men are assigned.
(iii)
After Maintenance Check: the visual inspection of an aircraft preparatory to any flight following
the completion of any check from Check No. 1 to Check No. 6, to wit:
(a)
Check No. 1 known as daily inspection check;
(b)
Check No. 2 which is accomplished every 125 hours;
(c)
Check No. 3 which is accomplished every 250 flying hours;
(d)
Check No. 4 which is accomplished every 500 flying hours;
(e)
Check No. 5 which is accomplished every 1,250 flying hours;
(f)
Check No. 6 which is a series broken down into 6-A, 6-B, 6-C, 6-D, 6-E and 6-F.
"4.
The Quality Control Division is the custodian of all worksheets for the checks performed and under
PI-CAA regulations, is required to keep the records for at least 90 days.
"5.
The forms used and accomplished for the various checks were:
Description
Exhibit
a)
Pre-flight check sheet,
including DC-3C Daily
Airframe and Engine
Routine and Cleaning Routine;
5, 6 & 6-A
b)
Check No. 2, consisting of
37 work control cards;
7-A to 7-KK
c)
Check No. 3 consisting of
8, 8-A to 8-XX
d)
a work control card; 9, 9-A to 9-F
e)
10, 10-A to 10-H
f)
Check No. 6-A consisting of 11, 11-A to
11-(G)
g)
Check No. 6-B consisting of 12, 12-A
to 114 work control cards; 12-(J)
h)
Check No. 6-C consisting of 13, 13-A
to 117 work control cards; 13-(I)
i)
Check No. 6-D consisting of 14, 14-A to
14-(E)
j)
Check No. 6-E consisting of 15, 15-A to
15-(E)
k)
Check No. 6-F consisting of 16, 16-A
to 118 work control cards
16-(M)
"The parties reserve their right to agree to additional stipulation of facts and/or to adduce evidence on
other matters not covered by this stipulation.
"All exhibits mentioned and identified are attached to this stipulation." (pp. 42-46, Record on Appeal; p.
117, Rollo.).
337 | P a g e
During the hearing on September 4, 1972, the parties stipulated that they were reproducing the
testimonial and documentary evidence presented in Civil Cases Nos. 5728 and 2790 of the Court of First
Instance of Iloilo, arising out of the same accident. Certified copy of said transcript of stenographic notes
were then submitted to the trial court. prLL
A fourth partial stipulation of facts was submitted by the parties, reading as follows:
"PARTIAL STIPULATION OF FACTS
"Plaintiff and defendant respectfully submit the following partial stipulation of facts:
"1.
For the convenience and brevity of these proceedings, considering that defendant's evidence on the
basic issues of fortuitous event and extraordinary diligence of the carrier consists of the witnesses and
documents presented in Civil Case No. 5720 of the Court of First Instance of Iloilo entitled Pedro R. Davila
vs. Preciosa C. 'Tirol,' now pending appeal before the Supreme Court in G.R. No. L-28512, defendant has
proposed to reproduce in this case the testimonies of same witnesses and documentary evidence
identified and marked in the course of the same proceedings, as reflected in the corresponding transcript
of stenographic notes, to wit:
Transcript of
Witnesses
Stenographic Notes At Pages
Exhibit
a.
Mario Rodriguez
October 30, 1962
1 - 67 37
October 31, 1962
67 - 153
38
January 7, 1963
17 - 7439
October 14, 1963
6 - 11 40
b.
Pedro N. Mallari
March 19, 1963
17 - 39)
c.
Arturo Camatoy
March 19, 1963
39 - 75)
41
d.
Ponciano Saldaa
March 19, 1963
75 - 88)
e.
Melecio Joson March 20, 1963
91 - 161)
) 42
f.
Alfredo Subesa
March 20, 1963
162 -166)
g.
Eduardo Estrella
October 14, 1963
11 - 27)
) 40
h.
Vicente Sison October 14, 1963
27 - 74)
i.
Felipe Paculaba
October 15, 1963
4 - 15)
)
j.
Antonio Lopez October 15, 1963
15 - 25)
43
k.
Isaac Lamela October 15, 1963
26 - 55)
l.
Ramon Pedrosa
December 19, 1963 6 - 83 44
m.
Cesar Mijares December 20, 1963 15 - 8945
n.
Jaime Manzano
February 6, 1964
3 -15 )
46
o.
Offer of documentary evidence February 6, 1964
18 - 76)
"2.
The transcript of stenographic notes are attached hereto and marked as above set forth.
"3.
If aforenamed witnesses were called to testify in this case, they would give the same testimony as
shown in the afore-mentioned transcript of stenographic notes on direct examination, cross-examination
and re-direct examination, as the case may be, plaintiffs counsel hereby adopting the manifestations,
objections, cross and re-cross examination by the plaintiff's counsels in Davila vs. PAL, supra and so far as
the joint hearings held on December 20, 1963 and February 6, 1964, also of plaintiffs counsels in Abeto, et
al. vs. PAL, Civil Case No. 5790, also of the Court of First Instance of Iloilo.
"4.
All the documentary evidence marked in the course of the hearings shown in the transcripts of
stenographic notes attached hereto have already been marked correspondingly before the Commissioner
of this Honorable Court on a hearing held on May 24, 1968 with the same exhibit identification.
338 | P a g e
"5.
Defendant reserves its right to present evidence on the question of damages.
"6.
Plaintiff reserves her right to present such further evidence as she may deem proper in rebuttal."
(pp. 47-50, Record on Appeal; p. 117, Rollo.)
In addition to the stipulations of facts, private respondent Padilla testified that her son, Nicanor Padilla,
prior to his death, was 29 years old, single, in good health, President and General Manager of Padilla
Shipping Company at Iloilo City, and a legal assistant of the Padilla Law Office; that upon learning of the
death of her son in the plane crash, she suffered shock and mental anguish, because her son who was still
single was living with her; and that Nicanor had a life insurance of P20,000, the proceeds of which were
paid to his sister. LLphil
Eduardo Mate, manager of the Allied Overseas Trading Company, testified that the deceased, Nicanor
Padilla, was one of the incorporators of the company and also its vice-president and treasurer, receiving a
monthly salary of P455.
Isaac M. Reyes, auditor of the Padilla Shipping Company, declared that the deceased was the President and
General Manager of the firm and received a salary of P1,500 monthly.
The trial court in its decision stated that on March 19, 1970, it was manifested in court that "the parties
agreed that they will abide with whatever decision the Supreme Court may have in similar cases involving
the same airplane crash accident then pending before other courts pending decision in Supreme Court" (p.
51, Rec. on Appeal; p. 117, Rollo).
On August 31, 1973, the trial court promulgated a decision, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered ordering the defendant Philippine Air Lines, Inc. to pay the
plaintiff Natividad A. Vda. de Padilla the sum of P477,000.00 as award for the expected income of the
deceased Nicanor; P10,000.00 as moral damages; P10,000.00 as attorney's fees; and to pay the costs."
(pp. 59-60, Record on Appeal; p. 117, Rollo.)
On Appeal to the Court of Appeals (CA-G.R. No. 56079-R) dated July 17, 1980, the decision of the trial court
was affirmed in toto.
As pointed out at the outset, the lone issue is whether or not the respondent court erred in computing the
awarded indemnity on the basis of the life expectancy of the late Nicanor A. Padilla rather than on the life
expectancy of private respondent, and thus erred in awarding what appears to the petitioner as the
excessive sum of P477,000 as indemnity for loss of earnings.
Petitioner relies on "the principle of law generally recognized and applied by the courts in the United
States" that "the controlling element in determining loss of earnings arising from death is, as established
by authorities, the life expectancy of the deceased or of the beneficiary, whichever is shorter" (p. 19, Brief
for the Defendant-Appellant; p. 119, Rollo).
However, resort to foreign jurisprudence would be proper only if no law or jurisprudence is available locally
to settle a controversy. Even in the absence of local statute and case law, foreign jurisprudence is only
persuasive.
For the settlement of the issue at hand, there are enough applicable local laws and jurisprudence. Under
Article 1764 and Article 2206(1) of the Civil Code, the award of damages for death is computed on the
basis of the life expectancy of the deceased, not of his beneficiary. The articles provide:
"ART. 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."
"ART. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three
"(1)
The defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and
awarded by the court, unless the deceased on account of permanent physical disability not caused by the
defendant, had no earning capacity at the time of his death; . . . ." (Emphasis supplied.)
339 | P a g e
In the case of Davila vs. PAL, 49 SCRA 497 which involved the same tragic plane crash, this Court
determined not only PAL's liability for negligence or breach of contract, but also the manner of computing
the damages due the plaintiff therein which it based on the life expectancy of the deceased, Pedro Davila,
Jr. This Court held thus: LibLex
"The deceased, Pedro Davila, Jr., was single and 30 years of age when he died. At that age one's normal
life expectancy is 33-1/3 years, according to the formula (12/3 x [80-30]) adopted by this Court in the case
of Villa Rey Transit, Inc. vs. Court of Appeals on the basis of the American Expectancy Table of Mortality or
the Actuarial of Combined Experience Table of Mortality. However, although the deceased was in relatively
good health, his medical history shows that he had complained of and been treated for such ailments as
backaches, chest pains and occasional feelings of tiredness. It is reasonable to make an allowance for
these circumstances and consider, for purposes of this case, a reduction of his life expectancy to 25 years.
xxx
xxx
xxx
"Considering the fact that the deceased was getting his income from three (3) different sources, namely,
from managing a radio station, from law practice and from farming, the expenses incidental to the
generation of such income were necessarily more than if he had only one source. Together with his living
expenses, a deduction of P600.00 a month, or P7,200.00 a year, seems to Us reasonable, leaving a net
yearly income of P7,800.00. This amount, multiplied by 25 years, or P195,000.00 is the amount which
should be awarded to the plaintiffs in this particular respect." (pp. 504-505, Rollo.)
The petitioner's recourse to our decision in Alcantara vs. Surro, 93 Phil. 472, undermines instead of
supporting its stand here, for the indemnity in that case was also based on the life expectancy of the
deceased and not of his beneficiaries.
The petitioner's contention that actual damages under Article 2206 of the Civil Code must be proven by
clear and satisfactory evidence is correct, but its perception that such evidence was not presented in this
case, is error.
The witnesses Mate and Reyes, who were respectively the manager and auditor of Allied Overseas Trading
Company and Padilla Shipping Company, were competent to testify on matters within their personal
knowledge because of their positions, such as the income and salary of the deceased, Nicanor A. Padilla
(Sec. 30, Rule 130, Rules of Court). As observed by the Court of Appeals, since they were cross-examined
by petitioner's counsel, any objections to their competence and the admissibility of their testimonies, were
deemed waived. The payrolls of the companies and the decedent's income tax returns could, it is true,
have constituted the best evidence of his salaries, but there is no rule disqualifying competent officers of
the corporation from testifying on the compensation of the deceased as an officer of the same corporation,
and in any event, no timely objection was made to their testimonies.
Following the procedure used by the Supreme Court in the case of Davila vs. PAL, 49 SCRA 497, the trial
court determined the victim's gross annual income to be P23,100 based on his yearly salaries of P18,000
from the Padilla Shipping Company and P5,100 from the Allied Overseas Trading Corporation. Considering
that he was single, the court deducted P9,200 as yearly living expenses, resulting in a net income of
P13,900 (not P15,900 as erroneously stated in the decision). Since Nicanor Padilla was only 29 years old
and in good health, the trial court allowed him a life expectancy of 30 years. Multiplying his annual net
income of P13,900 by his life expectancy of 30 years, the product is P417,000 (not P477,000) which is the
amount of death indemnity due his mother and only forced heir (p. 58, Record on Appeal; p. 117, Rollo).
prLL
While as a general rule, an appellee who has not appealed is not entitled to affirmative relief other than
the ones granted in the decision of the court below (Aparri vs. CA, 13 SCRA 611; Dy vs. Kuizon, 113 Phil.
592; Borromeo vs. Zaballero, 109 Phil. 332), we nevertheless find merit in the private respondent's plea for
relief for the long delay this case has suffered on account of the petitioner's multiple appeals. Indeed,
because of the 16-year delay in the disposition of this case, the private respondent herself has already
joined her son in the Great Beyond without being able to receive the indemnity she well deserved.
Considering how inflation has depleted the value of the judgment in her favor, in the interest of justice, the
340 | P a g e
petitioner should pay legal rate of interest on the indemnity due her. The failure of the trial court to award
such interest amounts to a "plain error" which we may rectify on appeal although it was not specified in
the appellee's brief (Sec. 7, Rule 51, Rules of Court).
WHEREFORE, the petition is dismissed. The decision of the trial court is affirmed with modification. The
petitioner is ordered to pay the private respondent or her heirs death indemnity in the sum of P417,000
(not P477,000), with legal rate of interest of 6% per annum from the date of the judgment on August 31,
1973, until it is fully paid. Costs against the petitioner.
SO ORDERED.
Narvasa and Medialdea, JJ., concur.
Cruz and Gancayco, JJ., took no part.
3.
Moral
Arts. 2217, 2216, 2219, 2220, 2206(3)

Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of
pecuniary computation, moral damages may be recovered if they are the proximate result of the
defendant's wrongful act for omission.
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages, may be adjudicated. The assessment of such damages, except liquidated ones, is left
to the discretion of the court, according to the circumstances of each case.
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;
(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, 34, 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.
341 | P a g e
The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9 of
this article, in the order named.
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.
Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three
(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.
Fores v. Miranda, supra

Air France v. Carrascoso, 18 SCRA 155
EN BANC
[G.R. No. L-21438. September 28, 1966.]
AIR FRANCE, petitioner, vs. RAFAEL CARRASCOSO and THE HONORABLE COURT OF APPEALS,
respondents.
Lichauco, Picazo & Agcaoili for petitioner.
Bengzon, Villegas & Zarraga for respondent R. Carrascoso.
SYLLABUS
1.
JUDGMENT; FINDINGS OF FACT; REQUIREMENT OF LAW. Courts of justice are not burdened with
the obligation to specify in the sentence every bit and piece of evidence presented by the parties upon the
issues raised. The law solely insists that a decision state the "essential ultimate facts" upon which the
court's conclusion is drawn.
2.
ID.; ID.; ID.; APPEAL AND ERROR; FAILURE TO MAKE FINDINGS ON EVIDENCE AND CONTENTIONS OF
ONE PARTY, EFFECT OF; DECISION NOT TO BE CLOGGED WITH DETAILS. The mere failure to make
specific findings of fact on the evidence presented for the defense or to specify in the decision the
contentions of the appellant and the reasons for refusing to believe them is not sufficient to hold the same
contrary to the requirement of the law and the Constitution. There is no law that so requires. A decision is
not to be clogged with details such that prolixity, if not confusion, may result.
3.
ID.; ID.; ID.; FINDINGS OF FACT BY COURTS DEFINED. Findings of fact may be defined as the
written statement of the ultimate facts as found by the court and essential to support the decision and
judgment rendered thereon; they consist of the court's "conclusions with respect to the determinative facts
on issue."
4.
ID.; ID.; ID.; QUESTION OF LAW EXPLAINED. A question of law is "one which does not call for an
examination of the probative value of the evidence presented by the parties."
5.
PLEADING AND PRACTICE; APPEAL; WHAT MAY BE RAISED ON APPEAL FROM COURT OF APPEALS.
It is not appropriately the business of the Supreme Court to alter the facts or to review the questions of
fact because, by statute, only questions of law may be raised in an appeal by certiorari from a judgment of
the Court of Appeals, which judgment is conclusive as to the facts.
6.
ID.; ID.; EFFECT OF AFFIRMANCE BY COURT OF APPEALS OF TRIAL COURT'S DECISION. When the
Court of Appeals affirms a judgment of the trial court, and the findings of fact of said appellate court are
not in any way at war with those of the trial court, nor is said affirmance upon a ground or grounds
different from those which were made the basis of the trial court's conclusions, such judgment of
affirmance is (1) a determination by the Court of Appeals that the proceeding in the lower court was free
from prejudicial error; (7) that all questions raised by the assignments of error and all questions that might
have been so raised have been finally adjudicated as free from all error.
7.
ID.; COMPLAINT; SPECIFIC MENTION OF THE TERM "BAD FAITH" IN THE COMPLAINT NOT REQUIRED.
Although there is no specific mention of the term bad faith in the complaint, the inference of bad faith
342 | P a g e
may be drawn from the facts and circumstances set forth therein. 8. EVIDENCE; FINDING OF COURT OF
APPEALS THAT RESPONDENT WAS ENTITLED TO A FIRST CLASS SEAT. The Court of Appeals properly
found that a first class-ticket holder is entitled to first class seat, given the fact that seat availability in
specific flights is therein confirmed; otherwise, an air passenger will be placed in the hollow of the hands of
an airline, because it will always be easy for an airline to strike out the very stipulations in the ticket and
say that there was verbal agreement to the contrary. If only to achieve stability in the relations between
passenger and air carrier, adherence to the ticket so issued is desirable.
9.
ID.; LACK OF SPECIFIC AVERMENT OF BAD FAITH CURED BY NOTICE TO DEFENDANT OF WHAT
PLAINTIFF INTENDS TO PROVE AND BY EVIDENCE PRESENTED WITHOUT OBJECTION; AMENDMENT OF
COMPLAINT TO CONFORM TO EVIDENCE UNNECESSARY. If there was lack of specific averment of bad
faith in the complaint, such deficiency was cured by notice, right at the start of the trial, by plaintiff's
counsel to defendant as to what plaintiff intended to prove: while in the plane in Bangkok, plaintiff was
ousted by defendant's manager who gave his seat to a white man; and by evidence of bad faith in the
fulfillment of the contract presented without objection on the part of the defendant. An amendment of the
complaint to conform to the evidence is not even required.
10.
ID.; ADMISSIBILITY OF TESTIMONY ON AN ENTRY IN A NOTEBOOK; TESTIMONY NOT COVERED BY
BEST EVIDENCE RULE. The testimony of a witness that the purser made an entry in his notebook reading
"First Class passenger was forced to go to the tourist class against his will and that the captain refused to
intervene," is competent and admissible because the subject of the inquiry is not the entry but the ouster
incident. It does not come within the prescription of the best evidence rule.
11.
CONTRACT OF CARRIAGE; QUASI-DELICT; LIABILITY OF COMMON CARRIERS; CASE AT BAR.
Neglect or malfeasance of the carrier's employees could give ground for an action for damages. Damages
here are proper because the stress of respondent's action is placed upon his wrongful expulsion, which is a
violation of a public duty by petitioner-aircarrier a case of quasi-delict.
12.
ID.; ID.; ID.; AWARD OF MORAL DAMAGES FOR BREACH OF CONTRACT. Award of moral damages
is proper, despite petitioner's argument that respondent's action is planted upon breach of contract, where
the stress of the action is put on wrongful expulsion, the contract having been averred only to establish the
relation between the parties.
13.
ID.; ID.; ID.; EMPLOYER IS RESPONSIBLE FOR TORTIOUS ACTS OF HIS EMPLOYEE; CASE AT BAR.
The responsibility of an employer for the tortious act of his employees is well settled in law. (Art. 2130,
Civil Code). Petitioner-aircarrier must answer for the willful, malevolent act of its manager.
14.
ID.; ID.; ID.; LIABILITY FOR EXEMPLARY DAMAGES; POWER OF COURTS TO GRANT; CASE AT BAR.
The Civil Code gives the court ample power to grant exemplary damages, the only condition being that
defendant should have "acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner." As the
manner of ejectment of plaintiff from his first class seat fits into this legal precept, exemplary damages are
well awarded, in addition to moral damages.
15.
ID.; ID.; LIABILITY FOR ATTORNEY'S FEES; COURT DISCRETION WELL EXERCISED SHOULD NOT BE
DISTURBED. The grant of exemplary damages justifies a similar judgment for attorney's fees. The court
below felt that it is but just and equitable that attorney's fees be given and the Supreme Court does not
intend to break faith with the tradition that discretion well-exercised as it is here should not be
disturbed.
16.
ID.; RIGHTS OF PASSENGERS. Passengers do not contract merely for transportation. They have a
right to be treated by the carrier's employees with kindness, respect, courtesy and due consideration. They
are entitled to be protected against personal misconduct, injurious language, indignities and abuses from
such employees. So, any rude or discourteous conduct on the part of employees towards a passenger
gives the latter an action for damages against the carrier. (4 R. C. L-1174-1175).
17.
ID.; BREACH OF CONTRACT MAY BE A TORT. Although the relation of passenger and carrier is
contractual both in origin and nature, nevertheless, the act that breaks the contract may also be a tort.
18.
WORDS AND PHRASES; BAD FAITH DEFINED. "Bad faith", as understood in law, contemplates a
state of mind affirmatively operating with furtive design or with some motive of self-interest or ill will or for
ulterior purpose
DECISION
SANCHEZ, J p:
343 | P a g e
The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso
P25,000.00 by way of moral damages; P10,000.00 as exemplary damages; P393.20 representing the
difference in fare between first class and tourist class for the portion of the trip Bangkok-Rome, these
various amounts with interest at the legal rate, from the date of the filing of the complaint until paid; plus
P3,000.00 for attorneys' fees; and the costs of suit.
On appeal, 2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane ticket from
P393.20 to P383.10, and voted to affirm the appealed decision "in all other respects", with costs against
petitioner.
The case is now before us for review on certiorari.
The facts declared by the Court of Appeals as "fully supported by the evidence of record", are:
"Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila for Lourdes on
March 30, 1958.
On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines, Inc.,
issued to plaintiff a 'first class' round trip airplane ticket from Manila to Rome. From Manila to Bangkok,
plaintiff traveled in 'first class', but at Bangkok, the Manager of the defendant airline forced plaintiff to
vacate the 'first class' seat that he was occupying because, in the words of the witness Ernesto G. Cuento,
there was a 'white man', who, the Manager alleged, had a 'better right to the seat. When asked to vacate
his 'first class' seat, the plaintiff, as was to be expected, refused, and told defendant's Manager that his
seat would be taken over his dead body; a commotion ensued, and, according to said Ernesto G. Cuento,
many of the Filipino passengers got nervous in the tourist class; when they found out that Mr. Carrascoso
was having a hot discussion with the white man [manager], they came all across to Mr. Carrascoso and
pacified Mr. Carrascoso to give his seat to the 'white man' (Transcript, p. 12, Hearing of May 26, 1959); and
plaintiff reluctantly gave his 'first class' seat in the plane." 3
1.
The thrust of the relief petitioner now seeks is that we review "all the findings" 4 of respondent
Court of Appeals. Petitioner charges that respondent court failed to make complete findings of fact on all
the issues properly laid before it. We are asked to consider facts favorable to petitioner, and then, to
overturn the appellate court's decision.
Coming into focus is the constitutional mandate that "No decision shall be rendered by any court of record
without expressing therein clearly and distinctly the facts and the law on which it is based". 5 This is
echoed in the statutory demand that a judgment determining the merits of the case shall state "clearly
and distinctly the facts and the law on which it is based", 6 and that "Every decision of the Court of
Appeals shall contain complete findings of fact on all issues properly raised before it." 7
A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law, however,
solely insists that a decision state the "essential ultimate facts" upon which the court's conclusion is
drawn. 9 A court of justice is not hidebound to write in its decision every bit and piece of evidence 10
presented by one party and the other upon the issues raised. Neither is it to be burdened with the
obligation "to specify in the sentence the facts" which a party "considered as proved". 11 This is but a part
of the mental process from which the Court draws the essential ultimate facts. A decision is not to be so
clogged with details such that prolixity, if not confusion, may result. So long as the decision of the Court of
Appeals contains the necessary facts to warrant its conclusions, it is no error for said court to withhold
therefrom "any specific finding of facts with respect to the evidence for the defense". Because, as this
Court well observed, "There is no law that so requires". 12 Indeed, "the mere failure to specify (in the
decision) the contentions of the appellant and the reasons for refusing to believe them is not sufficient to
hold the same contrary to the requirements of the provisions of law and the Constitution". It is in this
setting that in Manigque, it was held that the mere fact that the findings "were based entirely on the
evidence for the prosecution without taking into consideration or even mentioning the appellant's side in
the controversy as shown by his own testimony", would not vitiate the judgment. 13 If the court did not
recite in the decision the testimony of each witness for, or each item of evidence presented by, the
defeated party, it does not mean that the court has overlooked such testimony or such item of evidence.
14 At any rate, the legal presumptions are that official duty has been regularly performed, and that all the
matters within an issue in a case were laid before the court and passed upon by it. 15
Findings of fact, which the Court of Appeals is required to make, may be defined as "the written statement
of the ultimate facts as found by the court . . . and essential to support the decision and judgment
rendered thereon". 16 They consist of the court's "conclusions with respect to the determinative facts in
issue" 17 A question of law, upon the other hand, has been declared as "one which does not call for an
examination of the probative value of the evidence presented by the parties." 18
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2.
By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of the
Court of Appeals 19 That judgment is conclusive as to the facts. It is not appropriately the business of this
Court to alter the facts or to review the questions of fact. 20
With these guideposts, we now face the problem of whether the findings of fact of the Court of Appeals
support its judgment.
3.
Was Carrascoso entitled to the first class seat he claims?
It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a first class
ticket. But petitioner asserts that said ticket did not represent the true and complete intent and agreement
of the parties; that said respondent knew that he did not have confirmed reservations for first class on any
specific flight, although he had tourist class protection; that, accordingly, the issuance of a first class ticket
was no guarantee that he would have a first class ride, but that such would depend upon the availability of
first class seats.
These are matters which petitioner has thoroughly presented and discussed in its brief before the Court of
Appeals under its third assignment of error, which reads: "The trial court erred in finding that plaintiff had
confirmed reservations for, and a right to, first class seats on the 'definite' segments of his journey,
particularly that from Saigon to Beirut." 21
And, the Court of Appeals disposed of this contention thus:
"Defendant seems to capitalize on the argument that the issuance of a first-class ticket was no guarantee
that the passenger to whom the same had been issued, would be accommodated in the first-class
compartment, for as in the case of plaintiff he had yet to make arrangements upon arrival at every station
for the necessary first class reservation. We are not impressed by such a reasoning. We cannot understand
how a reputable firm like defendant airplane company could have the indiscretion to give out ticket it
never meant to honor at all. It received the corresponding amount in payment of first-class tickets end yet
it allowed the passenger to be at the mercy of its employees. It is more in keeping with the ordinary course
of business that the company should know whether or not the tickets it issues are to be honored or not."
22
Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's contention, thus:
"On the fact that plaintiff paid for, and was issued a 'First class ticket, there can be no question. Apart from
his testimony, see plaintiffs Exhibits 'A', 'A-1' 'B', 'B-1', 'B-2', 'C' and 'C-1', and defendant's own witness,
Rafael Altonaga, confirmed plaintiff's testimony and testified as follows:
Q.
In these tickets there are marks 'O.K.' From what you know, what does this O.K. mean?
A.
That the space is confirmed.
Q.
Confirmed for first class?
A.
Yes, 'first class'. (Transcript, p. 169)
xxx
xxx
xxx
"Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga that
although plaintiff paid for, and was issued a 'first class' airplane ticket, the ticket was subject to
confirmation in Hongkong. The court cannot give credit to the testimony of said witnesses. Oral evidence
cannot prevail over written evidence, and plaintiff's Exhibits 'A', 'A1', 'B', 'B-1', 'C' and 'C- 1' belie the
testimony of said witnesses, and clearly show that the plaintiff was issued, and paid for, a first class ticket
without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the
reservation for a 'first class' accommodation for the plaintiff was confirmed. The court cannot believe that
after such confirmation ,defendant had a verbal understanding with plaintiff that the 'first class' ticket
issued to him by defendant would be subject to confirmation in Hongkong." 23
We have heretofore adverted to the fact that except for a slight difference of a few pesos in the amount
refunded on Carrascoso's ticket, the decision of the Court of First Instance was affirmed by the Court of
Appeals in all other respects. We hold the view that such a judgment of affirmance has merged the
judgment of the lower court. 24 Implicit in that affirmance is a determination by the Court of Appeals that
the proceeding in the Court of First Instance was free from prejudicial error and that 'all questions raised by
the assignments of error and all questions that might have been so raised are to be regarded as finally
adjudicated against the appellant". So also, the judgment affirmed "must be regarded as free from all
error" 25 We reached this policy construction because nothing in the decision of the Court of Appeals on
this point would suggest that its findings of fact are in any way at war with those of the trial court. Nor was
said affirmance by the Court of Appeals upon a ground or grounds different from those which were made
the basis of the conclusions of the trial court. 26
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If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat, notwithstanding
the fact that seat availability in specific flights is therein confirmed, then an air passenger is placed in the
hollow of the hands of an airline. What security then can a passenger have? It will always be an easy
matter for an airline aided by its employees, to strike out the very stipulations in the ticket, and say that
there was a verbal agreement to the contrary. What if the passenger had a schedule to fulfill? We have
long learned that, as a rule, a written document speaks a uniform language; that spoken word could be
notoriously unreliable. If only to achieve stability in the relations between passenger and air carrier,
adherence to the ticket so issued is desirable. Such is the case here. The lower courts refused to believe
the oral evidence intended to defeat the covenants in the ticket.
The foregoing are the considerations which point to the conclusion that there are facts upon which the
Court of Appeals predicated the finding that respondent Carrascoso had a first class ticket and was entitled
to a first class seat at Bangkok, which is a stopover in the Saigon to Beirut leg of the flight, 27 We perceive
no "welter of distortions by the Court of Appeals of petitioner's statement of its position", as charged by
petitioner. 28 Nor do we subscribe to petitioners accusation that respondent Carrascoso "surreptitiously
took a first class seat to provoke an issue". 29 And this because, as petitioner states, Carrascoso went to
see the Manager at his office in Bangkok "to confirm my seat and because from Saigon I was told again to
see the Manager. 30 Why, then, was he allowed to take a first class seat in the plane at Bangkok, if he had
no seat? Or, if another had a better right to the seat?
4.
Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is that
Carrascoso's action is planted upon breach of contract; that to authorize an award for moral damages
there must be an averment of fraud or bad faith; 31 and that the decision of the Court of Appeals fails to
make a finding of bad faith. The pivotal allegations in the complaint bearing on this issue are:
"3.
That . . . plaintiff entered into a contract of air carriage with the Philippine Air Lines for a valuable
consideration, the latter acting as general agents for and in behalf of the defendant, under which aid
contract, plaintiff was entitled to, as defendant agreed to furnish plaintiff, First Class passage on
defendant's plane during the entire duration of plaintiff's tour of Europe with Hongkong as starting point up
to and until plaintiff's return trip to Manila, . . .
4.
That during the first two legs of the trip from Hongkong to Saigon and from Saigon to Bangkok,
defendant furnished to the plaintiff First Class accommodation but only after protestations, arguments
and/or insistence were made by the plaintiff with defendant's employees.
5.
That finally, defendant failed to provide First Class passage, but instead furnished plaintiff only
Tourist Class accommodations from Bangkok to Teheran and/or Casablanca, . . . the plaintiff has been
compelled by defendant's employees to leave the First Class accommodation berths at Bangkok after he
was already seated.
6.
That consequently, the plaintiff, desiring no repetition of the inconvenience and embarrassments
brought by defendant's breach of contract was forced to take a Pan American World Airways plane on his
return trip from Madrid to Manila. 32
xxx
xxx
xxx
2.
That likewise, as a result of defendant's failure to furnish First Class accommodations aforesaid,
plaintiff suffered inconveniences, embarrassments, and humiliations, thereby causing plaintiff mental
anguish, serious anxiety, wounded feelings, social humiliation, and the like injury, resulting in moral
damages in the amount of P30,000.00." 33
xxx
xxx
xxx
The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish plaintiff a first
class passage covering, amongst others, the Bangkok-Teheran leg; Second, That said contract was
breached when petitioner failed to furnish first class transportation at Bangkok; and Third, That there was
bad faith when petitioner's employee compelled Carrascoso to leave his first class accommodation berth
"after he was already seated" and to take a seat in the tourist class, by reason of which he suffered
inconvenience, embarrassments and humiliations, thereby causing him mental anguish, serious anxiety,
wounded feelings and social humiliation, resulting in moral damages. It is true that there is no specific
mention of the term bad faith in the complaint. But, the inference of bad faith is there; it may be drawn
from the facts and circumstances set forth therein. 34 The contract was averred to establish the relation
between the parties. But the stress of the action is put on wrongful expulsion.
Quite apart from the foregoing is that (a) right at the start of the trial, respondent's counsel placed
petitioner on guard on what Carrascoso intended to prove: That while sitting in the plane in Bangkok,
Carrascoso was ousted by petitioner's manager who gave his seat to a white man; 35 and (b) evidence of
346 | P a g e
bad faith in the fulfillment of the contract was presented without objection on the part of the petitioner. It
is, therefore, unnecessary to inquire as to whether or not there is sufficient averment in the complaint to
justify an award for moral damages. Deficiency in the complaint, if any, was cured by the evidence. An
amendment thereof to conform to the evidence is not even required. 36 On the question of bad faith, the
Court of Appeals declared:
"That the plaintiff was forced out of his seat in the first class compartment of the plane belonging to the
defendant Air France while at Bangkok, and was transferred to the tourist class not only without his
consent but against his will, has been sufficiently established by plaintiff in his testimony before the court,
corroborated by the corresponding entry made by the purser of the plane in his notebook which notation
reads as follows:
'First-class passenger was forced to go to the tourist class against his will and that the captain refused to
intervene',
and by the testimony of an eye-witness Ernesto G. Cuento, who was a co-passenger. The captain of the
plane who was asked by the manager of defendant company at Bangkok to intervene even refused to do
so. It is noteworthy that no one on behalf of defendant ever contradicted or denied this evidence for the
plaintiff. It could have been easy for defendant to present its manager at Bangkok to testify at the trial of
the case, or yet to secure his deposition; but defendant did neither. 37
The Court of Appeals further stated
"Neither is there evidence as to whether or ,not a prior reservation was made by the white man. Hence, if
the employees of the defendant at Bangkok sold a first-class ticket to him when all the seats had already
been taken, surely the plaintiff should not have been picked out as the one to suffer the consequences and
to be subjected to the humiliation and indignity of being ejected from his seat in the presence of others.
Instead of explaining to the white man the improvidence committed by defendant's employees, the
manager adopted the more drastic step of ousting the plaintiff who was then safely ensconced in his
rightful seat. We are strengthened in our belief that this probably was what happened there, by the
testimony of defendant's witness Rafael Altonaga who, when asked to explain the meaning of the letters
'O.K., appearing on the tickets of plaintiff, said that 'the space is confirmed' for first class. Likewise,
Zenaida Faustino, another witness for defendant, who was the chief of the Reservation Office of defendant,
testified as follows:
'Q.
How does the person in the ticket-issuing office know what reservation the passenger has arranged
with you?
A.
They call us up by phone and ask for the confirmation.' (t.s.n., p. 247, June 19, 1959)
In this connection, we quote with approval what the trial Judge has said on this point:
'Why did the, using the words of witness Ernesto G. Cuento, 'white man' have a 'better right' to the seat
occupied by Mr. Carrascoso? The record is silent. The defendant airline did not prove 'any better', nay, any
right on the part of the 'white man' to the 'First class' seat that the plaintiff was occupying and for which he
paid and was issued a corresponding 'first class' ticket.
'If there was a justified reason for the action of the defendant's Manager in Bangkok, the defendant could
have easily proven it by having taken the testimony of the said Manager by deposition, but defendant did
not do so; the presumption is that evidence willfully suppressed would be adverse if produced [Sec. 69,
par. (e) Rules of Court]; and, under the circumstances, the Court is constrained to find, as it does find, that
the Manager of the defendant airline in Bangkok not merely asked but threatened the plaintiff to throw him
out of the plane if he did not give up his 'first class' seat because the said Manager wanted to
accommodate using the words of the witness Ernesto G. Cuento, the 'white man'." 38
It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use the
term "bad faith". But can it be doubted that the recital of facts therein points to bad faith? The manager
not only prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed his arbitrary
will; he forcibly ejected him from his seat, made him suffer the humiliation of having to go to the tourist
class compartment just to give way to another passenger whose right thereto has not been established.
Certainly, this is bad faith. Unless, of course, bad faith has assumed a meaning different from what is
understood in law. For, "bad faith" contemplates a "state of mind affirmatively operating with furtive
design or with some motive of self-interest or ill will or for ulterior purposes." 39
And if the foregoing were not yet sufficient, there is the express finding of bad faith in the judgment of the
Court of First Instance, thus:
"The evidence shows that defendant violated its contract of transportation with plaintiff in bad faith, with
the aggravating circumstances that defendant's Manager in Bangkok went to the extent of threatening the
347 | P a g e
plaintiff in the presence of many passengers to have him thrown out of the airplane to give the 'first class'
seat that he was occupying to, again using the words of witness Ernesto G. Cuento, a 'white man' whom he
(defendant's Manager) wished to accommodate, and the defendant has not proven that this 'white man'
had any 'better right' to occupy the 'first class' seat that the plaintiff was occupying, duly paid for, and for
which the corresponding 'first class' ticket was issued by the defendant to him." 40
5.
The responsibility of an employer for the tortuous act of its employees-need not be essayed. It is
well settled in law. 41 For the willful malevolent act of petitioner's manager, petitioner's his employer, must
answer. Article 21 of the Civil Code says:
"Art. 21.
Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage."
In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the provisions of
Article 2219 (10), Civil Code, moral damages are recoverable. 42
6.
A contract to transport passengers is quite different in kind and degree from any other contractual
relation. 43 And this, because of the relation which an air-carrier sustains with the public. Its business is
mainly with the travelling public. It invites people to avail of the comforts and advantages it offers. The
contract of air carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance
of the carrier's employees, naturally, could give ground for an action for damages.
Passengers do not contract merely for transportation. They have a light to be treated by the carrier's
employees with kindness, respect, courtesy and due consideration. They are entitled to be protected
against personal misconduct, injurious language, indignities and abuses from such employees. So it is, that
any rude or discourteous conduct on the part of employees towards a passenger gives the latter an action
for damages against the carrier. 44
Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of contract and
a tort, giving a right of action for its agent in the presence of third persons to falsely notify her that the
check was worthless and demand payment under threat of ejection, though the language used was not
insulting and she was not ejected. 46 And this, because, altho the relation of passenger and carrier is
"contractual both in origin and nature" nevertheless "the act that breaks the contract may be also a tort".
47 And in another case, "Where a passenger on a railroad train, when the conductor came to collect his
fare, tendered him the cash fare to a point where the train was scheduled not to stop, and told him that as
soon as the train reached such point he would pay the cash fare from that point to destination, there was
nothing in the conduct of the passenger which justified the conductor in using insulting language to him,
as by calling him a lunatic," 48 and the Supreme Court of South Carolina there held the carrier liable for
the mental suffering of said passenger.
Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's action as
we have said, is placed upon his wrongful expulsion. This is a violation of public duty by the petitioner-air
carrier a case of quasi-delict. Damages are proper.
7.
Petitioner draws our attention to respondent Carrascoso's testimony, thus
"Q.
You mentioned about an attendant. Who is that attendant and purser?
A.
When we left already that was already in the trip I could not help it. So one of the flight
attendants approached me and requested from me my ticket and I said, What for? and she said, 'We will
note that you were transferred to the tourist class'. I said, 'Nothing of that kind. That is tantamount to
accepting my transfer.' And I also said, You are not going to note anything there because I am protesting to
this transfer.
Q.
Was she able to note it?
A.
No, because I did not give my ticket.
Q.
About that purser?
A.
Well, the seats there are so close that you feel uncomfortable and you don't have enough leg room,
I stood up and I went to the pantry that was next to me and the purser was there. He told me, 'I have
recorded the incident in my notebook.' He read it and translated it to me because it was recorded in
French 'First class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene.'
MR. VALTE
I move to strike out the last part of the testimony of the witness because the best evidence would
be the notes. Your Honor.
COURT
I will allow that as part of his testimony." 49
348 | P a g e
Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his notebooks
reading "First class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene" is predicated upon evidence [Carrascoso's testimony above] which is incompetent.
We do not think so. The subject of inquiry is not the entry, but the ouster incident. Testimony of the entry
does not come within the proscription of the best evidence rule. Such testimony is admissible. 49a
Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of the
startling occurrence was still fresh and continued to be felt. The excitement had not as yet died down.
Statements then, in this environment, are admissible as part of the res gestae. 50 For, they grow "out of
the nervous excitement and mental and physical condition of the declarant". 51 The utterance of the
purser regarding his entry in the notebook was spontaneous, and related to the circumstances of the
ouster incident. Its trustworthiness has been guaranteed. 52 It thus escapes the operation of the hearsay
rule. It forms part of the res gestae.
At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It would have
been an easy matter for petitioner to have contradicted Carrascoso's testimony. If it were really true that
no such entry was made, the deposition of the purser could have cleared up the matter.
We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.
8.
Exemplary damages are well awarded. The Civil Code gives the Court ample power to grant
exemplary damages in contracts and quasi-contracts. The only condition is that defendant should have
"acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner". 53 The manner of ejectment
of respondent Carrascoso from his first class seat fits into this legal precept. And this, in addition to moral
damages. 54
9.
The right to attorneys' fees is fully established. The grant of exemplary damages justifies a similar
judgment for attorneys' fees. The least that can be said is that the courts below felt that it is but just and
equitable that attorneys' fees be given. 55 We do not intend to break faith with the tradition that discretion
well exercised as it was here should not be disturbed.
10.
Questioned as excessive are the amounts decreed by both the trial court and the Court of Appeals,
thus: P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and P3,000.00 as
attorney's fees. The task of fixing these amounts is primarily with the trial-court. 56 The Court of Appeals
did not interfere with the same. The dictates of good sense suggest that we give our imprimatur thereto.
Because, the facts and circumstances point to the reasonableness thereof. 57
On balance, we say that the judgment of the Court of Appeals does not suffer from reversible error. We
accordingly vote to affirm the same. Costs against petitioner. So ordered.
Concepcion, C.J., Reyes J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and Castro, JJ., concur.
Bengzon, J.P., J., did not take part.
Footnotes
1.
Civil Case No. 38810, Rafael Carrascoso, plaintiff, vs. Air France, defendant," R.A., pp. 79-80.
2.
C.A. - G.R. No. 26522-R, Rafael Carrascoso, plaintiff-appellee, vs. Air France, defendant-appellant".
3.
Appendix A, petitioner's brief, pp. 146-147. See also R.A., pp. 66-67.
4.
Petitioner's brief, p. 142.
5.
Section 12, Article VIII, Constitution.
6.
Section 1, Rule 36, Rules of Court. See also Section 2, Rule 120, in reference to judgments in
criminal cases.
7.
Sec. 4, Rule 51; Sec. 33(2), Judiciary Act of 1948, as amended.
8.
Edwards vs. McCoy, 22 Phil., 598, 601; Yangco vs. Court of First Instance of Manila, et al., 29 Phil.,
183, 191.
9.
Braga vs. Millora 3 Phil., 458, 465.
10.
Id.
11.
Aringo vs. Arena, 14 Phil., 263, 266, italics supplied.
12.
Reyes vs. People, 71 Phil., 598, 600.
13.
People vs. Manigque, 35 Off. Gaz., No. 94, pp. 1682, 1683 citing Section 133 of the Code of Civil
Procedure and Section 12, Art. VIII, Constitution, supra.
14.
Badger, et al., vs. Beyd, 65 S.W. (2d), pp. 601, 610.
15.
Section 5, (m) and (o), Rule 131, Rules of Court.
349 | P a g e
16.
In re Good's Estate, 266 P. (2d), pp. 719, 729.
17.
Badger, et al., vs. Boyd, supra.
18.
Goduco vs. Court of Appeals, et al., L-17647, February 28, 1964.
19.
Section 2, Rule 45, Rules of Court, formerly Section 2, Rule 46 of the Rules of Court.
20.
Medel, et al., vs. Calasanz, et al., L-14835, August 31, 1960; Astraquillo, et al., vs. Javier, et al., L20034, January 30, 1965.
21.
Petitioner's brief in the Court of Appeals, pp. 82-98.
22.
Decision of the Court of Appeals, Appendix A, petitioner's brief, pp. 148-149.
23.
R. A., pp. 67, 73.
24.
5 B. C. J. S., p. 295; 3 Am. Jur. p. 678.
25.
3 Am. Jur., pp. 677-678.
26.
See Garcia Valdez vs. Soteraa Tuason, 40 Phil., 943, 951.
27.
Carrascoso's ticket, according to petitioner (brief, pp. 7-8), shows:
Segment or leg
Carrier Flight No.
Date of Departure
1.
Manila to Hongkong PAL
300A March 30
2.
Hongkong to Saigon VN
(Air Vietnam) 693
March 31
3.
Saigon to Beirut
AF
(Air France) 245
March 31
28.
Petitioner's brief, p. 50; see also id., pp. 37 and 46.
29.
Id., p. 103.
30.
Ibid., p. 102.
31.
Article 2220, Civil Code reads: "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."
32.
R. A., p. 2-4; Italics supplied.
33.
R. A. p. 5; second cause of action.
34.
Copeland vs. Cunehoo, et al., 138 S.E., 267, 270. See also 25 C.J.S., pp. 758-759; 15 Am. Jur., pp.
766-767.
35.
Statement of Attorney Villegas for respondent Carrascoso in open court. Respondent's brief. p. 33.
36.
Section 5, Rule 10, Rules of Court, in part reads:
"SEC. 5.
Amendment to conform to or authorize presentation of evidence. When
issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure so to amend does not affect the result of
the trial of these issues . . .; Co Tiamco vs. Diaz, etc., et al., 75 Phil., 672, 679; J. M. Tuason & Co., Inc., etc.,
vs. Bolaos, 95 Phil., 106, 110.
37.
Decision, Court of Appeals, Appendix A of petitioner's brief, pp. 147-148.
38.
Decision of the Court of Appeals, Appendix A petitioner's brief pp. 147-151.
39.
Words & Phrases, Perm. Ed., Vol. 5, p. 13, citing Warfield Natural Gas Co., vs. Allen, 59 S.W. (2d.)
534, 538.
40.
R.A., p. 74; emphasis supplied.
41.
42.
Philippine Refining Co. vs. Garcia, et al., L-21871 and L- 21962, September 27, 1966.
43.
See Section 4, Chapter 3, Title VIII, Civil Code.
44.
4 R.C.L., pp. 1174-1175.
45.
An air carrier is common carrier; and air transportation is similar or analogous to land and water
transportation, Mendoza vs. Philippine Air Lines, Inc., 90 Phil., 836, 841-842.
46.
Austro-American S.S. Co. vs. Thomas, 248 F.231.
47.
Id., p. 233.
48.
Lipman vs. Atlantic Coast Line R. Co., 93 S.E., 714, 716.
49.
Petitioner's brief, pp. 104-105.
49a
V. Moran, Comments on Rules of Court, 1963 ed., p. 76.
50.
Section 36. Rule 130, Rules of Court.
51.
IV Martin, Rules of Court in the Philippines, 1966 ed., p. 324.
350 | P a g e
52.
Ibid.
53.
54.
55.
Article 2208, (1) and (11), Civil Code.
56.
Coleongco vs. Claparols, L-18616, March 31, 1964; Corpus vs. Cuaderno, et al., L-23721, March 31,
1965.
57.
Cf. Yutuk vs. Manila Electric company, L-13016, May 31, 1961; Lopez et al., vs. Pan American World
Airways, L-22415, March 30, 1966.
Lopez v. Pan Am, 16 SCRA 431
EN BANC
[G.R. No. L-22415. March 30, 1966.]
FERNANDO LOPEZ, ET AL., plaintiffs-appellants, vs. PAN AMERICAN WORLD AIRWAYS,
Ross, Selph & Carrascoso for the defendant and appellant.
Vicente J. Francisco for the plaintiffs and appellants.
SYLLABUS
1.
CASHIERS; BREACH OF CONTRACT TO PROVIDE FIRST CLASS ACCOMMODATIONS; CASE AT BAR.
Plaintiffs made first class reservations with defendant in its Tokyo-San Francisco flight. The reservations
having been confirmed, first class tickets were subsequently issued in favor of plaintiffs. Through mistake,
however, defendant's agents cancelled the said reservations. Expecting that some cancellations of
bookings would be made before the flight time, the reservations supervisor decided to withhold from
plaintiffs the information that their reservations had been cancelled. Upon arrival in Tokyo, defendant
informed plaintiffs that there was no accommodation for them in the first class, stating that they could not
go unless they take the tourist class. Due to pressing engagements in the United States, plaintiffs were
constrained to take the flight as tourist passengers, but they did so under protest. Query: Whether
defendant acted in bad faith in the breach of its contract with plaintiffs. Held: In so misleading plaintiffs
into purchasing first class tickets in the conviction that they had confirmed reservations for the same,
when in fact they had none, defendant wilfully and knowingly placed itself into the position of having to
breach its aforesaid contracts with plaintiffs should there be no last-minute cancellation by other
passengers before flight time, as it turned out in this case. Such actuation of defendant may indeed have
been prompted by nothing more than the promotion of its self interest in holding on the plaintiffs as
passengers in its flight and foreclosing on their chances to seek the services of other airlines that may
have been able to afford them first class accommodations. All the same, in legal contemplation such
conduct already amounts to action in bad faith.
2.
ID.; ID.; MORAL DAMAGES RECOVERABLE. - As a proximate result of defendant's breach in bad faith
of its contracts with plaintiffs, the latter suffered social humiliation, wounded feelings, serious anxiety and
mental anguish. For plaintiffs were travelling with first class tickets issued by defendant and yet they were
given only the tourist class. At stop-overs, they were expected to be among the first-class passengers by
those awaiting to welcome them, only to be found among the tourist passengers. It may not be humiliating
to travel as tourist passengers; it is humiliating to be compelled to travel as such, contrary to what is
rightfully to be expected from the contractual undertaking.
3.
ID.; ID.; RATIONALE BEHIND EXEMPLARY OR CORRECTIVE DAMAGES. The rationable behind
exemplary or corrective rationale is, as the name implies, to provide an example or correction for public
good. Defendant having breached its contracts in bad faith, the court may award exemplary damages in
addition to moral damages. (Articles 2229, 2232, New Civil Code). In view of its nature, it should be
imposed in such an amount as to sufficiently and effectively deter similar breach of contracts in the future
by defendant or other airlines.
4.
ATTORNEY'S FEES; WHEN WRITTEN CONTRACT FOR ATTORNEY'S SERVICES SHALL CONTROL THE
AMOUNT TO BE PAID THEREFORE. A written contract for attorney's services shall control the amount to
be paid therefor unless found by the court to be unconscionable or unreasonable. A consideration of the
subject matter of the present controversy, of the professional standing the attorney for plaintiffs-
351 | P a g e
appellants, and of the extent of the service rendered by him, shows that the amount provided for in the
written agreement is reasonable.
DECISION
BENGZON, J.P., J p:
Plaintiffs and defendants appeal from a decision of the Court of First Instance of Rizal. Since the value in
controversy exceeds P200,000 the appeals were taken directly to this Court upon all questions involved
(Sec. 17, par. 3[5], Judiciary Act).
Stated briefly the facts not in dispute are as follows. Reservations for first class accommodations in Flight
No. 2 of Pan American World Airways hereinafter otherwise called PAN AM from Tokyo to San Francisco
on May 24, 1960 were made with PAN AM on March 29, 1960, by "Your Travel Guide" agency, specifically,
by Delfin Faustino, for then Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law Alfredo
Montelibano, Jr., and his daughter Mrs. Alfredo Montelibano, Jr. (Milagros Lopez Montelibano). PAN AM's San
Francisco head office confirmed the reservations on March 31, 1960.
First class tickets for the abovementioned flight were subsequently issued by PAN AM on May 21 and 23,
1960, in favor of Senator Lopez and his party. The total fare of P9,444 for all of them was fully paid before
the tickets were issued.
As scheduled Senator Lopez and party left Manila by Northwest Airlines on May 24, 1960, arriving in Tokyo
at 5:30 P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego of the
Philippine Embassy to contact PAN AM's Tokyo office regarding their first class accommodations for that
evening's flight. For the given reason that the first class seats therein were all booked up, however, PAN
AM's Tokyo office informed Minister Busuego that PAN AM could not accommodate Senator Lopez and party
in that trip as first class passengers. Senator Lopez thereupon gave their first class tickets to Minister
Busuego for him to show the same to PAN AM's Tokyo office, but the latter firmly reiterated that there was
no accommodation for them in the first class, stating that they could not go in that flight unless they took
the tourist class therein.
Due to pressing engagements awaiting Senator Lopez and his wife in the United States he had to attend
a business conference in San Francisco the next day and she had to undergo a medical check-up in Mayo
Clinic, Rochester, Minnesota, on May 28, 1960 and needed three days rest before that in San Francisco
Senator Lopez and party were constrained to take PAN AM's flight from Tokyo to San Francisco as tourist
passengers. Senator Lopez however made it clear, as indicated in his letter to PAN AM's Tokyo office on
that date (Exh. A), that they did so "under protest" and without prejudice to further action against the
airline.
Suit for damages was thereafter filed by Senator Lopez and party against PAN AM on June 2, 1960 in the
Court of First Instance of Rizal. Alleging breach of contracts in bad faith by defendant, plaintiffs asked for
P500,000 actual and moral damages, P100,000 exemplary damages P25,000 attorney's fees, plus costs.
PAN AM filed its answer on June 22, 1960, asserting that its failure to provide first class accommodations to
plaintiffs was due to honest error of its employees. It also interposed a counterclaim for attorney's fees of
P25,000.
Subsequently, further pleadings were filed, thus: plaintiffs' answer to the counterclaim, on July 25, 1960;
plaintiffs' reply attached to motion for its admittance, on December 2, 1961; defendant's supplemental
answer, on March 8, 1962; plaintiff's reply to supplemental answer, on March 10, 1962; and defendant's
amended supplemental answer, on July 10, 1962.
After trial which took twenty-two (22) days ranging from November 25, 1960 to January 5, 1963 the
Court of First Instance rendered its decision on November 13, 1963, the dispositive portion stating:
"In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against
the defendant, which is accordingly ordered to pay the plaintiffs the following (a) P100,000.00 as moral
damages: (b) P20,000.00 as exemplary damage; (c) P25,000.00 as attorney's fees, and the costs of this
action.
"So ordered."
Plaintiffs however, on November 21, 1963, moved for reconsideration of said judgment, asking that moral
damages be increased to P400,000 and that six per cent (6%) interest per annum on the amount of the
award be granted. And defendant opposed the same. Acting thereon the trial court issued an order on
December 14, 1963, reconsidering the dispositive part of its decision to read as follows:
352 | P a g e
"In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against
the defendant, which is accordingly ordered to pay the plaintiffs the following (a) P150,000.00 as moral
damages; (b) P25,000.00 as exemplary damages; with legal interest on both from the date of the filing of
the complaint until paid; and (c) P25,000.00 as attorney's fees, and the costs of this action."
"So ordered."
It is from said judgment, as thus reconsidered, that both parties have appealed.
Defendants, as stated, has from the start admitted that it breached its contracts with plaintiffs to provide
them with first class accommodations in its Tokyo-San Francisco flight of May 24, 1960. In its appeal,
however, it takes issue with the finding of the court a quo that it acted in bad faith in the breach of said
contracts. Plaintiffs, on the other hand, raise questions on the amount of damages awarded in their favor,
seeking that the same be increased to a total of P650,000.
Anent the issue of bad faith the record shows the respective contentions of the parties as follows.
According to plaintiffs, defendant acted in bad faith because it deliberately refused to comply with its
contract to provide first class accommodations to plaintiffs, out of racial prejudice against Orientals. And in
support of its contention that what was done to plaintiffs is an oft-repeated practice of defendant, evidence
was adduced relating to two previous instances of alleged racial discrimination by defendant against
Filipinos in favor of "white" passengers. Said previous occasions are what allegedly happened to (1) Benito
Jalbuena and (2) Cenon S. Cervantes and his wife.
And from plaintiffs' evidence this is what allegedly happened. Jalbuena bought a first class ticket from PAN
AM on April 13, 1960; he confirmed it on April 15, 1960 as to the Tokyo-Hongkong flight of April 20, 1960;
PAN AM similarly confirmed it on April 20, 1960. At the airport, he and another Oriental Mr. Tung were
asked to step aside while other passengers including "white" passengers boarded PAN AM's plane.
Then PAN AM officials told them that one of them had to stay behind. Since Mr. Tung was going all the way
to London, Jalbuena was chosen to be left behind. PAN AM's officials could only explain by saying there was
"some mistake." Jalbuena thereafter wrote PAN AM to protest the incident (Exh. B).
As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN AM on September 29, 1958 from
Bangkok to Hongkong, he and his wife had to take tourist class, although they had first class tickets, which
they had previously confirmed, because their seats in first class were given to "passengers from London."
Against the foregoing, however, defendant's evidence would seek to establish its theory of honest mistake,
thus:
The first class reservations of Senator Lopez and party were made on March 29, 1960 together with those
of four members of the Rufino family, for a total of eight (8) seats, as shown in their joint reservation card
(Exh. 1). Subsequently, on March 30, 1960, two other Rufinos secured reservations and were given a
separate reservation card (Exh. 2). A new reservation card consisting of two pages (Exh. 3 and 4) was then
made for the original group of eight passengers, namely, Senator Lopez and party and four members of
the Rufino family, the first page (Exh. 3) referring to 2 Lopez , 2 Montelibanos and 1 Rufino and the second
page (Exh. 4) referring to 3 Rufinos. On April 18, 1960 "Your Travel Guide" agency cancelled the
reservations of the Rufinos. A telex message was thereupon sent on that date to PAN AM's head office at
San Francisco by Mariano Herranz, PAN AM's reservations employee at its office in Escolta, Manila, (Annex
A-Acker's to Exh. 6). In said message, however, Herranz mistakenly cancelled all the seats that had been
reserved, that is, including those of Senator Lopez and party.
The next day April 1960 Herranz discovered his mistake, upon seeing the reservation card newly
prepared by his co-employee Pedro Asensi for Senator Lopez and party to the exclusion of the Rufinos
(Exh. 5). It was then that Herranz sent another telex wire to the San Francisco head office, stating his error
and asking for the reinstatement of the four (4) first class seats reserved for Senator Lopez and party
(Annex A-Velasco's to Exh. 6). San Francisco head office replied on April 22, 1960 that Senator Lopez and
party are waitlisted and that said office is unable to reinstate them (Annex B- Velasco's to Exh. 6).
Since the flight involved was still more than a month away and confident that reinstatement would be
made, Herranz forgot the matter and told no one about it except his co-employee, either Armando Davila
or Pedro Asensi or both of them (Tsn., 123-124, 127, Nov. 17, 1961).
Subsequently, on April 27, 1960, Armando Davila, PAN AM's reservations employee working in the same
Escolta office as Herranz, phoned PAN AM's ticket sellers at its other office in the Manila Hotel, and
confirmed the reservations of Senator Lopez and party.
PAN AM's reservations supervisor, Alberto Jose, discovered Herranz's mistake after "Your Travel Guide"
phoned on May 18, 1960 to state that Senator Lopez and party were going to depart as scheduled.
Accordingly, Jose sent a telex wire on that date to PAN AM's head office at San Francisco to report the error
353 | P a g e
and asked said office to continue holding the reservations of Senator Lopez and party (Annex B Acker's to
Exh. 6). Said message was reiterated by Jose in his telex wire of May 19, 1960 (Annex C-Acker's to Exh. 6).
San Francisco head office replied on May 19, 1960 that it regrets being unable to confirm Senator Lopez
and party for the reason that the flight was solidly booked (Exh. 7). Jose sent a third telex wire on May 20,
1960 addressed to PAN AM's offices at San Francisco, New York (Idlewild Airport), Tokyo and Hongkong,
asking all-out assistance towards restoring the cancelled spaces and for report of cancellations at their end
(Annex D-Acker's to Exh. 6). San Francisco head office reiterated on May 20, 1960 that it could not
reinstate the spaces and referred Jose to the Tokyo and Hongkong offices (Exh. 8). Also on May 20 the
Tokyo office of PAN AM wired Jose stating it will do everything possible (Exh. 9).
Expecting that some cancellations of bookings would be made before the flight time, Jose decided to
withhold from Senator Lopez and party, or their agent, the information that their reservations had been
cancelled.
Armando Davila having previously confirmed Senator Lopez and party's first class reservations to PAN AM's
ticket sellers at its Manila Hotel office, the latter sold and issued in their favor the corresponding first class
tickets on the 21st and 23rd of May, 1960.
From the foregoing evidence of defendant it is in effect admitted that defendant through its agents
first cancelled plaintiffs' reservations by mistake and thereafter deliberately and intentionally withheld
from plaintiffs or their travel agent the fact of said cancellation, letting them go on believing that their first
class reservations stood valid and confirmed. In so misleading plaintiffs into purchasing first class tickets in
the conviction that they had confirmed reservations for the same, when in fact they had none, defendant
wilfully and knowingly placed itself into the position of having to breach its aforesaid contracts with
plaintiffs should there be no last-minute cancellation by other passengers before flight time, as it turned
out in this case. Such actuation of defendant may indeed have been prompted by nothing more than the
promotion of its self- interest in holding on to Senator Lopez and party as passengers in its flight and
foreclosing on their chances to seek the services of other airlines that may have been able to afford them
first class accommodations. All the same, in legal contemplation such conduct already amounts to action
in bad faith. For bad faith means a breach of a known duty through some motive of interest or ill will
(Spiegel vs. Reacon Participations (8 NE 2d 895, 907). As stated in Kamm vs. Flink, 113 N.J.L. 582, 175 A.
62, 99 A.L.R. 1, 7: "Self-enrichment or fraternal interest, and not personal ill will, may well have been the
motive, but it is malice nevertheless."
As of May 18, 1960 defendant's reservations supervisor Alberto Jose knew that plaintiff's reservations had
been cancelled. As of May 20 he knew that the San Francisco head office stated with finality that it could
not reinstate plaintiff' cancelled reservations. And yet said reservations supervisor made the "decision"
to use his own word to withhold the information from the plaintiffs. Said Alberto Jose in his testimony:
"Q
Why did you not notify them?
"A
Well, you see, sir, in my fifteen (15) years of service with the air lines business my experience is
that even if the flights are solidly booked months in advance, usually the flight departs with plenty of
empty seats both on the first class and tourist class. This is due to late cancellation of passengers, or
because passengers do not show up in the airport, and it was our hope others come in from another flight
and, therefore, are delayed and, therefore, missed their connections. This experience of mine, coupled with
that wire from Tokyo that they would do everything possible prompted me to withhold the information, but
unfortunately, instead of the first class seat that I was hoping for and which I anticipated only the tourists
class was open on which Senator and Mrs. Lopez, Mr. and Mrs. Montelibano were accommodated. Well, I
fully realize now the gravity of my decision in not advising Senator and Mrs. Lopez, Mr. and Mrs.
Montelibano nor their agents about the erroneous cancellation and for which I would like them to know
that I am very sorry.
xxx
xxx
xxx
"Q
So it was not your duty to notify Sen. Lopez and parties that their reservations had been cancelled
since May 18, 1960?
"A
As I said before it was my duty. It was my duty but as I said again with respect to that duty I have
the power to make a decision or use my discretion and judgment whether I should go ahead and tell the
passenger about the cancellation." (Tsn., pp. 17-19, 28- 29, March 15, 1962.)
At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known duty, made plaintiffs
believe that their reservations had not been cancelled. An additional indication of this is the fact that upon
the face of the two tickets of record, namely, the ticket issued to Alfredo Montelibano, Jr. on May 21, 1960
(Exh. 22) and that issued to Mrs. Alfredo Montelibano, Jr., on May 23, 1960 (Exh. 23), the reservation status
354 | P a g e
is stated as "OK". Such willful non-disclosure of the cancellation or pretense that the reservations for
plaintiffs stood and not simply the erroneous cancellation itself is the factor to which is attributable
the breach of the resulting contracts. And, as above-stated, in this respect defendant clearly acted in bad
faith.
As if to further emphasize its bad faith on the matter, defendant subsequently promoted the employee
who cancelled plaintiffs' reservations and told them nothing about it. The record shows that said employee
Mariano Herranz was not subjected to investigation and suspension by defendant but instead was
given a reward in the form of an increase of salary in June of the following year (Tsn., 86-88, Nov. 20,
1961).
At any rate, granting all the mistakes advanced by the defendant, there would at least be negligence so
gross and reckless as to amount to malice or bad faith (Fores vs. Miranda, L-12163, March 4, 1959;
Necesito vs. Paras, L-10605-06, June 30, 1958). Firstly, notwithstanding entries in the reservation cards
(Exhs. 1 & 3) that the reservations cancelled are those of the Rufinos only, Herranz made the mistake,
after reading said entries, of sending a wire cancelling all the reservations, including those of Senator
Lopez and party (Tsn., pp. 103-108 Nov. 17, 1961). Secondly, after sending a wire to San Francisco head
office on April 19, 1960 stating his error and asking for reinstatement, Herranz simply forgot about the
matter. Notwithstanding the reply of San Francisco head office in April 22, 1960 that it cannot reinstate
Senator Lopez and party (Annex B-Velasco's to Exh. 6), it was assumed and taken for granted that
reinstatement would be made. Thirdly, Armando Davila confirmed plaintiff's reservation in a phone call on
April 27, 1960 to defendant's ticket sellers, when at the time it appeared in plaintiffs' reservation card
(Exh. 5) that they were only wait-listed passengers. Fourthly, defendant's ticket sellers issued plaintiffs'
tickets on May 21 and 23, 1960, without first checking their reservations just before issuing said tickets.
And, finally, non one among defendant's agents notified Senator Lopez and party that their reservations
had been cancelled, a precaution that could have averted their entering with defendant into contracts that
the latter had already placed beyond its power to perform.
Accordingly, there being a clear admission in defendant's evidence of facts amounting to bad faith on its
part in regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further discuss the
evidence adduced by plaintiffs to establish defendant's bad faith. For what is admitted in the course of the
trial does not need to be proved (Sec. 2, Rule 129, Rules of Court).
Addressing ourselves now to the question of damages, it is well to state at the outset these rules and
principles. First, moral damages are recoverable in breach of contracts where the defendant acted
fraudulently or in bad faith (Art. 2220, New Civil Code). Second, in addition to moral damages, exemplary
or corrective damages may be imposed by way of example or correction for the public good, in breach of
contract where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner
(Articles 2229, 2232, New Civil Code). And, third, a written contract for an attorney's services shall control
the amount to be paid therefor unless found by the court to be unconscionable or unreasonable (Sec. 24,
Rule 138, Rules of Court).
First, then, as to moral damages. As a proximate result of defendant's breach in bad faith of its contracts
with plaintiff's the latter suffered social humiliation, wounded feelings, serious anxiety and mental anguish.
For plaintiffs were travelling with first class tickets issued-by defendant and yet they were given only the
tourist class. At stop-overs, they were expected to be among the first-class passengers by those awaiting
to welcome them, only to be found among the tourist passengers. It may not be humiliating to travel as
tourist passengers; it is humiliating to be compelled to travel as such, contrary to what is rightfully to be
expected from the contractual undertaking.
Senator Lopez was then Senate President Pro Tempore. International carriers like defendant know the
prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine Congress, but the
nation's treaty-ratifying body. It may also be mentioned that in his aforesaid Office Senator Lopez was in a
position to preside in impeachment cases should the Senate sit as impeachment Tribunal. And he was
former Vice-President of the Philippines. Senator Lopez was going to the United States to attend a private
business conference of the Binalbangan-Isabela Sugar Company; but his aforesaid rank and position were
by no means left behind, and in fact he had a second engagement awaiting him in the United States; a
banquet tendered by Filipino friends in his honor as Senate President Pro Tempore (Tsn., pp. 14-15, Nov. 25,
1960). For the moral damages sustained by him, therefore, an award of P100,000,000 is appropriate.
Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. In addition,
she suffered physical discomfort during the 13-hour trip (5 hours from Tokyo to Honolulu and 8 hours from
Honolulu to San Francisco). Although Senator Lopez stated that "she was quite well" (Tsn., p. 22, Nov. 25,
355 | P a g e
1960) he obviously meant relatively well, since the rest of his statement is that two months before, she
was attacked by severe flu and lost 10 pounds of weight and that she was advised by Dr. Sison to go to the
United States as soon as possible for medical check-up and relaxation (Ibid.) In fact, Senator Lopez stated,
as shown a few pages after in the transcript of his testimony, that Mrs. Lopez was sick when she left the
Philippines:
"A.
Well, my wife really felt very bad during the entire trip from Tokyo to San Francisco. In the first
place, she was sick when we left the Philippines, and then with that discomfort which she [experienced] or
suffered during that evening, it was her worst experience. I myself, who was not sick, could not sleep
because of the discomfort." (Tsn., pp. 27-28, Nov. 25, 1960).
It is not hard to see that in her condition then a physical discomfort sustained for thirteen hours may well
be considered a physical suffering. And even without regard to the noise and trepidation inside the plane
which defendant contends, upon the strength of expert testimony, to be practically the same in first
class and tourist class the fact that the seating spaces in the tourist class are quite narrower than in first
class, there being six seats to a row in the former as against four to a row in the latter, and that in tourist
class there is very little space for reclining in view of the closer distance between rows (Tsn., p. 24, Nov. 25,
1960), will suffice to show that the aforesaid passenger indeed experienced physical suffering during the
trip. Added to this, of course, was the painful thought that she was deprived by defendant after having
paid for and expected the same of the most suitable place for her, the first class, where evidently the
best of everything would have been given her, the best seat, service, food and treatment. Such difference
in comfort between first class and tourist class is too obvious to be recounted, is in fact the reason for the
former's existence, and is recognized by the airline in charging a higher fare for it and by the passengers in
paying said higher rate. Accordingly, considering the totality of her suffering and humiliation, an award to
Mrs. Maria J. Lopez of P50,000.00 for moral damages will be reasonable.
Mr. and Mrs. Alfredo Montelibano, Jr., were traveling as immediate members of the family of Senator Lopez.
They formed part of the Senator's party as shown also by the reservation cards of PAN AM. As such they
likewise shared his prestige and humiliation. Although defendant contends that a few weeks before the
flight they had asked their reservations to be changed from first class to tourist class which did not
materialize due to alleged full booking in the tourist class the same does not mean they suffered no
shame in having to take tourist class during the flight. For by that time they had already been made to pay
for first class seats and therefore to expect first class accommodations. As stated, it is one thing to take
the tourist class by free choice; a far different thing to be compelled to take it notwithstanding having paid
for first class seats. Plaintiffs-appellants now ask P37,500.00 each for the two but we note that in their
motion for reconsideration filed in the court a quo, they were satisfied with P25,000.00 each for said
persons. (Record on Appeal, p. 102) For their social humiliation, therefore, the award to them of
P25,000.00 is reasonable.
The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or
correction for public good. Defendant having breached its contracts in bad faith, the court, as stated
earlier, may award exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil
Code).
In view of its nature, it should be imposed in such an amount as to sufficiently and effectively deter similar
breach of contracts in the future by defendant or other airlines. In this light, we find it just to award
P75,000.00 as exemplary or corrective damages.
Now, as to attorney's fees, the record shows a written contract of services executed on June 1, 1960 (Exh.
F) whereunder plaintiffs-appellants engaged the services of their counsel Atty. Vicente J, Francisco
and agreed to pay the sum of P25,000.00 as attorney's fees upon the termination of the case in the Court
of First Instance, and an additional sum of P25,000.00 in the event the case is appealed to the Supreme
Court. As said earlier, a written contract for attorney's services shall control the amount to be paid therefor
unless found by the court to be unconscionable or unreasonable. A consideration of the subject matter of
the present controversy, of the professional standing of the attorney for plaintiffs-appellants, and of the
extent of the services rendered by him, shows that said amount provided for in the written agreement is
reasonable. Said lawyer whose prominence in the legal profession is well known studied the case,
prepared and filed the complaint, conferred with witnesses, analyzed documentary evidence, personally
appeared at the trial of the case in twenty-two days, during a period of three years, prepared four sets of
cross-interrogatories for deposition taking, prepared several memoranda and the motion for
reconsideration, filed a joint record on appeal with defendant, filed a brief for plaintiffs as appellants
356 | P a g e
consisting of 45 printed pages and a brief for plaintiffs as appellees consisting of 265 printed pages. And
we are further convinced of its reasonableness because defendant's counsel likewise valued at P50,000.00
the proper compensation for his services rendered to defendant in the trial court and on appeal.
In concluding, let it be stressed that the amount of damages awarded in this appeal has been determined
by adequately considering the official, political, social, and financial standing of the offended parties on
one hand, and the business and financial position of the offender on the other (Domingding vs. Ng. 55 O.
G. 10). And further considering the present rate of exchange and the terms at which the amount of
damages awarded would approximately be in U.S. dollars, this Court is all the more of the view that said
award is proper and reasonable.
Wherefore, the judgments appealed from is hereby modified so as to award in favor of plaintiffs and
against defendants, the following: (1) P200,000.00 as moral damages, divided among plaintiffs, thus:
P100,000.00 for Senate President Pro Tempore Fernando Lopez; P50,000.00 for his wife Maria J. Lopez
P25,000.00 for his son-in-law Alfredo Montelibano, Jr. and P25,000.00 for his daughter Mrs. Alfredo
Montelibano, Jr.; (2) P75,000.00 as exemplary or corrective damages; (3) interest at the legal rate of 6%
per annum on the moral and exemplary damages afore-stated, from December 14, 1963, the date of the
amended decision of the court a quo, until said damages are fully paid; (4) P50,000.00 as attorney's fees;
and (5) the costs. Counterclaim dismissed. So ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Regala, Makalintal, Zaldivar and
Sanchez, JJ., concur.
Dizon, J., is on leave.
Ortigas v. Lufthansa, 64 SCRA 610
SECOND DIVISION
[G.R. No. L-28773. June 30, 1975.]
FRANCISCO ORTIGAS, JR., plaintiff-appellant-appellee, vs. LUFTHANSA GERMAN AIRLINES,
defendant-appellant-appellee.
Baizas, Alberto & Associates for appellant Lufthansa German Airlines.
Pelaez, Jalandoni & Jamir for appellant Francisco Ortigas, Jr.
SYNOPSIS
Plaintiff sued defendant for damages as a result of his being refused by defendant's employees and agents
to travel first-class despite his confirmed and validated airline tickets indicating his right to such
accommodations. The trial of the case covered a long period of time, delayed by innumerable
postponements sought by both parties. Having allowed a permissible number of continuances the trial
court repeatedly warned against further postponements, since the case had been pending for three years.
When defendant again sought postponement of the hearing set for September 28, 1966, the court, in the
exercise of its sound judicial discretion, denied the same, no valid reason having been given why the
witness could not appear. Corollary to this denial order, the court directed the striking off from the records
the unfinished testimony of the defendant's witness Ivo Lazzari and considered the case submitted for
decision on the evidence presented by the plaintiff. A motion for reconsideration was likewise denied and
subsequently, a decision was rendered "condemning defendant to pay the plaintiff the amount of
P100,000.00 as moral damages, P30,00.00 as exemplary or corrective damages with interest on both sums
at the legal rate from the commencement of the suit until fully paid, P20,000.00 as attorney's fees and the
costs" for the failure to "comply with its obligation to give first-class accommodation to the plaintiff, a
Filipino passenger, holding a first class ticket, aggravated by the giving of the space instead to a Belgian
and the improper conduct of its agent in dealing with plaintiff during the occasion of such discriminatory
violation of the contract of carriage."
Both parties appealed directly to this Court, plaintiff-appellant contending that the amount of damages
awarded him was insufficient and defendant-appellant contending, on the other hand, that the lower court
acted with grave abuse of discretion in denying its urgent motion for postponement of the hearing set for
September 28, 1966, for striking out the testimony of its witness and for ordering it to pay plaintiff
damages.
357 | P a g e
The Supreme Court, considering precedents and the circumstances of the case, raised the award of moral
and exemplary damages to plaintiff-appellant to P150,000.00 and P100,000.00 respectively.
Judgment modified.
SYLLABUS
1.
CIVIL PROCEDURE; APPEALS MATTERS NOT ASSIGNED AS ERRORS, WHEN REVIEWABLE. The
Supreme Court is clothed with ample authority to review matters even if they are not assigned as errors in
the appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. An
unassigned error closely related to an error properly assigned, or upon which the determination of the
question raised by the error properly assigned is dependent, will be considered by the appellate court
notwithstanding the failure to assign it as error.
2.
ID.; TRIAL; POSTPONEMENTS THEREOF; CIRCUMSTANCES WHICH CALL FOR DENIAL OF
DEFENDANT'S MOTION. Where a case had been pending for about three years and had actually suffered
during the said period even more than the usually permissible number of continuances to suit the
convenience of defendant's counsel, and where notice of next scheduled hearing had been served on said
counsel a month earlier, it must be assumed that due preparations and arrangements had been made
after the receipt of notice to insure the presence of the witnesses on the date set. The excuse that the
witnesses cannot leave their respective stations and places of work to attend the trial is unacceptable,
especially where the movant is an airline company engage in international transportation and presumably
having all the facilities to have any of its employees available practically anywhere in the world at a
moment's notice. A party must not rely on the assumption that courts could be made to wait until the
volume and conditions of business of a party would permit it to comply with the schedule of the court.
3.
ID.; ID.; ID.; ABSENCE OF EVIDENCE; RULE. Trials may be postponed because of the absence of
evidence only when such absence is justified. Mere absence is not a justification in itself. It must be shown
to the court that due diligence had been exercised in either securing the presence of the evidence or
preventing the absence thereof, accompanied by an affidavit showing the materiality of the evidence
expected to be obtained, pursuant to Rule 22, Section 4.
4.
ID.; ID.; PRESENTATION OF EVIDENCE; INCOMPLETE ORAL TESTIMONY MAY BE STRICKEN OUT.
Oral testimony may be taken into account only when it is complete, that is, if the witness has been wholly
cross-examined by the adverse party or the right to cross-examine is lost wholly or in part thru the fault of
such adverse party. But when cross-examination is not and cannot be done or completed due to causes
attributable to the party offering the witness, the uncompleted testimony is thereby rendered incompetent.
5.
ID.; ID.; ID.; CROSS-EXAMINATION OF WITNESSES, AN INDISPENSABLE PART OF DUE PROCESS.
The right of a party to cross-examine the witnesses of his adversary is invaluable as it is inviolable in civil
cases, no less than the right of the accused in criminal cases. The express recognition of such right of the
accused in the Constitution does not render the right thereto of parties in civil cases less continually
based, for it is an indispensable part of the due process guaranteed by the fundamental law. Subject to
appropriate supervision by the judge in order to avoid unnecessary delays on account of its being unduly
protracted and to needed injunctions protective of the right of the witness against self-incrimination and
oppressive and unwarranted harassment and embarrassment, a party is absolutely entitled to a full crossexamination as prescribed in Section 8, Rule 132 of the Rules of Court.
6.
CONTRACTS; CONTRACT OF CARRIAGE; CARRIER'S LIABILITY FOR DAMAGES; PREFERENCE GIVEN TO
ANOTHER PASSENGER IN DISREGARD OF PLAINTIFF'S RIGHTS AND DIGNITY AMOUNTS TO BAD FAITH AND
FRAUD ENTITLING AGGRIEVED PASSENGER TO AWARD OF DAMAGES. When it comes to contracts of
common carriage, inattention and lack of care on the part of the carrier resulting in the failure of the
passenger to be accommodated in the class contracted for, amounts to bad faith or fraud which entitles
the passenger to the award of moral damages in accordance with Article 2220 of the Civil Code. In the
instant case, the preference given to a Belgian passenger over plaintiff was done willfully and in wanton
disregard of plaintiff's rights and dignity as a human being and as a Filipino, who may not be discriminated
against with impunity. The breach is of a grave nature. The treatment given to plaintiff was completely
wrong and absolutely unjustifiable. The carrier is liable for moral damages.
7.
ID.; ID.; ID.; WILLFUL AND WANTON BREACH OF CONTRACT OF CARRIAGE; JURISPRUDENCE. The
right of a passenger to moral damages has been upheld in cases wherein after having contract and paid
for first class accommodation duly confirmed and validated; he is transferred over his objection to
economy class, which he has to take in order to be able to arrive at his destination on his scheduled time.
358 | P a g e
(Northwest Airlines, Inc. vs. Cuenca, 14 SCRA 1063 Fernando Lopez et al. vs Pan American World Airways.
16 SCRA 431: Air France vs Carrascoso, 18 SCRA 155).
8.
ID.; ID.; ID.; ID.; CONSIDERATIONS WHICH JUSTIFY AN INCREASE IN THE AWARD OF MORAL
DAMAGES; CASE AT BAR. Where an air carrier's employee falsely noted on the ticket of a Filipino
passenger that the latter was travelling economy class in order to give way to a Belgian passenger on
account of his nationality, and considering that said passenger was suffering from a weak heart and was
advised by his doctor to travel first class only, and taking into account his personal and social status, being
a prominent lawyer, businessman, civil and religious leader, member of the numerous government boards
and organizations as well as of local and international bodies, carrying a special Philippine government
passport, and taking into account the present peso rate at exchange vis-a-vis the dollars, the Supreme
Court held that the increase of moral damages awarded by the trial court from P100,000 to P150,000 was
justified.
9.
ID.; ID.; ID.; ID.; PAYMENT OF EXEMPLARY DAMAGES. "Exemplary damages are required by public
policy, for wanton acts must be repressed. They are an antidote so that the poison of wickedness may not
through the body politic."(Report of the Code Commission, pp. 75-76). An airline company should be made
to pay an amount that can really serve as a deterrent against a seeming pattern of indifference and
unconcern, and of discrimination for racial reasons, discernible in the treatment of air passengers.
10.
ID.; ID.; ID.; ID.; ID.; RATIONALE. "The rationale behind exemplary or corrective damages, is, as
the name implies, to provide an example or correction for public good. In view of its nature, it should be
imposed in such an amount as to sufficiently and effectively deter similar breach of contracts by defendant
or other airlines." (Lopez vs. Pan American World Airways, 16 SCRA 431).
11.
ID.; ID.; ID.; ID.; ID.; AMOUNT INCREASED IN INSTANT CASE. The amount of P30,000.00, fixed by
the lower court as exemplary damages is increased to P100,000.00 to serve the ends for which the liability
has been conceived. This is not the first case, and unless the proper sanction are applied, it does not
appear it is going to be the last yet, of instances wherein Filipino passengers having validated and
confirmed tickets for first class would be shoved to the economy class over their valid objections and
without any regard at all to their feelings and convenience, only to favor other passengers presumed by
the airlines to be of superior race, hence deserving preference. It is high time everyone concerned were
made to realize that the laws of the Philippines do not permit any act of discrimination against its citizens,
especially when this accompanies a clear breach of contractual obligations of common carriers whose
business is affected with public interest and must be directed to serve the convenience and comfort of the
passengers. When any disregard of such laws is committed, the Supreme Court, as the interpreter of such
laws, must exact the commensurate liability which they contemplate.
DECISION
BARREDO, J p:
Direct appeals of both parties plaintiff, Francisco Ortigas, and defendant Lufthansa German Airlines, from
the decision of the Court of First Instance of Manila, Branch X, "condemning the defendant to pay plaintiff
the amount of P100,000 as moral damages, P30,000 as exemplary or corrective damages, with interest on
both sums at the legal rate from the commencement of this suit until fully paid, P20,000 as attorney's fees
and the costs" for the former's failure to "comply with its obligation to give first class accommodation to
(the latter) a (Filipino) passenger holding a first class ticket," aggravated by the giving of the space instead
to a Belgian and the improper conduct of its agents in dealing with him during the occasion of such
discriminatory violation of its contract of carriage.
Defendant buttresses its appeal on the following:
"ASSIGNMENT OF ERRORS
I
THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN DENYING THE DEFENDANTS URGENTMOTION FOR POSTPONEMENT DATED SEPTEMBER 24, 1966.
II
THE LOWER COURT CONSEQUENTLY ERRED IN ORDERING THE STRIKING FROM THE RECORDS THE
TESTIMONY OF WITNESS IVO LAZZARI AND IN DEEMING THE CASE SUBMITTED FOR DECISION ON THE
EVIDENCE OF THE PLAINTIFF ALONE.
III
359 | P a g e
THE LOWER COURT ERRED IN CONDEMNING DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT OF
P100,000.00 AS MORAL DAMAGES, P30,000.00 AS EXEMPLARY OR CORRECTIVE DAMAGES, WITH INTEREST
ON BOTH SUMS AT THE LEGAL RATE FROM THE COMMENCEMENT OF THIS SUIT UNTIL FULLY PAID,
P20,000.00 AS ATTORNEY'S FEES, AND COSTS." (Pp. 12-13, p. 118, Record.)
On the other hand, plaintiff's sole ground for his appeal is that "the trial court erred in ordering Lufthansa
to pay Ortigas only P100,000 as moral damages, P20,000 as exemplary or corrective damages, and
P20,000 as attorney's fees." (Plaintiff-Appellant's Brief, p. a.) Thus, apart from the contention of defendant
that it has been denied its full day in court, the only issue raised by both appellants relate to the amount of
the damages awarded by the trial court, plaintiff claiming it is less than he is entitled to and the defendant
insisting on the opposite.
Lufthansa maintains it has not had its full day in court because the trial court abruptly ended the trial by
denying its last motion for postponement notwithstanding it was well founded and forthwith ordering the
striking out of the testimony of its absent witness whose cross-examination had not been finished and then
declaring the case submitted for decision. In this connection, the record reveals the following facts:
Plaintiff's complaint was filed with the court below on December 24, 1963 and after issues were joined, a
pre-trial was held, the parties submitted a partial stipulation of facts and thereafter went to trial, the last
day of which was on September 28, 1966. As to what happened in between, a detailed account is made in
the brief of Ortigas as plaintiff-appellee as follows:
". . . Thereafter the case was set for hearing twenty four (24) times, or on April 27, 1964, July 9, 1964,
August 20, 1964, October 1, 1964, November 11, 1964, December 22, 1964, February 3, 1965, March 18,
1965, May 5, 1965, June 11, 1965, July 22, 1965, August 26, 1965 and September 8, 1965, September 22,
1965, November 3, 1965, November 24, 1965, December 17, 1965, December 29, 1965, January 14, 1966,
February 2, 1966, April 19, 1966, April 20, 1966, July 5, 6 and 7, 1966, August 25, 1966 and September 28,
1966.
One (1) hearing, or that of August 25, 1966, was cancelled because the trial judge, Hon. Jose L. Moya, was
then sick. Other postponements were as follows:
Postponements at instance of plaintiff
Three (3) settings were cancelled upon motion of plaintiff on grounds that defendant's counsel (Atty.
Crispin Baizas) himself must have found sufficient, for he gave his conformity thereto. These were the
hearings set for:
July 9, 1964 postponed upon plaintiffs motion, dated June 27, 1964, or 12 days before the hearing, on
the ground that he had to attend an important business matter in Mindanao, which was so urgent that 'for
plaintiff to even make a flying trip to Manila for the scheduled hearing might jeopardize and render to
naught a project to which plaintiff has already expended considerable time, money and effort' (RA pp.
28-29. Note: All reference herein will be to plaintiff's Record on Appeal)
August 26, 1965 postpone upon plaintiff's motion, dated August 23, 1965, for the reason that he was in
London for business reasons and could not return to the Philippines on time for the hearing. This motion is
not reproduced in any Record on Appeal but is admitted.
July 5-7, 1966 18 days before the dates set for the hearing, counsel for plaintiff filed a motion, dated
June 17, 1966, for postponement on the ground that Atty. Rodegelio M. Jalandoni, who had been personally
handling this case was then in Washington, D.C. on business and would not be back until the middle part of
August, 1966. Considering that the trial of the case was far advanced, it would be difficult for another
lawyer to substitute for Atty. Jalandoni. Defendant's counsel agreed to the motion (RA pp. 50-51).
Postponements at instance of both parties
Four (4) settings, or those of August 20, 1964, October 1, 1964 November 11, 1964 and December 22,
1964, were cancelled upon the joint motion of the parties on the ground that negotiations for the possible
settlement of this case were pending (RA pp. 31-34).
While both attorneys for plaintiff and defendant signed the joint motions for postponement, the initiative to
have the hearings cancelled actually came from defendant's counsel who claimed that he needed time to
consult with his client. Plaintiff welcomed the possibility of compromise and acceded to join the requests
for postponement but became impatient at and suspicious of the attempt to delay so that in the motion to
postpone the December 22, 1964 hearing, plaintiff insisted on the insertion of the phrase 'be postponed for
the last time' (RA p. 34). These took place after the pre-trial but before plaintiff had started presenting
his evidence.
Postponement at instance of defendant
360 | P a g e
Of the remaining 16 settings, at least TEN (10) were postponed or could not proceed except for a few
minutes because either Atty. Crispin Baizas, counsel for defendant, was not available or needed time to
prepare or had to attend a meeting somewhere else, or, as in the ease of September 28, 1966, defendant's
witnesses wanted to avoid the inconvenience of coming to the Philippines. The situation became such that
on two (2) occasions the court a quo warned the defendant and/or its counsel that it was postponing the
trial 'for the last time' and 'definitely for the last time.' Thus:
February 3, 1965 On this date, although plaintiff was ready to present his evidence and the Court to
hear the parties, Atty. Baizas asked for postponement for the reason that he had to be somewhere else.
The undersigned graciously obliged by not objecting, albeit the motion was made without warning and in
open court.
March 18, 1965 Once again the hearing scheduled for this date was postponed on motion of Atty. Baizas
in open court. The undersigned did not object because, as far as he can now recall, the excuse given was
that opposite counsel had another appointment.
June 11, 1965 The Court was free the whole morning of this day and plaintiff actually took the witness
stand. After plaintiff was through with his direct testimony, Atty. Zaida R. Alberto, who appeared for the
defendant, asked that the cross-examination be postponed for the next hearing, on the ground that Atty.
Baizas knew more of the defense. The following appears on record:
'ATTY. ALBERTO:
If Your Honor please, may I request to allow the cross examination at the next hearing.
COURT:
You can handle the cross examination now.
ATTY. ALBERTO:
The defense are more in the knowledge of Atty. Baizas.
COURT:
If you postpone the cross examination we will forget the testimony and will be spending much time
referring to this testimony, so you better cross-examine him while his testimony is still fresh.
ATTY. ALBERTO:
May I ask for a reconsideration, Your Honor, anyway it is past 11:00 o'clock I do not think there will be
enough time.
We still have one hour.
ATTY. ALBERTO:
I ask for a reconsideration, Your Honor.
COURT:
On motion of the defendant's counsel, the continuation of the trial is postponed to July 22, 1965, at 8:30
a.m. The parties were notified in open court of this new assignment.' (t.s.n. pp. 43-44, June 11, 1965)
Notwithstanding there was an hour left, which was precious considering the crowded calendar of the Court,
and Judge Moya wanted to hear the cross-examination because plaintiff's testimony was fresh, the Court
pleased counsel for the defendant and postponed the hearing to July 22, 1965.
September 22, 1965 At this hearing the undersigned requested that Dr. Isidro Pertiera be permitted to
take the witness stand. He is a heart specialist and it was difficult to bring him to court because of his
many patients. His direct testimony did not take long, after which Atty. Baizas asked for postponement, for
the reason that he did not expect Dr. Pertiera to testify and, since the subject of the testimony was
important and technical, he needed time to be able to cross-examine. The undersigned, understanding the
predicament of Atty. Baizas, did not offer any objection.
November 3, 1965 This scheduled hearing was postponed upon motion dated October 7, 1965, of Atty.
Baizas on the ground that he was leaving on business trip abroad. The undersigned again did not object.
November 24, 1965 It will be recalled that the hearing of September 22, 1965, supra, was postponed to
enable Atty. Baizas to prepare for his cross-examination of Dr. Pertiera. On this date November 24, 1965,
Atty. Baizas cross-examined briefly the doctor, but announced:
'ATTY. BAIZAS:
May I announce, your Honor, that after I cross-examine the Doctor I will ask for a postponement of my
cross examination of Atty. Ortigas because I will have to attend a meeting of the PAL Board of Directors this
morning. My cross examination will not be very long.' (t.s.n., pp. 3-4, November 24, 1965)
361 | P a g e
The PAL Board of Directors' meeting was certainly not more important than the occupation of the Court,
and it was still early, bur counsel was insistent. The Court was beginning to be perturbed by the dilatory
motions; yet it granted counsel's requested postponement but 'for the last time.' Thus:
'ATTY. BAIZAS:
That is all. May I make that request, Your Honor, that it is simply that I have to be present at the meeting. I
wish to finish my cross examination on Atty. Ortigas but it is merely that the meeting is held for today at
10:00 o'clock and I would like to ask for a postponement to continue the cross examination.
COURT:
I will grant this for the last time. On motion of Atty. Baizas, the continuation of the hearing is postponed for
the last time to December 17, 1965, at 8:30 a.m., by agreement between him and Atty. Jalandoni.' (t.s.n.,
p. 17, November 24, 1965)
December 17, 1965 Although at the hearing of November 24, 1965 trial was postponed for the last time
to December 17, 1965, the Court's warning did not seem to register because on December 7, 1965
defendant's counsel filed another motion for postponement alleging that he had received a telegram to the
effect that the meeting of the Legal Committee of IATA that he was attending, originally scheduled for
December 10-15, had been deferred and would begin on December 13 and as it was for 5 days, it would
not be possible for him to return for the December 17 hearing; hence, he requested that said hearing be
reset for December 27 and 29. In his undated motion filed on December 7, 1965 counsel averred that:
'There is no intention whatever to delay the case but because of the circumstances above-stated,
undersigned counsel is constrained to ask, for the last time, for the cancellation of the hearing on
December 17 and for its resetting on such dates as may be convenient to this Honorable Court, preferably
December 27 and 29.' (RA - p. 41)
The undersigned opposed said motion and alleged:
'That this case has been pending since December 24, 1963, or almost two years now, and trial thereof has
been repeatedly suspended and/or postponed;
That at the hearing of November 24, 1965, this Honorable Court precisely postponed continuation of the
trial thereof for the last time to December 17, a date which was fixed by agreement of the parties;
That when counsel for defendant left, as alleged, on December 6, 1965 he did so with full knowledge of the
intransferable character of the trial set for December 17;
That defendant can well be represented by Atty. Baizas' associate, Atty. Alberto, who, as a matter of fact,
handled this case when trial started on June 11, 1965 and has been actively collaborating with Atty. Baizas
since then;
That when plaintiff testified on direct examination on June 11, 1965 said Atty. Alberto appeared for
defendant and that plaintiff is now merely due for further cross-examination.' (RA p. 43)
In spite of said opposition, the Trial Court once more granted defendant's request but was more categorical
this time with its admonition against further postponements and used the word 'definitely' in its order
which read:
'O R D E R
For the reasons stated in the defendant's motion for postponement and in view of the fact that it seeks a
deferment of the hearing for only a few days, the continuation of the trial is postponed definitely for the
last time to December 29, 1965, at 8:30 a.m.
'SO ORDERED
'Manila, Philippines, December 11, 1965.
JOSE L. MOYA
Judge'
(RA p. 46)
March 10, 1966 The hearing on this date lasted for only a few minutes, with the undersigned offering
the documentary evidence for the plaintiff. Thereupon, defendant's counsel again asked for postponement
so he could go over said evidence. Since he had no witnesses to present, the Court once more postponed
the trial to April 19, 1966 without any objection on the part of the undersigned.
April 19, 1966 The hearing for this day was cancelled upon motion of defendant's counsel (RA p. 49)
on his representation that defendant's witness Ivo Lazzari had arrived from Italy at midnight of April 18,
1966 and was not in a condition to take the witness stand. The Court again accommodatingly transferred
the hearing to the following day, April 20, 1966, although it had other cases scheduled for that date and
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the case at bar was not among them, just so Lazzari's trip would not be useless. The undersigned likewise
did not oppose the transfer of hearing." (Pp. 2-13 Brief, p. 132 Record.)
Defendant does not seriously deny these facts. Seemingly, the controversy between the parties revolves
around defendant's motion for postponement of the hearing set for September 28, 1966 which was denied
by the trial court. It is this denial that is the subject of the first above-quoted alleged errors assigned by
Lufthansa in its brief as defendant-appellant.
At the time this incident of postponement arose, plaintiff had already closed his evidence, and so it was the
turn of the defendant to prove its defenses. The starting date for this was April 19, 1966, but, upon motion
of defendant's counsel, it was deferred to the next day, April 20, 1966, on which date defendant's first
witness, Ivo Lazzari, took the witness stand. His testimony, however, was not finished in the morning and
afternoon of that day nor during the whole day of April 22, 1966. Atty. Rodegelio M. Jalandoni was still
cross-examining him when the hearing was continued "to the first available date in the calendar".
Eventually, the next continuation of the trial was set at first for July 5, 6 and 7, 1966, but upon motion of
plaintiff's counsel, it was reset for August 25, 1966, on which date, in spite of the presence of Lazzari who
came from Rome purposely for the trial together with another expected witness, Severino Caselli, and still
another witness, C.H. Dehio, who came from Hongkong, no trial could be held because of the absence of
the judge. Hence, another date, September 28, 1966 was fixed with notice to the parties received by them
respectively the month previous.
On September 24, 1966, defendant's counsel filed a motion for postponement thus:
"COMES NOW the defendant by undersigned counsel and to this Honorable Court respectfully states:
1
The above-entitled case is set for hearing on September 28, 1966 at 8:30 o'clock in the morning.
2
The witnesses who are scheduled to testify for the defendant at said hearing are to come from Rome, Italy;
3
Word has been received from the defendant that said witnesses will not be able to come for the hearing
aforementioned.
WHEREFORE, it is respectfully prayed that the hearing of this case scheduled for September 28 be
postponed to some other date most convenient to this Honorable Court, preferably on any of the following
dates: October 21, 17 November 3, 8, 9 or 11, 1966.
. . ." (Page 53, Record on Appeal, p. 29, Rec.)
On September 27, 1966, plaintiff's counsel filed the following opposition to the above motion:
"COMES NOW plaintiff, through undersigned counsel and, in opposition to defendant's urgent motion for
postponement, dated September 24, 1966, to this Honorable Court respectfully states:
That this case has been pending since December, 1963;
That defendant's aforesaid motion does not give any valid reason for postponing the hearing, since it does
not state why defendant's witnesses cannot come to Manila on the scheduled dates of continuation of trial;
That the convenience and motive of defendant and its witnesses in not exerting every effort to testify are
not the concern of the plaintiff, and more so of this Honorable Court, and that the speedy and proper
administration of justice dictates that the hearing proceed irrespective of defendant's obvious disregard of
the need thereof;
That defendant's attitude is aggravated by the fact that, being an airline company, it has all facilities to
have its employees available as witnesses at any time it desires.
WHEREFORE, it is respectfully prayed that defendant's aforesaid motion for postponement be denied.
. . ." (Pp. 55-56, id.)
In view of this opposition, on the same day, His Honor issued an order of denial:
"No reason whatsoever having been alleged or shown why the defendant's witnesses will not be able to
come from Rome to Manila on the day of the hearing, and this case having been pending since December,
1963, the motion for postponement is denied." (Pp. 56-57, id.)
On the day set for the hearing, September 28, 1966, Atty. Zaida Ruby S. Alberto appeared for defendant
and verbally moved for reconsideration of the foregoing order of denial. She argued that:
"Actually, it is not intended to delay the termination of this case. As a matter of fact, on August 15, 1966,
the date set for the hearing of this case, we were ready with the presentation of our evidence as our two
witnesses from Rome were here. But unfortunately, Your Honor was indisposed, so the hearing was
postponed to this date. I really do not know why our witnesses failed to come. However, I intend to make
an inquiry about the matter so that I could file the corresponding explanation for their failure to appear in
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Court today. May I, therefore, reiterate my motion for reconsideration, with the reservation that I be
allowed to file my explanation for the failure of these two witnesses coming from Rome to appear for
today's hearing." (Page 2, t.s.n., Sept. 28/66.)
But as counsel could not give the exact reason why defendant's witness scheduled to testify were absent,
the trial court denied the motion; ruling that "no ground has been alleged in support thereof". (p. 6, t.s.n.,
September 28, 1966.)
This order was immediately followed by a motion of plaintiff's counsel for the striking out of the entire
testimony of the witness, Ivo Lazzari, upon the ground that counsel had not yet finished his crossexamination of him and his absence was unexplained. No objection appears to have been made to such
motion, albeit counsel for defendant tried to point out that Atty. Jalandoni had already finished his crossexamination of the witness. After verifying from the records that such was not the case, His Honor issued
the following order:
"The witness Ivo Lazzari not having appeared at the hearing set for today, for which reason his crossexamination cannot be continued, on motion of the plaintiff's counsel, his testimony is striken from the
record, and this case is deemed submitted for decision on the evidence already presented." (Pp. 57-58,
Rec. on Ap., id.)
Thus the trial ended and parties were allowed to submit their respective memoranda.
On October 19, 1966, however, defendant's counsel filed the following motion for reconsideration:
"MOTION FOR RECONSIDERATION
COMES NOW defendant by undersigned counsel this Honorable Court moving for a reconsideration of the
orders dated September 27 and September 28, 1966, respectively, respectfully states:
1
On September 26, 1966 a motion for postponement of the hearing on September 28, 1966 was filed by
undersigned counsel for the reason that word had just been received from the defendant that the
witnesses who were scheduled to testify at the said hearing and who were to come from Rome, Italy, would
not be able to come to the Philippines for said hearing. This motion was denied in the order of September
27, 1966;
2
No reason could be stated in the aforesaid motion for postponement because at the time it was prepared,
counsel for defendant did not really know the specific reasons for the inability of said witnesses to come. A
simple telex message had been sent by the Far East Manager of the defendant company to defendant's
representatives in Manila advising the latter that the witnesses in question could not come. Copy of said
telex message is attached to and made part of this motion for reconsideration as Annex "1";
3
For this reason on September 28, 1966, when the case was called, counsel for the defendant reiterated the
motion for postponement and requested this Honorable Court for time to submit an explanation on the
failure of defendant's witnesses to come as a letter elaborating on the matter would surely follow the telex
message. This request was however denied by the Honorable Court and upon motion of plaintiff's counsel,
another order was issued striking out from the record the testimony of defendant's only witness so far, Ivo
Lazzari, whose cross-examination was to be continued that date, for the latter's failure to appear at the
hearing, and deeming the case submitted for decision;
4
It is alleged by opposing counsel that the witnesses did not come for the hearing of September 28, 1966
because it was inconvenient for them and for defendant. This accusation is absolutely without basis and
malicious;
5
If inconvenience were the only reason for the witnesses' failure to come, then they would not also have
come previously because it was just as inconvenient for them then. It will be recalled that Ivo Lazzari had
been here in April 1966 when he was presented on direct examination and partly on cross-examination. On
August 25, 1966, the case was also scheduled for hearing. All of defendant's witnesses came here from
Rome, Italy for said hearing. Even Mr. C.H. Dehio was also here to testify. Unfortunately, the Presiding
(Judge) of this Honorable Court was indisposed on that particular morning and so the hearing on said date
was cancelled. We mention this only to show that the failure of the witnesses to come for the hearing on
September 28 was not caused by mere inconvenience;
6
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Defendant had and had no intention to delay the proceedings whatsoever. The witnesses in question could
not come because of certain circumstances that rendered their coming over virtually impossible. Both
witnesses, Ivo Lazzari and Saverino Casilli are employees of defendant company at the Rome office. The
air traffic in Rome has been particularly heavy this season. Some of the personnel of the Lufthansa Rome
office were on leave and these two employees had to assume some of the duties of those employees who
were on leave, aside from performing their own regular duties. If they were to leave their posts to come for
the hearing on September 28, there would be grave disruption to the public service and for this reason
they were not able to come. These facts are contained in a letter dated September 29, 1966 written to
undersigned counsel by C. H. Dehio, IATA Agency Manager, Far East and Australasia, Lufthansa German Air
Lines, copy of which is attached to and made part of this motion for reconsideration as Annex '2'. The
envelope in which said letter contained is likewise attached to and made part of this motion as Annex '2-A';
7
Witness Ivo Lazzari had finished his testimony on direct examination and on September 28, 1966, opposing
counsel was to continue cross-examination of said witness. The other witness Saverino Casilli was to be
presented after Ivo Lazzari would have finished testifying. Both witnesses are material for the defense and
no other person could testify on the facts that are the subject of their testimony. The inability of said
witnesses to come for the hearing on September 28 was not due to any fault or neglect on the part of
defendant who in fact had exerted every effort to have them come, but because of the supervening
circumstances above-described, their coming over could not have been possible without seriously
disrupting public service;
8
There is no question that the granting or denial of a motion for postponement rests upon the sound
discretion of the court. We submit however that under the circumstances, the ends of justice would have
been better served by granting the motion on question. The reason for defendant's motion for
postponement is valid and meritorious, and the grant of a postponement based on such ground would not
have adversely affected the substantial rights of plaintiffs.
'Continuances and postponements of trial are part and parcel of our judicial system of justice, and where
no substantial rights are affected and the intention to delay is not manifest, it is sound judicial discretion to
allow them. (Rexwell vs. Canlas, No. L-16746, Dec. 30, 1961)
'There is even authority for the view that the right to a speedy trial is not violated by granting a
continuance on the ground of absence of material witnesses. (People vs. Romero, G.R. No. L-4517-20, May
25, 1953)
'The lower court erred in denying a motion for postponement filed by defense to await arrival of a material
witness." (People vs. Narsolis, et al. G.R. No. L-2764, March 24, 1950)
'A miscarriage of justice may result from the accidental or excusable absence of a material witness, where
presence can be secured by the grant of a reasonable continuance.' (Luna vs. Arcenas, 34 Phil. 80, 98-99)
8
Defendant has a valid and meritorious defense, and if given opportunity to present its side of the case, it
would certainly diminish, if not altogether disprove plaintiff's claim.
'. . . court litigations are primarily for the search of truth. . . . A trial by which both parties are given the
chance to adduce truth is the best way to find out such truth. A denial of this chance would be too
technical. The dispensation of justice and the vindication of grievances should not be barred by
technicalities.' (Ronquillo vs. Marasigan, L-11621, May 21, 1962; Santiago vs. Joaquin, L-15237, May 31,
1963, italics ours.)
'Judicial experience dictates that it is better that cases are tried on the merits even with a little delay than
that substantial rights of a party litigant be sacrificed on the altar of technicality.' (Uy vs. Demetillo, CAG.R. No. 32665-R, Jan. 14, 1964.)
9
An affidavit of merit by Clarita C. de la Riva, Manager, Rocha & Cua., Inc., General Sales Agents, Lufthansa
German Airlines is likewise attached to and made an integral part of this motion for reconsideration as
Annex "3";
10
The order dated September 27, denying defendant's motion for postponement and the order of September
28, 1966 striking off from the records the testimony on direct examination of the witness Ivo Lazzari and
holding the case submitted for decision on the evidence presented would unduly prejudice defendant's
stand, and would amount to a denial of due process to defendant.
365 | P a g e
'The paramount interests of justice demand such reasonable allowances as would prevent, without doing
an injustice to the opposing party, the loss by a litigant of his chance to duly present his side of the case
before the court. With a view of avoiding a possible miscarriage of justice, the exercise of the court's
discretion ought to lean, in a reasonable degree toward bringing about a presentation of evidence on both
sides. . . .' (Gerona vs. Calada, CA-G.R. No. 23955-R March 30, 1963, Tormes vs. Balzado, CA-G.R. No.
32019-R, April 17, 1964.)
WHEREFORE, it is respectfully prayed that the orders of the Honorable Court dated September 27, and
September 28, 1966, respectively, be reconsidered and set aside; that the testimony of defendant's
witness Ivo Lazzari be allowed to remain on record and that a date be set for the continuation of
defendant's evidence.
Manila, Philippines, October 19, 1966.
CRISPIN D. BAIZAS & ASSOCIATES
By: s/t/ Crispin D. Baizas
Counsel for the defendant
Suite 305 Shurdut Building
Intramuros, Manila.
VERIFICATION
I, CRISPIN D. BAIZAS, after having been sworn according to law, depose and say:
I am the counsel for the defendant in the above-entitled case;
I have prepared the foregoing motion for reconsideration and all the allegations contained therein are true
and correct of my own knowledge and to the best of my information and belief.
s/t/ CRISPIN D. BAIZAS
SUBSCRIBED AND SWORN TO BEFORE ME this 19th day of October, 1966 in the City of Manila, affiant
exhibiting to me his Res. Cert. No. A-5892423 issued on January 28, 1966 at Makati, Rizal.
s/
(Illegible) NOTARY PUBLIC
Until December 31, 1967
Doc. No. 1377
Page No. 77
Book No. III
Series of 1966."
(Pages 58-67, Record on Appeal, id.)
to which, plaintiff's counsel filed the following opposition:
"COMES NOW plaintiff, through undersigned-counsel, and, in opposition to defendant's motion for
reconsideration, dated October 19, 1966, to this Honorable Court respectfully states that:
1.
This is in effect the second motion for reconsideration that defendant has filed against the order of
September 27, 1966 denying its motion for postponement of the hearing of September 28. The first motion
for reconsideration was made in open court by Atty. Zaida S. Alberto and denied on the same date.
2.
Defendant now claims that it did not intend to delay the trial of this case and seeks to justify the
failure of its witnesses, Ivo Lazzari and Saverino Casilli, to appear on September 28 on the ground that:
'. . . The air traffic in Rome has been particularly heavy this season. Some of the personnel of the Lufthansa
Rome office were on leave and these two employees had to assume some of the duties of these
employees who were on leave, aside from performing their own regular duties. If they were to leave their
posts to come for the hearing on September 28, there would be grave disruption to the public service and
for this reason they were not able to come. . . .' (p. 3, Defendant's Motion for Reconsideration.)
3.
Note that the above alleged facts are contained in a mere letter that was written by a certain Mr.
C.H. Dehio, an employee of defendant in Hongkong, to its counsel on September 29, 1966, or one day after
the hearing of September 28, when presumably defendant's aforesaid employee had already been
informed that this Honorable Court had denied the postponement and considered this case as submitted
for decision. Defendant is an airline company and has all the telex facilities to communicate in a matter of
minutes with its various agencies. The ground for failure to appear, to wit, supposed pressure of work of
said employees, is as easier to conceive and gratuitously state as to flick one's fingers. We wish to call
attention to the significant fact that the statement of Mr. Dehio in his letter is not under oath. Incorporating
said statement in the body of the motion for reconsideration that is sworn to by counsel merely 'to the best
of his information and belief', or in an affidavit of Mrs. Clarita C. de la Riva (Annex 3) who was only
referring to hearsay information derived from Mr. Dehio's aforesaid letter, is insufficient verification of the
366 | P a g e
motion for reconsideration under Section 6, Rule 7 of the Rules of Court. Even Mr. Dehio had he executed
the affidavit himself, would have been disqualified to swear to the facts because he is stationed in
Hongkong. So that, when defendant's counsel and Mrs. de la Riva verified the motion on 'information and
belief' derived from Mr. Dehio's letter, their statements were hearsay thrice removed.
4.
But assuming said facts to be true, did this justify the failure of defendant's witnesses to appear at
the scheduled hearing or constitute a valid excuse for defendant's inability to present evidence" We
respectfully submit that they do not. The September 28 hearing was set as early as August 25, 1966, or
more than one (1) month previous, to suit the schedules not only of this Honorable Court but of the parties
as well. Surely, it was incumbent on defendant, if it has deference to this Honorable Court and our
administration of justice, to see to it that its witnesses, particularly Ivo Lazzari who was on the witness
stand and due for cross-examination, would be available, rather than granting leave to its other employees
and burdening the two needed witnesses with additional work. Defendant is not a neophyte in the airline
business. Assuming arguendo that it is true that the volume of air traffic in Europe was high in 'September
and early October', it should have foreseen the situation and taken appropriate measures to assure
compliance with its obligation to this Honorable Court. The witnesses are defendant's employees and
subject to its exclusive control. Instead, defendant allegedly rendered itself short handed by granting leave
to its other employees, and now comes to court with a lame excuse requesting that it be extricated from a
predicament that it has deliberately brought upon itself. For, the excuse that with the workload for Mr.
Lazzari and Mr. Casilli becoming heavier than usual 'it would seriously disrupt our service to the travelling
public if, during this time, they were to leave their jobs for several days' (Please see Mr. Dehio's letter,
Annex '2'), is lame, by any standard. The local newspapers are constantly carrying news articles of how
large and expanded is the Lufthansa as an airline outfit. Surely, of its hundred (if not thousands) of
available employees, two like Lazzari and Casilli could have been dispensed from their work temporarily to
defend the company against the just grievance asserted by an injured passenger before a court of justice.
At the most, defendant was after the promotion of its own interest in holding the two employees to their
jobs, and is not avoiding 'grave disruption to the public service' as counsel exaggerates Mr. Dehio's
expression 'seriously disrupt our service to the travelling public' two distinct ideas, the latter signifying
self-interest as distinguished from public necessity. This Honorable Court can take judicial notice that there
are many other airlines operating in the same areas as does Lufthansa and competing with it.
5.
As we explained at the September 28 hearing, the truth of the matter is that, contrary to the
unverified representations of defendant, the reason for the non-attendance of defendant's witnesses was
to avoid the inconvenience of coming to the Philippines to testify. In other words, after Ivo Lazzari and
Saverino Casilli were unable to testify last August 25, 1966, defendant thought of avoiding having said
witnesses come again to Manila. We say this because sometime on September 20, 1966, Atty. Leonardo P.
Valmonte (an assistant attorney of plaintiff who is helping in this case) had a telephone conversation with
defendant's counsel, Atty. Zaida S. Alberto in connection with the former's request for a copy of a certain
exhibit, and in the course of their conversation Atty. Alberto informed Atty. Valmonte that the trial
scheduled for September 28, 1966 would not proceed because they were intending 'to secure the
permission of the court to take the testimonies of their witnesses by way of deposition'. In short, even
before the receipt of the alleged telex (Annex "1" of Motion) by defendant's counsel on September 22,
1966, said counsel announcing that the trial could not proceed because they were going to resort to
depositions of their witnesses in Rome, rather than have said witnesses come to Manila. The decision to
take depositions having been made on or before September 20, it was an easy matter to have Lufthansa's
Hongkong office send the telex of September 22 stating that they would be unable to provide witnesses on
September 28. No reason was given why witnesses could not be provided 6 or 7 days thence. If in truth
there was unexpected increase in air traffic, surely 6 or 7 days were more than sufficient to make the
necessary arrangements so that the work of Lazzari and Casilli could be taken over temporarily just so
these witnesses could appear before this Honorable Court at the appointed date. Attached hereto as Annex
"A" is the affidavit of Atty. Leonardo P. Valmonte on his aforesaid conversation with Atty. Alberto.
6.
At the hearing on September 28, when we made reference to the above-referred to conversation
between Attys. Valmonte and Alberto, the latter did not deny that she had in truth spoken to Atty.
Valmonte in the tenor above related. As a matter of fact, she admitted that defendant was intending to
take the depositions of its witnesses in Rome.
7.
When this Honorable Court denied the motion for postponement on September 28, 1966, it did so in
the exercise of its sound judicial discretion, for no valid reason was given why the witnesses could not
appear, whereas this case had been pending for about three (3) years and had been postponed several
367 | P a g e
times with repeated warnings on defendant that said postponements were for the last time. And now, in its
motion for reconsideration, defendant has failed to effectively allege the ground for the failure of said
witnesses to come, and even if said ground be admitted as true for argument's sake, it merely showed
'inofficiousness, lack of resourcefulness and diligence, if not total indifference' on the part of defendant to
protect in court its interests and to prevent needless delays in the discharge of judicial business.
'Postponement not based on valid reasons. Where a party seeks postponement of the hearing of this
case for reasons caused by his own inofficiousness, lack of resourcefulness and diligence if not total
indifference to his own interests or to the interests of those he represents, thereby resulting in his failure to
present his own evidence, the court would not extend to him its mantle of protection. If it was he who
created the situation that brought about the resulting adverse consequences, he cannot plead for his day
in court nor claim that he was so denied of it.' (De Leon vs. People's Homesite and Housing Corporation,
CA-G.R. No. 31169-R, Aug. 31, 1963.)
8.
In the case of Hap Hong Hardware Co. vs. Philippine Company, G.R. No. L-16773 (May 23, 1961),
the Supreme Court, in sustaining the trial court's denial of a motion for postponement and on the ground
that the defendant's witnesses, officers of the company, had not come because it was the beginning of the
milling season in the municipality of San Jose, Mindoro Occidental and their presence in the Central was
very necessary, held that the trial court was perfectly justified in denying said motion for postponement
because the reason adduced was 'not unavoidable and one that could not have been foreseen.' Said the
Supreme Court:
'The reason adduced in support of the motion for postponement is not unavoidable and one that could not
have been foreseen. Defendant ought to have known long before the date of trial that the milling season
would start when the trial of the case would be held. The motion should have been presented long in
advance of the hearing, so that the court could have taken steps to postpone the trial without
inconvenience to the adverse party. As it is, however, the motion was presented on the day of the trial.
Knowing as it should have known that postponements lie in the court's discretion and there being no
apparent reason why the defendant could not have presented the motion earlier, thus avoiding
inconvenience to the adverse party, the appellant cannot claim that the trial court erred in denying
postponement. Under all the circumstances we hold that the court was perfectly justified in denying the
motion for postponement.'
In the case at bar, the same unjustified excuse is adduced that the witnesses, who are employees (not
even officers) of defendant, had work to do, albeit date of trial was set one month previous.
9.
The cases cited by defendant are not in point, the facts involved therein being very different from
those attending the case at bar. For example, in the cited case of Lino Luna vs. Arcenas, 34 Phil. 93, the
trial judge declined to grant a continuance of a few hours to give counsel an opportunity to secure the
presence of the defendant. The Supreme Court held that considering that it did not appear that defendant
was indulging in dilatory tactics, the denial of the motion for short postponement was improper. Again, in
the case of People vs. Romero, G.R. No. L-4517, May 25, 1953, the prosecution witnesses, although
subpoenaed, failed to appear; whereupon the fiscal asked that they be ordered arrested and that in the
meantime the trial be postponed. The Supreme Court likewise held that the denial of the postponement
was improper. These fact situations, however, as can immediately be seen are completely different from
that of Lufthansa whose non-presentation of its employees-witnesses was motivated by the desire to avoid
inconvenience to them, hence its frustrated plan to have their depositions taken in Rome.
10.
Complaints regarding delays in the disposition of court cases are prevalent and have recently found
expression not only in executive pronouncements but in judicial admonitions. The unclogging of court
dockets remains a pressing problem to the despair of litigants. As the Court of Appeals put it:
'The records reveals that the trial of the case was postponed five times at the instance of appellants
themselves, and for this reason the trial was delayed for more than one year and three months. In granting
these several postponements, the trial judge was over liberal already, and to have allowed another
postponement would have been to jeopardize plaintiff's interest. Obviously courts cannot unduly protect
the interests of one party to the detriment of the other. Already, there are complaints regarding delays in
the disposition of court cases. The unclogging of our court dockets still remains a pressing problem in the
despair of many a litigant. However to eliminate, at least minimize, these delays is as much our concern
and any act of trial courts conducive towards this purposeful end will be encouraged by appellate court's.'
(Rosario vs. De Leon, CA-G.R. No. 6495-R, April 25, 1941; 40 O.G. 752.)
11.
Prejudice will be occasioned plaintiff if defendant's belated motion for reconsideration is granted.
Notwithstanding defendant's counsel's receipt of Mr. Dehio's letter, dated September 25, 1966, a few days
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after said date, defendant delayed the filing of its motion for reconsideration until after about three (3)
weeks later. In the meantime, it knew as of September 28 that this Honorable Court had striken out the
testimony of Ivo Lazzari, considered the case submitted for decision on the evidence on record, and given
plaintiff's counsel 7 days to present his memorandum. Plaintiff and his counsel exerted all efforts and
worked overtime just so to be able to submit his memorandum within the short period allowed. Said
memorandum was finished on time, and has been served on defendant's counsel and submitted to Court.
In other words, defendant purposely waited until the submission of plaintiff's memorandum before
presenting its motion for reconsideration based on alleged information received three (3) weeks previous.
To grant defendant's instant motion for reconsideration would place plaintiff at a great disadvantage,
because defendant is now fully aware of every facet of plaintiff's cause and can simply tailor its defenses
and evidence in refutation thereof.
12.
Defendant claims that plaintiff is taking undue advantage of a technicality and it should not be
deprived of its day in court on this ground. Suffice it to state that it is never technical to invoke one's
rights, and that while the Rules of Court should be liberally construed, their strict observance has been
considered indispensable to the prevention of needless delays and the orderly and speedy discharge of
judicial business. Thus:
'Although the Rules of Court should he liberally construed, however their strict observance which have
been considered indispensable to the prevention of needless delays and to the orderly and speedy
discharge of judicial business, is as imperative necessity. Thus, the rules prescribing the time within which
certain act must be done, or certain proceedings taken, are considered absolutely indispensable to the
prevention of needless delays and to the orderly and speedy discharge of judicial business, is as
imperative necessity. Thus, the rules prescribing the time within which certain act must be done, or certain
proceedings taken, are considered absolutely indispensable to the prevention of needless delays and to
the orderly and speedy discharge of judicial business and therefore must be strictly complied with.' (Alvero
vs. De la Rosa, 76 Phil. 428, cited in Francisco on Civil Procedure, Vol. 1, p. 89)
'Rules of Courts, promulgated by authority of law, have the force and effect of law; and rules of court
prescribing the time within which certain acts must be done, or certain proceedings taken are considered
absolutely indispensable to the prevention of needless delays and to the orderly and speedy discharge of
judicial business.' Conlu vs. Court of Appeals, et al., G.R. No. L-14027, January 29, 1960, citing Shioji vs.
Harvey, 43 Phil. 333; Alvero vs. De la Rosa, et al., 42 Off. Gaz., p. 316, (Supra.)
WHEREFORE, it is respectfully prayed that defendant's motion for reconsideration, dated October 19, 1966,
be denied.
Manila, October 31, 1966." (Pages 74-88, Record on Appeal, id.)
By way of reply to the above opposition, defendant's counsel alleged:
"Defendant could have from the beginning taken depositions in Rome, but so as to avoid any
inconvenience to plaintiff and that the court may see and hear the witnesses testify to better determine
the credibility of their testimony defendant had been bringing the witnesses here. As a matter of fact,
defendant even without leave of court may take the depositions of its witnesses by merely giving the Court
notice of its intention to do so.
'After answer has been filed no leave of court is required as a prerequisite to taking depositions . . . (Marzo
vs. Moore McCormick Line, Inc. 8 Feb. Rules of Service, p. 560; cited in Moran Comments on Rules of Court
Vol. II, p. 18)
'After issue is joined, depositions may be taken without leave of court. (Lyons vs. Bronx Towing Line, Inc., 1
Fed. Service p. 341)
'After answer is served, depositions may be taken as of course and application should not be made to the
court for leave. (Schultz vs. State Mutual Life Assurance Company, 1 Fed. Rules of Service, p. 340, US Dist.
Ct. Dist. of Oregon, Oct. 14, 1938)
The statements made by Atty. Valmonte are false and malicious. An affidavit executed by Atty. Zaida Ruby
Alberto is attached to and made part of this Reply as Annex '1'." (Pages 92-93, Record on Appeal, id.)
On October 24, 1966, the trial court resolved the incident in a brief order holding that "(f)or the reasons
stated in the plaintiff's opposition to the motion for reconsideration, it is denied."
In its appeal, defendant reiterates insistently its position that the denial of its motion for postponement as
well as the order striking out the testimony of Ivo Lazzari were issued in grave abuse of discretion and
should be set aside. Before going any further, however, it may be mentioned that since defendant has not
assigned as error, although it discusses in its brief, the denial of its last motion for reconsideration, plaintiff
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contends that such failure constitutes a bar to any further consideration of the merits of the arguments of
defendant relative to the main denial-of-postponement and striking-out orders. To be sure, there is
technical plausibility in such pose of plaintiff, but considering the importance of the other matters involved
in this case, it would serve the interests of justice more if We passed on the merits of the substantial issues
in this controversy. After all, "this Court is clothed with ample authority to review matters, even if they are
not assigned as errors in the appeal, if it finds that their consideration is necessary in arriving at a just
decision of the case." (Saura Import & Export Co., Inc. vs. Philippine International Surety Co., Inc., L-15184,
May 31, 1963, 8 SCRA 143.) And considering the inter-relation between the omitted assignment of error
and those actually assigned and discussed by defendant's counsel, We can apply here the ruling in
Hernandez vs. Andal, 78 Phil. 196, to the effect that "an unassigned error closely related to an error
properly assigned or upon which the determination of the question raised by the error properly assigned is
dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error."
(at pp. 209-210.)
Now, with respect to defendant's first assignment of error, We feel that the rather extended recital We
have made above of the incidents and proceedings related to the trial court's order denying defendant's
motion for postponement of the hearing set for September 28, 1966 is self-revealing. It argues against the
charge that His Honor's order of denial was improper and unjustified.
The case had been pending for about three years and had actually suffered during that period even more
than the usually permissible number of continuances, quite often to suit the convenience of defendant's
counsel. Notice of the September 28, 1966 schedule had been served on counsel the month previous. It
must be assumed that due preparations and arrangements were to be made since the receipt of that
notice to insure the presence in Manila for the expected witnesses on the date set. Under the
circumstances, the excuse given by defendant that the witnesses could not leave their respective stations
and places of work to attend the trial is plainly unacceptable. There was enough time and opportunity for
defendant to have made the corresponding adjustments in the assignments of its personnel so as to
enable its witnesses to be in court. The trouble is that defendant relied on the assumption that the court
could be made to wait until the volume and other conditions of its business would permit it to comply with
the schedule of the court. For an airline company engaged in international transportation and presumably
having all the facilities to have any of its employees available practically anywhere in the world at a
moment's notice, if it only took due care to do this, defendant's attitude cannot be countenanced.
What is more, the motion of September 24, 1966 gave no reason at all why defendant's witnesses
supposed to come from Rome would be unable to be at the trial. Even as late as the day of the hearing,
September 28, 1966, the court could not be told the reason for such inability. All that counsel could say
was that she "intend(ed) to inquire and file the explanation" later. This was not as it should have been, for
the telex advising the Manila office that the witnesses would not be available was received on September
22nd yet, and certainly there was enough time to investigate and find out the reason for such
unavailability. And as no justifiable reason could be advanced in support of the verbal motion for
reconsideration. We cannot say that His Honor acted improperly when he denied the same.
We reiterate, the case had been pending for more than three years, with so many postponements, and the
least that defendant should have done to merit favorable action on the part of the trial judge was to be
ready with an explanation of its inability to proceed with the trial, giving the detailed and good reasons
therefor. As it is, there was actually no basis at all for the exercise of discretion on the part of the trial
judge in a manner favorable to it. Trials may be postponed because of the absence of evidence only when
such absence is justified. Mere absence is not a justification in itself. Section 4 of Rule 22 is sufficiently
clear on this point. It provides that "A motion to postpone a trial on the ground of absence of evidence can
be granted only upon affidavit showing the materiality of evidence expected to be obtained, and that due
diligence has been used to procure it." This means that it must be shown to the court that due diligence
had been exercised in either securing the presence of the evidence (witnesses) or preventing the absence
thereof.
There is, of course, defendant's motion for reconsideration of October 19, 1966 praying for the setting
aside of the court's order of denial as well as the other order striking out the testimony of witness Lazzari.
But, as already noted, the only excuse given in said motion is that:
". . . The witnesses in question could not come because of certain circumstances that rendered their
coming over virtually impossible. Both witnesses, Ivo Lazzari and Saverino Casilli are employees of
defendant company at the Rome office. The air traffic in Rome has been particularly heavy this season.
Some of the personnel of the Lufthansa Rome office were on leave and these two employees had to
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assume some of the duties of those employees who were on leave, aside from performing their own
regular duties. If they were to leave their posts to come for the hearing on September 28, there would be
grave disruption to the public service and for this reason they were not able to come. . . ." (Page 47, Rec.
on Ap., p. 32, Record.)
Indeed, even if such reason were given earlier on September 24, 1966 the court would have been as well
justified in denying the requested postponement. We cannot see any reason why, despite its having
knowledge of the date of the hearing about a month before, defendant did not see to it that its expected
witnesses were not assigned to do duty on the day they were supposed to appear in court. We cannot
believe Lufthansa could be so undermanned that such a simple adjustment of its personnel had to be
"impossible."
Moreover, the Rome based witnesses were not the only possible witnesses of defendant. To begin with, Mr.
C.H. Dehio, the IATA Agency Manager, Far East and Australasia, Lufthansa German Air Lines, who,
according to the record, had already attended previous hearings as a prospective witness could have been
made to go to court. There is nothing in the record to show that he was also rendered incapable of doing
so. Then there could still be local witnesses. it is no excuse that presenting other witnesses would have
disrupted the presentation of defendant's case, for parties may be allowed to maintain their own way of
presenting their evidence only where this can be done without injury to the expeditious disposition of the
case and the best interests of the administration of justice.
Coming now to the second assigned error regarding the striking out of the unfinished testimony of Lazarri,
the Court is also of the opinion and so holds that the trial court's action cannot be categorized as arbitrary
or oppressive or as amounting to a grave abuse of discretion. To be sure, this second order was but a
logical consequence of the previous order denying defendant's motion for postponement. With such denial,
the next thing in order was to declare the presentation of evidence of the defendant terminated.
Accordingly, it was necessary to determine what evidence could be considered to be for the defendant.
And so when counsel for plaintiff asked the court to strike out the testimony so far given by Lazarri, there
was practically no alternative for the court but to grant the same. Indeed, defendant's counsel could not
and did not offer any objection thereto.
Oral testimony may be taken into account only when it is complete, that is, if the witness has been wholly
cross-examined by the adverse party or the right to cross-examine is lost wholly or in part thru the fault of
such adverse party. But when cross-examination is not and cannot be done or completed due to causes
attributable to the party offering the witness, the uncompleted testimony is thereby rendered incompetent.
The right of a party to cross-examine the witnesses of his adversary is invaluable as it is inviolable in civil
cases, no less than the right of the accused in criminal cases. The express recognition of such right of the
accused in the Constitution does not render the right thereto of parties in civil cases less constitutionally
based, for it is an indispensable part of the due process guaranteed by the fundamental law. Subject to
appropriate supervision by the judge in order to avoid unnecessary delays on account of its being unduly
protracted and to needed injunctions protective of the right of the witness against self-incrimination and
oppressive and unwarranted harassment and embarrassment, a party is absolutely entitled to a full crossexamination as prescribed in Section 8 of Rule 132 thus: "Upon the termination of the direct examination,
the witness may be cross-examined by the adverse party as to any matters stated in the direct
examination, or connected therewith, with sufficient fullness and freedom to test his accuracy and
truthfulness and freedom from interest or bias, or the reverse, and to elicit all important facts bearing upon
the issue." Until such cross-examination has been finished, the testimony of the witness cannot be
considered as complete and may not, therefore, be allowed to form part of the evidence to be considered
by the court in deciding the case.
In the case at bar, however, We have opted not to rely exclusively on the foregoing considerations. In order
to satisfy Ourselves as to whether or not defendant stands to be irreparably prejudiced by the impugned
action of the trial court relative to the testimony of Lazzari, We have just the same gone over the transcript
thereof. After considering the same, however, We are of the impression that even his direct testimony,
without taking into account anymore his answers to the cross-examination questions of counsel for
plaintiff, cannot be of much weight in establishing the defenses in defendant's answer. But it would seem
more appropriate to elaborate on this point when We come to the discussion of the mutual accusation of
the parties that the trial court erred in the portion of its discretion awarding damages to plaintiff.
The last issue submitted for Our resolution relates to the award of damages made by the trial court in favor
of Ortigas against Lufthansa in the amounts aforestated, as to which, as already noted at the outset, both
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parties have appealed taking opposite positions. In this respect, the appealed decision made the following
findings and discussion of the material facts:
"In October, 1963, the Sharp Travel Service, the travel department of C. F. Sharp, Inc., the majority interest
in which is held by Rocha y Cia., Inc., General Agents of the defendant, Lufthansa German Airlines, issued
to the plaintiff First Class Pan American Ticket No. 026492 147076 to 81 which would take him from Manila,
the place of departure, to Hongkong, various cities in the United States, Europe, Asia, the Far East, and
then back to Manila, the place of destination. Ortigas' ticket for all these different legs of his journey was
first class.
He left Manila October 12, 1963, as scheduled. In New York, he decided to leave out some cities, included
in his original itinerary, to be in Hongkong on the 19th day of November, 1963, for several appointments
he had there. He went to the Trans World Airlines and had his Pan American ticket changed with First Class
TWA Ticket No. 115-460-451-878 to 881. His TWA ticket was also first class for the entire trip from New
York to several European cities, including Rome, and thence to the Far East, with Manila also as the place of
destination.
Ortigas arrived in due course in Rome. To be sure be could fly first class to Hongkong on November 18,
1963, for his appointments there the next day, Ortigas repaired to the office of the Alitalia on Saturday,
November 16, 1963, to book passage. The man at the counter of the Alitalia office told him it had no flight
on Monday but the Lufthansa had. The man thereupon called up the office of the Lufthansa and, after
talking to an employee thereof, told Ortigas that the Lufthansa had no first class, but only economy, seats
available on its Monday flight.
Ortigas answered that he was not willing to take an economy seat and requested the employee to call up
other airlines. Then the phone rang. The employee answered and afterwards informed Ortigas that the
Lufthansa had a first class seat available for its Monday flight. Ortigas immediately asked him to get the
seat and to see to it that his ticket be confirmed and validated for the flight and a first class seat. The man
thereafter asked for Ortigas' passport and other travel papers and attached a validating sticker (Exhibit 'D1') on flight coupon No. 4 (Exhibit 'B') which corresponded to the Rome-Hongkong leg of his TWA Ticket No.
115-460-451-878. The sticker recites:
Flight Res.
Carrier No.
Date Time Status
LH 646
18 Nov.
12:35 P.M.
O.K.
Wishing to be doubly sure, Ortigas again requested the Alitalia employee to call back the Lufthansa office
to recheck whether his ticket was really confirmed and validated. The man did so, after which he told
Ortigas that his ticket had been checked, validated, and confirmed as shown by the word 'O.K.' on the
sticker. The same employee later wrote on the cover of the plaintiff's ticket '10.15 Terminal - 36, via Gioliti'
(Exhibits 'C' and 'C-1') and told him to be in the air terminal on Monday, November 18, at 10:00 A.M.
The following Monday, Ortigas checked out of his hotel and took a taxi to the terminal, arriving there about
9:30 A.M. He unloaded his baggage and proceeded to the counter in charge of the Lufthansa passengers.
The lady at the counter told him the Lufthansa had no space for him that day. Ortigas requested her to
check with her main office, which she did by calling it up. After calling, she apologized and said the
plaintiff's ticket was in order and would be confirmed and validated. On her request, Ortigas had his
luggage weighed and was given the free luggage allowance of a first class passenger. He was furthermore
asked to pay 800 liras for bus fare and 700 liras as embarkation tax. Then Ortigas, along with other
passengers, one of whom was Amado Castro of the Development Bank of the Philippines, boarded a bus
for the airport.
At the airport, the plaintiff handed over his ticket to the man behind the Lufthansa counter, who told him
everything was all right. At that juncture, the plaintiff heard his name called. He inquired if he was being
called from an employee of the Lufthansa and, on receiving an affirmative answer, said he was Ortigas.
The employee asked for his passport and other papers and, after examining his passport, where his Filipino
nationality appears, said he could not board the plane that day because his seat would be given to a
Belgian. Ortigas asked the man why he was doing that to him when his ticket was confirmed and validated
first class. The Lufthansa employee replied he was sorry but Ortigas could not leave.
Fearing he would have a recurrence of his heart ailment, Ortigas took a nitroglycerin pill which his doctor
advised him to take on occasions of stress. The plaintiff then told the Lufthansa man to bring the Belgian
over so that his papers may be examined to determine whether he had a preferred right to Ortigas' seat
but the Lufthansa employee turned down the request, raised his voice, and said if the plaintiff desired, he
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could take an economy seat and he would be allowed a refund. Ortigas retorted he was not interested in a
refund and what he wanted was to travel first class in accordance with his ticket.
This argument occurred in the presence of the other passengers, one of whom was Amado Castro, and the
plaintiff felt embarrassed and humiliated because the Lufthansa employee was shouting at him and
treating him the way he did. Ortigas made another request, namely, that the employee call other airlines
to inquire if they had flights to Hongkong that day but he once more turned down the plea and insisted
that Ortigas travel economy, with the promise that he will be transferred to first class in Cairo and onward
to Hongkong.
After promising to, the man went inside a room and, after a while, came out and assured the plaintiff he
would travel first class from Cairo to Hongkong because he sent a communication that it should he done.
He then jotted down some letters on Ortigas' ticket. The plaintiff replied he was not satisfied with the
arrangement but was constrained to agree to it because he had to be in Hongkong the next day, his
luggage was in all probability already inside the plane, he was not certain he could still secure a hotel
reservation, the manager of the hotel where he shyed having told him it would be hard for him to get
another reservation once he checks out, and he was assured he would be given first class passage from
Cairo onward.
Upon arrival in Cairo, the plaintiff requested the Lufthansa agent to transfer him to first class but the agent
said he could not and that he did not receive any communication from Rome to that effect. Ortigas also
requested the man to find out if there were other airlines having planes leaving that day but his request
was likewise denied. The man, however, promised that at Dharham, Ortigas will be transferred to first
class. Ortigas had no alternative but to continue traveling as before but he did so again under protest.
At Dharham, the plaintiff once more requested a transfer to first class but was also told by the Lufthansa
agent that he had not received any communication about the change and the request could not be
granted. The plaintiff had to travel perforce economy from Dharham. In Calcutta, Ortigas once again
requested a transfer or that he be assisted in booking passage on other planes but was also refused. It was
only in Bangkok when the chief steward asked him if he wanted to move over to first class but having been
already embarrassed and humiliated and the trip to Hongkong being only three hours, he said he would
not as a sign of protest.
In Hongkong, Ortigas protested against the treatment given him but was told by the Lufthansa office he
had to file his protest in Manila, it being the point of destination. He did so by means of a letter, dated
November 25, 1963 (Exhibit "F"), followed by another letter, dated December 20, 1963 (Exhibit "C"), and
not having received any definite answer, he brought this suit.
Although Ortigas' ticket for the flight from Rome to Hongkong was validated and confirmed by the Alitalia,
its act bound and obligated the Lufthansa. The Alitalia and Lufthansa are members of the International Air
Transport Association (IATA). It is admitted that as such member, the Alitalia can issue tickets for other
members of the association like the Lufthansa, Pan American World Airways, and others. Par. 10, Order of
April 29, 1964, and Exhibit "H", certification of the manager of the Alitalia. Aside from being members of
the IATA, the Alitalia and Lufthansa are pool partners and conduct a joint service with interchangeable
flights for the European-Far East-and Australia sectors. Par. 11, Order of April 29, 1964. Under the pool
agreement (Exhibit "DD") they undertake to adhere to the appropriate IATA regulations and to take
measures to provide district sales offices with every possibility for close cooperation in the promotion of
the pool services covered by the agreement, including "reservation and booking". They furthermore, in
effect confirm in the agreement that tickets of one, other than free and reduced tickets, may be validated
by the other.
Finally, Manuel Otayza, general manager of Filital, Inc., which is the general agent of the Alitalia in the
Philippines, testified that space reservation through telephone calls between airlines is permitted by IATA's,
'Manual of Traffic Conference Resolutions' and that telephone calls for reservation by one airline to another
is in fact accepted procedure in accordance with the official airline guide of the Air Traffic Conference and
International Air Transport Association (Exhibit "W")
The placing by the Alitalia of a sticker on the plaintiff's ticket obligated the Lufthansa to give him a first
class seat on its flight from Rome to Hongkong on November 18, 1963. The same witness, Manuel Otayza,
testified that the placing of a validating sticker on a ticket is standard airline procedure; that a sticker
changes are status of a reservation; that consequently while Ortigas' ticket was "open", that is, it had no
reservation for a particular flight between Rome and Hongkong, the moment a validating sticker was
placed thereon, stating the flight number of the airline, the day and hour of departure, with the letters
"O.K", his ticket was changed from an "open" to a "confirmed" or "validated" ticket; and that the sticker on
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Ortigas' ticket meant that first class space was confirmed for him on Lufthansa flight 646 to Hongkong on
November 18, 1963, at 12:35 P.M.
Aside from Otayza's testimony, it is admitted that in the stipulation of facts that "the letters 'O.K.' (Exhibit
D-2) appearing on the 'Res. Status' box of the sticker (Exhibit D-1) attached to Flight Coupon No. 4 of TWA
Ticket No. 015-410: 451-880 (Exhibit "D") means space confirmed', per IATA Resolution 275, page 4, Issue
2, a photostatic copy of which is attached hereto as Exhibit 'O'; that validate' means to stamp or write on
the passenger ticket an indication that the passenger ticket has been officially issued by the carrier; that
"the placing of a sticker on a flight coupon is a revalidation thereof for the flight mentioned in said sticker
and is an alteration effected on said coupon, in accordance with the procedure laid down in IATA Resolution
275d, Page 1, Issue 1, a photostatic copy of which is attached thereto as Exhibit 'S'"; and that "prior
endorsement was not necessary for Alitalia to revalidate TWA Ticket No. 115-410-880 Exhibit "D") because
Alitalia is the carrier originally designated in the 'Via carrier' box of said ticket, in accordance with IATA
Resolution No. 279, photostatic copy of which is attached hereto as Exhibit 'T' ".
There was, therefore, a valid and binding contract between Lufthansa and the plaintiff to transport him as
a first class passenger from Rome to Hongkong on November 18, 1963, and this agreement the defendant
violated by compelling the plaintiff to travel as an economy passenger. It cannot be said the breach was
the result of an honest mistake or excusable negligence. There is evidence the defendant acted with bad
faith and in wilful disregard of the plaintiff's rights.
Ortigas' ticket was confirmed on the early morning of November 16, 1963, more than 43 hours before his
departure on the afternoon of November 18. There was, therefore, ample time to send a telex message
from Rome to the defendant's main office in Frankfurt, which is only about 2-1/2 flying hours away, to
reserve a first class seat for the plaintiff.
At the terminal on Via Gioliti, he was again told that he had a first class seat, his luggage was checked in
divesting him of control thereof, and transported to the airport some 37 kilometers distant. He was in this
manner deprived of the opportunity of availing himself of the facilities of other airlines and compelled to
take the Lufthansa flight even against his will.
In the airport, although he was found entitled to fly first class, he was told after his Filipino passport was
seen, that his seat would be given to a Belgian, without any reason or explanation whatsoever. His simple
request that the Belgian's ticket be produced and examined to see who had a better right to a first class
seat was turned down. So was his equally simple request that other airlines be called to find out if any of
them could accept him as a first class passenger to Hongkong that day. He was deceived into boarding the
Lufthansa plane at Rome by falsely assuring him he will be transferred to first class at Cairo, the next stop
in the flight. The same false and deceptive promise was given him at Dharham and Calcutta.
Indubitable proof of the defendant's bad faith is found in the fact that while its employee was assuring the
plaintiff be would be transferred to first class in Cairo, he was at the same time writing on his ticket the
following notation: 'TRVLDY/c ROME HEG ROME ST', which means 'Travelled economy class Rome to
Hongkong St', thereby barring Ortigas from asserting any right to demand first class accommodation. The
defendant's employee, therefore, knew all along the plaintiff would not travel first class, and yet he
deliberately made him believe he would be transferred to first class from Cairo to Hongkong.
From the circumstances, it is clear that the defendant not only breached its duty to the plaintiff but also did
not want to release him as a passenger and wished to hold on to him even if it would cause him
inconvenience and embarrassment." (Pages 97-109, Record on Appeal.)
Disputing the foregoing conclusions, Lufthansa claims firstly that the Alitalia employee who validated and
confirmed Ortigas' reservation must have made a mistake because actually, he was informed by the
Lufthansa Rome office that Ortigas could only be waitlisted. Assuming, however, there was such an error, it
has been indisputably proven that under the so-called pool arrangement among different airline companies
pursuant to the International Air Transport Association (IATA) agreement of which Alitalia and Lufthansa are
signatories, both companies are constituted thereby as agents of each other in the issuing of tickets and
other matters pertaining to their relations with those who would need their services, and since there can
be no question that on its face, the annotations made by Alitalia on the ticket here in dispute cannot have
any other meaning than that the reservation of Ortigas for the Rome Hongkong flight was validated and
confirmed, Lufthansa's disclaimer is unavailing. Besides, it appears that when Ortigas checked in at the
airport, the Lufthansa lady employee thereat told him, after making the proper verification, that the
reservation was correct. What is more, in the unconcluded testimony of Ivo Lazzari, the striking out of
which is questioned by Lufthansa, he admitted that it was a fact that the said reservation of plaintiff for
first class was confirmed, albeit he qualified that this was done already in the morning of November 18th,
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the day of the flight, almost at the last hour. What seems to have happened was that somehow the first
class accommodations for that flight were overboard and Lufthansa tried to solve the problem by
downgrading Ortigas to the economy class in favor of a Belgian, as Ortigas was told by the Lufthansa
employee who paged him over the public address system for the purpose just as he was about to go to the
departure area, with his luggage already checked and his overweight fees duly paid, so much so that they
were already loaded in the plane. Verily, such treatment given to plaintiff was completely wrong and
absolutely unjustifiable. Nobody, much less a common carrier who is under constant special obligation to
give utmost consideration to the convenience of its customers, may be permitted to relieve itself from any
difficulty situation created by its own lack of diligence in the conduct of its affairs in a manner prejudicial to
such customers. It is Our considered view that when it comes to contracts of common carriage, inattention
and lack of care on the part of the carrier resulting in the failure of the passenger to be accommodated in
the class contracted for amounts to bad faith or fraud which entitles the passenger to the award of moral
damages in accordance with Article 2220 of the Civil Code. But in the instant case, the breach appears to
be of graver nature, since the preference given to the Belgian passenger over plaintiff was done willfully
and in wanton disregard of plaintiff's rights and his dignity as a human being and as a Filipino, who may
not be discriminated against with impunity.
Lufthansa contends, however, that there could not have been any possible discrimination by reason of race
against Ortigas because from his appearance, said plaintiff can easily be taken for a European or white
more than his own witness Amado Castro and besides, there were other orientals in the same flight on that
occasion. It is argued that any such policy would be self-defeating, since it would certainly be damaging to
its own business. Again, this ratiocination cannot carry the day for Lufthansa, for what appears from the
evidence in this case is not really a case of a general policy of discriminating against orientals or nonwhites, but a specific act of Lufthansa's employee at the airport of giving preference to a Belgian after
examining Ortigas' passport wherein his Filipino nationality is noted. Indeed, the fact that despite plaintiff's
protestations and demand that he be shown how it could happen that somebody else, particularly that
Belgian, should be given his place when his reservation was validated and confirmed and actually, he had
already checked in and his luggage was already in the plane, nothing was done to satisfy him, merely
infused bad faith into the breach of contract already committed of depriving plaintiff of his reserved
accommodation. In other words, from the legal standpoint, such preference given to a European surely
aggravated the damage or injury suffered by plaintiff, but the very act alone of deliberately downgrading
him despite his confirmed reservation for first class accommodation is sufficient ground for relief. And
considering that there are already recorded cases in this Court wherein Filipinos have been similarly
discriminated against by foreign airline company employees in the treatment of passengers, this new
instance can easily be believed and correspondingly dealt with in fixing and assessing the liability of herein
defendant.
As found by the court below what worsened the situation of Ortigas was that Lufthansa succeeded in
keeping him as its passenger by assuring him that he would be given first class accommodation at Cairo,
the next station, the proper arrangements therefor having been made already, when in truth such was not
the case. Thus, instead of complying with the request of Ortigas that other airlines be contacted to find out
if they had first class space for him, the Lufthansa employee who had indifferently told him about his
downgrading paid very little attention if ever to said request. And to keep him from giving the business to
another company, he was made to believe that he would be given first class accommodation at Cairo.
Although molested and embarrassed to the point that he had to take nitroglycerine pills to ward off a
possible heart attack, Ortigas hardly had any choice, since his luggage was already in the plane. To his
disappointment, when the plane reached Cairo, he was told by the Lufthansa office there that no word at
all had been received from Rome and they had no space for him in first class. Worse, similar false
representations were made to him at Dharham and Calcutta. It was only at Bangkok where for the first
time, Ortigas was at last informed that he could have a first class seat in that leg of the flight, from
Bangkok to Hongkong. This Ortigas rejected, if only to make patent his displeasure and indignation at
being so inconsiderately treated in the earlier part of his journey.
Lufthansa insists in its brief that it could have proven that there was no such "entrapment of a captive
passenger" had it been allowed the postponement it sought of the September 28, 1966 hearing. It is
argued that there could have been no way by which its Rome office could have assured Ortigas about what
he would be given in Cairo, the flight being fully booked as it was without any assurance of any first class
seat being vacated by then. We are not impressed. In view of the insistence of plaintiff that he be given the
first class accommodation he had contracted and paid for, the least that the Rome office should have done
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was to communicate with Cairo and strongly urge that all possible effort be made to comply with his well
grounded request. As it happened, however, the Cairo office informed Ortigas when he arrived there that
they had not received any word at all from Rome. On the contrary, as pointed out by the trial court,
contrary to the verbal assurance given Ortigas, the Lufthansa employee made annotations on his ticket
that he was travelling economy class from Rome to Hongkong. If, as contended by Lufthansa, Ortigas was
duly advised to make arrangements for transfer to first class as soon as he arrived at each station on the
way, why was such notation made that he was travelling up to Hongkong in economy class? All these only
go to show that any evidence of defendant tending to disprove the testimony of Ortigas would in any event
have been inconclusive or unreliable.
Likewise, Lufthansa maintains that it could have proven that Ortigas did not take offense at being
downgraded, as in fact, according to Lufthansa, he was in jovial mood throughout the trip enjoying his
conversation and exchange of amenities with his seatmate, who by strange coincidence happened to be
the Manager of Lufthansa German Airlines for the district of Australia and New Zealand holding said
position since 1962. 1 Moreover, it is argued, the economy class accommodations are not much different
from first class and Ortigas was not delayed in his trip. We cannot see the point. A passenger contracts for
first class accommodations for many reasons peculiar to himself and pays a higher price therefor, and it is
certainly not for the airplane to say later, after it deprives him of his space in order to favor another
passenger, that economy class is anyway just as good as first class. That Ortigas was rightfully indignant is
not difficult to imagine. No person in his normal senses and possessed of human dignity would have been
unperturbed and unruffled by the treatment he had received. More, he was under express admonition of
his doctor taking care of his ailing coronary condition to travel only in first class. Indeed, that he
complained and made himself emphatically clear while still in Rome is sufficiently substantiated in the
record, as it was more or less admitted by defendant's witness Lazzari when he testified that he heard
about plaintiff's complaint that same day, November 18, 1963.
In the light of all the foregoing, there can be no doubt as to the right of Ortigas to damages, both moral
and exemplary. Precedents We have consistently adhered to so dictate. Beginning with Cuenca, 2 wherein
the Court rejected the theory that an air carrier is liable only in the event of death or injury suffered by a
passenger, because, according to the Court, to so hold would be tantamount to declaring the carrier
"exempt from any liability for damages in the event of its absolute refusal, in bad faith, to comply with a
contract of carriage, which is absurd", We have uniformly upheld the right of a passenger to damages in all
cases wherein, after having contracted and paid for first class accommodations duly confirmed and
validated, he is transferred over his objection to economy class, which he has to take in order to be able to
arrive at his destination on his scheduled time.
In the case of Nicolas L. Cuenca, then Commissioner of Public Highways of the Philippines, he boarded a
Northwest plane in Manila with a first class ticket to Tokyo, but upon arrival at Okinawa, an agent of the
company rudely compelled him, over his protest, to move over to the tourist class, which he had to do, so
he could reach the international conference he was attending on time. Under these facts, the Court held
that the P20,000 awarded by the lower court to Cuenca "may well be considered as nominal and also as
exemplary, the Court of Appeals having modified the trial court's designation thereof as moral, saying it
should have been nominal.
In Lopez 3 , Honorable Fernando Lopez, then an incumbent senator and former Vice President of the
Philippines, together with his wife and his daughter and son-in-law, made first class reservations with the
Pan American World Airways in its Tokyo-San Francisco flight. The reservation having been confirmed, first
class tickets were subsequently issued in their favor. Mistakenly, however, defendant's agent cancelled
said reservation, but expecting some cancellations before the flight scheduled about a month later, the
reservations supervisor decided to withhold the information from them, with the result that upon arrival in
Tokyo, the Lopezes discovered they had no first class accommodations and were thus compelled to take
the tourist class, just so the senator could be on time for his pressing engagements in the United States. In
the light of these facts, the Court held there was a breach of the contract of carriage and viewed as the
element of bad faith entitling the plaintiffs to moral damages for such contractual breach, the failure of the
agents of the defendant to inform the plaintiffs on time that their reservation for first class had long before
been cancelled by mistake. According to the Court, such omission placed plaintiffs in a predicament that
enabled the company to keep the plaintiffs as their passengers in the tourist class, thereby retaining the
business and promoting the company's self-interest at the expense of, embarrassment, discomfort and
humiliation on the part of the plaintiffs.
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In Air France vs. Carrascoso, 4 plaintiff Mr. Rafael Carrascoso, a civil engineer who was going to Lourdes,
France, as a member of a religious group of pilgrims was issued by the Philippine Air Lines, as agent of the
defendant Air France, a ticket for first class round trip from Manila to Rome. From Manila, Carrascoso
travelled first class, as per said ticket, but at Bangkok, the Manager of the defendant airline forced him to
vacate the first class seat because there was a white man who allegedly had a better right thereto,
without, however, showing him the basis for such preference. Upon these factual premises, the Court held:
"It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use the
term 'bad faith'. But can it be doubted that the recital of facts therein points to bad faith? The manager not
only prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed his arbitrary will;
he forcibly ejected him from his seat, made him suffer the humiliation of having to go to the tourist class
compartment just to give way to another passenger whose right thereto has not been established.
Certainly, this is bad faith. Unless, of course, bad faith has assumed a meaning different from what is
understood in law. For, 'bad faith' contemplates a 'state of mind affirmatively operating with furtive design
or with some motive of self-interest or ill will or for ulterior purpose.' (Words & Phrases, Perm. Ed., Vol. 5, p.
13, citing Warfield Natural Gas Co. vs. Allen, 59 S.W. (2d) 534, 538.)
And if the foregoing were not yet sufficient, there is the express finding of bad faith in the judgment of the
Court of First Instance, thus:
'The evidence shows that defendant violated its contract of transportation with plaintiff in bad faith, with
the aggravating circumstances that defendant's Manager in Bangkok went to the extent of threatening the
plaintiff in the presence of many passengers to have him thrown out of the airplane to give the 'first class'
seat that he was occupying to, again using the words of the witness Ernesto G. Cuento, a 'white man'
whom he (defendant's Manager) wished to accommodate, and the defendant has not proven that this
'white man' had any 'better right' to occupy the 'first class' seat that the plaintiff was occupying, duly paid
for, and for which the corresponding 'first class' ticket was issued by the defendant to him.' (R.A., p. 74;
emphasis supplied.) (at pp. 166-167.)
These precedents, as may be seen, apply four-square to herein plaintiff's case. Defendant's liability for
willful and wanton breach of its contract of carriage with plaintiff is, therefore, indubitable.
Coming now to the amount that should be awarded by way of damages to the plaintiff, it is also the
teaching of the cases aforecited that defendant is liable not only for moral but also for exemplary
damages. As earlier stated, the court below fixed the compensation for moral damages at P100,000 and
the exemplary at P30,000. The Court believes that these amounts are not enough.
According to the lower court:
"Although the plaintiff has not held any elective public office, he has however, a distinguished record as a
private citizen, a lawyer, businessman, a civic and religious leader, a member of numerous government
boards and organizations as well as of local and international bodies, and is the recipient of awards and
citations for outstanding services and achievements.
He was, and still is, moreover suffering from a heart ailment and has been advised by his physician to
travel first class because it is more relaxing and comfortable. His position as chairman of the boards of
directors of the corporation he represented also required that he travel in that manner. He was,
furthermore, carrying a special passport issued by the Philippine Government to represent it and business
corporations abroad.
His sickness and the need for him to travel in the most comfortable manner possible were made known to
the defendant's employee, but he paid no heed to them. Instead, he engaged Ortigas in a heated
discussion, summarily brushed off his protests and pleas, humiliated him, and tricked him into boarding his
employer's plane, endangering thereby his health and obliging him to take medicine to forestall an attack.
There is, finally, evidence that he was discriminated against because of his nationality, for he was told to
yield his first class seat to a Belgian only after his passport was examined and his Filipino citizenship must
have been noted.
"Under the circumstances and measured by the criterion jurisprudence has followed, the compensation the
plaintiff should be entitled to receive must be fixed at P100,000.00 as moral damages, P30,000.00 as
exemplary damages or corrective damages, and P20,000.00 as attorney's fees." (Pp. 111-113, Record on
Appeal.)
We have reviewed the evidence and We are convinced there is more than ample basis for these findings.
But under the circumstances revealed in the record, it is Our considered opinion that the award of moral
damages should be increased to P150,000.
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We cannot go along with defendant's pose that in Cuenca the amount awarded was only P20,000, for the
very obvious reason that in that case what was involved was only one leg of the flight contracted for,
namely, that from Okinawa to Tokyo, whereas in the case not at bar, the offense was repeated four times,
at Rome, Cairo, Dharham and Calcutta, with apparent cold indifference of defendant's agents to plaintiff's
plight. Besides, it appears that Cuenca did not appeal from the trial court's decision fixing said amount,
hence there was no occasion for the Supreme Court to award more. This was also what happened in the
Carrascoso case, where the plaintiff did not complain against the award of only P25,000-moral-andP10,000-exemplary damages made by the trial court. It was Air France who claimed that these were even
excessive. Verily, however, such discriminatory acts of the defendants in those cases which were not only
violative of their contractual obligations but also offensive to human dignity and national or racial pride
constitute about the most justifiable ground for the award of moral damages, for the resulting injury
therefrom cannot but cause immense mental anguish, besmirched reputation, wounded feelings, moral
shock and social humiliation. (See Article 2217 of the Civil Code.) We reiterate, they are to be considered
as infecting with bad faith the breach of contract committed, under Article 2220 of the same Code. (Lopez
vs. Pan Am., supra.)
Lufthansa suggests that compared to the P100,000 awarded to Vice President Lopez in the case
aforementioned, the P100,000 given by the trial court to Ortigas are "grossly excessive". It does not
appear to Us to be so. As pointed out by His Honor, "although plaintiff has not held any elective public
office, he has, however, a distinguished record as a private citizen, a lawyer, businessman, a civic and
religious leader, a member of numerous boards and organizations as well as local and international bodies,
and is the recipient of awards and citations for outstanding services and achievements." Indeed, under the
proven facts in the record, We cannot regard plaintiff to be in any inferior position vis-a-vis Vice President
Lopez in the highest circles of Philippine society and in the business and religious world, not to speak of his
standing in government officialdom.
Besides, there is again the disparity between the Lopez case and this one that here the offense, which, as
in Cuenca, is aggravated by the Lufthansa employee at Rome having falsely noted on the ticket that
Ortigas was travelling in economy from Rome to Hongkong, 5 was repeated four times in the same trip,
namely, in Rome, Cairo, Dharham and Calcutta. More importantly, unlike in the case of Lopez, Ortigas was
suffering from a weak heart and was under doctor's advice to travel only in first class, hence, his being
compelled to stay in economy or tourist class during the major part of his trip, must have given him added
apprehensive feelings about his safety. And, moreover, it is to be noted that in the Lopez case, which was
decided in 1966, aside from taking into account the personal circumstances of the plaintiff, the Court
considered "the present rate of exchange and the terms at which the amount of damages awarded would
approximately be in U.S. dollars", hence, We may not justifiably do differently here.
Furthermore, it may not be amiss to mention here that in Zulueta vs. Pan American World Airways, Inc., 43
SCRA 397, the Court awarded the plaintiffs: Zulueta, the husband, his wife and a minor daughter, a total of
P775,000 as damages, consisting of P500,000 as moral, P200,000 as exemplary and P75,000 as attorney's
fees, apart from actual damages. In that case, the Zulueta's were coming home to Manila from Honolulu in
a Pan-American plane. At Wake, however, where the plane arrived at 4:00 o'clock in the morning, Zulueta
could not be found at flight time because, without letting anyone know, not even his wife or daughter, he
had relieved himself, according to him, at the beach behind the terminal. When at last, he was found, the
Pan-Am employee who first met him while walking back from the beach remonstrated him thus: "What in
the hell do you think you are? Get on that plane." This angered Zulueta who engaged the said employee in
an exchange of angry words. In the meanwhile, the pilot who had been tipped by a "man from the State
Department", also a passenger in that flight, that there might be a bomb in the plane and expressed
apprehension for the safety of the flight unless Zulueta could be found, ordered the unloading of the bags
of the Zuluetas, and when three of the four of them had already been unloaded, he ordered Zulueta to
open them, but the latter refused. Another exchange of angry words followed, in the course of which,
according to Zulueta's evidence, the pilot went to the extent of referring to him and his family as "those
monkeys" Ultimately, the plane left without Zulueta, albeit his wife and daughter were on board, because
the captain refused to allow Zulueta to board until after his bags were opened and inspected, which
Zulueta refused entirely to do. Although, said decision is not yet final, because of the pendency of a
second motion for reconsideration the Court has not yet resolved, the Court has already allowed the partial
execution of the judgment, thus enabling Zuluetas to collect already one-half of the amount or over
P335,000, which amount, according to the concurring and dissenting opinion there of the writer of the
instant decision could be the least that should anyway be allowed. Of course, the Court did not itemize the
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award but granted the same to the family as a whole, but it is evident that in the final distribution, Zulueta
would get for himself from at least P150,000 to not more than P200,000. 6
We hold that the foregoing considerations justify the increase of the award of moral damages from
P100.000 to P150,000.
Finally, We have the dispute regarding the amount of exemplary damages awarded. In this respect, it is
Our considered opinion that defendant should pay P100,000 instead of the P30,000 awarded by the trial
court. The record of this case taken together with what are revealed in the other similar cases decided by
this Court, those aforediscussed, convinces Us that defendant, as an airline, should be made to pay an
amount that can really serve as a deterrent against a seeming pattern of indifference and unconcern, and
what is worse, of discrimination for racial reasons, discernible in the treatment of air passengers. This is
not the first case, and unless the proper sanctions are applied, it does not appear it is going to be the last
yet, of instances wherein Filipino passengers having validated and confirmed tickets for first class would be
shoved to the economy class, over their valid objections and without any regard at all to their feelings and
convenience, only to favor other passengers presumed by the airlines to be of superior race, hence,
deserving preference. It is high time everyone concerned were made to realize that the laws of the
Philippines do not permit any act of discrimination against its citizens, specially when this accompanies a
clear breach of contractual obligations of common carriers whose business is affected with public interest
and must be directed to serve the convenience and comfort of the passengers. When any disregard of
such laws is committed, the Supreme Court, as the interpreter of such laws, must exact the commensurate
liability which they contemplate.
"Exemplary damages are required by public policy, for wanton acts must be repressed. They are an
antidote so that the poison of wickedness may not run through the body politic." (Report of Code
Commission, pp. 75-76) by authority of the decided cases aforediscussed, 7 acts of similar nature as those
herein involved fall within the category of those justifying the imposition of exemplary damages pursuant
to the codal concept just stated.
"The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or
correction for public good. . . . In view of its nature, it should be imposed in such an amount as to
sufficiently and effectively deter similar breach of contracts by defendant or other airlines." (Lopez v. PanAmerican World Airways, supra; see also Rotea vs. Halili, 109 Phil. 495; People vs. Medroso, Jr., G.R. No. L37633, Jan. 31, 1975, 62 SCRA 245; Cotabato Timberland Co. Inc. vs. Plaridel Lumber Co., Inc., 13 SCRA
235) Thus, all relevant matters considered, P100,000 of exemplary damages, which practically amounts
only to not more than $15,000 U.S. under the present rate of exchange, would serve the ends for which
the liability has been conceived.
WHEREFORE, the judgment appealed from is modified by raising the award of moral and exemplary
damages to plaintiff Ortigas to P150,000.00 and P100,000.00, respectively. In all other respects, including
as to the payment of interests on the said amounts, the same is affirmed.
Fernando (Chairman), Antonio, Aquino and Concepcion, Jr., JJ., concur.
Footnotes
1.
Annexed as Appendix 1 to the Reply Brief of Defendant Appellant is the affidavit of Max Albert
Springweiler, who defendant claims is its newly discovered evidence.
2.
Northwest Airlines Inc. vs. Cuenca, 14 SCRA 1063.
3.
Fernando Lopez, et al. vs. Pan American World Airways, 16 SCRA 431.
4.
18 SCRA 155.
5.
In Cuenca, supra, his ticket was marked, without his knowledge as W/L or wait-listed despite it had
been confirmed. (at p. 1066).
6.
the concurring and dissenting opinion of this writer was relative to the resolution denying the first
motion for reconsideration. It disputes the right of Zulueta to moral damages for breach of contract in bad
faith but recognizes his right to moral damages because of the inconsiderate and insulting manner he was
treated by the employees of Pan-Am a quasi delict. Said opinion has already been released but it has not
yet been published in SCRA.
7.
Cuenca, Carrascoso and Lopez, supra.
PAL v. Milano, 242 SCRA 235
SECOND DIVISION
[G.R. No. 106664. March 8, 1995.]
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PHILIPPINE AIR LINES, petitioner, vs. FLORANTE A. MIANO, respondent.

Siguion Reyna, Montecillo & Ongsiako for petitioner.
Florante A. Miano in his own behalf.
SYLLABUS
1.
CIVIL LAW; DAMAGES; MORAL DAMAGES; "BAD FAITH" MUST BE SUBSTANTIATED BY EVIDENCE;
APPLICATION IN CASE OF CONTRACT OF CARRIAGE. Bad faith means a breach of a known duty through
some motive of interest or ill will (Lopez, et al. vs. Pan American World Airways, No. L-22415, March 30,
1996, 16 SCRA 431). Bad faith must be substantiated by evidence. In LBC vs. Court of Appeals, (G.R. No.
108670, September 21, 1994), this Court ruled: "Bad faith under the law cannot be presumed; it must be
established by clear and convincing evidence. Again, the unbroken jurisprudence is that in breach of
contract cases where the defendant is not shown to have acted fraudulently or in bad faith, liability for
damages is limited to the natural and probable consequences of the breach of the obligation which the
parties had foreseen or could reasonably have foreseen. The damages, however, will not include liability
for moral damages."
2.
ID.; ID.; WHEN AVAILABLE; RULE; NOT APPLICABLE IN CASE AT BAR. In breach of contract of
carriage by air, moral damages are awarded only if the defendant acted fraudulently or in bad faith (Civil
Code, Article 220). The established facts evince that petitioner's late delivery of the baggage for eleven
(11) days was not motivated by ill will or bad faith. In fact, it immediately coordinated with its Central
Baggage Services to trace private respondent's suitcase and succeeded in finding it. At the hearing,
petitioner's Manager for Administration of Airport Services Department Miguel Ebio testified that their
records disclosed that Manila, the originating station, did not receive any tracer telex. A tracer telex, an
airline lingo, is an action of any station that the airlines operate from whom a passenger may complain or
have not received his baggage upon his arrival. It was reasonable to presume that the handling of the
baggage was normal and regular. Upon inquiry from their Frankfurt Station, it was however discovered that
the interline tag of private respondent's baggage was accidentally taken off. According to Mr. Ebio, it was
customary for destination stations to hold a tagless baggage until properly identified. The tracer telex,
which contained information on the baggage, is matched with the tagless luggage for identification.
Without the tracer telex, the color and the type of baggage are used as basis for the matching. Thus, the
delay.
3.
ID.; ID.; EXEMPLARY DAMAGES; PREREQUISITES IN AWARDING THEREOF. The prerequisite for the
award of exemplary damages in cases of contract or quasi-contract (Civil Code, Article 2232) is that the
defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner. (Albenson Enterprises
Corp. vs. Court of Appeals, G.R. No. 88694, January 11, 1993, 217 SCRA 16) The undisputed facts do not so
warrant the characterization of the action of petitioner.
4.
ID.; ID.; ATTORNEY'S FEES; CANNOT BE RECOVERED AS PART OF DAMAGES; REASON THEREFOR.
The award of attorney's fees must also be disallowed for lack of legal leg to stand on. The fact that private
respondent was compelled to litigate and incur expenses to protect and enforce his claim did not justify
the award of attorney's fees. The general rule is that attorney's fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to litigate (Firestone Tire &
Rubber Company of the Philippines vs. Ines Chaves, No. L-17106, October 19, 1966, 18 SCRA 356).
Petitioner is willing to pay the just claim of $200.00 as a result of the delay in the transportation of the
luggage in accord with the Warsaw Convention. Needless to say, the award of attorney's fees must be
deleted where the award of moral and exemplary damages are eliminated.
DECISION
PUNO, J p:
The petitioner questions the Decision of the Regional Trial Court of Makati, Branch 148, dated July 29,
1992, 1 awarding private respondent moral and exemplary damages and attorney's fees for want of legal
justification. We grant the petition. LLpr
The facts are uncontroverted.
On August 31, 1988, private respondent took petitioner's flight PR 722, Mabuhay Class, bound for
Frankfurt, Germany. He had an immediate onward connecting flight via Lufthansa flight LH 1452 to Vienna,
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Austria. At the Ninoy Aquino International Airport, he checked-in one brown suitcase weighing twenty (20)
kilograms 2 but did not declare a higher valuation. He claimed that his suitcase contained money,
documents, one Nikkon camera with zoom lens, suits, sweaters, shirts, pants, shoes, and other
accessories. 3
Upon private respondent's arrival at Vienna via Lufthansa flight LH 1452, his checked-in baggage was
missing. He reported the matter to the Lufthansa authorities. After three (3) hours of waiting in vain, he
proceeded to Piestany, Czechoslovakia. Eleven (11) days after or on September 11, 1988, his suitcase was
delivered to him in his hotel in Piestany, Czechoslovakia. He claimed that because of the delay in the
delivery of his suitcase, he was forced to borrow money to buy some clothes, to pay $200.00 for the
transportation of his baggage from Vienna to Piestany, and lost his Nikkon camera. 4
In November 1988, private respondent wrote to petitioner a letter demanding: (1) P10,000.00 cost of
allegedly lost Nikkon camera; (2) $200.00 for alleged cost of transporting luggage from Vienna to Piestany;
and (3) P100,000.00 as damages. In its reply, petitioner informed private respondent that his letter was
forwarded to its legal department for investigation.
Private respondent felt his demand letter was left unheeded. He instituted an action for Damages docketed
as Civil Case No. 89-3496 before the Regional Trial Court of Makati.
Petitioner contested the complaint. It disclaimed any liability on the ground that there was neither a report
of mishandled baggage on flight PR 722 nor a tracer telex received from its Vienna Station. It, however,
contented that if at all liable its obligation is limited by the Warsaw Convention rate.
Petitioner filed a Third-Party Complaint against Lufthansa German Airlines imputing the mishandling of
private respondent's baggage, but was dismissed for its failure to prosecute. cdll
In its decision, the trial court observed that petitioner's actuation was not attended by bad faith.
Nevertheless, it awarded private respondent damages and attorney's fees, the dispositive portion of which
reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff (private respondent) and against the
defendant (petitioner), thereby ordering the latter to pay the following:
(a)
U.S. $200.00 as cost of transporting the suitcase from Vienna to Czechoslovakia;
(b)
(c)
P20,000.00 as exemplary damages; and
(d)
P15,000.00 as attorney's fees.
SO ORDERED." 5
Hence, this petition for review.
In breach of contract of carriage by air, moral damages are awarded only if the defendant acted
fraudulently or in bad faith. 6 Bad faith means a breach of a known duty through some motive of interest
or ill will. 7
The trial court erred in awarding moral damages to private respondent. The established facts evince that
petitioner's late delivery of the baggage for eleven (11) days was not motivated by ill will or bad faith. In
fact, it immediately coordinated with its Central Baggage Services to trace private respondent's suitcase
and succeeded in finding it. At the hearing, petitioner's Manager for Administration of Airport Services
Department Miguel Ebio testified that their records disclosed that Manila, the originating station, did not
receive any tracer telex. 8 A tracer telex, an airline lingo, is an action of any station that the airlines
operate from whom a passenger may complain or have not received his baggage upon his arrival. 9 It was
reasonable to presume that the handling of the baggage was normal and regular. Upon inquiry from their
Frankfurt Station, it was however discovered that the interline tag of private respondent's baggage was
accidentally taken off. According to Mr. Ebio, it was customary for destination stations to hold a tagless
baggage until properly identified. The tracer telex, which contained information on the baggage, is
matched with the tagless luggage for identification. Without the tracer telex, the color and the type of
baggage are used as basis for the matching. Thus, the delay.
Worthy to stress, the trial court made an unequivocal conclusion that petitioner did not act in bad faith or
with malice, viz:
xxx
xxx
xxx
"Absent a finding as to the bad intention of defendant (petitioner) PAL, this court finds it appropriate to
apply the Warsaw Convention with respect to the liability of Air Carriers." 10
xxx
xxx
xxx
"The mere fact that defendant (petitioner) exerted effort to assist plaintiff (private respondent) in his
predicament as shown in defendant's (petitioner's) letter to plaintiff (private respondent) (Exh. "E") and
381 | P a g e
likewise the letter from Mr. Miguel Ebio, Manager-Airport Services Administration of defendant (petitioner)
PAL to its Senior Counsel-Litigation, Atty. Marceliano Calica (Exh. "3") which reveals the fact that an
investigation was conducted as to mishandled baggage, coupled with the fact that said information were
then relayed to plaintiff (private respondent) as evidenced by a letter of defendant (petitioner) to plaintiff
(private respondent) (Exh. "4") does not warrant a showing of malice on the part of defendant (petitioner)."
11
xxx
xxx
xxx
"Under the circumstances obtaining, considering that defendant's (petitioner's) actuation was not
attendant with bad faith, the award of moral damages in the amount of P40,000.00 is but just and fair." 12
Bad faith must be substantiated by evidence. In LBC vs. Court of Appeals, 13 we ruled:
"Bad faith under the law cannot be presumed; it must be established by clear and convincing evidence.
Again, the unbroken jurisprudence is that in breach of contract cases where the defendant is not shown to
have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the breach of the obligation which the parties had foreseen or could reasonably have
foreseen. The damages, however, will not include liability for moral damages." (Citations omitted)
We can neither sustain the award of exemplary damages. The prerequisite for the award of exemplary
damages in cases of contract or quasi-contract 14 is that the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner. 15 The undisputed facts do not so warrant the
characterization of the action of petitioner.
The award of attorney's fees must also be disallowed for lack of legal leg to stand on. The fact that private
respondent was compelled to litigate and incur expenses to protect and enforce his claim did not justify
the award of attorney's fees. The general rule is that attorney's fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to litigate. 16 Petitioner is
willing to pay the just claim of $200.00 as a result of the delay in the transportation of the luggage in
accord with the Warsaw Convention. Needless to say, the award of attorney's fees must be deleted where
the award of moral and exemplary damages are eliminated. cdphil
IN VIEW WHEREOF, the assailed Decision of July 29, 1992 is MODIFIED deleting the award of moral and
exemplary damages and attorney's fees. No costs.
SO ORDERED.
Narvasa, C.J., Bidin, Regalado and Mendoza, JJ., concur.
Footnotes
1.
Honorable Oscar B. Pimentel, Presiding Judge.
2.
RTC Decision, p. 3; Rollo, p. 23.
3.
Id., p. 21.
4.
Id.
5.
Id., p. 28.
6.
Civil Code, Article 2220.
7.
Lopez, et al. vs. Pan American World Airways, No. L-22415, March 30, 1966, 16 SCRA 431.
8.
Rollo, p. 23.
9.
Id.
10.
Id., p. 27.
11.
Id., p. 28.
12.
Id.
13.
G.R. No. 108670, September 21, 1994.
14.
Civil Code, Article 2232.
15.
Albenson Enterprises Corp. vs. Court of Appeals, G.R. No. 88694, January 11, 1993, 217 SCRA 16.
16.
Firestone Tire & Rubber Company of the Philippines vs. Ines Chaves, No. L-17106, October 19, 1966,
18 SCRA 356.
4.
Exemplary
Arts. 2229, 2232, 2233

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public
good, in addition to the moral, temperate, liquidated or compensatory damages.
382 | P a g e
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Art. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or
not they should be adjudicated.
Mecenas v. Court of Appeals, 180 SCRA 83

THIRD DIVISION
[G.R. No. 88052. December 14, 1989.]
JOSE P. MECENAS, ROMEO P. MECENAS, LILIA P. MECENAS, ORLANDO P. MECENAS, VIOLETA M.
ACERVO, LUZVIMINDA P. MECENAS; and OFELIA M. JAVIER, petitioners, vs. HON. COURT OF
APPEALS, CAPT. ROGER SANTISTEBAN and NEGROS NAVIGATION CO., INC., respondents.
Benito P. Favie and Jose Dario Magno for petitioners.
Hernandez, Velicaria, Vibar & Santiago for private respondents.
DECISION
FELICIANO, J p:
At 6:20 o'clock in the morning of 22 April 1980, the M/T "Tacloban City," a barge-type oil tanker of
Philippine registry, with a gross tonnage of 1,241.68 tons, owned by the Philippine National Oil Company
(PNOC) and operated by the PNOC Shipping and Transport Corporation (PNOC Shipping), having unloaded
its cargo of petroleum products, left Amlan, Negros Occidental, and headed towards Bataan. At about 1:00
o'clock in the afternoon of that same day, the M/V "Don Juan," an inter-island vessel, also of Philippine
registry, of 2,391.31 tons gross weight, owned and operated by the Negros Navigation Co., Inc. (Negros
Navigation) left Manila bound for Bacolod with seven hundred fifty (750) passengers listed in its manifest,
and a complete set of officers and crew members. LLjur
On the evening of that same day, 22 April 1980, at about 10:30 o'clock, the "Tacloban City" and the "Don
Juan" collided at the Talbas Strait near Maestra de Ocampo Island in the vicinity of the island of Mindoro.
When the collision occurred, the sea was calm, the weather fair and visibility good. As a result of this
collision, the M/V "Don Juan" sank and hundreds of its passengers perished. Among the ill-fated passengers
were the parents of petitioners, the spouses Perfecto Mecenas and Sofia Mecenas, whose bodies were
never found despite intensive search by petitioners. LLjur
On 29 December 1980, petitioners filed a complaint in the then Court of First Instance of Quezon City,
docketed as Civil Case No. Q-31525, against private respondents Negros Navigation and Capt. Roger
Santisteban, the captain of the "Don Juan" without, however, impleading either PNOC or PNOC Shipping. In
their complaint, petitioners alleged that they were the seven (7) surviving legitimate children of Perfecto
Mecenas and Sofia Mecenas and that the latter spouses perished in the collision which had resulted from
the negligence of Negros Navigation and Capt. Santisteban. Petitioners prayed for actual damages of not
less than P100,000.00 as well as moral and exemplary damages in such amount as the Court may deem
reasonable to award to them. Cdpr
Another complaint, docketed as Civil Case No. Q-33932, was filed in the same court by Lilia Ciocon
claiming damages against Negros Navigation, PNOC and PNOC Shipping for the death of her husband
Manuel Ciocon, another of the luckless passengers of the "Don Juan." Manuel Ciocon's body, too, was
never found.
The two (2) cases were consolidated and heard jointly by the Regional Trial Court of Quezon City, Branch
82. On 17 July 1986, after trial, the trial court rendered a decision, the dispositive part of which read as
follows:
"WHEREFORE, the Court hereby renders judgment ordering:
a)
The defendant Negros Navigation Co., Inc. and Capt. Roger Santisteban jointly and severally liable
to pay plaintiffs in Civil Case No. Q-31525, the sum of P400,000.00 for the death of plaintiffs' parents,
Perfecto A. Mecenas and Sofia P. Mecenas; to pay said plaintiffs the sum of P15,000.00 as and for
attorney's fees; plus costs of the suit.
383 | P a g e
b)
Each of the defendants Negros Navigation Co, Inc. and Philippine National Oil Company/PNOC
Shipping and Transportation Company, to pay the plaintiff in Civil Case No. Q-33932, the sum of
P100,000.00 for the death of Manuel Ciocon, to pay said plaintiff jointly and severally, the sum of
P15,000.00 as and for attorney's fees, plus costs of the suit." 1
Negros Navigation, Capt. Santisteban, PNOC and PNOC Shipping appealed the trial court's decision to the
Court of Appeals. Later, PNOC and PNOC Shipping withdrew their appeal citing a compromise agreement
reached by them with Negros Navigation; the Court of Appeals granted the motion by a resolution dated 5
September 1988, subject to the reservation made by Lilia Ciocon that she could not be bound by the
compromise agreement and would enforce the award granted her by the trial court.
In time, the Court of Appeals rendered a decision dated 26 January 1989 which decreed the following:
"WHEREFORE, in view of the foregoing, the decision of the court a quo is hereby affirmed as modified with
respect to Civil Case No. 31525, wherein defendant appellant Negros Navigation Co. Inc. and Capt. Roger
Santisteban are held jointly and severally liable to pay the plaintiffs the amount of P100,000.00 as actual
and compensatory damages and P15,000.00 as attorney's fees and the cost of the suit." 2
The issue to be resolved in this Petition for Review is whether or not the Court of Appeals had erred in
reducing the amount of the damages awarded by the trial court to the petitioners from P400,000.00 to
P100,000.00.
We note that the trial court had granted petitioners the sum of P400,000.00" for the death of [their
parents]" plus P15,000.00 as attorney's fees, while the Court of Appeals awarded them P100,000.00 "as
actual and compensatory damages" and P15,000.00 as attorney's fees. To determine whether such
reduction of the damages awarded was proper, we must first determine whether petitioners were entitled
to an award of damages other than actual or compensatory damages, that is, whether they were entitled
to award of moral and exemplary damages. prcd
We begin by noting that both the trial court and the Court of Appeals considered the action (Civil Case No.
Q-31525) brought by the sons and daughters of the deceased Mecenas spouses against Negros Navigation
as based on quasi-delict. We believed that action is more appropriately regarded as grounded on contract,
the contract of carriage between the Mecenas spouses as regular passengers who paid for their boat
tickets and Negros Navigation; the surviving children while not themselves passengers are in effect suing
the carrier in representation of their deceased parents. 3 Thus, the suit (Civil Case No. Q-33932) filed by
the widow Lilia Ciocon was correctly treated by the trial and appellate courts as based on contract (vis-avis Negros Navigation) and as well on quasi-delict (vis-a-vis PNOC and PNOC Shipping). In an action based
upon a breach of the contract of carriage, the carrier under our civil law is liable for the death of
passengers arising from the negligence or wilful act of the carrier's employees although such employees
may have acted beyond the scope of their authority or even in violation of the instructions of the carrier, 4
which liability may include liability for moral damages. 5 It follows that petitioners would be entitled to
moral damages so long as the collision with the "Tacloban City" and the sinking of the "Don Juan" were
caused or attended by negligence on the part of private respondents. LLpr
In respect of the petitioners' claim for exemplary damages, it is only necessary to refer to Article 2232 of
the Civil Code:
"Article 2332. In contracts and quasi-contracts, the court may award exemplary damages if the defendant
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner." 6
Thus, whether petitioners are entitled to exemplary damages as claimed must depend upon whether or not
private respondents acted recklessly, that is, with gross negligence.
We turn, therefore, to a consideration of whether or not Negros Navigation and Capt. Santisteban were
grossly negligent during the events which culminated in the collision with "Tacloban City" and the sinking
of the "Don Juan" and the resulting heavy loss of lives.
The then Commandant of the Philippine Coast Guard, Commodore B.C. Ochoco, in a decision dated 2
March 1981, held that the "Tacloban City" was "primarily and solely [sic] at fault and responsible for the
collision." 7 Initially, the Minister of National Defense upheld the decision of Commodore Ochoco. 8 On
Motion for Reconsideration, however, the Minister of National Defense reversed himself and held that both
vessels had been at fault:
"It is therefore evident from a close and thorough review of the evidence that fault is imputable to both
vessels for the collision. Accordingly, the decision dated March 12, 1982, subject of the Motion for
Reconsideration filed by counsel of M/T Tacloban City, is hereby reversed. However, the administrative
penalties imposed on both vessels and their respective crew concerned are hereby affirmed." 9
384 | P a g e
The trial court, after a review of the evidence submitted during the trial, arrived at the same conclusion
that the Minister of National Defense had reached that both the "Tacloban City" and the "Don Juan" were at
fault in the collision. The trial court summarized the testimony and evidence of PNOC and PNOC Shipping
as well as of Negros Navigation in the following terms:
"Defendant PNOC's version of the incident:
"M/V Don Juan was first sighted at about 5 or 6 miles from Tacloban City (TSN, January 21, 1985, p. 13); it
was on the starboard (right) side of Tacloban City. This was a visual contact; not picked up by radar (p. 15,
ibid). Tacloban City was travelling 310 degrees with a speed of 6 knots, estimated speed of Don Juan of 16
knots (TSN, May 9, pp. 5-6). As Don Juan approached, Tacloban City gave a leeway of 10 degrees to the
left. 'The purpose was to enable Tacloban to see the direction of Don Juan (p. 19, ibid). Don Juan switched
to green light, signifying that it will pass Tacloban City's right side; it will be a starboard to starboard
passing (p. 21, ibid).' Tacloban City's purpose in giving a leeway of 10 degrees at this point, is to give Don
Juan more space for her passage (p. 22, ibid). This was increased by Tacloban City to an additional 15
degrees towards the left (p. 22, ibid). The way was clear and Don Juan has not changed its course (TSN,
May 9, 1985, p. 39).
"When Tacloban City altered its course the second time, from 300 degrees to 285 degrees, Don Juan was
about 4.5 miles away (TSN, May 9, 1985, p. 7).
"Despite executing a hardport maneuver, the collision nonetheless occurred. Don Juan rammed the
Tacloban City near the starboard bow (p. 7, ibid)."
NENACO's [Negros Navigation] version.
"Don Juan first sighted Tacloban City 4 miles away, as shown by radar (p. 13, May 24, 1983). Tacloban City
showed its red and green lights twice; it proceeded to, and will cross, the path of Don Juan. Tacloban was
on the left side of Don Juan (TSN, April 20, 1983, p. 4).
"Upon seeing Tacloban's red and green lights, Don Juan executed hard starboard (TSN, p. 4, ibid.) This
maneuver is in conformity with the rule that 'when both vessels are head on or nearly head on, each vessel
must turn to the right in order to avoid each other.' (p. 5, ibid). Nonetheless, Tacloban appeared to be
heading towards Don Juan (p. 6, ibid).
"When Don Juan executed hard starboard, Tacloban was about 1,500 feet away (TSN, May 24, 1983, p. 6).
Don Juan, after execution of hard starboard, will move forward 200 meters before the vessel will respond to
such maneuver (p. 7, ibid). The speed of Don Juan at that time was 17 knots; Tacloban City 6.3 knots.
"Between 9 to 15 seconds from execution of hard starboard, collision occurred (p. 8, ibid). (pp. 3-4
Decision)." 10
The trial court concluded:
"M/V Don Juan and Tacloban City became aware of each other's presence in the area by visual contact at a
distance of something like 6 miles from each other. They were fully aware that if they continued on their
course, they will meet head on. Don Juan steered to the right; Tacloban City continued its course to the left.
There can be no excuse for them not to realize that, with such maneuvers, they will collide. They executed
maneuvers inadequate, and too late, to avoid collision.
"The Court is of the considered view that the defendants are equally negligent and are liable for damages.
(p. 4, decision). 11
The Court of Appeals, for its part, reached the same conclusion. 12
There is, therefore, no question that the "Don Juan" was at least as negligent as the M/T "Tacloban City" in
the events leading up to the collision and the sinking of the "Don Juan." The remaining question is whether
the negligence on the part of the "Don Juan" reached that level of recklessness or gross negligence that
our Civil Code requires for the imposition of exemplary damages. Our own review of the record in the case
at bar requires us to answer this in the affirmative. LibLex
In the first place, the report of the Philippine Coast Guard Commandant (Exhibit "10"), while holding the
"Tacloban City" as "primarily and solely [sic] at fault and responsible for the collision," did itself set out that
there had been fault or negligence on the part of Capt. Santisteban and his officers and crew before the
collision and immediately after contact of the two (2) vessels. The decision of Commodore Ochoco said:
"xxx
xxx
xxx
MS Don Juan's Master, Capt. Rogelio Santisteban, was playing mahjong before and up to the time of
collision. Moreover, after the collision, he failed to institute appropriate measures to delay the sinking of
MS Don Juan and to supervise properly the execution of his order of abandonship. As regards the officer on
watch, Senior 3rd Mate Rogelio Devera, he admitted that he failed or did not call or inform Capt.
Santisteban of the imminent danger of collision and of the actual collision itself . Also, he failed to assist his
385 | P a g e
master to prevent the fast sinking of the ship. The record also indicates that Auxiliary Chief Mate Antonio
Labordo displayed laxity in maintaining order among the passengers after the collision.
xxx
xxx
xxx." 13
We believe that the behaviour of the captain of the "Don Juan" in this instance playing mahjong "before
and up to the time of collision" constitutes behaviour that is simply unacceptable on the part of the
master of a vessel to whose hands the lives and welfare of at least seven hundred fifty (750) passengers
had been entrusted. Whether or not Capt. Santisteban was "off-duty" or "on-duty" at or around the time of
actual collision is quite immaterial; there is, both realistically speaking and in contemplation of law, no
such thing as "off-duty" hours for the master of a vessel at sea that is a common carrier upon whom the
law imposes the duty of extraordinary diligence
"[t]he duty 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. 14
The record does not show that was the first or only time that Capt. Santisteban had entertained himself
during a voyage by playing mahjong with his officers and passengers; Negros Navigation in permitting, or
in failing to discover and correct such behaviour, must be deemed grossly negligent.
Capt. Santisteban was also faulted in the Philippine Coast Guard decision for failing after the collision, "to
institute appropriate measures to delay the sinking of M/V Don Juan." This appears to us to be a
euphemism for failure to maintain the seaworthiness or the water-tight integrity of the "Don Juan." The
record shows that the "Don Juan" sank within ten (10) to fifteen (15) minutes after initial contact with the
"Tacloban City." 15 While the failure of Capt. Santisteban to supervise his officers and crew in the process
of abandoning the ship and his failure to avail of measures to prevent the too rapid sinking of his vessel
after collision, did not cause the collision by themselves, such failures doubtless contributed materially to
the consequent loss of life and, moreover, were indicative of the kind and level of diligence exercised by
Capt. Santisteban in respect of his vessel and his officers and men prior to actual contact between the two
(2) vessels. The officer-on-watch in the "Don Juan" admitted that he had failed to inform Capt. Santisteban
not only of the "imminent danger of collision" but even of "the actual collision itself ."
There is also evidence that the "Don Juan" was carrying more passengers than she had been certified as
allowed to carry. The Certificate of Inspection, 16 dated 27 August 1979, issued by the Philippine Coast
Guard Commander at Iloilo City, the Don Juan's home port, states:
Passengers allowed :
810
Total Persons Allowed:
864
The report of the Philippine Coast Guard (Exhibit "10") stated that the "Don Juan" had been "officially
cleared with 878 passengers on-board when she sailed from the port of Manila on April 22, 1980 at about
1:00 p.m." This head-count of the passengers "did not include the 126 crew members, children below three
(3) years old and two (2) half-paying passengers" which had been counted as one adult passenger. 17
Thus, the total number of persons on board the "Don Juan" on that ill-starred night of 22 April 1980 was
1,004, or 140 persons more than the maximum number that could be safely carried by the "Don Juan," per
its own Certificate of Inspection. 18 We note in addition, that only 750 passengers had been listed in its
manifest for its final voyage; in other words, at least 128 passengers on board had not even been entered
into the "Don Juan's" manifest. The "Don Juan's" Certificate of Inspection showed that she carried life boat
and life raft accommodations for only 864 persons, the maximum number of persons she was permitted to
carry; in other words, she did not carry enough boats and life rafts for all the persons actually on board
that tragic night of 22 April 1980.
We hold that under these circumstances, a presumption of gross negligence on the part of the vessel (her
officers and crew) and of its shipowner arises; this presumption was never rebutted by Negros Navigation.
The grossness of the negligence of the "Don Juan" is underscored when one considers the foregoing
circumstances in the context of the following facts: Firstly, the "Don Juan" was more than twice as fast as
the "Tacloban City." The "Don Juan's" top speed was 17 knots; while that of the "Tacloban City" was 6.3.
knots. 19 Secondly, the "Don Juan" carried the full complement of officers and crew members specified for
a passenger vessel of her class. Thirdly, the "Don Juan" was equipped with radar which was functioning
that night. Fourthly, the "Don Juan's" officer on-watch had sighted the "Tacloban City" on his radar screen
while the latter was still four (4) nautical miles away. Visual confirmation of radar contact was established
by the "Don Juan" while the "Tacloban City" was still 2.7 miles away. 20 In the total set of circumstances
which existed in the instant case, the "Don Juan," had it taken seriously its duty of extraordinary diligence,
could have easily avoided the collision with the "Tacloban City." Indeed, the "Don Juan" might well have
avoided the collision even if it had exercised ordinary diligence merely.
386 | P a g e
It is true that the "Tacloban City" failed to follow Rule 18 of the International Rules of the Road which
requires two (2) power-driven vessels meeting end on or nearly end on each to alter her course to
starboard (right) so that each vessel may pass on the port side (left) of the other. 21 The "Tacloban City,"
when the two (2) vessels were only three-tenths (0.3) of a mile apart, turned (for the second time) 15x to
port side while the "Don Juan" veered hard to starboard. This circumstance, while it may have made the
collision immediately inevitable, cannot, however, be viewed in isolation from the rest of the factual
circumstances obtaining before and up to the collision. In any case, Rule 18 like all other International
Rules of the Road, are not to be obeyed and construed without regard to all the circumstances surrounding
a particular encounter between two (2) vessels. 22 In ordinary circumstances, a vessel discharges her duty
to another by a faithful and literal observance of the Rules of Navigation, 23 and she cannot be held at
fault for so doing even though a different course would have prevented the collision. This rule, however, is
not to be applied where it is apparent, as in the instant case, that her captain was guilty of negligence or of
a want of seamanship in not perceiving the necessity for, or in so acting as to create such necessity for, a
departure from the rule and acting accordingly. 24 In other words, "route observance" of the International
Rules of the Road will not relieve a vessel from responsibility if the collision could have been avoided by
proper care and skill on her part or even by a departure from the rules. 25
In the petition at bar, the "Don Juan" having sighted the "Tacloban City" when it was still a long way off was
negligent in failing to take early preventive action and in allowing the two (2) vessels to come to such close
quarters as to render the collision inevitable when there was no necessity for passing so near to the
"Tacloban City" as to create that hazard or inevitability, for the "Don Juan" could choose its own distance.
26 It is noteworthy that the "Tacloban City," upon turning hard to port shortly before the moment of
collision, signaled its intention to do so by giving two (2) short blasts with its horn. 26A The "Don Juan"
gave no answering horn blast to signal its own intention and proceeded to turn hard to starboard. 26B
We conclude that Capt. Santisteban and Negros Navigation are properly held liable for gross negligence in
connection with the collision of the "Don Juan" and "Tacloban City" and the sinking of the "Don Juan"
leading to the death of hundreds of passengers. We find no necessity for passing upon the degree of
negligence or culpability properly attributable to PNOC and PNOC Shipping or the master of the "Tacloban
City," since they were never impleaded here.
It will be recalled that the trial court had rendered a lump sum of P400,000.00 to petitioners for the death
of their parents in the "Don Juan" tragedy. Clearly, the trial court should have included a breakdown of the
lump sum award into its component parts: compensatory damages, moral damages and exemplary
damages. On appeal, the Court of Appeals could have and should have itself broken down the lump sum
award of the trial court into its constituent parts; perhaps, it did, in its own mind. In any case, the Court of
Appeals apparently relying upon Manchester Development Corporation v. Court of Appeals 27 reduced the
P400,000.00 lump sum award into a P100,000.00 for actual and compensatory damages only.
We believe that the Court of Appeals erred in doing so. It is true that the petitioners' complaint before the
trial court had in the body indicated that the petitioner-plaintiffs believed that moral damages in the
amount of at least P1,400,000.00 were properly due to them (not P12,000,000.00 as the Court of Appeals
erroneously stated) as well as exemplary damages in the sum of P100,000.00 and that in the prayer of
their complaint, they did not specify the amount of moral and exemplary damages sought from the trial
court. We do not believe, however, that the Manchester doctrine, which has been modified and clarified in
subsequent decision by the Court in Sun Insurance Office, Ltd. (SIOL), et al. v. Asuncion, et al. 28 can be
applied in the instant case so as to work a striking out of that portion of the trial court's award which could
be deemed notionally to constitute an award of moral and exemplary damages. Manchester was
promulgated by the Court on 7 May 1987. Circular No. 7 of this Court, which embodied the doctrine in
Manchester, is dated 24 March 1988. Upon the other hand, the complaint in the case at bar was filed on 29
December 1980, that is, long before either Manchester or Circular No. 7 of 24 March 1988 emerged. The
decision of the trial court was itself promulgated on 17 July 1986, again, before Manchester and Circular
No. 7 were promulgated. We do not believe that Manchester should have been applied retroactively to this
case where a decision on the merits had already been rendered by the trial court, even though such
decision was then under appeal and had not yet reached finality. There is no indication at all that
petitioners here sought simply to evade payment of the court's filing fees or to mislead the court in the
assessment of the filing fees. In any event, we apply Manchester as clarified and amplified by Sun
Insurance Office Ltd. (SIOL), by holding that the petitioners shall pay the additional filing fee that is
properly payable given the award specified below, and that such additional filing fee shall constitute a lien
upon the judgment.
387 | P a g e
We consider, finally, the amount of damages compensatory, moral and exemplary properly imposable
upon private respondents in this case. The original award of the trial court of P400,000.00 could well have
been disaggregated by the trial court and the Court of Appeals in the following manner:
(1)
actual or compensatory damages proved in the course of trial consisting of actual expenses
incurred by petitioners in their search for their parents' bodies
P126,000.00
(2)
actual or compensatory damages in case of wrongful death (P30,000.00 x 2)
P 60,000.00
29
(3)
moral damages
P107,000.00
(4)
exemplary damages
P107,000.00
Total
P400,000.00
Considering that petitioners, legitimate children of the deceased spouses Mecenas, are seven (7) in
number and that they lost both father and mother in one fell blow of fate, and considering the pain and
anxiety they doubtless experienced while searching for their parents among the survivors and the corpses
recovered from the sea or washed ashore, we believe that an additional amount of P200,000.00 for moral
damages, making a total of P307,000.00 as moral damages, would be quite reasonable.
Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially
deleterious in its consequence by creating negative incentives or deterrents against such behaviour. In
requiring compliance with the standard of extraordinary diligence, a standard which is in fact that of the
highest possible degree of diligence, from common carriers and in creating a presumption of negligence
against them, the law seeks to compel them to control their employees, to tame their reckless instincts
and to force them to take adequate care of human beings and their property. The Court will take judicial
notice of the dreadful regularity with which grievous maritime disasters occur in our waters with massive
loss of life. The bulk of our population is too poor to afford domestic air transportation. So it is that
notwithstanding the frequent sinking of passenger vessels in our waters, crowds of people continue to
travel by sea. This Court is prepared to use the instruments given to it by the law for securing the ends of
law and public policy. One of those instruments is the institution of exemplary damages; one of those ends,
of special importance in an archipelagic state like the Philippines, is the safe and reliable carriage of people
and goods by sea. Considering the foregoing, we believe that an additional award in the amount of
P200,000.00 as exemplary damages, making a total award of P307,000.00 as exemplary damages, is quite
modest.
The Court is aware that petitioners here merely asked for the restoration of the P400,000.00 award of the
trial court. We underscore once more, however, the firmly settled doctrine that this Court may consider
and resolve all issues which must be decided in order to render substantial justice to the parties, including
issues not explicitly raised by the party affected. In the case at bar, as in Kapalaran Bus Line v. Coronado,
et al., 30 both the demands of substantial justice and the imperious requirements of public policy compel
us to the conclusion that the trial court's implicit award of moral and exemplary damages was erroneously
deleted and must be restored and augmented and brought more nearly to the level required by public
policy and substantial justice.
WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED and the Decision of the Court of
Appeals insofar as it reduced the amount of damages awarded to petitioners to P100,000.00 is hereby
REVERSED and SET ASIDE. The award granted by the trial court is hereby RESTORED and AUGMENTED as
follows:
(a)
P126,000.00 for actual damages;
(b)
P60,000.00 as compensatory damages for wrongful death;
(c)
(d)
P307,000.00 as exemplary damages making a total of P800,000.00; and
(e)
P15,000.00 as attorney's fees.
Petitioners shall pay the additional filing fees properly due and payable in view of the award here made,
which fees shall be computed by the Clerk of Court of the trial court, and shall constitute a lien upon the
judgment here awarded. Costs against private respondents.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Corts, JJ., concur.
388 | P a g e
Footnotes
1.
Rollo, p. 60.
2.
Rollo, p. 40.
3.
See e.g. Necesito v. Paras, 104 Phil. 84 (1985); Batangas Transportation Co. v. Caguimbal, et al., 22
SCRA 171 (1968); and Davila v. Philippine Airlines, 49 SCRA 497 (1973).
4.
5.
6.
See, e.g., Marchan v. Mendoza, 26 SCRA 731 (1961); italics supplied.
7.
BMI Case No. 415-80; Exhibit "10," Folder of Exhibits.
8.
See Decision, dated 12 March 1982, of the Minister of National Defense; Exhibit "11," Folder of
Exhibits; italics supplied.
9.
Exhibit "13," Folder of Exhibits; italics supplied.
10.
Court of Appeals' Decision; Rollo, pp. 33-34.
11.
Regional Trial Court's Decision; Rollo p. 59; italics supplied.
12.
Decision, C.A.-G.R. CV No. 13802, p. 8; Rollo p. 38.
13.
Exhibit "E," Folder of Exhibits; italics supplied.
14.
Article 1755, Civil Code; italics supplied.
15.
Decision, dated 24 July 1984, Minister of National Defense; Exhibit "13." There, the M/T Tacloban
City urged, that the Don Juan was in fact unseaworthy, that she sank in ten (10) minutes "after only one of
her holds was punctured when she was supposed to remain afloat even with two (2) adjacent
compartments completely flooded, suggesting that her water-tight integrity had been tampered with . . .."
16.
Exhibit "1-A" (Negros Navigation), Folder of Exhibits.
17.
Exhibit "10," p. 5.
18.
See also the "Certificate of Stability," dated 16 December 1976, of the Don Juan (Exhibit "6-A,"
Folder of Exhibits) stating that the number of persons on board shall not exceed the authorized number
stipulated in the Certificate of Inspection.
19.
Decision, dated 24 July 1984 of the Minister of National Defense, Exhibit "13," Folder of Exhibits.
20.
BMI Case No. 415-80; Exhibit "10", Folder of Exhibits. It should not escape notice that the "Tacloban
City" had visually sighted the "Don Juan" when the latter was still 5 or 6 miles away, much sooner than the
"Don Juan" had done.
21.
"Rule 18. (a) When two power-driven vessels are meeting end on, or nearly end on, so as to involve
risk of collision, each shall alter her course to starboard, so that each may pass on the port side of the
other. This Rule only applies to cases where vessels are meeting end on or nearly end on, in such a manner
as to involve risk of collision, and does not apply to two vessels which must, if both keep on their
respective course, pass clear of each other. The only cases to which it does apply are when each of two
vessels is end on, or nearly end on, to the other; in other words, to cases in which, by day, each vessel
sees the masts of the other in a line or nearly in a line with her own; and by night to cases in which each
vessel is in such a position as to see both the sidelights of the other. It does not apply, by day, to cases in
which a vessel sees another ahead crossing her own course; or by night, to cases where the red light of
one vessel is opposed to the red light of the other or where the green light of one vessel is opposed to the
green light of the other or where a red light without a green light or a green light without a red light is seen
ahead, or where both green and red lights are seen anywhere but ahead.(b) For the purposes of this Rule
and Rules 19 to 29 inclusive, except Rule 20 (c) and Rule 28, a seaplane on the water shall be deemed to
be a vessel, and the expression 'power-driven vessel' shall be construed accordingly." (Annex A, Philippine
Merchant Marine Rules and Regulations, 540-541 [published by the Philippine Coast Guard; 1977]).
22.
Thus, e.g.:
"Rule 19.
When two-power driven vessels are crossing, so as to involve risk of collision,
the vessel which has the other on her own starboard side shall keep out of the way of the other."
"Rule 22.
Every vessel which is directed by these Rules to keep out of the way of
another vessel shall, so far as possible, take positive early action to comply with this obligation, and shall,
if the circumstances of the case admit, avoid crossing ahead of the other.
"Rule 27.
In obeying and construing these Rules, due regard shall be had to all dangers
of navigation and collision, and to any special circumstances, including the limitations of the craft involved,
which may render a departure from the above Rules necessary in order to avoid immediate danger."
"Rule 29.
Nothing in these Rules shall exonerate any vessel, or the owner, master or
crew thereof, from the consequences of any neglect to carry lights or signals, or of any neglect to keep a
389 | P a g e
proper look-out, or of the neglect of any precaution which may be required by the ordinary practice of
seamen, or by the special circumstances of the case." (Emphasis supplied).
23.
The Oregon, 158 U.S. 186, 49 L ed. 943 (1985).
24.
The Steamship Nacoochee v. Mosley, et al., 137 U.S. 330, 34 L ed. 687 (1890). See also Healy and
Sharpe, Cases and Materials on Admiralty, 2nd ed. (1986) p. 585.
25.
The New York 175 U.S. 187, 44 L ed. 126 (1899); The America, 92 U.S. 432, 23 L ed. 724 (1876).
See also Schoenbaum, Admiralty and Maritime Law (1987), p. 449.
26.
Urrutia & Co. v. Baco River Plantation Co., 26 Phil. 632 (1913) quoting with approval "The Genesee
Chief" 12 How. 443.
26A. TSN, January 21, 1985, p. 23; see Rule 28, International Rules of the Road.
26B. Ibid, p. 30.
27.
149 SCRA 562 (1987).
28.
G.R. Nos. 79937-38, promulgated 13 February 1988.
29.
See, e.g., Spouses Federico and Felicisima R. Franco v. Intermediate Appellate Court, et al., G.R. No.
71137, promulgated 5 October 1989.
30.
G.R. No. 85531, promulgated 25 August 1989.
5.
Nominal, Temperate and Liquidated
Arts. 2221, 2224, 2226

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated
or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.
Art. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary loss has been suffered but its
amount cannot, from the nature of the case, be provided with certainty.
Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of
breach thereof.
Alitalia v. AIC, 192 SCRA 9
FIRST DIVISION
[G.R. No. 71929. December 4, 1990.]
ALITALIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO, respondents.
Alfredo L. Bentulan for private respondent.
DECISION
NARVASA, J p:
Dr. Felipa Pablo an associate professor in the University of the Philippines, 1 and a research grantee of
the Philippine Atomic Energy Agency was invited to take part at a meeting of the Department of
Research and Isotopes of the Joint FAO-IAEA Division of Atomic Energy in Food and Agriculture of the United
Nations in Ispra, Italy. 2 She was invited in view of her specialized knowledge in "foreign substances in food
and the agriculture environment." She accepted the invitation, and was then scheduled by the organizers,
to read a paper on "The Fate of Radioactive Fusion Products Contaminating Vegetable Crops." 3 The
program announced that she would be the second speaker on the first day of the meeting. 4 To fulfill this
engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and time table set for
her by ALITALIA. She was however told by the ALITALIA personnel there at Milan that her luggage was
"delayed inasmuch as the same . . . (was) in one of the succeeding flights from Rome to Milan." 5 Her
luggage consisted of two (2) suitcases: one contained her clothing and other personal items; the other, her
390 | P a g e
scientific papers, slides and other research material. But the other flights arriving from Rome did not have
her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she inquired about
her suitcases in the domestic and international airports, and filled out the forms prescribed by ALITALIA for
people in her predicament. However, her baggage could not be found. Completely distraught and
discouraged, she returned to Manila without attending the meeting in Ispra, Italy. prcd
Once back in Manila she demanded that ALITALIA make reparation for the damages thus suffered by her.
ALITALIA offered her "free airline tickets to compensate her for any alleged damages. . . ." She rejected the
offer, and forthwith commenced the action 6 which has given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy, but only on the
day after her scheduled appearance and participation at the U.N. meeting there. 8 Of course Dr. Pablo was
no longer there to accept delivery; she was already on her way home to Manila. And for some reason or
other, the suitcases were not actually restored to Prof. Pablo by ALITALIA until eleven (11) months later,
and four (4) months after institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr. Pablo's favor:
10
"(1)
Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND PESOS
(P20,000.00), Philippine Currency, by way of nominal damages;
(2)
Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine
Currency, as and for attorney's fees; (and)
(3)
Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the judgment. 11
Indeed, the Appellate Court not only affirmed the Trial Court's decision but also increased the award of
nominal damages payable by ALITALIA to P40,000.00. 12 That increase it justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence committed by defendant,
the amount of P20,000.00 under present inflationary conditions as awarded . . . to the plaintiff as nominal
damages, is too little to make up for the plaintiff's frustration and disappointment in not being able to
appear at said conference; and for the embarrassment and humiliation she suffered from the academic
community for failure to carry out an official mission for which she was singled out by the faculty to
represent her institution and the country. After weighing carefully all the considerations, the amount
awarded to the plaintiff for nominal damages and attorney's fees should be increased to the cost of her
round trip air fare or at the present rate of peso to the dollar at P40,000,00."
ALITALIA has appealed to this Court on certiorari. Here, it seeks to make basically the same points it tried
to make before the Trial Court and the Intermediate Appellate Court, i.e.:
1)
that the Warsaw Convention should have been applied to limit ALITALIA'S liability; and
2)
that there is no warrant in fact or in law for the award to Dr. Pablo of nominal damages and
attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to have refused to
pass on all the assigned errors and in not stating the facts and the law on which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1)
the death, wounding or other bodily injury of a passenger if the accident causing it took place on
board the aircraft or in the course of its operations of embarking or disembarking; 17
2)
the destruction or loss of, or damage to, any registered luggage or goods, if the occurrence causing
it took place during the carriage by air;" 18 and
3)
delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however, founded, can only
be brought subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner: 21
1.
In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of
250,000 francs . . . Nevertheless, by special contract, the carrier and the passenger may agree to a higher
limit of liability. LLjur
2.
a)
In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a
391 | P a g e
exceeding the declared sum, unless he proves that sum is greater than the actual value to the consignor at
delivery.
b)
In the case of loss, damage or delay of part of registered baggage or cargo, or of any object
the limit of liability.
3.
As regards objects of which the passenger takes charge himself the liability of the carrier is limited
to 5000 francs per passenger.
4.
The limits prescribed . . shall not prevent the court from awarding, in accordance with its own law,
in addition, the whole or part of the court costs and of the other expenses of litigation incurred by the
plaintiff. The foregoing provision shall not apply if the amount of the damages awarded, excluding court
costs and other expenses of the litigation, does not exceed the sum which the carrier has offered in writing
to the plaintiff within a period of six months from the date of the occurrence causing the damage, or before
the commencement of the action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the provisions which exclude or limit
his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in
accordance with the law of the court seized of the case, is considered to be equivalent to wilful
misconduct," or "if the damage is (similarly) caused . . by any agent of the carrier acting within the scope
of his employment." 22 The Hague Protocol amended the Warsaw Convention by removing the provision
that if the airline took all necessary steps to avoid the damage, it could exculpate itself completely, 23 and
declaring the stated limits of liability not applicable "if it is proved that the damage resulted from an act or
omission of the carrier, its servants or agents, done with intent to cause damage or recklessly and with
knowledge that damage would probably result." The same deletion was effected by the Montreal
Agreement of 1966, with the result that a passenger could recover unlimited damages upon proof of wilful
misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the instances of an airline's liability,
or as an absolute limit of the extent of that liability. Such a proposition is not borne out by the language of
the Convention, as this Court has now, and at an earlier time, pointed out. 25 Moreover, slight reflection
readily leads to the conclusion that it should be deemed a limit of liability only in those cases where the
cause of the death or injury to person, or destruction, loss or damage to property or delay in its transport is
not attributable to or attended by any wilful misconduct, bad faith, recklessness, or otherwise improper
conduct on the part of any official or employee for which the carrier is responsible, and there is otherwise
no special or extraordinary form of resulting injury. The Convention's provisions, in short, do not "regulate
or exclude liability for other breaches of contract by the carrier" 26 or misconduct of its officers and
employees, or for some particular or exceptional type of damage. Otherwise, "an air carrier would be
exempt from any liability for damages in the event of its absolute refusal, in bad faith, to comply with a
contract of carriage, which is absurd." 27 Nor may it for a moment be supposed that if a member of the
aircraft complement should inflict some physical injury on a passenger, or maliciously destroy or damage
the latter's property, the Convention might successfully be pleaded as the sole gauge to determine the
carrier's liability to the passenger. Neither may the Convention be invoked to justify the disregard of some
extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond the limits set
by said Convention. It is in this sense that the Convention has been applied, or ignored, depending on the
peculiar facts presented by each case. cdphil
In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention was applied as
regards the limitation on the carrier's liability, there being a simple loss of baggage without any otherwise
improper conduct on the part of the officials or employees of the airline or other special injury sustained by
the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not restrictive of
the carrier's liability, where there was satisfactory evidence of malice or bad faith attributable to its officers
and employees. 29 Thus, an air carrier was sentenced to pay not only compensatory but also moral and
exemplary damages, and attorney's fees, for instance, where its employees rudely put a passenger holding
a first-class ticket in the tourist or economy section, 30 or ousted a brown Asiatic from the plane to give his
392 | P a g e
seat to a white man, 31 or gave the seat of a passenger with a confirmed reservation to another, 32 or
subjected a passenger to extremely rude, even barbaric treatment, as by calling him a "monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of
petitioner airline; and Dr. Pablo's luggage was eventually returned to her, belatedly, it is true, but without
appreciable damage. The fact is, nevertheless, that some special species of injury was caused to Dr. Pablo
because petitioner ALITALIA misplaced her baggage and failed to deliver it to her at the time appointed
a breach of its contract of carriage, to be sure with the result that she was unable to read the paper and
make the scientific presentation (consisting of slides, autoradiograms or films, tables and tabulations) that
she had painstakingly labored over, at the prestigious international conference, to attend which she had
traveled hundreds of miles, to her chagrin and embarrassment and the disappointment and annoyance of
the organizers. She felt, not unreasonably, that the invitation for her to participate at the conference,
extended by the Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United Nations,
was a singular honor not only to herself, but to the University of the Philippines and the country as well, an
opportunity to make some sort of impression among her colleagues in that field of scientific activity. The
opportunity to claim this honor or distinction was irretrievably lost to her because of Alitalia's breach of its
contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and anxiety, which
gradually turned to panic and finally despair, from the time she learned that her suitcases were missing up
to the time when, having gone to Rome, she finally realized that she would no longer be able to take part
in the conference. As she herself put it, she "was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be
restricted to that prescribed by the Warsaw Convention for delay in the transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As already mentioned,
her baggage was ultimately delivered to her in Manila, tardily but safely. She is however entitled to
nominal damages which, as the law says, is adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered and this Court agrees that the respondent Court of
Appeals correctly set the amount thereof at P40,000.00. As to the purely technical argument that the
award to her of such nominal damages is precluded by her omission to include a specific claim therefor in
her complaint, it suffices to draw attention to her general prayer, following her plea for moral and
exemplary damages and attorney's fees, "for such other and further just and equitable relief in the
premises," which certainly is broad enough to comprehend an application as well for nominal damages.
Besides, petitioner should have realized that the explicit assertion, and proof, that Dr. Pablo's right had
been violated or invaded by it absent any claim for actual or compensatory damages, the prayer thereof
having been voluntarily deleted by Dr. Pablo upon the return to her of her baggage necessarily raised
the issue of nominal damages. cdrep
This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees to Dr. Pablo, and
the amount of P5,000.00 set by it is reasonable in the premises. The law authorizes recovery of attorney's
fees inter alia where, as here, "the defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest," 34 or "where the court deems it just and
equitable." 35
WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals, it appearing on
the contrary to be entirely in accord with the facts and the law, said decision is hereby AFFIRMED, with
costs against the petitioner.
SO ORDERED.
Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur.
Footnotes
1.
Teaching such natural science subjects as Botany, Biology and Plant Physiology.
2.
Rollo, p. 36.
3.
Ibid, reference being made to Exhs. "A-2-a" and "A-2-b".
4.
This was on November 6, 1972.
5.
Rollo, p. 88.
6.
On June 7, 1973 (Rollo, p. 90).
7.
Specifically to the Hotel Europa, as indicated by Prof. Pablo (Rollo, pp. 88-89).
8.
Rollo, p. 89. The baggage arrived on Nov. 7, 1972; but by that time, Prof Pablo had already left
Rome for Hongkong.
393 | P a g e
9.
Delivery appears to have been effected on October 17, 1973 (Rollo, p. 136).
10.
Rollo, p. 43: Record on Appeal, pp. 61-62. The decision was written by Judge Ricardo D. Galano and
is dated February 2, 1975.
11.
Its appeal was docketed as AC-G.R. CV No. 59501.
12.
Rollo, pp. 35-39. The decision was written for the Second Civil Cases Division by Campos, Jr, J., with
whom concurred Pascual, Camilon and Jurado, JJ.
13.
Id., pp. 38-39.
14.
Id., pp. 91-92.
15.
Id., p. 91.
16.
Full title: "Convention for the Unification of Certain Rules Relating to International Carriage by Air
signed at Warsaw, October 12, 1929" (League of Nations Treaty Series), coming into force on Feb. 13,
1933, adhered to by the Republic of the Philippines on Nov. 9, 1950 with reservation; the Philippines
deposited the Instrument of Adherence with the Polish Government on Nov. 9, 1950; and the Convention
entered into force for the Philippines on Feb. 7, 1951 (Philippine Treaties Index [1946-1982] citing 137
League of Nations Treaties Series 11). The Warsaw Convention was amended by (1) the Hague Protocol on
September 28, 1955 (Id., and United Nations, Treaty Series, Vol. 261, p. 423 and Vol. 266, p. 444), entering
into force for the Philippines on February 28, 1967; (2) the Montreal Agreement in 1966, of which the
Philippine Airlines and Alitalia are signatories; (3) the Guatemala Protocol in 1971 (apparently not adhered
to by IATA members); and (4) the Montreal Protocols (Numbered 3 and 4) (1975) (also apparently not
effective among IATA members).
17.
ART. 17.
18.
ART. 18 (par. 1), "transportation by air" being defined as "the period during which the baggage or
goods are in charge of the carrier whether in an airport or on board an aircraft, or, in the case of a landing
outside an airport, in any place whatever," but not where said baggage or goods are transported by land,
sea or river outside an airport unless it be in "the performance of a contract for transportation by air for
the purpose of loading, delivery or transshipment (pars. 2 and 3, ART. 18).
19.
ART. 19.
20.
ART. 24, which also states that with regard to Article 17, the application of the rule is "without
prejudice to the questions as to who are the persons who have the right to bring suit and what are their
respective rights."
21.
ART. 22, as amended by the Hague Protocol, supra; the Montreal Agreement of 1966 set the
limitation of damages at $75,000 per passenger; the Guatemala Protocol, 1971, boosted the limit to
$100,000 per passenger, liability for baggage was increased to $1,000, and the right to bring suit was
expanded.
22.
ART. 25.
23.
ART. 20 (1). "The carrier is not liable if he proves that he and his agents have taken all necessary
measures to avoid the damage or that it was impossible for him or them to take such measures."
24.
Lisi v. Alitalia-Linee Aeree Italiane, 370 F 2d 508 [2nd Cir. 1966] aff'd 390 US 455 [1968], rehearing
denied 397 US 939 [1968] and Egan v. Kallsman Instrument Corp., 21 NY 2d 160, 287 NYS 2d 14 [1967];
CERT. DENIED 390 US 1039 [1968].
25.
Northwest Airlines, Inc. v. Cuenca, 14 SCRA 1065 (1965) which inter alia states that the Convention
"merely declares the carrier liable for damages in the enumerated cases, if the conditions therein specified
are present.".
26.
Id.
27.
Id.
28.
164 SCRA 268, citing Ong Yiu v. C.A. 91 SCRA 223; SEE Burnett v. Trans World Airlines, Inc. (DC NM),
368 F. Supp. 1152 holding that the airline was not responsible to its passengers for mere mental anguish
sustained as a result of the hijacking, in the absence of physical injuries.
29.
SEE KLM Royal Dutch Airlines v. Tuller, 119 App. DC 282, 292 F 2d 775, cert den 368 US 921, 7 L Ed
2d 136, 82 S Ct 243; American Airlines, Inc. v. Ulen, 87 App DC 307, 186 F 2d 529; Goepp v. American
Overseas Airlines, Inc., 281 App Div 105, 117 NYS 2d 276, affd 305 NY 830, 114 NE 2d 37, cert den 346 US
874, 98 L Ed 382, 74 S Ct 124.
30.
Northwest Airlines, Inc. v. Cuenca, 14 SCRA 1063; Lopez v. Pan Am, 16 SCRA 43.
31.
Air France v. Carrascoso, 18 SCRA 155. In Ortigas, Jr. v. Lufthansa German Airlines, 64 SCRA 610
(1975), plaintiff's seat in the first-class section was given to a Belgian, and consequently plaintiff, who held
a first-class ticket, confirmed and validated, was relegated to a tourist or economy-class seat.
394 | P a g e
32.
Korean Airlines Co., Ltd. v. C.A., 154 SCRA 211; see also, KLM Royal Dutch Airlines v. C.A., 65 SCRA
237.
33.
Zulueta v. Pan Am, 43 SCRA 397.
34.
Civil Code, ART. 2208, par. (2); see Rivera v. Litum & Co., Inc., 4 SCRA 1072 (1962); Filipino Pipe &
Foundry Corporation v. Central Bank, 23 SCRA 1044 (1968); Ganaban v. Bayle, 30 SCRA 365 (1969);
Valenzuela v. CA., G.R. No. 56168, Dec. 22, 1988.
35.
Id., id., par (11); see Civil Aeronautics Administration v. C.A., G.R. No. 51806, Nov. 8, 1988.
Saludo v. Court of Appeals, 207 SCRA 498
SECOND DIVISION
[G.R. No. 95536. March 23, 1992.]
ANICETO G. SALUDO, JR., MARIA SALVACION SALUDO, LEOPOLDO G. SALUDO and SATURNINO G.
SALUDO, petitioners, vs. HON. COURT OF APPEALS, TRANS WORLD AIRLINES, INC., and
PHILIPPINE AIRLINES, INC., respondents.
Ledesma, Saludo & Associates for petitioners.
Quisumbing, Torres & Evangelista for Trans World Airlines, Inc.
Siguion Reyna, Montecillo & Ongsiako for Phil. Airlines, Inc.
SYLLABUS
1.
REMEDIAL LAW; EVIDENCE; AS A GENERAL RULE; FACTUAL FINDINGS OF THE COURT OF APPEALS
ARE FINAL AND CONCLUSIVE AND CANNOT BE REVIEWED BY THE SUPREME COURT; EXCEPTIONS. At the
outset and in view of the spirited exchanges of the parties on this aspect, it is to be stressed that only
questions of law may be raised in a petition filed in this Court to review on certiorari the decision of the
Court of Appeals. This being so, the factual findings of the Court of Appeals are final and conclusive and
cannot be reviewed by the Supreme Court. The rule, however, admits of established exceptions, to wit: (a)
where there is grave abuse of discretion; (b) when the finding is grounded entirely on speculations,
surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or impossible; (d)
when the judgment of the Court of Appeals was based on a misapprehension of facts; (e) when the factual
findings are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of the
case and the same are contrary to the admissions of both appellant and appellee; (g) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (h) where the findings of fact of the Court of Appeals
are contrary to those of the trial court, or are mere conclusions without citation of specific evidence, or
where the facts set forth by the petitioner are not disputed by the respondent, or where the findings of fact
of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on
record.
2.
ID.; ID.; QUESTION OF LAW; DISTINGUISHED FROM QUESTION OF FACT. To distinguish, a question
of law is one which involves a doubt or controversy on what the law is on a certain state of facts; and, a
question of fact, contrarily, is one in which there is a doubt or difference as to the truth or falsehood of the
alleged facts. One test, it has been held, is whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence, in which case it is a question of law, otherwise it will be a
question of fact.
3.
ID.; ID.; RULES ON ADMISSIBILITY; INTERPRETATION OF DOCUMENT; WRITTEN WORDS CONTROL
PRINTED; WORDS NOT APPLICABLE IN CASE AT BAR. Petitioners' invocation of the interpretative rule in
the Rules of Court that written words control printed words in documents, to bolster their assertion that the
typewritten provisions regarding the routing and flight schedule prevail over the printed conditions, is
tenuous. Said rule may be considered only when there is inconsistency between the written and printed
words of the contract. As previously stated, we find no ambiguity in the contract subject of this case that
would call for the application of said rule. In any event, the contract has provided for such a situation by
explicitly stating that the above condition remains effective "notwithstanding that the same (fixed time for
completion of carriage, specified aircraft, or any particular route or schedule) may be stated on the face
hereof." While petitioners hinge private respondents' culpability on the fact that the carrier "certifies goods
described below were received for carriage," they may have overlooked that the statement on the face of
the airway bill properly and completely reads "Carrier certifies goods described below were received for
carriage subject to the Conditions on the reverse hereof the goods then being in apparent good order and
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condition except as noted hereon." Private respondents further aptly observe that the carrier's certification
regarding receipt of the goods for carriage "was of a Waybill, including Condition No. 5 and thus if
plaintiffs-appellants had recognized the former, then with more reason they were aware of the latter." In
the same vein, it would also be incorrect to accede to the suggestion of petitioners that the typewritten
specifications of the flight, routes and dates of departures and arrivals on the face of the airway bill
constitute a special contract which modifies the printed conditions at the back thereof. We reiterate that
typewritten provisions of the contract are to be read and understood subject to and in view of the printed
conditions, fully reconciling and giving effect to the manifest intention of the parties to the agreement.
4.
COMMERCIAL LAW; COMMERCIAL CONTRACT FOR TRANSPORTATION; BILL OF LADING; DEFINED. A
bill of lading is a written acknowledgment of the receipt of the goods and an agreement to transport and
deliver them at a specified place to a person named or on his order. Such instrument may be called a
shipping receipt, forwarder's receipt and receipt for transportation. The designation, however, is
immaterial. It has been held that freight tickets for bus companies as well as receipts for cargo transported
by all forms of transportation, whether by sea or land, fall within the definition. Under the Tariff and
Customs Code, a bill of lading includes airway bills of lading (4 Alcantara, Commercial Laws of the
Philippines, 118 [1987]).
5.
ID.; ID.; ID.; TWO-FOLD CHARACTER THEREOF. The two-fold character of a bill of lading is all too
familiar: it is a receipt as to the quantity and description of the goods shipped and a contract to transport
the goods to the consignee or other person therein designated, on the terms specified in such instrument.
6.
ID.; ID.; ID.; PRIMA FACIE EVIDENCE OF DELIVERY OF THE GOODS TO THE CARRIER. Logically,
since a bill of lading acknowledges receipt of goods to be transported, delivery of the goods to the carrier
normally precedes the issuance of the bill; or, to some extent, delivery of the goods and issuance of the bill
are regarded in commercial practice as simultaneous acts. However, except as may be prohibited by law,
there is nothing to prevent an inverse order of events, that is, the execution of the bill of lading even prior
to actual possession and control by the carrier of the cargo to be transported. There is no law which
requires that the delivery of the goods for carriage and the issuance of the covering bill of lading must
coincide in point of time or, for that matter, that the former should precede the latter. Ordinarily, a receipt
is not essential to a complete delivery of goods to the carrier for transportation but, when issued, is
competent and prima facie, but not conclusive, evidence of delivery to the carrier. A bill of lading, when
properly executed and delivered to a shipper, is evidence that the carrier has received the goods described
therein for shipment. Except as modified by statute, it is a general rule as to the parties to a contract of
carriage of goods in connection with which a bill of lading is issued reciting that goods have been received
for transportation, that the recital being in essence a receipt alone, is not conclusive, but may be
explained, varied or contradicted by parol or other evidence.
7.
ID.; ID.; ID.; BETWEEN THE SHIPPER AND THE CARRIER; WHEN NO GOODS HAVE BEEN DELIVERED
FOR SHIPMENT; NO RECITAL IN THE BILL CAN ESTOP THE CARRIER FROM SHOWING THE TRUE FACTS.
While we agree with petitioners' statement that "an airway hill estops the carrier from denying receipt of
goods of the quantity and quality described in the bill," a further reading and a more faithful quotation of
the authority cited would reveal that "(a) bill of lading may contain constituent elements of estoppel and
thus become something more than a contract between the shipper and the carrier. . . . (However), as
between the shipper and the carrier, when no goods have been delivered for shipment no recitals in the
bill can estop the carrier from showing the true facts . . .. Between the consignor of goods and a receiving
carrier, recitals in a bill of lading as to the goods shipped raise only a rebuttable presumption that such
goods were delivered for shipment. As between the consignor and a receiving carrier, the fact must
outweigh the recital."
8.
ID.; ID.; ID.; ACCEPTANCE THEREOF WITHOUT DISSENT; PRESUMPTION. There is a holding in most
jurisdictions that the acceptance of a bill of lading without dissent raises a presumption that all terms
therein were brought to the knowledge of the shipper and agreed to by him, and in the absence of fraud or
mistake, he is estopped from thereafter denying that he assented to such terms. This rule applies with
particular force where a shipper accepts a bill of lading with full knowledge of its contents, and acceptance,
under such circumstances makes it a binding contract. In order that any presumption of assent to a
stipulation in a bill of lading limiting the liability of a carrier may arise, it must appear that the clause
containing this exemption from liability plainly formed a part of the contract contained in the bill of lading.
A stipulation printed on the back of a receipt or bill of lading or on papers attached to such receipt will be
quite as effective as if printed on its face, if it is shown that the consignor knew of its terms. Thus, where a
shipper accepts a receipt which states that its conditions are to be found on the back, such receipt comes
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within the general rule, and the shipper is held to have accepted and to be bound by the conditions there
to be found.
9.
ID.; COMMON CARRIER; EXTRAORDINARY RESPONSIBILITY THEREOF OVER THE GOODS BEGINS
FROM THE TIME THE GOODS ARE DELIVERED THERETO. Explicit is the rule under Article 1736 of the Civil
Code that the extraordinary responsibility of the common carrier begins from the time the goods are
delivered to the carrier. This responsibility remains in full force and effect even when they are temporarily
unloaded or stored in transit, unless the shipper or owner exercises the right of stoppage in transitu, and
terminates only after the lapse of a reasonable time for the acceptance of the goods by the consignee or
such other person entitled to receive them. And, there is delivery to the carrier when the goods are ready
for and have been placed in the exclusive possession, custody and control of the carrier for the purpose of
their immediate transportation and the carrier has accepted them. Where such a delivery has thus been
accepted by the carrier, the liability of the common carrier commences eo instanti.
10.
ID.; ID.; ID.; FACT OF DELIVERY MUST BE UNEQUIVOCABLY ESTABLISHED. While we agree with
petitioners that the extraordinary diligence statutorily required to be observed by the carrier
instantaneously commences upon delivery of the goods thereto, for such duty to commence there must in
fact have been delivery of the cargo subject of the contract of carriage. Only when such fact of delivery
has been unequivocally established can the liability for loss, destruction or deterioration of goods in the
custody of the carrier, absent the excepting causes under Article 1734, attach and the presumption of fault
of the carrier under Article 1735 be invoked.
11.
ID.; ID.; NOT LIABLE FOR EVENTS PRIOR TO THE DELIVERY OF THE GOODS THERETO. The facts in
the case at bar belie the averment that there was delivery of the cargo to the carrier on October 26, 1976.
Rather, as earlier explained, the body intended to be shipped as agreed upon was, really placed in the
possession and control of PAL on October 28, 1976 and it was from that date that private respondents
became responsible for the agreed cargo under their undertakings in PAL Airway Bill No. 079-01180454.
Consequently, for the switching of caskets prior thereto which was not caused by them., and subsequent
events caused thereby, private respondents cannot be held liable.
12.
ID.; ID.; PROHIBITED FROM OPENING A CASKET FOR FURTHER VERIFICATION. Petitioners,
proceeding on the premise that there was delivery of the cargo to private respondents on October 26,
1976 and that the latter's extraordinary responsibility had by then become operative, insist on foisting the
blame on private respondents for the switching of the two caskets which occurred on October 27, 1976. It
is argued that since there is no clear evidence establishing the fault of Continental Mortuary Air Services
(CMAS) for the mix-up, private respondents are presumably negligent pursuant to Article 1735 of the Civil
Code and, for failure to rebut such presumption, they must necessarily be held liable; or, assuming that
CMAS was at fault, the same does not absolve private respondents of liability because whoever brought
the cargo to the airport, or loaded it on the plane did so as agent of private respondents. This contention is
without merit. As pithily explained by the Court of Appeals: . . . "Consequently, when the cargo was
received from C.M.A.S. at the Chicago airport terminal for shipment, which was supposed to contain the
remains of Crispina Saludo, Air Care International and/or TWA, had no way of determining its actual
contents, since the casket was hermetically sealed by the Philippine Vice-Consul in Chicago and in an air
pouch of C.M.A.S., to the effect that Air Care International and/or TWA had to rely on the information
furnished by the shipper regarding the cargo's content. Neither could Air Care International and/or TWA
open the casket for further verification, since they were not only without authority to do so, but even
prohibited. "Thus, under said circumstances, no fault and/or negligence can be attributed to PAL (even if
Air Care International should be considered as an agent of PAL) and/or TWA, the entire fault or negligence
being exclusively with C.M.A.S." It can correctly and logically be concluded, therefore that the switching
occurred or, more accurately, was discovered on October 27, 1976; and based on the above findings of the
Court of Appeals, it happened while the cargo was still with CMAS, well before the same was placed in the
custody of private respondents.
13.
ID.; ID.; FAILURE TO VERIFY AND IDENTIFY THE CONTENTS OF THE CARGO; DOES NOT CONSTITUTE
NEGLIGENCE; CASE AT BAR. Petitioners consider TWA's statement that it had to rely on the information
furnished by the shipper" a lame, excuse and that its failure to prove that its personnel verified and
identified the contents of the casket before loading the same constituted negligence on the part of TWA.
We uphold the favorable consideration by the Court of Appeals of the following findings of the trial court:
"It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered the casket
containing the remains of Crispina Saludo. TWA would have no knowledge therefore that the remains of
Crispina Saludo were not the ones inside the casket that was being presented to it for shipment. TWA
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would have to rely on the representations of C.M.A.S. The casket was hermetically sealed and also sealed
by the Philippine Vice Consul in Chicago. TWA or any airline for that matter would not have opened such
sealed casket just for the purpose of ascertaining whose body was inside and to make sure that the
remains inside were those of the particular person indicated to be by C.M.A.S. TWA had to accept whatever
information was being furnished by the shipper or by the one presenting the casket for shipment. And so
as a matter of fact, TWA carried to San Francisco and transferred to defendant PAL a shipment covered by
or under PAL Airway Bill No. 079-ORD-01180454, the airway bill for the shipment of the casketed remains
of Crispina Saludo. Only, it turned out later, while the casket was already with PAL, that what was inside
the casket was not the body of Crispina Saludo so much so that it had to be withdrawn by C.M.A.S from
PAL. The body of Crispina Saludo had been shipped to Mexico. The casket containing the remains of
Crispina Saludo was transshipped from Mexico and arrived in San Francisco the following day on board
American Airlines. It was immediately loaded by PAL on its flight for Manila. The foregoing points at
C.M.A.S., not defendant TWA much less defendant PAL, as the ONE responsible for the switching or mix-up
of the two bodies at the Chicago Airport terminal, and started a chain reaction of the misshipment of the
body of Crispina Saludo and a one-day delay in the delivery thereof to its destination. Verily, no amount of
inspection by respondent airline companies could have guarded against the switching that had already
taken place. Or, granting that they could have opened the casket to inspect its contents, private
respondents had no means of ascertaining whether the body therein contained was indeed that of Crispina
Saludo except, possibly, if the body was that of a male person and such fact was visually apparent upon
opening the casket. However, to repeat, private respondents had no authority to unseal and open the
same nor did they have any reason or justification to resort thereto.
14.
ID.; ID.; RIGHT TO REQUIRE GOOD FAITH ON THE PART OF THE PERSONS DELIVERING THE GOODS
TO BE CARRIED AND ENTER INTO CONTRACT WITH CARRIER; SCOPE. It is the right of the carrier to
require good faith on the part of those persons who deliver goods to be carried, ar enter into contracts with
it, and inasmuch as the freight may depend on the value of the article to be carried, the carrier ordinarily
has the right to inquire as to its value. Ordinarily, too, it is the duty of the carrier to make inquiry as to the
general nature of the articles shipped and of their value before it consents to carry them; and its failure to
do so cannot defeat the shipper's right to recovery of the full value of the package if lost, in the absence of
showing of fraud or deceit on the part of the shipper. In the absence of more definite information, the
carrier has the right to accept shipper's marks as to the contents of the package offered for transportation
and is not bound to inquire particularly about them in order to take advantage of a false classification and
where a shipper expressly represents the contents of a package to be of a designated character, it is not
the duty of the carrier to ask for a repetition of the statement nor disbelieve it and open the box and see
for itself. However, where a common carrier has reasonable ground to suspect that the offered goods are
of a dangerous or illegal character, the carrier has the right to know the character of such goods and to
insist on an inspection, if reasonable and practical under the circumstances, as a condition of receiving and
transporting such goods.
15.
ID.; ID.; ENTITLED TO FAIR REPRESENTATION OF THE NATURE AND VALUE OF THE GOODS TO BE
CARRIED; CASE AT BAR. It can safely be said then that a common carrier is entitled to fair representation
of the nature and value of the goods to be carried, with the concomitant right to rely thereon, and further
noting at this juncture that a carrier has no obligation to inquire into the correctness or sufficiency of such
information. The consequent duty to conduct an inspection thereof arises in the event that there should be
reason to doubt the veracity of such representations. Therefore, to be subjected to unusual search, other
than the routinary inspection procedure customarily undertaken, there must exist proof that would justify
cause for apprehension that the baggage is dangerous as to warrant exhaustive inspection, or even refusal
to accept carriage of the same; and it is the failure of the carrier to act accordingly in the face of such
proof that constitutes the basis of the common carrier's liability. In the case at bar, private respondents
had no reason whatsoever to doubt the truth of the shipper's representations. The airway bill expressly
providing that "carrier certifies goods received below were received for carriage," and that the cargo
contained "casketed human remains of Crispina Saludo," was issued on the basis of such representations.
The reliance thereon by private respondents was reasonable and, for so doing, they cannot be said to have
acted negligently. Likewise, no evidence was adduced to suggest even an iota of suspicion that the cargo
presented for transportation was anything other than what it was declared to be, as would require more
than routine inspection or call for the carrier to insist that the same be opened for scrutiny of its contents
per declaration.
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16.
ID.; ID.; FORWARDER OF THE GOODS THERETO, NOT AN AGENT THEREOF BUT THAT OF THE
SHIPPER. Private respondents cannot be held accountable on the basis of petitioners' preposterous
proposition that whoever brought the cargo to the airport or loaded it on the airplane did so as agent of
private respondents, so that even if CMAS whose services were engaged for the transit arrangements for
the remains was indeed at fault, the liability therefor would supposedly still be attributable to private
respondents. While we agree that the actual participation of CMAS has been sufficiently and correctly
established, to hold that it acted as agent for private respondents would be both an inaccurate appraisal
and an unwarranted categorization of the legal position it held in the entire transaction. It bears repeating
that CMAS was hired to handle all the necessary shipping arrangements for the transportation of the
human remains of Crispina Saludo to Manila. Hence, it was to CMAS that the Pomierski & Son Funeral
Home, as shipper, brought the remains of petitioners' mother for shipment, with Maria Saludo as
consignee. Thereafter, CMAS booked the shipment with PAL through the carrier's agent, Air Care
International. With its aforestated functions, CMAS may accordingly be classified as a forwarder which, by
accepted commercial practice, is regarded as an agent of the shipper and not of the carrier. As such, it
merely contracts for the transportation of goods by carriers, and has no interest in the freight but receives
compensation from the shipper as his agent.
17.
ID.; ID.; NOT LIABLE FOR DELAY IN THE ABSENCE OF SPECIAL CONTRACT. The oft-repeated rule
regarding a carrier's liability for delay is that in the absence of a special contract, a carrier is not an insurer
against delay in transportation of goods. When a common carrier undertakes to convey goods, the law
implies a contract that they shall be delivered at destination within a reasonable time, in the absence of
any agreement as to the time of delivery. But where a carrier has made an express contract to transport
and deliver property within a specified time, it is bound to fulfill its contract and is liable for any delay, no
matter from what cause it may have arisen. This result logically follows from the well-settled rule that
where the law creates a duty or charge, and the party is disabled from performing it without any default in
himself, and has no remedy over, then the law will excuse him, but where the party by his own contract
creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or delay
by inevitable necessity because he might have provided against it by contract. Whether or not there has
been such an undertaking on the part of the carrier is to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of contracts.
18.
ID.; ID.; ID.; SPECIFICATION OF THE FLIGHT AND DATES OF DEPARTURE; NOT A SPECIAL CONTRACT
THAT COULD PREVAIL OVER THE PRINTED STIPULATION. Also, the theory of petitioners that the
specification of the flights and dates of departures and arrivals constitute a special contract that could
prevail over the printed stipulations at the back of the airway bill is vacuous. To countenance such a
postulate would unduly burden the common carrier for that would have the effect of unilaterally
transforming every single bill of lading or trip ticket into a special contract by the simple expedient of filling
it up with the particulars of the flight, trip or voyage, and thereby imposing upon the carrier duties and/or
obligations which it may not have been ready or willing to assume had it been timely advised thereof.
Neither does the fact that the challenged condition No. 5 was printed at the back of the airway bill militate
against its binding effect on petitioners as parties to the contract, for there were sufficient indications on
the face of said bill that would alert them to the presence of such additional condition to put them on their
guard. Ordinary prudence on the part of any person entering or contemplating to enter into a contract
would prompt even a cursory examination of any such conditions, terms and/or stipulations.
19.
ID.; ID.; CHANGES IN ROUTE; FLIGHTS AND SCHEDULE; WHEN JUSTIFIED. Just because we have
said that Condition No. 5 of the airway bill is binding upon the parties to and fully operative in this
transaction, it does not mean, and let this serve as fair warning to respondent carriers, that they can at all
times whimsically seek refuge from liability in the exculpatory sanctuary of said Condition No. 5 or
arbitrarily vary routes, flights and schedules to the prejudice of their customers. This condition only serves
to insulate the carrier from liability in those instances when changes in routes, flights and schedules are
clearly justified by the peculiar circumstances of a particular case, or by general transportation practices,
customs and usages, or by contingencies or emergencies in aviation such as weather turbulence,
mechanical failure, requirements of national security and the like. And even as it is conceded that specific
routing and other navigational arrangements for a trip, flight or voyage, or variations therein, generally lie
within the discretion of the carrier in the absence of specific routing instructions or directions by the
shipper, it is plainly incumbent upon the carrier to exercise its rights with due deference to the rights,
interests and convenience of its customers.
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20.
ID.; ID.; LIABLE FOR DAMAGES IN CASE OF UNREASONABLE DELAY AS IMMEDIATE AND PROXIMATE
RESULT FROM NEGLECT OF DUTY. A common carrier undertaking to transport property has the implicit
duty to carry and deliver it within a reasonable time, absent any particular stipulation regarding time of
delivery, and to guard against delay. In case of any unreasonable delay, the carrier shall be liable for
damages immediately and proximately resulting from such neglect of duty.
21.
ID.; ID.; MUST STRICTLY REQUIRE ITS PERSONNEL TO BE MORE ACCOMMODATING TOWARDS
CUSTOMER, PASSENGER AND THE GENERAL PUBLIC; REASONS THEREFOR. Airline companies are hereby
sternly admonished that it is their duty not only to cursorily instruct but to strictly require their personnel
to be more accommodating towards customers, passengers and the general public. After all, common
carriers such as airline companies are in the business of rendering public service, which is the primary
reason for their enfranchisement and recognition in our law. Because the passengers in a contract of
carriage do not contract merely for transportation, they have a right to be treated with kindness, respect,
courtesy and consideration. A contract to transport passengers is quite different in kind and degree from
any other contractual relation, and generates a relation attended with public duty. The operation of a
common carrier is a business affected with public interest and must be directed to serve the comfort and
convenience of passengers. Passengers are human beings with human feelings and emotions; they should
not be treated as mere numbers or statistics for revenue.
22.
ID.; CONTRACTS; CONSTRUCTION AND INTERPRETATION THEREOF; RULE. The hornbook rule on
interpretation of contracts consecrates the primacy of the intention of the parties, the same having the
force of law between them. When the terms of the agreement are clear and explicit, that they do not
justify an attempt to read into any alleged intention of the parties, the terms are to be understood literally
just as they appear on the face of the contract. The various stipulations of a contract shall be interpreted
together and such a construction is to be adopted as will give effect to all provisions thereof. A contract
cannot be construed by parts, but its clauses should be interpreted in relation to one another. The whole
contract must be interpreted or read together in order to arrive at its true meaning. Certain stipulations
cannot be segregated and then made to control; neither do particular words or phrases necessarily
determine the character of a contract. The legal effect of the contract is not to be determined alone by any
particular provision disconnected from all others, but in the ruling intention of the parties as gathered from
all the language they have used and from their contemporaneous and subsequent acts.
23.
ID.; ID.; CONTRACT OF ADHESION; AS A GENERAL RULE, MUST BE STRICTLY CONSTRUED AGAINST
THE PARTY WHO DRAFTED THE SAME; EXCEPTION. Granting arguendo that Condition No. 5 partakes of
the nature of a contract of adhesion and as such must be construed strictly against the party who drafted
the same or gave rise to any ambiguity therein, it should be borne in mind that a contract of adhesion may
be struck down as void and unenforceable, for being subversive of public policy, only when the weaker
party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of
taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. However, Ong
Yiu vs. Court of Appeals, et al., instructs us that contracts of adhesion are not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.
Accordingly, petitioners, far from being the weaker party in this situation, duly signified their presumed
assent to all terms of the contract through their acceptance of the airway bill and are consequently bound
thereby. It cannot be gainsaid that petitioners were not without several choices as to carriers in Chicago
with its numerous airways and airlines servicing the same.
24.
ID.; DAMAGES; MORAL DAMAGES; MAY BE AWARDED FOR WILLFUL OR FRAUDULENT BREACH OF
CONTRACT AND SUCH BREACH IS ATTENDED BY MALICE OR BAD FAITH. The uniform decisional tenet in
our jurisdiction holds that moral damages may be awarded for willful or fraudulent breach of contract or
when such breach is attended by malice or bad faith. However, in the absence of strong and positive
evidence of fraud, malice or bad faith, said damages cannot be awarded. Neither can there be an award of
exemplary damages nor of attorney's fees as an item of damages in the absence of proof that defendant
acted with malice, fraud or bad faith.
25.
ID.; ID.; NOMINAL DAMAGES; INTENDED FOR THE VINDICATION OR RECOGNITION OF A RIGHT
VIOLATED OR INVADED. The censurable conduct of TWA's employees cannot, however, be said to have
approximated the dimensions of fraud, malice or bad faith. It can be said to be more of a lethargic reaction
produced and engrained in some people by the mechanically routine nature of their work and a racial or
societal culture which stultifies what would have been their accustomed human response to a human need
under a former and different ambience. Nonetheless, the facts show that petitioners' right to be treated
with due courtesy in accordance with the degree of diligence required by law to be exercised by every
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common carrier was violated by TWA and this entitles them, at least, to nominal damages from TWA alone.
Articles 2221 and 2222 of the Civil Code make it clear that nominal damages are not intended for
indemnification of loss suffered but for the vindication or recognition of a right violated or invaded. They
are recoverable where some injury has been done but the amount of which the evidence fails to show, the
assessment of damages being left to the discretion of the court according to the circumstances of the
case. In the exercise of our discretion, we find an award of P40,000.00 as nominal damages in favor of
petitioners to be a reasonable amount under the circumstances of the case.
DECISION
REGALADO, J p:
Assailed in this petition for review on certiorari is the decision in CA-G.R. CV No. 20951 of respondent Court
of Appeals 1 which affirmed the decision of the trial court 2 dismissing for lack of evidence herein
petitioners' complaint in Civil Case No. R-2101 of the then Court of First Instance of Southern Leyte, Branch
I. LLpr
The facts, as recounted by the court a quo and adopted by respondent court after "considering the
evidence on record," are as follows:
"After the death of plaintiffs' mother, Crispina Galdo Saludo, in Chicago, Illinois, (on) October 23, 1976
(Exh. A), Pomierski and Son Funeral Home of Chicago, made the necessary preparations and arrangements
for the shipment of the remains from Chicago to the Philippines. The funeral home had the remains
embalmed (Exh. D) and secured a permit for the disposition of dead human body on October 25, 1976
(Exh. C). Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on October 26,
1976 at the Pomierski & Son Funeral Home, sealed the shipping case containing a hermetically sealed
casket that is airtight and waterproof wherein was contained the remains of Crispina Saludo Galdo (sic)
(Exh. B). On the same date, October 26, 1976, Pomierski brought the remains to C.M.A.S. (Continental
Mortuary Air Services) at the airport (Chicago) which made the necessary arrangements such as flights,
transfers, etc.; C.M.A.S. is a national service used by undertakers throughout the nation (U.S.A.), they
furnish the air pouch which the casket is enclosed in, and they see that the remains are taken to the proper
air freight terminal (Exh. 6-TWA). C.M.A.S. booked the shipment with PAL thru the carrier's agent Air Care
International, with Pomierski F.H. as the shipper and Mario (Maria) Saludo as the consignee. PAL Airway Bill
No. 079-01180454 Ordinary was issued wherein the requested routing was from Chicago to San Francisco
on board TWA Flight 131 of October 27, 1976, and from San Francisco to Manila on board PAL Flight No.
107 of the same date, and from Manila to Cebu on board PAL Flight 149 of October 29, 1976 (See Exh. E,
also Exh. 1-PAL).
"In the meantime, plaintiffs Maria Salvacion Saludo and Saturnino Saludo, thru a travel agent, were booked
with United Airlines from Chicago to California, and with PAL from California to Manila. She then went to the
funeral director of Pomierski Funeral Home who had her mother's remains and she told the director that
they were booked with United Airlines. But the director told her that the remains were booked with TWA
flight to California. This upset her, and she and her brother had to change reservations from UA to the TWA
flight after she confirmed by phone that her mother's remains would be on that TWA flight. They went to
the airport and watched from the look-out area. She saw no body being brought. So, she went to the TWA
counter again, and she was told there was no body on that flight. Reluctantly, they took the TWA flight
upon assurance of her cousin, Ani Bantug, that he would look into the matter and inform her about it on
the plane or have it radioed to her. But no confirmation from her cousin reached her that her mother was
on the West Coast.
"Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA counter there to inquire about her
mother's remains. She was told they did not know anything about it.
"She then called Pomierski that her mother's remains were not at the West Coast terminal, and Pomierski
immediately called C.M.A.S., which in a matter of 10 minutes informed him that the remains were on a
place to Mexico City, that there were two bodies at the terminal, and somehow they were switched; he
relayed this information to Miss Saludo in California; later C.M.A.S. called and told him they were sending
the remains back to California via Texas (see Exh. 6-TWA).
"It turned out that TWA had carried a shipment under PAL Airway Bill No. 079-ORD-01180454 on TWA Flight
603 of October 27, 1976, a flight earlier than TWA Flight 131 of the same date. TWA delivered or
transferred the said shipment said to contain human remains to PAL at 1400 H or 2:00 p.m. of the same
401 | P a g e
date. October 27, 1976 (See Exh. 1-TWA). 'Due to a switch(ing) in Chicago', this shipment was withdrawn
from PAL by CMAS at 1805H (or 6:05 p.m.) of the same date, October 27 (Exh. 3-PAL, see Exh. 3-a-PAL).
"What transpired at the Chicago (A)irport is explained in a memo or incident report by Pomierski (Exh. 6TWA) to Pomierski's lawyers who in turn referred to said memo and enclosed it in their (Pomierski's
lawyers) answer dated July 18, 1981 to herein plaintiff's counsel (See Exh. 5-TWA). In that memo or
incident report (Exh. 6-TWA), it is stated that the remains (of Crispina Saludo) were taken to CMAS at the
airport; that there were two bodies at the (Chicago Airport) terminal, and somehow they were switched,
that the remains (of Crispina Saludo) were on a plane to Mexico City; that CMAS is a national service used
by undertakers throughout the nation (U.S.A.), makes all the necessary arrangements, such as flights,
transfers, etc., and see(s) to it that the remains are taken to the proper air freight terminal.
"The following day October 28, 1976, the shipment or remains of Crispina Saludo arrived (in) San Francisco
from Mexico on board American Airlines. This shipment was transferred to or received by PAL at 1945H or
7:45 p.m. (Exh. 2-PAL, Exh. 2-a-PAL). This casket bearing the remains of Crispina Saludo, which was
mistakenly sent to Mexico and was opened (there), was resealed by Crispin F. Padagas for shipment to the
Philippines (See Exh. B-1). The shipment was immediately loaded on PAL flight for Manila that same
evening and arrived (in) Manila on October 30, 1976, a day after its expected arrival on October 29, 1976."
3
In a letter dated December 15, 1976, 4 petitioners' counsel informed private respondent Trans World
Airlines (TWA) of the misshipment and eventual delay in the delivery of the cargo containing the remains
of the late Crispina Saludo, and of the discourtesy of its employees to petitioners Maria Salvacion Saludo
and Saturnino Saludo. In a separate letter on June 10, 1977 addressed to co-respondent Philippine Airlines
(PAL), 5 petitioners stated that they were holding PAL liable for said delay in delivery and would commence
judicial action should no favorable explanation be given. LLjur
Both private respondents denied liability. Thus, a damage suit 6 was filed by petitioners before the then
Court of First Instance, Branch III, Leyte, praying for the award of actual damages of P50,000.00, moral
damages of P1,000,000.00, exemplary damages, attorney's fees and costs of suit.
As earlier stated, the court below absolved the two respondent airline companies of liability. The Court of
Appeals affirmed the decision of the lower court in toto, and in a subsequent resolution, 7 denied herein
petitioners' motion for reconsideration for lack of merit.
In predictable disagreement and dissatisfaction with the conclusions reached by respondent appellate
court, petitioners now urge this Court to review the appealed decision and to resolve whether or not (1) the
delay in the delivery of the casketed remains of petitioners' mother was due to the fault of respondent
airline companies, (2) the one-day delay in the delivery of the same constitutes contractual breach as
would entitle petitioners to damages, (3) damages are recoverable by petitioners for the humiliating,
arrogant and indifferent acts of the employees of TWA and PAL, and (4) private respondents should be held
liable for actual. moral and exemplary damages, aside from attorney's fees and litigation expenses. 8
At the outset and in view of the spirited exchanges of the parties on this aspect, it is to be stressed that
only questions of law may be raised in a petition filed in this Court to review on certiorari the decision of
the Court of Appeals. 9 This being so, the factual findings of the Court of Appeals are final and conclusive
and cannot be reviewed by the Supreme Court. The rule, however, admits of established exceptions, to
wit: (a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on speculations,
surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or impossible; (d)
when the judgment of the Court of Appeals was based on a misapprehension of facts; (e) when the factual
findings are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of the
case and the same are contrary to the admissions of both appellant and appellee; 10 (g) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; 11 and (h) where the findings of fact of the Court of
Appeals are contrary to those of the trial court, or are mere conclusions without citation of specific
evidence, or where the facts set forth by the petitioner are not disputed by the respondent, or where the
findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by
the evidence on record. 12
To distinguish, a question of law is one which involves a doubt or controversy on what the law is on a
certain state of facts; and, a question of fact, contrarily, is one in which there is a doubt or difference as to
the truth or falsehood of the alleged facts. 13 One test, it has been held, is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in which case it is a question of
law, otherwise it will be a question of fact. 14 Respondent airline companies object to the present recourse
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of petitioners on the ground that this petition raises only factual questions. 15 Petitioners maintain
otherwise or, alternatively, they are of the position that, assuming that the petition raises factual
questions, the same are within the recognized exceptions to the general rule as would render the petition
cognizable and worthy of review by the Court. 16
Since it is precisely the soundness of the inferences or conclusions that may be drawn from the factual
issues which are here being assayed, we find that the issues raised in the instant petition indeed warrant a
second look if this litigation is to come to a reasonable denouement. A discussion seriatim of said issues
will further reveal that the sequence of the events involved is in effect disputed. Likewise to be settled is
whether or not the conclusions of the Court of Appeals subject of this review indeed find evidentiary and
legal support. cdrep
I.
Petitioners fault respondent court for "not finding that private respondents failed to exercise
extraordinary diligence required by law which resulted in the switching and/or misdelivery of the remains
of Crispina Saludo to Mexico causing gross delay in its shipment to the Philippines, and consequently,
damages to petitioners." 17
Petitioners allege that private 'respondents received the casketed remains of petitioners' mother on
October 26, 1976, as evidenced by the issuance of PAL Air Way-bill No. 079-01180454 18 by Air Care
International as carrier's agent; and from said date, private respondents were charged with the
responsibility to exercise extraordinary diligence so much so that for the alleged switching of the caskets
on October 27, 1976, or one day after private respondents received the cargo, the latter must necessarily
be liable.
To support their assertion, petitioners rely on the jurisprudential dictum, both under American and
Philippine law, that "(t)he issuance of a bill of lading carries the presumption that the goods were delivered
to the carrier issuing the bill, for immediate shipment, and it is nowhere questioned that a bill of lading is
prima facie evidence of the receipt of the goods by the carrier. . . . In the absence of convincing testimony
establishing mistake, recitals in the bill of lading showing that the carrier received the goods for shipment
on a specified date control (13 C.J.S. 235)." 19
A bill of lading is a written acknowledgment of the receipt of the goods and an agreement to transport and
deliver them at a specified place to a person named or on his order. Such instrument may be called a
shipping receipt, forwarder's receipt and receipt for transportation. 20 The designation, however, is
immaterial. It has been held that freight tickets for bus companies as well as receipts for cargo transported
by all forms of transportation, whether by sea or land, fall within the definition. Under the Tariff and
Customs Code, a bill of lading includes airway bills of lading. 21 The two-fold character of a bill of lading is
all too familiar: it is a receipt as to the quantity and description of the goods shipped and a contract to
transport the goods to the consignee or other person therein designated, on the terms specified in such
instrument. 22
Logically, since a bill of lading acknowledges receipt of goods to be transported, delivery of the goods to
the carrier normally precedes the issuance of the bill; or, to some extent, delivery of the goods and
issuance of the bill are regarded in commercial practice as simultaneous acts. 23 However, except as may
be prohibited by law, there is nothing to prevent an inverse order of events, that is, the execution of the
bill, of lading even prior to actual possession and control by the carrier of the cargo to be transported.
There is no law which requires that the delivery of the goods for carriage and the issuance of the covering
bill of lading must coincide in point of time or, for that matter, that the former should precede the latter.
Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for transportation but,
when issued, is competent and prima facie, but not conclusive, evidence of delivery to the carrier. A bill of
lading, when properly executed and delivered to a shipper, is evidence that the carrier has received the
goods described therein for shipment. Except as modified by statute, it is a general rule as to the parties to
a contract of carriage of goods in connection with which a bill of lading is issued reciting that goods have
been received for transportation, that the recital being in essence a receipt alone, is not conclusive, but
may be explained, varied or contradicted by parol or other evidence. 24
While we agree with petitioners' statement that "an airway hill estops the carrier from denying receipt of
goods of the quantity and quality described in the bill," a further reading and a more faithful quotation of
the authority cited would reveal that "(a) bill of lading may contain constituent elements of estoppel and
thus become something more than a contract between the shipper and the carrier. . . . (However), as
between the shipper and the carrier, when no goods have been delivered for shipment no recitals in the
bill can estop the carrier from showing the true facts . . . Between the consignor of goods and a receiving
carrier, recitals in a bill of lading as to the goods shipped raise only a rebuttable presumption that such
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goods were delivered for shipment. As between the consignor and a receiving carrier, the fact must
outweigh the recital." 25 (Emphasis supplied.)
For this reason, we must perforce allow explanation by private respondents why, despite the issuance of
the airway bill and the date thereof, they deny having received the remains of Crispina Saludo on October
26, 1976 as alleged by petitioners.
The findings of the trial court, as favorably adopted by the Court of Appeals and which we have earlier
quoted, provide us with the explanation that sufficiently overcomes the presumption relied on by
petitioners in insisting that the remains of their mother were delivered to and received by private
respondents on October 26, 1976. Thus
". . . Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on October 26, 1976 at
the Pomierski & Son Funeral Home, sealed the shipping case containing a hermetically sealed casket that
is airtight and waterproof wherein was contained the remains of Crispina Saludo Galdo (sic) (Exh. B). On
the same date October 26, 1976, Pomierski brought the remains to C.M.A.S. (Continental Mortuary Air
Services) at the airport (Chicago) which made the necessary arrangements such as flights, transfers, etc;
C.M.A.S. is a national service used by undertakers throughout the nation (U.S.A.), they furnish the air
pouch which the casket is enclosed in, and they see that the remains are taken to the proper air freight
terminal (Exh. G-TWA). C.M.A.S. booked the shipment with PAL thru the carrier's agent Air Care
International, with Pomierski F.H. as the shipper and Mario (Maria) Saludo as the consignee. PAL Airway Bill
No. 079- 01180454 Ordinary was issued wherein the requested routing was from Chicago to San Francisco
on board TWA Flight 131 of October 27, 1976, and from San Francisco to Manila on board PAL Flight No.
107 of the same date, and from Manila to Cebu on board PAL Flight 149 of October 29, 1976 (See Exh. E,
also Exh. 1-PAL)." 26 (Emphasis supplied.)
Moreover, we are persuaded to believe private respondent PAL's account as to what transpired on October
26, 1976:
". . . pursuant thereto, on 26 October 1976, CMAS acting upon the instruction of Pomierski, F.H., the
shipper requested booking of the casketed remains of Mrs. Cristina (sic) Saludo on board PAL's San
Francisco-Manila Flight No. PR 107 on October 27, 1976.
"2.
To signify acceptance and confirmation of said booking, PAL issued to said Pomierski F.H., PAL
Airway Bill No. 079-01180454 dated October 27, 1976 (sic, '10/26/76'). PAL confirmed the booking and
transporting of the shipment on board of its Flight PR 107 on October 27, 1976 on the basis of the
representation of the shipper and/or CMAS that. the said cargo would arrive in San Francisco from Chicago
on board United Airlines Flight US 121 on 27 October 1976." 27
In other words,, on October 26, 1976 the cargo containing the casketed remains of Crispina Saludo was
booked for PAL Flight Number PR-107 leaving San Francisco for Manila on October 27, 1976. PAL Airway Bill
No. 079-01180454 was issued, not as evidence of receipt of delivery of the Cargo on October 26, 1976, but
merely as a confirmation of the booking thus made for the San Francisco-Manila flight scheduled on
October 27, 1976. Actually, it was not until October 28, 1976 that PAL received physical delivery of the
body at San Francisco, as duly evidenced by the Interline Freight Transfer Manifest of the American Airline
Freight System and signed for by Virgilio Rosales at 1945H, or 7:45 P.M. on said date. 28
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the common
carrier begins from the time the goods are delivered to the carrier. This responsibility remains in full force
and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner
exercises the right of stoppage in transitu, 29 and terminates only after the lapse of a reasonable time for
the acceptance of the goods by the consignee or such other person entitled to receive them. 30 And, there
is delivery to the carrier when the goods are ready for and have been placed in the exclusive possession,
custody and control of the carrier for the purpose of their immediate transportation and the carrier has
accepted them. 31 Where such a delivery has thus been accepted by the carrier, the liability of the
common carrier commences eo instanti. 32
Hence, while we agree with petitioners that the extraordinary diligence statutorily required to be observed
by the carrier instantaneously commences upon delivery of the goods thereto, for such duty to commence
there must in fact have been delivery of the cargo subject of the contract of carriage. Only when such fact
of delivery has been unequivocally established can the liability for loss, destruction or deterioration of
goods in the custody of the carrier, absent the excepting causes under Article 1734, attach and the
presumption of fault of the carrier under Article 1735 be invoked.
As already demonstrated, the facts, in the case at bar belie the averment that there was delivery of the
cargo to the carrier on October 26, 1976. Rather, as earlier explained, the body intended to be shipped as
404 | P a g e
agreed upon was, really placed in the possession and control of PAL on October 28, 1976 and it was from
that date that private respondents became responsible for the agreed cargo under their undertakings in
PAL Airway Bill No. 079-01180454. Consequently, for the switching of caskets prior thereto which was not
caused by them., and subsequent events caused thereby, private respondents cannot be held liable. prLL
Petitioners, proceeding on the premise that there was delivery of the cargo to private respondents on
October 26, 1976 and that the latter's extraordinary responsibility had by then become operative, insist on
foisting the blame on private respondents for the switching of the two caskets which occurred on October
27, 1976. It is argued that since there is no clear evidence establishing the fault of Continental Mortuary
Air Services (CMAS) for the mix-up, private respondents are presumably negligent pursuant to Article 1735
of the Civil Code and, for failure to rebut such presumption, they must necessarily be held liable; or,
assuming that CMAS was at fault, the same does not absolve private respondents of liability because
whoever brought the cargo to the airport, or loaded it on the plane did so as agent of private respondents.
This contention is without merit. As pithily explained by the Court of Appeals:
"The airway bill expressly provides that 'Carrier certifies goods described below were received for carriage',
and said cargo was 'casketed human remains of Crispina Saludo', with 'Maria Saludo as Consignee:
Pomierski F.H. as Shipper;: Air Care International as carrier's agent.' On the face of the said airway bill, the
specific flight numbers, specific routes of shipment and dates of departure and arrival were typewritten, to
wit: Chicago TWA Flight 131/27 to San Francisco and from San Francisco by PAL 107 on October 27, 1976
to Philippines and to Cebu via PAL Flight 149 on October 29, 1976. The airway bill also contains the
following typewritten words, as follows: 'all documents have been examined (sic). Human remains of
Crispina Saludo. Please return back (sic) first available flight to SFO.
"But, as it turned out and was discovered later the casketed human remains which was issued PAL Airway
Bill #079-1180454 was not the remains of Crispina Saludo, the casket containing her remains having been
shipped to Mexico City.
"However, it should be noted that, Pomierski F.H., the shipper of Mrs. Saludo's remains, hired Continental
Mortuary Services (hereafter referred to as C.M.A.S. ), which is engaged in the business of transporting and
forwarding human remains. Thus, C.M.A.S. made all the necessary arrangements such as flights,
transfers, etc. for shipment of the remains of Crispina Saludo.
'The remains were taken on October 26th, 1976, to C.M.A.S. at the airport. These people made all the
necessary arrangements, such as flights, transfers, etc. This is a national service used by undertakers
throughout the nation. They furnished the air pouch which the casket is enclosed in, and they see that the
remains are taken to the proper air freight terminal. I was very surprised when Miss Saludo called me to
say that the remains were not at the west coast terminal. I immediately called C.M.A.S. They called me
back in a matter of ten minutes to inform me that the remains were on a plane to Mexico City. The man
said that there were two bodies at the terminal, and somehow they were switched. . . (Exh. 6-'TWA', which
is the memo or incident report enclosed in the stationery of Walter Pomierski & Sons Ltd.)'
"Consequently, when the cargo was received from C.M.A.S. at the Chicago airport terminal for shipment,
which was supposed to contain the remains of Crispina Saludo, Air Care International and/or TWA, had no
way of determining its actual contents, since the casket was hermetically sealed by the Philippine ViceConsul in Chicago and in an air pouch of C.M.A.S., to the effect that Air Care International and/or TWA had
to rely on the information furnished by the shipper regarding the cargo's content. Neither could Air Care
International and/or TWA open the casket for further verification, since they were not only without
authority to do so, but even prohibited.
"Thus, under said circumstances, no fault and/or negligence can be attributed to PAL (even if Air Care
International should be considered as an agent of PAL) and/or TWA, the entire fault or negligence being
exclusively with C.M.A.S." 33 (Emphasis supplied.)
It can correctly and logically be concluded, therefore that the switching occurred or, more accurately, was
discovered on October 27, 1976; and based on the above findings of the Court of Appeals, it happened
while the cargo was still with CMAS, well before the same was placed in the custody of private
respondents.
Thus, while the Air Cargo Transfer Manifest of TWA of October 27, 1976 34 was signed by Garry Marcial of
PAL at 1400H, or 2:00 P.M., on the same date, thereby indicating acknowledgment by PAL of the transfer to
them by TWA of what was in truth the erroneous cargo, said misshipped cargo was in fact withdrawn by
CMAS from PAL as shown by the notation on another copy of said manifest 35 stating "Received by CMAS
Due to switch in Chicago 10/27-1805H," the authenticity of which was never challenged. This shows that
said misshipped cargo was in fact withdrawn by CMAS from PAL and the correct shipment containing the
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body of Crispina Saludo was received by PAL only on October 28, 1976, at 1945H, or 7:45 P.M., per
American Airlines Interline Freight Transfer Manifest No. AA204312. 36
Witness the deposition of TWA's ramp serviceman, Michael Giosso, on this matter:
"ATTY. JUAN COLLAS, JR.:
On that date, do (sic) you have occasion to handle or deal with the transfer of cargo from TWA
Flight No. 603 to PAL San Francisco?
MICHAEL GIOSSO:
Yes, I did.
ATTY. JUAN COLLAS, JR.:
What was your participation with the transfer of the cargo?
MICHAEL GIOSSO:
I manifested the freight on a transfer manifest and physically moved it to PAL and concluded the
transfer by signing it off.
You brought it there yourself?
MICHAEL GIOSSO:
Yes sir.
Do you have anything to show that PAL received the cargo from TWA on October 27, 1976?
MICHAEL GIOSSO:
Yes, I do.(Witness presenting a document)
For purposes of clarity, Exhibit I is designated as Exhibit I-TWA.
xxx
xxx
xxx
This Exhibit I-TWA, could you tell what it is, what it shows?
MICHAEL GIOSSO:
It shows transfer of manifest on 10-27-76 to PAL at 1400 and verified with two signatures as it
completed the transfer.
Very good. Who was the PAL employee who received the cargo?
MICHAEL GIOSSO:
The name is Garry Marcial." 37
The deposition of Alberto A. Lim. PAL's cargo supervisor at San Francisco, as deponent-witness for PAL,
makes this further clarification:
"ATTY. CESAR P. MANALAYSAY:
You mentioned Airway Bill, Mr. Lim. I am showing to you a PAL Airway Bill Number 01180454 which
for purposes of evidence, I would like to request that the same be marked as evidence Exhibit I for PAL.
xxx
xxx
xxx
In what circumstances did you encounter Exhibit I-PAL?
ALBERTO A. LIM:
If I recall correctly, I was queried by Manila, our Manila office with regard to a certain complaint that
a consignee filed that this shipment did not arrive on the day that the consignee expects the shipment to
arrive.
ATTY. CESAR P. MANALAYSAY:
Okay. Now, upon receipt of that query from your Manila office, did you conduct any investigation to
pinpoint the possible causes of mishandling?
ALBERTO A. LIM:
Yes.
xxx
xxx
xxx
What is the result of your investigation?
ALBERTO A. LIM:
In the course of my investigation, I found that we received the body on October 28, 1976, from
American Airlines.
406 | P a g e
What body are you referring to?

xxx
xxx
xxx
ALBERTO A. LIM:
The remains of Mrs. Cristina (sic) Saludo.
Is that the same body mentioned in this Airway Bill?
ALBERTO A. LIM:
Yes.
ATTY. CESAR P MANALAYSAY:
What time did you receive said body on October 28, 1976?
ALBERTO A. LIM:
If I recall correctly, approximately 7:45 of October 28, 1976.
Do you have any proof with you to back the statement?
ALBERTO A. LIM:
Yes. We have on our records a Transfer Manifest from American Airlines Number 204312 showing
that we received a human remains shipment belong to Mrs. Cristina (sic) Saludo or the human remains of
Mrs. Cristina (sic) Saludo.
At this juncture, may I request that the Transfer Manifest referred to by the witness be marked as an
evidence as Exhibit II-PAL.
xxx
xxx
xxx
Mr. Lim, yesterday your co-defendant TWA presented as their Exhibit I evidence tending to show
that on October 27, 1976 at about 2:00 in the afternoon they delivered to you a cargo bearing human
remains. Could you go over this Exhibit I and please give us your comments as to that exhibit?
ATTY. ALBERTO C. MENDOZA:
That is a vague question. I would rather request that counsel propound specific questions rather
than asking for comments on Exhibit I-TWA.
In that case, I will reform my question. Could you tell us whether TWA in fact delivered to you the
human remains as indicated in that Transfer Manifest?
ALBERTO A. LIM:
Yes, they did.
I noticed that the Transfer Manifest of TWA marked as Exhibit I-TWA bears the same numbers or the
same entries as the Airway Bill marked as Exhibit I-A PAL tending to show that this is the human remains of
Mrs. Cristina (sic) Saludo. Could you tell us whether this is true?
ALBERTO A. LIM:
It is true that we received human remains shipment from TWA as indicated on this Transfer
Manifest. But in the course of investigation, it was found out that the human remains transferred to us is
not the remains of Mrs. Cristina (sic) Saludo which is the reason why we did not board it on our flight." 38
Petitioners consider TWA's statement that "it had to rely on the information furnished by the shipper" a
lame excuse and that its failure to prove that its personnel verified and identified the contents of the
casket before loading the same constituted negligence on the part of TWA. 39
We uphold the favorable consideration by the Court of Appeals of the following findings of the trial court:
"It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered the casket
containing the remains of Crispina Saludo. TWA would have no knowledge therefore that the remains of
Crispina Saludo were not the ones inside the casket that was being presented to it for shipment. TWA
would have to rely on the representations of C.M.A.S. The casket was hermetically sealed and also sealed
by the Philippine Vice Consul in Chicago. TWA or any airline for that matter would not have opened such
sealed casket just for the purpose of ascertaining whose body was inside and to make sure that the
remains inside were those of the particular person indicated to be by C.M.A.S. TWA had to accept whatever
information was being furnished by the shipper or by the one presenting the casket for shipment. And so
as a matter of fact, TWA carried to San Francisco and transferred to defendant PAL a shipment covered by
or under PAL Airway Bill No. 079-ORD-01180454, the airway bill for the shipment of the casketed remains
of Crispina Saludo. Only, it turned out later, while the casket was already with PAL, that what was inside
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the casket was not the body of Crispina Saludo so much so that it had to be withdrawn by C.M.A.S. from
PAL. The body of Crispina Saludo had been shipped to Mexico. The casket containing the remains of
Crispina Saludo was transshipped from Mexico and arrived in San Francisco the following day on board
American Airlines. It was immediately loaded by PAL on its flight for Manila.
"The foregoing points at C.M.A.S., not defendant TWA much less defendant PAL, as the ONE responsible for
the switching or mix-up of the two bodies at the Chicago Airport terminal, and started a chain reaction of
the misshipment of the body of Crispina Saludo and a one-day delay in the delivery thereof to its
destination. 40
Verily, no amount of inspection by respondent airline companies could have guarded against the switching
that had already taken place. Or, granting that they could have opened the casket to inspect its contents,
private respondents had no means of ascertaining whether the body therein contained was indeed that of
Crispina Saludo except, possibly, if the body was that of a male person and such fact was visually apparent
upon opening the casket. However, to repeat, private respondents had no authority to unseal and open the
same nor did they have any reason or justification to resort thereto.
It is the right of the carrier to require good faith on the part of those persons who deliver goods to be
carried, or enter into contracts with it, and inasmuch as the freight may depend on the value of the article
to be carried, the carrier ordinarily has the right to inquire as to its value. Ordinarily, too, it is the duty of
the carrier to make inquiry as to the general nature of the articles shipped and of their value before it
consents to carry them; and its failure to do so cannot defeat the shipper's right to recovery of the full
value of the package if lost, in the absence of showing of fraud or deceit on the part of the shipper. In the
absence of more definite information, the carrier has the right to accept shipper's marks as to the contents
of the package offered for transportation and is not bound to inquire particularly about them in order to
take advantage of a false classification and where a shipper expressly represents the contents of a
package to be of a designated character, it is not the duty of the carrier to ask for a repetition of the
statement nor disbelieve it and open the box and see for itself. 41 However, where a common carrier has
reasonable ground to suspect that the offered goods are of a dangerous or illegal character, the carrier has
the right to know the character of such goods and to insist on an inspection, if reasonable and practical
under the circumstances, as a condition of receiving and transporting such goods. 42
It can safely be said then that a common carrier is entitled to fair representation of the nature and value of
the goods to be carried, with the concomitant right to rely thereon, and further noting at this juncture that
a carrier has no obligation to inquire into the correctness or sufficiency of such information. 43 The
consequent duty to conduct an inspection thereof arises in the event that there should be reason to doubt
the veracity of such representations. Therefore, to be subjected to unusual search, other than the routinary
inspection procedure customarily undertaken, there must exist proof that would justify cause for
apprehension that the baggage is dangerous as to warrant exhaustive inspection, or even refusal to accept
carriage of the same; and it is the failure of the carrier to act accordingly in the face of such proof that
constitutes the basis of the common carrier's liability. 44
In the case at bar, private respondents had no reason whatsoever to doubt the truth of the shipper's
representations. The airway bill expressly providing that "carrier certifies goods received below were
received for carriage," and that the cargo contained "casketed human remains of Crispina Saludo," was
issued on the basis of such representations. The reliance thereon by private respondents was reasonable
and, for so doing, they cannot be said to have acted negligently. Likewise, no evidence was adduced to
suggest even an iota of suspicion that the cargo presented for transportation was anything other than
what it was declared to be, as would require more than routine inspection or call for the carrier to insist
that the same be opened for scrutiny of its contents per declaration.
Neither can private respondents be held accountable on the basis of petitioners' preposterous proposition
that whoever brought the cargo to the airport or loaded it on the airplane did so as agent of private
respondents, so that even if CMAS whose services were engaged for the transit arrangements for the
remains was indeed at fault, the liability therefor would supposedly still be attributable to private
respondents.
While we agree that the actual participation of CMAS has been sufficiently and correctly established, to
hold that it acted as agent for private respondents would be both an inaccurate appraisal and an
unwarranted categorization of the legal position it held in the entire transaction.
It bears repeating that CMAS was hired to handle all the necessary shipping arrangements for the
transportation of the human remains of Crispina Saludo to Manila. Hence, it was to CMAS that the
Pomierski & Son Funeral Home, as shipper, brought the remains of petitioners' mother for shipment, with
408 | P a g e
Maria Saludo as consignee. Thereafter, CMAS booked the shipment with PAL through the carrier's agent,
Air Care International. 45 With its aforestated functions, CMAS may accordingly be classified as a forwarder
which, by accepted commercial practice, is regarded as an agent of the shipper and not of the carrier. As
such, it merely contracts for the transportation of goods by carriers, and has no interest in the freight but
receives compensation from the shipper as his agent. 46
At this point, it can be categorically stated that, as culled from the findings of both the trial court and
appellate court, the entire chain of events which culminated in the present controversy was not due to the
fault or negligence of private respondents. Rather, the facts of the case would point to CMAS as the culprit.
Equally telling of the more likely possibility of CMAS' liability is petitioners' letter to and demanding an
explanation from CMAS regarding the statement of private respondents laying the blame on CMAS for the
incident, portions of which, reading as follows:
". . . we were informed that the unfortunate mix-up occurred due to your negligence. . .
"Likewise, the two airlines pinpoint the responsibility upon your agents. Evidence were presented to prove
that allegation.
"On the face of this overwhelming evidence we could and should have filed a case against you. . ." 47
clearly allude to CMAS as the party at fault. This is tantamount to an admission by petitioners that they
consider private respondents without fault, or is at the very least indicative of the fact that petitioners
entertained serious doubts as to whether herein private respondents were responsible for the unfortunate
turn of events.
Undeniably, petitioners' grief over the death of their mother was aggravated by the unnecessary
inconvenience and anxiety that attended their efforts to bring her body home for a decent burial. This is
unfortunate and calls for sincere commiseration with petitioners. But, much as we would like to give them
consolation for their undeserved distress, we are barred by the inequity of allowing recovery of the
damages prayed for by them at the expense of private respondents whose fault or negligence in the very
acts imputed to them has not been convincingly and legally demonstrated.
Neither are we prepared to delve into, much less definitively rule on, the possible liability of CMAS as the
evaluation and adjudication of the same is not what is presently at issue here and is best deferred to
another time and addressed to another forum.
II.
Petitioners further fault the Court of Appeals for ruling that there was no contractual breach on the
part of private respondents as would entitle petitioners to damages.
Petitioners hold that respondent TWA, by agreeing to transport the remains of petitioners' mother on its
Flight 131 from Chicago to San Francisco on October 27, 1976, made itself a party to the contract of
carriage and, therefore, was bound by the terms of the issued airway bill. When TWA undertook to ship the
remains on its Flight 603, ten hours earlier than scheduled, it supposedly violated the express agreement
embodied in the airway bill. It was allegedly this breach of obligation which compounded, if not directly
caused, the switching of the caskets.
In addition, petitioners maintain that since there is no evidence as to who placed the body on board Flight
603, or that CMAS actually put the cargo on that flight, or that the two caskets at the Chicago airport were
to be transported by the same airline, or that they came from the same funeral home, or that both caskets
were received by CMAS, then the employees or agents of TWA presumably caused the mix-up by loading
the wrong casket on the plane. For said error, they contend, TWA must necessarily be presumed negligent
and this presumption of negligence stands undisturbed unless rebutting evidence is presented to show
that the switching or misdelivery was due to circumstances that would exempt the carrier from liability.
Private respondent TWA professes otherwise. Having duly delivered or transferred the cargo to its corespondent PAL on October 27, 1976 at 2:00 P.M., as supported by the TWA Transfer Manifest, TWA
faithfully complied with its obligation under the airway bill. Said faithful compliance was not affected by
the fact that the remains were shipped on an earlier flight as there was no fixed time for completion of
carriage stipulated on. Moreover, the carrier did not undertake to carry the cargo aboard any specified
aircraft, in view of the condition on the back of the airway bill which provides:
"CONDITIONS OF CONTRACT
xxx
xxx
xxx
"It is agreed that no time is fixed for the completion of carriage hereunder and that Carrier may without
notice substitute alternate carriers or aircraft. Carrier assumes no obligation to carry the goods by any
specified aircraft or over any particular route or routes or to make connection at any point according to any
particular schedule, and Carrier is hereby authorized to select, or deviate from the route or routes of
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shipment, notwithstanding that the same may be stated on the face hereof. The shipper guarantees
payment of all charges and advances." 48
Hence, when respondent TWA shipped the body on an earlier flight and on a different aircraft, it was acting
well within its rights. We find this argument tenable.
The contention that there was contractual breach on the part of private respondents is founded on the
postulation that there was ambiguity in the terms of the airway bill, hence petitioners' insistence on the
application of the rules on interpretation of contracts and documents. We find no such ambiguity. The
terms are clear enough as to preclude the necessity to probe beyond the apparent intendment of the
contractual provisions.
The hornbook rule on interpretation of contracts consecrates the primacy of the intention of the parties,
the same having the force of law between them. When the terms of the agreement are clear and explicit,
that they do not justify an attempt to read into any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract. 49 The various stipulations of a
contract shall be interpreted together 50 and such a construction is to be adopted as will give effect to all
provisions thereof. 51 A contract cannot be construed by parts, but its clauses should be interpreted in
relation to one another. The whole contract must be interpreted or read together in order to arrive at its
true meaning. Certain stipulations cannot be segregated and then made to control; neither do particular
words or phrases necessarily determine the character of a contract. The legal effect of the contract is not
to be determined alone by any particular provision disconnected from all others, but in the ruling intention
of the parties as gathered from all the language they have used and from their contemporaneous and
subsequent acts. 52
Turning to the terms of the contract at hand, as presented by PAL Air Waybill No. 079-01180454,
respondent court approvingly quoted the trial court's disquisition on the aforequoted condition appearing
on the reverse side of the airway bill and its disposition of this particular assigned error:
"The foregoing stipulation fully answers plaintiffs' objections to the one-day delay and the shipping of the
remains in TWA Flight 603 instead of TWA Flight 131. Under the stipulation, parties agreed that no time
was fixed to complete the contract of carriage and that the carrier may, without notice, substitute
alternate carriers or aircraft. The carrier did not assume the obligation to carry the shipment on any
specified aircraft.
xxx
xxx
xxx
"Furthermore, contrary to the claim of plaintiffs-appellants, the conditions of the Air Waybill are big enough
to be read and noticed. Also, the mere fact that the cargo in question was shipped in TWA Flight 603, a
flight earlier on the same day than TWA Flight 131, did not in any way cause or add to the one-day delay
complained of and/or the switching or mix-up of the bodies." 53
Indubitably, that private respondent can use substitute aircraft even without notice and without the
assumption of any obligation whatsoever to carry the goods on any specified aircraft is clearly sanctioned
by the contract of carriage as specifically provided for under the conditions thereof.
Petitioners' invocation of the interpretative rule in the Rules of Court that written words control printed
words in documents, 54 to bolster their assertion that the typewritten provisions regarding the routing and
flight schedule prevail over the printed conditions, is tenuous. Said rule may be considered only when
there is inconsistency between the written and printed words of the contract.
As previously stated, we find no ambiguity in,the contract subject of this case that would call for the
application of said rule. In any event, the contract has provided for such a situation by explicitly stating
that the above condition remains effective "notwithstanding that the same (fixed time for completion of
carriage, specified aircraft, or any particular route or schedule) may be stated on the face hereof." While
petitioners hinge private respondents' culpability on the fact that the carrier "certifies goods described
below were received for carriage," they may have overlooked that the statement on the face of the airway
bill properly and completely reads
"Carrier certifies goods described below were received for carriage subject to the Conditions on the reverse
hereof the goods then being in apparent good order and condition except as noted hereon." 55 (Emphasis
supplied.)
Private respondents further aptly observe that the carrier's certification regarding receipt of the goods for
carriage "was of a Waybill, including Condition No. 5 and thus if plaintiffs-appellants had recognized the
former, then with more reason they were aware of the latter." 56
In the same vein, it would also be incorrect to accede to the suggestion of petitioners that the typewritten
specifications of the flight, routes and dates of departures and arrivals on the face of the airway bill
410 | P a g e
constitute a special contract which modifies the printed conditions at the back thereof. We reiterate that
typewritten provisions of the contract are to be read and understood subject to and in view of the printed
conditions, fully reconciling and giving effect to the manifest intention of the parties to the agreement.
LexLib
The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a
carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to
convey goods, the law implies a contract that they shall be delivered at destination within a reasonable
time, in the absence of any agreement as to the time of delivery. 57 But where a carrier has made an
express contract to transport and deliver property within a specified time, it is bound to fulfill its contract
and is liable for any delay, no matter from what cause it may have arisen. 58 This result logically follows
from the well-settled rule that where the law creates a duty or charge, and the party is disabled from
performing it without any default in himself, and has no remedy over, then the law will excuse him, but
where the party by his own contract creates a duty or charge upon himself, he is bound to make it good
notwithstanding any accident or delay by inevitable necessity because he might have provided against it
by contract. Whether or not there has been such an undertaking on the part of the carrier is to be
determined from the circumstances surrounding the case and by application of the ordinary rules for the
interpretation of contracts. 59
Echoing the findings of the trial court, the respondent court correctly declared that
"In a similar case of delayed delivery of air cargo under a very similar stipulation contained in the airway
bill which reads: 'The carrier does not obligate itself to carry the goods by any specified aircraft or on a
specified time. Said carrier being hereby authorized to deviate from the route of the shipment without any
liability therefore', our Supreme Court ruled that common carriers are not obligated by law to carry and to
deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common
carriers previously assume the obligation. Said rights and obligations are created by a specific contract
entered into by the parties (Mendoza vs. PAL, 90 Phil. 836).
"There is no showing by plaintiffs that such a special or specific contract had been entered into between
them and the defendant airline companies.
"And this special contract for prompt delivery should call the attention of the carrier to the circumstances
surrounding the case and the approximate amount of damages to be suffered in case of delay (See
Mendoza vs. PAL, supra). There was no such contract entered into in the instant case." 60
Also, the theory of petitioners that the specification of the flights and dates of departures and arrivals
constitute a special contract that could prevail over the printed stipulations at the back of the airway bill is
vacuous. To countenance such a postulate would unduly burden the common carrier for that would have
the effect of unilaterally transforming every single bill of lading or trip ticket into a special contract by the
simple expedient of filling it up with the particulars of the flight, trip or voyage, and thereby imposing upon
the carrier duties and/or obligations which it may not have been ready or willing to assume had it been
timely advised thereof.
Neither does the fact that the challenged condition No. 5 was printed at the back of the airway bill militate
against its binding effect on petitioners as parties to the contract, for there were sufficient indications on
the face of said bill that would alert them to the presence of such additional condition to put them on their
guard. Ordinary prudence on the part of any person entering or contemplating to enter into a contract
would prompt even a cursory examination of any such conditions, terms and/or stipulations.
There is a holding in most jurisdictions that the acceptance of a bill of lading without dissent raises a
presumption that all terms therein were brought to the knowledge of the shipper and agreed to by him,
and in the absence of fraud or mistake, he is estopped from thereafter denying that he assented to such
terms. This rule applies with particular force where a shipper accepts a bill of lading with full knowledge of
its contents, and acceptance, under such circumstances makes it a binding contract. In order that any
presumption of assent to a stipulation in a bill of lading limiting the liability of a carrier may arise, it must
appear that the clause containing this exemption from liability plainly formed a part of the contract
contained in the bill of lading. A stipulation printed on the back of a receipt or bill of lading or on papers
attached to such receipt will be quite as effective as if printed on its face, if it is shown that the consignor
knew of its terms. Thus, where a shipper accepts a receipt which states that its conditions are to be found
on the back, such receipt comes within the general rule, and the shipper is held to have accepted and to
be bound by the conditions there to be found. 61
Granting arguendo that Condition No. 5 partakes of the nature of a contract of adhesion and as such must
be construed strictly against the party who drafted the same or gave rise to any ambiguity therein, it
411 | P a g e
should be borne in mind that a contract of adhesion may be struck down as void and unenforceable, for
being subversive of public policy, only when the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived
of the opportunity to bargain on equal footing. 62 However, Ong Yiu vs. Court of Appeals, et al. 63 instructs
us that contracts of adhesion are not entirely prohibited. The one who adheres to the contract is in reality
free to reject it entirely; if he adheres, he gives his consent. Accordingly, petitioners, far from being the
weaker party in this situation, duly signified their presumed assent to all terms of the contract through
their acceptance of the airway bill and are consequently bound thereby. It cannot be gainsaid that
petitioners were not without several choices as to carriers in Chicago with its numerous airways and
airlines servicing the same. LLpr
We wish to allay petitioners' apprehension that Condition No. 5 of the airway bill is productive of mischief
as it would validate delay in delivery, sanction violations of contractual obligations with impunity or put a
premium on breaches of contract.
Just because we have said that Condition No. 5 of the airway bill is binding upon the parties to and fully
operative in this transaction, it does not mean, and let this serve as fair warning to respondent carriers,
that they can at all times whimsically seek refuge from liability in the exculpatory sanctuary of said
Condition No. 5 or arbitrarily vary routes, flights and schedules to the prejudice of their customers. This
condition only serves to insulate the carrier from liability in those instances when changes in routes, flights
and schedules are clearly justified by the peculiar circumstances of a particular case, or by general
transportation practices, customs and usages, or by contingencies or emergencies in aviation such as
weather turbulence, mechanical failure, requirements of national security and the like. And even as it is
conceded that specific routing and other navigational arrangements for a trip, flight or voyage, or
variations therein, generally lie within the discretion of the carrier in the absence of specific routing
instructions or directions by the shipper, it is plainly incumbent upon the carrier to exercise its rights with
due deference to the rights, interests and convenience of its customers.
A common carrier undertaking to transport property has the implicit duty to carry and deliver it within a
reasonable time, absent any particular stipulation regarding time of delivery, and to guard against delay. In
case of any unreasonable delay, the carrier shall be liable for damages immediately and proximately
resulting from such neglect of duty. 64 As found by the trial court, the delay in the delivery of the remains
of Crispina Saludo, undeniable and regrettable as it was, cannot be attributed to the fault, negligence or
malice of private respondents, 65 a conclusion concurred in by respondent court and which we are not
inclined to disturb.
We are further convinced that when TWA opted to ship the remains of Crispina Saludo on an earlier flight,
it did so in the exercise of sound discretion and with reasonable prudence, as shown by the explanation of
its counsel in his letter of February 19, 1977 in response to petitioners' demand letter:
"Investigation of TWA's handling of this matter reveals that although the shipment was scheduled on TWA
Flight 131 of October 27, 1976, it was actually boarded on TWA Flight 603 of the same day, approximately
10 hours earlier, in order to assure that the shipment would be received in San Francisco in sufficient time
for transfer to PAL. This transfer was effected in San Francisco at 2:00 P.M. on October 27, 1976. 66
Precisely, private respondent TWA knew of the urgency of the shipment by reason of this notation on the
lower portion of the airway bill: "All documents have been certified. Human remains of Cristina (sic)
Saludo. Please return bag first available flight to SFO." Accordingly, TWA took it upon itself to carry the
remains of Crispina Saludo on an earlier flight, which we emphasize it could do under the terms of the
airway bill, to make sure that there would be enough time for loading said remains on the transfer flight on
board PAL.
III.
Petitioners challenge the validity of respondent court's finding that private respondents are not
liable for tort on account of the humiliating, arrogant and indifferent acts of their officers and personnel.
They posit that since their mother's remains were transported ten hours earlier than originally scheduled,
there was no reason for private respondents' personnel to disclaim knowledge of the arrival or
whereabouts of the same other than their sheer arrogance, indifference and extreme insensitivity to the
feelings of petitioners. Moreover, being passengers and not merely consignors of goods, petitioners had
the right to be treated with courtesy, respect, kindness and due consideration.
In riposte, TWA claims that its employees have always dealt politely with all clients, customers and the
public in general. PAL, on the other hand, declares that in the performance of its obligation to the riding
public, other customers and clients, it has always acted with justice, honesty, courtesy and good faith.
Respondent appellate court found merit in and reproduced the trial court's refutation of this assigned error:
412 | P a g e
"About the only evidence of plaintiffs that may have reference to the manner with which the personnel of
defendants treated the two plaintiffs at the San Francisco Airport are the following pertinent portions of
Maria Saludo's testimony:
'Q
When you arrived there, what did you do, if any?
A
I immediately went to the TWA counter and I inquired about whether my mother was there or if they
knew anything about it.
Q
What was the answer?
A
They said they do not know. So, we waited.
Q
About what time was that when you reached San Francisco from Chicago?
A
I think 5 o'clock. Somewhere around that in the afternoon.
Q
You made inquiry it was immediately thereafter?
A
Right after we got off the plane.
Q
Up to what time did you stay in the airport to wait until the TWA people could tell you the
whereabouts?
A
Sorry, Sir, but the TWA did not tell us anything We stayed there until about 9 o'clock. They have not
heard anything about it. They did not say anything.
Q
Do you want to convey to the Court that from 5 up to 9 o'clock in the evening you yourself went
back to the TWA and they could not tell you where the remains of your mother were?
A
Yes sir.
Q
And after nine o'clock, what did you do?
A
I told my brother my Mom was supposed to be on the Philippine Airlines flight. 'Why don't we check
with PAL instead to see if she was there?' We tried to comfort each other. I told him anyway that was a
shortest flight from Chicago to California. We will be with our mother on this longer flight. So, we checked
with the PAL.
Q
What did you find?
A
We learned, Yes, my Mom would be on the flight.
Q
Who was that brother?
A
Saturnino Saludo.
Q
And did you find what was your flight from San Francisco to the Philippines?
A
I do not know the number. It was the evening flight of the Philippine Airline(s) from San Francisco to
Manila.
Q
You took that flight with your mother?
A
We were scheduled to, Sir.
Q
Now, you could not locate the remains of your mother in San Francisco could you tell us what did
you feel?
A
After we were told that my mother was not there?
Q
After you learned that your mother could not fly with you from Chicago to California?
A
Well, I was very upset. Of course, I wanted the confirmation that my mother was in the West Coast.
The flight was about 5 hours from Chicago to California. We waited anxiously all that time on the plane. I
wanted to be assured about my mother's remains. But there was nothing and we could not get any
assurance from anyone about it.
Q
Your feeling when you reached San Francisco and you could not find out from the TWA the
whereabouts of the remains, what did you feel?
A
Something nobody would be able to describe unless he experiences it himself. It is a kind of panic. I
think it's a feeling you are about to go crazy. It is something do not want to live through again.' (Inting,
t.s.n., Aug. 9, 1983, pp. 14-18).
"The foregoing does not show any humiliating or arrogant manner with which the personnel of both
defendants treated the two plaintiffs. Even their alleged indifference is not clearly established. The initial
answer of the TWA personnel at the counter that they did not know anything about the remains, and later,
their answer that they have not heard anything about the remains, and the inability of the TWA counter
personnel to inform the two plaintiffs of the whereabouts of the remains, cannot be said to be total or
complete indifference to the said plaintiffs. At any rate, it is any rude or discourteous conduct, malfeasance
or neglect, the use of abusive or insulting language calculated to humiliate and shame passenger or bad
faith by or on the part of the employees of the carrier that gives the passenger an action for damages
against the carrier (Zulueta vs. Pan American World Airways, 43 SCRA 397; Air France vs. Carrascoso, et
413 | P a g e
al., 18 SCRA 155; Lopez, et al. vs. Pan American World Airways, 16 SCRA 431; Northwest Airlines, Inc. vs.
Cuenca, 14 SCRA 1063), and none of the above is obtaining in the instant case." 67
We stand by respondent court's findings on this point, but only to the extent where it holds that the
manner in which private respondent TWA's employees dealt with petitioners was not grossly humiliating,
arrogant or indifferent as would assume the proportions of malice or bad faith and lay the basis for an
award of the damages claimed. It must however, be pointed out that the lamentable actuations of
respondent TWA's employees leave much to be desired, particularly so in the face of petitioners' grief over
the death of their mother, exacerbated by the tension and anxiety wrought by the impasse and confusion
over the failure to ascertain over an appreciable period of time what happened to her remains. llcd
Airline companies are hereby sternly admonished that it is their duty not only to cursorily instruct but to
strictly require their personnel to be more accommodating towards customers, passengers and the general
public. After all, common carriers such as airline companies are in the business of rendering public service,
which is the primary reason for their enfranchisement and recognition in our law. Because the passengers
in a contract of carriage do not contract merely for transportation, they have a right to be treated with
kindness, respect, courtesy and consideration. 68 A contract to transport passengers is quite different in
kind and degree from any other contractual relation, and generates a relation attended with public duty.
The operation of a common carrier is a business affected with public interest and must be directed to serve
the comfort and convenience of passengers. 69 Passengers are human beings with human feelings and
emotions; they should not be treated as mere numbers or statistics for revenue.
The records reveal that petitioners, particularly Maria and Saturnino Saludo, agonized for nearly five hours,
over the possibility of losing their mother's mortal remains, unattended to and without any assurance from
the employees of TWA that they were doing anything about the situation. This is not to say that petitioners
were to be regaled with extra special attention. They were, however, entitled to the understanding and
humane consideration called for by and commensurate with the extraordinary diligence required of
common carriers, and not the cold insensitivity to their predicament. It is hard to believe that the airline's
counter personnel were totally helpless about the situation. Common sense could and should have
dictated that they exert a little extra effort in making a more extensive inquiry, by themselves or through
their superiors, rather than just shrug off the problem with a callous and uncaring remark that they had no
knowledge about it. With all the modern communications equipment readily available to them, which could
have easily facilitated said inquiry and which are used as a matter of course by airline companies in their
daily operations, their apathetic stance while not legally reprehensible is morally deplorable.
Losing a loved one, especially one's parent, is a painful experience. Our culture accords the tenderest
human feelings toward and in reverence to the dead. That the remains of the deceased were subsequently
delivered, albeit belatedly, and eventually laid in her final resting place is of little consolation. The
imperviousness displayed by the airline's personnel, even for just that fraction of time, was especially
condemnable particularly in the hour of bereavement of the family of Crispina Saludo, intensified by
anguish due to the uncertainty of the whereabouts of their mother's remains. Hence, it is quite apparent
that private respondents' personnel were remiss in the observance of that genuine human concern and
professional attentiveness required and expected of them.
The foregoing observations, however, do not appear to be applicable or imputable to respondent PAL or its
employees. No attribution of discourtesy or indifference has been made against PAL by petitioners and, in
fact, petitioner Maria Saludo testified that it was to PAL that they repaired after failing to receive proper
attention from TWA. It was from PAL that they received confirmation that their mother's remains would be
on the same flight to Manila with them.
We find the following substantiation on this particular episode from the deposition of Alberto A. Lim, PAL's
cargo supervisor earlier adverted to, regarding their investigation of and the action taken on learning of
petitioner's problem:
"ATTY. ALBERTO C. MENDOZA:
Yes.
Mr. Lim, what exactly was your procedure adopted in your so called investigation?
ALBERTO A. LIM:
I called the lead agent on duty at that time and requested for a copy of airway bill, transfer
manifest and other documents concerning the shipment.
ATTY. ALBERTO C. MENDOZA:
Then, what?
ALBERTO A. LIM:
414 | P a g e
They proceeded to analyze exactly where PAL failed, if any, in forwarding the human remains of
Mrs. Cristina (sic) Saludo. And found out that there was not (sic) delay in shipping the remains of Mrs.
Saludo to Manila. Since we received the body from American Airlines on 28 October at 7:45 and we
expedited the shipment so that it could have been loaded on our flight leaving at 9:00 in the evening or
just barely one hour and 15 minutes prior to the departure of the aircraft. That is so (sic) being the case, I
reported to Manila these circumstances." 70
IV.
Finally, petitioners insist, as a consequence of the delay in the shipment of their mother's remains
allegedly caused by willful contractual breach, on their entitlement to actual, moral and exemplary
damages as well as attorney's fees, litigation expenses, and legal interest.
The uniform decisional tenet in our jurisdiction holds that moral damages may be awarded for willful or
fraudulent breach of contract 71 or when such breach is attended by malice or bad faith. 72 However, in
the absence of strong and positive evidence of fraud, malice or bad faith, said damages cannot be
awarded. 73 Neither can, there be an award of exemplary damages 74 nor of attorney's fees 75 as an item
of damages in the absence of proof that defendant acted with malice, fraud or bad faith.
The censurable conduct of TWA's employees cannot, however, be said to have approximated the
dimensions of fraud, malice or bad faith. It can be said to be more of a lethargic reaction produced and
engrained in some people by the mechanically routine nature of their work and a racial or societal culture
which stultifies what would have been their accustomed human response to a human need under a former
and different ambience.
Nonetheless, the facts show that petitioners' right to be treated with due courtesy in accordance with the
degree of diligence required by law to be exercised by every common carrier was violated by TWA and this
entitles them, at least, to nominal damages from TWA alone. Articles 2221 and 2222 of the Civil Code
make it clear that nominal damages are not intended for indemnification of loss suffered but for the
vindication or recognition of a right violated or invaded. They are recoverable where some injury has been
done but the amount of which the evidence fails to show, the assessment of damages being left to the
discretion of the court according to the circumstances of the case. 76 In the exercise of our discretion, we
find an award of P40,000.00 as nominal damages in favor of petitioners to be a reasonable amount under
the circumstances of this case.
WHEREFORE, with the modification that an award or P40,000.00 as and by way of nominal damages is
hereby granted in favor of petitioners to be paid by respondent Trans World Airlines, the appealed decision
is AFFIRMED in all other respects.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Nocon, JJ., concur.
Footnotes
1.
Justice Jorge S. Imperial, ponente, with Justices Filemon D. Mendoza and Artemon D. Luna,
concurring; Petition, Annex C; Rollo, 154.
2.
Penned by Judge Lucio F. Saavedra; Petition, Annex A; Rollo, 51.
3.
Rollo, 159-163.
4.
Exhibit G, Bill of Exhibits, 7.
5.
Exhibit H, ibid., 9.
6.
Original Record, 1.
7.
Petition, Annex E; Rollo, 200.
8.
Rollo, 16-17.
9.
Section 2, Rule 45, Rules of Court.
10.
Ramos, et al. vs. Pepsi Cola Bottling Co. of the P.I., et al., 19 SCRA 289 (1967); Malaysian Airline
System Bernad vs. Court of Appeals, et al., 156 SCRA 321 (1987).
11.
Abellana, et al. vs. Dosdos, etc., et al., 13 SCRA 244 (1965); Uytiepo, et al. vs. Aggabao, et al., 35
SCRA 186 (1970); Carolina Industries, Inc. vs. CMS Stock Brokerage, Inc., et al., 97 SCRA 734 (1980).
12.
Garcia vs. Court of Appeals, et al., 33 SCRA 622 (1970); Sacay vs. Sandiganbayan, 142 SCRA 593
(1986); Manlapaz vs. Court of Appeals, et al., 147 SCRA 236 (1987).
13.
Pilar Development Corporation vs. Intermediate Appellate Court, et al., 146 SCRA 215 (1986).
14.
Vda. de Arroyo vs. El Beaterio del Santissimo Rosario de Molo, et al, 23 SCRA 525 (1968).
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15.
Comment of Respondent TWA, 5; Rollo, 206; Comment of Respondent PAL, 10-11; Rollo. 213.
16.
Consolidated Reply, ibid., 229.
17.
Rollo, 17-26.
18.
Exhibit E, Bill of Exhibits, 5; Exhibit 1-PAL, Bill of Exhibits, 32.
19.
Rollo, 20.
20.
13 Am. Jur. 2d. Carriers 771.
21.
4 Alcantara, Commercial Laws of the Philippines, 118 (1987).
22.
13 C.J.S., Carriers, 233.
23.
13 Am. Jur. 2d, Carriers 775.
24.
13 C.J.S., Carriers 232.
25.
Op. cit., 240-243.
26.
Rollo, 160.
27.
Memorandum for Private Respondent PAL, 1-2.
28.
Exhibits 2 and 2-A-PAL; Bill of Exhibits, 31.
29.
30.
Article 1733, id.
31.
13 Am. Jur. 2d, Carriers 763-764.
32.
Op. cit., 762-763.
33.
Rollo, 163-165.
34.
Exhibit 1-TWA, Bill of Exhibits, 33.
35.
Exhibit 3-PAL, ibid., 30.
36.
Exhibit 2-PAL, ibid., 101.
37.
Exhibit 5-PAL, ibid., 39-41.
38.
Exhibit 5-PAL, ibid., 58-63, 71-73.
39.
Rollo, 229-230.
40.
Ibid., 166-167.
41.
13 C.J.S., Carriers 148.
42.
13 Am. Jur. 2d, Carriers 751.
43.
Manuel A. Barcelona, Liabilities of Carriers: Airline Practices and Procedures, in CURRENT ISSUES
AFFECTING AIRLINES IN THE PHILIPPINES, 103 (1989).
44.
Nocum vs. Laguna Tayabas Bus Co., 30 SCRA 69 (1969).
45.
Rollo, 160.
46.
13 C.J.S., Carriers 41; 13 Am. Jur. 2d, Carriers 572.
47.
Annex 2, Opposition to Joint Motion to Dismiss, 1-2, Original Record, 253-254; Memorandum of
Private Respondent TWA, 250.
48.
Exhibit 2-A-TWA, Bill of Exhibits, 26.
49.
Article 1370, Civil Code; Philippine Airlines vs. Philippine Airlines Employees Association, 70 SCRA
180 (1976); Government Service Insurance System vs. Court of Appeals, et al., 145 SCRA 311 (1986);
Honrado, Jr. vs. Court of Appeals, et al., 198 SCRA 326 (1991).
50.
51.
See Section 9, Rule 130, Rules of Court.
52.
Ruiz, et al. vs. Sheriff, et al., 34 SCRA 83 (1970); National Union Fire Insurance Company of
Pittsburg, et al. vs. Stolt-Nielsen Philippines, Inc., et al., 184 SCRA 682 (1990).
53.
Rollo, 168-169.
54.
Section 13, Rule 130, Rules of Court.
55.
Exhibit E, Bill of Exhibits, 5.
56.
Comment of Private Respondent PAL, 9; Rollo, 221.
57.
13 C.J.S., Carriers 390, 392; Mason vs. Chicago & N.W. Ry. Co., 262 Ill. App 580.
58.
13 Am. Jur. 2d, Carriers 854; Chicago & A.R. Co. vs. Kirby, 225 US 155, 56 Led 1033, 32 Sct 648;
Harmony vs. Bingham, 12 NY 99.
59.
13 C.J.S., Carriers 395; Frey vs. New York Cent., etc., R. Co., 100 N.Y.S. 225, 114 App, Div. 747.
60.
Rollo, 168-169.
61.
13 Am. Jur. 2d, Carriers 778-779; See Ong Yiu vs. Court of Appeals, et al., 91 SCRA 223 (1979) and
Pan American World Airways, Inc. vs. Intermediate Appellate Court, et al., 164 SCRA 263 (1988).
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62.
Qua Chee Gan vs. Law Union and Rock Insurance Co., Ltd., etc., 98 Phil. 85 (1955); Fieldman's
Insurance Co., Inc. vs. Vda. de Songco, 25 SCRA 70 (1968); Sweet Lines, Inc. vs. Teves, 83 SCRA 361
(1978).
63.
Supra, Fn. 61.
64.
Chicago & A.R. Co. vs. Kirby, supra; Warren vs. Portland Terminal Co., 121 Me 157, 116 A 411, 26
ALR 304.
65.
Petition, Annex A; Rollo, 79.
66.
Exhibit F and Exhibit 4-TWA, Bill of Exhibits, 6.
67.
Petition, Annex C; Rollo, 169-172.
68.
Alitalia Airways vs. Court of Appeals, et al., 187 SCRA 763 (1990); cf. Air France vs. Carrascoso, et
al., 18 SCRA 168 (1966).
69
See Philippine Airlines. Inc. vs. Court of Appeals, et al., 188 SCRA 461 (1990).
70.
Exhibit 5-PAL, 50-51; Bill of Exhibits, 83-84.
71.
Article 2220, Civil Code; Tamayo vs. Aquino, et al., 105 Phil. 949 (1959); China Airlines Ltd. vs. Court
of Appeals, et al., 169 SCRA 226 (1989).
72.
Perez vs. Court of Appeals, et al., 13 SCRA 137 (1965); Sabena Belgian World Airlines vs. Court of
Appeals, et al., 171 SCRA 620 (1989).
73.
Coscolluela vs. Valderrama, 2 SCRA 1095 (1961); Pan American World Airways, Inc. vs. Intermediate
Appellate Court, et al., 186 SCRA 687 (1990).
74.
Article 2232, Civil Code; Davila, et al. vs. Philippine Airlines, 49 SCRA 497 (1973); Philippine National
Bank vs. Court of Appeals, et al., 159 SCRA 433 (1988); Esguerra vs. Court of Appeals, et al., 173 SCRA 1
(1989).
75.
Article 2208, Civil Code; Federation of United NAMARCO Distributors, Inc, et al. vs. National
Marketing Corporation, 4 SCRA 867 (1962); Songcuan vs. Intermediate Appellate Court, et al., 191 SCRA 28
(1990).
76.
See Northwest Airlines, Inc. vs. Cuenca, et al., 14 SCRA 1063 (1965); Robes-Francisco Realty &
Development Corporation vs. Court of First Instance of Rizal (Branch XXXIV), et al., 84 SCRA 59 (1978);
Alitalia vs. Intermediate Appellate Court, et al., 192 SCRA 9 (1990).
6.
Attorneys Fees and Interest
Arts. 2208, 2210
Art. 2208. 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;
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(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 court 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 be reasonable.
Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of
contract.
II.
Code of Commerce Procisions an overland Transportation

(unless otherwise indicated, reference is to Code Commerce)
A. Scope of Overland Transportation
B. Nature of Contract, Art. 349
ARTICLE 349.
commercial:
1.
A contract of transportation by land or water ways of any kind shall be considered
When it has for its object merchandise or any article of commerce.
2.
When, whatever its object may be, the carrier is a merchant or is habitually engaged
transportation for the public.
in
C. Effect of Civil Code

Arts. 1766, 2270, Civil Code
Art. 1766. In all matters not regulated by this Code, the rights and obligations of common carriers shall
be governed by the Code of Commerce and by special laws.
Art. 2270. The following laws and regulations are hereby repealed:
(1) Those parts and provisions of the Civil Code of 1889 which are in force on the date when this
new Civil Code becomes effective:
(2) The provisions of the Code of Commerce governing sales, partnership, agency, loan, deposit and
guaranty;
(3) The provisions of the Code of Civil Procedure on prescription as far as inconsistent with this
Code; and
(4) All laws, Acts, parts of Acts, rules of court, executive orders, and administrative regulations
which are inconsistent with this Code. (n)
D. Contract of Carriage
1.
Bill of Lading
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(a)
Definition, Subject Matter, Art. 352
ARTICLE 352. The bills of lading, or tickets in cases of transportation of passengers, may be diverse,
some for persons and others for baggage; but all of them shall bear the name of the carrier, the date of
shipment, the points of departure and arrival, the cost, and, with respect to the baggage, the number and
weight of the packages, with such other manifestations which may be considered necessary for their easy
identification.
(b)
Form, Contents, Arts. 350, 351
ARTICLE 350. The shipper as well as the carrier of merchandise or goods may mutually demand that a
bill of lading be made, stating:
1.
The name, surname and residence of the shipper.
2.
The name, surname and residence of the carrier.
3. The name, surname and residence of the person to whom or to whose order the goods are to be sent
or whether they are to be delivered to the bearer of said bill.
4. The description of the goods, with a statement of their kind, of their weight, and of the external marks
or signs of the packages in which they are contained.
5.
The cost of transportation.
6.
The date on which shipment is made.
7.
The place of delivery to the carrier.
8.
The place and the time at which delivery to the consignee shall be made.
9. The indemnity to be paid by the carrier in case of delay, if there should be any agreement on this
matter.
ARTICLE 351. In transportation made by railroads or other enterprises subject to regulation rate and
time schedules, it shall be sufficient for the bills of lading or the declaration of shipment furnished by the
shipper to refer, with respect to the cost, time and special conditions of the carriage, to the schedules and
regulations the application of which he requests; and if the shipper does not determine the schedule, the
carrier must apply the rate of those which appear to be the lowest, with the conditions inherent thereto,
always including a statement or reference to in the bill of lading which he delivers to the shipper.
(c)
Function, Art. 353
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
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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 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.
2.
Refusal to Transport, Art. 356
ARTICLE 356. Carriers may refuse packages which appear unfit for transportation; and if the carriage is
to be made by railway, and the shipment is insisted upon, the company shall transport them, being
exempt from all responsibility if its objections, is made to appear in the bill of lading.
3.
Doubtful declaration of contents, Art. 357
ARTICLE 357. If by reason of well-founded suspicion of falsity in the declaration as to the contents of a
package the carrier should decide to examine it, he shall proceed with his investigation in the presence of
witnesses, with the shipper or consignee in attendance.
If the shipper or consignee who has to be cited does not attend, the examination shall be made before a
notary, who shall prepare a memorandum of the result of the investigation, for such purpose as may be
proper.
If the declaration of the shipper should be true, the expense occasioned by the examination and that of
carefully repacking the packages shall be for the account of the carrier and in a contrary case for the
4.
No Bill of Lading, Art. 354, 351
ARTICLE 354. In the absence of a bill of lading, disputes shall be determined by the legal proofs which
the parties may present in support of their respective claims, according to the general provisions
established in this Code for commercial contracts.
ARTICLE 351. In transportation made by railroads or other enterprises subject to regulation rate and
time schedules, it shall be sufficient for the bills of lading or the declaration of shipment furnished by the
shipper to refer, with respect to the cost, time and special conditions of the carriage, to the schedules and
regulations the application of which he requests; and if the shipper does not determine the schedule, the
carrier must apply the rate of those which appear to be the lowest, with the conditions inherent thereto,
always including a statement or reference to in the bill of lading which he delivers to the shipper.
E. Responsibility of the Carrier
1.
When it commences, Art. 355
ARTICLE 355. The responsibility of the carrier shall commence from the moment he receives the
merchandise, personally or through a person charged for the purpose, at the place indicated for receiving
them.
2.
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Route, Art. 359
ARTICLE 359. If there is an agreement between the shipper and the carrier as to the road over which
the conveyance is to be made, the carrier may not change the route, unless it be by reason of force
majeure; and should he do so without this cause, he shall be liable for all the losses which the goods he
transports may suffer from any other cause, beside paying the sum which may have been stipulated for
such case.
When on account of said cause of force majeure, the carrier had to take another route which produced an
increase in transportation charges, he shall be reimbursed for such increase upon formal proof thereof.
3.
Care of Goods, arts. 361, 362
ARTICLE 361. The merchandise shall be transported at the risk and venture of the shipper, if the contrary
has not been expressly stipulated. As a consequence, all the losses and deterioration which the goods may
suffer during the transportation by reason of fortuitous event, force majeure, or the inherent nature and
defect of the goods, shall be for the account and risk of the shipper. Proof of these accidents is incumbent
upon the carrier.
ARTICLE 362. Nevertheless, the carrier shall be liable for the losses and damages resulting from the
causes mentioned in the preceding article if it is proved, as against him, that they arose through his
negligence or by reason of his having failed to take the precautions which usage has established among
careful persons, unless the shipper has committed fraud in the bill of lading, representing the goods to be
of a kind or quality different from what they really were.
If, notwithstanding the precautions referred to in this article, the goods transported run the risk of being
lost, on account of their nature or by reason of unavoidable accident, there being no time for their owners
to dispose of them, the carrier may proceed to sell them, placing them for this purpose at the disposal of
the judicial authority or of the officials designated by special provisions.
Arts. 1734, 1735, Civil Code

ARTICLE 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, if
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1733.
4.
(a)
Delivery
Condition of Goods, Arts. 363 to 367
ARTICLE 363. Outside of the cases mentioned in the second

be obliged to deliver the goods shipped in the same condition in
were found at the time they were received, without any damage
the value which those not delivered may have at the point and
have been made.
paragraph of Article 361, the carrier shall

which, according to the bill of lading, they
or impairment, and failing to do so, to pay
at the time at which their delivery should
If those not delivered form part of the goods transported, the consignee may refuse to receive the latter,
when he proves that he cannot make use of them independently of the others.
ARTICLE 364. If the effect of the damage referred to in Article 361 is merely a diminution in the value of
the goods, the obligation of the carrier shall be reduced to the payment of the amount which, in the
judgment of experts, constitutes such difference in value.
ARTICLE 365.
If, in consequence of the damage, the goods are rendered useless for sale and
consumption for the purposes for which they are properly destined, the consignee shall not be bound to
receive them, and he may have them in the hands of the carrier, demanding of the latter their value at the
current price on that day.
If among the damaged goods there should be some pieces in good condition and without any defect, the
foregoing provision shall be applicable with respect to those damaged and the consignee shall receive
those which are sound, this segregation to be made by distinct and separate pieces and without dividing a
single object, unless the consignee proves the impossibility of conveniently making use of them in this
form.
The same rule shall be applied to merchandise in bales or packages, separating those parcels which
appear sound.
ARTICLE 367. If doubts and disputes should arise between the consignee and the carrier with respect to
the condition of the goods transported at the time their delivery to the former is made, the goods shall be
examined by experts appointed by the parties, and, in case of disagreement, by a third one appointed by
the judicial authority, the results to be reduced to writing; and if the interested parties should not agree
with the expert opinion and they do not settle their differences, the merchandise shall be deposited in a
422 | P a g e
safe warehouse by order of the judicial authority, and they shall exercise their rights in the manner that
may be proper.
(b)
To Whom Delivery Made, Art. 368
ARTICLE 368. The carrier must deliver to the consignee, without any delay or obstruction, the goods
which he may have received, by the mere fact of being named in the bill of lading to receive them; and if
he does not do so, he shall be liable for the damages which may be caused thereby.
(c)
Judicial Deposit, Art. 369, Art. 1752, Civil Code
ARTICLE 369. If the consignee cannot be found at the residence indicated in the bill of lading, or if he
refuses to pay the transportation charges and expenses, or if he refuses to receive the goods, the
municipal judge, where there is none of the first instance, shall provide for their deposit at the disposal of
the shipper, this deposit producing all the effects of delivery without prejudice to third parties with a better
right.
ARTICLE 1752. Even when there is an agreement limiting the liability of the common carrier in the
vigilance over the goods, the common carrier is disputably presumed to have been negligent in case of
their loss, destruction or deterioration.
(d)
When to be made, Arts. 370, 358
ARTICLE 370. If a period has been fixed for the delivery of the goods, it must be made within such time,
and, for failure to do so, the carrier shall pay the indemnity stipulated in the bill of lading, neither the
shipper nor the consignee being entitled to anything else.
If no indemnity has been stipulated and the delay exceeds the time fixed in the bill of lading, the carrier
shall be liable for the damages which the delay may have caused.
ARTICLE 358. If there is no period fixed for the delivery of the goods the carrier shall be bound to
forward them in the first shipment of the same or similar goods which he may make point where he must
deliver them; and should he not do so, the damages caused by the delay should be for his account.
(e)
Two or more carriers, Art. 373
ARTICLE 373. The carrier who makes the delivery of the merchandise to the consignee by virtue of
combined agreements or services with other carriers shall assume the obligations of those who preceded
him in the conveyance, reserving his right to proceed against the latter if he was not the party directly
responsible for the fault which gave rise to the claim of the shipper or consignee.
The carrier who makes the delivery shall likewise acquire all the actions and rights of those who preceded
him in the conveyance. The shipper and the consignee shall have an immediate right of action against the
carrier who executed the transportation contract, or against the other carriers who may have received the
goods
transported
without
reservation.
However, the reservation made by the latter shall not relieve them from the responsibilities which they
may have incurred by their own acts.
(f)
Obligation to keep registry, Art. 378
ARTICLE 373. A carrier who delivers merchandise to a consignee by virtue of agreements or combined
services with other carriers shall assume the obligations of the carriers who preceded him, reserving his
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right to proceed against the latter if he should not be directly responsible for the fault which gives rise to
the claim of the shipper or of the consignee.
The carrier making the delivery shall also assume all the actions and rights of those who may have
preceded him in the transportation.
The sender and the consignee shall have an immediate right of action against the carrier who executed the
transportation contract, or against the other carriers who received the goods transported without reserve.
The reservations made by the latter shall not exempt them, however, from the liabilities they may have
incurred by reason of their own acts.
(g)
Compliance with administrative regulations, Art 377
ARTICLE 377. The carrier shall be liable for all the consequences arising from noncompliance on his part
with the formalities prescribed by the laws and regulations of the public administration during the entire
course of the trip and on the arrival at the point of destination, except when his omission arises from his
having been induced into error by false statements of the shipper in the declaration of the merchandise.
If the carrier has acted in accordance with a formal order received from the shipper or consignee of the
merchandise both shall incur liability.
F.
Rights and obligations or Shipper and/or Consignee

1.
(a)
Right to damages
Condition imposed on right, Arts. 366, 357, 353
ARTICLE 357. If by reason of well-founded suspicion of falsity in the declaration as to the contents of a
package the carrier should decide to examine it, he shall proceed with his investigation in the presence of
witnesses, with the shipper or consignee in attendance.
If the shipper or consignee who has to be cited does not attend, the examination shall be made before a
notary, who shall prepare a memorandum of the result of the investigation, for such purpose as may be
proper.
If the declaration of the shipper should be true, the expense occasioned by the examination and that of
carefully repacking the packages shall be for the account of the carrier and in a contrary case for the
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.
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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 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.
(b)
Amount of damages for loss, Art. 372; Art 1744, Civil Code
ARTICLE 372. The value of the goods which the carrier must pay in cases if loss or misplacement shall
be determined in accordance with that declared in the bill of lading, the shipper not being allowed to
present proof that among the goods declared therein there were articles of greater value and money.
Horses, vehicles, vessels, equipment and all other principal and accessory means of transportation shall be
especially bound in favor of the shipper, although with respect to railroads said liability shall be
subordinated to the provisions of the laws of concession with respect to the property, and to what this
Code established as to the manner and form of effecting seizures and attachments against said
companies.
ARTICLE 1744. A stipulation between the common carrier and the shipper or owner limiting the liability of
the former for the loss, destruction, or deterioration of the goods to a degree less than extraordinary
diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered by the common carrier; and
(3) Reasonable, just and not contrary to public policy.
(c)
Amount of Damages for delay, Art. 371(3)
ARTICLE 371. In case of delay through the fault of the carrier, referred to in the preceding articles, the
consignee may leave the goods transported in the hands of the former, advising him thereof in writing
before their arrival at the point of destination.
When this abandonment takes place, the carrier shall pay the full value of the goods as if they had been
lost or mislaid.
If the abandonment is not made, the indemnification for losses and damages by reason of the delay cannot
exceed the current price which the goods transported would have had on the day and at the place in which
they should have been delivered; this same rule is to be observed in all other cases in which this indemnity
may be due.
425 | P a g e

2.
Right to abandon, Arts. 371, 360, 365, 363
ARTICLE 371. In case of delay through the fault of the carrier, referred to in the preceding articles, the
consignee may leave the goods transported in the hands of the former, advising him thereof in writing
before their arrival at the point of destination.
When this abandonment takes place, the carrier shall pay the full value of the goods as if they had been
lost or mislaid.
If the abandonment is not made, the indemnification for losses and damages by reason of the delay cannot
exceed the current price which the goods transported would have had on the day and at the place in which
they should have been delivered; this same rule is to be observed in all other cases in which this indemnity
may be due.
ARTICLE 360. The shipper, without changing the place where the delivery is to be made, may change
the consignment of the goods which he delivered to the carrier, provided that at the time of ordering the
change of consignee the bill of lading signed by the carrier, if one has been issued, be returned to him, in
exchange for another wherein the novation of the contract appears.
The expenses which this change of consignment occasions shall be for the account of the shipper.
ARTICLE 365. If, in consequence of the damage, the goods are rendered useless for sale and
consumption for the purposes for which they are properly destined, the consignee shall not be bound to
receive them, and he may have them in the hands of the carrier, demanding of the latter their value at the
current price on that day.
If among the damaged goods there should be some pieces in good condition and without any defect, the
foregoing provision shall be applicable with respect to those damaged and the consignee shall receive
those which are sound, this segregation to be made by distinct and separate pieces and without dividing a
single object, unless the consignee proves the impossibility of conveniently making use of them in this
form.
The same rule shall be applied to merchandise in bales or packages, separating those parcels which
appear sound.
ARTICLE 363. Outside of the cases mentioned in the second paragraph of Article 361, the carrier shall
be obliged to deliver the goods shipped in the same condition in which, according to the bill of lading, they
were found at the time they were received, without any damage or impairment, and failing to do so, to pay
the value which those not delivered may have at the point and at the time at which their delivery should
have been made.
If those not delivered form part of the goods transported, the consignee may refuse to receive the latter,
when he proves that he cannot make use of them independently of the others.
3.
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Right to change consignment, Art. 360
ARTICLE 360. The shipper, without changing the place where the delivery is to be made, may change
the consignment of the goods which he delivered to the carrier, provided that at the time of ordering the
change of consignee the bill of lading signed by the carrier, if one has been issued, be returned to him, in
exchange for another wherein the novation of the contract appears.
The expenses which this change of consignment occasions shall be for the account of the shipper.
4.
Obligation to pay transportation charges, Arts. 374-376; Arts 2241(9), Civil
Code
ARTICLE 374. The consignees to whom the remittance may have been made can not defer the payment
of the expenses and transportation charges on the goods that they received after twenty-four hours have
elapsed from the time of the delivery; and in case of delay in making this payment, the carrier may
request the judicial sale of the goods he transported to a sufficient amount to cover the transportation
charges and the expenses incurred.
ARTICLE 375. The goods transported shall be specifically obligated to answer for the transportation
charges and for the expenses and fees caused by the same during their transportations, or until the time
of their delivery.
This special right shall be limited to eight days after the delivery has been made, and after said
prescription the carrier shall have no further right of action than that corresponding to an ordinary
creditor.
ARTICLE 376. The preference of the carrier to the payment of what is due him for the transportation and
expenses of the goods delivered to the consignee shall not be affected by the bankruptcy of the latter,
provided the action is brought within the eight days mentioned in the foregoing article.
ARTICLE 2241. With reference to specific movable property of the debtor, the following claims or liens
shall be preferred:
(9) Credits for transportation, upon the goods carried, for the price of the contract and incidental
expenses, until their delivery and for thirty days thereafter;
5.
Obligation to return bill of lading, Art. 353 (2)
ARTICLE 353. The legal basis of the contract between the shipper and the carrier shall be the bills of
lading, by the contents of which all disputes which may arise with regard to their execution and fulfillment
shall be decided without admission of other exceptions than forgery or material errors in the drafting
thereof.
After the contract has been complied with the bill of lading issued by the carrier shall be returned to him,
and by virtue of the exchange of this certificate for the article transported, the respective obligations and
actions shall be considered as canceled, unless in the same act the claims which the contracting parties
desired to reserve are reduced to writing, exception being made of the provisions of Article 366.
If in case of loss or for any other reason whatsoever, the consignee can not return upon receiving the
merchandise the bill of lading subscribed by the carrier, he shall give said carrier a receipt for the goods
delivered, this receipt producing the same effects as the return of the bill of lading.
G. Applicability of Provisions, Art. 379
ARTICLE 379. The provisions contained in Articles 349 et seq. shall also be understood as relating to
persons who, although they do not personally effect the transportation of commercial goods, contract to
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do so through others, either as contractors for a special and fixed transaction or as freight and
transportation agents.
In either case they shall be subrogated to the place of the carriers with regard to the obligations and
liability of the latter, as well as with regard to their right.
III.
Admiralty and Maritime Commerce

A. Concept of Admiralty; Jurisdiction over admiralty cases
Batas Pambansa Blg. 129, Sec. 19 (3), Sec. 33(1)
Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive original jurisdiction:
(3) In all actions in admiralty and maritime jurisdiction where he demand or claim exceeds One hundred
thousand pesos (P100,000.00) or , in Metro Manila, where such demand or claim exceeds Two hundred
thousand pesos (200,000.00);
Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial
Courts in civil cases. Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts
shall exercise:
(1) Exclusive original jurisdiction over civil actions and probate proceedings, testate and intestate,
including the grant of provisional remedies in proper cases, where the value of the personal
property, estate, or amount of the demand does not exceed One hundred thousand pesos
(P100,000.00) or, in Metro Manila where such personal property, estate, or amount of the demand
does not exceed Two hundred thousand pesos (P200,000.00) exclusive of interest damages of
whatever kind, attorney's fees, litigation expenses, and costs, the amount of which must be
specifically alleged: Provided, That where there are several claims or causes of action between the
same or different parties, embodied in the same complaint, the amount of the demand shall be the
totality of the claims in all the causes of action, irrespective of whether the causes of action arose
out of the same or different transactions;
International Harvester v. Aragon, 84 Phil 363

EN BANC
[G.R. No. L-2372. August 26, 1949.]
INTERNATIONAL HARVESTER COMPANY OF THE PHILIPPINES, petitioner-appellee, vs. CRISANTO
ARAGON, Judge of Municipal Court of Manila, and YARAS & COMPANY, FAR EAST, respondentsappellants.
Roxas, Picazo & Mejia for appellants.
Ross, Selph, Carrascoso & Janda for appellee.
SYLLABUS
1.
ADMIRALTY; JURISDICTION; MARITIME CONTRACTS. Admiralty has jurisdiction over all maritime
contracts, in whatever form, wherever they were executed or are to be performed, but not over nonmaritime contracts.
2.ID.; ID.; MARITIME CONTRACTS DEPEND ON THE SUBJECT MATTER THEREOF. Whether or not a
contract is maritime depends not on the place where the contract is made and is to be executed, making
the locality the test, but on the subject matter of the contract, making the true criterion a maritime service
or a maritime transaction.
428 | P a g e
3.
ID.; ID.; CONTRACT OF AFFREIGHTMENT; PROCEEDING "IN REM" OR "IN PERSONAM." Admiralty
has jurisdiction of a proceeding in rem or in personam for the breach of a contract of affreightment,
whether evidenced by a bill of lading or a charter party. And typical of a controversy over contracts of
affreightment is a suit of one party against the other for loss of or damage to the cargo.
4.
PROHIBITION; COURTS; JURISDICTION; JUSTICE OF THE PEACE COURTS HAVE NO JURISDICTION IN
ADMIRALTY CASES. Cases in admiralty fall within the original jurisdiction of the Courts of First Instance to
which the jurisdiction of the justice of the peace courts does not extend and if the latter courts take
cognizance of such cases, they may be restrained by the writ of prohibition.
DECISION
PARAS, J p:
On July 9, 1947, the respondent-appellant, Yaras & Company, Far East, filed a complaint in the Municipal
Court of Manila (civil case No. IV-262) against the Manila Terminal Co., Inc., and International Harvester
Company of the Philippines. The complaint alleges that the defendant Manila Terminal Co., Inc., is in
charge of the custody and delivery to the respective owners of cargoes discharged at the Government
piers in the City of Manila; that the defendant International Harvester Company of the Philippines is the
agent in the Philippines of the vessel Belle of this Sea; that on September 27, 1946, the S/S Belle of the
Sea took on board at Los Angeles, California, U. S. A., goods for shipment to Manila, Philippines, and
covered by Bill of Lading No. 105; that the S/S Bellee of the Sea arrived in Manila on December 23, 1946,
and discharged her cargo at the Government piers under the supervision and custody of the defendant
Manila Terminal Co., Inc.; that out of the goods covered by Bill of Lading No. 105, one carton of assorted
samples with a stipulated value of P200 was not delivered to Yaras & Company; and said merchandise was
lost through the negligence either of the Manila Terminal Co., Inc., or of the International Harvester
Company of the Philippines. The complaint prayed for judgment either against the defendant Manila
Terminal Co., Inc., or the International Harvester Company of the Philippines for the amount of P200, with
legal interest from the date of the filing of the complaint.
Before the trial could be proceeded with, the International Harvester Company of the Philippines filed a
motion to dismiss, on the ground that the Municipal Court of Manila had no jurisdiction to try the case
because the action involves admiralty or maritime jurisdiction, which motion was overruled by the
municipal court on December 16, 1947. In due time, the International Harvester Company of the
Philippines filed in the Court of First Instance of Manila a petition for prohibition (civil case No. 4328)
against the Hon. Crisanto Aragon, Judge of the Municipal Court of Manila, and Yaras & Company, Far East,
for the purpose of restraining said respondent judge from proceeding with civil case No. IV-262 in so far as
the International Harvester Company of the Philippines was concerned, on the ground that admiralty or
maritime jurisdiction 16 involved. After trial, the Court of First Instance of Manila rendered judgment in
favor of the petitioners, International Harvester Company of the Philippines, ordering the respondent judge
of the municipal court to desist from taking cognizance of civil case No. IV-262 as against the International
Harvester Company of the Philippines. From this judgment the respondents have appealed.
From the facts alleged in the complaint filed in the municipal court, it is clear that the International
Harvester Company of the Philippines, as agent in the Philippines of the vessel S/S Belle of the Sea, is
alternatively being held liable for the loss of the cargo in question through its negligence. Inasmuch as it is
expressly alleged that the cargo of the S/S Belle of the Sea was discharged on December 23, 1946, at the
Government piers under the supervision and custody of the Manila Terminal Company, Inc., the
International Harvester Company of the Philippines may be held liable only on the assumption that the
goods had been lost in transit or before being discharged at the pier. In other words, the liability of the
International Harvester Company of the Philippines is predicated on the contract of carriage by sea
between the International Harvester Company of the Philippines and Yaras & Company as evidenced by Bill
of Lading No. 105, independently of the liability of the Manila Terminal Co., Inc., as operator of an arrastre
service.
Admiralty has jurisdiction over all maritime contracts, in whatever form, wherever they were executed or
are to be performed, but not over non-maritime contracts. (2 Corpus Juris Secundom, p. 84.) Whether or
not a contract is maritime depends not on the place where the contract is made and is to be executed,
making the locality the test, but on the subject-matter of the contract, making the true criterion a maritime
service or a maritime transaction. (Id., p. 85.) Specifically, admiralty has jurisdiction of a proceeding in rem
429 | P a g e
or in personam for the breach of a contract of affreightment, whether evidenced by a bill of lading or a
charter party. (Id., pp. 90-91.) And typical of a controversy over contracts of affreightment is a suit of one
party against the other for loss of or damage to the cargo. (1 American Jurisprudence, p. 567.) This is the
very case now before us, because the respondent Yaras & Company seeks to recover from the petitioner
International Harvester Company of the Philippines the value of a certain lost cargo.
The contention of the respondent Yaras & Company that admiralty jurisdiction is not involved herein
because the contract in question was made upon land and to be terminated upon land, merely reflects the
English rule which had long been rejected in the United States. It is now settled in the latter country that
"the jurisdiction of admiralty in matters of contract depends upon the subject-matter, i. e., the nature and
character of the contract, and that the English rule which conceded jurisdiction (with few exceptions) only
to contracts made upon and to be performed upon navigable waters, is inadmissible, the true criterion
being that the contract has reference to maritime service or maritime transaction." (Benedict on Admiralty,
6th Ed., Vol. 1, p. 127.) We choose to adopt the sound American rule. Even in England the English rule was
not without protest. Lord Kenyon, in Menetone vs. Gibbons, 3 Term, 269, had expressed the following
criticism: "if the admiralty has jurisdiction over the subject-matter, to say that it is necessary for the
parties to go upon the sea to execute the instrument borders upon absurdity."
The respondent Yaras & Company cannot invoke the rule against multiplicity of suits, for the simple reason
that said rule has to be subservient to the superior requirement that the court must have jurisdiction. In
view of our conclusion that the cause of action of said respondent against International Harvester
Company of the Philippines involves admiralty over which the courts of first instance have original
jurisdiction (Par. 4, Sec. 56, Act No. 136 of the Philippine Commission, as reproduced in sec. 43 [d] of
Republic Act No. 296), and to which the jurisdiction of the justice of the peace courts (including municipal
courts) does not extend (sec. 68, Act No. 136 of the Philippine Commission, as amended by
Commonwealth Act No. 4090, reproduced in par. 2, sec. 88, Republic Act No. 296), the respondent judge
was properly restrained from further proceeding with civil case No. IV-262.
We hold also that prohibition is the proper remedy, since the respondent judge was taking cognizance of
the case over which he had no jurisdiction and his order overruling the motion to dismiss filed by the
petitioner-appellee is interlocutory and therefore not appealable. (Sec. 2 of Rule 67, Rules of Court 2.) At
any rate, the remedy of appeal available when the case shall have been decided on the merits, is
inadequate.
The appealed judgment is therefore affirmed, with costs against the appellant Yaras & Company. So
ordered.
Moran, C.J., Ozaeta, Feria, Bengzon, Padilla, Tuason, Montemayor and Reyes, JJ., concur.
B. Vessels
1.
Meaning
Lopez v. Duruelo, 52 Phil 229

EN BANC
[G.R. No. 29166. October 22, 1928.]
AUGUSTO LOPEZ, plaintiff-appellant, vs. JUAN DURUELO, ET AL., defendants. ALBINO JISON,
appellee.
Angel S. Gamboa for appellant.
Feria & La O for appellee.
SYLLABUS
1.
SHIPPING; COLLISION; PROTEST. The protest required by article 835 of the Code of Commerce in
case of collision between vessels is not necessary to preserve the rights of a person aboard a motor boat
engaged in conveying passengers between ship and shore who is injured in a collision between the motor
boat and the larger vessel.
430 | P a g e
2.
ID.; ID.; ID.; CASE AT BAR. A person desirous of embarking on a ship which was some distance
away from the shore in a Philippine port took passage upon a small motor boat, which was used in
conveying passengers and luggage to and fro between the shore and the shipside. Owing to the
negligence of the patron or incompetence of the person in charge so the complaint averred the boat
approached too near to the stern of the ship, with the result that the propeller of the ship, which was still
turning, struck the motor boat and sunk it, injuring the plaintiff. Held: Upon demurrer, that the failure of
the complaint to allege that the plaintiff had made protest according to article 835 of the Code of
Commerce was no impediment to the maintenance of a civil action, under articles 1902 and 1903 of the
Civil Code, to recover damages for the tort.
3.
ID.; ID.; ID.; MEANING OF WORD VESSEL. The word "vessel " (Spanish, "buque," "nave") used in
the Third Section of Title IV, Book Third, of the Code of Commerce, dealing with collisions, does not include
all ships, craft or floating structures of any kind without limitation. The provisions of said section do not
apply to minor craft engaged in river and bay traffic.
4.
PLEADING AND PRACTICE; DEMURRER; INTERPRETATION OF PLEADING DEMURRED TO. A case
should not be dismissed on demurrer when, under any reasonable interpretation of the complaint, a cause
of action can be made out; and the fact that a complaint is inartificially drawn or in a certain degree
lacking in precision constitutes no sufficient reason for dismissing it on demurrer. In passing upon a
demurrer, every reasonable intendment is to be taken in favor of the pleading against which the demurrer
is directed.
DECISION
STREET, J p:
This action was instituted in the Court of First Instance of Occidental Negros by Augusto Lopez, for the
purpose of recovering damages for personal injuries inflicted upon him by reason of the negligence of the
defendants, Juan Duruelo and Albino Jison. The defendants demurred to the complaint, and the demurrer
having been sustained, the plaintiff elected to stand upon his complaint, which was accordingly dismissed;
and the plaintiff appealed.
The facts necessary to an understanding of the case as set out in the complaint are briefly these: On
February 10, 1927, the plaintiff, who is a resident of the municipality of Silay, Occidental Negros, was
desirous of embarking upon the interisland steamer San Jacinto in order to go to Iloilo. This boat was at the
time in the anchoring ground of the port of Silay, some half a mile distant from the port. The plaintiff
therefore embarked at the landing in the motor boat Jison, which was then engaged in conveying
passengers and luggage back and forth from the landing to boats at anchor, and which was owned and
operated by the defendant Albino Jison, with Juan Duruelo as patron. The engineer (maquinista) aboard on
this trip was one Rodolin Duruelo, a boy of only 16 years of age. He is alleged to have been a mere novice
without experience in the running of motor boats; and the day of the occurrence now in contemplation is
said to have been the third day of his apprenticeship in this capacity. It is alleged that the Jison, upon this
trip, was grossly overladen, having aboard fourteen passengers, while its capacity was only for eight or
nine.
As the motor boat approached the San Jacinto in a perfectly quiet sea, it came too near to the stern of the
ship, and as the propeller of the ship had not yet ceased to turn, the blades of the propeller struck the
motor boat and sank it at once. It is alleged in the complaint that the approach of the Jison to this
dangerous proximity with the propeller of the San Jacinto was due to the fault, negligence and lack of skill
of the defendant Juan Duruelo, as patron of the Jison. As the Jison sank, the plaintiff was thrown into the
water against the propeller, and the revolving blades inflicted various injuries upon him, consisting of a
bruise in the breast, two serious fractures of the bones of the left leg, and a compound fracture of the left
femur. As a consequence of these injuries the plaintiff was kept in bed in a hospital in the City of Manila
from the 28th of February until October 19 of the year 1927, or approximately eight months. In the
conclusion of his complaint the plaintiff sets out the various items of damage which he suffered, amounting
in all to something more than P120,000. These damages he seeks to recover of the defendants in this
action.
As a general ground of demurrer it is assigned by the defendants that the complaint does not show a right
of action, and in the course of the argument submitted with the demurrer attention is directed to the fact
that the complaint does not allege that a protest had been presented by the plaintiff, within twenty-four
431 | P a g e
hours after the occurrence, to the competent authority at the port where the accident occurred. It is
accordingly insisted that, under article 835 of the Code of Commerce, the plaintiff has shown no cause of
action.
Assuming that the article of the Code of Commerce relied upon states a condition precedent to the
maintenance of an action in a case where protest is required and that the making of protest must be
alleged in the complaint in order to show a good cause of action an assumption that is possibly without
basis, for the reason that lack of protest in a case where protest is necessary would seem to supply matter
of defense proper to be set up in the answer, we nevertheless are of the opinion that protest was not
necessary in the case now before us. The article in question (835, Code of Com.) in found in the section
dealing with collisions, and the context shows the collisions intended are collisions of sea-going vessels.
Said article cannot be applied to small boats engaged in river and bay traffic. The Third Book of the Code
of Commerce, dealing with Maritime Commerce, of which the section on Collisions forms a part, was
evidently intended to define the law relative to merchant vessels and marine shipping; and, as appears
from said Code, the vessels intended in that Book are such as are run by masters having special training,
with the elaborate apparatus of crew and equipment indicated in the Code. The word "vessel" (Spanish,
"buque," "nave"), used in the section referred to was not intended to include all ships, craft or floating
structures of every kind without limitation, and the provisions of that section should not be held to include
minor craft engaged only in river and bay traffic. Vessels which are licensed to engage in maritime
commerce, or commerce by sea, whether in foreign or coastwise trade, are no doubt regulated by Book III
of the Code of Commerce. Other vessels of a minor nature not engaged in maritime commerce, such as
river boats and those carrying passengers from ship to shore, must be governed, as to their liability to
passengers, by the provisions of the Civil Code or other appropriate special provisions of law.
This conclusion is substantiated by the writer Estasen who makes comment upon the word "vessel" to the
following effect:
"When the mercantile codes speak of vessels, they refer solely and exclusively to merchant ships, as they
do not include war ships, and furthermore, they almost always refer to craft which are not accessory to
another as is the case of launches, lifeboats, etc. Moreover, the mercantile laws, in making use of the
words ship, vessel, boat, embarkation, etc., refer exclusively to those which are engaged in the
transportation of passengers and freight from one port to another or from one place to another; in a word,
they refer to merchant vessels and in no way can they or should they be understood as referring to
pleasure craft, yachts, pontoons, health service and harbor police vessels, floating storehouses, warships
or patrol vessels, coast guard vessels, fishing vessels, towboats, and other craft destined to other uses,
such as for instance coast and geodetic survey, those engaged in scientific research and exploration, craft
engaged in the loading and discharge of vessels from same to shore or docks, or in transhipment and
those small craft which in harbors, along shore, bays, inlets, coves and anchorages are engaged in
transporting passengers and baggage." (Estasen, Der. Mer., vol. IV, p. 195.)
In Yu Con vs. Ipil (41 Phil., 770), this court held that a small vessel used for the transportation of
merchandise by sea and for the making of voyages from one port to another of these Islands, equipped
and victualed for this purpose by its owner, is a vessel, within the purview of the Code of Commerce, for
the determination of the character and effect of the relations created between the owners of the
merchandise laden on it and its owner. In the case before us the Jison, as we are informed in the complaint,
was propelled by a second-hand motor, originally used for a tractor plow; and it had a capacity for only
eight persons. The use to which it was being put was the carrying of passengers and luggage between the
landing at Silay and ships in the harbor. This was not such a boat as is contemplated in article 835 of the
Code of Commerce, requiring protest in case of collision.
In Yu Con vs. Ipil, supra, the author of the opinion quotes a passage from the treatise on Mercantile Law by
Blanco. We now have before us the latest edition of Blanco, and we reproduce here, in both Spanish and
English, not only the passage thus quoted but also the sentence immediately following said passage; and
this latter part of the quotation is quite pertinent to the point now under consideration.
Says Blanco:
"Las palabras 'nave' y 'buque, en su sentido gramatical, se aplican para designar cualquier clase de
embarcaciones, grandes o pequeiias, mercantes o de guerra, significacion que no difiere esencialmente de
la juridica, con arreglo a la cual se consideran buques para los efectos del Codigo y del Reglamento para la
organizacion del Registro mercantil, no solo las embarcaciones destinadas a la navegacion de cabotaje o
altura, sino tambien los diques flotantes, pontones, dragas, ganguiles y cualquier otro aparato flotante
destinado a servicios de la industria o del comercio maritimo.
432 | P a g e
"Aun cuando, conforme a este concepto legal, parece que todo aparato flotante que sirve directamente
para el trasporte de cosas o personas, o que indirectamente se relacionen con esta industria, han de
sujetarse a los preceptos del Codigo sobre propiedad, transmision, derechos, inscripciones, etc.,
entendemos con el Sr. Benito (obra cit.) y asi ocurre en la practica, que no son aplicables a las pequeas
embarcaciones, que solo estan sujetas a los de la administracion de marina para el servicio de los puQrtos
o ejercicio de la industria de la pesca." (Blanco, Der. Mer., vol. II, pag. 22.)
"The words 'ship' (nave) and 'vessel' (buque), in their grammatical sense, are applied to designate every
kind of craft, large or small, merchant vessels or war vessels, a signification which does not differ
essentially from its juridical meaning, according to which vessels for the purposes of the Code and
Regulations for the organization of the Mercantile Registry, are considered not only those engaged in
navigation, whether coastwise or on the high seas, but also floating docks, pontoons, dredges, scows and
any other floating apparatus destined for the service of the industry or maritime commerce.
"Yet notwithstanding these principles from which it would seem that any floating apparatus which serves
directly for the transportation of things or persons or which indirectly is related to this industry, ought to be
subjected to the principles of the Code with reference to ownership, transfer, rights, registration, etc., we
agree with Benito (cobra cit.) and it so happens in practice that they are not applicable to small craft which
are only subject to administrative (customs) regulations in the matter of port service and in the fishing
industry."
We may add that the word "nave" in Spanish, which is used interchangeably with "buque" in the Code of
Commerce, means, according to the Spanish-English Dictionary compiled by Edward R. Bensley and
published at Paris in the year 1896, "Ship, a vessel with decks and sails." Particularly significant in this
definition is the use of the word "decks," since a deck is not a feature of the smallest types of water craft.
In this connection a most instructive case from a Federal Court in the United States is that of The Mamie (5
Fed., 813), wherein it was held that only vessels engaged in what is ordinarily known as maritime
commerce are within the provisions of law conferring limited liability on the owner in case of maritime
disaster. In the course of the opinion in that case the author cites the analogous provisions in the laws of
foreign maritime nations, especially the provisions of the Commercial Code of France; and it is observed
that the word "vessel" in these codes is limited to ships and other sea-going vessels. "Its provisions are not
applicable," said the court, "to vessels in inland navigation, which are especially designated by the name
of boats." Quoting from the French author Dufour (1 Droit Mer. 121), the writer of the opinion in the case
cited further says: "Thus, as a general rule, it appears to me clearly, both by the letter and spirit of the law,
that the provisions of the Second Book of the Commercial Code [French] relate exclusively to maritime and
not to fluvial navigation; and that consequently the word 'ship,' when it is found in these provisions, ought
to be understood in the sense of a vessel serving the purpose of maritime navigation or seagoing vessel,
and not in the sense of a vessel devoted to the navigation of rivers."
It is therefore clear that a passenger on a boat like the Jison, in the case before us, is not required to make
protest as a condition precedent to his right of action for the injury suffered by him in the collision
described in the complaint. In other words, article 835 of the Code of Commerce does not apply. But even if
said provision had been considered applicable to the case in hand, a fair interpretation of the allegations of
the complaint indicates, we think, that the injuries suffered by the plaintiff in this case were of such a
nature as to excuse protest; for, under article 836, it is provided that want of protest cannot prejudice a
person not in a condition to make known his wishes. An individual who has suffered a compound fracture
of the femur and received other physical injuries sufficient to keep him in a hospital for many months,
cannot be supposed to have been in a condition to make protest within twenty-four hours of such
occurrence. It follows that the demurrer in this case was not well taken and should have been overruled.
In their brief in this court the attorneys for the defendant have criticized the complaint for a general lack of
certainty and precision in more than one respect. However, we have read the document attentively and, in
our opinion, it states a good cause of action upon a civil liability arising from tort under articles 1902 and
1903 of the Civil Code, and our attention has not been drawn to any provision of law which would
constitute an obstacle to the maintenance of the action.
We have repeatedly called the attention of trial courts to the general rule that a case should not be
dismissed on demurrer when, under any reasonable interpretation of the complaint, a cause of action can
be made out; and the fact that a complaint is inartificially drawn or in a certain degree lacking in precision
constitutes no sufficient reason for dismissing it. In passing upon a demurrer, every reasonable intendment
is to be taken in favor of the pleader. In this connection it should be borne in mind that if a complaint does
433 | P a g e
not show a good cause of action, the action can be dismissed at a later stage of the proceedings; and even
where no objection has been previously made, the point can be raised in the Supreme Court under section
93 of the Code of Civil Procedure (Abiera vs. Orin, 8 Phil., 193). Little or no appreciable prejudice to the
defendant will therefore ordinarily result from overruling a demurrer, and no harm is done to anyone by
requiring the defendant to answer. On the contrary, grave prejudice may result to a plaintiff from the
erroneous sustaining of a demurrer, because of the delay and even expense necessary to set the matter
right upon appeal.
The judgment appealed from is reversed, the demurrer overruled, and the defendant is required to answer
the complaint within five days after notification of the return of this decision to the court of origin. So
ordered, with costs against the appellee.
Johnson, Malcolm, Villamor and Romualdez, JJ., concur.
Ostrand, J., concurs in the result.
2.
Nature and acquisition of
Arts. 573, 574, 585, Art. 712, Civil Code
Art. 573. Whenever the usufruct includes things which, without being consumed, gradually deteriorate
through wear and tear, the usufructuary shall have the right to make use thereof in accordance with the
purpose for which they are intended, and shall not be obliged to return them at the termination of the
usufruct except in their condition at that time; but he shall be obliged to indemnify the owner for any
deterioration they may have suffered by reason of his fraud or negligence. (481)
Art. 574. Whenever the usufruct includes things which cannot be used without being consumed, the
usufructuary shall have the right to make use of them under the obligation of paying their appraised value
at the termination of the usufruct, if they were appraised when delivered. In case they were not appraised,
he shall have the right to return at the same quantity and quality, or pay their current price at the time the
usufruct ceases. (482)
Art. 585. The usufructuary, whatever may be the title of the usufruct, may be excused from the obligation
of making an inventory or of giving security, when no one will be injured thereby. (493)
Art. 712. Ownership is acquired by occupation and by intellectual creation.
Ownership and other real rights over property are acquired and transmitted by law, by donation, by estate
and intestate succession, and in consequence of certain contracts, by tradition.
They may also be acquired by means of prescription. (609a)
3.
Registration; certificates issued; distinctions
Tariff and Customs Code, Secs. 802, et seq.
PD 761, as amended by PD 1064, 1521
Section 802. Vessels Required to be Registered. Every vessel used in the Philippine waters, not being a
transient of foreign registry shall be registered in the Bureau of Customs. To this end, it shall be the duty of
the master, owner or agent of every vessel to make application to the proper Collector for the registration
thereof within fifteen days after the vessel becomes subject to such registration.
A vessel of three tons gross or less shall not be registered, unless the owner shall so desire, nor shall
documents or licenses of any kind be required for such vessel, but the proper fee shall be charged for
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admeasurement, when admeasurement is necessary, except when the same is engaged in towing or
carrying of articles and passengers for hire.
PRESIDENTIAL DECREE No. 761 July 31, 1975

AMENDING SECTION EIGHT HUNDRED SIXTY OF THE TARIFF AND CUSTOMS CODE OF THE
PHILIPPINES, AS AMENDED, BY ALLOWING THE REGISTRATION OF VESSELS THE OWNERSHIP OF
WHICH IS VESTED IN CORPORATIONS OR ASSOCIATIONS, AT LEAST SIXTY PERCENT OF THE
CAPITAL STOCK OR CAPITAL OF WHICH BELONG TO CITIZENS OF THE PHILIPPINES, AND FOR
OTHER PURPOSES
WHEREAS, there is a dearth of coastwise vessels to satisfy the needs of the country both as public carriers
and as support facilities of enterprises duly registered, operating and doing business under Philippine laws;
and
WHEREAS, the geographical conditions of the country make it imperative that the State give utmost
encouragement and assistance to the expansion of shipping facilities and services hand-in-hand with its
program of incentives to develop the other sectors of the country and other activities in order for it to
attain and sustain the desired rate of growth towards economic self-sufficiency;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Republic of the Philippines, by virtue of the
powers in me vested by the Constitution, do hereby order and decree, as part of the law of the land, the
following:
Section 1. Section 806 of the Tariff and Customs Code of the Philippines, as amended, is hereby amended
to read as follows:
Sec. 806. Certificate of Philippine Registry. Upon registration of a vessel of domestic ownership, and of
more than fifteen tons gross, a certificate of Philippine registry shall be issued for it. If the vessel is of
domestic ownership, and of fifteen tons gross or less, the taking of the certificate of Philippine registry
shall be optional with the owner.
"Domestic ownership, as used in this section means ownership vested in citizens of the Philippines or
corporations or associations organized under the laws of the Philippines at least sixty per centum of the
capital stock or capital of which is wholly owned by citizens of the Philippines, and, in the case of
corporations or associations which will engage in coastwise trade the president or managing directors
thereof shall be such citizens: Provided, That the members of the crew of the vessel, except specialized
fishing vessels, shall all be citizens of the Philippines, Provided, That the certificate of Philippine registry
issued to a vessel prior to the approval of this Code shall not be affected; Provided, further, That any
vessel of more than fifteen gross tons which on February eight, nineteen hundred and eighteen, had a
certificate of Philippine registry under existing law, shall likewise be, deemed a vessel of domestic
ownership if there has been no change in its ownership or if the capital of the association or capital stock
of the corporation owning such vessel has not been transferred to persons who are not citizens of the
Philippines and if any such vessels should have been totally lost through shipwreck, collision or any other
marine disaster while being lawfully operated, it may be replaced with another vessel of the same or lesser
tonnage by the same person, association or corporation owning and operating same by virtue of this
section, under such terms and conditions as may be prescribed by the Maritime Industry Authority
consistent with public policy and with the view of its utility for government service in case of war or any
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public emergency: Provided, further, That the controlling interest of the association or corporation shall not
be considered as held by the citizen of the Philippines; (a) if less than sixty percent of the capital or capital
stock is held by such citizens or such capital or capital stock is subject to any trust or fiduciary obligation in
favor of any person not a citizen of the Philippines; (b) if less than sixty percent of the capital or capital
stock in said association or corporation entitled to vote is in the hands of citizens of the Philippines; (c) if
by means of (a) any contract or agreement, more than forty percent of the capital or capital stock can be
voted directly or indirectly in favor of any person not a citizen of the Philippines: or (d) if by other means,
the control of more than forty percent of the capital or capital stock of the association or corporation is
conferred upon or allowed to be exercised by any person not a citizen of the Philippines."
Section 2. The above definition of "domestic ownership" notwithstanding, an enterprise duly registered
with the Board of Investments, under R.A. 5186 or 6135, whether or not entirely owned by foreign
nationals, may register its own vessels under the provision of the section immediately preceding if such
vessels are to be used exclusively to transport its own raw materials and finished products in Philippine
waters as an incident to its manufacturing, processing or business activity registered with the Board of
Investments and certified to by said Board as an essential element in the operation of the registered
project.
Section 3. Any provision of the law, decree, executive order, or rules and regulations to the contrary
notwithstanding, the Maritime Industry Authority is hereby vested with the exclusive authority over the
registration and documentation of Philippine vessels, as well as the issuance of all certificates, licenses or
other documents necessary or incident to such registration and documentation.
Section 4. The Maritime Industry Authority shall be subject to approval by the Office of the President,
issue such rules and regulations implementing the provisions of this decree.
Section 5. All laws, decrees, executive orders, or rules and regulations, or parts thereof, inconsistent with
this Decree are hereby repealed or modified accordingly.
Section 6. This Decree shall take effect immediately.
Done in the City of Manila, this 31st day of July, in the year of Our Lord, nineteen hundred and seventy-five.
MALACAANG
Manila
PRESIDENTIAL DECREE No. 1064 December 18, 1976
TRANSFERRING THE FUNCTIONS OF REGISTRATION AND DOCUMENTATION OF PHILIPPINE
VESSELS TO THE PHILIPPINE COAST GUARD
WHEREAS, in the order to prevent duplication of functions in the matter of registration, documentation,
issuance of certificates and licensing of Philippine vessels, it is necessary that the same should be
transferred to the Philippine Coast Guard.
WHEREAS, it is necessary to consolidate all of these functions in the Philippine Coast Guard whose primary
function is to oversee local shipping movements.
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NOW, THEREFORE I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in
me by the constitution, do hereby decree and order:
Section 1. Section 3 of Presidential Decree No. 761 is hereby amended to read:
"Sec. 3. Any provision of law, decree, executive order or rules and regulations to the contrary
notwithstanding the Philippine Coast Guard is hereby vested with exclusive authority over the registration
and documentation of Philippine vessels, as well as the issuance of all certificates, licenses or other
document necessary or incident to such registration and documentation.
Section 3. This Decree shall take effect immediately.
Done in the city of Manila, this 18th day of December in the year of Our Lord nineteen hundred and
seventy-six.
PRESIDENTIAL DECREE No. 1521
THE SHIP MORTGAGE DECREE OF 1978
WHEREAS, it is the declared policy of the State to accelerate the growth and development of the shipping
industry;
WHEREAS, due to the heavy capital requirement for ship acquisition and operation, the shipping industry
has turned to financial institutions, both local and foreign, for assistance;
WHEREAS, Philippine laws on ship mortgage have not been responsive to the needs of vessel financing
such that it has deterred the extensions of needed loans to the industry;
WHEREAS, there is a recognized need for extending the benefits accorded to overseas shipping under
Presidential Decree No. 214 to domestic shipping.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in
me by the Constitution, do hereby order the enactment of a ship mortgage law as follows:
Section 1. Title. This Decree shall be known as "The Ship Mortgage Decree of 1978."
Section 2. Who may Constitute a Ship Mortgage. Any citizen of the Philippines, or any association or
corporation organized under the laws of the Philippines, at least sixty per cent of the capital of which is
owned by citizens of the Philippines may, for the purpose of financing the construction, acquisition,
purchase of vessels or initial operation of vessels, freely constitute a mortgage or any other lien or
encumbrance on his or its vessels and its equipment with any bank or other financial institutions, domestic
or foreign.
Section 3. Mortgage of Vessel of Domestic Ownership; records.
(a) No mortgage, which at the time such mortgage is made includes a vessel of domestic ownership
as this term is defined in Presidential Decree No. 761, or any portion thereof, as the whole or any
part of the property mortgaged, shall be valid, in respect to such vessel, against any person other
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than the mortgagor, his heir or assign, and a person having actual notice thereof, until such
mortgage is recorded in the office of the Philippine Coast Guard of the port of documentation of
such vessel.
(b) The Coast Guard District or Station Commander shall record mortgages delivered to him, in the
order of their reception, in books to be kept for that purpose and indexed to show
1. The name of the vessel;
2. The names of the parties tot he mortgage;
3. The time and date of reception of the instrument;
4. The interest in the vessel so mortgaged;
5. The amount and date of maturity of the mortgage;
6. Name, citizenship, nationality and residence of owner, and
7. Any material change of condition in respect to any of the preceding items.
A copy of the instrument or mortgage shall be furnished the Central Bank of the Philippines.
Section 4. Preferred Mortgages
(a) A valid mortgage which at the time it is made includes the whole of any vessel of domestic
ownership shall have, in respect to such vessel and as of the date of recordation, the preferred
status given by the provisions of Section 17 hereof, if
1. The mortgage is recorded as provided in Section 3 hereof;
2. An affidavit is filed with the record of such mortgage to the effect that the mortgage is
made in good faith and without any design to hinder, delay, or defraud any existing or future
creditor of the mortgagor or any lien or of the mortgaged vessel;
3. The mortgage does not stipulate that the mortgagee waives the preferred status thereof;
(b) Any mortgage which complies with the above conditions is hereafter called a "preferred
mortgage". For purposes of this Decree, a vessel holding a Provisional Certificate of Philippine
Registry is considered a vessel of domestic ownership such that it can be subject of preferred
mortgage. The Philippine Coast Guard is hereby authorized to enter a vessel holding a Provisional
Certificate of Philippine Registry in the Registry of Vessels and to record any mortgage executed
thereon. Such mortgage shall have the preferred status as of the date of recordation upon
compliance with the above conditions.
(c) There shall be endorsed upon the documents of a vessel covered by a preferred mortgage
1. The names of the mortgagor and mortgagee;
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2. The time and date the endorsement is made;

3. The amount and date of maturity of the mortgage; and
4. Any amount required to be endorsed by the provisions of paragraphs (e) or (f) of this
Section.
(d) Such endorsement shall be made (1) by the Coast Guard District or Station Commander of the
port of documentation of the mortgaged vessel, or (2) by the Coast Guard District or Station
Commander of any port in which the vessel is found, if such Coast Guard District or Station
Commander is directed to make the endorsement by the Coast Guard District or Station
Commander of the port of documentation. The Coast Guard District or Station Commander of the
port of documentation shall give such direction by wire of letter at the request of the mortgagee
and upon the tender of the cost of communication of such direction. Whenever any new document
is issued for the vessel, such endorsement shall be transferred to and endorsed upon the new
document by the Coast Guard District or Station Commander.
In the case of a vessel holding a provincial certificate of Philippine Registry, the endorsement shall
be made by the Philippine consul abroad upon direction by wire or letter from the Maritime Industry
Authority at the request of the mortgagee and upon tender of the cost of communication of such
direction. A certificate of such endorsement, giving the place, time and description of the
endorsement, shall be recorded with the records of registration to be maintained at the Philippine
Consulate.
(e) A mortgage which includes property other than a vessel shall not be held a preferred mortgage
unless the mortgage provides for the separate discharge of such property by the payment of a
specified portion of the mortgage indebtedness. If a preferred mortgage so provides for the
separate discharge, the amount of the portion of such payment shall be endorsed upon the
documents of the vessel.
(f) A preferred mortgage includes more than one vessel and provides for the separate discharge of
each vessel by the payment of a portion of mortgage indebtedness, the amount of such portion of
such payment shall be endorsed upon the documents of the vessel. In case such mortgage does not
provide for the separate discharge of a vessel and the vessel is to be sold upon the order of a
district court of the Philippines in a suit in rem in admiralty, the court shall determine the portion of
the mortgage indebtedness increased by 20 per centum (1) which, in the opinion of the court, the
approximate value of all the vessels covered by the mortgage, and (2) upon the payment of which
the vessel shall be discharged from the mortgage.
Section 5. Certified Copies of Mortgage; exhibition. The Coast Guard District or Station Commander upon
the recording of a preferred mortgage shall deliver two certified copies thereof to the mortgagor who shall
place, and use due diligence to retain, one copy on board the mortgaged vessel notice of which shall be
posted in a conspicuous place thereat and cause such copy and the documents of the vessel to be
exhibited by the master to any person having business with the vessel, which give rise to a maritime lien
upon the vessel or to the sale, conveyance, or mortgage thereof. The master of the vessel shall upon the
request of any such person, exhibit to him the documents of the vessel placed on board thereof. The
requirement of this Section that a copy of a preferred mortgage be placed and retained on board the
mortgaged vessel shall not apply in the case of a mortgaged vessel which is not self-propelled (including
but not limited to, barges, scors, lighters, and car floats).
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If the master of the vessel willfully fails to exhibit the documents of the vessel or the copy of any preferred
mortgage thereof, the Philippine Coast Guard may suspend or cancel the master's license.
Section 6. Prior and Subsequent Maritime Liens on Mortgaged Vessel. The mortgagor (1) shall, upon
request of the mortgagee, disclose in writing to him prior to the execution of any preferred mortgage, the
existence of any maritime lien, prior mortgage, or other obligation or liability upon the vessel to be
mortgaged, that is known to the mortgagor, and (2) without the consent of the mortgagee, shall not incur,
after the execution of such mortgage and before the mortgagee has had a reasonable time in which to
record the mortgage and have indorsements in respect thereto made upon the documents of the vessel,
any contractual obligation creating a lien upon the vessel other than a lien for wages of stevedores when
employed directly by the owner, operator, master, ship's husband, or agent of the vessel, for wages of the
crew of the vessel, for general average, or for salvage, including contract salvage, in respect to the vessel,
tonnage dues and all other charges (not to exceed P20,000) of the Philippine Government in respect to the
vessel.
A mortgagor, who, with intent to defraud, violates the above provision and if the mortgagor is a
corporation or association, the president or other principal executive officer of the corporation or
association, shall be punished by a fine of not, more than P5,000 or imprisonment of not more than two
years, or both. The mortgage indebtedness shall thereupon become immediately due and payable at the
election of the mortgagee.
Section 7. Record of Notice of Claim of Lien on Mortgaged Vessel; discharge of lien
(a) The Coast Guard District or Station Commander of the port of documentation shall, upon the
request of any person, record notice of his claim of a lien upon a vessel covered by a preferred
mortgage, together with the nature, date of creation, and amount of the lien, and the name and
address of the person. Any person who has caused notice of his claim of lien to be so recorded
shall, upon a discharge in whole or in part of the indebtedness, forthwith file with the Coast Guard
District or Station Commander a certificate of such discharge. The Coast Guard District or Station
Commander shall thereupon record the certificate.
(b) The mortgagor upon a discharge in whole or in part of the mortgage indebtedness, shall
forthwith file with the Coast Guard District or Station Commander for the port of documentation of
the vessel, a certificate of such discharge duly executed by the mortgagee. Such Coast Guard
District or Station Commander shall there upon record the certificate. In case of a vessel covered by
a preferred mortgage, the Coast Guard District or Station Commander at the port of documentation
shall endorse upon the documents of the vessel, or direct the Coast Guard District or Station
Commander at any port in which the vessel is found, to so endorse, the fact of such discharge.
A certificate of such endorsement, giving the time, place and description of the endorsement, shall be
recorded with the Philippine Coast Guard. Where the endorsement is made by a person other than the
Coast Guard District or Station Commander such certificate shall be promptly forwarded to the Philippine
Coast Guard.
Section 8. Conditions Precedent to Record; interest on Preferred Mortgage
(a) No mortgage shall be recorded unless it states the interest of the mortgagor in the vessel, and
the interest so mortgaged.
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(b) No mortgage, notice of claim of lien, or certificate of discharge thereof, shall be recorded unless
previously acknowledged before the Coast Guard District or Station Commander of the port of
documentation or a notary public or other officer authorized by a law of the Philippines to take
acknowledgment of deeds or before a Philippine consul or consular agent.
(c) In case of a change in the port of documentation of a vessel of the Philippines, no mortgage
shall be recorded at the new port of documentation unless there is furnished to the Coast Guard
District or Station Commander of such port, together with the copy of the mortgage to be recorded,
a certified copy of the record of the vessel at the former port of documentation furnished by the
Coast Guard District or Station Commander of such port. The Coast Guard District or Station
Commander at the new port of documentation is authorized and directed to record such certified
copy.
Section 9. Inspection of the Copies for Records; fees. Each Coast Guard District or Station Commander
shall permit records made under the provisions of this decree to be inspected during office hours, under
such reasonable regulation as the Philippine Coast Guard may establish. Upon the request of any person
the Coast Guard District or Station Commander shall furnish him from the records of the Coast Guard's
office (1) a certificate setting forth the names of the owners of any vessel, the interest held by each owner,
and the material facts as to any mortgage covering, or any lien or other encumbrance upon, a specified
vessel, (2) a certified copy of any mortgage, notice of claim of lien, or certified copy discharge in respect to
such vessel, or (3) a certified copy as required by subsection (c) of Section 8 hereof. The Philippine Coast
Guard shall collect the fees as provided for under existing laws and regulations for any mortgage recorded,
or any certificate or certified copy furnished by it.
Section 10. Lien of preferred Mortgage; foreclosure; jurisdiction; procedure A preferred mortgage shall
constitute a lien upon the mortgaged vessel in the amount of the outstanding mortgage indebtedness
secured by such vessel. Upon the default of any term or condition of the mortgage such lien may be
enforced by the mortgagee by suit in remaining admiralty, wherein the vessel itself may be made a partly
defendant and be arrested in the manner as provided in Section 11 hereof. Original jurisdiction of all such
suits is granted to the Court of First Instance of the Philippines exclusively. In addition to any notice by
publication, actual notice of commencement of any such suit shall direct, to (1) the master, other ranking
officer, or caretaker of the vessel, and (2) any person who has recorded a notice of claim of an
undischarged lien upon the vessel, as provided in Section 7 hereof, unless after search by the mortgage
satisfactory to the court, such mortgagor, master, other ranking officer, caretaker, or claimant is not found
within the Philippines. Failure to give notice to any such person, as required by this Section, shall be liable
to such person for damages in the amount of his interest in the vessel terminated by the suit.
In case of judicial foreclosure as provided herein, the provisions of Rule 68 of the New Rules of Court, if not
inconsistent herewith, shall apply.
The lien of a preferred ship mortgage may also be enforced by a suit in rem in admiralty or otherwise in
any foreign country in which the vessel may be found pursuant to the procedure of said country for the
enforcement of ship mortgages constituting maritime liens on vessels documented under the laws of said
country.
Section 11. Arrest of Vessels Upon the filing of the petition for the judicial foreclosure of a Preferred Ship
Mortgage, or immediately thereafter, the applicant may apply ex-parte for an order for the arrest of the
mortgaged vessel or vessels and the judge shall immediately issue the same, provided that it is made to
appear by affidavit of the applicant, or of some other person who personally knows the facts that a default
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in the mortgage has occurred and that applicant files a bond executed to the adverse party in an amount
to be fixed by the judge, not exceeding the applicant's claim, conditioned that the latter will pay all the
costs which may be adjudged to the adverse party and all damages which he may sustain by reason of
such arrest, if the court shall finally adjudge that the applicant was not entitled thereto.
Section 12. Discharge of Order of Arrest; Counterbond At any time after an order of arrest has been
granted, the party whose vessel or vessels had been arrested, or the person appearing in his behalf, may,
upon reasonable notice to the applicant, apply to the judge who granted the order, or to the judge of the
court in which the action is pending, for an order discharging the order of arrest. That judge shall order the
discharge of the arrest if a cash deposit is made, or counterbond executed to the creditor is filed, on behalf
of the adverse party, with the clerk or judge of the court where the application is made in an amount
double the value of the claim to secure the payment of any judgment that the creditor may recover in the
action. Upon the filing of such counterbond, copy thereof shall forthwith be served on the creditor or his
lawyer. Upon discharge of the order of arrest, the property arrested or seized shall be delivered to the
party making the deposit or giving the counterbond, or the person appearing in his behalf, the deposit or
counterbond aforesaid standing in place of the vessel or vessels released. Should such deposit or
counterbond for any reason be found to be, or become insufficient, and the party furnishing the same fails
to file an additional co-counterbond, the attaching creditor may apply for a new order of arrest or seizure.
Section 13. Discharge of Order of Arrest for Improper or Irregular Issuance The party whose vessel/s has
been arrested may also, at any time either before or after the release of the arrested vessel, or before any
arrest or seizure has been effected, upon reasonable notice to the creditor, apply to the judge who granted
the order, or to the judge of the court in which the action is pending, for an order to discharge the order of
arrest or seizure on the ground that the same improperly or irregularly issued. After hearing, the judge
shall order the discharge of the order of arrest or seizure if it appears that it was improperly or irregularly
issued and the defect is not cured forthwith.
Section 14. Extrajudicial Foreclosure The provisions of the Chattel Mortgage Law on the remedy of extrajudicial foreclosure of mortgages in so far as they are not inconsistent herewith shall still apply. For the
purpose of taking possession of the vessel or vessels, the foreclosing creditor may secure from a judge of
the Court of First Instance of the province where the vessel may be found or where the creditor or debtor
resides an order for the arrest or seizure of the vessel. Upon such order of seizure or arrest being issued,
the sheriff shall immediately take possession of the vessel or vessels for the purpose of foreclosure and
sale. The vessel may only be released in accordance with the provisions of Section 13 of this Act, or when
the debtor pays the outstanding obligation.
Section 15. Foreign Ship Mortgages As used in Sections 10 to 18 hereof, the term "preferred mortgage"
shall include, in addition to a preferred mortgage made pursuant to the provisions of this Decree, any
mortgage, hypothecation, or similar charge created as security upon any documented foreign vessel if
such mortgage, hypothecation, or similar charge has been duly and validly executed in accordance with
the laws of the foreign nation under the laws of which the vessel is documented and has been duly
registered in accordance with such laws in a public register either at the port of registry of the vessel or at
a central office; and the term "preferred mortgage lien" shall also include the lien of such mortgage,
hypothecation, or similar charge: Provided, however, That such "preferred mortgage lien" in the case of a
foreign vessel shall be subordinate to maritime liens for repairs, supplies, towage, use of drydock or
marine railway, or other necessaries, performed or supplied in the Philippines.
Section 16. Receiver in Foreclosure; possession by sheriff In any suit in rem in admiralty for the
enforcement of the preferred mortgage lien, the court may appoint a receiver and, in its discretion,
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authorize the receiver to operate the mortgaged vessel. The sheriff may be authorized and directed by the
court to take possession of the mortgaged vessel notwithstanding the fact that the vessel is in the
possession or under the control of any person claiming a possessory common law lien.
Section 17. Preferred Maritime Lien, Priorities, Other Liens (a) Upon the sale of any mortgaged vessel in
any extra-judicial sale or by order of a district court of the Philippines in any suit in rem in admiralty for the
enforcement of a preferred mortgage lien thereon, all pre-existing claims in the vessel, including any
possessory common-law lien of which a lienor is deprived under the provisions of Section 16 of this Decree,
shall be held terminated and shall thereafter attach in like amount and in accordance with the priorities
established herein to the proceeds of the sale. The preferred mortgage lien shall have priority over all
claims against the vessel, except the following claims in the order stated: (1) expenses and fees allowed
and costs taxed by the court and taxes due to the Government; (2) crew's wages; (3) general average; (4)
salvage; including contract salvage; (5) maritime liens arising prior in time to the recording of the preferred
mortgage; (6) damages arising out of tort; and (7) preferred mortgage registered prior in time.
(b) If the proceeds of the sale should not be sufficient to pay all creditors included in one number or
grade, the residue shall be divided among them pro rata. All credits not paid, whether fully or
partially shall subsist as ordinary credits enforceable by personal action against the debtor. The
record of judicial sale or sale by public auction shall be recorded in the Record of Transfers and
Encumbrances of Vessels in the port of documentation.
Section 18. Suit in Personam in Admiralty on Default
(a) Upon the default of any term or condition of a preferred mortgage upon a vessel, the mortgagee
may, in addition to all other remedies granted by this Decree, bring suit in personal in admiralty in a
district court of the Philippines, against the mortgagor for the amount of the outstanding mortgage
indebtedness secured by such vessel or any deficiency in the full payment thereof.
(b) This Decree shall not be construed, in the case of a mortgage covering, in addition to vessels,
realty or personality other than vessels, or both, to authorize the enforcement by suit in rem in
admiralty of the rights of the mortgage in respect to such realty or personality other than vessels.
Section 19. Surrender of Documents; termination of mortgagee's interest; sale of mortgaged vessel
(a) The documents of a vessel of the Philippines covered by a preferred mortgaged may not be
surrendered (except in the case of the forfeiture of the vessel or its sale by the order of any court of
the Philippines or any foreign country) without the approval of the Maritime Industry Authority. The
Administrator shall not grant such approval without the mortgagee's consent.
(b) The interest of the mortgage in a vessel of the Philippines covered by a mortgage, shall not be
terminated by the forfeiture of the vessel for a violation of any law of the Philippines, unless the
mortgage authorized, consented, or conspired to effect the illegal act, failure, or omission which
constituted such violation. Neither shall the chance by the shipowner in the use or character of the
vessel or in the business of the mortgagor, without the consent of the mortgagee, nor the failure by
the mortgagor to comply with the provisions of Section 5 hereof affect the validity or preference of
the preferred ship mortgage as against third persons.
(c) Upon the sale of any vessel of the Philippines covered by a preferred mortgage in any
extrajudicial sale or by order of a district court of the Philippines in any suit in rem in admiralty for
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the enforcement of a maritime lien other than a preferred maritime lien, the vessel shall be sold
free from all pre-existing claims thereon; but the court shall, upon the request of the mortgagee,
the plaintiff, or any intervenor, require the purchase at such sale to give and the mortgagee to
accept a new mortgage of the vessel for the balance of the term of the original mortgage. The
conditions of such new mortgage shall be the same, so far as practicable, as those of the original
mortgage and shall be subject to the approval of the court. If such new mortgage is given, the
mortgagee shall not be paid from the proceeds of the sale and the amount payable as the purchase
price shall be held diminished in the amount of the new mortgage indebtedness.
(d) No vessel of domestic ownership shall be mortgaged, nor, any rights under said mortgage shall
be assigned, to any person not a citizen of the Philippines without the approval of the Maritime
Industry Authority. The penalties and sanctions provided for under Commonwealth Act No. 606 shall
apply in case of any violation hereof.
(e) The foreclosure sale of vessels mortgaged under the provisions of this Decree, whether judicially
or extrajudicially, shall not require the approval of the Maritime Industry Authority.
Section 20. Who May Bid in the Foreclosure Sale The following persons are qualified to bid in the
foreclosure sale of the mortgaged vessel:
(a) Citizens of the Philippines or corporations 60% of the capital of which is owned by Filipino
citizens.
(b) A foreign mortgagee or foreign national whose country has diplomatic relations with the
Philippines or whose country grants reciprocal rights to Filipino citizens.
In case the purchaser is a foreign individual or entity, the Philippine Coast Guard shall, upon presentation
of the certificate of sale, cancel the registration of the vessel and issue a certificate to that effect upon
request.
Section 21. Maritime Lien for Necessaries; persons entitled to such lien Any person furnishing repairs,
supplies, towage, use of dry dock or marine railway, or other necessaries to any vessel, whether foreign or
domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a
maritime lien on the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or
prove that credit was given to the vessel.
Section 22. Persons Authorized to Procure Repairs, Supplies, and Necessaries The following persons shall
be presumed to have authority from the owner to procure repairs, supplies, towage, use of dry dock or
marine railway, and other necessaries for the vessel: The managing owner, ship's husband, master or any
person to whom the management of the vessel at the port of supply is entrusted. No person tortuously or
unlawfully in possession or charge of a vessel shall have authority to bind the vessel.
Section 23. Notice to Person Furnishing Repairs, Supplies, and Necessaries The officers and agents of a
vessel specified in Section 22 of this Decree shall be taken to include such officers and agents when
appointed by a character, by an owner pro hac vice, or by an agreed purchaser in possession of the vessel;
but nothing in this Decree shall be construed to confer a lien when the furnisher know, or by exercise of
reasonable diligence could have ascertained, that because of the terms of a charter party, agreement for
sale of the vessel, or for any other reason, the person ordering the repairs, supplies, or other necessaries
was without authority to bind the vessel therefor.
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Section 24. Waiver of Right to Lien Nothing in this Decree shall be construed to prevent the furnisher of
repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, or the mortgagee, from
waiving his right to a lien, or in the case of a preferred mortgage lien, to the preferred status of such lien,
at any time by agreement or otherwise.
Section 25. Existing Mortgages Not Affected; exception This Decree shall not apply (1) to any existing
mortgage, or (2) to any mortgage hereafter placed at any vessel under an existing mortgage, so long as
such existing mortgage remains undischarged. The Decree shall, however, apply to mortgages executed
pursuant to Presidential Decree No. 214, provided, that no vested rights of third parties are affected
thereby.
Section 26. Rules and Regulations by Philippine Coast Guard and the Maritime Industry Authority The
Philippine Coast Guard and the Maritime Industry Authority are hereby authorized to make such rules and
regulations within their respective spheres of jurisdiction, as they may deem necessary for the efficient
execution of the provisions of this Decree.
Section 27. Port of Documentation Whenever in the Ship Mortgage Decree of 1978 the words "port of
documentation" are used, they shall be deemed to mean the port of registry of the vessel.
Section 28. Instruments and Acts Validated All mortgages of any vessel of any part thereof, and all
documentations, recordations, indorsements and indexing thereof, and proceedings incidental thereto
made or done, prior to the effectivity of this Decree are declared valid to the extent they would have been
valid if the port or ports at which it should have been documented in accordance with law; and this Section
is declared retroactive so as to accomplish such validations: Provided, That nothing herein contained shall
be construed to deprive any person of any vested right.
Section 29. Repealing Clause The provisions of the New Civil Code, the Code of Commerce, the Chattel
Mortgage Law, the Revised Rules of Court and of such other laws, decrees, executive orders, rules and
regulations which are in conflict or inconsistent with the provisions of this Decree are hereby repealed,
amended or modified accordingly. If for any reason, any section, subsection, sentence, clauses or term of
this Decree is held to be unconstitutional such decision shall not affect the validity of the other provisions
of this Decree.
Section 30. Effectivity This Decree shall take a effect upon its approval.
Done in the City of Manila, this 11th day of June, in the year of Our Lord, nineteen hundred and seventyeight.
4.
Significance of registration of transactions affecting vessels
Arroyo v. Yu, 54 Phil 511

EN BANC
[G.R. No. 31865. February 28, 1930.]
MARIANO B. ARROYO, Provincial Sheriff of Iloilo, plaintiff-appellee, vs. MARIA CORAZON YU DE
SANE, JOSE M. PO PAUCO, and PO SUY LIONG, defendants-appellants. PHILIPPINE NATIONAL
BANK, defendant-appellee.
445 | P a g e
Luis G. Hofilea, for appellant Corazon Yu de Sane.

Tomas Villa-Real, Teofilo del Rosario and Tiburcio Lutero, for appellants Po Pauco and Po Suy
Liong.
Plaintiff-appellee in his own behalf.
Roman J. Lacson, for defendant-appellee National Bank.
SYLLABUS
1.
SHIPPING; REGISTRATION OF VESSELS; CHATTEL MORTGAGE LAW, WHETHER NOW APPLICABLE TO
VESSELS; ADMINISTRATIVE CODE, SECTION 1171, CONSTRUED AND APPLIED. Section 1171 of the
Administrative Code has modified the provisions of the Chattel Mortgage Law, Act No. 1508, particularly
section 4 thereof. It is now not necessary for a chattel mortgage of a vessel to be noted in the registry of
the register of deeds. On the other hand, it is essential that a record of documents affecting the title of a
vessel be entered in the office of the collector of customs at a port of entry.
2.
ID.; ID.; ID.; ID. The law as now existing is designed to protect persons who deal with a vessel on
the strength of the record title.
3.
ID.; ID.; ID.; ID. Mortgages on vessels, although not recorded, are good as between the parties.
But as against creditors of the mortgagor, an unrecorded mortgage is invalid.
4.
ID.; ID.; ID.; ID.; FORECLOSURE OF MORTGAGE. The procedure provided by law for the foreclosure
of a mortgage must be substantially carried out.
DECISION
MALCOLM, J p:
In the Court of First Instance of Iloilo, the sheriff of that province instituted an action to compel the various
persons and entities with claims to the lorchas China and Cuylim to interplead with one another to
determine their conflicting rights. As a result, Po Suy Liong, Ti Liong & Co., J. M. Po Pauco, Mario Corazon Yu
de Sane, and the Philippine National Bank presented their respective answers and complaints. Thereafter,
it is probable that a hearing was had and evidence taken, although no such evidence has been transcribed
and elevated to this court, which means that we must perforce accept the findings of fact made by the trial
judge. His decision concluded with the following pronouncements:
"In view of these proven facts, the court holds that the mortgage of the lorchas China and Cuylim executed
in favor of J. M. Po Pauco through notarial deed Exhibit 2, and the transfer of said mortgage by J. P. Po
Pauco, the mortgagee, to the Philippine National Bank through notarial deed Exhibit 1, duly recorded in the
registry of deeds of the Province of Iloilo on November 29, 1919, are valid and legal.
"The fact that this mortgage was not registered in the Bureau of Customs of the port of Iloilo until March
5th of this year does not invalidate it; since it was proved at the trial of this case that such deferred
registration was due to certain doubts entertained by the collector of customs of the port of Iloilo touching
the applicability of Act No. 3324, amending section 1176 of the Administrative Code; and that said
collector only decided to admit and register said mortgage upon lorchas China and Cuylim in March of this
year after receipt of advice from Manila regarding the applicability of Act No. 3324, which was approved on
December 4, 1926, to a mortgage executed on November 6, 1918, in favor of a Chinese subject a
prohibition not found in the original section 1176 of the Administrative Code, but which went into effect
when the aforementioned Act No. 3324, approved on December 4, 1926, took effect.
"But the lorchas China and Cuylim do not, by the mere fact of being mortgaged, cease to pertain to the
Lim Ponzon Navigation Co., as evidenced by certificates of ownership Exhibits A and B; and being property
appertaining to the Lim Ponzo Navigation Co., they were validly attached, as shown by Exhibits E, F, G and
H, and levied upon by virtue of the writ of execution Exhibit I, issued December 6, 1928, upon petition of
plaintiff Maria Corazon Yu de Sane filed in civil case No. 7688, Exhibit C. It was on December 6, 1928, that
by virtue of said writ of execution the sheriff levied upon the lorchas China and Cuylim, which, according to
Exhibit F, had been attached on December 4, 1928; it being understood that both attachment and
execution were subject to all liens existing upon said lorchas on the date of the attachment, which liens
were the mortgages in favor of J. M. Po Pauco transferred by the same to the Philippine National Bank,
according to Exhibits 1 and 2.
446 | P a g e
"The aforementioned writ of execution Exhibit I was not carried out by the sheriff because the Philippine
National Bank filed a third- party claim, Exhibit 12, and according to Exhibit 14, Maria Corazon Yu de Sane,
the judgment creditor, failed to give indemnity bond as required by the sheriff.
"But the court also holds that the provincial sheriff of Iloilo did not act legally when, after giving notice,
Exhibit 15, on December 28 or 29, 1928, he dissolved the attachment levied upon the lorchas China and
Cuylim, and delivered them to J. M. Po Pauco, as was proved at the trial of this control of this court in the
instant case, wherein, on December 17, 1928, the complaint of interpleading filed by the sheriff was
entered in the docket, and, without authority of the court in the instant case, said sheriff should not have
assumed to dispose of the lorchas China and Cuylim as he did. The complaint of interpleading filed on
December 17, 1928, was presented by the provincial sheriff of Iloilo, according to paragraph 11 thereof, for
the purpose of protecting himself from any claim that might arise from the sale of said lorchas; and this
protection thus invoked covered not only the person of the sheriff, but also the lorchas in his possession
which were the object of contradictory claims filed by several persons. But the sheriff, by his own
authority, and without the knowledge and authority of this court, disposed of said, lorchas, as stated in
Exhibit 15, and in so acting he assumed full responsibility for all his acts.
"The court holds that the now defendant Maria Corazon Yu de Sane may, if she so desires, ask for another
order of execution in civil case No. 7688, and may by virtue thereof attach the lorchas China and Cuylim,
and order their sale by public auction subject to the mortgage executed thereon by the owner, the Lim
Ponzo Navigation Co., in favor of the Philippine National Bank, which is hereby declared valid.
"The court holds that the damages at the rate of P100 a day claimed by defendants Po Suy Liong, Ti Liong
& Co., and J. M. Po Pauco through the counterclaim contained in their answer filed on December 18, 1928,
have not been proved.
"As to the cross-complaint filed by the Philippine National Bank against J. M. Po Pauco, Maria Corazon Yu de
Sane, Po Suy Liong, and Ti Liong & Co., the court finds that the basic facts thereof have been established,
as heretofore stated in paragraphs numbered 2, 3, 4, 5, and 6, holding J. M. Po Pauco in debt to the
Philippine National Bank for the sum of P131,994.95, including interest up to March 31, 1928, and the
interest mentioned in Exhibit 10, from April 1, 1928, until payment, to which is added the stipulated 10 per
cent of the sum total by way of attorney's fees, which the court hereby reduces to 5 per cent of the whole.
"This debt of J. M. Po Pauco is secured by a mortgage of the property described in Exhibits 1 and 3, already
due and demandable when the cross-complaint was filed by the Philippine National Bank.
"Let judgment be entered for the Philippine National Bank, ordering J. M. Po Pauco to pay to it the sum of
P131,994.95, plus the interest mentioned in Exhibit 10, from April 1, 1928, until payment, plus 5 per cent
of the debt as attorney's fees and costs of collection.
"If said J. M. Po Pauco fails to pay the amount of this judgment within three months from the date hereof,
the court will decree the sale of the mortgaged property, as prayed for by the Philippine National Bank in
its cross-complaint; and should the proceeds of the sale thereof fall short of the amount of this judgment, a
writ of execution shall issue against, whatsoever unexempted property said J. M. Po Pauco holds, until the
whole balance remaining is satisfied.
"Maria Corazon de Sane, and Po Suy Liong & Co. are hereby absolved from the cross-complaint interposed
by the Philippine National Bank against them.
"The Philippine National Bank, J. M. Po Pauco, Po Suy Liong, and Ti Liong & Co., are hereby absolved from
the cross-complaint interposed against them by Maria Corazon Yu de Sane."
From the aforementioned decision and judgment, two appeals have been taken, one by Maria Corazon Yu
de Sane, and the other by J. M. Po Pauco and Po Suy Liong. These appeals will be disposed of in order.
I.
The appeal of Maria Corazon Yu de Sane relates to the preferences to the two lorchas as between
herself and the Philippine National Bank. Among the facts found by the trial judge, it is gleaned that the
lorchas China and Cuylim were owned by the Lim Ponzo Navigation Co. On November 6, 1918, the two
lorchas were mortgaged to J. M. Po Pauco to guarantee a loan of P20,000. Two days later, the mortgage
was duly registered in the office of the register of deeds of Iloilo. On November 28, 1919, J. M. Po Pauco
executed a mortgage in favor of the Philippine National Bank to protect a loan of P50,000, and covering,
among other things, the titles, rights, and interests which Po Pauco had in the lorchas China and Cuylim.
One day later, this mortgage was registered in the office of the register of deeds of Iloilo. Subsequently,
the credit of Po Pauco with the Philippine National Bank was increased to P90,000 which, with accrued
interest, is alleged to now reach the sum of P131,994.95. To return again to the chattel mortgage, it was
only recorded in the office of the collector of customs of Iloilo on March 5, 1929.
447 | P a g e
Maria Corazon Yu de Sane secured a judgment against the Lim Ponzo Navigation Co. for P7,179.65. In due
course, a writ of attachment and an execution were secured, the date of the latter being December 6,
1928. The notice of seizure was recorded by the collector of customs of Iloilo on December 4, 1928, on
which date the records of that office disclosed the vessels as free from encumbrances.
The registration of vessels is now governed by the Administrative Code. Section 1171 thereof provides:
"Record of documents affecting title. In the record of transfers and incumbrances of vessels, to be kept
at each principal port of entry, shall be recorded at length all transfers, bills of sale, mortgages, liens, or
other documents which evidence ownership or directly or indirectly affect the title of registered vessels,
and therein shall be recorded all receipts, certificate, or acknowledgments canceling or satisfying, in whole
or in part, any such obligation. No other record of any such document or paper shall be required than such
as is affected hereunder."
It is clear that section 1171 of the Administrative Code has modified the provision of the Chattel Mortgage
Law, Act No. 1508, particularly section 4 thereof. It is now not necessary for a chattel mortgage of a vessel
to be noted in the registry of the register of deeds. On the other hand, it is essential that a record of
documents affecting the title of a vessel be entered in the office of the collector of customs at a port of
entry (Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72; 2 Araneta, Administrative Code, note to section
1171). The law as now existing is designed to protect persons who deal with a vessel on the strength of the
record title. Mortgages on vessels, although not recorded, are good as between the parties. But as against
creditors of the mortgagor, an unrecorded mortgage is in valid (37 Cyc., 54).
Consolidating the facts, we find the mortgage of the Philippine National Bank dated November 28, 1919,
but not recorded in the office of the collector of customs until March 5, 1929. The execution sued out by
Maria Corazon Yu de Sane was dated December 6, 1928, and noted at the port of entry two days prior
thereto. Under these facts, the execution holder would have a prior right over the unrecorded mortgage.
However, in the decision of the trial court, we find an explanation of the delay which appears to have been
proved at the trial, and which we must accept since there is nothing in the record to the contrary. His
Honor states that the fact that the mortgage was not registered in the office of the collector of customs of
Iloilo until March 5, 1929, was because of the doubts entertained by the collector relative to the
applicability of Act No. 3324 to a mortgage executed in 1918 in favor of a Chinese subject. This
uncontradicted fact must be taken as curing the bank's defective title. That the collector of customs did
not perform his duty was no fault of the bank. Constructive registration of the mortgage must, therefore,
be accepted.
We rule that as between the appellant, Maria Corazon Yu de Sane, and the appellee, the Philippine National
Bank, the latter has a superior claim in the amount of P20,000, the amount of the mortgage of Po Pauco
which was transferred to the Philippine National Bank.
II.
The remaining appeal concerns the respective rights of Jose M. Po Pauco and Po Suy Liong on the
one hand and the Philippine National Bank on the other. There is no particular merit in the arguments
offered on behalf of Po Suy Liong, for his mortgage, so far as the record discloses, has never been recorded
in the office of the collector of customs. But the appeal of Po Pauco does present a rather anomalous
condition of affairs.
It will be recalled that the action was begun by the several parties interpleading. On these pleadings, the
trial judge was led to order the foreclosure of the mortgage of the Philippine National Bank against Po
Pauco. But the record does not disclose that any one other than the attorney for Po Pauco was notified,
that any summons was issued, or that an opportunity was afforded Po Pauco to interpose his defense, if he
had any. Obviously, the procedure provided by law for the foreclosure of a mortgage must be substantially
carried out. It is no answer for the appellee to state that no objection was interposed in the lower court.
The question is one which goes to the jurisdiction of the court, and a question of this nature may be raised
for the first time on appeal.
With the foregoing pronouncements which, except as they relate to the judgment of the Philippine National
Bank against J. M. Po Pauco, in the main coincide with the pronouncements of the trial judge, the judgment
appealed from will in part be affirmed and in part set aside, and the record remanded to the court of origin
for further proceedings. It will be so ordered, without special pronouncement as to costs in this instance.
Johnson, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
Rubiso v. Rivera, 37 Phil 72
448 | P a g e
FIRST DIVISION
[G.R. No. 11407. October 30, 1917.]
FAUSTO FUBISO and BONIFACIO GELITO, plaintiffs-appellee, vs. FLORENTINO E. RIVERA,
Francisco Sevilla for appellant.
Salvador Q. Araullo for appellees.
SYLLABUS
1.
SHIPPING; REGISTRATION OF THE PURCHASE OF A VESSES. The requisite of registration in the
registry of the purchase of a vessel is necessary and indispensable in orderer that the purchaser's rights
may be maintained against a claim filed by a third person; pursuant to article 573 of the Code of
Commerce in connection with section 2 of Act No. 1900, which Act, amending said article, provides that
such registration, instead of being made in the commercial registry, shall be entered in the registry of the
Insular Collector of Customs, who, since May 18 1909, has been performing the duties of commercial
register.
2.
ID.; ID. The legal rule set down in the Code of Commerce, subsist, inasmuch as the amendment
solely refers to the official who shall make the entry.
3.
ID.; ID. Ships or vessels, whether moved by steam or by sail, partake to a certain extent, of the
nature and conditions of real property, on account of their value and importance in the world commerce;
and for this reason the provisions of article 573 of the Code of Commerce are nearly identical with those of
article 1473 of the Civil Code.
DECISION
TORRES, J p:
This appeal by bill of exceptions was filed by counsel for Florentino E. Rivera against the judgment of
September 6, 1915, in which the defendant and appellant was ordered to place at the disposal of the
plaintiff Fausto Rubiso the pilot boat in litigation. No special finding was made for costs.
On April 10, 1915, counsel for plaintiffs brought suit in the Court of First Instance of this city and alleged in
the complaint that his clients were the owners of the pilot boat named Valentina, which had been in bad
condition since the year 1914 and, on the date of the complaint, was stranded in the place called Tingloy,
of the municipality of Bauan, Batangas; that the defendant Florentino E. Rivera took charge or possession
of said vessel without the knowledge or consent of the plaintiffs and refused to deliver it to them, under
claim that he was the owner thereof; and that such procedure on the defendant's part cause the plaintiffs
to suffer damages, not only because they could not proceed to repair the vessel, but also because they
were unable to derive profit from the voyages for which said pilot boat was customarily used; and that the
net amount of such uncollected profit was P1,750. The complaint terminated with a petition that judgment
be rendered by ordering the defendant to deliver said pilot boat to the plaintiffs and indemnify them in the
amount aforementioned or in such amount as should be proven at trial, and to pay the costs.
Counsel for the defendant entered a general and specific denial of all the facts set forth in the complaint,
with the exception of those admitted in the special defense and consisting in that said pilot boat belonged
to the concern named "Gelito & Co.," Bonifacio Gilito being a copartner thereof to the extent of two-thirds,
and the Chinaman Sy Qui, to that of one-third, of the value of said vessel; that subsequently Bonifacio
Gelito sold his share to his copartner Sy Qui, as attested by the instrument Exhibit A, registered in the
office of the Collector of Customs and made a part of his answer; that later said Chinaman, the absolutely
owner of the vessel, sold it in turn to the defendant Rivera, according to the public instrument, also
attached to his answer as Exhibit B; and that, for this reason, Rivera took possession of the said pilot boat
Valentina, as its sole owner. He therefore petitioned that the defendant be absolve from the complaint,
with the costs against the plaintiffs.
After the hearing of the case and the introduction of documentary evidence, the judgment of September 6,
1915, was rendered, from which counsel for the defendant appealed and moved for a new trial. This
motion was denied and appellant excepted.
The record shows it to have been fully proven that Bonifacio Gelito sold his share in the pilot boat
Valentina, consisting of a two-thirds interest therein, to the Chinaman Sy Qui, the co-owner of the other
449 | P a g e
one-third interest in said vessel; wherefore this vendor is no longer entitled to exercise any action
whatever in respect to the boat in question. Gelito was one of the partnership owners of the Valentina, as
in fact his name appears in the certificate of protection issued by the Bureau of Customs, and the rights he
held are evidenced by the articles of partnership; but, the whole ownership in the vessel having been
consolidated in behalf of the Chinaman Sy Qui, this latter, in the use of his right as the sole owner of the
Valentina, sold this boat to Florentino E. Rivera for P2d, 500, on January 4, 1915, which facts are set forth
in a deed ratified on the same date before a notary. This document was registered in the Bureau of
Customs on March 17th of the same year.
On the 23d of that year, that is, after the sale of the boat to the defendant Rivera, suit having been
brought in the justice of the peace court against the Chinaman Sy Qui to enforce payment of a certain sum
of money, the latter's creditor Fausto Rubiso, the herein plaintiff, acquired said vessel at a public auction
sale and for the sum of P55.45. The certificate of sale and adjudication of the boat in question was issued
by the sheriff on behalf of Fausto Rubiso, in the office of the Collector of Customs, on January 27 of the
same year and was also entered in the commercial registry on the 14th of March, following:
So that the pilot boat Valentina was twice said: first privately by its owner Sy Qui to the defendant to the
defendant Florentino E. Rivera, on January 4, 1915, and afterwards by the sheriff at public auction in
conformity with the order contained in the judgment rendered by the justice of the peace court, on January
23 of the same year, against the Chinaman Sy Qui and in behalf of the plaintiff, Fausto Rubiso.
It is undeniable that the defendant Rivera acquired by purchase the pilot boat Valentina on behalf of the
plaintiff Rubiso; but it is no less true that the sale of the vessel by Sy Qui to Florentino E. Rivera, on January
4, 1915, was entered in the customs registry only on March 17, 1915, while its sale is public auction to
Fausto Rubiso on the 23d of January of the same year, 1915, was recorded in the office of the Collector of
Customs on the 27th of the same month, and in the commercial registry on the 4th of March, following;
that is, the sale on behalf of the defendant Rivera was prior to that made at public auction to Rubiso, but
the registration of this latter sale was prior by may days to the sale made to the defendant.
Article 573 of the Code of Commerce provides, in its first paragraph:
"Merchant vessels constitute property which may be acquired an transferred by any of the means
recognized by law. The acquisition of a vessel must be included in a written instrument, which shall not
produce any effect with regard to third persons if not recorded in the commercial registry."
So that, pursuant to the above-quoted article, inscription in the commercial registry was indispensable , in
order that said acquisition might affect, and produce consequences with respect to third persons.
However, since the enactment of Act No. 1900, on May 18, 1909, said article of the Code of Commerce was
amended, as appears by section 2 of that Act, herebelow transcribed.
"The documenting, registering, enrolling, and licensing of vessels in accordance with the Customs
Administrative Act and customs rules and regulations shall be deemed to be a 900, on May 18, 1909, said
article of the Code of Commerce was amended, as appears by section 2 of that Act, herebelow transcribed.
"The documenting, registering, enrolling, and licensing of vessels in accordance with the Customs
Administrative Act and customs rules and regulations shall be deemed to be a registry of vessels within the
meaning of title two of the Code of Commerce, unless otherwise provided in said Customs Administrative
Act or in said customs rules and regulations, and the Insular Collector of Customs shall perform the duties
of commercial register concerning the registering of vessels, as defined in title two of the Code of
Commerce."
The requisite of registration on the registry, of the purchase of a vessel, is necessary and indispensable in
order that the purchaser's rights may be maintained against a claim filed by a third person. Such
registration is required both by the Code of Commerce and by Act No. 1900. The amendment solely
consisted in charging the Insular Collector of Customs, as at present, with the fulfillment of the duties of
the commercial register concerning the registering of vessels; so that the registration of a bill of sale of a
vessel shall be made in the office of the Insular Collector of Customs, who, since May 18, 1909, has been
performing the duties of the commercial register in place of this latter official.
In view of said legal provisions, it is undeniable that the defendant Florentino E. Rivera's rights cannot
prevail over those acquired by Fausto Rubiso in the ownership of the pilot boat Valentina, inasmuch as,
though the latter's acquisition of the vessel at public auction, on January 23, 1915, was subsequent to its
purchase by the defendant Rivera, nevertheless said sale at public auction was antecedently record in the
office of the Collector of Customs, on January 27, and entered in the commercial registry. An
unnecessary proceeding-on March 4th; while the private and voluntary purchase made by Rivera on a prior
450 | P a g e
date was not recorded in the office of the Collector of Customs until many days afterwards, that is, not
until March 17, 1915.
The legal rule set down in the Mercantile Code subsists, inasmuch as the amendment solely refers to the
official who shall make the entry; but, with respect to the rights of the two purchases, whichever of them
first registered his acquisition of the vessel in the one entitled to enjoy the protection of the law, which
considers him the absolute owner of the purchased boat, an this latter to be free of all encumbrance and
all claims by strangers for, pursuant to article 582 of the said code, after the bill of the judicial sale at
auction has been executed and recorded in the commercial registry, all the other liabilities of the vessel in
favor of the creditors shall be considered canceled.
The purchaser at public auction, Fausto Rubiso, who was careful to record his acquisition, opportunely and
on prior date, has, according to the law, a better right than the defendant Rivera who subsequently
recorded his purchase. The latter is a third person, who was directly affected by the registration which the
plaintiff made of the acquisition.
Ships or vessels, whether moved by steam or by sail, partake, to a certain extent, of the nature and
conditions of real property, on account of their value and importance in the world commerce; and for this
reason the provisions of article 573 of the Code of Commerce are nearly identical with article 1473 of the
Civil Code.
With respect to the indemnity for losses and damages, requested by the plaintiff, aside from the fact, ad
shown by the evidence, that, subsequent to the date when the judgment appealed from was rendered, the
vessel in question emerged unharmed from the place where it was stranded, and was, at the time of the
trial, anchored in the port of Maricaban, the record certainly does not furnish any positive evidence of the
losses and damages alleged to have been occasioned. On the other hand, it cannot be affirmed that the
defendant acted in bad faith specifically because he acquired the vessel on a date prior to that of its
acquisition at public auction by the plaintiff Rubiso, who, for the reasons aforestated, is true and sole
owner of said pilot boat.
For the foregoing considerations, whereby the errors assigned to the judgment appealed from are deemed
to have been refuted, it is our opinion that said judgment should be, as it is hereby, affirmed, with the
costs against the appellant. So ordered.
Arrellano, C.J., Johnson, Carson, Street, and Malcolm, JJ., concur.
Araullo, J., did not take part.
C. Persons Participating in Maritime Commerce
1.
Shipowners and shipagents
Arts. 586 to 608; 618

ARTICLE 586.
The owner of a vessel and the agent shall be civilly liable for the acts of the captain
and for the obligations contracted by the latter to repair, equip, and provision the vessel, provided the
creditor proves that the amount claimed was invested therein.
By agent is understood the person intrusted with the provisioning of a vessel, or who represents her in the
port in which she happens to be.
ARTICLE 587.
The agent shall also be civilly liable for the indemnities in favor of third persons which
arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt
himself therefrom by abandoning the vessel with all her equipments and the freight he may have earned
during the voyage.
ARTICLE 588. Neither the owner of the vessel nor the agent shall be liable for the obligations contracted
by the captain if the latter exceeds his powers and privileges which are his by reason of his position or
have been conferred upon him by the former.
However, if the amounts claimed were made use of for the benefit of the vessel, the owner or agent shall
be liable.
ARTICLE 589.
If two or more persons should be part owners of a merchant vessel, an association
shall be presumed as established by the part owners.
451 | P a g e
This association shall be governed by the resolutions of a majority of the members.

A majority shall be the relative majority of the voting members.
If there should be only two part owners, in case of disagreement the vote of the member having the
largest interest shall be decisive. If the interests are equal, it shall be decided by lot.
The representation of the smallest part in the ownership shall have one vote; and proportionately the other
part owners as many votes as they have parts equal to the smallest one. aisadc
A vessel can not be detained, attached or levied upon execution in her entirety for the private debts of a
part owner, but the proceedings shall be limited to the interest the debtor may have in the vessel, without
interfering with her navigation.
ARTICLE 590.
The owners of a vessel shall be civilly liable in the proportion of their contribution to
the common fund, for the results of the acts of the captain, referred to in Article 587.
Each part owner may exempt himself from this liability by the abandonment before a notary of the part of
the vessel belonging to him.
ARTICLE 591.
All the part owners shall be liable, in proportion to their respective ownership, for the
expenses of repairs to the vessel, and for other expenses which are incurred by virtue of a resolution of the
majority.
They shall likewise be liable in the same proportion for the expenses of maintenance, equipment, and
provisioning of the vessel, necessary for navigation.
ARTICLE 592.
The resolutions of the majority with regard to the repair, equipment, and provisioning
of the vessel in the port of departure shall bind the majority unless the partners in the minority renounce
their participation therein, which must be acquired by the other part owners after a judicial appraisement
of the value of the portion or portions assigned.
The resolutions of the majority relating to the dissolution of the association and sale of the vessel shall also
be binding on the minority.
The sale of the vessel must take place at a public auction, subject to the provisions of the law of civil
procedure unless the part owners unanimously agree otherwise, the right of option to purchase and to
withdraw mentioned in Article 575 being always reserved in favor of said part owners.
ARTICLE 593.
The owners of a vessel shall have preference in her charter to other persons, offering
equal conditions and price. If two or more of the former should claim said right the one having greater
interest shall be preferred, and should they have an equal interest it shall be decided by lot.
ARTICLE 594.
The part owners shall elect the manager who is to represent them in the capacity of
agent.
The appointment of director or agent shall be revocable at the will of the members.
ARTICLE 595.
The agent, be he at the same time an owner of a vessel or a manager for an owner or
for an association of co-owners, must be qualified to trade and must be recorded in the merchant's registry
of the province.
The agent shall represent the ownership of the vessel, and may in his own name and in such capacity take
judicial and extrajudicial steps in all that relates to commerce.
ARTICLE 596.
The agent may discharge the duties of captain of the vessel, subject, in every case,
to the provisions contained in Article 609.
If two or more co-owners request the position of captain, the disagreement shall be decided by a vote of
the members; and if the vote should result in a tie, the position shall be given to the part owner having the
larger interest in the vessel.
452 | P a g e
If the interest of the petitioners should be the same, and there should be a tie, the matter shall be decided
by lot.
ARTICLE 597.
The agent shall select and come to an agreement with the captain, and shall contract
in the name of the owners, who shall be bound in all that refers to repairs, details of equipment,
armament, provisions, fuel, and freight of the vessel, and, in general, in all that relates to the requirements
of navigation.
ARTICLE 598.
The agent can not order a new voyage, nor make contracts for a new charter, nor
insure the vessel, without the authority of her owner or by virtue of a resolution of the majority of the coowners, unless these privileges were granted him in the certificate of his appointment.
If he should insure the vessel without authority therefor he shall be secondarily liable for the solvency of
the underwriter.
ARTICLE 599.
The managing agent of an association, shall give his co-owners an account of the
results of each voyage of the vessel, without prejudice to always having the books and correspondence
relating to the vessel and to its voyages at the disposal of the same.
ARTICLE 600.
After the account of the managing agent has been approved by a relative majority,
the co-owners shall satisfy the expenses in proportion to their interest, without prejudice to the civil or
criminal actions which the minority may deem fit to institute afterwards.
In order to enforce the payment, the managing agent shall have a right of action to secure execution,
which shall be instituted by virtue of a resolution of the majority, and without further proceedings than the
acknowledgment of the signatures of the persons who voted the resolution.
ARTICLE 601.
Should there be any profits, the co-owners may demand of the managing agent the
amount due them, by means of an executory action without further requisites than the acknowledgment of
the signatures of the instrument approving the account.
ARTICLE 602.
The agent shall indemnify the captain for all the expenses he may have incurred from
his own funds or from those of other persons, for the benefit of the vessel.
ARTICLE 603.
Before a vessel goes out to sea the agent shall have at his discretion, a right to
discharge the captain and members of the crew whose contract did not state a definite period nor a
definite voyage, paying them the salaries earned according to their contracts, and without any indemnity
whatsoever, unless there is a special and specific agreement in respect thereto.
ARTICLE 604.
If the captain or any other member of the crew should be discharged during the
voyage, they shall receive their salary until the return to the place where the contract was made, unless
there are good reasons for the discharge, all in accordance with Articles 636 et seq. of this Code.
ARTICLE 605.
If the contracts of the captain and members of the crew with the agent should be for
a definite period or voyage, they can not be discharged until the fulfillment of their contracts, except for
reasons of insubordination in serious matters, robbery, theft, habitual drunkenness, and damage caused to
the vessel or to its cargo by malice or manifest or proven negligence.
ARTICLE 606.
If the captain should be a part owner in the vessel, he can not be discharged without
the agent returning him the amount of his interest therein, which, in the absence of an agreement
between the parties, shall be appraised by experts appointed in the manner established in the law of civil
procedure.
ARTICLE 607.
If the captain who is a part owner should have obtained the command of the vessel
by virtue of a special agreement contained in the articles of co-partnership, he can not be deprived thereof
except for the reasons mentioned in Article 605.
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ARTICLE 608.
In case of the voluntary sale of the vessel, all contracts between the agent and
captain shall terminate, the right to proper indemnity being reserved in favor of the captain, according to
the agreements made with the agent.
They vessel sold shall remain subject to the security of the payment of said indemnity if, after the action
against the vendor has been instituted, the latter should be insolvent.
ARTICLE 618.
The captain shall be civilly liable to the agent, and the latter to the third persons who
may have made contracts with the former
1.
For all the damages suffered by the vessel and his cargo by reason of want of skill or negligence on
his part. If a misdemeanor or crime has been committed he shall be liable in accordance with the Penal
Code. cda
2.
For all the thefts committed by the crew, reserving his right of action against the guilty parties.
3.
For the losses, fines, and confiscations imposed an account of violation of the laws and regulations
of customs, police, health, and navigation.
4.
For the losses and damages caused by mutinies on board the vessel, or by reason of faults
committed by the crew in the service and defense of the same, if he does not prove that he made full use
of his authority to prevent or avoid them.
5.
For those arising by reason of an undue use of powers and non-fulfillment of the obligations which
are his in accordance with Articles 610 and 612.
6.
For those arising by reason of his going out of his course or taking a course which he should not
have taken without sufficient cause, in the opinion of the officers of the vessel, at a meeting with the
shippers or supercargoes who may be on board.
No exception whatsoever shall exempt him from this obligation.
7.
For those arising by reason of his voluntarily entering a port other than his destination, with the
exception of the cases or without the formalities referred to in Article 612.
8.
For those arising by reason of the non-observance of the provisions contained in the regulations for
lights and evolutions for the purpose of preventing collisions.
Standard Oil v. Castelo, 42 Phil 256
FIRST DIVISION
[G.R. No. 13695. October 18, 1921.]
STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellee, vs. MANUEL LOPEZ CASTELO,
Gabriel La O for appellant.
Lawrence & Ross for appellee.
SYLLABUS
1.
GENERAL AVERAGE; COASTWISE TRADE; JETTISON OF DECK CARGO When, in conformity with
marine regulations, cargo is carried on the deck of a steamer engaged in coastwise trade, the jettison of
such cargo upon occasion of peril makes a case for general average.
2.
JETTISON; LIQUIDATION OF GENERAL AVERAGE; OMISSION OF CAPTAIN TO DISTRIBUTE LOSS.
When jettison of cargo occurs it is the duty of the captain to effect the adjustment, liquidation, and
distribution of the general average; and his omission to take these steps constitutes an actionable
dereliction of duty.
3.
ID.; ID.; ID.; LIABILITY OF SHIPOWNERS. For this omission not only is the captain personally liable
to the shipper of the jettisoned goods, but the latter may go at once upon the owner, since the captain of
the ship is the representative of the owner, and the latter is civilly liable for the acts of the former.
DECISION
STREET, J p:
By contract of charter dated February 8, 1915, Manuel Lopez Castelo, as owner, let the small interisland
steamer Batangueo for the term of one year to Jose Lim Chumbuque for use in the conveying of cargo
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between certain ports of the Philippine Islands In this contract it was stipulated that the officers and crew
of the Batangueo should be supplied by the owner, and that the charterer should have no other control
over the captain, pilot, and engineers than to specify the voyages that they should make and to require the
owner to discipline or relieve them as soon as possible in case they should fail to perform the duties
respectively assigned to them.
While the boat was being thus used by the charterer in the interisland trade, the Standard Oil Company
delivered to the agent of the boat in Manila a quantity of petroleum to be conveyed to the port of
Casiguran, in the Province of Sorsogon. For this consignment a bill of lading of the usual form was
delivered, with the stipulation that freight should be paid at the destination. Said bill of lading contained no
provision with respect to the storage of the petroleum, but it was in fact placed upon the deck of the ship
and not in the hold.
While the boat was on her way to the port mentioned, and off the western coast of Sorsogon, a violent
typhoon passed over that region, and while the storm was at its height the captain was compelled for the
safety of all to jettison the entire consignment of petroleum consisting of two hundred cases. When the
storm abated the ship made port, and thirteen cases of the petroleum were recovered, but the remainder
was wholly lost.
To recover the value of the petroleum thus jettisoned but not recovered, the present action was instituted
by the Standard Oil Company against the owner of the ship in the Court of First Instance of Manila, where
judgment was rendered in favor of the plaintiff. From this judgment the defendant appealed.
No question is made upon the point that the captain exercised proper discretion in casting this petroleum
overboard, as a step necessary to the salvation of the ship; and in fact it appears that even after the vessel
was thus eased, the was with difficulty prevented from capsizing, so great was the intensity of the storm.
The first question for discussion is whether the loss of this petroleum was a general average loss or a
particular loss to be borne solely by the owner of the cargo. Upon this point it will be observed that the
cargo was carried upon deck; and it is a general rule, both under the Spanish Commercial Code and under
the doctrines prevailing in the courts of admiralty of England and America, as well as in other countries,
that ordinarily the loss of cargo carried on deck shall not be considered a general average loss. This is
clearly expressed in Rule I of the York-Antwerp Rules, as follows: "No jettison of deck cargo shall be made
good as general average." The reason for this rule is found in the fact that deck cargo is in an extra
hazardous position and, if on a sailing vessel, its presence is likely to obstruct the free action of the crew in
managing the ship. Moreover, especially in the case of small vessels, it renders the boat top-heavy and
thus may have to be cast overboard sooner than would be necessary if it were in the hold; and naturally it
is always the first cargo to go over in case of emergency. Indeed, in subsection 1 of article 815 of the Code
of Commerce, it is expressly declared that deck cargo shall be cast overboard before cargo stowed in the
hold.
But this rule, denying deck cargo the right to contribution by way of general average in case of jettison,
was first made in the days of sailing vessels; and with the advent of the steamship as the principal
conveyer of cargo by sea, it has been felt that the reason for the rule has become less weighty, especially
with reference to coastwise trade; and it is now generally held that jettisoned goods carried on deck,
according to the custom of trade, by steam vessels navigating coastwise and inland waters, are entitled to
contribution as a general average loss (24 R. C. L., 1419).
Recognition is given to this idea in two different articles in the Spanish Code of Commerce. In the first it is
in effect declared that, if the marine ordinances allow cargo to be laden on deck in coastwise navigation,
the damages suffered by such merchandise shall not be dealt with as particular average (art. 809 [3],
Comm. Code); and in the other it is stated that merchandise laden on the upper deck of the vessel shall
contribute in the general average if it should be saved; but that there shall be no right to indemnity if it
should be lost by reason of being jettisoned for the general safety, except when the marine ordinances
allow its shipment in this manner in coastwise navigation (art 855, Comm. Code).
The Marine Regulations now in force in these Islands contain provisions recognizing the right of vessels
engaged in the interisland trade to carry deck cargo; and express provision is made as to the manner in
which it shall be bestowed and protected from the elements (Phil. Mar. Reg. [1913], par. 23) . Indeed, there
is one commodity, namely, gasoline, which from its inflammable nature is not permitted to be carried in
the hold of any passenger vessel, though it may be carried on the deck if certain precautions are taken.
There is no express provision declaring that petroleum shall be carried on deck in any case; but having
regard to its inflammable nature and the known practices of the interisland boats, it cannot be denied that
this commodity also, as well as gasoline, may be lawfully carried on deck in our coastwise trade.
455 | P a g e
The reason for adopting a more liberal rule with respect to deck cargo on vessels used in the coastwise
trade than upon those used for ordinary ocean borne traffic is to be found of course in the circumstance
that in the coastwise trade the boats are small and voyages are short, with the result that the coasting
vessel can use more circumspection about the condition of the weather at the time of departure; and if
threatening weather arises, she can often reach a port of safety before disaster overtakes her. Another
consideration is that the coastwise trade must as a matter of public policy be encouraged, and domestic
traffic must be permitted under such conditions as are practically possible, even if not altogether ideal.
From what has been said it is evident that the loss of this petroleum is a general and not a special average,
with the result that the plaintiff is entitled to recover in some way and from somebody an amount bearing
such proportion to its total loss as the value of both the ship and the saved cargo bears to the value of the
ship and entire cargo before the jettison was effected. Who is the person, or persons, who are liable to
make good this loss, and what are the conditions under which the action can be maintained?
That the owner of the ship is a person to whom the plaintiff in this case may immediately look for
reimbursement to the extent above stated is deducible not only from the general doctrines of admiralty
jurisprudence but from the provisions of the Code of Commerce applicable to the case. It is universally
recognized that the captain is primarily the representative of the owner; and article 586 of the Code of
Commerce expressly declares that both the owner of the vessel and the naviero, or charterer, shall be
civilly liable for the acts of the master. In this connection, it may be noted that there is a discrepancy
between the meaning of naviero, in article 586 of the Code of Commerce, where the word is used in
contradistinction to the term "owner of the vessel" (propietario), and in article 587 where it is used alone,
and apparently in a sense broad enough to include the owner. Fundamentally the word "naviero" must be
understood to refer to the person undertaking the voyage, who in one case may be the owner and in
another the charterer. But this is not vital to the present discussion. The real point to which we direct
attention is that, by the express provision of the Code, the owner of the vessel is civilly liable for the acts
of the captain; and he can only escape from this civil liability by abandoning his property in the ship and
any freight that he may have earned on the voyage (arts. 587, 588, Code of Comm.).
Now, by article 852 of the Code of Commerce-the captain is required to initiate the proceedings for the
adjustment, liquidation, and distribution of any gross average to which the circumstances of the voyage
may have given origin; and it is therefore his duty to take the proper steps to protect any shipper whose
goods may have been jettisoned for the general safety. In ordinary practice this, we suppose, would be
primarily accomplished by requiring the consignees of other cargo, as a condition precedent to the delivery
of their goods to them, to give a sufficient bond to respond for their proportion of the general average. But
it is not necessary here to inquire into details. It is sufficient to say that the captain is required to take the
necessary steps to effect the adjustment, liquidation, and distribution of the general average. In the case
before us the captain of the vessel did not take those steps; and we are of the opinion that the failure of
the captain to take those steps gave rise to a liability for which the owner of the ship must answer.
But it is said and the entire defense seems to be planted upon this proposition that the liquidation of
the general average is, under article 852 and related provisions, a condition precedent to the liability of
the defendant, and that at any rate the defendant, as owner of the ship, should only be held liable for his
proportion of the general average. It is also suggested that if the plaintiff has any right of action at all upon
the state of facts here presented, it is against the captain, who has been delinquent in performing the duty
which the law imposes on him.
This argument involves, we think, a misconception of the true import of the provisions relating to the
adjustment and liquidation of general average. Clearly, for one thing, those provisions are intended to
supply the shipowner, acting of course in the person of the captain, with a means whereby he may escape
bearing the entire burden of the loss and may distribute it among all the persons who ought to participate
in sharing it; but the making of the liquidation is not a condition precedent to the liability of the shipowner
to the shipper whose property has been jettisoned.
It is true that if the captain does not comply with the article relating to the adjustment, liquidation, and
distribution of the general average, the next article (852) gives to those concerned whether shipowner
(naviero) or shipper the right to maintain an action against the captain for indemnification for the loss;
but the recognition of this right of action does not by any means involve the suppression of the right of
action which is elsewhere recognized in the shipper against the ship's owner. The shipper may in our
opinion go at once upon the owner and the latter, if so minded, may have his recourse for indemnization
against his captain.
456 | P a g e
In considering the question now before us it is important to remember that the owner of the ship ordinarily
has vastly more capital embarked upon a voyage than has any individual shipper of cargo. Moreover, the
owner of the ship, in the person of the captain, has complete and exclusive control of the crew and of the
navigation of the ship, as well as of the disposition of the cargo at the end of the voyage. It is therefore
proper that any person whose property may have been cast overboard by order of the captain should have
a right of action directly against the ship's owner for the breach of any duty which the law may have
imposed on the captain with respect to such cargo. To adopt the interpretation of the law for which the
appellant contends would place the shipowner in a position to escape all responsibility for a general
average of this character by means of the delinquency of his own captain. This cannot be permitted. The
evident intention of the Code, taken in all of its provisions, is to place the primary liability upon the person
who has actual control over the conduct of the voyage and who has most capital embarked in the venture,
namely, the owner of the ship, leaving him to obtain recourse, as it is very easy to do, from other
individuals who have been drawn into the venture as shippers.
It results that the plaintiff is entitled to recover in this action; and the only additional point to be inquired
into is the amount that should be awarded. In this connection it appears that the total value of the
jettisoned cargo, belonging partly to the plaintiff and partly to another shipper, was P880.35, of which
P719.95 represented the value of the plaintiff's petroleum. Upon the apportionment of this total loss
among the different interests involved, to wit, value of ship, value of cargo, and the earned but lost freight,
it appears that the amount of the loss apportionable to the plaintiff is P11.28. Deducting this from the
value of the petroleum, we have as a result, the amount of P708.67, which is the amount for which
judgment should be given.
Accordingly, modifying the judgment appealed from to this extent, we affirm the same, with costs. So
ordered.
Johnson, and Villamor, JJ., concur.
Mapa, C.J., concurs in the result.
Separate Opinions
ARAULLO, J., with whom concurs AVANCEA, J., dissenting:
As the loss of the petroleum shipped by the plaintiff company on board the vessel Batangueo, which
belongs to the defendant, constitutes gross average and, as the latter, being, according to the law, an
agent, all of which is admitted in the foregoing decision, the provisions applicable to the case and which
should be taken into consideration in deciding the appeal before this court are those of various articles in
sections 1 of title 4 and sections 1, 2, and 3, of title 5, of Book 3 of the Code of Commerce.
Article 811 defines gross or general averages as damages and expenses which are deliberately caused in
order to save the vessel, her cargo, or both at the same time, from a real and known risk, and particularly,
such as goods jettisoned to lighten the vessel, whether they belong to the vessel, to the cargo, or to the
crew, and the damage suffered through said act by the goods on board; the damage caused to the vessel
by scuttling or entering her hold in order to save the cargo; and the expenses of the liquidation of the
average. Article 812 provides that in order to satisfy the amount of the gross or general average, all
persons having an interest in the vessel and cargo at the time of the occurrence of the average shall
contribute. Article 846 provides that the persons interested in the proof and liquidation of averages may
mutually agree and bind themselves at any time with regard to the liability, liquidation and payment
thereof, and that, in the absence of agreements, the proof of the average shall take place in the port where
the repairs are made, should any be necessary, or in the port of unloading; that the liquidation shall take
place in the port of unloading should it be a Spanish port (now Filipino); that should the average have
occurred outside of the jurisdictional waters of the Philippines or should the cargo have been sold in a
foreign port by reason of the arrival of the vessel under stress in said port, liquidation shall be made in the
port of arrival; and, finally, if the average should have occurred near the port of destination, and that port
is made, the proceedings for the proof and liquidation above-mentioned shall be had there.
Article 847 provides that when the liquidation of the averages is made privately by virtue of agreement, as
well as when a judicial authority takes part therein at the request of any of the parties interested who do
not agree thereto, all of them shall be cited and heard, should they not have renounced this right; that
should they not be present or not have a legitimate representative, the liquidation shall be made by the
consul in said port, and where there is none, by the judge or court of competent jurisdiction, according to
the laws of the country, and for the account of the proper person; and, finally, desiring to furnish all
possible means to effect the liquidation, the legislator provides in the last part of said article that, when
the representative is a person well-known in the place where the liquidation takes place, his intervention
457 | P a g e
shall be admitted and will produce legal effect, even though he be authorized only by a letter of the
shipowner, freighter, or underwriter; and as to general or gross averages, he lays down concrete and
conclusive rules in articles 853, 854, and 858, with respect to the form and mode in which the experts
appointed by the interested parties or by the court shall fulfill their duties, as to the examination of the
vessel, the repairs and the appraisement of their cost, as well as to the appraisement of the goods which
are to contribute to the gross average and those which constitute the average, likewise providing in article
857 that, after the appraisement by the experts of the goods saved, lost, and those which constitute the
gross average, and after the repairs have been made to the vessel, should any be necessary, and in such
case, after the approval of the accounts by the persons interested or by the court, the entire record shall
be turned over to the liquidator appointed, in order that he may proceed with the pro rata distribution of
the average among the contributing values, after fixing the amount mentioned in said article of the
contributing capital: (1) By the value of the cargo, according to the rules established in article 854; (2) by
the value of the vessel in her actual condition, according to a statement of experts; (3) by 50 per cent of
the amount of the freight, deducting the remaining 50 per cent for wages and maintenance of the crew.
Lastly, in relation to said provisions, article 851 authorizes the captain to proceed privately, upon the
agreement of the parties interested, in the adjustment, liquidation, and distribution of the gross average,
and for this purpose, it is his duty to call, within forty hours following the arrival of the vessel at the port,
the persons interested in order that they may decide whether the adjustment or liquidation of the gross
average is to be made by experts and liquidators appointed by themselves, in which case this shall be
done should the persons interested agree, and said article also provides that should an agreement not be
possible, the captain shall apply to the judge or court of Competent jurisdiction, who shall be the one of
the port where the proceedings are to be held in accordance with the provisions of the Code of Commerce,
to the consul of Spain (now of the United States), should there be one, or otherwise to the local authority
when the proceedings are to be held in a foreign port. And finally, the next article, 852, says: "If the
captain should not comply with the provisions contained in the foregoing article, the shipowner or agent or
the freighters shall demand the liquidation, without prejudice to the action they may bring to demand
indemnity from him."
It is therefore beyond question that the action of the plaintiff to recover indemnity for the damages which
it claims to have suffered by reason of the failure of the captain of the vessel Batangueo to proceed with
the liquidation and distribution of the gross average in which it was a contributor, and by reason of his act
in delivering to the other shippers their respective goods, without first requiring them to give bond, should
have been brought not against the shipowner or agent, who is the defendant in this case, but against the
captain himself of the vessel Batangueo.
Although in the preceding decision it is clearly recognized that the captain should have begun the
proceedings for the adjustment, liquidation, and distribution of the gross average in question, and that it
was his duty to take the proper steps to protect any shipper whose goods may have been jettisoned for the
common security, it is also stated that in ordinary practice this is supposed to be complied with by
requiring the consignees of the other cargoes, as a condition precedent to the delivery thereof, to give a
sufficient bond to answer proportionally for the gross average, and, lastly, that the failure of the captain to
take the necessary steps to effect the adjustment, liquidation, and distribution of said average gave rise to
the responsibility which should be enforced against the defendant shipowner, against whom the shipper
may immediately institute his action, the former having in turn, if he so desires, the right to bring suit
against the captain. The majority opinion attempts to support the last proposition and invokes articles 586,
587, and 588.
First of all, according to articles 866, 867, and 888 of the same Code, a bond should be required of the
shippers by the captain after the liquidation is already approved, if the contributors should fail to pay the
amount of the quota by the third day after having been required to do so, and before delivering to them
the goods saved, the captain having the right, upon failure to give the bond, to delay the delivery of the
goods until the shippers pay their part of the gross average corresponding to each of them and not
before proceeding with the liquidation, for the simple reason that the amount of the bond may only be
fixed after the determination of the amount which each of the shippers may be obliged to contribute to the
payment of the average, and this is so clear and evident that in article 867 the captain is authorized to
attach the goods saved until the shippers should pay the amount, if they should fail to do so by the third
day after demand upon them. And since the captain may require bond, he may delay the delivery of the
goods saved to the shippers until they make the payment. In the case at bar, no step having as yet been
taken for the adjustment and liquidation of the gross average in question, the fact that the captain of the
458 | P a g e
Batangueo delivered the respective cargoes of the other shippers without previously requiring a bond,
can not constitute the basis for making the captain responsible, much less the owner of the vessel, as the
trial court has erroneously held in the judgment appealed from and as this court is given to understand in
referring to said filing of the bond as a prerequisite to the delivery of the cargo. This is because the time
was not opportune when the captain should and could exact the bond and the law neither requires such
bond to be filed before proceeding with the liquidation, inasmuch as the shipowner or agent, as well as the
shippers, being interested in proceeding with the liquidation, the Code authorizes them, first, to demand it
from the captain and later to institute the action corresponding to them against him to recover indemnity if
he should not comply with the provisions upon the subject, that is, if he should fail to effect the liquidation,
or if, in lieu thereof, he should deliver the respective cargoes to the shippers or permit them to dispose of
the same, in which case the responsibility may be fixed upon the captain and not upon the agent upon this
ground, and for not requiring the shippers to give said bond.
In the second place, although it is true that the captain is, as stated in the decision, primarily the
representative of the shipowner or agent, it cannot in all cases, as the decision gives us to understand, be
deduced that the ship. owner must be civilly responsible for all the acts of the captain.
The Code of Commerce clearly and positively specifies the cases in which such responsibility is
demandable from the agent or shipowner, and the cases in which he is not responsible, the responsibility
attaching only to the captain. These cases can not be confused in view of the clear and positive provisions
of said Code, in relation to the method adopted in the exposition thereof and following the order of the
subjects contained in this law.
Articles 586, 587, and 588, invoked in the decision in question in order to maintain that theory, are found
in title 2 of Book 3 of said Code which treats of the persons who intervene in maritime commerce, that is,
as may be seen in sections 1, 2, and 3 thereof, the shipowners and agents, the captains and masters of
vessels and the officers and crew thereof, respectively. Articles 806 to 818 and 846 to 849, and
consequently, article 862, invoked in said decision and which refer to the gross or general average and to
the simple or particular average, are found in titles 4 and 5 of the same Book 3 which, respectively, deal
with the risks, damages, and accidents of maritime commerce and with the proof and liquidation of the
averages; and they contain all the provisions of the law relative to said subjects and to the rights and
obligations which arise from the averages.
There is no relation whatever between said articles 586, 587, and 588, invoked in the decision, and those
which treat of averages. The first of said articles establishes the civil responsibility of the shipowner and
agent for the acts of the captain and the obligations incurred by the latter for the repair, equipment, and
provisioning of the vessel. The second, that is, article 587, establishes the same responsibility of the agent
for indemnities, in favor of third persons. which may arise from the conduct of the captain in the care of
the goods which the vessel may carry, from which he may exempt himself by abandoning the vessel with
all her equipment and the freight he may have earned during the voyage. In the present case it is not the
conduct of the captain in the care of the goods which has given rise to the right to exact the corresponding
civil responsibility, but, according to article 862, the failure of the captain to comply with the provisions of
article 851, with respect to the adjustment, liquidation, and distribution of the gross average and the
failure to attend to the claims which the agent or the shippers may or should have made, inasmuch as said
article 852 clearly so declares, in referring to the agent or the shippers in the following words: "Without
prejudice to the action they may bring to demand indemnity from him." The care of the goods to which
article 857 refers consists in the placing of the goods in the proper and adequate place for their
transportation and due preservation during the voyage, in such manner that they may not suffer damages
or deterioration nor be taken away, for, according to article 618, which bears some relation to said article
587, the captain is civilly responsible to the agent and the latter to third persons, who may have
contracted with him, for all damages which may have occurred to the vessel and the cargoes due to lack of
skill or to negligence on his part and for the substraction or theft committed by the crew, reserving his
right to proceed against the guilty Parties; and, according to article 619, he shall be liable for the cargo
from the time it is turned over to him at the deck or afloat alongside the vessel at the port of loading until
he delivers it on the shore or on the discharging wharf of the port of unloading, unless the contrary has
been expressly agreed upon; and, finally, according to No. 5 of the same article 618, he shall be liable for
those damages arising from an undue use of the powers and nonfulfillment of the obligations which are his
in accordance with articles 610 and 612, one of which, the fifth mentioned in the last article, is to remain
constantly on board the vessel during the time the freight is taken on board and carefully watch the
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stowage thereof, which acts, as is well-known, constitute the means for the effective custody of the goods
which may be shipped on board.
In the present case, if the consignees or owners of the cargo on board the vessel Batangueo took away
with them their respective cargoes or disposed of them upon arriving at port, after part thereof, which
included the petroleum boxes belonging to the plaintiff, had been jettisoned, it was not because the
captain of said vessel had not fulfilled his duty with respect to the care of the cargo, but because he did
not proceed in accordance with the provision of article 851 already cited, in the adjustment, liquidation,
and distribution of the gross average caused by that accident, and did not, as he should have done,
according to article 852, require the liquidation either of the agent or the shippers. Therefore to them
alone, including the plaintiff, and not to the conduct of the captain in the custody of the cargo, is the fact
attributable that the shippers were able to carry away and dispose of the cargo saved upon the arrival of
the vessel at port.
The third of said articles, that is, 588, cited also in the same decision, far from making the shipowner or the
agent responsible for the obligations incurred by the captain, exempts them from all responsibility, if the
captain should have exceeded the powers and privileges which are his by reason of his position or have
been conferred upon him by the former, excepting the case, which bears no relation whatever to that in
question, in which the amounts claimed were made use of for the benefit of the vessel.
Lastly, although this point has not been touched at all in the decision now under discussion, according to
article 618, No. 5, the captain shall be civilly liable to the agent, and the latter to third persons with whom
he may have contracted, for the damages arising from an undue use of his powers and the nonfulfillment
of his obligations, but it adds that such liability shall be "in accordance with articles 610 and 612." These
articles, as may be seen, refer to the powers and obligations inherent in the position of captain with
respect to the appointment, contract, and command of the crew, direction of the vessel to the port of
destination, the imposition of punishments for crimes committed on board, contracts for the charter of the
vessel, its preservation and repair, the supplying of books of navigation, and others, which are mentioned
in said last article, the equipping of the vessel and the receiving of the cargo, etc., among which
obligations there is none which bears the slightest relation to those which the same Code imposes upon
the captain with respect to the adjustment, liquidation, and distribution of the gross average.
On the other hand, in the various sections of title 4 of Book 3, and in section 1 of title 5, the Code, in
treating of the risks, damages, and accidents of maritime commerce, specifically indicates the cases in
which the responsibility of the captain is enforcible, those in which that of the agent or shipowner is
demandable and those in which that responsibility is joint among them, as well as those cases in which no
responsibility may be demanded of the agent or shipowner but only of the captain.
In effect, article 841 of section 3 of said title 4 provides that if the wreck or stranding should arise through
the malice, or lack of skill of the captain, or because the vessel put to sea insufficiently repaired and
prepared, the captain shall be responsible for the indemnification of damages caused to the vessel or the
cargo by the accident, Which liability may be demanded by the agent or the shippers; but there is in said
section no provision whatever by which the agent or shipowner is made responsible.
In article 826 of section 3 of the same title, which deals with collisions, it is provided that the agent of the
vessel at fault shall indemnify the losses and damages suffered after an expert appraisal, if a vessel should
collide with another through the fault, negligence, or lack of skill of the captain, sailing mate, or any other
member of the complement, and, according to article 831, if a vessel should be forced to collide with
another by a third vessel, the agent of the third vessel shall indemnify for the losses and damages caused,
the captain being civilly liable to said agent, this liability being understood to be limited to the value of the
vessel with all equipment and freight earned.
In treating of arrivals under stress, section 2 of the same title, in article 821, declares that when such
arrival is not legitimate, the agent and the captain shall be jointly liable for the expenses incurred.
In treating averages, article 809, No. 8, in section 1 of the same title, which includes, in simple averages,
the damage suffered by the vessel or cargo by reason of an impact or collision with another, declares that
if the accident occurred through the fault or negligence of the captain, he shall be responsible for all the
damages caused, and in No. 9 of the same article, that the owner of the cargo who is injured as a result of
the fault, negligence, or barratry of the captain or the crew may demand indemnity from the captain, the
vessel and freight, a rule which is based upon No. 1 of article 618, already mentioned, according to which
the captain shall be civilly responsible to the agent and the latter to the third persons, for all damages
suffered by the vessel and its cargo by reason of the want of skill or negligence on his part, a provision
which, as is well known, cannot refer to the case in which the owners of the cargo, having the right to
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demand the adjustment, liquidation, and distribution of the gross aver age, upon the arrival of the vessel
at port, should dispose of the cargo saved. Such case, as already stated, is the subject of the express and
positive provisions of articles 861 and 852, in relation to articles 866, 867, and 868, included in section 2 of
the same title, as is shown by the fact that the first of said articles declares that the captain is responsible
to the owners of the goods averaged for the losses they may have suffered through his delay or negligence
in collecting the amount of the contribution after the liquidation is approved, and by the fact that the last
of said articles, that is, 868, declares that the captain may exact from the shippers a bond sufficient to
answer for the amount corresponding to the gross average for the purpose of delaying the delivery to
them of the goods saved until they pay said amount.
It is by these special provisions and not by the general provisions contained in sections 1, 2, and 3, of title
2, of Book 3 of said Code, that we must be governed when dealing with the risks, damages, and accidents
of maritime commerce; and gross average being among them, then, for the failure of the captain of the
vessel Batangueo to comply with the provisions relating to the adjustment, liquidation, and distribution,
the defendant owner of the vessel can not and should not be made liable, but only the captain, for article
852, already cited, is clear and positive to the effect that in said case the agent or the shippers shall
demand of the captain the liquidation and may exercise against him the action to recover the proper
indemnity, a provision which excludes in such case all responsibility of the agent or owner of the vessel, for
the reason that, the latter being, according to the same article, one of those who, jointly with the shippers,
may ask the captain for the liquidation and institute against him the corresponding action for
indemnification, it would be absurd to pretend and maintain that the shippers may also institute the same
action against the agent or owner of the vessel, in this manner converting him from plaintiff into
defendant.
But, as if it is still possible to put under discussion and interpret so clear and positive a provision as that of
said article 852, and those related to it which, as has already been mentioned, are also of the same
character, it is argued in the decision of this court that as "the owner of the ship ordinarily has vastly more
capital embarked upon a voyage than has any individual shipper of cargo, and more over, as the owner of
the ship, in the person of the captain, has complete and exclusive control of the crew and of the navigation
of the ship, as well as of the disposition of the cargo at the end of the voyage, the evident intention of the
Code, taken in all of its provisions, is to place the primary liability upon . . . the owner of the ship, leaving
him to obtain recourse, as it is very easy to do, from other individuals who have been drawn into the
venture as shippers, for, to adopt another interpretation of the law would place the shipowner in a position
to escape all responsibility for a general average of this character by means of the delinquency of his own
captain. And it is therefore proper that any person whose property may have been cast overboard by order
of the captain should have a right of action directly against the ship's owner for the breach of any duty
which the law may have imposed on the captain with respect to such cargo."
Such reasoning, however, is not convincing. In the first place, it is not true that the average in question
was occasioned by the fault of the captain of the vessel Batangueo, for on this point there is no evidence
in the record, but because of the necessity of throwing overboard part of the cargo of said vessel to save it
from the danger then threatening it; secondly, the purpose of the adjustment and liquidation of the gross
average is to secure contribution from the parties interested in the vessel and cargo 'existing at the time of
the occurrence thereof in order to pay the amount of such average (art. 812, Code of Commerce), for
which purpose article 858 defines the procedure for the distribution of the value of the average, stating
that there must be taken into consideration, as already stated by us, when we were discussing this article,
the contributing capital determined by the value of the cargo, that of the vessel in her actual condition and
the percentage of the amount of the freight reduced by 50 percent for wages and maintenance of the
crew, and further declaring that after the determination of the amount of the average, it shall be
distributed pro rata among the contributing values and then paid to the proper parties, after the persons
interested therein, that is, the agent or owner of the vessel and the shippers have consented thereto, or in
default thereof, after the liquidation is duly approved; and, lastly, as repeatedly stated by us, according to
the same articles, the owner of the vessel, or the agent, is also one of the interested parties and
coparticipants in the adjudication of the average and its pro rata distribution among the contributing
values. From what has just been said it results that no purpose is served by considering whether or not he
has put in the voyage or undertaking a capital greater than that of any individual shipper for the purpose
of making him principally liable, that is compelling him to pay to the shippers what each of the latter as
well as he himself has the right to be paid for in proportion to the amount of the respective capital fixed
according to the rules already stated in the distribution of the average. This is because, however great the
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value of the vessel may be, there cannot be conceded to the shippers in the adjudication a greater value
than that corresponding to them in the adjudication and distribution of the average, according to the
capital determined by the value of the cargo of each, in conformity with the rules established in article 854
for the assessment of the same cargo and of the goods which have to contribute to said average, nor can
there be conceded to the owner of the vessel a value greater than that which may correspond to him in
said adjudication and distribution, based upon the value of the vessel in its actual condition, according to a
statement of experts and the rules for assessment thereof found in Nos. 6 and 7 of said article 854, from
which it is necessarily inferred that it is notoriously unjust, because the law does not authorize it and it
would be a violation of its positive provisions to compel the owner of the vessel, by the mere fact of
having put a greater capital in the undertaking, to pay to the shippers the quota which corresponds to
each of them which, in this case, according to the majority opinion, is that which should correspond,
without a previous liquidation, to the plaintiff, Standard Oil Company, saving to him, however, the right
afterwards to bring action or proceed against the other shippers, as expressed in the same decision. In
short, it would amount to absolutely ignoring the provisions of the law, which are so clear, express, and
positive with respect not only to the adjustment, liquidation, and distribution of the gross average, but also
to the procedure for effecting the same and the rights and obligations of those who should contribute to
the average. And it is very clear that error has been committed, because in the same decision, two
paragraphs before that in which the theory already discussed is made, it is stated that there has been "a
misconception of the true import of the provisions relating to the adjustment and liquidation of general
average," in arguing that the right of action should be "against the captain, who has been delinquent in
performing the duty which the law imposes on him," for "clearly," says the same decision, "those
provisions are intended to supply the shipowner, acting of course in the person of the captain, with a
means whereby he may escape bearing the entire burden of the loss and may distribute it among all the
persons who ought to participate in sharing it; but the making of the liquidation is not a condition
precedent to the liability of the shipowner to the shipper whose property has been jettisoned."
As is clearly seen, what has just been stated gives us to understand that the owner of the vessel must
suffer all the loss in case of gross average, and that the provisions relating to the adjustment, liquidation,
and distribution thereof are for the purpose of furnishing him the means for evading and enabling himself
to distribute it between the persons who should participate in the average. This is erroneous, because
these provisions, which intentionally are extensively mentioned in this opinion, do not have that object, for
the reason that the shipowner is not the person who should suffer all the loss in case of gross average, but
it should be partitioned and distributed between the shipowner or agent and the shippers, in proportion to
their interests and the respective value of the cargo and vessel, which should be fixed according to article
850 and the rules for their assessment, stated in article 854 previously cited, after the liquidation and
approval thereof, and after hearing the interested parties or their representatives; and all of these
proceedings would surely be useless and unnecessary if the shipowner or the agent should have to suffer
all loss but may afterwards distribute it among those participants therein, or, what is the same thing, if he
should be compelled by law to pay the total value of the average and then partition it among the shippers
or owners of the cargo, as is maintained in said decision. And there is no doubt that this is what is
maintained in the decision, as the basis of the pronouncements made therein, because, as already stated,
in the paragraph now under discussion, it is clearly stated that the liquidation is not a condition precedent
to the enforcement of the liability of the shipowner to the shipper, whose goods may have been jettisoned.
And this is not what the law says just as it does not say that the shipowner shall be liable to the shipper or
owner of the goods, but that, on the contrary, it says that the shipowner or agent as well as the shippers
may demand liquidation from the captain and institute against him the corresponding action to recover
indemnity, that is, that he has the same right as the shippers to demand liquidation from the captain and,
in default thereof, to recover indemnification, from which it is clearly inferred that the liquidation is a
condition precedent, not to the liability of the shipowner to the shipper whose goods may have been
jettisoned, as stated in the decision in question, but to the partition which must be made between the
agent or shipowner and the shippers of the respective amount of the average. This partition, and not that
the shipowner should suffer all loss but may afterwards evade and distribute it among all persons who
should share in the average, is the real interpretation of the provisions to which reference is made in the
same decision.
Neither is it true that. as stated in said decision, the shipowner has, through the captain, the complete and
exclusive control of the crew and the sailing of the vessel, as well as of the destination of the cargo at the
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end of the voyage, and that, for this reason, the principal liability for the payment of the gross average
must fall upon the shipowner.
That he does not have the complete and exclusive control of the crew is shown, among other provisions of
the same Code of Commerce, by the following articles: First, article 610, according to which, among others,
it is an inherent power in the captain to appoint or make contracts with the crew in the absence of the
agent and to propose said crew if said agent be present, but without any right on the part of the latter to
employ any individual against the captain's express refusal. This provision necessarily implies the absolute
power of the captain to take on and contract the crew, and article 634 confirms it, according to which the
captain may make up his crew with the number he may consider advisable, taking on resident foreigners,
in the absence of nationals, their number not to exceed one-fifth of the total crew, and may even, with the
consent of the consul or marine authorities, complete his crew with foreigners in foreign ports if he should
not find sufficient number of nationals, the captain being obliged to execute the contract with said
members of the crew and others who compose the complement of the vessel; and finally, article 637 which
empowers the captain, for sufficient cause, to discharge a sailor during the time of his contract and to
refuse, before setting out on a voyage without giving any reason whatever, to permit a sailor he may have
engaged from going on board, in which case he will be obliged to pay him his wages as if he had rendered
services, this indemnity to be paid from the funds of the vessel only if the captain had acted for reasons of
prudence and in the interests of safety and good service of the vessel; but, should this not be the case,
says said article, it shall be paid by the captain personally. And, if in all that has just been stated the
captain may act independently, it is obvious that the owner of the vessel or the agent does not have,
through the captain, complete and exclusive control of the crew. In short, the captain directly exercises
exclusively personal powers with respect to the crew and, for this reason, he is personally and particularly
responsible for his acts, except in the only case already mentioned, in which he may have acted for the
benefit of the vessel.
Another power inherent in the position of captain, according to article 610, is that of directing the vessel to
the port of its destination, according to the instructions he may have received from the agent, but from
this it cannot be inferred that the shipowner or agent has, through the captain, complete and exclusive
control of the navigation of the vessel, for the simple reason that the captain may not obey said
instructions and may act freely adjusting his decisions according to the circumstances of each case, as
would occur in the case of risks, damages, and accidents which we have previously discussed, cases in
which the law imposes upon the captain the obligations to which titles 4 and 5 of Book 3 refer and
indicates those cases which we have heretofore minutely discussed, in some of which he is personally
responsible, in others the agent or shipowner, or the latter jointly with the captain, and still in others, in
which the agent is not responsible but only the captain.
Nor is it true that the shipowner, through the captain, has the complete and exclusive control of the
destination of the cargo at the end of the voyage, for article 619 says textually that the captain shall be
liable for the cargo from the time it is turned over to him at the dock, or afloat alongside the ship, at the
port of loading, until he delivers it on the shore or on the discharging wharf, of the port of unloading,
unless the contrary has been expressly agreed upon, and that, according to article 620, he is not liable for
the damages caused to the vessel or to the cargo by reason of force majeure, and article 625 adds that the
captain, under his personal liability, as soon as he arrives at the port of destination, upon obtaining the
necessary permission from the health and customs officers and fulfilling the other formalities required by
the regulations of the administration, shall turn over the cargo, without any defalcation, to the consignees
and, in a proper case, the vessel, rigging, and freights to the agent. And if the captain is personally
responsible, according to the clear and positive text of said article, for the delivery of the cargo to the
consignees and, of the vessel, rigging, and freight, to the agent or shipowner, it is clear that the latter does
not have complete and exclusive control of the destination of the cargo at the end of the voyage, because
the obligation to deliver is a personal obligation of the captain, and the agent or shipowner, just as any of
the consignees, may demand said liability with respect to the vessel, rigging, and freight from the captain.
And that responsibility of the captain cannot be confused with the provision contained in article 618 of the
same Code in favor of the agent, and that of the latter in favor of third persons who may have contracted
with him, because in said article 618 are specifically mentioned the cases of responsibility to which the
same article refers, and the responsibility of the captain from the moment the cargo is delivered to him
until its unloading is specially declared in article 619 and even more particularly in article 625 which says
that said responsibility is a personal responsibility of the captain.
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It cannot, therefore, be inferred from all the provisions of the Code. that the evident intention thereof is to
impose the principal responsibility upon the shipowner, as stated in the decision of the majority; and, if the
law is to be complied with, it is useless effort to show its truth, by invoking the general provisions of the
Code of Commerce, which govern the relations between the captain and the shipowner or the agent and
those of one or the other or both with third persons who may have contracted with either of them, or by
invoking those which deal with gross averages, as one of the damages and accidents of maritime
commerce, because, in the first, there is no declaration expressly made upon the subject, and, in the
second, what is established and declared is precisely the contrary, for the shipowner or agent has, just as
the shippers, the right of action against the captain to enforce his responsibility and to be indemnified by
him for the damages occasioned to them by reason of the failure of the captain to comply with the
obligations imposed upon him by law with respect to the adjustment, liquidation, and distribution of the
average, and with respect to the disposition and delivery of the goods saved to the shippers, before the
payment by the latter of their aliquot part in the partition of the average, or without their having filed a
sufficient bond to answer for the cargo, for the reason that, according to article 619, he is responsible for
the cargo from the moment he takes charge thereof at the port of loading until its delivery at the port of
unloading and, according to article 625, he is, under his personal liability, obliged to deliver the cargo,
without defalcation, to the consignees or shippers and, in the proper case, the vessel, rigging, and freight
to the agent upon the arrival at the port of destination. This shows, in relation to the provisions of articles
866 and 868, already cited, that the captain of the vessel should be personally liable to the owners of the
goods averaged for the damages which were incurred by them, by reason of his delay or negligence in
requiring a bond of the shippers before delivery to them of the goods saved, this supposing that they
are obliged to do so, instead of proceeding to the adjustment, liquidation, and distribution of the gross
average, inasmuch as the purpose of the law is to exact said personal responsibility for the due delivery to
the consignees or shippers of the cargo.
The plaintiff, therefore, should have brought said action, if he had any, for the recovery of the amount
claimed in the complaint, not against the defendant, owner of the vessel Batangueo, but against the
captain thereof, and said defendant cannot and should not be sentenced to pay to the plaintiff the sum
stated in the decision of this court which, with some modification as to the amount thereof, affirms the
judgment of the trial court; and there is more reason for this assertion because that sum is, according to
said decision, what the plaintiff should receive in the partition and distribution of the gross average in
question and, yet, it does not appear that the corresponding liquidation, and, consequently, the division
and distribution of said average, has already been made, as required by the provisions of the Code of
Commerce in the articles mentioned at the beginning.
Regretting that I have to dissent from the respectable opinion of the majority, I am of the opinion, for the
reasons above stated, that the judgment appealed from should be reversed and the defendant should be
absolved from the complaint.
(a)
Responsibilities and liabilities

Yu Con v. Ipil, 41 Phil 770
EN BANC
[G.R. No. 10195. December 29, 1916.]
YU CON, plaintiff-appellee, vs. GLICERIO IPIL, NARCISO LAURON, and JUSTO SOLAMO,
defendants-appellants.
Felix Sevilla y Macam for appellants.
Juan Singson and Dionisio Jakosalem for appellee.
SYLLABUS
1.
SHIPPING; LIABILITY OF MASTER AND SUPERCARGO OF VESSEL FOR LOSS OF MONEY ENTRUSTED
TO THEIR CARE. A certain sum of money was delivered by Y to G and J, master and supercargo,
respectively, of a small craft engaged in the coastwise trade in the waters of the Philippine Islands, to be
carried together with various merchandise from the port of Cebu to the town of Catmon of the Province of
Cebu, upon payment of a fixed sum. This money disappeared from said craft, and it was not proven nor
was there any indication that it was stolen by persons not belonging to the boat, nor that its disappearance
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or loss was due to a fortuitous cause or to force majeure. Held: That, as G and J, the carriers of said sum
received from Y for its delivery to a shop in the town of Catmon where it had been consigned, were vested
with the character of depositories of the same, and as they failed to exercise, in its safe-keeping, the
diligence required by the nature of the obligation assumed by them and required by the circumstances of
the time and the place, they are liable, pursuant to the provisions of articles 1601 and 1602, in relation to
articles 1783, 1784, and 1770 of the Civil Code, for its loss or misplacement, and are obliged to deliver it to
Y, with the corresponding interest thereon as an indemnity for the damage caused him through loss of the
same.
2.
ID.; WHAT CONSTITUTES A VESSEL. A minor craft used for the transportation of merchandise by
sea and to make voyages from one port to another of these Islands, equipped and victualed for this
purpose by its owner, is a vessel, within the purview of the law and for the determination of the character
and effect of the relations created between the owners of the merchandise laden on it and its owner,
according to the meaning and construction given to the word vessel by the Mercantile Code in treating of
maritime commerce under Title 1, Book 3.
3.
ID.; LIABILITY OF SHIPOWNER FOR LOSSES CAUSED BY CAPTAIN. The owner of a minor craft who
has equipped and victualed it for the purpose of using it in the transportation of merchandise from one
port to another of these Islands is under the law a shipowner, and the master of the craft is to be
considered as its captain in the legal acceptation of this word, and the former must be held civilly liable for
indemnities in favor of third parties to which the conduct of the latter of them may give rise in the custody
of the effects laden on the craft, and for all losses which, through his fault or negligence, may occur to the
merchandise or effects delivered to him for that transportation as well as for the damages suffered by their
transportation, as those who contracted with him, in consequence of misdemeanors and crimes committed
by him or by the members of the crew of the craft.
DECISION
ARAULLO, J p:
The purpose of the action brought in these proceedings is to enable the plaintiff to recover from the
defendants jointly and severally the sum of P450, which had been delivered by the plaintiff to the first and
third of the above-named defendants, master and supercargo, respectively, of a banca named Maria
belonging to the second defendant, to be carried, together with various merchandise belonging to the
plaintiff, from the port of Cebu to the town of Catmon of the Province of Cebu. By virtue of the contract
executed between the said second defendant and the plaintiff, the money and merchandise were to be
transported by the said craft between the points above-named in consideration of the payment of a certain
sum for each voyage. The money disappeared from said craft during the night of October 18, 1911, while it
was anchored in the port of Cebu and ready to sail for its destination, Catmon, and was not afterwards
found. The plaintiff based his action on the charge that the disappearance of said sum was due to the
abandonment, negligence, or voluntary breach, on the part of the defendants, of the duty they had in
respect to the safe-keeping of the aforementioned sum.
The defendants, besides denying the allegations of the complaint, pleaded in special defense that the
plaintiff, at his own expense and under his exclusive responsibility, chartered the said banca, the property
of the defendant Lauron, for the fixed period of three days, at the price of P10 per diem, and that, through
the misfortune, negligence, or abandonment of the plaintiff himself, the loss complained of occurred, while
said banca was at anchor in the port of Cebu, and was caused by theft committed by unknown thieves.
They further alleged that said defendant Lauron, the owner of the banca merely placed this craft at the
disposal of the plaintiff for the price and period agreed upon, and did not go with the banca on its voyage
from Catmon to Cebu. As a counterclaim, the defendants also asked that the plaintiff be ordered to pay the
freight agreed upon, which had not yet been paid, amounting to P80, plus the sum of P70, as an indemnity
for the losses and damages caused them by the attachment of the banca, issued at the instance of the
plaintiff upon filing his complaint. They also prayed for the additional sum of P100, for the deterioration of
the said banca, and also that of P200 for other deterioration suffered by the same since November, 1911,
and which had not been paid for. Finally, the defendants asked to be absolved from the complaint.
Before commencing the hearing of this case, the defendants made a verbal motion asking that the plaintiff
be declared in default, with respect to the counterclaim filed by them in their answer. On the same date,
the plaintiff presented his answer to said counterclaim, denying each and all of the allegations thereof and
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of the defendants' special defense. The aforementioned motion was overruled by the court, and the
defendants excepted.
At the termination of the trial, the court, in view of the evidence adduced, held that there was no room to
doubt that the sole cause of the disappearance of the money from the said banca was the negligence of
the master and the supercargo, the defendants Ipil and Solamo, respectively, and that the defendant
Narciso Lauron was responsible for that negligence, as owner of the banca, pursuant to articles 586, 587,
and 618 of the Code of Commerce, the plaintiff therefore being entitled to recover the amount lost.
Judgment was rendered on April 20, 1914, in favor of the plaintiff and against the defendants jointly and
severally for the sum of P450, with interest thereon at the rate of 6 per cent per annum from the date of
filing of the complaint, October 24, 1911, with costs. The plaintiff was absolved from the defendant's
counterclaim. From this judgment the defendants excepted and at the same time moved for a new trial.
Their motion was denied, to which ruling they also excepted, and, through the proper bill of exceptions,
entered an appeal to this Supreme Court. In their brief they allege that the trial court erred:
1.
In applying articles 586, 587, and 618 of the Code of Commerce in favor of the plaintiff;
2.
In overruling the motion for default presented by the defendants and in sentencing the defendants
jointly and severally to pay the plaintiff the amount mentioned in the judgment; and
3.
In absolving the plaintiff from the defendants' counterclaim.
The evidence shows that the plaintiff Yu Con, a merchant and a resident of the town of San Nicolas, of the
city of Cebu, engaged in the sale of cloth and domestic articles and having a share in a shop, or small
store, situated in the town of Catmon, of said province, had several times chartered from the defendant
Narciso Lauron, a banca named Maria belonging to the latter, of which Glicerio Ipil was master and Justo
Solamo, supercargo, for the transportation of certain merchandise and some money to and from the said
town and the port of Cebu, that, on or about the 17th of October, 1911, the plaintiff chartered the said
banca from the defendant Lauron for the transportation of various merchandise from the port of Cebu to
Catmon, at the price of P45 for the round trip, which merchandise was loaded on board the said craft which
was then at anchor in front of one of the graded fills of the wharf of said port; that in the afternoon of the
following day, he delivered to the other two defendants, Ipil, and Solamo, master and supercargo,
respectively, of the aforenamed banca, the sum of P450, which was in a trunk belonging to the plaintiff and
was taken charge of by said two defendants, who received this money from the plaintiff, for the purpose of
its delivery to the latter's shop in Catmon for the purchase of corn in this town; that while the money was
still in said trunk aboard the vessel, on the night of the said 18th of October, the time scheduled for the
departure of the Maria from the port of Cebu, said master and said supercargo transferred the P450 from
the plaintiff's trunk, where it was, to theirs, which was in a stateroom of the banca, from which stateroom
both the trunk and the money disappeared during that same night, and that the investigations, made to
ascertain their whereabouts, produced no result.
The facts are also admitted by the aforementioned master and supercargo, two of the defendants, that
they received from the plaintiff said P450, which sum was in the latter's own trunk which was placed
outside the stateroom of the banca, for the reason, as they said, that there was no room for it inside the
stateroom; that these defendants therefore transferred said money to their trunk, which was inside the
stateroom, and that this trunk and the P450 therein contained disappeared from the boat during the night
of that same day; that said sum had not been found or returned to the plaintiff; that the plaintiff, being on
the banca in the afternoon of that day, when his trunk containing the P450 was carried aboard, and seeing
that said two defendants, who had the key of the trunk, had removed said sum to their trunk inside the
stateroom, charged them to take special care of the money; that the master Ipil assured the plaintiff that
there was no danger of the money being lost; and that, finally, during the night in question, both the
master and the supercargo and four cabin-boys were aboard the banca.
It was likewise proven by the affidavits made by the master Ipil, the supercargo Solamo, and the cabinboys of said vessel, Juan Quiamco and Gabriel Basang, before the provincial fiscal of Cebu on the day
following the commission of the theft, which affidavits were presented at the trial as Exhibits A, 3, 4, and 5,
and by the testimony given at the trial by the defendants Ipil and Solamo, that both said cabin-boys and
the other two, Simeon Solamo, and Eulalio Quiamco, knew of the existence of the money in the trunk
inside the stateroom and witnessed its removal to said trunk from the plaintiff's; that the last two cabinboys above-named, in company with the master and the supercargo, conveyed the plaintiff's trunk, in
which the money was previously contained, from the plaintiff's shop to the banca; and that no person not
belonging to the vessel knew that the money was in the trunk inside said stateroom.
466 | P a g e
According to the testimony of the master Ipil himself he slept outside the stateroom that night, but a cabinboy named Gabriel slept inside. The latter, however, was not presented by the defendants to be examined
in regard to this point, nor does it appear that he testified in respect thereto in his affidavit, Exhibit 5,
before referred to, presented by the defendants' own counsel. The master Ipil and the supercargo Solamo
also testified that they left the cabin-boy Simeon Solamo on guard that night; but this affirmation was not
corroborated by Solamo at the trial, for he was not introduced as a witness, and only his affidavit Exhibit 2,
taken before the fiscal of Cebu on the day following the commission of the crime, was presented by the
defendants. This affidavit, which should have been admitted and not rejected, as was done by the court
and excepted to by the defendants, shows that Simeon Solamo stated that he was not designated to do
guard duty that night, but that on the morning of the said 19th of October, that is, the next day, all agreed
that affiant should say that he was on guard, though it was not true that he was.
Finally, said two defendants, the master and the supercargo, gave no satisfactory explanation in regard to
the disappearance of the trunk and the money therein contained, from the stateroom in which the trunk
was, nor as to who stole or might have stolen it. The master of the banca merely testified that they, he and
the supercargo, did not know who the robbers were, for, when the robbery was committed, they were
sound asleep, as they were tired, and that he believed that the guard Simeon also fell asleep because he,
too, was tired. The second defendant gave the same testimony. Both of them testified that the small
window of the stateroom had been broken, and the first of them, i. e., the master, stated that all the
window-blinds had been removed from the windows, as well as part of the partition in which they were and
that the trunk in which the money was contained could have been passed through said small window,
because, as this witness himself had verified, the Chinaman's trunk, which differed but a little from the one
stolen, could be passed through the same opening. The chief pilot of the harbor of Cebu, Placido Sepeda,
who officially visited the said banca, also stated that the small wooden window of the stateroom was
broken, and that he believed that in breaking it much noise must have been produced. However, no
evidence whatever was offered by counsel for the defendants to prove that it might have been possible to
remove the trunk from the stateroom through the opening made by the breaking of the small window,
neither was the size of the trunk proven, in relation to the Chinaman's to which the defendant master
referred in his testimony, so that it might be verified whether the statement made by the latter was true,
viz., that it might have been possible to remove from the stateroom through said opening the trunk in
which the P450 were contained, which sum, the same as the trunk, its container, had not been found, in
spite of the investigation made for the purpose. Furthermore, it was not proven, nor is there any
circumstantial evidence to show, that the robbery in question was committed by persons not belonging to
the craft.
It is therefore beyond all doubt that the loss or disappearance, on the night aforementioned, of the P450,
the property of the plaintiff, which, were in the possession of the defendants, the master and the
supercargo of the banca Maria, occurred through the manifest fault and negligence of said defendants, for,
not only did they fail to take the necessary precautions in order that the stateroom containing the trunk in
which they kept the money should be properly guarded by members of the crew and put in such condition
that it would be impossible to steal the trunk from it or that persons not belonging to the vessel might
force an entrance into the stateroom from the outside, but also they did not expressly station some person
inside the stateroom for the guarding and safe-keeping of the trunk, for it was not proven that the cabinboy Gabriel slept there, as the master of the vessel, Ipil, stated, nor that the other cabin-boy, Simeon
Solamo, was on guard that night, for the latter contradicted the statements made by the two defendants
on this point. On the contrary, it was proven by the master's own statement that all the people on the
vessel, including himself and the supercargo Solamo, slept soundly that night; which fact cannot, in any
manner, serve them as an excuse, nor can it be accepted as an explanation of the statement that they
were not aware of what was then occurring on board. if the trunk was actually stolen by outsiders and
removed through the small window of the stateroom, a detail which also was not proven, but, on the
contrary, increases their liability, because it is very strange that none of them who were six and were
around or near the stateroom, should have heard the noise which the robbers must have made in breaking
its window. All of these circumstances, together with that of its having been impossible to know who took
the trunk and the money and the failure to recover the one or the other, make the conduct of the two
defendants and of the other members of the crew of the banca, eminently suspicious and prevent our
holding that the disappearance or loss of the money was due to a fortuitous event, to force majeure, or
that it was an occurrence which could not have been foreseen, or which, if foreseen, was inevitable.
467 | P a g e
It is unquestionable that the defendants Glicerio Ipil and Justo Solamo were the carriers of the said P450
belonging to the plaintiff, and that they received this sum from the latter for the purpose of delivering it to
the store of the town of Catmon, to which it had been consigned. Under such circumstances, said
defendants were the depositories of the money.
Manresa, in his Commentaries on the Civil Code (Vol. 10 p. 773), in treating of the provisions of the said
code concerning transportation by sea and by land of both persons and things, says:
''Liability of carriers. In order that a thing may be transported, it must be delivered to the carrier, as the
Code says. From the time it is delivered to the carrier or shipper until it is received by the consignee, the
carrier has it in his possession, as a necessary condition for its transportation, and is obliged to preserve
and guard it; wherefore it is but natural and logical that he should be responsible for it.
"The Code discovers in the relation of all these elements the factors which go to make up the conception of
a trust. and, taking into account that the delivery of the thing on the part of the shipper is unavoidable, if
the transportation is to take place, esteems that, at least in certain respects, such trusts are necessary."
The said two defendants being the depositaries of the sum in question, and they having failed to exercise
for its safe-keeping the diligence required by the nature of the obligation assumed by them and by the
circumstances of the time and the place, it is evident that, in pursuance of the provisions of articles 1601
and 1602, in their relation to articles 1783 and 1784, and as prescribed in article 1770, of the Civil Code,
they are liable for its loss or misplacement and must restore it to the plaintiff, together with the
corresponding interest thereon as an indemnity for the losses and damages caused him through the loss of
the said sum.
With respect to the other defendant, Narciso Lauron, as he was the owner of the vessel in which the loss or
misplacement of the P450 occurred, of which vessel, as aforestated, Glicerio Ipil was master and Justo
Solamo, supercargo, both of whom were appointed to, or chosen for, the positions they held, by the
defendant himself, and, as the aforementioned sum was delivered to the said master, Ipil, and the
merchandise to be transported by means of said vessel from the port of Cebu to the town of Catmon was
laden by virtue of a contract executed by and between the plaintiff and the owner of the vessel, Narciso
Lauron, it behooves us to examine whether the latter, also, should be held to be liable, as requested by the
plaintiff in his complaint.
Said vessel was engaged in the transportation of merchandise by sea and made voyages to and from the
port of Cebu to Catmon, and had been equipped and victualed for this purpose by its owner, Narciso
Lauron, with whom, as aforesaid, the plaintiff contracted for the transportation of the merchandise which
was to be carried, on the date hereinabove mentioned, from the port of Cebu to the town of Catmon.
For legal purposes, that is, for the determination of the nature and effect of the relations created between
that plaintiff, as owner of the merchandise laden on said craft and of the money that was delivered to the
master, Ipil, and the defendant Lauron, as owner of the craft, the latter was a vessel, according to the
meaning and construction given to the word vessel in the Mercantile Code, in treating of maritime
commerce, under Title 1, Book 3.
"The word vessel serves to designate every kind of craft by whatever particular or technical name it may
now be known or which nautical advancements may give it in the future." (Commentaries on the Code of
Commerce, in the General Review of Legislation and Jurisprudence, founded by D. Jose Reus y Garcia, Vol.
2, p. 136.)
According to the Dictionary of Legislation and Jurisprudence by Escriche, a vessel is any kind of craft,
considering solely the hull.
Blanco, the commentator on mercantile law, in referring to the grammatical meaning of the words "ship"
and "vessels," says, in his work aforecited, that these terms designate every kind of craft, large or small,
whether belonging to the merchant marine or to the navy. And referring to their juridical meaning, he adds:
"This does not differ essentially from the grammatical meaning; the words 'ship' and 'vessel' also
designate every craft, large or small, so long as it be not an accessory of another, such as the small boat of
a vessel, of greater or less tonnage. This definition comprises both the craft intended for ocean or for
coastwise navigation, as well as the floating docks, mud lighters, dredges, dumpscows or any other
floating apparatus used in the service of an industry or in that of maritime commerce. . . ." (Vol. 1, p. 389.)
According to the foregoing definitions, then, we hold that the banca called Maria, chartered by the plaintiff
Yu Con from the defendant Narciso Lauron, was a "vessel", pursuant to the meaning this word has in
mercantile law, that is, in accordance with the provisions of the Code of Commerce in force.
Glicerio Ipil, the master of the said banca, Maria, must also be considered as its captain, in the legal
acceptation of this word.
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The same Code of Commerce in force in these Islands compares, in its article 609, masters with captains. It
is co be noted that in the Code of Commerce of Spain the denomination of arraeces is not included in said
article as equivalent to that of masters, as it is in the Code of these Islands.
Commenting on said article, the aforementioned General Review of Legislation and Jurisprudence says:
"The name of captain or master is given, according to the kind of vessel, to the person in charge of it.
"The first denomination is applied to those who govern vessels that navigate the high seas or ships of large
dimensions and importance, although they be engaged in the coastwise trade.
"Masters are those who command smaller ships engaged exclusively in the coastwise trade.
"For the purposes of maritime commerce, the words 'captain' and 'master' have the same meaning; both
being the chiefs or commanders of ships." (Vol. 2, p. 168.)
Article 587 of the Code of Commerce in force provides:
"The agent shall be civilly liable for the indemnities in favor of third persons which arise from the conduct
of the captain in the care of the goods which the vessel carried; but he may exempt himself herefrom by
abandoning the vessel with all her equipments and the freight he may have earned during the trip."
Article 618 of the same Code also prescribes:
"The captain shall be civilly liable to the agent and the latter to the third persons who may have made
contracts with the former
"1.
For all the damages suffered by the vessel and its cargo by reason of want of skill or negligence on
his part, If a misdemeanor or crime has been committed he shall be liable in accordance with the Penal
Code.
"2.
For all the thefts committed by the crew, reserving his right of action against the guilty parties."
The Code of Commerce previous to the one now in force, to wit, that of 1829, in its article 624, provided
that the agent or shipowner should not be liable for any excesses which, during the navigation, might be
committed by the captain and crew, and that, for the reason of such excesses it was only proper to bring
action against the persons and property of those found guilty.
Estasen, in his work on the Institutes of Mercantile Law (Vol. 4, p. 280), makes the following remarks, in
referring to the exposition of reasons presented by the Code Commission which prepared and presented
for approval the Code of Commerce now in force, in which exposition of reasons were set forth the
fundamental differences between the provisions contained in both codes, with respect to the subjectmatter now under discussion.. He says:
"Another very important innovation introduced by the Code is that relative to the liability for
misdemeanors and crimes committed by the captain or by members of the crew This is a matter of the
greatest importance on which a variety of opinions has been expressed by different juris-consults.
"The old code declares the captain civilly liable for all damage sustained by the vessel or its cargo through
lack of skill or care on his part, through violations of the law, or through unlawful acts committed by the
crew. As regards the agent or shipowner, it declares in unmistakable terms that he shall in no wise be
liable for any excesses which, during the navigation, may be committed by the captain and the crew.
"Upon an examination, in the light of the principles of modern law, of the standing legal doctrine on the
nonliability of the shipowner for the unlawful acts, that is, the crimes or quasi crimes, committed by the
captain and the crew, it is observed that it cannot by maintained in the absolute and categorical terms in
which it is formulated.
"It is well and good that the shipowner be not held criminally liable for such crimes or quasi crimes; but he
cannot be excused from liability for the damage and harm which, in consequence of those acts, may be
suffered by the third parties who contracted with the captain, in his double capacity of agent and
subordinate of the shipowner himself. In maritime commerce, the shippers and passengers in making
contracts with the captain do so through the confidence they have in the shipowner who appointed him;
they presume that the owner made a most careful investigation before appointing him, and, above all,
they themselves are unable to make such an investigation, and even though they should do so, they could
not obtain complete security, inasmuch as the shipowner can, whenever he sees fit, appoint another
captain instead.
"The shipowner is in the same case with respect to the members of the crew, for, though he does not
appoint directly, yet, expressly or tacitly, he contributes to their appointment.
"On the other hand, if the shipowner derives profits from the results of the choice of the captain and the
crew, when the choice turns out successful, it is also just that he should suffer the consequences of an
unsuccessful appointment, by application of the rule of natural law contained in the Partidas, viz., that he
who enjoys the benefits derived from a thing must likewise suffer the losses that ensue therefrom.
469 | P a g e
"Moreover, the Penal Code contains a general principle that resolves the question under consideration, for
it declares that such persons as undertake and carry on any industry shall be civilly liable, in default of
those who may be criminally liable, for the misdemeanors and crimes committed by their subordinates in
the discharge of their duties.
"The Code of Commerce in force omits the declaration of non-liability contained in the old code, and clearly
makes the shipowner liable civilly for the loss suffered by those who contracted with the captain, in
consequence of the misdemeanors and crimes committed by the latter or by the members of the crew."
It is therefore evident that, in accordance with the provisions of the Code of Commerce in force, which are
applicable to the instant case, the defendant Narciso Lauron, as the proprietor and owner of the craft of
which Glicerio Ipil was the master and in which, through the fault and negligence of the latter and of the
supercargo Justo Solamo, there occurred the loss, theft, or robbery of the P450 that belonged to the
plaintiff and were delivered to said master and supercargo, a theft which, on the other hand, as shown by
the evidence, does not appear to have been committed by a person not belonging to the craft, should, for
said loss or theft, be held civilly liable to the plaintiff, who executed with said defendant Lauron the
contract for the transportation of the merchandise and money aforementioned between the port of Cebu
and the town of Catmon, by means of the said craft.
Therefore, the trial court did not err in so holding in the judgment appealed from.
The plaintiff having filed his answer to the cross-complaint as soon as the defendant presented their
motion for a declaration of the plaintiff's default in connection with said cross-complaint, and it being
optional with the court to make in such cases the declaration of default, as provided in section 129 of the
Code of Civil Procedure, the said court did not incur the second error assigned by the appellants in their
brief.
Lastly, as the banca Maria did not make the trip she should have made from the port of Cebu to the town
of Catmon, on the occasion in question, through causes chargeable, as has been seen, to the captain and
the supercargo of said banca, to wit, because of the loss, theft or robbery of the P450 belonging to the
plaintiff, and as a contract was made for the transportation of the said sum and the merchandise from one
of said points to the other, for the round trip, and not through payment by the plaintiff of the wages due
the crew for each day, as alleged by the defendants, for the proofs presented by the latter in regard to this
point were insufficient, as the trial court so held, neither did the latter incur error in overruling the crosscomplaint formulated by the defendants in their answer against the plaintiff.
Therefore, and for all the reasons above set forth, we affirm the judgment appealed from, with the costs of
this instance against the appellants. So ordered.
Torres, Carson, Moreland and Trent, JJ., concur.
Manila Steamship v. Abdulhaman, 100 Phil 32
EN BANC
[G.R. No. L-9534. September 29, 1956.]
MANILA STEAMSHIP CO., INC., petitioner, vs. INSA ABDULHAMAN (MORO) and LIM HONG TO,
respondents.
Pacifico de Ocampo for the petitioner.
Felix F. Catis, Fernando P. Blanco and Carlos Camins, Jr., for respondents.
SYLLABUS
1.
COMMON CARRIERS; MARITIME TORTS; COLLISION IMPUTABLE TO BOTH VESSELS; LIABILITY OF
SHIPOWNERS, SOLIDARILY. In case of collision between two vessels imputable to both of them, each
vessel shall suffer her own damage and both shall be solidarily liable for the damages occasioned to their
cargoes. (Article 827, Code of Commerce.)
2.
ID.; ID.; LIABILITY OF SHIPOWNERS. The shipowner is directly and primarily responsible in tort
resulting in a collision at sea, and it may not escape liability on the ground that it exercised due diligence
in the selection and supervision of the vessels's officer and crew.
3.
ID.; ID.; LIABILITY OF SHIPOWNER WHERE OFFICERS OF THE SHIP ARE UNLICENSED. The owner of
a vessel who had caused the same to sail without licensed officers is liable for the injuries caused by the
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collision over and beyond the value of his vessel; hence, he can not escape liability because of the sinking
of the vessel.
DECISION
REYES, J. B. L., J p:
This case was begun in the Court of First Instance of Zamboanga (Civil Case No. 170) by Insa Abdulhaman
against the Manila Steamship Co., owner of the M/S "Bowline Knot", and Lim Hong To, owner of the M/L
"Consuelo V", to recover damages for the death of his (plaintiff's) five children and loss of personal
properties on board the M/L "Consuelo V" as a result of a maritime collision between said vessel and the
M/S "Bowline Knot" on May 4, 1948, a few kilometers distant from San Ramon Beach, Zamboanga City.
On appeal, the Court of Appeals found the following facts to have been established:
"From 7:00 to 8:00 o'clock in the evening of May 4, 1948, the M/L "Consuelo V", laden with cargoes and
passengers left the port of Zamboanga City bound for Siokon under the command of Faustino Macrohon.
She was then towing a kumpit, named "Sta. Maria Bay". The weather was good and fair. Among her
passengers were the plaintiff Insa Abdulhaman, his wife Carimla Mora and their five children already
mentioned. The plaintiff and his wife paid their fare before the voyage started.
On that same night the M/S "Bowline Knot" was navigating from Maribojoc towards Zamboanga.
Between 9:30 to 10:00 in the evening the dark clouds bloated with rain began to fall and the gushing
strong wind began to blow steadily harder, lashing the waves into a choppy and roaring sea. Such weather
lasted for about an hour and then it became fair although it was showering and the visibility was good
enough.
When some of the passengers of the M/L "Consuelo V" were then sleeping and some were lying down
awake, all of a sudden they felt the shocking collision of the M/L "Consuelo V" and a big motorship, which
later on was identified as the M/V "Bowline Knot".
Because the M/L "Consuelo V" capsized, her crew and passengers, before realizing what had happened,
found themselves swimming and floating on the crest of the waves and as a result of which nine (9)
passengers were dead and missing and all the cargoes carried on said boat, including those of the plaintiff
as appear in the list, Exhibit "A", were also lost.
Among the dead passengers found were Maria, Amlasa, Bidoaya and Bidalla, all surnamed Inasa, while the
body of the child Abdula Inasa of 6 years of age was never recovered. Before the collision, none of the
passengers were warned or informed of the impending danger as the collision was so sudden and
unexpected. All those rescued at sea were brought by the M/V "Bowline Knot" to Zamboanga City."
(Decision of C. A., pp. 5-6).
As the cause of the collision, the Court of Appeals affirmed the findings of the Board of Marine Inquiry, that
the commanding officer of the colliding vessels had both been negligent in operating their respective
vessels. Wherefore, the Court held the owners of both vessels solidarily liable to plaintiff for the damages
caused to him by the collision, under Article 827 of the Code of Commerce; but exempted defendant Lim
Hong To from liability by reason of the sinking and total loss of his vessel, the M/L "Consuelo V", while the
other defendant, the Manila Steamship Co., owner of the M/S "Bowline Knot", was ordered to pay all of
plaintiff's damages in the amount of P20,784.00 plus one-half of the costs. It is from this judgment that
defendant Manila Steamship Co. had appealed to this Court.
Petitioner Manila Steamship Co. pleads that it is exempt from any liability to plaintiff under Article 1903 of
the Civil Code because it had exercised the diligence of a good father of a family in the selection of its
employees, particularly Third Mate Simplicio Ilagan, the officer in command of its vessels, the M/S "Bowline
Knot", at the time of the collision. This defense is untenable. While it is true that plaintiff's action against
petitioner is based on a tort or quasi-delict, the tort in question is not a civil tort under the Civil Code but a
maritime tort resulting in a collision at sea, governed by Articles 826-939 of the Code of Commerce. Under
Article 827 of the Code of Commerce, in case of collision between two vessels imputable to both of them,
each vessel shall suffer her own damage and both shall be solidarily liable for the damages occasioned to
their cargoes. The characteristic language of the law in making the "vessels" solidarily liable for the
damages due to the maritime collision emphasizes the direct nature of the responsibilities on account of
the collision incurred by the shipowner under maritime law, as distinguished from the civil law and
mercantile law in general. This direct responsibility is recognized in Article 618 of the Code of Commerce
under which the captain shall be civilly liable to the ship agent, and the latter is the one liable to third
471 | P a g e
persons, as pointed out in the collision case of Yueng Sheng Exchange & Trading Co. vs. Urrutia & Co., 12
Phil. 747, 753:
"The responsibility involved in the present action is that derived from the management of the vessel, which
was defective on account of lack of skill, negligence, or fault, either of the captain or of the crew, for which
the captain is responsible to the agent, who in his turn is responsible to the third party prejudiced or
damaged. (Article 618, Code of Commerce)."
In fact, it is a general principle, well established maritime law and custom, that shipowners and ship agents
are civilly liable for the acts of the captain (Code of Commerce, Article 586) and for the indemnities due
the third persons (Article 587); so that injured parties may immediately look for reimbursement to the
owner of the ship, it being universally recognized that the ship master or captain is primarily the
representative of the owner (Standard Oil Co. vs. Lopez Castelo, 42 Phil. 256, 260). This direct liability,
moderated and limited by the owner's right of abandonment of the vessel and earned freight (Article 587),
has been declared to exist, not only in case of breached contracts, but also in cases of tortious negligence
(Yu Biao Sontua vs. Osorio, 43 Phil. 511, 515):
"In the second assignment of error, the appellant contends that the defendant ought not to be held liable
for the negligence of his agents and employees.
It is proven that the agents and employees, through whose negligence the explosion and fire in question
occurred, were agents, employees and mandatories of the defendant. Where the vessel is one of freight, a
public concern or public utility, its owner or agents is liable for the tortious acts of his agents (Articles 587,
613, and 618 Code of Commerce; and Article 1902, 1903, 1908, Civil Code). This principle has been
repeatedly upheld in various decisions of this court.
The doctrines cited by the appellant in support of his theory have reference to the relations between
principal and agent in general, but not to the relations between ship agent and his agents and employees;
for this reason they cannot be applied in the present case."
It is easy to see that to admit the defense of due diligence of a bonus paterfamilias (in the selection and
vigilance of the officers and crew) as exempting the shipowner from any liability for their faults, would
render nugatory the solidary liability established by Article 827 of the Code of Commerce for the greater
protection of injured parties. Shipowners would be able to escape liability in practically every case,
considering that the qualifications and licensing of ship masters and officers are determined by the State,
and that vigilance is practically impossible to exercise over officers and crew of vessels at sea. To compel
the parties prejudiced to look to the crew for indemnity and redress would be an illusory remedy for almost
always its members are, from captains down, mere wage earners.
We, therefore, find no reversible error in the refusal of the Court of Appeals to consider the defense of the
Manila Steamship Co., that it is exempt from liability for the collision with the M/L "Consuelo V" due to
absence of negligence on its parts in the selection and supervision of the officers and crew of the M/S
"Bowline Knot".
The case of Walter S. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil. 517, invoked by petitioner,
is not the point. Said case treated of a civil tort, in that the vessel of the defendant, allegedly negligently
managed by its captain in the course of its maneuvers to moor at plaintiff's wharf, struck the same and
partially demolished it, causing damage to plaintiff. Because the tort allegedly committed was civil, the
provisions of Article 1903 of the Civil Code were correctly applied. The present case, on the other hand,
involves tortious conduct resulting in a maritime collision; wherefore, the liability of the shipowner is, as
already stated, governed by the provisions of the Code of Commerce and not by the Civil Code.
We agree, however, with petitioner-appellant, that the Court of Appeals was in error in declaring the
respondent Lim Hong To, owner of the M/L "Consuelo V", exempt from liability to the original plaintiff,
Abdulhaman, in view of the total loss of his own vessel, that sank as a result of the collision. It is to be
noted that both the master and the engineer of the motor launch "Consuelo V" were not duly licensed as
such (Exh. 2). In applying for permission to operate, despite the lack of properly trained and experienced,
crew, respondent Lim Hong To gave as a reason
"that the income derived from the vessel is insufficient to pay licensed officers who demand high salaries",
and expressly declared:
"That in case of any accident, damage or loss, I shall assume full risk and responsibility for all the
consequences thereof." (Exhibit 2).
His permit to operate, in fact, stipulated
"that in case of any accident, damage or loss, the registered owner thereof shall assume full risk and
responsibility for all the consequences thereof, and that said vessel shall be held answerable for any
472 | P a g e
negligence, disregard or violation of any of the conditions herein imposed and for any consequence arising
from such negligence, disregard or violations." (Exhibit 3.)
The Court of Appeals held that neither the letter (Exhibit 2) nor the permit (Exhibit 3) contained any waiver
of the right of respondent Lim Hong To to limit his liability to the value of his motor launch and that he did
not lose the statutory right to limit his liability by abandonment of the vessel, as conferred by Article 587
of the Code of Commerce.
We find the ruling untenable. Disregarding the question whether mere inability to meet the salary
demands of duly licensed masters and engineers constitutes non-availability thereof that would excuse
noncompliance with the law and authorize operation without licensed officers under Act 3553, the fact
remains that by operating with an unlicensed master, Lim Hong To deliberately increased the risk to which
the passengers and shippers of cargo aboard the "Consuelo V" would be subjected. In his desire to reap
greater benefits in the maritime trade, Lim Hong To willfully augmented the dangers and hazards to his
vessel's unwary passengers, who would normally assume that the launch officers possessed the necessary
skill and experience to evade the perils of the sea. Hence, the liability of said respondent can not be the
identical to that of a shipowner who bears in mind the safety of the passengers and cargo by employing
duly licensed officers. To hold, as the Court of Appeals has done, that Lim Hong To may limit his liability to
the value of his vessels, is to erase all difference between compliance with law and the deliberate
disregard thereof. To such proposition we can not assent.
The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a
shipowner's liability, does not apply to cases where the injury or the average is due to shipowner's own
fault. Faria (Derecho Comercial Maritimo, Vol. I, pp. 122-123), on the authority of judicial precedents from
various nations, sets the rule to be as follows:
"Esta generalmente admitido que el propietario del buque no tiene derecho a la limitacion legal de
responsibilidad si los daos o averias que dan origen a la limitacion provienen de sus propias culpas. El
Convenio de Bruselas de 25 de agosto de 1924 tambien invalida la limitacion en el caso de culpa personal
en los accidentes o averas sobrevenidos (Art. 2)."
To the same effect, a noted French author states:
"La limitacion de la responsabilidad maritima ha sido admitida para proteger a los armadores contra los
actos abusivos de sus encargados y no dejar su patrimonio entero a la discrecion del personal de sus
buques, porque este personal cumple sus obligaciones en condiciones especiales; pero los armadores no
tienen por sobre los demas derecho a ser amparados contra ellos mismos ni a ser protegidos contra sus
propios actos."
(Danjon, Derecho Maritimo, Vol. 2, p. 332). (Emphasis supplied.)
That Lim Hong To understood that he would incur greater liability than that normally borne by shipowners,
is clear from his assumption of " full" risk and responsibility for all the consequences" of the operation of
the M/L "Consuelo V"; a responsibility expressly assumed in his letter Exhibit 2, and imposed in his special
permit, in addition to the vessel itself being held answerable. This express assumption of "full risk and
responsibility" would be meaningless unless intended to broaden the liability of respondent Lim Hong To
beyond the value of his vessel.
In resume, we hold:
(1)
That the Manila Steamship Co., owner of the M/S "Bowline Knot", is directly and primarily
responsible in tort for the injuries caused to the plaintiff by the collision of said vessel with the launch
"Consuelo V", through the negligence of the crews of both vessels, and it may not escape liability on the
ground that it exercised due diligence in the selection and supervision of the officers and crew of the
"Bowline Knot";
(2)
That Lim Hong To, as owner of the motor launch "Consuelo V", having caused the same to sail
without licensed officers, is liable for the injuries caused by the collision over and beyond the value of said
launch;
(3)
That both vessels being at fault, the liability of Lim Hong To and Manila Steamship Co. to the
plaintiff herein is in solidum, as prescribed by Article 827 of the Code of Commerce.
In view of the foregoing, the decision of the Court of Appeals is modified, and that of the Court of First
Instance affirmed, in the sense of declaring both original defendants solidarily liable to plaintiff Insa
Abdulhaman in the sum of P20,784.00 and the cost of the litigation, without prejudice to the right of the
one who should pay the judgment in full to demand contribution from his co-defendant.
473 | P a g e
Paras, C. J., Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Felix, JJ., concur.
(b)
The doctrine of limited liability, Art. 587

Manila Steamship v. Abdulhaman, supra
Yangco v. Lasena, 73 Phil 330
EN BANC
[G.R. Nos. 47447-47449. October 29, 1941.]
TEODORO R. YANGCO, ETC., petitioner, vs. MANUEL LASERNA, ET AL., respondents.
Claro M. Recto, for petitioner.
Powell & Vega, for respondents.
SYLLABUS
SHIPS AND SHIPPING; COLLISIONS OR SHIPWRECKS; CIVIL LIABILITY OF SHIPOWNER FOR INJURY TO OR
DEATH OF PASSENGERS ARISING FROM NEGLIGENCE OF CAPTAIN. If the shipowner or agent may in any
way be held civilly liable at all for injury to or death of passengers arising from the negligence of the
captain in cases of collisions or shipwrecks, his liability is merely co-extensive with his interest in the
vessel such that a total loss thereof results in its extinction. In arriving at this conclusion, the fact is not
ignored that the ill-fated S. S. Negros, as a vessel engaged in interisland trade, is a common carrier, and
that the relationship between the petitioner and the passengers who died in the mishap rests on a contract
of carriage. But assuming that petitioner is liable for a breach of contract of carriage, the exclusively "real
and hypothecary nature" of maritime law operates to limit such liability to the value of the vessel, or to the
insurance thereon, if any. In the instant case it does not appear that the vessel was insured.
DECISION
MORAN, J p:
At about one o'clock in the afternoon of May 26, 1927, the steamer S. S. Negros, belonging to petitioner
here, Teodoro R. Yangco, left the port of Romblon on its return trip to Manila. Typhoon signal No. 2 was then
up, of which fact the captain was duly advised and his attention thereto called by the passengers
themselves before the vessel set sail. The boat was overloaded as indicated by the loadline which was 6 to
7 inches below the surface of the water. Baggage, trunks and other equipments were heaped on the upper
deck, the hold being packed to capacity. In addition, the vessel carried thirty sacks of crushed marble and
about one hundred sacks of copra and some lumber. The passengers, numbering about 180, were
overcrowded, the vessel's capacity being limited to only 123 passengers. After two hours of sailing, the
boat encountered strong winds and rough seas between the islands of Banton and Simara, and as the
waves splashed the ladies' dresses, the awnings were ordered lowered. As the sea became increasingly
violent, the captain ordered the vessel to turn left, evidently to return to port, but in the maneuver, the
vessel was caught sidewise by a big wave which caused it to capsize and sink. Many of the passengers
died in the mishap, among them being Antolin Aldaa and his son Victorioso, husband and son,
respectively, of Emilia Bienvenida who, together with her other children and a brother- in-law, are
respondents in G. R. No. 47447; Casiana Laserna, the daughter of respondents Manuel Laserna and P. A. de
Laserna in G. R. No. 47448; and Genaro Basaa, son of Filomeno Basaa, respondent in G. R. No. 47449.
These respondents instituted in the Court of First Instance of Capiz separate civil actions against petitioner
here to recover damages for the death of the passengers aforementioned. The court awarded the heirs of
Antolin and Victorioso Aldaa the sum of P2,000; the heirs of Casiana Laserna, P590; and those of Genaro
Basaa, also P590. After the rendition of the judgment to this effect, petitioner, by a verified pleading,
sought to abandon the vessel to the plaintiffs in the three cases, together with all its equipments, without
prejudice to his right to appeal. The abandonment having been denied, an appeal was taken to the Court
of Appeals, wherein all the judgments were affirmed except that which awarded to the Aldaas the sum of
P2,000, which sum was increased to P4,000. Petitioner, now deceased, appealed and is here represented
by his legal representative.
474 | P a g e
Brushing aside the incidental issues, the fundamental question here raised is: May the shipowner or agent,
notwithstanding the total loss of the vessel as a result of the negligence of its captain, be properly held
liable in damages for the consequent death of its passengers? We are of the opinion and so hold that this
question is controlled by the provision of article 587 of the Code of Commerce. Said article reads:
"The agent shall also be civilly liable for the indemnities in favor of third persons which arise from the
conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself
therefrom by abandoning the vessel with all her equipments and the freight he may have earned during
the voyage."
The provision accords a shipowner or agent the right of abandonment; and by necessary implication, his
liability is confined to that which he is entitled as of right to abandon - "the vessel with all her equipments
and the freight it may have earned during the voyage." It is true that the article appears to deal only with
the limited liability of shipowners or agents for damages arising from the misconduct of the captain in the
care of the goods which the vessel carries, but this is a mere deficiency of language and in no way
indicates the true extent of such liability. The consensus of authorities is to the effect that notwithstanding
the language of the aforequoted provision, the benefit of limited liability therein provided for, applies in all
cases wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the
captain. Dr. Jose Ma. Gonzalez de Echavarri y Vivanco, commenting on said article, said:
"La letra del Codigo, en el articulo 587, presenta una gravisima cuestion. El derecho de abandono, si se
atiende a lo escrito, solo se refiere a las indemnizaciones a que diere lugar la conducta del Capitan en la
custodia de los efectos que cargo en el buque.
"Es ese el espiritu del legislador? No; habra derecho de abandono en las responsabilidades nacidas de
obligaciones contraidas por el Capitan y de otros actos de este? Lo reputamos evidente y, para fortalecer
nuestra opinion, basta copiar el siguiente parrafo de la Exposicion de motivos:
" 'El proyecto, al aplicar estos principios, se inspira tambien en los intereses del comercio maritimo, que
quedaran mas asegurados ofreciendo a todo el que contrata con el naviero o Capitan del buque, la
garantia real del mismo, cualesquiera que sean las facultades o atribuciones de que se hallen investidos.'"
(Echavarri, Codigo de Comercio, Tomo 4, 2.a ed., pags. 483-484.)
A cursory examination will disclose that the principle of limited liability of a shipowner or agent is provided
for in but three articles of the Code of Commerce - article 587 aforequoted and articles 590 and 837.
Article 590 merely reiterates the principle embodied in article 587, where the vessel is owned by several
persons. Article 837 applies the same principle in cases of collision, and it has been observed that said
article is but "a necessary consequence of the right to abandon the vessel given to the shipowner in article
587 of the Code, and it is one of the many superfluities contained in the Code." (Lorenzo Benito, Lecciones
352, quoted in Philippine Shipping Co. vs. Garcia, 6 Phil., 281, 282.) In effect, therefore, only articles 587
and 590 are the provisions contained in our Code of Commerce on the matter, and the framers of said
code had intended those provisions to embody the universal principle of limited liability in all cases. Thus,
in the "Exposicion de Motivos" of the Code of Commerce, we read:
"The present code (1829) does not determine the juridical status of the agent where such agent is not
himself the owner of the vessel. This omission is supplied by the proposed code, which provides in
accordance with the principles of maritime law that by agent it is to be understood the person intrusted
with the provisioning of the vessel, or the one who represents her in the port in which she happens to be.
This person is the only one who represents the vessel that is to say, the only one who represents the
interests of the owner of the vessel. This provision has therefore cleared the doubt which existed as to the
extent of the liability, both of the agent and of the owner of the vessel. Such liability is limited by the
proposed code to the value of the vessel and other things appertaining thereto."
In Philippine Shipping Co. vs. Garcia (6 Phil., 281, 284-286), we have expressed ourselves in such a
comprehensive manner as to leave no room for doubt on the applicability of our ratio decidendi not only to
cases of collision but also to those of shipwrecks, etc. We said:
"This is the difference which exists between the lawful acts and lawful obligations of the captain and the
liability which he incurs on account of any unlawful act committed by him. In the first case, the lawful acts
and obligations of the captain beneficial to the vessel may be enforced as against the agent for the reason
that such obligations arise from the contract of agency (provided, however, that the captain does not
exceed his authority), while as to any liability incurred by the captain through his unlawful acts, the ship
agent is simply subsidiarily civilly liable. This liability of the agent is limited to the vessel and it does not
extend further. For this reason the Code of Commerce makes the agent liable to the extent of the value of
475 | P a g e
the vessel, as the codes of the principal maritime nations provide, with the vessel, and not individually.
Such is also the spirit of our Code.
"The spirit of our code is accurately set forth in a treatise on maritime law, from which we deem proper to
quote the following as the basis of this decision:
"'That which distinguishes the maritime from the civil law and even from the mercantile law in general is
the real and hypothecary nature of the former, and the many securities of a real nature that maritime
customs from time immemorial, the laws, the codes, and the later jurisprudence, have provided for the
protection of the various and conflicting interests which are ventured and risked in maritime expeditions,
such as the interests of the vessel and of the agent, those of the owners of the cargo and consignees,
those who salvage the ship, those who make loans upon the cargo, those of the sailors and members of
the crew as to their wages, and those of a constructor as to repairs made to the vessel.
"'As evidence of this real nature of the maritime law we have (1) the limitation of the liability of the agents
to the actual value of the vessel and the freight money, and (2) the right to retain the cargo and the
embargo and detention of the vessel even in cases where the ordinary civil law would not allow more than
a personal action against the debtor or person liable. It will be observed that these rights are correlative,
and naturally so, because if the agent can exempt himself from liability by abandoning the vessel and
freight money, thus avoiding the possibility of risking his whole fortune in the business, it is also just that
his maritime creditor may for any reason attach the vessel itself to secure his claim without waiting for a
settlement of his rights by a final judgment, even to the prejudice of a third person.
"'This repeals the civil law to such an extent that, in certain cases, where the mortgaged property is lost no
personal action lies against the owner or agent of the vessel. For instance, where the vessel is lost the
sailors and members of the crew cannot recover their wages; in case of collision, the liability of the agent
is limited as aforesaid, and in case of shipwreck, those who loan their money on the vessel and cargo lose
all their rights and cannot claim reimbursement under the law.
"'There are two reasons why it is impossible to do away with these privileges, to wit: (1) The risk to which
the thing is exposed, and (2) the real nature of the maritime law, exclusively real, according to which the
liability of the parties is limited to a thing which is at the mercy of the waves. If the agent is only liable with
the vessel and freight money and both may be lost through the accidents of navigation it is only just that
the maritime creditor have some means to obviating this precarious nature of his rights by detaining the
ship, his only security, before it is lost."'The liens, tacit or legal, which may exist upon the vessel and which
a purchaser of the same would be obliged to respect and recognize are in addition to those existing in
favor of the State by virtue of the privileges which are granted to it by all the laws pilot, tonnage, and
port dues and other similar charges, the wages of the crew earned during the last voyage as provided in
article 646 of the Code of Commerce, salvage dues under article 842, the indemnification due to the
captain of the vessel in case his contract is terminated on account of the voluntary sale of the ship and the
insolvency of the owner as provided in article 608, and all other liabilities arising from collisions under
articles 837 and 838.'"
We are shared in this conclusion by the eminent commentators on the subject. Agustin Vicente y Gella,
asserting, in his "Introduccion al Derecho Mercantil Comparado" 1929 (pages 374-375), the like principle of
limited liability of shipowners or agent in cases of accidents, collisions, shipwrecks, etc., said:
"De las responsabilidades que pueden resultar como consequencia del comercio maritimo, y no solo por
hechos propios sino tambien por las que se ocasionen por los del capitan y la tripulacion, responde frente a
tercero el naviero que representa el buque; pero el derecho maritimo es sobre todo tradicional y siguiendo
un viejo principio de la Edad Media la responsabilidad del naviero se organiza de un modo especifico y
particularisimo que no encuentra similar en el derecho general de las obligaciones.
"Una forma corrientisima de verificarse el comercio maritimo durante la epoca medieval, era prestar un
propietario su navio para que cargase en el mercancias determinada persona, y se hiciese a la mar, yendo
al frente de la expedicion un patron del buque, que llegado al puerto de destino se encargaba de venderlas
y retornaba al de salida despues de adquirir en aquel otros efectos que igualmente revendia a su regreso,
verificado lo cual los beneficios de la expedicion se repartian entre el dueo del buque, el cargador y el
capitan y tripulantes en la proporcion estipulada. El derecho maritimo empezo a considerar la asociacion
asi formada como una verdadera sociedad mercantil, de responsabilidad limitada, y de acuerdo con los
principios que gobiernan aquella en los casos de accidentes, abordajes, naufragios, etc., se resolvia que el
dueo del buque perdia la nave, el cargador las mercancias embarcadas y el capitan y la tripulacion su
trabajo, sin que en ningn caso el tercer acreedor pudiese reclamar mayor cantidad de ninguno de ellos,
porque su responsabilidad quedaba limitada a lo que cada uno aporto a la sociedad. Recogidas estas ideas
476 | P a g e
en el derecho comercial de tiempos posteriores, la responsabilidad del naviero se edifico sobre aquellos
principios, y derogando la norma general civil de que del cumplimiento de sus obligaciones responde el
deudor con todos sus bienes presentes y futuros, la responsabilidad maritima se considero siempre
limitada ipso jure al patrimonio de mar. Y este es el origen de la regla trascendental de derecho maritimo
segn la cual el naviero se libera de toda responsabilidad abandonado el buque y el flete a favor de los
acreedores.".
From the Enciclopedia Juridica Espaola, Vol. 23, p. 347, we read:
"Ahora bien: hasta donde se extiende esta responsabilidad del naviero? sobre que bienes pueden los
acreedores resarcirse? Esta es otra especialidad del Derecho maritimo; en el Derecho comn la
responsabilidad es limitada; tambien lo era en el antiguo Derecho maritimo romano; se daba la actio
exercitoria contra el exercitor navis sin ninguna restriccion, pero en la Edad Media una idea nueva se
introdujo en los usos maritimos. Las cargas resultantes de las expediciones maritimas se consideraron
limitadas por los propietarios de las naves a los valores comprometidos por ellos en cada expedicion; se
separo ficticiamente el patrimonio de los navieros en dos partes que todavia se designan de una manera
bastante exacta; fortuna de tierra y fortuna de mar o flotante; y se admitio la teoria de que esta era la que
respondia solo de las deudas provinientes de los actos del capitan o de la tripulacion, es decir, que el
conjunto del patrimonio del naviero escaparia a estas cargas desde el momento en que abandonara la
nave y los fletes a los acreedores. . . .".
Escriche in his Diccionario de la Legislacion y Jurisprudencia, Vol. 1, p. 38, observes:
"La responsabilidad del naviero, en el caso expuesto, se funda en el principio de derecho comn de ser
responsable todo el que pone al frente de un establecimiento a una persona, de los daos o perjuicios que
ocasionare esta desempeando su cometido, y en que estando facultado el naviero para la eleccion de
capitan de la nave, viene a tener indirectamente culpa en la negligencia o actos de este que o casionaron
daos o perjuicios, puesto que no se aseguro de su pericia o buena fe. Limitase, sin embargo, la
responsabilidad del naviero a la perdida de la nave, sus aparejos, y fletes devengados durante el viaje;
porque no pudiendo vigilar de un modo directo e inmediato la conducta del capitan, hubiera sido duro
hacerla extensiva a todos sus bienes que podria comprometer el capitan con sus faltas o delitos."
The views of these learned commentators, including those of Estasen (Derecho Mercantil, Vol. 4, p. 259)
and Supino (Derecho Mercantil, pp. 463-464), leave nothing to be desired and nothing to be doubted on
the principle. It only remains to be noted that the rule of limited liability provided for in our Code of
Commerce reflects merely, or is but a restatement, imperfect though it is, of the almost universal principle
on the subject. While previously under the civil or common law, the owner of a vessel was liable to the full
amount for damages caused by the misconduct of the master, by the general maritime law of modern
Europe, the liability of the shipowner was subsequently limited to his interest in the vessel. (Norwich & N. Y.
Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585.) A similar limitation was placed by the British Parliament
upon the liability of English shipowners through a series of statutes beginning in 1734 with the Act of 7
George II, chapter 15. The legislatures of Massachusetts and Maine followed suit in 1818 and 1821, and
finally, Congress enacted the Limited Liability Act of March 3, 1851, embodying most of the provisions
contained in the British Statutes (see 24 R. C. L. pp. 1387-1389). Section 4283 of the Revised Statutes
(sec. 183, Tit. 46, Code of Laws of U. S. A.) reads:
"LIABILITY OF OWNER NOT TO EXCEED INTEREST. The liability of the owner of any vessel, for any
embezzlement, loss, or destruction, by any person, of any property, goods, or merchandise, shipped or put
on board of such vessel, or for any loss, damage, or injury by collision, or for any act, matter or thing, loss,
damage, or forfeiture, done, occasioned, or incurred without the privity, or knowledge of such owner or
owners, shall in no case exceed the amount or value of the interest of such owner in such vessel, and her
freight then pending."
The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in
maritime commerce. (Vide: Norwich & N. Y. Trans. Co. v. Wright, supra; The Main v. Williams, 152 U. S. 122;
58 C. J. 634.) And it is in that spirit that the American courts construed the Limited Liability Act of Congress
whereby the immunities of the Act were applied to claims not only for lost goods but also for injuries and
"loss of life of passengers, whether arising under the general law of admiralty, or under Federal or State
statutes." (The City of Columbus, 22 Fed. 460; The Longfellow, 104 Fed. 360; Butler v. Boston & Savannah
Steamship Co., 32 Law. ed. 1017; Craig v. Continental Insurance Co., 35 Law. ed. 836.) The Supreme Court
of the United States in Norwich & N. Y. Trans. Co. v. Wright, 80 U. S. 104, 20 Law. ed. 585, 589-590,
accounting for the history of the principle, clinches our exposition of the supporting authorities:
477 | P a g e
"The history of the limitation of liability of shipowners is matter of common knowledge. The learned opinion
of Judge Ware in the case of The Rebecca, 1 Ware, 187-194, leaves little to be desired on the subject. He
shows that it originated in the maritime law of modern Europe; that whilst the civil, as well as the common
law, made the owner responsible to the whole extent of damage caused by the wrongful act or negligence
of the master or crew, the maritime law only made them liable (if personally free from blame) to the
amount of their interest in the ship. So that, if they surrendered the ship, they were discharged.
"Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they
thereby incurred the apprehension of being rendered liable to an indefinite amount by the acts of the
master and, therefore, in Holland, they had never observed the Roman Law on that subject, but had a
regulation that the ship owners should be bound no farther than the value of their ship and freight. His
words are: 'Navis et corum quare in navi sunt,' 'the ship and goods therein.' But he is speaking of the
owner's interest; and this, as to the cargo, is the freight thereon, and in that sense he is understood by the
commentators. Boulay Paty, Droit Maritime, tit. 3, sec. 1, p. 276; Book II, c. XI, sec. XIII. The maritime law,
as codified in the celebrated French Ordinance de la Marine, in 1681, expressed the rule thus: 'The
proprietors of vessels shall be responsible for the acts of the master, but they shall be discharged by
abandoning the ship and freight.' Valin, in his commentary on this passage, lib. 2, tit. 8, art. 2, after
specifying certain engagements of the master which are binding on the owners, without any limit of
responsibility, such as contracts for the benefit of the vessel, made during the voyage (except contracts of
bottomry) says: 'With these exceptions it is just that the owner should not be bound for the acts of the
master, except to the amount of the ship and freight. Otherwise he would run the risk of being ruined by
the bad faith or negligence of his captain, and the apprehension of this would be fatal to the interests of
navigation. It is quite sufficient that he be exposed to the loss of his ship and of the freight, to make it his
interest, independently of any goods he may have on board to select a reliable captain.' Pardessus says:
'The owner is bound civilly for all delinquencies committed by the captain within the scope of his authority,
but he may discharge himself therefrom by abandoning the ship and freight; and, if they are lost, it suffices
for his discharge, to surrender all claims in respect of the ship and its freight,' such as insurance, etc. Droit
Commercial, part 3, tit. 2, c. 3, sec. 2.
"The same general doctrine is laid down by many other writers on maritime law. So that it is evident that,
by this law, the owner's liability was coextensive with his interest in the vessel and its freight, and ceased
by his abandonment and surrender of these to the parties sustaining loss."
In the light of all the foregoing, we therefore hold that if the shipowner or agent may in any way be held
civilly liable at all for injury to or death of passengers arising from the negligence of the captain in cases of
collisions or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that a total
loss thereof results in its extinction. In arriving at this conclusion, we have not been unmindful of the fact
that the ill-fated steamship Negros, as a vessel engaged in interisland trade, is a common carrier (De
Villata v. Stanley, 32 Phil., 541), and that the as a vessel engaged in interisland trade, is a common carrier
(De Villata v. Stanley, 32 Phil., 541), and that the relationship between the petitioner and the passengers
who died in the mishap rests on a contract of carriage. But assuming that petitioner is liable for a breach of
contract of carriage, the exclusively "real and hypothecary nature" of maritime law operates to limit such
liability to the value of the vessel, or to the insurance thereon, if any. In the instant case it does not appear
that the vessel was insured.
Whether the abandonment of the vessel sought by the petitioner in the instant case was in accordance
with law or not, is immaterial. The vessel having totally perished, any act of abandonment would be an idle
ceremony.
Judgment is reversed and petitioner is hereby absolved of all the complaints, without costs.
Avancea, C.J., Abad Santos, Diaz, Laurel, Horrilleno and Ozaeta, JJ., concur.
Abueg v. San Diego, 77 Phil 730
EN BANC
[CA-No. 773. December 17, 1946.]
DIONISIA ABUEG, ET AL., plaintiffs-appellees, vs. BARTOLOME SAN DIEGO, defendant-appellant.
[CA-No. 774. December 17, 1946.]
478 | P a g e
MARCIANA DE SALVACION, ET AL., plaintiffs-appellees, vs. BARTOLOME SAN DIEGO, defendantappellant.

[CA-No. 775. December 17, 1946.]
ROSARIO OCHING, ET AL., plaintiffs-appellees, vs. BARTOLOME SAN DIEGO, defendantappellant.
Lichauco, Picazo & Mejia, for appellant.
Cecilio I. Lim and Roberto P. Ancog, for appellees.
SYLLABUS
1.
MARITIME LAW; SHIPOWNER OR AGENT, ORIGIN OF REAL AND HYPOTHECARY NATURE OF LIABILITY
OF. The real and hypothecary nature of the liability of the shipowner or agent embodied in provisions of
the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime
trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset
against these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed
necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel,
equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship,
equipment, and freight, his liability was extinguished.
2.
WORKMEN'S COMPENSATION ACT; PROVISIONS OF CODE OF COMMERCE REGARDING MARITIME
COMMERCE WITHOUT EFFECT IN APPLICATION OF. The provisions of the Code of Commerce regarding
maritime commerce have no room in the application of the Workmen's Compensation Act which seeks to
improve, and aims at the amelioration of, the condition of laborers and employees. Said Act creates a
liability to compensate employees and laborers in cases of injury received by or inflicted upon them, while
engaged in the performance of their work or employment, or the heirs and dependents of such laborers
and employees in the event of death caused by their employment.
3.
ID.; INDUSTRIAL EMPLOYEES; OFFICERS OF MOTOR SHIPS ENGAGED IN FISHING EXCEPTIONS. The
officers of motor ships engaged in fishing are industrial employees within the purview of section 39,
paragraph (d), as amended, for industrial employment "includes all employment or work at a trade,
occupation or profession exercised by an employer for the purpose of gain." The only exceptions
recognized by the Workmen's Compensation Act are agriculture, charitable institutions and domestic
service. Even employees engaged in agriculture for the operation of mechanical implements, are entitled
to the benefits of the Workmen's Compensation Act.
4.
ID.; COASTWISE AND INTERISLAND TRADE, MEANING OF; FISHING, WHEN A TRADE . The term
"coastwise and interisland trade" does not have such a narrow meaning as to confine it to the carriage for
hire of passengers and/or merchandise on vessels between ports and places in the Philippines because
while fishing is an industry, if the catch is brought to a port for sale, it is at the same time a trade.
DECISION
PADILLA, J p:
This is an appeal from a judgment rendered by the Court of First Instance of Manila in the above-entitled
cases awarding plaintiffs the compensation provided for in the Workmen's Compensation Act.
The record of the cases was forwarded the Court of Appeals for review, but as there was no question of
fact involved in the appeal, said court forwarded the record to this Court. The appeal was pending when
the Pacific War broke out, and continued pending until after liberation, because the record of the cases was
destroyed as a result of the battle waged by the forces of liberation against the enemy. As provided by law,
the record was reconstituted and we now proceed to dispose of the appeal.
Appellant, who was the owner of the motor ships San Diego II and Bartolome S, states in his brief the
following:
There is no dispute as to the facts involved in these cases and they may be gathered from the pleadings
and the decision of the trial Court. In case CA-G. R. No. 773, Dionisia Abueg is the widow of the deceased,
Amado Nuez; who was a machinist on board the M/S San Diego II belonging to the defendant-appellant. In
case CA-G. R. NO. 774, plaintiff-appellee, Marciana S. dc Salvacion, is the widow of the deceased,
Victoriano Salvacion, who was a machinist on board the M/S Bartolome S also belonging to the defendant-
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appellant. In case CA-G. R. NO. 775, the plaintiff-appellee, Rosario R. Oching is the widow of Francisco
Oching who was captain or patron of the defendant-appellant's M/S Bartolome S.
The M/S San Diego II and the M/S Bartolome, while engaged in fishing operations around Mindoro Island on
Oct. 1, 1941 were caught by a typhoon as a consequence of which they were sunk and totally lost. Amado
Nuez, Victoriano Salvacion and Francisco Oching while acting in their capacities perished in the
shipwreck(Appendix A, p. IV).
It is also undisputed that the above-named vessels were not covered by any insurance. (Appendix A, p. IV.)
Counsel for the appellant cite article 587 of the Code of Commerce which provides that if the vessel
together with all her tackle and freight money earned during the voyage are abandoned, the agent's
liability to third persons for tortuous acts of the captain in the care of the goods which the ship carried is
extinguished (Yangco vs. Laserna, 73 Phil., 330); article 837 of the same Code which provides that in cases
of collision, the shipowners' liability is limited to the value of the vessel with all her equipment and freight
during the voyage (Philippines Shipping Company vs. Garcia, 6 Phil., 281); and article 643 of the same
Code which provides that if the vessels and freight are totally lost, the agent's liability for wages of the
crew is extinguished. From these premises counsel draw the conclusion that appellant's liability, as owner
of the two motor ships lost or sunk as a result of the typhoon that lashed the island of Mindoro on October
1, 1941, was extinguished.
The real and hypothecary nature of the liability of the shipower or agent embodied in the provisions of the
Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime trade
and sea voyages during the medieval ages, attended by innumerable hazards and perils. to offset against
these adverse conditions and to encourage shipbuilding and maritime commerce it was deemed necessary
to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment,
and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and
freight, his liability was extinguished.
But the provisions of the Code of Commerce invoked by appellant have no room in the application of the
Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of
laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a
passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of
the ship as a result of collision; nor the responsibility for w ages of the crew, but a liability created by a
statute to compensate employees and laborers in cases of injury received by or inflicted upon them, while
engaged in the performance of their work or employment, or the heirs and dependents of such laborers
and employees in the event of death caused by their employment Such Compensation has nothing to do
with the provisions of the Code of Commerce regarding maritime commerce. It is an item in the costs of
production which must be included in the budget of any well-managed industry.
Appellant's assertion that in the case of Francisco vs. Dy Liaco (57 Phil., 446), and Murillo vs. Mendoza (66
Phil., 689), the question of the extinction of the shipowner's liability due to abandonment of the ship by
him was not fully discussed, as in the case of Yangco vs. Laserna, supra, is not entirely correct. In the last
mentioned case, the limitation of the shipowner's liability to the value of the ship, equipment, freight, and
insurance, if any, was the lis mota. In the case of Francisco vs. Dy-Liacco, supra, the application of the
Workmen's Compensation Act to a master or patron who perished as a result of the sinking of the
motorboat of which he was the master, was the controversy submitted to the court for decision. This Court
held in that case that "It has been repeatedly stated that the Workmen's Compensation Act was enacted to
abrogate the common law and our Civil Code upon culpable acts and omissions, and that the employer
need not be guilty of neglect or fault, in order that responsibility may attach to him" (pp. 449-450); and
that the shipowner was liable to pay compensation provided for in the Workmen's Compensation Act,
notwithstanding the fact that the motorboat was totally lost. In the case of Murillo vs. Mendoza, supra, this
Court held that "The rights and responsibilities defined in said Act must be governed by its own peculiar
provisions in complete disregard of other similar provisions of the civil as well as the mercantile law. If an
accident is compensable under the Workmen's Compensation Act, it must be compensated even when the
workman's right is not recognized by or is in conflict with other provisions of the Civil Code or of the Code
of Commerce. The reason behind this principle is that the Workmen's Compensation Act was enacted by
the Legislature in abrogation of the other existing laws." This quoted part of the decision is in answer to
the contention that it was not the intention of the Legislature to repeal articles 643 and 837 of the Code of
Commerce with the enactment of the Workmen's Compensation Act.
In the memorandum filed by counsel for the appellant, a new point not relied upon in the court below is
raised. They contend that the motorboats engaged in fishing could not be deemed to be in the coastwise
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and interisland trade, as contemplated in section 38 of the Workmen's Compensation Act (No. 3428), as
amended by Act No. 3812, in as much as, according to counsel, a craft engaged in the coastwise and
interisland trade is one that carries passengers and/or merchandise for hire between ports and places in
the Philippine Islands.
This new point raised by counsel for the appellant is inconsistent with the first, for, if the motor ships in
question while engaged in fishing, were to be considered as not engaged in interisland and coastwise
trade, the provisions or the Code of Commerce invoked by them regarding limitation of the shipowner's
liability or extinction thereof when the shipowner abandons the ship, cannot be applied Lopez vs. Duruelo,
52 Phil., 229). Granting however, that the motor ships run and operated by the appellant were not
engaged in the coastwise and interisland trade, as contemplated in section 38 of the Workmen's
compensation Act, as amended, still the deceased officers of the motor ships in question were industrial
employees within the purview of section 39, paragraph (d), as amended, for industrial employment
"includes all employment or work at a trade, occupation or profession exercised by an employer for the
purpose of gain." The only exceptions recognized by the Act are agriculture, charitable institutions and
domestic service. Even employees engaged in agriculture for the operation of mechanical implements, are
entitled to the benefits of the Workmen's Compensation Act Francisco vs. Consing, 63 Phil., 354). In Murillo
vs. Mendoza, supra, this Court held that "our Legislature has deemed it advisable to include in the
Workmen's Compensation Act all accidents that may occur to workmen or employees in factories, shops
and other industrial and agricultural workplaces as well as in the interisland seas of the Archipelago." But
we do not believe that the term "coastwise and interisland trade" has such a narrow meaning as to confine
it to the carriage for hire of passengers and/or merchandise, on vessels between Ports and Places in the
Philippines, because while fishing is an industry, if the catch is brought to a port for sale, it is at the same
time a trade.
Finding no merit in the appeal filed in these cases, we affirm the judgment of the lower court, with costs
against the appellant.
Moran, C.J., Feria, Pablo, Perfecto, Hilado Bengzon, Briones and Tuazon, JJ., concur.
Aboitiz Shipping v. General Accident Fire and Life Assurance Corporation,
Ltd. 217 SCRA 359
THIRD DIVISION
[G.R. No. 100446. January 21, 1993.]
ABOITIZ SHIPPING CORPORATION, petitioner, vs. GENERAL ACCIDENT FIRE AND LIFE
ASSURANCE CORPORATION, LTD., respondent.
Sycip, Salazar, Hernandez & Gatmaitan Law Office for petitioner.
Napoleon Rama collaborating counsel for petitioner.
Dollete, Blanco, Ejercito & Associates for private respondent.
SYLLABUS
1.
REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; STAY OF EXECUTION OF JUDGMENT; GROUNDS
THEREFOR. This Court has always been consistent in its stand that the very purpose for its existence is
to see to the accomplishment of the ends of justice. Consistent with this view, a number of decisions have
originated herefrom, the tenor of which is that no procedural consideration is sacrosanct if such shall result
in the subverting of substantial justice. The right to an execution after finality of a decision is certainly no
exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court ruled that: ". . . It is a truism
that every court has the power 'to control, in the furtherance of justice, the conduct of its ministerial
officers, and of all other persons in any manner connected with a case before it, in every manner
appertaining thereto.' It has also been said that: '. . . every court having jurisdiction to render a particular
judgment has inherent power to enforce it, and to exercise equitable control over such enforcement. The
court has authority to inquire whether its judgment has been executed, and will remove obstructions to the
enforcement thereof. Such authority extends not only to such orders and such writs as may be necessary
to carry out the judgment into effect and render it binding and operative, but also to such orders and such
writs as may be necessary to prevent an improper enforcement of the judgment. If a judgment is sought to
be perverted and made a medium of consummating a wrong the court on proper application can prevent
it.'" (at p. 359) and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this
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Court found that: "The rule that once a decision becomes final and executory, it is the ministerial duty of
the court to order its execution, admits of certain exceptions as in cases of special and exceptional nature
where it becomes the imperative in the higher interest of justice to direct the suspension of its execution
(Vecine v. Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of justice (Pascual v.
Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the judgment became final
which would render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354)." (at p. 201)
2.
COMMERCIAL LAW; CODE OF COMMERCE; REAL AND HYPOTHECARY NATURE OF MARITIME LAW;
MEANING; ORIGIN AND PURPOSE. The real and hypothecary nature of maritime law simply means that
the liability of the carrier in connection with losses related to maritime contracts is confined to the vessel,
which is hypothecated for such obligations or which stands as the guaranty for their settlement. It has its
origin by reason of the conditions and risks attending maritime trade in its earliest years when such trade
was replete with innumerable and unknown hazards since vessels had to go through largely uncharted
waters to ply their trade. It was designed to offset such adverse conditions and to encourage people and
entities to venture into maritime commerce despite the risks and the prohibitive cost of shipbuilding. Thus,
the liability of the vessel owner and agent arising from the operation of such vessel were confined to the
vessel itself, its equipment, freight, and insurance, if any, which limitation served to induce capitalists into
effectively wagering their resources against the consideration of the large profits attainable in the trade. It
might be noteworthy to add in passing that despite the modernization of the shipping industry and the
development of high-technology safety devices designed to reduce the risks therein, the limitation has not
only persisted, but is even practically absolute in well-developed maritime countries such as the United
States and England where it covers almost all maritime casualties. Philippine maritime law is of AngloAmerican extraction, and is governed by adherence to both international maritime conventions and
generally accepted practices relative to maritime trade and travel.
3.
ID.; ID.; LIMITED LIABILITY RULE; WHEN RULE NOT APPLICABLE; WHEN RULE PROPERLY INVOKED;
CASE AT BAR. In this jurisdiction, on the other hand, its application has been well-nigh constricted by
the very statute from which it originates. The Limited Liability Rule in the Philippines is taken up in Book III
of the Code of Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto: "Art. 587.
The ship agent shall also be civilly liable for the indemnities in favor of third persons which may
arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may
exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have
earned during the voyage. "Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of
their interests in the common fund for the results of the acts of the captain referred to in Art. 587. "Each
co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the
vessel belonging to him" "Art. 837. The civil liability incurred by shipowners in the case prescribed in this
section (on collisions), shall be understood as limited to the value of the vessel with all its appurtenances
and freightage served during the voyage." Taken together with related articles, the foregoing cover only
liability for injuries to third parties (Art. 587), acts of the captain (Art. 590) and collisions (Art. 837). In view
of the foregoing, this Court shall not take the application of such limited liability rule, which is a matter of
near absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability, because
as could be seen, the reasons for its being are still apparently much in existence and highly regarded. We
now come to its applicability in the instant case. In the few instances when the matter was considered by
this Court, we have been consistent in this jurisdiction in holding that the only time the Limited Liability
Rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or
agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32
[1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186 SCRA 649 [1967]) . . . We must stress that
the matter of the Limited Liability Rule as discussed was never in issue in all prior cases, including those
before the RTCs and the Court of Appeals. As discussed earlier, the "limited liability" in issue before the
trial courts referred to the package limitation clauses in the bills of lading and not the limited liability
doctrine arising from the real and hypothecary nature of maritime trade. The latter rule was never made a
matter of defense in any of the cases a quo, as properly it could not have been made so since it was not
relevant in said cases. The only time it could come into play is when any of the cases involving the mishap
were to be executed, as in this case. Then, and only then, could the matter have been raised, as it has now
been brought before the Court.
4.
ID.; ID.; ID.; RIGHTS OF VESSEL OWNER OR AGENT AKIN TO RIGHTS OF SHAREHOLDERS TO LIMITED
LIABILITY UNDER CORPORATION LAW; RIGHTS OF CLAIMANTS AGAINST VESSEL OWNER OR AGENT
COMPARED TO RIGHTS OF CREDITORS AGAINST INSOLVENT CORPORATION WITH SUFFICIENT ASSETS.
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The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of
shareholders to limited liability under our corporation law. Both are privileges granted by statute, and while
not absolute, must be swept aside only in the established existence of the most compelling of reasons. In
the absence of such reasons, this Court chooses to exercise prudence and shall not sweep such rights
aside on mere whim or surmise, for even in the existence of cause to do so, such incursion is definitely
punitive in nature and must never be taken lightly. More to the point, the rights of parties to claim against
an agent or owner of a vessel may be compared to those of creditors against an insolvent corporation
whose assets are not enough to satisfy the totality of claims as against it. While each individual creditor
may, and in fact shall, be allowed to prove the actual amounts of their respective claims, this does not
mean that they shall all be allowed to recover fully thus favoring those who filed and proved their claims
sooner to the prejudice of those who come later. In such an instance, such creditors too would not also be
able to gain access to the assets of the individual shareholders, but must limit their recovery to what is left
in the name of the corporation. Thus, in the case of Lipana v. Development Bank of Rizal earlier cited, We
held that: "In the instant case, the stay of execution of judgment is warranted by the fact that respondent
bank was placed under receivership. To execute the judgment would unduly deplete the assets of
respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in
Central Bank v. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and
has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all
creditors, and after its insolvency, one cannot obtain an advantage or preference over another by an
attachment, execution or otherwise." In both insolvency of a corporation and the sinking of a vessel, the
claimants or creditors are limited in their recovery to the remaining value of accessible assets. In the case
of an insolvent corporation, these are the residual assets of the corporation left over from its operations. In
the case of a lost vessel, these are the insurance proceeds and pending freightage for the particular
voyage.
5.
ID.; ID.; ID.; COLLATION OF ALL CLAIMS PREPARATORY TO SETTLEMENT OUT OF INSURANCE
PROCEEDS ON VESSEL; NO CLAIMANT GIVEN PRECEDENCE OVER OTHERS; CASE AT BAR. In the instant
case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the insurance
proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No claimant can be
given precedence over the others by the simple expedience of having filed or completed its action earlier
than the rest. Thus, execution of judgment in earlier completed cases, even those already final and
executory, must be stayed pending completion of all cases occasioned by the subject sinking. Then and
only then can all such claims be simultaneously settled, either completely or pro-rata should the insurance
proceeds and freightage be not enough to satisfy all claims . . . In fairness to the claimants, and as a
matter of equity, the total proceeds of the insurance and pending freightage should now be deposited in
trust. Moreover, petitioner should institute the necessary limitation and distribution action before the
proper admiralty court within 15 days from the finality of this decision, and thereafter deposit with it the
proceeds from the insurance company and pending freightage in order to safeguard the same pending
final resolution of all incidents, for final pro-rating and settlement thereof.
DECISION
MELO, J p:
This refers to a petition for review which seeks to annul and set aside the decision of the Court of Appeals
dated June 21, 1991, in CA G.R. SP No. 24918. The appellate court dismissed the petition for certiorari filed
by herein petitioner, Aboitiz Shipping Corporation, questioning the Order of April 30, 1991 issued by the
Regional Trial Court of the National Capital Judicial Region (Manila, Branch IV) in its Civil Case No. 144425
granting private respondent's prayer for execution for the full amount of the judgment award. The trial
court in so doing swept aside petitioner's opposition which was grounded on the real and hypothecary
nature of petitioner's liability as ship owner. The application of this established principle of maritime law
would necessarily result in a probable reduction of the amount to be recovered by private respondent,
since it would have to share with a number of other parties similarly situated in the insurance proceeds on
the vessel that sank.
The basic facts are not disputed.
Petitioner is a corporation organized and operating under Philippine laws and engaged in the business of
maritime trade as a carrier. As such, it owned and operated the ill-fated "M/V P. ABOITIZ," a common carrier
which sank on a voyage from Hongkong to the Philippines on October 31, 1980. Private respondent
General Accident Fire and Life Assurance Corporation, Ltd. (GAFLAC), on the other hand, is a foreign
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insurance company pursuing its remedies as a subrogee of several cargo consignees whose respective
cargo sank with the said vessel and for which it has priorly paid.
The incident of said vessel's sinking gave rise to the filing of suits for recovery of lost cargo either by the
shippers, their successor-in-interest, or the cargo insurers like GAFLAC as subrogees. The sinking was
initially investigated by the Board of Marine Inquiry (BMI Case No. 466, December 26, 1984), which found
that such sinking was due to force majeure and that subject vessel, at the time of the sinking was
seaworthy. This administrative finding notwithstanding, the trial court in said Civil Case No. 144425 found
against the carrier on the basis that the loss subject matter therein did not occur as a result of force
majeure. Thus, in said case, plaintiff GAFLAC was allowed to prove, and was later awarded, its claim. This
decision in favor or GAFLAC was elevated all the way up to this Court in G.R. No. 89757 (Aboitiz v. Court of
Appeals, 188 SCRA 387 [1990]), with Aboitiz, like its ill-fated vessel, encountering rough sailing. The
attempted execution of the judgment award in said case in the amount of P1,072,611.20 plus legal interest
has given rise to the instant petition.
On the other hand, other cases have resulted in findings upholding the conclusion of the BMI that the
vessel was seaworthy at the time of the sinking, and that such sinking was due to force majeure. One such
ruling was likewise elevated to this Court in G.R. No. 100373, Country Bankers Insurance Corporation v.
Court of Appeals, et al., August 28, 1991 and was sustained. Part of the task resting upon this Court,
therefore, is to reconcile the resulting apparent contrary findings in cases originating out of a single set of
facts.
It is in this factual milieu that the instant petition seeks a pronouncement as to the applicability of the
doctrine of limited liability on the totality of the claims vis a vis the losses brought about by the sinking of
the vessel MV P. ABOITIZ, as based on the real and hypothecary nature of maritime law. This is an issue
which begs to be resolved considering that a number of suits alleged in the petition number about 110 (p.
10 and pp. 175 to 183, Rollo) still pend and whose resolution shall well-nigh result in more confusion than
presently attends the instant case.
In support of the instant petition, the following arguments are submitted by the petitioner:
1.
The Limited Liability Rule warrants immediate stay of execution of judgment to prevent impairment
of other creditors' shares;
2.
The finding of unseaworthiness of a vessel is not necessarily attributable to the shipowner; and
3.
The principle of "Law of the Case" is not applicable to the present petition. (pp. 2-26, Rollo.)
On the other hand, private respondent opposes the foregoing contentions, arguing that: LexLib
1.
There is no limited liability to speak of or applicable real and hypothecary rule under Articles 587,
590, and 837 of the Code of Commerce in the face of the facts found by the lower court (Civil Case No.
144425), upheld by the Appellate Court (CA G.R. No. 10609), and affirmed in toto by the Supreme Court in
G.R. No. 89757 which cited G.R. No. 88159 as the Law of the Case; and
2.
Under the doctrine of the Law of the Case, cases involving the same incident, parties similarly
situated and the same issues litigated should be decided in conformity therewith following the maxim stare
decisis et non quieta movere. (pp. 225 to 279, Rollo.).
Before proceeding to the main bone of contention, it is important to determine first whether or not the
Resolution of this Court in G.R. No. 88159, Aboitiz Shipping Corporation vs. The Honorable Court of Appeals
and Allied Guaranty Insurance Company, Inc., dated November 13, 1989 effectively bars and precludes the
instant petition as argued by respondent GAFLAC.
An examination of the November 13, 1989 Resolution in G.R. No. 88159 (pp. 280 to 282, Rollo) shows that
the same settles two principal matters, first of which is that the doctrine of primary administrative
jurisdiction is not applicable therein; and second is that a limitation of liability in said case would render
inefficacious the extraordinary diligence required by law of common carriers.
It should be pointed out, however, that the limited liability discussed in said case is not the same one now
in issue at bar, but an altogether different aspect. The limited liability settled in G.R. No. 88159 is that
which attaches to cargo by virtue of stipulations in the Bill of Lading, popularly known as package
limitation clauses, which in that case was contained in Section 8 of the Bill of Lading and which limited the
carrier's liability to US$500.00 for the cargo whose value was therein sought to be recovered. Said
resolution did not tackle the matter of the Limited Liability Rule arising out of the real and hypothecary
nature of maritime law, which was not raised therein, and which is the principal bone of contention in this
case. While the matters threshed out in G.R. No. 88159, particularly those dealing with the issues on
primary administrative jurisdiction and the package liability limitation provided in the Bill of Lading are now
settled and should no longer be touched, the instant case raises a completely different issue. It appears,
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therefore, that the resolution in G.R. 88159 adverted to has no bearing other than factual to the instant
case.
This brings us to the primary question herein which is whether or not respondent court erred in granting
execution of the full judgment award in Civil Case No. 14425 (G.R. No. 89757), thus effectively denying the
application of the limited liability enunciated under the appropriated articles of the Code of Commerce. The
articles may be ancient, but they are timeless and have remained to be good law. Collaterally,
determination of the question of whether execution of judgments which have become final and executory
may be stayed is also an issue.
We shall tackle the latter issue first. This Court has always been consistent in its stand that the very
purpose for its existence is to see to the accomplishment of the ends of justice. Consistent with this view, a
number of decisions have originated herefrom, the tenor of which is that no procedural consideration is
sacrosanct if such shall result in the subverting of substantial justice. The right to an execution after finality
of a decision is certainly no exception to this. Thus, in Cabrias v. Adil (135 SCRA 355 [1985]), this Court
ruled that: LLjur
". . . It is a truism that every court has the power 'to control, in the furtherance of justice, the conduct of its
ministerial officers, and of all other persons in any manner connected with a case before it, in every
manner appertaining thereto.' It has also been said that:
'. . . every court having jurisdiction to render a particular judgment has inherent power to enforce it, and to
exercise equitable control over such enforcement. The court has authority to inquire whether its judgment
has been executed, and will remove obstructions to the enforcement thereof. Such authority extends not
only to such orders and such writs as may be necessary to carry out the judgment into effect and render it
binding and operative, but also to such orders and such writs as may be necessary to prevent an improper
enforcement of the judgment. If a judgment is sought to be perverted and made a medium of
consummating a wrong the court on proper application can prevent it.'" (at p. 359)
and again in the case of Lipana v. Development Bank of Rizal (154 SCRA 257 [1987]), this Court found that:
"The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order
its execution, admits of certain exceptions as in cases of special and exceptional nature where it becomes
the imperative in the higher interest of justice to direct the suspension of its execution (Vecine v.
Geronimo, 59 OG 579); whenever it is necessary to accomplish the aims of justice (Pascual v. Tan, 85 Phil.
164); or when certain facts and circumstances transpired after the judgment became final which would
render the execution of the judgment unjust (Cabrias v. Adil, 135 SCRA 354)." (at p. 201)
We now come to the determination of the principal issue as to whether the Limited Liability Rule arising out
of the real and hypothecary nature of maritime law should apply in this and related cases. We rule in the
affirmative. Cdpr
In deciding the instant case below, the Court of Appeals took refuge in this Court's decision in G.R. No.
89757 upholding private respondent's claims in that particular case, which the Court of Appeals took to
mean that this Court has "considered, passed upon and resolved Aboitiz's contention that all claims for the
losses should first be determined before GAFLAC's judgment may be satisfied," and that such ruling "in
effect necessarily negated the application of the limited liability principle" (p. 175, Rollo). Such conclusion
is not accurate. The decision in G.R. No. 89757 considered only the circumstances peculiar to that
particular case, and was not meant to traverse the larger picture herein brought to fore, the circumstances
of which heretofore were not relevant. We must stress that the matter of the Limited Liability Rule as
discussed was never in issue in all prior cases, including those before the RTCs and the Court of Appeals.
As discussed earlier, the "limited liability" in issue before the trial courts referred to the package limitation
clauses in the bills of lading and not the limited liability doctrine arising from the real and hypothecary
nature of maritime trade. The latter rule was never made a matter of defense in any of the cases a quo, as
properly it could not have been made so since it was not relevant in said cases. The only time it could
come into play is when any of the cases involving the mishap were to be executed, as in this case. Then,
and only then, could the matter have been raised, as it has now been brought before the Court.
The real and hypothecary nature of maritime law simply means that the liability of the carrier in
connection with losses related to maritime contracts is confined to the vessel, which is hypothecated for
such obligations or which stands as the guaranty for their settlement. It has its origin by reason of the
conditions and risks attending maritime trade in its earliest years when such trade was replete with
innumerable and unknown hazards since vessels had to go through largely uncharted waters to ply their
trade. It was designed to offset such adverse conditions and to encourage people and entities to venture
into maritime commerce despite the risks and the prohibitive cost of shipbuilding. Thus, the liability of the
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vessel owner and agent arising from the operation of such vessel were confined to the vessel itself, its
equipment, freight, and insurance, if any, which limitation served to induce capitalists into effectively
wagering their resources against the consideration of the large profits attainable in the trade.
It might be noteworthy to add in passing that despite the modernization of the shipping industry and the
development of high-technology safety devices designed to reduce the risks therein, the limitation has not
only persisted, but is even practically absolute in well-developed maritime countries such as the United
States and England where it covers almost all maritime casualties. Philippine maritime law is of AngloAmerican extraction, and is governed by adherence to both international maritime conventions and
generally accepted practices relative to maritime trade and travel. This is highlighted by the following
excerpts on the limited liability of vessel owners and/or agents: prLL
"SECTION 183.
The liability of the owner of any vessel, whether American or foreign, for any
embezzlement, loss, or destruction by any person of any person or any property, goods, or merchandise
shipped or put on board such vessel, or for any loss, damage, or forfeiture, done, occasioned, or incurred,
without the privity or knowledge of such owner or owners shall not exceed the amount or value of the
interest of such owner in such vessel, and her freight then pending." (Section 183 of the US Federal
Limitation of Liability Act)
and
"1.
The owner of a sea-going ship may limit his liability in accordance with Article 3 of this Convention
in respect of claims arising from any of the following occurrences, unless the occurrence giving rise to the
claim resulted from the actual fault or privity of the owner;
(a)
loss of life of, or personal injury to, any person being carried in the ship, and loss of, or damage to,
any property on board the ship.
(b)
loss of life of, or personal injury to, any other person, whether on land or on water, loss of or
damage to any other property or infringement of any rights caused by the act, neglect or default the
owner is responsible for, or any person not on board the ship for whose act, neglect or default the owner is
responsible: Provided, however, that in regard to the act, neglect or default of this last class of person, the
owner shall only be entitled to limit his liability when the act, neglect or default is one which occurs in the
navigation or the management of the ship or in the loading, carriage or discharge of its cargo or in the
embarkation, carriage or disembarkation of its passengers.
(c)
any obligation or liability imposed by any law relating to the removal of wreck and arising from or in
connection with the raising, removal or destruction of any ship which is sunk, stranded or abandoned
(including anything which may be on board such ship) and any obligation or liability arising out of damage
caused to harbor works, basins and navigable waterways." (Section 1, Article I of the Brussels International
Convention of 1957)
In this jurisdiction, on the other hand, its application has been well-nigh constricted by the very statute
from which it originates. The Limited Liability Rule in the Philippines is taken up in Book III of the Code of
Commerce, particularly in Articles 587, 590, and 837, hereunder quoted in toto:
"ARTICLE 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which
may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he
may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may
have earned during the voyage. cdrep
"ARTICLE 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the
common fund for the results of the acts of the captain referred to in Art. 587.
"Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of
the vessel belonging to him"
"ARTICLE 837. The civil liability incurred by shipowners in the case prescribed in this section (on collisions),
shall be understood as limited to the value of the vessel with all its appurtenances and freightage served
during the voyage." (Emphasis supplied)
Taken together with related articles, the foregoing cover only liability for injuries to third parties (Art. 587),
acts of the captain (Art. 590) and collisions (Art. 837).
In view of the foregoing, this Court shall not take the application of such limited liability rule, which is a
matter of near absolute application in other jurisdictions, so lightly as to merely "imply" its inapplicability,
because as could be seen, the reasons for its being are still apparently much in existence and highly
regarded.
We now come to its applicability in the instant case. In the few instances when the matter was considered
by this Court, we have been consistent in this jurisdiction in holding that the only time the Limited Liability
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Rule does not apply is when there is an actual finding of negligence on the part of the vessel owner or
agent (Yango v. Laserna, 73 Phil. 330 [1941]; Manila Steamship Co., Inc. v. Abdulhanan, 101 Phil. 32
[1957]; Heirs of Amparo delos Santos v. Court of Appeals, 186 SCRA 649 [1967]). The pivotal question,
thus, is whether there is a finding of such negligence on the part of the owner in the instant case.
A careful reading of the decision rendered by the trial court in Civil Case No. 144425 (pp. 27-33, Rollo) as
well as the entirety of the records in the instant case will show that there has been no actual finding of
negligence on the part of petitioner. In its Decision, the trial court merely held that:
". . . Considering the foregoing reasons, the Court holds that the vessel M/V 'Aboitiz' and its cargo were not
lost due to fortuitous event or force majeure." (p. 32, Rollo)
The same is true of the decision of this Court in G.R. No. 89757 (pp. 71-86, Rollo) affirming the decision of
the Court of Appeals in CA-G.R. CV No. 10609 (pp. 34-50, Rollo) since both decisions did not make any new
and additional finding of fact. Both merely affirmed the factual findings of the trial court, adding that the
cause of the sinking of the vessel was because of unseaworthiness due to the failure of the crew and the
master to exercise extraordinary diligence. Indeed, there appears to have been no evidence presented
sufficient to form a conclusion that petitioner shipowner itself was negligent, and no tribunal, including this
Court, will add or subtract to such evidence to justify a conclusion to the contrary. LLjur
The qualified nature of the meaning of "unseaworthiness," under the peculiar circumstances of this case is
underscored by the fact that in the Country Bankers case, supra, arising from the same sinking, the Court
sustained the decision of the Court of Appeals that the sinking of the M/V P. Aboitiz was due to force
majeure.
On this point, it should be stressed that unseaworthiness is not a fault that can be laid squarely on
petitioner's lap, absent a factual basis for such a conclusion. The unseaworthiness found in some cases
where the same has been ruled to exist is directly attributable to the vessel's crew and captain, more so on
the part of the latter since Article 612 of the Code of Commerce provides that among the inherent duties of
a captain is to examine a vessel before sailing and to comply with the laws of navigation. Such a
construction would also put matters to rest relative to the decision of the Board of Marine Inquiry. While the
conclusion therein exonerating the captain and crew of the vessel was not sustained for lack of basis, the
finding therein contained to the effect that the vessel was seaworthy deserves merit. Despite appearances,
it is not totally incompatible with the findings of the trial court and the Court of Appeals, whose finding of
"unseaworthiness" clearly did not pertain to the structural condition of the vessel which is the basis of the
BMI's findings, but to the condition it was in at the time of the sinking, which condition was a result of the
acts of the captain and the crew.
The rights of a vessel owner or agent under the Limited Liability Rule are akin to those of the rights of
shareholders to limited liability under our corporation law. Both are privileges granted by statute, and while
not absolute, must be swept aside only in the established existence of the most compelling of reasons. In
the absence of such reasons, this Court chooses to exercise prudence and shall not sweep such rights
aside on mere whim or surmise, for even in the existence of cause to do so, such incursion is definitely
punitive in nature and must never be taken lightly.
More to the point, the rights of parties to claim against an agent or owner of a vessel may be compared to
those of creditors against an insolvent corporation whose assets are not enough to satisfy the totality of
claims as against it. While each individual creditor may, and in fact shall, be allowed to prove the actual
amounts of their respective claims, this does not mean that they shall all be allowed to recover fully thus
favoring those who filed and proved their claims sooner to the prejudice of those who come later. In such
an instance, such creditors too would not also be able to gain access to the assets of the individual
shareholders, but must limit their recovery to what is left in the name of the corporation. Thus, in the case
of Lipana v. Development Bank of Rizal earlier cited, We held that:
"In the instant case, the stay of execution of judgment is warranted by the fact that respondent bank was
placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank
to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank v. Morfe
(63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease
operations, the Board becomes the trustee of its assets for the equal benefit of all creditors, and after its
insolvency, one cannot obtain an advantage or preference over another by an attachment, execution or
otherwise." (at p. 261)
In both insolvency of a corporation and the sinking of a vessel, the claimants or creditors are limited in
their recovery to the remaining value of accessible assets. In the case of an insolvent corporation, these
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are the residual assets of the corporation left over from its operations. In the case of a lost vessel, these
are the insurance proceeds and pending freightage for the particular voyage. LLpr
In the instant case, there is, therefore, a need to collate all claims preparatory to their satisfaction from the
insurance proceeds on the vessel M/V P. Aboitiz and its pending freightage at the time of its loss. No
claimant can be given precedence over the others by the simple expedience of having filed or completed
its action earlier than the rest. Thus, execution of judgment in earlier completed cases, even those already
final and executory, must be stayed pending completion of all cases occasioned by the subject sinking.
Then and only then can all such claims be simultaneously settled, either completely or pro-rata should the
insurance proceeds and freightage be not enough to satisfy all claims.
Finally, the Court notes that petitioner has provided this Court with a list of all pending cases (pp. 175 to
183, Rollo), together with the corresponding claims and the pro-rated share of each. We likewise note that
some of these cases are still with the Court of Appeals, and some still with the trial courts and which
probably are still undergoing trial. It would not, therefore, be entirely correct to preclude the trial courts
from making their own findings of fact in those cases and deciding the same by allotting shares for these
claims, some of which, after all, might not prevail, depending on the evidence presented in each. We,
therefore, rule that the pro-rated share of each claim can only be found after all the cases shall have been
decided.
In fairness to the claimants, and as a matter of equity, the total proceeds of the insurance and pending
freightage should now be deposited in trust. Moreover, petitioner should institute the necessary limitation
and distribution action before the proper admiralty court within 15 days from the finality of this decision,
and thereafter deposit with it the proceeds from the insurance company and pending freightage in order to
safeguard the same pending final resolution of all incidents, for final pro-rating and settlement thereof.
ACCORDINGLY, the petition is hereby GRANTED, and the Orders of the Regional Trial Court of Manila,
Branch IV dated April 30, 1991 and the Court of Appeals dated June 21, 1991 are hereby set aside. The
trial court is hereby directed to desist from proceeding with the execution of the judgment rendered in Civil
Case No. 144425 pending determination of the totality of claims recoverable from the petitioner as the
owner of the M/V P. Aboitiz. Petitioner is directed to institute the necessary action and to deposit the
proceeds of the insurance of subject vessel as above-described within fifteen (15) days from finality of this
decision. The temporary restraining order issued in this case dated August 7, 1991 is hereby made
permanent.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ ., concur.
(c)
Specific rights and prerogatives

Arts. 575, 593, 594, 596, 601
ARTICLE 575. Co-owners of vessels shall have the right of repurchase and redemption in sales made to
strangers, but they may exercise the same only within the nine days following the inscription of the sale in
the registry, and by depositing the price at the same time.
ARTICLE 593. The owners of a vessel shall have preference in her charter over other persons, under the
same conditions and price. If two or more of them should claim this right, the one having the greater
interest shall be preferred; and should they have equal interests, the matter shall be decided by lot.
ARTICLE 594. The part owners shall elect the manager who is to represent them in the capacity of agent.
The appointment of director or agent shall be revocable at the will of the members.
ARTICLE 596. The agent may discharge the duties of captain of the vessel, subject, in every case, to the
provisions contained in Article 609.
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If two or more co-owners request the position of captain, the disagreement shall be decided by a vote of
the members; and if the vote should result in a tie, the position shall be given to the part owner having the
larger interest in the vessel.
If the interest of the petitioners should be the same, and there should be a tie, the matter shall be decided
by lot.
ARTICLE 601. Should there be any profits, the co-owners may demand of the managing agent the
amount due them, by means of an executory action without further requisites than the acknowledgment of
the signatures of the instrument approving the account.
2.
Captains and Masters
(a)
Qualifications and licensing

Rep. Act 5173, Sec 3
Art. 609
REPUBLIC ACT No. 5173
AN ACT CREATING A PHILIPPINE COAST GUARD, PRESCRIBING ITS POWERS AND FUNCTIONS,
APPROPRIATING THE NECESSARY FUNDS THEREFOR, AND FOR OTHER PURPOSES.
Section 3. Specific Functions. The Philippine Coast Guard shall perform the following functions:
(a) To prevent and suppress illegal entry, smuggling, other customs frauds and violations of other
maritime laws that may be committed within the waters subject to the jurisdiction of the Republic of
the Philippines, and for the purpose surveillance by the Philippine Coast Guard may be made on
vessels entering and/or leaving the Philippine territory;
(b) To assist in the suppression of fishing by means of dynamite, explosives or toxic substances or
other methods as may be declared destructive by proper authorities;
(c) To promulgate and enforce rules for lights, signals, speed, steering, sailing, passing, anchorage,
movement and towlines of vessels and lights and signals on bridges;
(d) To approve plans for the construction, repair, or alteration of vessels; approve materials,
equipment and appliances of vessels; approved the classification of vessels; inspect vessels and
their equipment and appliances; register all types of motorized watercraft plying in Philippine
waters; issue certificates of inspection and of permits indicating the approval of vessels for
operation; issue certificates of Philippine registry of vessels; administer load line requirements;
promulgate and enforce other provisions for the safety of life and property on vessels; and
determine the numbering of undocumented vessels: Provided, That certification and approval of
any plans, equipment and any vessel by internationally known classification societies which are
recognized by the Philippine Government shall be deemed to have complied with this section;
(e) To issue licenses and certificates to officers, pilots, major and minor patrons and seamen, as well
as suspend and revoke such licenses and certificates;
(f) To investigate marine casualties and disasters including those arising from marine protests filed
with the Bureau of Customs relative to the liability of shipowners and officers;
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(g) To enforce laws, rules and regulations governing manning, citizenship and mustering and drilling
of crews requirements, control of logbooks, shipment, discharge, protection, and welfare merchant
seamen;
(h) To enforce laws requiring the performance of duties of shipowners and officers after accidents;
(i) To prescribe and enforce regulations for outfitting and operation of motorboats and the licensing
of motorboat operators;
(j) To regulate regattas and marine parades;
(k) To render aid to distressed persons or vessels on the high seas and on waters subject to the
jurisdiction of the Philippines, and, in this connection, the Philippine Coast Guard may perform any
and all acts necessary to rescue and aid persons; furnish clothing, food, lodging, medicine and
other necessary supplies and services to persons succored; protect, save, and take charge of all
property saved from marine disasters until such property is delivered to persons authorized to
receive it or is otherwise disposed of in accordance with law or applicable regulations; and collect
and take charge of bodies of those who may perish in such disasters;
(l) To develop, establish, maintain, and operate aids to maritime navigation. In the performance of
these functions, the Philippine Coast Guard is authorized to destroy or tow in port sunken of floating
dangers to navigation;
(m) To supervise nautical schools with reference to activities relative to navigation, seamanship,
marine engineering and other allied matters, in coordination with the Department of Education;
(n) To perform functions pertaining to maritime communications which are not specifically
delegated to some other office or department; and
(o) To assist, within its capabilities and upon request of the appropriate authorities, other
Government agencies in the performance of their functions, within the waters subject to the
jurisdiction of the Philippines, relating to matters and activities not specifically mentioned in this
section: Provided, That in the exercise of these functions, personnel of the Philippine Coast Guard
shall be deemed to be acting as agents of the particular departments, bureau, office, agency or
instrumentality charged with the enforcement and administration of the particular law. Members of
the Philippine Coast Guard are peace officers for all purposes of this Act and shall be, and shall act,
as law enforcement agents of the Bureau of Customs, and the Bureau of Immigration, the Bureau of
Internal Revenue, the Fisheries Commission, and such other departments, bureaus or offices in the
enforcement of pertinent laws, rules and regulations.
ARTICLE 609. Captains and masters of vessels must be Spaniards * having legal capacity to bind
themselves in accordance with this Code, and must prove that they have the skill, capacity, and
qualifications required to command and direct the vessel, as established by marine laws, ordinances, or
regulations, or by those of navigation, and that they are not disqualified according to the same for the
discharge of the duties of that position. cdt
If the owner of a vessel desires to be the captain thereof and does not have the legal qualifications
therefor, he shall limit himself to the financial administration of the vessel, and shall intrust her navigation
to a person possessing the qualifications required by said ordinances and regulations.
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(b)
Powers and Duties

Arts. 610, 611, 612, 622, 624, 625
ARTICLE 610. The following powers are inherent in the position of captain or master of a vessel:
1.
To appoint or make contracts with the crew in the absence of the agent and propose said crew,
should said agent be present; but the agent shall not be permitted to employ any member against the
captain's express refusal.
2.
To command the crew and direct the vessel to the port of its destination, in accordance with the
instructions he may have received from the agent.
3.
To impose, in accordance with the agreements and the laws and regulations of the merchants
marine, on board the vessel, correctional punishment upon those who do not comply with his orders or
who conduct themselves against discipline, holding a preliminary investigation on the crimes committed
on board the vessel on the high seas, which shall be turned over to the authorities, who are to take
cognizance thereof, at the first port touched.
4.
To make contracts for the charter of the vessel in the absence of the agent or of her consignee,
acting in accordance with the instructions received and protecting the interests of the owner most
carefully.
5.
To adopt all the measures which may be necessary to keep the vessel well supplied and equipped,
purchasing for the purpose all that may be necessary, provided there is no time to request instructions of
the agent.
6.
To make, in similar urgent cases and on a voyage, the repairs to the hull and engines of the vessel
and to her rigging and equipment which are absolutely necessary in order for her to be able to continue
and conclude her voyage; but if she should arrive at a point where there is a consignee of the vessel, he
shall act in concurrence with the latter.
ARTICLE 611. In order to comply with the obligations mentioned in the foregoing article, the captain,
when he has no funds and does not expect to receive any from the agent, shall procure the same in the
successive order stated below:
1.
By requesting said funds of the consignees or correspondents of a vessel.
2.
By applying to the consignees of the cargo or to the persons interested therein.
3.
By drawing on the agent.
4.
By borrowing the amount required by means of a bottomry bond.
5.
By selling a sufficient amount of the cargo to cover the amount absolutely necessary to repair the
vessel, and to equip her to pursue the voyage. cd
In the two latter cases he must apply to the judicial authority of the port, if in Spain * and to the Spanish *
consul, if in a foreign country; and where there should be none, to the local authority, proceeding in
accordance with the prescriptions of Article 583, and with the provisions of the law of civil procedure.
ARTICLE 612. The following obligations are inherent in the office of captain:
1.
To have on board before starting on a voyage a detailed inventory of the hull, engines, rigging,
tackle, stores, and other equipments of the vessel; the navigation certificate; the roll of the persons who
make up the crew of the vessel, and the contracts entered into with the crew; the list of passengers; the
health certificate; the certificate of the registry proving the ownership of the vessel, and all the obligations
which encumber the same up to that date; the charters or authenticated copies thereof; the invoices or
manifest of the cargo, and the instrument of the expert visit or inspection, should it have been made at the
port of departure.
2.
To have a copy of this Code on board.
3.
To have three folioed and stamped books, placing at the beginning of each one a note of the
number of folios it contains, signed by the maritime official, and in his absence by the competent authority.
491 | P a g e
In the first book, which shall be called "log book," he shall enter every day the condition of the
atmosphere, the prevailing winds, the course sailed, the rigging carried, the horsepower of the engines,
the distance covered, the maneuvers executed, and other incidents of navigation. He shall also enter the
damage suffered by the vessel in her hull, engines, rigging, and tackle, no matter what is its cause, as well
as the imperfections and averages of the cargo, and the effects and consequence of the jettison, should
there be any; and in cases of grave resolutions which require the advice or a meeting of the officers of the
vessel, or even of the passengers and crew, he shall record the decision adopted. For the informations
indicated he shall make use of the binnacle book, and of the steam or engine book kept by the engineer.
In the second book, called the "accounting book," he shall enter all the amounts collected and paid
for the account of the vessel, entering specifically article by article, the sources of the collection, and the
amounts invested in provisions, repairs, acquisition of rigging or goods, fuel, outfits, wages, and all other
expenses. He shall furthermore enter therein a list of all the members of the crew, stating their domiciles,
their wages and salaries, and the amounts they may have received on account, either directly or by
delivery to their families.
In the third book, called "freight book," he shall record the entry and exit of all the goods, stating
their marks and packages, names of the shippers and of the consignees, ports of loading and unloading,
and the freight earned. In the same book he shall record the names and places of sailing of the passengers
and the number of packages of which their baggage consists, and the price of the passage.
4.
To make, before receiving the freight, with the officers of the crew, and the two experts, if required
by the shippers and passengers, an examination of the vessel, in order to ascertain whether she is
watertight, and whether the rigging and engines are in good condition; and if she has the equipment
required for good navigation, preserving a certificate of the memorandum of this inspection, signed by all
the persons who may have taken part therein, under their liability.
The experts shall be appointed one by the captain of the vessel and the other one by the persons
who request the examination, and in case of disagreement a third shall be appointed by the marine
authority of the port.
5.
To remain constantly on board the vessel with the crew during the time the freight is taken on board
and carefully watch the stowage thereof; not to consent to any merchandise or goods of a dangerous
character to be taken on, such as inflammable or explosive substances, without the precautions which are
recommended for their packing, management and isolation; not to permit that any freight be carried on
deck which by reason of its disposition, volume, or weight makes the work of the sailors difficult, and which
might endanger the safety of the vessel; and if, on account of the nature of the merchandise, the special
character of the shipment, and principally the favorable season it takes place, he allows merchandise to be
carried on deck, he must hear the opinion of the officers of the vessel, and have the consent of the
shippers and of the agent.
6.
To demand a pilot at the expense of the vessel whenever required by navigation, and principally
when a port, canal, or river, or a roadstead or anchoring place is to be entered with which neither he, the
officers nor the crew are acquainted.
7.
To be on deck at the time of sighting land and to take command on entering and leaving ports,
canals, roadsteads, and rivers, unless there is a pilot on board discharging his duties. He shall not spend
the night away from the vessel except for serious causes or by reason of official business. cdtai
8.
To present himself, when making a port in distress, to the maritime authority if in Spain * and to the
Spanish * consul if in a foreign country, before twenty-four hours have elapsed, and make a statement of
the name, registry, and port of departure of the vessel, of its cargo, and reason of arrival, which
declaration shall be vised by the authority or by the consul if after examining the same it is found to be
acceptable, giving the captain the proper certificate in order to show his arrival under stress and the
reasons therefor. In the absence of marine officials or of the consul, the declaration must be made before
the local authority.
9.
To take the steps necessary before the competent authority in order to enter in the certificate of the
Commercial Registry of the vessel the obligations which he may contract in accordance with Article 583.
10.
To put in a safe place and keep all the papers and belongings of any members of the crew who
might die on the vessel, drawing up a detailed inventory, in the presence of passengers as witnesses, and,
in their absence, of members of the crew.
11.
To conduct himself according to the rules and precepts contained in the instructions of the agent,
being liable for all that he may do in violation thereof.
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12.
To give an account to the agent from the port where the vessel arrives, of the reason thereof, taking
advantage of the semaphore, telegraph, mail, etc., according to the cases; notify him the freight he may
have received, stating the name and domicile of the shippers, freight earned, and amounts borrowed on
bottomry bond, advise him of his departure, and give him any information and data which may be of
interest.
13.
To observe the rules on the situation of lights and evolutions to prevent collisions.
14.
To remain on board in case of danger to the vessel, until all hope to save her is lost, and before
abandoning her to hear the officers of the crew, abiding by the decision of the majority; and if he should
have to take a boat he shall take with him, before anything else, the books and papers, and then the
articles of most value, being obliged to prove in case of the loss of the books and papers that he did all he
could to save them.
15.
In case of wreck he shall make the proper protest in due form at the first port reached, before the
competent authority or the Spanish * consul, within twenty-four hours, stating therein all the incidents of
the wreck, in accordance with case 8 of this article.
16.
To comply with the obligations imposed by the laws and rules of navigation, customs, health, and
others.
ARTICLE 622. If when on a voyage the captain should receive news of the appearance of privateers or
men of war against his flag, he shall be obliged to make the nearest neutral port, inform his agent or
shippers, and await an occasion to sail under convoy or until the danger is over or to receive final orders
from the agent or shippers.
ARTICLE 624. A captain whose vessel has gone through a hurricane or who believes that the cargo has
suffered damages or averages, shall make a protest thereon before the competent authority at the first
port he touches within the twenty-four hours following his arrival, and shall ratify it within the same period
when he arrives at the place of his destination, immediately preceding with the proof of the facts, it not
being permitted to open the hatches until this has been done.
The captain shall proceed in the same manner if, the vessel having been wrecked, he is saved alone or
with part of his crew, in which case he shall appear before the nearest authority, and make a sworn
statement of the facts.
The authority or the consul abroad shall verify the said facts, receiving a sworn statement of the members
of the crew and passengers who may have been saved, and taking the other steps which may assist in
arriving at the facts, drafting a certificate of the result of the proceedings in the log book and in that of the
sailing mate, and shall deliver the original records of the proceedings to the captain, stamped and folioed,
with a memorandum of the folios, which he must rubricate, for their presentation to the judge or court of
the port of destination.
The statement of the captain shall be believed if it is in accordance with those of the crew and passengers;
if they disagree, the latter shall be accepted, unless there is proof to the contrary.
ARTICLE 625. The captain, under his personal liability, as soon as he arrives at the port of destination,
obtains the necessary permission from the health and customs officers and fulfills the other formalities
required by the regulations of the administration, shall turn over the cargo, without any defalcation, to the
consignees, and, in a proper case, the vessel, rigging, and freights to the agent.
If, by reason of the absence of the consignee or on account of the nonappearance of a legal holder of the
invoices, the captain does not know to whom he is to make the legal delivery of the cargo, he shall place it
at the disposal of the proper judge or court or authority, in order that he may decide with regard to its
deposit, preservation, and custody.
Inter Orient v. NLRC, 235 SCRA 269
THIRD DIVISION
[G.R. No. 115286. August 11, 1994.]
493 | P a g e
INTER-ORIENT MARITIME ENTERPRISES, INC., SEA HORSE SHIP MANAGEMENT, INC. and TRENDA
WORLD SHIPPING (MANILA), INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION
and RIZALINO D. TAYONG, respondents.
SYLLABUS
1.
LABOR LAWS AND SOCIAL LEGISLATION; CONDITIONS OF EMPLOYMENT; CAPTAIN OF VESSEL A
CONFIDENTIAL AND MANAGERIAL EMPLOYEE. It is well settled in this jurisdiction that confidential and
managerial employees cannot be arbitrarily dismissed at any time, and without cause as reasonably
established in an appropriate investigation. Such employees, too, are entitled to security of tenure, fair
standards of employment and the protection of labor laws. The captain of a vessel is a confidential and
managerial employee within the meaning of the above doctrine. A master or captain, for purposes of
maritime commerce, is one who has command of a vessel. A captain commonly performs three (3) distinct
roles: (1) he is a general agent of the shipowner; (2) he is also commander and technical director of the
vessel; and (3) he is a representative of the country under whose flag he navigates. Of these roles, by far
the most important is the role performed by the captain as commander of the vessel; for such role (which,
to our mind, is analogous to that of "Chief Executive Officer" [CEO] of a present-day corporate enterprise)
has to do with the operation and preservation of the vessel during its voyage and the protection of the
passengers (if any) and crew and cargo. In his role as general agent of the shipowner, the captain has
authority to sign bills of lading, carry goods aboard and deal with the freight earned, agree upon rates and
decide whether to take cargo. The ship captain, as agent of the shipowner, has legal authority to enter into
contracts with respect to the vessel and the trading of the vessel, subject to applicable limitations
established by statute, contract or instructions and regulations of the shipowner. To the captain is
committed the governance, care and management of the vessel. Clearly, the captain is vested with both
management and fiduciary functions.
2.
ID.; TERMINATION OF EMPLOYMENT; ILLEGAL DISMISSAL ESTABLISHED IN CASE AT BAR. It is plain
from the records of the present petition that Captain Tayong was denied any opportunity to defend himself.
Petitioners curtly dismissed him from his command and summarily ordered his repatriation to the
Philippines without informing him of the charge or charges levelled against him, and much less giving him
a change to refute any such charge. In fact, it was only on 26 October 1989 that Captain Tayong received a
telegram dated 24 October 1989 from Inter-Orient requiring him to explain why he delayed sailing to South
Africa. We also find that the principal contention of petitioners against the decision of the NLRC pertains to
facts, that is, whether or not there was actual and sufficient basis for the alleged loss of trust or
confidence. We have consistently held that a question of "fact" is, as a general rule, the concern solely of
an administrative body, so long as there is substantial evidence of record to sustain its action. The record
requires us to reject petitioners' claim that the NLRC's conclusion of fact were not supported by substantial
evidence. Petitioner's rely on self-serving affidavits of their own officers and employees predictably tending
to support petitioners' allegation that Captain Tayong had performed acts inimical to petitioners' interests
for which, supposedly, he was discharged. The official report of Mr. Clark, petitioners' representative, in
fact supports the NLRC's conclusion that private respondent Captain did not arbitrarily and maliciously
delay the voyage to South Africa. There had been, Mr. Clark stated, a disruption in the normal functioning
of the vessel's turbo charger and economizer and that had prevented the full or regular operation of the
vessel. Thus, Mr. Clark relayed to Captain Tayong instructions to "maintain reduced RPM" during the
voyage to South Africa, instead of waiting in Singapore for the supplies that would permit shipboard repair
of the malfunctioning machinery and equipment. Under all the circumstances of this case, we, along with
the NLRC, are unable to hold that Captain Tayong's decision (arrived at after consultation with the vessel's
Chief Engineer) to wait seven (7) hours in Singapore for the delivery on board the Oceanic Mindoro of the
requisitioned supplies needed for the welding-repair, on board the ship, of the turbo-charger and the
economizer equipment of the vessel, constituted merely arbitrary, capricious or grossly insubordinate
behavior on his part. In the view of the NLRC, that decision of Captain Tayong did not constitute a legal
basis for the summary dismissal of Captain Tayong and for termination of his contract with petitioners prior
to the expiration of the term thereof. We cannot hold this conclusion of the NLRC to be a grave abuse of
discretion amounting to an excess or loss of jurisdiction; indeed, we share that conclusion and make it our
own. Clearly, petitioners were angered at Captain Tayong's decision to wait for delivery of the needed
supplied before sailing from Singapore, and may have changed their estimate of their ability to work with
him and of his capabilities as a ship captain. Assuming that to be petitioners' management prerogative,
494 | P a g e
that prerogative is nevertheless not to be exercised, in the case at bar, at the cost of loss of Captain
Tayong's rights under his contract with petitioner's and under Philippine law.
3.
COMMERCIAL LAW; CODE OF COMMERCE; CAPTAIN'S CONTROL OF VESSEL AND REASONABLE
DISCRETION AS TO ITS NAVIGATION. A ship's captain must be accorded a reasonable measure of
discretionary authority to decide what the safety of the ship and of its crew and cargo specifically requires
on a stipulated ocean voyage. The captain is held responsible, and properly so, for such safety. He is right
there on the vessel, in command of its and (it must be presumed) knowledgeable as to the specific
requirements of seaworthiness and the particular risks and perils of the voyage he is to embark upon. The
applicable principle is that the captain has control of all departments of service in the vessel, and
reasonable discretion as to its navigation. It is the right and duty of the captain, in the exercise of sound
discretion and in good faith, to do all things with respect to the vessel and its equipment and conduct of
the voyage which are reasonably necessary for the protection and preservation of the interests under his
charge, whether those be of the shipowner, charterers, cargo owners or of underwriters. It is a basic
principle of admiralty law that in navigating a merchantman, the master must be left free to exercise his
own best judgment. The requirements of safe navigation compel us to reject any suggestion that the
judgment and discretion of the captain of a vessel may be confined within a straitjacket, even in this age of
electronic communications. Indeed, if the ship captain is convinced, as a reasonably prudent and
competent mariner acting in good faith that the shipowner's or ship agent's instructions (insisted upon by
radio or telefax from their officers thousand of miles away) will result, in the very specific circumstances
facing him, in imposing unacceptable risks of loss or serious danger to ship or crew, he cannot casually
seek absolution from his responsibility, if a marine casualty occurs, in such instructions. Compagnie de
Commerce v. Hamburg is instructive in this connection. There, this Court recognized the discretionary
authority of the master of a vessel and his right to exercise his best judgment, with respect to navigating
the vessel he commands. In Compagnie de Commerce, a charger party was executed between Compagnie
de Commerce and the owners of the vessel Sambia, under which the former as charterer loaded on board
the Sambia, at the port of Saigon, certain cargo destined for the Ports of Dunkirk and Hamburg in Europe.
The Sambia flying the German flag, could not, in the judgment of its master, reach its ports of destination
because war (World War I) had been declared between Germany and France. The master of the Sambia
decided to deviate from the stipulated voyage and sailed instead for the Port of Manila. Compagnie de
Commerce sued in the Philippines for damages arising from breach of the charter party and unauthorized
sale of the cargo. In affirming the decision of the trial court dismissing the complaint, our Supreme Court
held that the master of the Sambia had reasonable grounds to apprehend that the vessel was in danger of
seizure or capture by the French authorities in Saigon was justified by necessity to elect the course which
the took i.e., to flee Saigon for the Port of Manila with the result that the shipowner was relieved from
liability for the deviation from the stipulated route and from liability for damage to the cargo.
4.
ID.; ID.; COMMERCIAL LAW; CODE OF COMMERCE; CAPTAIN'S CONTROL OF VESSEL AND
REASONABLE DISCRETION AS TO ITS NAVIGATION. "The danger from which the master of the Sambia
fled was a real and not merely an imaginary one as counsel for shipper contends. Seizure at the hands of
an 'enemy of the King', though not inevitable, was a possible outcome of a failure to leave the port of
Saigon; and we cannot say that under the conditions existing at the time when the master elected to flee
from that port, there were no grounds for a 'reasonable apprehension of danger' from seizure by the French
authorities, and therefore no necessity for flight. The word 'necessity' when applied to mercantile affairs,
where the judgment must in the nature of things be exercised, cannot, of course, mean an irresistible
compelling power. what is meant by it in such cases is the force of circumstances which determine the
course of a man ought to take. Thus, where by the force of circumstances, a man has the duty cast upon
him of taking some action for another, and under that obligation adopts a course which, to the judgment of
a wise and prudent man, is apparently the best for the interest of the persons for whom he acts in a given
emergency, it may properly be said of the course so taken that it was in a mercantile sense necessary to
take it." Compagnie de Commerce contended that the shipowner should, at all events, be held responsible
for the deterioration in the value of the cargo incident to its long stay on board the vessel from the date of
its arrival in Manila until the cargo was sold. The Supreme Court, in rejecting this contention also, declared
that: "But it is clear that the master could not be required to act on the very day of his arrival; or before he
had a reasonable opportunity to ascertain whether he could hope to carry out his contract and earn his
freight; and that he should not be held responsible for a reasonable delay incident to an effort to ascertain
the wishes of the freighter, and upon failure to secure prompt advice, to decide for himself as to the course
which he should adopt to secure the interests of the absent owner of the property aboard the vessel. The
495 | P a g e
master is entitled to delay for such a period as may be reasonable under the circumstances, before
deciding on the course he will adopt. he may claim a fair opportunity of carrying out a contract, and
earning the freight, whether by repairing or transshipping. should the repair of the ship be undertaken, it
must be proceeded with diligently; and if so done, the freighter will have no ground of complaint, although
the consequent delay be a long one, unless, indeed, the cargo is perishable, and likely to be injured by the
delay. Where that is the case, it ought to be forwarded, or sold, or given up, as the case may be, without
waiting for repairs. A shipowner or shipmaster (if communication with the shipowner is impossible), will be
allowed a reasonable time in which to decide what course he will adopt in such cases as those under
discussion; time must be allowed to him to ascertain the facts, and to balance the conflicting interests
involved, of shipowner, cargo owner, underwriter on ship and freight. But once the time has elapsed, he is
bound to act promptly according as he has elected either to repair, or abandon the voyage, or tranship. If
he delays, and owing to that delay a perishable cargo suffers damage; he cannot escape that obligation by
pleading the absence of definite instructions from the owners of the cargo or their underwriters, since he
has control of the cargo and is entitled to elect."
DECISION
FELICIANO, J p:
Private respondent Rizalino Tayong, a licensed Master Mariner with experience in commanding ocean-going
vessels, was employed on 6 July 1989 by petitioners Trenda World Shipping (Manila), Inc. and Sea Horse
Ship Management, Inc. through petitioner Inter-Orient Maritime Enterprises, Inc. as Master of the vessel
M/V Oceanic Mindoro, for a period of one (1) year, as evidenced by an employment contract. On 15 July
1989, Captain Tayong assumed command of petitioners' vessel at the port of Hongkong. His instructions
were to replenish bunker and diesel fuel, to said forthwith to Richard Bay, South Africa, and there to load
120,000 metric tons of coal.
On 16 July 1989, while at the Pork of Hongkong and in the process of unloading cargo, Captain Tayong
received a weather report that a storm code-named "Gordon" would shortly hit Hongkong. Precautionary
measures were taken to secure the safety of the vessel, as well as its crew, considering that the vessel's
turbo-charger was leaking and the vessel was fourteen (14) years old.
On 21 July 1989, Captain Tayong followed-up the requisition by the former captain of the Oceanic Mindoro
for supplies of oxygen and acetylene, necessary for the welding-repair of the turbo-charger and the
economizer. 1 This requisition had been made upon request of the Chief Engineer of the vessel and had
been approved by the shipowner. 2
On 25 July 1989, the vessel sailed from Hong Kong for Singapore. In the Master's sailing message, Captain
Tayong reported a water leak from M.E. Turbo Charger No. 2 Exhaust gas casing. He was subsequently
instructed to block off the cooling water and maintain reduced RPM unless authorized by the owners. 3
On 29 July 1989, while the vessel was en route to Singapore, Captain Tayong reported that the vessel had
stopped in mid-ocean for six (6) hours and forty-five (45) minutes due to a leaking economizer. He was
instructed to shut down the economizer and use the auxiliary boiler instead. 4
On 31 July 1989 at 0607 hrs., the vessel arrived at the port of Singapore. 5 The Chief Engineer reminded
Captain Tayong that the oxygen and acetylene supplies had not been delivered. 6 Captain Tayong inquired
from the ship's agent in Singapore about the supplies. The ship agent stated that these could only be
delivered at 0800 hours on August 1, 1989 as the stores had closed. 7
Captain Tayong called the shipowner, Sea Horse Ship Management, Ltc., in London and informed them that
the departure of the vessel for South Africa may be affected because of the delay in the delivery of the
supplies. 8
Sea Horse advised Captain Tayong to contact its Technical Director, Mr. Clark, who was in Tokyo and who
could provide a solution for the supply of said oxygen and acetylene. 9
On the night of 31 July 1989, Mr. Clark received a call from Captain Tayong informing him that the vessel
cannot said without the oxygen and acetylene for safety reasons due to the problems with the turbo
charger and economizer. Mr. Clark responded that by shutting off the water to the turbo charger and using
the auxiliary boiler, there should be no further problem. According to Mr. Clark, Captain Tayong agreed
with him that the vessel could sail as scheduled on 0100 hours on 1 August 1989 for South Africa. 10
According to Captain Tayong, however, he communicated to Sea Horse his reservations regarding
proceeding to South Africa without the requested supplied, 11 and was advised by Sea Horse to wait for
496 | P a g e
the supplies at 0800 hrs. of 1 August 1989, which Sea Horse had arranged to be delivered on board the
Oceanic Mindoro. 12 At 0800 hours on 1 August 1989, the requisitioned supplies were delivered and
Captain Tayong immediately sailed for Richard Bay.
When the vessel arrived at the port of Richard Bay, South Africa on 16 August 1989, Captain Tayong was
instructed to turn-over his post to the new captain. He was thereafter repatriated to the Philippines, after
serving petitioners for a little more than two weeks. 13 He was not informed of the charges against him. 14
On 5 October 1989, Captain Tayong instituted a complaint for illegal dismissal before the Philippine
Overseas Employment Administration ("POEA"), claiming his unpaid salary for the unexpired portion of the
written employment contract, plus attorney's fees.
Petitioners, in their answer to the complaint, denied that they had illegally dismissed Captain Tayong.
Petitioners alleged that he had refused to said immediately to South Africa to the prejudice and damage of
petitioners. According to petitioners, as a direct result of Captain Tayong's delay, petitioners' vessel was
placed "off-hire" by the charterers refused to pay the charter hire or compensation corresponding to twelve
(12) hours, amounting to US $15,500.00, due to time lost in the voyage. They stated that they had
dismissed private respondent for loss of trust and confidence.
The POEA dismissed Captain Tayong's complaint and held that there was valid cause for his untimely
repatriation. The decision of the POEA placed considerable weight on petitioners' assertion that all the time
lost as a result of the delay was caused by Captain Tayong and that his concern for the oxygen and
acetylene was not legitimate as these supplies were not necessary or indispensable for running the vessel.
The POEA believed that the Captain had unreasonably refused to follow the instructions of petitioners and
their representative, despite petitioner's firm assurances that the vessel was seaworthy for the voyage to
South Africa.
On appeal, the National Labor Relations Commission ("NLRC") reversed and set aside the decision of the
POEA. The NLRC found that Captain Tayong had not been afforded an opportunity to be heard and that no
substantial evidence was adduced to establish the basis for petitioners' loss of trust or confidence in the
Captain. The NLRC declared that he had only acted in accordance with his duties to maintain the
seaworthiness of the vessel and to insure the safety of the ship and the crew. The NLRC directed
petitioners to pay the Captain (a) his salary for the unexpired portion of the contract at US$1,900.00 a
month, plus one (1) month leave benefit; and (b) attorney's fees equivalent to ten percent (10%) of the
total award due.
Petitioners, before this Court, claim that the NLRC had acted with grave abuse of discretion. Petitioners
allege that they had adduced sufficient evidence to establish the basis for private respondent's discharge,
contrary to the conclusion reached by the NLRC. Petitioners insist that Captain Tayong, who must protect
the interest of petitioners, had caused them unnecessary damage, and that they, as owners of the vessel,
cannot be compelled to keep in their employ a captain of a vessel in whom they have lost their trust and
confidence. Petitioners finally contend that the award to the Captain of his salary corresponding to the
unexpired portion of the contract and one (1) month leave pay, including attorney's fees, also constituted
grave abuse of discretion.
The petition must fail.
We note preliminary that petitioners failed to attach a clearly legible, properly certified, true copy of the
decision of the NLRC dated 23 April 1994, in violation of requirement no. 3 of Revised Circular No. 1-88. On
this ground alone, the petition could have been dismissed. But the Court chose not to do so, in view of the
nature of question here raised and instead required private respondent to file a comment on the petition.
Captain Tayong submitted his comment. The Office of the Solicitor General asked for an extension of thirty
(30) days to file its comment on behalf of the NLRC. We consider that the Solicitor General's comment may
be dispensed with in this case.
It is well settled in this jurisdiction that confidential and managerial employees cannot be arbitrarily
dismissed at any time, and without cause as reasonably established in an appropriate investigation. 15
Such employees, too, are entitled to security of tenure, fair standards of employment and the protection of
labor laws.
The captain of a vessel is a confidential and managerial employee within the meaning of the above
doctrine. A master or captain, for purposes of maritime commerce, is one who has command of a vessel. A
captain commonly performs three (3) distinct roles: (1) he is a general agent of the shipowner; (2) he is
also commander and technical director of the vessel; and (3) he is a representative of the country under
whose flag he navigates. 16 Of these roles, by far the most important is the role performed by the captain
497 | P a g e
as commander of the vessel; for such role (which, to our mind, is analogous to that of "Chief Executive
Officer" [CEO] of a present-day corporate enterprise) has to do with the operation and preservation of the
vessel during its voyage and the protection of the passengers (if any) and crew and cargo. In his role as
general agent of the shipowner, the captain has authority to sign bills of lading, carry goods aboard and
deal with the freight earned, agree upon rates and decide whether to take cargo. The ship captain, as
agent of the shipowner, has legal authority to enter into contracts with respect to the vessel and the
trading of the vessel, subject to applicable limitations established by statute, contract or instructions and
regulations of the shipowner. 17 To the captain is committed the governance, care and management of the
vessel. 18 Clearly, the captain is vested with both management and fiduciary functions.
It is plain from the records of the present petition that Captain Tayong was denied any opportunity to
defend himself. Petitioners curtly dismissed him from his command and summarily ordered his repatriation
to the Philippines without informing him of the charge or charges levelled against him, and much less
giving him a change to refute any such charge. In fact, it was only on 26 October 1989 that Captain Tayong
received a telegram dated 24 October 1989 from Inter-Orient requiring him to explain why he delayed
sailing to South Africa.
We also find that the principal contention of petitioners against the decision of the NLRC pertains to facts,
that is, whether or not there was actual and sufficient basis for the alleged loss of trust or confidence. We
have consistently held that a question of "fact" is, as a general rule, the concern solely of an administrative
body, so long as there is substantial evidence of record to sustain its action.
The record requires us to reject petitioners' claim that the NLRC's conclusion of fact were not supported by
substantial evidence. Petitioner's rely on self-serving affidavits of their own officers and employees
predictably tending to support petitioners' allegation that Captain Tayong had performed acts inimical to
petitioners' interests for which, supposedly, he was discharged. The official report of Mr. Clark, petitioners'
representative, in fact supports the NLRC's conclusion that private respondent Captain did not arbitrarily
and maliciously delay the voyage to South Africa. There had been, Mr. Clark stated, a disruption in the
normal functioning of the vessel's turbo charger 19 and economizer and that had prevented the full or
regular operation of the vessel. Thus, Mr. Clark relayed to Captain Tayong instructions to "maintain reduced
RPM" during the voyage to South Africa, instead of waiting in Singapore for the supplies that would permit
shipboard repair of the malfunctioning machinery and equipment.
More importantly, a ship's captain must be accorded a reasonable measure of discretionary authority to
decide what the safety of the ship and of its crew and cargo specifically requires on a stipulated ocean
voyage. The captain is held responsible, and properly so, for such safety. He is right there on the vessel, in
command of it and (it must be presumed) knowledgeable as to the specific requirements of seaworthiness
and the particular risks and perils of the voyage he is to embark upon. The applicable principle is that the
captain has control of all departments of service in the vessel, and reasonable discretion as to its
navigation. 20 It is the right and duty of the captain, in the exercise of sound discretion and in good faith,
to do all things with respect to the vessel and its equipment and conduct of the voyage which are
reasonably necessary for the protection and preservation of the interests under his charge, whether those
be of the shipowners, charterers, cargo owners or of underwriters. 21 It is a basic principle of admiralty law
that in navigating a merchantman, the master must be left free to exercise his own best judgment. The
requirements of safe navigation compel us to reject any suggestion that the judgment and discretion of the
captain of a vessel may be confined within a straitjacket, even in this age of electronic communications. 22
Indeed, if the ship captain is convinced, as a reasonably prudent and competent mariner acting in good
faith that the shipowner's or ship agent's instructions (insisted upon by radio or telefax from their officers
thousand of miles away) will result, in the very specific circumstances facing him, in imposing
unacceptable risks of loss or serious danger to ship or crew, he cannot casually seek absolution from his
responsibility, if a marine casualty occurs, in such instructions. 23
Compagnie de Commerce v. Hamburg 24 is instructive in this connection. There, this Court recognized the
discretionary authority of the master of a vessel and his right to exercise his best judgment, with respect to
navigating the vessel he commands. In Compagnie de Commerce, a charter party was executed between
Compagnie de Commerce and the owners of the vessel Sambia, under which the former as charterer
loaded on board the Sambia, at the port of Saigon, certain cargo destined for the Ports of Dunkirk and
Hamburg in Europe. The Sambia flying the German flag, could not, in the judgment of its master, reach its
ports of destination because war (World War I) had been declared between Germany and France. The
master of the Sambia decided to deviate from the stipulated voyage and sailed instead for the Port of
Manila. Compagnie de Commerce sued in the Philippines for damages arising from breach of the charter
498 | P a g e
party and unauthorized sale of the cargo. In affirming the decision of the trial court dismissing the
complaint, our Supreme Court held that the master of the Sambia had reasonable grounds to apprehend
that the vessel was in danger of seizure or capture by the French authorities in Saigon was justified by
necessity to elect the course which the took i.e., to flee Saigon for the Port of Manila with the result
that the shipowner was relieved from liability for the deviation from the stipulated route and from liability
for damage to the cargo. The Court said:
"The danger from which the master of the Sambia fled was a real and not merely an imaginary one as
counsel for shipper contends. Seizure at the hands of an 'enemy of the King', though not inevitable, was a
possible outcome of a failure to leave the port of Saigon; and we cannot say that under the conditions
existing at the time when the master elected to flee from that port, there were no grounds for a
'reasonable apprehension of danger' from seizure by the French authorities, and therefore no necessity for
flight.
The word 'necessity' when applied to mercantile affairs, where the judgment must in the nature of things
be exercised, cannot, of course, mean an irresistible compelling power. What is meant by it in such cases is
the force of circumstances which determine the course of a man ought to take. Thus, where by the force of
circumstances, a man has the duty cast upon him of taking some action for another, and under that
obligation adopts a course which, to the judgment of a wise and prudent man, is apparently the best for
the interest of the persons for whom he acts in a given emergency, it may properly be said of the course
so taken that it was in a mercantile sense necessary to take it." 25 (Emphasis supplied)
Compagnie de Commerce contended that the shipowner should, at all events, be held responsible for the
deterioration in the value of the cargo incident to its long stay on board the vessel from the date of its
arrival in Manila until the cargo was sold. The Supreme Court, in rejecting this contention also, declared
that:
"But it is clear that the master could not be required to act on the very day of his arrival; or before he had
a reasonable opportunity to ascertain whether he could hope to carry out his contract and earn his freight;
and that he should not be held responsible for a reasonable delay incident to an effort to ascertain the
wishes of the freighter, and upon failure to secure prompt advice, to decide for himself as to the course
which he should adopt to secure the interests of the absent owner of the property aboard the vessel.
The master is entitled to delay for such a period as may be reasonable under the circumstances, before
deciding on the course he will adopt. He may claim a fair opportunity of carrying out a contract, and
earning the freight, whether by repairing or transshipping. Should the repair of the ship be undertaken, it
must be proceeded with diligently; and if so done, the freighter will have no ground of complaint, although
the consequent delay be a long one, unless, indeed, the cargo is perishable, and likely to be injured by the
delay. Where that is the case, it ought to be forwarded, or sold, or given up, as the case may be, without
waiting for repairs.
A shipowner or shipmaster (if communication with the shipowner is impossible), will be allowed a
reasonable time in which to decide what course he will adopt in such cases as those under discussion; time
must be allowed to him to ascertain the facts, and to balance the conflicting interests involved, of
shipowner, cargo owner, underwriter on ship and freight. But once the time has elapsed, he is bound to act
promptly according as he has elected either to repair, or abandon the voyage, or tranship. If he delays, and
owing to that delay a perishable cargo suffers damage, the shipowner will be liable for that damage; he
cannot escape that obligation by pleading the absence of definite instructions from the owners of the
cargo or their underwriters, since he has control of the cargo and is entitled to elect." 26 (Emphasis
supplied)
The critical question, therefore, is whether or not Captain Tayong had reasonable grounds to believe that
the safety of the vessel and the crew under his command or the possibility of substantial delay at sea
required him to wait for the delivery of the supplies needed for the repair of the turbo-charger and the
economizer before embarking on the long voyage from Singapore to South Africa.
In this connection, it is especially relevant to recall that, according to the report of Mr. Robert Clark,
Technical Director of petitioner Sea Horse Ship Management, Inc., the Oceanic Mindoro had stopped in midocean for six (6) hours and forty-five (45) minutes on its way to Singapore because of its leaking
economizer. 27 Equally relevant is the telex dated 2 August 1989 sent by Captain Tayong to Sea Horse
after Oceanic Mindoro had left Singapore and was en route to South Africa. In this telex, Captain Tayong
explained his decision to Sea Horse in the following terms:
"I CAPT R.D. TAYONG RE: UR PROBLEM IN SPORE (SINGAPORE) I EXPLAIN AGN TO YOU THAT WE ARE
INSECURITY/DANGER TO SAIL IN SPORE W/OUT HAVING SUPPLY OF OXY/ACET. PLS UNDERSTAND HV
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PLENTY TO BE DONE REPAIR FM MAIN ENGINE LIKE TURBO CHARGER PIPELINE, ECONOMIZER LEAKAGE N
ETC WE COULD NOT FIX IT W/OUT OXY/ACET ONBOARD. I AND MR. CLARK WE CONTACTED EACH OTHER BY
PHONE IN PAPAN N HE ADVSED US TO SAIL TO RBAY N WILL SUPPLY OXY/ACET UPON ARRIVAL RBAY HE
ALSO EXPLAINED TO MY C/E HOW TO FIND THE REMEDY W/OUT OXY/ACET BUT C/E HE DISAGREED MR.
CLARK IDEA, THAT IS WHY WE URG REQUEST[ED] YR KIND OFFICE TO ARRANGE SUPPLY OXY/ACET BEFORE
SAILING TO AVOID RISK/DANGER OR DELAY AT SEA N WE TOOK PRECAUTION UR TRIP FOR 16 DAYS FM
SPORE TO RBAY. PLS. UNDERSTAND UR SITUATION." 28 (Emphasis partly in source and partly supplied)
Under all the circumstances of this case, we, along with the NLRC, are unable to hold that Captain Tayong's
decision (arrived at after consultation with the vessel's Chief Engineer) to wait seven (7) hours in
Singapore for the delivery on board the Oceanic Mindoro of the requisitioned supplies needed for the
welding-repair, on board the ship, of the turbo-charger and the economizer equipment of the vessel,
constituted merely arbitrary, capricious or grossly insubordinate behavior on his part. In the view of the
NLRC, that decision of Captain Tayong did not constitute a legal basis for the summary dismissal of Captain
Tayong and for termination of his contract with petitioners prior to the expiration of the term thereof. We
cannot hold this conclusion of the NLRC to be a grave abuse of discretion amounting to an excess or loss of
jurisdiction; indeed, we share that conclusion and make it our own.
Clearly, petitioners were angered at Captain Tayong's decision to wait for delivery of the needed supplies
before sailing from Singapore, and may have changed their estimate of their ability to work with him and
of his capabilities as a ship captain. Assuming that to be petitioners' management prerogative, that
prerogative is nevertheless not to be exercised, in the case at bar, at the cost of loss of Captain Tayong's
rights under his contract with petitioner's and under Philippine law.
ACCORDINGLY, petitioners having failed to show grave abuse of discretion amounting to loss or excess of
jurisdiction on the part of the NLRC in rendering its assailed decision, the Petition for Certiorari is hereby
DISMISSED, for lack of merit. Costs against petitioners.
SO ORDERED.
Bidin, Romero, Melo and Vitug, JJ., concur.
Footnotes
1.
A "turbo-charger" is a centrifugal blower driven by exhaust gas turbines and used to supercharge
an engine, or to supply a charge to the intake of an internal-combustion engine at a pressure higher than
that of the surrounding atmosphere (Webster's New World Dictionary (1974), p. 1532).
An "economizer" is a device in which water is heated preliminary to entering the boiler
proper. The heat which was used in raising the temperature of the water contained in the boiler to boiling
point is utilized, instead of being wasted, for the purpose of raising the water in the economizer to a high
temperature before it enters the boiler. an increase in the feed water temperature will raise boiler
efficiency. (Ithaca Traction Corp. vs. Traveler's Indemnity Co., 177 N.Y.S. 753 [1919]).
2.
NLRC Decision, p. 3.
3.
Report of Mr. Robert B. Clark, p. 1; Records; p. 104.
4.
Id., p. 2; Records, p. 103.
5.
6.
Memorandum of appeal of Captain Tayong, p. 3; Records, p. 197.
7.
8.
Memorandum of appeal of Captain Tayong, p. 3; Records, p. 197.
9.
Id., pp. 3-4; Records, pp. 196-197.
10.
Report of Mr. Clark, p. 1; Records, p. 103.
11.
Memorandum of Appeal, p. 4; Records, p. 196.
12.
13.
14.
Memorandum of appeal, p. 4; Records, p. 196.
15.
Lawrence vs. National Labor Relations Commission, 205 SCRA 737 (1992); Hellenic Philippine
Shipping vs. Siete, 195 SCRA 179 (1991); Anscor Transport & Terminals vs. National Labor Relations
Commission, 190 SCRA 147 (1990).
16.
See Hernandez and Penasales, Philippine Admiralty and Maritime Law, p. 388 (1987).
17.
Article 610, Code of Commerce.
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18.
See Article 610, Code of Commerce. See Fitz vs. The Galiot Amelie, 73 US 18, 18 L Ed 806 (1867);
Steamship Styria vs. Morgan, 186 US 1, 46 L Ed 1027 (1901); McAndrews vs. Thatcher, 70 US 347, 18 L Ed
155 (1865); The Propeller Niagara vs. Cordes, 62 US 7, 16 L Ed 41 91858).
19.
The official statement of Mr. Clark reported that there was "a water leak from M.E. Turbo-Charger
No. 2 Exhaust gas outlet casing." (Petition, Rollo, p. 6.).
20.
American-Hawaiian S.S. Co. v. Pacific S.S. Co., 41 F 2d 718 (1930); The Princess Sophia, 61 F 2D 339
(1932).
21.
The Styria, 186 US 1, 46 L Ed 1027 91901); Grays Harbor Country vs. Brimanger (1933), 18 P2d 25;
Wandtke vs. Anderson, 74 F 2d 381 (1934); The Balsa, 10 F 2d 408 (1926); The Pomare, 92 F Supp 185
(1950); The Vulcan, 60 F Supp 158 (1945); Farmlington, 69 F 2d 300 (1934); United British Steamship
Company, Ltd. v. Newfoundland Export and Shipping, 292 US 651, 78 L Ed 1500 (1934); The
Dampskibsselskabet Atalanta A/S v. US, 31 F 2d 961 (1929); Ralli vs. Troop, 157 US 386 (1894).
22.
E.g., The Lusitania, 251 F 715 (1918).
23.
See, generally, The Dampskibsselskabet Atalanta A/S v. U.S., 31 F. 2d 961 (1929); Ralli v. Troop, 157
US 386 (1894); Johnson v. U.S., 74 F 2d 703 (1935); Palmer v. United States, 85 F supp 764 (1949); Roberts
v. United Fisheries Vessels Co., 141 F 2d 288 (1944).
24.
36 Phil. 590 (1917).
25.
36 Phil. at 626-627.
26.
36 Phil. at 631-632.
27.
Supra, note 4.
28.
As quoted in the Comment of respondent Rizalino D. Tayong, dated 10 July 1994, p. 4.
(c)
Prohibited acts and transactions

Art. 613, 614, 615, 617, 621, 583
ARTICLE 613.
A captain who navigates for freight in common or on shares can not make any
transaction for his exclusive account, and should he do so the profit shall belong to the other persons in
interest, and the losses shall be for his own exclusive account.
ARTICLE 614.
A captain who, having made an agreement to make a voyage, should not fulfill his
obligation, without being prevented by an accident case or by force majeure, shall pay for all the losses his
action may cause, without prejudice to criminal penalties which may be proper.
ARTICLE 615.
Without the consent of the agent, the captain can not have himself substituted by
another person; and should he do so, besides being liable for all the acts of the substitute and bound to
the indemnities mentioned in the foregoing article, the substitute as well as the captain may be discharged
by the agent.
ARTICLE 617.
The captain can not contract loans on respondentia, and should he do so the
contracts shall be void.
Neither can he borrow money on bottomry for his own transactions, except on the portion of the vessel he
owns, provided no money has been previously borrowed on the whole vessel, and provided there does not
exist any other kind of lien or obligation thereon. When he is permitted to do so, he must necessarily state
what interest he has in the vessel.
In case of violation of this article the principal, interest, and costs shall be charged to the private account
of the captain, and the agent may furthermore have the right to discharge him.
ARTICLE 621.
A captain who borrows money on bottomry, or who pledges or sells merchandise or
provisions in other cases and without the formalities prescribed in this Code, shall be liable for the
principle, interest, and costs, and shall indemnify for the damages he may cause.
The captain who commits fraud in his accounts shall reimburse the amount defrauded, and shall be subject
to the provisions contained in the Penal Code.
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ARTICLE 583.
If the ship being on a voyage the captain should find it necessary to contract one or
more of the obligations mentioned in Nos. 8 and 9 of Article 580, he shall apply to the judge or court if he
is in Spanish * territory, and otherwise to the consul of Spain, * should there be one, and, in his absence to
the judge or court or to the proper local authority, presenting the certificate of the registry of the vessel
treated of in Article 612, and the instruments proving the obligation contracted.
The judge or court, the consul or the local authority as the case may be, in view of the result of the
proceedings instituted, shall make a temporary memorandum in the certificate of their result, in order that
it may be recorded in the registry when the vessel returns to the port of her registry, or so that it can be
admitted as a legal and preferred obligation in case of sale before the return, by reason of the sale of the
vessel by virtue of a declaration of unseaworthiness.
The lack of this formality shall make the captain personally liable to the creditors who may be prejudiced
through his fault.
3.
Other Officers and Crew
(a)
Contracts and formalities, Art. 634
ARTICLE 634.
The captain may make up his crew with the number he may consider advisable, and
in the absence of Spanish * sailors he may ship foreigners residing in the country, the number thereof not
to exceed one-fifth of the total crew. If in foreign ports the captain should not find a sufficient number of
Spanish * sailors, he may make up the crew with foreigners, with the consent of the consul or marine
authorities.
The agreements which the captain may make with the members of the crew and others who go to make up
the complement of the vessels, to which reference is made in Article 612, must be reduced to writing in
the account book without the intervention of a notary public or clerk, signed by the parties thereto, and
vised by the marine authority if they are executed in Spanish * territory, or by the consuls or consular
agents of Spain * if executed abroad, stating therein all the obligations which each one contracts and all
the rights they acquire, said authorities taking care that these obligations and rights are recorded in a
concise and clear manner, which will not give rise to doubts or claims.
The captain shall take care to read to them the articles of this Code, which concern them, stating that they
were read in the said document.
If the book includes the requisites prescribed in Article 612, and there should not appear any signs of
alterations in its clauses, it shall be admitted as evidence in questions which may arise between the
captain and the crew with regard to the agreements contained therein and the amounts paid on account of
the same.
Every member of the crew may request a copy of the captain, signed by the latter, of the agreement and
of the liquidation of his wages, as they appear in the book.
(b)
Duties and liabilities, Art. 635
ARTICLE 635.
A sailor who has been contracted to serve on a vessel can not rescind his contract
nor fail to comply therewith except by reason of a legitimate impediment which may have occurred.
Neither can he pass from the service of one vessel to another without obtaining the written consent of the
vessel on which he may be.
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If, without obtaining said permission, the sailor who has signed for one vessel should sign for another one,
the second contract shall be void, and the captain may choose between forcing him to fulfill the service to
which he first bound himself or look for a person to substitute him at his expense.
Said sailor shall furthermore lose the wages earned on his first contract to the benefit of the vessel for
which he may have signed.
A captain who, knowing that a sailor is in the service of another vessel, should have made a new
agreement with him, without having requested the permission referred to in the foregoing paragraphs,
shall be personally liable to the captain of the vessel to which the sailor first belonged for that part of the
indemnity, referred to in the third paragraph of this article, which the sailor could not pay.
(c)
Rights, Arts. 636 to 647
ARTICLE 636.
Should a fixed period for which a sailor has signed not be stated, he can not be
discharged until the end of the return voyage to the port where he enrolled.
ARTICLE 637.
Neither can the captain discharge a sailor during the time of his contract except for
sufficient cause, the following being considered as such:
1.
The perpetration of a crime which disturbs order on the vessel.
2.
Repeated offenses of insubordination, against discipline, or against the fulfillment of the service.
3.
Repeated incapacity or negligence in the fulfillment of the service to be rendered.
4.
Habitual drunkenness.
5.
Any occurrence which incapacitates the sailor to carry out the work under his charge, with the
exception of the provisions contained in Article 644.
6.
Desertion.
The captain may, however, before setting out on a voyage and without giving any reason whatsoever,
refuse to permit a sailor he may have engaged from going on board and may leave him on land, in which
case he will be obliged to pay him his wages as if he had rendered services.
This indemnity shall be paid from the funds of the vessel if the captain should have acted for reasons of
prudence and in the interest of the safety and good service of the former. Should this not be the case, it
shall be paid by the captain personally. aisadc
After the vessel has sailed, and during the voyage and until the conclusion thereof, the captain can not
abandon any member of his crew on land or on the sea, unless, by reason of being guilty of some crime,
his imprisonment and delivery to the competent authority is proper in the first port touched, which will be
obligatory on the captain.
ARTICLE 638.
If, the crew having been engaged, the voyage is revoked by the will of the agent or of
the charterers before or after the vessel has put to sea or if the vessel is in the same manner given a
different destination than that fixed in the agreement with the crew, the latter shall be indemnified
because of the rescission of the contract according to the case, viz:
1.
If the revocation of the voyage should be decided before the departure of the vessel from the port,
each sailor engaged shall be given one month's salary, besides what may be due him in accordance with
his contract, for the services rendered to the vessel up to the date of the revocation.
2.
If the agreement should have been for a fixed amount for the whole voyage, there shall be
graduated what may be due for said month and days, calculating the same in proportion to the estimated
duration of the voyage, in the judgment of experts, in the manner established in the law of civil procedure;
and if the proposed voyage should be of such short duration that it is calculated at one month more or
less, the indemnity shall be fixed for fifteen days, discounting in all cases the sums advanced.
3.
If the revocation should take place after the vessel has put to sea, the sailors engaged for a fixed
amount for the voyage shall receive the salary which may have been offered them in full as if the voyage
had terminated, and those engaged by the month shall receive the amount corresponding to the time they
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might have been on board and to the time they may require to arrive at the port of destination, the captain
being obliged, furthermore, to pay said sailors the passage to the said port or to the port of sailing of the
vessel, as may be convenient for them.
4.
If the agent or the charterers of the vessel should give said vessel a destination other than that
fixed in the agreement, and the members of the crew should not agree thereto, they shall be given by way
of indemnity half the amount fixed in case No. 1, besides what may be owed them for the part of the
monthly wages corresponding to the days which have elapsed from the date of their agreements.
If they accept the change, and the voyage, on account of the greater distance or for other reasons, should
give rise to an increase of wages, the latter shall be privately regulated, or through amicable arbitrators in
case of disagreement. Even though the voyage may be to a nearer point, this shall not give rise to a
reduction in the wages agreed upon.
If the revocation or change of the voyage should originate from the shippers or charterers, the agent shall
have a right to demand of them the indemnity which is justly due.
ARTICLE 639.
If the revocation of the voyage should arise from a just cause independent of the will
of the agent or charterers, and the vessel should not have left the port, the members of the crew shall not
have any other right than to receive the wages earned up to the day on which the revocation took place.
ARTICLE 640.
The following shall be just causes for the revocation of the voyage:
1.
A declaration of war or interdiction of commerce with the power to whose territory the vessel was
bound.
2.
The blockade of the port of destination or the breaking out of an epidemic after the agreement.
3.
The prohibition to receive in said port the goods which make up the cargo of the vessel.
4.
The detention or embargo of the same by order of the Government, or for any other reason
independent of the will of the agent.
5.
The inability of the vessel to navigate.
ARTICLE 641.
If, after a voyage has been begun, any of the first three causes mentioned in the
foregoing article should occur, the sailors shall be paid at the port the captain may deem it advisable to
make for the benefit of the vessel and cargo, according to the time they may have served thereon; but if
the vessel is to continue the voyage, the captain and the crew may mutually demand the enforcement of
the contract.
In case of the occurrence of the fourth cause, the crew shall continue to be paid half wages, if the
agreement is by month but if the detention should exceed three months, the engagement shall be
rescinded and the crew shall be paid what they should have earned, according to the contract, if the
voyage had been made. And if the agreement had been made for a fixed sum for the voyage, the contract
must be complied within the terms agreed upon.
In the fifth case, the crew shall not have any other right than be entitled to recover the wages earned; but
if the disability of the vessel should have been caused by the negligence or lack of skill of the captain,
engineer, or sailing mate, they shall indemnify the crew for the loss suffered, always reserving the criminal
liability which may be proper.
ARTICLE 642.
If the crew has been engaged to work on shares they shall not be entitled, by reason
of the revocation, delay, or greater extension of the voyage, to anything but the proportionate part of the
indemnity paid into the common funds of the vessel by the persons liable for said occurrences.
ARTICLE 643.
If the vessel and her freight should be totally lost, by reason of capture or wreck, all
rights of the crew to demand any wages whatsoever shall be extinguished, as well as that of the agent for
the recovery of the advances made.
If a portion of the vessel or freight should be saved, or part of either, the crew engaged on wages,
including the captain, shall retain their rights on the salvage, so far as they go, on the remainder of the
vessel as well as value of the freightage or the cargo saved; but sailors who are engaged on shares shall
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not have any right whatsoever to the salvage of the hull, but only on the portion of the freightage saved. If
they should have worked to collect the remainder of the ship-wrecked vessel, they shall be given an award
in proportion to the efforts made and to the risks encountered in order to accomplish the salvage.
ARTICLE 644.
A sailor who falls sick shall not lose his right to wages during the voyage, unless the
sickness is the result of his own fault. At any rate, the costs of the attendance and cure shall be defrayed
from the common funds, in the form of a loan.
If the sickness should be caused by an injury received in the service or defense of the vessel the sailor
shall be attended and cured from the common funds, there being deducted before anything else from the
proceeds of the freight, the cost of the attendance and cure.
ARTICLE 645.
If a sailor should die during the voyage his heir shall be given the wages earned and
not received, according to his engagement and the reason for his death, namely
If he should have died a natural death and should have been engaged on wages there shall be paid what
may have been earned up to the date of his death.
If the engagement had been made for a fixed sum for the whole voyage there shall be paid half the
amount earned if the sailor died on the voyage out, and the whole amount if he died on the return voyage.
And if the engagement had been made on shares and the death should have occurred after the voyage
was begun, the heirs shall be paid the entire portion due the sailor; but should the latter have died before
the departure of the vessel from the port, the heirs shall not be entitled to claim anything.
If the death should have occurred in the defense of the vessel, the sailor shall be considered as living, and
his heirs shall be paid, at the end of the voyage, the full amount of wages or the full part of the profits due
him as to the others of his grade.
The sailor shall likewise be considered as present in the event of his capture when defending the vessel, in
order to enjoy the same benefits as the rest; but should he have been captured on account of carelessness
or other accident not related to the service, he shall only receive the wages due up to the day of his
capture.
ARTICLE 646.
The vessel with her engines, rigging, equipment, and freights shall be liable for the
wages earned by the crew engaged per month or for the trip, the liquidation and payment ought to take
place between one voyage and the other.
After a new voyage has been undertaken, credits such as the former shall lose their right of preference.
ARTICLE 647.
The officers and the crew of the vessel shall be exempted from all obligations
contracted, if they deem it proper, in the following cases:
1.
If, before the beginning of the voyage, the captain attempts to change it, or there occurs a naval
war with the power to which the vessel was destined.
2.
If a disease should break out and be officially declared epidemic in the port of destination.
3.
If the vessel should change owner or captain.
4.
Supercargoes, Arts. 649-651
ARTICLE 649.
Supercargoes shall discharge on board the vessel the administrative duties which the
agent or shippers may have assigned them; they shall keep an account and record of their transactions in
a book which shall have the same conditions and requisites as required for the accounting book of the
captain, and shall respect the latter in his duties as chief of the vessel.
The powers and liabilities of the captain shall cease, when there is a supercargo, with regard to that part of
the administration legitimately conferred upon the latter, but shall continue in force for all acts which are
inseparable from his authority and office.
ARTICLE 650.
All the provisions contained in the second section of Title III, Book II, with regard to
qualifications, manner of making contracts, and liabilities of factors shall be applicable to supercargoes.
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ARTICLE 651.
Supercargoes can not, without special authorization or agreement, make any
transaction for their own account during the voyage, with the exception of the ventures which, in
accordance with the custom of the port of destination, they are permitted to do.
Neither shall they be permitted to invest in the return trip more than the profits from the ventures, unless
there is a special authorization thereto from the principals.
D. Accidents and Damages in Maritime Commerce
1.
Averages
(a)
Nature and Kinds, Arts. 806 to 808
TITLE IV
Risks, Damages and Accidents of Maritime Commerce
SECTION I
Averages
ARTICLE 806.
For the purposes of this Code the following shall be considered averages:
1.
All extraordinary or accidental expenses which may be incurred during the navigation for the
preservation of the vessel or cargo, or both.
2.
All damages or deterioration the vessel may suffer from the time she puts to sea from the port of
departure until she casts anchor in the port of destination, and those suffered by the merchandise from the
time it is loaded in the port of shipment until it is unloaded in the port of consignment.
ARTICLE 807.
The petty and ordinary expenses of navigation, such as pilotage of coasts and ports,
lighterage and towage, anchorage dues, inspection, health, quarantine, lazaretto, and other so-called port
expenses, costs of barges, and unloading, until the merchandise is placed on the wharf, and any other
expenses common to navigation shall be considered ordinary expenses to be defrayed by the shipowner,
unless there is a special agreement to the contrary.
ARTICLE 808.
Averages shall be:
1.
Simple or particular.
2.
General or gross.
(1) Simple or Particular
(a) Defined, Art. 809
ARTICLE 809.
Simple or particular averages shall be, as a general rule, all the expenses and
damages caused to the vessel or to her cargo which have not redounded to the benefit and common profit
of all the persons interested in the vessel and her cargo, and especially the following:
1.
The damages suffered by the cargo from the time of its embarkation until it is unloaded, either on
account of the nature of the goods or by reason of an accident at sea or force majeure, and the expenses
incurred to avoid and repair the same.
2.
The damages suffered by the vessel in her hull, rigging, arms, and equipment, for the same causes
and reasons, from the time she puts to sea from the port of departure until she anchored in the port of
destination.
3.
The damages suffered by the merchandise loaded on deck, except in coastwise navigation, if the
marine ordinances allow it.
4.
The wages and victuals of the crew when the vessel should be detained or embargoed by a
legitimate order or force majeure, if the charter should have been for a fixed sum for the voyage.
5.
The necessary expenses on arrival at a port, in order to make repairs or secure provisions.
6.
The lowest value of the goods sold by the captain in arrivals under stress for the payment of
provisions and in order to save the crew, or to cover any other requirement of the vessel against which the
proper amount shall be charged.
7.
The victuals and wages of the crew during the time the vessel is in quarantine.
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8.
The damage suffered by the vessel or cargo by reason of an impact or collision with another, if it
were accidental and unavoidable. If the accident should occur through the fault or negligence of the
captain, the latter shall be liable for all the damage caused.
9.
Any damage suffered by the cargo through the faults, negligence, or barratry of the captain or of
the crew, without prejudice to the right of the owner to recover the corresponding indemnity from the
captain, the vessel, and the freight.
(b) Effects, Art. 810
ARTICLE 810.
The owner of the goods which gave rise to the expense or suffered the damage shall
bear the simple or particular averages. cd
(2) Gross or General
(a) Defined, Arts. 811, 817, 818
ARTICLE 811.
General or gross averages shall be, as a general rule, all the damages and expenses
which are deliberately caused in order to save the vessel, her cargo, or both at the same time, from a real
and known risk, and particularly the following:
1.
The goods or cash invested in the redemption of the vessel or cargo captured by enemies,
privateers, or pirates, and the provisions, wages, and expenses of the vessel detained during the time the
arrangement or redemption is taking place.
2.
The goods jettisoned to lighten the vessel, whether they belong to the vessel, to the cargo, or to
the crew, and the damage suffered through said act by the goods kept.
3.
The cables and masts which are cut or rendered useless, the anchors and the chains which are
abandoned in order to save the cargo, the vessel, or both.
4.
The expenses of removing or transferring a portion of the cargo in order to lighten the vessel and
place her in condition to enter a port or roadstead, and the damage resulting therefrom to the goods
removed or transferred.
5.
The damage suffered by the goods of the cargo through the opening made in the vessel in order to
drain her and prevent her sinking.
6.
The expenses caused through floating a vessel intentionally stranded for the purpose of saving her.
7.
The damage caused to the vessel which it is necessary to break open, scuttle, or smash in order to
save the cargo.
8.
The expenses of curing and maintaining the members of the crew who may have been wounded or
crippled in defending or saving the vessel.
9.
The wages of any member of the crew detained as hostage by enemies, privateers, or pirates, and
the necessary expenses which he may incur in his imprisonment, until he is returned to the vessel or to his
domicile, should he prefer it.
10.
The wages and victuals of the crew of a vessel chartered by the month during the time it should be
embargoed or detained by force majeure or by order of the Government, or in order to repair the damage
caused for the common good.
11.
The loss suffered in the value of the goods sold at arrivals under stress in order to repair the vessel
because of gross average.
12.
The expenses of the liquidation of the average.
ARTICLE 817.
If in lightening a vessel on account of a storm, in order to facilitate her entry into a
port or roadstead, part of her cargo should be transferred to lighters or barges and be lost, the owner of
said part shall be entitled to indemnity, as if the loss has originated from a gross average, the amount
thereof being distributed between the entire vessel and cargo which caused the same.
If, on the contrary, the merchandise transferred should be saved and the vessel should be lost, no liability
can be demanded of the salvage.
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ARTICLE 818.
If, as a necessary measure to extinguish a fire in a port; roadstead; creek, or bay, it
should be decided to sink any vessel, this loss shall be considered gross average, to which the vessels
saved shall contribute.
(b) Essential Requisites, Arts. 813, 814, 860
ARTICLE 813.
In order to incur the expenses and cause the damages corresponding to gross
average, a previous resolution of the captain, adopted after deliberation with the sailing mate and other
officers of the vessel, and with a hearing of the persons interested in the cargo who may be present, shall
be required.
If the latter shall object, and the captain and officers, or a majority, or the captain, if opposed to the
majority, should consider certain measures necessary, they may be executed under his liability, without
prejudice to the freighters exercising their rights against the captain before the judge or court of
competent jurisdiction, if they can prove that he acted with malice, lack of skill, or negligence.
If the persons interested in the cargo, being on the vessel, should not be heard, they shall not contribute to
the gross average, which contribution shall be paid by the captain, unless the urgency of the case should
be such that the time necessary for previous deliberation was lacking.
ARTICLE 814.
The resolution adopted to cause the damages which constitute a general average
must necessarily be entered in the log book, stating the motives and reasons therefor, the votes against it,
and the reasons for the disagreement should there be any, and the irresistible and urgent causes which
moved the captain if he acted of his own accord.
In the first case the minutes shall be signed by all the persons present who could do so before taking
action if possible, and if not at the first opportunity; in the second case by the captain and by the officers
of the vessel.
In the minutes and after the resolution there shall be stated in detail all the goods cast away, and mention
shall be made of the injuries caused to those kept on board. The captain shall be obliged to deliver one
copy of these minutes to the maritime judicial authority of the first port he may make within twenty-four
hours after his arrival, and to ratify it immediately by an oath.
ARTICLE 860.
If, notwithstanding the jettison of the merchandise, breakage of masts, ropes, and
equipment, the vessel should be lost running said risk, no contribution whatsoever by reason of gross
average shall be proper.
The owners of the goods saved shall not be liable for the indemnity of those jettisoned, lost, or damaged.
Magsaysay Inc. V. Agan, 96 Phil 504
EN BANC
[G.R. No. L-6393. January 31, 1955.]
A. MAGSAYSAY, INC., plaintiff-appellee, vs. ANASTACIO AGAN, defendant-appellant.
Custodio A. Villalva for appellant.
Quijano, Alidio & Azores for appellee.
SYLLABUS
1.
ADMIRALTY LAW; VESSELS; ACCIDENTAL STRANDING; AVERAGES. The law on averages is
contained in the Code of Commerce. Under that law, averages are classified into simple or particular and
general or gross. Generally speaking, simple or particular averages include all expenses and damages
caused to the vessel or cargo which have not inured to the common benefit (Art. 809) and are, therefore,
to be borne only by the owner of the property which gave rise to the same (Art. 810); while general or
gross averages include "all the damages and expenses which are deliberately caused in order to save the
vessel, its cargo, or both at the same time, from a real and known risk" (Art. 811). Being for the common
benefit, gross averages are to be borne by the owners of the articles saved (Art. 812).
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2.
ID.; ID.; ID.; CLASSIFICATION OF AVERAGES. In classifying averages into simple or particular and
general or gross and defining each class, the Code (Arts. 809 and 811) at the same time enumerates
certain specific cases as coming specially under one or the other denomination. While the expenses
incurred in putting a vessel afloat may well come under number 2 of article 809 which refers to
expenses suffered by the vessel "by reason of an accident of the sea or force majeure" and should
therefore be classified as particular average, the said expenses do not fit into any of the specific cases of
general average enumerated in article 811. No. 6 of this article does mention "expenses caused in order to
float a vessel," but it specifically refers to "a vessel intentionally stranded for the purpose of saving it" and
would have no application where the stranding was not intentional.
3.
ID.; ID.; GENERAL AVERAGE; ITS REQUISITES. The following are the requisites for general
average: (1) there must be a common danger; (2) for the common safety part of the vessel or of the cargo
or both is sacrificed deliberately; (3) from the expenses or damages caused follows the successful saving
of the vessel and cargo; and (4) the expenses or damages should have been incurred or inflicted after
taking proper legal steps and authority.
4.
ID.; ID.; ID.; ID. It is the deliverance from an immediate peril, by a common sacrifice, that
constitutes the essence of general average (Columbian Insurance Co. of Alejandria vs. Ashby & Stribling,
13 Peters 331, 10 L. ed. 186). Where there is no proof that the stranded vessel had to be put afloat to save
it from an imminent danger, and what does appear is that the vessel had to be salvaged in order to enable
it "to proceed to its port or destination," the expenses incurred in floating the vessel do not constitute
general average. It is the safety of the property, and not of the voyage, which constitutes the true
foundation of general average.
5.
ID.; ID.; ID.; ID. Even if the salvage operation was a success, yet if the sacrifice was for the
benefit of the vessel - to enable it to proceed to its destination and not for the purpose of saving the
cargo, the cargo owners are not in law bound to contribute to the expense.
DECISION
REYES, A., J p:
The SS "San Antonio", a vessel owned and operated by plaintiff, left Manila on October 6, 1949, bound for
Basco, Batanes, via Aparri, Cagayan, with general cargo belonging to different shippers, among them the
defendant. The vessel reached Aparri on the 10th of that month, and after a day's stopover in that port,
weighed anchor to proceed to Basco. But while still in port, it ran aground at the mouth of the Cagayan
river, and, attempts to refloat it under its own power having failed, plaintiff had it refloated by the Luzon
Stevedoring Co. at an agreed compensation. Once afloat, the vessel returned to Manila to refuel and then
proceeded to Basco, the port of destination. There the cargoes were delivered to their respective owners or
consignees, who, with the exception of defendant, made a deposit or signed a bond to answer for their
contribution to the average.
On the theory that the expenses incurred in floating the vessel constitute general average to which both
ship and cargo should contribute, plaintiff brought the present action in the Court of First Instance of
Manila to make defendant pay his contribution, which, as determined by the average adjuster, amounts to
P841.40. Defendant, in his answer, denies liability for this amount, alleging, among other things, that the
stranding of the vessel was due to the fault, negligence and lack of skill of its master, that the expenses
incurred in putting it afloat did not constitute general average, and that the liquidation of the average was
not made in accordance with law. After trial, the lower court found for plaintiff and rendered judgment
against the defendant for the amount of the claim, with legal interests. From this judgment defendant has
appealed directly to this Court.
Although appellant assigns various errors, under our view of the case only the following need be
considered:
"The trial court erred in allowing the general average for floating a vessel unintentionally stranded inside a
port and at the mouth of a river during a fine weather."
For the purposes of this assignment of error we may well accept the finding below that the stranding of
plaintiff's vessel was due to the sudden shifting of the sandbars at the mouth of the river which the port
pilot did not anticipate. The standing may, therefore, be regarded as accidental, and the question is
whether the expenses incurred in floating a vessel so stranded should be considered general average and
shared by the cargo owners.
The law on averages is contained in the Code of Commerce. Under that law, averages are classified into
simple or particular and general or gross. Generally speaking, simple or particular averages include all
expenses and damages caused to the vessel or cargo which have not inured to the common benefit (Art.
509 | P a g e
809, and are, therefore, to be borne only by the owner of the property which gave rise to the same (Art.
810); while general or gross averages include "all the damages and expenses which are deliberately
caused in order to save the vessel, its cargo, or both at the same time, from a real and known risk" (Art.
811). Being for the common benefit, gross averages are to be borne by the owners of the articles saved
(Art. 812).
In classifying averages into simple or particular and general or gross and defining each class, the Code
(Art. 809 and 811) at the same time enumerates certain specific cases as coming specially under one or
the other denomination. Going over the specific cases enumerated we find that, while the expenses
incurred in putting plaintiff's vessel afloat may well come under number 2 of article 809 which refers to
expenses suffered by the vessel "by reason of an accident of the sea or force majeure" and should
therefore be classified as particular average, the said expenses do not fit into any of the specific cases of
general average enumerated in article 811. No. 6 of this article does mention "expenses caused in order to
float a vessel," but it specifically refers to "a vessel intentionally stranded for the purpose of saving it" and
would have no application where, as in the present case, the stranding was not intentional.
Let us now see whether the expenses here in question could come within the legal concept of general
average. Tolentino, in his commentaries on the Code of Commerce, gives the following requisites for
general average:
"First, there must be a common danger. This means, that both the ship and the cargo, after it has been
loaded, are subject to the same danger, whether during the voyage, or in the port of loading or unloading;
that the danger arises from accidents of the sea, dispositions of the authority, or faults of men, provided,
that the circumstance producing the peril should be ascertained and imminent - or may rationally be said
to be certain and imminent. This last requirement excludes measures undertaken against a distant peril.
"Second, that for the common safety part of the vessel or of the cargo or both is sacrificed deliberately.
"Third, that from the expenses or damages caused follows the successful saving of the vessel and cargo.
"Fourth, that the expenses or damages should have been incurred or inflicted after taking proper legal
steps and authority." (Vol. I, 7th ed., p. 155.)
With respect to the first requisite, the evidence does not disclose that the expenses sought to be recovered
from defendant were incurred to save vessel and cargo from a common danger. The vessel ran aground in
fine weather inside the port at the mouth of a river, a place described as "very shallow". It would thus
appear that vessel and cargo were at the time in no imminent danger or a danger which might "rationally
be sought to be certain and imminent." It is, of course, conceivable that, if left indefinitely at the mercy of
the elements, they would run the risk of being destroyed. But as stated in the above quotation, "this last
requirement excludes measures undertaken against a distant peril." It is the deliverance from an
immediate, impending peril, by a common sacrifice, that constitutes the essence of general average. (The
Columbian Insurance Company of Alexandria vs. Ashby & Stribling et al., 13 Peters 331; 10 L. Ed., 186). In
the present case there is no proof that the vessel had to be put afloat to save it from an imminent danger.
What does appear from the testimony of plaintiff's manager is that the vessel had to be salvaged in order
to enable it "to proceed to its port of destination." But as was said in the case just cited, it is the safety of
the property, and not of the voyage, which constitutes the true foundation of general average.
As to the second requisite, we need only repeat that the expenses in question were not incurred for the
common safety of vessel and cargo, since they, or at least the cargo, were not in imminent peril. The cargo
could, without need of expensive salvage operation, have been unloaded by the owners if they had been
required to do so.
With respect to the third requisite, the salvage operation, it is true, was a success. But as the sacrifice was
for the benefit of the vessel to enable it to proceed to destination and not for the purpose of saving
the cargo, the cargo owners are not in law bound to contribute to the expenses.
The final requisite has not been proved, for it does not appear that the expenses here in question were
incurred after following the procedure laid down in articles 813 et seq.
In conclusion, we find that plaintiff has not made out a case for general average, with the result that its
claim for contribution against the defendant cannot be granted.
Wherefore, the decision appealed from is reversed and plaintiff's complaint ordered dismissed with costs.
Paras, C. J., Bengzon, Padilla, Montemayor, Jugo, Bautista Angelo, and Reyes, J. B. L., JJ., concur.
(c) Effects, Arts. 812
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ARTICLE 812.
In order to satisfy the amount of the gross or general averages, all the persons
having an interest in the vessel and cargo therein at the time of the occurrence of the average shall
contribute.
(d) Jettison, Arts. 815, 816
ARTICLE 815.
the following order:
The captain shall supervise the jettison, and shall order the goods cast overboard in
1.
Those which are on deck, beginning with those which embarrass the handling of the vessel or
damage her, preferring, if possible, the heaviest ones and those of least utility and value.
2.
Those in the hold, always beginning with those of the greatest weight and smallest value, to the
amount and number absolutely indispensable.
ARTICLE 816.
In order that the goods jettisoned may be included in the gross average and the
owners thereof be entitled to indemnity, it shall be necessary in so far as the cargo is concerned that their
existence on board be proven by means of the bill of lading; and with regard to those belonging to the
vessel, by means of the inventory made up before the departure, in accordance with the first paragraph of
Article 612.
(e) Jason Clauses (See York-Antewerp Rules, Rule D)
(b)
Proof and Liquidation of Averages

(1) Modes, Arts. 846, 847, 848
ARTICLE 846.
The persons interested in the proof and liquidation of averages may mutually agree
and bind themselves at any time with regard to the liability, liquidation, and payment thereof.
In the absence of agreements, the following rules shall be observed:
1.
The proof of the average shall take place in the port where the repairs are made, should any be
necessary, or in the port of unloading.
2.
The liquidation shall take place in the port of unloading should it be a Spanish * port.
3.
Should the average have occurred outside of the waters under the jurisdiction of the Philippines or
the cargo should have been sold in a foreign port by reason of an arrival under stress, the liquidations shall
be made in the port of arrival.
4.
If the average should have occurred near the port of destination, so that said port can be made, the
proceedings treated of in Rules 1 and 2 shall be held there.
ARTICLE 847.
In case of making the liquidation of the averages privately by virtue of agreement, as
well as when a judicial authority takes part therein at the request of any of the parties interested who do
not agree thereto, all of them shall be cited and heard, should they not have renounced this right.
Should they not be present or not have a legitimate representative, the liquidation shall be made by the
consul in a foreign port, and where there is none, by the judge or court of competent jurisdiction, according
to the laws of the country, and for the account of the proper person.
When the representative is a person well known in the place where the liquidation takes place, his
intervention shall be admitted and produce legal effects, even though he be authorized only by a letter of
the shipowner, freighter, or underwriter.
ARTICLE 848.
Claims for averages shall not be admitted if they do not exceed 5 per cent of the
interest which the claimant may have in the vessel or cargo if it is gross average, and 1 per cent of the
goods damaged if particular average, deducting in both cases the expenses of appraisal, unless there is an
agreement to the contrary.
(2) Appraisal of general average, Arts. 850 to 855; 857
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ARTICLE 850.
If by reason of one or more accidents of the sea particular and gross averages of the
vessel or the cargo, or of both, should take place on the same voyage, the expenses and damages
corresponding to each one shall be determined separately in the port where the repairs are made or where
the cargo is discharged, or sold, or the merchandise is benefited.
For this purpose the captains shall be obliged to demand of the expert appraisers and of the contractors
making the repairs, as well as of those appraising and taking part in the unloading, repair, sale, or the
benefiting of the merchandise, that they separate and detail exactly in their appraisements or estimates
and accounts all the expenses and damages belonging to each average, and in those of each average
those corresponding to the vessel and to the cargo, stating also separately whether there are or not any
damages proceeding from the nature of the goods, and not by reason of a sea accident; and in case there
should be expenses common to the different averages and to the vessel and her cargo, there must be
calculated the amount corresponding to each and stated distinctly.
SECTION II
Liquidation of Gross Averages
ARTICLE 851.
At the instance of the captain, the adjustment, liquidation, and distribution of gross
averages shall be held privately, with the consent of all the parties in interest.
For this purpose, within forty-eight hours following the arrival of the vessel at the port, the captain shall
call all the persons interested, in order that they may decide as to whether the adjustment or liquidation of
the gross average is to be made by experts and liquidators appointed by themselves, in which case this
shall be done should the persons interested agree.
Should an agreement not be possible, the captain shall apply to the judge or court of competent
jurisdiction, who shall be the one of the port where these proceedings are to be held in accordance with
the provisions of this Code, or to the consul of Spain, * should there be one, and otherwise to the local
authority when they are to be held in a foreign port.
ARTICLE 852.
If the captain should not comply with the provisions contained in the foregoing
article, the shipowner or agent or the freighters shall demand the liquidation, without prejudice to the
action they may bring to demand indemnity from him.
ARTICLE 853.
After the experts have been appointed by the persons interested, or by the judge or
court, before the acceptance, an examination of the vessel and of the repairs required shall be made, as
well as an estimate of their cost, separating these losses and damages from those arising from the natural
vice of the thing.
The experts shall also declare whether the repairs can be made immediately, or whether it is necessary to
unload the vessel to examine and repair her.
With regard to the merchandise, if the average should be visible at a mere glance, the examination thereof
must be made before it is delivered. Should it not be visible at the time of unloading, said examination
may be held after the delivery provided it is done within forty-eight hours from the unloading and without
prejudice to the other proofs which the experts may deem necessary.
ARTICLE 854.
The appraisement of the goods which are to contribute to the gross average, and that
of those which constitute the average, shall conform to the following rules:
1.
The merchandise saved which is to contribute to the payment of the gross average shall be valued
at the current price thereof at the port of unloading, deducting the freights, customs duties, and charges
for unloading, as may appear from a material inspection of the same, not taking into consideration the bills
of lading, unless there is an agreement to the contrary.
2.
If the liquidation is to take place in the port of sailing, the value of the merchandise loaded shall be
fixed by the purchase price, including the expenses until they are put on board, excluding the insurance
premium.
3.
If the merchandise should be damaged, it shall be appraised at its true value.
512 | P a g e
4.
If the voyage should be interrupted, the merchandise having been sold in a foreign port and the
average can not be estimated, there shall be taken as the contributing capital the value of the
merchandise in the port of arrival, or the net proceeds obtained at the sale thereof.
5.
Merchandise lost, which should constitute the gross average, shall be appraised at the value
merchandise of its kind may have in the port of unloading, provided its kind and quality appears in the bill
of lading; and should this not be the case, the invoices of the purchase issued in the port of shipment shall
be taken as a basis, adding to its value the expenses and freights subsequently arising.
6.
The masts cut down, the sails, cables, and other equipment of the vessel rendered useless for the
purpose of saving her, shall be appraised at the current value, deducting one-third by reason of the
difference between new and old.
This deduction shall not be made in regard to anchors and chains.
7.
The vessel shall be appraised at her real value in her condition at the time.
8.
The freights shall represent 50 per cent by way of contributing capital.
ARTICLE 855.
The merchandise loaded on the upper deck of the vessel shall contribute to the gross
average should it be saved; but there shall be no right to indemnity if it should be lost by reason of being
jettisoned for general safety, except when the marine ordinances allow its shipment in this manner in
coastwise navigation.
The same shall take place with that which is on board and is not included in the bills of lading or
inventories, according to the cases.
In any case the shipowner and the captain shall be liable to freighters for the loss of the jettison, if the
storage on the upper deck took place without the consent of the latter.
ARTICLE 857.
After the appraisement of the goods saved has been concluded by the experts, as
well as that of the goods lost which constitute the gross average, and after the repairs have been made to
the vessel, should any have to be made, and in such case after the approval of the accounts of the same
by the persons interested or by the judge or court, the entire record shall be turned over to the liquidator
appointed, in order that he may proceed with the distribution of the average.
(3) Liquidation of general average, Arts. 858, 865 to 869
ARTICLE 858.
In order to effect the liquidation the liquidator shall examine the sworn statement of
the captain, comparing it, if necessary, with the log book and all the contracts which may have been made
between the persons interested in the average, the appraisements, expert examinations, and accounts of
repairs made. If, as a result of this examination, he should find any defect in this procedure which might
injure the rights of the persons interested or affect the liability of the captain, he shall call attention thereto
in order that it be corrected, if possible, and otherwise he shall include it in the preliminaries of the
liquidation.
Immediately thereafter he shall proceed with the distribution of the amount of the average, for which
purpose he shall fix:
1.
The contributing capital, which he shall determine by the value of the cargo, in accordance with the
rules established in Article 854.
2.
That of the vessel in her actual condition, according to a statement of experts.
3.
The 50 per cent of the amount of the freight, deducting the remaining 50 per cent for wages and
maintenance of the crew.
After the amount of the gross average has been determined in accordance with the provisions of this Code,
it shall be distributed pro rata among the goods which are to cover the same.
ARTICLE 865.
The distribution of the gross average shall not be final until it has been agreed to, or
in the absence thereof, until it has been approved by the judge or court after an examination of the
liquidation and a hearing of the persons interested who may be present, or of their representatives.
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ARTICLE 866.
After the liquidation has been approved it shall be the duty of the captain to collect
the amount of the distribution, and he shall be liable to the owners of the goods averaged for the losses
they suffer through his delay or negligence.
ARTICLE 867.
If the contributors should not pay the amount of the assessment within the third day
after having been requested to do so, the goods saved shall be attached, at the request of the captain, and
shall be sold to cover the payment.
ARTICLE 868.
If the persons interested in receiving the goods saved should not give security
sufficient to answer for the amount corresponding to the gross average, the captain may defer the delivery
thereof until payment has been made.
SECTION III
Liquidation of Ordinary Averages
ARTICLE 869.
The experts which the judge or court or the persons interested may appoint,
according to the cases, shall proceed with the appraisement and examination of the averages in the
manner prescribed in Article 853 and in Article 854, Rules 2 to 7, in so far as they are applicable.
(4) Liquidation of particular average, Art. 869
ARTICLE 869.
The experts which the judge or court or the persons interested may appoint,
according to the cases, shall proceed with the appraisement and examination of the averages in the
manner prescribed in Article 853 and in Article 854, Rules 2 to 7, in so far as they are applicable.
2.
(a)
Arrivals Under Stress

Causes, Arts. 819 and 820
ARTICLE 819.
If the captain during the navigation should believe that the vessel can not continue
the voyage to the port of destination on account of the lack of provisions, well founded fear of seizure,
privateers or pirates, or by reason of any accident of the sea disabling her to navigate, he shall assemble
the officers and shall call the persons interested in the cargo who may be present, and who may attend the
meeting without the right to vote; and if, after examining the circumstances of the case, the reasons
should be considered well founded, it shall be decided to make the nearest and most convenient port
drafting and entering in the log book the proper minutes, which shall be signed by all.
The captain shall have the deciding vote and the persons interested in the cargo may make the objections
and protests they may deem proper, which shall be entered in the minutes in order that they may make
use thereof in the manner they may consider advisable.
ARTICLE 820.
The arrival under stress shall not be considered legal in the following cases:
1.
If the lack of provisions should arise from the failure to take the necessary provisions for the
voyage, according to usage and custom, or if they should have been rendered useless or lost through bad
stowage or negligence in their care.
2.
If the risk of enemies, privateers, or pirates should not have been well known, manifest, and based
on positive and justifiable facts.
3.
If the injury to the vessel should have been caused by reason of her not being repaired, rigged,
equipped, and arranged in a convenient manner for the voyage, or by reason of some erroneous order of
the captain.
4.
Whenever malice, negligence, want of foresight, or lack of skill on the part of the captain is the
reason for the act causing the damage.
(b)
Formalities, Arts. 819, 822
ARTICLE 819.
If the captain during the navigation should believe that the vessel can not continue
the voyage to the port of destination on account of the lack of provisions, well founded fear of seizure,
514 | P a g e
privateers or pirates, or by reason of any accident of the sea disabling her to navigate, he shall assemble
the officers and shall call the persons interested in the cargo who may be present, and who may attend the
meeting without the right to vote; and if, after examining the circumstances of the case, the reasons
should be considered well founded, it shall be decided to make the nearest and most convenient port
drafting and entering in the log book the proper minutes, which shall be signed by all.
The captain shall have the deciding vote and the persons interested in the cargo may make the objections
and protests they may deem proper, which shall be entered in the minutes in order that they may make
use thereof in the manner they may consider advisable.
ARTICLE 822.
If in order to make repairs to the vessel or because there should be danger of the
cargo suffering damage it should be necessary to unload, the captain must request authorization of the
judge or court of competent jurisdiction to lighten the vessel, and do so with the knowledge of the person
interested or representative of the cargo, should there be one. aeIsaE
In a foreign port, it shall be the duty of the Spanish * consul, where there is one, to give the authorization.
In the first case, the expenses shall be defrayed by the ship agent or owner, and in the second, they shall
be for the account of the owners of the merchandise, for whose benefit the act took place.
If the unloading should take place for both reasons, the expenses shall be defrayed in proportion to the
value of the vessel and that of the cargo.
(c)
Expense s, Arts. 821, 822
ARTICLE 821.
The expenses caused by the arrival under stress shall always be for the account of
the shipowner or agent, but the latter shall not be liable for the damage which may be caused the shippers
by reason of the arrival under stress, provided the latter is legitimate.
Otherwise, the shipowner or agent and the captain shall be jointly liable.
ARTICLE 822.
If in order to make repairs to the vessel or because there should be danger of the
cargo suffering damage it should be necessary to unload, the captain must request authorization of the
judge or court of competent jurisdiction to lighten the vessel, and do so with the knowledge of the person
interested or representative of the cargo, should there be one.
In a foreign port, it shall be the duty of the Spanish * consul, where there is one, to give the authorization.
In the first case, the expenses shall be defrayed by the ship agent or owner, and in the second, they shall
be for the account of the owners of the merchandise, for whose benefit the act took place.
If the unloading should take place for both reasons, the expenses shall be defrayed in proportion to the
value of the vessel and that of the cargo.
(d)
Responsibility of Captain, Arts. 823-825
ARTICLE 823.
The care and preservation of the cargo which has been unloaded shall be in charge of
the captain, who shall be responsible for the same, except in cases of force majeure.
ARTICLE 824.
If the entire cargo or part thereof should appear to be damaged, or there should be
imminent danger of its being damaged, the captain may request of the judge or court of competent
jurisdiction or the consul, in a proper case, the sale of all or of part of the former, and the person taking
cognizance of the matter shall authorize it after an examination and declaration of experts,
advertisements, and other formalities required by the case and an entry in the book, in accordance with
the provisions of Article 624.
The captain shall, in a proper case, justify the legality of the procedure, under the penalty of answering to
the shipper for the price the merchandise would have brought if it should have arrived at the port of its
destination in good condition.
ARTICLE 825.
The captain shall answer for the damages caused by his delay, if the reason for the
arrival under stress having ceased, he should not continue the voyage.
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If the reason for said arrival should have been the fear of enemies, privateers, or pirates, before sailing, a
discussion and resolution of a meeting of the officers of the vessel and persons interested in the cargo who
may be present shall take place, in accordance with the provisions contained in Article 819.
3.
Collisions
(a)
Classes and Effects

(1) Fortuitous, Arts. 830, 832
ARTICLE 830.
If a vessel should collide with another by reason of an accident or through force
majeure, each vessel and her cargo shall be liable for their own damage.
ARTICLE 832.
If, by reason of a storm or other cause of force majeure, a vessel which is properly
anchored and moored should collide with those in her immediate vicinity, causing them damage, the injury
occasioned shall be looked upon as particular average to the vessel run into.
(2) Culpable, Arts. 826, 827 and 831
ARTICLE 826.
If a vessel should collide with another through the fault, negligence, or lack of skill of
the captain, sailing mate, or any other member of the complement, the owner of the vessel at fault shall
indemnify the losses and damages suffered, after an expert appraisal.
ARTICLE 827.
If both vessels may be blamed for the collision, each one shall be liable for his own
damages, and both shall be jointly responsible for the losses and damages suffered by their cargoes.
ARTICLE 831.
If a vessel should be forced to collide with another one by a third vessel, the owner of
the third vessel shall indemnify for the losses and damages caused, the captain thereof being civilly liable
to said owner.
(3) Inscrutable Fault, Art. 828
ARTICLE 828.
The provisions of the foregoing article are applicable to the case in which it can not
be decided which of the two vessels was the cause of the collision.
(b)
Presumption of loss by collision, Art. 833
ARTICLE 833.
A vessel shall be presumed as lost thru a collision which, upon being run into, sinks
immediately, and also any vessel which is obliged to make a port to repair the damages caused by the
collision should be lost during the voyage, or should be obliged to be stranded in order to be saved.
(c)
Liabilities
(1) shipowner or agent, Arts. 837, 837
ARTICLE 837.
The civil liability contracted by the shipowners in the cases prescribed in this section,
shall be understood as limited to the value of the vessel with all her appurtenances and all the freight
earned during the voyage.
(2) captain, pilot, others, Arts. 829, 834
ARTICLE 829.
In the cases above mentioned the civil action of the owner against the person liable
for the damage is reserved, as well as the criminal liabilities which may be proper.
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ARTICLE 834.
If the vessels colliding should have pilots on board discharging their duties at the
time of the collision, their presence shall not exempt the captains from the liabilities they incur; but the
latter shall have the right to be indemnified by the pilots without prejudice to the criminal liability which
the latter may incur.
(3) conditions; protests; Arts 835, 836, 839
ARTICLE 835.
The action for the recovery of losses and damages arising from collisions can not be
admitted if a protest or declaration is not presented within twenty-four hours to the competent authority of
the point where the collision took place, or that of the first port of arrival of the vessel, if in Spain, * and to
the consul of Spain * if it should have occurred in a foreign country.
ARTICLE 836.
In so far as the damages caused to persons or to the cargo are concerned, the
absence of a protest can not prejudice the persons interested who were not on board or were not in a
condition to make known their wishes.
4.
Shipwrecks, Arts. 840 to 843
ARTICLE 840.
The losses and deteriorations suffered by a vessel and her cargo by reason of
shipwreck or stranding shall be individually for the account of the owners, the part of the wreck which may
be saved belonging to them in the same proportion.
ARTICLE 841.
If the wreck or stranding should arise through the malice, negligence, or lack of skill
of the captain, or because the vessel put to sea insufficiently repaired and prepared, the owner or the
freighters may demand indemnity of the captain for the damages caused to the vessel or cargo by the
accident, in accordance with the provisions contained in Articles 610, 612, 614, and 621.
ARTICLE 842.
The goods saved from the wreck shall be specially liable for the payment of the
expenses of the respective salvage, and the amount thereof must be paid by the owners of the former
before they are delivered to them, and with preference to any other obligation, if the merchandise should
be sold.
ARTICLE 843.
If several vessels navigate under convoy, and any of them should be wrecked, the
cargo saved shall be distributed among the rest in the proportion to the amount each one can receive.
If any captain should refuse, without sufficient cause, to receive what may correspond to him, the captain
of the wrecked vessel shall enter a protest against him before two sea officials of the losses and damages
resulting therefrom, ratifying the complaint within twenty-four hours after arrival at the first port, and
including it in the proceedings he must institute in accordance with the provisions contained in Article 612.
Should it not be possible to transfer to the other vessels the entire cargo of the one wrecked, the goods of
the highest value and smallest volume shall be saved first, the designation thereof being made by the
captain, in concurrence with the officers of his vessel.
(a)
Salvage Law (Act No. 2616)

Barrios v. Go Thong, 7 SCRA 535
EN BANC
[G.R. No. L-17192. March 30, 1963.]
HONORIO M. BARRIOS, plaintiff-appellant, vs. CARLOS A. GO THONG & COMPANY, defendantappellee.
Laput & Jardiel for plaintiff-appellant.
Quisumbing & Quisumbing for defendant-appellee.
SYLLABUS
517 | P a g e
1.
ADMIRALTY; SALVAGE; REQUISITES. Three elements are necessary to a valid salvage claim,
namely, (1) a marine peril, (2) service voluntarily rendered when not required as an existing duty or from a
special contract, and (3) success in whole or in part, or that the service rendered contributed to such
success. (Erlanger & Galinger vs. Swedish East Asiatic Co., Ltd.. 34 Phil. 178, citing the case of The
Mayflower vs. The Sabine, 101 U.S. 384.)
2.
ID.; ID.; ID.; LACK OF MARINE PERIL; CASE AT BAR. The circumstances that although the
defendant's vessel was in a helpless condition due to engine failure, it did not drift too far from the place
where it was, that the weather was fair, clear, and good, that there were only ripples on the sea which was
quite smooth, that there was moonlight, that although said vessel was drifting towards the open sea, there
was no danger of its foundering or being stranded as it was far from any island or rocks, and its anchor
could be released to prevent such occurrence, all show that there was no marine peril, and the vessel was
not a quasi-derelict, as to warrant valid salvage claim for the towing of the vessel.
3.
ID.; TOWAGE; CONSENTING TO OFFER TO TOW VESSEL. Plaintiff's service to defendant can be
considered as a quasi-contract of "towage" because in consenting to plaintiff's offer to tow the vessel,
defendant thereby impliedly entered into a Juridical relation of "towage" with the owner of the towing
vessel, captained by plaintiff.
4.
ID.; ID.; ONLY OWNER OF TOWING VESSEL, NOT ITS CREW, ENTITLED TO REMUNERATION. Where
the contract created is one for towage, only the owner of the towing vessel, to the exclusion of the crew of
the said vessel, may be entitled to remuneration.
5.
ID.; ID.; ID.; WAIVER BY OWNER. As the vessel owner had expressly waived its claim for
compensation for the towage service rendered to defendant, it is clear that plaintiff, whose right if at all
depends upon and not separate from the interest of his employer, is not entitled to payment for such
towage service.
6.
ID.; ID.; ID.; EQUITY MAY NOT BE INVOKED WHERE THERE IS AN EXPRESS PROVISION OF LAW
APPLICABLE. There being an express provision of law (Art. 2142, Civil Code) applicable to the
relationship created in this case, that is, that of a quasi-contract of towage where the crew is not entitled
to compensation separate from that of the vessel, there is no occasion to resort to equitable consideration.
DECISION
BARRERA, J p:
From the decision of the Court of First Instance of Manila (in Civil Case No. 37219) dismissing with costs his
ease against defendant Carlos A. Go Thong & Co., plaintiff Honorio M. Barrios, interposed the present
appeal.
The facts of the case, as found by the trial court, are briefly stated in its decision, to wit:
"The plaintiff Honorio M. Barrios was, on May 1 and 2, 1958, captain and/or master of the MV Henry I of the
William Lines Incorporated, of Cebu City, plying between and to and from Cebu City and other southern
cities and ports, among which are Dumaguete City, Zamboanga City, and Davao City. At about 8:00 o'clock
on the evening of May 1, 1958, plaintiff in his capacity as such captain and/or master of the aforesaid MV
Henry I, received or otherwise intercepted an S.O.S. distress signal by blinkers from the MV Alfredo, owned
and/or operated by the defendant Carlos A. Go Thong & Company. Acting on and/or answering the S.O.S.
call, the plaintiff Honorio M. Barrios, also in his capacity as captain and/or master of the MV Henry I, which
was then sailing or navigating from Dumaguete City, altered the course of said vessel, and steered and
headed towards the beckoning MV Don Alfredo, which plaintiff found to be in trouble, due to engine failure
and the loss of her propeller, for which reason, it was drifting slowly southward from Negros Island towards
Borneo in the open China Sea, at the mercy of a moderate easterly wind. At about 8:25 p.m. on the same
day, May 1, 1958, the MV Henry, under the command of the plaintiff, succeeded in getting near the MV
Don Alfredo in fact as near as about seven meters from the latter ship and with the consent and
knowledge of the captain and/or master of the MV Don Alfredo, the plaintiff caused the latter vessel to be
tied to, or well-secured and connected with tow lines from the MV Henry I; and in that manner, position
and situation, the latter had the MV Don Alfredo in tow and proceeded towards the direction of Dumaguete
City, as evidenced by a written certificate to this effect executed and accomplished by the Master, the
Chief Engineer, the Chief Officer, and the Second Engineer of the MV Don Alfredo, who were then on board
the latter ship at the time of the occurrence stated above (Exh. A). At about 5:10 o'clock the following
518 | P a g e
morning, May 2, 1958, or after almost nine hours during the night, with the MV Don Alfredo still in tow by
the MV Henry I, and while both vessels were approaching the vicinity of Apo Island off Zamboanga town,
Negros Oriental, the MV Lux, a sister ship of the MV Don Alfredo, was sighted heading towards the
direction of the aforesaid two vessels, reaching then fifteen minutes later, or at about 5:25 o'clock on that
same morning. Thereupon, at the request and instance of the captain and/or master of the MV Don Alfredo,
the plaintiff caused the tow lines to be released, thereby also releasing the MV Don Alfredo.
"These are the main facts of the present case as to which plaintiff and defendant quite agree with each
other. As was manifested in its memorandum presented in this case on August 22, 198, defendant thru
counsel said that there is, indeed, between the parties, no dispute as to the factual circumstances, but
counsel adds that where plaintiff concludes that they establish an impending sea peril from which salvage
of a ship worth more than P100 000.00, plus life and cargo was done, the defendant insists that the facts
made out no such case, but that what merely happened was only mere towage from which plaintiff cannot
claim any compensation or remuneration independently of the shipping company that owned the vessel
commanded by him."
On the basis of these facts, the trial court (on April 5, 1960) dismissed the case, stating:
"Plaintiff basis his claim upon the provisions of the Salvage Law, Act No. 2616, . . .
"In accordance with the Salvage Law, a ship which is lost or abandoned at sea is considered a derelict and,
therefore, proper subject of salvage. A ship in a desperate condition, where persons on board are
incapable, by reason of their mental and physical condition, of doing anything for their own safety, is a
quasi-derelict and may, likewise, be the proper subject of salvage. Was the MV Don Alfredo, on May 1,
1958, when her engine failed and, for that reason, was left drifting without power on the high seas, a
derelict or a quasi- derelict? In other words, was it a ship that was lost or abandoned, or in a desperate
condition, which could not be saved by reason of incapacity or incapacity of its crew or the persons on
board thereof? From all appearances and from the evidence extant in the records, there can be no doubt,
for it seems clear enough, that the MV Don Alfredo was not a lost ship, nor was it abandoned. Can it be
said that the said ship was in a desperate condition, simply, because of S.O.S. signals were sent from it?
"From the testimony of the captain of the MV Don Alfredo, the engine failed and the ship already lost
power as early as 8:00 o'clock on the morning of May 1, 1958; although it was helpless, in the sense that it
could not move, it did not drift too far from the place where it was, at the time it had an engine failure. The
weather was fair in fact, as described by witnesses, the weather was clear and good. The waves were
small, too slight there were only ripples on the sea, and the sea was quite smooth. And, during the
night, while towing was going on, there was a moonlight. Inasmuch as the MV Don Alfredo was drifting
towards the open sea, there was no danger of floundering. As testified to by one of the witnesses, it would
take days or even weeks before the ship could as much as approach an island. And, even then, upon the
least indication, the anchor could always be weighed down, in order to prevent the ship from striking
against the rocks.
"There was no danger of the vessel capsizing, in view of the fairness of the sea, and the condition of the
weather, as described above. As a matter of fact, although the MV Don Alfredo had a motor launch, and
two lifeboats, there was no attempt, much less, was there occasion or necessity, to lower anyone or all of
them, in order to evacuate the persons on board; nor did the conditions then obtaining require an order to
jettison the cargo.
"But, it is insisted for the plaintiff that an S.O.S. or a distress signal was sent from aboard the MV Don
Alfredo, which was enough to establish the fact that it was exposed to imminent peril at sea. It is admitted
by the defendant that such S.O.S. signal was, in fact, sent by blinkers. However, defendant's evidence
shows that Captain Loresto of the MV Don Alfredo, did not authorize the radio operator of the aforesaid
ship to send an S.O.S. or distress signal, for the ship was never in distress, nor was it exposed to a great
imminent peril of the sea. What the aforesaid Captain told the radio operator to transmit was a general
call; for, at any rate, a message had been sent to defendant's office at Cebu City, which the latter
acknowledged by sending back a reply stating that help was on the way. However, as explained by the said
radio operator, in spite of his efforts to send a general call by radio, he did not receive any response. For
this reason, the Captain instructed him to send the general call by blinkers from the deck of the ship; but
the call by blinkers, which follows the dots and dashes method of sending messages, could not be easily
understood by deck officers who ordinarily are not radio operators. Hence, the only way by which the
attention of general officers on deck could be called, was to send an S.O.S. signal which can be understood
by all and sundry.
519 | P a g e
"Be it as it may, the evidence further shows that when the two ships were already within hearing distance
(barely seven meters) of each other, there was a sustained conversation between Masters and
complement of the two vessels, by means of loud speakers and the radio; and, the plaintiff must have
learned of the exact nature and extent of the disability from which the MV Don Alfredo had suffered that
is, that the only trouble that the said vessel had developed was an engine failure, due to the loss of its
propellers.
"It can thus be said that the MV Don Alfredo was not in a perilous condition wherein the members of its
crew would be incapable of doing anything to save passengers and cargo, and, for this reason, it cannot be
duly considered as a quasi-derelict; hence, it was not the proper subject of salvage, and the Salvage Law,
Act No. 2616, is not applicable.
"Plaintiff, likewise, predicates his action upon the provision of Article 2142 of the New Civil Code, which
reads as follows:
'Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end
that no one shall be unjustly enriched or benefited at the expense of another.'
This does not find clear application to the case at bar, for the reason that it is not the William Lines, Inc.,
owners of the MV Henry I which is claiming for damages or remuneration, because it has waived all such
claims, but the plaintiff herein is the Captain of the salvaging ship, who has not shown that, in his
voluntary act done towards and which benefited the MV Don Alfredo, he had been unduly prejudiced by his
employers, the said William Lines, Incorporated.
"What about equity? Does not equity permit plaintiff to recover for his services rendered and sacrifices
made? In this jurisdiction, equity may only be taken into account when the circumstances warrant its
application, and in the absence of any provision of law governing the matter under litigation. That is not so
in the present case.
"In view of the foregoing, judgment is hereby rendered dismissing the case with costs against the plaintiff;
and inasmuch as the plaintiff has not been found to have brought the case maliciously, the counterclaim of
the defendant is, likewise, dismissed, without pronouncement as to costs.
"SO ORDERED."
The main issue to be resolved in this appeal is, whether under the facts of the case, the service rendered
by plaintiff to defendant constituted "salvage" or "towage", and if so, whether plaintiff may recover from
defendant compensation for such service.
The pertinent provision of the Salvage Law (Act No. 2616), provides:
"SECTION 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of the crew, or
shall have been abandoned by them, and picked up and conveyed to a safe place by other persons, the
latter shall be entitled to a reward for the salvage.
"Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from
shipwreck, shall be entitled to a like reward."
According to this provision, those who assist in saving a vessel or its cargo from shipwreck, shall be
entitled to a reward (salvage). "Salvage" has been defined as "the compensation allowed to persons by
whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on the sea,
or in recovering such property from actual loss, as in case of shipwreck, derelict, or recapture." (Blackwall
vs. Saucelito Tug Company, 10 Wall. 1, 12, cited in Erlanger & Galinger vs. Swedish East Asiatic Co., Ltd.,
34 Phil. 178.) In the Erlanger & Galinger case, it was held that three elements are necessary to a valid
salvage claim, namely, (1) a marine peril, (2) service voluntarily rendered when not required as an existing
duty or from a special contract, and (3) success in whole or in part, or that the service rendered
contributed to such success. 1
Was there a marine peril, in the instant case, to justify a valid salvage claim by plaintiff against defendant?
Like the trial court, we do not think there was. It appears that although the defendant's vessel in question
was, on the night of May 1, 1958, in a helpless condition due to engine failure, it did not drift too far from
the place where it was. As found by the court a quo the weather was fair, clear, and good. The waves were
small and too slight, so much so, that there were only ripples on the sea, which was quite smooth. During
the towing of the vessel on the same night, there was moonlight. Although said vessel was drifting towards
the open sea, there was no danger of its foundering or being stranded, as it was far from any island or
rocks. In case of danger of stranding, its anchor could be released, to prevent such occurrence. There was
no danger that defendant's vessel would sink in view of the smoothness of the sea and the fairness of the
weather. That there was absence of danger is shown by the fact that said vessel or its crew did not even
find it necessary to lower its launch and two motor boats, in order to evacuate its passengers aboard.
520 | P a g e
Neither did they find occasion to jettison the vessel's cargo as a safety measure. Neither the passengers
nor the cargo were in danger of perishing. All that the vessel's crew members could not do was to move
the vessel on its own power. That did not make the vessel a quasi-derelict, considering that even before
the appellant extended the help to the distress ship, a sister vessel was known to be on its way to succor
it.
If plaintiff's service to defendant does not constitute "salvage" within the purview of the Salvage Law, can
it be considered as a quasi-contract of "towage" created in the spirit of the new Civil Code? The answer
seems to incline in the affirmative, for in consenting to plaintiff's offer to tow the vessel, defendant
(through the captain of its vessel MV Don Alfredo) thereby impliedly entered into a juridical relation of
"towage" with the owner of the vessel MV Henry I, captained by plaintiff, the William Lines, Incorporated.
"Tug which put line aboard liberty ship which was not in danger or peril but which had reduced its engine
speed because of hot grounds, and assisted ship over bar and, thereafter, dropped towline and stood by
while ship proceeded to dock under own power, was entitled, in absence of written agreement as to
amount to be paid for services, to payment for towage services, and not for salvage services." (Sauce, et
al. vs. United States, et al., 107 F. Supp. 489).
If the contract thus created, in this case, is one for towage, then only the owner of the towing vessel, to
the exclusion of the crew of the said vessel, may be entitled to remuneration.
"It often becomes material too, for courts to draw a distinct line between salvage and towage; for the
reason that a reward ought sometimes to be given to the crew of the salvage vessel and to other
participants in salvage services, and such reward should not be given if the services were held to be
merely towage." (The Rebecca Shepherd, 148 F. 731.)
"The master and members of the crew of a tug were not entitled to participate in payment by liberty ship
for services rendered by tug which were towage services and not salvage services." (Sause, et al. vs.
United States, et al., supra).
"The distinction between salvage and towage is of importance to the crew of the salvaging ship, for the
following reasons: If the contract for towage is in fact towage, then the crew does not have any interest or
rights in the remuneration pursuant to the contract. But if the owners of the respective vessels are of a
salvage nature, the crew of the salvaging ship is entitled to salvage, and can look to the salved vessel for
its share." (I Norris, The Law of Seamen, Sec. 222).
And, as the vessel-owner, William Lines, Incorporated, had expressly waived its claim for compensation for
the towage service rendered to defendant, it is clear that plaintiff, whose right if at all depends upon and
not separate from the interest of his employer, is not entitled to payment for such towage service.
Neither may plaintiff invoke equity in support of his claim for compensation against defendant. There being
an express provision of law (Art. 2142, Civil Code) applicable to the relationship created in this case, that
is, that of a quasi-contract of towage where the crew is not entitled to compensation separate from that of
the vessel, there is no occasion to resort to equitable considerations.
WHEREFORE, finding no reversible error in the decision of the court a quo appealed from, the same is
hereby affirmed in all respects, with costs against the plaintiff-appellant. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and
Makalintal, JJ., concur.
Footnotes
1.
Citing the case of The Mayflower vs. The Sabine, 101 U.S. 384.
E. Special Contracts of Maritime Commerce
1.
Charter Parties
(a)
(b)
Definition
Kinds
Planters Products v. CA, supra
Coastwise Lighterage Corp. V. CA, 245 SCRA 796
THIRD DIVISION
[G.R. No. 114167. July 12, 1995.]
521 | P a g e
COASTWISE LIGHTERAGE CORPORATION, petitioner, vs. COURT OF APPEALS and the PHILIPPINE
GENERAL INSURANCE COMPANY, respondents.
David & Associates Law Offices for petitioner.
Fajardo Law Offices for private respondent.
SYLLABUS
1.
CIVIL LAW; SPECIAL CONTRACTS; COMMON CARRIER; KINDS OF CHARTER PARTIES; CONTRACT OF
AFFREIGHTMENT; DISTINGUISHED FROM BAREBOAT OR DEMISE. The distinction between the two kinds
of charter parties (i.e. bareboat or demise and contract of affreightment) is more clearly set out in the case
of Puromines, Inc. vs. Court of Appeals, wherein we ruled: "Under the demise or bareboat charter of the
vessel, the charterer will generally be regarded as the owner for the voyage or service stipulated. The
charterer mans the vessel with his own people and becomes the owner pro hac vice, subject to liability to
others for damages caused by negligence. To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the charterer, anything short of such
a complete transfer is a contract of affreightment (time or voyage charter party) or not a charter party at
all. On the other hand a contract of affreightment is one in which the owner of the vessel leases part or all
of its space to haul goods for others. It is a contract for special service to be rendered by the owner of the
vessel and under such contract the general owner retains the possession, command and navigation of the
ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of
the charter hire. . . . An owner who retains possession of the ship though the hold is the property of the
charterer, remains liable as carrier and must answer for any breach of duty as to the care, loading and
unloading of the cargo. . . ." Although a charter party may transform a common carrier into a private one,
the same however is not true in a contract of affreightment on account of the aforementioned distinctions
between the two.
2.
ID.; ID.; ID.; ID.; ID.; LIABLE AS A COMMON CARRIER. Petitioner admits that the contract it
entered into with the consignee was one of affreightment. We agree. Pag-asa Sales, Inc. only leased three
of petitioner's vessels, in order to carry cargo from one point to another, but the possession, command and
navigation of the vessels remained with petitioner Coastwise Lighterage. Pursuant therefore to the ruling in
the aforecited Puromines case, Coastwise Lighterage, by the contract of affreightment, was not converted
into a private carrier, but remained a common carrier and was still liable as such. The law and
jurisprudence on common carriers both hold that the mere proof of delivery of goods in good order to a
carrier and the subsequent arrival of the same goods at the place of destination in bad order makes for a
prima facie case against the carrier. It follows then that the presumption of negligence that attaches to
common carriers, once the goods it transports are lost, destroyed or deteriorated, applies to the petitioner.
This presumption, which is overcome only by proof of the exercise of extraordinary diligence, remained
unrebutted in this case.
3.
ID.; ID.; ID.; ID.; ID.; MUST ALSO EXERCISE EXTRAORDINARY DILIGENCE BY PLACING A PERSON WITH
NAVIGATIONAL SKILLS. Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he
was not licensed. The Code of Commerce, which subsidiarily governs common carriers (which are primarily
governed by the provisions of the Civil Code). Clearly, petitioner Coastwise Lighterage's embarking on a
voyage with an unlicensed patron violates this rule. It cannot safely claim to have exercised extraordinary
diligence, by placing a person whose navigational skills are questionable, at the helm of the vessel which
eventually met the fateful accident. It may also logically, follow that a person without license to navigate,
lacks not just the skill to do so, but also the utmost familiarity with the usual and safe routes taken by
seasoned and legally authorized ones. Had the patron been licensed, he could be presumed to have both
the skill and the knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay
on their way to Pier 18. As a common carrier, petitioner is liable for breach of the contract of carriage,
having failed to overcome the presumption of negligence with the loss and destruction of goods it
transported, by proof of its exercise of extraordinary diligence.
4.
ID.; DAMAGES; INSURANCE COMPANY SHALL BE SUBROGATED TO THE RIGHTS OF THE INSURED
AGAINST THE WRONGDOER. On the issue of subrogation, which petitioner contends as inapplicable in
this case, we once more rule against the petitioner. We have already found petitioner liable for breach of
the contract of carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained by the
loss of the cargo which petitioner-carrier was transporting, it was not the carrier which paid the value
thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent PhilGen. Article 2207 of the
522 | P a g e
Civil Code is explicit on this point. Containing the equitable principle of subrogation has been applied in a
long line of cases including Compania Maritima v. Insurance Company of North America; Fireman's Fund
Insurance Company v. Jamilla & Company, Inc., and Pan Malayan Insurance Corporation v. Court of
Appeals, wherein this Court explained: "Article 2207 of the Civil Code is founded on the well-settled
principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of
a party other than the assured, then the insurer, upon payment to the assured will be subrogated to the
rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to
pay. Payment by the insurer to the assured operated as an equitable assignment to the former of all
remedies which the latter may have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer."
RESOLUTION
FRANCISCO, J p:
This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17, 1993,
affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is liable to pay
herein private respondent the amount of P700,000.00, plus legal interest thereon, another sum of
P100,000.00 as attorney's fees and the cost of the suit. cdasia
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila
with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb barges. The barges
were towed in tandem by the tugboat MT Marica, which is likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9," struck an unknown
sunken object. The forward buoyancy compartment was damaged, and water gushed in through a hole
"two inches wide and twenty-two inches long." 1 As a consequence, the molasses at the cargo tanks were
contaminated and rendered unfit for the use it was intended. This prompted the consignee, Pag-asa Sales,
Inc. to reject the shipment of molasses as a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim
with the insurer of its lost cargo, herein private respondent, Philippine General Insurance Company
(PhilGen, for short) and against the carrier, herein petitioner, Coastwise Lighterage. Coastwise Lighterage
denied the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of
P700,000.00, representing the value of the damaged cargo of molasses. cdtai
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of Manila,
seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the latter's lost
cargo. PhilGen now claims to be subrogated to all the contractual rights and claims which the consignee
may have against the carrier, which is presumed to have violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court of
Appeals, the award was affirmed.
Hence, this petition. cdt
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise Lighterage was
transformed into a private carrier, by virtue of the contract of affreightment which it entered into with the
consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a private carrier, did it exercise
the ordinary diligence to which a private carrier is in turn bound? Second, whether or not the insurer was
subrogated into the rights of the consignee against the carrier, upon payment by the insurer of the value
of the consignee's goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it was a
common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the shipment of
molasses from Negros Oriental to Manila and refers to this contract as a "charter agreement." It then
proceeds to cite the case of Home Insurance Company vs. American Steamship Agencies, Inc. 2 wherein
this Court held: ". . . a common carrier undertaking to carry a special cargo or chartered to a special
person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the court
are as follows: aisadc
523 | P a g e
"Accordingly, the charter party contract is one of affreightment over the whole vessel, rather than a
demise. As such, the liability of the shipowner for acts or negligence of its captain and crew, would remain
in the absence of stipulation." 3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals, 4 wherein we
ruled:
"Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the owner
for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes the
owner pro hac vice, subject to liability to others for damages caused by negligence. To create a demise,
the owner of a vessel must completely and exclusively relinquish possession, command and navigation
thereof to the charterer, anything short of such a complete transfer is a contract of affreightment (time or
voyage charter party) or not a charter party at all. cdta
On the other hand a contract of affreightment is one in which the owner of the vessel leases part or all of
its space to haul goods for others. It is a contract for special service to be rendered by the owner of the
vessel and under such contract the general owner retains the possession, command and navigation of the
ship, the charterer or freighter merely having use of the space in the vessel in return for his payment of
the charter hire. . . .
. . .. An owner who retains possession of the ship though the hold is the property of the charterer, remains
liable as carrier and must answer for any breach of duty as to the care, loading and unloading of the cargo.
. . ."
Although a charter party may transform a common carrier into a private one, the same however is not true
in a contract of affreightment on account of the aforementioned distinctions between the two. cdasia
Petitioner admits that the contract it entered into with the consignee was one of affreightment. 5 We
agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one point to
another, but the possession, command and navigation of the vessels remained with petitioner Coastwise
Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the contract of
affreightment, was not converted into a private carrier, but remained a common carrier and was still liable
as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in good
order to a carrier and the subsequent arrival of the same goods at the place of destination in bad order
makes for a prima facie case against the carrier. cdtai
It follows then that the presumption of negligence that attaches to common carriers, once the goods it
transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was caused by its
hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a submerged
derelict vessel. Petitioner contends that this navigational hazard was the efficient cause of the accident.
Further, it asserts that the fact that the Philippine Coastguard "has not exerted any effort to prepare a
chart to indicate the location of sunken derelicts within Manila North Harbor to avoid navigational
accidents" 6 effectively contributed to the happening of this mishap. Thus, being unaware of the hidden
danger that lies in its path, it became impossible for the petitioner to avoid the same. Nothing could have
prevented the event, making it beyond the pale of even the exercise of extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far from having
rendered service with the greatest skill and utmost foresight, and being free from fault, the carrier was
culpably remiss in the observance of its duties. cdt
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The Code
of Commerce, which subsidiarily governs common carriers (which are primarily governed by the provisions
of the Civil Code) provides:
"Article 609. Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to contract
in accordance with this code, and prove the skill capacity and qualifications necessary to command and
direct the vessel, as established by marine and navigation laws, ordinances or regulations, and must not
be disqualified according to the same for the discharge of the duties of the position. . . ."
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates this
rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful accident. It
524 | P a g e
may also logically, follow that a person without license to navigate, lacks not just the skill to do so, but also
the utmost familiarity with the usual and safe routes taken by seasoned and legally authorized ones. Had
the patron been licensed, he could be presumed to have both the skill and the knowledge that would have
prevented the vessel's hitting the sunken derelict ship that lay on their way to Pier 18. cdt
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to overcome
the presumption of negligence with the loss and destruction of goods it transported, by proof of its exercise
of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more rule
against the petitioner. We have already found petitioner liable for breach of the contract of carriage it
entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of the cargo which
petitioner-carrier was transporting, it was not the carrier which paid the value thereof to Pag-asa Sales, Inc.
but the latter's insurer, herein private respondent PhilGen.
Article 2207 of the Civil Code is explicit on this point: aisadc
"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 wrongdoer or the person
who violated the contract. . . ."
This legal provision containing the equitable principle of subrogation has been applied in a long line of
cases including Compania Maritima v. Insurance Company of North America, 7 Firesman's Fund Insurance
Company v. Jamilla & Company, Inc., 8 and Pan Malayan Insurance Corporation v. Court of Appeals, 9
wherein this Court explained:
"Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured, then
the insurer, upon payment to the assured will be subrogated to the rights of the assured to recover from
the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the
assured operated as an equitable assignment to the former of all remedies which the latter may have
against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer." aisadc
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-asa Sales,
Inc., the consignee of the cargo of molasses totally damaged while being transported by petitioner
Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales, Inc. may have
had against the carrier, herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming the order of
Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to pay respondent
Philippine General Insurance Company the "principal amount of P700,000.00 plus interest thereon at the
legal rate computed from March 29, 1989, the date the complaint was filed until fully paid and another
sum of P100,000.00 as attorney's fees and costs" 10 is likewise hereby AFFIRMED. cdt
SO ORDERED.
Feliciano, Romero, Melo and Vitug, JJ., concur.
Footnotes
1.
Rollo, p. 25, Decision, Court of Appeals.
2.
23 SCRA 24.
3.
Ibid., p. 27. cdt
4.
220 SCRA 281.
5.
Rollo, p. 11, Petition, p. 5.
6.
Rollo, p. 85.
7.
12 SCRA 213.
8.
70 SCRA 323. cdt
9.
184 SCRA 54.
10.
Rollo, p. 24.
(c)
Forms and Effects, Arts. 652 657
ARTICLE 862. If, notwithstanding the saving of the vessel and of her cargo in consequence of the cutting
down of masts or of any other damage deliberately done to the vessel for said purpose, the merchandise
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should subsequently be lost or stolen, the captain can not demand of the shippers or consignees that they
contribute to indemnity for the average unless the loss should occur by an act of the owner or consignee.
ARTICLE 863. If the owner of the jettisoned goods should recover them after having received the
indemnity for gross average, he shall be obliged to return to the captain and to other persons interested in
the cargo the amount he may have received, deducting the damage caused by the jettison and the
expenses incurred in their recovery. cd05LET
In the latter case, the amount returned shall be distributed between the vessel and the persons interested
in the cargo in the same proportion in which they contributed to the payment of the average.
ARTICLE 864.
If the owner of the goods jettisoned should recover them without having demanded
any indemnity he shall not be obliged to contribute to the payment of the gross average which may have
been suffered by the rest of the cargo after the jettison.
ARTICLE 865.
The distribution of the gross average shall not be final until it has been agreed to, or
in the absence thereof, until it has been approved by the judge or court after an examination of the
liquidation and a hearing of the persons interested who may be present, or of their representatives.
ARTICLE 866.
After the liquidation has been approved it shall be the duty of the captain to collect
the amount of the distribution, and he shall be liable to the owners of the goods averaged for the losses
they suffer through his delay or negligence.
ARTICLE 867.
If the contributors should not pay the amount of the assessment within the third day
after having been requested to do so, the goods saved shall be attached, at the request of the captain, and
shall be sold to cover the payment.
(d)
Rights and Obligations of Shipowners,

Arts. 669 678
ARTICLE 669.
The owners or the captain shall observe in charter parties the capacity of the vessel
or that expressly designated in the registry of the same, a difference greater than 2 per cent between that
stated and her true capacity not being permissible.
If the owners or the captain should contract to carry a greater amount of cargo than the vessel can hold, in
view of her tonnage, they shall indemnify the freighters whose contracts they do not fulfill for the losses
they may have caused them by reason of their default, according to the cases, viz:
If the vessel has been chartered by one freighter only, and there should appear to be an error or fraud in
her capacity, and the charterer should not wish to rescind the contract, when he has a right to do so, the
charter should be reduced in proportion to the cargo the vessel can not receive, the person from whom the
vessel is chartered being furthermore obliged to indemnify the charterer for the losses he may have
caused.
If, on the contrary, there should be several charter parties, and by reason of the want of space all the
cargo contracted for can not be received, and none of the charterers desires to rescind the contract,
preference shall be given to the person who has already loaded and arranged the freight in the vessel, and
the rest shall take the place corresponding to them in the order of the dates of their contracts.
Should there be no priority, the charterers may load, if they wish, pro rata of the amounts of weight or
space they may have engaged, and the person from whom the vessel was chartered shall be obliged to
indemnify them for the loss and damage.
ARTICLE 670.
If the person from whom the vessel is chartered, after receiving a part of the freight,
should not find sufficient to make up at least three-fifths of the amount which the vessel can hold, at the
price he may have fixed, he may substitute for the transportation another vessel inspected and declared
suitable for the same voyage, the expenses of transfer being defrayed by him, as well as the increase,
should there be any, in the price of the charter. Should he not be able to make this change, the voyage
shall be undertaken at the time agreed upon; and should no time have been fixed, within fifteen days from
the time of beginning to load, should nothing to the contrary have been stipulated.
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If the owner of the part of the freight already loaded should procure some more at the same price and
under similar or proportionate conditions to those accepted for the freight received, the person from whom
the vessel is chartered or the captain can not refuse to accept the rest of the cargo; and should he do so,
the freighter shall have a right to demand that the vessel put to sea with the cargo she may have on
board.
ARTICLE 671.
After three-fifths of the vessel is loaded, the person from whom she is chartered can
not, without the consent of the charterers or freighters substitute the vessel designated in the charter
party by another one, under the penalty of making himself thereby liable for all the losses and damages
occurring during the voyage to the cargo of the person who did not consent to the change.
ARTICLE 672.
If the vessel has been chartered in whole, the captain can not, without the consent of
the person chartering her, accept freight from any other person; and should he do so, said charterer may
oblige him to unload it and require him to indemnify him for the losses suffered thereby.
ARTICLE 673.
The person from whom the vessel is chartered shall be liable for all the losses caused
the charterer by reason of the voluntary delay of the captain in putting to sea, according to the rules
prescribed, provided he has been requested to put to sea at the proper time through a notary or judicially.
ARTICLE 674.
If the charterer should carry to the vessel more freight than that contracted for, the
excess may be admitted in accordance with the price stipulated in the contract, if it can be well stowed
without injuring the other freighters, but if in order to stow said freight it should be necessary to stow it in
such manner as to throw the vessel out of trim the captain must refuse it or unload it at the expense of its
owner.
The captain may likewise, before leaving the port, unload the merchandise placed on board clandestinely,
or transport it, if he can do so and keep the vessel in trim, demanding by way of freightage the highest
price which may have been stipulated for said voyage.
ARTICLE 675.
If the vessel has been chartered to receive the cargo in another port, the captain
shall appear before the consignee designated in the charter party, and, should the latter not deliver the
cargo to him, he shall inform the charterer and await his instructions, and in the meantime the lay days
agreed upon shall begin to run, or those allowed by custom in the port, unless there is a special agreement
to the contrary.
Should the captain not receive an answer within the time necessary therefor, he shall make efforts to find
freight; and should he not find any after the lay days and extra lay days have elapsed, he shall make a
protest and return to the port where the charter was made.
The charterer shall pay the freightage in full, discounting that which may have been earned on the
merchandise which may have been carried on the voyage out or on the return trip, if carried for the
account of third persons.
The same shall be done if a vessel, having been chartered for the round trip, should not be given any cargo
for her return.
ARTICLE 676.
The captain shall lose the freightage and shall indemnify the charterers if the latter
should prove, even against the certificate of inspection, should one have taken place at the port of
departure, that the vessel was not in a condition to navigate at the time of receiving the cargo.
ARTICLE 677.
The charter party shall be enforced if the captain should not have any instructions
from the charterer, and a declaration of war or a blockade should take place during the voyage.
In such case the captain shall be obliged to make the nearest safe and neutral port, and request and await
orders from the freighter; and the expenses incurred and salaries earned during the detention shall be paid
as general average.
If, by orders of the freighter, the cargo should be discharged at the port of arrival, the freight for the
voyage out shall be paid in full.
527 | P a g e
ARTICLE 678.
If the time necessary, in the opinion of the judge or court, in which to receive orders
from the freighters should have elapsed without the captain having received any instructions, the cargo
shall be deposited, and it shall be liable for the payment of the freight and expenses incurred by reason of
the delay which shall be paid from the proceeds of the part first sold.
(e)
Obligations of charterers, Arts. 679-687
ARTICLE 679.
The charterer of an entire vessel may subcharter the whole or part thereof for the
amounts he may consider most convenient, without the captain being allowed to refuse to receive on
board the freight delivered by the second charterers, provided the conditions of the first charter are not
changed, and that the person from whom the vessel is chartered be paid the full price agreed upon even
though the full cargo is not embarked, with the limitation established in the next article.
ARTICLE 680.
A charterer who does not make up the full cargo he bound himself to ship shall pay
the freightage of the amount he fails to ship, if the captain did not take other freight to make up the cargo
of the vessel, in which case he shall pay the first charterer the difference should there be any.
ARTICLE 681.
If the charterer should ship goods different from those indicated at the time of
executing the charter party, without the knowledge of the person from whom the vessel was chartered or
of the captain, and should thereby give rise to losses, by reason of confiscation, embargo, detention, or
other causes, to the person from whom the vessel was chartered or to the shippers, the person giving rise
thereto shall be liable with the value of his shipment and furthermore with his property, for the full
indemnity to all those injured through his fault.
ARTICLE 682.
If the merchandise shipped should have been for the purpose of illicit commerce, and
was taken on board with the knowledge of the person from whom the vessel was chartered or of the
captain, the latter, jointly with the owner of the same, shall be liable for all the losses which may be
caused the other shippers, and even though it may have been agreed, they can not demand any indemnity
whatsoever of the charterer for the damage caused the vessel.
ARTICLE 683.
In case of making a port to repair the hull, machinery, or equipment of the vessel, the
freighters must wait until the vessel is repaired, being permitted to unload her at their own expense should
they deem it advisable.
If, for the benefit of the cargo subject to deterioration, the freighters or the court, or the consul, or the
competent authority in a foreign land should order the merchandise to be unloaded, the expenses of
loading and unloading shall be for the account of the former.
ARTICLE 684.
If the charterer, without the occurrence of any of the cases of force majeure
mentioned in the foregoing article, should wish to unload his merchandise before arriving at the port of
destination, he shall pay the full freight, the expenses of the stop made at his request, and the losses and
damages caused the other freighters, should there be any.
ARTICLE 685.
In charters for transportation of general freight any of the freighters may unload the
merchandise before the beginning of the voyage, by paying one-half the freight, the expense of stowing
and restowing the cargo, and any other damage which may be caused the other shippers.
ARTICLE 686.
After the vessel has been unloaded and the cargo placed at the disposal of the
consignee, the latter must immediately pay the captain the freight due and the other expenses to which
he may be liable for said cargo.
The primage must be paid in the same proportion and at the same time as the freight, all the changes and
modifications to which the latter should be subject also governing the former.
ARTICLE 687.
The charters and freighters can not abandon merchandise damaged on account of
the inherent vice of the goods or by reason of an accidental case, for the payment of the freight and other
expenses. aisadc
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The abandonment shall be proper, however, if the cargo should consist of liquids and should they have
leaked out, there not remaining in the containers more than one-quarter of their contents.
(f)
Rescission, Arts. 688 to 692
ARTICLE 688.
A charter party may be annulled at the request of the charterer:
1.
If before loading the vessel he should abandon the charter, paying half of the freightage agreed
upon.
2.
If the capacity of the vessel should not agree with that stated in the certificate of the tonnage, or if
there is an error in the statement of the flag under which she sails.
3.
If the vessel should not be placed at the disposal of the charterer within the period and in the
manner agreed upon.
4.
If, after the vessel has put to sea, she should return to the port of departure, on account of risk of
pirates, enemies, or bad weather, and the freighters should agree to unload her.
In the second and third cases the person from whom the vessel was chartered shall indemnify the
charterer for the losses he may suffer.
In the fourth case the person from whom the vessel was chartered shall have a right to the
freightage in full for the voyage out.
If the charter should have been made by the months, the charterers shall pay the full freightage for
one month, if the voyage were to a port in the same waters, and two months, if the voyage were to a port
in different waters.
From one port to another of the Peninsula and adjacent islands, the freightage for one month only
shall be paid.
5.
If a vessel should make a port during the voyage in order to make urgent repairs and the freighters
should prefer to dispose of the merchandise.
When the delay does not exceed thirty days, the freighters shall pay the full freight for the voyage
out.
Should the delay exceed thirty days, they shall only pay the freight in proportion to the distance
covered by the vessel.
ARTICLE 689.
At the request of the person from whom the vessel is chartered the charter party may
be rescinded:
1.
If the charterer at the termination of the extra lay days does not place the cargo alongside the
vessel.
In such case the charterer must pay half the freight stipulated besides the demurrage for the lay
days and extra lay days elapsed.
2.
If the person from whom the vessel was chartered should sell her before the charterer has begun to
load her and the purchaser should load her for his own account.
In such case the vendor shall indemnify the charterer for the losses he may suffer.
If the new owner of the vessel should not load her for his own account the charter party shall be
respected, and the vendor shall indemnify the purchaser if the former did not inform him of the charter
pending at the time of making the sale.
ARTICLE 690.
The charter party shall be rescinded and all action arising therefrom shall be
extinguished if, before the vessel puts to sea from the port of departure, any of the following cases should
occur:
1.
A declaration of war or interdiction of commerce with the power to whose ports the vessel was
going to sail.
2.
A condition of blockade of the port of destination of said vessel, or the breaking out of an epidemic
after the contract was executed.
3.
The prohibition to receive the merchandise of the vessel at the said port.
4.
An indefinite detention, by reason of an embargo of the vessel by order of the government or for
any other reason independent of the will of the agent.
5.
The impossibility of the vessel to navigate, without fault of the captain or agent.
The unloading shall be made for the account of the charterer.
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ARTICLE 691.
If the vessel can not put to sea on account of the closing of the port of departure, or
any other temporary cause, the charter shall be in force without any of the contracting parties having a
right to claim damages.
The subsistence and wages of the crew shall be considered as general average.
During the interruption the charterer may, at the proper time and for his own account, unload and load the
merchandise, paying demurrage if the reloading should continue after the reason for the detention has
ceased.
ARTICLE 692.
A charter party shall be partially rescinded, unless there is an agreement to the
contrary, and the captain shall only be entitled to the freight for the voyage out, if, by reason of a
declaration of war, closing of ports, or interdiction of commercial relations during the voyage, the vessel
should make the port designated for such a case in the instructions of the charterer.
2.
Loans on Bottomry and Respondentia

(a)
(b)
(c)
Loan on Bottomry, defined

Loan on Respondentia, defined
Character of Loan, Art. 719
ARTICLE 719.
A loan on bottomry or respondentia shall be considered that which the repayment of
the sum loaned and the premium stipulated, under any condition whatsoever, depends on the safe arrival
in port of the goods on which it is made, or of their value in case of accident.
(d)
Forms and Requisites, Arts. 720-722
ARTICLE 720.
Loans on bottomry or respondentia may be executed:
1.
By means of a public instrument.
2.
By means of a bond signed by the contracting parties and the broker who took part therein. cdt
3.
By means of a private instrument.
Under whichever of these forms the contract is executed, it shall be entered in the certificate of the
registry of the vessel and shall be recorded in the commercial registry, without which requisites the credits
originating from the same shall not have, with regard to other credits, the preference which, according to
their nature, they should have, although the obligation shall be valid between the contracting parties.
The contracts made during a voyage shall be governed by the provisions of Articles 583 and 611, and shall
be effective with regard to third persons from the date of their execution, if they should be recorded in the
commercial registry of the port of registry of the vessel before eight days have elapsed from the date of
her arrival. If said eight days should elapse without the record having been made in the commercial
registry, the contracts made during the voyage of a vessel shall not have any effect with regard to third
persons, except from the day and date of their entry.
In order that the bonds of the contracts celebrated in accordance with No. 2 may have legal force, they
must conform to the registry of the broker who took part therein. In those celebrated in accordance with
No. 3 the acknowledgment of the signature must precede.
Contracts which are not reduced to writing shall not be the basis for a judicial action.
ARTICLE 721.
In a bottomry or respondentia bond there must be stated:
1.
The kind, name, and registry of the vessel.
2.
The name, surname, and domicile of the captain.
3.
The names, surnames, and domicile of the person giving and of the person receiving the loan.
4.
The amount of the loan and the premium stipulated.
5.
The time for repayment.
6.
The goods pledged to secure repayment.
7.
The voyage for which the risk is run.
ARTICLE 722.
The bonds may be issued to order, in which case they shall be transferable by
indorsement, and the assignee shall acquire all the rights and run all the risks corresponding to the
indorser.
530 | P a g e

(e)
On What Constituted, Art. 724-725
ARTICLE 724.
The loans may be constituted jointly or separately:
1.
On the hull of the vessel.
2.
On the rigging.
3.
On the equipment, provisions, and fuel.
4.
On the engine, if the vessel is a steamer.
5.
On the cargo.
If the loan is constituted on the hull of the vessel, there shall be understood as also subject to the liability
of the loan, the rigging, equipment and other goods, provisions, fuel, steam engines, and the freight
earned during the voyage subject to the loan. cdta
If the loan is made on the cargo, all that constitutes the same shall be subject to the repayment; and if on
a particular object of the vessel or of the cargo, the object exclusively and specifically mentioned only shall
be liable.
ARTICLE 725.
expected to earn.
No loans can be made on the salaries of the crew, nor on the profits which it is
(f)
Amount, Arts. 723, 726-727
ARTICLE 723.
Loans may be made in goods and in merchandise, their value being fixed in order to
determine the amount of the loan.
ARTICLE 726.
If the lender should prove that he loaned a larger amount than the value of the article
liable for the bottomry loan, by reason of fraudulent measures employed by the borrower the loan shall
only be valid for the amount at which said object is appraised by experts.
The surplus principal shall be returned with legal interest for the whole period of the duration of the
disbursement.
ARTICLE 727.
If the full amount of the loan contracted to load the vessel should not be made use of
for the cargo, the surplus shall be returned before clearing.
The same procedure shall be observed with regard to the goods taken as a loan if they could not all have
been loaded.
(g)
By Whom, Arts 728, 617, 611, 583
ARTICLE 728.
The loan which the captain takes at the point of residence of the owners of the vessel
shall only affect that part of the latter which belongs to the captain, if the other owners or their agents
should not have given their express authorization thereto or should not have taken part in the transaction.
If one or more of the owners should be requested to furnish the amount necessary to repair or provision
the vessel, and should not do so within twenty-four hours, the interest which the parties in default may
have in the vessel shall be liable for the loan in the proper proportion.
Outside of the residence of the owners the captain may contract loans in accordance with the provisions of
Articles 583 and 611.
ARTICLE 617.
The captain can not contract loans on respondentia, and should he do so the
contracts shall be void.
Neither can he borrow money on bottomry for his own transactions, except on the portion of the vessel he
owns, provided no money has been previously borrowed on the whole vessel, and provided there does not
exist any other kind of lien or obligation thereon. When he is permitted to do so, he must necessarily state
what interest he has in the vessel.
531 | P a g e
In case of violation of this article the principal, interest, and costs shall be charged to the private account
of the captain, and the agent may furthermore have the right to discharge him.
ARTICLE 611.
In order to comply with the obligations mentioned in the foregoing article, the
captain, when he has no funds and does not expect to receive any from the agent, shall procure the same
in the successive order stated below:
1.
By requesting said funds of the consignees or correspondents of a vessel.
2.
By applying to the consignees of the cargo or to the persons interested therein.
3.
By drawing on the agent.
4.
By borrowing the amount required by means of a bottomry bond.
5.
By selling a sufficient amount of the cargo to cover the amount absolutely necessary to repair the
vessel, and to equip her to pursue the voyage. cd
In the two latter cases he must apply to the judicial authority of the port, if in Spain * and to the Spanish *
consul, if in a foreign country; and where there should be none, to the local authority, proceeding in
accordance with the prescriptions of Article 583, and with the provisions of the law of civil procedure.
ARTICLE 583.
If the ship being on a voyage the captain should find it necessary to contract one or
more of the obligations mentioned in Nos. 8 and 9 of Article 580, he shall apply to the judge or court if he
is in Spanish * territory, and otherwise to the consul of Spain, * should there be one, and, in his absence to
the judge or court or to the proper local authority, presenting the certificate of the registry of the vessel
treated of in Article 612, and the instruments proving the obligation contracted.
The judge or court, the consul or the local authority as the case may be, in view of the result of the
proceedings instituted, shall make a temporary memorandum in the certificate of their result, in order that
it may be recorded in the registry when the vessel returns to the port of her registry, or so that it can be
admitted as a legal and preferred obligation in case of sale before the return, by reason of the sale of the
vessel by virtue of a declaration of unseaworthiness.
The lack of this formality shall make the captain personally liable to the creditors who may be prejudiced
through his fault.
(h)
Effects of Contract, Arts. 719, 729, 726, 727, 730
ARTICLE 719.
A loan on bottomry or respondentia shall be considered that which the repayment of
the sum loaned and the premium stipulated, under any condition whatsoever, depends on the safe arrival
in port of the goods on which it is made, or of their value in case of accident.
ARTICLE 729.
Should the goods on which money is taken not be subjected to any risk, the contract
shall be considered an ordinary loan, the borrower being under the obligation to return the principal and
interest at the legal rate, if the interest stipulated should not have been lower.
ARTICLE 726.
If the lender should prove that he loaned a larger amount than the value of the article
liable for the bottomry loan, by reason of fraudulent measures employed by the borrower the loan shall
only be valid for the amount at which said object is appraised by experts.
The surplus principal shall be returned with legal interest for the whole period of the duration of the
disbursement.
ARTICLE 727.
If the full amount of the loan contracted to load the vessel should not be made use of
for the cargo, the surplus shall be returned before clearing.
The same procedure shall be observed with regard to the goods taken as a loan if they could not all have
been loaded.
ARTICLE 730.
Loans made during the voyage shall have preference over those made before the
clearing of the vessel, and they shall be graduated by the inverse order to that of their dates.
The loans for the last voyage shall have preference over prior ones.
Should several loans have been made at a port made under stress and for the same purpose, all of them
shall be paid pro rata.
532 | P a g e

F.
Bill of Lading
1.
Contents, Arts. 706, 707, 713, 714
ARTICLE 706.
The captain and the freighter of the vessel are obliged to draft the bill of lading, in
which there shall be stated:
1.
The name, registry, and tonnage of the vessel.
2.
The name of the captain and his domicile.
3.
The port of loading and that of unloading.
4.
The name of the shipper.
5.
The name of the consignee, if the bill of lading is issued to order.
6.
The quantity, quality, number of packages, and marks of the merchandise.
7.
The freight and the primage stipulated.
The bill of lading may be issued to bearer, to order, or in the name of a specific person, and must be
signed within twenty-four hours after the cargo has been received on board, the freighter being able to
request the unloading thereof at the expense of the captain should he not sign it, and in every case
indemnity for the losses and damages suffered thereby.
ARTICLE 707.
Four true copies of the original bill of lading shall be made, all of which shall be
signed by the captain and by the freighter. Of these copies the freighter shall keep one and send another
to the consignee; the captain shall take two, one for himself and another for the agent.
There may, furthermore, be made as many copies of the bill of lading as may be considered necessary by
the persons interested; but when they are issued to order or to the bearer there shall be stated in all the
copies, be they either of the first four or of the subsequent ones, the destination of each one, stating
whether it is for the agent, for the captain, for the freighter, or for the consignee. If the copy sent to the
latter should be duplicated there must be stated in said duplicate this fact, and that it is not valid except in
case of the loss of the first one.
ARTICLE 713.
If before delivering the cargo a new bill of lading should be demanded of the captain,
it being alleged that the previous ones are not presented on account of their loss or for any other sufficient
cause, he shall be obliged to issue it, provided security for the value of the cargo is given to his
satisfaction; but without changing the consignment and stating therein the circumstances prescribed in the
last paragraph of Article 707, when the bills of lading referred to therein are in question, under the penalty
otherwise to be liable for said cargo if not properly delivered through his fault.
ARTICLE 714.
If before the vessel puts to sea the captain should die or should discontinue in his
position through any accident, the freighters shall have a right to demand of the new captain the
ratification of the first bills of lading, and the latter must do so, provided all the copies previously issued be
presented or returned to him, and it should appear from an examination of the cargo that they are correct.
The expenses arising from the examination of the cargo shall be defrayed by the agent, without prejudice
to the right of action of the latter against the first captain, if he ceased to be such through his own fault.
Should said examination not be made, it shall be understood that the new captain accepts the cargo as it
appears from the bills of lading issued.
2.
Probative Value, Arts. 709, 710
ARTICLE 709.
A bill of lading drawn up in accordance with the provisions of this title shall be proof
as between all those interested in the cargo and between the latter and the underwriters, proof to the
contrary being reserved by the latter.
ARTICLE 710.
Should the bills of lading not agree, and there should not be observed any correction
or erasure in any of them, those possessed by the freighter or consignee signed by the captain shall be
proof against the captain or agent in favor of the consignee or freighter; and those possessed by the
533 | P a g e
captain or agent signed by the freighter shall be proof against the freighter or consignee in favor of the
captain or agent.
G. Passengers on Sea Voyage
1.
Nature of Contract, Art. 695
ARTICLE 695.
The right to passage, if issued to a specified person, can not be transferred without
the consent of the captain or of the consignee.
2.
Obligations of Passengers, Arts. 693, 699, 704, 694, 700
ARTICLE 693.
Should the passage price not have been agreed upon, the judge or court shall
summarily fix it, after a statement of experts.
ARTICLE 699.
After the contract has been rescinded, before or after the commencement of the
voyage, the captain shall have a right to claim payment for what he may have furnished the passengers.
ARTICLE 704.
The captain, in order to collect the price of the passage and expenses of
maintenance, may retain the goods belonging to the passenger, and in case of the sale of the same he
shall be given preference over the other creditors, acting in the same way as in the collection of freight.
ARTICLE 694.
Should the passenger not arrive on board at the time fixed, or should leave the vessel
without permission from the captain, when the latter is ready to leave the port, the captain may continue
the voyage and demand the full passage price.
ARTICLE 700.
In all that relates to the preservation of order and police on board the vessel the
passengers shall conform to the orders given by the captain, without any distinction whatsoever.
3.
Rights of Passengers, Arts. 697, 698
ARTICLE 697.
If before beginning the voyage it should be suspended through the sole fault of the
captain or agent, the passengers shall be entitled to have their passage refunded and to recover for losses
and damages; but if the suspension was due to an accidental cause, or to force majeure, or to any other
cause beyond the control of the captain or agent, the passengers shall only be entitled to the return of the
passage money.
ARTICLE 698.
In case a voyage already begun should be interrupted the passengers shall be
obliged only to pay the passage in proportion to the distance covered, and shall not be entitled to recover
for losses and damages if the interruption is due to an accidental cause or to force majeure, but have a
right to indemnity if the interruption should have been caused by the captain exclusively. If the interruption
should be by reason of the disability of the vessel, and the passenger should agree to await her repair, he
can not be required to pay any increased price of passage, but his living expenses during the delay shall
be for his own account.
In case the departure of the vessel is delayed the passengers have a right to remain on board and to be
furnished with food for the account of the vessel, unless the delay is due to an accidental cause or to force
majeure. If the delay should exceed ten days, the passengers who request it shall be entitled to the return
of the passage; and if it were due exclusively to the captain or agent they may furthermore demand
indemnity for losses and damages.
A vessel which is exclusively destined to the transportation of passengers must take them directly to the
port or ports of destination, no matter what the number of passengers may be, making all the stops
indicated in her itinerary.
Sweet Lines v. CA, 121 SCRA 769
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FIRST DIVISION
[G.R. No. L-46340. April 28, 1983.]
SWEET LINES, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, MICAELA B. QUINTOS,
FR. JOSE BACATAN, S.J., MARCIANO CABRAS and ANDREA VELOSO, respondents.
Felixberto Leonardo and Ramon Tuangco for petitioner.
Expedito P. Bugarin for respondents.
SYLLABUS
1.
CIVIL LAW; COMMON CARRIERS; FAILURE TO FULFILL UNDERTAKING AND/OR INTERRUPTION OF
TRIP; LIABILITY FOR DAMAGES; EXISTENCE OF FORTUITOUS EVENT. A CRUCIAL FACTOR. The crucial
factor then is the existence of a fortuitous event or force majeure. Without it, the right to damages and
indemnity exists against a captain who fails to fulfill his undertaking or where the interruption has been
caused by the captain exclusively. As found by both Courts below, there was no fortuitous event or force
majeure which prevented the vessel from fulfilling its undertaking of taking private respondents to
Catbalogan. In the first place, mechanical defects in the carrier are not considered a caso fortuito that
exempts the carrier from responsibility (Landingin vs. Pangasinan Transportation Co., 33 SCRA 284 [1970]).
In the second place, even granting arguendo that the engine failure was a fortuitous event, it accounted
only for the delay in departure. When the vessel finally left the port of Cebu on July 10, 1972, there was no
longer any force mucure that justified by-passing a port of call. The vessel was completely repaired the
following day after it was towed back to Cebu. In fact, after docking at Tacloban City, it left the next day for
Manila to complete its voyage.
2.
ID.; ID.; LIABILITY; MAY NOT BE DIMINISHED OR CANCELLED BY CONDITIONS PRINTED AT THE BACK
OF THE TICKET. In defense, petitioner cannot rely on the conditions in small hold print at the back of the
ticket. Even assuming that those conditions are squarely applicable to the case at bar, petitioner did not
comply with the same. It did not cancel the ticket nor did it refund the value of the tickets to private
respondents. Besides, it was not the vessel's sailing schedule that was involved. Private respondents'
complaint is directed not at the delayed departure the next day but at the by-passing of Catbalogan, their
destination. Had petitioner notified them previously, and offered to bring them to their destination at its
expense, or refunded the value of the tickets purchased, perhaps, this controversy would not have arisen.
Furthermore, the conditions relied upon by petitioner cannot prevail over Articles 614 and 698 of the Code
of Commerce heretofore quoted.
3.
ID.; ID.; CIVIL LIABILITY OF OWNER AND SHIP AGENT. The voyage to Catbalogan was
"interrupted" by the captain upon instruction of management. The "interruption" was not due to fortuitous
event or force majeure nor to disability of the vessel. Having been caused by the captain upon instruction
of management, the passengers' right to indemnity is evident. The owner of a vessel and the ship agent
shall be civilly liable for the acts of the captain.
4.
ID.; MORAL DAMAGES; RECOVERABLE IN THE CASE AT BAR. Under Article 2220 of the Civil Code,
moral damages are justly due in breaches of contract where the defendant acted fraudulently or in bad
faith. Both the Trial Court and the Appellate Court found that there was bad faith on the part of petitioner.
That finding of bad faith is binding on this Court, since it is not the function of the Court to analyze and
review evidence on this point all over again, aside from the fact that the Court finds it faithful to the
meaning of bad faith enunciated thus: "Bad faith means a breach of a known duty through some motive or
interest or illwill. Self-enrichment or fraternal interest, and not personal illwill, may have been the motive,
but it is malice nevertheless." Under the circumstances, however, the Court finds the award of moral
damages excessive and accordingly reduce them to P3,000.00, respectively, for each of the private
respondents.
5.
ID.; ATTORNEY'S FEES; AWARD HELD REASONABLE. The total award of attorney's fees of
P5,000.00 is in order considering that the case has reached this Tribunal.
6.
ID.; EXEMPLARY DAMAGES; AWARD DISCRETIONARY UPON THE COURT. Insofar as exemplary
damages are concerned, although there was bad faith, the Court is not inclined to grant them in addition
to moral damages. Exemplary damages cannot be recovered as a matter of right; the Court decides
whether or not they should be adjudicated. The objective to meet its schedule might have been called for,
but petitioner should have taken the necessary steps for the protection of its passengers under its contract
of carriage.
535 | P a g e
7.
ID.; ACTUAL OR COMPENSATORY DAMAGES; NOT MITIGATED WHEN HARM OUTWEIGHS BENEFIT.
Article 2215(2) of the Civil Code invoked by petitioner is inapplicable herein. The harm done to private
respondents outweighs any benefits they may have derived from being transported to Tacloban instead of
being taken to Catbalogan, their destination and the vessel's first port of call, pursuant to its normal
schedule.
RESOLUTION
For having by-passed a port of call without previous notice, petitioner shipping company and the ship
captain were sued for damages by four of its passengers, private respondents herein, before the then
Court of First Instance of Cebu, Branch VIII.
Briefly, the facts of record show that private respondents purchased first-class tickets from petitioner at
the latter's office in Cebu City. They were to board petitioner's vessel, M/V Sweet Grace, bound for
Catbalogan, Western Samar. Instead of departing at the scheduled hour of about midnight on July 8, 1972,
the vessel set sail at 3:00 A.M. of July 9, 1972 only to be towed back to Cebu due to engine trouble,
arriving there at about 4:00 P.M. on the same day. Repairs having been accomplished, the vessel lifted
anchor again on July 10, 1972 at around 8:00 A.M.
Instead of docking at Catbalogan, which was the first port of call, the vessel proceeded direct to Tacloban
at around 9:00 P.M. of July 10, 1972. Private respondents had no recourse but to disembark and board a
ferryboat to Catbalogan.
Hence, this suit for damages for breach of contract of carriage which the Trial Court, affirmed by
respondent Appellate Court, awarded as follows:
"IN THE LIGHT OF THE FOREGOING OBSERVATIONS, judgment is rendered ordering the defendant Sweet
Lines, Incorporated to pay to the plaintiffs the following:
"1)
P75,000.00 as moral damages divided among the plaintiffs as follows: P30,000.00 for Mrs. Micaela
B. Quintos, P25,000.00 for Jesuit Father Jose Bacatan; P10,000.00 for Mrs. Andrea Veloso and P10,000.00
for plaintiff Mike Cabras;
2)
P30,000.00 as exemplary or corrective damages;
3)
Interest at the legal rate of 6% per annum on the moral and exemplary damages as set forth above
from the date of this decision until said damages are fully paid;
4)
P5,000.00 as attorney's fees; and
5)
The costs.
Counterclaim dismissed."
The governing provisions are found in the Code of Commerce and read as follows:
"ART. 614.
A captain who, having agreed to make a voyage, fails to fulfill his undertaking, without being
prevented by fortuitous event or force majeure, shall indemnify all the losses which his failure may cause,
without prejudice to criminal penalties which may be proper.
and
"ART. 698.
In case of interruption of a voyage already begun, the passengers shall only be obliged to
pay the fare in proportion to the distance covered, without right to recover damages if the interruption is
due to fortuitous event or force majeure, but with a right to indemnity, if the interruption should have been
caused by the captain exclusively. If the interruption should be caused by the disability of the vessel, and
the passenger should agree to wait for her repairs, he may not be required to pay any increased fare of
passage, but his living expenses during the delay shall be for his own account."
The crucial factor then is the existence of a fortuitous event or force majeure. Without it, the right to
damages and indemnity exists against a captain who fails to fulfill his undertaking or where the
interruption has been caused by the captain exclusively.
As found by both Courts below, there was no fortuitous event or force majeure which prevented the vessel
from fulfilling its undertaking of taking private respondents to Catbalogan. In the first place, mechanical
defects in the carrier are not considered a caso fortuito that exempts the carrier from responsibility. 1
In the second place, even granting arguendo that the engine failure was a fortuitous event, it accounted
only for the delay in departure. When the vessel finally left the port of Cebu on July 10, 1972, there was no
longer any force majeure that justified by-passing a port of call. The vessel was completely repaired the
536 | P a g e
following day after it was towed back to Cebu. In fact, after docking at Tacloban City, it left the next day for
Manila to complete its voyage. 2
The reason for by-passing the port of Catbalogan, as admitted by petitioner's General Manager, was to
enable the vessel to catch up with its schedule for the next week. The record also discloses that there were
50 passengers for Tacloban compared to 20 passengers for Catbalogan, 3 so that the Catbalogan phase
could be scrapped without too much loss for the company. Cdpr
In defense, petitioner cannot rely on the conditions in small bold print at the back of the ticket reading:
"The passenger's acceptance of this ticket shall be considered as an acceptance of the following
conditions:
3.
In case the vessel cannot continue or complete the trip for any cause whatsoever, the carrier
reserves the right to bring the passenger to his/her destination at the expense of the carrier or to cancel
the ticket and refund the passenger the value of his/her ticket;
xxx
xxx
xxx
11.
The sailing schedule of the vessel for which this ticket was issued is subject to change without
previous notice." (Exhibit "1-A").
Even assuming that those conditions are squarely applicable to the case at bar, petitioner did not comply
with the same. It did not cancel the ticket nor did it refund the value of the tickets to private respondents.
Besides, it was not the vessel's sailing schedule that was involved. Private respondents' complaint is
directed not at the delayed departure the next day but at the by-passing of Catbalogan, their destination.
Had petitioner notified them previously, and offered to bring them to their destination at its expense, or
refunded the value of the tickets purchased, perhaps, this controversy would not have arisen.
Furthermore, the conditions relied upon by petitioner cannot prevail over Articles 614 and 698 of the Code
of Commerce heretofore quoted.
The voyage to Catbalogan was "interrupted" by the captain upon instruction of management. The
"interruption" was not due to fortuitous event or for majeure nor to disability of the vessel. Having been
caused by the captain upon instruction of management, the passengers' right to indemnity is evident. The
owner of a vessel and the ship agent shall be civilly liable for the acts of the captain. 4
Under Article 2220 of the Civil Code, moral damages are justly due in breaches of contract where the
defendant acted fraudulently or in bad faith. Both the Trial Court and the Appellate Court found that there
was bad faith on the part of petitioner in that: Cdpr
"(1)
Defendants-appellants did not give notice to plaintiffs-appellees as to the change of schedule of the
vessel;
(2)
Knowing fully well that it would take no less than fifteen hours to effect the repairs of the damaged
engine, defendants-appellants instead made announcement of assurance that the vessel would leave
within a short period of time, and when plaintiffs-appellees wanted to leave the port and gave up the trip,
defendants-appellants' employees would come and say, `we are leaving, already.'
(3)
Defendants-appellants did not offer to refund plaintiffs-appellees' tickets nor provide them with
transportation from Tacloban City to Catbalogan. 5
That finding of bad faith is binding on us, since it is not the function of the Court to analyze and review
evidence on this point all over again 6 aside from the fact that we find it faithful to the meaning of bad
faith enunciated thus:
"Bad faith means a breach of a known duty through some motive or interest or illwill. Self-enrichment or
fraternal interest, and not personal illwill, may have been the motive, but it is malice nevertheless." 7
Under the circumstances, however, we find the award of moral damages excessive and accordingly reduce
them to P3,000.00, respectively, for each of the private respondents.
The total award of attorney's fees of P5,000.00 is in order considering that the case has reached this
Tribunal.
Insofar as exemplary damages are concerned, although there was bad faith, we are not inclined to grant
them in addition to moral damages. Exemplary damages cannot be recovered as a matter of right; the
Court decides whether or not they should be adjudicated. 8 The objective to meet its schedule might have
been called for, but petitioner should have taken the necessary steps for the protection of its passengers
under its contract of carriage. llcd
Article 2215(2) of the Civil Code 9 invoked by petitioner is in-applicable herein. The harm done to private
respondents outweighs any benefits they may have derived from being transported to Tacloban instead of
being taken to Catbalogan, their destination and the vessel's first port of call, pursuant to its normal
schedule.
537 | P a g e
ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner is hereby sentenced to
indemnify private respondents in the sum of P3,000.00 each, without interest, plus P1,250.00, each, by
way of attorney's fees and litigation expenses.
Costs against petitioner.
SO ORDERED.
Teehankee (Chairman), Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Footnotes
1.
Son vs. Cebu Autobus Co., 94 Phil. 892 (1954); Necesito vs. Paras, 104 Phil. 75 (1958); Landingin vs.
Pangasinan Transportation Co., 33 SCRA 284 (1970).
2.
T.s.n., March 23, 1973, pp. 75; 84.
3.
T.s.n., June 14, 1973, p. 178.
4.
Article 586, Code of Commerce.
5.
Decision, p. 13.
6.
Tiongco vs. de la Merced, 58 SCRA 89 (1974).
7.
Lopez vs. Pan American World Airways, 16 SCRA 431 (1966).
8.
9.
Art. 2215. In Contracts, quasi-contracts. and quasi-delicts, the court may equitably mitigate the
damages under circumstances other than the case referred to in the preceding article, as in the following
instances:
xxx
xxx
(2)
xxx
xxx
xxx
That the plaintiff has derived some benefit as a result of the contract:
xxx
Trans-Asia Shipping v. CA, 254 SCRA 260
THIRD DIVISION
[G.R. No. 118126. March 4, 1996.]
TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. COURT OF APPEALS and ATTY. RENATO T.
ARROYO, respondents.
Jose M. Perez for petitioner.
Renato T. Arroyo for private respondent.
SYLLABUS
1.
CIVIL LAW; SPECIAL CONTRACTS; COMMON CARRIERS; APPLICABLE LAWS. There was, between
the petitioner and the private respondent, a contract of common carriage. The laws of primary application
then are the provisions on common carriers under Section 4, Chapter 3, Title VIII Book IV of the Civil Code,
while for all other matters not regulated thereby, the Code of Commerce and special laws.
2.
ID.; ID.; ID.; SAFETY OF PASSENGERS; EXTRAORDINARY DILIGENCE REQUIRED. Under Article 1733
of the Civil Code, the petitioner was bound to observe extraordinary diligence in ensuring the safety of the
private respondent. That meant that the petitioner was, pursuant to Article 1755 of the said Code, bound
to carry the private respondent safely as far as human care and foresight could provide, using the utmost
diligence of very cautious persons, with due regard for all the circumstances.
3.
ID.; ID.; ID.; ID.; VIOLATED WHERE VESSEL IS UNSEAWORTHY. For a vessel to be seaworthy, it
must be adequately equipped for the voyage and manned with a sufficient number of competent officers
and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a
contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.
4.
ID.; ID.; ID.; ID.; ID.; LIABILITY FOR DAMAGES. As to its liability for damages to the private
respondent, Article 1764 of the Civil Code expressly provides: Damages . . . in this Section shall be
538 | P a g e
awarded in accordance with Title XVIII of this Book, . . . The damages comprised in Title XVIII of the Civil
Code are actual or compensatory, moral, nominal, temperate or moderate, liquidated, and exemplary.
5.
ID.; DAMAGES; ACTUAL OR COMPENSATORY DAMAGES. Actual or compensatory damages
represent the adequate compensation for pecuniary loss suffered and for profits the obligee failed to
obtain. In contracts or quasi-contracts, the obligor is liable for all the damages which may be reasonably
attributed to the non-performance of the obligation if he is guilty of fraud, bad faith, malice, or wanton
attitude.
6.
ID.; ID.; MORAL DAMAGES; WHEN AVAILABLE. Moral damages include moral suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
or similar injury. They may be recovered in the cases enumerated in Article 2219 of the Civil Code,
likewise, if they are the proximate result of, as in this case, the petitioner's breach of the contract of
carriage. Anent a breach of a contract of common carriage, moral damages may be awarded if the
common carrier, like the petitioner, acted fraudulently or in bad faith.
7.
ID.; ID.; EXEMPLARY DAMAGES. Exemplary damages are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. In
contracts and quasi-contracts, exemplary damages may be awarded if the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner. It cannot, however, be considered as a matter of
right; the court having to decide whether or not they should be adjudicated. Before this court may consider
an award for exemplary damages, the plaintiff must first show that he is entitled to moral, temperate or
compensatory damages; but it is not necessary that he prove the monetary value thereof.
8.
CIVIL LAW; SPECIAL CONTRACTS; COMMON CARRIERS; DELAY AFTER COMMENCEMENT OF VOYAGE
FOR FAILURE TO OBSERVE EXTRAORDINARY DILIGENCE; LIABILITY FOR PECUNIARY LOSS; ACTUAL DAMAGES
MUST BE DULY PROVED. There was no delay in the commencement of the contracted voyage. If any
delay was incurred, it was after the commencement of such voyage, specifically, when the voyage was
subsequently interrupted when the vessel had to stop after the only functioning engine conked out. As to
the rights and duties of the parties strictly arising out of such delay, Article 698 of the Code of Commerce
specifically provides for such a situation which applies suppletorily pursuant to Article 1766 of the Civil
Code. The cause of the delay or interruption was the petitioner's failure to observe extraordinary diligence.
Article 698 must then be read together with Articles 2199, 2200, 2201, and 2208 in relation to Article 21 of
the Civil Code. So read, it means that petitioner is liable for any pecuniary loss or loss of profits which the
private respondent may have suffered by reason thereof. For the private respondent, such would be the
loss of income if unable to report to his office on the day he was supposed to arrive were it not for the
delay. This, however, assumes that he stayed on the vessel and was with it when it thereafter resumed its
voyage; but he did not. Any further delay then in the private respondent's arrival at the port of destination
was caused by his decision to disembark. At any rate, his actual or compensatory damages must be
proved, but private respondent failed to do so. There is no convincing evidence that he did not receive his
salary nor that his absence was not excused.
9.
ID.; ID.; ID.; FAILURE TO OBSERVE EXTRAORDINARY DILIGENCE; LIABLE FOR MORAL AND EXEMPLARY
DAMAGES. Petitioner is liable for moral and exemplary damages. In allowing its unseaworthy M/V Asia
Thailand to leave the port of origin and undertake the contracted voyage, with full awareness that it was
exposed to perils of the sea, it deliberately disregarded its solemn duty to exercise extraordinary diligence
and obviously acted with bad faith and in a wanton and reckless manner.
10.
ID.; DAMAGES; ATTORNEY'S FEES; NOT PROPER IN CASE AT BAR. We cannot give our affirmance
to the award of attorney's fees. Under Article 2208 of the Civil Code, these are recoverable only in the
concept of actual damages, not as moral damages nor judicial costs. Hence, to merit such an award, it is
settled that the amount thereof must be proven. Moreover, such must be specifically prayed for as was
not done in this case and may not be deemed incorporated within a general prayer for "such other relief
and remedy as this court may deem just and equitable." Finally, it must be noted that aside from the
following, the body of the respondent Court's decision was devoid of any statement regarding attorney's
fees.
DECISION
DAVIDE, JR., J p:
539 | P a g e
As formulated by the petitioner, the issue in this petition for review on certiorari under Rule 45 of the Rules
of Court is as follows:
In case of interruption of a vessel's voyage and the consequent delay in that vessel's arrival at its port of
destination, is the right of a passenger affected thereby to be determined and governed by the vague Civil
Code provision on common carriers, or shall it be, in the absence of a specific provision thereon, governed
by Art. 698 of the Code of Commerce? 1
The petitioner considers it a "novel question of law."
Upon a closer evaluation, however, of the challenged decision of the Court of Appeals of 23 November
1994, 2 vis-a-vis, the decision of 29 June 1992 in Civil Case No. 91-491 of the Regional Trial Court (RTC) of
Cagayan de Oro City, Branch 24, 3 as well as the allegations and arguments adduced by the parties, we
find the petitioner's formulation of the issue imprecise. As this Court sees it, what stands for resolution is a
common carrier's liability for damages to a passenger who disembarked from the vessel upon its return to
the port of origin, after it suffered engine trouble and had to stop at sea, having commenced the
contracted voyage on one engine.
The antecedents are summarized by the Court of Appeals as follows:
Plaintiff [herein private respondent Atty. Renato Arroyo], a public attorney, bought a ticket [from]
defendant [herein petitioner], a corporation engaged in . . . inter-island shipping, for the voyage of M/V
Asia Thailand vessel to Cagayan de Oro City from Cebu City on November 12, 1991.
At around 5:30 in the evening of November 12, 1991, plaintiff boarded the M/V Asia Thailand vessel. At
that instance, plaintiff noticed that some repair works [sic] were being undertaken on the engine of the
vessel. The vessel departed at around 11:00 in the evening with only one (1) engine running.
After an hour of slow voyage, the vessel stopped near Kawit Island and dropped its anchor thereat. After
half an hour of stillness, some passengers demanded that they should be allowed to return to Cebu City for
they were no longer willing to continue their voyage to Cagayan de Oro City. The captain acceded [sic] to
their request and thus the vessel headed back to Cebu City.
At Cebu City, plaintiff together with the other passengers who requested to be brought back to Cebu City,
were allowed to disembark. Thereafter, the vessel proceeded to Cagayan de Oro City. Plaintiff, the next
day, boarded the M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a vessel of defendant.
On account of this failure of defendant to transport him to the place of destination on November 12, 1991,
plaintiff filed before the trial court a complaint for damages against defendant. 4
In his complaint, docketed as Civil Case No. 91-491, plaintiff (hereinafter private respondent) alleged that
the engines of the M/V Asia Thailand conked out in the open sea, and for more than an hour it was stalled
and at the mercy of the waves, thus causing fear in the passengers. It sailed back to Cebu City after it
regained power, but for unexplained reasons, the passengers, including the private respondent, were
arrogantly told to disembark without the necessary precautions against possible injury to them. They were
thus unceremoniously dumped, which only exacerbated the private respondent's mental distress. He
further alleged that by reason of the petitioner's wanton, reckless, and willful acts, he was unnecessarily
exposed to danger and, having been stranded in Cebu City for a day, incurred additional expenses and loss
of income. He then prayed that he be awarded P1,100.00, P50,000.00, and P25,000.00 as compensatory,
moral, and exemplary damages, respectively. 5
In his pre-trial brief, the private respondent asserted that his complaint was "an action for damages arising
from bad faith, breach of contract and from tort," with the former arising from the petitioner's "failure to
carry [him] to his place of destination as contracted," while the latter from the "conduct of the [petitioner]
resulting [in] the infliction of emotional distress" to the private respondent. 6
After due trial, the trial court rendered its decision 7 and ruled that the action was only for breach of
contract, with Articles 1170, 1172, and 1173 of the Civil Code as applicable law not Article 2180 of the
same Code. It was of the opinion that Article 1170 made a person liable for damages if, in the performance
of his obligation, he was guilty of fraud, negligence, or delay, or in any manner contravened the tenor
thereof; moreover, pursuant to Article 2201 of the same Code, to be entitled to damages, the nonperformance of the obligation must have been tainted not only by fraud, negligence, or delay, but also bad
faith, malice, and wanton attitude. It then disposed of the case as follows:
WHEREFORE, it not appearing from the evidence that plaintiff was left in the Port of Cebu because of the
fault, negligence, malice or wanton attitude of defendant's employees, the complaint is DISMISSED.
Defendant's counterclaim is likewise dismissed it not appearing also that filing of the case by plaintiff was
motivated by malice or bad faith. 8
The trial court made the following findings to support its disposition:
540 | P a g e
In the light of the evidence adduced by the parties and of the above provisions of the New Civil Code, the
issue to be resolved, in the resolution of this case is whether or not, defendant thru its employee in [sic]
the night of November 12, 1991, committed fraud, negligence, bad faith or malice when it left plaintiff in
the Port of Cebu when it sailed back to Cagayan de Oro City after it has [sic] returned from Kawit Island.
Evaluation of the evidence of the parties tended to show nothing that defendant committed fraud. As early
as 3:00 p.m. of November 12, 1991, defendant did not hide the fact that the cylinder head cracked.
Plaintiff even saw during its repair. If he had doubts as to the vessel's capacity to sail, he had time yet to
take another boat. The ticket could be returned to defendant and corresponding cash [would] be returned
to him.
Neither could negligence, bad faith or malice on the part of defendant be inferred from the evidence of the
parties. When the boat arrived at [the] Port of Cebu after it returned from Kawit Island, there was an
announcement that passengers who would like to disembark were given ten (10) minutes only to do so. By
this announcement, it could be inferred that the boat will [sic] proceed to Cagayan de Oro City. If plaintiff
entertained doubts, he should have asked a member of the crew of the boat or better still, the captain of
the boat. But as admitted by him, he was of the impression only that the boat will not proceed to Cagayan
de Oro that evening so he disembarked. He was instead, the ones [sic] negligent. Had he been prudent,
with the announcement that those who will disembark were given ten minutes only, he should have
lingered a little by staying in his cot and inquired whether the boat will proceed to Cagayan de Oro City or
not. Defendant cannot be expected to be telling [sic] the reasons to each passenger. Announcement by
microphone was enough.
The court is inclined to believe that the story of defendant that the boat returned to the Port of Cebu
because of the request of the passengers in view of the waves. That it did not return because of the
defective engines as shown by the fact that fifteen (15) minutes after the boat docked [at] the Port of Cebu
and those who wanted to proceed to Cagayan de Oro disembarked, it left for Cagayan de Oro City.
The defendant got nothing when the boat returned to Cebu to let those who did not want to proceed to
Cagayan de Oro City including plaintiff disembarked. On the contrary, this would mean its loss instead
because it will have to refund their tickets or they will use it the next trip without paying anymore. It is
hard therefore, to imagine how defendant by leaving plaintiff in Cebu could have acted in bad faith,
negligently, want only and with malice.
If plaintiff, therefore, was not able to [m]ake the trip that night of November 12, 1991, it was not because
defendant maliciously did it to exclude him [from] the trip. If he was left, it was because of his fault or
negligence. 9
Unsatisfied, the private respondent appealed to the Court of Appeals (CA-G.R. CV No. 39901) and
submitted for its determination the following assignment of errors: (1) the trial court erred in not finding
that the defendant-appellee was guilty of fraud, delay, negligence, and bad faith; and (2) the trial court
erred in not awarding moral and exemplary damages. 10
In its decision of 23 November 1994, 11 the Court of Appeals reversed the trial court's decision by applying
Article 1755 in relation to Articles 2201, 2208, 2217, and 2232 of the Civil Code and, accordingly, awarded
compensatory, moral, and exemplary damages as follows:
WHEREFORE, premises considered, the appealed decision is hereby REVERSED and SET ASIDE and another
one is rendered ordering defendant-appellee to pay plaintiff-appellant:
1.
2.
P10,000.00 as exemplary damages;
3.
P5,000.00 as attorney's fees;
4.
Cost of suit.
SO ORDERED. 12
It did not, however, allow the grant of damages for the delay in the performance of the petitioner's
obligation as the requirement of demand set forth in Article 1169 of the Civil Code had not been met by
the private respondent. Besides, it found that the private respondent offered no evidence to prove that his
contract of carriage with the petitioner provided for liability in case of delay in departure, nor that a
designation of the time of departure was the controlling motive for the establishment of the contract. On
the latter, the court a quo observed that the private respondent even admitted he was unaware of the
vessel's departure time, and it was only when he boarded the vessel that he became aware of such.
Finally, the respondent Court found no reasonable basis for the private respondent's belief that demand
was useless because the petitioner had rendered it beyond its power to perform its obligation; on the
541 | P a g e
contrary, he even admitted that the petitioner had been assuring the passengers that the vessel would
leave on time, and that it could still perform its obligation to transport them as scheduled.
To justify its award of damages, the Court of Appeals ratiocinated as follows:
It is an established and admitted fact that the vessel before the voyage had undergone some repair work
on the cylinder head of the engine. It is likewise admitted by defendant-appellee that it left the port of
Cebu City with only one engine running. Defendant-appellee averred:
. . . The dropping of the vessel's anchor after running slowly on only one engine when it departed earlier
must have alarmed some nervous passengers . . .
The entries in the logbook which defendant-appellee itself offered as evidence categorically stated therein
that the vessel stopped at Kawit Island because of engine trouble. It reads:
2330 HRS STBD ENGINE EMERGENCY STOP
2350 HRS DROP ANCHOR DUE TO ENGINE TROUBLE, 2 ENGINE STOP.
The stoppage was not to start and synchronized [sic] the engines of the vessel as claimed by defendantappellee. It was because one of the engines of the vessel broke down; it was because of the disability of
the vessel which from the very beginning of the voyage was known to defendant-appellee.
Defendant-appellee from the very start of the voyage knew for a fact that the vessel was not yet in its
sailing condition because the second engine was still being repaired. Inspite of this knowledge, defendantappellee still proceeded to sail with only one engine running.
Defendant-appellee at that instant failed to exercise the diligence which all common carriers should
exercise in transporting or carrying passengers. The law does not merely require extraordinary diligence in
the performance of the obligation. The law mandates that common carrier[s] should exercise utmost
diligence in the transport of passengers.
Article 1755 of the New Civil Code provides:
ART. 1755.
A common carrier is bound to carry the passengers safely as far as human care and
circumstances.
Utmost diligence of a VERY CAUTIOUS person dictates that defendant-appellee should have pursued the
voyage only when its vessel was already fit to sail. Defendant-appellee should have made certain that the
vessel [could] complete the voyage before starting [to] sail. Anything less than this, the vessel [could not]
sail . . . with so many passengers on board it.
However, defendant-appellant [sic] in complete disregard of the safety of the passengers, chose to
proceed with its voyage even if only one engine was running as the second engine was still being repaired
during the voyage. Defendant-appellee disregarded the not very remote possibility that because of the
disability of the vessel, other problems might occur which would endanger the lives of the passengers
sailing with a disabled vessel.
As expected, . . . engine trouble occurred. Fortunate[ly] for defendant-appellee, such trouble only
necessitated the stoppage of the vessel and did not cause the vessel to capsize. No wonder why some
passengers requested to be brought back to Cebu City. Common carriers which are mandated to exercise
utmost diligence should not be taking these risks.
On this premise, plaintiff-appellant should not be faulted why he chose to disembark from the vessel with
the other passengers when it returned back to Cebu City. Defendant-appellee may call him a very "panicky
passenger" or a "nervous person", but this will not relieve defendant-appellee from the liability it incurred
for its failure to exercise utmost diligence. 13
xxx
xxx
xxx
As to the second assigned error, we find that plaintiff-appellant is entitled to the award of moral and
exemplary damages for the breach committed by defendant-appellee.
As discussed, defendant-appellee in sailing to Cagayan de Oro City with only one engine and with full
knowledge of the true condition of the vessel, acted in bad faith with malice, in complete disregard for the
safety of the passengers and only for its own personal advancement/interest.
The Civil Code provides:
Art. 2201.
xxx
xxx
xxx
which may be reasonably attributed to the non-performance of the obligation.
542 | P a g e
Plaintiff-appellant is entitled to moral damages for the mental anguish, fright and serious anxiety he
suffered during the voyage when the vessel's engine broke down and when he disembarked from the
vessel during the wee hours of the morning at Cebu City when it returned. 14
Moral damages are recoverable in a damage suit predicated upon a breach of contract of carriage where it
is proved that the carrier was guilty of fraud or bad faith even if death does not result. 15
Fraud and bad faith by defendant-appellee having been established, the award of moral damages is in
order. 16
To serve as a deterrent to the commission of similar acts in the future, exemplary damages should be
imposed upon defendant-appellee. 17 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. 18
Moral damages having been awarded, exemplary damages may be properly awarded. When entitlement to
moral damages has been established, the award of exemplary damages is proper. 19
The petitioner then instituted this petition and submitted the question of law earlier adverted to.
Undoubtedly, there was, between the petitioner and the private respondent, a contract of common
carriage. The laws of primary application then are the provisions on common carriers under Section 4,
Chapter 3, Title VIII, Book IV of the Civil Code, while for all other matters not regulated thereby, the Code of
Commerce and special laws. 20
Under Article 1733 of the Civil Code, the petitioner was bound to observe extraordinary diligence in
ensuring the safety of the private respondent. That meant that the petitioner was, pursuant to Article 1755
of the said Code, bound to carry the private respondent safely as far as human care and foresight could
provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. In
this case, we are in full accord with the Court of Appeals that the petitioner failed to discharge this
obligation.
Before commencing the contracted voyage, the petitioner undertook some repairs on the cylinder head of
one of the vessel's engines. But even before it could finish these repairs, it allowed the vessel to leave the
port of origin on only one functioning engine, instead of two. Moreover, even the lone functioning engine
was not in perfect condition as sometime after it had run its course, it conked out. This caused the vessel
to stop and remain adrift at sea, thus in order to prevent the ship from capsizing, it had to drop anchor.
Plainly, the vessel was unseaworthy even before the voyage began. For a vessel to be seaworthy, it must
be adequately equipped for the voyage and manned with a sufficient number of competent officers and
crew. 21 The failure of a common carrier to maintain in seaworthy condition its vessel involved in a
contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.
As to its liability for damages to the private respondent, Article 1764 of the Civil Code expressly provides:
ART. 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 common carrier.
The damages comprised in Title XVIII of the Civil Code are actual or compensatory, moral, nominal,
temperate or moderate, liquidated, and exemplary.
In his complaint, the private respondent claims actual or compensatory, moral, and exemplary damages.
Actual or compensatory damages represent the adequate compensation for pecuniary loss suffered and for
profits the obligee failed to obtain. 22
In contracts or quasi-contracts, the obligor is liable for all the damages which may be reasonably attributed
to the non-performance of the obligation if he is guilty of fraud, bad faith, malice, or wanton attitude. 23
Moral damages include moral suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, or similar injury. They may be recovered in the cases
enumerated in Article 2219 of the Civil Code, likewise, if they are the proximate result of, as in this case,
the petitioner's breach of the contract of carriage. 24 Anent a breach of a contract of common carriage,
moral damages may be awarded if the common carrier, like the petitioner, acted fraudulently or in bad
faith. 25
Exemplary damages are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated or compensatory damages. 26 In contracts and quasi-contracts, exemplary damages
may be awarded if the defendant acted in a wanton fraudulent, reckless, oppressive or malevolent manner.
27 It cannot, however, be considered as a matter of right; the court having to decide whether or not they
should be adjudicated. 28 Before the court may consider an award for exemplary damages, the plaintiff
543 | P a g e
must first show that he is entitled to moral, temperate or compensatory damages; but it is not necessary
that he prove the monetary value thereof. 29
The Court of Appeals did not grant the private respondent actual or compensatory damages, reasoning
that no delay was incurred since there was no demand, as required by Article 1169 of the Civil Code. This
article, however, finds no application in this case because, as found by the respondent Court, there was in
fact no delay in the commencement of the contracted voyage. If any delay was incurred, it was after the
commencement of such voyage, more specifically, when the voyage was subsequently interrupted when
the vessel had to stop near Kawit Island after the only functioning engine conked out.
As to the rights and duties of the parties strictly arising out of such delay, the Civil Code is silent. However,
as correctly pointed out by the petitioner, Article 698 of the Code of Commerce specifically provides for
such a situation. It reads:
In case a voyage already begun should be interrupted, the passengers shall be obliged to pay the fare in
proportion to the distance covered, without right to recover for losses and damages if the interruption is
due to fortuitous event or force majeure, but with a right to indemnity if the interruption should have been
caused by the captain exclusively. If the interruption should be caused by the disability of the vessel and a
passenger should agree to await the repairs, he may not be required to pay any increased price of
passage, but his living expenses during the stay shall be for his own account.
This article applies suppletorily pursuant to Article 1766 of the Civil Code.
Of course, this does not suffice for a resolution of the case at bench for, as earlier stated, the cause of the
delay or interruption was the petitioner's failure to observe extraordinary diligence. Article 698 must then
be read together with Articles 2199, 2200, 2201, and 2208 in relation to Article 21 of the Civil Code. So
read, it means that the petitioner is liable for any pecuniary loss or loss of profits which the private
respondent may have suffered by reason thereof. For the private respondent, such would be the loss of
income if unable to report to his office on the day he was supposed to arrive were it not for the delay. This,
however, assumes that he stayed on the vessel and was with it when it thereafter resumed its voyage; but
he did not. As he and some passengers resolved not to complete the voyage, the vessel had to return to its
port of origin and allow them to disembark. The private respondent then took the petitioner's other vessel
the following day, using the ticket he had purchased for the previous day's voyage.
Any further delay then in the private respondent's arrival at the port of destination was caused by his
decision to disembark. Had he remained on the first vessel, he would have reached his destination at noon
of 13 November 1991, thus been able to report to his office in the afternoon. He, therefore, would have lost
only the salary for half of a day. But actual or compensatory damages must be proved, 30 which the
private respondent failed to do. There is no convincing evidence that he did not receive his salary for 13
November 1991 nor that his absence was not excused.
We likewise fully agree with the Court of Appeals that the petitioner is liable for moral and exemplary
damages. In allowing its unseaworthy M/V Asia Thailand to leave the port of origin and undertake the
contracted voyage, with full awareness that it was exposed to perils of the sea, it deliberately disregarded
its solemn duty to exercise extraordinary diligence and obviously acted with bad faith and in a wanton and
reckless manner. On this score, however, the petitioner asserts that the safety of the vessel and
passengers was never at stake because the sea was "calm" in the vicinity where it stopped as faithfully
recorded in the vessel's log book (Exhibit "4"). Hence, the petitioner concludes, the private respondent was
merely "over-reacting" to the situation obtaining then. 31
We hold that the petitioner's defense cannot exculpate it nor mitigate its liability. On the contrary, such a
claim demonstrates beyond cavil the petitioner's lack of genuine concern for the safety of its passengers.
It was, perhaps, only providential that the sea happened to be calm. Even so, the petitioner should not
expect its passengers to act in the manner it desired. The passengers were not stoics; becoming alarmed,
anxious, or frightened at the stoppage of a vessel at sea in an unfamiliar zone at nighttime is not the sole
prerogative of the faint-hearted. More so in the light of the many tragedies at sea resulting in the loss of
lives of hopeless passengers and damage to property simply because common carriers failed in their duty
to exercise extraordinary diligence in the performance of their obligations.
We cannot, however, give our affirmance to the award of attorney's fees. Under Article 2208 of the Civil
Code, these are recoverable only in the concept of actual damages, 32 not as moral damages 33 nor
judicial costs. 34 Hence, to merit such an award, it is settled that the amount thereof must be proven. 35
Moreover, such must be specifically prayed for as was not done in this case and may not be deemed
incorporated within a general prayer for "such other relief and remedy as this court may deem just and
544 | P a g e
equitable." 36 Finally, it must be noted that aside from the following, the body of the respondent Court's
decision was devoid of any statement regarding attorney's fees:
Plaintiff-appellant was forced to litigate in order that he can claim moral and exemplary damages for the
suffering he encurred [sic]. He is entitled to attorney's fees pursuant to Article 2208 of the Civil Code. It
states:
Article 2208. 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.
This Court holds that the above does not satisfy the benchmark of "factual, legal and equitable
justification" needed as basis for an award of attorney's fees. 37 In sum, for lack of factual and legal basis,
the award of attorney's fees must be deleted.
WHEREFORE, the instant petition is DENIED and the challenged decision of the Court of Appeals in CA-G.R.
CV No. 39901 is AFFIRMED subject to the modification as to the award for attorney's fees which is hereby
SET ASIDE.
Costs against the petitioner.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
Footnotes
1.
Rollo. 3.
2.
Annex "A" of Petition; Id., 11-22. Per Labitoria, E.J., with Abad-Santos, Jr., Q., and Hofilea, H., JJ.,
concurring.
3.
Original Record (OR), Civil Case No. 91-491, 92-99; 100-107; 108-115. Per Judge Leonardo N.
Demecillo.
4.
Rollo, 12-13.
5.
OR, Civil Case No. 91-491, 2-5.
6.
Id., 43.
7.
Supra note 3.
8.
OR, Civil Case No. 91-491, 99.
9.
OR, Civil Case No. 91-491, 97-99.
10.
Rollo, 12.
11.
Supra note 2.
12.
Rollo, 21.
13.
Rollo, 14-16.
14.
Id., 19-20, citing Article 2217, Civil Code.
15.
Id., citing China Airlines Ltd. vs. Intermediate Appellate Court, 169 SCRA 226 [1989]; Sabena
Belgina World Airlines vs. Court of Appeals, 171 SCRA 620 [1989].
16.
Id., citing Bert Osmea & Associates vs. Court of Appeals, 120 SCRA 395 [1983].
17.
Rollo, 19-20, citing Rotea vs. Halili, 109 Phil. 495 [1960].
18.
Id., citing Mecenas vs. Court of Appeals, 180 SCRA 83 [1989].
19.
Id., citing De Leon vs. Court of Appeals, 165 SCRA 166 [1988].
20.
21.
Chan Keep vs. Chan Gioco, 14 Phil. 5 [1909].
22.
Article 2199 and 2200.
23.
Article 2201.
24.
Article 2217.
25.
Article 2220. See Necesito vs. Paras, 104 Phil. 75, 82-83 [1958].
26.
Article 2229.
27.
Article 2232.
28.
Article 2233.
29.
Article 2234.
30.
Article 2199.
545 | P a g e
31.
Brief for Defendant Appellee, 9; Rollo, 33.
32.
Fores vs. Miranda, 105 Phil. 266, 272 [1959]; PCIB vs. Intermediate Appellate Court, 196 SCRA 29,
39 [1991].
33.
Mirasol vs. de la Cruz, 84 SCRA 337, 342 [ 1978].
34.
Damasen vs. Hernando, 104 SCRA 111, 116-117 [1981].
35.
See Warner, Barnes & Co., Ltd. vs. Luzon Surety Co., Inc., 95 Phil. 925 [1954].
36.
Mirasol vs. de la Cruz, supra note 33, at 343.
37.
See Scott Consultants & Resource Development vs. Court of Appeals, 242 SCRA 393, 405-406
[1995].
4.
Responsibilities of Captain, Arts. 701, 702, 705, 612, 713; Art. 1754, Civil Code
ARTICLE 701.
The convenience or the interest of the passengers shall not obligate nor empower the
captain to stand in shore or enter places which may take the vessel out of her course, nor to remain in the
ports he must or is under the necessity of touching for a period longer than that required for the business
of the navigation.
ARTICLE 702.
In the absence of an agreement to the contrary, it shall be understood that the
maintenance of the passengers during the voyage is included in the price of the passage; but should said
maintenance be for the account of the latter, the captain shall be under the obligation, in case of
necessity, to furnish them the victuals at a reasonable price necessary for their maintenance.
ARTICLE 705.
In case of the death of a passenger during the voyage the captain is authorized, with
regard to the body, to take the steps required by the circumstances, and shall carefully take care of the
papers and goods there may be on board belonging to the passenger, observing the provisions of Case No.
10 of Article 612 with regard to members of the crew.
ARTICLE 612.
The following obligations are inherent in the office of captain:
1.
To have on board before starting on a voyage a detailed inventory of the hull, engines, rigging,
tackle, stores, and other equipments of the vessel; the navigation certificate; the roll of the persons who
make up the crew of the vessel, and the contracts entered into with the crew; the list of passengers; the
health certificate; the certificate of the registry proving the ownership of the vessel, and all the obligations
which encumber the same up to that date; the charters or authenticated copies thereof; the invoices or
manifest of the cargo, and the instrument of the expert visit or inspection, should it have been made at the
port of departure.
2.
To have a copy of this Code on board.
3.
To have three folioed and stamped books, placing at the beginning of each one a note of the
number of folios it contains, signed by the maritime official, and in his absence by the competent authority.
In the first book, which shall be called "log book," he shall enter every day the condition of the
atmosphere, the prevailing winds, the course sailed, the rigging carried, the horsepower of the engines,
the distance covered, the maneuvers executed, and other incidents of navigation. He shall also enter the
damage suffered by the vessel in her hull, engines, rigging, and tackle, no matter what is its cause, as well
as the imperfections and averages of the cargo, and the effects and consequence of the jettison, should
there be any; and in cases of grave resolutions which require the advice or a meeting of the officers of the
vessel, or even of the passengers and crew, he shall record the decision adopted. For the informations
indicated he shall make use of the binnacle book, and of the steam or engine book kept by the engineer.
In the second book, called the "accounting book," he shall enter all the amounts collected and paid
for the account of the vessel, entering specifically article by article, the sources of the collection, and the
amounts invested in provisions, repairs, acquisition of rigging or goods, fuel, outfits, wages, and all other
expenses. He shall furthermore enter therein a list of all the members of the crew, stating their domiciles,
their wages and salaries, and the amounts they may have received on account, either directly or by
delivery to their families.
In the third book, called "freight book," he shall record the entry and exit of all the goods, stating
their marks and packages, names of the shippers and of the consignees, ports of loading and unloading,
and the freight earned. In the same book he shall record the names and places of sailing of the passengers
and the number of packages of which their baggage consists, and the price of the passage.
546 | P a g e
4.
To make, before receiving the freight, with the officers of the crew, and the two experts, if required
by the shippers and passengers, an examination of the vessel, in order to ascertain whether she is
watertight, and whether the rigging and engines are in good condition; and if she has the equipment
required for good navigation, preserving a certificate of the memorandum of this inspection, signed by all
the persons who may have taken part therein, under their liability.
The experts shall be appointed one by the captain of the vessel and the other one by the persons
who request the examination, and in case of disagreement a third shall be appointed by the marine
authority of the port.
5.
To remain constantly on board the vessel with the crew during the time the freight is taken on board
and carefully watch the stowage thereof; not to consent to any merchandise or goods of a dangerous
character to be taken on, such as inflammable or explosive substances, without the precautions which are
recommended for their packing, management and isolation; not to permit that any freight be carried on
deck which by reason of its disposition, volume, or weight makes the work of the sailors difficult, and which
might endanger the safety of the vessel; and if, on account of the nature of the merchandise, the special
character of the shipment, and principally the favorable season it takes place, he allows merchandise to be
carried on deck, he must hear the opinion of the officers of the vessel, and have the consent of the
shippers and of the agent.
6.
To demand a pilot at the expense of the vessel whenever required by navigation, and principally
when a port, canal, or river, or a roadstead or anchoring place is to be entered with which neither he, the
officers nor the crew are acquainted.
7.
To be on deck at the time of sighting land and to take command on entering and leaving ports,
canals, roadsteads, and rivers, unless there is a pilot on board discharging his duties. He shall not spend
the night away from the vessel except for serious causes or by reason of official business. cdtai
8.
To present himself, when making a port in distress, to the maritime authority if in Spain * and to the
Spanish * consul if in a foreign country, before twenty-four hours have elapsed, and make a statement of
the name, registry, and port of departure of the vessel, of its cargo, and reason of arrival, which
declaration shall be vised by the authority or by the consul if after examining the same it is found to be
acceptable, giving the captain the proper certificate in order to show his arrival under stress and the
reasons therefor. In the absence of marine officials or of the consul, the declaration must be made before
the local authority.
9.
To take the steps necessary before the competent authority in order to enter in the certificate of the
Commercial Registry of the vessel the obligations which he may contract in accordance with Article 583.
10.
To put in a safe place and keep all the papers and belongings of any members of the crew who
might die on the vessel, drawing up a detailed inventory, in the presence of passengers as witnesses, and,
in their absence, of members of the crew.
11.
To conduct himself according to the rules and precepts contained in the instructions of the agent,
being liable for all that he may do in violation thereof.
12.
To give an account to the agent from the port where the vessel arrives, of the reason thereof, taking
advantage of the semaphore, telegraph, mail, etc., according to the cases; notify him the freight he may
have received, stating the name and domicile of the shippers, freight earned, and amounts borrowed on
bottomry bond, advise him of his departure, and give him any information and data which may be of
interest.
13.
To observe the rules on the situation of lights and evolutions to prevent collisions.
14.
To remain on board in case of danger to the vessel, until all hope to save her is lost, and before
abandoning her to hear the officers of the crew, abiding by the decision of the majority; and if he should
have to take a boat he shall take with him, before anything else, the books and papers, and then the
articles of most value, being obliged to prove in case of the loss of the books and papers that he did all he
could to save them.
15.
In case of wreck he shall make the proper protest in due form at the first port reached, before the
competent authority or the Spanish * consul, within twenty-four hours, stating therein all the incidents of
the wreck, in accordance with case 8 of this article.
16.
To comply with the obligations imposed by the laws and rules of navigation, customs, health, and
others.
547 | P a g e
ARTICLE 712.
The captain can not himself change the destination of merchandise. In admitting this
change at the instance of the freighter, he must first take up the bills of lading he may have issued, under
the penalty of being liable for the cargo to the legitimate holder of the same.
The provisions of articles 1733 to 1753 shall apply to the passengers baggage which is not in his
personal custody or in that of his employee. As to other baggage, the rules in articles 1998 and 2000 to
2003 concerning the responsibility of hotel-keepers shall be applicable.
H. Carriage of Goods by Sea Act (Commonwealth Act No. 65;Act No. 521, 74 th US Congress)
Ang v. American Steamship Agencies, 19 SCRA 123
EN BANC
[G.R. No. L-22491. January 27, 1967.]
DOMINGO ANG, plaintiff-appellant, vs. AMERICAN STEAMSHIP AGENCIES, INC., defendantappellee.
Juan T. David and M.C. Gunigundo for plaintiff-appellant.
Ross, Salcedo, Del Rosario, Bito & Misa for defendant-appellee.
SYLLABUS
1.
CARRIAGE OF GOODS BY SEA ACT; LOSS DEFINED. As defined in the Civil Code and as applied to
Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act, "loss" contemplates merely a situation
where no delivery at all was made by the shipper of the goods because the same had perished, gone out
of commerce, or disappeared in such a way that their existence is unknown or they cannot be recovered. It
does not include a situation where there was indeed delivery but delivery to the wrong person, or a
misdelivery.
2.
PLEADING AND PRACTICE; MOTION TO DISMISS; EFFECT. It is well settled in this jurisdiction that
when a defendant files a motion to dismiss, he thereby hypothetically admits the truth of the allegations of
fact contained in the complaint.
3.
PRESCRIPTION OF ACTIONS; SUITS PREDICATED ON MISDELIVERY; APPLICABLE RULE. Where the
suit is predicated not upon loss or damage but on alleged misdelivery (or conversion) of the goods as in
the case at bar, the applicable rule on prescription is not the one-year period provided for in Section 3(6),
paragraph 4 of the Carriage of Goods by Sea Act, which short period is designed merely to meet the
exigencies of maritime hazards but that found in the Civil Code, namely, either ten years for breach of a
written contract or four years for quasi- delict. (Arts. 1144 [1] 1146, Civil Code)
DECISION
BENGZON, J.P., J p:
Yau Yue Commercial Bank Ltd. of Hongkong, referred to hereafter as Yau Yue, agreed to sell 140 packages
of galvanized steel durzinc sheets to one Herminio G. Teves (the date of said agreement is not shown in
the record here) for the sum of $32,458.26 (US). Said agreement was subject to the following terms and
arrangements: (a) the purchase price should be covered by a bank draft for the corresponding amount
which should be paid by Herminio G. Teves in exchange for the delivery to him of the corresponding bill of
lading to be deposited with a local bank, the Hongkong & Shanghai Bank of Manila; (b) upon arrival of the
articles in Manila, Teves would be notified and he would have to pay the amount called for in the
corresponding demand draft, after which the bill of lading would be delivered to him; and (c) Teves would
present said bill of lading to the carrier's agent, American Steamship Agencies, Inc. which would then issue
the corresponding "Permit To Deliver Imported Articles" to be presented to the Bureau of Customs to obtain
the release of the articles.
Pursuant to said terms and arrangements, Yau Yue, through Tokyo Boeki, Ltd. of Tokyo, Japan, shipped the
articles at Yawata, Japan, on April 30, 1961 aboard the S.S. TENSAI MARU, Manila, belonging to the Nissho
Shipping Co., Ltd. of Japan, of which the American Steamship Agencies, Inc. is the agent in the Philippines,
under a shipping agreement, Bill of Lading No. WM-2, dated April 30, 1961, consigned "to order of the
548 | P a g e
shipper", with Herminio G. Teves as the party to be notified of the arrival of the 140 packages of galvanize
steel durzinc sheets in Manila.
The bill of lading was indorsed to the order of and delivered to Yau Yue by the shipper. Upon receipt
thereof, Yau Yue drew a demand draft together with the bill of lading against Herminio G. Teves, through
the Hongkong & Shanghai Bank.
When the articles arrived in Manila on or about May 9, 1961, Hongkong & Shanghai Bank notified Teves,
the "notify party" under the bill of lading, of the arrival of the goods and requested payment of the demand
draft representing the purchase price of the articles. Teves, however, did not pay the demand draft,
prompting the bank to make the corresponding protest. The bank likewise returned the bill of lading and
demand draft to Yau Yue which indorsed the said bill of lading to Domingo Ang.
Meanwhile, despite his non-payment of the purchase price of the articles, Teves as able to obtain a bank
guaranty in favor of the American Steamship Agencies, Inc., as carrier's agent, to the effect that he would
surrender the original and negotiable bill of lading duly indorsed by Yau Yue. On the strength of this
guaranty, Teves succeeded in securing a "Permit To Deliver Imported Articles" from the carrier's agent,
which he presented to the Bureau of Customs which in turn released to him the articles covered by the bill
of lading.
Subsequently, Domingo Ang claimed for the articles from American Steamship Agencies, Inc., by
presenting the indorsed bill of lading, but he was informed by the latter that it had delivered the articles to
Teves.
On October 30, 1963 Domingo Ang filed a complaint in the Court of First Instance of Manila against the
American Steamship Agencies, Inc., for having allegedly wrongfully delivered and/or converted the goods
covered by the bill of lading belonging to plaintiff Ang, to the damage and prejudice of the latter.
On December 2, 1963, defendant filed a motion to dismiss upon the ground that plaintiff's cause of action
has prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65), more particularly
Section 3(6), paragraph 4, which provides:
"In any event, the carrier and the ship shall discharged from all liability in respect to loss or damage unless
suit is brought within one year after delivery of the goods or the date when the goods should have been
delivered."
It argued that the cargo should have been delivered to the person entitled to the delivery thereof (meaning
the plaintiff) on May 9, 1961, the date of the vessel's arrival in Manila, and that even allowing a reasonable
time (even one month) after such arrival within which to make delivery, still, the action commenced on
October 30, 1963 was filed beyond the prescribed period of one year.
By order dated December 21, 1963, copy of which was received by plaintiff on December 26, 1963, the
lower court dismissed the action on the ground of prescription. His motion for reconsideration dated
December 26, 1963 having been denied by the lower court in its order dated January 13, ]964, plaintiff
appealed directly to this Court on a question of law: Has plaintiff-appellant's cause of action prescribed
under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act?
The provision of law involved in this case speaks of "loss or damage". That there was no damage caused to
the goods which were delivered intact to Herminio G. Teves who did not file any notice of damage, is
admitted by both parties in this case. What is to be resolved in order to determine the applicability of
the prescriptive period of one year to the case at bar is whether or not there was "loss" of the goods
subject matter of the complaint.
Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse must be had to the Civil
Code which provides in Article 18 thereof that, "In matters which are governed by the Code of Commerce
and special laws, their deficiency shall be supplied by the provisions of this Code."
Article 1189 of the Civil Code defines the word "loss" in cases where conditions have been imposed with
the intention of suspending the efficacy of an obligation to give. The contract of carriage under
consideration entered into by and between American Steamship Agencies, Inc. and the Yau Yue (which
later on endorsed the bill of lading covering the shipment to plaintiff herein Domingo Ang), is one involving
an obligation to give or to deliver the goods "to the order of shipper", that is, upon the presentation and
surrender of the bill of lading. This being so, said article can be applied to the present controversy, more
specifically paragraph 2 thereof which provides that, ". . . it is understood that a thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot
be recovered."
As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea
Act, "loss" contemplates merely a situation where no delivery at all was made by the shipper of the goods
549 | P a g e
because the same had perished, gone out of commerce, or disappeared in such away that their existence
is unknown or they cannot he recovered. It does not include a situation where there was indeed delivery
but delivery to the wrong person, or a misdelivery, as alleged in the complaint in this case.
The distinction between nondelivery and misdelivery has already been clearly made in reference to bills of
lading. As this Court said in Tan Pho vs. Hassamal Dalamal, 67 Phil. 555, 557-558:
"Considering that the bill of lading covering the goods in question has been made to order, which means
that said goods cannot be delivered without previous payment of the value thereof, it is evident that, the
said goods having been delivered to Aldeguer without paying the price of the same, these facts constitutes
misdelivery and not nondelivery, because there was in fact delivery of merchandise. We do not believe it
can be seriously and reasonably argued that what took place, as contended by the petitioner is a case of
misdelivery with respect to Aldeguer and at the same time nondelivery with respect to the PNB who had
the bill of lading, because the only thing to consider in this question is whether Enrique Aldeguer was
entitled to get the merchandise or whether, on the contrary, the PNB is the one entitled thereto. Under the
facts, the defendant petitioner should not have delivered the goods to Aldeguer but to the Philippine
National Bank. Having made the delivery to Aldeguer, the delivery is a case of misdelivery. If the goods
have been delivered, it cannot at the same time be said that they have not been delivered.
"According to the bill of lading which was issued in the case at bar to the order of the shipper, the carrier
was under a duty not to deliver the merchandise mentioned in the bill of lading except upon presentation
of the bill of lading duly endorsed by the shipper. (10 C.J., 259) Hence, the defendant-petitioner Tan Pho
having delivered the goods to Enrique Aldeguer without the presentation by the latter of the bill of lading
duly endorsed to him by the shipper, the said defendant made a misdelivery and violated the bill of lading,
because his duty was not only to transport the goods entrusted to him safely, but to deliver them to the
person indicated in the bill of lading." (Italics supplied)
Now, it is well settled in this jurisdiction that when a defendant files a motion to dismiss, he thereby
hypothetically admits the truth of the allegations of fact contained in the complaint (Philippine National
Bank vs. Hipolito, et al., L-16463, Jan. 30, 1965; Republic vs. Ramos, L-15484, Jan. 31, 1963; Pascual vs.
Secretary of Public Works & Communications, 110 Phil. 331; Pangan vs. Evening News Publishing Co., Inc.,
110 Phil. 409). Thus, defendant-appellant having filed a motion to dismiss, it is deemed to have admitted,
hypothetically, paragraphs 6, 7 and 8 of the complaint, and these allege:
"6. That, when the said articles arrived in Manila, the defendant authorized the delivery thereof to
Herminio G. Teves, through the issuance of the corresponding Permit to Deliver Imported Articles, without
the knowledge and consent of the plaintiff, who is the holder in due course of said bill of lading,
notwithstanding the fact that the said Herminio G. Teves could not surrender the corresponding bill of
lading;
"7. That, without any evidence of the fact that Herminio G. Teves is the holder of the corresponding bill
of lading in due course; without the surrender of the bill of lading; without the knowledge and consent of
the plaintiff, as holder thereof in due course, and in violation of the provision on the bill of lading which
requires that the articles are only to be delivered to the person who is the holder in due course of the said
bill of lading, or his order, the defendant issued the corresponding `Permit To Deliver Imported Articles' in
favor of the defendant, without the knowledge and consent of the plaintiff as holder in due course of said
bill of lading, which, originally was Yau Yue, subsequently, the plaintiff Domingo Ang;
"8. That, as a result of the issuance by the defendant of said permit, Herminio G. Teves was able to
secure the release of the articles from the Bureau of Customs, which is not legally possible without the
presentation of said permit to the said Bureau; . . ."
From the allegations of the complaint, therefore, the goods cannot be deemed "lost". They were delivered
to Herminio G. Teves, so that there can only be either delivery, if Teves really was entitled to receive them
or misdelivery, if he was not so entitled. It is not for Us now to resolve whether or not delivery of the goods
to Teves was proper, that is, whether or not there was rightful delivery or misdelivery.
The point that matters here is that the situation is either delivery or misdelivery, but not nondelivery. Thus,
the goods were either rightly delivered or misdelivered, but they were not lost. There being no loss or
damage to the goods, the afore-quoted provision of the Carriage of Goods by Sea Act stating that "In any
event, the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit
is brought within one year after delivery of the goods or the date when the goods should have been
delivered," does not apply. The reason is not difficult to see. Said one-year period of limitation is designed
to meet the exigencies of maritime hazards. In a case where the goods shipped were neither lost nor
damaged in transit but were, on the contrary, delivered in port to someone who claimed to be entitled
550 | P a g e
thereto, the situation is different, and the special need for the short period of limitation in cases of loss or
damage caused by maritime perils does not obtain.
It follows that for suits predicated not upon loss or damage but on alleged misdelivery (or conversion) of
the goods, the applicable rule on prescription is that found in the Civil Code, namely, either ten years for
breach of a written contract or four years for quasi-delict. (Arts. 1144(1), 1146, Civil Code) In either case,
plaintiff's cause of action has not yet prescribed, since his right of action would have accrued at the
earliest on May 9, 1961 when the ship arrived in Manila and he filed suit on October 30, 1963.
Wherefore, the dismissal order appealed from is hereby reversed and set aside and this case is remanded
to the court a quo for further proceedings. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez and Ruiz Castro, JJ., concur.
F.H. Stevens v. Nordeutscher, 6 SCRA 180
EN BANC
[G.R. No. L-17730. September 29, 1962.]
F. H. STEVENS & CO., INC., plaintiff-appellant, vs. NORDDEUSCHER LLOYD, defendant-appellee.
Delgado, Flores, Macapagal & Dizon for plaintiff-appellant.
Ross, Selph & Carrascoso for defendant-appellee.
SYLLABUS
1.
ACTIONS; DISMISSAL FOR LACK OF JURISDICTION; PERIOD WITHIN WHICH A NEW ACTION MAY BE
COMMENCED. Where an action commenced in the municipal court on April 27, 1960, was dismissed for
lack of jurisdiction over the subject-matter on June 13, 1960, or over twenty (20) days after the expiration
of the period of one year, beginning from May 21, 1959, within which plaintiff's action could be brought,
pursuant to Commonwealth Act No. 65, in relation to the Carriage of Goods by Sea Act, it is Held, that
under section 49 of Act No. 190, the period within which plaintiff could bring a new action in the proper
court was renewed for another year, beginning from June 14, 1960 (Tolentino vs. Vitug, 39 Phil., 126; Smith
vs. McNeal, 100 U.S. 426, 27 L. ed. 936).
DECISION
CONCEPCION, J p:
This is an appeal from an order granting defendant's motion to dismiss and, accordingly, dismissing the
case without any pronouncement as to costs.
Plaintiff commenced this action in the Court of First Instance of Manila on June 24, 1960. It alleged in the
complaint that on March 28, 1959, it had shipped from Hamburg to Manila, aboard the "MS
SCHWABENSTEIN", a vessel of defendant Norddeuscher Lloyd, 2,000 pieces of prismatical thermometers
valued at $650; that on May 15, 1959, said vessel arrived at Manila; that on May 21, 1959, the master of
said vessel notified the plaintiff, thru its broker, of the delivery of said goods; that, upon examination of the
case containing the same, it turned out that 1,154 pieces of said thermometers valued at $342.74, were
missing and/or destroyed; that plaintiff immediately filed the corresponding notice of loss and/or short
delivery, followed by the corresponding notice and formal claim for loss and/or short delivery; that, despite
several demands, defendant had refused and failed to pay said sum of $342.74; that as a consequence,
plaintiff had, also, incurred damages in the sum of P1,000, as attorney's fees, and P664.70, as unrealized
profits; and that an action instituted in the Municipal Court of Manila on April 27, 1960 seemingly, for the
recovery of the value of said thermometers and the amount of said damages was dismissed by said
court on June 13, 1960, without any trial on the merits, upon the ground of lack of jurisdiction over the
subject-matter of the case, inasmuch as the same involved the exercise of admiralty and maritime
jurisdiction. Plaintiff prayed for judgment for said sums of $342.74, P1,000 and P664.70 plus costs.
On July 8, 1960, defendant moved to dismiss the complaint upon the ground that plaintiff's cause of action
had prescribed, it having been filed on June 24, 1960, or more than a year from May 21, 1959, when
plaintiff was notified of the delivery of the case containing the thermometers in question. This motion
having been granted and the complaint dismissed, plaintiff interposed this appeal, maintaining that the
period of one (1) year prescribed in Commonwealth Act No. 65, in relation to the Carriage of Goods by Sea
551 | P a g e
Act within which the liability of carriers, based upon a contract of carriage of goods by sea, may be
enforced by suit was suspended by the commencement of the first action in the municipal court, on
April 27, 1960; that the running of said period was resumed or continued on June 13, 1960, when said
action was dismissed; and that, excluding said period, from April 27, 1960 to June 13, 1960, or forty-seven
(47) days, less than one (1) year has elapsed from May 21, 1959 to June 24, 1960, when this case was filed
in the court of first instance. In support of this pretense, plaintiff invokes Articles 1155 of the Civil Code of
the Philippines, reading:
"The prescription of actions is interrupted when they are filed before the court, when there is a written
extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the
debtor."
Upon mature deliberation, we are of the opinion, and so hold, that the order appealed from should be
reversed, not only because of the operation of said Article 1155 of our Civil Code, but, also, in view of the
provisions of section 49 of Act No. 190, pursuant to which:
"If, in an action commenced, in due time, a judgment for the plaintiff be reversed, or if the plaintiff fail
otherwise than upon the merits, and the time limited for the commencement of such action has, at the
date of such reversal or failure, expired, the plaintiff, or, if he die and the cause of action survive, his
representatives may commence a new action within one, year after such date, and this provision shall
apply to any claim asserted in any pleading by a defendant."
The action commenced by the plaintiff in the Municipal Court of Manila, on April 27, 1960, was dismissed
on June 13, 1960, or over twenty (20) days after the expiration of the period of one (1) year, beginning
from May 21, 1959, within which plaintiff's action could be brought, pursuant to Commonwealth Act No. 65,
in relation to the Carriage of Goods by Sea Act. Under said section 49 of Act No. 190, the period within
which plaintiff could initiate the present case was renewed, therefore, for another year, beginning from
June 14, 1960 (Tolentino vs. Vitug, 39 Phil., 126; Smith vs. McNeal, 100 U.S. 426, 27 L. ed. 986). The case
at bar was commenced on June 24, 1960, or within the period last mentioned.
The cases of Oriental Commercial Co. vs. Jureidini (71 Phil., 25) and Conspecto vs. Fruto (31 Phil., 144), in
which it was held that:
" . . . Cuando se entaba una accion dentro del plazo de prescripcion y se desiste de ella despues, o se
sobresee sin condiciones, por una razon u otra, no hace que la accion que se entable mas tarde, pero ya
fuera del perodo de prescripcion, se pueda considerar como presentada dentro de dicho perodo porque
quiere contarse con la accin entablada con anterioridad. La falta de geation de la recurrente por cuya
causa se desestimaron sus demandas segunda y tercera, no puede interpretarse sino como una renuncia
de su parte; y, al ejercita su ltima accin no se ha colocado en la misma situacion en que antes se hallaba
al ejercitar sus tres anteriores acciones. Este es el mismo criterio que expresamos cuando so nos present
una cuestin anlogia en la causa de Conspecto contra Fruto, 31 jur. Fil., 155." (Emphasis supplied.)
are not in point, for the dismissal of the herein plaintiff's complaint in the municipal court was not due to
its desistance or voluntary abandonment.
Insofar as inconsistent with the conclusion we have thus reached, the view adopted in Chua Kuy vs. Everett
Steamship Corp., 93 Phil., 207; 50 Off. Gaz. 159 and Yek Tong Lin Fire & Marine Insurance Co. vs. American
President Lines, Inc., L-11081 (April 30, 1958) should be, as it is hereby, modified accordingly.
WHEREFORE, the order appealed from is reversed and this case remanded to the lower court for further
proceedings, with the costs of this instance against defendant Norddeuscher Lloyd. It is so ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Labrador, J., concurs in the result.
Reyes, J.B.L., did not take part.
IV.
International Air Transport

(Unless otherwise indicated, reference is to the Warsaw Convention, 51 O.G. 5084; Presidential
Proclamation No. 201, 51, O.G. 4933 [Oct. 1955]
A. Constitutionality
552 | P a g e
Santos v. Northwest, 210 SCRA 256

EN BANC
[G.R. No. 101538. June 23, 1992.]
AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian, Augusto
Benedicto Santos, petitioner, vs. NORTHWEST ORIENT AIRLINES and COURT OF APPEALS,
respondents.
DECISION
CRUZ, J p:
This case involves the proper interpretation of Article 28(1) of the Warsaw Convention, reading as follows:
Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in the territory of one of the
High Contracting Parties, either before the court of the domicile of the carrier or of his principal place of
business, or where he has a place of business through which the contract has been made, or before the
court at the place of destination.
The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Orient Airlines
(NOA) is a foreign corporation with principal office in Minnesota, U.S.A., and licensed to do business and
maintain a branch office in the Philippines.
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San Francisco, U.S.A., for his
flight from San Francisco to Manila via Tokyo and back. The scheduled departure date from Tokyo was
December 20, 1986. No date was specified for his return to San Francisco. 1
On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco airport for his
scheduled departure to Manila. Despite a previous confirmation and re-confirmation, he was informed that
he had no reservation for his flight from Tokyo to Manila. He therefore had to be wait-listed.
On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of Makati. On April 13,
1987, NOA moved to dismiss the complaint on the ground of lack of jurisdiction. Citing the above-quoted
article, it contended that the complaint could be instituted only in the territory of one of the High
Contracting Parties, before:
1.
the court of the domicile of the carrier;
2.
the court of its principal place of business;
3.
the court where it has a place of business through which the contract had been made;
4.
the court of the place of destination.
The private respondent contended that the Philippines was not its domicile nor was this its principal place
of business. Neither was the petitioner's ticket issued in this country nor was his destination Manila but San
Francisco in the United States.
On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The petitioner
appealed to the Court of Appeals, which affirmed the decision of the lower court. 3 On June 26, 1991, the
petitioner filed a motion for reconsideration, but the same was denied. 4 The petitioner then came to this
Court, raising substantially the same issues it submitted in the Court of Appeals.
The assignment of errors may be grouped into two major issues, viz:
(1)
the constitutionality of Article 28(1) of the Warsaw Convention; and
(2)
the jurisdiction of Philippine courts over the case.
The petitioner also invokes Article 24 of the Civil Code on the protection of minors.
I.
THE ISSUE OF CONSTITUTIONALITY
A.
The petitioner claims that the lower court erred in not ruling that Article 28(1) of the Warsaw
Convention violates the constitutional guarantees of due process and equal protection.
The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules Relating to
International Transportation by Air, otherwise known as the Warsaw Convention. It took effect on February
13, 1933. The Convention was concurred in by the Senate, through its Resolution No. 19, on May 16, 1950.
The Philippine instrument of accession was signed by President Elpidio Quirino on October 13, 1950, and
was deposited with the Polish government on November 9, 1950. The Convention became applicable to the
553 | P a g e
Philippines on February 9, 1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation
No. 201, declaring our formal adherence thereto, "to the end that the same and every article and clause
thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the citizens
thereof." 5
The Convention is thus a treaty commitment voluntarily assumed by the Philippine government and, as
such, has the force and effect of law in this country.
The petitioner contends that Article 28(1) cannot be applied in the present case because it is
unconstitutional. He argues that there is no substantial distinction between a person who purchases a
ticket in Manila and a person who purchases his ticket in San Francisco. The classification of the places in
which actions for damages may be brought is arbitrary and irrational and thus violates the due process and
equal protection clauses.
It is well-settled that courts will assume jurisdiction over a constitutional question only if it is shown that
the essential requisites of a judicial inquiry into such a question are first satisfied. Thus, there must be an
actual case or controversy involving a conflict of legal rights susceptible of judicial determination; the
constitutional question must have been opportunely raised by the proper party and the resolution of the
question is unavoidably necessary to the decision of the case itself. 6
Courts generally avoid having to decide constitutional question. This attitude is based on the doctrine of
separation of powers, which enjoins upon the departments of the government a becoming respect for each
other's acts.
The treaty which is the subject matter of this petition was a joint legislative-executive act. The
presumption is that it was first carefully studied and determined to be constitutional before it was adopted
and given the force of law in this country.
The petitioner's allegations are not convincing enough to overcome this presumption. Apparently, the
Convention considered the four places designated in Article 28 the most convenient forums for the
litigation of any claim that may arise between the airline and its passenger, as distinguished from all other
places. At any rate, we agree with the respondent court that this case can be decided on other grounds
without the necessity of resolving the constitutional issue.
B.
The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the Warsaw
Convention is inapplicable because of a fundamental change in the circumstances that served as its basis.
The petitioner goes at great lengths to show that the provisions in the Convention were intended to protect
airline companies under "the conditions prevailing then and which have long ceased to exist." He argues
that in view of the significant developments in the airline industry through the years, the treaty has
become irrelevant. Hence, to the extent that it has lost its basis for approval, it has become
unconstitutional.
The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this doctrine constitutes
an attempt to formulate a legal principle which would justify non-performance of a treaty obligation if the
conditions with relation to which the parties contracted have changed so materially and so unexpectedly
as to create a situation in which the exaction of performance would be unreasonable." 7 The key element
of this doctrine is the vital change in the condition of the contracting parties that they could not have
foreseen at the time the treaty was concluded.
The Court notes in this connection the following observation made in Day v. Trans World Airlines, Inc.: 8
The Warsaw drafters wished to create a system of liability rules that would cover all the hazards of air
travel . . . The Warsaw delegates knew that, in the years to come, civil aviation would change in ways that
they could not foresee. They wished to design a system of air law that would be both durable and flexible
enough to keep pace with these changes . . . The ever-changing needs of the system of civil aviation can
be served within the framework they created.
It is true that at the time the Warsaw Convention was drafted, the airline industry was still in its infancy.
However, that circumstance alone is not sufficient justification for the rejection of the treaty at this time.
The changes recited by the petitioner were, realistically, not entirely unforeseen although they were
expected in a general sense only. In fact, the Convention itself, anticipating such developments, contains
the following significant provision:
Article 41.
Any High Contracting Party shall be entitled not earlier than two years after the coming into
force of this convention to call for the assembling of a new international conference in order to consider
any improvements which may be made in this convention. To this end, it will communicate with the
Government of the French Republic which will take the necessary measures to make preparations for such
conference.
554 | P a g e
But the more important consideration is that the treaty has not been rejected by the Philippine
government. The doctrine of rebus sic stantibus does not operate automatically to render the treaty
inoperative. here is a necessity for a formal act of rejection, usually made by the head of State, with a
statement of the reasons why compliance with the treaty is no longer required.
In lieu thereof, the treaty may be denounced even without an expressed justification for this action. Such
denunciation is authorized under its Article 39, viz: cdrep
Article 39. (1) Any one of the High Contracting Parties may denounce this convention by a notification
addressed to the Government of the Republic of Poland, which shall at once inform the Government of
each of the High Contracting Parties.
(2)
Denunciation shall take effect six months after the notification of denunciation, and shall operate
only as regards the party which shall have proceeded to denunciation.
Obviously, rejection of the treaty, whether on the ground of rebus sic stantibus or pursuant to Article 39, is
not a function of the courts but of the other branches of government. This is a political act. The conclusion
and renunciation of treaties is the prerogative of the political departments and may not be usurped by the
judiciary. The courts are concerned only with the interpretation and application of laws and treaties in force
and not with their wisdom or efficacy.
C.
The petitioner claims that the lower court erred in ruling that the plaintiff must sue in the United
States, because this would deny him the right to access to our courts.
The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the United States
would constitute a constructive denial of his right to access to our courts for the protection of his rights. He
would consequently be deprived of this vital guaranty as embodied in the Bill of Rights.
Obviously, the constitutional guaranty of access to courts refers only to courts with appropriate jurisdiction
as defined by law. It does not mean that a person can go to any court for redress of his grievances
regardless of the nature or value of his claim. If the petitioner is barred from filing his complaint before our
courts, it is because they are not vested with the appropriate jurisdiction under the Warsaw Convention,
which is part of the law of our land.
II.
THE ISSUE OF JURISDICTION
A.
The petitioner claims that the lower court erred in not ruling that Article 28(1) of the Warsaw
Convention is a rule merely of venue and was waived by defendant when it did not move to dismiss on the
ground of improper venue.
By its own terms. the Convention applies to all international transportation of persons performed by
aircraft for hire.
International transportation is defined in paragraph (2) of Article 1 as follows:
(2)
For the purposes of this convention, the expression "international transportation" shall mean any
transportation in which, according to the contract made by the parties, the place of departure and the
place of destination, whether or not there be a break in the transportation or a transshipment, are situated
[either] within the territories of two High Contracting Parties . . .
Whether the transportation is "international" is determined by the contract of the parties, which in the
case of passengers is the ticket. When the contract of carriage provides for the transportation of the
passenger between certain designated terminals "within the territories of two High Contracting Parties,"
the provisions of the Convention automatically apply and exclusively govern the rights and liabilities of the
airline and its passenger.
Since the flight involved in the case at bar is international, the same being from the United States to the
Philippines and back to the United States, it is subject to the provisions of the Warsaw Convention,
including Article 28(1), which enumerates the four places where an action for damages may be brought.
Whether Article 28(1) refers to jurisdiction or only to venue is a question over which authorities are sharply
divided. While the petitioner cites several cases holding that Article 28(1) refers to venue rather than
jurisdiction, 9 there are later cases cited by the private respondent supporting the conclusion that the
provision is jurisdictional. 10
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent or waiver
upon a court which otherwise would have no jurisdiction over the subject-matter of an action; but the
venue of an action as fixed by statute may be changed by the consent of the parties and an objection that
the plaintiff brought his suit in the wrong county may be waived by the failure of the defendant to make a
timely objection. In either case, the court may render a valid judgment. Rules as to jurisdiction can never
555 | P a g e
be left to the consent or agreement of the parties, whether or not a prohibition exists against their
alteration. 11
A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and not a venue
provision. First, the wording of Article 32, which indicates the places where the action for damage "must"
be brought, underscores the mandatory nature of Article 28(1). Second, this characterization is consistent
with one of the objectives of the Convention, which is to "regulate in a uniform manner the conditions of
international transportation by air." Third, the Convention does not contain any provision prescribing rules
of jurisdiction other than Article 28(1), which means that the phrase "rules as to jurisdiction" used in Article
32 must refer only to Article 28(1). In fact, the last sentence of Article 32 specifically deals with the
exclusive enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the will of the
parties regardless of the time when the damage occurred.
This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways, Ltd., 12 where it was
held:
. . . Of more, but still incomplete, assistance is the wording of Article 28(2), especially when considered in
the light of Article 32. Article 28(2) provides that "questions of procedure shall be governed by the law of
the court to which the case is submitted" (Emphasis supplied). Section (2) thus may be read to leave for
domestic decision questions regarding the suitability and location of a particular Warsaw Convention case."
In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a dual
concept. Jurisdiction in the international sense must be established in accordance with Article 28(1) of the
Warsaw Convention, following which the jurisdiction of a particular court must be established pursuant to
the applicable domestic law. Only after the question of which court has jurisdiction is determined will the
issue of venue be taken up. This second question shall be governed by the law of the court to which the
case is submitted.
The petitioner submits that since Article 32 state that the parties are precluded "before the damages
occurred" from amending the rules of Article 28(1) as to the place where the action may be brought, it
would follow that the Warsaw Convention was not intended to preclude them from doing so "after the
damages occurred."
Article 32.
Any clause contained in the contract and all special agreements entered into before the
damage occurred by which the parties purport to infringe the rules laid down by this convention, whether
by deciding the law to be applied, or by altering the rules as to jurisdiction, shall be null and void.
Nevertheless for the transportation of goods, arbitration clauses shall be allowed, subject to this
convention, if the arbitration is to take place within one of the jurisdictions referred to in the first
paragraph of Article 28.
His point is that since the requirements of Article 28(1) can be waived "after the damages (shall have)
occurred," the article should be regarded as possessing the character of a "venue" and not of a
"jurisdiction" provision. Hence, in moving to dismiss on the ground of lack of jurisdiction, the private
respondent has waived improper venue as a ground to dismiss.
The foregoing examination of Article 28(1) in relation to Article 32 does not support this conclusion. In any
event, we agree that even granting arguendo that Article 28(1) is a venue and not a jurisdictional
provision, dismissal of the case was still in order. The respondent court was correct in affirming the ruling
of the trial court on this matter, thus:
Santos' claim that NOA waived venue as a ground of its motion to dismiss is not correct. True it is that NOA
averred in its MOTION TO DISMISS that the ground thereof is "the Court has no subject matter jurisdiction
to entertain the Complaint" which SANTOS considers as equivalent to "lack of jurisdiction over the subject
matter . . ." However, the gist of NOA's argument in its motion is that the Philippines is not the proper
place where SANTOS could file the action meaning that the venue of the action is improperly laid. Even
assuming then that the specified ground of the motion is erroneous, the fact is the proper ground of the
motion improper venue has been discussed therein.
Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-waiver if there are
special circumstances justifying this conclusion, as in the petition at bar. As we observed in Javier vs.
Intermediate Court of Appeals: 13
Legally, of course, the lack of proper venue was deemed waived by the petitioners when they failed to
invoke it in their original motion to dismiss. Even so, the motivation of the private respondent should have
been taken into account by both the trial judge and the respondent court in arriving at their decisions.
556 | P a g e
The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of Appeals, where
it was held that Article 28(1) is a venue provision. However, the private respondent avers that this was in
effect reversed by the case of Aranas v. United Airlines, 15 where the same court held that Article 28(1) is
a jurisdictional provision. Neither of these cases is finding on this Court, of course, nor was either of them
appealed to us. Nevertheless, we here express our own preference for the later case of Aranas insofar as
its pronouncements on jurisdiction conform to the judgment we now make in this petition.
B.
The petitioner claims that the lower court erred in not ruling that under Article 28(1) of the Warsaw
Convention, this case was properly filed in the Philippines, because Manila was the destination of the
plaintiff.
The petitioner contends that the facts of this case are analogous to those in Aanestad v. Air Canada. 16 In
that case, Mrs. Silverberg purchased a round-trip ticket from Montreal to Los Angeles and back to Montreal.
The date and time of departure were specified but not of the return flight. The plane crashed while en
route from Montreal to Los Angeles, killing Mrs. Silverberg. Her administratrix filed an action for damages
against Air Canada in the U.S. District Court of California. The defendant moved to dismiss for lack of
jurisdiction but the motion was denied thus:
. . . It is evident that the contract entered into between Air Canada and Mrs. Silverberg as evidenced by the
ticket booklets and the Flight Coupon No. 1, was a contract for Air Canada to carry Mrs. Silverberg to Log
Angeles on a certain flight, a certain time and a certain class, but that the time for her to return remained
completely in her power. Coupon No. 2 was only a continuing offer by Air Canada to give her a ticket to
return to Montreal between certain dates . . .
The only conclusion that. can be reached then, is that "the place of destination" as used in the Warsaw
Convention is considered by both the Canadian C.T.C. and the United States C.A.B. to describe at least two
"places of destination," viz., the "place of destination" of a particular flight either an "outward destination"
from the "point of origin" or from the "outward point of destination" to any place in Canada.
Thus the place of destination under Art. 28 and Art. 1 of the Warsaw Convention of the flight on which Mrs.
Silverberg was killed, was Los Angeles according to the ticket, which was the contract between the parties
and the suit is properly filed in this Court which has jurisdiction.
The petitioner avers that the present case falls squarely under the above ruling because the date and time
of his return flight to San Francisco were, as in the Aanestad case, also left open: Consequently, Manila and
not San Francisco should be considered the petitioner's destination.
The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where the United States
District Court (Eastern District of Pennsylvania) said:
. . . Although the authorities which addressed this precise issue are not extensive, both the cases and the
commentators are almost unanimous in concluding that the "place of destination" referred to in the
Warsaw Convention "in a trip consisting of several parts . . . is the ultimate destination that is accorded
treaty jurisdiction." . . .
But apart from that distinguishing feature, I cannot agree with the Court's analysis in Aanestad; whether
the return portion of the ticket is characterized as an option or a contract, the carrier was legally bound to
transport the passenger back to the place of origin within the prescribed time and the passenger for her
part agreed to pay the fare and, in fact, did pay the fare. Thus there was mutuality of obligation and a
binding contract of carriage. The fact that the passenger could forego her rights under the contract does
not make it any less a binding contract. Certainly, if the parties did not contemplate the return leg of the
journey, the passenger would not have paid for it and the carrier would not have issued a round trip ticket.
We agree with the latter case. The place of destination, within the meaning of the Warsaw Convention, is
determined by the terms of the contract of carriage or, specifically in this case, the ticket between the
passenger and the carrier. Examination of the petitioner's ticket shows that his ultimate destination is San
Francisco. Although the date of the return flight was left open, the contract of carriage between the parties
indicates that NOA was bound to transport the petitioner to San Francisco from Manila. Manila should
therefore be considered merely an agreed stopping place and not the destination.
The petitioner submits that the Butz case could not have overruled the Aanestad case because these
decisions are from different jurisdictions. But that is neither here nor there. In fact, neither of these cases is
controlling on this Court. If we have preferred the Butz case, it is because, exercising our own freedom of
choice, we have decided that it represents the better, and correct, interpretation of Article 28(1).
Article 1(2) also draws a distinction between a "destination" and an "agreed stopping place." It is the
"destination" and not an "agreed stopping place" that controls for purposes of ascertaining jurisdiction
under the Convention.
557 | P a g e
The contract is a single undivided operation, beginning with the place of departure and ending with the
ultimate destination. The use of the singular in this expression indicates the understanding of the parties
to the Convention that every contract of carriage has one place of departure and one place of destination.
An intermediate place where the carriage may be broken is not regarded he a "place of destination."
C.
The petitioner claims that the lower court erred in not ruling that under Art. 28 (1) of the Warsaw
Convention, this case was properly filed in the Philippines because the defendant has its domicile in the
Philippines.
The petitioner argues that the Warsaw Convention was originally written in French and that in interpreting
its provisions, American courts have taken the broad view that the French legal meaning must govern. 18
In French, he says, the "domicile" of the carrier means every place where it has a branch office.
The private respondent notes, however, that in Compagnie Nationale Air France vs. Giliberto, 19 it was
held:
The plaintiffs' first contention is that Air France is domiciled in the United States. They say that the
domicile of a corporation includes any country where the airline carries on its business on "a regular and
substantial basis," and that the United States qualifies under such definition. The meaning of domicile
cannot, however, be so extended. The domicile of a corporation is customarily regarded as the place where
it is incorporated, and the courts have given the meaning to the term as it is used in article 28(1) of the
Convention. (See Smith v. Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452 F2d 798, 802; Nudo v. Societe
Anonyme Belge d' Exploitation de la Navigation Aerienne Sabena Belgian World Airlines (E.D. pa. 1962),
207 F. Supp. 191; Karfunkel v. Compagnie Nationale Air France (S.D.N.Y. 1977), 427 F. Suppl. 971, 974).
Moreover, the structure of article 28(1), viewed as a whole, is also incompatible with the plaintiffs' claim.
The article, in stating that places of business are among the bases of the jurisdiction, sets out two places
where an action for damages may be brought: the country where the carrier's principal place of business is
located, and the country in which it has a place of business through which the particular contract in
question was made, that is, where the ticket was bought. Adopting the plaintiffs' theory would at a
minimum blur these carefully drawn distinctions by creating a third intermediate category. It would
obviously introduce uncertainty into litigation under the article because of the necessity of having to
determine, and without standards or criteria, whether the amount of business done by a carrier in a
particular country was "regular" and "substantial." The plaintiff's request to adopt this basis of jurisdiction
is in effect a request to create a new jurisdictional standard for the Convention.
Furthermore, it was argued in another case 20 that:
. . . In arriving at an interpretation of a treaty whose sole official language is French, are we bound to apply
French law? . . . We think this question and the underlying choice of law issue warrant some discussion . . .
We do not think this statement can be regarded as a conclusion that internal French law is to be "applied"
in the choice of law sense, to determine the meaning and scope of the Conventio's terms. Of course,
French legal usage must be considered in arriving at an accurate English translation of the French. But
when an accurate English translation is made and agreed upon, as here, the inquiry not meaning does not
then revert to a quest for a past or present French law to be "applied" for revelation of the proper scope of
the terms. It does not follow from the fact that the treaty is written in French that in interpreting it, we are
forever chained to French law, either as it existed when the treaty was written or in its present state of
development. There is no suggestion in the treaty that French law was intended to govern the meaning of
Warsaw's terms, nor have we found any indication to this effect in its legislative history or from our study
of its application and interpretation by other courts. Indeed, analysis of the cases indicates that the courts,
in interpreting and applying the Warsaw Convention, have not considered themselves bound to apply
French law simply because the Convention is written in French.
We agree with these rulings.
Notably, the domicile of the carrier is only one of the places where the complaint is allowed to be filed
under Article 28(1). By specifying the three other places, to wit, the principal place of business of the
carrier, its place of business where the contract was made, and the place of destination, the article clearly
meant that these three other places were not comprehended in the term "domicile."
D.
The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the Warsaw
Convention does not apply to actions based on tort.
The petitioner alleges that the gravamen of the complaint is that private respondent acted arbitrarily and
in bad faith, discriminated against the petitioner, and committed a willful misconduct because it canceled
his confirmed reservation and gave his reserved seat to someone who had no better right to it. In short,
the private respondent committed a tort.
558 | P a g e
Such allegation, he submits, removes the present case from the coverage of the Warsaw Convention. He
argues that in at least two American cases, 21 it was held that Article 28(1) of the Warsaw Convention
does not apply if the action is based on tort.
This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article in question was
interpreted thus:
. . . Assuming for the present that plaintiff's claim is "covered" by Article 17, Article 24 clearly excludes any
relief not provided for in the Convention as modified by the Montreal Agreement. It does not, however,
limit the kind of cause of action on which the relief may be founded; rather it provides that any action
based on the injuries specified in Article 17 "however founded," i.e., regardless of the type of action on
which relief is founded, can only be brought subject to the conditions and limitations established by the
Warsaw System. Presumably, the reason for the use of the phrase "however founded," is two-fold: to
accommodate all of the multifarious bases on which a claim might be founded in different countries,
whether under code law or common law, whether under contract or tort, etc.; and to include all bases on
which a claim seeking relief for an injury might be founded in any one country. In other words, if the injury
occurs as described in Article 17, any relief available is subject to the conditions and limitations
established by the Warsaw System, regardless of the particular cause of action which forms the basis on
which a plaintiff could seek relief . . .
xxx
xxx
xxx
The private respondent correctly contends that the allegation of willful misconduct resulting in a tort is
insufficient to exclude the case from the comprehension of the Warsaw Convention. The petitioner has
apparently misconstrued the import of Article 25(1) of the Convention, which reads as follows:
Article 25 (1). The carrier shall not be entitled to avail himself of the provisions of this Convention which
exclude or limit his liability, if the damage is caused by his willful misconduct or by such default on his part
as, in accordance which the law of the court to which the case is submitted, is considered to be equivalent
to willful misconduct.
It is understood under this article that the court called upon to determine the applicability of the limitation
provision must first be vested with the appropriate jurisdiction. Article 28(1) is the provision in the
Convention which defines that jurisdiction. Article 22 23 merely fixes the monetary ceiling for the liability
of the carrier in cases covered by the Convention. If the carrier is indeed guilty of willful misconduct, it can
avail itself of the limitations set forth in this article. But this can be done only if the action has first been
commenced properly under the rules on jurisdiction set forth in Article 28 (1).
III.
THE ISSUE OF PROTECTION TO MINORS
The petitioner calls our attention to Article 24 of the Civil Code, which states:
Art. 24.
In all contractual property or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap,
the courts must be vigilant for his protection.
Application of this article to the present case is misplaced. The above provision assumes that the court is
vested with jurisdiction to rule in favor of the disadvantaged minor. As already explained, such jurisdiction
is absent in the case at bar.
CONCLUSION
A number of countries have signified their concern over the problem of citizens being denied access to
their own courts because of the restrictive provision of Article 28(1) of the Warsaw Convention. Among
these is the United States, which has proposed an amendment that would enable the passenger to sue in
his own domicile if the carrier does business in that jurisdiction. The reason for this proposal is explained
thus:
In the event a US citizen temporarily residing abroad purchases a Rome to New York to Rome ticket on a
foreign air carrier which is generally subject to the jurisdiction of the US, Article 28 would prevent that
person from suing the carrier in the US in a "Warsaw Case" even though such a suit could be brought in the
absence of the Convention.
The proposal was incorporated in the Guatemala Protocol amending the Warsaw Convention, which was
adopted at Guatemala City on March 8, 1971. 24 But it is still ineffective because it has not yet been
ratified by the required minimum number of contracting parties. Pending such ratification, the petitioner
will still have to file his complaint only in any of the four places designated by Article 28(1) of the Warsaw
Convention.
559 | P a g e
The proposed amendment bolsters the ruling of this Court that a citizen does not necessarily have the
right to sue in his own courts simply because the defendant airline has a place of business in his country.
LibLex
The Court can only sympathize with the petitioner, who must prosecute his claims in the United States
rather than in his own country at less inconvenience. But we are unable to grant him the relief he seeks
because we are limited by the provisions of the Warsaw Convention which continues to bind us. It may not
be amiss to observe at this point that the mere fact that he will have to litigate in the American courts
does not necessarily mean he will litigate in vain. The judicial system of that country is known for its sense
of fairness and, generally, its strict adherence to the rule of law.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.
Narvasa, C .J ., Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Grio-Aquino, Medialdea, Regalado, Davide, Jr.,
Romero, Nocon and Bellosillo, JJ ., concur.
Footnotes
1.
Annex "A," Orig. Records, pp. 4-5.
2.
Ibid., pp. 205-207; penned by Judge Pedro N. Laggui.
3.
Rollo, p. 60; penned by Buena, J., with Gonzaga-Reyes and Abad Santos, Jr., JJ., concurring.
4.
Ibid., p. 79.
5.
51 O.G. 4933-4934.
6.
Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform, 175 SCRA
343; Dumlao v. Comelec, 95 SCRA 392.
7.
A Modern Law of Nations (1950), p. 150.
8.
528 F. 2d 31.
9.
Berner v. United Airlines, Inc., 149 NYS 2d, 335, 343, 1956; Doering v. Scandinavian Airlines
System, 329 F Supp 1081, 1082, 1971; Spencer v. Northwest Orient Airlines, 201 F. Supp. 504, 506, 1962.
10.
Smith v. Canadian Pacific Airways Ltd., 452 F. 2d 798 1971; Campagnie Nationale Air France v.
Giliberto, 1838 N.E., 2d 977, 1978; Mac Carthy v. East African Airways Corp., 13 Av 17, 385, Records, p.
113, 1974; Sabharwal v. Kuwait Airways Corp., 18 Av 8, 380; Records, p. 115, 1984; Duff v. Varig Airlines,
Inc., S.A., 22 Avi, Rollo, p. 186, 1989.
11.
Francisco, Rules of Court, Vol. I, 1973, p. 331.
12.
452 F. 2d 798.
13.
171 SCRA 605.
14.
CA G.R.-SP No. 09259, January 22, 1987.
15.
CA G.R.-CV No. 19974, April 8, 1991.
16.
390 F. Supp. 1165, 1975.
17.
421 F. Suppl. 127.
18.
Block v. Compagnie, 386 F. 2d 232.
19.
838 N.E. 2d 977, 1978.
20.
Rosman v. TWA, 1974; 34 NY 2d 385; 358 NYS 2d 97;p 314 N.E. 2d 848; 72 A.L.R. 3d 1282.
21.
Eck v. United Arab, S.A.A., 241 F. Supp. 804-807; Spancer v. Northwest Orient Airlines, 201 F. Supp.
504-507.
22.
Rollo, pp. 189-199; 388 F. Supp. 1238.
23.
Article 22. (1) In the transportation of passengers, the liability of the carrier for each passenger
shall be limited to the sum of 125,000 francs. Where in accordance with the law of the court to which the
case is submitted, damages may be awarded in the form of periodical payments, the equivalent capital
value of the said payments shall not exceed 125,00 francs. Nevertheless, by special contract, the carrier
and the passenger may agree to a higher limit of liability. (2) In the transportations of checked baggage
and of goods, the liability of the carrier shall be limited to a sum of 250 francs per kilogram, unless the
consignor has made, at the time when the package was handed over to the carrier, a special declaration of
the value of delivery and has paid a supplementary sum if the case so requires. In that case the carrier will
be liable to pay a sum not exceeding the declared sum, unless he proves that the sum is greater than the
actual value to the consignor at delivery.(3) As regards objects of which the passenger takes charge
himself, the liability of the carrier shall be limited to 5,000 francs per passenger.(4) The sums mentioned
above shall be deemed to refer to the French franc consisting of 65-1/2 milligrams of gold at the standard
of fineness of nine hundred thousandths. These sums may be converted into any national currency in
round figures.
24.
Varkonyi v. S.A. Impresa De Viacao Airea Rio Grandense (Varig) 1972; 336 NYS 2d 1973.
560 | P a g e
B. When applicable, Art. 1(1)

C. Liabilities under the Convention, Arts. 17, 18, 19
Northwest v. Cuenca, 14 SCRA 1063
EN BANC
[G.R. No. L-22425. August 31, 1965.]
NORTHWEST AIRLINES, INC., petitioner, vs. NICOLAS L. CUENCA and COURT OF APPEALS
(SPECIAL SIXTH DIVISION), respondents.
Ross, Selph & Carrascoso for petitioner.
Bengzon, Villegas & Zarraga for respondents.
SYLLABUS
1.
AIR CARRIERS; LIABILITY UNDER THE WARSAW CONVENTION OF 1929 AND FOR OTHER BREACHES
OF CONTRACT. Articles 17, 18 and 19 of the Warsaw Convention of 1929 merely declare the airlines
liable for damage in the cases enumerated therein, if the conditions specified are present. Neither the
provisions of said articles nor others regulate or exclude liability for other breaches of contract by the air
carriers.
2.
ID.; ID.; ID.; LIABILITY FOR NOMINAL AND EXEMPLARY DAMAGES; CASE AT BAR. Respondent
boarded petitioner's plane in Manila with a first class ticket to Tokyo. Upon arrival at Okinawa, an agent of
petitioner rudely compelled him, in the presence of other passengers, to move to the tourist class.
Respondent protested, revealing that he was traveling in his official capacity as delegate of the Republic of
the Philippines to a conference in Tokyo. In order to reach the conference on time, respondent obeyed.
Held: Having been given first class accommodation as he took petitioner's plane in Manila, respondent was
entitled to believe that this was a confirmation of his first class reservation and that he would keep the
same until his ultimate destination, Tokyo. Since the offense had been committed with full knowledge of
the fact that respondent was an official representative of the Republic of the Philippines, the sum of
P20,000.00 awarded as damages may well be considered as merely nominal. At any rate, considering that
petitioners agent had acted in a wanton, reckless and oppressive manner, said award may, also, be
considered as one for exemplary damages.
DECISION
CONCEPCION, J p:
This is an action for damages for alleged breach of contract. After appropriate proceedings the Court of
First Instance of Manila, in which the case was originally filed, rendered judgment sentencing defendant
Northwest Airlines, Inc., hereinafter referred to as petitioner to pay to plaintiff Cuenca hereinafter
referred to as respondent "the sum of P20,000 as moral damages, together with the sum of P5,000 as
exemplary damages, with legal interest thereon from the date of the filing of the complaint" December
12, 1959 "until fully paid, plus the further sum of P2,000 as attorney's fees and expenses of litigation".
On appeal taken by petitioner, said decision was affirmed by the Court of Appeals, except as to the
P50,000.00 exemplary damages, which was eliminated, and the P20,000.00 award for moral damages,
which was converted into nominal damages. The case is now before us on petition for review by certiorari
filed by petitioner, upon the ground that the lower court has erred: (1) in holding that the Warsaw
Convention of October 12, 1929, relative to transportation by air is not in force in the Philippines; (2) in not
holding that respondent has no cause of action; and (3) in awarding P20,000 as nominal damages.
561 | P a g e
second assignment of error, and the latter is devoid of merit, even if we assumed the former to be well
taken. Indeed, the second assignment of error is predicated upon Articles 17, 18 and 19 of said
Convention, reading:
"ART. 17.
The carrier shall be liable for damage sustained in the event of the death or wounding of a
passenger or any other bodily injury suffered by a passenger if the accident which caused the damage so
sustained took place on board the aircraft or in the course of any of the operations of embarking or
disembarking.
"ART. 18.
(1)
The carrier shall be liable for damage sustained in the event of the destruction or loss
of, or of damage to, any checked baggage, or any goods, if the occurrence which caused the damage so
sustained took place during the transportation by air.
"(2)
The transportation by air within the meaning of the preceding paragraph shall comprise the period
during which the baggage or goods are in charge of the carrier, whether in an airport or on board an
aircraft, or, in the case of a landing outside an airport, in any place whatsoever.
"(3)
The period of the transportation by air shall not extend to any transportation by land, by sea, or by
river performed outside an airport. If, however, such transportation takes place in the performance of a
contract for transportation by air, for the purpose of loading, delivery, or transshipment, any damage is
presumed, subject to proof to the contrary, to have been the result of an event which took place during the
transportation by air.
"ART. 19.
The carrier shall be liable for damage occasioned by delay in the transportation by air of
passengers, baggage, or goods."
Petitioner argues that pursuant to these provisions, an air "carrier is liable only" in the event of death of a
passenger or injury suffered by him, or of destruction or loss of, or damage to any checked baggage or any
goods, or of delay in the transportation by air of passengers, baggage or goods. This pretense is not borne
out by the language of said Articles. The same merely declare the carrier liable for damages in the
aforementioned Convention regulate or exclude liability for other breaches of contract by carrier. Under
The third assignment of error is based upon Medina vs. Cresencia (52 Off. Gaz. 4606), and Quijano vs.
Philippine Air Lines (CA-G.R. No. 21804). Neither case is, however, in point, aside from the fact that the
latter is not controlling upon us. In the first case, this Court eliminated a P10,000 award for nominal
damages, because the aggrieved party had already been awarded P6,000 as compensatory damages,
P30,000 as moral damages and P10,000 as exemplary damages, and "nominal damages cannot co-exist
with compensatory damages". In the case at bar, the Court of Appeals has adjudicated no such
compensatory, moral and exemplary damages to respondent herein.
Moreover, there are special reasons why the P20,000.00 award in favor of respondent herein is justified,
even if said award were characterized as nominal damages. When his contract of carriage was violated by
the petitioner, respondent held the office of Commissioner of Public Highways of the Republic of the
Philippines. Having boarded petitioner's plane in Manila with a first class ticket to Tokyo, he was, upon
arrival at Okinawa, transferred to the tourist class compartment. Although he revealed that he was
traveling in his official capacity as official delegate of the Republic to a conference in Tokyo, an agent of
petitioner rudely compelled him, in the presence of other passengers, to move, over his objection, to the
tourist class, under threat of otherwise leaving him in Okinawa. In order to reach the conference on time,
respondent had no choice but to obey.
It is true that said ticket was marked "W/L", but respondent's attention was not called thereto. Much less
was he advised that "W/L" meant "wait listed". Upon the other hand, having paid the first class fare in full
and having been given first class accommodation as he took petitioner's plane in Manila, respondent was
entitled to believe that this was a confirmation of his first class reservation and that he would keep the
562 | P a g e
same until his ultimate destination, Tokyo. Then, too, petitioner has not tried to explain or even alleged
that the person to whom respondent's first class seat was given had a better right thereto. In other words,
since the offense had been committed with full knowledge of the fact that respondent was an official
representative of the Republic of the Philippines, the sum of P20,000 awarded as damages may well be
considered as merely nominal. At any rate, considering that petitioner's agent had acted in a wanton,
reckless and oppressive manner, said award may, also, be considered as one for exemplary damages.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the petitioner. It is so
ordered.
Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Dizon, Regala, Makalintal and Zaldivar, JJ., concur.
Bengzon, J.P., took no part.
Barrera, J., is on leave.
Alitalia v. IAC, 192 SCRA 10
FIRST DIVISION
[G.R. No. 71929. December 4, 1990.]
ALITALIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO, respondents.
Alfredo L. Bentulan for private respondent.
DECISION
NARVASA, J p:
Dr. Felipa Pablo an associate professor in the University of the Philippines, 1 and a research grantee of
the Philippine Atomic Energy Agency was invited to take part at a meeting of the Department of
Research and Isotopes of the Joint FAO-IAEA Division of Atomic Energy in Food and Agriculture of the United
Nations in Ispra, Italy. 2 She was invited in view of her specialized knowledge in "foreign substances in food
and the agriculture environment." She accepted the invitation, and was then scheduled by the organizers,
to read a paper on "The Fate of Radioactive Fusion Products Contaminating Vegetable Crops." 3 The
program announced that she would be the second speaker on the first day of the meeting. 4 To fulfill this
engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and time table set for
her by ALITALIA. She was however told by the ALITALIA personnel there at Milan that her luggage was
"delayed inasmuch as the same . . . (was) in one of the succeeding flights from Rome to Milan." 5 Her
luggage consisted of two (2) suitcases: one contained her clothing and other personal items; the other, her
scientific papers, slides and other research material. But the other flights arriving from Rome did not have
her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she inquired about
her suitcases in the domestic and international airports, and filled out the forms prescribed by ALITALIA for
people in her predicament. However, her baggage could not be found. Completely distraught and
discouraged, she returned to Manila without attending the meeting in Ispra, Italy. prcd
Once back in Manila she demanded that ALITALIA make reparation for the damages thus suffered by her.
ALITALIA offered her "free airline tickets to compensate her for any alleged damages. . . ." She rejected the
offer, and forthwith commenced the action 6 which has given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy, but only on the
day after her scheduled appearance and participation at the U.N. meeting there. 8 Of course Dr. Pablo was
563 | P a g e
no longer there to accept delivery; she was already on her way home to Manila. And for some reason or
other, the suitcases were not actually restored to Prof. Pablo by ALITALIA until eleven (11) months later,
and four (4) months after institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr. Pablo's favor:
10
"(1)
Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND PESOS
(P20,000.00), Philippine Currency, by way of nominal damages;
(2)
Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine
Currency, as and for attorney's fees; (and)
(3)
Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the judgment. 11
Indeed, the Appellate Court not only affirmed the Trial Court's decision but also increased the award of
nominal damages payable by ALITALIA to P40,000.00. 12 That increase it justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence committed by defendant,
the amount of P20,000.00 under present inflationary conditions as awarded . . . to the plaintiff as nominal
damages, is too little to make up for the plaintiff's frustration and disappointment in not being able to
appear at said conference; and for the embarrassment and humiliation she suffered from the academic
community for failure to carry out an official mission for which she was singled out by the faculty to
represent her institution and the country. After weighing carefully all the considerations, the amount
awarded to the plaintiff for nominal damages and attorney's fees should be increased to the cost of her
round trip air fare or at the present rate of peso to the dollar at P40,000,00."
ALITALIA has appealed to this Court on certiorari. Here, it seeks to make basically the same points it tried
to make before the Trial Court and the Intermediate Appellate Court, i.e.:
1)
that the Warsaw Convention should have been applied to limit ALITALIA'S liability; and
2)
that there is no warrant in fact or in law for the award to Dr. Pablo of nominal damages and
attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to have refused to
pass on all the assigned errors and in not stating the facts and the law on which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1)
the death, wounding or other bodily injury of a passenger if the accident causing it took place on
board the aircraft or in the course of its operations of embarking or disembarking; 17
2)
the destruction or loss of, or damage to, any registered luggage or goods, if the occurrence causing
it took place during the carriage by air;" 18 and
3)
delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however, founded, can only
be brought subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner: 21
1.
In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of
250,000 francs . . . Nevertheless, by special contract, the carrier and the passenger may agree to a higher
limit of liability. LLjur
2.
a)
In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a
exceeding the declared sum, unless he proves that sum is greater than the actual value to the consignor at
delivery.
b)
In the case of loss, damage or delay of part of registered baggage or cargo, or of any object
564 | P a g e
the limit of liability.
3.
As regards objects of which the passenger takes charge himself the liability of the carrier is limited
to 5000 francs per passenger.
4.
The limits prescribed . . shall not prevent the court from awarding, in accordance with its own law,
in addition, the whole or part of the court costs and of the other expenses of litigation incurred by the
plaintiff. The foregoing provision shall not apply if the amount of the damages awarded, excluding court
costs and other expenses of the litigation, does not exceed the sum which the carrier has offered in writing
to the plaintiff within a period of six months from the date of the occurrence causing the damage, or before
the commencement of the action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the provisions which exclude or limit
his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in
accordance with the law of the court seized of the case, is considered to be equivalent to wilful
misconduct," or "if the damage is (similarly) caused . . by any agent of the carrier acting within the scope
of his employment." 22 The Hague Protocol amended the Warsaw Convention by removing the provision
that if the airline took all necessary steps to avoid the damage, it could exculpate itself completely, 23 and
declaring the stated limits of liability not applicable "if it is proved that the damage resulted from an act or
omission of the carrier, its servants or agents, done with intent to cause damage or recklessly and with
knowledge that damage would probably result." The same deletion was effected by the Montreal
Agreement of 1966, with the result that a passenger could recover unlimited damages upon proof of wilful
misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the instances of an airline's liability,
or as an absolute limit of the extent of that liability. Such a proposition is not borne out by the language of
the Convention, as this Court has now, and at an earlier time, pointed out. 25 Moreover, slight reflection
readily leads to the conclusion that it should be deemed a limit of liability only in those cases where the
cause of the death or injury to person, or destruction, loss or damage to property or delay in its transport is
not attributable to or attended by any wilful misconduct, bad faith, recklessness, or otherwise improper
conduct on the part of any official or employee for which the carrier is responsible, and there is otherwise
no special or extraordinary form of resulting injury. The Convention's provisions, in short, do not "regulate
or exclude liability for other breaches of contract by the carrier" 26 or misconduct of its officers and
employees, or for some particular or exceptional type of damage. Otherwise, "an air carrier would be
exempt from any liability for damages in the event of its absolute refusal, in bad faith, to comply with a
contract of carriage, which is absurd." 27 Nor may it for a moment be supposed that if a member of the
aircraft complement should inflict some physical injury on a passenger, or maliciously destroy or damage
the latter's property, the Convention might successfully be pleaded as the sole gauge to determine the
carrier's liability to the passenger. Neither may the Convention be invoked to justify the disregard of some
extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond the limits set
by said Convention. It is in this sense that the Convention has been applied, or ignored, depending on the
peculiar facts presented by each case. cdphil
In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention was applied as
regards the limitation on the carrier's liability, there being a simple loss of baggage without any otherwise
improper conduct on the part of the officials or employees of the airline or other special injury sustained by
the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not restrictive of
the carrier's liability, where there was satisfactory evidence of malice or bad faith attributable to its officers
and employees. 29 Thus, an air carrier was sentenced to pay not only compensatory but also moral and
exemplary damages, and attorney's fees, for instance, where its employees rudely put a passenger holding
565 | P a g e
a first-class ticket in the tourist or economy section, 30 or ousted a brown Asiatic from the plane to give his
seat to a white man, 31 or gave the seat of a passenger with a confirmed reservation to another, 32 or
subjected a passenger to extremely rude, even barbaric treatment, as by calling him a "monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of
petitioner airline; and Dr. Pablo's luggage was eventually returned to her, belatedly, it is true, but without
appreciable damage. The fact is, nevertheless, that some special species of injury was caused to Dr. Pablo
because petitioner ALITALIA misplaced her baggage and failed to deliver it to her at the time appointed
a breach of its contract of carriage, to be sure with the result that she was unable to read the paper and
make the scientific presentation (consisting of slides, autoradiograms or films, tables and tabulations) that
she had painstakingly labored over, at the prestigious international conference, to attend which she had
traveled hundreds of miles, to her chagrin and embarrassment and the disappointment and annoyance of
the organizers. She felt, not unreasonably, that the invitation for her to participate at the conference,
extended by the Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United Nations,
was a singular honor not only to herself, but to the University of the Philippines and the country as well, an
opportunity to make some sort of impression among her colleagues in that field of scientific activity. The
opportunity to claim this honor or distinction was irretrievably lost to her because of Alitalia's breach of its
contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and anxiety, which
gradually turned to panic and finally despair, from the time she learned that her suitcases were missing up
to the time when, having gone to Rome, she finally realized that she would no longer be able to take part
in the conference. As she herself put it, she "was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be
restricted to that prescribed by the Warsaw Convention for delay in the transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As already mentioned,
her baggage was ultimately delivered to her in Manila, tardily but safely. She is however entitled to
nominal damages which, as the law says, is adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered and this Court agrees that the respondent Court of
Appeals correctly set the amount thereof at P40,000.00. As to the purely technical argument that the
award to her of such nominal damages is precluded by her omission to include a specific claim therefor in
her complaint, it suffices to draw attention to her general prayer, following her plea for moral and
exemplary damages and attorney's fees, "for such other and further just and equitable relief in the
premises," which certainly is broad enough to comprehend an application as well for nominal damages.
Besides, petitioner should have realized that the explicit assertion, and proof, that Dr. Pablo's right had
been violated or invaded by it absent any claim for actual or compensatory damages, the prayer thereof
having been voluntarily deleted by Dr. Pablo upon the return to her of her baggage necessarily raised
the issue of nominal damages. cdrep
This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees to Dr. Pablo, and
the amount of P5,000.00 set by it is reasonable in the premises. The law authorizes recovery of attorney's
fees inter alia where, as here, "the defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest," 34 or "where the court deems it just and
equitable." 35
WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals, it appearing on
the contrary to be entirely in accord with the facts and the law, said decision is hereby AFFIRMED, with
costs against the petitioner.
SO ORDERED.
Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur.
566 | P a g e
Footnotes
1.
Teaching such natural science subjects as Botany, Biology and Plant Physiology.
2.
Rollo, p. 36.
3.
Ibid, reference being made to Exhs. "A-2-a" and "A-2-b".
4.
This was on November 6, 1972.
5.
Rollo, p. 88.
6.
On June 7, 1973 (Rollo, p. 90).
7.
Specifically to the Hotel Europa, as indicated by Prof. Pablo (Rollo, pp. 88-89).
8.
Rollo, p. 89. The baggage arrived on Nov. 7, 1972; but by that time, Prof Pablo had already left
Rome for Hongkong.
9.
Delivery appears to have been effected on October 17, 1973 (Rollo, p. 136).
10.
Rollo, p. 43: Record on Appeal, pp. 61-62. The decision was written by Judge Ricardo D. Galano and
is dated February 2, 1975.
11.
Its appeal was docketed as AC-G.R. CV No. 59501.
12.
Rollo, pp. 35-39. The decision was written for the Second Civil Cases Division by Campos, Jr, J., with
whom concurred Pascual, Camilon and Jurado, JJ.
13.
Id., pp. 38-39.
14.
Id., pp. 91-92.
15.
Id., p. 91.
16.
Full title: "Convention for the Unification of Certain Rules Relating to International Carriage by Air
signed at Warsaw, October 12, 1929" (League of Nations Treaty Series), coming into force on Feb. 13,
1933, adhered to by the Republic of the Philippines on Nov. 9, 1950 with reservation; the Philippines
deposited the Instrument of Adherence with the Polish Government on Nov. 9, 1950; and the Convention
entered into force for the Philippines on Feb. 7, 1951 (Philippine Treaties Index [1946-1982] citing 137
League of Nations Treaties Series 11). The Warsaw Convention was amended by (1) the Hague Protocol on
September 28, 1955 (Id., and United Nations, Treaty Series, Vol. 261, p. 423 and Vol. 266, p. 444), entering
into force for the Philippines on February 28, 1967; (2) the Montreal Agreement in 1966, of which the
Philippine Airlines and Alitalia are signatories; (3) the Guatemala Protocol in 1971 (apparently not adhered
to by IATA members); and (4) the Montreal Protocols (Numbered 3 and 4) (1975) (also apparently not
effective among IATA members).
17.
ART. 17.
18.
ART. 18 (par. 1), "transportation by air" being defined as "the period during which the baggage or
goods are in charge of the carrier whether in an airport or on board an aircraft, or, in the case of a landing
outside an airport, in any place whatever," but not where said baggage or goods are transported by land,
sea or river outside an airport unless it be in "the performance of a contract for transportation by air for
the purpose of loading, delivery or transshipment (pars. 2 and 3, ART. 18).
19.
ART. 19.
20.
ART. 24, which also states that with regard to Article 17, the application of the rule is "without
prejudice to the questions as to who are the persons who have the right to bring suit and what are their
respective rights."
21.
ART. 22, as amended by the Hague Protocol, supra; the Montreal Agreement of 1966 set the
limitation of damages at $75,000 per passenger; the Guatemala Protocol, 1971, boosted the limit to
$100,000 per passenger, liability for baggage was increased to $1,000, and the right to bring suit was
expanded.
22.
ART. 25.
23.
ART. 20 (1). "The carrier is not liable if he proves that he and his agents have taken all necessary
measures to avoid the damage or that it was impossible for him or them to take such measures."
567 | P a g e
24.
Lisi v. Alitalia-Linee Aeree Italiane, 370 F 2d 508 [2nd Cir. 1966] aff'd 390 US 455 [1968], rehearing
denied 397 US 939 [1968] and Egan v. Kallsman Instrument Corp., 21 NY 2d 160, 287 NYS 2d 14 [1967];
CERT. DENIED 390 US 1039 [1968].
25.
Northwest Airlines, Inc. v. Cuenca, 14 SCRA 1065 (1965) which inter alia states that the Convention
"merely declares the carrier liable for damages in the enumerated cases, if the conditions therein specified
are present.".
26.
Id.
27.
Id.
28.
164 SCRA 268, citing Ong Yiu v. C.A. 91 SCRA 223; SEE Burnett v. Trans World Airlines, Inc. (DC NM),
368 F. Supp. 1152 holding that the airline was not responsible to its passengers for mere mental anguish
sustained as a result of the hijacking, in the absence of physical injuries.
29.
SEE KLM Royal Dutch Airlines v. Tuller, 119 App. DC 282, 292 F 2d 775, cert den 368 US 921, 7 L Ed
2d 136, 82 S Ct 243; American Airlines, Inc. v. Ulen, 87 App DC 307, 186 F 2d 529; Goepp v. American
Overseas Airlines, Inc., 281 App Div 105, 117 NYS 2d 276, affd 305 NY 830, 114 NE 2d 37, cert den 346 US
874, 98 L Ed 382, 74 S Ct 124.
30.
Northwest Airlines, Inc. v. Cuenca, 14 SCRA 1063; Lopez v. Pan Am, 16 SCRA 43.
31.
Air France v. Carrascoso, 18 SCRA 155. In Ortigas, Jr. v. Lufthansa German Airlines, 64 SCRA 610
(1975), plaintiff's seat in the first-class section was given to a Belgian, and consequently plaintiff, who held
a first-class ticket, confirmed and validated, was relegated to a tourist or economy-class seat.
32.
Korean Airlines Co., Ltd. v. C.A., 154 SCRA 211; see also, KLM Royal Dutch Airlines v. C.A., 65 SCRA
237.
33.
Zulueta v. Pan Am, 43 SCRA 397.
34.
Civil Code, ART. 2208, par. (2); see Rivera v. Litum & Co., Inc., 4 SCRA 1072 (1962); Filipino Pipe &
Foundry Corporation v. Central Bank, 23 SCRA 1044 (1968); Ganaban v. Bayle, 30 SCRA 365 (1969);
Valenzuela v. CA., G.R. No. 56168, Dec. 22, 1988.
35.
Id., id., par (11); see Civil Aeronautics Administration v. C.A., G.R. No. 51806, Nov. 8, 1988.
D. Limitation on Liability, Art 22
Pan Am v. IAC, 164 SCRA 268
THIRD DIVISION
[G.R. No. 70462. August 11, 1988.]
PAN AMERICAN WORLD AIRWAYS, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, RENE
V. PANGAN, SOTANG BASTOS PRODUCTIONS and ARCHER PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.
SYLLABUS
1.
WARSAW CONVENTION; CIVIL LAW; ACTUAL DAMAGES; LIABILITY OF AIRLINE CARRIER. On the
basis of the stipulations printed at the back of the Airline ticket, specifically referring to the applicability of
the Warsaw convention the airline carrier's liability for the lost baggage of private respondent Pangan is
limited to $20.00 per kilo or $600.00, as stipulated at the back of the ticket as the latter did not declare a
higher value for his baggage and pay the corresponding additional charges, the case of Ong Yiu v. Court of
Appeals (G.R. No. L-40597, June 29, 1979, 91 SCRA 223) is squarely applicable to the instant case.
2.
REMEDIAL LAW; EVIDENCE; CONCLUSION AND FINDINGS OF THE TRIAL COURT AND THE COURT OF
APPEALS, REVERSED AND SET ASIDE. The Court set aside the decision of the trial court and affirmed by
the Court of Appeals, awarding private respondent's damages as for and for lost profits when their
contracts to show the films in Guam and San Francisco, California were cancelled. Applying the ruling in
Mendoza v. Philippine Airlines, Inc. (90 Phil. 836), petitioner cannot be held liable for the cancellation of
respondents' contracts in the absence of showing that petitioner's attention was called to the special
circumstances requiring prompt delivery of the respondent's luggage on or before a certain date.
568 | P a g e
DECISION
CORTES, J p:
Before the Court is a petition filed by an international air carrier seeking to limit its liability for lost
baggage, containing promotional and advertising materials for films to be exhibited in Guam and the
U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount specified in the airline ticket
absent a declaration of a higher valuation and the payment of additional charges. LLjur
The undisputed facts of the case, as found by the trial court and adopted by the appellate court, are as
follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs Sotang Bastos
and Archer Productions, while in San Francisco, California and Primo Quesada of Prime Films, San Francisco,
California, entered into an agreement (Exh. A) whereby the former, for and in consideration of the amount
of US $2,500.00 per picture, bound himself to supply the latter with three films. 'Ang Mabait, Masungit at
ang Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United
States. It was also their agreement that plaintiffs would provide the necessary promotional and advertising
materials for said films on or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo Slutchnick of
the Hafa Adai Organization. Plaintiff Pangan likewise entered into a verbal agreement with Slutchnick for
the exhibition of two of the films above-mentioned at the Hafa Adai Theater in Guam on May 30, 1978 for
the consideration of P7,000.00 per picture (p. 11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide
the necessary promotional and advertising materials for said films on or before the exhibition date on May
30, 1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the requisite promotional
handbills and still pictures for which he paid the total sum of P12,900.00 (Exhs. B, B-1, C and C-1). Likewise
in preparation for his trip abroad to comply with his contracts, plaintiff Pangan purchased fourteen clutch
bags, four capiz lamps and four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office, through the Your Travel
Guide, an economy class airplane ticket with No. 0269207406324 (Exh. G) for passage from Manila to
Guam on defendant's Flight No. 842 of May 27, 1978, upon payment by said plaintiff of the regular fare.
The Your Travel Guide is a tour and travel office owned and managed by plaintiff's witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was at the defendant's ticket counter
at the Manila International Airport and presented his ticket and checked in his two luggages, for which he
was given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two luggages contained
the promotional and advertising materials, the clutch bags, barong tagalog and his personal belongings.
Subsequently, Pangan was informed that his name was not in the manifest and so he could not take Flight
No. 842 in the economy class. Since there was no space in the economy class, plaintiff Pangan took the
first class because he wanted to be on time in Guam to comply with his commitment, paying an additional
sum of $112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did not arrive with
his flight, as a consequence of which his agreements with Slutchnick and Quesada for the exhibition of the
films in Guam and in the United States were cancelled (Exh. L). Thereafter, he filed a written claim (Exh. J)
for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary representations to
protest as to the treatment which he received from the employees of the defendant and the loss of his two
luggages (Exh. M, O, Q, S, and T). Defendant Pan Am assured plaintiff Pangan that his grievances would be
investigated and given its immediate consideration (Exhs. N, P and R). Due to the defendant's failure to
communicate with Pangan about the action taken on his protests, the present complaint was filed by the
plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and rendered judgment as
follows:
(1)
Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum of
P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum from December 6,
1978, when the complaint was filed, until the same is fully paid, plus the further sum of P10,000.00 as
attorney's fees;
569 | P a g e
(2)
Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan the sum of
P8,123.34, for additional actual damages, with interest thereon at the rate of 14% per annum from
December 6, 1978, until the same is fully paid;
(3)
Dismissing the counterclaim interposed by defendant Pan American World Airways, Inc.; and
(4)
Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo, pp. 106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their respective memoranda. In
due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the following errors:
1.
beyond the limitation of liability set forth in the Warsaw Convention and the contract of carriage.
2.
consisting of alleged lost profits in the face of this Court's ruling concerning special or consequential
damages as set forth in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim.
1.
The airline ticket (Exh. "G") contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other than the country of
departure the Warsaw Convention may be applicable and the Convention governs and in most cases limits
the liability of carriers for death or personal injury and in respect of loss of or damage to baggage. See also
notice headed "Advice to International Passengers on Limitation of Liability."
CONDITIONS OF CONTRACT
1.
As used in this contract "ticket" means this passenger ticket and baggage check of which these
conditions and the notices form part, "carriage" is equivalent to "transportation," "carrier" means all air
carriers that carry or undertake to carry the passenger or his baggage hereunder or perform any other
service incidental to such air carriage. "WARSAW CONVENTION" means the convention for the Unification
of Certain Rules Relating to International Carriage by Air signed at Warsaw, 12th October 1929, or that
Convention as amended at The Hague, 28th September 1955, whichever may be applicable.
2.
Carriage hereunder is subject to the rules and limitations relating to liability established by the
Warsaw Convention unless such carriage is not "international carriage" as defined by that Convention.
3.
To the extent not in conflict with the foregoing carriage and other services performed by each
carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier's conditions of
carriage and related regulations which are made part hereof (and are available on application at the offices
of carrier), except in transportation between a place in the United States or Canada and any place outside
thereof to which tariffs in force in those countries apply.
xxx
xxx
xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared in
advance and additional charges are paid: (1) for most international travel (including domestic portions of
international journeys) to approximately $9.70 per pound ($20.00 per kilo) for checked baggage and $400
per passenger for unchecked baggage: (2) for travel wholly between U.S. points, to $750 per passenger on
most carriers (a few have lower limits). Excess valuation may not be declared on certain types of valuable
articles. Carriers assume no liability for fragile or perishable articles further information may be obtained
from the carrier. [Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends that its
liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00 x 30 kilos) as the
latter did not declare a higher value for his baggage and pay the corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597, June
29, 1979, 91 SCRA 223), where the Court sustained the validity of a printed stipulation at the back of an
airline ticket limiting the liability of the carrier for lost baggage to a specified amount and ruled that the
carrier's liability was limited to said amount since the passenger did not declare a higher value, much less
pay additional charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court, through
Justice Melencio-Herrera, stated:
570 | P a g e
liability to the amount of P100.00 as stipulated at the back of the ticket . . .
ticket reads:
8.
BAGGAGE LIABILITY . . . The total liability of the Carrier for lost or damage baggage of the
pursuant to Carrier's tariffs.
regulation." [Tannebaum v. National Airline, Inc., 13 Misc. 2d 450, 176 N.Y.S. 2d 400; Lichten v. Eastern
Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a
contract of "adhesion," in regards which it has been said that contracts of adhesion wherein one party
imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts
not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent, [Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes,
Lawyer's Journal, Jan. 31, 1951, p. 49]. And as held in Randolph v. American Airlines, 103 Ohio App. 172,
144 N.E. 2d 878; Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability
upon an agreed valuation does not offend against the policy of the law forbidding one from contracting
against his own negligence."
permitted a recovery in excess of P100.00.
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July 2, 1966, 17
SCRA 606], where the Court held that the stipulation limiting the carrier's liability to a specified amount
was invalid, finds no application in the instant case, as the ruling in said case was premised on the finding
that the conditions printed at the back of the ticket were so small and hard to read that they would not
warrant the presumption that the passenger was aware of the conditions and that he had freely and fairly
agreed thereto. In the instant case, similar facts that would make the case fall under the exception have
not been alleged, much less shown to exist. LibLex
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00, as
stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state that the
Court of Appeals' reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-22425, August
31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw Convention which limits a carrier's
liability to US$9.07 per pound or US$20.00 per kilo in cases of contractual breach of carriage ** is against
public policy" is utterly misplaced, to say the least. In said case, while the Court, as quoted in the
Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event of death of a
passenger or injury suffered by him, or of destruction or loss of, or damages to any checked baggage or
any goods, or of delay in the transportation by air of passengers, baggage or goods. This pretense is not
borne out by the language of said Articles. The same merely declare the carrier liable for damages in
aforementioned Convention regulate or exclude liability for other breaches of contract by the carrier. Under
it prefaced this statement by explaining that:
. . . The case is now before us on petition for review by certiorari, upon the ground that the lower court has
erred: (1) in holding that the Warsaw Convention of October 12, 1929, relative to transportation by air is
not in force in the Philippines: (2) in not holding that respondent has no cause of action; and (3) in
awarding P20,000 as nominal damages.
571 | P a g e
second assignment of error, and the latter is devoid of merit, even if we assumed the former to be welltaken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the validity of
provisions of the Warsaw Convention. Consequently, by no stretch of the imagination may said quotation
from Northwest be considered as supportive of the appellate court's statement that the provisions of the
Warsaw Convention limited a carrier's liability are against public policy.
2.
The Court finds itself unable to agree with the decision of the trial court, and affirmed by the Court
of Appeals, awarding private respondents damages as and for lost profits when their contracts to show the
films in Guam and San Francisco, California were cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any clearer:
. . . Under Art. 1107 of the Civil Code, a debtor in good faith like the defendant herein, may be held liable
only for damages that were foreseen or might have been foreseen at the time the contract of
transportation was entered into. The trial court correctly found that the defendant company could not have
foreseen the damages that would be suffered by Mendoza upon failure to deliver the can of film on the
17th of September, 1948 for the reason that the plans of Mendoza to exhibit that film during the town
fiesta and his preparations, specially the announcement of said exhibition by posters and advertisement in
the newspaper, were not called to the defendant's attention.
In our research for authorities we have found a case very similar to the one under consideration. In the
case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered motion picture
films to the defendant Fargo, an express company, consigned and to be delivered to him in Utica. At the
time of shipment the attention of the express company was called to the fact that the shipment involved
motion picture films to be exhibited in Utica, and that they should be sent to their destination, rush. There
was delay in their delivery and it was found that the plaintiff because of his failure to exhibit the film in
Utica due to the delay suffered damages or loss of profits. But the highest court in the State of New York
refused to award him special damages. Said appellate court observed:
But before defendant could be held to special damages such as the present alleged loss of profits on
account of delay or failure of delivery it must have appeared that he had notice at the time of delivery to
him of the particular circumstances attending the shipment and which probably would lead to such special
loss if he defaulted. Or, as the rule has been stated in another form in order to impose on the defaulting
party further liability than for damages naturally and directly i.e., in the ordinary course of things arising
from a breach of contract such unusual or extraordinary damages must have been brought within the
contemplation of the parties as the probable result of breach at the time of or prior to contracting.
Generally notice then of any special circumstances which will show that the damages to be anticipated
from a breach would be enhanced has been held sufficient far this effect.
As may be seen, that New York case is a stronger one than the present case for the reason that the
attention of the common carrier in said case was called to the nature of the articles shipped, the purpose
of shipment, and the desire to rush the shipment, circumstances and facts absent in the present case.
Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing that
petitioner's attention was called to the special circumstances requiring prompt delivery of private
respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of private respondents'
contracts as it could not have foreseen such an eventuality when it accepted the luggages for transit. prLL
The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down in
Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages based on the
finding that "[t]he undisputed fact is that the contracts of the plaintiffs for the exhibition of the films in
Guam and California were cancelled because of the loss of the two luggages in question." [Rollo, p. 36] The
evidence reveals that the proximate cause of the cancellation of the contracts was private respondent
Pangan's failure to deliver the promotional and advertising materials on the dates agreed upon. For this
petitioner cannot be held liable. Private respondent Pangan had not declared the value of the two luggages
he had checked in and paid additional charges. Neither was petitioner privy to respondents' contracts nor
was its attention called to the condition therein requiring delivery of the promotional and advertising
materials on or before a certain date.
3.
With the Court's holding that petitioner's liability is limited to the amount stated in the ticket, the
award of attorney's fees, which is grounded on the alleged unjustified refusal of petitioner to satisfy private
respondent's just and valid claim, loses support and must be set aside.
572 | P a g e
WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate Court is SET
ASIDE and a new judgment is rendered ordering petitioner to pay private respondents damages in the
amount of US$600.00 or its equivalent in Philippine currency at the time of actual payment.
SO ORDERED.
Fernan, C.J., Feliciano and Bidin, JJ., concur.
Gutierrez, Jr., J., no part as I was on leave during the deliberation.
Footnotes
*
Art. 1750.
A contract fixing the sum that may be recovered by the owner or shipper for the loss,
**
The Warsaw Convention actually provides that "[i]n the transportation of checked baggage and of
goods, the liability of the carrier shall be limited to a sum of 250 francs per kilogram, unless the consignor
has made, at the time when the package was handed over to the carrier, a special declaration of the value
of delivery and has paid a supplementary sum if the case so requires. In that case, the carrier will be liable
to pay a sum not exceeding the declared sum, unless he proves that the sum is greater than the actual
value to the consignor at delivery.. The sums mentioned above shall be deemed to refer to the French
franc consisting of 65-1/2 milligrams of gold at the standard of fineness of nine hundred thousandths.
These sums may be converted into any national currency in round figures." [51 O.G. 5084, 5091.]
Proclamation No. 201, (September 23, 1955) made public the adherence of the Republic of
the Philippines to the Warsaw Convention. [51 O.G. 4933.]
E. When Limitations unavailable, Arts. 3, 25
TWA v. CA, 165 SCRA 143
FIRST DIVISION
[G.R. No. 78656. August 30, 1988.]
TRANS WORLD AIRLINES, petitioner, vs. COURT OF APPEALS and ROGELIO A. VINLUAN,
respondents.
Guerrero & Torres Law Offices for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for private respondent.
The Solicitor General for public respondent.
SYLLABUS
1.
CIVIL LAW; DAMAGES; MORAL AND EXEMPLARY DAMAGES; BASIS FOR THE AWARD THEREOF IN THE
CASE AT BAR. The discrimination is obvious and the humiliation to which private respondent was
subjected is undeniable. Consequently, the award of moral and exemplary damages by the respondent
court is in order. At the time of this unfortunate incident, the private respondent was a practicing lawyer, a
senior partner of a big law firm in Manila. He was a director of several companies and was active in civic
and social organizations in the Philippines. Considering the circumstances of this case and the social
standing of private respondent in the community, he is entitled to the award of moral and exemplary
damages. However, the moral damages should be reduced to P300,000.00, and the exemplary damages
should be reduced to P200,000.00. This award should be reasonably sufficient to indemnify private
respondent for the humiliation and embarrassment that he suffered and to serve as an example to
discourage the repetition of similar oppressive and discriminatory acts.
2.
ID.; ID.; MORAL DAMAGES; PRESENCE OF BAD FAITH JUSTIFIES AWARD THEREOF. Petitioner
sacrificed the comfort of its first class passengers including private respondent Vinluan for the sake of
economy. Such inattention and lack of care for the interest of its passengers who are entitled to its utmost
consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to the
award of moral damages. More so in this case where instead of courteously informing private respondent
of his being downgraded under the circumstances, he was angrily rebuffed by an employee of petitioner.
573 | P a g e
DECISION
GANCAYCO, J p:
Rogelio A. Vinluan is a practicing lawyer who had to travel in April, 1979 to several cities in Europe and the
U.S. to attend to some matters involving several clients. He entered into a contract for air carriage for
valuable consideration with Japan Airlines first class from Manila to Tokyo, Moscow, Paris, Hamburg, Zurich,
New York, Los Angeles, Honolulu and back to Manila thru the same airline and other airlines it represents
for which he was issued the corresponding first class tickets for the entire trip.
On April 18, 1979, while in Paris, he went to the office of Trans World Airlines (TWA) at the De Gaulle Airport
and secured therefrom confirmed reservation for first class accommodation on board its Flight No. 41 from
New York to San Francisco which was scheduled to depart on April 20, 1979. A validated stub was attached
to the New York-Los Angeles portion of his ticket evidencing his confirmed reservation for said flight with
the mark "OK." 1 On April 20, 1979, at about 8:00 o'clock A.M., Vinluan reconfirmed his reservation for first
class accommodation on board TWA Flight No. 41 with its New York office. He was advised that his
reservation was confirmed. He was even requested to indicate his seat preference on said flight on said
scheduled date of departure of TWA Flight No. 41. Vinluan presented his ticket for check-in at the counter
of TWA at JFK International Airport at about 9:45 o'clock A.M., the scheduled time of the departure being
11:00 o'clock A.M. He was informed that there was no first class seat available for him on the flight. He
asked for an explanation but TWA employees on duty declined to give any reason. When he began to
protest, one of the TWA employees, a certain Mr. Braam, rudely threatened him with the words "Don't
argue with me, I have a very bad temper."
To be able to keep his schedule, Vinluan was compelled to take the economy seat offered to him and he
was issued a "refund application" as he was downgraded from first class to economy class.
While waiting for the departure of Flight No. 41, Vinluan noticed that other passengers who were white
Caucasians and who had checked-in later than him were given preference in some first class seats which
became available due to "no show" passengers.
On February 15, 1980, Vinluan filed an action for damages against the TWA in the Court of First Instance of
Rizal alleging breach of contract and bad faith. After trial on the merits, a decision was rendered the
dispositive part of which reads as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant holding the
latter liable to the former for the amount representing the difference in fare between first class and
economy class accommodations on board Flight No. 6041 from New York to San Francisco, the amount of
P500,000.00 as moral damages, the amount of P300,000.00 as exemplary damages and the amount of
P100,000.00 as and for attorney's fees, all such amounts to earn interest at the rate of twelve (12%)
percent per annum from February 15, 1980 when the complaint was filed until fully paid.
Correspondingly, defendant's counterclaim is dismissed.
Costs against the defendant.
SO ORDERED."
Not satisfied therewith, the TWA appealed to the Court of Appeals wherein in due course a decision was
rendered on May 27, 1987, 2 the dispositive part of which reads as follows:
"WHEREFORE, the decision dated March 8, 1984 is hereby modified by (1) fixing the interest which
appellant must pay on the awards of moral and exemplary damages at six per cent (6%) per annum from
the date of the decision a quo, March 8, 1984 until date of full payment and (2) reducing the attorney's
fees to P50,000.00 without interest, the rest of the decision is affirmed. Costs against appellant.
SO ORDERED."
Hence, the herein petition for review.
The theory of the petitioner is that because of maintenance problems of the aircraft on the day of the
flight, TWA Flight No. 41 was cancelled and a special Flight No. 6041 was organized to operate in lieu of
Flight No. 41. 3 Flight No. 41 was to have utilized a Lockheed 1011 with 34 first class seats, but instead, a
smaller Boeing 707 with only 16 first class seats was substituted for use in Flight No. 6041. Hence,
passengers who had first class reservations on Flight No. 41 had to be accommodated on Flight No. 6041
on a first-come, first-served basis. An announcement was allegedly made to all passengers in the entire
574 | P a g e
terminal of the airport advising them to get boarding cards for Flight No. 6041 to San Francisco and that
the first ones getting them would get first preference as to seats in the aircraft. It denied declining to give
any explanation for the downgrading of private respondent as well as the discourteous attitude of Mr.
Braam.
On the other hand, private respondent asserts that he did not hear such announcement at the terminal
and that he was among the early passengers to present his ticket for check-in only to be informed that
there was no first class seat available for him and that he had to be downgraded.
The petitioner contends that the respondent Court of Appeals committed a grave abuse of discretion in
finding that petitioner acted maliciously and discriminatorily, and in granting excessive moral and
exemplary damages and attorney's fees.
The contention is devoid of merit. Private respondent had a first class ticket for Flight No. 41 of petitioner
from New York to San Francisco on April 20, 1979. It was twice confirmed and yet respondent
unceremoniously told him that there was no first class seat available for him and that he had to be
downgraded to the economy class. As he protested, he was arrogantly threatened by one Mr. Braam. Worst
still, while he was waiting for the flight, he saw that several Caucasians who arrived much later were
accommodated in first class seats when the other passengers did not show up.
The discrimination is obvious and the humiliation to which private respondent was subjected is undeniable.
Consequently, the award of moral and exemplary damages by the respondent court is in order. 4
Indeed, private respondent had shown that the alleged switch of planes from a Lockheed 1011 to a smaller
Boeing 707 was because there were only 138 confirmed economy class passengers who could very well be
accommodated in the smaller plane and not because of maintenance problems.
Petitioner sacrificed the comfort of its first class passengers including private respondent Vinluan for the
sake of economy. Such inattention and lack of care for the interest of its passengers who are entitled to its
utmost consideration, particularly as to their convenience, amount to bad faith which entitles the
passenger to the award of moral damages. 5 More so in this case where instead of courteously informing
private respondent of his being downgraded under the circumstances, he was angrily rebuffed by an
employee of petitioner.
At the time of this unfortunate incident, the private respondent was a practicing lawyer, a senior partner of
a big law firm in Manila. He was a director of several companies and was active in civic and social
organizations in the Philippines. Considering the circumstances of this case and the social standing of
private respondent in the community, he is entitled to the award of moral and exemplary damages.
However, the moral damages should be reduced to P300,000.00, and the exemplary damages should be
reduced to P200,000.00. This award should be reasonably sufficient to indemnify private respondent for
the humiliation and embarrassment that he suffered and to serve as an example to discourage the
repetition of similar oppressive and discriminatory acts.
WHEREFORE, with the above modification reducing the moral and exemplary damages as above-stated,
the decision subject of the petition for review is AFFIRMED in all other respects, without pronouncement as
to costs in this instance.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
Footnotes
1.
Exhibit B.
2.
Justice Floreliana Castro-Bartolome, ponente, concurred in by Justices Arturo Buena and Eduardo R.
Bengzon.
3.
Exhibits 6, 6-A and 6-B.
4.
Northwest Airlines, Inc. v. Cuenca, 14 SCRA 1063 (1965); Lopez v. Pan American World Airways, 16
SCRA 431 (1966).
5.
Ortigas, Jr. v. Lufthansa German Airlines, 64 SCRA 610 (1975).
F.
Conditions on Imposition of Liability, Arts. 26, 28, 29

Santos v. Northwest, supra
Luna v. Court of Appeals, 216 SCRA 107
575 | P a g e
FIRST DIVISION
[G.R. No. 100374-75. November 27, 1992.]
RUFINO Y. LUNA, RODOLFO J. ALONSO and PORFIRIO RODRIGUEZ, petitioners, vs. HON. COURT
OF APPEALS, HON. CRISTINA M. ESTRADA in her capacity as Presiding Judge, RTC-Pasig, Br. 69,
Metro Manila, HON. TERESITA D. CAPULONG in her capacity as Presiding Judge, RTCValenzuela, Br. 172, Metro Manila, and NORTHWEST AIRLINES, INC., respondents.
Virgilio R. Garcia for petitioners.
Quisumbing, Torres & Evangelista for Northwest Airlines, Inc.
SYLLABUS
1.
REMEDIAL LAW; ACTIONS; TECHNICALITIES SHOULD BE DISREGARDED TO RENDER PARTIES WHAT
IS DUE THEM. From the facts, it appears that private respondent Northwest Airlines indeed failed to
deliver petitioners' baggage at the designated time and place. For this, all that respondent carrier could
say was that "[W]e exerted all efforts to comply with this condition of the contract." Hence, it is evident
that petitioners suffered some special specie of injury for which they should rightly be compensated.
Private respondent cannot be allowed to escape liability be seeking refuge in the argument that the trial
courts' orders have attained finality due to petitioners' failure to move for reconsideration or to file a timely
appeal therefrom. Technicalities should be disregarded if only to render to the respective parties that which
is their due.
2.
ID.; SPECIAL CIVIL ACTION; CERTIORARI; GENERALLY, NOT A SUBSTITUTE FOR APPEAL; EXCEPTIONS.
Although We have said that certiorari cannot be a substitute for a lapsed appeal, We have, time and
again, likewise held that where a rigid application of that rule will result in a manifest failure or miscarriage
of justice, the rule may be relaxed. Hence, considering the broader and primordial interests of justice,
particularly when there is grave abuse of discretion, thus impelling occasional departure from the general
rule that the extraordinary writ of certiorari cannot substitute for a lost appeal, respondent appellate court
may legally entertain the special civil action for certiorari.
3.
ID.; ACTIONS; WARSAW CONVENTION; A TREATY COMMITMENT WHICH DOES NOT OPERATE AS AN
EXCLUSIVE ENUMERATION OF GROUNDS NOR LIMITATION OF LIABILITY FOR BREACH OF CONTRACT OF
CARRIAGE. The Warsaw Convention was a treaty commitment voluntarily assumed by the Philippine
government; consequently, it has the force and effect of law in this country. But, in the same token, We are
also aware of jurisprudence that the Warsaw Convention does not operate as an exclusive enumeration of
the instances for declaring an airline liable for breach of contract of carriage or as an absolute limit of the
extent of that liability. The Convention merely declares the carrier liable for damages in the enumerated
cases, if the conditions therein specified are present. For sure, it does not regulate the liability, much less
exempt, the carrier for violating the rights of others which must simply be respected in accordance with
their contracts of carriage. The application of the Convention must not therefore be construed to preclude
the operation of the Civil Code and other pertinent laws.
4.
ID.; ID.; ID.; ID.; CASE AT BAR. Hence, petitioners' alleged failure to file a claim with the common
carrier as mandated by the provisions of the Warsaw Convention should not be a ground for the summary
dismissal of their complaints since private respondent may still be held liable for breach of other relevant
laws which may provide a different period or procedure for filing a claim. Considering that petitioners
indeed filed a claim which private respondent admitted having received on 21 June 1989, their demand
may have very well filed within the period prescribed by those applicable laws. Consequently, respondent
trial courts, as well as respondent appellate court, were in error when they limited themselves to the
provisions of the Warsaw Convention and disregarding completely the provisions of the Civil Code.
5.
CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF CARRIAGE; BREACH OF CONTRACT FOR
FAILURE TO DELIVER CARGO; MUST BE INTENTIONAL TO RECOVER DAMAGES; FAILURE IN CASE AT BAR,
NOT INTENTIONAL. We are not prepared to subscribe to petitioners' argument that the failure of private
respondent to deliver their luggage at the designated time and place amounted ipso facto to willful
misconduct. for willful misconduct to exist, there must be a showing that the acts complained of were
impelled by an intention to violate the law, or were in persistent disregard of one's rights. It must be
evidenced by a flagrantly or shamefully wrong or improper conduct.
DECISION
576 | P a g e
BELLOSILLO, J p:
This joint petition for review on certiorari originated from two (2) separate complaints arising from an
airline's delay in the delivery of the luggage of its passengers at their destination which respondent courts
dismissed for lack of cause of action. The resulting issue is whether the application of the Warsaw
Convention operates to exclude the application of the provisions of the New Civil Code and other pertinent
statutes.
Briefly, the facts: On 19 May 1989, at around 8:00 in the morning, petitioners Rufino Luna, Rodolfo Alonso
and Porfirio Rodriguez boarded Flight 020 of private respondent Northwest Airlines bound for Seoul, South
Korea, to attend the four-day Rotary International Convention from the 21st to the 24th of May 1992. They
checked in one (1) piece of luggage each. After boarding, however, due to engine trouble, they were asked
to disembark and transfer to a Korean Airlines plane scheduled to depart four (4) hours later. They were
assured that their baggage would be with them in the same flight.
When petitioners arrived in Seoul, they discovered that their personal belongings were nowhere to be
found; instead, they were allegedly flown to Seattle, U.S.A. It was not until four (4) days later, and only
after repeated representations with Northwest Airlines personnel at the airport in Korea were petitioners
able to retrieve their luggage. By then the Convention, which they were hardly able to attend, was almost
over. LLjur
Petitioners Rufino Y. Luna and Rodolfo J. Alonso assert that on 6 June 1989, or thirteen (13) days after they
recovered their luggage, they sent a written claim to private respondent's office along Roxas Blvd., Ermita,
Manila. Petitioner Porfirio Rodriguez, on his part, asseverates that he filed his claim on 13 June 1989.
However, private respondent, in a letter of 21 June 1989, disowned any liability for the delay and averred
that it exerted "its best efforts to carry the passenger and baggage with reasonable dispatch." 1
Thus, on 14 July 1989, petitioners Luna and Alonso jointly filed a complaint for breach of contract with
damages before the Regional Trial Court of Pasig, Metro Manila, docketed as Civil Case No. 58390,
subsequently raffled to Br. 69, 2 while petitioner Rodriguez filed his own complaint with the Regional Trial
Court of Valenzuela, Metro Manila, docketed as Civil Case No. 3194-V-89, assigned to Br. 172. 3 However,
upon motion of private respondent, both complaints were dismissed 4 for lack of cause of action due to
petitioner's failure to state in their respective complaints that they filed a prior claim with private
respondent within the prescribed period.
Petitioners Luna and Alonso then filed a petition for certiorari before the Court of Appeals to set aside the
order of respondent Judge Cristina M. Estrada granting private respondent's motion to dismiss, while
petitioner Rodriguez proceeded directly to this Court on Certiorari for the same purpose. However, in Our
resolution of 26 February 1990, We referred his petition to the Court of Appeals.
On 26 March 1991, the Third Division of respondent Court of Appeals, applying the provisions of the
Warsaw Convention and ruling that certiorari was not a substitute for a lost appeal, dismissed the petition
of Luna and Alonso, 5 and on 7 June 1991 denied their motion for reconsideration. 6 Meanwhile, on 28
February 1991 the Seventh Division of respondent Court of Appeals, ruling that the questioned order of the
trial court had already become final, similarly rejected the petition of Rodriguez, and on 6 June 1991
denied his motion for reconsideration. 7 Hence, this present recourse by petitioners Luna, Alonso and
Rodriguez.
Four (4) grounds are relied upon by petitioners which, nevertheless, may be reduced to three, namely: (a)
that respondent appellate court disregarded Our ruling in Alitalia v. CA 8 where We said that "[t]he
Convention does not thus operate as an exclusive enumeration of the instances of an airline's liability, or
as an absolute limit of the extent of that liability;" 9 (b) that "petitions to revoke orders and decisions may
be entertained even after the time to appeal had elapsed, in cases wherein the jurisdiction of the court had
been exceeded;" 10 and, (c) that Art. 26 of the Warsaw Convention which prescribes the reglementary
period within which to file a claim cannot be invoked if damage is caused by the carrier's willful
misconduct, as provided by Art. 25 of the same Warsaw Convention.
Private respondent, on the other hand, argues that the dismissal orders of respondent courts had already
become final after petitioners failed to either move for reconsideration or appeal from the orders within the
reglementary period, hence, certiorari is no substitute for a lost appeal. LLpr
Private respondent also maintains that it did not receive any demand letter from petitioners within the 21day reglementary period, as provided in par. 7 of the Conditions of Contract appearing in the plane ticket.
Since Art. 26, par. (4), of the Warsaw Convention provides that "[f]ailing complaint within the times
577 | P a g e
aforesaid, no action shall lie against the carrier, save in the case of fraud on him part," the carrier
consequently cannot be held liable for the delay in the delivery of the baggage. In other words, nonobservance of the prescribed period to file a claim bars claimant's action in court for recovery.
Private respondent, citing foreign jurisprudence, 11 likewise submits that Art. 25, par. (1), of the Warsaw
Convention which excludes or limits liability of common carriers if the damage is caused by its willful
misconduct, refers only to the monetary ceiling on damages found in Art. 22.
We find the appeal impressed with merit.
From the facts, it appears that private respondent Northwest Airlines indeed failed to deliver petitioners'
baggage at the designated time and place. For this, all that respondent carrier could say was that "[w]e
exerted all efforts to comply with this condition of the contract." 12 Hence, it is evident that petitioners
suffered some special specie of injury for which they should rightly be compensated. Private respondent
cannot be allowed to escape liability by seeking refuge in the argument that the trial courts' orders have
attained finality due to petitioners' failure to move for reconsideration or to file a timely appeal therefrom.
Technicalities should be disregarded if only to render to the respective parties that which is their due. Thus,
although We have said that certiorari cannot be a substitute for a lapsed appeal, We have, time and again,
likewise held that where a rigid application of that rule will result in a manifest failure or miscarriage of
justice, the rule may be relaxed. 13 Hence, considering the broader and primordial interests of justice,
particularly when there is grave abuse of discretion, thus impelling occasional departure from the general
rule that the extraordinary writ of certiorari cannot substitute for a lost appeal, respondent appellate court
may legally entertain the special civil action for certiorari. 14
Previously, We ruled that the Warsaw Convention was a treaty commitment voluntarily assumed by the
Philippine government; consequently, it has the force and effect of law in this country. 15 But, in the same
token, We are also aware of jurisprudence that the Warsaw Convention does not operate as an exclusive
enumeration of the instances for declaring an airline liable for breach of contract of carriage or as an
absolute limit of the extent of that liability. 16 The Convention merely declares the carrier liable for
damages in the enumerated cases, if the conditions therein specified are present. 17 For sure, it does not
regulate the liability, much less exempt, the carrier for violating the rights of others which must simply be
respected in accordance with their contracts of carriage. The application of the Convention must not
therefore be construed to preclude the operation of the Civil Code and other pertinent laws. In fact, in
Alitalia v. IAC, 18 We awarded Dr. Felipa Pablo nominal damages, the provisions of the Convention
notwithstanding.
Hence, petitioners' alleged failure to file a claim with the common carrier as mandated by the provisions of
the Warsaw Convention should not be a ground for the summary dismissal of their complaints since private
respondent may still be held liable for breach of other relevant laws which may provide a different period
or procedure for filing a claim. Considering that petitioners indeed filed a claim which private respondent
admitted having received on 21 June 1989, their demand may have very well been filed within the period
prescribed by those applicable laws. Consequently, respondent trial courts, as well as respondent appellate
court, were in error when they limited themselves to the provisions of the Warsaw Convention and
disregarding completely the provisions of the Civil Code. cdphil
We are unable to agree however with petitioners that Art. 25 of the Convention operates to exclude the
other provisions of the Convention operates to exclude the other provisions of the Convention if damage is
caused by the common carrier's willful misconduct. As correctly pointed out by private respondent, Art. 25
refers only to the monetary ceiling on damages found in Art. 22 should damage be caused by carrier's
willful misconduct. Hence, only the provisions of Art. 22 limiting the carrier's liability and imposing a
monetary ceiling in case of willful misconduct on its part that the carrier cannot invoke. 19 This issue
however has become academic in the light of our ruling that the trial courts erred in dismissing petitioners'
respective complaints.
We are not prepared to subscribe to petitioners' argument that the failure of private respondent to deliver
their luggage at the designated time and place amounted ipso facto to willful misconduct. For willful
misconduct to exist, there must be a showing that the acts complained of were impelled by an intention to
violate the law, or were in persistent disregard of one's rights. It must be evidenced by a flagrantly or
shamefully wrong or improper conduct.
WHEREFORE, the assailed decisions and resolutions of respondent Court of Appeals are REVERSED and SET
ASIDE. The complaints for breach of contract of carriage with damages in Civil Case No. 3194-V-89 and
578 | P a g e
Civil Case No. 58390 dismissed by respondent Judges Teresita D. Capulong and Cristina M. Estrada,
respectively, are ordered REINSTATED and given due course until terminated. No costs.
SO ORDERED.
Cruz, Padilla and Grio-Aquino, JJ ., concur.
Footnotes
1.
Letter of B.L. Barnhill, Manager (Philippines), Northwest Airlines, Inc.; Rollo, pp. 43-44.
2.
Presided by then Judge Jainal D. Rasul, now Justice of the Court of Appeals, succeeded by Judge
Cristina M. Estrada who issued the assailed Order.
3.
Presided by Judge Teresita D. Capulong.
4.
The Complaints of petitioners Luna and Alonso were dismissed on 18 September 1990, while that of
petitioner Rodriguez, on 8 November 1989.
5.
Rollo, pp. 23-37.
6.
Id, p. 38.
7.
Rollo, pp. 15-22.
8.
G.R. No. 71929, 4 December 1990; 192 SCRA 9, then Senior Associate Justice now Chief Justice
Andres R. Narvasa, ponente.
9.
Id, p. 17.
10.
Petition, p. 10; Rollo, p. 11.
11.
Magnus v. Royal Bank, 19 Avi. 17,948; Highlands Ins. v. Trinidad and Tobago, 739 F.2d 536, 539,
among many other cases with similar implications.
12.
See Note 1.
13.
Goldloop Properties, Inc. v. CA, G.R. No. 99431, 11 August 1992, citing Legarda v. CA, G.R. No.
94457, 18 March 1991, 195 SCRA 418.
14.
Aranda v. CA, G.R. No. 63188, 13 June 1990, 186 SCRA 456, and the cases cited therein.
15.
Santos III v. Northwest Orient Airlines, G.R. No. 101538, 23 June 1992, Justice Isagani A. Cruz,
ponente.
16.
Northwest Airlines, Inc. v. Cuenca, No. L-22425, 31 August 1965; Alitalia v. IAC, see Notes 10 and
11; Lufthansa German Airlines v. IAC, G.R. No. 71238, 19 March 1992.
17.
Article 17. The carrier shall be liable for damage sustained in the event of the death or wounding of
a passenger or any other bodily injury suffered by a passenger, if the accident which caused the damage
so sustained took place on board the aircraft or in the course of any of the operations of embarking or
disembarking.
"Article 18 (1) The carrier shall be liable for damage sustained in the event of the
destruction or loss of, or of damage to, any checked baggage, or any goods, if the occurrence which
caused the damage so sustained took place during the transportation by air."
(2)
The transportation by air within the meaning of the preceding paragraph shall
comprise the period during which the baggage or goods are in charge of the carrier, whether in an airport
or on board an aircraft, or, in the case of a landing outside an airport, in any place whatsoever."
(3)
The period of the transportation by air shall not extend to any transportation by land,
by sea, or by river performed outside an airport. If, however, such transportation takes place in the
performance of a contract for transportation by air, for the purposes of loading, delivery or transhipment,
any damage is presumed, subject to proof to the contrary, to have been the result of an event which took
place the transportation by air.
"Article 19.
The carrier shall be liable for damage occasioned by delay in the
transportation by air of passengers, baggage, or goods."
18.
See Notes 10 and 11.
19.
See Note 17.
579 | P a g e

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TRANSPORTATION AND PUBLIC UTILITIES

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