Republic of the Philippines

SUPREME COURT
Manila

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 and Agcaoili for petitioner.

Bengzon Villegas and Zarraga for respondent R. Carrascoso.

SANCHEZ, J.:

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 travelled 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 trust 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, maybe defined as "the written
statement of the ultimate facts as found by the court ... and essential to support the decision and
judgment rendered thereon". 16They 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

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 tickets it never meant to
honor at all. It received the corresponding amount in payment of first-class tickets and 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 riot 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 plaintiff's 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 OK 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", "A-l", "B", "B-l", "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. 24Implicit 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 "all
questions raised by the assignments of error and all questions that might have been 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

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 petitioner's accusation that respondent
Carrascoso "surreptitiously took a first class seat to provoke an issue". 29And 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 said 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 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 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
disposition; 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 ensconsced 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 will or for ulterior purpose." 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 the 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.40

5. The responsibility of an employer for the tortious 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, 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 right to be treated by the carrier's
employees with kindness, respect, courtesy and due consideration. They are entitled to be protected
against personal misconduct, injurious language, indignities and abuses from such employees. So it
is, that any rule or discourteous conduct on the part of employees towards a passenger gives the
latter an action for damages against the carrier. 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, 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". 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. 1awphl.nt

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 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

Petitioner charges that the finding of the Court of Appeals 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 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 on 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 attorney's 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 attorneys' 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.

SECOND DIVISION

[G.R. No. 122039. May 31, 2000]

VICENTE CALALAS, petitioner, vs. COURT OF APPEALS, ELIZA

JUJEURCHE SUNGA and FRANCISCO SALVA, respondents.

D E C I S I ON

MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of

[1]

Appeals, dated March 31, 1991, reversing the contrary decision of the
Regional Trial Court, Branch 36, Dumaguete City, and awarding damages
instead to private respondent Eliza Jujeurche Sunga as plaintiff in an action
for breach of contract of carriage.

The facts, as found by the Court of Appeals, are as follows:

At 10 oclock in the morning of August 23, 1989, private respondent Eliza

Jujeurche G. Sunga, then a college freshman majoring in Physical Education
at the Siliman University, took a passenger jeepney owned and operated by
petitioner Vicente Calalas. As the jeepney was filled to capacity of about 24
passengers, Sunga was given by the conductor an "extension seat," a
wooden stool at the back of the door at the rear end of the vehicle. Sclaw

On the way to Poblacion Sibulan, Negros Occidental, the jeepney stopped to

let a passenger off. As she was seated at the rear of the vehicle, Sunga gave
way to the outgoing passenger. Just as she was doing so, an Isuzu truck
driven by Iglecerio Verena and owned by Francisco Salva bumped the left
rear portion of the jeepney. As a result, Sunga was injured. She sustained a
fracture of the "distal third of the left tibia-fibula with severe necrosis of the
underlying skin." Closed reduction of the fracture, long leg circular casting,
and case wedging were done under sedation. Her confinement in the hospital
lasted from August 23 to September 7, 1989. Her attending physician, Dr.
Danilo V. Oligario, an orthopedic surgeon, certified she would remain on a
cast for a period of three months and would have to ambulate in crutches
during said period.

On October 9, 1989, Sunga filed a complaint for damages against Calalas,

alleging violation of the contract of carriage by the former in failing to exercise
the diligence required of him as a common carrier. Calalas, on the other hand,
filed a third-party complaint against Francisco Salva, the owner of the Isuzu
truck. Korte

The lower court rendered judgment against Salva as third-party defendant and
absolved Calalas of liability, holding that it was the driver of the Isuzu truck
who was responsible for the accident. It took cognizance of another case
(Civil Case No. 3490), filed by Calalas against Salva and Verena, for quasi-
delict, in which Branch 37 of the same court held Salva and his driver Verena
jointly liable to Calalas for the damage to his jeepney. Rtcspped

On appeal to the Court of Appeals, the ruling of the lower court was reversed
on the ground that Sungas cause of action was based on a contract of
carriage, not quasi-delict, and that the common carrier failed to exercise the
diligence required under the Civil Code. The appellate court dismissed the
third-party complaint against Salva and adjudged Calalas liable for damages
to Sunga. The dispositive portion of its decision reads:

WHEREFORE, the decision appealed from is hereby REVERSED

and SET ASIDE, and another one is entered ordering defendant-
appellee Vicente Calalas to pay plaintiff-appellant:

(1) P50,000.00 as actual and compensatory damages;

 (2) P50,000.00 as moral damages;

(3) P10,000.00 as attorneys fees; and

(4) P1,000.00 as expenses of litigation; and

(5) to pay the costs.

SO ORDERED.

Hence, this petition. Petitioner contends that the ruling in Civil Case No. 3490
that the negligence of Verena was the proximate cause of the accident
negates his liability and that to rule otherwise would be to make the common
carrier an insurer of the safety of its passengers. He contends that the
bumping of the jeepney by the truck owned by Salva was a caso fortuito.
Petitioner further assails the award of moral damages to Sunga on the ground
that it is not supported by evidence. Sdaadsc

The petition has no merit.

The argument that Sunga is bound by the ruling in Civil Case No. 3490 finding
the driver and the owner of the truck liable for quasi-delict ignores the fact that
she was never a party to that case and, therefore, the principle of res
judicata does not apply. Missdaa

Nor are the issues in Civil Case No. 3490 and in the present case the same.
The issue in Civil Case No. 3490 was whether Salva and his driver Verena
were liable for quasi-delict for the damage caused to petitioners jeepney. On
the other hand, the issue in this case is whether petitioner is liable on his
contract of carriage. The first, quasi-delict, also known as culpa
aquiliana or culpa extra contractual, has as its source the negligence of the
tortfeasor. The second, breach of contract or culpa contractual, is premised
upon the negligence in the performance of a contractual obligation.

Consequently, in quasi-delict, the negligence or fault should be clearly

established because it is the basis of the action, whereas in breach of
contract, the action can be prosecuted merely by proving the existence of the
contract and the fact that the obligor, in this case the common carrier, failed to
transport his passenger safely to his destination. In case of death or injuries
[2]

to passengers, Art. 1756 of the Civil Code provides that common carriers are
presumed to have been at fault or to have acted negligently unless they prove
that they observed extraordinary diligence as defined in Arts. 1733 and 1755
of the Code. This provision necessarily shifts to the common carrier the
burden of proof. Slxmis

There is, thus, no basis for the contention that the ruling in Civil Case No.
3490, finding Salva and his driver Verena liable for the damage to petitioners
jeepney, should be binding on Sunga. It is immaterial that the proximate
cause of the collision between the jeepney and the truck was the negligence
of the truck driver. The doctrine of proximate cause is applicable only in
actions for quasi-delict, not in actions involving breach of contract. The
doctrine is a device for imputing liability to a person where there is no relation
between him and another party. In such a case, the obligation is created by
law itself. But, where there is a pre-existing contractual relation between the
parties, it is the parties themselves who create the obligation, and the function
of the law is merely to regulate the relation thus created. Insofar as contracts
of carriage are concerned, some aspects regulated by the Civil Code are
those respecting the diligence required of common carriers with regard to the
safety of passengers as well as the presumption of negligence in cases of
death or injury to passengers. It provides: Slxsc

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 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 by articles 1733 and 1755.
In the case at bar, upon the happening of the accident, the presumption of
negligence at once arose, and it became the duty of petitioner to prove that he
had to observe extraordinary diligence in the care of his passengers. Scslx

Now, did the driver of jeepney carry Sunga "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" as required by Art. 1755? We do not
think so. Several factors militate against petitioners contention. Slx

First, as found by the Court of Appeals, the jeepney was not properly parked,
its rear portion being exposed about two meters from the broad shoulders of
the highway, and facing the middle of the highway in a diagonal angle. This is
a violation of the R.A. No. 4136, as amended, or the Land Transportation and
Traffic Code, which provides:

Sec. 54. Obstruction of Traffic. - No person shall drive his motor

vehicle in such a manner as to obstruct or impede the passage of
any vehicle, nor, while discharging or taking on passengers or
loading or unloading freight, obstruct the free passage of other
vehicles on the highway.

Second, it is undisputed that petitioners driver took in more passengers than

the allowed seating capacity of the jeepney, a violation of 32(a) of the same
law. It provides: Mesm

Exceeding registered capacity. - No person operating any motor

vehicle shall allow more passengers or more freight or cargo in
his vehicle than its registered capacity.

The fact that Sunga was seated in an "extension seat" placed her in a peril
greater than that to which the other passengers were exposed. Therefore, not
only was petitioner unable to overcome the presumption of negligence
imposed on him for the injury sustained by Sunga, but also, the evidence
shows he was actually negligent in transporting passengers. Calrky

We find it hard to give serious thought to petitioners contention that Sungas

taking an "extension seat" amounted to an implied assumption of risk. It is
akin to arguing that the injuries to the many victims of the tragedies in our
seas should not be compensated merely because those passengers assumed
a greater risk of drowning by boarding an overloaded ferry. This is also true of
petitioners contention that the jeepney being bumped while it was improperly
parked constitutes caso fortuito. A caso fortuito is an event which could not be
foreseen, or which, though foreseen, was inevitable. This requires that the
[3]

following requirements be present: (a) the cause of the breach is independent

of the debtors will; (b) the event is unforeseeable or unavoidable; (c) the event
is such as to render it impossible for the debtor to fulfill his obligation in a
normal manner, and (d) the debtor did not take part in causing the injury to the
creditor. Petitioner should have foreseen the danger of parking his jeepney
[4]

with its body protruding two meters into the highway. Kycalr

Finally, petitioner challenges the award of moral damages alleging that it is

excessive and without basis in law. We find this contention well taken.

In awarding moral damages, the Court of Appeals stated: Kyle

Plaintiff-appellant at the time of the accident was a first-year

college student in that school year 1989-1990 at the Silliman
University, majoring in Physical Education. Because of the injury,
she was not able to enroll in the second semester of that school
year. She testified that she had no more intention of continuing
with her schooling, because she could not walk and decided not
to pursue her degree, major in Physical Education "because of my
leg which has a defect already."

Plaintiff-appellant likewise testified that even while she was under

confinement, she cried in pain because of her injured left foot. As
a result of her injury, the Orthopedic Surgeon also certified that
she has "residual bowing of the fracture side." She likewise
decided not to further pursue Physical Education as her major
subject, because "my left leg x x x has a defect already."

Those are her physical pains and moral sufferings, the inevitable
bedfellows of the injuries that she suffered. Under Article 2219 of
the Civil Code, she is entitled to recover moral damages in the
sum of P50,000.00, which is fair, just and reasonable.

As a general rule, moral damages are not recoverable in actions for damages
predicated on a breach of contract for it is not one of the items enumerated
under Art. 2219 of the Civil Code. As an exception, such damages are
[5]

recoverable: (1) in cases in which the mishap results in the death of a

passenger, as provided in Art. 1764, in relation to Art. 2206(3) of the Civil
Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as
provided in Art. 2220. [6]
In this case, there is no legal basis for awarding moral damages since there
was no factual finding by the appellate court that petitioner acted in bad faith
in the performance of the contract of carriage. Sungas contention that
petitioners admission in open court that the driver of the jeepney failed to
assist her in going to a nearby hospital cannot be construed as an admission
of bad faith. The fact that it was the driver of the Isuzu truck who took her to
the hospital does not imply that petitioner was utterly indifferent to the plight of
his injured passenger. If at all, it is merely implied recognition by Verena that
he was the one at fault for the accident. Exsm

WHEREFORE, the decision of the Court of Appeals, dated March 31, 1995,
and its resolution, dated September 11, 1995, are AFFIRMED, with the
MODIFICATION that the award of moral damages is DELETED.

SO ORDERED.

FIRST DIVISION

[G.R. No. 127934. August 23, 2000]

ACE HAULERS CORPORATION, petitioner, vs. THE HONORABLE

COURT OF APPEALS AND EDERLINDA ABIVA, respondents.

DECISION
PARDO, J.:

The case is an appeal via certiorari seeking to set aside the decision of the
Court of Appeals affirming that of the Regional Trial Court, Quezon City,
[1]

Branch 106, except for the award of thirty thousand pesos (P30,000.00) as
exemplary damages, which was deleted. The dispositive portion of the trial
court's decision reads as follows:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay
plaintiff:

1. the amount of Two Hundred Thousand (P200,000.00) as actual damages;

2. the amount of Fifty Thousand (P50,000.00) as moral damages;

3. the amount of Thirty Thousand (P30,000.00) as exemplary damages;

4. the amount of Thirty Thousand (P30,000.00) as attorneys fees;

5. Costs of suit.

SO ORDERED. [2]

The facts, culled from the findings of the Court of Appeals, are as follows:

The case was an action for damages arising from a vehicular mishap which
took place on June 1, 1984, involving a truck owned by petitioner Ace Haulers
Corporation and driven by its employee, Jesus dela Cruz, and a jeepney
owned by Isabelito Rivera, driven by Rodolfo Parma. A third vehicle, a
motorcycle, was bumped and dragged by the jeepney, and its rider, Fidel
Abiva, was run over by the truck owned by petitioner Ace Haulers
Corporation, causing his death. Upon his untimely demise, Fidel Abiva left
behind a wife, respondent Erderlinda Abiva and their three (3) children.

On July 27, 1984, a criminal information for reckless

imprudence resulting in homicide was filed against the two drivers, Dela Cruz
and Parma, docketed as Criminal Case No. Q-37248 before the RTC of
Quezon City, Branch 103.

While the criminal action was pending, on March 11, 1985, respondent
Ederlinda Abiva filed with the Regional Trial Court, Quezon City, Branch 93, a
separate civil action for damages against the two accused in the criminal
case, as well as against Isabelito Rivera and petitioner Ace Haulers Corp., the
owners of the vehicles involved in the accident and employers of the accused.

In her complaint, respondent Abiva prayed that:

1. A Writ of Preliminary Attachment be immediately issued against the

properties of the defendants as security for the satisfaction of any judgment
that may be recovered;
2. Defendants in solidum, to pay plaintiff the amount of P200,000.00 as actual
damage;

3. Defendants, in solidum, to pay plaintiff the sum of P50,000.00 as attorneys

fees;

4. Defendants, in solidum, to pay plaintiff the amount of moral and exemplary

damages which this Court may reasonably assess.

On January 31, 1986, petitioner Ace Haulers Corp. and Jesus dela Cruz filed
a motion to dismiss bringing to the trial courts attention the fact that a criminal
action was pending before another branch of the same court, and that under
the 1985 Rules on Criminal Procedure, the filing of an independent civil action
arising from a quasi-delict is no longer allowed. Furthermore, said defendants
alleged that respondents private counsel actively participated in the criminal
proceedings, showing that the respondent was in fact pursuing the civil aspect
automatically instituted with the criminal case.

On February 21, 1986, respondent filed an opposition to the motion arguing

that she was not pursuing the civil aspect in the criminal case as she, in fact,
manifested in open court in the criminal proceedings that she was filing a
separate and independent civil action for damages against the accused and
their employers, as allowed under Articles 2177 and 2180 of the Civil Code.

On February 28, 1986, the trial court dismissed the action for damages on the
ground that no civil action shall proceed independently of the criminal
prosecution in a case for reckless imprudence resulting in
homicide. Respondent Abivas motion for reconsideration of the order of
dismissal was also denied by the trial court. She then elevated the case
before the Intermediate Appellate Court (IAC) by way of a petition for
certiorari, docketed as Civil Case No. 09644. The appellate court reversed the
dismissal order of the trial court. It was then petitioner Ace Haulers
Corporation and Jesus dela Cruzs turn to appeal the judgment of the IAC
before the Supreme Court. On August 3, 1988, the Supreme Court issued a
resolution denying the petition for review of Ace Haulers Corp. and Jesus dela
Cruz for failure to sufficiently show that the Court of Appeals had committed
any reversible error in the questioned error. The case was remanded to the
trial court for further proceedings.

In the meantime that the petition for review was pending before the Supreme
Court, fire razed the portion of the Quezon City Hall building which housed the
trial courts and the records of the case were among those that the fire
reduced to ashes. It was not until March 26, 1992 that the records of the case
was reconstituted by the trial court.

While the pre-trial proceedings in the civil action for damages was still being
set and reset upon motion of the opposing parties, on July 6, 1992, the RTC,
Quezon City, Branch 83 rendered judgment in the criminal case, finding as
follows:

WHEREFORE, the prosecution having established beyond reasonable doubt

the guilt of both accused Rodolfo Parma and Jesus dela Cruz for the offense
of Reckless Imprudence Resulting in Homicide, this Court finds them guilty of
said offense charged and hereby sentences each of them to suffer and
undergo imprisonment of ONE (1) YEAR AND ONE (1) DAY of prision
correccional as minimum to FOUR (4) YEARS, NINE (9) MONTHS and TEN
(10) DAYS also of prision correccional as maximum, and to pay the costs.

Accused Rodolfo Parma and Jesus dela Cruz are hereby ordered to pay the
heirs of the deceased Fidel O. Abiva, jointly or pro rata, the amount of FIFTY
THOUSAND PESOS (P50,000.00) as indemnification for his death and the
amount of FOUR THOUSAND PESOS (P4,000.00) by way of actual
damages.

SO ORDERED.

On March 9, 1993, the pre-trial conference of the civil case was finally set on
April 6, 1993, and notices thereof were sent to the parties and their respective
counsel. On the appointed date, however, no representative nor counsel for
petitioner Ace Haulers Corporation appeared. Consequently, upon motion of
respondent Abiva, the petitioner was declared as in default. Furthermore,
defendants Jesus dela Cruz, Isabelito Rivera and Rodolfo Parma were
discharged as defendants, and the case against them dismissed.

On June 30, 1993, the trial court rendered a decision, ruling against petitioner
Ace Haulers Corporation. The trial court summarized its findings thus:

Hence, Mrs. Ederlinda Abiva as part of plaintiffs evidence, testified that she is
43 years old, a widow and housekeeper, residing at Cefels Subdivision,
Deparo, Novaliches, Quezon City. She told the Court that she is the widow of
Fidel Abiva, who died on June 1, 1984 after he was ran over by Isuzu Cargo
Truck Plate No. NWY-T Phil 93 owned and operated by the defendant Ace
Haulers Corporation, then driven by Jesus dela Cruz and
that because of the death of her husband, she suffered damages, among
which, moral, exemplary and actual damages for her expenses and attorneys
fees. She claimed that she is lawfully married to the late Fidel Abiva as
evidenced by their Marriage Contract (Exhibits A and A-1). Out of their
wedlock, (sic) they begot three (3) children, namely: Noel, Gina and Argentina
with ages 25, 21 and 15, respectively.Her husband died on June 1, 1984 at
around 11:45 p.m. (Exhibits B, B-1 and B-2), because of the vehicular
accident which involved the wheeler truck of Ace Haulers Corporation driven
by Jesus dela Cruz, a jeepney owned by Isabelito Rivera, then driven by
Rodolfo Parma and a motorcycle driven by her husband. Her husband, after
his death, was autopsied, as reflected in an Autopsy Report (Exhibit C) and by
the Postmortem Finding (Exhibit C-1). This was also covered by a police
report (Exhibit D) which shows that Jesus dela Cruz is the driver of the
defendant (Exhibit D-1). This fact is reiterated in a sworn statement which she
executed relative to this vehicular accident (Exhibit E) wherein the said driver
mentioned and confirmed the name of his employer (Exhibit E-1). A criminal
case was lodged against the drivers of the two vehicles and a Decision was
rendered thereon in Criminal Case No. Q-37248 entitled People of the
Philippines versus Jesus dela Cruz and Rodolfo Parma finding both of them
guilty beyond reasonable doubt of the crime charged. (Exhibits F, F-1, F-2, F-
3, F-4 and F-5). This decision has now acquired finality as no appeal was
taken by the accused. It is established, however, that prior to the filing of the
instant case, Mrs. Abiva pleaded to Ace Haulers to compensate her for the
death of her husband. But her plea went (sic) to deaf ears. She was thus
constrained to file this case for damages.

Further testimony of Mrs. Abiva revealed that before the death of her
husband, he was employed with Philippine Airlines (PAL) earning
P4,600.00.00 a month, as evidenced by the Pay
Statement covering theperiod of 4-15-84 in the amount of P2,065.00 (Exhibits
G, G-1, G-2 and G-3); that when he died, he was only 40 years old and
healthy, and that based on the life history and pedigree of his family where
some of its members lived up to 100 years, she expects her husband to live
for no less than 15 years more and could have earned no less than
P828,000.00 for the family. But this, her family was deprived, because his life
was snatched away by this accident while her husband was riding in a
motorcycle which he bought for P11,850.00 (Exhibits H and H-1) which was
also totally wrecked.

Resulting from her husbands death, Mrs. Abiva told the Court that she
incurred expenses for his burial and funeral in the total amount of no less than
P30,000.00 and for his wake of six days, in the amount of about P40,600.00
(Exhibits J, J-1, J-2, J-3, J-4, J-5, and J-6). She also spent around P80,000.00
as litigation expenses, in her quest for justice since she has to engage the
services of four (4) counsels from the time of the filing of this case before the
Hon. Miriam Defensor-Santiago, then Presiding Judge of this Court who once
dismissed this case, and which led eventually to an appeal by certiorari which
was later elevated up to the Supreme Court. (Exhibits K, K-1, K-2, K-3, K-4, K-
5 and K-6). Blaming the defendant, Mrs. Abiva claimed that had Ace Haulers
exercised diligence, care and prudence in the selection and supervision of its
employees, her husband would have been spared from this accident. Hence,
her prayer for the award of P200,000.00 for the death of her husband, who by
now, could have risen in the promotional ladder to a senior Executive of PAL
and could be earning about P30,000.00 salary per month by now. She further
prays for award of moral damages in the amount of P200,000.00 exemplary
damages of P100,000.00, attorneys fees of P50,000.00 and litigation
expenses of P50,000.00.

After the testimony of Mrs. Abiva as the lone witness for the plaintiff, counsel
formally offered his exhibits and rested his case.

Gathered from the evidence presented, testimonial and documentary, the

Court finds enough legal and factual basis to grant the claim for damages by
the plaintiff. The insinuations of negligence on the part of defendants driver is
amply shown as one, who drove his vehicle fast, impervious to the safety of
life and property of others, his utter lack of care and caution and his
unmitigated imprudence, rolled into one, all these predicated the occurrence
of this accident which took away a precious human life.

Whoever by act or omission causes damages to another, there being fault or

negligence, is obliged to pay for the damages done. Such fault or negligence,
if there is no pre-existing contractual relation between the parties, is called a
quasi-delict x x x (Article 2176, New Civil Code).

Corollary to this, is the civil law concept that:

The obligations imposed by Article 2176 is demandable not only for ones own
acts or omissions, but also for those persons for whom one is responsible
(Art. 2180, 1st paragraph, New Civil Code)

xxxxxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, x x x
(Article 2180 paragraph 5, New Civil Code).

Taken in their appropriate context, and predicated on the evidence adduced

which has not been evidentiarily traversed by the defendant, this Court is left
to (sic) no other recourse but to grant the remedies and reliefs which in her
complaint plaintiff prays for, all of them having been by her adduced evidence,
preponderantly shown and established and out of which, she has shown
herself to be completely deserving. [3]

On September 13, 1993, petitioner appealed to the Court of Appeals. [4]

On January 17, 1997, the Court of Appeals promulgated its decision, the
dispositive portion of which reads as follows:

WHEREFORE, except for the award of thirty thousand (P30,000.00) as

exemplary damages, which is hereby set aside, the Decision appealed from is
hereby AFFIRMED in all other respect.

SO ORDERED.

Hence, this appeal. [5]

The issues raised are whether or not in an action for damages arising from
a vehicular accident plaintiff may recover damages against the employer of
the accused driver both in the criminal case (delict) and the civil case for
damages based on quasi delict, but not recover twice for the same act; (2)
whether the Court of Appeals erred in not lifting the order declaring petitioner
as in default for failure to appear at the pre-trial conference; and (3) whether
the damages awarded in the civil case were excessive, much more than the
previous award in the criminal case.
In Padua v. Robles, we held that Civil liability coexists with criminal
5

responsibility. In negligence cases, the offended party (or his heirs) has the
option between an action for enforcement of civil liability based
on culpa criminal under Article 100 of the Revised Penal Code and an action
for recovery of damages based on culpa aquiliana under Article 2176 of the
Civil Code. x x x Article 2177 of the Civil Code, however, precludes recovery
of damages twice for the same negligent act or omission. 6

Consequently, a separate civil action for damages lies against the offender
in a criminal act, whether or not he is criminally prosecuted and found guilty or
acquitted, provided that the offended party is not allowed, if he is actually
charged also criminally, to recover damages on both scores, and would be
entitled in such eventuality only to the bigger award of the two, assuming the
awards made in the two cases vary. 7

Hence, in this case, respondent Abiva shall have the choice which of the
awards to take, naturally expecting that she would opt to recover the greater
amount. It has not been shown that she has recovered on the award in the
criminal case, consequently, she can unquestionably recover from petitioner
in the civil case.
As to the second issue raised, we find that petitioner was rightly declared
as in default for its failure to appear during the pre-trial conference despite
due notice. This is a factual question resolved by the Court of Appeals which
we cannot review. 8

As to the third issue regarding the award of damages to respondent Abiva,

we find the award of actual damages to be supported by preponderant
evidence. Basic is the rule that to recover actual damages, the amount of loss
must not only be capable of proof but must actually be proven with reasonable
degree of certainty, premised upon competent proof or best evidence
obtainable of the actual amount thereof. However, there is no basis for the
9

award of moral damages, which is hereby deleted. The person claiming moral
damages must prove the existence of bad faith by clear and convincing
evidence for the law always presumes good faith. It is not enough that one
merely suffered sleepless nights, mental anguish, serious anxiety as the result
of the actuations of the other party. Invariably such action must be shown to
have been willfully done in bad faith or with ill motive.
10

The attorney's fees awarded is reduced to P20,000.00 which is ten (10%)

percent of the amount of actual damages.
WHEREFORE, the Court DENIES the petition for review on certiorari and
AFFIRMS the decision of the Court of Appeals, with modification. The Court
11

deletes the award of fifty thousand pesos (P50,000.00) as moral damages,

and reduces the attorney fees to twenty thousand pesos (P20,000.00).
No costs.
SO ORDERED.

FIRST DIVISION

[G.R. No. 135802. March 3, 2000]

PRISCILLA L. TAN, petitioner, vs. NORTHWEST AIRLINES,
INC., respondent.

DECISION

PARDO, J.:

Petitioner Priscilla L. Tan appeals via certiorari from the decision of the Court
of Appeals affirming with modification the decision of the trial
[1] [2]

court, ordering respondent to pay petitioner the following amounts: (1)

[3]

P15,000.00, as actual damages; (2) P100,000.00, as moral damages; (3)

P50,000.00, as exemplary damages; (4) P30,000.00, as and for attorney's
fees; and (6) costs.

The case before the Court traces its roots from an action for damages for
breach of contract of air carrige for failure to deliver petitioner's baggages on
the date of her arrival filed on June 29, 1994 with the Regional Trial Court,
Makati, Branch 150 against respondent Northwest Airlines, Inc., a foreign
corporation engaged in the business of air transportation.

The antecedent facts are as follows:

On May 31, 1994, Priscilla L. Tan and Connie Tan boarded Northwest Airlines
Flight 29 in Chicago, U. S. A. bound for the Philippines, with a stop-over at
Detroit, U. S. A. They arrived at the Ninoy Aquino International Airport (NAIA)
on June 1, 1994 at about 10:40 in the evening.

Upon their arrival, petitioner and her companion Connie Tan found that their
baggages were missing. They returned to the airport in the evening of the
following day and they were informed that their baggages might still be in
another plane in Tokyo, Japan.

On June 3, 1994, they recovered their baggages and discovered that some of
its contents were destroyed and soiled.

Claiming that they "suffered mental anguish, sleepless nights and great
damage" because of Northwest's failure to inform them in advance that their
baggages would not be loaded on the same flight they boarded and because
of their delayed arrival, they demanded from Northwest Airlines compensation
for the damages they suffered. On June 15, 1994 and June 22, 1994,
petitioner sent demand letter to Northwest Airlines, but the latter did not
respond. Hence, the filing of the case with the regional trial court.
In its answer to the complaint, respondent Northwest Airlines did not deny that
the baggages of petitioners were not loaded on Northwest Flight 29.
Petitioner's baggages could not be carried on the same flight because of
"weight and balance restrictions." However, the baggages were loaded in
another Northwest Airlines flight, which arrived in the evening of June 2, 1994.

When petitioner received her baggages in damaged condition, Northwest

offered to either (1) reimburse the cost or repair of the bags; or (2) reimburse
the cost for the purchase of new bags, upon submission of receipts.

After due trial, on June 10, 1996, the trial court rendered decision finding
respondent Northwest Airlines, Inc. liable for damages, as follows:

"WHEREFORE, judgement is hereby rendered ordering the

defendant to pay the plaintiff the following amounts:

"1. P15,000.00, as actual damages;

"2. P100,000.00, as moral damages;

"3. P50,000.00, as exemplary damages;

"4. P30,000.00, as and for attorney's fees and

"5. Costs.

"SO ORDERED.

"Given this 10th day of June, 1996 at Makati City.

"ERNA FALLORAN ALIPOSA

"Judge" [4]

Respondent Northwest Airlines, Inc. appealed from the trial court's decision to
the Court of Appeals contending that the court a quo erred in finding it guilty of
breach of contract of carriage and of willful misconduct and awarded damages
which had no basis in fact or were otherwise excessive.

On September 30, 1998, the Court of Appeals promulgated its decision

partially granting the appeal by deleting the award of moral and exemplary
damages and reducing the attorney's fees, specifically providing that:
 "WHEREFORE, PREMISES CONSIDERED, the appeal is
hereby GRANTED partially. The Decision of the lower court dated
June 10, 1996 is AFFIRMED with the modification that the award
of moral and exemplary damages is deleted and the amount of
attorney's fees is reduced to ten thousand pesos (P10,000.00).

"No pronouncement as to costs.

"SO ORDERED." [5]

Hence, this appeal. [6]

The issue is whether respondent is liable for moral and exemplary damages
for willful misconduct and breach of the contract of air carriage.

The petition is without merit.

We agree with the Court of Appeals that respondent was not guilty of willful
misconduct. "For willful misconduct to exist there must be a showing that the
acts complained of were impelled by an intention to violate the law, or were in
persistent disregard of one's rights. It must be evidenced by a flagrantly or
shamefully wrong or improper conduct." [7]

Contrary to petitioner's contention, there was nothing in the conduct of

respondent which showed that they were motivated by malice or bad faith in
loading her baggages on another plane. Due to weight and balance
restrictions, as a safety measure, respondent airline had to transport the
baggages on a different flight, but with the same expected date and time of
arrival in the Philippines. As aptly explained by respondent:

"To ensure the safety of each flight, Northwest's personnel

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

It is admitted that respondent failed to deliver petitioner's luggages on time.

However, there was no showing of malice in such failure. By its concern for
safety, respondent had to ship the baggages in another flight with same date
of arrival.

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

"Bad faith does not simply connnote bad judgment or negligence, it imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a
breach of known duty through some motive or interest or ill-will that partakes
of the nature of fraud." [10]

"Where in breaching the contract of carriage the defendant airline is not

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

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

Appeals.

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

No costs.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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 and Pison for petitioner.

Bonifacio M. Abad, Jr. for respondents.

CONCEPCION, C.J.:

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 Izuzu 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 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 despositive 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 [80-301 = 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. Surro1 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 (26 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, 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 considered5 that is, the total of the
earnings less expenses necessary in the creation of such earnings or income6 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.
 SECOND DIVISION

[G.R. No. 119756. March 18, 1999]

FORTUNE EXPRESS, INC., petitioner, vs. COURT OF APPEALS, PAULIE

U. CAORONG, and minor children YASSER KING CAORONG,
ROSE HEINNI and PRINCE ALEXANDER, all surnamed
CAORONG, and represented by their mother PAULIE U.
CAORONG, respondents.

DECISION
MENDOZA, J.:

This is an appeal by petition for review on certiorari of the decision, dated July 29, 1994, of
the Court of Appeals, which reversed the decision of the Regional Trial Court, Branch VI, Iligan
City. The aforesaid decision of the trial court dismissed the complaint of private respondents
against petitioner for damages for breach of contract of carriage filed on the ground that
petitioner had not exercised the required degree of diligence in the operation of one of its
buses. Atty. Talib Caorong, whose heirs are private respondents herein, was a passenger of the
bus and was killed in the ambush involving said bus.
The facts of the instant case are as follows:
Petitioner is a bus company in northern Mindanao. Private respondent Paulie Caorong is the
widow of Atty. Caorong, while private respondents Yasser King, Rose Heinni, and Prince
Alexander are their minor children.
On November 18, 1989, a bus of petitioner figured in an accident with a jeepney in
Kauswagan, Lanao del Norte, resulting in the death of several passengers of the jeepney,
including two Maranaos. Crisanto Generalao, a volunteer field agent of the Constabulary
Regional Security Unit No. X, conducted an investigation of the accident. He found that the
owner of the jeepney was a Maranao residing in Delabayan, Lanao del Norte and that certain
Maranaos were planning to take revenge on the petitioner by burning some of its
buses. Generalao rendered a report on his findings to Sgt. Reynaldo Bastasa of the Philippine
Constabulary Regional Hearquarters at Cagayan de Oro. Upon the instruction of Sgt. Bastasa, he
went to see Diosdado Bravo, operations manager of petitioner, at its main office in Cagayan de
Oro City. Bravo assured him that the necessary precautions to insure the safety of lives and
property would be taken.[1]
At about 6:45 P.M. on November 22, 1989, three armed Maranaos who pretended to be
passengers, seized a bus of petitioner at Linamon, Lanao del Norte while on its way to Iligan
City. Among the passengers of the bus was Atty. Caorong. The leader of the Maranaos,
identified as one Bashier Mananggolo, ordered the driver, Godofredo Cabatuan, to stop the bus
on the side of the highway. Mananggolo then shot Cabatuan on the arm, which caused him to
slump on the steering wheel. Then one of the companions of Mananggolo started pouring
gasoline inside the bus, as the other held the passengers at bay with a handgun. Mananggolo then
ordered the passengers to get off the bus. The passengers, including Atty. Caorong, stepped out
of the bus and went behind the bushes in a field some distance from the highway.[2]
However, Atty. Caorong returned to the bus to retrieve something from the overhead
rack. At that time, one of the armed men was pouring gasoline on the head of the
driver. Cabatuan, who had meantime regained consciousness, heard Atty. Caorong pleading with
the armed men to spare the driver as he was innocent of any wrong doing and was only trying to
make a living. The armed men were, however, adamant as they repeated their warning that they
were going to burn the bus along with its driver. During this exchange between Atty. Caorong
and the assailants, Cabatuan climbed out of the left window of the bus and crawled to the canal
on the opposite side of the highway. He heard shots from inside the bus. Larry de la Cruz, one of
the passengers, saw that Atty. Caorong was hit. Then the bus was set on fire. Some of the
passengers were able to pull Atty. Caorong out of the burning bus and rush him to the Mercy
Community Hospital in Iligan City, but he died while undergoing operation.[3]
The private respondents brought this suit for breach of contract of carriage in the Regional
Trial Court, Branch VI, Iligan City. In his decision, dated December 28, 1990, the trial court
dismissed the complaint, holding as follows:

The fact that defendant, through Operations Manager Diosdado Bravo, was informed
of the rumors that the Moslems intended to take revenge by burning five buses of
defendant is established since the latter also utilized Crisanto Generalaos as a
witness. Yet despite this information, the plaintiffs charge, defendant did not take
proper precautions. . . . Consequently, plaintiffs now fault the defendant for ignoring
the report. Their position is that the defendant should have provided its buses with
security guards. Does the law require common carriers to install security guards in its
buses for the protection and safety of its passengers? Is the failure to post guards an
omission of the duty to exercise the diligence of a good father of the family which
could have prevented the killing of Atty. Caorong? To our mind, the diligence
demanded by law does not include the posting of security guards in buses. It is an
obligation that properly belongs to the State. Besides, will the presence of one or two
security guards suffice to deter a determined assault of the lawless and thus prevent
the injury complained of? Maybe so, but again, perhaps not. In other words, the
presence of a security guard is not a guarantee that the killing of Atty. Caorong would
have been definitely avoided.

Accordingly, the failure of defendant to accord faith and credit to the report of Mr.
Generalao and the fact that it did not provide security to its buses cannot, in the light
of the circumstances, be characterized as negligence.
Finally, the evidence clearly shows that the assailants did not have the least intention
of harming any of the passengers. They ordered all the passengers to alight and set fire
on the bus only after all the passengers were out of danger. The death of Atty.
Caorong was an unexpected and unforseen occurrence over which defendant had no
control. Atty. Caorong performed an act of charity and heroism in coming to the
succor of the driver even in the face of danger. He deserves the undying gratitude of
the driver whose life he saved. No one should blame him for an act of extraordinary
charity and altruism which cost his life. But neither should any blame be laid on the
doorstep of defendant. His death was solely due to the willful acts of the lawless
which defendant could neither prevent nor stop.

WHEREFORE, in view of the foregoing, the complaint is hereby dismissed. For lack
of merit, the counter-claim is likewise dismissed. No cost.[4]

On appeal, however, the Court of Appeals reversed. It held:

In the case at bench, how did defendant-appellee react to the tip or information that
certain Maranao hotheads were planning to burn five of its buses out of revenge for
the deaths of two Maranaos in an earlier collision involving appellees bus? Except for
the remarks of appellees operations manager that we will have our action . . . . and Ill
be the one to settle it personally, nothing concrete whatsoever was taken by appellee
or its employees to prevent the execution of the threat. Defendant-appellee never
adopted even a single safety measure for the protection of its paying passengers. Were
there available safeguards? Of course, there were: one was frisking passengers
particularly those en route to the area where the threats were likely to be carried out
such as where the earlier accident occurred or the place of influence of the victims or
their locality. If frisking was resorted to, even temporarily, . . . . appellee might be
legally excused from liability. Frisking of passengers picked up along the route could
have been implemented by the bus conductor; for those boarding at the bus terminal,
frisking could have been conducted by him and perhaps by additional personnel of
defendant-appellee. On hindsight, the handguns and especially the gallon of gasoline
used by the felons all of which were brought inside the bus would have been
discovered, thus preventing the burning of the bus and the fatal shooting of the victim.

Appellees argument that there is no law requiring it to provide guards on its buses and
that the safety of citizens is the duty of the government, is not well taken. To be sure,
appellee is not expected to assign security guards on all of its buses; if at all, it has the
duty to post guards only on its buses plying predominantly Maranao areas. As
discussed in the next preceding paragraph, the least appellee could have done in
response to the report was to adopt a system of verification such as frisking of
passengers boarding its buses. Nothing, and to repeat, nothing at all, was done by
defendant-appellee to protect its innocent passengers from the danger arising from the
Maranao threats. It must be observed that frisking is not a novelty as a safety measure
in our society. Sensitive places in fact, nearly all important places have applied this
method of security enhancement. Gadgets and devices are available in the market for
this purpose. It would not have weighed much against the budget of the bus company
if such items were made available to its personnel to cope up with situations such as
the Maranao threats.

In view of the constitutional right to personal privacy, our pronouncement in this

decision should not be construed as an advocacy of mandatory frisking in all public
conveyances. What we are saying is that given the circumstances obtaining in the case
at bench that: (a) two Maranaos died because of a vehicular collision involving one of
appellees vehicles; (b) appellee received a written report from a member of the
Regional Security Unit, Constabulary Security Group, that the tribal/ethnic group of
the two deceased were planning to burn five buses of appellee out of revenge; and (c)
appellee did nothing absolutely nothing for the safety of its passengers travelling in
the area of influence of the victims, appellee has failed to exercise the degree of
diligence required of common carriers. Hence, appellee must be adjudged liable.

WHEREFORE, the decision appealed from is hereby REVERSED and another

rendered ordering defendant-appellee to pay plaintiffs-appellants the following:

1) P3,399,649.20 as death indemnity;

2) P50,000.00 and P500.00 per appearance as attorneys fees; and

Costs against defendant-appellee.[5]

Hence, this appeal. Petitioner contends:

(A) THAT PUBLIC RESPONDENT ERRED IN REVERSING THE DECISION OF THE
REGIONAL TRIAL COURT DATED DECEMBER 28, 1990 DISMISSING THE
COMPLAINT AS WELL AS THE COUNTERCLAIM, AND FINDING FOR PRIVATE
RESPONDENTS BY ORDERING PETITIONER TO PAY THE GARGANTUAN SUM
OF P3,449,649.20 PLUS P500.00 PER APPEARANCE AS ATTORNEYS FEES, AS
WELL AS DENYING PETITIONERS MOTION FOR RECONSIDERATION AND THE
SUPPLEMENT TO SAID MOTION, WHILE HOLDING, AMONG OTHERS, THAT
PETITIONER BREACHED THE CONTRACT OF CARIAGE BY ITS FAILURE TO
EXERCISE THE REQUIRED DEGREE OF DILIGENCE;
 (B) THAT THE ACTS OF THE MARANAO OUTLAWS WERE SO GRAVE,
IRRESISTIBLE, VIOLENT, AND FORCEFUL, AS TO BE REGARDED AS CASO
FORTUITO; AND
(C) THAT PUBLIC RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN
HOLDING THAT PETITIONER COULD HAVE PROVIDED ADEQUATE SECURITY
IN PREDOMINANTLY MUSLIM AREAS AS PART OF ITS DUTY TO OBSERVE
EXTRA-ORDINARY DILIGENCE AS A COMMON CARRIER.
The instant petition has no merit.

First. Petitioners Breach of the Contract of Carriage

Art. 1763 of the Civil Code provides that a common carrier is responsible for injuries
suffered by a passenger on account of the wilful acts of other passengers, if the employees of the
common carrier could have prevented the act the exercise of the diligence of a good father of a
family. In the present case, it is clear that because of the negligence of petitioners employees, the
seizure of the bus by Mananggolo and his men was made possible.
Despite warning by the Philippine Constabulary at Cagayan de Oro that the Maranaos were
planning to take revenge on the petitioner by burning some of its buses and the assurance of
petitioners operation manager, Diosdado Bravo, that the necessary precautions would be taken,
petitioner did nothing to protect the safety of its passengers.
Had petitioner and its employees been vigilant they would not have failed to see that the
malefactors had a large quantity of gasoline with them. Under the circumstances, simple
precautionary measures to protect the safety of passengers, such as frisking passengers and
inspecting their baggages, preferably with non-intrusive gadgets such as metal detectors, before
allowing them on board could have been employed without violating the passengers
constitutional rights. As this Court intimated in Gacal v. Philippine Air Lines, Inc.,[6] a common
carrier can be held liable for failing to prevent a hijacking by frisking passengers and inspecting
their baggages.
From the foregoing, it is evident that petitioners employees failed to prevent the attack on
one of petitioners buses because they did not exercise the diligence of a good father of a
family. Hence, petitioner should be held liable for the death of Atty. Caorong.

Second. Seizure of Petitioners Bus not a Case of Force Majeure

The petitioner contends that the seizure of its bus by the armed assailants was a fortuitous
event for which it could not be held liable.
Art. 1174 of the Civil Code defines a fortuitous even as an occurrence which could not be
foreseen or which though foreseen, is inevitable. In Yobido v. Court of Appeals,[7] we held that to
be considered as force majeure, it is necessary that: (1) the cause of the breach of the obligation
must be independent of the human will; (2) the event must be either unforeseeable or
unavoidable; (3) the occurrence must be such as to render it impossible for the debtor to fulfill
the obligation in a normal manner; and (4) the obligor must be free of participation in, or
aggravation of, the injury to the creditor. The absence of any of the requisites mentioned above
would prevent the obligor from being excused from liability.
Thus, in Vasquez v. Court of Appeals,[8] it was held that the common carrier was liable for its
failure to take the necessary precautions against an approaching typhoon, of which it was
warned, resulting in the loss of the lives of several passengers. The event was foreseeable, and,
thus, the second requisite mentioned above was not fulfilled. This ruling applies by analogy to
the present case. Despite the report of PC agent Generalao that the Maranaos were going to
attack its buses, petitioner took no steps to safeguard the lives and properties of its
passengers. The seizure of the bus of the petitioner was foreseeable and, therefore, was not a
fortuitous event which would exempt petitioner from liability.
Petitioner invokes the ruling in Pilapil v. Court of Appeals[9] and De Guzman v. Court of
Appeals[10] in support of its contention that the seizure of its bus by the assailants constitutes
force majeure. In Pilapil v. Court of Appeals,[11] it was held that a common carrier is not liable for
failing to install window grills on its buses to protect passengers from injuries caused by rocks
hurled at the bus by lawless elements. On the other hand, in De Guzman v. Court of Appeals,[12] it
was ruled that a common carrier is not responsible for goods lost as a result of a robbery which is
attended by grave or irresistible threat, violence, or force.
It is clear that the cases of Pilapil and De Guzman do not apply to the present case. Art.
1755 of the Civil Code provides that a common carrier is bound to carry the passengers as far as
human care and foresight can provide, using the utmost diligence of very cautious person, with
due regard for all the circumstances. Thus, we held in Pilapil and De Guzman that the
respondents therein were not negligent in failing to take special precautions against threats to the
safety of passengers which could not be foreseen, such as tortious or criminal acts of third
persons. In the present case, this factor of unforeseeablility (the second requisite for an event to
be considered force majeure) is lacking. As already stated, despite the report of PC agent
Generalao that the Maranaos were planning to burn some of petitioners buses and the assurance
of petitioners operations manager (Diosdado Bravo) that the necessary precautions would be
taken, nothing was really done by petitioner to protect the safety of passengers.

Third. Deceased not Guilty of Contributory Negligence

The petitioner contends that Atty. Caorong was guilty of contributory negligence in
returning to the bus to retrieve something. But Atty. Caorong did not act recklessly. It should be
pointed out that the intended targets of the violence were petitioner and its employees, not its
passengers. The assailants motive was to retaliate for the loss of life of two Maranaos as a result
of the collision between petitioners bus and the jeepney in which the two Maranaos were
riding. Mananggolo, the leader of the group which had hijacked the bus, ordered the passengers
to get off the bus as they intended to burn it and its driver. The armed men actually allowed Atty.
Caorong to retrieve something from the bus. What apparently angered them was his attempt to
help the driver of the bus by pleading for his life. He was playing the role of the good
Samaritan. Certainly, this act cannot be considered an act of negligence, let alone recklessness.
 Fourth. Petitioner Liable to Private Respondents for Damages

We now consider the question of damages that the heirs of Atty. Caorong, private
respondents herein, are entitled to recover from the petitioner.
Indemnity for Death. Art. 1764 of the Civil Code, in relation to Art. 2206 thereof, provides
for the payment of indemnity for the death of passengers caused by the breached of contract of
carriage by a common carrier. Initially fixed in Art. 2206 at P3,000.00, the amount of the said
indemnity for death has through the years been gradually increased in view of the declining
value of the peso. It is presently fixed at P50,000.00.[13] Private respondents are entitled to this
amount.
Actual damages. Art. 2199 provides that 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. The trial court found that the private respondents spent P30,000.00 for the wake and
burial of Atty. Caorong.[14] Since petitioner does not question this finding of the trial court, it is
liable to private respondents in the said amount as actual damages.
Moral Damages. Under Art. 2206, 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. The trial court found that private respondent Paulie Caorong suffered pain
from the death of her husband and worry on how to provide support for their minor children,
private respondents Yasser King, Rose Heinni, and Prince Alexander.[15] The petitioner likewise
does not question this finding of the trial court. Thus, in accordance with recent decisions of this
Court,[16] we hold that the petitioner is liable to the private respondents in the amount
of P100,000.00 as moral damages for the death of Atty. Caorong.
Exemplary Damages. Art. 2232 provides that in contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner. In the present case, the petitioner acted in a wanton and reckless
manner. Despite warning that the Maranaos were planning to take revenge against the petitioner
by burning some of its buses, and contrary to the assurance made by its operations manager that
the necessary precautions would be taken, the petitioner and its employees did nothing to protect
the safety of passengers. Under the circumstances, we deem it reasonable to award private
respondents exemplary damages in the amount of P100,000.00.[17]
Attorneys Fees. Pursuant to Art. 2208, attorneys fees may be recovered when, as in the
instant case, exemplary damages are awarded. In the recent case of Sulpicio Lines, Inc. v. Court
of Appeals,[18] we held an award of P50,000.00 as attorneys fees to be reasonable. Hence, the
private respondents are entitled to attorneys fees in that amount.
Compensation for Loss of Earning Capacity. Art. 1764 of the Civil Code, in relation to Art.
2206 thereof, provides that in addition to the indemnity for death arising from the breach of
contract of carriage by a common carrier, 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. The formula
established in decided cases for computing net earning capacity is as follows:[19]
Gross Necessary
Net earning = Life x Annual - Living
 Capacity Expectancy Income Expenses
Life expectancy is equivalent to two thirds (2/3) multiplied by the difference of eighty (80)
and the age of the deceased.[20] Since Atty. Caorong was 37 years old at the time of his
death,[21] he had a life expectancy of 28 2/3 more years.[22] His projected gross annual income,
computed based on his monthly salary of P11,385.00[23] as a lawyer in the Department of
Agrarian Reform at the time of his death, was P148,005.00.[24] allowing for necessary living
expenses of fifty percent (50%)[25]of his projected gross annual income, his total earning capacity
amounts to P2,121,404.90.[26] Hence, the petitioner is liable to the private respondents in the said
amount as compensation for loss of earning capacity.
WHEREFORE, the decision, dated July 29, 1994, of the Court of Appeals is hereby
AFFIRMED with the MODIFICATION that petitioner Fortune Express, Inc. is ordered to pay
the following amounts to private respondents Paulie, Yasser King, Rose Heinni, and Prince
Alexander Caorong:
1. death indemnity in the amount of fifty thousand pesos (P50,000.00);
2. actual damages in the amount of thirty thousand pesos (P30,000.00);
3. moral damages in the amount of one hundred thousand pesos(P100,000.00);
4. exemplary damages in the amount of one hundred thousand pesos (P100,000.00);
5. attorneys fees in the amount of fifty thousand pesos (P50,000.00);
6. compensation for loss of earning capacity in the amount of two million one hundred twenty-
one thousand four hundred four pesos and ninety centavos (P2,121,404.90); and
7) costs of suits.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 80447 January 31, 1989

BALIWAG TRANSIT, INC., petitioner,

vs.
HON. COURT OF APPEALS and SPS. SOTERO CAILIPAN, JR. and ZENAIDA LOPEZ and
GEORGE L. CAILIPAN, respondents.

Sta. Maria & Associates for petitioner.

Punzalan and Associates Law Office for respondents.

MELENCIO-HERRERA, J.:
On 10 April 1985 a Complaint for damages arising from breach of contract of carriage was filed by
private respondents, the Spouses Sotero Cailipan, Jr. and Zenaida Lopez, and their son George, of
legal age, against petitioner Baliwag Transit (Baliwag, for brevity). The Complaint alleged that
George, who was a paying passenger on a Baliwag bus on 17 December 1984, suffered multiple
serious physical injuries when he was thrown off said bus driven in a careless and negligent manner
by Leonardo Cruz, the authorized bus driver, along Barangay Patubig, Marilao, Bulacan. As a result,
he was confined in the hospital for treatment, incurring medical expenses, which were borne by his
parents, the respondent Spouses, in the sum of about P200,000.00 plus other incidental expenses
of about P10,000.00.

On 26 April 1985 an Answer was filed by petitioner alleging that the cause of the injuries sustained
by George was solely attributable to his own voluntary act in that, without warning and provocation,
he suddenly stood up from his seat and headed for the door of the bus as if in a daze, opened it and
jumped off while said bus was in motion, in spite of the protestations by the driver and without the
knowledge of the conductor.

Baliwag then filed a Third-Party Complaint against Fortune Insurance & Surety Company, Inc., on its
third-party liability insurance in the amount of P50,000.00. In its Answer, Fortune Insurance claimed
limited liability, the coverage being subject to a Schedule of Indemnities forming part of the
insurance policy.

On 14 November 1985 and 18 November 1985, respectively, Fortune Insurance and Baliwag each
filed Motions to Dismiss on the ground that George, in consideration of the sum of P8,020.50 had
executed a "Release of Claims" dated 16 May 1985. These Motions were denied by the Trial Court
in an Order dated 13 January 1986 as they were filed beyond the time for pleading and after the
Answer were already filed.

On 5 February 1986 Baliwag filed a Motion to Admit Amended Answer, which was granted by the
Trial Court. The Amended Answer incorporated the affirmative defense in the Motion to Dismiss to
the effect that on 16 May 1985, George bad been paid all his claims for damages arising from the
incident subject matter of the complaint when he executed the following "Release of Claims":

For and in consideration of the payment to me/us of the sum of EIGHT THOUSAND
TWENTY and 50/100 PESOS ONLY (P8,020.50), the receipt of which is hereby
acknowledged, I/we, being of lawful age, do hereby release, acquit and forever
discharge Fortune Insurance and/or Baliwag transit, Inc. his/her heirs, executors and
assigns, from any and all liability now accrued or hereafter to accrue on account of
any and all claims or causes of action which I/we now or may here after have for
personal injuries, damage to property, loss of services, medical expenses, losses or
damages of any and every kind or nature whatsoever, now known or what may
hereafter develop by me/us sustained or received on or about 17th day of December,
1984 through Reckless Imprudence Resulting to Physical Injuries, and I/we hereby
declare that I/we fully understand the terms of this settlement and voluntarily accept
said sum for the purpose of making a full and final compromise adjustment and
settlement of the injuries and damages, expenses and inconvenience above
mentioned. (Rollo, p. 11)

During the preliminary hearing on the aforementioned affirmative defense, Baliwag waived the
presentation of testimonial evidence and instead offered as its Exhibit "1" the "Release of Claims"
signed by George and witnessed by his brother Benjamin L. Cailipan, a licensed engineer.
By way of opposition to petitioner's affirmative defense, respondent Sotero Cailipan, Jr. testified that
be is the father of George, who at the time of the incident was a student, living with his parents and
totally dependent on them for their support; that the expenses for his hospitalization were shouldered
by his parents; and that they had not signed the "Release of Claims."

In an Order dated 29 August 1986, the Regional Trial Court of Bulacan, Branch 20, 1 dismissed the
Complaint and Third-party Complaint, ruling that since the contract of carriage is between Baliwag
and George L. Cailipan, the latter, who is of legal age, had the exclusive right to execute the
Release of Claims despite the fact that he is still a student and dependent on his parents for support.
Consequently, the execution by George of the Release of Claims discharges Baliwag and Fortune
Insurance.

Aggrieved, the Spouses appealed to respondent Court of Appeals.

On 22 October 1987, the Appellate Court rendered a Decision 2 setting aside the appealed Order
and holding that the "Release of Claims" cannot operate as a valid ground for the dismissal of the
case because it does not have the conformity of all the parties, particularly George's parents, who
have a substantial interest in the case as they stand to be prejudiced by the judgment because they
spent a sizeable amount for the medical bills of their son; that the Release of Claims was secured by
Fortune Insurance for the consideration of P8,020.50 as the full and final settlement of its liability
under the insurance policy and not for the purpose of releasing Baliwag from its liability as a carrier
in this suit for breach of contract. The Appellate Court also ordered the remand of the case to the
lower Court for trial on the merits and for George to return the amount of P8,020.50 to Fortune
Insurance.

Hence, this Petition for Review on certiorari by Baliwag assailing the Appellate Court judgment.

The issue brought to the fore is the legal effect of the Release of Claims executed by George during
the pendency of this case.

We hold that since the suit is one for breach of contract of carriage, the Release of Claims executed
by him, as the injured party, discharging Fortune Insurance and Baliwag from any and all liability is
valid. He was then of legal age, a graduating student of Agricultural Engineering, and had the
capacity to do acts with legal effect (Article 37 in relation to Article 402, Civil Code). Thus, he could
sue and be sued even without the assistance of his parents.

Significantly, the contract of carriage was actually between George, as the paying passenger, and
Baliwag, as the common carrier. As such carrier, Baliwag was bound to carry its passengers safely
as far as human care and foresight could provide, and is liable for injuries to them through the
negligence or wilful acts of its employees (Articles 1755 and 1759, Civil Code). Thus, George had
the right to be safely brought to his destination and Baliwag had the correlative obligation to do so.
Since a contract may be violated only by the parties thereto, as against each other, in an action upon
that contract, the real parties in interest, either as plaintiff or as defendant, must be parties to said
contract (Marimperio Compania Naviera, S.A. vs. Court of Appeals, No. L-40234, December 14,
1987, 156 SCRA 368). A real party-in-interest -plaintiff is one who has a legal right while a real party-
in-interest-defendant is one who has a correlative legal obligation whose act or omission violates the
legal right of the former (Lee vs. Romillo, Jr., G.R. No. 60973, May 28, 1988). In the absence of any
contract of carriage between Baliwag and George's parents, the latter are not real parties-in-interest
in an action for breach of that contract.

The general rule of the common law is that every action must be brought in the name
of the party whose legal right has been invaded or infringed. 15 Enc. P1. & Pr. p.
 484. "For the immediate wrong and damage the person injured is the only one who
can maintain the action." Id. p. 578. The person who sustains an injury is the person
to bring an action for the injury against the wrongdoer." Dicey parties to Actions, 347.
(Cited in Green v. Shoemaker, 73 A 688, 23 L.R.A., N.S. 667).

There is no question regarding the genuineness and due execution of the Release of Claims. It is a
duly notarized public document. It clearly stipulates that the consideration of P8,020.50 received by
George was "to release and forever discharge Fortune Insurance and/or Baliwag from any and all
liabilities now accrued or to accrue on account of any and all claims or causes of action ... for
personal injuries, damage to property, loss of services, medical expenses, losses or damages of any
and every kind or nature whatsoever, sustained by him on 17 December 1984 thru Reckless
Imprudence Resulting to Physical Injuries." Consequently, the ruling of respondent Appellate Court
that the "Release of Claims" was intended only as the full and final settlement of a third-party liability
for bodily injury claim and not for the purpose of releasing Baliwag from its liability, if any, in a breach
of a contract of carriage, has to be rejected for being contrary to the very terms thereof. If the terms
of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control (Article 1370, Civil Code). The phraseology "any and all
claims or causes of action" is broad enough to include all damages that may accrue to the injured
party arising from the unfortunate accident.

The Release of Claims had the effect of a compromise agreement since it was entered into for the
purpose of making a full and final compromise adjustment and settlement of the cause of action
involved. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid
a litigation or put an end to one already commenced (Article 2028, Civil Code). The Release of
Claims executed by the injured party himself wrote finish to this litigation.

WHEREFORE, the Decision dated 22 October 1987 of respondent Court of Appeals is SET ASIDE,
the Decision of the Regional Trial Court of Bulacan, Branch 20, is REINSTATED, and the Complaint
and Third-Party Complaint are hereby ordered DISMISSED. No costs.

SO ORDERED.

SECOND DIVISION

[G.R. No. 147724. June 8, 2004]

LORENZO SHIPPING CORP., petitioner, vs. CHUBB and SONS, Inc.,

GEARBULK, Ltd. and PHILIPPINE TRANSMARINE CARRIERS,
INC., respondents.

DECISION
PUNO, J.:

On appeal is the Court of Appeals August 14, 2000 Decision in CA-G.R. [1]

CV No. 61334 and March 28, 2001 Resolution affirming the March 19, 1998
[2]
Decision of the Regional Trial Court of Manila which found petitioner liable to
[3]

pay respondent Chubb and Sons, Inc. attorney's fees and costs of suit.
Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a
domestic corporation engaged in coastwise shipping, was the carrier of 581
bundles of black steel pipes, the subject shipment, from Manila to Davao
City. From Davao City, respondent Gearbulk, Ltd., a foreign corporation
licensed as a common carrier under the laws of Norway and doing business in
the Philippines through its agent, respondent Philippine Transmarine Carriers,
Inc. (Transmarine Carriers, for short), a domestic corporation, carried the
goods on board its vessel M/V San Mateo Victory to the United States, for the
account of Sumitomo Corporation. The latter, the consignee, is a foreign
corporation organized under the laws of the United States of America. It
insured the shipment with respondent Chubb and Sons, Inc., a foreign
corporation organized and licensed to engage in insurance business under
the laws of the United States of America.
The facts are as follows:
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila,
loaded 581 bundles of ERW black steel pipes worth US$137,912.84 on [4]

board the vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for
shipment to Davao City. Petitioner Lorenzo Shipping issued a clean bill of
lading designated as Bill of Lading No. T-3 for the account of the consignee,
[5]

Sumitomo Corporation of San Francisco, California, USA, which in turn,

insured the goods with respondent Chubb and Sons, Inc. [6]

The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December
2, 1987. Respondent Transmarine Carriers received the subject shipment
which was discharged on December 4, 1987, evidenced by Delivery Cargo
Receipt No. 115090. It discovered seawater in the hatch of M/V Lorcon IV,
[7]

and found the steel pipes submerged in it. The consignee Sumitomo then
hired the services of R.J. Del Pan Surveyors to inspect the shipment prior to
and subsequent to discharge. Del Pans Survey Report dated December 4,
[8]

1987 showed that the subject shipment was no longer in good condition, as in
fact, the pipes were found with rust formation on top and/or at the
sides. Moreover, the surveyor noted that the cargo hold of the M/V Lorcon IV
was flooded with seawater, and the tank top was rusty, thinning, and with
several holes at different places. The rusty condition of the cargo was noted
on the mates receipts and the checker of M/V Lorcon IV signed
his conforme thereon. [9]

After the survey, respondent Gearbulk loaded the shipment on board its
vessel M/V San Mateo Victory, for carriage to the United States. It issued Bills
of Lading Nos. DAV/OAK 1 to 7, covering 364 bundles of steel pipes to be
[10]

discharged at Oakland, U.S.A., and Bills of Lading Nos. DAV/SEA 1 to

6, covering 217 bundles of steel pipes to be discharged
[11]

at Vancouver, Washington, U.S.A. All bills of lading were marked ALL UNITS
HEAVILY RUSTED.
While the cargo was in transit from Davao City to the U.S.A., consignee
Sumitomo sent a letter of intent dated December 7, 1987, to petitioner
[12]

Lorenzo Shipping, which the latter received on December 9, 1987. Sumitomo

informed petitioner Lorenzo Shipping that it will be filing a claim based on the
damaged cargo once such damage had been ascertained. The letter reads:

Please be advised that the merchandise herein below noted has been landed in bad
order ex-Manila voyage No. 87-19 under B/L No. T-3 which arrived at the port
of Davao City on December 2, 1987.

The extent of the loss and/or damage has not yet been determined but apparently all
bundles are corroded. We reserve the right to claim as soon as the amount of claim is
determined and the necessary supporting documents are available.

Please find herewith a copy of the survey report which we had arranged for after
unloading of our cargo from your vessel in Davao.

We trust that you shall make everything in order.

On January 17, 1988, M/V San Mateo Victory arrived

at Oakland, California, U.S.A., where it unloaded 364 bundles of the subject
steel pipes. It then sailed to Vancouver, Washington on January 23,
1988where it unloaded the remaining 217 bundles. Toplis and Harding, Inc.
of San Franciso, California, surveyed the steel pipes, and also discovered the
latter heavily rusted. When the steel pipes were tested with a silver nitrate
solution, Toplis and Harding found that they had come in contact with salt
water. The survey report, dated January 28, 1988 states:
[13]

xxx

We entered the hold for a close examination of the pipe, which revealed moderate to
heavy amounts of patchy and streaked dark red/orange rust on all lifts which were
visible. Samples of the shipment were tested with a solution of silver nitrate revealing
both positive and occasional negative chloride reactions, indicating pipe had come in
contact with salt water. In addition, all tension applied metal straps were very heavily
rusted, and also exhibited chloride reactions on testing with silver nitrate.
xxx

It should be noted that subject bills of lading bore the following remarks as to
conditions of goods: ALL UNITS HEAVILY RUSTED. Attached herein is a copy of
a survey report issued by Del Pan Surveyors of Davao
City, Philippines dated, December 4, 1987 at Davao City, Philippines, which
describes conditions of the cargo as sighted aboard the vessel LORCON IV, prior to
and subsequent to discharge at Davao City. Evidently, the aforementioned rust
damages were apparently sustained while the shipment was in the custody of the
vessel LORCON IV, prior to being laden on board the vessel SAN MATEO
VICTORY in Davao.

Due to its heavily rusted condition, the consignee Sumitomo rejected the
damaged steel pipes and declared them unfit for the purpose they were
intended. It then filed a marine insurance claim with respondent Chubb and
[14]

Sons, Inc. which the latter settled in the amount of US$104,151.00. [15]

On December 2, 1988, respondent Chubb and Sons, Inc. filed a

complaint for collection of a sum of money, docketed as Civil Case No. 88-
[16]

47096, against respondents Lorenzo Shipping, Gearbulk, and

Transmarine. Respondent Chubb and Sons, Inc. alleged that it is not doing
business in the Philippines, and that it is suing under an isolated transaction.
On February 21, 1989, respondents Gearbulk and Transmarine filed their
answer with counterclaim and cross-claim against petitioner Lorenzo
[17]

Shipping denying liability on the following grounds: (a) respondent Chubb and
Sons, Inc. has no capacity to sue before Philippine courts; (b) the action
should be dismissed on the ground of forum non conveniens; (c) damage to
the steel pipes was due to the inherent nature of the goods or to the
insufficiency of packing thereof; (d) damage to the steel pipes was not due to
their fault or negligence; and, (e) the law of the country of destination, U.S.A.,
governs the contract of carriage.
Petitioner Lorenzo Shipping filed its answer with counterclaim on February
28, 1989, and amended it on May 24, 1989. It denied liability, alleging, among
others: (a) that rust easily forms on steel by mere exposure to air, moisture
and other marine elements; (b) that it made a disclaimer in the bill of lading;
(c) that the goods were improperly packed; and, (d) prescription, laches, and
extinguishment of obligations and actions had set in.
The Regional Trial Court ruled in favor of the respondent Chubb and Sons,
Inc., finding that: (1) respondent Chubb and Sons, Inc. has the right to institute
this action; and, (2) petitioner Lorenzo Shipping was negligent in the
performance of its obligations as a carrier. The dispositive portion of its
Decision states:

WHEREFORE, the judgment is hereby rendered ordering Defendant Lorenzo

Shipping Corporation to pay the plaintiff the sum of US$104,151.00 or its equivalent
in Philippine peso at the current rate of exchange with interest thereon at the legal rate
from the date of the institution of this case until fully paid, the attorneys fees in the
sum of P50,000.00, plus the costs of the suit, and dismissing the plaintiffs complaint
against defendants Gearbulk, Ltd. and Philippine Transmarine Carriers, Inc., for lack
of merit, and the two defendants counterclaim, there being no showing that the
plaintiff had filed this case against said defendants in bad faith, as well as the two
defendants cross-claim against Defendant Lorenzo Shipping Corporation, for lack of
factual basis.
[18]

Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting

that: (a) respondent Chubb and Sons does not have capacity to sue before
Philippine courts; and, (b) petitioner Lorenzo Shipping was not negligent in the
performance of its obligations as carrier of the goods. The appellate court
denied the petition and affirmed the decision of the trial court.
The Court of Appeals likewise denied petitioner Lorenzo Shippings Motion
for Reconsideration dated September 3, 2000, in a Resolution promulgated
[19] [20]

on March 28, 2001.

Hence, this petition. Petitioner Lorenzo Shipping submits the following
issues for resolution:
(1) Whether or not the prohibition provided under Art. 133 of the Corporation Code
applies to respondent Chubb, it being a mere subrogee or assignee of the rights of
Sumitomo Corporation, likewise a foreign corporation admittedly doing business in
the Philippines without a license;
(2) Whether or not Sumitomo, Chubbs predecessor-in-interest, validly made a claim for
damages against Lorenzo Shipping within the period prescribed by the Code of
Commerce;
(3) Whether or not a delivery cargo receipt without a notation on it of damages or
defects in the shipment, which created a prima facie presumption that the carrier
received the shipment in good condition, has been overcome by convincing
evidence;
(4) Assuming that Lorenzo Shipping was guilty of some lapses in transporting the steel
pipes, whether or not Gearbulk and Transmarine, as common carriers, are to share
liability for their separate negligence in handling the cargo.[21]

In brief, we resolve the following issues:

 (1) whether respondent Chubb and Sons has capacity to sue before the
Philippine courts; and,
(2) whether petitioner Lorenzo Shipping is negligent in carrying the subject
cargo.
Petitioner argues that respondent Chubb and Sons is a foreign corporation
not licensed to do business in the Philippines, and is not suing on an isolated
transaction. It contends that because the respondent Chubb and Sons is an
insurance company, it was merely subrogated to the rights of its insured, the
consignee Sumitomo, after paying the latters policy claim. Sumitomo,
however, is a foreign corporation doing business in the Philippines without a
license and does not have capacity to sue before Philippine courts. Since
Sumitomo does not have capacity to sue, petitioner then concludes that,
neither the subrogee-respondent Chubb and Sons could sue before Philippine
courts.
We disagree with petitioner.
In the first place, petitioner failed to raise the defense that Sumitomo is a
foreign corporation doing business in the Philippines without a license. It is
therefore estopped from litigating the issue on appeal especially because it
involves a question of fact which this Court cannot resolve. Secondly,
assuming arguendo that Sumitomo cannot sue in the Philippines, it does not
follow that respondent, as subrogee, has also no capacity to sue in our
jurisdiction.
Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to
the rights of the other in relation to a debt or claim, including its remedies or
securities.[22] The principle covers the situation under which an insurer that has
paid a loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss covered
by the policy.[23] It contemplates full substitution such that it places the party
subrogated in the shoes of the creditor, and he may use all means which the
creditor could employ to enforce payment.[24]
The rights to which the subrogee succeeds are the same as, but not
greater than, those of the person for whom he is substituted he cannot acquire
any claim, security, or remedy the subrogor did not have.[25]In other words, a
subrogee cannot succeed to a right not possessed by the subrogor.[26] A
subrogee in effect steps into the shoes of the insured and can recover only if
insured likewise could have recovered.
 However, when the insurer succeeds to the rights of the insured, he does
so only in relation to the debt. The person substituted (the insurer) will
succeed to all the rights of the creditor (the insured), having reference to the
debt due the latter. In the instant case, the rights inherited by the
[27]

insurer, respondent Chubb and Sons, pertain only to the payment it made to
the insured Sumitomo as stipulated in the insurance contract between them,
and which amount it now seeks to recover from petitioner Lorenzo Shipping
which caused the loss sustained by the insured Sumitomo. The capacity to
sue of respondent Chubb and Sons could not perchance belong to the group
of rights, remedies or securities pertaining to the payment respondent insurer
made for the loss which was sustained by the insured Sumitomo and covered
by the contract of insurance. Capacity to sue is a right personal to its holder. It
is conferred by law and not by the parties. Lack of legal capacity to sue means
that the plaintiff is not in the exercise of his civil rights, or does not have the
necessary qualification to appear in the case, or does not have the character
or representation he claims. It refers to a plaintiffs general disability to sue,
such as on account of minority, insanity, incompetence, lack of juridical
personality, or any other disqualifications of a party. Respondent Chubb and
[28]

Sons who was plaintiff in the trial court does not possess any of these
disabilities. On the contrary, respondent Chubb and Sons has satisfactorily
proven its capacity to sue, after having shown that it is not doing business in
the Philippines, but is suing only under an isolated transaction, i.e., under the
one (1) marine insurance policy issued in favor of the consignee Sumitomo
covering the damaged steel pipes.
The law on corporations is clear in depriving foreign corporations which
are doing business in the Philippines without a license from bringing or
maintaining actions before, or intervening in Philippine courts.Art. 133 of the
Corporation Code states:

Doing business without a license. No foreign corporation transacting business in the

Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or proceeded against
before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.

The law does not prohibit foreign corporations from performing single acts
of business. A foreign corporation needs no license to sue before Philippine
courts on an isolated transaction. As held by this Court in the case
[29]

of Marshall-Wells Company vs. Elser & Company: [30]

The object of the statute (Secs. 68 and 69, Corporation Law) was not to prevent the
foreign corporation from performing single acts, but to prevent it from acquiring a
domicile for the purpose of business without taking the steps necessary to render it
amenable to suit in the local courts . . . the implication of the law (being) that it was
never the purpose of the legislature to exclude a foreign corporation which happens to
obtain an isolated order for business for the Philippines, from seeking redress in the
Philippine courts.

Likewise, this Court ruled in Universal Shipping Lines, Inc. vs.

Intermediate Appellate Court that: [31]

. . . The private respondent may sue in the Philippine courts upon the marine insurance
policies issued by it abroad to cover international-bound cargoes shipped by a
Philippine carrier, even if it has no license to do business in this country, for it is not
the lack of the prescribed license (to do business in the Philippines) but doing business
without such license, which bars a foreign corporation from access to our courts.

We reject the claim of petitioner Lorenzo Shipping that respondent Chubb

and Sons is not suing under an isolated transaction because the steel pipes,
subject of this case, are covered by two (2) bills of lading; hence, two
transactions. The stubborn fact remains that these two (2) bills of lading
spawned from the single marine insurance policy that respondent Chubb and
Sons issued in favor of the consignee Sumitomo, covering the damaged steel
pipes. The execution of the policy is a single act, an isolated transaction. This
Court has not construed the term isolated transaction to literally mean one or
a mere single act. In Eriks Pte. Ltd. vs. Court of Appeals, this Court held
that:[32]

. . . What is determinative of "doing business" is not really the number or the quantity
of the transactions, but more importantly, the intention of an entity to continue the
body of its business in the country. The number and quantity are merely evidence of
such intention. The phrase "isolated transaction" has a definite and fixed meaning,
i.e. a transaction or series of transactions set apart from the common business of a
foreign enterprise in the sense that there is no intention to engage in a progressive
pursuit of the purpose and object of the business organization. Whether a foreign
corporation is "doing business" does not necessarily depend upon the frequency of its
transactions, but more upon the nature and character of the transactions. [Emphasis
supplied.]

In the case of Gonzales vs. Raquiza, et al., three contracts, hence three
[33]

transactions were challenged as void on the ground that the three American
corporations which are parties to the contracts are not licensed to do business
in the Philippines. This Court held that one single or isolated business
transaction does not constitute doing business within the meaning of the
law. Transactions which are occasional, incidental, and casual not of a
character to indicate a purpose to engage in business do not constitute the
doing or engaging in business as contemplated by law. Where the three
transactions indicate no intent by the foreign corporation to engage in a
continuity of transactions, they do not constitute doing business in
the Philippines.
Furthermore, respondent insurer Chubb and Sons, by virtue of the right of
subrogation provided for in the policy of insurance, is the real party in
[34]

interest in the action for damages before the court a quoagainst the carrier
Lorenzo Shipping to recover for the loss sustained by its insured. Rule 3,
Section 2 of the 1997 Rules of Civil Procedure defines a real party in interest
as one who is entitled to the avails of any judgment rendered in a suit, or who
stands to be benefited or injured by it. Where an insurance company as
subrogee pays the insured of the entire loss it suffered, the insurer-subrogee
is the only real party in interest and must sue in its own name to enforce its
[35]

right of subrogation against the third party which caused the loss. This is
because the insurer in such case having fully compensated its insured, which
payment covers the loss in full, is subrogated to the insureds claims arising
from such loss. The subrogated insurer becomes the owner of the claim and,
thus entitled to the entire fruits of the action. It then, thus possesses the right
[36]

to enforce the claim and the significant interest in the litigation. In the case at
[37]

bar, it is clear that respondent insurer was suing on its own behalf in order to
enforce its right of subrogation.
On the second issue, we affirm the findings of the lower courts that
petitioner Lorenzo Shipping was negligent in its care and custody of the
consignees goods.
The steel pipes, subject of this case, were in good condition when they
were loaded at the port of origin (Manila) on board petitioner Lorenzo
Shippings M/V Lorcon IV en route to Davao City. Petitioner Lorenzo Shipping
issued clean bills of lading covering the subject shipment. A bill of lading,
aside from being a contract and a receipt, is also a symbol of the goods
[38] [39] [40]

covered by it. A bill of lading which has no notation of any defect or damage in
the goods is called a clean bill of lading. A clean bill of lading constitutes
[41]

prima facie evidence of the receipt by the carrier of the goods as therein
described. [42]

The case law teaches us that mere proof of delivery of goods in good
order to a carrier and the subsequent arrival in damaged condition at the
place of destination raises a prima facie case against the carrier. In the case
[43]

at bar, M/V Lorcon IV of petitioner Lorenzo Shipping received the steel pipes
in good order and condition, evidenced by the clean bills of lading it
issued. When the cargo was unloaded from petitioner Lorenzo Shippings
vessel at the Sasa Wharf in Davao City, the steel pipes were rusted all
over. M/V San Mateo Victory of respondent Gearbulk, Ltd, which received the
cargo, issued Bills of Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1 to 6
covering the entire shipment, all of which were marked ALL UNITS HEAVILY
RUSTED. R.J. Del Pan Surveyors found that the cargo hold of the M/V Lorcon
IV was flooded with seawater, and the tank top was rusty, thinning and
perforated, thereby exposing the cargo to sea water. There can be no other
conclusion than that the cargo was damaged while on board the vessel of
petitioner Lorenzo Shipping, and that the damage was due to the latters
negligence. In the case at bar, not only did the legal presumption of
negligence attach to petitioner Lorenzo Shipping upon the occurrence of
damage to the cargo. More so, the negligence of petitioner was sufficiently
[44]

established. Petitioner Lorenzo Shipping failed to keep its vessel in seaworthy

condition. R.J. Del Pan Surveyors found the tank top of M/V Lorcon IV to be
rusty, thinning, and with several holes at different places. Witness Captain
Pablo Fernan, Operations Manager of respondent Transmarine Carriers,
likewise observed the presence of holes at the deck of M/V Lorcon IV. The [45]

unpatched holes allowed seawater, reaching up to three (3) inches deep, to

enter the flooring of the hatch of the vessel where the steel pipes were
stowed, submerging the latter in sea water. The contact with sea water
[46]

caused the steel pipes to rust. The silver nitrate test, which Toplis and Harding
employed, further verified this conclusion. Significantly, petitioner Lorenzo
[47]

Shipping did not even attempt to present any contrary evidence. Neither did it
offer any proof to establish any of the causes that would exempt it from liability
for such damage. It merely alleged that the: (1) packaging of the goods was
[48]

defective; and (2) claim for damages has prescribed.

To be sure, there is evidence that the goods were packed in a superior
condition. John M. Graff, marine surveyor of Toplis and Harding, examined
the condition of the cargo on board the vessel San Mateo Victory. He testified
that the shipment had superior packing because the ends were covered with
plastic, woven plastic. Whereas typically they would not go to that bother
... Typically, they come in with no plastic on the ends. They might just be
banded, no plastic on the ends ...[49]

On the issue of prescription of respondent Chubb and Sons claim for

damages, we rule that it has not yet prescribed at the time it was made.
Art. 366 of the Code of Commerce states:
Within the twenty-four hours following the receipt of the merchandise, the claim
against the carrier for damage or average, which may be found therein upon the
opening of 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 package, in which case the claim shall be admitted only at the time of the receipt.

After the periods mentioned have elapsed, or 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.

A somewhat similar provision is embodied in the Bill of Lading No. T-3

which reads: [50]

NOTE: No claim for damage or loss shall be honored twenty-four (24) hours after
delivery.

(Ref. Art. 366 C Com.)

The twenty-four-hour period prescribed by Art. 366 of the Code of

Commerce within which claims must be presented does not begin to run until
the consignee has received such possession of the merchandise that he may
exercise over it the ordinary control pertinent to ownership. In other words,
[51]

there must be delivery of the cargo by the carrier to the consignee at the place
of destination. In the case at bar, consignee Sumitomo has not received
[52]

possession of the cargo, and has not physically inspected the same at the
time the shipment was discharged from M/V Lorcon IV
in Davao City. Petitioner Lorenzo Shipping failed to establish that an
authorized agent of the consignee Sumitomo received the cargo
at Sasa Wharf in Davao City. Respondent Transmarine Carriers as agent of
respondent Gearbulk, Ltd., which carried the goods from Davao City to
the United States, and the principal, respondent Gearbulk, Ltd. itself, are not
the authorized agents as contemplated by law. What is clear from the
evidence is that the consignee received and took possession of the entire
shipment only when the latter reached the United States shore. Only then was
delivery made and completed. And only then did the 24-hour prescriptive
period start to run.
Finally, we find no merit to the contention of respondents Gearbulk and
Transmarine that American law governs the contract of carriage because
the U.S.A. is the country of destination. Petitioner Lorenzo Shipping, through
its M/V Lorcon IV, carried the goods from Manila to Davao City. Thus, as
against petitioner Lorenzo Shipping, the place of destination
is Davao City. Hence, Philippine law applies.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 61334 dated August 14, 2000 and its Resolution
dated March 28, 2001 are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-28673 October 23, 1984

SAMAR MINING COMPANY, INC., plaintiff-appellee,

vs.
NORDEUTSCHER LLOYD and C.F. SHARP & COMPANY, INC., defendants-appellants.

CUEVAS, J.: +. wph!1

This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of First
Instance of Manila, finding defendants carrier and agent, liable for the value of goods never
delivered to plaintiff consignee. The issue raised is a pure question of law, which is, the liability of the
defendants, now appellants, under the bill of lading covering the subject shipment.

The case arose from an importation made by plaintiff, now appellee, SAMAR MINING COMPANY,
INC., of one (1) crate Optima welded wedge wire sieves through the M/S SCHWABENSTEIN a
vessel owned by defendant-appellant NORDEUTSCHER LLOYD, (represented in the Philippines by
its agent, C.F. SHARP & CO., INC.), which shipment is covered by Bill of Lading No. 18 duly issued
to consignee SAMAR MINING COMPANY, INC. Upon arrival of the aforesaid vessel at the port of
Manila, the aforementioned importation was unloaded and delivered in good order and condition to
the bonded warehouse of AMCYL. 1 The goods were however never delivered to, nor received by, the consignee at the port of
destination Davao.

When the letters of complaint sent to defendants failed to elicit the desired response, consignee
herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at the prevailing rate of
exchange at that time, against the former, but neither paid. Hence, the filing of the instant suit to
enforce payment. Defendants-appellants brought in AMCYL as third party defendant.

The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the amount of
P1,691.93 plus attorney's fees and costs. However, the Court stated that defendants may recoup
whatever they may pay plaintiff by enforcing the judgment against third party defendant AMCYL
which had earlier been declared in default. Only the defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses and
stipulations which should be examined in the light of pertinent legal provisions and settled
jurisprudence. This undertaking is not only proper but necessary as well because of the nature of the
bill of lading which operates both as a receipt for the goods; and more importantly, as a contract to
transport and deliver the same as stipulated therein. 2 Being a contract, it is the law between the
parties thereto 3 who are bound by its terms and conditions 4 provided that these are not contrary to
law, morals, good customs, public order and public policy. 5

Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded wedge wire
sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of loading" which is
Bremen, Germany, while the freight had been prepaid up to the port of destination or the "port of
discharge of goods in this case, Davao, the carrier undertook to transport the goods in its vessel,
M/S SCHWABENSTEIN only up to the "port of discharge from ship-Manila. Thereafter, the goods
were to be transshipped by the carrier to the port of destination or "port of discharge of goods The
stipulation is plainly indicated on the face of the bill which contains the following phrase printed
below the space provided for the port of discharge from ship", thus: t.hqw

if goods are to be transshipped at port of discharge, show destination under the

column for "description of contents" 7

As instructed above, the following words appeared typewritten under the column for "description of
contents": t.hqw

PORT OF DISCHARGE OF GOODS: DAVAO

FREIGHT PREPAID 8

It is clear, then, that in discharging the goods from the ship at the port of Manila, and delivering the
same into the custody of AMCYL, the bonded warehouse, appellants were acting in full accord with
the contractual stipulations contained in Bill of Lading No. 18. The delivery of the goods to AMCYL
was part of appellants' duty to transship the goods from Manila to their port of destination-Davao.
The word "transship" means: t.hqw

to transfer for further transportation from one ship or conveyance to another 9

The extent of appellant carrier's responsibility and/or liability in the transshipment of the goods in
question are spelled out and delineated under Section 1, paragraph 3 of Bill of Lading No. 18, to
wit:t.hqw

The carrier shall not be liable in any capacity whatsoever for any delay, loss or
damage occurring before the goods enter ship's tackle to be loaded or after the
goods leave ship's tackle to be discharged, transshipped or forwarded ... (Emphasis
supplied)

and in Section 11 of the same Bill, which provides: t.hqw

Whenever the carrier or m aster may deem it advisable or in any case where the
goods are placed at carrier's disposal at or consigned to a point where the ship does
not expect to load or discharge, the carrier or master may, without notice, forward the
whole or any part of the goods before or after loading at the original port of shipment,
... This carrier, in making arrangements for any transshipping or forwarding vessels
or means of transportation not operated by this carrier shall be considered solely the
forwarding agent of the shipper and without any other responsibility whatsoever even
 though the freight for the whole transport has been collected by him. ... Pending or
during forwarding or transshipping the carrier may store the goods ashore or afloat
solely as agent of the shipper and at risk and expense of the goods and the carrier
shall not be liable for detention nor responsible for the acts, neglect, delay or failure
to act of anyone to whom the goods are entrusted or delivered for storage, handling
or any service incidental thereto (Emphasis supplied) 10

Defendants-appellants now shirk liability for the loss of the subject goods by claiming that they have discharged the same in full and good
condition unto the custody of AMCYL at the port of discharge from ship Manila, and therefore, pursuant to the aforequoted stipulation
(Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11

We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the carrier from liability for loss or damage to the
goods when the same are not in its actual custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES
LINES, 22 SCRA 674 (1968). Said case matches the present controversy not only as to the material facts but more importantly, as to the
stipulations contained in the bill of lading concerned. As if to underline their awesome likeness, the goods in question in both cases were
destined for Davao, but were discharged from ship in Manila, in accordance with their respective bills of lading.

The stipulations in the bill of lading in the PHOENIX case which are substantially the same as the
subject stipulations before Us, provides: t.hqw

The carrier shall not be liable in any capacity whatsoever for any loss or damage to
the goods while the goods are not in its actual custody. (Par. 2, last subpar.)

xxx xxx xxx

The carrier or master, in making arrangements with any person for or in connection
with all transshipping or forwarding of the goods or the use of any means of
transportation or forwarding of goods not used or operated by the carrier, shall be
considered solely the agent of the shipper and consignee and without any other
responsibility whatsoever or for the cost thereof ... (Par. 16). 12

Finding the above stipulations not contrary to law, morals, good customs, public order or public policy, We sustained their validity 13 Applying
said stipulations as the law between the parties in the aforecited case, the Court concluded that: t.hqw

... The short form Bill of Lading ( ) states in no uncertain terms that the port of
discharge of the cargo is Manila, but that the same was to be transshipped beyond
the port of discharge to Davao City. Pursuant to the terms of the long form Bill of
Lading ( ), appellee's responsibility as a common carrier ceased the moment the
goods were unloaded in Manila and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. ... (Emphasis supplied) 14

Coming now to the case before Us, We hold, that by the authority of the above pronouncements,
and in conformity with the pertinent provisions of the New Civil Code, Section 11 of Bill of Lading No.
18 and the third paragraph of Section 1 thereof are valid stipulations between the parties insofar as
they exempt the carrier from liability for loss or damage to the goods while the same are not in the
latter's actual custody.

The liability of the common carrier for the loss, destruction or deterioration of goods transported from
a foreign country to the Philippines is governed primarily by the New Civil Code. 15 In all matters not
regulated by said Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special
laws. 16 A careful perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII, Book IV) directs our attention to
Article 1736 thereof, which reads: t.hqw

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 1738 referred to in the foregoing provision runs thus: t.hqw

Article 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.

There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination and are
stored in the warehouse of the carrier. The subject goods were still awaiting transshipment to their
port of destination, and were stored in the warehouse of a third party when last seen and/or heard of.
However, Article 1736 is applicable to the instant suit. Under said article, the carrier may be relieved
of the responsibility for loss or damage to the goods upon actual or constructive delivery of the same
by the carrier to the consignee, or to the person who has a right to receive them. In sales, actual
delivery has been defined as the ceding of corporeal possession by the seller, and the actual
apprehension of corporeal possession by the buyer or by some person authorized by him to receive
the goods as his representative for the purpose of custody or disposal. 17 By the same token, there is actual
delivery in contracts for the transport of goods when possession has been turned over to the consignee or to his duly authorized agent and a
reasonable time is given him to remove the goods. 18 The court a quo found that there was actual delivery to the consignee through its duly
authorized agent, the carrier.

It becomes necessary at this point to dissect the complex relationship that had developed between
appellant and appellee in the course of the transactions that gave birth to the present suit. Two
undertakings appeared embodied and/or provided for in the Bill of Lading 19 in question. The first is FOR THE
TRANSPORT OF GOODS from Bremen, Germany to Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to
Davao, with appellant acting as agent of the consignee. 20 At the hiatus between these two undertakings of appellant which is the moment
when the subject goods are discharged in Manila, its personality changes from that of carrier to that of agent of the consignee. Thus, the
character of appellant's possession also changes, from possession in its own name as carrier, into possession in the name of consignee as
the latter's agent. Such being the case, there was, in effect, actual delivery of the goods from appellant as carrier to the same appellant as
agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier, ceases to be responsible for any loss or damage that may
befall the goods from that point onwards. This is the full import of Article 1736, as applied to the case before Us.

But even as agent of the consignee, the appellant cannot be made answerable for the value of the
missing goods, It is true that the transshipment of the goods, which was the object of the agency,
was not fully performed. However, appellant had commenced said performance, the completion of
which was aborted by circumstances beyond its control. An agent who carries out the orders and
instructions of the principal without being guilty of negligence, deceit or fraud, cannot be held
responsible for the failure of the principal to accomplish the object of the agency, 21This can be
gleaned from the following provisions of the New Civil Code on the obligations of the agent: t.hqw

Article 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for the damages which, through his non-performance, the principal may suffer.

xxx xxx xxx

Article 1889. The agent shall be liable for damages if, there being a conflict between
his interests and those of the principal, he should prefer his own.

Article 1892. The agent may appoint a substitute if the principal has not prohibited
him from doing so; but he shall be responsible for the acts of the substitute:
 (1) When he was not given the power to appoint one;

(2) When he was given such power but without designating the person and the
person appointed was notoriously incompetent or insolvent.

xxx xxx xxx

Article 1909. The agent is responsible not only for fraud, but also for negligence
which shall be judged with more or less rigor by the courts, according to whether the
agency was or was not for a compensation.

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by its
representative in the Philippines. Neither is there any showing of notorious incompetence or
insolvency on the part of AMCYT, which acted as appellant's substitute in storing the goods awaiting
transshipment.

The actions of appellant carrier and of its representative in the Philippines being in full faith with the
lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of the New Civil Code
on common carriers, agency and contracts, they incur no liability for the loss of the goods in
question.

WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is hereby

DISMISSED.

No costs.

SO ORDERED. 1w ph1.t

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-14078 February 24, 1961

MINDANAO BUS COMPANY, petitioner,

vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent.

Felimon B. Barria and I.V. Binamira for petitioner.

Office of the Solicitor General for respondent.

LABRADOR, J.:

Appeal by certiorari from a decision of the Court of Tax Appeals, ordering the petitioner-appellant
Mindanao Bus Company to pay P15,704.16, as documentary stamp taxes for the period from
January 1, 1948 up to September 16, 1953. The decision sought to be reviewed modifies an
assessment by the Collector of Internal Revenue eliminating the compromise penalty imposed by
the Collector.
Petitioner is a common carrier engaged in transporting passengers and freight by means of auto-
buses in Northern Mindanao, under certificates of public convenience issued by the Public Service
Commission. Sometime in September, 1953, an agent of the respondent Collector of Internal
Revenue examined the books of accounts of the petitioner and found that the freight tickets used by
it do not contain the required documentary stamp tax. Said agent took with him 500 booklets of
tickets used by the petitioner and counted the freight receipts contained therein. He counted 1,305
freight tickets. Assuming that each freight ticket covers baggage valued at more than P5.00, the
Collector of Internal Revenue, upon recommendation of the agent, assessed against the petitioner
the sum of P15,704.16, exclusive of compromise penalty, as documentary stamp taxes from January
1, 1948 up to September 16, 1953. The tax is computed in the following manner:

Number of registered booklets of

100 tickets each,
from Oct. 29, 1948 to
September 16, 1953 86,282
Number of booklets assessed to
have been used
from Jan. 1, 1948 to Oct. 31,
1948 14,000
TOTAL NUMBER OF
BOOKLETS USED FROM
Jan. 1, 1948 to Sept. 16,
1953 100,282
Number of Ticket Booklets verified
as basis
for assessment 500
Number of freight tickets per
booklet
of 100 tickets each 2.61
Total number of ticket
booklets used
Jan. 1, 1948 to Sept. 16,
1953 100,282
Multiply by average number of
freight tickets
per booklet 2.61
Documentary stamp tax on
261,736 Freight Tickets P15,704.16
TOTAL AMOUNT DUE &
COLLECTIBLE P15,704.16

The assessment of the Collector was appealed to the Court of Tax Appeals. In that court the
respondent Collector was declared in default and the petitioner presented its evidence. The tax
court, modified the decision of the Collector and ordered the petitioner to pay only P15,704.16 as
documentary stamp tax for the period above-stated, without any compromise penalty. Upon
petitioner's motion for reconsideration, the court resolved to reopen the case, for the sole purpose of
allowing the petitioner to present as evidence the 500 booklets and 17 sackful, respectively, of
passenger and freight tickets of the petitioner. During the rehearing of the case, the petitioner,
however, failed to submit the said evidence; instead it presented stub tickets, Exhibits "X-1" and "X-
2, which were already in its possession during the first hearing. The Court of Tax Appeals denied the
motion for reconsideration. Hence, this appeal.

In this Court, petitioner-appellant presents the following assignments of error:

I. THE TAX COURT ERRED IN PRESUMING THE CORRECTNESS OF THE

ASSESSMENT, AND IN NOT FINDING SAME NOT BASED UPON THE BEST EVIDENCE
OBTAINABLE, BUT IS ARBITRARY, SPECULATIVE, HYPOTHETICAL, GROSSLY
EXAGGERATED AND WITHOUT FACTUAL BASES.

II. THE TAX COURT ERRED IN HOLDING THAT THE TICKETS ISSUED FOR EXCESS
BAGGAGE ARE BILLS OF LADING SUBJECT TO THE DOCUMENTARY STAMP TAX.

III. THE TAX COURT ERRED IN NOT FINDING AND DECLARING SECTION 127 OF
REGULATION NO. 26 OF THE DEPARTMENT OF FINANCE UNCONSTITUTIONAL.

IV. THE TAX COURT ERRED IN HOLDING THE PETITIONER LIABLE AND REQUIRING
IT TO PAY THE TAX ASSESSMENT OF P15,704.16.

In support of its first assignment of error, the petitioner-appellant claims that the computation made
by the respondent is not based upon the best available evidence, but on mere presumptions. This
claim is devoid of merit. The agent of the Bureau of Internal Revenue who investigated the
petitioner's books of accounts found it impossible to count one by one the freight tickets contained in
used booklets dumped inside the petitioner's bodega, because the booklets were so numerous and
most of them were either torn or destroyed. The procedure followed by said agent, which is the
average method, in ascertaining the total number of freight tickets used during the period under
review, can not be improved because an actual count of the freight tickets is practically impossible.
The average method is the only way by which the agent could determine the number of booklets
used during the period in question.

The agent also correctly assumed that the value of the goods covered by each freight ticket is not
less than P5.00. It is a common practice of passengers in the rural areas not to secure receipts for
cargoes of small value and to demand receipts only for valuable cargo (Interprovincial Autobus Co.,
Inc. vs. Collector of Internal Revenue, G.R. No. L-6741, January 31, 1956.) If the freight tickets were
issued, the baggage carried must have been valuable enough.

On the other hand, it was the duty of petitioner to present evidence to show inaccuracy in the above
method of assessment (Interprovincial Autobus Co., Inc. vs. Collector, supra; Perez vs. C.T.A., G.R.
No. L-9193, May 29, 1957; Perez vs. C.T.A., et al., G.R. No. L-10507, May 30, 1958; Government of
P. I. vs. Monte de Piedad, 35 Phil. 42), but it failed to do so. The claim of petitioner that the freight
tickets issued by it are not bills of lading subject to documentary stamp tax must also be dismissed in
view of our ruling in the case of Interprovincial Autobus Co., Inc. vs. Collector, supra: .

But the claim that freight tickets of bus companies are not 'bills of lading or receipts' within
the meaning of the Documentary Stamp Tax Law is without merit. Bills of Lading, in modern
jurisprudence, are not those issued by masters of vessels alone; they now comprehend all
forms of transportation, whether by sea or land, and includes the receipts for cargo
transported.

The term 'bill of lading' is frequently defined, especially by the older authorities as a writing
signed by the master of a vessel acknowledging the receipts of goods on board to be
transported to a certain port and there delivered to a designated person or on his order. This
 definition was formulated at a time when goods were principally transported by sea and,
while adequate in view of the conditions existing at that early day, is too narrow to suit
present conditions. As comprehending all methods of transportation, a bill of lading may be
defined as a written acknowledgment of the receipt of goods and an agreement to transport
and to deliver them at a specified place to a person named or on his order. Such instruments
are sometimes called 'shipping receipts,' 'forwarders' receipts,' and 'receipts for
transportation." The designation, however, is not material, and neither is the form of the
instrument. If it contains an acknowledgment by the carrier of the receipt of goods for
transportation, it is, in legal effect, a bill of lading." (9 Am. Jur. 662, emphasis supplied) .

Section 227 of the National Internal Revenue Code imposes the tax on receipts for goods or
effects shipped from one port or place to another port or place in the Philippines. The use of
the word place after port and of the, word 'receipt' shows that the receipts for goods shipped
on land are included.

As its third assignment of error, the petitioner-appellant questions the validity of Section 127 of
Regulation No. 26, insofar as it provides that chits, memoranda and other papers not in the usual
commercial form of bill of lading, when used by the common carrier in the transportation of goods for
the collection of fares, are to be considered bills of lading subject to documentary stamp tax, alleging
that said section is beyond the powers of the Secretary of Finance, which are contained in Section
388 of the Tax Code. This argument should also be dismissed for lack of merit. As the Solicitor
General correctly argues the validity of Section 127 of Regulation No. 26 should be upheld under the
principle of legislative approval by reenactment. Section 127 of said regulation sought to implement
Section 1449 (q) and (r) of the Revised Administrative Code, and the latter provisions were
reenacted in Section 227 of the National Internal Revenue Code. Section 127 is in the same
Regulations as Section 121. We are quoting hereunder a portion of the decision of this Court in the
case of Interprovincial Autobus Co., Inc. vs. Collector, supra, to sustain our ruling that the third
assignment of error in the case at bar should be dismissed:

Another reason for sustaining the validity of the regulation, may be found in the principle of
legislative approval by reenactment. The regulations were approved on September 16, 1924.
When the National Internal Revenue Code was approved on February 18, 1939, the same
provisions on stamp tax, bills of lading and receipts were reenacted. There is a presumption
that the legislature reenacted the law on the tax with full knowledge of the contents of the
regulations then in force regarding bills of lading and receipts, and that it approved or
confirmed them because they carry out the legislative purpose.

The fourth assignment of error, being only a consequence of the first three, the same should also be
dismissed.

WHEREFORE, the decision appealed from should be affirmed, with costs against petitioner-
appellant.

SECOND DIVISION

MOF COMPANY, INC., G.R. No. 172822

Petitioner,
Present:
 CARPIO, J., Chairperson,
- versus - LEONARDO-DE CASTRO,
BRION,
DEL CASTILLO, and
ABAD, JJ.
SHIN YANG BROKERAGE
CORPORATION, Promulgated:
Respondent. December 18, 2009
x-----------------------------------------------------------------
--x

DECISION

DEL CASTILLO, J.:

The necessity of proving lies with the person who sues.

The refusal of the consignee named in the bill of lading to pay the freightage on
the claim that it is not privy to the contract of affreightment propelled the shipper to sue
for collection of money, stressing that its sole evidence, the bill of lading, suffices to
prove that the consignee is bound to pay. Petitioner now comes to us by way of Petition
for Review on Certiorari[1] under Rule 45 praying for the reversal of the Court of
Appeals' (CA) judgment that dismissed its action for sum of money for insufficiency of
evidence.

Factual Antecedents

On October 25, 2001, Halla Trading Co., a company based in Korea, shipped
to Manila secondhand cars and other articles on board the vessel
Hanjin Busan 0238W. The bill of lading covering the shipment, i.e., Bill of Lading No.
HJSCPUSI14168303,[2] which was prepared by the carrier Hanjin Shipping Co., Ltd.
(Hanjin), named respondent Shin Yang Brokerage Corp. (Shin Yang) as the consignee
and indicated that payment was on a Freight Collect basis, i.e., that the consignee/receiver
of the goods would be the one to pay for the freight and other charges in the total amount
of P57,646.00.[3]

The shipment arrived in Manila on October 29, 2001. Thereafter, petitioner MOF
Company, Inc. (MOF), Hanjins exclusive general agent in the Philippines, repeatedly
demanded the payment of ocean freight, documentation fee and terminal handling
charges from Shin Yang. The latter, however, failed and refused to pay contending that it
did not cause the importation of the goods, that it is only the Consolidator of the said
shipment, that the ultimate consignee did not endorse in its favor the original bill of
lading and that the bill of lading was prepared without its consent.

Thus, on March 19, 2003, MOF filed a case for sum of money before
the Metropolitan Trial Court of Pasay City (MeTC Pasay) which was docketed as Civil
Case No. 206-03 and raffled to Branch 48. MOF alleged that Shin Yang, a regular client,
caused the importation and shipment of the goods and assured it that ocean freight and
other charges would be paid upon arrival of the goods in Manila. Yet, after Hanjin's
compliance, Shin Yang unjustly breached its obligation to pay. MOF argued that Shin
Yang, as the named consignee in the bill of lading, entered itself as a party to the contract
and bound itself to the Freight Collect arrangement.MOF thus prayed for the payment
of P57,646.00 representing ocean freight, documentation fee and terminal handling
charges as well as damages and attorneys fees.

Claiming that it is merely a consolidator/forwarder and that Bill of Lading No.

HJSCPUSI14168303 was not endorsed to it by the ultimate consignee, Shin Yang denied
any involvement in shipping the goods or in promising to shoulder the freightage. It
asserted that it never authorized Halla Trading Co. to ship the articles or to have its name
included in the bill of lading. Shin Yang also alleged that MOF failed to present
supporting documents to prove that it was Shin Yang that caused the importation or the
one that assured payment of the shipping charges upon arrival of the goods in Manila.

Ruling of the Metropolitan Trial Court

On June 16, 2004, the MeTC of Pasay City, Branch 48 rendered its Decision[4] in favor of
MOF. It ruled that Shin Yang cannot disclaim being a party to the contract of
affreightment because:
 x x x it would appear that defendant has business transactions with
plaintiff. This is evident from defendants letters dated 09 May 2002 and 13
May 2002 (Exhibits 1 and 2, defendants Position Paper) where it requested for
the release of refund of container deposits x x x. [In] the mind of the Court, by
analogy, a written contract need not be necessary; a mutual understanding
[would suffice]. Further, plaintiff would have not included the name of the
defendant in the bill of lading, had there been no prior agreement to that effect.

In sum, plaintiff has sufficiently proved its cause of action against the
defendant and the latter is obliged to honor its agreement with plaintiff despite
the absence of a written contract.[5]

The dispositive portion of the MeTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of

plaintiff and against the defendant, ordering the latter to pay plaintiff as
follows:

1. P57,646.00 plus legal interest from the date of demand until fully paid,
2. P10,000.00 as and for attorneys fees and
3. the cost of suit.

SO ORDERED.[6]

Ruling of the Regional Trial Court

The Regional Trial Court (RTC) of Pasay City, Branch 108 affirmed in toto the Decision
of the MeTC. It held that:

MOF and Shin Yang entered into a contract of affreightment which Blacks
Law Dictionary defined as a contract with the ship owner to hire his ship or
part of it, for the carriage of goods and generally take the form either of a
charter party or a bill of lading.

The bill of lading contain[s] the information embodied in the contract.

Article 652 of the Code of Commerce provides that the charter party must be
in writing; however, Article 653 says: If the cargo should be received without
charter party having been signed, the contract shall be understood as executed
 in accordance with what appears in the bill of lading, the sole evidence of title
with regard to the cargo for determining the rights and obligations of the ship
agent, of the captain and of the charterer. Thus, the Supreme Court opined in
the Market Developers, Inc. (MADE) vs. Honorable Intermediate Appellate
Court and Gaudioso Uy, G.R. No. 74978, September 8, 1989, this kind of
contract may be oral. In another case, Compania Maritima vs. Insurance
Company of North America, 12 SCRA 213 the contract of affreightment by
telephone was recognized where the oral agreement was later confirmed by a
formal booking.

xxxx

Defendant is liable to pay the sum of P57,646.00, with interest until fully paid,
attorneys fees of P10,000.00 [and] cost of suit.

Considering all the foregoing, this Court affirms in toto the decision of the
Court a quo.

SO ORDERED.[7]

Ruling of the Court of Appeals

Seeing the matter in a different light, the CA dismissed MOFs complaint and refused to
award any form of damages or attorneys fees. It opined that MOF failed to substantiate its
claim that Shin Yang had a hand in the importation of the articles to the Philippines or
that it gave its consent to be a consignee of the subject goods. In its March 22,
2006 Decision,[8] the CA said:

This Court is persuaded [that except] for the Bill of Lading, respondent has not
presented any other evidence to bolster its claim that petitioner has entered
[into] an agreement of affreightment with respondent, be it verbal or written. It
is noted that the Bill of Lading was prepared by Hanjin Shipping, not the
petitioner. Hanjin is the principal while respondent is the formers agent. (p. 43,
rollo)

The conclusion of the court a quo, which was upheld by the RTC Pasay City,
Branch 108 xxx is purely speculative and conjectural. A court cannot rely on
speculations, conjectures or guesswork, but must depend upon competent
 proof and on the basis of the best evidence obtainable under the
circumstances. Litigation cannot be properly resolved by suppositions,
deductions or even presumptions, with no basis in evidence, for the truth must
have to be determined by the hard rules of admissibility and proof (Lagon vs.
Hooven Comalco Industries, Inc. 349 SCRA 363).

While it is true that a bill of lading serves two (2) functions: first, it is a receipt
for the goods shipped; second, it is a contract by which three parties, namely,
the shipper, the carrier and the consignee who undertake specific
responsibilities and assume stipulated obligations (Belgian Overseas
Chartering and Shipping N.V. vs. Phil. First Insurance Co., Inc., 383 SCRA
23), x x x if the same is not accepted, it is as if one party does not accept the
contract. Said the Supreme Court:

A bill of lading delivered and accepted constitutes the contract of carriage[,]

even though not signed, because the acceptance of a paper containing the terms
of a proposed contract generally constitutes an acceptance of the contract and of
all its terms and conditions of which the acceptor has actual or constructive
notice (Keng Hua Paper Products Co., Inc. vs. CA, 286 SCRA 257).

In the present case, petitioner did not only [refuse to] accept the bill of lading,
but it likewise disown[ed] the shipment x x x. [Neither did it] authorize Halla
Trading Company or anyone to ship or export the same on its behalf.

It is settled that a contract is upheld as long as there is proof of consent, subject

matter and cause (Sta. Clara Homeowners Association vs. Gaston, 374 SCRA
396). In the case at bar, there is not even any iota of evidence to show that
petitioner had given its consent.

He who alleges a fact has the burden of proving it and a mere allegation is not
evidence (Luxuria Homes Inc. vs. CA, 302 SCRA 315).

The 40-footer van contains goods of substantial value. It is highly improbable

for petitioner not to pay the charges, which is very minimal compared with the
value of the goods, in order that it could work on the release thereof.

For failure to substantiate its claim by preponderance of evidence, respondent

has not established its case against petitioner.[9]

Petitioners filed a motion for reconsideration but it was denied in a

Resolution[10] dated May 25, 2006. Hence, this petition for review on certiorari.
Petitioners Arguments

In assailing the CAs Decision, MOF argues that the factual findings of both the MeTC
and RTC are entitled to great weight and respect and should have bound the CA. It
stresses that the appellate court has no justifiable reason to disturb the lower courts
judgments because their conclusions are well-supported by the evidence on record.

MOF further argues that the CA erred in labeling the findings of the lower courts as
purely speculative and conjectural. According to MOF, the bill of lading, which expressly
stated Shin Yang as the consignee, is the best evidence of the latters actual participation
in the transportation of the goods. Such document, validly entered, stands as the law
among the shipper, carrier and the consignee, who are all bound by the terms stated
therein. Besides, a carriers valid claim after it fulfilled its obligation cannot just be
rejected by the named consignee upon a simple denial that it ever consented to be a party
in a contract of affreightment, or that it ever participated in the preparation of the bill of
lading. As against Shin Yangs bare denials, the bill of lading is the sufficient
preponderance of evidence required to prove MOFs claim. MOF maintains that Shin
Yang was the one that supplied all the details in the bill of lading and acquiesced to be
named consignee of the shipment on a Freight Collect basis.

Lastly, MOF claims that even if Shin Yang never gave its consent, it cannot avoid
its obligation to pay, because it never objected to being named as the consignee in the bill
of lading and that it only protested when the shipment arrived in the Philippines,
presumably due to a botched transaction between it and Halla Trading Co. Furthermore,
Shin Yangs letters asking for the refund of container deposits highlight the fact that it was
aware of the shipment and that it undertook preparations for the intended release of the
shipment.

Respondents Arguments

Echoing the CA decision, Shin Yang insists that MOF has no evidence to prove that it
consented to take part in the contract of affreightment. Shin Yang argues that MOF
miserably failed to present any evidence to prove that it was the one that made
preparations for the subject shipment, or that it is an actual shipping practice that
forwarders/consolidators as consignees are the ones that provide carriers details and
information on the bills of lading.
 Shin Yang contends that a bill of lading is essentially a contract between the
shipper and the carrier and ordinarily, the shipper is the one liable for the freight
charges. A consignee, on the other hand, is initially a stranger to the bill of lading and can
be liable only when the bill of lading specifies that the charges are to be paid by the
consignee. This liability arises from either a) the contract of agency between the
shipper/consignor and the consignee; or b) the consignees availment of the
stipulation pour autrui drawn up by and between the shipper/ consignor and carrier upon
the consignees demand that the goods be delivered to it. Shin Yang contends that the fact
that its name was mentioned as the consignee of the cargoes did not make it
automatically liable for the freightage because it never benefited from the shipment. It
never claimed or accepted the goods, it was not the shippers agent, it was not aware of its
designation as consignee and the original bill of lading was never endorsed to it.

Issue

The issue for resolution is whether a consignee, who is not a signatory to the bill of
lading, is bound by the stipulations thereof. Corollarily, whether respondent who was not
an agent of the shipper and who did not make any demand for the fulfillment of the
stipulations of the bill of lading drawn in its favor is liable to pay the corresponding
freight and handling charges.

Our Ruling

Since the CA and the trial courts arrived at different conclusions, we are constrained to
depart from the general rule that only errors of law may be raised in a Petition for Review
on Certiorari under Rule 45 of the Rules of Court and will review the evidence
presented.[11]

The bill of lading is oftentimes drawn up by the shipper/consignor and the carrier without
the intervention of the consignee. However, the latter can be bound by the stipulations of
the bill of lading when a) there is a relation of agency between the shipper or consignor
and the consignee or b) when the consignee demands fulfillment of the stipulation of the
bill of lading which was drawn up in its favor.[12]
 In Keng Hua Paper Products Co., Inc. v. Court of Appeals,[13] we held that once
the bill of lading is received by the consignee who does not object to any terms or
stipulations contained therein, it constitutes as an acceptance of the contract and of all of
its terms and conditions, of which the acceptor has actual or constructive notice.

In Mendoza v. Philippine Air Lines, Inc.,[14] the consignee sued the carrier for
damages but nevertheless claimed that he was never a party to the contract of
transportation and was a complete stranger thereto.In debunking Mendozas contention,
we held that:

x x x First, he insists that the articles of the Code of Commerce should be

applied; that he invokes the provisions of said Code governing the obligations
of a common carrier to make prompt delivery of goods given to it under a
contract of transportation. 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 and 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. In the present case, the findings of the trial court which as already
stated, are accepted by the parties and which we must accept are to the
effect that the LVN Pictures Inc. and Jose Mendoza on one side, and the
defendant company on the other, entered into a contract of
transportation (p. 29, Rec. on Appeal). One interpretation of said finding
is that the LVN Pictures Inc. through previous agreement
with Mendoza acted as the latter's agent. When he negotiated with the
LVN Pictures Inc. to rent the film 'Himala ng Birhen' and show it during
the Naga town fiesta, he most probably authorized and enjoined the
Picture Company to ship the film for him on the PAL on September 17th.
Another interpretation is that even if the LVN Pictures Inc. as consignor
of its own initiative, and acting independently of Mendoza for the time
being, made Mendoza a consignee. [Mendoza made himself a party to the
contract of transportaion when he appeared at the Pili Air Port armed
 with the copy of the Air Way Bill (Exh. 1) demanding the delivery of the
shipment to him.] The very citation made by appellant in his memorandum
supports this view. Speaking of the possibility of a conflict between the order
of the shipper on the one hand and the order of the consignee on the other, as
when the shipper orders the shipping company to return or retain the goods
shipped while the consignee demands their delivery, Malagarriga in his book
Codigo de Comercio Comentado, Vol. 1, p. 400, citing a decision of the
Argentina Court of Appeals on commercial matters, cited by Tolentino in Vol.
II of his book entitled 'Commentaries and Jurisprudence on the Commercial
Laws of the Philippines' p. 209, says that the right of the shipper to
countermand the shipment terminates when the consignee or legitimate
holder of the bill of lading appears with such bill of lading before the
carrier and makes himself a party to the contract. Prior to that time he is
a stranger to the contract.

Still another view of this phase of the case is that contemplated in

Art. 1257, paragraph 2, of the old Civil Code (now Art. 1311, second
paragraph) which reads thus:

Should the contract contain any stipulation in favor of a third

person, he may demand its fulfillment provided he has given notice of his
acceptance to the person bound before the stipulation has been revoked.'

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 AirPort may be regarded as a notice of his acceptance of the
stipulation of the delivery in his favor contained in 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.[15] (Emphasis Ours)

In sum, a consignee, although not a signatory to the contract of carriage between the
shipper and the carrier, becomes a party to the contract by reason of either a) the
relationship of agency between the consignee and the shipper/ consignor; b) the
unequivocal acceptance of the bill of lading delivered to the consignee, with full
knowledge of its contents or c) availment of the stipulation pour autrui, i.e., when the
consignee, a third person, demands before the carrier the fulfillment of the stipulation
made by the consignor/shipper in the consignees favor, specifically the delivery of the
goods/cargoes shipped.[16]
 In the instant case, Shin Yang consistently denied in all of its pleadings that it
authorized Halla Trading, Co. to ship the goods on its behalf; or that it got hold of the bill
of lading covering the shipment or that it demanded the release of the cargo. Basic is the
rule in evidence that the burden of proof lies upon him who asserts it, not upon him who
denies, since, by the nature of things, he who denies a fact cannot produce any proof of
it.[17] Thus, MOF has the burden to controvert all these denials, it being insistent that Shin
Yang asserted itself as the consignee and the one that caused the shipment of the goods to
the Philippines.

In civil cases, the party having the burden of proof must establish his case by
preponderance of evidence,[18] which means evidence which is of greater weight, or more
convincing than that which is offered in opposition to it.[19] Here, MOF failed to meet the
required quantum of proof. Other than presenting the bill of lading, which, at most,
proves that the carrier acknowledged receipt of the subject cargo from the shipper and
that the consignee named is to shoulder the freightage, MOF has not adduced any other
credible evidence to strengthen its cause of action. It did not even present any witness in
support of its allegation that it was Shin Yang which furnished all the details indicated in
the bill of lading and that Shin Yang consented to shoulder the shipment costs. There is
also nothing in the records which would indicate that Shin Yang was an agent of Halla
Trading Co. or that it exercised any act that would bind it as a named consignee. Thus,
the CA correctly dismissed the suit for failure of petitioner to establish its cause against
respondent.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals
dated March 22, 2006 dismissing petitioners complaint and the Resolution dated May 25,
2006 denying the motion for reconsideration are AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-37750 May 19, 1978

SWEET LINES, INC., petitioner,
vs.
HON. BERNARDO TEVES, Presiding Judge, CFI of Misamis Oriental Branch VII, LEOVIGILDO
TANDOG, JR., and ROGELIO TIRO, respondents.

Filiberto Leonardo, Abelardo C. Almario & Samuel B. Abadiano for petitioner.

Leovigildo Vallar for private respondents.

SANTOS, J.:

This is an original action for Prohibition with Pre Injunction filed October 3, 1973 to restrain
respondent Judge from proceeding further with Civil Case No. 4091, entitled Leovigildo D. Tandog,
Jr. and Rogelio Tiro v. Sweet Lines, Inc." after he denied petitioner's Motion to Dismiss the
complaint, and the Motion for Reconsideration of said order. 1

Briefly, the facts of record follow. Private respondents Atty. Leovigildo Tandog and Rogelio Tiro, a
contractor by professions, bought tickets Nos. 0011736 and 011737 for Voyage 90 on December 31,
1971 at the branch office of petitioner, a shipping company transporting inter-island passengers and
cargoes, at Cagayan de Oro City. Respondents were to board petitioner's vessel, M/S "Sweet Hope"
bound for Tagbilaran City via the port of Cebu. Upon learning that the vessel was not proceeding to
Bohol, since many passengers were bound for Surigao, private respondents per advice, went to the
branch office for proper relocation to M/S "Sweet Town". Because the said vessel was already filled
to capacity, they were forced to agree "to hide at the cargo section to avoid inspection of the officers
of the Philippine Coastguard." Private respondents alleged that they were, during the trip," "exposed
to the scorching heat of the sun and the dust coming from the ship's cargo of corn grits," and that the
tickets they bought at Cagayan de Oro City for Tagbilaran were not honored and they were
constrained to pay for other tickets. In view thereof, private respondents sued petitioner for damages
and for breach of contract of carriage in the alleged sum of P10,000.00 before respondents Court of
First Instance of Misamis Oriental. 2

Petitioner moved to dismiss the complaint on the ground of improper venue. This motion was
premised on the condition printed at the back of the tickets, i.e., Condition No. 14, which reads:

14. It is hereby agreed and understood that any and all actions arising out of the
conditions and provisions of this ticket, irrespective of where it is issued, shall be filed
in the competent courts in the City of Cebu. 3

The motion was denied by the trial court. 4 Petitioner moved to reconnsider the order of denial, but
no avail. 5 Hence, this instant petition for prohibition for preliminary injunction, 'alleging that the
respondent judge has departed from the accepted and usual course of judicial preoceeding" and
"had acted without or in excess or in error of his jurisdicton or in gross abuse of discretion. 6

In Our resolution of November 20, 1973, We restrained respondent Judge from proceeding further
with the case and required respondent to comment. 7 On January 18, 1974, We gave due course to
the petition and required respondent to answer. 8 Thereafter, the parties submitted their respesctive
memoranda in support of their respective contentions. 9
Presented thus for Our resolution is a question is aquestion which, to all appearances, is one of first
impression, to wit Is Condition No. 14 printed at the back of the petitioner's passage tickets
purchased by private respondents, which limits the venue of actions arising from the contract of
carriage to theCourt of First Instance of Cebu, valid and enforceable? Otherwise stated, may a
common carrier engaged in inter-island shipping stipulate thru condition printed at the back of
passage tickets to its vessels that any and all actions arising out of the ocntract of carriage should be
filed only in a particular province or city, in this case the City of Cebu, to the exclusion of all others?

Petitioner contends thaty Condition No. 14 is valid and enforceable, since private respndents
acceded to tit when they purchased passage tickets at its Cagayan de Oro branch office and took its
vessel M/S "Sweet Town" for passage to Tagbilaran, Bohol that the condition of the venue of
actions in the City of Cebu is proper since venue may be validly waived, citing cases; 10 that is an
effective waiver of venue, valid and binding as such, since it is printed in bold and capital letters and
not in fine print and merely assigns the place where the action sing from the contract is institution
likewise citing cases; 11 and that condition No. 14 is unequivocal and mandatory, the words and
phrases "any and all", "irrespective of where it is issued," and "shag" leave no doubt that the
intention of Condition No. 14 is to fix the venue in the City of Cebu, to the exclusion of other places;
that the orders of the respondent Judge are an unwarranted departure from established
jurisprudence governing the case; and that he acted without or in excess of his jurisdiction in is the
orders complained of. 12

On the other hand, private respondents claim that Condition No. 14 is not valid, that the same is not
an essential element of the contract of carriage, being in itself a different agreement which requires
the mutual consent of the parties to it; that they had no say in its preparation, the existence of which
they could not refuse, hence, they had no choice but to pay for the tickets and to avail of petitioner's
shipping facilities out of necessity; that the carrier "has been exacting too much from the public by
inserting impositions in the passage tickets too burdensome to bear," that the condition which was
printed in fine letters is an imposition on the riding public and does not bind respondents, citing
cases; 13 that while venue 6f actions may be transferred from one province to another, such
arrangement requires the "written agreement of the parties", not to be imposed unilaterally; and that
assuming that the condition is valid, it is not exclusive and does not, therefore, exclude the filing of
the action in Misamis Oriental, 14

There is no question that there was a valid contract of carriage entered into by petitioner and private
respondents and that the passage tickets, upon which the latter based their complaint, are the best
evidence thereof. All the essential elements of a valid contract, i.e., consent, cause or consideration
and object, are present. As held in Peralta de Guerrero, et al. v. Madrigal Shipping Co., Inc., 15

It is a matter of common knowledge that whenever a passenger boards a ship for

transportation from one place to another he is issued a ticket by the shipper which
has all the elements of a written contract, Namely: (1) the consent of the contracting
parties manifested by the fact that the passenger boards the ship and the shipper
consents or accepts him in the ship for transportation; (2) cause or consideration
which is the fare paid by the passenger as stated in the ticket; (3) object, which is the
transportation of the passenger from the place of departure to the place of
destination which are stated in the ticket.

It should be borne in mind, however, that with respect to the fourteen (14) conditions one of which
is "Condition No. 14" which is in issue in this case printed at the back of the passage tickets,
these are commonly known as "contracts of adhesion," the validity and/or enforceability of which will
have to be determined by the peculiar circumstances obtaining in each case and the nature of the
conditions or terms sought to be enforced. For, "(W)hile generally, stipulations in a contract come
about after deliberate drafting by the parties thereto, ... there are certain contracts almost all the
provisions of which have been drafted only by one party, usually a corporation. Such contracts are
called contracts of adhesion, because the only participation of the party is the signing of his
signature or his 'adhesion' thereto. Insurance contracts, bills of lading, contracts of make of lots on
the installment plan fall into this category" 16

By the peculiar circumstances under which contracts of adhesion are entered into namely, that it
is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by
the other party, in this instance the passengers, private respondents, who cannot change the same
and who are thus made to adhere thereto on the "take it or leave it" basis certain guidelines in the
determination of their validity and/or enforceability have been formulated in order to that justice and
fan play characterize the relationship of the contracting parties. Thus, this Court speaking through
Justice J.B.L. Reyes in Qua Chee Gan v. Law Union and Rock Insurance Co., 17 and later through
Justice Fernando in Fieldman Insurance v. Vargas, 18 held

The courts cannot ignore that nowadays, monopolies, cartels and concentration of
capital endowed with overwhelm economic power, manage to impose upon parties d
with them y prepared 'agreements' that the weaker party may not change one whit
his participation in the 'agreement' being reduced to the alternative 'to take it or leave
it,' labelled since Raymond Saleilles 'contracts by adherence' (contracts d' adhesion)
in contrast to those entered into by parties bargaining on an equal footing. Such
contracts (of which policies of insurance and international bill of lading are prime
examples) obviously cap for greater strictness and vigilance on the part of the courts
of justice with a view to protecting the weaker party from abuses and imposition, and
prevent their becoming traps for the unwary.

To the same effect and import, and, in recognition of the character of contracts of this kind, the
protection of the disadvantaged is expressly enjoined by the New Civil Code

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 and other handicap, the courts must be vigilant for his
protection. 19

Considered in the light Of the foregoing norms and in the context Of circumstances Prevailing in the
inter-island ship. ping industry in the country today, We find and hold that Condition No. 14 printed at
the back of the passage tickets should be held as void and unenforceable for the following reasons
first, under circumstances obligation in the inter-island ship. ping industry, it is not just and fair to
bind passengers to the terms of the conditions printed at the back of the passage tickets, on which
Condition No. 14 is Printed in fine letters, and second, Condition No. 14 subverts the public policy on
transfer of venue of proceedings of this nature, since the same will prejudice rights and interests of
innumerable passengers in different s of the country who, under Condition No. 14, will have to file
suits against petitioner only in the City of Cebu.

1. It is a matter of public knowledge, of which We can take judicial notice, that there is a dearth of
and acute shortage in inter- island vessels plying between the country's several islands, and the
facilities they offer leave much to be desired. Thus, even under ordinary circumstances, the piers are
congested with passengers and their cargo waiting to be transported. The conditions are even worse
at peak and/or the rainy seasons, when Passengers literally scramble to whatever accommodations
may be availed of, even through circuitous routes, and/or at the risk of their safety their immediate
concern, for the moment, being to be able to board vessels with the hope of reaching their
destinations. The schedules are as often as not if not more so delayed or altered. This was
precisely the experience of private respondents when they were relocated to M/S "Sweet Town" from
M/S "Sweet Hope" and then any to the scorching heat of the sun and the dust coming from the ship's
cargo of corn grits, " because even the latter was filed to capacity.

Under these circumstances, it is hardly just and proper to expect the passengers to examine their
tickets received from crowded/congested counters, more often than not during rush hours, for
conditions that may be printed much charge them with having consented to the conditions, so
printed, especially if there are a number of such conditions m fine print, as in this case. 20

Again, it should be noted that Condition No. 14 was prepared solely at the ms of the petitioner,
respondents had no say in its preparation. Neither did the latter have the opportunity to take the into
account prior to the purpose chase of their tickets. For, unlike the small print provisions of contracts
the common example of contracts of adherence which are entered into by the insured in his
awareness of said conditions, since the insured is afforded the op to and co the same, passengers
of inter-island v do not have the same chance, since their alleged adhesion is presumed only from
the fact that they purpose chased the tickets.

It should also be stressed that slapping companies are franchise holders of certificates of public
convenience and therefore, posses a virtual monopoly over the business of transporting passengers
between the ports covered by their franchise. This being so, shipping companies, like petitioner,
engaged in inter-island shipping, have a virtual monopoly of the business of transporting passengers
and may thus dictate their terms of passage, leaving passengers with no choice but to buy their
tickets and avail of their vessels and facilities. Finally, judicial notice may be taken of the fact that the
bulk of those who board these inter-island vested come from the low-income groups and are less
literate, and who have little or no choice but to avail of petitioner's vessels.

2. Condition No. 14 is subversive of public policy on transfers of venue of actions. For, although
venue may be changed or transferred from one province to another by agreement of the parties in
writing t to Rule 4, Section 3, of the Rules of Court, such an agreement will not be held valid where it
practically negates the action of the claimants, such as the private respondents herein. The
philosophy underlying the provisions on transfer of venue of actions is the convenience of the
plaintiffs as well as his witnesses and to promote 21 the ends of justice. Considering the expense and
trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of
Cebu, he would most probably decide not to file the action at all. The condition will thus defeat,
instead of enhance, the ends of justice. Upon the other hand, petitioner has branches or offices in
the respective ports of call of its vessels and can afford to litigate in any of these places. Hence, the
filing of the suit in the CFI of Misamis Oriental, as was done in the instant case, will not cause
inconvenience to, much less prejudice, petitioner.

Public policy is ". . . that principle of the law which holds that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or against the public good ... 22 Under this
principle" ... freedom of contract or private dealing is restricted by law for the good of the
public. 23 Clearly, Condition No. 14, if enforced, will be subversive of the public good or interest, since
it will frustrate in meritorious cases, actions of passenger cants outside of Cebu City, thus placing
petitioner company at a decided advantage over said persons, who may have perfectly legitimate
claims against it. The said condition should, therefore, be declared void and unenforceable, as
contrary to public policy to make the courts accessible to all who may have need of their services.

WHEREFORE, the petition for prohibition is DISMISS. ED. The restraining order issued on
November 20, 1973, is hereby LIFTED and SET ASIDE. Costs against petitioner.

Fernando (Chairman), Aquino, Concepcion, Jr., JJ., concur.

Antonio, J., reserves his vote.

Separate Opinions

BARREDO, J., concurring:

I concur in the dismissal of the instant petition.

Only a few days ago, in Hoechst Philippines, Inc. vs. Francisco Torres, et al., G. R. No. L-44351,
promulgated May 18, 1978, We made it clear that although generally, agreements regarding change
of venue are enforceable, there may be instances where for equitable considerations and in the
better interest of justice, a court may justify the laying of, the venue in the place fixed by the rules
instead of following written stipulation of the parties.

In the particular case at bar, there is actually no written agreement as to venue between the parties
in the sense contemplated in Section 3 of Rule 4, which governs the matter. I take it that the
importance that a stipulation regarding change of the venue fixed by law entails is such that nothing
less than mutually conscious agreement as to it must be what the rule means. In the instant case, as
well pointed out in the main opinion, the ticket issued to private respondents by petitioner constitutes
at best a "contract of adhesion". In other words, it is not that kind of a contract where the parties sit
down to deliberate, discuss and agree specifically on all its terms, but rather, one which respondents
took no part at all in preparing, since it was just imposed upon them when they paid for the fare for
the freight they wanted to ship. It is common knowledge that individuals who avail of common
carriers hardly read the fine prints on such tickets to note anything more than the price thereof and
the destination designated therein.

Under these circumstances, it would seem that, since this case is already in respondent court and
there is no showing that, with its more or less known resources as owner of several inter-island
vessels plying between the different ports of the Philippines for sometime already, petitioner would
be greatly inconvenienced by submitting to the jurisdiction of said respondent court, it is best to allow
the proceedings therein to continue. I cannot conceive of any juridical injury such a step can cause
to anyone concerned. I vote to dismiss the petition.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

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

AGUSTINO B. ONG YIU, petitioner,
vs.
HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC., respondents.

MELENCIO-HERRERA, J.:

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 over carried to Manila
aboard Flight No. 156 and that it would be forwarded to Cebu on Flight No. 345 of the same day.
Instructions were also given that the luggage be immediately forwarded to Butuan City on the first
available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent a message to PAL
Butuan that the luggage would be forwarded on Fright No. 963 the following day, August 27, 196'(.
However, this message was not received by PAL Butuan as all the personnel had already left since
there were no more incoming flights that afternoon.

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

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

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

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

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

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

Dear Atty. Ong Yiu:

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

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

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

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

V
e
r
y

t
r
u
l
y
 y
o
u
r
s
,

PHILIP
PINE
AIR
LINES,
INC.

(Sgd)
JEREM
IAS S.
AGUS
TIN

Branch
Supervi
sor

Cebu

(Exhibit G, Folder of Exhibits) 1

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

Both parties appealed to the Court of Appeals petitioner in so far as he was awarded only the
sum of P80,000.00 as moral damages; and defendant because of the unfavorable judgment
rendered against it.

On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple negligence,
reversed the judgment of the trial Court granting petitioner moral and exemplary damages, but
ordered PAL to pay plaintiff the sum of P100.00, the baggage liability assumed by it under the
condition of carriage printed at the back of the ticket.

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

I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT

PAL GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE
BREACH OF ITS CONTRACT OF TRANSPORTATION WITH PETITIONER.
 II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE
AND THE LAW WHEN IT REVERSED THE DECISION OF THE LOWER COURT
AWARDING TO PETITIONER MORAL DAMAGES IN THE AMOUNT OF
P80,000.00, EXEMPLARY DAMAGES OF P30,000.00, AND P5,000.00
REPRESENTING ATTORNEY'S FEES, AND ORDERED RESPONDENT PAL TO
COMPENSATE PLAINTIFF THE SUM OF P100.00 ONLY, CONTRARY TO THE
EXPLICIT PROVISIONS OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL
CODE OF THE PHILIPPINES.

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

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

From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad
faith means a breach of a known duty through some motive of interest or ill will. 2 It was the duty of
PAL to look for petitioner's luggage which had been miscarried. PAL exerted due diligence in
complying with such duty.

As aptly stated by the appellate Court:

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

Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith, The
telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The PAL
supervisor at Mactan Airport was notified of it only in the morning of the following day. At that time
the luggage was already to be forwarded to Butuan City. There was no bad faith, therefore, in the
assumption made by said supervisor that the plane carrying the bag would arrive at Butuan earlier
than a reply telegram. Had petitioner waited or caused someone to wait at the Bancasi airport for the
arrival of the morning flight, he would have been able to retrieve his luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral
damages.

Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. Though incapable of pecuniary computation, moral damages may
be recovered if they are the proximate result of the defendant's wrongful act of
omission.

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

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

Petitioner further contends that respondent Court committed grave error when it limited PAL's
carriage liability to the amount of P100.00 as stipulated at the back of the ticket. In this connection,
respondent Court opined:

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

We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the
plane ticket reads:

8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged
baggage of the passenger is LIMITED TO P100.00 for each ticket unless a
passenger declares a higher valuation in excess of P100.00, but not in excess,
however, of a total valuation of P1,000.00 and additional charges are paid pursuant
to Carrier's tariffs.

There is no dispute that petitioner did not declare any higher value for his luggage, much less did he
pay any additional transportation charge.

But petitioner argues that there is nothing in the evidence to show that he had actually entered into a
contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and
that Article 1750* of the Civil Code has not been complied with.

While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless
bound by the provisions thereof. "Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or
assent to the regulation". 5 It is what is known as a contract of "adhesion", in regards which it has
been said that contracts of adhesion wherein one party imposes a ready made form of contract on
the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. 6 And
as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs.
Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability upon an agreed valuation
does not offend against the policy of the law forbidding one from contracting against his own
negligence.

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

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

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

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

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

No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-3678 February 29, 1952

JOSE MENDOZA, plaintiff-appellant,
vs.
PHILIPPINE AIR LINES, INC., defendant-appellee.

Manuel O. Chan, Reyes and Dy-Liaco for appellant.

Daniel Me. Gomez and Emigdio Tanjuatco for appellee.

MONTEMAYOR, J.:

The present appeal by plaintiff Jose Mendoza from the decision of the Court of First Instance of
Camarines Sur, has come directly to this Tribunal for the reason that both parties, appellant and
appellee, accepted the findings of fact made by the trial court and here raise only questions of law.
On our part, we must also accept said findings of fact of the lower court.

In the year 1948, appellant Jose Mendoza was the owner of the Cita Theater located in the City of
Naga, Camarines Sur, where he used to exhibit movie pictures booked from movie producers or film
owners in Manila. The fiesta or town holiday of the City of Naga, held on September 17 and 18,
yearly, was usually attended by a great many people, mostly from the Bicol region, especially since
the Patron Saint Virgin of Pea Francia was believed by many to be miraculous. As a good
businessman, appellant, taking advantage of these circumstances, decided to exhibit a film which
would fit the occasion and have a special attraction and significance to the people attending said
fiesta. A month before the holiday, that is to say, August 1948, he contracted with the LVN pictures,
Inc., a movie producer in Manila for him to show during the town fiesta the Tagalog film entitled
"Himala ng Birhen" or Miracle of the Virgin. He made extensive preparations; he had two thousand
posters printed and later distributed not only in the City of Naga but also in the neighboring towns.
He also advertised in a weekly of general circulation in the province. The posters and advertisement
stated that the film would be shown in the Cita theater on the 17th and 18th of September,
corresponding to the eve and day of the fiesta itself.

In pursuance of the agreement between the LVN Pictures Inc. and Mendoza, the former on
September 17th, 1948, delivered to the defendant Philippine Airlines (PAL) whose planes carried
passengers and cargo and made regular trips from Manila to the Pili Air Port near Naga, Camarines
Sur, a can containing the film "Himala ng Birhen" consigned to the Cita Theater. For this shipment
the defendant issued its Air Way Bill No. 317133 marked Exhibit "1". This can of films was loaded on
flight 113 of the defendant, the plane arriving at the Air Port at Pili a little after four o'clock in the
afternoon of the same day, September 17th. For reasons not explained by the defendant, but which
would appear to be the fault of its employees or agents, this can of film was not unloaded at Pili Air
Port and it was brought ba to Manila. Mendoza who had completed all arrangements for the
exhibition of the film beginning in the evening of September 17th, to exploit the presence of the big
crowd that came to attend the town fiesta, went to the Air Port and inquired from the defendant's
station master there about the can of film. Said station master could not explain why the film was not
unloaded and sent several radiograms to his principal in Manila making inquiries and asking that the
film be sent to Naga immediately. After investigation and search in the Manila office, the film was
finally located the following day, September 18th, and then shipped to the Pili Air Port on September
20th. Mendoza received it and exhibited the film but he had missed his opportunity to realize a large
profit as he expected for the people after the fiesta had already left for their towns. To recoup his
losses, Mendoza brought this action against the PAL. After trial, the lower court found that because
of his failure to exhibit the film "Himala ng Birhen" during the town fiesta, Mendoza suffered damages
or rather failed to earn profits in the amount of P3,000.00, but finding the PAL not liable for said
damages, dismissed the complaint.
To avoid liability, defendant-appellee, called the attention of the trial court to the terms and
conditions of paragraph 6 of the Way Bill printed on the back thereof which paragraph reads as
follows:

6. 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 therefor.

It claimed that since there was no obligation on its part to carry the film in question on any specified
time, it could not be held accountable for the delay of about three days. The trial court, however,
found and held that although the defendant was not obligated to load the film on any specified plane
or on any particular day, once said can film was loaded and shipped on one of its planes making trip
to Camarines, then it assumed the obligation to unload it at its point of destination and deliver it to
the consignee, and its unexplained failure to comply with this duty constituted negligence. If however
found that fraud was not involved and that the defendant was a debtor in good faith.

The trial court presided over by Judge Jose N. Leuterio in a well-considered decision citing
authorities, particularly the case of Daywalt vs. Corporacion de PP. Agustinos Recoletos, 39 Phil.
587, held that not because plaintiff failed to realize profits in the sum of P3,000.00 due to the
negligence of the defendant, should the latter be made to reimburse him said sum. Applying
provisions of Art. 1107 of the Civil Code which provides that losses and those foreseen, or which
might have been foreseen, at the time of constituting the obligation, and which are a necessary
consequence of the failure to perform it, the trial court held that inasmuch as these damages
suffered by Mendoza were not foreseen or could not have been foreseen at the time that the
defendant accepted the can of film for shipment, for the reason that neither the shipper LVN Pictures
Inc. nor the consignee Mendoza had called its attention to the special circumstances attending the
shipment and the showing of the film during the town fiesta of Naga, plaintiff may not recover the
damages sought.

Counsel for appellant insists that the articles of the Code of Commerce rather than those of the Civil
Code should have been applied in deciding this case for the reason that the shipment of the can of
film is an act of commerce; that the contract of transportation in this case should be considered
commercial under Art. 349 of the Code of Commerce because it only involves merchandise or an
object of commerce but also the transportation company, the defendant herein, was a common
carrier, that is to say, customarily engaged in transportation for the public, and that although the
contract of transportation was not by land or waterways as defined in said Art. 349, nevertheless, air
transportation being analogous to land and water transportation, should be considered as included,
especially in view of the second paragraph of Art. 2 of the same Code which says that transactions
covered by the Code of Commerce and all others of analogous character shall be deemed acts of
commerce. The trial court, however, disagreed to this contention and opined that air transportation
not being expressly covered by the Code of Commerce, cannot be governed by its provisions.

We believe that whether or not transportation by air should be regarded as a commercial contract
under Art. 349, would be immaterial in the present case, as will be explained later. Without making a
definite ruling on the civil or commercial nature of transportation by air, it being unnecessary, we are
inclined to believe and to hold that a contract of transportation by air may be regarded as
commercial. The reason is that at least in the present case the transportation company (PAL) is a
common carrier; besides, air transportation is clearly similar or analogous to land and water
transportation. The obvious reason for its non-inclusion in the Code of Commerce was that at the
time of its promulgation, transportation by air on a commercial basis was not yet known. In the
United Sates where air transportation has reached its highest development, an airline company
engaged in the transportation business is regarded as a common carrier.
 The principles which govern carriers by other means, such as by railroad or motor bus,
govern carriers by aircraft. 6 Am. Jur., Aviation, Sec. 56, p. 33.

When Aircraft Operator is Common Carrier. That aircraft and the industry of carriage by
aircraft are new is no reason why one in fact employing aircraft as common-carrier vehicles
should not be classified as a common carrier and charged with liability as such. There can be
no doubt, under the general law of common carriers, that those air lines and aircraft owners
engaged in the passenger service on regular schedules on definite routes, who solicit the
patronage of the traveling public, advertise schedules for routes, time of leaving, and rates of
fare, and make the usual stipulation as to baggage, are common carriers by air. A flying
service company which, according to its printed advertising, will take anyone anywhere at
any time, though not operating on regular routes or schedules, and basing its charges not on
the number of passengers, but on the operating cost of the plane per mile, has been held to
be a common carrier. It is not necessary, in order to make one carrying passengers by
aircraft a common carrier of passengers that the passengers can be carried from one point to
another; the status and the liability as a common carrier may exist notwithstanding the
passenger's ticket issued by an airplane carrier of passengers for hire contains a statement
that it is not a common carrier, etc., or a stipulation that it is to be held only for its proven
negligence. But an airplane owner cannot be classed as a common carrier of passengers
unless he undertakes, for hire, to carry all persons who apply for passage indiscriminately as
long as there is room and no legal excuse for refusing. . . . 6 Am. Jur., Aviation, Sec. 58, pp.
34-35.

The rules governing the business of a common carrier by airship or flying machine may be
readily assimilated to those applied to other common carriers. 2 C.J.S., 1951, Cumulative
Pocket Part, Aerial Navigation, Sec. 38, p. 99.

The test of whether one is a common carrier by air is whether he holds out that he will carry
for hire, so long as he has room, goods for everyone bringing goods to him for carriage, not
whether he is carrying as a public employment or whether he carries to a fixed place. (Ibid.,
Sec. 39, p. 99.)

Appellant contends that Art. 358 of the Code of Commerce should govern the award of the damages
in his favor. Said article provides that 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 merchandise which
he may make to the point of delivery, and that upon failure to do so, the damages caused by the
delay should be suffered by the carrier. This is a general provision for ordinary damages and is no
different from the provisions of the Civil Code, particularly Art. 1101 thereof, providing for the
payment of damages caused by the negligence or delay in the fulfillment of one's obligation. Even
applying the provisions of the Code of Commerce, as already stated, the pertinent provisions
regarding damages only treats of ordinary damages or damages in general, not special damages
like those suffered by the plaintiff herein. Article 2 of the Code of Commerce provides that
commercial transactions are to be governed by the provisions of the Code of Commerce, but in the
absence of applicable provisions, they will be governed by the usages of commerce generally
observed in each place; and in default of both, by those of the Civil Law. So that assuming that the
present case involved a commercial transaction, still inasmuch as the special damages herein
claimed finds no applicable provision in the Code of Commerce, neither has it been shown that there
are any commercial usages applicable thereto, then in the last analysis, the rules of the civil law
would have to come into play. 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 the 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
picture films to the defendant Fargo, an express company, consigned and to be delivered to him in
Utica. At the time of the 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 a breach at the time of or prior to contracting. Generally,
notice then of any special circumstances which will show that the damages to be anticipated
from a breach would be enhanced has been held sufficient for this effect.

As may be seen, that New York case is a stronger one than the present case for the reason that the
attention of the common carrier in said case was called to the nature of the articles shipped, the
purpose of shipment, and the desire to rush the shipment, circumstances and facts absent in the
present case.

But appellants now contends that he is not suing on a breach of contract but on a tort as provided for
in Art. 1902 of the Civil Code. We are a little perplexed as to this new theory of the appellant. First,
he insists that the articles of the Code of Commerce should be applied; that he invokes the
provisions of said Code governing the obligations of a common carrier to make prompt delivery of
goods given to it under a contract of transportation. 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 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 and 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 of 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. In the present case, the findings of the trial court which
as already stated, are accepted by the parties and which we must accept are to the effect that the
LVN Pictures Inc. and Jose Mendoza on one side, and the defendant company on the other, entered
into a contract of transportation. (p. 29, Rec. on Appeal). One interpretation of said finding is that the
LVN Pictures Inc. through previous agreement with Mendoza acted as the latter's agent. When he
negotiated with the LVN Pictures Inc. to rent the film "Himala ng Birhen" and show it during the Naga
town fiesta, he most probably authorized and enjoined the Picture Company to ship the film for him
on the PAL on September 17th. Another interpretation is that even if the LVN Pictures Inc. as
consignor of its own initiative, and acting independently of Mendoza for the time being, made
Mendoza as consignee, a stranger to the contract if that is possible, nevertheless when he,
Mendoza, appeared at the Pili Air Port armed with the copy of the Air Way Bill (Exh. 1) demanding
the delivery of the shipment to him, he thereby made himself a party to the contract of the
transportation. The very citation made by appellant in his memorandum supports this view. Speaking
of the possibility of a conflict between the order of the shipper on the one hand and the order of the
consignee on the other, as when the shipper orders the shipping company to return or retain the
goods shipped while the consignee demands their delivery, Malagarriga in his book Codigo de
Comercio Comentado, Vol. I, p. 400, citing a decision of Argentina Court of Appeals on commercial
matters, cited by Tolentino in Vol. II of his book entitled "Commentaries and Jurisprudence on the
Commercial Laws of the Philippines" p. 209, says that the right of the shipper to countermand the
shipment terminates when the consignee or legitimate holder of the bill of lading appears with such
bill of lading before the carrier and makes himself a party to the contract. Prior to that time, he is
stranger to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old
Civil Code which reads thus:

Should the contract contain any stipulation in favor of a third person, he may demand its
fulfillment, provided he has given notice of his acceptance to the person bound before the
stipulation has been revoked.

Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the
stipulations of the 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 of 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.

One can readily sympathize with the appellant herein for his loss of profits which he expected to
realize. But he overlooked the legal angle. In situations like the present where failure to exhibit films
on a certain day would spell substantial damages or considerable loss of profits, including waste of
efforts on preparations and expenses incurred in advertisements, exhibitors, for their security, may
either get hold of the films well ahead of the time of exhibition in order to make allowance for any
hitch in the delivery, or else enter into a special contract or make a suitable arrangement with the
common carrier for the prompt delivery of the films, calling the attention of the carrier to the
circumstances surrounding the case and the approximate amount of damages to be suffered in case
of delay.

Finding no reversible error in the decision appealed from, the same is hereby affirmed. No
pronouncement as to costs. So ordered.

Republic of the Philippines

SUPREME COURT
Manila

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.

REGALADO, J.:

Assailed in this petition for review on certiorari is the decision in CA-G.R. CV No. 20951 of
respondent Court of Appeals1 which affirmed the decision of the trial court2 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.

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 (Exb. 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) (Exb. 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 to 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 should 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 plane 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 1400H or 2:00 p.m. of the same date, October 27, 1976
(Bee 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. 6-TWA) 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. Patagas 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 Crispin 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.

Both private respondents denied liability. Thus, a damage suit6 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 airlines 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 of 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 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.
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

Petitioner allege that private respondents received the casketed remains of petitioners' mother on
October 26, 1976, as evidenced by the issuance of PAL Air Waybill 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 hold 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 bill 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 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." 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
earner quoted, provide us with the explanation that sufficiently over comes 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 ours.)

Moreover, we are persuaded to believe private respondent PAL's account as to what transpired
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 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.

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
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 frieght 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. . . . (Exb. 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 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.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 place in the
custody of private respondents.

Thus, while the Air Cargo Transfer Manifest of TWA of October 27, 197634 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
manifest35 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 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.

ATTY. JUAN COLLAS, JR.:

You brought it there yourself?

MICHAEL GIOSSO:

Yes sir.

ATTY. JUAN COLIAS, JR.:

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)

ATTY. JUAN COLLAS, JR.:

For purposes of clarity, Exhibit I is designated as Exhibit I-TWA.

xxx xxx xxx

ATTY. JUAN COLLAS, JR.:

 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.

ATTY. JUAN COLLAS, JR.:

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

ATTY. CESAR P. MANALAYSAY:

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.

ATTY. CESAR P. MANALAYSAY:

What body are you referring to?

xxx xxx xxx

ALBERTO A. LIM:

The remains of Mrs. Cristina (sic) Saludo.

ATTY. CESAR P. MANALAYSAY:

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.

ATTY. CESAR P. MANALAYSAY:

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.

ATTY. CESAR P. MAIALAYSAY:

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.

ATTY. CESAR P. MANALAYSAY:

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.

ATTY. CESAR P. MANALAYSAY:

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 this 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 upbold 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
there presentations 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 a 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.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 a 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 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 courts, 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 a 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
co-respondent 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
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 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 together50 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 ours.)

Private respondents further aptly observe that the carrier's certification regarding receipt of the
goods for carriage "was of a smaller print than the condition of the Air 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 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.

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 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 therefor", 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 departure 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 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. 62However, 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, be 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 airliner servicing the same.

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
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:

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 fliqht 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 I 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 had 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 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.
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 would 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:

They proceeded to analyze exactly where PAL failed, if any, in

forwarding the human remains of Mrs. Cristina (sic) Saludo. And I
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 wilful 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 bolds that moral damages may be awarded for wilful
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 of 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 of 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.

SECOND DIVISION

[G.R. No. 125524. August 25, 1999]

BENITO MACAM doing business under the name and style BEN-MAC
ENTERPRISES, petitioner, vs. COURT OF APPEALS, CHINA
OCEAN SHIPPING CO., and/or WALLEM PHILIPPINES
SHIPPING, INC., respondents.

DECISION
BELLOSILLO, J.:

On 4 April 1989 petitioner Benito Macam, doing business under the name and style Ben-
Mac Enterprises, shipped on board the vessel Nen Jiang, owned and operated by respondent
China Ocean Shipping Co., through local agent respondent Wallem Philippines Shipping, Inc.
(hereinafter WALLEM), 3,500 boxes of watermelons valued at US$5,950.00 covered by Bill of
Lading No. HKG 99012 and exported through Letter of Credit No. HK 1031/30 issued by
National Bank of Pakistan, Hongkong (hereinafter PAKISTAN BANK) and 1,611 boxes of fresh
mangoes with a value of US$14,273.46 covered by Bill of Lading No. HKG 99013 and exported
through Letter of Credit No. HK 1032/30 also issued by PAKISTAN BANK. The Bills of
Lading contained the following pertinent provision: "One of the Bills of Lading must be
surrendered duly endorsed in exchange for the goods or delivery order."[1] The shipment was
bound for Hongkong with PAKISTAN BANK as consignee and Great Prospect Company of
Kowloon, Hongkong (hereinafter GPC) as notify party.
On 6 April 1989, per letter of credit requirement, copies of the bills of lading and
commercial invoices were submitted to petitioner's depository bank, Consolidated Banking
Corporation (hereinafter SOLIDBANK), which paid petitioner in advance the total value of the
shipment of US$20,223.46.
Upon arrival in Hongkong, the shipment was delivered by respondent WALLEM directly to
GPC, not to PAKISTAN BANK, and without the required bill of lading having been
surrendered. Subsequently, GPC failed to pay PAKISTAN BANK such that the latter, still in
possession of the original bills of lading, refused to pay petitioner through SOLIDBANK. Since
SOLIDBANK already pre-paid petitioner the value of the shipment, it demanded payment from
respondent WALLEM through five (5) letters but was refused. Petitioner was thus allegedly
constrained to return the amount involved to SOLIDBANK, then demanded payment from
respondent WALLEM in writing but to no avail.
On 25 September 1991 petitioner sought collection of the value of the shipment of
US$20,223.46 or its equivalent of P546,033.42 from respondents before the Regional Trial Court
of Manila, based on delivery of the shipment to GPC without presentation of the bills of lading
and bank guarantee.
Respondents contended that the shipment was delivered to GPC without presentation of the
bills of lading and bank guarantee per request of petitioner himself because the shipment
consisted of perishable goods. The telex dated 5 April 1989 conveying such request read -

AS PER SHPRS REQUEST KINDLY ARRANGE DELIVERY OF A/M SHIPT TO

RESPECTIVE CNEES WITHOUT PRESENTATION OF OB/L[2] and bank guarantee
since for prepaid shipt ofrt charges already fully paid our end x x x x[3]

Respondents explained that it is a standard maritime practice, when immediate delivery is of

the essence, for the shipper to request or instruct the carrier to deliver the goods to the buyer
upon arrival at the port of destination without requiring presentation of the bill of lading as that
usually takes time. As proof thereof, respondents apprised the trial court that for the duration of
their two-year business relationship with petitioner concerning similar shipments to GPC
deliveries were effected without presentation of the bills of lading.[4] Respondents advanced next
that the refusal of PAKISTAN BANK to pay the letters of credit to SOLIDBANK was due to the
latter's failure to submit a Certificate of Quantity and Quality. Respondents counterclaimed for
attorneys fees and costs of suit.
On 14 May 1993 the trial court ordered respondents to pay, jointly and severally, the
following amounts: (1) P546,033.42 plus legal interest from 6 April 1989 until full payment;
(2) P10,000.00 as attorney's fees; and, (3) the costs.The counterclaims were dismissed for lack of
merit.[5] The trial court opined that respondents breached the provision in the bill of lading
requiring that "one of the Bills of Lading must be surrendered duly endorsed in exchange for the
goods or delivery order," when they released the shipment to GPC without presentation of the
bills of lading and the bank guarantee that should have been issued by PAKISTAN BANK in
lieu of the bills of lading. The trial court added that the shipment should not have been released
to GPC at all since the instruction contained in the telex was to arrange delivery to the respective
consignees and not to any party. The trial court observed that the only role of GPC in the
transaction as notify party was precisely to be notified of the arrival of the cargoes in Hongkong
so it could in turn duly advise the consignee.
Respondent Court of Appeals appreciated the evidence in a different manner. According to
it, as established by previous similar transactions between the parties, shipped cargoes were
sometimes actually delivered not to the consignee but to notify party GPC without need of the
bills of lading or bank guarantee.[6] Moreover, the bills of lading were viewed by respondent
court to have been properly superseded by the telex instruction and to implement the instruction,
the delivery of the shipment must be to GPC, the real importer/buyer of the goods as shown by
the export invoices,[7] and not to PAKISTAN BANK since the latter could very well present the
bills of lading in its possession; likewise, if it were the PAKISTAN BANK to which the cargoes
were to be strictly delivered it would no longer be proper to require a bank
guarantee. Respondent court noted that besides, GPC was listed as a consignee in the telex. It
observed further that the demand letter of petitioner to respondents never complained of
misdelivery of goods. Lastly, respondent court found that petitioners claim of having
reimbursed the amount involved to SOLIDBANK was unsubstantiated. Thus, on 13 March 1996
respondent court set aside the decision of the trial court and dismissed the complaint together
with the counterclaims.[8] On 5 July 1996 reconsideration was denied.[9]
Petitioner submits that the fact that the shipment was not delivered to the consignee as stated
in the bill of lading or to a party designated or named by the consignee constitutes a misdelivery
thereof. Moreover, petitioner argues that from the text of the telex, assuming there was such an
instruction, the delivery of the shipment without the required bill of lading or bank guarantee
should be made only to the designated consignee, referring to PAKISTAN BANK.
We are not persuaded. The submission of petitioner that the fact that the shipment was not
delivered to the consignee as stated in the Bill of Lading or to a party designated or named by the
consignee constitutes a misdelivery thereof is a deviation from his cause of action before the trial
court. It is clear from the allegation in his complaint that it does not deal with misdelivery of the
cargoes but of delivery to GPC without the required bills of lading and bank guarantee -

6. The goods arrived in Hongkong and were released by the defendant Wallem
directly to the buyer/notify party, Great Prospect Company and not to the consignee,
the National Bank of Pakistan, Hongkong, without the required bills of lading and
bank guarantee for the release of the shipment issued by the consignee of the goods x
x x x[10]

Even going back to an event that transpired prior to the filing of the present case or when
petitioner wrote respondent WALLEM demanding payment of the value of the cargoes,
misdelivery of the cargoes did not come into the picture -

We are writing you on behalf of our client, Ben-Mac Enterprises who informed us that
Bills of Lading No. 99012 and 99013 with a total value of US$20,223.46 were
released to Great Prospect, Hongkong without the necessary bank guarantee. We
were further informed that the consignee of the goods, National Bank of Pakistan,
Hongkong, did not release or endorse the original bills of lading. As a result thereof,
neither the consignee, National Bank of Pakistan, Hongkong, nor the importer, Great
Prospect Company, Hongkong, paid our client for the goods x x x x[11]

At any rate, we shall dwell on petitioners submission only as a prelude to our discussion on
the imputed liability of respondents concerning the shipped goods. Article 1736 of the Civil
Code provides -

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.[12]

We emphasize that the extraordinary responsibility of the common carriers lasts until actual
or constructive delivery of the cargoes to the consignee or to the person who has a right to
receive them. PAKISTAN BANK was indicated in the bills of lading as consignee whereas GPC
was the notify party. However, in the export invoices GPC was clearly named as
buyer/importer. Petitioner also referred to GPC as such in his demand letter to respondent
WALLEM and in his complaint before the trial court. This premise draws us to conclude that the
delivery of the cargoes to GPC as buyer/importer which, conformably with Art. 1736 had, other
than the consignee, the right to receive them[13] was proper.
The real issue is whether respondents are liable to petitioner for releasing the goods to GPC
without the bills of lading or bank guarantee.
Respondents submitted in evidence a telex dated 5 April 1989 as basis for delivering the
cargoes to GPC without the bills of lading and bank guarantee. The telex instructed delivery of
various shipments to the respective consignees without need of presenting the bill of lading and
bank guarantee per the respective shippers request since for prepaid shipt ofrt charges already
fully paid. Petitioner was named therein as shipper and GPC as consignee with respect to Bill of
Lading Nos. HKG 99012 and HKG 99013. Petitioner disputes the existence of such instruction
and claims that this evidence is self-serving.
From the testimony of petitioner, we gather that he has been transacting with GPC as
buyer/importer for around two (2) or three (3) years already. When mangoes and watermelons
are in season, his shipment to GPC using the facilities of respondents is twice or thrice a
week. The goods are released to GPC. It has been the practice of petitioner to request the
shipping lines to immediately release perishable cargoes such as watermelons and fresh mangoes
through telephone calls by himself or his people. In transactions covered by a letter of credit,
bank guarantee is normally required by the shipping lines prior to releasing the goods. But for
buyers using telegraphic transfers, petitioner dispenses with the bank guarantee because the
goods are already fully paid. In his several years of business relationship with GPC and
respondents, there was not a single instance when the bill of lading was first presented before the
release of the cargoes. He admitted the existence of the telex of 3 July 1989 containing his
request to deliver the shipment to the consignee without presentation of the bill of lading[14] but
not the telex of 5 April 1989 because he could not remember having made such request.
Consider pertinent portions of petitioners testimony -
Q: Are you aware of any document which would indicate or show that your request to the defendant
Wallem for the immediate release of your fresh fruits, perishable goods, to Great Prospect
without the presentation of the original Bill of Lading?
A: Yes, by telegraphic transfer, which means that it is fully paid. And I requested the immediate
release of the cargo because there was immediate payment.
Q And you are referring, therefore, to this copy Telex release that you mentioned where your
Companys name appears Ben-Mac?
Atty. Hernandez: Just for the record, Your Honor, the witness is showing a Bill of Lading referring to
SKG (sic) 93023 and 93026 with Great Prospect Company.
Atty. Ventura:
Q: Is that the telegraphic transfer?
 A: Yes, actually, all the shippers partially request for the immediate release of the goods when they
are perishable. I thought Wallem Shipping Lines is not neophyte in the business. As far as LC is
concerned, Bank guarantee is needed for the immediate release of the goods x x x x[15]
Q: Mr. Witness, you testified that it is the practice of the shipper of the perishable goods to ask the
shipping lines to release immediately the shipment. Is that correct?
A: Yes, sir.
Q: Now, it is also the practice of the shipper to allow the shipping lines to release the perishable goods
to the importer of goods without a Bill of Lading or Bank guarantee?
A: No, it cannot be without the Bank Guarantee.
Atty. Hernandez:
Q: Can you tell us an instance when you will allow the release of the perishable goods by the shipping
lines to the importer without the Bank guarantee and without the Bill of Lading?
A: As far as telegraphic transfer is concerned.
Q: Can you explain (to) this Honorable Court what telegraphic transfer is?
A: Telegraphic transfer, it means advance payment that I am already fully paid x x x x
Q: Mr. Macam, with regard to Wallem and to Great Prospect, would you know and can you recall that
any of your shipment was released to Great Prospect by Wallem through telegraphic transfer?
A: I could not recall but there were so many instances sir.
Q: Mr. Witness, do you confirm before this Court that in previous shipments of your goods through
Wallem, you requested Wallem to release immediately your perishable goods to the buyer?
A: Yes, that is the request of the shippers of the perishable goods x x x x[16]
Q: Now, Mr. Macam, if you request the Shipping Lines for the release of your goods immediately even
without the presentation of OBL, how do you course it?
A: Usually, I call up the Shipping Lines, sir x x x x[17]
Q: You also testified you made this request through phone calls. Who of you talked whenever you
made such phone call?
A: Mostly I let my people to call, sir. (sic)
Q: So everytime you made a shipment on perishable goods you let your people to call? (sic)
A: Not everytime, sir.
Q: You did not make this request in writing?
A: No, sir. I think I have no written request with Wallem x x x x[18]
Against petitioners claim of not remembering having made a request for delivery of subject
cargoes to GPC without presentation of the bills of lading and bank guarantee as reflected in the
telex of 5 April 1989 are damaging disclosures in his testimony. He declared that it was his
practice to ask the shipping lines to immediately release shipment of perishable goods through
telephone calls by himself or his people. He no longer required presentation of a bill of lading
nor of a bank guarantee as a condition to releasing the goods in case he was already fully
paid. Thus, taking into account that subject shipment consisted of perishable goods and
SOLIDBANK pre-paid the full amount of the value thereof, it is not hard to believe the claim of
respondent WALLEM that petitioner indeed requested the release of the goods to GPC without
presentation of the bills of lading and bank guarantee.
The instruction in the telex of 5 April 1989 was to deliver the shipment to respective
consignees. And so petitioner argues that, assuming there was such an instruction, the consignee
referred to was PAKISTAN BANK. We find the argument too simplistic. Respondent court
analyzed the telex in its entirety and correctly arrived at the conclusion that the consignee
referred to was not PAKISTAN BANK but GPC -

There is no mistake that the originals of the two (2) subject Bills of Lading are still in
the possession of the Pakistani Bank. The appealed decision affirms this
fact. Conformably, to implement the said telex instruction, the delivery of the shipment
must be to GPC, the notify party or real importer/buyer of the goods and not the
Pakistani Bank since the latter can very well present the original Bills of Lading in its
possession. Likewise, if it were the Pakistani Bank to whom the cargoes were to be
strictly delivered, it will no longer be proper to require a bank guarantee as a
substitute for the Bill of Lading. To construe otherwise will render meaningless the
telex instruction. After all, the cargoes consist of perishable fresh fruits and
immediate delivery thereof to the buyer/importer is essentially a factor to reckon
with. Besides, GPC is listed as one among the several consignees in the telex (Exhibit
5-B) and the instruction in the telex was to arrange delivery of A/M shipment (not any
party) to respective consignees without presentation of OB/L and bank guarantee x x
x x[19]

Apart from the foregoing obstacles to the success of petitioners cause, petitioner failed to
substantiate his claim that he returned to SOLIDBANK the full amount of the value of the
cargoes. It is not far-fetched to entertain the notion, as did respondent court, that he merely
accommodated SOLIDBANK in order to recover the cost of the shipped cargoes from
respondents. We note that it was SOLIDBANK which initially demanded payment from
respondents through five (5) letters. SOLIDBANK must have realized the absence of privity of
contract between itself and respondents. That is why petitioner conveniently took the cudgels for
the bank.
In view of petitioners utter failure to establish the liability of respondents over the cargoes,
no reversible error was committed by respondent court in ruling against him.
WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals of
13 March 1996 dismissing the complaint of petitioner Benito Macam and the counterclaims of
respondents China Ocean Shipping Co. and/or Wallem Philippines Shipping, Inc., as well as its
resolution of 5 July 1996 denying reconsideration, is AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
 SECOND DIVISION

G.R. No. 95529 August 22, 1991

MAGELLAN MANUFACTURING MARKETING CORPORATION,* petitioner,

vs.
COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG,
INC. respondents.

REGALADO, J.:

Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of respondent
Court of Appeals in CA-G.R. CV No. 18781,1 affirming in part the decision of the trial court,2 the
dispositive portion of which reads:

Premises considered, the decision appealed from is affirmed insofar as it dismisses the
complaint. On the counter-claim, however, appellant is ordered to pay appellees the amount
of P52,102.45 with legal interest from date of extra-judicial demand. The award of attorney's
fees is deleted.3

The facts as found by respondent appellate court are as follows:

On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC)

entered into a contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw fans
for and in consideration of $23,220.00. As payment thereof, a letter of credit was issued to
plaintiff MMMC by the buyer. Through its president, James Cu, MMMC then contracted F.E.
Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the anahaw fans through
the other appellee, Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed
an on-board bill of lading and that transhipment is not allowed under the letter of credit (Exh.
B-1). On June 30, 1980, appellant MMMC paid F.E. Zuellig the freight charges and secured
a copy of the bill of lading which was presented to Allied Bank. The bank then credited the
amount of US$23,220.00 covered by the letter of credit to appellant's account. However,
when appellant's president James Cu, went back to the bank later, he was informed that the
payment was refused by the buyer allegedly because there was no on-board bill of lading,
and there was a transhipment of goods. As a result of the refusal of the buyer to accept,
upon appellant's request, the anahaw fans were shipped back to Manila by appellees, for
which the latter demanded from appellant payment of P246,043.43. Appellant abandoned
the whole cargo and asked appellees for damages.

In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 cartons of
136,000 pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers was loaded at
Manila on board the MV 'Pacific Despatcher' freight prepaid, and duly covered by Bill of
Lading No. MNYK201T dated June 27, 1980 issued by OOCL; that the shipment was
delivered at the port of discharge on July 19, 1980, but was subsequently returned to Manila
after the consignee refused to accept/pay the same.4

Elaborating on the above findings of fact of respondent court and without being disputed by herein
private respondents, petitioner additionally avers that:
 When petitioner informed private respondents about what happened, the latter issued a
certificate stating that its bill of lading it issued is an on board bill of lading and that there was
no actual transhipment of the fans. According to private respondents when the goods are
transferred from one vessel to another which both belong to the same owner which was what
happened to the Anahaw fans, then there is (no) transhipment. Petitioner sent this
certification to Choju Co., Ltd., but the said company still refused to accept the goods which
arrived in Japan on July 19, 1980.

Private respondents billed petitioner in the amount of P16,342.21 for such shipment and
P34,928.71 for demurrage in Japan from July 26 up to August 31, 1980 or a total of
P51,271.02. In a letter dated March 20, 1981, private respondents gave petitioner the option
of paying the sum of P51,271.02 or to abandon the Anahaw fans to enable private
respondents to sell them at public auction to cover the cost of shipment and demurrages.
Petitioner opted to abandon the goods. However, in a letter dated June 22, 1981 private
respondents demanded for payment of P298,150.93 from petitioner which represents the
freight charges from Japan to Manila, demurrage incurred in Japan and Manila from October
22, 1980 up to May 20, 1981; and charges for stripping the container van of the Anahaw fans
on May 20, 1981.

On July 20, 1981 petitioner filed the complaint in this case praying that private respondents
be ordered to pay whatever petitioner was not able to earn from Choju Co., Ltd., amounting
to P174,150.00 and other damages like attorney's fees since private respondents are to
blame for the refusal of Choju Co., Ltd. to accept the Anahaw fans. In answer thereto the
private respondents alleged that the bill of lading clearly shows that there will be a
transhipment and that petitioner was well aware that MV (Pacific) Despatcher was only up to
Hongkong where the subject cargo will be transferred to another vessel for Japan. Private
respondents also filed a counterclaim praying that petitioner be ordered to pay freight
charges from Japan to Manila and the demurrages in Japan and Manila amounting to
P298,150.93.

The lower court decided the case in favor of private respondents. It dismissed the complaint
on the ground that petitioner had given its consent to the contents of the bill of lading where it
is clearly indicated that there will be transhipment. The lower court also said that petitioner is
liable to pay to private respondent the freight charges from Japan to Manila and demurrages
since it was the former which ordered the reshipment of the cargo from Japan to Manila.

On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to a
transhipment of the goods was affirmed but the finding that petitioner is liable for
P298,150.93 was modified. It was reduced to P52,102.45 which represents the freight
charges and demurrages incurred in Japan but not for the demurrages incurred in Marta.
According to the respondent (court) the petitioner can not be held liable for the demurrages
incurred in Manila because Private respondents did not timely inform petitioner that the
goods were already in Manila in addition to the fact that private respondent had given
petitioner the option of abandoning the goods in exchange for the demurrages.5

Petitioner, being dissatisfied with the decision of respondent court and the motion for reconsideration
thereof having been denied, invokes the Court's review powers for the resolution of the issues as to
whether or not respondent court erred (1) in affirming the decision of the trial court which dismissed
petitioner's complaint; and (2) in holding petitioner liable to private respondents in the amount of
P52,102.45.6
I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd., to take
delivery of the exported anahaw fans resulting in a loss of P174,150.00 representing the purchase
price of the said export items because of violation of the terms and conditions of the letter of credit
issued in favor of the former which specified the requirement for an on board bill of lading and the
prohibition against transhipment of goods, inasmuch as the bill of lading issued by the latter bore the
notation "received for shipment" and contained an entry indicating transhipment in Hongkong.

We find no fault on the part of private respondents. On the matter of transhipment, petitioner
maintains that "... while the goods were transferred in Hongkong from MV Pacific Despatcher, the
feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot be considered
transhipment because both vessels belong to the same shipping company, the private respondent
Orient Overseas Container Lines, Inc."7 Petitioner emphatically goes on to say: "To be sure, there
was no actual transhipment of the Anahaw fans. The private respondents have executed a
certification to the effect that while the Anahaw fans were transferred from one vessel to another in
Hong Kong, since the two vessels belong to one and the same company then there was no
transhipment.8

Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading it in
another,"9 or "the transfer of goods from the vessel stipulated in the contract of affreightment to
another vessel before the place of destination named in the contract has been reached,"10 or "the
transfer for further transportation from one ship or conveyance to another."11 Clearly, either in its
ordinary or its strictly legal acceptation, there is transhipment whether or not the same person, firm
or entity owns the vessels. In other words, the fact of transhipment is not dependent upon the
ownership of the transporting ships or conveyances or in the change of carriers, as the petitioner
seems to suggest, but rather on the fact of actual physical transfer of cargo from one vessel to
another.

That there was transhipment within this contemplation is the inescapable conclusion, as there
unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space
labeled "Transhipment," which can only mean that transhipment actually took place.12 This fact is
further bolstered by the certification13 issued by private respondent F.E. Zuellig, Inc. dated July 19,
1980, although it carefully used the term "transfer" instead of transhipment. Nonetheless, no amount
of semantic juggling can mask the fact that transhipment in truth occurred in this case.

Petitioner insists that "(c)onsidering that there was no actual transhipment of the Anahaw fans, then
there is no occasion under which the petitioner can agree to the transhipment of the Anahaw fans
because there is nothing like that to agree to" and "(i)f there is no actual transhipment but there
appears to be a transhipment in the bill of lading, then there can be no possible reason for it but a
mistake on the part of the private respondents.14

Petitioner, in effect, is saying that since there was a mistake in documentation on the part of private
respondents, such a mistake militates against the conclusiveness of the bill of lading insofar as it
reflects the terms of the contract between the parties, as an exception to the parol evidence rule,
and would therefore permit it to explain or present evidence to vary or contradict the terms of the
written agreement, that is, the bill of lading involved herein.

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a
contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as
therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the route,
destination, and freight rates or charges, and stipulates the rights and obligations assumed by the
parties.15 Being a contract, it is the law between the parties who are bound by its terms and
conditions provided that these are not contrary to law, morals, good customs, public order and public
policy.16 A bill of lading usually becomes effective upon its delivery to and acceptance by the shipper.
It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or improper
conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the
bill or not.17

The holding in most jurisdictions has been that a shipper who receives a bill of lading without
objection after an opportunity to inspect it, and permits the carrier to act on it by proceeding with the
shipment is presumed to have accepted it as correctly stating the contract and to have assented to
its terms. In other words, the acceptance of the bill without dissent raises the presumption that all the
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.18

In the light of the series of events that transpired in the case at bar, there can be no logical
conclusion other than that the petitioner had full knowledge of, and actually consented to, the terms
and conditions of the bill of lading thereby making the same conclusive as to it, and it cannot now be
heard to deny having assented thereto. As borne out by the records, James Cu himself, in his
capacity as president of MMMC, personally received and signed the bill of lading. On practical
considerations, there is no better way to signify consent than by voluntarry signing the document
which embodies the agreement. As found by the Court of Appeals

Contrary to appellant's allegation that it did not agree to the transhipment, it could be
gleaned from the record that the appellant actually consented to the transhipment when it
received the bill of lading personally at appellee's (F.E. Zuellig's) office. There clearly
appears on the face of the bill of lading under column "PORT OF TRANSHIPMENT" an entry
"HONGKONG' (Exhibits'G-l'). Despite said entries he still delivered his voucher (Exh. F) and
the corresponding check in payment of the freight (Exhibit D), implying that he consented to
the transhipment (Decision, p. 6, Rollo).19

Furthermore and particularly on the matter of whether or not there was transhipment, James Cu, in
his testimony on crossexamination, categorically stated that he knew for a fact that the shipment was
to be unloaded in Hong Kong from the MV Pacific Despatcher to be transferred to a mother vessel,
the MV Oriental Researcher in this wise:

Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or transhipped
at the port of Hongkong?

A I know. It's not transport, they relay, not trans... yes, that is why we have an agreement if
they should not put a transhipment in Hongkong, that's why they even stated in the
certification.

xxx xxx xxx

Q In layman's language, would you agree with me that transhipment is the transfer of a
cargo from one vessel to the other?

A As a layman, yes.

Q So, you know for a fact that your shipment is going to be unloaded in Hongkong from M. V.
Dispatcher (sic) and then transfer (sic) to another vessel which was the Oriental Dispatcher,
(sic) you know that for a fact?
 A Yes, sir. (Emphasis supplied.)20

Under the parol evidence rule,21 the terms of a contract are rendered conclusive upon the parties,
and evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement
embodied in a document, subject to well defined exceptions which do not obtain in this case. The
parol evidence rule is based on the consideration that when the parties have reduced their
agreement on a particular matter into writing, all their previous and contemporaneous agreements
on the matter are merged therein. Accordingly, evidence of a prior or contemporaneous verbal
agreement is generally not admissible to vary, contradict or defeat the operation of a valid
instrument.22 The mistake contemplated as an exception to the parol evidence rule is one which is a
mistake of fact mutual to the parties.23 Furthermore, the rules on evidence, as amended, require that
in order that parol evidence may be admitted, said mistake must be put in issue by the pleadings,
such that if not raised inceptively in the complaint or in the answer, as the case may be, a party can
not later on be permitted to introduce parol evidence thereon.24 Needless to say, the mistake
adverted to by herein petitioner, and by its own admission, was supposedly committed by private
respondents only and was raised by the former rather belatedly only in this instant petition. Clearly
then, and for failure to comply even only with the procedural requirements thereon, we cannot admit
evidence to prove or explain the alleged mistake in documentation imputed to private respondents
by petitioner.

Petitioner further argues that assuming that there was transhipment, it cannot be deemed to have
agreed thereto even if it signed the bill of lading containing such entry because it had made known to
private respondents from the start that transhipment was prohibited under the letter of credit and
that, therefore, it had no intention to allow transhipment of the subject cargo. In support of its stand,
petitioner relies on the second paragraph of Article 1370 of the Civil Code which states that "(i)f the
words appear to be contrary to the evident intention of the parties, the latter shall prevail over the
former," as wen as the supposed ruling in Caltex Phil., Inc. vs. Intermediate Appellate Court, et
al.25 that "where the literal interpretation of a contract is contrary to the evident intention of the
parties, the latter shall prevail."

As between such stilted thesis of petitioner and the contents of the bill of lading evidencing the
intention of the parties, it is irremissible that the latter must prevail. Petitioner conveniently overlooks
the first paragraph of the very article that he cites which provides that "(i)f the terms of the contract
are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the
stipulations shall control." In addition, Article 1371 of the same Code provides that "(i)n order to
judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be
principally considered."

The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for
any interpretation. The intention of the parties which is the carriage of the cargo under the terms
specified thereunder and the wordings of the bill of lading do not contradict each other. The terms of
the contract being conclusive upon the parties and judging from the contemporaneous and
subsequent actuations of petitioner, to wit, personally receiving and signing the bill of lading and
paying the freight charges, there is no doubt that petitioner must necessarily be charged with full
knowledge and unqualified acceptance of the terms of the bill of lading and that it intended to be
bound thereby.

Moreover, it is a well-known commercial usage that transhipment of freight without legal excuse,
however competent and safe the vessel into which the transfer is made, is a violation of the contract
and an infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost
even by a cause otherwise excepted.26 It is highly improbable to suppose that private respondents,
having been engaged in the shipping business for so long, would be unaware of such a custom of
the trade as to have undertaken such transhipment without petitioner's consent and unnecessarily
expose themselves to a possible liability. Verily, they could only have undertaken transhipment with
the shipper's permission, as evidenced by the signature of James Cu.

Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was
that the bill of lading that was issued was not an on board bill of lading, in clear violation of the terms
of the letter of credit issued in favor of petitioner. On cross-examination, it was likewise established
that petitioner, through its aforesaid president, was aware of this fact, thus:

Q If the container van, the loaded container van, was transported back to South Harbor on
June 27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was received by you?

A I received on June 30, 1980. I received at the same time so then I gave the check.

xxx xxx xxx

Q So that in exchange of the Bill of Lading you issued your check also dated June 30, 1980?

A Yes, sir.

Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of Lading
states: 'Received for shipment'only? .

A Yes, sir.

Q What did you say?

A I requested to issue me on board bill of lading.

Q When?

A In the same date of June 30.

Q What did they say?

A They said, they cannot.

xxx xxx xxx

Q Do you know the difference between a "received for shipment bill of lading" and "on board
bill of lading"?

A Yes, sir.

Q What's the difference?

A Received for shipment, you can receive the cargo even you don't ship on board, that is
placed in the warehouse; while on-board bill of lading means that is loaded on the vessel, the
goods.
 xxx xxx xxx

Q In other words, it was not yet on board the vessel?

A During that time, not yet.

xxx xxx xxx

Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a vessel
you can demand an on-board bill of lading not only a received for shipment bill of lading.?

A Yes sir.

Q And did you demand from F.E. Zuellig the substitution of that received for shipment bill of
lading with an on-board bill of lading?

A Of course, instead they issue me a certification.

Q They give you a ... ?

A ... a certification that it was loaded on board on June 30.

xxx xxx xxx

Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that there
should be no transhipment and that it should also get an on board bill of lading.?

A Yes sir.27

Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly required that
there be an on board bill of lading, obviously due to the guaranty afforded by such a bill of lading
over any other kind of bill of lading. The buyer could not have insisted on such a stipulation on a
pure whim or caprice, but rather because of its reliance on the safeguards to the cargo that having
an on board bill of lading ensured. Herein petitioner cannot feign ignorance of the distinction
between an "on board" and a "received for shipment" bill of lading, as manifested by James Cu's
testimony. It is only to be expected that those long engaged in the export industry should be familiar
with business usages and customs.

In its petition, MMMC avers that "when petitioner teamed of what happened, it saw private
respondent F.E. Zuellig which, in turn, issued a certification that as of June 30, 1980, the Anahaw
fans were already on board MV Pacific Despatcher (which means that the bill of lading is an on-
board-bill of lading or 'shipped' bill of lading as distinguished from a 'received for shipment'bill of
lading as governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...."28 What the petitioner would
suggest is that said certification issued by F.E. Zuellig, Inc., dated July 19, 1980, had the effect of
converting the original "received for shipment only" bill of lading into an "on board" bill of lading as
required by the buyer and was, therefore, by substantial compliance, not violative of the contract.

An on board bill of lading is one in which it is stated that the goods have been received on board the
vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is
stated that the goods have been received for shipment with or without specifying the vessel by which
the goods are to be shipped. Received for shipment bills of lading are issued whenever conditions
are not normal and there is insufficiency of shipping space.29An on board bill of lading is issued when
the goods have been actually placed aboard the ship with every reasonable expectation that the
shipment is as good as on its way.30 It is, therefore, understandable that a party to a maritime
contract would require an on board bill of lading because of its apparent guaranty of certainty of
shipping as well as the seaworthiness of the vessel which is to carry the goods.

It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the bill of
lading, as originally issued, into an on board bill of lading as required by the terms of the letter of
credit issued in favor of petitioner. For one, the certification was issued only on July 19, 1980, way
beyond the expiry date of June 30, 1980 specified in the letter of credit for the presentation of an on
board bill of lading. Thus, even assuming that by a liberal treatment of the certification it could have
the effect of converting the received for shipment bill of lading into an on board of bill of lading, as
petitioner would have us believe, such an effect may be achieved only as of the date of its issuance,
that is, on July 19, 1980 and onwards.

The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading was
presented by petitioner in compliance with the terms of the letter of credit and this default
consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to operate
retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is,
reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it
would indubitably be stretching the concept of substantial compliance too far.

Neither can petitioner escape hability by adverting to the bill of lading as a contract of adhesion, thus
warranting a more liberal consideration in its favor to the extent of interpreting ambiguities against
private respondents as allegedly being the parties who gave rise thereto. The bill of lading is clear on
its face. There is no occasion to speak of ambiguities or obscurities whatsoever. All of its terms and
conditions are plainly worded and commonly understood by those in the business.

It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on May
20,1980 or over a month before the expiry date of the letter of credit on June 30, 1980, thus giving it
more than ample time to find a carrier that could comply with the requirements of shipment under the
letter of credit. It is conceded that bills of lading constitute a class of contracts of adhesion. However,
as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et al.31 and reiterated in Servando, et al.
vs. Philippine Steam Navigation Co.,32 plane tickets as well as bills of lading 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. The respondent court correctly observed in the present case that "when the
appellant received the bill of lading, it was tantamount to appellant's adherence to the terms and
conditions as embodied therein.33

In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions clearly
violative of the requirements of the letter of credit. Nonetheless, perhaps in its eagerness to
conclude the transaction with its Japanese buyer and in a race to beat the expiry date of the letter of
credit, petitioner took the risk of accepting the bill of lading even if it did not conform with the
indicated specifications, possibly entertaining a glimmer of hope and imbued with a touch of daring
that such violations may be overlooked, if not disregarded, so long as the cargo is delivered on time.
Unfortunately, the risk did not pull through as hoped for. Any violation of the terms and conditions of
the letter of credit as would defeat its right to collect the proceeds thereof was, therefore, entirely of
the petitioner's making for which it must bear the consequences. As finally averred by private
respondents, and with which we agree, "... the questions of whether or not there was a violation of
the terms and conditions of the letter of credit, or whether or not such violation was the cause or
motive for the rejection by petitioner's Japanese buyer should not affect private respondents therein
since they were not privies to the terms and conditions of petitioner's letter of credit and cannot
therefore be held liable for any violation thereof by any of the parties thereto."34

II. Petitioner contends that respondent court erred in holding it liable to private respondents for
P52,102.45 despite its exercise of its option to abandon the cargo. It will be recalled that the trial
court originally found petitioner liable for P298,150.93, which amount consists of P51,271.02 for
freight, demurrage and other charges during the time that the goods were in Japan and for its
reshipment to Manila, P831.43 for charges paid to the Manila International Port Terminal, and
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981. On appeal, the Court
of Appeals limited petitioner's liability to P52,102.45 when it ruled:

As regards the amount of P51,271.02, which represents the freight charges for the return
shipment to Manila and the demurrage charges in Japan, the same is supported by
appellant's own letter request (Exh. 2) for the return of the shipment to Manila at its
(appellant's) expense, and hence, it should be held liable therefor. The amount of P831.43
was paid to the Manila International Port Terminal upon arrival of the shipment in Manila for
appellant's account. It should properly be charged to said appellant.35

However, respondent court modified the trial court's decision by excluding the award for
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981.

Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the time agreed on for loading and unloading. Essentially,
demurrage is the claim for damages for failure to accept delivery. In a broad sense, every improper
detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its
strictly technical sense, exists only when expressly stipulated in the contract. Using the term in its
broader sense, damages in the nature of demurrage are recoverable for a breach of the implied
obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom the
duty is owed and only against one who is a party to the shipping contract.36 Notice of arrival of
vessels or conveyances, or of their placement for purposes of unloading is often a condition
precedent to the right to collect demurrage charges.

Private respondents, admittedly, have adopted the common practice of requiring prior notice of
arrival of the goods shipped before the shipper can be held liable for demurrage, as declared by
Wilfredo Hans, head of the accounting department of F.E. Zuellig, Inc., on cross-examination as a
witness for private respondents:

Q ... you will agree with me that before one could be charged with demurrage the shipper
should be notified of the arrival of the shipment?

A Yes sir.

Q Without such notification, there is no way by which the shipper would know (of) such
arrival?

A Yes.

Q And no charges of demurrage before the arrival of the cargo?

A Yes sir.37
Accordingly, on this score, respondent court ruled:

However, insofar as the demurrage charges of P246,043.43 from October up to May 1980,
arriv(al) in Manila, are concerned, We are of the view that appellant should not be made to
shoulder the same, as it was not at fault nor was it responsible for said demurrage charges.
Appellee's own witness (Mabazza) testified that while the goods arrived in Manila in October
1980, appellant was notified of said arrival only in March 1981. No explanation was given for
the delay in notifying appellant. We agree with appellant that before it could be charged for
demurrage charges it should have been notified of the arrival of the goods first. Without
1w phi 1

such notification it could not- be so charged because there was no way by which it would
know that the goods had already arrived for it to take custody of them. Considering that it
was only in March 1981 (Exh. K) that appellant was notified of the arrival of the goods,
although the goods had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14),
appellant cannot be charged for demurrage from October 1980 to March 1981. ...38

While being satisfied with the exclusion of demurrage charges in Manila for the period from October
22,1980 to June 18,1981, petitioner nevertheless assails the Court of Appeals' award of P52,102.43
in favor of private respondents, consisting of P51,271.01 as freight and demurrage charges in Japan
and P831.43 for charges paid at the Manila International Port Termninal.

Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to allow
private respondents to sell the same at a public auction and to apply the proceeds thereof as
payment for the shipping and demurrage charges, it was released from liability for the sum of
P52,102.43 since such amount represents the shipping and demurrage charges from which it is
considered to have been released due to the abandonment of goods. It further argues that the
shipping and demurrage charges from which it was released by the exercise of the option to
abandon the goods in favor of private respondents could not have referred to the demurrage
charges in Manila because respondent court ruled that the same were not chargeable to petitioner.
Private respondents would rebut this contention by saying in their memorandum that the
abandonment of goods by petitioner was too late and made in bad faith.39

On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to the fact
that the shipment was made for its benefit or under its direction and, correspondingly, the carrier is
entitled to collect charges for its shipping services. This is particularly true in this case where the
reshipment of the goods was made at the instance of petitioner in its letter of August 29, 1980.40

However, in a letter dated March 20, 1981,41 private respondents belatedly informed petitioner of the
arrival of its goods from Japan and that if it wished to take delivery of the cargo it would have to pay
P51,271.02, but with the last paragraph thereof stating as follows:

Please can you advise within 15 days of receipt of this letter whether you intend to take
delivery of this shipment, as alternatively we will have to take legal proceedings in order to
have the cargo auctioned to recover the costs involved, as well as free the container which
are (sic) urgently required for export cargoes.

Clearly, therefore, private respondents unequivocally offered petitioner the option of paying the
shipping and demurrage charges in order to take delivery of the goods or of abandoning the same
so that private respondents could sell them at public auction and thereafter apply the proceeds in
payment of the shipping and other charges.

Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its decision
to abandon to the goods in favor of private respondents with the specific instruction that any excess
of the proceeds over the legal costs and charges be turned over to petitioner. Receipt of said letter
was acknowledged by private respondents, as revealed by the testimony of Edwin Mabazza, a claim
officer of F.E. Zuellig, Inc., on cross-examination.42

Despite petitioner's exercise of the option to abandon the cargo, however, private respondents sent
a demand letter on June 22, 198143 insisting that petitioner should pay the entire amount of
P298,150.93 and, in another letter dated Apiril 30, 1981,44 they stated that they win not accept the
abandonment of the goods and demanded that the outstanding account be settled. The testimony of
said Edwin Mabazza definitely admits and bears this out.45

Now, there is no dispute that private respondents expressly and on their own volition granted
petitioner an option with respect to the satisfaction of freightage and demurrage charges. Having
given such option, especially since it was accepted by petitioner, private respondents are estopped
from reneging thereon. Petitioner, on its part, was well within its right to exercise said option. Private
respondents, in giving the option, and petitioner, in exercising that option, are concluded by their
respective actions. To allow either of them to unilaterally back out on the offer and on the exercise of
the option would be to countenance abuse of rights as an order of the day, doing violence to the long
entrenched principle of mutuality of contracts.

It will be remembered that in overland transportation, an unreasonable delay in the delivery of

transported goods is sufficient ground for the abandonment of goods. By analogy, this can also
apply to maritime transportation. Further, with much more reason can petitioner in the instant case
properly abandon the goods, not only because of the unreasonable delay in its delivery but because
of the option which was categorically granted to and exercised by it as a means of settling its liability
for the cost and expenses of reshipment. And, said choice having been duly communicated, the
same is binding upon the parties on legal and equitable considerations of estoppel.

WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with the

MODIFICATION that petitioner is likewise absolved of any hability and the award of P52,102.45 with
legal interest granted by respondent court on private respondents' counterclaim is SET ASIDE, said
counterclaim being hereby DISMISSED, without pronouncement as to costs.

SO ORDERED.

FIRST DIVISION

[G.R. No. 118030. January 15, 2004]

PROVIDENT INSURANCE CORP., petitioner, vs. HONORABLE COURT

OF APPEALS and AZUCAR SHIPPING CORP., respondents.

DECISION
YNARES-SANTIAGO, J.:
 This is a petition for review under Rule 45 of the Rules of Court assailing
the Decision of the Court of Appeals dated November 15, 1994, which
affirmed the appealed Orders dated August 12, 1991 and February 4, 1992
issued by the Regional Trial Court of Manila, Branch 51, in Civil Case No. 91-
56167.
The pertinent facts as culled from the stipulation of facts submitted by the
parties are as follows:
On or about June 5, 1989, the vessel MV Eduardo II took and received on
board at Sangi, Toledo City a shipment of 32,000 plastic woven bags of
various fertilizer in good order and condition for transportation to Cagayan de
Oro City. The subject shipment was consigned to Atlas Fertilizer Corporation,
and covered by Bill of Lading No. 01 and Marine Insurance Policy No. CMI-
211/89-CB.
Upon its arrival at General Santos City on June 7, 1989, the vessel MV
Eduardo II was instructed by the consignees representative to proceed to
Davao City and deliver the shipment to its Davao Branch in Tabigao.
On June 10, 1989, the MV Eduardo II arrived in Davao City where the
subject shipment was unloaded. In the process of unloading the shipment,
three bags of fertilizer fell overboard and 281 bags were considered to be
unrecovered spillages. Because of the mishandling of the cargo, it was
determined that the consignee incurred actual damages in the amount of
P68,196.16.
As the claims were not paid, petitioner Provident Insurance Corporation
indemnified the consignee Atlas Fertilizer Corporation for its
damages. Thereafter, petitioner, as subrogee of the consignee, filed on June
3, 1991 a complaint against respondent carrier seeking reimbursement for the
value of the losses/damages to the cargo.
Respondent carrier moved to dismiss the complaint on the ground that the
claim or demand by petitioner has been waived, abandoned or otherwise
extinguished for failure of the consignee to comply with the required claim for
damages set forth in the first sentence of Stipulation No. 7 of the bill of lading,
the full text of which reads

7. All claims for damages to the goods must be made to the carrier at the time of
delivery to the consignee or his agent if the package or containers show exterior sign
of damage, otherwise to be made in writing to the carrier within twenty-four hours
from the time of delivery. Notice of loss due to delay must be given in writing to the
carrier within 30 days from the time the goods were ready for delivery, or in case of
non-delivery or misdelivery of shipment the written notice must be given within 30
days after the arrival at the port of discharge of the vessels on which the goods were
received in case of the failure of the vessel on which the goods were shipped to
arrived at the port of discharge, misdelivery must be presented in writing to the
carrier within two months after the arrival of the vessel of the port of discharge or in
case of the failure of the vessel in which the goods were shipped to arrive at the port
of discharge written claims shall be made within 30 days of the time the vessel should
have arrived. The giving of notice and the filing of claims as above provided shall be
conditions precedent to the securing of the right of actions against the carrier for
losses due to delay, non-delivery, or misdelivery. In the case of damage to goods, the
filing of the suit based upon claims arising from damage, delay, non-delivery or mis-
delivery shall be instituted within one year from the date of the accrual of the right of
action. Failure to institute judicial proceedings as herein provided shall constitute a
waiver of the claim or right of action, and no agent nor employee of the carrier shall
have authority to waive any of the provisions or requirements of this bill of lading.
Any action by the ship owner or its agents or attorneys in considering or dealing with
claims where the provisions or requirements of this bill of lading have not been
complied with shall not be considered a waiver of such requirements and they shall
not be considered as waived except by an express waiver. (Italics Supplied)
[1]

The trial court, in an Order dated August 12, 1991, found the motion to
dismiss well taken and accordingly, dismissed the complaint. [2]

Petitioner filed a motion for reconsideration which the trial court, in an

Order dated February 4, 1992, denied. [3]

Aggrieved by the lower courts decision, petitioner appealed to the Court of

Appeals. On November 15, 1994, the Court of Appeals rendered the assailed
decision which affirmed the lower courts Orders dated August 12, 1991 and
February 4, 1992. Hence, this petition raising the lone error that
[4]

THE HONORABLE COURT OF APPEALS HAS DECIDED THE QUESTION IN

ISSUE NOT IN ACCORDANCE WITH THE PURPOSE FOR WHICH THE LAW
WAS ESTABLISHED AND CONTRARY TO THE EXISTING
JURISPRUDENCE. [5]

In support of its petition, petitioner contends that it is unreasonable for the

consignee Atlas Fertilizer Corporation to be required to abide by the
provisions of Stipulation No. 7 of the bill of lading. According to petitioner,
since the place of delivery was remote and inaccessible, the consignee
cannot be expected to have been able to immediately inform its main office
and make the necessary claim for damages for the losses and unrecovered
spillages in the subject cargo.
 Petitioner further argues that the contents of the bill of lading are printed in
small letters that no one would bother to read them, as they are difficult to
read.
Finally, petitioner avers that from June 13 to 18, 1987, the vessels Chief
Officer supervised the unloading of the shipment and thereafter signed a
discharging report attesting to the fact of loss and unrecovered spillages on
the cargo. Thus, petitioner argues that respondent carriers knowledge of the
loss and spillages was substantial compliance with the notice of claim
required under Stipulation No. 7 of the bill of lading.
The petition is bereft of merit.
It is a fact admitted by both parties that the losses and damages were
caused by the mishandling of the cargo by respondent carrier. There is also
no dispute that the consignee failed to strictly comply with Stipulation No. 7 of
the Bill of Lading in not making claims for damages to the goods within the
twenty-four hour period from the time of delivery, and that there was no
exterior sign of damage of the goods.Consequently, the only issue left to be
resolved is whether the failure to make the prompt notice of claim as required
is fatal to the right of petitioner to claim indemnification for damages.
The bill of lading defines the rights and liabilities of the parties in reference
to the contract of carriage. Stipulations therein are valid and binding in the
absence of any showing that the same are contrary to law, morals, customs,
public order and public policy. Where the terms of the contract are clear and
leave no doubt upon the intention of the contracting parties, the literal
meaning of the stipulations shall control.
In light of the foregoing, there can be no question about the validity and
enforceability of Stipulation No. 7 in the bill of lading. The twenty-four hour
requirement under the said stipulation is, by agreement of the contracting
parties, a sine qua non for the accrual of the right of action to recover
damages against the carrier. The wisdom of this kind of proviso has been
succinctly explained in Consunji v. Manila Port Service,where it was held:

Carriers and depositaries sometimes require presentation of claims within a short time
after delivery as a condition precedent to their liability for losses. Such requirement is
not an empty formalism. It has a definite purpose, i.e., to afford the carrier or
depositary a reasonable opportunity and facilities to check the validity of the claims
while the facts are still fresh in the minds of the persons who took part in the
transaction and the document are still available.[6]
 Considering that a prompt demand was necessary to foreclose the
possibility of fraud or mistake in ascertaining the validity of claims, there was a
need for the consignee or its agent to observe the conditions provided for in
Stipulation No. 7. Hence, petitioners insistence that respondent carrier had
knowledge of the damage because one of respondent carriers officers
supervised the unloading operations and signed a discharging report, cannot
be construed as sufficient compliance with the aforementioned proviso. The
Discharge Report is not the notice referred to in Stipulation No. 7, hence, its
accomplishment cannot be considered substantial compliance of the
requirement embodied therein. Moreover, a reading of the first paragraph of
Stipulation No. 7 will readily show that upon the consignee or its agent rests
the obligation to make the necessary claim within the prescribed period and
not merely rely on the supposed knowledge of the damages by the carrier.
Petitioner also makes much of the fact that it had nothing to do with the
preparation of the bill of lading. Worse, according to petitioner, the bill of
lading, particularly Stipulation No. 7, was printed in very small letters that no
one would be minded to closely examine the contents thereof and understand
its legal implications.
We are not persuaded. A bill of lading is in the nature of a contract of
adhesion, defined as one where one of the parties imposes a ready-made
form of contract which the other party may accept or reject, but which the
latter cannot modify. One party prepares the stipulation in the contract, while
the other party merely affixes his signature or his adhesion thereto, giving no
room for negotiation and depriving the latter of the opportunity to bargain on
equal footing. Nevertheless, these types of contracts have been declared as
binding as ordinary contracts, the reason being that the party who adheres to
the contract is free to reject it entirely.[7]

After it received the bill of lading without any objection, consignee Atlas
Fertilizer Corporation was presumed to have knowledge of its contents and to
have assented to the terms and conditions set forth therein. The
pronouncement by this Court in Magellan Manufacturing Marketing Corp. v.
Court of Appeals may be cited by analogy

The holding in most jurisdictions has been that a shipper who receives a bill of lading
without objection after an opportunity to inspect it, and permits the carrier to act on it
by proceeding with the shipment is presumed to have accepted it as correctly stating
the contract and to have assented to its terms. In other words, the acceptance of the
bill without dissent raises the presumption that all the 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. (Italics Supplied)
[8]

In this regard, we also quote with approval the lower courts view on the
matter when it said:

It is very clear that the Bill of Lading provides for the time or period within which a
claim should be made or suit filed in Court. Plaintiff or Atlas Fertilizer Corporation
failed on this score. Moreover, Atlas Fertilizer Corporation could not claim ignorance
of the contents of the Bill of Lading just because the printed letters are so small that
they are hard to read or that the shipper did not sign it for Atlas Fertilizer Corporation
being a regular shipper and a big corporation. Plaintiff is presumed to know the
contents thereof for the reason that this is the very document (Annex A of the
complaint) where plaintiff relied its suit.
[9]

We are likewise not inclined to lend credence to petitioners allegation that

the lack of communications facilities in the place of delivery prevented the
consignee from making a prompt claim for recovery of damages as prescribed
by Stipulation No. 7. It is indeed hard to believe that Atlas Fertilizer
Corporation, being an established corporation and a regular shipper, would be
so inept as not to have the necessary facilities to at least monitor, in the form
of communications equipment, the condition of its large shipment involving
32,000 bags of fertilizer. As pointed out by the appellate court, at this day and
age of advanced telecommunications and modern transportation, even in the
year 1989, the time limitation provided for in Stipulation No. 7 are just and
reasonable.
WHEREFORE, in view of all the foregoing, the petition is DENIED. The
Decision of the Court of Appeals in CA-G.R. CV No. 36498 is AFFIRMED in
toto.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

INSURANCE COMPANY G.R. No. 180784

OF NORTH AMERICA,
Petitioner, Present:

CARPIO, * J.,
- versus - PERALTA, Acting Chairperson,
ABAD,
PEREZ, ** and
MENDOZA, JJ.

ASIAN TERMINALS, INC., Promulgated:

Respondent. February 15, 2012
x-------------------------------------------------x

DECISION

PERALTA, J.:

This is a petition for review on certiorari[1] of the Decision of the Regional

Trial Court (RTC) of Makati City, Branch 138 (trial court) in Civil Case No. 05-
809 and its Order dated December 4, 2007 on the ground that the trial court
committed reversible error of law.

The trial court dismissed petitioners complaint for actual damages on the
ground of prescription under the Carriage of Goods by Sea Act (COGSA).
The facts are as follows:

On November 9, 2002, Macro-Lite Korea Corporation shipped to San

Miguel Corporation, through M/V "DIMI P" vessel, one hundred eighty-five (185)
packages (231,000 sheets) of electrolytic tin free steel, complete and in good order
condition and covered by Bill of Lading No. POBUPOHMAN20638.[2] The
shipment had a declared value of US$169,850.35 [3] and was insured with petitioner
Insurance Company of North America against all risks under Marine Policy No.
MOPA-06310.[4]

The carrying vessel arrived at the port of Manila on November 19, 2002, and
when the shipment was discharged therefrom, it was noted that seven (7) packages
thereof were damaged and in bad order.[5] The shipment was then turned over to the
custody of respondent Asian Terminals, Inc. (ATI) on November 21, 2002 for
storage and safekeeping pending its withdrawal by the consignee's authorized
customs broker, R.V. Marzan Brokerage Corp. (Marzan).
On November 22, 23 and 29, 2002, the subject shipment was withdrawn by
Marzan from the custody of respondent. On November 29, 2002, prior to the last
withdrawal of the shipment, a joint inspection of the said cargo was conducted per
the Request for Bad Order Survey[6] dated November 29, 2002, and the
examination report, which was written on the same request, showed that an
additional five (5) packages were found to be damaged and in bad order.
On January 6, 2003, the consignee, San Miguel Corporation, filed separate
claims[7] against respondent and petitioner for the damage to 11,200 sheets of
electrolytic tin free steel.

Petitioner engaged the services of an independent adjuster/surveyor, BA

McLarens Phils., Inc., to conduct an investigation and evaluation on the claim and
to prepare the necessary report.[8] BA McLarens Phils., Inc. submitted to petitioner
an Survey Report[9] dated January 22, 2003 and another report[10] dated May 5,
2003 regarding the damaged shipment. It noted that out of the reported twelve (12)
damaged skids, nine (9) of them were rejected and three (3) skids were accepted by
the consignees representative as good order. BA McLarens Phils., Inc. evaluated
the total cost of damage to the nine (9) rejected skids (11,200 sheets of electrolytic
tin free steel) to be P431,592.14.
The petitioner, as insurer of the said cargo, paid the consignee the amount
of P431,592.14 for the damage caused to the shipment, as evidenced by the
Subrogation Receipt dated January 8, 2004. Thereafter, petitioner, formally
demanded reparation against respondent. As respondent failed to satisfy its
demand, petitioner filed an action for damages with the RTC of Makati City.
The trial court found, thus:

The Court finds that the subject shipment indeed suffered

additional damages. The Request for Bad Order Survey No. 56422
shows that prior to the turn over of the shipment from the custody of
ATI to the consignee, aside from the seven (7) packages which were
already damaged upon arrival at the port of Manila, five (5) more
packages were found with "dent, cut and crumple" while in the custody
of ATI. This document was issued by ATI and was jointly executed by
the representatives of ATI, consignee and customs, and the Shed
 Supervisor. Thus, ATI is now estopped from claiming that there was no
additional damage suffered by the shipment. It is, therefore, only logical
to conclude that the damage was caused solely by the negligence of
defendant ATI. This evidence of the plaintiff was refuted by the
defendant by merely alleging that "the damage to the 5 Tin Plates is only
in its external packaging. However, the fact remains that the consignee
has rejected the same as total loss for not being suitable for their
intended purpose. In addition, the photographs presented by the plaintiff
show that the shipment also suffered severe dents and some packages
were even critically crumpled.[11]

As to the extent of liability, ATI invoked the Contract for Cargo Handling
Services executed between the Philippine Ports Authority and Marina Ports
Services, Inc. (now Asian Terminals, Inc.). Under the said contract, ATI's liability
for damage to cargoes in its custody is limited to P5,000.00 for each package,
unless the value of the cargo shipment is otherwise specified or manifested or
communicated in writing, together with the declared Bill of Lading value and
supported by a certified packing list to the contractor by the interested party or
parties before the discharge or lading unto vessel of the goods.

The trial court found that there was compliance by the shipper and
consignee with the above requirement. The Bill of Lading, together with the
corresponding invoice and packing list, was shown to ATI prior to the discharge of
the goods from the vessel. Since the shipment was released from the custody of
ATI, the trial court found that the same was declared for tax purposes as well as
for the assessment of arrastre charges and other fees. For the purpose, the
presentation of the invoice, packing list and other shipping documents to ATI for
the proper assessment of the arrastre charges and other fees satisfied the condition
of declaration of the actual invoices of the value of the goods to overcome the
limitation of liability of the arrastre operator.[12]

Further, the trial court found that there was a valid subrogation between the
petitioner and the assured/consignee San Miguel Corporation. The respondent
admitted the existence of Global Marine Policy No. MOPA-06310 with San
Miguel Corporation and Marine Risk Note No. 3445,[13] which showed that the
cargo was indeed insured with petitioner. The trial court held that petitioners claim
is compensable because the Subrogation Receipt,16 which was admitted as to its
existence by respondent, was sufficient to establish not only the relationship of the
insurer and the assured, but also the amount paid to settle the insurance claim.[14]

However, the trial court dismissed the complaint on the ground that the
petitioners claim was already barred by the statute of limitations. It held that
COGSA, embodied in Commonwealth Act (CA) No. 65, applies to this case, since
the goods were shipped from a foreign port to the Philippines. The trial court
stated that under the said law, particularly paragraph 4, Section 3 (6) [15] thereof, the
shipper has the right to bring a suit within one year after the delivery of the goods
or the date when the goods should have been delivered, in respect of loss or
damage thereto.
The trial court held:

In the case at bar, the records show that the shipment was delivered to the
consignee on 22, 23 and 29 of November 2002. The plaintiff took almost a year to
approve and pay the claim of its assured, San Miguel, despite the fact that it had
initially received the latter's claim as well as the inspection report and survey
report of McLarens as early as January 2003. The assured/consignee had only
until November of 2003 within which to file a suit against the defendant.
However, the instant case was filed only on September 7, 2005 or almost three (3)
years from the date the subject shipment was delivered to the consignee. The
plaintiff, as insurer of the shipment which has paid the claim of the insured, is
subrogated to all the rights of the said insured in relation to the reimbursement of
such claim. As such, the plaintiff cannot acquire better rights than that of the
insured. Thus, the plaintiff has no one but itself to blame for having acted
lackadaisically on San Miguel's claim.

WHEREFORE, the complaint and counterclaim are hereby

DISMISSED.[16]

Petitioners motion for reconsideration was denied by the trial court in the
[17]
Order dated December 4, 2007.

Petitioner filed this petition under Rule 45 of the Rules of Court directly
before this Court, alleging that it is raising a pure question of law:
 THE TRIAL COURT COMMITTED A PURE AND SERIOUS
ERROR OF LAW IN APPLYING THE ONE-YEAR PRESCRIPTIVE
PERIOD FOR FILING A SUIT UNDER THE CARRIAGE OF GOODS
BY SEA ACT (COGSA) TO AN ARRASTRE OPERATOR.[18]

Petitioner states that while it is in full accord with the trial court in finding
respondent liable for the damaged shipment, it submits that the trial courts
dismissal of the complaint on the ground of prescription under the COGSA is
legally erroneous. It contends that the one-year limitation period for bringing a suit
in court under the COGSA is not applicable to this case, because the prescriptive
period applies only to the carrier and the ship. It argues that respondent, which is
engaged in warehousing, arrastre and stevedoring business, is not a carrier as
defined by the COGSA, because it is not engaged in the business of transportation
of goods by sea in international trade as a common carrier. Petitioner asserts that
since the complaint was filed against respondent arrastre operator only, without
impleading the carrier, the prescriptive period under the COGSA is not applicable
to this case.

Moreover, petitioner contends that the term carriage of goods in the COGSA
covers the period from the time the goods are loaded to the vessel to the time they
are discharged therefrom. It points out that it sued respondent only for the
additional five (5) packages of the subject shipment that were found damaged
while in respondents custody, long after the shipment was discharged from the
vessel. The said damage was confirmed by the trial court and proved by the
Request for Bad Order Survey No. 56422.[19]
Petitioner prays that the decision of the trial court be reversed and set aside
and a new judgment be promulgated granting its prayer for actual damages.
The main issues are: (1) whether or not the one-year prescriptive period for
filing a suit under the COGSA applies to this action for damages against
respondent arrastre operator; and (2) whether or not petitioner is entitled to recover
actual damages in the amount of P431,592.14 from respondent.

To reiterate, petitioner came straight to this Court to appeal from the

decision of the trial court under Rule 45 of the Rules of Court on the ground that it
is raising only a question of law.
 Microsoft Corporation v. Maxicorp, Inc.[20] explains the difference between
questions of law and questions of fact, thus:

The distinction between questions of law and questions of fact is settled. A

question of law exists when the doubt or difference centers on what the law is on a
certain state of facts. A question of fact exists if the doubt centers on the truth or
falsity of the alleged facts. Though this delineation seems simple, determining
the true nature and extent of the distinction is sometimes problematic. For
example, it is incorrect to presume that all cases where the facts are not in dispute
automatically involve purely questions of law.

There is a question of law if the issue raised is capable of being resolved without
need of reviewing the probative value of the evidence. The resolution of the issue
must rest solely on what the law provides on the given set of circumstances. Once
it is clear that the issue invites a review of the evidence presented, the question
posed is one of fact. If the query requires a re-evaluation of the credibility of
witnesses, or the existence or relevance of surrounding circumstances and their
relation to each other, the issue in that query is factual. x x x[21]

In this case, although petitioner alleged that it is merely raising a question of

law, that is, whether or not the prescriptive period under the COGSA applies to an
action for damages against respondent arrastre operator, yet petitioner prays for the
reversal of the decision of the trial court and that it be granted the relief sought,
which is the award of actual damages in the amount of P431,592.14. For a question
to be one of law, it must not involve an examination of the probative value of the
evidence presented by the litigants or any of them.[22] However, to resolve the issue
of whether or not petitioner is entitled to recover actual damages from respondent
requires the Court to evaluate the evidence on record; hence, petitioner is also
raising a question of fact.
Under Section 1, Rule 45, providing for appeals by certiorari before the
Supreme Court, it is clearly enunciated that only questions of law may be set
forth.[23] The Court may resolve questions of fact only when the case falls under the
following exceptions:

(1) when the findings are grounded entirely on speculation, surmises, or

conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are
 conflicting; (6) when in making its findings the Court of Appeals went beyond the
issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the petition as well as in
the petitioner's main and reply briefs are not disputed by the respondent; and (10)
when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record.[24]

In this case, the fourth exception cited above applies, as the trial court
rendered judgment based on a misapprehension of facts.

We first resolve the issue on whether or not the one-year prescriptive period
for filing a suit under the COGSA applies to respondent arrastre operator.

The Carriage of Goods by Sea Act (COGSA), Public Act No. 521 of the
th
74 US Congress, was accepted to be made applicable to all contracts for the
carriage of goods by sea to and from Philippine ports in foreign trade by virtue of
CA No. 65.

Section 1 of CA No. 65 states:

Section 1. That the provisions of Public Act Numbered Five hundred and
twenty-one of the Seventy-fourth Congress of the United States, approved on
April sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby
accepted to be made applicable to all contracts for the carriage of goods by
sea to and from Philippine ports in foreign trade: Provided, That nothing in the
Act shall be construed as repealing any existing provision of the Code of
Commerce which is now in force, or as limiting its application.

Section 1, Title I of CA No. 65 defines the relevant terms in Carriage of

Goods by Sea, thus:

Section 1. When used in this Act -

(a) The term "carrier" includes the owner or the charterer who enters into a
contract of carriage with a shipper.
(b) The term "contract of carriage" applies only to contracts of carriage
covered by a bill of lading or any similar document of title, insofar as such
 document relates to the carriage of goods by sea, including any bill of lading or
any similar document as aforesaid issued under or pursuant to a charter party from
the moment at which such bill of lading or similar document of title regulates the
relations between a carrier and a holder of the same.
(c) The term "goods" includes goods, wares, merchandise, and articles of
every kind whatsoever, except live animals and cargo which by the contract of
carriage is stated as being carried on deck and is so carried.
(d) The term "ship" means any vessel used for the carriage of goods by sea.
(e) The term "carriage of goods" covers the period from the time when
the goods are loaded to the time when they are discharged from the ship.[25]

It is noted that the term carriage of goods covers the period from the time
when the goods are loaded to the time when they are discharged from the ship;
thus, it can be inferred that the period of time when the goods have been
discharged from the ship and given to the custody of the arrastre operator is not
covered by the COGSA.
The prescriptive period for filing an action for the loss or damage of the
goods under the COGSA is found in paragraph (6), Section 3, thus:
6) Unless notice of loss or damage and the general nature of such loss or
damage be given in writing to the carrier or his agent at the port of discharge
before or at the time of the removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage, such removal shall be
prima facie evidence of the delivery by the carrier of the goods as described in the
bill of lading. If the loss or damage is not apparent, the notice must be given
within three days of the delivery.

Said notice of loss or damage maybe endorsed upon the receipt for the
goods given by the person taking delivery thereof.

The notice in writing need not be given if the state of the goods has at the
time of their receipt been the subject of joint survey or inspection.

In any event the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within one year
after delivery of the goods or the date when the goods should have been
delivered: Provided, That if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not affect or
prejudice the right of the shipper to bring suit within one year after the delivery of
the goods or the date when the goods should have been delivered.[26]
 From the provision above, the carrier and the ship may put up the defense of
prescription if the action for damages is not brought within one year after the
delivery of the goods or the date when the goods should have been delivered. It has
been held that not only the shipper, but also the consignee or legal holder of the bill
may invoke the prescriptive period.[27] However, the COGSA does not mention that
an arrastre operator may invoke the prescriptive period of one year; hence, it does
not cover the arrastre operator.

Respondent arrastre operators responsibility and liability for losses and

damages are set forth in Section 7.01 of the Contract for Cargo Handling
Services executed between the Philippine Ports Authority and Marina Ports
Services, Inc. (now Asian Terminals, Inc.), thus:

Section 7.01 Responsibility and Liability for Losses and Damages;

Exceptions - The CONTRACTOR shall, at its own expense, handle all
merchandise in all work undertaken by it hereunder, diligently and in a skillful,
workman-like and efficient manner. The CONTRACTOR shall be solely
responsible as an independent contractor, and hereby agrees to accept
liability and to pay to the shipping company, consignees, consignors or other
interested party or parties for the loss, damage or non-delivery of cargoes in
its custody and control to the extent of the actual invoice value of each
package which in no case shall be more than FIVE THOUSAND PESOS
(P5,000.00) each, unless the value of the cargo shipment is otherwise specified
or manifested or communicated in writing together with the declared Bill of
Lading value and supported by a certified packing list to the
CONTRACTOR by the interested party or parties before the discharge or
loading unto vessel of the goods. This amount of Five Thousand Pesos
(P5,000.00) per package may be reviewed and adjusted by the AUTHORITY
from time to time. The CONTRACTOR shall not be responsible for the condition
or the contents of any package received, nor for the weight nor for any loss, injury
or damage to the said cargo before or while the goods are being received or
remains in the piers, sheds, warehouses or facility, if the loss, injury or damage is
caused by force majeure or other causes beyond the CONTRACTOR's control or
capacity to prevent or remedy; PROVIDED, that a formal claim together with
the necessary copies of Bill of Lading, Invoice, Certified Packing List and
Computation arrived at covering the loss, injury or damage or non-delivery
of such goods shall have been filed with the CONTRACTOR within fifteen
(15) days from day of issuance by the CONTRACTOR of a certificate of non-
delivery; PROVIDED, however, that if said CONTRACTOR fails to issue
such certification within fifteen (15) days from receipt of a written request by
the shipper/consignee or his duly authorized representative or any interested
party, said certification shall be deemed to have been issued, and thereafter,
the fifteen (15) day period within which to file the claim
commences; PROVIDED, finally, that the request for certification of loss
 shall be made within thirty (30) days from the date of delivery of the package
to the consignee.[28]

Based on the Contract above, the consignee has a period of thirty (30) days
from the date of delivery of the package to the consignee within which to request a
certificate of loss from the arrastre operator. From the date of the request for a
certificate of loss, the arrastre operator has a period of fifteen (15) days within
which to issue a certificate of non-delivery/loss either actually or constructively.
Moreover, from the date of issuance of a certificate of non-delivery/loss, the
consignee has fifteen (15) days within which to file a formal claim covering the
loss, injury, damage or non-delivery of such goods with all accompanying
documentation against the arrastre operator.

Petitioner clarified that it sued respondent only for the additional five (5)
packages of the subject shipment that were found damaged while in respondents
custody, which fact of damage was sustained by the trial court and proved by the
Request for Bad Order Survey No. 56422.[29]
Petitioner pointed out the importance of the Request for Bad Order Survey
by citing New Zealand Insurance Company Limited v. Navarro.[30] In the said
case, the Court ruled that the request for, and the result of, the bad order
examination, which were filed and done within fifteen days from the haulage of the
goods from the vessel, served the purpose of a claim, which is to afford the carrier
or depositary reasonable opportunity and facilities to check the validity of the
claims while facts are still fresh in the minds of the persons who took part in the
transaction and documents are still available. Hence, even if the consignee therein
filed a formal claim beyond the stipulated period of 15 days, the arrastre operator
was not relieved of liability as the purpose of a formal claim had already been
satisfied by the consignees timely request for the bad order examination of the
goods shipped and the result of the said bad order examination.
To elaborate, New Zealand Insurance Company, Ltd. v. Navarro held:
We took special note of the above pronouncement six (6) years later
in Firemans Fund Insurance Co. v. Manila Port Service Co., et al. There,
fifteen (15) cases of nylon merchandise had been discharged from the carrying
vessel and received by defendant Manila Port Service Co., the arrastre operator,
on 7 July 1961. Out of those fifteen (15) cases, however, only twelve (12) had
been delivered to the consignee in good condition. Consequently, on 20 July
1961, the consignee's broker requested a bad order examination of the shipment,
which was later certified by defendant's own inspector to be short of three (3)
cases. On 15 August 1961, a formal claim for indemnity was then filed by the
consignee, who was later replaced in the action by plaintiff Fireman's Fund
Insurance Co., the insurer of the goods. Defendant, however, refused to honor the
claim, arguing that the same had not been filed within fifteen (15) days from the
date of discharge of the shipment from the carrying vessel, as required under the
arrastre Management Contract then in force between itself and the Bureau of
Customs. The trial court upheld this argument and hence dismissed the complaint.
On appeal by the consignee, this Court, speaking through Mr. Justice J.B.L.
Reyes, reversed the trial court and found the defendant arrastre operator liable for
the value of the lost cargo, explaining as follows:

However, the trial court has overlooked the significance of the request
for, and the result of, the bad order examination, which were filed and done
within fifteen days from the haulage of the goods from the vessel. Said request
and result, in effect, served the purpose of a claim, which is

to afford the carrier or depositary reasonable

opportunity and facilities to check the validity of the claims
while facts are still fresh in the minds of the persons who took
part in the transaction and documents are still available.
(Consunji vs. Manila Port Service, L-15551, 29 November
1960)

Indeed, the examination undertaken by the defendant's own inspector not only
gave the defendant an opportunity to check the goods but is itself a verification
of its own liability x x x.

In other words, what the Court considered as the crucial factor in declaring
the defendant arrastre operator liable for the loss occasioned, in the Fireman's
Fund case, was the fact that defendant, by virtue of the consignee's request for a
bad order examination, had been able formally to verify the existence and extent
of its liability within fifteen (15) days from the date of discharge of the shipment
from the carrying vessel -- i.e.,within the same period stipulated under the
Management Contract for the consignee to file a formal claim. That a formal
claim had been filed by the consignee beyond the stipulated period of fifteen
(15) days neither relieved defendant of liability nor excused payment thereof,
the purpose of a formal claim, as contemplated in Consunji, having already
been fully served and satisfied by the consignee's timely request for, and the
eventual result of, the bad order examination of the nylon merchandise
shipped.

Relating the doctrine of Fireman's Fund to the case at bar, the record
shows that delivery to the warehouse of consignee Monterey Farms Corporation
of the 5,974 bags of soybean meal, had been completed by respondent Razon
(arrastre operator) on 9 July 1974. On that same day, a bad order examination of
 the goods delivered was requested by the consignee and was, in fact, conducted
by respondent Razon's own inspector, in the presence of representatives of both
the Bureau of Customs and the consignee. The ensuing bad order examination
report what the trial court considered a "certificate of loss confirmed that out of
the 5,974 bags of soybean meal loaded on board the M/S "Zamboanga" and
shipped to Manila, 173 bags had been damaged in transitu while an additional
111 bags had been damaged after the entire shipment had been discharged from
the vessel and placed in the custody of respondent Razon. Hence, as early as 9
July 1974 (the date of last delivery to the consignee's warehouse), respondent
Razon had been able to verify and ascertain for itself not only the existence of
its liability to the consignee but, more significantly, the exact amount thereof
- i.e., P5,746.61, representing the value of 111 bags of soybean meal. We note
further that such verification and ascertainment of liability on the part of
respondent Razon, had been accomplished "within thirty (30) days from the
date of delivery of last package to the consignee, broker or importer" as well
as "within fifteen (15) days from the date of issuance by the Contractor
[respondent Razon] of a certificate of loss, damage or injury or certificate of
non-delivery" the periods prescribed under Article VI, Section 1 of the
Management Contract here involved, within which a request for certificate of loss
and a formal claim, respectively, must be filed by the consignee or his agent.
Evidently, therefore, the rule laid down by the Court in Fireman's Fund finds
appropriate application in the case at bar.[31]

In this case, the records show that the goods were deposited with the arrastre
operator on November 21, 2002. The goods were withdrawn from the arrastre
operator on November 22, 23 and 29, 2002. Prior to the withdrawal on November
29, 2002, the broker of the importer, Marzan, requested for a bad order survey in
the presence of a Customs representative and other parties concerned. The joint
inspection of cargo was conducted and it was found that an additional five (5)
packages were found in bad order as evidenced by the document entitled Request
for Bad Order Survey[32] dated November 29, 2002, which document also contained
the examination report, signed by the Customs representative,
Supervisor/Superintendent, consignees representative, and the ATI Inspector.
Thus, as early as November 29, 2002, the date of the last withdrawal of the
goods from the arrastre operator, respondent ATI was able to verify that five (5)
packages of the shipment were in bad order while in its custody. The certificate of
non-delivery referred to in the Contract is similar to or identical with the
examination report on the request for bad order survey.[33] Like in the case of New
Zealand Insurance Company Ltd. v. Navarro, the verification and ascertainment
of liability by respondent ATI had been accomplished within thirty (30) days
from the date of delivery of the package to the consignee and within fifteen (15)
days from the date of issuance by the Contractor (respondent ATI) of the
examination report on the request for bad order survey. Although the formal
claim was filed beyond the 15-day period from the issuance of the examination
report on the request for bad order survey, the purpose of the time limitations for
the filing of claims had already been fully satisfied by the request of the consignees
broker for a bad order survey and by the examination report of the arrastre operator
on the result thereof, as the arrastre operator had become aware of and had verified
the facts giving rise to its liability.[34] Hence, the arrastre operator suffered no
prejudice by the lack of strict compliance with the 15-day limitation to file the
formal complaint.[35]
The next factual issue is whether or not petitioner is entitled to actual
damages in the amount of P431,592.14. The payment of the said amount by
petitioner to the assured/consignee was based on the Evaluation Report[36] of BA
McLarens Phils., Inc., thus:

xxxx

CIRCUMSTANCES OF LOSS

As reported, the shipment consisting of 185 packages (344.982 MT) Electrolytic

Tin Free Steel, JISG 3315SPTFS, MRT-4CA, Matte Finish arrived
Manila via Ocean Vessel, M/V DIMI P V-075 on November 9, 2002 and
subsequently docked alongside Pier No. 9, South Harbor, Manila. The cargo of
Electrolyic Tin Free Steel was discharged ex-vessel complete with seven (7)
skids noted in bad order condition by the vessel[s] representative. These skids
were identified as nos. 2HD804211, 2HD804460, SHD804251, SHD803784,
2HD803763, 2HD803765 and 2HD803783 and covered with Bad Order Tally
Receipts No. 3709, 3707, 3703 and 3704. Thereafter, the same were stored inside
the warehouse of Pier No. 9, South Harbor, Manila, pending delivery to the
consignees warehouse.
On November 22, 23 and 29, 2002, the subject cargo was withdrawn from the Pier
by the consignee authorized broker, R. V. Marzan Brokerage Corp. and the same
was delivered to the consignees final warehouse located at Silangan, Canlubang,
Laguna complete with twelve (12) skids in bad order condition.

VISUAL INSPECTION

We conducted an ocular inspection on the reported damaged Electrolytic Tin Free

Steel, Matte Finish at the consignees warehouse located at Brgy. Silangan,
Canlubang, Laguna and noted that out of the reported twelve (12) damaged
skids, nine (9) of them were rejected and three (3) skids were accepted by the
consignees representative as complete and without exceptions.

xxxx

EVALUATION OF INDEMNITY
 We evaluated the loss/damage sustained by the subject shipments and
arrived as follows:

PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS NET WT. PER PACKING LIST
2HD803763 Electrolytic Tin Free 1,200 1,908
Steel JISG3315
2HD803783 -do- 1,200 1,908
2HD803784 -do- 1,200 1,908
2HD804460 -do- 1,400 1,698
2HD803765 -do- 1,200 1,908
2HD804522 -do- 1,200 1,987
2HD804461 -do- 1,400 1,698
2HD804540 -do- 1,200 1,987
2HD804549 -do- 1,200 1,987
9 SKIDS TOTAL 11,200 16,989 kgs.

P9,878,547.58 P478,959.88
------------------ = 42.7643 x 11,200
231,000
Less: Deductible 0.50% based on sum insured 49,392.74
Total P429,567.14
Add: Surveyors Fee 2,025.00
Sub-Total P431,592.14
Note: Above evaluation is Assureds tentative liability as the salvage proceeds on
the damaged stocks has yet to be determined.

RECOVERY ASPECT

Prospect of recovery would be feasible against the shipping company and

the Arrastre operator considering the copies of Bad Order Tally
Receipts and Bad Order Certificate issued by the subject parties.[37]

To clarify, based on the Evaluation Report, seven (7) skids were damaged
upon arrival of the vessel per the Bad Order Cargo Receipts[38] issued by the
shipping company, and an additional five (5) skids were damaged in the custody of
the arrastre operator per the Bad Order Certificate/Examination Report[39] issued by
the arrastre contractor. The Evaluation Report states that out of the
reported twelve damaged skids, only nine were rejected, and three were
accepted as good order by the consignees representative. Out of the nine skids
that were rejected, five skids were damaged upon arrival of the vessel as shown
by the product numbers in the Evaluation Report, which product numbers matched
those in the Bad Order Cargo Receipts[40] issued by the shipping company. It can
then be safely inferred that the four remaining rejected skids were damaged in
the custody of the arrastre operator, as the Bad Order Certificate/Examination
Report did not indicate the product numbers thereof.

Hence, it should be pointed out that the Evaluation Report shows that the
claim for actual damages in the amount of P431,592.14 covers five (5)[41] out of
the seven (7) skids that were found to be damaged upon arrival of the
vessel and covered by Bad Order Cargo Receipt Nos. 3704, 3706, 3707
and 3709,[42] which claim should have been filed with the shipping
company.Petitioner must have realized that the claim for the said five (5) skids was
already barred under COGSA; hence, petitioner filed the claim for actual damages
only against respondent arrastre operator.
As regards the four (4) skids that were damaged in the custody of the arrastre
operator, petitioner is still entitled to recover from respondent. The Court has ruled
that the Request for Bad Order Survey and the examination report on the said
request satisfied the purpose of a formal claim, as respondent was made aware of
and was able to verify that five (5) skids were damaged or in bad order while in its
custody before the last withdrawal of the shipment on November 29, 2002. Hence,
even if the formal claim was filed beyond the 15-day period stipulated in the
Contract, respondent was not prejudiced thereby, since it already knew of the
number of skids damaged in its possession per the examination report on the request
for bad order survey.

Remand of the case to the trial court for the determination of the liability of
respondent to petitioner is not necessary as the Court can resolve the same based on
the records before it.[43] The Court notes that petitioner, who filed this action for
damages for the five (5) skids that were damaged while in the custody of
respondent, was not forthright in its claim, as it knew that the damages it sought in
the amount of P431,592.14, which was based on the Evaluation Report of its
adjuster/surveyor, BA McLarens Phils., Inc., covered nine (9) skids. Based on the
same Evaluation Report, only four of the nine skids were damaged in the
custody of respondent. Petitioner should have been straightforward about its exact
claim, which is borne out by the evidence on record, as petitioner can be granted
only the amount of damages that is due to it.
 Based on the Evaluation Report[44] of BA McLarens Phils., Inc., dated May 5,
2003, the four (4) skids damaged while in the custody of the arrastre operator and
the amount of actual damages therefore are as follows:

PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS NET WT. PER

PACKING LIST
2HD804522 Electrolytic Tin Free 1,200 1,987
Steel JISG3315
2HD804461 -do- 1,400 1,698
2HD804540 -do- 1,200 1,987
2HD804549 -do- 1,200 1,987
----------------------------------------------------------------------------------------------------------
4 SKIDS TOTAL 5,000
P9,878,547.58 (Insured value)[45] P213,821.50
------------------ = 42.7643 x 5,000
231,000 (Total number of sheets)
Less: Deductible 0.50% based on sum insured[46] 49,392.74
Total P164,428.76

In view of the foregoing, petitioner is entitled to actual damages in the

amount of P164,428.76 for the four (4) skids damaged while in the custody of
respondent.

WHEREFORE, the petition is GRANTED. The Decision of the Regional

Trial Court of Makati City, Branch 138, dated October 17, 2006, in Civil Case No.
05-809, and its Order dated December 4, 2007, are hereby REVERSED and SET
ASIDE. Respondent Asian Terminals, Inc. is ORDERED to pay petitioner
Insurance Company of North America actual damages in the amount of One
Hundred Sixty-Four Thousand Four Hundred Twenty-Eight Pesos and Seventy-Six
Centavos (P164,428.76). Twelve percent (12%) interest per annum shall be
imposed on the amount of actual damages from the date the award becomes final
and executory until its full satisfaction.

Costs against petitioner.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION
G.R. No. 91228. March 22, 1993.

PUROMINES, INC., petitioner, vs. COURT OF APPEAL and PHILIPP BROTHERS OCEANIC, INC.,
respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS OF VENDOR; DAMAGES ARISING FROM CARRIAGE AND

DELIVERY. We agree with the court a quo that the sales contract is comprehensive enough to
include claims for damages arising from carriage and delivery of the goods. As a general rule, the
seller has the obligation to transmit the goods to the buyer, and concomitant thereto, the contracting
of a carrier to deliver the same.

2. COMMERCIAL LAW; MARITIME TRANSPORTATION; MARITIME COMMERCE; CHARTER

PARTIES, CONSTRUED. American jurisprudence defines charter party 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. Charter or charter parties are of two kinds. Charter of demise or bareboat and contracts of
affreightment.

3. ID.; ID.; ID.; ID.; KINDS; CHARTER OF DEMISE, CONSTRUED. Under the demise or
bareboat charter of the vessel, the charterer will generally be considered as owner for the voyage or
service stipulated. The charterer mans the vessel with his own people and becomes, in effect, 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, anything short
of such a complete transfer is a contract of affreightment (time or voyage charter party) or not a
charter party at all.

4. ID.; ID.; ID.; ID.; ID.; CONTRACT OF AFFREIGNMENT, CONSTRUED. A contract of

affreightment is in which the owner of the vessel leases part or all of its space to haul goods for
others. It is a contract for a 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. If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights, responsibilities of ownership rest on the
owner and the charterer is usually free from liability to third persons in respect of the ship.

5. ID.; ID.; ID.; ID.; LIABILITY TO THIRD PERSONS FOR GOODS SHIPPED ON BOARD A
VESSEL. Responsibility to third persons for goods shipped on board a vessel follows the vessel's
possession and employment; and if possession is transferred to the charterer by virtue of a demise,
the charterer, and not the owner, is liable as carrier on the contract of affreightment made by himself
or by the master with third persons, and is answerable for loss, damage or non-delivery of goods
received for transportation. 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 or unloading of the cargo.

6. ID.; ID.; ID.; ID.; BILLS OF LADING; ARBITRATION PROVISION THEREOF, CONSIDERED
AND RESPECTED. Whether the liability of respondent should be based on the same contract or
that of the bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on
the sales contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract
cannot escape from his obligation under the arbitration clause as stated therein. Arbitration has been
held valid and constitutional. Even before the enactment of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration. The rule now is that unless the
agreement is such as absolutely to close the doors of the courts against the parties, which
agreement would be void, the courts will look with favor upon such amicable arrangements and will
only interfere with great reluctance to anticipate or nullify the action of the arbitrator. As pointed out
in the case of Mindanao Portland Cement Corp. v. McDough Construction Company of Florida 18
wherein the plaintiff sued defendant for damages arising from a contract, the Court said: "Since there
obtains herein a written provision for arbitration as well as failure on respondent's part to comply
therewith, the court a quo rightly ordered the parties to proceed to their arbitration in accordance with
the terms of their agreement (Sec. 6 Republic Act 876). Respondent's arguments touching upon the
merits of the dispute are improperly raised herein. They should be addressed to the arbitrators. This
proceeding is merely a summary remedy to enforce the agreement to arbitrate. The duty of the court
in this case is not to resolve the merits of the parties' claims but only to determine if they should
proceed to arbitration or not. And although it has been ruled that a privolous or patently baseless
claim should not be ordered to arbitration it is also recognized that the mere fact that a defense exist
against a claim does not make it frivolous or baseless."

7. REMEDIAL LAW; CIVIL PROCEDURE; PLEADINGS; COMPLAINT; ANNEXES ATTACHED

THEREOF, PART OF THE RECORD. Petitioner contend that the arbitration provision in the bills
of lading should not have been discussed as an issue in the decision of the Court of Appeals since it
was not raised as a special or affirmative defense. The three bills of lading were attached to the
complaint as Annexes "A," "B," and "C," and are therefore parts thereof and may be considered as
evidence although not introduced as such. Hence, it was then proper for the court a quo to discuss
the contents of the bills of lading, having been made part of the record.

DECISION

NOCON, J p:

This is a special civil action for certiorari and prohibition to annul and set aside the Decision of the
respondent Court of Appeals dated November 16, 1989 1 reversing the order of the trial court and
dismissing petitioner's compliant in Civil Case No. 89-47403, entitled Puromines, Inc. v. Maritime
Factors, Inc. and Philipp Brothers Oceanic, Inc.

Culled from the records of this case, the facts show that petitioner, Puromines, Inc. (Puromines for
brevity) and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with private
respondents Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk. The Sales Contract
No. S151.8.01018 provided, among others an arbitration clause which states, thus:

"9. Arbitration

"Any disputes arising under this contract shall be settled by arbitration in London in accordance with
the Arbitration Act 1950 and any statutory amendment or modification thereof. Each party is to
appoint an Arbitrator, and should they be unable to agree, the decision of an Umpire appointed by
them to be final. The Arbitrators and Umpire are all to be commercial men and resident in London.
This submission may be made a rule of the High Court of Justice in England by either party." 2

On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a
shipment of 15,500 metric tons prilled Urea in bulk complete and in good order and condition for
transport to Iloilo and Manila, to be delivered to petitioner. Three bills of lading were issued by the
ship-agent in the Philippines, Maritime Factors Inc., namely: Bill of Lading No. dated May 12, 1988
covering 10,000 metric tons for discharge Manila; Bill of Lading No. 2 of even date covering 4,000
metric tons for unloading in Iloilo City; and Bill of Lading No. 3, also dated May 12, 1988, covering
1,500 metric tons likewise for discharged in Manila

The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good
order and condition. However, the shipments covered by Bill of Lading Nos. 1 and 3 were
discharged in Manila in bad order and condition, caked, hardened and lumpy, discolored and
contaminated with rust and dirt. Damages were valued at P683, 056. 29 including additional
discharging expenses.

Consequently, petitioner filed a complaint 3 with the trial court 4 for breach of contract of carriage
against Maritime Factors Inc. (which was not included as respondent in this petition) as ship-agent in
the Philippines for the owners of the vessel MV "Liliana Dimitrova," while private respondent, Philipp
Brothers Oceanic Inc., was impleaded as charterer of the said vessel and proper party to accord
petitioner complete relief. Maritime Factors, Inc. filed its Answer 5 to the complaint, while private
respondent filed a motion to dismiss, dated February 9, 1989, on the grounds that the complaint
states no cause of action; that it was prematurely filed; and that petitioner should comply with the
arbitration clause in the sales contract. 6

The motion to dismiss was opposed by petitioner contending the inapplicability of the arbitration
clause inasmuch as the cause of action did not arise from a violation of the terms of the sales
contract but rather for claims of cargo damages where there is no arbitration agreement. On April 26,
1989, the trial court denied respondent's motion to dismiss in this wise:

"The sales contract in question states in part:

'Any disputes arising under this contract shall be settled by arbitration . . .(emphasis supplied)

"A perusal of the facts alleged in the complaint upon which the question of sufficiency of the cause of
action of the complaint arose from a breach of contract of carriage by the vessel chartered by the
defendant Philipp Brothers Oceanic, Inc. Thus, the aforementioned arbitration clause cannot apply to
the dispute in the present action which concerns plaintiff's claim for cargo loss/damage arising from
breach of contract of carriage.

"That the defendant is not the ship owner or common carrier and therefore plaintiff does not have
legal right against it since every action must be brought against the real party in interest has no merit
either for by the allegations in the complaint the defendant herein has been impleaded as charterer
of the vessel, hence, a proper party." 7

Elevating the matter to the Court of Appeals, petitioner's complaint was dismissed. The appellate
court found that the arbitration provision in the sales contract and/or the bills of lading is applicable in
the present case. Said the court:

"An examination of the sales contract No. S151.8.01018 shows that it is broad enough to include the
claim for damages arising from the carriage and delivery of the goods subject-matter thereof.

"It is also noted that the bills of lading attached as Annexes 'A', 'B' and 'C' to the complaint state, in
part, 'any dispute arising under this Bill of Lading shall be referred to arbitration of the Maritime
Arbitration Commission at the USSR Chamber of Commerce and Industry, 6 Kuibyshevskaia Str.,
Moscow, USSR, in accordance with the rules of procedure of said commission.'
Considering that the private respondent was one of the signatories to the sales contract . . . all
parties are obliged o respect the terms and conditions of the said sales contract, including the
provision thereof on 'arbitration.' "

Hence, this petition The issue raised is: Whether the phrase "any dispute arising under this contract"
in the arbitration clause of the sales contract covers a cargo claim against the vessel (owner and/or
charterers) for breach of contract of carriage.

Petitioner states in its complainants that Philipp Brothers "was the charterer of the vessel MV 'Liliana
Dimitrova' which transported the shipment from Yuzhny USSR to Manila." Petitioner further alleged
that the caking and hardening, wetting and melting, and contamination by rust and dirt of the
damaged portions of the shipment were due to the improper ventilation and inadequate storage
facilities of the vessel; that the wetting of the cargo was attributable to the failure of the crew to close
the hatches before and when it rained while the shipment was being unloaded in the Port of Manila;
and that as a direct and natural consequence of the unseaworthiness and negligence of the vessel
(sic), petitioner suffered damages in the total amount of P683, 056.29 Philippine currency." 8
(Emphasis supplied)

Moreover, in its Opposition to the Motion to Dismiss, petitioner said that "[t]he cause of action of the
complaint arose from breach of contract of carriage by the vessel that was chartered by defendant
Philipp Brothers." 9

In the present petition, petitioner argues that the sales contract does not include the contract of
carriage which is a different contract entered into by the carrier with the cargo owners. That it was an
error for the respondent court to touch upon the arbitration provision of the bills lading in its decision
inasmuch as the same was not raised as an issue by private respondent who was not a party in the
bills of lading (emphasis Ours). Petitioner contradicts itself.

We agree with the court a quo that the sales contract is comprehensive enough to include claims for
damages arising from carriage and delivery of the goods. As a general rule, the seller has the
obligation to transmit the goods to the buyer, and concomitant thereto, the contracting of a carrier to
deliver the same. Art. 1523 of the Civil Code provides:

"Art. 1523. Where in pursuance of a contract of sale, the seller in authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the
purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in
the cases provided for in article 1503, first, second and third paragraphs, or unless a contrary intent
appear.

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

xxx xxx xxx

The disputed sales contact provides for conditions relative to the delivery of goods, such as date of
shipment, demurrage, weight as determined by the bill of lading at load port and more particularly
the following provisions:
"3. Intention is to ship in one bottom, approximately 5,000 metrics tons to Puromines and
approximately 15,000 metric tons to Makati Agro. However, Sellers to have right to ship material as
partial shipment or co-shipment in addition to above. In the event of co-shipment to a third party
within Philippines same to be discussed with and acceptable to both Puromines and Makati Agro.

"4. Sellers to appoint neutral survey for Seller's account to conduct initial draft survey at first
discharge port and final survey at last discharge port. Surveyors results to be binding and final. In
the event draft survey results show a quantity less than the combined Bills of Lading quantity for
both Puromines and Makati Agro, Sellers to refund the difference. In the event that draft survey
results show a quantity in excess of combined Bills of Lading of quantity of both Puromines and
Makati Agro then Buyers to refund the difference.

"5. It is expressly and mutually agreed that neither Sellers nor vessel's Owners have any liability to
separate cargo or to deliver cargo separately or to deliver minimum/maximum quantities stated on
individual Bills of Lading. At each port vessel is to discharge in accordance with Buyers local
requirements and it is Buyer's responsibility to separate individual quantities required by each of
them at each port during or after discharged."

As argued by respondent on its motion to dismiss, "the (petitioner) derives his right to the cargo from
the bill of lading which is the contract of affreightment together with the sales contract.
Consequently, the (petitioner) is bound by the provisions and terms of said bill of lading and of the
arbitration clause incorporated in the sales contract."

Assuming arguendo that the liability of respondent is not based on the sales contract, but rather on
the contract of carriage, being the charterer of the vessel MV "Liliana Dimitrova," it would, therefore,
be material to show what kind of charter party the respondent had with the shipowner to determine
respondent's liability.

American jurisprudence defines charter party 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. 10 Charter or charter
parties are of two kinds. Charter of demise or bareboat and contracts of affreightment.

Under the demise or bareboat charter of the vessel, the charterer will generally be considered as
owner for the voyage or service stipulated. The charterer mans the vessel with his own people and
becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by
negligence. 11 To create a demise the owner of a vessel must completely and exclusively relinquish
possession, 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 in which the owner of the vessel leases part or all of
its space to haul goods for others. It is a contract for a special service to be rendered by the owner of
the vessel 12 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. 13 If the charter is a contract of affreightment, which
leaves the general owner in possession of the ship as owner for the voyage, the rights,
responsibilities of ownership rest on the owner and the charterer is usually free from liability to third
persons in respect of the ship. 14

Responsibility to third persons for goods shipped on board a vessel follows the vessel's possession
and employment; and if possession is transferred to the charterer by virtue of a demise, the
charterer, and not the owner, is liable as carrier on the contract of affreightment made by himself or
by the master with third persons, and is answerable for loss, damage or non-delivery of goods
received for transportation. 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 or unloading of the cargo. 15

Assuming that in the present case, the charter party is a demise or bareboat charter, then Philipp
Brothers is liable to Puromines, Inc., subject to the terms and conditions of the sales contract. On the
other hand, if the contract between respondent and the owner of the vessel MV "Liliana Dimitrova"
was merely that of affreightment, then it cannot be held liable for the damages caused by the breach
of contract of carriage, the evidence of which is the bills of lading

In any case, whether the liability of respondent should be based on the same contract or that of the
bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales
contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot
escape from his obligation under the arbitration clause as stated therein.

Neither can petitioner contend that the arbitration provision in the bills of lading should not have
been discussed as an issue in the decision of the Court of Appeals since it was not raised as a
special or affirmative defense. The three bills of lading were attached to the complaint as Annexes
"A," "B," and "C," and are therefore parts thereof and may be considered as evidence although not
introduced as such. 16 Hence, it was then proper for the court a quo to discuss the contents of the
bills of lading, having been made part of the record.

Going back to the main subject of this case, arbitration has been held valid and constitutional. Even
before the enactment of Republic Act No. 876, this Court has countenanced the settlement of
disputes through arbitration. The rule now is that unless the agreement is such as absolutely to close
the doors of the courts against the parties, which agreement would be void, the courts will look with
favor upon such amicable arrangements and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. 17

As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough Construction
Company of Florida 18 wherein the plaintiff sued defendant for damages arising from a contract, the
Court said:

"Since there obtains herein a written provision for arbitration as well as failure on respondent's part
to comply therewith, the court a quo rightly ordered the parties to proceed to their arbitration in
accordance with the terms of their agreement (Sec. 6 Republic Act 876). Respondent's arguments
touching upon the merits of the dispute are improperly raised herein. They should be addressed to
the arbitrators. This proceeding is merely a summary remedy to enforce the agreement to arbitrate.
The duty of the court in this case is not to resolve the merits of the parties' claims but only to
determine if they should proceed to arbitration or not. And although it has been ruled that a frivolous
or patently baseless claim should not be ordered to arbitration it is also recognized that the mere fact
that a defense exist against a claim does not make it frivolous or baseless." 19

In the case of Bengson v. Chan, 20 We upheld the provision of a contract which required the parties
to submit their disputes to arbitration and We held as follows:

"The trial court sensibly said that 'all the causes of action alleged in the plaintiffs amended complaint
are based upon the supposed violations committed by the defendants of the 'Contract of
Construction of a Building' and that 'the provisions of paragraph 15 hereof leave a very little room for
doubt that the said causes of action are embraced within the phrase 'any and all questions, disputes
or differences between the parties hereto relative to the construction of the building,' which must be
determined by arbitration of two persons and such determination by the arbitrators shall be 'final,
conclusive and binding upon both parties unless they to court, in which the case the determination
by arbitration is a condition precedent 'for taking any court action."

xxx xxx xxx

"We hold that the terms of paragraph 15 clearly express the intention of the parties that all disputes
between them should first be arbitrated before court action can be taken by the aggrieved party." 21

Premises considered, We uphold the validity and applicability of the arbitration clause as stated in
Sales Contract No. S151.8.01018 to the present dispute.

WHEREFORE, petition is hereby DISMISSED and decision of the court a quo is AFFIRMED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

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.

BELLOSILLO, J.:

Does a charter-party1 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 Charter2 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 holds4 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
charter-party 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 steelbodied
dump trucks which were parked alongside the berth, using metal scoops attached to the ship,
pursuant to the terms and conditions of the charter-partly (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 ferilizer.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).10A 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 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 to 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 shipted 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 (emphasis 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 charterer-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 obligation . . . 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 cause by want of due deligence
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 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 deligence 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.

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 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 the 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 shipowners 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
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 collusion 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
faciepresumption 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 Attache 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 the 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) (emphasis
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 reexamined 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 charter-party 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 charterer of the goods or defects in the
packaging or in the containers. The Code of Commerce also provides that all losses and
deterioration 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

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 daterioration 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 "bar
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 remise 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.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-51910 August 10, 1989

LITONJUA SHIPPING COMPANY INC., petitioner

vs.
NATIONAL SEAMEN BOARD and GREGORIO P. CANDONGO respondents.

Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner.

Estratonico S. Anano for private respondent.

FELICIANO, J.:

In this Petition for Certiorari, petitioner Litonjua Shipping Company, Inc. ("Lintonjua") seeks to annul
and set aside a decision dated, 31 May 1979 of the National Seamen Board ("NSB") in NSB Case
No. 1331-77 affirming the decision dated 17 February 1977 of the NSB hearing officer which
adjudged petitioner Litonjua liable to private respondent for violation of the latter's contract of
employment and which ordered petitioner to pay damages.

Petitioner Litonjua is the duly appointed local crewing Managing Office of the Fairwind Shipping
Corporation ('Fairwind). The M/V Dufton Bay is an ocean-going vessel of foreign registry owned by
the R.D. Mullion Ship Broking Agency Ltd. ("Mullion"). On 11 September 1976, while the Dufton
Bay was in the port of Cebu and while under charter by Fairwind, the vessel's master contracted the
services of, among others, private respondent Gregorio Candongo to serve as Third Engineer for a
period of twelve (12) months with a monthly wage of US$500.00. This agreement was executed
before the Cebu Area Manning Unit of the NSB. Thereafter, private respondent boarded the vessel.
On 28 December 1976, before expiration of his contract, private respondent was required to
disembark at Port Kelang, Malaysia, and was returned to the Philippines on 5 January 1977. The
cause of the discharge was described in his Seaman's Book as 'by owner's arrange".1

Shortly after returning to the Philippines, private respondent filed a complaint before public
respondent NSB, which complaint was docketed as NSB-1331-77, for violation of contract, against
Mullion as the shipping company and petitioner Litonjua as agent of the shipowner and of the
charterer of the vessel.

At the initial hearing, the NSB hearing officer held a conference with the parties, at which conference
petitioner Litonjua was represented by one of its supercargos, Edmond Cruz. Edmond Cruz asked,
in writing, that the hearing be postponed for a month upon the ground that the employee of Litonjua
in charge of the case was out of town. The hearing officer denied this request and then declared
petitioner Litonjua in default. At the hearing, private respondent testified that when he was recruited
by the Captain of the Dufton Bay, the latter was accompanied to the NSB Cebu Area Manning Unit
by two (2) supercargos sent by petitioner Litonjua to Cebu, and that the two (2) supercargos
Edmond Cruz and Renato Litonjua assisted private respondent in the procurement of his National
Investigation and Security Agency (NISA) clearance. Messrs. Cruz and Litonjua were also present
during private respondent's interview by Captain Ho King Yiu of the Dufton Bay.

On 17 February 1977, the hearing officer of the NSB rendered a judgment by default, 2 the
dispositive portion of which read:

Wherefore, premises considered, judgment is hereby rendered ordering the

respondents R.D. Mullion Shipbrokers Co., Ltd., and Litonjua Shipping Co., Inc.,
jointly and solidarily to pay the complainant the sum of four thousand six hundred fifty
seven dollars and sixty three cents ($4,657.63) or its equivalent in the Phil. currency
within 10 days from receipt of the copy of this Decision the payment of which to be
coursed through the then NSB.

The above conclusion was rationalized in the following terms:

From the evidence on record it clearly appears that there was no sufficient or valid
cause for the respondents to terminate the services of complainant prior to 17
September 1977, which is the expiry date of the contract. For this reason the
respondents have violated the conditions of the contract of employment which is a
sufficient justification for this Board to render award in favor of the complainant of the
unpaid salaries due the latter as damages corresponding to the unexpired portion of
the contract including the accrued leave pay computed on the basis of five [51 days
pay for every month of service based at $500.00 monthly salary. Complainant's
wages account further show that he has an undrawn wage amounting to US$13.19
to be paid by the respondents Philippine agency together with his accrued leave
pay. 3

Petitioner Litonjua filed a motion for reconsideration of the hearing officer's decision; the motion was
denied. Petitioner next filed an "Appeal and/or Motion for Reconsideration of the Default Judgment
dated 9 August 1977" with the central office of the NSB. NSB then suspended its hearing officer's
decision and lifted the order of default against petitioner Litonjua, thereby allowing the latter to
adduce evidence in its own behalf The NSB hearing officer, on 26 April 1978, made the following
findings:

While it appears that in the preparation of the employment papers of the

complainant, what was indicated therein was R.D. Mullion Co. (HK) Ltd. referring to
Exhibit "B" (Standard Format of a Service Agreement) and Exhibit "C" (Affidavit of
Undertaking), as thecompany whom Captain Ho King Yiu, the Master of the vessel
Dufton Bay, was representing to be the shipowner, the fact remains that at the time
of the recruitment of the complainant, as duly verified by the National Seamen Board,
Cebu Area Manning Unit, the Litonjua Shipping Company was the authorized agent
of the vessel's charterer, the Fairwind Shipping Corporation, and that in the
recruitment process, the Litonjua Shipping Company through its supercargos in the
persons of Edmund Cruz and Renato Litonjua, had knowledge thereof and in fact
assisted in the interviews conducted by the Master of the crew applicants as
admitted by Renato Litonjua including the acts of facilitating the crew's NISA
clearances as testified to by complainant. Moreover, the participation of the Litonjua
Shipping Corporation in the recruitment of complainant, together with the other
crewmembers, in Cebu in September 1976 can be traced to the contents of the letter
of April 5, 1976 by the Fairwind Shipping Limited, thru its Director David H.L. Wu
addressed to the National Seamen Board, copy of which is on file with Contracts and
Licensing Division, quote:
 This is to certify that Messrs. Litonjua Shipping, Inc. is duly appointed local crewing
Managing Office to attend on our Crew requirements as well as attend to our ship's
requirements when in Philippine ports.

We further authorized Litonjua Shipping Co., Inc. to act as local representative who
can sue and be sued, and to bind and sign contracts for our behalf. 4

The NSB then lifted the suspension of the hearing officer's 17 February 1977 decision.

Petitioner Litonjua once more moved for reconsideration. On 31 May 1979, public respondent NSB
rendered a decision 5 which affirmed its hearing offices decision of 17 February 1977 and which read
in part as follows:

It is clear that respondent Litonjua Shipping Co., Inc. is the authorized Philippine
agent of Fairwind Shipping Corporation, charterer of the vessel 'Dufton Bay, wherein
complainant, served as 3rd Engineer from 17 September until disembarkation on
December 28, 1976. It is also clear from the complainant's wages account bearing
the heading 'Fairwind Shipping Corporation', signed by the Master of the vessel that
the Philippine agency referred to herein directed to pay the said withdrawn wages of
$13.19 is no other than Litonjua Shipping Company, Inc.

From this observation, it can be reasonably inferred that the master of the vessel
acted for and in behalf of Fairwind Shipping Corporation who had the obligation to
pay the salary of the complainant. It necessarily follows that Fairwind Shipping
Corporation is the employer of said complainant. Moreover, it had been established
by complainant that Litonjua Shipping Company, Inc., had knowledge of and
participated, through its employee, in the recruitment of herein complainant.

xxx xxx xxx

In view of the foregoing, and pursuant to Art. 3 of the New Labor Code of the
Philippines, which provides that, 'The state shall afford protection to labor . . .' as well
as the provisions of Art. 4 thereof, that 'all doubts in the implementation and
interpretation of the provisions of the Code, including its implementing rules and
regulations, shall be resolved in favor of labor', it is our conclusion, that the decision
dated February 17, 1977, is based on evidence formally offered and presented
during the hearing and that there was no grave abuse of discretion committed by the
hearing officer in finding respondent Litonjua Shipping Company, Inc., liable to
complainant. (Emphasis supplied)

In the instant Petition for Certiorari, petitioner Litonjua assails the decision of public respondent NSB
declaring the charterer Fairwind as employer of private respondent, and for whose liability petitioner
was made responsible, as constituting a grave abuse of discretion amounting to lack of jurisdiction.
The principal if not the sole issue to be resolved here is whether or not the charterer Fairwind was
properly regarded as the employer of private respondent Candongo.

Petitioner Litonjua makes two (2) principal submissions in support of its contention, to wit:

1) As a general rule, admiralty law as embodied in the Philippine Code of Commerce

fastens liability for payment of the crew's wages upon the ship owner, and not the
charterer; and
 2) The evidence of record is grossly inadequate to shift such liability from the
shipowner to the petitioner.6

Petitioner Litonjua contends that the shipowner, not the charterer, was the employer of private
respondent; and that liability for damages cannot be imposed upon petitioner which was a mere
agent of the charterer. It is insisted that private respondent's contract of employment and affidavit of
undertaking clearly showed that the party with whom he had contracted was none other than
Mullion, the shipowner, represented by the ship's master. 7 Petitioner also argues that its
supercargos merely assisted Captain Ho King Yiu of the Dufton Bay in being private respondent as
Third Engineer. Petitioner also points to the circumstance that the discharge and the repatriation of
private respondent was specified in his Seaman's Book as having been "by owner's arrange."
Petitioner Litonjua thus argues that being the agent of the charterer and not of the shipowner, it
accordingly should not have been held liable on the contract of employment of private respondent.

We are not persuaded by petitioner's argument. We believe that there are two (2) grounds upon
which petitioner Litonjua may be held liable to the private respondent on the contract of employment.

The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind, the
charterer. In modern maritime law and usage, there are three (3) distinguishable types of charter
parties: (a) the "bareboat" or "demise" charter; (b) the "time" charter; and (c) the "voyage" or "trip"
charter. A bareboat or demise charter is a demise of a vessel, much as a lease of an unfurnished
house is a demise of real property. The shipowner turns over possession of his vessel to the
charterer, who then undertakes to provide a crew and victuals and supplies and fuel for her during
the term of the charter. The shipowner is not normally required by the terms of a demise charter to
provide a crew, and so the charterer gets the "bare boat", i.e., without a crew. 8 Sometimes, of
course, the demise charter might provide that the shipowner is to furnish a master and crew to man
the vessel under the charterer's direction, such that the master and crew provided by the shipowner
become the agents and servants or employees of the charterer, and the charterer (and not the
owner) through the agency of the master, has possession and control of the vessel during the
charter period. A time charter, upon the other hand, like a demise charter, is a contract for the use of
a vessel for a specified period of time or for the duration of one or more specified voyages. In this
case, however, the owner of a time-chartered vessel (unlike the owner of a vessel under a demise or
bare-boat charter), retains possession and control through the master and crew who remain his
employees. What the time charterer acquires is the right to utilize the carrying capacity and facilities
of the vessel and to designate her destinations during the term of the charter. A voyage charter, or
trip charter, is simply a contract of affreightment, that is, a contract for the carriage of goods, from
one or more ports of loading to one or more ports of unloading, on one or on a series of voyages. In
a voyage charter, master and crew remain in the employ of the owner of the vessel. 9

It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro hac
vice of the vessel, the charterer assuming in large measure the customary rights and liabilities of the
shipowner in relation to third persons who have dealt with him or with the vessel. 10 In such case, the
Master of the vessel is the agent of the charterer and not of the shipowner.11 The charterer or
owner pro hac vice, and not the general owner of the vessel, is held liable for the expenses of the
voyage including the wages of the seamen.12

It is important to note that petitioner Litonjua did not place into the record of this case a copy of the
charter party covering the M/V Dufton Bay. We must assume that petitioner Litonjua was aware of
the nature of a bareboat or demise charter and that if petitioner did not see fit to include in the record
a copy of the charter party, which had been entered into by its principal, it was because the charter
party and the provisions thereof were not supportive of the position adopted by petitioner Litonjua in
the present case, a position diametrically opposed to the legal consequence of a bareboat
charter.13 Treating Fairwind as owner pro hac vice, petitioner Litonjua having failed to show that it
was not such, we believe and so hold that petitioner Litonjua, as Philippine agent of the charterer,
may be held liable on the contract of employment between the ship captain and the private
respondent.

There is a second and ethically more compelling basis for holding petitioner Litonjua liable on the
contract of employment of private respondent. The charterer of the vessel, Fairwind, clearly
benefitted from the employment of private respondent as Third Engineer of the Dufton Bay, along
with the ten (10) other Filipino crewmembers recruited by Captain Ho in Cebu at the same
occasion. 14 If private respondent had not agreed to serve as such Third Engineer, the ship would not
have been able to proceed with its voyage. The equitable consequence of this benefit to the
charterer is, moreover, reinforced by convergence of other circumstances of which the Court must
take account. There is the circumstance that only the charterer, through the petitioner, was present
in the Philippines. Secondly, the scope of authority or the responsibility of petitioner Litonjua was not
clearly delimited. Petitioner as noted, took the position that its commission was limited to taking care
of vessels owned by Fairwind. But the documentary authorization read into the record of this case
does not make that clear at all. The words "our ships" may well be read to refer both to vessels
registered in the name of Fairwind and vessels owned by others but chartered by Fairwind. Indeed
the commercial, operating requirements of a vessel for crew members and for supplies and
provisions have no relationship to the technical characterization of the vessel as owned by or as
merely chartered by Fairwind. In any case, it is not clear from the authorization given by Fairwind to
petitioner Litonjua that vessels chartered by Fairwind (and owned by some other companies)
were not to be taken care of by petitioner Litonjua should such vessels put into a Philippine port. The
statement of account which the Dufton Bay'sMaster had signed and which pertained to the salary of
private respondent had referred to a Philippine agency which would take care of disbursing or paying
such account. 'there is no question that Philippine agency was the Philippine agent of the charterer
Fairwind. Moreover, there is also no question that petitioner Litonjua did assist the Master of the
vessel in locating and recruiting private respondent as Third Engineer of the vessel as well as ten
(10) other Filipino seamen as crew members. In so doing, petitioner Litonjua certainly in effect
represented that it was taking care of the crewing and other requirements of a vessel chartered by
its principal, Fairwind.15

Last, but certainly not least, there is the circumstance that extreme hardship would result for the
private respondent if petitioner Litonjua, as Philippine agent of the charterer, is not held liable to
private respondent upon the contract of employment. Clearly, the private respondent, and the other
Filipino crew members of the vessel, would be defenseless against a breach of their respective
contracts. While wages of crew members constitute a maritime lien upon the vessel, private
respondent is in no position to enforce that lien. If only because the vessel, being one of foreign
registry and not ordinarily doing business in the Philippines or making regular calls on Philippine
ports cannot be effectively held to answer for such claims in a Philippine forum. Upon the other
hand, it seems quite clear that petitioner Litonjua, should it be held liable to private respondent for
the latter's claims, would be better placed to secure reimbursement from its principal Fairwind. In
turn, Fairwind would be in an indefinitely better position (than private respondent) to seek and obtain
recourse from Mullion, the foreign shipowner, should Fairwind feel entitled to reimbursement of the
amounts paid to private respondent through petitioner Litonjua.

We conclude that private respondent was properly regarded as an employee of the charterer
Fairwind and that petitioner Litonjua may be held to answer to private respondent for the latter's
claims as the agent in the Philippines of Fairwind. We think this result, which public respondent
reached, far from constituting a grave abuse of discretion, is compelled by equitable principles and
by the demands of substantial justice. To hold otherwise would be to leave private respondent (and
others who may find themselves in his position) without any effective recourse for the unjust
dismissal and for the breach of his contract of employment.
WHEREFORE, the Petition for certiorari is DISMISSED and the Decision of the then National
Seamen Board dated 31 May 1979 is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-773 December 17, 1946

DIONISIA ABUEG, ET AL., plaintiffs-appellees,

vs.
BARTOLOME SAN DIEGO, defendant-appellant.

----------------------------

CA-No. L-774 December 17, 1946

MARCIANA DE SALVACION, ET AL., plaintiffs-appellees,

vs.
BARTOLOME SAN DIEGO, defendant-appellant.

----------------------------

CA-No. L-775 December 17, 1946

ROSARIO OCHING, ET AL., plaintiffs-appellees,

vs.
BARTOLOME SAN DIEGO, defendant-appellant.

Lichauco, Picazo and Mejia for appellant.

Cecilio I. Lim and Roberto P. Ancog for appellees.

PADILLA, J.:

This is 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 to 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 up, 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. de 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-appellant. In case
CA-G.R. No. 775, the plaintiff-appellee, Rosario R. Oching is the widow of Francisco Oching
who was a 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 tortious 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 ship owners' liability is limited to the value of the vessel with all her
equipment and freight earned during the voyage (Philippine Shipping company vs. Garcia, 6 Phil.,
281), and article 643 of the same Code which provides that if the vessel 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 shipowner or agent embodied in the provisions
of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing continues of the
maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and
perils. To offset against these adverse conditions and 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 result of collision; nor the responsibility for wages 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 and 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 cost of production which must be included in the
budget of any well-managed industry. law phil.net

Appellant's assertion that in the case of Enciso 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. Laserma,
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 Enciso 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 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 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 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 and interisland trade, as contemplated in section 38 of the Workmen's Compensation Act
(No. 3428), as amended by Act no. 3812, inasmuch 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. lawphil.net

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 of 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 admissible to include in the Workmen's Compensation Act all incidents
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.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-42926 September 13, 1985

PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES, ROMEO

VASQUEZ and MAXIMINA CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC., respondents.

Emilio D. Castellanes for petitioners.

Apolinario A. Abantao for private respondents.

MELENCIO-HERRERA, J.:

This litigation involves a claim for damages for the loss at sea of petitioners' respective children after
the shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966.

The factual antecedents, as summarized by the trial Court and adopted by respondent Court, and
which we find supported by the record, read as follows:

When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early
morning of May 15, 1966 bound for Cebu, it had on board the spouses Alfonso
Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez,
among her passengers. The MV "Pioneer Cebu" encountered typhoon "Klaring" and
struck a reef on the southern part of Malapascua Island, located somewhere north of
the island of Cebu and subsequently sunk. The aforementioned passengers were
unheard from since then.

Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez;
plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo;
and plaintiffs Romeo Vasquez and Maxima Cainay are the parents of the child, Mario
Marlon Vasquez. They seek the recovery of damages due to the loss of Alfonso
Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.

At the pre-trial, the defendant admitted its contract of carriage with Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez, and the fact of the sinking of the MV
"Pioneer Cebu". The issues of the case were limited to the defenses alleged by the
defendant that the sinking of the vessel was caused by force majeure, and that the
defendant's liability had been extinguished by the total loss of the vessel.
 The evidence on record as to the circumstances of the last voyage of the MV
"Pioneer Cebu" came mainly, if not exclusively, from the defendant. The MV "Pioneer
Cebu" was owned and operated by the defendant and used in the transportation of
goods and passengers in the inter-island shipping. Scheduled to leave the Port of
Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00 a.m. the following
day, May 15, 1966. It had a passenger capacity of three hundred twenty-two (322)
including the crew. It undertook the said voyage on a special permit issued by the
Collector of Customs inasmuch as, upon inspection, it was found to be without an
emergency electrical power system. The special permit authorized the vessel to carry
only two hundred sixty (260) passengers due to the said deficiency and for lack of
safety devices for 322 passengers (Exh. 2). A headcount was made of the
passengers on board, resulting on the tallying of 168 adults and 20 minors, although
the passengers manifest only listed 106 passengers. It has been admitted, however,
that the headcount is not reliable inasmuch as it was only done by one man on board
the vessel.

When the vessel left Manila, its officers were already aware of the typhoon Klaring
building up somewhere in Mindanao. There being no typhoon signals on the route
from Manila to Cebu, and the vessel having been cleared by the Customs authorities,
the MV "Pioneer Cebu" left on its voyage to Cebu despite the typhoon. When it
reached Romblon Island, it was decided not to seek shelter thereat, inasmuch as the
weather condition was still good. After passing Romblon and while near Jintotolo
island, the barometer still indicated the existence of good weather condition
continued until the vessel approached Tanguingui island. Upon passing the latter
island, however, the weather suddenly changed and heavy rains felt Fearing that due
to zero visibility, the vessel might hit Chocolate island group, the captain ordered a
reversal of the course so that the vessel could 'weather out' the typhoon by facing the
winds and the waves in the open. Unfortunately, at about noontime on May 16, 1966,
the vessel struck a reef near Malapascua island, sustained leaks and eventually
sunk, bringing with her Captain Floro Yap who was in command of the vessel.

Due to the loss of their children, petitioners sued for damages before the Court of First Instance of
Manila (Civil Case No. 67139). Respondent defended on the plea of force majeure, and the
extinction of its liability by the actual total loss of the vessel.

After proper proceedings, the trial Court awarded damages, thus:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay:

(a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the loss
of earning capacity of the deceased Alfonso Vasquez, P2,100.00 for support, and
P10,000.00 for moral damages;

(b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss
of earning capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral
damages; and

(c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by way of
moral damages by reason of the death of Mario Marlon Vasquez.

On appeal, respondent Court reversed the aforementioned judgment and absolved private
respondent from any and all liability.
Hence, this Petition for Review on Certiorari, the basic issue being the liability for damages of private
respondent for the presumptive death of petitioners' children.

The trial Court found the defense of caso fortuito untenable due to various decisive factors, thus:

... It is an admitted fact that even before the vessel left on its last voyage, its officers
and crew were already aware of the typhoon brewing somewhere in the same
general direction to which the vessel was going. The crew of the vessel took a
calculated risk when it proceeded despite the typhoon advisory. This is quite evident
from the fact that the officers of the vessel had to conduct conferences amongst
themselves to decide whether or not to proceed. The crew assumed a greater risk
when, instead of seeking shelter in Romblon and other islands the vessel passed en
route, they decided to take a change on the expected continuation of the good
weather the vessel was encountering, and the possibility that the typhoon would veer
to some other directions. The eagerness of the crew of the vessel to proceed on its
voyage and to arrive at its destination is readily understandable. It is undeniably
lamentable, however, that they did so at the risk of the lives of the passengers on
board.

Contrariwise, respondent Appellate Court believed that the calamity was caused solely and
proximately by fortuitous event which not even extraordinary diligence of the highest degree could
have guarded against; and that there was no negligence on the part of the common carrier in the
discharge of its duties.

Upon the evidence and the applicable law, we sustain the trial Court. "To constitute a caso
fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be
independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill
the obligation in a normal manner; and that (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor." 1 In the language of the law, the event must have been
impossible to foresee, or if it could be foreseen, must have been impossible to avoid. 2 There must
be an entire exclusion of human agency from the cause of injury or loss. 3

Turning to this case, before they sailed from the port of Manila, the officers and crew were aware of
typhoon "Klaring" that was reported building up at 260 kms. east of Surigao. In fact, they had lashed
all the cargo in the hold before sailing in anticipation of strong winds and rough waters.4 They
proceeded on their way, as did other vessels that day. Upon reaching Romblon, they received the
weather report that the typhoon was 154 kms. east southeast of Tacloban and was moving west
northwest.5 Since they were still not within the radius of the typhoon and the weather was clear, they
deliberated and decided to proceed with the course. At Jintotolo Island, the typhoon was already
reported to be reaching the mainland of Samar. 6 They still decided to proceed noting that the
weather was still "good" although, according to the Chief Forecaster of the Weather Bureau, they
were already within the typhoon zone. 7 At Tanguingui Island, about 2:00 A.M. of May 16, 1966, the
typhoon was in an area quite close to Catbalogan, placing Tanguingui also within the typhoon zone.
Despite knowledge of that fact, they again decided to proceed relying on the forecast that the
typhoon would weaken upon crossing the mainland of Samar. 8 After about half an hour of navigation
towards Chocolate Island, there was a sudden fall of the barometer accompanied by heavy
downpour, big waves, and zero visibility. The Captain of the vessel decided to reverse course and
face the waves in the open sea but because the visibility did not improve they were in total darkness
and, as a consequence, the vessel ran aground a reef and sank on May 16, 1966 around 12:45 P.M.
near Malapascua Island somewhere north of the island of Cebu.
Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been
kept posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain
and crew were well aware of the risk they were taking as they hopped from island to island from
Romblon up to Tanguingui. They held frequent conferences, and oblivious of the utmost diligence
required of very cautious persons, 9 they decided to take a calculated risk. In so doing, they failed to
observe that extraordinary diligence required of them explicitly by law for the safety of the
passengers transported by them with due regard for an circumstances 10 and unnecessarily exposed
the vessel and passengers to the tragic mishap. They failed to overcome that presumption of fault or
negligence that arises in cases of death or injuries to passengers. 11

While the Board of Marine Inquiry, which investigated the disaster, exonerated the captain from any
negligence, it was because it had considered the question of negligence as "moot and academic,"
the captain having "lived up to the true tradition of the profession." While we are bound by the
Board's factual findings, we disagree with its conclusion since it obviously had not taken into account
the legal responsibility of a common carrier towards the safety of the passengers involved.

With respect to private respondent's submission that the total loss of the vessel extinguished its
liability pursuant to Article 587 of the Code of Commerce12 as construed in Yangco vs. Laserna, 73
Phil. 330 [1941], suffice it to state that even in the cited case, it was held that the liability of a
shipowner is limited to the value of the vessel or to the insurance thereon. Despite the total loss of
the vessel therefore, its insurance answers for the damages that a shipowner or agent may be held
liable for by reason of the death of its passengers.

WHEREFORE, the appealed judgment is hereby REVERSED and the judgment of the then Court of
First Instance of Manila, Branch V, in Civil Case No. 67139, is hereby reinstated. No costs.

SO ORDERED.

SECOND DIVISION

[G.R. No. 110398. November 7, 1997]

NEGROS NAVIGATION CO., INC., petitioner, vs. THE COURT OF

APPEALS, RAMON MIRANDA, SPS. RICARDO and VIRGINIA DE
LA VICTORIA, respondents.

DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of

Appeals affirming with modification the Regional Trial Courts award of
damages to private respondents for the death of relatives as a result of the
sinking of petitioners vessel.
 In April of 1980, private respondent Ramon Miranda purchased from the
Negros Navigation Co., Inc. four special cabin tickets (#74411, 74412, 74413
and 74414) for his wife, daughter, son and niece who were going to Bacolod
City to attend a family reunion. The tickets were for Voyage No. 457-A of the
M/V Don Juan, leaving Manila at 1:00 p.m. on April 22, 1980.
The ship sailed from the port of Manila on schedule.
At about 10:30 in the evening of April 22, 1980, the Don Juan collided off
the Tablas Strait in Mindoro, with the M/T Tacloban City, an oil tanker owned
by the Philippine National Oil Company (PNOC) and the PNOC Shipping and
Transport Corporation (PNOC/STC). As a result, the M/V Don Juan sank.
Several of her passengers perished in the sea tragedy. The bodies of some of
the victims were found and brought to shore, but the four members of private
respondents families were never found.
Private respondents filed a complaint on July 16, 1980 in the Regional
Trial Court of Manila, Branch 34, against the Negros Navigation, the Philippine
National Oil Company (PNOC), and the PNOC Shipping and Transport
Corporation (PNOC/STC), seeking damages for the death of Ardita de la
Victoria Miranda, 48, Rosario V. Miranda, 19, Ramon V. Miranda, Jr., 16, and
Elfreda de la Victoria, 26.
In its answer, petitioner admitted that private respondents purchased ticket
numbers 74411, 74412, 74413 and 74414; that the ticket numbers were listed
in the passenger manifest; and that the Don Juan left Pier 2, North Harbor,
Manila on April 22, 1980 and sank that night after being rammed by the oil
tanker M/T Tacloban City, and that, as a result of the collision, some of the
passengers of the M/V Don Juan died.Petitioner, however, denied that the
four relatives of private respondents actually boarded the vessel as shown by
the fact that their bodies were never recovered. Petitioner further averred that
the Don Juan was seaworthy and manned by a full and competent crew, and
that the collision was entirely due to the fault of the crew of the M/T Tacloban
City.
On January 20, 1986, the PNOC and petitioner Negros Navigation Co.,
Inc. entered into a compromise agreement whereby petitioner assumed full
responsibility for the payment and satisfaction of all claims arising out of or in
connection with the collision and releasing the PNOC and the PNOC/STC
from any liability to it. The agreement was subsequently held by the trial court
to be binding upon petitioner, PNOC and PNOC/STC. Private respondents did
not join in the agreement.
 After trial, the court rendered judgment on February 21, 1991, the
dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the

plaintiffs, ordering all the defendants to pay jointly and severally to the plaintiffs
damages as follows:

To Ramon Miranda:

P42,025.00 for actual damages;

P152,654.55 as compensatory damages for loss of earning capacity of his wife;

P90,000.00 as compensatory damages for wrongful death of three (3) victims;

P300,000.00 as moral damages;

P50,000.00 as exemplary damages, all in the total amount of P634,679.55; and

P40,000.00 as attorneys fees.

To Spouses Ricardo and Virginia de la Victoria:

P12,000.00 for actual damages;

P158,899.00 as compensatory damages for loss of earning capacity;

P30,000.00 as compensatory damages for wrongful death;

P100,000.00 as moral damages;

P20,000.00 as exemplary damages, all in the total amount of P320,899.00; and

P15,000.00 as attorneys fees.

On appeal, the Court of Appeals affirmed the decision of the Regional

[1]

Trial Court with modification

1. Ordering and sentencing defendants-appellants, jointly and severally, to pay plaintiff-
appellee Ramon Miranda the amount of P23,075.00 as actual damages instead
of P42,025.00;
2. Ordering and sentencing defendants-appellants, jointly and severally, to pay plaintiff-
appellee Ramon Miranda the amount of P150,000.00, instead of P90,000.00, as
compensatory damages for the death of his wife and two children;
 3. Ordering and sentencing defendants-appellants, jointly and severally, to pay
plaintiffs-appellees Dela Victoria spouses the amount of P50,000.00, instead
of P30,000.00, as compensatory damages for the death of their daughter Elfreda
Dela Victoria;

Hence this petition, raising the following issues:

(1) whether the members of private respondents families were actually passengers of
the Don Juan;
(2) whether the ruling in Mecenas v. Court of Appeals,[2] finding the crew members of
petitioner to be grossly negligent in the performance of their duties, is binding in this
case;
(3) whether the total loss of the M/V Don Juan extinguished petitioners liability; and
(4) whether the damages awarded by the appellate court are excessive, unreasonable
and unwarranted.

First. The trial court held that the fact that the victims were passengers of
the M/V Don Juan was sufficiently proven by private respondent Ramon
Miranda, who testified that he purchased tickets numbered 74411, 74412,
74413, and 74414 at P131.30 each from the Makati office of petitioner for
Voyage No. 47-A of the M/V Don Juan, which was leaving Manila on April 22,
1980. This was corroborated by the passenger manifest (Exh. E) on which the
numbers of the tickets and the names of Ardita Miranda and her children and
Elfreda de la Victoria appear.
Petitioner contends that the purchase of the tickets does not necessarily
mean that the alleged victims actually took the trip. Petitioner asserts that it is
common knowledge that passengers purchase tickets in advance but do not
actually use them. Hence, private respondent should also prove the presence
of the victims on the ship. The witnesses who affirmed that the victims were
on the ship were biased and unreliable.
This contention is without merit. Private respondent Ramon Miranda
testified that he personally took his family and his niece to the vessel on the
day of the voyage and stayed with them on the ship until it was time for it to
leave. There is no reason he should claim members of his family to have
perished in the accident just to maintain an action. People do not normally lie
about so grave a matter as the loss of dear ones.It would be more difficult for
private respondents to keep the existence of their relatives if indeed they are
alive than it is for petitioner to show the contrary. Petitioners only proof is that
the bodies of the supposed victims were not among those recovered from the
site of the mishap. But so were the bodies of the other passengers reported
missing not recovered, as this Court noted in the Mecenas case. [3]
 Private respondent Mirandas testimony was corroborated by Edgardo
Ramirez. Ramirez was a seminarian and one of the survivors of the collision.
He testified that he saw Mrs. Miranda and Elfreda de la Victoria on the ship
and that he talked with them. He knew Mrs. Miranda who was his teacher in
the grade school. He also knew Elfreda who was his childhood friend and
townmate. Ramirez said he was with Mrs. Miranda and her children and niece
from 7:00 p.m. until 10:00 p.m. when the collision happened and that he in
fact had dinner with them. Ramirez said he and Elfreda stayed on the deck
after dinner and it was there where they were jolted by the collision of the two
vessels. Recounting the moments after the collision, Ramirez testified that
Elfreda ran to fetch Mrs. Miranda. He escorted her to the room and then tried
to go back to the deck when the lights went out. He tried to return to the cabin
but was not able to do so because it was dark and there was a stampede of
passengers from the deck.
Petitioner casts doubt on Ramirez testimony, claiming that Ramirez could
not have talked with the victims for about three hours and not run out of
stories to tell, unless Ramirez had a storehouse of stories. But what is
incredible about acquaintances thrown together on a long journey staying
together for hours on end, in idle conversation precisely to while the hours
away?
Petitioner also points out that it took Ramirez three (3) days before he
finally contacted private respondent Ramon Miranda to tell him about the fate
of his family. But it is not improbable that it took Ramirez three days before
calling on private respondent Miranda to tell him about the last hours of Mrs.
Miranda and her children and niece, in view of the confusion in the days
following the collision as rescue teams and relatives searched for survivors.
Indeed, given the facts of this case, it is improper for petitioner to even
suggest that private respondents relatives did not board the ill-fated vessel
and perish in the accident simply because their bodies were not recovered.
Second. In finding petitioner guilty of negligence and in failing to exercise
the extraordinary diligence required of it in the carriage of passengers, both
the trial court and the appellate court relied on the findings of this Court
in Mecenas v. Intermediate Appellate Court, which case was brought for the
[4]

death of other passengers. In that case it was found that although the
proximate cause of the mishap was the negligence of the crew of the
M/T Tacloban City, the crew of the Don Juan was equally negligent as it found
that the latters master, Capt. Rogelio Santisteban, was playing mahjong at the
time of collision, and the officer on watch, Senior Third Mate Rogelio De Vera,
admitted that he failed to call the attention of Santisteban to the imminent
danger facing them. This Court found that Capt. Santisteban and the crew of
the M/V Don Juanfailed to take steps to prevent the collision or at least delay
the sinking of the ship and supervise the abandoning of the ship.
Petitioner Negros Navigation was found equally negligent in tolerating the
playing of mahjong by the ship captain and other crew members while on
board the ship and failing to keep the M/V Don Juan seaworthy so much so
that the ship sank within 10 to 15 minutes of its impact with the M/T Tacloban
City.
In addition, the Court found that the Don Juan was overloaded. The
Certificate of Inspection, dated August 27, 1979, issued by the Philippine
Coast Guard Commander at Iloilo City stated that the total number of persons
allowed on the ship was 864, of whom 810 are passengers, but there were
actually 1,004 on board the vessel when it sank, 140 persons more than the
maximum number that could be safely carried by it.
Taking these circumstances together, and the fact that the M/V Don Juan,
as the faster and better-equipped vessel, could have avoided a collision with
the PNOC tanker, this Court held that even if the Tacloban City had been at
fault for failing to observe an internationally-recognized rule of navigation,
the Don Juan was guilty of contributory negligence. Through Justice Feliciano,
this Court held:

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 Juans top speed was
17 knots; while that of the Tacloban City was 6.3. knots. 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 Juans 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. 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.

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. The Tacloban City, when the two (2) vessels were only three-
tenths (0.3) of a mile apart, turned (for the second time) 15o to port side while the Don
Juan veered hard to starboard. . . . [But] 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.

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. It is
noteworthy that the Tacloban City, upon turning hard to port shortly before the
moment of collision, signalled its intention to do so by giving two (2) short blasts with
its horn. The Don Juan gave no answering horn blast to signal its own intention and
proceeded to turn hard to starboard.

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. .
..
[5]

Petitioner criticizes the lower courts reliance on the Mecenas case,

arguing that, although this case arose out of the same incident as that
involved in Mecenas, the parties are different and trial was conducted
separately. Petitioner contends that the decision in this case should be based
on the allegations and defenses pleaded and evidence adduced in it or, in
short, on the record of this case.
The contention is without merit. What petitioner contends may be true with
respect to the merits of the individual claims against petitioner but not as to
the cause of the sinking of its ship on April 22, 1980 and its liability for such
accident, of which there can only be one truth. Otherwise, one would be
subscribing to the sophistry: truth on one side of the Pyrenees, falsehood on
the other!
Adherence to the Mecenas case is dictated by this Courts policy of
maintaining stability in jurisprudence in accordance with the legal maxim stare
decisis et non quieta movere (Follow past precedents and do not disturb what
has been settled.) Where, as in this case, the same questions relating to the
same event have been put forward by parties similarly situated as in a
previous case litigated and decided by a competent court, the rule of stare
decisis is a bar to any attempt to relitigate the same issue. In Woulfe v.
[6]

Associated Realties Corporation, the Supreme Court of New Jersey held that
[7]

where substantially similar cases to the pending case were presented and
applicable principles declared in prior decisions, the court was bound by the
principle of stare decisis. Similarly, in State ex rel. Tollinger v. Gill, it was held
[8]

that under the doctrine of stare decisis a ruling is final even as to parties who
are strangers to the original proceeding and not bound by the judgment under
the res judicata doctrine. The Philadelphia court expressed itself in this wise:
Stare decisis simply declares that, for the sake of certainty, a conclusion
reached in one case should be applied to those which follow, if the facts are
substantially the same, even though the parties may be different. Thus, in J.
[9]

M. Tuason v. Mariano, supra, this Court relied on its rulings in other cases
involving different parties in sustaining the validity of a land title on the
principle of stare decisis et non quieta movere.
Indeed, the evidence presented in this case was the same as those
presented in the Mecenas case, to wit:

Document Mecenas case This case

Decision of Commandant Exh. 10[10] Exh. 11-B-NN/X

Phil. Coast Guard in BMI Case
No. 415-80 dated 3/26/81

Decision of the Minister Exh. 11[11] Exh. ZZ

of National Defense dated 3/12/82

Resolution on the motion Exh. 13[12] Exh. AAA

for reconsideration of the (private respondents)
decision of the Minister of
National Defense dated 7/24/84

Certificate of inspection Exh. 1-A[13] Exh. 19-NN

dated 8/27/79

Certificate of Stability Exh. 6-A[14] Exh. 19-D-NN

dated 12/16/76

Nor is it true that the trial court merely based its decision on
the Mecenas case. The trial court made its own independent findings on the
basis of the testimonies of witnesses, such as Senior Third Mate Rogelio de
Vera, who incidentally gave substantially the same testimony on petitioners
behalf before the Board of Marine Inquiry. The trial court agreed with the
conclusions of the then Minister of National Defense finding both vessels to be
negligent.
 Third. The next issue is whether petitioner is liable to pay damages
notwithstanding the total loss of its ship. The issue is not one of first
impression. The rule is well-entrenched in our jurisprudence that a shipowner
may be held liable for injuries to passengers notwithstanding the exclusively
real and hypothecary nature of maritime law if fault can be attributed to the
shipowner. [15]

In Mecenas, this Court found petitioner guilty of negligence in (1) allowing

or tolerating the ship captain and crew members in playing mahjong during
the voyage, (2) in failing to maintain the vessel seaworthy and (3) in allowing
the ship to carry more passengers than it was allowed to carry. Petitioner is,
therefore, clearly liable for damages to the full extent.
Fourth. Petitioner contends that, assuming that the Mecenas case applies,
private respondents should be allowed to claim only P43,857.14 each as
moral damages because in the Mecenas case, the amount of P307,500.00
was awarded to the seven children of the Mecenas couple. Under petitioners
formula, Ramon Miranda should receive P43,857.14, while the De la Victoria
spouses should receive P97,714.28.
Here is where the principle of stare decisis does not apply in view of
differences in the personal circumstances of the victims. For that matter,
differentiation would be justified even if private respondents had joined the
private respondents in the Mecenas case. The doctrine of stare decisis works
as a bar only against issues litigated in a previous case. Where the issue
involved was not raised nor presented to the court and not passed upon by
the court in the previous case, the decision in the previous case is not stare
decisis of the question presently presented. The[16]
decision in
the Mecenas case relates to damages for which petitioner was liable to the
claimants in that case.
In the case at bar, the award of P300,000.00 for moral damages is
reasonable considering the grief petitioner Ramon Miranda suffered as a
result of the loss of his entire family. As a matter of fact, three months after the
collision, he developed a heart condition undoubtedly caused by the strain of
the loss of his family. The P100,000.00 given to Mr. and Mrs. de la Victoria is
likewise reasonable and should be affirmed.
As for the amount of civil indemnity awarded to private respondents, the
appellate courts award of P50,000.00 per victim should be sustained. The
amount of P30,000.00 formerly set in De Lima v. Laguna Tayabas Co., Heirs [17]

of Amparo delos Santos v. Court of Appeals, and Philippine Rabbit Bus

[18]

Lines, Inc. v. Intermediate Appellate Court as benchmark was subsequently

[19]

increased to P50,000.00 in the case of Sulpicio Lines, Inc. v. Court of

Appeals, which involved the sinking of another interisland ship on October
[20]

24, 1988.
We now turn to the determination of the earning capacity of the
victims. With respect to Ardita Miranda, the trial court awarded damages
computed as follows: [21]

In the case of victim Ardita V. Miranda whose age at the time of the accident was 48
years, her life expectancy was computed to be 21.33 years, and therefore, she could
have lived up to almost 70 years old. Her gross earnings for 21.33 years based
on P10,224.00 per annum, would be P218,077.92. Deducting therefrom 30% as her
living expenses, her net earnings would be P152,654.55, to which plaintiff Ramon
Miranda is entitled to compensatory damages for the loss of earning capacity of his
wife. In considering 30% as the living expenses of Ardita Miranda, the Court takes
into account the fact that plaintiff and his wife were supporting their daughter and son
who were both college students taking Medicine and Law respectively.

In accordance with the ruling in Villa-Rey Transit, Inc. v. Court of

Appeals, we think the life expectancy of Ardita Miranda was correctly
[22]

determined to be 21.33 years, or up to age 69. Petitioner contends, however,

that Mrs. Miranda would have retired from her job as a public school teacher
at 65, hence her loss of earning capacity should be reckoned up to 17.33
years only.
The accepted formula for determining life expectancy is / multiplied by (80
2
3

minus the age of the deceased). It may be that in the Philippines the age of
retirement generally is 65 but, in calculating the life expectancy of individuals
for the purpose of determining loss of earning capacity under Art. 2206(1) of
the Civil Code, it is assumed that the deceased would have earned income
even after retirement from a particular job. In this case, the trial court took into
account the fact that Mrs. Miranda had a masters degree and a good prospect
of becoming principal of the school in which she was teaching. There was
reason to believe that her income would have increased through the years
and she could still earn more after her retirement, e.g., by becoming a
consultant, had she not died. The gross earnings which Mrs. Miranda could
reasonably be expected to earn were it not for her untimely death was,
therefore, correctly computed by the trial court to be P218,077.92 (given a
gross annual income of P10,224.00 and life expectancy of 21.33 years).
Petitioner contends that from the amount of gross earnings, 60% should
be deducted as necessary living expenses, not merely 30% as the trial court
allowed. Petitioner contends that 30% is unrealistic, considering that Mrs.
Mirandas earnings would have been subject to taxes, social security
deductions and inflation.
We agree with this contention. In Villa-Rey Transit, Inc. v. Court of
Appeals, the Court allowed a deduction of P1,184.00 for living expenses
[23]

from the P2,184.00 annual salary of the victim, which is roughly 54.2%
thereof. The deceased was 29 years old and a training assistant in the
Bacnotan Cement Industries. In People v. Quilaton, the deceased was a 26-
[24]

year old laborer earning a daily wage. The court allowed a deduction
of P120,000.00 which was 51.3% of his annual gross earnings
of P234,000.00. In People v. Teehankee, the court allowed a deduction
[25]

of P19,800.00, roughly 42.4% thereof from the deceaseds annual salary

of P46,659.21. The deceased, Maureen Hultman, was 17 years old and had
just received her first paycheck as a secretary. In the case at bar, we hold that
a deduction of 50% from Mrs. Mirandas gross earnings (P218,077.92) would
be reasonable, so that her net earning capacity should be P109,038.96. There
is no basis for supposing that her living expenses constituted a smaller
percentage of her gross income than the living expenses in the decided
cases. To hold that she would have used only a small part of her income for
herself, a larger part going to the support of her children would be conjectural
and unreasonable.
As for Elfreda de la Victoria, the trial court found that, at the time of her
death, she was 26 years old, a teacher in a private school in Malolos,
Bulacan, earning P6,192.00 per annum. Although a probationary employee,
she had already been working in the school for two years at the time of her
death and she had a general efficiency rating of 92.85% and it can be
presumed that, if not for her untimely death, she would have become a regular
teacher. Hence, her loss of earning capacity is P111,456.00, computed as
follows:

net earning capacity (x) = life expectancy x [ gross annual income less reasonable &
necessary living expenses (50%) ]

x = [ 2 (80-26) ] x [P6,192.00 - P3,096.00]

= 36 x 3,096.00

= P111,456.00
 On the other hand, the award of actual damages in the amount
of P23,075.00 was determined by the Court of Appeals on the basis of
receipts submitted by private respondents. This amount is reasonable
considering the expenses incurred by private respondent Miranda in
organizing three search teams to look for his family, spending for
transportation in going to places such as Batangas City and Iloilo, where
survivors and the bodies of other victims were found, making long distance
calls, erecting a monument in honor of the four victims, spending for obituaries
in the Bulletin Today and for food, masses and novenas.
Petitioners contention that the expenses for the erection of a monument
and other expenses for memorial services for the victims should be
considered included in the indemnity for death awarded to private
respondents is without merit. Indemnity for death is given to compensate for
violation of the rights of the deceased, i.e., his right to life and physical
integrity. On the other hand, damages incidental to or arising out of such
[26]

death are for pecuniary losses of the beneficiaries of the deceased.

As for the award of attorneys fees, we agree with the Court of Appeals that
the amount of P40,000.00 for private respondent Ramon Miranda
and P15,000.00 for the de la Victoria spouses is justified. The appellate court
correctly held:

The Mecenas case cannot be made the basis for determining the award for attorneys
fees. The award would naturally vary or differ in each case. While it is admitted that
plaintiff-appellee Ramon Miranda who is himself a lawyer, represented also plaintiffs-
appellees Dela Victoria spouses, we note that separate testimonial evidence were
adduced by plaintiff-appellee Ramon Miranda (TSN, February 26, 1982, p. 6) and
plaintiffs-appellees spouses Dela Victoria (TSN, August 13, 1981, p. 43). Considering
the amount of work and effort put into the case as indicated by the voluminous
transcripts of stenographic notes, we find no reason to disturb the award
of P40,000.00 for plaintiff-appellee Ramon Miranda and P15,000.00 for plaintiffs-
appellees Dela Victoria spouses.[27]

The award of exemplary damages should be increased to P300,000.00 for

Ramon Miranda and P100,000.00 for the de la Victoria spouses in
accordance with our ruling in the Mecenas case:

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.[28]

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

modification and petitioner is ORDERED to pay private respondents damages
as follows:

To private respondent Ramon Miranda:

P23,075.00 for actual damages;

P109,038.96 as compensatory damages for loss of earning capacity of his

wife;

P150,000.00 as compensatory damages for wrongful death of three (3)

victims;

P300,000.00 as moral damages;

P300,000.00 as exemplary damages, all in the total amount of P882,113.96;

and

P40,000.00 as attorneys fees.

To private respondents Spouses Ricardo and Virginia de la Victoria:

P12,000.00 for actual damages;

P111,456.00 as compensatory damages for loss of earning capacity;

P50,000.00 as compensatory damages for wrongful death;

P100,000.00 as moral damages;

 P100,000.00 as exemplary damages, all in the total amount
of P373,456.00; and

P15,000.00 as attorneys fees.

Petitioners are further ordered to pay costs of suit.

In the event the Philippine National Oil Company and/or the PNOC
Shipping and Transport Corporation pay or are required to pay all or a portion
of the amounts adjudged, petitioner Negros Navigation Co., Inc. shall
reimburse either of them such amount or amounts as either may have paid,
and in the event of failure of Negros Navigation Co., Inc., to make the
necessary reimbursement, PNOC and/or PNOC/STC shall be entitled to a writ
of execution without need of filing another action.
SO ORDERED.