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X. CONTRACTUAL RELATIONS FAMILY CODE

CIVIL CODE
Article 15. Laws relating to family rights and duties, or to the status,
condition and legal capacity of persons are binding upon citizens of the
Philippines, even though living abroad.
Article 17. The forms and solemnities of contracts, wills, and other public
instruments shall be governed by the laws of the country in which they are
executed.
When the acts referred to are executed before the diplomatic or
consular officials of the Republic of the Philippines in a foreign country, the
solemnities established by Philippine laws shall be observed in their
execution.
Prohibitive laws concerning persons, their acts or property, and those
which have for their object public order, public policy and good customs shall
not be rendered ineffective by laws or judgments promulgated, or by
determinations or conventions agreed upon in a foreign country.
Art. 80. In the absence of a contrary stipulation in a marriage settlement,
the property relations of the spouses shall be governed by Philippine laws,
regardless of the place of the celebration of the marriage and their residence.
This rule shall not apply:
(1) Where both spouses are aliens;
(2) With respect to the extrinsic validity of contracts affecting
property not situated in the Philippines and executed in the country where
the property is located; and
(3) With respect to the extrinsic validity of contracts entered into in
the Philippines but affecting property situated in a foreign country whose
laws require different formalities for its extrinsic validity.
Art. 81. Everything stipulated in the settlements or contracts referred to in
the preceding articles in consideration of a future marriage, including
donations between the prospective spouses made therein, shall be rendered
void if the marriage does not take place. However, stipulations that do not
depend upon the celebration of the marriages shall be valid.

Article 1305. A contract is a meeting of minds between two persons

whereby one binds himself, with respect to the other, to give something or to
render some service.

Article 1306. The contracting parties may establish such stipulations,

clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.

Article 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in such a case,
is presumed to have been entered into in the place where the offer was
made.

Article 1753. The law of the country to which the goods are to be
transported shall govern the liability of the common carrier for their loss,
destruction or deterioration.
 CONFLICTS | Assign 9| 2

1. G.R. No. L-5897 April 23, 1954 exceed $400,000 was established and who assigned to Fortrade Corporation
his fight to the 1,000 metric tons of coconut oil emulsion and in the
KING MAU WU, plaintiff-appellee, defendant the letter of credit referred to for a sum not to exceed $400,000.
vs.
FRANCISCO SYCIP, defendant-appellant. The plaintiff claims that for that sale he is entitled under the agency contract
dated 7 November 1946 and accepted by the defendant on 22 November of
PADILLA, J.: the same year to a commission of 2 1/2 per cent on the total actual sale
price of 1,000 tons of coconut oil emulsion, part of which has been paid by
This is an action to collect P59,082.92, together with lawful interests from 14
the defendant, there being only a balance of $3,794.94 for commission due
October 1947, the date of the written demand for payment, and costs. The
and unpaid on the last shipment of 379.494 tons and 50 per cent of the
claim arises out of a shipment of 1,000 tons of coconut oil emulsion sold by
difference between the authorized sale price of $350 per ton and the actual
the plaintiff, as agent of the defendant, to Jas. Maxwell Fassett, who in turn
selling price of $400 per ton, which amounts to $25,000 due and unpaid, and
assigned it to Fortrade Corporation. Under an agency agreement set forth in
$746.52 for interest from 14 October 1947, the date of the written demand.
a letter dated 7 November 1946 in New York addressed to the defendant and
accepted by the latter on the 22nd day of the same month, the plaintiff was The defendant, on the other hand, contends that the transaction for the sale
made the exclusive agent of the defendant in the sale of coconut oil and its of 1,000 metric tons of coconut oil emulsion was not covered by the agency
derivatives outside the Philippines and was to be paid 2 1/2 per cent on the contract of 22 November 1946 because it was agreed upon on 16 October
total actual sale price of sales obtained through his efforts in addition thereto 1946; that it was an independent and separate transaction for which the
50 per cent of the difference between the authorized sale price and the actual plaintiff has been duly compensated. The contention is not borne out by the
sale price. evidence. The plaintiff and his witness depose that there were several drafts
of documents or letter prepared by Jas. Maxwell Fassett preparatory or
After the trial where the depositions of the plaintiff and of Jas. Maxwell
leading to the execution of the agency agreement of 7 November 1946,
Fassett and several letters in connection therewith were introduced and the
which was accepted by the defendant on 22 November 1946, and that the
testimony of the defendant was heard, the Court rendered judgment as
letter, on which the defendant bases his contention that the transaction on
prayed for in the complaint. A motion for reconsideration was denied. A
the 1,000 metric tons of coconut oil emulsion was not covered by the agency
motion for a new trial was filed, supported by the defendant's affidavit, based
agreement, was one of those letters. That is believable. The letter upon
on newly discovered evidence which consists of a duplicate original of a letter
which defendant relies for his defense does not stipulate on the commission
dated 16 October 1946 covering the sale of 1,000 tons of coconut oil soap
to be paid to the plaintiff as agent, and yet if he paid the plaintiff a 2 1/2 per
emulsion signed by Jas. Maxwell Fassett assigned by the latter to the
cent commission on the first three coconut oil emulsion shipments, there is
defendant; the letter of credit No. 20122 of the Chemical Bank & Trust
no reason why he should not pay him the same commission on the last
Company in favor of Jas. Maxwell Fassett assigned by the latter to the
shipment amounting to $3,794.94. There can be no doubt that the sale of
defendant; and a letter dated 16 December 1946 by the Fortrade Corporation
1,000 metric tons of coconut oil emulsion was not a separate and
to Jas. Maxwell Fassett accepted it on 24 December 1946, all of which
independent contract from that of the agency agreement on 7 November and
documents, according to the defendant, could not be produced at the trial,
accepted on 22 November 1946 by the defendant, because in a letter dated 2
despite the use of reasonable diligence, and if produced they would alter the
January 1947 addressed to the plaintiff, referring to the transaction of 1,000
result of the controversy. The motion for new trial was denied. The defendant
metric tons of coconut oil emulsion, the defendant says
is appealing from said judgment.

Both parties agreed that the only transaction or sale made by the plaintiff, as
agent of the defendant, was that of 1,000 metric tons of coconut oil emulsion
f.o.b. in Manila, Philippines, to Jas. Maxwell Fassett, in whose favor letter of
credit No. 20112 of the Chemical Bank & Trust Company for a sum not to
 CONFLICTS | Assign 9| 3

. . . I am doing everything possible to fulfill these 1,000 tons of emulsion,
and until such time that we completed this order I do not feel it very sensible
on my part to accept any more orders. I want to prove to Fortrade, yourself
and other people that we deliver our goods. Regarding your commission, it is
understood to be 2 1/2 per cent of all prices quoted by me plus 50-50 on
over price. (Schedule B.)
In another letter dated 16 January 1957 to the plaintiff, speaking of the same
transaction, the defendant says
a personal action for the collection of a sum of money which the Courts of
First Instance have jurisdiction to try and decide. There is no conflict of laws
involved in the case, because it is only a question of enforcing an obligation
created by or arising from contract; and unless the enforcement of the
contract be against public policy of the forum, it must be enforced.
The plaintiff is entitled to collect P7,589.88 for commission and P50,000 for
one-half of the overprice, or a total of P57,589.88, lawful interests thereon
from the date of the filing of the complaint, and costs in both instances.

As per our understanding when I was in the States the overprice is subject to As thus modified the judgment appealed from is affirmed, with costs against
any increase in the cost of production. I am not trying to make things difficult the appellant.
for you and I shall give you your 2 1/2 per cent commission plus our
overprice provided you can give me substantial order in order for me to
amortize my loss on this first deal. Unless such could be arranged I shall
remit to you for the present your commission upon collection from the bank.
(Schedule C.)

In a telegram sent by the defendant to the plaintiff the former says

. . . Your money pending stop understand you authorized some local

attorneys and my relatives to intervene your behalf. (Schedule D.)

The defendant's claim that the agreement for the sale of the 1,000 metric
tons of coconut oil emulsion was agreed upon in a document, referring to the
letter of 16 October 1946, is again disproved by his letter dated 2 December
1946 to Fortrade Corporation where he says:

The purpose of this letter is to confirm in final form the oral agreement which
we have heretofore reached, as between ourselves, during the course of
various conversations between us and our respective representatives upon
the subject matter of this letter.

It is understood that I am to sell to you, and you are to purchase from me,
1,000 tons of coconut oil soap emulsion at a price of $400. per metric ton,
i.e. 2,204.6 pounds, F.O.B. shipboard, Manila, P.I. (Exhibit S, Special.
Emphasis supplied.)

The contention that as the contract was executed in New York, the Court of
First Instance of Manila has no jurisdiction over this case, is without merit,
because a non-resident may sue a resident in the courts of this
country1 where the defendant may be summoned and his property leviable
upon execution in the case of a favorable, final and executory judgment. It is

2. G.R. No. L-9403 November 4, 1914
ALLAN A. BRYAN, ET AL., plaintiffs-appellees,
vs.
EASTERN AND AUSTRALIAN S. S. CO., LTD., defendant-appellant.
MORELAND, J.:
This is an action to recover P1,915.30 damages alleged to have been caused
by the negligence of the defendant in handling the plaintiffs' baggage,
whereby it fell into the sea and was injured or destroyed.
The plaintiffs were passengers on the steamer St. Albans, which, at the time
herein complained of, was the property of the defendant corporation and was
engaged in carrying freight and passengers between Shanghai, China, and
Manila, Philippine Islands. It arrived in Manila on the morning of the 7th of
January, 1913. Shortly after its arrival plaintiffs' baggage was taken out of
hold of the ship for the purpose of being placed on the dock alongside of
which the vessel was berthed. The baggage was placed in a sling, consisting
of a single rope wound once around the trunks, and was swung from the side
of the vessel. While still several feet above the wharf, the employee of the
defendant company who was operating the winch, by some act or other,
permitted the baggage to drop with great rapidity. In its passage downward it
struck the side of the ship with such force as to release it from the sling and
it dropped into the water alongside of the ship. The damages are stipulated
at P1,188.
The defendant, while admitting the damage caused to plaintiffs' baggage,
denied that it was the result of the company's negligence and set up as a
special defense the limitation of liability established by the contract under
which the defendant undertook to transport the plaintiffs from the city of
Hongkong to Manila.
The record shows that on or about the end of December, 1912, the plaintiffs
bought of the defendant's agent in Shanghai two first-class tickets for Manila,
which entitled them to travel from Hongkong to Manila by the defendant's
steamship St. Albans. The tickets delivered to them were in English, which
language plaintiffs read with ease and understand perfectly, and bore on their
face, in large print, a statement that they were issued subject to the
conditions printed on the back. One of these conditions, printed in legible
type, was as follows:
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This ticket is issued by the company and accepted by the passenger subject
to the following conditions:
The company will not hold itself responsible for any loss or damage
passengers may sustain from the following causes: From advance in or
delays after advertised date of sailing, either through the performance of His
Majesty's mail service or any other cause, from detention on the voyage, or
at any of the intermediate ports, or through steamers not meeting, or delays
from accident, from perils of the sea, or from machinery, boilers or steam, or
from any at, neglect or default whatsoever of the pilot, masters, or mariners.
nor from any consequences arising from any sanitary regulations or
precautions which the company's officers or local government authorities
may deem necessary.
Personal baggage. In order to insure as far as possible the safe custody of
luggage, passengers should personally see their luggage delivered on board.
Each adult saloon passenger may carry, free of charge, but at his own risk,
20 cubic feet of luggage; and each steerage passenger 10 cubic feet, under
similar conditions (all in excess of these quantities must be paid for at the
current rate of freight); but the company will not hold itself responsible for
any loss, or damage to or detention or overcarriage of luggage, under any
circumstances whatsoever unless it has been booked and paid for as freight.
At the time the tickets were delivered to plaintiffs in Shanghai their attention
was not especially drawn to the provisions on the back of the ticket. The
plaintiffs put their baggage on the St. Albans without paying for its
transportation as freight and traveled with such baggage to Manila.
The trial court's finding as to the negligence of defendant is based
particularly on the testimony of J. S. Stanley, Deputy Collector of Customs,
and I.V. Chapman, chief wharfinger in charge of per No. 5.
Mr. Stanley testified: "While standing at the extreme end of Pier No. 5, I
witnessed a number of trunks being lifted from the deck of the steamship St.
Albans to an elevation of about 10 per from the deck and practically the
same being above the pier. The winchman was instructed to let go. The sling
dropped suddenly and was not checked at the proper time, and the sling of
trunks strucks the side of the wharf, with the result that the trunks were
forced from the sling and fell into the water. It is customary to use a rope
sling or a cargo chute running from the deck to the pier. The slings vary in
size but are sufficiently large to contain a large number of trunks and are

formed of ropes running in opposite directions forming a rope net. If these
trunks had been in rope sling they would not have fallen in the water."
Mr. Chapman testified: "When the steamship St. Albans came alongside the
pier I took all her lines and berthed her in a position for the gangway and
hatchways to work. Immediately after the ship was made fast I requested to
be informed from the chief officer where the baggage would be discharged
from; he told me hatch No. 4; I went to No. 4 hatch and asked the second
officer who was there in charge of the hatch where the baggage was to be
discharged from; he said, 'Right here,' indicating No. 4 hatch. I then told him
I would have a chute there for him right away and he answered: 'All right.' I
immediately went into the pier and ordered one of the foremen and the men
to take a chute to No. 4 hatch. I was following with the foreman and behind
the chute when Mr. Stanley informed me that the baggage was over the side.
The chute at this time was just through the door about 75 feet from the
hatch. On arriving there I saw that the sling and these trunks were all lying
in the water. The stevedore had a lot of his men over the side picking up the
trunks with the men from the pier helping."lawph!1.net
It is the contention of the defendant company that it is exempt from liability
by virtue of the contract appearing on the tickets already referred to and
quoted; as that contract was valid in the place where made, namely, the
Colony of Hongkong, and that being the case, it will be enforced according to
its terms in the Philippine Islands. It is also urged that it was not necessary
specifically to direct the attention of the passengers to the stipulations on the
back of the ticket introduced in evidence.
The evidence relative to the law governing these contracts in Hongkong
consists of the testimony of a Hongkong barrister, learned in the law of
England and her colonies, and is to the effect that, under the law in force at
the place where the contract was made, the contract was valid and
enforceable, and that it is not necessary that the attention of persons
purchasing tickets from common carriers be drawn specially to the terms
thereof when printed upon a ticket which on its face shows that it is issued
subject to such conditions. The barrister also testified that under the law of
England and her colonies everything was done which was necessary to make
the terms printed on the back of the tickets a part of the contract between
the parties.
It is our conclusion that the judgment must be affirmed.
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It is undoubted that the contract found upon the back of the tickets is a
contract found upon the back of the tickets is a contract perfectly valid in
England and her colonies and one which would be enforced according to its
terms? It will be remembered that the contract provides "the company will
not hold itself responsible for any loss, or damage to or detention, or
overcarriage of luggage, under any circumstances whatsoever, unless it has
been booked and paid for a freight." Ordinarily this language would seems to
be broad enough to cover every possible contingency, including the negligent
act of defendant's servant. To so hold, however, would run counter to the
established law of England and the United States on that subject. In the case
of Prince and Company vs. Union Lighterage Company (King's Bench
Division, 1903, Vol. 1, pp. 750, 754), the court said:
An exemption in general words not expressly relating to negligence, even
though the words are wide enough to include loss by negligence or default of
carriers' servants, must be construed as limiting the liability of the carrier as
assurer, and not as relieving him from the duty of exercising reasonable skill
and care.
The result of this decision seems to be that unless the contract of exemption
specifically refers to exemption for negligence, it will be construed as simply
exempting the carrier from his liability as insurer, in other words, from his
common law liability as carrier. This decision of the King's Bench Division is
supported by many authorities and apparently has never been questioned.
Among other references made in that case is that of Compania de
Navegacion La Flecha vs. Brauer (168 U.S., 104), in which the opinion was
rendered by Mr. Justice Gray, who reviews with great thoroughness, many of
which contain exemptions quite as comprehensive as those contained in the
condition under which plaintiffs' baggage was accepted by the defendant in
this case, such as that the baggage "was to be carried at the risk of the
owner" and that the "Carrier is not to be responsible for any loss under any
circumstances whatsoever." (See also Wheeler vs. O. S. N. Co., 125 N. Y.,
155; Nicholas vs. N. Y. & H. R. R .R. Co. 89 N. Y., 370.)
The reasonableness of the strict rule of construction that the courts of
England and of the State of New York apply to contracts restricting the
liability of carriers with respect to their negligence is apparent when one
considers that such contracts are held to be contrary to public policy and
invalid in the Federal courts and in most of the State courts of the Union.
(The Kensington, 183 U. S., 263.)
 CONFLICTS | Assign 9| 6

In this connection, it may not be amiss to state that a critical examination of

the deposition of Mr. Ernet Hamilton Sharpe, Master of Arts and Bachelor of
Civil Law of the University of Oxford, Barrister at Law of London, Shanghai
and Hongkong, and King's Counsel at the latter colony, does not disclose
anything contradictory to the rule just stated. Mr. Sharpe's examination was
confined to the question of the validity of the contract indorsed upon
plaintiffs' ticket exempting the defendant company from liability for damage
to their baggage. In view of the accurate answers of the learned witness to
the questions put to him as to the validity of the condition in question under
English law, there is no reason to suppose that he would not have stated
correctly the rule as to the construction of the condition had his attention
been directed to that point. In any event, this court is not, by reason of the
opinion expressed by an expert witness, precluded from advising itself as to
the common law of England. (Sec. 302, Code of Civil Procedure.)

The judgment is affirmed, with costs against the appellant.


CONTRACT OF ADHESION
1. G.R. No. L-20099 July 7, 1966
PARMANAND SHEWARAM, plaintiff and appellee,
vs.
PHILIPPINE AIR LINES, INC., defendant and appellant.
ZALDIVAR, J.:
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand
Shewaram instituted an action to recover damages suffered by him due to
the alleged failure of defendant-appellant Philippines Air Lines, Inc. to
observe extraordinary diligence in the vigilance and carriage of his luggage.
After trial the municipal court of Zamboanga City rendered judgment
ordering the appellant to pay appellee P373.00 as actual damages, P100.00
as exemplary damages, P150.00 as attorney's fees, and the costs of the
action.
Appellant Philippine Air Lines appealed to the Court of First Instance of
Zamboanga City. After hearing the Court of First Instance of Zamboanga City
modified the judgment of the inferior court by ordering the appellant to pay
the appellee only the sum of P373.00 as actual damages, with legal interest
from May 6, 1960 and the sum of P150.00 as attorney's fees, eliminating the
award of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant
appeals to this Court on a question of law, assigning two errors allegedly
committed by the lower court a quo, to wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by
the provisions of the tariff regulations filed by defendant-appellant with the
civil aeronautics board and the conditions of carriage printed at the back of
the plane ticket stub.
2. The lower court erred in not dismissing this case or limiting the liability of
the defendant-appellant to P100.00.
The facts of this case, as found by the trial court, quoted from the decision
appealed from, are as follows:
That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959,
a paying passenger with ticket No. 4-30976, on defendant's aircraft flight No.
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976/910 from Zamboanga City bound for Manila; that defendant is a
common carrier engaged in air line transportation in the Philippines, offering
its services to the public to carry and transport passengers and cargoes from
and to different points in the Philippines; that on the above-mentioned date
of November 23, 1959, he checked in three (3) pieces of baggages a
suitcase and two (2) other pieces; that the suitcase was mistagged by
defendant's personnel in Zamboanga City, as I.G.N. (for Iligan) with claim
check No. B-3883, instead of MNL (for Manila). When plaintiff Parmanand
Shewaram arrived in Manila on the date of November 23, 1959, his suitcase
did not arrive with his flight because it was sent to Iligan. So, he made a
claim with defendant's personnel in Manila airport and another suitcase
similar to his own which was the only baggage left for that flight, the rest
having been claimed and released to the other passengers of said flight, was
given to the plaintiff for him to take delivery but he did not and refused to
take delivery of the same on the ground that it was not his, alleging that all
his clothes were white and the National transistor 7 and a Rollflex camera
were not found inside the suitcase, and moreover, it contained a pistol which
he did not have nor placed inside his suitcase; that after inquiries made by
defendant's personnel in Manila from different airports where the suitcase in
question must have been sent, it was found to have reached Iligan and the
station agent of the PAL in Iligan caused the same to be sent to Manila for
delivery to Mr. Shewaram and which suitcase belonging to the plaintiff herein
arrived in Manila airport on November 24, 1959; that it was also found out
that the suitcase shown to and given to the plaintiff for delivery which he
refused to take delivery belonged to a certain Del Rosario who was bound for
Iligan in the same flight with Mr. Shewaram; that when the plaintiff's suitcase
arrived in Manila as stated above on November 24, 1959, he was informed by
Mr. Tomas Blanco, Jr., the acting station agent of the Manila airport of the
arrival of his suitcase but of course minus his Transistor Radio 7 and the
Rollflex Camera; that Shewaram made demand for these two (2) items or for
the value thereof but the same was not complied with by defendant.
xxx xxx xxx
It is admitted by defendant that there was mistake in tagging the suitcase of
plaintiff as IGN. The tampering of the suitcase is more apparent when on
November 24, 1959, when the suitcase arrived in Manila, defendant's
personnel could open the same in spite of the fact that plaintiff had it under
key when he delivered the suitcase to defendant's personnel in Zamboanga
City. Moreover, it was established during the hearing that there was space in
the suitcase where the two items in question could have been placed. It was
also shown that as early as November 24, 1959, when plaintiff was notified
 CONFLICTS | Assign 9| 8

by phone of the arrival of the suitcase, plaintiff asked that check of the things The liability, if any, for loss or damage to checked baggage or for delay in the
inside his suitcase be made and defendant admitted that the two items could delivery thereof is limited to its value and, unless the passenger declares in
not be found inside the suitcase. There was no evidence on record sufficient advance a higher valuation and pay an additional charge therefor, the value
to show that plaintiff's suitcase was never opened during the time it was shall be conclusively deemed not to exceed P100.00 for each ticket.
placed in defendant's possession and prior to its recovery by the plaintiff.
However, defendant had presented evidence that it had authority to open The appellant maintains that in view of the failure of the appellee to declare a
passengers' baggage to verify and find its ownership or identity. Exhibit "1" higher value for his luggage, and pay the freight on the basis of said declared
of the defendant would show that the baggage that was offered to plaintiff as value when he checked such luggage at the Zamboanga City airport,
his own was opened and the plaintiff denied ownership of the contents of the pursuant to the abovequoted condition, appellee can not demand payment
baggage. This proven fact that baggage may and could be opened without from the appellant of an amount in excess of P100.00.
the necessary authorization and presence of its owner, applied too, to the
The law that may be invoked, in this connection is Article 1750 of the New
suitcase of plaintiff which was mis-sent to Iligan City because of mistagging.
Civil Code which provides as follows:
The possibility of what happened in the baggage of Mr. Del Rosario at the
Manila Airport in his absence could have also happened to plaintiffs suitcase
A contract fixing the sum that may be recovered by the owner or shipper for
at Iligan City in the absence of plaintiff. Hence, the Court believes that these
the loss, destruction, or deterioration of the goods is valid, if it is reasonable
two items were really in plaintiff's suitcase and defendant should be held
and just under the circumstances, and has been fairly and freely agreed
liable for the same by virtue of its contract of carriage.
upon.
It is clear from the above-quoted portions of the decision of the trial court
In accordance with the above-quoted provision of Article 1750 of the New
that said court had found that the suitcase of the appellee was tampered,
Civil Code, the pecuniary liability of a common carrier may, by contract, be
and the transistor radio and the camera contained therein were lost, and that
limited to a fixed amount. It is required, however, that the contract must be
the loss of those articles was due to the negligence of the employees of the
"reasonable and just under the circumstances and has been fairly and freely
appellant. The evidence shows that the transistor radio cost P197.00 and the
agreed upon."
camera cost P176.00, so the total value of the two articles was P373.00.
The requirements provided in Article 1750 of the New Civil Code must be
There is no question that the appellant is a common carrier.1 As such
complied with before a common carrier can claim a limitation of its pecuniary
common carrier the appellant, from the nature of its business and for reasons
liability in case of loss, destruction or deterioration of the goods it has
of public policy, is bound to observe extraordinary diligence in the vigilance
undertaken to transport. In the case before us We believe that the
over the goods and for the safety of the passengers transported by it
requirements of said article have not been met. It can not be said that the
according to the circumstances of each case. 2 It having been shown that the
appellee had actually entered into a contract with the appellant, embodying
loss of the transistor radio and the camera of the appellee, costing P373.00,
the conditions as printed at the back of the ticket stub that was issued by the
was due to the negligence of the employees of the appellant, it is clear that
appellant to the appellee. The fact that those conditions are printed at the
the appellant should be held liable for the payment of said loss. 3
back of the ticket stub in letters so small that they are hard to read would
not warrant the presumption that the appellee was aware of those conditions
It is, however, contended by the appellant that its liability should be limited
such that he had "fairly and freely agreed" to those conditions. The trial court
to the amount stated in the conditions of carriage printed at the back of the
has categorically stated in its decision that the "Defendant admits that
plane ticket stub which was issued to the appellee, which conditions are
passengers do not sign the ticket, much less did plaintiff herein sign his ticket
embodied in Domestic Tariff Regulations No. 2 which was filed with the Civil
when he made the flight on November 23, 1959." We hold, therefore, that
Aeronautics Board. One of those conditions, which is pertinent to the issue
the appellee is not, and can not be, bound by the conditions of carriage found
raised by the appellant in this case provides as follows:
at the back of the ticket stub issued to him when he made the flight on
appellant's plane on November 23, 1959.

The liability of the appellant in the present case should be governed by the
provisions of Articles 1734 and 1735 of the New Civil Code, which We quote
as follows:
ART. 1734. Common carries are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following
causes only:
(1) Flood, storm, earthquake, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.1wph1.t
ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of
the preceding article, if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence as
required in Article 1733.
It having been clearly found by the trial court that the transistor radio and
the camera of the appellee were lost as a result of the negligence of the
appellant as a common carrier, the liability of the appellant is clear it must
pay the appellee the value of those two articles.
In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court
in support of its decision, this Court had laid down the rule that the carrier
can not limit its liability for injury to or loss of goods shipped where such
injury or loss was caused by its own negligence.
Corpus Juris, volume 10, p. 154, says:
"Par. 194, 6. Reasonableness of Limitations. The validity of stipulations
limiting the carrier's liability is to be determined by their reasonableness and
their conformity to the sound public policy, in accordance with which the
obligations of the carrier to the public are settled. It cannot lawfully stipulate
for exemption from liability, unless such exemption is just and reasonable,
and unless the contract is freely and fairly made. No contractual limitation is
reasonable which is subversive of public policy.
CONFLICTS | Assign 9| 9
"Par. 195. 7. What Limitations of Liability Permissible. a. Negligence (1)
Rule in America (a) In Absence of Organic or Statutory Provisions
Regulating Subject aa. Majority Rule. In the absence of statute, it is
settled by the weight of authority in the United States, that whatever
limitations against its common-law liability are permissible to a carrier, it
cannot limit its liability for injury to or loss of goods shipped, where such
injury or loss is caused by its own negligence. This is the common law
doctrine and it makes no difference that there is no statutory prohibition
against contracts of this character.
"Par. 196. bb. Considerations on which Rule Based. The rule, it is said,
rests on considerations of public policy. The undertaking is to carry the
goods, and to relieve the shipper from all liability for loss or damage arising
from negligence in performing its contract is to ignore the contract itself. The
natural effect of a limitation of liability against negligence is to induce want of
care on the part of the carrier in the performance of its duty. The shipper and
the common carrier are not on equal terms; the shipper must send his freight
by the common carrier, or not at all; he is therefore entirely at the mercy of
the carrier unless protected by the higher power of the law against being
forced into contracts limiting the carrier's liability. Such contracts are wanting
in the element of voluntary assent.
"Par. 197. cc. Application and Extent of Rule (aa) Negligence of Servants.
The rule prohibiting limitation of liability for negligence is often stated as a
prohibition of any contract relieving the carrier from loss or damage caused
by its own negligence or misfeasance, or that of its servants; and it has been
specifically decided in many cases that no contract limitation will relieve the
carrier from responsibility for the negligence, unskillfulness, or carelessness
of its employer." (Cited in Ysmael and Co. vs. Barreto, 51 Phil. 90, 98, 99).
In view of the foregoing, the decision appealed from is affirmed, with costs
against the appellant.
 CONFLICTS | Assign 9| 10

2. G.R. No. L-31150 July 22, 1975 After sightseeing in American and European cities (they were in the
meantime joined by their two young companions), the respondents arrived in
KONINKLIJKE LUCHTVAART MAATSHAPPIJ N.V., otherwise known as Frankfurt, Germany. They went to a KLM office there and obtained a
KLM ROYAL DUTCH AIRLINES, petitioner, confirmation from Aer Lingus of seat reservations on flight 861. After
vs. meandering in London, Paris and Lisbon, the foursome finally took wing to
THE HONORABLE COURT OF APPEALS, CONSUELO T. MENDOZA and Barcelona for their trip to Lourdes, France.
RUFINO T. MENDOZA, respondents.
In the afternoon of June 22, 1965 the respondents with their wards went to
CASTRO, J.: the Barcelona airport to take their plane which arrived at 4:00 o'clock. At the
airport, the manager of Aer Lingus directed the respondents to check in.
In this appeal by way of certiorari the Koninklijke Luchtvaart Maatschappij
They did so as instructed and were accepted for passage. However, although
N.V., otherwise known as the KLM Royal Dutch Airlines (hereinafter referred
their daughter and niece were allowed to take the plane, the respondents
to as the KLM) assails the award of damages made by the Court of Appeals in
were off-loaded on orders of the Aer Lingus manager who brusquely shoved
CA-G.R. 40620 in favor of the spouses Rufino T. Mendoza and Consuelo T.
them aside with the aid of a policeman and who shouted at them, "Conos!
Mendoza (hereinafter referred to as the respondents).1wph1.t
Ignorantes Filipinos!"
Sometime in March 1965 the respondents approached Tirso Reyes, manager
Mrs. Mendoza later called up the manager of Aer Lingus and requested that
of a branch of the Philippine Travel Bureau, a travel agency, for consultations
they provide her and her husband means to get to Lourdes, but the request
about a world tour which they were intending to make with their daughter
was denied. A stranger, however, advised them to take a train, which the two
and a niece. Reyes submitted to them, after preliminary discussions, a
did; despite the third class accommodations and lack of food service, they
tentative itinerary which prescribed a trip of thirty-five legs; the respondents
reached Lourdes the following morning. During the train trip the respondents
would fly on different airlines. Three segments of the trip, the longest, would
had to suffer draft winds as they wore only minimum clothing, their luggage
be via KLM. The respondents expressed a desire to visit Lourdes, France, and
having gone ahead with the Aer Lingus plane. They spent $50 for that train
discussed with Reyes two alternate routes, namely, Paris to Lourdes and
trip; their plane passage was worth $43.35.
Barcelona to Lourdes. The respondents decided on the Barcelona-Lourdes
route with knowledge that only one airline, Aer Lingus, serviced it. On March 17, 1966 the respondents, referring to KLM as the principal of Aer
Lingus, filed a complaint for damages with the Court of First Instance of
The Philippine Travel Bureau to which Reyes was accredited was an agent for
Manila arising from breach of contract of carriage and for the humiliating
international air carriers which are members of the International Air
treatment received by them at the hands of the Aer Lingus manager in
Transport Association, popularly known as the "IATA," of which both the KLM
Barcelona. After due hearing, the trial court awarded damages to the
and the Aer Lingus are members.
respondents as follows: $43.35 or its peso equivalent as actual damages,
P10,000 as moral damages, P5,000 as exemplary damages, and P5,000 as
After about two weeks, the respondents approved the itinerary prepared for
attorney's fees, and expenses of litigation.
them, and asked Reyes to make the necessary plane reservations. Reyes
went to the KLM, for which the respondents had expressed preference. The
Both parties appealed to the Court of Appeals. The KLM sought complete
KLM thereafter secured seat reservations for the respondents and their two
exoneration; the respondents prayed for an increase in the award of
companions from the carriers which would ferry them throughout their trip,
damages. In its decision of August 14, 1969 the Court of Appeals decreed as
with the exception of Aer Lingus. When the respondents left the Philippines
follows: "Appellant KLM is condemned to pay unto the plaintiffs the sum of
(without their young wards who had enplaned much earlier), they were
$43.35 as actual damages; P50,000 as moral damages; and P6,000 as
issued KLM tickets for their entire trip. However, their coupon for the Aer
attorney's fees and costs."
Lingus portion (Flight 861 for June 22, 1965) was marked "RQ" which meant
"on request". Hence, the present recourse by the KLM.

The KLM prays for exculpation from damages on the strength of the following
particulars which were advanced to but rejected by the Court of Appeals:
(a) The air tickets issued to the respondents stipulate that carriage
thereunder is subject to the "Convention for the Unification of Certain Rules
Relating to International Transportation by Air," otherwise known as the
"Warsaw Convention," to which the Philippine Government is a party by
adherence, and which pertinently provides. 1
ART. 30. (1) In the case of transportation to be performed by various
successive carriers and failing within the definition set out in the third
paragraph of Article I, each carrier who accepts passengers, baggage, or
goods shall be subject to the rules set out in the convention, and shall be
deemed to be one of the contracting parties to the contract of transportation
insofar as the contract deals with that part of transportation which is
performed under his supervision. 2
(2) In the case of transportation of this nature, the passenger or his
representative can take action only against the carrier who performed the
transportation during which the accident or the delay occured, save in the
case where, by express agreement, the first carrier has assumed liability for
the whole journey. (emphasis supplied)
(b) On the inside front cover of each ticket the following appears under the
heading "Conditions of Contract":
1 ... (a) Liability of carrier for damages shall be limited to occurrences on its
own line, except in the case of checked baggage as to which the passenger
also has a right of action against the first or last carrier. A carrier issuing a
ticket or checking baggage for carriage over the lines of others does so only
as agent..
(c) All that the KLM did after the respondents completed their arrangements
with the travel agency was to request for seat reservations among the
airlines called for by the itinerary submitted to the KLM and to issue tickets
for the entire flight as a ticket-issuing agent.
The respondents rebut the foregoing arguments, thus:
(a) Article 30 of the Warsaw Convention has no application in the case at bar
which involves, not an accident or delay, but a willful misconduct on the part
of the KLM's agent, the Aer Lingus. Under article 25 of the same Convention
the following is prescribed:
CONFLICTS | Assign 9| 11
ART. 25. (1) The carrier shall not be entitled to avail himself of the provisions
of this convention which exclude or limit his liability, if the damage is caused
by his willful misconduct or by such default on his part as, in accordance with
the law of the court to which the case is submitted, is considered to be
equivalent to willful misconduct. 3
(2) Similarly, the carrier shall not be entitled to avail himself of the said
provisions, if the damage is caused under the same circumstances by any
agent of the carrier acting within the scope of his employment. (emphasis by
respondents)
(b) The condition in their tickets which purportedly excuse the KLM from
liability appears in very small print, to read which, as found by the Court of
Appeals, one has practically to use a magnifying glass.
(c) The first paragraph of the "Conditions of Contract" appearing identically
on the KLM tickets issued to them idubitably shows that their contract was
one of continuous air transportation around the world:
1 ... "carriage" includes the air carrier issuing this ticket and all carriers that
carry or undertake to carry the passenger or his baggage hereunder or
perform any other service incidental to such air carriage... Carriage to be
performed hereunder by several successive carrier is regarded as a single
operation.
(d) The contract of air transportation was exclusively between the
respondents and the KLM, the latter merely endorsing its performance to
other carriers, like Aer Lingus, as its subcontractors or agents, as evidenced
by the passage tickets themselves which on their face disclose that they are
KLM tickets. Moreover, the respondents dealt only with KLM through the
travel agency.
1. The applicability insisted upon by the KLM of article 30 of the Warsaw
Convention cannot be sustained. That article presupposes the occurrence of
either an accident or a delay, neither of which took place at the Barcelona
airport; what is here manifest, instead, is that the Aer Lingus, through its
manager there, refused to transport the respondents to their planned and
contracted destination.
2. The argument that the KLM should not be held accountable for the tortious
conduct of Aer Lingus because of the provision printed on the respondents'
tickets expressly limiting the KLM's liability for damages only to occurrences
on its own lines is unacceptable. As noted by the Court of Appeals that
 CONFLICTS | Assign 9| 12

condition was printed in letters so small that one would have to use a responsible for the abuse, injury and embarrassment suffered by the
magnifying glass to read the words. Under the circumstances, it would be respondents at the hands of a supercilious boor of the Aer Lingus.
unfair and inequitable to charge the respondents with automatic knowledge
or notice of the said condition so as to preclude any doubt that it was fairly ACCORDINGLY, the judgment of the Court of Appeals dated August 14, 1969
and freely agreed upon by the respondents when they accepted the passage is affirmed, at KLM's cost.
tickets issued to them by the KLM. As the airline which issued those tickets
with the knowledge that the respondents would be flown on the various legs
of their journey by different air carriers, the KLM was chargeable with the
duty and responsibility of specifically informing the respondents of conditions
prescribed in their tickets or, in the very least, to ascertain that the
respondents read them before they accepted their passage tickets. A
thorough search of the record, however, inexplicably fails to show that any
effort was exerted by the KLM officials or employees to discharge in a proper
manner this responsibility to the respondents. Consequently, we hold that the
respondents cannot be bound by the provision in question by which KLM
unilaterally assumed the role of a mere ticket-issuing agent for other airlines
and limited its liability only to untoward occurrences on its own lines.

3. Moreover, as maintained by the respondents and the Court of Appeals, the

passage tickets of the respondents provide that the carriage to be performed
thereunder by several successive carriers "is to be regarded as a single
operation," which is diametrically incompatible with the theory of the KLM
that the respondents entered into a series of independent contracts with the
carriers which took them on the various segments of their trip. This position
of KLM we reject. The respondents dealt exclusively with the KLM which
issued them tickets for their entire trip and which in effect guaranteed to
them that they would have sure space in Aer Lingus flight 861. The
respondents, under that assurance of the internationally prestigious KLM,
naturally had the right to expect that their tickets would be honored by Aer
Lingus to which, in the legal sense, the KLM had indorsed and in effect
guaranteed the performance of its principal engagement to carry out the
respondents' scheduled itinerary previously and mutually agreed upon
between the parties.

4. The breach of that guarantee was aggravated by the discourteous and

highly arbitrary conduct of an official of the Aer Lingus which the KLM had
engaged to transport the respondents on the Barcelona-Lourdes segment of
their itinerary. It is but just and in full accord with the policy expressly
embodied in our civil law which enjoins courts to be more vigilant for the
protection of a contracting party who occupies an inferior position with
respect to the other contracting party, that the KLM should be held

3. G.R. No. 60673 May 19, 1992
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
JOSE K. RAPADAS and THE COURT OF APPEALS, respondents.
GUTIERREZ, JR., J.:
This is a petition for review assailing the decision of the respondent Court of
Appeals which affirmed in toto the trial court decision on the liability of
petitioner Pan American World Airways for damages due to private
respondent. The trial court ruled that the petitioner can not avail of a
limitation of liabilities for lost baggages of a passenger. The dispositive
portion of the trial court decision reads:
WHEREFORE, in view of the foregoing considerations, judgment is hereby
rendered ordering defendant to pay plaintiff by way of actual damages the
equivalent peso value of the amount of $5,228.90 and 100 paengs, nominal
damages in the amount of P20,000.00 and attorney's fees of P5,000.00, and
the costs of the suit. Defendant's counterclaim is dismissed. (Rollo, p. 13)
On January 16, 1975, private respondent Jose K. Rapadas held Passenger
Ticket and Baggage Claim Check No. 026-394830084-5 for petitioner's Flight
No. 841 with the route from Guam to Manila. While standing in line to board
the flight at the Guam airport, Rapadas was ordered by petitioner's handcarry
control agent to check-in his Samsonite attache case. Rapadas protested
pointing to the fact that other co-passengers were permitted to handcarry
bulkier baggages. He stepped out of the line only to go back again at the end
of it to try if he can get through without having to register his attache case.
However, the same man in charge of handcarry control did not fail to notice
him and ordered him again to register his baggage. For fear that he would
miss the plane if he insisted and argued on personally taking the valise with
him, he acceded to checking it in. He then gave his attache case to his
brother who happened to be around and who checked it in for him, but
without declaring its contents or the value of its contents. He was given a
Baggage Claim Tag No. P-749-713. (Exhibit "B" for the plaintiff-respondent)
Upon arriving in Manila on the same date, January 16, 1975, Rapadas
claimed and was given all his checked-in baggages except the attache case.
Since Rapadas felt ill on his arrival, he sent his son, Jorge Rapadas to request
for the search of the missing luggage. The petitioner exerted efforts to locate
CONFLICTS | Assign 9| 13
the luggage through the Pan American World Airways-Manila International
Airport (PAN AM-MIA) Baggage Service.
On January 30, 1975, the petitioner required the private respondent to put
the request in writing. The respondent filled in a Baggage Claim Blank Form.
Thereafter, Rapadas personally followed up his claim. For several times, he
called up Mr. Panuelos, the head of the Baggage Section of PAN AM. He also
sent letters demanding and reminding the petitioner of his claim.
Rapadas received a letter from the petitioner's counsel dated August 2, 1975
offering to settle the claim for the sum of one hundred sixty dollars
($160.00) representing the petitioner's alleged limit of liability for loss or
damage to a passenger's personal property under the contract of carriage
between Rapadas and PAN AM. Refusing to accept this kind of settlement,
Rapadas filed the instant action for damages on October 1, 1975. Rapadas
alleged that PAN AM discriminated or singled him out in ordering that his
luggage be checked in. He also alleged that PAN AM neglected its duty in the
handling and safekeeping of his attache case from the point of embarkation
in Guam to his destination in Manila. He placed the value of the lost attache
case and its contents at US$42,403.90. According to him, the loss resulted in
his failure to pay certain monetary obligations, failure to remit money sent
through him to relatives, inability to enjoy the fruits of his retirement and
vacation pay earned from working in Tonga Construction Company (he retired
in August 1974) and inability to return to Tonga to comply with then existing
contracts.
In its answer, petitioner-defendant PAN AM acknowledged responsibility for
the loss of the attache case but asserted that the claim was subject to the
"Notice of Baggage Liability Limitations" allegedly attached to and forming
part of the passenger ticket. The petitioner argued that the same notice was
also conspicuously posted in its offices for the guidance of the passengers.
At the trial, private respondent showed proof of his retirement award and
vacation pay amounting to $4,750.00. He claimed that the attache case also
contained other money consisting of $1,400 allegedly given to him by his
son, Jaime, as a round trip fare of his (plaintiff-respondent) wife, but which
amount was later found to be actually intended by Jaime as payment for
arrears of a lot purchased from Tropical Homes, Inc.; $3,000 allegedly given
by his brothers for payment of taxes and for constructing improvements on
the Rapadas estates; and $300.00 birthday present of the spouses Mr. and
Mrs. Ruben Canonizado to plaintiff-respondent's wife. He also claimed having
kept several items in the attache case, namely (1) contracts and records

of employment, letters of commendation, testimonials and newspaper
clippings on his achievement for 13 years in Tonga, New Zealand and
Australia, drafts of manuscripts, photographs and drivers license alleged to
be worth $20,000.00; a Polaroid camera, films, calculator, and other personal
items worth $403.90; memorabilia, autographs personally acquired from
Charles Lindberg, Lawrence Rockefeller and Ryoichi Sasakawa, a
commemorative palladium coin worth Tongan 100 paengs and unused Tongan
stamps, all totalling $7,500.00; and a plan worth $5,000.00 drawn by his son
Jaime, who is an architect, for the construction of a residential house and a
6-story commercial building. Rapadas claimed the amount of the attache
case itself to be $25.50. (See Decision in Civil Case No. 99564 in Amended
Record on Appeal, pp. 61-85)
The lower court ruled in favor of complainant Rapadas after finding no
stipulation giving notice to the baggage liability limitation. The court rejected
the claim of defendant PANAM that its liability under the terms of the
passenger ticket is only up to $160.00. However, it scrutinized all the claims
of the plaintiff. It discredited insufficient evidence to show discriminatory acts
or bad faith on the part of petitioner PANAM.
On appeal, the Court of Appeals affirmed the trial court decision. Hence, this
petition.
The main issue raised in the case at bar is whether or not a passenger is
bound by the terms of a passenger ticket declaring that the limitations of
liability set forth in the Warsaw Convention (October 12, 1929; 137 League of
Nations Treaty Series II; See Proclamation No. 201 [1955], 51 O.G. 4933
[October, 1955]) as amended by the Hague Protocol (September 28, 1955;
478 UNTS 373; III PTS 515), shall apply in case of loss, damage or
destruction to a registered luggage of a passenger.
The petitioner maintains that its liability for the lost baggage of respondent
Rapadas was limited to $160.00 since the latter did not declare a higher
value for his baggage and did not pay the corresponding additional charges.
The private respondent, on the other hand, insists that he is entitled to as
much damages as those awarded by the court and affirmed by the
respondent appellate court.
After a review of the various arguments of the opposing parties as well as the
records of the case, the Court finds sufficient basis under the particular facts
CONFLICTS | Assign 9| 14
of this case for the availment of the liability limitations under the Warsaw
Convention.
There is no dispute, and the courts below admit, that there was such a Notice
appearing on page two (2) of the airline ticket stating that the Warsaw
Convention governs in case of death or injury to a passenger or of loss,
damage or destruction to a passenger's luggage.
The Notice states:
If the passenger's journey involves an ultimate destination or stop in a
country other than the country of departure the Warsaw Convention may be
applicable and the Convention governs and in most cases limits the liability of
carriers for death or personal injury and in respect of loss of or damage to
baggage. See also notice headed "Advice to International Passengers on
Limitation of Liability." (The latter notice refers to limited liability for death or
personal injury to passengers with proven damages not exceeding US
$75,000 per passenger; Exhibit "K" for plaintiff respondent, Table of Exhibits,
p. 19)
Furthermore, paragraph 2 of the "Conditions of Contract" also appearing on
page 2 of the ticket states:
2. Carriage hereunder is subject to the rules and limitations relating to
liability established by the Warsaw Convention unless such carriage is not
"international carriage" as defined by that Convention. (Exhibit "K", supra)
We note that plaintiff-respondent Rapadas presented as proof of the
Passenger Ticket and Baggage Check No. 026-394830084-5 a xerox copy of
its page 2 which contains the Notice and Conditions of Contract, and also
page 3 which recites the Advice to International Passengers on Limitation of
Liability. He also presented two xerox copies of Flight Coupon No. 3 of the
same passenger ticket showing the fares paid for the trips Honolulu to Guam,
Guam to Manila, and Manila to Honolulu to prove his obligations which
remained unpaid because of the unexpected loss of money allegedly placed
inside the missing attache case. Rapadas explained during the trial that the
same passenger ticket was returned by him to one Mr. S.L. Faupula of the
Union Steam Ship Company of New Zealand, Ltd., Tonga who demanded the
payment of the fares or otherwise, the return of the unused plane tickets
(including the subject Passenger Ticket & Baggage Check No. 026-
394830084-5). The issuance of these tickets was facilitated by Mr. Faupula on
credit.

Meanwhile, the petitioner offered as evidence Exhibit "1" also showing page 2
of the passenger ticket to prove the notice and the conditions of the contract
of carriage. It likewise offered Exhibit "1-A", a xerox copy of a "Notice of
Baggage Liability Limitations" which the trial court disregarded and held to be
non-existent. The same Exhibit "1-A" contained the following stipulations:
NOTICE OF BAGGAGE LIABILITY LIMITATIONS Liability for loss, delay, or
damage to baggage is limited as follows unless a higher value is declared in
advance and additional charges are paid: (1) for most international travel
(including domestic portions of international journeys) to approximately
$8.16 per pound ($18.00 per kilo; now $20.00 per Exhibit "13") for checked
baggage and $360 (now $400 per Exhibit "13") per passenger for unchecked
baggage; (2) for travel wholly between U.S. points, to $500 per passenger on
most carriers (a few have lower limits). Excess valuation may not be declared
on certain types of valuable articles. Carriers assume no liability for fragile or
perishable articles. Further information may be obtained from the carrier.
(Table of Exhibits, p. 45)
The original of the Passenger Ticket and Baggage Check No. 026-394830084-
5 itself was not presented as evidence as it was among those returned to Mr.
Faupula. Thus, apart from the evidence offered by the defendant airline, the
lower court had no other basis for determining whether or not there was
actually a stipulation on the specific amounts the petitioner had expressed
itself to be liable for loss of baggage.
Although the trial court rejected the evidence of the defendant-petitioner of a
stipulation particularly specifying what amounts it had bound itself to pay for
loss of luggage, the Notice and paragraph 2 of the "Conditions of Contract"
should be sufficient notice showing the applicability of the Warsaw
limitations.
The Warsaw Convention, as amended, specifically provides that it is
applicable to international carriage which it defines in Article 1, par. 2 as
follows:
(2) For the purposes of this Convention, the expression "international
carriage" means any carriage in which, according to the agreement between
the parties, the place of departure and the place of destination, whether or
not there be a breach in the carriage or a transhipment, are situated either
within the territories of two High Contracting Parties or within the territory of
a single High Contracting Party if there is an agreed stopping place within the
territory of another State, even if that State is not a High Contracting Party.
CONFLICTS | Assign 9| 15
Carriage between two points within the territory of a single High Contracting
Party without an agreed stopping place within the territory of another State is
not international carriage for the purposes of this Convention. ("High
Contracting Party" refers to a state which has ratified or adhered to the
Convention, or which has not effectively denounced the Convention [Article
40A(l)]).
Nowhere in the Warsaw Convention, as amended, is such a detailed notice of
baggage liability limitations required. Nevertheless, it should become a
common, safe and practical custom among air carriers to indicate beforehand
the precise sums equivalent to those fixed by Article 22 (2) of the
Convention.
The Convention governs the availment of the liability limitations where the
baggage check is combined with or incorporated in the passenger ticket
which complies with the provisions of Article 3, par. l (c). (Article 4, par. 2) In
the case at bar, the baggage check is combined with the passenger ticket in
one document of carriage. The passenger ticket complies with Article 3, par. l
(c) which provides:
(l) In respect of the carriage of passengers a ticket shall be delivered
containing:
(a) . . .
(b) . . .
(c) a notice to the effect that, if the passenger's journey involves an ultimate
destination or stop in a country other than the country of departure, the
Warsaw Convention may be applicable and that the Convention governs and
in most cases limits the liability of carriers for death or personal injury and in
respect of loss of or damage to baggage.
We have held in the case of Ong Yiu v. Court of Appeals, supra, and
reiterated in a similar case where herein petitioner was also sued for
damages, Pan American World Airways v. Intermediate Appellate Court (164
SCRA 268 [1988]) that:
It (plane ticket) is what is known as a contract of "adhesion", in regards
which it has been said that contracts of adhesion wherein one party imposes
a ready made form of contract on the other, as the plane ticket in the case at
bar, are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his

consent. (Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice
J.B.L. Reyes, Lawyer's Journal, January 31, 1951, p. 49) And as held in
Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878;
Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting
liability upon an agreed valuation does not offend against the policy of the
law forbidding one from contracting against his own negligence.
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 . . . (91
SCRA 223 at page 231)
We hasten to add that while contracts of adhesion are not entirely prohibited,
neither is a blind reliance on them encouraged. In the face of facts and
circumstances showing they should be ignored because of their basically one
sided nature, the Court does not hesitate to rule out blind adherence to their
terms. (See Sweet Lines, Inc. v. Teves, 83 SCRA 361, 368-369[1978])
The arguments of the petitioner do not belie the fact that it was indeed
accountable for the loss of the attache case. What the petitioner is concerned
about is whether or not the notice, which it did not fail to state in the plane
ticket and which it deemed to have been read and accepted by the private
respondent will be considered by this Court as adequate under the
circumstances of this case. As earlier stated, the Court finds the provisions in
the plane ticket sufficient to govern the limitations of liabilities of the airline
for loss of luggage. The passenger, upon contracting with the airline and
receiving the plane ticket, was expected to be vigilant insofar as his luggage
is concerned. If the passenger fails to adduce evidence to overcome the
stipulations, he cannot avoid the application of the liability limitations.
The facts show that the private respondent actually refused to register the
attache case and chose to take it with him despite having been ordered by
the PANAM agent to check it in. In attempting to avoid registering the
luggage by going back to the line, private respondent manifested a disregard
of airline rules on allowable handcarried baggages. Prudence of a reasonably
careful person also dictates that cash and jewelry should be removed from
checked-in-luggage and placed in one's pockets or in a handcarried Manila-
paper or plastic envelope.
The alleged lack of enough time for him to make a declaration of a higher
value and to pay the corresponding supplementary charges cannot justify his
failure to comply with the requirement that will exclude the application of
limited liability. Had he not wavered in his decision to register his luggage, he
CONFLICTS | Assign 9| 16
could have had enough time to disclose the true worth of the articles in it and
to pay the extra charges or remove them from the checked-in-luggage.
Moreover, an airplane will not depart meantime that its own employee is
asking a passenger to comply with a safety regulation.
Passengers are also allowed one handcarried bag each provided it conforms
to certain prescribed dimensions. If Mr. Rapadas was not allowed to
handcarry the lost attache case, it can only mean that he was carrying more
than the allowable weight for all his luggages or more than the allowable
number of handcarried items or more than the prescribed dimensions for the
bag or valise. The evidence on any arbitrary behavior of a Pan Am employee
or inexcusable negligence on the part of the carrier is not clear from the
petition. Absent such proof, we cannot hold the carrier liable because of
arbitrariness, discrimination, or mistreatment.
We are not by any means suggesting that passengers are always bound to
the stipulated amounts printed on a ticket, found in a contract of adhesion, or
printed elsewhere but referred to in handouts or forms. We simply recognize
that the reasons behind stipulations on liability limitations arise from the
difficulty, if not impossibility, of establishing with a clear preponderance of
evidence the contents of a lost valise or suitcase. Unless the contents are
declared, it will always be the word of a passenger against that of the airline.
If the loss of life or property is caused by the gross negligence or arbitrary
acts of the airline or the contents of the lost luggage are proved by
satisfactory evidence other than the self-serving declarations of one party,
the Court will not hesitate to disregard the fine print in a contract of
adhesion. (See Sweet Lines Inc. v. Teves, supra) Otherwise, we are
constrained to rule that we have to enforce the contract as it is the only
reasonable basis to arrive at a just award.
We note that the finding on the amount lost is more of a probability than a
proved conclusion.
The trial court stated:
xxx xxx xxx
We come now to the actual loss of $4,750.00 which the plaintiff claims was
the amount of his retirement award and vacation pay. According to the
plaintiff, this was in cash of $100 denominations and was placed in an
envelope separate from the other money he was carrying. Plaintiff presented
the memorandum award, Exhibit T-1 and the vouchers of payment, Exhibits
 CONFLICTS | Assign 9| 17

T-2 and T-3. Under the circumstances, recited by the plaintiff in which the or its equivalent in Philippine Currency at the time of actual payment,
loss occurred, the Court believes that plaintiff could really have placed this P10,000.00 in attorney's fees, and costs of the suit.
amount in the attache case considering that he was originally handcarrying
said attache case and the same was looked, and he did not expect that he SO ORDERED.
would be required to check it in. . . . (Amended Record on Appeal, p. 75;
Emphasis ours)

The above conclusion of the trial court does not arise from the facts. That the
attache case was originally handcarried does not beg the conclusion that the
amount of $4,750.00 in cash could have been placed inside. It may be noted
that out of a claim for US$42,403.90 as the amount lost, the trial court found
for only US$5,228.90 and 100 paengs. The court had doubts as to the total
claim.

The lost luggage was declared as weighing around 18 pounds or

approximately 8 kilograms. At $20.00 per kilogram, the petitioner offered to
pay $160.00 as a higher value was not declared in advance and additional
charges were not paid. We note, however, that an amount of $400.00 per
passenger is allowed for unchecked luggage. Since the checking-in was
against the will of the respondent, we treat the lost bag as partaking of
involuntarily and hurriedly checked-in luggage and continuing its earlier
status as unchecked luggage. The fair liability under the petitioner's own
printed terms is $400.00. Since the trial court ruled out discriminatory acts or
bad faith on the part of Pan Am or other reasons warranting damages, there
is no factual basis for the grant of P20,000.00 damages.

As to the question of whether or not private respondent should be paid

attorney's fees, the Court sustains the finding of the trial court and the
respondent appellate court that it is just and equitable for the private
respondent to recover expenses for litigation in the amount of P5,000.00.
Article 22(4) of the Warsaw Convention, as amended does not preclude an
award of attorney's fees. That provision states that the limits of liability
prescribed in the instrument "shall not prevent the court from awarding, in
accordance with its own law, in addition, the whole or part of the court costs
and other expenses of litigation incurred by the plaintiff." We, however, raise
the award to P10,000.00 considering the resort to the Court of Appeals and
this Court.

WHEREFORE, the petition is hereby GRANTED and the decision of the

respondent Court of Appeals is REVERSED and SET ASIDE. The petitioner is
ordered to pay the private respondent damages in the amount of US$400.00

4. G.R. No. 103338 January 4, 1994
FEDERICO SERRA, petitioner,
vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING
CORPORATION, respondents.
NOCON, J.:
A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable. An accepted unilateral promise to buy and sell a
determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price. (Article 1479,
New Civil Code) The first is the mutual promise and each has the right to
demand from the other the fulfillment of the obligation. While the second is
merely an offer of one to another, which if accepted, would create an
obligation to the offeror to make good his promise, provided the acceptance
is supported by a consideration distinct from the price.
Disputed in the present case is the efficacy of a "Contract of Lease with
Option to Buy", entered into between petitioner Federico Serra and private
respondent Rizal Commercial Banking Corporation. (RCBC).
Petitioner is the owner of a 374 square meter parcel of land located at
Quezon St., Masbate, Masbate. Sometime in 1975, respondent bank, in its
desire to put up a branch in Masbate, Masbate, negotiated with petitioner for
the purchase of the then unregistered property. On May 20, 1975, a contract
of LEASE WITH OPTION TO BUY was instead forged by the parties, the
pertinent portion of which reads:
1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in
lease, the parcel of land described in the first WHEREAS clause, to have and
to hold the same for a period of twenty-five (25) years commencing from
June 1, 1975 to June 1, 2000. The LESSEE, however, shall have the option to
purchase said parcel of land within a period of ten (10) years from the date
of the signing of this Contract at a price not greater than TWO HUNDRED TEN
PESOS (P210.00) per square meter. For this purpose, the LESSOR
undertakes, within such ten-year period, to register said parcel of land under
the TORRENS SYSTEM and all expenses appurtenant thereto shall be for his
sole account.
If, for any reason, said parcel of land is not registered under the TORRENS
SYSTEM within the aforementioned ten-year period, the LESSEE shall have
CONFLICTS | Assign 9| 18
the right, upon termination of the lease to be paid by the LESSOR the market
value of the building and improvements constructed on said parcel of land.
The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register
said parcel of land under the TORRENS SYSTEM in case the LESSOR, for any
reason, fails to comply with his obligation to effect said registration within
reasonable time after the signing of this Agreement, and all expenses
appurtenant to such registration shall be charged by the LESSEE against the
rentals due to the LESSOR.
2. During the period of the lease, the LESSEE covenants to pay the LESSOR,
at the latter's residence, a monthly rental of SEVEN HUNDRED PESOS
(P700.00), Philippine Currency, payable in advance on or before the fifth
(5th) day of every calendar month, provided that the rentals for the first four
(4) months shall be paid by the LESSEE in advance upon the signing of this
Contract.
3. The LESSEE is hereby authorized to construct as its sole expense a
building and such other improvements on said parcel of land, which it may
need in pursuance of its business and/or operations; provided, that if for any
reason the LESSEE shall fail to exercise its option mentioned in paragraph (1)
above in case the parcel of land is registered under the TORRENS SYSTEM
within the ten-year period mentioned therein, said building and/or
improvements, shall become the property of the LESSOR after the expiration
of the 25-year lease period without the right of reimbursement on the part of
the LESSEE. The authority herein granted does not, however, extend to the
making or allowing any unlawful, improper or offensive used of the leased
premises, or any use thereof, other than banking and office purposes. The
maintenance and upkeep of such building, structure and improvements shall
likewise be for the sole account of the LESSEE. 1
The foregoing agreement was subscribed before Notary Public Romeo F.
Natividad.
Pursuant to said contract, a building and other improvements were
constructed on the land which housed the branch office of RCBC in Masbate,
Masbate. Within three years from the signing of the contract, petitioner
complied with his part of the agreement by having the property registered
and
placed under the TORRENS SYSTEM, for which Original Certificate of Title No.
0-232 was issued by the Register of Deeds of the Province of Masbate.

Petitioner alleges that as soon as he had the property registered, he kept on
pursuing the manager of the branch to effect the sale of the lot as per their
agreement. It was not until September 4, 1984, however, when the
respondent bank decided to exercise its option and informed petitioner,
through a letter, 2 of its intention to buy the property at the agreed price of
not greater than P210.00 per square meter or a total of P78,430.00. But
much to the surprise of the respondent, petitioner replied that he is no longer
selling the property. 3
Hence, on March 14, 1985, a complaint for specific performance and
damages were filed by respondent against petitioner. In the complaint,
respondent alleged that during the negotiations it made clear to petitioner
that it intends to stay permanently on property once its branch office is
opened unless the exigencies of the business requires otherwise. Aside from
its prayer for specific performance, it likewise asked for an award of
P50,000.00 for attorney's fees P100,000.00 as exemplary damages and the
cost of the suit. 4
A special and affirmative defenses, petitioner contended:
1. That the contract having been prepared and drawn by RCBC, it took undue
advantage on him when it set in lopsided terms.
2. That the option was not supported by any consideration distinct from the
price and hence not binding upon him.
3. That as a condition for the validity and/or efficacy of the option, it should
have been exercised within the reasonable time after the registration of the
land under the Torrens System; that its delayed action on the option have
forfeited whatever its claim to the same.
4. That extraordinary inflation supervened resulting in the unusual decrease
in the purchasing power of the currency that could not reasonably be forseen
or was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation, thus, rendering the terms of the contract
unenforceable, inequitable and to the undue enrichment of RCBC. 5
and as counterclaim petitioner alleged that:
1. The rental of P700.00 has become unrealistic and unreasonable, that
justice and equity will require its adjustment.
CONFLICTS | Assign 9| 19
2. By the institution of the complaint he suffered moral damages which may
be assessed at P100,000.00 and award of attorney's fee of P25,000.00 and
exemplary damages at P100,000.00. 6
Initially, after trial on the merits, the court dismissed the complaint. Although
it found the contract to be valid, the court nonetheless ruled that the option
to buy in unenforceable because it lacked a consideration distinct from the
price and RCBC did not exercise its option within reasonable time. The prayer
for readjustment of rental was denied, as well as that for moral and
exemplary damages. 7
Nevertheless, upon motion for reconsideration of respondent, the court in the
order of January 9, 1989, reversed itself, the dispositive portion reads:
WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and
hereby renders judgment as follows:
1. The defendant is hereby ordered to execute and deliver the proper deed of
sale in favor of plaintiff selling, transferring and
conveying the property covered by and described in the Original Certificate of
Title 0-232 of the Registry of Deeds of Masbate for the sum of Seventy Eight
Thousand Five Hundred Forty Pesos (P78,540,00), Philippine Currency;
2. Defendant is ordered to pay plaintiff the sum of Five Thousand
(P5,000.00) Pesos as attorney's fees;
3. The counter claim of defendant is hereby dismissed; and
4. Defendants shall pay the costs of suit. 8
In a decision promulgated on September 19, 1991, 9 the Court of Appeals
affirmed the findings of the trial court that:
1. The contract is valid and that the parties perfectly understood the contents
thereof;
2. The option is supported by a distinct and separate consideration as
embodied in the agreement;
3. There is no basis in granting an adjustment in rental.
Assailing the judgment of the appellate court, petitioner would like us to
consider mainly the following:
 CONFLICTS | Assign 9| 20

1. The disputed contract is a contract of adhesion. promise to buy and sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct
2. There was no consideration to support the option, distinct from the price, from the price.
hence the option cannot be exercised.
In a unilateral promise to sell, where the debtor fails to withdraw the promise
3. Respondent court gravely abused its discretion in not granting currency before the acceptance by the creditor, the transaction becomes a bilateral
adjustment on the already eroded value of the stipulated rentals for twenty- contract to sell and to buy, because upon acceptance by the creditor of the
five years. offer to sell by the debtor, there is already a meeting of the minds of the
parties as to the thing which is determinate and the price which is
The petition is devoid of merit.
certain. 14 In which case, the parties may then reciprocally demand
performance.
There is no dispute that the contract is valid and existing between the
parties, as found by both the trial court and the appellate court. Neither do
Jurisprudence has taught us that an optional contract is a privilege existing
we find the terms of the contract unfairly lopsided to have it ignored.
only in one party the buyer. For a separate consideration paid, he is given
the right to decide to purchase or not, a certain merchandise or property, at
A contract of adhesion is one wherein a party, usually a corporation, prepares
any time within the agreed period, at a fixed price. This being his
the stipulations in the contract, while the other party merely affixes his
prerogative, he may not be compelled to exercise the option to buy before
signature or his "adhesion" thereto. These types of contracts are as binding
the time
as ordinary contracts. Because in reality, the party who adheres to the
expires. 15
contract is free to reject it entirely. Although, this Court will not hesitate to
rule out blind adherence to terms where facts and circumstances will show
On the other hand, what may be regarded as a consideration separate from
that it is basically one-sided. 10
the price is discussed in the case of Vda. de Quirino v. Palarca 16 wherein the
facts are almost on all fours with the case at bar. The said case also involved
We do not find the situation in the present case to be inequitable. Petitioner
a lease contract with option to buy where we had occasion to say that "the
is a highly educated man, who, at the time of the trial was already a CPA-
consideration for the lessor's obligation to sell the leased premises to the
Lawyer, and when he entered into the contract, was already a CPA, holding a
lessee, should he choose to exercise his option to purchase the same, is the
respectable position with the Metropolitan Manila Commission. It is evident
obligation of the lessee to sell to the lessor the building and/or improvements
that a man of his stature should have been more cautious in transactions he
constructed and/or made by the former, if he fails to exercise his option to
enters into, particularly where it concerns valuable properties. He is amply
buy leased premises." 17
equipped to drive a hard bargain if he would be so minded to.
In the present case, the consideration is even more onerous on the part of
Petitioner contends that the doctrines laid down in the cases of
the lessee since it entails transferring of the building and/or improvements on
Atkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino
the property to petitioner, should respondent bank fail to exercise its option
v. Palarca 13 were misapplied in the present case, because 1) the option
within the period stipulated. 18
given to the respondent bank was not supported by a consideration distinct
from the price; and 2) that the stipulated price of "not greater than P210.00
The bugging question then is whether the price "not greater than TWO
per square meter" is not certain or definite.
HUNDRED PESOS" is certain or definite. A price is considered certain if it is so
with reference to another thing certain or when the determination thereof is
Article 1324 of the Civil Code provides that when an offeror has allowed the
left to the judgment of a specified person or persons. 19 And generally, gross
offeree a certain period to accept, the offer maybe withdrawn at anytime
inadequacy of price does not affect a contract of sale. 20
before acceptance by communicating such withdrawal, except when the
option is founded upon consideration, as something paid or promised. On the
other hand, Article 1479 of the Code provides that an accepted unilateral
 CONFLICTS | Assign 9| 21

Contracts are to be construed according to the sense and meaning of the
terms which the parties themselves have used. In the present dispute, there
is evidence to show that the intention of the parties is to peg the price at
P210 per square meter. This was confirmed by petitioner himself in his
testimony, as follows:
Q. Will you please tell this Court what was the offer?
Premises considered, we find that the contract of "LEASE WITH OPTION TO
BUY" between petitioner and respondent bank is valid, effective and
enforceable, the price being certain and that there was consideration distinct
from the price to support the option given to the lessee.
WHEREFORE, this petition is hereby DISMISSED, and the decision of the
appellate court is hereby AFFIRMED.

A. It was an offer to buy the property that I have in Quezon City (sic). SO ORDERED.

Q. And did they give you a specific amount?

xxx xxx xxx

A. Well, there was an offer to buy the property at P210 per square meters
(sic).

Q. And that was in what year?

A . 1975, sir.

Q. And did you accept the offer?

A. Yes, sir. 21

Moreover, by his subsequent acts of having the land titled under the Torrens
System, and in pursuing the bank manager to effect the sale immediately,
means that he understood perfectly the terms of the contract. He even had
the same property mortgaged to the respondent bank sometime in 1979,
without the slightest hint of wanting to abandon his offer to sell the property
at the agreed price of P210 per square meter. 22

Finally, we agree with the courts a quo that there is no basis, legal or factual,
in adjusting the amount of the rent. The contract is the law between the
parties and if there is indeed reason to adjust the rent, the parties could by
themselves negotiate for the amendment of the contract. Neither could we
consider the decline of the purchasing power of the Philippine peso from
1983 to the time of the commencement of the present case in 1985, to be so
great as to result in an extraordinary inflation. Extraordinary inflation exists
when there in an unimaginable increase or decrease of the purchasing power
of the Philippine currency, or fluctuation in the value of pesos manifestly
beyond the contemplation of the parties at the time of the establishment of
the obligation. 23

5. 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.
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
CONFLICTS | Assign 9| 22
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
CONFLICTS | Assign 9| 23
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
CONFLICTS | Assign 9| 24
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.

OVERSEAS EMPLOYMENT CONTRACT
1. G.R. No. L-58011 & L-58012 November 18, 1983
VIR-JEN SHIPPING AND MARINE SERVICES, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ROGELIO BISULA
RUBEN ARROZA JUAN GACUTNO LEONILO ATOK, NILO CRUZ, ALVARO
ANDRADA, NEMESIO ADUG SIMPLICIO BAUTISTA, ROMEO ACOSTA,
and JOSE ENCABO respondents.
RESOLUTION
GUTIERREZ, JR.,
Before the Court en banc is a motion to reconsider the decision promulgated
on July 20, 1982 which set aside the decision of respondent National Labor
Relations Commission and reinstated the decision of the National Seamen
Board.
To better understand the issues raised in the motion for reconsideration, we
reiterate the background facts of the case, Taken from the decision of the
National Labor Relations Commission: t.hqw ITF problem' since the Company's salary rates 'especially in tankers (are)
It appears that on different dates in December, 1978 and January, 1979, the
Seamen entered into separate contracts of employment with the Company,
engaging them to work on board M/T' Jannu for a period of twelve (12)
months. After verification and approval of their contracts by the NSB, the
Seamen boarded their vessel in Japan.
On 10 January 1919, the master of the vessel complainant Rogelio H. Bisula,
received a cable from the Company advising him of the possibility that the
vessel might be directed to call at ITF-controlled ports said at the same time
informing him of the procedure to be followed in the computation of the
special or additional compensation of crew members while in said ports. ITF
is the acronym for the International Transport Workers Federation, a militant
international labor organization with affiliates in different ports of the world,
which reputedly can tie down a vessel in a port by preventing its loading or
unloading, This is a sanction resorted to by ITF to enforce the payment of its
wages rates for seafarers the so-called ITF rates, if the wages of the crew
members of a vessel who have affiliated with it are below its prescribed
rates.) In the same cable of the Company, the expressed its regrets for hot
CONFLICTS | Assign 9| 25
clarifying earlier the procedure in computing the special compensation as it
thought that the vessel would 'trade in Caribbean ports only.
On 22 March 1979, the Company sent another cable to complainant Bisula,
this time informing him of the respective amounts each of the officers and
crew members would receive as special compensation when the vessel called
at the port of Kwinana Australia, an ITF-controlled port. This was followed by
another cable on 23 March 1979, informing him that the officers and crew
members had been enrolled as members of the ITF in Sidney, Australia, and
that the membership fee for the 28 personnel complement of the vessel had
already been paid.
In answer to the Company's cable last mentioned, complainant Bisula, in
representation of the other officers and crew members, sent on 24 March
1979 a cable informing the Company that the officers and crew members
were not agreeable to its 'suggestion'; that they were not contented with
their present salaries 'based on the volume of works, type of ship with
hazardous cargo and registered in a world wide trade': that the 'officers and
crew (were) not interested in ITF membership if not actually paid with ITF
rate that their 'demand is only 50% increase based on present basic salary
and that the proposed wage increase is the 'best and only solution to solve
very far in comparison with other shipping agencies in Manila ...
In reply, the Company proposed a 25% increase in the basic pay of the
complainant crew members, although it claimed, that it would "suffer and
absorb considerable amount of losses." The proposal was accepted by the
Seamen with certain conditions which were accepted by the Company.
Conformably with the agreement of the parties which was effected through
the cables abovementioned, the Seamen were paid their new salary rates.
Subsequently, the Company sought authority from the NSB to cancel the
contracts of employment of the Seamen, claiming that its principals had
terminated their manning agreement because of the actuations of the
Seamen. The request was granted by the NSB Executive Director in a letter
dated 10 April 1979. Soon thereafter, the Company cabled the Seamen
informing them that their contracts would be terminated upon the vessel's
arrival in Japan. On 19 April 1979 they Arere asked to disembark from the
vessel, their contracts were terminated, and they were repatriated to Manila.
There is no showing that the Seamen were given the opportunity to at least
comment on the Company's request for the cancellation of their contracts,

although they had served only three (3) out of the twelve (12) months'
duration of their contracts.
The private respondents filed a complaint for illegal dismissal and non-
payment of earned wages with the National Seamen Board. The Vir-jen
Shipping and Marine Services Inc. in turn filed a complaint for breach of
contract and recovery of excess salaries and overtime pay against the private
respondents. On July 2, 1980, the NSB rendered a decision declaring that the
seamen breached their employment contracts when they demanded and
received from Vir-jen Shipping wages over and above their contracted rates.
The dismissal of the seamen was declared legal and the seamen were
ordered suspended.
The seamen appealed the decision to the NLRC which reversed the decision
of the NSB and required the petitioner to pay the wages and other monetary
benefits corresponding to the unexpired portion of the manning contract on
the ground that the termination of the contract by the petitioner was without
valid cause. Vir-jen Shipping filed the present petition.
The private respondents submit the following issues in their motion for
reconsideration: t.hqw 226). The majority of the Court's work is now performed by its two Divisions,
A. THIS HONORABLE COURT DID VIOLENCE TO LAW AND JURISPRUDENCE
WHEN IT HELD THAT THE FINDING OF FACT OF THE NATIONAL SEAMEN
BOARD THAT THE SEAMEN VIOLATED THEIR CONTRACTS IS MORE CREDIBLE
THAN THE FINDING OF FACT OF THE NATIONAL LABOR RELATIONS
COMMISSION THAT THE SEAMEN DID NOT VIOLATE THEIR CONTRACT.
B. THIS HONORABLE COURT ERRED IN FINDING THAT VIR-JEN'S HAVING
AGREED TO A 25% INCREASE OF THE SEAMEN'S BASIC WAGE WAS NOT
VOLUNTARY BUT WAS DUE TO THREATS.
C. THIS HONORABLE COURT ERRED WHEN IT TOOK COGNIZANCE OF THE
ADDENDUM AGREEMENT; ASSUMING THAT THE ADDENDUM AGREEMENT
COULD BE TAKEN COGNIZANCE OF, THIS HONORABLE COURT ERRED WHEN'
IT FOUND THAT PRIVATE RESPONDENTS HAD VIOLATED THE SAME.
D, THIS HONORABLE COURT ERRED WHEN IT DID NOT FIND PETITIONER
VIRJEN LIABLE FOR HAVING TERMINATED BEFORE EXPIRY DATE THE
EMPLOYMENT CONTRACTS OF PRIVATE RESPONDENTS, THERE BEING NO
LEGAL AND JUSTIFIABLE GROUND FOR SUCH TERMINATION.
CONFLICTS | Assign 9| 26
E. THIS HONORABLE COURT ERRED IN FINDING THAT THE PREPARATION BY
PETITIONER OF THE TWO PAYROLLS AND THE EXECUTION OF THE SIDE
CONTRACT WERE NOT MADE IN BAD FAITH.
F. THIS HONORABLE COURT INADVERTENTLY DISCRIMINATED AGAINST
PRIVATE RESPONDENTS.
At the outset, we are faced with the question whether or not the Court en
banc should give due course to the motion for reconsideration inspite of its
having been denied twice by the Court's Second Division. The case was
referred to and accepted by the Court en banc because of the movants'
contention that the decision in this case by the Second Division deviated
from Wallem Phil. Shipping Inc. v. Minister of Labor (L-50734-37, February
20, 1981), a First Division case with the same facts and issues. We are
constrained to answer the initial question in the affirmative.
A fundamental postulate of Philippine Constitutional Law is the fact, that
there is only one Supreme Court from whose decisions all other courts are
required to take their bearings. (Albert v. Court of First Instance, 23 SCRA
948; Barrera v. Barrera, 34 SCRA 98; Tugade v. Court of Appeals, 85 SCRA
but the Court remains one court, single, unitary, complete, and supreme.
Flowing from this nature of the Supreme Court is the fact that, while '
individual Justices may dissent or partially concur with one another, when the
Court states what the law is, it speaks with only one voice. And that voice
being authoritative should be a clear as possible.
Any doctrine or principle of law laid down by the Court, whether en banc or in
Division, may be modified or reversed only by the Court en banc. (Section
2(3), Article X, Constitution.) In the rare instances when one Division
disagrees in its views with the other Division, or the necessary votes on an
issue cannot be had in a Division, the case is brought to the Court en banc to
reconcile any seeming conflict, to reverse or modify an earlier decision, and
to declare the Court's doctrine. This is what has happened in this case.
The decision sought to be reconsidered appears to be a deviation from the
Court's decision, speaking through the First Division, in Wallem Shipping,
Inc. v. Hon. Minister of Labor (102 SCRA 835). Faced with two seemingly
conflicting resolutions of basically the same issue by its two Divisions, the
Court. therefore, resolved to transfer the case to the Court en banc.
Parenthetically, the petitioner's comment on the third motion for
reconsideration states that the resolution of the motion might be the needed

vehicle to make the ruling in the Wallem case clearer and more in time with
the underlying principles of the Labor Code. We agree with the petitioner.
After an exhaustive, painstaking, and perspicacious consideration of the
motions for reconsideration and the comments, replies, and other pleadings
related thereto, the Court en banc is constrained to grant the motions. To
grant the motion is to keep faith with the constitutional mandate to afford
protection to labor and to assure the rights of workers to self-organization
and to just and humane conditions of work. We sustain the decision of the
respondent National labor Relations Commission.
There are various arguments raised by the petitioners but the common
thread running through all of them is the contention, if not the dismal
prophecy, that if the respondent seamen are sustained by this Court, we
would in effect "kill the en that lays the golden egg." In other words, Filipino
seamen, admittedly among the best in the world, should remain satisfied
with relatively lower if not the lowest, international rates of compensation,
should not agitate for higher wages while their contracts of employment are
subsisting, should accept as sacred, iron clad, and immutable the side
contracts which require them to falsely pretend to be members of
international labor federations, pretend to receive higher salaries at certain
foreign ports only to return the increased pay once the ship leaves that port,
should stifle not only their right to ask for improved terms of employment but
their freedom of speech and expression, and should suffer instant
termination of employment at the slightest sign of dissatisfaction with no
protection from their Government and their courts. Otherwise, the petitioners
contend that Filipinos would no longer be accepted as seamen, those
employed would lose their jobs, and the still unemployed would be left
hopeless.
This is not the first time and it will not be the last where the threat of
unemployment and loss of jobs would be used to argue against the interests
of labor; where efforts by workingmen to better their terms of employment
would be characterized as prejudicing the interests of labor as a whole.
In 1867 or one hundred sixteen years ago. Chief Justice Beasley of the
Supreme Court of New Jersey was ponente of the court's opinion declaring as
a conspiracy the threat of workingmen to strike in connection with their
efforts to promote unionism, t.hqw function is recruitment and who .usually gets a lump sum from the shipowner
It is difficult to believe that a right exists in law which we can scarcely
conceive can produce, in any posture of affairs, other than injuriois results. It
CONFLICTS | Assign 9| 27
is simply the right of workmen, by concert of action, and by taking advantage
of their position, to control the business of another, I am unwilling to hold
that a right which cannot, in any, event, be advantageous to the employee,
and which must always be hurtful to the employer, exists in law. In my
opinion this indictment sufficiently shows that the force of the confederates
was brought to bear upon their employer for the purpose of oppression and
mischief and that this amounts to a conspiracy, (State v. Donaldson, 32 NJL
151, 1867. Cited in Chamberlain, Sourcebook on Labor, p. 13. Emphasis
supplied)
The same arguments have greeted every major advance in the rights of the
workingman. And they have invariably been proved unfounded and false.
Unionism, employers' liability acts, minimum wages, workmen's
compensation, social security and collective bargaining to name a few were
all initially opposed by employers and even well meaning leaders of
government and society as "killing the hen or goose which lays the golden
eggs." The claims of workingmen were described as outrageously injurious
not only to the employer but more so to the employees themselves before
these claims or demands were established by law and jurisprudence as
"rights" and before these were proved beneficial to management, labor, and
the nation as a whole beyond reasonable doubt.
The case before us does not represent any major advance in the rights of
labor and the workingmen. The private respondents merely sought rights
already established. No matter how much the petitioner-employer tries to
present itself as speaking for the entire industry, there is no evidence that it
is typical of employers hiring Filipino seamen or that it can speak for them.
The contention that manning industries in the Philippines would not survive if
the instant case is not decided in favor of the petitioner is not supported by
evidence. The Wallem case was decided on February 20, 1981. There have
been no severe repercussions, no drying up of employment opportunities for
seamen, and none of the dire consequences repeatedly emphasized by the
petitioner. Why should Vir-jen be all exception?
The wages of seamen engaged in international shipping are shouldered by
the foreign principal. The local manning office is an agent whose primary
to defray the salaries of the crew. The hiring of seamen and the
determination of their compensation is subject to the interplay of various
market factors and one key factor is how much in terms of profits the local

manning office and the foreign shipowner may realize after the costs of the
voyage are met. And costs include salaries of officers and crew members.
Filipino seamen are admittedly as competent and reliable as seamen from
any other country in the world. Otherwise, there would not be so many of
them in the vessels sailing in every ocean and sea on this globe. It is
competence and reliability, not cheap labor that makes our seamen so greatly
in demand. Filipino seamen have never demanded the same high salaries as
seamen from the United States, the United Kingdom, Japan and other
developed nations. But certainly they are entitled to government protection
when they ask for fair and decent treatment by their employer.-, and when
they exercise the right to petition for improved terms of employment,
especially when they feel that these are sub-standard or are capable of
improvement according to internationally accepted rules. In the domestic
scene, there are marginal employers who prepare two sets of payrolls for
their employees one in keeping with minimum wages and the other
recording the sub-standard wages that the employees really receive, The
reliable employers, however, not only meet the minimums required by fair
labor standards legislation but even go way above the minimums while
earning reasonable profits and prospering. The same is true of international
employment. There is no reason why this Court and the Ministry of Labor
and. Employment or its agencies and commissions should come out with
pronouncements based on the standards and practices of unscrupulous or
inefficient shipowners, who claim they cannot survive without resorting to
tricky and deceptive schemes, instead of Government maintaining labor law
and jurisprudence according to the practices of honorable, competent, and
law-abiding employers, domestic or foreign.
If any minor advantages given to Filipino seamen may somehow cut into the
profits of local manning agencies and foreign shipowners, that is not
sufficient reason why the NSB or the ILRC should not stand by the former
instead of listening to unsubstantiated fears that they would be killing the
hen which lays the golden eggs.
Prescinding from the above, we now hold that neither the National Seamen
Board nor the National Labor Relations Commission should, as a matter of
official policy, legitimize and enforce cubious arrangements where shipowners
and seamen enter into fictitious contracts similar to the addendum
agreements or side contracts in this case whose purpose is to deceive. The
Republic of the Philippines and its ministries and agencies should present a
more honorable and proper posture in official acts to the whole world,
notwithstanding our desire to have as many job openings both here and
CONFLICTS | Assign 9| 28
abroad for our workers. At the very least, such as sensitive matter involving
no less than our dignity as a people and the welfare of our workingmen must
proceed from the Batasang Pambansa in the form of policy legislation, not
from administrative rule making or adjudication
Another issue raised by the movants is whether or not the seamen violated
their contracts of employment.
The form contracts approved by the National Seamen Board are designed to
protect Filipino seamen not foreign shipowners who can take care of
themselves. The standard forms embody' the basic minimums which must be
incorporated as parts of the employment contract. (Section 15, Rule V, Rules
and Regulations Implementing the Labor Code.) They are not collective
bargaining agreements or immutable contracts which the parties cannot
improve upon or modify in the course of the agreed period of time. To state,
therefore, that the affected seamen cannot petition their employer for higher
salaries during the 12 months duration of the contract runs counter to
established principles of labor legislation. The National Labor Relations
Commission, as the appellate tribunal from decisions of the National Seamen
Board, correctly ruled that the seamen did not violate their contracts to
warrant their dismissal.
The respondent Commission ruled: t.hqw
In the light of all the foregoing facts, we find that the cable of the seamen
proposing an increase in their wage rates was not and could not have been
intended as a threat to comp el the Company to accede to their proposals.
But even assuming, if only for the sake of argument, that the demand or
proposal for a wage increase was accompanied by a threat that they would
report to ITF if the Company did not accede to the contract revision -
although there really was no such threat as pointed out earlier the Seamen
should not be held at fault for asking such a demand. In the same case cited
above, the Supreme Court held: t.hqw
Petitioner claims that the dismissal of private respondents was justified
because the latter threatened the ship authorities in acceding to their
demands, and this constitutes serious misconduct as contemplated by the
Labor Code. This contention is not well-taken. But even if there had been
such a threat, respondents' behavior should not be censured because it is
but natural for them to employ some means of pressing their demands for
petitioner, the refusal to abide with the terms of the Special Agreement, to
honor and respect the same, They were only acting in the exercise of their

rights, and to deprive them of their freedom of expression is contrary to law
and public policy. There is no serious misconduct to speak of in the case at
bar which would justify respondents' dismissal just because of their firmness
in their demand for the fulfillment by petitioner of its obligation it entered
into without any coercion, specially on the part of private respondents.
(Emphasis supplied).
The above citation is from Wallem.
The facts show that when the respondents boarded the M/T Jannu there was
no intention to send their ship to Australia. On January 10, 1979, the
petitioner sent a cable to respondent shipmaster Bisula informing him of the
procedure to be followed in the computation of special compensation of
crewmembers while in ITF controlled ports and expressed regrets for not
having earlier clarified the procedure as it thought that the vessel would
trade in Carribean ports only.
On March 22, 1979, the petitioner sent another cable informing Bisula of the
special compensation when the ship would call at Kwinana Australia.
The following day, shipmaster Bisula cabled Vir-jen stating that the officers
and crews were not interested in ITF membership if not paid ITF rates and
that their only demand was a 50 percent increase based on their then
salaries. Bisula also pointed out that Vir-jen rates were "very far in
comparison with other shipping agencies in Manila."
In reply, Vir-jen counter proposed a 25 percent increase. Only after Kyoei
Tanker Co., Ltd., declined to increase the lumps sum amount given monthly
to Vir-jen was the decision to terminate the respondents' employment
formulated.
The facts show that Virjen Initiated the discussions which led to the demand
for increased . The seamen made a proposal and the petitioner organized
with a counter-proposal. The ship had not vet gone to Australia or any ITF
controlled port. There was absolutely no mention of any strike. much less a
threat to strike. The seamen had done in act which under Philippine law or
any other civilized law would be termed illegal, oppressive, or malicious.
Whatever pressure existed, it was mild compared to accepted valid modes of
labor activity.
We reiterate our ruling in Wallem. t.hqw
CONFLICTS | Assign 9| 29
Petitioner claims that the dismissal of private respondents was justified
because the latter threatened the ship authorities in acceding to their
demands, and this constitutes serious misconduct as contemplated by the
Labor Code. This contention is not well-taken. The records fail to establish
clearly the commission of any threat, But even if there had been such a
threat, respondents' behavior should not be censured because it is but
natural for them to employ some means of pressing their demands for
petitioner, who refused to abide with the terms of the Special Agreement, to
honor and respect the same, They were only acting in the exercise of their
rights, and to deprive them of their form of expression is contrary to law and
public policy. ...
Our dismissing the petition is premised on the assumption that the Ministry
of Labor and Employment and all its agencies exist primarily for the
workinginan's interests and, of course, the nation as a whole. The points
raised by the Solicitor-General in his comments refer to the issue of allowing
what the petitioner importunes under the argument of "killing the hen which
lays the golden eggs." This is one of policy which should perhaps be directed
to the Batasang Pambansa and to our country's other policy makers for more
specific legislation on the matter, subject to the constitutional provisions
protecting labor, promoting social justice, and guaranteeing non-abridgement
of the freedom of speech, press, peaceable assembly and petition. We agree
with the movants that there is no showing of any cause, which under the
Labor Code or any current applicable law, would warrant the termination of
the respondents' services before the expiration of their contracts. The
Constitution guarantees State assurance of the rights of workers to security
of tenure. (Sec. 9, Article II, Constitution). Presumptions and provisions of
law, the evidence on record, and fundamental State policy all dictate that the
motions for reconsideration should be granted.
WHEREFORE, the motions for reconsideration are hereby GRANTED. The
petition is DISMISSED for lack of merit. The decision of the National Labor
Relations Commission is AFFIRMED. No costs.
SO ORDERED.

2. G.R. Nos. L-57999, 58143-53 August 15, 1989
RESURRECCION SUZARA, CESAR DIMAANDAL, ANGELITO MENDOZA,
ANTONIO TANEDO, AMORSOLO CABRERA, DOMINADOR SANTOS,
ISIDRO BRACIA, RAMON DE BELEN, ERNESTO SABADO, MARTIN
MALABANAN, ROMEO HUERTO and VITALIANO PANGUE, petitioners,
vs.
THE HON. JUDGE ALFREDO L. BENIPAYO and MAGSAYSAY LINES,
INC., respondents.
G.R. Nos. L-64781-99 August 15, 1989
RESURRECCION SUZARA, CESAR DIMAANDAL, ANGELITO MENDOZA,
ANTONIO TANEDO, RAYMUNDO PEREZ, AMORSOLO CABRERA,
DOMINADOR SANTOS, ISIDRO BRACIA, CATALINO CASICA,
VITALIANO PANGUE, RAMON DE BELEN, EDUARDO PAGTALUNAN,
ANTONIO MIRANDA, RAMON UNIANA, ERNESTO SABADO, MARTIN
MALABANAN, ROMEO HUERTO and WILFREDO
CRISTOBAL, petitioners,
vs.
THE HONORABLE NATIONAL LABOR RELATIONS COMMISSION, THE
NATIONAL SEAMEN BOARD (now the Philippine Overseas
Employment Administration), and MAGSAYSAY LINES,
INC., respondents.
GUTIERREZ, JR., J.:
These petitions ask for a re-examination of this Court's precedent setting
decision in Vir-Jen Shipping and Marine Services Inc. v. National Labor
Relations Commission, et al. (125 SCRA 577 [1983]). On constitutional,
statutory, and factual grounds, we find no reason to disturb the doctrine in
Vir-Jen Shipping and to turn back the clock of progress for sea-based
overseas workers. The experience gained in the past few years shows that,
following said doctrine, we should neither deny nor diminish the enjoyment
by Filipino seamen of the same rights and freedoms taken for granted by
other working-men here and abroad.
The cases at bar involve a group of Filipino seamen who were declared by the
defunct National Seamen Board (NSB) guilty of breaching their employment
contracts with the private respondent because they demanded, upon the
intervention and assistance of a third party, the International Transport
Worker's Federation (ITF), the payment of wages over and above their
CONFLICTS | Assign 9| 30
contracted rates without the approval of the NSB. The petitioners were
ordered to reimburse the total amount of US$91,348.44 or its equivalent in
Philippine Currency representing the said over-payments and to be
suspended from the NSB registry for a period of three years. The National
Labor Relations Commission (NLRC) affirmed the decision of the NSB.
In a corollary development, the private respondent, for failure of the
petitioners to return the overpayments made to them upon demand by the
former, filed estafa charges against some of the petitioners. The criminal
cases were eventually consolidated in the sala of then respondent Judge
Alfredo Benipayo. Hence, these consolidated petitions, G.R. No. 64781-99
and G.R. Nos. 57999 and 58143-53, which respectively pray for the
nullification of the decisions of the NLRC and the NSB, and the dismissal of
the criminal cases against the petitioners.
The facts are found in the questioned decision of the NSB in G.R. No. 64781-
99.
From the records of this case it appears that the facts established and/or
admitted by the parties are the following: that on different dates in 1977 and
1978 respondents entered into separate contracts of employment (Exhs. "B"
to "B-17", inclusive) with complainant (private respondent) to work aboard
vessels owned/operated/manned by the latter for a period of 12 calendar
months and with different rating/position, salary, overtime pay and
allowance, hereinbelow specified: ...; that aforesaid employment contracts
were verified and approved by this Board; that on different dates in April
1978 respondents (petitioners) joined the M/V "GRACE RIVER"; that on or
about October 30, 1978 aforesaid vessel, with the respondents on board,
arrived at the port of Vancouver, Canada; that at this port respondent
received additional wages under rates prescribed by the Intemational
Transport Worker's Federation (ITF) in the total amount of US$98,261.70;
that the respondents received the amounts appearing opposite their names,
to wit: ...; that aforesaid amounts were over and above the rates of pay of
respondents as appearing in their employment contracts approved by this
Board; that on November 10, 1978, aforesaid vessel, with respondent on
board, left Vancouver, Canada for Yokohama, Japan; that on December 14,
1978, while aforesaid vessel, was at Yura, Japan, they were made to
disembark. (pp. 64-66, Rollo)
Furthermore, according to the petitioners, while the vessel was docked at
Nagoya, Japan, a certain Atty. Oscar Torres of the NSB Legal Department
boarded the vessel and called a meeting of the seamen including the

petitioners, telling them that for their own good and safety they should sign
an agreement prepared by him on board the vessel and that if they do, the
cases filed against them with NSB on November 17, 1978 would be
dismissed. Thus, the petitioners signed the. "Agreement" dated December 5,
1978. (Annex C of Petition) However, when they were later furnished xerox
copies of what they had signed, they noticed that the line "which amount(s)
was/were received and held by CREWMEMBERS in trust for SHIPOWNERS"
was inserted therein, thereby making it appear that the amounts given to the
petitioners representing the increase in their wages based on ITF rates were
only received by them in trust for the private respondent.
When the vessel reached Manila, the private respondent demanded from the
petitioners the "overpayments" made to them in Canada. As the petitioners
refused to give back the said amounts, charges were filed against some of
them with the NSB and the Professional Regulations Commission. Estafa
charges were also filed before different branches of the then Court of First
Instance of Manila which, as earlier stated, were subsequently consolidated in
the sala of the respondent Judge Alfredo Benipayo and which eventually led
to G.R. Nos. 57999 and 58143-53.
In G.R. Nos. 64781-99, the petitioners claimed before the NSB that contrary
to the private respondent's allegations, they did not commit any illegal act
nor stage a strike while they were on board the vessel; that the "Special
Agreement" entered into in Vancouver to pay their salary differentials is valid,
having been executed after peaceful negotiations. Petitioners further argued
that the amounts they received were in accordance with the provision of law,
citing among others, Section 18, Rule VI, Book I of the Rules and Regulations
Implementing the Labor Code which provides that "the basic minimum salary
of seamen shall not be less than the prevailing minimum rates established by
the International Labor Organization (ILO) or those prevailing in the country
whose flag the employing vessel carries, whichever is higher ..."; and that
the "Agreement" executed in Nagoya, Japan had been forced upon them and
that intercalations were made to make it appear that they were merely
trustees of the amounts they received in Vancouver.
On the other hand, the private respondent alleged that the petitioners
breached their employment contracts when they, acting in concert and with
the active participations of the ITF while the vessel was in Vancouver, staged
an illegal strike and by means of threats, coercion and intimidation compelled
the owners of the vessel to pay to them various sums totalling
US$104,244.35; that the respondent entered into the "Special Agreement" to
pay the petitioners' wage differentials because it was under duress as the
CONFLICTS | Assign 9| 31
vessel would not be allowed to leave Vancouver unless the said agreement
was signed, and to prevent the shipowner from incurring further delay in the
shipment of goods; and that in view of petitioners' breach of contract, the
latter's names must be removed from the NSB's Registry and that they
should be ordered to return the amounts they received over and above their
contracted rates.
The respondent NSB ruled that the petitioners were guilty of breach of
contract because despite subsisting and valid NSB-approved employment
contracts, the petitioners sought the assistance of a third party (ITF) to
demand from the private respondent wages in accordance with the ITF rates,
which rates are over and above their rates of pay as appearing in their NSB-
approved contracts. As bases for this conclusion, the NSB stated:
1) The fact that respondents sought the aid of a third party (ITF) and
demanded for wages and overtime pay based on ITF rates is shown in the
entries of their respective Pay-Off Clearance Slips which were marked as their
Exhs. "1" to "18", and we quote "DEMANDED ITF WAGES, OVERTIME,
DIFFERENTIALS APRIL TO OCTOBER 1978". Respondent Suzara admitted that
the entries in his Pay-Off Clearance Slip (Exh. "1") are correct (TSN., p. 16,
Dec. 6, 1979).lwph1.t Moreover, it is the policy (reiterated very often) by
the ITF that it does not interfere in the affairs of the crewmembers and
masters and/or owners of a vessel unless its assistance is sought by the
crewmembers themselves. Under this pronounced policy of the ITF, it is
reasonable to assume that the representatives of the ITF in Vancouver,
Canada assisted and intervened by reason of the assistance sought by the
latter.
2) The fact that the ITF assisted and intervened for and in behalf of the
respondents in the latter's demand for higher wages could be gleaned from
the answer of the respondents when they admitted that the ITF acted in their
behalf in the negotiations for increase of wages. Moreover, respondent Cesar
Dimaandal admitted that the ITF differential pay was computed by the ITF
representative (TSN, p. 7, Dec. 12, 1979)
3) The fact that complainant and the owner/operator of the vessel were
compelled to sign the Special Agreement (Exh. "20") and to pay ITF
differentials to respondents in order not to delay the departure of the vessel
and to prevent further losses is shown in the "Agreement" (Exhs. "R-21") ...
(pp. 69-70, Rollo)
The NSB further said:

While the Board recognizes the rights of the respondents to demand for
higher wages, provided the means are peaceful and legal, it could not,
however, sanction the same if the means employed are violent and illegal. In
the case at bar, the means employed are violent and illegal for in demanding
higher wages the respondents sought the aid of a third party and in turn the
latter intervened in their behalf and prohibited the vessel from sailing unless
the owner and/or operator of the vessel acceded to respondents' demand for
higher wages. To avoid suffering further incalculable losses, the owner and/or
operator of the vessel had no altemative but to pay respondents' wages in
accordance with the ITF scale. The Board condemns the act of a party who
enters into a contract and with the use of force/or intimidation causes the
other party to modify said contract. If the respondents believe that they have
a valid ground to demand from the complainant a revision of the terms of
their contracts, the same should have been done in accordance with law and
not thru illegal means. (at p. 72, Rollo).
Although the respondent NSB found that the petitioners were entitled to the
payment of earned wages and overtime pay/allowance from November 1,
1978 to December 14, 1978, it nevertheless ruled that the computation
should be based on the rates of pay as appearing in the petitioners' NSB-
approved contracts. It ordered that the amounts to which the petitioners are
entitled under the said computation should be deducted from the amounts
that the petitioners must return to the private respondent.
On appeal, the NLRC affirmed the NSB's findings. Hence, the petition in G.R.
Nos. 64781-99.
Meanwhile, the petitioners in G.R. Nos. 57999 and 58143-53 moved to quash
the criminal cases of estafa filed against them on the ground that the alleged
crimes were committed, if at all, in Vancouver, Canada and, therefore,
Philippine courts have no jurisdiction. The respondent judge denied the
motion. Hence, the second petition.
The principal issue in these consolidated petitions is whether or not the
petitioners are entitled to the amounts they received from the private
respondent representing additional wages as determined in the special
agreement. If they are, then the decision of the NLRC and NSB must be
reversed. Similarly, the criminal cases of estafa must be dismissed because it
follows as a consequence that the amounts received by the petitioners belong
to them and not to the private respondent.
CONFLICTS | Assign 9| 32
In arriving at the questioned decision, the NSB ruled that the petitioners are
not entitled to the wage differentials as determined by the ITF because the
means employed by them in obtaining the same were violent and illegal and
because in demanding higher wages the petitioners sought the aid of a third
party, which, in turn, intervened in their behalf and prohibited the vessel
from sailing unless the owner and/or operator of the vessel acceded to
respondents' demand for higher wages. And as proof of this conclusion, the
NSB cited the following: (a) the entries in the petitioners Pay-Off Clearance
Slip which contained the phrase "DEMANDED ITF WAGES ..."; (b) the alleged
policy of the ITF in not interfering with crewmembers of a vessel unless its
intervention is sought by the crewmembers themselves; (c), the petitioners'
admission that ITF acted in their behalf; and (d) the fact that the private
respondent was compelled to sign the special agreement at Vancouver,
Canada.
There is nothing in the public and private respondents' pleadings, to support
the allegations that the petitioners used force and violence to secure the
special agreement signed in Vancouver. British Columbia. There was no need
for any form of intimidation coming from the Filipino seamen because the
Canadian Brotherhood of Railways and Transport Workers (CBRT), a strong
Canadian labor union, backed by an international labor federation was
actually doing all the influencing not only on the ship-owners and employers
but also against third world seamen themselves who, by receiving lower
wages and cheaper accommodations, were threatening the employment and
livelihood of seamen from developed nations.
The bases used by the respondent NSB to support its decision do not prove
that the petitioners initiated a conspiracy with the ITF or deliberately sought
its assistance in order to receive higher wages. They only prove that when
ITF acted in petitioners' behalf for an increase in wages, the latter manifested
their support. This would be a logical and natural reaction for any worker in
whose benefit the ITF or any other labor group had intervened. The
petitioners admit that while they expressed their conformity to and their
sentiments for higher wages by means of placards, they, nevertheless,
continued working and going about their usual chores. In other words, all
they did was to exercise their freedom of speech in a most peaceful way. The
ITF people, in turn, did not employ any violent means to force the private
respondent to accede to their demands. Instead, they simply applied
effective pressure when they intimated the possibility of interdiction should
the shipowner fail to heed the call for an upward adjustment of the rates of
the Filipino seamen. Interdiction is nothing more than a refusal of ITF
members to render service for the ship, such as to load or unload its cargo,

to provision it or to perform such other chores ordinarily incident to the
docking of the ship at a certain port. It was the fear of ITF interdiction, not
any action taken by the seamen on board the vessel which led the
shipowners to yield.
The NSB's contusion that it is ITF's policy not to intervene with the plight of
crewmembers of a vessel unless its intervention was sought is without basis.
This Court is cognizant of the fact that during the period covered by the labor
controversies in Wallem Philippines Shipping, Inc. v. Minister of Labor (102
SCRA 835 [1981]; Vir-Jen Shipping and Marine Services, Inc. v.
NLRC (supra) and these consolidated petitions, the ITF was militant
worldwide especially in Canada, Australia, Scandinavia, and various European
countries, interdicting foreign vessels and demanding wage increases for
third world seamen. There was no need for Filipino or other seamen to seek
ITF intervention. The ITF was waiting on its own volition in all Canadian
ports, not particularly for the petitioners' vessel but for all ships similarly
situated. As earlier stated, the ITF was not really acting for the petitioners
out of pure altruism. The ITF was merely protecting the interests of its own
members. The petitioners happened to be pawns in a higher and broader
struggle between the ITF on one hand and shipowners and third world
seamen, on the other. To subject our seamen to criminal prosecution and
punishment for having been caught in such a struggle is out of the question.
As stated in Vir-Jen Shipping (supra):
The seamen had done no act which under Philippine law or any other civilized
law would be termed illegal, oppressive, or malicious. Whatever pressure
existed, it was mild compared to accepted and valid modes of labor activity.
(at page 591)
Given these factual situations, therefore, we cannot affirm the NSB and
NLRC's finding that there was violence, physical or otherwise employed by
the petitioners in demanding for additional wages. The fact that the
petitioners placed placards on the gangway of their ship to show support for
ITF's demands for wage differentials for their own benefit and the resulting
ITF's threatened interdiction do not constitute violence. The petitioners were
exercising their freedom of speech and expressing sentiments in their hearts
when they placed the placard We Want ITF Rates." Under the facts and
circumstances of these petitions, we see no reason to deprive the seamen of
their right to freedom of expression guaranteed by the Philippine Constitution
and the fundamental law of Canada where they happened to exercise it.
CONFLICTS | Assign 9| 33
As we have ruled in Wallem Phil. Shipping Inc. v. Minister of Labor, et al.
supra:
Petitioner claims that the dismissal of private respondents was justified
because the latter threatened the ship authorities in acceding to their
demands, and this constitutes serious misconduct as contemplated by the
Labor Code. This contention is now well-taken. The records fail to establish
clearly the commission of any threat. But even if there had been such a
threat, respondents' behavior should not be censured because it is but
natural for them to employ some means of pressing their demands for
petitioner, who refused to abide with the terms of the Special Agreement, to
honor and respect the same. They were only acting in the exercise of their
rights, and to deprive them of their freedom of expression is contrary to law
and public policy. ... (at page 843)
We likewise, find the public respondents' conclusions that the acts of the
petitioners in demanding and receiving wages over and above the rates
appearing in their NSB-approved contracts is in effect an alteration of their
valid and subsisting contracts because the same were not obtained through.
mutual consent and without the prior approval of the NSB to be without
basis, not only because the private respondent's consent to pay additional
wages was not vitiated by any violence or intimidation on the part of the
petitioners but because the said NSB-approved form contracts are not
unalterable contracts that can have no room for improvement during their
effectivity or which ban any amendments during their term.
For one thing, the employer can always improve the working conditions
without violating any law or stipulation.
We stated in the Vir-Jen case (supra) that:
The form contracts approved by the National Seamen Board are designed to
protect Filipino seamen not foreign shipowners who can take care of
themselves. The standard forms embody the basic minimums which must be
incorporated as parts of the employment contract. (Section 15, Rule V, Rules
and Regulations Implementing the Labor Code).lwph1.t They are not
collective bargaining agreements or immutable contracts which the parties
cannot improve upon or modify in the course of the agreed period of time. To
state, therefore, that the affected seamen cannot petition their employer for
higher salaries during the 12 months duration of the contract runs counter to
estabhshed principles of labor legislation. The National Labor Relations
Commission, as the appellate tribunal from the decisions of the National

Seamen Board, correctly ruled that the seamen did not violate their contracts
to warrant their dismissal. (at page 589)
It is impractical for the NSB to require the petitioners, caught in the middle of
a labor struggle between the ITF and owners of ocean going vessels halfway
around the world in Vancouver, British Columbia to first secure the approval
of the NSB in Manila before signing an agreement which the employer was
willing to sign. It is also totally unrealistic to expect the petitioners while in
Canada to exhibit the will and strength to oppose the ITF's demand for an
increase in their wages, assuming they were so minded.
An examination of Annex C of the petition, the agreement signed in Japan by
the crewmembers of the M/V Grace River and a certain M. Tabei,
representative of the Japanese shipowner lends credence to the petitioners'
claim that the clause "which amount(s) was received and held by
CREWMEMBERS in trust for SHIPOWNER" was an intercalation added after
the execution of the agreement. The clause appears too closely typed below
the names of the 19 crewmen and their wages with no similar intervening
space as that which appears between all the paragraphs and the triple space
which appears between the list of crewmembers and their wages on one
hand and the paragraph above which introduces the list, on the other. The
verb "were" was also inserted above the verb "was" to make the clause
grammatically correct but the insertion of "were" is already on the same line
as "Antonio Miranda and 5,221.06" where it clearly does not belong. There is
no other space where the word "were" could be intercalated. (See Rollo, page
80).
At any rate, the proposition that the petitioners should have pretended to
accept the increased wages while in Vancouver but returned them to the
shipowner when they reached its country, Japan, has already been answered
earlier by the Court:
Filipino seamen are admittedly as competent and reliable as seamen from
any other country in the world. Otherwise, there would not be so many of
them in the vessels sailing in every ocean and sea on this globe. It is
competence and reliability, not cheap labor that makes our seamen so greatly
in demand. Filipino seamen have never demanded the same high salaries as
seamen from the United States, the United Kingdom, Japan and other
developed nations. But certainly they are entitled to government protection
when they ask for fair and decent treatment by their employer and when
they exercise the right to petition for improved terms of employment,
especially when they feel that these are sub-standard or are capable of
CONFLICTS | Assign 9| 34
improvement according to internationally accepted rules. In the domestic
scene, there are marginal employers who prepare two sets of payrolls for
their employees one in keeping with minimum wages and the other
recording the sub-standard wages that the employees really receive. The
reliable employers, however, not only meet the minimums required by fair
labor standards legislation but even go away above the minimums while
earning reasonable profits and prospering. The same is true of international
employment. There is no reason why this court and the Ministry of Labor and
Employment or its agencies and commissions should come out with
pronouncements based on the standards and practices of unscrupulous or
inefficient shipowners, who claim they cannot survive without resorting to
tricky and deceptive schemes, instead of Government maintaining labor law
and jurisprudence according to the practices of honorable, competent, and
law-abiding employers, domestic or foreign. (Vir-Jen Shipping, supra, pp.
587-588)
It is noteworthy to emphasize that while the Intemational Labor Organization
(ILO) set the minimum basic wage of able seamen at US$187.00 as early as
October 1976, it was only in 1979 that the respondent NSB issued Memo
Circular No. 45, enjoining all shipping companies to adopt the said minimum
basic wage. It was correct for the respondent NSB to state in its decision that
when the petitioners entered into separate contracts between 1977-1978, the
monthly minimum basic wage for able seamen ordered by NSB was still fixed
at US$130.00. However, it is not the fault of the petitioners that the NSB not
only violated the Labor Code which created it and the Rules and Regulations
Implementing the Labor Code but also seeks to punish the seamen for a
shortcoming of NSB itself.
Article 21(c) of the Labor Code, when it created the NSB, mandated the
Board to "(O)btain the best possible terms and conditions of employment for
seamen."
Section 15, Rule V of Book I of the Rules and Regulations Implementing the
Labor Code provides:
Sec. 15. Model contract of employment. The NSB shall devise a model
contract of employment which shall embody all the requirements of pertinent
labor and social legislations and the prevailing standards set by applicable
International Labor Organization Conventions. The model contract shall set
the minimum standards of the terms and conditions to govern the
employment of Filipinos on board vessels engaged in overseas trade. All
employers of Filipinos shall adopt the model contract in connection with the
 CONFLICTS | Assign 9| 35

hiring and engagement of the services of Filipino seafarers, and in no case There are various arguments raised by the petitioners but the common
shall a shipboard employment contract be allowed where the same provides thread running through all of them is the contention, if not the dismal
for benefits less than those enumerated in the model employment contract, prophecy, that if the respondent seamen are sustained by this Court, we
or in any way conflicts with any other provisions embodied in the model would in effect "kill the hen that lays the golden egg." In other words, Filipino
contract. seamen, admittedly among the best in the world, should remain satisfied
with relatively lower if not the lowest, international rates of compensation,
Section 18 of Rule VI of the same Rules and Regulations provides: should not agitate for higher wages while their contracts of employment are
subsisting, should accept as sacred, iron clad, and immutable the side
Sec. 18. Basic minimum salary of able-seamen. The basic minimum salary
contracts which require: them to falsely pretend to be members of
of seamen shall be not less than the prevailing minimxun rates established by
international labor federations, pretend to receive higher salaries at certain
the International Labor Organization or those prevailing in the country whose
foreign ports only to return the increased pay once the ship leaves that port,
flag the employing vessel carries, whichever is higher. However, this provision
should stifle not only their right to ask for improved terms of employment but
shall not apply if any shipping company pays its crew members salaries
their freedom of speech and expression, and should suffer instant
above the minimum herein provided.
termination of employment at the slightest sign of dissatisfaction with no
protection from their Government and their courts. Otherwise, the petitioners
Section 8, Rule X, Book I of the Omnibus Rules provides:
contend that Filipinos would no longer be accepted as seamen, those
Section 8. Use of standard format of service agreement. The Board shall employed would lose their jobs, and the still unemployed would be left
adopt a standard format of service agreement in accordance with pertinent hopeless.
labor and social legislation and prevailing standards set by applicable
This is not the first time and it will not be the last where the threat of
International Labor Organization Conventions. The standard format shall set
unemployment and loss of jobs would be used to argue against the interests
the minimum standard of the terms and conditions to govern the
of labor; where efforts by workingmen to better their terms of employment
employment of Filipino seafarers but in no case shall a shipboard
would be characterized as prejudicing the interests of labor as a whole.
employment contract (sic), or in any way conflict with any other provision
embodied in the standard format.
xxx xxx xxx
It took three years for the NSB to implement requirements which, under the
Unionism, employers' liability acts, minimum wages, workmen's
law, they were obliged to follow and execute immediately. During those three
compensation, social security and collective bargaining to name a few were
years, the incident in Vancouver happened. The terms and conditions agreed
all initially opposed by employers and even well meaning leaders of
upon in Vancouver were well within ILO rates even if they were above NSB
government and society as "killing the hen or goose which lays the golden
standards at the time.
eggs." The claims of workingmen were described as outrageously injurious
not only to the employer but more so to the employees themselves before
The sanctions applied by NSB and affirmed by NLRC are moreover not in
these claims or demands were established by law and jurisprudence as
keeping with the basic premise that this Court stressed in the Vir-Jen
"rights" and before these were proved beneficial to management, labor, and
Shipping case (supra) that the Ministry now the Department of Labor and
the national as a whole beyond reasonable doubt.
Employment and all its agencies exist primarily for the workingman's interest
and the nation's as a whole.
The case before us does not represent any major advance in the rights of
labor and the workingmen. The private respondents merely sought rights
Implicit in these petitions and the only reason for the NSB to take the side of
already established. No matter how much the petitioner-employer tries to
foreign shipowners against Filipino seamen is the "killing the goose which
present itself as speaking for the entire industry, there is no evidence that it
lays the golden eggs" argument. We reiterate the ruling of the Court in Vir-
is typical of employers hiring Filipino seamen or that it can speak for them.
Jen Shipping (supra)

The contention that manning industries in the Philippines would not survive if
the instant case is not decided in favor of the petitioner is not supported by
evidence. The Wallem case was decided on February 20, 1981. There have
been no severe repercussions, no drying up of employment opportunities for
seamen, and none of the dire consequences repeatedly emphasized by the
petitioner. Why should Vir-Jen be an exception?
The wages of seamen engaged in international shipping are shouldered by
the foreign principal. The local manning office is an agent whose primary
function is recruitment and who usually gets a lump sum from the shipowner
to defray the salaries of the crew. The hiring of seamen and the
determination of their compensation is subject to the interplay of various
market factors and one key factor is how much in terms of profits the local
manning office and the foreign shipowner may realize after the costs of the
voyage are met. And costs include salaries of officers and crew members. (at
pp. 585-586)
The Wallem Shipping case, was decided in 1981. Vir-Jen Shipping was
decided in 1983. It is now 1989. There has'been no drying up of employment
opportunities for Filipino seamen. Not only have their wages improved thus
leading ITF to be placid and quiet all these years insofar as Filipinos are
concerned but the hiring of Philippine seamen is at its highest level ever.
Reporting its activities for the year 1988, the Philippine Overseas
Employment Administration (POEA) stated that there will be an increase in
demand for seamen based overseas in 1989 boosting the number to as high
as 105,000. This will represent a 9.5 percent increase from the 1988
aggregate. (Business World, News Briefs, January 11, 1989 at page 2)
According to the POEA, seabased workers numbering 95,913 in 1988
exceeded by a wide margin of 28.15 percent the year end total in 1987. The
report shows that sea-based workers posted bigger monthly increments
compared to those of landbased workers. (The Business Star, Indicators,
January 11, 1988 at page 2)
Augmenting this optimistic report of POEA Administrator Tomas Achacoso is
the statement of Secretary of Labor Franklin M. Drilon that the Philippines
has a big jump over other crewing nations because of the Filipinos' abilities
compared with any European or westem crewing country. Drilon added that
cruise shipping is also a growing market for Filipino seafarers because of their
flexibility in handling odd jobs and their expertise in handling almost all types
of ships, including luxury liners. (Manila Bulletin, More Filipino
Seamen Expected Development, December 27, 1988 at page
CONFLICTS | Assign 9| 36
29).lwph1.t Parenthetically, the minimum monthly salary of able bodied
seamen set by the ILO and adhered to by the Philippines is now $276.00 ( id.)
more than double the $130.00 sought to be enforced by the public
respondents in these petitions.
The experience from 1981 to the present vindicates the finding in Vir-Jen
Shipping that a decision in favor of the seamen would not necessarily mean
severe repercussions, drying up of employment opportunities for seamen,
and other dire consequences predicted by manning agencies and recruiters in
the Philippines.
From the foregoing, we find that the NSB and NLRC committed grave abuse
of discretion in finding the petitioners guilty of using intimidation and illegal
means in breaching their contracts of employment and punishing them for
these alleged offenses. Consequently, the criminal prosecutions for estafa in
G.R. Nos. 57999 and 58143-53 should be dismissed.
WHEREFORE, the petitions are hereby GRANTED. The decisions of the
National Seamen Board and National Labor Relations Commission in G. R.
Nos. 64781-99 are REVERSED and SET ASIDE and a new one is entered
holding the petitioners not guilty of the offenses for which they were charged.
The petitioners' suspension from the National Seamen Board's Registry for
three (3) years is LIFTED. The private respondent is ordered to pay the
petitioners their earned but unpaid wages and overtime pay/allowance from
November 1, 1978 to December 14, 1978 according to the rates in the
Special Agreement that the parties entered into in Vancouver, Canada.
The criminal cases for estafa, subject matter of G. R. Nos. 57999 and 58143-
53, are ordered DISMISSED.
SO ORDERED.

3. G.R. No. 80918 August 16, 1989
JOSEFINA M. PRINCIPE, petitioner
vs.
PHILIPPINE-SINGAPORE TRANSPORT SERVICES, INC. and CHUAN
HUP AGENCIES, PTE. LTD., NATIONAL LABOR RELATIONS
COMMISSION AND PHILIPPINE OVERSEAS EMPLOYEES EMPLOYMENT
ADMINISTRATION, respondents.
GANCAYCO, J.:
Once again this Tribunal is faced with the issue of the validity of the quitclaim
executed by the employee's heir in favor of the employer.
Petitioner is the widow of the late Abelardo Principe who was then the Chief
Engineer of M/V OSAM Falcon, a commercial vessel of Singaporean registry
owned by Chuan Hup Agencies, Pte. Ltd. (Chuan Hup for brevity), one of the
private respondents herein, who is the principal of Philippine-Singapore
Transport Services, Inc. (PSTSI), also a private respondent herein. The
contract of employment of the deceased with private respondent Chua Hup
provides, among others, that Principe would receive Singapore $2,800.00 a
month to commence on September 7, 1982, medical benefits and insurance
coverage through group hospitalization and surgical insurance and group and
personal accident insurance for a capital sum of US$75,000.00. It also
provides that the laws of Singapore shall apply in cases of disputes arising
out of the said appointment and that said disputes are to be resolved by the
courts of the Republic of Singapore. 1
On September 15,1982, while Principe was on duty in Malintoc Field,
Palawan, Philippines, he suddenly contracted a serious illness which
eventually resulted to his death. 2
On July 5, 1983, petitioner filed a complaint 3 against PSTSI with the Workers
Assistance and Adjudication Office of the Philippine Overseas Employment
Administration (POEA), seeking the payment of death compensation benefits
and other benefits accruing to her deceased husband. While the aforesaid
case was pending, the parties entered into a compromise agreement. On
December 22, 1983, petitioner executed a release and quitclaim in favor of
PSTSI in consideration of the sum of Seven Thousand Pesos (P7,000.00)
together with hospital, burial and other incidental expenses previously
disbursed by PSTSI in favor of petitioner's deceased
husband. 4 Consequently, Atty. Wellington Lachica, counsel for petitioner, with
CONFLICTS | Assign 9| 37
the latter's conformity, filed a motion to dismiss the case with prejudice
against PSTSI and without prejudice as against Chuan Hup 5
On the basis of the compromise agreement and the motion to dismiss dated
November 23, 1983, the POEA issued an order dated December 27, 1983,
dismissing petitioner's complaint with prejudice against PSTSI.
On April 21, 1986, petitioner filed with the POEA another claim for death
benefits against PSTSI, this time including Chuan Hup. The new case was
docketed as POEA Case No. (L) 86-04-328. In the decision dated January 27,
1987, the POEA dismissed the complaint on the ground that there exist
identity of parties, subject matter and cause of action between the previous
case, POEA Case No. L-635-83 and the new case, and that the present case
is barred by prior judgment based on a compromise agreement in the
previous case. 6
Petitioner appealed to the National Labor Relations Commission
(NLRC).lwph1.t In a resolution dated September 25, 1987, the NLRC
dismissed the appeal for lack of merit. 7
Hence, the present petition.
It is the position of the petitioner that the release and quitclaim that she
signed in favor of private respondent PSTSI is null and void on the ground
that the consideration given in exchange thereof in the amount of P7,000.00
is extremely low and unconscionable. Petitioner added that she was merely
misled to sign the quitclaim due to the assurance given by PSTSI that it will
help her recover the death compensation and insurance proceeds due her
deceased husband. She argued that even on the assumption that the
quitclaim is valid, the release should benefit PSTSI alone and should not
include Chua Hup as the quitclaim was executed only in favor of PSTSI.
Further she contended that notwithstanding the quitclaim executed in favor
of PSTSI, the latter may still be held liable since it is an agent of Chuan Hup
here in the Philippines. 8
The Solicitor General supports petitioner's view stating that the principle
of res judicata is inapplicable to the case at bar since petitioner and PSTSI
agreed that the dismissal of the suit against the latter is without prejudice
insofar as the principal Chuan Hup is concerned; that the quitclaim is null and
void as the consideration given is unconscionably low as it is not even equal
to one percent (1%) of petitioner's claim; and that the quitclaim is

inequitable and incongrous to the declared policy of the State to afford
protection to labor, citing Section 3, Article XIII of the 1987 Constitution. 9
We rule for the petitioner.
The release and quitclaim in question reads as follows:
JOSEFINA M. PRINCIPLE, of legal age,
widow, and resident at 1287-E, G. Tuazon
St., Sampaloc, Manila
in favor of
PHILIPPINE-SINGAPORE TRANS-
PORT SERVICES, INC., a domestic corpo-
ration domiciled and having its principal
place of business at 205 Martinez Bldg.,
Dasmarinas, Manila.
WITNESSETH, that:
WHEREAS, on July 5, 1983, Josefina M. Principe fled a complaint for death
benefits against Philippine-Singapore Transport Services, Inc. as a shipping
agency of Chuan Hup Agencies Pte. Ltd. of the Republic of Singapore for the
death of her husband, Engr. Abelardo D. Principe, on September 15, 1982 in
Matinloc Field, Offshore Palawan, Philippines while in the course of as
employment as Chief Engineer of OSAM Falcon' in POEA Case No. (L) 635-83
of the Philippine Overseas Employment Administration, entitled Josefina M.
Principe vs. Philippine-Singapore Transport Services, Inc.;'
WHEREAS, the parties have agreed to settle the above- entitled case
amicably.
NOW, THEREFORE, for and in consideration of the sum of SEVEN THOUSAND
PESOS (P7,000.00), Philippine currency and of the hospital, burial and other
incidental expenses previously disbursed by Philippine-Singapore Transport
Services, Inc., receipt of which in full is hereby acknowledged to her full and
complete satisfaction, JOSEFINA M. PRINCIPLE have (sic) released and
CONFLICTS | Assign 9| 38
discharged, as she hereby releases and discharges, Philippine-Singapore
Transport Services, Inc., its directors, officers, employees, principals and
agents from any and all claims, actions obligations and liabilities which she
have or might have against Philippine-Singapore Transport Services, Inc. in
connection with the death of her husband Abelardo D. Principe on September
15, 1982 in Matintoc Field, Offshore Palawan under the circumstances
narrated in the aforementioned case.
That she hereby represents and warrants to Philippine-Singapore Transport
Services, Inc. that she is the surviving spouse legally entitled to claim for
damages/support which may arise from the death of said Abelardo D.
Principe, and further, that she hereby manifests that any and all rights or
claims which she, as a surviving forced heir of the late Abelardo D. Principe
might have against Philippine-Singapore Transport Services, Inc., its
directors, employees, principals and agents arising out of or by reason of the
death of said Abelardo D. Principe are hereby deemed waived and discharged
and she have (sic) Philippine-Singapore Transport Services, Inc., its directors,
officers, employees, principals and agents and whoever may be held liable,
completely free and harmless from any claim and/or liabilities that may arise
from the death of said Abelardo D. Principe (sic).
That in the event that any other person/persons, as surviving spouse of the
deceased Abelardo D. Principe should claim against Philippine-Singapore
Transport Services, Inc. for such damages/support arising from the death of
Abelardo D. Principe, and the claim is held valid, then Josefina M. Principe
hereby undertakes and agrees to reimburse to Philippine-Singapore Transport
Services, Inc. the amounts hereunder received, plus legal interest therein.
That she further states that the foregoing consideration is voluntarily
accepted by her as a full and final compromise, adjustment and settlement of
any and all claims that she may have against Philippine-Singapore Transport
Services, Inc., its directors, officers, employees, principals and agents; and
she hereby irrevocably affirm (sic) that Philippine-Singapore Transport
Services, Inc. has made this settlement solely to buy peace, avoid litigation
and on human consideration, and she acknowledges that the payment of said
consideration is not and shall never be construed as an admission of liability
or obligation by Philippine-Singapore Transport Services, Inc., its officers,
directors, employees, principals and agents. 10
It is true that a compromise agreement once approved by the court has the
effect of res judicata between the parties and should not be disturbed except
for vices of consent and forgery. However, settled is the rule that the NLRC

may disregard technical rules of procedure in order to give life to the
constitutional mandate affording protection to labor and to conform to the
need of protecting the working class whose inferiority against the employer
has always been earmarked by disadvantage. 11
The Court finds that the compromise agreement entered into by the
petitioner in favor of PSTSI was not intended to totally foreclose her right
over the death benefits of her husband. First, the motion to dismiss, filed by
petitioner through Atty. Lachica before the POEA, which cited the compromise
agreement entered into by the parties, clearly and unequivocally reflects the
undertaking that the release is without prejudice as regards private
respondent Chuan Hup. This fact was acknowledged in the decision of POEA
Administrator Tomas D. Achacoso in POEA Case No. (L) 86-04-328. It is
surprising why both the POEA and the NLRC failed to consider this aspect in
the resolution of the second complaint filed by the petitioner against PSTSI
and Chuan Hup.
The second complaint was filed by petitioner to enforce the joint and several
liability of PSTSI and Chuan Hup per joint affidavit of responsibility executed
by said parties in entering into a principal agent relationship after PSTSI
failed to live up to its commitment to assist petitioner in the recovery of
death compensation. 12 This observation is supported by the provisions of the
release signed by the petitioner wherein the parties referred to therein were
only the petitioner and PSTSI. The release is from any claim against PSTSI.
Chuan Hup is not a party thereto. He cannot be considered covered by the
release.
Moreover, the Court sees no reason why petitioner, with the assistance of a
counsel would ever agree to foreclose her right against Chuan Hup over the
death benefits of her husband in exchange for a very measly sum of Seven
Thousand Pesos (P7,000.00). They must have been aware that should she
pursue her case, she was assured of getting at least One Hundred Thousand
Eight Hundred Singapore dollars (US$100,800.00). This Court has laid down
the rule in similar cases that applying the Singapore Maritime Laws in case of
a seaman's death, the heirs of the seaman should receive the equivalent of
36 months wages of the deceased seaman. 13
The fact that petitioner received the sum of P7,000.00 only should not be
taken to mean as a waiver of her right. The circumstances she was
confronted with during that time left her with no other alternative but to
accept the same as she was in dire need of money due to the sudden death
of her husband. PSTSI contends that it was precisely because of her need for
CONFLICTS | Assign 9| 39
cash that petitioner thereby totally waived her right over the death benefits
of her husband. We do not think so. What is plausible is the protestation of
petitioner that PSTSI took advantage of her financial distress and led her to
signing the release and quitclaim without explaining the consequences to her.
While it may be true that her counsel assisted her in the process, said
counsel must have been persuaded by the assurance of PSTSI that it shall
help obtain for her the corresponding benefits from Chuan Hup.
Even assuming for the sake of argument that the quitclaim had foreclosed
petitioner's right over the death benefits of her husband, the fact that the
consideration given in exchange thereof was very much less than the amount
petitioner is claiming renders the quitclaim null and void for being contrary to
public policy. 14 The State must be firm in affording protection to labor. The
quitclaim wherein the consideration is scandalously low and inequitable
cannot be an obstacle to petitioner's pursuing her legitimate claim. 15 Equity
dictates that the compromise agreement should be voided in this instance.
Lastly, it must be noted that the first complaint of petitioner was merely an
action against PSTSI whereas in the second complaint Chuan Hup was
already included. The POEA ruled that the second complaint was merely an
afterthought, and that it was a product of a pre-conceived mind considering
the interval of time from the issuance of the order of dismissal in the
previous case and the institution of the second complaint. We do not think
so. On the contrary, the Court holds that the delay was due to PSTSI's failure
to make good its promise to assist the petitioner in recovering the death
benefits of her husband. We see no other reason thereby. Hence, even if the
second action was filed beyond the three (3) year reglementary period as
provided by law for such claims, We cannot buy PSTSI's argument that the
claim is already barred. The blame for the delay, if any, can only be
attributed to PSTSI.
On the other hand, PSTSI argues that it cannot be held responsible on the
ground that the aforesaid affidavit of undertaking with Chua Hup is applicable
only to those members of the crew recruited by PSTSI in the Philippines for
and in behalf of its principal Chuan Hup and that since Principe was directly
hired by Chuan Hup, PSTSI cannot be held responsible as it has no privity of
contract with those personnel recruited in Singapore.
The argument is untenable. This is the first time PSTSI raised this defense
when it had all the chance to do so below. Moreover, if PSTSI honestly
believed it had no privity of contract with Principe who was directly recruited
by Chuan Hup, then there is no reason why it entered into a compromise
 CONFLICTS | Assign 9| 40

agreement with herein petitioner. From the very start, it should have asked
for the dismissal of the case against it on the ground of lack of cause of
action, but it did not do so. What is obvious is that Principe was actually
recruited by PSTSI and that he signed the employment contract with the
principal Chuan Hup. Thus, private respondents stand jointly and severally
liable for the claim of petitioner.

Anent the argument that the Philippine courts are without jurisdiction over
the subject matter as jurisdiction was, by agreement of the parties, vested in
the courts of the Republic of Singapore, it is well-settled that an agreement
to deprive a court of jurisdiction conferred on it by law is void and of no legal
effect. 16 In this jurisdiction labor cases, are within the competence of the
National Labor Relations Commission.

With respect to petitioner's monetary claim, since the parties agreed that the
laws of Singapore shall govern their relationship and that any dispute arising
from the contract shall be resolved by the law of that country, then the
petitioner is entitled to death benefits equivalent to 36 months salary of her
husband. 17 As the wage of deceased Abelardo Principe was S$2,800.00 a
month, then petitioner is entitled to a total of S$100,800.00.

WHEREFORE, premises considered, the petition is granted. The resolution of

the NLRC dated September 25,1987 is hereby set aside and another decision
is hereby rendered ordering private respondents PSTSI and Chuan Hup
Agencies, Pte. Ltd. to jointly and severally pay petitioner the sum of
S$100,800. 00 in its equivalent in Philippine pesos. This decision is
immediately executory.

SO ORDERED.

4. G.R. No. L-104776 December 5, 1994
BIENVENIDO M. CADALIN, ROLANDO M. AMUL, DONATO B.
EVANGELISTA, and the rest of 1,767 NAMED-COMPLAINANTS, thru
and by their Attorney-in-fact, Atty. GERARDO A. DEL
MUNDO, petitioners,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION'S
ADMINISTRATOR, NATIONAL LABOR RELATIONS COMMISSION,
BROWN & ROOT INTERNATIONAL, INC. AND/OR ASIA
INTERNATIONAL BUILDERS CORPORATION, respondents.
G.R. Nos. 104911-14 December 5, 1994
BIENVENIDO M. CADALIN, ET AL., petitioners,
vs.
HON. NATIONAL LABOR RELATIONS COMMISSION, BROWN & ROOT
INTERNATIONAL, INC. and/or ASIA INTERNATIONAL BUILDERS
CORPORATION, respondents.
G.R. Nos. 105029-32 December 5, 1994
ASIA INTERNATIONAL BUILDER CORPORATION and BROWN & ROOT
INTERNATIONAL, INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, BIENVENIDO M.
CADALIN, ET. AL.,
QUIASON, J.:
The petition in G.R. No. 104776, entitled "Bienvenido M. Cadalin, et. al. v.
Philippine Overseas Employment Administration's Administrator, et. al.," was
filed under Rule 65 of the Revised Rules of Court:
(1) to modify the Resolution dated September 2, 1991 of the National Labor
Relations Commission (NLRC) in POEA Cases Nos.
L-84-06-555, L-85-10-777, L-85-10-779 and L-86-05-460; (2) to render a
new decision: (i) declaring private respondents as in default; (ii) declaring
the said labor cases as a class suit; (iii) ordering Asia International Builders
Corporation (AIBC) and Brown and Root International Inc. (BRII) to pay the
claims of the 1,767 claimants in said labor cases; (iv) declaring Atty. Florante
M. de Castro guilty of forum-shopping; and (v) dismissing POEA Case No. L-
86-05-460; and
CONFLICTS | Assign 9| 41
(3) to reverse the Resolution dated March 24, 1992 of NLRC, denying the
motion for reconsideration of its Resolution dated September 2, 1991 (Rollo,
pp. 8-288).
The petition in G.R. Nos. 104911-14, entitled "Bienvenido M. Cadalin, et. al.,
v. Hon. National Labor Relations Commission, et. al.," was filed under Rule 65
of the Revised Rules of Court:
(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA
Cases Nos. L-84-06-555, L-85-10-777, L-85-10-799 and
L-86-05-460 insofar as it: (i) applied the three-year prescriptive period under
the Labor Code of the Philippines instead of the ten-year prescriptive period
under the Civil Code of the Philippines; and (ii) denied the
"three-hour daily average" formula in the computation of petitioners'
overtime pay; and
(2) to reverse the Resolution dated March 24, 1992 of NLRC, denying the
motion for reconsideration of its Resolution dated September 2, 1991 (Rollo,
pp. 8-25; 26-220).
The petition in G.R. Nos. 105029-32, entitled "Asia International Builders
Corporation, et. al., v. National Labor Relations Commission, et. al." was filed
under Rule 65 of the Revised Rules of Court:
(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA
Cases Nos. L-84-06-555, L-85-10-777, L-85-10-779 and
L-86-05-460, insofar as it granted the claims of 149 claimants; and
(2) to reverse the Resolution dated March 21, 1992 of NLRC insofar as it
denied the motions for reconsideration of AIBC and BRII (Rollo, pp. 2-59; 61-
230).
The Resolution dated September 2, 1991 of NLRC, which modified the
decision of POEA in four labor cases: (1) awarded monetary benefits only to
149 claimants and (2) directed Labor Arbiter Fatima J. Franco to conduct
hearings and to receive evidence on the claims dismissed by the POEA for
lack of substantial evidence or proof of employment.
Consolidation of Cases
G.R. Nos. 104776 and 105029-32 were originally raffled to the Third Division
while G.R. Nos. 104911-14 were raffled to the Second Division. In the

Resolution dated July 26, 1993, the Second Division referred G.R. Nos.
104911-14 to the Third Division (G.R. Nos. 104911-14, Rollo, p. 895).
In the Resolution dated September 29, 1993, the Third Division granted the
motion filed in G.R. Nos. 104911-14 for the consolidation of said cases with
G.R. Nos. 104776 and 105029-32, which were assigned to the First Division
(G.R. Nos. 104911-14, Rollo, pp. 986-1,107; G.R. Nos. 105029-30, Rollo, pp.
369-377, 426-432). In the Resolution dated October 27, 1993, the First
Division granted the motion to consolidate G.R. Nos. 104911-14 with G.R.
No. 104776 (G.R. Nos. 104911-14, Rollo, p. 1109; G.R. Nos. 105029-
32, Rollo, p. 1562).
I
On June 6, 1984, Bienvenido M.. Cadalin, Rolando M. Amul and Donato B.
Evangelista, in their own behalf and on behalf of 728 other overseas contract
workers (OCWs) instituted a class suit by filing an "Amended Complaint" with
the Philippine Overseas Employment Administration (POEA) for money claims
arising from their recruitment by AIBC and employment by BRII (POEA Case
No. L-84-06-555). The claimants were represented by Atty. Gerardo del
Mundo.
BRII is a foreign corporation with headquarters in Houston, Texas, and is
engaged in construction; while AIBC is a domestic corporation licensed as a
service contractor to recruit, mobilize and deploy Filipino workers for
overseas employment on behalf of its foreign principals.
The amended complaint principally sought the payment of the unexpired
portion of the employment contracts, which was terminated prematurely, and
secondarily, the payment of the interest of the earnings of the Travel and
Reserved Fund, interest on all the unpaid benefits; area wage and salary
differential pay; fringe benefits; refund of SSS and premium not remitted to
the SSS; refund of withholding tax not remitted to the BIR; penalties for
committing prohibited practices; as well as the suspension of the license of
AIBC and the accreditation of BRII (G.R. No. 104776, Rollo, pp. 13-14).
At the hearing on June 25, 1984, AIBC was furnished a copy of the complaint
and was given, together with BRII, up to July 5, 1984 to file its answer.
On July 3, 1984, POEA Administrator, upon motion of AIBC and BRII, ordered
the claimants to file a bill of particulars within ten days from receipt of the
order and the movants to file their answers within ten days from receipt of
CONFLICTS | Assign 9| 42
the bill of particulars. The POEA Administrator also scheduled a pre-trial
conference on July 25, 1984.
On July 13, 1984, the claimants submitted their "Compliance and
Manifestation." On July 23, 1984, AIBC filed a "Motion to Strike Out of the
Records", the "Complaint" and the "Compliance and Manifestation." On July
25, 1984, the claimants filed their "Rejoinder and Comments," averring,
among other matters, the failure of AIBC and BRII to file their answers and
to attend the pre-trial conference on July 25, 1984. The claimants alleged
that AIBC and BRII had waived their right to present evidence and had
defaulted by failing to file their answers and to attend the pre-trial
conference.
On October 2, 1984, the POEA Administrator denied the "Motion to Strike Out
of the Records" filed by AIBC but required the claimants to correct the
deficiencies in the complaint pointed out in the order.
On October 10, 1984, claimants asked for time within which to comply with
the Order of October 2, 1984 and filed an "Urgent Manifestation," praying
that the POEA Administrator direct the parties to submit simultaneously their
position papers, after which the case should be deemed submitted for
decision. On the same day, Atty. Florante de Castro filed another complaint
for the same money claims and benefits in behalf of several claimants, some
of whom were also claimants in POEA Case No. L-84-06-555 (POEA Case No.
85-10-779).
On October 19, 1984, claimants filed their "Compliance" with the Order dated
October 2, 1984 and an "Urgent Manifestation," praying that the POEA direct
the parties to submit simultaneously their position papers after which the
case would be deemed submitted for decision. On the same day, AIBC asked
for time to file its comment on the "Compliance" and "Urgent Manifestation"
of claimants. On November 6, 1984, it filed a second motion for extension of
time to file the comment.
On November 8, 1984, the POEA Administrator informed AIBC that its motion
for extension of time was granted.
On November 14, 1984, claimants filed an opposition to the motions for
extension of time and asked that AIBC and BRII be declared in default for
failure to file their answers.
On November 20, 1984, AIBC and BRII filed a "Comment" praying, among
other reliefs, that claimants should be ordered to amend their complaint.

On December 27, 1984, the POEA Administrator issued an order directing
AIBC and BRII to file their answers within ten days from receipt of the order.
On February 27, 1985, AIBC and BRII appealed to NLRC seeking the reversal
of the said order of the POEA Administrator. Claimants opposed the appeal,
claiming that it was dilatory and praying that AIBC and BRII be declared in
default.
On April 2, 1985, the original claimants filed an "Amended Complaint and/or
Position Paper" dated March 24, 1985, adding new demands: namely, the
payment of overtime pay, extra night work pay, annual leave differential pay,
leave indemnity pay, retirement and savings benefits and their share of
forfeitures (G.R. No. 104776, Rollo, pp. 14-16). On April 15, 1985, the POEA
Administrator directed AIBC to file its answer to the amended complaint (G.R.
No. 104776, Rollo, p. 20).
On May 28, 1985, claimants filed an "Urgent Motion for Summary Judgment."
On the same day, the POEA issued an order directing AIBC and BRII to file
their answers to the "Amended Complaint," otherwise, they would be deemed
to have waived their right to present evidence and the case would be
resolved on the basis of complainant's evidence.
On June 5, 1985, AIBC countered with a "Motion to Dismiss as Improper
Class Suit and Motion for Bill of Particulars Re: Amended Complaint dated
March 24, 1985." Claimants opposed the motions.
On September 4, 1985, the POEA Administrator reiterated his directive to
AIBC and BRII to file their answers in POEA Case No. L-84-06-555.
On September 18, 1985, AIBC filed its second appeal to the NLRC, together
with a petition for the issuance of a writ of injunction. On September 19,
1985, NLRC enjoined the POEA Administrator from hearing the labor cases
and suspended the period for the filing of the answers of AIBC and BRII.
On September 19, 1985, claimants asked the POEA Administrator to include
additional claimants in the case and to investigate alleged wrongdoings of
BRII, AIBC and their respective lawyers.
On October 10, 1985, Romeo Patag and two co-claimants filed a complaint
(POEA Case No. L-85-10-777) against AIBC and BRII with the POEA,
demanding monetary claims similar to those subject of POEA Case No. L-84-
06-555. In the same month, Solomon Reyes also filed his own complaint
(POEA Case No. L-85-10-779) against AIBC and BRII.
CONFLICTS | Assign 9| 43
On October 17, 1985, the law firm of Florante M. de Castro & Associates
asked for the substitution of the original counsel of record and the
cancellation of the special powers of attorney given the original counsel.
On December 12, 1985, Atty. Del Mundo filed in NLRC a notice of the claim to
enforce attorney's lien.
On May 29, 1986, Atty. De Castro filed a complaint for money claims (POEA
Case No. 86-05-460) in behalf of 11 claimants including Bienvenido Cadalin,
a claimant in POEA Case No. 84-06-555.
On December 12, 1986, the NLRC dismissed the two appeals filed on
February 27, 1985 and September 18, 1985 by AIBC and BRII.
In narrating the proceedings of the labor cases before the POEA
Administrator, it is not amiss to mention that two cases were filed in the
Supreme Court by the claimants, namely G.R. No. 72132 on September
26, 1985 and Administrative Case No. 2858 on March 18, 1986. On May 13,
1987, the Supreme Court issued a resolution in Administrative Case No. 2858
directing the POEA Administrator to resolve the issues raised in the motions
and oppositions filed in POEA Cases Nos. L-84-06-555 and L-86-05-460 and
to decide the labor cases with deliberate dispatch.
AIBC also filed a petition in the Supreme Court (G.R. No. 78489), questioning
the Order dated September 4, 1985 of the POEA Administrator. Said order
required BRII and AIBC to answer the amended complaint in POEA Case No.
L-84-06-555. In a resolution dated November 9, 1987, we dismissed the
petition by informing AIBC that all its technical objections may properly be
resolved in the hearings before the POEA.
Complaints were also filed before the Ombudsman. The first was filed on
September 22, 1988 by claimant Hermie Arguelles and 18 co-claimants
against the POEA Administrator and several NLRC Commissioners. The
Ombudsman merely referred the complaint to the Secretary of Labor and
Employment with a request for the early disposition of POEA Case No. L-84-
06-555. The second was filed on April 28, 1989 by claimants Emigdio P.
Bautista and Rolando R. Lobeta charging AIBC and BRII for violation of labor
and social legislations. The third was filed by Jose R. Santos, Maximino N.
Talibsao and Amado B. Bruce denouncing AIBC and BRII of violations of labor
laws.
On January 13, 1987, AIBC filed a motion for reconsideration of the NLRC
Resolution dated December 12, 1986.

On January 14, 1987, AIBC reiterated before the POEA Administrator its
motion for suspension of the period for filing an answer or motion for
extension of time to file the same until the resolution of its motion for
reconsideration of the order of the NLRC dismissing the two appeals. On April
28, 1987, NLRC en banc denied the motion for reconsideration.
At the hearing on June 19, 1987, AIBC submitted its answer to the
complaint. At the same hearing, the parties were given a period of 15 days
from said date within which to submit their respective position papers. On
June 24, 1987 claimants filed their "Urgent Motion to Strike Out Answer,"
alleging that the answer was filed out of time. On June 29, 1987, claimants
filed their "Supplement to Urgent Manifestational Motion" to comply with the
POEA Order of June 19, 1987. On February 24, 1988, AIBC and BRII
submitted their position paper. On March 4, 1988, claimants filed their "Ex-
Parte Motion to Expunge from the Records" the position paper of AIBC and
BRII, claiming that it was filed out of time.
On September 1, 1988, the claimants represented by Atty. De Castro filed
their memorandum in POEA Case No. L-86-05-460. On September 6, 1988,
AIBC and BRII submitted their Supplemental Memorandum. On September
12, 1988, BRII filed its "Reply to Complainant's Memorandum." On October
26, 1988, claimants submitted their "Ex-Parte Manifestational Motion and
Counter-Supplemental Motion," together with 446 individual contracts of
employments and service records. On October 27, 1988, AIBC and BRII filed
a "Consolidated Reply."
On January 30, 1989, the POEA Administrator rendered his decision in POEA
Case No. L-84-06-555 and the other consolidated cases, which awarded the
amount of $824,652.44 in favor of only 324 complainants.
On February 10, 1989, claimants submitted their "Appeal Memorandum For
Partial Appeal" from the decision of the POEA. On the same day, AIBC also
filed its motion for reconsideration and/or appeal in addition to the "Notice of
Appeal" filed earlier on February 6, 1989 by another counsel for AIBC.
On February 17, 1989, claimants filed their "Answer to Appeal," praying for
the dismissal of the appeal of AIBC and BRII.
On March 15, 1989, claimants filed their "Supplement to Complainants'
Appeal Memorandum," together with their "newly discovered evidence"
consisting of payroll records.
CONFLICTS | Assign 9| 44
On April 5, 1989, AIBC and BRII submitted to NLRC their "Manifestation,"
stating among other matters that there were only 728 named claimants. On
April 20, 1989, the claimants filed their "Counter-Manifestation," alleging that
there were 1,767 of them.
On July 27, 1989, claimants filed their "Urgent Motion for Execution" of the
Decision dated January 30, 1989 on the grounds that BRII had failed to
appeal on time and AIBC had not posted the supersedeas bond in the amount
of $824,652.44.
On December 23, 1989, claimants filed another motion to resolve the labor
cases.
On August 21, 1990, claimants filed their "Manifestational Motion," praying
that all the 1,767 claimants be awarded their monetary claims for failure of
private respondents to file their answers within the reglamentary period
required by law.
On September 2, 1991, NLRC promulgated its Resolution, disposing as
follows:
WHEREFORE, premises considered, the Decision of the POEA in these
consolidated cases is modified to the extent and in accordance with the
following dispositions:
1. The claims of the 94 complainants identified and listed in Annex "A" hereof
are dismissed for having prescribed;
2. Respondents AIBC and Brown & Root are hereby ordered, jointly and
severally, to pay the 149 complainants, identified and listed in Annex "B"
hereof, the peso equivalent, at the time of payment, of the total amount in
US dollars indicated opposite their respective names;
3. The awards given by the POEA to the 19 complainants classified and listed
in Annex "C" hereof, who appear to have worked elsewhere than in Bahrain
are hereby set aside.
4. All claims other than those indicated in Annex "B", including those for
overtime work and favorably granted by the POEA, are hereby dismissed for
lack of substantial evidence in support thereof or are beyond the competence
of this Commission to pass upon.

In addition, this Commission, in the exercise of its powers and authority
under Article 218(c) of the Labor Code, as amended by R.A. 6715, hereby
directs Labor Arbiter Fatima J. Franco of this Commission to summon parties,
conduct hearings and receive evidence, as expeditiously as possible, and
thereafter submit a written report to this Commission (First Division) of the
proceedings taken, regarding the claims of the following:
(a) complainants identified and listed in Annex "D" attached and made an
integral part of this Resolution, whose claims were dismissed by the POEA for
lack of proof of employment in Bahrain (these complainants numbering 683,
are listed in pages 13 to 23 of the decision of POEA, subject of the appeals)
and,
(b) complainants identified and listed in Annex "E" attached and made an
integral part of this Resolution, whose awards decreed by the POEA, to Our
mind, are not supported by substantial evidence" (G.R. No. 104776; Rollo,
pp. 113-115; G.R. Nos. 104911-14, pp. 85-87; G.R. Nos. 105029-31, pp.
120-122).
On November 27, 1991, claimant Amado S. Tolentino and 12
co-claimants, who were former clients of Atty. Del Mundo, filed a petition
for certiorari with the Supreme Court (G.R. Nos. 120741-44). The petition
was dismissed in a resolution dated January 27, 1992.
Three motions for reconsideration of the September 2, 1991 Resolution of the
NLRC were filed. The first, by the claimants represented by Atty. Del Mundo;
the second, by the claimants represented by Atty. De Castro; and the third,
by AIBC and BRII.
In its Resolution dated March 24, 1992, NLRC denied all the motions for
reconsideration.
Hence, these petitions filed by the claimants represented by Atty. Del Mundo
(G.R. No. 104776), the claimants represented by Atty. De Castro (G.R. Nos.
104911-14) and by AIBC and BRII (G.R. Nos. 105029-32).
II
Compromise Agreements
Before this Court, the claimants represented by Atty. De Castro and AIBC and
BRII have submitted, from time to time, compromise agreements for our
approval and jointly moved for the dismissal of their respective petitions
CONFLICTS | Assign 9| 45
insofar as the claimants-parties to the compromise agreements were
concerned (See Annex A for list of claimants who signed quitclaims).
Thus the following manifestations that the parties had arrived at a
compromise agreement and the corresponding motions for the approval of
the agreements were filed by the parties and approved by the Court:
1) Joint Manifestation and Motion involving claimant Emigdio Abarquez and
47 co-claimants dated September 2, 1992 (G.R. Nos. 104911-14, Rollo, pp.
263-406; G.R. Nos. 105029-32, Rollo, pp.
470-615);
2) Joint Manifestation and Motion involving petitioner Bienvenido Cadalin and
82 co-petitioners dated September 3, 1992 (G.R. No. 104776, Rollo, pp. 364-
507);
3) Joint Manifestation and Motion involving claimant Jose
M. Aban and 36 co-claimants dated September 17, 1992 (G.R. Nos. 105029-
32, Rollo, pp. 613-722; G.R. No. 104776, Rollo, pp. 518-626; G.R. Nos.
104911-14, Rollo, pp. 407-516);
4) Joint Manifestation and Motion involving claimant Antonio T. Anglo and 17
co-claimants dated October 14, 1992 (G.R. Nos.
105029-32, Rollo, pp. 778-843; G.R. No. 104776, Rollo, pp. 650-713; G.R.
Nos. 104911-14, Rollo, pp. 530-590);
5) Joint Manifestation and Motion involving claimant Dionisio Bobongo and 6
co-claimants dated January 15, 1993 (G.R. No. 104776, Rollo, pp. 813-836;
G.R. Nos. 104911-14, Rollo, pp. 629-652);
6) Joint Manifestation and Motion involving claimant Valerio A. Evangelista
and 4 co-claimants dated March 10, 1993 (G.R. Nos. 104911-14, Rollo, pp.
731-746; G.R. No. 104776, Rollo, pp. 1815-1829);
7) Joint Manifestation and Motion involving claimants Palconeri Banaag and 5
co-claimants dated March 17, 1993 (G.R. No. 104776, Rollo, pp. 1657-1703;
G.R. Nos. 104911-14, Rollo, pp. 655-675);
8) Joint Manifestation and Motion involving claimant Benjamin Ambrosio and
15 other co-claimants dated May 4, 1993 (G.R. Nos. 105029-32, Rollo, pp.
906-956; G.R. Nos. 104911-14, Rollo, pp. 679-729; G.R. No. 104776, Rollo,
pp. 1773-1814);
 CONFLICTS | Assign 9| 46

9) Joint Manifestation and Motion involving Valerio Evangelista and 3 co-
claimants dated May 10, 1993 (G.R. No. 104776, Rollo, pp. 1815-1829);
10) Joint Manifestation and Motion involving petitioner Quiterio R. Agudo and
36 co-claimants dated June 14, 1993 (G.R. Nos. 105029-32, Rollo, pp. 974-
1190; G.R. Nos. 104911-14, Rollo, pp. 748-864; G.R. No. 104776, Rollo, pp.
1066-1183);
Having been officially processed as overseas contract workers by the
Philippine Government, all the individual complainants signed standard
overseas employment contracts (Records, Vols. 25-32. Hereafter, reference
to the records would be sparingly made, considering their chaotic
arrangement) with AIBC before their departure from the Philippines. These
overseas employment contracts invariably contained the following relevant
terms and conditions.

11) Joint Manifestation and Motion involving claimant Arnaldo J. Alonzo and PART B
19 co-claimants dated July 22, 1993 (G.R. No. 104776, Rollo, pp. 1173-
1235; G.R. Nos. 105029-32, Rollo, pp. 1193-1256; G.R. Nos. 104911- (1) Employment Position Classification :
14, Rollo, pp. 896-959); (Code) :

12) Joint Manifestation and Motion involving claimant Ricardo C. Dayrit and 2 (2) Company Employment Status :
co-claimants dated September 7, 1993 (G.R. Nos. (3) Date of Employment to Commence on :
105029-32, Rollo, pp. 1266-1278; G.R. No. 104776, Rollo, pp. 1243-1254; (4) Basic Working Hours Per Week :
G.R. Nos. 104911-14, Rollo, pp. 972-984); (5) Basic Working Hours Per Month :
(6) Basic Hourly Rate :
13) Joint Manifestation and Motion involving claimant Dante C. Aceres and 37 (7) Overtime Rate Per Hour :
co-claimants dated September 8, 1993 (G.R. No. 104776, Rollo, pp. 1257- (8) Projected Period of Service
1375; G.R. Nos. 104911-14, Rollo, pp. 987-1105; G.R. Nos. 105029- (Subject to C(1) of this [sic]) :
32, Rollo, pp. 1280-1397); Months and/or
Job Completion
14) Joint Manifestation and Motion involving Vivencio V. Abella and 27 co-
claimants dated January 10, 1994 (G.R. Nos. 105029-32, Rollo, Vol. II); xxx xxx xxx

15) Joint Manifestation and Motion involving Domingo B. Solano and six co-
claimants dated August 25, 1994 (G.R. Nos. 105029-32; G.R. No. 104776;
G.R. Nos. 104911-14).
III
The facts as found by the NLRC are as follows:
We have taken painstaking efforts to sift over the more than fifty volumes
now comprising the records of these cases. From the records, it appears that
the complainants-appellants allege that they were recruited by respondent-
appellant AIBC for its accredited foreign principal, Brown & Root, on various
dates from 1975 to 1983. They were all deployed at various projects
undertaken by Brown & Root in several countries in the Middle East, such as
Saudi Arabia, Libya, United Arab Emirates and Bahrain, as well as in
Southeast Asia, in Indonesia and Malaysia.
3. HOURS OF WORK AND COMPENSATION
a) The Employee is employed at the hourly rate and overtime rate as set out
in Part B of this Document.
b) The hours of work shall be those set forth by the Employer, and Employer
may, at his sole option, change or adjust such hours as maybe deemed
necessary from time to time.
4. TERMINATION
a) Notwithstanding any other terms and conditions of this agreement, the
Employer may, at his sole discretion, terminate employee's service with
cause, under this agreement at any time. If the Employer terminates the
services of the Employee under this Agreement because of the completion or
termination, or suspension of the work on which the Employee's services
were being utilized, or because of a reduction in force due to a decrease in

scope of such work, or by change in the type of construction of such work.
The Employer will be responsible for his return transportation to his country
of origin. Normally on the most expeditious air route, economy class
accommodation.
xxx xxx xxx
10. VACATION/SICK LEAVE BENEFITS
a) After one (1) year of continuous service and/or satisfactory completion of
contract, employee shall be entitled to 12-days vacation leave with pay. This
shall be computed at the basic wage rate. Fractions of a year's service will be
computed on a pro-rata basis.
b) Sick leave of 15-days shall be granted to the employee for every year of
service for non-work connected injuries or illness. If the employee failed to
avail of such leave benefits, the same shall be forfeited at the end of the year
in which said sick leave is granted.
11. BONUS
A bonus of 20% (for offshore work) of gross income will be accrued and
payable only upon satisfactory completion of this contract.
12. OFFDAY PAY
The seventh day of the week shall be observed as a day of rest with 8 hours
regular pay. If work is performed on this day, all hours work shall be paid at
the premium rate. However, this offday pay provision is applicable only when
the laws of the Host Country require payments for rest day.
In the State of Bahrain, where some of the individual complainants were
deployed, His Majesty Isa Bin Salman Al Kaifa, Amir of Bahrain, issued his
Amiri Decree No. 23 on June 16, 1976, otherwise known as the Labour Law
for the Private Sector (Records, Vol. 18). This decree took effect on August
16, 1976. Some of the provisions of Amiri Decree No. 23 that are relevant to
the claims of the complainants-appellants are as follows (italics supplied only
for emphasis):
Art. 79: . . . A worker shall receive payment for each extra hour equivalent
to his wage entitlement increased by a minimum of twenty-five per
centum thereof for hours worked during the day; and by a minimum of fifty
per centum thereof for hours worked during the night which shall be deemed
CONFLICTS | Assign 9| 47
to being from seven o'clock in the evening until seven o'clock in the morning.
...
Art. 80: Friday shall be deemed to be a weekly day of rest on full pay.
. . . an employer may require a worker, with his consent, to work on his
weekly day of rest if circumstances so require and in respect of which an
additional sum equivalent to 150% of his normal wage shall be paid to
him. . . .
Art. 81: . . . When conditions of work require the worker to work on any
official holiday, he shall be paid an additional sum equivalent to 150% of his
normal wage.
Art. 84: Every worker who has completed one year's continuous service with
his employer shall be entitled to leave on full pay for a period of not less than
21 days for each year increased to a period not less than 28 days after five
continuous years of service.
A worker shall be entitled to such leave upon a quantum meruit in respect of
the proportion of his service in that year.
Art. 107: A contract of employment made for a period of indefinite duration
may be terminated by either party thereto after giving the other party thirty
days' prior notice before such termination, in writing, in respect of monthly
paid workers and fifteen days' notice in respect of other workers. The party
terminating a contract without giving the required notice shall pay to the
other party compensation equivalent to the amount of wages payable to the
worker for the period of such notice or the unexpired portion thereof.
Art. 111: . . . the employer concerned shall pay to such worker, upon
termination of employment, a leaving indemnity for the period of his
employment calculated on the basis of fifteen days' wages for each year of
the first three years of service and of one month's wages for each year of
service thereafter. Such worker shall be entitled to payment of leaving
indemnity upon a quantum meruit in proportion to the period of his service
completed within a year.
All the individual complainants-appellants have already been repatriated to
the Philippines at the time of the filing of these cases (R.R. No.
104776, Rollo, pp. 59-65).
IV

The issues raised before and resolved by the NLRC were:
First: Whether or not complainants are entitled to the benefits provided by
Amiri Decree No. 23 of Bahrain;
(a) Whether or not the complainants who have worked in Bahrain are entitled
to the above-mentioned benefits.
(b) Whether or not Art. 44 of the same Decree (allegedly prescribing a more
favorable treatment of alien employees) bars complainants from enjoying its
benefits.
Second: Assuming that Amiri Decree No. 23 of Bahrain is applicable in
these cases, whether or not complainants' claim for the benefits provided
therein have prescribed.
Third: Whether or not the instant cases qualify as a class suit.
Fourth: Whether or not the proceedings conducted by the POEA, as well as
the decision that is the subject of these appeals, conformed with the
requirements of due process;
(a) Whether or not the respondent-appellant was denied its right to due
process;
(b) Whether or not the admission of evidence by the POEA after these cases
were submitted for decision was valid;
(c) Whether or not the POEA acquired jurisdiction over Brown & Root
International, Inc.;
(d) Whether or not the judgment awards are supported by substantial
evidence;
(e) Whether or not the awards based on the averages and formula presented
by the complainants-appellants are supported by substantial evidence;
(f) Whether or not the POEA awarded sums beyond what the complainants-
appellants prayed for; and, if so, whether or not these awards are valid.
Fifth: Whether or not the POEA erred in holding respondents AIBC and
Brown & Root jointly are severally liable for the judgment awards despite the
alleged finding that the former was the employer of the complainants;
CONFLICTS | Assign 9| 48
(a) Whether or not the POEA has acquired jurisdiction over Brown & Root;
(b) Whether or not the undisputed fact that AIBC was a licensed construction
contractor precludes a finding that Brown & Root is liable for complainants
claims.
Sixth: Whether or not the POEA Administrator's failure to hold respondents
in default constitutes a reversible error.
Seventh: Whether or not the POEA Administrator erred in dismissing the
following claims:
a. Unexpired portion of contract;
b. Interest earnings of Travel and Reserve Fund;
c. Retirement and Savings Plan benefits;
d. War Zone bonus or premium pay of at least 100% of basic pay;
e. Area Differential Pay;
f. Accrued interests on all the unpaid benefits;
g. Salary differential pay;
h. Wage differential pay;
i. Refund of SSS premiums not remitted to SSS;
j. Refund of withholding tax not remitted to BIR;
k. Fringe benefits under B & R's "A Summary of Employee Benefits" (Annex
"Q" of Amended Complaint);
l. Moral and exemplary damages;
m. Attorney's fees of at least ten percent of the judgment award;
n. Other reliefs, like suspending and/or cancelling the license to recruit of
AIBC and the accreditation of B & R issued by POEA;
o. Penalty for violations of Article 34 (prohibited practices), not excluding
reportorial requirements thereof.
 CONFLICTS | Assign 9| 49

Eighth: Whether or not the POEA Administrator erred in not dismissing NLRC also held that jurisdiction over BRII was acquired by the POEA
POEA Case No. (L) 86-65-460 on the ground of multiplicity of suits (G.R. Nos. Administrator through the summons served on AIBC, its local agent.
104911-14, Rollo, pp. 25-29, 51-55).
On the sixth issue, NLRC held that the POEA Administrator was correct in
Anent the first issue, NLRC set aside Section 1, Rule 129 of the 1989 Revised denying the Motion to Declare AIBC in default.
Rules on Evidence governing the pleading and proof of a foreign law and
admitted in evidence a simple copy of the Bahrain's Amiri Decree No. 23 of On the seventh issue, which involved other money claims not based on the
1976 (Labour Law for the Private Sector). NLRC invoked Article 221 of the Amiri Decree No. 23, NLRC ruled:
Labor Code of the Philippines, vesting on the Commission ample discretion to
(1) that the POEA Administrator has no jurisdiction over the claims for refund
use every and all reasonable means to ascertain the facts in each case
of the SSS premiums and refund of withholding taxes and the claimants
without regard to the technicalities of law or procedure. NLRC agreed with
should file their claims for said refund with the appropriate government
the POEA Administrator that the Amiri Decree No. 23, being more favorable
agencies;
and beneficial to the workers, should form part of the overseas employment
contract of the complainants.
(2) the claimants failed to establish that they are entitled to the claims which
are not based on the overseas employment contracts nor the Amiri Decree
NLRC, however, held that the Amiri Decree No. 23 applied only to the
No. 23 of 1976;
claimants, who worked in Bahrain, and set aside awards of the POEA
Administrator in favor of the claimants, who worked elsewhere.
(3) that the POEA Administrator has no jurisdiction over claims for moral and
exemplary damages and nonetheless, the basis for granting said damages
On the second issue, NLRC ruled that the prescriptive period for the filing of
was not established;
the claims of the complainants was three years, as provided in Article 291 of
the Labor Code of the Philippines, and not ten years as provided in Article
(4) that the claims for salaries corresponding to the unexpired portion of
1144 of the Civil Code of the Philippines nor one year as provided in the Amiri
their contract may be allowed if filed within the three-year prescriptive
Decree No. 23 of 1976.
period;
On the third issue, NLRC agreed with the POEA Administrator that the labor
(5) that the allegation that complainants were prematurely repatriated prior
cases cannot be treated as a class suit for the simple reason that not all the
to the expiration of their overseas contract was not established; and
complainants worked in Bahrain and therefore, the subject matter of the
action, the claims arising from the Bahrain law, is not of common or general (6) that the POEA Administrator has no jurisdiction over the complaint for the
interest to all the complainants. suspension or cancellation of the AIBC's recruitment license and the
cancellation of the accreditation of BRII.
On the fourth issue, NLRC found at least three infractions of the cardinal
rules of administrative due process: namely, (1) the failure of the POEA NLRC passed sub silencio the last issue, the claim that POEA Case No. (L) 86-
Administrator to consider the evidence presented by AIBC and BRII; (2) 65-460 should have been dismissed on the ground that the claimants in said
some findings of fact were not supported by substantial evidence; and (3) case were also claimants in POEA Case No. (L) 84-06-555. Instead of
some of the evidence upon which the decision was based were not disclosed dismissing POEA Case No. (L) 86-65-460, the POEA just resolved the
to AIBC and BRII during the hearing. corresponding claims in POEA Case No. (L) 84-06-555. In other words, the
POEA did not pass upon the same claims twice.
On the fifth issue, NLRC sustained the ruling of the POEA Administrator that
BRII and AIBC are solidarily liable for the claims of the complainants and held V
that BRII was the actual employer of the complainants, or at the very least,
the indirect employer, with AIBC as the labor contractor. G.R. No. 104776

Claimants in G.R. No. 104776 based their petition for certiorari on the
following grounds:
(1) that they were deprived by NLRC and the POEA of their right to a speedy
disposition of their cases as guaranteed by Section 16, Article III of the 1987
Constitution. The POEA Administrator allowed private respondents to file their
answers in two years (on June 19, 1987) after the filing of the original
complaint (on April 2, 1985) and NLRC, in total disregard of its own rules,
affirmed the action of the POEA Administrator;
(2) that NLRC and the POEA Administrator should have declared AIBC and
BRII in default and should have rendered summary judgment on the basis of
the pleadings and evidence submitted by claimants;
(3) the NLRC and POEA Administrator erred in not holding that the labor
cases filed by AIBC and BRII cannot be considered a class suit;
(4) that the prescriptive period for the filing of the claims is ten years; and
(5) that NLRC and the POEA Administrator should have dismissed POEA Case
No. L-86-05-460, the case filed by Atty. Florante de Castro (Rollo, pp. 31-
40).
AIBC and BRII, commenting on the petition in G.R. No. 104776, argued:
(1) that they were not responsible for the delay in the disposition of the labor
cases, considering the great difficulty of getting all the records of the more
than 1,500 claimants, the piece-meal filing of the complaints and the addition
of hundreds of new claimants by petitioners;
(2) that considering the number of complaints and claimants, it was
impossible to prepare the answers within the ten-day period provided in the
NLRC Rules, that when the motion to declare AIBC in default was filed on July
19, 1987, said party had already filed its answer, and that considering the
staggering amount of the claims (more than US$50,000,000.00) and the
complicated issues raised by the parties, the ten-day rule to answer was not
fair and reasonable;
(3) that the claimants failed to refute NLRC's finding that
there was no common or general interest in the subject matter of the
controversy which was the applicability of the Amiri Decree No. 23.
Likewise, the nature of the claims varied, some being based on salaries
pertaining to the unexpired portion of the contracts while others being for
CONFLICTS | Assign 9| 50
pure money claims. Each claimant demanded separate claims peculiar only to
himself and depending upon the particular circumstances obtaining in his
case;
(4) that the prescriptive period for filing the claims is that prescribed by
Article 291 of the Labor Code of the Philippines (three years) and not the one
prescribed by Article 1144 of the Civil Code of the Philippines (ten years);
and
(5) that they are not concerned with the issue of whether POEA Case No. L-
86-05-460 should be dismissed, this being a private quarrel between the two
labor lawyers (Rollo, pp. 292-305).
Attorney's Lien
On November 12, 1992, Atty. Gerardo A. del Mundo moved to strike out the
joint manifestations and motions of AIBC and BRII dated September 2 and
11, 1992, claiming that all the claimants who entered into the compromise
agreements subject of said manifestations and motions were his clients and
that Atty. Florante M. de Castro had no right to represent them in said
agreements. He also claimed that the claimants were paid less than the
award given them by NLRC; that Atty. De Castro collected additional
attorney's fees on top of the 25% which he was entitled to receive; and that
the consent of the claimants to the compromise agreements and quitclaims
were procured by fraud (G.R. No. 104776, Rollo, pp. 838-810). In the
Resolution dated November 23, 1992, the Court denied the motion to strike
out the Joint Manifestations and Motions dated September 2 and 11, 1992
(G.R. Nos. 104911-14, Rollo, pp. 608-609).
On December 14, 1992, Atty. Del Mundo filed a "Notice and Claim to Enforce
Attorney's Lien," alleging that the claimants who entered into compromise
agreements with AIBC and BRII with the assistance of Atty. De Castro, had
all signed a retainer agreement with his law firm (G.R. No. 104776, Rollo, pp.
623-624; 838-1535).
Contempt of Court
On February 18, 1993, an omnibus motion was filed by Atty. Del Mundo to
cite Atty. De Castro and Atty. Katz Tierra for contempt of court and for
violation of Canons 1, 15 and 16 of the Code of Professional Responsibility.
The said lawyers allegedly misled this Court, by making it appear that the
claimants who entered into the compromise agreements were represented by

Atty. De Castro, when in fact they were represented by Atty. Del Mundo (G.R.
No. 104776, Rollo, pp. 1560-1614).
On September 23, 1994, Atty. Del Mundo reiterated his charges against Atty.
De Castro for unethical practices and moved for the voiding of the quitclaims
submitted by some of the claimants.
G.R. Nos. 104911-14
The claimants in G.R. Nos. 104911-14 based their petition for certiorari on
the grounds that NLRC gravely abused its discretion when it: (1) applied the
three-year prescriptive period under the Labor Code of the Philippines; and
(2) it denied the claimant's formula based on an average overtime pay of
three hours a day (Rollo, pp. 18-22).
The claimants argue that said method was proposed by BRII itself during the
negotiation for an amicable settlement of their money claims in Bahrain as
shown in the Memorandum dated April 16, 1983 of the Ministry of Labor of
Bahrain (Rollo, pp. 21-22).
BRII and AIBC, in their Comment, reiterated their contention in G.R. No.
104776 that the prescriptive period in the Labor Code of the Philippines, a
special law, prevails over that provided in the Civil Code of the Philippines, a
general law.
As to the memorandum of the Ministry of Labor of Bahrain on the method of
computing the overtime pay, BRII and AIBC claimed that they were not
bound by what appeared therein, because such memorandum was proposed
by a subordinate Bahrain official and there was no showing that it was
approved by the Bahrain Minister of Labor. Likewise, they claimed that the
averaging method was discussed in the course of the negotiation for the
amicable settlement of the dispute and any offer made by a party therein
could not be used as an admission by him (Rollo, pp. 228-236).
G.R. Nos. 105029-32
In G.R. Nos. 105029-32, BRII and AIBC claim that NLRC gravely abused its
discretion when it: (1) enforced the provisions of the Amiri Decree No. 23 of
1976 and not the terms of the employment contracts; (2) granted claims for
holiday, overtime and leave indemnity pay and other benefits, on evidence
admitted in contravention of petitioner's constitutional right to due process;
and (3) ordered the POEA Administrator to hold new hearings for the 683
claimants whose claims had been dismissed for lack of proof by the POEA
CONFLICTS | Assign 9| 51
Administrator or NLRC itself. Lastly, they allege that assuming that the Amiri
Decree No. 23 of 1976 was applicable, NLRC erred when it did not apply the
one-year prescription provided in said law (Rollo, pp. 29-30).
VI
G.R. No. 104776; G.R. Nos. 104911-14; G.R. Nos. 105029-32
All the petitions raise the common issue of prescription although they
disagreed as to the time that should be embraced within the prescriptive
period.
To the POEA Administrator, the prescriptive period was ten years, applying
Article 1144 of the Civil Code of the Philippines. NLRC believed otherwise,
fixing the prescriptive period at three years as provided in Article 291 of the
Labor Code of the Philippines.
The claimants in G.R. No. 104776 and G.R. Nos. 104911-14, invoking
different grounds, insisted that NLRC erred in ruling that the prescriptive
period applicable to the claims was three years, instead of ten years, as
found by the POEA Administrator.
The Solicitor General expressed his personal view that the prescriptive period
was one year as prescribed by the Amiri Decree No. 23 of 1976 but he
deferred to the ruling of NLRC that Article 291 of the Labor Code of the
Philippines was the operative law.
The POEA Administrator held the view that:
These money claims (under Article 291 of the Labor Code) refer to those
arising from the employer's violation of the employee's right as provided by
the Labor Code.
In the instant case, what the respondents violated are not the rights of the
workers as provided by the Labor Code, but the provisions of the Amiri
Decree No. 23 issued in Bahrain, which ipso facto amended the worker's
contracts of employment. Respondents consciously failed to conform to these
provisions which specifically provide for the increase of the worker's rate. It
was only after June 30, 1983, four months after the brown builders brought a
suit against B & R in Bahrain for this same claim, when respondent AIBC's
contracts have undergone amendments in Bahrain for the new hires/renewals
(Respondent's Exhibit 7).
 CONFLICTS | Assign 9| 52

Hence, premises considered, the applicable law of prescription to this instant Court of Appeals held that the Panamanian Law was procedural as it was not
case is Article 1144 of the Civil Code of the Philippines, which provides: "specifically intended to be substantive," hence, the prescriptive period
provided in the law of the forum should apply. The Court observed:
Art. 1144. The following actions may be brought within ten years from the
time the cause of action accrues: . . . And where, as here, we are dealing with a statute of limitations of a
foreign country, and it is not clear on the face of the statute that its purpose
(1) Upon a written contract; was to limit the enforceability, outside as well as within the foreign country
concerned, of the substantive rights to which the statute pertains, we think
(2) Upon an obligation created by law;
that as a yardstick for determining whether that was the purpose this test is
the most satisfactory one. It does not lead American courts into the necessity
Thus, herein money claims of the complainants against the respondents shall
of examining into the unfamiliar peculiarities and refinements of different
prescribe in ten years from August 16, 1976. Inasmuch as all claims were
foreign legal systems. . .
filed within the ten-year prescriptive period, no claim suffered the infirmity of
being prescribed (G.R. No. 104776, Rollo, 89-90).
The court further noted:
In overruling the POEA Administrator, and holding that the prescriptive period
xxx xxx xxx
is three years as provided in Article 291 of the Labor Code of the Philippines,
the NLRC argued as follows: Applying that test here it appears to us that the libelant is entitled to
succeed, for the respondents have failed to satisfy us that the Panamanian
The Labor Code provides that "all money claims arising from employer-
period of limitation in question was specifically aimed against the particular
employee relations . . . shall be filed within three years from the time the
rights which the libelant seeks to enforce. The Panama Labor Code is a
cause of action accrued; otherwise they shall be forever barred" (Art. 291,
statute having broad objectives, viz: "The present Code regulates the
Labor Code, as amended). This three-year prescriptive period shall be the
relations between capital and labor, placing them on a basis of social justice,
one applied here and which should be reckoned from the date of repatriation
so that, without injuring any of the parties, there may be guaranteed for
of each individual complainant, considering the fact that the case is having
labor the necessary conditions for a normal life and to capital an equitable
(sic) filed in this country. We do not agree with the POEA Administrator that
return to its investment." In pursuance of these objectives the Code gives
this three-year prescriptive period applies only to money claims specifically
laborers various rights against their employers. Article 623 establishes the
recoverable under the Philippine Labor Code. Article 291 gives no such
period of limitation for all such rights, except certain ones which are
indication. Likewise, We can not consider complainants' cause/s of action to
enumerated in Article 621. And there is nothing in the record to indicate that
have accrued from a violation of their employment contracts. There was no
the Panamanian legislature gave special consideration to the impact of Article
violation; the claims arise from the benefits of the law of the country where
623 upon the particular rights sought to be enforced here, as distinguished
they worked. (G.R. No. 104776, Rollo, pp.
from the other rights to which that Article is also applicable. Were we
90-91).
confronted with the question of whether the limitation period of Article 621
(which carves out particular rights to be governed by a shorter limitation
Anent the applicability of the one-year prescriptive period as provided by the
period) is to be regarded as "substantive" or "procedural" under the rule of
Amiri Decree No. 23 of 1976, NLRC opined that the applicability of said law
"specifity" we might have a different case; but here on the surface of things
was one of characterization, i.e., whether to characterize the foreign law on
we appear to be dealing with a "broad," and not a "specific," statute of
prescription or statute of limitation as "substantive" or "procedural." NLRC
limitations (G.R. No. 104776, Rollo, pp.
cited the decision in Bournias v. Atlantic Maritime Company (220 F. 2d. 152,
92-94).
2d Cir. [1955], where the issue was the applicability of the Panama Labor
Code in a case filed in the State of New York for claims arising from said
Claimants in G.R. Nos. 104911-14 are of the view that Article 291 of the
Code. In said case, the claims would have prescribed under the Panamanian
Labor Code of the Philippines, which was applied by NLRC, refers only to
Law but not under the Statute of Limitations of New York. The U.S. Circuit

claims "arising from the employer's violation of the employee's right as
provided by the Labor Code." They assert that their claims are based on the
violation of their employment contracts, as amended by the Amiri Decree No.
23 of 1976 and therefore the claims may be brought within ten years as
provided by Article 1144 of the Civil Code of the Philippines (Rollo, G.R. Nos.
104911-14, pp.
18-21). To bolster their contention, they cite PALEA v. Philippine Airlines,
Inc., 70 SCRA 244 (1976).
AIBC and BRII, insisting that the actions on the claims have prescribed under
the Amiri Decree No. 23 of 1976, argue that there is in force in the
Philippines a "borrowing law," which is Section 48 of the Code of Civil
Procedure and that where such kind of law exists, it takes precedence over
the common-law conflicts rule (G.R. No. 104776, Rollo, pp. 45-46).
First to be determined is whether it is the Bahrain law on prescription of
action based on the Amiri Decree No. 23 of 1976 or a Philippine law on
prescription that shall be the governing law.
Article 156 of the Amiri Decree No. 23 of 1976 provides:
A claim arising out of a contract of employment shall not be actionable after
the lapse of one year from the date of the expiry of the contract. (G.R. Nos.
105029-31, Rollo, p. 226).
As a general rule, a foreign procedural law will not be applied in the forum.
Procedural matters, such as service of process, joinder of actions, period and
requisites for appeal, and so forth, are governed by the laws of the forum.
This is true even if the action is based upon a foreign substantive law
(Restatement of the Conflict of Laws, Sec. 685; Salonga, Private
International Law, 131 [1979]).
A law on prescription of actions is sui generis in Conflict of Laws in the sense
that it may be viewed either as procedural or substantive, depending on the
characterization given such a law.
Thus in Bournias v. Atlantic Maritime Company, supra, the American court
applied the statute of limitations of New York, instead of the Panamanian law,
after finding that there was no showing that the Panamanian law on
prescription was intended to be substantive. Being considered merely a
procedural law even in Panama, it has to give way to the law of the forum on
prescription of actions.
CONFLICTS | Assign 9| 53
However, the characterization of a statute into a procedural or substantive
law becomes irrelevant when the country of the forum has a "borrowing
statute." Said statute has the practical effect of treating the foreign statute of
limitation as one of substance (Goodrich, Conflict of Laws 152-153 [1938]). A
"borrowing statute" directs the state of the forum to apply the foreign statute
of limitations to the pending claims based on a foreign law (Siegel, Conflicts,
183 [1975]). While there are several kinds of "borrowing statutes," one form
provides that an action barred by the laws of the place where it accrued, will
not be enforced in the forum even though the local statute has not run
against it (Goodrich and Scoles, Conflict of Laws, 152-153 [1938]). Section
48 of our Code of Civil Procedure is of this kind. Said Section provides:
If by the laws of the state or country where the cause of action arose, the
action is barred, it is also barred in the Philippines Islands.
Section 48 has not been repealed or amended by the Civil Code of the
Philippines. Article 2270 of said Code repealed only those provisions of the
Code of Civil Procedures as to which were inconsistent with it. There is no
provision in the Civil Code of the Philippines, which is inconsistent with or
contradictory to Section 48 of the Code of Civil Procedure (Paras, Philippine
Conflict of Laws 104 [7th ed.]).
In the light of the 1987 Constitution, however, Section 48 cannot be
enforced ex proprio vigore insofar as it ordains the application in this
jurisdiction of Section 156 of the Amiri Decree No. 23 of 1976.
The courts of the forum will not enforce any foreign claim obnoxious to the
forum's public policy (Canadian Northern Railway Co. v. Eggen, 252 U.S. 553,
40 S. Ct. 402, 64 L. ed. 713 [1920]). To enforce the one-year prescriptive
period of the Amiri Decree No. 23 of 1976 as regards the claims in question
would contravene the public policy on the protection to labor.
In the Declaration of Principles and State Policies, the 1987 Constitution
emphasized that:
The state shall promote social justice in all phases of national development.
(Sec. 10).
The state affirms labor as a primary social economic force. It shall protect the
rights of workers and promote their welfare (Sec. 18).
In article XIII on Social Justice and Human Rights, the 1987 Constitution
provides:

Sec. 3. The State shall afford full protection to labor, local and overseas,
organized and unorganized, and promote full employment and equality of
employment opportunities for all.
Having determined that the applicable law on prescription is the Philippine
law, the next question is whether the prescriptive period governing the filing
of the claims is three years, as provided by the Labor Code or ten years, as
provided by the Civil Code of the Philippines.
The claimants are of the view that the applicable provision is Article 1144 of
the Civil Code of the Philippines, which provides:
The following actions must be brought within ten years from the time the
right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
NLRC, on the other hand, believes that the applicable provision is Article 291
of the Labor Code of the Philippines, which in pertinent part provides:
Money claims-all money claims arising from employer-employee relations
accruing during the effectivity of this Code shall be filed within three (3)
years from the time the cause of action accrued, otherwise they shall be
forever barred.
xxx xxx xxx
The case of Philippine Air Lines Employees Association v. Philippine Air Lines,
Inc., 70 SCRA 244 (1976) invoked by the claimants in G.R. Nos. 104911-14
is inapplicable to the cases at bench (Rollo, p. 21). The said case involved the
correct computation of overtime pay as provided in the collective bargaining
agreements and not the Eight-Hour Labor Law.
As noted by the Court: "That is precisely why petitioners did not make any
reference as to the computation for overtime work under the Eight-Hour
Labor Law (Secs. 3 and 4, CA No. 494) and instead insisted that work
computation provided in the collective bargaining agreements between the
parties be observed. Since the claim for pay differentials is primarily
anchored on the written contracts between the litigants, the ten-year
CONFLICTS | Assign 9| 54
prescriptive period provided by Art. 1144(1) of the New Civil Code should
govern."
Section 7-a of the Eight-Hour Labor Law (CA No. 444 as amended by R.A.
No. 19933) provides:
Any action to enforce any cause of action under this Act shall be commenced
within three years after the cause of action accrued otherwise such action
shall be forever barred, . . . .
The court further explained:
The three-year prescriptive period fixed in the Eight-Hour Labor Law (CA No.
444 as amended) will apply, if the claim for differentials for overtime work is
solely based on said law, and not on a collective bargaining agreement or any
other contract. In the instant case, the claim for overtime compensation is
not so much because of Commonwealth Act No. 444, as amended but
because the claim is demandable right of the employees, by reason of the
above-mentioned collective bargaining agreement.
Section 7-a of the Eight-Hour Labor Law provides the prescriptive period for
filing "actions to enforce any cause of action under said law." On the other
hand, Article 291 of the Labor Code of the Philippines provides the
prescriptive period for filing "money claims arising from employer-employee
relations." The claims in the cases at bench all arose from the employer-
employee relations, which is broader in scope than claims arising from a
specific law or from the collective bargaining agreement.
The contention of the POEA Administrator, that the three-year prescriptive
period under Article 291 of the Labor Code of the Philippines applies only to
money claims specifically recoverable under said Code, does not find support
in the plain language of the provision. Neither is the contention of the
claimants in G.R. Nos. 104911-14 that said Article refers only to claims
"arising from the employer's violation of the employee's right," as provided
by the Labor Code supported by the facial reading of the provision.
VII
G.R. No. 104776
A. As to the first two grounds for the petition in G.R. No. 104776, claimants
aver: (1) that while their complaints were filed on June 6, 1984 with POEA,
the case was decided only on January 30, 1989, a clear denial of their right

to a speedy disposition of the case; and (2) that NLRC and the POEA
Administrator should have declared AIBC and BRII in default (Rollo, pp.
31-35).
Claimants invoke a new provision incorporated in the 1987 Constitution,
which provides:
Sec. 16. All persons shall have the right to a speedy disposition of their cases
before all judicial, quasi-judicial, or administrative bodies.
It is true that the constitutional right to "a speedy disposition of cases" is not
limited to the accused in criminal proceedings but extends to all parties in all
cases, including civil and administrative cases, and in all proceedings,
including judicial and quasi-judicial hearings. Hence, under the Constitution,
any party to a case may demand expeditious action on all officials who are
tasked with the administration of justice.
However, as held in Caballero v. Alfonso, Jr., 153 SCRA 153 (1987), "speedy
disposition of cases" is a relative term. Just like the constitutional guarantee
of "speedy trial" accorded to the accused in all criminal proceedings, "speedy
disposition of cases" is a flexible concept. It is consistent with delays and
depends upon the circumstances of each case. What the Constitution
prohibits are unreasonable, arbitrary and oppressive delays which render
rights nugatory.
Caballero laid down the factors that may be taken into consideration in
determining whether or not the right to a "speedy disposition of cases" has
been violated, thus:
In the determination of whether or not the right to a "speedy trial" has been
violated, certain factors may be considered and balanced against each other.
These are length of delay, reason for the delay, assertion of the right or
failure to assert it, and prejudice caused by the delay. The same factors may
also be considered in answering judicial inquiry whether or not a person
officially charged with the administration of justice has violated the speedy
disposition of cases.
Likewise, in Gonzales v. Sandiganbayan, 199 SCRA 298, (1991), we held:
It must be here emphasized that the right to a speedy disposition of a case,
like the right to speedy trial, is deemed violated only when the proceeding is
attended by vexatious, capricious, and oppressive delays; or when unjustified
postponements of the trial are asked for and secured, or when without cause
CONFLICTS | Assign 9| 55
or justified motive a long period of time is allowed to elapse without the party
having his case tried.
Since July 25, 1984 or a month after AIBC and BRII were served with a copy
of the amended complaint, claimants had been asking that AIBC and BRII be
declared in default for failure to file their answers within the ten-day period
provided in Section 1, Rule III of Book VI of the Rules and Regulations of the
POEA. At that time, there was a pending motion of AIBC and BRII to strike
out of the records the amended complaint and the "Compliance" of claimants
to the order of the POEA, requiring them to submit a bill of particulars.
The cases at bench are not of the run-of-the-mill variety, such that their final
disposition in the administrative level after seven years from their inception,
cannot be said to be attended by unreasonable, arbitrary and oppressive
delays as to violate the constitutional rights to a speedy disposition of the
cases of complainants.
The amended complaint filed on June 6, 1984 involved a total of 1,767
claimants. Said complaint had undergone several amendments, the first
being on April 3, 1985.
The claimants were hired on various dates from 1975 to 1983. They were
deployed in different areas, one group in and the other groups outside of,
Bahrain. The monetary claims totalling more than US$65 million according to
Atty. Del Mundo, included:
1. Unexpired portion of contract;
2. Interest earnings of Travel and Fund;
3. Retirement and Savings Plan benefit;
4. War Zone bonus or premium pay of at least 100% of basic pay;
5. Area Differential pay;
6. Accrued Interest of all the unpaid benefits;
7. Salary differential pay;
8. Wage Differential pay;
9. Refund of SSS premiums not remitted to Social Security System;

10. Refund of Withholding Tax not remitted to Bureau of Internal Revenue
(B.I.R.);
11. Fringe Benefits under Brown & Root's "A Summary of Employees Benefits
consisting of 43 pages (Annex "Q" of Amended Complaint);
12. Moral and Exemplary Damages;
13. Attorney's fees of at least ten percent of amounts;
14. Other reliefs, like suspending and/or cancelling the license to recruit of
AIBC and issued by the POEA; and
15. Penalty for violation of Article 34 (Prohibited practices) not excluding
reportorial requirements thereof (NLRC Resolution, September 2, 1991, pp.
18-19; G.R. No. 104776, Rollo, pp. 73-74).
Inasmuch as the complaint did not allege with sufficient definiteness and
clarity of some facts, the claimants were ordered to comply with the motion
of AIBC for a bill of particulars. When claimants filed their "Compliance and
Manifestation," AIBC moved to strike out the complaint from the records for
failure of claimants to submit a proper bill of particulars. While the POEA
Administrator denied the motion to strike out the complaint, he ordered the
claimants "to correct the deficiencies" pointed out by AIBC.
Before an intelligent answer could be filed in response to the complaint, the
records of employment of the more than 1,700 claimants had to be retrieved
from various countries in the Middle East. Some of the records dated as far
back as 1975.
The hearings on the merits of the claims before the POEA Administrator were
interrupted several times by the various appeals, first to NLRC and then to
the Supreme Court.
Aside from the inclusion of additional claimants, two new cases were filed
against AIBC and BRII on October 10, 1985 (POEA Cases Nos.
L-85-10-777 and L-85-10-779). Another complaint was filed on May 29, 1986
(POEA Case No. L-86-05-460). NLRC, in exasperation, noted that the exact
number of claimants had never been completely established (Resolution,
Sept. 2, 1991, G.R. No. 104776, Rollo, p. 57). All the three new cases were
consolidated with POEA Case No. L-84-06-555.
CONFLICTS | Assign 9| 56
NLRC blamed the parties and their lawyers for the delay in terminating the
proceedings, thus:
These cases could have been spared the long and arduous route towards
resolution had the parties and their counsel been more interested in pursuing
the truth and the merits of the claims rather than exhibiting a fanatical
reliance on technicalities. Parties and counsel have made these cases a
litigation of emotion. The intransigence of parties and counsel is remarkable.
As late as last month, this Commission made a last and final attempt to bring
the counsel of all the parties (this Commission issued a special order
directing respondent Brown & Root's resident agent/s to appear) to come to a
more conciliatory stance. Even this failed (Rollo,
p. 58).
The squabble between the lawyers of claimants added to the delay in the
disposition of the cases, to the lament of NLRC, which complained:
It is very evident from the records that the protagonists in these consolidated
cases appear to be not only the individual complainants, on the one hand,
and AIBC and Brown & Root, on the other hand. The two lawyers for the
complainants, Atty. Gerardo Del Mundo and Atty. Florante De Castro, have
yet to settle the right of representation, each one persistently claiming to
appear in behalf of most of the complainants. As a result, there are two
appeals by the complainants. Attempts by this Commission to resolve
counsels' conflicting claims of their respective authority to represent the
complainants prove futile. The bickerings by these two counsels are reflected
in their pleadings. In the charges and countercharges of falsification of
documents and signatures, and in the disbarment proceedings by one against
the other. All these have, to a large extent, abetted in confounding the issues
raised in these cases, jumble the presentation of evidence, and even derailed
the prospects of an amicable settlement. It would not be far-fetched to
imagine that both counsel, unwittingly, perhaps, painted a rainbow for the
complainants, with the proverbial pot of gold at its end containing more than
US$100 million, the aggregate of the claims in these cases. It is, likewise,
not improbable that their misplaced zeal and exuberance caused them to
throw all caution to the wind in the matter of elementary rules of procedure
and evidence (Rollo, pp. 58-59).
Adding to the confusion in the proceedings before NLRC, is the listing of
some of the complainants in both petitions filed by the two lawyers. As noted
by NLRC, "the problem created by this situation is that if one of the two

petitions is dismissed, then the parties and the public respondents would not
know which claim of which petitioner was dismissed and which was not."
B. Claimants insist that all their claims could properly be consolidated in a
"class suit" because "all the named complainants have similar money claims
and similar rights sought irrespective of whether they worked in Bahrain,
United Arab Emirates or in Abu Dhabi, Libya or in any part of the Middle East"
(Rollo, pp. 35-38).
A class suit is proper where the subject matter of the controversy is one of
common or general interest to many and the parties are so numerous that it
is impracticable to bring them all before the court (Revised Rules of Court,
Rule 3, Sec. 12).
While all the claims are for benefits granted under the Bahrain Law, many of
the claimants worked outside Bahrain. Some of the claimants were deployed
in Indonesia and Malaysia under different terms and conditions of
employment.
NLRC and the POEA Administrator are correct in their stance that inasmuch
as the first requirement of a class suit is not present (common or general
interest based on the Amiri Decree of the State of Bahrain), it is only logical
that only those who worked in Bahrain shall be entitled to file their claims in
a class suit.
While there are common defendants (AIBC and BRII) and the nature of the
claims is the same (for employee's benefits), there is no common question of
law or fact. While some claims are based on the Amiri Law of Bahrain, many
of the claimants never worked in that country, but were deployed elsewhere.
Thus, each claimant is interested only in his own demand and not in the
claims of the other employees of defendants. The named claimants have a
special or particular interest in specific benefits completely different from the
benefits in which the other named claimants and those included as members
of a "class" are claiming (Berses v. Villanueva, 25 Phil. 473 [1913]). It
appears that each claimant is only interested in collecting his own claims. A
claimants has no concern in protecting the interests of the other claimants as
shown by the fact, that hundreds of them have abandoned their co-claimants
and have entered into separate compromise settlements of their respective
claims. A principle basic to the concept of "class suit" is that plaintiffs brought
on the record must fairly represent and protect the interests of the others
(Dimayuga v. Court of Industrial Relations, 101 Phil. 590 [1957]). For this
matter, the claimants who worked in Bahrain can not be allowed to sue in a
CONFLICTS | Assign 9| 57
class suit in a judicial proceeding. The most that can be accorded to them
under the Rules of Court is to be allowed to join as plaintiffs in one complaint
(Revised Rules of Court, Rule 3, Sec. 6).
The Court is extra-cautious in allowing class suits because they are the
exceptions to the condition sine qua non, requiring the joinder of all
indispensable parties.
In an improperly instituted class suit, there would be no problem if the
decision secured is favorable to the plaintiffs. The problem arises when the
decision is adverse to them, in which case the others who were impleaded by
their self-appointed representatives, would surely claim denial of due
process.
C. The claimants in G.R. No. 104776 also urged that the POEA Administrator
and NLRC should have declared Atty. Florante De Castro guilty of "forum
shopping, ambulance chasing activities, falsification, duplicity and other
unprofessional activities" and his appearances as counsel for some of the
claimants as illegal (Rollo, pp. 38-40).
The Anti-Forum Shopping Rule (Revised Circular No. 28-91) is intended to
put a stop to the practice of some parties of filing multiple petitions and
complaints involving the same issues, with the result that the courts or
agencies have to resolve the same issues. Said Rule, however, applies only to
petitions filed with the Supreme Court and the Court of Appeals. It is entitled
"Additional Requirements For Petitions Filed with the Supreme Court and the
Court of Appeals To Prevent Forum Shopping or Multiple Filing of Petitioners
and Complainants." The first sentence of the circular expressly states that
said circular applies to an governs the filing of petitions in the Supreme Court
and the Court of Appeals.
While Administrative Circular No. 04-94 extended the application of the anti-
forum shopping rule to the lower courts and administrative agencies, said
circular took effect only on April 1, 1994.
POEA and NLRC could not have entertained the complaint for unethical
conduct against Atty. De Castro because NLRC and POEA have no jurisdiction
to investigate charges of unethical conduct of lawyers.
Attorney's Lien
The "Notice and Claim to Enforce Attorney's Lien" dated December 14, 1992
was filed by Atty. Gerardo A. Del Mundo to protect his claim for attorney's

fees for legal services rendered in favor of the claimants (G.R. No.
104776, Rollo, pp. 841-844).
A statement of a claim for a charging lien shall be filed with the court or
administrative agency which renders and executes the money judgment
secured by the lawyer for his clients. The lawyer shall cause written notice
thereof to be delivered to his clients and to the adverse party (Revised Rules
of Court, Rule 138, Sec. 37). The statement of the claim for the charging lien
of Atty. Del Mundo should have been filed with the administrative agency that
rendered and executed the judgment.
Contempt of Court
The complaint of Atty. Gerardo A. Del Mundo to cite Atty. Florante De Castro
and Atty. Katz Tierra for violation of the Code of Professional Responsibility
should be filed in a separate and appropriate proceeding.
G.R. No. 104911-14
Claimants charge NLRC with grave abuse of discretion in not accepting their
formula of "Three Hours Average Daily Overtime" in computing the overtime
payments. They claim that it was BRII itself which proposed the formula
during the negotiations for the settlement of their claims in Bahrain and
therefore it is in estoppel to disclaim said offer (Rollo, pp. 21-22).
Claimants presented a Memorandum of the Ministry of Labor of Bahrain dated
April 16, 1983, which in pertinent part states:
After the perusal of the memorandum of the Vice President and the Area
Manager, Middle East, of Brown & Root Co. and the Summary of the
compensation offered by the Company to the employees in respect of the
difference of pay of the wages of the overtime and the difference of vacation
leave and the perusal of the documents attached thereto i.e., minutes of the
meetings between the Representative of the employees and the management
of the Company, the complaint filed by the employees on 14/2/83 where they
have claimed as hereinabove stated, sample of the Service Contract executed
between one of the employees and the company through its agent
in (sic) Philippines, Asia International Builders Corporation where it has been
provided for 48 hours of work per week and an annual leave of 12 days
and an overtime wage of 1 & 1/4 of the normal hourly wage.
xxx xxx xxx
CONFLICTS | Assign 9| 58
The Company in its computation reached the following averages:
A. 1. The average duration of the actual service of the employee is 35
months for the Philippino (sic) employees . . . .
2. The average wage per hour for the Philippino (sic) employee is US$2.69 . .
..
3. The average hours for the overtime is 3 hours plus in all public holidays
and weekends.
4. Payment of US$8.72 per months (sic) of service as compensation for the
difference of the wages of the overtime done for each Philippino (sic)
employee . . . (Rollo, p.22).
BRII and AIBC countered: (1) that the Memorandum was not prepared by
them but by a subordinate official in the Bahrain Department of Labor; (2)
that there was no showing that the Bahrain Minister of Labor had approved
said memorandum; and (3) that the offer was made in the course of the
negotiation for an amicable settlement of the claims and therefore it was not
admissible in evidence to prove that anything is due to the claimants.
While said document was presented to the POEA without observing the rule
on presenting official documents of a foreign government as provided in
Section 24, Rule 132 of the 1989 Revised Rules on Evidence, it can be
admitted in evidence in proceedings before an administrative body. The
opposing parties have a copy of the said memorandum, and they could easily
verify its authenticity and accuracy.
The admissibility of the offer of compromise made by BRII as contained in
the memorandum is another matter. Under Section 27, Rule 130 of the 1989
Revised Rules on Evidence, an offer to settle a claim is not an admission that
anything is due.
Said Rule provides:
Offer of compromise not admissible. In civil cases, an offer of compromise
is not an admission of any liability, and is not admissible in evidence against
the offeror.
This Rule is not only a rule of procedure to avoid the cluttering of the record
with unwanted evidence but a statement of public policy. There is great
public interest in having the protagonists settle their differences amicable

before these ripen into litigation. Every effort must be taken to encourage
them to arrive at a settlement. The submission of offers and counter-offers in
the negotiation table is a step in the right direction. But to bind a party to his
offers, as what claimants would make this Court do, would defeat the
salutary purpose of the Rule.
G.R. Nos. 105029-32
A. NLRC applied the Amiri Decree No. 23 of 1976, which provides for greater
benefits than those stipulated in the overseas-employment contracts of the
claimants. It was of the belief that "where the laws of the host country are
more favorable and beneficial to the workers, then the laws of the host
country shall form part of the overseas employment contract." It quoted with
approval the observation of the POEA Administrator that ". . . in labor
proceedings, all doubts in the implementation of the provisions of the Labor
Code and its implementing regulations shall be resolved in favor of labor"
(Rollo, pp. 90-94).
AIBC and BRII claim that NLRC acted capriciously and whimsically when it
refused to enforce the overseas-employment contracts, which became the
law of the parties. They contend that the principle that a law is deemed to be
a part of a contract applies only to provisions of Philippine law in relation to
contracts executed in the Philippines.
The overseas-employment contracts, which were prepared by AIBC and BRII
themselves, provided that the laws of the host country became applicable to
said contracts if they offer terms and conditions more favorable that those
stipulated therein. It was stipulated in said contracts that:
The Employee agrees that while in the employ of the Employer, he will not
engage in any other business or occupation, nor seek employment with
anyone other than the Employer; that he shall devote his entire time and
attention and his best energies, and abilities to the performance of such
duties as may be assigned to him by the Employer; that he shall at all times
be subject to the direction and control of the Employer; and that the benefits
provided to Employee hereunder are substituted for and in lieu of all other
benefits provided by any applicable law, provided of course, that total
remuneration and benefits do not fall below that of the host country
regulation or custom, it being understood that should applicable laws
establish that fringe benefits, or other such benefits additional to the
compensation herein agreed cannot be waived, Employee agrees that such
compensation will be adjusted downward so that the total compensation
CONFLICTS | Assign 9| 59
hereunder, plus the non-waivable benefits shall be equivalent to the
compensation herein agreed (Rollo, pp. 352-353).
The overseas-employment contracts could have been drafted more
felicitously. While a part thereof provides that the compensation to the
employee may be "adjusted downward so that the total computation
(thereunder) plus the non-waivable benefits shall be equivalent to the
compensation" therein agreed, another part of the same provision
categorically states "that total remuneration and benefits do not fall below
that of the host country regulation and custom."
Any ambiguity in the overseas-employment contracts should be interpreted
against AIBC and BRII, the parties that drafted it (Eastern Shipping Lines,
Inc. v. Margarine-Verkaufs-Union, 93 SCRA 257 [1979]).
Article 1377 of the Civil Code of the Philippines provides:
The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity.
Said rule of interpretation is applicable to contracts of adhesion where there
is already a prepared form containing the stipulations of the employment
contract and the employees merely "take it or leave it." The presumption is
that there was an imposition by one party against the other and that the
employees signed the contracts out of necessity that reduced their bargaining
power (Fieldmen's Insurance Co., Inc. v. Songco, 25 SCRA 70 [1968]).
Applying the said legal precepts, we read the overseas-employment contracts
in question as adopting the provisions of the Amiri Decree No. 23 of 1976 as
part and parcel thereof.
The parties to a contract may select the law by which it is to be governed
(Cheshire, Private International Law, 187 [7th ed.]). In such a case, the
foreign law is adopted as a "system" to regulate the relations of the parties,
including questions of their capacity to enter into the contract, the formalities
to be observed by them, matters of performance, and so forth (16 Am Jur
2d,
150-161).
Instead of adopting the entire mass of the foreign law, the parties may just
agree that specific provisions of a foreign statute shall be deemed
incorporated into their contract "as a set of terms." By such reference to the
provisions of the foreign law, the contract does not become a foreign contract

to be governed by the foreign law. The said law does not operate as a statute
but as a set of contractual terms deemed written in the contract (Anton,
Private International Law, 197 [1967]; Dicey and Morris, The Conflict of
Laws, 702-703, [8th ed.]).
A basic policy of contract is to protect the expectation of the parties (Reese,
Choice of Law in Torts and Contracts, 16 Columbia Journal of Transnational
Law 1, 21 [1977]). Such party expectation is protected by giving effect to the
parties' own choice of the applicable law (Fricke v. Isbrandtsen Co., Inc., 151
F. Supp. 465, 467 [1957]). The choice of law must, however, bear some
relationship to the parties or their transaction (Scoles and Hayes, Conflict of
Law 644-647 [1982]). There is no question that the contracts sought to be
enforced by claimants have a direct connection with the Bahrain law because
the services were rendered in that country.
In Norse Management Co. (PTE) v. National Seamen Board, 117 SCRA 486
(1982), the "Employment Agreement," between Norse Management Co. and
the late husband of the private respondent, expressly provided that in the
event of illness or injury to the employee arising out of and in the course of
his employment and not due to his own misconduct, "compensation shall be
paid to employee in accordance with and subject to the limitation of the
Workmen's Compensation Act of the Republic of the Philippines or the
Worker's Insurance Act of registry of the vessel, whichever is greater." Since
the laws of Singapore, the place of registry of the vessel in which the late
husband of private respondent served at the time of his death, granted a
better compensation package, we applied said foreign law in preference to
the terms of the contract.
The case of Bagong Filipinas Overseas Corporation v. National Labor
Relations Commission, 135 SCRA 278 (1985), relied upon by AIBC and BRII
is inapposite to the facts of the cases at bench. The issue in that case was
whether the amount of the death compensation of a Filipino seaman should
be determined under the shipboard employment contract executed in the
Philippines or the Hongkong law. Holding that the shipboard employment
contract was controlling, the court differentiated said case from Norse
Management Co. in that in the latter case there was an express stipulation in
the employment contract that the foreign law would be applicable if it
afforded greater compensation.
B. AIBC and BRII claim that they were denied by NLRC of their right to due
process when said administrative agency granted Friday-pay differential,
holiday-pay differential, annual-leave differential and leave indemnity pay to
CONFLICTS | Assign 9| 60
the claimants listed in Annex B of the Resolution. At first, NLRC reversed the
resolution of the POEA Administrator granting these benefits on a finding that
the POEA Administrator failed to consider the evidence presented by AIBC
and BRII, that some findings of fact of the POEA Administrator were not
supported by the evidence, and that some of the evidence were not disclosed
to AIBC and BRII (Rollo, pp. 35-36; 106-107). But instead of remanding the
case to the POEA Administrator for a new hearing, which means further delay
in the termination of the case, NLRC decided to pass upon the validity of the
claims itself. It is this procedure that AIBC and BRII complain of as being
irregular and a "reversible error."
They pointed out that NLRC took into consideration evidence submitted on
appeal, the same evidence which NLRC found to have been "unilaterally
submitted by the claimants and not disclosed to the adverse parties" (Rollo,
pp. 37-39).
NLRC noted that so many pieces of evidentiary matters were submitted to
the POEA administrator by the claimants after the cases were deemed
submitted for resolution and which were taken cognizance of by the POEA
Administrator in resolving the cases. While AIBC and BRII had no opportunity
to refute said evidence of the claimants before the POEA Administrator, they
had all the opportunity to rebut said evidence and to present their
counter-evidence before NLRC. As a matter of fact, AIBC and BRII
themselves were able to present before NLRC additional evidence which they
failed to present before the POEA Administrator.
Under Article 221 of the Labor Code of the Philippines, NLRC is enjoined to
"use every and all reasonable means to ascertain the facts in each case
speedily and objectively and without regard to technicalities of law or
procedure, all in the interest of due process."
In deciding to resolve the validity of certain claims on the basis of the
evidence of both parties submitted before the POEA Administrator and NLRC,
the latter considered that it was not expedient to remand the cases to the
POEA Administrator for that would only prolong the already protracted legal
controversies.
Even the Supreme Court has decided appealed cases on the merits instead of
remanding them to the trial court for the reception of evidence, where the
same can be readily determined from the uncontroverted facts on record
(Development Bank of the Philippines v. Intermediate Appellate Court, 190
 CONFLICTS | Assign 9| 61

SCRA 653 [1990]; Pagdonsalan v. National Labor Relations Commission, 127

SCRA 463 [1984]).

C. AIBC and BRII charge NLRC with grave abuse of discretion when it ordered
the POEA Administrator to hold new hearings for 683 claimants listed in
Annex D of the Resolution dated September 2, 1991 whose claims had been
denied by the POEA Administrator "for lack of proof" and for 69 claimants
listed in Annex E of the same Resolution, whose claims had been found by
NLRC itself as not "supported by evidence" (Rollo, pp. 41-45).

NLRC based its ruling on Article 218(c) of the Labor Code of the Philippines,
which empowers it "[to] conduct investigation for the determination of a
question, matter or controversy, within its jurisdiction, . . . ."

It is the posture of AIBC and BRII that NLRC has no authority under Article
218(c) to remand a case involving claims which had already been dismissed
because such provision contemplates only situations where there is still a
question or controversy to be resolved (Rollo, pp. 41-42).

A principle well embedded in Administrative Law is that the technical rules of

procedure and evidence do not apply to the proceedings conducted by
administrative agencies (First Asian Transport & Shipping Agency, Inc. v.
Ople, 142 SCRA 542 [1986]; Asiaworld Publishing House, Inc. v. Ople, 152
SCRA 219 [1987]). This principle is enshrined in Article 221 of the Labor
Code of the Philippines and is now the bedrock of proceedings before NLRC.

Notwithstanding the non-applicability of technical rules of procedure and

evidence in administrative proceedings, there are cardinal rules which must
be observed by the hearing officers in order to comply with the due process
requirements of the Constitution. These cardinal rules are collated in Ang
Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940).

VIII

The three petitions were filed under Rule 65 of the Revised Rules of Court on
the grounds that NLRC had committed grave abuse of discretion amounting
to lack of jurisdiction in issuing the questioned orders. We find no such abuse
of discretion.

WHEREFORE, all the three petitions are DISMISSED.

SO ORDERED.

AIRLINE CASES
1. G.R. No. 152122 July 30, 2003
CHINA AIRLINES, petitioner,
vs.
DANIEL CHIOK, respondent.
PANGANIBAN, J.:
A common carrier has a peculiar relationship with and an exacting
responsibility to its passengers. For reasons of public interest and policy, the
ticket-issuing airline acts as principal in a contract of carriage and is thus
liable for the acts and the omissions of any errant carrier to which it may
have endorsed any sector of the entire, continuous trip.
The Case
Before the Court is a Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Court, seeking to reverse the August 7, 2001 Decision 2 and the
February 7, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No.
45832. The challenged Decision disposed as follows:
"WHEREFORE, premises considered, the assailed Decision dated July 5, 1991
of Branch 31, Regional Trial Court, National Capital Judicial Region, Manila, in
Civil Case No. 82-13690, is hereby MODIFIED by deleting that portion
regarding defendants-appellants liabilities for the payment of the actual
damages amounting to HK$14,128.80 and US$2,000.00 while all other
respects are AFFIRMED. Costs against defendants-appellants." 4
The assailed Resolution denied Petitioners Motion for Partial Reconsideration.
The Facts
The facts are narrated by the CA5 as follows:
"On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok)
purchased from China Airlines, Ltd. (CAL for brevity) airline passenger ticket
number 297:4402:004:278:5 for air transportation covering Manila-Taipei-
Hongkong-Manila. Said ticket was exclusively endorseable to Philippine
Airlines, Ltd. (PAL for brevity).
"Subsequently, on November 21, 1981, Chiok took his trip from Manila to
Taipei using [the] CAL ticket. Before he left for said trip, the trips covered by
CONFLICTS | Assign 9| 62
the ticket were pre-scheduled and confirmed by the former. When he arrived
in Taipei, he went to the CAL office and confirmed his Hongkong to Manila trip
on board PAL Flight No. PR 311. The CAL office attached a yellow sticker
appropriately indicating that his flight status was OK.
"When Chiok reached Hongkong, he went to the PAL office and sought to
reconfirm his flight back to Manila. The PAL office confirmed his return trip on
board Flight No. PR 311 and attached its own sticker. On November 24, 1981,
Chiok proceeded to Hongkong International Airport for his return trip to
Manila. However, upon reaching the PAL counter, Chiok saw a poster stating
that PAL Flight No. PR 311 was cancelled because of a typhoon in Manila. He
was then informed that all the confirmed ticket holders of PAL Flight No. PR
311 were automatically booked for its next flight, which was to leave the next
day. He then informed PAL personnel that, being the founding director of the
Philippine Polysterene Paper Corporation, he ha[d] to reach Manila on
November 25, 1981 because of a business option which he ha[d] to execute
on said date.
"On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess
Lok Chan (hereafter referred to as Lok) ha[d] taken and received Chioks
plane ticket and his luggage. Lok called the attention of Carmen Chan
(hereafter referred to as Carmen), PALs terminal supervisor, and informed
the latter that Chioks name was not in the computer list of passengers.
Subsequently, Carmen informed Chiok that his name did not appear in PALs
computer list of passengers and therefore could not be permitted to board
PAL Flight No. PR 307.
"Meanwhile, Chiok requested Carmen to put into writing the alleged reason
why he was not allowed to take his flight. The latter then wrote the following,
to wit: PAL STAFF CARMEN CHAN CHKD WITH R/C KENNY AT 1005H NO
SUCH NAME IN COMPUTER FOR 311/24 NOV AND 307/25 NOV. The latter
sought to recover his luggage but found only 2 which were placed at the end
of the passengers line. Realizing that his new Samsonite luggage was
missing, which contained cosmetics worth HK$14,128.80, he complained to
Carmen.
"Thereafter, Chiok proceeded to PALs Hongkong office and confronted PALs
reservation officer, Carie Chao (hereafter referred to as Chao), who
previously confirmed his flight back to Manila. Chao told Chiok that his name
was on the list and pointed to the latter his computer number listed on the
PAL confirmation sticker attached to his plane ticket, which number was
R/MN62.

"Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5
and asked Chao if this ticket could be used to book him for the said flight.
The latter, once again, booked and confirmed the formers trip, this time on
board PAL Flight No. PR 311 scheduled to depart that evening. Later, Chiok
went to the PAL check-in counter and it was Carmen who attended to him. As
this juncture, Chiok had already placed his travel documents, including his
clutch bag, on top of the PAL check-in counter.
"Thereafter, Carmen directed PAL personnel to transfer counters. In the
ensuing commotion, Chiok lost his clutch bag containing the following, to wit:
(a) $2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e) a
three-piece set of gold (18 carats) cross pens valued at P3,500; (f) a Cartier
watch worth about P7,500.00; (g) a tie clip with a garnet birthstone and
diamond worth P1,800.00; and (h) a [pair of] Christian Dior reading glasses.
Subsequently, he was placed on stand-by and at around 7:30 p.m., PAL
personnel informed him that he could now check-in.
"Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 for
damages, against PAL and CAL, as defendants, docketed as Civil Case No.
82-13690, with Branch 31, Regional Trial Court, National Capital Judicial
Region, Manila.
"He alleged therein that despite several confirmations of his flight, defendant
PAL refused to accommodate him in Flight No. 307, for which reason he lost
the business option aforementioned. He also alleged that PALs personnel,
specifically Carmen, ridiculed and humiliated him in the presence of so many
people. Further, he alleged that defendants are solidarily liable for the
damages he suffered, since one is the agent of the other." 6
The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and
severally liable to respondent. It did not, however, rule on their respective
cross-claims. It disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
the defendants to jointly and severally pay:
1. Actual damages in the amount of HK$14,128.80 or its equivalent in
Philippine Currency at the time of the loss of the luggage consisting of
cosmetic products;
2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag
containing the money;
CONFLICTS | Assign 9| 63
3. P200,000.00 by way of moral damages;
4. P50,000.00 by way of exemplary damages or corrective damages;
5. Attorney[]s fees equivalent to 10% of the amounts due and demandable
and awarded in favor of the plaintiff; and
6. The costs of this proceedings."7
The two carriers appealed the RTC Decision to the CA.
Ruling of the Court of Appeals
Affirming the RTC, the Court of Appeals debunked petitioners claim that it
had merely acted as an issuing agent for the ticket covering the Hong Kong-
Manila leg of respondents journey. In support of its Decision, the CA quoted
a purported ruling of this Court in KLM Royal Dutch Airlines v. Court of
Appeals8 as follows:
"Article 30 of the Warsaw providing that in case of transportation to be
performed by various successive carriers, the passenger can take action only
against the carrier who performed the transportation during which the
accident or the delay occurred presupposes the occurrence of either an
accident or delay in the course of the air trip, and does not apply if the
damage is caused by the willful misconduct on the part of the carriers
employee or agent acting within the scope of his employment.
"It would be unfair and inequitable to charge a passenger with automatic
knowledge or notice of a condition which purportedly would excuse the
carrier from liability, where the notice is written at the back of the ticket in
letters so small that one has to use a magnifying glass to read the words. To
preclude any doubt that the contract was fairly and freely agreed upon when
the passenger accepted the passage ticket, the carrier who issued the ticket
must inform the passenger of the conditions prescribed in the ticket or, in the
very least, ascertain that the passenger read them before he accepted the
passage ticket. Absent any showing that the carriers officials or employees
discharged this responsibility to the passenger, the latter cannot be bound by
the conditions by which the carrier assumed the role of a mere ticket-issuing
agent for other airlines and limited its liability only to untoward occurrences
in its own lines.
"Where the passage tickets provide that the carriage to be performed
thereunder by several successive carriers is to be regarded as a single
 CONFLICTS | Assign 9| 64

operation, the carrier which issued the tickets for the entire trip in effect Only the appeal of CAL11 remains in this Court.
guaranteed to the passenger that the latter shall have sure space in the
various carriers which would ferry him through the various segments of the Issues
trip, and the ticket-issuing carrier assumes full responsibility for the entire
In its Memorandum, petitioner raises the following issues for the Courts
trip and shall be held accountable for the breach of that guaranty whether
consideration:
the breach occurred in its own lines or in those of the other carriers." 9
"1. The Court of Appeals committed judicial misconduct in finding liability
On PALs appeal, the appellate court held that the carrier had reneged on its
against the petitioner on the basis of a misquotation from KLM Royal Dutch
obligation to transport respondent when, in spite of the confirmations he had
Airlines vs. Court of Appeals, et al., 65 SCRA 237 and in magnifying its
secured for Flight PR 311, his name did not appear in the computerized list of
misconduct by denying the petitioners Motion for Reconsideration on a mere
passengers. Ruling that the airlines negligence was the proximate cause of
syllabus, unofficial at that.
his excoriating experience, the appellate court sustained the award of moral
and exemplary damages.
"2. The Court of Appeals committed an error of law when it did not apply
applicable precedents on the case before it.
The CA, however, deleted the RTCs award of actual damages amounting to
HK$14,128.80 and US$2,000.00, because the lost piece of luggage and
"3. The Court of Appeals committed a non sequitur when it did not rule on
clutch bag had not actually been "checked in" or delivered to PAL for
the cross-claim of the petitioner."12
transportation to Manila.
The Courts Ruling
On August 28, 2001, petitioner filed a Motion for Partial Reconsideration,
contending that the appellate court had erroneously relied on a mere syllabus The Petition is not meritorious.
of KLM v. CA, not on the actual ruling therein. Moreover, it argued that
respondent was fully aware that the booking for the PAL sector had been First Issue:
made only upon his request; and that only PAL, not CAL, was liable for the
actual carriage of that segment. Petitioner likewise prayed for a ruling on its Alleged Judicial Misconduct
cross-claim against PAL, inasmuch as the latters employees had acted
Petitioner charges the CA with judicial misconduct for quoting from and
negligently, as found by the trial court.
basing its ruling against the two airlines on an unofficial syllabus of this
Denying the Motion, the appellate court ruled that petitioner had failed to Courts ruling in KLM v. CA. Moreover, such misconduct was allegedly
raise any new matter or issue that would warrant a modification or a reversal aggravated when the CA, in an attempt to justify its action, held that the
of the Decision. As to the alleged misquotation, the CA held that while the difference between the actual ruling and the syllabus was "more apparent
portion it had cited appeared to be different from the wording of the actual than real."13
ruling, the variance was "more apparent than real since the difference [was]
We agree with petitioner that the CA committed a lapse when it relied merely
only in form and not in substance." 10
on the unofficial syllabus of our ruling in KLM v. CA. Indeed, lawyers and
CAL and PAL filed separate Petitions to assail the CA Decision. In its October litigants are mandated to quote decisions of this Court accurately.14 By the
3, 2001 Resolution, this Court denied PALs appeal, docketed as GR No. same token, judges should do no less by strictly abiding by this rule when
149544, for failure to serve the CA a copy of the Petition as required by they quote cases that support their judgments and decisions. Canon 3 of the
Section 3, Rule 45, in relation to Section 5(d) of Rule 56 and paragraph 2 of Code of Judicial Conduct enjoins them to perform official duties diligently by
Revised Circular No. 1-88 of this Court. PALs Motion for Reconsideration was being faithful to the law and maintaining their professional competence.
denied with finality on January 21, 2002.
However, since this case is not administrative in nature, we cannot rule on
the CA justices administrative liability, if any, for this lapse. First, due

process requires that in administrative proceedings, the respondents must
first be given an opportunity to be heard before sanctions can be
imposed. Second, the present action is an appeal from the CAs Decision, not
an administrative case against the magistrates concerned. These two suits
are independent of and separate from each other and cannot be mixed in the
same proceedings.
By merely including the lapse as an assigned error here without any
adequate and proper administrative case therefor, petitioner cannot expect
the imposition of an administrative sanction.
In the case at bar, we can only determine whether the error in quotation
would be sufficient to reverse or modify the CA Decision.
Applicability of KLM v. CA
In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for
their world tour. The tour included a Barcelona-Lourdes route, which was
serviced by the Irish airline Aer Lingus. At the KLM office in Frankfurt,
Germany, they obtained a confirmation from Aer Lingus of their seat
reservations on its Flight 861. On the day of their departure, however, the
airline rudely off-loaded them.
When sued for breach of contract, KLM sought to be excused for the wrongful
conduct of Aer Lingus by arguing that its liability for damages was limited
only to occurrences on its own sectors. To support its argument, it cited
Article 30 of the Warsaw Convention, stating that when transportation was to
be performed by various successive carriers, the passenger could take action
only against the carrier that had performed the transportation when the
accident or delay occurred.
In holding KLM liable for damages, we ruled as follows:
"1. The applicability insisted upon by the KLM of article 30 of the Warsaw
Convention cannot be sustained. That article presupposes the occurrence of
either an accident or a delay, neither of which took place at the Barcelona
airport; what is here manifest, instead, is that the Aer Lingus, through its
manager there, refused to transport the respondents to their planned and
contracted destination.
"2. The argument that the KLM should not be held accountable for the
tortious conduct of Aer Lingus because of the provision printed on the
respondents' tickets expressly limiting the KLM's liability for damages only to
CONFLICTS | Assign 9| 65
occurrences on its own lines is unacceptable. As noted by the Court of
Appeals that condition was printed in letters so small that one would have to
use a magnifying glass to read the words. Under the circumstances, it would
be unfair and inequitable to charge the respondents with automatic
knowledge or notice of the said condition so as to preclude any doubt that it
was fairly and freely agreed upon by the respondents when they accepted the
passage tickets issued to them by the KLM. As the airline which issued those
tickets with the knowledge that the respondents would be flown on the
various legs of their journey by different air carriers, the KLM was chargeable
with the duty and responsibility of specifically informing the respondents of
conditions prescribed in their tickets or, in the very least, to ascertain that
the respondents read them before they accepted their passage tickets. A
thorough search of the record, however, inexplicably fails to show that any
effort was exerted by the KLM officials or employees to discharge in a proper
manner this responsibility to the respondents. Consequently, we hold that the
respondents cannot be bound by the provision in question by which KLM
unilaterally assumed the role of a mere ticket-issuing agent for other airlines
and limited its liability only to untoward occurrences on its own lines.
"3. Moreover, as maintained by the respondents and the Court of Appeals,
the passage tickets of the respondents provide that the carriage to be
performed thereunder by several successive carriers is to be regarded as a
single operation, which is diametrically incompatible with the theory of the
KLM that the respondents entered into a series of independent contracts with
the carriers which took them on the various segments of their trip. This
position of KLM we reject. The respondents dealt exclusively with the KLM
which issued them tickets for their entire trip and which in effect guaranteed
to them that they would have sure space in Aer Lingus flight 861. The
respondents, under that assurance of the internationally prestigious KLM,
naturally had the right to expect that their tickets would be honored by Aer
Lingus to which, in the legal sense, the KLM had indorsed and in effect
guaranteed the performance of its principal engagement to carry out the
respondents' scheduled itinerary previously and mutually agreed upon
between the parties.
"4. The breach of that guarantee was aggravated by the discourteous and
highly arbitrary conduct of an official of the Aer Lingus which the KLM had
engaged to transport the respondents on the Barcelona-Lourdes segment of
their itinerary. It is but just and in full accord with the policy expressly
embodied in our civil law which enjoins courts to be more vigilant for the
protection of a contracting party who occupies an inferior position with
respect to the other contracting party, that the KLM should be held

responsible for the abuse, injury and embarrassment suffered by the
respondents at the hands of a supercilious boor of the Aer Lingus." 15
In the instant case, the CA ruled that under the contract of transportation,
petitioner -- as the ticket-issuing carrier (like KLM) -- was liable regardless of
the fact that PAL was to perform or had performed the actual carriage. It
elucidated on this point as follows:
"By the very nature of their contract, defendant-appellant CAL is clearly liable
under the contract of carriage with [respondent] and remains to be so,
regardless of those instances when actual carriage was to be performed by
another carrier. The issuance of a confirmed CAL ticket in favor of
[respondent] covering his entire trip abroad concretely attests to this. This
also serves as proof that defendant-appellant CAL, in effect guaranteed that
the carrier, such as defendant-appellant PAL would honor his ticket, assure
him of a space therein and transport him on a particular segment of his
trip."16
Notwithstanding the errant quotation, we have found after careful
deliberation that the assailed Decision is supported in substance by KLM v.
CA. The misquotation by the CA cannot serve as basis for the reversal of its
ruling.
Nonetheless, to avert similar incidents in the future, this Court hereby
exhorts members of the bar and the bench to refer to and quote from the
official repository of our decisions, the Philippine Reports, whenever
practicable.17In the absence of this primary source, which is still being
updated, they may resort to unofficial sources like the SCRA. 18 We remind
them that the Courts ponencia, when used to support a judgment or ruling,
should be quoted accurately.19
Second Issue:
Liability of the Ticket-Issuing Airline
We now come to the main issue of whether CAL is liable for damages.
Petitioner posits that the CA Decision must be annulled, not only because it
was rooted on an erroneous quotation, but also because it disregarded
jurisprudence, notably China Airlines v. Intermediate Appellate
Court20 and China Airlines v. Court of Appeals.21
Jurisprudence Supports CA Decision
CONFLICTS | Assign 9| 66
It is significant to note that the contract of air transportation was between
petitioner and respondent, with the former endorsing to PAL the Hong Kong-
to-Manila segment of the journey. Such contract of carriage has always been
treated in this jurisdiction as a single operation. This jurisprudential rule is
supported by the Warsaw Convention, 22 to which the Philippines is a party,
and by the existing practices of the International Air Transport Association
(IATA).
Article 1, Section 3 of the Warsaw Convention states:
"Transportation to be performed by several successive air carriers shall be
deemed, for the purposes of this Convention, to be one undivided
transportation, if it has been regarded by the parties as a single operation,
whether it has been agreed upon under the form of a single contract or of a
series of contracts, and it shall not lose its international character merely
because one contract or a series of contracts is to be performed entirely
within a territory subject to the sovereignty, suzerainty, mandate, or
authority of the same High Contracting Party."23
Article 15 of IATA-Recommended Practice similarly provides:
"Carriage to be performed by several successive carriers under one ticket, or
under a ticket and any conjunction ticket issued therewith, is regarded as a
single operation."
In American Airlines v. Court of Appeals,24 we have noted that under a
general pool partnership agreement, the ticket-issuing airline is the principal
in a contract of carriage, while the endorsee-airline is the agent.
"x x x Members of the IATA are under a general pool partnership agreement
wherein they act as agent of each other in the issuance of tickets to
contracted passengers to boost ticket sales worldwide and at the same time
provide passengers easy access to airlines which are otherwise inaccessible
in some parts of the world. Booking and reservation among airline members
are allowed even by telephone and it has become an accepted practice
among them. A member airline which enters into a contract of carriage
consisting of a series of trips to be performed by different carriers is
authorized to receive the fare for the whole trip and through the required
process of interline settlement of accounts by way of the IATA clearing house
an airline is duly compensated for the segment of the trip serviced. Thus,
when the petitioner accepted the unused portion of the conjunction tickets,
entered it in the IATA clearing house and undertook to transport the private

respondent over the route covered by the unused portion of the conjunction
tickets, i.e., Geneva to New York, the petitioner tacitly recognized its
commitment under the IATA pool arrangement to act as agent of the principal
contracting airline, Singapore Airlines, as to the segment of the trip the
petitioner agreed to undertake. As such, the petitioner thereby assumed the
obligation to take the place of the carrier originally designated in the original
conjunction ticket. The petitioners argument that it is not a designated
carrier in the original conjunction tickets and that it issued its own ticket is
not decisive of its liability. The new ticket was simply a replacement for the
unused portion of the conjunction ticket, both tickets being for the same
amount of US$ 2,760 and having the same points of departure and
destination. By constituting itself as an agent of the principal carrier the
petitioners undertaking should be taken as part of a single operation under
the contract of carriage executed by the private respondent and Singapore
Airlines in Manila."25
Likewise, as the principal in the contract of carriage, the petitioner in British
Airways v. Court of Appeals26 was held liable, even when the breach of
contract had occurred, not on its own flight, but on that of another airline.
The Decision followed our ruling in Lufthansa German Airlines v. Court of
Appeals,27 in which we had held that the obligation of the ticket-issuing airline
remained and did not cease, regardless of the fact that another airline had
undertaken to carry the passengers to one of their destinations.
In the instant case, following the jurisprudence cited above, PAL acted as the
carrying agent of CAL. In the same way that we ruled against British Airways
and Lufthansa in the aforementioned cases, we also rule that CAL cannot
evade liability to respondent, even though it may have been only a ticket
issuer for the Hong Kong-Manila sector.
Moral and Exemplary Damages
Both the trial and the appellate courts found that respondent had
satisfactorily proven the existence of the factual basis for the damages
adjudged against petitioner and PAL. As a rule, the findings of fact of the CA
affirming those of the RTC will not be disturbed by this Court. 28 Indeed, the
Supreme Court is not a trier of facts. As a rule also, only questions of law --
as in the present recourse -- may be raised in petitions for review under Rule
45.
CONFLICTS | Assign 9| 67
Moral damages cannot be awarded in breaches of carriage contracts, except
in the two instances contemplated in Articles 1764 and 2220 of the Civil
Code, which we quote:
"Article 1764. Damages in cases comprised in this Section shall be awarded
in accordance with Title XVIII of this Book, concerning Damages. Article 2206
shall also apply to the death of a passenger caused by the breach of contract
by a common carrier.
xxx xxx xxx
"Article 2220. Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith." (Italics supplied)
There is no occasion for us to invoke Article 1764 here. We must therefore
determine if CAL or its agent (PAL) is guilty of bad faith that would entitle
respondent to moral damages.
In Lopez v. Pan American World Airways,29 we defined bad faith as a breach
of a known duty through some motive of interest or ill will.
In the case at bar, the known duty of PAL was to transport herein respondent
from Hong Kong to Manila. That duty arose when its agent confirmed his
reservation for Flight PR 311,30 and it became demandable when he
presented himself for the trip on November 24, 1981.
It is true that due to a typhoon, PAL was unable to transport respondent on
Flight PR 311 on November 24, 1981. This fact, however, did not terminate
the carriers responsibility to its passengers. PAL voluntarily obligated itself to
automatically transfer all confirmed passengers of PR 311 to the next
available flight, PR 307, on the following day.31 That responsibility was
subsisting when respondent, holding a confirmed ticket for the former flight,
presented himself for the latter.
The records amply establish that he secured repeated confirmations of his PR
311 flight on November 24, 1981. Hence, he had every reason to expect that
he would be put on the replacement flight as a confirmed passenger. Instead,
he was harangued and prevented from boarding the original and the
replacement flights. Thus, PAL breached its duty to transport him. After he
had been directed to pay the terminal fee, his pieces of luggage were
removed from the weighing-in counter despite his protestations. 32
 CONFLICTS | Assign 9| 68

It is relevant to point out that the employees of PAL were utterly insensitive followed by Philippine Airlines in the handling of passengers of cancelled
to his need to be in Manila on November 25, 1981, and to the likelihood that flight[s] like that of PR 311 which was cancelled due to [a] typhoon?
his business affairs in the city would be jeopardized because of a mistake on
their part. It was that mistake that had caused the omission of his name from A The procedure will be: all the confirmed passengers from [PR] 311
the passenger list despite his confirmed flight ticket. By merely looking at his 24th November [are] automatically transfer[red] to [PR] 307, 25th
ticket and validation sticker, it is evident that the glitch was the airlines fault. November[,] as a protection for all disconfirmed passengers.
However, no serious attempt was made by PAL to secure the all-important
Q Aside from this procedure[,] what do you do with the passengers on
transportation of respondent to Manila on the following day. To make matters
the cancelled flight who are expected to check-in on the flights if this flight is
worse, PAL allowed a group of non-revenue passengers, who had no
cancelled or not operating due to typhoon or other reasons[?] In other
confirmed tickets or reservations, to board Flight PR 307. 33
words, are they not notified of the cancellation?
Time and time again, this Court has stressed that the business of common
A I think all these passengers were not notified because of a typhoon
carriers is imbued with public interest and duty; therefore, the law governing
and Philippine Airlines Reservation were [sic] not able to call every passenger
them imposes an exacting standard. 34 In Singson v. Court of Appeals,35we
by phone.
said:
Atty. Fruto:
"x x x [T]he carrier's utter lack of care and sensitivity to the needs of its
passengers, clearly constitutive of gross negligence, recklessness and wanton
Q Did you say were not notified?
disregard of the rights of the latter, [are] acts evidently indistinguishable or
no different from fraud, malice and bad faith. As the rule now stands, where A I believe they were not, but believe me, I was on day-off.
in breaching the contract of carriage the defendant airline is shown to have
acted fraudulently, with malice or in bad faith, the award of moral and Atty. Calica:
exemplary damages, in addition to actual damages, is proper." 36(Italics
supplied) Q Per procedure, what should have been done by Reservations Office
when a flight is cancelled for one reason or another?
In Saludo v. Court of Appeals,37 the Court reminded airline companies that
due to the nature of their business, they must not merely give cursory A If there is enough time, of course, Reservations Office x x x call[s] up
instructions to their personnel to be more accommodating towards all the passengers and tell[s] them the reason. But if there [is] no time[,]
customers, passengers and the general public; they must require them to be then the Reservations Office will not be able to do that." 40
so.
xxx xxx xxx
The acts of PALs employees, particularly Chan, clearly fell short of the
"Q I see. Miss Chan, I [will] show you a ticket which has been marked
extraordinary standard of care that the law requires of common carriers. 38 As
as Exh. A and A-1. Will you please go over this ticket and tell the court
narrated in Chans oral deposition,39 the manner in which the airline
whether this is the ticket that was used precisely by Mr. Chiok when he
discharged its responsibility to respondent and its other passengers
checked-in at [F]light 307, 25 November 81?
manifested a lack of the requisite diligence and due regard for their welfare.
The pertinent portions of the Oral Deposition are reproduced as follows:
A [Are you] now asking me whether he used this ticket with this
sticker?
"Q Now you said that flight PR 311 on 24th November was cancelled
due to [a] typhoon and naturally the passengers on said flight had to be
Q No, no, no. That was the ticket he used.
accommodated on the first flight the following day or the first flight
subsequently. [W]ill you tell the Honorable Deposition Officer the procedure A Yes, [are you] asking me whether I saw this ticket?

Atty. Fruto: Yes.
A I believe I saw it.
Q You saw it, O.K. Now of course you will agree with me Miss Chan that
this yellow stub here which has been marked as Exh. A-1-A, show[s] that the
status on flight 311, 24th November, is O.K., correct?
A Yes.
Q You agree with me. And you will also agree with me that in this ticket
of flight 311, on this, another sticker Exh. A-1-B for 24 November is O.K.?
A May I x x x look at them. Yes, it says O.K. x x x, but [there is] no
validation.
Q O.K. Miss Chan what do you understand by these entries here R bar
M N 6 V?41
A This is what we call a computer reference.
Q I see. This is a computer reference showing that the name of Mr.
Chiok has been entered in Philippine Airlines computer, and this is his
computer number.
A Yes.
Q Now you stated in your answer to the procedure taken, that all
confirmed passengers on flight 311, 24 November[,] were automatically
transferred to 307 as a protection for the passengers, correct?
A Correct.
Q So that since following the O.K. status of Mr. Chioks reservation [on]
flight 311, [he] was also automatically transferred to flight 307 the following
day?
A Should be.
Q Should be. O.K. Now do you remember how many passengers x x x
were transferred from flight 311, 24 November to flight 307, 25 November
81?
CONFLICTS | Assign 9| 69
A I can only give you a very brief idea because that was supposed to be
air bus so it should be able to accommodate 246 people; but how many
[exactly], I dont know."42
xxx xxx xxx
"Q So, between six and eight oclock in the evening of 25 November
81, Mr. Chiok already told you that he just [came] from the Swire Building
where Philippine Airlines had [its] offices and that he told you that his space
for 311 25 November 81 was confirmed?
A Yes.
Q That is what he told you. He insisted on that flight?
A Yes.
Q And did you not try to call up Swire Building-- Philippine Airlines and
verify indeed if Mr. Chiok was there?
A Swire House building is not directly under Philippine Airlines. it is just
an agency for selling Philippine Airlines ticket. And besides around six o clock
theyre close[d] in Central.
Q So this Swire Building is an agency authorized by Philippine Airlines to
issue tickets for and on behalf of Philippine Airlines and also...
A Yes.
Q And also to confirm spaces for and on behalf of Philippine Airlines.
A Yes."43
Under the foregoing circumstances, we cannot apply our 1989 ruling in China
Airlines v. Intermediate Appellate Court,44 which petitioner urges us to adopt.
In that case, the breach of contract and the negligence of the carrier in
effecting the immediate flight connection for therein private respondent was
incurred in good faith.45 Having found no gross negligence or recklessness,
we thereby deleted the award of moral and exemplary damages against it. 46
This Courts 1992 ruling in China Airlines v. Court of Appeals 47 is likewise
inapplicable. In that case, we found no bad faith or malice in the airlines
breach of its contractual obligation. 48 We held that, as shown by the flow of
telexes from one of the airlines offices to the others, petitioner therein had

exercised diligent efforts in assisting the private respondent change his flight
schedule. In the instant case, petitioner failed to exhibit the same care and
sensitivity to respondents needs.
In Singson v. Court of Appeals,49 we said:
"x x x Although the rule is that moral damages predicated upon a breach of
contract of carriage may only be recoverable in instances where the mishap
results in the death of a passenger, or where the carrier is guilty of fraud or
bad faith, there are situations where the negligence of the carrier is so gross
and reckless as to virtually amount to bad faith, in which case, the passenger
likewise becomes entitled to recover moral damages."
In the present case, we stress that respondent had repeatedly secured
confirmations of his PR 311 flight on November 24, 1981 -- initially from CAL
and subsequently from the PAL office in Hong Kong. The status of this flight
was marked "OK" on a validating sticker placed on his ticket. That sticker also
contained the entry "RMN6V." Ms Chan explicitly acknowledged that such
entry was a computer reference that meant that respondents name had been
entered in PALs computer.
Since the status of respondent on Flight PR 311 was "OK," as a matter of
right testified to by PALs witness, he should have been automatically
transferred to and allowed to board Flight 307 the following day. Clearly
resulting from negligence on the part of PAL was its claim that his name was
not included in its list of passengers for the November 24, 1981 PR 311 flight
and, consequently, in the list of the replacement flight PR 307. Since he had
secured confirmation of his flight -- not only once, but twice -- by personally
going to the carriers offices where he was consistently assured of a seat
thereon -- PALs negligence was so gross and reckless that it amounted to
bad faith.
In view of the foregoing, we rule that moral and exemplary 50 damages were
properly awarded by the lower courts.51
Third Issue:
Propriety of the Cross-Claim
We now look into the propriety of the ruling on CALs cross-claim against PAL.
Petitioner submits that the CA should have ruled on the cross-claim,
considering that the RTC had found that it was PALs employees who had
acted negligently.
CONFLICTS | Assign 9| 70
Section 8 of Rule 6 of the Rules of Court reads:
"Sec. 8. Cross-claim. - A cross claim is any claim by one party against a co-
party arising out of the transaction or occurrence that is the subject matter
either of the original action or of a counterclaim therein. Such cross-claim
may include a claim that the party against whom it is asserted is or may be
liable to the cross-claimant for all or part of a claim asserted in the action
against the cross-claimant."
For purposes of a ruling on the cross-claim, PAL is an indispensable party.
In BA Finance Corporation v. CA,52 the Court stated:
"x x x. An indispensable party is one whose interest will be affected by the
courts action in the litigation, and without whom no final determination of
the case can be had. The partys interest in the subject matter of the suit and
in the relief sought are so inextricably intertwined with the other parties that
his legal presence as a party to the proceeding is an absolute necessity. In
his absence there cannot be a resolution of the dispute of the parties before
the court which is effective, complete, or equitable.
xxx xxx xxx
"Without the presence of indispensable parties to a suit or proceeding,
judgment of a court cannot attain real finality."
PALs interest may be affected by any ruling of this Court on CALs cross-
claim. Hence, it is imperative and in accordance with due process and fair
play that PAL should have been impleaded as a party in the present
proceedings, before this Court can make a final ruling on this matter.
Although PAL was petitioners co-party in the case before the RTC and the
CA, petitioner failed to include the airline in the present recourse. Hence, the
Court has no jurisdiction over it. Consequently, to make any ruling on the
cross-claim in the present Petition would not be legally feasible because PAL,
not being a party in the present case, cannot be bound thereby.53
WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED.
 CONFLICTS | Assign 9| 71

2. G.R. No. 60501. March 5, 1993. the breach of obligation which the parties had foreseen or could have
reasonably foreseen. In that case, such liability does not include moral and
CATHAY PACIFIC AIRWAYS, LTD, petitioner, vs. COURT OF APPEALS exemplary damages. Conversely, if the defendant airline is shown to have
and TOMAS L. ALCANTARA, respondents. acted fraudulently or in bad faith, the award of moral and exemplary
damages is proper.
SYLLABUS
3. TEMPERATE DAMAGES; RECOVERABLE ONLY UPON PROOF THAT THE
1. CIVIL LAW; CONTRACT OF CARRIAGE; BREACH THEREOF; PETITIONER
CLAIMANT SUSTAINED SOME PECUNIARY LOSS. However, respondent
BREACHED ITS CONTRACT OF CARRIAGE WITH PRIVATE RESPONDENT
Alcantara is not entitled to temperate damages, contrary to the ruling of the
WHEN IT FAILED TO DELIVER HIS LUGGAGE AT THE DESIGNATED PLACE
court a quo, in the absence of any showing that he sustained some pecuniary
AND TIME. Petitioner breached its contract of carriage with private
loss. It cannot be gainsaid that respondent's luggage was ultimately
respondent when it failed to deliver his luggage at the designated place and
delivered to him without serious or appreciable damage.
time, it being the obligation of a common carrier to carry its passengers and
their luggage safely to their destination, which includes the duty not to delay 4. WARSAW CONVENTION; DOES NOT OPERATE AS AN EXCLUSIVE
their transportation, and the evidence shows that petitioner acted ENUMERATION OF THE INSTANCES FOR DECLARING A CARRIER LIABLE FOR
fraudulently or in bad faith. BREACH OF CONTRACT OF CARRIAGE OR AS AN ABSOLUTE LIMIT OF THE
EXTENT OF THAT LIABILITY; DOES NOT PRECLUDE THE OPERATION OF THE
2. DAMAGES; MORAL AND EXEMPLARY DAMAGES PREDICATED UPON A
CIVIL CODE AND OTHER PERTINENT LAWS. As We have repeatedly held,
BREACH OF CONTRACT OF CARRIAGE; RECOVERABLE ONLY IN INSTANCES
although the Warsaw Convention has the force and effect of law in this
WHERE THE MISHAP RESULTS IN DEATH OF A PASSENGER, OR WHERE THE
country, being a treaty commitment assumed by the Philippine government,
CARRIER IS GUILTY OF FRAUD OR BAD FAITH; THE CONDUCT OF
said convention does not operate as an exclusive enumeration of the
PETITIONER'S REPRESENTATIVE TOWARDS RESPONDENT JUSTIFIES THE
instances for declaring a carrier liable for breach of contract of carriage or as
GRANT OF MORAL AND EXEMPLARY DAMAGES IN CASE AT BAR. Moral
an absolute limit of the extent of that liability. The Warsaw Convention
damages predicated upon a breach of contract of carriage may only be
declares the carrier liable for damages in the enumerated cases and under
recoverable in instances where the mishap results in death of a passenger, or
certain limitations. However, it must not be construed to preclude the
where the carrier is guilty of fraud or bad faith. The language and conduct of
operation of the Civil Code and other pertinent laws. It does not regulate,
petitioner's representative towards respondent Alcantara was discourteous or
much less exempt, the carrier from liability for damages for violating the
arbitrary to justify the grant of moral damages. The CATHAY representative
rights of its passengers under the contract of carriage, especially if wilfull
was not only indifferent and impatient; he was also rude and insulting. He
misconduct on the part of the carrier's employees is found or established,
simply advised Alcantara to buy anything he wanted. But even that was not
which is clearly the case before Us.
sincere because the representative knew that the passenger was limited only
to $20.00 which, certainly, was not enough to purchase comfortable clothings DECISION
appropriate for an executive conference. Considering that Alcantara was not
only a revenue passenger but even paid for a first class airline BELLOSILLO, J p:
accommodation and accompanied at the time by the Commercial Attache of
the Philippine Embassy who was assisting him in his problem, petitioner or its This is a petition for review on certiorari of the decision of the Court of
agents should have been more courteous and accommodating to private Appeals which affirmed with modification that of the trial court by increasing
respondent, instead of giving him a curt reply, "What can we do, the baggage the award of damages in favor of private respondent Tomas L. Alcantara.
is missing. I cannot do anything . . . Anyhow, you can buy anything you
The facts are undisputed: On 19 October 1975, respondent Tomas L.
need, charged to Cathay Pacific." Where in breaching the contract of carriage
Alcantara was a first class passenger of petitioner Cathay Pacific Airways, Ltd.
the defendant airline is not shown to have acted fraudulently or in bad faith,
(CATHAY for brevity) on its Flight No. CX-900 from Manila to Hongkong and
liability for damages is limited to the natural and probable consequences of

onward from Hongkong to Jakarta on Flight No. CX-711. The purpose of his
trip was to attend the following day, 20 October 1975, a conference with the
Director General of Trade of Indonesia, Alcantara being the Executive Vice-
President and General Manager of Iligan Cement Corporation, Chairman of
the Export Committee of the Philippine Cement Corporation, and
representative of the Cement Industry Authority and the Philippine Cement
Corporation. He checked in his luggage which contained not only his clothing
and articles for personal use but also papers and documents he needed for
the conference.
Upon his arrival in Jakarta, respondent discovered that his luggage was
missing. When he inquired about his luggage from CATHAY's representative
in Jakarta, private respondent was told that his luggage was left behind in
Hongkong. For this, respondent Alcantara was offered $20.00 as
"inconvenience money" to buy his immediate personal needs until the
luggage could be delivered to him.
His luggage finally reached Jakarta more than twenty four (24) hours after
his arrival. However, it was not delivered to him at his hotel but was required
by petitioner to be picked up by an official of the Philippine Embassy.
On 1 March 1976, respondent filed his complaint against petitioner with the
Court of First Instance (now Regional Trial Court) of Lanao del Norte praying
for temperate, moral and exemplary damages, plus attorney's fees.
On 18 April 1976, the trial court rendered its decision ordering CATHAY to
pay Plaintiff P20,000.00 for moral damages, P5,000.00 for temperate
damages, P10,000.00 for exemplary damages, and P25,000.00 for attorney's
fees, and the costs. 1
Both parties appealed to the Court of Appeals. CATHAY assailed the
conclusion of the trial court that it was accountable for breach of contract and
questioned the non-application by the court of the Warsaw Convention as
well as the excessive damages awarded on the basis of its finding that
respondent Alcantara was rudely treated by petitioner's employees during the
time that his luggage could not be found. For his part, respondent Alcantara
assigned as error the failure of the trial court to grant the full amount of
damages sought in his complaint.
On 11 November 1981, respondent Court of Appeals rendered its decision
affirming the findings of fact of the trial court but modifying its award by
increasing the moral damages to P80,000.00, exemplary damages to
CONFLICTS | Assign 9| 72
P20,000.00 and temperate or moderate damages to P10,000.00. The award
of P25,000.00 for attorney's fees was maintained.
The same grounds raised by petitioner in the Court of Appeals are reiterated
before Us. CATHAY contends that: (1) the Court of Appeals erred in holding
petitioner liable to respondent Alcantara for moral, exemplary and temperate
damages as well as attorney's fees; and, (2) the Court of Appeals erred in
failing to apply the Warsaw Convention on the liability of a carrier to its
passengers.
On its first assigned error, CATHAY argues that although it failed to transport
respondent Alcantara's luggage on time, the one-day delay was not made in
bad faith so as to justify moral, exemplary and temperate damages. It
submits that the conclusion of respondent appellate court that private
respondent was treated rudely and arrogantly when he sought assistance
from CATHAY's employees has no factual basis, hence, the award of moral
damages has no leg to stand on.
Petitioner's first assigned error involves findings of fact which are not
reviewable by this Court. 2 At any rate, it is not impressed with merit.
Petitioner breached its contract of carriage with private respondent when it
failed to deliver his luggage at the designated place and time, it being the
obligation of a common carrier to carry its passengers and their luggage
safely to their destination, which includes the duty not to delay their
transportation, 3 and the evidence shows that petitioner acted fraudulently or
in bad faith.
Moral damages predicated upon a breach of contract of carriage may only be
recoverable in instances where the mishap results in death of a passenger, 4
or where the carrier is guilty of fraud or bad faith. 5
In the case at bar, both the trial court and the appellate court found that
CATHAY was grossly negligent and reckless when it failed to deliver the
luggage of petitioner at the appointed place and time. We agree. CATHAY
alleges that as a result of mechanical trouble, all pieces of luggage on board
the first aircraft bound for Jakarta were unloaded and transferred to the
second aircraft which departed an hour and a half later. Yet, as the Court of
Appeals noted, petitioner was not even aware that it left behind private
respondent's luggage until its attention was called by the Hongkong Customs
authorities. More, bad faith or otherwise improper conduct may be attributed
to the employees of petitioner. While the mere failure of CATHAY to deliver
respondent's luggage at the agreed place and time did not ipso facto amount

to willful misconduct since the luggage was eventually delivered to private
respondent, albeit belatedly, 6 We are persuaded that the employees of
CATHAY acted in bad faith. We refer to the deposition of Romulo Palma,
Commercial Attache of the Philippine Embassy at Jakarta, who was with
respondent Alcantara when the latter sought assistance from the employees
of CATHAY. This deposition was the basis of the findings of the lower courts
when both awarded moral damages to private respondent. Hereunder is part
of Palma's testimony
"Q: What did Mr. Alcantara say, if any?
A. Mr. Alcantara was of course . . . . I could understand his position. He was
furious for the experience because probably he was thinking he was going to
meet the Director-General the following day and, well, he was with no change
of proper clothes and so, I would say, he was not happy about the situation.
Q: What did Mr. Alcantara say?
A: He was trying to press the fellow to make the report and if possible make
the delivery of his baggage as soon as possible.
Q: And what did the agent or duty officer say, if any?
A: The duty officer, of course, answered back saying 'What can we do, the
baggage is missing. I cannot do anything.' something like it. 'Anyhow you can
buy anything you need, charged to Cathay Pacific.'
Q: What was the demeanor or comportment of the duty officer of Cathay
Pacific when he said to Mr. Alcantara 'You can buy anything chargeable to
Cathay Pacific'?
A: If I had to look at it objectively, the duty officer would like to dismiss the
affair as soon as possible by saying indifferently 'Don't worry. It can be
found.'" 7
Indeed, the aforequoted testimony shows that the language and conduct of
petitioner's representative towards respondent Alcantara was discourteous or
arbitrary to justify the grant of moral damages. The CATHAY representative
was not only indifferent and impatient; he was also rude and insulting. He
simply advised Alcantara to buy anything he wanted. But even that was not
sincere because the representative knew that the passenger was limited only
to $20.00 which, certainly, was not enough to purchase comfortable clothings
appropriate for an executive conference. Considering that Alcantara was not
CONFLICTS | Assign 9| 73
only a revenue passenger but even paid for a first class airline
accommodation and accompanied at the time by the Commercial Attache of
the Philippine Embassy who was assisting him in his problem, petitioner or its
agents should have been more courteous and accommodating to private
respondent, instead of giving him a curt reply, "What can we do, the baggage
is missing. I cannot do anything . . . Anyhow, you can buy anything you
need, charged to Cathay Pacific." CATHAY's employees should have been
more solicitous to a passenger in distress and assuaged his anxieties and
apprehensions. To compound matters, CATHAY refused to have the luggage
of Alcantara delivered to him at his hotel; instead, he was required to pick it
up himself and an official of the Philippine Embassy. Under the
circumstances, it is evident that petitioner was remiss in its duty to provide
proper and adequate assistance to a paying passenger, more so one with first
class accommodation.
Where in breaching the contract of carriage the defendant airline is not
shown to have acted fraudulently or in bad faith, liability for damages is
limited to the natural and probable consequences of the breach of obligation
which the parties had foreseen or could have reasonably foreseen. In that
case, such liability does not include moral and exemplary damages. 8
Conversely, if the defendant airline is shown to have acted fraudulently or in
bad faith, the award of moral and exemplary damages is proper.
However, respondent Alcantara is not entitled to temperate damages,
contrary to the ruling of the court a quo, in the absence of any showing that
he sustained some pecuniary loss. 9 It cannot be gainsaid that respondent's
luggage was ultimately delivered to him without serious or appreciable
damage.
As regards its second assigned error, petitioner airline contends that the
extent of its liability for breach of contract should be limited absolutely to
that set forth in the Warsaw Convention. We do not agree. As We have
repeatedly held, although the Warsaw Convention has the force and effect of
law in this country, being a treaty commitment assumed by the Philippine
government, said convention does not operate as an exclusive enumeration
of the instances for declaring a carrier liable for breach of contract of carriage
or as an absolute limit of the extent of that liability. 10 The Warsaw
Convention declares the carrier liable for damages in the enumerated cases
and under certain limitations. 11 However, it must not be construed to
preclude the operation of the Civil Code and other pertinent laws. It does not
regulate, much less exempt, the carrier from liability for damages for
violating the rights of its passengers under the contract of carriage, 12
 CONFLICTS | Assign 9| 74

especially if wilfull misconduct on the part of the carrier's employees is found fees of P25,000.00. The moral and exemplary damages shall earn interest at
or established, which is clearly the case before Us. For, the Warsaw the legal rate from 1 March 1976 when the complaint was filed until full
Convention itself provides in Art. 25 that payment.

"(1) The carrier shall not be entitled to avail himself of the provisions of this SO ORDERED.
convention which exclude or limit his liability, if the damage is caused by his
wilfull misconduct or by such default on his part as, in accordance with the
law of the court to which the case is submitted, is considered to be
equivalent to wilfull misconduct."

(2) Similarly the carrier shall not be entitled to avail himself of the said
provisions, if the damage is caused under the same circumstances by any
agent of the carrier acting within the scope of his employment."

When petitioner airline misplaced respondent's luggage and failed to deliver it

to its passenger at the appointed place and time, some special species of
injury must have been caused to him. For sure, the latter underwent
profound distress and anxiety, and the fear of losing the opportunity to fulfill
the purpose of his trip. In fact, for want of appropriate clothings for the
occasion brought about by the delay of the arrival of his luggage, to his
embarrassment and consternation respondent Alcantara had to seek
postponement of his pre-arranged conference with the Director General of
Trade of the host country.

In one case, 13 this Court observed that a traveller would naturally suffer
mental anguish, anxiety and shock when he finds that his luggage did not
travel with him and he finds himself in a foreign land without any article of
clothing other than what he has on.

Thus, respondent is entitled to moral and exemplary damages. We however

find the award by the Court of Appeals of P80,000.00 for moral damages
excessive, hence, We reduce the amount to P30,000.00. The exemplary
damages of P20,000.00 being reasonable is maintained, as well as the
attorney's fees of P25,000.00 considering that petitioner's act or omission
has compelled Alcantara to litigate with third persons or to incur expenses to
protect his interest. 14

WHEREFORE, the assailed decision of respondent Court of Appeals is

AFFIRMED with the exception of the award of temperate damages of
P10,000.00 which is deleted, while the award of moral damages of
P80,000.00 is reduced to P30,000.00. The award of P20,000.00 for
exemplary damages is maintained as reasonable together with the attorney's

3. [G.R. No. 71929 : December 4, 1990.] 192 SCRA 9
ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and
FELIPA E. PABLO, Respondents.
DECISION
NARVASA, J.:
Dr. Felipa Pablo an associate professor in the University of the Philippines,
1 and a research grantee of the Philippine Atomic Energy Agency was
invited to take part at a meeting of the Department of Research and Isotopes
of the Joint FAO-IAEA Division of Atomic Energy in Food and Agriculture of
the United Nations in Ispra, Italy. 2 She was invited in view of her specialized
knowledge in "foreign substances in food and the agriculture environment."
She accepted the invitation, and was then scheduled by the organizers, to
read a paper on "The Fate of Radioactive Fusion Products Contaminating
Vegetable Crops." 3 The program announced that she would be the second
speaker on the first day of the meeting. 4 To fulfill this engagement, Dr. Pablo
booked passage on petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the
itinerary and time table set for her by ALITALIA. She was however told by the
ALITALIA personnel there at Milan that her luggage was "delayed inasmuch
as the same . . . (was) in one of the succeeding flights from Rome to Milan."
5 Her luggage consisted of two (2) suitcases: one contained her clothing and
other personal items; the other, her scientific papers, slides and other
research material. But the other flights arriving from Rome did not have her
baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself.
There, she inquired about her suitcases in the domestic and international
airports, and filled out the forms prescribed by ALITALIA for people in her
predicament. However, her baggage could not be found. Completely
distraught and discouraged, she returned to Manila without attending the
meeting in Ispra, Italy. : nad
Once back in Manila she demanded that ALITALIA make reparation for the
damages thus suffered by her. ALITALIA offered her "free airline tickets to
compensate her for any alleged damages. . . ." She rejected the offer, and
forthwith commenced the action 6 which has given rise to the present
appellate proceedings.
CONFLICTS | Assign 9| 75
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to
Ispra, 7 Italy, but only on the day after her scheduled appearance and
participation at the U.N. meeting there. 8 Of course Dr. Pablo was no longer
there to accept delivery; she was already on her way home to Manila. And for
some reason or other, the suitcases were not actually restored to Prof. Pablo
by ALITALIA until eleven (11) months later, and four (4) months after
institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered
judgment in Dr. Pablo's favor: 10
"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY
THOUSAND PESOS (P20,000.00), Philippine Currency, by way of nominal
damages;
(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND
PESOS (P5,000.00), Philippine Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a
reversal of the judgment. 11 Indeed, the Appellate Court not only affirmed
the Trial Court's decision but also increased the award of nominal damages
payable by ALITALIA to P40,000.00. 12 That increase it justified as follows:
13
"Considering the circumstances, as found by the Trial Court and the
negligence committed by defendant, the amount of P20,000.00 under
present inflationary conditions as awarded . . . to the plaintiff as nominal
damages, is too little to make up for the plaintiff's frustration and
disappointment in not being able to appear at said conference; and for the
embarrassment and humiliation she suffered from the academic community
for failure to carry out an official mission for which she was singled out by the
faculty to represent her institution and the country. After weighing carefully
all the considerations, the amount awarded to the plaintiff for nominal
damages and attorney's fees should be increased to the cost of her round trip
air fare or at the present rate of peso to the dollar at P40,000,00."
ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make
basically the same points it tried to make before the Trial Court and the
Intermediate Appellate Court, i.e.:

1) that the Warsaw Convention should have been applied to limit ALITALIA'S
liability; and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of
nominal damages and attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate
Appellate Court to have refused to pass on all the assigned errors and in not
stating the facts and the law on which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages
for:
1) the death, wounding or other bodily injury of a passenger if the accident
causing it took place on board the aircraft or in the course of its operations of
embarking or disembarking; 17
2) the destruction or loss of, or damage to, any registered luggage or goods,
if the occurrence causing it took place during the carriage by air;" 18 and
3) delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages,
however, founded, can only be brought subject to conditions and limits set
out" therein. 20
The Convention also purports to limit the liability of the carriers in the
following manner: 21
1. In the carriage of passengers the liability of the carrier for each passenger
is limited to the sum of 250,000 francs . . . Nevertheless, by special contract,
the carrier and the passenger may agree to a higher limit of liability.: nad
2. a) In the carriage of registered baggage and of cargo, the liability of the
carrier is limited to a sum of 250 francs per kilogramme, unless the
passenger or consignor has made, at the time when the package was handed
over to the carrier, a special declaration of interest in delivery at destination
and has paid a supplementary sum if the case so requires. In that case the
carrier will be liable to pay a sum not exceeding the declared sum, unless he
proves that sum is greater than the actual value to the consignor at delivery.
b) In the case of loss, damage or delay of part of registered baggage or
cargo, or of any object contained therein, the weight to be taken into
CONFLICTS | Assign 9| 76
consideration in determining the amount to which the carrier's liability is
limited shall be only the total weight of the package or packages concerned.
Nevertheless, when the loss, damage or delay of a part of the registered
baggage or cargo, or of an object contained therein, affects the value of
other packages covered by the same baggage check or the same air way bill,
the total weight of such package or packages shall also be taken into
consideration in determining the limit of liability.
3. As regards objects of which the passenger takes charge himself the
liability of the carrier is limited to 5000 francs per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in
accordance with its own law, in addition, the whole or part of the court costs
and of the other expenses of litigation incurred by the plaintiff. The foregoing
provision shall not apply if the amount of the damages awarded, excluding
court costs and other expenses of the litigation, does not exceed the sum
which the carrier has offered in writing to the plaintiff within a period of six
months from the date of the occurrence causing the damage, or before the
commencement of the action, if that is later.
The Warsaw Convention however denies to the carrier availment "of the
provisions which exclude or limit his liability, if the damage is caused by his
wilful misconduct or by such default on his part as, in accordance with the
law of the court seized of the case, is considered to be equivalent to wilful
misconduct," or "if the damage is (similarly) caused . . by any agent of the
carrier acting within the scope of his employment." 22 The Hague Protocol
amended the Warsaw Convention by removing the provision that if the airline
took all necessary steps to avoid the damage, it could exculpate itself
completely, 23 and declaring the stated limits of liability not applicable "if it
is proved that the damage resulted from an act or omission of the carrier, its
servants or agents, done with intent to cause damage or recklessly and with
knowledge that damage would probably result." The same deletion was
effected by the Montreal Agreement of 1966, with the result that a passenger
could recover unlimited damages upon proof of wilful misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the
instances of an airline's liability, or as an absolute limit of the extent of that
liability. Such a proposition is not borne out by the language of the
Convention, as this Court has now, and at an earlier time, pointed out. 25
Moreover, slight reflection readily leads to the conclusion that it should be
deemed a limit of liability only in those cases where the cause of the death or
injury to person, or destruction, loss or damage to property or delay in its

transport is not attributable to or attended by any wilful misconduct, bad
faith, recklessness, or otherwise improper conduct on the part of any official
or employee for which the carrier is responsible, and there is otherwise no
special or extraordinary form of resulting injury. The Convention's provisions,
in short, do not "regulate or exclude liability for other breaches of contract by
the carrier" 26 or misconduct of its officers and employees, or for some
particular or exceptional type of damage. Otherwise, "an air carrier would be
exempt from any liability for damages in the event of its absolute refusal, in
bad faith, to comply with a contract of carriage, which is absurd." 27 Nor
may it for a moment be supposed that if a member of the aircraft
complement should inflict some physical injury on a passenger, or maliciously
destroy or damage the latter's property, the Convention might successfully be
pleaded as the sole gauge to determine the carrier's liability to the
passenger. Neither may the Convention be invoked to justify the disregard of
some extraordinary sort of damage resulting to a passenger and preclude
recovery therefor beyond the limits set by said Convention. It is in this sense
that the Convention has been applied, or ignored, depending on the peculiar
facts presented by each case.:-cralaw
In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw
Convention was applied as regards the limitation on the carrier's liability,
there being a simple loss of baggage without any otherwise improper conduct
on the part of the officials or employees of the airline or other special injury
sustained by the passenger.
On the other hand, the Warsaw Convention has invariably been held
inapplicable, or as not restrictive of the carrier's liability, where there was
satisfactory evidence of malice or bad faith attributable to its officers and
employees. 29 Thus, an air carrier was sentenced to pay not only
compensatory but also moral and exemplary damages, and attorney's fees,
for instance, where its employees rudely put a passenger holding a first-class
ticket in the tourist or economy section, 30 or ousted a brown Asiatic from
the plane to give his seat to a white man, 31 or gave the seat of a passenger
with a confirmed reservation to another, 32 or subjected a passenger to
extremely rude, even barbaric treatment, as by calling him a "monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be
ascribed to the employees of petitioner airline; and Dr. Pablo's luggage was
eventually returned to her, belatedly, it is true, but without appreciable
damage. The fact is, nevertheless, that some special species of injury was
caused to Dr. Pablo because petitioner ALITALIA misplaced her baggage and
failed to deliver it to her at the time appointed a breach of its contract of
CONFLICTS | Assign 9| 77
carriage, to be sure with the result that she was unable to read the paper
and make the scientific presentation (consisting of slides, autoradiograms or
films, tables and tabulations) that she had painstakingly labored over, at the
prestigious international conference, to attend which she had traveled
hundreds of miles, to her chagrin and embarrassment and the
disappointment and annoyance of the organizers. She felt, not unreasonably,
that the invitation for her to participate at the conference, extended by the
Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of the
United Nations, was a singular honor not only to herself, but to the University
of the Philippines and the country as well, an opportunity to make some sort
of impression among her colleagues in that field of scientific activity. The
opportunity to claim this honor or distinction was irretrievably lost to her
because of Alitalia's breach of its contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound
distress and anxiety, which gradually turned to panic and finally despair, from
the time she learned that her suitcases were missing up to the time when,
having gone to Rome, she finally realized that she would no longer be able to
take part in the conference. As she herself put it, she "was really shocked
and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under
the circumstances be restricted to that prescribed by the Warsaw Convention
for delay in the transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her
luggage. As already mentioned, her baggage was ultimately delivered to her
in Manila, tardily but safely. She is however entitled to nominal damages
which, as the law says, is adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated and
recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered and this Court agrees that the respondent Court of Appeals
correctly set the amount thereof at P40,000.00. As to the purely technical
argument that the award to her of such nominal damages is precluded by her
omission to include a specific claim therefor in her complaint, it suffices to
draw attention to her general prayer, following her plea for moral and
exemplary damages and attorney's fees, "for such other and further just and
equitable relief in the premises," which certainly is broad enough to
comprehend an application as well for nominal damages. Besides, petitioner
should have realized that the explicit assertion, and proof, that Dr. Pablo's
right had been violated or invaded by it absent any claim for actual or
compensatory damages, the prayer thereof having been voluntarily deleted
 CONFLICTS | Assign 9| 78

by Dr. Pablo upon the return to her of her baggage necessarily raised the
issue of nominal damages.: rd

This Court also agrees that respondent Court of Appeals correctly awarded
attorney's fees to Dr. Pablo, and the amount of P5,000.00 set by it is
reasonable in the premises. The law authorizes recovery of attorney's fees
inter alia where, as here, "the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect his
interest," 34 or "where the court deems it just and equitable." 35

WHEREFORE, no error being perceived in the challenged decision of the Court

of Appeals, it appearing on the contrary to be entirely in accord with the facts
and the law, said decision is hereby AFFIRMED, with costs against the
petitioner.

SO ORDERED.
 CONFLICTS | Assign 9| 79

4. G.R. No. L-61418 September 24, 1987 was that Azucena had arrived late and had not checked in within forty
minutes before departure time. 6
KOREAN AIRLINES CO., LTD., petitioner,
vs. There is no evidence in the record of any rule requiring passengers to check
HON. COURT OF APPEALS, THE HON. EDUARDO C. TUTAAN, Presiding in at least forty minutes before departure time, as invoked by Torres. KAL
Judge, Court of First Instance of Rizal, Branch V. Quezon City, admits that it has not been able to cite any statutory or administrative
AZUCENA and JANUARIO TOMAS, respondents. requirement to this effect. 7 In fact, the alleged rule is not even a condition of
the plane ticket purchased by Azucena.
CRUZ, J.:
At the same time, KAL invokes the memorandum-circular of February 24,
This is one of the many cases that have unnecessarily clogged the dockets of 1975, issued by the Commission on Immigration and Deportation which says
this Court because they should not have been brought to us in the first place. that "all passengers authorized to leave for abroad shall be required to check
in with the Immigration Departure Control Officer at least thirty minutes
The issues are mainly factual. They have been resolved by the trial court,
before the scheduled departure." The record shows that Azucena was ready
which has been affirmed by the respondent court, except as to the award of
to comply.
damages, which has been reduced. We see no reason why the decision had
to be elevated to us. If, as Torres said, he gave Azucena's seat to a chance passenger thirty-eight
minutes before departure time 8instead of waiting for Azucena, then he was
Time and again we have stressed that this Court is not a trier of facts. 1 We
intentionally violating the said circular. Significantly, it was proved he was not
leave these matters to the lower courts, which have more opportunity and
telling the truth when he said the Immigration Office was already closed
facilities to examine these matters. We have no jurisdiction as a rule to
although it was in fact still open at the time the private respondents arrived.
reverse their findings. 2 The exception invoked is that there is a clear showing
Moreover, the immigration officer on duty expressed his willingness to clear
of a grave abuse of discretion on their part, but we do not see it here.
Azucena Tomas for departure, thus indicating that she was well within the
provisions of the memorandum-circular. Torres' refusal to check her in was
We are satisfied from the findings of the respondent court (and of the trial
clearly unjustified.
court) that the private respondent was, in the language of the airline
industry, "bumped off." She had a confirmed ticket. She arrived at the airport
As it appeared later, the real reason why she could not be checked in was not
on time. However, she was not allowed to board because her seat had
her supposed tardiness but the circumstance that Torres had prematurely
already been given to another passenger. As a result, she suffered damages
given her seat to a chance passenger. That person certainly had less right to
for which the petitioner should be held liable.
prior accommodation than the private respondent herself.
Specifically, petitioner Korean Airlines (hereinafter called KAL) issued to
The claim that the real party in interest is the Gold N. Apparel Manufacturing
Azucena Tomas a plane ticket to Los Angeles, California, U.S.A., on Flight No.
Corporation and not the private respondent 9 is also untenable. Counsel for
KE 612 departing from the Manila International Airport on July 29, 1977, at
Azucena Tomas declared at the trial that she was suing in her personal
2:20 p.m. She paid the fare of P2,587.88 3 She and her husband arrived at
capacity. 10 In testifying about her participation in the said corporation, she
the KAL check-in counter at 1.:50 p.m. of that date 4 and presented her
was only stressing her status as a respected and well-connected
ticket to Augusto Torres, Jr., who was in charge. Torres refused to check her
businesswoman to show the extent of the prejudice caused to her interests
in, saying that the Immigration Office was already closed. 5 Januario Tomas,
by the unjustified acts of the petitioner.
her husband, rushed to the said office, which was still open, and was told by
the immigration officer on duty that his wife could still be cleared for It is clear that the petitioner acted in bad faith in violating the private
departure. Januario rushed back to Torres to convey this information and respondent's rights under their contract of carriage and is therefore liable for
asked that his wife be checked in. Torres said this was no longer possible the injuries she has sustained as a result. We agree with the Court of
because her seat had already been given to another passenger. His reason
 CONFLICTS | Assign 9| 80

Appeals, however, that the award should be reduced to P50,000.00 for actual
and compensatory damages, P30,000.00 for moral damages, and P20,000.00
for attorney's fees, the exemplary damages to be eliminated altogether.

WHEREFORE, the appealed decision of the respondent court is AFFIRMED in

toto, with costs against the petitioner.

SO ORDERED.

5. G.R. No. 78656 August 30, 1988
TRANS WORLD AIRLINES, petitioner,
vs.
COURT OF APPEALS and ROGELIO A. VINLUAN, respondents.
GANCAYCO, J.:
Rogelio A. Vinluan is a practicing lawyer who had to travel in April, 1979 to
several cities in Europe and the U.S. to attend to some matters involving
several clients. He entered into a contract for air carriage for valuable
consideration with Japan Airlines first class from Manila to Tokyo, Moscow,
Paris, Hamburg, Zurich, New York, Los Angeles, Honolulu and back to Manila
thru the same airline and other airlines it represents for which he was issued
the corresponding first class tickets for the entire trip.
On April 18, 1979, while in Paris, he went to the office of Trans World Airlines
(TWA) at the De Gaulle Airport and secured therefrom confirmed reservation
for first class accommodation on board its Flight No. 41 from New York to
San Francisco which was scheduled to depart on April 20, 1979. A validated
stub was attached to the New York-Los Angeles portion of his ticket
evidencing his confirmed reservation for said flight with the mark "OK " 1 On
April 20, 1979, at about 8:00 o'clock A.M., Vinluan reconfirrred his
reservation for first class accommodation on board TWA Flight No. 41 with its
New York office. He was advised that his reservation was confirmed. He was
even requested to indicate his seat preference on said flight on said
scheduled date of departure of TWA Flight No. 41. Vinluan presented his
ticket for check-in at the counter of TWA at JFK International Airport at about
9:45 o'clock A.M., the scheduled time of the departure being 11:00 o'clock
A.M. He was informed that there was no first class seat available for him on
the flight. He asked for an explanation but TWA employees on duty declined
to give any reason. When he began to protest, one of the TWA employees, a
certain Mr. Braam, rudely threatened him with the words "Don't argue with
me, I have a very bad temper."
To be able to keep his schedule, Vinluan was compelled to take the economy
seat offered to him and he was issued a refund application" as he was
downgraded from first class to economy class.
CONFLICTS | Assign 9| 81
While waiting for the departure of Flight No. 41. Vinluan noticed that other
passengers who were white Caucasians and who had checked-in later than
him were given preference in some first class seats which became available
due to "no show" passengers.
On February 15, 1980, Vinluan filed an action for damages against the TWA
in the Court of First Instance of Rizal alleging breach of contract and bad
faith. After trial on the merits, a decision was rendered the dispositive part of
which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant holding the latter liable to the for-mer for the amount
representing the difference in fare between first class and economy class
accommodations on board Flight No. 6041 from New York to San Francisco,
the amount of P500,000.00 as moral damages, the amount of P300,000.00
as exemplary damages, and the amount of P100,000.00 as and for attorney's
fees, all such amounts to earn interest at the rate of twelve (12%) percent
per annum from February 15, 1980 when the complainant was filed until fully
paid.
Correspondingly, defendant's counterclaim is dismissed. Costs against the
defendant.
SO ORDERED.
Not satisfied therewith, the TWA appealed to the Court of Appeals wherein in
due course a decision was rendered on May 27, 1987, 2 the dispositive part of
which reads as follows:
WHEREFORE, the decision dated March 8, 1984 is hereby modified by (1)
fixing the interest which appellant must pay on the awards of moral and
exemplary damages at six per cent (6%) per annum from the date of the
decision a quo, March 8, 1984 until date of full payment and (2) reducing the
attorne's fees to P50,000.00 without interest, the rest of the decision is
affirmed. Cost against appellant.
SO ORDERED.
Hence, the herein petition for review.
The theory of the petitioner is that because of maintenance problems of the
aircraft on the day of the flight, TWA Flight No. 41 was cancelled and a
special Flight No. 6041 was organized to operate in lieu of Flight No.
 CONFLICTS | Assign 9| 82

41. 3Flight No. 41 was to have utilized a Lockheed 1011 with 34 first class
seats, but instead, a smaller Boeing 707 with only 16 first class seats was
substituted for use in Flight No. 6041. Hence, passengers who had first class
reservations on Flight No. 41 had to be accommodated on Flight No. 6041 on
a first-come, first-served basis. An announcement was allegedly made to all
passengers in the entire terminal of the airport advising them to get boarding
cards for Flight No. 6041 to San Francisco and that the first ones getting
them would get first preference as to seats in the aircraft. It denied declining
to give any explanation for the downgrading of private respondent as well as
the discourteous attitude of Mr. Braam.
On the other hand, private respondent asserts that he did not hear such
announcement at the terminal and that he was among the early passengers
to present his ticket for check-in only to be informed that there was no first
class seat available for him and that he had to be downgraded.
The petitioner contends that the respondent Court of Appeals committed a
grave abuse of discretion in finding that petitioner acted maliciously and
discriminatorily, and in granting excessive moral and exemplary damages and
attorney's fees.
The contention is devoid of merit. Private respondent had a first class ticket
for Flight No. 41 of petitioner from New York to San Francisco on April 20,
1979. It was twice confirmed and yet respondent unceremoniously told him
that there was no first class seat available for him and that he had to be
downgraded to the economy class. As he protested, he was arrogantly
threatened by one Mr. Braam. Worst still, while he was waiting for the flight,
he saw that several Caucasians who arrived much later were accommodated
in first class seats when the other passengers did not show up.
consideration, particularly as to their convenience, amount to bad faith which
entitles the passenger to the award of moral damages. 5 More so in this case
where instead of courteously informing private respondent of his being
downgraded under the circumstances, he was angrily rebuffed by an
employee of petitioner.
At the time of this unfortunate incident, the private respondent was a
practicing lawyer, a senior partner of a big law firm in Manila. He was a
director of several companies and was active in civic and social organizations
in the Philippines. Considering the circumstances of this case and the social
standing of private respondent in the community, he is entitled to the award
of moral and exemplary damages. However, the moral damages should be
reduced to P300,000.00, and the exemplary damages should be reduced to
P200,000.00. This award should be reasonably sufficient to indemnify private
respondent for the humiliation and embarrassment that he suffered and to
serve as an example to discourage the repetition of similar oppressive and
discriminatory acts.
WHEREFORE, with the above modification reducing the moral and exemplary
damages as above-stated, the decision subject of the petition for review is
AFFIRMED in all other respects, without pronouncement as to costs in this
instance.
SO ORDERED.

The discrimination is obvious and the humiliation to which private respondent

was subjected is undeniable. Consequently, the award of moral and
exemplary damages by the respondent court is in order. 4

Indeed, private respondent had shown that the alleged switch of planes from
a Lockheed 1011 to a smaller Boeing 707 was because there were only 138
confirmed economy class passengers who could very well be accommodated
in the smaller plane and not because of maintenance problems.

Petitioner sacrificed the comfort of its first class passengers including private
respondent Vinluan for the sake of econonmy. Such inattention and lack of
care for the interest of its passengers who are entitled to its utmost

6. G.R. No. 150843 March 14, 2003
CATHAY PACIFIC AIRWAYS, LTD., petitioner,
vs.
SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL
VAZQUEZ, respondents.
DAVIDE, JR., C.J.:
Is an involuntary upgrading of an airline passengers accommodation from
one class to a more superior class at no extra cost a breach of contract of
carriage that would entitle the passenger to an award of damages? This is a
novel question that has to be resolved in this case.
The facts in this case, as found by the Court of Appeals and adopted by
petitioner Cathay Pacific Airways, Ltd., (hereinafter Cathay) are as follows:
Cathay is a common carrier engaged in the business of transporting
passengers and goods by air. Among the many routes it services is the
Manila-Hongkong-Manila course. As part of its marketing strategy, Cathay
accords its frequent flyers membership in its Marco Polo Club. The members
enjoy several privileges, such as priority for upgrading of booking without
any extra charge whenever an opportunity arises. Thus, a frequent flyer
booked in the Business Class has priority for upgrading to First Class if the
Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal
Vazquez are frequent flyers of Cathay and are Gold Card members of its
Marco Polo Club. On 24 September 1996, the Vazquezes, together with their
maid and two friends Pacita Cruz and Josefina Vergel de Dios, went to
Hongkong for pleasure and business.
For their return flight to Manila on 28 September 1996, they were booked on
Cathays Flight CX-905, with departure time at 9:20 p.m. Two hours before
their time of departure, the Vazquezes and their companions checked in their
luggage at Cathays check-in counter at Kai Tak Airport and were given their
respective boarding passes, to wit, Business Class boarding passes for the
Vazquezes and their two friends, and Economy Class for their maid. They
then proceeded to the Business Class passenger lounge.
When boarding time was announced, the Vazquezes and their two friends
went to Departure Gate No. 28, which was designated for Business Class
passengers. Dr. Vazquez presented his boarding pass to the ground
CONFLICTS | Assign 9| 83
stewardess, who in turn inserted it into an electronic machine reader or
computer at the gate. The ground stewardess was assisted by a ground
attendant by the name of Clara Lai Han Chiu. When Ms. Chiu glanced at the
computer monitor, she saw a message that there was a "seat change" from
Business Class to First Class for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes
accommodations were upgraded to First Class. Dr. Vazquez refused the
upgrade, reasoning that it would not look nice for them as hosts to travel in
First Class and their guests, in the Business Class; and moreover, they were
going to discuss business matters during the flight. He also told Ms. Chiu that
she could have other passengers instead transferred to the First Class
Section. Taken aback by the refusal for upgrading, Ms. Chiu consulted her
supervisor, who told her to handle the situation and convince the Vazquezes
to accept the upgrading. Ms. Chiu informed the latter that the Business Class
was fully booked, and that since they were Marco Polo Club members they
had the priority to be upgraded to the First Class. Dr. Vazquez continued to
refuse, so Ms. Chiu told them that if they would not avail themselves of the
privilege, they would not be allowed to take the flight. Eventually, after
talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then
proceeded to the First Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996
addressed to Cathays Country Manager, demanded that they be indemnified
in the amount of P1million for the "humiliation and embarrassment" caused
by its employees. They also demanded "a written apology from the
management of Cathay, preferably a responsible person with a rank of no
less than the Country Manager, as well as the apology from Ms. Chiu" within
fifteen days from receipt of the letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathays
Country Manager Argus Guy Robson, informed the Vazquezes that Cathay
would investigate the incident and get back to them within a weeks time.
On 8 November 1996, after Cathays failure to give them any feedback within
its self-imposed deadline, the Vazquezes instituted before the Regional Trial
Court of Makati City an action for damages against Cathay, praying for the
payment to each of them the amounts of P250,000 as temperate damages;
P500,000 as moral damages; P500,000 as exemplary or corrective damages;
and P250,000 as attorneys fees.

In their complaint, the Vazquezes alleged that when they informed Ms. Chiu
that they preferred to stay in Business Class, Ms. Chiu "obstinately,
uncompromisingly and in a loud, discourteous and harsh voice threatened"
that they could not board and leave with the flight unless they go to First
Class, since the Business Class was overbooked. Ms. Chius loud and
stringent shouting annoyed, embarrassed, and humiliated them because the
incident was witnessed by all the other passengers waiting for boarding. They
also claimed that they were unjustifiably delayed to board the plane, and
when they were finally permitted to get into the aircraft, the forward storage
compartment was already full. A flight stewardess instructed Dr. Vazquez to
put his roll-on luggage in the overhead storage compartment. Because he
was not assisted by any of the crew in putting up his luggage, his bilateral
carpal tunnel syndrome was aggravated, causing him extreme pain on his
arm and wrist. The Vazquezes also averred that they "belong to the
uppermost and absolutely top elite of both Philippine Society and the
Philippine financial community, [and that] they were among the wealthiest
persons in the Philippine[s]."
In its answer, Cathay alleged that it is a practice among commercial airlines
to upgrade passengers to the next better class of accommodation, whenever
an opportunity arises, such as when a certain section is fully booked. Priority
in upgrading is given to its frequent flyers, who are considered favored
passengers like the Vazquezes. Thus, when the Business Class Section of
Flight CX-905 was fully booked, Cathays computer sorted out the names of
favored passengers for involuntary upgrading to First Class. When Ms. Chiu
informed the Vazquezes that they were upgraded to First Class, Dr. Vazquez
refused. He then stood at the entrance of the boarding apron, blocking the
queue of passengers from boarding the plane, which inconvenienced other
passengers. He shouted that it was impossible for him and his wife to be
upgraded without his two friends who were traveling with them. Because of
Dr. Vazquezs outburst, Ms. Chiu thought of upgrading the traveling
companions of the Vazquezes. But when she checked the computer, she
learned that the Vazquezes companions did not have priority for upgrading.
She then tried to book the Vazquezes again to their original seats. However,
since the Business Class Section was already fully booked, she politely
informed Dr. Vazquez of such fact and explained that the upgrading was in
recognition of their status as Cathays valued passengers. Finally, after
talking to their guests, the Vazquezes eventually decided to take the First
Class accommodation.
Cathay also asserted that its employees at the Hong Kong airport acted in
good faith in dealing with the Vazquezes; none of them shouted, humiliated,
CONFLICTS | Assign 9| 84
embarrassed, or committed any act of disrespect against them (the
Vazquezes). Assuming that there was indeed a breach of contractual
obligation, Cathay acted in good faith, which negates any basis for their claim
for temperate, moral, and exemplary damages and attorneys fees. Hence, it
prayed for the dismissal of the complaint and for payment of P100,000 for
exemplary damages and P300,000 as attorneys fees and litigation expenses.
During the trial, Dr. Vazquez testified to support the allegations in the
complaint. His testimony was corroborated by his two friends who were with
him at the time of the incident, namely, Pacita G. Cruz and Josefina Vergel de
Dios.
For its part, Cathay presented documentary evidence and the testimonies of
Mr. Yuen; Ms. Chiu; Norma Barrientos, Comptroller of its retained counsel;
and Mr. Robson. Yuen and Robson testified on Cathays policy of upgrading
the seat accommodation of its Marco Polo Club members when an
opportunity arises. The upgrading of the Vazquezes to First Class was done in
good faith; in fact, the First Class Section is definitely much better than the
Business Class in terms of comfort, quality of food, and service from the
cabin crew. They also testified that overbooking is a widely accepted practice
in the airline industry and is in accordance with the International Air
Transport Association (IATA) regulations. Airlines overbook because a lot of
passengers do not show up for their flight. With respect to Flight CX-905,
there was no overall overbooking to a degree that a passenger was bumped
off or downgraded. Yuen and Robson also stated that the demand letter of
the Vazquezes was immediately acted upon. Reports were gathered from
their office in Hong Kong and immediately forwarded to their counsel Atty.
Remollo for legal advice. However, Atty. Remollo begged off because his
services were likewise retained by the Vazquezes; nonetheless, he undertook
to solve the problem in behalf of Cathay. But nothing happened until Cathay
received a copy of the complaint in this case. For her part, Ms. Chiu denied
that she shouted or used foul or impolite language against the Vazquezes.
Ms. Barrientos testified on the amount of attorneys fees and other litigation
expenses, such as those for the taking of the depositions of Yuen and Chiu.
In its decision1 of 19 October 1998, the trial court found for the Vazquezes
and decreed as follows:
WHEREFORE, finding preponderance of evidence to sustain the instant
complaint, judgment is hereby rendered in favor of plaintiffs Vazquez spouses
and against defendant Cathay Pacific Airways, Ltd., ordering the latter to pay
each plaintiff the following:

a) Nominal damages in the amount of P100,000.00 for each plaintiff;
b) Moral damages in the amount of P2,000,000.00 for each plaintiff;
c) Exemplary damages in the amount of P5,000,000.00 for each plaintiff;
d) Attorneys fees and expenses of litigation in the amount of P1,000,000.00
for each plaintiff; and
e) Costs of suit.
SO ORDERED.
According to the trial court, Cathay offers various classes of seats from which
passengers are allowed to choose regardless of their reasons or motives,
whether it be due to budgetary constraints or whim. The choice imposes a
clear obligation on Cathay to transport the passengers in the class chosen by
them. The carrier cannot, without exposing itself to liability, force a
passenger to involuntarily change his choice. The upgrading of the
Vazquezes accommodation over and above their vehement objections was
due to the overbooking of the Business Class. It was a pretext to pack as
many passengers as possible into the plane to maximize Cathays revenues.
Cathays actuations in this case displayed deceit, gross negligence, and bad
faith, which entitled the Vazquezes to awards for damages.
On appeal by the petitioners, the Court of Appeals, in its decision of 24 July
2001,2 deleted the award for exemplary damages; and it reduced the awards
for moral and nominal damages for each of the Vazquezes to P250,000 and
P50,000, respectively, and the attorneys fees and litigation expenses to
P50,000 for both of them.
The Court of Appeals ratiocinated that by upgrading the Vazquezes to First
Class, Cathay novated the contract of carriage without the formers consent.
There was a breach of contract not because Cathay overbooked the Business
Class Section of Flight CX-905 but because the latter pushed through with
the upgrading despite the objections of the Vazquezes.
However, the Court of Appeals was not convinced that Ms. Chiu shouted at,
or meant to be discourteous to, Dr. Vazquez, although it might seemed that
way to the latter, who was a member of the elite in Philippine society and was
not therefore used to being harangued by anybody. Ms. Chiu was a Hong
Kong Chinese whose fractured Chinese was difficult to understand and whose
manner of speaking might sound harsh or shrill to Filipinos because of
CONFLICTS | Assign 9| 85
cultural differences. But the Court of Appeals did not find her to have acted
with deliberate malice, deceit, gross negligence, or bad faith. If at all, she
was negligent in not offering the First Class accommodations to other
passengers. Neither can the flight stewardess in the First Class Cabin be said
to have been in bad faith when she failed to assist Dr. Vazquez in lifting his
baggage into the overhead storage bin. There is no proof that he asked for
help and was refused even after saying that he was suffering from "bilateral
carpal tunnel syndrome." Anent the delay of Yuen in responding to the
demand letter of the Vazquezes, the Court of Appeals found it to have been
sufficiently explained.
The Vazquezes and Cathay separately filed motions for a reconsideration of
the decision, both of which were denied by the Court of Appeals.
Cathay seasonably filed with us this petition in this case. Cathay maintains
that the award for moral damages has no basis, since the Court of Appeals
found that there was no "wanton, fraudulent, reckless and oppressive"
display of manners on the part of its personnel; and that the breach of
contract was not attended by fraud, malice, or bad faith. If any damage had
been suffered by the Vazquezes, it was damnum absque injuria, which is
damage without injury, damage or injury inflicted without injustice, loss or
damage without violation of a legal right, or a wrong done to a man for which
the law provides no remedy. Cathay also invokes our decision in United
Airlines, Inc. v. Court of Appeals 3 where we recognized that, in accordance
with the Civil Aeronautics Boards Economic Regulation No. 7, as amended,
an overbooking that does not exceed ten percent cannot be considered
deliberate and done in bad faith. We thus deleted in that case the awards for
moral and exemplary damages, as well as attorneys fees, for lack of proof of
overbooking exceeding ten percent or of bad faith on the part of the airline
carrier.
On the other hand, the Vazquezes assert that the Court of Appeals was
correct in granting awards for moral and nominal damages and attorneys
fees in view of the breach of contract committed by Cathay for transferring
them from the Business Class to First Class Section without prior notice or
consent and over their vigorous objection. They likewise argue that the
issuance of passenger tickets more than the seating capacity of each section
of the plane is in itself fraudulent, malicious and tainted with bad faith.
The key issues for our consideration are whether (1) by upgrading the seat
accommodation of the Vazquezes from Business Class to First Class Cathay
breached its contract of carriage with the Vazquezes; (2) the upgrading was
 CONFLICTS | Assign 9| 86

tainted with fraud or bad faith; and (3) the Vazquezes are entitled to the Club, they had priority for upgrading of their seat accommodation at no
damages. extra cost when an opportunity arises. But, just like other privileges, such
priority could be waived. The Vazquezes should have been consulted first
We resolve the first issue in the affirmative. whether they wanted to avail themselves of the privilege or would consent to
a change of seat accommodation before their seat assignments were given to
A contract is a meeting of minds between two persons whereby one agrees to
other passengers. Normally, one would appreciate and accept an upgrading,
give something or render some service to another for a consideration. There
for it would mean a better accommodation. But, whatever their reason was
is no contract unless the following requisites concur: (1) consent of the
and however odd it might be, the Vazquezes had every right to decline the
contracting parties; (2) an object certain which is the subject of the contract;
upgrade and insist on the Business Class accommodation they had booked
and (3) the cause of the obligation which is established. 4 Undoubtedly, a
for and which was designated in their boarding passes. They clearly waived
contract of carriage existed between Cathay and the Vazquezes. They
their priority or preference when they asked that other passengers be given
voluntarily and freely gave their consent to an agreement whose object was
the upgrade. It should not have been imposed on them over their vehement
the transportation of the Vazquezes from Manila to Hong Kong and back to
objection. By insisting on the upgrade, Cathay breached its contract of
Manila, with seats in the Business Class Section of the aircraft, and whose
carriage with the Vazquezes.
cause or consideration was the fare paid by the Vazquezes to Cathay.
We are not, however, convinced that the upgrading or the breach of contract
The only problem is the legal effect of the upgrading of the seat
was attended by fraud or bad faith. Thus, we resolve the second issue in the
accommodation of the Vazquezes. Did it constitute a breach of contract?
negative.
Breach of contract is defined as the "failure without legal reason to comply
Bad faith and fraud are allegations of fact that demand clear and convincing
with the terms of a contract."5 It is also defined as the "[f]ailure, without
proof. They are serious accusations that can be so conveniently and casually
legal excuse, to perform any promise which forms the whole or part of the
invoked, and that is why they are never presumed. They amount to mere
contract."6
slogans or mudslinging unless convincingly substantiated by whoever is
alleging them.
In previous cases, the breach of contract of carriage consisted in either the
bumping off of a passenger with confirmed reservation or the downgrading of
Fraud has been defined to include an inducement through insidious
a passengers seat accommodation from one class to a lower class. In this
machination. Insidious machination refers to a deceitful scheme or plot with
case, what happened was the reverse. The contract between the parties was
an evil or devious purpose. Deceit exists where the party, with intent to
for Cathay to transport the Vazquezes to Manila on a Business Class
deceive, conceals or omits to state material facts and, by reason of such
accommodation in Flight CX-905. After checking-in their luggage at the Kai
omission or concealment, the other party was induced to give consent that
Tak Airport in Hong Kong, the Vazquezes were given boarding cards
would not otherwise have been given. 7
indicating their seat assignments in the Business Class Section. However,
during the boarding time, when the Vazquezes presented their boarding Bad faith does not simply connote bad judgment or negligence; it imports a
passes, they were informed that they had a seat change from Business Class dishonest purpose or some moral obliquity and conscious doing of a wrong, a
to First Class. It turned out that the Business Class was overbooked in that breach of a known duty through some motive or interest or ill will that
there were more passengers than the number of seats. Thus, the seat partakes of the nature of fraud.8
assignments of the Vazquezes were given to waitlisted passengers, and the
Vazquezes, being members of the Marco Polo Club, were upgraded from We find no persuasive proof of fraud or bad faith in this case. The Vazquezes
Business Class to First Class. were not induced to agree to the upgrading through insidious words or
deceitful machination or through willful concealment of material facts. Upon
We note that in all their pleadings, the Vazquezes never denied that they boarding, Ms. Chiu told the Vazquezes that their accommodations were
were members of Cathays Marco Polo Club. They knew that as members of upgraded to First Class in view of their being Gold Card members of Cathays

Marco Polo Club. She was honest in telling them that their seats were already
given to other passengers and the Business Class Section was fully booked.
Ms. Chiu might have failed to consider the remedy of offering the First Class
seats to other passengers. But, we find no bad faith in her failure to do so,
even if that amounted to an exercise of poor judgment.
Neither was the transfer of the Vazquezes effected for some evil or devious
purpose. As testified to by Mr. Robson, the First Class Section is better than
the Business Class Section in terms of comfort, quality of food, and service
from the cabin crew; thus, the difference in fare between the First Class and
Business Class at that time was $250. 9 Needless to state, an upgrading is for
the better condition and, definitely, for the benefit of the passenger.
We are not persuaded by the Vazquezes argument that the overbooking of
the Business Class Section constituted bad faith on the part of Cathay.
Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board, as
amended, provides:
Sec 3. Scope. This regulation shall apply to every Philippine and foreign air
carrier with respect to its operation of flights or portions of flights originating
from or terminating at, or serving a point within the territory of the Republic
of the Philippines insofar as it denies boarding to a passenger on a flight, or
portion of a flight inside or outside the Philippines, for which he holds
confirmed reserved space. Furthermore, this Regulation is designed to cover
only honest mistakes on the part of the carriers and excludes deliberate and
willful acts of non-accommodation. Provided, however, that overbooking not
exceeding 10% of the seating capacity of the aircraft shall not be considered
as a deliberate and willful act of non-accommodation.
It is clear from this section that an overbooking that does not exceed ten
percent is not considered deliberate and therefore does not amount to bad
faith.10 Here, while there was admittedly an overbooking of the Business
Class, there was no evidence of overbooking of the plane beyond ten percent,
and no passenger was ever bumped off or was refused to board the aircraft.
Now we come to the third issue on damages.
The Court of Appeals awarded each of the Vazquezes moral damages in the
amount of P250,000. Article 2220 of the Civil Code provides:
CONFLICTS | Assign 9| 87
Article 2220. Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith.
Moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Although incapable of pecuniary computation,
moral damages may be recovered if they are the proximate result of the
defendants wrongful act or omission. 11 Thus, case law establishes the
following requisites for the award of moral damages: (1) there must be an
injury clearly sustained by the claimant, whether physical, mental or
psychological; (2) there must be a culpable act or omission factually
established; (3) the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) the award
for damages is predicated on any of the cases stated in Article 2219 of the
Civil Code.12
Moral damages predicated upon a breach of contract of carriage may only be
recoverable in instances where the carrier is guilty of fraud or bad faith or
where the mishap resulted in the death of a passenger.13 Where in breaching
the contract of carriage the airline is not shown to have acted fraudulently or
in bad faith, liability for damages is limited to the natural and probable
consequences of the breach of the obligation which the parties had foreseen
or could have reasonably foreseen. In such a case the liability does not
include moral and exemplary damages.14
In this case, we have ruled that the breach of contract of carriage, which
consisted in the involuntary upgrading of the Vazquezes seat
accommodation, was not attended by fraud or bad faith. The Court of
Appeals award of moral damages has, therefore, no leg to stand on.
The deletion of the award for exemplary damages by the Court of Appeals is
correct. It is a requisite in the grant of exemplary damages that the act of
the offender must be accompanied by bad faith or done in wanton, fraudulent
or malevolent manner.15 Such requisite is absent in this case. Moreover, to be
entitled thereto the claimant must first establish his right to moral,
temperate, or compensatory damages.16 Since the Vazquezes are not entitled
to any of these damages, the award for exemplary damages has no legal
basis. And where the awards for moral and exemplary damages are
eliminated, so must the award for attorneys fees.17
 CONFLICTS | Assign 9| 88

The most that can be adjudged in favor of the Vazquezes for Cathays breach
of contract is an award for nominal damages under Article 2221 of the Civil
Code, which reads as follows:
Article 2221 of the Civil Code provides:
suspicion that it was the result of "prejudice or corruption on the part of the
trial court."
The presiding judge of the lower court is enjoined to hearken to the Supreme
Courts admonition in Singson vs. CA (282 SCRA 149 [1997]), where it said:

Article 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the plaintiff
for any loss suffered by him.
Worth noting is the fact that in Cathays Memorandum filed with this Court, it
prayed only for the deletion of the award for moral damages. It deferred to
the Court of Appeals discretion in awarding nominal damages; thus:
As far as the award of nominal damages is concerned, petitioner respectfully
defers to the Honorable Court of Appeals discretion. Aware as it is that
somehow, due to the resistance of respondents-spouses to the normally-
appreciated gesture of petitioner to upgrade their accommodations, petitioner
may have disturbed the respondents-spouses wish to be with their
companions (who traveled to Hong Kong with them) at the Business Class on
their flight to Manila. Petitioner regrets that in its desire to provide the
respondents-spouses with additional amenities for the one and one-half (1
1/2) hour flight to Manila, unintended tension ensued. 18
Nonetheless, considering that the breach was intended to give more benefit
and advantage to the Vazquezes by upgrading their Business Class
accommodation to First Class because of their valued status as Marco Polo
members, we reduce the award for nominal damages to P5,000.
Before writing finis to this decision, we find it well-worth to quote the apt
observation of the Court of Appeals regarding the awards adjudged by the
trial court:
The well-entrenched principle is that the grant of moral damages depends
upon the discretion of the court based on the circumstances of each case.
This discretion is limited by the principle that the amount awarded should not
be palpably and scandalously excessive as to indicate that it was the result of
prejudice or corruption on the part of the trial court.
and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:
Nonetheless, we agree with the injunction expressed by the Court of Appeals
that passengers must not prey on international airlines for damage awards,
like "trophies in a safari." After all neither the social standing nor prestige of
the passenger should determine the extent to which he would suffer because
of a wrong done, since the dignity affronted in the individual is a quality
inherent in him and not conferred by these social indicators. 19
We adopt as our own this observation of the Court of Appeals.
WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of
the Court of Appeals of 24 July 2001 in CA-G.R. CV No. 63339 is hereby
MODIFIED, and as modified, the awards for moral damages and attorneys
fees are set aside and deleted, and the award for nominal damages is
reduced to P5,000.
No pronouncement on costs.
SO ORDERED.

We are not amused but alarmed at the lower courts unbelievable alacrity,
bordering on the scandalous, to award excessive amounts as damages. In
their complaint, appellees asked for P1 million as moral damages but the
lower court awarded P4 million; they asked for P500,000.00 as exemplary
damages but the lower court cavalierly awarded a whooping P10 million; they
asked for P250,000.00 as attorneys fees but were awarded P2 million; they
did not ask for nominal damages but were awarded P200,000.00. It is as if
the lower court went on a rampage, and why it acted that way is beyond all
tests of reason. In fact the excessiveness of the total award invites the

7. G.R. No. 101538 June 23, 1992
AUGUSTO BENEDICTO SANTOS III, represented by his father and
legal guardian, Augusto Benedicto Santos, petitioner,
vs.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.
CRUZ, J.:
This case involves the Proper interpretation of Article 28(1) of the Warsaw
Convention, reading as follows:
Art. 28. (1) An action for damage must be brought at the option of the
plaintiff, in the territory of one of the High Contracting Parties, either before
the court of the domicile of the carrier or of his principal place of business, or
where he has a place of business through which the contract has been made,
or before the court at the place of destination.
The petitioner is a minor and a resident of the Philippines. Private respondent
Northwest Orient Airlines (NOA) is a foreign corporation with principal office
in Minnesota, U.S.A. and licensed to do business and maintain a branch office
in the Philippines.
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket
in San Francisco. U.S.A., for his flight from San Francisco to Manila via Tokyo
and back. The scheduled departure date from Tokyo was December 20, 1986.
No date was specified for his return to San Francisco. 1
On December 19, 1986, the petitioner checked in at the NOA counter in the
San Francisco airport for his scheduled departure to Manila. Despite a
previous confirmation and re-confirmation, he was informed that he had no
reservation for his flight from Tokyo to Manila. He therefore had to be wait-
listed.
On March 12, 1987, the petitioner sued NOA for damages in the Regional
Trial Court of Makati. On April 13, 1987, NOA moved to dismiss the complaint
on the ground of lack of jurisdiction. Citing the above-quoted article, it
contended that the complaint could be instituted only in the territory of one
of the High Contracting Parties, before:
1. the court of the domicile of the carrier;
2. the court of its principal place of business;
CONFLICTS | Assign 9| 89
3. the court where it has a place of business through which the contract had
been made;
4. the court of the place of destination.
The private respondent contended that the Philippines was not its domicile
nor was this its principal place of business. Neither was the petitioner's ticket
issued in this country nor was his destination Manila but San Francisco in the
United States.
On February 1, 1988, the lower court granted the motion and dismissed the
case. 2 The petitioner appealed to the Court of Appeals, which affirmed the
decision of the lower court. 3 On June 26, 1991, the petitioner filed a motion
for reconsideration, but the same was denied. 4 The petitioner then came to
this Court, raising substantially the same issues it submitted in the Court of
Appeals.
The assignment of errors may be grouped into two major issues, viz:
(1) the constitutionality of Article 28(1) of the Warsaw Convention; and
(2) the jurisdiction of Philippine courts over the case.
The petitioner also invokes Article 24 of the Civil Code on the protection of
minors.
I
THE ISSUE OF CONSTITUTIONALITY
A. The petitioner claims that the lower court erred in not ruling that Article
28(1) of the Warsaw Convention violates the constitutional guarantees of due
process and equal protection.
The Republic of the Philippines is a party to the Convention for the Unification
of Certain Rules Relating to International Transportation by Air, otherwise
known as the Warsaw Convention. It took effect on February 13, 1933. The
Convention was concurred in by the Senate, through its Resolution No. 19, on
May 16, 1950. The Philippine instrument of accession was signed by
President Elpidio Quirino on October 13, 1950, and was deposited with the
Polish government on November 9, 1950. The Convention became applicable
to the Philippines on February 9, 1951. On September 23, 1955, President
Ramon Magsaysay issued Proclamation No. 201, declaring our formal

adherence thereto. "to the end that the same and every article and clause
thereof may be observed and fulfilled in good faith by the Republic of the
Philippines and the citizens thereof." 5
The Convention is thus a treaty commitment voluntarily assumed by the
Philippine government and, as such, has the force and effect of law in this
country.
The petitioner contends that Article 28(1) cannot be applied in the present
case because it is unconstitutional. He argues that there is no substantial
distinction between a person who purchases a ticket in Manila and a person
who purchases his ticket in San Francisco. The classification of the places in
which actions for damages may be brought is arbitrary and irrational and
thus violates the due process and equal protection clauses.
It is well-settled that courts will assume jurisdiction over a constitutional
question only if it is shown that the essential requisites of a judicial inquiry
into such a question are first satisfied. Thus, there must be an actual case or
controversy involving a conflict of legal rights susceptible of judicial
determination; the constitutional question must have been opportunely
raised by the proper party; and the resolution of the question is unavoidably
necessary to the decision of the case itself. 6
Courts generally avoid having to decide a constitutional question. This
attitude is based on the doctrine of separation of powers, which enjoins upon
the departments of the government a becoming respect for each other's acts.
The treaty which is the subject matter of this petition was a joint legislative-
executive act. The presumption is that it was first carefully studied and
determined to be constitutional before it was adopted and given the force of
law in this country.
The petitioner's allegations are not convincing enough to overcome this
presumption. Apparently, the Convention considered the four places
designated in Article 28 the most convenient forums for the litigation of any
claim that may arise between the airline and its passenger, as distinguished
from all other places. At any rate, we agree with the respondent court that
this case can be decided on other grounds without the necessity of resolving
the constitutional issue.
B. The petitioner claims that the lower court erred in not ruling that Art.
28(1) of the Warsaw Convention is inapplicable because of a fundamental
change in the circumstances that served as its basis.
CONFLICTS | Assign 9| 90
The petitioner goes at great lengths to show that the provisions in the
Convention were intended to protect airline companies under "the conditions
prevailing then and which have long ceased to exist." He argues that in view
of the significant developments in the airline industry through the years, the
treaty has become irrelevant. Hence, to the extent that it has lost its basis
for approval, it has become unconstitutional.
The petitioner is invoking the doctrine of rebus sic stantibus. According to
Jessup, "this doctrine constitutes an attempt to formulate a legal principle
which would justify non-performance of a treaty obligation if the conditions
with relation to which the parties contracted have changed so materially and
so unexpectedly as to create a situation in which the exaction of performance
would be unreasonable." 7 The key element of this doctrine is the vital
change in the condition of the contracting parties that they could not have
foreseen at the time the treaty was concluded.
The Court notes in this connection the following observation made in Day v.
Trans World Airlines, Inc.: 8
The Warsaw drafters wished to create a system of liability rules that would
cover all the hazards of air travel . . . The Warsaw delegates knew that, in
the years to come, civil aviation would change in ways that they could not
foresee. They wished to design a system of air law that would be both
durable and flexible enough to keep pace with these changes . . . The ever-
changing needs of the system of civil aviation can be served within the
framework they created.
It is true that at the time the Warsaw Convention was drafted, the airline
industry was still in its infancy. However, that circumstance alone is not
sufficient justification for the rejection of the treaty at this time. The changes
recited by the petitioner were, realistically, not entirely unforeseen although
they were expected in a general sense only. In fact, the Convention itself,
anticipating such developments, contains the following significant provision:
Article 41. Any High Contracting Party shall be entitled not earlier than two
years after the coming into force of this convention to call for the assembling
of a new international conference in order to consider any improvements
which may be made in this convention. To this end, it will communicate with
the Government of the French Republic which will take the necessary
measures to make preparations for such conference.

But the more important consideration is that the treaty has not been rejected
by the Philippine government. The doctrine of rebus sic stantibus does not
operate automatically to render the treaty inoperative. There is a necessity
for a formal act of rejection, usually made by the head of State, with a
statement of the reasons why compliance with the treaty is no longer
required.
In lieu thereof, the treaty may be denounced even without an expressed
justification for this action. Such denunciation is authorized under its Article
39, viz:
Article 39. (1) Any one of the High Contracting Parties may denounce this
convention by a notification addressed to the Government of the Republic of
Poland, which shall at once inform the Government of each of the High
Contracting Parties.
(2) Denunciation shall take effect six months after the notification of
denunciation, and shall operate only as regards the party which shall have
proceeded to denunciation.
Obviously. rejection of the treaty, whether on the ground of rebus sic
stantibus or pursuant to Article 39, is not a function of the courts but of the
other branches of government. This is a political act. The conclusion and
renunciation of treaties is the prerogative of the political departments and
may not be usurped by the judiciary. The courts are concerned only with the
interpretation and application of laws and treaties in force and not with their
wisdom or efficacy.
C. The petitioner claims that the lower court erred in ruling that the plaintiff
must sue in the United States, because this would deny him the right to
access to our courts.
The petitioner alleges that the expenses and difficulties he will incur in filing a
suit in the United States would constitute a constructive denial of his right to
access to our courts for the protection of his rights. He would consequently
be deprived of this vital guaranty as embodied in the Bill of Rights.
CONFLICTS | Assign 9| 91
Obviously, the constitutional guaranty of access to courts refers only to
courts with appropriate jurisdiction as defined by law. It does not mean that
a person can go to any court for redress of his grievances regardless of the
nature or value of his claim. If the petitioner is barred from filing his
complaint before our courts, it is because they are not vested with the
appropriate jurisdiction under the Warsaw Convention, which is part of the
law of our land.
II
THE ISSUE OF JURISDICTION.
A. The petitioner claims that the lower court erred in not ruling that Article
28(1) of the Warsaw Convention is a rule merely of venue and was waived
by defendant when it did not move to dismiss on the ground of improper
venue.
By its own terms, the Convention applies to all international transportation of
persons performed by aircraft for hire.
International transportation is defined in paragraph (2) of Article 1 as
follows:
(2) For the purposes of this convention, the expression "international
transportation" shall mean any transportation in which, according to the
contract made by the parties, the place of departure and the place of
destination, whether or not there be a break in the transportation or a
transshipment, are situated [either] within the territories of two High
Contracting Parties . . .
Whether the transportation is "international" is determined by the contract of
the parties, which in the case of passengers is the ticket. When the contract
of carriage provides for the transportation of the passenger between certain
designated terminals "within the territories of two High Contracting Parties,"
the provisions of the Convention automatically apply and exclusively govern
the rights and liabilities of the airline and its passenger.
Since the flight involved in the case at bar is international, the same being
from the United States to the Philippines and back to the United States, it is
subject to the provisions of the Warsaw Convention, including Article 28(1),
which enumerates the four places where an action for damages may be
brought.

Whether Article 28(1) refers to jurisdiction or only to venue is a question
over which authorities are sharply divided. While the petitioner cites several
cases holding that Article 28(1) refers to venue rather than
jurisdiction, 9 there are later cases cited by the private respondent supporting
the conclusion that the provision is jurisdictional. 10
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be
conferred by consent or waiver upon d court which otherwise would have no
jurisdiction over the subject-matter of an action; but the venue of an action
as fixed by statute may be changed by the consent of the parties and an
objection that the plaintiff brought his suit in the wrong county may be
waived by the failure of the defendant to make a timely objection. In either
case, the court may render a valid judgment. Rules as to jurisdiction can
never be left to the consent or agreement of the parties, whether or not a
prohibition exists against their alteration. 11
A number of reasons tends to support the characterization of Article 28(1) as
a jurisdiction and not a venue provision. First, the wording of Article 32,
which indicates the places where the action for damages "must" be brought,
underscores the mandatory nature of Article 28(1). Second, this
characterization is consistent with one of the objectives of the Convention,
which is to "regulate in a uniform manner the conditions of international
transportation by air." Third, the Convention does not contain any provision
prescribing rules of jurisdiction other than Article 28(1), which means that
the phrase "rules as to jurisdiction" used in Article 32 must refer only to
Article 28(1). In fact, the last sentence of Article 32 specifically deals with the
exclusive enumeration in Article 28(1) as "jurisdictions," which, as such,
cannot be left to the will of the parties regardless of the time when the
damage occurred.
This issue was analyzed in the leading case of Smith v. Canadian Pacific
Airways, Ltd., 12 where it was held:
. . . Of more, but still incomplete, assistance is the wording of Article 28(2),
especially when considered in the light of Article 32. Article 28(2) provides
that "questions of procedure shall be governed by the law of the court to
which the case is submitted" (Emphasis supplied). Section (2) thus may be
read to leave for domestic decision questions regarding the suitability and
location of a particular Warsaw Convention case.
In other words, where the matter is governed by the Warsaw Convention,
jurisdiction takes on a dual concept. Jurisdiction in the international sense
CONFLICTS | Assign 9| 92
must be established in accordance with Article 28(1) of the Warsaw
Convention, following which the jurisdiction of a particular court must be
established pursuant to the applicable domestic law. Only after the question
of which court has jurisdiction is determined will the issue of venue be taken
up. This second question shall be governed by the law of the court to which
the case is submitted.
The petitioner submits that since Article 32 states that the parties are
precluded "before the damages occurred" from amending the rules of Article
28(1) as to the place where the action may be brought, it would follow that
the Warsaw Convention was not intended to preclude them from doing so
"after the damages occurred."
Article 32 provides:
Art. 32. Any clause contained in the contract and all special agreements
entered into before the damage occurred by which the parties purport to
infringe the rules laid down by this convention, whether by deciding the law
to be applied, or by altering the rules as to jurisdiction, shall be null and void.
Nevertheless for the transportation of goods, arbitration clauses shall be
allowed, subject to this convention, if the arbitration is to take place within
one of the jurisdictions referred to in the first paragraph of Article 28.
His point is that since the requirements of Article 28(1) can be waived "after
the damages (shall have) occurred," the article should be regarded as
possessing the character of a "venue" and not of a "jurisdiction" provision.
Hence, in moving to dismiss on the ground of lack of jurisdiction, the private
respondent has waived improper venue as a ground to dismiss.
The foregoing examination of Article 28(1) in relation to Article 32 does not
support this conclusion. In any event, we agree that even
granting arguendo that Article 28(1) is a venue and not a jurisdictional
provision, dismissal of the case was still in order. The respondent court was
correct in affirming the ruling of the trial court on this matter, thus:
Santos' claim that NOA waived venue as a ground of its motion to dismiss is
not correct. True it is that NOA averred in its MOTION TO DISMISS that the
ground thereof is "the Court has no subject matter jurisdiction to entertain
the Complaint" which SANTOS considers as equivalent to "lack of jurisdiction
over the subject matter . . ." However, the gist of NOA's argument in its
motion is that the Philippines is not the proper place where SANTOS could file
the action meaning that the venue of the action is improperly laid. Even

assuming then that the specified ground of the motion is erroneous, the fact
is the proper ground of the motion improper venue has been discussed
therein.
Waiver cannot be lightly inferred. In case of doubt, it must be resolved in
favor of non-waiver if there are special circumstances justifying this
conclusion, as in the petition at bar. As we observed in Javier vs.
Intermediate Court of Appeals: 13
Legally, of course, the lack of proper venue was deemed waived by the
petitioners when they failed to invoke it in their original motion to dismiss.
Even so, the motivation of the private respondent should have been taken
into account by both the trial judge and the respondent court in arriving at
their decisions.
The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of
our Court of Appeals, where it was held that Article 28(1) is a venue
provision. However, the private respondent avers that this was in effect
reversed by the case of Aranas v. United Airlines, 15 where the same court
held that Article 28(1) is a jurisdictional provision. Neither of these cases is
binding on this Court, of course, nor was either of them appealed to us.
Nevertheless, we here express our own preference for the later case of
Aranas insofar as its pronouncements on jurisdiction conform to the
judgment we now make in this petition.
B. The petitioner claims that the lower court erred in not ruling that under
Article 28(1) of the Warsaw Convention, this case was properly filed in the
Philippines, because Manila was the destination of the plaintiff.
The Petitioner contends that the facts of this case are analogous to those
in Aanestad v. Air Canada. 16 In that case, Mrs. Silverberg purchased a
round-trip ticket from Montreal to Los Angeles and back to Montreal. The
date and time of departure were specified but not of the return flight. The
plane crashed while on route from Montreal to Los Angeles, killing Mrs.
Silverberg. Her administratrix filed an action for damages against Air Canada
in the U.S. District Court of California. The defendant moved to dismiss for
lack of jurisdiction but the motion was denied thus:
. . . It is evident that the contract entered into between Air Canada and Mrs.
Silverberg as evidenced by the ticket booklets and the Flight Coupon No. 1,
was a contract for Air Canada to carry Mrs. Silverberg to Los Angeles on a
certain flight, a certain time and a certain class, but that the time for her to
CONFLICTS | Assign 9| 93
return remained completely in her power. Coupon No. 2 was only a
continuing offer by Air Canada to give her a ticket to return to Montreal
between certain dates. . . .
The only conclusion that can be reached then, is that "the place of
destination" as used in the Warsaw Convention is considered by both the
Canadian C.T.C. and the United States C.A.B. to describe at least two "places
of destination," viz., the "place of destination" of a particular flight either an
"outward destination" from the "point of origin" or from the "outward point of
destination" to any place in Canada.
Thus the place of destination under Art. 28 and Art. 1 of the Warsaw
Convention of the flight on which Mrs. Silverberg was killed, was Los Angeles
according to the ticket, which was the contract between the parties and the
suit is properly filed in this Court which has jurisdiction.
The Petitioner avers that the present case falls squarely under the above
ruling because the date and time of his return flight to San Francisco were,
as in the Aanestad case, also left open. Consequently, Manila and not San
Francisco should be considered the petitioner's destination.
The private respondent for its part invokes the ruling in Butz v. British
Airways, 17 where the United States District Court (Eastern District of
Pennsylvania) said:
. . . Although the authorities which addressed this precise issue are not
extensive, both the cases and the commentators are almost unanimous in
concluding that the "place of destination" referred to in the Warsaw
Convention "in a trip consisting of several parts . . . is the ultimate
destination that is accorded treaty jurisdiction." . . .
But apart from that distinguishing feature, I cannot agree with the Court's
analysis in Aanestad; whether the return portion of the ticket is characterized
as an option or a contract, the carrier was legally bound to transport the
passenger back to the place of origin within the prescribed time and. the
passenger for her part agreed to pay the fare and, in fact, did pay the fare.
Thus there was mutuality of obligation and a binding contract of carriage, The
fact that the passenger could forego her rights under the contract does not
make it any less a binding contract. Certainly, if the parties did not
contemplate the return leg of the journey, the passenger would not have paid
for it and the carrier would not have issued a round trip ticket.

We agree with the latter case. The place of destination, within the meaning of
the Warsaw Convention, is determined by the terms of the contract of
carriage or, specifically in this case, the ticket between the passenger and the
carrier. Examination of the petitioner's ticket shows that his ultimate
destination is San Francisco. Although the date of the return flight was left
open, the contract of carriage between the parties indicates that NOA was
bound to transport the petitioner to San Francisco from Manila. Manila should
therefore be considered merely an agreed stopping place and not the
destination.
The petitioner submits that the Butz case could not have overruled the
Aanestad case because these decisions are from different jurisdictions. But
that is neither here nor there. In fact, neither of these cases is controlling on
this Court. If we have preferred the Butz case, it is because, exercising our
own freedom of choice, we have decided that it represents the better, and
correct, interpretation of Article 28(1).
Article 1(2) also draws a distinction between a "destination" and an "agreed
stopping place." It is the "destination" and not an "agreed stopping place"
that controls for purposes of ascertaining jurisdiction under the Convention.
The contract is a single undivided operation, beginning with the place of
departure and ending with the ultimate destination. The use of the singular in
this expression indicates the understanding of the parties to the Convention
that every contract of carriage has one place of departure and one place of
destination. An intermediate place where the carriage may be broken is not
regarded as a "place of destination."
C. The petitioner claims that the lower court erred in not ruling that under
Art. 28(1) of the Warsaw Convention, this case was properly filed in the
Philippines because the defendant has its domicile in the Philippines.
The petitioner argues that the Warsaw Convention was originally written in
French and that in interpreting its provisions, American courts have taken the
broad view that the French legal meaning must govern. 18 In French, he says,
the "domicile" of the carrier means every place where it has a branch office.
The private respondent notes, however, that in Compagnie Nationale Air
France vs. Giliberto, 19 it was held:
The plaintiffs' first contention is that Air France is domiciled in the United
States. They say that the domicile of a corporation includes any country
where the airline carries on its business on "a regular and substantial basis,"
CONFLICTS | Assign 9| 94
and that the United States qualifies under such definition. The meaning of
domicile cannot, however, be so extended. The domicile of a corporation is
customarily regarded as the place where it is incorporated, and the courts
have given the meaning to the term as it is used in article 28(1) of the
Convention. (See Smith v. Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452
F2d 798, 802; Nudo v. Societe Anonyme Belge d' Exploitation de la
Navigation Aerienne Sabena Belgian World Airlines (E.D. pa. 1962). 207 F.
Supp, 191; Karfunkel v. Compagnie Nationale Air France (S.D.N.Y. 1977), 427
F. Suppl. 971, 974). Moreover, the structure of article 28(1), viewed as a
whole, is also incompatible with the plaintiffs' claim. The article, in stating
that places of business are among the bases of the jurisdiction, sets out two
places where an action for damages may be brought; the country where the
carrier's principal place of business is located, and the country in which it has
a place of business through which the particular contract in question was
made, that is, where the ticket was bought, Adopting the plaintiffs' theory
would at a minimum blur these carefully drawn distinctions by creating a
third intermediate category. It would obviously introduce uncertainty into
litigation under the article because of the necessity of having to determine,
and without standards or criteria, whether the amount of business done by a
carrier in a particular country was "regular" and "substantial." The plaintiff's
request to adopt this basis of jurisdiction is in effect a request to create a
new jurisdictional standard for the Convention.
Furthermore, it was argued in another case 20
that:
. . . In arriving at an interpretation of a treaty whose sole official language is
French, are we bound to apply French law? . . . We think this question and
the underlying choice of law issue warrant some discussion
. . . We do not think this statement can be regarded as a conclusion that
internal French law is to be "applied" in the choice of law sense, to determine
the meaning and scope of the Convention's terms. Of course, French legal
usage must be considered in arriving at an accurate English translation of the
French. But when an accurate English translation is made and agreed upon,
as here, the inquiry into meaning does not then revert to a quest for a past
or present French law to be "applied" for revelation of the proper scope of the
terms. It does not follow from the fact that the treaty is written in French
that in interpreting it, we are forever chained to French law, either as it
existed when the treaty was written or in its present state of development.
There is no suggestion in the treaty that French law was intended to govern
the meaning of Warsaw's terms, nor have we found any indication to this
effect in its legislative history or from our study of its application and
interpretation by other courts. Indeed, analysis of the cases indicates that

the courts, in interpreting and applying the Warsaw Convention, have, not
considered themselves bound to apply French law simply because the
Convention is written in French. . . .
We agree with these rulings.
Notably, the domicile of the carrier is only one of the places where the
complaint is allowed to be filed under Article 28(1). By specifying the three
other places, to wit, the principal place of business of the carrier, its place of
business where the contract was made, and the place of destination, the
article clearly meant that these three other places were not comprehended in
the term "domicile."
D. The petitioner claims that the lower court erred in not ruling that Art.
28(1) of the Warsaw Convention does not apply to actions based on tort.
The petitioner alleges that the gravamen of the complaint is that private
respondent acted arbitrarily and in bad faith, discriminated against the
petitioner, and committed a willful misconduct because it canceled his
confirmed reservation and gave his reserved seat to someone who had no
better right to it. In short. the private respondent committed a tort.
Such allegation, he submits, removes the present case from the coverage of
the Warsaw Convention. He argues that in at least two American cases, 21 it
was held that Article 28(1) of the Warsaw Convention does not apply if the
action is based on tort.
This position is negated by Husserl v. Swiss Air Transport Company, 22
where
the article in question was interpreted thus:
. . . Assuming for the present that plaintiff's claim is "covered" by Article 17,
Article 24 clearly excludes any relief not provided for in the Convention as
modified by the Montreal Agreement. It does not, however, limit the kind of
cause of action on which the relief may be founded; rather it provides that
any action based on the injuries specified in Article 17 "however
founded," i.e., regardless of the type of action on which relief is founded, can
only be brought subject to the conditions and limitations established by the
Warsaw System. Presumably, the reason for the use of the phrase "however
founded," in two-fold: to accommodate all of the multifarious bases on which
a claim might be founded in different countries, whether under code law or
common law, whether under contract or tort, etc.; and to include all bases on
which a claim seeking relief for an injury might be founded in any one
country. In other words, if the injury occurs as described in Article 17, any
CONFLICTS | Assign 9| 95
relief available is subject to the conditions and limitations established by the
Warsaw System, regardless of the particular cause of action which forms the
basis on which a plaintiff could seek
relief . . .
The private respondent correctly contends that the allegation of willful
misconduct resulting in a tort is insufficient to exclude the case from the
comprehension of the Warsaw Convention. The petitioner has apparently
misconstrued the import of Article 25(l) of the Convention, which reads as
follows:
Art. 25 (1). The carrier shall not be entitled to avail himself of the provisions
of this Convention which exclude or limit his liability. if the damage is caused
by his willful misconduct or by such default on his part as, in accordance with
the law of the court to which the case is submitted, is considered to be
equivalent to willful misconduct.
It is understood under this article that the court called upon to determine the
applicability of the limitation provision must first be vested with the
appropriate jurisdiction. Article 28(1) is the provision in the Convention which
defines that jurisdiction. Article 22 23 merely fixes the monetary ceiling for
the liability of the carrier in cases covered by the Convention. If the carrier is
indeed guilty of willful misconduct, it can avail itself of the limitations set
forth in this article. But this can be done only if the action has first been
commenced properly under the rules on jurisdiction set forth in Article 28(1).
III
THE ISSUE OF PROTECTION TO MINORS
The petitioner calls our attention to Article 24 of the Civil Code, which states:
Art. 24. In all contractual property or other relations, when one of the parties
is at a disadvantage on account of his moral dependence, ignorance,
indigence, mental weakness, tender age or other handicap, the courts must
be vigilant for his protection.
Application of this article to the present case is misplaced. The above
provision assumes that the court is vested with jurisdiction to rule in favor of
the disadvantaged minor, As already explained, such jurisdiction is absent in
the case at bar.
CONCLUSION
 CONFLICTS | Assign 9| 96

A number of countries have signified their concern over the problem of
citizens being denied access to their own courts because of the restrictive
provision of Article 28(1) of the Warsaw Convention. Among these is the
United States, which has proposed an amendment that would enable the
passenger to sue in his own domicile if the carrier does business in that
jurisdiction. The reason for this proposal is explained thus:
In the event a US citizen temporarily residing abroad purchases a Rome to
New York to Rome ticket on a foreign air carrier which is generally subject to
the jurisdiction of the US, Article 28 would prevent that person from suing
the carrier in the US in a "Warsaw Case" even though such a suit could be
brought in the absence of the Convention.
The Court can only sympathize with the petitioner, who must prosecute his
claims in the United States rather than in his own country at least
inconvenience. But we are unable to grant him the relief he seeks because
we are limited by the provisions of the Warsaw Convention which continues
to bind us. It may not be amiss to observe at this point that the mere fact
that he will have to litigate in the American courts does not necessarily mean
he will litigate in vain. The judicial system of that country in known for its
sense of fairness and, generally, its strict adherence to the rule of law.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so
ordered.

The proposal was incorporated in the Guatemala Protocol amending the

Warsaw Convention, which was adopted at Guatemala City on March 8,
1971. 24 But it is still ineffective because it has not yet been ratified by the
required minimum number of contracting parties. Pending such ratification,
the petitioner will still have to file his complaint only in any of the four places
designated by Article 28(1) of the Warsaw Convention.

The proposed amendment bolsters the ruling of this Court that a citizen does
not necessarily have the right to sue in his own courts simply because the
defendant airline has a place of business in his country.