Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 111127 July 26, 1996

MR. & MRS. ENGRACIO FABRE, JR. and PORFIRIO CABIL, petitioners,
vs.
COURT OF APPEALS, THE WORD FOR THE WORLD CHRISTIAN FELLOWSHIP, INC., AMYLINE
ANTONIO, JOHN RICHARDS, GONZALO GONZALES, VICENTE V. QUE, JR., ICLI CORDOVA, ARLENE
GOJOCCO, ALBERTO ROXAS CORDERO, RICHARD BAUTISTA, JOCELYN GARCIA, YOLANDA
CORDOVA, NOEL ROQUE, EDWARD TAN, ERNESTO NARCISO, ENRIQUETA LOCSIN, FRANCIS
NORMAN O. LOPES, JULIUS CAESAR, GARCIA, ROSARIO MA. V. ORTIZ, MARIETTA C. CLAVO,
ELVIE SENIEL, ROSARIO MARA-MARA, TERESITA REGALA, MELINDA TORRES, MARELLA
MIJARES, JOSEFA CABATINGAN, MARA NADOC, DIANE MAYO, TESS PLATA, MAYETTE JOCSON,
ARLENE Y. MORTIZ, LIZA MAYO, CARLOS RANARIO, ROSAMARIA T. RADOC and BERNADETTE
FERRER, respondents.

MENDOZA, J.:p

This is a petition for review on certiorari of the decision of the Court of Appeals1 in CA-GR No. 28245, dated
September 30, 1992, which affirmed with modification the decision of the Regional Trial Court of Makati,
Branch 58, ordering petitioners jointly and severally to pay damages to private respondent Amyline Antonio,
and its resolution which denied petitioners' motion for reconsideration for lack of merit.

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

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

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

The usual route to Caba, La Union was through Carmen, Pangasinan. However, the bridge at Carmen was
under repair, sot hat petitioner Cabil, who was unfamiliar with the area (it being his first trip to La Union), was
forced to take a detour through the town of Baay in Lingayen, Pangasinan. At 11:30 that night, petitioner Cabil
came upon a sharp curve on the highway, running on a south to east direction, which he described as "siete."
The road was slippery because it was raining, causing the bus, which was running at the speed of 50
kilometers per hour, to skid to the left road shoulder. The bus hit the left traffic steel brace and sign along the
road and rammed the fence of one Jesus Escano, then turned over and landed on its left side, coming to a full
stop only after a series of impacts. The bus came to rest off the road. A coconut tree which it had hit fell on it
and smashed its front portion.
Several passengers were injured. Private respondent Amyline Antonio was thrown on the floor of the bus and
pinned down by a wooden seat which came down by a wooden seat which came off after being unscrewed. It
took three persons to safely remove her from this portion. She was in great pain and could not move.

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

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

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

In its decision dated April 17, 1989, the trial court found that:

No convincing evidence was shown that the minibus was properly checked for travel to a long distance trip
and that the driver was properly screened and tested before being admitted for employment. Indeed, all the
evidence presented have shown the negligent act of the defendants which ultimately resulted to the accident
subject of this case.

Accordingly, it gave judgment for private respondents holding:

Considering that plaintiffs Word for the World Christian Fellowship, Inc. and Ms. Amyline Antonio were the only
ones who adduced evidence in support of their claim for damages, the Court is therefore not in a position to
award damages to the other plaintiffs.

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

1) P93,657.11 as compensatory and actual damages;

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

Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages; and

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

6) Costs of suit.
 SO ORDERED.

The Court of Appeals affirmed the decision of the trial court with respect to Amyline Antonio but dismissed it
with respect to the other plaintiffs on the ground that they failed to prove their respective claims. The Court of
Appeals modified the award of damages as follows:

1) P93,657.11 as actual damages;

2) P600,000.00 as compensatory damages;

3) P50,000.00 as moral damages;

4) P20,000.00 as exemplary damages;

5) P10,000.00 as attorney's fees; and

6) Costs of suit.

The Court of Appeals sustained the trial court's finding that petitioner Cabil failed to exercise due care and
precaution in the operation of his vehicle considering the time and the place of the accident. The Court of
Appeals held that the Fabres were themselves presumptively negligent. Hence, this petition. Petitioners raise
the following issues:

I. WHETHER OR NOT PETITIONERS WERE NEGLIGENT.

II. WHETHER OF NOT PETITIONERS WERE LIABLE FOR THE INJURIES

SUFFERED BY PRIVATE RESPONDENTS.

III WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN THE POSITIVE, UP

TO WHAT EXTENT.

Petitioners challenge the propriety of the award of compensatory damages in the amount of P600,000.00. It is
insisted that, on the assumption that petitioners are liable an award of P600,000.00 is unconscionable and
highly speculative. Amyline Antonio testified that she was a casual employee of a company called "Suaco,"
earning P1,650.00 a month, and a dealer of Avon products, earning an average of P1,000.00 monthly.
Petitioners contend that as casual employees do not have security of tenure, the award of P600,000.00,
considering Amyline Antonio's earnings, is without factual basis as there is no assurance that she would be
regularly earning these amounts.

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

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

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

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

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

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

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

Petitioners argue that they are not liable because (1) an earlier departure (made impossible by the
congregation's delayed meeting) could have a averted the mishap and (2) under the contract, the WWCF was
directly responsible for the conduct of the trip. Neither of these contentions hold water. The hour of departure
had not been fixed. Even if it had been, the delay did not bear directly on the cause of the accident. With
respect to the second contention, it was held in an early case that:

[A] person who hires a public automobile and gives the driver directions as to the place to which he wishes to
be conveyed, but exercises no other control over the conduct of the driver, is not responsible for acts of
negligence of the latter or prevented from recovering for injuries suffered from a collision between the
automobile and a train, caused by the negligence or the automobile driver. 9

As already stated, this case actually involves a contract of carriage. Petitioners, the Fabres, did not have to be
engaged in the business of public transportation for the provisions of the Civil Code on common carriers to
apply to them. As this Court has held: 10

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.

The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as an ancillary
activity (in local idiom, as "a sideline"). Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular or scheduled basis
 and one offering such service on an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business only from a
narrow segment of the general population. We think that Article 1732 deliberately refrained
from making such distinctions.

As common carriers, the Fabres were found to exercise "extraordinary diligence" for the safe
transportation of the passengers to their destination. This duty of care is not excused by proof
that they exercise the diligence of a good father of the family in the selection and supervision of
their employee. As Art. 1759 of the Code provides:

Common carriers are liable for the death of or injuries to passengers through the negligence or
willful acts of the former's employees although such employees may have acted beyond the
scope of their authority or in violation of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees.

The same circumstances detailed above, supporting the finding of the trial court and of the appellate court
that petitioners are liable under Arts. 2176 and 2180 for quasi delict, fully justify findings them guilty of breach
of contract of carriage under Arts. 1733, 1755 and 1759 of the Civil Code.

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

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

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

As above stated, the decision of the Court of Appeals can be sustained either on the theory of quasi delict or
on that of breach of contract. The question is whether, as the two courts below held, petitioners, who are the
owners and driver of the bus, may be made to respond jointly and severally to private respondent. We hold
that they may be. In Dangwa Trans. Co. Inc. v. Court of Appeals, 14 on facts similar to those in this case, this
Court held the bus company and the driver jointly and severally liable for damages for injuries suffered by a
passenger. Again, in Bachelor Express, Inc. v. Court of
Appeals 15 a driver found negligent in failing to stop the bus in order to let off passengers when a fellow
passenger ran amuck, as a result of which the passengers jumped out of the speeding bus and suffered
injuries, was held also jointly and severally liable with the bus company to the injured passengers.
The same rule of liability was applied in situations where the negligence of the driver of the bus on which
plaintiff was riding concurred with the negligence of a third party who was the driver of another vehicle, thus
causing an accident. In Anuran v. Buo, 16 Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate
Court, 17 and Metro Manila Transit Corporation v. Court of Appeals, 18 the bus company, its driver, the
operator of the other vehicle and the driver of the vehicle were jointly and severally held liable to the injured
passenger or the latters' heirs. The basis of this allocation of liability was explained in Viluan v. Court of
Appeals, 19 thus:

Nor should it make any difference that the liability of petitioner [bus owner] springs from
contract while that of respondents [owner and driver of other vehicle] arises from quasi-delict.
As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury
to a passenger due to the negligence of the driver of the bus on which he was riding and of the
driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and
severally liable for damages. Some members of the Court, though, are of the view that under
the circumstances they are liable on quasi-delict. 20

It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of Appeals 21 this Court exonerated the jeepney
driver from liability to the injured passengers and their families while holding the owners of the jeepney jointly
and severally liable, but that is because that case was expressly tried and decided exclusively on the theory
of culpa contractual. As this Court there explained:

The trial court was therefore right in finding that Manalo (the driver) and spouses Mangune and Carreon (the
jeepney owners) were negligent. However, its ruling that spouses Mangune and Carreon are jointly and
severally liable with Manalo is erroneous. The driver cannot be held jointly and severally liable with carrier in
case of breach of the contract of carriage. The rationale behind this is readily discernible. Firstly, the contract
of carriage is between the carrier is exclusively responsible therefore to the passenger, even if such breach be
due to the negligence of his driver (see Viluan v. The Court of Appeals, et al., G.R. Nos. L-21477-81, April 29,
1966, 16 SCRA 742). 22

As in the case of BLTB, private respondents in this case and her coplaintiffs did not stake out their claim
against the carrier and the driver exclusively on one theory, much less on that of breach of contract alone.
After all, it was permitted for them to allege alternative causes of action and join as many parties as may be
liable on such causes of action 23 so long as private respondent and her coplaintiffs do not recover twice for
the same injury. What is clear from the cases is the intent of the plaintiff there to recover from both the carrier
and the driver, thus, justifying the holding that the carrier and the driver were jointly and severally liable
because their separate and distinct acts concurred to produce the same injury.

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

1) P93,657.11 as actual damages;

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

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages;

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

6) costs of suit.
SO ORDERED.

Regalado, Romero, Puno and Torres, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-21438 September 28, 1966

AIR FRANCE, petitioner,

vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF APPEALS, respondents.

Lichauco, Picazo and Agcaoili for petitioner.

Bengzon Villegas and Zarraga for respondent R. Carrascoso.

SANCHEZ, J.:

The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso P25,000.00 by
way of moral damages; P10,000.00 as exemplary damages; P393.20 representing the difference in fare
between first class and tourist class for the portion of the trip Bangkok-Rome, these various amounts with
interest at the legal rate, from the date of the filing of the complaint until paid; plus P3,000.00 for attorneys'
fees; and the costs of suit.

On appeal,2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane ticket from
P393.20 to P383.10, and voted to affirm the appealed decision "in all other respects", with costs against
petitioner.

The case is now before us for review on certiorari.

The facts declared by the Court of Appeals as " fully supported by the evidence of record", are:

Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila for Lourdes
on March 30, 1958.

On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines, Inc.,
issued to plaintiff a "first class" round trip airplane ticket from Manila to Rome. From Manila to
Bangkok, plaintiff travelled in "first class", but at Bangkok, the Manager of the defendant airline forced
plaintiff to vacate the "first class" seat that he was occupying because, in the words of the witness
Ernesto G. Cuento, there was a "white man", who, the Manager alleged, had a "better right" to the
seat. When asked to vacate his "first class" seat, the plaintiff, as was to be expected, refused, and told
defendant's Manager that his seat would be taken over his dead body; a commotion ensued, and,
according to said Ernesto G. Cuento, "many of the Filipino passengers got nervous in the tourist class;
when they found out that Mr. Carrascoso was having a hot discussion with the white man [manager],
they came all across to Mr. Carrascoso and pacified Mr. Carrascoso to give his seat to the white man"
(Transcript, p. 12, Hearing of May 26, 1959); and plaintiff reluctantly gave his "first class" seat in the
plane.3
1. The trust of the relief petitioner now seeks is that we review "all the findings" 4 of respondent Court of
Appeals. Petitioner charges that respondent court failed to make complete findings of fact on all the issues
properly laid before it. We are asked to consider facts favorable to petitioner, and then, to overturn the
appellate court's decision.

Coming into focus is the constitutional mandate that "No decision shall be rendered by any court of record
without expressing therein clearly and distinctly the facts and the law on which it is based". 5 This is echoed in
the statutory demand that a judgment determining the merits of the case shall state "clearly and distinctly the
facts and the law on which it is based"; 6 and that "Every decision of the Court of Appeals shall contain
complete findings of fact on all issues properly raised before it". 7

A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law, however,
solely insists that a decision state the "essential ultimate facts" upon which the court's conclusion is drawn. 9 A
court of justice is not hidebound to write in its decision every bit and piece of evidence 10 presented by one
party and the other upon the issues raised. Neither is it to be burdened with the obligation "to specify in the
sentence the facts" which a party "considered as proved". 11 This is but a part of the mental process from
which the Court draws the essential ultimate facts. A decision is not to be so clogged with details such that
prolixity, if not confusion, may result. So long as the decision of the Court of Appeals contains the necessary
facts to warrant its conclusions, it is no error for said court to withhold therefrom "any specific finding of facts
with respect to the evidence for the defense". Because as this Court well observed, "There is no law that so
requires". 12 Indeed, "the mere failure to specify (in the decision) the contentions of the appellant and the
reasons for refusing to believe them is not sufficient to hold the same contrary to the requirements of the
provisions of law and the Constitution". It is in this setting that in Manigque, it was held that the mere fact
that the findings "were based entirely on the evidence for the prosecution without taking into consideration or
even mentioning the appellant's side in the controversy as shown by his own testimony", would not vitiate the
judgment. 13 If the court did not recite in the decision the testimony of each witness for, or each item of
evidence presented by, the defeated party, it does not mean that the court has overlooked such testimony or
such item of evidence. 14 At any rate, the legal presumptions are that official duty has been regularly
performed, and that all the matters within an issue in a case were laid before the court and passed upon by
it. 15

Findings of fact, which the Court of Appeals is required to make, maybe defined as "the written statement of
the ultimate facts as found by the court ... and essential to support the decision and judgment rendered
thereon". 16They consist of the court's "conclusions" with respect to the determinative facts in issue". 17 A
question of law, upon the other hand, has been declared as "one which does not call for an examination of the
probative value of the evidence presented by the parties." 18

2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of the Court of
Appeals. 19 That judgment is conclusive as to the facts. It is not appropriately the business of this Court to
alter the facts or to review the questions of fact. 20

With these guideposts, we now face the problem of whether the findings of fact of the Court of Appeals
support its judgment.

3. Was Carrascoso entitled to the first class seat he claims?

It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a first class ticket.
But petitioner asserts that said ticket did not represent the true and complete intent and agreement of the
parties; that said respondent knew that he did not have confirmed reservations for first class on any specific
flight, although he had tourist class protection; that, accordingly, the issuance of a first class ticket was no
guarantee that he would have a first class ride, but that such would depend upon the availability of first class
seats.
These are matters which petitioner has thoroughly presented and discussed in its brief before the Court of
Appeals under its third assignment of error, which reads: "The trial court erred in finding that plaintiff had
confirmed reservations for, and a right to, first class seats on the "definite" segments of his journey,
particularly that from Saigon to Beirut". 21

And, the Court of Appeals disposed of this contention thus:

Defendant seems to capitalize on the argument that the issuance of a first-class ticket was no
guarantee that the passenger to whom the same had been issued, would be accommodated in the
first-class compartment, for as in the case of plaintiff he had yet to make arrangements upon arrival at
every station for the necessary first-class reservation. We are not impressed by such a reasoning. We
cannot understand how a reputable firm like defendant airplane company could have the indiscretion to
give out tickets it never meant to honor at all. It received the corresponding amount in payment of
first-class tickets and yet it allowed the passenger to be at the mercy of its employees. It is more in
keeping with the ordinary course of business that the company should know whether or riot the tickets
it issues are to be honored or not.22

Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's contention, thus:

On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be no question. Apart from
his testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1", and defendant's own witness,
Rafael Altonaga, confirmed plaintiff's testimony and testified as follows:

Q. In these tickets there are marks "O.K." From what you know, what does this OK mean?

A. That the space is confirmed.

Q. Confirmed for first class?

A. Yes, "first class". (Transcript, p. 169)

xxx xxx xxx

Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga that although
plaintiff paid for, and was issued a "first class" airplane ticket, the ticket was subject to confirmation in
Hongkong. The court cannot give credit to the testimony of said witnesses. Oral evidence cannot prevail over
written evidence, and plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and "C-1" belie the testimony of said
witnesses, and clearly show that the plaintiff was issued, and paid for, a first class ticket without any
reservation whatever.

Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the reservation for
a "first class" accommodation for the plaintiff was confirmed. The court cannot believe that after such
confirmation defendant had a verbal understanding with plaintiff that the "first class" ticket issued to him by
defendant would be subject to confirmation in Hongkong. 23

We have heretofore adverted to the fact that except for a slight difference of a few pesos in the amount
refunded on Carrascoso's ticket, the decision of the Court of First Instance was affirmed by the Court of
Appeals in all other respects. We hold the view that such a judgment of affirmance has merged the judgment
of the lower court. 24Implicit in that affirmance is a determination by the Court of Appeals that the proceeding
in the Court of First Instance was free from prejudicial error and "all questions raised by the assignments of
error and all questions that might have been raised are to be regarded as finally adjudicated against the
appellant". So also, the judgment affirmed "must be regarded as free from all error". 25 We reached this policy
construction because nothing in the decision of the Court of Appeals on this point would suggest that its
findings of fact are in any way at war with those of the trial court. Nor was said affirmance by the Court of
Appeals upon a ground or grounds different from those which were made the basis of the conclusions of the
trial court. 26

If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat, notwithstanding the
fact that seat availability in specific flights is therein confirmed, then an air passenger is placed in the hollow of
the hands of an airline. What security then can a passenger have? It will always be an easy matter for an
airline aided by its employees, to strike out the very stipulations in the ticket, and say that there was a verbal
agreement to the contrary. What if the passenger had a schedule to fulfill? We have long learned that, as a
rule, a written document speaks a uniform language; that spoken word could be notoriously unreliable. If only
to achieve stability in the relations between passenger and air carrier, adherence to the ticket so issued is
desirable. Such is the case here. The lower courts refused to believe the oral evidence intended to defeat the
covenants in the ticket.

The foregoing are the considerations which point to the conclusion that there are facts upon which the Court
of Appeals predicated the finding that respondent Carrascoso had a first class ticket and was entitled to a first
class seat at Bangkok, which is a stopover in the Saigon to Beirut leg of the flight. 27 We perceive no "welter of
distortions by the Court of Appeals of petitioner's statement of its position", as charged by petitioner. 28 Nor do
we subscribe to petitioner's accusation that respondent Carrascoso "surreptitiously took a first class seat to
provoke an issue". 29 And this because, as petitioner states, Carrascoso went to see the Manager at his office
in Bangkok "to confirm my seat and because from Saigon I was told again to see the Manager". 30 Why, then,
was he allowed to take a first class seat in the plane at Bangkok, if he had no seat? Or, if another had a better
right to the seat?

4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is that
Carrascoso's action is planted upon breach of contract; that to authorize an award for moral damages there
must be an averment of fraud or bad faith;31 and that the decision of the Court of Appeals fails to make a
finding of bad faith. The pivotal allegations in the complaint bearing on this issue are:

3. That ... plaintiff entered into a contract of air carriage with the Philippine Air Lines for a valuable
consideration, the latter acting as general agents for and in behalf of the defendant, under which said
contract, plaintiff was entitled to, as defendant agreed to furnish plaintiff, First Class passage on
defendant's plane during the entire duration of plaintiff's tour of Europe with Hongkong as starting
point up to and until plaintiff's return trip to Manila, ... .

4. That, during the first two legs of the trip from Hongkong to Saigon and from Saigon to Bangkok,
defendant furnished to the plaintiff First Class accommodation but only after protestations, arguments
and/or insistence were made by the plaintiff with defendant's employees.

5. That finally, defendant failed to provide First Class passage, but instead furnished plaintiff
only Tourist Class accommodations from Bangkok to Teheran and/or Casablanca, ... the plaintiff has
been compelled by defendant's employees to leave the First Class accommodation berths at
Bangkok after he was already seated.

6. That consequently, the plaintiff, desiring no repetition of the inconvenience and embarrassments
brought by defendant's breach of contract was forced to take a Pan American World Airways plane on
his return trip from Madrid to Manila.32

xxx xxx xxx

2. That likewise, as a result of defendant's failure to furnish First Class accommodations aforesaid, plaintiff
suffered inconveniences, embarrassments, and humiliations, thereby causing plaintiff mental anguish, serious
anxiety, wounded feelings, social humiliation, and the like injury, resulting in moral damages in the amount of
P30,000.00. 33

xxx xxx xxx

The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish plaintiff a first
class passage covering, amongst others, the Bangkok-Teheran leg; Second, That said contract was breached
when petitioner failed to furnish first class transportation at Bangkok; and Third, that there was bad faith
when petitioner's employee compelled Carrascoso to leave his first class accommodation berth "after he was
already, seated" and to take a seat in the tourist class, by reason of which he suffered inconvenience,
embarrassments and humiliations, thereby causing him mental anguish, serious anxiety, wounded feelings and
social humiliation, resulting in moral damages. It is true that there is no specific mention of the term bad
faith in the complaint. But, the inference of bad faith is there, it may be drawn from the facts and
circumstances set forth therein. 34 The contract was averred to establish the relation between the parties. But
the stress of the action is put on wrongful expulsion.

Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed petitioner on
guard on what Carrascoso intended to prove: That while sitting in the plane in Bangkok, Carrascoso
was ousted by petitioner's manager who gave his seat to a white man; 35 and (b) evidence of bad faith in the
fulfillment of the contract was presented without objection on the part of the petitioner. It is, therefore,
unnecessary to inquire as to whether or not there is sufficient averment in the complaint to justify an award
for moral damages. Deficiency in the complaint, if any, was cured by the evidence. An amendment thereof to
conform to the evidence is not even required. 36 On the question of bad faith, the Court of Appeals declared:

That the plaintiff was forced out of his seat in the first class compartment of the plane belonging to the
defendant Air France while at Bangkok, and was transferred to the tourist class not only without his
consent but against his will, has been sufficiently established by plaintiff in his testimony before the
court, corroborated by the corresponding entry made by the purser of the plane in his notebook which
notation reads as follows:

"First-class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene",

and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-passenger. The captain of
the plane who was asked by the manager of defendant company at Bangkok to intervene even refused
to do so. It is noteworthy that no one on behalf of defendant ever contradicted or denied this evidence
for the plaintiff. It could have been easy for defendant to present its manager at Bangkok to testify at
the trial of the case, or yet to secure his disposition; but defendant did neither. 37

The Court of appeals further stated

Neither is there evidence as to whether or not a prior reservation was made by the white man. Hence,
if the employees of the defendant at Bangkok sold a first-class ticket to him when all the seats had
already been taken, surely the plaintiff should not have been picked out as the one to suffer the
consequences and to be subjected to the humiliation and indignity of being ejected from his seat in the
presence of others. Instead of explaining to the white man the improvidence committed by defendant's
employees, the manager adopted the more drastic step of ousting the plaintiff who was then safely
ensconsced in his rightful seat. We are strengthened in our belief that this probably was what
happened there, by the testimony of defendant's witness Rafael Altonaga who, when asked to explain
the meaning of the letters "O.K." appearing on the tickets of plaintiff, said "that the space is confirmed
for first class. Likewise, Zenaida Faustino, another witness for defendant, who was the chief of the
Reservation Office of defendant, testified as follows:
 "Q How does the person in the ticket-issuing office know what reservation the passenger has
arranged with you?

A They call us up by phone and ask for the confirmation." (t.s.n., p. 247, June 19, 1959)

In this connection, we quote with approval what the trial Judge has said on this point:

Why did the, using the words of witness Ernesto G. Cuento, "white man" have a "better right"
to the seat occupied by Mr. Carrascoso? The record is silent. The defendant airline did not
prove "any better", nay, any right on the part of the "white man" to the "First class" seat that
the plaintiff was occupying and for which he paid and was issued a corresponding "first class"
ticket.

If there was a justified reason for the action of the defendant's Manager in Bangkok, the
defendant could have easily proven it by having taken the testimony of the said Manager by
deposition, but defendant did not do so; the presumption is that evidence willfully suppressed
would be adverse if produced [Sec. 69, par (e), Rules of Court]; and, under the circumstances,
the Court is constrained to find, as it does find, that the Manager of the defendant airline in
Bangkok not merely asked but threatened the plaintiff to throw him out of the plane if he did
not give up his "first class" seat because the said Manager wanted to accommodate, using the
words of the witness Ernesto G. Cuento, the "white man".38

It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use
the term "bad faith". But can it be doubted that the recital of facts therein points to bad faith? The
manager not only prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed
his arbitrary will; he forcibly ejected him from his seat, made him suffer the humiliation of having to go
to the tourist class compartment - just to give way to another passenger whose right thereto has not
been established. Certainly, this is bad faith. Unless, of course, bad faith has assumed a meaning
different from what is understood in law. For, "bad faith" contemplates a "state of mind affirmatively
operating with furtive design or with some motive of self-interest or will or for ulterior purpose." 39

And if the foregoing were not yet sufficient, there is the express finding of bad faith in the judgment of
the Court of First Instance, thus:

The evidence shows that the defendant violated its contract of transportation with plaintiff in
bad faith, with the aggravating circumstances that defendant's Manager in Bangkok went to the
extent of threatening the plaintiff in the presence of many passengers to have him thrown out
of the airplane to give the "first class" seat that he was occupying to, again using the words of
the witness Ernesto G. Cuento, a "white man" whom he (defendant's Manager) wished to
accommodate, and the defendant has not proven that this "white man" had any "better right"
to occupy the "first class" seat that the plaintiff was occupying, duly paid for, and for which the
corresponding "first class" ticket was issued by the defendant to him.40

5. The responsibility of an employer for the tortious act of its employees need not be essayed. It is well settled
in law. 41 For the willful malevolent act of petitioner's manager, petitioner, his employer, must answer. Article
21 of the Civil Code says:

ART. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.

In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the provisions of
Article 2219 (10), Civil Code, moral damages are recoverable. 42
6. A contract to transport passengers is quite different in kind and degree from any other contractual
relation. 43And this, because of the relation which an air-carrier sustains with the public. Its business is mainly
with the travelling public. It invites people to avail of the comforts and advantages it offers. The contract of air
carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of the carrier's
employees, naturally, could give ground for an action for damages.

Passengers do not contract merely for transportation. They have a right to be treated by the carrier's
employees with kindness, respect, courtesy and due consideration. They are entitled to be protected against
personal misconduct, injurious language, indignities and abuses from such employees. So it is, that any rule or
discourteous conduct on the part of employees towards a passenger gives the latter an action for damages
against the carrier. 44

Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of contract and a
tort, giving a right of action for its agent in the presence of third persons to falsely notify her that the check
was worthless and demand payment under threat of ejection, though the language used was not insulting and
she was not ejected." 46 And this, because, although the relation of passenger and carrier is "contractual both
in origin and nature" nevertheless "the act that breaks the contract may be also a tort". 47 And in another case,
"Where a passenger on a railroad train, when the conductor came to collect his fare tendered him the cash
fare to a point where the train was scheduled not to stop, and told him that as soon as the train reached such
point he would pay the cash fare from that point to destination, there was nothing in the conduct of the
passenger which justified the conductor in using insulting language to him, as by calling him a lunatic," 48 and
the Supreme Court of South Carolina there held the carrier liable for the mental suffering of said
passenger.1awphl.nt

Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's action as we
have said, is placed upon his wrongful expulsion. This is a violation of public duty by the petitioner air carrier
a case of quasi-delict. Damages are proper.

7. Petitioner draws our attention to respondent Carrascoso's testimony, thus

Q You mentioned about an attendant. Who is that attendant and purser?

A When we left already that was already in the trip I could not help it. So one of the flight
attendants approached me and requested from me my ticket and I said, What for? and she said, "We
will note that you transferred to the tourist class". I said, "Nothing of that kind. That is tantamount to
accepting my transfer." And I also said, "You are not going to note anything there because I am
protesting to this transfer".

Q Was she able to note it?

A No, because I did not give my ticket.

Q About that purser?

A Well, the seats there are so close that you feel uncomfortable and you don't have enough leg room, I
stood up and I went to the pantry that was next to me and the purser was there. He told me, "I have
recorded the incident in my notebook." He read it and translated it to me because it was recorded in
French "First class passenger was forced to go to the tourist class against his will, and that the
captain refused to intervene."

Mr. VALTE
 I move to strike out the last part of the testimony of the witness because the best evidence would be
the notes. Your Honor.

COURT

I will allow that as part of his testimony. 49

Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his notebook
reading "First class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene" is predicated upon evidence [Carrascoso's testimony above] which is incompetent. We
do not think so. The subject of inquiry is not the entry, but the ouster incident. Testimony on the entry does
not come within the proscription of the best evidence rule. Such testimony is admissible. 49a

Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of the startling
occurrence was still fresh and continued to be felt. The excitement had not as yet died down. Statements
then, in this environment, are admissible as part of the res gestae. 50 For, they grow "out of the nervous
excitement and mental and physical condition of the declarant". 51 The utterance of the purser regarding his
entry in the notebook was spontaneous, and related to the circumstances of the ouster incident. Its
trustworthiness has been guaranteed. 52 It thus escapes the operation of the hearsay rule. It forms part of
the res gestae.

At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It would have
been an easy matter for petitioner to have contradicted Carrascoso's testimony. If it were really true that no
such entry was made, the deposition of the purser could have cleared up the matter.

We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.

8. Exemplary damages are well awarded. The Civil Code gives the court ample power to grant exemplary
damages in contracts and quasi- contracts. The only condition is that defendant should have "acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner." 53 The manner of ejectment of respondent
Carrascoso from his first class seat fits into this legal precept. And this, in addition to moral damages.54

9. The right to attorney's fees is fully established. The grant of exemplary damages justifies a similar judgment
for attorneys' fees. The least that can be said is that the courts below felt that it is but just and equitable that
attorneys' fees be given. 55 We do not intend to break faith with the tradition that discretion well exercised
as it was here should not be disturbed.

10. Questioned as excessive are the amounts decreed by both the trial court and the Court of Appeals, thus:
P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and P3,000.00 as attorneys' fees.
The task of fixing these amounts is primarily with the trial court. 56 The Court of Appeals did not interfere with
the same. The dictates of good sense suggest that we give our imprimatur thereto. Because, the facts and
circumstances point to the reasonableness thereof.57

On balance, we say that the judgment of the Court of Appeals does not suffer from reversible error. We
accordingly vote to affirm the same. Costs against petitioner. So ordered.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Zaldivar and Castro, JJ., concur.
Bengzon, J.P., J., took no part.

SECOND DIVISION
 [G.R. No. 138060. September 1, 2004]

WILLIAM TIU, doing business under the name and style of D Rough Riders, and VIRGILIO TE LAS
PIAS petitioners, vs. PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and
PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision[1] of the
Court of Appeals in CA-G.R. CV No. 54354 affirming with modification the Decision[2] of the Regional Trial
Court, 7th Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of contract of carriage,
damages and attorneys fees, and the Resolution dated February 26, 1999 denying the motion for
reconsideration thereof.
The following facts are undisputed:
At about 10:00 p.m. of March 15, 1987, the cargo truck marked Condor Hollow Blocks and General
Merchandise bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City.
Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its
rear tires exploded. The driver, Sergio Pedrano, then parked along the right side of the national highway and
removed the damaged tire to have it vulcanized at a nearby shop, about 700 meters away.[3] Pedrano left his
helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed the latter to place a spare tire
six fathoms away[4]behind the stalled truck to serve as a warning for oncoming vehicles. The trucks tail lights
were also left on. It was about 12:00 a.m., March 16, 1987.
At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te
Laspias was cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger
bus was also bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among its passengers
were the Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the
bus, about three (3) or four (4) places from the front seat.
As the bus was approaching the bridge, Laspias saw the stalled truck, which was then about 25 meters
away.[5] He applied the breaks and tried to swerve to the left to avoid hitting the truck. But it was too late; the
bus rammed into the trucks left rear. The impact damaged the right side of the bus and left several
passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right colles.[6] His wife,
Felisa, was brought to the Danao City Hospital. She was later transferred to the Southern Island Medical
Center where she died shortly thereafter.[7]
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and
attorneys fees before the Regional Trial Court of Cebu City, Branch 20, against the petitioners, D Rough Riders
bus operator William Tiu and his driver, Virgilio Te Laspias on May 27, 1987. The respondent alleged that the
passenger bus in question was cruising at a fast and high speed along the national road, and that petitioner
Laspias did not take precautionary measures to avoid the accident.[8] Thus:

6. That the accident resulted to the death of the plaintiffs wife, Felisa Pepito Arriesgado, as evidenced by a
Certificate of Death, a xerox copy of which is hereto attached as integral part hereof and marked as ANNEX A,
and physical injuries to several of its passengers, including plaintiff himself who suffered a COLLES FRACTURE
RIGHT, per Medical Certificate, a xerox copy of which is hereto attached as integral part hereof and marked as
ANNEX B hereof.

7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspias of the said Rough Riders
passenger bus, plaintiff and his wife, Felisa Pepito Arriesgado, failed to safely reach their destination which
was Cebu City, the proximate cause of which was defendant-drivers failure to observe utmost diligence
required of a very cautious person under all circumstances.

8. That defendant William Tiu, being the owner and operator of the said Rough Riders passenger bus which
figured in the said accident, wherein plaintiff and his wife were riding at the time of the accident, is therefore
directly liable for the breach of contract of carriage for his failure to transport plaintiff and his wife safely to
their place of destination which was Cebu City, and which failure in his obligation to transport safely his
passengers was due to and in consequence of his failure to exercise the diligence of a good father of the
family in the selection and supervision of his employees, particularly defendant-driver Virgilio Te Laspias.[9]

The respondent prayed that judgment be rendered in his favor and that the petitioners be condemned to
pay the following damages:

1). To pay to plaintiff, jointly and severally, the amount of P30,000.00 for the death and untimely demise of
plaintiffs wife, Felisa Pepito Arriesgado;

2). To pay to plaintiff, jointly and severally, the amount of P38,441.50, representing actual expenses incurred
by the plaintiff in connection with the death/burial of plaintiffs wife;

3). To pay to plaintiff, jointly and severally, the amount of P1,113.80, representing medical/hospitalization
expenses incurred by plaintiff for the injuries sustained by him;

4). To pay to plaintiff, jointly and severally, the amount of P50,000.00 for moral damages;

5). To pay to plaintiff, jointly and severally, the amount of P50,000.00 by way of exemplary damages;

6). To pay to plaintiff, jointly and severally, the amount of P20,000.00 for attorneys fees;

7). To pay to plaintiff, jointly and severally, the amount of P5,000.00 for litigation expenses.

PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN LAW AND EQUITY.[10]

The petitioners, for their part, filed a Third-Party Complaint[11] on August 21, 1987 against the following:
respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tius insurer; respondent
Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano, the driver of the
truck. They alleged that petitioner Laspias was negotiating the uphill climb along the national highway
of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It was further alleged that the truck
was parked in a slanted manner, its rear portion almost in the middle of the highway, and that no early
warning device was displayed. Petitioner Laspias promptly applied the brakes and swerved to the left to avoid
hitting the truck head-on, but despite his efforts to avoid damage to property and physical injuries on the
passengers, the right side portion of the bus hit the cargo trucks left rear. The petitioners further alleged,
thus:

5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered in the name of the
third-party defendant Benjamin Condor and was left unattended by its driver Sergio Pedrano, one of the third-
party defendants, at the time of the incident;

6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked (sic) Condor Hollow
Blocks & General Merchandise, with Plate No. GBP-675 which was recklessly and imprudently parked along the
national highway of Compostela, Cebu during the vehicular accident in question, and third-party defendant
Benjamin Condor, as the registered owner of the cargo truck who failed to exercise due diligence in the
selection and supervision of third-party defendant Sergio Pedrano, are jointly and severally liable to the third-
party plaintiffs for whatever liability that may be adjudged against said third-party plaintiffs or are directly
liable of (sic) the alleged death of plaintiffs wife;

7. That in addition to all that are stated above and in the answer which are intended to show reckless
imprudence on the part of the third-party defendants, the third-party plaintiffs hereby declare that during the
vehicular accident in question, third-party defendant was clearly violating Section 34, par. (g) of the Land
Transportation and Traffic Code

10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William Tiu, is covered by a
common carrier liability insurance with Certificate of Cover No. 054940 issued by Philippine Phoenix Surety and
Insurance, Inc., Cebu City Branch, in favor of third-party plaintiff William Tiu which covers the period from July
22, 1986 to July 22, 1987 and that the said insurance coverage was valid, binding and subsisting during the
time of the aforementioned incident (Annex A as part hereof);

11. That after the aforesaid alleged incident, third-party plaintiff notified third-party defendant Philippine
Phoenix Surety and Insurance, Inc., of the alleged incident hereto mentioned, but to no avail;

12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be adversely adjudged, they
stand to pay damages sought by the plaintiff and therefore could also look up to the Philippine Phoenix Surety
and Insurance, Inc., for contribution, indemnification and/or reimbursement of any liability or obligation that
they might [be] adjudged per insurance coverage duly entered into by and between third-party plaintiff
William Tiu and third-party defendant Philippine Phoenix Surety and Insurance, Inc.;[12]

The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu, but
averred that it had already attended to and settled the claims of those who were injured during the
incident.[13] It could not accede to the claim of respondent Arriesgado, as such claim was way beyond the
scheduled indemnity as contained in the contract of insurance. [14]
After the parties presented their respective evidence, the trial court ruled in favor of respondent
Arriesgado. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff as against defendant
William Tiu ordering the latter to pay the plaintiff the following amounts:

1 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

2 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as exemplary damages;

3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE PESOS (P38,441.00) as actual
damages;

4 - The sum of TWENTY THOUSAND PESOS (P20,000.00) as attorneys fees;

5 - The sum of FIVE THOUSAND PESOS (P5,000.00) as costs of suit;

SO ORDERED.[15]

According to the trial court, there was no dispute that petitioner William Tiu was engaged in business as a
common carrier, in view of his admission that D Rough Rider passenger bus which figured in the accident was
owned by him; that he had been engaged in the transportation business for 25 years with a sole
proprietorship; and that he owned 34 buses. The trial court ruled that if petitioner Laspias had not been
driving at a fast pace, he could have easily swerved to the left to avoid hitting the truck, thus, averting the
unfortunate incident. It then concluded that petitioner Laspias was negligent.
 The trial court also ruled that the absence of an early warning device near the place where the truck was
parked was not sufficient to impute negligence on the part of respondent Pedrano, since the tail lights of the
truck were fully on, and the vicinity was well lighted by street lamps.[16] It also found that the testimony of
petitioner Tiu, that he based the selection of his driver Laspias on efficiency and in-service training, and that
the latter had been so far an efficient and good driver for the past six years of his employment, was
insufficient to prove that he observed the diligence of a good father of a family in the selection and supervision
of his employees.
After the petitioners motion for reconsideration of the said decision was denied, the petitioners elevated
the case to the Court of Appeals on the following issues:
I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS RECKLESS AND IMPRUDENT WHEN
HE PARKED THE CARGO TRUCK IN AN OBLIQUE MANNER;
II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND SEVERALLY LIABLE DIRECTLY TO
PLAINTIFF-APPELLEE OR TO DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT MAY
BE ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS;
III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIAS WAS GUILTY OF GROSS NEGLIGENCE;
IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED THE DUE DILIGENCE OF A
GOOD FATHER OF A FAMILY IN THE SELECTION AND SUPERVISION OF HIS DRIVERS;
V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-APPELLANT WILLIAM TIU IS LIABLE
TO PLAINTIFF-APPELLEE, WHETHER THERE IS LEGAL AND FACTUAL BASIS IN AWARDING
EXCESSIVE MORAL DAMAGES, EX[E]MPLARY DAMAGES, ATTORNEYS FEES AND LITIGATION
EXPENSES TO PLAINTIFF-APPELLEE;
VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. IS
LIABLE TO DEFENDANT- APPELLANT WILLIAM TIU.[17]
The appellate court rendered judgment affirming the trial courts decision with the modification that the
awards for moral and exemplary damages were reduced to P25,000. The dispositive portion reads:

WHEREFORE, the appealed Decision dated November 6, 1995 is hereby MODIFIED such that the awards
for moral and exemplary damages are each reduced to P25,000.00 or a total of P50,000.00 for both. The
judgment is AFFIRMED in all other respects.

SO ORDERED.[18]

According to the appellate court, the action of respondent Arriesgado was based not on quasi-delict but
on breach of contract of carriage. As a common carrier, it was incumbent upon petitioner Tiu to prove that
extraordinary diligence was observed in ensuring the safety of passengers during transportation. Since the
latter failed to do so, he should be held liable for respondent Arriesgados claim.The CA also ruled that no
evidence was presented against the respondent PPSII, and as such, it could not be held liable for respondent
Arriesgados claim, nor for contribution, indemnification and/or reimbursement in case the petitioners were
adjudged liable.
The petitioners now come to this Court and ascribe the following errors committed by the appellate court:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING RESPONDENTS BENJAMIN
CONDOR AND SERGIO PEDRANO GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT
PEDRO A. ARRIESGADO OR TO PETITIONERS FOR WHATEVER LIABILITY THAT MAY BE
ADJUDGED AGAINST THEM.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS GUILTY OF NEGLIGENCE
AND HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO.
 III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONER WILLIAM TIU LIABLE
FOR EXEMPLARY DAMAGES, ATTORNEYS FEES AND LITIGATION EXPENSES.
IV.THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT
PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. LIABLE TO RESPONDENT PEDRO A.
ARRIESGADO OR TO PETITIONER WILLIAM TIU.[19]
According to the petitioners, the appellate court erred in failing to appreciate the absence of an early
warning device and/or built-in reflectors at the front and back of the cargo truck, in clear violation of Section
34, par. (g) of the Land Transportation and Traffic Code. They aver that such violation is only a proof of
respondent Pedranos negligence, as provided under Article 2185 of the New Civil Code. They also question the
appellate courts failure to take into account that the truck was parked in an oblique manner, its rear portion
almost at the center of the road. As such, the proximate cause of the incident was the gross recklessness and
imprudence of respondent Pedrano, creating the presumption of negligence on the part of respondent Condor
in supervising his employees, which presumption was not rebutted. The petitioners then contend that
respondents Condor and Pedrano should be held jointly and severally liable to respondent Arriesgado for the
payment of the latters claim.
The petitioners, likewise, aver that expert evidence should have been presented to prove that petitioner
Laspias was driving at a very fast speed, and that the CA could not reach such conclusion by merely
considering the damages on the cargo truck. It was also pointed out that petitioner Tiu presented evidence
that he had exercised the diligence of a good father of a family in the selection and supervision of his drivers.
The petitioners further allege that there is no legal and factual basis to require petitioner Tiu to pay
exemplary damages as no evidence was presented to show that the latter acted in a fraudulent, reckless and
oppressive manner, or that he had an active participation in the negligent act of petitioner Laspias.
Finally, the petitioners contend that respondent PPSII admitted in its answer that while it had attended to
and settled the claims of the other injured passengers, respondent Arriesgados claim remained unsettled as it
was beyond the scheduled indemnity under the insurance contract. The petitioners argue that said respondent
PPSII should have settled the said claim in accordance with the scheduled indemnity instead of just denying
the same.
On the other hand, respondent Arriesgado argues that two of the issues raised by the petitioners involved
questions of fact, not reviewable by the Supreme Court: the finding of negligence on the part of the
petitioners and their liability to him; and the award of exemplary damages, attorneys fees and litigation
expenses in his favor. Invoking the principle of equity and justice, respondent Arriesgado pointed out that if
there was an error to be reviewed in the CA decision, it should be geared towards the restoration of the moral
and exemplary damages to P50,000 each, or a total of P100,000 which was reduced by the Court of Appeals
to P25,000 each, or a total of only P50,000.
Respondent Arriesgado also alleged that respondents Condor and Pedrano, and respondent Phoenix
Surety, are parties with whom he had no contract of carriage, and had no cause of action against. It was
pointed out that only the petitioners needed to be sued, as driver and operator of the ill-fated bus, on account
of their failure to bring the Arriesgado Spouses to their place of destination as agreed upon in the contract of
carriage, using the utmost diligence of very cautious persons with due regard for all circumstances.
Respondents Condor and Pedrano point out that, as correctly ruled by the Court of Appeals, the proximate
cause of the unfortunate incident was the fast speed at which petitioner Laspias was driving the bus owned by
petitioner Tiu. According to the respondents, the allegation that the truck was not equipped with an early
warning device could not in any way have prevented the incident from happening. It was also pointed out that
respondent Condor had always exercised the due diligence required in the selection and supervision of his
employees, and that he was not a party to the contract of carriage between the petitioners and respondent
Arriesgado.
Respondent PPSII, for its part, alleges that contrary to the allegation of petitioner Tiu, it settled all the
claims of those injured in accordance with the insurance contract. It further avers that it did not deny
respondent Arriesgados claim, and emphasizes that its liability should be within the scheduled limits of
indemnity under the said contract. The respondent concludes that while it is true that insurance contracts are
contracts of indemnity, the measure of the insurers liability is determined by the insureds compliance with the
terms thereof.

The Courts Ruling

At the outset, it must be stressed that this Court is not a trier of facts.[20] Factual findings of the Court of
Appeals are final and may not be reviewed on appeal by this Court, except when the lower court and the CA
arrived at diverse factual findings.[21] The petitioners in this case assail the finding of both the trial and the
appellate courts that petitioner Laspias was driving at a very fast speed before the bus owned by petitioner Tiu
collided with respondent Condors stalled truck. This is clearly one of fact, not reviewable by the Court in a
petition for review under Rule 45.[22]
On this ground alone, the petition is destined to fail.
However, considering that novel questions of law are likewise involved, the Court resolves to examine and
rule on the merits of the case.
Petitioner Laspias
Was negligent in driving
The Ill-fated bus

In his testimony before the trial court, petitioner Laspias claimed that he was traversing the two-lane road
at Compostela, Cebu at a speed of only forty (40) to fifty (50) kilometers per hour before the incident
occurred.[23] He also admitted that he saw the truck which was parked in an oblique position at about 25
meters before impact,[24] and tried to avoid hitting it by swerving to the left. However, even in the absence of
expert evidence, the damage sustained by the truck[25] itself supports the finding of both the trial court and
the appellate court, that the D Rough Rider bus driven by petitioner Laspias was traveling at a fast pace. Since
he saw the stalled truck at a distance of 25 meters, petitioner Laspias had more than enough time to swerve
to his left to avoid hitting it; that is, if the speed of the bus was only 40 to 50 kilometers per hour as he
claimed. As found by the Court of Appeals, it is easier to believe that petitioner Laspias was driving at a very
fast speed, since at 4:45 a.m., the hour of the accident, there were no oncoming vehicles at the opposite
direction. Petitioner Laspias could have swerved to the left lane with proper clearance, and, thus, could have
avoided the truck.[26]Instinct, at the very least, would have prompted him to apply the breaks to avert the
impending disaster which he must have foreseen when he caught sight of the stalled truck. As we had
occasion to reiterate:

A man must use common sense, and exercise due reflection in all his acts; it is his duty to be cautious, careful
and prudent, if not from instinct, then through fear of recurring punishment. He is responsible for such results
as anyone might foresee and for acts which no one would have performed except through culpable abandon.
Otherwise, his own person, rights and property, and those of his fellow beings, would ever be exposed to all
manner of danger and injury.[27]

We agree with the following findings of the trial court, which were affirmed by the CA on appeal:

A close study and evaluation of the testimonies and the documentary proofs submitted by the parties which
have direct bearing on the issue of negligence, this Court as shown by preponderance of evidence that
defendant Virgilio Te Laspias failed to observe extraordinary diligence as a driver of the common carrier in this
case. It is quite hard to accept his version of the incident that he did not see at a reasonable distance ahead
the cargo truck that was parked when the Rough Rider [Bus] just came out of the bridge which is on an (sic)
[more] elevated position than the place where the cargo truck was parked. With its headlights fully on,
defendant driver of the Rough Rider was in a vantage position to see the cargo truck ahead which was parked
and he could just easily have avoided hitting and bumping the same by maneuvering to the left without hitting
the said cargo truck. Besides, it is (sic) shown that there was still much room or space for the Rough Rider to
pass at the left lane of the said national highway even if the cargo truck had occupied the entire right lane
thereof. It is not true that if the Rough Rider would proceed to pass through the left lane it would fall into a
canal considering that there was much space for it to pass without hitting and bumping the cargo truck at the
left lane of said national highway. The records, further, showed that there was no incoming vehicle at the
opposite lane of the national highway which would have prevented the Rough Rider from not swerving to its
left in order to avoid hitting and bumping the parked cargo truck. But the evidence showed that the Rough
Rider instead of swerving to the still spacious left lane of the national highway plowed directly into the parked
cargo truck hitting the latter at its rear portion; and thus, the (sic) causing damages not only to herein plaintiff
but to the cargo truck as well.[28]

Indeed, petitioner Laspias negligence in driving the bus is apparent in the records. By his own admission,
he had just passed a bridge and was traversing the highway of Compostela, Cebu at a speed of 40 to 50
kilometers per hour before the collision occurred. The maximum speed allowed by law on a bridge is only 30
kilometers per hour.[29] And, as correctly pointed out by the trial court, petitioner Laspias also violated Section
35 of the Land Transportation and Traffic Code, Republic Act No. 4136, as amended:

Sec. 35. Restriction as to speed. (a) Any person driving a motor vehicle on a highway shall drive the same at a
careful and prudent speed, not greater nor less than is reasonable and proper, having due regard for the
traffic, the width of the highway, and or any other condition then and there existing; and no person shall drive
any motor vehicle upon a highway at such speed as to endanger the life, limb and property of any person,
nor at a speed greater than will permit him to bring the vehicle to a stop within the assured clear distance
ahead.[30]

Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of the
mishap, he was violating any traffic regulation.[31]
Petitioner Tiu failed to
Overcome the presumption
Of negligence against him as
One engaged in the business
Of common carriage

The rules which common carriers should observe as to the safety of their passengers are set forth in the
Civil Code, Articles 1733,[32] 1755[33] and 1756.[34] In this case, respondent Arriesgado and his deceased wife
contracted with petitioner Tiu, as owner and operator of D Rough Riders bus service, for transportation from
Maya, Daanbantayan, Cebu, to Cebu City for the price of P18.00.[35] It is undisputed that the respondent and
his wife were not safely transported to the destination agreed upon. In actions for breach of contract, only the
existence of such contract, and the fact that the obligor, in this case the common carrier, failed to transport
his passenger safely to his destination are the matters that need to be proved.[36] This is because under the
said contract of carriage, the petitioners assumed the express obligation to transport the respondent and his
wife to their destination safely and to observe extraordinary diligence with due regard for all
circumstances.[37] Any injury suffered by the passengers in the course thereof is immediately attributable to
the negligence of the carrier.[38] Upon the happening of the accident, the presumption of negligence at once
arises, and it becomes the duty of a common carrier to prove that he observed extraordinary diligence in the
care of his passengers.[39]It must be stressed that in requiring the highest possible degree of diligence from
common carriers and in creating a presumption of negligence against them, the law compels them to curb the
recklessness of their drivers.[40]
While evidence may be submitted to overcome such presumption of negligence, it must be shown that the
carrier observed the required extraordinary diligence, which means that the carrier must show the utmost
diligence of very cautious persons as far as human care and foresight can provide, or that the accident was
caused by fortuitous event.[41] As correctly found by the trial court, petitioner Tiu failed to conclusively rebut
such presumption. The negligence of petitioner Laspias as driver of the passenger bus is, thus, binding against
petitioner Tiu, as the owner of the passenger bus engaged as a common carrier.[42]
The Doctrine of
Last Clear Chance
Is Inapplicable in the
Case at Bar

Contrary to the petitioners contention, the principle of last clear chance is inapplicable in the instant case,
as it only applies in a suit between the owners and drivers of two colliding vehicles. It does not arise where a
passenger demands responsibility from the carrier to enforce its contractual obligations, for it would be
inequitable to exempt the negligent driver and its owner on the ground that the other driver was likewise
guilty of negligence.[43] The common law notion of last clear chance permitted courts to grant recovery to a
plaintiff who has also been negligent provided that the defendant had the last clear chance to avoid the
casualty and failed to do so. Accordingly, it is difficult to see what role, if any, the common law of last clear
chance doctrine has to play in a jurisdiction where the common law concept of contributory negligence as an
absolute bar to recovery by the plaintiff, has itself been rejected, as it has been in Article 2179 of the Civil
Code.[44]
Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgados wife due to the
negligence of petitioner Laspias, his employee, on this score.
Respondents Pedrano and
Condor were likewise
Negligent

In Phoenix Construction, Inc. v. Intermediate Appellate Court,[45] where therein respondent Dionisio
sustained injuries when his vehicle rammed against a dump truck parked askew, the Court ruled that the
improper parking of a dump truck without any warning lights or reflector devices created an unreasonable risk
for anyone driving within the vicinity, and for having created such risk, the truck driver must be held
responsible. In ruling against the petitioner therein, the Court elucidated, thus:

In our view, Dionisios negligence, although later in point of time than the truck drivers negligence, and
therefore closer to the accident, was not an efficient intervening or independent cause. What the petitioners
describe as an intervening cause was no more than a foreseeable consequence of the risk created by the
negligent manner in which the truck driver had parked the dump truck. In other words, the petitioner truck
driver owed a duty to private respondent Dionisio and others similarly situated not to impose upon them the
very risk the truck driver had created. Dionisios negligence was not that of an independent and overpowering
nature as to cut, as it were, the chain of causation in fact between the improper parking of the dump truck
and the accident, nor to sever the juris vinculum of liability.

We hold that private respondent Dionisios negligence was only contributory, that the immediate and proximate
cause of the injury remained the truck drivers lack of due care.[46]

In this case, both the trial and the appellate courts failed to consider that respondent Pedrano was also
negligent in leaving the truck parked askew without any warning lights or reflector devices to alert oncoming
vehicles, and that such failure created the presumption of negligence on the part of his employer, respondent
Condor, in supervising his employees properly and adequately. As we ruled in Poblete v. Fabros:[47]

It is such a firmly established principle, as to have virtually formed part of the law itself, that the negligence of
the employee gives rise to the presumption of negligence on the part of the employer. This is the presumed
negligence in the selection and supervision of employee. The theory of presumed negligence, in contrast with
the American doctrine of respondeat superior, where the negligence of the employee is conclusivelypresumed
to be the negligence of the employer, is clearly deducible from the last paragraph of Article 2180 of the Civil
Code which provides that the responsibility therein mentioned shall cease if the employers prove that they
observed all the diligence of a good father of a family to prevent damages. [48]
 The petitioners were correct in invoking respondent Pedranos failure to observe Article IV, Section 34(g)
of the Rep. Act No. 4136, which provides:

(g) Lights when parked or disabled. Appropriate parking lights or flares visible one hundred meters away shall
be displayed at a corner of the vehicle whenever such vehicle is parked on highways or in places that are not
well-lighted or is placed in such manner as to endanger passing traffic.

The manner in which the truck was parked clearly endangered oncoming traffic on both sides, considering
that the tire blowout which stalled the truck in the first place occurred in the wee hours of the morning. The
Court can only now surmise that the unfortunate incident could have been averted had respondent Condor,
the owner of the truck, equipped the said vehicle with lights, flares, or, at the very least, an early warning
device.[49] Hence, we cannot subscribe to respondents Condor and Pedranos claim that they should be
absolved from liability because, as found by the trial and appellate courts, the proximate cause of the collision
was the fast speed at which petitioner Laspias drove the bus. To accept this proposition would be to come too
close to wiping out the fundamental principle of law that a man must respond for the foreseeable
consequences of his own negligent act or omission. Indeed, our law on quasi-delicts seeks to reduce the risks
and burdens of living in society and to allocate them among its members. To accept this proposition would be
to weaken the very bonds of society.[50]
The Liability of
Respondent PPSII
as Insurer

The trial court in this case did not rule on the liability of respondent PPSII, while the appellate court ruled
that, as no evidence was presented against it, the insurance company is not liable.
A perusal of the records will show that when the petitioners filed the Third-Party Complaint against
respondent PPSII, they failed to attach a copy of the terms of the insurance contract itself. Only Certificate of
Cover No. 054940[51] issued in favor of Mr. William Tiu, Lahug, Cebu City signed by Cosme H. Boniel was
appended to the third-party complaint. The date of issuance, July 22, 1986, the period of insurance, from July
22, 1986 to July 22, 1987, as well as the following items, were also indicated therein:

SCHEDULED VEHICLE

MODEL MAKE TYPE OF BODY COLOR BLT FILE NO.

Isuzu Forward Bus blue mixed

PLATE NO. PBP- SERIAL/CHASSIS MOTOR NO. AUTHORIZED UNLADEN

724 NO. SER450- 677836 CAPACITY 50 WEIGHT 6Cyls.
1584124 Kgs.

SECTION 1/11 *LIMITS OF LIABILITY P50,000.00 PREMIUMS

PAID
A. THIRD PARTY LIABILITY

B. PASSENGER LIABILITY Per Person Per Accident P540.0052

P12,000.00 P50,000

In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted the existence of the contract
of insurance, in view of its failure to specifically deny the same as required under then Section 8(a), Rule 8 of
the Rules of Court,54 which reads:
Sec. 8. How to contest genuineness of such documents. When an action or defense is founded upon a written
instrument copied in or attached to the corresponding pleading as provided in the preceding section, the
genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under
oath, specifically denies them, and sets forth what he claims to be the facts; but the requirement of an oath
does not apply when the adverse party does not appear to be a party to the instrument or when compliance
with an order for inspection of the original instrument is refused.

In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it was liable
thereon. It claimed, however, that it had attended to and settled the claims of those injured during the
incident, and set up the following as special affirmative defenses:

Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and incorporates by way
of reference the preceding paragraphs and further states THAT:-

8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali Palces who sustained
injuries during the incident in question. In fact, it settled financially their claims per vouchers duly signed by
them and they duly executed Affidavit[s] of Desistance to that effect, xerox copies of which are hereto
attached as Annexes 1, 2, 3, 4, 5, and 6 respectively;

9. With respect to the claim of plaintiff, herein answering third party defendant through its authorized
insurance adjuster attended to said claim. In fact, there were negotiations to that effect. Only that it cannot
accede to the demand of said claimant considering that the claim was way beyond the scheduled indemnity as
per contract entered into with third party plaintiff William Tiu and third party defendant (Philippine Phoenix
Surety and Insurance, Inc.). Third party Plaintiff William Tiu knew all along the limitation as earlier stated, he
being an old hand in the transportation business;55

Considering the admissions made by respondent PPSII, the existence of the insurance contract and the
salient terms thereof cannot be dispatched. It must be noted that after filing its answer, respondent PPSII no
longer objected to the presentation of evidence by respondent Arriesgado and the insured petitioner Tiu. Even
in its Memorandum56 before the Court, respondent PPSII admitted the existence of the contract, but averred
as follows:

Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification and/or reimbursement.
This has no basis under the contract. Under the contract, PPSII will pay all sums necessary to discharge
liability of the insured subject to the limits of liability but not to exceed the limits of liability as so stated in the
contract. Also, it is stated in the contract that in the event of accident involving indemnity to more than one
person, the limits of liability shall not exceed the aggregate amount so specified by law to all persons to be
indemnified.57

As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the
Compulsory Motor Vehicle Liability Insurance Law. It was expressly provided therein that the limit of the
insurers liability for each person was P12,000, while the limit per accident was pegged at P50,000. An insurer
in an indemnity contract for third party liability is directly liable to the injured party up to the extent specified
in the agreement but it cannot be held solidarily liable beyond that amount.58 The respondent PPSII could not
then just deny petitioner Tius claim; it should have paid P12,000 for the death of Felisa Arriesgado,59 and
respondent Arriesgados hospitalization expenses of P1,113.80, which the trial court found to have been duly
supported by receipts. The total amount of the claims, even when added to that of the other injured
passengers which the respondent PPSII claimed to have settled,60 would not exceed the P50,000 limit under
the insurance agreement.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to
provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a
result of the negligent operation and use of motor vehicles. The victims and/or their dependents are assured
of immediate financial assistance, regardless of the financial capacity of motor vehicle owners.61 As the Court,
speaking through Associate Justice Leonardo A. Quisumbing, explained in Government Service Insurance
System v. Court of Appeals:62

However, although the victim may proceed directly against the insurer for indemnity, the third party liability is
only up to the extent of the insurance policy and those required by law. While it is true that where the
insurance contract provides for indemnity against liability to third persons, and such persons can directly sue
the insurer, the direct liability of the insurer under indemnity contracts against third party liability does not
mean that the insurer can be held liable in solidum with the insured and/or the other parties found at fault.
For the liability of the insurer is based on contract; that of the insured carrier or vehicle owner is based on tort.

Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract of
insurance, in accordance with the CMVLI law. At the time of the incident, the schedule of indemnities for death
and bodily injuries, professional fees and other charges payable under a CMVLI coverage was provided for
under the Insurance Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As
therein provided, the maximum indemnity for death was twelve thousand (P12,000.00) pesos per victim. The
schedules for medical expenses were also provided by said IMC, specifically in paragraphs (C) to (G).63

Damages to be
Awarded

The trial court correctly awarded moral damages in the amount of P50,000 in favor of respondent
Arriesgado. The award of exemplary damages by way of example or correction of the public good,64 is likewise
in order. As the Court ratiocinated in Kapalaran Bus Line v. Coronado:65

While the immediate beneficiaries of the standard of extraordinary diligence are, of course, the passengers
and owners of cargo carried by a common carrier, they are not the only persons that the law seeks to benefit.
For if common carriers carefully observed the statutory standard of extraordinary diligence in respect of their
own passengers, they cannot help but simultaneously benefit pedestrians and the passengers of other vehicles
who are equally entitled to the safe and convenient use of our roads and highways. The law seeks to stop and
prevent the slaughter and maiming of people (whether passengers or not) on our highways and buses, the
very size and power of which seem to inflame the minds of their drivers. Article 2231 of the Civil Code
explicitly authorizes the imposition of exemplary damages in cases of quasi-delicts if the defendant acted with
gross negligence.66

The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is entitled to
indemnity in the amount of P50,000.00.67
The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly and severally
liable for said amount, conformably with the following pronouncement of the Court in Fabre, Jr. vs. Court of
Appeals:68

The same rule of liability was applied in situations where the negligence of the driver of the bus on which
plaintiff was riding concurred with the negligence of a third party who was the driver of another vehicle, thus
causing an accident. In Anuran v. Buo, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court,
and Metro Manila Transit Corporation v. Court of Appeals, the bus company, its driver, the operator of the
other vehicle and the driver of the vehicle were jointly and severally held liable to the injured passenger or the
latters heirs. The basis of this allocation of liability was explained in Viluan v. Court of Appeals, thus:

Nor should it make difference that the liability of petitioner [bus owner] springs from contract while that of
respondents [owner and driver of other vehicle] arises from quasi-delict. As early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the negligence of the driver of
the bus on which he was riding and of the driver of another vehicle, the drivers as well as the owners of the
two vehicles are jointly and severally liable for damages. Some members of the Court, though, are of the view
that under the circumstances they are liable on quasi-delict.69
 IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of
Appeals is AFFIRMED with MODIFICATIONS:
(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu are ORDERED to
pay, jointly and severally, respondent Pedro A. Arriesgado the total amount of P13,113.80;
(2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano are ORDERED to pay,
jointly and severally, respondent Pedro A. Arriesgado P50,000.00 as indemnity; P26,441.50 as actual
damages; P50,000.00 as moral damages; P50,000.00 as exemplary damages; and P20,000.00 as attorneys
fees.
SO ORDERED.
Austria-Martinez, (Acting Chairman), Tinga, and Chico-Nazario, JJ., concur.
Puno J., (Chairman), on official leave.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 87434 August 5, 1992

PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS, INC., petitioners,
vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and HON. COURT
OF APPEALS, respondents.

De Lara, De Lunas & Rosales for petitioners.

Carlo L. Aquino for Sweet Lines, Inc.

REGALADO, J.:

A maritime suit 1 was commenced on May 12, 1978 by herein Petitioner Philippine American General Insurance
Co., Inc. (Philamgen) and Tagum Plastics, Inc. (TPI) against private respondents Sweet Lines, Inc. (SLI) and
Davao Veterans Arrastre and Port Services, Inc. (DVAPSI), along with S.C.I. Line (The Shipping Corporation of
India Limited) and F.E. Zuellig, Inc., as co-defendants in the court a quo, seeking recovery of the cost of lost
or damaged shipment plus exemplary damages, attorney's fees and costs allegedly due to defendants'
negligence, with the following factual backdrop yielded by the findings of the court below and adopted by
respondent court:

It would appear that in or about March 1977, the vessel SS "VISHVA YASH" belonging to or
operated by the foreign common carrier, took on board at Baton Rouge, LA, two (2)
consignments of cargoes for shipment to Manila and later for transhipment to Davao City,
consisting of 600 bags Low Density Polyethylene 631 and another 6,400 bags Low Density
Polyethylene 647, both consigned to the order of Far East Bank and Trust Company of Manila,
with arrival notice to Tagum Plastics, Inc., Madaum, Tagum, Davao City. Said cargoes were
covered, respectively, by Bills of Lading Nos. 6 and 7 issued by the foreign common carrier
(Exhs. E and F). The necessary packing or Weight List (Exhs. A and B), as well as the
 Commercial Invoices (Exhs. C and D) accompanied the shipment. The cargoes were likewise
insured by the Tagum Plastics Inc. with plaintiff Philippine American General Insurance Co.,
Inc., (Exh. G).

In the course of time, the said vessel arrived at Manila and discharged its cargoes in the Port of
Manila for transhipment to Davao City. For this purpose, the foreign carrier awaited and made
use of the services of the vessel called M/V "Sweet Love" owned and operated by defendant
interisland carrier.

Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier. These were
commingled with similar cargoes belonging to Evergreen Plantation and also Standfilco.

On May 15, 1977, the shipment(s) were discharged from the interisland carrier into the custody
of the consignee. A later survey conducted on July 8, 1977, upon the instance of the plaintiff,
shows the following:

Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain 6,400 bags of Low
Density Polyethylene 647 originally inside 160 pallets, there were delivered to the consignee
5,413 bags in good order condition. The survey shows shortages, damages and losses to be as
follows:

Undelivered/Damaged bags as tallied during discharge from vessel-173 bags;

undelivered and damaged as noted and observed whilst stored at the pier-699
bags; and shortlanded-110 bags (Exhs. P and P-1).

Of the 600 bags of Low Density Polyethylene 631, the survey conducted on the same day
shows an actual delivery to the consignee of only 507 bags in good order condition. Likewise
noted were the following losses, damages and shortages, to wit:

Undelivered/damaged bags and tally sheets during discharge from vessel-17

bags.

Undelivered and damaged as noted and observed whilst stored at the pier-66
bags; Shortlanded-10 bags.

Therefore, of said shipment totalling 7,000 bags, originally contained in 175 pallets, only a total
of 5,820 bags were delivered to the consignee in good order condition, leaving a balance of
1,080 bags. Such loss from this particular shipment is what any or all defendants may be
answerable to (sic).

As already stated, some bags were either shortlanded or were missing, and some of the 1,080
bags were torn, the contents thereof partly spilled or were fully/partially emptied, but, worse,
the contents thereof contaminated with foreign matters and therefore could no longer serve
their intended purpose. The position taken by the consignee was that even those bags which
still had some contents were considered as total losses as the remaining contents were
contaminated with foreign matters and therefore did not (sic) longer serve the intended
purpose of the material. Each bag was valued, taking into account the customs duties and other
taxes paid as well as charges and the conversion value then of a dollar to the peso, at P110.28
per bag (see Exhs. L and L-1 M and O). 2

Before trial, a compromise agreement was entered into between petitioners, as plaintiffs, and defendants
S.C.I. Line and F.E. Zuellig, upon the latter's payment of P532.65 in settlement of the claim against them.
Whereupon, the trial court in its order of August 12, 1981 3 granted plaintiffs' motion to dismiss grounded on
said amicable settlement and the case as to S.C.I. Line and F.E. Zuellig was consequently "dismissed with
prejudice and without pronouncement as to costs."

The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive portion:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine General American
Insurance Company Inc. and against the remaining defendants, Sweet Lines Inc. and Davao
Veterans Arrastre Inc. as follows:

Defendant Sweet Lines, Inc. is ordered to pay said plaintiff the sum of P34,902.00, with legal
interest thereon from date of extrajudicial demand on April 28, 1978 (Exh. M) until fully paid;

Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port) Services Inc. are directed
to pay jointly and severally, the plaintiff the sum of P49,747.55, with legal interest thereon from
April 28, 1978 until fully paid;

Each of said defendants are ordered to pay the plaintiffs the additional sum of P5,000 is
reimbursable attorney's fees and other litigation expenses;

Each of said defendants shall pay one-fourth (1/4) costs. 4

Due to the reversal on appeal by respondent court of the trial court's decision on the ground of
prescription, 5 in effect dismissing the complaint of herein petitioners, and the denial of their motion for
reconsideration, 6petitioners filed the instant petition for review on certiorari, faulting respondent appellate
court with the following errors: (1) in upholding, without proof, the existence of the so-called prescriptive
period; (2) granting arguendo that the said prescriptive period does exist, in not finding the same to be null
and void; and (3) assuming arguendo that the said prescriptive period is valid and legal, in failing to conclude
that petitioners substantially complied therewith. 7

Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering their common
interest in the shipment subject of the present controversy, to obviate any question as to who the real party in
interest is and to protect their respective rights as insurer and insured. In any case, there is no impediment to
the legal standing of Petitioner Philamgen, even if it alone were to sue herein private respondents in its own
capacity as insurer, it having been subrogated to all rights of recovery for loss of or damage to the shipment
insured under its Marine Risk Note No. 438734 dated March 31, 1977 8 in view of the full settlement of the
claim thereunder as evidenced by the subrogation receipt 9 issued in its favor by Far East Bank and Trust Co.,
Davao Branch, for the account of petitioner TPI.

Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro tanto, being of
the highest equity, equips it with a cause of action against a third party in case of contractual
breach. 10 Further, the insurer's subrogatory right to sue for recovery under the bill of lading in case of loss of
or damage to the cargo is jurisprudentially upheld. 11 However, if an insurer, in the exercise of its subrogatory
right, may proceed against the erring carrier and for all intents and purposes stands in the place and in
substitution of the consignee, a fortiori such insurer is presumed to know and is just as bound by the
contractual terms under the bill of lading as the insured.

On the first issue, petitioners contend that it was error for the Court of Appeals to reverse the appealed
decision on the supposed ground of prescription when SLI failed to adduce any evidence in support thereof
and that the bills of lading said to contain the shortened periods for filing a claim and for instituting a court
action against the carrier were never offered in evidence. Considering that the existence and tenor of this
stipulation on the aforesaid periods have allegedly not been established, petitioners maintain that it is
inconceivable how they can possibly comply therewith. 12 In refutation, SLI avers that it is standard practice in
its operations to issue bills of lading for shipments entrusted to it for carriage and that it in fact issued bills of
lading numbered MD-25 and MD-26 therefor with proof of their existence manifest in the records of the
case. 13 For its part, DVAPSI insists on the propriety of the dismissal of the complaint as to it due to
petitioners' failure to prove its direct responsibility for the loss of and/or damage to the cargo. 14

On this point, in denying petitioner's motion for reconsideration, the Court of Appeals resolved that although
the bills of lading were not offered in evidence, the litigation obviously revolves on such bills of lading which
are practically the documents or contracts sued upon, hence, they are inevitably involved and their provisions
cannot be disregarded in the determination of the relative rights of the parties thereto. 15

Respondent court correctly passed upon the matter of prescription, since that defense was so considered and
controverted by the parties. This issue may accordingly be taken cognizance of by the court even if not
inceptively raised as a defense so long as its existence is plainly apparent on the face of relevant
pleadings. 16 In the case at bar, prescription as an affirmative defense was seasonably raised by SLI in its
answer, 17 except that the bills of lading embodying the same were not formally offered in evidence, thus
reducing the bone of contention to whether or not prescription can be maintained as such defense and, as in
this case, consequently upheld on the strength of mere references thereto.

As petitioners are suing upon SLI's contractual obligation under the contract of carriage as contained in the
bills of lading, such bills of lading can be categorized as actionable documents which under the Rules must be
properly pleaded either as causes of action or defenses, 18 and the genuineness and due execution of which
are deemed admitted unless specifically denied under oath by the adverse party. 19 The rules on actionable
documents cover and apply to both a cause of action or defense based on said documents. 20

In the present case and under the aforestated assumption that the time limit involved is a prescriptive period,
respondent carrier duly raised prescription as an affirmative defense in its answer setting forth paragraph 5 of
the pertinent bills of lading which comprised the stipulation thereon by parties, to wit:

5. Claims for shortage, damage, must be made at the time of delivery to consignee or agent, if
container shows exterior signs of damage or shortage. Claims for non-delivery, misdelivery, loss
or damage must be filed within 30 days from accrual. Suits arising from shortage, damage or
loss, non-delivery or misdelivery shall be instituted within 60 days from date of accrual of right
of action. Failure to file claims or institute judicial proceedings as herein provided constitutes
waiver of claim or right of action. In no case shall carrier be liable for any delay, non-delivery,
misdelivery, loss of damage to cargo while cargo is not in actual custody of carrier. 21

In their reply thereto, herein petitioners, by their own assertions that

2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s Answer, plaintiffs state
that such agreements are what the Supreme Court considers as contracts of adhesion
(see Sweet Lines, Inc. vs. Hon. Bernardo Teves, et al., G.R. No. L-37750, May 19, 1978) and,
consequently, the provisions therein which are contrary to law and public policy cannot be
availed of by answering defendant as valid defenses. 22

thereby failed to controvert the existence of the bills of lading and the aforequoted provisions therein, hence
they impliedly admitted the same when they merely assailed the validity of subject stipulations.

Petitioners' failure to specifically deny the existence, much less the genuineness and due execution, of the
instruments in question amounts to an admission. Judicial admissions, verbal or written, made by the parties
in the pleadings or in the course of the trial or other proceedings in the same case are conclusive, no evidence
being required to prove the same, and cannot be contradicted unless shown to have been made through
palpable mistake or that no such admission was made. 23 Moreover, when the due execution and genuineness
of an instrument are deemed admitted because of the adverse party's failure to make a specific verified denial
thereof, the instrument need not be presented formally in evidence for it may be considered an admitted
fact. 24

Even granting that petitioners' averment in their reply amounts to a denial, it has the procedural earmarks of
what in the law on pleadings is called a negative pregnant, that is, a denial pregnant with the admission of the
substantial facts in the pleading responded to which are not squarely denied. It is in effect an admission of the
averment it is directed to. 25 Thus, while petitioners objected to the validity of such agreement for being
contrary to public policy, the existence of the bills of lading and said stipulations were nevertheless impliedly
admitted by them.

We find merit in respondent court's comments that petitioners failed to touch on the matter of the non-
presentation of the bills of lading in their brief and earlier on in the appellate proceedings in this case, hence it
is too late in the day to now allow the litigation to be overturned on that score, for to do so would mean an
over-indulgence in technicalities. Hence, for the reasons already advanced, the non-inclusion of the
controverted bills of lading in the formal offer of evidence cannot, under the facts of this particular case, be
considered a fatal procedural lapse as would bar respondent carrier from raising the defense of prescription.
Petitioners' feigned ignorance of the provisions of the bills of lading, particularly on the time limitations for
filing a claim and for commencing a suit in court, as their excuse for non-compliance therewith does not
deserve serious attention.

It is to be noted that the carriage of the cargo involved was effected pursuant to an "Application for Delivery
of Cargoes without Original Bill of Lading" issued on May 20, 1977 in Davao City 26 with the notation therein
that said application corresponds to and is subject to the terms of bills of lading MD-25 and MD-26. It would
be a safe assessment to interpret this to mean that, sight unseen, petitioners acknowledged the existence of
said bills of lading. By having the cargo shipped on respondent carrier's vessel and later making a claim for
loss on the basis of the bills of lading, petitioners for all intents and purposes accepted said bills. Having done
so they are bound by all stipulations contained therein. 27 Verily, as petitioners are suing for recovery on the
contract, and in fact even went as far as assailing its validity by categorizing it as a contract of adhesion, then
they necessarily admit that there is such a contract, their knowledge of the existence of which with its
attendant stipulations they cannot now be allowed to deny.

On the issue of the validity of the controverted paragraph 5 of the bills of lading above quoted which
unequivocally prescribes a time frame of thirty (30) days for filing a claim with the carrier in case of loss of or
damage to the cargo and sixty (60) days from accrual of the right of action for instituting an action in court,
which periods must concur, petitioners posit that the alleged shorter prescriptive period which is in the nature
of a limitation on petitioners' right of recovery is unreasonable and that SLI has the burden of proving
otherwise, citing the earlier case of Southern Lines, Inc. vs. Court of Appeals, et al. 28 They postulate this on
the theory that the bills of lading containing the same constitute contracts of adhesion and are, therefore, void
for being contrary to public policy, supposedly pursuant to the dictum in Sweet Lines, Inc. vs. Teves, et al. 29

Furthermore, they contend, since the liability of private respondents has been clearly established, to bar
petitioners' right of recovery on a mere technicality will pave the way for unjust enrichment. 30 Contrarily, SLI
asserts and defends the reasonableness of the time limitation within which claims should be filed with the
carrier; the necessity for the same, as this condition for the carrier's liability is uniformly adopted by nearly all
shipping companies if they are to survive the concomitant rigors and risks of the shipping industry; and the
countervailing balance afforded by such stipulation to the legal presumption of negligence under which the
carrier labors in the event of loss of or damage to the cargo. 31

It has long been held that Article 366 of the Code of Commerce applies not only to overland and river
transportation but also to maritime
transportation. 32 Moreover, we agree that in this jurisdiction, as viewed from another angle, it is more
accurate to state that the filing of a claim with the carrier within the time limitation therefor under Article 366
actually constitutes a condition precedent to the accrual of a right of action against a carrier for damages
caused to the merchandise. The shipper or the consignee must allege and prove the fulfillment of the
condition and if he omits such allegations and proof, no right of action against the carrier can accrue in his
favor. As the requirements in Article 366, restated with a slight modification in the assailed paragraph 5 of the
bills of lading, are reasonable conditions precedent, they are not limitations of action. 33 Being conditions
precedent, their performance must precede a suit for enforcement 34 and the vesting of the right to file spit
does not take place until the happening of these conditions. 35

Now, before an action can properly be commenced all the essential elements of the cause of action must be in
existence, that is, the cause of action must be complete. All valid conditions precedent to the institution of the
particular action, whether prescribed by statute, fixed by agreement of the parties or implied by law must be
performed or complied with before commencing the action, unless the conduct of the adverse party has been
such as to prevent or waive performance or excuse non-performance of the condition. 36

It bears restating that a right of action is the right to presently enforce a cause of action, while a cause of
action consists of the operative facts which give rise to such right of action. The right of action does not arise
until the performance of all conditions precedent to the action and may be taken away by the running of the
statute of limitations, through estoppel, or by other circumstances which do not affect the cause of
action. 37 Performance or fulfillment of all conditions precedent upon which a right of action depends must be
sufficiently alleged, 38considering that the burden of proof to show that a party has a right of action is upon
the person initiating the suit. 39

More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss of
or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the
right to enforce the carrier's liability. Such requirement is not an empty formalism. The fundamental reason or
purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the
shipment has been damaged and that it is charged with liability therefor, and to give it an opportunity to
examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an
investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false
and fraudulent claims. 40

Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss of or damage
to goods shipped in order to impose liability on the carrier operate to prevent the enforcement of the contract
when not complied with, that is, notice is a condition precedent and the carrier is not liable if notice is not
given in accordance with the stipulation, 41 as the failure to comply with such a stipulation in a contract of
carriage with respect to notice of loss or claim for damage bars recovery for the loss or damage suffered. 42

On the other hand, the validity of a contractual limitation of time for filing the suit itself against a carrier
shorter than the statutory period therefor has generally been upheld as such stipulation merely affects the
shipper's remedy and does not affect the liability of the carrier. In the absence of any statutory limitation and
subject only to the requirement on the reasonableness of the stipulated limitation period, the parties to a
contract of carriage may fix by agreement a shorter time for the bringing of suit on a claim for the loss of or
damage to the shipment than that provided by the statute of limitations. Such limitation is not contrary to
public policy for it does not in any way defeat the complete vestiture of the right to recover, but merely
requires the assertion of that right by action at an earlier period than would be necessary to defeat it through
the operation of the ordinary statute of limitations. 43

In the case at bar, there is neither any showing of compliance by petitioners with the requirement for the filing
of a notice of claim within the prescribed period nor any allegation to that effect. It may then be said that
while petitioners may possibly have a cause of action, for failure to comply with the above condition precedent
they lost whatever right of action they may have in their favor or, token in another sense, that remedial right
or right to relief had prescribed.44
The shipment in question was discharged into the custody of the consignee on May 15, 1977, and it was from
this date that petitioners' cause of action accrued, with thirty (30) days therefrom within which to file a claim
with the carrier for any loss or damage which may have been suffered by the cargo and thereby perfect their
right of action. The findings of respondent court as supported by petitioners' formal offer of evidence in the
court below show that the claim was filed with SLI only on April 28, 1978, way beyond the period provided in
the bills of lading 45 and violative of the contractual provision, the inevitable consequence of which is the loss
of petitioners' remedy or right to sue. Even the filing of the complaint on May 12, 1978 is of no remedial or
practical consequence, since the time limits for the filing thereof, whether viewed as a condition precedent or
as a prescriptive period, would in this case be productive of the same result, that is, that petitioners had no
right of action to begin with or, at any rate, their claim was time-barred.

What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with DVAPSI as early as
June 14, 1977 46 and, as found by the trial court, a survey fixing the extent of loss of and/or damage to the
cargo was conducted on July 8, 1977 at the instance of petitioners. 47 If petitioners had the opportunity and
awareness to file such provisional claim and to cause a survey to be conducted soon after the discharge of the
cargo, then they could very easily have filed the necessary formal, or even a provisional, claim with SLI
itself 48 within the stipulated period therefor, instead of doing so only on April 28, 1978 despite the vessel's
arrival at the port of destination on May 15, 1977. Their failure to timely act brings us to no inference other
than the fact that petitioners slept on their rights and they must now face the consequences of such inaction.

The ratiocination of the Court of Appeals on this aspect is worth reproducing:

xxx xxx xxx

It must be noted, at this juncture, that the aforestated time limitation in the presentation of
claim for loss or damage, is but a restatement of the rule prescribed under Art. 366 of the Code
of Commerce which reads as follows:

Art. 366. Within the twenty-four hours following the receipt of the merchandise,
the claim against the carrier for damage or average which may be found therein
upon opening the packages, may be made, provided that the indications of the
damage or average which gives rise to the claim cannot be ascertained from the
outside part of the packages, in which case the claims shall be admitted only at
the time of the receipt.

After the periods mentioned have elapsed, or the transportation charges have
been paid, no claim shall be admitted against the carrier with regard to the
condition in which the goods transported were delivered.

Gleanable therefrom is the fact that subject stipulation even lengthened the period for
presentation of claims thereunder. Such modification has been sanctioned by the Supreme
Court. In the case of Ong Yet (M)ua Hardware Co., Inc. vs. Mitsui Steamship Co., Ltd., et al., 59
O.G. No. 17, p. 2764, it ruled that Art. 366 of the Code of Commerce can be modified by a bill
of lading prescribing the period of 90 days after arrival of the ship, for filing of written claim
with the carrier or agent, instead of the 24-hour time limit after delivery provided in the
aforecited legal provision.

Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that the commencement
of the instant suit on May 12, 1978 was indeed fatally late. In view of the express provision that
"suits arising from
. . . damage or loss shall be instituted within 60 days from date of accrual of right of action,"
the present action necessarily fails on ground of prescription.
 In the absence of constitutional or statutory prohibition, it is usually held or
recognized that it is competent for the parties to a contract of shipment to agree
on a limitation of time shorter than the statutory period, within which action for
breach of the contract shall be brought, and such limitation will be enforced if
reasonable . . . (13 C.J.S. 496-497)

A perusal of the pertinent provisions of law on the matter would disclose that there is no
constitutional or statutory prohibition infirming paragraph 5 of subject Bill of Lading. The
stipulated period of 60 days is reasonable enough for appellees to ascertain the facts and
thereafter to sue, if need be, and the 60-day period agreed upon by the parties which
shortened the statutory period within which to bring action for breach of contract is valid and
binding. . . . (Emphasis in the original text.) 49

As explained above, the shortened period for filing suit is not unreasonable and has in fact been generally
recognized to be a valid business practice in the shipping industry. Petitioners' advertence to the Court's
holding in the Southern Lines case, supra, is futile as what was involved was a claim for refund of excess
payment. We ruled therein that non-compliance with the requirement of filing a notice of claim under Article
366 of the Code of Commerce does not affect the consignee's right of action against the carrier because said
requirement applies only to cases for recovery of damages on account of loss of or damage to cargo, not to an
action for refund of overpayment, and on the further consideration that neither the Code of Commerce nor the
bills of lading therein provided any time limitation for suing for refund of money paid in excess, except only
that it be filed within a reasonable time.

The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in the subject bill
of lading as a contract of adhesion and, under the circumstances therein, void for being contrary to public
policy is evidently likewise unavailing in view of the discrete environmental facts involved and the fact that the
restriction therein was unreasonable. In any case, Ong Yiu vs. Court of Appeals, et al., 50 instructs us that
"contracts of adhesion wherein one party imposes a ready-made form of contract on the other . . . are
contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if
he adheres he gives his consent." In the present case, not even an allegation of ignorance of a party excuses
non-compliance with the contractual stipulations since the responsibility for ensuring full comprehension of the
provisions of a contract of carriage devolves not on the carrier but on the owner, shipper, or consignee as the
case may be.

While it is true that substantial compliance with provisions on filing of claim for loss of or damage to cargo
may sometimes suffice, the invocation of such an assumption must be viewed vis-a-vis the object or purpose
which such a provision seeks to attain and that is to afford the carrier a reasonable opportunity to determine
the merits and validity of the claim and to protect itself against unfounded impositions. 51 Petitioners' would
nevertheless adopt an adamant posture hinged on the issuance by SLI of a "Report on Losses and Damages,"
dated May 15, 1977, 52 from which petitioners theorize that this charges private respondents with actual
knowledge of the loss and damage involved in the present case as would obviate the need for or render
superfluous the filing of a claim within the stipulated period.

Withal, it has merely to be pointed out that the aforementioned report bears this notation at the lower part
thereof: "Damaged by Mla. labor upon unloading; B/L noted at port of origin," as an explanation for the cause
of loss of and/or damage to the cargo, together with an iterative note stating that "(t)his Copy should be
submitted together with your claim invoice or receipt within 30 days from date of issue otherwise your claim
will not be honored."

Moreover, knowledge on the part of the carrier of the loss of or damage to the goods deducible from the
issuance of said report is not equivalent to nor does it approximate the legal purpose served by the filing of
the requisite claim, that is, to promptly apprise the carrier about a consignee's intention to file a claim and
thus cause the prompt investigation of the veracity and merit thereof for its protection. It would be an unfair
imposition to require the carrier, upon discovery in the process of preparing the report on losses or damages
of any and all such loss or damage, to presume the existence of a claim against it when at that time the
carrier is expectedly concerned merely with accounting for each and every shipment and assessing its
condition. Unless and until a notice of claim is therewith timely filed, the carrier cannot be expected to
presume that for every loss or damage tallied, a corresponding claim therefor has been filed or is already in
existence as would alert it to the urgency for an immediate investigation of the soundness of the claim. The
report on losses and damages is not the claim referred to and required by the bills of lading for it does not fix
responsibility for the loss or damage, but merely states the condition of the goods shipped. The claim
contemplated herein, in whatever form, must be something more than a notice that the goods have been lost
or damaged; it must contain a claim for compensation or indicate an intent to claim. 53

Thus, to put the legal effect of respondent carrier's report on losses or damages, the preparation of which is
standard procedure upon unloading of cargo at the port of destination, on the same level as that of a notice of
claim by imploring substantial compliance is definitely farfetched. Besides, the cited notation on the carrier's
report itself makes it clear that the filing of a notice of claim in any case is imperative if carrier is to be held
liable at all for the loss of or damage to cargo.

Turning now to respondent DVAPSI and considering that whatever right of action petitioners may have against
respondent carrier was lost due to their failure to seasonably file the requisite claim, it would be awkward, to
say the least, that by some convenient process of elimination DVAPSI should proverbially be left holding the
bag, and it would be pure speculation to assume that DVAPSI is probably responsible for the loss of or
damage to cargo. Unlike a common carrier, an arrastre operator does not labor under a presumption of
negligence in case of loss, destruction or deterioration of goods discharged into its custody. In other words, to
hold an arrastre operator liable for loss of and/or damage to goods entrusted to it there must be preponderant
evidence that it did not exercise due diligence in the handling and care of the goods.

Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly wild goose-chase,
they cannot quite put their finger down on when, where, how and under whose responsibility the loss or
damage probably occurred, or as stated in paragraph 8 of their basic complaint filed in the court below,
whether "(u)pon discharge of the cargoes from the original carrying vessel, the SS VISHVA YASH," and/or
upon discharge of the cargoes from the interisland vessel the MV "SWEET LOVE," in Davao City and later while
in the custody of defendant arrastre operator. 54

The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims Manager of
petitioner Philamgen, was definitely inconclusive and the responsibility for the loss or damage could still not be
ascertained therefrom:

Q In other words, Mr. Cabato, you only computed the loss on the basis of the
figures submitted to you and based on the documents like the survey certificate
and the certificate of the arrastre?

A Yes, sir.

Q Therefore, Mr. Cabato, you have no idea how or where these losses were
incurred?

A No, sir.

xxx xxx xxx

Q Mr. Witness, you said that you processed and investigated the claim involving
the shipment in question. Is it not a fact that in your processing and
investigation you considered how the shipment was transported? Where the
 losses could have occurred and what is the extent of the respective
responsibilities of the bailees and/or carriers involved?

xxx xxx xxx

A With respect to the shipment being transported, we have of course to get into
it in order to check whether the shipment coming in to this port is in accordance
with the policy condition, like in this particular case, the shipment was
transported to Manila and transhipped through an interisland vessel in
accordance with the policy. With respect to the losses, we have a general view
where losses could have occurred. Of course we will have to consider the
different bailees wherein the shipment must have passed through, like the ocean
vessel, the interisland vessel and the arrastre, but definitely at that point and
time we cannot determine the extent of each liability. We are only interested at
that point and time in the liability as regards the underwriter in accordance with
the policy that we issued.

xxx xxx xxx

Q Mr. Witness, from the documents, namely, the survey of Manila Adjusters and
Surveyors Company, the survey of Davao Arrastre contractor and the bills of
lading issued by the defendant Sweet Lines, will you be able to tell the respective
liabilities of the bailees and/or carriers concerned?

A No, sir. (Emphasis ours.) 55

Neither did nor could the trial court, much less the Court of Appeals, precisely establish the stage in the course
of the shipment when the goods were lost, destroyed or damaged. What can only be inferred from the factual
findings of the trial court is that by the time the cargo was discharged to DVAPSI, loss or damage had already
occurred and that the same could not have possibly occurred while the same was in the custody of DVAPSI, as
demonstrated by the observations of the trial court quoted at the start of this opinion.

ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the dismissal of the complaint in
the court a quo as decreed by respondent Court of Appeals in its challenged judgment is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-61352 February 27, 1987

DOLE PHILIPPINES, INC., plaintiff-appellant,

vs.
MARITIME COMPANY OF THE PHILIPPINES, defendant-appellee.

Domingo E. de Lara & Associates for plaintiff-appellant.

Bito, Misa and Lozada Law Office for defendant-appellee.

NARVASA, J.:

This appeal, which was certified to the Court by the Court of Appeals as involving only questions of
law, 1 relates to a claim for loss and/or damage to a shipment of machine parts sought to be enforced by the
consignee, appellant Dole Philippines, Inc. (hereinafter caged Dole) against the carrier, Maritime Company of
the Philippines (hereinafter called Maritime), under the provisions of the Carriage of Goods by Sea Act. 2

The basic facts are succinctly stated in the order of the Trial Court 3 dated March 16, 1977, the relevant
portion of which reads:

xxx xxx xxx

Before the plaintiff started presenting evidence at today's trial at the instance of the Court the
lawyers entered into the following stipulation of facts:

1. The cargo subject of the instant case was discharged in Dadiangas unto the custody of the
consignee on December 18, 1971;

2. The corresponding claim for the damages sustained by the cargo was filed by the plaintiff
with the defendant vessel on May 4, 1972;

3. On June 11, 1973 the plaintiff filed a complaint in the Court of First Instance of Manila,
docketed therein as Civil Case No. 91043, embodying three (3) causes of action involving three
(3) separate and different shipments. The third cause of action therein involved the cargo now
subject of this present litigation;

4. On December 11, 1974, Judge Serafin Cuevas issued an Order in Civil Case No. 91043
dismissing the first two causes of action in the aforesaid case with prejudice and without
pronouncement as to costs because the parties had settled or compromised the claims involved
therein. The third cause of action which covered the cargo subject of this case now was likewise
dismissed but without prejudice as it was not covered by the settlement. The dismissal of that
complaint containing the three causes of action was upon a joint motion to dismiss filed by the
parties;

5. Because of the dismissal of the (complaint in Civil Case No. 91043 with respect to the third
cause of action without prejudice, plaintiff instituted this present complaint on January 6, 1975.

xxx xxx xxx 4

To the complaint in the subsequent action Maritime filed an answer pleading inter alia the affirmative defense
of prescription under the provisions of the Carriage of Goods by Sea Act, 5 and following pre-trial, moved for a
preliminary hearing on said defense. 6 The Trial Court granted the motion, scheduling the preliminary hearing
on April 27, 1977. 7 The record before the Court does not show whether or not that hearing was held, but
under date of May 6, 1977, Maritime filed a formal motion to dismiss invoking once more the ground of
prescription. 8 The motion was opposed by Dole 9 and the Trial Court, after due consideration, resolved the
matter in favor of Maritime and dismissed the complaint 10 Dole sought a reconsideration, which was
denied, 11 and thereafter took the present appeal from the order of dismissal.
The pivotal issue is whether or not Article 1155 of the Civil Code providing that the prescription of actions is
interrupted by the making of an extrajudicial written demand by the creditor is applicable to actions brought
under the Carriage of Goods by Sea Act which, in its Section 3, paragraph 6, provides that:

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

xxx xxx xxx

Dole concedes that its action is subject to the one-year period of limitation prescribe in the above-cited
provision. 12 The substance of its argument is that since the provisions of the Civil Code are, by express
mandate of said Code, suppletory of deficiencies in the Code of Commerce and special laws in matters
governed by the latter, 13and there being "*** a patent deficiency *** with respect to the tolling of the
prescriptive period ***" provided for in the Carriage of Goods by Sea Act, 14 prescription under said Act is
subject to the provisions of Article 1155 of the Civil Code on tolling and because Dole's claim for loss or
damage made on May 4, 1972 amounted to a written extrajudicial demand which would toll or interrupt
prescription under Article 1155, it operated to toll prescription also in actions under the Carriage of Goods by
Sea Act. To much the same effect is the further argument based on Article 1176 of the Civil Code which
provides that the rights and obligations of common carriers shag be governed by the Code of Commerce and
by special laws in all matters not regulated by the Civil Code.

These arguments might merit weightier consideration were it not for the fact that the question has already
received a definitive answer, adverse to the position taken by Dole, in The Yek Tong Lin Fire & Marine
Insurance Co., Ltd. vs. American President Lines, Inc. 15 There, in a parallel factual situation, where suit to
recover for damage to cargo shipped by vessel from Tokyo to Manila was filed more than two years after the
consignee's receipt of the cargo, this Court rejected the contention that an extrajudicial demand toiled the
prescriptive period provided for in the Carriage of Goods by Sea Act, viz:

In the second assignment of error plaintiff-appellant argues that it was error for the court a
quo not to have considered the action of plaintiff-appellant suspended by the extrajudicial
demand which took place, according to defendant's own motion to dismiss on August 22, 1952.
We notice that while plaintiff avoids stating any date when the goods arrived in Manila, it relies
upon the allegation made in the motion to dismiss that a protest was filed on August 22, 1952
which goes to show that plaintiff-appellant's counsel has not been laying the facts squarely
before the court for the consideration of the merits of the case. We have already decided that
in a case governed by the Carriage of Goods by Sea Act, the general provisions of the Code of
Civil Procedure on prescription should not be made to apply. (Chua Kuy vs. Everett Steamship
Corp., G.R. No. L-5554, May 27, 1953.) Similarly, we now hold that in such a case the general
provisions of the new Civil Code (Art. 1155) cannot be made to apply, as such application would
have the effect of extending the one-year period of prescription fixed in the law. It is desirable
that matters affecting transportation of goods by sea be decided in as short a time as possible;
the application of the provisions of Article 1155 of the new Civil Code would unnecessarily
extend the period and permit delays in the settlement of questions affecting transportation,
contrary to the clear intent and purpose of the law. * * *

Moreover, no different result would obtain even if the Court were to accept the proposition that a written
extrajudicial demand does toll prescription under the Carriage of Goods by Sea Act. The demand in this
instance would be the claim for damage-filed by Dole with Maritime on May 4, 1972. The effect of that
demand would have been to renew the one- year prescriptive period from the date of its making. Stated
otherwise, under Dole's theory, when its claim was received by Maritime, the one-year prescriptive period was
interrupted "tolled" would be the more precise term and began to run anew from May 4, 1972, affording
Dole another period of one (1) year counted from that date within which to institute action on its claim for
damage. Unfortunately, Dole let the new period lapse without filing action. It instituted Civil Case No. 91043
only on June 11, 1973, more than one month after that period has expired and its right of action had
prescribed.

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

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

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 77638 July 12, 1990

MARITIME AGENCIES & SERVICES, INC., petitioner,

vs.
COURT OF APPEALS, and UNION INSURANCE SOCIETY OF CANTON, LTD., respondents.

G.R. No. 77674 July 12, 1990

UNION INSURANCE SOCIETY OF CANTON, LTD., petitioner,

vs.
COURT OF APPEALS, HONGKONG ISLAND CO., LTD., MARITIME AGENCIES & SERVICES, INC.,
and/or VIVA CUSTOMS BROKERAGE, respondents.

Del Rosario & Del Rosario for petitioner in G.R. No. 77638.

Zapa Aguillardo & Associates for petitioner in G.R. No. 77674.

Bito, Misa & Lozada for Hongkong Island Co. Ltd. and Macondray & Co., Inc.

CRUZ, J.:

Transcontinental Fertilizer Company of London chartered from Hongkong Island Shipping Company of
Hongkong the motor vessel named "Hongkong Island" for the shipment of 8073.35 MT (gross) bagged urea
from Novorossisk, Odessa, USSR to the Philippines, the parties signing for this purpose a Uniform General
Charter dated August 9, 1979. 1
Of the total shipment, 5,400.04 MT was for the account of Atlas Fertilizer Company as consignee, 3,400.04 to
be discharged in Manila and the remaining 2,000 MT in Cebu. 2 The goods were insured by the consignee
with the Union Insurance Society of Canton, Ltd. for P6,779,214.00 against all risks. 3

Maritime Agencies & Services, Inc. was appointed as the charterer's agent and Macondray Company, Inc. as
the owner's agent.4

The vessel arrived in Manila on October 3, 1979, and unloaded part of the consignee's goods, then proceeded
to Cebu on October 19, 1979, to discharge the rest of the cargo. On October 31, 1979, the consignee filed a
formal claim against Maritime, copy furnished Macondray, for the amount of P87,163.54, representing C & F
value of the 1,383 shortlanded bags. 5 On January 12, 1980, the consignee filed another formal claim, this
time against Viva Customs Brokerage, for the amount of P36,030.23, representing the value of 574 bags of net
unrecovered spillage. 6

These claims having been rejected, the consignee then went to Union, which on demand paid the total
indemnity of P113,123.86 pursuant to the insurance contract. As subrogee of the consignee, Union then filed
on September 19, 1980, a complaint for reimbursement of this amount, with legal interest and attorney's fees,
against Hongkong Island Company, Ltd., Maritime Agencies & Services, Inc. and/or Viva Customs
Brokerage. 7 On April 20, 1981, the complaint was amended to drop Viva and implead Macondray Company,
Inc. as a new defendant. 8

On January 4, 1984, after trial, the trial court rendered judgment holding the defendants liable as follows:

(a) defendants Hongkong Island Co., Ltd., and its local agent Macondray & Co., Inc. to pay the
plaintiff the sum of P87,163.54 plus 12% interest from April 20, 1981 until the whole amount is
fully paid, P1,000.00 as attorney's fees and to pay one-half (1/2) of the costs; and

(b) defendant Maritime Agencies & Services, Inc., to pay the plaintiff the sum of P36,030.23,
plus 12% interest from April 20, 1981 until the whole amount is fully paid, P600.00 as
attorney's fees and to pay one-half (1/2) of the costs.9

Petitioner appealed the decision to the Court of Appeals, which rendered a decision on November 28, 1986,
the dispositive portion of which reads:

WHEREFORE, the decision appealed from is modified, finding the charterer Transcontinental
Fertilizer Co., Ltd. represented by its agent Maritime Agencies & Services, Inc. liable for the
amount of P87,163.54 plus interest at 12% plus attorney's fees of P1,000.00. Defendant
Hongkong Island Co., Ltd. represented by Macondray Co., Inc. are accordingly exempted from
any liability. 10

Maritime and Union filed separate motions for reconsideration which were both denied. The movants are now
before us to question the decision of the respondent court.

In G.R. No. 77638, Maritime pleads non-liability on the ground that it was only the charterer's agent and
should not answer for whatever responsibility might have attached to the principal. It also argues that the
respondent court erred in applying Articles 1734 and 1735 of the Civil Code in determining the charterer's
liability.

In G.R. No. 77674, Union asks for the modification of the decision of the respondent court so as to make
Maritime solidarily and solely liable, its principal not having been impleaded and so not subject to the
jurisdiction of our courts.
These two cases were consolidated and given due course, the parties being required to submit simultaneous
memoranda. All complied, including Hongkong Island Company, Ltd., and Macondray Company, Inc., although
they pointed out that they were not involved in the petitions.

There are three general categories of charters, to wit, the demise or "bareboat charter," the time charter and
the voyage charter.

A demise involves the transfer of full possession and control of the vessel for the period covered by the
contract, the charterer obtaining the right to use the vessel and carry whatever cargo it chooses, while
manning and supplying the ship as well. 11

A time charter is a contract to use a vessel for a particular period of time, the charterer obtaining the right to
direct the movements of the vessel during the chartering period, although the owner retains possession and
control. 12

A voyage charter is a contract for the hire of a vessel for one or a series of voyages usually for the purpose of
transporting goods for the charterer. The voyage charter is a contract of affreightment and is considered a
private carriage. 13

Tested by those definitions, the agreement entered into in the cases at bar should be considered. This brings
us to the basic question of who, in this kind of charter, shall be liable for the cargo.

A voyage charter being a private carriage, the parties may freely contract respecting liability for damage to the
goods and other matters. The basic principle is that "the responsibility for cargo loss falls on the one who
agreed to perform the duty involved" in accordance with the terms of most voyage charters. 14

This is true in the present cases where the charterer was responsible for loading, stowage and discharging at
the ports visited, while the owner was responsible for the care of the cargo during the voyage. Thus, Par. 2 of
the Uniform General Charter read:

2. Owners are to be responsible for loss of or damage to the goods or for delay in delivery of
the goods only in case the loss, damage or delay has been caused by the improper or negligent
stowage of the goods or by personal want of due diligence on the part of the Owners or their
Manager to make the vessel in all respects seaworthy and to secure that she is properly
manned, equipped and supplied or by the personal act or default of the Owners or their
Manager.

And the Owners are responsible for no loss or damage or delay arising from any other cause
whatsoever, even from the neglect or default of the Captain or crew or some other person
employed by the Owners onboard or ashore for whose acts they would, but for this clause, be
responsible, or from unseaworthiness of the vessel on loading or commencement of the voyage
or at any time whatsoever.

Damage caused by contact with or leakage, smell or evaporation from other goods or by the
inflammable or explosive nature or insufficient package of other goods not to be considered as
caused by improper or negligent stowage, even if in fact so caused.

while Clause 17 of Additional Clauses to Charter party provided:

The cargo shall be loaded, stowed and discharged free of expense to the vessel under the
Master's supervision. However, if required at loading and discharging ports the vessel is to give
free use of winches and power to drive them gear, runners and ropes. Also slings, as on board.
Shore winchmen are to be employed and they are to be for Charterers' or Shippers' or
 Receivers' account as the case may be. Vessel is also to give free use of sufficient light, as on
board, if required for night work. Time lost through breakdown of winches or derricks is not to
count as laytime.

In Home Insurance Co. v. American Steamship Agencies, Inc., 15 the trial court rejected similar stipulations as
contrary to public policy and, applying the provisions of the Civil Code on common carriers and of the Code of
Commerce on the duties of the ship captain, held the vessel liable in damages for loss of part of the cargo it
was carrying. This Court reversed, declaring as follows:

The provisions of our Civil Code on common carriers were taken from Anglo-American law.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or
chartered to a special person only, becomes a private carrier. As a private carrier, a stipulation
exempting the owner from liability for the negligence of its agent is not against public policy,
and is deemed valid.

Such doctrine we find reasonable. The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. The stipulation in the
charter party absolving the owner from liability for loss due to the negligence of its agent would
be void only if the strict public policy governing common carriers is applied. Such policy has no
force where the public at large is not involved, as in the case of a ship totally chartered for the
use of a single party.

Nevertheless, this ruling cannot benefit Hongkong, because there was no showing in that case that the vessel
was at fault. In the cases at bar, the trial court found that 1,383 bags were shortlanded, which could only
mean that they were damaged or lost on board the vessel before unloading of the shipment. It is not denied
that the entire cargo shipped by the charterer in Odessa was covered by a clean bill of lading. 16 As the bags
were in good order when received in the vessel, the presumption is that they were damaged or lost during the
voyage as a result of their negligent improper stowage. For this the ship owner should be held liable.

But we do agree that the period for filing the claim is one year, in accordance with the Carriage of Goods by
Sea Act. This was adopted and embodied by our legislature in Com. Act No. 65 which, as a special law,
prevails over the general provisions of the Civil Code on prescription of actions. Section 3(6) of that Act
provides as follows:

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

This period was applied by the Court in the case of Union Carbide, Philippines, Inc. v. Manila Railroad
Co., 17where it was held:

Under the facts of this case, we held that the one-year period was correctly reckoned by the
trial court from December 19, 1961, when, as agreed upon by the parties and as shown in the
tally sheets, the cargo was discharged from the carrying vessel and delivered to the Manila Port
Service. That one-year period expired on December 19, 1962. Inasmuch as the action was filed
on December 21, 1962, it was barred by the statute of limitations.

The one-year period in the cases at bar should commence on October 20, 1979, when the last item was
delivered to the consignee. 18 Union's complaint was filed against Hongkong on September 19, 1980, but
tardily against Macondray on April 20, 1981. The consequence is that the action is considered prescribed as far
as Macondray is concerned but not against its principal, which is what matters anyway.

As regards the goods damaged or lost during unloading, the charterer is liable therefor, having assumed this
activity under the charter party "free of expense to the vessel." The difficulty is that Transcontinental has not
been impleaded in these cases and so is beyond our jurisdiction. The liability imposable upon it cannot be
borne by Maritime which, as a mere agent, is not answerable for injury caused by its principal. It is a well-
settled principle that the agent shall be liable for the act or omission of the principal only if the latter is
undisclosed. 19

Union seeks to hold Maritime liable as ship agent on the basis of the ruling of this Court in the case
of Switzerland General Insurance Co., Ltd. v. Ramirez. 20 However, we do not find that case is applicable.

In that case, the charterer represented itself on the face of the bill of lading as the carrier. The vessel owner
and the charterer did not stipulate in the Charter party on their separate respective liabilities for the cargo.
The loss/damage to the cargo was sustained while it was still on board or under the custody of the vessel. As
the charterer was itself the carrier, it was made liable for the acts of the ship captain who was responsible for
the cargo while under the custody of the vessel.

As for the charterer's agent, the evidence showed that it represented the vessel when it took charge of the
unloading of the cargo and issued cargo receipts (or tally sheets) in its own name. Claims against the vessel
for the losses/damages sustained by that cargo were also received and processed by it. As a result, the
charterer's agent was also considered a ship agent and so was held to be solidarily liable with its principal.

The facts in the cases at bar are different. The charterer did not represent itself as a carrier and indeed
assumed responsibility ability only for the unloading of the cargo, i.e, after the goods were already outside the
custody of the vessel. In supervising the unloading of the cargo and issuing Daily Operations Report and
Statement of Facts indicating and describing the day-to-day discharge of the cargo, Maritime acted in
representation of the charterer and not of the vessel. It thus cannot be considered a ship agent. As a mere
charterer's agent, it cannot be held solidarily liable with Transcontinental for the losses/damages to the cargo
outside the custody of the vessel. Notably, Transcontinental was disclosed as the charterer's principal and
there is no question that Maritime acted within the scope of its authority.

Hongkong and Macondray point out in their memorandum that the appealed decision is not assailed insofar as
it favors them and so has become final as to them. We do not think so. First of all, we note that they were
formally impleaded as respondents in G.R No. 77674 and submitted their comment and later their
memorandum, where they discussed at length their position vis-a-vis the claims of the other parties. Secondly,
we reiterate the rule that even if issues are not formally and specifically raised on appeal, they may
nevertheless be considered in the interest of justice for a proper decision of the case.itc-asl Thus, we have
held that:

Besides, an unassigned error closely related to the error properly assigned, or upon which the
determination of the question raised by the error properly assigned is dependent, will be
considered by the appellate court notwithstanding the failure to assign it as error.

At any rate, the Court is clothed with ample authority to review matters, even if they are not
assigned as errors in their appeal, if it finds that their consideration is necessary in arriving at a
just decision of the case. 21

xxx xxx xxx

Issues, though not specifically raised in the pleadings in the appellate court, may, in the interest
of justice, be properly considered by said court in deciding a case, if they are questions raised
 in the trial court and are matters of record having some bearing on the issue submitted which
the parties failed to raise or the lower court ignore(d). 22

xxx xxx xxx

While an assignment of error which is required by law or rule of court has been held essential
to appellate review, and only those assigned will be considered, there are a number of cases
which appear to accord to the appellate court a broad discretionary power to waive this lack of
proper assignment of errors and consider errors not assigned. 23

In his decision dated January 4, 1984, Judge Artemon de Luna of the Regional Trial Court of Manila held:

The Court, on the basis of the evidence, finds nothing to disprove the finding of the marine and
cargo surveyors that of the 66,390 bags of urea fertilizer, 65,547 bags were "discharged ex-
vessel" and there were "shortlanded" "1,383 bags", valued at P87,163.54. This sum should be
the principal and primary liability and responsibility of the carrying vessel. Under the contract
for the transportation of goods, the vessel's responsibility commence upon the actual delivery
to, and receipt by the carrier or its authorized agent, until its final discharge at the port of
Manila. Defendant Hongkong Island Co., Ltd., as "shipowner" and represented by the defendant
Macondray & Co., Inc., as its local agent in the Philippines, should be responsible for the value
of the bags of urea fertilizer which were shortlanded.

The remainder of the claim in the amount of P36,030.23, representing the value of the 574
bags of unrecovered spillages having occurred after the shipment was discharged from the
vessel unto the ex-lighters as well as during the discharge from the lighters to the truck which
transported the shipment to the consignee's warehouses should be for the account of the
defendant Maritime Agencies & Services, Inc.

We affirm the factual findings but must modify the legal conclusions. As previously discussed, the liability of
Macondray can no longer be enforced because the claim against it has prescribed; and as for Maritime, it
cannot be held liable for the acts of its known principal resulting in injury to Union. The interest must also be
reduced to the legal rate of 6%, conformably to our ruling in Reformina v. Tomol 24 and Article 2209 of the
Civil Code, and should commence, not on April 20, 1981, but on September 19, 1980, date of the filing of the
original complaint.

WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court is REINSTATED as
above modified. The parties shall bear their respective costs.

SO ORDERED.

Narvasa, C.J., Gancayco, Grio-Aquino and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-28589 February 29, 1972

RAFAEL ZULUETA, ET AL., plaintiffs-appellees,
vs.
PAN AMERICAN WORLD AIRWAYS, INC., defendant-appellant.

Jose W. Diokno for plaintiffs-appellees.

Ross, Salcedo, Del Rosario, Bito and Misa for defendant-appellant.

CONCEPCION, C.J.:p

Appeal, taken by defendant Pan American World Airways, Inc., from a decision of the Court of First Instance of
Rizal, sentencing said defendant to pay herein plaintiffs Rafael Zulueta, Telly Albert Zulueta and Carolinda
Zulueta "the sum of P5,502.85, as actual damages; plus the further sum of P1,000,000.00 as moral
damages; the further sum of P400,000.00 as exemplary damages; and attorney's fees in the sum of
P100,000.00" with the costs against said defendant, hereinafter referred to as PANAM for the sake of brevity.

It is not disputed that, on October 23, 1964, the spouse Rafael Zulueta and Telly Albert Zulueta hereinafter
referred to as plaintiff and Mrs. Zulueta, respectively as well as their daughter, Carolinda Zulueta
hereinafter referred to as Miss Zulueta were passengers aboard a PANAM plane, on Flight No. 841-23, from
Honolulu to Manila, the first leg of which was Wake Island. As the plane landed on said Island, the passengers
were advised that they could disembark for a stopover of about 30 minutes. Shortly before reaching that
place, the flight was, according to the plaintiffs, "very rough." Testifying for PANAM its purser, Miss Schmitz,
asserted, however, that it was "very calm"; but her notes, Exhibit 7 prepared upon the request of Captain
Zentner, on account of the incident involved in this case state that there was "unusually small amount of
roughness," which His Honor, the Trial Judge, considered properly as "an admission that there was roughness,
only the degree thereof is in dispute." In any event, plaintiff testified that, having found the need to relieve
himself, he went to the men's comfort room at the terminal building, but found it full of soldiers, in view of
which he walked down the beach some 100 yards away.

Meanwhile, the flight was called and when the passengers had boarded the plane, plaintiff's absence was
noticed. The take-off was, accordingly, delayed and a search for him was conducted by Mrs. Zulueta, Miss
Zulueta and other persons. Minutes later, plaintiff was seen walking back from the beach towards the terminal.
Heading towards the ramp of the plane, plaintiff remarked, "You people almost made me miss your flight. You
have a defective announcing system and I was not paged." At this point, the decision appealed from has the
following to say:

(1) Plaintiffs were on their way to the plane in order to board it, but defendant's employees
Kenneth Sitton, defendants airport manager, according to plaintiffs; Wayne Pendleton,
defendant's airport customer service supervisor, according to defendant stopped them at the
gate. This is what the report of Wayne Pendleton the airport customer service supervisor, says:

...I made no comment to the passenger but turned and led the group toward the ramp. Just as
we reached the boarding gate, Mr. Zulueta spoke to me for the first time saying, `You people
almost made me miss your flight. You have a defective announcing system and I was not
paged."

I was about to make some reply when I noticed the captain of the flight standing on the ramp,
midway between the gate and the aircraft, and talking with the senior maintenance supervisor
and several other persons. The captain motioned for me to join him which I did, indicating to
the Zulueta family that they should wait for a moment at the gate.
-- Exh. 5 .

(2) Thereafter, one of defendant's employees Mr. Sitton, according to plaintiffs; Mr.
Pendleton according to defendants asked plaintiffs to turn over their baggage claim checks.
Plaintiffs did so, handing him four (4) claim checks.

(3) However, only three (3) bags were located and segregated from the rest of the passenger's
luggage. The items hand-carried by plaintiffs, except for plaintiff's overcoat, were also brought
down. These hand-carried items, however, were not opened or inspected; later, plaintiffs Mrs.
Zulueta and Miss Zulueta were permitted to reboard the plane with their hand-carried luggage;
and when the plane took off, about two and a half hours later, it carried plaintiff's fourth bag,
his overcoat and the hand-carried luggage.

(4) Once three bags had been identified, and while the search was going on for the fourth bag,
Mr. Sitton, defendant's airport manager, demanded that plaintiffs open the bags (actually, they
were closed, but not locked) and allow defendant's employees to inspect them. Plaintiff Rafael
Zulueta refused and warned that defendant could open the bags only by force and at its peril of
a law suit.

(5) Mr. Sitton, defendant's manager, then told plaintiff that he would not be allowed to proceed
to Manila on board the plane and handed Zulueta the following letters:

"'24 October 1964

Wake Island

"Mr. Zulueta:
Passenger aboard flight 84123
Honolulu/Manila .

Sir:

We are forced to off-load you from flight 84123 due to the fact that you have
refused to open your checked baggage for Inspection as requested.

During your stay on Wake Island, which will be for a minimum of one week, you
will be charged $13.30 per day for each member of your party.

K. Sitton
Airport Manager, Wake Island
Pan American World Airways, Inc."

Exh. D

(6) All this happened in plain view and within earshot of the other passengers on the plane,
many of whom were Filipinos who knew plaintiffs;

The departure of the plane was delayed for about two hours

(7) Though originally all three plaintiffs had been off loaded, plaintiff requested that his wife
and daughter be permitted to continue with the flight. This was allowed but they were required
to leave the three bags behind. Nevertheless, the plane did fly with the Plaintiff's fourth bag; it
was found among all other passengers' luggage flown to Manila upon the plane's arrival here.
 (8) Upon arrival at Manila, Mrs. Zulueta demanded of defendant's Manila office that it re-route
plaintiff Rafael Zulueta to Manila at the earliest possible time, by the fastest route, and at its
expense; defendant refused; so plaintiffs were forced to pay for his ticket and to send him
money as he was without funds.

(9) On October 27, 1964, plaintiff Zulueta finally arrived at Manila, after spending two nights at
Wake, going back to Honolulu, and from Honolulu flying thru Tokyo to Manila.

(10) On December 21, 1964, plaintiffs demanded that defendant reimburse them in the sum of
P1,505,502.85 for damages but defendants refused to do so; hence this action.

In its brief, PANAM maintains that the trial court erred: (1) "in not granting defendant additional hearing dates
(not a postponement) for the presentation of its other witnesses"; (2) "in assuming it to be true that the
reason plaintiff Rafael Zulueta did not come aboard when the passengers were reboarded was that he had
gone to the beach to relieve himself"; (3) "in not holding that the real reason why plaintiff Rafael Zulueta did
not reboard the plane, when the announcement to do so was made, was that he had a quarrel with his wife
and after he was found at the beach and his intention to be left behind at Wake was temporarily thwarted he
did everything calculated to compel Pan American personnel to leave him behind"; (4) "in accepting as true
plaintiff Rafael Zulueta's claim of what occurred when; he arrived at the terminal after he was found at the
beach"; (5) "in not holding that the captain was entitled to an explanation for Zulueta's failure to reboard and
not having received a reasonable explanation and because of Zulueta's irrational behavior and refusal to have
his bags examined, the captain had the right and duty to leave Zulueta behind"; (6) "in condemning the
defendant to pay plaintiffs P5,502.85 as actual damages plus the further sum of P1,000,000.00 as moral
damages, and the further sum of P400,000.00 as exemplary damages, and attorneys' fees in the sum of
P100,000.00"; and (7) "in not granting defendant's counterclaim of attorney's fees and expenses of litigation."
.

PANAM's first assignment of error refers to the denial of its motion, dated October 20, 1966, that it "be
granted other hearing dates about two months from today so as to be able to present defendant's other
witnesses or their depositions."

It appears that the complaint in this case was filed on September 30, 1965. It was amended on December 1,
1965, and again on April 14, 1966. PANAM answered the second amended complaint on May 6, 1966. After a
pre-trial conference, held on May 28, 1966, the case was set for hearing on June 1, 2 and 3, 1966. By
subsequent agreement of the parties, the hearing was, on June 3, 1966, reset for August 1, 2 and 3, 1966.
Plaintiffs rested their case on August 2, 1966, whereupon it was agreed that PANAM's witnesses would be
presented "at a later date," months later, because they would "come from far-flung places like Wake Island,
San Francisco, Seattle and it will take time to arrange for their coming here." Accordingly the case was reset
for October 17, 18 and 19, 1966, at 8:30 a.m. On motion of the plaintiffs, the trial scheduled for October 17
was cancelled, without any objection on the part of PANAM but, to offset said action, additional hearings were
set for October 18 and 19, in the afternoon, apart from those originally set in the morning of these dates.
Before the presentation of PANAM's evidence, in the morning of October 18, 1966, plaintiffs' counsel asked for
the names of the former's witnesses, so that those not on the witness stand could be excluded from the
courtroom. PANAM's counsel announced that his witnesses were Marshall Stanley Ho, Kenneth Sitton, Michael
Thomas, Wayne S. Pendleton, Capt. Robert Zentner and Miss Carol Schmitz.

The defense then proceeded to introduce the testimony of said witnesses, and consumed therefor the morning
and afternoon of October 18 and the morning of October 19. Upon the conclusion, that morning, of the
testimony of the last witness for the defense, its counsel asked that it "be given an opportunity to present our
other witnesses who are not present today, at the convenience of the Court." The motion was denied, but,
said counsel sought a reconsideration and the court gave PANAM a last chance to present its "other witnesses"
the next day, October 20. Instead of doing so, PANAM filed a written motion reiterating its prayer for "other
hearing dates about two months from today so as to be able to present defendant's other witnesses or their
depositions." Upon denial of this motion, PANAM made an offer of the testimony it expected from one Edgardo
Gavino, an unnamed meteorologist, either Sue Welby and/or Helga Schley, and John C. Craig, Ida V. Pomeroy,
Herman Jaffe, Gerry Cowles and Col. Nilo de Guia.

His Honor, the Trial Judge, did not commit a reversible error in denying said motion of October 20, 1966.
PANAM knew, as early as August 2, 1966, that its turn to present evidence would take place, as agreed upon,
about two (2) months and a half later, or on October 17, 18 and 19, 1966. PANAM has not offered any valid
excuse for its failure to bring to court the witnesses mentioned in said motion, despite the assurance given by
its counsel, on August 2, 1966, that the defense would "spare no effort to bring them here," or, if they could
not be brought due to circumstances beyond PANAM's control, to "submit their deposition." The records do not
show that any such effort to bring the aforementioned witnesses had been exerted. The defense has not even
tried to explain why the deposition of said witnesses was not taken. What is worse, the proffered explanation
that the six (6) persons who testified for the defense1 were believed, by defense counsel, to be enough for
the three (3) days of October set for the reception of his evidence2 indicates that no effort whatsoever had
been made either to bring the "other witnesses"3 or to take and submit their depositions.

Besides, the testimony allegedly expected of said other witnesses for the defense namely: (1) that there
was, according to official records, no turbulence in the flight from San Francisco to Honolulu, on which the
testimony of Carol Schmitz had touched; (2) that Ida V. Pomeroy and John C. Craig would say that the
passengers were advised not to go beyond the terminal and that the stopover would be for about 30 minutes
only, on which duration of the stopover Miss Schmitz had, also testified, as she could have similarly testified on
said advice, had it been given; (3) that either Helga Schley or Sue Welby would narrate the sympathy with
which Mrs. Zulueta was allegedly treated during the flight from Wake Island to Manila, which is not particularly
relevant or material in the case at bar; (4) that Herman Jaffe, Gerry Cowles and Nilo de Guia were, also,
expected to corroborate the testimony of Capt. Zentner; and (5) that Edgardo Gavino was expected to
corroborate Michael Thomas regarding the remarks made by the plaintiff to Mrs. Zulueta and Miss Zulueta
when they and other members of the searching party found him in the early morning of October 23, 1964 --
were merely cumulative in nature

Then, again, PANAM did not comply with section 4 of Rule 22 of the Rules of Court, reading:

SEC. 4. Requisites of motion to postpone trial for absence of evidence. A motion to postpone
a trial on the ground of absence can be granted only upon affidavit showing the materiality of
evidence expected to be obtained, and that due diligence has been used to procure it. But if the
adverse party admits the facts to be given in evidence, even if he objects or reserves the right
to object to their admissibility, the trial must not be postponed." .

Although this provision refers to motions "to postpone trial," it applies with equal force to motions like the one
under consideration, there being no plausible reason to distinguish between the same and a motion for
postponement owing to the "absence of evidence."

The second, third and fourth assignments of error are interrelated. They refer to the question whether the
reason why plaintiff went to the beach was to relieve himself, as testified to by him, or to remain in Wake
Island because he had quarreled with his wife, as contended by PANAM's counsel.

The latter contention however, is utterly devoid of merit. To begin with, plaintiff's testimony about what he did
upon reaching the beach is uncontradicted. Secondly, other portions of his testimony such as, for instance,
that the flight was somewhat rough, shortly before reaching Wake Island; that there were quite a number of
soldiers in the plane and, later, in the terminal building; that he did not voluntarily remain in Wake Island, but
was "off-loaded" by PANAM's agent therein are borne out by the very evidence for the defense. Thirdly,
PANAM's efforts to show that plaintiff had decided to remain in the Island because he had quarreled with Mrs.
Zulueta which is ridiculous merely underscores the artificious nature of PANAM's contention.
Fourthly, there is absolutely no direct evidence about said alleged quarrel. Nobody testified about
it. Counsel for the defense has, in effect, merely concluded that there must have been such quarrel because,
when the searching party located plaintiff, he according to Stanley Ho was "shouting in a loud tone of
voice" not at his wife, but "towards his wife and daughter," who headed said party and to which the
words spoken were addressed, according to plaintiff. Capt. Zentner said that plaintiff was "angry with them"
Mrs. Zulueta and Miss Zulueta who Michael Thomas affirmed were saying "I am sorry, I am sorry";
whereas, Wayne S. Pendleton declared that Gavino told him that this "seems to stem from a domestic issue"
between Mr. and Mrs. Zulueta. Surely, this alleged surmise, not even by Pendleton but by Gavino who was
not placed on the witness stand cannot be taken as competent evidence that plaintiff had quarreled with his
wife, apart from the circumstance that such quarrel if it took place and there is absolutely no evidence or
offer to prove that anything had transpired between husband and wife before reaching Wake Island which
may suggest a misunderstanding between them does not warrant jumping at the conclusion that plaintiff
had decided to remain in the Island, for he would gain nothing thereby.

Needless to say, if plaintiff's purpose in going to the beach was to hide from Mrs. and Miss Zulueta and
PANAM's personnel, so that he may be left in the Island, he, surely, would not have walked back from the
beach to the terminal, before the plane had resumed its flight to Manila, thereby exposing his presence to the
full view of those who were looking for him.

Then, again, the words uttered by him as he saw the search party and approached the plane "You people
almost made me miss your flight. You have a defective announcing system and I was not paged" and the
"belligerent" manner according to Captain Zentner in which he said it revealed his feeling of distress at
the thought that the plane could have left without him.4

The second, third and fourth assignments of error are thus clearly untenable.

In connection with the fifth assignment of error, PANAM's witness, Captain Zentner, testified that, while he
was outside the plane, waiting for the result of the search, a "man" approached him and expressed concern
over the situation; that the "man" said he was with the State Department; that he, his wife and their children,
who were on board the aircraft, would not want to continue the flight unless the missing person was found;
that the "man" expressed fear of a "bomb," a word he used reluctantly, because he knew it is violative of a
Federal law when said at the wrong time; that when plaintiff came, Zentner asked him: "why did you not want
to get on the airplane?"; that plaintiff then became "very angry" and spoke to him "in a way I have not been
spoken to in my whole adult life"; that the witness explained: "I am Captain of the aircraft and it is my duty to
see to the flight's safety"; that he (Zentner) then told Wayne Pendleton PANAM's Customer Service
Supervisor to get plaintiff's "bags off the plane to verify ... about the bomb"; that PANAM's airport manager
(K. Sitton) "got three bags of Mr. Zulueta"; that his fourth bag could not be located despite a thorough search;
that believing that it must have been left behind, in Honolulu, "we took off"; and that he (Zentner) would not
have done so had he thought it was still aboard.

The lower court did not err in giving no credence to this testimony.

Indeed, Captain Zentner did not explain why he seemingly assumed that the alleged apprehension of his
informant was justified. He did not ask the latter whether he knew anything in particular about plaintiff herein,
although some members of the crew would appear to have a notion that plaintiff is an impresario. Plaintiff
himself intimated to them that he was well known to the U.S. State Department. Apparently, Captain Zentner
did not even know the informant's name. Neither did the captain know whether the informant was really
working for or in the State Department. In other words, there was nothing absolutely nothing to justify
the belief that the luggage of the missing person should be searched, in order to ascertain whether there was
a bomb in it; that, otherwise, his presence in the aircraft would be inimical to its safety; and that,
consequently, he should be off-loaded.
In fact, PANAM has not given the name of that "man" of the State Department. Neither has the defense tried
to explain such omission. Surely, PANAM's records would have disclosed the identity of said "man," if he were
not a mere figment of the imagination. The list of passengers has been marked as Exh. A, and yet PANAM has
not pointed out who among them is the aforementioned "man".

The trial court did not believe the testimony of Captain Zentner and rejected the theory of the defense, for the
following reasons:

(1) The defendant had contracted to transport plaintiff from Honolulu to Manila. It was its legal
obligation to do so, and it could be excused from complying with the obligation only, if the
passenger had refused to continue with the trip or it had become legally or physically
impossible without the carrier's fault, to transport him.

(2) In this case, it is plain that Zulueta was desirous of continuing with the trip. Although
defendant's witnesses claim that Zulueta refused to board the plane, its own evidence belies
this claim. The letter, Exh. "D", shows that it was defendant who off-loaded Zulueta; not
Zulueta who resisted from continuing the trip. In his testimony before the Court, Capt. Zentner,
defendant's pilot, said that if a passenger voluntarily left the plane, the term used would be
`desistance' but the term "off-load" means that it is the decision of the Captain not to allow the
passenger or luggage to continue the flight. However, Capt. Zentner admitted on his testimony
that "his drunkenness... was of no consequence in my report; (it) ... had nothing to do with his
being belligerent and unfriendly in his attitude towards me and the rest of the members of the
crew." The written report of Capt. Zentner made in transit from Wake to Manila "intimated he
might possibly continue;" but "due to drinking, belligerent attitude, he was off-loaded along
with his locked bags." (Exh. 10). In a later report, Zentner admitted, "The decision to leave Mr.
Zulueta and his locked luggage in Wake was mine and alone." (Exh. 9). Defendant's airport
customer service supervisor, W.S. Pendleton, reported that:

"After the search for Mr. Zulueta had continued almost 20 minutes and it was apparent that he
was not be found in the terminal building or immediate vicinity, I proceeded to the parking lot
and picked up my jeep continue the search in more remote areas. Just as I was getting
underway, a small group of persons approach from the direction of the beach and a voice called
out the passenger had been found. Having parked the jeep again, I walked toward the group
and was met by PAA fleet-serviceman E. Gavino who was walking somewhere ahead of the
others. Mr. Gavino remarked to me privately that the trouble seemed to have stemmed from
some domestic difference between the Passenger and his wife who was not at his side and
returning with him to the gate.

"On hearing Mr. Gavino's remark, I made no comment to the passenger but turned and led the
group toward the ramp. Just as we reached the boarding gate, Mr. Zulueta spoke to me for the
first time saying, "You people almost made me miss your flight. You have a defective
announcing system and I was not paged."

Exh. 5

Evidently, these could not have been the words of a man who refused to board the plane.

(3) There was no legal or physical impossibility for defendant to transport plaintiff Zulueta from
Wake to Manila as it had contracted to do. Defendant claims that the safety of its craft and of
the other passengers demanded that it inspect Zulueta's luggage and when he refused to allow
inspection that it had no recourse but to leave him behind. The truth that, knowing that of
plaintiff's four pieces of luggage, one could still have been as it was aboard, defendant's
plane still flew on to Manila. Surely, if the defendant's pilot and employees really believed that
Zulueta had planted a bomb in one of the bags they would not have flown on until they had
made sure that the fourth bag had been left behind at Honolulu until enough time had lapsed
for the bomb to have been exploded, since presumably it had to have been set to go off before
they reached Manila.

"At any rate, it was quite evident that Zulueta had nothing to hide; for the report of defendant's
witness, Mr. Stanley E. Ho, U.S. Marshall on Wake, has this to say: "

"About twenty minutes later while an attempt was being made to locate another piece of Mr.
Zulueta's luggage his daughter, Carolinda approached her father and wanted to get some
clothes from one of the suitcases. Mr. Zulueta asked the undersigned if it was alright if he
opened the suitcases and get the necessary clothes. To this I stated he was free to open his
luggage and obtain whatever he needed. Mr. Zulueta opened a suitcase and took the dress for
her then boarded the aircraft."

Exh. 2B .

(4) What is evident to the Court is that defendant acted in a manner deliberately calculated
to humiliate and shame plaintiffs. Although the plane was held up to wait for plaintiff for, as
the Captain admitted in his testimony, he did so because he knew that it would be a week
before another plane would come in for Manila (t.s.n., 18 Oct. 1966, pp. 59-62) when plaintiff
did come, he was met and treated roughly by defendant's manager Sitton. Here is what Zulueta
testified to:

"Q. When you saw your wife and daughter what happened? A. Then I
started going towards the airplane. At the ramp, I do not know what they call it,
as soon as they arrived there, there was a man who subsequently identified
himself as Kenneth Sitton. He identified himself as the Airport Manager of Wake
Island. He did not ask me what happened, was I sick, he looked at me and said,
what in the hell do you think you are? Get on that plane. Then I said, what right
have you to talk to me that way, I am a paying passenger. Do not treat me this
way. And this started the altercation, and then he said, do you know you held up
the plane? And I answered, this is not my fault, I was sick. Did it not occur to
you to ask me how I feel; then he said get on that plane.

"Q. What happened? A. we started discussing kept saying, "You get on that
plane" and then I said, "I don't have to get on that plane." After a prolonged
discussion, he said, give me your baggage tags and I gave him four baggage
tickets or tags. I did not realize what he was up to until finally, I saw people
coming down the airplane and police cars arrived and people were coming down
the ramp. I gave him the four baggage tags and a few minutes late, he brought
three baggages and said, open them up. I said, to begin with, there is one
baggage missing and that missing bag is my bag. Then I said you cannot make
me open these baggages unless you are United States customs authorities and
when I arrive in the Philippines they can be opened by the Philippine Customs
authorities. But an Airport Manager cannot make me open my bags unless you
do exactly the same thing to all the passengers. Open the bags of all the other
passengers and I will open my bag.

"Q. What did he say: A. He just kept on saying open your bag, and I drew
up my hands and said, you want, you open yourself or give me a search warrant
I shall open this bag but give me a search warrant and then I asked, who is the
Chief of Police, and he said, "I am Chief of Police," then I said how can you be
 the Chief Police and Airport Manager and then he started to talk about double
compensation and by this time we were both quarreling and he was shouting
and so with me. Then there was a man who came around and said `open the
bag' and I said, show the warrant of arrest and do all the checking and the
discussion kept on going, and finally I said look, my fourth bag is missing and he
said, "I don't give damn." People at the time were surrounding us and staring at
us and also the passengers. My wife and daughter all along had been made to sit
on a railing and this man screaming and looking at my wife and daughter. Then
he said, will you pull these three monkeys out of here? then I said, will you send
my wife and daughter up the plane which he did. However, they have come
down in their slippers and when they were allowed to return to the plane none of
the defendant's personnel who had brought down the overcoats, shoes and
handcarried items of my wife and daughter ever offered to bring back the items
to the plane, until I demanded that one of the defendants should help my wife
and daughter which he did. And then one man told me, because you refused to
open your bag, "we shall hold you here in Wake Island." then I asked, are we
under arrest? and the man answered, no. And further stated, your wife and
daughter can continue their flight but you will not go to this flight an we will
charge you $13.30 a day. Then I said, who are you to tell all these things, and
he answered, I am the manager. I said, put it in writing, then left and in few
minutes he came back and handed me this letter (witness referring to Exhibit
D)." .

t.s.n., August 1, 1966, pp. 15-21

Anyone in Zulueta's position would have reached the same way if he had had a sense of
dignity. Evidently, angered by Zulueta's reaction, irked by the delay he had caused them,
defendant's employees decided to teach him a lesson by forcing him to open his bags when
there was no justifiable reason to do so:

(a) Defendant did not make any attempt to inquire from any passenger or even the crew who
knew Mr. Zulueta what his character and reputation are, before demanding that he open the
bags; if it had done so, Miss Schmitz, the purser, and Col. Villamor would have vouched for
plaintiffs; for Miss Schmitz believed she had flown before with the Zulueta's and they had been
very nice people.

(b) Worse, defendant's manager Sitton admits that Zulueta had told him who he was and his
social position in Manila; still he insisted that the bags be opened. Moreover, some passengers
had informed the supervisor that Zulueta was "the impresario"; but they persisted in their
demands.

(c) Defendant never identified the alleged State Department men who reportedly approached
the Captain and expressed fear about a bomb, nor did they confront him if he existed with
Mr. Zulueta despite Mr. Zulueta's request.

(d) Defendant did not take any steps to put the luggage off-loaded far from its passengers and
plane, a strange procedure if it really believed the luggage contained a bomb;

(e) Defendant continued with the flight knowing one bag -- Zulueta's bag himself had not
been located and without verifying from Honolulu if the bag had been found there, nor even
advising Honolulu that a bag possibly containing a bomb had been left there, again an
inexplicable procedure if they sincerely believed that Zulueta had planted a bomb;
 (f) Defendant's manager himself took Zulueta and his off-loaded bags, in his own car, from the
terminal building to the hotel, which is also inconsistent with a serious belief that the luggages
contained a bomb;

(g) Defendant knew that while Zulueta's bags were on the ground, he had opened one of them
with the permission and in the presence of the U. S. Marshall in order to enable his daughter to
get a dress from the bag; nothing suspicious was seen; still, defendant insisted on refusing to
allow Zulueta to continue unless he opened and allowed inspection of the bags by them; .

(h) Defendant completely changed his tone and behavior towards the Zulueta's after the plane
had arrived at Manila and the Captain learned that its Manila manager, Mr. Oppenheimer, was a
friend of Zulueta;

(i) Meantime, the attitude of Pan American towards the Zulueta's caused other passengers to
resent Zulueta (See reports of Stewardesses and of Captain Zentner, Exhs. 7, 8, 9 and 10).
"Many passengers were angry towards the `missing passenger," says Miss Schmitz's report. "A
few inquisitive PA (passengers) one woman quite rudely stared once we were airborne and
left Mr. Zulueta behind ... anyway I told the woman to sit down so did Helga so did the
man near her," say Miss Schmitz's personal notes. This confirms the testimony of plain plaintiffs
that, all the while the search and discussions were going on, they were the subject of stares,
remarks and whisper comments from the passengers and other persons around the plane.

(j) Defendant did not allow plaintiff Zulueta to board the plane at all, even though it was aware
that some of his personal belongings, such as his overcoat were on the plane. Plaintiffs so
testified; and though defendant's witness Mr. Sitton denied it, claiming that plaintiff was always
free to board the plane, this denial is belied by the report of defendant's own witness, U.S.
Marshall Ho, who said that:

"Ten minutes later, Mr. Zulueta asked if he could talk to his wife who was aboard the aircraft. I
then accompanied him and as we got to the ramp, we met Mr. Sitton who stated he would
summon Mrs. Zulueta from the aircraft. Mr. Sitton summoned Mrs. Zulueta and she met her
husband at the foot of the ramp. Mr. Zulueta then asked his wife and himself to which I replied
I was not concerned what he had to say."

Exh. 2-B

(k) Finally, to add further humiliation and heap indignity on plaintiffs, when Mrs. Zulueta arrived
at Manila and appealed to defendant's Manila manager, Mr. Oppenheimer, to see to it that her
husband got back as soon as possible and was made as comfortable as possible, at defendant's
expense, Mr. Oppenheimer refused to acknowledge any obligation to transport Mr. Zulueta back
to Manila and forcing Mrs. Zulueta to send her husband $100.00 for pocket money and pay for
his fare from Wake to Manila, thru Honolulu and Tokyo.

Upon a review of the record, We are satisfied that the foregoing findings of His Honor, the Trial Judge, are
supported by a preponderance of the evidence.

The last two (2) assignments of error are mere consequences of those already disposed of, and, hence, need
no extended discussion.

It is urged, however, that plaintiff is, at most, entitled to actual damages only, because he was the first to
commit a breach of contract, for having gone over 200 yards away from the terminal, where he could not
expect to be paged. But, PANAM has not pointed out what part of the contract has been violated thereby,
apart from the fact that the award for damages made in the decision appealed from was due, not to PANAM's
failure to so page the plaintiff, but to the former's deliberate act of leaving him at Wake Island, and the
embarrassment and humiliation caused to him and his family in the presence of many other persons. Then,
also, considering the flat nature of the terrain in Wake Island, and the absence of buildings and structures,
other than the terminal and a modest "hotel," as well as plaintiff's need of relieving himself, he had to find a
place beyond the view of the people and near enough the sea to wash himself up before going back to the
plane.

It is next argued that plaintiff was, also, guilty of contributory negligence for failure to reboard the plane
within the 30 minutes announced before the passengers debarked therefrom. This might have justified a
reduction of the damages, had plaintiff been unwittingly left by the plane, owing to the negligence of PANAM
personnel, or even, perhaps, wittingly, if he could not be found before the plane's departure. It does not, and
cannot have such justification in the case at bar, plaintiff having shown up before the plane had taken off, and
he having been off-loaded intentionally and with malice aforethought, for his "belligerent" attitude, according
to Captain Zentner; for having dared despite his being one of "three monkeys," the term used by Captain
Zentner to refer to the Zulueta family to answer him back when he (Captain Zentner)5 said: "what in the
hell do you think you are ?" in a way he had "not been spoken to" in his "whole adult life," in the presence
of the passengers and other PANAM employees; for having responded to a command of either Zentner or
Sitton to open his (plaintiff's) bags, with a categorical refusal and a challenge for Zentner or Sitton to open the
bags without a search warrant therefor, thereby making manifest the lack of authority of the aforementioned
representative of PANAM to issue said command and exposing him to ridicule before said passengers and
employees. Besides, PANAM's own witness and employee, Wayne Pendleton, testified the plane could not take
off at 4:30, as scheduled, because "we were still waiting for two (2) local passengers."

Article 2201 of our Civil Code reads:

In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is
liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could reasonably foreseen at the time the
obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.

This responsibility applies to common carriers. Pursuant to Article 1759 of the same Code:

ART. 1759. Common carriers are liable for the death or injuries to passengers through the
negligence or wilful acts of the former's employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the common carriers.

This liability of the common carriers does not cease proof that they exercised all the diligence of
a good father of a family in the selection and supervision of their employees.

Referring now to the specific amounts to damages due to plaintiffs herein, We note that the sum of P5,502.85
awarded to them as actual damages is not seriously disputed by PANAM.

As regards the moral and exemplary damages claimed by the plaintiffs, our Civil Code provides:

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.

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

ART. 2229. Exemplary or corrective damages are imposed, by way of example or correction for
the public good, in addition to the moral, temperate liquidated or compensatory damages.

ART. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

The records amply establish plaintiffs' right to recover both moral and exemplary damages. Indeed, the rude
and rough reception plaintiff received at the hands of Sitton or Captain Zentner when the latter met him at the
ramp ("what in the hell do you think you are? Get on that plane"); the menacing attitude of Zentner or Sitton
and the supercilious manner in which he had asked plaintiff to open his bags ("open your bag," and when told
that a fourth bag was missing, "I don't give a damn"); the abusive language and highly scornful reference to
plaintiffs as monkeys by one of PANAM's employees (who turning to Mrs. Zulueta and Miss Zulueta remarked,
"will you pull these three monkeys out of here?"); the unfriendly attitude, the ugly stares and unkind remarks
to which plaintiffs were subjected, and their being cordoned by men in uniform as if they were criminals, while
plaintiff was arguing with Sitton; the airline officials' refusal to allow plaintiff to board the plane on the pretext
that he was hiding a bomb in his luggage and their arbitrary and high-handed decision to leave him in Wake;
Mrs. Zulueta's having suffered a nervous breakdown for which she was hospitalized as a result of the
embarrassment, insults and humiliations to which plaintiffs were exposed by the conduct of PANAM's
employees; Miss Zulueta's having suffered shame, humiliation and embarrassment for the treatment received
by her parents at the airport6 all these justify an award for moral damages resulting from mental anguish,
serious anxiety, wounded feelings, moral shock, and social humiliation thereby suffered by plaintiffs.

The relation between carrier and passenger involves special and peculiar obligations and duties,
differing in kind and degree, from those of almost every other legal or contractual relation. On
account of the peculiar situation of the parties the law implies a promise and imposes upon the
carrier the corresponding duty of protection and courteous treatment. Therefore, the carrier is
under the absolute duty of protecting his passengers from assault or insult by himself or his
servants. 7

A contract to transport passengers is quite different in kind and degree from any other
contractual relation. And this, because of the relation which an air-carrier sustains with the
public. Its business is mainly with the travelling public. It invites people to avail of the comforts
and advantages it offers. The contract of air carriage, therefore, generates a relation tended
with a public duty. Neglect or malfeasance of the carrier's employees naturally could give
ground for an action for damages.

Passengers do not contract merely for transportation. They have a right to be treated by the
carrier's employees with kindness, respect, courtesy and due consideration. They are titled to
be protected against personal misconduct, injurious language, indignities and abuses from such
employees. So it is, that any rude or discourteous conduct on the part of employees towards a
passenger gives the latter an action for damages against the carrier. 8

A carrier of passengers is as much bound to protect them from humiliation and insult as from
physical injury .. It is held in nearly all jurisdictions, if not universally, that a carrier is liable to a
passenger for humiliation and mental suffering caused by abusive or insulting language directed
at such passenger by an employee of the carrier. 9

Where a conductor uses language to a passenger which is calculated to insult, humiliate, or

wound the feelings of a person of ordinary feelings and sensibilities, the carrier is liable,
 because the contract of carriage impliedly stipulates for decent, courteous, and respectful
treatment, at hands of the carrier's employees.10

The general rule that a carrier owes to a passenger highest degree of care has been held to
include the duty to protect the passenger from abusive language by the carrier's agents, or by
others if under such circumstances that the carrier's agents should have known about it and
prevented it. Some of the courts have mentioned the implied duty of the carrier, arising out of
the contract of carriage, not to insult the passenger, or permit him to be insulted, and even
where no mention is made of this basis for liability, it is apparent that it is the ground upon
which recovery is allowed. 11

The question is whether the award of P1,000,000 as moral damages was proper and justified by the
circumstances. It has been held that the discretion in fixing moral damages lies in the trial court. 12 Among the
factors courts take into account in assessing moral damages are the professional, social, political and financial
standing of the offended parties on one hand, and the business and financial position of the offender on the
other. 13

In comparatively recent cases in this jurisdiction, also involving breach of contract of air carriage, this Court
awarded the amount of P25,000, where plaintiff, a first-class passenger in an Air France plane from Manila to
Rome was, in Bangkok, forced by the manager of the airline company to leave his first class accommodation
after he was already seated because there was a white man who, the manager alleged, had a "better right" to
the seat 14 ;the amount of P200,000, where plaintiffs, upon confirmation of their reservation in defendant
airline's flight from Tokyo to San Francisco were issued first class tickets, but upon arrival in Tokyo were
informed that there was no accommodation for them in the first class compartment and told they could not go
unless they took the tourist class 15 in both of which cases the Court found the airline companies to have
acted in bad faith, or in a wanton, reckless and oppressive manner, justifying likewise the award of exemplary
damages.

None of the passengers involved in said cases was, however, off-loaded, much less in a place as barren and
isolated as Wake Island, with the prospect of being stranded there for a week. The aforementioned
passengers were merely constrained to take a tourist or third class accommodation in lieu of the first class
passage they were entitled to. Then, also, in none of said cases had the agents of the carrier acted with the
degree of malice or bad faith of those of PANAM in the case at bar, or caused to the offended passengers a
mental suffering arising from injuries to feelings, fright and shock due to abusive, rude and insulting language
used by the carrier's employees in the presence and within the hearing of others, comparable to that caused
by PANAM's employees to plaintiffs herein

To some extent, however, plaintiff had contributed to the gravity of the situation because of the extreme
belligerence with which he had reacted on the occasion. We do not over-look the fact that he justly believed
he should uphold and defend his dignity and that of the people of this country that the discomfort, the
difficulties, and, perhaps, the ordeal through which he had gone to relieve himself which were unknown to
PANAM's agents were such as to put him in no mood to be understanding of the shortcoming of others; and
that said PANAM agents should have first inquired, with an open mind, about the cause of his delay instead of
assuming that he was at fault and of taking an arrogant and overbearing attitude, as if they were dealing with
an inferior. Just the same, there is every reason to believe that, in all probability, things would not have turned
out as bad as they became had he not allowed himself, in a way, to be dragged to the level or plane on which
PANAM's personnel had placed themselves.

In view of this circumstance, We feel that the moral and exemplary damages collectible by the plaintiffs should
be reduced to one-half of the amounts awarded by the lower court, that is, to P500,000 for moral damages,
and P200,000 for exemplary damages, aside from the attorney's fees which should, likewise, be reduced to
P75,000.
On April 22, 1971, Mrs. Zulueta filed a motion alleging that she had, for more than two (2) years, been
actually living separately from her husband, plaintiff Rafael Zulueta, and that she had decided to settle
separately with PANAM and had reached a full and complete settlement of all her differences with said
defendant, and praying accordingly, that this case be dismissed insofar as she is concerned, Required to
comment on said motion, PANAM expressed no objection thereto.

Upon the other hand, plaintiff prayed that the motion be denied, upon the ground that the case at bar is one
for damages for breach of a contract of carriage, owing to the off-loading of plaintiff Rafael Zulueta, the
husband and administrator of the conjugal partnership, with the funds of which the PANAM had been paid
under said contract; that the action was filed by the plaintiffs as a family and the lower court had awarded
damages to them as such family; that, although PANAM had questioned the award of damages, it had not
raised the question whether the lower court should have specified what portion of the award should go to
each plaintiff; that although Mr. and Mrs. Zulueta had, for sometime, been living separately, this has been
without judicial approval; that Mrs. Zulueta may not, therefore, bind the conjugal partnership or settle this
case separately; and that the sum given by PANAM to Mrs. Zulueta is believed to be P50,000, which is less
than 3-1/2% of the award appealed from, thereby indicating the advisability of denying her motion to dismiss,
for her own protection.

Pursuant to a resolution, dated June 10, 1971, deferring action on said motion to dismiss until the case is
considered on the merits. We now hold that the motion should be, as it is hereby denied. Indeed, "(t)he wife
cannot bind the conjugal partnership without the husband's consent, except in cases provided by law," 16 and
it has not been shown that this is one of the cases so provided. Article 113 of our Civil Code, pursuant to
which "(t)he husband must be joined in all suits by or against the wife, except: ... (2) If they have in fact been
separated for at least one year ..." relied upon by PANAM does not warrant the conclusion drawn
therefrom by the latter. Obviously the suit contemplated in subdivision (2) of said Article 113 is one in which
the wife is the real party either plaintiff or defendant in interest, and, in which, without being so, the
hush must be joined as a party, by reason only of his relation of affinity with her. Said provision cannot
possibly apply to a case, like the one at bar, in which the husband is the main party in interest, both as the
person principally grieved and as administrator of the conjugal partnership. Moreover, he having acted in this
capacity in entering into the contract of carriage with PANAM and paid the amount due to the latter, under the
contract, with funds of conjugal partnership, the damages recoverable for breach of such contract belongs to
said partnership.

Modified, as above stated, in the sense that plaintiffs shall recover from defendant, Pan American World
Airways, Inc., the sums of P500,000 as moral damages, P200,000 as exemplary damages, and P75,000 as
attorney's fees, apart from P5,502.85 as actual damages, and without prejudice to deducting the
aforementioned sum of P50,000 already paid Mrs. Zulueta, the decision appealed from is hereby affirmed in all
other respects, with the costs against said defendant.

Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Barredo, Villamor and Makasiar, JJ., concur.

Castro and Teehankee, JJ., took no part.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-56487 October 21, 1991

REYNALDA GATCHALIAN, petitioner,
vs.
ARSENIO DELIM and the HON. COURT OF APPEALS, respondents.

Pedro G. Peralta for petitioner.

Florentino G. Libatique for private respondent.

FELICIANO, J.:

At noon time on 11 July 1973, petitioner Reynalda Gatchalian boarded, as a paying passenger, respondent's
"Thames" mini bus at a point in San Eugenio, Aringay, La Union, bound for Bauang, of the same province. On
the way, while the bus was running along the highway in Barrio Payocpoc, Bauang, Union, "a snapping sound"
was suddenly heard at one part of the bus and, shortly thereafter, the vehicle bumped a cement flower pot on
the side of the road, went off the road, turned turtle and fell into a ditch. Several passengers, including
petitioner Gatchalian, were injured. They were promptly taken to Bethany Hospital at San Fernando, La Union,
for medical treatment. Upon medical examination, petitioner was found to have sustained physical injuries on
the leg, arm and forehead, specifically described as follows: lacerated wound, forehead; abrasion, elbow, left;
abrasion, knee, left; abrasion, lateral surface, leg, left. 1

On 14 July 1973, while injured. passengers were confined in the hospital, Mrs. Adela Delim, wife of respondent, visited them and later paid for their hospitalization and
medical expenses. She also gave petitioner P12.00 with which to pay her transportation expense in going home from the hospital. However, before Mrs. Delim left, she had
the injured passengers, including petitioner, sign an already prepared Joint Affidavit which stated, among other things:

That we were passengers of Thames with Plate No. 52-222 PUJ Phil. 73 and victims after the said Thames met an accident at Barrio Payocpoc Norte, Bauang, La
Union while passing through the National Highway No. 3;

That after a thorough investigation the said Thames met the accident due to mechanical defect and went off the road and turned turtle to the east canal of the
road into a creek causing physical injuries to us;

xxx xxx xxx

That we are no longer interested to file a complaint, criminal or civil against the said driver and owner of the said Thames, because it was an accident and the
said driver and owner of the said Thames have gone to the extent of helping us to be treated upon our injuries.

xxx xxx xxx 2

(Emphasis supplied)
Notwithstanding this document, petitioner Gathalian filed with the then Court of First Instance of La Union an action extra contractu to recover compensatory and moral
damages. She alleged in the complaint that her injuries sustained from the vehicular mishap had left her with a conspicuous white scar measuring 1 by 1/2 inches on the
forehead, generating mental suffering and an inferiority complex on her part; and that as a result, she had to retire in seclusion and stay away from her friends. She also
alleged that the scar diminished her facial beauty and deprived her of opportunities for employment. She prayed for an award of: P10,000.00 for loss of employment and
other opportunities; P10,000.00 for the cost of plastic surgery for removal of the scar on her forehead; P30,000.00 for moral damages; and P1,000.00 as attorney's fees.

In defense, respondent averred that the vehicular mishap was due to force majeure, and that petitioner had already been paid and moreover had waived any right to institute
any action against him (private respondent) and his driver, when petitioner Gatchalian signed the Joint Affidavit on 14 July 1973.

After trial, the trial court dismissed the complaint upon the ground that when petitioner Gatchalian signed the Joint Affidavit, she relinquished any right of action (whether
criminal or civil) that she may have had against respondent and the driver of the mini-bus.

On appeal by petitioner, the Court of Appeals reversed the trial court's conclusion that there had been a valid waiver, but affirmed the dismissal of the case by denying
petitioner's claim for damages:

We are not in accord, therefore, of (sic) the ground of the trial court's dismissal of the complaint, although we conform to the trial court's disposition of the case
its dismissal.

IN VIEW OF THE FOREGOING considerations, there being no error committed by the lower court in dismissing the plaintiff-appellant's complaint, the judgment of
dismissal is hereby affirmed.

Without special pronouncement as to costs.

SO ORDERED. 3

In the present Petition for Review filed in forma pauperis, petitioner assails the decision of the Court of Appeals and ask this Court to award her actual or compensatory
damages as well as moral damages.

We agree with the majority of the Court of Appeals who held that no valid waiver of her cause of action had been made by petitioner. The relevant language of the Joint
Affidavit may be quoted again:

That we are no longer interested to file a complaint, criminal or civil against the said driver and owner of the said Thames, because it was an accident and the
said driver and owner of the said Thames have gone to the extent of helping us to be treated upon our injuries. (Emphasis supplied)

A waiver, to be valid and effective, must in the first place be couched in clear and unequivocal terms which leave no doubt as to the intention of a person to give up a right or

A waiver may not casually be attributed to a person when the terms thereof do not
benefit which legally pertains to him. 4

explicitly and clearly evidence an intent to abandon a right vested in such person.

The degree of explicitness which this Court has required in purported waivers is illustrated in Yepes and
Susaya v. Samar Express Transit (supra), where the Court in reading and rejecting a purported waiver said:

. . . It appears that before their transfer to the Leyte Provincial Hospital, appellees were asked to sign
as, in fact, they signed the document Exhibit I wherein they stated that "in consideration of the
expenses which said operator has incurred in properly giving us the proper medical treatment, we
 hereby manifest our desire to waive any and all claims against the operator of the Samar Express
Transit."

xxx xxx xxx

Even a cursory examination of the document mentioned above will readily show that appellees did not
actually waive their right to claim damages from appellant for the latter's failure to comply with their
contract of carriage. All that said document proves is that they expressed a "desire" to make the waiver
which obviously is not the same as making an actual waiver of their right. A waiver of the kind
invoked by appellant must be clear and unequivocal (Decision of the Supreme Court of Spain of July 8,
1887) which is not the case of the one relied upon in this appeal. (Emphasis supplied)

If we apply the standard used in Yepes and Susaya, we would have to conclude that the terms of the Joint
Affidavit in the instant case cannot be regarded as a waiver cast in "clear and unequivocal" terms. Moreover,
the circumstances under which the Joint Affidavit was signed by petitioner Gatchalian need to be considered.
Petitioner testified that she was still reeling from the effects of the vehicular accident, having been in the
hospital for only three days, when the purported waiver in the form of the Joint Affidavit was presented to her
for signing; that while reading the same, she experienced dizziness but that, seeing the other passengers who
had also suffered injuries sign the document, she too signed without bothering to read the Joint Affidavit in its
entirety. Considering these circumstances there appears substantial doubt whether petitioner understood fully
the import of the Joint Affidavit (prepared by or at the instance of private respondent) she signed and whether
she actually intended thereby to waive any right of action against private respondent.

Finally, because what is involved here is the liability of a common carrier for injuries sustained by passengers
in respect of whose safety a common carrier must exercise extraordinary diligence, we must construe any such
purported waiver most strictly against the common carrier. For a waiver to be valid and effective, it must not
be contrary to law, morals, public policy or good
customs. 5 To uphold a supposed waiver of any right to claim damages by an injured passenger, under
circumstances like those exhibited in this case, would be to dilute and weaken the standard of extraordinary
diligence exacted by the law from common carriers and hence to render that standard unenforceable. 6 We
believe such a purported waiver is offensive to public policy.

Petitioner Gatchalian also argues that the Court of Appeals, having by majority vote held that there was no
enforceable waiver of her right of action, should have awarded her actual or compensatory and moral
damages as a matter of course.

We have already noted that a duty to exercise extraordinary diligence in protecting the safety of its passengers
is imposed upon a common carrier. 7 In case of death or injuries to passengers, a statutory presumption arises
that the common carrier was at fault or had acted negligently "unless it proves that it [had] observed
extraordinary diligence as prescribed in Articles 1733 and 1755." 8 In fact, because of this statutory
presumption, it has been held that a court need not even make an express finding of fault or negligence on
the part of the common carrier in order to hold it liable. 9 To overcome this presumption, the common carrier
must slow to the court that it had exercised extraordinary diligence to prevent the injuries. 10 The standard of
extraordinary diligence imposed upon common carriers is considerably more demanding than the standard of
ordinary diligence, i.e., the diligence of a good paterfamilias established in respect of the ordinary relations
between members of society. A common carrier is bound to carry its passengers safely" as far as human care
and foresight can provide, using the utmost diligence of a very cautious person, with due regard to all the
circumstances". 11

Thus, the question which must be addressed is whether or not private respondent has successfully proved that he had exercised extraordinary diligence to prevent the
mishap involving his mini-bus. The records before the Court are bereft of any evidence showing that respondent had exercised the extraordinary diligence required by law.
Curiously, respondent did not even attempt, during the trial before the court a quo, to prove that he had indeed exercised the requisite extraordinary diligence. Respondent
did try to exculpate himself from liability by alleging that the mishap was the result of force majeure. But allegation is not proof and here again, respondent utterly failed to
substantiate his defense of force majeure. To exempt a common carrier from liability for death or physical injuries to passengers upon the ground of force majeure, the
carrier must clearly show not only that the efficient cause of the casualty was entirely independent of the human will, but also that it was impossible to avoid. Any
participation by the common carrier in the occurrence of the injury will defeat the defense of force majeure. In Servando v. Philippine Steam Navigation Company, 12
the
Court summed up the essential characteristics of force majeure by quoting with approval from the Enciclopedia
Juridica Espaola:

Thus, where fortuitous event or force majeure is the immediate and proximate cause of the loss, the
obligor is exempt from liability non-performance. The Partidas, the antecedent of Article 1174 of the
Civil Code, defines "caso fortuito" as 'an event that takes place by accident and could not have been
foreseen. Examples of this are destruction of houses, unexpected fire, shipwreck, violence of robber.

In its dissertation on the phrase "caso fortuito" the Enciclopedia Juridica Espaola says: 'In legal sense
and, consequently, also in relation to contracts, a "caso fortuito" presents the following essential
characteristics: (1) the cause of the unforeseen and unexpected occurence, or of the failure of the
debtor to comply with his obligation, must be independent of the human will; (2) it must be impossible
to foresee the event which constitutes the "caso fortuito", or if it can be foreseen, it must be impossible
to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (4) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor.

Upon the other hand, the record yields affirmative evidence of fault or negligence on the part of respondent
common carrier. In her direct examination, petitioner Gatchalian narrated that shortly before the vehicle went
off the road and into a ditch, a "snapping sound" was suddenly heard at one part of the bus. One of the
passengers, an old woman, cried out, "What happened?" ("Apay addan samet nadadaelen?"). The driver
replied, nonchalantly, "That is only normal" ("Ugali ti makina dayta"). The driver did not stop to check if
anything had gone wrong with the bus. Moreover, the driver's reply necessarily indicated that the same
"snapping sound" had been heard in the bus on previous occasions. This could only mean that the bus had not
been checked physically or mechanically to determine what was causing the "snapping sound" which had
occurred so frequently that the driver had gotten accustomed to it. Such a sound is obviously alien to a motor
vehicle in good operating condition, and even a modicum of concern for life and limb of passengers dictated
that the bus be checked and repaired. The obvious continued failure of respondent to look after the
roadworthiness and safety of the bus, coupled with the driver's refusal or neglect to stop the mini-bus after he
had heard once again the "snapping sound" and the cry of alarm from one of the passengers, constituted
wanton disregard of the physical safety of the passengers, and hence gross negligence on the part of
respondent and his driver.

We turn to petitioner's claim for damages. The first item in that claim relates to revenue which petitioner said
she failed to realize because of the effects of the vehicular mishap. Petitioner maintains that on the day that
the mini-bus went off the road, she was supposed to confer with the district supervisor of public schools for a
substitute teacher's job, a job which she had held off and on as a "casual employee." The Court of Appeals,
however, found that at the time of the accident, she was no longer employed in a public school since, being a
casual employee and not a Civil Service eligible, she had been laid off. Her employment as a substitute teacher
was occasional and episodic, contingent upon the availability of vacancies for substitute teachers. In view of
her employment status as such, the Court of Appeals held that she could not be said to have in fact lost any
employment after and by reason of the accident. 13 Such was the factual finding of the Court of Appeals, a
finding entitled to due respect from this Court. Petitioner Gatchalian has not submitted any basis for
overturning this finding of fact, and she may not be awarded damages on the basis of speculation or
conjecture. 14

Petitioner's claim for the cost of plastic surgery for removal of the scar on her forehead, is another matter. A person is entitled to the physical integrity of his or her body; if
that integrity is violated or diminished, actual injury is suffered for which actual or compensatory damages are due and assessable. Petitioner Gatchalian is entitled to be
placed as nearly as possible in the condition that she was before the mishap. A scar, especially one on the face of the woman, resulting from the infliction of injury upon her,
is a violation of bodily integrity, giving raise to a legitimate claim for restoration to her conditio ante. If the scar is relatively small and does not grievously disfigure the victim,
the cost of surgery may be expected to be correspondingly modest. In Araneta, et al. vs. Areglado, et al., 15 this Court awarded actual or compensatory damages for, among
other things, the surgical removal of the scar on the face of a young boy who had been injured in a vehicular collision. The Court there held:

We agree with the appellants that the damages awarded by the lower court for the injuries suffered by Benjamin Araneta are inadequate. In allowing not more
than P1,000.00 as compensation for the "permanent deformity and something like an inferiority complex" as well as for the "pathological condition on the left
side of the jaw" caused to said plaintiff, the court below overlooked the clear evidence on record that to arrest the degenerative process taking place in the
mandible and restore the injured boy to a nearly normal condition, surgical intervention was needed, for which the doctor's charges would amount to P3,000.00,
exclusive of hospitalization fees, expenses and medicines. Furthermore, the operation, according to Dr. Dio, would probably have to be repeated in order to
effectuate a complete cure, while removal of the scar on the face obviously demanded plastic surgery.

xxx xxx xxx

The father's failure to submit his son to a plastic operation as soon as possible does not prove that such treatment is not called for. The damage to the jaw and
the existence of the scar in Benjamin Araneta's face are physical facts that can not be reasoned out of existence. That the injury should be treated in order to
restore him as far as possible to his original condition is undeniable. The father's delay, or even his negligence, should not be allowed to prejudice the son who
has no control over the parent's action nor impair his right to a full indemnity.

. . . Still, taking into account the necessity and cost of corrective measures to fully repair the damage; the pain suffered by the injured party; his feelings of
inferiority due to consciousness of his present deformity, as well as the voluntary character of the injury inflicted; and further considering that a repair, however,
skillfully conducted, is never equivalent to the original state, we are of the opinion that the indemnity granted by the trial court should be increased to a total of
P18,000.00. (Emphasis supplied)

Upon the other hand, Dr. Fe

Petitioner estimated that the cost of having her scar surgically removed was somewhere between P10,000.00 to P15,000.00. 16

Tayao Lasam, a witness presented as an expert by petitioner, testified that the cost would probably be
between P5,000.00 to P10,000.00. 17 In view of this testimony, and the fact that a considerable amount of
time has lapsed since the mishap in 1973 which may be expected to increase not only the cost but also very
probably the difficulty of removing the scar, we consider that the amount of P15,000.00 to cover the cost of
such plastic surgery is not unreasonable.

Turning to petitioner's claim for moral damages, the long-established rule is that moral damages may be
awarded where gross negligence on the part of the common carrier is shown. 18 Since we have earlier
concluded that respondent common carrier and his driver had been grossly negligent in connection with the
bus mishap which had injured petitioner and other passengers, and recalling the aggressive manuevers of
respondent, through his wife, to get the victims to waive their right to recover damages even as they were still
hospitalized for their injuries, petitioner must be held entitled to such moral damages. Considering the extent
of pain and anxiety which petitioner must have suffered as a result of her physical injuries including the
permanent scar on her forehead, we believe that the amount of P30,000.00 would be a reasonable award.
Petitioner's claim for P1,000.00 as atttorney's fees is in fact even more modest. 19

WHEREFORE, the Decision of the Court of Appeals dated 24 October 1980, as well as the decision of the then Court of First Instance of La Union dated 4 December 1975 are
hereby REVERSED and SET ASIDE.Respondent is hereby ORDERED to pay petitioner Reynalda Gatchalian the following sums: 1) P15,000.00 as actual or compensatory
damages to cover the cost of plastic surgery for the removal of the scar on petitioner's forehead; 2) P30,000.00 as moral damages; and 3) P1,000.00 as attorney's fees, the
aggregate amount to bear interest at the legal rate of 6% per annum counting from the promulgation of this decision until full payment thereof. Costs against private
respondent.

SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-24471 August 30, 1968

SILVERIO MARCHAN and PHILIPPINE RABBIT BUS CO., INC., petitioners,

vs.
ARSENIO MENDOZA, LEONARDA ILAYA, and ZENAIDA MENDOZA, respondents.

Angel A. Sison for petitioners.

Manuel M. Crudo for respondents.

FERNANDO, J.:

Petitioners, the driver of the passenger bus responsible for the injuries sustained by respondent for which he
was duly prosecuted and thereafter convicted for serious, less serious, and slight physical injuries, and the bus
firm, the Philippine Rabbit Bus Lines, seek the reversal of a Court of Appeals decision of December 14, 1964
and a resolution of March 31, 1965, holding them liable both for compensatory and exemplary damages as
well as attorney's fees. It is the contention of petitioners that errors of law were committed when, in the
aforesaid decision, it was held that there was an implied contract of carriage between the petitioner bus firm
and respondents, the breach of which was the occasion for their liability for compensatory and exemplary
damages as well as attorneys fees.

The facts as found by the Court of Appeals follow: "In the evening of February 22, 1954, between 9:00 and
9:30 o'clock, a passenger bus No. 141 of the Philippine Rabbit Bus Lines, bearing Plate No. TPU-708 which was
then driven by Silverio Marchan fell into a ditch somewhere in Barrio Malanday, Polo, Bulacan, while travelling
on its way to Manila; as a result of which plaintiffs-appellees Arsenio Mendoza, his wife and child,
[respondents in this proceeding], who were then inside the bus as passengers were thrown out to the ground
resulting in their multiple injuries. Plaintiff Arsenio Mendoza suffered the most serious injuries which damaged
his vertebrae causing the paralysis of his lower extremities which up to the time when this case was tried he
continued to suffer. The physician who attended and treated plaintiff Arsenio Mendoza opined that he may
never walk again. Consequently the driver of said bus Silverio Marchan [now petitioner] was prosecuted for
serious, less serious and slight physical injuries through reckless imprudence before the Justice of the Peace
Court of Polo Bulacan, and thereafter convicted as charged on June 29, 1956 ..., which judgment of conviction
was subsequently affirmed by the Court of First Instance of same province ... In this present action before us,
plaintiffs-appellees Arsenio Mendoza, his wife and child sought to recover damages against defendant-
appellant Arsenio Marchan, then the driver of bus No. 141 of the Philippine Rabbit Bus Lines, and from
defendants-appellants Bienvenido P. Buan and Natividad Paras in their capacity as administrator and
administratix, respectively of the estate of the late Florencio P. Buan, doing business under the style name of
the Philippine Rabbit Bus Lines, predicated not only on a breach of contract of carriage for failure of
defendants operator as well as the defendant driver to safely convey them to their destination, but also on
account of a criminal negligence on the part of defendant Silverio Marchan resulting to plaintiff-appellee's
multiple physical damages."1

The Court of Appeals in the decision under review found that there was a preponderance of evidence to the
effect that while respondents Arsenio Mendoza, his wife, Leonarda Ilaya, and child, Zenaida Mendoza "were
waiting for a passenger bus on January 22, 1954 at about 9:00 in the evening at Malanday, they boarded
defendants-appellants' bus bearing No. 141 of the Philippine Rabbit Bus Lines with Plate No. TPU-708 bound
for Manila. And they were treated as passengers thereto, for they paid their corresponding fares. As they
travelled along the highway bound for Manila, said bus was traveling at a high rate of speed without due
regard to the safety of the passengers. So much so that one of the passengers had to call the attention of
Silverio Marchan who was then at the steering wheel of said bus to lessen the speed or to slow down, but then
defendant Silverio Marchan did not heed the request of said passenger; neither did he slacken his speed. On
the contrary, defendant Silverio Marchan even increased his speed while approaching a six-by-six truck which
was then parked ahead, apparently for the purpose of passing the said parked truck and to avoid collision with
the incoming vehicle from the opposite direction. But, when appellant Silverio Marchan veered his truck to
resume position over the right lane, the rear tires of said truck skidded because of his high rate of speed,
thereby causing said truck to fall into a ditch. Substantially, the happening of the accident' resulting to the
multiple injuries of plaintiffs-appellees, was explained by defendant Silverio Marchan who declared that while
he was driving his bus from Barrio Malanday bound towards Manila on a road test, he suddenly noticed an
oncoming vehicle. He thus shifted his light from dim to bright. Just then, he noticed a six-by-six truck parked
on the right lane of the road where he was driving. Confronted with such situation that if he would apply his
brake he would bump his bus against the parked truck he then increased his speed with the view of passing
the said parked truck, and thereafter he veered to negotiate for the proper position on the right lane, but in so
doing he swerved to the right in order to avoid collision from the oncoming vehicle the rear portion of the bus
skidded and fell into the ditch."2

Hence the finding of negligence in the decision under review. Thus: "From the facts as established
preponderantly by the plaintiff and substantially corroborated by the defendant Silverio Marchan, it is clear
that the cause of the accident was the gross negligence of the defendant Silverio Marchan who when driving
his vehicle on the night in question was expected to have employed the highest degree of care; and should
have been assiduously prudent in handling his vehicle to insure the safety of his passengers. There is no
reason why he could not have stopped his vehicle when noticing a parked truck ahead of him if he was not
driving at a high speed. His admission to the effect that if he would apply his brake he would bump or hit the
parked truck ahead of him, since there was no time for him to stop the bus he was driving, is a patent
indication that he was travelling at a high rate of speed without taking the necessary precaution under the
circumstance, considering that it was then nighttime. It is our considered view that under the situation as
pictured before us by the driver of said bus, he should not have increased his speed and by-passed the parked
truck obviously with the view of preventing a collision with the incoming vehicle. Any prudent person placed
under the situation of the appellant would not have assumed the risk as what appellant did. The most natural
reaction that could be expected from one under the circumstance was for him to have slackened and reduced
his speed. But this was not done simply because defendant-appellant could not possibly do so under the
circumstance because he was then travelling at a high rate of speed. In fact, he had increased his speed in
order to avoid ramming the parked truck without, however, taking the necessary precaution to insure the
safety of his passengers."3

On the above facts, the Court of Appeals, in its decision of December 14, 1964, affirmed the amount of
P40,000.00 awarded by the court below as compensatory damages modifying the appealed lower court
decision by holding petitioners to pay the amount of P30,000.00 as exemplary damages and sustaining the
award of attorney's fees in the amount of P5,000.00. Then came the resolution of March 31, 1965 by the
Court of Appeals, where the motion for reconsideration of petitioners was denied for lack of merit.

In their brief as petitioners, the first error assigned is the alleged absence of an implied contract of carriage by
the petitioner bus firm and respondent. On this point, it was the holding of the Court of Appeals: "Since it is
undisputed by the evidence on record that appellant Silverio Marchan was then at the steering wheel of the
vehicle of the defendant transportation company at that moment, the riding public is not expected to inquire
from time to time before they board the passenger bus whether or not the driver who is at the steering wheel
of said bus was authorized to drive said vehicle or that said driver is acting within the scope of his authority
and observing the existing rules and regulations required of him by the management. To hold otherwise would
in effect render the aforequoted provision of law (Article 1759) ineffective."4 It is clear from the above Civil
Code provision that common carriers cannot escape liability "for the death of or injuries to passengers through
the negligence and willful acts of the former's employees, although such employees may have acted beyond
the scope of their authority or in violation of the orders..." 5 From Vda. de Medina v. Cresencia,6 where this
Court, through Justice J.B.L. Reyes, stressed the "direct and immediate" liability of the carrier under the above
legal provision, "not merely subsidiary or secondary," to Maranan v. Perez,7 a 1967 decision, the invariable
holding has been the responsibility for breach of the contract of carriage on the part of the carrier. According
to the facts as above disclosed, which this Court cannot disturb, the applicability of Article 1759 is indisputable.
Hence, the total absence of merit of the first assignment of error.

The next two errors assigned would dispute the holding of the Court of Appeals in imposing liability in the
respective amounts of P40,000.00 for compensatory damages and P30,000.00 for exemplary damages. Again,
such assignments of error cannot be looked upon with favor. What the Court of Appeals did deserves not
reprobation but approval by this Court.

As to why the amount in compensatory damages should be fixed in the sum of P40,000.00 is explained in the
appealed decision thus: "Likewise, it is our considered view that the amount of P40,000.00 awarded by the
court below as compensatory damages is quite reasonable and fair, considering that plaintiff Arsenio Mendoza
had suffered paralysis on the lower extremities, which will incapacitate him to engage in his customary
occupation throughout the remaining years of his life, especially so if we take into account that plaintiff
Arsenio Mendoza was only 26 years old when he met an accident on January 22, 1954; and taking the average
span of life of a Filipino, he may be expected to live for 30 years more; and bearing in mind the earning
capacity of Arsenio Mendoza who before the happening of this accident derived an income of almost P100.00 a
month from the business of his father-in-law as Assistant Supervisor of the small [fairs] and his income of
P100.00 a month which he derived as a professional boxer."8 Considering that respondent Arsenio Mendoza
was only in his middle twenties when, thru the negligence of petitioners, he lost the use of his limbs, being
condemned for the remainder of his life to be a paralytic, in effect leading a maimed, well-nigh useless
existence, the fixing of such liability in the amount of P40,000.00 as compensatory damages was well within
the discretion of the Court of Appeals. 1wph1.t

As to the finding of liability for exemplary damages, the Court of Appeals, in its resolution of March 31, 1965,
stated the following: "We now come to the imposition of exemplary damages upon defendants-appellants'
carrier. It is argued that this Court is without jurisdiction to adjudicate this exemplary damages since there
was no allegation nor prayer, nor proof, nor counterclaim of error for the same by the appellees. It is to be
observed however, that in the complaint, plaintiffs "prayed for such other and further relief as this Court may
deem just and equitable." Now, since the body of the complaint sought to recover damages against the
defendant-carrier wherein plaintiffs prayed for indemnification for the damages they suffered as a result of the
negligence of said Silverio Marchan who is appellant's employee; and since exemplary damages is intimately
connected with general damages, plaintiffs may not be expected to single out by express term the kind of
damages they are trying to recover against the defendant's carrier. Suffice it to state that when plaintiffs
prayed in their complaint for such other relief and remedies that may be availed of under the premises, in
effect, therefore, the court is called upon the exercise and use its discretion whether the imposition of punitive
or exemplary damages even though not expressly prayed or pleaded in the plaintiffs' complaint."9

In support of the above view, Singson v. Aragon was cited by the Court of Appeals. 10 As was there held by
this Court: "From the above legal provisions it appears that exemplary damages may be imposed by way of
example or correction only in addition, among others, to compensatory damages, but that they cannot be
recovered as a matter of right, their determination depending upon the discretion of the court. It further
appears that the amount of exemplary damages need not be proved, because its determination depends upon
the amount of compensatory damages that may be awarded to the claimant. If the amount of exemplary
damages need not be proved, it need not also be alleged, and the reason is obvious because it is merely
incidental or dependent upon what the court may award as compensatory damages. Unless and until this
premise is determined and established, what may be claimed as exemplary damages would amount to a mere
surmise or speculation. It follows as a necessary consequence that the amount of exemplary damages need
not be pleaded in the complaint because the same cannot be predetermined. One can merely ask that it be
determined by the court if in the use of its discretion the same is warranted by the evidence, and this is just
what appellee has done.".

Such a principle has been repeatedly upheld. 11 In Corpuz v. Cuaderno, 12 this Court, again through Justice
J.B.L. Reyes, made clear that the amount "lies within the province of the court a quo, ..." It must be admitted,
of course, that where it could be shown that a tribunal acted "with vindictiveness or wantonness and not in the
exercise of honest judgment," then there is room for the interposition of the corrective power of this Tribunal.

No such reproach can be hurled at the decision and resolution now under review. No such indictment would be
justified. As noted earlier, both the second and the third assignments of error are devoid of merit.

Nor is there any occasion to consider further the fourth assigned error, petitioner being dissatisfied with the
award of P5,000.00 as attorney's fees to respondents. On its face, such an assignment of an alleged error is
conspicuously futile. 1wph1.t

The judgment, however, must be modified in accordance with the ruling of this Court in Soberano v. Manila
Railroad Co. 13 Respondents are entitled to interest for the amount of compensatory damages from the date of
the decision of the lower court and legal interest on the exemplary damages from the date of the decision of
the Court of Appeals.

WHEREFORE, as thus modified, the decision is affirmed, petitioners being liable for the sum of P40,000.00 in
the concept of compensatory damages with interest at the legal rate from and after January 26, 1960, and the
sum of P30,000.00 as exemplary damages with interest at the legal rate from and after December 14, 1964,
as well as for the sum of P5,000.00 as attorney's fees, likewise earning a legal rate of interest from and after
January 26, 1960. Costs against petitioners.

Concepcion, C.J., Dizon, Makalintal, Zaldivar Sanchez, Castro and Angeles, JJ., concur.
Reyes, J.B.L., J., took no part.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-63135 June 24, 1983

GLORIA DARROCHA DE CALISTON, petitioner,

vs.
THE HONORABLE COURT OF APPEALS AND GERONIMO DALMACIO, respondents.

Alexander J. Cawit for petitioner.

Rexco U. Alejano for private respondent.

RESOLUTION

PLANA, J.:
While driving a passenger bus in Bacolod City, private respondent Geronimo Dalmacio ran over Juana Sonza
Vda. de Darrocha (a USVA pensioner) who died instantly, survived by her only child, Gloria Darrocha de
Caliston, the herein petitioner.

Prosecuted for homicide thru reckless imprudence, Dalmacio was convicted by the Court of First Instance of
Negros Occidental, sentenced to imprisonment and ordered to pay the herein petitioner P15,000.00 for the
death of the victim, P5,000.00 as moral damages, P5,000.00 for burial expenses and P10,000.00 for loss of
pension which the deceased had failed to receive.

On appeal, the former Court of Appeals modified the CFI decision by absolving Dalmacio from the payment of
the P10,000.00 for loss of pension and credited him for the amount of P5,000.00 previously paid to the herein
petitioner under a vehicular insurance policy obtained by the bus owner.

The above modifications are now assailed in this petition for review on which the private respondent has filed
his comment.

The deletion of the P10,000.00 awarded for loss of pension is unjustified. Under Article 2206 of the Civil Code

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

(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shag be paid to the heirs of the latter. . .

The pension of the decedent being a sure income that was cut short by her death for which Dalmacio was
responsible, the surviving heir of the former is entitled to the award of P 10,000.00 which is just equivalent to
the pension the decedent would have received for one year if she did not die.

On the other hand, the P5,000.00 paid to the herein petitioner by the insurer of the passenger bus which
figured in the accident may be deemed to have come from the bus owner who procured the insurance. Since
the civil liability (ex-delicto) of the latter for the death caused by his driver is subsidiary and, at bottom, arises
from the same culpa, the insurance proceeds should be credited in favor of the errant driver.

WHEREFORE, the petition is hereby granted partially in that the P10,000.00 award for loss of pension deleted
in the appealed Court of Appeals decision is hereby reinstated. Costs against private respondent.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 78656 August 30, 1988

TRANS WORLD AIRLINES, petitioner,

vs.
COURT OF APPEALS and ROGELIO A. VINLUAN, respondents.
Guerrero & Torres Law Offices for petitioner.

Angara, Abello, Concepcion, Regala & Cruz for private respondent.

The Solicitor General for public respondent.

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.

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.
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.

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
consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to the
award of moral damages.5 More so in this case where instead of courteously informing private respondent of
his being downgraded under the circumstances, he was angrily rebuffed by an employee of petitioner.

At the time of this unfortunate incident, the private respondent was a practicing lawyer, a senior partner of a
big law firm in Manila. He was a director of several companies and was active in civic and social organizations
in the Philippines. Considering the circumstances of this case and the social standing of private respondent in
the community, he is entitled to the award of moral and exemplary damages. However, the moral damages
should be reduced to P300,000.00, and the exemplary damages should be reduced to P200,000.00. This
award should be reasonably sufficient to indemnify private respondent for the humiliation and embarrassment
that he suffered and to serve as an example to discourage the repetition of similar oppressive and
discriminatory acts.

WHEREFORE, with the above modification reducing the moral and exemplary damages as above-stated, the
decision subject of the petition for review is AFFIRMED in all other respects, without pronouncement as to
costs in this instance.

SO ORDERED.

Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-33836 March 16, 1987

DRA. SOFIA L. PRUDENCIADO, petitioner,

vs.
ALLIANCE TRANSPORT SYSTEM, INC. and JOSE LEYSON, et al., respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision 1 of the Court of Appeals dated May 4,1971 in CA-G.R.
No. 34832R entitled Dra. Sofia L. Prudenciado v. Alliance Transport System, Inc. and Jose Leyson, which
modified the decision 2 of the Court of First Instance of Rizal, Quezon City, in Civil Case No. Q-5235 reducing
the amount of moral damages from P25,000 to P2,000 and eliminating the award of exemplary damages and
attorney's fees but granting actual damages of P2,451.27.

The decretal portion of said decision reads:

WHEREFORE, the decision appealed from is hereby modified, ordering appellants jointly and
severally to pay plaintiff the sum of P2,451.27 for actual damages representing the cost of the
repair of the car of Plaintiff; (2) the sum of P2,000.00 as moral damages. No pronouncement as
to costs.

The antecedent facts of this case as found by the trial court and by the Court of Appeals are as follows:

At about 2:05 p.m. of May 11, 1960, Dra. Sofia L. Prudenciado was driving her own Chevrolet Bel Air car along
Arroceros Street with the intention of crossing Taft Avenue in order to turn left, to go to the Philippine Normal
College Compound where she would hold classes. She claimed that she was driving her car at the rate of 10
kmph; that before crossing Taft Ave. she stopped her car and looked to the right and to the left and not
noticing any on-coming vehicle on either side she slowly proceeded on first gear to cross the same, but when
she was almost at the center, near the island thereof, Jose Leyson who was driving People's Taxicab owned
and operated by Alliance Transport System, Inc., suddenly bumped and struck Dra. Prudenciado's car, thereby
causing physical injuries in different parts of her body, suffering more particularly brain concussion which
subjected her to several physical examinations and to an encephalograph test while her car was damaged to
the extent of P2,451.27. The damage to the taxicab amounted to P190.00 (Decision in Civil Case No. Q-5235,
CFI, Rizal; Record on Appeal, pp. 63-64; Decision, CA-G.R. No. 34832-R, Rollo, pp. 37-38).

Dra. Prudenciado filed a complaint for damages at the Court of First Instance of Rizal, Quezon City against the
Alliance Transport System and Jose Leyson docketed as aforestated, Civil Case No. Q-5232 (Record on Appeal,
pp. 2-11).

After due hearing, the Court of First Instance of Rizal, Quezon City, found Jose Leyson guilty of negligence in
the performance of his duties as taxicab driver which is the proximate cause of the accident in question. On
the other hand, defendant Alliance Transport System, Inc. failed to prove to the satisfaction of the court that it
had exercised the required diligence of a good father of the family in the selection, supervision and control of
its employees including defendant Leyson. Consequently, both defendants were held jointly and severally liable
for the physical injuries suffered by the plaintiff Dra. Sofia L. Prudenciado as well as for the damage to her car,
in addition to the other consequential damages prayed for. The dispositive portion of said decision reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS judgment is rendered, one in favor of plaintiff

and against the defendants, by ordering the said defendants, jointly and severally, to pay the
plaintiff the sum of P2,451.27 for actual damages representing the cost for the repair of the car
of plaintiff; P25,000.00 as moral damages; P5,000.00 as exemplary damages; and the further
sum of P3,000.00 as attorney's fees, with costs against the defendants. (Record on Appeal, pp.
71-73).

On appeal, the Court of Appeals rendered the assailed decision on May 14, 1971 and denied petitioner's
motion for reconsideration in its resolution dated July 20, 1971.

Hence, this petition.

The petition was given due course in the resolution of this Court dated September 6, 1971 and petitioner filed
her brief on November 10, 1971 (Rollo, p. 69) while respondents filed their brief on January 24, 1972 (Rollo,
p. 86). Petitioner filed her Reply Brief on March 1, 1972 (Rollo, p. 96); after which the case was considered
submitted for decision on the same date (Rollo, p. 99).

In her brief, petitioner raised the following assignment of errors:

THE RESPONDENT COURT OF APPEALS ERRED IN REDUCING THE AWARD OF MORAL DAMAGES TO THE
PETITIONER FROM P25,000.00 AWARDED BY THE COURT OF FIRST INSTANCE OF RIZAL, BRANCH V,
QUEZON CITY, TO P2,000.00 NOTWITHSTANDING THE FACT THAT THERE WAS NO FINDING THAT THE
AWARD WAS PALPABLY AND SCANDALOUSLY EXCESSIVE AS TO INDICATE THAT IT WAS THE RESULT OF
PASSION OR CORRUPTION ON THE PART OF THE TRIAL COURT;

II

THE RESPONDENT COURT OF APPEALS ERRED IN ELIMINATING THE AWARD OF EXEMPLARY DAMAGES OF
P5,000.00 NOTWITHSTANDING THE FACT THAT THE FINDING OF THE SAID COURT ON THE EVIDENCE AND
THE LAW APPLICABLE JUSTIFIED THE AWARD OF EXEMPLARY DAMAGES AS HELD BY THE SAID TRIAL
COURT;

III
THE COURT OF APPEALS ERRED IN FINDING THAT HER DEMOTION IN RANK AS A PROFESSOR IN THE
UNITED STATES WAS NOT SUBSTANTIATED AND IN MAKING THIS FINDING A BASIS FOR THE REDUCTION
OF THE AWARD OF MORAL DAMAGES, NOTWITHSTANDING THAT IT IS ALREADY TOO FAR FETCHED AND IT
MERELY CONFIRMS THE TRUTH OF THE FACT THAT THE ACCUSED SUFFERED LOSS OF HER USUAL
LIVELINESS; VIVACITY ACTIVITY SELF-CONFIDENCE AND THAT SHE FEELS UNCERTAIN AND INSECURE AND
THAT SHE WAS SUBJECTED TO EXTREME FRIGHT AND SERIOUS ANXIETY, SERIOUS APPREHENSION OF
LOSING HER LIFE OR HER SENSES OR REASON AND OF HER PHYSICAL MOBILITY ANYTIME AND THAT SHE
SUFFERED GREAT SHOCK AND SEVERE PAINS ON HER BACK NEAR THE LEFT SIDE OF HER SPINAL COLUMN
OF THE LUMBAR REGION;

IV

THE RESPONDENT COURT OF APPEALS ALSO ERRED IN ELIMINATING THE AWARD OF ATTORNEY'S FEES TO
THE PETITIONERS NOTWITHSTANDING THE FACT THAT SAID AWARD IS LEGAL AND PROPER;

THE RESPONDENT COURT OF APPEALS ERRED IN ELIMINATING THE COSTS TAXED AGAINST THE
RESPONDENTS NOTWITHSTANDING THE FACT THAT SAID COSTS ARE LEGAL AND PROPER;

VI

THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE CLAIM OF DR. SOFIA L.
PRUDENCIADO OF HER LOSS OF HER USUAL LIVELINESS, VIVACITY ACTIVITY AND HER USUAL SELF
CONFIDENCE, SUCH THAT SHE NOW FEELS UNCERTAIN AND INSECURE... EXTREME FRIGHT AND SERIOUS
ANXIETY, SERIOUS APPREHENSION OF LOSING HER LIFE OR HER SENSES OR REASON; OF HER PHYSICAL
MOBILITY ANYTIME ... GREAT SHOCK AND SEVERE PAINS ON HER BACK NEAR THE LEFT SIDE OF HER
SPINAL COLUMN IN THE LUMBAR REGION IS UNCORROBORATED NOTWITHSTANDING THE FACT OF THE
CERTIFICATE, EXHIBIT "G" OF DR. DOMINADOR VERGARA, OF THE VETERANS MEMORIAL HOSPITAL AND
DR. CONRADO ARAMIL, BRAIN SPECIALIST AND THE CORROBORATING TESTIMONY OF THE LATTER AFTER
EXAMINATION AND TREATMENT OF PETITIONER;

VII

THE RESPONDENT COURT OF APPEALS ERRED IN SO MODIFYING THE DECISION OF THE TRIAL COURT
NOTWITHSTANDING THE FACT THAT IT HAD NO POWER TO DO SO UNDER THE FACTS AND
CIRCUMSTANCES OF THIS CASE AS FOUND BY THE COURT OF APPEALS;

VIII

THE RESPONDENT COURT OF APPEALS ERRED IN MODIFYING THE DECISION OF THE TRIAL COURT
NOTWITHSTANDING THE FACT THAT THE DECISION OF SAID TRIAL COURT IS IN ACCORDANCE WITH LAW.

The Court of Appeals and the trial court are in accord in the finding that the accident was caused by the
negligence of the taxi driver. The bone of contention is however in the award of damages, which crystalizes
the errors assigned into one issue, which is whether or not the Court of Appeals is justified in modifying or
changing the grant of damages by the trial court.

It is well settled that factual findings of the Court of Appeals are binding on the Supreme Court, but said
findings are subject to scrutiny if such are diametrically opposed to those of the trial court (Samson v. CA, et
al. G.R. No. L-40071, January 29, 1986).
The Court of Appeals concedes that a concussion of the brain was suffered by Dra. Prudenciado but as to how
serious was the concussion or how it had later become, and the disastrous extent of the injuries which she
alleges to have sustained as a result of the accident, are seriously doubted by said Appellate Court.

Specifically, said Court finds that Dra. Prudenciado's claim (which was sustained b the trial court) that because
of aforesaid concussion, she eventually lost her usual liveliness, vivacity activity and her usual self- confidence,
to the extent that now she feels uncertain and insecure, not to mention a sense of extreme fright and serious
anxiety, serious apprehension of losing her life, or her senses or reason or her physical mobility momentarily,
plus experiences of great shock and severe pains on her back near the left side of her spinal column in the
lumbar region, was not supported by the deposition of Dr. Conrado Aramil the list who attended to the plaintiff
from May 14 to May 26, 1960 (TSN, July 13, 1960, pp. 72-73). From said deposition, it was gathered that Dra.
Prudenciado suffered a mild abnormality, compatible with mold concussion of the brain (TSN, July 13, 1960,
pp. 47-48); that the symptoms of any brain concussion usually are headache, dizziness, voting and lack of pep
or alertness; and that the possible after effects that may be produced are persistent or irregular headaches,
fluctuating dizziness. Accordingly, Dra. Prudenciado was advised "Just to watch herself if she would develop
any alarming symptoms such as headache, dizziness or vomitings, to have her re-checked after several
months for her to be sure." (Ibid, pp. 51-52). It might also produce intellectual deterioration or lessening of
intelligence, and even insanity.

Dra. Prudenciado sought to establish that she had precisely suffered are those after effects except insanity;
but the Court of Appeals ruled that her proof consisted merely in her own uncorroborated testimony. In
support of her allegation she could not show any medical certificate tending to prove that she was indeed
medically treated abroad for her brain ailment nor was there any showing in the documents presented that
she was demoted to the rank of technical assistant because the San Francisco State College does not believe
in her mental capacity any more.

Finally, her statements that she is almost completely losing her voice, that she has a terrible headache when
her head is pressed, that she has lost her sense of taste, that she is nervous and temperamental and that she
has lapses of memory, are belied by the deposition of Dr. Aramil that the patient's EEG was already normal on
May 26, 1960; and on cross-examination he declared that she was clinically symtomless when she was
discharged from the hospital (TSN, July 13, 1960, pp. 75-76; 78-79).

There is no argument that moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable
of pecuniary computation, moral damages may be recovered if they are the proximate result of defendant's
wrongful act or omission (People v. Baylon, 129 SCRA 62 [1984]).

In the same manner, it is undisputed that the trial courts are given discretion to determine the amount of
moral damages Alcantara v. Surro, 93 Phil. 472) and that the Court of Appeals can only modify or change the
amount awarded when they are palpably and scandalously excessive "so as to indicate that it was the result of
passion, prejudice or corruption on the part of the trial court (Gellada v. Warner Barnes & Co., Inc., 57 O.G.
(4) 7347, 7358; Sadie v. Bachrach Motors Co., Inc., 57 O.G. (4) 636 and Adone v. Bachrach Motor Co., Inc.,
57 O.G. 656). But in more recent cases where the awards of moral and exemplary damages are far too
excessive compared to the, actual losses sustained by the aggrieved party, this Court ruled that they should be
reduced to more reasonable amounts.

Thus, in the case of San Andres v. Court of Appeals (116 SCRA 85 [1982]) the Supreme Court ruled that while
the amount of moral damages is a matter left largely to the sound discretion of a court, the same when found
excessive should be reduced to more reasonable amounts, considering the attendant facts and circumstances.
Moral damages, though incapable of pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.
In a much later case (Siguenza v. Court of Appeals, 137 SCRA 578-579 [1985]), the Supreme court, reiterating
the above ruling, reduced the awards of moral and exemplary damages which were far too excessive
compared to the actual losses sustained by the aggrieved parties and where the records show that the injury
suffered was not serious or gross and, therefore, out of proportion to the amount of damages generously
awarded by the trial court.

In any case the Court held that "moral damages are emphatically not intended to enrich a complainant at the
expense of a defendant. They are awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendants'
culpable action." The award of moral damages must be proportionate to the suffering inflicted & B Surety &
Insurance Co., Inc. v. Intermediate Appellate Court, 129 SCRA 745 [1984] citing Grand Union Supermarket,
Inc. v. Espino, Jr., 94 SCRA 966).

Coming back to the case at bar, a careful review of the records makes it readily apparent that the injuries
sustained by Dra. Prudenciado are not as serious or extensive as they were claimed to be, to warrant the
damages awarded by the trial court. In fact, a closer scrutiny of the exhibits showing a moderate damage to
the car can by no stretch of the imagination produce a logical conclusion that such disastrous effects of the
accident sought to be established, actually took place, not to mention the fact that such were not supported
by the medical findings presented. Unquestionably, therefore, the damages imposed' by the lower court should
be reduced to more reasonable levels.

On the other hand, it will be observed that the reduction of the damages made by the Court of Appeals is both
too drastic and unrealistic, to pass the test of reasonableness, which appears to be the underlying basis to
justify such reduction.

While the damages sought to be recovered were not satisfactorily established to the extent desired by the
petitioner, it was nonetheless not disputed that an accident occurred due to the fault and negligence of the
respondents; that Dra. Prudenciado suffered a brain concussion which although mild can admittedly produce
the effects complained of by her and that these symptoms can develop after several years and can lead to
some, serious handicaps or predispose the patient to other sickness (TSN, July 13, 1960, pp. 52-54). Being a
doctor by profession, her fears can be more real and intense than an ordinary person. Otherwise stated, she is
undeniably a proper recipient of moral damages which are proportionate to her suffering.

As to exemplary damages, Article 2231 of the Civil Code provides:

In quasi-delicts, exemplary damages may be granted if the defendant acted with grave
negligence.

The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or
correction for the public good (Lopez, et al. v. Pan American World Airways, 16 SCRA 431).

The findings of the trial court in the case at bar which became the basis of the award of exemplary damages
are to the effect that it is more apparent from the facts, conditions and circumstances obtaining in the record
of the case that respondent driver was running at high speed after turning to the right along Taft Ave. coming
from Ayala Boulevard, considering that the traffic was clear. Failing to notice petitioner's car, he failed to apply
his brakes and did not even swerve to the right to avoid the collision (Record on Appeal, pp. 69-70).

The Court of Appeals conforms with aforesaid findings of the trial court but is not prepared to accept that
there was gross negligence on the part of the driver to justify the imposition of exemplary damages.

However, a driver running at full speed on a rainy day, on a slippery road in complete disregard of the hazards
to life and limb of other people cannot be said to be acting in anything less than gross negligence. The
frequent incidence of accidents of this nature caused by taxi drivers indeed demands corrective measures.
PREMISES CONSIDERED, the assailed decision of the Court of Appeals is hereby MODIFIED insofar as the
award of damages is concerned; and respondents are ordered to jointly and severally pay the petitioner; (1)
the sum of P2,451.27 for actual damages representing the cost of the repair of her car; (2) the sum of
P15,000.00 as moral damages; (3) the sum of P5,000.00 as exemplary damages; and (4) the sum of
P3,000.00 as attorney's fees. No pronouncement as to costs.

SO ORDERED.

Fernan (Chairman), Alampay, Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur.

SECOND DIVISION

[G.R. No. 119571. March 11, 1998]

MITSUI O.S.K. LINES LTD., represented by MAGSAYSAY AGENCIES, INC., petitioner, vs. COURT
OF APPEALS and LAVINE LOUNGEWEAR MFG. CORP., respondents.

DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the January 25, 1995 decision of the Court of Appeals[1] and
its resolution of March 22, 1995 denying petitioners motion for reconsideration. The appellate court upheld
orders of Branch 68 (Pasig) of the Regional Trial Court, National Capital Judicial Region, denying petitioners
motion to dismiss in the original action filed against petitioner by private respondent.
The facts are not in dispute.[2]
Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines by its agent,
Magsaysay Agencies. It entered into a contract of carriage through Meister Transport, Inc., an international
freight forwarder, with private respondent Lavine Loungewear Manufacturing Corporation to transport goods
of the latter from Manila to Le Havre, France. Petitioner undertook to deliver the goods to France 28 days from
initial loading. On July 24, 1991, petitioners vessel loaded private respondents container van for carriage at the
said port of origin.
However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with the result that the
shipment arrived in Le Havre only on November 14, 1991. The consignee allegedly paid only half the value of
the said goods on the ground that they did not arrive in France until the off season in that country. The
remaining half was allegedly charged to the account of private respondent which in turn demanded payment
from petitioner through its agent.
As petitioner denied private respondents claim, the latter filed a case in the Regional Trial Court on April
14, 1992. In the original complaint, private respondent impleaded as defendants Meister Transport, Inc. and
Magsaysay Agencies, Inc., the latter as agent of petitioner Mitsui O.S.K. Lines Ltd. On May 20, 1993, it
amended its complaint by impleading petitioner as defendant in lieu of its agent.The parties to the case thus
became private respondent as plaintiff, on one side, and Meister Transport Inc. and petitioner Mitsui O.S.K.
Lines Ltd. as represented by Magsaysay Agencies, Inc., as defendants on the other.
Petitioner filed a motion to dismiss alleging that the claim against it had prescribed under the Carriage of
Goods by Sea Act.
 The Regional Trial Court, as aforesaid, denied petitioners motion as well as its subsequent motion for
reconsideration. On petition for certiorari, the Court of Appeals sustained the trial courts orders. Hence this
petition containing one assignment of error:

THE RESPONDENT COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT PRIVATE
RESPONDENTS AMENDED COMPLAINT IS (sic) NOT PRESCRIBED PURSUANT TO SECTION 3(6) OF THE
CARRIAGE OF GOODS BY SEA ACT.

The issue raised by the instant petition is whether private respondents action is for loss or damage to
goods shipped, within the meaning of 3(6) of the Carriage of Goods by Sea Act (COGSA).
Section 3 provides:

(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the
carrier or his agent at the port of discharge or at the time of the removal of the goods into the custody of the
person entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence
of the delivery by the carrier of the goods as described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of the delivery.

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

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

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

In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all reasonable
facilities to each other for inspecting and tallying the goods.

In Ang v. American Steamship Agencies, Inc., the question was whether an action for the value of goods
which had been delivered to a party other than the consignee is for loss or damage within the meaning of 3(6)
of the COGSA. It was held that there was no loss because the goods had simply been misdelivered. Loss refers
to the deterioration or disappearance of goods.[3]

As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act,
loss contemplates merely a situation where no delivery at all was made by the shipper of the goods because
the same had perished, gone out of commerce, or disappeared in such a way that their existence is unknown
or they cannot be recovered.[4]

Conformably with this concept of what constitutes loss or damage, this Court held in another case[5] that
the deterioration of goods due to delay in their transportation constitutes loss or damage within the meaning
of 3(6), so that as suit was not brought within one year the action was barred:

Whatever damage or injury is suffered by the goods while in transit would result in loss or damage to either
the shipper or the consignee. As long as it is claimed, therefore, as it is done here, that the losses or damages
suffered by the shipper or consignee were due to the arrival of the goods in damaged or deteriorated
condition, the action is still basically one for damage to the goods, and must be filed within the period of one
year from delivery or receipt, under the above-quoted provision of the Carriage of Goods by Sea Act.[6]
 But the Court allowed that

There would be some merit in appellants insistence that the damages suffered by him as a result of the delay
in the shipment of his cargo are not covered by the prescriptive provision of the Carriage of Goods by Sea Act
above referred to, if such damages were due, not to the deterioration and decay of the goods while in transit,
but to other causes independent of the condition of the cargo upon arrival, like a drop in their market value. . .
.[7]

The rationale behind limiting the said definitions to such parameters is not hard to find or fathom. As this
Court held in Ang:

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

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

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

Indeed, what is in issue in this petition is not the liability of petitioner for its handling of goods as provided by
3(6) of the COGSA, but its liability under its contract of carriage with private respondent as covered by laws of
more general application.
Precisely, the question before the trial court is not the particular sense of damages as it refers to the
physical loss or damage of a shippers goods as specifically covered by 3(6) of COGSA but petitioners potential
liability for the damages it has caused in the general sense and, as such, the matter is governed by the Civil
Code, the Code of Commerce and COGSA, for the breach of its contract of carriage with private respondent.
We conclude by holding that as the suit below is not for loss or damage to goods contemplated in 3(6),
the question of prescription of action is governed not by the COGSA but by Art. 1144 of the Civil Code which
provides for a prescriptive period of ten years.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Regalado (Chairman), Melo, Puno and Martinez, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-54140 October 14, 1986

FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,
vs.
HONORABLE JOSE ALEJANDRO, Presiding Judge of Branch XXVI of the Court of First Instance of
Manila and FROTA OCEANICA BRASILIERA, respondents.

G.R. No. L-62001 October 14, 1986

FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,

vs.
HONORABLE ALFREDO BENIPAYO, Presiding Judge of Branch XVI of the Court of First Instance of
Manila and AUSTRALIA-WEST PACIFIC LINE, respondents.

GUTIERREZ, JR., J.:

These consolidated petitions raise the issue of whether or not the one-year period within which to file a suit
against the carrier and theship, in case of damage or loss as provided for in the Carriage of Goods by Sea Act
applies to the insurer of the goods.

On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint, docketed as Civil Case No. 109911, against the
petitioner before the then Court of First Instance of Manila for recovery of a sum of money under the marine
insurance policy on cargo. Mr. Choa alleged that the goods he insured with the petitioner sustained loss and
damage in the amount of P35,987.26. The vessel SS Frotario which was owned and operated by private
respondent Frota Oceanica Brasiliera, (Frota) discharged the goods at the port of Manila on December 13,
1976. The said goods were delivered to the arrastre operator E. Razon, Inc., on December 17, 1976 and on
the same date were received by the consignee-plaintiff.

On December 19, 1977, the petitioner filed its amended answer disclaiming liability, imputing against the
plaintiff the commission of fraud and counterclaiming for damages.

On January 9, 1978, the petitioner filed a third-party complaint against the carrier, private respondent Frota
and the arrastre contractor, E. Razon, Inc. for indemnity, subrogation, or reimbursement in the event that it is
held liable to the plaintiff.

Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar complaint against the petitioner which was
docketed as Civil Case No. 110061, for recovery under the marine insurance policy for cargo alleging that the
goods insured with the petitioner sustained loss and damage in the sum of P55,996.49.

The goods were delivered to the plaintiff-consignee on or about January 25-28, 1977.

On May 31, 1978, the petitioner filed its answer. On September 28, 1978, it filed an amended third-party
complaint against respondent carrier, the Australia-West Pacific Line (Australia-West).

In both cases, the private respondents filed their respective answers and subsequently filed a motion for
preliminary hearing on their affirmative defense of prescription. The private respondents alleged in their
separate answers that the petitioner is already barred from filing a claim because under the Carriage of Goods
by Sea Act, the suit against the carrier must be filed within one year after delivery of the goods or the date
when the goods should have been delivered...

The petitioner contended that the provision relied upon by the respondents applies only to the shipper and not
to the insurer of the goods.
On April 30, 1980, the respondent judge in Civil Case No. 109911, upheld respondent Frota and dismissed the
petitioner's third-party complaint. Likewise, on August 31, 1982, the respondent judge in Civil Case No.
110061 dismissed the petitioner's third-party complaint against respondent Australia-West on the ground that
the same was filed beyond the prescriptive period provide in Section 3 (6) of the Carriage of Goods by Sea Act
of 1936. These both cases, the petitioner appealed to us on a pure question of law, raising the issue of
whether or not the prescriptive period of one year under the said Act also applies to an insurer such as herein
petitioner.

The petitioner maintains that the one-year prescriptive period cannot cover an insurer which has not settled
the claim of its insured because it cannot be considered as the person referred to in the applicable provision of
the said Act that has the duty or right to give notice of loss or damage to the carrier or to sue such carrier
within the period of one year and that where an insurer does not settle the claim of its insured it cannot be
considered as subrogated to the rights of said insured that would then authorize it to sue the carrier within the
time-bar of one year. The petitioner further contends that the period for the filing of a third-party complaint
must be reckoned from the date when the principal action was filed, that is, from the time the insured filed a
suit against the petitioner, because the third-party complaint is merely an incident of the main action.

On the other hand, the respondents argue that the one-year prescriptive period within which to file a case
against the carrier also applies to a claim filed by an insurer who stands as a subrogee to the insured and that
the third-party complaint filed by the petitioner cannot be reckoned from the firing of the main action because
such complaint is independent of, and separate and distinct from the insured's action against the petitioner.

The lower courts did not err.

Section 3(b) of the Carriage of Goods by Sea Act provides:

(6) Unless notice of loss or damage and the general nature of such loss or damage be given in
writing to the carrier or his agent at the port of discharge before or at the time of the removal
of the goods into the custody of the person entitled to delivery thereof under the contract of
carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods
as described in the bill of lading. If the loss or damage is not apparent, the notice must be
given within three days of the delivery.

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

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

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

In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give
all reasonable facilities to each other for inspecting and tallying the goods. (Emphasis supplied)
Philippine Permanent and General Statutes (Revised Edition, Vol. 1, pp. 663-666).

Chua Kuy v. Everett Steamship Corporation (93 Phil 207, 213-214), expounds on the extent of the applicability
of the aforequoted provision. We ruled:
 Neither do we find tenable the claim that the prescriptive period contained in said act can only
be invoked by the shipper, excluding all other parties to the transaction. While apparently the
proviso contained in the portion of section 3(6) of the act we have quoted gives the impression
that the right to file suit within one year after delivery of the goods applies to the shipper alone,
however, reading the proviso in conjunction with the rest of section 3(6), it at once becomes
apparent that the conclusion drawn by petitioner is unwarranted. In the first place, said section
provides that the notice of loss or damage for which a claim for indemnity may be made should
be given in writing to the carrier at the port of discharge before or at the time of the removal of
the goods, and if the loss or damage is not apparent said notice should be given 'within three
days on delivery.' From the language of this section, it seems clear that the notice of loss or
damage is required to be filed not necessarily by the shipper but also by the consignee or any
legal holder of the bill of lading. In fact, said section requires that the notice be given at the
port of discharge and the most logical party to file the notice is either the consignee or the
endorsee of the bill of lading. In the second place, a study of the historical background of this
particular provision will show that although the word shipper is used in the proviso referred to
by the petitioner, the intention of the law was not to exclude the consignee or endorsee of the
bill of lading from bringing the action but merely to limit the filing of the same within one year
after the delivery of the goods at the port of discharge. [The Southern Cross, 1940, A. M. C. 59
(SDNY); Lindgren v. Farley, 1938 A. M. C. 805 (SDNY)].

Arnold W. Knauth, an eminent authority on admiralty, commenting on this proviso, says:

xxx xxx xxx

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

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

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

There is no merit in the appeal. The trial court correctly held that the one-year statutory and
contractual prescriptive period had already expired when appellant company filed on April 7,
1965 its action against Barber Line Far East Service. The one-year period commenced on
February 25, 1964 when the damaged cargo was delivered to the consignee. (See Chua Kuy v.
Everrett Steamship Corporation, 93 Phil. 207; Yek Tong Fire & Marine Insurance Co., Ltd. v.
American President Lines, Inc., 103 Phil. 1125).
We likewise agree with the respondents that the third-party complaint of the petitioner cannot be considered
to have been filed upon the filing of the main action because although it can be said that a third-party
complaint is but ancilliary to the main action (Eastern Assurance and Surety Corporation v. Cui 105 SCRA 622),
it cannot abridge, enlarge, nor modify the substantive rights of any litigant. It creates no substantive rights.
Thus, unless there is some substantive basis for the third-party Plaintiff's claim, he cannot utilized the filing of
such action to acquire any right of action against the third-party defendant. (See also Francisco, The Revised
Rules of Court in the Philippines, Vol. 1, 1973 Ed., p. 507). The petitioner can only rightfully file a third-party
complaint against the respondents if, in the first place, it can still validly maintain an action against the latter.

In the case at bar, the petitioner's action has prescribed under the provisions of the Carriage of Goods by Sea
Act. Hence, whether it files a third-party complaint or chooses to maintain an independent action against
herein respondents is of no moment. Had the plaintiffs in the civil cases below filed an action against the
petitioner after the one-year prescriptive period, then the latter could have successfully denied liability on the
ground that by their own doing, the plaintiffs had prevented the petitioner from being subrogated to their
respective rights against the herein respondents by filing a suit after the one-year prescriptive period. The
situation, however, does not obtain in the present case. The plaintiffs in the civil cases below gave extra-
judicial notice to their respective carriers and filed suit against the petitioner well within one year from their
receipt of the goods. The petitioner had plenty of time within which to act. In Civil Case No. 109911, the
petitioner had more than four months to file a third-party complaint while in Civil Case No. 110061, it had
more than five months to do so. In both instances, however, the petitioner failed to file the appropriate action.

WHEREFORE, IN VIEW OF THE FOREGOING, the petitions in G. R. No. 54140 and G. R. No. 62001 are hereby
DISMISSED for lack of merit. Costs against the petitioner.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.

SECOND DIVISION

[G.R. No. 124050. June 19, 1997]

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES

DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE
CO., INC. and the CHARTER INSURANCE CORPORATION, respondents.

DECISION
PUNO, J.:

This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of
Appeals dated December 14, 1995[1] and its Resolution dated February 22, 1996[2] in CA-G.R. CV No. 45805
entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v. South Sea Surety
Insurance Co., Inc. and The Charter Insurance Corporation.[3]
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer
Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to
October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014,
MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022.[4]
 Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private
respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The
pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of US$212,772.09
were insured with respondent South Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a
total amount of US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party
inspector to examine whether the pipes and fittings are manufactured in accordance with the specifications in
the contract. Industrial Inspection certified all the pipes and fittings to be in good order condition before they
were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a
substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance
contract. Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded
payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private
respondents refused to pay because the insurance surveyor's report allegedly showed that the damage is a
factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the sum of
HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay the
amount claimed by petitioners because the damage to the goods is due to factory defects which are not
covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to
manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and private
respondents are "all risks" policies which insure against all causes of conceivable loss or damage. The only
exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the
part of the insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally, to pay the
plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30 with legal rate of interest as of
the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED.[5]
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and
that it was covered by the "all risks" insurance policies issued by private respondents to petitioner
Mayer. However, it set aside the decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it
was filed only on April 17, 1986, more than two years from the time the goods were unloaded from the
vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of
the goods or the date when the goods should have been delivered."Respondent court ruled that this provision
applies not only to the carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. vs.
Alejandro.[6]
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners' cause of action had already
prescribed on the mistaken application of the Carriage of Goods by Sea Act and the doctrine of
Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
 2. The respondent Court of Appeals committed an error in dismissing the complaint.[7]
The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of
Goods by Sea Act.
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged
from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or
the date when they should have been delivered.Under this provision, only the carrier's liability is extinguished
if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer's
liability is based not on the contract of carriage but on the contract of insurance. A close reading of the law
reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand
and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier
under the contract of carriage. It does not, however, affect the relationship between the shipper and the
insurer. The latter case is governed by the Insurance Code.
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro[8] and the other cases[9] cited therein does
not support respondent court's view that the insurer's liability prescribes after one year if no action for
indemnity is filed against the carrier or the insurer. In that case, the shipper filed a complaint against the
insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured
goods. The insurer, in turn, filed a third-party complaint against the carrier for reimbursement of the amount it
paid to the shipper. The insurer filed the third-party complaint on January 9, 1978, more than one year after
delivery of the goods on December 17, 1977. The court held that the Insurer was already barred from filing a
claim against the carrier because under the Carriage of Goods by Sea Act, the suit against the carrier must be
filed within one year after delivery of the goods or the date when the goods should have been delivered. The
court said that "the coverage of the Act includes the insurer of the goods."[10]
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer
which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at
bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim is the "all risks"
insurance policies issued by private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper,
the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage of
Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim
against the carrier beyond the one-year period provided in the law. But it does not mean that the shipper may
no longer file a claim against the insurer because the basis of the insurer's liability is the insurance
contract. An insurance contract is a contract whereby one party, for a consideration known as the premium,
agrees to indemnify another for loss or damage which he may suffer from a specified peril.[11] An "all risks"
insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the
insured.[12] Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they bound
themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes
in ten years, in accordance with Article 1144 of the New Civil Code.[13]
IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated
December 14, 1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and the Decision of the
Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.
Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

INSURANCE COMPANY OF NORTH G.R. No. 180784

AMERICA,
Petitioner, Present:

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

ASIAN TERMINALS, INC., Promulgated:

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

DECISION

PERALTA, J.:

This is a petition for review on certiorari[1] of the Decision of the Regional Trial Court (RTC)
of Makati City, Branch 138 (trial court) in Civil Case No. 05-809 and its Order dated December 4, 2007 on the
ground that the trial court committed reversible error of law.

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

On November 9, 2002, Macro-Lite Korea Corporation shipped to San Miguel Corporation, through M/V
"DIMI P" vessel, one hundred eighty-five (185) packages (231,000 sheets) of electrolytic tin free steel,
complete and in good order condition and covered by Bill of Lading No. POBUPOHMAN20638.[2] The shipment
had a declared value of US$169,850.35[3] and was insured with petitioner Insurance Company of North
America against all risks under Marine Policy No. MOPA-06310.[4]

The carrying vessel arrived at the port of Manila on November 19, 2002, and when the shipment was
discharged therefrom, it was noted that seven (7) packages thereof were damaged and in bad order.[5] The
shipment was then turned over to the custody of respondent Asian Terminals, Inc. (ATI) on November 21,
2002 for storage and safekeeping pending its withdrawal by the consignee's authorized customs broker, R.V.
Marzan Brokerage Corp. (Marzan).
On November 22, 23 and 29, 2002, the subject shipment was withdrawn by Marzan from the custody
of respondent. On November 29, 2002, prior to the last withdrawal of the shipment, a joint inspection of the
said cargo was conducted per the Request for Bad Order Survey[6] dated November 29, 2002, and the
examination report, which was written on the same request, showed that an additional five (5) packages were
found to be damaged and in bad order.
On January 6, 2003, the consignee, San Miguel Corporation, filed separate claims[7] against respondent
and petitioner for the damage to 11,200 sheets of electrolytic tin free steel.
 Petitioner engaged the services of an independent adjuster/surveyor, BA McLarens Phils., Inc., to
conduct an investigation and evaluation on the claim and to prepare the necessary report.[8] BA McLarens
Phils., Inc. submitted to petitioner an Survey Report[9] dated January 22, 2003 and another
report [10]
dated May 5, 2003 regarding the damaged shipment. It noted that out of the reported twelve (12)
damaged skids, nine (9) of them were rejected and three (3) skids were accepted by the consignees
representative as good order. BA McLarens Phils., Inc. evaluated the total cost of damage to the nine (9)
rejected skids (11,200 sheets of electrolytic tin free steel) to be P431,592.14.
The petitioner, as insurer of the said cargo, paid the consignee the amount of P431,592.14 for the
damage caused to the shipment, as evidenced by the Subrogation Receipt dated January 8, 2004. Thereafter,
petitioner, formally demanded reparation against respondent. As respondent failed to satisfy its demand,
petitioner filed an action for damages with the RTC of Makati City.
The trial court found, thus:

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

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

The trial court found that there was compliance by the shipper and consignee with the above
requirement. The Bill of Lading, together with the corresponding invoice and packing list, was shown to ATI
prior to the discharge of the goods from the vessel. Since the shipment was released from the custody of ATI,
the trial court found that the same was declared for tax purposes as well as for the assessment of arrastre
charges and other fees. For the purpose, the presentation of the invoice, packing list and other shipping
documents to ATI for the proper assessment of the arrastre charges and other fees satisfied the condition of
declaration of the actual invoices of the value of the goods to overcome the limitation of liability of the
arrastre operator.[12]
 Further, the trial court found that there was a valid subrogation between the petitioner and the
assured/consignee San Miguel Corporation. The respondent admitted the existence of Global Marine Policy No.
MOPA-06310 with San Miguel Corporation and Marine Risk Note No. 3445,[13] which showed that the cargo
was indeed insured with petitioner. The trial court held that petitioners claim is compensable because the
Subrogation Receipt,16 which was admitted as to its existence by respondent, was sufficient to establish not
only the relationship of the insurer and the assured, but also the amount paid to settle the insurance claim.[14]

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

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

WHEREFORE, the complaint and counterclaim are hereby DISMISSED.[16]

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

Petitioner filed this petition under Rule 45 of the Rules of Court directly before this Court, alleging that it
is raising a pure question of law:

THE TRIAL COURT COMMITTED A PURE AND SERIOUS ERROR OF LAW IN APPLYING
THE ONE-YEAR PRESCRIPTIVE PERIOD FOR FILING A SUIT UNDER THE CARRIAGE OF GOODS
BY SEA ACT (COGSA) TO AN ARRASTRE OPERATOR.[18]

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

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

To reiterate, petitioner came straight to this Court to appeal from the decision of the trial court under
Rule 45 of the Rules of Court on the ground that it is raising only a question of law.

Microsoft Corporation v. Maxicorp, Inc.[20] explains the difference between questions of law and
questions of fact, thus:

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

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

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

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

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

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

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

Section 1 of CA No. 65 states:

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

Section 1, Title I of CA No. 65 defines the relevant terms in Carriage of Goods by Sea, thus:

Section 1. When used in this Act -

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

It is noted that the term carriage of goods covers the period from the time when the goods are loaded
to the time when they are discharged from the ship; thus, it can be inferred that the period of time when the
goods have been discharged from the ship and given to the custody of the arrastre operator is not covered by
the COGSA.
The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is
found in paragraph (6), Section 3, thus:

6) Unless notice of loss or damage and the general nature of such loss or damage be
given in writing to the carrier or his agent at the port of discharge before or at the time of the
removal of the goods into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of
the goods as described in the bill of lading. If the loss or damage is not apparent, the notice
must be given within three days of the delivery.

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

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

In any event the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after delivery of the
goods or the date when the goods should have been delivered: Provided, That if a
notice of loss or damage, either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper to bring suit within one
year after the delivery of the goods or the date when the goods should have been delivered.[26]

From the provision above, the carrier and the ship may put up the defense of prescription if the action
for damages is not brought within one year after the delivery of the goods or the date when the goods should
have been delivered. It has been held that not only the shipper, but also the consignee or legal holder of the
bill may invoke the prescriptive period.[27] However, the COGSA does not mention that an arrastre operator
may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator.
 Respondent arrastre operators responsibility and liability for losses and damages are set forth in
Section 7.01 of the Contract for Cargo Handling Services executed between the Philippine Ports Authority and
Marina Ports Services, Inc. (now Asian Terminals, Inc.), thus:

Section 7.01 Responsibility and Liability for Losses and Damages; Exceptions - The
CONTRACTOR shall, at its own expense, handle all merchandise in all work undertaken by it
hereunder, diligently and in a skillful, workman-like and efficient manner. The CONTRACTOR
shall be solely responsible as an independent contractor, and hereby agrees to
accept liability and to pay to the shipping company, consignees, consignors or other
interested party or parties for the loss, damage or non-delivery of cargoes in its
custody and control to the extent of the actual invoice value of each package which
in no case shall be more than FIVE THOUSAND PESOS (P5,000.00) each, unless the
value of the cargo shipment is otherwise specified or manifested or communicated
in writing together with the declared Bill of Lading value and supported by a
certified packing list to the CONTRACTOR by the interested party or parties before
the discharge or loading unto vessel of the goods. This amount of Five Thousand Pesos
(P5,000.00) per package may be reviewed and adjusted by the AUTHORITY from time to time.
The CONTRACTOR shall not be responsible for the condition or the contents of any package
received, nor for the weight nor for any loss, injury or damage to the said cargo before or while
the goods are being received or remains in the piers, sheds, warehouses or facility, if the loss,
injury or damage is caused by force majeure or other causes beyond the CONTRACTOR's
control or capacity to prevent or remedy; PROVIDED, that a formal claim together with
the necessary copies of Bill of Lading, Invoice, Certified Packing List and
Computation arrived at covering the loss, injury or damage or non-delivery of such
goods shall have been filed with the CONTRACTOR within fifteen (15) days from day
of issuance by the CONTRACTOR of a certificate of non-delivery; PROVIDED,
however, that if said CONTRACTOR fails to issue such certification within fifteen
(15) days from receipt of a written request by the shipper/consignee or his duly
authorized representative or any interested party, said certification shall be deemed
to have been issued, and thereafter, the fifteen (15) day period within which to file
the claim commences; PROVIDED, finally, that the request for certification of loss
shall be made within thirty (30) days from the date of delivery of the package to the
consignee.[28]

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

Petitioner clarified that it sued respondent only for the additional five (5) packages of the subject
shipment that were found damaged while in respondents custody, which fact of damage was sustained by the
trial court and proved by the Request for Bad Order Survey No. 56422.[29]
Petitioner pointed out the importance of the Request for Bad Order Survey by citing New Zealand
Insurance Company Limited v. Navarro.[30] In the said case, the Court ruled that the request for, and the
result of, the bad order examination, which were filed and done within fifteen days from the haulage of the
goods from the vessel, served the purpose of a claim, which is to afford the carrier or depositary reasonable
opportunity and facilities to check the validity of the claims while facts are still fresh in the minds of the
persons who took part in the transaction and documents are still available. Hence, even if the consignee
therein filed a formal claim beyond the stipulated period of 15 days, the arrastre operator was not relieved of
liability as the purpose of a formal claim had already been satisfied by the consignees timely request for the
bad order examination of the goods shipped and the result of the said bad order examination.
To elaborate, New Zealand Insurance Company, Ltd. v. Navarro held:

We took special note of the above pronouncement six (6) years later in Firemans Fund
Insurance Co. v. Manila Port Service Co., et al. There, fifteen (15) cases of nylon
merchandise had been discharged from the carrying vessel and received by defendant Manila
Port Service Co., the arrastre operator, on 7 July 1961. Out of those fifteen (15) cases,
however, only twelve (12) had been delivered to the consignee in good condition.
Consequently, on 20 July 1961, the consignee's broker requested a bad order examination of
the shipment, which was later certified by defendant's own inspector to be short of three (3)
cases. On 15 August 1961, a formal claim for indemnity was then filed by the consignee, who
was later replaced in the action by plaintiff Fireman's Fund Insurance Co., the insurer of the
goods. Defendant, however, refused to honor the claim, arguing that the same had not been
filed within fifteen (15) days from the date of discharge of the shipment from the carrying
vessel, as required under the arrastre Management Contract then in force between itself and
the Bureau of Customs. The trial court upheld this argument and hence dismissed the
complaint. On appeal by the consignee, this Court, speaking through Mr. Justice J.B.L. Reyes,
reversed the trial court and found the defendant arrastre operator liable for the value of the lost
cargo, explaining as follows:

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

to afford the carrier or depositary reasonable opportunity and

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

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

In other words, what the Court considered as the crucial factor in declaring the
defendant arrastre operator liable for the loss occasioned, in the Fireman's Fund case, was
the fact that defendant, by virtue of the consignee's request for a bad order examination, had
been able formally to verify the existence and extent of its liability within fifteen (15) days from
the date of discharge of the shipment from the carrying vessel -- i.e., within the same period
stipulated under the Management Contract for the consignee to file a formal claim. That a
formal claim had been filed by the consignee beyond the stipulated period of fifteen
(15) days neither relieved defendant of liability nor excused payment thereof, the
purpose of a formal claim, as contemplated in Consunji, having already been fully
served and satisfied by the consignee's timely request for, and the eventual result
of, the bad order examination of the nylon merchandise shipped.
 Relating the doctrine of Fireman's Fund to the case at bar, the record shows that
delivery to the warehouse of consignee Monterey Farms Corporation of the 5,974 bags of
soybean meal, had been completed by respondent Razon (arrastre operator) on 9 July
1974. On that same day, a bad order examination of the goods delivered was requested by the
consignee and was, in fact, conducted by respondent Razon's own inspector, in the presence of
representatives of both the Bureau of Customs and the consignee. The ensuing bad order
examination report what the trial court considered a "certificate of loss confirmed that out of
the 5,974 bags of soybean meal loaded on board the M/S "Zamboanga" and shipped to Manila,
173 bags had been damaged in transitu while an additional 111 bags had been damaged after
the entire shipment had been discharged from the vessel and placed in the custody of
respondent Razon. Hence, as early as 9 July 1974 (the date of last delivery to the
consignee's warehouse), respondent Razon had been able to verify and ascertain for
itself not only the existence of its liability to the consignee but, more significantly,
the exact amount thereof - i.e., P5,746.61, representing the value of 111 bags of soybean
meal. We note further that such verification and ascertainment of liability on the part
of respondent Razon, had been accomplished "within thirty (30) days from the date
of delivery of last package to the consignee, broker or importer" as well as "within
fifteen (15) days from the date of issuance by the Contractor [respondent Razon] of
a certificate of loss, damage or injury or certificate of non-delivery" the periods
prescribed under Article VI, Section 1 of the Management Contract here involved, within which
a request for certificate of loss and a formal claim, respectively, must be filed by the consignee
or his agent. Evidently, therefore, the rule laid down by the Court in Fireman's Fund finds
appropriate application in the case at bar.[31]

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

xxxx

CIRCUMSTANCES OF LOSS

As reported, the shipment consisting of 185 packages (344.982 MT) Electrolytic Tin Free Steel,
JISG 3315SPTFS, MRT-4CA, Matte Finish arrived Manila via Ocean Vessel, M/V DIMI P V-075 on
November 9, 2002 and subsequently docked alongside Pier No. 9, South Harbor, Manila. The
cargo of Electrolyic Tin Free Steel was discharged ex-vessel complete with seven (7)
skids noted in bad order condition by the vessel[s] representative. These skids were
identified as nos. 2HD804211, 2HD804460, SHD804251, SHD803784, 2HD803763,
2HD803765 and 2HD803783 and covered with Bad Order Tally Receipts No. 3709, 3707,
3703 and 3704. Thereafter, the same were stored inside the warehouse of Pier No.
9, South Harbor, Manila, pending delivery to the consignees warehouse.
On November 22, 23 and 29, 2002, the subject cargo was withdrawn from the Pier by the
consignee authorized broker, R. V. Marzan Brokerage Corp. and the same was delivered to the
consignees final warehouse located at Silangan, Canlubang, Laguna complete with twelve (12)
skids in bad order condition.

VISUAL INSPECTION

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

xxxx

EVALUATION OF INDEMNITY

We evaluated the loss/damage sustained by the subject shipments and arrived as

follows:

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

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

RECOVERY ASPECT

Prospect of recovery would be feasible against the shipping company and the Arrastre
operator considering the copies of Bad Order Tally Receipts and Bad Order
Certificate issued by the subject parties.[37]

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

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

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

Based on the Evaluation Report[44] of BA McLarens Phils., Inc., dated May 5, 2003, the four (4) skids
damaged while in the custody of the arrastre operator and the amount of actual damages therefore are as
follows:

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

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

In view of the foregoing, petitioner is entitled to actual damages in the amount of P164,428.76 for the
four (4) skids damaged while in the custody of respondent.

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

Costs against petitioner.

SO ORDERED.