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G.R. No. 131166 September 30, 1999 CALTEX (PHILIPPINES), INC., petitioner, vs. SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G. CAEZAL, AND SOTERA E. CAEZAL, respondents. PARDO, J.: Is the charterer of a sea vessel liable for damages resulting from a collision between the chartered vessel and a passenger ship? When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed that it would collide with MV Doa Paz, killing almost all the passengers and crew members of both ships, and thus resulting in one of the country's worst maritime disasters. The petition before us seeks to reverse the Court of Appeals decision 1 holding petitioner jointly liable with the operator of MT Vector for damages when the latter collided with Sulpicio Lines, Inc.'s passenger ship MV Doa Paz. The facts are as follows: On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. 2 MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene, diesel and crude oil. During that particular voyage, the MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a charter contract between them. 3 On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port of Tacloban headed for Manila with a complement of 59 crew members including the master and his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. 4 The MV Doa Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week. At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doa Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time of the incident.1wphi1.nt The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger manifest. Only 24 survived the tragedy after having been rescued from the burning waters by vessels that responded to distress calls. 5 Among those who perished were public school teacher Sebastian Caezal (47 years old) and his daughter Corazon Caezal (11 years old), both unmanifested passengers but proved to be on board the vessel. On March 22, 1988, the board of marine inquiry in BMI Case No. 659-87 after investigation found that the MT Vector, its registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation, were at fault and responsible for its collision with MV Doa Paz. 6 On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezal's wife and mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for "Damages Arising from Breach of Contract of Carriage" against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well that MT Vector was improperly manned, illequipped, unseaworthy and a hazard to safe navigation; as a result, it rammed against MV Doa Paz in the open sea setting MT Vector's highly flammable cargo ablaze. On September 15, 1992, the trial court rendered decision dismissing, the third party complaint against petitioner. The dispositive portion reads: WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant-3rd party plaintiff Sulpicio Lines, Inc., to wit: 1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G. Caezal, including loss of future earnings of said Sebastian, moral and exemplary damages, attorney's fees, in the total amount of P 1,241,287.44 and finally; 2. The statutory costs of the proceedings. Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with costs against the 3rd party plaintiff.

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IT IS SO ORDERED. DONE IN MANILA, this 15th day of September 1992. ARSENIO M. GONONG Judge 7 On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997, the Court of Appeal modified the trial court's ruling and included petitioner Caltex as one of the those liable for damages. Thus: WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court is hereby MODIFIED as follows: WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E. Caezal and Corazon Caezal: 1. Compensatory damages for the death of Sebastian E. Caezal and Corazon Caezal the total amount of ONE HUNDRED THOUSAND PESOS (P100,000); 2. Compensatory damages representing the unearned income of Sebastian E. Caezal, in the total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY (P306,480.00) PESOS; 3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P300,000.00); 4. Attorney's fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS (P50,000.00); 5. Costs of the suit. Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-mentioned damages, attorney's fees and costs which the latter is adjudged to pay plaintiffs, the same to be shared half by Vector Shipping Co. (being the vessel at fault for the collision) and the other half by Caltex (Phils.), Inc. (being the charterer that negligently caused the shipping of combustible cargo aboard an unseaworthy vessel). SO ORDERED. JORGE S. IMPERIAL Associate Justice WE CONCUR: RAMON U. MABUTAS, JR. PORTIA ALIO HERMACHUELOS Associate Justice Associate Justice. 8 Hence, this petition. We find the petition meritorious. First: The charterer has no liability for damages under Philippine Maritime laws. The respective rights and duties of a shipper and the carrier depends not on whether the carrier is public or private, but on whether the contract of carriage is a bill of lading or equivalent shipping documents on the one hand, or a charter party or similar contract on the other. 9 Petitioner and Vector entered into a contract of affreightment, also known as a voyage charter. 10 A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; a contract of affreightment is one by which the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight. 11 A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a single or consecutive voyage, the ship owner to supply the ship's store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of the ship. 12 Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages caused by negligence. If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship. 13

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Second: MT Vector is a common carrier Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage charter. Does a charter party agreement turn the common carrier into a private one? We need to answer this question in order to shed light on the responsibilities of the parties. In this case, the charter party agreement did not convert the common carrier into a private carrier. The parties entered into a voyage charter, which retains the character of the vessel as a common carrier. In Planters Products, Inc. vs. Court of Appeals, 14 we said: It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole portion of a vessel of one or more persons, provided the charter is limited to the ship only, as in the case of a time-charter or the voyage charter. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a ship-owner in a time or voyage charter retains possession and control of the ship, although her holds may, for the moment, be the property of the charterer. Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals: 15 Although a charter party may transform a common carrier into a private one, the same however is not true in a contract of affreightment . . . A common carrier is a person or corporation whose regular business is to carry passengers or property for all persons who may choose to employ and to remunerate him. 16 MT Vector fits the definition of a common carrier under Article 1732 of the Civil Code. In Guzman vs. Court of Appeals, 17 we ruled: The Civil Code defines "common carriers" in the following terms: Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers for 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 services on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from making such distinctions. It appears to the Court that private respondent is properly characterized as a common carrier even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such backhauling was done on a periodic, occasional rather than regular or scheduled manner, and even though respondent's principal occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling their goods; that the fee frequently fell below commercial freight rates is not relevant here. Under the Carriage of Goods by Sea Act : Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to (a) Make the ship seaworthy; (b) Properly man, equip, and supply the ship; xxx xxx xxx Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code. 18 The provisions owed their conception to the nature of the business of common carriers. This business is impressed with a special public duty. The public must of necessity rely on the care and skill of common carriers in the vigilance over the goods and safety of the passengers, especially because with the modern development of science and invention, transportation has become more rapid, more complicated and somehow more hazardous. 19 For these reasons, a passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its seaworthiness. This aside, we now rule on whether Caltex is liable for damages under the Civil Code.

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Third: Is Caltex liable for damages under the Civil Code? We rule that it is not. Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an unseaworthy vessel such as the MT Vector when Caltex: 1. Did not take steps to have M/T Vector's certificate of inspection and coastwise license renewed; 2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery Corporation; 3. Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard. Sulpicio further argues that Caltex chose MT Vector transport its cargo despite these deficiencies. 1. The master of M/T Vector did not posses the required Chief Mate license to command and navigate the vessel; 2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to navigate only in bays and rivers when the subject collision occurred in the open sea; 3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel; 4. The vessel did not have a Third Mate, a radio operator and lookout; and 5. The vessel had a defective main engine. 20 As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil Code, which provide: Art. 20. Every person who contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same. Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasidelict and is governed by the provisions of this Chapter. And what is negligence? The Civil Code provides: Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Article 1171 and 2201 paragraph 2, shall apply. If the law does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. In Southeastern College, Inc. vs. Court of Appeals, 21 we said that negligence, as commonly understood, is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care, precaution, and vigilance, which the circumstances justly demand, or the omission to do something which ordinarily regulate the conduct of human affairs, would do. The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it chartered complied with all legal requirements. The duty rests upon the common carrier simply for being engaged in "public service." 22 The Civil Code demands diligence which is required by the nature of the obligation and that which corresponds with the circumstances of the persons, the time and the place. Hence, considering the nature of the obligation between Caltex and MT Vector, liability as found by the Court of Appeals is without basis.1wphi1.nt The relationship between the parties in this case is governed by special laws. Because of the implied warranty of seaworthiness, 23 shippers of goods, when transacting with common carriers, are not expected to inquire into the vessel's seaworthiness, genuineness of its licenses and compliance with all maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but the futility of our maritime laws insofar as the protection of the public in general is concerned. By the same token, we cannot expect passengers to inquire every time they board a common carrier, whether the carrier possesses the necessary papers or that all the carrier's employees are qualified. Such a practice would be an absurdity in a business where time is always of the essence. Considering the nature of transportation business, passengers and shippers alike customarily presume that common carriers possess all the legal requisites in its operation. Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping his cargoes.

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A cursory reading of the records convinces us that Caltex had reasons to believe that MT Vector could legally transport cargo that time of the year. Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the entries here under "VESSEL'S DOCUMENTS 1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires December 7, 1987", Mr. Witness, what steps did you take regarding the impending expiry of the C.I. or the Certificate of Inspection No. 1290-85 during the hiring of MT Vector? Apolinario Ng: At the time when I extended the Contract, I did nothing because the tanker has a valid C.I. which will expire on December 7, 1987 but on the last week of November, I called the attention of Mr. Abalos to ensure that the C.I. be renewed and Mr. Abalos, in turn, assured me they will renew the same. Q: What happened after that? A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they were going to send me a copy as soon as possible, sir. 24 xxx xxx xxx Q: What did you do with the C.I.? A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because of our long business relation, we trust Mr. Abalos and the fact that the vessel was able to sail indicates that the documents are in order. . . . 25 On cross examination Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of Inspection has expired on December 7. Did it occur to you not to let the vessel sail on that day because of the very approaching date of expiration? Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they were able to secure a renewal of the Certificate of Inspection and that they will in time submit us a copy. 26 Finally, on Mr. Ng's redirect examination: Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of Inspection in the coastwise license on December 7, 1987. What was your assurance for the record that this document was renewed by the MT Vector? Atty. Sarenas: . . . Atty. Poblador: The certificate of Inspection? A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly, those three years; they were allowed to sail by the Coast Guard. That are some that make me believe that they in fact were able to secure the necessary renewal. Q: If the Coast Guard clears a vessel to sail, what would that mean? Atty. Sarenas: Objection. Court: He already answered that in the cross examination to the effect that if it was allowed, referring to MV Vector, to sail, where it is loaded and that it was scheduled for a destination by the Coast Guard, it means that it has Certificate of Inspection extended as assured to this witness by Restituto Abalos. That in no case MV Vector will be allowed to sail if the Certificate of inspection is, indeed, not to be extended. That was his repeated explanation to the cross-examination. So, there is no need to clarify the same in the re-direct examination. 27 Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to observe a higher degree of diligence. Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we find no legal basis to hold petitioner liable for damages. As Vector Shipping Corporation did not appeal from the Court of Appeals' decision, we limit our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals' ruling insofar as Vector is concerned. WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the Court of Appeals in CA-G.R. CV No. 39626, promulgated on April 15, 1997, insofar as it held Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the decision of the Court

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of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-party defendantappellee Vector Shipping Corporation and Francisco Soriano are held liable to reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys' fees and costs the latter is adjudged to pay plaintiffs-appellees in the case.1wphi1.nt No costs in this instance. G.R. No. 125948 December 29, 1998 FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas, respondents. On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the pertinent portion of which reads: Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the Petroleum Act. It is engaged in the business of transporting petroleum products from the Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on gross receipts under Section 133 of the Local Government Code of 1991 . . . . Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax "on contractors and other independent contractors" under Section 143, Paragraph (e) of the Local Government Code does not include the power to levy on transportation contractors. The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of the Local Government Code. The said section limits the imposition of fees and charges on business to such amounts as may be commensurate to the cost of regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable for the license fee, the imposition thereof based on gross receipts is violative of the aforecited provision. The amount of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and licensing. The fee is already a revenue raising measure, and not a mere regulatory imposition. 4 On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code. 5 On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint 6 for tax refund with prayer for writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not include the authority to collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the immediate refund of the tax paid. 7

MARTINEZ, J.: This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas. Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and operate oil pipelines. The original pipeline concession was granted in 1967 1 and renewed by the Energy Regulatory Board in 1992. 2 Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code 3. The respondent City Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993.

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Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section 133 (j) of the Local Government Code as said exemption applies only to "transportation contractors and persons engaged in the transportation by hire and common carriers by air, land and water." Respondents assert that pipelines are not included in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the term "common carrier" under the said code pertains to the mode or manner by which a product is delivered to its destination. 8 On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise: . . . Plaintiff is either a contractor or other independent contractor. . . . the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to be strictly construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be granted only by clear and unequivocal provisions of law. Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387. (Exhibit A) whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption upon the plaintiff. Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax Code. Such being the situation obtained in this case (exemption being unclear and equivocal) resort to distinctions or other considerations may be of help: 1. That the exemption granted under Sec. 133 (j) encompasses only common carriers so as not to overburden the riding public or commuters with taxes. Plaintiff is not a common carrier, but a special carrier extending its services and facilities to a single specific or "special customer" under a "special contract." 2. The Local Tax Code of 1992 was basically enacted to give more and effective local autonomy to local governments than the previous enactments, to make them economically and financially viable to serve the people and discharge their functions with a concomitant obligation to accept certain devolution of powers, . . . So, consistent with this policy even franchise grantees are taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151 of the Code. 9 Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and adjudication. 10 On November 29, 1995, the respondent court rendered a decision 11 affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied on July 18, 1996. 12 Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996. 13 Petitioner moved for a reconsideration which was granted by this Court in a Resolution 14 of January 22, 1997. Thus, the petition was reinstated. Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law. There is merit in the petition. A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally. Art. 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." The test for determining whether a party is a common carrier of goods is: 1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation; 2. He must undertake to carry goods of the kind to which his business is confined; 3. He must undertake to carry by the method by which his business is conducted and over his established roads; and 4. The transportation must be for hire. 15 Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and

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transports the goods by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals 16 we ruled that: The above article (Art. 1732, Civil Code) 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 . . . 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 1877 deliberately refrained from making such distinctions. So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes: every person that now or hereafter may own, operate. manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. (Emphasis Supplied) Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government Code refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by land, sea or water, is erroneous. As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered common carriers. 17 Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Thus, Article 86 thereof provides that: Art. 86. Pipe line concessionaire as common carrier. A pipe line shall have the preferential right to utilize installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to charge without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources. Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof provides: that everything relating to the exploration for and exploitation of petroleum . . . and everything relating to the manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public utility. (Emphasis Supplied) The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it declared: . . . since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is considered a common carrier under Republic Act No. 387 . . . . Such being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended. From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government Code, to wit: Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx xxx xxx (j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code.

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The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are illuminating: MR. AQUINO (A). Thank you, Mr. Speaker. Mr. Speaker, we would like to proceed to page 95, line 1. It states: "SEC. 121 [now Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." . . . MR. AQUINO (A.). Thank you Mr. Speaker. Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being deemed to be exempted from the taxing powers of the local government units. May we know the reason why the transportation business is being excluded from the taxing powers of the local government units? MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It states that local government units may not impose taxes on the business of transportation, except as otherwise provided in this code. Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross annual receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the province. That is the exception, Mr. Speaker. What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on the carrier business. Local government units may impose taxes on top of what is already being imposed by the National Internal Revenue Code which is the so-called "common carriers tax." We do not want a duplication of this tax, so we just provided for an exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate. MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. . . .
18

on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code. WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated November 29, 1995 in CA-G.R. SP No. 36801 is REVERSED and SET ASIDE. G.R. No. L-47822 December 22, 1988 PEDRO DE GUZMAN, vs. COURT OF APPEALS and ERNESTO CENDANA, respondents. Vicente D. Millora for petitioner. Jacinto Callanta for private respondent. petitioner,

FELICIANO, J.: Respondent Ernesto Cendana, a junk dealer, was engaged in buying up used bottles and scrap metal in Pangasinan. Upon gathering sufficient quantities of such scrap material, respondent would bring such material to Manila for resale. He utilized two (2) six-wheeler trucks which he owned for hauling the material to Manila. On the return trip to Pangasinan, respondent would load his vehicles with cargo which various merchants wanted delivered to differing establishments in Pangasinan. For that service, respondent charged freight rates which were commonly lower than regular commercial rates. Sometime in November 1970, petitioner Pedro de Guzman a merchant and authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta, Pangasinan, contracted with respondent for the hauling of 750 cartons of Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to petitioner's establishment in Urdaneta on or before 4 December 1970. Accordingly, on 1 December 1970, respondent loaded in Makati the merchandise on to his trucks: 150 cartons were loaded on a truck driven by respondent himself, while 600 cartons were placed on board the other truck which was driven by Manuel Estrada, respondent's driver and employee. Only 150 boxes of Liberty filled milk were delivered to petitioner. The other 600 boxes never reached petitioner, since the truck which carried these boxes was

It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax." Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National Internal Revenue Code. 19 To tax petitioner again

10
hijacked somewhere along the MacArthur Highway in Paniqui, Tarlac, by armed men who took with them the truck, its driver, his helper and the cargo. On 6 January 1971, petitioner commenced action against private respondent in the Court of First Instance of Pangasinan, demanding payment of P 22,150.00, the claimed value of the lost merchandise, plus damages and attorney's fees. Petitioner argued that private respondent, being a common carrier, and having failed to exercise the extraordinary diligence required of him by the law, should be held liable for the value of the undelivered goods. In his Answer, private respondent denied that he was a common carrier and argued that he could not be held responsible for the value of the lost goods, such loss having been due to force majeure. On 10 December 1975, the trial court rendered a Decision 1 finding private respondent to be a common carrier and holding him liable for the value of the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages and P 2,000.00 as attorney's fees. On appeal before the Court of Appeals, respondent urged that the trial court had erred in considering him a common carrier; in finding that he had habitually offered trucking services to the public; in not exempting him from liability on the ground of force majeure; and in ordering him to pay damages and attorney's fees. The Court of Appeals reversed the judgment of the trial court and held that respondent had been engaged in transporting return loads of freight "as a casual occupation a sideline to his scrap iron business" and not as a common carrier. Petitioner came to this Court by way of a Petition for Review assigning as errors the following conclusions of the Court of Appeals: 1. that private respondent was not a common carrier; 2. that the hijacking of respondent's truck was force majeure; and 3. that respondent was not liable for the value of the undelivered cargo. (Rollo, p. 111) We consider first the issue of whether or not private respondent Ernesto Cendana may, under the facts earlier set forth, be properly characterized as a common carrier. The Civil Code defines "common carriers" in the following terms: Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public. The above article makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local Idiom as "a sideline"). Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberaom making such distinctions. So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, "public service" includes: ... every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services. ... (Emphasis supplied) It appears to the Court that private respondent is properly characterized as a common carrier even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such back-hauling was done on a periodic or occasional rather than regular or scheduled manner, and even though private respondent's principal occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial freight rates is not relevant here.

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The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements. The business of a common carrier impinges directly and intimately upon the safety and well being and property of those members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the safety and protection of those who utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and authorizations. We turn then to the liability of private respondent as a common carrier. Common carriers, "by the nature of their business and for reasons of public policy" 2 are held to a very high degree of care and diligence ("extraordinary diligence") in the carriage of goods as well as of passengers. The specific import of extraordinary diligence in the care of goods transported by a common carrier is, according to Article 1733, "further expressed in Articles 1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code. Article 1734 establishes the general rule that common carriers are responsible for the loss, destruction or deterioration of the goods which they carry, "unless the same is due to any of the following causes only: (1) Flood, storm, earthquake, lightning or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character-of the goods or defects in the packing or-in the containers; and (5) Order or act of competent public authority. It is important to point out that the above list of causes of loss, destruction or deterioration which exempt the common carrier for responsibility therefor, is a closed list. Causes falling outside the foregoing list, even if they appear to constitute a species of force majeure fall within the scope of Article 1735, which provides as follows: In all cases other than those mentioned in numbers 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required in Article 1733. (Emphasis supplied) Applying the above-quoted Articles 1734 and 1735, we note firstly that the specific cause alleged in the instant case the hijacking of the carrier's truck does not fall within any of the five (5) categories of exempting causes listed in Article 1734. It would follow, therefore, that the hijacking of the carrier's vehicle must be dealt with under the provisions of Article 1735, in other words, that the private respondent as common carrier is presumed to have been at fault or to have acted negligently. This presumption, however, may be overthrown by proof of extraordinary diligence on the part of private respondent. Petitioner insists that private respondent had not observed extraordinary diligence in the care of petitioner's goods. Petitioner argues that in the circumstances of this case, private respondent should have hired a security guard presumably to ride with the truck carrying the 600 cartons of Liberty filled milk. We do not believe, however, that in the instant case, the standard of extraordinary diligence required private respondent to retain a security guard to ride with the truck and to engage brigands in a firelight at the risk of his own life and the lives of the driver and his helper. The precise issue that we address here relates to the specific requirements of the duty of extraordinary diligence in the vigilance over the goods carried in the specific context of hijacking or armed robbery. As noted earlier, the duty of extraordinary diligence in the vigilance over goods is, under Article 1733, given additional specification not only by Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article 1745 provides in relevant part: Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to public policy: xxx xxx xxx (5) that the common carrier shall not be responsible for the acts or omissions of his or its employees;

12
(6) that the common carrier's liability for acts committed by thieves, or of robbers who do not act with grave or irresistible threat, violence or force, is dispensed with or diminished; and (7) that the common carrier shall not responsible for the loss, destruction or deterioration of goods on account of the defective condition of the car vehicle, ship, airplane or other equipment used in the contract of carriage. (Emphasis supplied) Under Article 1745 (6) above, a common carrier is held responsible and will not be allowed to divest or to diminish such responsibility even for acts of strangers like thieves or robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat, violence or force." We believe and so hold that the limits of the duty of extraordinary diligence in the vigilance over the goods carried are reached where the goods are lost as a result of a robbery which is attended by "grave or irresistible threat, violence or force." In the instant case, armed men held up the second truck owned by private respondent which carried petitioner's cargo. The record shows that an information for robbery in band was filed in the Court of First Instance of Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar Oria and one John Doe." There, the accused were charged with willfully and unlawfully taking and carrying away with them the second truck, driven by Manuel Estrada and loaded with the 600 cartons of Liberty filled milk destined for delivery at petitioner's store in Urdaneta, Pangasinan. The decision of the trial court shows that the accused acted with grave, if not irresistible, threat, violence or force. 3 Three (3) of the five (5) hold-uppers were armed with firearms. The robbers not only took away the truck and its cargo but also kidnapped the driver and his helper, detaining them for several days and later releasing them in another province (in Zambales). The hijacked truck was subsequently found by the police in Quezon City. The Court of First Instance convicted all the accused of robbery, though not of robbery in band. 4 In these circumstances, we hold that the occurrence of the loss must reasonably be regarded as quite beyond the control of the common carrier and properly regarded as a fortuitous event. It is necessary to recall that even common carriers are not made absolute insurers against all risks of travel and of transport of goods, and are not held liable for acts or events which cannot be foreseen or are inevitable, provided that they shall have complied with the rigorous standard of extraordinary diligence. We, therefore, agree with the result reached by the Court of Appeals that private respondent Cendana is not liable for the value of the undelivered merchandise which was lost because of an event entirely beyond private respondent's control. ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and the Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No pronouncement as to costs. G.R. No. 131621 September 28, 1999 LOADSTAR SHIPPING vs. COURT OF APPEALS and THE respondents. CO., MANILA INC., INSURANCE petitioner, CO., INC.,

DAVIDE, JR., C.J.: Petitioner Loadstar Shipping Co., Inc. (hereafter LOADSTAR), in this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, seeks to reverse and set aside the following: (a) the 30 January 1997 decision 1 of the Court of Appeals in CA-G.R. CV No. 36401, which affirmed the decision of 4 October 1991 2 of the Regional Trial Court of Manila, Branch 16, in Civil Case No. 85-29110, ordering LOADSTAR to pay private respondent Manila Insurance Co. (hereafter MIC) the amount of P6,067,178, with legal interest from the filing of the compliant until fully paid, P8,000 as attorney's fees, and the costs of the suit; and (b) its resolution of 19 November 1997, 3 denying LOADSTAR's motion for reconsideration of said decision. The facts are undisputed.1wphi1.nt On 19 November 1984, LOADSTAR received on board its M/V "Cherokee" (hereafter, the vessel) the following goods for shipment: a) 705 bales of lawanit hardwood; b) 27 boxes and crates of tilewood assemblies and the others ;and c) 49 bundles of mouldings R & W (3) Apitong Bolidenized. The goods, amounting to P6,067,178, were insured for the same amount with MIC against various risks including "TOTAL LOSS BY TOTAL OF THE LOSS THE VESSEL." The vessel, in turn, was insured by Prudential Guarantee & Assurance, Inc. (hereafter PGAI) for P4 million. On 20 November 1984, on its way to Manila from the port of Nasipit, Agusan del Norte, the vessel, along with its cargo, sank off Limasawa Island. As a result of the total loss of its shipment, the consignee made a claim with LOADSTAR which, however, ignored the same. As the insurer, MIC paid

13
P6,075,000 to the insured in full settlement of its claim, and the latter executed a subrogation receipt therefor. On 4 February 1985, MIC filed a complaint against LOADSTAR and PGAI, alleging that the sinking of the vessel was due to the fault and negligence of LOADSTAR and its employees. It also prayed that PGAI be ordered to pay the insurance proceeds from the loss the vessel directly to MIC, said amount to be deducted from MIC's claim from LOADSTAR. In its answer, LOADSTAR denied any liability for the loss of the shipper's goods and claimed that sinking of its vessel was due to force majeure. PGAI, on the other hand, averred that MIC had no cause of action against it, LOADSTAR being the party insured. In any event, PGAI was later dropped as a party defendant after it paid the insurance proceeds to LOADSTAR. As stated at the outset, the court a quo rendered judgment in favor of MIC, prompting LOADSTAR to elevate the matter to the court of Appeals, which, however, agreed with the trial court and affirmed its decision in toto. In dismissing LOADSTAR's appeal, the appellate court made the following observations: 1) LOADSTAR cannot be considered a private carrier on the sole ground that there was a single shipper on that fateful voyage. The court noted that the charter of the vessel was limited to the ship, but LOADSTAR retained control over its crew. 4 2) As a common carrier, it is the Code of Commerce, not the Civil Code, which should be applied in determining the rights and liabilities of the parties. 3) The vessel was not seaworthy because it was undermanned on the day of the voyage. If it had been seaworthy, it could have withstood the "natural and inevitable action of the sea" on 20 November 1984, when the condition of the sea was moderate. The vessel sank, not because of force majeure, but because it was not seaworthy. LOADSTAR'S allegation that the sinking was probably due to the "convergence of the winds," as stated by a PAGASA expert, was not duly proven at the trial. The "limited liability" rule, therefore, is not applicable considering that, in this case, there was an actual finding of negligence on the part of the carrier. 5 4) Between MIC and LOADSTAR, the provisions of the Bill of Lading do not apply because said provisions bind only the shipper/consignee and the carrier. When MIC paid the shipper for the goods insured, it was subrogated to the latter's rights as against the carrier, LOADSTAR. 6 5) There was a clear breach of the contract of carriage when the shipper's goods never reached their destination. LOADSTAR's defense of "diligence of a good father of a family" in the training and selection of its crew is unavailing because this is not a proper or complete defense in culpa contractual. 6) "Art. 361 (of the Code of Commerce) has been judicially construed to mean that when goods are delivered on board a ship in good order and condition, and the shipowner delivers them to the shipper in bad order and condition, it then devolves upon the shipowner to both allege and prove that the goods were damaged by reason of some fact which legally exempts him from liability." Transportation of the merchandise at the risk and venture of the shipper means that the latter bears the risk of loss or deterioration of his goods arising from fortuitous events, force majeure, or the inherent nature and defects of the goods, but not those caused by the presumed negligence or fault of the carrier, unless otherwise proved. 7 The errors assigned by LOADSTAR boil down to a determination of the following issues: (1) Is the M/V "Cherokee" a private or a common carrier? (2) Did LOADSTAR observe due and/or ordinary diligence in these premises. Regarding the first issue, LOADSTAR submits that the vessel was a private carrier because it was not issued certificate of public convenience, it did not have a regular trip or schedule nor a fixed route, and there was only "one shipper, one consignee for a special cargo." In refutation, MIC argues that the issue as to the classification of the M/V "Cherokee" was not timely raised below; hence, it is barred by estoppel. While it is true that the vessel had on board only the cargo of wood products for delivery to one consignee, it was also carrying passengers as part of its regular business. Moreover, the bills of lading in this case made no mention of any charter party but only a statement that the vessel was a "general cargo carrier." Neither was there any "special arrangement" between LOADSTAR and the shipper regarding the shipment of the cargo. The singular fact that the vessel was carrying a particular type of cargo for one shipper is not sufficient to convert the vessel into a private carrier. As regards the second error, LOADSTAR argues that as a private carrier, it cannot be presumed to have been negligent, and the burden of proving otherwise devolved upon MIC. 8

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LOADSTAR also maintains that the vessel was seaworthy. Before the fateful voyage on 19 November 1984, the vessel was allegedly dry docked at Keppel Philippines Shipyard and was duly inspected by the maritime safety engineers of the Philippine Coast Guard, who certified that the ship was fit to undertake a voyage. Its crew at the time was experienced, licensed and unquestionably competent. With all these precautions, there could be no other conclusion except that LOADSTAR exercised the diligence of a good father of a family in ensuring the vessel's seaworthiness. LOADSTAR further claims that it was not responsible for the loss of the cargo, such loss being due to force majeure. It points out that when the vessel left Nasipit, Agusan del Norte, on 19 November 1984, the weather was fine until the next day when the vessel sank due to strong waves. MCI's witness, Gracelia Tapel, fully established the existence of two typhoons, "WELFRING" and "YOLING," inside the Philippine area of responsibility. In fact, on 20 November 1984, signal no. 1 was declared over Eastern Visayas, which includes Limasawa Island. Tapel also testified that the convergence of winds brought about by these two typhoons strengthened wind velocity in the area, naturally producing strong waves and winds, in turn, causing the vessel to list and eventually sink. LOADSTAR goes on to argue that, being a private carrier, any agreement limiting its liability, such as what transpired in this case, is valid. Since the cargo was being shipped at "owner's risk," LOADSTAR was not liable for any loss or damage to the same. Therefore, the Court of Appeals erred in holding that the provisions of the bills of lading apply only to the shipper and the carrier, and not to the insurer of the goods, which conclusion runs counter to the Supreme Court's ruling in the case of St. Paul Fire & Marine Co. v. Macondray & Co., Inc., 9 and National Union Fire Insurance Company of Pittsburgh v. Stolt-Nielsen Phils., Inc. 10 Finally, LOADSTAR avers that MIC's claim had already prescribed, the case having been instituted beyond the period stated in the bills of lading for instituting the same suits based upon claims arising from shortage, damage, or non-delivery of shipment shall be instituted within sixty days from the accrual of the right of action. The vessel sank on 20 November 1984; yet, the case for recovery was filed only on 4 February 1985. MIC, on the other hand, claims that LOADSTAR was liable, notwithstanding that the loss of the cargo was due to force majeure, because the same concurred with LOADSTAR's fault or negligence. Secondly, LOADSTAR did not raise the issue of prescription in the court below; hence, the same must be deemed waived. Thirdly, the " limited liability " theory is not applicable in the case at bar because LOADSTAR was at fault or negligent, and because it failed to maintain a seaworthy vessel. Authorizing the voyage notwithstanding its knowledge of a typhoon is tantamount to negligence. We find no merit in this petition. Anent the first assigned error, we hold that LOADSTAR is a common carrier. It is not necessary that the carrier be issued a certificate of public convenience, and this public character is not altered by the fact that the carriage of the goods in question was periodic, occasional, episodic or unscheduled. In support of its position, LOADSTAR relied on the 1968 case of Home Insurance Co. v. American Steamship Agencies, Inc., 11 where this Court held that a common carrier transporting special cargo or chartering the vessel to a special person becomes a private carrier that is not subject to the provisions of the Civil Code. Any stipulation in the charter party absolving the owner from liability for loss due to the negligence of its agent is void only if the strict policy governing common carriers is upheld. Such policy has no force where the public at is not involved, as in the case of a ship totally chartered for the use of a single party. LOADSTAR also cited Valenzuela Hardwood and Industrial Supply, Inc. v. Court of Appeals 12 and National Steel Corp. v. Court of Appeals, 13 both of which upheld the Home Insurance doctrine. These cases invoked by LOADSTAR are not applicable in the case at bar for the simple reason that the factual settings are different. The records do not disclose that the M/V "Cherokee," on the date in question, undertook to carry a special cargo or was chartered to a special person only. There was no charter party. The bills of lading failed to show any special arrangement, but only a general provision to the effect that the M/V"Cherokee" was a "general cargo carrier." 14 Further, the bare fact that the vessel was carrying a particular type of cargo for one shipper, which appears to be purely coincidental, is not reason enough to convert the vessel from a common to a private carrier, especially where, as in this case, it was shown that the vessel was also carrying passengers. Under the facts and circumstances obtaining in this case, LOADSTAR fits the definition of a common carrier under Article 1732 of the Civil Code. In the case of De Guzman v. Court of Appeals, 15 the Court juxtaposed the statutory definition of "common carriers" with the peculiar circumstances of that case, viz.: The Civil Code defines "common carriers" in the following terms:

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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 ancillary activity (in local idiom, as "a sideline". Article 1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1733 deliberately refrained from making such distinctions. xxx xxx xxx It appears to the Court that private respondent is properly characterized as a common carrier even though he merely "back-hauled" goods for other merchants from Manila to Pangasinan, although such backhauling was done on a periodic or occasional rather than regular or scheduled manner, and eventhough private respondent's principal occupation was not the carriage of goods for others. There is no dispute that private respondent charged his customers a fee for hauling their goods; that fee frequently fell below commercial freight rates is not relevant here. The Court of Appeals referred to the fact that private respondent held no certificate of public convenience, and concluded he was not a common carrier. This is palpable error. A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code provisions governing common carriers. That liability arises the moment a person or firm acts as a common carrier, without regard to whether or not such carrier has also complied with the requirements of the applicable regulatory statute and implementing regulations and has been granted a certificate of public convenience or other franchise. To exempt private respondent from the liabilities of a common carrier because he has not secured the necessary certificate of public convenience, would be offensive to sound public policy; that would be to reward private respondent precisely for failing to comply with applicable statutory requirements The business of a common carrier impinges directly and intimately upon the safety and well being and property of those members of the general community who happen to deal with such carrier. The law imposes duties and liabilities upon common carriers for the safety and protection of those who utilize their services and the law cannot allow a common carrier to render such duties and liabilities merely facultative by simply failing to obtain the necessary permits and authorizations. Moving on to the second assigned error, we find that the M/V "Cherokee" was not seaworthy when it embarked on its voyage on 19 November 1984. The vessel was not even sufficiently manned at the time. "For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code." 16 Neither do we agree with LOADSTAR's argument that the "limited liability" theory should be applied in this case. The doctrine of limited liability does not apply where there was negligence on the part of the vessel owner or agent. 17 LOADSTAR was at fault or negligent in not maintaining a seaworthy vessel and in having allowed its vessel to sail despite knowledge of an approaching typhoon. In any event, it did not sink because of any storm that may be deemed as force majeure, inasmuch as the wind condition in the performance of its duties, LOADSTAR cannot hide behind the "limited liability" doctrine to escape responsibility for the loss of the vessel and its cargo. LOADSTAR also claims that the Court of Appeals erred in holding it liable for the loss of the goods, in utter disregard of this Court's pronouncements in St. Paul Fire & Marine Ins. Co. v. Macondray & Co., Inc., 18 and National Union Fire Insurance v. Stolt-Nielsen Phils., Inc. 19 It was ruled in these two cases that after paying the claim of the insured for damages under the insurance policy, the insurer is subrogated merely to the rights of the assured, that is, it can recover only the amount that may, in turn, be recovered by the latter. Since the right of the assured in case of loss or damage to the goods is limited or restricted by the provisions in the bills of lading, a suit by the insurer as subrogee is necessarily subject to the same limitations and restrictions. We do not agree. In the first place, the cases relied on by LOADSTAR involved a limitation on the carrier's liability to an amount fixed in the bill of lading which the parties may enter into, provided that the same was freely and fairly agreed upon (Articles 1749-1750). On the other hand, the stipulation in the case at bar effectively reduces the common carrier's liability for the loss or destruction of the goods to a degree less than extraordinary (Articles 1744 and 1745), that is, the carrier is not liable for any loss or damage to shipments made at "owner's risk." Such stipulation is obviously null and void for being contrary to public policy." 20 It has been said: Three kinds of stipulations have often been made in a bill of lading. The first one exempting the carrier from any and all liability for loss or damage occasioned by its

16
own negligence. The second is one providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of. freight. According to an almost uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. 21 Since the stipulation in question is null and void, it follows that when MIC paid the shipper, it was subrogated to all the rights which the latter has against the common carrier, LOADSTAR. Neither is there merit to the contention that the claim in this case was barred by prescription. MIC's cause of action had not yet prescribed at the time it was concerned. Inasmuch as neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA) which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit may be applied suppletorily to the case at bar. This one-year prescriptive period also applies to the insurer of the goods. 22 In this case, the period for filing the action for recovery has not yet elapsed. Moreover, a stipulation reducing the one-year period is null and void; 23 it must, accordingly, be struck down. WHEREFORE, the instant petition is DENIED and the challenged decision of 30 January 1997 of the Court of Appeals in CA-G.R. CV No. 36401 is AFFIRMED. Costs against petitioner.1wphi1.nt G.R. No. 101503 September 15, 1993 PLANTERS PRODUCTS, INC., petitioner, vs. COURT OF APPEALS, SORIAMONT STEAMSHIP AGENCIES AND KYOSEI KISEN KABUSHIKI KAISHA, respondents. Gonzales, Sinense, Jimenez & Associates for petitioner. Siguion Reyna, Montecillo & Ongsiako Law Office for private respondents. Does a charter-party 1 between a shipowner and a charterer transform a common carrier into a private one as to negate the civil law presumption of negligence in case of loss or damage to its cargo? Planters Products, Inc. (PPI), purchased from Mitsubishi International Corporation (MITSUBISHI) of New York, U.S.A., 9,329.7069 metric tons (M/T) of Urea 46% fertilizer which the latter shipped in bulk on 16 June 1974 aboard the cargo vessel M/V "Sun Plum" owned by private respondent Kyosei Kisen Kabushiki Kaisha (KKKK) from Kenai, Alaska, U.S.A., to Poro Point, San Fernando, La Union, Philippines, as evidenced by Bill of Lading No. KP-1 signed by the master of the vessel and issued on the date of departure. On 17 May 1974, or prior to its voyage, a time charter-party on the vessel M/V "Sun Plum" pursuant to the Uniform General Charter 2 was entered into between Mitsubishi as shipper/charterer and KKKK as shipowner, in Tokyo, Japan. 3 Riders to the aforesaid charter-party starting from par. 16 to 40 were attached to the preprinted agreement. Addenda Nos. 1, 2, 3 and 4 to the charter-party were also subsequently entered into on the 18th, 20th, 21st and 27th of May 1974, respectively. Before loading the fertilizer aboard the vessel, four (4) of her holds 4 were all presumably inspected by the charterer's representative and found fit to take a load of urea in bulk pursuant to par. 16 of the charter-party which reads: 16. . . . At loading port, notice of readiness to be accomplished by certificate from National Cargo Bureau inspector or substitute appointed by charterers for his account certifying the vessel's readiness to receive cargo spaces. The vessel's hold to be properly swept, cleaned and dried at the vessel's expense and the vessel to be presented clean for use in bulk to the satisfaction of the inspector before daytime commences. (emphasis supplied) After the Urea fertilizer was loaded in bulk by stevedores hired by and under the supervision of the shipper, the steel hatches were closed with heavy iron lids, covered with three (3) layers of tarpaulin, then tied with steel bonds. The hatches remained closed and tightly sealed throughout the entire voyage. 5 Upon arrival of the vessel at her port of call on 3 July 1974, the steel pontoon hatches were opened with the use of the vessel's boom. Petitioner unloaded the cargo from the holds into its steelbodied dump trucks which were parked alongside the berth, using metal scoops attached to the ship, pursuant to the terms and conditions of the charter-partly (which provided for an F.I.O.S. clause). 6 The hatches remained open throughout the duration of the discharge. 7

BELLOSILLO, J.:

17
Each time a dump truck was filled up, its load of Urea was covered with tarpaulin before it was transported to the consignee's warehouse located some fifty (50) meters from the wharf. Midway to the warehouse, the trucks were made to pass through a weighing scale where they were individually weighed for the purpose of ascertaining the net weight of the cargo. The port area was windy, certain portions of the route to the warehouse were sandy and the weather was variable, raining occasionally while the discharge was in progress. 8 The petitioner's warehouse was made of corrugated galvanized iron (GI) sheets, with an opening at the front where the dump trucks entered and unloaded the fertilizer on the warehouse floor. Tarpaulins and GI sheets were placed in-between and alongside the trucks to contain spillages of the ferilizer. 9 It took eleven (11) days for PPI to unload the cargo, from 5 July to 18 July 1974 (except July 12th, 14th and 18th). 10 A private marine and cargo surveyor, Cargo Superintendents Company Inc. (CSCI), was hired by PPI to determine the "outturn" of the cargo shipped, by taking draft readings of the vessel prior to and after discharge. 11 The survey report submitted by CSCI to the consignee (PPI) dated 19 July 1974 revealed a shortage in the cargo of 106.726 M/T and that a portion of the Urea fertilizer approximating 18 M/T was contaminated with dirt. The same results were contained in a Certificate of Shortage/Damaged Cargo dated 18 July 1974 prepared by PPI which showed that the cargo delivered was indeed short of 94.839 M/T and about 23 M/T were rendered unfit for commerce, having been polluted with sand, rust and dirt. 12 Consequently, PPI sent a claim letter dated 18 December 1974 to Soriamont Steamship Agencies (SSA), the resident agent of the carrier, KKKK, for P245,969.31 representing the cost of the alleged shortage in the goods shipped and the diminution in value of that portion said to have been contaminated with dirt. 13 Respondent SSA explained that they were not able to respond to the consignee's claim for payment because, according to them, what they received was just a request for shortlanded certificate and not a formal claim, and that this "request" was denied by them because they "had nothing to do with the discharge of the shipment." 14 Hence, on 18 July 1975, PPI filed an action for damages with the Court of First Instance of Manila. The defendant carrier argued that the strict public policy governing common carriers does not apply to them because they have become private carriers by reason of the provisions of the charter-party. The court a quo however sustained the claim of the plaintiff against the defendant carrier for the value of the goods lost or damaged when it ruled thus: 15 . . . Prescinding from the provision of the law that a common carrier is presumed negligent in case of loss or damage of the goods it contracts to transport, all that a shipper has to do in a suit to recover for loss or damage is to show receipt by the carrier of the goods and to delivery by it of less than what it received. After that, the burden of proving that the loss or damage was due to any of the causes which exempt him from liability is shipted to the carrier, common or private he may be. Even if the provisions of the charter-party aforequoted are deemed valid, and the defendants considered private carriers, it was still incumbent upon them to prove that the shortage or contamination sustained by the cargo is attributable to the fault or negligence on the part of the shipper or consignee in the loading, stowing, trimming and discharge of the cargo. This they failed to do. By this omission, coupled with their failure to destroy the presumption of negligence against them, the defendants are liable (emphasis supplied). On appeal, respondent Court of Appeals reversed the lower court and absolved the carrier from liability for the value of the cargo that was lost or damaged. 16 Relying on the 1968 case of Home Insurance Co. v. American Steamship Agencies, Inc., 17 the appellate court ruled that the cargo vessel M/V "Sun Plum" owned by private respondent KKKK was a private carrier and not a common carrier by reason of the time charterer-party. Accordingly, the Civil Code provisions on common carriers which set forth a presumption of negligence do not find application in the case at bar. Thus . . . In the absence of such presumption, it was incumbent upon the plaintiff-appellee to adduce sufficient evidence to prove the negligence of the defendant carrier as alleged in its complaint. It is an old and well settled rule that if the plaintiff, upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner the facts upon which he bases his claim, the defendant is under no obligation to prove his exception or defense (Moran, Commentaries on the Rules of Court, Volume 6, p. 2, citing Belen v. Belen, 13 Phil. 202). But, the record shows that the plaintiff-appellee dismally failed to prove the basis of its cause of action, i.e. the alleged negligence of defendant carrier. It appears that the plaintiff was under the impression that it did not have to establish defendant's negligence. Be that as it may, contrary to the trial court's finding, the record of the instant case discloses ample evidence showing that defendant carrier was not negligent in performing its obligation . . . 18 (emphasis supplied). Petitioner PPI appeals to us by way of a petition for review assailing the decision of the Court of Appeals. Petitioner theorizes that the Home Insurance case has no bearing on the present controversy because the issue raised therein is the validity of a stipulation in the charter-party delimiting the liability of the shipowner for loss or

18
damage to goods cause by want of due deligence on its part or that of its manager to make the vessel seaworthy in all respects, and not whether the presumption of negligence provided under the Civil Code applies only to common carriers and not to private carriers. 19 Petitioner further argues that since the possession and control of the vessel remain with the shipowner, absent any stipulation to the contrary, such shipowner should made liable for the negligence of the captain and crew. In fine, PPI faults the appellate court in not applying the presumption of negligence against respondent carrier, and instead shifting the onus probandi on the shipper to show want of due deligence on the part of the carrier, when he was not even at hand to witness what transpired during the entire voyage. As earlier stated, the primordial issue here is whether a common carrier becomes a private carrier by reason of a charter-party; in the negative, whether the shipowner in the instant case was able to prove that he had exercised that degree of diligence required of him under the law. It is said that etymology is the basis of reliable judicial decisions in commercial cases. This being so, we find it fitting to first define important terms which are relevant to our discussion. A "charter-party" is defined as a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; 20 a contract of affreightment by which the owner of a ship or other vessel lets the whole or a part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight; 21 Charter parties are of two types: (a) contract of affreightment which involves the use of shipping space on vessels leased by the owner in part or as a whole, to carry goods for others; and, (b) charter by demise or bareboat charter, by the terms of which the whole vessel is let to the charterer with a transfer to him of its entire command and possession and consequent control over its navigation, including the master and the crew, who are his servants. Contract of affreightment may either be time charter, wherein the vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. 22 In both cases, the charter-party provides for the hire of vessel only, either for a determinate period of time or for a single or consecutive voyage, the shipowner to supply the ship's stores, pay for the wages of the master and the crew, and defray the expenses for the maintenance of the ship. Upon the other hand, the term "common or public carrier" is defined in Art. 1732 of the Civil Code. 23 The definition extends to carriers either by land, air or water which hold themselves out as ready to engage in carrying goods or transporting passengers or both for compensation as a public employment and not as a casual occupation. The distinction between a "common or public carrier" and a "private or special carrier" lies in the character of the business, such that if the undertaking is a single transaction, not a part of the general business or occupation, although involving the carriage of goods for a fee, the person or corporation offering such service is a private carrier. 24 Article 1733 of the New Civil Code mandates that common carriers, by reason of the nature of their business, should observe extraordinary diligence in the vigilance over the goods they carry. 25 In the case of private carriers, however, the exercise of ordinary diligence in the carriage of goods will suffice. Moreover, in the case of loss, destruction or deterioration of the goods, common carriers are presumed to have been at fault or to have acted negligently, and the burden of proving otherwise rests on them. 26 On the contrary, no such presumption applies to private carriers, for whosoever alleges damage to or deterioration of the goods carried has the onus of proving that the cause was the negligence of the carrier. It is not disputed that respondent carrier, in the ordinary course of business, operates as a common carrier, transporting goods indiscriminately for all persons. When petitioner chartered the vessel M/V "Sun Plum", the ship captain, its officers and compliment were under the employ of the shipowner and therefore continued to be under its direct supervision and control. Hardly then can we charge the charterer, a stranger to the crew and to the ship, with the duty of caring for his cargo when the charterer did not have any control of the means in doing so. This is evident in the present case considering that the steering of the ship, the manning of the decks, the determination of the course of the voyage and other technical incidents of maritime navigation were all consigned to the officers and crew who were screened, chosen and hired by the shipowner. 27 It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a timecharter or voyage-charter. It is only when the charter includes both the vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the particular voyage covering the charter-party is concerned. Indubitably, a shipowner in a time or voyage charter retains possession and control of the ship, although her holds may, for the moment, be the property of the charterer. 28 Respondent carrier's heavy reliance on the case of Home Insurance Co. v. American Steamship Agencies, supra, is misplaced for the reason that the meat of the controversy therein was the validity of a stipulation in the charter-party exempting the shipowners from liability for loss due to the negligence of its agent, and not the effects of a special charter on common carriers. At any rate, the rule in the United

19
States that a ship chartered by a single shipper to carry special cargo is not a common carrier, 29 does not find application in our jurisdiction, for we have observed that the growing concern for safety in the transportation of passengers and /or carriage of goods by sea requires a more exacting interpretation of admiralty laws, more particularly, the rules governing common carriers. We quote with approval the observations of Raoul Colinvaux, the learned barristerat-law 30 As a matter of principle, it is difficult to find a valid distinction between cases in which a ship is used to convey the goods of one and of several persons. Where the ship herself is let to a charterer, so that he takes over the charge and control of her, the case is different; the shipowner is not then a carrier. But where her services only are let, the same grounds for imposing a strict responsibility exist, whether he is employed by one or many. The master and the crew are in each case his servants, the freighter in each case is usually without any representative on board the ship; the same opportunities for fraud or collusion occur; and the same difficulty in discovering the truth as to what has taken place arises . . . In an action for recovery of damages against a common carrier on the goods shipped, the shipper or consignee should first prove the fact of shipment and its consequent loss or damage while the same was in the possession, actual or constructive, of the carrier. Thereafter, the burden of proof shifts to respondent to prove that he has exercised extraordinary diligence required by law or that the loss, damage or deterioration of the cargo was due to fortuitous event, or some other circumstances inconsistent with its liability. 31 To our mind, respondent carrier has sufficiently overcome, by clear and convincing proof, the prima facie presumption of negligence. The master of the carrying vessel, Captain Lee Tae Bo, in his deposition taken on 19 April 1977 before the Philippine Consul and Legal Attache in the Philippine Embassy in Tokyo, Japan, testified that before the fertilizer was loaded, the four (4) hatches of the vessel were cleaned, dried and fumigated. After completing the loading of the cargo in bulk in the ship's holds, the steel pontoon hatches were closed and sealed with iron lids, then covered with three (3) layers of serviceable tarpaulins which were tied with steel bonds. The hatches remained close and tightly sealed while the ship was in transit as the weight of the steel covers made it impossible for a person to open without the use of the ship's boom. 32 It was also shown during the trial that the hull of the vessel was in good condition, foreclosing the possibility of spillage of the cargo into the sea or seepage of water inside the hull of the vessel. 33 When M/V "Sun Plum" docked at its berthing place, representatives of the consignee boarded, and in the presence of a representative of the shipowner, the foreman, the stevedores, and a cargo surveyor representing CSCI, opened the hatches and inspected the condition of the hull of the vessel. The stevedores unloaded the cargo under the watchful eyes of the shipmates who were overseeing the whole operation on rotation basis. 34 Verily, the presumption of negligence on the part of the respondent carrier has been efficaciously overcome by the showing of extraordinary zeal and assiduity exercised by the carrier in the care of the cargo. This was confirmed by respondent appellate court thus . . . Be that as it may, contrary to the trial court's finding, the record of the instant case discloses ample evidence showing that defendant carrier was not negligent in performing its obligations. Particularly, the following testimonies of plaintiffappellee's own witnesses clearly show absence of negligence by the defendant carrier; that the hull of the vessel at the time of the discharge of the cargo was sealed and nobody could open the same except in the presence of the owner of the cargo and the representatives of the vessel (TSN, 20 July 1977, p. 14); that the cover of the hatches was made of steel and it was overlaid with tarpaulins, three layers of tarpaulins and therefore their contents were protected from the weather (TSN, 5 April 1978, p. 24); and, that to open these hatches, the seals would have to be broken, all the seals were found to be intact (TSN, 20 July 1977, pp. 15-16) (emphasis supplied). The period during which private respondent was to observe the degree of diligence required of it as a public carrier began from the time the cargo was unconditionally placed in its charge after the vessel's holds were duly inspected and passed scrutiny by the shipper, up to and until the vessel reached its destination and its hull was reexamined by the consignee, but prior to unloading. This is clear from the limitation clause agreed upon by the parties in the Addendum to the standard "GENCON" time charter-party which provided for an F.I.O.S., meaning, that the loading, stowing, trimming and discharge of the cargo was to be done by the charterer, free from all risk and expense to the carrier. 35 Moreover, a shipowner is liable for damage to the cargo resulting from improper stowage only when the stowing is done by stevedores employed by him, and therefore under his control and supervision, not when the same is done by the consignee or stevedores under the employ of the latter. 36 Article 1734 of the New Civil Code provides that common carriers are not responsible for the loss, destruction or deterioration of the goods if caused by the charterer of the goods or defects in the packaging or in the containers. The Code of

20
Commerce also provides that all losses and deterioration which the goods may suffer during the transportation by reason of fortuitous event, force majeure, or the inherent defect of the goods, shall be for the account and risk of the shipper, and that proof of these accidents is incumbent upon the carrier. 37 The carrier, nonetheless, shall be liable for the loss and damage resulting from the preceding causes if it is proved, as against him, that they arose through his negligence or by reason of his having failed to take the precautions which usage has established among careful persons. 38 Respondent carrier presented a witness who testified on the characteristics of the fertilizer shipped and the expected risks of bulk shipping. Mr. Estanislao Chupungco, a chemical engineer working with Atlas Fertilizer, described Urea as a chemical compound consisting mostly of ammonia and carbon monoxide compounds which are used as fertilizer. Urea also contains 46% nitrogen and is highly soluble in water. However, during storage, nitrogen and ammonia do not normally evaporate even on a long voyage, provided that the temperature inside the hull does not exceed eighty (80) degrees centigrade. Mr. Chupungco further added that in unloading fertilizer in bulk with the use of a clamped shell, losses due to spillage during such operation amounting to one percent (1%) against the bill of lading is deemed "normal" or "tolerable." The primary cause of these spillages is the clamped shell which does not seal very tightly. Also, the wind tends to blow away some of the materials during the unloading process. The dissipation of quantities of fertilizer, or its daterioration in value, is caused either by an extremely high temperature in its place of storage, or when it comes in contact with water. When Urea is drenched in water, either fresh or saline, some of its particles dissolve. But the salvaged portion which is in liquid form still remains potent and usable although no longer saleable in its original market value. The probability of the cargo being damaged or getting mixed or contaminated with foreign particles was made greater by the fact that the fertilizer was transported in "bulk," thereby exposing it to the inimical effects of the elements and the grimy condition of the various pieces of equipment used in transporting and hauling it. The evidence of respondent carrier also showed that it was highly improbable for sea water to seep into the vessel's holds during the voyage since the hull of the vessel was in good condition and her hatches were tightly closed and firmly sealed, making the M/V "Sun Plum" in all respects seaworthy to carry the cargo she was chartered for. If there was loss or contamination of the cargo, it was more likely to have occurred while the same was being transported from the ship to the dump trucks and finally to the consignee's warehouse. This may be gleaned from the testimony of the marine and cargo surveyor of CSCI who supervised the unloading. He explained that the 18 M/T of alleged "bar order cargo" as contained in their report to PPI was just an approximation or estimate made by them after the fertilizer was discharged from the vessel and segregated from the rest of the cargo. The Court notes that it was in the month of July when the vessel arrived port and unloaded her cargo. It rained from time to time at the harbor area while the cargo was being discharged according to the supply officer of PPI, who also testified that it was windy at the waterfront and along the shoreline where the dump trucks passed enroute to the consignee's warehouse. Indeed, we agree with respondent carrier that bulk shipment of highly soluble goods like fertilizer carries with it the risk of loss or damage. More so, with a variable weather condition prevalent during its unloading, as was the case at bar. This is a risk the shipper or the owner of the goods has to face. Clearly, respondent carrier has sufficiently proved the inherent character of the goods which makes it highly vulnerable to deterioration; as well as the inadequacy of its packaging which further contributed to the loss. On the other hand, no proof was adduced by the petitioner showing that the carrier was remise in the exercise of due diligence in order to minimize the loss or damage to the goods it carried. WHEREFORE, the petition is DISMISSED. The assailed decision of the Court of Appeals, which reversed the trial court, is AFFIRMED. Consequently, Civil Case No. 98623 of the then Court of the First Instance, now Regional Trial Court, of Manila should be, as it is hereby DISMISSED. Costs against petitioner. G.R. No. 112287 December 12, 1997 NATIONAL STEEL CORPORATION, petitioner, vs. COURT OF APPEALS AND VLASONS SHIPPING, INC., respondents. G.R. No. 112350 December 12, 1997 VLASONS vs. COURT OF respondents. SHIPPING, APPEALS AND NATIONAL INC., STEEL petitioner, CORPORATION,

PANGANIBAN, J.:

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The Court finds occasion to apply the rules on the seaworthiness of private carrier, its owner's responsibility for damage to the cargo and its liability for demurrage and attorney's fees. The Court also reiterates the well-known rule that findings of facts of trial courts, when affirmed by the Court of Appeals, are binding on this Court. The Case Before us are two separate petitions for review filed by National Steel Corporation (NSC) and Vlasons Shipping, Inc. (VSI), both of which assail the August 12, 1993 Decision of the Court of Appeals. 1 The Court of Appeals modified the decision of the Regional Trial Court of Pasig, Metro Manila, Branch 163 in Civil Case No. 23317. The RTC disposed as follows: WHEREFORE, judgment is hereby rendered in favor of defendant and against the plaintiff dismissing the complaint with cost against plaintiff, and ordering plaintiff to pay the defendant on the counterclaim as follows: 1. The sum of P75,000.00 as unpaid freight and P88,000.00 as demurrage with interest at the legal rate on both amounts from April 7, 1976 until the same shall have been fully paid; 2. Attorney's fees and expenses of litigation in the sum of P100,000.00; and 3. Costs of suit. SO ORDERED. 2 owner, Vlasons Shipping, Inc., entered into a contract of affreightment or contract of voyage charter hire with National Steel Corporation. The facts as found by Respondent Court of Appeals are as follows: (1) On July 17, 1974, plaintiff National Steel Corporation (NSC) as Charterer and defendant Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage Charter Hire (Exhibit "B"; also Exhibit "1") whereby NSC hired VSI's vessel, the MV "VLASONS I" to make one (1) voyage to load steel products at Iligan City and discharge them at North Harbor, Manila, under the following terms and conditions, viz: 1. . . . 2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's option. 3. . . . 4. Freight/Payment: P30.00/metric ton, FIOST basis. Payment upon presentation of Bill of Lading within fifteen (15) days. 5. Laydays/Cancelling: July 26, 1974/Aug. 5, 1974. 6. Loading/Discharging Rate: 750 tons per WWDSHINC. (Weather Working Day of 24 consecutive hours, Sundays and Holidays Included). 7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day. 8. . . . 9. Cargo Insurance: Charterer's and/or Shipper's must insure the cargoes. Shipowners not responsible for losses/damages except on proven willful negligence of the officers of the vessel. 10. Other terms: (a) All terms/conditions of NONYAZAI C/P [sic] or other internationally recognized Charter Party Agreement shall form part of this Contract. xxx xxx xxx The terms "F.I.O.S.T." which is used in the shipping business is a standard provision in the NANYOZAI Charter Party which stands for "Freight In and Out including Stevedoring and Trading", which means that the handling, loading and

On the other hand, the Court of Appeals ruled: WHEREFORE, premises considered, the decision appealed from is modified by reducing the award for demurrage to P44,000.00 and deleting the award for attorney's fees and expenses of litigation. Except as thus modified, the decision is AFFIRMED. There is no pronouncement as to costs. SO ORDERED. 3 The Facts The MV Vlasons I is a vessel which renders tramping service and, as such, does not transport cargo or shipment for the general public. Its services are available only to specific persons who enter into a special contract of charter party with its owner. It is undisputed that the ship is a private carrier. And it is in the capacity that its

22
unloading of the cargoes are the responsibility of the Charterer. Under Paragraph 5 of the NANYOZAI Charter Party, it states, "Charterers to load, stow and discharge the cargo free of risk and expenses to owners. . . . (Emphasis supplied). Under paragraph 10 thereof, it is provided that "(o)wners shall, before and at the beginning of the voyage, exercise due diligence to make the vessel seaworthy and properly manned, equipped and supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and preservation. Owners shall not be liable for loss of or damage of the cargo arising or resulting from: unseaworthiness unless caused by want of due diligence on the part of the owners to make the vessel seaworthy, and to secure that the vessel is properly manned, equipped and supplied and to make the holds and all other parts of the vessel in which cargo is carried, fit and safe for its reception, carriage and preservation; . . . ; perils, dangers and accidents of the sea or other navigable waters; . . . ; wastage in bulk or weight or any other loss or damage arising from inherent defect, quality or vice of the cargo; insufficiency of packing; . . . ; latent defects not discoverable by due diligence; any other cause arising without the actual fault or privity of Owners or without the fault of the agents or servants of owners." Paragraph 12 of said NANYOZAI Charter Party also provides that "(o)wners shall not be responsible for split, chafing and/or any damage unless caused by the negligence or default of the master and crew." (2) On August 6, 7 and 8, 1974, in accordance with the Contract of Voyage Charter Hire, the MV "VLASONS I" loaded at plaintiffs pier at Iligan City, the NSC's shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages with a total weight of about 2,481.19 metric tons for carriage to Manila. The shipment was placed in the three (3) hatches of the ship. Chief Mate Gonzalo Sabando, acting as agent of the vessel[,] acknowledged receipt of the cargo on board and signed the corresponding bill of lading, B.L.P.P. No. 0233 (Exhibit "D") on August 8, 1974. (3) The vessel arrived with the cargo at Pier 12, North Harbor, Manila, on August 12, 1974. The following day, August 13, 1974, when the vessel's three (3) hatches containing the shipment were opened by plaintiff's agents, nearly all the skids of tinplates and hot rolled sheets were allegedly found to be wet and rusty. The cargo was discharged and unloaded by stevedores hired by the Charterer. Unloading was completed only on August 24, 1974 after incurring a delay of eleven (11) days due to the heavy rain which interrupted the unloading operations. (Exhibit "E") (4) To determine the nature and extent of the wetting and rusting, NSC called for a survey of the shipment by the Manila Adjusters and Surveyors Company (MASCO). In a letter to the NSC dated March 17, 1975 (Exhibit "G"), MASCO made a report of its ocular inspection conducted on the cargo, both while it was still on board the vessel and later at the NDC warehouse in Pureza St., Sta. Mesa, Manila where the cargo was taken and stored. MASCO reported that it found wetting and rusting of the packages of hot rolled sheets and metal covers of the tinplates; that tarpaulin hatch covers were noted torn at various extents; that container/metal casings of the skids were rusting all over. MASCO ventured the opinion that "rusting of the tinplates was caused by contact with SEA WATER sustained while still on board the vessel as a consequence of the heavy weather and rough seas encountered while en route to destination (Exhibit "F"). It was also reported that MASCO's surveyors drew at random samples of bad order packing materials of the tinplates and delivered the same to the M.I.T. Testing Laboratories for analysis. On August 31, 1974, the M.I.T. Testing Laboratories issued Report No. 1770 (Exhibit "I") which in part, states, "The analysis of bad order samples of packing materials . . . shows that wetting was caused by contact with SEA WATER". (5) On September 6, 1974, on the basis of the aforesaid Report No. 1770, plaintiff filed with the defendant its claim for damages suffered due to the downgrading of the damaged tinplates in the amount of P941,145.18. Then on October 3, 1974, plaintiff formally demanded payment of said claim but defendant VSI refused and failed to pay. Plaintiff filed its complaint against defendant on April 21, 1976 which was docketed as Civil Case No. 23317, CFI, Rizal. (6) In its complaint, plaintiff claimed that it sustained losses in the aforesaid amount of P941,145.18 as a result of the act, neglect and default of the master and crew in the management of the vessel as well as the want of due diligence on the part of the defendant to make the vessel seaworthy and to make the holds and all other parts of the vessel in which the cargo was carried, fit and safe for its reception, carriage and preservation all in violation of defendant's undertaking under their Contract of Voyage Charter Hire. (7) In its answer, defendant denied liability for the alleged damage claiming that the MV "VLASONS I" was seaworthy in all respects for the carriage of plaintiff's cargo; that said vessel was not a "common carrier" inasmuch as she was under voyage charter contract with the plaintiff as charterer under the charter party; that in the course of the voyage from Iligan City to Manila, the MV "VLASONS I" encountered very rough seas, strong winds and adverse weather condition, causing strong winds and big waves to continuously pound against the vessel and seawater to overflow on its deck and hatch covers, that under the Contract of Voyage Charter Hire, defendant shall not be responsible for losses/damages except on proven willful negligence of the officers of the vessel, that the officers of said MV "VLASONS I"

23
exercised due diligence and proper seamanship and were not willfully negligent; that furthermore the Voyage Charter Party provides that loading and discharging of the cargo was on FIOST terms which means that the vessel was free of risk and expense in connection with the loading and discharging of the cargo; that the damage, if any, was due to the inherent defect, quality or vice of the cargo or to the insufficient packing thereof or to latent defect of the cargo not discoverable by due diligence or to any other cause arising without the actual fault or privity of defendant and without the fault of the agents or servants of defendant; consequently, defendant is not liable; that the stevedores of plaintiff who discharged the cargo in Manila were negligent and did not exercise due care in the discharge of the cargo; land that the cargo was exposed to rain and seawater spray while on the pier or in transit from the pier to plaintiff's warehouse after discharge from the vessel; and that plaintiff's claim was highly speculative and grossly exaggerated and that the small stain marks or sweat marks on the edges of the tinplates were magnified and considered total loss of the cargo. Finally, defendant claimed that it had complied with all its duties and obligations under the Voyage Charter Hire Contract and had no responsibility whatsoever to plaintiff. In turn, it alleged the following counterclaim: (a) That despite the full and proper performance by defendant of its obligations under the Voyage Charter Hire Contract, plaintiff failed and refused to pay the agreed charter hire of P75,000.00 despite demands made by defendant; (b) That under their Voyage Charter Hire Contract, plaintiff had agreed to pay defendant the sum of P8,000.00 per day for demurrage. The vessel was on demurrage for eleven (11) days in Manila waiting for plaintiff to discharge its cargo from the vessel. Thus, plaintiff was liable to pay defendant demurrage in the total amount of P88,000.00. (c) For filing a clearly unfounded civil action against defendant, plaintiff should be ordered to pay defendant attorney's fees and all expenses of litigation in the amount of not less than P100,000.00. (8) From the evidence presented by both parties, the trial court came out with the following findings which were set forth in its decision: (a) The MV "VLASONS I" is a vessel of Philippine registry engaged in the tramping service and is available for hire only under special contracts of charter party as in this particular case. (b) That for purposes of the voyage covered by the Contract of Voyage Charter Hire (Exh. "1"), the MV VLASONS I" was covered by the required seaworthiness certificates including the Certification of Classification issued by an international classification society, the NIPPON KAIJI KYOKAI (Exh. "4"); Coastwise License from the Board of Transportation (Exh. "5"); International Loadline Certificate from the Philippine Coast Guard (Exh. "6"); Cargo Ship Safety Equipment Certificate also from the Philippine Coast Guard (Exh. "7"); Ship Radio Station License (Exh. "8"); Certificate of Inspection by the Philippine Coast Guard (Exh. "12"); and Certificate of Approval for Conversion issued by the Bureau of Customs (Exh. "9"). That being a vessel engaged in both overseas and coastwise trade, the MV "VLASONS I" has a higher degree of seaworthiness and safety. (c) Before it proceeded to Iligan City to perform the voyage called for by the Contract of Voyage Charter Hire, the MV "VLASONS I" underwent drydocking in Cebu and was thoroughly inspected by the Philippine Coast Guard. In fact, subject voyage was the vessel's first voyage after the drydocking. The evidence shows that the MV "VLASONS I" was seaworthy and properly manned, equipped and supplied when it undertook the voyage. It has all the required certificates of seaworthiness. (d) The cargo/shipment was securely stowed in three (3) hatches of the ship. The hatch openings were covered by hatchboards which were in turn covered by two or double tarpaulins. The hatch covers were water tight. Furthermore, under the hatchboards were steel beams to give support. (e) The claim of the plaintiff that defendant violated the contract of carriage is not supported by evidence. The provisions of the Civil Code on common carriers pursuant to which there exists a presumption of negligence in case of loss or damage to the cargo are not applicable. As to the damage to the tinplates which was allegedly due to the wetting and rusting thereof, there is unrebutted testimony of witness Vicente Angliongto that tinplates "sweat" by themselves when packed even without being in contract (sic) with water from outside especially when the weather is bad or raining. The trust caused by sweat or moisture on the tinplates may be considered as a loss or damage but then, defendant cannot be held liable for it pursuant to Article 1734 of the Civil Case which exempts the carrier from responsibility for loss or damage arising from the "character of the goods . . ." All the 1,769 skids of the tinplates could not have been damaged by water as claimed by plaintiff. It was shown as claimed by plaintiff that the tinplates themselves were wrapped in kraft paper lining and corrugated cardboards could not be affected by water from outside. (f) The stevedores hired by the plaintiff to discharge the cargo of tinplates were negligent in not closing the hatch openings of the MV "VLASONS I" when rains occurred during the discharging of the cargo thus allowing rainwater to enter the hatches. It was proven that the stevedores merely set up temporary tents to cover

24
the hatch openings in case of rain so that it would be easy for them to resume work when the rains stopped by just removing the tent or canvas. Because of this improper covering of the hatches by the stevedores during the discharging and unloading operations which were interrupted by rains, rainwater drifted into the cargo through the hatch openings. Pursuant to paragraph 5 of the NANYOSAI [sic] Charter Party which was expressly made part of the Contract of Voyage Charter Hire, the loading, stowing and discharging of the cargo is the sole responsibility of the plaintiff charterer and defendant carrier has no liability for whatever damage may occur or maybe [sic] caused to the cargo in the process. (g) It was also established that the vessel encountered rough seas and bad weather while en route from Iligan City to Manila causing sea water to splash on the ship's deck on account of which the master of the vessel (Mr. Antonio C. Dumlao) filed a "Marine Protest" on August 13, 1974 (Exh. "15"); which can be invoked by defendant as a force majeure that would exempt the defendant from liability. (h) Plaintiff did not comply with the requirement prescribed in paragraph 9 of the Voyage Charter Hire contract that it was to insure the cargo because it did not. Had plaintiff complied with the requirement, then it could have recovered its loss or damage from the insurer. Plaintiff also violated the charter party contract when it loaded not only "steel products", i.e. steel bars, angular bars and the like but also tinplates and hot rolled sheets which are high grade cargo commanding a higher freight. Thus plaintiff was able to ship grade cargo at a lower freight rate. (i) As regards defendant's counterclaim, the contract of voyage charter hire under Paragraph 4 thereof, fixed the freight at P30.00 per metric ton payable to defendant carrier upon presentation of the bill of lading within fifteen (15) days. Plaintiff has not paid the total freight due of P75,000.00 despite demands. The evidence also showed that the plaintiff was required and bound under paragraph 7 of the same Voyage Charter Hire contract to pay demurrage of P8,000.00 per day of delay in the unloading of the cargoes. The delay amounted to eleven (11) days thereby making plaintiff liable to pay defendant for demurrage in the amount of P88,000.00. Appealing the RTC decision to the Court of Appeals, NSC alleged six errors: I The trial court erred in finding that the MV "VLASONS I" was seaworthy, properly manned, equipped and supplied, and that there is no proof of willful negligence of the vessel's officers. II The trial court erred in finding that the rusting of NSC's tinplates was due to the inherent nature or character of the goods and not due to contact with seawater. III The trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSC's shipment. IV The trial court erred in exempting VSI from liability on the ground of force majeure. V The trial court erred in finding that NSC violated the contract of voyage charter hire. VI The trial court erred in ordering NSC to pay freight, demurrage and attorney's fees, to VSI. 4 As earlier stated, the Court of Appeals modified the decision of the trial court by reducing the demurrage from P88,000.00 to P44,000.00 and deleting the award of attorneys fees and expenses of litigation. NSC and VSI filed separate motions for reconsideration. In a Resolution 5 dated October 20, 1993, the appellate court denied both motions. Undaunted, NSC and VSI filed their respective petitions for review before this Court. On motion of VSI, the Court ordered on February 14, 1994 the consolidation of these petitions. 6 The Issues In its petition 7 and memorandum, 8 NSC raises the following questions of law and fact: Questions of Law 1. Whether or not a charterer of a vessel is liable for demurrage due to cargo unloading delays caused by weather interruption; 2. Whether or not the alleged "seaworthiness certificates" (Exhibits "3", "4", "5", "6", "7", "8", "9", "11" and "12") were admissible in evidence and constituted evidence of the vessel's seaworthiness at the beginning of the voyages; and

25
3. Whether or not a charterer's failure to insure its cargo exempts the shipowner from liability for cargo damage. Questions of Fact 1. Whether or not the vessel was seaworthy and cargo-worthy; 2. Whether or not vessel's officers and crew were negligent in handling and caring for NSC's cargo; 3. Whether or not NSC's cargo of tinplates did sweat during the voyage and, hence, rusted on their own; and 4. Whether or not NSC's stevedores were negligent and caused the wetting[/]rusting of NSC's tinplates. In its separate petition, 9 VSI submits for the consideration of this Court the following alleged errors of the CA: A. The respondent Court of Appeals committed an error of law in reducing the award of demurrage from P88,000.00 to P44,000.00. B. The respondent Court of Appeals committed an error of law in deleting the award of P100,000 for attorney's fees and expenses of litigation. Amplifying the foregoing, VSI raises the following issues in its memorandum: 10 I. Whether or not the provisions of the Civil Code of the Philippines on common carriers pursuant to which there exist[s] a presumption of negligence against the common carrier in case of loss or damage to the cargo are applicable to a private carrier. II. Whether or not the terms and conditions of the Contract of Voyage Charter Hire, including the Nanyozai Charter, are valid and binding on both contracting parties. The foregoing issues raised by the parties will be discussed under the following headings: 1. Questions of Fact 2. Effect of NSC's Failure to Insure the Cargo 3. Admissibility of Certificates Proving Seaworthiness 4. Demurrage and Attorney's Fees. The Court's Ruling The Court affirms the assailed Decision of the Court of Appeals, except in respect of the demurrage. Preliminary Matter: Common Carrier or Private Carrier? At the outset, it is essential to establish whether VSI contracted with NSC as a common carrier or as a private carrier. The resolution of this preliminary question determines the law, standard of diligence and burden of proof applicable to the present case. Article 1732 of the Civil Code defines a common carrier as "persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." It has been held that the true test of a common carrier is the carriage of passengers or goods, provided it has space, for all who opt to avail themselves of its transportation service for a fee. 11 A carrier which does not qualify under the above test is deemed a private carrier. "Generally, private carriage is undertaken by special agreement and the carrier does not hold himself out to carry goods for the general public. The most typical, although not the only form of private carriage, is the charter party, a maritime contract by which the charterer, a party other than the shipowner, obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages." 12 In the instant case, it is undisputed that VSI did not offer its services to the general public. As found by the Regional Trial Court, it carried passengers or goods only for those it chose under a "special contract of charter party." 13 As correctly concluded by the Court of Appeals, the MV Vlasons I "was not a common but a private carrier." 14 Consequently, the rights and obligations of VSI and NSC, including their respective liability for damage to the cargo, are determined primarily by stipulations in their contract of private carriage or charter party. 15 Recently, in Valenzuela Hardwood and Industrial Supply, Inc., vs. Court of Appeals and Seven Brothers Shipping Corporation, 16 the Court ruled: . . . in a contract of private carriage, the parties may freely stipulate their duties and obligations which perforce would be binding on them. Unlike in a contract involving a common carrier, private carriage does not involve the general public. Hence, the stringent provisions of the Civil Code on common carriers protecting the general public cannot justifiably be applied to a ship transporting commercial goods as a

26
private carrier. Consequently, the public policy embodied therein is not contravened by stipulations in a charter party that lessen or remove the protection given by law in contracts involving common carriers. 17 Extent of Liability Over NSC's Cargo VSI's Responsibility and careful persons, unless the shipper committed fraud in the bill of lading, making him to believe that the goods were of a class or quality different from what they really were. Because the MV Vlasons I was a private carrier, the shipowner's obligations are governed by the foregoing provisions of the Code of Commerce and not by the Civil Code which, as a general rule, places the prima facie presumption of negligence on a common carrier. It is a hornbook doctrine that: In an action against a private carrier for loss of, or injury to, cargo, the burden is on the plaintiff to prove that the carrier was negligent or unseaworthy, and the fact that the goods were lost or damaged while in the carrier's custody does not put the burden of proof on the carrier. Since . . . a private carrier is not an insurer but undertakes only to exercise due care in the protection of the goods committed to its care, the burden of proving negligence or a breach of that duty rests on plaintiff and proof of loss of, or damage to, cargo while in the carrier's possession does not cast on it the burden of proving proper care and diligence on its part or that the loss occurred from an excepted cause in the contract or bill of lading. However, in discharging the burden of proof, plaintiff is entitled to the benefit of the presumptions and inferences by which the law aids the bailor in an action against a bailee, and since the carrier is in a better position to know the cause of the loss and that it was not one involving its liability, the law requires that it come forward with the information available to it, and its failure to do so warrants an inference or presumption of its liability. However, such inferences and presumptions, while they may affect the burden of coming forward with evidence, do not alter the burden of proof which remains on plaintiff, and, where the carrier comes forward with evidence explaining the loss or damage, the burden of going forward with the evidence is again on plaintiff. Where the action is based on the shipowner's warranty of seaworthiness, the burden of proving a breach thereof and that such breach was the proximate cause of the damage rests on plaintiff, and proof that the goods were lost or damaged while in the carrier's possession does not cast on it the burden of proving seaworthiness. . . . Where the contract of carriage exempts the carrier from liability for unseaworthiness not discoverable by due diligence, the carrier has the preliminary burden of proving the exercise of due diligence to make the vessel seaworthy. 20 In the instant case, the Court of Appeals correctly found the NSC "has not taken the correct position in relation to the question of who has the burden of proof. Thus, in its brief (pp. 10-11), after citing Clause 10 and Clause 12 of the NANYOZAI Charter Party (incidentally plaintiff-appellant's [NSC's] interpretation of Clause 12 is not

It is clear from the parties' Contract of Voyage Charter Hire, dated July 17, 1974, that VSI "shall not be responsible for losses except on proven willful negligence of the officers of the vessel." The NANYOZAI Charter Party, which was incorporated in the parties' contract of transportation further provided that the shipowner shall not be liable for loss of or a damage to the cargo arising or resulting from unseaworthiness, unless the same was caused by its lack of due diligence to make the vessel seaworthy or to ensure that the same was "properly manned, equipped and supplied," and to "make the holds and all other parts of the vessel in which cargo [was] carried, fit and safe for its reception, carriage and preservation." 18 The NANYOZAI Charter Party also provided that "[o]wners shall not be responsible for split, chafing and/or any damage unless caused by the negligence or default of the master or crew." 19 Burden of Proof In view of the aforementioned contractual stipulations, NSC must prove that the damage to its shipment was caused by VSI's willful negligence or failure to exercise due diligence in making MV Vlasons I seaworthy and fit for holding, carrying and safekeeping the cargo. Ineluctably, the burden of proof was placed on NSC by the parties' agreement. This view finds further support in the Code of Commerce which pertinently provides: Art. 361. Merchandise shall be transported at the risk and venture of the shipper, if the contrary has not been expressly stipulated. Therefore, the damage and impairment suffered by the goods during the transportation, due to fortuitous event, force majeure, or the nature and inherent defect of the things, shall be for the account and risk of the shipper. The burden of proof of these accidents is on the carrier. Art. 362. The carrier, however, shall be liable for damages arising from the cause mentioned in the preceding article if proofs against him show that they occurred on account of his negligence or his omission to take the precautions usually adopted by

27
even correct), it argues that 'a careful examination of the evidence will show that VSI miserably failed to comply with any of these obligation's as if defendantappellee [VSI] had the burden of proof." 21 First Issue: Questions of Fact Based on the foregoing, the determination of the following factual questions is manifestly relevant: (1) whether VSI exercised due diligence in making MV Vlasons I seaworthy for the intended purpose under the charter party; (2) whether the damage to the cargo should be attributed to the willful negligence of the officers and crew of the vessel or of the stevedores hired by NSC; and (3) whether the rusting of the tinplates was caused by its own "sweat" or by contact with seawater. These questions of fact were threshed out and decided by the trial court, which had the firsthand opportunity to hear the parties' conflicting claims and to carefully weigh their respective evidence. The findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual findings of both the trial court and the Court of Appeals coincide, the same are binding on this Court. 22 We stress that, subject to some exceptional instances, 23 only questions of law not questions of fact may be raised before this Court in a petition for review under Rule 45 of the Rules of Court. After a thorough review of the case at bar, we find no reason to disturb the lower court's factual findings, as indeed NSC has not successfully proven the application of any of the aforecited exceptions. Was MV Vlasons I Seaworthy? In any event, the records reveal that VSI exercised due diligence to make the ship seaworthy and fit for the carriage of NSC's cargo of steel and tinplates. This is shown by the fact that it was drylocked and inspected by the Philippine Coast Guard before it proceeded to Iligan City for its voyage to Manila under the contract of voyage charter hire. 24 The vessel's voyage from Iligan to Manila was the vessel's first voyage after drydocking. The Philippine Coast Guard Station in Cebu cleared it as seaworthy, fitted and equipped; it met all requirements for trading as cargo vessel. 25 The Court of Appeals itself sustained the conclusion of the trial court that MV Vlasons I was seaworthy. We find no reason to modify or reverse this finding of both the trial and the appellate courts. Who Seamen or Stevedores? Were Negligent: As noted earlier, the NSC had the burden of proving that the damage to the cargo was caused by the negligence of the officers and the crew of MV Vlasons I in making their vessel seaworthy and fit for the carriage of tinplates. NSC failed to discharge this burden. Before us, NSC relies heavily on its claim that MV Vlasons I had used an old and torn tarpaulin or canvas to cover the hatches through which the cargo was loaded into the cargo hold of the ship. It faults the Court of Appeals for failing to consider such claim as an "uncontroverted fact" 26 and denies that MV Vlasons I "was equipped with new canvas covers in tandem with the old ones as indicated in the Marine Protest . . ." 27 We disagree. The records sufficiently support VSI's contention that the ship used the old tarpaulin, only in addition to the new one used primarily to make the ship's hatches watertight. The foregoing are clear from the marine protest of the master of the MV Vlasons I, Antonio C. Dumlao, and the deposition of the ship's boatswain, Jose Pascua. The salient portions of said marine protest read: . . . That the M/V "VLASONS I" departed Iligan City or about 0730 hours of August 8, 1974, loaded with approximately 2,487.9 tons of steel plates and tin plates consigned to National Steel Corporation; that before departure, the vessel was rigged, fully equipped and cleared by the authorities; that on or about August 9, 1974, while in the vicinity of the western part of Negros and Panay, we encountered very rough seas and strong winds and Manila office was advised by telegram of the adverse weather conditions encountered; that in the morning of August 10, 1974, the weather condition changed to worse and strong winds and big waves continued pounding the vessel at her port side causing sea water to overflow on deck andhatch (sic) covers and which caused the first layer of the canvass covering to give way while the new canvass covering still holding on; That the weather condition improved when we reached Dumali Point protected by Mindoro; that we re-secured the canvass covering back to position; that in the afternoon of August 10, 1974, while entering Maricaban Passage, we were again exposed to moderate seas and heavy rains; that while approaching Fortune Island, we encountered again rough seas, strong winds and big waves which caused the same canvass to give way and leaving the new canvass holding on; xxx xxx xxx 28 And the relevant portions of Jose Pascua's deposition are as follows: q What is the purpose of the canvas cover?

28
a So that the cargo would not be soaked with water. q And will you describe how the canvas cover was secured on the hatch opening? WITNESS a It was placed flat on top of the hatch cover, with a little canvas flowing over the sides and we place[d] a flat bar over the canvas on the side of the hatches and then we place[d] a stopper so that the canvas could not be removed. ATTY DEL ROSARIO q And will you tell us the size of the hatch opening? The length and the width of the hatch opening. a Forty-five feet by thirty-five feet, sir. xxx xxx xxx q How was the canvas supported in the middle of the hatch opening? a There is a hatch board. ATTY DEL ROSARIO q What is the hatch board made of? a It is made of wood, with a handle. q And aside from the hatch board, is there any other material there to cover the hatch? a There is a beam supporting the hatch board. q What is this beam made of? a It is made of steel, sir. q Is the beam that was placed in the hatch opening covering the whole hatch opening? a No, sir. q How many hatch beams were there placed across the opening? a There are five beams in one hatch opening. ATTY DEL ROSARIO q And on top of the beams you said there is a hatch board. How many pieces of wood are put on top? a Plenty, sir, because there are several pieces on top of the hatch beam. q And is there a space between the hatch boards? a There is none, sir. q They are tight together? a Yes, sir. q How tight? a Very tight, sir. q Now, on top of the hatch boards, according to you, is the canvass cover. How many canvas covers? a Two, sir. 29 That due diligence was exercised by the officers and the crew of the MV Vlasons I was further demonstrated by the fact that, despite encountering rough weather twice, the new tarpaulin did not give way and the ship's hatches and cargo holds remained waterproof. As aptly stated by the Court of Appeals, ". . . we find no reason not to sustain the conclusion of the lower court based on overwhelming evidence, that the MV 'VLASONS I' was seaworthy when it undertook the voyage on August 8, 1974 carrying on board thereof plaintiff-appellant's shipment of 1,677 skids of tinplates and 92 packages of hot rolled sheets or a total of 1,769 packages from NSC's pier in Iligan City arriving safely at North Harbor, Port Area, Manila, on August 12, 1974; . . . 30 Indeed, NSC failed to discharge its burden to show negligence on the part of the officers and the crew of MV Vlasons I. On the contrary, the records reveal that it was the stevedores of NSC who were negligent in unloading the cargo from the ship. The stevedores employed only a tent-like material to cover the hatches when strong rains occasioned by a passing typhoon disrupted the unloading of the cargo. This tent-like covering, however, was clearly inadequate for keeping rain and seawater

29
away from the hatches of the ship. Vicente Angliongto, an officer of VSI, testified thus: ATTY ZAMORA: Q Now, during your testimony on November 5, 1979, you stated on August 14 you went on board the vessel upon notice from the National Steel Corporation in order to conduct the inspection of the cargo. During the course of the investigation, did you chance to see the discharging operation? WITNESS: A Yes, sir, upon my arrival at the vessel, I saw some of the tinplates already discharged on the pier but majority of the tinplates were inside the hall, all the hatches were opened. Q In connection with these cargoes which were unloaded, where is the place. A At the Pier. Q What was used to protect the same from weather? ATTY LOPEZ: We object, your Honor, this question was already asked. This particular matter . . . the transcript of stenographic notes shows the same was covered in the direct examination. ATTY ZAMORA: Precisely, your Honor, we would like to go on detail, this is the serious part of the testimony. COURT: All right, witness may answer. ATTY LOPEZ: Q What was used in order to protect the cargo from the weather? A A base of canvas was used as cover on top of the tin plates, and tents were built at the opening of the hatches. Q You also stated that the hatches were already opened and that there were tents constructed at the opening of the hatches to protect the cargo from the rain. Now, will you describe [to] the Court the tents constructed. A The tents are just a base of canvas which look like a tent of an Indian camp raise[d] high at the middle with the whole side separated down to the hatch, the size of the hatch and it is soaks [sic] at the middle because of those weather and this can be used only to temporarily protect the cargo from getting wet by rains. Q Now, is this procedure adopted by the stevedores of covering tents proper? A No, sir, at the time they were discharging the cargo, there was a typhoon passing by and the hatch tent was not good enough to hold all of it to prevent the water soaking through the canvass and enter the cargo. Q In the course of your inspection, Mr. Anglingto [sic], did you see in fact the water enter and soak into the canvass and tinplates. A Yes, sir, the second time I went there, I saw it. Q As owner of the vessel, did you not advise the National Steel Corporation [of] the procedure adopted by its stevedores in discharging the cargo particularly in this tent covering of the hatches? A Yes, sir, I did the first time I saw it, I called the attention of the stevedores but the stevedores did not mind at all, so, called the attention of the representative of the National Steel but nothing was done, just the same. Finally, I wrote a letter to them.
31

NSC attempts to discredit the testimony of Angliongto by questioning his failure to complain immediately about the stevedores' negligence on the first day of unloading, pointing out that he wrote his letter to petitioner only seven days later. 32 The Court is not persuaded. Angliongto's candid answer in his aforequoted testimony satisfactorily explained the delay. Seven days lapsed because he first called the attention of the stevedores, then the NSC's representative, about the negligent and defective procedure adopted in unloading the cargo. This series of actions constitutes a reasonable response in accord with common sense and ordinary human experience. Vicente Angliongto could not be blamed for calling the stevedores' attention first and then the NSC's representative on location before formally informing NSC of the negligence he had observed, because he was not responsible for the stevedores or the unloading operations. In fact, he was merely expressing

30
concern for NSC which was ultimately responsible for the stevedores it had hired and the performance of their task to unload the cargo. We see no reason to reverse the trial and the appellate courts' findings and conclusions on this point, viz: In the THIRD assigned error, [NSC] claims that the trial court erred in finding that the stevedores hired by NSC were negligent in the unloading of NSC's shipment. We do not think so. Such negligence according to the trial court is evident in the stevedores hired by [NSC], not closing the hatch of MV 'VLASONS I' when rains occurred during the discharging of the cargo thus allowing rain water and seawater spray to enter the hatches and to drift to and fall on the cargo. It was proven that the stevedores merely set up temporary tents or canvas to cover the hatch openings when it rained during the unloading operations so that it would be easier for them to resume work after the rains stopped by just removing said tents or canvass. It has also been shown that on August 20, 1974, VSI President Vicente Angliongto wrote [NSC] calling attention to the manner the stevedores hired by [NSC] were discharging the cargo on rainy days and the improper closing of the hatches which allowed continuous heavy rain water to leak through and drip to the tinplates' covers and [Vicente Angliongto] also suggesting that due to four (4) days continuos rains with strong winds that the hatches be totally closed down and covered with canvas and the hatch tents lowered. (Exh. "13"). This letter was received by [NSC] on 22 August 1974 while discharging operations were still going on (Exhibit "13-A").
33

water from outside especially when the weather is 35 The Court of Appeals affirmed the trial court's finding. raining . . ."

bad

or

A discussion of this issue appears inconsequential and unnecessary. As previously discussed, the damage to the tinplates was occasioned not by airborne moisture but by contact with rain and seawater which the stevedores negligently allowed to seep in during the unloading. Second Issue: Insure the Cargo Effect of NSC's Failure to

The obligation of NSC to insure the cargo stipulated in the Contract of Voyage Charter Hire is totally separate and distinct from the contractual or statutory responsibility that may be incurred by VSI for damage to the cargo caused by the willful negligence of the officers and the crew of MV Vlasons I. Clearly, therefore, NSC's failure to insure the cargo will not affect its right, as owner and real party in interest, to file an action against VSI for damages caused by the latter's willful negligence. We do not find anything in the charter party that would make the liability of VSI for damage to the cargo contingent on or affected in any manner by NSC's obtaining an insurance over the cargo. Third Issue: Proving Seaworthiness Admissibility of Certificates

The fact that NSC actually accepted and proceeded to remove the cargo from the ship during unfavorable weather will not make VSI liable for any damage caused thereby. In passing, it may be noted that the NSC may seek indemnification, subject to the laws on prescription, from the stevedoring company at fault in the discharge operations. "A stevedore company engaged in discharging cargo . . . has the duty to load the cargo . . . in a prudent manner, and it is liable for injury to, or loss of, cargo caused by its negligence . . . and where the officers and members and crew of the vessel do nothing and have no responsibility in the discharge of cargo by stevedores . . . the vessel is not liable for loss of, or damage to, the cargo caused by the negligence of the 34 as in the instant case. stevedores . . ." Do Tinplates "Sweat"? The trial court relied on the testimony of Vicente Angliongto in finding that ". . . tinplates 'sweat' by themselves when packed even without being in contact with

NSC's contention that MV Vlasons I was not seaworthy is anchored on the alleged inadmissibility of the certificates of seaworthiness offered in evidence by VSI. The said certificates include the following: 1. Certificate of Inspection of the Philippines Coast Guard at Cebu 2. Certificate of Inspection from the Philippine Coast Guard 3. International Load Line Certificate from the Philippine Coast Guard 4. Coastwise License from the Board of Transportation 5. Certificate of Approval for Conversion issued by the Bureau of Customs 36 NSC argues that the certificates are hearsay for not having been presented in accordance with the Rules of Court. It points out that Exhibits 3, 4 and 11 allegedly are "not written records or acts of public officers"; while Exhibits 5, 6, 7, 8, 9, 11 and 12 are not "evidenced by official publications or certified true copies" as required by Sections 25 and 26, Rule 132, of the Rules of Court. 37

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After a careful examination of these exhibits, the Court rules that Exhibits 3, 4, 5, 6, 7, 8, 9 and 12 are inadmissible, for they have not been properly offered as evidence. Exhibits 3 and 4 are certificates issued by private parties, but they have not been proven by one who saw the writing executed, or by evidence of the genuineness of the handwriting of the maker, or by a subscribing witness. Exhibits, 5, 6, 7, 8, 9, and 12 are photocopies, but their admission under the best evidence rule have not been demonstrated. We find, however, that Exhibit 11 is admissible under a well-settled exception to the hearsay rule per Section 44 of Rule 130 of the Rules of Court, which provides that "(e)ntries in official records made in the performance of a duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated." 38 Exhibit 11 is an original certificate of the Philippine Coast Guard in Cebu issued by Lieutenant Junior Grade Noli C. Flores to the effect that "the vessel 'VLASONS I' was drydocked . . . and PCG Inspectors were sent on board for inspection . . . After completion of drydocking and duly inspected by PCG Inspectors, the vessel 'VLASONS I', a cargo vessel, is in seaworthy condition, meets all requirements, fitted and equipped for trading as a cargo vessel was cleared by the Philippine Coast Guard and sailed for Cebu Port on July 10, 1974." (sic) NSC's claim, therefore, is obviously misleading and erroneous. At any rate, it should be stressed that NSC has the burden of proving that MV Vlasons I was not seaworthy. As observed earlier, the vessel was a private carrier and, as such, it did not have the obligation of a common carrier to show that it was seaworthy. Indeed, NSC glaringly failed to discharge its duty of proving the willful negligence of VSI in making the ship seaworthy resulting in damage to its cargo. Assailing the genuineness of the certificate of seaworthiness is not sufficient proof that the vessel was not seaworthy. Fourth Issue: Demurrage and Attorney's Fees The contract of voyage charter hire provides inter alia: xxx xxx xxx 2. Cargo: Full cargo of steel products of not less than 2,500 MT, 10% more or less at Master's option. xxx xxx xxx 6. Loading/Discharging Rate: 750 tons per WWDSHINC. 7. Demurrage/Dispatch: P8,000.00/P4,000.00 per day.
39

The Court defined demurrage in its strict sense as the compensation provided for in the contract of affreightment for the detention of the vessel beyond the laytime or that period of time agreed on for loading and unloading of cargo. 40 It is given to compensate the shipowner for the nonuse of the vessel. On the other hand, the following is well-settled: Laytime runs according to the particular clause of the charter party. . . . If laytime is expressed in "running days," this means days when the ship would be run continuously, and holidays are not excepted. A qualification of "weather permitting" excepts only those days when bad weather reasonably prevents the work contemplated. 41 In this case, the contract of voyage charter hire provided for a four-day laytime; it also qualified laytime as WWDSHINC or weather working days Sundays and holidays included. 42 The running of laytime was thus made subject to the weather, and would cease to run in the event unfavorable weather interfered with the unloading of cargo. 43 Consequently, NSC may not be held liable for demurrage as the four-day laytime allowed it did not lapse, having been tolled by unfavorable weather condition in view of the WWDSHINC qualification agreed upon by the parties. Clearly, it was error for the trial court and the Court of Appeals to have found and affirmed respectively that NSC incurred eleven days of delay in unloading the cargo. The trial court arrived at this erroneous finding by subtracting from the twelve days, specifically August 13, 1974 to August 24, 1974, the only day of unloading unhampered by unfavorable weather or rain, which was August 22, 1974. Based on our previous discussion, such finding is a reversible error. As mentioned, the respondent appellate court also erred in ruling that NSC was liable to VSI for demurrage, even if it reduced the amount by half. Attorney's Fees VSI assigns as error of law the Court of Appeals' deletion of the award of attorney's fees. We disagree. While VSI was compelled to litigate to protect its rights, such fact by itself will not justify an award of attorney's fees under Article 2208 of the Civil Code when ". . . no sufficient showing of bad faith would be reflected in a party's persistence in a case other than an erroneous conviction of the righteousness of his cause . . ." 44 Moreover, attorney's fees may not be awarded to a party for the reason alone that the judgment rendered was favorable to the latter, as this is tantamount to imposing a premium on one's right to litigate or seek judicial redress of legitimate grievances. 45 Epilogue

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At bottom, this appeal really hinges on a factual issue: when, how and who caused the damage to the cargo? Ranged against NSC are two formidable truths. First, both lower courts found that such damage was brought about during the unloading process when rain and seawater seeped through the cargo due to the fault or negligence of the stevedores employed by it. Basic is the rule that factual findings of the trial court, when affirmed by the Court of Appeals, are binding on the Supreme Court. Although there are settled exceptions, NSC has not satisfactorily shown that this case is one of them. Second, the agreement between the parties the Contract of Voyage Charter Hire placed the burden of proof for such loss or damage upon the shipper, not upon the shipowner. Such stipulation, while disadvantageous to NSC, is valid because the parties entered into a contract of private charter, not one of common carriage. Basic too is the doctrine that courts cannot relieve a parry from the effects of a private contract freely entered into, on the ground that it is allegedly one-sided or unfair to the plaintiff. The charter party is a normal commercial contract and its stipulations are agreed upon in consideration of many factors, not the least of which is the transport price which is determined not only by the actual costs but also by the risks and burdens assumed by the shipper in regard to possible loss or damage to the cargo. In recognition of such factors, the parties even stipulated that the shipper should insure the cargo to protect itself from the risks it undertook under the charter party. That NSC failed or neglected to protect itself with such insurance should not adversely affect VSI, which had nothing to do with such failure or neglect. WHEREFORE, premises considered, the instant consolidated petitions are hereby DENIED. The questioned Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the demurrage awarded to VSI is deleted. No pronouncement as to costs. 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 Appeals 1 in CA-GR No. 28245, dated September 30, 1992, which affirmed with modification the decision of the Regional Trial Court of Makati, Branch 58, ordering petitioners jointly and severally to pay damages to private respondent Amyline Antonio, and its resolution which denied petitioners' motion for reconsideration for lack of merit. Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus. They used the bus principally in connection with a bus service for school children which they operated in Manila. The couple had a driver, Porfirio J. Cabil, whom they hired in 1981, after trying him out for two weeks, His job was to take school children to and from the St. Scholastica's College in Malate, Manila. On November 2, 1984 private respondent Word for the World Christian Fellowship Inc. (WWCF) arranged with petitioners for the transportation of 33 members of its Young Adults Ministry from Manila to La Union and back in consideration of which private respondent paid petitioners the amount of P3,000.00. The group was scheduled to leave on November 2, 1984, at 5:00 o'clock in the afternoon. However, as several members of the party were late, the bus did not leave the Tropical Hut at the corner of Ortigas Avenue and EDSA until 8:00 o'clock in the evening. Petitioner Porfirio Cabil drove the minibus. The usual route to Caba, La Union was through Carmen, Pangasinan. However, the bridge at Carmen was under repair, 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.

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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

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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 4 that the vehicles passing on that portion of the road should only be running 20 kilometers per hour, so that at 50 kilometers per hour, Cabil was running at a very high speed. Considering the foregoing the fact that it was raining and the road was slippery, that it was dark, that he drove his bus at 50 kilometers an hour when even on a good day the normal speed was only 20 kilometers an hour, and that he was unfamiliar with the terrain, Cabil was grossly negligent and should be held liable for the injuries suffered by private respondent Amyline Antonio. Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise to the presumption that his employers, the Fabres, were themselves negligent in the selection and 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

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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 15 a driver found negligent in failing to stop the bus in order to let off Appeals 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.

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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. G.R. No. 127897 November 15, 2001

DELSAN TRANSPORT LINES, INC., petitioner, vs. THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE CORPORATION, respondents. DE LEON, JR., J.: Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals in CA-G.R. CV No. 39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of Makati City, Branch 137, ordering petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs and the Resolution2 dated January 21, 1997 which denied the subsequent motion for reconsideration. The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier agreed to transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga

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City. The shipment was insured with the private respondent, American Home Assurance Corporation. On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.67) representing the insured value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the private respondent demanded of the petitioner the same amount it paid to Caltex.1wphi1.nt Due to its failure to collect from the petitioner despite prior demand, private respondent filed a complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money. After the trial and upon analyzing the evidence adduced, the trial court rendered a decision on November 29, 1990 dismissing the complaint against herein petitioner without pronouncement as to cost. The trial court found that the vessel, MT Maysum, was seaworthy to undertake the voyage as determined by the Philippine Coast Guard per Survey Certificate Report No. M5016-MH upon inspection during its annual dry-docking and that the incident was caused by unexpected inclement weather condition or force majeure, thus exempting the common carrier (herein petitioner) from liability for the loss of its cargo. 3 The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The appellate court gave credence to the weather report issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA for brevity) which showed that from 2:00 oclock to 8:oo oclock in the morning on August 16, 1986, the wind speed remained at 10 to 20 knots per hour while the waves measured from .7 to two (2) meters in height only in the vicinity of the Panay Gulf where the subject vessel sank, in contrast to herein petitioners allegation that the waves were twenty (20) feet high. In the absence of any explanation as to what may have caused the sinking of the vessel coupled with the finding that the same was improperly manned, the appellate court ruled that the petitioner is liable on its obligation as common carrier4 to herein private respondent insurance company as subrogee of Caltex. The subsequent motion for reconsideration of herein petitioner was denied by the appellate court. Petitioner raised the following assignments of error in support of the instant petition,5 to wit: I THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT. II THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE LEGAL PRESUMPTION THAT THE VESSEL MT "MAYSUN" WAS SEAWORTHY. III THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE SUPREME COURT IN THE CASE OF HOME INSURANCE CORPORATION V. COURT OF APPEALS. Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of the Philippines, which states that in every marine insurance upon a ship or freight, or freightage, or upon any thin which is the subject of marine insurance there is an implied warranty by the shipper that the ship is seaworthy. Consequently, the insurer will not be liable to the assured for any loss under the policy in case the vessel would later on be found as not seaworthy at the inception of the insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy; otherwise, private respondent was not legally liable to Caltex due to the latters breach of implied warranty under the marine insurance policy that the vessel was seaworthy. The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not seaworthy on the ground that the marine officer who served as the chief mate of the vessel, Francisco Berina, was allegedly not qualified. Under Section 116 of the Insurance Code of the Philippines, the implied warranty of seaworthiness of the vessel, which the private respondent admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo, extends to the vessels complement. Besides, petitioner avers that although Berina had merely a 2nd officers license, he was qualified to act as the vessels chief officer under Chapter IV(403), Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations. In fact, all the crew and officers of MT Maysun were exonerated in the administrative investigation conducted by the Board of Marine Inquiry after the subject accident.6 In any event, petitioner further avers that private respondent failed, for unknown reason, to present in evidence during the trial of the instant case the subject marine

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cargo insurance policy it entered into with Caltex. By virtue of the doctrine laid down in the case of Home Insurance Corporation vs. CA,7 the failure of the private respondent to present the insurance policy in evidence is allegedly fatal to its claim inasmuch as there is no way to determine the rights of the parties thereto. Hence, the legal issues posed before the Court are: I Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner. II Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for lack of cause of action. We rule in the negative on both issues. The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.8 Article 2207 of the New civil Code provides that: Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay. 9 It is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment by the insurance company of the insurance claim.10 Consequently, the payment made by the private respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies which the latter may have against the petitioner. From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the circumstance of each case.11 In the event of loss, destruction or deterioration of the insured goods, common carriers shall be responsible unless the same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster or calamity. 12 In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.13 In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner attributes the sinking of MT Maysun to fortuitous even or force majeure. From the testimonies of Jaime Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it appears that a sudden and unexpected change of weather condition occurred in the early morning of August 16, 1986; that at around 3:15 oclock in the morning a squall ("unos") carrying strong winds with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to twenty (20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with its cargo. 14 This tale of strong winds and big waves by the said officers of the petitioner however, was effectively rebutted and belied by the weather report15 from the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), the independent government agency charged with monitoring weather and sea conditions, showing that from 2:00 oclock to 8:00 oclock in the morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per hour while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and Panay Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled, petitioners vessel, MT Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no squall or bad weather or extremely poor sea condition in the vicinity when the said vessel sank. The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and Francisco Berina, ship captain and chief mate, respectively, of the said vessel, could not be expected to testify against the interest of their employer, the herein petitioner common carrier.

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Neither may petitioner escape liability by presenting in evidence certificates 16 that tend to show that at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. As correctly observed by the Court of appeals: At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued, however, do not negate the presumption of unseaworthiness triggered by an unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to their probative value, (thus): Seaworthiness relates to a vessels actual condition. Neither the granting of classification or the issuance of certificates established seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62). And also: Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owners obligation. Also securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no obligation in relation to seaworthiness. (Ibid.) 17 Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry merely concerns their respective administrative liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of which properly belongs to the courts.18 In the case at bar, petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier19 occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit. Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.20 The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA21 (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage. First, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port or arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it actually received it. The insurance contract, which was not presented in evidence in that case would have indicated the scope of the insurers liability, if any, since no evidence was adduced indicating at what stage in the handling process the damage to the cargo was sustained. Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance Corporation is not applicable to the case at bar. In contrast, there is no doubt that the cargo of industrial fuel oil belonging to Caltex, in the case at bar, was lost while on board petitioners vessel, MT Maysun, which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early morning of August 16, 1986. WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner. [G.R. No. 71929 : December 4, 1990.] 192 SCRA 9 ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO, Respondents.

DECISION

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NARVASA, J.: After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr. Pablo's favor: 10 "(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, by way of nominal damages; (2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine Currency, as and for attorney's fees; (and) (3) Ordering the defendant to pay the costs of the suit." ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the judgment. 11 Indeed, the Appellate Court not only affirmed the Trial Court's decision but also increased the award of nominal damages payable by ALITALIA to P40,000.00. 12 That increase it justified as follows: 13 "Considering the circumstances, as found by the Trial Court and the negligence committed by defendant, the amount of P20,000.00 under present inflationary conditions as awarded . . . to the plaintiff as nominal damages, is too little to make up for the plaintiff's frustration and disappointment in not being able to appear at said conference; and for the embarrassment and humiliation she suffered from the academic community for failure to carry out an official mission for which she was singled out by the faculty to represent her institution and the country. After weighing carefully all the considerations, the amount awarded to the plaintiff for nominal damages and attorney's fees should be increased to the cost of her round trip air fare or at the present rate of peso to the dollar at P40,000,00." ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the same points it tried to make before the Trial Court and the Intermediate Appellate Court, i.e.: 1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability; and 2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal damages and attorney's fees. 14 In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to have refused to pass on all the assigned errors and in not stating the facts and the law on which its decision is based. 15 Under the Warsaw Convention, 16 an air carrier is made liable for damages for:

Dr. Felipa Pablo an associate professor in the University of the Philippines, 1 and a research grantee of the Philippine Atomic Energy Agency was invited to take part at a meeting of the Department of Research and Isotopes of the Joint FAOIAEA Division of Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. 2 She was invited in view of her specialized knowledge in "foreign substances in food and the agriculture environment." She accepted the invitation, and was then scheduled by the organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating Vegetable Crops." 3 The program announced that she would be the second speaker on the first day of the meeting. 4 To fulfill this engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA. She arrived in Milan on the day before the meeting in accordance with the itinerary and time table set for her by ALITALIA. She was however told by the ALITALIA personnel there at Milan that her luggage was "delayed inasmuch as the same . . . (was) in one of the succeeding flights from Rome to Milan." 5 Her luggage consisted of two (2) suitcases: one contained her clothing and other personal items; the other, her scientific papers, slides and other research material. But the other flights arriving from Rome did not have her baggage on board. By then feeling desperate, she went to Rome to try to locate her bags herself. There, she inquired about her suitcases in the domestic and international airports, and filled out the forms prescribed by ALITALIA for people in her predicament. However, her baggage could not be found. Completely distraught and discouraged, she returned to Manila without attending the meeting in Ispra, Italy. : nad Once back in Manila she demanded that ALITALIA make reparation for the damages thus suffered by her. ALITALIA offered her "free airline tickets to compensate her for any alleged damages. . . ." She rejected the offer, and forthwith commenced the action 6 which has given rise to the present appellate proceedings. As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy, but only on the day after her scheduled appearance and participation at the U.N. meeting there. 8 Of course Dr. Pablo was no longer there to accept delivery; she was already on her way home to Manila. And for some reason or other, the suitcases were not actually restored to Prof. Pablo by ALITALIA until eleven (11) months later, and four (4) months after institution of her action. 9

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1) the death, wounding or other bodily injury of a passenger if the accident causing it took place on board the aircraft or in the course of its operations of embarking or disembarking; 17 2) the destruction or loss of, or damage to, any registered luggage or goods, if the occurrence causing it took place during the carriage by air;" 18 and 3) delay in the transportation by air of passengers, luggage or goods. 19 In these cases, it is provided in the Convention that the "action for damages, however, founded, can only be brought subject to conditions and limits set out" therein. 20 The Convention also purports to limit the liability of the carriers in the following manner: 21 1. In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of 250,000 francs . . . Nevertheless, by special contract, the carrier and the passenger may agree to a higher limit of liability.: nad 2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a sum of 250 francs per kilogramme, unless the passenger or consignor has made, at the time when the package was handed over to the carrier, a special declaration of interest in delivery at destination and has paid a supplementary sum if the case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that sum is greater than the actual value to the consignor at delivery. b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained therein, the weight to be taken into consideration in determining the amount to which the carrier's liability is limited shall be only the total weight of the package or packages concerned. Nevertheless, when the loss, damage or delay of a part of the registered baggage or cargo, or of an object contained therein, affects the value of other packages covered by the same baggage check or the same air way bill, the total weight of such package or packages shall also be taken into consideration in determining the limit of liability. 3. As regards objects of which the passenger takes charge himself the liability of the carrier is limited to 5000 francs per passenger. 4. The limits prescribed . . shall not prevent the court from awarding, in accordance with its own law, in addition, the whole or part of the court costs and of the other expenses of litigation incurred by the plaintiff. The foregoing provision shall not apply if the amount of the damages awarded, excluding court costs and other expenses of the litigation, does not exceed the sum which the carrier has offered in writing to the plaintiff within a period of six months from the date of the occurrence causing the damage, or before the commencement of the action, if that is later. The Warsaw Convention however denies to the carrier availment "of the provisions which exclude or limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in accordance with the law of the court seized of the case, is considered to be equivalent to wilful misconduct," or "if the damage is (similarly) caused . . by any agent of the carrier acting within the scope of his employment." 22 The Hague Protocol amended the Warsaw Convention by removing the provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself completely, 23 and declaring the stated limits of liability not applicable "if it is proved that the damage resulted from an act or omission of the carrier, its servants or agents, done with intent to cause damage or recklessly and with knowledge that damage would probably result." The same deletion was effected by the Montreal Agreement of 1966, with the result that a passenger could recover unlimited damages upon proof of wilful misconduct. 24 The Convention does not thus operate as an exclusive enumeration of the instances of an airline's liability, or as an absolute limit of the extent of that liability. Such a proposition is not borne out by the language of the Convention, as this Court has now, and at an earlier time, pointed out. 25 Moreover, slight reflection readily leads to the conclusion that it should be deemed a limit of liability only in those cases where the cause of the death or injury to person, or destruction, loss or damage to property or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith, recklessness, or otherwise improper conduct on the part of any official or employee for which the carrier is responsible, and there is otherwise no special or extraordinary form of resulting injury. The Convention's provisions, in short, do not "regulate or exclude liability for other breaches of contract by the carrier" 26 or misconduct of its officers and employees, or for some particular or exceptional type of damage. Otherwise, "an air carrier would be exempt from any liability for damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd." 27 Nor may it for a moment be supposed that if a member of the aircraft complement should inflict some physical injury on a passenger, or maliciously destroy or damage the latter's property, the Convention might successfully be pleaded as the sole gauge to determine the carrier's liability to the passenger. Neither may the Convention be invoked to justify the disregard of some extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond the limits set by said Convention. It is in this sense that the

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Convention has been applied, or ignored, depending on the peculiar facts presented by each case.:-cralaw In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention was applied as regards the limitation on the carrier's liability, there being a simple loss of baggage without any otherwise improper conduct on the part of the officials or employees of the airline or other special injury sustained by the passenger. On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not restrictive of the carrier's liability, where there was satisfactory evidence of malice or bad faith attributable to its officers and employees. 29 Thus, an air carrier was sentenced to pay not only compensatory but also moral and exemplary damages, and attorney's fees, for instance, where its employees rudely put a passenger holding a first-class ticket in the tourist or economy section, 30 or ousted a brown Asiatic from the plane to give his seat to a white man, 31 or gave the seat of a passenger with a confirmed reservation to another, 32 or subjected a passenger to extremely rude, even barbaric treatment, as by calling him a "monkey." 33 In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to her, belatedly, it is true, but without appreciable damage. The fact is, nevertheless, that some special species of injury was caused to Dr. Pablo because petitioner ALITALIA misplaced her baggage and failed to deliver it to her at the time appointed a breach of its contract of carriage, to be sure with the result that she was unable to read the paper and make the scientific presentation (consisting of slides, autoradiograms or films, tables and tabulations) that she had painstakingly labored over, at the prestigious international conference, to attend which she had traveled hundreds of miles, to her chagrin and embarrassment and the disappointment and annoyance of the organizers. She felt, not unreasonably, that the invitation for her to participate at the conference, extended by the Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United Nations, was a singular honor not only to herself, but to the University of the Philippines and the country as well, an opportunity to make some sort of impression among her colleagues in that field of scientific activity. The opportunity to claim this honor or distinction was irretrievably lost to her because of Alitalia's breach of its contract. Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and anxiety, which gradually turned to panic and finally despair, from the time she learned that her suitcases were missing up to the time when, having gone to Rome, she finally realized that she would no longer be able to take part in the conference. As she herself put it, she "was really shocked and distraught and confused." Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the circumstances be restricted to that prescribed by the Warsaw Convention for delay in the transport of baggage. She is not, of course, entitled to be compensated for loss or damage to her luggage. As already mentioned, her baggage was ultimately delivered to her in Manila, tardily but safely. She is however entitled to nominal damages which, as the law says, is adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated and recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered and this Court agrees that the respondent Court of Appeals correctly set the amount thereof at P40,000.00. As to the purely technical argument that the award to her of such nominal damages is precluded by her omission to include a specific claim therefor in her complaint, it suffices to draw attention to her general prayer, following her plea for moral and exemplary damages and attorney's fees, "for such other and further just and equitable relief in the premises," which certainly is broad enough to comprehend an application as well for nominal damages. Besides, petitioner should have realized that the explicit assertion, and proof, that Dr. Pablo's right had been violated or invaded by it absent any claim for actual or compensatory damages, the prayer thereof having been voluntarily deleted by Dr. Pablo upon the return to her of her baggage necessarily raised the issue of nominal damages.: rd This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees to Dr. Pablo, and the amount of P5,000.00 set by it is reasonable in the premises. The law authorizes recovery of attorney's fees inter alia where, as here, "the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest," 34 or "where the court deems it just and equitable." 35 WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals, it appearing on the contrary to be entirely in accord with the facts and the law, said decision is hereby AFFIRMED, with costs against the petitioner. G.R. No. 149038 April 9, 2003

PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner, vs. PKS SHIPPING COMPANY, respondent.

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VITUG, J.: The petition before the Court seeks a review of the decision of the Court of Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for damages filed by petitioner insurance corporation against respondent shipping company. Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS Shipping Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand (75,000) bags of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00). DUMC insured the goods for its full value with petitioner Philippine American General Insurance Company (Philamgen). The goods were loaded aboard the dumb barge Limar I belonging to PKS Shipping. On the evening of 22 December 1988, about nine oclock, while Limar I was being towed by respondents tugboat, MT Iron Eagle, the barge sank a couple of miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down with it the entire cargo of 75,000 bags of cement. DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen promptly made payment; it then sought reimbursement from PKS Shipping of the sum paid to DUMC but the shipping company refused to pay, prompting Philamgen to file suit against PKS Shipping with the Makati RTC. The RTC dismissed the complaint after finding that the total loss of the cargo could have been caused either by a fortuitous event, in which case the ship owner was not liable, or through the negligence of the captain and crew of the vessel and that, under Article 587 of the Code of Commerce adopting the "Limited Liability Rule," the ship owner could free itself of liability by abandoning, as it apparently so did, the vessel with all her equipment and earned freightage. Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision of the trial court. The appellate court ruled that evidence to establish that PKS Shipping was a common carrier at the time it undertook to transport the bags of cement was wanting because the peculiar method of the shipping companys carrying goods for others was not generally held out as a business but as a casual occupation. It then concluded that PKS Shipping, not being a common carrier, was not expected to observe the stringent extraordinary diligence required of common carriers in the care of goods. The appellate court, moreover, found that the loss of the goods was sufficiently established as having been due to fortuitous event, negating any liability on the part of PKS Shipping to the shipper. In the instant appeal, Philamgen contends that the appellate court has committed a patent error in ruling that PKS Shipping is not a common carrier and that it is not liable for the loss of the subject cargo. The fact that respondent has a limited clientele, petitioner argues, does not militate against respondents being a common carrier and that the only way by which such carrier can be held exempt for the loss of the cargo would be if the loss were caused by natural disaster or calamity. Petitioner avers that typhoon "APIANG" has not entered the Philippine area of responsibility and that, even if it did, respondent would not be exempt from liability because its employees, particularly the tugmaster, have failed to exercise due diligence to prevent or minimize the loss. PKS Shipping, in its comment, urges that the petition should be denied because what Philamgen seeks is not a review on points or errors of law but a review of the undisputed factual findings of the RTC and the appellate court. In any event, PKS Shipping points out, the findings and conclusions of both courts find support from the evidence and applicable jurisprudence. The determination of possible liability on the part of PKS Shipping boils down to the question of whether it is a private carrier or a common carrier and, in either case, to the other question of whether or not it has observed the proper diligence (ordinary, if a private carrier, or extraordinary, if a common carrier) required of it given the circumstances. The findings of fact made by the Court of Appeals, particularly when such findings are consistent with those of the trial court, may not at liberty be reviewed by this Court in a petition for review under Rule 45 of the Rules of Court. 1 The conclusions derived from those factual findings, however, are not necessarily just matters of fact as when they are so linked to, or inextricably intertwined with, a requisite appreciation of the applicable law. In such instances, the conclusions made could well be raised as being appropriate issues in a petition for review before this Court. Thus, an issue whether a carrier is private or common on the basis of the facts found by a trial court or the appellate court can be a valid and reviewable question of law. The Civil Code defines "common carriers" in the following terms: "Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the public." Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act; it defines "public service" to be

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"x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum, sewerage system, wire or wireless communication systems, wire or wireless broadcasting stations and other similar public services. x x x. (Underscoring supplied)." The prevailing doctrine on the question is that enunciated in the leading case of De Guzman vs. Court of Appeals.2 Applying Article 1732 of the Code, in conjunction with Section 13(b) of the Public Service Act, this Court has held: "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. "So understood, the concept of `common carrier under Article 1732 may be seen to coincide neatly with the notion of `public service, under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code." Much of the distinction between a "common or public carrier" and a "private or special carrier" lies in the character of the business, such that if the undertaking is an isolated transaction, not a part of the business or occupation, and the carrier does not hold itself out to carry the goods for the general public or to a limited clientele, although involving the carriage of goods for a fee,3 the person or corporation providing such service could very well be just a private carrier. A typical case is that of a charter party which includes both the vessel and its crew, such as in a bareboat or demise, where the charterer obtains the use and service of all or some part of a ship for a period of time or a voyage or voyages4 and gets the control of the vessel and its crew.5 Contrary to the conclusion made by the appellate court, its factual findings indicate that PKS Shipping has engaged itself in the business of carrying goods for others, although for a limited clientele, undertaking to carry such goods for a fee. The regularity of its activities in this area indicates more than just a casual activity on its part.6 Neither can the concept of a common carrier change merely because individual contracts are executed or entered into with patrons of the carrier. Such restrictive interpretation would make it easy for a common carrier to escape liability by the simple expedient of entering into those distinct agreements with clients. Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence demanded of common carriers, Article 1733 of the Civil Code requires common carriers to observe extraordinary diligence in the vigilance over the goods they carry. In case of loss, destruction or deterioration of goods, common carriers are presumed to have been at fault or to have acted negligently, and the burden of proving otherwise rests on them.7 The provisions of Article 1733, notwithstanding, common carriers are exempt from liability for loss, destruction, or deterioration of the goods due to any of the following causes: (1) Flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) Act of the public enemy in war, whether international or civil; (3) Act or omission of the shipper or owner of the goods; (4) The character of the goods or defects in the packing or in the containers; and (5) Order or act of competent public authority.8 The appellate court ruled, gathered from the testimonies and sworn marine protests of the respective vessel masters of Limar I and MT Iron Eagle, that there was no way by which the barges or the tugboats crew could have prevented the sinking of Limar I. The vessel was suddenly tossed by waves of extraordinary height of six (6) to eight (8) feet and buffeted by strong winds of 1.5 knots resulting in the entry of water into the barges hatches. The official Certificate of Inspection of the barge issued by the Philippine Coastguard and the Coastwise Load Line Certificate would attest to the seaworthiness of Limar I and should strengthen the factual findings of the appellate court. Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized exceptions from the rule - (1) when the factual findings of the Court of Appeals and the trial court are contradictory; (2) when the conclusion is a finding

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grounded entirely on speculation, surmises, or conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in the appreciation of facts; (5) when the appellate court, in making its findings, went beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; (6) when the judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when the Court of Appeals failed to notice certain relevant facts which, if properly considered, would justify a different conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings of fact are conclusions without citation of the specific evidence on which they are based; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are contradicted by the evidence on record would appear to be clearly extant in this instance. All given then, the appellate court did not err in its judgment absolving PKS Shipping from liability for the loss of the DUMC cargo. G.R. No. 136048 January 23, 2001 "WHEREFORE, upon all the foregoing premises considered, the DECISION appealed from is AFFIRMED with the MODIFICATION that the loss of earnings of the late Dominador Mercader is reduced to P798,000.00."3 The assailed Resolution denied petitioners' Motion for Reconsideration. The Court of Appeals sustained the Decision of the Regional Trial Court (RTC) of Laoang, Northern Samar (Branch 21). Except for the modification of the loss of earnings, it affirmed all the monetary damages granted by the trial court to respondents. The decretal portion of the assailed RTC Decision reads as follows:4 "WHEREFORE, on preponderance of evidence, judgment is for [herein respondents] and against [herein petitioners], ordering the latter to pay the former: (a) As compensatory damages for the death of Dominador Mercader -- P50,000.00; (b) For the loss of earnings of the late Dominador Mercader -- P1,660,000.00, more or less, based on the average life span of 75 years from the time of his death who earned a net income of P5,000.00 monthly out of his business; (c) Actual damages of P30,000.00 receipted purchases of goods in Manila; P5,750.00 for the first class coffin and a 15-day wake services evidenced by a receipt marked Exh. 'D'; [P.]850.00 for the 50 x 60 headstone, receipt marked Exh. 'E' and P1,590.00 -- Deed of Absolute Sale of a burial lot, marked Exh. 'F'; (d) 25% of whatever amount is collected by [respondents] from [petitioners] but no less than P50,000.00 plus P1 ,000.00 per hearing by way of attorney's fees; (e) As moral damages -- P50,000.00; (f) As exemplary damages -- P30,000.00; and (g) To pay the costs." The Facts The antecedents of the case are succinctly summarized by the Court of Appeals in this wise: "The original complaint was filed against JB Lines, Inc. [Petitioner JB Lines, Inc.] filed a motion to dismiss complaint, to strike out false-impertinent matters therefrom, and/or for bill of particulars on the primary grounds that [respondents] failed to implead Jose Baritua as an indispensable party and that the cause of action

JOSE BARITUA and JB LINE, petitioners, vs. NIMFA DIVINA MERCADER in her capacity and as guardian of DARWIN, GIOVANNI, RODEL and DENNIS, all surnamed MERCADER; LEONIDA Vda. de MERCADER on her behalf and on behalf of her minor child MARY JOY MERCADER; SHIRLEY MERCADER DELA CRUZ; MARIA THERESA MERCADER-GARCIA; DANILO MERCADER; JOSE DANTE MERCADER; JOSEFINA MERCADER, respondents. PANGANIBAN, J.: The Manchester ruling requiring the payment of docket and other fees as a condition for the acquisition of jurisdiction has no retroactive effect and applies only to cases filed after its finality.

The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the April 17, 1998 Decision1 and the October 28, 1998 Resolution2 of the Court of Appeals (CA) in CA-GR CY No. 40772. The decretal portion of said Decision reads as follows:

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is a suit against a wrong and non-existent party. [Respondents] filed an opposition to the said motion and an amended complaint. "In an Order dated December 11, 1984 the trial court denied the aforesaid motion and admitted the amended complaint of [respondents] impleading Jose Baritua and alleged the following: '(10) The late Dominador Mercader is a [b]usinessman mainly engaged in the buy and sell of dry goods in Laoang, N. Samar. He buys his goods from Manila and bring[s] them to Laoang, Northern Samar for sale at his store located in the said locality; (11) Sometime on March 16, 1983, the late Dominador Mercader boarded [petitioners'] bus No. 142 with Plate No. 484 EU at [petitioners'] Manila Station/terminal, bound for Brgy. Rawis, Laoang Northern Samar as a paying passenger; (12) At that time, Dominador Mercader had with him as his baggage, assorted goods (i.e. long pants, short pants, dusters, etc.) which he likewise loaded in [petitioners'] bus; (13) The late Dominador Mercader was not able to reach his destination considering that on March 17, 1983 at Beily (Bugco) Bridge, Barangay Roxas, Mondragon, Northern Samar, while he was on board [petitioners'] bus no. 142 with Plate No. 484 EU, the said bus fell into the river as a result of which the late Dominador Mercader died. x x x. (14) The accident happened because [petitioners'] driver negligently and recklessly operated the bus at a fast speed in wanton disregard of traffic rules and regulations and the prevailing conditions then existing that caused [the] bus to fall into the river.' "[Respondents] then filed a motion to declare [petitioners] in default which motion was opposed by [petitioners]. [Respondents] withdrew the said motion prompting the trial court to cancel the scheduled hearing of the said motion to declare [petitioners] in default in an Order dated January 23, 1985. "In its answer, [petitioners] denied specifically all the material allegations in the complaint and alleged the following: '2. The alleged person of Dominador Mercader did not board bus 142 at [petitioners'] Manila station/terminal x x x as a (supposed paying passenger). There is even no statement in the complaint that Dominador Mercader (if it were true that he was a passenger of bus 142 'at the [petitioners'] Manila station/terminal') was issued any passenger-freight ticket conformably with law and practice. It is a fact of public knowledge that, in compliance with existing rules and laws, [Petitioner] Baritua, as a public utility operator, issues, thru his conductors, in appropriate situations, to a true passenger, the familiar and known passenger and freight ticket which reads in part: 'NOTICE Baggage carried at owner's risk x x x liability on prepaid freight otherwise declared. xxx xxx xxx

Whole Fare Paid P ___________________________ Declared value x x x. Description of Freight ________________________ Signature of Owner .' 3. It is also a fact of public knowledge that [Petitioner] Baritua does not have any 'Manila station/terminal,' because what he has is a Pasay city station. 4. [Petitioner] Baritua had no prior knowledge that, on or about March 17, 1983, and/or previous thereto, the Bugko Bailey Bridge (across Catarman-Laoang road) in Barangay Roxas, Mondragon, Northern Samar, was in virtual' dilapida[ted] and dangerous condition, in a state of decay and disrepair, thus calling for the concerned government and public officials' performance of their coordinative and joint duties and responsibilities, to repair, improve and maintain that bridge, in good and reasonably safe condition, but, far from performing or complying with said subject duties and responsibilities, the adverted officials concerned, without just cause, not only failed and neglected to cause such needed repair, improvement and maintenance of the Bugko Bailey Bridge, on or prior to March 17, 1983, but also failed, and neglected to either close the Bugko Bridge to public use and travel, and/or to put appropriate warning and cautionary signs, for repair, improvement, maintenance, and safety purposes. So that, as a proximate and direct consequence of the aggregate officials' nonfeasance, bad faith, negligence, serious inefficiency, and callous indifference to public safety, that Bugko Bridge collapsed inward and caved in ruin, on that March 17, 1983, while Baritua's bus 142 was cautiously and prudently passing and travelling across the said bridge, as a result of which the bus fell into the river and sea waters, despite the exercise and compliance by Baritua and his driver of their duties in the matter of their requisite degree of diligence, caution and prudence, Baritua also exercised and complied with the requisite duty

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of diligence, care, and prudence in the selection and supervision over his driver, contrary to the baseless imputation in paragraphs 14 and 20 of the original and amended complaints. Moreover, Baritua and his driver did not violate any traffic rule and regulation, contrary to plaintiffs' insinuation. 5. Furthermore, [Petitioner] Baritua and his driver have no causative connection with the alleged death of Dominador Mercader who, according to a reliable source, was already seriously suffering from a lingering illness even prior to his alleged demise. Baritua also learned lately, and so it is herein alleged that Dominador Mercader contributed considerably, to, and/or provided the proximate and direct cause of his own death, hence, he himself is to be blamed for whatever may have happened to him or for whatever may have been sustained by his supposed heirs, vis--vis the suit against the wrong party. 6. Baritua and his driver, as earlier stated, did not commit any actionable breach of contract with the alleged Dominador Mercader or the latter's supposed heirs. 7. There is no factual nor any legal basis for plaintiffs' proffered claims for damages. II. AFFIRMATIVE DEFENSES 8. Based on the preceding averments, plaintiffs have neither a cause nor a right of action against [Petitioner] Baritua and his driver. 8.1. The allegation that supposedly the 'x x x [p]laintiffs are the compulsory heirs of the late DOMINADOR MERCADER x x x' (par. 8, complaint) is too vague and too broad, as the subject allegation is a bare and pure conclusionary averment unaccompanied by the requisite statement of ultimate facts constitutive of a cause or right of action. 8.2. Even assuming arguendo, without however conceding, plaintiffs statement of a cause of action, the complaint is nonetheless replete with false and impertinent matters which fit the rule on striking out pleadings or parts thereof. To mention only a glaring few: 8.2.a. The allegation on exemplary damages x x x is impertinent and immaterial in the complaint against a supposed employer. For, even theoretically assuming, without however admitting a negligent act-omission on the part of a driver, nevertheless, in such a hypothetical situation, the causative negligence, if any there was, is personal to the wrongdoer, i.e., the employee-driver, to the exclusion of the employer. 8.2.b. The allegation on supposed 'minimum life of 75 years' and on 'he expects to earn no less than P1,680,000.00 x x x is false, a pure hyperbole, and bereft of factual and legal basis. Besides, what jurisprudential rule refers to is only net earning. The law abhors a claim, akin to plaintiffs' allegation, which is manifestly speculative, as it may not exist at all. Furthermore, the questioned allegation in the plaintiff's original and amended complaints is not preceded by the requisite statement of definitive facts, nor of any specific fact, which could possibly afford a rational basis for a reasonable expectation of supposed earning that could be lost, or impaired. 8.2.c. Likewise, the allegations that allegedly 'x x x the late Dominador Mercader boarded x x x Bus No. 142 x x x and that supposedly the latter had a baggage x x x containing drygoods x x x in which case [petitioners have] to pay the value thereof in such amount as may be proven by [respondents] in court during the trial x x x, apart from being false, are offensive to the rule on concise statement of ultimate facts. The assailed allegations also contravene Interim Rule 11, '(i)f any demand is for damages in a civil action the amount thereof must be specifically alleged.' In consequence of this averment, [respondents] have not yet paid the correct docket fee, for which reason, [respondents'] case may be dismissed on that ground alone.1wphi1.nt 8.3. In violation also of the same Interim Rule 11, regarding the requisite definitive amount of claim, the allegation on the supposed funeral expense x x x does not also indicate any specific amount. So with the averment on supposed moral damage which may not be warranted because of absence of allegation of fraud or bad faith, if any, there was, apart from want of causative connection with the defendant. 8.4. The allegation in paragraph 15 of the original and amended complaint is also a pure conclusionary averment, without a factual premise. 9. [Petitioner] JB LINE, impleaded in the amended, complaint, is merely a business name and sole proprietorship of defendant Baritua. As such, JB Line is not a juridical person, nor an entity authorized by law to sue and be sued, hence, it cannot legally be a party to any action. With this averment, correlated with that in paragraphs 4-5 hereof, [respondents'] amended complaint is essentially a suit against a wrong party."5 The RTC, after due trial, rendered the aforesaid assailed Decision. Ruling of the Court of Appeals As earlier stated, the Court of Appeals affirmed the trial court's award of monetary damages in favor of respondents, except the amount of Dominador Mercader's lost

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earnings, which it reduced to P798,000. It held that petitioners failed to rebut the presumption that in the event a passenger died or was injured, the carrier had acted negligently. Petitioners, it added, presented no sufficient proof that they had exercised extraordinary diligence. Hence, this Petition.6 The Issues In their Memorandum, petitioners submit the following issues for our consideration: "I Did the honorable Court of Appeals (CA) gravely abuse its discretion when it allowed to pass sub silencio the trial court's failure to rule frontally on petitioners' plea for a bill of particulars, and ignored the nature of respondents' prayer in the complaint pleading for an award of -'a) P12,000.00 -- representing the death compensation; b) An amount to be proven in court. representing actual damages; c) P1,660,000.00 or more as may be proven during the trial, by way of loss of earnings; d) An amount to be proven in court as and by way of funeral expenses; e) An amount to be proven during the trial representing moral damages; f) An amount to be determined by this Honorable Court, representing exemplary damages; g) An amount equivalent to 25% of whatever amount the plaintiffs would be able to collect from the defendant but in no case less than P50,000.00 plus an additional amount of P1,000.00 per hearing as and by way of Attorney's fees;' "II Did the CA also ignore the fact that the trial court was not paid the correct amount of the docket and other lawful fees; hence, without jurisdiction over the original and amended complaints or over the subject matter of the case; "III Did the CA likewise arbitrarily disregard petitioners' constitutional right to procedural due process and fairness when it ignored and thrust aside their right to present evidence and to expect that their evidence will be duly considered and appreciated; and "IV. In awarding excessive and extravagant damages, did the CA and the trial court adhere to the rule that their assailed decision must state clearly and distinctly the facts and the laws on which they are based?"7 Distilling the alleged errors cited above, petitioners raise two main issues for our consideration: (1) whether the CA erred in holding that the RTC had jurisdiction over the subject matter of the case, and (2) whether the CA disregarded petitioners' procedural rights. The Court's Ruling The Petition is devoid of merit. First Issue: Jurisdiction Petitioners contend that since the correct amounts of docket and other lawful fees were not paid by respondents, then the trial court did not acquire jurisdiction over the subject matter of the case. The Court, in Manchester Development Corporation v. CA,8 held that "[t]he court acquires jurisdiction over any case only upon the payment of the prescribed docket fee. An amendment of the complaint or similar pleading will not thereby vest jurisdiction in the court, much less the payment of the docket fee based on the amounts sought in the amended pleading. x x x." Generally, the jurisdiction of a court is determined by the statute in force at the commencement of the action,9 unless such statute provides for its retroactive application.10 Once the jurisdiction of a court attaches, it continues until the case is finally terminated.11 The trial court cannot be ousted therefrom by subsequent happenings or events, although of a character that would have prevented jurisdiction from attaching in the first instance.12

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The Manchester ruling, which became final in 1987, has no retroactive application and cannot be invoked in the subject Complaint filed in 1984. The Court explicitly declared: "To put a stop to this irregularity, henceforth all complaints, petitions, answers and other similar pleadings should specify the amount of damages being prayed for not only in the body of the pleading but also in the prayer, and said damages shall be considered in the assessment of the filing fees in any case. Any pleading that fails to comply with this requirement shall not be accepted nor admitted, or shall otherwise be expunged from the record."13 (emphasis supplied) Second Issue: Petitioners' Procedural Rights Motion for a Bill of Particulars Petitioners argue that the Court of Appeals erred when it passed sub silencio on the trial court's failure to rule frontally on their plea for a bill of particulars. We are not impressed. It must be noted that petitioners' counsel manifested in open court his desire to file a motion for a bill of particulars. The RTC gave him ten days from March 12, 1985 within which to do so.14 He, however, filed the aforesaid motion only on April 2, 1985 or eleven days past the deadline set by the trial court. 15 Moreover, such motion was already moot and academic because, prior to its filing, petitioners had already filed their answer and several other pleadings to the amended Complaint. Section 1, Rule 12 of the Rules of Court, provides: "Section 1. When applied for; purpose. -- Before responding to a pleading, a party may move for a more definite statement or for a bill of particulars of any matter which is not averred with sufficient definiteness or particularity to enable him properly to prepare his responsive pleading. If the pleading is a reply, the motion must be filed within ten (10) days from service thereof. Such motion shall point out the defects complained of, the paragraphs wherein they are contained, and the details desired."16 (emphasis supplied) Petitioners' Right to Adduce Evidence Petitioners also argue that their right to present evidence was violated by the CA, because it did not consider their contention that the trial judges who heard the case were biased and impartial. Petitioners contend, as they did before the CA, that Judge Tomas B. Noynay based his Decision" on certain chosen partial testimonies of [respondents'] witnesses x x x." They further maintain that Judge Fortunato Operario, who initially handled the case, questioned some witnesses in an overzealous manner and "assum[ed] the dual role of magistrate and advocate." 17 These arguments are not meritorious. First, judges cannot be expected to rely on the testimonies of every witness. In ascertaining the facts, they determine who are credible and who are not. In doing so, they consider all the evidence before them. In other words, the mere fact that Judge Noynay based his decision on the testimonies of respondents' witnesses does not necessarily mean that he did not consider those of petitioners. Second, we find no sufficient showing that Judge Operario was overzealous in questioning the witnesses. His questions merely sought to clarify their testimonies. In all, we reject petitioners' contention that their right to adduce evidence was violated. Alleged Failure to State Clearly the Facts and the Law We are not convinced by petitioners' contention, either, that both the trial and the appellate courts failed to state clearly and distinctly the facts and the law involved in the case. As can be gleaned from their Decisions, both courts clearly laid down their bases for awarding monetary damages to respondents. Both the RTC and the CA found that a contract of carriage existed between petitioners and Dominador Mercader when he boarded Bus No. 142 in Pasay City on March 16, 1983. Petitioners failed to transport him to his destination, because the bus fell into a river while traversing the Bugko Bailey Bridge. Although he survived the fall, he later died of asphyxia secondary to drowning. We agree with the findings of both courts that petitioners failed to observe extraordinary diligence18 that fateful morning. It must be noted that a common carrier, by the nature of its business and for reasons of public policy, is bound to carry passengers safely as far as human care and foresight can provide. It is supposed to do so by using the utmost diligence of very cautious persons, with due regard for all the circunistances.19 In case of death or injuries to passengers, it is presumed to have been at fault or to have acted negligently, unless it proves that it observed extraordinary diligence as prescribed in Articles 1733 and 1755 20 of the Civil Code.1wphi1.nt We sustain the ruling of the CA that petitioners failed to prove that they had observed extraordinary diligence. First, petitioners did not present evidence on the skill or expertise of the driver of Bus No. 142 or the condition of that vehicle at the time of the incident.

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Second, the bus was overloaded at the time. In fact, several individuals were standing when the incident occurred.21 Third, the bus was overspeeding. Its conductor testified that it had overtaken several buses before it reached the Bugko Bailey Bridge.22 Moreover, prior to crossing the bridge, it had accelerated and maintained its speed towards the bridge.23 We therefore believe that there is no reason to overturn the assailed CA Decision, which affirmed that of the RTC. It is a well-settled rule that the trial court's factual findings, when affirmed by the appellate court, are conclusive and binding, if they are not tainted with arbitrariness or oversight of some fact or circumstance of significance and influence.24 As clearly discussed above, petitioners have not presented sufficient ground to warrant a deviation from this rule. Finally, we cannot fault the appellate court in its computation of the damages and lost earnings, since it effectively computed only net earnings in accordance with existing jurisprudence.25 WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED. Costs against petitioners. SO ORDERED. G.R. No. 124110 April 20, 2001 c. Chicago to Los Angeles (29 April 1989); d. Los Angeles to San Francisco (01 may 1989 for petitioners wife and 05 May 1989 for petitioner and his son). 1 All flights had been confirmed previously by United Airlines. 2 The Fontanillas proceeded to the United States as planned, where they used the first coupon from San Francisco to Washington. On April 24, 1989, Aniceto Fontanilla bought two (2) additional coupons each for himself, his wife and his son from petitioner at its office in Washington Dulles Airport. After paying the penalty for rewriting their tickets, the Fontanillas were issued tickets with corresponding boarding passes with the words "CHECK-IN REQUIRED," for United Airlines Flight No. 1108, set to leave from Los Angeles to San Francisco at 10:30 a.m. on May 5, 1989.3 The cause of the non-boarding of the Fontanillas on United Airlines Flight No. 1108 makes up the bone of contention of this controversy.1wphi1.nt Private respondents version is as follows: Aniceto Fontanilla and his son Mychal claim that on May 5, 1989, upon their arrival at the los Angeles Airport for their flight, they proceeded to united Airlines counter where they were attended by an employee wearing a nameplate bearing the name "LINDA." Linda examined their tickets, punched something into her computer and then told them that boarding would be in fifteen minutes.4 When the flight was called, the Fontanillas proceeded to the plane. To their surprise, the stewardess at the gate did not allow them to board the plane, as they had no assigned seat numbers. They were then directed to go back to the "check-in" counter where Linda subsequently informed them that the flight had been overbooked and asked them to wait.5 The Fontanillas tried to explain to Linda the special circumstances of their visit. However, Linda told them in arrogant manner, "So what, I can not do anything about it."6 Subsequently, three other passengers with Caucasian features were graciously allowed to baord, after the Fontanillas were told that the flight had been overbooked.7 The plane then took off with the Fontanillas baggage in tow, leaving them behind.8

UNITED AIRLINES, INC., Petitioner vs. COURT OF APPEALS, ANICETO FONTANILLA, in his personal capacity and in behalf of his minor son MYCHAL ANDREW FONTANILLA, Respondents. KAPUNAN, J.: On March 1, 1989, private respondent Aniceto Fontanilla purchased from petitioner United Airlines, through the Philippine Travel Bureau in Manila three (3) "Visit the U.S.A." tickets for himself, his wife and his minor son Mychal for the following routes: a. San Francisco to Washinton (15 April 1989); b. Washington to Chicago (25 April 1989);

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The Fontanillas then complained to Linda, who in turn gave them an ugly stare and rudely uttered, "its not my fault. Its the fault of the company. Just sit down and wait."9 When Mr. Fontanilla reminded Linda of the inconvenience being caused to them, she bluntly retorted, "Who do you think you are? You lousy Flips are good for nothing beggars. You always ask for American aid." After which she remarked "Dont worry about your baggage. Anyway there is nothing in there. What are you doing here anyway? I will report you to immigration. You Filipinos should go home."10 Such rude statements were made in front of other people in the airport causing the Fontanillas to suffer shame, humiliation and embarrassment. The chastening situation even caused the younger Fontanilla to break into tears.11 After some time, Linda, without any explanation, offered the Fontanillas $50.00 each. She simply said "Take it or leave it." This, the Fontanillas declined.12 The Fontanillas then proceeded to the United Airlines customer service counter to plead their case. The male employee at the counter reacted by shouting that he was ready for it and left without saying anything.13 The Fontanillas were not booked on the next flight, which departed for San Francisco at 11:00 a.m. It was only at 12:00 noon that they were able to leave Los Angeles on United Airlines Flight No. 803. Petitioner United Airlines has a different version of what occurred at the Los Angeles Airport on May 5, 1989. According to United Airlines, the Fontanillas did not initially go to the check-in counter to get their seat assignments for UA Flight 1108. They instead proceeded to join the queue boarding the aircraft without first securing their seat assignments as required in their ticket and boarding passes. Having no seat assignments, the stewardess at the door of the plane instructed them to go to the check-in counter. When the Fontanillas proceeded to the check-in counter, Linda Allen, the United Airlines Customer Representative at the counter informed them that the flight was overbooked. She booked them on the next available flight and offered them denied boarding compensation. Allen vehemently denies uttering the derogatory and racist words attributed to her by the Fontanillas.14 The incident prompted the Fontanillas to file Civil Case No. 89-4268 for damages before the Regional Trial Court of Makati. After trial on the merits, the trial court rendered a decision, the dispositive portion of which reads as follows: WHEREFORE, judgment is rendered dismissing the complaint. The counterclaim is likewise dismissed as it appears that plaintiffs were not actuated by legal malice when they filed the instant complaint.15 On appeal, the Court of Appeals ruled in favor of the Fontanillas. The appellate court found that there was an admission on the part of United Airlines that the Fontanillas did in fact observe the check-in requirement. It ruled further that even assuming there was a failure to observe the check-in requirement, United Airlines failed to comply with the procedure laid down in cases where a passenger is denied boarding. The appellate court likewise gave credence to the claim of Aniceto Fontanilla that the employees of United Airlines were discourteous and arbitrary and, worse, discriminatory. In light of such treatment, the Fontanillas were entitled to moral damages. The dispositive portion of the decision of the respondent Court of Appeals dated 29 September 1995, states as follows: WHEREFORE, in view of the foregoing, judgment appealed herefrom is hereby REVERSED and SET ASIDE, and a new judgment is entered ordering defendantappellee to pay plaintiff-appellant the following:

P200,000.00 as moral damages; P200,000.00 as exemplary damages; P50,000.00 as attorneys fees; No pronouncement as to costs. SO ORDERED.16 Petitioner United Airlines now comes to this Court raising the following assignments of errors;

I RESPONDENT COURT OF APPEALS GRVAELY ERRED IN RULING THAT THE TRIAL COURT WAS WRONG IN FAILING TO CONSIDER THE ALLEGED ADMISSION THAT PRIVATE RESPONDENT OBSERVED THE CHECK-IN REQUIREMENT.

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II RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE RESPONDENTS FAILURE TO CHECK-IN WILL NOT DEFEAT HIS CLAIMS BECAUSE THE DENIED BOARDING RULES WERE NOT COMPLIED WITH. 7. On May 5, 1989 at 9:45 a.m., plaintiff and his son checked in at defendants designated counter at the airport in Los Angeles for their scheduled flight to San Francisco on defendants Flight No. 1108.20 Responding to the above allegations, petitioner averred in paragraph 4 of its answer, thus: 4. Admits the allegation set forth in paragraph 7 of the complaint except to deny that plaintiff and his son checked in at 9:45 a.m., for lack of knowledge or information at this point in time as to the truth thereof.21 The rule authorizing an answer that the defendant has no knowledge or information sufficient to form a belief as to the truth of an averment giving such answer is asserted is so plainly and necessarily within the defendants knowledge that his averment of ignorance must be palpably untrue. 22 Whether or not private respondents checked in at petitioners designated counter at the airport at 9:45 a.m. on May 5, 1989 must necessarily be within petitioners knowledge. While there was no specific denial as to the fact of compliance with the "check-in" requirement by private respondents, petitioner presented evidence to support its contention that there indeed was no compliance. Private respondents then are said to have waived the rule on admission. It not only presented evidence to support its contention that there was compliance with the check-in requirement, it even allowed petitioner to present rebutal evidence. In the case of Yu Chuck vs. "Kong Li Po," we ruled that: The object of the rule is to relieve a party of the trouble and expense in proving in the first instance an alleged fact, the existence or non-existence of which is necessarily within the knowledge of the adverse party, and of the necessity (to his opponents case) of establishing which such adverse party is notified by his opponents pleadings. The plaintiff may, of course, waive the rule and that is what must be considered to have done (sic) by introducing evidence as to the execution of the document and failing to object to the defendants evidence in refutation; all this evidence is now competent and the case must be decided thereupon.23 The determination of the other issues raised is dependent on whether or not there was a breach of contract in bad faith on the part of the petitioner in not allowing the Fontanillas to board United Airlines Flight 1108.

III RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE RESPONDENT IS ENTITLED TO MORAL DAMAGES OF P200,000. IV RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE RESPONDENT IS ENTITLED TO EXEMPLARY DAMAGES OF P200,000. V RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE RESPONDENT IS ENTITLED TO ATTORNEYS FEES OF P50,000.17

On the first issue raised by the petitioner, the respondent Court of Appeals ruled that when Rule 9, Section 1 of the Rules of Court,18 there was an implied admission in petitioners answer in the allegations in the complaint that private respondent and his son observed the "check-in requirement at the Los Angeles Airport." Thus: A perusal of the above pleadings filed before the trial court disclosed that there exist a blatant admission on the part of the defendant-appellee that the plaintiffsappellants indeed observed the "check-in" requirement at the Los Angeles Airport on May 5, 1989. In view of defendant-appellees admission of plaintiffs-appellants material averment in the complaint. We find no reason why the trial court should rule against such admission.19

We disagree with the above conclusion reached by respondent Court of Appeals. Paragraph 7 of private respondents complaint states:

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It must be remembered that the general rule in civil cases is that the party having the burden of proof of an essential fact must produce a preponderance of evidence thereon.24 Although the evidence adduced by the plaintiff is stronger than that presented by the defendant, a judgment cannot be entered in favor of the former, if his evidence is not sufficient to sustain his cause of action. The plaintiff must rely on the strength of his own evidence and not upon the weakness of the defendants. 25 Proceeding from this, and considering the contradictory findings of facts by the Regional Trial Court and the Court of Appeals, the question before this Court is whether or not private respondents were able to prove with adequate evidence his allegations of breach of contract in bad faith. We rule in the negative. Time and again, the Court has pronounced that appellate courts should not, unless for strong and cogent reasons, reverse the findings of facts of trial courts. This is so because trial judges are in better position to examine real evidence and at a vantage point to observe the actuation and the demeanor of the witnesses.26 While not the sole indicator of the credibility of a witness, it is of such weight that it has been said to be the touchstone of credibility.27 Aniceto Fontanillas assertion that upon arrival at the airport at 9:45 a.m., he immediately proceeded to the check-in counter, and that Linda Allen punched in something into the computer is specious and not supported by the evidence on record. In support of their allegations, private respondents submitted a copy of the boarding pass. Explicitly printed on the boarding pass are the words "Check-In Required." Curiously, the said pass did not indicate any seat number. If indeed the Fontanillas checked in at the designated time as they claimed, why then were they not assigned seat numbers? Absent any showing that Linda was so motivated, we do not buy into private respondents claim that Linda intentionally deceived him, and made him the laughing stock among the passengers.28 Hence, as correctly observed by the trial court: Plaintiffs fail to realize that their failure to check in, as expressly required in their boarding passes, is they very reason why they were not given their respective seat numbers, which resulted in their being denied boarding.29 Neither do we agree with the conclusion reached by the appellate court that private respondents failure to comply with the check-in requirement will not defeat his claim as the denied boarding rules were not complied with. Notably, the appellate court relied on the Code of Federal Regulation Part on Oversales which states: 250.6 Exceptions to eligibility for denied boarding compensation. A passenger denied board involuntarily from an oversold flight shall not be eligible for denied board compensation if: The passenger does not comply with the carriers contract of carriage or tariff provisions regarding ticketing, reconfirmation, check-in, and acceptability for transformation.

The appellate court, however, erred in applying the laws of the United States as, in the case at bar, Philippine law is the applicable law. Although, the contract of carriage was to be performed in the United States, the tickets were purchased through petitioners agent in Manila. It is true that the tickets were "rewritten" in Washington, D.C. however, such fact did not change the nature of the original contract of carriage entered into by the parties in Manila. In the case of Zalanea vs. Court of Appeals,30 this Court applied the doctrine of lex loci contractus. According to the doctrine, as a general rule, the law of the place where a contract is made or entered into governs with respect to its nature and validity, obligation and interpretation. This has been said to be the rule even though the place where the contract was made is different from the place where it is to be performed, and particularly so, if the place of the making and the place of performance are the same. Hence, the court should apply the law of the place where the airline ticket was issued, when the passengers are residents and nationals of the forum and the ticket is issued in such State by the defendant airline. The law of the forum on the subject matter is Economic Regulations No. 7 as amended by Boarding Priority and Denied Board Compensation of the Civil Aeronautics Board which provides that the check-in requirement be complied with before a passenger may claim against a carrier for being denied boarding: Sec. 5. Amount of Denied Boarding Compensation Subject to the exceptions provided hereinafter under Section 6, carriers shall pay to passengers holding confirmed reserved space and who have presented themselves at the proper place and time and fully complied with the carriers check-in and reconfirmation procedures and who are acceptable for carriage under the Carriers tariff but who have been denied boarding for lack of space, a compensation at the rate of: xxx Private respondents narration that they were subjected to harsh and derogatory remarks seems incredulous. However, this Court will not attempt to surmise what really happened, suffice to say, private respondent was not able to prove his cause of action, for as the trial court correctly observed:

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xxx plaintiffs claim to have been discriminated against and insulted in the presence of several people. Unfortunately, plaintiffs limited their evidence to the testimony of Aniceto Fontanilla, without any corroboration by the people who saw or heard the discriminatory remarks and insults; while such limited testimony could possibly be true, it does not enable the Court to reach the conclusion that plaintiffs have, by a preponderance of evidence, proven that they are entitled to P1,650,000.00 damages from defendant.31 As to the award of moral and exemplary damages, we find error in the award of such by the Court of Appeals. For the plaintiff to be entitled to an award of moral damages arising from a breach of contract of carriage, the carrier must have acted with fraud or bad faith. The appellate court predicated its award on our pronouncement in the case of Zalanea vs. Court of Appeals, supra, where we stated: Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling passengers concerned to an award of moral damages. In Alitalia Airways vs. Court of Appeals, where passengers with confirmed booking were refused carriage on the last minute, this Court held that when an airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger has every right to except that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage. Where an airline had deliberately overbooked, it took the risk of having to deprive some passengers of their seats in case all of them would show up for check in. For the indignity and inconvenience of being refused a confirmed seat on the last minute, said passenger is entitled to moral damages. (Emphasis supplied). However, the Courts ruling in said case should be read in consonance with existing laws, particularly, Economic Regulations No. 7, as amended, of the Civil Aeronautics Board: Sec. 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to its operation of flights or portions of flights originating from or terminating at, or serving a point within the territory of the Republic of the Philippines insofar as it denies boarding to a passenger on a flight, or portion of a flight inside or outside the Philippines, for which he holds confirmed reserved space. Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and excludes deliberate and willful acts of non-accommodation. Provided, however, that overbooking not exceeding 10% of the seating capacity of the aircraft shall not be considered as a deliberate and willful act of nonaccommodation. What this Court considers as bad faith is the willful and deliberate overbooking on the part of the airline carrier. The above-mentioned law clearly states that when the overbooking does not exceed ten percent (10%), it is not considered as deliberate and therefore does not amount to bad faith. While there may have been overbooking in this case, private respondents were not able to prove that the overbooking on United Airlines Flight 1108 exceeded ten percent. As earlier stated, the Court is of the opinion that the private respondents were not able to prove that they were subjected to coarse and harsh treatment by the ground crew of united Airlines. Neither were they able to show that there was bad faith on part of the carrier airline. Hence, the award of moral and exemplary damages by the Court of Appeals is improper. Corollarily, the award of attorneys fees is, likewise, denied for lack of any legal and factual basis. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 37044 is hereby REVERSED and SET ASIDE. The decision of the Regional Trial Court of Makati City in Civil Case No. 89-4268 dated April 8, 1991 is hereby REINSTATED. G.R. No. 116940 June 11, 1997 THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner, vs. COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.

BELLOSILLO, J.: This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be subrogated to the rights of the insured upon payment of the insurance claim. On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu. 1 The shipment was insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No. 100367-PAG.

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"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the same day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles. On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its claim of P755,250.00. Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and damages. In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo were due to the vessel's unseaworthiness as she was put to sea in an unstable condition. It further alleged that the vessel was improperly manned and that its officers were grossly negligent in failing to take appropriate measures to proceed to a nearby port or beach after the vessel started to list. On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its rights, interests and ownership over "MV Asilda" together with her freight and appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of Commerce. 2 On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set aside the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a petition for certiorari with this Court but it was subsequently denied on 13 February 1989. On 28 February 1992 the trial court rendered judgment in favor of FELMAN. 3 It ruled that "MV Asilda" was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and the shipowner's surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire shipment could only be attributed to either a fortuitous event, in which case, no liability should attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce should apply. The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN could not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the vessel's seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken payment. Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit it to bring an action in court as a subrogee. On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In other words, while the vessel possessed the necessary Coast Guard certification indicating its seaworthiness with respect to the structure of the ship itself, it was not seaworthy with respect to the cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assured's implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests of the shipper. Furthermore, respondent court held that the filing of notice of abandonment had absolved the shipowner/agent from liability under the limited liability rule. The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it left the port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should apply; and, (c) whether PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had against FELMAN, the shipowner. "MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well as the chief mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for eggs and about 500 cases of CocaCola bottles on deck. 4 The ship captain stated that around four o'clock in the morning of 7 July 1983 he was awakened by the officer on duty to inform him that the vessel had hit a floating log. At that time he noticed that the weather had deteriorated with strong southeast winds inducing big waves. After thirty minutes he observed that the vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and pitching. He then ordered his crew to shift the cargo from starboard to portside until the vessel was balanced. At about seven o'clock in the morning, the master of the vessel stopped the engine because the

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vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to starboard. The shifting of cargo took about an hour afterwhich he rang the engine room to resume full speed. At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his next move, some of the cargo on deck were thrown overboard and seawater entered the engine room and cargo holds of the vessel. At that instance, the master of the vessel ordered his crew to abandon ship. Shortly thereafter, "MV Asilda" capsized and sank. He ascribed the sinking to the entry of seawater through a hole in the hull caused by the vessel's collision with a partially submerged log. 5 The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report, which was adopted by the Court of Appeals, reads We found in the course of our investigation that a reasonable explanation for the series of lists experienced by the vessel that eventually led to her capsizing and sinking, was that the vessel was top-heavy which is to say that while the vessel may not have been overloaded, yet the distribution or stowage of the cargo on board was done in such a manner that the vessel was in top-heavy condition at the time of her departure and which condition rendered her unstable and unseaworthy for that particular voyage. In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel . . . and it was not designed to carry a substantial amount or quantity of cargo on deck. Therefore, we believe strongly that had her cargo been confined to those that could have been accommodated under deck, her stability would not have been affected and the vessel would not have been in any danger of capsizing, even given the prevailing weather conditions at that time of sinking. But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy for the purpose of carrying the type of cargo because the weight of the deck cargo so decreased the vessel's metacentric height as to cause it to become unstable. Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships are precisely designed to be able to navigate safely even during heavy weather and frequently we hear of ships safely and successfully weathering encounters with typhoons and although they may sustain some amount of damage, the sinking of ship during heavy weather is not a frequent occurrence and is not likely to occur unless they are inherently unstable and unseaworthy . . . . We believe, therefore, and so hold that the proximate cause of the sinking of the M/V "Asilda" was her condition of unseaworthiness arising from her having been topheavy when she departed from the Port of Zamboanga. Her having capsized and eventually sunk was bound to happen and was therefore in the category of an inevitable occurrence (emphasis supplied). 6 We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship captain's allegations, evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck. Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking. Considering that the ship's hatches were properly secured, the empty Coca-Cola cases recovered could have come only from the vessel's deck cargo. It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown that the deck cargo will not interfere with the proper management of the ship. However, in this case it was established that "MV Asilda" was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric height 7 thus making it unstable. The strong winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and unseaworthy condition. On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar. 8 Simply put, the ship agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This liability however can be limited through abandonment of the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the abandonment, as where the loss or injury was due to the fault of the shipowner and the captain. 9 The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not apply to cases where the injury or average was occasioned by the shipowner's own fault. 10 It must be stressed at this point that Art. 587 speaks only of situations where the fault or negligence is committed solely by the captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the Civil Code on common carrier. 11 It was already established at the outset that the sinking of "MV Asilda" was due to its unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN was equally negligent. It cannot therefore escape

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liability through the expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce. Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case . . ." In the event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption. In relation to the question of subrogation, respondent appellate court found "MV Asilda" unseaworthy with reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the assured not entitled to the payment of is claim under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a "voluntary payment" and no right of subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk. It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy. 12 Thus Sec. 113 of the Insurance Code provides that "(i)n every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a warranty is implied that the ship is seaworthy." Under Sec. 114, a ship is "seaworthy when reasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy." Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. He may have no control over the vessel but he has full control in the selection of the common carrier that will transport his goods. He also has full discretion in the choice of assurer that will underwrite a particular venture. We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed out by FELMAN to stress that subrogation will not work in this case. In policies where the law will generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language. 13 And where the policy stipulates that the seaworthiness of the vessel as between the assured and the assurer is admitted, the question of seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation by the assured. 14 The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads "(t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as between the Assured and the Company shall not prejudice the insurance. The seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted." 15 The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states "(t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted . . . ." 16 The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the insurance company. 17 The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable. Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's action against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides: Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the assurer to the assured operates as an equitable assignment to the assurer of all the remedies which the assured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the insurance claim.

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The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay. 19 Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable. WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code. 20 [G.R. No. L-46558 : July 31, 1981.] PHILIPPINE AIR LINES, INC., Petitioner, vs. THE COURT OF APPEALS and JESUS V. SAMSON, Respondents. However, Plaintiff-Appellee, who has been deprived of his job since 1954, is entitled to the legal rate of interest on the P198,000.00 unearned income from the filing of the complaint cranad(Sec. 8, Rule 51, Rules of Court). WHEREFORE, with the modification indicated above, the judgment appealed from is affirmed, with costs against defendant-appellant. The complaint filed on July 1, 1954 by plaintiff Jesus V. Samson, private respondent herein, averred that on January 8, 1951, he flew as co-pilot on a regular flight from Manila to Legaspi with stops at Daet, Camarines Norte and Pili, Camarines Sur, with Captain Delfin Bustamante as commanding pilot of a C-47 plane belonging to defendant Philippine Air Lines, Inc., now the herein petitioner; that on attempting to land the plane at Daet airport, Captain Delfin Bustamante due to his very slow reaction and poor judgment overshot the airfield and as a result, notwithstanding the diligent efforts of the plaintiff co-pilot to avert an accident, the airplane crashlanded beyond the runway; that the jolt caused the head of the plaintiff to hit and break through the thick front windshield of the airplane causing him severe brain concussion, wounds and abrasions on the forehead with intense pain and suffering cranad(par. 6, complaint).:onad The complaint further alleged that instead of giving plaintiff expert and proper medical treatment called for by the nature and severity of his injuries, defendant simply referred him to a company physician, a general medical practitioner, who limited the treatment to the exterior injuries without examining the severe brain concussion of plaintiff cranad(par. 7, complaint); that several days after the accident, defendant Philippine Air Lines called back the plaintiff to active duty as co-pilot, and inspite of the latters repeated request for expert medical assistance, defendant had not given him any cranad(par. 8, complaint); that as a consequence of the brain injury sustained by plaintiff from the crash, he had been having periodic dizzy spells and had been suffering from general debility and nervousness cranad(par. 9, complaint); that defendant airline company instead of submitting the plaintiff to expert medical treatment, discharged the latter from its employ on December 21, 1953 on grounds of physical disability, thereby causing plaintiff not only to lose his job but to become physically unfit to continue as aviator due to defendants negligence in not giving him the proper medical attention cranad(pars. 10-11, complaint). Plaintiff prayed for damages in the amount of P180,000.00 representing his unearned income, P50,000.00 as moral damages, P20,000.00 as attorneys fees and P5,000.00 as expenses, or a total of P255,000.00. In its answer filed on July 28, 1954, defendant PAL denied the substantial averments in the complaint, alleging among others, that the accident was due solely and exclusively to inevitable unforeseen circumstances whereby plaintiff sustained

DECISION

GUERRERO, J.:

This is a petition for review on Certiorari of the decision of the Court of Appeals 1 dated April 18, 1977, affirming with modification the decision of the Court of First Instance of Albay in Civil Case No. 1279, entitled Jesus V. Samson, plaintiff, vs. Philippine Air Lines, Inc., defendant, for damages. The dispositive portion of the trial courts decision reads: WHEREFORE, for all the foregoing considerations, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the defendant to pay the plaintiff, the following sums: P1988,000.00 as unearned income or damages; P50,000.00 for moral damages; P20,000.00 as attorneys fees and P5,000.00 as expenses of litigation, or a total of P273,000.00. Costs against the defendant. The appellate court modified the above decision, to wit:

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only superficial wounds and minor injuries which were promptly treated by defendants medical personnel cranad(par. 5, answer); that plaintiff did not sustain brain injury or cerebral concussion from the accident since he passed the annual physical and medical examination given thereafter on April 24, 1951; that the headaches and dizziness experienced by plaintiff were due to emotional disturbance over his inability to pass the required up-grading or promotional course given by defendant company cranad(par. 6, answer), and that, as confirmed by an expert neuro-surgeon, plaintiff was suffering-from neurosis and in view of this unfitness and disqualification from continuing as a pilot, defendant had to terminate plaintiffs employment cranad(pars. 7, 9, answer). Further, defendant alleged that by the very nature of its business as a common carrier, it is bound to employ only pilots who are proficient and in good mental, emotional and physical condition; that the pilot, Captain Delfin Bustamante, was a competent and proficient pilot, and although he was already afflicted with a tumor of the nasopharynx even before the accident of January 8, 1951, the Civil Aeronautics Administration, in passing upon the fitness of pilots, gave Capt. Bustamante a waiver of physical standards to enable him to retain his first class airman certificate since the affliction had not in the least affected his proficiency cranad(pars. 16-17, answer). By way of counterclaim, defendant prayed for P10,000.00 as expenses for the litigation. On March 25, 1958, defendant filed a Motion to Dismiss on the ground that the complaint is essentially a Workmens Compensation claim, stating a cause of action not cognizable within the general jurisdiction of the court. The Motion to Dismiss was denied in the order of April 14, 1958. After the reception of evidence, the trial court rendered on January 15, 1973 the decision, the dispositive portion of which has been earlier cited. The defendant Philippine Air Lines, Inc. appealed the decision to the Court of Appeals as being contrary to law and unsupported by the evidence. It raised as errors of the trial court cranad(a) the holding that the damages allegedly suffered by plaintiff are attributable to the accident of January 8, 1951 which was due to the negligence of defendant in having allowed Capt. Delfin Bustamante to continue flying despite his alleged slow reaction and poor judgment; cranad(b) the finding that defendant was negligent in not having given plaintiff proper and adequate expert medical treatment and assistance for the injuries allegedly sustained in the accident of January 8, 1951; and cranad(c) in ordering defendant to pay actual or compensatory damages, moral damages and attorneys fees to the plaintiff. On April 18, 1977, the Court of Appeals rendered its decision affirming the judgment of the lower court but modified the award of damages by imposing legal rate of interest on the P198,000.00 unearned income from the filing of the complaint, citing Sec. 8, Rule 51 of the Rules of Court. Its motion for reconsideration of the above judgment having been denied, Philippine Air Lines, Inc. filed this instant petition for Certiorari on the ground that the decision is not in accord with law or with the applicable jurisprudence, aside from its being replete with findings in the nature of speculation, surmises and conjectures not borne out by the evidence on record thereby resulting to misapprehension of facts and amounting to a grave abuse of discretion cranad(p. 7, Petition). Petitioner raises the fundamental question in the case at bar as follows: Is there a causal connection between the injuries suffered by private respondent during the accident on 8 January 1951 and the subsequent periodic dizzy spells, headache and general debility of which private respondent complained every now and then, on the one hand, and such periodic dizzy spells, headache and general debility allegedly caused by the accident and private respondents eventual discharge from employment, on the other? PAL submits that respondent courts award of damages to private respondent is anchored on findings in the nature of speculations, surmises and conjectures and not borne out by the evidence on record, thereby resulting in a misapprehension of facts and amounting to a grave abuse of discretion. Petitioners submission is without merit. As found by the respondent court, the following are the essential facts of the case: It appears that plaintiff, a licensee aviator, was employed by defendant a few years prior to January 8, 1951 as a regular co-pilot on a guaranteed basic salary of P750.00 a month. He was assigned to and/or paired with pilot Delfin Bustamante. Sometime in December 1950, he complained to defendant through its authorized official about the slow reaction and poor judgment of pilot Delfin Bustamante. Notwithstanding said complaint, defendant allowed the pilot to continue flying. On January 8, 1951, the two manned the regular afternoon flight of defendants plane from Manila to Legaspi, with stops at Daet, Camarines Norte, and Pili, Camarines Sur. Upon making a landing at Daet, the pilot, with his slow reaction and poor judgment, overshot the airfield and, as a result of and notwithstanding diligent efforts of plaintiff to avert an accident, the airplane crash-landed beyond the runway into a mangrove. The jolt and impact caused plaintiff to hit his head upon the front windshield of the plane thereby causing his brain concussions and wounds on the forehead, with concomittant intense pain.

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Plaintiff was not given proper medical attention and treatment demanded by the nature and severity of his injuries. Defendant merely referred him to its clinic attended by general practitioners on his external injuries. His brain injury was never examined, much less treated. On top of that negligence, defendant recalled plaintiff to active duty as a co-pilot, completely ignoring his plea for expert medical assistance. Suffering periodic dizzy spells, headache and general debility, plaintiff every now and then complained to defendant. To make matters worst for plaintiff, defendant discharged him from his employment on December 21, 1953. In consequence, plaintiff has been beset with additional worries, basically financial. He is now a liability instead of a provider, of his family. On July 1, 1954, plaintiff filed a complaint for damages. Defendant vainly sought to dismiss the complaint after filing an answer. Then, the judgment and this appeal. Continuing, the respondent Court of Appeals further held: There is no question about the employment of plaintiff by defendant, his age and salary, the overshooting by pilot Bustamante of the airfield and crashlanding in a mangrove, his hitting his head on the front windshield of the plane, his intermittent dizzy spells, headache and general debility for which he was discharged from his employment on December 21, 1953. As the lower court aptly stated: From the evidence adduced by the parties, the Court finds the following facts to be uncontroverted: That the plaintiff Jesus V. Samson, on January 8, 1951 and a few years prior thereto, December 21, 1953, was a duly licensed pilot employed as a regular co-pilot of the defendant with assignment in its domestic air service in the Philippines; that on January 8, 1951, the defendants airplane met an accident in crashlanding at the Daet Airport, Camarines Norte by overshooting the runway and reaching the mangroves at the edge of the landing strip; that the jolt caused plaintiffs head to hit the front windshield of the airplane causing him to suffer wounds and abrasion on the forehead; that the defendant, instead of giving the plaintiff expert and proper medical treatment called for by the nature and severity of the injuries of the plaintiff, simply referred him to the clinic of the defendants physicians who are only general medical practitioners and not brain specialists; that the defendants physicians limited their treatment to the exterior injuries on the forehead of the plaintiff and made no examination of the severe concussion of the brain of the plaintiff; that the Medical Director and Flight Surgeon of the defendant were not able to definitely determine the cause of the complaint of the plaintiff as to the periodic attack of dizziness, spells and headache; that due to this laxity of the defendants physician and the continuous suffering of the ailment of the plaintiff complained of, he demanded for expert medical assistance for his brain injury and to send him to the United States, which demand was turned down and in effect denied by the defendant; that instead the defendant referred the plaintiff to a neurologist, Dr. Victor Reyes; that from the time that said accident occurred on January 21, 1953, he was ordered grounded on several occasions because of his complaint of dizzy spells and headache; that instead of submitting the plaintiff to expert medical treatment as demanded by him and denied by the defendant, he was discharged from its employment on December 21, 1953 on the ground of physical disability, and that the plaintiff, at the time when the defendants plane met the accident, up to the time he was discharged, was regularly employed as a co-pilot and receiving a basic salary of P750.00 a month plus extra pay for flying time, and bonuses amounting to P300.00 a month. Even defendant-appellant itself admits as not controverted the following facts which generally admit what have been stated above as not controverted. In the case at bar, the following facts are not the subject of controversy: (1) First, that from July 1950 to 21 December 1953, plaintiff was employed with defendant company as a first officer or co-pilot and served in that capacity in defendants domestic services. (2) Second, that on January 1951, plaintiff did fly on defendants PI-C 94, as first officer or co-pilot, with the late Capt. Delfin Bustamante in command as pilot; that while making a landing at the Daet airport on that date, PI-C 94 did meet an accident as stated above. (3) Third, that at or about the time of the discharge from defendant company, plaintiff had complained of spells of dizziness, headaches and nervousness, by reason of which he was grounded from flight duty. In short, that at that time, or approximately from November 1953 up to the date of his discharge on 21 December 1953, plaintiff was actually physically unfit to discharge his duties as pilot. (4) Fourth, that plaintiffs unfitness for flight duty was properly established after a thorough medical examination by competent medical experts.cralaw cranad(pp. 1112, appellants brief) hence, there can hardly be an issue, factual, legal or medical. Taking exception from the rest of the essential facts of the case as found by the respondent court PAL claims said facts are not fully borne out by the evidence on record and insists that the injuries suffered by private respondent during the

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accident on January 8, 1951 were superficial in nature; that the periodic spells, headache, and general debility complaint of every now and then by private respondent subsequent to the Jan. 8, 1951 incident were due to emotional disturbances and that no negligence can be attributed to Capt. Delfin Bustamante much less to PAL for the occurrence on January 8, 1951, hence PAL cannot be held liable for damages. Petitioner claims absence of any causal connection between private respondents superficial injuries and his alleged subsequent periodic spells, headache and general debility, pointing out that these subsequent ailments were found by competent physician, including an expert neuro-surgeon, to be due to emotional disturbances insights the conclusions of Dr. Trajano V. Bernardo that respondents complaints were psychosomatic symptoms on the basis of declarations made by respondent himself, which conclusions are supported by similar diagnosis made by Drs. Damaceno J. Ago and Villaraza stating that respondent Samson was suffering from neurosis as well as the report of Dr. Victor Reyes, a neurological specialist, indicating that the symptoms were probably, most probably due to psychogenic factors and have no organic basis. In claiming that there is no factual basis for the finding of the respondent court that the crash-landing caused respondents brain concussion . cra ., with concomittant intense pain, for on the contrary, testimonial evidence establish the superficiality of the injuries sustained by respondent during the accident of January 8, 1951, petitioner quotes portions of the testimony of Dr. Manuel S. Sayas, who declared that he removed the band-aid on the forehead of respondent and that he found out after removal that the latter had two contussed superficial wounds over the supra orbiter regions or just above the eyes measuring one centimeter long and one millimeter deep. He examined and found his blood pressure normal, no discharges from the nose and ears. Dr. Trajano V. Bernardo also testified that when he examined respondent Samson three days after the accident, the wound was already healed and found nothing wrong with his ears, nose and throat so that he was declared fit for duty after the sixth day. Petitioner goes further. It contends that there is no causal connection between respondents superficial injuries sustained during the accident on January 8, 1951 and plaintiffs discharge from employment with PAL on December 21, 1953. According to PAL, it was the repeated recurrence of respondents neurasthenic symptoms cranad(dizzy spells, headache, nervousness) which prompted PALs Flight Surgeon, Dr. Bernardo, to recommend that plaintiff be grounded permanently as respondent was psychologically unfit to resume his duties as pilot. PAL concludes that respondents eventual discharge from employment with PAL was effected for absolutely valid reasons, and only after he was thoroughly examined and found unfit to carry out his responsibilities and duties as a pilot.:onad We agree with the respondent court in finding that the dizzy spells, headache and general debility of private respondent Samson was an after-effect of the crashlanding and We find that such holding is supported by substantial evidence, which We quote from the courts decision, to wit: Defendant would imply that plaintiff suffered only superficial wounds which were treated and not brain injury. It would, by the opinion of its company doctors, Dr. Bernardo and Dr. Reyes, attribute the dizzy spells and headache to organic or as phychosomatic, neurasthenic or psychogenic, which we find outlandishly exaggerated. That plaintiffs condition as psychosomatic rather than organic in nature is allegedly confirmed by the fact that on six cranad(6) separate occasions after the accident he passed the required CAA physical examination for airmans certificate. cranad(Exhs. 78, 79, 80, 81, 83 and 92). We noticed, however, that there were other similar physical examinations conducted by the CAA on the person of plaintiff the report on which were not presented in evidence. Obviously, only those which suited defendants cause were hand-picked and offered in evidence. We hesitate to accept the opinion of the defendants two physicians, considering that Dr. Bernardo admittedly referred to Dr. Reyes because he could not determine the cause of the dizzy spells and headache and the latter admitted that it is extremely hard to be certain of the cause of his dizzy spells, and suggested a possibility that it was due to postraumatic syndrome, evidently due to the injuries suffered by the plaintiff in hitting the forehead against the windshield of the plane during the accident. Judgment are not based on possibilities. The admitted difficulty of defendants doctors in determining the cause of the dizzy spells and headache cannot be a sound basis for finding against the plaintiff and in favor of defendant. Whatever it might be, the fact is that such dizzy spells, headache and general debility was an after-effect of the crash-landing. Be it brain injury or psychosomatic, neurasthenic or psychogenic, there is no gainsaying the fact that it was caused by the crash-landing. As an effect of the cause, not fabricated or concocted, plaintiff has to be indemnified. The fact is that such effect caused his discharge. We are prone to believe the testimony of the plaintiffs doctors.

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Dr. Morales, a surgeon, found that blood was coming from plaintiffs ears and nose. He testified that plaintiff was suffering from cerebral concussion as a result of traumatic injury to the brain caused by his head hitting on the windshield of the plane during the crash-landing cranad(Exhibit G). Dr. Conrado Aramil, a neurologist and psychiatrist with experience in two hospitals abroad, found abnormality reflected by the electroencephalogram examination in the frontal area on both sides of plaintiffs head cranad(Exhibits K, K-1). The opinion of these two specialist renders unnecessary that of plaintiffs wife who is a physician in her own right and because of her relation to the plaintiff, her testimony and opinion may not be discussed here, although her testimony is crystallized by the opinions of Dr. Ador Dionisio, Dr. Marquez, Dr. Jose O. Chan, Dr. Yambao and Dr. Sandico. Even the doctors presented by defendant admit vital facts about plaintiffs brain injury. Dr. Bernardo admits that due to the incident, the plaintiff continuously complained of his fainting spells, dizziness and headache everytime he flew as a copilot and everytime he went to defendants clinic no less than 25 times cranad(Exhibits 15 to 36), that he complained of the same to Dr. Reyes; that he promised to help send plaintiff to the United States for expert medical assistance provided that whatever finding thereat should not be attributed to the crash-landing incident to which plaintiff did not agree and that plaintiff was completely ignored by the defendant in his plea for expert medical assistance. They admitted that they could not determine definitely the cause of the fainting spells, dizziness and headache, which justifies the demand for expert medical assistance. We also find the imputation of gross negligence by respondent court to PAL for having allowed Capt. Delfin Bustamante to fly on that fateful day of the accident on January 8, 1951 to be correct, and We affirm the same, duly supported as it is by substantial evidence, clearly established and cited in the decision of said court which states as follows: The pilot was sick. He admittedly had tumor of the nasopharynx cranad(nose). He is now in the Great Beyond. The spot is very near the brain and the eyes. Tumor on the spot will affect the sinus, the breathing, the eyes which are very near it. No one will certify the fitness to fly a plane of one suffering from the disease. . cra . The fact First Pilot Bustamante has a long standing tumor of the Nasopharynx for which reason he was grounded since November 1947 is admitted in the letter cranad(Exh. 69-A) of Dr. Bernardo to the Medical Director of the CAA requesting waiver of physical standards. The request for waiver of physical standards is itself a positive proof that the physical condition of Capt. Bustamante is short of the standard set by the CAA. The Deputy Administrator of the CAA granted the request relying on the representation and recommendation made by Dr. Bernardo cranad(See Exh. 69). We noted, however, that the request cranad(Exh. 69A) says that it is believed that his continuing to fly as a co-pilot does not involve any hazard.cralaw cranad(Italics supplied). Flying as a First Officer entails a very different responsibility than flying as a mere co-pilot. Defendant requested the CAA to allow Capt. Bustamante to fly merely as a co-pilot and it is safe to conclude that the CAA approved the request thus allowing Bustamante to fly only as a co-pilot. For having allowed Bustamante to fly as a First Officer on January 8, 1951, defendant is guilty of gross negligence and therefore should be made liable for the resulting accident. As established by the evidence, the pilot used to get treatments from Dr. Sycangco. He used to complain of pain in the face more particularly in the nose which caused him to have sleepless nights. Plaintiffs observation of the pilot was reported to the Chief Pilot who did nothing about it. Captain Carbonel of the defendant corroborated plaintiff of this matter. The complaint against the slow reaction of the pilot at least proved the observation. The observation could be disregarded. The fact that the complaint was not in writing does not detract anything from the seriousness thereof, considering that a miscalculation would not only cause the death of the crew but also of the passengers. One month prior to the crash-landing, when the pilot was preparing to land in Daet, plaintiff warned him that they were not in the vicinity of Daet but above the town of Ligao. The plane hit outside the airstrip. In another instance, the pilot would hit the Mayon Volcano had not plaintiff warned him. These more than prove what plaintiff had complained of. Disregard thereof by defendant is condemnable. To bolster the claim that Capt. Bustamante has not suffered from any kind of sickness which hampered his flying ability, appellant contends that for at least one or more years following the accident of January 8, 1951, Capt. Bustamante continued to fly for defendant company as a pilot, and did so with great skill and proficiency, and without any further accident or mishap, citing tsn. pp. 756-765, January 20, 1965. We have painstakingly perused the records, particularly the transcript of stenographic notes cited, but found nothing therein to substantiate appellants contention. Instead, We discovered that the citation covers the testimony of Dr. Bernardo on the physical condition of Bustamante and nothing about his skills or proficiency to fly nor on the mishaps or accidents, matters which are beyond Dr. Bernardos competence anyway.

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Assuming that the pilot was not sick or that the tumor did not affect the pilot in managing the plane, the evidence shows that the overshooting of the runway and crash-landing at the mangrove was caused by the pilot for which acts the defendant must answer for damages caused thereby. And for this negligence of defendants employee, it is liable cranad(Joaquin vs. Aniceto, 12 SCRA 308). At least, the law presumes the employer negligent imposing upon it the burden of proving that it exercised the diligence of a good father of a family in the supervision of its employees. Defendant would want to tie plaintiff to the report he signed about the crashlanding. The report was prepared by his pilot and because the latter pleaded that he had a family too and would have nowhere to go if he lost his job, plaintiffs compassion would not upturn the truth about the crash-landing. We are for the truth not logic of any argumentation. At any rate, it is incorrect to say that the Accident Report cranad(Exh. 12 & 12-A), signed by plaintiff, exculpated Capt. Bustamante from any fault. We observed that the Report does not categorically state that Capt. Bustamante was not at fault. It merely relates in chronological sequence what Capt. Bustamante and plaintiff did from the take-off from Manila to the landing in Daet which resulted in an accident. On the contrary, we may infer the negligence of Bustamante from the following portion of the Report, to wit: . cra . I felt his brakes strong but as we neared the intersection of the NE-SW runway, the brakes were not as strong and I glanced at the system pressure which indicated 900 lbs. per sq. m. It was during the above precise instance that Capt. Bustamante lost his bearing and disposition. Had he maintained the pressure on the brakes the plane would not have overshot the runway. Verily, Bustamante displayed slow reaction and poor judgment. cranad(CA decision, pp. 8-12). This Court is not impressed by, much less can We accept petitioners invocation to calibrate once again the evidence testified to in detail and plucked from the voluminous transcript to support petitioners own conclusion. It is not the task of this Court to discharge the functions of a trier of facts much less to enter into a calibration of the evidence, notwithstanding petitioners wail that the judgment of the respondent court is based entirely on speculations, surmises and conjectures. We are convinced that respondent courts judgment is supported by strong, clear and substantial evidence.:onad Petitioner is a common carrier engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public, as defined in Art. 1732, New Civil Code. The law is clear in requiring a common carrier to exercise the highest degree of care in the discharge of its duty and business of carriage and transportation under Arts. 1733, 1755 and 1756 of the New Civil Code. These Articles provide: Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. Such extraordinary diligence in the vigilance over the goods is further expressed in Articles 1734, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles 1755 and 1756. Art. 1755. A common carrier is bound to carry the passenger safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. Art. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in Articles 1733 and 1755. The duty to exercise the utmost diligence on the part of common carriers is for the safety of passengers as well as for the members of the crew or the complement operating the carrier, the airplane in the case at bar. And this must be so for any omission, lapse or neglect thereof will certainly result to the damage, prejudice, nay injuries and even death to all aboard the plane, passengers and crew members alike. Now to the damages. The Court of Appeals affirmed the award of damages made by the trial court, stating that the damages awarded plaintiff by the lower court are in accordance with the facts, law and jurisprudence. The court further observed that defendant-appellant is still fortunate, considering that the unearned income was reckoned with only up to 1968 and not up to the present as plaintiff-appellee is still living. Whatever mathematical error defendant-appellant could show by abstract argumentation, the same must be compensated by such deficiency of the damages awarded to plaintiff-appellee. As awarded by the trial court, private respondent was entitled to P198,000.00 as unearned income or compensatory damages; P50,000.00 for moral damages,

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P20,000.00 as attorneys fees and P5,000.00 as expenses of litigation, or a total of P273,000.00. The trial court arrived at the sum of P198,000.00 as unearned income or damages by considering that respondent Samson could have continued to work as airline pilot for fifteen more years, he being only 38 years at the time the services were terminated by the defendant cranad(PAL) and he would have earned P120,000.00 from 1954 to 1963 or a period of ten cranad(10) years at the rate of one thousand per month cranad(P750.00 basic salary plus P300.00 extra pay for extra flying time and bonuses; and considering further that in 1964 the basic pay of defendants pilot was increased to P12,000.00 annually, the plaintiff could have earned from 1964 to 1968 the sum of P60,000.00 in the form of salaries and another P18,000.00 as bonuses and extra pay for extra flying time at the same rate of P300 a month, or a grand total of P198,000.00 for the entire period. This claim of the plaintiff for loss or impairment of earning capacity is based on the provision of Article 2205 of the New Civil Code of the Philippines which provides that damages may be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury. This provision of law has been construed and interpreted in the case of Aureliano Ropato, et al. vs. La Mallorca General Partnership, 56 O.G., 7812, which rules that law allows the recovery of damages for loss or impairment of earning capacity in cases of temporary or permanent personal injury. chanroblesvirtualawlibrary(Decision, CFI, pp. 98-99, Record on Appeal) The respondent appellate court modified the above award by ordering payment of legal interest on the P198,000.00 unearned income from the filing of the claim, citing Sec. 8, Rule 51 of the Rules of Court. Petitioner assails the award of the total sum of P198,000.00 as unearned income up to 1968 as being tenuous because firstly, the trial courts finding affirmed by the respondent court is allegedly based on pure speculation and conjecture and secondly, the award of P300.00 a month as extra pay for extra flying time from 1954 to 1968 is likewise speculative. PAL likewise rejects the award of moral damages in the amount of P50,000.00 on the ground that private respondents action before the trial court does not fall under any of the cases enumerated in the law cranad(Art. 2219 of the New Civil Code) for which moral damages are recoverable and that although private respondents action gives the appearance that it is covered under quasidelict as provided in Art. 21 of the New Civil Code, the definition of quasi-delict in Art. 2176 of the New Civil Code expressly excludes cases where there is a preexisting contractual relation between the parties, as in the case under consideration, where an employer-employee relationship existed between PAL and private respondent. It is further argued that private respondents action cannot be deemed to be covered by Art. 21, inasmuch as there is no evidence on record to show that PAL wilfully cause(d) loss or injury to cranad(private respondent) in a manner that is contrary to morals, good customs or public policy . cra . Nor can private respondents action be considered analogous to either of the foregoing, for the reasons are obvious that it is not. chanroblesvirtualawlibrary(Memorandum of petitioner, pp. 418-421, Records) Having affirmed the gross negligence of PAL in allowing Capt. Delfin Bustamante to fly the plane to Daet on January 8, 1951 whose slow reaction and poor judgment was the cause of the crash-landing of the plane which resulted in private respondent Samson hitting his head against the windshield and causing him injuries for which reason PAL terminated his services and employment as pilot after refusing to provide him with the necessary medical treatment of respondents periodic spells, headache and general debility produced from said injuries, We must necessarily affirm likewise the award of damages or compensation under the provisions of Art. 1711 and Art. 1712 of the New Civil Code which provide: Art. 1711. Owners of enterprises and other employers are obliged to pay compensation for the death or injuries to their laborers, workmen, mechanics or other employees, even though the event may have been purely accidental or entirely due to a fortuitous cause, if the death or personal injury arose out of and in the course of the employment. The employer is also liable for compensation if the employee contracts any illness or disease caused by such employment or as the result of the nature of the employment. If the mishap was due to the employees own notorious negligence, or voluntary act, or drunkenness, the employer shall not be liable for compensation. When the employees lack of due care contributed to his death or injury, the compensation shall be equitably reduced. Art. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the employer shall be solidarily liable for compensation. If a fellowworkers intentional or malicious act is the only cause of the death or injury, the employer shall not be answerable, unless it should be shown that the latter did not exercise due diligence in the selection or supervision of the plaintiffs fellow-worker. The grant of compensatory damages to the private respondent made by the trial court and affirmed by the appellate court by computing his basic salary per annum at P750.00 a month as basic salary and P300.00 a month for extra pay for extra flying time including bonus given in December every year is justified. The correct computation however should be P750 plus P300 x 12 months = P12,600 per annum x 10 years = P126,000.00 cranad(not P120,000.00 as computed by the court a quo). The further grant of increase in the basic pay of the pilots to P12,000 annually for 1964 to 1968 totalling P60,000.00 and another P18,000.00 as bonuses and extra pay

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for extra flying time at the same rate of P300.00 a month totals P78,000.00. Adding P126,000.00 cranad(1964 to 1968 compensation) makes a grand total of P204,000.00 cranad(not P198,000.00 as originally computed). As to the grant of moral damages in the sum of P50,000.00 We also approve the same. We have noted and considered the holding of the appellate court in the matter of bad faith on the part of PAL, stated hereunder, this wise: None of the essential facts material to the determination of the case have been seriously assailed: the overshooting of runway and crash-landing into the mangroves; the hitting of plaintiffs head to the front windshield of the plane; the oozing of blood out of his ears, nose and mouth; the intermittent dizzy spells, headaches and general debility thereafter for which he was discharged from his employment; the condition of not to attribute the cause of the ailment to the crashlanding imposed in bad faith for a demanded special medical service abroad; and the resultant brain injury which defendants doctors could not understand nor diagnose. xxx The act of defendant-appellant in unjustly refusing plaintiff-appellees demand for special medical service abroad for the reason that plaintiff-appellees deteriorating physical condition was not due to the accident violates the provisions of Article 19 of the Civil Code on human relations to act with justice, give everyone his due, and observe honesty and good faith. chanroblesvirtualawlibrary(CA Resolution, pp. 151-152, Records) We reject the theory of petitioner that private respondent is not entitled to moral damages. Under the facts found by the trial court and affirmed by the appellate court and under the law and jurisprudence cited and applied, the grant of moral damages in the amount of P50,000.00 is proper and justified. The fact that private respondent suffered physical injuries in the head when the plane crash-landed due to the negligence of Capt. Bustamante is undeniable. The negligence of the latter is clearly a quasi-delict and therefore Article 2219, cranad(2) New Civil Code is applicable, justifying the recovery of moral damages. Even from the standpoint of the petitioner that there is an employer-employee relationship between it and private respondent arising from the contract of employment, private respondent is still entitled to moral damages in view of the finding of bad faith or malice by the appellate court, which finding We hereby affirm, applying the provisions of Art. 2220, New Civil Code which provides that willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. The justification in the award of moral damages under Art. 19 of the New Civil Code on Human Relations which requires that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith, as applied by respondent court is also welltaken and We hereby give Our affirmance thereto. With respect to the award of attorneys fees in the sum of P20,000.00 the same is likewise correct. As pointed out in the decision of the Court of Appeals, the plaintiff is entitled to attorneys fees because he was forced to litigate in order to enforce his valid claim cranad(Ganaban vs. Bayle, 30 SCRA 365; De la Cruz vs. De la Cruz, 22 SCRA 33; and many others); defendant acted in bad faith in refusing plaintiffs valid claim cranad(Filipino Pipe Foundry Corporation vs. Central Bank, 23 SCRA 1044); and plaintiff was dismissed and was forced to go to court to vindicate his right cranad(Nadura vs. Benguet Consolidated, Inc., 5 SCRA 879). We also agree with the modification made by the appellate court in ordering payment of legal interest from the date judicial demand was made by Pilot Samson against PAL with the filing of the complaint in the lower court. We affirm the ruling of the respondent court which reads: Lastly, the defendant-appellant claims that the legal rate of interest on the unearned compensation should be computed from the date of the judgment in the lower court, not from the filing of the complaint, citing a case where the issue raised in the Supreme Court was limited to when the judgment was rendered in the lower court or in the appellate court, which does not mean that it should not be computed from the filing of the complaint. Articles 1169, 2209 and 2212 of the Civil Code govern when interest shall be computed. Thereunder interest begins to accrue upon demand, extrajudicial or judicial. A complaint is a judicial demand cranad(Cabarroguis vs. Vicente, 107 Phil. 340). Under Article 2212 of the Civil Code, interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. chanroblesvirtualawlibrary(CA Resolution, pp. 153-154, Records). The correct amount of compensatory damages upon which legal interest shall accrue from the filing of the complaint is P204,000.00 as herein computed and not P198,000.00.

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WHEREFORE, in view of all the foregoing, the judgment of the appellate court is hereby affirmed with slight modification in that the correct amount of compensatory damages is P204,000.00. With costs against petitioner. Sarkies Tours Phils. V. IAC Facts: On August 31, 1984, Fatima boarded petitioners bus from Manila to Legazpi. Her belongings consisting of 3 bags were kept at the baggage compartment of the bus, but during the stopover in Daet, it was discovered that only one remained. The others might have dropped along the way. Other passengers suggested having the route traced, but the driver ignored it. Fatima immediately told the incident to her mother, who went to petitioners office in Legazpi and later in Manila. Petitioner offered P1,000 for each bag, but she turned it down. Disapointed, she sought help from Philtranco bus drivers and radio stations. One of the bags was recovered. She was told by petitioner that a team is looking for the lost luggage. After nine months of fruitless waiting, respondents filed a case to recover the lost items, as well as moral and exemplary damages, attorneys fees and expenses of litigation. The trial court ruled in favor of respondents, which decision was affirmed with modification by the Court of Appeals, deleting moral and exemplary damages. Issues: (1) Whether petitioner is liable for the loss of the luggage (2) Whether the damages sought should be recovered Held: (1) The cause of the loss in the case at bar was petitioner's negligence in not ensuring that the doors of the baggage compartment of its bus were securely fastened. As a result of this lack of care, almost all of the luggage was lost, to the prejudice of the paying passengers. (2) There is no dispute that of the three pieces of luggage of Fatima, only one was recovered. Respondents had to shuttle between Bicol and Manila in their efforts to be compensated for the loss. During the trial, Fatima and Marisol had to travel from the United States just to be able to testify. Expenses were also incurred in reconstituting their lost documents. Under these circumstances, the Court agrees with the Court of Appeals in awarding P30,000.00 for the lost items and P30,000.00 for the transportation expenses, but disagrees with the deletion of the award of moral and exemplary damages which, in view of the foregoing proven facts, with negligence and bad faith on the fault of petitioner having been duly established, should be granted to respondents in the amount of P20,000.00 and P5,000.00, respectively. G.R. No. L-23733 October 31, 1969

HERMINIO L. NOCUM, plaintiff-appellee, vs. LAGUNA TAYABAS BUS COMPANY, defendant-appellant. Fernando M. Mangubat and Felimon H. Mendoza for plaintiff-appellee. Domingo E. de Lara and Associates for defendant-appellant. BARREDO, J.: Appeal of the Laguna Tayabas Bus Co., defendant in the Court below, from a judgment of the said court (Court of First Instance of Batangas) in its Civil Case No. 834, wherein appellee Herminio L. Nocum was plaintiff, sentencing appellant to pay appellee the sum of P1,351.00 for actual damages and P500.00 as attorney's fees with legal interest from the filing of the complaint plus costs. Appellee, who was a passenger in appellant's Bus No. 120 then making a trip within the barrio of Dita, Municipality of Bay, Laguna, was injured as a consequence of the explosion of firecrackers, contained in a box, loaded in said bus and declared to its conductor as containing clothes and miscellaneous items by a co-passenger. The findings of fact of the trial court are not assailed. The appeal is purely on legal questions. Appellee has not filed any brief. All that We have before Us is appellant's brief with the following assignment of errors: I BASED ON THE FACTS THE LOWER COURT FOUND AS ESTABLISHED, IT ERRED AS A MATTER OF LAW IN NOT ABSOLVING APPELLANT FROM LIABILITY RESULTING FROM THE EXPLOSION OF FIRECRACKERS CONTAINED IN A PACKAGE, THE CONTENTS OF WHICH WERE MISREPRESENTED BY A PASSENGER. II THE LOWER COURT ERRED, AS A MATTER OF LAW, IN AWARDING DAMAGES WITH LEGAL INTEREST IN FAVOR OF THE APPELLEE. III

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THE LOWER COURT ERRED IN NOT DISMISSING THE COMPLAINT, WITH COSTS AGAINST THE APPELLEE. Upon consideration of the points raised and discussed by appellant, We find the appeal to be well taken. The main basis of the trial court's decision is that appellant did not observe the extraordinary or utmost diligence of a very cautious person required by the following articles of the Civil Code: ART. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles 1755 and 1756. ART. 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances. ART 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles 1733 and 1755. Analyzing the evidence presented by the parties, His Honor found: According to Severino Andaya, a witness for the plaintiff, a man with a box went up the baggage compartment of the bus where he already was and said box was placed under the seat. They left Azcarraga at about 11:30 in the morning and when the explosion occurred, he was thrown out. PC investigation report states that thirty seven (37) passengers were injured (Exhibits "O" and "2"). The bus conductor, Sancho Mendoza, testified that the box belonged to a passenger whose name he does not know and who told him that it contained miscellaneous items and clothes. He helped the owner in loading the baggage which weighed about twelve (12) kilos and because of company regulation, he charged him for it twentyfive centavos (P0.25). From its appearance there was no indication at all that the contents were explosives or firecrackers. Neither did he open the box because he just relied on the word of the owner. Dispatcher Nicolas Cornista of defendant company corroborrated the testimony of Mendoza and he said, among other things, that he was present when the box was loaded in the truck and the owner agreed to pay its fare. He added that they were not authorized to open the baggages of passengers because instruction from the management was to call the police if there were packages containing articles which were against regulations. xxx xxx xxx

There is no question that Bus No. 120 was road worthy when it left its Manila Terminal for Lucena that morning of December 5, 1960. The injuries suffered by the plaintiff were not due to mechanical defects but to the explosion of firecrackers inside the bus which was loaded by a co-passenger. ... Turning to the present case, it is quite clear that extraordinary or utmost diligence of a very cautious person was not observed by the defendant company. The service manual, exhibits "3" and "3-A," prohibits the employees to allow explosives, such as dynamite and firecrackers to be transported on its buses. To implement this particular rule for 'the safety of passengers, it was therefore incumbent upon the employees of the company to make the proper inspection of all the baggages which are carried by the passengers. But then, can it not be said that the breach of the contract was due to fortuitous event? The Supreme Court in the case of Lasam vs. Smith, 45 Phil. 657, quoted Escriche's definition of caso fortuito as "an unexpected event or act of God which could neither be foreseen nor resisted, such as floods, torrents, shipwrecks, conflagrations, lightning, compulsions, insurrections, destructions of buildings by unforeseen accidents and other occurrences of a similar nature." In other words, the cause of the unexpected event must be independent of the will of man or something which cannot be avoided. This cannot be said of the instant case. If proper and rigid inspection were observed by the defendant, the contents of the box could have been discovered and the accident avoided. Refusal by the passenger to have the package opened was no excuse because, as stated by Dispatcher Cornista, employees should call the police if there were packages containing articles against company regulations. Neither was failure by employees of defendant company to detect the contents of the packages of passengers because like the rationale in the Necesito vs. Paras case (supra), a passenger has neither choice nor control in the exercise of their discretion in determining what are inside the package of co-passengers which may eventually prove fatal. We cannot agree. No doubt, the views of His Honor do seem to be in line with the reasons that the Code Commission had for incorporating the above-quoted

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provisions in its draft of the Civil Code. Indeed, in approving the said draft, Congress must have concurred with the Commission that by requiring the highest degree of diligence from common carriers in the safe transport of their passengers and by creating a presumption of negligence against them, the recklessness of their drivers which is a common sight even in crowded areas and, particularly, on the highways throughout the country may, somehow, if not in a large measure, be curbed. We are not convinced, however, that the exacting criterion of said provisions has not been met by appellant in the circumstances of this particular case. It is undisputed that before the box containing the firecrackers were allowed to be loaded in the bus by the conductor, inquiry was made with the passenger carrying the same as to what was in it, since its "opening ... was folded and tied with abaca." (Decision p. 16, Record on Appeal.) According to His Honor, "if proper and rigid inspection were observed by the defendant, the contents of the box could have been discovered and the accident avoided. Refusal by the passenger to have the package opened was no excuse because, as stated by Dispatcher Cornista, employees should call the police if there were packages containing articles against company regulations." That may be true, but it is Our considered opinion that the law does not require as much. Article 1733 is not as unbending as His Honor has held, for it reasonably qualifies the extraordinary diligence required of common carriers for the safety of the passengers transported by them to be "according to all the circumstances of each case." In fact, Article 1755 repeats this same qualification: "A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances." In this particular case before Us, it must be considered that while it is true the passengers of appellant's bus should not be made to suffer for something over which they had no control, as enunciated in the decision of this Court cited by His Honor, 1 fairness demands that in measuring a common carrier's duty towards its passengers, allowance must be given to the reliance that should be reposed on the sense of responsibility of all the passengers in regard to their common safety. It is to be presumed that a passenger will not take with him anything dangerous to the lives and limbs of his co-passengers, not to speak of his own. Not to be lightly considered must be the right to privacy to which each passenger is entitled. He cannot be subjected to any unusual search, when he protests the innocuousness of his baggage and nothing appears to indicate the contrary, as in the case at bar. In other words, inquiry may be verbally made as to the nature of a passenger's baggage when such is not outwardly perceptible, but beyond this, constitutional boundaries are already in danger of being transgressed. Calling a policeman to his aid, as suggested by the service manual invoked by the trial judge, in compelling the passenger to submit to more rigid inspection, after the passenger had already declared that the box contained mere clothes and other miscellaneous, could not have justified invasion of a constitutionally protected domain. Police officers acting without judicial authority secured in the manner provided by law are not beyond the pale of constitutional inhibitions designed to protect individual human rights and liberties. Withal, what must be importantly considered here is not so much the infringement of the fundamental sacred rights of the particular passenger herein involved, but the constant threat any contrary ruling would pose on the right of privacy of all passengers of all common carriers, considering how easily the duty to inspect can be made an excuse for mischief and abuse. Of course, when there are sufficient indications that the representations of the passenger regarding the nature of his baggage may not be true, in the interest of the common safety of all, the assistance of the police authorities may be solicited, not necessarily to force the passenger to open his baggage, but to conduct the needed investigation consistent with the rules of propriety and, above all, the constitutional rights of the passenger. It is in this sense that the mentioned service manual issued by appellant to its conductors must be understood. Decisions in other jurisdictions cited by appellant in its brief, evidently because of the paucity of local precedents squarely in point, emphasize that there is need, as We hold here, for evidence of circumstances indicating cause or causes for apprehension that the passenger's baggage is dangerous and that it is failure of the common carrier's employee to act in the face of such evidence that constitutes the cornerstone of the common carrier's liability in cases similar to the present one. The principle that must control the servants of the carrier in a case like the one before us is correctly stated in the opinion in the case of Clarke v. Louisville & N.R. Co. 20 Ky L. Rep. 839, 49 S.W. 1120. In that case Clarke was a passenger on the defendant's train. Another passenger took a quantity of gasoline into the same coach in which Clarke was riding. It ignited and exploded, by reason of which he was severely injured. The trial court peremptorily instructed the jury to find for the defendant. In the opinion, affirming the judgment, it is said: "It may be stated briefly, in assuming the liability of a railroad to its passengers for injury done by another passenger, only where the conduct of this passenger had been such before the injury as to induce a reasonably prudent and vigilant conductor to believe that there was reasonable ground to apprehend violence and danger to the other passengers, and in that case asserting it to be the duty of the conductor of the railroad train to use all reasonable means to prevent such injury, and if he neglects this reasonable duty, and injury is done, that then the company is responsible; that otherwise the railroad is not responsible."

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The opinion quotes with approval from the case of Gulf, C. & S. F. R. Co. vs. Shields, 9 Tex. Civ. App. 652, 29 S. W. 652, in which case the plaintiff was injured by alcohol which had been carried upon the train by another passenger. In the opinion in that case it is said: "It was but a short period of time after the alcohol was spilt when it was set on fire and the accident occurred, and it was not shown that appellant's employees knew that the jug contained alcohol. In fact, it is not shown that the conductor or any other employee knew that Harris had a jug with him until it fell out of the sack, though the conductor had collected ... (his) fare, and doubtless knew that he had the sack on the seat with him. ... It cannot be successfully denied that Harris had the right as a passenger to carry baggage on the train, and that he had a right to carry it in a sack if he chose to do so. We think it is equally clear that, in the absence of some intimation or circumstance indicating that the sack contained something dangerous to other passengers, it was not the duty of appellant's conductor or any other employee to open the sack and examine its contents." Quinn v. Louisville & N. R. Co. 98 Ky. 231, 32 S. W. 742; Wood v. Louisville & N. R. Co. 101 Ky. 703, 42 S. W. 349; Louisville & N. R. Co. v. Vincent, 29 Ky. L. Rep. 1049, 96 S. W. 898; Louisville & N. R. Co. v. Renfro, 142 Ky. 590, 33 L. R. A. (N. S.) 133, 135 S. W. 266.2 (Emphasis supplied) Explosive or Dangerous Contents. A carrier is ordinarily not liable for injuries to passengers from fires or explosions caused by articles brought into its conveyances by other passengers, in the absence of any evidence that the carrier, through its employees, was aware of the nature of the article or had any reason to anticipate danger therefrom. (Bogard v. Illinois C. R Co. 144 Ky. 649, 139 S. W. 855, 36 L. R. A.[N. S.] 337; Clarke v. Louisville & N. R. Co. 101 Ky. 34, 39 S. W. 840, 36 L. R. A. 123 [explosion of can of gasoline]; East Indian R. Co. v. Mukerjee [1901] A. C. [Eng.] 396, 3 B. R. C. 420 P. C. [explosion of fireworks]; Annotation: 37 L. R. A. [N. S.] 725.)3 Appellant further invokes Article 1174 of the Civil Code which relieves all obligors, including, of course, common carriers like appellant, from the consequence of fortuitous events. The court a quo held that "the breach of contract (in this case) was not due to fortuitous event and that, therefore, the defendant is liable in damages." Since We hold that appellant has succeeded in rebutting the presumption of negligence by showing that it has exercised extraordinary diligence for the safety of its passengers, "according to the circumstances of the (each) case", We deem it unnecessary to rule whether or not there was any fortuitous event in this case. ACCORDINGLY, the appealed judgment of the trial court is reversed and the case is dismissed, without costs. G.R. No. L-26718 October 31, 1969 ELITE SHIRT FACTORY, INC., petitioner-appellant, vs. THE HON. W. L. CORNEJO and/or THE CITY COURT OF MANILA, COMPAIA MARITIMA and THE PHILIPPINE STEAM NAVIGATION CO., INC., respondents-appellees. Neptali A. Gonzales for petitioner-appellant. R. R. Melo and E. C. Cruz for respondent-appellee Compaia Maritima. Trinidad and Borromeo for respondent-appellee The Philippine Steam Navigation Co., Inc. FERNANDO, J.: The question presented by this appeal from a decision of the lower court, then presided by Judge, now Justice Arsenio Solidum of the Court of Appeals, dismissing a petition for certiorari filed by the Elite Shirt Factory, Inc., now appellant, is one that this Court will pass upon for the first time. Does the exclusive jurisdiction conferred on a court of first instance over admiralty and maritime cases include the suit where the shipper files a claim against the carrier, the goods having been landed, stored in its bodega but subsequently burned, no delivery having been made to the consignee as a result?1 The lower court answered in the affirmative. It dismissed the petition for certiorari filed against respondent Judge W. L. Cornejo of the City Court of Manila who, after deciding in favor of petitioner which sought to recover damages in the amount of P2,124.00 resulting from the cargo being burned, refused to grant the motion for execution and in addition, set aside its original decision, the ground for such dismissal being the lack of jurisdiction of respondent Judge, the matter falling within the exclusive admiralty and maritime jurisdiction of a court of first instance. Hence, this appeal. We agree with the conclusion reached by the lower court, and we affirm. According to the brief for appellant Elite Shirt Factory, Inc., it delivered to respondent Compaia Maritima on November 29, 1963 for shipment to designated consignees several cartons of merchandise. While such cargo was stored in the bodega of respondent Compaia Maritima at Pulupandan, Negros Occidental, and before they could be delivered to the consignees, a fire broke out, as a result of which appellant allegedly suffered damages in the amount of P2,124.00. The brief for appellant continues: "On June 13, 1964, therefore, petitioner-appellant filed with the City Court of Manila a complaint against Compaia Maritima for the reimbursement of said amount of P2,124.00 as actual damages. A motion to dismiss said complaint was filed by Compaia Maritima on the ground that the city court does not have jurisdiction over said case, the same being in the nature of maritime and admiralty, and within the jurisdiction of courts of first instance. Said motion to

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dismiss was denied by the city court for lack of merit, after which Compaia Maritima filed an answer to the complaint impleading respondent-appellee Philippine Steam Navigation Co., Inc., as third party defendant on the ground, among others, that the fire which gutted the warehouse of Compaia Maritima and destroyed the goods stored therein started from the section occupied by the thirdparty defendant and caused by the latter's negligence. Respondent-appellee Philippine Steam Navigation Co., Inc. filed its answer to the third-party complaint. At the scheduled hearing of the complaint and third-party complaint, respondentappellee Philippine Steam Navigation Co., Inc., failed to appear by reason of which an ex parte judgment was rendered against it and respondent-appellee Compaia Maritima agreed to pay the petitioner-appellant the sum of P2,124.00 plus interest thereon at the legal rate so a judgment by consent was rendered against it." 2 Upon petition of the Philippine Steam Navigation Co., Inc. to set aside such judgment on the ground that its failure to appear on the date of the hearing was due to an excusable neglect, respondent Judge set aside the decision rendered by him. Necessarily, a motion for execution of such decision filed by appellant was denied. After an unsuccessful motion for reconsideration, a petition for certiorari with preliminary injunction was filed by appellant with the Court of First Instance of Manila, then presided by now Justice Arsenio Solidum, against respondent Judge and respondents Compaia Maritima and the Philippine Steam Navigation Co., Inc. In its answer to such petition, respondent Compaia Maritima invoked the question of jurisdiction alleging that the matter was within the exclusive admiralty and maritime jurisdiction of the court of first instance in accordance with the Judiciary Act, respondent Judge therefore being without power in the premises. Such a defense found favor with the lower court which in the decision, now on appeal, of June 16, 1966 dismissed the petition as in its view the respondent Judge lacked jurisdiction. As the appealed decision would put it: "As regards the contention of the petitioner that the liability of the carrier, Compaia Maritima, from the time the shipment was deposited in its warehouse in Pulupandan, Negros Occidental, was no longer as a common carrier but as a depository, is not well taken for the reason that the warehouse in which the cargo was deposited at the time it was burned was owned by the carrier, Compaia Maritima, itself. Hence, the ruling in the cases of Macondray & Co., Inc. vs. Delgado Bros., G.R. No. L-13116, April 28, 1960, and Delgado Bros. vs. Home Insurance Company, G.R. No. L-15567, March, 1961, cited by the petitioner, to the effect that from the moment the goods are discharged in the port of destination, the liability of the same receiving the goods and keeping them until they are delivered to their designated consignees is that merely of a depositary, is not applicable to the present case for the simple reason that in those two cases the shipments were delivered by the carrier to the Customs Arrastre Service, the arrastre operator of the Port of Manila. While the ruling in said cases insofar as it states that the liability of the carrier ceases upon the discharge of the goods in the port of destination is correct, the same cannot be correctly applied to the present case inasmuch as the goods in question were delivered not to another party but to the warehouse in Pulupandan, Negros Occidental, owned by the carrier, Compaia Maritima, which undertook the delivery of said goods to the corresponding consignees by virtue of a maritime contract. Unfortunately, the said cargo was burned before the Compaia Maritima could comply with its maritime obligation to deliver the same to the consignees."3 Petitioner is of a different mind. It would, in this appeal, maintain the view which did not find favor with the lower court that respondent Judge had jurisdiction, the goods having been discharged in the port of destination, the liability of the one in which they were kept being merely that of a depositary. This is how it would develop such a contention in its brief. "That is why if the goods were lost, burned or damaged after they were discharged at the port of destination and while they were at the warehouse of the defendant and the latter is sued for the loss damage of the goods, then he is sued in his capacity as a [depositary] and not that of a shipowner or as a common carrier. If that is so, then the one keeping the goods is not engaged in maritime proper and therefore subject to the jurisdiction of the city court. The act of keeping the goods for safekeeping until they are delivered to the consignee is merely incidental to the business or trade of navigation. So where the defendant is primarily sued for its liability as a [depositary] of the goods and not as shipowner or as a common carrier, as in the instant case, whatever issue relative to maritime is merely incidental to the main issue. It is well-settled that in cases where the goods were burned, lost or damaged while in store before they are delivered to the consignees, then ordinary courts have jurisdiction."4 It is thus evident that the question presented, as set forth at the opening of this decision, is novel in character. The argument advanced by petitioner is not utterly devoid of plausibility but is not sufficiently persuasive to call for a reversal of the judgment. The decisive consideration is that the admiralty jurisdiction as decided by us in a leading case, International Harvester Co. v. Aragon,5 extends over all maritime contracts in whatever form entered into, whether executed or still to be performed. As long as the subject matter thereof is maritime service or a maritime transaction, then it is embraced within such a concept. When, as in this case, the proceeding in effect is one for a breach of a contract of shipment, the jurisdiction of the court of first instance under the specific provision of the Judiciary Act is undeniable. The view cannot be accepted, as petitioner would insist both here and in the lower court, that the obligation of respondent Compaia Maritima from the

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contract entered into by it with the petitioner had ceased the moment the goods were discharged in the port of destination. It was still under duty to deliver the same to the consignees. Until there be compliance therewith, it cannot be said that the contract of affreightment was at an end. That remained the basis of whatever liability, a point not passed upon in this proceeding, would attach to respondent Compaia Maritima. That is why it would not be in consonance with the settled law if under the above specific facts the matter would not be considered as falling within the admiralty jurisdiction of a court of first instance. [G.R. No. L-8194. July 11, 1956.] EMERENCIANA M. VDA. DE MEDINA, ET AL., Plaintiffs-Appellees, vs. GUILLERMO CRESENCIA, ET AL., Defendants. GUILLERMO CRESENCIA, Appellant. was allowed, to amend their complaint making Rosario Avorque a co-Defendant; chan roblesvirtualawlibraryand the latter, by way of answer, admitted having purchased the aforesaid jeepney on May 31, 1953, but alleged in defense that she was never the public utility operator thereof. The case then proceeded to trial, during which, after the Plaintiffs had presented their evidence, Defendants Guillermo Cresencia and Rosario Avorque made manifestations admitting that the former was still the registered operator of the jeepney in question in the records of the Motor Vehicles Office and the Public Service Commission, while the latter was the owner thereof at the time of the accident; chan roblesvirtualawlibraryand submitted the case for the decision on the question of who, as between the two, should be held liable to Plaintiffs for damages. The lower court, by Judge Jose Zulueta, held that as far as the public is concerned, Defendant Cresencia, in the eyes of the law, continued to be the legal owner of the jeepney in question; chan roblesvirtualawlibraryand rendered judgment against him, jointly and severally with the driver Brigido Avorque, for P6,000 compensatory damages, P30,000 moral damages, P10,000 exemplary damages, P10,000 nominal damages, P5,000 attorneys fees, and costs, while Defendant Rosario Avorque was absolved from liability. From this judgment, Defendant Cresencia appealed. We have already held in the case of Montoya vs. Ignacio, 94 Phil., 182 (December 29, 1953), which the court below cited, that the law (section 20 [g], C. A. No. 146 as amended) requires the approval of the Public Service Commission in order that a franchise, or any privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee; chan roblesvirtualawlibraryand that if property covered by the franchise is transferred or leased without this requisite approval, the transfer is not binding against the public or the Service Commission; chan roblesvirtualawlibraryand in contemplation of law, the grantee of record continues to be responsible under the franchise in relation to the Commission and to the public. There we gave the reason for this rule to be as follows:chanroblesvirtuallawlibrary cralaw Since a franchise is personal in nature any transfer or lease thereof should be notified to the Public Service Commission so that the latter may take proper safeguards to protect the interest of the public. In fact, the law requires that, before the approval is granted, there should be a public hearing, with notice to all interested parties, in order that the Commission may determine if there are good and reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease is detrimental to public interest cralaw . The above ruling was later reiterated in the cases of Timbol vs. Osias, L-7547, April 30, 1955 and Roque vs. Malibay Transit Inc., L- 8561, November 18, 1955.

DECISION REYES, J.B.L., J.: Appeal by Defendant Guillermo Cresencia from the judgment of the Court of First Instance of Manila in its civil case No. 19890, sentencing Appellant, jointly and severally with his co-Defendant Brigido Avorque, to pay Plaintiffs Emerencia M. Vda. de Medina and her minor children damages in the total amount of P56,000, P5,000 attorneys fees, and costs. It appears that on May 31, 1953, passenger jeepney bearing plate No. TPU-2232 (Manila), driven by Brigido Avorque, smashed into a Meralco post on Azcarraga Street, resulting in the death of Vicente Medina, one of its passengers. A criminal case for homicide through reckless imprudence was filed against Avorque (criminal case No. 22775 of the Court of First Instance of Manila), to which he pleaded guilty on September 9, 1953. The heirs of the deceased, however, reserved their right to file a separate action for damages, and on June 16, 1953, brought suit against the driver Brigido Avorque and Appellant Guillermo Cresencia, the registered owner and operator of the jeepney in question. Defendant Brigido Avorque did not file any answer; chan roblesvirtualawlibrarywhile Defendant Cresencia answered, disclaiming liability on the ground that he had sold the jeepney in question on October 14, 1950 to one Maria A. Cudiamat; chan roblesvirtualawlibrarythat the jeepney had been repeatedly sold by one buyer after another, until the vehicle was purchased on January 29, 1953 by Rosario Avorque, the absolute owner thereof at the time of the accident. In view of Cresencias answer, Plaintiffs filed leave, and

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As the sale of the jeepney here in question was admittedly without the approval of the Public Service Commission, Appellant herein, Guillermo Cresencia, who is the registered owner and operator thereof, continued to be liable to the Commission and the public for the consequences incident to its operation. Wherefore, the lower court did not err in holding him, and not the buyer Rosario Avorque, responsible for the damages sustained by Plaintiff by reason of the death of Vicente Medina resulting from the reckless negligence of the jeepneys driver, Brigido Avorque. Appellant also argues that the basis of Plaintiffs action being the employers subsidiary liability under the Revised Penal Code for damages arising from his employees criminal acts, it is Defendant Rosario Avorque who should answer subsidiarily for the damages sustained by Plaintiffs, since she admits that she, and not Appellant, is the employer of the negligent driver Brigido Avorque. The argument is untenable, because Plaintiffs action for damages is independent of the criminal case filed against Brigido Avorque, and based, not on the employers subsidiary liability under the Revised Penal Code, but on a breach of the carriers contractual obligation to carry his passengers safely to their destination (culpa contractual). And it is also for this reason that there is no need of first proving the insolvency of the driver Brigido Avorque before damages can be recovered from the carrier, for in culpa contractual, the liability of the carrier is not merely subsidiary or secondary, but direct and immediate (Articles 1755, 1756, and 1759, New Civil Code). The propriety of the damages awarded has not been questioned, Nevertheless, it is patent upon the record that the award of P10,000 by way of nominal damages is untenable as a matter of law, since nominal damages cannot co-exist with compensatory damages. The purpose of nominal damages is to vindicate or recognize a right that has been violated, in order to preclude further contest thereon; chan roblesvirtualawlibraryand not for the purpose of indemnifying the Plaintiff for any loss suffered by him (Articles 2221, 2223, new Civil Code.) Since the court below has already awarded compensatory and exemplary damages that are in themselves a judicial recognition that Plaintiffs right was violated, the award of nominal damages is unnecessary and improper. Anyway, ten thousand pesos cannot, in common sense, be deemed nominal. With the modification that the award of P10,000 nominal damages be eliminated, the decision appealed from is affirmed. Costs against Appellant. SO ORDERED. G.R. No. L-12191 October 14, 1918 JOSE CANGCO, vs. MANILA RAILROAD CO., defendant-appellee. Ramon Sotelo Kincaid & Hartigan for appellee. for plaintiff-appellant,

appellant.

FISHER, J.: At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the employment of Manila Railroad Company in the capacity of clerk, with a monthly wage of P25. He lived in the pueblo of San Mateo, in the province of Rizal, which is located upon the line of the defendant railroad company; and in coming daily by train to the company's office in the city of Manila where he worked, he used a pass, supplied by the company, which entitled him to ride upon the company's trains free of charge. Upon the occasion in question, January 20, 1915, the plaintiff arose from his seat in the second class-car where he was riding and, making, his exit through the door, took his position upon the steps of the coach, seizing the upright guardrail with his right hand for support. On the side of the train where passengers alight at the San Mateo station there is a cement platform which begins to rise with a moderate gradient some distance away from the company's office and extends along in front of said office for a distance sufficient to cover the length of several coaches. As the train slowed down another passenger, named Emilio Zuiga, also an employee of the railroad company, got off the same car, alighting safely at the point where the platform begins to rise from the level of the ground. When the train had proceeded a little farther the plaintiff Jose Cangco stepped off also, but one or both of his feet came in contact with a sack of watermelons with the result that his feet slipped from under him and he fell violently on the platform. His body at once rolled from the platform and was drawn under the moving car, where his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted from the train the car moved forward possibly six meters before it came to a full stop. The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was lighted dimly by a single light located some distance away, objects on the platform where the accident occurred were difficult to discern especially to a person emerging from a lighted car.

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The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found in the fact that it was the customary season for harvesting these melons and a large lot had been brought to the station for the shipment to the market. They were contained in numerous sacks which has been piled on the platform in a row one upon another. The testimony shows that this row of sacks was so placed of melons and the edge of platform; and it is clear that the fall of the plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he stepped upon the platform. His statement that he failed to see these objects in the darkness is readily to be credited. The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the injuries which he had received were very serious. He was therefore brought at once to a certain hospital in the city of Manila where an examination was made and his arm was amputated. The result of this operation was unsatisfactory, and the plaintiff was then carried to another hospital where a second operation was performed and the member was again amputated higher up near the shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form of medical and surgical fees and for other expenses in connection with the process of his curation. Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of Manila to recover damages of the defendant company, founding his action upon the negligence of the servants and employees of the defendant in placing the sacks of melons upon the platform and leaving them so placed as to be a menace to the security of passenger alighting from the company's trains. At the hearing in the Court of First Instance, his Honor, the trial judge, found the facts substantially as above stated, and drew therefrom his conclusion to the effect that, although negligence was attributable to the defendant by reason of the fact that the sacks of melons were so placed as to obstruct passengers passing to and from the cars, nevertheless, the plaintiff himself had failed to use due caution in alighting from the coach and was therefore precluded form recovering. Judgment was accordingly entered in favor of the defendant company, and the plaintiff appealed. It can not be doubted that the employees of the railroad company were guilty of negligence in piling these sacks on the platform in the manner above stated; that their presence caused the plaintiff to fall as he alighted from the train; and that they therefore constituted an effective legal cause of the injuries sustained by the plaintiff. It necessarily follows that the defendant company is liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence. In resolving this problem it is necessary that each of these conceptions of liability, to-wit, the primary responsibility of the defendant company and the contributory negligence of the plaintiff should be separately examined. It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if at all, from the breach of that contract by reason of the failure of defendant to exercise due care in its performance. That is to say, its liability is direct and immediate, differing essentially, in legal viewpoint from that presumptive responsibility for the negligence of its servants, imposed by article 1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in their selection and supervision. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only to extra-contractual obligations or to use the technical form of expression, that article relates only to culpa aquiliana and not to culpa contractual. Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly points out this distinction, which was also recognized by this Court in its decision in the case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093 Manresa clearly points out the difference between "culpa, substantive and independent, which of itself constitutes the source of an obligation between persons not formerly connected by any legal tie" and culpa considered as an accident in the performance of an obligation already existing . . . ." In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that article 1903 of the Civil Code is not applicable to acts of negligence which constitute the breach of a contract. Upon this point the Court said: The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to be those not growing out of pre-existing duties of the parties to one another. But where relations already formed give rise to duties, whether springing from contract or quasi-contract, then breaches of those duties are subject to article 1101, 1103, and 1104 of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.) This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in certain cases imposed upon employers with respect to damages occasioned by the negligence of their employees to persons to whom they are not bound by contract, is not based, as in the English Common Law, upon the principle of respondeat superior if it were, the master would be liable in every case and

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unconditionally but upon the principle announced in article 1902 of the Civil Code, which imposes upon all persons who by their fault or negligence, do injury to another, the obligation of making good the damage caused. One who places a powerful automobile in the hands of a servant whom he knows to be ignorant of the method of managing such a vehicle, is himself guilty of an act of negligence which makes him liable for all the consequences of his imprudence. The obligation to make good the damage arises at the very instant that the unskillful servant, while acting within the scope of his employment causes the injury. The liability of the master is personal and direct. But, if the master has not been guilty of any negligence whatever in the selection and direction of the servant, he is not liable for the acts of the latter, whatever done within the scope of his employment or not, if the damage done by the servant does not amount to a breach of the contract between the master and the person injured. It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves the master from liability for the latter's acts on the contrary, that proof shows that the responsibility has never existed. As Manresa says (vol. 8, p. 68) the liability arising from extra-contractual culpa is always based upon a voluntary act or omission which, without willful intent, but by mere negligence or inattention, has caused damage to another. A master who exercises all possible care in the selection of his servant, taking into consideration the qualifications they should possess for the discharge of the duties which it is his purpose to confide to them, and directs them with equal diligence, thereby performs his duty to third persons to whom he is bound by no contractual ties, and he incurs no liability whatever if, by reason of the negligence of his servants, even within the scope of their employment, such third person suffer damage. True it is that under article 1903 of the Civil Code the law creates a presumption that he has been negligent in the selection or direction of his servant, but the presumption is rebuttable and yield to proof of due care and diligence in this respect. The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico Code, has held that these articles are applicable to cases of extracontractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.) This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was an action brought upon the theory of the extra-contractual liability of the defendant to respond for the damage caused by the carelessness of his employee while acting within the scope of his employment. The Court, after citing the last paragraph of article 1903 of the Civil Code, said: From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or employee there instantly arises a presumption of law that there was negligence on the part of the master or employer either in selection of the servant or employee, or in supervision over him after the selection, or both; and (2) that that presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved from liability. This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant. This is the notable peculiarity of the Spanish law of negligence. It is, of course, in striking contrast to the American doctrine that, in relations with strangers, the negligence of the servant in conclusively the negligence of the master. The opinion there expressed by this Court, to the effect that in case of extracontractual culpa based upon negligence, it is necessary that there shall have been some fault attributable to the defendant personally, and that the last paragraph of article 1903 merely establishes a rebuttable presumption, is in complete accord with the authoritative opinion of Manresa, who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by reason of the breach of the duties inherent in the special relations of authority or superiority existing between the person called upon to repair the damage and the one who, by his act or omission, was the cause of it. On the other hand, the liability of masters and employers for the negligent acts or omissions of their servants or agents, when such acts or omissions cause damages which amount to the breach of a contact, is not based upon a mere presumption of the master's negligence in their selection or control, and proof of exercise of the utmost diligence and care in this regard does not relieve the master of his liability for the breach of his contract. Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual obligation has its source in the breach or omission of those mutual duties which civilized society imposes upon it members, or which arise from these relations, other than contractual, of certain members of society to others, generally embraced in the concept of status. The legal rights of each member of society constitute the measure of the corresponding legal duties, mainly negative in character, which the existence of those rights imposes upon all other members of society. The breach of these general duties whether due to willful intent or to mere inattention, if productive of injury, give rise to an obligation to indemnify the

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injured party. The fundamental distinction between obligations of this character and those which arise from contract, rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which creates the vinculum juris, whereas in contractual relations the vinculum exists independently of the breach of the voluntary duty assumed by the parties when entering into the contractual relation. With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the legislature to elect and our Legislature has so elected whom such an obligation is imposed is morally culpable, or, on the contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral culpability, so as to include responsibility for the negligence of those person who acts or mission are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual liability with certain well-defined exceptions to cases in which moral culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise due care in the selection and control of one's agents or servants, or in the control of persons who, by reason of their status, occupy a position of dependency with respect to the person made liable for their conduct. The position of a natural or juridical person who has undertaken by contract to render service to another, is wholly different from that to which article 1903 relates. When the sources of the obligation upon which plaintiff's cause of action depends is a negligent act or omission, the burden of proof rests upon plaintiff to prove the negligence if he does not his action fails. But when the facts averred show a contractual undertaking by defendant for the benefit of plaintiff, and it is alleged that plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to specify in his pleadings whether the breach of the contract is due to willful fault or to negligence on the part of the defendant, or of his servants or agents. Proof of the contract and of its nonperformance is sufficient prima facie to warrant a recovery. As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor should assume the burden of proof of its existence, as the only fact upon which his action is based; while on the contrary, in a case of negligence which presupposes the existence of a contractual obligation, if the creditor shows that it exists and that it has been broken, it is not necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]). As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach was due to the negligent conduct of defendant or of his servants, even though such be in fact the actual cause of the breach, it is obvious that proof on the part of defendant that the negligence or omission of his servants or agents caused the breach of the contract would not constitute a defense to the action. If the negligence of servants or agents could be invoked as a means of discharging the liability arising from contract, the anomalous result would be that person acting through the medium of agents or servants in the performance of their contracts, would be in a better position than those acting in person. If one delivers a valuable watch to watchmaker who contract to repair it, and the bailee, by a personal negligent act causes its destruction, he is unquestionably liable. Would it be logical to free him from his liability for the breach of his contract, which involves the duty to exercise due care in the preservation of the watch, if he shows that it was his servant whose negligence caused the injury? If such a theory could be accepted, juridical persons would enjoy practically complete immunity from damages arising from the breach of their contracts if caused by negligent acts as such juridical persons can of necessity only act through agents or servants, and it would no doubt be true in most instances that reasonable care had been taken in selection and direction of such servants. If one delivers securities to a banking corporation as collateral, and they are lost by reason of the negligence of some clerk employed by the bank, would it be just and reasonable to permit the bank to relieve itself of liability for the breach of its contract to return the collateral upon the payment of the debt by proving that due care had been exercised in the selection and direction of the clerk? This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a mere incident to the performance of a contract has frequently been recognized by the supreme court of Spain. (Sentencias of June 27, 1894; November 20, 1896; and December 13, 1896.) In the decisions of November 20, 1896, it appeared that plaintiff's action arose ex contractu, but that defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a defense. The Spanish Supreme Court rejected defendant's contention, saying: These are not cases of injury caused, without any pre-existing obligation, by fault or negligence, such as those to which article 1902 of the Civil Code relates, but of damages caused by the defendant's failure to carry out the undertakings imposed by the contracts . . . . A brief review of the earlier decision of this court involving the liability of employers for damage done by the negligent acts of their servants will show that in no case has the court ever decided that the negligence of the defendant's servants has been held to constitute a defense to an action for damages for breach of contract.

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In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was not liable for the damages caused by the negligence of his driver. In that case the court commented on the fact that no evidence had been adduced in the trial court that the defendant had been negligent in the employment of the driver, or that he had any knowledge of his lack of skill or carefulness. In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant for damages caused by the loss of a barge belonging to plaintiff which was allowed to get adrift by the negligence of defendant's servants in the course of the performance of a contract of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if the "obligation of the defendant grew out of a contract made between it and the plaintiff . . . we do not think that the provisions of articles 1902 and 1903 are applicable to the case." In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover damages for the personal injuries caused by the negligence of defendant's chauffeur while driving defendant's automobile in which defendant was riding at the time. The court found that the damages were caused by the negligence of the driver of the automobile, but held that the master was not liable, although he was present at the time, saying: . . . unless the negligent acts of the driver are continued for a length of time as to give the owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. . . . The act complained of must be continued in the presence of the owner for such length of time that the owner by his acquiescence, makes the driver's acts his own. In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the court rested its conclusion as to the liability of the defendant upon article 1903, although the facts disclosed that the injury complaint of by plaintiff constituted a breach of the duty to him arising out of the contract of transportation. The express ground of the decision in this case was that article 1903, in dealing with the liability of a master for the negligent acts of his servants "makes the distinction between private individuals and public enterprise;" that as to the latter the law creates a rebuttable presumption of negligence in the selection or direction of servants; and that in the particular case the presumption of negligence had not been overcome. It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as though founded in tort rather than as based upon the breach of the contract of carriage, and an examination of the pleadings and of the briefs shows that the questions of law were in fact discussed upon this theory. Viewed from the standpoint of the defendant the practical result must have been the same in any event. The proof disclosed beyond doubt that the defendant's servant was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. It also affirmatively appeared that defendant had been guilty of negligence in its failure to exercise proper discretion in the direction of the servant. Defendant was, therefore, liable for the injury suffered by plaintiff, whether the breach of the duty were to be regarded as constituting culpa aquiliana or culpa contractual. As Manresa points out (vol. 8, pp. 29 and 69) whether negligence occurs an incident in the course of the performance of a contractual undertaking or its itself the source of an extra-contractual undertaking obligation, its essential characteristics are identical. There is always an act or omission productive of damage due to carelessness or inattention on the part of the defendant. Consequently, when the court holds that a defendant is liable in damages for having failed to exercise due care, either directly, or in failing to exercise proper care in the selection and direction of his servants, the practical result is identical in either case. Therefore, it follows that it is not to be inferred, because the court held in the Yamada case that defendant was liable for the damages negligently caused by its servants to a person to whom it was bound by contract, and made reference to the fact that the defendant was negligent in the selection and control of its servants, that in such a case the court would have held that it would have been a good defense to the action, if presented squarely upon the theory of the breach of the contract, for defendant to have proved that it did in fact exercise care in the selection and control of the servant. The true explanation of such cases is to be found by directing the attention to the relative spheres of contractual and extra-contractual obligations. The field of non- contractual obligation is much more broader than that of contractual obligations, comprising, as it does, the whole extent of juridical human relations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve him from extra-contractual liability to such person. When such a contractual relation exists the obligor may break the contract under such conditions that the same act which constitutes the source of an extra-contractual obligation had no contract existed between the parties. The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in safety and to provide safe means of entering and leaving its trains (civil code, article 1258). That duty, being contractual, was direct and immediate, and its non-performance could not be excused by proof that the fault was morally imputable to defendant's servants.

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The railroad company's defense involves the assumption that even granting that the negligent conduct of its servants in placing an obstruction upon the platform was a breach of its contractual obligation to maintain safe means of approaching and leaving its trains, the direct and proximate cause of the injury suffered by plaintiff was his own contributory negligence in failing to wait until the train had come to a complete stop before alighting. Under the doctrine of comparative negligence announced in the Rakes case (supra), if the accident was caused by plaintiff's own negligence, no liability is imposed upon defendant's negligence and plaintiff's negligence merely contributed to his injury, the damages should be apportioned. It is, therefore, important to ascertain if defendant was in fact guilty of negligence. It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the particular injury suffered by him could not have occurred. Defendant contends, and cites many authorities in support of the contention, that it is negligence per se for a passenger to alight from a moving train. We are not disposed to subscribe to this doctrine in its absolute form. We are of the opinion that this proposition is too badly stated and is at variance with the experience of everyday life. In this particular instance, that the train was barely moving when plaintiff alighted is shown conclusively by the fact that it came to stop within six meters from the place where he stepped from it. Thousands of person alight from trains under these conditions every day of the year, and sustain no injury where the company has kept its platform free from dangerous obstructions. There is no reason to believe that plaintiff would have suffered any injury whatever in alighting as he did had it not been for defendant's negligent failure to perform its duty to provide a safe alighting place. We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work on Negligence (vol. 3, sec. 3010) as follows: The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is to be considered whether an ordinarily prudent person, of the age, sex and condition of the passenger, would have acted as the passenger acted under the circumstances disclosed by the evidence. This care has been defined to be, not the care which may or should be used by the prudent man generally, but the care which a man of ordinary prudence would use under similar circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol. 3, sec. 3010.) Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil. rep., 809), we may say that the test is this; Was there anything in the circumstances surrounding the plaintiff at the time he alighted from the train which would have admonished a person of average prudence that to get off the train under the conditions then existing was dangerous? If so, the plaintiff should have desisted from alighting; and his failure so to desist was contributory negligence.1awph!l.net As the case now before us presents itself, the only fact from which a conclusion can be drawn to the effect that plaintiff was guilty of contributory negligence is that he stepped off the car without being able to discern clearly the condition of the platform and while the train was yet slowly moving. In considering the situation thus presented, it should not be overlooked that the plaintiff was, as we find, ignorant of the fact that the obstruction which was caused by the sacks of melons piled on the platform existed; and as the defendant was bound by reason of its duty as a public carrier to afford to its passengers facilities for safe egress from its trains, the plaintiff had a right to assume, in the absence of some circumstance to warn him to the contrary, that the platform was clear. The place, as we have already stated, was dark, or dimly lighted, and this also is proof of a failure upon the part of the defendant in the performance of a duty owing by it to the plaintiff; for if it were by any possibility concede that it had right to pile these sacks in the path of alighting passengers, the placing of them adequately so that their presence would be revealed. As pertinent to the question of contributory negligence on the part of the plaintiff in this case the following circumstances are to be noted: The company's platform was constructed upon a level higher than that of the roadbed and the surrounding ground. The distance from the steps of the car to the spot where the alighting passenger would place his feet on the platform was thus reduced, thereby decreasing the risk incident to stepping off. The nature of the platform, constructed as it was of cement material, also assured to the passenger a stable and even surface on which to alight. Furthermore, the plaintiff was possessed of the vigor and agility of young manhood, and it was by no means so risky for him to get off while the train was yet moving as the same act would have been in an aged or feeble person. In determining the question of contributory negligence in performing such act that is to say, whether the passenger acted prudently or recklessly the age, sex, and physical condition of the passenger are circumstances necessarily affecting the safety of the passenger, and should be considered. Women, it has been observed, as a general rule are less capable than men of alighting with safety under such conditions, as the nature of their wearing apparel obstructs the free movement of the limbs. Again, it may be noted that the place was perfectly familiar to the plaintiff as it was his daily custom to get on and of the train at this station. There could, therefore, be no uncertainty in his mind with regard either to the length of the step which he was required to take or the character of the platform where he was alighting. Our conclusion is that the conduct of the plaintiff in undertaking to

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alight while the train was yet slightly under way was not characterized by imprudence and that therefore he was not guilty of contributory negligence. The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a copyist clerk, and that the injuries he has suffered have permanently disabled him from continuing that employment. Defendant has not shown that any other gainful occupation is open to plaintiff. His expectancy of life, according to the standard mortality tables, is approximately thirty-three years. We are of the opinion that a fair compensation for the damage suffered by him for his permanent disability is the sum of P2,500, and that he is also entitled to recover of defendant the additional sum of P790.25 for medical attention, hospital services, and other incidental expenditures connected with the treatment of his injuries. The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of P3,290.25, and for the costs of both instances. So ordered. G.R. No. 94761 May 17, 1993 MAERSK LINE, petitioner, vs. COURT OF APPEALS AND EFREN V. CASTILLO, doing business under the name and style of Ethegal Laboratories, respondents. Bito, Lozada, Ortega & Castillo for petitioner. Humberto A. Jambora for private respondent. Through a Memorandum of Shipment (Exh. "B"; AC GR CV No.10340, Folder of Exhibits, pp. 5-6), the shipper Eli Lilly, Inc. of Puerto Rico advised private respondent as consignee that the 600,000 empty gelatin capsules in six (6) drums of 100,000 capsules each, were already shipped on board MV "Anders Maerskline" under Voyage No. 7703 for shipment to the Philippines via Oakland, California. In said Memorandum, shipper Eli Lilly, Inc. specified the date of arrival to be April 3, 1977. For reasons unknown, said cargo of capsules were mishipped and diverted to Richmond, Virginia, USA and then transported back Oakland, Califorilia. The goods finally arrived in the Philippines on June 10, 1977 or after two (2) months from the date specified in the memorandum. As a consequence, private respondent as consignee refused to take delivery of the goods on account of its failure to arrive on time. Private respondent alleging gross negligence and undue delay in the delivery of the goods, filed an action before the court a quo for rescission of contract with damages against petitioner and Eli Lilly, Inc. as defendants. Denying that it committed breach of contract, petitioner alleged in its that answer that the subject shipment was transported in accordance with the provisions of the covering bill of lading and that its liability under the law on transportation of good attaches only in case of loss, destruction or deterioration of the goods as provided for in Article 1734 of Civil Code (Rollo, p. 16). Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory and cross-claim. In its cross-claim, it alleged that the delay in the arrival of the the subject merchandise was due solely to the gross negligence of petitioner Maersk Line. The issues having been joined, private respondent moved for the dismissal of the complaint against Eli Lilly, Inc.on the ground that the evidence on record shows that the delay in the delivery of the shipment was attributable solely to petitioner. Acting on private respondent's motion, the trial court dismissed the complaint against Eli Lilly, Inc. Correspondingly, the latter withdraw its cross-claim against petitioner in a joint motion dated December 3, 1979. After trial held between respondent and petitioner, the court a quo rendered judgment dated January 8, 1982 in favor of respondent Castillo, the dispositive portion of which reads:

BIDIN, J.: Petitioner Maersk Line is engaged in the transportation of goods by sea, doing business in the Philippines through its general agent Compania General de Tabacos de Filipinas. Private respondent Efren Castillo, on the other hand, is the proprietor of Ethegal Laboratories, a firm engaged in the manutacture of pharmaceutical products. On November 12, 1976, private respondent ordered from Eli Lilly. Inc. of Puerto Rico through its (Eli Lilly, Inc.'s) agent in the Philippines, Elanco Products, 600,000 empty gelatin capsules for the manufacture of his pharmaceutical products. The capsules were placed in six (6) drums of 100,000 capsules each valued at US $1,668.71.

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IN VIEW OF THE FOREGOING, this Court believe (sic) and so hold (sic) that there was a breach in the performance of their obligation by the defendant Maersk Line consisting of their negligence to ship the 6 drums of empty Gelatin Capsules which under their own memorandum shipment would arrive in the Philippines on April 3, 1977 which under Art. 1170 of the New Civil Code, they stood liable for damages. Considering that the only evidence presented by the defendant Maersk line thru its agent the Compania de Tabacos de Filipinas is the testimony of Rolando Ramirez who testified on Exhs. "1" to "5" which this Court believe (sic) did not change the findings of this Court in its decision rendered on September 4, 1980, this Court hereby renders judgment in favor of the plaintiff Efren Castillo as against the defendant Maersk Line thru its agent, the COMPANIA GENERAL DE TABACOS DE FILIPINAS and ordering: (a) Defendant to pay the plaintiff Efren V. Castillo the amount of THREE HUNDRED SIXTY NINE THOUSAND PESOS, (P369,000.00) as unrealized profit;. (b) Defendant to pay plaintiff the sum of TWO HUNDRED THOUSAND PESOS (P200,000.00), as moral damages; (c) Defendant to pay plaintiff the sum of TEN THOUSAND PESOS (P10,000.00) as exemplary damages; (d) Defendant to pay plaintiff the sum of ELEVEN THOUSAND SIX HUNDRED EIGHTY PESOS AND NINETY SEVEN CENTAVOS (P11,680.97) as cost of credit line; and (e) Defendant to pay plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00), as attorney's fees and to pay the costs of suit. That the above sums due to the plaintiff will bear the legal rate of interest until they are fully paid from the time the case was filed. SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15). On appeal, respondent court rendered its decision dated August 1, 1990 affirming with modifications the lower court's decision as follows: WHEREFORE, the decision appealed from is affirmed with a modification, and, as modified, the judgment in this case should read as follows: Judgment is hereby rendered ordering defendant-appellant Maersk Line to pay plaintiff-appellee (1) compensatory damages of P11,680.97 at 6% annual interest from filing of the complaint until fully paid, (2) moral damages of P50,000.00, (3) exemplary damages of P20,000,00, (3) attorney's fees, per appearance fees, and litigation expenses of P30,000.00, (4) 30% of the total damages awarded except item (3) above, and the costs of suit. SO ORDERED. (Rollo, p. 50) In its Memorandum, petitioner submits the following "issues" for resolution of the court : I Whether or not the respondent Court of Appeals committed an error when it ruled that a defendant's cross-claim against a co-defendant survives or subsists even after the dismissal of the complaint against defendant-cross claimant. II Whether or not respondent Castillo is entitled to damages resulting from delay in the delivery of the shipment in the absence in the bill of lading of a stipulation on the period of delivery. III Whether or not the respondent appellate court erred in awarding actual, moral and exemplary damages and attorney's fees despite the absence of factual findings and/or legal bases in the text of the decision as support for such awards. IV Whether or not the respondent Court of Appeals committed an error when it rendered an ambiguous and unexplained award in the dispositive portion of the decision which is not supported by the body or the text of the decision. (Rollo, pp.9495). With regard to the first issue raised by petitioner on whether or not a defendant's cross-claim against co-defendant (petitioner herein) survives or subsists even after the dismissal of the complaint against defendant-cross-claimant (petitioner herein), we rule in the negative. Apparently this issue was raised by reason of the declaration made by respondent court in its questioned decision, as follows:

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Re the first assigned error: What should be rescinded in this case is not the "Memorandum of Shipment" but the contract between appellee and defendant Eli Lilly (embodied in three documents, namely: Exhs. A, A-1 and A-2) whereby the former agreed to buy and the latter to sell those six drums of gelatin capsules. It is by virtue of the cross-claim by appellant Eli Lilly against defendant Maersk Line for the latter's gross negligence in diverting the shipment thus causing the delay and damage to appellee that the trial court found appellant Maersk Line liable. . . . xxx xxx xxx Re the fourth assigned error: Appellant Maersk Line's insistence that appellee has no cause of action against it and appellant Eli Lilly because the shipment was delivered in good order and condition, and the bill of lading in question contains "stipulations, exceptions and conditions" Maersk Line's liability only to the "loss, destruction or deterioration," indeed, this issue of lack of cause of action has already been considered in our foregoing discussion on the second assigned error, and our resolution here is still that appellee has a cause of action against appellant Eli Lilly. Since the latter had filed a cross-claim against appellant Maersk Line, the trial court committed no error, therefore, in holding the latter appellant ultimately liable to appellee. (Rollo, pp. 47-50; Emphasis supplied) Reacting to the foregoing declaration, petitioner submits that its liability is predicated on the cross-claim filed its co-defendant Eli Lilly, Inc. which cross-claim has been dismissed, the original complaint against it should likewise be dismissed. We disagree. It should be recalled that the complaint was filed originally against Eli Lilly, Inc. as shipper-supplier and petitioner as carrier. Petitioner being an original party defendant upon whom the delayed shipment is imputed cannot claim that the dismissal of the complaint against Eli Lilly, Inc. inured to its benefit. Respondent court, erred in declaring that the trial court based petitioner's liability on the cross-claim of Eli Lilly, Inc. As borne out by the record, the trial court anchored its decision on petitioner's delay or negligence to deliver the six (6) drums of gelatin capsules within a reasonable time on the basis of which petitioner was held liable for damages under Article 1170 of the New Civil Code which provides that those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. Nonetheless, petitioner maintains that it cannot be held for damages for the alleged delay in the delivery of the 600,000 empty gelatin capsules since it acted in good faith and there was no special contract under which the carrier undertook to deliver the shipment on or before a specific date (Rollo, p. 103). On the other hand, private respondent claims that during the period before the specified date of arrival of the goods, he had made several commitments and contract of adhesion. Therefore, petitioner can be held liable for the damages suffered by private respondent for the cancellation of the contracts he entered into. We have carefully reviewed the decisions of respondent court and the trial court and both of them show that, in finding petitioner liable for damages for the delay in the delivery of goods, reliance was made on the rule that contracts of adhesion are void. Added to this, the lower court stated that the exemption against liability for delay is against public policy and is thus, void. Besides, private respondent's action is anchored on Article 1170 of the New Civil Code and not under the law on Admiralty (AC-GR CV No. 10340, Rollo, p. 14). The bill of lading covering the subject shipment among others, reads: 6. GENERAL (1) The Carrier does not undertake that the goods shall arive at the port of discharge or the place of delivery at any particular time or to meet any particular market or use and save as is provided in clause 4 the Carrier shall in no circumstances be liable for any direct, indirect or consequential loss or damage caused by delay. If the Carrier should nevertheless be held legally liable for any such direct or indirect or consequential loss or damage caused by delay, such liability shall in no event exceed the freight paid for the transport covered by this Bill of Lading. (Exh. "1-A"; AC-G.R. CV No. 10340, Folder of Exhibits, p. 41) It is not disputed that the aforequoted provision at the back of the bill of lading, in fine print, is a contract of adhesion. Generally, contracts of adhesion are considered void since almost all the provisions of these types of contracts are prepared and drafted only by one party, usually the carrier (Sweet Lines v. Teves, 83 SCRA 361 [1978]). The only participation left of the other party in such a contract is the affixing of his signature thereto, hence the term "Adhesion" (BPI Credit Corporation v. Court of Appeals, 204 SCRA 601 [1991]; Angeles v. Calasanz, 135 SCRA 323 [1985]). Nonetheless, settled is the rule that bills of lading are contracts not entirely prohibited (Ong Yiu v. Court of Appeals, et al., 91 SCRA 223 [1979]; Servando, et al. v. Philippine Steam Navigation Co., 117 SCRA 832 [1982]). One who adheres to the contract is in reality free to reject it in its entirety; if he adheres, he gives his consent (Magellan Manufacturing Marketing Corporation v. Court of Appeals, et al., 201 SCRA 102 [1991]).

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In Magellan, (supra), we ruled: It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as contract to transport and deliver the same a therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations assumed by the parties. Being a contract, it is the law between the parties who are bound by its terms and conditions provided that these are not contrary to law, morals, good customs, public order and public policy. A bill of lading usually becomes effective upon its delivery to and acceptance by the shipper. It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or improper conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the bill or not. (Emphasis supplied) However, the aforequoted ruling applies only if such contracts will not create an absurd situation as in the case at bar. The questioned provision in the subject bill of lading has the effect of practically leaving the date of arrival of the subject shipment on the sole determination and will of the carrier. While it is true that common carriers are not obligated by law to carry and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common carriers previously assume the obligation to deliver at a given date or time (Mendoza v. Philippine Air Lines, Inc., 90 Phil. 836 [1952]), delivery of shipment or cargo should at least be made within a reasonable time. In Saludo, Jr. v. Court of Appeals (207 SCRA 498 [1992]) this Court held: The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the law implies a contract that they shall be delivered at destination within a reasonable time, in the absence, of any agreement as to the time of delivery. But where a carrier has made an express contract to transport and deliver properly within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what cause it may have arisen. This result logically follows from the well-settled rule that where the law creates a duty or charge, and the default in himself, and has no remedy over, then his own contract creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or delay by inevitable necessity because he might have provided against it by contract. Whether or not there has been such an undertaking on the part of the carrier is to be determined from the circumstances surrounding the case and by application of the ordinary rules for the interpretation of contracts. An examination of the subject bill of lading (Exh. "1"; AC GR CV No. 10340, Folder of Exhibits, p. 41) shows that the subject shipment was estimated to arrive in Manila on April 3, 1977. While there was no special contract entered into by the parties indicating the date of arrival of the subject shipment, petitioner nevertheless, was very well aware of the specific date when the goods were expected to arrive as indicated in the bill of lading itself. In this regard, there arises no need to execute another contract for the purpose as it would be a mere superfluity. In the case before us, we find that a delay in the delivery of the goods spanning a period of two (2) months and seven (7) days falls was beyond the realm of reasonableness. Described as gelatin capsules for use in pharmaceutical products, subject shipment was delivered to, and left in, the possession and custody of petitioner-carrier for transport to Manila via Oakland, California. But through petitioner's negligence was mishipped to Richmond, Virginia. Petitioner's insitence that it cannot be held liable for the delay finds no merit. Petition maintains that the award of actual, moral and exemplary dames and attorney's fees are not valid since there are no factual findings or legal bases stated in the text of the trial court's decision to support the award thereof. Indeed, it is settled that actual and compensataory damages requires substantial proof (Capco v. Macasaet. 189 SCRA 561 [1990]). In the case at bar, private respondent was able to sufficiently prove through an invoice (Exh. 'A-1'), certification from the issuer of the letter of credit (Exh.'A-2') and the Memorandum of Shipment (Exh. "B"), the amount he paid as costs of the credit line for the subject goods. Therefore, respondent court acted correctly in affirming the award of eleven thousand six hundred eighty pesos and ninety seven centavos (P11,680.97) as costs of said credit line. As to the propriety of the award of moral damages, Article 2220 of the Civil Code provides that moral damages may be awarded in "breaches of contract where the defendant acted fraudulently or in bad faith" (Pan American World Airways v. Intermediate Appellate Court, 186 SCRA 687 [1990]). In the case before us, we that the only evidence presented by petitioner was the testimony of Mr. Rolando Ramirez, a claims manager of its agent Compania General de Tabacos de Filipinas, who merely testified on Exhs. '1' to '5' (AC-GR CV No. 10340, p. 2) and nothing else. Petitioner never even bothered to explain the course for the delay, i.e. more than two (2) months, in the delivery of subject shipment. Under the circumstances of the case, we hold that petitioner is liable for breach of contract of carriage through gross negligence amounting to bad faith. Thus, the award of moral damages if therefore proper in this case.

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In line with this pronouncement, we hold that exemplary damages may be awarded to the private respondent. In contracts, exemplary damages may be awarded if the defendant acted in a wanton, fraudulent, reckless, oppresive or malevolent manner. There was gross negligence on the part of the petitioner in mishiping the subject goods destined for Manila but was inexplicably shipped to Richmond, Virginia, U.S.A. Gross carelessness or negligence contitutes wanton misconduct, hence, exemplary damages may be awarded to the aggrieved party (Radio Communication of the Phils., Inc. v. Court of Appeals, 195 SCRA 147 [1991]). Although attorney's fees are generally not recoverable, a party can be held lible for such if exemplary damages are awarded (Artice 2208, New Civil Code). In the case at bar, we hold that private respondent is entitled to reasonable attorney`s fees since petitioner acte with gross negligence amounting to bad faith. However, we find item 4 in the dispositive portion of respondent court`s decision which awarded thirty (30) percent of the total damages awarded except item 3 regarding attorney`s fees and litigation expenses in favor of private respondent, to be unconsionable, the same should be deleted. WHEREFORE, with the modification regarding the deletion of item 4 of respondent court`s decision, the appealed decision is is hereby AFFIRMED in all respects. G.R. No. 110581 September 21, 1994 TELENGTAN BROTHERS & SONS, INC. (LA SUERTE CIGAR & CIGARETTE), petitioner, vs. THE COURT OF APPEALS, KAWASAKI KISHEN KAISHA, LTD. and SMITH, BELL & CO., INC., respondents. Juan, Luces, Luna and Associates for petitioner. Bito, Lozada, Ortega & Castillo for private respondents. Private respondent Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping company doing business in the Philippines, its shipping agent being respondent the Smith, Bell & Co., Inc. It is a member of the Far East Conference, the body which fixes rates by agreement of its member-shipowners. The conference is registered with the U.S. Federal Maritime Commission. 2 On May 8, 1979, the Van Reekum Paper, Inc. entered into a contract of affreightment with the K-Line for the shipment of 468 rolls of container board liners from Savannah, Georgia to Manila. The shipment was consigned to herein petitioner La Suerte Cigar & Cigarette Factory. The contract of affreightment was embodied in Bill of Lading No. 602 issued by the carrier to the shipper. The expenses of loading and unloading were for the account of the consignee. The shipment was packed in 12 container vans and loaded on board the carrier's vessel, SS Verrazano Bridge. At Tokyo, Japan, the cargo was transhipped on two vessels of the K-Line. Ten container vans were loaded on the SS Far East Friendship, while two were loaded on the SS Hangang Glory. Shortly thereafter, the consignee (herein petitioner) received from the shipper photocopies of the bill of lading, consular invoice and packing list, as well as notice of the estimated time of arrival of the cargo. On June 11, 1979, the SS Far East Friendship arrived at the port of Manila. Aside from the regular advertisements in the shipping section of the Bulletin Today announcing the arrival of its vessels, petitioner was notified in writing of the ship's arrival, together with information that container demurrage at the rate of P4.00 per linear foot per day for the first 5 days and P8.00 per linear foot per day after the 5th day would be charged unless the consignee took delivery of the cargo within ten days. On June 21, 1979, the other vessel SS Hangang Glory, carrying petitioner's two other vans, arrived and was discharged of its contents the next day. On the same day the shipping agent Smith, Bell & Co. released the Delivery Permit for twelve (12) containers to the broker upon payment of freight charges on the bill of lading. The next day, June 22, 1979, the Island Brokerage Co. presented, in behalf of petitioner, the shipping documents to the Customs Marine Division of the Bureau of Customs. But the latter refused to act on them because the manifest of the SS Far East Friendship covered only 10 containers, whereas the bill of lading covered 12 containers.

MENDOZA, J.: This is a petition for review of the decision of the Court of Appeals, 1 in CA-G.R. CV No. 09514, affirming with modification the decision of the Regional Trial Court in a case for specific performance brought by petitioner.

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The broker, therefore, sent back the manifest to the shipping agent with the request that the manifest be amended. Smith, Bell & Co. refused on the ground that an amendment, as requested, would violate 1005 of the Tariff and Customs Code relating to unmanifested cargo. Later, however, it agreed to add a footnote reading "Two container vans carried by the SS Hangang Glory to complete the shipment of twelve containers under the bill of lading." On June 29, 1979 the manifest was picked up from the office of respondent shipping agent by an employee of the IBC and filed with the Bureau of Customs. The manifest was approved for release on July 3, 1979. IBC wrote Smith, Bell & Co. to make of record that entry of the shipment had been delayed by the error in the manifest. On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed by private respondents' collection agent, the CBCS Guaranteed Fast Collection Services, that the free time for removing the containers from the container yard had expired on June 26, 1979, in the case of the SS Far East Friendship, and on July 9, in the case of the SS Hangang Glory, 3 and that demurrage charges had begun to run on June 27, 1979 with respect to the 10 containers on the SS Far East Friendship and on July 10, 1979 with respect to the 2 containers shipped on board the SS Hangang Glory. On July 13, 1979, petitioner paid P47,680.00 representing the total demurrage charges on all the containers, but it was not able to obtain its goods. On July 16, 1979 it was able to obtain the release of two containers and on July 17, 1979 of one more container. It was able to obtain only a partial release of the cargo because of the breakdown of the arrastre's equipment at the container yard. This matter was reported by IBC in letters of complaint sent to the Philippine Ports Authority. In addition, on July 16, 1979, petitioner sent a letter dated July 12, 1979 (Exh. I) to Smith, Bell & Co., requesting reconsideration of the demurrage charges, on the ground that the delay in claiming the goods was due to the alleged late arrival of the shipping documents, the delay caused by the amendment of the manifest, and the fact that two of the containers arrived separately from the other ten containers. On July 19, 1979, petitioner paid additional charges in the amount of P20,160.00 for the period July 14-19, 1979 to secure the release of its cargo, but still petitioner was unable to get any cargo from the remaining nine container vans. It was only the next day, July 20, 1979, that it was able to have two more containers released from the container yard, bringing to five the total number of containers whose contents had been delivered to it. Subsequently, petitioner refused to pay any more demurrage charges on the ground that there was agreement for their payment in the bill of lading and that the delay in the release of the cargo was not due to its fault but to the breakdown of the equipment at the container yard. In all, petitioner had paid demurrage charges from June 27 to July 19, 1979, in the total amount of P67,840.00, computed as follows: A. Container demurrage paid on July 13, 1979 1. Far East Friendship (Exh. H-1) June 27 July 13 (17 days) 1st 5 days 5 days x P40 ft. x Next 12 days 12 days x P8 x 40 ft. x 10 ctrns. P 38,400.00 P 46,400.00 2. Hangang Glory (Exh. H) July 10 July 13 (4 days) 1st 4 4 days x P4 x 40 ft. x 2 ctnrs. P 1,280.00 TOTAL PAID ON JULY 13 P 47,680.00 (Exh. H-2) B. Container demurrage paid on July 19, 1979 1. Far East Friendship a. on 2 containers released July 16 3 days x P8 x 40 ft. x 2 ctnrs. P 1,920.00 (Exh. L-2) b. on 1 container released July 17 days: @ ctrns. @ P4/day/foot 8,000.00 P8/day/foot

10

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4 days x P8 x 40 ft. x 7 cntrs. P 1,280.00 (Exh. L-3) c. remaining 7 containers as of July 19 6 days x P8 x 40 ft. x 7 cntrs. P 13,440.00 (Exh. L-1) 2. Hangang Glory a. 5th day (July 14) 1 day x P4.00 x 40 ft. x 2 cntrs. P 320.00 b. July 15-19: 5 days x P8.00 x 40 ft. x 2 cntrs. P 3,200.00 (Exh. L) TOTAL P 20,160.00 (Exh. L-4) OVERALL TOTAL P 67,840.00 ========= On July 20, 1979 petitioner wrote private respondent for a refund of the demurrage charges, but private respondent replied on July 25, 1979 that, as member of the Far East Conference, it could not modify the rules or authorize refunds of the stipulated tariffs. Petitioner, therefore, filed this suit in the RTC for specific performance to compel private respondent carrier, through it s shipping agent, the Smith, Bell & Co., to release 7 container vans consigned to it free of charge and for a refund of P67,840.00 which it had paid, plus attorney's fees and other expenses of litigation. Petitioner also asked for the issuance of a writ of preliminary injunction to restrain private respondents from charging additional demurrage. In their amended answer, private respondents claimed that collection of container charges was authorized by 2, 23 and 29 of the bill of lading and that they were not free to waive these charges because under the United States Shipping Act of 1916 it was unlawful for any common carrier engaged in transportation involving the foreign commerce of the United States to charge or collect a greater or lesser compensation that the rates and charges specified in its tariffs on file with the Federal Maritime Commission. Private respondents alleged that petitioner knew that the contract of carriage was subject to the Far East Conference rules and that the publication of the notice of reimposition of container demurrage charges published in the shipping section of the Bulletin Today and Businessday newspapers from February 19 February 25, 1979 was binding upon petitioner. They contended further that the collection of container demurrage was an international practice which is widely accepted in ports all over the world and that it was in conformity with Republic Act No. 1407, otherwise known as the Philippine Overseas Shipping Act of 1955. Thereafter, a writ was issued after petitioner had posted a bond of P50,000.00 and the container vans were released to the petitioner. On March 19, 1986, however, the RTC dismissed petitioner's complaint. It cited the bill of lading which provided: 23. The ocean carrier shall have a lien on the goods, which shall survive delivery, for all freight, dead freight, demurrage, damages, loss, charges, expenses and any other sums whatsoever payable or chargeable to or for the account of the Merchant under this bill of lading . . . . It likewise invoked clause 29 of the bill of lading which provided: 29. . . .The terms of the ocean carrier's applicable tariff, including tariffs covering intermodal transportation on file with the Federal Maritime Commission and the Interstate Commission or any other regulatory body which governs a portion of the carriage of goods, are incorporated herein. Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12 Rules and Regulations, referred to above, provides: (D) Free Time, Demurrage, and Equipment Detention at Ports in the Philippines.

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Note: Philippine Customs Law prescribes all cargo discharged from vessels to be given into custody of the Government Arrastre Contractor, appointed by Philippine Customs who undertakes delivery to the consignee. xxx xxx xxx Demurrage charges on Containers with CY Cargo. 1. Free time will commence at 8:00 a.m. on the first working calendar day following completion of discharge of the vessel. It shall expire at 12:00 p.m. (midnight) on the tenth working calendar day, excluding Saturdays, Sundays and holidays. Work stoppage at a terminal due to labor dispute or other force majeure as defined by the conference preventing delivery of cargo or containers shall be excluded from the calculation of the free time for the period of the work stoppage. 2. Demurrage charges are incurred before the container leaves the carrier's designated CY, and shall be applicable on the container commencing the next working calendar day following expiration of the allowable free time until the consignee has taken delivery of the container or has fully striped the container of its contents in the carrier's designated CY. Demurrage charges shall be assessed hereunder: Ordinary containers P4.00 per linear foot of the container per day for the first five days; P8.00 per linear foot of the container per day, thereafter. The RTC held that the bill of lading was the contract between the parties and, therefore, petitioner was liable for demurrage charges. It rejected petitioner's claim of force majeure. It held: This Court cannot also accord faith and credit on the plaintiff's claim that the delay in the delivery of the containers was caused by the breaking down of the equipment of the arrastre operator. Such claim was not supported with competent evidence. Let us assume the fact that the arrastre operator's equipment broke down still plaintiff has to pay the corresponding demurrage charges. The possibility that the equipment would break down was not only foreseeable, but actually, foreseen, and was not caso fortuito. 4 The RTC, therefore, ordered: WHEREFORE, finding the preponderance of evidence in favor of the defendants and against the plaintiff, judgment is hereby rendered dismissing the complaint with costs against it. Plaintiff is hereby ordered to pay defendants the sum of P36,480.00 representing demurrage charges for the detention of the seven (7) forty-footer container vans from July 20 to August 7, 1979, with legal interest commencing on August 7, 1979 until fully paid. And plaintiff has to pay the sum of P10,000.00, by way of attorney's fees. SO ORDERED. On appeal, the case was affirmed with modification by the Court of Appeals as follows: WHEREFORE, modified as indicated above deleting the award of attorney's fees, the decision appealed from is hereby AFFIRMED in all other respects. Costs against plaintiff-appellant. SO ORDERED. 5 Hence, this petition for review in which it is contended: 1 that no demurrage lies in the absence of any showing that the vessels had been improperly detained or that loss or damage had been incurred as a consequence of improper detention; 2 that respondent Court's finding that private respondent Smith Bell had promptly and on the same day amended the defective manifest is contrary to the evidence of record. 3 that respondent Court manifestly over-looked undisputed evidence presented by petitioner showing that the breakdown in the facilities and equipment of the arrastre operator further delayed petitioner's withdrawal of the cargo. 6 Petitioner prays for a reversal of the decision of the Court of Appeals and the refund to it of the demurrage charges paid by it, with interest, as well as to pay attorney's fees and expenses of litigation. Our decision will be presently explained, but in brief it is this: petitioner is liable for demurrage for delay in removing its cargo from the containers but only for the period July 3 to 13, 1979 with respect to ten containers and from July 10 to July 13, 1979, in respect of two other containers. First. With respect to petitioner's liability for demurrage, petitioner's contention is that the bill of lading does not provide for the payment of container demurrage, as

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Clause 23 of the bill of lading only says "demurrage," i.e., damages for the detention of vessels, and here there is no detention of vessels. Petitioner invokes the ruling in Magellan Manufacturing Marketing Corp. v. Court of Appeals 7, where we defined "demurrage" as follows: Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is the claim for damages for failure to accept delivery. In a broad sense, every improper detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its strictly technical sense, exists only when expressly stipulated in the contract. Using the term in [its broader sense, damages in the] nature of demurrage are recoverable for a breach of the implied obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom the duty is owed and only against one who is a party to the shipping contract. Whatever may be the merit of petitioner's contention as to the meaning of the word "demurrage" in clause 23 of the bill of lading, the fact is that clause 29(a) also of the bill of lading, in relation to Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12, as quoted above, specifically provides for the payment by the consignee of demurrage for the detention of containers and other equipment after the so-called "free time." Now a bill of lading is both a receipt and a contract. As a contract, its terms and conditions are conclusive on the parties, including the consignee. What we said in one case mutatis mutandis applies to this case: A bill of lading operates both as a receipt and a contract . . . As a contract, it names the contracting parties which include the consignee, fixes the route, destination, freight rate or charges, and stipulates the right and obligations assumed by the parties . . . . By receiving the bill of lading, Davao Parts and Services, Inc. assented to the terms of the consignment contained therein, and became bound thereby, so far as the conditions named are reasonable in the eyes of the law. Since neither appellant nor appellee alleges that any provision therein is contrary to law, morals, good customs, public policy or public order and indeed we found none the validity of the Bill of Lading must be sustained and the provisions therein properly applies to resolve the conflict between the parties. 8 As the Court of Appeals pointed out in its appealed decision, the enforcement of the rules of the Far East Conference and the Federal Maritime Commission is in accordance with Republic Act No. 1407, 1 of which declares that the Philippines, in common with other maritime nations, recognizes the international character of shipping in foreign trade and existing international practices in maritime transportation and that it is part of the national policy to cooperate with other friendly nations in the maintenance and improvement of such practices. Petitioner's argument that it is not bound by the bill of lading issued by K-Line because it is a contract of adhesion, whose terms as set forth at the back are in small prints and are hardly readable, is without merit. As we held in Servando v. Philippine Steam Navigation: 9 While it may be true that petitioner had not signed the plane ticket (Exh. 12), he is nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation". It is what is known as a contract of "adhesion," in regards to which it has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. (Tolentino, Civil Code, Vol. IV, 1962 Ed., p. 462, citing Mr. Justice JBL Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49). Second. With respect to the period of petitioner's liability, private respondent's position is that the "free time" expired on June 26, 1979 and demurrage began to toll on June 27, 1979, with respect to 10 containers which were unloaded from the SS Far East Friendship, while with respect to the 2 containers which were unloaded from the SS Hangang Glory, the free time expired on July 9, 1979 and demurrage began to run on July 10, 1979. This contention is without merit. Petitioner cannot be held liable for demurrage starting June 27, 1979 on the 10 containers which arrived on the SS Far East Friendship because the delay in obtaining release of the goods was not due to its fault. The evidence shows that because the manifest issued by the respondent KLine, through the Smith, Bell & Co., stated only 10 containers, whereas the bill of lading also issued by the K-Line showed there were 12 containers, the Bureau of Customs refused to give an entry permit to petitioner. For this reason, petitioner's broker, the IBC, had to see the respondent's agent (Smith, Bell & Co.) on June 22, 1979 but the latter did not immediately do something to correct the manifest. Smith, Bell & Co. was asked to "amend" the manifest, but it refused to do so on the ground that this would violate the law. It was only on June 29, 1979 that it thought of adding instead a footnote to indicate that two other container vans to account for a total of 12 container vans consigned to petitioner had been loaded on the other vessel SS Hangang Glory.

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It is not true that the necessary correction was made on June 22, 1979, the same day the manifest was presented to Smith, Bell & Co. There is nothing in the testimonies of witnesses of either party to support the appellate court's finding that the footnote, explaining the apparent discrepancy between the bill of lading and the manifest, was added on June 22, 1979 but that petitioner's representative did not return to pick up the manifesst until June 29, 1979. To the contrary, it is more probable to believe the petitioner's claim that the manifest was corrected only on June 29, 1979 (by which time the "free time" had already expired), because Smith, Bell & Co. did not immediately know what to do as it insisted it could not amend the manifest and only thought of adding a footnote on June 29, 1979 upon the suggestion of the IBC. Now June 29, 1979 was a Friday. Again it is probable the correct manifest was presented to the Bureau of Customs only on Monday, July 2, 1979 and, therefore, it was only on July 3 that it was approved. It was, therefore, only from this date (July 3, 1979) that petitioner could have claimed its cargo and charged for any delay in removing its cargo from the containers. With respect to the other two containers which arrived on the SS Hangang Glory, demurrage was properly considered to have accrued on July 10, 1979 since the "free time" expired on July 9. The period of delay, however, for all the 12 containers must be deemed to have stopped on July 13, 1979, because on this date petitioner paid P47,680.00. If it was not able to get its cargo from the container vans, it was because of the breakdown of the shifter or cranes. This breakdown cannot be blamed on petitioners since these were cranes of the arrastre service operator. It would be unjust to charge demurrage after July 13, 1979 since the delay in emptying the containers was not due to the fault of the petitioner. Indeed, there is no reason why petitioner should not get its cargo after paying all demurrage charges due on July 13, 1979. If it paid P20,180.00 more in demurrage charges after July 13, 1979 it was only because respondents would not release the goods. Even then petitioner was able to obtain the release of cargo from five container vans. Its trucks were unable to load anymore cargo and returned to petitioner's premises empty. In sum, we hold that petitioner can be held liable for demurrage only for the period July 3-13, 1979 and that in accordance with the stipulation in its bill of lading, it is liable for demurrage only in the amount of P28,480.00 computed as follows; A. 10 containers ex Far East Friendship (July 3-13, 1979) 1. 1st 5 days @ P4.00/day/foot PANGANIBAN, J.: 5 days x P4 x 40 ft. x 10 ctnrs. P 8,000 2. Next 6 days @ P8.00/day/foot 6 days x P8 x 40 ft. x 10 cntrs. P 19,200 P 27,200 B. 2 containers ex Hangang Glory (July 10-13, 1979) 1st 4 days @ P4.00/day/foot 4 days x P4 x 40 ft. x 10 cntrs. P 1,280 TOTAL DEMURRAGE DUE P 28,480 ======= LESS: TOTAL PAID (P 67,840) OVERPAYMENT (P 39,360) As shown above there is an overpayment of P39,360.00 which should be refunded to petitioner. WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED, ORDERING the private respondents to pay to petitioner the sum of P39,360.00 by way of refund, with legal interest. SO ORDERED. G.R. No. 116863 February 12, 1998 KENG HUA PAPER PRODUCTS CO. INC., petitioner, vs. COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND SERVICE, INC., respondents.

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What is the nature of a bill of lading? When does a bill of lading become binding on a consignee? Will an alleged overshipment justify the consignee's refusal to receive the goods described in the bill of lading? When may interest be computed on unpaid demurrage charges? Statement of the Case These are the main questions raised in this petition assailing the Decision 1 of the Court of Appeals 2 promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953 affirming in toto the decision 3 dated September 28, 1990 in Civil Case No. 85-33269 of the Regional Trial Court of Manila, Branch 21. The dispositive portion of the said RTC decision reads: WHEREFORE, the Court finds by preponderance of evidence that Plaintiff has proved its cause of action and right to relief. Accordingly, judgment is hereby rendered in favor of the Plaintiff and against Defendant, ordering the Defendant to pay plaintiff: 1. The sum of P67,340.00 as demurrage charges, with interest at the legal rate from the date of the extrajudicial demand until fully paid; 2. A sum equivalent to ten (10%) percent of the total amount due as Attorney's fees and litigation expenses. Send copy to respective counsel of the parties. SO ORDERED. 4 The Facts The factual antecedents of this case as found by the Court of Appeals are as follows: Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to do business in the Philippines. On June 29, 1982, plaintiff received at its Hong Kong terminal a sealed container, Container No. SEAU 67523, containing seventy-six bales of "unsorted waste paper" for shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in Manila. A bill of lading (Exh. A) to cover the shipment was issued by the plaintiff. On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of arrival were transmitted to the defendant but the latter failed to discharge the shipment from the container during the "free time" period or grace period. The said shipment remained inside the plaintiff's container from the moment the free time period expired on July 29, 1982 until the time when the shipment was unloaded from the container on November 22, 1983, or a total of four hundred eighty-one (481) days. During the 481-day period, demurrage charges accrued. Within the same period, letters demanding payment were sent by the plaintiff to the defendant who, however, refused to settle its obligation which eventually amounted to P67,340.00. Numerous demands were made on the defendant but the obligation remained unpaid. Plaintiff thereafter commenced this civil action for collection and damages. In its answer, defendant, by way of special and affirmative defense, alleged that it purchased fifty (50) tons of waste paper from the shipper in Hong Kong, Ho Kee Waste Paper, as manifested in Letter of Credit No. 824858 (Exh. 7. p. 110. Original Record) issued by Equitable Banking Corporation, with partial shipment permitted; that under the letter of credit, the remaining balance of the shipment was only ten (10) metric tons as shown in Invoice No. H-15/82 (Exh. 8, p. 111, Original Record); that the shipment plaintiff was asking defendant to accept was twenty (20) metric tons which is ten (10) metric tons more than the remaining balance; that if defendant were to accept the shipment, it would be violating Central Bank rules and regulations and custom and tariff laws; that plaintiff had no cause of action against the defendant because the latter did not hire the former to carry the merchandise; that the cause of action should be against the shipper which contracted the plaintiff's services and not against defendant; and that the defendant duly notified the plaintiff about the wrong shipment through a letter dated January 24, 1983 (Exh. D for plaintiff, Exh. 4 for defendant, p. 5. Folder of Exhibits). As previously mentioned, the RTC found petitioner liable for demurrage; attorney's fees and expenses of litigation. The petitioner appealed to the Court of Appeals, arguing that the lower court erred in (1) awarding the sum of P67,340 in favor of the private respondent, (2) rejecting petitioner's contention that there was overshipment, (3) ruling that petitioner's recourse was against the shipper, and (4) computing legal interest from date of extrajudicial demand. 5 Respondent Court of Appeals denied the appeal and affirmed the lower court's decision in toto. In a subsequent resolution, 6 it also denied the petitioner's motion for reconsideration. Hence, this petition for review. 7 The Issues In its memorandum, petitioner submits the following issues:

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I. Whether or not petitioner had accepted the bill of lading; II. Whether or not the award of the sum of P67,340.00 to private respondent was proper; III. Whether or not petitioner was correct in not accepting the overshipment; IV. Whether or not the award of legal interest from the date of private respondent's extrajudicial demand was proper; 8 In the main, the case revolves around the question of whether petitioner bound by the bill of lading. We shall, thus, discuss the above four issues as they intertwine with this main question. The Court's Ruling The petition is partly meritorious. We affirm petitioner's liability for demurrage, but modify the interest rate thereon. Main Issue: Liability Under the Bill of Lading A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which three parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume stipulated obligations. 9 A "bill of lading delivered and accepted constitutes the contract of carriage even though not signed," 10 because the "(a)cceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of the contract and of all of its terms and conditions of which the acceptor has actual or constructive notice." 11 In a nutshell, the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that the same was a perfected and binding contract. 12 In the case at bar, both lower courts held that the bill of lading was a valid and perfected contract between the shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private Respondent Sea-Land). Section 17 of the bill of lading provided that the shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge the containerized shipment beyond the grace period allowed by tariff rules. Applying said stipulation, both lower courts found petitioner liable. The aforementioned section of the bill of lading reads: 17. COOPERAGE FINES. The shipper and consignee shall be liable for, indemnify the carrier and ship and hold them harmless against, and the carrier shall have a lien on the goods for, all expenses and charges for mending cooperage, baling, repairing or reconditioning the goods, or the van, trailers or containers, and all expenses incurred in protecting, caring for or otherwise made for the benefit of the goods, whether the goods be damaged or not, and for any payment, expense, penalty fine, dues, duty, tax or impost, loss, damage, detention, demurrage, or liability of whatsoever nature, sustained or incurred by or levied upon the carrier or the ship in connection with the goods or by reason of the goods being or having been on board, or because of shipper's failure to procure consular or other proper permits, certificates or any papers that may be required at any port or place or shipper's failure to supply information or otherwise to comply with all laws, regulations and requirements of law in connection with the goods of from any other act or omission of the shipper or consignee: (Emphasis supplied.) Petitioner contends, however, that it should not be bound by the bill of lading because it never gave its consent thereto. Although petitioner admits "physical acceptance" of the bill of lading, it argues that its subsequent actions belie the finding that it accepted the terms and conditions printed therein. 13 Petitioner cites as support the "Notice of Refused or On Hand Freight" it received on November 2, 1982 from private respondent, which acknowledged that petitioner declined to accept the shipment. Petitioner adds that it sent a copy of the said notice to the shipper on December 23, 1982. Petitioner points to its January 24, 1983 letter to the private respondent, stressing "that its acceptance of the bill of lading would be tantamount to an act of smuggling as the amount it had imported (with full documentary support) was only (at that time) for 10,000 kilograms and not for 20,313 kilograms as stated in the bill of lading" and "could lay them vulnerable to legal sanctions for violation of customs and tariff as well as Central Bank laws." 14 Petitioner further argues that the demurrage "was a consequence of the shipper's mistake" of shipping more than what was bought. The discrepancy in the amount of waste paper it actually purchased, as reflected in the invoice vis-a-vis the excess amount in the bill of lading, allegedly justifies its refusal to accept the shipment. 15 Petitioner the Bill of Lading Bound by

We are not persuaded. Petitioner admits that it "received the bill of lading immediately after the arrival of the shipment" 16 on July 8, 1982. 17 Having been afforded an opportunity to examine the said document, petitioner did not immediately object to or dissent from any term or stipulation therein. It was only six months later, on January 24, 1983, that petitioner sent a letter to private respondent saying that it could not accept the shipment. Petitioner's inaction for such a long period conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover, said letter spoke only of petitioner's

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inability to use the delivery permit, i.e. to pick up the cargo, due to the shipper's failure to comply with the terms and conditions of the letter of credit, for which reason the bill of lading and other shipping documents were returned by the "banks" to the shipper. 18 The letter merely proved petitioner's refusal to pick up the cargo, not its rejection of the bill of lading. Petitioner's reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance of the bill of lading, is of no consequence. Said notice was not written by petitioner; it was sent by private respondent to petitioner in November 1982, or four months after petitioner received the bill of lading. If the notice has any legal significance at all, it is to highlight petitioner's prolonged failure to object to the bill of lading. Contrary to petitioner's contention, the notice and the letter support not belie the findings of the two lower courts that the bill of lading was impliedly accepted by petitioner. As aptly stated by Respondent Court of Appeals: In the instant case, (herein petitioner) cannot and did not allege non-receipt of its copy of the bill of lading from the shipper. Hence, the terms and conditions as well as the various entries contained therein were brought to its knowledge. (Herein petitioner) accepted the bill of lading without interposing any objection as to its contents. This raises the presumption that (herein petitioner) agreed to the entries and stipulations imposed therein. Moreover, it is puzzling that (herein petitioner) allowed months to pass, six (6) months to be exact, before notifying (herein private respondent) of the "wrong shipment". It was only on January 24, 1983 that (herein petitioner) sent (herein private respondent) such a letter of notification (Exh D for plaintiff, Exh. 4 for defendant; p. 5, Folder of Exhibits). Thus, for the duration of those six months (herein private respondent never knew the reason for (herein petitioner's) refusal to discharge the shipment. After accepting the bill of lading, receiving notices of arrival of the shipment, failing to object thereto, (herein petitioner) cannot now deny that it is bound by the terms in the bill of lading. If it did not intend to be bound, (herein petitioner) would not have waited for six months to lapse before finally bringing the matter to (herein private respondent's attention. The most logical reaction in such a case would be to immediately verify the matter with the other parties involved. In this case, however, (herein petitioner) unreasonably detained (herein private respondent's) vessel to the latter's prejudice. 19 Petitioner's attempt to evade its obligation to receive the shipment on the pretext that this may cause it to violate customs, tariff and central bank laws must likewise fail. Mere apprehension of violating said laws, without a clear demonstration that taking delivery of the shipment has become legally impossible, 20 cannot defeat the petitioner's contractual obligation and liability under the bill of lading. In any event, the issue of whether petitioner accepted the bill of lading was raised for the first time only in petitioner's memorandum before this Court. Clearly, we cannot now entertain an issue raised for the very first time on appeal, in deference to the well-settled doctrine that "(a)n issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal." 21 In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from the private respondent's vessel constitutes a violation of the terms of the bill of lading. It should thus be liable for demurrage to the former. In The Apollon, of demurrage:
22

Justice Story made the following relevant comment on the nature

In truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel. It is often a matter of contract, but not necessarily so. The very circumstance that in ordinary commercial voyages, a particular sum is deemed by the parties a fair compensation for delays, is the very reason why it is, and ought to be, adopted as a measure of compensation, in cases ex delicto. What fairer rule can be adopted than that which founds itself upon mercantile usage as to indemnity, and fixes a recompense upon the deliberate consideration of all the circumstances attending the usual earnings and expenditures in common voyages? It appears to us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere detention, for that allowance has reference to the ship's expenses, wear and tear, and common employment. 23 Amount of Demurrage Charges Petitioner argues that it is not obligated to pay any demurrage charges because, prior to the filing of the complaint, private respondent made no demand for the sum of P67,340. Moreover, private respondent's loss and prevention manager, Loi Gillera, demanded P50,260; but its counsel, Sofronio Larcia, subsequently asked for a different amount of P37,800.

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Petitioner's position is puerile. The amount of demurrage charges in the sum of P67,340 is a factual conclusion of the trial court that was affirmed by the Court of Appeals and, thus, binding on this Court. 24 Besides, such factual finding is supported by the extant evidence. 25 The apparent discrepancy was a result of the variance of the dates when the two demands were made. Necessarily, the longer the cargo remained unclaimed, the higher the demurrage. Thus, while in his letter dated April 24, 1983, 26 private respondent's counsel demanded payment of only P37,800, the additional demurrage incurred petitioner due to its continued refusal to receive delivery of the cargo ballooned to P67,340 by November 22, 1983. The testimony of Counsel Sofronio Larcia as regards said letter of April 24, 1983 elucidates, viz: Q Now, after you sent this letter, do you know what happened? A Defendant continued to refuse to take delivery of the shipment and the shipment stayed at the port for a longer period. Q So, what happened to the shipment? A The shipment incurred additional demurrage charges which amounted to P67,340.00 as of November 22, 1983 or more than a year after almost a year after the shipment arrived at the port. Q So, what did you do? A We requested our collection agency to pursue the collection of this amount. Bill of Lading Other Letter of Credit Arrangements Separate
27

Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract of sale between the seller and the buyer, and the contract for the issuance of a letter of credit between the buyer and the issuing bank. Any discrepancy between the amount of the goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, 29 neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-viz the commercial invoice and the letter of a credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate petitioner's obligation to private respondent arising from the contract of transportation. Furthermore, private respondent, as carrier, had no knowledge of the contents of the container. The contract of carriage was under the arrangement known as "Shipper's Load And Count," and shipper was solely responsible for the loading of the container while carrier was oblivious to the contents of the shipment. Petitioner's remedy in case of overshipment lies against the seller/shipper, not against the carrier. Payment of Interest Petitioner posits that it "first knew" of the demurrage claim of P67,340 only when it received, by summons, private respondent's complaint. Hence, interest may not be allowed to run from the date of private respondent's extrajudicial demands on March 8, 1983 for P50,260 or on April 24, 1983 for P37,800, considering that, in both cases, "there was no demand for interest." 30 We agree. Jurisprudence teaches us: 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

from

In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. "Few things are more clearly settled in law than that the three contracts which make up the letter of credit arrangement are to be maintained in a state of perpetual separation." 28 A transaction involving the purchase of goods may also require, apart from a letter of credit, a contract of transportation specially when the seller and the buyer are not in the same locale or country, and the goods purchased have to be transported to the latter.

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3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. 31 The case before us involves an obligation not arising from a loan or forbearance of money; thus, pursuant to Article 2209 of the Civil Code, the applicable interest rate is six percent per annum. Since the bill of lading did not specify the amount of demurrage, and the sum claimed by private respondent increased as the days went by, the total amount demanded cannot be deemed to have been established with reasonable certainty until the trial court rendered its judgment. Indeed, "(u)nliquidated damages or claims, it is said, are those which are not or cannot be known until definitely ascertained, assessed and determined by the courts after presentation of proof. " 32 Consequently, the legal interest rate is six percent, to be computed from September 28, 1990, the date of the trial court's decision. And in accordance with Philippine National Bank 33 and Eastern Shipping, 34 the rate of twelve percent per annum shall be charged on the total then outstanding, from the time the judgment becomes final and executory until its satisfaction. Finally, the Court notes that the matter of attorney's fees was taken up only in the dispositive portion of the trial court's decision. This falls short of the settled requirement that the text of the decision should state the reason for the award of attorney's fees, for without such justification, its award would be a "conclusion without a premise, its basis being improperly left to speculation and conjecture." 35 WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal interest of six percent per annum shall be computed from September 28, 1990 until its full payment before finality of judgment. The rate of interest shall be adjusted to twelve percent per annum, computed from the time said judgment became final and executory until full satisfaction. The award of attorney's fees is DELETED. G.R. No. 122494 October 8, 1998 EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT OF APPEALS and HERNANDEZ TRADING CO. INC., respondents. Petitioner Everett Steamship Corporation, through this petition for review, seeks the reversal of the decision 1 of the Court of Appeals, dated June 14, 1995, in CAG.R. No. 428093, which affirmed the decision of the Regional Trial Court of Kalookan City, Branch 126, in Civil Case No. C-15532, finding petitioner liable to private respondent Hernandez Trading Co., Inc. for the value of the lost cargo. Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO C/No. 13 and MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation based in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on board "ADELFAEVERETTE," a vessel owned by petitioner's principal, Everett Orient Lines. The said crates were covered by Bill of Lading No. NGO53MN. Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was missing. This was confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to private respondent, which thereafter made a formal claim upon petitioner for the value of the lost cargo amounting to One Million Five Hundred Fifty Two Thousand Five Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner offered to pay only One Hundred Thousand (Y100,000.00) Yen, the maximum amount stipulated under Clause 18 of the covering bill of lading which limits the liability of petitioner. Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil Case No. C-15532, against petitioner before the Regional Trial Court of Caloocan City, Branch 126. At the pre-trial conference, both parties manifested that they have no testimonial evidence to offer and agreed instead to file their respective memoranda. On July 16, 1993, the trial court rendered judgment 2 in favor of private respondent, ordering petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual value of the lost cargo and the material and packaging cost; (c) 10% of the total amount as an award for and as contingent attorney's fees; and (d) to pay the cost of the suit. The trial court ruled: Considering defendant's categorical admission of loss and its failure to overcome the presumption of negligence and fault, the Court conclusively finds defendant liable to the plaintiff. The next point of inquiry the Court wants to resolve is the extent of the liability of the defendant. As stated earlier, plaintiff contends that defendant should be held liable for the whole value for the loss of the goods in the amount of Y1,552,500.00 because the terms appearing at the back of the bill of lading was so

MARTINEZ, J.:

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written in fine prints and that the same was not signed by plaintiff or shipper thus, they are not bound by clause stated in paragraph 18 of the bill of lading. On the other hand, defendant merely admitted that it lost the shipment but shall be liable only up to the amount of Y100,000.00. The Court subscribes to the provisions of Article 1750 of the New Civil Code Art. 1750. "A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been fairly and freely agreed upon." It is required, however, that the contract must be reasonable and just under the circumstances and has been fairly and freely agreed upon. The requirements provided in Art. 1750 of the New Civil Code must be complied with before a common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the goods it has undertaken to transport. In the case at bar, the Court is of the view that the requirements of said article have not been met. The fact that those conditions are printed at the back of the bill of lading in letters so small that they are hard to read would not warrant the presumption that the plaintiff or its supplier was aware of these conditions such that he had "fairly and freely agreed" to these conditions. It can not be said that the plaintiff had actually entered into a contract with the defendant, embodying the conditions as printed at the back of the bill of lading that was issued by the defendant to plaintiff. On appeal, the Court of Appeals deleted the award of attorney's fees but affirmed the trial court's findings with the additional observation that private respondent can not be bound by the terms and conditions of the bill of lading because it was not privy to the contract of carriage. It said: As to the amount of liability, no evidence appears on record to show that the appellee (Hernandez Trading Co.) consented to the terms of the Bill of Lading. The shipper named in the Bill of Lading is Maruman Trading Co., Ltd. whom the appellant (Everett Steamship Corp.) contracted with for the transportation of the lost goods. Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the terms of the bill of lading when it delivered the cargo to the appellant, still it does not necessarily follow that appellee Hernandez Trading, Company as consignee is bound thereby considering that the latter was never privy to the shipping contract. xxx xxx xxx Never having entered into a contract with the appellant, appellee should therefore not be bound by any of the terms and conditions in the bill of lading. Hence, it follows that the appellee may recover the full value of the shipment lost, the basis of which is not the breach of contract as appellee was never a privy to the any contract with the appellant, but is based on Article 1735 of the New Civil Code, there being no evidence to prove satisfactorily that the appellant has overcome the presumption of negligence provided for in the law. Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the consent of the consignee to the terms and conditions of the bill of lading is necessary to make such stipulations binding upon it; (2) in holding that the carrier's limited package liability as stipulated in the bill of lading does not apply in the instant case; and (3) in allowing private respondent to fully recover the full alleged value of its lost cargo. We shall first resolve the validity of the limited liability clause in the bill of lading. A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a cargo to a certain sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil Code which provide: Art. 1749. A stipulation that the common carrier's liability is limited to the value of the goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is binding. Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under the circumstances, and has been freely and fairly agreed upon. Such limited-liability clause has also been consistently upheld by this Court in a number of cases. 3 Thus, in Sea Land Service, Inc. vs. Intermediate Appellate Court 4, we ruled: It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis alone of the cited Civil Code Provisions. That said stipulation is just and reasonable is arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill of lading. To hold otherwise would

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amount to questioning the justness and fairness of the law itself, and this the private respondent does not pretend to do. But over and above that consideration, the just and reasonable character of such stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability limitation by the simple and surely far from onerous expedient of declaring the nature and value of the shipment in the bill of lading. Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carrier's liability for loss must be "reasonable and just under the circumstances, and has been freely and fairly agreed upon." The bill of lading subject of the present controversy specifically provides, among others: 18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the shipper's net invoice cost plus freight and insurance premiums, if paid, and in no event shall the carrier be liable for any loss of possible profits or any consequential loss. The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an amount exceeding One Hundred thousand Yen in Japanese Currency (Y100,000.00) or its equivalent in any other currency per package or customary freight unit (whichever is least) unless the value of the goods higher than this amount is declared in writing by the shipper before receipt of the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required. (Emphasis supplied) The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading, had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier. Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the stipulations. The trial court's ratiocination that private respondent could not have "fairly and freely" agreed to the limited liability clause in the bill of lading because the said conditions were printed in small letters does not make the bill of lading invalid. We ruled in PAL, Inc. vs. Court of Appeals 5 that the "jurisprudence on the matter reveals the consistent holding of the court that contracts of adhesion are not invalid per se and that it has on numerous occasions upheld the binding effect thereof." Also, in Philippine American General Insurance Co., Inc. vs. Sweet Lines, Inc. Court, speaking through the learned Justice Florenz D. Regalado, held:
6

this

. . . Ong Yiu vs. Court of Appeals, et. al., 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 the 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. (Emphasis supplied) It was further explained in Ong Yiu vs. Court of Appeals 7 that stipulations in contracts of adhesion are valid and binding. While it may be true that petitioner had not signed the plane ticket . . ., he is nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation." It is what is known as a contract of "adhesion," in regards which it has been said that contracts of adhesion wherein one party imposes a ready-made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. . . ., a contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from contracting against his own negligence. (Emphasis supplied) Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that the said contracts must be carefully scrutinized "in order to shield the unwary (or weaker party) from deceptive schemes contained in ready-made covenants," 8 such as the bill of lading in question. The stringent requirement which the courts are enjoined to observe is in recognition of Article 24 of the Civil Code which mandates that "(i)n all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection." The shipper, Maruman Trading, we assume, has been extensively engaged in the trading business. It can not be said to be ignorant of the business transactions it entered into involving the shipment of its goods to its customers. The shipper could not have known, or should know the stipulations in the bill of lading and there it should have declared a higher valuation of the goods shipped. Moreover, Maruman

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Trading has not been heard to complain that it has been deceived or rushed into agreeing to ship the cargo in petitioner's vessel. In fact, it was not even impleaded in this case. The next issue to be resolved is whether or not private respondent, as consignee, who is not a signatory to the bill of lading is bound by the stipulations thereof. Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held that even if the consignee was not a signatory to the contract of carriage between the shipper and the carrier, the consignee can still be bound by the contract. Speaking through Mr. Chief Justice Narvasa, we ruled: To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from the carrier or shipper for loss of, or damage to goods being transported under said bill, although that document may have been-as in practice it oftentimes is-drawn up only by the consignor and the carrier without the intervention of the onsignee. . . . . . . . the right of a party in the same situation as respondent here, to recover for loss of a shipment consigned to him under a bill of lading drawn up only by and between the shipper and the carrier, springs from either a relation of agency that may exist between him and the shipper or consignor, or his status as stranger in whose favor some stipulation is made in said contract, and who becomes a party thereto when he demands fulfillment of that stipulation, in this case the delivery of the goods or cargo shipped. In neither capacity can he assert personally, in bar to any provision of the bill of lading, the alleged circumstance that fair and free agreement to such provision was vitiated by its being in such fine print as to be hardly readable. Parenthetically, it may be observed that in one comparatively recent case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15) where this Court found that a similar package limitation clause was "printed in the smallest type on the back of the bill of lading," it nonetheless ruled that the consignee was bound thereby on the strength of authority holding that such provisions on liability limitation are as much a part of a bill of lading as through physically in it and as though placed therein by agreement of the parties. There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and inserts it into said contract or bill. This proposition, moreover, rests upon an almost uniform weight of authority. (Emphasis supplied). When private respondent formally claimed reimbursement for the missing goods from petitioner and subsequently filed a case against the latter based on the very same bill of lading, it (private respondent) accepted the provisions of the contract and thereby made itself a party thereto, or at least has come to court to enforce it. 9 Thus, private respondent cannot now reject or disregard the carrier's limited liability stipulation in the bill of lading. In other words, private respondent is bound by the whole stipulations in the bill of lading and must respect the same. Private respondent, however, insists that the carrier should be liable for the full value of the lost cargo in the amount of Y1,552,500.00, considering that the shipper, Maruman Trading, had "fully declared the shipment . . ., the contents of each crate, the dimensions, weight and value of the contents," 10 as shown in the commercial Invoice No. MTM-941. This claim was denied by petitioner, contending that it did not know of the contents, quantity and value of "the shipment which consisted of three pre-packed crates described in Bill of Lading No. NGO-53MN merely as '3 CASES SPARE PARTS.'" 11 The bill of lading in question confirms petitioner's contention. To defeat the carrier's limited liability, the aforecited Clause 18 of the bill of lading requires that the shipper should have declared in writing a higher valuation of its goods before receipt thereof by the carrier and insert the said declaration in the bill of lading, with extra freight paid. These requirements in the bill of lading were never complied with by the shipper, hence, the liability of the carrier under the limited liability clause stands. The commercial Invoice No. MTM-941 does not in itself sufficiently and convincingly show that petitioner has knowledge of the value of the cargo as contended by private respondent. No other evidence was proffered by private respondent to support is contention. Thus, we are convinced that petitioner should be liable for the full value of the lost cargo. In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading. WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.G.R. CV No. 42803 is hereby REVERSED and SET ASIDE. G.R. No. 87434 August 5, 1992 PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS, INC., petitioners, vs.

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SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND SERVICES, INC. and HON. COURT OF APPEALS, respondents. De Lara, De Lunas & Rosales for petitioners. Carlo L. Aquino for Sweet Lines, Inc. PORT 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

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.

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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, 6 petitioners 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

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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 nondelivery, 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.

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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 nonperformance 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, 38 considering 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

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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

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

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

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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 readymade 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.

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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 G.R. No. 95536 March 23, 1992 ANICETO G. SALUDO, JR., MARIA SALVACION SALUDO, LEOPOLDO G. SALUDO and SATURNINO G. SALUDO, petitioners, vs. HON. COURT OF APPEALS, TRANS WORLD AIRLINES, INC., and PHILIPPINE AIRLINES, INC., respondents.

REGALADO, J.: Assailed in this petition for review on certiorari is the decision in CA-G.R. CV No. 20951 of respondent Court of Appeals 1 which affirmed the decision of the trial court 2 dismissing for lack of evidence herein petitioners' complaint in Civil Case No R2101 of the then Court of First Instance of Southern Leyte, Branch I. The facts, as recounted by the court a quo and adopted by respondent court after "considering the evidence on record," are as follows: After the death of plaintiffs' mother, Crispina Galdo Saludo, in Chicago Illinois, (on) October 23, 1976 (Exh. A), Pomierski and Son Funeral Home of Chicago, made the

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necessary preparations and arrangements for the shipment, of the remains from Chicago to the Philippines. The funeral home had the remains embalmed (Exb. D) and secured a permit for the disposition of dead human body on October 25, 1976 (Exh. C), Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on October 26, 1976 at the Pomierski & Son Funeral Home, sealed the shipping case containing a hermetically sealed casket that is airtight and waterproof wherein was contained the remains of Crispina Saludo Galdo (sic) (Exb. B). On the same date, October 26, 1976, Pomierski brought the remains to C.M.A.S. (Continental Mortuary Air Services) at the airport (Chicago) which made the necessary arrangements such as flights, transfers, etc.; C.M.A.S. is a national service used by undertakers to throughout the nation (U.S.A.), they furnish the air pouch which the casket is enclosed in, and they see that the remains are taken to the proper air freight terminal (Exh. 6-TWA). C.M.A.S. booked the shipment with PAL thru the carrier's agent Air Care International, with Pomierski F.H. as the shipper and Mario (Maria) Saludo as the consignee. PAL Airway Bill No. 079-01180454 Ordinary was issued wherein the requested routing was from Chicago to San Francisco on board TWA Flight 131 of October 27, 1976 and from San Francisco to Manila on board PAL Flight No. 107 of the same date, and from Manila to Cebu on board PAL Flight 149 of October 29, 1976 (See Exh. E., Also Exh. 1-PAL). In the meantime, plaintiffs Maria Salvacion Saludo and Saturnino Saludo, thru a travel agent, were booked with United Airlines from Chicago to California, and with PAL from California to Manila. She then went to the funeral director of Pomierski Funeral Home who had her mother's remains and she told the director that they were booked with United Airlines. But the director told her that the remains were booked with TWA flight to California. This upset her, and she and her brother had to change reservations from UA to the TWA flight after she confirmed by phone that her mother's remains should be on that TWA flight. They went to the airport and watched from the look-out area. She saw no body being brought. So, she went to the TWA counter again, and she was told there was no body on that flight. Reluctantly, they took the TWA flight upon assurance of her cousin, Ani Bantug, that he would look into the matter and inform her about it on the plane or have it radioed to her. But no confirmation from her cousin reached her that her mother was on the West Coast. Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA counter there to inquire about her mother's remains. She was told they did not know anything about it. She then called Pomierski that her mother's remains were not at the West Coast terminal, and Pomierski immediately called C.M.A.S., which in a matter of 10 minutes informed him that the remains were on a plane to Mexico City, that there were two bodies at the terminal, and somehow they were switched; he relayed this information to Miss Saludo in California; later C.M.A.S. called and told him they were sending the remains back to California via Texas (see Exh. 6-TWA). It-turned out that TWA had carried a shipment under PAL Airway Bill No. 079ORD-01180454 on TWA Flight 603 of October 27, 1976, a flight earlier than TWA Flight 131 of the same date. TWA delivered or transferred the said shipment said to contain human remains to PAL at 1400H or 2:00 p.m. of the same date, October 27, 1976 (Bee Exh. 1- TWA). "Due to a switch(ing) in Chicago", this shipment was withdrawn from PAL by CMAS at 1805H (or 6:05 p.m.) of the same date, October 27 (Exh. 3-PAL, see Exh. 3-a-PAL). What transpired at the Chicago (A)irport is explained in a memo or incident report by Pomierski (Exh. 6-TWA) to Pomierski's lawyers who in turn referred to said' memo and enclosed it in their (Pomierski's lawyers) answer dated July 18, 1981 to herein plaintiff's counsel (See Exh. 5-TWA). In that memo or incident report (Exh. 6TWA), it is stated that the remains (of Crispina Saludo) were taken to CMAS at the airport; that there were two bodies at the (Chicago Airport) terminal, and somehow they were switched, that the remains (of Crispina Saludo) were on a plane to Mexico City; that CMAS is a national service used by undertakers throughout the nation (U.S.A.), makes all the necessary arrangements, such as flights, transfers, etc., and see(s) to it that the remains are taken to the proper air freight terminal. The following day October 28, 1976, the shipment or remains of Crispina Saludo arrived (in) San Francisco from Mexico on board American Airlines. This shipment was transferred to or received by PAL at 1945H or 7:45 p.m. (Exh. 2-PAL, Exh. 2-aPAL). This casket bearing the remains of Crispina Saludo, which was mistakenly sent to Mexico and was opened (there), was resealed by Crispin F. Patagas for shipment to the Philippines (See Exh. B-1). The shipment was immediately loaded on PAL flight for Manila that same evening and arrived (in) Manila on October 30, 1976, a day after its expected arrival on October 29, 1976. 3 In a letter dated December 15, 1976, 4 petitioners' counsel informed private respondent Trans World Airlines (TWA) of the misshipment and eventual delay in the delivery of the cargo containing the remains of the late Crispin Saludo, and of the discourtesy of its employees to petitioners Maria Salvacion Saludo and Saturnino Saludo. In a separate letter on June 10, 1977 addressed to co-respondent Philippine Airlines (PAL), 5 petitioners stated that they were holding PAL liable for said delay in delivery and would commence judicial action should no favorable explanation be given.

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Both private respondents denied liability. Thus, a damage suit 6 was filed by petitioners before the then Court of First Instance, Branch III, Leyte, praying for the award of actual damages of P50,000.00, moral damages of P1,000,000.00, exemplary damages, attorney's fees and costs of suit. As earlier stated, the court below absolved the two respondent airlines companies of liability. The Court of Appeals affirmed the decision of the lower court in toto, and in a subsequent resolution, 7 denied herein petitioners' motion for reconsideration for lack of merit. In predictable disagreement and dissatisfaction with the conclusions reached by respondent appellate court, petitioners now urge this Court to review the appealed decision and to resolve whether or not (1) the delay in the delivery of the casketed remains of petitioners' mother was due to the fault of respondent airline companies, (2) the one-day delay in the delivery of the same constitutes contractual breach as would entitle petitioners to damages, (3) damages are recoverable by petitioners for the humiliating, arrogant and indifferent acts of the employees of TWA and PAL, and (4) private respondents should be held liable for actual, moral and exemplary damages, aside from attorney's fees and litigation expenses. 8 At the outset and in view of the spirited exchanges of the parties on this aspect, it is to be stressed that only questions of law may be raised in a petition filed in this Court to review on certiorari the decision of the Court of Appeals. 9 This being so, the factual findings of the Court of Appeals are final and conclusive and cannot be reviewed by the Supreme Court. The rule, however, admits of established exceptions, to wit: (a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on speculations, surmises or conjectures;(c) when the inference made is manifestly-mistaken, absurd or impossible; (d) when the judgment of the Court of Appeals was based on a misapprehension of facts; (e) when the factual findings are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; 10 (g) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; 11 and (h) where the findings of fact of the Court of Appeals are contrary to those of the trial court, or are mere conclusions without citation of specific evidence, or where the facts of set forth by the petitioner are not disputed by the respondent, or where the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.
12

in which there is a doubt or difference as to the truth or falsehood of the alleged facts. 13 One test, it has been held, is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case it is a question of law, otherwise it will be a question of fact. 14 Respondent airline companies object to the present recourse of petitioners on the ground that this petition raises only factual questions. 15 Petitioners maintain otherwise or, alternatively, they are of the position that, assuming that the petition raises factual questions, the same are within the recognized exceptions to the general rule as would render the petition cognizable and worthy of review by the Court. 16 Since it is precisely the soundness of the inferences or conclusions that may be drawn from the factual issues which are here being assayed, we find that the issues raised in the instant petition indeed warrant a second look if this litigation is to come to a reasonable denouement. A discussion seriatim of said issues will further reveal that the sequence of the events involved is in effect disputed. Likewise to be settled is whether or not the conclusions of the Court of Appeals subject of this review indeed find evidentiary and legal support. I. Petitioners fault respondent court for "not finding that private respondents failed to exercise extraordinary diligence required by law which resulted in the switching and/or misdelivery of the remains of Crispina Saludo to Mexico causing gross delay in its shipment to the Philippines, and consequently, damages to petitioners." 17 Petitioner allege that private respondents received the casketed remains of petitioners' mother on October 26, 1976, as evidenced by the issuance of PAL Air Waybill No. 079-01180454 18 by Air Care International as carrier's agent; and from said date, private respondents were charged with the responsibility to exercise extraordinary diligence so much so that for the alleged switching of the caskets on October 27, 1976, or one day after private respondents received the cargo, the latter must necessarily be liable. To support their assertion, petitioners rely on the jurisprudential dictum, both under American and Philippine law, that "(t)he issuance of a bill of lading carries the presumption that the goods were delivered to the carrier issuing the bill, for immediate shipment, and it is nowhere questioned that a bill of lading is prima facie evidence of the receipt of the goods by the carrier. . . . In the absence of convincing testimony establishing mistake, recitals in the bill of lading showing that the carrier received the goods for shipment on a specified date control (13 C.J.S. 235)." 19

To distinguish, a question of law is one which involves a doubt or controversy on what the law is on a certain state of facts; and, a question of fact, contrarily, is one

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A bill of lading is a written acknowledgment of the receipt of the goods and an agreement to transport and deliver them at a specified place to a person named or on his order. Such instrument may be called a shipping receipt, forwarder's receipt and receipt for transportation. 20 The designation, however, is immaterial. It has been hold that freight tickets for bus companies as well as receipts for cargo transported by all forms of transportation, whether by sea or land, fall within the definition. Under the Tariff and Customs Code, a bill of lading includes airway bills of lading. 21 The two-fold character of a bill of lading is all too familiar; it is a receipt as to the quantity and description of the goods shipped and a contract to transport the goods to the consignee or other person therein designated, on the terms specified in such instrument. 22 Logically, since a bill of lading acknowledges receipt of goods to be transported, delivery of the goods to the carrier normally precedes the issuance of the bill; or, to some extent, delivery of the goods and issuance of the bill are regarded in commercial practice as simultaneous acts. 23 However, except as may be prohibited by law, there is nothing to prevent an inverse order of events, that is, the execution of the bill of lading even prior to actual possession and control by the carrier of the cargo to be transported. There is no law which requires that the delivery of the goods for carriage and the issuance of the covering bill of lading must coincide in point of time or, for that matter, that the former should precede the latter. Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for transportation but, when issued, is competent and prima facie, but not conclusive, evidence of delivery to the carrier. A bill of lading, when properly executed and delivered to a shipper, is evidence that the carrier has received the goods described therein for shipment. Except as modified by statute, it is a general rule as to the parties to a contract of carriage of goods in connection with which a bill of lading is issued reciting that goods have been received for transportation, that the recital being in essence a receipt alone, is not conclusive, but may be explained, varied or contradicted by parol or other evidence. 24 While we agree with petitioners' statement that "an airway bill estops the carrier from denying receipt of goods of the quantity and quality described in the bill," a further reading and a more faithful quotation of the authority cited would reveal that "(a) bill of lading may contain constituent elements of estoppel and thus become something more than a contract between the shipper and the carrier. . . . (However), as between the shipper and the carrier, when no goods have been delivered for shipment no recitals in the bill can estop the carrier from showing the true facts . . . Between the consignor of goods and receiving carrier, recitals in a bill of lading as to the goods shipped raise only a rebuttable presumption that such goods were delivered for shipment. As between the consignor and a receiving carrier, the fact must outweigh the recital." 25 (Emphasis supplied) For this reason, we must perforce allow explanation by private respondents why, despite the issuance of the airway bill and the date thereof, they deny having received the remains of Crispina Saludo on October 26, 1976 as alleged by petitioners. The findings of the trial court, as favorably adopted by the Court of Appeals and which we have earner quoted, provide us with the explanation that sufficiently over comes the presumption relied on by petitioners in insisting that the remains of their mother were delivered to and received by private respondents on October 26, 1976. Thus . . . Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on October 26, 1976 at the Pomierski & Son Funeral Home, sealed the shipping case containing a hermetically sealed casket that is airtight and waterproof wherein was contained the remains of Crispina Saludo Galdo (sic) (Exh. B). On the same date October 26, 1976, Pomierski brought the remains to C.M.A.S. (Continental Mortuary Air Services) at the airport (Chicago) which made the necessary arrangements such as flights, transfers, etc; C.M.A.S. is a national service used by undertakers throughout the nation (U.S.A.), they furnish the air pouch which the casket is enclosed in, and they see that the remains are taken to the proper air freight terminal (Exh. G-TWA). C.M.A.S. booked the shipment with PAL thru the carrier's agent Air Care International, with Pomierski F.H. as the shipper and Mario (Maria) Saludo as the consignee. PAL Airway Bill No. 079- 01180454 Ordinary was issued wherein the requested routing was from Chicago to San Francisco on board TWA Flight-131 of October 27;1976, and from San Francisco to Manila on board PAL Flight No. 107 of the same date, and from Manila to Cebu on board PAL Flight 149 of October 29, 1976 (See Exh. E, also Exh. 1-PAL). 26 (Emphasis ours.) Moreover, we are persuaded to believe private respondent PAL's account as to what transpired October 26, 1976: . . . Pursuant thereto, on 26 October 1976, CMAS acting upon the instruction of Pomierski, F.H., the shipper requested booking of the casketed remains of Mrs. Cristina (sic) Saludo on board PAL's San Francisco-Manila Flight No. PR 107 on October 27, 1976. 2. To signify acceptance and confirmation of said booking, PAL issued to said Pomierski F.H., PAL Airway Bill No. 079-01180454 dated October 27, 1976 (sic, "10/26/76"). PAL confirmed the booking and transporting of the shipment on board

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of its Flight PR 107 on October 27, 1976 on the basis of the representation of the shipper and/or CMAS that the said cargo would arrive in San Francisco from Chicago on board United Airlines Flight US 121 on 27 October 1976. 27 In other words, on October 26, 1976 the cargo containing the casketed remains of Crispina Saludo was booked for PAL Flight Number PR-107 leaving San Francisco for Manila on October 27, 1976, PAL Airway Bill No. 079-01180454 was issued, not as evidence of receipt of delivery of the cargo on October 26, 1976, but merely as a confirmation of the booking thus made for the San Francisco-Manila flight scheduled on October 27, 1976. Actually, it was not until October 28, 1976 that PAL received physical delivery of the body at San Francisco, as duly evidenced by the Interline Freight Transfer Manifest of the American Airline Freight System and signed for by Virgilio Rosales at 1945H, or 7:45 P.M. on said date. 28 Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the common carrier begins from the time the goods are delivered to the carrier. This responsibility remains in full force and effect even when they are temporarily unloaded or stored in transit, unless the shipper or owner exercises the right of stoppage in transitu, 29 and terminates only after the lapse of a reasonable time for the acceptance, of the goods by the consignee or such other person entitled to receive them. 30 And, there is delivery to the carrier when the goods are ready for and have been placed in the exclusive possession, custody and control of the carrier for the purpose of their immediate transportation and the carrier has accepted them. 31 Where such a delivery has thus been accepted by the carrier, the liability of the common carrier commences eo instanti. 32 Hence, while we agree with petitioners that the extraordinary diligence statutorily required to be observed by the carrier instantaneously commences upon delivery of the goods thereto, for such duty to commence there must in fact have been delivery of the cargo subject of the contract of carriage. Only when such fact of delivery has been unequivocally established can the liability for loss, destruction or deterioration of goods in the custody of the carrier, absent the excepting causes under Article 1734, attach and the presumption of fault of the carrier under Article 1735 be invoked. As already demonstrated, the facts in the case at bar belie the averment that there was delivery of the cargo to the carrier on October 26, 1976. Rather, as earlier explained, the body intended to be shipped as agreed upon was really placed in the possession and control of PAL on October 28, 1976 and it was from that date that private respondents became responsible for the agreed cargo under their undertakings in PAL Airway Bill No. 079-01180454. Consequently, for the switching of caskets prior thereto which was not caused by them, and subsequent events caused thereby, private respondents cannot be held liable. Petitioners, proceeding on the premise that there was delivery of the cargo to private respondents on October 26,1976 and that the latter's extraordinary responsibility had by then become operative, insist on foisting the blame on private respondents for the switching of the two caskets which occurred on October 27, 1976. It is argued that since there is no clear evidence establishing the fault Continental Mortuary Air Services (CMAS) for the mix-up, private respondents are presumably negligent pursuant to Article 1735 of the Civil Code and, for failure to rebut such presumption, they must necessarily be held liable; or, assuming that CMAS was at fault, the same does not absolve private respondents of liability because whoever brought the cargo to the airport or loaded it on the plane did so as agent of private respondents. This contention is without merit. As pithily explained by the Court of Appeals: The airway bill expressly provides that "Carrier certifies goods described below were received for carriage", and said cargo was "casketed human remains of Crispina Saludo," with "Maria Saludo as Consignee; Pomierski F.H. as Shipper; Air Care International as carrier's agent." On the face of the said airway bill, the specific flight numbers, specific routes of shipment and dates of departure and arrival were typewritten, to wit: Chicago TWA Flight 131/27 to San Francisco and from San Francisco by PAL 107 on, October 27, 1976 to Philippines and to Cebu via PAL Flight 149 on October 29, 1976. The airway bill also contains the following typewritten words, as follows: all documents have been examined (sic). Human remains of Crispina Saludo. Please return back (sic) first available flight to SFO. But, as it turned out and was discovered later the casketed human remains which was issued PAL Airway Bill #079-1180454 was not the remains of Crispina Saludo, the casket containing her remains having been shipped to Mexico City. However, it should be noted that, Pomierski F.H., the shipper of Mrs. Saludo's remains, hired Continental Mortuary Services (hereafter referred to as C.M.A.S.), which is engaged in the business of transporting and forwarding human remains. Thus, C.M.A.S. made all the necessary arrangements such as flights, transfers, etc. for shipment of the remains of Crispina Saludo. The remains were taken on October 26th, 1976, to C.M.A.S. at the airport. These people made all the necessary arrangements, such as flights, transfers, etc. This is a national service used by undertakers throughout the nation. They furnished the air pouch which the casket is enclosed in, and they see that the remains are taken to

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the proper air frieght terminal. I was very surprised when Miss Saludo called me to say that the remains were not at the west coast terminal. I immediately called C.M.A.S. They called me back in a matter of ten minutes to inform me that the remains were on a plane to Mexico City. The man said that there were two bodies at the terminal, and somehow they were switched. . . . (Exb. 6 "TWA", which is the memo or incident report enclosed in the stationery of Walter Pomierski & Sons Ltd.) Consequently, when the cargo was received from C.M.A.S. at the Chicago airport terminal for shipment, which was supposed to contain the remains of Crispina Saludo, Air Care International and/or TWA, had no way of determining its actual contents, since the casket was hermetically sealed by the Philippine Vice-Consul in Chicago and in an air pouch of C.M.A.S., to the effect that Air Care International and/or TWA had to rely on the information furnished by the shipper regarding the cargo's content. Neither could Air Care International and/or TWA open the casket for further verification, since they were not only without authority to do so, but even prohibited. Thus, under said circumstances, no fault and/or negligence can be attributed to PAL (even if Air Care International should be considered as an agent of PAL) and/or TWA, the entire fault or negligence being exclusively with C.M.A.S. 33 (Emphasis supplied.) It can correctly and logically be concluded, therefore, that the switching occurred or, more accurately, was discovered on October 27, 1976; and based on the above findings of the Court of appeals, it happened while the cargo was still with CMAS, well before the same was place in the custody of private respondents. Thus, while the Air Cargo Transfer Manifest of TWA of October 27, 1976 34 was signed by Garry Marcial of PAL at 1400H, or 2:00 P.M., on the same date, thereby indicating acknowledgment by PAL of the transfer to them by TWA of what was in truth the erroneous cargo, said misshipped cargo was in fact withdrawn by CMAS from PAL as shown by the notation on another copy of said manifest 35 stating "Received by CMAS Due to switch in Chicago 10/27-1805H," the authenticity of which was never challenged. This shows that said misshipped cargo was in fact withdrawn by CMAS from PAL and the correct shipment containing the body of Crispina Saludo was received by PAL only on October 28, 1976, at 1945H, or 7:45 P.M., per American Airlines Interline Freight Transfer Manifest No. AA204312. 36 Witness the deposition of TWA's ramp serviceman, Michael Giosso, on this matter: ATTY. JUAN COLLAS, JR.: On that date, do (sic) you have occasion to handle or deal with the transfer of cargo from TWA Flight No. 603 to PAL San Francisco? MICHAEL GIOSSO: Yes, I did. ATTY. JUAN COLLAS, JR.: What was your participation with the transfer of the cargo? MICHAEL GIOSSO: I manifested the freight on a transfer manifest and physically moved it to PAL and concluded the transfer by signing it off. ATTY. JUAN COLLAS, JR.: You brought it there yourself? MICHAEL GIOSSO: Yes sir. ATTY. JUAN COLIAS, JR.: Do you have anything to show that PAL received the cargo from TWA on October 27, 1976? MICHAEL GIOSSO: Yes, I do. (Witness presenting a document) ATTY. JUAN COLLAS, JR.: For purposes of clarity, Exhibit I is designated as Exhibit I-TWA. xxx xxx xxx ATTY. JUAN COLLAS, JR.: This Exhibit I-TWA, could you tell what it is, what it shows?

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MICHAEL GIOSSO: It shows transfer of manifest on 10-27-76 to PAL at 1400 and verified with two signatures as it completed the transfer. ATTY. JUAN COLLAS, JR.: Very good,. Who was the PAL employee who received the cargo? MICHAEL GIOSSO: The name is Garry Marcial." 37 The deposition of Alberto A. Lim, PAL's cargo supervisor at San Francisco, as deponent-witness for PAL, makes this further clarification: ATTY. CESAR P. MANALAYSAY: You mentioned Airway Bill, Mr. Lim. I am showing to you a PAL Airway Bill Number 01180454 which for purposes of evidence, I would like to request that the same be marked as evidence Exhibit I for PAL. xxx xxx xxx In what circumstances did you encounter Exhibit I-PAL? ALBERTO A. LIM: If I recall correctly, I was queried by Manila, our Manila office with regard to a certain complaint that a consignee filed that this shipment did not arrive on the day that the consignee expects the shipment to arrive. ATTY CESAR P. MANALAYSAY: Okay. Now, upon receipt of that query from your Manila office, did you conduct any investigation to pinpoint the possible causes of mishandling? ALBERTO A. LIM: Yes. xxx xxx xxx ATTY. CESAR P. MANALAYSAY: What is the result of your investigation? ALBERTO A. LIM: In the course of my investigation, I found that we received the body on October 28, 1976, from American Airlines. ATTY. CESAR P. MANALAYSAY: What body are you referring to? xxx xxx xxx ALBERTO A. LIM: The remains of Mrs. Cristina (sic) Saludo. ATTY. CESAR P. MANALAYSAY: Is that the same body mentioned in this Airway Bill? ALBERTO A. LIM: Yes. ATTY. CESAR P. MANALAYSAY: What time did you receive said body on October 28, 1976? ALBERTO A. LIM: If I recall correctly, approximately 7:45 of October 28, 1976. ATTY. CESAR P. MANALAYSAY: Do you have any proof with you to back the statement? ALBERTO A. LIM: Yes. We have on our records a Transfer Manifest from American Airlines Number 204312 showing that we received a human remains shipment belong to Mrs. Cristina (sic) Saludo or the human remains of Mrs. Cristina (sic) Saludo. ATTY. CESAR P. MAIALAYSAY:

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At this juncture, may I request that the Transfer Manifest referred to by the witness be marked as an evidence as Exhibit II-PAL. xxx xxx xxx Mr. Lim, yesterday your co-defendant TWA presented as their Exhibit I evidence tending to show that on October 27, 1976 at about 2:00 in the, afternoon they delivered to you a cargo bearing human remains. Could you go over this Exhibit I and please give us your comments as to that exhibit? ATTY. ALBERTO C. MENDOZA: That is a vague question. I would rather request that counsel propound specific questions rather than asking for comments on Exhibit I-TWA. ATTY. CESAR P. MANALAYSAY: In that case, I will reform my question. Could you tell us whether TWA in fact delivered to you the human remains as indicated in that Transfer Manifest? ALBERTO A. LIM: Yes, they did. ATTY. CESAR P. MANALAYSAY: I noticed that the Transfer Manifest of TWA marked as Exhibit I-TWA bears the same numbers or the same entries as the Airway Bill marked as Exhibit I-A PAL tending to show that this is the human remains of Mrs Cristina (sic) Saludo. Could you tell us whether this is true? ALBERTO A. LIM: It is true that we received human remains shipment from TWA as indicated on this Transfer Manifest. But in the course of investigation, it was found out that the human remains transferred to us is not the remains of Mrs. Cristina (sic) Saludo this is the reason why we did not board it on our flight. 38 Petitioners consider TWA's statement that "it had to rely on the information furnished by the shipper" a lame excuse and that its failure to prove that its personnel verified and identified the contents of the casket before loading the same constituted negligence on the part of TWA. 39 We upbold the favorable consideration by the Court of Appeals of the following findings of the trial court: It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered the casket containing the remains of Crispina Saludo. TWA would have no knowledge therefore that the remains of Crispina Saludo were not the ones inside the casket that was being presented to it for shipment. TWA would have to rely on there presentations of C.M.A.S. The casket was hermetically sealed and also sealed by the Philippine Vice Consul in Chicago. TWA or any airline for that matter would not have opened such a sealed casket just for the purpose of ascertaining whose body was inside and to make sure that the remains inside were those of the particular person indicated to be by C.M.A.S. TWA had to accept whatever information was being furnished by the shipper or by the one presenting the casket for shipment. And so as a matter of fact, TWA carried to San Francisco and transferred to defendant PAL a shipment covered by or under PAL Airway Bill No. 079-ORD-01180454, the airway bill for the shipment of the casketed remains of Crispina Saludo. Only, it turned out later, while the casket was already with PAL, that what was inside the casket was not the body of Crispina Saludo so much so that it had to be withdrawn by C.M.A.S. from PAL. The body of Crispina Saludo had been shipped to Mexico. The casket containing the remains of Crispina Saludo was transshipped from Mexico and arrived in San Francisco the following day on board American Airlines. It was immediately loaded by PAL on its flight for Manila. The foregoing points at C.M.A.S., not defendant TWA much less defendant PAL, as the ONE responsible for the switching or mix-up of the two bodies at the Chicago Airport terminal, and started a chain reaction of the misshipment of the body of Crispina Saludo and a one-day delay in the delivery thereof to its destination. 40 Verily, no amount of inspection by respondent airline companies could have guarded against the switching that had already taken place. Or, granting that they could have opened the casket to inspect its contents, private respondents had no means of ascertaining whether the body therein contained was indeed that of Crispina Saludo except, possibly, if the body was that of a male person and such fact was visually apparent upon opening the casket. However, to repeat, private respondents had no authority to unseal and open the same nor did they have any reason or justification to resort thereto. It is the right of the carrier to require good faith on the part of those persons who deliver goods to be carried, or enter into contracts with it, and inasmuch as the freight may depend on the value of the article to be carried, the carrier ordinarily has the right to inquire as to its value. Ordinarily, too, it is the duty of the carrier to make inquiry as to the general nature of the articles shipped and of their value

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before it consents to carry them; and its failure to do so cannot defeat the shipper's right to recovery of the full value of the package if lost, in the absence of showing of fraud or deceit on the part of the shipper. In the absence of more definite information, the carrier has a the right to accept shipper's marks as to the contents of the package offered for transportation and is not bound to inquire particularly about them in order to take advantage of a false classification and where a shipper expressly represents the contents of a package to be of a designated character, it is not the duty of the carrier to ask for a repetition of the statement nor disbelieve it and open the box and see for itself. 41 However, where a common carrier has reasonable ground to suspect that the offered goods are of a dangerous or illegal character, the carrier has the right to know the character of such goods and to insist on an inspection, if reasonable and practical under the circumstances, as a condition of receiving and transporting such goods. 42 It can safely be said then that a common carrier is entitled to fair representation of the nature and value of the goods to be carried, with the concomitant right to rely thereon, and further noting at this juncture that a carrier has no obligation to inquire into the correctness or sufficiency of such information. 43 The consequent duty to conduct an inspection thereof arises in the event that there should be reason to doubt the veracity of such representations. Therefore, to be subjected to unusual search, other than the routinary inspection procedure customarily undertaken, there must exist proof that would justify cause for apprehension that the baggage is dangerous as to warrant exhaustive inspection, or even refusal to accept carriage of the same; and it is the failure of the carrier to act accordingly in the face of such proof that constitutes the basis of the common carrier's liability. 44 In the case at bar, private respondents had no reason whatsoever to doubt the truth of the shipper's representations. The airway bill expressly providing that "carrier certifies goods received below were received for carriage," and that the cargo contained "casketed human remains of Crispina Saludo," was issued on the basis of such representations. The reliance thereon by private respondents was reasonable and, for so doing, they cannot be said to have acted negligently. Likewise, no evidence was adduced to suggest even an iota of suspicion that the cargo presented for transportation was anything other than what it was declared to be, as would require more than routine inspection or call for the carrier to insist that the same be opened for scrutiny of its contents per declaration. Neither can private respondents be held accountable on the basis of petitioners' preposterous proposition that whoever brought the cargo to the airport or loaded it on the airplane did so as agent of private respondents, so that even if CMAS whose services were engaged for the transit arrangements for the remains was indeed at fault, the liability therefor would supposedly still be attributable to private respondents. While we agree that the actual participation of CMAS has been sufficiently and correctly established, to hold that it acted as agent for private respondents would be both an inaccurate appraisal and an unwarranted categorization of the legal position it held in the entire transaction. It bears repeating that CMAS was hired to handle all the necessary shipping arrangements for the transportation of the human remains of Crispina Saludo to Manila. Hence, it was to CMAS that the Pomierski & Son Funeral Home, as shipper, brought the remains of petitioners' mother for shipment, with Maria Saludo as consignee. Thereafter, CMAS booked the shipment with PAL through the carrier's agent, Air Care International. 45 With its aforestated functions, CMAS may accordingly be classified as a forwarder which, by accepted commercial practice, is regarded as an agent of the shipper and not of the carrier. As such, it merely contracts for the transportation of goods by carriers, and has no interest in the freight but receives compensation from the shipper as his agent. 46 At this point, it can be categorically stated that, as culled from the findings of both the trial court and appellate courts, the entire chain of events which culminated in the present controversy was not due to the fault or negligence of private respondents. Rather, the facts of the case would point to CMAS as the culprit. Equally telling of the more likely possibility of CMAS' liability is petitioners' letter to and demanding an explanation from CMAS regarding the statement of private respondents laying the blame on CMAS for the incident, portions of which, reading as follows: . . . we were informed that the unfortunate a mix-up occurred due to your negligence. . . . Likewise, the two airlines pinpoint the responsibility upon your agents. Evidence were presented to prove that allegation. On the face of this overwhelming evidence we could and should have filed a case against you. . . . 47 clearly allude to CMAS as the party at fault. This is tantamount to an admission by petitioners that they consider private respondents without fault, or is at the very least indicative of the fact that petitioners entertained serious doubts as to whether herein private respondents were responsible for the unfortunate turn of events.

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Undeniably, petitioners' grief over the death of their mother was aggravated by the unnecessary inconvenience and anxiety that attended their efforts to bring her body home for a decent burial. This is unfortunate and calls for sincere commiseration with petitioners. But, much as we would like to give them consolation for their undeserved distress, we are barred by the inequity of allowing recovery of the damages prayed for by them at the expense of private respondents whose fault or negligence in the very acts imputed to them has not been convincingly and legally demonstrated. Neither are we prepared to delve into, much less definitively rule on, the possible liability of CMAS as the evaluation and adjudication of the same is not what is presently at issue here and is best deferred to another time and addressed to another forum. II. Petitioners further fault the Court of Appeals for ruling that there was no contractual breach on the part of private respondents as would entitle petitioners to damages. Petitioners hold that respondent TWA, by agreeing to transport the remains of petitioners' mother on its Flight 131 from Chicago to San Francisco on October 27, 1976, made itself a party to the contract of carriage and, therefore, was bound by the terms of the issued airway bill. When TWA undertook to ship the remains on its Flight 603, ten hours earlier than scheduled, it supposedly violated the express agreement embodied in the airway bill. It was allegedly this breach of obligation which compounded, if not directly caused, the switching of the caskets. In addition, petitioners maintain that since there is no evidence as to who placed the body on board Flight 603, or that CMAS actually put the cargo on that flight, or that the two caskets at the Chicago airport were to be transported by the same airline, or that they came from the same funeral home, or that both caskets were received by CMAS, then the employees or agents of TWA presumably caused the mix-up by loading the wrong casket on the plane. For said error, they contend, TWA must necessarily be presumed negligent and this presumption of negligence stands undisturbed unless rebutting evidence is presented to show that the switching or misdelivery was due to circumstances that would exempt the carrier from liability. Private respondent TWA professes otherwise. Having duly delivered or transferred the cargo to its co-respondent PAL on October 27, 1976 at 2:00 P.M., as supported by the TWA Transfer Manifest, TWA faithfully complied with its obligation under the airway bill. Said faithful compliance was not affected by the fact that the remains were shipped on an earlier flight as there was no fixed time for completion of carriage stipulated on. Moreover, the carrier did not undertake to carry the cargo aboard any specified aircraft, in view of the condition on the back of the airway bill which provides: CONDITIONS OF CONTRACT xxx xxx xxx It is agreed that no time is fixed for the completion of carriage hereunder and that Carrier may without notice substitute alternate carriers or aircraft. Carrier assumes no obligation to carry the goods by any specified aircraft or over any particular route or routes or to make connection at any point according to any particular schedule, and Carrier is hereby authorized to select, or deviate from the route or routes of shipment, notwithstanding that the same may be stated on the face hereof. The shipper guarantees payment of all charges and advances. 48 Hence, when respondent TWA shipped the body on earlier flight and on a different aircraft, it was acting well within its rights. We find this argument tenable. The contention that there was contractual breach on the part of private respondents is founded on the postulation that there was ambiguity in the terms of the airway bill, hence petitioners' insistence on the application of the rules on interpretation of contracts and documents. We find no such ambiguity. The terms are clear enough as to preclude the necessity to probe beyond the apparent intendment of the contractual provisions. The hornbook rule on interpretation of contracts consecrates the primacy of the intention of the parties, the same having the force of law between them. When the terms of the agreement are clear and explicit, that they do not justify an attempt to read into any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract. 49 The various stipulations of a contract shall be interpreted together 50 and such a construction is to be adopted as will give effect to all provisions thereof. 51 A contract cannot be construed by parts, but its clauses should be interpreted in relation to one another. The whole contract must be interpreted or read together in order to arrive at its true meaning. Certain stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine the character of a contract. The legal effect of the contract is not to be determined alone by any particular provision disconnected from all others, but in the ruling intention of the parties as gathered from all the language they have used and from their contemporaneous and subsequent acts. 52

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Turning to the terms of the contract at hand, as presented by PAL Air Waybill No. 079-01180454, respondent court approvingly quoted the trial court's disquisition on the aforequoted condition appearing on the reverse side of the airway bill and its disposition of this particular assigned error: The foregoing stipulation fully answers plaintiffs' objections to the one-day delay and the shipping of the remains in TWA Flight 603 instead of TWA Flight 131. Under the stipulation, parties agreed that no time was fixed to complete the contract of carriage and that the carrier may, without notice, substitute alternate carriers or aircraft. The carrier did not assume the obligation to carry the shipment on any specified aircraft. xxx xxx xxx Furthermore, contrary to the claim of plaintiffs-appellants, the conditions of the Air Waybill are big enough to be read and noticed. Also, the mere fact that the cargo in question was shipped in TWA Flight 603, a flight earlier on the same day than TWA Flight 131, did not in any way cause or add to the one-day delay complained of and/or the switching or mix-up of the bodies. 53 Indubitably, that private respondent can use substitute aircraft even without notice and without the assumption of any obligation whatsoever to carry the goods on any specified aircraft is clearly sanctioned by the contract of carriage as specifically provided for under the conditions thereof. Petitioners' invocation of the interpretative rule in the Rules of Court that written words control printed words in documents, 54 to bolster their assertion that the typewritten provisions regarding the routing and flight schedule prevail over the printed conditions, is tenuous. Said rule may be considered only when there is inconsistency between the written and printed words of the contract. As previously stated, we find no ambiguity in the contract subject of this case that would call for the application of said rule. In any event, the contract has provided for such a situation by explicitly stating that the above condition remains effective "notwithstanding that the same (fixed time for completion of carriage, specified aircraft, or any particular route or schedule) may be stated on the face hereof." While petitioners hinge private respondents' culpability on the fact that the carrier "certifies goods described below were received for carriage," they may have overlooked that the statement on the face of the airway bill properly and completely reads Carrier certifies goods described below were received for carriage subject to the Conditions on the reverse hereof the goods then being in apparent good order and condition except as noted hereon. 55 (Emphasis ours.) Private respondents further aptly observe that the carrier's certification regarding receipt of the goods for carriage "was of a smaller print than the condition of the Air Waybill, including Condition No. 5 and thus if plaintiffs-appellants had recognized the former, then with more reason they were aware of the latter. 56 In the same vein, it would also be incorrect to accede to the suggestion of petitioners that the typewritten specifications of the flight, routes and dates of departures and arrivals on the face of the airway bill constitute a special contract which modifies the printed conditions at the back thereof. We reiterate that typewritten provisions of the contract are to be read and understood subject to and in view of the printed conditions, fully reconciling and giving effect to the manifest intention of the parties to the agreement. The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a carrier is not an insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the law implies a contract that they shall be delivered at destination within a reasonable time, in the absence, of any agreement as to the time of delivery. 57 But where a carrier has made an express contract to transport and deliver property within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what cause it may have arisen. 58 This result logically follows from the well-settled rule that where the law creates a duty or charge, and the party is disabled from performing it without any default in himself, and has no remedy over, then the law will excuse him, but where the party by his own contract creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident or delay by inevitable necessity because he might have provided against it by contract. Whether or not there has been such an undertaking on the part of the carrier to be determined from the circumstances surrounding the case and by application of the ordinary rules for the interpretation of contracts. 59 Echoing the findings of the trial court, the respondent court correctly declared that In a similar case of delayed delivery of air cargo under a very similar stipulation contained in the airway bill which reads: "The carrier does not obligate itself to carry the goods by any specified aircraft or on a specified time. Said carrier being hereby authorized to deviate from the route of the shipment without any liability therefor", our Supreme Court ruled that common carriers are not obligated by law to

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carry and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common carriers previously assume the obligation. Said rights and obligations are created by a specific contract entered into by the parties (Mendoza vs. PAL, 90 Phil. 836). There is no showing by plaintiffs that such a special or specific contract had been entered into between them and the defendant airline companies. And this special contract for prompt delivery should call the attention of the carrier to the circumstances surrounding the case and the approximate amount of damages to be suffered in case of delay (See Mendoza vs. PAL, supra). There was no such contract entered into in the instant case. 60 Also, the theory of petitioners that the specification of the flights and dates of departure and arrivals constitute a special contract that could prevail over the printed stipulations at the back of the airway bill is vacuous. To countenance such a postulate would unduly burden the common carrier for that would have the effect of unilaterally transforming every single bill of lading or trip ticket into a special contract by the simple expedient of filling it up with the particulars of the flight, trip or voyage, and thereby imposing upon the carrier duties and/or obligations which it may not have been ready or willing to assume had it been timely, advised thereof. Neither does the fact that the challenged condition No. 5 was printed at the back of the airway bill militate against its binding effect on petitioners as parties to the contract, for there were sufficient indications on the face of said bill that would alert them to the presence of such additional condition to put them on their guard. Ordinary prudence on the part of any person entering or contemplating to enter into a contract would prompt even a cursory examination of any such conditions, terms and/or stipulations. There is a holding in most jurisdictions that the acceptance of a bill of lading without dissent raises a presumption that all terms therein were brought to the knowledge of the shipper and agreed to by him, and in the absence of fraud or mistake, he is estopped from thereafter denying that he assented to such terms. This rule applies with particular force where a shipper accepts a bill of lading with full knowledge of its contents, and acceptance under such circumstances makes it a binding contract. In order that any presumption of assent to a stipulation in a bill of lading limiting the liability of a carrier may arise, it must appear that the clause containing this exemption from liability plainly formed a part of the contract contained in the bill of lading. A stipulation printed on the back of a receipt or bill of lading or on papers attached to such receipt will be quite as effective as if printed on its face, if it is shown that the consignor knew of its terms. Thus, where a shipper accepts a receipt which states that its conditions are to be found on the back, such receipt comes within the general rule, and the shipper is held to have accepted and to be bound by the conditions there to be found. 61 Granting arguendo that Condition No. 5 partakes of the nature of a contract of adhesion and as such must be construed strictly against the party who drafted the same or gave rise to any ambiguity therein, it should be borne in mind that a contract of adhesion may be struck down as void and unenforceable, for being subversive of public policy, only when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. 62 However, Ong Yiu vs. Court of Appeals, et al 63 instructs us that contracts of adhesion are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, be gives his consent. Accordingly, petitioners, far from being the weaker party in this situation, duly signified their presumed assent to all terms of the contract through their acceptance of the airway bill and are consequently bound thereby. It cannot be gainsaid that petitioners' were not without several choices as to carriers in Chicago with its numerous airways and airliner servicing the same. We wish to allay petitioners' apprehension that Condition No. 5 of the airway bill is productive of mischief as it would validate delay in delivery, sanction violations of contractual obligations with impunity or put a premium on breaches of contract. Just because we have said that condition No. 5 of the airway bill is binding upon the parties to and fully operative in this transaction, it does not mean, and let this serve as fair warning to respondent carriers, that they can at all times whimsically seek refuge from liability in the exculpatory sanctuary of said Condition No. 5 or arbitrarily vary routes, flights and schedules to the prejudice of their customers. This condition only serves to insulate the carrier from liability in those instances when changes in routes, flights and schedules are clearly justified by the peculiar circumstances of a particular case, or by general transportation practices, customs and usages, or by contingencies or emergencies in aviation such as weather turbulence, mechanical failure, requirements of national security and the like. And even as it is conceded that specific routing and other navigational arrangements for a trip, flight or voyage, or variations therein, generally lie within the discretion of the carrier in the absence of specific routing instructions or directions by the shipper, it is plainly incumbent upon the carrier to exercise its rights with due deference to the rights, interests and convenience of its customers. A common carrier undertaking to transport property has the implicit duty to carry and deliver it within reasonable time, absent any particular stipulation regarding

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time of delivery, and to guard against delay. In case of any unreasonable delay, the carrier shall be liable for damages immediately and proximately resulting from such neglect of duty. 64 As found by the trial court, the delay in the delivery of the remains of Crispina Saludo, undeniable and regrettable as it was, cannot be attributed to the fault, negligence or malice of private respondents, 65 a conclusion concurred in by respondent court and which we are not inclined to disturb. We are further convinced that when TWA opted to ship the remains of Crispina Saludo on an earlier flight, it did so in the exercise of sound discretion and with reasonable prudence, as shown by the explanation of its counsel in his letter of February 19, 1977 in response to petitioners' demand letter: Investigation of TWA's handling of this matter reveals that although the shipment was scheduled on TWA Flight 131 of October 27, 1976, it was actually boarded on TWA Flight 603 of the same day, approximately 10 hours earlier, in order to assure that the shipment would be received in San Francisco in sufficient time for transfer to PAL. This transfer was effected in San Francisco at 2:00 P.M. on October 27, 1976. 66 Precisely, private respondent TWA knew of the urgency of the shipment by reason of this notation on the lower portion of the airway bill: "All documents have been certified. Human remains of Cristina (sic) Saludo. Please return bag first available flight to SFO." Accordingly, TWA took it upon itself to carry the remains of Crispina Saludo on an earlier flight, which we emphasize it could do under the terms of the airway bill, to make sure that there would be enough time for loading said remains on the transfer flight on board PAL. III. Petitioners challenge the validity of respondent court's finding that private respondents are not liable for tort on account of the humiliating, arrogant and indifferent acts of their officers and personnel. They posit that since their mother's remains were transported ten hours earlier than originally scheduled, there was no reason for private respondents' personnel to disclaim knowledge of the arrival or whereabouts of the same other than their sheer arrogance, indifference and extreme insensitivity to the feelings of petitioners. Moreover, being passengers and not merely consignors of goods, petitioners had the right to be treated with courtesy, respect, kindness and due consideration. In riposte, TWA claims that its employees have always dealt politely with all clients, customers and the public in general. PAL, on the other hand, declares that in the performance of its obligation to the riding public, other customers and clients, it has always acted with justice, honesty, courtesy and good faith. Respondent appellate court found merit in and reproduced the trial court's refutation of this assigned error: About the only evidence of plaintiffs that may have reference to the manner with which the personnel of defendants treated the two plaintiffs at the San Francisco Airport are the following pertinent portions of Maria Saludo's testimony: Q When you arrived there, what did you do, if any? A I immediately went to the TWA counter and I inquired about whether my mother was there or if' they knew anything about it. Q What was the answer? A They said they do not know. So, we waited. Q About what time was that when you reached San Francisco from Chicago? A I think 5 o'clock. Somewhere around that in the afternoon. Q You made inquiry it was immediately thereafter? A Right after we got off the plane. Q Up to what time did you stay in the airport to wait until the TWA people could tell you the whereabouts? A Sorry, Sir, but the TWA did not tell us anything. We stayed there until about 9 o'clock. They have not heard anything about it. They did not say anything. Q Do you want to convey to the Court that from 5 up to 9 o'clock in the evening you yourself went back to the TWA and they could not tell you where the remains of your mother were? A Yes sir. Q And after nine o'clock, what did you do? A I told my brother my Mom was supposed to be on the Philippine Airlines flight. "Why don't" we check with PAL instead to see if she was there?" We tried to comfort each other. I told him anyway that was a shortest flight from Chicago to California. We will be with our mother on this longer flight. So, we checked with the PAL. Q What did you find?

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A We learned, Yes, my Mom would be on the flight. Q Who was that brother? A Saturnino Saludo. Q And did you find what was your flight from San Francisco to the Philippines? A I do not know the number. It was the evening flight of the Philippine Airline(s) from San Francisco to Manila. Q You took that flight with your mother? A We were scheduled to, Sir. Q Now, you could not locate the remains of your mother in San Francisco could you tell us what did you feel? A After we were told that my mother was not there? Q After you learned that your mother could not fly with you from Chicago to California? A Well, I was very upset. Of course, I wanted the confirmation that my mother was in the West Coast. The fliqht was about 5 hours from Chicago to California. We waited anxiously all that time on the plane. I wanted to be assured about my mother's remains. But there was nothing and we could not get any assurance from anyone about it. Q Your feeling when you reached San Francisco and you could not find out from the TWA the whereabouts of the remains, what did you feel? A Something nobody would be able to describe unless he experiences it himself. It is a kind of panic. I think it's a feeling you are about to go crazy. It is something I do not want to live through again. (Inting, t.s.n., Aug. 9, 1983, pp. 14-18). The foregoing does not show any humiliating or arrogant manner with which the personnel of both defendants treated the two plaintiffs. Even their alleged indifference is not clearly established. The initial answer of the TWA personnel at the counter that they did not know anything about the remains, and later, their answer that they have not heard anything about the remains, and the inability of the TWA counter personnel to inform the two plaintiffs of the whereabouts of the remains, cannot be said to be total or complete indifference to the said plaintiffs. At any rate, it is any rude or discourteous conduct, malfeasance or neglect, the use of abusive or insulting language calculated to humiliate and shame passenger or had faith by or on the part of the employees of the carrier that gives the passenger an action for damages against the carrier (Zulueta vs. Pan American World Airways, 43 SCRA 397; Air France vs. Carrascoso, et al., 18 SCRA 155; Lopez, et al. vs. Pan American World Airways, 16 SCRA 431; Northwest Airlines, Inc. vs. Cuenca, 14 SCRA 1063), and none of the above is obtaining in the instant case. 67 We stand by respondent court's findings on this point, but only to the extent where it holds that the manner in which private respondent TWA's employees dealt with petitioners was not grossly humiliating, arrogant or indifferent as would assume the proportions of malice or bad faith and lay the basis for an award of the damages claimed. It must however, be pointed out that the lamentable actuations of respondent TWA's employees leave much to be desired, particularly so in the face of petitioners' grief over the death of their mother, exacerbated by the tension and anxiety wrought by the impasse and confusion over the failure to ascertain over an appreciable period of time what happened to her remains. Airline companies are hereby sternly admonished that it is their duty not only to cursorily instruct but to strictly require their personnel to be more accommodating towards customers, passengers and the general public. After all, common carriers such as airline companies are in the business of rendering public service, which is the primary reason for their enfranchisement and recognition in our law. Because the passengers in a contract of carriage do not contract merely for transportation, they have a right to be treated with kindness, respect, courtesy and consideration. 68 A contract to transport passengers is quite different in kind and degree from any other contractual relation, and generates a relation attended with public duty. The operation of a common carrier is a business affected with public interest and must be directed to serve the comfort and convenience of passengers. 69 Passengers are human beings with human feelings and emotions; they should not be treated as mere numbers or statistics for revenue. The records reveal that petitioners, particularly Maria and Saturnino Saludo, agonized for nearly five hours, over the possibility of losing their mother's mortal remains, unattended to and without any assurance from the employees of TWA that they were doing anything about the situation. This is not to say that petitioners were to be regaled with extra special attention. They were, however, entitled to the understanding and humane consideration called for by and commensurate with the extraordinary diligence required of common carriers, and not the cold insensitivity to their predicament. It is hard to believe that the airline's counter personnel were totally helpless about the situation. Common sense would and should have dictated

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that they exert a little extra effort in making a more extensive inquiry, by themselves or through their superiors, rather than just shrug off the problem with a callous and uncaring remark that they had no knowledge about it. With all the modern communications equipment readily available to them, which could have easily facilitated said inquiry and which are used as a matter of course by airline companies in their daily operations, their apathetic stance while not legally reprehensible is morally deplorable. Losing a loved one, especially one's, parent, is a painful experience. Our culture accords the tenderest human feelings toward and in reverence to the dead. That the remains of the deceased were subsequently delivered, albeit belatedly, and eventually laid in her final resting place is of little consolation. The imperviousness displayed by the airline's personnel, even for just that fraction of time, was especially condemnable particularly in the hour of bereavement of the family of Crispina Saludo, intensified by anguish due to the uncertainty of the whereabouts of their mother's remains. Hence, it is quite apparent that private respondents' personnel were remiss in the observance of that genuine human concern and professional attentiveness required and expected of them. The foregoing observations, however, do not appear to be applicable or imputable to respondent PAL or its employees. No attribution of discourtesy or indifference has been made against PAL by petitioners and, in fact, petitioner Maria Saludo testified that it was to PAL that they repaired after failing to receive proper attention from TWA. It was from PAL that they received confirmation that their mother's remains would be on the same flight to Manila with them. We find the following substantiation on this particular episode from the deposition of Alberto A. Lim, PAL's cargo supervisor earlier adverted to, regarding their investigation of and the action taken on learning of petitioner's problem: ATTY. ALBERTO C. MENDOZA: Yes. Mr. Lim, what exactly was your procedure adopted in your so called investigation? ALBERTO A. LIM: I called the lead agent on duty at that time and requested for a copy of airway bill, transfer manifest and other documents concerning the shipment. ATTY ALBERTO C. MENDOZA: Then, what? ALBERTO A. LIM: They proceeded to analyze exactly where PAL failed, if any, in forwarding the human remains of Mrs. Cristina (sic) Saludo. And I found out that there was not (sic) delay in shipping the remains of Mrs. Saludo to Manila. Since we received the body from American Airlines on 28 October at 7:45 and we expedited the shipment so that it could have been loaded on our flight leaving at 9:00 in the evening or just barely one hour and 15 minutes prior to the departure of the aircraft. That is so (sic) being the case, I reported to Manila these circumstances. 70 IV. Finally, petitioners insist, as a consequence of the delay in the shipment of their mother's remains allegedly caused by wilful contractual breach, on their entitlement to actual, moral and exemplary damages as well as attorney's fees, litigation expenses, and legal interest. The uniform decisional tenet in our jurisdiction bolds that moral damages may be awarded for wilful or fraudulent breach of contract 71 or when such breach is attended by malice or bad faith. 72 However, in the absence of strong and positive evidence of fraud, malice or bad faith, said damages cannot be awarded. 73 Neither can there be an award of exemplary damages 74 nor of attorney's fees 75 as an item of damages in the absence of proof that defendant acted with malice, fraud or bad faith. The censurable conduct of TWA's employees cannot, however, be said to have approximated the dimensions of fraud, malice or bad faith. It can be said to be more of a lethargic reaction produced and engrained in some people by the mechanically routine nature of their work and a racial or societal culture which stultifies what would have been their accustomed human response to a human need under a former and different ambience. Nonetheless, the facts show that petitioners' right to be treated with due courtesy in accordance with the degree of diligence required by law to be exercised by every common carrier was violated by TWA and this entitles them, at least, to nominal damages from TWA alone. Articles 2221 and 2222 of the Civil Code make it clear that nominal damages are not intended for indemnification of loss suffered but for the vindication or recognition of a right violated of invaded. They are recoverable where some injury has been done but the amount of which the evidence fails to show, the assessment of damages being left to the discretion of the court according to the circumstances of the case. 76 In the exercise of our discretion, we find an

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award of P40,000.00 as nominal damages in favor of, petitioners to be a reasonable amount under the circumstances of this case. WHEREFORE, with the modification that an award of P40,000.00 as and by way of nominal damages is hereby granted in favor of petitioners to be paid by respondent Trans World Airlines, the appealed decision is AFFIRMED in all other respects. SO ORDERED. G.R. No. 95529 August 22, 1991 MAGELLAN MANUFACTURING MARKETING CORPORATION, * petitioner, vs. COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG, INC. respondents. the bank later, he was informed that the payment was refused by the buyer allegedly because there was no on-board bill of lading, and there was a transhipment of goods. As a result of the refusal of the buyer to accept, upon appellant's request, the anahaw fans were shipped back to Manila by appellees, for which the latter demanded from appellant payment of P246,043.43. Appellant abandoned the whole cargo and asked appellees for damages. In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 cartons of 136,000 pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers was loaded at Manila on board the MV 'Pacific Despatcher' freight prepaid, and duly covered by Bill of Lading No. MNYK201T dated June 27, 1980 issued by OOCL; that the shipment was delivered at the port of discharge on July 19, 1980, but was subsequently returned to Manila after the consignee refused to accept/pay the same.
4

Elaborating on the above findings of fact of respondent court and without being disputed by herein private respondents, petitioner additionally avers that: REGALADO, J.:p Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of respondent Court of Appeals in CA-G.R. CV No. 18781, 1 affirming in part the decision of the trial court, 2 the dispositive portion of which reads: Premises considered, the decision appealed from is affirmed insofar as it dismisses the complaint. On the counter-claim, however, appellant is ordered to pay appellees the amount of P52,102.45 with legal interest from date of extra-judicial demand. The award of attorney's fees is deleted. 3 The facts as found by respondent appellate court are as follows: On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC) entered into a contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in consideration of $23,220.00. As payment thereof, a letter of credit was issued to plaintiff MMMC by the buyer. Through its president, James Cu, MMMC then contracted F.E. Zuellig, a shipping agent, through its solicitor, one Mr. King, to ship the anahaw fans through the other appellee, Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of lading and that transhipment is not allowed under the letter of credit (Exh. B-1). On June 30, 1980, appellant MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of lading which was presented to Allied Bank. The bank then credited the amount of US$23,220.00 covered by the letter of credit to appellant's account. However, when appellant's president James Cu, went back to When petitioner informed private respondents about what happened, the latter issued a certificate stating that its bill of lading it issued is an on board bill of lading and that there was no actual transhipment of the fans. According to private respondents when the goods are transferred from one vessel to another which both belong to the same owner which was what happened to the Anahaw fans, then there is (no) transhipment. Petitioner sent this certification to Choju Co., Ltd., but the said company still refused to accept the goods which arrived in Japan on July 19, 1980. Private respondents billed petitioner in the amount of P16,342.21 for such shipment and P34,928.71 for demurrage in Japan from July 26 up to August 31, 1980 or a total of P51,271.02. In a letter dated March 20, 1981, private respondents gave petitioner the option of paying the sum of P51,271.02 or to abandon the Anahaw fans to enable private respondents to sell them at public auction to cover the cost of shipment and demurrages. Petitioner opted to abandon the goods. However, in a letter dated June 22, 1981 private respondents demanded for payment of P298,150.93 from petitioner which represents the freight charges from Japan to Manila, demurrage incurred in Japan and Manila from October 22, 1980 up to May 20, 1981; and charges for stripping the container van of the Anahaw fans on May 20, 1981. On July 20, 1981 petitioner filed the complaint in this case praying that private respondents be ordered to pay whatever petitioner was not able to earn from Choju Co., Ltd., amounting to P174,150.00 and other damages like attorney's fees since

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private respondents are to blame for the refusal of Choju Co., Ltd. to accept the Anahaw fans. In answer thereto the private respondents alleged that the bill of lading clearly shows that there will be a transhipment and that petitioner was well aware that MV (Pacific) Despatcher was only up to Hongkong where the subject cargo will be transferred to another vessel for Japan. Private respondents also filed a counterclaim praying that petitioner be ordered to pay freight charges from Japan to Manila and the demurrages in Japan and Manila amounting to P298,150.93. The lower court decided the case in favor of private respondents. It dismissed the complaint on the ground that petitioner had given its consent to the contents of the bill of lading where it is clearly indicated that there will be transhipment. The lower court also said that petitioner is liable to pay to private respondent the freight charges from Japan to Manila and demurrages since it was the former which ordered the reshipment of the cargo from Japan to Manila. On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to a transhipment of the goods was affirmed but the finding that petitioner is liable for P298,150.93 was modified. It was reduced to P52,102.45 which represents the freight charges and demurrages incurred in Japan but not for the demurrages incurred in Marta. According to the respondent (court) the petitioner can not be held liable for the demurrages incurred in Manila because Private respondents did not timely inform petitioner that the goods were already in Manila in addition to the fact that private respondent had given petitioner the option of abandoning the goods in exchange for the demurrages. 5 Petitioner, being dissatisfied with the decision of respondent court and the motion for reconsideration thereof having been denied, invokes the Court's review powers for the resolution of the issues as to whether or not respondent court erred (1) in affirming the decision of the trial court which dismissed petitioner's complaint; and (2) in holding petitioner liable to private respondents in the amount of P52,102.45. 6 I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd., to take delivery of the exported anahaw fans resulting in a loss of P174,150.00 representing the purchase price of the said export items because of violation of the terms and conditions of the letter of credit issued in favor of the former which specified the requirement for an on board bill of lading and the prohibition against transhipment of goods, inasmuch as the bill of lading issued by the latter bore the notation "received for shipment" and contained an entry indicating transhipment in Hongkong. We find no fault on the part of private respondents. On the matter of transhipment, petitioner maintains that "... while the goods were transferred in Hongkong from MV Pacific Despatcher, the feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot be considered transhipment because both vessels belong to the same shipping company, the private respondent Orient Overseas Container Lines, Inc." 7 Petitioner emphatically goes on to say: "To be sure, there was no actual transhipment of the Anahaw fans. The private respondents have executed a certification to the effect that while the Anahaw fans were transferred from one vessel to another in Hong Kong, since the two vessels belong to one and the same company then there was no transhipment. 8 Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading it in another," 9 or "the transfer of goods from the vessel stipulated in the contract of affreightment to another vessel before the place of destination named in the contract has been reached," 10 or "the transfer for further transportation from one ship or conveyance to another." 11 Clearly, either in its ordinary or its strictly legal acceptation, there is transhipment whether or not the same person, firm or entity owns the vessels. In other words, the fact of transhipment is not dependent upon the ownership of the transporting ships or conveyances or in the change of carriers, as the petitioner seems to suggest, but rather on the fact of actual physical transfer of cargo from one vessel to another. That there was transhipment within this contemplation is the inescapable conclusion, as there unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space labeled "Transhipment," which can only mean that transhipment actually took place. 12 This fact is further bolstered by the certification 13 issued by private respondent F.E. Zuellig, Inc. dated July 19, 1980, although it carefully used the term "transfer" instead of transhipment. Nonetheless, no amount of semantic juggling can mask the fact that transhipment in truth occurred in this case. Petitioner insists that "(c)onsidering that there was no actual transhipment of the Anahaw fans, then there is no occasion under which the petitioner can agree to the transhipment of the Anahaw fans because there is nothing like that to agree to" and "(i)f there is no actual transhipment but there appears to be a transhipment in the bill of lading, then there can be no possible reason for it but a mistake on the part of the private respondents. 14 Petitioner, in effect, is saying that since there was a mistake in documentation on the part of private respondents, such a mistake militates against the conclusiveness of the bill of lading insofar as it reflects the terms of the contract between the parties, as an exception to the parol evidence rule, and would therefore permit it to explain or present evidence to vary or contradict the terms of the written agreement, that is, the bill of lading involved herein.

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It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations assumed by the parties. 15 Being a contract, it is the law between the parties who are bound by its terms and conditions provided that these are not contrary to law, morals, good customs, public order and public policy. 16 A bill of lading usually becomes effective upon its delivery to and acceptance by the shipper. It is presumed that the stipulations of the bill were, in the absence of fraud, concealment or improper conduct, known to the shipper, and he is generally bound by his acceptance whether he reads the bill or not. 17 The holding in most jurisdictions has been that a shipper who receives a bill of lading without objection after an opportunity to inspect it, and permits the carrier to act on it by proceeding with the shipment is presumed to have accepted it as correctly stating the contract and to have assented to its terms. In other words, the acceptance of the bill without dissent raises the presumption that all the terms therein were brought to the knowledge of the shipper and agreed to by him and, in the absence of fraud or mistake, he is estopped from thereafter denying that he assented to such terms. This rule applies with particular force where a shipper accepts a bill of lading with full knowledge of its contents and acceptance under such circumstances makes it a binding contract. 18 In the light of the series of events that transpired in the case at bar, there can be no logical conclusion other than that the petitioner had full knowledge of, and actually consented to, the terms and conditions of the bill of lading thereby making the same conclusive as to it, and it cannot now be heard to deny having assented thereto. As borne out by the records, James Cu himself, in his capacity as president of MMMC, personally received and signed the bill of lading. On practical considerations, there is no better way to signify consent than by voluntarry signing the document which embodies the agreement. As found by the Court of Appeals Contrary to appellant's allegation that it did not agree to the transhipment, it could be gleaned from the record that the appellant actually consented to the transhipment when it received the bill of lading personally at appellee's (F.E. Zuellig's) office. There clearly appears on the face of the bill of lading under column "PORT OF TRANSHIPMENT" an entry "HONGKONG' (Exhibits'G-l'). Despite said entries he still delivered his voucher (Exh. F) and the corresponding check in payment of the freight (Exhibit D), implying that he consented to the transhipment (Decision, p. 6, Rollo). 19 Furthermore and particularly on the matter of whether or not there was transhipment, James Cu, in his testimony on crossexamination, categorically stated that he knew for a fact that the shipment was to be unloaded in Hong Kong from the MV Pacific Despatcher to be transferred to a mother vessel, the MV Oriental Researcher in this wise: Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or transhipped at the port of Hongkong? A I know. It's not transport, they relay, not trans... yes, that is why we have an agreement if they should not put a transhipment in Hongkong, that's why they even stated in the certification. xxx xxx xxx Q In layman's language, would you agree with me that transhipment is the transfer of a cargo from one vessel to the other? A As a layman, yes. Q So, you know for a fact that your shipment is going to be unloaded in Hongkong from M. V. Dispatcher (sic) and then transfer (sic) to another vessel which was the Oriental Dispatcher, (sic) you know that for a fact? A Yes, sir. (Emphasis supplied.) 20 Under the parol evidence rule, 21 the terms of a contract are rendered conclusive upon the parties, and evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement embodied in a document, subject to well defined exceptions which do not obtain in this case. The parol evidence rule is based on the consideration that when the parties have reduced their agreement on a particular matter into writing, all their previous and contemporaneous agreements on the matter are merged therein. Accordingly, evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or defeat the operation of a valid instrument. 22 The mistake contemplated as an exception to the parol evidence rule is one which is a mistake of fact mutual to the parties. 23 Furthermore, the rules on evidence, as amended, require that in order that parol evidence may be admitted, said mistake must be put in issue by the pleadings, such that if not raised inceptively in the complaint or in the answer, as the case may be, a party can not later on be permitted to introduce parol evidence thereon. 24 Needless to say, the mistake adverted to by herein petitioner, and by its own admission, was supposedly committed by private respondents only and was

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raised by the former rather belatedly only in this instant petition. Clearly then, and for failure to comply even only with the procedural requirements thereon, we cannot admit evidence to prove or explain the alleged mistake in documentation imputed to private respondents by petitioner. Petitioner further argues that assuming that there was transhipment, it cannot be deemed to have agreed thereto even if it signed the bill of lading containing such entry because it had made known to private respondents from the start that transhipment was prohibited under the letter of credit and that, therefore, it had no intention to allow transhipment of the subject cargo. In support of its stand, petitioner relies on the second paragraph of Article 1370 of the Civil Code which states that "(i)f the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former," as wen as the supposed ruling in Caltex Phil., Inc. vs. Intermediate Appellate Court, et al. 25 that "where the literal interpretation of a contract is contrary to the evident intention of the parties, the latter shall prevail." As between such stilted thesis of petitioner and the contents of the bill of lading evidencing the intention of the parties, it is irremissible that the latter must prevail. Petitioner conveniently overlooks the first paragraph of the very article that he cites which provides that "(i)f the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control." In addition, Article 1371 of the same Code provides that "(i)n order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered." The terms of the contract as embodied in the bill of lading are clear and thus obviates the need for any interpretation. The intention of the parties which is the carriage of the cargo under the terms specified thereunder and the wordings of the bill of lading do not contradict each other. The terms of the contract being conclusive upon the parties and judging from the contemporaneous and subsequent actuations of petitioner, to wit, personally receiving and signing the bill of lading and paying the freight charges, there is no doubt that petitioner must necessarily be charged with full knowledge and unqualified acceptance of the terms of the bill of lading and that it intended to be bound thereby. Moreover, it is a well-known commercial usage that transhipment of freight without legal excuse, however competent and safe the vessel into which the transfer is made, is a violation of the contract and an infringement of the right of the shipper, and subjects the carrier to liability if the freight is lost even by a cause otherwise excepted. 26 It is highly improbable to suppose that private respondents, having been engaged in the shipping business for so long, would be unaware of such a custom of the trade as to have undertaken such transhipment without petitioner's consent and unnecessarily expose themselves to a possible liability. Verily, they could only have undertaken transhipment with the shipper's permission, as evidenced by the signature of James Cu. Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd. was that the bill of lading that was issued was not an on board bill of lading, in clear violation of the terms of the letter of credit issued in favor of petitioner. On cross-examination, it was likewise established that petitioner, through its aforesaid president, was aware of this fact, thus: Q If the container van, the loaded container van, was transported back to South Harbor on June 27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was received by you? A I received on June 30, 1980. I received at the same time so then I gave the check. xxx xxx xxx Q So that in exchange of the Bill of Lading you issued your check also dated June 30, 1980? A Yes, sir. Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of Lading states: 'Received for shipment'only? . A Yes, sir. Q What did you say? A I requested to issue me on board bill of lading. Q When? A In the same date of June 30. Q What did they say? A They said, they cannot. xxx xxx xxx

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Q Do you know the difference between a "received for shipment bill of lading" and "on board bill of lading"? A Yes, sir. Q What's the difference? A Received for shipment, you can receive the cargo even you don't ship on board, that is placed in the warehouse; while on-board bill of lading means that is loaded on the vessel, the goods. xxx xxx xxx Q In other words, it was not yet on board the vessel? A During that time, not yet. xxx xxx xxx Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a vessel you can demand an on-board bill of lading not only a received for shipment bill of lading.? A Yes sir. Q And did you demand from F.E. Zuellig the substitution of that received for shipment bill of lading with an on-board bill of lading? A Of course, instead they issue me a certification. Q They give you a ... ? A ... a certification that it was loaded on board on June 30. xxx xxx xxx Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that there should be no transhipment and that it should also get an on board bill of lading.? A Yes sir. 27 Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly required that there be an on board bill of lading, obviously due to the guaranty afforded by such a bill of lading over any other kind of bill of lading. The buyer could not have insisted on such a stipulation on a pure whim or caprice, but rather because of its reliance on the safeguards to the cargo that having an on board bill of lading ensured. Herein petitioner cannot feign ignorance of the distinction between an "on board" and a "received for shipment" bill of lading, as manifested by James Cu's testimony. It is only to be expected that those long engaged in the export industry should be familiar with business usages and customs. In its petition, MMMC avers that "when petitioner teamed of what happened, it saw private respondent F.E. Zuellig which, in turn, issued a certification that as of June 30, 1980, the Anahaw fans were already on board MV Pacific Despatcher (which means that the bill of lading is an on- board-bill of lading or 'shipped' bill of lading as distinguished from a 'received for shipment'bill of lading as governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...." 28 What the petitioner would suggest is that said certification issued by F.E. Zuellig, Inc., dated July 19, 1980, had the effect of converting the original "received for shipment only" bill of lading into an "on board" bill of lading as required by the buyer and was, therefore, by substantial compliance, not violative of the contract. An on board bill of lading is one in which it is stated that the goods have been received on board the vessel which is to carry the goods, whereas a received for shipment bill of lading is one in which it is stated that the goods have been received for shipment with or without specifying the vessel by which the goods are to be shipped. Received for shipment bills of lading are issued whenever conditions are not normal and there is insufficiency of shipping space. 29 An on board bill of lading is issued when the goods have been actually placed aboard the ship with every reasonable expectation that the shipment is as good as on its way. 30 It is, therefore, understandable that a party to a maritime contract would require an on board bill of lading because of its apparent guaranty of certainty of shipping as well as the seaworthiness of the vessel which is to carry the goods. It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the bill of lading, as originally issued, into an on board bill of lading as required by the terms of the letter of credit issued in favor of petitioner. For one, the certification was issued only on July 19, 1980, way beyond the expiry date of June 30, 1980 specified in the letter of credit for the presentation of an on board bill of lading. Thus, even assuming that by a liberal treatment of the certification it could have the effect of converting the received for shipment bill of lading into an on board of bill of lading, as petitioner would have us believe, such an effect may be achieved only as of the date of its issuance, that is, on July 19, 1980 and onwards.

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The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading was presented by petitioner in compliance with the terms of the letter of credit and this default consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to operate retroactively, would render illusory the guaranty afforded by an on board bill of lading, that is, reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to mention that it would indubitably be stretching the concept of substantial compliance too far. Neither can petitioner escape hability by adverting to the bill of lading as a contract of adhesion, thus warranting a more liberal consideration in its favor to the extent of interpreting ambiguities against private respondents as allegedly being the parties who gave rise thereto. The bill of lading is clear on its face. There is no occasion to speak of ambiguities or obscurities whatsoever. All of its terms and conditions are plainly worded and commonly understood by those in the business. It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on May 20,1980 or over a month before the expiry date of the letter of credit on June 30, 1980, thus giving it more than ample time to find a carrier that could comply with the requirements of shipment under the letter of credit. It is conceded that bills of lading constitute a class of contracts of adhesion. However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et al. 31 and reiterated in Servando, et al. vs. Philippine Steam Navigation Co., 32 plane tickets as well as bills of lading are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. The respondent court correctly observed in the present case that "when the appellant received the bill of lading, it was tantamount to appellant's adherence to the terms and conditions as embodied therein. 33 In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions clearly violative of the requirements of the letter of credit. Nonetheless, perhaps in its eagerness to conclude the transaction with its Japanese buyer and in a race to beat the expiry date of the letter of credit, petitioner took the risk of accepting the bill of lading even if it did not conform with the indicated specifications, possibly entertaining a glimmer of hope and imbued with a touch of daring that such violations may be overlooked, if not disregarded, so long as the cargo is delivered on time. Unfortunately, the risk did not pull through as hoped for. Any violation of the terms and conditions of the letter of credit as would defeat its right to collect the proceeds thereof was, therefore, entirely of the petitioner's making for which it must bear the consequences. As finally averred by private respondents, and with which we agree, "... the questions of whether or not there was a violation of the terms and conditions of the letter of credit, or whether or not such violation was the cause or motive for the rejection by petitioner's Japanese buyer should not affect private respondents therein since they were not privies to the terms and conditions of petitioner's letter of credit and cannot therefore be held liable for any violation thereof by any of the parties thereto." 34 II. Petitioner contends that respondent court erred in holding it liable to private respondents for P52,102.45 despite its exercise of its option to abandon the cargo. It will be recalled that the trial court originally found petitioner liable for P298,150.93, which amount consists of P51,271.02 for freight, demurrage and other charges during the time that the goods were in Japan and for its reshipment to Manila, P831.43 for charges paid to the Manila International Port Terminal, and P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981. On appeal, the Court of Appeals limited petitioner's liability to P52,102.45 when it ruled: As regards the amount of P51,271.02, which represents the freight charges for the return shipment to Manila and the demurrage charges in Japan, the same is supported by appellant's own letter request (Exh. 2) for the return of the shipment to Manila at its (appellant's) expense, and hence, it should be held liable therefor. The amount of P831.43 was paid to the Manila International Port Terminal upon arrival of the shipment in Manila for appellant's account. It should properly be charged to said appellant. 35 However, respondent court modified the trial court's decision by excluding the award for P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981. Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the detention of the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is the claim for damages for failure to accept delivery. In a broad sense, every improper detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its strictly technical sense, exists only when expressly stipulated in the contract. Using the term in its broader sense, damages in the nature of demurrage are recoverable for a breach of the implied obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom the duty is owed and only against one who is a party to the shipping contract. 36 Notice of arrival of vessels or conveyances, or of their placement for purposes of unloading is often a condition precedent to the right to collect demurrage charges. Private respondents, admittedly, have adopted the common practice of requiring prior notice of arrival of the goods shipped before the shipper can be held liable for

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demurrage, as declared by Wilfredo Hans, head of the accounting department of F.E. Zuellig, Inc., on cross-examination as a witness for private respondents: Q ... you will agree with me that before one could be charged with demurrage the shipper should be notified of the arrival of the shipment? A Yes sir. Q Without such notification, there is no way by which the shipper would know (of) such arrival? A Yes. Q And no charges of demurrage before the arrival of the cargo? A Yes sir. 37 Accordingly, on this score, respondent court ruled: However, insofar as the demurrage charges of P246,043.43 from October up to May 1980, arriv(al) in Manila, are concerned, We are of the view that appellant should not be made to shoulder the same, as it was not at fault nor was it responsible for said demurrage charges. Appellee's own witness (Mabazza) testified that while the goods arrived in Manila in October 1980, appellant was notified of said arrival only in March 1981. No explanation was given for the delay in notifying appellant. We agree with appellant that before it could be charged for demurrage charges it should have been notified of the arrival of the goods first. Without such notification it could not- be so charged because there was no way by which it would know that the goods had already arrived for it to take custody of them. Considering that it was only in March 1981 (Exh. K) that appellant was notified of the arrival of the goods, although the goods had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14), appellant cannot be charged for demurrage from October 1980 to March 1981. ... 38 While being satisfied with the exclusion of demurrage charges in Manila for the period from October 22,1980 to June 18,1981, petitioner nevertheless assails the Court of Appeals' award of P52,102.43 in favor of private respondents, consisting of P51,271.01 as freight and demurrage charges in Japan and P831.43 for charges paid at the Manila International Port Termninal. Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to allow private respondents to sell the same at a public auction and to apply the proceeds thereof as payment for the shipping and demurrage charges, it was released from liability for the sum of P52,102.43 since such amount represents the shipping and demurrage charges from which it is considered to have been released due to the abandonment of goods. It further argues that the shipping and demurrage charges from which it was released by the exercise of the option to abandon the goods in favor of private respondents could not have referred to the demurrage charges in Manila because respondent court ruled that the same were not chargeable to petitioner. Private respondents would rebut this contention by saying in their memorandum that the abandonment of goods by petitioner was too late and made in bad faith. 39 On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to the fact that the shipment was made for its benefit or under its direction and, correspondingly, the carrier is entitled to collect charges for its shipping services. This is particularly true in this case where the reshipment of the goods was made at the instance of petitioner in its letter of August 29, 1980. 40 However, in a letter dated March 20, 1981, 41 private respondents belatedly informed petitioner of the arrival of its goods from Japan and that if it wished to take delivery of the cargo it would have to pay P51,271.02, but with the last paragraph thereof stating as follows: Please can you advise within 15 days of receipt of this letter whether you intend to take delivery of this shipment, as alternatively we will have to take legal proceedings in order to have the cargo auctioned to recover the costs involved, as well as free the container which are (sic) urgently required for export cargoes. Clearly, therefore, private respondents unequivocally offered petitioner the option of paying the shipping and demurrage charges in order to take delivery of the goods or of abandoning the same so that private respondents could sell them at public auction and thereafter apply the proceeds in payment of the shipping and other charges. Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its decision to abandon to the goods in favor of private respondents with the specific instruction that any excess of the proceeds over the legal costs and charges be turned over to petitioner. Receipt of said letter was acknowledged by private respondents, as revealed by the testimony of Edwin Mabazza, a claim officer of F.E. Zuellig, Inc., on cross-examination. 42 Despite petitioner's exercise of the option to abandon the cargo, however, private respondents sent a demand letter on June 22, 1981 43 insisting that petitioner should pay the entire amount of P298,150.93 and, in another letter dated Apiril 30, 1981, 44 they stated that they win not accept the abandonment of the goods and

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demanded that the outstanding account be settled. The testimony of said Edwin Mabazza definitely admits and bears this out. 45 Now, there is no dispute that private respondents expressly and on their own volition granted petitioner an option with respect to the satisfaction of freightage and demurrage charges. Having given such option, especially since it was accepted by petitioner, private respondents are estopped from reneging thereon. Petitioner, on its part, was well within its right to exercise said option. Private respondents, in giving the option, and petitioner, in exercising that option, are concluded by their respective actions. To allow either of them to unilaterally back out on the offer and on the exercise of the option would be to countenance abuse of rights as an order of the day, doing violence to the long entrenched principle of mutuality of contracts. It will be remembered that in overland transportation, an unreasonable delay in the delivery of transported goods is sufficient ground for the abandonment of goods. By analogy, this can also apply to maritime transportation. Further, with much more reason can petitioner in the instant case properly abandon the goods, not only because of the unreasonable delay in its delivery but because of the option which was categorically granted to and exercised by it as a means of settling its liability for the cost and expenses of reshipment. And, said choice having been duly communicated, the same is binding upon the parties on legal and equitable considerations of estoppel. WHEREFORE, the judgment of respondent Court of Appeals is AFFIRMED with the MODIFICATION that petitioner is likewise absolved of any hability and the award of P52,102.45 with legal interest granted by respondent court on private respondents' counterclaim is SET ASIDE, said counterclaim being hereby DISMISSED, without pronouncement as to costs. SO ORDERED. Melencio-Herrera (Chairperson), Paras and Padilla, JJ., concur. G.R. No. L-18965 October 30, 1964 petitioner, Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the services of the Compaia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the former's Sasa private pier at Davao City to Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral contract was later on confirmed by a formal and written booking issued by Macleod's branch office in Sasa and handcarried to Compaia Maritima's branch office in Davao in compliance with which the latter sent to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was completed on October 29, 1952. These two lighters were manned each by a patron and an assistant patron. The patrons of both barges issued the corresponding carrier's receipts and that issued by the patron of Barge No. 1025 reads in part: Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator. FINAL DESTINATION: Boston. Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot belonging to Compaia Maritima on which the hemp was to be loaded. During the night of October 29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting in the damage or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the carrier's main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. During the period from November 1-15, 1952, the carrier's trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of the original cargo of 1,162 bales weighing 2,324 piculs which had a total value of 116,835.00. After reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72. Adding to this last amount the sum of P8,863.30 representing Macleod's expenses in checking, grading, rebating, and other fees for washing, cleaning and redrying in the amount of P19.610.00, the total loss adds up to P60,421.02. All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025, were insured with the Insurance Company of North America against all losses and damages. In due time, Macleod filed a claim for the loss it suffered as above stated with said insurance company, and after the same had been processed, the sum of P64,018.55 was paid, which was noted down in a document which aside from being a receipt of the amount paid, was a subrogation agreement between

COMPAIA MARITIMA, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent. Rafael Dinglasan Ozaeta Gibbs & Ozaeta for respondent. BAUTISTA ANGELO, J.: for

petitioner.

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Macleod and the insurance company wherein the former assigned to the latter its rights over the insured and damaged cargo. Having failed to recover from the carrier the sum of P60,421.02, which is the only amount supported by receipts, the insurance company instituted the present action on October 28, 1953. After trial, the court a quo rendered judgment ordering the carrier to pay the insurance company the sum of P60,421.02, with legal interest thereon from the date of the filing of the complaint until fully paid, and the costs. This judgment was affirmed by the Court of Appeals on December 14, 1960. Hence, this petition for review. The issues posed before us are: (1) Was there a contract of carriage between the carrier and the shipper even if the loss occurred when the hemp was loaded on a barge owned by the carrier which was loaded free of charge and was not actually loaded on the S.S. Bowline Knot which would carry the hemp to Manila and no bill of lading was issued therefore?; (2) Was the damage caused to the cargo or the sinking of the barge where it was loaded due to a fortuitous event, storm or natural disaster that would exempt the carrier from liability?; (3) Can respondent insurance company sue the carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of the carrier as insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an implied admission by the carrier of the correctness and sufficiency of the shipper's statement of accounts contrary to the burden of proof rule?; and (5) Can the insurance company maintain this suit without proof of its personality to do so? 1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and Company contracted by telephone the services of petitioner to ship the hemp in question from the former's private pier at Sasa, Davao City, to Manila, to be subsequently transhipped to Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a formal and written booking issued by the shipper's branch office, Davao City, in virtue of which the carrier sent two of its lighters to undertake the service. It also appears that the patrons of said lighters were employees of the carrier with due authority to undertake the transportation and to sign the documents that may be necessary therefor so much so that the patron of LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein as follows: . Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator. FINAL DESTINATION: Boston. The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters were merely employed as the first step of the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the rights and obligations of the parties attached thereby subjecting them to the principles and usages of the maritime law. In other words, here we have a complete contract of carriage the consummation of which has already begun: the shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a lighter manned by its authorized employees, under which Macleod became entitled to the privilege secured to him by law for its safe transportation and delivery, and the carrier to the full payment of its freight upon completion of the voyage. The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if actually no goods are received there can be no such contract. The liability and responsibility of the carrier under a contract for the carriage of goods commence on their actual delivery to, or receipt by, the carrier or an authorized agent. ... and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the custom to deliver in that way, is a good delivery and binds the vessel receiving the freight, the liability commencing at the time of delivery to the lighter. ... and, similarly, where there is a contract to carry goods from one port to another, and they cannot be loaded directly on the vessel and lighters are sent by the vessel to bring the goods to it, the lighters are for the time its substitutes, so that the bill of landing is applicable to the goods as soon as they are placed on the lighters. (80 C.J.S., p. 901, emphasis supplied) ... The test as to whether the relation of shipper and carrier had been established is, Had the control and possession of the cotton been completely surrendered by the shipper to the railroad company? Whenever the control and possession of goods passes to the carrier and nothing remains to be done by the shipper, then it can be said with certainty that the relation of shipper and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v. St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W. 148). The claim that there can be no contract of affreightment because the hemp was not actually loaded on the ship that was to take it from Davao City to Manila is of no moment, for, as already stated, the delivery of the hemp to the carrier's lighter is in

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line with the contract. In fact, the receipt signed by the patron of the lighter that carried the hemp stated that he was receiving the cargo "in behalf of S.S. Bowline Knot in good order and condition." On the other hand, the authorities are to the effect that a bill of lading is not indispensable for the creation of a contract of carriage. Bill of lading not indispensable to contract of carriage. As to the issuance of a bill of lading, although article 350 of the Code of Commerce provides that "the shipper as well as the carrier of merchandise or goods may mutua-lly demand that a bill of lading is not indispensable. As regards the form of the contract of carriage it can be said that provided that there is a meeting of the minds and from such meeting arise rights and obligations, there should be no limitations as to form." The bill of lading is not essential to the contract, although it may become obligatory by reason of the regulations of railroad companies, or as a condition imposed in the contract by the agreement of the parties themselves. The bill of lading is juridically a documentary proof of the stipulations and conditions agreed upon by both parties. (Del Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the Code does not demand, as necessary requisite in the contract of transportation, the delivery of the bill of lading to the shipper, but gives right to both the carrier and the shipper to mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895). (Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13) The liability of the carrier as common carrier begins with the actual delivery of the goods for transportation, and not merely with the formal execution of a receipt or bill of lading; the issuance of a bill of lading is not necessary to complete delivery and acceptance. Even where it is provided by statute that liability commences with the issuance of the bill of lading, actual delivery and acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288) 2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind the claim of force majeure or storm which occurred on the night of October 29, 1952. But the evidence fails to bear this out. Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate precautions or measures taken by the carrier to prevent the loss as may be inferred from the following findings of the Court of Appeals: Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in the same manner as rain entered "thru tank man-holes", according to the patron of LCT No. 1023 (exh. JJJ-4) conclusively showing that the barge was not seaworthy it should be noted that on the night of the nautical accident there was no storm, flood, or other natural disaster or calamity. Certainly, winds of 11 miles per hour, although stronger than the average 4.6 miles per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot be classified as storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to 75 miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of from 55 to 74 miles per hour in order to be classified as storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co., CA-G.R. No. 23167-R, March 12, 1959). The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors, attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of various buoyancy compartments' (exh. JJJ); and this report finds confirmation on the above-mentioned admission of two witnesses for appellant concerning the cracks of the lighter's bottom and the entrance of the rain water 'thru manholes'." We are not prepared to dispute this finding of the Court of Appeals. 3. There can also be no doubt that the insurance company can recover from the carrier as assignee of the owner of the cargo for the insurance amount it paid to the latter under the insurance contract. And this is so because since the cargo that was damaged was insured with respondent company and the latter paid the amount represented by the loss, it is but fair that it be given the right to recover from the party responsible for the loss. The instant case, therefore, is not one between the insured and the insurer, but one between the shipper and the carrier, because the insurance company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of action against the carrier on account of the damage of the cargo, no valid reason is seen why such action cannot be asserted or availed of by the insurance company as a subrogee of the shipper. Nor can the carrier set up as a defense any defect in the insurance policy not only because it is not a privy to it but also because it cannot avoid its liability to the shipper under the contract of carriage which binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find fitting the following comments of the Court of Appeals: It was not imperative and necessary for the trial court to pass upon the question of whether or not the disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-134 isued by appellee. Appellant was neither a party nor privy to this insurance contract, and therefore cannot avail itself of any defect in the policy which may constitute a valid reason for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever defect the policy contained, if any, is deemed to have been waived by the subsequent payment of Macleod's claim by appellee. Besides, appellant is herein sued in its capacity as a common carrier, and

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appellee is suing as the assignee of the shipper pursuant to exhibit MM. Since, as above demonstrated, appellant is liable to Macleod and Company of the Philippines for the los or damage to the 1,162 bales of hemp after these were received in good order and condition by the patron of appellant's LCT No. 1025, it necessarily follows that appellant is likewise liable to appellee who, as assignee of Macleod, merely stepped into the shoes of and substi-tuted the latter in demanding from appellant the payment for the loss and damage aforecited. 4. It should be recalled in connection with this issue that during the trial of this case the carrier asked the lower court to order the production of the books of accounts of the Odell Plantation containing the charges it made for the loss of the damaged hemp for verification of its accountants, but later it desisted therefrom on the claim that it finds their production no longer necessary. This desistance notwithstanding, the shipper however pre-sented other documents to prove the damage it suffered in connection with the cargo and on the strength thereof the court a quo ordered the carrier to pay the sum of P60,421.02. And after the Court of Appeals affirmed this award upon the theory that the desistance of the carrier from producing the books of accounts of Odell Plantation implies an admission of the correctness of the statements of accounts contained therein, petitioner now contends that the Court of Appeals erred in basing the affirmance of the award on such erroneous interpretation. There is reason to believe that the act of petitioner in waiving its right to have the books of accounts of Odell Plantation presented in court is tantamount to an admission that the statements contained therein are correct and their verification not necessary because its main defense here, as well as below, was that it is not liable for the loss because there was no contract of carriage between it and the shipper and the loss caused, if any, was due to a fortuitous event. Hence, under the carrier's theory, the correctness of the account representing the loss was not so material as would necessitate the presentation of the books in question. At any rate, even if the books of accounts were not produced, the correctness of the accounts cannot now be disputed for the same is supported by the original documents on which the entries in said books were based which were presented by the shipper as part of its evidence. And according to the Court of Appeals, these documents alone sufficiently establish the award of P60,412.02 made in favor of respondent. 5. Finally, with regard to the question concerning the personality of the insurance company to maintain this action, we find the same of no importance, for the attorney himself of the carrier admitted in open court that it is a foreign corporation doing business in the Philippines with a personality to file the present action. WHEREFORE, the decision appealed from is affirmed, with costs against petitioner. G.R. Nos. L-16204 and L-16256 April 24, 1967 V. ATANACIO, petitioners,

ERNESTO A. PAPA, and CONRADO vs. SEVERO J. SANTIAGO, respondent.

Delfin Villanueva and Ablan, Castaeda and Associates for petitioners. Enage, Barrion & Guzman and R. Quisumbing, Jr. and H. Quisumbing for respondent. RESOLUTION REYES, J.B.L., J.: Respondent Severo J. Santiago has petitioned for a reconsideration of our main decision of August 31, 1962, reversing that of the Public Service Commission which denied the application of Ernesto A. Papa and Conrado Atanacio in PSC Case No. 94119 for a certificate of public convenience and necessity to install and operate a telephone system in Pasig, Rizal, and simultaneously granted the application for the same purpose filed by Severo J. Santiago in PSC Case No. 101261. It will be recalled that this Court in a preceding appeal (G. R. No. L-19433) remanded the case back to the Public Service Commission for further proceedings to determine which of the "two applicants is entitled to a certificate of public convenience and necessity, assuming that they are both qualified," since the matter "rests in the sound discretion of the Commission." Pursuant to the directive from this Court, the Commission of Public Services held hearing, and after receiving the evidence of the parties, decided in favor of Severo J. Santiago, as above noted, on the following basis: The Commission finds that whereas the applicant Severo J. Santiago, has already in his possession a complete set of equipment and material for his proposed telephone system in Pasig, the other applicants, Ernesto A. Papa and Conrado V. Atanacio, have not yet completed their equipment; that whereas applicant Santiago has already installed not only his central office equipment but also his outside plant equipment and facilities and that he has even connected telephone lines to a number of residential houses and commercial offices, including some offices of the Government, and this system has actually been tested by engineers of the Commission, and found to be satisfactory producing clear and distinct sound, the equipment of the applicants, Papa and Atanacio, are scattered in at least four different places in Manila, Quezon City, and Meycauayan (Bulacan) and are not yet

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installed; that whereas the equipment already installed by the applicant Santiago is ready for the immediate use of the public of Pasig, those of the applicants Papa and Atanacio, being incomplete and un-installed, are not yet ready for use; that whereas the equipment already installed by the applicant, Severo J. Santiago, has been designed and installed to meet, by way of initial service, the requirements of Pasig for a period of five (5) years, that proposed by the other applicants is designed to serve less; that whereas the applicant Santiago is already possessed with the necessary tests and repair tools, equipment and material to insure a continuous service, the other applicants Papa and Atanacio are not so equipped; that whereas applicant Santiago having already designed his telephone system to meet the requirements of Pasig for a period of five (5) years, will not need any major financing to expand his service, the other applicants Papa and Atanacio having designed their proposed telephone system for a less initial service, have yet to acquire additional equipment for any expansion of their proposed service and according to their own evidence, the applicant, Ernesto A. Papa, will rely on a loan from the RFC for this purpose; that whereas the telephone system of applicant, Severo J. Santiago, is proposed by him can easily meet the requirements of the new manufacturing, industrial and commercial houses in Pasig, thru the establishment and use of private exchange switchboards, the other applicants do not propose the use of private exchange switchboards; and whereas we find the applicant Santiago far more responsible financially speaking and better qualified on a technical basis than the other applicants this Commission should grant the certificate of public convenience and necessity to the said applicant, Severe J. Santiago. Moreover, to grant the certificate of public convenience and necessity to the applicant, Severo J. Santiago, will result in the immediate operation of a telephone system in Pasig. On the other hand, to grant it to the other applicants, Papa and Atanacio, will only result in further delay in the establishment of the telephone system, aside from the fact that in this event, Santiago will have to remove all the equipment which he has already installed at such great expense. Upon appeal, this Court reversed the verdict of the Public Service Commission on the following grounds: (1) That to offset the prior application and operative municipal franchise granted to Papa and Atanacio, it is not only necessary for the other applicant to prove superiorequipment and preparation, but also to show that the prior applicants are not themselves qualified. (2) That the following circumstances operated against the position of Severo J. Santiago: (a) That in the public bidding conducted by the Municipal Council of Pasig, Papa and Atanacio won against the Republic Telephone Co., Inc., of which Santiago was President and principal stockholder; (b) That Santiago operated a telephone system without license or permit, leading to a cease and desist order from the Commission, upon complaint of Papa and Atanacio; (c) That even before finality of the Commission's decision in his favor, Santiago operated his telephone system, albeit with the apparent acquiescence of the Public Service Commission, when the Presidential approval of his municipal franchise, required by Act 667, was conditioned upon the Commission's decision becoming final; and (d) That Severo J. Santiago being already the operator of telephone systems in other municipalities, the appealed award would likely create a monopoly prejudicial to public interest. Severo J. Santiago in due time filed a motion praying that this Court's decision be reconsidered and reversed, on the ground that the vital applicant was not properly qualified, and that the violations charged against him (Santiago) were untrue and not supported by facts, since the "cease and desist" order of the Commission itself showed that it had been issued ex-parte and was contingent in operation, and in fact the charges of illegal operation had been subsequently dismissed. Santiago further submitted affidavits purporting to show that Conrado Atanacio, co-applicant of Papa, had withdrawn as early as 1957, from their joint enterprise, for which a certificate of public convenience had been applied for; and further challenging Papa's financial resources to establish the service applied for, since at the time of trial of the case before the Commission, Papa's equipment was not really complete, as the telephone cables he had shown for inspection by the technicians of the Public Service Commission were not his, but belonged to one Ocampo, who had merely granted Papa an option to purchase the cables, and that Papa had subsequently failed to take up the option, with the result that Ocampo had sold the same cables to the Republic Telephone Company. Applicant Papa having opposed the motion for reconsideration, the Court resolved to remand the case for recaption of evidence of Papa's financial ability to maintain the service applied for. The Commission, having done so, it remitted the new evidence to this Court in December, 1966.1wph1.t The evidence submitted at the rehearing confirms the allegations made by movant Santiago, and shows that as early as May 1957, Papa's co-petitioner, Conrado

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Atanacio, had advised his associate that he was no longer interested in PSC Case No. 94119, due to his belief that Papa and he were not in a position to finance and establish the telephone system in Pasig which requires considerable initial and year to year investment. Ricardo Ocampo, for his part, testified that the telephone cable of 51 pairs that the applicant Papa had listed as part of his equipment, actually were his (Ocampo's) and that Papa only had an option to buy said cables for P10,000.00 which he promised to pay if he won the case then pending before the Public Service Commission; that Papa never was in possession of the cable, and in fact the same was examined by the PSC inspectors in Ocampo's house; that later, Ocampo sold the cable to Santiago's Republic Telephone Company with Papa's knowledge and without objections from him. It is markworthy that, originally, Papa and Atanacio had listed this 51 pairs of telephone cable among their assets (Exh. N-2 PSC Rec. Vol. I, p. 68) without disclosing that their acquisition thereof was contingent upon favorable decision by the Commission, and that revelation of this unfavorable detail was forced upon them (or rather, upon Ernesto Papa, since Atanacio had withdrawn from the enterprise) only when years later, Santiago called attention to this fact in his motion to have this Court's decision reconsidered. While Papa's conditional acquisition of this essential portion of his equipment (the telephone cable) is now being palliated on the plea that he was entitled to minimize the risks in case of unfavorable action, still it was his plain duty to frankly disclose such circumstance to the Commission, in order to enable it to assess thoroughly the capacity and reliability of the applicant. It can readily be understood that had the Commission been apprised of the true facts concerning this portion of Papa's equipment, it would have inquired thoroughly into the applicant's resources. As things stand, Papa's concealment tended to mislead the Commission, and such tactics can not but affect his case unfavorably. That he finally admitted the truth at the rehearing ordered by this Court and there exhibited Ocampo's receipt (Exh. 2a-Papa) where the contingent transaction is set down, can not cure Papa's initial disingenuousness, making virtue out of necessity. We agree with movant Santiago that the facts thus disclosed at the Commission rehearing (and which were not revealed when the case was first heard) emphasize the correctness of the Commission's decision in preferring Santiago's application over that of Papa. They point to the meagerness of Papa's resources and deny his alleged capability to render satisfactory service. The cardinal rule in cases of this nature, is to adhere to what is best for the interest of the public, and favor what would best serve the public convenience (In re Gregorio, 77 Phil. 908, 914 and cases therein cited; Carmelo and Oriol vs. Monserrat, 55 Phil. 644). And, considering that as pointed out in the previous quotation from the appealed decision, Santiago's equipment had been tested, found satisfactory and ready for immediate use by the public, while Papa's had not yet been completed and tested; that Santiago's system was designed to meet the needs of Pasig for the next five years, while that of Papa was designed for a much less extensive coverages and that Santiago was far more responsible, financially and technically, while Papa, on his evidence, had to rely on an expected loan from the RFC to expand his original limited service, there can be no doubt that the approval of Santiago's application corresponded to the demands of public interest, that is ever the paramount, in fact, the overriding consideration. Furthermore, the withdrawal of Papa's co-applicant, Atanacio (even granting that the latter was merely contributing his labor and industry as Papa claimed in his testimony), would further pose the problem whether a grant of Papa's application by the Commission would be in accordance with the municipal franchise upon which the application was predicated. Since the franchise was admittedly granted by the Pasig authorities to both Papa and Atanacio jointly, a certificate of convenience granted to Papa alone would, in effect, amend the municipal franchise without the consent of its grantor. It may well be doubted whether such amendment lay within the power of the Public Service Commission. Then, again, Papa deprecated Atanacio's financial contribution to their joint enterprise as nil, claiming that Atanacio was a mere industrial associate; but the version is inconsistent with Papa's original Exhibit N, p. 3 (PSC Rec., Vol. I, p. 65) where Atanacio is listed is owner and proprietor of Atanacio's Electrical Equipment & Supply, "which is on a profitable basis." Thus, the credit standing of Atanacio was originally advanced by Papa as a basis for favorable action by the Commission in his favor. To minimize the impact of the disclosure that Ocampo's cables were not really part of his proposed equipment when the Commission heard and decided the case, Papa sought to introduce evidence at the 1966 rehearing that he had later purchased another 4 reels (10,000 feet) of telephone cable to replace that cables of Ocampo (t.s.n., p. 129) ; but also admitted that he used part of these replacements in his Meycauayan telephone network, while the rest he had sold, with other equipment, for P50,000.00 (t.s.n., pp. 131-132). These transactions, being subsequent to the rendition of the Commission's decision were inadmissible to determine Papa's resources and financial responsibility at the time of his application, but even if considered, such evidence proves the slenderness of the resources at Papa's disposal, and casts doubt on his ability to render adequate service. There is no reason for compelling the public to be content with Papa's limited and uncertain service, where Santiago's decidedly better offer is available.1wph1.t For the same reason, no much weight can be accorded to the fact of Papa's priority of application and that he had won the bidding for the telephone service. Such circumstance can not override the paramount regard for public interest and

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convenience. More so when, as previously explained, issuance of a certificate of convenience to Papa alone would not be in conformity with the basic municipal franchise in favor of both Ernesto Papa and Conrado Atanacio, and there is no proof that the grantor would consider the absence of Atanacio as indifferent. Our previous decision also held against applicant Santiago that he had been operating in Pasig even before the finality of the Commission's decision, prompting the latter to issue a "cease and desist" order on June 27, 1957, of the following tenor: Upon consideration of the petition dated June 20, 1957, filed by Ernesto A. Papa and Conrado V. Atanacio, thru counsel, alleging that applicant Severo J. Santiago has been operating a telephone service for hire or compensation in Pasig notwithstanding the fact that said Santiago has no certificate nor authority to operate his telephone system, and it appearing from the records of this case that the decision approving the franchise and ordering the issuance of the certificate for the operation of a telephone system in Pasig has not yet been released so that Severo J. Santiago has no authority nor certificate to operate a telephone service for hire in Pasig, Rizal, and pursuant to the prayer in the petition, applicant Severo J. Santiago and/or Republic Telephone Company is hereby ordered to cease and desist immediately from operating his telephone system in question for hire or compensation, and in the event that he has operated his system and collected amounts from his customers, he ordered to immediately refund said amounts and is warned that if he persists in operating his telephone system as a public utility, the Commission will proceed to take action against him for violations of the Public Service Law. (Emphasis supplied). Mature reflection upon the terms of the order, however, shows that the same does not substantiate the charge. In the first place, the order appears on its face to have been issued ex parte; it only mentions the complaint filed by Papa and Atanacio, but makes no reference to any answer thereto by Santiago or to any hearing thereof or to any evidence in support of the charge. Secondly, the order to desist and refund is plainly contingent, as it is prefaced by the expression "and the event that he has operated his system and collected amounts from his customers," clearly indicating the absence of evidence showing that Santiago had in fact operated illegally. The records are further bereft on any proof of illegal operation, and Santiago's claim that the charge was ultimately dismissed has not been contradicted. We are forced to conclude that the charge of illegal operation was without foundation. The last objection formulated in our previous decision against the appealed award by the Public Service Commission, was that the Republic Telephone Company, that Santiago controls, was already operating telephone systems in many other municipalities, citing Benitez vs. Santos, L-12911, February 29, 1960, to the effect that "a monopolistic trend with its concomitant evils, can only serve to prejudice public interest." Reflection upon recent experience, of which this Court may well take notice, shows that however valid the doctrine in the Benitez vs. Santos case should be in connection with the fields of transportation and merchandising, it is less valid in the sphere of telephone communication. Here, the desirability of the service rendered lies in the ability of every subscriber to obtain fast and reliable connection with every other subscriber at any given time and place; and experience has shown that the main obstacle to such efficiency is the existence and multiplicity of independent systems. Interconnection between them is difficult, laborious and time-consuming. The need only recall the persistent complaints of the public concerning the hardships and delays in obtaining interconnections between say, the Philippine Long Distance Telephone and the Government Telephone Systems or between customer served by the former and those of the Republic Telephone Company in Marikina or other outlying communities, in order to realize to what extent inter-system jealousies and differences in technical equipment can block fast intercommunication, to the prejudice of the general public. The difficulties described would be greatly compound were the certificate granted Ernesto Papa, in view of the existing grant of a legislative franchise to the Republic Telephone Company (Rep. Act No. 8662) for the same municipality of Pasig. It is difficult to discern what reasons of public convenience (as distinguished from the interest of the operators) could justify the splitting of a small community between two separate telephone systems each understandably intent in satisfying its own subscribers and reluctant to favor those of its rival. The unfortunate experience of the independent systems operating in Manila would be then merely repeated. In view of the foregoing factors, and considering the clear superiority of applicant Santiago, vis-a-vis his opponent, from the standpoint of financial means, technical resources and experience as determined by the Public Service Commission; and bearing in mind the long standing doctrine of this Court not to interfere with the judgment of the Commission so long as it is supported by the evidence, a doctrine constantly adhered to from Ynchausti vs. Public Utility Commission, 44 Phil. 363 (1923) down to Red Line Transportation Co. vs. Santo Tomas, L-18472, January 30, 1967), we are left with no alternative but to conclude that the reversal of the Commission's award in our former decision was without adequate justification. Wherefore, our previous decision is hereby reconsidered and set aside, and another one shall be entered, affirming the appealed judgment of the Public Service Commission, in its cases Nos. 94119 and 101261. Without costs. So ordered. G.R. No. L-32489 March 28, 1983

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CENON P. CORDERO and PEDRO CORDERO, petitioners, vs. THE PUBLIC SERVICE COMMISSION, FRANCISCO CAGUICLA and MANUEL OPULENCIA, respondents. Rolando Leonor for petitioners. Amador A. Amador Jr., for private respondent. RESOLUTION certificate of public convenience to operate a public utility service was published in two newspapers of general circulation in the province, but no individual notices were sent to the operators affected. Under those facts, the following pronouncement was made: In this instance, respondent applicant contends that the publication of the notice of hearing in 2 newspapers of general circulation in the province of Zambales is notification not only to the interested parties, but to the whole world in general. This is inaccurate. The order required, in addition to publication, individual notice to the operators affected by the application and whose names appeared in the list attached to the order. The requirement, therefore, is not in the alternative, but conjunctive. It cannot be disputed that this requirement of the Public Service Commission itself in connection with an application for a certificate of public convenience, is within the power of the Commission to impose. The inadequate notification to the interested parties in this case, which resulted in the oppositors' failure to be present during the hearing, deprived them of their day in court. The decision rendered in disregard of said right, consequently, is null and void. We consider it unnecessary to discuss the other issue raised by the petitioners regarding the alleged illegal delegation of the hearing of the case to the official who heard the same. WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, Private respondents shall pay the costs. G.R. No. L-61461 August 21, 1987 EPITACIO SAN PABLO, (Substituted by Heirs of E. San Pablo), petitioners, vs. PANTRANCO SOUTH EXPRESS, INC., respondent. CARDINAL SHIPPING CORPORATION, petitioner, vs. HONORABLE BOARD OF TRANSPORTATION AND PANTRANCO SOUTH EXPRESS, INC., respondents.

VASQUEZ, J.: Petitioners have taken this appeal from a decision of the respondent Public Service Commission authorizing the private respondents to sell ice and supply cold storage for the province of Batangas and the City of Lipa. The petitioners are holders of a certificate of public convenience to operate an ice-plant in the municipality of Bauan and to sell the ice produced therein in the municipalities of Bauan and Mabini, province of Batangas. In assailing the validity of the decision appealed from, the petitioners contend that the decision is null and void due to the lack of the requisite notice of hearing, and the hearing having been delegated to an official of the respondent Commission who is not a member of its legal division nor a chief of a division. The lack of notice adverted to by the petitioners is the failure of the notice of hearing to be served individually by registered mail or personal delivery on "all affected parties" mentioned in the list supposed to be attached to the notice of hearing. Such a requirement is expressly indicated in the notice of hearing itself. The respondents, on the other hand, contend that petitioners may not complain that they were not notified of the hearing inasmuch as the notice of hearing was published in two newspapers of general circulation in the province of Batangas; and that the requirement of individual notices to the affected parties appearing in the list attached to the notice of hearing could not have been complied with by the private respondents inasmuch as no such list was attached to the notice of hearing issued by the hearing officer; besides, the usual practice in the hearing of cases in the respondent Commission was not to send such individual notices to affected parties. The question herein presented is not new, it having been previously resolved in the closely analogous case of Olongapo Jeepney Operators Association vs. Public Service Commission, 13 SCRA 303. In said case, the notice of hearing of an application for a

GANCAYCO, J.: The question that is posed in these petitions for review is whether the sea can be considered as a continuation of the highway. The corollary issue is whether a land transportation company can be authorized to operate a ferry service or coastwise or

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interisland shipping service along its authorized route as an incident to its franchise without the need of filing a separate application for the same. The Pantranco South Express, Inc., hereinafter referred to as PANTRANCO is a domestic corporation engaged in the land transportation business with PUB service for passengers and freight and various certificates for public conveniences CPC to operate passenger buses from Metro Manila to Bicol Region and Eastern Samar. On March 27,1980 PANTRANCO through its counsel wrote to Maritime Industry Authority (MARINA) requesting authority to lease/purchase a vessel named M/V "Black Double" "to be used for its project to operate a ferryboat service from Matnog, Sorsogon and Allen, Samar that will provide service to company buses and freight trucks that have to cross San Bernardo Strait. 1 In a reply of April 29,1981 PANTRANCO was informed by MARINA that it cannot give due course to the request on the basis of the following observations: 1. The Matnog-Allen run is adequately serviced by Cardinal Shipping Corp. and Epitacio San Pablo; MARINA policies on interisland shipping restrict the entry of new operators to Liner trade routes where these are adequately serviced by existing/authorized operators. 2. Market conditions in the proposed route cannot support the entry of additional tonnage; vessel acquisitions intended for operations therein are necessarily limited to those intended for replacement purposes only. 2 PANTRANCO nevertheless acquired the vessel MV "Black Double" on May 27, 1981 for P3 Million pesos. It wrote the Chairman of the Board of Transportation (BOT) through its counsel, that it proposes to operate a ferry service to carry its passenger buses and freight trucks between Allen and Matnog in connection with its trips to Tacloban City invoking the case of Javellana vs. Public Service Commission. 3 PANTRANCO claims that it can operate a ferry service in connection with its franchise for bus operation in the highway from Pasay City to Tacloban City "for the purpose of continuing the highway, which is interrupted by a small body of water, the said proposed ferry operation is merely a necessary and incidental service to its main service and obligation of transporting its passengers from Pasay City to Tacloban City. Such being the case ... there is no need ... to obtain a separate certificate for public convenience to operate a ferry service between Allen and Matnog to cater exclusively to its passenger buses and freight trucks. 4 Without awaiting action on its request PANTRANCO started to operate said ferry service. Acting Chairman Jose C. Campos, Jr. of BOT ordered PANTRANCO not to operate its vessel until the application for hearing on Oct. 1, 1981 at 10:00 A.M. 5 In another order BOT enjoined PANTRANCO from operating the MV "Black Double" otherwise it will be cited to show cause why its CPC should not be suspended or the pending application denied. 6 Epitacio San Pablo (now represented by his heirs) and Cardinal Shipping Corporation who are franchise holders of the ferry service in this area interposed their opposition. They claim they adequately service the PANTRANCO by ferrying its buses, trucks and passengers. BOT then asked the legal opinion from the Minister of Justice whether or not a bus company with an existing CPC between Pasay City and Tacloban City may still be required to secure another certificate in order to operate a ferry service between two terminals of a small body of water. On October 20, 1981 then Minister of Justice Ricardo Puno rendered an opinion to the effect that there is no need for bus operators to secure a separate CPC to operate a ferryboat service holding as follows: Further, a common carrier which has been granted a certificate of public convenience is expected to provide efficient, convenient and adequate service to the riding public. (Hocking Valley Railroad Co. vs. Public Utilities Commission, 1 10 NE 521; Louiseville and NR Co. vs. Railroad Commissioners, 58 SO 543) It is the right of the public which has accepted the service of a public utility operator to demand that the service should be conducted with reasonable efficiency. (Almario, supra, citing 73 C.J.S. 990-991) Thus, when the bus company in the case at bar proposes to add a ferry service to its Pasay Tacloban route, it merely does so in the discharge of its duty under its current certificate of public convenience to provide adequate and convenient service to its riders. Requiring said bus company to obtain another certificate to operate such ferry service when it merely forms a part and constitutes an improvement of its existing transportation service would simply be duplicitous and superfluous. 7 Thus on October 23, 1981 the BOT rendered its decision holding that the ferry boat service is part of its CPC to operate from Pasay to Samar/Leyte by amending PANTRANCO's CPC so as to reflect the same in this wise: Let the original Certificate of public convenience granted to Pantranco South Express Co., Inc. be amended to embody the grant of authority to operate a private ferry boat service as one of the conditions for the grant of the certificate subject to the condition that the ferryboat shall be for the exclusive use of Pantranco buses, its passengers and freight trucks, and should it offer itself to the public for hire other than its own passengers, it must apply for a separate certificate of public convenience as a public ferry boat service, separate and distinct from its land transport systems. 8

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Cardinal Shipping Corporation and the heirs of San Pablo filed separate motions for reconsideration of said decision and San Pablo filed a supplemental motion for reconsideration that were denied by the BOT on July 21, 1981. 9 Hence, San Pablo filed the herein petition for review on certiorari with prayer for preliminary injunction 10 seeking the revocation of said decision, and pending consideration of the petition, the issuance of a restraining order or preliminary injunction against the operation by PANTRANCO of said ferry service. San Pablo raised the following issues: A. DID THE RESPONDENT BOARD VIOLATE PETITIONERS' RIGHT TO DUE PROCESS, THE RULES OF PROCEDURE AND SECTION 16 (m) OF THE PUBLIC SERVICE ACT, WHEN IT ISSUED IN A COMPLAINT CASE THE DECISION DATED OCTOBER 23, 1981 WHICH MOTU PROPIO AMENDED RESPONDENT PANTRANCO'S PUB CERTIFICATE TO INCLUDE AND AUTHORIZE OPERATION OF A SHIPPING SERVICE ON THE ROUTE MATNOG, SORSOGON ALLEN, SAMAR EVEN AS THERE MUST BE A FORMAL APPLICATION FOR AMENDMENT AND SEPARATE PROCEEDINGS HELD THEREFORE, ASSUMING AMENDMENT IS PROPER? B. DID THE RESPONDENT BOARD ERR IN FINDING IN ITS DECISION OF OCTOBER 23, 1981, THAT THE SEA FROM THE PORT OF MATNOG, SORSOGON, LUZON ISLAND TO THE PORT OF ALLEN, SAMAR ISLAND, OR FROM LUZON ISLAND TO SAMAR ISLAND IS A MERE FERRY OR CONTINUATION OF THE HIGHWAY IT BEING 23 KILOMETERS OF ROUGH AND OPEN SEA AND ABOUT 2 HOURS TRAVEL TIME REQUIRING BIG INTER-ISLAND VESSELS, NOT MERE BARGES, RAFTS OR SMALL BOATS UTILIZED IN FERRY SERVICE? C. DID THE RESPONDENT BOARD ERR WHEN IT RULED THAT RESPONDENT PANTRANCO'S VESSEL M/V BLACK DOUBLE IS MERELY A PRIVATE CARRIER, NOT A PUBLIC FERRY OPERATING FOR PUBLIC SERVICE (ASSUMING THAT THE MATNOG-ALLEN SEA ROUTE IS A MERE FERRY OR CONTINUATION OF HIGHWAY) EVEN IF SAID VESSEL IS FOR HIRE AND COLLECTS SEPARATE FARES AND CATERS TO THE PUBLIC EVEN FOR A LIMITED CLIENTELE? D. DID THE RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE IN THE FACE OF THE LATTER'S CONTENTION AS AN AFTER THOUGH THAT IT NEED NOT APPLY THEREFOR, AND IN SPITE OF ITS FAILURE TO SECURE THE PRE-REQUISITE MARITIME INDUSTRY AUTHORITY (MARINA) APPROVAL TO ACQUIRE A VESSEL UNDER ITS MEMORANDUM CIRCULAR NO. 8-A AS WELL AS ITS PRIOR FAVORABLE ENDORSEMENT BEFORE ANY SHIPPING AUTHORIZATION MAY BE GRANTED UNDER BOT MARINA AGREEMENT OF AUGUST 10, 1976 AND FEBRUARY 26, 1982? E. DID RESPONDENT BOARD ERR WHEN IT GRANTED RESPONDENT PANTRANCO AUTHORITY TO OPERATE A SHIPPING SERVICE ON A ROUTE ADEQUATELY SERVICED IF NOT ALREADY "SATURATED" WITH THE SERVICES OF TWO 12) EXISTING OPERATORS PETITIONERS AND CARDINAL SHIPPING CORP.) IN VIOLATION OF THE PRINCIPLE OF PRIOR OPERATOR RULE'? 11 By the same token Cardinal Shipping Corporation filed a separate petition raising similar issues, namely: a. the decision did not conform to the procedures laid down by law for an amendment of the original certificate of public convenience, and the authority to operate a private ferry boat service to PANTRANCO was issued without ascertaining the established essential requisites for such grant, hence, violative of due process requirements; b. the grant to PANTRANCO of authority to operate a ferryboat service as a private carrier on said route contravenes existing government policies relative to the rationalization of operations of all water transport utilities; c. it contravenes the memorandum of agreement between MARINA and the Board of Transportation; d. the grant of authority to operate a ferry service as a private carrier is not feasible; it lessens PANTRANCO's liability to passengers and cargo to a degree less than extraordinary diligence? e. PANTRANCO is not a private carrier when it operates its ferry service; f. it runs counter to the "old operator" doctrine; and g. the operation by PANTRANCO of the ferry service cnstitutes undue competition. The foregoing considerations constitutes the substantial errors committed by the respondent Board which would more than amply justify review of the questioned decision by this Honorable Court.12 Both cases were consolidated and are now admitted for decision.

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The resolution of all said issues raised revolves on the validity of the questioned BOT decision. The BOT resolved the issue of whether a ferry service is an extension of the highway and thus is a part of the authority originally granted PANTRANCO in the following manner: A ferry service, in law, is treated as a continuation of the highway from one side of the water over which passes to the other side for transportation of passengers or of travellers with their teams vehicles and such other property as, they may carry or have with them. (U.S. vs. Pudget Sound Nev. Co. DC Washington, 24 F. Supp. 431). It maybe said to be a necessary service of a specially constructed boat to carry passengers and property across rivers or bodies of water from a place in one shore to a point conveniently opposite on the other shore and continuation of the highway making a connection with the thoroughfare at each terminal (U.S. vs. Canadian Pac. N.Y. Co. 4 P. Supp, 85). It comprises not merely the privilege of transportation but also the use for that purpose of the respective landings with outlets therefrom. (Nole vs. Record, 74 OKL. 77; 176 Pac. 756). A ferry service maybe a public ferry or a private ferry. A public ferry service is one which all the public have the right to resort to and for which a regular fare is established and the ferryman is a common carrier be inbound to take an who apply and bound to keep his ferry in operation and good repair. (Hudspeth v. Hall, 11 Oa. 510; 36 SB 770). A ferry (private) service is mainly for the use of the owner and though he may take pay for ferriage, he does not follow it as a business. His ferry is not open to the public at its demand and he may or may not keep it in operation (Hudspeth vs. Hall, supra, St. Paul Fire and Marine Ins. 696), Harrison, 140 Ark 158; 215 S.W. 698). The ferry boat service of Pantranco is a continuation of the highway traversed by its buses from Pasay City to Samar, Leyte passing through Matnog (Sorsogon) through San Bernardino Strait to Alien (Samar). It is a private carrier because it will be used exclusively to transport its own buses, passengers and freight trucks traversing the said route. It will cater exclusively to the needs of its own clientele (passengers on board- Pantranco buses) and will not offer itself indiscriminately for hire or for compensation to the general public. Legally therefore, Pantranco has the right to operate the ferry boat M/V BLACK DOUBLE, along the route from Matnog (Sorsogon) to Allen (Samar) and vice versa for the exclusive use of its own buses, passengers and freight trucks without the need of applying for a separate certificate of public convenience or provisional authority. Since its operation is an integral part of its land transport system, its original certificate of public convenience should be amended to include the operation of such ferryboat for its own exclusive use In Javellana 14 this Court recited the following definition of ferry : The term "ferry" implied the continuation by means of boats, barges, or rafts, of a highway or the connection of highways located on the opposite banks of a stream or other body of water. The term necessarily implies transportation for a short distance, almost invariably between two points, which is unrelated to other transportation .(Emphasis supplied) The term "ferry" is often employed to denote the right or franchise granted by the state or its authorized mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to charge toll for the use thereof by the public. In this sense it has also been defined as a privilege, a liberty, to take tolls for transporting passengers and goods across a lake or stream or some other body of water, with no essential difference from a bridge franchise except as to the mode of transportation, 22 Am. Jur. 553. A "ferry" has been defined by many courts as "a public highway or thoroughfare across a stream of water or river by boat instead of a bridge." (St. Clare Country v. Interstate Car and Sand Transfer Co., 192 U.S. 454, 48 L. ed. 518; etc.) The term ferry is often employed to denote the right or franchise granted by the state or its authorized mandatories to continue by means of boats, an interrupted land highway over the interrupting waters and to charge toll for the use thereof by the public. (Vallejo Ferry Co. vs. Solano Aquatic Club, 165 Cal. 255, 131 P. 864, Ann. Cas. 1914C 1179; etc.) (Emphasis supplied) "Ferry" is service necessity for common good to reach point across a stream lagoon, lake, or bay. (U.S. vs. Canadian Pac. Ry. Co. DC Was., 4 Supp. 851,853)' "Ferry" properly means a place of transit across a river or arm of the sea, but in law it is treated as a franchise, and defined as the exclusive right to carry passengers across a river, or arm of the sea, from one vill to another, or to connect a continuous line of road leading from township or vill to another. (Canadian Pac. Ry. Co. vs. C.C. A. Wash. 73 F. 2d. 831, 832)' Includes various waters: (1) But an arm of the sea may include various subordinate descriptions of waters, where the tide ebbs and flows. It may be a river, harbor, creek, basin, or bay; and it is sometimes used to designate very extensive reaches of waters within the projecting capes or points or a country. (See Rex vs. Bruce, Deach C.C. 1093). (2) In an early case the court said: "The distinction between rivers navigable and not navigable, that is, where the sea does, or does not, ebb and flow, is very ancient. Rex vs. Smith, 2 Dougl. 441, 99 Reprint 283. The former are called arms of the sea, while the latter pass under the denomination of private or inland rivers" Adams vs. Pease 2 Conn. 481, 484. (Emphasis supplied)

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In the cases of Cababa vs. Public Service Commission, 16 Cababa vs. Remigio & Carillo and Municipality of Gattaran vs. Elizaga 17 this Court considered as ferry service such water service that crosses rivers. However, in Javellana We made clear distinction between a ferry service and coastwise or interisland service by holding that: We are not unmindful of the reasons adduced by the Commission in considering the motorboat service between Calapan and Batangas as ferry; but from our consideration of the law as it stands, particularly Commonwealth Act No. 146, known as the Public Service Act and the provisions of the Revised Administrative Code regarding municipal ferries and those regarding the jurisdiction of the Bureau of Customs over documentation, registration, licensing, inspection, etc. of steamboats, motorboats or motor vessels, and the definition of ferry as above quoted we have the impression and we are inclined to believe that the Legislature intended ferry to mean the service either by barges or rafts, even by motor or steam vessels, between the banks of a river or stream to continue the highway which is interrupted by the body of water, or in some cases to connect two points on opposite shores of an arm of the sea such as bay or lake which does not involve too great a distance or too long a time to navigate But where the line or service involves crossing the open sea like the body of water between the province of Batangas and the island of Mindoro which the oppositors describe thus "the intervening waters between Calapan and Batangas are wide and dangerous with big waves where small boat barge, or raft are not adapted to the service," then it is more reasonable to regard said line or service as more properly belonging to interisland or coastwise trade. According to the finding of the Commission itself the distance between Calapan is about 24 nautical miles or about 44.5 kilometers. We do not believe that this is the short distance contemplated by the Legislature in referring to ferries whether within the jurisdiction of a single municipality or ferries between two municipalities or provinces. If we are to grant that water transportation between Calapan and Batangas is ferry service, then there would be no reason for not considering the same service between the different islands of the Philippines, such as Boac Marinduque and Batangas; Roxas City of Capiz and Romblon; Cebu City, Cebu and Ormoc, Leyte; Guian, Samar and Surigao, Surigao; and Dumaguete, Negros Oriental and Oroquieta or Cagayan de Oro. The Commission makes the distinction between ferry service and motorship in the coastwise trade, thus: A ferry service is distinguished from a motorship or motorboat service engaged in the coastwise trade in that the latter is intended for the transportation of passengers and/or freight for hire or compensation between ports or places in the Philippines without definite routes or lines of service. We cannot agree. The definiteness of the route of a boat is not the deciding factor. A boat of say the William Lines, Inc. goes from Manila to Davao City via Cebu, Tagbilaran, Dumaguete, Zamboanga, every week. It has a definite route, and yet it may not for that reason be regarded as engaged in ferry service. Again, a vessel of the Compania Maritima makes the trip from Manila to Tacloban and back, twice a week. Certainly, it has a definite route. But that service is not ferry service, but rather interisland or coastwise trade. We believe that it will be more in consonance with the spirit of the law to consider steamboat or motorboat service between the different islands, involving more or less great distance and over more or less turbulent and dangerous waters of the open sea, to be coastwise or inter-island service. Anyway, whether said service between the different islands is regarded as ferry service or coastwise trade service, as long as the water craft used are steamboats, motorboats or motor vessels, the result will be the same as far as the Commission is concerned. " 18 (Emphasis supplied) This Court takes judicial notice of the fact, and as shown by an examination of the map of the Philippines, that Matnog which is on the southern tip of the island of Luzon and within the province of Sorsogon and Allen which is on the northeastern tip of the island of Samar, is traversed by the San Bernardino Strait which leads towards the Pacific Ocean. The parties admit that the distance between Matnog and Allen is about 23 kilometers which maybe negotiated by motorboat or vessel in about 1-1/2 hours as claimed by respondent PANTRANCO to 2 hours according to petitioners. As the San Bernardino Strait which separates Matnog and Allen leads to the ocean it must at times be choppy and rough so that it will not be safe to navigate the same by small boats or barges but only by such steamboats or vessels as the MV "Black Double. 19 Considering the environmental circumstances of the case, the conveyance of passengers, trucks and cargo from Matnog to Allen is certainly not a ferry boat service but a coastwise or interisland shipping service. Under no circumstance can the sea between Matnog and Allen be considered a continuation of the highway. While a ferry boat service has been considered as a continuation of the highway when crossing rivers or even lakes, which are small body of waters - separating the land, however, when as in this case the two terminals, Matnog and Allen are separated by an open sea it can not be considered as a continuation of the highway. Respondent PANTRANCO should secure a separate CPC for the operation of an interisland or coastwise shipping service in accordance with the provisions of law. Its CPC as a bus transportation cannot be merely amended to include this water service under the guise that it is a mere private ferry service.

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The contention of private respondent PANTRANCO that its ferry service operation is as a private carrier, not as a common carrier for its exclusive use in the ferrying of its passenger buses and cargo trucks is absurd. PANTRANCO does not deny that it charges its passengers separately from the charges for the bus trips and issues separate tickets whenever they board the MV "Black Double" that crosses Matnog to Allen, 20 PANTRANCO cannot pretend that in issuing tickets to its passengers it did so as a private carrier and not as a common carrier. The Court does not see any reason why inspite of its amended franchise to operate a private ferry boat service it cannot accept walk-in passengers just for the purpose of crossing the sea between Matnog and Allen. Indeed evidence to this effect has been submitted. 21 What is even more difficult to comprehend is that while in one breath respondent PANTRANCO claims that it is a private carrier insofar as the ferryboat service is concerned, in another breath it states that it does not thereby abdicate from its obligation as a common carrier to observe extraordinary diligence and vigilance in the transportation of its passengers and goods. Nevertheless, considering that the authority granted to PANTRANCO is to operate a private ferry, it can still assert that it cannot be held to account as a common carrier towards its passengers and cargo. Such an anomalous situation that will jeopardize the safety and interests of its passengers and the cargo owners cannot be allowed. What appears clear from the record is that at the beginning PANTRANCO planned to operate such ferry boat service between Matnog and Alien as a common carrier so it requested authority from MARINA to purchase the vessel M/V "Black Double 22 in accordance with the procedure provided for by law for such application for a certificate of public convenience. 23 However when its request was denied as the said routes "are adequately serviced by existing/authorized operators, 24 it nevertheless purchased the vessel and started operating the same. Obviously to go about this obstacle to its operation, it then contrived a novel theory that what it proposes to operate is a private ferryboat service across a small body of water for the exclusive use of its buses, trucks and passengers as an incident to its franchise to convey passengers and cargo on land from Pasay City to Tacloban so that it believes it need not secure a separate certificate of public convenience. 25 Based on this representation, no less than the Secretary of Justice was led to render an affirmative opinion on October 20, 1981, 26 followed a few days later by the questioned decision of public respondent of October 23, 1981. 27 Certainly the Court cannot give its imprimatur to such a situation. Thus the Court holds that the water transport service between Matnog and Allen is not a ferry boat service but a coastwise or interisland shipping service. Before private respondent may be issued a franchise or CPC for the operation of the said service as a common carrier, it must comply with the usual requirements of filing an application, payment of the fees, publication, adducing evidence at a hearing and affording the oppositors the opportunity to be heard, among others, as provided by law. 28 WHEREFORE, the petitions are hereby GRANTED and the Decision of the respondent Board of Transportation (BOT) of October 23, 1981 in BOT Case No. 81348-C and its Order of July 21, 1982 in the same case denying the motions for reconsideration filed by petitioners are hereby Reversed and set aside and declared null and void. Respondent PANTRANCO is hereby permanently enjoined from operating the ferryboat service and/or coastwise/interisland services between Matnog and Allen until it shall have secured the appropriate Certificate of Public Convenience (CPC) in accordance with the requirements of the law, with costs against respondent PANTRANCO. SO ORDERED. G.R. No. L-26815 May 26, 19810 ADOLFO L. SANTOS, vs. ABRAHAM SIBUG and COURT OF APPEALS, respondents. petitioner,

MELENCIO-HERRERA, J.:1wph1.t The controversy in this case will be resolved on the basis of the following facts and expositions. Prior to April 26, 1963 (the ACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized passenger jeepney operator. Also prior to the ACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, for short) was the owner of a passenger jeep, but he had no certificate of public convenience for the operation of the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the name of VIDAD so that it could be operated under the latter's certificate of public convenience. ln other words, SANTOS became what is known in ordinary parlance as a kabit operator. For the protection of SANTOS, VIDAD executed a retransfer document to the former, which was to be a private document presumably to be registered if and where it was decided that the passenger jeep of SANTOS was to be withdrawn from the kabit arrangement. On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a passenger jeepney operated by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against VIDAD

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and Gragas with the Court of First Instance of Manila, Branch XVII, then presided by Hon. Arsenic Solidum. That Civil Case will hereinafter be referred to as the BRANCH XVII CASE. On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas, jointly and severally, to pay SIBUG the sums of P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and costs. 1 On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64, registered in the name of VIDAD, and scheduled the public auction sale thereof on May 8,1964. On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership of the motor vehicle levied upon, and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of VIDAD'S Certificate of Public Convenience. After the third-party complaint was filed, SIBUG submitted to the Sheriff a bond issued by the Philippine Surety Insurance Company (THE BONDING COMPANY, for short), To save the Sheriff from liability if he were to proceed with the sale and if SANTOS' third-party claim should be ultimately upheld. On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for Damages and injunction with a prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case No. 56842 of Branch X, of the same Court of First Instance of Manila (hereinafter referred to as the BRANCH X CASE). The complaint was later amended to include the BONDING COMPANY as a party defendant although its bond had not become effective. ln the Complaint, SANTOS alleged essentially that he was the actual owner of the motor vehicle subject of levy: that a fictitious Deed of Sale of said motor vehicle was executed by him in VIDAD'S favor for purposes of operating said vehicle as a passenger jeepney under the latter's franchise; that SANTOS did not receive any payment from VIDAD in consideration of said sale; that to protect SANTOS' proprietary interest over the vehicle in question, VIDAD in turn had executed a Deed of Sale in favor of SANTOS on June 27, 1962; that SANTOS was not a party in the BRANCH XVII CASE and was not in any manner liable to the registered owner VIDAD and the driver Gragas; that SANTOS derived a daily income of P30.00 from the operation of said motor vehicle as a passenger jeepney and stood to suffer irreparable damage will possession of said motor vehicle were not restored to him. SANTOS then prayed that 1,) pending trial, a Writ of Preliminary Mandatory injunction be issued ex-parte commanding the Sheriff of Manila to restore the motor vehicle to him and that the Sheriff be enjoined from proceeding with its sale; 2) that, after trial, the Deed of Sale in favor of VIDAD be declared absolutely fictitious and, therefore, null and void, and adjudging SANTOS to be the absolute owner of the vehicle in questioned and 3) that damages be awarded to SANTOS as proven during the trial plus attorney's fees in the amount of P450.00 and costs. 2 No public sale was conducted on May 8, 1964. On May 11, 1964, Branch X issued a Restraining Order enjoining the Sheriff from conducting the public auction sale of the motor vehicle levied upon. 3 The Restraining Order was issued wrongfully. Under the provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by another Court or by another Branch of the same Court. The Sheriff has the right to continue with the public sale on his own responsibility, or he can desist from conducting the public sale unless the attaching creditor files a bond securing him against the third-party-claim. But the decision to proceed or not with the public sale lies with him. As said in Uy Piaoco vs. Osmea 9 Phil. 299, 307, "the powers of the Sheriff involve both discretional power and personal liability." The mentioned discretional power and personal liability have been further elucidated in Planes and Verdon vs. Madrigal & Co., et al., 94 Phil. 754, where it was held. 1wph1.t The duty of the sheriff in connection with the execution and satisfaction of judgment of the court is governed by Rule 39 of the Rules of Court. Section 15 thereof provides for the procedure to be. followed where the property levied on execution 'is claimed by a by person. lf the third-party claim is sufficient, the sheriff, upon receiving it, is not bound to proceed with the levy of the property, unless he is given by the judgment creditor an indemnity bond against the claim (Mangaoang vs. Provincial Sheriff, 91 Phil., 368). Of course, the sheriff may proceed with the levy even without the Indemnity bond, but in such case he will answer for any damages with his own personal funds (Waits vs. Peterson, et al., S Phil. 419 Alzua et al. vs. Johnson, 21 Phil., 308; Consults No. 341 de los abogados de Smith, Bell & Co., 48 Phil., 565). And the rule also provides that nothing therein contained shall prevent a third person from vindicating his claim to the property by any proper action (Sec. 15 of Rule 39.). It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff has to proceed with the public auction. When such bond is not filed, then the Sheriff shall decide whether to proceed. or to desist from proceeding, with the public auction. lf he decides to proceed, he will incur personal liability in favor of the successful third-party claimant. On October 14, 1965, Branch X affirmed SANTOS' ownership of the jeepney in question based on the evidence adduced, and decreed: 1wph1.t WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceeding with the sale of the vehicle in question ordering its return to the plaintiff

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and furthermore sentencing the defendant Abraham Sibug to pay the plaintiff the sum of P15.00 a day from April 10, 1964 until the vehicle is returned to him, and P500.00 as attorney's fee's as well as the costs. 4 This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by SANTOS, to include the BONDING COMPANY as jointly slid severally liable with SIBUG. 51wph1.t ... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no case exceed P6,500.00. Abraham Sibug is furthermore condemned to pay the Philippine Surety & Insurance Co., Inc. the same sums it is ordered to pay under this decision. The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the undertaking furnished to the Sheriff by the BONDING COMPANY did not become effective for the reason that the jeep was not sold, the public sale thereof having been restrained, there was no reason for promulgating judgment against the BONDING COMPANY. lt has also been noted that the Complaint against VIDAD was dismissed. Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of ownership to the vehicle in question, SANTOS candidly admitted his participation in the illegal and pernicious practice in the transportation business known as the kabit system. Sec.. 20 (g) of the Public Service Act, then the applicable law, specifically provided: 1wph1.t ... it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approval and authorization of the Commission previously had ... (g) to sell, alienate, mortgage, encumber or lease its property, franchise, certificates, privileges, or rights, or any part thereof. In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator of record at the time of the accident. lt is true that VIDAD had executed a re-sale to SANTOS, but the document was not registered. Although SANTOS, as the kabit was the true owner as against VIDAD, the latter, as the registered owner/operator and grantee of the franchise, is directly and primarily responsible and liable for the damages caused to SIBUG, the injured party, as a consequence of the negligent or careless operation of the vehicle. 6 This ruling is based on the principle that the operator of record is considered the operator of the vehicle in contemplation of law as regards the public and third persons 7 even if the vehicle involved in the accident had been sold to another where such sale had not been approved by the then Public Service Commission. 8 For the same basic reason, as the vehicle here in question was registered in VIDAD'S name, the levy on execution against said vehicle should be enforced so that the judgment in the BRANCH XVII CASE may be satisfied, notwithstanding the fact that the secret ownership of the vehicle belonged to another. SANTOS, as the kabit should not be allowed to defeat the levy on his vehicle and to avoid his responsibilities as a kabit owner for he had led the public to believe that the vehicle belonged to VIDAD. This is one way of curbing the pernicious kabit system that facilitates the commission of fraud against the travelling public. As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go against VIDAD, the actual operator who was responsible for the accident, for the recovery of whatever damages SANTOS may suffer by reason of the execution. In fact, if SANTOS, as the kabit had been impleaded as a party defendant in the BRANCH XVII CASE, he should be held jointly and severally liable with VIDAD and the driver for damages suffered by SIBUG, 9 as well as for exemplary damages. 10 From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for immidiately execution. SIBUG opposed it on the ground that Branch X had no jurisdiction over the BRANCH XVII CASE, and that Branch X had no power to interfere by injunction with the judgment of Branch XVII a Court of concurrent or coordinate jurisdiction. 11 On November 13, 1965, Branch X released an order authorizing immediate execution on the theory that the BRANCH X CASE is "principally an action for the issuance of a writ of prohibition to forbid the Sheriff from selling at public auction property not belonging to the judgment creditor (sic) and there being no attempt in this case to interfere with the Judgment or decree of another court of concurrent jurisdiction." 12 Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from respondent Appellate Court in a Petition for certiorari with Preliminary injunction. On November 18, 1965, respondent Court of Appeals enjoined the enforcement of the Branch X Decision and the Order of execution issued by said Branch. 13 On September 28, 1966, respondent Count of Appeals rendered the herein challenged Decision nullifying the judgment renderred in the Branch X Case and permanently restraining V from taking cognizance of the BRANCH X CASE SANTOS. It ruled that: 1wph1.t ... the respondent Court Branch X, indeed, encroached and interfered with the judgment of Branch XVII when it issued a restraining order and finally a decision permanently enjoining the other court from excuting the decision rendered in Civil

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Case No. 54335. This to our mind constitutes an interference with the powers and authority of the other court having co-equal and coordinate jurisdiction. To rule otherwise, would indubitably lead to confusion which might hamper or hinder the proper administration of justice. ... 14 Respondent Court further held that SANTOS may not be permitted to prove his ownership over a particular vehicle being levied upon but registered in another's name in a separated action, observing that: 1wph1.t As the vehicle in question was registered in the name of Vicente U. Vidad, the government or any person affected by the representation that said vehicle is registered under the name of a particular person had the right to rely on his declaration of ownership and registration: and the registered owner or any other person for that matter cannot be permitted to repudiate said declaration with the objective of proving that said registered vehicle is owned by another person and not by the registered owner (sec. 68, (a), Rule 123, and art. 1431, New Civil Code) xxx xxx xxx Were we to allow a third person to prove that he is the real owner of a particular vehicle and not the registered owner it would in effect be tantamount to sanctioning the attempt of the registered owner of the particular vehicle in evading responsibility for it cannot be dispelled that the door would be opened to collusion between a person and a registered owner for the latter to escape said responsibility to the public or to any person. ... SANTOS now seeks a review of respondent Court's Decision contending that: 1wph1.t 1) The respondent Court of Appeals erred in holding that Branch X of the Court of First Instance of Manila has no jurisdiction to restrain by Writ of Injunction the auction sale of petitioner's motor vehicle to satisfy the judgment indebtedness of another person: 2) The respondent Court of Appeals erred in holding that petitioner as owner of a motor vehicle that was levied upon pursuant to a Writ of Execution issued by Branch XVII of the Court of i stance of Manila in Civil Case No. 54335 cannot be allowed to prove in a separate suit filed in Branch X of the same court (Civil Case No. 56842) that he is the true owner of the said motor vehicle and not its registered owner; 3) The respondent Court of Appeals erred in declaring null and void the decision of the Court of First Instance of Manila (Branch X ) in Civil Case No. 56482. We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered the case submitted for decision on July 20, 1967. One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First Instance to issue, at the instance of a third-party claimant, an Injunction restraining the execution sale of a passenger jeepney levied upon by a judgment creditor in another Court of First Instance. The corollary issue is whether or not the third-party claimant has a right to vindicate his claim to the vehicle levied upon through a separate action. Since this case was submitted for decision in July, 1967, this Court, in Arabay, lnc. vs. Hon. Serafin Salvador, 15 speaking through Mr. Justice Ramon Aquino, succinctly held: 1wph1.t It is noteworthy that, generally, the rule, that no court has authority to interfere by injunction with the judgments or decrees of a concurrent or coordinate jurisdiction having equal power to grant the injunctive relief, is applied in cases, where no thirdparty claimant is involved, in order to prevent one court from nullifying the judgment or process of another court of the same rank or category, a power which devolves upon the proper appellate court. xxx xxx xxx When the sheriff, acting beyond the bounds of his authority, seizes a stranger's property, the writ of injunction, which is issued to stop the auction sale of that property, is not an interference with the writ of execution issued by another court because the writ of execution was improperly implemented by the sheriff. Under that writ, he could attach the property of the judgment debtor. He is not authorized to levy upon the property of the third-party claimant (Polaris Marketing Corporation vs. Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; Manila Herald Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102). An earlier case, Abiera vs. Hon. Court of Appeals, et al., more extensively: 1wph1.t
16

explained the doctrine

Courts; Jurisdiction Courts without power to interfere by injunction with judgments or decrees of a court of concurrent jurisdiction. No court has power to interfere by injunction with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief sought by injunction.

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Same, Same; Same; When applicable. For this doctrine to apply, the injunction issued by one court must interfere with the judgment or decree issued by another court of equal or coordinate jurisdiction and the relief sought by such injunction must be one which could be granted by the court which rendered the judgment or issued the decree. Same, Same Same; Exception Judgment rendered by another court in favor of a third person who claims property levied upon on execution. Under section 17 of Rule 39 a third person who claims property levied upon on execution may vindicate such claim by action. A judgment rendered in his favor - declaring him to be the owner of the property - would not constitute interference with the powers or processes of the court which rendered the judgment to enforce which the execution was levied. lf that be so - and it is so because the property, being that of a stranger, is not subject to levy - then an interlocutory order, such as injunction, upon a claim and prima facie showing of ownership by the claimant, cannot be considered as such interference either. Execution; Where property levied on claimed by third person; "Action" in section l7, Rule 39 of the Rules of Court, interpreted The right of a person who claims to be the owner of property levied upon on execution to file a third-party claim with the sheriff is not exclusive, and he may file an action to vindicate his claim even if the judgment creditor files an indemnity bond in favor of the sheriff to answer for any damages that may be suffered by the third party claimant. By "action", as stated in the Rule, what is meant is a separate and independent action. Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of respondent Court, it was appropriate, as a matter of procedure, for SANTOS, as an ordinary third-party claimant, to vindicate his claim of ownership in a separate action under Section 17 of Rule 39. And the judgment rendered in his favor by Branch X, declaring him to be the owner of the property, did not as a basic proposition, constitute interference with the powers or processes of Branch XVII which rendered the judgment, to enforce which the was levied upon. And this is so because property belonging to a stranger is not ordinarily subject to levy. While it is true that the vehicle in question was in custodia legis, and should not be interfered with without the permission of the proper Court, the property must be one in which the defendant has proprietary interest. Where the Sheriff seizes a stranger's property, the rule does not apply and interference with his custody is not interference with another Court's Order of attachment. 17 However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court nullifying the Decision of Branch X permanently enjoining the auction sale, should be upheld. Legally speaking, it was not a "stranger's property" that was levied upon by the Sheriff pursuant to the judgment rendered by Branch XVII. The vehicle was, in fact, registered in the name of VIDAD, one of the judgment debtors. And what is more, the aspect of public service, with its effects on the riding public, is involved. Whatever legal technicalities may be invoked, we find the judgment of respondent Court of Appeals to be in consonance with justice. WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on certiorari filed by Adolfo L. Santos is dismissed with costs against the petitioner. SO ORDERED. G.R. No. L-48747 September 30, 1982 ANGEL JEREOS, petitioner, vs. HON. COURT OF APPEALS, SOLEDAD RODRIGUEZ, FELICIA R. REYES, JOSE RODRIGUEZ, JESUS RODRIGUEZ, Jr., ROBERTO RODRIGUEZ, FRANCISCO RODRIGUEZ, TERESITA RODRIGUEZ, MANUEL RODRIGUEZ, ANTONIO RODRIGUEZ, DOMINGO PARDORLA, Jr., and NARCISO JARAVILLA, respondents.

CONCEPCION JR., J.: Review on certiorari of the decision rendered by the respondent Court of Appeals in case CA-G.R. & No. 60232-R, entitled: "Soledad Rodriguez, et al., plaintiffsappellants, versus Narciso Jaravilla, et al., defendants; Narciso Jaravilla and Domingo Pardorla, Jr., defendants-appellants; Angel Jereos, defendant-appellee." Private respondent, Domingo Pardorla, Jr. is the holder of a certificate of public convenience for the operation of a jeepney line in Iloilo City. On February 23, 1971, one of his jeepneys, driven by Narciso Jaravilla, hit Judge Jesus S. Rodriguez and his wife, Soledad, while they were crossing Bonifacio Drive, Iloilo City, causing injuries to them, which resulted in the death of Judge Rodriguez. Narciso Jaravilla was prosecuted and, on his plea of guilty, was convicted of the crime of Homicide and Physical Injuries through Reckless Imprudence and sentenced accordingly. Thereafter, Soledad Rodriguez and her children filed with the Court of First Instance of Iloilo an action for damages against Narciso Jaravilla, Domingo Pardorla, Jr., and Angel Jereos, the actual owner of the jeepney. 1

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Angel Jereos denied ownership of the jeepney in question and claimed that the plaintiffs have no cause of action against him. 2 Domingo Pardorla, Jr., upon the other hand, claimed that he was only the franchise owner and has nothing to do with the actual operation and supervision of the passenger jeepney in question which is under the actual control, operation and supervision of Angel Jereos who operates the same under the "kabit system." 3 After appropriate proceedings, the Court of First Instance of Iloilo rendered judgment on October 24, 1978, ordering Narciso Jaravilla and Doming Pardorla, Jr. to pay, jointly and severally, damages to the plaintiffs. Angel Jereos was exonerated for the reason that the Court found no credible evidence to support plaintiffs' as well as defendant Pardorla's contention that defendant Jereos was the operator of the passenger jeepney in question at the time of the accident which happened on February 3, 1971, defendant Jereos sold on November 19, 1970 the said passenger jeepney to Flaviana Tanoy as shown in the notarized deed of sale (Exh. 1-Jereos) who later transferred ownership thereof to defendant Pardorla, Jr., whose registration certificate thereof is marked Exh. 3-B-Jereos was issued by the Land Transportation Commission on November 24, 1970. 4 Both plaintiffs and the defendants Narciso Jaravilla and Domingo Pardorla, Jr., appealed to the Court of Appeals. The plaintiffs contended that the trial court erred in not finding the defendant Angel Jereos jointly and severally liable with the their defendants for the damages incurred by them. The defendants Narciso Jaravilla and Domingo Pardorla, Jr., however, did not file their brief. On July 10, 1978, the Court of Appeals rendered a decision, modifying the decision of the trial court, and holding that Angel Jereos is jointly and severally liable with the other defendants for the damages awarded by the trial court to the plaintiffs, for the reason that the rule stated in the case of Vargas vs. Langcay (6 SCRA 174) that it is the registered owner of a passenger vehicle who is jointly and severally liable with the driver for damages incurred by passengers or third persons as a consequence of injuries or death sustained in the operation of said motor vehicle, which is invoked by Angel Jereos, cannot be applied in this case since the sale of the jeepney by Angel Jereos to his own sister-in-law, Flaviana Panoy, and its registration in the name of Domingo Pardorla, Jr., were simulated, fictitious transactions, parts and parcel of a strategem, to place Angel Jereos beyond the reach of his creditors past or future. 5 Angel Jereos appeals from this decision. He contends that the respondent Court, of Appeals erred in holding that the sale of the jeep to Flaviana Tanoy was simulated and fictitious and hence, it erred in finding him the actual or real owner of the illfated jeepney. The respondents claim, however, that the issue of whether or not the sale of the vehicle in question to Flaviana Tanoy and 'hereafter, to Domingo Pardorla, Jr. is simulated or fictitious, is one of fact and may not be reviewed by this Court on appeal. But, the petitioner counters that the findings of fact of the respondent appellate court is reviewable because the said findings are contrary to those of the trial court which were based upon an evaluation of the credibility of witnesses and should not have been disturbed by the appellate court, following the rule that trial courts are in a better position to judge and evaluate the evidence presented in the course of the trial. The established rule in this jurisdiction is that findings of fact of the Court of Appeals, when supported by substantial evidence, is not reviewable on appeal by certiorari. Said findings of the appellate court are final and cannot be disturbed by the Supreme Court. However, where the findings of the Court of Appeals are contrary to those of the trial court, a minute scrutiny by the Supreme Court is in order and resort to duly proven evidence becomes necessary. 6 In the instant case, the Court of Appeals found that the trial court, in exempting Angel Jereos from liability, "relied solely on the deed of sale (Exh. 1-Jereos)ignoring altogether the testimony of Flora Jaravilla (wife of the driver) and of appellee Domingo Pardorla, Jr. " Hence, it had reason to exercise its appellate jurisdiction over the lower courts and modify the findings of fact of the trial court. The respondent Domingo Pardorla, Jr., in whose line the jeepney in question was registered under the "kabit system" declared that: ... this jeep was formerly attached to Imelda Mirasol then one of the units of Imelda Mirasol met an accident which cost many lives. Now, Angel Jereos was afraid that later on his jeep might be attached since there is a pending case against Mirasol. Now according to Angel Jereos he went to see Imelda Mirasol and asked her to execute a deed of sale in favor of Angel Jeroes. Now, when Angel Jereos came to me and asked if there is still vacancy in my line I told him there is. He told me that his jeep will be transferred under my line. I told him yes, prepare the papers. Now, after he has prepared the papers and he came back to me he told me he will just put it under the name of Flaviana Tanoy, his sister-in-law but I asked him that cannot be, what is your reason. According to him so that later on it can be hardly traced when something wrong with the case of Imelda Mirasol comes, then I will just put it under

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the name of Flaviana Tanoy, my sister-in-law but the jeep is still mine that is why I am the one who is paying you. His testimony is corroborated by Adriano Saladero, an employee of Pardorla, Jr., to whom Angel Jereos pays the monthly dues for the registration of his jeepneys under the certificate of public convenience issued to Pardorla, Jr., and by Flora Jaravilla, the wife of the driver of the jeepney, who categorically stated that the jeepney driven by her husband, Narciso Jaravilla, was owned by Angel Jereos to whom they pay a daily "boundary" of P16.80; and that they park the said jeepney near the house of Angel Jereos after returning it at night. Finally, the petitioner, citing the case of Vargas vs. Langcay, 7 contends that it is the registered owner of the vehicle, rather than the actual owner, who must be jointly and severally liable with the driver of the passenger vehicle for damages incurred by third persons as a consequence of injuries or death sustained in the operation of said vehicle. The contention is devoid of merit. While the Court therein ruled that the registered owner or operator of a passenger vehicle is jointly and severally liable with the driver of the said vehicle for damages incurred by passengers or third persons as a consequence of injuries or death sustained in the operation of the said vehicle, the Court did so to correct the erroneous findings of the Court of Appeals that the liability of the registered owner or operator of a passenger vehicle is merely subsidiary, as contemplated in Art. 103 of the Revised Penal Code. In no case did the Court exempt the actual owner of the passenger vehicle from liability. On the contrary, it adhered to the rule followed in the cases of Erezo vs. Jepte, 8 Tamayo vs. Aquino, 9 and De Peralta vs. Mangusang, 10 among others, that the registered owner or operator has the right to be indemnified by the real or actual owner of the amount that he may be required to pay as damage for the injury caused. The right to be indemnified being recognized, recovery by the registered owner or operator may be made in any form-either by a cross-claim, third-party complaint, or an independent action. The result is the same. WHEREFORE, the petition should be, as it is hereby, DENIED. With costs against the petitioner. G.R. No. L-64693 April 27, 1984 LITA vs. ENTERPRISES, INC., petitioner, SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P. GARCIA, respondents. Manuel A. Concordia for petitioner. Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J.:+.wph!1 "Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that must be applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts. The factual background of this case is undisputed. Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade name. About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney's fees. This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car

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with Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez. Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion of which reads: t.hqw WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Company and the Sheriff of Manila are concerned. Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing a deed of conveyance in favor of the plaintiff. Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate of convenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars. (Annex A, Record on Appeal, p. 102-103, Rollo) Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo on October 27, 1975. (p. 121, Ibid.) On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by including as part of its dispositive portion another paragraph, to wit: t.hqw In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of conveyance because of their deterioration, or because they are no longer serviceable, or because they are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975. (Annex "D", p. 167, Rollo.) Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: t.hqw 1. ... 2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amending the decision of public respondent so that: (a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) be deleted; (b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or was declared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died as a result ot the gross negligence of private respondents' driver while driving one private respondents' taxicabs. (p. 39, Rollo.) Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a person who has been granted a certificate of convenience allows another person who owns motors vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government . Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. In the words of Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo faith of the government. Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:t.hqw ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed; (1) when the fault, is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking. The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts that are null void."

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The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other." 3 Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should not be applied in the instant case. WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are hereby annuleled and set aside. No costs. G.R. No. L-63318 August 18, 1984 PHILIPPINE CONSUMERS FOUNDATION, INC., petitioner, vs. NATIONAL TELECOMMUNICATIONS COMMISSION and PHILIPPINE LONG DISTANCE TELEPHONE CO., respondents. Tomas C. Llamas for petitioners. The Solicitor General for respondent NTC. Eliseo Alampay, Jr., Graciano C. Regala and Augusto San Pedro for private respondents. RESOLUTION January 14, 1983 be annulled and set aside on the grounds therein stated (pp. 2-19, rec.). After the petitioner, the private respondent, and the Solicitor General for public respondent NTC filed their respective comments and memoranda (pp. 47-53, 96-106, 109-116, 127-142, 147-164, 206-221, rec.), on November 25, 1983, the decision sought to be reconsidered was promulgated, annulling and setting aside the challenged decision and order, respectively dated November 22, 1982 and January 14, 1983 (pp. 225-232, rec.). Said decision is not unanimous as it bears the concurrence of only 9 members of this Court, while 3 members took no part and 1 member reserved his vote (p 232, rec.) In a resolution dated January 10, 1984 and released on January 17, 1984, the Court granted respondent PLDT's motion for 15-day extension from the expiration of the reglementary period within which to file a motion for reconsideration (pp. 233, 236, rec.). On January 12, 1984, PLDT filed its motion for reconsideration (pp. 237-268, rec.). On February 27, 1984, respondent PLDT filed a motion to admit attached supplemental motion for reconsideration (pp. 281-301, rec.). On February 27, 1984, public respondent NTC, thru the Solicitor General, filed a manifestation and motion that it is joining core, respondent PLDT in its motion for reconsideration thereby adopting the same as its own (pp. 302-303, 305-306, rec.). In a resolution dated March 1, 1984 and issued on March 2, 1984, the Court admitted the supplemental motion for reconsideration of PLDT, noted the manifestation and motion of the Solicitor General for and in behalf of respondent NTC that it is joining the motion for reconsideration of PLDT and adopting it as its own, and required petitioner to convenient within 10 days from notice on the aforesaid supplemental motion for reconsideration of PLDT (p. 304-A, rec.). On March 28, 1984, petitioner filed its comment on respondent's motion for reconsideration (pp. 310-317, rec.). In a resolution dated April 3, 1984 and issued on April 11, 1984, the Court denied the motion for reconsideration (p. 318A, rec.). On April 6, 1984, respondent PLDT filed a motion to strike out "discussion (e)" in petitioner's "comment on respondents' motions" dated March 20, 1984 (pp. 319-321, rec.).

MAKASIAR, J.: I On March 2, 1983, petitioner filed the instant petition praying, among others, that the decision of respondent NTC dated November 22, 1982 and the order dated

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In a resolution dated April 12, 1984 and issued on April 16, 1984, the Court required petitioner's counsel Atty. Tomas Llamas to comment within 10 days from notice on the aforesaid motion to strike out (p. 323, rec.). On April 17, 1984, respondent PLDT, thru counsel, filed a motion for leave to file within 15 days from date a second motion for reconsideration (pp. 324-326, rec.). On April 27, 1984, petitioner filed an opposition to the aforesaid motion of PLDT for leave to file within 15 days to file a second motion for reconsideration (pp. 328-330, rec.). On May 2, 1984, private respondent PLDT filed a second motion for reconsideration with an annex (pp. 332-344, rec.). In a resolution dated May 8, 1984 but issued on May 11, 1984, the Court granted the motion of PLDT to file a second motion for reconsideration within 15 days from April 16, 1984, noted the opposition of petitioner to said motion, and required petitioner to comment within 15 days from notice on the aforesaid second motion for reconsideration of PLDT for the reconsideration of the decision of November 25, 1983 (p. 345, rec.). On May 4, 1984, petitioner filed its comment on the second motion for reconsideration of private respondent (pp. 346-350, rec.). In a resolution dated May 10, 1984 and issued on May 16, 1984, the Court required respondents to file a reply within 10 days from notice on the aforesaid comment of petitioner on private respondent PLDT's motion praying that the discussion (par. 3) in petitioner's comment on the first motion for reconsideration and the supplemental motion for reconsideration be deleted (p. 352, rec.). On May 21, 1984, public respondent NTC filed a manifestation joining private respondent PLDT and adopting the latter's second motion for reconsideration (pp. 353-354, rec.), which the Court granted in a resolution dated May 29, 1984 and issued on June 6, 1984 (p. 355-A). On May 28,1984, respondent PLDT filed a motion for extension of 10 days or until June 7, 1984 within which to submit the required reply in the resolution of May 10, 1984 and issued on May 16, 1984 (pp. 356-357, rec.), which was granted in a resolution dated June 5, 1984 and issued on July 3, 1984 (p. 357-A, rec.). On June 1, 1984, petitioner filed its comment on PLDT's second motion for reconsideration, with a motion to declare final the decision with respect to public respondent NTC (pp. 358362, rec.). A day before June 1, 1984, or on May 31, 1984, private respondent PLDT filed its reply to petitioner's "comment on motion of private respondent" dated May 4, 1984 [motion to strike] (pp. 366-369, rec.). On July 16, 1984, after its motions for extension were granted, public respondent NTC thru the Solicitor General, finally filed its reply (pp. 370-371, 372-A, 373, 375381, rec.). It should be emphasized that the resolution of this Court dated April 3, 1984 but issued on April 11, 1984, denying the first motion for reconsideration did not state that the denial is final (see p. 318-A, rec.). And the motion of May 29, 1984 but filed on June 1, 1984 of petitioner to declare as final the decision of November 25, 1983 (which motion was included in plaintiff's comment on PLDT's second motion for reconsideration) with respect to public respondent NTC (pp. 361-362, rec.), was not acted upon by this Court, ostensibly because as early as May 21, 1984, public respondent NTC, thru the Solicitor General, filed a manifestation that it is joining private respondent PLDT in its second motion for reconsideration dated May 18, 1984 and adopting it as its own (pp. 353-354, rec.). II It is not disputed and should be emphasized that on August 31, 1982, this Court set aside the NTC order dated April 14, 1982 in the case of Samuel Bautista vs. NTC, et al. (16 SCRA 411) provisionally approving the revised schedule of rates for the Subscriber Investments Plan, on the ground that there was necessity of a hearing by the Commission before it could have acted on the PLDT application for said revised schedule, to give opportunity to the public, especially herein petitioner and the Solicitor General to substantiate their objections to the said schedule as excessive and unreasonable, especially for the low-income and middle-income groups, which cannot afford telephone connections and that there is no need to increase the rate because PLDT is financially sound. Thereafter, in NTC Case No. 82-87 entitled "Re Philippine Long Distance Telephone Co. respondent NTC conducted several hearings on PLDT's revised Subscriber Investments Plan schedule at which written oppositions were filed by herein petitioner PCFI, the Solicitor General, Atty. Samuel Bautista, Flora Alabanza, the municipality of Marikina, and the Integrated Telecommunications Suppliers' Association of the Philippines (ITESAP). Other oppositors failed to file their written oppositions. The hearings on the merits actually started on August 4, 1982 and continued for four (4) subsequent dates.

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The oppositors, thru counsel, thoroughly cross-examined the witness for the applicant, Mr. Romeo Sisteban applicant's Vice-President for Budget and Financial Planning. None of the oppositors opted to present evidence but merely filed Memoranda and thereafter manifested that the case is submitted for decision Because PLDT made some concessions in favor of the oppositors, oppositors ITESAP, Eastern Telecommunications, Inc., Philippine Global Communications, Inc. (Philcom), GlobeMackay Cable and Radio Corporation (GMCR) withdrew their opposition and manifested that they are no longer opposing the application after which respondent NTC issued the challenged decision of November 22, 1982. Respondent NTC rendered the challenged decision dated November 22, 1982, approving the revised schedule on the ground that the rates are within the 50% of cost limit provided in P.D. No. 217, that they are just and reasonable and in consonance with the public policies declared in said decree, and that such approval is in the public interest (see NTC decision of Nov. 22, 1982, pp. 2-19, rec.). It is undisputed therefore that petitioner and the other oppositors were accorded due process. From said decision dated November 22, 1982, petitioner filed the instant petition. III The decision promulgated on November 25, 1983 interprets the rule-making authority delegated in Section 2 of P.D. No. 217 to the then Department of Public Works, Transportation and Communications as mandatory, which construction is not supported by the actual phraseology of said Section 2, which reads thus: The Department of Public Works, Transportation and Communications, through its Board of Communications and/or appropriate agency shall see to it that the herein declared policies for the telephone industry are immediately implemented and for this purpose, pertinent rules and regulations may be promulgated (emphasis supplied). The basic canon of statutory interpretation is that the word used in the law must be given its ordinary meaning, unless a contrary intent is manifest from the law itself. Hence, the phrase "may be promulgated" should not be construed to mean "shall" or "must". It shall be interpreted in its ordinary sense as permissive or discretionary on the part of the delegate department or the Board 6f Communications then, now the National Telecommunications Commission whether or not to promulgate pertinent rules and regulations. There is nothing in P.D. No. 217 which commands that the phrase "may be promulgated" should be construed as "shall be promulgated." The National Telecommunications Commission can function and has functioned without additional rules, aside from the existing Public Service Law, as amended, and the existing rules already issued by the Public Service Commission, as well as the 1978 rules issued by the Board of Communications, the immediate predecessor of respondent NTC. It should be recalled that the PLDT petition for approval of its revised SIP schedule was filed on March 20,1980. P.D. No. 217 does not make the rules and regulations to be promulgated by the respondent NTC as essential to the exercise of its jurisdiction over applications for SIP schedules. In Ang Tibay vs. CIR (69 Phil. 635), this Court, through Mr. Justice Jose P. Laurel, did not include the promulgation of rules and regulations as among the seven (7) requirements of due process in quasi-judicial proceedings before a quasi-judicial body such as the respondent NTC. What is patently mandatory on the ministry or National Telecommunications Commission is the immediate implementation of the policies declared in P.D. No. 217. To repeat, the ministry or the NTC "shall see to it that the herein declared policies for the telephone industry are immediately implemented ..." The formulation of rules and regulations is purely discretionary on the part of the delegate. Both words "shall and "may be" are employed in the lone sentence of Section 2 of P.D. No. 217. This graphically demonstrates that P.D. No. 217 preserves the distinction between their ordinary, usual or nominal senses. This is emphasized by the fact that under Section 3 of P.D. No. 217, only "the pertinent provisions" of the Public Service Act, as amended, which are in conflict with the provisions of P.D. No. 217, had been repealed or modified by said P.D. No. 217. Section 3 of P.D. No. 217 states: The pertinent provisions of the Public Service Act, as amended, the franchise of the Philippine Long Distance Telephone Company under Act 3436, as amended, all existing legislative and/or municipal franchises and other laws, executive orders, proclamations, rules and regulations or parts thereof, as are in conflict with the provisions of this Decree are hereby repealed or modified accordingly. And under the Public Service Act, as amended (C.A. No. 146), the board of Communications then, now the NTC, can fix a provisional amount for the

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subscriber's investment to be effective immediately, without hearing (par. 3 of Sec. 16, C.A. 146, as amended). Section 16 (c) of C.A. No. 146, as amended, provides: (c) To fix and determine individual or joint rates, toll charges, classifications, or schedules thereof, as well as communication, mileage, kilometrage, and oilier special rates which shall be imposed, observed, and followed thereafter by any public service: Provided That the Commission may, in its discretion approve rates proposed by public services provisionally and without necessity of any hearing, but it shall call a hearing thereon within thirty days thereafter, upon publication and notice to the concerns operating in the territory affects Provided further, That in case the public service equipment of an operator is used principally or secondarily for the promotion of a private business, the net profits of said private business shall be considered in relation with the public service of such operator for the purpose of fixing the rates. The Rules of Practice and Procedures promulgated on January 25, 1978 by the Board of Communications, the immediate predecessor of respondent NTC, pursuant to Section 11 of the Public Service Act, otherwise known as Commonwealth Act No. 146, as amended, govern the rules of practice and procedure before the BOC then, now respondent NTC. Section 2 of said Rules defines their scope, including exempting parties from the application of the rules in the interest of justice and to best serve the public interest, and the NTC may apply such suitable procedure to improve the service in the transaction of public service. Thus, Section 2 of Rule 1 of said Rules reads: Sec. 2. Scope. These rules govern pleadings, practice and procedure before the Board of Communications in all matters of hearing, investigation and proceedings within the jurisdiction of the Board. However, in the broader interest of justice and in order to best serve the public interest, the Board may, in any particular matter, except it from these rules and apply such suitable procedure to improve the service in the transaction of the public business. Sections 4 and 5 of Rule 2 of said rules insure the appearance of the Solicitor General and other consumers or users. The notice of hearing is required to be published and to be served on the affected parties by Section 2 of Rule 8; while Section I of Rule 9 allows the filing of written oppositions to the application Under Section 3 of Rule 15, the BOC then, now the NTC, may grant, on motion of the applicant or on its own initiative, provisional relief based on the pleading, supporting affidavits and other documents attached thereto, without prejudice to a final decision after completion of the hearing which shall be caged within thirty (30) days from the grant of the provisional relief. Finally, Section 1 of Rule 19 provides for the suppletory application of the Rules of Court governing proceedings before the Court of First Instance then, now the Regional Trial Courts, which are not inconsistent with the rules of practice and procedure promulgated by the BOC on January 25, 1978. There is nothing in P.D. No. 217 modifying, much less repeating Section 16 (c) of the Public Service Act, as amended. It is true that P.D. No. 1874 promulgated on July 21, 1983 amending Section 2 of P.D. No. 217 expressly authorizes the National Telecommunications Commission (now the successor of the Board of Communications) to approve "such amounts for subscriber investments as applied for provisionally and without the necessity of a hearing; but shall call a hearing thereon within thirty (30) days thereafter, upon publication and notice to all parties affected." But such amendment merely reiterates or confirms paragraph (c) of Section 16 of C.A. No. 146, as amended, otherwise known as the Public Service Law, and serves merely to clarify the seeming ambiguity of the repealing clause in Section 3 of P.D. No. 217 to dissipate an doubts on such power of the National Telecommunications Commission. The construction of the majority decision of November 25, 1983 of the word "may" to mean "shall" is too strained, if not tortured. IV WE cannot subscribe to the view that the National Telecommunications Commission should or must promulgate "pertinent rules and regulations because the existing substantive and procedural laws as well as the rules promulgated by the Public Service Commission under and pursuant to the Public Service Law, otherwise known as CA No. 146, as amended, are more than adequate to determine the reasonability of the amounts of investment of telephone subscribers, the viability of the company and the other factors that go into determining such amounts and such viability. The existing laws and rules on rate-making are more than sufficient for a proper determination of such amounts of investments of individual subscribers and the profitability of the venture. The adequacy of the existing Public Service Law, otherwise known as C.A. No. 146, as amended, and rules had been demonstrated, because they have been applied in the following cases involving PLDT: 1. PLDT vs. PSC, G.R. No. L-26762, Aug. 31, 1970, 34 SCRA 609; 2. Republic vs. PLDT, G.R. No. L-18841, Jan. 27, 1969, 26 SCRA 620;

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3. PLDT vs. PSC, G.R. Nos. L-24198 & L-24207-10, Dec. 18, 1968, 26 SCRA 427; 4. Republic Telephone Co. vs. PLDT, G.R. No. L-21070; PLDT vs. Republic Telephone Co., G.R. No. L-21075, both decided on Sept. 23, 1968, 25 SCRA 80; 5. PLDT vs. Medina, G.R. No. L-24658, April 3, 1968, 23 SCRA 1; and 6. PLDT vs. Medina, G.R. Nos. L-24340-44, July 18, 1967, 20 SCRA 669. As heretofore stated, as early as January 25, 1978, other pertinent rules of practice and procedure were promulgated by the then Board of Communications, now the respondent National Telecommunications Commission, implementing P.D. No, 217, in addition to the applicable provisions of the Public Service Law, as amended, and the rules previously issue by the Public Service Commission (Annex 2 to the Memo of respondent PLDT filed on August 15, 1983, pp. 147-165, rec.). Even before 1978, respondent applied the procedure prescribed by the Public Service Law, as amended, and the rules previously issued by the Public Service Commission, the NTC predecessor, in several cases involving similar applications for SIP schedules of Filipino Telephone Corporation (BOC Case No. 73-064; see BOC decision in said cases dated December 5, 1974, May 11, 1978, March 15, 1977, Feb. 19, 1976 and Aug. 31, 1978 Annexes 3, 4, 4-A, 5, pp. 166-195, rec.). The majority opinion recognizes that for the last three years, the PLDT had earned a yearly average net profit of over P100 million and the existing subscribers have been receiving their corresponding quarterly dividends on their investments. It should be stressed that Section 5 of Article XIV of the 1973 Constitution, as amended, expressly directs that "the State shall encourage equity participation in public utilities by the general public." As above-stated, the existing individual subscribers of PLDT had been sharing in the net profits of the company every quarter after the promulgation of P.D. 217 on June 16, 1973. The amount that is provisionally approved under the subscriber's investment plan for PBX/PAEX trunks and for business telephones in Metro Manila and the provinces, whether new installations or transfers, appears to be reasonable, including those for the leased lines or outside local. To lighten the burden of subscribers, investments may be paid in installments or under some convenient arrangements which the NTC may authorize, which is now expressly provided for in Section 1 of P.D. 1874 amending Sec. 6 of P.D. 217. Section 1 of P.D. 1874 directs that: Section 1, paragraph 6 of the Presidential Decree No. 217 is hereby amended to read as follows: 6. In any subscriber self-financing plan, the amount of subscriber self-financing wilt in no case, exceed fifty per centum (50%) of the amount which results from dividing the telephone utility's gross investment in telephone plant in service by its number of primary stations in service, both as reported in the utility's latest audited annual report rendered he National Telecommunications Commission; PROVIDED, however, that the amount payable by the telephone subscriber may be paid on installment or under such payment arrangement as the National Telecommunications Commission may authorize. V It should be likewise emphasized that pursuant to the mandate of Section 5, Article XIV of the 1973 Constitution, as amended, the law-making authority, in issuing both P.D. Nos. 217 and 1874, established the all-important policy of making available on regular and uninterrupted basis the telephone service because it is a crucial element in the conduct of business activity ... and is essential for the smooth and efficient function of industry, ... efficient telephone service contributes directly to national development by facilitating trade and commerce; ... the telephone industry is one of the most highly capital intensive industries; ... the telephone industry has fundamentally different financing characteristics from other utilities in that capital requirements per telephone unit installed increase as the number of customers serviced also increases instead of decreasing in cost per unit as in power and water utilities; ... continued reliance on the traditional sources of capital funds through foreign and domestic borrowing and through public ownership of common capital stock will result in a high cost of capital heavy cash requirements for amortization and thus eventually in higher effective cost of telephone service to subscribers; ... the subscribers to telephone service tend to be among the residents of urban areas and among the relatively higher income segment of the population; ... it is in the interest of the national economy to encourage savings and to place these savings in productive enterprises and

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... it is the announced policies of the government to encourage the spreading out of ownership in public utilities (see Whereases of P.D. 217; emphasis supplied). P.D. No. 217 further states as the basic policies of the State concerning the telephone industry "in the interest of social, economic and general well-being of the people ... 1. The attainment of efficient telephone service for as wide an area as possible at the lowest reasonable cost to the subscriber; 2. The expansion of telephone service shall be financed through an optimal combination of domestic and foreign sources of financing and an optimal combination of debt and equity funds so as to minimize the aggregate cost of capital of telephone utilities; 3. Consistent with the declared policy of the State to attain widespread ownership of public utilities obtained from ownership funds shall be raised from a broad base of investors, involving as large a number of individual investors as may be possible; 4. In line with the objective of spreading ownership among a wide base of the people, the concept of telephone subscriber self-financing is hereby adopted whereby a telephone subscriber finances part of the capital investments in telephone installations through the purchase of stocks, whether common or preferred stock, of the telephone company; 5. As part of any subscriber self-financing plan, when the issuance of preferred stock is contemplated, it is required that the subscriber be assured, in all cases of a fixed annual income from his investment and that these preferred capital stocks be convertible into common shares, after a reasonable period and under reasonable terms, at the option of the preferred stockholder; and 6. In any subscriber self-financing plan, the amount of subscriber self-financing wig, in no case, exceed fifty per centum (50%) of the cost of the installed telephone line, as may be determined from time to time by the regulatory bodies of the State. The same policies and objectives are substantially re-stated and capsulized in the three Whereases of P.D. No. 1874 amending P.D. No. 217 as pointed out in the basic policies aforestated in P.D. No. 217 that the cost per telephone unit increases in proportion to the increase in the number of customers served; and that foreign borrowing will impose heavy cash requirements for amortizations of such foreign loans which would result in the higher effective costs of telephone service to subscribers and ultimately would be a heavy drain on our dollar reserves, which will result in our inability to meet our other foreign commitments and mark the image of the Republic of the Philippines in international trade relations. Thus, P.D. No. 217 stresses that in the interest of the national economy it is essential to encourage savings and to place these savings (subscriber's investments) in productive enterprises. PLDT is profitable for the subscribers-investors as shown by its net profit and the dividends received quarterly by the existing subscribers. There is no showing not even an allegation that the net profits realized by PLDT all these years have been dissipated and not plowed back into the firm to improve its service. But the rising cost of materials and labor needed to improve the PLDT service, aggravated by the devaluation of our currency, all the more justify the revised SIP schedule approved by the respondent NTC. The approved revised SIP schedule, which appears reasonable and fair is herein reproduced: REVISED SIP SCHEDULE Revised SIP Rates Service Category Metro Manila Provincial

I. New Installations 1. PBX/PABX Trunk 2. Phone: Single line Party line 3,500 2,000 2,000 1,500 P5,000 P3,000

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3. Phone: Single line Party line 4. Leased line 5. Tie trunk or tie line 6. Outside local 1,800 900 2,500 2,500 2,500 1,300 800 2,500 2,500 2,500 4. Leased line 5. Tie trunk or tie line 6. Outside local (pp. 34-35, rec.). With the dividends that will be received quarterly under the revised SIP schedule, the subscribers (whether of phone installations for business with or without trunk lines, as wen as transfers of the same; or of residential phones whether single or party line as well as transfers of the same), will recover their investments after some years and will thereafter remain stockholders and part-owners of PLDT. All the subscribers therefore, are assured not only of profits from but also preservation of, their investments, which are not donations to PLDT. There are always two sides sometimes more to a case or proposition or issue. There are many cases decided by this Court where this Court had reconsidered Its decisions and even reversed Itself, conformably to the environmental facts and the applicable law. 1,500 1,200 After a re-study of the facts and the law, illuminated by mutual exchange of views the members of the Court may and do change their minds. To repeat, the decision of November 25, 1983 was not a unanimous decision for it has the concurrence of only nine (9) members of the Court, because three (3) took no part and one (1) reserved his vote (p. 232, rec.). WHEREFORE, THE DECISION OF NOVEMBER 25, 1983 SHOULD BE AS IT IS HEREBY RECONSIDERED AND SET ASIDE AND THE PETTION IS HEREBY DISMISSED. NO COSTS. G.R. No. L-23080 600 500 500 300 October 30, 1965 800 800 800 800 800 800

II. Transfers 1. PBX/PABX 2. Phone: Single line Party line 3. Residential Phone: Single line Party line 800 600 600 500

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, petitioner, vs. CITY OF DAVAO and the PUBLIC SERVICE COMMISSION, respondents, ITT PHILIPPINES, INC., intervenor. R E S O L U T I O N*

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BENGZON, J.P., J.: The Philippine Legislature granted Philippine Long Distance Telephone Co., Inc. a special franchise to establish and operate a telephone system throughout the country. It wisely provided therein that the rights thereby granted shall not be exclusive. Answering the clamor of the inhabitants of Davao City, the Davao City Council provided for a city-owned and operated telephone system.1 Congress itself thereafter expressly authorized the establishment of such a telephone system therein. 2 The executive, finding the legislation wisely taken, approved the same. The Court, interpreting the broad powers granted to Davao City Council to legislate for the general welfare, gave meaning and reality to the Resolutions and laws abovementioned, in its decision in this case promulgated September 20, 1965. Petitioner filed a 53-page motion for reconsideration of said decision, presenting five propositions. The first proposition of movant is that Davao City's telephone system is proprietary in nature and, therefore. cannot be undertaken under the general welfare clause. At the outset it is well to remember that as stated in Mendoza vs. De Leon, 33 Phil. 508, 515: It often happens that the same agent or agency has both a governmental and a corporate character. Such, for instance, are a municipal water system designed both for protection against fire (a governmental function) and to supply water to the inhabitants for profit (a corporate function) (Omaha Water Co. vs. Omaha, 12 L.R.A., N.S., 736; 77 C.C.A. 267, 147 Fed. 1; Judson vs. Borough of Winsted, 80 Conn. 384; 15 L.R.A., N. S., 91) ; a municipal light plant both for righting the streets (a governmental function) and for furnishing light to the inhabitants at a profit (a corporate function) (Fisher vs. New Bern, 140 N. C. 506; 111 Am. St. Rep 857). The same case recognized that: "The preservation of the health and peace of its inhabitants and fire protections afforded the property owner, are government functions." (Ibid., at 511-512.) Davao City's telephone system is designed to perform such functions; to secure and regulate the peace and order situation of one of the world's biggest cities; to safeguard the health and lives of its inhabitants; to afford reliable equipment for the fighting and control of fires, floods and epidemics; to assure these objectives by providing speedy and direct contact between Davao City's outlying districts and its poblacion or seat of government. Such ends are undoubtedly within the purview of the general welfare clause. The fact that in thereby promoting the general welfare of its inhabitants, the means adopted by the city would likewise serve the public in a proprietary manner is no argument that the city is powerless to adopt said measure. For as stated, it frequently happens that from the same act both governmental and corporate functions arise. An interpretation that would totally limit the general welfare clause to such governmental functions only as are without proprietary aspects would thereby often cripple local governments in the face of the very evils that said clause intended them to remedy. A restrictive view of the general welfare clause is not favored. The policy of Congress in this regard has been expressly stated in Section 12 of Republic Act 2264, the Local Autonomy Act: The general welfare clause shall be liberally interpreted in case of doubt so as to give more power to local governments in promoting the economic condition, social welfare and material progress of the people in the community. The view of the movant that the scope of police power, and therefore of the general welfare clause, has been fixed by traditional delineations is not quite accurate. Police power has not received a full and complete definition; it is elastic and must be responsive to various social conditions; it is not confined within the narrow circumscriptions of precedents resting on past conditions; it must follow the legal progress of a democratic way of life. Accordingly, the Court wisely said in Churchill vs. Rafferty, 32 Phil. 580, 603-605: In Chamber vs. Greencastle (138 Ind. 339), it was said: "The police power of the State, so far, has not received a full and complete definition." ... xxx xxx xxx

In People vs. Brazee ([Mich., 1914], 149 N. W. 1053), it was said: "it [the police power] has for its object the improvement of social and economic conditions affecting the community at large and collectively with a view to bring about "the greatest good of the greatest number." Courts have consistently and wisely declined to set any fixed limitations upon subjects calling for the exercise of this power. It is elastic and is exercised from time to time as varying social conditions demand correction. xxx xxx xxx

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Finally, the Supreme Court of the United States has said in Noble State Bank vs. Haskell (219 U.S. [1911] 575): "It may be said in a general way that the police power extends to all the great public needs. It may be put forth in aid of what is sanctioned by usage, or held by the prevailing morality or strong and preponderant opinion to be greatly and immediately necessary to the public welfare." xxx xxx xxx Still movant would press the argument that at any rate the general welfare clause does not enlarge, but merely makes effectual, the specific powers granted. Suffice it to say that in U.S. vs. Salaveria, supra, at pp. 109-110, we ruled otherwise: The general welfare clause has two branches. One branch attaches itself to the main trunk of municipal authority, and relates to such ordinances and regulations as may be necessary to carry into effect and discharge the powers and duties conferred upon the municipal council by law. With this class we are not here directly concerned. The second branch of the clause is much more independent of the specific functions of the council which are enumerated by law. It authorizes such ordinances "as shall seem necessary and proper to provide for the health and safety, promote the prosperity, improve the morals, peace, good order, comfort, and convenience of the municipality and the inhabitants thereof, and for the protection of property therein." The general welfare clause suffices in proper cases to authorize public improvements serving governmental functions (Saunders vs. Mayor of Arlington, 147 Ga. 581, 94 SE 1022). Contrary to movant's view, presence of the words "any public improvement" in the general welfare clause is not indispensable for the purpose. Authorization in the clause, similar to that in Davao City's Charter, to act for the "safety, benefit, convenience and advantage" of the city (Frederick vs. Augusta, 5 Ga. 561) or "to do all things for the benefit of the city," (Heilbron vs. Cuthbert, 96 Ga. 312, 23 SE 206) was found sufficient for the purpose. As to the case of Hyatt vs. Williams, 148 Cal. 585, 84 P. 41, cited by movant as authoritative, the same did not involve a general welfare clause. In its third proposition movant alleges that the interpretation we followed would rewrite the general welfare clause in all cities and municipalities into reservoirs of unlimited powers, superior even to that of the State under the Constitution. As to this it must again be emphasized that our decision was made in light of the special factual set-up obtaining in this case. For one thing, the size of Davao City alone renders its situation unique and apart from our other cities and municipalities. For another, as already pointed out, the scope of police power varies according to different conditions and what is within the police power of one municipal corporation may not be so regarded as to another. No "far-reaching", effects need therefore, be feared by movant. Finally, we see no point in the contention that the State under the Constitution would have lesser powers than we hold Davao City to have, for there is no doubt that under Section 6 of Article XIII of the Constitution, the State may also, in the interest of national welfare, establish and operate means of communication.4 Fourth of movant's propositions is that it has already installed facilities to take care of Davao City's telephone needs. It is still admitted, however, that movant's

It was said in Com. vs. Alger (7 Cush. 53, 85), per Shaw, C.J., that: "It is much easier to perceive and realize the existence and sources of this police power than to mark its boundaries, or to prescribe limits to its exercise." ... CORPUS JURIS SECUNDUM states: ... The police power of a municipal corporation must be responsive, in the interest of common welfare, to the changing conditions and developing needs of growing communities, and is not confined within the narrow circumscription of precedents resting on past conditions. That which may at one time be regarded as not within such power may, at another time, by reason of changed conditions, be recognized as a legitimate exercise for the exercise of the power. Also, that which may be regarded as within the police power of one municipal corporation may not be so regarded as to another. ...3 Speaking thru Mr. Justice Malcolm, this Court explicitly said in U.S. vs. Salaveria, 39 Phil. 102, 109: ... the general welfare clause, delegates in statutory form the police power to a municipality. As above stated, this clause has been given wide application by municipal authorities and has in its relation to the particular circumstances of the case been liberally construed by the courts. Such, it is well to recall, is the progressive view of Philippine jurisprudence. Advancing its second proposition, movant would find in the specific power of Davao City to regulate telephone service (See. 14 (aa] of its Charter) an implied denial of power to operate the same. People vs. Esguerra, 81 Phil. 33 is the authority relied upon for this. Said case ruled that specific power to regulate implies withholding of power to prohibit. The reason therein given is that by prohibiting, nothing would be left to regulate, thereby rendering the power to regulate superfluous and nugatory. It is therefore different where, as in this case, there is no suppression or prohibition but, on the contrary, creation or giving existence to something that may be regulated. People vs. Esguerra, supra, is no authority against the latter.

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telephone system and its plan of expansion do not cover the outlying districts of the city. It cannot therefore be claimed that movant has provided for the aforementioned needs or shown an immediate plan to supply them adequately. The fifth proposition is that any enabling provision in Davao City's Charter for the operation of a telephone system is not enough; that a special legislative franchise is still required. Since Congress has recently enacted Republic Act 4354 expressly providing that Davao City has power to operate and maintain a telephone system, movant now takes the extreme view that still another legislation, by way of a special franchise, is required. Such a view would render the enabling provision's in Davao City's Charter useless. It should be noted that such enabling provisions are granted as among the legislative powers of the Davao City Council. Accordingly, there has been a delegation to said Council of the legislative power to issue a franchise in favor of the City. The Philippine Commission's Act No. 667, invoked by movant, is an instance of delegation of power to grant franchise. It provides that any person authorized to engage in operating a telephone service has to obtain a franchise from the municipal council of the municipality through which its lines will pass. Davao City does not have to follow the procedure in Act No. 667, for, as stated, it has been empowered under its charter to directly grant the franchise to itself. A contrary view would be absurd: Davao City would have to file with its City Council an application for a franchise after said Council had authorized it to operate the telephone system. Finally, movant states that the competition between Davao City's telephone system and its own would be economically wasteful. Sometimes, however, it is good for the public service to provide room for a little competition. The fact that movant's own Charter, Act No. 3436, provides in Section 14 that its right to operate a telephone system shall not be exclusive and reserves the power to grant any other corporation, association or person franchise to operate a telephone system shows that public policy is not always in favor of monopoly in public utilities. In Benitez vs. Santos, L12911-12 and Lopez vs. Santos, L- 13073-74, February 29, 1960, this Court had occasion to remark: "A monopolistic trend with its concomitant evils can only serve to prejudice public interest, stifling as it does enthusiasm and initiative on the part of those eager to learn. Prior experience, while itself useful, cannot create a vested right which could endanger the economy." Republic Act 4354, in effect authorizing competition in the telephone service in Davao City, conclusively shows the sense of Congress that under the prevailing conditions in Davao City, the same will best inure to the public welfare therein. The public interest and welfare should be paramount. G.R. No. L-29236 August 21, 1974 RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner, vs. FRANCISCO SANTIAGO and ENRIQUE MEDINA, as Commissioner, Public Service Commission, respondents. G.R. No. L-29247 August 21, 1974 RADIO COMMUNICATIONS OF THE PHILIPPINES, INC., petitioner, vs. CONSTANCIO JAUGAN and ENRIQUE MEDINA, Commissioner, Public Service Commission, respondents. Jose B. Trenas & Cecero L. Aligaen for petitioner. Generoso Almario for respondents.

FERNANDO, J.:p It is a legal question of significance that was raised in these two petitions for review, to be decided jointly. It is whether the Public Service Commission, no longer in existence by virtue of the Presidential Decree reorganizing the executive branch of the national government 1 had the jurisdiction to act on complaints by dissatisfied customers of petitioner Radio Communications of the Phil., Inc. and thereafter to penalize it with a fine. In Radio Communications of the Phil., Inc. v. Francisco Santiago & Enrique Medina, as Commissioner, Public Service Commission 2 the dispositive portion of the challenged order insofar as pertinent reads thus: "[Wherefore], under Section 21 of the Public Service Act as amended, the respondent operator of Radio Communications of the Philippines, Inc. (RCPI) is hereby ordered to pay a fine of [two hundred pesos](P200.00) within fifteen (15) days from receipt hereof, with the warning that failure to pay the said fine within the aforecited period of time, will leave the Commission no other alternative but to suspend the rates authorized for the operation of respondent herein." 3 In Radio Communications of the Phil., Inc. v. Constancio Jaugan & Enrique Medina, Commissioner, Public Service Commission, 4 the dispositive portion insofar as pertinent is worded as follows: "[For all the foregoing considerations], under Section 21 of the Public Service Act as amended, the respondent, operator of Radio Communications of the Philippines, Inc. (RCPI) is hereby ordered to pay a fine of Two Hundred Pesos (P200.00) within fifteen (15) days from receipt hereof, with a warning that failure to pay the said fine within the aforecited period of time, will leave the Commission no other alternative but to suspend and revoke the rates authorized, for the operation

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of respondent herein." 5 The allegation by petitioner that it was devoid of such competence is based on the express limitation found in the Public Service Act 6 expressly exempting radio companies from the jurisdiction, supervision and control of such body "except with respect to the fixing of rates." 7 In the face of the provision itself, it is rather apparent that the Public Service Commission lacked the required power to proceed against petitioner. There is nothing in Section 21 thereof which impowers it to impose a fine that calls for a different conclusion. 8 We have to reverse. There is no dispute as to the facts. The challenged order in Radio Communications of the Phil., Inc. v. Santiago and Medina stated: "It is admitted by respondent [now petitioner] that on July 12, 1966, a telegram was filed with respondent-company and the amount of P1.50 was paid for the transmission of said telegram to Zamboanga City .... The telegram, however, was never transmitted until now. The respondent not only did not give any valid explanation, but did not present any evidence to explain why the said telegram was not forwarded to the addressee until now. This is, therefore, a clear case where the respondent, taking advantage of the rates fixed by this Commission collected the sum of P1.50 and promised to render a service to the complainant, i.e. the transmission of his telegram filed on July 12, 1966; but, after receiving the sum of P1.50, respondent failed to render the promised service," 9 in Radio Communications of the Phil., Inc. v. Jaugan and Medina, the order sought to be reviewed had this to say: "The evidence presented shows that on August 1, 1967, complainant Constancio Jaugan filed a telegram at the branch office of respondent in Dumaguete City, ... addressed to Commissioner Enrique Medina, PSC, Manila. The telegram was received by an employee of the respondent, Mrs. Jesusa A. Orge, as shown by the receipt ... dated August 1, 1967, and the sum of P2.64 was collected in payment of said telegram. The telegram, ... in effect, advised Commissioner Medina that the Land Registration Case where he was cited by subpoena to testify before the CFI of Oriental Negros on August 14 and 15, 1967, was transferred and, therefore, there was no necessity for the said Commissioner to proceed to Negros Oriental on those dates. It appears that the said telegram received by Jesusa Orge at Dumaguete City on August 1, 1967, was transmitted to Manila, on the same date, but was never delivered to the addressee, and on August 14 and 15, when Commissioner Medina appeared before the Dumaguete Court, he was advised that the case was postponed since August 1 and that a telegram was sent to the said Commissioner. Inquiries were made, why the telegram was not received by the Commissioner in Manila; the Dumaguete Office communicated with the Manila Office, on the same date, August 14, 1967 and it was only on August 15, 1967 that the telegram was relayed to the Public Service Commission and was received by one of the employees of the Commission, in the absence of Commissioner Medina who was then in Negros Oriental. ... ." 10 It was the manifest failure in both cases to render the service expected of a responsible operator that led to the imposition of the penalty. The motions for reconsideration in both cases having proved futile, the matter was elevated to this Court. As noted at the outset, a reversal is called for. 1. Except for constitutional officials who can trace their competence to act to the fundamental law itself, a public official must locate in the statute relied upon a grant of power before he can exercise it. It need not be express. It may be implied from the wording of the law. Absent such a requisite, however, no warrant exists for the assumption of authority. The act performed, if properly challenged, cannot meet the test of validity. It must be set aside. So it must be in these two petitions. That is to defer to a principle reiterated by this Court time and time again. 11 That doctrine goes back to a 1916 decision, Bautista v. Angeles, 12 where Chief Justice Arellano stated the following: "It devolves upon the judicial power to convince the private individual, the party governed, that he has no right to do what he did in violating orders of the administrative authorities issued by them in the exercise of their rights. Once he is convinced, the administrative authorities, by virtue of their own powers, impose the weight of their authority upon him. If they, the administrative authorities of public officials, exceed lawful limits in the exercise of their power of execution, the law provides what shall be done before the judicial power can step in and repair the damage to the private interest, or apply the law by declaring what was properly or improperly done in exercising public power." 13 There is likewise this relevant excerpt from Villegas v. Subido: 14 "Nothing is better settled in the law than that a public official exercises power, not rights. The government itself is merely an agency through which the will of the state is expressed and enforced. Its officers therefore are likewise agents entrusted with the responsibility of discharging its functions. As such there is no presumption that they are empowered to act. There must be a delegation of such authority, either express or implied. In the absence of a valid grant, they are devoid of power. What they do suffers from a fatal infirmity. That principle cannot be sufficiently stressed. In the appropriate language of Chief Justice Hughes: 'It must be conceded that departmental zeal may not be permitted to outrun the authority conferred by statute.' Neither the high dignity of the office nor the righteousness of the motive then is an acceptable substitute. Otherwise the rule of law becomes a myth. Such an eventuality, we must take all pains to avoid." 15 Such a fundamental postulate applies to the Executive itself. So it has been attested by a number of cases involving the President of the Philippines. 16 There can be no justification then for the Public Service Commission imposing the fines in these two petitions. The law cannot be any clearer. The only power it possessed over radio companies, as noted was the fix rates. 17 It could not take to

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task a radio company for any negligence or misfeasance. It was bereft of such competence. It was not vested with such authority. What it did then in these two petitions lacked the impress of validity. 2. The Public Service Commission having been abolished by virtue of a Presidential Decree, as set forth at the outset, and a new Board of Communications having been created to take its place, nothing said in this decision has reference to whatever powers are now lodged in the latter body. It is to be understood, likewise, that insofar as the complainants are concerned, this decision goes no further than to rule adversely on the exercise of authority by the Public Service Commission when it took disciplinary action against petitioner. WHEREFORE, in L-29236, Radio Communications of the Phil., Inc. v. Francisco Santiago and Enrique Medina, the order of former Commissioner Enrique Medina of October 13, 1967 as affirmed by the order of the Public Service Commission en banc of May 3, 1968, is reversed and set aside, and in L-29247, Radio Communications of the Phil., Inc. v. Constancio Jaugan and Enrique Medina, the order of former Commissioner Enrique Medina of October 10, 1967 as affirmed by the order of the Public Service Commission en banc of April 4, 1968, is reversed and set aside. No costs. G.R. No. 47065 June 26, 1940 INC., petitioner, In the decision of September 26, 1939, granting the petitioner's application for increase of equipment, the Public Service Commission ordered: Y de acuerdo con que se provee por el articulo 15 de la ley No. 146 del Commonwealth, tal como ha sido enmendada por el articulo 1 de la Ley No. 454, por la presente se enmienda las condiciones de los certificados de convenciencia publica expedidos en los expedientes Nos. 24948, 30973, 36831, 32014 y la authorizacion el el expediente No. 53090, asi que se consideran incorporadas en los mismos las dos siguientes condiciones: Que los certificados de conveniencia publica y authorizacion arriba mencionados seran validos y subsistentes solamente durante de veinticinco (25) anos, contados desde la fecha de la promulgacion de esta decision. Que la empresa de la solicitante porda ser adquirida por el Commonwealth de Filipinas o por alguna dependencia del mismo en cualquier tiempo que lo deseare previo pago del precio d costo de su equipo util, menos una depreciacion razonable que se ha fijar por la Comision al tiempo de su adquisicion. Not being agreeable to the two new conditions thus incorporated in its existing certificates, the petitioner filed on October 9, 1939 a motion for reconsideration which was denied by the Public Service Commission on November 14, 1939. Whereupon, on November 20, 1939, the present petition for a writ of certiorari was instituted in this court praying that an order be issued directing the secretary of the Public Service Commission to certify forthwith to this court the records of all proceedings in case No. 56641; that this court, after hearing, render a decision declaring section 1 of Commonwealth Act No. 454 unconstitutional and void; that, if this court should be of the opinion that section 1 of Commonwealth Act No. 454 is constitutional, a decision be rendered declaring that the provisions thereof are not applicable to valid and subsisting certificates issued prior to June 8, 1939. Stated in the language of the petitioner, it is contended: 1. That the legislative powers granted to the Public Service Commission by section 1 of Commonwealth Act No. 454, without limitation, guide or rule except the unfettered discretion and judgment of the Commission, constitute a complete and total abdication by the Legislature of its functions in the premises, and for that reason, the Act, in so far as those powers are concerned, is unconstitutional and void. 2. That even if it be assumed that section 1 of Commonwealth Act No. 454, is valid delegation of legislative powers, the Public Service Commission has exceeded its authority because: (a) The Act applies only to future certificates and not to valid and

PANGASINAN TRANSPORTATION CO., vs. THE PUBLIC SERVICE COMMISSION, respondent. C. de G. Alvear Evaristo R. Sandoval for respondent. LAUREL, J.:

for

petitioner.

The petitioner has been engaged for the past twenty years in the business of transporting passengers in the Province of Pangasinan and Tarlac and, to a certain extent, in the Province of Nueva Ecija and Zambales, by means of motor vehicles commonly known as TPU buses, in accordance with the terms and conditions of the certificates of public convenience issued in its favor by the former Public Utility Commission in cases Nos. 24948, 30973, 36830, 32014 and 53090. On August 26, 1939, the petitioner filed with the Public Service Commission an application for authorization to operate ten additional new Brockway trucks (case No. 56641), on the ground that they were needed to comply with the terms and conditions of its existing certificates and as a result of the application of the Eight Hour Labor Law.

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subsisting certificates issued prior to June 8, 1939, when said Act took effect, and (b) the Act, as applied by the Commission, violates constitutional guarantees. Section 15 of Commonwealth Act No. 146, as amended by section 1 of Commonwealth Act No. 454, invoked by the respondent Public Service Commission in the decision complained of in the present proceedings, reads as follows: With the exception to those enumerated in the preceding section, no public service shall operate in the Philippines without possessing a valid and subsisting certificate from the Public Service Commission, known as "certificate of public convenience," or "certificate of convenience and public necessity," as the case may be, to the effect that the operation of said service and the authorization to do business will promote the public interests in a proper and suitable manner. The Commission may prescribed as a condition for the issuance of the certificate provided in the preceding paragraph that the service can be acquired by the Commonwealth of the Philippines or by any instrumentality thereof upon payment of the cost price of its useful equipment, less reasonable depreciation; and likewise, that the certificate shall valid only for a definite period of time; and that the violation of any of these conditions shall produce the immediate cancellation of the certificate without the necessity of any express action on the part of the Commission. In estimating the depreciation, the effect of the use of the equipment, its actual condition, the age of the model, or other circumstances affecting its value in the market shall be taken into consideration. The foregoing is likewise applicable to any extension or amendment of certificates actually force and to those which may hereafter be issued, to permits to modify itineraries and time schedules of public services and to authorization to renew and increase equipment and properties. Under the first paragraph of the aforequoted section 15 of Act No. 146, as amended, no public service can operate without a certificate of public convenience or certificate of convenience and public necessity to the effect that the operation of said service and the authorization to do business will "public interests in a proper and suitable manner." Under the second paragraph, one of the conditions which the Public Service Commission may prescribed the issuance of the certificate provided for in the first paragraph is that "the service can be acquired by the Commonwealth of the Philippines or by any instrumental thereof upon payment of the cost price of its useful equipment, less reasonable depreciation," a condition which is virtually a restatement of the principle already embodied in the Constitution, section 6 of Article XII, which provides that "the State may, in the interest of national welfare and defense, establish and operate industries and means of transportation and communication, and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the Government. "Another condition which the Commission may prescribed, and which is assailed by the petitioner, is that the certificate "shall be valid only for a definite period of time." As there is a relation between the first and second paragraphs of said section 15, the two provisions must be read and interpreted together. That is to say, in issuing a certificate, the Commission must necessarily be satisfied that the operation of the service under said certificate during a definite period fixed therein "will promote the public interests in a proper and suitable manner." Under section 16 (a) of Commonwealth Act. No. 146 which is a complement of section 15, the Commission is empowered to issue certificates of public convenience whenever it "finds that the operation of the public service proposed and the authorization to do business will promote the public interests in a proper and suitable manner." Inasmuch as the period to be fixed by the Commission under section 15 is inseparable from the certificate itself, said period cannot be disregarded by the Commission in determining the question whether the issuance of the certificate will promote the public interests in a proper and suitable manner. Conversely, in determining "a definite period of time," the Commission will be guided by "public interests," the only limitation to its power being that said period shall not exceed fifty years (sec. 16 (a), Commonwealth Act No. 146; Constitution, Art. XIII, sec. 8.) We have already ruled that "public interest" furnishes a sufficient standard. (People vs. Fernandez and Trinidad, G. R. No. 45655, promulgated June 15, 1938; People vs. Rosenthal and Osmea, G. R. Nos. 46076 and 46077, promulgated June 12, 1939, citing New York Central Securities Corporation vs. U.S.A., 287 U.S. 12, 24, 25, 77 Law. ed. 138, 145, 146; Schenchter Poultry Corporation vs. I.S., 295, 540, 79 Law. ed. 1570, 1585; Ferrazzini vs. Gsell, 34 Phil., 697, 711-712.) Section 8 of Article XIII of the Constitution provides, among other things, that no franchise, certificate, or any other form of authorization for the operation of a public utility shall be "for a longer period than fifty years," and when it was ordained, in section 15 of Commonwealth Act No. 146, as amended by Commonwealth Act No. 454, that the Public Service Commission may prescribed as a condition for the issuance of a certificate that it "shall be valid only for a definite period of time" and, in section 16 (a) that "no such certificates shall be issued for a period of more than fifty years," the National Assembly meant to give effect to the aforesaid constitutional mandate. More than this, it has thereby also declared its will that the period to be fixed by the Public Service Commission shall not be longer than fifty years. All that has been delegated to the Commission, therefore, is the administrative function, involving the use discretion, to carry out the will of the

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National Assembly having in view, in addition, the promotion of "public interests in a proper and suitable manner." The fact that the National Assembly may itself exercise the function and authority thus conferred upon the Public Service Commission does not make the provision in question constitutionally objectionable. The theory of the separation of powers is designed by its originators to secure action and at the same time to forestall overaction which necessarily results from undue concentration of powers, and thereby obtain efficiency and prevent deposition. Thereby, the "rule of law" was established which narrows the range of governmental action and makes it subject to control by certain devices. As a corollary, we find the rule prohibiting delegation of legislative authority, and from the earliest time American legal authorities have proceeded on the theory that legislative power must be exercised by the legislature alone. It is frankness, however, to confess that as one delves into the mass of judicial pronouncement, he finds a great deal of confusion. One thing, however, is apparent in the development of the principle of separation of powers and that is that the maxim of delegatus non potest delegari or delegata potestas non potest delegari, attributed to Bracton (De Legius et Consuetedinious Angliae, edited by G. E. Woodbine, Yale University Press, 1922, vol. 2, p. 167) but which is also recognized in principle in the Roman Law (D. 17.18.3), has been made to adapt itself to the complexities of modern governments, giving rise to the adoption, within certain limits, of the principle of "subordinate legislation," not only in the United States and England but in practically all modern governments. (People vs. Rosenthal and Osmea, G. R. Nos. 46076 and 46077, promulgated June 12, 1939.) Accordingly, with the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency toward the delegation of greater powers by the legislature, and toward the approval of the practice by the court. (Dillon Catfish Drainage Dist, v. Bank of Dillon, 141 S. E. 274, 275, 143 S. Ct. 178; State vs. Knox County, 54 S. W. 2d. 973, 976, 165 Tenn. 319.) In harmony with such growing tendency, this Court, since the decision in the case of Compaia General de Tabacos de Filipinas vs. Board of Public Utility Commissioner (34 Phil., 136), relied upon by the petitioner, has, in instances, extended its seal of approval to the "delegation of greater powers by the legislature." (Inchausti Steamship Co. vs. Public Utility Commissioner, 44 Phil., Autobus Co. vs. De Jesus, 56 Phil., 446; People vs. Fernandez & Trinidad, G. R. No. 45655, promulgated June 15, 1938; People vs. Rosenthal & Osmea, G. R. Nos. 46076, 46077, promulgated June 12, 1939; and Robb and Hilscher vs. People, G. R. No. 45866, promulgated June 12, 1939.). Under the fourth paragraph of section 15 of Commonwealth Act No. 146, as amended by Commonwealth Act No. 454, the power of the Public Service Commission to prescribed the conditions "that the service can be acquired by the Commonwealth of the Philippines or by any instrumentality thereof upon payment of the cost price of its useful equipment, less reasonable," and "that the certificate shall be valid only for a definite period of time" is expressly made applicable "to any extension or amendment of certificates actually in force" and "to authorizations to renew and increase equipment and properties." We have examined the legislative proceedings on the subject and have found that these conditions were purposely made applicable to existing certificates of public convenience. The history of Commonwealth Act No. 454 reveals that there was an attempt to suppress, by way of amendment, the sentence "and likewise, that the certificate shall be valid only for a definite period of time," but the attempt failed: xxx xxx xxx

Sr. CUENCO. Seor Presidente, para otra enmienda. En la misma pagina, lineas 23 y 24, pido que se supriman las palabras 'and likewise, that the certificate shall be valid only for a definite period time.' Esta disposicion del proyecto autoriza a la Comision de Servicios Publicos a fijar un plazo de vigencia certificado de conveniencia publica. Todo el mundo sabe que bo se puede determinar cuando los intereses del servicio publico requiren la explotacion de un servicio publico y ha de saber la Comision de Servisios, si en un tiempo determinado, la explotacion de algunos buses en cierta ruta ya no tiene de ser, sobre todo, si tiene en cuenta; que la explotacion de los servicios publicos depende de condiciones flutuantes, asi como del volumen como trafico y de otras condiciones. Ademas, el servicio publico se concede por la Comision de Servicios Publicos el interes publico asi lo exige. El interes publico no tiene duracion fija, no es permanente; es un proceso mas o menos indefinido en cuanto al tiempo. Se ha acordado eso en el caucus de anoche. EL PRESIDENTE PRO TEMPORE. Que dice el Comite? Sr. ALANO. El Comite siente tener que rechazar esa enmienda, en vista de que esto certificados de conveniencia publica es igual que la franquicia: sepuede extender. Si los servicios presentados por la compaia durante el tiempo de su certificado lo require, puede pedir la extension y se le extendera; pero no creo conveniente el que nosotros demos un certificado de conveniencia publica de una manera que podria pasar de cincuenta anos, porque seria anticonstitucional. xxx xxx xxx

By a majority vote the proposed amendment was defeated. (Sesion de 17 de mayo de 1939, Asamblea Nacional.)

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The petitioner is mistaken in the suggestion that, simply because its existing certificates had been granted before June 8, 1939, the date when Commonwealth Act No. 454, amendatory of section 15 of Commonwealth Act No. 146, was approved, it must be deemed to have the right of holding them in perpetuity. Section 74 of the Philippine Bill provided that "no franchise, privilege, or concession shall be granted to any corporation except under the conditions that it shall be subject to amendment, alteration, or repeal by the Congress of the United States." The Jones Law, incorporating a similar mandate, provided, in section 28, that "no franchise or right shall be granted to any individual, firm, or corporation except under the conditions that it shall be subject to amendment, alteration, or repeal by the Congress of the United States." Lastly, the Constitution of the Philippines provided, in section 8 of Article XIII, that "no franchise or right shall be granted to any individual, firm, or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires." The National Assembly, by virtue of the Constitution, logically succeeded to the Congress of the United States in the power to amend, alter or repeal any franchise or right granted prior to or after the approval of the Constitution; and when Commonwealth Acts Nos. 146 and 454 were enacted, the National Assembly, to the extent therein provided, has declared its will and purpose to amend or alter existing certificates of public convenience. Upon the other hand, statutes enacted for the regulation of public utilities, being a proper exercise by the state of its police power, are applicable not only to those public utilities coming into existence after its passage, but likewise to those already established and in operation. Nor is there any merit in petitioner's contention, that, because of the establishment of petitioner's operations prior to May 1, 1917, they are not subject to the regulations of the Commission. Statutes for the regulation of public utilities are a proper exercise by the state of its police power. As soon as the power is exercised, all phases of operation of established utilities, become at once subject to the police power thus called into operation. Procedures' Transportation Co. v. Railroad Commission, 251 U. S. 228, 40 Sup. Ct. 131, 64 Law. ed. 239, Law v. Railroad Commission, 184 Cal. 737, 195 Pac. 423, 14 A. L. R. 249. The statute is applicable not only to those public utilities coming into existence after its passage, but likewise to those already established and in operation. The 'Auto Stage and Truck Transportation Act' (Stats. 1917, c. 213) is a statute passed in pursuance of the police power. The only distinction recognized in the statute between those established before and those established after the passage of the act is in the method of the creation of their operative rights. A certificate of public convenience and necessity it required for any new operation, but no such certificate is required of any transportation company for the operation which was actually carried on in good faith on May 1, 1917, This distinction in the creation of their operative rights in no way affects the power of the Commission to supervise and regulate them. Obviously the power of the Commission to hear and dispose of complaints is as effective against companies securing their operative rights prior to May 1, 1917, as against those subsequently securing such right under a certificate of public convenience and necessity. (Motor Transit Co. et al. v. Railroad Commission of California et al., 209 Pac. 586.) Moreover, Commonwealth Acts Nos. 146 and 454 are not only the organic acts of the Public Service Commission but are "a part of the charter of every utility company operating or seeking to operate a franchise" in the Philippines. (Streator Aqueduct Co. v. et al., 295 Fed. 385.) The business of a common carrier holds such a peculiar relation to the public interest that there is superinduced upon it the right of public regulation. When private property is "affected with a public interest it ceased to be juris privati only." When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created. He may withdraw his grant by discounting the use, but so long as he maintains the use he must submit to control. Indeed, this right of regulation is so far beyond question that it is well settled that the power of the state to exercise legislative control over public utilities may be exercised through boards of commissioners. (Fisher vs. Yangco Steamship Company, 31 Phil., 1, citing Munn vs. Illinois, 94 U.S. 113; Georgia R. & Bkg. Co. vs. Smith, 128 U.S. 174; Budd vs. New York, 143 U.S. 517; New York etc. R. Co. vs. Bristol 151 U.S. 556, 571; Connecticut etc. R. Co. vs. Woodruff, 153 U.S. 689; Louisville etc. Ry Co. vs. Kentucky, 161 U.S. 677, 695.) This right of the state to regulate public utilities is founded upon the police power, and statutes for the control and regulation of utilities are a legitimate exercise thereof, for the protection of the public as well as of the utilities themselves. Such statutes are, therefore, not unconstitutional, either impairing the obligation of contracts, taking property without due process, or denying the equal protection of the laws, especially inasmuch as the question whether or not private property shall be devoted to a public and the consequent burdens assumed is ordinarily for the owner to decide; and if he voluntarily places his property in public service he cannot complain that it becomes subject to the regulatory powers of the state. (51 C. J., sec. 21, pp. 9-10.) in the light of authorities which hold that a certificate of public convenience constitutes neither a franchise nor contract, confers no property right, and is mere license or privilege. (Burgess vs. Mayor & Alderman of Brockton, 235 Mass. 95, 100, 126 N. E. 456; Roberto vs. Commisioners of Department of Public Utilities, 262 Mass. 583, 160 N. E. 321; Scheible vs. Hogan, 113 Ohio St. 83, 148 N. E. 581; Martz vs. Curtis [J. L.] Cartage

159
Co. [1937], 132 Ohio St. 271, 7 N. E. [d] 220; Manila Yellow Taxicab Co. vs. Sabellano, 59 Phil., 773.) Whilst the challenged provisions of Commonwealth Act No. 454 are valid and constitutional, we are, however, of the opinion that the decision of the Public Service Commission should be reversed and the case remanded thereto for further proceedings for the reason now to be stated. The Public Service Commission has power, upon proper notice and hearing, "to amend, modify or revoke at any time any certificate issued under the provisions of this Act, whenever the facts and circumstances on the strength of which said certificate was issued have been misrepresented or materially changed." (Section 16, par. [m], Commonwealth Act No. 146.) The petitioner's application here was for an increase of its equipment to enable it to comply with the conditions of its certificates of public convenience. On the matter of limitation to twenty five (25) years of the life of its certificates of public convenience, there had been neither notice nor opportunity given the petitioner to be heard or present evidence. The Commission appears to have taken advantage of the petitioner to augment petitioner's equipment in imposing the limitation of twentyfive (25) years which might as well be twenty or fifteen or any number of years. This is, to say the least, irregular and should not be sanctioned. There are cardinal primary rights which must be respected even in proceedings of this character. The first of these rights is the right to a hearing, which includes the right of the party interested or affected to present his own case and submit evidence in support thereof. In the language of Chief Justice Hughes, in Morgan v. U.S., (304 U.S. 1, 58 S. Ct. 773, 999, 82 Law. ed. 1129), "the liberty and property of the citizen shall be protected by the rudimentary requirements of fair play." Not only must the party be given an opportunity to present his case and to adduce evidence tending to establish the rights which he asserts but the tribunal must consider the evidence presented. (Chief Justice Hughes in Morgan vs. U.S., 298 U.S. 468, 56 S. Ct. 906, 80 :Law. ed. 1288.) In the language of this Court in Edwards vs. McCoy (22 Phil., 598), "the right to adduce evidence, without the corresponding duty on the part of the board to consider it, is vain. Such right is conspicuously futile if the person or persons to whom the evidence is presented can thrust it aside without or consideration." While the duty to deliberate does not impose the obligation to decide right, it does imply a necessity which cannot be disregarded, namely, that of having something to support its decision. A decision with absolutely nothing to support it is a nullity, at least when directly attacked. (Edwards vs. McCoy, supra.) This principle emanates from the more fundamental principle that the genius of constitutional government is contrary to the vesting of unlimited power anywhere. Law is both a grant and a limitation upon power. The decision appealed from is hereby reversed and the case remanded to the Public Service Commission for further proceedings in accordance with law and this decision, without any pronouncement regarding costs. So ordered. 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.

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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 Wake Island "Mr. Passenger 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. Airport Manager, 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. Sitton Island October 1964

aboard

flight

Zulueta: 84123

Wake

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(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 defense 1 were believed, by defense counsel, to be enough for the three (3) days of October set for the reception of his evidence 2 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

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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

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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 offloaded. 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 fleetserviceman 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

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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

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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

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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 nonperformance 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

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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 airport 6 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

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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. G.R. No. L-22415 March 30, 1966

FERNANDO LOPEZ, ET AL., plaintiffs-appellants, vs. PAN AMERICAN WORLD AIRWAYS, defendant-appellant. Ross, Selph and Carrascoso for the Vicente J. Francisco for the plaintiffs-appellants. BENGZON, J.P., J.: defendant-appellant.

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Plaintiffs and defendant appeal from a decision of the Court of First Instance of Rizal. Since the value in controversy exceeds P200,000 the appeals were taken directly to this Court upon all questions involved (Sec. 17, par. 3[5], Judiciary Act). Stated briefly the facts not in dispute are as follows: Reservations for first class accommodations in Flight No. 2 of Pan American World Airways hereinafter otherwise called PAN-AM from Tokyo to San Francisco on May 24, 1960 were made with PAN-AM on March 29, 1960, by "Your Travel Guide" agency, specifically, by Delfin Faustino, for then Senator Fernando Lopez, his wife Maria J. Lopez, his son-in-law Alfredo Montelibano, Jr., and his daughter, Mrs. Alfredo Montelibano, Jr., (Milagros Lopez Montelibano). PAN-AM's San Francisco head office confirmed the reservations on March 31, 1960. First class tickets for the abovementioned flight were subsequently issued by PAN-AM on May 21 and 23, 1960, in favor of Senator Lopez and his party. The total fare of P9,444 for all of them was fully paid before the tickets were issued. As scheduled Senator Lopez and party left Manila by Northwest Airlines on May 24, 1960, arriving in Tokyo at 5:30 P.M. of that day. As soon as they arrived Senator Lopez requested Minister Busuego of the Philippine Embassy to contact PAN-AM's Tokyo office regarding their first class accommodations for that evening's flight. For the given reason that the first class seats therein were all booked up, however, PANAM's Tokyo office informed Minister Busuego that PAN-AM could not accommodate Senator Lopez and party in that trip as first class passengers. Senator Lopez thereupon gave their first class tickets to Minister Busuego for him to show the same to PAN-AM's Tokyo office, but the latter firmly reiterated that there was no accommodation for them in the first class, stating that they could not go in that flight unless they took the tourist class therein. Due to pressing engagements awaiting Senator Lopez and his wife, in the United States he had to attend a business conference in San Francisco the next day and she had to undergo a medical check-up in Mayo Clinic, Rochester, Minnesota, on May 28, 1960 and needed three days rest before that in San Francisco Senator Lopez and party were constrained to take PAN-AM's flight from Tokyo to San Francisco as tourist passengers. Senator Lopez however made it clear, as indicated in his letter to PAN-AM's Tokyo office on that date (Exh. A), that they did so "under protest" and without prejudice to further action against the airline.1wph1.t Suit for damages was thereafter filed by Senator Lopez and party against PAN-AM on June 2, 1960 in the Court of First Instance of Rizal. Alleging breach of contracts in bad faith by defendant, plaintiffs asked for P500,000 actual and moral damages, P100,000 exemplary damages, P25,000 attorney's fees plus costs. PAN-AM filed its answer on June 22, 1960, asserting that its failure to provide first class accommodations to plaintiffs was due to honest error of its employees. It also interposed a counterclaim for attorney's fees of P25,000. Subsequently, further pleadings were filed, thus: plaintiffs' answer to the counterclaim, on July 25, 1960; plaintiffs' reply attached to motion for its admittance, on December 2, 1961; defendant's supplemental answer, on March 8, 1962; plaintiffs' reply to supplemental answer, on March 10, 1962; and defendant's amended supplemental answer, on July 10, 1962. After trial which took twenty-two (22) days ranging from November 25, 1960 to January 5, 1963 the Court of First Instance rendered its decision on November 13, 1963, the dispositive portion stating: In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a) P100,000.00 as moral damages; (b) P20,000.00 as exemplary damages; (c) P25,000.00 as attorney's fees, and the costs of this action. So ordered. Plaintiffs, however, on November 21, 1963, moved for reconsideration of said judgment, asking that moral damages be increased to P400,000 and that six per cent (6%) interest per annum on the amount of the award be granted. And defendant opposed the same. Acting thereon the trial court issued an order on December 14, 1963, reconsidering the dispositive part of its decision to read as follows: In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiffs and against the defendant, which is accordingly ordered to pay the plaintiffs the following: (a) P150,000.00 as moral damages; (b) P25,000.00 as exemplary damages; with legal interest on both from the date of the filing of the complaint until paid; and (c) P25,000.00 as attorney's fees; and the costs of this action. So ordered. It is from said judgment, as thus reconsidered, that both parties have appealed. Defendant, as stated, has from the start admitted that it breached its contracts with plaintiffs to provide them with first class accommodations in its Tokyo-San Francisco flight of May 24, 1960. In its appeal, however, it takes issue with the finding of the court a quo that it acted in bad faith in the branch of said contracts.

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Plaintiffs, on the other hand, raise questions on the amount of damages awarded in their favor, seeking that the same be increased to a total of P650,000. Anent the issue of bad faith the records show the respective contentions of the parties as follows. According to plaintiffs, defendant acted in bad faith because it deliberately refused to comply with its contract to provide first class accommodations to plaintiffs, out of racial prejudice against Orientals. And in support of its contention that what was done to plaintiffs is an oftrepeated practice of defendant, evidence was adduced relating to two previous instances of alleged racial discrimination by defendant against Filipinos in favor of "white" passengers. Said previous occasions are what allegedly happened to (1) Benito Jalbuena and (2) Cenon S. Cervantes and his wife. And from plaintiffs' evidence this is what allegedly happened; Jalbuena bought a first class ticket from PAN-AM on April 13, 1960; he confirmed it on April 15, 1960 as to the Tokyo-Hongkong flight of April 20, 1960; PAN-AM similarly confirmed it on April 20, 1960. At the airport he and another Oriental Mr. Tung were asked to step aside while other passengers - including "white" passengers boarded PANAM's plane. Then PAN-AM officials told them that one of them had to stay behind. Since Mr. Tung was going all the way to London, Jalbuena was chosen to be left behind. PAN-AM's officials could only explain by saying there was "some mistake". Jalbuena thereafter wrote PAN-AM to protest the incident (Exh. B). As to Cenon S. Cervantes it would appear that in Flight No. 6 of PAN-AM on September 29, 1958 from Bangkok to Hongkong, he and his wife had to take tourist class, although they had first class tickets, which they had previously confirmed, because their seats in first class were given to "passengers from London." Against the foregoing, however, defendant's evidence would seek to establish its theory of honest mistake, thus: The first class reservations of Senator Lopez and party were made on March 29, 1960 together with those of four members of the Rufino family, for a total of eight (8) seats, as shown in their joint reservation card (Exh. 1). Subsequently on March 30, 1960, two other Rufinos secured reservations and were given a separate reservation card (Exh. 2). A new reservation card consisting of two pages (Exhs. 3 and 4) was then made for the original of eight passengers, namely, Senator Lopez and party and four members of the Rufino family, the first page (Exh. 3) referring to 2 Lopezes, 2 Montelibanos and 1 Rufino and the second page (Exh. 4) referring to 3 Rufinos. On April 18, 1960 "Your Travel Guide" agency cancelled the reservations of the Rufinos. A telex message was thereupon sent on that date to PAN-AM's head office at San Francisco by Mariano Herranz, PAN-AM's reservations employee at its office in Escolta, Manila. (Annex A-Acker's to Exh. 6.) In said message, however, Herranz mistakenly cancelled all the seats that had been reserved, that is, including those of Senator Lopez and party. The next day April 1960 Herranz discovered his mistake, upon seeing the reservation card newly prepared by his co-employee Pedro Asensi for Sen. Lopez and party to the exclusion of the Rufinos (Exh. 5). It was then that Herranz sent another telex wire to the San Francisco head office, stating his error and asking for the reinstatement of the four (4) first class seats reserved for Senator Lopez and party (Annex A-Velasco's to Exh. 6). San Francisco head office replied on April 22, 1960 that Senator Lopez and party are waitlisted and that said office is unable to reinstate them (Annex B-Velasco's to Exh. 6). Since the flight involved was still more than a month away and confident that reinstatement would be made, Herranz forgot the matter and told no one about it except his co-employee, either Armando Davila or Pedro Asensi or both of them (Tsn., 123-124, 127, Nov. 17, 1961). Subsequently, on April 27, 1960, Armando Davila, PAN-AM's reservations employee working in the same Escolta office as Herranz, phoned PAN-AM's ticket sellers at its other office in the Manila Hotel, and confirmed the reservations of Senator Lopez and party. PAN-AM's reservations supervisor Alberto Jose, discovered Herranz's mistake after "Your Travel Guide" phone on May 18, 1960 to state that Senator Lopez and party were going to depart as scheduled. Accordingly, Jose sent a telex wire on that date to PAN-AM's head office at San Francisco to report the error and asked said office to continue holding the reservations of Senator Lopez and party (Annex B-Acker's to Exh. 6). Said message was reiterated by Jose in his telex wire of May 19, 1960 (Annex C-Acker's to Exh. 6). San Francisco head office replied on May 19, 1960 that it regrets being unable to confirm Senator Lopez and party for the reason that the flight was solidly booked (Exh. 7). Jose sent a third telex wire on May 20, 1960 addressed to PAN-AM's offices at San Francisco, New York (Idlewild Airport), Tokyo and Hongkong, asking all-out assistance towards restoring the cancelled spaces and for report of cancellations at their end (Annex D-Acker's to Exh. 6). San Francisco head office reiterated on May 20, 1960 that it could not reinstate the spaces and referred Jose to the Tokyo and Hongkong offices (Exh. 8). Also on May 20, the Tokyo office of PAN-AM wired Jose stating it will do everything possible (Exh. 9).

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Expecting that some cancellations of bookings would be made before the flight time, Jose decided to withhold from Senator Lopez and party, or their agent, the information that their reservations had been cancelled. Armando Davila having previously confirmed Senator Lopez and party's first class reservations to PAN-AM's ticket sellers at its Manila Hotel office, the latter sold and issued in their favor the corresponding first class tickets on the 21st and 23rd of May, 1960. From the foregoing evidence of defendant it is in effect admitted that defendant through its agents first cancelled plaintiffs, reservations by mistake and thereafter deliberately and intentionally withheld from plaintiffs or their travel agent the fact of said cancellation, letting them go on believing that their first class reservations stood valid and confirmed. In so misleading plaintiffs into purchasing first class tickets in the conviction that they had confirmed reservations for the same, when in fact they had none, defendant wilfully and knowingly placed itself into the position of having to breach its a foresaid contracts with plaintiffs should there be no last-minute cancellation by other passengers before flight time, as it turned out in this case. Such actuation of defendant may indeed have been prompted by nothing more than the promotion of its self-interest in holding on to Senator Lopez and party as passengers in its flight and foreclosing on their chances to seek the services of other airlines that may have been able to afford them first class accommodations. All the time, in legal contemplation such conduct already amounts to action in bad faith. For bad faith means a breach of a known duty through some motive of interest or ill-will (Spiegel vs. Beacon Participations, 8 NE 2d 895, 907). As stated in Kamm v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R. 1, 7: "Self-enrichment or fraternal interest, and not personal ill-will, may well have been the motive; but it is malice nevertheless." As of May 18, 1960 defendant's reservations supervisor, Alberto Jose knew that plaintiffs' reservations had been cancelled. As of May 20 he knew that the San Francisco head office stated with finality that it could not reinstate plaintiffs' cancelled reservations. And yet said reservations supervisor made the "decision" to use his own, word to withhold the information from the plaintiffs. Said Alberto Jose in his testimony: Q Why did you not notify them? A Well, you see, sir, in my fifteen (15) years of service with the air lines business my experience is that even if the flights are solidly booked months in advance, usually the flight departs with plenty of empty seats both on the first class and tourist class. This is due to late cancellation of passengers, or because passengers do not show up in the airport, and it was our hope others come in from another flight and, therefore, are delayed and, therefore, missed their connections. This experience of mine, coupled with that wire from Tokyo that they would do everything possible prompted me to withhold the information, but unfortunately, instead of the first class seat that I was hoping for and which I anticipated only the tourists class was open on which Senator and Mrs. Lopez, Mr. and Mrs. Montelibano were accommodated. Well, I fully realize now the gravity of my decision in not advising Senator and Mrs. Lopez, Mr. and Mrs. Montelibano nor their agents about the erroneous cancellation and for which I would like them to know that I am very sorry. xxx xxx xxx

Q So it was not your duty to notify Sen. Lopez and parties that their reservations had been cancelled since May 18, 1960? A As I said before it was my duty. It was my duty but as I said again with respect to that duty I have the power to make a decision or use my discretion and judgment whether I should go ahead and tell the passenger about the cancellation. (Tsn., pp. 17-19, 28-29, March 15, 1962.) At the time plaintiffs bought their tickets, defendant, therefore, in breach of its known duty, made plaintiffs believe that their reservation had not been cancelled. An additional indication of this is the fact that upon the face of the two tickets of record, namely, the ticket issued to Alfredo Montelibano, Jr. on May 21, 1960 (Exh. 22) and that issued to Mrs. Alfredo Montelibano, Jr., on May 23, 1960 (Exh. 23), the reservation status is stated as "OK". Such willful-non-disclosure of the cancellation or pretense that the reservations for plaintiffs stood and not simply the erroneous cancellation itself is the factor to which is attributable the breach of the resulting contracts. And, as above-stated, in this respect defendant clearly acted in bad faith. As if to further emphasize its bad faith on the matter, defendant subsequently promoted the employee who cancelled plaintiffs' reservations and told them nothing about it. The record shows that said employee Mariano Herranz was not subjected to investigation and suspension by defendant but instead was given a reward in the form of an increase of salary in June of the following year (Tsn., 86-88, Nov. 20, 1961). At any rate, granting all the mistakes advanced by the defendant, there would at least be negligence so gross and reckless as to amount to malice or bad faith (Fores vs. Miranda, L-12163, March 4, 1959; Necesito v. Paras, L-10605-06, June 30, 1958). Firstly, notwithstanding the entries in the reservation cards (Exhs. 1 & 3) that the reservations cancelled are those of the Rufinos only, Herranz made the mistake,

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after reading said entries, of sending a wire cancelling all the reservations, including those of Senator Lopez and party (Tsn., pp. 108-109, Nov. 17, 1961). Secondly, after sending a wire to San Francisco head office on April 19, 1960 stating his error and asking for reinstatement, Herranz simply forgot about the matter. Notwithstanding the reply of San Francisco head Office on April 22, 1960 that it cannot reinstate Senator Lopez and party (Annex B-Velasco's to Exh. 6), it was assumed and taken for granted that reinstatement would be made. Thirdly, Armando Davila confirmed plaintiff's reservations in a phone call on April 27, 1960 to defendant's ticket sellers, when at the time it appeared in plaintiffs' reservation card (Exh. 5) that they were only waitlisted passengers. Fourthly, defendant's ticket sellers issued plaintiffs' tickets on May 21 and 23, 1960, without first checking their reservations just before issuing said tickets. And, finally, no one among defendant's agents notified Senator Lopez and party that their reservations had been cancelled, a precaution that could have averted their entering with defendant into contracts that the latter had already placed beyond its power to perform. Accordingly, there being a clear admission in defendant's evidence of facts amounting to a bad faith on its part in regard to the breach of its contracts with plaintiffs, it becomes unnecessary to further discuss the evidence adduced by plaintiffs to establish defendant's bad faith. For what is admitted in the course of the trial does not need to be proved (Sec. 2, Rule 129, Rules of Court). Addressing ourselves now to the question of damages, it is well to state at the outset those rules and principles. First, moral damages are recoverable in breach of contracts where the defendant acted fraudulently or in bad faith (Art. 2220, New Civil Code). Second, in addition to moral damages, exemplary or corrective damages may be imposed by way of example or correction for the public good, in breach of contract where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner (Articles 2229, 2232, New Civil Code). And, third, a written contract for an attorney's services shall control the amount to be paid therefor unless found by the court to be unconscionable or unreasonable (Sec. 24, Rule 138, Rules of Court). First, then, as to moral damages. As a proximate result of defendant's breach in bad faith of its contracts with plaintiffs, the latter suffered social humiliation, wounded feelings, serious anxiety and mental anguish. For plaintiffs were travelling with first class tickets issued by defendant and yet they were given only the tourist class. At stop-overs, they were expected to be among the first-class passengers by those awaiting to welcome them, only to be found among the tourist passengers. It may not be humiliating to travel as tourist passengers; it is humiliating to be compelled to travel as such, contrary to what is rightfully to be expected from the contractual undertaking. Senator Lopez was then Senate President Pro Tempore. International carriers like defendant know the prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine Congress, but the nation's treaty-ratifying body. It may also be mentioned that in his aforesaid office Senator Lopez was in a position to preside in impeachment cases should the Senate sit as Impeachment Tribunal. And he was former Vice-President of the Philippines. Senator Lopez was going to the United States to attend a private business conference of the Binalbagan-Isabela Sugar Company; but his aforesaid rank and position were by no means left behind, and in fact he had a second engagement awaiting him in the United States: a banquet tendered by Filipino friends in his honor as Senate President Pro Tempore (Tsn., pp. 14-15, Nov. 25, 1960). For the moral damages sustained by him, therefore, an award of P100,000.00 is appropriate. Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. In addition she suffered physical discomfort during the 13-hour trip,(5 hours from Tokyo to Honolulu and 8 hours from Honolulu to San Francisco). Although Senator Lopez stated that "she was quite well" (Tsn., p. 22, Nov. 25, 1960) he obviously meant relatively well, since the rest of his statement is that two months before, she was attackedby severe flu and lost 10 pounds of weight and that she was advised by Dr. Sison to go to the United States as soon as possible for medical check-up and relaxation, (Ibid). In fact, Senator Lopez stated, as shown a few pages after in the transcript of his testimony, that Mrs. Lopez was sick when she left the Philippines: A. Well, my wife really felt very bad during the entire trip from Tokyo to San Francisco. In the first place, she was sick when we left the Philippines, and then with that discomfort which she [experienced] or suffered during that evening, it was her worst experience. I myself, who was not sick, could not sleep because of the discomfort. (Tsn., pp. 27-28, Nov. 25, 1960). It is not hard to see that in her condition then a physical discomfort sustained for thirteen hours may well be considered a physical suffering. And even without regard to the noise and trepidation inside the plane which defendant contends, upon the strengh of expert testimony, to be practically the same in first class and tourist class the fact that the seating spaces in the tourist class are quite narrower than in first class, there beingsix seats to a row in the former as against four to a row in the latter, and that in tourist class there is very little space for reclining in view of the closer distance between rows (Tsn., p. 24, Nov. 25, 1960), will suffice to show that the aforesaid passenger indeed experienced physical suffering during the trip.

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Added to this, of course, was the painfull thought that she was deprived by defendant after having paid for and expected the same of the most suitable, place for her, the first class, where evidently the best of everything would have been given her, the best seat, service, food and treatment. Such difference in comfort between first class and tourist class is too obvious to be recounted, is in fact the reason for the former's existence, and is recognized by the airline in charging a higher fare for it and by the passengers in paying said higher rate Accordingly, considering the totality of her suffering and humiliation, an award to Mrs. Maria J. Lopez of P50,000.00 for moral damages will be reasonable. Mr. and Mrs. Alfredo Montelibano, Jr., were travelling as immediate members of the family of Senator Lopez. They formed part of the Senator's party as shown also by the reservation cards of PAN-AM. As such they likewise shared his prestige and humiliation. Although defendant contends that a few weeks before the flight they had asked their reservations to be charged from first class to tourist class which did not materialize due to alleged full booking in the tourist class the same does not mean they suffered no shared in having to take tourist class during the flight. For by that time they had already been made to pay for first class seats and therefore to expect first class accommodations. As stated, it is one thing to take the tourist class by free choice; a far different thing to be compelled to take it notwithstanding having paid for first class seats. Plaintiffs-appellants now ask P37,500.00 each for the two but we note that in their motion for reconsideration filed in the court a quo, they were satisfied with P25,000.00 each for said persons. (Record on Appeal, p. 102). For their social humiliation, therefore, the award to them of P25,000.00 each is reasonable. The rationale behind exemplary or corrective damages is, as the name implies, to provide an example or correction for public good. Defendant having breached its contracts in bad faith, the court, as stated earlier, may award exemplary damages in addition to moral damages (Articles 2229, 2232, New Civil Code). In view of its nature, it should be imposed in such an amount as to sufficiently and effectively deter similar breach of contracts in the future by defendant or other airlines. In this light, we find it just to award P75,000.00 as exemplary or corrective damages. Now, as to attorney's fees, the record shows a written contract of services executed on June 1, 1960 (Exh. F) whereunder plaintiffs-appellants engaged the services of their counsel Atty. Vicente J. Francisco and agreedto pay the sum of P25,000.00 as attorney's fees upon the termination of the case in the Court of First Instance, and an additional sum of P25,000.00 in the event the case is appealed to the Supreme Court. As said earlier, a written contract for attorney's services shall control the amount to be paid therefor unless found by the court to be unconscionable or unreasonable. A consideration of the subject matter of the present controversy, of the professional standing of the attorney for plaintiffs-appellants, and of the extent of the service rendered by him, shows that said amount provided for in the written agreement is reasonable. Said lawyer whose prominence in the legal profession is well known studied the case, prepared and filed the complaint, conferred with witnesses, analyzed documentary evidence, personally appeared at the trial of the case in twenty-two days, during a period of three years, prepared four sets of cross-interrogatories for deposition taking, prepared several memoranda and the motion for reconsideration, filed a joint record on appeal with defendant, filed a brief for plaintiffs as appellants consisting of 45 printed pages and a brief for plaintiffs as appellees consisting of 265 printed pages. And we are further convinced of its reasonableness because defendant's counsel likewise valued at P50,000.00 the proper compensation for his services rendered to defendant in the trial court and on appeal. In concluding, let it be stressed that the amount of damages awarded in this appeal has been determined by adequately considering the official, political, social, and financial standing of the offended parties on one hand, and the business and financial position of the offender on the other (Domingding v. Ng, 55 O.G. 10). And further considering the present rate of exchange and the terms at which the amount of damages awarded would approximately be in U.S. dollars, this Court is all the more of the view that said award is proper and reasonable. Wherefore, the judgment appealed from is hereby modified so as to award in favor of plaintiffs and against defendant, the following: (1) P200,000.00 as moral damages, divided among plaintiffs, thus: P100,000.00 for Senate President Pro Tempore Fernando Lopez; P50,000.00 for his wife Maria J. Lopez; P25,000.00 for his son-inlaw Alfredo Montelibano, Jr.; and P25,000.00 for his daughter Mrs. Alfredo Montelibano, Jr.; (2) P75,000.00 as exemplary or corrective damages; (3) interest at the legal rate of 6% per annum on the moral and exemplary damages aforestated, from December 14, 1963, the date of the amended decision of the court a quo, until said damages are fully paid; (4) P50,000.00 as attorney's fees; and (5) the costs. Counterclaim dismissed.So ordered.