4th Assignment

4th Assignment................................................................................................................................1
1. Compania Maritima v. Insurance Co...........................................................................................2
3. H.E. Heacock Co. v. Macondray and Co...................................................................................13
4. Eastern Shipping Lines v. IAC..................................................................................................17
5. Sealand Service v. IAC..............................................................................................................26
7. Maersk Line v. CA.....................................................................................................................38
8. Cathay Pacific v. CA..................................................................................................................46
9. La Mallorca v. De Jesus.............................................................................................................51
10. Lara v. Valencia.......................................................................................................................57
11. Dangwa v. CA..........................................................................................................................61
12. China Airlines v. CA................................................................................................................67

1. Compania Maritima v. Insurance Co.

EN BANC
[G.R. No. L-18965. October 30, 1964.]
COMPAIA MARITIMA, petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA,
respondent.
Rafael Dinglasan for petitioner.
Ozaeta, Gibbs & Ozaeta for respondent.
SYLLABUS
1.
CONTRACT OF CARRIAGE; WHEN CONTRACT COMPLETED; LOADING OF CARGO ON
CARRIER'S BARGE PREPARATORY TO LOADING ON SHIP. Where the shipper delivered the
cargo to the carrier and the latter took possession thereof by placing it on a lighter or barge
manned by its authorized employees, it is held that there existed a complete contract of
carriage the consummation of which had already begun.
2.
ID.; ID.; BILL OF LADING NOT INDISPENSABLE TO CONTRACT. A bill of lading is not
indispensable for the creation of a contract of carriage.
3.
ID.; CARRIER'S LIABILITY FOR DAMAGE TO CARGO; WHEN STORM DEEMED TO EXIST.
Winds of 11 miles per hour, although stronger than the average 4.6 miles per hour then
prevailing in the damage since there was no contract of carriage between it and classified as
a storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to 75
miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of
from 55 to 74 miles per hour to be classified as a storm.
4.
ID.; ID.; IMPLIED ADMISSION BY CARRIER OF CHARGES IN WAIVING ITS RIGHT TO
HAVE BOOKS OF ACCOUNTS OF SHIPPER PRODUCED IN COURT. The act of the carrier in
waiving its right to have the books of account of the shipper presented in Court is
tantamount to an admission that the statements contained therein concerning the charges
the latter made for the loss of the damaged cargo are correct and their verification not
necessary because its main defense was that it was not liable for the damage since there
was no contract of carriage between it and the shipper and the loss caused, if any, was due
to a fortuitous event.
5.
INSURANCE; RIGHT OF INSURER TO SUE CARRIER AS ASSIGNEE OF SHIPPER; DEFECT
IN INSURANCE POLICY ON DEFENSE. An insurance company can sue the carrier under its
insurance contract as assignee of the shipper, and the carrier cannot set up as a defense
any defect in the insurance policy.
6.
ID.; ID.; WHEN PROOF OF PERSONALITY OF FOREIGN INSURANCE COMPANY NOT
IMPORTANT. The question of the personality of a foreign insurance company to sue in this
jurisdiction becomes of no importance where the carrier's attorney admitted in open court
that it is a foreign insurance company doing business in the Philippines with a personality to
file the present action.
DECISION
BAUTISTA ANGELO, J p:
Sometime in October, 1952, Macleod and Company of the Philippines contracted by
telephone the services of the Compaia Maritima, a shipping corporation, for the shipment
of 2,645 bales of hemp from the former's Sasa private pier at Davao City to Manila and for
their subsequent transshipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel
Navigator. This oral contract was later on confirmed by a formal and written booking issued
by Macleod's branch office in Sasa and hand carried to Compaia Maritima's branch office in
Davao in compliance with which the latter sent to Macleod's private wharf LCT Nos. 1023
and 1025 on which the loading of the hemp was completed on October 29, 1952. These two
lighters were manned each by a patron and an assistant patron. The patron of both barges
issued the corresponding carrier's receipts and that issued by the patron of Barge No. 1025
reads in part:
"Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF THE PHILIPPINES, SASA, Davao, for transshipment at Manila onto S.S. Steel
Navigator.

"FINAL DESTINATION: Boston"

Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the
government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot
belonging to Compaia Maritima on which the hemp was to be loaded. During the night of
October 29, 1952, or at the early hours of October 30, LCT No. 1025 sank resulting in the
damage or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod
promptly notified the carrier's main office in Manila and its branch in Davao advising it of its
liability. The damaged hemp was brought to Odell Plantation in Madaum, Davao, for
cleaning, washing, reconditioning, and redrying. During the period from November 1-15,
1952, the carrier's trucks and lighters hauled from Odell to Macleod at Sasa a total of
2,197.75 piculs of the reconditioned hemp out of the original cargo of 1,162 bales weighing
2,324 piculs, which had a total of P116,835.00. After reclassification, the value of the
reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72. Adding to
this last amount the sum of P8,863.30 representing Macleod's expenses in checking,
grading, rebaling, and other fees for washing, cleaning and redrying in the amount of
P19,610.00, the total loss adds up to P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No.
1025, were insured with the Insurance Company of North America against all losses and
damages. In due time, Macleod filed a claim for the loss it suffered as above stated with said
insurance company, and after the same had been processed, the sum of P64,018.55 was
paid, which was noted down in a document which, aside from being a receipt of the amount
paid, was a subrogation agreement between Macleod and the insurance company wherein
the former assigned to the latter its rights over the insured and damaged cargo. Having
failed to recover from the carrier the sum of P60,421.021, which is the only amount
supported by receipts, the insurance company instituted the present action on October 28,
1953.
After trial, the court a quo rendered judgment ordering the carrier to pay the insurance
company the sum of P60,421.02, with legal interest thereon from the date of the filing of the
complaint until fully paid, and the costs. This judgment was affirmed by the Court of Appeals
on December 14, 1960. Hence, this petition for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier and
the shipper even if the loss occurred when the hemp was loaded on a barge owned by the
carrier which was loaned free of charge and was not actually loaded on the S.S. Bowline
Knot which would carry the hemp to Manila and no bill of lading was issued therefor?; (2)
Was the damage caused to the cargo or the sinking of the barge where it was loaded due to
a fortuitous event, storm or natural disaster that would exempt the carrier from liability?; (3)
Can respondent insurance company sue the carrier under its insurance contract as assignee
of Macleod in spite of the fact that the liability of the carrier as insurer is not recognized in
this jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an
implied admission by the carrier of the correctness and sufficiency of the shipper's
statement of accounts contrary to the burden of proof rule?; and (5) Can the insurance
company maintain this suit without proof of its personality to do so?
1.
This issue should be answered in the affirmative. As found by the Court of Appeals,
Macleod and Company contracted by telephone the services of petitioner to ship the hemp
in question from the former's private pier at Sasa, Davao City, to Manila, to be subsequently
transshipped to Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a
formal and written booking issued by the shipper's branch office, Davao City, in virtue of
which the carrier sent two of its lighters to undertake the service. It also appears that the
patrons of said lighters were employees of the carrier with due authority to undertake the
transportation and to sign the documents that may be necessary therefor so much so that
the patron of LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein as
follows:
"Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF THE PHILIPPINES, Sasa, Davao, for transshipment at Manila onto S.S. Steel
Navigator.

"FINAL DESTINATION: Boston."

The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's
wharf at Sasa preparatory to its loading unto the ship Bowline Knot does not in any way
impair the contract of carriage already entered into between the Carrier and the shipper, for
that preparatory steps is but a part and parcel of said contract of carriage. The lighters were
merely employed as the first step of the voyage, but once that step was taken and the hemp
delivered to the carrier's employees, the rights and obligations of the parties attached
thereby subjecting them to the principles and usages of the maritime law. In other words,
here we have a complete contract of carriage the consummation of which has already
begun: the shipper delivering the cargo to the carrier, and the latter taking possession
thereof by placing it on a lighter manned by its authorized employees, under which Macleod
became entitled to the privilege secured to him by law for its safe transportation and
delivery, and the carrier to the full payment of its freight upon completion of the voyage.
"The receipt of goods by the carrier has been said to lie at the foundation of the contract to
carry and deliver, and if actually no goods are received there can be no contract. The
liability and responsibility of the carrier under a contract for the carriage of goods
commence on their actual delivery to, or receipt by, the carrier or an authorized agent. . . .
and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the
custom to deliver in that way, is a good delivery and binds the vessel receiving the freight,
the liability commencing at the time of delivery to the lighter. . . and, similarly, where there
is a contract to carry goods from one port to another, and they cannot be loaded directly on
the vessel, and lighters are sent by the vessel to bring the goods to it, the lighters are for
the time its substitutes, so that the bill of lading is applicable to the goods as soon as they
are placed on the lighters." (80 C.J.S., p. 901, italics supplied)
". . . The test as to whether the relation of shipper and carrier had been established is, had
the control and possession of the cotton been completely surrendered by the shipper to the
railroad company? Whenever the control and possession of goods passes to the carrier and
nothing remains to be done by the shipper, then it can be said with certainty that the
relation of shipper and carrier has been established. Railroad Co. vs. Murphy, 60 Ark. 333,
30 S. W. 419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. vs. MaKenzie, 75 Ark. 100,
86 S.W. 834; Mathews & Hood vs. St. L., I. M. & S. R. Co., 123 Ark. 365, 185 S. W. 461, L. R.A.
1916E, 1194." (W. F. Bogart & Co., et al. vs. Wade, et al., 200 S. W. 148).
The claim that there can be no contract of affreightment because the hemp was not actually
loaded on the ship that was to take it from Davao City to Manila is of no moment, for, as
already stated, the delivery of the hemp to the carrier's lighter is in line with the contract. In
fact, the receipt signed by the patron of the lighter that carried the hemp stated that he was
receiving the cargo "in behalf of S.S. Bowline Knot in good order and condition. On the other
hand, the authorities are to the effect that a bill of lading is not indispensable for the
creation of a contract of carriage.
"Bill of lading not indispensable to contract of carriage. As to issuance of a bill of lading,
although Article, 350 of the Code of Commerce provides that 'the shipper as well as the
carrier of merchandise of goods may mutually demand that a bill of lading be made,' still,
said bill of lading is not indispensable. 'As regards the form of the contract of carriage it can
be said that provided that there is a meeting of the minds and from such meeting arise
rights and obligations, there should be no limitations as to form.' The bill of lading is not
essential to the contract, although it may become obligatory by reason of the regulations of
railroad companies, or as a condition imposed in the contract by the agreement of the
parties themselves. The bill of lading is juridically a documentary proof of the stipulations
and conditions agreed upon by both parties. (Del Viso p. 314-315; Robles vs. Santos, 44
O.G., 2268). In other words, the Code does not demand, as necessary requisite in the
contract of transportation, the delivery of the bill of lading to the shipper, but gives right to
both the carrier and the shipper to mutually demand of each other the delivery of said bill.
(Sp. Sup. Ct. Decision, May 6, 1895)." (Martin, Philippine Commercial Laws, Vol. II, Revised
Edition, pp. 12-13)

"The liability of the carrier as common carrier begins with the actual delivery of the goods
for transportation, and not merely with the formal execution of a receipt or bill of lading; the
issuance of a bill of lading is not necessary to complete delivery and acceptance. Even
where it is provided by statute that liability commences with the issuance of the bill of
lading, actual delivery and acceptance are sufficient to bind the carrier." (13 C.J.S., p. 288)
2.
Petitioner disclaims responsibility for the damage of the cargo in question shielding
itself behind the claim of force majeure or storm which occurred on the night of October 29,
1952. But the evidence fails to bear this out. Rather, it shows that the mishap that caused
the damage or loss was due, not to force majeure, but to lack of adequate precaution or
measures taken by the carrier to prevent the loss as may be inferred from the following
findings of the Court of Appeals:
"Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had
cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in the
same manner as rain entered 'thru tank manholes,' according to the patron of LCT No. 1023
(exh. JJJ-4) conclusively showing that the barge was not seaworthy it should be noted
that on the night of the nautical accident there was no storm, flood, or other natural disaster
or calamity. Certainly, winds of 11 miles per hour, although stronger than the average 4.6
miles per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot be classified as
storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to 75
miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of
from 55 to 74 miles per hour in order to be classified as a storm (Northern Assurance Co.,
Ltd. vs. Visayan Stevedore Transportation Co., CA-G. R. No. 23167-R. March 12, 1959)."
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors,
attributes the sinking of LCT No. 1025 to the non-watertight conditions of various buoyancy
compartments' (exh. JJJ); and this report finds confirmation on the above mentioned
admission of two witnesses for appellant concerning the cracks of the lighter's bottom and
the entrance of the rain water 'thru manholes.'" We are not prepared to dispute this finding
of the Court of Appeals.
3.
There can also be no doubt that the insurance company can recover from the carrier
as assignee of the owner of the cargo for the insurance amount it paid to the latter under
the insurance contract. And this is so because since the Cargo that was damaged was
insured with respondent company and the latter paid the amount represented by the loss, it
is but fair that it be given the right to recover from the party responsible for the loss. The
instant case, therefore, is not one between the insured and the insurer, but one between the
shipper and the carrier, because the insurance company merely stepped into the shoes of
the shipper. And since the shipper has a direct cause of action against the carrier on account
of the damage of the cargo, no valid reason is seen why such action cannot be asserted or
availed of by the insurance company as a subrogee of the shipper. Nor can the carrier set up
as a defense any defect in the insurance policy not only because it is not a privy to it but
also because it cannot avoid its liability to the shipper under the contract of carriage which
binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find
fitting the following comments of the Court of Appeals:
"It was not imperative and necessary for the trial court to pass upon the question of whether
or not the disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-134
issued by appellee. Appellant was neither a party nor privy to this insurance contract, and
therefore cannot avail itself of any defect in the policy which may constitute a valid reason
for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway whatever
defect the policy contained, if any, is deemed to have been waived by the subsequent
payment of Macleod's claim by appellee. Besides, appellant is herein sued in its capacity as
a common carrier, and appellee is suing as the assignee of the shipper pursuant to Exhibit
M. Since, as above demonstrated, appellant is liable to Macleod and Company of the
Philippines for the loss of or damage to the 1,162 bales of hemp after these were received in
good order and condition by the patron of appellant's LCT No. 1025, it necessarily follows
that appellant is likewise liable to appellee who, as assignee of Macleod, merely stepped into

the shoes of and substituted the latter in demanding from appellant the payment for the loss
and damage aforecited."
4.
It should be recalled in connection with this issue that during the trial of this case the
carrier asked the lower court to order the production of the books of accounts of the Odell
Plantation containing the charges it made for the loss of the damaged hemp for verification
of its accountants, but later it desisted therefrom on the claim that it finds their production
no longer necessary. This desistance notwithstanding, the shipper however presented other
documents to prove the damage it suffered in connection with the cargo and on the strength
thereof the court a quo ordered the carrier to pay the sum of P60,421.02. And having the
Court of Appeals affirmed this award upon the theory that the desistance of the carrier from
producing the books of accounts of Odell Plantation implies an admission of the correctness
of the statements of accounts contained therein, petitioner now contends that the Court of
Appeals erred in basing the affirmance of the award on such erroneous interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books of
accounts of Odell Plantation presented in Court is tantamount to an admission that the
statements contained therein are correct and their verification not necessary because its
main defense here, as well as below, was that it is not liable for the loss because there was
no contract of carriage between it and the shipper and the loss caused, if any, was due to a
fortuitous event. Hence, under the carrier's theory, the correctness of the account
representing the loss was not so material as would necessitate the presentation of the books
in question. At any rate, even if the books of accounts were not produced, the correctness of
the accounts cannot now be disputed for the same is supported by the original documents
on which the entries in said books were based which were presented by the shipper as part
of its evidence. And according to the Court of Appeals, these documents alone sufficiently
establish the award of P60,421.02 made in favor of respondent.
5.
Finally, with regard to the question concerning the personality of the insurance
company to maintain this action, we find the same of no importance, for the attorney
himself of the carrier admitted in open court that it is a foreign corporation doing business in
the Philippines with a personality to file the present action.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.
Bengzon, C.J., Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, Makalintal,
Bengzon, J.P. and Zaldivar, JJ., concur.

2. Samar Mining Co. v. Nordeutscher Lloyd

SECOND DIVISION
[G.R. No. L-28673. October 23, 1984.]
SAMAR MINING COMPANY, INC., plaintiff-appellee, vs. NORDEUTSCHER LLOYD and C.F.
SHARP & COMPANY, INC., defendants-appellants.
P. de Ocampo for plaintiff-appellee.
Ross Salcedo for defendants-appellants.
SYLLABUS
1.
COMMERCIAL LAW; COMMON CARRIERS; BILL OF LADING; BILL OF LADING IS RECEIPT
FOR GOODS AND A CONTRACT BETWEEN THE PARTIES. A bill of lading operates both as a
receipt for the goods, and more importantly, as a contract to transport and deliver the same
as stipulated therein. Being a contract, it is the law between the parties thereto, who are
bound by its terms and conditions provided that these are not contrary to law, morals, good
customs, public order and public policy.
2.
ID.; ID.; ID.; ID.; CASE AT BAR. Bill of Lading No. 18 sets forth in page 2 thereof that
one (1) crate of Optima welded wedge wire sieves was received by the carrier
NORDEUTSCHER LLOYD at the "port of loading" which is Bremen, Germany, while the freight
had been prepaid, up to the port of destination or the "port of discharge of goods," in this
case, Davao, the carrier undertook to transport the goods in its vessel, M/S
SCHWABENSTEIN, only up to the "port of discharge from ship" Manila. Thereafter, the
goods were to be transshipped by the carrier to the port of destination or "port of discharge
of goods." The stipulation is plainly indicated on the face of the bill which contains the
following phrase printed below the space provided for the "port of discharge from ship,"
thus: "if goods are to be transshipped at port of discharge, show destination under the
column for 'description of contents.'" As instructed above, the following words appeared
typewritten under the column for "description of contents:" "PORT OF DISCHARGE OF
GOODS: DAVAO FREIGHT PREPAID." It is clear, then, that in discharging the goods from the
ship at the port of Manila, and delivering the same into the custody of AMCYL, the bonded
warehouse, appellants were acting in full accord with the contractual stipulations contained
in Bill of Lading No. 18. The delivery of the goods to AMCYL was part of appellants' duty to
transship the goods from Manila to their port of destination Davao. The word "transship"
means: "to transfer for further transportation from one ship or conveyance to another."
3.
ID.; ID.; ID.; ID.; VALIDITY OF STIPULATIONS IN BILL OF LADING EXEMPTING CARRIER
FROM LIABILITY UPHELD. The extent of appellant carrier's responsibility and/or liability in
the transshipment of the goods in question are spelled out and delineated under Section 1,
paragraph 3 of Bill of Lading No. 18; and in Section 11 of the same Bill. Defendantsappellants now shirk liability for the loss of the subject goods by claiming that they have
discharged the same in full and good condition unto the custody of AMCYL at the port of
discharge from ship-Manila, and therefore, pursuant to the stipulation (Sec. 11) in the bill of
lading, their responsibility for the cargo had ceased. We find merit in appellant's stand. The
validity of stipulation in bill of lading exempting the carrier from liability for loss or damage
to the goods when the same are not in its actual custody has been upheld by Us in PHOENIX
ASSURANCE CO., LTD. vs. UNITED STATES LINES, 22 SCRA 674 (1968). Said case matches
the present controversy not only as to the material facts but more importantly, as to the
stipulations contained in the bill of lading concerned. As if to underline their awesome
likeness, the goods in question in both cases were destined for Davao, but were discharged
from ship in Manila, in accordance with their respective bills of lading. Finding the
stipulations not contrary to law, morals, good customs, public order or public policy, We
sustained their validity. Applying said stipulations as the law between the parties in the
aforecited case, the Court concluded that: ". . . The short form bill of lading ( )states in no
uncertain terms that the port of discharge of the cargo is Manila, but that the same was to
be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the
long form Bill of Lading ( ), appellee's responsibility as a common carrier ceased the moment
the goods were unloaded in Manila; and in the matter of transshipment, appellee acted
merely as an agent of the shipper and consignee. . . . " (Italics supplied)

4.
ID.; ID.; LIABILITY OF COMMON CARRIERS; LAWS APPLICABLE THEREON. The
liability of the common carrier for the loss, destruction or deterioration of goods transported
from a foreign country to the Philippines is governed primarily by the New Civil Code. In all
matters not regulated by said Code, the rights and obligations of common carriers shall be
governed by the Code of Commerce and by special laws.
5.
ID.; ID.; ID.; LIABILITY OF COMMON CARRIER IN CASE AT BAR GOVERNED BY ART.
1736 IN CASE AT BAR. Article 1736 is applicable to the instant suit. Under said article, the
carrier may be relieved of the responsibility for loss or damage to the goods upon actual or
constructive delivery of the same by the carrier to the consignee, or to the person who has a
right to receive them. In sales, actual delivery has been defined as the ceding of corporeal
possession by the seller, and the actual apprehension of corporal possession by the buyer or
by some person authorized by him to receive the goods as his representative for the
purpose of custody or disposal. By the same token, there is actual delivery in contracts for
the transport of goods when possession has been turned over to the consignee or to his duly
authorized agent and a reasonable time is given him to remove the goods. The court a quo
found that there was actual delivery to the consignee through its duly authorized agent, the
carrier. It becomes necessary at this point to dissect the complex relationship that had
developed between appellant and appellee in the course of the transactions that gave birth
to the present suit. Two undertakings appeared embodied and/or provided for in the Bill of
Lading in question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to
Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to DAVAO, with
appellant acting as agent of the consignee. At the hiatus between these two undertakings of
appellant which is the moment when the subject goods are discharged in Manila, its
personality changes from that of carrier to that of agent of the consignee. Thus, the
character of appellant's possession also changes, from possession in its own name as
carrier, into possession in the name of consignee as the latter's agent. Such being the case,
there was, in effect, actual delivery of the goods from appellant as carrier to the same
appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier,
ceases to be responsible for any loss or damage that may befall the goods from that point
onwards. This is the full import of Article 1736, as applied to the case before Us.
6.
ID.; ID.; ID.; ID.; APPELLANT IN CASE AT BAR NOT LIABLE EVEN AS AGENT OF THE
CONSIGNEE UNDER THE CIVIL CODE. Even as agent of the consignee, the appellant
cannot be made answerable for the value of the missing goods. It is true that the
transshipment of the goods, which was the object of the agency, was not fully performed.
However, appellant had commenced said performance, the completion of which was aborted
by circumstances beyond its control. An agent who carries out the orders and instructions of
the principal without being guilty of negligence, deceit or fraud, cannot be held responsible
for the failure of the principal to accomplish the object of the agency. This can be gleaned
from the provisions of Arts. 1884, 1889, 1892 and 1909 of the New Civil Code on the
obligations of the agent. The records fail to reveal proof of negligence, deceit or fraud
committed by appellant or by its representative in the Philippines. Neither is there any
showing of notorious incompetence or insolvency on the part of AMCYL which acted as
appellant's substitute in storing the goods awaiting transshipment.
DECISION
CUEVAS, J p:
This is an appeal taken directly to Us on certiorari from the decision of the defunct Court of
First Instance of Manila, finding defendants carrier and agent, liable for the value of goods
never delivered to plaintiff consignee. The issue raised is a pure question of law, which is,
the liability of the defendants, now appellants, under the bill of lading covering the subject
shipment.
The case arose from an importation made by plaintiff, now appellee, SAMAR MINING
COMPANY, INC., of one (1) crate Optima welded wedge wire sieves through the M/S
SCHWABENSTEIN, a vessel owned by defendant-appellant NORDEUTSCHER LLOYD,
(represented in the Philippines by its agent, C.F. SHARP & CO., INC.), which shipment is
covered by Bill of Lading No. 18 duly issued to consignee SAMAR MINING COMPANY, INC.

Upon arrival of the aforesaid vessel at the port of Manila, the aforementioned importation
was unloaded and delivered in good order and condition to the bonded warehouse of AMCYL.
1 The goods were however never delivered to, nor received by, the consignee at the port of
destination Davao.
When the letters of complaint sent to defendants failed to elicit the desired response,
consignee herein appellee, filed a formal claim for P1,691.93, the equivalent of $424.00 at
the prevailing rate of exchange at that time, against the former, but neither paid. Hence, the
filing of the instant suit to enforce payment. Defendants-appellants brought in AMCYL as
third party defendant.
The trial court rendered judgment in favor of plaintiff, ordering defendants to pay the
amount of P1,691.93 plus attorney's fees and costs. However, the Court stated that
defendants may recoup whatever they may pay plaintiff by enforcing the judgment against
third party defendant AMCYL which had earlier been declared in default. Only the
defendants appealed from said decision.
The issue at hand demands a close scrutiny of Bill of Lading No. 18 and its various clauses
and stipulations which should be examined in the light of pertinent legal provisions and
settled jurisprudence. This undertaking is not only proper but necessary as well because of
the nature of the bill of lading which operates both as a receipt for the goods; and more
importantly, as a contract to transport and deliver the same as stipulated therein. 2 Being a
contract, it is the law between the parties thereto, 3 who are bound by its terms and
conditions 4 provided that these are not contrary to law, morals, good customs, public order
and public policy. 5
Bill of Lading No. 18 sets forth in page 2 thereof 6 that one (1) crate of Optima welded
wedge wire sieves was received by the carrier NORDEUTSCHER LLOYD at the "port of
loading" which is Bremen, Germany, while the freight had been prepaid up to the port of
destination or the "port of discharge of goods", in this case, Davao, the carrier undertook to
transport the goods in its vessel, M/S SCHWABENSTEIN, only up to the "port of discharge
from ship" Manila. Thereafter, the goods were to be transshipped by the carrier to the
port of destination or "port of discharge of goods". The stipulation is plainly indicated on the
face of the bill which contains the following phrase printed below the space provided for the
"port of discharge from ship", thus:
"if goods are to be transshipped at port of discharge, show destination under the column for
`description of contents'" 7
As instructed above, the following words appeared typewritten under the column for
"description of contents":
"PORT OF DISCHARGE OF GOODS: DAVAO
FREIGHT PREPAID" 8
It is clear, then, that in discharging the goods from the ship at the port of Manila, and
delivering the same into the custody of AMCYL, the bonded warehouse, appellants were
acting in full accord with the contractual stipulations contained in Bill of Lading No. 18. The
delivery of the goods to AMCYL was part of appellants' duty to transship the goods from
Manila to their port of destination Davao. The word "transship" means:
"to transfer for further transportation from one ship or conveyance to another" 9
The extent of appellant carrier's responsibility and/or liability in the transshipment of the
goods in question are spelled out and delineated under Section 1, paragraph 3 of Bill of
Lading No. 18, to wit: cdphil
"The carrier shall not be liable in any capacity whatsoever for any delay, loss or damage
occurring before the goods enter ship's tackle to be loaded or after the goods leave ship's
tackle to be discharged, transshipped or forwarded . . . . " (Emphasis supplied)
and in Section 11 of the same Bill, which provides:
"Wherever the carrier or master may deem it advisable or in any case where the goods are
placed at carrier's disposal at or consigned to a point where the ship does not expect to load
or discharge, the carrier or master may, without notice, forward the whole or any part of the
goods before or after loading at the original port of shipment, . . . This carrier, in making
arrangements for any transshipping or forwarding vessels or means of transportation not

operated by this carrier shall be considered solely the forwarding agent of the shipper and
without any other responsibility whatsoever even though the freight for the whole transport
has been collected by him. . . . Pending or during forwarding or transshipping the carrier
may store the goods ashore or afloat solely as agent of the shipper and at risk and expense
of the goods and the carrier shall not be liable for detention nor responsible for the acts,
neglect, delay or failure to act of anyone to whom the goods are entrusted or delivered for
storage, handling or any service incidental thereto" (Emphasis supplied) 10
Defendants-appellants now shirk liability for the loss of the subject goods by claiming that
they have discharged the same in full and good condition unto the custody of AMCYL at the
port of discharge from ship Manila, and therefore, pursuant to the aforequoted stipulation
(Sec. 11) in the bill of lading, their responsibility for the cargo had ceased. 11
We find merit in appellants' stand. The validity of stipulations in bills of lading exempting the
carrier from liability for loss or damage to the goods when the same are not in its actual
custody has been upheld by Us in PHOENIX ASSURANCE CO., LTD. vs. UNITED STATES LINES,
22 SCRA 674 (1968). Said case matches the present controversy not only as to the material
facts but more importantly, as to the stipulations contained in the bill of lading concerned.
As if to underline their awesome likeness, the goods in question in both cases were destined
for Davao, but were discharged from ship in Manila, in accordance with their respective bills
of lading.
The stipulations in the bill of lading in the PHOENIX case which are substantially the same as
the subject stipulations before Us, provides:
"The carrier shall not be liable in any capacity whatsoever for any loss or damage to the
goods while the goods are not in its actual custody. (Par. 2, last subpar.)
xxx
xxx
xxx
The carrier or master, in making arrangements with any person for or in connection with all
transshipping or forwarding of the goods or the use of any means of transportation or
forwarding of goods not used or operated by the carrier, shall be considered solely the agent
of the shipper and consignee and without any other responsibility whatsoever or for the cost
thereof . . . (Par. 16)." 12
Finding the above stipulations not contrary to law, morals, good customs, public order or
public policy, We sustained their validity. 13 Applying said stipulations as the law between
the parties in the aforecited case, the Court concluded that:
". . . The short form Bill of Lading ( ) states in no uncertain terms that the port of discharge
of the cargo is Manila, but that the same was to be transshipped beyond the port of
discharge to Davao City. Pursuant to the terms of the long form Bill of Lading ( ), appellee's
responsibility as a common carrier ceased the moment the goods were unloaded in Manila;
and in the matter of transshipment, appellee acted merely as an agent of the shipper and
consignee. . . . . " (Emphasis supplied) 14
Coming now to the case before Us, We hold, that by the authority of the above
pronouncements, and in conformity with the pertinent provisions of the New Civil Code,
Section 11 of Bill of Lading No. 18 and the third paragraph of Section 1 thereof are valid
stipulations between the parties insofar as they exempt the carrier from liability for loss or
damage to the goods while the same are not in the latter's actual custody.
The liability of the common carrier for the loss, destruction or deterioration of goods
transported from a foreign country to the Philippines is governed primarily by the New Civil
Coded. 15 In all matters not regulated by said Code, the rights and obligations of common
carriers shall be governed by the Code of Commerce and by special laws. 16 A careful
perusal of the provisions of the New Civil Code on common carriers (Section 4, Title VIII,
Book IV) directs our attention to Article 1736 thereof, which reads: LibLex
"Article 1736. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738."
Article 1738 referred to in the foregoing provision runs thus:

"Article 1738. The extraordinary liability of the common carrier continues to be operative
even during the time the goods are stored in a warehouse of the carrier at the place of
destination, until the consignee has been advised of the arrival of the goods and has had
reasonable opportunity thereafter to remove them or otherwise dispose of them."
There is no doubt that Art. 1738 finds no applicability to the instant case. The said article
contemplates a situation where the goods had already reached their place of destination
and are stored in the warehouse of the carrier. The subject goods were still awaiting
transshipment to their port of destination, and were stored in the warehouse of a third party
when last seen and/or heard of. However, Article 1736 is applicable to the instant suit. Under
said article, the carrier may be relieved of the responsibility for loss or damage to the goods
upon actual or constructive delivery of the same by the carrier to the consignee, or to the
person who has a right to receive them. In sales, actual delivery has been defined as the
ceding of corporeal possession by the seller, and the actual apprehension of corporeal
possession by the buyer or by some person authorized by him to receive the goods as his
representative for the purpose of custody or disposal. 17 By the same token, there is actual
delivery in contracts for the transport of goods when possession has been turned over to the
consignee or to his duly authorized agent and a reasonable time is given him to remove the
goods. 18 The court a quo found that there was actual delivery to the consignee through its
duly authorized agent, the carrier.
It becomes necessary at this point to dissect the complex relationship that had developed
between appellant and appellee in the course of the transactions that gave birth to the
present suit. Two undertakings appeared embodied and/or provided for in the Bill of Lading
19 in question. The first is FOR THE TRANSPORT OF GOODS from Bremen, Germany to
Manila. The second, THE TRANSSHIPMENT OF THE SAME GOODS from Manila to Davao, with
appellant acting as agent of the consignee. 20 At the hiatus between these two
undertakings of appellant which is the moment when the subject goods are discharged in
Manila, its personality changes from that of carrier to that of agent of the consignee. Thus,
the character of appellant's possession also changes, from possession in its own name as
carrier, into possession in the name of consignee as the latter's agent. Such being the case,
there was, in effect, actual delivery of the goods from appellant as carrier to the same
appellant as agent of the consignee. Upon such delivery, the appellant, as erstwhile carrier,
ceases to be responsible for any loss or damage that may befall the goods from that point
onwards. This is the full import of Article 1736, as applied to the case before Us.
But even as agent of the consignee, the appellant cannot be made answerable for the value
of the missing goods. It is true that the transshipment of the goods, which was the object of
the agency, was not fully performed. However, appellant had commenced said performance,
the completion of which was aborted by circumstances beyond its control. An agent who
carries out the orders and instructions of the principal without being guilty of negligence,
deceit or fraud, cannot be held responsible for the failure of the principal to accomplish the
object of the agency, 21 This can be gleaned from the following provisions of the New Civil
Code on the obligations of the agent:
"Article 1884. The agent is bound by his acceptance to carry out the agency, and is liable for
the damages which, through his non-performance, the principal may suffer.
xxx
xxx
xxx
Article 1889. The agent shall be liable for damages if, there being a conflict between his
interests and those of the principal, he should prefer his own.
Article 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:
(1)
When he was not given the power to appoint one;
(2)
When he was given such power but without designating the person and the person
appointed was notoriously incompetent or insolvent.
xxx
xxx
xxx
Article 1909. The agent is responsible not only for fraud, but also for negligence which shall
be judged with more or less rigor by the courts, according to whether the agency was or was
not for a compensation."

The records fail to reveal proof of negligence, deceit or fraud committed by appellant or by
its representative in the Philippines. Neither is there any showing of notorious incompetence
or insolvency on the part of AMCYL which acted as appellant's substitute in storing the
goods awaiting transshipment. LLphil
The actions of appellant carrier and of its representative in the Philippines being in full faith
with the lawful stipulations of Bill of Lading No. 18 and in conformity with the provisions of
the New Civil Code on common carriers, agency and contracts, they incur no liability for the
loss of the goods in question.
WHEREFORE, the appealed decision is hereby REVERSED. Plaintiff-appellee's complaint is
hereby DISMISSED.
No costs.
SO ORDERED.
Makasiar, Guerrero, Abad Santos and Escolin, JJ ., concur.
Aquino, J ., concurs in the result as to defendants. AMCYL is liable.
Concepcion, Jr., J ., took no part.
Footnotes
1.
Transcript of Stenographic Notes, August 3, 1967, pp. 1-2.
2.
12 Am Ju 2d p. 782; Phoenix Ass. Co., Ltd. vs. United States Lines, 22 5 SCRA 674,
678.
3.
Article 1159, New Civil Code.
4.
Article 1308, New Civil Code.
5.
Article 1306, New Civil Code.
6.
Exhibit "A".
7.
Ibid.
8.
Ibid.
9.
Webster's Third International Dictionary, (unabridged).
10.
Op. cit.
11.
Appellants' Brief, page 5.
12.
Phoenix Assurance Co., Ltd. vs. United States Lines, 22 SCRA 674, 679-680.
13.
Ibid., page 682.
14.
Ibid., page 681.
15.
Articles 1732, 1753 and 1766, New Civil Code.
16.
Article 1766, New Civil Code.
17.
Moreno, Philippine Law Dictionary, citing Andrada vs. Argel, 65 O.G. 1054.
18.
11 Words and Phrases 676, citing Yazoo & MVR Company vs. Altman, 187 SW 656,
657.
19.
Bill of Lading No. 18, page 2.
20.
Bill of Lading No. 18, Section 11.
21.
Gutierrez Hermanos vs. Oria Hermanos, 30 Phil. 491.

3. H.E. Heacock Co. v. Macondray and Co.

plaintiff-appellant, vs. MACONDRAY & COMPANY, INC., defendant-appellant.
Fisher & DeWitt for plaintiff and appellant.
Wolfson, Wolfson & Schwarzkopf for defendant and appellant.
SYLLABUS
1.
COMMON CARRIER; BILL OF LADING; STIPULATIONS REGARDING LIABILITY OF
CARRIER FOR LOSS OF OR DAMAGE TO CARGO; VALIDITY OF SUCH STIPULATIONS. Three
kinds of stipulation have often been made in a bill of lading. The first is one exempting the
carrier from any and all liability for loss or damage occasioned by its own negligence. The
second is one providing for an unqualified limitation of such liability to an agreed valuation.
And the third is one limiting the liability of the carrier to an agreed valuation unless the
shipper declare a higher value and pays a higher rate of freight. According to an almost
uniform weight of authority, the first and second kinds of stipulations are invalid as being
contrary to public policy, but the third is valid and enforceable.
2.
ID.; ID. A stipulation in a bill of lading which either exempts the carrier from
liability for loss or damage occasioned by its negligences or provides for an unqualified
limitation of such liability to an agreed valuation, is invalid as being contrary to public policy.
3.
ID.; ID.; ID. But a stipulation in such bill of lading which limits the liability of the
carrier to a specified amount unless the shipper declares a higher value and pays a higher
rate of freight, is valid and enforceable. Thus, if a common carrier gives to a shipper the
choice of two rates, the lower of them conditioned upon his agreeing to a stipulated
valuation of his property in case of loss, even by the carrier's negligence, if the shipper
makes the choice understandingly and freely, and names his valuation, he cannot thereafter
recover more than the value which he thus places upon his property.
4.
CONTRACT; CONSTRUCTION OF, IN CASE OF DOUBT. A written contract, in case of
doubt, should be interpreted against the party who has drawn the contract. It is a wellknown principle of construction that ambiguity or uncertainty in an agreement must be
construed most strongly against the party causing it. There rules are applicable to contracts
contained in bills of lading. In construing a bill of lading given by the carrier for the safe
transportation and delivery of goods shipped by a consignor, the contract will be construed
most strongly against the carrier, and favorably to the consignor, in case of doubt in and
matter of construction.
DECISION
JOHNSON, J p:
This action was commenced in the Court of First Instance of the City of Manila to recover the
sum of P420 together with interest thereon. The facts are stipulated by the Parties, and are,
briefly, as follows:
(1)
On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board
the steamship Bolton Castle, then in the harbor of New York, four cases of merchandise one
of which contained twelve (12) 8-day Edmond clocks, properly boxed and marked for
transportation to Manila, and paid freight on said clocks from New York to Manila in advance.
The said steamship arrived in the port of Manila on or about the 10th day of September,
1919, consigned to the defendant herein as agent and representative of said vessel in said
port. Neither the master of said vessel nor the defendant herein, as its agent, delivered to
the plaintiff the aforesaid twelve 8-day Edmond clocks, although demand was made upon
them for their delivery.
(2)
The invoice value of the said twelve 8-day Edmond clocks in the city of New York was
P22 and the market value of the same in the City of Manila at the time when they should
have been delivered to the plaintiff was P420.
(3)
The bill of lading issued and delivered to the plaintiff by the master of the said
steamship Bolton Castle contained, among others, the following clauses:

"1.
It is mutually agreed that the value of the goods receipted for above does not exceed
$500 per freight ton, or, in proportion for any part of a ton, unless the value be expressly
stated herein and ad valorem freight paid thereon."
"9.
Also, that in the event of claims for short delivery of, or damage to, cargo being
made, the carrier shall not be liable for more than the net invoice price plus freight and
insurance less all charges saved, and any loss or damage for which the carrier may be liable
shall be adjusted pro rata on the said basis."
(4)
The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic
feet, and the freight ton value thereof was $1,480, U. S. currency.
(5)
No greater value than $500, U. S. currency, per freight ton was declared by the
plaintiff on the aforesaid clocks, and no ad valorem freight was paid thereon.
(6)
On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the
proportionate freight ton value of the aforesaid twelve 8-day Edmond clocks, in payment of
plaintiff's claim, which tender plaintiff rejected.
The lower court, in accordance with clause 9 or the bill of lading above quoted, rendered
judgment in favor of the plaintiff against the defendant for the sum of P226.02, this being
the invoice value of the clocks in question plus the freight and insurance thereon, with legal
interest thereon from November 20, 1919, the date of the complaint, together with costs.
From that judgment both parties appealed to this court.
The plaintiff-appellant insists that it is entitled to recover from the defendant the market
value of the clocks in question to wit: the sum of P420. The defendant-appellant, on he other
hand, contends that, in accordance with clause 1 a the bill of lading, the plaintiff is entitled
to recover only the sum of P76.36, the proportionate freight ton value of the said clocks. The
claim of the plaintiff is based upon the argument that the two clauses in the bill of lading
above quoted, limiting the liability of the carrier, are contrary to public order and, therefore,
null and void. The defendant, on the other hand, contends that both of said clauses are
valid, and that clause 1 should have been applied by the lower court instead of clause 9.
I.
The appeal of the plaintiff presents this question: May a common carrier, by
stipulations inserted in the bill of lading, limit its liability for the loss of or damage to the
cargo to an agreed valuation of the latter?
Three kinds of stipulations have often been made in a bill of lading. The first is one
exempting the carrier from any and all liability for loss or damage occasioned by its own
negligence. The second is one providing for an unqualified limitation of such liability to an
agreed valuation. And the third is one limiting the liability of the carrier to an agreed
valuation unless the shipper declares a higher vale and pays a higher rate of freight.
According to an almost uniform weight of authority, the first and second kinds of stipulations
are invalid as being contrary to public policy, but the third is valid and enforceable.
The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of
February 13, 1893]; Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express
Co., 4 McAr., 124; 48 Am. Rep., 742) support the proposition that the first and second
stipulations in a bill of lading are invalid which either exempt the carrier from liability for loss
or damage occasioned by its negligences or provide for an unqualified limitation of such
liability to an agreed valuation.
A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows
that the present case falls within the third stipulation, to wit: That a clause in a bill of lading
limiting the liability of the carrier to a certain amount unless the shipper declares a higher
value and pays a higher rate of freight, is valid and enforceable. This proposition is
supported by a uniform lien of decisions of the Supreme Court of the United States rendered
both prior and subsequent to the passage of the Harter Act, from the case of Hart vs.
Pennsylvania R. R. Co. (decided Nov. 24, 1884; 112 U. S., 331), to the case of the Union
Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921, Advance Opinions, 1920-1921, p. 318).
In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of
carriage, signed by the shipper, is fairly made with a railroad company, agreeing on a
valuation of the property carried, with the rate of freight based on the condition that the
carrier assumes liability only to the extent of the agreed valuation, even in case of loss or

damage by the negligence of the carrier, the contract will be upheld as proper and lawful
mode of recurring a due proportion between the amount for which the carrier may be
responsible and the freight he receives, and protecting himself against extravagant and
fanciful valuations."
In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases,
from the decision in Hart vs. Pennsylvania R. R. Co. (112 U. S., 331; 28 L. ed., 717; 5 Sup. Ct.
Rep., 151, decided in 1884), to Boston & M. R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820;
38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it has been declared to be
the settled Federal law that if a common carrier gives to a shipper the choice of two rates,
the lower of them conditioned upon his agreeing to a stipulated valuation of his property in
case of loss, even by the carrier's negligence, if the shipper makes such a choice,
understandingly and freely, and names his valuation, he cannot thereafter recover more
than the value which he thus places upon his property As a matter of legal distinction,
estoppel is made the basis of this ruling, that, having accepted the benefit of the lower
rate, in common honesty the shipper may not repudiate the conditions on which it was
obtained, but the rule and the effect of it are clearly established."
The syllabus of the same case reads as follows: "A carrier may not, by a valuation
agreement with a shipper, limit its liability in case of the loss by negligence of an interstate
shipment to less than the real value thereof, unless the shipper is given a choice of rates,
based on valuation."
"A limitation of liability based upon an agreed value to obtain a lower rate does not conflict
with any sound principle of public policy; and it is not conformable to plain principle of
justice that a shipper may understate value in order to reduce the rate and then recover a
larger value in case of loss." (Adams Express Co. vs. Croninger, 226 U. S, 491, 492.) See also
Reid vs. Fargo (130 C. C. A., 285); Jennings vs. Smith (45 C. C. A., 249); George N. Pierce Co.
vs. Wells, Fargo & Co. (236 U. S., 278); Wells, Fargo & Co. vs. Neiman-Marcus Co. (227 U. S.,
469).
It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading
here in question are not contrary to public order. Article 1255 of the Civil Code provides that
"the contracting parties may establish any agreements, terms and conditions they may
deem advisable, provided they are not contrary to law, morals or public order." Said clauses
of the bill of lading are, therefore, valid and binding upon the parties thereto.
II.
The question presented by the appeal of the defendant is whether clause 1 or clause
9 of the bill of lading here in question is to be adopted as the measure of defendant's
liability. Clause 1 provides as follows:
"1.
It is mutually agreed that the value of the goods receipted for above does not exceed
$500 per freight ton, or, in proportion for any part of a ton, unless the value be expressly
stated herein and ad valorem freight paid thereon." Clause 9 provides:
"9.
Also, that in the event of claims for short delivery of, or damage to, cargo being
made, the carrier shall not be liable for more than the net invoice price plus freight and
insurance less all charges saved, and any loss or damage for which the carrier may be liable
shall be adjusted pro rata on the said basis."
The defendant-appellant contends that these two clauses, if construed together, mean that
the shipper and the carrier stipulate and agree that the value of the goods receipted for
does not exceed $500 per freight ton, but should the invoice value of the goods be less than
$500 per freight ton, then the invoice value governs; that since in this case the invoice value
is more than $500 per freight ton, the latter valuation should be adopted and that according
to that valuation, the proportionate value of the clocks in question is only P76.36, which the
defendant is ready and willing to pay to the plaintiff.
It will be noted, however, that whereas clause 1 contains only an implied undertaking to
settle in case of 1085 on the basis of not exceeding $500 per freight ton, clause 9 contains
an express undertaking to settle on the basis of the net invoice price plus freight and
insurance less all charges saved. "Any loss or damage for which the carrier may be liable
shall be adjusted pro rata on the said basis," clause 9 expressly provides. It seems to us that
there is an irreconcilable conflict between the two clauses with regard to the measure of

defendant's liability. It is difficult to reconcile them without doing violence to the language
used and reading exceptions and conditions into the undertaking contained in clause 9 that
are not there. This being the case, the bill of lading in question should be interpreted against
the defendant carrier, which drew said contract. "A written contract should, in case of doubt,
be interpreted against the party who has drawn the contract." (6 R. C. L., 854.) It is a wellknown principle of construction that ambiguity or uncertainty in an agreement must be
construed most strongly against the party causing it. (6 R. C. L., 855.) These rules are
applicable to contracts contained in bills of lading. "In construing a bill of lading given by the
carrier for the safe transportation and delivery of goods shipped by a consignor, the contract
will be construed most strongly against the carrier, and favorably to the consignor, in case of
doubt in any matter of construction." (Alabama, etc. R. R. Co. vs. Thomas, 89 Ala., 294; 18
Am. St. Rep., 119.)
It follows from all of the foregoing that the judgment appealed from should be affirmed,
without any finding as to costs. So ordered.
Araullo, Street, Avancea, and Villamor, JJ., concur.

4. Eastern Shipping Lines v. IAC

FIRST DIVISION
[G.R. No. 69044. May 29, 1987.]
EASTERN SHIPPING LINES, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and
DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents.
[G.R. No. 71478. May 29, 1987.]
EASTERN SHIPPING LINES, INC., petitioner, vs. THE NISSHIN FIRE AND MARINE INSURANCE
CO., and DOWA FIRE & MARINE INSURANCE CO., LTD., respondents.
DECISION
MELENCIO-HERRERA, J p:
These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of
ship and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated
by petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier)
loaded at Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in
28 packages valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7
cases of spare parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets
of goods were insured against marine risk for their stated value with respondent
Development Insurance and Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of
garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel
Corporation, and two cases of surveying instruments consigned to Aman Enterprises and
General Merchandise. The 128 cartons were insured for their stated value by respondent
Nisshin Fire & Marine Insurance Co., for US$46,583.00, and the 2 cases by respondent Dowa
Fire & Marine Insurance Co., Ltd., for US$11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss
of ship and cargo. The respective respondent Insurers paid the corresponding marine
insurance values to the consignees concerned and were thus subrogated unto the rights of
the latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies,
filed suit against petitioner Carrier for the recovery of the amounts it had paid to the insured
before the then Court of First Instance of Manila, Branch XXX (Civil Case No. 116087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an
extraordinary fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in
the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus
P35,000.00 as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court
of Appeals which, on August 14, 1984, affirmed. cdrep
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. (NISSHIN, for short), and
Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured,
filed suit against Petitioner Carrier for the recovery of the insured value of the cargo lost
with the then Court of First Instance of Manila, Branch II (Civil Case No. 116151), imputing
unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner
Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the
sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of

Goods by Sea Act (COGSA); and that when the loss by fire is established, the burden of
proving negligence of the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in
the amounts of US$46,583.00 and US$11,385.00, respectively, with legal interest, plus
attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals
on September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing
the amount recoverable by DOWA to US$1,000.00 because of $500 per package limitation of
liability under the COGSA.
Hence, this Petition for Review on Certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by
the First Division, and G.R. No. 71478 on September 25, 1985 by the Second Division. Upon
Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due
course on March 25, 1985, and the parties were required to submit their respective
Memoranda, which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the
Resolution denying the Petition for Review and moved for its consolidation with G.R. No.
69044, the lower-numbered case, which was then pending resolution with the First Division.
The same was granted; the Resolution of the Second Division of September 25, 1985 was
set aside and the Petition was given due course. cdrep
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S
Asiatica but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier
stated in its Petition:
"There are about 22 cases of the 'ASIATICA' pending in various courts where various
plaintiffs are represented by various counsel representing various consignees or insurance
companies. The common defendant in these cases is petitioner herein, being the operator of
said vessel. . . ." 1
Petitioner Carrier should be held bound to said admission. As a general rule, the facts
alleged in a party's pleading are deemed admissions of that party and binding upon it. 2 And
an admission in one pleading in one action may be received in evidence against the pleader
or his successor-in-interest on the trial of another action to which he is a party, in favor of a
party to the latter action. 3
The threshold issues in both cases are: (1) which law should govern the Civil Code
provisions on common carriers or the Carriage of Goods by Sea Act? and (2) who has the
burden of proof to show negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the
common carrier in case of their loss, destruction or deterioration. 4 As the cargoes in
question were transported from Japan to the Philippines, the liability of Petitioner Carrier is
governed primarily by the Civil Code. 5 However, in all matters not regulated by said Code,
the rights and obligations of common carrier shall be governed by the Code of Commerce
and by special laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to
the provisions of the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over goods,
according to all the circumstances of each case. 8 Common carriers are responsible for the
loss, destruction, or deterioration of the goods unless the same is due to any of the following
causes only:
"(1)
Flood, storm, earthquake, lightning or other natural disaster or calamity;
xxx
xxx
xxx" 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the
phrase "natural disaster or calamity." However, we are of the opinion that fire may not be
considered a natural disaster or calamity. This must be so as it arises almost invariably from
some act of man or by human means. 10 It does not fall within the category of an act of God

unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be

caused by the actual fault or privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event
refers to leases of rural lands where a reduction of the rent is allowed when more than onehalf of the fruits have been lost due to such event, considering that the law adopts a
protective policy towards agriculture. 14
As the peril of fire is not comprehended within the exceptions in Article 1734, supra, Article
1735 of the Civil Code provides that in all cases other than those mentioned in Article 1734,
the common carrier shall be presumed to have been at fault or to have acted negligently,
unless it proves that it has observed the extraordinary diligence required by law.
In this case, the respective Insurers, as subrogees of the cargo shippers, have proven that
the transported goods have been lost. Petitioner Carrier has also proven that the loss was
caused by fire. The burden then is upon Petitioner Carrier to prove that it has exercised the
extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the
Appellate Court, made the following finding of fact: LexLib
"The cargoes in question were, according to the witnesses for the defendant, placed in
hatches No. 2 and 3 of the vessel. Boatswain Ernesto Pastrana noticed that smoke was
coming out from hatch No. 2 and hatch No. 3; that when the smoke was noticed, the fire was
already big; that the fire must have started twenty-four (24) hours before the same was
noticed; that carbon dioxide was ordered released and the crew was ordered to open the
hatch covers of No. 2 hold for commencement of fire fighting by sea water; that all of these
efforts were not enough to control the fire.
"Pursuant to Article 1733, common carriers are bound to observe extraordinary diligence in
the vigilance over the goods. The evidence of the defendant did not show that extraordinary
vigilance was observed by the vessel to prevent the occurrence of fire at hatches numbers 2
and 3. Defendant's evidence did not likewise show the amount of diligence made by the
crew, on orders, in the care of the cargoes. What appears is that after the cargoes were
stored in the hatches, no regular inspection was made as to their condition during the
voyage. Consequently, the crew could not have even explain what could have caused the
fire. The defendant, in the Court's mind, failed to satisfactorily show that extraordinary
vigilance and care had been made by the crew to prevent the occurrence of the fire. The
defendant, as a common carrier, is liable to the consignees for said lack of diligence
required of it under Article l733 of the Civil Code." 15
Having failed to discharge the burden of proving that it had exercised the extraordinary
diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article
1734 of the Civil Code, it is required under Article 1739 of the same Code that the "natural
disaster" must have been the "proximate and only cause of the loss," and that the carrier
has "exercised due diligence to prevent or minimize the loss before, during or after the
occurrence of the disaster." This Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act.
It is provided therein that:
"Sec. 4(2).
Neither the carrier nor the ship shall be responsible for loss or damage arising
or resulting from.
'(b)
Fire, unless caused by the actual fault or privity of the carrier.
xxx
xxx
xxx "
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that
there was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke
was noticed, the fire was already big; that the fire must have started twenty-four (24) hours
before the same was noticed;" and that "after the cargoes were stored in the hatches, no
regular inspection was made as to their condition during the voyage." The foregoing suffices
to show that the circumstances under which the fire originated and spread are such as to
show that Petitioner Carrier or its servants were negligent in connection therewith.
Consequently, the complete defense afforded by the COGSA when loss results from fire is
unavailing to Petitioner Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US$500 per package as
provided in section 4(5) of the COGSA, which reads:
"(5)
Neither the carrier nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an amount exceeding $500
per package lawful money of the United States, or in case of goods not shipped in packages,
per customary freight unit, or the equivalent of that sum in other currency, unless the
nature and value of such goods have been declared by the shipper before shipment and
inserted in bill of lading. This declaration if embodied in the bill of lading shall be prima facie
evidence, but shall be conclusive on the carrier.
"By agreement between the carrier, master or agent of the carrier, and the shipper another
maximum amount than that mentioned in this paragraph may be fixed: Provided, That such
maximum shall not be less than the figure above named. In no event shall the carrier be
liable for more than the amount of damage actually sustained."
xxx
xxx
xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
"Art. 1749.
A stipulation that the common carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding."
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier
to a fixed amount per package although the Code expressly permits a stipulation limiting
such liability. Thus, the COGSA, which is suppletory to the provisions of the Civil Code, steps
in and supplements the Code by establishing a statutory provision limiting the carrier's
liability in the absence of a declaration of a higher value of the goods by the shipper in the
bill of lading. The provisions of the Carriage of Goods by Sea Act on limited liability are as
much a part of a bill of lading as though physically in it and as much a part thereof as
though placed therein by agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and
"I-3") 17 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a
declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not
exceed US$500 per package, or its peso equivalent, at the time of payment of the value of
the goods lost, but in no case "more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"),
which was exactly the amount of the insurance coverage by Development Insurance (Exhibit
"A"), and the amount affirmed to be paid by respondent Court. The goods were shipped in
28 packages (Exhibit "C-2"). Multiplying 28 packages by $500 would result in a product of
$14,000 which, at the current exchange rate of P20.44 to US$1, would be P286,160, or
"more than the amount of damage actually sustained." Consequently, the aforestated
amount of P256,039 should be upheld. LLjur
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was
P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and
which amount was affirmed to be paid by respondent Court. However, multiplying seven (7)
cases by $500 per package at the present prevailing rate of P20.44 to US$1 (US$3,500 x
P20.44) would yield P71,540 only, which is the amount that should be paid by Petitioner
Carrier for those spare parts, and not P92,361.75.
In G.R. NO. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA, which was already reduced to $1,000 by the Appellate Court
following the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and
insured with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500
per package and affirmed the award of $46,583 to NISSHIN. It multiplied 128 cartons
(considered as COGSA packages) by $500 to arrive at the figure of $64,000, and explained
that "since this amount is more than the insured value of the goods, that is $46,583, the
Trial Court was correct in awarding said amount only for the 128 cartons, which amount is
less than the maximum limitation of the carrier's liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be
considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of
tin ingots and the shipper of floor covering brought action against the vessel owner and
operator to recover for loss of ingots and floor covering, which had been shipped in vesselsupplied containers. The U.S. District Court for the Southern District of New York rendered
judgment for the plaintiffs, and the defendant appealed. The United States Court of Appeals,
Second Division, modified and affirmed holding that:
"When what would ordinarily be considered packages are shipped in a container supplied by
the carrier and the number of such units is disclosed in the shipping documents, each of
those units and not the container constitutes the 'package' referred to in liability limitation
provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, . . . 4(5), 46
U.S.C.A. . . . 1304(5).
"Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether
carrier-furnished containers whose contents are disclosed should be treated as packages,
the interest in securing international uniformity would suggest that they should not be so
treated. Carriage of Goods by Sea Act, . . . 4(5), 46 U.S.C.A. . . . 1304(5).
". . . After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a
container as a package is inconsistent with the congressional purpose of establishing a
reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes
omitted):
Although this approach has not completely escaped criticism, there is, nonetheless, much to
commend it. It gives needed recognition to the responsibility of the courts to construe and
apply the statute as enacted, however great might be the temptation to 'modernize' or
reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers from
internal illness, Congress alone must undertake the surgery. There is, in this regard, obvious
wisdom in the Ninth Circuit's conclusion in Hartford that technological advancements,
whether or not foreseeable by the COGSA promulgators, do not warrant a distortion or
artificial construction of the statutory term 'package.' A ruling that these large reusable
metal pieces of transport equipment qualify as COGSA packages at least where, as here,
they were carrier-owned and supplied would amount to just such a distortion.
Certainly, if the individual crates or cartons prepared by the shipper and containing his
goods can rightly be considered 'packages' standing by themselves, they do not suddenly
lose that character upon being stowed in a carrier's container. I would liken these containers
to detachable stowage compartments of the ship. They simply serve to divide the ship's
overall cargo stowage space into smaller, more serviceable loci. Shippers' packages are
quite literally 'stowed' in the containers utilizing stevedoring practices and materials
analogous to those employed in traditional on board stowage. LLpr
"In Yeramex International v. S.S. Tando, 1977 A.M.C. 1807 (E.D. Va.), rev'd on other grounds,
595 F 2d 943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks'
reasoning in Matsushita and similarly rejected the functional economics test. Judge Kellam
held that when rolls of polyester goods are packed into cardboard cartons which are then
placed in containers, the cartons and not the containers are the packages.
"xxx
xxx
xxx"
The case of Smithgreyhound v. M/V Eurygenes 18 followed the Mitsui test:
"Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons
which were then placed by the shipper into a carrier-furnished container. The number of
cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test
and treated the cartons, not the container, as the COGSA packages. However, Eurygenes
indicated that a carrier could limit its liability to $500 per container if the bill of lading failed
to disclose the number of cartons or units within the container, or if the parties indicated, in
clear and unambiguous language, an agreement to treat the container as the package."

(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third
World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham
International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
"2 Containers.
"(128) Cartons)
==========
"Men's Garments Fabrics and Accessories Freight Prepaid.
"Say: Two (2) Containers Only."
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the
containers, the number of cartons or units, as well as the nature of the goods, and applying
the ruling in the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2)
containers should be considered as the shipping unit subject to the $500 limitation of
liability.
True, the evidence does not disclose whether the containers involved herein were carrierfurnished or not. Usually, however, containers are provided by the carrier. 19 In this case,
the probability is that they were so furnished for Petitioner Carrier was at liberty to pack and
carry the goods in containers if they were not so packed. Thus, at the dorsal side of the Bill
of Lading (Exhibit "A") appears the following stipulation in fine print:
"11.
(Use of Container) Where the goods receipt of which is acknowledged on the face of
this Bill of Lading are not already packed into container(s) at the time of receipt, the Carrier
shall be at liberty to pack and carry them in any type of container(s)."
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the
Bill of Lading, meaning that the goods could probably fit in two (2) containers only. It cannot
mean that the shipper had furnished the containers for if so, "Two (2) Containers" appearing
as the first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is
a cardinal principle in the construction of contracts that the interpretation of obscure words
or stipulations in a contract shall not favor the party who caused the obscurity. 20 This
applies with even greater force in a contract of adhesion where a contract is already
prepared and the other party merely adheres to it, like the Bill of Lading in this case, which
is drawn up by the carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044
only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the
depositions of its witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given full opportunity to present its evidence but it
failed to do so. On this point, the Trial Court found:
"xxx
xxx
xxx
"Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from
June 27, 1978, when its answer was prepared and filed in Court, until September 26, 1978,
when the pre-trial conference was conducted for the last time, the defendant had more than
nine months to prepare its evidence. Its belated notice to take deposition on written
interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two
days before the hearing set for August 27th, knowing fully well that it was its undertaking on
July 11th that the deposition of the witnesses would be dispensed with if by next time it had
not yet been obtained, only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy from the Court in that regard. The
defendant has told the Court since February 16, 1979, that it was going to take the
deposition of its witnesses in Japan. Why did it take until August 25, 1979, or more than six
months, to prepare its written interrogatories. Only the defendant itself is to blame for its
failure to adduce evidence in support of its defenses.
xxx
xxx
xxx" 22
Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot
complain now that it was denied due process when the Trial Court rendered its Decision on

the basis of the evidence adduced. What due process abhors is absolute lack of opportunity
to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court
affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of
Development Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in
G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that
the amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of
P5,000.00 in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern
Shipping Lines shall pay the Development Insurance and Surety Corporation the amount of
P256,039 for the twenty-eight (28) packages of calorized lance pipes, and P71,540 for the
seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of
the Complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.
2)
In G.R. No. 71478, the judgment is hereby affirmed.
SO ORDERED.
Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.
Separate Opinions
YAP, J., concurring and dissenting:
With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile
materials, and not the two (2) containers, should be considered as the shipping unit for the
purpose of applying the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA).
The majority opinion followed and applied the interpretation of the COGSA "package"
limitation adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd.
vs. American Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V
Eurygenes, 666, F 2d, 746. Both cases adopted the rule that carrier-furnished containers
whose contents are fully disclosed are not "packages" within the meaning of Section 4 (5) of
COGSA. prLL
I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the
present case, for the following reasons: (1) The facts in those cases differ materially from
those obtaining in the present case; and (2) the rule laid down in those two cases is by no
means settled doctrine.
In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company. In
Mitsui, the Court held: "Certainly, if the individual crates or cartons prepared by the shipper
and containing his goods can rightly be considered 'packages' standing by themselves, they
do not suddenly lose that character upon being stowed in a carrier's container. I would liken
these containers to detachable stowage compartments of the ship." Cartons or crates placed
inside carrier-furnished containers are deemed stowed in the vessel itself, and do not lose
their character as individual units simply by being placed inside container provided by the
carrier, which are merely "detachable stowage compartments of the ship."
In the case at bar, there is no evidence showing that the two containers in question were
carrier-supplied. This fact cannot be presumed. The facts of the case in fact show that this
was the only shipment placed in containers. The other shipment involved in the case,
consisting of surveying instruments, was packed in two "cases."
We cannot speculate on the meaning of the words "Say: Two (2) Containers Only," which
appear in the bill of lading. Absent any positive evidence on this point, we cannot say that
those words constitute a mere estimate that the shipment could fit in two containers,
thereby showing that when the goods were delivered by the shipper, they were not yet
placed inside the containers and that it was the petitioner carrier which packed the goods
into its own containers, as authorized under paragraph 11 on the dorsal side of the bill of
lading, Exhibit A. Such assumption cannot be made in view of the following words clearly
stamped in red ink on the face of the bill of lading: "Shipper's Load, Count and Seal Said to
Contain." This clearly indicates that it was the shipper which loaded and counted the goods
placed inside the container and sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment,
and the number of cartons said to be contained inside them was indicated in the bill of
lading, on the mere say-so of the shipper. The freight paid to the carrier on the shipment
was based on the measurement (by volume) of the two containers at $34.50 per cubic
meter. The shipper must have saved on the freight charges by using containers for the
shipment. Under the circumstances, it would be unfair to the carrier to have the limitation of
its liability under COGSA fixed on the number of cartons inside the containers, rather than
on the containers themselves, since the freight revenue was based on the latter. llcd
The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation
of the COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with
the troublesome problem of applying the statutory limitation under COGSA to containerized
shipments. The law was adopted before modern technological changes have revolutionized
the shipping industry. There is need for the law itself to be updated to meet the changes
brought about by the container revolution, but this is a task which should be addressed by
the legislative body. Until then, this Court, while mindful of American jurisprudence on the
subject, should make its own interpretation of the COGSA provisions, consistent with what is
equitable to the parties concerned. There is need to balance the interests of the shipper and
those of the carrier.
In the case at bar, the shipper opted to ship the goods in two containers, and paid freight
charges based on the freight unit, i.e., cubic meters. The shipper did not declare the value of
the shipment, for that would have entailed higher freight charges; instead of paying higher
freight charges, the shipper protected itself by insuring the shipment. As subrogee, the
insurance company can recover from the carrier only what the shipper itself is entitled to
recover, not the amount it actually paid the shipper under the insurance policy.
In our view, under the circumstances, the container should be regarded as the shipping unit
or "package" within the purview of COGSA. However, we realize that this may not be
equitable as far as the shipper is concerned. If the container is not regarded as a "package"
within the terms of COGSA, then, the $500.00 liability limitation should be based on "the
customary freight unit." Sec. 4 (5) of COGSA provides that in case of goods not shipped in
packages, the limit of the carrier's liability shall be $500.00 "per customary freight unit." In
the case at bar, the petitioner's liability for the shipment in question based on "freight unit"
would be $21,950.00 for the shipment of 43.9 cubic meters.
I concur with the rest of the decision.
Sarmiento, J ., concur.
Footnotes
1.
Petition, p. 6, Rollo of G.R. No. 69044, p. 15.
2.
Granada vs. PNB, 18 SCRA 1 (1966); Gardner vs. CA, 131 SCRA 85 (1984).
3.
P. 51, Vol. 5, Rules of Court by Ruperto G. Martin, citing 31 C.J.S., 1075.
4.
Article 1753, Civil Code.
5.
See Samar Mining Co., Inc. vs. Nordeutscher Lloyd, 132 SCRA 529 (1984).
6.
Art. 1766, Civil Code; Samar Mining Co. Inc. vs. Lloyd, supra.
7.
See American President Lines vs. Klepper, 110 Phil. 243, 248 (1960).
8.
Article 1733, Civil Code.
9.
Article 1734, Civil Code.
10.
Africa vs. Caltex (Phil.), 16 SCRA 448, 455 (1966).
11.
Lloyd vs. Haugh & K. Storage & Transport Co., 223 Pa. 148, 72 A 516; Forward v.
Pittard. ITR 27, 99 Eng. Reprint, 953.
12.
Article 1734, Civil Code.
13.
Section 4, Carriage of Goods by Sea Act.
14.
Manresa, cited in p. 147, V. Outline of Civil Law, J.B.L. Reyes and R.C. Puno.
15.
Decision, Court of Appeals in CA-G.R. No. 67848-R, appealed in G.R. No. 71478.
16.
Shackman v. Cunard White Star, D.C. N.Y. 1940, 31 F. Supp. 948, 46 USCA 866; cited
in Phoenix Assurance Company vs. Macondray, 64 SCRA 15 (1975).
17.
Folio of Exhibits, pp. 6 and 23.
18.
666 F. 2d 746, 1982 A.M.C. 320 (2d Cir. 1981).

19.
"A container is a permanent reusable article of transport equipment - not packaging
of goods durably made of metal, and equipped with doors for easy access to the goods and
for repeated use. It is designed to facilitate the handling, loading, stowage aboard ship,
carriage, discharge from ship, movement, and transfer of large numbers of packages
simultaneously by mechanical means to minimize the cost and risks of manually processing
each package individually. It functions primarily as ship's gear for cargo handling, and is
usually provided by the carrier. (Simon, The Law of Shipping Containers)" (Emphasis ours).
20.
Article 1377, Civil Code.
21.
See Qua Chee Gan vs. Law Union & Rock Ins. Co., Ltd., 98 Phil. 85 (1956).
22.
Amended Record on Appeal, Annex "D," p. 62; Rollo in G.R. No. 69044, p. 89.
23.
Associated Citizens Bank vs. Ople, 103 SCRA 130 (1981).
24.
Tajonera vs. Lamaroza, 110 SCRA 438 (1981).
YAP, J., concurring and dissenting:
1.
See R.M. Sharpe, Jr. and Mark E. Steiner, "The Container as 'Customary Freight Unit',
Round Two of the Container Debate?", South Texas Law Journal Vol. 24, No. 2 (1983).

5. Sealand Service v. IAC

FIRST DIVISION
[G.R. No. 75118. August 31, 1987.]
SEA-LAND SERVICE, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and PAULINO
CUE, doing business under the name and style of "SEN HIAP HING," respondents.
DECISION
NARVASA, J p:
The main issue here is whether or not the consignee of seaborne freight is bound by
stipulations in the covering bill of lading limiting to a fixed amount the liability of the carrier
for loss or damage to the cargo where its value is not declared in the bill.
The factual antecedents, for the most part, are not in dispute.
On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign
shipping and forwarding company licensed to do business in the Philippines, received from
Seaborne Trading Company in Oakland, California a shipment consigned to Sen Hiap Hing,
the business name used by Paulino Cue in the wholesale and retail trade which he operated
out of an establishment located on Borromeo and Plaridel Streets, Cebu City.
The shipper not having declared the value of the shipment, no value was indicated in the bill
of lading. The bill described the shipment only as "8 CTNS on 2 SKIDS-FILES." 1 Based on
volume measurements Sea-land charged the shipper the total amount of US$209.28 2 for
freightage and other charges. The shipment was loaded on board the MS Patriot, a vessel
owned and operated by Sea-Land, for discharge at the Port of Cebu.
The shipment arrived in Manila on February 12, 1981, and there discharged in Container No.
310996 into the custody of the arrastre contractor and the customs and port authorities. 3
Sometime between February 13 and 16, 1981, after the shipment had been transferred,
along with other cargoes to Container No. 40158 near Warehouse 3 at Pier 3 in South
Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen by pilferers and has never
been recovered. 4
On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the
value of the lost shipment allegedly amounting to P179,643.48. 5 Sea-Land offered to settle
for US$4,000.00, or its then Philippine peso equivalent of P30,600.00. asserting that said
amount represented its maximum liability for the loss of the shipment under the package
limitation clause in the covering bill of lading. 6 Cue rejected the offer and thereafter
brought suit for damages against Sea-Land in the then Court of First Instance of Cebu,
Branch X. 7 Said Court, after trial, rendered judgment in favor of Cue, sentencing Sea-Land
to pay him P186,048.00 representing the Philippine currency value of the lost cargo,
P55,814.00 for unrealized profit with one (1%) percent monthly interest from the filing of the
complaint until fully paid, P25,000.00 for attorney's fees and P2,000.00 as litigation
expenses. 8
Sea-Land appealed to the Intermediate Appellate Court. 9 That Court however affirmed the
decision of the Trial Court ". . . in all its parts . . . . " 10 Sea-Land thereupon filed the present
petition for review which, as already stated, poses the question of whether, upon the facts
above set forth, it can be held liable for the loss of the shipment in any amount beyond the
limit of US$500.00 per package stipulated in the bill of lading. prcd
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 consignee. In
Mendoza vs. Philippine Air Lines, Inc. 11 the Court delved at some length into the reasons
behind this when, upon a claim made by the consignee of a motion picture film shipped by
air that he was never a party to the contract of transportation and was a complete stranger
thereto, it said:
"But appellant now contends that he is not suing on a breach of contract but on a tort as
provided for in Art. 1902 of the Civil Code. We are a little perplexed as to this new theory of
the appellant. First, he insists that the articles of the Code of Commerce should be applied;

that he invokes the provisions of said Code governing the obligations of a common carrier to
make prompt delivery of goods given to it under a contract of transportation. Later, as
already said, he says that he was never a party to the contract of transportation and was a
complete stranger to it, and that he is now suing on a tort or a violation of his rights as a
stranger (culpa aquiliana). If he does not invoke the contract of carriage entered into with
the defendant company, then he would hardly have any leg to stand on. His right to prompt
delivery of the can of film at the Phil. Air Port stems and is derived from the contract of
carriage under which contract, the PAL undertook to carry the can of film safely and to
deliver it to him promptly. Take away or ignore that contract and the obligation to carry and
to deliver and right to prompt delivery disappear. Common carriers are not obligated by law
to carry and to deliver merchandise, and persons are not vested with the right to prompt
delivery, unless such common carriers previously assume the obligation. Said rights and
obligations are created by a specific contract entered into by the parties. In the present
case, the findings of the trial court which as already stated, are accepted by the parties and
which we must accept are to the effect that the LVN Pictures Inc. and Jose Mendoza on one
side, and the defendant company on the other, entered into a contract of transportation (p.
29, Rec. on Appeal). One interpretation of said finding is that the LVN Pictures Inc. through
previous agreement with Mendoza acted as the latter's agent. When he negotiated with the
LVN Pictures Inc. to rent the film 'Himala ng Birhen' and show it during the Naga town fiesta,
he most probably authorized and enjoined the Picture Company to ship the film for him on
the PAL on September 17th. Another interpretation is that even if the LVN Pictures Inc. as
consignor of its own initiative, and acting independently of Mendoza for the time being,
made Mendoza as consignee, a stranger to the contract if that is possible, nevertheless
when he, Mendoza appeared at the Phil Air Port armed with the copy of the Air Way Bill (Exh.
1) demanding the delivery of the shipment to him, he thereby made himself a party to the
contract of transportation. The very citation made by appellant in his memorandum supports
this view. Speaking of the possibility of a conflict between the order of the shipper on the
one hand and the order of the consignee on the other, as when the shipper orders the
shipping company to return or retain the goods shipped while the consignee demands their
delivery, Malagarriga in his book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a
decision of the Argentina Court of Appeals on commercial matters, cited by Tolentino in Vol.
II of his book entitled 'Commentaries and Jurisprudence on the Commercial Laws of the
Philippines' p. 209, says that the right of the shipper to countermand the shipment
terminates when the consignee or legitimate holder of the bill of lading appears with such
bill of lading before the carrier and makes himself a party to the contract. Prior to that time
he is a stranger to the contract.
Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of
the old Civil Code (now Art. 1311, second paragraph) which reads thus:
Should the contract contain any stipulation in favor of a third person, he may demand its
fulfillment provided he has given notice of his acceptance to the person bound before the
stipulation has been revoked.'
Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier
contains the stipulations of delivery to Mendoza as consignee. His demand for the delivery of
the can of film to him at the Phil Air Port may be regarded as a notice of his acceptance of
the stipulation of the delivery in his favor contained in the contract of carriage and delivery.
In this case he also made himself a party to the contract, or at least has come to court to
enforce it. His cause of action must necessarily be founded on its breach."
Since the liability of a common carrier for loss of or damage to goods transported by it under
a contract of carriage is governed by the laws of the country of destination 12 and the goods
in question were shipped from the United States to the Philippines, the liability of petitioner
Sea-Land to the respondent consignee is governed primarily by the Civil Code, and as
ordained by the said Code, suppletorily, in all matters not determined thereby, by the Code
of Commerce and special laws. 13 One of these suppletory special laws is the Carriage of
Goods by Sea Act, U.S. Public Act No. 521 which was made applicable to all contracts for the

carriage of goods by sea to and from Philippine ports in foreign trade by Commonwealth Act
No. 65, approved on October 22, 1936. Sec. 4(5) of said Act in part reads: llcd
"(5)
Neither the carrier nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an amount exceeding $500
per package lawful money of the United States, or in case of goods not shipped in packages,
per customary freight unit, or the equivalent of that sum in other currency, unless the
nature and value of such goods have been declared by the shipper before shipment and
inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the shipper another
maximum amount than that mentioned in this paragraph may be fixed: Provided; That such
maximum shall not be less than the figure above named. In no event shall the carrier be
liable for more than the amount of damage actually sustained.
xxx
xxx
xxx."
Clause 22, first paragraph, of the long-form bill of lading customarily issued by Sea-Land to
its shipping clients 14 is a virtual copy of the first paragraph of the foregoing provision. It
says:
"22.
VALUATION. In the event of any loss, damage or delay to or in connection with goods
exceeding in actual value $500 per package, lawful money of the United States, or in case of
goods not shipped in packages, per customary freight unit, the value of the goods shall be
deemed to be $500 per package or per customary freight unit, as the case may be, and the
carrier's liability, if any, shall be determined on the basis of a value of $500 per package or
customary freight unit, unless the nature and a higher value shall be declared by the shipper
in writing before shipment and inserted in this Bill of Lading."
And in its second paragraph, the bill states:
"If a value higher than $500 shall have been declared in writing by the shipper upon delivery
to the carrier and inserted in this bill of lading and extra freight paid, if required and in such
case if the actual value of the goods per package or per customary freight unit shall exceed
such declared value, the value shall nevertheless be deemed to be declared value and the
carrier's liability, if any, shall not exceed the declared value and any partial loss or damage
shall be adjusted pro rata on the basis of such declared value."
Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and
obligations of common carriers to the provisions of the Code of Commerce and of special
laws in matters not regulated by said (Civil) Code, the Court fails to fathom the reason or
justification for the Appellate Court's pronouncement in its appealed Decision that the
Carriage of Goods by Sea Act ". . . has no application whatsoever in this case." 15 Not only
is there nothing in the Civil Code which absolutely prohibits agreements between shipper
and carrier limiting the latter's liability for loss of or damage to cargo shipped under
contracts of carriage; it is also quite clear that said Code in fact has agreements of such
character in contemplation in providing, in its Articles 1749 and 1750, that:
"ART. 1749. A stipulation that the common carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding."
"ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper for
the loss, destruction, or deterioration of the goods is valid, if it is reasonable and just under
the circumstances, and has been fairly and freely agreed upon."
Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is
repugnant to or inconsistent with any of the just-cited provisions of the Civil Code. Said
section merely gives more flesh and greater specificity to the rather general terms of Article
1749 (without doing any violence to the plain intent thereof) and of Article 1750, to give
effect to just agreements limiting carriers' liability for loss or damage which are freely and
fairly entered into. prcd
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 amount to questioning the justice and fairness of that
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 its 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. And since the shipper here has not been heard to complain of having been
"rushed," imposed upon or deceived in any significant way into agreeing to ship the cargo
under a bill of lading carrying such a stipulation in fact, it does not appear that said party
has been heard from at all insofar as this dispute is concerned there is simply no ground
for assuming that its agreement thereto was not, as the law would require, freely and fairly
sought and given.
The private respondent had no direct part or intervention in the execution of the contract of
carriage between the shipper and the carrier as set forth in the bill of lading in question. As
pointed out in Mendoza vs. PAL, supra, 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 a 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 16 where this Court found that a similar
package limitation clause was "(p)rinted 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 though 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. 17
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which
expressly authorizes transshipment of the goods at any point in the voyage in these terms:
prcd
"13.
THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the exercise of its
or his discretion and although transshipment or forwarding of the goods may not have been
contemplated or provided for herein, may at port of discharge or any other place
whatsoever transship or forward the goods or any part thereof by any means at the risk and
expense of the goods and at any time, whether before or after loading on the ship named
herein and by any route, whether within or outside the scope of the voyage or beyond the
port of discharge or destination of the goods and without notice to the shipper or consignee.
The carrier or master may delay such transshipping or forwarding for any reason, including
but not limited to awaiting a vessel or other means of transportation whether by the carrier
or others."
Said provision obviates the necessity to offer any other justification for off loading the
shipment in question in Manila for transshipment to Cebu City, the port of destination
stipulated in the bill of lading. Nonetheless, the Court takes note of Sea-Land's explanation
that it only directly serves the Port of Manila from abroad in the usual course of voyage of its
carriers, hence its maintenance of arrangements with a local forwarder, Aboitiz and
Company, for delivery of its imported cargo to the agreed final point of destination within
the Philippines, such arrangements not being prohibited, but in fact recognized, by law. 18

Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is applicable
up to the final port of destination and that the fact that transshipment was made on an
interisland vessel did not remove the contract of carriage of goods from the operation of
said Act.
Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading
relied upon by petitioner Sea-Land form no part of the short-form bill of lading attached to
his complaint before the Trial Court and appear only in the long form of that document
which, he claims, Sea-Land offered (as its Exhibit 2) as an unused blank form with no entries
or signatures therein. He, however, admitted in the Trial Court that several times in the past
shipments had been delivered to him through Sea-Land, 20 from which the assumption may
fairly follow that by the time of the consignment now in question, he was already reasonably
apprised of the usual terms covering contracts of carriage with said petitioner.
At any rate, as observed earlier, it has already been held that the provisions of the Carriage
of Goods by Sea Act on package limitation [sec. 4(5) of the Act hereinabove referred to] are
as much a part of a bill of lading as though actually placed therein by agreement of the
parties. 21
Private respondent, by making claim for loss on the basis of the bill of lading, to all intents
and purposes accepted said bill. Having done so, he
". . . becomes bound by all stipulations contained therein whether on the front or the back
thereof. Respondent cannot elude its provisions simply because they prejudice him and take
advantage of those that are beneficial. Secondly, the fact that respondent shipped his goods
on board the ship of petitioner and paid the corresponding freight thereon shows that he
impliedly accepted the bill of lading which was issued in connection with the shipment in
question, and so it may be said that the same is binding upon him as if it had been actually
signed by him or by any other person in his behalf. . . . . 22
There is one final consideration. The private respondent admits 23 that as early as on April
22, 1981, Sea-Land had offered to settle his claim for US$4,000.00, the limit of said carrier's
liability for loss of the shipment under the bill of lading. This Court having reached the
conclusion that said sum is all that is justly due said respondent, it does not appear just or
equitable that Sea-Land, which offered that amount in good faith as early as six years ago,
should, by being made to pay at the current conversion rate of the dollar to the peso, bear
for its own account all of the increase in said rate since the time of the offer of settlement.
The decision of the Regional Trial Court awarding the private respondent P186,048.00 as the
peso value of the lost shipment is clearly based on a conversion rate of P8.00 to US$1.00,
said respondent having claimed a dollar value of $23,256.00 for said shipment. 24 All
circumstances considered, it is just and fair that Sea-Land's dollar obligation be convertible
at the same rate. llcd
WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed
and set aside. The stipulation in the questioned bill of lading limiting Sea-Land's liability for
loss of or damage to the shipment covered by said bill to US$500.00 per package is held
valid and binding on private respondent. There being no question of the fact that said
shipment consisted of eight (8) cartons or packages, for the loss of which Sea-Land is
therefore liable in the aggregate amount of US$4,000.00, it is the judgment of the Court that
said petitioner discharge that obligation by paying private respondent the sum of
P32,000.00, the equivalent in Philippine currency of US$4,000.00 at the conversion rate of
P8.00 to $1.00. Costs against private respondent.
SO ORDERED.
Teehankee, C.J., Cruz, Paras and Gancayco, JJ., concur.
Footnotes
1.
Exhibits 1, 1-B: TSN Dec. 14, 1982, pp. 19-20.
2.
Petition, p. 2; Rollo, p. 11.
3.
Exhibits 6, 6-A: TSN Jan. 26, 1983, pp. 18-20.
4.
Exhibits E, 3-A, 4, 8 and 9; TSN id.
5.
Exhibit F.
6.
Exhibits 2, 2-A.

7.
Civil Case No. 20810.
8.
Rollo, p. 21.
9.
AC-G.R. CV No. 06150.
10.
Rollo, p. 12, 21-32.
11.
90 Phil. 836, 845-846; see also American Express Co. vs. Natividad, 46 Phil. 207 and
Phoenix Assurance Co., Ltd. vs. United States Lines, 22 SCRA 675.
12.
Art. 1753, Civil Code.
13.
Art. 1766, Civil Code; Samar Mining Co., Inc. vs. Nordeutscher Lloyd, 132 SCRA 529;
Eastern Shipping Lines, Inc. vs. The Nisshin Fire & Marine Insurance Co., et al., G.R. Nos.
69044 and 71478, May 29, 1987.
14.
Exhibit 2.
15.
Rollo, pp. 26-27.
16.
Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15, May 15, 1973.
17.
Freixas and Co. vs. Pacific Mail Steamship Co., 42 Phil. 198; H.E. Heacock Co. vs.
Macondray & Co., 43 Phil. 205; American President Lines vs. Klepper, infra; Phoenix
Assurance Co. vs. Macondray & Co., supra.
18.
Art. 373, Code of Commerce.
19.
American Insurance Company vs. Compaia Maritima, 21 SCRA 998.
20.
Reply to Comment, p. 11, Rollo, p. 87, citing TSN, Sept. 1, 1982.
21.
Phoenix Assurance Company vs. Macondray & Company, supra, citing Shackman vs.
Cunard White Star, D.C.N.Y. 1940; see also Eastern Shipping Lines, Inc. vs. IAC, supra, which
cites the same American case.
22.
American President Lines vs. Klepper, supra.
23.
Appellee's Brief, p. 6; Rollo, p. 53.
24.
Appellee's Brief, p. 5; Rollo, p. 53.

6. Alitalia v. IAC
FIRST DIVISION
[G.R. No. 71929. December 4, 1990.]
ALITALIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO,
respondents.
Santiago & Santiago for petitioner.
Alfredo L. Bentulan for private respondent.
DECISION
NARVASA, J p:
Dr. Felipa Pablo an associate professor in the University of the Philippines, 1 and a
research grantee of the Philippine Atomic Energy Agency was invited to take part at a
meeting of the Department of Research and Isotopes of the Joint FAO-IAEA Division of
Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. 2 She was invited
in view of her specialized knowledge in "foreign substances in food and the agriculture
environment." She accepted the invitation, and was then scheduled by the organizers, to
read a paper on "The Fate of Radioactive Fusion Products Contaminating Vegetable Crops."
3 The program announced that she would be the second speaker on the first day of the
meeting. 4 To fulfill this engagement, Dr. Pablo booked passage on petitioner airline,
ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and time
table set for her by ALITALIA. She was however told by the ALITALIA personnel there at Milan
that her luggage was "delayed inasmuch as the same . . . (was) in one of the succeeding
flights from Rome to Milan." 5 Her luggage consisted of two (2) suitcases: one contained her
clothing and other personal items; the other, her scientific papers, slides and other research
material. But the other flights arriving from Rome did not have her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she
inquired about her suitcases in the domestic and international airports, and filled out the
forms prescribed by ALITALIA for people in her predicament. However, her baggage could
not be found. Completely distraught and discouraged, she returned to Manila without
attending the meeting in Ispra, Italy. prcd
Once back in Manila she demanded that ALITALIA make reparation for the damages thus
suffered by her. ALITALIA offered her "free airline tickets to compensate her for any alleged
damages. . . ." She rejected the offer, and forthwith commenced the action 6 which has
given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy,
but only on the day after her scheduled appearance and participation at the U.N. meeting
there. 8 Of course Dr. Pablo was no longer there to accept delivery; she was already on her
way home to Manila. And for some reason or other, the suitcases were not actually restored
to Prof. Pablo by ALITALIA until eleven (11) months later, and four (4) months after
institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr.
Pablo's favor: 10
"(1)
Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND
PESOS (P20,000.00), Philippine Currency, by way of nominal damages;
(2)
Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS
(P5,000.00), Philippine Currency, as and for attorney's fees; (and)
(3)
Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the
judgment. 11 Indeed, the Appellate Court not only affirmed the Trial Court's decision but
also increased the award of nominal damages payable by ALITALIA to P40,000.00. 12 That
increase it justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence committed
by defendant, the amount of P20,000.00 under present inflationary conditions as awarded . .
. to the plaintiff as nominal damages, is too little to make up for the plaintiff's frustration and
disappointment in not being able to appear at said conference; and for the embarrassment

and humiliation she suffered from the academic community for failure to carry out an official
mission for which she was singled out by the faculty to represent her institution and the
country. After weighing carefully all the considerations, the amount awarded to the plaintiff
for nominal damages and attorney's fees should be increased to the cost of her round trip
air fare or at the present rate of peso to the dollar at P40,000,00."
ALITALIA has appealed to this Court on certiorari. Here, it seeks to make basically the same
points it tried to make before the Trial Court and the Intermediate Appellate Court, i.e.:
1)
that the Warsaw Convention should have been applied to limit ALITALIA'S liability;
and
2)
that there is no warrant in fact or in law for the award to Dr. Pablo of nominal
damages and attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to
have refused to pass on all the assigned errors and in not stating the facts and the law on
which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1)
the death, wounding or other bodily injury of a passenger if the accident causing it
took place on board the aircraft or in the course of its operations of embarking or
disembarking; 17
2)
the destruction or loss of, or damage to, any registered luggage or goods, if the
occurrence causing it took place during the carriage by air;" 18 and
3)
delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however,
founded, can only be brought subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner: 21
1.
In the carriage of passengers the liability of the carrier for each passenger is limited
to the sum of 250,000 francs . . . Nevertheless, by special contract, the carrier and the
passenger may agree to a higher limit of liability. LLjur
2.
a)
In the carriage of registered baggage and of cargo, the liability of the carrier is
limited to a 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 Convention has been applied, or ignored, depending on the peculiar facts
presented by each case. cdphil
In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention was
applied as regards the limitation on the carrier's liability, there being a simple loss of
baggage without any otherwise improper conduct on the part of the officials or employees of
the airline or other special injury sustained by the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not
restrictive of the carrier's liability, where there was satisfactory evidence of malice or bad
faith attributable to its officers and employees. 29 Thus, an air carrier was sentenced to pay
not only compensatory but also moral and exemplary damages, and attorney's fees, for
instance, where its employees rudely put a passenger holding a first-class ticket in the
tourist or economy section, 30 or ousted a brown Asiatic from the plane to give his seat to a
white man, 31 or gave the seat of a passenger with a confirmed reservation to another, 32
or subjected a passenger to extremely rude, even barbaric treatment, as by calling him a
"monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the
employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to her,
belatedly, it is true, but without appreciable damage. The fact is, nevertheless, that some
special species of injury was caused to Dr. Pablo because petitioner ALITALIA misplaced her
baggage and failed to deliver it to her at the time appointed a breach of its contract of
carriage, to be sure with the result that she was unable to read the paper and make the
scientific presentation (consisting of slides, autoradiograms or films, tables and tabulations)
that she had painstakingly labored over, at the prestigious international conference, to
attend which she had traveled hundreds of miles, to her chagrin and embarrassment and
the disappointment and annoyance of the organizers. She felt, not unreasonably, that the
invitation for her to participate at the conference, extended by the Joint FAO/IAEA Division of
Atomic Energy in Food and Agriculture of the United Nations, was a singular honor not only
to herself, but to the University of the Philippines and the country as well, an opportunity to

make some sort of impression among her colleagues in that field of scientific activity. The
opportunity to claim this honor or distinction was irretrievably lost to her because of
Alitalia's breach of its contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and
anxiety, which gradually turned to panic and finally despair, from the time she learned that
her suitcases were missing up to the time when, having gone to Rome, she finally realized
that she would no longer be able to take part in the conference. As she herself put it, she
"was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed by the Warsaw Convention for delay in the
transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As
already mentioned, her baggage was ultimately delivered to her in Manila, tardily but safely.
She is however entitled to nominal damages which, as the law says, is adjudicated in
order that a right of the plaintiff, which has been violated or invaded by the defendant, may
be vindicated and recognized, and not for the purpose of indemnifying the plaintiff for any
loss suffered and this Court agrees that the respondent Court of Appeals correctly set the
amount thereof at P40,000.00. As to the purely technical argument that the award to her of
such nominal damages is precluded by her omission to include a specific claim therefor in
her complaint, it suffices to draw attention to her general prayer, following her plea for
moral and exemplary damages and attorney's fees, "for such other and further just and
equitable relief in the premises," which certainly is broad enough to comprehend an
application as well for nominal damages. Besides, petitioner should have realized that the
explicit assertion, and proof, that Dr. Pablo's right had been violated or invaded by it
absent any claim for actual or compensatory damages, the prayer thereof having been
voluntarily deleted by Dr. Pablo upon the return to her of her baggage necessarily raised
the issue of nominal damages. cdrep
This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees to
Dr. Pablo, and the amount of P5,000.00 set by it is reasonable in the premises. The law
authorizes recovery of attorney's fees inter alia where, as here, "the defendant's act or
omission has compelled the plaintiff to litigate with third persons or to incur expenses to
protect his interest," 34 or "where the court deems it just and equitable." 35
WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals, it
appearing on the contrary to be entirely in accord with the facts and the law, said decision is
hereby AFFIRMED, with costs against the petitioner.
SO ORDERED.
Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur.
Footnotes
1.
Teaching such natural science subjects as Botany, Biology and Plant Physiology.
2.
Rollo, p. 36.
3.
Ibid, reference being made to Exhs. "A-2-a" and "A-2-b".
4.
This was on November 6, 1972.
5.
Rollo, p. 88.
6.
On June 7, 1973 (Rollo, p. 90).
7.
Specifically to the Hotel Europa, as indicated by Prof. Pablo (Rollo, pp. 88-89).
8.
Rollo, p. 89. The baggage arrived on Nov. 7, 1972; but by that time, Prof Pablo had
already left Rome for Hongkong.
9.
Delivery appears to have been effected on October 17, 1973 (Rollo, p. 136).
10.
Rollo, p. 43: Record on Appeal, pp. 61-62. The decision was written by Judge Ricardo
D. Galano and is dated February 2, 1975.
11.
Its appeal was docketed as AC-G.R. CV No. 59501.
12.
Rollo, pp. 35-39. The decision was written for the Second Civil Cases Division by
Campos, Jr, J., with whom concurred Pascual, Camilon and Jurado, JJ.
13.
Id., pp. 38-39.
14.
Id., pp. 91-92.

15.
Id., p. 91.
16.
Full title: "Convention for the Unification of Certain Rules Relating to International
Carriage by Air signed at Warsaw, October 12, 1929" (League of Nations Treaty Series),
coming into force on Feb. 13, 1933, adhered to by the Republic of the Philippines on Nov. 9,
1950 with reservation; the Philippines deposited the Instrument of Adherence with the Polish
Government on Nov. 9, 1950; and the Convention entered into force for the Philippines on
Feb. 7, 1951 (Philippine Treaties Index [1946-1982] citing 137 League of Nations Treaties
Series 11). The Warsaw Convention was amended by (1) the Hague Protocol on September
28, 1955 (Id., and United Nations, Treaty Series, Vol. 261, p. 423 and Vol. 266, p. 444),
entering into force for the Philippines on February 28, 1967; (2) the Montreal Agreement in
1966, of which the Philippine Airlines and Alitalia are signatories; (3) the Guatemala Protocol
in 1971 (apparently not adhered to by IATA members); and (4) the Montreal Protocols
(Numbered 3 and 4) (1975) (also apparently not effective among IATA members).
17.
ART. 17.
18.
ART. 18 (par. 1), "transportation by air" being defined as "the period during which the
baggage or goods are in charge of the carrier whether in an airport or on board an aircraft,
or, in the case of a landing outside an airport, in any place whatever," but not where said
baggage or goods are transported by land, sea or river outside an airport unless it be in "the
performance of a contract for transportation by air for the purpose of loading, delivery or
transshipment (pars. 2 and 3, ART. 18).
19.
ART. 19.
20.
ART. 24, which also states that with regard to Article 17, the application of the rule is
"without prejudice to the questions as to who are the persons who have the right to bring
suit and what are their respective rights."
21.
ART. 22, as amended by the Hague Protocol, supra; the Montreal Agreement of 1966
set the limitation of damages at $75,000 per passenger; the Guatemala Protocol, 1971,
boosted the limit to $100,000 per passenger, liability for baggage was increased to $1,000,
and the right to bring suit was expanded.
22.
ART. 25.
23.
ART. 20 (1). "The carrier is not liable if he proves that he and his agents have taken
all necessary measures to avoid the damage or that it was impossible for him or them to
take such measures."
24.
Lisi v. Alitalia-Linee Aeree Italiane, 370 F 2d 508 [2nd Cir. 1966] aff'd 390 US 455
[1968], rehearing denied 397 US 939 [1968] and Egan v. Kallsman Instrument Corp., 21 NY
2d 160, 287 NYS 2d 14 [1967]; CERT. DENIED 390 US 1039 [1968].
25.
Northwest Airlines, Inc. v. Cuenca, 14 SCRA 1065 (1965) which inter alia states that
the Convention "merely declares the carrier liable for damages in the enumerated cases, if
the conditions therein specified are present.".
26.
Id.
27.
Id.
28.
164 SCRA 268, citing Ong Yiu v. C.A. 91 SCRA 223; SEE Burnett v. Trans World
Airlines, Inc. (DC NM), 368 F. Supp. 1152 holding that the airline was not responsible to its
passengers for mere mental anguish sustained as a result of the hijacking, in the absence of
physical injuries.
29.
SEE KLM Royal Dutch Airlines v. Tuller, 119 App. DC 282, 292 F 2d 775, cert den 368
US 921, 7 L Ed 2d 136, 82 S Ct 243; American Airlines, Inc. v. Ulen, 87 App DC 307, 186 F 2d
529; Goepp v. American Overseas Airlines, Inc., 281 App Div 105, 117 NYS 2d 276, affd 305
NY 830, 114 NE 2d 37, cert den 346 US 874, 98 L Ed 382, 74 S Ct 124.
30.
Northwest Airlines, Inc. v. Cuenca, 14 SCRA 1063; Lopez v. Pan Am, 16 SCRA 43.
31.
Air France v. Carrascoso, 18 SCRA 155. In Ortigas, Jr. v. Lufthansa German Airlines,
64 SCRA 610 (1975), plaintiff's seat in the first-class section was given to a Belgian, and
consequently plaintiff, who held a first-class ticket, confirmed and validated, was relegated
to a tourist or economy-class seat.
32.
Korean Airlines Co., Ltd. v. C.A., 154 SCRA 211; see also, KLM Royal Dutch Airlines v.
C.A., 65 SCRA 237.

33.
Zulueta v. Pan Am, 43 SCRA 397.
34.
Civil Code, ART. 2208, par. (2); see Rivera v. Litum & Co., Inc., 4 SCRA 1072 (1962);
Filipino Pipe & Foundry Corporation v. Central Bank, 23 SCRA 1044 (1968); Ganaban v.
Bayle, 30 SCRA 365 (1969); Valenzuela v. CA., G.R. No. 56168, Dec. 22, 1988.
35.
Id., id., par (11); see Civil Aeronautics Administration v. C.A., G.R. No. 51806, Nov. 8,
1988.

7. Maersk Line v. CA
THIRD DIVISION
[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.
SYLLABUS
1.
REMEDIAL LAW; CIVIL PROCEDURE; CROSS-CLAIM; NOT AFFECTED BY THE DISMISSAL
OF THE COMPLAINT AGAINST ITS CO-DEFENDANT. Petitioner submits that since its
liability is predicated on the cross-claim filed by its co-defendant Eli Lilly, Inc. which crossclaim 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, therefore, 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.
2.
CIVIL LAW; OBLIGATIONS; RULE 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; APPLICABLE IN
THE CASE AT BAR. Petitioner maintains that it cannot be held liable 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. 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 contracts with his customers for the production of drugs, all of which were
cancelled due to the delayed arrival of the subject shipment. Private respondent further
claimed that the provision in fine print at the back of the bill of lading issued by petitioner is
void, it being a 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.
3.
ID.; CONTRACTS; CONTRACT OF ADHESION; AS A GENERAL RULE, CONSIDERED VOID;
EXCEPTION; APPLICABLE TO BILL OF LADING. 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]). In Magellan, (supra), we ruled: "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. 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." 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.
4.
ID.; SPECIAL CONTRACTS; COMMON CARRIER; GENERALLY, NOT OBLIGATED BY LAW
TO CARRY AND TO DELIVER MERCHANDISE PROMPTLY; EXCEPTION. 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 property within a specified time, it is bound to fulfill its contract and is liable for any
delay, no matter from what cause it may have arisen. This result logically follows from the
well-settled rule that where the law creates a duty or charge, and the party is disabled from
performing it without any default in himself, and has no remedy over, then the law will
excuse him, but where the party by his own contract creates a duty or charge upon himself,
he is bound to make it good notwithstanding any accident or delay by inevitable necessity
because he might have provided against it by contract. Whether or not there has been such
an undertaking on the part of the carrier is to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of
contracts."
5.
ID.; ID.; ID.; ID.; DELAY FOR A PERIOD OF MORE THAN TWO (2) MONTHS IN BEYOND
THE REALM OF REASONABLENESS. An examination of the subject bill of lading 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 way 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 insistence that it cannot be held liable for the delay finds no merit.
6.
ID.; DAMAGES; ACTUAL AND COMPENSATORY DAMAGES; CLAIMS THEREOF REQUIRES
SUBSTANTIAL PROOF; SATISFIED IN CASE AT BAR. Indeed, it is settled that actual and
compensatory damages require substantial proof (Capco v. Macasaet, 189 SCRA 561
[1990]). In the case at bar, private respondent was able to sufficiently prove through an

invoice, certification from the issuer of the letter of credit and the Memorandum of
Shipment, 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.
7.
ID.; ID.; MORAL DAMAGES; MAY BE AWARDED IN BREACHES OF CONTRACT WHERE
THE DEFENDANT ACTED FRAUDULENTLY OR IN BAD FAITH. 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 find 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 cause for the delay, i.e. more than two
(2) months, in the delivery of the 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 is therefore proper in this case.
8.
ID.; ID.; EXEMPLARY DAMAGES; MAY BE AWARDED IF DEFENDANT ACTED IN A
WANTON, FRAUDULENT, RECKLESS, OPPRESSION OR MALEVOLENT MANNER. 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, oppressive or malevolent manner. There was gross negligence
on the part of the petitioner mishipping the subject goods destined for Manila but was
inexplicably shipped to Richmond, Virginia, U.S.A. Gross carelessness or negligence
constitutes wanton misconduct, hence, exemplary damages may be awarded to the
aggrieved party (Radio Communications of the Phils., Inc. v. Court of Appeals, 195 SCRA 147
[1991]).
9.
ID.; ID.; ID.; AWARD THEREOF WARRANTS THE AWARD FOR ATTORNEY'S FEES.
Although attorney's fees are generally not recoverable, a party can be held liable for such if
exemplary damages are awarded (Article 2208, New Civil Code). In the case at bar, we hold
that private respondent is entitled to reasonable attorney's fees since petitioner acted with
gross negligence amounting to bad faith.
DECISION
BIDIN, J p:
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 manufacture 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.
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 to Oakland, California. 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 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 goods attaches only in case of
loss, destruction or deterioration of the goods as provided for in Article 1734 of the Civil
Code (Rollo, p. 16).
Defendant Eli Lilly, Inc., on the other hand, filed its answer with compulsory counterclaim
and cross-claim. In its cross-claim, it alleged that the delay in the arrival of 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 withdrew 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: LLphil
"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 plaintiffappellee (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-crossclaimant.

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. 94-95).
With regard to the first issue raised by petitioner on whether or not a defendant's crossclaim 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: prLL
"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" printed on its reverse side that limit appellant 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. 4750; Emphasis supplied)
Reacting to the foregoing declaration, petitioner submits that since its liability is predicated
on the cross-claim filed by 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 shippersupplier 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, therefore, 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 liable 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 contracts with his
customers for the production of drugs, all of which were cancelled due to the delayed arrival
of the subject shipment. Private respondent further claimed that the provision in fine print at
the back of the bill of lading issued by petitioner is void, it being a 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 arrive 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]). cdrep
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]).
In Magellan, (supra), we ruled:
"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. 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 property within a specified time, it is bound to fulfill its contract and is liable for any
delay, no matter from what cause it may have arisen. This result logically follows from the
well-settled rule that where the law creates a duty or charge, and the party is disabled from
performing it without any default in himself, and has no remedy over, then the law will
excuse him, but where the party by his own contract creates a duty or charge upon himself,
he is bound to make it good notwithstanding any accident or delay by inevitable necessity
because he might have provided against it by contract. Whether or not there has been such
an undertaking on the part of the carrier is to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of
contracts."
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 way 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 insistence that it cannot be held liable for the delay finds no merit.
cdrep
Petitioner maintains that the award of actual, moral and exemplary damages 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 compensatory damages require 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 find 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 cause for the delay, i.e. more
than two (2) months, in the delivery of the 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 is therefore proper in
this case.
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, oppressive or malevolent manner. There was gross

negligence on the part of the petitioner mishipping the subject goods destined for Manila but
was inexplicably shipped to Richmond, Virginia, U.S.A. Gross carelessness or negligence
constitutes wanton misconduct, hence, exemplary damages may be awarded to the
aggrieved party (Radio Communications 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 liable for such if
exemplary damages are awarded (Article 2208, New Civil Code). In the case at bar, we hold
that private respondent is entitled to reasonable attorney's fees since petitioner acted with
gross negligence amounting to bad faith. LibLex
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 unconscionable,
the same should be deleted.
WHEREFORE, with the modification regarding the deletion of item 4 of respondent court's
decision, the appealed decision is hereby AFFIRMED in all other respects.
SO ORDERED.
Feliciano, Davide, Jr., Romero and Melo, JJ ., concur.

8. Cathay Pacific v. CA
FIRST DIVISION
[G.R. No. 60501. March 5, 1993.]
CATHAY PACIFIC AIRWAYS, LTD, petitioner, vs. COURT OF APPEALS and TOMAS L.
ALCANTARA, respondents.
Siguion-Reyna, Montecillo & Ongsiako and Tomacruz, Manguiat & Associates for petitioner.
Tanjuatco, Oreta, Tanjuatco, Berenger & Corpus for private respondent.
SYLLABUS
1.
CIVIL LAW; CONTRACT OF CARRIAGE; BREACH THEREOF; PETITIONER BREACHED ITS
CONTRACT OF CARRIAGE WITH PRIVATE RESPONDENT WHEN IT FAILED TO DELIVER HIS
LUGGAGE AT THE DESIGNATED PLACE AND TIME. Petitioner breached its contract of
carriage with private respondent when it failed to deliver his luggage at the designated
place and time, it being the obligation of a common carrier to carry its passengers and their
luggage safely to their destination, which includes the duty not to delay their transportation,
and the evidence shows that petitioner acted fraudulently or in bad faith.
2.
DAMAGES; MORAL AND EXEMPLARY DAMAGES PREDICATED UPON A BREACH OF
CONTRACT OF CARRIAGE; RECOVERABLE ONLY IN INSTANCES WHERE THE MISHAP RESULTS
IN DEATH OF A PASSENGER, OR WHERE THE CARRIER IS GUILTY OF FRAUD OR BAD FAITH;
THE CONDUCT OF PETITIONER'S REPRESENTATIVE TOWARDS RESPONDENT JUSTIFIES THE
GRANT OF MORAL AND EXEMPLARY DAMAGES IN CASE AT BAR. Moral damages
predicated upon a breach of contract of carriage may only be recoverable in instances
where the mishap results in death of a passenger, or where the carrier is guilty of fraud or
bad faith. The language and conduct of petitioner's representative towards respondent
Alcantara was discourteous or arbitrary to justify the grant of moral damages. The CATHAY
representative was not only indifferent and impatient; he was also rude and insulting. He
simply advised Alcantara to buy anything he wanted. But even that was not sincere because
the representative knew that the passenger was limited only to $20.00 which, certainly, was
not enough to purchase comfortable clothings appropriate for an executive conference.
Considering that Alcantara was not only a revenue passenger but even paid for a first class
airline accommodation and accompanied at the time by the Commercial Attach of the
Philippine Embassy who was assisting him in his problem, petitioner or its agents should
have been more courteous and accommodating to private respondent, instead of giving him
a curt reply, "What can we do, the baggage is missing. I cannot do anything . . . Anyhow,
you can buy anything you need, charged to Cathay Pacific." Where in breaching the contract
of carriage the defendant airline is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and probable consequences of the breach of
obligation which the parties had foreseen or could have reasonably foreseen. In that case,
such liability does not include moral and exemplary damages. Conversely, if the defendant
airline is shown to have acted fraudulently or in bad faith, the award of moral and exemplary
damages is proper.
3.
TEMPERATE DAMAGES; RECOVERABLE ONLY UPON PROOF THAT THE CLAIMANT
SUSTAINED SOME PECUNIARY LOSS. However, respondent Alcantara is not entitled to
temperate damages, contrary to the ruling of the court a quo, in the absence of any showing
that he sustained some pecuniary loss. It cannot be gainsaid that respondent's luggage was
ultimately delivered to him without serious or appreciable damage.
4.
WARSAW CONVENTION; DOES NOT OPERATE AS AN EXCLUSIVE ENUMERATION OF
THE INSTANCES FOR DECLARING A CARRIER LIABLE FOR BREACH OF CONTRACT OF
CARRIAGE OR AS AN ABSOLUTE LIMIT OF THE EXTENT OF THAT LIABILITY; DOES NOT
PRECLUDE THE OPERATION OF THE CIVIL CODE AND OTHER PERTINENT LAWS. As We
have repeatedly held, although the Warsaw Convention has the force and effect of law in
this country, being a treaty commitment assumed by the Philippine government, said
convention does not operate as an exclusive enumeration of the instances for declaring a
carrier liable for breach of contract of carriage or as an absolute limit of the extent of that

liability. The Warsaw Convention declares the carrier liable for damages in the enumerated
cases and under certain limitations. However, it must not be construed to preclude the
operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt,
the carrier from liability for damages for violating the rights of its passengers under the
contract of carriage, especially if wilfull misconduct on the part of the carrier's employees is
found or established, which is clearly the case before Us.
DECISION
BELLOSILLO, J p:
This is a petition for review on certiorari of the decision of the Court of Appeals which
affirmed with modification that of the trial court by increasing the award of damages in favor
of private respondent Tomas L. Alcantara.
The facts are undisputed: On 19 October 1975, respondent Tomas L. Alcantara was a first
class passenger of petitioner Cathay Pacific Airways, Ltd. (CATHAY for brevity) on its Flight
No. CX-900 from Manila to Hongkong and onward from Hongkong to Jakarta on Flight No.
CX-711. The purpose of his trip was to attend the following day, 20 October 1975, a
conference with the Director General of Trade of Indonesia, Alcantara being the Executive
Vice-President and General Manager of Iligan Cement Corporation, Chairman of the Export
Committee of the Philippine Cement Corporation, and representative of the Cement Industry
Authority and the Philippine Cement Corporation. He checked in his luggage which contained
not only his clothing and articles for personal use but also papers and documents he needed
for the conference.
Upon his arrival in Jakarta, respondent discovered that his luggage was missing. When he
inquired about his luggage from CATHAY's representative in Jakarta, private respondent was
told that his luggage was left behind in Hongkong. For this, respondent Alcantara was
offered $20.00 as "inconvenience money" to buy his immediate personal needs until the
luggage could be delivered to him.
His luggage finally reached Jakarta more than twenty four (24) hours after his arrival.
However, it was not delivered to him at his hotel but was required by petitioner to be picked
up by an official of the Philippine Embassy.
On 1 March 1976, respondent filed his complaint against petitioner with the Court of First
Instance (now Regional Trial Court) of Lanao del Norte praying for temperate, moral and
exemplary damages, plus attorney's fees.
On 18 April 1976, the trial court rendered its decision ordering CATHAY to pay Plaintiff
P20,000.00 for moral damages, P5,000.00 for temperate damages, P10,000.00 for
exemplary damages, and P25,000.00 for attorney's fees, and the costs. 1
Both parties appealed to the Court of Appeals. CATHAY assailed the conclusion of the trial
court that it was accountable for breach of contract and questioned the non-application by
the court of the Warsaw Convention as well as the excessive damages awarded on the basis
of its finding that respondent Alcantara was rudely treated by petitioner's employees during
the time that his luggage could not be found. For his part, respondent Alcantara assigned as
error the failure of the trial court to grant the full amount of damages sought in his
complaint.
On 11 November 1981, respondent Court of Appeals rendered its decision affirming the
findings of fact of the trial court but modifying its award by increasing the moral damages to
P80,000.00, exemplary damages to P20,000.00 and temperate or moderate damages to
P10,000.00. The award of P25,000.00 for attorney's fees was maintained.
The same grounds raised by petitioner in the Court of Appeals are reiterated before Us.
CATHAY contends that: (1) the Court of Appeals erred in holding petitioner liable to
respondent Alcantara for moral, exemplary and temperate damages as well as attorney's
fees; and, (2) the Court of Appeals erred in failing to apply the Warsaw Convention on the
liability of a carrier to its passengers.
On its first assigned error, CATHAY argues that although it failed to transport respondent
Alcantara's luggage on time, the one-day delay was not made in bad faith so as to justify
moral, exemplary and temperate damages. It submits that the conclusion of respondent
appellate court that private respondent was treated rudely and arrogantly when he sought

assistance from CATHAY's employees has no factual basis, hence, the award of moral
damages has no leg to stand on.
Petitioner's first assigned error involves findings of fact which are not reviewable by this
Court. 2 At any rate, it is not impressed with merit. Petitioner breached its contract of
carriage with private respondent when it failed to deliver his luggage at the designated
place and time, it being the obligation of a common carrier to carry its passengers and their
luggage safely to their destination, which includes the duty not to delay their transportation,
3 and the evidence shows that petitioner acted fraudulently or in bad faith.
Moral damages predicated upon a breach of contract of carriage may only be recoverable in
instances where the mishap results in death of a passenger, 4 or where the carrier is guilty
of fraud or bad faith. 5
In the case at bar, both the trial court and the appellate court found that CATHAY was
grossly negligent and reckless when it failed to deliver the luggage of petitioner at the
appointed place and time. We agree. CATHAY alleges that as a result of mechanical trouble,
all pieces of luggage on board the first aircraft bound for Jakarta were unloaded and
transferred to the second aircraft which departed an hour and a half later. Yet, as the Court
of Appeals noted, petitioner was not even aware that it left behind private respondent's
luggage until its attention was called by the Hongkong Customs authorities. More, bad faith
or otherwise improper conduct may be attributed to the employees of petitioner. While the
mere failure of CATHAY to deliver respondent's luggage at the agreed place and time did not
ipso facto amount to willful misconduct since the luggage was eventually delivered to
private respondent, albeit belatedly, 6 We are persuaded that the employees of CATHAY
acted in bad faith. We refer to the deposition of Romulo Palma, Commercial Attach of the
Philippine Embassy at Jakarta, who was with respondent Alcantara when the latter sought
assistance from the employees of CATHAY. This deposition was the basis of the findings of
the lower courts when both awarded moral damages to private respondent. Hereunder is
part of Palma's testimony
"Q:
What did Mr. Alcantara say, if any?
A.
Mr. Alcantara was of course . . . . I could understand his position. He was furious for
the experience because probably he was thinking he was going to meet the Director-General
the following day and, well, he was with no change of proper clothes and so, I would say, he
was not happy about the situation.
Q:
What did Mr. Alcantara say?
A:
He was trying to press the fellow to make the report and if possible make the delivery
of his baggage as soon as possible.
Q:
And what did the agent or duty officer say, if any?
A:
The duty officer, of course, answered back saying 'What can we do, the baggage is
missing. I cannot do anything.' something like it. 'Anyhow you can buy anything you need,
charged to Cathay Pacific.'
Q:
What was the demeanor or comportment of the duty officer of Cathay Pacific when
he said to Mr. Alcantara 'You can buy anything chargeable to Cathay Pacific'?
A:
If I had to look at it objectively, the duty officer would like to dismiss the affair as
soon as possible by saying indifferently 'Don't worry. It can be found.'" 7
Indeed, the aforequoted testimony shows that the language and conduct of petitioner's
representative towards respondent Alcantara was discourteous or arbitrary to justify the
grant of moral damages. The CATHAY representative was not only indifferent and impatient;
he was also rude and insulting. He simply advised Alcantara to buy anything he wanted. But
even that was not sincere because the representative knew that the passenger was limited
only to $20.00 which, certainly, was not enough to purchase comfortable clothings
appropriate for an executive conference. Considering that Alcantara was not only a revenue
passenger but even paid for a first class airline accommodation and accompanied at the
time by the Commercial Attach of the Philippine Embassy who was assisting him in his
problem, petitioner or its agents should have been more courteous and accommodating to
private respondent, instead of giving him a curt reply, "What can we do, the baggage is
missing. I cannot do anything . . . Anyhow, you can buy anything you need, charged to

Cathay Pacific." CATHAY's employees should have been more solicitous to a passenger in
distress and assuaged his anxieties and apprehensions. To compound matters, CATHAY
refused to have the luggage of Alcantara delivered to him at his hotel; instead, he was
required to pick it up himself and an official of the Philippine Embassy. Under the
circumstances, it is evident that petitioner was remiss in its duty to provide proper and
adequate assistance to a paying passenger, more so one with first class accommodation.
Where in breaching the contract of carriage the defendant airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the breach of obligation which the parties had foreseen or could have
reasonably foreseen. In that case, such liability does not include moral and exemplary
damages. 8 Conversely, if the defendant airline is shown to have acted fraudulently or in
bad faith, the award of moral and exemplary damages is proper.
However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling
of the court a quo, in the absence of any showing that he sustained some pecuniary loss. 9 It
cannot be gainsaid that respondent's luggage was ultimately delivered to him without
serious or appreciable damage.
As regards its second assigned error, petitioner airline contends that the extent of its liability
for breach of contract should be limited absolutely to that set forth in the Warsaw
Convention. We do not agree. As We have repeatedly held, although the Warsaw Convention
has the force and effect of law in this country, being a treaty commitment assumed by the
Philippine government, said convention does not operate as an exclusive enumeration of the
instances for declaring a carrier liable for breach of contract of carriage or as an absolute
limit of the extent of that liability. 10 The Warsaw Convention declares the carrier liable for
damages in the enumerated cases and under certain limitations. 11 However, it must not be
construed to preclude the operation of the Civil Code and other pertinent laws. It does not
regulate, much less exempt, the carrier from liability for damages for violating the rights of
its passengers under the contract of carriage, 12 especially if wilfull misconduct on the part
of the carrier's employees is found or established, which is clearly the case before Us. For,
the Warsaw Convention itself provides in Art. 25 that
"(1)
The carrier shall not be entitled to avail himself of the provisions of this convention
which exclude or limit his liability, if the damage is caused by his wilfull misconduct or by
such default on his part as, in accordance with the law of the court to which the case is
submitted, is considered to be equivalent to wilfull misconduct."
(2)
Similarly the carrier shall not be entitled to avail himself of the said provisions, if the
damage is caused under the same circumstances by any agent of the carrier acting within
the scope of his employment."
When petitioner airline misplaced respondent's luggage and failed to deliver it to its
passenger at the appointed place and time, some special species of injury must have been
caused to him. For sure, the latter underwent profound distress and anxiety, and the fear of
losing the opportunity to fulfill the purpose of his trip. In fact, for want of appropriate
clothings for the occasion brought about by the delay of the arrival of his luggage, to his
embarrassment and consternation respondent Alcantara had to seek postponement of his
pre-arranged conference with the Director General of Trade of the host country.
In one case, 13 this Court observed that a traveller would naturally suffer mental anguish,
anxiety and shock when he finds that his luggage did not travel with him and he finds
himself in a foreign land without any article of clothing other than what he has on.
Thus, respondent is entitled to moral and exemplary damages. We however find the award
by the Court of Appeals of P80,000.00 for moral damages excessive, hence, We reduce the
amount to P30,000.00. The exemplary damages of P20,000.00 being reasonable is
maintained, as well as the attorney's fees of P25,000.00 considering that petitioner's act or
omission has compelled Alcantara to litigate with third persons or to incur expenses to
protect his interest. 14
WHEREFORE, the assailed decision of respondent Court of Appeals is AFFIRMED with the
exception of the award of temperate damages of P10,000.00 which is deleted, while the
award of moral damages of P80,000.00 is reduced to P30,000.00. The award of P20,000.00

for exemplary damages is maintained as reasonable together with the attorney's fees of
P25,000.00. The moral and exemplary damages shall earn interest at the legal rate from 1
March 1976 when the complaint was filed until full payment.
SO ORDERED.
Cruz, Grio-Aquino and Quiason, JJ ., concur.
Footnotes
1.
Record on Appeal, pp. 12-23; Rollo, p. 30.
2.
Philippine Air Lines v. Court of Appeals, G.R. No. 92501, 6 March 1992, 207 SCRA
100.
3.
Tan Liao v. American President Lines, 98 Phil 203.
4.
Arts. 1764 and 2206, New Civil Code.
5.
Art. 2220, New Civil Code; China Airlines, Ltd. v. IAC, G.R. No. 73835, 17 January
1989, 169 SCRA 226.
6.
Alitalia v. IAC, G.R. No. 71929, 4 December 1990, 192 SCRA 9.
7.
Records, pp. 12-13.
8.
China Airlines Limited v. Court of Appeals, G.R. No. 94590, 29 July 1992.
9.
Art. 2224, New Civil Code.
10.
See Note 6; Northwest Airlines, Inc. v. Cuenca, No. L-22425, 31 August 1965, 14
SCRA 1063.
11.
Art. 22. 1. In the carriage of passengers the liability of the carrier for each passenger
is limited to the sum of 250,000 francs. . . . Nevertheless, by special contract, the carrier and
the passenger may agree to a higher limit of liability.
"2.a) In the carriage of registered baggage and of cargo, the liability of the carrier is
limited to a sum of 250 francs per kilogramme, unless the passenger or consignor has made,
at the time when the package was handed over to the carrier, a special declaration of
interest in delivery at destination and has paid a supplementary sum if the case so requires.
In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he
proves that the sum is greater than the actual value to the consignor at delivery.
"2.b) In the case of loss, damage or delay of part of registered baggage or cargo, or
of any object contained therein, the weight to be taken into consideration in determining the
amount to which the carrier's liability is limited shall be only the total weight of the package
or packages concerned. Nevertheless, when the loss, damage or delay of a part of the
registered baggage or cargo, or of an object contained therein, affects the value of other
packages covered by the same baggage check or the same air way bill, the total weight of
such package or packages shall also be taken into consideration in determining the limit of
liability."
12.
See Note 6.
13.
Pan American World Airways, Inc. v. IAC, G.R. No. 68988, 21 June 1990, 186 SCRA
687.
14.
Art. 2208, par. (2), New Civil Code

9. La Mallorca v. De Jesus
EN BANC
[G.R. No. L-21486. May 14, 1966.]
LA MALLORCA and PAMPANGA BUS COMPANY, petitioners, vs. VALENTIN DE JESUS, MANOLO
TOLENTINO and COURT OF APPEALS, respondents.
Manuel O. Chan for petitioners.
Sixto T. Antonio for respondents.
SYLLABUS
1.
DAMAGES, ACCIDENT CAUSED BY MECHANICAL DEFECT; LIABILITY OF OWNER OF
VEHICLE. Where the cause of the blowout which caused the accident was known in that
the inner tube of the left front tire was pressed between the inner circle of the left wheel and
the rim which had slipped out of the wheel, a mechanical defect of the conveyance or a fault
in equipment which was easily discoverable if the bus had been subjected to a more
thorough or rigid check-up before it took to the road, the owner of the vehicle is liable
accident.
2.
MORAL DAMAGES; COMMON CARRIER; BREACH OF CONTRACT. In this jurisdiction
moral damages are recoverable by reason of the death of a passenger caused by the breach
of contract of a common carrier, as provided in Article 1764, in relation to Article 2206, of
the Civil Code.
DECISION
MAKALINTAL, J p:
La Mallorca and Pampanga Bus Company, Inc., commonly known as La Mallorca-Pambusco,
filed this appeal by certiorari from the decision of the Court of Appeals which affirmed that
rendered by the Court of First Instance of Bulacan in its civil case No. 2100, entitled Valentin
de Jesus and Manolo Tolentino vs. La Mallorca Pambusco." The court a quo sentenced the
defendant now petitioner, "to pay to plaintiffs the amount of P2,132.50 for actual damages;
P14,400.00 as compensatory damages; P10,000.00 to each plaintiff by way of moral
damages; and P3,000.00 as counsel fees."
Two errors are attributed to the appellate Court: (1) "in sustaining the decision (of the court
a quo) holding that the petitioners were liable for the accident which was caused by a blowout of one of the tires of the bus and in not considering the same as," and (2) in holding
petitioners liable for moral damages.
The suit arose by reason of the death of Lolita de Jesus, 20-year old daughter of Valentin de
Jesus and wife of Manolo Tolentino, in a head-on collision between petitioner's bus, on which
she was a passenger, and a freight truck travelling in the opposite direction, in a barrio in
Marilao, Bulacan, in the morning of October 8, 1959. The immediate cause of the collision
was the fact that the driver of the bus lost control of the wheel when its left front tire
suddenly exploded.
Petitioner maintains that a tire blowout is a fortuitous event and gives rise to no liability for
negligence, citing the rulings of the Court of Appeals in Rodriguez vs. Red Line
Transportation Co., CA-G.R. No. 8136; December 29, 1954, and vs. Palapad, CA-G.R. No.
18480, June 27, 1953. These rulings, however, not only are not binding on this Court but
were based on considerations quite different from those that obtain in the case at bar. The
appellate Court there made no findings of any specific acts of negligence on the part of the
defendants and confined itself to the question of whether or not a tire blowout, by itself
alone and without a showing as to the causative factors, would generate liability. In the
present case, the cause of the blowout was known. The inner tube of the left front tire,
according to petitioner's own evidence and as found by the Court of Appeals, "was pressed
between the inner circle of the left wheel and the rim which had slipped out of the wheel."
This was, said Court correctly held, a mechanical direct of the conveyance or a fault in its
equipment which was easily discoverable if the bus had been subjected to a more thorough
or rigid check-up before it took to the road that morning.

Then again both trial court and the Court of Appeals found as a fact that the bus was
running quite fast immediately before the accident. Considering that the tire which exploded
was not new petitioner describes it as "hindi masyadong kalbo," or not so very worn out
the plea of caso fortuito cannot be entertained.
The second issue raised by petitioner is already a settled one. In this jurisdiction moral
damages are recoverable by reason of the death of a passenger cause by the breach of
contract of a common carrier, as provided in Article 1764, in relation to Article 2206, of the
Civil Code. These articles have been applied by this Court in a number of cases, among them
Necessito, etc. vs. Paras, et al., 104 Phil. 75; Mercado vs. Lira, 113 Phil. 112; Villa-Rey
Transit vs. Bello, 117 Phil. 745.
Wherefore, the judgment appealed from is affirmed, with costs against petitioner.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala, Bengzon,
J.P., Zaldivar and Sanchez, JJ., concur.
EN BANC
[G.R. No. L-20761. July 27, 1966.]
LA MALLORCA, petitioner, vs. HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET AL.,
respondents.
G. E. Yabut, R. Monterey and M. C. Lagman for petitioner.
Achmed Garcia for respondents.
SYLLABUS
1.
COMMON CARRIERS; CARRIER - PASSENGER RELATION CONTINUES UNTIL
PASSENGER HAS REASONABLE TIME TO LEAVE CARRIER'S PREMISES. The relation of
carrier and passenger does not cease at the moment the passenger alights from the
carrier's vehicle at a place selected by the carrier at the point of destination, but continues
until the passenger has had a reasonable time or a reasonable opportunity to leave the
carrier's premises (Ormond vs. Hayes, 60 Tex. 180, cited in 10 C.J. 626).
2.
ID.; ID.; "REASONABLE TIME" CONSTRUED. What is a reasonable time or a
reasonable delay is to be determined from all the circumstances. Thus, a person who, after
alighting from a train, walks along the station platform, is considered still a passenger (Keefe
vs. Boston, etc. R. Co., 142 Mass. 251, 7 N.E. 874). So also, where a passenger has alighted
at his destination and is proceeding by the usual way to leave the company's premises, but
before actually doing so is halted by the report that his brother, a fellow passenger, has
been shot, and he in good faith and without intent of engaging in the difficulty, returns to
relieve his brother, he is deemed reasonably and necessarily delayed and thus continues to
be a passenger entitled as such to the protection of the railroad and company and its agents
(Layne vs. Chesapeake, etc., R. Co., 68 W. Va. 213, 69 S.E. 700, 31 L.R.A., [N.S.] 414).
3.
ID.; ID.; CARRIER'S RESPONSIBILITY FOR NEGLIGENCE; CASE AT BAR. In the
present case, the father returned to the bus to get one of his baggages which was not
unloaded when he end other members of his family alighted from the bus. The victim, one of
his minor daughters, must have followed her father. However, although the father was still
on the running board of the bus awaiting for the conductor to hand to him the bag or
bayong, the bus started to run, so that even he (the father) had to jump down from the
moving vehicle. It was at this instance that the child, who must be near the bus, was run
over and killed. Held: In the circumstances, it cannot be claimed that the carrier's agent had
exercised the "utmost diligence" of a "very cautious person" required by Article 1755 of the
Civil Code to be observed by a common carrier in the discharge of its obligation to transport
safely its passengers. In the first place, the driver, although stopping the bus, did not put off
the engine. Secondly, he started to run the bus even before the bus conductor gave him the
signal to go and while the latter was still unloading a baggage of some passengers. The
presence of said passengers near the bus was not unreasonable and they are, therefore, to
be considered still as passengers of the carrier, entitled to the protection under their
contract of carriage.
4.
ID.; ID.; ID.; AVERMENT FOR QUASI-DELICT, ALTHOUGH INCOMPATIBLE WITH CLAIM
UNDER CONTRACT OF CARRIAGE, PERMISSIBLE. The inclusion of the averment for quasi-

delict in appellee's complaint in the court a quo, while incompatible with the other claim
under the contract of carriage, is permissible under Section 2, Rule 8 of the new Rules of
Court, which allows a plaintiff to allege causes of action in the alternative, be they
compatible with each other or not, to the end that the real matter in controversy may be
resolved and determined (Nelayan, et al. vs. Nelayan, et al., 109 Phil., 183).
5.
ID.; ID.; ID.; ID.; EFFECT OF PRESENTATION OF PROOF OF CARRIER'S NEGLIGENCE;
CASE AT BAR. - The presentation of proof of the negligence of its employee gave rise to the
presumption that the defendant employer did not exercise the diligence of a good father of
the family in the selection and supervision of its employees. This presumption not having
been overcome, the employer must be adjudged pecuniarily liable for the death of the
passenger.
6.
ID.; ID.; ID.; ID.; ID.; SUFFICIENT ALLEGATION IN THE COMPLAINT; CASE AT BAR.
The allegation in the complaint to the effect that "the death of Raquel Beltran, plaintiffs'
daughter, was caused by the negligence and want of exercise of the utmost diligence of a
very cautious person on the part of the defendants and their agent," sufficiently pleads the
culpa or negligence upon which the claim was predicated. This allegation was proved when
it was established during the trial that the driver, even before receiving the proper signal
from the conductor, and while there were still persons on the running board of the bus and
near it, started to run off the vehicle.
7.
APPEALS; WHAT CAN BE PASSED UPON ON APPEAL; CASE AT BAR. Generally, the
appellate court can only pass upon and consider questions or issues raised and argued in
appellant's brief. In the case at bar, plaintiffs did not appeal from that portion of the
judgment of the trial court awarding them only P3,000.00 as damages for the death of their
daughter. Neither did they point out in their brief in the Court of Appeals that the award was
inadequate, or that the inclusion of that figure was merely a clerical error, in order that the
matter may be treated as an exception to the general rule (Section 7, Rule 51, new Rules of
Court). The Court of Appeals therefore erred in raising the amount of the award.
DECISION
BARRERA, J .:
La Mallorca seeks the review of the decision of the Court of Appeals in CA- G. R. No. 23267R, holding it liable for quasi-delict and ordering it to pay to respondents Mariano Beltran, et
al. P6,000.00 for the death of his minor daughter Raquel Beltran, plus P400.00 as actual
damages. cdrep
The facts of the case, as found by the Court of Appeals, briefly are:
"On December 20, 1953, at about noontime, plaintiffs, husband and wife, together with their
minor daughters, namely Milagros, 13 years old, Raquel, about 4-1/2 years old, and Fe, over
2 years old, boarded the Pambusco Bus No. 352, bearing plate TPU No. 757 (1953
Pampanga), owned and operated by the defendant, at San Fernando, Pampanga, bound for
Anao, Mexico, Pampanga. At the time, they were carrying with them four pieces of baggages
containing their personal belongings. The conductor of the bus who happened to be a halfbrother of plaintiff Mariano Beltran, issued three tickets (Exhs. A, B, & C) covering the full
fares of the plaintiff and their eldest child, Milagros. No fare was charged on Raquel and Fe,
since both were below the height at which fare is charged in accordance with the appellant's
rules and regulations.
"After about an hour's trip, the bus reached Anao, whereat it stopped to allow the
passengers bound therefor, among whom were the plaintiffs and their children to get off.
With respect to the group of the plaintiffs, Mariano Beltran, then carrying some of their
baggages, was the first to get down the bus, followed by his wife and his children. Mariano
led his companions to a shaded spot on the left pedestrians side of the road about four or
five meters away from the vehicle. Afterwards, he returned to the bus in controversy to get
his other bayong, which he had left behind, but in so doing, his daughter Raquel followed
him unnoticed by her father. While said Mariano Beltran was on the running board of the bus
waiting for the conductor to hand him his bayong which he left under one of its seats near
the door; the bus, whose motor was not shut off while unloading, suddenly started moving
forward, evidently to resume its trip, notwithstanding the fact that the conductor has not

given the driver the customary signal to start, since said conductor was still attending to the
baggage left behind by Mariano Beltran. Incidentally, when the bus was again placed into a
complete stop, it had travelled about ten meters from the point where the plaintiffs had
gotten off.
"Sensing that the bus was again in motion, Mariano Beltran immediately jumped from the
running board without getting his bayong from the conductor. He landed on the side of the
road almost in front of the shaded place where he left his wife and children. At that precise
time, he saw people beginning to gather around the body of the child lying prostrate on the
ground, her skull, crushed, and without life. The child was none other than his daughter
Raquel, who was run over by the bus in which she rode earlier together with her parents.
"For the death of their said child, the plaintiffs commenced the present suit against the
defendant seeking to recover from the latter an aggregate amount of P6,000 to cover moral
damages and actual damages sustained as a result thereof and attorney's fees. After trial on
the merits the court below rendered the judgment in question."
On the basis of these facts, the trial court found defendant liable for breach of contract of
carriage and sentenced it to pay P3,000.00 for the death of the child and P400.00 as
compensatory damages representing burial expenses and costs. LLpr
On appeal to the Court of Appeals, La Mallorca claimed that there could not be a breach of
contract in the case, for the reason that when the child met her death, she was no longer a
passenger of the bus involved in the incident and, therefore, the contract of carriage had
already terminated. Although the Court of Appeals sustained this theory, it nevertheless
found the defendant-appellant guilty of quasi- delict and held the latter liable for damages,
for the negligence of its driver, in accordance with Article 2180 of the Civil Code. And, the
Court of Appeals did not only find the petitioner liable, but increased the damages awarded
the plaintiffs-appellees to P6,000.00, instead of P3,000.00 granted by the trial court.
In its brief now before us, La Mallorca contends that the Court of Appeals erred (1) in holding
it liable for quasi- delict, considering that respondents' complaint was one for breach of
contract, and (2) in raising the award of damages from P3,000.00 to P6,000.00 although
respondents did not appeal from the decision of the lower court.
Under the facts as found by the Court of Appeals we have to sustain the judgment holding
petitioner liable for damages for the death of the child, Raquel Beltran. It may be pointed out
that although it is true that respondent Mariano Beltran, his wife, and their children
(including the deceased child) had alighted from the bus at a place designated for
disembarking or unloading of passengers, it was also established that the father had to
return to the vehicle (which was still at a stop) to get one of his bags or bayong that was left
under one of the seats of the bus. There can be no controversy that as far as the father is
concerned, when he returned to the bus for his bayong which was not unloaded, the relation
of passenger and carrier between him and the petitioner remained subsisting. For, the
relation of carrier and passenger does not necessarily cease where the latter, after alighting
from the car, aids the carrier's servant or employee in removing his baggage from the car. 1
The issue to be determined here is whether as to the child, who was already led by the
father to a place about 5 meters away from the bus, the liability of the carrier for her safety
under the contract of carriage also persisted. LexLib
It has been recognized as a rule that the relation of carrier and passenger does not cease at
the moment the passenger alights from the carrier's vehicle at a place selected by the
carrier at the point of destination, but continues until the passenger has had a reasonable
time or a reasonable opportunity to leave the carrier's premises. And, what is a reasonable
time or a reasonable delay within this rule is to be determined from all the circumstances.
Thus, a person who, after alighting from a train, walks along the station platform is
considered still a passenger. 2 So also, where a passenger has alighted at his destination
and is proceeding by the usual way to leave the company's premises, but before actually
doing so is halted by the report that his brother, a fellow passenger, has been shot, and he
in good faith and without intent of engaging in the difficulty, returns to relieve his brother,
he is deemed reasonably and necessarily delayed and thus continues to be a passenger
entitled as such to the protection of the railroad and company and its agents. 3

In the present case, the father returned to the bus to get one of his baggages which was not
unloaded when they alighted from the bus. Raquel, the child that she was, must have
followed the father. However, although the father was still on the running board of the bus
awaiting for the conductor to hand him the bag or bayong, the bus started to run, so that
even he (the father) had to jump down from the moving vehicle. It was at this instance that
the child, who must be near the bus, was run over and killed. In the circumstances, it cannot
be claimed that the carrier's agent had exercised the "utmost diligence" of a "very cautious
person" required by Article 1755 of the Civil Code to be observed by a common carrier in the
discharge of its obligation to transport safely its passengers. In the first place, the driver,
although stopping the bus, nevertheless did not put off the engine. Secondly, he started to
run the bus even before the bus conductor gave him the signal to go and while the latter
was still unloading part of the baggages of the passengers Mariano Beltran and family. The
presence of said passengers near the bus was not unreasonable and they are, therefore, to
be considered still as passengers of the carrier, entitled to the protection under their
contract of carriage.
But even assuming arguendo that the contract of carriage has already terminated, herein
petitioner can be held liable for the negligence of its driver, as ruled by the Court of Appeals,
pursuant to Article 2180 of the Civil Code. Paragraph 7 of the complaint, which reads
"That aside from the aforesaid breach of contract, the death of Raquel Beltran, plaintiff's
daughter, was caused by the negligence and want of uxorious of the utmost diligence of a
very cautious person on the part of the defendants and their agent, necessary to transport
plaintiffs and their daughter safely as far as human and care and foresight can provide in
the operation of their vehicle."
is clearly an allegation for quasi-delict. The inclusion of this averment for quasi-delict, while
incompatible with the other claim under the contract of carriage, is permissible under
Section 2 of Rule 8 of the New Rules of Court, which allows a plaintiff to allege causes of
action in the alternative, be they compatible with each other or not, to the end that the real
matter in controversy may be resolved and determined. 4
The plaintiffs sufficiently pleaded the culpa or negligence upon which the claim was
predicated when it was alleged in the complaint that "the death of Raquel Beltran, plaintiffs'
daughter, was caused by the negligence and want of exercise of the utmost diligence of a
very cautious person on the part of the defendants and their agent." This allegation was also
proved when it was established during the trial that the driver, even before receiving the
proper signal from the conductor, and while there were still persons on the running board of
the bus and near it, started to run off the vehicle. The presentation of proof of the
negligence of its employee gave rise to the presumption that the defendant employer did
not exercise the diligence of a good father of the family in the selection and supervision of
its employees. And this presumption, as the Court of Appeals found, petitioner had failed to
overcome. Consequently, petitioner must be adjudged pecuniarily liable for the death of the
child Raquel Beltran.
The increase of the award of damages from P3,000.00 to P6,000.00 by the Court of Appeals,
however, cannot be sustained. Generally, the appellate court can only pass upon and
consider questions or issues raised and argued in appellant's brief. Plaintiffs did not appeal
from that portion of the judgment of the trial court awarding them only P3,000.00 damages
for the death of their daughter. Neither does it appear that, as appellees in the Court of
Appeals, plaintiffs have pointed out in their brief the inadequacy of the award, or that the
inclusion of the figure P3,000.00 was merely a clerical error, in order that the matter may be
treated as an exception to the general rule. 5 Herein petitioner's contention, therefore, that
the Court of Appeals committed error in raising the amount of the award for damages is,
evidently, meritorious. cdrep
WHEREFORE, the decision of the Court of Appeals is hereby modified by sentencing the
petitioner to pay to the respondents Mariano Beltran, et al., the sum of P3,000.00 for the
death of the child, Raquel Beltran, and the amount of P400.00 as actual damages. No costs
in this instance. So ordered.

Concepcion, C.J ., J.B.L., Reyes, Dizon, Regala, J.P. Bengzon, Zaldivar, Sanchez and Castro,
JJ ., concur.
Makalintal, J., concurs in the result.
Footnotes
1.
Ormond vs. Hayer, 60 Tex. 180, cited in 10 C.J. 626.
2.
Keefe vs. Boston, etc., R. Co., 142 Mass. 251, 7 NE 874.
3.
Layne vs. Chesapeake, etc., R. Co., 68 W. Va. 213, 69 SE 700, 31 LRANS 414.
4.
Nelayan, et al. vs. Nelayan, et al., 109 Phil. 183.
5.
Sec. 7, Rule 51, New Rules of Court.

10. Lara v. Valencia

EN BANC
[G.R. No. L-9907. June 30, 1958.]
LOURDES J. LARA, ET AL., plaintiffs-appellants, vs. BRIGIDO R. VALENCIA, defendantappellant.
Castillo, Cervantes, Occena, Lozano, Montana, Cunanan, Sison & Castillo and Eligio G.
Lagman for defendant and appellant.
Donato C. Endriga and Emigdio Dakanay for plaintiffs and appellants.
SYLLABUS
1.
DAMAGES; AUTOMOBILE; INVITED GUEST; OWNERS DUTY TO EXERCISE ORDINARY
OR REASONABLE CARE. The owner and driver of a vehicle owes to accommodation
passengers or invited guests merely the duty to exercise reasonable care so that they may
be transported safely to their destination. Thus, "The rule is established by weight of
authority that the owner or operator of an automobile owes the duty to an invited guest to
exercise reasonable care in its operation, and not unreasonably to expose him to danger
and injury by increasing the hazard of travel. The owner of the vehicle in the case at bar is
only required to observe ordinary care, and is not in duty bound to exercise extraordinary
diligence as required by our law. (Articles 1755 and 1756, new Civil Code).
2.
ID.; LIABILITY OF CARRIER; PASSENGERS INJURY ON HIS OWN NEGLIGENCE. A
passenger must observe the diligence of a father of a family to avoid injury to himself
(Article 1761, new Civil Code) which means that if the injury to the passenger has been
proximately caused by his own negligence, the carrier cannot be held liable.
DECISION
BAUTISTA ANGELO, J p:
This is an action for damages brought by plaintiffs against defendant in the Court of First
Instance of Davao for the death of one Demetrio Lara, Sr. allegedly caused by the negligent
act of defendant. Defendant denied the charge of negligence and set up certain affirmative
defenses and a counterclaim.
The court after hearing rendered judgment ordering defendant to pay the plaintiffs the
following amount: (a) P10,000 as moral damages; (b) P3,000 as exemplary damages; and (c)
P1,000 as attorney's fees, in addition to the costs of action. Both parties appealed to this
Court because the damages claimed in the complaint exceed the sum of P50,000.
In their appeal, plaintiffs claim that the court a quo erred in disregarding their claim of
P41,400 as actual or compensatory damages and in awarding as attorneys' fees only the
sum of P1,000 instead of P3,000 as agreed upon between plaintiffs and their counsel.
Defendant, on the other hand, disputes the finding of the court a quo that the death of
Demetrio Lara, Sr. was due to the negligence of defendant and the portion of the judgment
which orders defendant to pay to plaintiffs moral and exemplary damages as well as
attorneys' fees, said defendant contending that the court should have declared that the
death of Lara was due to unavoidable accident.
The deceased was an inspector of the Bureau of Forestry stationed in Davao with an annual
salary of P1,800. The defendant is engaged in the business of exporting logs from his lumber
concession in Cotabato. Lara went to said concession upon instructions of his chief to
classify the logs of defendant which were about to be loaded on a ship anchored in the port
of Parang. The work of Lara lasted for six days during which he contracted malaria fever. In
the morning of January 9, 1954, Lara who then in a hurry to return to Davao asked
defendant if he could take him in his pick-up as there was then no other means of
transportation, to which defendant agreed, and in that same morning the pick-up left Parang
bound for Davao taking along six passengers, including Lara.
The pick-up has a front seat where the driver and two passengers can be accommodated
and the back has a steel flooring enclosed with a steel walling of 16 to 17 inches tall on the
sides and with a 19 inches tall walling at the back. Before leaving Parang, the sitting

arrangement was as follows: defendant was at the wheel and seated with him in the front
seat were Mrs. Valencia and Nicanor Quinain; on the back of the pick-up were two
improvised benches placed on each side, and seated on the right bench were Ricardo
Alojipan and Antonio Lagahit, and on the left one Bernardo and Pastor Geronimo. A person
by the name of Leoning was seated on a box located on the left side while in the middle Lara
sat on a bag. Before leaving Parang, defendant invited Lara to sit with him on the front seat
but Lara declined. It was their understanding that upon reaching barrio Samoay, Cotabato,
the passengers were to alight and take a bus bound for Davao, but when they arrived at that
place, only Bernardo alighted and the other passengers requested defendant to allow them
to ride with him up to Davao because there was then no available bus that they could take
in going to that place. Defendant again accommodated the passengers.
When they continued their trip, the sitting arrangement of the passengers remained the
same, Lara being seated on a bag in the middle with his arms on a suitcase and his head
covered by a jacket. Upon reaching Km. 96, barrio Catidtuan, Lara accidentally fell from the
pick-up and as a result he suffered serious injuries. Valencia stopped the pick-up to see what
happened to Lara. He sought the help of the residents of that place and applied water to
Lara but to no avail. They brought Lara to the nearest place where they could find a doctor
and not having found any they took him to St. Joseph's Clinic of Kidapawan. But when Lara
arrived he was already dead. From there they proceeded to Davao City and immediately
notified the local authorities. An investigation was made regarding the circumstances
surrounding the death of Lara but no criminal action was taken against defendant.
It should be noted that the deceased went to the lumber concession of defendant in Parang,
Cotabato upon instructions of his chief in order to classify the logs of defendant which were
then ready to be exported and to be loaded on a ship anchored in the port of Parang. It took
Lara six days to do his work during which he contracted malaria fever and for that reason he
evinced a desire to return immediately to Davao. At that time, there was no available bus
that could take him back to Davao and so he requested the defendant if he could take him
in his own pick-up. Defendant agreed and, together with Lara, other passengers tagged
along, most of them were employees of the Government. Defendant merely accommodated
them and did not charge them any fee for the service. It was also their understanding that
upon reaching barrio Samoay, the passengers would alight and transfer to a bus that
regularly makes the trip to Davao but unfortunately there was none available at the time
and so the same passengers, including Lara, again requested the defendant to drive them to
Davao. Defendant again accommodated them and upon reaching Km. 96, Lara accidentally
fell suffering fatal injuries.
It therefore appears that the deceased, as well as his companions who rode in the pick-up of
defendant, were merely accommodation passengers who paid nothing for the service and so
they can be considered as invited guests within the meaning of the law. As accommodation
passengers or invited guests, defendant as owner and driver of the pick-up owes to them
merely the duty to exercise reasonable care so that they may be transported safely to their
destination. Thus, "The rule is established by the weight of authority that the owner or
operator of an automobile owes the duty to an invited guest to exercise reasonable care in
its operation, and not unreasonably to expose him to danger and injury by increasing the
hazard of travel. This rule, as frequently stated by the courts, is that an owner of an
automobile owes a guest the duty to exercise ordinary or reasonable care to avoid injuring
him. Since one riding in an automobile is no less a guest because he asked for the privilege
of doing so, the same obligation of care is imposed upon the driver as in the case of one
expressly invited to ride" (5 Am. Jur., 626-627). Defendant, therefore, is only required to
observe ordinary care, and is not in duty bound to exercise extraordinary diligence as
required of a common carrier by our law (Articles 1755 and 1756, new Civil Code).
The question that now arises is: Is there enough evidence to show that defendant failed to
observe ordinary care or diligence in transporting the deceased from Parang to Davao on
the date in question?
The trial court answered the question in the affirmative but in so doing it took into account
only the following facts:

"No debe perderse de vista el hecho, que los negocios de exportacion de trozos del
demandado tiene un volumen de P1,200. Lara era empleado de la Oficina de Montes,
asalariado por el gobierno, no pagado por el demandado para classificar los trozos
exportados; debido a los trabajos de classificacion que duro 6 das, en su ultimo dia Lara no
durmio toda la noche, al da siguiente, Lara fue atacado de malaria, tenia inflamada y
cuerpo, sufria dolores de cabeza con erupciones en la cara y cuerpo; que en la maana del
da 8 de enero de 1954, fecha en que Lara salio de Davao para Parang, en aeroplano para
clasificar los trozos del demandado, el automobil de este condujo a aquel al aerodromo de
Davao.
xxx
xxx
xxx
"El viaje de Cotabato a Davao no es menos de 8 horas, su carretera esta en malas
condiciones, desnivelada, con piedras salientes y baches, que hacen del vehiculo no estable
en su marcha. Lara estaba enfelmo de cierta gravedad, tenia el cuerpo y cara inflamados,
atacado de malaria, con dolores de cabesa y con erupciones on la cara y cuerpo.
"A la vista de estos hechos, el demandado debia de saber que era sumamente peligroso
llevar 5 pasajeros en la parte trasera del pickup; particularmente, para la salud de Lara; el
permitirlo, el demandado no ha tomado las debidas precausiones, para evitar un posible
accidente fatal. La negativa de Lara de ocupar el asiento delantero del pickup no constituye
a juicio del Juzgado una defensa, pues el demandado conociendo el estado delicado de salud
de Lara, no debio de haber permitido que aquel regrese a Davao en su pickup; si querria
prestar a aquel un favor, debio de haber provisto a Lara de un automobil para su regrese a
Davao, ya que el demandado es un millionario; si no podia prestar a aquel este favor, debio
de haber dejado a Lara en Samuay para coger aquel un camion de pasajero de Cotabato a
Davao."
Even if we admit as true the facts found by the trial court, still we find that the same are not
sufficient to show that defendant has failed to take the precaution necessary to conduct his
passengers safely to their place of destination for there is nothing there to indicate that
defendant has acted with negligence or without taking the precaution that an ordinary
prudent man would have taken under similar circumstances. It should be noted that Lara
went to the lumber concession of defendant in answer to a call of duty which he was bound
to perform because of the requirement of his office and he contracted the malaria fever in
the course of the performance of that duty. It should also be noted that defendant was not in
duty bound to take the deceased in his own pick-up to Davao because from Parang to
Cotabato there was a line of transportation that regularly makes trips for the public, and if
defendant agreed to take the deceased in his own car, it was only to accommodate him
considering his feverish condition and his request that he be so accommodated. It should
also be noted that the passengers who rode in the pick-up of defendant took their respective
seats therein at their own choice and not upon indication of defendant with the particularity
that defendant invited the deceased to sit with him in the front seat but which invitation the
deceased declined. The reason for this can only be attributed to his desire to be at the back
so that he could sit on a bag and travel in a reclining position because such was more
convenient for him due to his feverish condition. All the circumstances thereof clearly
indicate that defendant had done what a reasonable prudent man would have done under
the circumstances.
There is every reason to believe that the unfortunate happening was only due to an
unforeseen accident caused by the fact at the time the deceased was half asleep and must
have fallen from the pick-up when it ran into some stones causing it to jerk considering that
the road was then bumpy, rough and full of stones.
The finding of the trial court that the pick-up was running at more than 40 kilometers per
hour is not supported by evidence. This is a mere surmise made by the trial court
considering the time the pick- up left barrio Samoay and the time the accident occurred in
relation to the distance covered by the pick-up. And even if this is correct, still we say that
such speed is not unreasonable considering that they were travelling on a national road and
the traffic then was not heavy. We may rather attribute the incident to lack of care on the
part of the deceased considering that the pick-up was open and he was then in crouching

position. Indeed the law provides that "A passenger must observe the diligence of a good
father of a family to avoid injury to himself" (Article 1761, new Civil Code), which means that
if the injury to the passenger has been proximately caused by his own negligence, the
carrier cannot be held liable.
All things considered, we are persuaded to conclude that the accident occurred not due to
the negligence of defendant but to circumstances beyond his control and so he should be
exempt from liability.
Wherefore, the decision appealed from is reversed, without pronouncement as to costs.
Paras, C.J., Bengzon, Reyes, A., Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.

11. Dangwa v. CA
SECOND DIVISION
[G.R. No. 95582. October 7, 1991.]
DANGWA TRANSPORTATION CO., INC. and THEODORE LARDIZABAL y MALECDAN,
petitioners, vs. COURT OF APPEALS, INOCENCIA CUDIAMAT, EMILIA CUDIAMAT BANDOY,
FERNANDO CUDIAMAT, MARRIETA CUDIAMAT, NORMA CUDIAMAT, DANTE CUDIAMAT,
SAMUEL CUDIAMAT and LIGAYA CUDIAMAT, all Heirs of the late Pedrito Cudiamat
represented by Inocencia Cudiamat, respondents.
Francisco S. Reyes Law Office for petitioners.
Antonio C. de Guzman for private-respondents.
SYLLABUS
1.
REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF THE COURT OF APPEALS; RULE
AND EXCEPTION. It is an established principle that the factual findings of the Court of
Appeals as a rule are final and may not be reviewed by this Court on appeal. However, this
is subject to settled exceptions, one which is when the findings of the appellate court are
contrary to those of the trial court, in which case a reexamination of the facts and evidence
may be undertaken.
2.
CIVIL LAW; COMMON CARRIERS; LIABLE FOR INJURIES SUFFERED BY BOARDING
PASSENGERS RESULTING FROM THE PREMATURE ACCELERATION OF THEIR CONVEYANCES.
The contention of petitioners that the driver and the conductor had no knowledge that the
victim would ride on the bus, since the latter had supposedly not manifested his intention to
board the same, does not merit consideration. When the bus is not in motion there is no
necessity for a person who wants to ride the same to signal his intention to board. A public
utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, it
becomes the duty of the driver and the conductor, every time the bus stops, to do no act
that would have the effect of increasing the peril to a passenger while he was attempting to
board the same. The premature acceleration of the bus in this case was a breach of such
duty. It is the duty of common carriers of passengers, including common carriers by railroad
train, streetcar, or motorbus, to stop their conveyances a reasonable length of time in order
to afford passengers an opportunity to board and enter, and they are liable for injuries
suffered by boarding passengers resulting from the sudden starting up or jerking of their
conveyances while they are doing so.
3.
ID.; ID.; ID.; BOARDING AND ALIGHTING FROM A SLOWLY MOVING VEHICLE; NOT A
NEGLIGENCE PER SE. It is not negligence per se, or as a matter of law, for one to attempt
to board a train or streetcar which is moving slowly. An ordinarily prudent person would
have made the attempt to board the moving conveyance under the same or similar
circumstances. The fact that passengers board and alight from a slowly moving vehicle is a
matter of common experience and both the driver and conductor in this case could not have
been unaware of such an ordinary practice.
4.
ID.; ID.; ID.; LIABILITY THEREOF; EXTENDS TO PERSONS BOARDING THE VEHICLE AS
WELL AS THOSE ALIGHTING THEREFROM. The victim herein, by stepping and standing on
the platform of the bus, is already considered a passenger and is entitled to all the rights
and protection pertaining to such a contractual relation. Hence, it has been held that the
duty which the carrier of passengers owes to its patrons extends to persons boarding the
cars as well as to those alighting therefrom. (Del Prado vs. Manila Electric Co., supra.)
5.
ID.; ID.; ID.; BOUND TO OBSERVE EXTRAORDINARY DILIGENCE FOR THE SAFETY OF
THE PASSENGERS TRANSPORTED BY THEM. Common carriers, from the nature of their
business and for reasons of public policy, are bound to observe extraordinary diligence for
the safety of the passengers transported by them, according to all the circumstances of
each case. 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. 1755, Civil Code.)
6.
ID.; DAMAGES; ACTION BASED ON A CONTRACT OF CARRIAGE; FINDING OF FAULT OR
NEGLIGENCE ON THE PART OF CARRIER NEED NOT BE EXPRESS. It has also been

repeatedly held that in an action based on a contract of carriage, the court need not make
an express finding of fault or negligence on the part of the carrier in order to hold it
responsible to pay the damages sought by the passenger. By the contract of carriage, the
carrier assumes the express obligation to transport the passenger to destination safely and
to observe extraordinary diligence with a due regard for all the circumstances, and any
injury that might be suffered by the passenger is right away attributable to the fault or
negligence of the carrier. This is an exception to the general rule that negligence must be
proved, and it is therefore incumbent upon the carrier to prove that it has exercised
extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code.
7.
ID.; ID.; ID.; ACTUAL OR COMPENSATORY DAMAGES; RULE IN DETERMINING THE
AMOUNT THEREOF. With respect to the award of damages, an oversight was, however,
committed by respondent Court of Appeals in computing the actual damages based on the
gross income of the victim. The rule is that the amount recoverable by the heirs of a victim
of a tort is not the loss of the entire earnings, but rather the loss of that portion of the
earnings which the beneficiary would have received. In other words, only net earnings, not
gross earnings, are to be considered, that is, the total of the earnings less expenses
necessary in the creation of such earnings or income and minus living and other incidental
expenses.
DECISION
REGALADO, J p:
On May 13, 1985, private respondents filed a complaint 1 for damages against petitioners
for the death of Pedrito Cudiamat as a result of a vehicular accident which occurred on
March 25, 1985 at Marivic, Sapid, Mankayan, Benguet. Among others, it was alleged that on
said date, while petitioner Theodore M. Lardizabal was driving a passenger bus belonging to
petitioner corporation in a reckless and imprudent manner and without due regard to traffic
rules and regulations and safety to persons and property, it ran over its passenger, Pedrito
Cudiamat. However, instead of bringing Pedrito immediately to the nearest hospital, the said
driver, in utter bad faith and without regard to the welfare of the victim, first brought his
other passengers and cargo to their respective destinations before bringing said victim to
the Lepanto Hospital where he expired.
On the other hand, petitioners alleged that they had observed and continued to observe the
extraordinary diligence required in the operation of the transportation company and the
supervision of the employees, even as they add that they are not absolute insurers of the
safety of the public at large. Further, it was alleged that it was the victim's own carelessness
and negligence which gave rise to the subject incident, hence they prayed for the dismissal
of the complaint plus an award of damages in their favor by way of a counterclaim. LibLex
On July 29, 1988, the trial court rendered a decision, effectively in favor of petitioners, with
this decretal portion:
"IN VIEW OF ALL THE FOREGOING, judgment is hereby pronounced that Pedrito Cudiamat
was negligent, which negligence was the proximate cause of his death. Nonetheless,
defendants in equity, are hereby ordered to pay the heirs of Pedrito Cudiamat the sum of
P10,000.00 which approximates the amount defendants initially offered said heirs for the
amicable settlement of the case. No costs.
"SO ORDERED." 2
Not satisfied therewith, private respondents appealed to the Court of Appeals which, in a
decision 3 in CA-G.R CV No. 19504 promulgated on August 14, 1990, set aside the decision
of the lower court, and ordered petitioners to pay private respondents:
"1.
The sum of Thirty Thousand (P30,000.00) Pesos by way of indemnity for death of the
victim Pedrito Cudiamat;
2.
The sum of Twenty Thousand (P20,000.00) by way of moral damages;
3.
The sum of Two Hundred Eighty Eight Thousand (P288,000.00) Pesos as actual and
compensatory damages;
4.
The costs of this suit." 4
Petitioners' motion for reconsideration was denied by the Court of Appeals in its resolution
dated October 4, 1990, 5 hence this petition with the central issue herein being whether

respondent court erred in reversing the decision of the trial court and in finding petitioners
negligent and liable for the damages claimed.
It is an established principle that the factual findings of the Court of Appeals as a rule are
final and may not be reviewed by this Court on appeal. However, this is subject to settled
exceptions, one of which is when the findings of the appellate court are contrary to those of
the trial court, in which case a reexamination of the facts and evidence may be undertaken.
6
In the case at bar, the trial court and the Court of Appeals have discordant positions as to
who between the petitioners and the victim is guilty of negligence. Perforce, we have had to
conduct an evaluation of the evidence in this case for the proper calibration of their
conflicting factual findings and legal conclusions.
The lower court, in declaring that the victim was negligent, made the following findings:
"This Court is satisfied that Pedrito Cudiamat was negligent in trying to board a moving
vehicle, especially with one of his hands holding an umbrella. And, without having given the
driver or the conductor any indication that he wishes to board the bus. But defendants can
also be found wanting of the necessary diligence. In this connection, it is safe to assume that
when the deceased Cudiamat attempted to board defendants' bus, the vehicle's door was
open instead of being closed. This should be so, for it is hard to believe that one would even
attempt to board a vehicle (i)n motion if the door of said vehicle is closed. Here lies the
defendant's lack of diligence. Under such circumstances, equity demands that there must be
something given to the heirs of the victim to assuage their feelings. This, also considering
that initially, defendant common carrier had made overtures to amicably settle the case. It
did offer a certain monetary consideration to the victim's heirs." 7
However, respondent court, in arriving at a different opinion, declares that:
"From the testimony of appellees' own witness in the person of Vitaliano Safarita, it is
evident that the subject bus was at full stop when the victim Pedrito Cudiamat boarded the
same as it was precisely on this instance where a certain Miss Abenoja alighted from the
bus. Moreover, contrary to the assertion of the appellees, the victim did indicate his
intention to board the bus as can be seen from the testimony of the said witness when he
declared that Pedrito Cudiamat was no longer walking and made a sign to board the bus
when the latter was still at a distance from him. It was at the instance when Pedrito
Cudiamat was closing his umbrella at the platform of the bus when the latter made a sudden
jerk movement (as) the driver commenced to accelerate the bus. prLL
"Evidently, the incident took place due to the gross negligence of the appellee-driver in
prematurely stepping on the accelerator and in not waiting for the passenger to first secure
his seat especially so when we take into account that the platform of the bus was at the
time slippery and wet because of a drizzle. The defendants-appellees utterly failed to
observe their duty and obligation as common carrier to the end that they should observe
extra-ordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them according to the circumstances of each case (Article 1733, New Civil
Code)." 8
After a careful review of the evidence on record, we find no reason to disturb the above
holding of the Court of Appeals. Its aforesaid findings are supported by the testimony of
petitioners own witnesses. One of them, Virginia Abalos, testified on cross-examination as
follows:
"Q
It is not a fact Madam witness, that at bunkhouse 54, that is before the place of the
incident, there is a crossing?
A
The way going to the mines but it is not being pass(ed) by the bus.
Q
And the incident happened before bunkhouse 56, is that not correct?
A
It happened between 54 and 53 bunkhouses." 9
The bus conductor, Martin Anglog, also declared:
"Q
When you arrived at Lepanto on March 25, 1985, will you please inform this
Honorable Court if there was any unusual incident that occurred?
A
When we delivered a baggage at Marivic because a person alighted there between
Bunkhouse 53 and 54.

Q
What happened when you delivered this passenger at this particular place in
Lepanto?
A
When we reached the place, a passenger alighted and I signalled my driver. When we
stopped we went out because I saw an umbrella about a split second and I signalled again
the driver, so the driver stopped and we went down and we saw Pedrito Cudiamat asking for
help because he was lying down.
Q
How far away was this certain person, Pedrito Cudiamat, when you saw him lying
down from the bus how far was he?
A
It is about two to three meters.
Q
On what direction of the bus was he found about three meters from the bus, was it at
the front or at the back?
A
At the back, sir." 10 (Emphasis supplied.)
The foregoing testimonies show that the place of the accident and the place where one of
the passengers alighted were both between Bunkhouses 53 and 54, hence the finding of the
Court of Appeals that the bus was at full stop when the victim boarded the same is correct.
They further confirm the conclusion that the victim fell from the platform of the bus when it
suddenly accelerated forward and was run over by the rear right tires of the vehicle, as
shown by the physical evidence on where he was thereafter found in relation to the bus
when it stopped. Under such circumstances, it cannot be said that the deceased was guilty
of negligence. LLphil
The contention of petitioners that the driver and the conductor had no knowledge that the
victim would ride on the bus, since the latter had supposedly not manifested his intention to
board the same, does not merit consideration. When the bus is not in motion there is no
necessity for a person who wants to ride the same to signal his intention to board. A public
utility bus, once it stops, is in effect making a continuous offer to bus riders. Hence, it
becomes the duty of the driver and the conductor, every time the bus stops, to do no act
that would have the effect of increasing the peril to a passenger while he was attempting to
board the same. The premature acceleration of the bus in this case was a breach of such
duty. 11
It is the duty of common carriers of passengers, including common carriers by railroad train,
streetcar, or motorbus, to stop their conveyances a reasonable length of time in order to
afford passengers an opportunity to board and enter, and they are liable for injuries suffered
by boarding passengers resulting from the sudden starting up or jerking of their
conveyances while they are doing so. 12
Further, even assuming that the bus was moving, the act of the victim in boarding the same
cannot be considered negligent under the circumstances. As clearly explained in the
testimony of the aforestated witness for petitioners, Virginia Abalos, the bus had "just
started" and "was still in slow motion" at the point where the victim had boarded and was on
its platform. 13
It is not negligence per se, or as a matter of law, for one to attempt to board a train or
streetcar which is moving slowly. 14 An ordinarily prudent person would have made the
attempt to board the moving conveyance under the same or similar circumstances. The fact
that passengers board and alight from a slowly moving vehicle is a matter of common
experience and both the driver and conductor in this case could not have been unaware of
such an ordinary practice.
The victim herein, by stepping and standing on the platform of the bus, is already
considered a passenger and is entitled to all the rights and protection pertaining to such a
contractual relation. Hence, it has been held that the duty which the carrier of passengers
owes to its patrons extends to persons boarding the cars as well as to those alighting
therefrom. 15
Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence for the safety of the passengers transported by
them, according to all the circumstances of each case. 16 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. 17

It has also been repeatedly held that in an action based on a contract of carriage, the court
need not make an express finding of fault or negligence on the part of the carrier in order to
hold it responsible to pay the damages sought by the passenger. By the contract of carriage,
the carrier assumes the express obligation to transport the passenger to his destination
safely and to observe extraordinary diligence with a due regard for all the circumstances,
and any injury that might be suffered by the passenger is right away attributable to the fault
or negligence of the carrier. This is an exception to the general rule that negligence must be
proved, and it is therefore incumbent upon the carrier to prove that it has exercised
extraordinary diligence as prescribed in Articles 1733 and 1755 of the Civil Code. 18
Moreover, the circumstances under which the driver and the conductor failed to bring the
gravely injured victim immediately to the hospital for medical treatment is a patent and
incontrovertible proof of their negligence. It defies understanding and can even be
stigmatized as callous indifference. The evidence shows that after the accident the bus
could have forthwith turned at Bunk 56 and thence to the hospital, but its driver instead
opted to first proceed to Bunk 70 to allow a passenger to alight and to deliver a refrigerator,
despite the serious condition of the victim. The vacuous reason given by petitioners that it
was the wife of the deceased who caused the delay was tersely and correctly confuted by
respondent court:
". . . The pretension of the appellees that the delay was due to the fact that they had to wait
for about twenty minutes for Inocencia Cudiamat to get dressed deserves scant
consideration. It is rather scandalous and deplorable for a wife whose husband is at the
verge of dying to have the luxury of dressing herself up for about twenty minutes before
attending to help her distressed and helpless husband." 19
Further, it cannot be said that the main intention of petitioner Lardizabal in going to Bunk 70
was to inform the victim's family of the mishap, since it was not said bus driver nor the
conductor but the companion of the victim who informed his family thereof. 20 In fact, it
was only after the refrigerator was unloaded that one of the passengers thought of sending
somebody to the house of the victim, as shown by the testimony of Virginia Abalos again, to
wit:
"Q
Why, what happened to your refrigerator at that particular time?
A
I asked them to bring it down because that is the nearest place to our house and
when I went down and asked somebody to bring down the refrigerator, I also asked
somebody to call the family of Mr. Cudiamat. LLjur
COURT:
Q
Why did you ask somebody to call the family of Mr. Cudiamat?
A
Because Mr. Cudiamat met an accident, so I ask somebody to call for the family of
Mr. Cudiamat.
Q
But nobody ask(ed) you to call for the family of Mr. Cudiamat?
A
No sir." 21
With respect to the award of damages, an oversight was, however, committed by
respondent Court of Appeals in computing the actual damages based on the gross income of
the victim. The rule is that the amount recoverable by the heirs of a victim of a tort is not
the loss of the entire earnings, but rather the loss of that portion of the earnings which the
beneficiary would have received. In other words, only net earnings, not gross earnings, are
to be considered, that is, the total of the earnings less expenses necessary in the creation of
such earnings or income and minus living and other incidental expenses. 22
We are of the opinion that the deductible living and other expense of the deceased may
fairly and reasonably be fixed at P500.00 a month or P6,000.00 a year. In adjudicating the
actual or compensatory damages, respondent court found that the deceased was 48 years
old, in good health with a remaining productive life expectancy of 12 years, and then
earning P24,000.00 a year. Using the gross annual income as the basis, and multiplying the
same by 12 years, it accordingly awarded P288,000. Applying the aforestated rule on
computation based on the net earnings, said award must be, as it hereby is, rectified and
reduced to P216,000.00. However, in accordance with prevailing jurisprudence, the death
indemnity is hereby increased to P50,000.00. 23

WHEREFORE, subject to the above modifications, the challenged judgment and resolution of
respondent Court of Appeals are hereby AFFIRMED in all other respects. LLpr
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
Footnotes
1.
Civil Case No. 584-R, Regional Trial Court, Branch 7, Baguio City.
2.
Rollo, 51.
3.
Penned by Justice Bonifacio A. Cacdac, Jr., with Justices Gloria C. Paras and Serafin
V.C. Guingona concurring.
4.
Rollo, 26-27.
5.
Ibid., 48.
6.
Sabinosa vs. Court of Appeals, et al., 175 SCRA 552 (1989).
7.
Original Record, 169; Judge Rodolfo D. Rodrigo, presiding.
8.
Rollo, 25.
9.
TSN, January 20, 1987, 26-27.
10.
TSN, November 18, 1986, 3-4.
11.
See Del Prado vs. Manila Electric Co., 52 Phil. 900 (1929). .
12.
14 Am Jur. 2d 436.
13.
TSN, January 20, 1987, 11.
14.
14 Am. Jur. 2d 414.
15.
Del Prado vs. Manila Electric Co., supra.
16.
Art. 1733, Civil Code.
17.
Art. 1755, Civil Code.
18.
Sy vs. Malate Taxicab & Garage, Inc., 102 Phil. 482 (1957); Batangas Transportation
Co. vs. Caguimbal, et al., 22 SCRA 171 (1968).
19.
Rollo, 25.
20.
TSN, June 20, 1986, 3-4.
21.
TSN, January 20, 1987, 16.
22.
Villa Rey Transit, Inc. vs. Court of Appeals, et al., 31 SCRA 511 (1970); Davila, et al.
vs. Philippine Airlines, Inc., 49 SCRA 497 (1973).
23.
People vs. Sazon, 189 SCRA 700 (1990).

12. China Airlines v. CA

SECOND DIVISION
[G.R. No. 45985. May 18, 1990.]
CHINA AIR LINES, LTD., petitioner, vs. COURT OF APPEALS, JOSE PAGSIBIGAN, PHILIPPINE AIR
LINES, INC. and ROBERTO ESPIRITU, respondents.
[G.R. No. 46036. May 18, 1990.]
PHILIPPINE AIR LINES, INC. and ROBERTO ESPIRITU, petitioners, vs. COURT OF APPEALS, JOSE
PAGSIBIGAN and CHINA AIR LINES, LTD., respondents.
Balgos & Perez Law Offices for petitioner China Air Lines, Ltd.
Siguion Reyna, Montecillo & Ongsiako for petitioners in G.R. No. 46036.
Syquia Law Offices for Jose Pagsibigan.
DECISION
REGALADO, J p:
These consolidated petitions seek the review of the decision of respondent court in CA-G.R.
No. 53023-R entitled "Jose E. Pagsibigan, Plaintiff-Appellant, vs. Philippine Air Lines, Inc. and
Roberto Espiritu, Defendants-Appellants; China Air Lines, Ltd., Defendant-Appellee," 1 the
dispositive portion of which declares:
"WHEREFORE, except for a modification of the judgment in the sense that the award of
P20,000.00 in favor of the plaintiff shall be in the concept of nominal damages instead of
exemplary damages, and that defendant China Air Lines, Ltd. shall likewise be liable with its
two co-defendants in a joint and solidary capacity, the judgment appealed from is hereby
affirmed in all other respects, without costs." 2
The challenged decision of respondent court contains a synthesis of the facts that spawned
these cases and the judgment of the court a quo which it affirmed with modifications, thus:
LLphil
"On June 4, 1968, plaintiff Jose E. Pagsibigan, then vice-president and general manager of
Rentokil (Phils .) Inc., a local firm dealing in insecticides, pesticides and related services
appurtenant thereto, purchased a plane ticket for a Manila-Taipei-Hongkong-Manila flight
from the Transaire Travel Agency. The said agency, through its Cecille Baron, contacted the
Manila Hotel branch of defendant Philippine Air Lines which at that time was a sales and
ticketing agent of defendant China Air Lines. On June 6, 1968, PAL, through its ticketing clerk
defendant Roberto Espiritu, cut and issued CAL Ticket No. 017991 for a Manila-TaipeiHongkong-Manila flight. According to the plane ticket, the plaintiff was booked on CAL CI
Flight No. 812 to depart from Manila for Taipei on June 10, 1968 at 1720 hours (5:20 p.m.),
Exhibit A.
"On June 10, 1968, one hour before the scheduled time of the flight as stated in his ticket,
the plaintiff arrived at the airport to check in for CI Flight No. 812. Upon arriving at the
airport, the plaintiff was informed that the plane he was supposed to take for Taipei had left
at 10:20 in the morning of that day. The PAL employees at the airport made appropriate
arrangements for the plaintiff to take PAL's flight to Taipei the following day, June 11, 1968.
The plaintiff took said flight and arrived in Taipei around noontime of the said date.
"On July 8, 1968, the plaintiff, through counsel, made formal demand on defendant PAL for
moral damages in not less than P125,000.00 for what the plaintiff allegedly suffered as a
result of his failure to take the flight as stated in his plane ticket. (Exhibit E) After a series of
negotiations among the plaintiff, PAL and CAL failed to reach an amicable settlement, the
plaintiff instituted this action in the Court of First Instance of Rizal on September 22, 1969. In
his complaint, plaintiff prays for the recovery of P125,000.00 as moral damages and
P25,000.00 for and as attorney's fees. The moral damages allegedly arose from the gross
negligence of defendant Roberto Espiritu in stating on the plane ticket that the time of
departure was 1720 hours, instead of 1020 hours which was the correct time of departure in
the revised summer schedule of CAL. Plaintiff claims that by reason of his failure to take the
plane, he suffered besmirched reputation, embarrassment, mental anguish, wounded
feelings and sleepless nights, inasmuch as when he went to the airport, he was

accompanied by his business associates, close friends and relatives. He further averred that
his trip to Taipei was for the purpose of conferring with a certain Peng Siong Lim, president
of the Union Taiwan Chemical Corporation, scheduled at 9:00 a.m. on June 11, 1968.
"Defendant Philippine Air Lines alleges in its answer that the departure time indicated by
Espiritu in the ticket was furnished and confirmed by the reservation office of defendant
China Air Lines. It further avers that CAL had not informed PAL's Manila Hotel Branch of the
revised schedule of its flight, nor provided it with revised timetable; that when the travel
agency sought to purchase the ticket for the plaintiff on CAL CI Flight No. 812 for June 10,
1968, Espiritu who was then the ticketing clerk on duty, checked with the reservation office
of CAL on the availability of space, the date and the time of said flight; that CAL's Dory Chan
informed Espiritu that the departure time of Flight No. 812 on June 10, 1968 was at 5:20 in
the afternoon of said date. PAL asserted a cross-claim against CAL for attorney's fees and for
reimbursement of whatever amount the court may adjudge PAL to be liable to the plaintiff.
Defendant Espiritu adopted the defenses of his co-defendant PAL.
"Defendant China Air Lines, for its part, disclaims liability for the negligence and
incompetence of the employees of PAL. It avers that it had revised its schedule since April 1,
1968, the same to be effective on April 20, 1968, and the said revised schedule was adopted
only after proper petition with and approval of the Civil Aeronautics Board of which all
airlines, including defendant PAL, were notified; that both printed copies of the international
timetable and of the mimeographed notices of the official schedule and flight departure
schedules were distributed to all its sales agents, including PAL; that after the effectivity of
the new time schedules, PAL's Manila Hotel office had been issuing and selling tickets based
on the revised time schedule; and that, assuming that the plaintiff is entitled to recover
damages, the liability is on PAL and not on CAL. A cross-claim was likewise asserted by CAL
against its co-defendant PAL.
"After due trial, the Court a quo rendered judgment laying the blame for the erroneous entry
in the ticket as to the time of departure to defendant Roberto Espiritu, ticketing agent of
defendant PAL, and that no employee of CAL contributed to such erroneous entry. It was
further ruled that the plaintiff had no reason to claim moral damages but may be entitled to
recover exemplary damages. The dispositive portion of the decision makes the following
adjudication:
'WHEREFORE, premises considered, judgment is hereby rendered sentencing the defendants
Philippine Air Lines, Inc. and Roberto Espiritu, to pay to plaintiff Jose Pagsibigan jointly and
severally, by way of exemplary damages, the sum of Twenty Thousand Pesos (P20,000.00)
plus Two Thousand Pesos (P2,000.00) as reimbursement for attorney's fees and the costs.
'The complaint is dismissed with respect to the defendant China Air Lines, Ltd. The crossclaim filed by defendant PAL and Espiritu against defendant CAL as well as the cross-claim
filed by the defendant CAL against defendant PAL and Espiritu are also hereby dismissed.' "
3
From said decision of the court below, all the parties, except China Air Lines, Ltd. appealed
to respondent court which, however, sustained the ruling of the trial court denying
Pagsibigan's claim for moral damages. It concluded that Roberto Espiritu did not act with
malice or in bad faith in making a wrong entry of the time of departure on the ticket, and
that the mistake committed by Espiritu appears to be an honest one done in good faith.
Respondent court also ruled out the claim for exemplary damages for lack of legal basis.
Nonetheless, as earlier noted, it awarded Pagsibigan P20,000.00 as nominal damages, under
Article 2221 of the Civil Code, for the vindication of a legal wrong committed against him.
cdphil
As regards the liability of the parties, respondent court held:
"There can be little question as to the liability of PAL and Espiritu for the damage caused to
the plaintiff due to the erroneous entry in the plane ticket made by the latter. They seek to
justify the erroneous statement as to the time of departure on the ground that such was the
time given by Dory Chan to Espiritu when the latter called up for the reservation in favor of
plaintiff. Aside from the fact that Dory Chan had vigorously disclaimed having given such
information to Espiritu, We are convinced that, as the trial court had found, CAL had no

share in the error committed by Espiritu in indicating the time of departure of Flight No. 812.
PAL had shown through the testimony of Carmen Ibazeta Gallaga, ticket representative of
PAL at the Manila Hotel Office, that they received circulars and timetables of airlines in the
PAL main office. It further appears that on two occasions, defendant PAL cut and issued
tickets for CAL based on the new schedule even before June 10, 1968. As a matter of fact,
the other entries of time departures in the ticket issued to the plaintiff are in accordance
with the revised schedule, and that the only error therein was with respect to the departure
from Manila on June 10, 1968.
"However, in proving that the fault lied with Espiritu, defendant CAL derives no solace nor
gains an advantage. It may not claim exemption from liability by reason thereof. Espiritu
was an employee of PAL and whatever negligence was committed by him is attributable to
PAL. It is an admitted fact that PAL is an authorized agent of CAL. In this relationship, the
responsibility of defendant PAL for the tortious act of its agent or representative is
inescapable. . . .
xxx
xxx
xxx
"A similar principle is recognized in our Civil Code in its Art. 2180 . . . . Unlike in the doctrine
of respondeat superior, however, the Civil Code permits the employer to escape this liability
upon proof of having observed all the diligence of a good father of a family to prevent the
damage. We find the evidence of defendant CAL to be insufficient to overcome the
presumption of negligence on its part for the act done by defendant Roberto Espiritu.
(Emphasis supplied).
"The liability for the damage sustained by the plaintiff should, therefore, be borne by all of
the defendants in a joint and solidary capacity (Art. 2194). The liability of an employer under
Art. 2180 is primary and direct. . . .
xxx
xxx
xxx
"It appearing that defendant CAL, as employer or principal, did not contribute to the
negligence committed by defendants PAL and Roberto Espiritu, its liability to the plaintiff
could be passed on to said defendants. Defendant CAL, however, did not take an appeal and
did not, therefore, take exception to the dismissal of its cross-claim against defendants PAL
and Espiritu. This serves as an obstacle for a rendition of judgment favorable to CAL on its
said counterclaim." 4
In its petition for review on certiorari in G.R. No. L-45985, petitioner China Air Lines, Ltd.
(CAL) relied on the following grounds:
1.
A principal can not be held liable, much less solidarily, for the negligence of the subagent, where the former never participated in, ratified or authorized the latter's act or
omission.
2.
Dismissal of the cross-claim of petitioner against the private respondents Philippine
Air Lines, Inc. and Roberto Espiritu will not prevent the release of the petitioner from liability
to the private respondent Pagsibigan.
3.
The award of damages was unwarranted both legally and factually. 5
On their part, petitioners Philippine Air Lines, Inc. (PAL) and Roberto Espiritu made the
following submissions in G.R. No L-46036, to wit:
1.
The respondent Court of Appeals erred in not holding that respondent China Air
Lines, Ltd., being the principal, is solely liable to respondent Pagsibigan.
2.
The respondent Court of Appeals erred in awarding respondent Pagsibigan the sum of
P20,000.00 as nominal damages. 6
In G.R. No. L-45985, respondent Pagsibigan contends, by way of refutation, that CAL,'s
liability is based on breach of contract of transportation which was the proximate result of
the negligence and/or error committed by PAL and Espiritu; that even assuming that CAL
has no share in the negligence of PAL and Espiritu, the liability of CAL does not cease upon
proof that it exercised all the diligence of a good father of a family in the selection and
supervision of its employees. Traversing such contentions, CAL argues that it can not be
made liable under Article 2180 of the Civil Code because of the absence of employeremployee relationship between it and PAL.

On the other hand, in G.R. No. L-46036, respondent Pagsibigan claims that PAL is liable
under Article 1909 of the said code which holds an agent responsible not only for fraud but
also for negligence which shall be judged with more or less rigor by the courts, according to
whether the agency was or was not for a compensation. PAL, however, maintains that for
lack of privity with Pagsibigan, the suit for breach of contract should have been directed
against CAL. LibLex
What surfaces as a procedural maneuver taken by respondent Pagsibigan in the course of
the proceedings in these cases has confused the real issues in the controversy subject of
both petitions before us.
Respondent Pagsibigan has opted to seek redress by pursuing two remedies at the same
time, that is, to enforce the civil liability of CAL for breach of contract and, likewise, to
recover from PAL and Espiritu for tort or culpa aquiliana. What he has overlooked is the
proscription against double recovery under Article 2177 of the Civil Code which, while not
preventing recourse to any appropriate remedy, prevents double relief for a single wrong.
To avoid inequitable effects under such confluence of remedies, the true nature of the action
instituted by respondent Pagsibigan must be determined. A careful perusal of the complaint
of respondent Pagsibigan will readily disclose that the allegations thereof clearly and
unmistakably make out a case for a quasi-delict in this wise:
"4.
That at all pertinent times particularly in June of 1968, defendant China Air Lines Ltd.
has been operating regular scheduled flights to and from Manila, and has offered
accommodations thereon through, among others, defendant PAL as its authorized sales
agent and/or ticketing agent, such that China Airlines Ltd. is here impleaded as being the
principal of defendant PAL;
"5.
That at all pertinent times, particularly in June of 1968, defendant Roberto Espiritu
has been in the employ of defendant PAL at its sales counter at the PAL Manila Hotel branch
office and is here impleaded as defendant as being the proximate malfeasor in this cause of
action;
xxx
xxx
xxx
"12.
That plaintiff missed the initial Manila-Taipei leg (CI Flight 812) on June 10, 1968, as
set forth in his ticket (Annex 'A') solely and exclusively by reason of gross incompetence and
inexcusable negligence amounting to bad faith of defendant PAL acting, through its sales
representative, the defendant Roberto Espiritu, of its Manila Hotel branch office in the
discharge of its duties as sales agent and/or ticketing agent for defendant China Airlines Ltd.
as principal.
"13.
That as a direct result of culpable incompetence and negligence of defendant
Roberto Espiritu as sales representative of defendant PAL, plaintiff was unable to attend to
previously scheduled business commitments in Taipei . . . resulting in direct and indirect
prejudice to plaintiff that has yet to be fully assessed;" (Emphasis supplied) 7
xxx
xxx
xxx
Had the intention of respondent Pagsibigan been to maintain an action based on breach of
contract of carriage, he could have sued CAL alone considering that PAL is not a real party to
the contract. Moreover, in cases of such nature, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent. All he has to prove is the existence of
the contract and the fact of its non-performance by the carrier. 8
The records disclose that the trial court delved much into the issues of who was at fault, and
its decision is primarily anchored on its factual findings regarding the civil liability arising
from culpa aquiliana of the erring party, to this effect:
"Plaintiff said that the erroneous entry in his ticket which made it appear that his CAL flight
of June 10, 1968 was to be at 5:20 in the afternoon was due to the fault or negligence of
PAL's Roberto Espiritu, a co-defendant herein, as well as the employees of the defendant
CAL. In making CAL co-responsible, plaintiff appears to rely on the doctrine that the principal
is responsible for the act of an agent done within the scope of the agency.
"There is no proof extant that any of the employees of CAL had contributed to the erroneous
entry in plaintiff's CAL ticket for Taipei which placed his time of departure to 5:20 o'clock in
the afternoon of June 10, 1968. Only defendant Roberto Espiritu appears to be solely and

exclusively responsible for such error and therefor the conclusion becomes inevitable that
CAL must be absolved from any blame because defendant Roberto Espiritu who committed
the error is not an employee or agent of the defendant CAL." 9
It, therefore, becomes evident that respondent Pagsibigan, having sensed that he can not
hold CAL liable on a quasi-delict, decided on appeal to instead make a sinistral detour, so to
speak, by claiming that his action against CAL is based on a breach of contract of carriage.
cdrep
We can not permit respondent Pagsibigan to change his theory at this stage; it would be
unfair to the adverse party who would have no more opportunity to present further
evidence, material to the new theory, which it could have done had it been aware earlier of
the new theory at the time of the hearing before the trial court. 10
There is indeed no basis whatsoever to hold CAL liable on a quasi-delict or culpa aquiliana.
As hereinbefore stated, the court a quo absolved CAL of any liability for fault or negligence.
This finding was shared by respondent court when it concluded that defendant CAL did not
contribute to the negligence committed by therein defendants-appellants PAL and Roberto
Espiritu.
Respondent Pagsibigan insists that CAL was barred from proving that it observed due
diligence in the selection and supervision of its employees. This argument is obviously
misplaced. CAL is not the employer of PAL or Espiritu. In Duavit vs. The Hon. Court of
Appeals, et al., 11 we have stressed the need of first establishing the existence of an
employer-employee relationship before an employer may be vicariously liable under Article
2180 of the Civil Code.
With respect to PAL and Espiritu, they disclaim any liability on the theory that the former is
merely an agent of CAL and that the suit should have been directed against CAL alone.
There is no question that the contractual relation between both air lines is one of agency.
Suffice it to say, however, that in an action premised on the employee's negligence,
whereby respondent Pagsibigan seeks recovery for the resulting damages from both PAL
and Espiritu without qualification, what is sought to be imposed is the direct and primary
liability of PAL as an employer under said Article 2180.
When an injury is caused by the negligence of an employee, there instantly arises a
presumption of law that there was negligence on the part of the employer either in the
selection of the employee or in the supervision over him after such selection. The
presumption, however, may be rebutted by a clear showing on the part of the employer that
it has exercised the care and diligence of a good father of a family in the selection and
supervision of his employee. 12
Hence, to escape solidary liability for the quasi-delict committed by Espiritu, it is imperative
that PAL must adduce sufficient proof that it exercised such degree of care. PAL failed to
overcome the presumption. As found by respondent court, CAL had revised its schedule of
flights since April 1, 1968; that after the Civil Aeronautics Board had approved the revised
schedule of flights, PAL was duly informed thereof and, in fact, PAL's Manila Hotel branch
office had been issuing and selling tickets based on the revised time schedule before June
10, 1968.
PAL's main defense is that it is only an agent. As a general proposition, an agent who duly
acts as such is not personally liable to third persons. However, there are admitted
exceptions, as in this case where the agent is being sued for damages arising from a tort
committed by his employee.
The respondent court found that the mistake committed by Espiritu was done in good faith.
While there is no evidence that he acted with malice, we can not entirely condone his
actuations. As an employee of PAL, the nature of his functions requires him to observe for
the protection of the interests of another person that degree of care, precaution and
vigilance which the circumstances justly demand. He committed a clear neglect of duty.
Ergo, for his negligence, Espiritu is primarily liable to respondent Pagsibigan under Article
2176 of the Civil Code. For the failure of PAL to rebut the legal presumption of negligence in
the selection and supervision of its employee, it is also primarily liable under Article 2180 of
the same code which explicitly provides that employers shall be liable for the damages

caused by their employees and household helpers acting within the scope of their assigned
tasks, even though the former are not engaged in any business or industry.
Under the aforesaid provision, all that is required is that the employee, by his negligence,
committed a quasi-delict which caused damage to another, and this suffices to hold the
employer primarily and solidarily responsible for the tortious act of the employee. PAL,
however, can demand from Espiritu reimbursement of the amount which it will have to pay
the offended party's claim. 13
On the issue of damages, we agree, except as to the amount, that nominal damages may be
awarded to respondent Pagsibigan to vindicate the legal wrong committed against him. It
appearing that the wrong committed was immediately rectified when PAL promptly booked
him for the next morning's flight to Taipei where he arrived before noon of June 11, 1968
and was able to attend his scheduled conference, and considering the concept and purpose
of nominal damages, the award of P20,000.00 must accordingly be reduced to an amount
equal or at least commensurate to the injury sustained.
WHEREFORE, the decision of respondent Court of Appeals is MODIFIED accordingly. China Air
Lines, Ltd. is hereby absolved from liability. Philippine Air Lines, Inc. and Roberto Espiritu are
declared jointly and severally liable to pay the sum of P10,000.00 by way of nominal
damages, without prejudice to the right of Philippine Air Lines, Inc. to recover from Roberto
Espiritu reimbursement of the damages that it may pay respondent Jose Pagsibigan.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
Footnotes
1.
Penned by Justice Conrado M. Vasquez, with Justices Delfin FL. Batacan and Jose B.
Jimenez concurring.
2.
Rollo, G.R. No. L-45985, 57.
3.
Ibid., id., 41-46.
4.
Ibid., 53-57.
5.
Ibid., id., 13-14.
6.
Ibid., G.R. No. L-46036, 29, 35.
7.
Joint Record on Appeal, 9, 12; Rollo, G.R. No. 45985, 62.
8.
Cangco vs. Manila Railroad Co., 38 Phil. 768 (1918); Sy vs. Malate Taxicab & Garage,
Inc., 102 Phil. 482 (1957).
9.
Joint Record on Appeal, 105; Rollo, G.R. No. 45985, 62.
10.
Lianga Lumber Co., et al. vs. Lianga Timber Co., Inc., et al., 76 SCRA 197 (1977).
11.
G.R. No. 82318, May 18, 1989.
12.
Layugan vs. Intermediate Appellate Court, et al., 167 SCRA 363 (1988).
13.
Art. 2181, Civil Code; Malipol, etc. vs. Tan, et al., 55 SCRA 202 (1974); Lanuzo vs.
Ping, et al., 100 SCRA 205 (1980).