KINDS OF CHARTER PARTIES

G.R. No. 114167 July 12, 1995 On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it
COASTWISE LIGHTERAGE CORPORATION, petitioner, vs. was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents. shipment of molasses from Negros Oriental to Manila and refers to this contract as a "charter
RESOLUTION agreement". It then proceeds to cite the case of Home Insurance Company vs. American Steamship
FRANCISCO, R., J.: Agencies, Inc.2 wherein this Court held: ". . . a common carrier undertaking to carry a special cargo
or chartered to a special person only becomes a private carrier."
This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17,
1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the
liable to pay herein private respondent the amount of P700,000.00, plus legal interest thereon, court are as follows:
another sum of P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows: Accordingly, the charter party contract is one of affreightment over the whole vessel, rather than
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to a demise. As such, the liability of the shipowner for acts or negligence of its captain and crew,
Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb would remain in the absence of stipulation.3
barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise. The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals,4 wherein
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an we ruled:
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long"1 As a consequence, the molasses at Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as
the cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted the owner for the voyage or service stipulated. The charterer mans the vessel with his own people
the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter, Pag- and becomes the owner pro hac vice, subject to liability to others for damages caused by
asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent, negligence. To create a demise, the owner of a vessel must completely and exclusively relinquish
Philippine General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner, possession, command and navigation thereof to the charterer, anything short of such a complete
Coastwise Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which paid the transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.
consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing the value of the damaged On the other hand a contract of affreightment is one in which the owner of the vessel leases part
cargo of molasses. or all of its space to haul goods for others. It is a contract for special service to be rendered by
the owner of the vessel and under such contract the general owner retains the possession,
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of command and navigation of the ship, the charterer or freighter merely having use of the space in
Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the the vessel in return for his payment of the charter hire. . . . .
latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims . . . . An owner who retains possession of the ship though the hold is the property of the charterer,
which the consignee may have against the carrier, which is presumed to have violated the contract remains liable as carrier and must answer for any breach of duty as to the care, loading and
of carriage. unloading of the cargo. . . .

The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court Although a charter party may transform a common carrier into a private one, the same however is
of Appeals, the award was affirmed. not true in a contract of affreightment on account of the aforementioned distinctions between the
Hence, this petition. two.

There are two main issues to be resolved herein. First, whether or not petitioner Coastwise Petitioner admits that the contract it entered into with the consignee was one of affreightment.5 We
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment which agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one
it entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into point to another, but the possession, command and navigation of the vessels remained with
a private carrier, did it exercise the ordinary diligence to which a private carrier is in turn bound? petitioner Coastwise Lighterage.
Second, whether or not the insurer was subrogated into the rights of the consignee against the
carrier, upon payment by the insurer of the value of the consignee's goods lost while on board one
of the carrier's vessels.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
contract of affreightment, was not converted into a private carrier, but remained a common carrier overcome the presumption of negligence with the loss and destruction of goods it transported, by
and was still liable as such. proof of its exercise of extraordinary diligence.

The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more
in good order to a carrier and the subsequent arrival of the same goods at the place of destination rule against the petitioner. We have already found petitioner liable for breach of the contract of
in bad order makes for a prima facie case against the carrier. carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of
the cargo which petitioner-carrier was transporting, it was not the carrier which paid the value
It follows then that the presumption of negligence that attaches to common carriers, once the goods thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent PhilGen.
it transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which
is overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this Article 2207 of the Civil Code is explicit on this point:
case.
The records show that the damage to the barge which carried the cargo of molasses was caused by Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
its hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a insurance company for the injury or loss arising out of the wrong or breach of contract
submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause complained of, the insurance company shall be subrogated to the rights of the insured against
of the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any the wrongdoer or the person who violated the contract. . . .
effort to prepare a chart to indicate the location of sunken derelicts within Manila North Harbor to
avoid navigational accidents"6 effectively contributed to the happening of this mishap. Thus, being This legal provision containing the equitable principle of subrogation has been applied in a long line
unaware of the hidden danger that lies in its path, it became impossible for the petitioner to avoid of cases including Compania Maritima v. Insurance Company of North America;7 Fireman's Fund
the same. Nothing could have prevented the event, making it beyond the pale of even the exercise Insurance Company v. Jamilla & Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court of
of extraordinary diligence. Appeals,9 wherein this Court explained:

However, petitioner's assertion is belied by the evidence on record where it appeared that far from Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
having rendered service with the greatest skill and utmost foresight, and being free from fault, the property is destroyed or damaged through the fault or negligence of a party other than the
carrier was culpably remiss in the observance of its duties. assured, then the insurer, upon payment to the assured will be subrogated to the rights of the
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The assured to recover from the wrongdoer to the extent that the insurer has been obligated to
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by pay. Payment by the insurer to the assured operated as an equitable assignment to the former of
the provisions of the Civil Code) provides: all remedies which the latter may have against the third party whose negligence or wrongful act
caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any
Art. 609. — Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to privity of contract or upon written assignment of claim. It accrues simply upon payment of the
contract in accordance with this code, and prove the skill capacity and qualifications necessary to insurance claim by the insurer.
command and direct the vessel, as established by marine and navigation laws, ordinances or
regulations, and must not be disqualified according to the same for the discharge of the duties of Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-
the position. . . . asa Sales, Inc., the consignee of the cargo of molasses totally damaged while being transported by
petitioner Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales,
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates Inc. may have had against the carrier, herein petitioner Coastwise Lighterage.
this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming the
accident. It may also logically, follow that a person without license to navigate, lacks not just the order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to pay
skill to do so, but also the utmost familiarity with the usual and safe routes taken by seasoned and respondent Philippine General Insurance Company the "principal amount of P700,000.00 plus
legally authorized ones. Had the patron been licensed, he could be presumed to have both the skill interest thereon at the legal rate computed from March 29, 1989, the date the complaint was filed
and the knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay until fully paid and another sum of P100,000.00 as attorney's fees and costs"10 is likewise hereby
on their way to Pier 18. AFFIRMED SO ORDERED.
KINDS OF CHARTER PARTIES 4. ID.; ID.; ID.; ID.; WHERE CHARTER IS ONE OF AFFREIGHTMENT, CHARTERER FREE FROM
[G.R. No. 131166. September 30, 1999] LIABILITY TO THIRD PERSONS.- If the charter is a contract of affreightment, which leaves
CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO, the general owner in possession of the ship as owner for the voyage, the rights and the
EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO responsibilities of ownership rest on the owner. The charterer is free from liability to
S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO third persons in respect of the ship.
SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G. CAEZAL AND SOTERA E. 5. ID.; ID.; COMMON CARRIER; REMAINS AS SUCH NOTWITHSTANDING CHARTER OF WHOLE
CAEZAL, respondents. OR PORTION OF VESSEL.- In this case, the charter party agreement did not convert the
common carrier into a private carrier. The parties entered into a voyager charter, which
SYNOPSIS retains the character of the vessel as a common carrier. In Planters Products, Inc. vs.
On December 19, 1987, the MV Doa Paz, a passenger ship bound for Manila colided with Court of Appeals, we said: It is therefore imperative that a public carrier shall remain as
motor tanker MT Vector. MT Vector carried on board oil products owned by Caltex by virtue such, notwithstanding the charter of the whole or portion of a vessel by one or more
of a charter contract. Numerous people died in that accident including public school teacher persons, provided the charter is limited to the ship only, as in the case of a time-charter
Sebastian Caezal and his 11 year old daughter. In 1989, Caezals wife and mother filed a or voyage charter. It is only when the charter includes both the vessel and its crew, as in
complaint for Damages arising from Breach of Contract of Carriage against Sulpicio Lines, Inc. a bareboat or demise that a common carrier becomes private, at least insofar as the
Sulpicio Lines, in turn, filed a third party complaint against Vector Shipping, Inc. and Caltex particular voyage covering the charter-party is concerned. Indubitably, a ship-owner in a
Phils. The trial court rendered decision against Sulpicio Lines and dismissed the third-party time or voyage charter retains possession and control of the ship, although her holds
complaint. On appeal, the Court of Appeals modified the trial courts ruling and held Vector may, for the moment, be the property of the charterer. Later, we ruled in Coastwise
Shipping Co. and Caltex Phils., Inc., equally liable. Hence, this petition. Lighterage Corporation vs. Court of Appeals. Although a charter party may transform a
common carrier into a private one, the same however is not true in a contract of
Caltex Phils. and Vector entered into a contract of affreightment also known as a voyage affreightment xxx
charter. In a voyage charter, the charter party provides for the hire of the vessel only, the ship 6. ID.; ID.; ID.; SEAWORTHINESS, IMPLIEDLY WARRANTED.- A common carrier is a person or
owner to supply the ships store, pay for the wages of the master of the crew, and defray the corporation whose regular business is to carry passenger or property for all persons who
expenses for the maintenance of the ship. If the charter is a contract of affreightment, which may choose to employ and to remunerate him. MT Vector fits the definition of a common
leaves the general owner in possession of the ship as owner for the voyage, the rights and the carrier under Article 1732 of the Civil Code. Thus, the carriers are deemed to warrant
responsibilities of ownership rest on the owner. The Charterer is free from liability to third impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be
persons in respect of the ship. adequately equipped for the voyage and manned with a sufficient number of competent
The charterer of a vessel has no obligation before transporting all legal requirements. officers and crew. The failure of a common carrier to maintain in seaworthy condition
The duty rests upon the common carrier simply for being engaged in public service. the vessel involved in its contract of carriage is a clear breach of its duty prescribed in
Article 1755 of the Civil Code. The provisions owed their conception to the nature of the
SYLLABUS business of common carriers. This business is impressed with a special public duty. The
1. COMMERCIAL LAW; TRANSPORTATION; CONTRACT OF CARRIAGE; RESPECTIVE RIGHTS public must of necessity rely on the care and skill of common carriers in the vigilance over
AND DUTIES OF PARTIES, HOW DETERMINED.- The respective rights and duties of a the goods and safety of the passengers, especially because with the modern
shipper and the carrier depends not on whether the carrier is public or private, but on development of science and invention, transportation has become more rapid, more
whether the contract of carriage is a bill of lading or equivalent shipping documents on complicated and somehow more hazardous. For these reasons, a passenger or a shipper
the one hand, or a charter party or similar contract on the other. of goods is under no obligation to conduct an inspection of the ship and its crew, the
2. ID.; ID.; ID.; CHARTER PARTY DIFFERENTIATED FROM CONTRACT OF AFFREIGHTMENT.- A carrier being obliged by law to impliedly warrant its seaworthiness.
charter party is a contract by which an entire ship, or some principal part thereof, is let 7. ID.; ID.; ID.; NEGLIGENCE, CONSTRUED.- In Southeastern College, Inc. vs. Court of
by the owner to another person for a specified time or use; a contract of affreightment Appeals, we said that negligence, as commonly understood, is conduct which naturally
is one by which the owner of a ship or other vessel lets the whole or part of her to a or reasonably creates undue risk or harm to others. It may be the failure to observe that
merchant or other person for the conveyance of goods, on a particular voyage, in degree of care, precaution, and vigilance, which the circumstances justly demand, or the
consideration of the payment of freight. omission to do something which ordinarily regulate the conduct of human affairs, would
3. ID.; ID.; ID.; CONTRACT OF AFFREIGHTMENT; CATEGORIES.- A contract of affreightment do.
may be either time charter, wherein the leased vessel is leased to the charterer for a 8. ID.; ID.; ID.; ID.; CHARTERER WITH NO OBLIGATION TO ENSURE VESSEL COMPLIED WITH
fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In ALL LEGAL REQUIREMENTS.- The charterer of a vessel has no obligation before
both cases, the charter-party provides for the hire of the vessel only, either for a transporting its cargo to ensure that the vessel it chartered complied with all legal
determinate period of time or for a single or consecutive voyage, the Ship owner to requirements. The duty rests upon the common carrier simply for being engaged in
supply the ships store, pay for the wages of the master of the crew, and defray the public service. The Civil Code demands diligence which is required by the nature of the
expenses for the maintenance of the ship. obligation and that which corresponds with the circumstances of the persons, the time
 and the place. Hence, considering the nature of the obligation between Caltex and MT
Vector, the liability as found by the Court of Appeals is without basis. The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the
9. ID.; ID.; ID.; ID.; ID.; CASE AT BAR.- The relationship between the parties in this case is passenger manifest. Only 24 survived the tragedy after having been rescued from the burning
governed by special laws. Because of the implied warranty of seaworthiness, shippers of waters by vessels that responded to distress calls.[5] Among those who perished were public
goods, when transacting with common carriers, are not expected to inquire into the school teacher Sebastian Caezal (47 years old) and his daughter Corazon Caezal (11 years old),
vessels seaworthiness, genuineness of its licenses and compliance with all maritime laws. both unmanifested passengers but proved to be on board the vessel.
To demand more from shippers and hold them liable in case of failure exhibits nothing
but the futility of our maritime laws insofar as the protection of the public in general is On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after
concerned. By the same token, we cannot expect passengers to inquire every time they investigation found that the MT Vector, its registered operator Francisco Soriano, and its
board a common carrier, whether the carrier possesses the necessary papers or that all owner and actual operator Vector Shipping Corporation, were at fault and responsible for its
the carriers employees are qualified. Such a practice would be an absurdity in a business collision with MV Doa Paz.[6]
where time is always of the essence. Considering the nature of transportation business,
passengers and shippers alike customarily presume that common carriers possess all the On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife and
legal requisites in its operation. Thus, the nature of the obligation of Caltex demands mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for
ordinary diligence like any other shipper in shipping his cargoes Damages Arising from Breach of Contract of Carriage against Sulpicio Lines, Inc. (hereafter
Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector
DECISION Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT
PARDO, J.: Vector with gross and evident bad faith knowing fully well that MT Vector was improperly
Is the charterer of a sea vessel liable for damages resulting from a collision between the manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed
chartered vessel and a passenger ship? against MV Doa Paz in the open sea setting MT Vectors highly flammable cargo ablaze.

When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying On September 15, 1992, the trial court rendered decision dismissing the third party
petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed complaint against petitioner. The dispositive portion reads:
that it would collide with MV Doa Paz, killing almost all the passengers and crew members of
both ships, and thus resulting in one of the countrys worst maritime disasters. WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against defendant-3rd
party plaintiff Sulpicio Lines, Inc., to wit:
The petition before us seeks to reverse the Court of Appeals decision[1]holding petitioner 1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G. Caezal,
jointly liable with the operator of MT Vector for damages when the latter collided with Sulpicio including loss of future earnings of said Sebastian, moral and exemplary damages, attorneys
Lines, Inc.s passenger ship MV Doa Paz. fees, in the total amount of P 1,241,287.44 and finally;
2. The statutory costs of the proceedings.
The facts are as follows: Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., costs against the 3rd party plaintiff.
enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner IT IS SO ORDERED.
Caltex.[2] MT Vector is a tramping motor tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene, DONE IN MANILA, this 15th day of September 1992.
diesel and crude oil. During that particular voyage, the MT Vector carried on board gasoline ARSENIO M. GONONG Judge[7]
and other oil products owned by Caltex by virtue of a charter contract between them. [3]
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997,
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port the Court of Appeal modified the trial courts ruling and included petitioner Caltex as one of
of Tacloban headed for Manila with a complement of 59 crew members including the master the those liable for damages.Thus:
and his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. [4] The WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court
MV Doa Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying is hereby MODIFIED as follows:
the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E. Caezal
trips twice a week. and Corazon Caezal:
1. Compensatory damages for the death of Sebastian E.Caezal and Corazon Caezal the total
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea amount of ONE HUNDRED THOUSAND PESOS (P100,000);
within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the 2. Compensatory damages representing the unearned income of Sebastian E. Caezal, in the
crewmembers of MV Doa Paz died, while the two survivors from MT Vector claimed that they total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY (P306,480.00)
were sleeping at the time of the incident. PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P 300,000.00); If the charter is a contract of affreightment, which leaves the general owner in possession
4. Attorneys fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on
(P 50,000.00); the owner. The charterer is free from liability to third persons in respect of the ship.[13]
5. Costs of the suit.
Second : MT Vector is a common carrier
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable under
the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above- Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter,
mentioned damages, attorneys fees and costs which the latter is adjudged to pay plaintiffs, (3) voyage charter. Does a charter party agreement turn the common carrier into a private
the same to be shared half by Vector Shipping Co. (being the vessel at fault for the collision) one? We need to answer this question in order to shed light on the responsibilities of the
and the other half by Caltex (Phils.), Inc. (being the charterer that negligently caused the parties.
shipping of combustible cargo aboard an unseaworthy vessel).
SO ORDERED. In this case, the charter party agreement did not convert the common carrier into a
JORGE S. IMPERIAL private carrier. The parties entered into a voyage charter, which retains the character of the
Associate Justice vessel as a common carrier.
WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS In Planters Products, Inc. vs. Court of Appeals,[14] we said:
Associate Justice Associate Justice[8] It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter
Hence, this petition. of the whole or portion of a vessel by one or more persons, provided the charter is limited to
the ship only, as in the case of a time-charter or voyage charter. It is only when the charter
We find the petition meritorious. includes both the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the charter-party is
First: The charterer has no liability for damages under Philippine Maritime laws. concerned. Indubitably, a ship-owner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the charterer.
The respective rights and duties of a shipper and the carrier depends not on whether the
carrier is public or private, but on whether the contract of carriage is a bill of lading or Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeal: Although a
equivalent shipping documents on the one hand, or a charter party or similar contract on the charter party may transform a common carrier into a private one, the same however is not
other.[9] true in a contract of affreightment xxx

Petitioner and Vector entered into a contract of affreightment, also known as a voyage A common carrier is a person or corporation whose regular business is to carry
charter.[10] passengers or property for all persons who may choose to employ and to remunerate
him.[16] MT Vector fits the definition of a common carrier under Article 1732 of the Civil
A charter party is a contract by which an entire ship, or some principal part thereof, is let Code. In Guzman vs. Court of Appeals,[17] we ruled:
by the owner to another person for a specified time or use; a contract of affreightment is one The Civil Code defines common carriers in the following terms:
by which the owner of a ship or other vessel lets the whole or part of her to a merchant or Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
other person for the conveyance of goods, on a particular voyage, in consideration of the business of carrying or transporting passengers for passengers or goods or both, by land,
payment of freight.[11] water, or air for compensation, offering their services to the public.

A contract of affreightment may be either time charter, wherein the leased vessel is The above article makes no distinction between one whose principal business activity is the
leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased carrying of persons or goods or both, and one who does such carrying only as
for a single voyage. In both cases, the charter-party provides for the hire of the vessel only, an ancillary activity (in local idiom, as a sideline). Article 1732 also carefully avoids making any
either for a determinate period of time or for a single or consecutive voyage, the ship owner distinction between a person or enterprise offering transportation service on a regular or
to supply the ships store, pay for the wages of the master of the crew, and defray the expenses scheduled basis and one offering such services on a an occasional, episodic or unscheduled
for the maintenance of the ship.[12] basis. Neither does Article 1732 distinguish between a carrier offering its services to the
general public, i.e., the general community or population, and one who offers services or
Under a demise or bareboat charter on the other hand, the charterer mans the vessel solicits business only from a narrow segment of the general population. We think that Article
with his own people and becomes, in effect, the owner for the voyage or service stipulated, 1733 deliberately refrained from making such distinctions.
subject to liability for damages caused by negligence.
It appears to the Court that private respondent is properly characterized as a common carrier
even though he merely back-hauled goods for other merchants from Manila to Pangasinan,
although such backhauling was done on a periodic, occasional rather than regular or scheduled 5. The vessel had a defective main engine.[20]
manner, and even though respondents principal occupation was not the carriage of goods for
others. There is no dispute that private respondent charged his customers a fee for hauling As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of
their goods; that the fee frequently fell below commercial freight rates is not relevant here. the Civil Code, which provide:
Article 20. - Every person who contrary to law, willfully or negligently causes damage to
Under the Carriage of Goods by Sea Act : another, shall indemnify the latter for the same.
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise due
diligence to - Article 2176. - Whoever by act or omission causes damage to another, there being fault or
(a) Make the ship seaworthy; negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
(b) Properly man, equip, and supply the ship; existing contractual relation between the parties, is called a quasi-delict and is governed by
xxx xxx xxx the provisions of this Chapter.
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a
vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a And what is negligence?
sufficient number of competent officers and crew. The failure of a common carrier to The Civil Code provides:
maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach Article 1173. The fault or negligence of the obligor consists in the omission of that diligence
of its duty prescribed in Article 1755 of the Civil Code.[18] which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. When negligence shows bad faith, the provisions of
The provisions owed their conception to the nature of the business of common Article 1171 and 2201 paragraph 2, shall apply.
carriers. This business is impressed with a special public duty. The public must of necessity rely If the law does not state the diligence which is to be observed in the performance, that which
on the care and skill of common carriers in the vigilance over the goods and safety of the is expected of a good father of a family shall be required.
passengers, especially because with the modern development of science and invention,
transportation has become more rapid, more complicated and somehow more In Southeastern College, Inc. vs. Court of Appeals,[21] we said that negligence, as
hazardous.[19] For these reasons, a passenger or a shipper of goods is under no obligation to commonly understood, is conduct which naturally or reasonably creates undue risk or harm to
conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly others. It may be the failure to observe that degree of care, precaution, and vigilance, which
warrant its seaworthiness. the circumstances justly demand, or the omission to do something which ordinarily regulate
the conduct of human affairs, would do.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
The charterer of a vessel has no obligation before transporting its cargo to ensure that
Third: Is Caltex liable for damages under the Civil Code? the vessel it chartered complied with all legal requirements. The duty rests upon the common
carrier simply for being engaged in public service.[22] The Civil Code demands diligence which
We rule that it is not. is required by the nature of the obligation and that which corresponds with the circumstances
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard of the persons, the time and the place. Hence, considering the nature of the obligation
an unseaworthy vessel such as the MT Vector when Caltex: between Caltex and MT Vector, the liability as found by the Court of Appeals is without basis.
1. Did not take steps to have M/T Vectors certificate of inspection and coastwise
license renewed; The relationship between the parties in this case is governed by special laws. Because of
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan the implied warranty of seaworthiness,[23] shippers of goods, when transacting with common
Refinery Corporation; carriers, are not expected to inquire into the vessels seaworthiness, genuineness of its licenses
3. Witnessed M/T Vector submitting fake documents and certificates to the and compliance with all maritime laws. To demand more from shippers and hold them liable
Philippine Coast Guard. in case of failure exhibits nothing but the futility of our maritime laws insofar as the protection
Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these of the public in general is concerned. By the same token, we cannot expect passengers to
deficiencies: inquire every time they board a common carrier, whether the carrier possesses the necessary
1. The master of M/T Vector did not posses the required Chief Mate license to papers or that all the carriers employees are qualified. Such a practice would be an absurdity
command and navigate the vessel; in a business where time is always of the essence. Considering the nature of transportation
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized business, passengers and shippers alike customarily presume that common carriers possess all
to navigate only in bays and rivers when the subject collision occurred in the the legal requisites in its operation.
open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the Thus, the nature of the obligation of Caltex demands ordinary diligence like any other
vessel; shipper in shipping his cargoes.
4. The vessel did not have a Third Mate, a radio operator and a lookout; and
 A cursory reading of the records convinces us that Caltex had reasons to believe that MT
Vector could legally transport cargo that time of the year. Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All
entries here under VESSELS DOCUMENTS things considered, we find no legal basis to hold petitioner liable for damages.
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires
December 7, 1987, Mr. Witness, what steps did you take regarding the As Vector Shipping Corporation did not appeal from the Court of Appeals decision, we
impending expiry of the C.I. or the Certificate of Inspection No. 1290-85 during limit our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals
the hiring of MT Vector? ruling insofar as Vector is concerned .
Apolinar Ng: At the time when I extended the Contract, I did nothing because the tanker
has a valid C.I. which will expire on December 7, 1987 but on the last week of WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the
November, I called the attention of Mr. Abalos to ensure that the C.I. be renewed Court of Appeals in CA-G. R. CV No. 39626, promulgated on April 15, 1997, insofar as it held
and Mr. Abalos, in turn, assured me they will renew the same. Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines,
Q: What happened after that? Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the
A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of
were going to send me a copy as soon as possible, sir.[24] Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-party defendant-
xxx xxx xxx appellee Vector Shipping Corporation and Francisco Soriano are held liable to
Q: What did you do with the C.I.? reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys fees and
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because costs the latter is adjudged to pay plaintiffs-appellees in the case.
of our long business relation, we trust Mr. Abalos and the fact that the vessel was
able to sail indicates that the documents are in order. xxx[25] No costs in this instance.
On cross examination -
Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of SO ORDERED.
Inspection has expired on December 7. Did it occur to you not to let the vessel sail on
that day because of the very approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they
were able to secure a renewal of the Certificate of Inspection and that they will in
time submit us a copy.[26]
Finally, on Mr. Ngs redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of
Inspection in the coastwise license on December 7, 1987. What was your assurance
for the record that this document was renewed by the MT Vector?
Atty. Sarenas: xxx
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly,
those three years, they were allowed to sail by the Coast Guard. That are some that
make me believe that they in fact were able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect that if it was
allowed, referring to MV Vector, to sail, where it is loaded and that it was scheduled
for a destination by the Coast Guard, it means that it has Certificate of Inspection
extended as assured to this witness by Restituto Abalos. That in no case MV Vector
will be allowed to sail if the Certificate of Inspection is, indeed, not to be
extended. That was his repeated explanation to the cross-examination. So, there is
no need to clarify the same in the re-direct examination.[27]

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about
two years before the tragic incident occurred in 1987. Past services rendered showed no
reason for Caltex to observe a higher degree of diligence.
PROBATIVE VALUE OF BILL OF LADING respondents when the goods are transferred from one vessel to another which both
G.R. No. 95529 August 22, 1991 belong to the same owner which was what happened to the Anahaw fans, then there
MAGELLAN MANUFACTURING MARKETING CORPORATION,* petitioner, is (no) transhipment. Petitioner sent this certification to Choju Co., Ltd., but the said
vs. company still refused to accept the goods which arrived in Japan on July 19, 1980.
COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG, Private respondents billed petitioner in the amount of P16,342.21 for such shipment
INC. respondents. and P34,928.71 for demurrage in Japan from July 26 up to August 31, 1980 or a total
of P51,271.02. In a letter dated March 20, 1981, private respondents gave petitioner
the option of paying the sum of P51,271.02 or to abandon the Anahaw fans to enable
REGALADO, J.: private respondents to sell them at public auction to cover the cost of shipment and
Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of demurrages. Petitioner opted to abandon the goods. However, in a letter dated June
respondent Court of Appeals in CA-G.R. CV No. 18781,1 affirming in part the decision of the 22, 1981 private respondents demanded for payment of P298,150.93 from petitioner
trial court,2 the dispositive portion of which reads: which represents the freight charges from Japan to Manila, demurrage incurred in
Premises considered, the decision appealed from is affirmed insofar as it dismisses Japan and Manila from October 22, 1980 up to May 20, 1981; and charges for
the complaint. On the counter-claim, however, appellant is ordered to pay appellees stripping the container van of the Anahaw fans on May 20, 1981.
the amount of P52,102.45 with legal interest from date of extra-judicial demand. The On July 20, 1981 petitioner filed the complaint in this case praying that private
award of attorney's fees is deleted.3 respondents be ordered to pay whatever petitioner was not able to earn from Choju
Co., Ltd., amounting to P174,150.00 and other damages like attorney's fees since
The facts as found by respondent appellate court are as follows: private respondents are to blame for the refusal of Choju Co., Ltd. to accept the
On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. Anahaw fans. In answer thereto the private respondents alleged that the bill of lading
(MMMC) entered into a contract with Choju Co. of Yokohama, Japan to export clearly shows that there will be a transhipment and that petitioner was well aware
136,000 anahaw fans for and in consideration of $23,220.00. As payment thereof, a that MV (Pacific) Despatcher was only up to Hongkong where the subject cargo will
letter of credit was issued to plaintiff MMMC by the buyer. Through its president, be transferred to another vessel for Japan. Private respondents also filed a
James Cu, MMMC then contracted F.E. Zuellig, a shipping agent, through its solicitor, counterclaim praying that petitioner be ordered to pay freight charges from Japan to
one Mr. King, to ship the anahaw fans through the other appellee, Orient Overseas Manila and the demurrages in Japan and Manila amounting to P298,150.93.
Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of lading and The lower court decided the case in favor of private respondents. It dismissed the
that transhipment is not allowed under the letter of credit (Exh. B-1). On June 30, complaint on the ground that petitioner had given its consent to the contents of the
1980, appellant MMMC paid F.E. Zuellig the freight charges and secured a copy of bill of lading where it is clearly indicated that there will be transhipment. The lower
the bill of lading which was presented to Allied Bank. The bank then credited the court also said that petitioner is liable to pay to private respondent the freight
amount of US$23,220.00 covered by the letter of credit to appellant's account. charges from Japan to Manila and demurrages since it was the former which ordered
However, when appellant's president James Cu, went back to the bank later, he was the reshipment of the cargo from Japan to Manila.
informed that the payment was refused by the buyer allegedly because there was no On appeal to the respondent court, the finding of the lower (court) that petitioner
on-board bill of lading, and there was a transhipment of goods. As a result of the agreed to a transhipment of the goods was affirmed but the finding that petitioner is
refusal of the buyer to accept, upon appellant's request, the anahaw fans were liable for P298,150.93 was modified. It was reduced to P52,102.45 which represents
shipped back to Manila by appellees, for which the latter demanded from appellant the freight charges and demurrages incurred in Japan but not for the demurrages
payment of P246,043.43. Appellant abandoned the whole cargo and asked appellees incurred in Marta. According to the respondent (court) the petitioner can not be held
for damages. liable for the demurrages incurred in Manila because Private respondents did not
In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 timely inform petitioner that the goods were already in Manila in addition to the fact
cartons of 136,000 pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers that private respondent had given petitioner the option of abandoning the goods in
was loaded at Manila on board the MV 'Pacific Despatcher' freight prepaid, and duly exchange for the demurrages.5
covered by Bill of Lading No. MNYK201T dated June 27, 1980 issued by OOCL; that
the shipment was delivered at the port of discharge on July 19, 1980, but was Petitioner, being dissatisfied with the decision of respondent court and the motion for
subsequently returned to Manila after the consignee refused to accept/pay the reconsideration thereof having been denied, invokes the Court's review powers for the
same.4 resolution of the issues as to whether or not respondent court erred (1) in affirming the
decision of the trial court which dismissed petitioner's complaint; and (2) in holding petitioner
Elaborating on the above findings of fact of respondent court and without being disputed by liable to private respondents in the amount of P52,102.45.6
herein private respondents, petitioner additionally avers that:
When petitioner informed private respondents about what happened, the latter I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd.,
issued a certificate stating that its bill of lading it issued is an on board bill of lading to take delivery of the exported anahaw fans resulting in a loss of P174,150.00 representing
and that there was no actual transhipment of the fans. According to private the purchase price of the said export items because of violation of the terms and conditions of
the letter of credit issued in favor of the former which specified the requirement for an on assumed by the parties.15 Being a contract, it is the law between the parties who are bound by
board bill of lading and the prohibition against transhipment of goods, inasmuch as the bill of its terms and conditions provided that these are not contrary to law, morals, good customs,
lading issued by the latter bore the notation "received for shipment" and contained an entry public order and public policy.16 A bill of lading usually becomes effective upon its delivery to
indicating transhipment in Hongkong. 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
We find no fault on the part of private respondents. On the matter of transhipment, petitioner bound by his acceptance whether he reads the bill or not.17
maintains that "... while the goods were transferred in Hongkong from MV Pacific Despatcher,
the feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot be considered The holding in most jurisdictions has been that a shipper who receives a bill of lading without
transhipment because both vessels belong to the same shipping company, the private objection after an opportunity to inspect it, and permits the carrier to act on it by proceeding
respondent Orient Overseas Container Lines, Inc."7 Petitioner emphatically goes on to say: "To with the shipment is presumed to have accepted it as correctly stating the contract and to have
be sure, there was no actual transhipment of the Anahaw fans. The private respondents have assented to its terms. In other words, the acceptance of the bill without dissent raises the
executed a certification to the effect that while the Anahaw fans were transferred from one presumption that all the terms therein were brought to the knowledge of the shipper and
vessel to another in Hong Kong, since the two vessels belong to one and the same company agreed to by him and, in the absence of fraud or mistake, he is estopped from thereafter
then there was no transhipment.8 denying that he assented to such terms. This rule applies with particular force where a shipper
accepts a bill of lading with full knowledge of its contents and acceptance under such
Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and circumstances makes it a binding contract.18
loading it in another,"9 or "the transfer of goods from the vessel stipulated in the contract of In the light of the series of events that transpired in the case at bar, there can be no logical
affreightment to another vessel before the place of destination named in the contract has conclusion other than that the petitioner had full knowledge of, and actually consented to, the
been reached,"10 or "the transfer for further transportation from one ship or conveyance to terms and conditions of the bill of lading thereby making the same conclusive as to it, and it
another."11 Clearly, either in its ordinary or its strictly legal acceptation, there is transhipment cannot now be heard to deny having assented thereto. As borne out by the records, James Cu
whether or not the same person, firm or entity owns the vessels. In other words, the fact of himself, in his capacity as president of MMMC, personally received and signed the bill of lading.
transhipment is not dependent upon the ownership of the transporting ships or conveyances On practical considerations, there is no better way to signify consent than by voluntarry signing
or in the change of carriers, as the petitioner seems to suggest, but rather on the fact of actual the document which embodies the agreement. As found by the Court of Appeals —
physical transfer of cargo from one vessel to another.
Contrary to appellant's allegation that it did not agree to the transhipment, it could
That there was transhipment within this contemplation is the inescapable conclusion, as there be gleaned from the record that the appellant actually consented to the
unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space transhipment when it received the bill of lading personally at appellee's (F.E. Zuellig's)
labeled "Transhipment," which can only mean that transhipment actually took place. 12 This office. There clearly appears on the face of the bill of lading under column "PORT OF
fact is further bolstered by the certification13 issued by private respondent F.E. Zuellig, Inc. TRANSHIPMENT" an entry "HONGKONG' (Exhibits'G-l'). Despite said entries he still
dated July 19, 1980, although it carefully used the term "transfer" instead of transhipment. delivered his voucher (Exh. F) and the corresponding check in payment of the freight
Nonetheless, no amount of semantic juggling can mask the fact that transhipment in truth (Exhibit D), implying that he consented to the transhipment (Decision, p. 6, Rollo). 19
occurred in this case.
Furthermore and particularly on the matter of whether or not there was transhipment, James
Petitioner insists that "(c)onsidering that there was no actual transhipment of the Anahaw Cu, in his testimony on crossexamination, categorically stated that he knew for a fact that the
fans, then there is no occasion under which the petitioner can agree to the transhipment of shipment was to be unloaded in Hong Kong from the MV Pacific Despatcher to be transferred
the Anahaw fans because there is nothing like that to agree to" and "(i)f there is no actual to a mother vessel, the MV Oriental Researcher in this wise:
transhipment but there appears to be a transhipment in the bill of lading, then there can be Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or
no possible reason for it but a mistake on the part of the private respondents.14 transhipped at the port of Hongkong?
A I know. It's not transport, they relay, not trans... yes, that is why we have an
Petitioner, in effect, is saying that since there was a mistake in documentation on the part of agreement if they should not put a transhipment in Hongkong, that's why they even
private respondents, such a mistake militates against the conclusiveness of the bill of lading stated in the certification.
insofar as it reflects the terms of the contract between the parties, as an exception to the parol xxx xxx xxx
evidence rule, and would therefore permit it to explain or present evidence to vary or Q In layman's language, would you agree with me that transhipment is the transfer
contradict the terms of the written agreement, that is, the bill of lading involved herein. of a cargo from one vessel to the other?
A As a layman, yes.
It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a Q So, you know for a fact that your shipment is going to be unloaded in Hongkong
contract. It is a receipt for the goods shipped and a contract to transport and deliver the same from M. V. Dispatcher (sic) and then transfer (sic) to another vessel which was the
as therein stipulated. As a contract, it names the parties, which includes the consignee, fixes Oriental Dispatcher, (sic) you know that for a fact?
the route, destination, and freight rates or charges, and stipulates the rights and obligations A Yes, sir. (Emphasis supplied.)20
 of the contract and an infringement of the right of the shipper, and subjects the carrier to
Under the parol evidence rule,21 the terms of a contract are rendered conclusive upon the liability if the freight is lost even by a cause otherwise excepted.26 It is highly improbable to
parties, and evidence aliunde is not admissible to vary or contradict a complete and suppose that private respondents, having been engaged in the shipping business for so long,
enforceable agreement embodied in a document, subject to well defined exceptions which do would be unaware of such a custom of the trade as to have undertaken such transhipment
not obtain in this case. The parol evidence rule is based on the consideration that when the without petitioner's consent and unnecessarily expose themselves to a possible liability. Verily,
parties have reduced their agreement on a particular matter into writing, all their previous and they could only have undertaken transhipment with the shipper's permission, as evidenced by
contemporaneous agreements on the matter are merged therein. Accordingly, evidence of a the signature of James Cu.
prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or
defeat the operation of a valid instrument.22 The mistake contemplated as an exception to the Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd.
parol evidence rule is one which is a mistake of fact mutual to the parties.23 Furthermore, the was that the bill of lading that was issued was not an on board bill of lading, in clear violation
rules on evidence, as amended, require that in order that parol evidence may be admitted, of the terms of the letter of credit issued in favor of petitioner. On cross-examination, it was
said mistake must be put in issue by the pleadings, such that if not raised inceptively in the likewise established that petitioner, through its aforesaid president, was aware of this fact,
complaint or in the answer, as the case may be, a party can not later on be permitted to thus:
introduce parol evidence thereon.24 Needless to say, the mistake adverted to by herein Q If the container van, the loaded container van, was transported back to South
petitioner, and by its own admission, was supposedly committed by private respondents only Harbor on June 27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was
and was raised by the former rather belatedly only in this instant petition. Clearly then, and received by you?
for failure to comply even only with the procedural requirements thereon, we cannot admit A I received on June 30, 1980. I received at the same time so then I gave the check.
evidence to prove or explain the alleged mistake in documentation imputed to private xxx xxx xxx
respondents by petitioner. Q So that in exchange of the Bill of Lading you issued your check also dated June 30,
1980?
Petitioner further argues that assuming that there was transhipment, it cannot be deemed to A Yes, sir.
have agreed thereto even if it signed the bill of lading containing such entry because it had Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of
made known to private respondents from the start that transhipment was prohibited under Lading states: 'Received for shipment'only? .
the letter of credit and that, therefore, it had no intention to allow transhipment of the subject A Yes, sir.
cargo. In support of its stand, petitioner relies on the second paragraph of Article 1370 of the Q What did you say?
Civil Code which states that "(i)f the words appear to be contrary to the evident intention of A I requested to issue me on board bill of lading.
the parties, the latter shall prevail over the former," as wen as the supposed ruling in Caltex Q When?
Phil., Inc. vs. Intermediate Appellate Court, et al.25 that "where the literal interpretation of a A In the same date of June 30.
contract is contrary to the evident intention of the parties, the latter shall prevail." Q What did they say?
A They said, they cannot.
As between such stilted thesis of petitioner and the contents of the bill of lading evidencing xxx xxx xxx
the intention of the parties, it is irremissible that the latter must prevail. Petitioner Q Do you know the difference between a "received for shipment bill of lading" and
conveniently overlooks the first paragraph of the very article that he cites which provides that "on board bill of lading"?
"(i)f the terms of the contract are clear and leave no doubt upon the intention of the A Yes, sir.
contracting parties, the literal meaning of the stipulations shall control." In addition, Article Q What's the difference?
1371 of the same Code provides that "(i)n order to judge the intention of the contracting A Received for shipment, you can receive the cargo even you don't ship on board,
parties, their contemporaneous and subsequent acts shall be principally considered." that is placed in the warehouse; while on-board bill of lading means that is loaded on
the vessel, the goods.
The terms of the contract as embodied in the bill of lading are clear and thus obviates the need xxx xxx xxx
for any interpretation. The intention of the parties which is the carriage of the cargo under the Q In other words, it was not yet on board the vessel?
terms specified thereunder and the wordings of the bill of lading do not contradict each other. A During that time, not yet.
The terms of the contract being conclusive upon the parties and judging from the xxx xxx xxx
contemporaneous and subsequent actuations of petitioner, to wit, personally receiving and Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a
signing the bill of lading and paying the freight charges, there is no doubt that petitioner must vessel you can demand an on-board bill of lading not only a received for shipment
necessarily be charged with full knowledge and unqualified acceptance of the terms of the bill bill of lading.?
of lading and that it intended to be bound thereby. A Yes sir.
Q And did you demand from F.E. Zuellig the substitution of that received for shipment
Moreover, it is a well-known commercial usage that transhipment of freight without legal bill of lading with an on-board bill of lading?
excuse, however competent and safe the vessel into which the transfer is made, is a violation A Of course, instead they issue me a certification.
 Q They give you a ... ? that is, reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to
A ... a certification that it was loaded on board on June 30. mention that it would indubitably be stretching the concept of substantial compliance too far.
xxx xxx xxx
Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that Neither can petitioner escape hability by adverting to the bill of lading as a contract of
there should be no transhipment and that it should also get an on board bill of adhesion, thus warranting a more liberal consideration in its favor to the extent of interpreting
lading.? ambiguities against private respondents as allegedly being the parties who gave rise thereto.
A Yes sir.27 The bill of lading is clear on its face. There is no occasion to speak of ambiguities or obscurities
whatsoever. All of its terms and conditions are plainly worded and commonly understood by
Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly those in the business.
required that there be an on board bill of lading, obviously due to the guaranty afforded by
such a bill of lading over any other kind of bill of lading. The buyer could not have insisted on It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on
such a stipulation on a pure whim or caprice, but rather because of its reliance on the May 20,1980 or over a month before the expiry date of the letter of credit on June 30, 1980,
safeguards to the cargo that having an on board bill of lading ensured. Herein petitioner cannot thus giving it more than ample time to find a carrier that could comply with the requirements
feign ignorance of the distinction between an "on board" and a "received for shipment" bill of of shipment under the letter of credit. It is conceded that bills of lading constitute a class of
lading, as manifested by James Cu's testimony. It is only to be expected that those long contracts of adhesion. However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et
engaged in the export industry should be familiar with business usages and customs. al.31 and reiterated in Servando, et al. vs. Philippine Steam Navigation Co.,32 plane tickets as
In its petition, MMMC avers that "when petitioner teamed of what happened, it saw private well as bills of lading are contracts not entirely prohibited. The one who adheres to the
respondent F.E. Zuellig which, in turn, issued a certification that as of June 30, 1980, the contract is in reality free to reject it entirely; if he adheres, he gives his consent. The
Anahaw fans were already on board MV Pacific Despatcher (which means that the bill of lading respondent court correctly observed in the present case that "when the appellant received the
is an on- board-bill of lading or 'shipped' bill of lading as distinguished from a 'received for bill of lading, it was tantamount to appellant's adherence to the terms and conditions as
shipment'bill of lading as governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...." 28 What embodied therein.33
the petitioner would suggest is that said certification issued by F.E. Zuellig, Inc., dated July 19,
1980, had the effect of converting the original "received for shipment only" bill of lading into In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions
an "on board" bill of lading as required by the buyer and was, therefore, by substantial clearly violative of the requirements of the letter of credit. Nonetheless, perhaps in its
compliance, not violative of the contract. eagerness to conclude the transaction with its Japanese buyer and in a race to beat the expiry
date of the letter of credit, petitioner took the risk of accepting the bill of lading even if it did
An on board bill of lading is one in which it is stated that the goods have been received on not conform with the indicated specifications, possibly entertaining a glimmer of hope and
board the vessel which is to carry the goods, whereas a received for shipment bill of lading is imbued with a touch of daring that such violations may be overlooked, if not disregarded, so
one in which it is stated that the goods have been received for shipment with or without long as the cargo is delivered on time.
specifying the vessel by which the goods are to be shipped. Received for shipment bills of
lading are issued whenever conditions are not normal and there is insufficiency of shipping Unfortunately, the risk did not pull through as hoped for. Any violation of the terms and
space.29An on board bill of lading is issued when the goods have been actually placed aboard conditions of the letter of credit as would defeat its right to collect the proceeds thereof was,
the ship with every reasonable expectation that the shipment is as good as on its way. 30 It is, therefore, entirely of the petitioner's making for which it must bear the consequences. As
therefore, understandable that a party to a maritime contract would require an on board bill finally averred by private respondents, and with which we agree, "... the questions of whether
of lading because of its apparent guaranty of certainty of shipping as well as the seaworthiness or not there was a violation of the terms and conditions of the letter of credit, or whether or
of the vessel which is to carry the goods. not such violation was the cause or motive for the rejection by petitioner's Japanese buyer
should not affect private respondents therein since they were not privies to the terms and
It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the conditions of petitioner's letter of credit and cannot therefore be held liable for any violation
bill of lading, as originally issued, into an on board bill of lading as required by the terms of the thereof by any of the parties thereto."34
letter of credit issued in favor of petitioner. For one, the certification was issued only on July
19, 1980, way beyond the expiry date of June 30, 1980 specified in the letter of credit for the II. Petitioner contends that respondent court erred in holding it liable to private respondents
presentation of an on board bill of lading. Thus, even assuming that by a liberal treatment of for P52,102.45 despite its exercise of its option to abandon the cargo. It will be recalled that
the certification it could have the effect of converting the received for shipment bill of lading the trial court originally found petitioner liable for P298,150.93, which amount consists of
into an on board of bill of lading, as petitioner would have us believe, such an effect may be P51,271.02 for freight, demurrage and other charges during the time that the goods were in
achieved only as of the date of its issuance, that is, on July 19, 1980 and onwards. Japan and for its reshipment to Manila, P831.43 for charges paid to the Manila International
The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading Port Terminal, and P246,043.43 for demurrage in Manila from October 22, 1980 to June 18,
was presented by petitioner in compliance with the terms of the letter of credit and this default 1981. On appeal, the Court of Appeals limited petitioner's liability to P52,102.45 when it ruled:
consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to As regards the amount of P51,271.02, which represents the freight charges for the
operate retroactively, would render illusory the guaranty afforded by an on board bill of lading, return shipment to Manila and the demurrage charges in Japan, the same is
 supported by appellant's own letter request (Exh. 2) for the return of the shipment While being satisfied with the exclusion of demurrage charges in Manila for the period from
to Manila at its (appellant's) expense, and hence, it should be held liable therefor. October 22,1980 to June 18,1981, petitioner nevertheless assails the Court of Appeals' award
The amount of P831.43 was paid to the Manila International Port Terminal upon of P52,102.43 in favor of private respondents, consisting of P51,271.01 as freight and
arrival of the shipment in Manila for appellant's account. It should properly be demurrage charges in Japan and P831.43 for charges paid at the Manila International Port
charged to said appellant.35 Termninal.

However, respondent court modified the trial court's decision by excluding the award for Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981. allow private respondents to sell the same at a public auction and to apply the proceeds
thereof as payment for the shipping and demurrage charges, it was released from liability for
Demurrage, in its strict sense, is the compensation provided for in the contract of the sum of P52,102.43 since such amount represents the shipping and demurrage charges
affreightment for the detention of the vessel beyond the time agreed on for loading and from which it is considered to have been released due to the abandonment of goods. It further
unloading. Essentially, demurrage is the claim for damages for failure to accept delivery. In a argues that the shipping and demurrage charges from which it was released by the exercise of
broad sense, every improper detention of a vessel may be considered a demurrage. Liability the option to abandon the goods in favor of private respondents could not have referred to
for demurrage, using the word in its strictly technical sense, exists only when expressly the demurrage charges in Manila because respondent court ruled that the same were not
stipulated in the contract. Using the term in its broader sense, damages in the nature of chargeable to petitioner. Private respondents would rebut this contention by saying in their
demurrage are recoverable for a breach of the implied obligation to load or unload the cargo memorandum that the abandonment of goods by petitioner was too late and made in bad
with reasonable dispatch, but only by the party to whom the duty is owed and only against faith.39
one who is a party to the shipping contract.36 Notice of arrival of vessels or conveyances, or of
their placement for purposes of unloading is often a condition precedent to the right to collect On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to
demurrage charges. the fact that the shipment was made for its benefit or under its direction and, correspondingly,
the carrier is entitled to collect charges for its shipping services. This is particularly true in this
Private respondents, admittedly, have adopted the common practice of requiring prior notice case where the reshipment of the goods was made at the instance of petitioner in its letter of
of arrival of the goods shipped before the shipper can be held liable for demurrage, as declared August 29, 1980.40
by Wilfredo Hans, head of the accounting department of F.E. Zuellig, Inc., on cross-examination
as a witness for private respondents: However, in a letter dated March 20, 1981,41 private respondents belatedly informed
Q ... you will agree with me that before one could be charged with demurrage the petitioner of the arrival of its goods from Japan and that if it wished to take delivery of the
shipper should be notified of the arrival of the shipment? cargo it would have to pay P51,271.02, but with the last paragraph thereof stating as follows:
A Yes sir. Please can you advise within 15 days of receipt of this letter whether you intend to
Q Without such notification, there is no way by which the shipper would know (of) take delivery of this shipment, as alternatively we will have to take legal proceedings
such arrival? in order to have the cargo auctioned to recover the costs involved, as well as free the
A Yes. container which are (sic) urgently required for export cargoes.
Q And no charges of demurrage before the arrival of the cargo?
A Yes sir.37 Clearly, therefore, private respondents unequivocally offered petitioner the option of paying
the shipping and demurrage charges in order to take delivery of the goods or of abandoning
Accordingly, on this score, respondent court ruled: the same so that private respondents could sell them at public auction and thereafter apply
However, insofar as the demurrage charges of P246,043.43 from October up to May the proceeds in payment of the shipping and other charges.
1980, arriv(al) in Manila, are concerned, We are of the view that appellant should not
be made to shoulder the same, as it was not at fault nor was it responsible for said Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its
demurrage charges. Appellee's own witness (Mabazza) testified that while the goods decision to abandon to the goods in favor of private respondents with the specific instruction
arrived in Manila in October 1980, appellant was notified of said arrival only in March that any excess of the proceeds over the legal costs and charges be turned over to petitioner.
1981. No explanation was given for the delay in notifying appellant. We agree with Receipt of said letter was acknowledged by private respondents, as revealed by the testimony
appellant that before it could be charged for demurrage charges it should have been of Edwin Mabazza, a claim officer of F.E. Zuellig, Inc., on cross-examination.42
notified of the arrival of the goods first.1âwphi1 Without such notification it could
not- be so charged because there was no way by which it would know that the goods Despite petitioner's exercise of the option to abandon the cargo, however, private
had already arrived for it to take custody of them. Considering that it was only in respondents sent a demand letter on June 22, 198143 insisting that petitioner should pay the
March 1981 (Exh. K) that appellant was notified of the arrival of the goods, although entire amount of P298,150.93 and, in another letter dated Apiril 30, 1981,44 they stated that
the goods had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14), they win not accept the abandonment of the goods and demanded that the outstanding
appellant cannot be charged for demurrage from October 1980 to March 1981. ...38 account be settled. The testimony of said Edwin Mabazza definitely admits and bears this out.45
Now, there is no dispute that private respondents expressly and on their own volition granted
petitioner an option with respect to the satisfaction of freightage and demurrage charges.
Having given such option, especially since it was accepted by petitioner, private respondents
are estopped from reneging thereon. Petitioner, on its part, was well within its right to exercise
said option. Private respondents, in giving the option, and petitioner, in exercising that option,
are concluded by their respective actions. To allow either of them to unilaterally back out on
the offer and on the exercise of the option would be to countenance abuse of rights as an
order of the day, doing violence to the long entrenched principle of mutuality of contracts.
It will be remembered that in overland transportation, an unreasonable delay in the delivery
of transported goods is sufficient ground for the abandonment of goods. By analogy, this can
also apply to maritime transportation. Further, with much more reason can petitioner in the
instant case properly abandon the goods, not only because of the unreasonable delay in its
delivery but because of the option which was categorically granted to and exercised by it as a
means of settling its liability for the cost and expenses of reshipment. And, said choice having
been duly communicated, the same is binding upon the parties on legal and equitable
considerations of estoppel.

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

MODIFICATION that petitioner is likewise absolved of any hability and the award of P52,102.45
with legal interest granted by respondent court on private respondents' counterclaim is SET
ASIDE, said counterclaim being hereby DISMISSED, without pronouncement as to costs.
SO ORDERED.
RIGHTS OF PASSENGERS IN SEA VOYAGE ART. 698. In case of interruption of a voyage already begun, the passengers
G.R. No. L-46340 April 28, 1983 shall only be obliged to pay the fare in proportion to the distance covered,
SWEET LINES, INC., petitioner, without right to recover damages if the interruption is due to fortuitous
vs. event or force majeure, but with a right to indemnity, if the interruption
THE HONORABLE COURT OF APPEALS, MICAELA B. QUINTOS, FR. JOSE BACATAN, S.J., should have been caused by the captain exclusively. If the interruption
MARCIANO CABRAS and ANDREA VELOSO, respondents. should be caused by the disability of the vessel, and the passenger should
agree to wait for her repairs, he may not be required to pay any increased
RESOLUTION fare of passage, but his living expenses during the delay shall be for his own
account.
MELENCIO-HERRERA, J.:
For having by-passed a port of call without previous notice, petitioner shipping company and The crucial factor then is the existence of a fortuitous event or force majeure. Without it, the
the ship captain were sued for damages by four of its passengers, private respondents herein, right to damages and indemnity exists against a captain who fails to fulfill his undertaking or
before the then Court of First Instance of Cebu, Branch VIII. where the interruption has been caused by the captain exclusively.

Briefly, the facts of record show that private respondents purchased first- class tickets from As found by both Courts below, there was no fortuitous event or force majeure which
petitioner at the latter's office in Cebu City. They were to board petitioner's vessel, M/V Sweet prevented the vessel from fulfilling its undertaking of taking private respondents to
Grace, bound for Catbalogan, Western Samar. Instead of departing at the scheduled hour of Catbalogan. In the first place, mechanical defects in the carrier are not considered a caso
about midnight on July 8, 1972, the vessel set sail at 3:00 A.M. of July 9, 1972 only to be towed fortuito that exempts the carrier from responsibility. 1
back to Cebu due to engine trouble, arriving there at about 4:00 P.M. on the same day. Repairs
having been accomplished, the vessel lifted anchor again on July 10, 1972 at around 8:00 A.M. In the second place, even granting arguendo that the engine failure was a fortuitous event, it
accounted only for the delay in departure. When the vessel finally left the port of Cebu on July
Instead of docking at Catbalogan, which was the first port of call, the vessel proceeded direct 10, 1972, there was no longer any force majeure that justified by-passing a port of call. The
to Tacloban at around 9:00 P.M. of July 10, 1972. Private respondents had no recourse but to vessel was completely repaired the following day after it was towed back to Cebu. In fact, after
disembark and board a ferryboat to Catbalogan. docking at Tacloban City, it left the next day for Manila to complete its voyage. 2

Hence, this suit for damages for breach of contract of carriage which the Trial Court, affirmed The reason for by-passing the port of Catbalogan, as admitted by petitioner's General
by respondent Appellate Court, awarded as follows: Manager, was to enable the vessel to catch up with its schedule for the next week. The record
IN THE LIGHT OF THE FOREGOING OBSERVATIONS, judgment is rendered also discloses that there were 50 passengers for Tacloban compared to 20 passengers for
ordering the defendant Sweet Lines, Incorporated to pay to the plaintiffs Catbalogan,3 so that the Catbalogan phase could be scrapped without too much loss for the
the following: company.
l) P175,000.00 as moral damages divided among the plaintiffs as follows:
P30,000.00 for Mrs. Micaela B. Quintos, P26,000.00 for Jesuit Father Jose In defense, petitioner cannot rely on the conditions in small bold print at the back of the ticket
Bacatan; P10,000.00 for Mrs. Andrea Veloso and P10,000.00 for plaintiff reading.
Mike Cabras; The passenger's acceptance of this ticket shall be considered as an acceptance of the
2) P30,000.00 as exemplary or corrective damages; following conditions:
3) Interest at the legal rate of 6% per annum on the moral and exemplary 3. In case the vessel cannot continue or complete the trip for any cause whatsoever,
damages as set forth above from the date of this decision until said damages the carrier reserves the right to bring the passenger to his/her destination at the
are fully paid; expense of the carrier or to cancel the ticket and refund the passenger the value of
4) P5,000.00 as attorney's fees; and his/her ticket; xxx xxx xxx
5) The costs. 11. The sailing schedule of the vessel for which this ticket was issued is subject to
Counterclaim dismissed. change without previous notice. (Exhibit "l -A")

The governing provisions are found in the Code of Commerce and read as follows: Even assuming that those conditions are squarely applicable to the case at bar, petitioner did
ART. 614. A captain who, having agreed to make a voyage, fails to fulfill his not comply with the same. It did not cancel the ticket nor did it refund the value of the tickets
undertaking, without being prevented by fortuitous event or force majeure, to private respondents. Besides, it was not the vessel's sailing schedule that was involved.
shall indemnify all the losses which his failure may cause, without prejudice Private respondents' complaint is directed not at the delayed departure the next day but at
to criminal penalties which may be proper. the by- passing of Catbalogan, their destination. Had petitioner notified them previously, and
offered to bring them to their destination at its expense, or refunded the value of the tickets
purchased, perhaps, this controversy would not have arisen.
 plus P1,250.00, each, by way of att/rney's fees and litigation expenses. Costs against
Furthermore, the conditions relied upon by petitioner cannot prevail over Articles 614 and 698 petitioner.
of the Code of Commerce heretofore quoted. SO ORDERED.
The voyage to Catbalogan was "interrupted" by the captain upon instruction of management.
The "interruption" was not due to fortuitous event or for majeure nor to disability of the
vessel. Having been caused by the captain upon instruction of management, the passengers'
right to indemnity is evident. The owner of a vessel and the ship agent shall be civilly liable for
the acts of the captain. 4

Under Article 2220 of the Civil Code, moral damages are justly due in breaches of contract
where the defendant acted fraudulently or in bad faith. Both the Trial Court and the Appellate
Court found that there was bad faith on the part of petitioner in that:
(1) Defendants-appellants did not give notice to plaintiffs- appellees as to
the change of schedule of the vessel;
(2) Knowing fully well that it would take no less than fifteen hours to effect
the repairs of the damaged engine, defendants-appellants instead made
announcement of assurance that the vessel would leave within a short
period of time, and when plaintiffs-appellees wanted to leave the port and
gave up the trip, defendants-appellants' employees would come and say,
'we are leaving, already.'
(3) Defendants-appellants did not offer to refund plaintiffs-appellees'
tickets nor provide them with transportation from Tacloban City to
Catbalogan. 5

That finding of bad faith is binding on us, since it is not the function of the Court to analyze and
review evidence on this point all over again, 6 aside from the fact that we find it faithful to the
meaning of bad faith enunciated thus:
Bad faith means a breach of a known duty through some motive or interest
or illwill. Self-enrichment or fraternal interest, and not personal illwill may
have been the motive, but it is malice nevertheless.7

Under the circumstances, however, we find the award of moral damages excessive and
accordingly reduce them to P3,000.00, respectively, for each of the private respondents.

The total award of attorney's fees of P5,000.00 is in order considering that the case has
reached this Tribunal.
Insofar as exemplary damages are concerned, although there was bad faith, we are not
inclined to grant them in addition to moral damages. Exemplary damages cannot be recovered
as a matter of right; the Court decides whether or not they should be adjudicated. 8 The
objective to meet its schedule might have been called for, but petitioner should have taken
the necessary steps for the protection of its passengers under its contract of carriage.

Article 2215(2) of the Civil Code 9 invoked by petitioner is inapplicable herein. The harm done
to private respondents outweighs any benefits they may have derived from being transported
to Tacloban instead of being taken to Catbalogan, their destination and the vessel's first port
of call, pursuant to its normal schedule.

ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner is hereby
sentenced to indemnify private respondents in the sum of P3,000.00 each, without interest,
RIGHTS OF PASSENGERS IN SEA VOYAGE
In his complaint, docketed as Civil Case No. 91-491, plaintiff (hereinafter private
[G.R. No. 118126. March 4, 1996] respondent) alleged that the engines of the M/V Asia Thailand conked out in the open sea, and
TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. COURT OF APPEALS and ATTY. RENATO T. for more than an hour it was stalled and at the mercy of the waves, thus causing fear in the
ARROYO, respondents. passengers. It sailed back to Cebu City after it regained power, but for unexplained reasons,
DECISION the passengers, including the private respondent, were arrogantly told to disembark without
DAVIDE, JR., J.: the necessary precautions against possible injury to them. They were thus unceremoniously
As formulated by the petitioner, the issue in this petition for review on certiorari under dumped, which only exacerbated the private respondents mental distress. He further alleged
Rule 45 of the Rules of Court is as follows: that by reason of the petitioners wanton, reckless, and willful acts, he was unnecessarily
In case of interruption of a vessels voyage and the consequent delay in that vessels arrival at exposed to danger and, having been stranded in Cebu City for a day, incurred additional
its port of destination, is the right of a passenger affected thereby to be determined and expenses and loss of income. He then prayed that he be awarded P1,100.00, P50,000.00, and
governed by the vague Civil Code provision on common carriers, or shall it be, in the absence P25,000.00 as compensatory, moral, and exemplary damages, respectively.[5]
of a specific provision thereon, governed by Art. 698 of the Code of Commerce?[1]
In his pre-trial brief, the private respondent asserted that his complaint was an action for
The petitioner considers it a novel question of law. damage&arising from bad faith, breach of contract and from tort, with the former arising from
the petitioners failure to carry [him] to his place of destination as contracted, while the latter
Upon a closer evaluation, however, of the challenged decision of the Court of Appeals of from the conduct of the [petitioner] resulting [in] the infliction of emotional distress to the
23 November 1994,[2] vis-a-vis, the decision of 29 June 1992 in Civil Case No. 91-491 of the private respondent.[6]
Regional Trial Court (RTC) of Cagayan de Oro City, Branch 24,[3] as well as the allegations and
arguments adduced by the parties, we find the petitioners formulation of the issue imprecise. After due trial, the trial court rendered its decision[7] and ruled that the action was only
As this Court sees it, what stands for resolution is a common carriers liability for damages to a for breach of contract, with Articles 1170, 1172, and 1173 of the Civil Code as applicable law -
passenger who disembarked from the vessel upon its return to the port of origin, after it not Article 2180 of the same Code. It was of the opinion that Article 1170 made a person liable
suffered engine trouble and had to stop at sea, having commenced the contracted voyage on for damages if, in the performance of his obligation, he was guilty of fraud, negligence, or
one engine. delay, or in any manner contravened the tenor thereof; moreover, pursuant to Article 2201 of
the same Code, to be entitled to damages, the non-performance of the obligation must have
The antecedents are summarized by the Court of Appeals as follows: been tainted not only by fraud, negligence, or delay, but also bad faith, malice, and wanton
Plaintiff [herein private respondent Atty. Renato Arroyo], a public attorney, bought a ticket attitude. It then disposed of the case as follows:
[from] defendant [herein petitioner], a corporation engaged in x x x inter-island shipping, for WHEREFORE, it not appearing from the evidence that plaintiff was left in
the voyage of M/V Asia Thailand vessel to Cagayan de Oro City from Cebu City on November the Port of Cebu because of the fault, negligence, malice or wanton attitude of defendants
12, 1991. employees, the complaint is DISMISSED. Defendants counterclaim is likewise dismissed it not
appearing also that filing of the case by plaintiff was motivated by malice or bad faith.[8]
At around 5:30 in the evening of November 12, 1991, plaintiff boarded the M/V Asia Thailand
vessel. At that instance, plaintiff noticed that some repair works [sic] were being undertaken The trial court made the following findings to support its disposition:
on the engine of the vessel. The vessel departed at around 11:00 in the evening with only one In the light of the evidence adduced by the parties and of the above provisions of the New Civil
(1) engine running. Code, the issue to be resolved, in the resolution of this case is whether or not, defendant thru
After an hour of slow voyage, the vessel stopped near Kawit Island and dropped its anchor its employee in [sic] the night of November 12, 1991, committed fraud, negligence, bad faith
thereat. After half an hour of stillness, some passengers demanded that they should be or malice when it left plaintiff in the Port of Cebu when it sailed back to Cagayan de Oro City
allowed to return to Cebu City for they were no longer willing to continue their voyage to after it has [sic] returned from Kawit Island.
Cagayan de Oro City. The captain acceded [sic] to their request and thus the vessel headed
back to Cebu City. Evaluation of the evidence of the parties tended to show nothing that defendant committed
fraud. As early as 3:00 p.m. of November 12, 1991, defendant did not hide the fact that the
At Cebu City, plaintiff together with the other passengers who requested to be brought back cylinder head cracked. Plaintiff even saw during its repair. If he had doubts as to the vessels
to Cebu City, were allowed to disembark. Thereafter, the vessel proceeded to Cagayan de Oro capacity to sail, he had time yet to take another boat. The ticket could be returned to
City. Plaintiff, the next day, boarded the M/V Asia Japan for its voyage to Cagayan de Oro City, defendant and corresponding cash [would] be returned to him.
likewise a vessel of defendant.
Neither could negligence, bad faith or malice on the part of defendant be inferred from the
On account of this failure of defendant to transport him to the place of destination evidence of the parties. When the boat arrived at [the] Port of Cebu after it returned
on November 12, 1991, plaintiff filed before the trial court a complaint for damages against from Kawit Island, there was an announcement that passengers who would like to disembark
defendant.[4] were given ten (10) minutes only to do so. By this announcement, it could be inferred that the
boat will [sic] proceed to Cagayan de Oro City. If plaintiff entertained doubts, he should have On the latter, the court a quo observed that the private respondent even admitted he was
asked a member of the crew of the boat or better still, the captain of the boat. But as admitted unaware of the vessels departure time, and it was only when he boarded the vessel that he
by him, he was of the impression only that the boat will not proceed to Cagayan de Oro that became aware of such. Finally, the respondent Court found no reasonable basis for the private
evening so he disembarked. He was instead, the ones [sic] negligent. Had he been prudent, respondents belief that demand was useless because the petitioner had rendered it beyond
with the announcement that those who will disembark were given ten minutes only, he should its power to perform its obligation; on the contrary, he even admitted that the petitioner had
have lingered a little by staying in his cot and inquired whether the boat will proceed to been assuring the passengers that the vessel would leave on time, and that it could still
Cagayan de Oro City or not. Defendant cannot be expected to be telling [sic] the reasons to perform its obligation to transport them as scheduled.
each passenger. Announcement by microphone was enough.
To justify its award of damages, the Court of Appeals ratiocinated as follows:
The court is inclined to believe that the story of defendant that the boat returned to It is an established and admitted fact that the vessel before the voyage had undergone some
the Port of Cebu because of the request of the passengers in view of the waves. That it did not repair work on the cylinder head of the engine. It is likewise admitted by defendant-appellee
return because of the defective engines as shown by the fact that fifteen (15) minutes after that it left the port of Cebu City with only one engine running. Defendant-appellee averred:
the boat docked [at] the Port of Cebu and those who wanted to proceed to Cagayan de Oro x x x The dropping of the vessels anchor after running slowly on only one engine when it
disembarked, it left for Cagayan de Oro City. departed earlier must have alarmed some nervous passengers x x x

The defendant got nothing when the boat returned to Cebu to let those who did not want to The entries in the logbook which defendant-appellee itself offered as evidence categorically
proceed to Cagayan de Oro City including plaintiff disembarked. On the contrary, this would stated therein that the vessel stopped at Kawit Island because of engine trouble. It reads:
mean its loss instead because it will have to refund their tickets or they will use it the next trip 2330 HRS STBD ENGINE EMERGENCY STOP
without paying anymore. It is hard therefore, to imagine how defendant by leaving plaintiff 2350 HRS DROP ANCHOR DUE TO. ENGINE TROUBLE, 2 ENGINE STOP.
in Cebu could have acted in bad faith, negligently, want only and with malice.
The stoppage was not to start and synchronized [sic] the engines of the vessel as claimed
If plaintiff, therefore, was not able to [m]ake the trip that night of November 12, 1991, it was by defendant-appellee. It was because one of the engines of the vessel broke down; it was
not because defendant maliciously did it to exclude him [from] the trip. If he was left, it was because of the disability of the vessel which from the very beginning of the voyage was known
because of his fault or negligence.[9] to defendant-appellee.
Defendant-appellee from the very start of the voyage knew for a fact that the vessel was
Unsatisfied, the private respondent appealed to the Court of Appeals (CA-G.R. CV No. 39901) not yet in its sailing condition because the second engine was still being repaired. Inspite of
and submitted for its determination the following assignment of errors: (1) the trial court erred this knowledge, defendant-appellee still proceeded to sail with only one engine running.
in not finding that the defendant-appellee was guilty of fraud, delay, negligence, and bad faith;
and (2) the trial court erred in not awarding moral and exemplary damages.[10] Defendant-appellee at that instant failed to exercise the diligence which all common
carriers should exercise in transporting or carrying passengers. The law does not merely
In its decision of 23 November 1994,[11] the Court of Appeals reversed the trial courts decision require extraordinary diligence in the performance of the obligation. The law mandates that
by applying Article 1755 in relation to Articles 2201, 2208, 2217, and 2232 of the Civil Code common carrier[s] should exercise utmost diligence in the transport of passengers.
and, accordingly, awarded compensatory, moral, and exemplary damages as follows:
WHEREFORE, premises considered, the appealed decision is hereby REVERSED and SET ASIDE Article 1755 of the New Civil Code provides:
and another one is rendered ordering defendant-appellee to pay plaintiff-appellant: ART. 1755. A common carrier is bound to carry the passengers safely as far as human care and
1. P20,000.00 as moral damages; foresight can provide, using the utmost diligence of very cautious persons, with a due regard
2. P10,000.00 as exemplary damages; for all the circumstances.
3. P5,000.00 as attorneys fees;
4. Cost of suit. Utmost diligence of a VERY CAUTIOUS person dictates that defendant-appellee should
SO ORDERED.[12] have pursued the voyage only when its vessel was already fit to sail. Defendant-appellee
should have made certain that the vessel [could] complete the voyage before starting [to] sail.
It did not, however, allow the grant of damages for the delay in the performance of the Anything less than this, the vessel [could not] sail x x x with so many passengers on board it.
petitioners obligation as the requirement of demand set forth in Article 1169 of the Civil Code
had not been met by the private respondent. Besides, it found that the private respondent However, defendant-appellant [sic] in complete disregard of the safety of the
offered no evidence to prove that his contract of carriage with the petitioner provided for passengers, chose to proceed with its voyage even if only one engine was running as the
liability in case of delay in departure, nor that a designation of the time of departure was the second engine was still being repaired during the voyage. Defendant-appellee disregarded
controlling motive for the establishment of the contract. the not very remote possibility that because of the disability of the vessel, other problems
might occur which would endanger the lives of the passengers sailing with a disabled vessel.
 As expected, x x x engine trouble occurred. Fortunate[ly] for defendant-appellee, such carriers under Section 4, Chapter 3, Title VIII, Book IV of the Civil Code, while for all other
trouble only necessitated the stoppage of the vessel and did not cause the vessel to capsize. matters not regulated thereby, the Code of Commerce and special laws. [20]
No wonder why some passengers requested to be brought back to Cebu City. Common carriers
which are mandated to exercise utmost diligence should not be taking these risks. Under Article 1733 of the Civil Code, the petitioner was bound to observe extraordinary
diligence in ensuring the safety of the private respondent. That meant that the petitioner was,
On this premise, plaintiff-appellant should not be faulted why he chose to disembark pursuant to Article 1755 of the said Code, bound to carry the private respondent safely as far
from the vessel with the other passengers when it returned back to Cebu City. Defendant- as human care and foresight could provide, using the utmost diligence of very cautious
appellee may call him a very panicky passenger or a nervous person, but this will not relieve persons, with due regard for all the circumstances. In this case, we are in full accord with the
defendant-appellee from the liability it incurred for its failure to exercise utmost diligence.[13] Court of Appeals that the petitioner failed to discharge this obligation.
xxx xxx xxx
As to the second assigned error, we find that plaintiff-appellant is entitled to the award Before commencing the contracted voyage, the petitioner undertook some repairs on
of moral and exemplary damages for the breach committed by defendant-appellee. the cylinder head of one of the vessels engines. But even before it could finish these repairs, it
allowed the vessel to leave the port of origin on only one functioning engine, instead of two.
As discussed, defendant-appellee in sailing to Cagayan de Oro City with only one engine Moreover, even the lone functioning engine was not in perfect condition as sometime after it
and with full knowledge of the true condition of the vessel, acted in bad faith with malice, in had run its course, it conked out. This caused the vessel to stop and remain adrift at sea, thus
complete disregard for the safety of the passengers and only for its own personal in order to prevent the ship from capsizing, it had to drop anchor. Plainly, the vessel was
advancement/interest. unseaworthy even before the voyage began. For a vessel to be seaworthy, it must be
adequately equipped for the voyage and manned with a sufficient number of competent
The Civil Code provides: officers and crew.[21] The failure of a common carrier to maintain in seaworthy condition its
Art 2201. xxx xxx xxx In case of fraud, bad faith, malice or wanton attitude, the obligor shall be vessel involved in a contract of carriage is a clear breach of is duty prescribed in Article 1755
responsible for all damages which may be reasonably attributed to the non-performance of of the Civil Code.
the obligation.
As to its liability for damages to the private respondent, Article 1764 of the Civil Code
Plaintiff-appellant is entitled to moral damages for the mental anguish, fright and serious expressly provides:
anxiety he suffered during the voyage when the vessels engine broke down and when he ART. 1764. Damages in cases comprised in this Section shall be awarded in accordance with
disembarked from the vessel during the wee hours of the morning at Cebu City when it Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a
returned.[14] passenger caused by the breach of contract by common carrier.

Moral damages are recoverable in a damage suit predicated upon a breach of contract The damages comprised in Title XVIII of the Civil Code are actual or compensatory, moral,
of carriage where it is proved that the carrier was guilty of fraud or bad faith even if death does nominal, temperate or moderate, liquidated, and exemplary.
not result.[15] In his complaint, the private respondent claims actual or compensatory, moral, and
exemplary damages.
Fraud and bad faith by defendant-appellee having been established, the award of moral
damages is in order.[16] Actual or compensatory damages represent the adequate compensation for pecuniary
loss suffered and for profits the obligee failed to obtain.[22]
To serve as a deterrent to the commission of similar acts in the future, exemplary
damages should be imposed upon defendant-appellee.[17] Exemplary damages are designed by In contracts or quasi-contracts, the obligor is liable for all the damages which may be
our civil law to permit the courts to reshape behavior that is socially deleterious in its reasonably attributed to the non-performance of the obligation if he is guilty of fraud, bad
consequence by creating x x x negative incentives or deterrents against such behavior.[18] faith, malice, or wanton attitude.[23]

Moral damages having been awarded, exemplary damages maybe properly awarded. Moral damages include moral suffering, mental anguish, fright, serious anxiety,
When entitlement to moral damages has been established, the award of exemplary damages besmirched reputation, wounded feelings, moral shock, social humiliation, or similar injury.
is proper.[19] They may be recovered in the cases enumerated in Article 2219 of the Civil Code, likewise, if
they are the proximate result of, as in this case, the petitioners breach of the contract of
The petitioner then instituted this petition and submitted the question of law earlier carriage.[24] Anent a breach of a contract of common carriage, moral damages may be awarded
adverted to. if the common carrier, like the petitioner, acted fraudulently or in bad faith.[25]

Undoubtedly, there was, between the petitioner and the private respondent, a contract Exemplary damages are imposed by way of example or correction for the public good, in
of common carriage. The laws of primary application then are the provisions on common addition to moral, temperate, liquidated or compensatory damages.[26] In contracts and quasi-
contracts, exemplary damages may be awarded if the defendant acted in a wanton fraudulent, We likewise fully agree with the Court of Appeals that the petitioner is liable for moral
reckless, oppressive or malevolent manner.[27] It cannot, however, be considered as a matter and exemplary damages. In allowing its unseaworthy M/V Asia Thailand to leave the port of
of right; the court having to decide whether or not they should be adjudicated. [28] Before the origin and undertake the contracted voyage, with full awareness that it was exposed to perils
court may consider an award for exemplary damages, the plaintiff must first show that he is of the sea, it deliberately disregarded its solemn duty to exercise extraordinary diligence and
entitled to moral, temperate or compensatory damages; but it is not necessary that he prove obviously acted with bad faith and in a wanton and reckless manner. On this score, however,
the monetary value thereof.[29] the petitioner asserts that the safety of the vessel and passengers was never at stake because
the sea was calm in the vicinity where it stopped as faithfully recorded in the vessels log book
The Court of Appeals did not grant the private respondent actual or compensatory (Exhibit 4). Hence, the petitioner concludes, the private respondent was merely over-reacting
damages, reasoning that no delay was incurred since there was no demand, as required by to the situation obtaining then.[31]
Article 1169 of the Civil Code. This article, however, finds no application in this case because,
as found by the respondent Court, there was in fact no delay in the commencement of the We hold that the petitioners defense cannot exculpate it nor mitigate its liability. On the
contracted voyage. If any delay was incurred, it was after the commencement of such voyage, contrary, such a claim demonstrates beyond cavil the petitioners lack of genuine concern for
more specifically, when the voyage was subsequently interrupted when the vessel had to stop the safety of its passengers. It was, perhaps, only providential that the sea happened to be
near Kawit Island after the only functioning engine conked out. calm. Even so, the petitioner should not expect its passengers to act in the manner it desired.
The passengers were not stoics; becoming alarmed, anxious, or frightened at the stoppage of
As to the rights and duties of the parties strictly arising out of such delay, the Civil Code a vessel at sea in an unfamiliar zone at nighttime is not the sole prerogative of the faint-
is silent. However, as correctly pointed out by the petitioner, Article 698 of the Code of hearted. More so in the light of the many tragedies at sea resulting in the loss of lives of
Commerce specifically provides for such a situation. hopeless passengers and damage to property simply because common carriers failed in their
duty to exercise extraordinary diligence in the performance of their obligations.
It reads: In case a voyage already begun should be interrupted, the passengers shall be
obliged to pay the fare in proportion to the distance covered, without right to recover for We cannot, however, give our affirmance to the award of attorneys fees. Under Article
losses and damages if the interruption is due to fortuitous event or force majeure, but with a 2208 of the Civil Code, these are recoverable only in the concept of actual damages, [32] not as
right to indemnity if the interruption should have been caused by the captain exclusively. If moral damages[33] nor judicial costs.[34] Hence, to merit such an award, it is settled that the
the interruption should be caused by the disability of the vessel and a passenger should agree amount thereof must be proven.[35] Moreover, such must be specifically prayed for - as was
to await the repairs, he may not be required to pay any increased price of passage, but his not done in this case - and may not be deemed incorporated within a general prayer for such
living expenses during the stay shall be for his own account. other relief and remedy as this court may deem just and equitable.[36] Finally, it must be noted
that aside from the following, the body of the respondent Courts decision was devoid of any
This article applies suppletorily pursuant to Article 1766 of the Civil Code. statement regarding attorneys fees:

Of course, this does not suffice for a resolution of the case at bench for, as earlier stated, Plaintiff-appellant was forced to litigate in order that he can claim moral and exemplary
the cause of the delay or interruption was the petitioners failure to observe extraordinary damages for the suffering he encurred [sic]. He is entitled to attorneys fees pursuant to Article
diligence. Article 698 must then be read together with Articles 2199, 2200, 2201, and 2208 in 2208 of the Civil Code. It states:
relation to Article 21 of the Civil Code. So read, it means that the petitioner is liable for any Article 2208. In the absence of stipulation, attorney s fees and expenses of litigation, other
pecuniary loss or loss of profits which the private respondent may have suffered by reason than judicial costs cannot be recovered except:
thereof. For the private respondent, such would be the loss of income if unable to report to 1. When exemplary damages are awarded;
his office on the day he was supposed to arrive were it not for the delay. This, however, 2. When the defendants act or omission has compelled the plaintiff to litigate
assumes that he stayed on the vessel and was with it when it thereafter resumed its voyage; with third persons or to incur expenses to protect his interest.
but he did not. As he and some passengers resolved not to complete the voyage, the vessel
had to return to its port of origin and allow them to disembark. The private respondent then This Court holds that the above does not satisfy the benchmark of factual, legal and equitable
took the petitioners other vessel the following day, using the ticket he had purchased for the justification needed as basis for an award of attorneys fees.[37] In sum, for lack of factual and
previous days voyage. legal basis, the award of attorneys fees must be deleted.

Any further delay then in the private respondents arrival at the port of destination was WHEREFORE, the instant petition is DENIED and the challenged decision of the Court of
caused by his decision to disembark. Had he remained on the first vessel, he would have Appeals in CA-G.R. CV No. 39901 is AFFIRMED subject to the modification as to the award for
reached his destination at noon of 13 November 1991, thus been able to report to his office in attorneys fees which is hereby SET ASIDE.
the afternoon. He, therefore, would have lost only the salary for half of a day. But actual or Costs against the petitioner.
compensatory damages must be proved,[30] which the private respondent failed to do. There SO ORDERED.
is no convincing evidence that he did not receive his salary for 13 November 1991 nor that his
absence was not excused.
CARRIAGE OF GOODS BY SEA ACT
G.R. No. L-69044 May 29, 1987 G.R. NO. 71478
EASTERN SHIPPING LINES, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and
DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents. 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
GR No. 71478 May 29, 1987 then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing
EASTERN SHIPPING LINES, INC., petitioner, vs. THE NISSHIN FIRE AND MARINE INSURANCE unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner
CO., and DOWA FIRE & MARINE INSURANCE CO., LTD., respondents. Carrier.

MELENCIO-HERRERA, J.: Petitioner Carrier denied liability on the principal grounds that the fire which caused the
These two cases, both for the recovery of the value of cargo insurance, arose from the same sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship by Sea Act (COGSA); and that when the loss of fire is established, the burden of proving
and cargo. negligence of the vessel is shifted to the cargo shipper.

The basic facts are not in controversy: On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on
Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the
valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of
parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were liability under the COGSA.
insured against marine risk for their stated value with respondent Development Insurance and
Surety Corporation. 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
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of the First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon
garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course
Corporation, and two cases of surveying instruments consigned to Aman Enterprises and on March 25, 1985, and the parties were required to submit their respective Memoranda,
General Merchandise. The 128 cartons were insured for their stated value by respondent which they have done.
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. 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.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss 69044, the lower-numbered case, which was then pending resolution with the First Division.
of ship and cargo. The respective respondent Insurers paid the corresponding marine The same was granted; the Resolution of the Second Division of September 25, 1985 was set
insurance values to the consignees concerned and were thus subrogated unto the rights of the aside and the Petition was given due course.
latter as the insured.
G.R. NO. 69044 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
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development Petition:
Insurance, for short), having been subrogated unto the rights of the two insured companies, There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs
filed suit against petitioner Carrier for the recovery of the amounts it had paid to the insured are represented by various counsel representing various consignees or insurance
before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087). companies. The common defendant in these cases is petitioner herein, being the operator
of said vessel.
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. Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in in a party's pleading are deemed admissions of that party and binding upon it. 2 And an
the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00 admission in one pleading in one action may be received in evidence against the pleader or his
as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals successor-in-interest on the trial of another action to which he is a party, in favor of a party to
which, on August 14, 1984, affirmed. the latter action. 3

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions that the fire must have started twenty-four 24) our the same was noticed; that carbon
on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof dioxide was ordered released and the crew was ordered to open the hatch covers of No, 2
to show negligence of the carrier? tor commencement of fire fighting by sea water: that all of these effort were not enough to
control the fire.
On the Law Applicable Pursuant to Article 1733, common carriers are bound to extraordinary
The law of the country to which the goods are to be transported governs the liability of the diligence in the vigilance over the goods. The evidence of the defendant did
common carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question not show that extraordinary vigilance was observed by the vessel to prevent
were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence
primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights and did not likewise show he amount of diligence made by the crew, on orders,
obligations of common carrier shall be governed by the Code of Commerce and by special in the care of the cargoes. What appears is that after the cargoes were
laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of stored in the hatches, no regular inspection was made as to their condition
the Civil Code. 7 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
On the Burden of Proof to satisfactorily show that extraordinary vigilance and care had been made
Under the Civil Code, common carriers, from the nature of their business and for reasons of by the crew to prevent the occurrence of the fire. The defendant, as a
public policy, are bound to observe extraordinary diligence in the vigilance over goods, common carrier, is liable to the consignees for said lack of deligence
according to all the circumstances of each case. 8Common carriers are responsible for the loss, required of it under Article 1733 of the Civil Code. 15
destruction, or deterioration of the goods unless the same is due to any of the following causes
only: Having failed to discharge the burden of proving that it had exercised the extraordinary
(1) Flood, storm, earthquake, lightning or other natural disaster or diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
calamity;
xxx xxx xxx 9 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"
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the must have been the "proximate and only cause of the loss," and that the carrier has "exercised
phrase "natural disaster or calamity. " However, we are of the opinion that fire may not be due diligence to prevent or minimize the loss before, during or after the occurrence of the
considered a natural disaster or calamity. This must be so as it arises almost invariably from disaster. " This Petitioner Carrier has also failed to establish satisfactorily.
some act of man or by human means. 10 It does not fall within the category of an act of God Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act,
unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused It is provided therein that:
by the actual fault or privity of the carrier. 13 Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or
damage arising or resulting from
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers (b) Fire, unless caused by the actual fault or privity of the carrier.
to leases of rural lands where a reduction of the rent is allowed when more than one-half of xxx xxx xxx
the fruits have been lost due to such event, considering that the law adopts a protection policy
towards agriculture. 14 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
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article noticed, the fire was already big; that the fire must have started twenty-four (24) hours before
1735 of the Civil Code provides that all cases than those mention in Article 1734, the common the same was noticed; " and that "after the cargoes were stored in the hatches, no regular
carrier shall be presumed to have been at fault or to have acted negligently, unless it proves inspection was made as to their condition during the voyage." The foregoing suffices to show
that it has observed the extraordinary deligence required by law. 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
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused Carrier.
by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the
extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the On the US $500 Per Package Limitation:
Appellate Court, made the following Finding of fact: 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:
The cargoes in question were, according to the witnesses defendant placed in hatches No, (5) Neither the carrier nor the ship shall in any event be or become liable for any loss or
2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from damage to or in connection with the transportation of goods in an amount exceeding $500
hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already big; 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 In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured
and value of such goods have been declared by the shipper before shipment and inserted in with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package
bill of lading. This declaration if embodied in the bill of lading shall be prima facie evidence, and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
but all be conclusive on the carrier. packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is
By agreement between the carrier, master or agent of the carrier, and the shipper another more than the insured value of the goods, that is $46,583, the Trial Court was correct in
maximum amount than that mentioned in this paragraph may be fixed: Provided, That such awarding said amount only for the 128 cartons, which amount is less than the maximum
maximum shall not be less than the figure above named. In no event shall the carrier be limitation of the carrier's liability."
Liable for more than the amount of damage actually sustained. xxx xxx xxx
We find no reversible error. The 128 cartons and not the two (2) containers should be
Article 1749 of the New Civil Code also allows the limitations of liability in this wise: considered as the shipping unit.

Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
appearing in the bill of lading, unless the shipper or owner declares a greater value, is ingots and the shipper of floor covering brought action against the vessel owner and operator
binding. to recover for loss of ingots and floor covering, which had been shipped in vessel — supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier for the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second
to a fixed amount per package although the Code expressly permits a stipulation limiting such Division, modified and affirmed holding that:
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 When what would ordinarily be considered packages are shipped in a container supplied by
absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The the carrier and the number of such units is disclosed in the shipping documents, each of
provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of those units and not the container constitutes the "package" referred to in liability limitation
lading as though physically in it and as much a part thereof as though placed therein by provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.&
agreement of the parties. 16 1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I- carrier-furnished containers whose contents are disclosed should be treated as packages,
3") 1 7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a the interest in securing international uniformity would suggest that they should not be so
declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
exceed US $500 per package, or its peso equivalent, at the time of payment of the value of the ... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a
goods lost, but in no case "more than the amount of damage actually sustained." 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
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"), omitted):
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 Although this approach has not completely escaped criticism, there is, nonetheless, much
packages (Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of $14,000 to commend it. It gives needed recognition to the responsibility of the courts to construe
which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the and apply the statute as enacted, however great might be the temptation to "modernize"
amount of damage actually sustained." 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,
Consequently, the aforestated amount of P256,039 should be upheld. obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was advancements, whether or not forseeable by the COGSA promulgators, do not warrant a
P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and distortion or artificial construction of the statutory term "package." A ruling that these
amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by large reusable metal pieces of transport equipment qualify as COGSA packages — at least
$500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would where, as here, they were carrier owned and supplied — would amount to just such a
yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those distortion.
spare parts, and not P92,361.75. 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
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the lose that character upon being stowed in a carrier's container. I would liken these
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court containers to detachable stowage compartments of the ship. They simply serve to divide
following the statutory $500 liability per package, is in order. 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 other party merely adheres to it, like the Bill of Lading in this case, which is draw. up by the
materials analogous to those employed in traditional on board stowage. carrier. 21

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds, On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044
595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks' only)
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 Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the
placed in containers, the cartons and not the containers are the packages. depositions of its witnesses in Japan by written interrogatories.
xxx xxx xxx 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:
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test: xxx xxx xxx
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from
which were then placed by the shipper into a carrier- furnished container. The number of June 27, 1978, when its answer was prepared and filed in Court, until September 26, 1978,
cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test when the pre-trial conference was conducted for the last time, the defendant had more than
and treated the cartons, not the container, as the COGSA packages. However, Eurygenes nine months to prepare its evidence. Its belated notice to take deposition on written
indicated that a carrier could limit its liability to $500 per container if the bill of lading failed interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two
to disclose the number of cartons or units within the container, or if the parties indicated, days before the hearing set for August 27th, knowing fully well that it was its undertaking
in clear and unambiguous language, an agreement to treat the container as the package. on July 11 the that the deposition of the witnesses would be dispensed with if by next time
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third it had not yet been obtained, only proves the lack of merit of the defendant's motion for
World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham postponement, for which reason it deserves no sympathy from the Court in that regard. The
International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied) 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
In this case, the Bill of Lading (Exhibit "A") disclosed the following data: months, to prepare its written interrogatories. Only the defendant itself is to blame for its
2 Containers failure to adduce evidence in support of its defenses.
(128) Cartons) xxx xxx xxx 22
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only. 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
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers, the evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24
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 On the Award of Attorney's Fees:
should be considered as the shipping unit subject to the $500 limitation of liability. Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court
True, the evidence does not disclose whether the containers involved herein were carrier- affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development
furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.
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 Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that
(Exhibit "A") appears the following stipulation in fine print: the amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00
11. (Use of Container) Where the goods receipt of which is acknowledged in G.R. No. 71478 is affirmed.
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 WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping
any type of container(s). 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
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of spare parts, with interest at the legal rate from the date of the filing of the complaint on
of Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean June 13, 1978, plus P5,000 as attorney's fees, and the costs.
that the shipper had furnished the containers for if so, "Two (2) Containers" appearing as the 2) In G.R.No.71478,the judgment is hereby affirmed.
first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal SO ORDERED.
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
CARRIAGE OF GOODS BY SEA ACT The bills of lading were indorsed to the order of Yau Yue and delivered to it by the respective
G.R. No. L-25047 March 18, 1967 shippers. Upon receipt thereof, Yan Yue drew demand drafts together with the bills of lading
DOMINGO ANG, plaintiff-appellant, against Teves and Davao Merchandising Corp., through the Hongkong & Shanghai Bank.
vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee. The shipment for Teves arrived in Manila on March 2, 1961; that of Davao Merchandising
----------------------------- Corp., arrived on June 10, 1961. Accordingly, Hongkong & Shanghai Bank notified Teves and
G.R. No. L-25050 March 18, 1967 the Davao Merchandising Corporation, the "notify parties" under the bills of lading, of the
DOMINGO ANG, plaintiff-appellant, arrival of the goods and requested payment of the demand drafts representing the purchase
vs. prices of the articles. The Davao Merchandising Corp. and Teves, however, did not pay the
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee. respective drafts, prompting the bank in both cases to make the corresponding protests. The
Juan T. David for plaintiff-appellant. bank likewise returned the bills of lading and demand drafts to Yau Yue which indorsed both
Ross, Selph & Carrascoso for defendant-appellee. bills of lading to Domingo Ang.
BENGZON, J. P., J.:
These are two cases separately appealed to the Court of Appeals and certified to Us by said Teves and Davao Merchandising Corporation, however, were able to obtain bank guaranties
Court. Since both appeals involve the same parties and issue, they are decided together herein. in favor of the American Steamship Agencies., Inc., as carriers' agent, to the effect that they
would surrender the original and negotiable bills of lading duly indorsed by Yau Yue. And on
Yau Yue Commercial Bank, Ltd. of Hongkong, also referred to hereafter as Yau Yue, agreed to the strength of said guaranties, Davao Merchandising Corp. and Teves each succeeded in
sell one boat (50 feet, 30 tons) containing used U.S. Military Surplus to one Davao securing a "Permit To Deliver Imported Articles" from the carriers' agent, which they presented
Merchandising Corp. for the sum of $8,820.27 (US), and 42 cases (62 sets and 494 pieces) of to the Bureau of Customs. In turn the latter released to them the articles covered by the bills
Hiranos Automatic Cop Change for Cotton Loom for Calieo to one Herminio Teves for the sum of lading.
of $18,246.,65 (US), respectively. After being informed by the American Steamship Agencies that the articles covered by the
respective bills of lading were already delivered by them to the Davao Merchandising Corp.
Said agreements were both subject to the following terms and arrangements: (a) the purchase and to Teves, Domingo Ang filed claims with the carriers' agent for the cost of said articles,
price should be covered by a bank draft for the corresponding amount which should be paid interests and damages. The American Steamship Agencies, Inc., however, refused payment.
by the purchaser in exchange for the delivery of the corresponding bill of lading to be Domingo Ang thereafter filed separate complaints in the Court of First Instance of Manila
deposited with a local bank, the Hongkong & Shanghai Bank of Manila; (b) upon arrival of the against the American Steamship Agencies, Inc., for having allegedly wrongfully delivered
articles in Manila the purchaser would be notified and would have to pay the amount called and/or converted the goods covered by the bills of lading belonging to plaintiff Ang, to the
for in the corresponding demand draft, after which the bill of lading would be delivered to said damage and prejudice of the latter. The suit as to the Teves shipment was filed on October 30,
purchaser; and (c) the purchaser would present said bill of lading to the carrier's agent; 1963; that referring to the Davao Merchandising Corp.'s shipment was filed on November 14,
American Steamship Agencies, Inc., which would then issue the correspoding "Permit To 1963.
Deliver Imported Articles" to be presented to the Bureau of Custom to obtain the release of
the articles. Subsequently, defendant filed motions to dismiss upon the ground that plaintiff's causes of
action have prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65),
Pursuant thereto, on February 17, 1961, Hirahira & Co., Ltd. shipped the 42 cases (62 sets and more particularly section 3(6), paragraph 4, which provides:
494 pieces ) of Hiranos Automatic Cop Change for Cotton Loom for Calico at Nagoya, aboard In any event, the carrier and the ship shall be discharged from all liability in respect
the "S.S. CELEBES MARU", for Manila, with the Kansai Steamship Co., Ltd. of Osaka, Japan, as to loss or damage unless suit is brought within one year after delivery of the goods or
carrier, of which the American Steamship Agencies, Inc. is the agent in the Philippines, under the date when the goods should have been delivered.
a shipping agreement, Bill of Lading No. NM 1, dated February 17, 1961, consigned "to order It argued that the cargoes should have been delivered to the person entitled to the
of the shipper", with Herminio G. Teves as the party to be notified of the arrival of said delivery thereof, i.e., plaintiff, on March 2, 1961 (Teves shipment) and June 10, 1961
articles.1äwphï1.ñët (Davao Merchandising Corp. shipment), the respective dates of the vessels' arrival in
Manila, and that even allowing a reasonable time (even one month) after such
Similarly, on June 3, 1961, the United States Contracting Officer, on behalf of Nippon Trading arrivals within which to make delivery, still, the actions commenced on October 30,
Shokai for Nishiman Kaihatsu Co., Ltd. shipped the boat containing U.S. Military Surplus at 1963 and November 14, 1963. respectively, were filed beyond the prescribed period
Yokohama, Japan, the "KYOJU MARU", with Sankyo Kiun Kabushiki Kaisha of Japan as carrier, of one year.
of which the American Steamship Agencies, Inc. is the agent in the Philippines, under a shipping
agreement, Bill of Lading No. YM-3, dated June 3, 1961, consigned "to the order of Yau Yue By order dated February 21, 1964, copy of which was received by plaintiff on February 28,
Commercial Bank, Ltd. of Hongkong", with Davao Merchandising Corporation as the party to 1964, the lower court presided over by the Hon. Judge Guillermo S. Santos, dismissed the
be notified of the arrival of said boat. action (in re the 42 cases [62 sets and 494 pieces] of Hiranos Automatic Cop Change for Cotton
Loom for Calico) on the ground of prescription. His motion for reconsideration dated March
20, 1964 having been denied by the lower court in its order dated June 5, 1964, plaintiff commerce, or disappeared in much a way that their existence is unknown or they
appealed to the Court of Appeals. This is now L-25050 and refers to the Teves shipment. cannot be recovered. It does not include a situation where there was indeed delivery
— but delivery to the wrong person, or a misdelivery, as alleged fir the complaint in
Upon the other hand, by order dated January 6, 1964, the lower court presided over by the this case.
Hon. Jesus P. Morfe (in re the boat [50 feet, 30 tons] containing used U.S. Military Surplus) xxx xxx xxx
denied the motion to dismiss on the ground that there being no allegation in the complaint as The point that matters here is that the situation is either delivery or misdelivery, but
to the date of arrival of the cargo or the date of which it should have been delivered, the not non-delivery. Thus, the goods were either rightly delivered or misdelivered, but
defendant was relying on facts which are not yet in evidence such as presuming that the cargo they were not lost. There being no loss or damage to the goods, the aforequoted
had arrived on the specific date and that the same had been delivered on another specific provision of the Carriage of Goods by Sea Act stating that "In any event, the carrier
date. and the ship shall be discharged from all liability in respect of loss or damage unless
it is brought within one year after delivery of the goods or the date of when the goods
Upon a motion for reconsideration filed by the defendant on January 13, 1964 and after the should have been delivered," does not apply. The reason is not difficult to see. Said
parties submitted their memoranda of authorities and counter-authorities, respectively, the one-year period of limitation is designed to meet the exigencies of maritime hazards.
lower court by an order dated February 20, 1964, reconsidered its prior order of January 6, In a case where the goods shipped were neither lost nor damaged in transit but were,
1964 and dismissed plaintiff's action also on the ground of prescription. From this order, on the contrary, delivered in port to someone who claimed to be entitled thereto,
defendant appealed to the Court of Appeals. This is now L-25047 and refers to the Davao the situation is different, and the special need for the short period of limitation in
Merchandising Corp. shipment. case of loss or damage caused by maritime perils does not obtain.
It follows that for suits predicated not upon loss or damage but on alleged misdelivery
At issue is a question purely of law, namely: Did plaintiff-appellant's causes of action prescribe (or conversion) of the goods, the applicable rule on prescription is that found in the
under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act? . Civil Code, namely, either ten years for breach of a written contract or four years for
quasi-delict (Arts. 1144[1], 1146, Civil Code). ...
The point has already been resolved by this Court in a case involving the same parties and
parallel facts to those herein involved. In Domingo Ang vs. American Steamship Agencies, Inc., The goods covered by the two shipments subject matter of these appealed cases were also
L-22491, January 27, 1967, We held that the one-year prescriptive period under Section 3(6), delivered to the notify parties, Davao Merchandising Corporation and Herminio Teves, despite
paragraph 4 of the Carriage of Goods by Sea Act does not apply to cases of misdelivery or the latter's inability to present the proper bills of lading and without the knowledge and
conversion. For convenience, We quote the ruling therein: consent of plaintiff-appellant Domingo Ang to whom were endorsed said bills of lading. There
The provision of law involved in this case speaks of "loss or damage". That there was is therefore likewise misdelivery not nondelivery. Finally, the recipients of said goods did not
no damage caused to the goods which were delivered intact to Herminio G. Teves file any complaint with defendant regarding any damage to the same. No loss nor damage is
who did not file any notice of damage, is admitted by both parties in this case. What therefore involved in these cases. And thus the prescriptive period under Section 3(6),
is to be resolved — in order to determine the applicability of the prescriptive period paragraph 4 of the Carriage of Goods by Sea Act does not apply. The applicable prescriptive
of one year to the case at bar — is whether or not there was 'loss' of the goods subject period is that found in the Civil Code, namely, either ten years for breach of a written contract
matter of the complaint. or four years for quasi-delict (Arts. 1144[1] and 1146). Since the complaints in these appealed
Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse cases were filed two years and five months (as to Davao Merchandising Corp. shipment) and
must be had to the Civil Code which provides in Article 18 thereof that, "In matters 2 years and 8 months (as to Teves shipment), from the arrival of the two shipments, it is clear
which are governed by the Code of Commerce and special law, their deficiency shall that the causes of action have not yet prescribed.
be supplied by the provision of this Code."
Article 1189 of the Civil Code defines the word 'loss' in cases where condition have Wherefore, the orders appealed from dismissing plaintiff's complaints in these two cases on
been imposed with the intention of suspending the efficacy of an obligation to give. the ground of prescription are hereby reversed and set aside; let said cases be remanded to
The contract of carriage under consideration entered into by and between American the respective court a quo for further proceedings. So ordered.
Steamship Agencies, Inc. and the Yau Yue (which later on endorsed the bill of lading
covering the shipment to plaintiff herein Domingo Ang), is one involving an obligation
to give or to deliver the goods "to the order of shipper" that is, upon the presentation
and surrender of the bill of lading. This being so, said article can be applied to the
present controversy, more specifically paragraph 2 thereof which provides that, "...
it is understood that a thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered."
As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage
of Goods by Sea Act, 'loss' contemplates merely a situation where no delivery at all
was made by the shipper of the goods because the same had perished, gone out of
CARRIAGE OF GOODS BY SEA ACT commencement of such action has, at the date of such reversal or failure, expired,
G.R. No. L-17730 September 29, 1962 the plaintiff, or, if he die and the cause of action survive, his representatives may
F. H. STEVENS & CO., INC., plaintiff-appellant, commence a new action within one year after such date, and this provision shall
vs. apply to any claim asserted in any pleading by a defendant.
NORDDEUSCHER LLOYD, defendant-appellee.
The action commenced by the plaintiff in the Municipal Court of Manila, on April 27, 1960, was
CONCEPCION, J.: dismissed June 13, 1960, or over twenty (20) days after the expiration of the period of one (1)
This is an appeal from an order granting defendant's motion to dismiss and, accordingly, year, beginning from May 21, 1959, within which plaintiff's action could be brought pursuant
dismissing the case without any pronouncement as to costs. to Commonwealth Act No. 65, in relation to the Carriage of Goods by Sea Act. Under said
Plaintiff commenced this action in the Court of First Instance of Manila on June 24, 1960. It section of Act No. 190, the period within which plaintiff could initiate the present case was
alleged in the complaint that on March 28, 1959, it had shipped from Hamburg to Manila, renewed, therefore, for another year, beginning from June 14, 1960 (Tolentino Vitug, 39 Phil.,
aboard the "MS SCHWABENSTEIN", a vessel of defendant Norddeuscher Lloyd, 2,000 pieces of 126; Smith vs. McNeal, 100 U.S. 426, 27 L. ed. 986). The case at bar was commenced on June
prismatical thermometers valued at $650; that on May 15, 1959, said vessel arrived at Manila; 24, 1960, or within the period last mentioned.
that on May 21, 1959, the master of said vessel notified the plaintiff, thru its broker, of the
delivery of said goods; that, upon examination of the case containing the same, it turned out The cases of Oriental Commercial Co. vs. Jureidini (71 Phil., 25) and Conspecto vs. Fruto (31
that 1,154 pieces of said thermometers valued at $342.74, were missing and/or destroyed; Phil., 144), in which it was held that:
that plaintiff immediately filed the corresponding notice of loss and/or short delivery, followed . . . Cuando se entabia una accion dentro del plazo de prescripcion y se desiste de ella despues,
by the corresponding notice and formal claim for loss and/or short delivery; that, despite o se sobresee sin condiciones, por una razon u otra, no hace que la accion que se entable mas
several demands, defendant had refused and failed to pay said sum of $342.74; that, as a tarde pero ya fuera del periodo de prescripcion, se pueda considerar como presentada detro
consequence, plaintiff had, also, incurred damages in the sums of P1,000, as attorney's fees, de dicho periodo porque quiere contrase con la accion entablada con anterioridad. La falta de
and P664.70, as unrealized profits; and that an action instituted in the Municipal Court of gestion de la recurrente por cuya causa se desestimaron sus demandas segunda y tercera, no
Manila on April 27, 1960 — seemingly, for the recovery of the value of said thermometers and puede interpretarse sino como una renuncia de su parte y, al ejercitar su ultima accion no se
the amount of said — damages was dismissed by said court on June 13, 1960, without any trial ha colocado en la misma situacion en que antes se hallaba al ejercitar sus tres anteriores
on the merits, upon the ground of lack of jurisdiction over the subject-matter of the case, acciones. Este es el mismo criterio que expresamos cuando se nos presents una cuestion
inasmuch as the same involved the exercise of admiralty and maritime jurisdiction. Plaintiff aniloga en la causa de Conspecto contra Fruto, 31 Jur. Fil 155. (EmphasiS supplied.)1awphîl.nèt
prayed for judgment for said sums of $342.74, P1,000 and P664.70, plus costs.
are not in point, for the dismissal of the herein plaintiff's complaint in the municipal court was
On July 8, 1960, defendant moved to dismiss the complaint upon the ground that plaintiff's not due to its desistance or voluntary abandonment.
causes of action had prescribed, it having been filed on June 24, 1960, or more than a year Insofar as inconsistent with the conclusion we have thus reached, the view adopted in Chua
from May 21, 1959, when plaintiff was notified of the delivery of the case containing the Kuy vs. Everett Steamship Corp., L-5534 (May 27, 1953) and Yek Tong Lin Fire & Marine
thermometers in question. This motion having been granted and the complaint dismissed, Insurance Co. vs. American President Lines, Inc., L-11081 (April 30, 1958) should be, as it is
plaintiff interposed this appeal, maintaining that the period of one (1) year prescribed in hereby, modified accordingly.
Commonwealth Act No. 65, in relation to Carriage of Goods by Sea Act — within which the WHEREFORE, the order appealed from is reversed and this case remanded to the lower court
liability of carriers, based upon a contract of carriage goods by sea, may be enforced by suit — for further proceedings, with costs of this instance against defendant Norddeuscher Lloyd. It
was suspended by the commencement of the first action in the municipal court, on April 27, is so ordered.
1960; that the running of said period was resumed or continued on June 13, 1960, when said
action was dismissed; and that, excluding said period from April 27, 1960 to June 13, 1960, or
forty-seven (47) days, less than one (1) year has elapsed from May 21, 1959 to June 24, 1960,
when this case was filed in the court of first instance. In support of this pretense, plaintiff
invokes Article 1155 of the Civil Code of the Philipines, reading:
The prescription of actions is interrupted when they filed before the court, when there is a
written extrajudicial command by the creditors, and when there is any written acknowledged
judgment of the debt by the debtor.

Upon mature deliberation, we are of the opinion, and so hold, that the order appealed from
should be reversed, not only because of the operation of said Article 1155 of our Civil Code,
but, also, in view of the provisions section 49 of Act No. 190, pursuant to which:
If, in an action commenced, in due time, a judgment for the plaintiff be reversed, or
if the plaintiff fail otherwise than upon the merits, and the time limited for the
CARRIAGE OF GOODS BY SEA ACT The shipment was thereafter withdrawn on January 4, 2001, by NOVARTIS’ appointed broker,
G.R. No. 187701 July 23, 2014 Stephanie Customs Brokerage Corporation (STEPHANIE) from ATI’s container yard.
PHILAM INSURANCE COMPANY, INC. (now CHARTIS PHILIPPINES INSURANCE,
INC.*), Petitioner, The shipment reached NOVARTIS’ premises on January 5, 2001 and was thereupon inspected
vs. by the company’s Senior Laboratory Technician, Annie Rose Caparoso (Caparoso).5
HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES SHIPPING,
INC., Respondents. Upon initial inspection, Caparoso found the container van locked with its load intact. After
x-----------------------x opening the same, she inspected its contents and discovered that the boxes of the shipment
G.R. No. 187812 were wet and damp. The boxes on one side of the van were in disarray while others were
HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES SHIPPING, INC., Petitioners, opened or damaged due to the dampness. Caparoso further observed that parts of the
vs. container van were damaged and rusty. There were also water droplets on the walls and the
PHILAM INSURANCE COMPANY, INC. (now CHARTIS PHILIPPINES INSURANCE, floor was wet. Since the damaged packaging materials might contaminate the product they
INC.), Respondent. were meant to hold, Caparoso rejected the entire shipment.
DECISION
REYES, J.: Renato Layug and Mario Chin, duly certified adjusters of the Manila Adjusters and Surveyors
At bar are consolidated petitions for review on certiorari1 under Rule 45 of the Rules of Court Company wereforthwith hailed to inspect and conduct a survey of the shipment. 6 Their
assailing the Decision2dated January 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. Certificate of Survey7 dated January 17, 2001 yielded results similar to the observations of
89482 affirming with modifications the Decision3 dated February 26, 2007 of the Regional Trial Caparoso, thus:
Court (RTC) of Makati City, Branch 148, in Civil Case No. 01-889. [T]he sea van panels/sidings and roofing were noted with varying degrees of indentations and
partly corroded/rusty. Internally, water bead clung along the roofs from rear to front section.
The Factual Antecedents The mid section dented/sagged with affected area was noted withminutes hole evidently due
On December 19, 2000, Novartis Consumer Health Philippines, Inc. (NOVARTIS) imported from to thinning/corroded rusty metal plates. The shipment was noted with several palletized
Jinsuk Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200 rolls of Ovaltine Power 18 cartons already in collapsed condition due to wetting. The van’s entire floor length was also
Glaminated plastic packaging material. observed wet.8

In order to ship the goods to the Philippines, JINSUK engaged the services of Protop Shipping All 17 pallets of the 184 cartons/rolls contained in the sea van were found wet/water damaged.
Corporation (PROTOP), a freight forwarder likewise based in South Korea, to forward the goods Sixteen (16)cartons/rolls supposedly contained in 2 pallets were unaccounted for although the
to their consignee, NOVARTIS. surveyors remarked that this may be due to short shipment by the supplier considering that
Based on Bill of Lading No. PROTAS 200387 issued by PROTOP, the cargo was on freight prepaid the sea van was fully loaded and can no longer accommodate the said unaccounted items. The
basis and on "shipper’s load and count" which means that the "container [was] packed with survey report further stated that the "wetting sustained by the shipment may have reasonably
cargo by one shipper where the quantity, description and condition of the cargo is the sole be attributed to the water seepage that gain entry into the sea van container damageroofs
responsibility of the shipper."4 Likewise stated in the bill of lading is the name Sagawa Express (minutes hole) during transit period[sic]."9
Phils., Inc., (SAGAWA) designated as the entity in the Philippines which will obtain the delivery
contract. Samples from the wet packing materials/boxes were submitted to the chemist of Precision
Analytical Services, Inc. (PRECISION), Virgin Hernandez (Hernandez), and per Laboratory
PROTOP shipped the cargo through Dongnama Shipping Co. Ltd. (DONGNAMA) which in turn Report No. 042-07 dated January 16, 2001, the cause of wetting in the carton boxes and kraft
loaded the same on M/V Heung-A Bangkok V-019 owned and operated by Heung-A Shipping paper/lining materials as well as the aluminum foil laminated plastic packaging material, was
Corporation, (HEUNG-A), a Korean corporation, pursuant to a ‘slot charter agreement’ salt water.10
whereby a space in the latter’s vessel was reserved for the exclusive use of the former. Wallem
Philippines Shipping, Inc. (WALLEM) is the ship agent of HEUNG-A in the Philippines. NOVARTIS Aggrieved, NOVARTIS demanded indemnification for the lost/damaged shipment from
insured the shipment with Philam Insurance Company, Inc. (PHILAM, now Chartis Philippines PROTOP, SAGAWA, ATI and STEPHANIE but was denied. Insurance claims were, thus, filed with
Insurance, Inc.) under All Risk Marine Open Insurance Policy No. MOP-0801011828 against all PHILAM which paid the insured value of the shipment inthe adjusted amount of One Million
loss, damage, liability, or expense before, during transit and even after the discharge of the Nine Hundred Four Thousand Six Hundred Thirteen Pesos and Twenty Centavos
shipment from the carrying vessel until its complete delivery to the consignee’s premises. The (₱1,904,613.20). Claiming that after such payment, it was subrogated to all the rights and
vessel arrived at the port ofManila, South Harbor, on December 27, 2000 and the subject claims of NOVARTIS against the parties liable for the lost/damaged shipment, PHILAM filed on
shipment contained in Sea Van Container No. DNAU 420280-9 was discharged without June 4, 2001, a complaint for damages against PROTOP, as the issuer of Bill of Lading No.
exception into the possession, custody and care of Asian Terminals, Inc. (ATI) as the customs PROTAS 200387, its ship agent in the Philippines, SAGAWA, consignee, ATI and the broker,
arrastre operator. STEPHANIE.
On October 12, 2001, PHILAM sent a demand letter to WALLEM for reimbursement of the WALLEM also asserted that the shipment was opened long after it was discharged from the
insurance claims paid to NOVARTIS.11 When WALLEM ignored the demand, PHILAM impleaded vessel and that WALLEM or HEUNG-A were not present during the inspection, examination
it as additional defendant in an Amended Complaint duly admitted by the trial court on and survey.
October 19, 2001.12
WALLEM pointed the blame to PROTOP because its obligation to the shipper as freight
On December 11, 2001, PHILAM filed a Motion to Admit Second Amended Complaint this time forwarder carried the concomitant responsibility of ensuring the shipment’s safety from the
designating PROTOP as the owner/operator of M/V Heung-A Bangkok V-019 and adding port of loading until the final place of delivery. WALLEM claimed to haveexercised due care
HEUNG-A as party defendant for being the registered owner of the vessel.13 The motion was and diligence in handling the shipment.
granted and the second amended complaint was admitted by the trial court on December 14,
2001.14 In the alternative, WALLEM averred that any liability which may be imputed to it is limited only
to US$8,500.00 pursuant to the Carriage of Goods by Sea Act (COGSA).19
PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and HEUNG-A denied liability for the
lost/damaged shipment. HEUNG-A argued that it is not the carrier insofar as NOVARTIS is concerned. The carrier was
either PROTOP, a freight forwarder considered as a non-vessel operating common carrier or
SAGAWA refuted the allegation that it is the ship agent of PROTOP and argued that a ship DONGNAMA which provided the container van to PROTOP. 20 HEUNG-A denied being the
agent represents the owner of the vessel and not a mere freight forwarder like PROTOP. carrier of the subjectshipment and asserted that its only obligation was to provide
SAGAWA averred that its only role with respect to the shipment was to inform NOVARTIS of DONGNAMA a space on board M/V Heung-A Bangkok V-019.
its arrival in the Philippines and to facilitate the surrender of the original bill of lading issued
by PROTOP. PROTOP failed to file an answer to the complaint despite having been effectively served with
alias summons. It was declared in default in the RTC Order dated June 6, 2002.21
SAGAWA further remarked that it was deprived an opportunity to examine and investigate the
nature and extent of the damage while the matter was still fresh so as tosafeguard itself from Ruling of the RTC
false/fraudulent claims because NOVARTIS failed totimely give notice about the In a Decision22 dated February 26, 2007, the RTC ruled that the damage to the shipment
loss/damage.15 occurred onboard the vessel while in transit from Korea to the Philippines.
SAGAWA admitted that it has a non-exclusive agency agreement with PROTOP to serve as the
latter’s delivery contact person in the Philippines with respect to the subject shipment. HEUNG-A was adjudged as the common carrier of the subject shipment by virtue of the
SAGAWA is also a freight forwarding company and that PROTOPwas not charged any fee for admissions of WALLEM’s witness, Ronald Gonzales (Gonzales) that despite the slot charter
the services rendered by SAGAWA with respect to the subject shipment and instead the latter agreement with DONGNAMA, it was still the obligation of HEUNG-A to transport the cargo
was given US$10 as commission.16 For having been dragged into court on a baseless cause, from Busan, Korea to Manila and thus any damage to the shipment is the responsibility of the
SAGAWA counterclaimed for damages in the form of attorney’s fees. carrier to the consignee.

ATI likewise interposed a counterclaim for damages against PHILAM for its allegedly baseless The RTC further observed that HEUNG-A failed to present evidence showing that it exercised
complaint. ATI averred that it exercised due care and diligence in handling the subject the diligence required of a common carrier in ensuring the safety of the shipment.
container. Also, NOVARTIS, through PHILAM, is now barred from filing any claim for
indemnification because the latter failed to file the same within 15 days from receipt of the The RTC discounted the slot charter agreement between HEUNG-A and DONGNAMA, and held
shipment.17 Meanwhile, STEPHANIE asserted that its only role with respect to the shipment that it did not bind the consignee who was not a party thereto. Further, it was HEUNG-A’s duty
was its physical retrieval from ATI and thereafter its delivery to NOVARTIS. That entire time, to ensure that the container van was in good condition by taking an initiative to state in its
the sealwas intact and not broken. Also, based on the Certificate of Survey, the damage to the contract and demand from the owner of the container van that it should be in a good condition
shipment was due to salt water which means that it could not have occurred while STEPHANIE all the time. Such initiative cannot be shifted to the shipper because it is in no position to
was in possession thereof during its delivery from ATI’s container yard to NOVARTIS’ premises. demand the same from the owner of the container van.
STEPHANIE counterclaimed for moral damages and attorney’s fees.18
WALLEM was held liable as HEUNG-A’s ship agent in the Philippines while PROTOP was
WALLEM alleged that the damageand shortages in the shipment were the responsibility of the adjudged liable because the damage sustained by the shipment was due to the bad condition
shipper, JINSUK, because it was taken on board on a "shipper’s load and count" basis which of the container van. Also, based on the statement at the backof the bill of lading, it assumed
means that it was the shipper that packed, contained and stuffed the shipment in the container responsibility for loss and damage as freight forwarder, viz:
van without the carrier’s participation. The container van was already sealed when it was 6.1 The responsibility of the Freight Forwarder for the goods under these conditions covers
loadedon the vessel and hence, the carrier was in no position to verify the condition and other the period from the time the Freight Forwarder has taken the goods in his charge to the time
particulars of the shipment. of the delivery.
6.2 The Freight Forwarde[r] shall beliable for loss or damage to the goods as well as for delay propermeasures in handling and stowage should have been adopted to prevent seepage of
in delivery if the occurrence which caused the loss, damage, delay in delivery took place while sea water into the sea van.
the goods were in his charge as defined in clause 2.1.a unless the Freight Forwarder proves
that no fault or neglect of his own servants or agents or any other person referred to in Clause The CA rejected WALLEM and HEUNG-A’s argument that NOVARTIS failed to comply with
2.2 has caused or contributed to such loss, damage or delay. However, the Freight Forwarder Article 366 of the Code of Commerce requiring that a claim must be made against the carrier
shall only be liable for loss following from delay in delivery if the Consignor has made a within 24 hours from receipt of the merchandise because such provision applies only to inter-
declaration of interest in timely delivery which has been accepted by the Freight Forwarder island shipments within the Philippines.
and stated in this FBL.23
The CA limited the liability of PROTOP, WALLEM and HEUNG-A to US$8,500.00 pursuant to the
PHILAM was declared to havebeen validly subrogated in NOVARTIS’ stead and thus entitled to liability limitation under the COGSA since the shipper failed to declare the value of the subject
recover the insurance claims it paid to the latter. cargo in the bill of lading and since they could not be made answerable for the two (2)
ATI and STEPHANIE were exonerated from any liability. SAGAWA was likewise adjudged not unaccounted pallets because the shipment was on a "shipper’s load, count and seal" basis.
liable for the loss/damage to the shipment by virtue of the phrase "Shipper’s Load and Count"
reflected in the bill of lading issued by PROTOP. Since the container van was packed under the The attorney’s fees awarded to SAGAWA, ATI and STEPHANIE were deleted because it was not
sole responsibility of the shipper in Korea, SAGAWA, which is based in the Philippines, had no shown that PHILAM was motivated by malice and bad faith in impleading them as defendants.
chance to check if the contents were in good condition or not. The RTC concluded that Thus, the CA decision was disposed as follows:
SAGAWA cannot be expected to observe the diligence or care required of a carrier or ship
agent. SAGAWA, ATI and STEPHANIE’s counterclaims for attorney’s fees were granted and WHEREFORE, premises considered, the appealed Decision is hereby AFFIRMED with
PHILAM was ordered to pay the same for having been filed a ‘shotgun case’ against them. MODIFICATION.Defendants PROTOP SHIPPING CORPORATION, HEUNG-A SHIPPING
Accordingly, the dispositive portion of the RTC decision read: CORPORATION [and] WALLEM PHILIPPINES SHIPPING,INC.’s solidary liability to PHILAM
INSURANCE COMPANY, INC. is reduced to $8,500.00 plus interest per annum from26
WHEREFORE, premises considered, judgment is hereby rendered declaring defendants December 2001 (date ofservice of summons to defendant Heung-A) until full payment. The
PROTOP SHIPPING CORPORATION, HEUNG-A SHIPPING CORPORATION and WALLEM award of attorney’s fees in the amount of One Hundred Thousand Pesos ([P]100,000.[00]) each
PHILIPPINES SHIPPING, INC. solidarily liable to pay x x x PHILAM INSURANCE COMPANY, INC. to SAGAWA EXPRESS PHILIPPINES, INC., ASIAN TERMINALS, INC. and STEPHANIE CUSTOMS
the following amounts: BROKERAGE is hereby DELETED.SO ORDERED.26
1. [P]1,904,613.20 plus interest of 12% per annum from December 26, 2001 (date of
service of summons to defendant Heung-A) until full payment; The foregoing judgment was reiterated in the CA Resolution27 dated May 8, 2009 which denied
2. [P]350,000.00 as attorney’s fees; and 3. Cost of suit. the motions for reconsideration filed by PHILAM, WALLEM and HEUNG-A.

With regards to the counter claims, x x x PHILAM INSURANCE COMPANY, INC. is hereby PHILAM thereafter filed a petition for review before the Court docketed as G.R. No. 187701.
ordered to pay defendants SAGAWA EXPRESS PHILIPPINES, INC., ASIAN TERMINALS, INC., and WALLEM and HEUNG-A followed suit and their petition was docketed as G.R. No. 187812.
STEPHANIE CUSTOMS BROKERAGE CORPORATION the amount of [P]100,000.00 each as Considering that both petitions involved similar parties and issue, emanated from the same
attorney’s fees. Civil Case No. 01-889 and assailed the same CA judgment, they were ordered consolidated in
SO ORDERED.24 a Resolution28 dated January 13, 2010.

Ruling of the CA In G.R. No. 187701, PHILAM raised the following grounds:
An appeal to the CA was interposed by PHILAM, WALLEM and HEUNG-A. In a Decision25 dated THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT RULED IN ITS DECISION OF 30
January 30, 2009, the CA agreed with the RTC that PROTOP, HEUNG-A and WALLEM are liable JANUARY 2009 THAT [HEUNG-A and WALLEM] HAVE THE RIGHT TO LIMIT THEIR LIABILITY
for the damaged shipment. The fact that HEUNG-A was not a party to the bill of lading did not UNDER THE PACKAGE LIMITATION OF LIABILITY OF SECTION 4(5) OF THE CARRIAGE OF GOODS
negate the existence of a contract of carriage between HEUNG-A and/or WALLEM and BY SEA ACT, 1924, IN VIEW OF ITS OBSERVATION THAT [NOWHERE] IN THE BILL OF LADING
NOVARTIS. A bill of lading is not indispensable for the creation of a contract of carriage. By DID THE SHIPPER DECLARE THE VALUE OF THE SUBJECT CARGO;
agreeing to transport the goods contained in the sea van providedby DONGNAMA, HEUNG-A THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT COMPLETELY DISREGARDED THE
impliedly entered into a contract of carriage with NOVARTIS with whom the goods were FUNDAMENTAL BREACHES OF [HEUNG-A and WALLEM] OF [THEIR] OBLIGATIONS AND
consigned. Hence, it assumed the obligations of a common carrier to observe extraordinary RESPONSIBILITIES UNDER THE CONTRACT OF CARRIAGE AND LAW OF THE CASE AS LEGAL
diligence in the vigilance over the goods transported by it. Further the Slot Charter Agreement GROUNDS TO PRECLUDE ITS AVAILMENT OF THE PACKAGE LIMITATION OF LIABILITY UNDER
did not change HEUNG-A’s character as a common carrier. SECTION 4(5) OF THE CARRIAGE OF GOODS BY SEA ACT, 1924.29
In G.R. No. 187812, HEUNG-A and WALLEM argued that:
Moreover, the proximate cause ofthe damage was the failure of HEUNG-A to inspect and THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT THE CODE OFCOMMERCE,
examine the actual condition of the sea van before loading it on the vessel. Also, SPECIFICALLY ARTICLE 366 THEREOF, DOES NOT APPLY IN THIS CASE[;]
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT THE SO-CALLED The uncontested results of the inspection survey conducted by Manila Adjusters Surveyors
"PARAMOUNT CLAUSE" IN THE BILL OF LADING, WHICH PROVIDED THAT "COGSA" SHALL Company showed that sea water seeped into the panels/sidings and roofing of the container
GOVERN THE TRANSACTION, RESULTED IN THE EXCLUSION OR INAPPLICABILITY OF THE CODE van. This was confirmed by the examination conducted by Hernandez, the chemist of
OF COMMERCE[;] PRECISION, on samples from the cartons, boxes, aluminum foil and laminated plastic packaging
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN NOT RULING THAT [PHILAM] HAS NO materials. Based on the laboratory examination results, the contents of the van were drenched
RIGHT OF ACTION AGAINST [HEUNG-A and WALLEM] INSOFAR AS DAMAGE TO CARGO IS by sea water, an element which is highly conspicuous in the high seas. It can thus be reasonably
CONCERNED IN VIEW OF THE FACT THAT NO TIMELY CLAIM WAS FILED PURSUANT TO ARTICLE concluded that negligence occurred while the container van was in transit, in HEUNG-A’s
366 OF THE CODE OF COMMERCE OR THE PROVISIONS OF THE BILL OF LADING possession, control and custody as the carrier.
NO.DNALGOBUM 005019[;]
THE [CA] GRAVELY ABUSED ITS DISCRETION AMOUNTING TO EXCESS OR LACK OF Although the container van had defects, they were not, however, so severe as to
JURISDICTION IN FINDING THAT THE CONTAINERIZED CARGO WAS DAMAGED WHILE IN THE accommodate heavy saturation of sea water. The holes were tiny and the rusty portions did
POSSESSION OR CUSTODY OF THE VESSEL "HEUNG-A BANGKOK".30 not cause gaps or tearing. Hence, the van was still in a suitable condition to hold the goods and
protect them from natural weather elements or even the normal flutter of waves in the seas.
Issues
The arguments proffered by the parties can be summed up into the following issues: (1) The scale of the damage sustained by the cargo inside the van could have been only caused by
Whether the shipment sustained damage while in the possession and custody of HEUNG-A, large volume of sea water since not a single package inside was spared. Aside from the
and if so, whether HEUNG-A’s liability can be limited to US$500 per package pursuant tothe defective condition of the van, some other circumstance or occurrence contributed to the
COGSA; (2) Whether or not NOVARTIS/PHILAM failed to file a timely claim against HEUNG-A damages sustained by the shipment. Since the presence of sea water is highly concentrated in
and/or WALLEM. the high seas and considering HEUNG-A’s failure to demonstrate how it exercised due diligence
in handling and preserving the container van while in transit, it is liable for the damages
Ruling of the Court sustained thereby.
It must be stressed that the question on whether the subject shipment sustained damaged
while in the possession and custody of HEUNG-A is a factual matter which has already As the carrier of the subject shipment, HEUNG-A was bound to exercise extraordinary diligence
beendetermined by the RTC and the CA. The courts a quowere uniform in finding that the in conveying the same and its slot charter agreement with DONGNAMA did not divest it of
goods inside the container van were damaged by sea water whilein transit on board HEUNG- such characterization nor relieve it of any accountability for the shipment.
A’s vessel.
Based on the testimony of Gonzales,33 WALLEM’s employee and witness, the charter party
Being a factual question, it is notreviewable in the herein petition filed under Rule 45 of the between HEUNG-A and DONGNAMA was a contract of affreightment and not a bare boat or
Rules of Court. It isnot the Court’s duty to evaluate and weigh the evidence all over again as demise charter, viz:
such function is conceded to be within the expertise of the trial court whose findings, when Q: Now, the space charter that you are mentioning is not either a bareboat or a demise?
supported by substantial evidence on record and affirmed by the CA, are regarded with A: Yes, sir.
respect, if not binding effect, by this Court.31 Q: Okay. So in other words, that space charter party is only to allow the shipper, Dongnama,
to load its cargo for a certain specified space?
There are certain instances, however, when the Court is compelled to deviate from this rule, A: Yes, sir.34
dismantle the factual findings of the courts a quoand conduct a probe into the factual A charter party has been defined in Planters Products, Inc. v. Court of Appeals 35 as:
questions at issue. These circumstances are: (1) the inference made ismanifestly mistaken, [A] contract by which an entire ship, orsome principal part thereof, is let by the owner to
absurd or impossible; (2) there is grave abuse of discretion; (3) the findings are grounded another person for a specified time or use; a contract of affreightment by which the owner of
entirely on speculations, surmises or conjectures; (4) the judgment of the CA is based on a ship or other vessel lets the whole or a part of her to a merchant or other person for the
misapprehension of facts; (5) the CA, in making its findings, went beyond the issues of the case conveyance of goods, on a particular voyage, in consideration of the payment of freight. x x
and the same is contrary to the admissions of both appellant and appellee; (6) the findings of x.36 (Citations omitted)
fact are conclusions without citation of specific evidence on which theyare based; (7) the CA
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly A charter party has two types. First, it could be a contract of affreightment whereby the use of
considered, would justify a different conclusion; and (8) the findings of fact of the CA are shipping space on vessels is leased in part or as a whole, to carry goods for others. The charter-
premised on the absence ofevidence and are contradicted by the evidence on record.32 party provides for the hire of vessel only, either for a determinate period of time (time charter)
or for a single or consecutive voyage (voyage charter). The shipowner supplies the ship’s
None of the foregoing instances is extant from records of the present case. Instead, the Court stores, pay for the wages ofthe master and the crew, and defray the expenses for the
finds that the factual findings of the courts a quo are supported by evidence on record. maintenance of the ship.37 The voyage remains under the responsibility of the carrier and it is
answerable for the loss of goods received for transportation. The charterer is free from liability
to third persons in respect of the ship.38
Second, charter by demise or bareboat charter under which the whole vessel is let to the Article 372. The value of the goods which the carrier must pay in cases if loss or misplacement
charterer with a transfer to him of its entire command and possession and consequent control shall be determined in accordance with that declared in the bill of lading, the shipper not being
over its navigation, including the master and the crew, who are his servants. 39 The charterer allowed to present proof that among the goods declared therein there were articles of greater
mans the vessel with his own people and becomes, in effect, the owner for the voyage or value and money.
service stipulated and hence liable for damages or loss sustained by the goods transported. 40 Horses, vehicles, vessels, equipment and all other principal and accessory means of
transportation shall be especially bound infavor of the shipper, although with respect to
Clearly then, despite its contract of affreightment with DONGNAMA, HEUNG-A remained railroads said liability shall be subordinated to the provisions of the laws of concession with
responsible as the carrier, hence, answerable for the damages incurred by the goods received respect to the property, and to what this Code established as to the manner and form of
for transportation. "[C]ommon carriers, from the nature of their business and for reasons of effecting seizures and attachments against said companies. (Emphasis ours)
public policy, are bound to observe extraordinary diligenceand vigilance with respect to the
safety of the goods and the passengers they transport. Thus, common carriers are required to In case, however, of the shipper’s failure to declare the value of the goods in the bill of lading,
render service with the greatest skill and foresight and ‘to use all reasonable means to Section 4, paragraph 5 of the COGSA provides:
ascertain the nature and characteristics of the goods tendered for shipment, and toexercise Neither the carrier nor the ship shall in any event be or become liable for any loss or damage
due care in the handling and stowage, including such methods as their nature requires.’" 41 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
"[C]ommon carriers, as a general rule, are presumed to have been at fault or negligent if the freight unit, or the equivalent of that sum in other currency, unless the nature and value of
goods they transported deteriorated or got lost or destroyed. That is, unless they provethat such goods have been declared by the shipper before shipment and inserted in the bill of
they exercised extraordinary diligence in transporting the goods. Inorder to avoid lading. This declaration, if embodied in the bill of lading shall be prima facieevidence, but shall
responsibility for any loss or damage, therefore, they have the burden of proving that they be conclusive on the carrier.
observed such diligence."42 Further, under Article 1742 of the Civil Code, even if the loss,
destruction, or deterioration of the goods should be caused by the faulty nature of the Hence, when there is a loss/damage to goods covered by contracts of carriage from a foreign
containers, the common carrier must exercise due diligence to forestall or lessen the loss. port to a Philippine port and in the absence a shipper’s declaration of the value of the goods
in the bill of lading, as in the present case, the foregoing provisions of the COGSA shall apply.
Here, HEUNG-A failed to rebut this prima faciepresumption when it failed to give adequate The CA, therefore, did not err in ruling that HEUNG-A, WALLEM and PROTOP’s liability is limited
explanation as to how the shipment inside the container van was handled, stored and to $500 per package or pallet.45
preserved to forestall or prevent any damage or loss while the same was inits possession,
custody and control. The Court likewise affirms the CA in pronouncing HEUNG-A, WALLEM and PROTOP liable only
for the lost/damaged 17 pallets instead of 19 pallets stated in the bill of lading. This is because,
PROTOP is solidarily liable with HEUNG-A for the lost/damaged shipment in view of the bill of per the "Shipper’s Load and Count" arrangement, the contents are not required to be checked
lading the former issued to NOVARTIS. "A bill of lading is a written acknowledgement of the and inventoried by the carrier at the port of loading or before said carrier enters the port of
receipt of goods and an agreement to transport and to deliver them at a specified place to a unloading in the Philippines since it is the shipper who has the sole responsibility for the
person named or on his or her order. It operates both as a receipt and as a contract. It is a quantity, description and condition of the cargoes shipped in container vans. 46 As such, the
receipt for the goods shipped and a contract to transport and deliver the same as therein carrier cannot be held responsible for any discrepancy if the description in the bill of lading is
stipulated."43 PROTOP breached its contract with NOVARTIS when it failed to deliver the goods different from the actual contents of the container.47
in the same quantity, quality and description as stated in Bill of Lading No. PROTAS 200387.
The CA did not err in applying the provisions of the COGSA specifically, the rule on Package Consonant with the ruling in the recent Asian Terminals, Inc. v. Philam Insurance Co., Inc.,48 the
Liability Limitation. prescriptive period for filing an action for lost/damaged goods governed by contracts of
carriage by sea to and from Philippine ports in foreign trade is governed by paragraph 6,Section
Under Article 1753 of the Civil Code, the law of the country to which the goods are to be 3 of the COGSA which states:
transported shall govern the liability of the common carrier for their loss, destruction or (6) Unless notice of loss or damageand the general nature of such loss or damage be given in
deterioration. Since the subject shipment was being transported from South Korea to the writing to the carrier or his agent at the port of discharge before or at the time of the removal
Philippines, the Civil Code provisions shall apply. In all mattersnot regulated by the Civil Code, of the goods into the custody of the person entitled to delivery thereof under the contract of
the rights and obligations of common carriers shall be governed by the Code of Commerce and carriage, such removal shall be prima facieevidence of the delivery by the carrier of the goods
by special laws,44 such as the COGSA. as described in the bill of lading. If the loss or damage is not apparent, the notice must be given
within three days of the delivery.
While the Civil Code contains provisions making the common carrier liable for loss/damage to Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the
the goods transported, it failed to outline the manner of determining the amount of person taking delivery thereof.
suchliability. Article372 of the Code of Commerce fills in this gap, thus:
The notice in writing need not be given if the state of the goods has at the time of their receipt
been the subject of joint survey or inspection. In any event the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought withinone year
after delivery of the goods or the date when the goods should have been delivered: Provided,
That if a notice of loss or damage, either apparent or concealed, is not given as provided for in
this section, that fact shall not affect or prejudice the right of the shipper to bring suit within
one year after the delivery of the goods or the date when the goods should have been
delivered.
It was further ruled in Asian Terminals that pursuant to the foregoing COGSA prov:sion, failure
to comply with the notice requirement shall not affect or prejudice the right of the shipper to
bring suit within one year after delivery of the goods.

The consignee, NOV ARTIS, received the subject shipment on January 5, 2001. PHILAM, as the
subrogee of NOVARTIS, filed a claim against PROTOP on June 4, 2001, against WALLEM on
October 12, 2001 and against HEUNG-A on December 11, 2001, or all within the one-year
prescriptive period. Verily then, despite NOV AR TIS' failure to comply with the three-day
notice requirement, its subrogee PHILAM is not barred from seeking reimbursement from
PROTOP, HEUNG-A and WALLEM because the demands for payment were timely filed.

The amount which PHILAM is entitled to receive shall earn a legal interest at the rate of six
percent (6%) per annum from the date of finality of this judgment until its full satisfaction
pursuant to Nacar v. Gallery Frames.49
WHEREFORE, all the foregoing considered, the Decision dated January 30, 2009 of the Court
of Appeals in CA-G.R. CV No. 89482 is hereby AFFlHMED with MODIFICATION in that the
interest rate on the award of US$8,500.00 shall be six percent (6%) per annum from the date
of finality of this judgment until fully paid.
SO ORDERED.
CARRIAGE OF GOODS BY SEA ACT amounted to US$12,961.63. As it did before, Calamba Steel rejected the damaged shipment
G.R. No. 182864, January 12, 2015 for being unfit for the intended purpose.
EASTERN SHIPPING LINES, INC., Petitioner, v. BPI/MS INSURANCE CORP., & MITSUI
SUMITOMO INSURANCE CO., LTD., Respondents. Calamba Steel attributed the damages on both shipments to ESLI as the carrier and ATI as
DECISION the arrastreoperator in charge of the handling and discharge of the coils and filed a claim
PEREZ, J.: against them. When ESLI and ATI refused to pay, Calamba Steel filed an insurance claim for
Before this Court is a Petition for Review on Certiorari1 of the Decision2 of the Second the total amount of the cargo against BPI/MS and Mitsui as cargo insurers. As a result,
Division of the Court of Appeals in CA-G.R. CV No. 88744 dated 31 January 2008, modifying BPI/MS and Mitsui became subrogated in place of and with all the rights and defenses
the Decision of the Regional Trial Court (RTC) by upholding the liability of Eastern Shipping accorded by law in favor of Calamba Steel.
Lines, Inc. (ESLI) but absolving Asian Terminals, Inc. (ATI) from liability and deleting the award
of attorney’s fees. Opposing the complaint, ATI, in its Answer, denied the allegations and insisted that the coils
in two shipments were already damaged upon receipt from ESLI’s vessels. It likewise insisted
The facts gathered from the records follow: that it exercised due diligence in the handling of the shipments and invoked that in case of
adverse decision, its liability should not exceed P5,000.00 pursuant to Section 7.01, Article
On 29 December 2004, BPI/MS Insurance Corporation (BPI/MS) and Mitsui Sumitomo VII4 of the Contract for Cargo Handling Services between Philippine Ports Authority (PPA) and
Insurance Company Limited (Mitsui) filed a Complaint3 before the RTC of Makati City against ATI.5 A cross-claim was also filed against ESLI.
ESLI and ATI to recover actual damages amounting to US$17,560.48 with legal interest,
attorney’s fees and costs of suit. On its part, ESLI denied the allegations of the complainants and averred that the damage to
both shipments was incurred while the same were in the possession and custody of ATI
In their complaint, BPI/MS and Mitsui alleged that on 2 February 2004 at Yokohama, Japan, and/or of the consignee or its representatives. It also filed a cross-claim against ATI for
Sumitomo Corporation shipped on board ESLI’s vessel M/V “Eastern Venus 22” 22 coils of indemnification in case of liability.6chanRoblesvirtualLawlibrary
various Steel Sheet weighing 159,534 kilograms in good order and condition for
transportation to and delivery at the port of Manila, Philippines in favor of consignee To expedite settlement, the case was referred to mediation but it was returned to the trial
Calamba Steel Center, Inc. (Calamba Steel) located in Saimsim, Calamba, Laguna as evidenced court for further proceedings due to the parties’ failure to resolve the legal issues as noted in
by a Bill of Lading with Nos. ESLIYMA001. The declared value of the shipment was the Mediator’s Report dated 28 June 2005.7chanRoblesvirtualLawlibrary
US$83,857.59 as shown by an Invoice with Nos. KJGE-03-1228-NT/KE3. The shipment was
insured with the respondents BPI/MS and Mitsui against all risks under Marine Policy No. On 10 January 2006, the court issued a Pre-Trial Order wherein the following stipulations
103-GG03448834. were agreed upon by the parties:chanroblesvirtuallawlibrary
1. Parties admitted the capacity of the parties to sue and be sued;
On 11 February 2004, the complaint alleged that the shipment arrived at the port of Manila 2. Parties likewise admitted the existence and due execution of the Bill of
in an unknown condition and was turned over to ATI for safekeeping. Upon withdrawal of the Lading covering various steel sheets in coil attached to the Complaint as
shipment by the Calamba Steel’s representative, it was found out that part of the shipment Annex A;
was damaged and was in bad order condition such that there was a Request for Bad Order 3. Parties admitted the existence of the Invoice issued by Sumitomo
Survey. It was found out that the damage amounted to US$4,598.85 prompting Calamba Corporation, a true and faithful copy of which was attached to the
Steel to reject the damaged shipment for being unfit for the intended purpose. Complaint as Annex B;
4. Parties likewise admitted the existence of the Marine Cargo Policy issued
On 12 May 2004 at Kashima, Japan, Sumitomo Corporation again shipped on board ESLI’s by the Mitsui Sumitomo Insurance Company, Limited, copy of which was
vessel M/V “Eastern Venus 25” 50 coils in various Steel Sheet weighing 383,532 kilograms in attached to the Complaint as Annex C;
good order and condition for transportation to and delivery at the port of Manila, Philippines 5. [ATI] admitted the existence and due execution of the Request for Bad
in favor of the same consignee Calamba Steel as evidenced by a Bill of Lading with Nos. Order Survey dated February 13, 2004, attached to the Complaint as Annex
ESLIKSMA002. The declared value of the shipment was US$221,455.58 as evidenced by D;
Invoice Nos. KJGE-04-1327-NT/KE2. The shipment was insured with the respondents BPI/MS 6. Insofar as the second cause of action, [ESLI] admitted the existence and due
and Mitsui against all risks under Marine Policy No. 104-GG04457785. execution of the document [Bill of Lading Nos. ESLIKSMA002, Invoice with
Nos. KJGE-04-1327-NT/KE2 and Marine Cargo Policy against all risks on the
On 21 May 2004, ESLI’s vessel with the second shipment arrived at the port of Manila partly second shipment] attached to the Complaint as Annexes E, F and G;
damaged and in bad order. The coils sustained further damage during the discharge from 7. [ATI] admitted the existence of the Bill of Lading together with the Invoices
vessel to shore until its turnover to ATI’s custody for safekeeping. and Marine Cargo Policy. [It] likewise admitted by [ATI] are the Turn Over
Survey of Bad Order Cargoes attached to the Complaint as Annexes H, H-1
Upon withdrawal from ATI and delivery to Calamba Steel, it was found out that the damage and J.8
 Aggrieved, ESLI and ATI filed their respective appeals before the Court of Appeals on both
The parties agreed that the procedural issue was whether there was a valid subrogation in questions of fact and law.37chanRoblesvirtualLawlibrary
favor of BPI/MS and Mitsui; and that the substantive issues were, whether the shipments
suffered damages, the cause of damage, and the entity liable for reparation of the damages Before the appellate court, ESLI argued that the trial court erred when it found BPI/MS has
caused.9chanRoblesvirtualLawlibrary the capacity to sue and when it assumed jurisdiction over the case. It also questioned the
ruling on its liability since the Survey Reports indicated that the cause of loss and damage
Due to the limited factual matters of the case, the parties were required to present their was due to the “rough handling of ATI’s stevedores during discharge from vessel to shore and
evidence through affidavits and documents. Upon submission of these evidence, the case during loading operation onto the trucks.” It invoked the limitation of liability of US$500.00
was submitted for resolution.10chanRoblesvirtualLawlibrary per package as provided in Commonwealth Act No. 65 or the Carriage of Goods by Sea Act
(COGSA).38chanRoblesvirtualLawlibrary
BPI/MS and Mitsui, to substantiate their claims, submitted the Affidavits of (1) Mario A.
Manuel (Manuel),11 the Cargo Surveyor of Philippine Japan Marine Surveyors and Sworn On the other hand, ATI questioned the capacity to sue of BPI/MS and Mitsui and the award
Measurers Corporation who personally examined and conducted the surveys on the two of attorney’s fees despite its lack of justification in the body of the decision. ATI also imputed
shipments; (2) Richatto P. Almeda,12 the General Manager of Calamba Steel who oversaw error on the part of the trial court when it ruled that ATI’s employees were negligent in the
and examined the condition, quantity, and quality of the shipped steel coils, and who ruling of the shipments. It also insisted on the applicability of the provision of COGSA on
thereafter filed formal notices and claims against ESLI and ATI; and (3) Virgilio G. Tiangco, limitation of liability.39chanRoblesvirtualLawlibrary
Jr.,13 the Marine Claims Supervisor of BPI/MS who processed the insurance claims of Calamba
Steel. Along with the Affidavits were the Bills of Lading14 covering the two shipments, In its Decision,40 the Court of Appeals absolved ATI from liability thereby modifying the
Invoices,15 Notices of Loss of Calamba Steel,16 Subrogation Form,17 Insurance Claims,18 Survey decision of the trial court. The dispositive portions reads:chanroblesvirtuallawlibrary
Reports,19 Turn Over Survey of Bad Order Cargoes20 and Request for Bad Order WHEREFORE, the appeal of ESLI is DENIED, while that of ATI is GRANTED. The assailed
Survey.21chanRoblesvirtualLawlibrary Judgment dated September 17, 2006 of Branch 138, RTC of Makati City in Civil Case No. 05-
108 is hereby MODIFIED absolving ATI from liability and deleting the award of attorney’s fees.
ESLI, in turn, submitted the Affidavits of Captain Hermelo M. Eduarte, 22 Manager of the The rest of the decision is affirmed.41
Operations Department of ESLI, who monitored in coordination with ATI the discharge of the
two shipments, and Rodrigo Victoria (Rodrigo),23 the Cargo Surveyor of R & R Industrial and Before this Court, ESLI seeks the reversal of the ruling on its liability.
Marine Services, Inc., who personally surveyed the subject cargoes on board the vessel as
well as the manner the ATI employees discharged the coils. The documents presented were At the outset, and notably, ESLI included among its arguments the attribution of liability to ATI
the Bills of Lading, Secretary’s Certificate24 of PPA, granting ATI the duty and privilege to but it failed to implead the latter as a party to the present petition. This non-inclusion was
provide arrastre and stevedoring services at South Harbor, Port of Manila, Contract for Cargo raised by BPI/MS and Mitsui as an issue42 in its Comment/Opposition43 and
Handling Services,25 Damage Report26 and Turn Over Report made by Rodrigo.27 ESLI also Memorandum:44chanRoblesvirtualLawlibrary
adopted the Survey Reports submitted by BPI/MS and Mitsui.28chanRoblesvirtualLawlibrary For reasons known only to [ESLI], it did not implead ATI as a party respondent in this case when
it could have easily done so. Considering the nature of the arguments raised by petitioner
Lastly, ATI submitted the Affidavits of its Bad Order Inspector Ramon Garcia (Garcia) 29 and pointing to ATI as solely responsible for the damages sustained by the subject shipments, it is
Claims Officer Ramiro De Vera.30 The documents attached to the submissions were the Turn respectfully submitted that ATI is an indispensable party in this case. Without ATI being
Over Surveys of Bad Cargo Order,31 Requests for Bad Order Survey,32 Cargo Gatepasses impleaded, the issue of whether ATI is solely responsible for the damages could not be
issued by ATI,33 Notices of Loss/Claims of Calamba Steel34 and Contract for Cargo Handling determined with finality by this Honorable Court. ATI certainly deserves to be heard on the
Services.35chanRoblesvirtualLawlibrary issue but it could not defend itself because it was not impleaded before this Court. Perhaps,
this is the reason why [ESLI] left out ATI in this case so that it could not rebut while petitioner
On 17 September 2006, RTC Makati City rendered a decision finding both the ESLI and ATI puts it at fault.45
liable for the damages sustained by the two shipments. The dispositive portion
reads:chanroblesvirtuallawlibrary ESLI in its Reply46 put the blame for the non-exclusion of ATI to BPI/MS and
WHEREFORE, judgment is hereby rendered in favor of [BPI/MS and Mitsui] and against [ESLI Mitsui:chanroblesvirtuallawlibrary
Inc.] and [ATI], jointly and severally ordering the latter to pay [BPI/MS and Mitsui] the [BPI/MS and Mitsui] claim that herein [ESLI] did not implead [ATI] as a party respondent in the
following: Petition for Review on Certiorari it had filed. Herein Petitioner submits that it is not the
1. Actual damages amounting to US$17,560.48 plus 6% legal interest per obligation of [ESLI] to implead ATI as the same is already the look out of [BPI/MS and Mitsui].
annum commencing from the filing of this complaint, until the same is fully If [BPI/MS and Mitsui] believe that ATI should be made liable, they should have filed a Motion
paid; for Reconsideration with the Honorable Court of Appeals. The fact that [BPI/MS and Mitsui]
2. Attorney’s fees in a sum equivalent to 20% of the amount claimed; did not even lift a finger to question the decision of the Honorable Court of Appeals goes to
3. Costs of suit.36 show that [BPI/MS and Mitsui] are not interested as to whether or not ATI is indeed liable. 47
 inspect and monitor the unloading of the cargoes. In both instances, it was his finding that
It is clear from the exchange that both [ESLI] and [BPI/MS and Mitsui] are aware of the non- there was mishandling on the part of ATI’s stevedores which he reported as the cause of the
inclusion of ATI, the arrastre operator, as a party to this review of the Decision of the Court damage.50chanRoblesvirtualLawlibrary
of Appeals. By blaming each other for the exclusion of ATI, [ESLI] and [BPI/MS and Mitsui]
impliedly agree that the absolution of ATI from liability is final and beyond review. Clearly, Easily seen, however, is the absence of a crucial point in determining liability of either or
[ESLI] is the consequential loser. It alone must bear the proven liability for the loss of the both ESLI and ATI – lack of determination whether the cargo was in a good order condition as
shipment. It cannot shift the blame to ATI, the arrastre operator, which has been cleared by described in the bills of lading at the time of his boarding. As Rodrigo admits, it was also his
the Court of Appeals. Neither can it argue that the consignee should bear the loss. duty to inspect and monitor the cargo on-board upon arrival of the vessel. ESLI cannot invoke
its non-liability solely on the manner the cargo was discharged and unloaded. The actual
Thus confined, we go to the merits of the arguments of ESLI. condition of the cargoes upon arrival prior to discharge is equally important and cannot be
disregarded. Proof is needed that the cargo arrived at the port of Manila in good order
First Issue: Liability of ESLI condition and remained as such prior to its handling by ATI.

ESLI bases of its non-liability on the survey reports prepared by BPI/MS and Mitsui’s witness Common carriers, from the nature of their business and on public policy considerations, are
Manuel which found that the cause of damage was the rough handling on the shipment by bound to observe extraordinary diligence in the vigilance over the goods transported by
the stevedores of ATI during the discharging operations.48 However, Manuel does not them. Subject to certain exceptions enumerated under Article 173451 of the Civil Code,
absolve ESLI of liability. The witness in fact includes ESLI in the findings of negligence. common carriers are responsible for the loss, destruction, or deterioration of the goods. The
Paragraphs 3 and 11 of the affidavit of witness Manuel attribute fault to both ESLI and ATI. extraordinary responsibility of the common carrier lasts from the time the goods are
3. The vessel M.V. “EASTERN VENUS” V 22-S carrying the said shipment of 22 coils of various unconditionally placed in the possession of, and received by the carrier for transportation
steel sheets arrived at the port of Manila and discharged the said shipment on or about 11 until the same are delivered, actually or constructively, by the carrier to the consignee, or to
February 2004 to the arrastre operator [ATI]. I personally noticed that the 22 coils were the person who has a right to receive them.52chanRoblesvirtualLawlibrary
roughly handled during their discharging from the vessel to the pier of [ATI] and even during
the loading operations of these coils from the pier to the trucks that will transport the coils to In maritime transportation, a bill of lading is issued by a common carrier as a contract,
the consignees’s warehouse. During the aforesaid operations, the employees and forklift receipt and symbol of the goods covered by it. If it has no notation of any defect or damage
operators of [ESLI] and [ATI] were very negligent in the handling of the subject cargoes. in the goods, it is considered as a “clean bill of lading.” A clean bill of lading constitutes prima
facie evidence of the receipt by the carrier of the goods as therein
x x x x described.53chanRoblesvirtualLawlibrary

11. The vessel M.V. “EASTERN VENUS” V 25-S carrying the said shipment of 50 coils of various Based on the bills of lading issued, it is undisputed that ESLI received the two shipments of
steel sheets arrived at the port of Manila and discharged the said shipment on or about 21 coils from shipper Sumitomo Corporation in good condition at the ports of Yokohama and
May 2004 to the arrastre operator [ATI]. I personally noticed that the 50 coils were roughly Kashima, Japan. However, upon arrival at the port of Manila, some coils from the two
handled during their discharging from the vessel to the pier of [ATI] and even during the shipments were partly dented and crumpled as evidenced by the Turn Over Survey of Bad
loading operations of these coils from the pier to the trucks that will transport the coils to the Order Cargoes No. 67982 dated 13 February 200454 and Turn Over Survey of Bad Order
consignees’s warehouse. During the aforesaid operations, the employees and forklift Cargoes Nos. 6836355 and 6836556 both dated 24 May 2004 signed by ESLI’s representatives,
operators of [ESLI] and [ATI] were very negligent in the handling of the subject a certain Tabanao and Rodrigo together with ATI’s representative Garcia. According to Turn
cargoes.49 (Emphasis supplied). Over Survey of Bad Order Cargoes No. 67982, four coils and one skid were partly dented and
crumpled prior to turnover by ESLI to ATI’s possession while a total of eleven coils were
ESLI cannot rely only on parts it chooses. The entire body of evidence should determine the partly dented and crumpled prior to turnover based on Turn Over Survey Bad Order Cargoes
liability of the parties. From the statements of Manuel, [ESLI] was negligent, whether solely Nos. 68363 and 68365.
or together with ATI.
Calamba Steel requested for a re-examination of the damages sustained by the two
To further press its cause, ESLI cites the affidavit of its witness Rodrigo who stated that the shipments. Based on the Requests for Bad Order Survey Nos. 5826757 and 5825458 covering
cause of the damage was the rough mishandling by ATI’s stevedores. the first shipment dated 13 and 17 February 2004, four coils were damaged prior to
turnover. The second Request for Bad Order Survey No. 5865859 dated 25 May 2004 also
The affidavit of Rodrigo states that his functions as a cargo surveyor are, (1) getting hold of a affirmed the earlier findings that eleven coils on the second shipment were damaged prior to
copy of the bill of lading and cargo manifest; (2) inspection and monitoring of the cargo on- turnover.
board, during discharging and after unloading from the vessel; and (3) making a necessary
report of his findings. Thus, upon arrival at the South Harbor of Manila of the two vessels of In Asian Terminals, Inc., v. Philam Insurance Co., Inc.,60 the Court based its ruling on liability
ESLI on 11 February 2004 and on 21 May 2004, Rodrigo immediately boarded the vessels to on the Bad Order Cargo and Turn Over of Bad Order. The Receipt bore a notation “B.O. not
yet t/over to ATI,” while the Survey stated that the said steel case was not opened at the of such value; provided, however, that neither the Carrier nor the ship shall in any event be or
time of survey and was accepted by the arrastre in good order. Based on these documents, become liable for any loss, non-delivery or misdelivery of or damage or delay to, or in
packages in the Asian Terminals, Inc. case were found damaged while in the custody of the connection with the custody or transportation of the goods in an amount exceeding $500.00
carrier Westwind Shipping Corporation. per package lawful money of the United States, or in case of goods not shipped in packages,
per customary freight unit, unless the nature of the goods and a valuation higher than $500.00
Mere proof of delivery of the goods in good order to a common carrier and of their arrival in is declared in writing by the shipper on delivery to the Carrier and inserted in the bill of lading
bad order at their destination constitutes a prima facie case of fault or negligence against the and extra freight is paid therein as required by applicable tariffs to obtain the benefit of such
carrier. If no adequate explanation is given as to how the deterioration, loss, or destruction higher valuation. In which case even if the actual value of the goods per package or unit
of the goods happened, the transporter shall be held responsible.61 From the foregoing, the exceeds such declared value, the value shall nevertheless be deemed to be the declared value
fault is attributable to ESLI. While no longer an issue, it may be nonetheless state that ATI and any Carrier’s liability shall not exceed such declared value and any partial loss or damage
was correctly absolved of liability for the damage. shall be adjusted pro-rata on the basis thereof. The Carrier shall not be liable for any loss or
profit or any consequential or special damage and shall have the option of replacing any lost
Second Issue: Limitation of Liability goods and replacing o reconditioning any damage goods. No oral declaration or agreement
shall be evidence of a value different from that provided therein.71
ESLI assigns as error the appellate court’s finding and reasoning that the package limitation
under the COGSA62 is inapplicable even if the bills of lading covering the shipments only Accordingly, the issue whether or not ESLI has limited liability as a carrier is determined by
made reference to the corresponding invoices. Noticeably, the invoices specified among either absence or presence of proof that the nature and value of the goods have been
others the weight, quantity, description and value of the cargoes, and bore the notation declared by Sumitomo Corporation and inserted in the bills of lading.
“Freight Prepaid” and “As Arranged.”63 ESLI argues that the value of the cargoes was not
incorporated in the bills of lading64 and that there was no evidence that the shipper had ESLI contends that the invoices specifying the weight, quantity, description and value of the
presented to the carrier in writing prior to the loading of the actual value of the cargo, and, cargo in reference to the bills of lading do not prove the fact that the shipper complied with
that there was a no payment of corresponding freight.65 Finally, despite the fact that ESLI the requirements mandated by the COGSA. It contends that there must be an insertion of
admits the existence of the invoices, it denies any knowledge either of the value declared or this declaration in the bill of lading itself to fall outside the statutory limitation of liability.
of any information contained therein.66chanRoblesvirtualLawlibrary
ESLI asserts that the appellate court erred when it ruled that there was compliance with the
According to the New Civil Code, the law of the country to which the goods are to be declaration requirement even if the value of the shipment and fact of payment were
transported shall govern the liability of the common carrier for their loss, destruction or indicated on the invoice and not on the bill of lading itself.
deterioration.67 The Code takes precedence as the primary law over the rights and
obligations of common carriers with the Code of Commerce and COGSA applying There is no question about the declaration of the nature, weight and description of the goods
suppletorily.68chanRoblesvirtualLawlibrary on the first bill of lading.

The New Civil Code provides that a stipulation limiting a common carrier’s liability to the The bills of lading represent the formal expression of the parties’ rights, duties and
value of the goods appearing in the bill of lading is binding, unless the shipper or owner obligations. It is the best evidence of the intention of the parties which is to be deciphered
declares a greater value.69 In addition, a contract fixing the sum that may be recovered by the from the language used in the contract, not from the unilateral post facto assertions of one
owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is of the parties, or of third parties who are strangers to the contract. 72 Thus, when the terms of
reasonable and just under the circumstances, and has been fairly and freely agreed an agreement have been reduced to writing, it is deemed to contain all the terms agreed
upon.70chanRoblesvirtualLawlibrary upon and there can be, between the parties and their successors in interest, no evidence of
such terms other than the contents of the written agreement. 73chanRoblesvirtualLawlibrary
COGSA, on the other hand, provides under Section 4, Subsection 5 that an amount
recoverable in case of loss or damage shall not exceed US$500.00 per package or per As to the non-declaration of the value of the goods on the second bill of lading, we see no
customary freight unless the nature and value of such goods have been declared by the error on the part of the appellate court when it ruled that there was a compliance of the
shipper before shipment and inserted in the bill of lading. requirement provided by COGSA. The declaration requirement does not require that all the
details must be written down on the very bill of lading itself. It must be emphasized that all
In line with these maritime law provisions, paragraph 13 of bills of lading issued by ESLI to the needed details are in the invoice, which “contains the itemized list of goods shipped to a
the shipper specifically provides a similar restriction:chanroblesvirtuallawlibrary buyer, stating quantities, prices, shipping charges,” and other details which may contain
The value of the goods, in calculating and adjusting any claims for which the Carrier may be numerous sheets.74 Compliance can be attained by incorporating the invoice, by way of
liable shall, to avoid uncertainties and difficulties in fixing value, be deemed to the invoice reference, to the bill of lading provided that the former containing the description of the
value of the goods plus ocean freight and insurance, if paid, Irrespective of whether any other nature, value and/or payment of freight charges is as in this case duly admitted as evidence.
value is greater or less, and any partial loss or damage shall be adjusted pro rata on the basis
In Unsworth Transport International (Phils.), Inc. v. Court of Appeals,75 the Court held that the Once the stipulations are reduced into writing and signed by the parties and their counsels,
insertion of an invoice number does not in itself sufficiently and convincingly show that they become binding on the parties who made them. They become judicial admissions of the
petitioner had knowledge of the value of the cargo. However, the same interpretation does fact or facts stipulated. Even if placed at a disadvantageous position, a party may not be
not squarely apply if the carrier had been advised of the value of the goods as evidenced by allowed to rescind them unilaterally, it must assume the consequences of the disadvantage.84
the invoice and payment of corresponding freight charges. It would be unfair for ESLI to
invoke the limitation under COGSA when the shipper in fact paid the freight charges based Moreover, in Alfelor v. Halasan,85 this Court declared that:
on the value of the goods. In Adams Express Company v. Croninger,76 it was said: “Neither is it A party who judicially admits a fact cannot later challenge that fact as judicial admissions are
conformable to plain principles of justice that a shipper may understate the value of his a waiver of proof; production of evidence is dispensed with. A judicial admission also
property for the purpose of reducing the rate, and then recover a larger value in case of loss. removes an admitted fact from the field of controversy. Consequently, an admission made in
Nor does a limitation based upon an agreed value for the purpose of adjusting the rate the pleadings cannot be controverted by the party making such admission and are conclusive
conflict with any sound principle of public policy.” Conversely, but for the same reason, it is as to such party, and all proofs to the contrary or inconsistent therewith should be ignored,
unjust for ESLI to invoke the limitation when it is informed that the shipper paid the freight whether objection is interposed by the party or not. The allegations, statements or
charges corresponding to the value of the goods. admissions contained in a pleading are conclusive as against the pleader. A party cannot
subsequently take a position contrary of or inconsistent with what was pleaded.86 (Citations
Also, ESLI admitted the existence and due execution of the Bills of Lading and the Invoice omitted)
containing the nature and value of the goods on the second shipment. As written in the Pre-
Trial Order,77 the parties, including ESLI, admitted the existence and due execution of the The admission having been made in a stipulation of facts at pre-trial by the parties, it must be
two Bills of Lading78 together with the Invoice on the second shipment with Nos. KJGE-04- treated as a judicial admission. Under Section 4, of Rule 129 of the Rules of Court, a judicial
1327-NT/KE279 dated 12 May 2004. On the first shipment, ESLI admitted the existence of the admission requires no proof.87chanRoblesvirtualLawlibrary
Invoice with Nos. KJGE-031228-NT/KE380dated 2 February 2004.
It is inconceivable that a shipping company with maritime experience and resource like the
The effect of admission of the genuineness and due execution of a document means that the ESLI will admit the existence of a maritime document like an invoice even if it has no
party whose signature it bears admits that he voluntarily signed the document or it was knowledge of its contents or without having any copy thereof.
signed by another for him and with his authority.81
ESLI also asserts that the notation “Freight Prepaid” and “As Arranged,” does not prove that
A review of the bill of ladings and invoice on the second shipment indicates that the shipper there was an actual declaration made in writing of the payment of freight as required by
declared the nature and value of the goods with the corresponding payment of the freight on COGSA. ESLI did not as it could not deny payment of freight in the amount indicated in the
the bills of lading. Further, under the caption “description of packages and goods,” it states documents. Indeed, the earlier discussions on ESLI’s admission of the existence and due
that the description of the goods to be transported as “various steel sheet in coil” with a execution of the invoices, cover and disprove the argument regarding actual declaration of
gross weight of 383,532 kilograms (89.510 M3). On the other hand, the amount of the goods payment. The bills of lading bore a notation on the manner of payment which was “Freight
is referred in the invoice, the due execution and genuineness of which has already been Prepaid” and “As Arranged” while the invoices indicated the amount exactly paid by the
admitted by ESLI, is US$186,906.35 as freight on board with payment of ocean freight of shipper to ESLI.chanrobleslaw
US$32,736.06 and insurance premium of US$1,813.17. From the foregoing, we rule that the
non- limitation of liability applies in the present case. WHEREFORE, we DENY the Petition for Review on Certiorari. The Decision dated 31 January
2008 and Resolution dated 5 May 2008 of the Second Division of the Court of Appeals in CA-
We likewise accord the same binding effect on the contents of the invoice on the first G.R. CV. No. 88744 are hereby AFFIRMED.
shipment.
SO ORDERED.
ESLI contends that what was admitted and written on the pre-trial order was only the
existence of the first shipment’ invoice but not its contents and due execution. It invokes
admission of existence but renounces any knowledge of the contents written on
it.82chanRoblesvirtualLawlibrary

Judicial admissions are legally binding on the party making the admissions. Pre-trial
admission in civil cases is one of the instances of judicial admissions explicitly provided for
under Section 7, Rule 18 of the Rules of Court, which mandates that the contents of the pre-
trial order shall control the subsequent course of the action, thereby, defining and limiting
the issues to be tried. In Bayas v. Sandiganbayan,83this Court emphasized
that:chanroblesvirtuallawlibrary
CONSTITUTIONALITY OF AIR TRANSPORTATION
G.R. No. 101538 June 23, 1992 The assignment of errors may be grouped into two major issues, viz:
AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian, (1) the constitutionality of Article 28(1) of the Warsaw Convention; and
Augusto Benedicto Santos, petitioner, vs. (2) the jurisdiction of Philippine courts over the case.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents. The petitioner also invokes Article 24 of the Civil Code on the protection of minors.

CRUZ, J.: THE ISSUE OF CONSTITUTIONALITY

This case involves the Proper interpretation of Article 28(1) of the Warsaw Convention, A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of
reading as follows: the Warsaw Convention violates the constitutional guarantees of due process
Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in the and equal protection.
territory of one of the High Contracting Parties, either before the court of the domicile of
the carrier or of his principal place of business, or where he has a place of business through The Republic of the Philippines is a party to the Convention for the Unification of Certain
which the contract has been made, or before the court at the place of destination. Rules Relating to International Transportation by Air, otherwise known as the Warsaw
Convention. It took effect on February 13, 1933. The Convention was concurred in by the
The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Senate, through its Resolution No. 19, on May 16, 1950. The Philippine instrument of
Orient Airlines (NOA) is a foreign corporation with principal office in Minnesota, U.S.A. accession was signed by President Elpidio Quirino on October 13, 1950, and was deposited
and licensed to do business and maintain a branch office in the Philippines. with the Polish government on November 9, 1950. The Convention became applicable to
the Philippines on February 9, 1951. On September 23, 1955, President Ramon Magsaysay
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San issued Proclamation No. 201, declaring our formal adherence thereto. "to the end that
Francisco. U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The the same and every article and clause thereof may be observed and fulfilled in good faith
scheduled departure date from Tokyo was December 20, 1986. No date was specified for by the Republic of the Philippines and the citizens thereof." 5
his return to San Francisco. 1
The Convention is thus a treaty commitment voluntarily assumed by the Philippine
On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco government and, as such, has the force and effect of law in this country.
airport for his scheduled departure to Manila. Despite a previous confirmation and re-
confirmation, he was informed that he had no reservation for his flight from Tokyo to The petitioner contends that Article 28(1) cannot be applied in the present case because
Manila. He therefore had to be wait-listed. it is unconstitutional. He argues that there is no substantial distinction between a person
who purchases a ticket in Manila and a person who purchases his ticket in San Francisco.
On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of The classification of the places in which actions for damages may be brought is arbitrary
Makati. On April 13, 1987, NOA moved to dismiss the complaint on the ground of lack of and irrational and thus violates the due process and equal protection clauses.
jurisdiction. Citing the above-quoted article, it contended that the complaint could be
instituted only in the territory of one of the High Contracting Parties, before: It is well-settled that courts will assume jurisdiction over a constitutional question only if
1. the court of the domicile of the carrier; it is shown that the essential requisites of a judicial inquiry into such a question are first
2. the court of its principal place of business; satisfied. Thus, there must be an actual case or controversy involving a conflict of legal
3. the court where it has a place of business through which the contract had been made; rights susceptible of judicial determination; the constitutional question must have been
4. the court of the place of destination. opportunely raised by the proper party; and the resolution of the question is unavoidably
necessary to the decision of the case itself. 6
The private respondent contended that the Philippines was not its domicile nor was this
its principal place of business. Neither was the petitioner's ticket issued in this country nor Courts generally avoid having to decide a constitutional question. This attitude is based
was his destination Manila but San Francisco in the United States. on the doctrine of separation of powers, which enjoins upon the departments of the
government a becoming respect for each other's acts.
On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The
petitioner appealed to the Court of Appeals, which affirmed the decision of the lower The treaty which is the subject matter of this petition was a joint legislative-executive act.
court. 3 On June 26, 1991, the petitioner filed a motion for reconsideration, but the same The presumption is that it was first carefully studied and determined to be constitutional
was denied. 4 The petitioner then came to this Court, raising substantially the same issues before it was adopted and given the force of law in this country.
it submitted in the Court of Appeals.
The petitioner's allegations are not convincing enough to overcome this presumption. But the more important consideration is that the treaty has not been rejected by the
Apparently, the Convention considered the four places designated in Article 28 the most Philippine government. The doctrine of rebus sic stantibus does not operate automatically
convenient forums for the litigation of any claim that may arise between the airline and to render the treaty inoperative. There is a necessity for a formal act of rejection, usually
its passenger, as distinguished from all other places. At any rate, we agree with the made by the head of State, with a statement of the reasons why compliance with the
respondent court that this case can be decided on other grounds without the necessity of treaty is no longer required.
resolving the constitutional issue.
In lieu thereof, the treaty may be denounced even without an expressed justification for
B. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the this action. Such denunciation is authorized under its Article 39, viz:
Warsaw Convention is inapplicable because of a fundamental change in the circumstances Article 39. (1) Any one of the High Contracting Parties may denounce this convention by
that served as its basis. a notification addressed to the Government of the Republic of Poland, which shall at once
The petitioner goes at great lengths to show that the provisions in the Convention were inform the Government of each of the High Contracting Parties. (2) Denunciation shall
intended to protect airline companies under "the conditions prevailing then and which take effect six months after the notification of denunciation, and shall operate only as
have long ceased to exist." He argues that in view of the significant developments in the regards the party which shall have proceeded to denunciation.
airline industry through the years, the treaty has become irrelevant. Hence, to the extent
that it has lost its basis for approval, it has become unconstitutional. Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or
pursuant to Article 39, is not a function of the courts but of the other branches of
The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this government. This is a political act. The conclusion and renunciation of treaties is the
doctrine constitutes an attempt to formulate a legal principle which would justify non- prerogative of the political departments and may not be usurped by the judiciary. The
performance of a treaty obligation if the conditions with relation to which the parties courts are concerned only with the interpretation and application of laws and treaties in
contracted have changed so materially and so unexpectedly as to create a situation in force and not with their wisdom or efficacy.
which the exaction of performance would be unreasonable." 7 The key element of this
doctrine is the vital change in the condition of the contracting parties that they could not B. The petitioner claims that the lower court erred in ruling that the plaintiff must
have foreseen at the time the treaty was concluded. sue in the United States, because this would deny him the right to access to our
courts.
The Court notes in this connection the following observation made in Day v. Trans World
Airlines, Inc.: 8 The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the
The Warsaw drafters wished to create a system of liability rules that would cover all the United States would constitute a constructive denial of his right to access to our courts
hazards of air travel . . . The Warsaw delegates knew that, in the years to come, civil for the protection of his rights. He would consequently be deprived of this vital guaranty
aviation would change in ways that they could not foresee. They wished to design a as embodied in the Bill of Rights.
system of air law that would be both durable and flexible enough to keep pace with these
changes . . . The ever-changing needs of the system of civil aviation can be served within Obviously, the constitutional guaranty of access to courts refers only to courts with
the framework they created. appropriate jurisdiction as defined by law. It does not mean that a person can go
to any court for redress of his grievances regardless of the nature or value of his claim. If
It is true that at the time the Warsaw Convention was drafted, the airline industry was still the petitioner is barred from filing his complaint before our courts, it is because they are
in its infancy. However, that circumstance alone is not sufficient justification for the not vested with the appropriate jurisdiction under the Warsaw Convention, which is part
rejection of the treaty at this time. The changes recited by the petitioner were, of the law of our land.
realistically, not entirely unforeseen although they were expected in a general sense only.
In fact, the Convention itself, anticipating such developments, contains the following THE ISSUE OF JURISDICTION.
significant provision: A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the
Warsaw Convention is a rule merely of venue and was waived by defendant when it did
Article 41. Any High Contracting Party shall be entitled not earlier than two years after the not move to dismiss on the ground of improper venue.
coming into force of this convention to call for the assembling of a new international By its own terms, the Convention applies to all international transportation of persons
conference in order to consider any improvements which may be made in this convention. performed by aircraft for hire.
To this end, it will communicate with the Government of the French Republic which will International transportation is defined in paragraph (2) of Article 1 as follows: (2) For the
take the necessary measures to make preparations for such conference. purposes of this convention, the expression "international transportation" shall mean any
transportation in which, according to the contract made by the parties, the place of
departure and the place of destination, whether or not there be a break in the (Emphasis supplied). Section (2) thus may be read to leave for domestic decision questions
transportation or a transshipment, are situated [either] within the territories of two High regarding the suitability and location of a particular Warsaw Convention case.
Contracting Parties . . .
In other words, where the matter is governed by the Warsaw Convention, jurisdiction
Whether the transportation is "international" is determined by the contract of the parties, takes on a dual concept. Jurisdiction in the international sense must be established in
which in the case of passengers is the ticket. When the contract of carriage provides for accordance with Article 28(1) of the Warsaw Convention, following which the jurisdiction
the transportation of the passenger between certain designated terminals "within the of a particular court must be established pursuant to the applicable domestic law. Only
territories of two High Contracting Parties," the provisions of the Convention after the question of which court has jurisdiction is determined will the issue of venue be
automatically apply and exclusively govern the rights and liabilities of the airline and its taken up. This second question shall be governed by the law of the court to which the case
passenger. is submitted.

Since the flight involved in the case at bar is international, the same being from the United The petitioner submits that since Article 32 states that the parties are precluded "before
States to the Philippines and back to the United States, it is subject to the provisions of the damages occurred" from amending the rules of Article 28(1) as to the place where the
the Warsaw Convention, including Article 28(1), which enumerates the four places where action may be brought, it would follow that the Warsaw Convention was not intended to
an action for damages may be brought. preclude them from doing so "after the damages occurred."

Whether Article 28(1) refers to jurisdiction or only to venue is a question over which Article 32 provides:
authorities are sharply divided. While the petitioner cites several cases holding that Article Art. 32. Any clause contained in the contract and all special agreements entered into
28(1) refers to venue rather than jurisdiction, 9 there are later cases cited by the private before the damage occurred by which the parties purport to infringe the rules laid down
respondent supporting the conclusion that the provision is jurisdictional. 10 by this convention, whether by deciding the law to be applied, or by altering the rules as
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by to jurisdiction, shall be null and void. Nevertheless for the transportation of goods,
consent or waiver upon d court which otherwise would have no jurisdiction over the arbitration clauses shall be allowed, subject to this convention, if the arbitration is to take
subject-matter of an action; but the venue of an action as fixed by statute may be changed place within one of the jurisdictions referred to in the first paragraph of Article 28.
by the consent of the parties and an objection that the plaintiff brought his suit in the His point is that since the requirements of Article 28(1) can be waived "after the damages
wrong county may be waived by the failure of the defendant to make a timely objection. (shall have) occurred," the article should be regarded as possessing the character of a
In either case, the court may render a valid judgment. Rules as to jurisdiction can never "venue" and not of a "jurisdiction" provision. Hence, in moving to dismiss on the ground
be left to the consent or agreement of the parties, whether or not a prohibition exists of lack of jurisdiction, the private respondent has waived improper venue as a ground to
against their alteration. 11 dismiss.
The foregoing examination of Article 28(1) in relation to Article 32 does not support this
A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction conclusion. In any event, we agree that even granting arguendo that Article 28(1) is a
and not a venue provision. First, the wording of Article 32, which indicates the places venue and not a jurisdictional provision, dismissal of the case was still in order. The
where the action for damages "must" be brought, underscores the mandatory nature of respondent court was correct in affirming the ruling of the trial court on this matter, thus:
Article 28(1). Second, this characterization is consistent with one of the objectives of the Santos' claim that NOA waived venue as a ground of its motion to dismiss is not correct.
Convention, which is to "regulate in a uniform manner the conditions of international True it is that NOA averred in its MOTION TO DISMISS that the ground thereof is "the
transportation by air." Third, the Convention does not contain any provision prescribing Court has no subject matter jurisdiction to entertain the Complaint" which SANTOS
rules of jurisdiction other than Article 28(1), which means that the phrase "rules as to considers as equivalent to "lack of jurisdiction over the subject matter . . ." However, the
jurisdiction" used in Article 32 must refer only to Article 28(1). In fact, the last sentence of gist of NOA's argument in its motion is that the Philippines is not the proper place where
Article 32 specifically deals with the exclusive enumeration in Article 28(1) as SANTOS could file the action — meaning that the venue of the action is improperly laid.
"jurisdictions," which, as such, cannot be left to the will of the parties regardless of the Even assuming then that the specified ground of the motion is erroneous, the fact is the
time when the damage occurred. proper ground of the motion — improper venue — has been discussed therein.

This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways, Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-
Ltd., 12 where it was held: waiver if there are special circumstances justifying this conclusion, as in the petition at
. . . Of more, but still incomplete, assistance is the wording of Article 28(2), especially when bar. As we observed in Javier vs. Intermediate Court of Appeals: 13
considered in the light of Article 32. Article 28(2) provides that "questions
of procedure shall be governed by the law of the court to which the case is submitted"
Legally, of course, the lack of proper venue was deemed waived by the petitioners when left open. Consequently, Manila and not San Francisco should be considered the
they failed to invoke it in their original motion to dismiss. Even so, the motivation of the petitioner's destination.
private respondent should have been taken into account by both the trial judge and the
respondent court in arriving at their decisions. The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where
the United States District Court (Eastern District of Pennsylvania) said:
The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of . . . Although the authorities which addressed this precise issue are not extensive, both
Appeals, where it was held that Article 28(1) is a venue provision. However, the private the cases and the commentators are almost unanimous in concluding that the "place of
respondent avers that this was in effect reversed by the case of Aranas v. United destination" referred to in the Warsaw Convention "in a trip consisting of several parts . .
Airlines, 15 where the same court held that Article 28(1) is a jurisdictional provision. . is the ultimate destination that is accorded treaty jurisdiction." . . .
Neither of these cases is binding on this Court, of course, nor was either of them appealed But apart from that distinguishing feature, I cannot agree
to us. Nevertheless, we here express our own preference for the later case of Aranas with the Court's analysis in Aanestad; whether the return portion of the ticket is
insofar as its pronouncements on jurisdiction conform to the judgment we now make in characterized as an option or a contract, the carrier was legally bound to transport the
this petition. passenger back to the place of origin within the prescribed time and. the passenger for
her part agreed to pay the fare and, in fact, did pay the fare. Thus there was mutuality of
C. The petitioner claims that the lower court erred in not ruling that under Article obligation and a binding contract of carriage, The fact that the passenger could forego her
28(1) of the Warsaw Convention, this case was properly filed in the Philippines, rights under the contract does not make it any less a binding contract. Certainly, if the
because Manila was the destination of the plaintiff. parties did not contemplate the return leg of the journey, the passenger would not have
paid for it and the carrier would not have issued a round trip ticket.
The Petitioner contends that the facts of this case are analogous to those in Aanestad v.
Air Canada. 16 In that case, Mrs. Silverberg purchased a round-trip ticket from Montreal We agree with the latter case. The place of destination, within the meaning of the Warsaw
to Los Angeles and back to Montreal. The date and time of departure were specified but Convention, is determined by the terms of the contract of carriage or, specifically in this
not of the return flight. The plane crashed while on route from Montreal to Los Angeles, case, the ticket between the passenger and the carrier. Examination of the petitioner's
killing Mrs. Silverberg. Her administratrix filed an action for damages against Air Canada ticket shows that his ultimate destination is San Francisco. Although the date of the return
in the U.S. District Court of California. The defendant moved to dismiss for lack of flight was left open, the contract of carriage between the parties indicates that NOA was
jurisdiction but the motion was denied thus: bound to transport the petitioner to San Francisco from Manila. Manila should therefore
be considered merely an agreed stopping place and not the destination.
. . . It is evident that the contract entered into between Air Canada and Mrs. Silverberg as
evidenced by the ticket booklets and the Flight Coupon No. 1, was a contract for Air The petitioner submits that the Butz case could not have overruled the Aanestad case
Canada to carry Mrs. Silverberg to Los Angeles on a certain flight, a certain time and a because these decisions are from different jurisdictions. But that is neither here nor there.
certain class, but that the time for her to return remained completely in her power. In fact, neither of these cases is controlling on this Court. If we have preferred the Butz
Coupon No. 2 was only a continuing offer by Air Canada to give her a ticket to return to case, it is because, exercising our own freedom of choice, we have decided that it
Montreal between certain dates. . . . represents the better, and correct, interpretation of Article 28(1).

The only conclusion that can be reached then, is that "the place of destination" as used in Article 1(2) also draws a distinction between a "destination" and an "agreed stopping
the Warsaw Convention is considered by both the Canadian C.T.C. and the United States place." It is the "destination" and not an "agreed stopping place" that controls for
C.A.B. to describe at least two "places of destination," viz., the "place of destination" of purposes of ascertaining jurisdiction under the Convention.
a particular flight either an "outward destination" from the "point of origin" or from the The contract is a single undivided operation, beginning with the place of departure and
"outward point of destination" to any place in Canada. ending with the ultimate destination. The use of the singular in this expression indicates
the understanding of the parties to the Convention that every contract of carriage has one
Thus the place of destination under Art. 28 and Art. 1 of the Warsaw Convention of the place of departure and one place of destination. An intermediate place where the carriage
flight on which Mrs. Silverberg was killed, was Los Angeles according to the ticket, which may be broken is not regarded as a "place of destination."
was the contract between the parties and the suit is properly filed in this Court which has
jurisdiction. D. The petitioner claims that the lower court erred in not ruling that under Art. 28(1)
of the Warsaw Convention, this case was properly filed in the Philippines because
The Petitioner avers that the present case falls squarely under the above ruling because the defendant has its domicile in the Philippines.
the date and time of his return flight to San Francisco were, as in the Aanestad case, also
The petitioner argues that the Warsaw Convention was originally written in French and the courts, in interpreting and applying the Warsaw Convention, have, not considered
that in interpreting its provisions, American courts have taken the broad view that the themselves bound to apply French law simply because the Convention is written in
French legal meaning must govern. 18 In French, he says, the "domicile" of the carrier French. . . .
means every place where it has a branch office.
We agree with these rulings.
The private respondent notes, however, that in Compagnie Nationale Air France vs.
Giliberto, 19 it was held: Notably, the domicile of the carrier is only one of the places where the complaint is
allowed to be filed under Article 28(1). By specifying the three other places, to wit, the
The plaintiffs' first contention is that Air France is domiciled in the United States. They say principal place of business of the carrier, its place of business where the contract was
that the domicile of a corporation includes any country where the airline carries on its made, and the place of destination, the article clearly meant that these three other places
business on "a regular and substantial basis," and that the United States qualifies under were not comprehended in the term "domicile."
such definition. The meaning of domicile cannot, however, be so extended. The domicile
of a corporation is customarily regarded as the place where it is incorporated, and the D. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the
courts have given the meaning to the term as it is used in article 28(1) of the Convention. Warsaw Convention does not apply to actions based on tort.
(See Smith v. Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452 F2d 798, 802; Nudo v. The petitioner alleges that the gravamen of the complaint is that private respondent acted
Societe Anonyme Belge d' Exploitation de la Navigation Aerienne Sabena Belgian World arbitrarily and in bad faith, discriminated against the petitioner, and committed a willful
Airlines (E.D. pa. 1962). 207 F. Supp, 191; Karfunkel v. Compagnie Nationale Air France misconduct because it canceled his confirmed reservation and gave his reserved seat to
(S.D.N.Y. 1977), 427 F. Suppl. 971, 974). Moreover, the structure of article 28(1), viewed someone who had no better right to it. In short. the private respondent committed a tort.
as a whole, is also incompatible with the plaintiffs' claim. The article, in stating that places Such allegation, he submits, removes the present case from the coverage of the Warsaw
of business are among the bases of the jurisdiction, sets out two places where an action Convention. He argues that in at least two American cases, 21 it was held that Article 28(1)
for damages may be brought; the country where the carrier's principal place of business of the Warsaw Convention does not apply if the action is based on tort.
is located, and the country in which it has a place of business through which the particular
contract in question was made, that is, where the ticket was bought, Adopting the This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article
plaintiffs' theory would at a minimum blur these carefully drawn distinctions by creating in question was interpreted thus:
a third intermediate category. It would obviously introduce uncertainty into litigation . . . Assuming for the present that plaintiff's claim is "covered" by Article 17, Article 24
under the article because of the necessity of having to determine, and without standards clearly excludes any relief not provided for in the Convention as modified by the
or criteria, whether the amount of business done by a carrier in a particular country was Montreal Agreement. It does not, however, limit the kind of cause of action on which
"regular" and "substantial." The plaintiff's request to adopt this basis of jurisdiction is in the relief may be founded; rather it provides that any action based on the injuries
effect a request to create a new jurisdictional standard for the Convention. specified in Article 17 "however founded," i.e., regardless of the type of action on which
Furthermore, it was argued in another case 20 that: relief is founded, can only be brought subject to the conditions and limitations
established by the Warsaw System. Presumably, the reason for the use of the phrase
. . . In arriving at an interpretation of a treaty whose sole official language is French, are "however founded," in two-fold: to accommodate all of the multifarious bases on which
we bound to apply French law? . . . We think this question and the underlying choice of a claim might be founded in different countries, whether under code law or common
law issue warrant some discussion law, whether under contract or tort, etc.; and to include all bases on which a claim
. . . We do not think this statement can be regarded as a conclusion that internal French seeking relief for an injury might be founded in any one country. In other words, if the
law is to be "applied" in the choice of law sense, to determine the meaning and scope of injury occurs as described in Article 17, any relief available is subject to the conditions
the Convention's terms. Of course, French legal usage must be considered in arriving at and limitations established by the Warsaw System, regardless of the particular cause of
an accurate English translation of the French. But when an accurate English translation is action which forms the basis on which a plaintiff could seek
made and agreed upon, as here, the inquiry into meaning does not then revert to a quest relief . . .
for a past or present French law to be "applied" for revelation of the proper scope of the
terms. It does not follow from the fact that the treaty is written in French that in The private respondent correctly contends that the allegation of willful misconduct
interpreting it, we are forever chained to French law, either as it existed when the treaty resulting in a tort is insufficient to exclude the case from the comprehension of the
was written or in its present state of development. There is no suggestion in the treaty Warsaw Convention. The petitioner has apparently misconstrued the import of Article
that French law was intended to govern the meaning of Warsaw's terms, nor have we 25(l) of the Convention, which reads as follows:
found any indication to this effect in its legislative history or from our study of its Art. 25 (1). The carrier shall not be entitled to avail himself of the provisions of this
application and interpretation by other courts. Indeed, analysis of the cases indicates that Convention which exclude or limit his liability. if the damage is caused by his willful
misconduct or by such default on his part as, in accordance with the law of the court to grant him the relief he seeks because we are limited by the provisions of the Warsaw
which the case is submitted, is considered to be equivalent to willful misconduct. Convention which continues to bind us. It may not be amiss to observe at this point that
the mere fact that he will have to litigate in the American courts does not necessarily
It is understood under this article that the court called upon to determine the applicability mean he will litigate in vain. The judicial system of that country in known for its sense of
of the limitation provision must first be vested with the appropriate jurisdiction. Article fairness and, generally, its strict adherence to the rule of law.
28(1) is the provision in the Convention which defines that jurisdiction. Article
22 23 merely fixes the monetary ceiling for the liability of the carrier in cases covered by WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.
the Convention. If the carrier is indeed guilty of willful misconduct, it can avail itself of the
limitations set forth in this article. But this can be done only if the action has first been
commenced properly under the rules on jurisdiction set forth in Article 28(1).

THE ISSUE OF PROTECTION TO MINORS

The petitioner calls our attention to Article 24 of the Civil Code, which states:
Art. 24. In all contractual property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the courts must be vigilant for his protection.

Application of this article to the present case is misplaced. The above provision assumes
that the court is vested with jurisdiction to rule in favor of the disadvantaged minor, As
already explained, such jurisdiction is absent in the case at bar.

CONCLUSION
A number of countries have signified their concern over the problem of citizens being
denied access to their own courts because of the restrictive provision of Article 28(1) of
the Warsaw Convention. Among these is the United States, which has proposed an
amendment that would enable the passenger to sue in his own domicile if the carrier does
business in that jurisdiction. The reason for this proposal is explained thus:

In the event a US citizen temporarily residing abroad purchases a Rome to New York to
Rome ticket on a foreign air carrier which is generally subject to the jurisdiction of the US,
Article 28 would prevent that person from suing the carrier in the US in a "Warsaw Case"
even though such a suit could be brought in the absence of the Convention.

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

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

The Court can only sympathize with the petitioner, who must prosecute his claims in the
United States rather than in his own country at least inconvenience. But we are unable to
LIABILITIES UNDER THE CONVENTION merely declare the carrier liable for damages in the enumerated cases, if the conditions therein
G.R. No. L-22425 August 31, 1965 specified are present. Neither said provisions nor others in the aforementioned Convention
NORTHWEST AIRLINES, INC., petitioner, vs. NICOLAS L. CUENCA and COURT OF APPEALS regulate or exclude liability for other breaches of contract by the carrier. Under petitioner's
(SPECIAL SIXTH DIVISION), respondents. theory, 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.
CONCEPCION, J.: The third assignment of error is based upon Medina vs. Cresencia (52 Off. Gaz. 4606),
This is an action for damages for alleged breach of contract. After appropriate proceedings the and Quijano vs. Philippine Air Lines (CA-G.R. No. 21804-R). Neither case is, however, in point,
Court of First Instance of Manila, in which the case was originally filed, rendered judgment aside from the fact that the latter is not controlling upon us. In the first case, this Court
sentencing defendant Northwest Airlines, Inc. — hereinafter referred to as petitioner — to pay eliminated a P10,000 award for nominal damages, because the aggrieved party had already
to plaintiff Cuenca — hereinafter referred to as respondent — the sum of P20,000 as moral been awarded P6,000 as compensatory damages, P30,000 as moral damages and P10,000 as
damages, together with the sum of P5,000 as exemplary damages, with legal interest thereon exemplary damages, and "nominal damages cannot co-exist with compensatory damages." In
from the date of the filing of complaint," December 12, 1959, "until fully paid, plus the further the case at bar, the Court of Appeals has adjudicated no such compensatory, moral and
sum of P2,000 as attorney's fees and expenses of litigation." On appeal taken by petitioner, exemplary damages to respondent herein.
said decision was affirmed by the Court of Appeals, except as to the P5,000.00 exemplary
damages, which was eliminated, and the P20,000.00 award for moral damages, which was Moreover, there are special reasons why the P20,000.00 award in favor of respondent herein
converted into nominal damages. The case is now before us on petition for review is justified, even if said award were characterized as nominal damages. When his contract of
by certiorari filed by petitioner, upon the ground that the lower court has erred: (1) in holding carriage was violated by the petitioner, respondent held the office of Commissioner of Public
that the Warsaw Convention of October 12, 1929, relative to transportation by air is not in Highways of the Republic of the Philippines. Having boarded petitioner's plane in Manila with
force in the Philippines; (2) in not holding that respondent has no cause of action; and (3) in a first class ticket to Tokyo, he was, upon arrival at Okinawa, transferred to the tourist class
awarding P20,000 as nominal damages. compartment. Although he revealed that he was traveling in his official capacity as official
delegate of the Republic to a conference in Tokyo, an agent of petitioner rudely compelled him
We deem it unnecessary to pass upon the first assignment of error because the same is the in the presence of other passengers to move, over his objection, to the tourist class, under
basis of the second assignment of error, and the latter is devoid of merit, even if we assumed threat of otherwise leaving him in Okinawa. In order to reach the conference on time,
the former to be well-taken. Indeed the second assignment of error is predicated upon Articles respondent had no choice but to obey.
17, 18 and 19 of said Convention, reading:
It is true that said ticket was marked "W/L," but respondent's attention was not called thereto.
ART. 17. The carrier shall be liable for damages sustained in the event of the death or wounding Much less was he advised that "W/L" meant "wait listed." Upon the other hand, having paid
of a passenger or any other bodily injury suffered by a passenger, if the accident which caused the first class fare in full and having been given first class accommodation as he took
the damage so sustained took place on board the aircraft or in the course of any of the petitioner's plane in Manila, respondent was entitled to believe that this was a confirmation
operations of embarking or disembarking. of his first class reservation and that he would keep the same until his ultimate destination,
Tokyo. Then, too, petitioner has not tried to explain or even alleged that the person to whom
ART. 18. (1) The carrier shall be liable for damage sustained in the event of the destruction or respondent's first class seat was given had a better right thereto. In other words, since the
loss of, or of damage to, any checked baggage, or any goods, if the occurrence which caused offense had been committed with full knowledge of the fact that respondent was an official
the damage so sustained took place during the transportation by air. representative of the Republic of the Philippines, the sum of P20,000 awarded as damages
(2) The transportation by air within the meaning of the preceding paragraph shall comprise may well be considered as merely nominal. At any rate, considering that petitioner's agent had
the period during which the baggage or goods are in charge of the carrier, whether in an airport acted in a wanton, reckless and oppressive manner, said award may also be considered as one
or on board an aircraft, or, in the case of a landing outside an airport, in any place whatsoever. for exemplary damages.
(3) The period of the transportation by air shall not extend to any transportation by land, by
sea, or by river performed outside an airport. If, however, such transportation takes place in WHEREFORE, the decision appealed from is hereby affirmed, with costs against the petitioner.
the performance of a contract for transportation by air, for the purpose of loading, delivery, It is so ordered.
or transhipment, any damage is presumed, subject to proof to the contrary, to have been the
result of an event which took place during the transportation by air.

ART. 19. The carrier shall be liable for damage occasioned by delay in the transportation by air
of passengers, baggage, or goods.
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event
of death of a passenger or injury suffered by him, or of destruction or loss of, or damage to
any checked baggage or any goods, or of delay in the transportation by air of passengers,
baggage or goods. This pretense is not borne out by the language of said Articles. The same
LIABILITIES UNDER THE CONVENTION
[G.R. No. 71929 : December 4, 1990.] After appropriate proceedings and trial, the Court of First Instance rendered judgment in
192 SCRA 9 Dr. Pablo's favor: 10
ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO, "(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND
Respondents. 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),
DECISION Philippine Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
NARVASA, J.: 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
Dr. Felipa Pablo — an associate professor in the University of the Philippines, 1 and a but also increased the award of nominal damages payable by ALITALIA to P40,000.00. 12
research grantee of the Philippine Atomic Energy Agency — was invited to take part at a That increase it justified as follows:
meeting of the Department of Research and Isotopes of the Joint FAO-IAEA Division of "Considering the circumstances, as found by the Trial Court and the negligence committed
Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. 2 She was by defendant, the amount of P20,000.00 under present inflationary conditions as
invited in view of her specialized knowledge in "foreign substances in food and the awarded . . . to the plaintiff as nominal damages, is too little to make up for the plaintiff's
agriculture environment." She accepted the invitation, and was then scheduled by the frustration and disappointment in not being able to appear at said conference; and for
organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating the embarrassment and humiliation she suffered from the academic community for
Vegetable Crops." 3 The program announced that she would be the second speaker on failure to carry out an official mission for which she was singled out by the faculty to
the first day of the meeting. 4 To fulfill this engagement, Dr. Pablo booked passage on represent her institution and the country. After weighing carefully all the considerations,
petitioner airline, ALITALIA. 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
She arrived in Milan on the day before the meeting in accordance with the itinerary and at P40,000,00."
time table set for her by ALITALIA. She was however told by the ALITALIA personnel there ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the
at Milan that her luggage was "delayed inasmuch as the same . . . (was) in one of the same points it tried to make before the Trial Court and the Intermediate Appellate Court,
succeeding flights from Rome to Milan." 5 Her luggage consisted of two (2) suitcases: one i.e.:
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 1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability; and
baggage on board. 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
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to
inquired about her suitcases in the domestic and international airports, and filled out the have refused to pass on all the assigned errors and in not stating the facts and the law on
forms prescribed by ALITALIA for people in her predicament. However, her baggage could which its decision is based. 15
not be found. Completely distraught and discouraged, she returned to Manila without
attending the meeting in Ispra, Italy. : AND 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
Once back in Manila she demanded that ALITALIA make reparation for the damages thus place on board the aircraft or in the course of its operations of embarking or
suffered by her. ALITALIA offered her "free airline tickets to compensate her for any disembarking; 17
alleged damages. . . ." She rejected the offer, and forthwith commenced the action 6 2) the destruction or loss of, or damage to, any registered luggage or goods, if the
which has given rise to the present appellate proceedings. 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
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy, In these cases, it is provided in the Convention that the "action for damages, however,
but only on the day after her scheduled appearance and participation at the U.N. meeting founded, can only be brought subject to conditions and limits set out" therein. 20
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 The Convention also purports to limit the liability of the carriers in the following manner:
restored to Prof. Pablo by ALITALIA until eleven (11) months later, and four (4) months
after institution of her action.
1. In the carriage of passengers the liability of the carrier for each passenger is limited to not borne out by the language of the Convention, as this Court has now, and at an earlier
the sum of 250,000 francs . . . Nevertheless, by special contract, the carrier and the time, pointed out. 25 Moreover, slight reflection readily leads to the conclusion that it
passenger may agree to a higher limit of liability.: nad should be deemed a limit of liability only in those cases where the cause of the death or
2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited injury to person, or destruction, loss or damage to property or delay in its transport is not
to a sum of 250 francs per kilogramme, unless the passenger or consignor has made, at attributable to or attended by any wilful misconduct, bad faith, recklessness, or otherwise
the time when the package was handed over to the carrier, a special declaration of improper conduct on the part of any official or employee for which the carrier is
interest in delivery at destination and has paid a supplementary sum if the case so responsible, and there is otherwise no special or extraordinary form of resulting injury.
requires. In that case the carrier will be liable to pay a sum not exceeding the declared The Convention's provisions, in short, do not "regulate or exclude liability for other
sum, unless he proves that sum is greater than the actual value to the consignor at breaches of contract by the carrier" 26 or misconduct of its officers and employees, or
delivery. 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
b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any comply with a contract of carriage, which is absurd." 27 Nor may it for a moment be
object contained therein, the weight to be taken into consideration in determining the supposed that if a member of the aircraft complement should inflict some physical injury
amount to which the carrier's liability is limited shall be only the total weight of the on a passenger, or maliciously destroy or damage the latter's property, the Convention
package or packages concerned. Nevertheless, when the loss, damage or delay of a part might successfully be pleaded as the sole gauge to determine the carrier's liability to the
of the registered baggage or cargo, or of an object contained therein, affects the value of passenger. Neither may the Convention be invoked to justify the disregard of some
other packages covered by the same baggage check or the same air way bill, the total extraordinary sort of damage resulting to a passenger and preclude recovery therefor
weight of such package or packages shall also be taken into consideration in determining beyond the limits set by said Convention. It is in this sense that the Convention has been
the limit of liability. applied, or ignored, depending on the peculiar facts presented by each case.:-cralaw

4. As regards objects of which the passenger takes charge himself the liability of the In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention
carrier is limited to 5000 francs per passenger. was applied as regards the limitation on the carrier's liability, there being a simple loss of
5. baggage without any otherwise improper conduct on the part of the officials or
4. The limits prescribed . . shall not prevent the court from awarding, in accordance with employees of the airline or other special injury sustained by the passenger.
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 On the other hand, the Warsaw Convention has invariably been held inapplicable, or as
of the damages awarded, excluding court costs and other expenses of the litigation, does not restrictive of the carrier's liability, where there was satisfactory evidence of malice or
not exceed the sum which the carrier has offered in writing to the plaintiff within a period bad faith attributable to its officers and employees. 29 Thus, an air carrier was sentenced
of six months from the date of the occurrence causing the damage, or before the to pay not only compensatory but also moral and exemplary damages, and attorney's
commencement of the action, if that is later. 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
The Warsaw Convention however denies to the carrier availment "of the provisions which seat to a white man, 31 or gave the seat of a passenger with a confirmed reservation to
exclude or limit his liability, if the damage is caused by his wilful misconduct or by such another, 32 or subjected a passenger to extremely rude, even barbaric treatment, as by
default on his part as, in accordance with the law of the court seized of the case, is calling him a "monkey." 33
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 In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the
Protocol amended the Warsaw Convention by removing the provision that if the airline employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to her,
took all necessary steps to avoid the damage, it could exculpate itself completely, 23 and belatedly, it is true, but without appreciable damage. The fact is, nevertheless, that some
declaring the stated limits of liability not applicable "if it is proved that the damage special species of injury was caused to Dr. Pablo because petitioner ALITALIA misplaced
resulted from an act or omission of the carrier, its servants or agents, done with intent to her baggage and failed to deliver it to her at the time appointed — a breach of its contract
cause damage or recklessly and with knowledge that damage would probably result." The of carriage, to be sure — with the result that she was unable to read the paper and make
same deletion was effected by the Montreal Agreement of 1966, with the result that a the scientific presentation (consisting of slides, autoradiograms or films, tables and
passenger could recover unlimited damages upon proof of wilful misconduct. 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
The Convention does not thus operate as an exclusive enumeration of the instances of an embarrassment and the disappointment and annoyance of the organizers. She felt, not
airline's liability, or as an absolute limit of the extent of that liability. Such a proposition is unreasonably, that the invitation for her to participate at the conference, extended by the
Joint FAO/IAEA Division of Atomic Energy in Food and Agriculture of the United Nations,
was a singular honor not only to herself, but to the University of the Philippines and the
country as well, an opportunity to make some sort of impression among her colleagues in
that field of scientific activity. The opportunity to claim this honor or distinction was
irretrievably lost to her because of Alitalia's breach of its contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and
anxiety, which gradually turned to panic and finally despair, from the time she learned
that her suitcases were missing up to the time when, having gone to Rome, she finally
realized that she would no longer be able to take part in the conference. As she herself
put it, she "was really shocked and distraught and confused."

Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed by the Warsaw Convention for delay in the
transport of baggage.

She is not, of course, entitled to be compensated for loss or damage to her luggage. As
already mentioned, her baggage was ultimately delivered to her in Manila, tardily but
safely. She is however entitled to nominal damages — which, as the law says, is
adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered — and this Court agrees that the
respondent Court of Appeals correctly set the amount thereof at P40,000.00. As to the
purely technical argument that the award to her of such nominal damages is precluded
by her omission to include a specific claim therefor in her complaint, it suffices to draw
attention to her general prayer, following her plea for moral and exemplary damages and
attorney's fees, "for such other and further just and equitable relief in the premises,"
which certainly is broad enough to comprehend an application as well for nominal
damages. Besides, petitioner should have realized that the explicit assertion, and proof,
that Dr. Pablo's right had been violated or invaded by it — absent any claim for actual or
compensatory damages, the prayer thereof having been voluntarily deleted by Dr. Pablo
upon the return to her of her baggage — necessarily raised the issue of nominal damages.:
rd

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

WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals,
it appearing on the contrary to be entirely in accord with the facts and the law, said
decision is hereby AFFIRMED, with costs against the petitioner.
SO ORDERED.
LIMITATIONS ON LIABILITY
G.R. No. 70462 August 11, 1988 On May 27, 1978, two hours before departure time plaintiff Pangan was at the
PAN AMERICAN WORLD AIRWAYS, INC., petitioner, defendant's ticket counter at the Manila International Airport and presented his ticket
vs. and checked in his two luggages, for which he was given baggage claim tickets Nos.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS 963633 and 963649 (Exhs. H and H-1). The two luggages contained the promotional and
and ARCHER PRODUCTIONS, respondents. advertising materials, the clutch bags, barong tagalog and his personal belongings.
Guerrero & Torres for petitioner. Subsequently, Pangan was informed that his name was not in the manifest and so he
Jose B. Layug for private respondents. could not take Flight No. 842 in the economy class. Since there was no space in the
economy class, plaintiff Pangan took the first class because he wanted to be on time in
CORTES, J.: Guam to comply with his commitment, paying an additional sum of $112.00.
Before the Court is a petition filed by an international air carrier seeking to limit its liability
for lost baggage, containing promotional and advertising materials for films to be When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did
exhibited in Guam and the U.S.A., clutch bags, barong tagalogs and personal belongings, not arrive with his flight, as a consequence of which his agreements with Slutchnick and
to the amount specified in the airline ticket absent a declaration of a higher valuation and Quesada for the exhibition of the films in Guam and in the United States were cancelled
the payment of additional charges. (Exh. L). Thereafter, he filed a written claim (Exh. J) for his missing luggages.

The undisputed facts of the case, as found by the trial court and adopted by the appellate Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary
court, are as follows: representations to protest as to the treatment which he received from the employees of
the defendant and the loss of his two luggages (Exh. M, O, Q, S, and T). Defendant Pan Am
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the assured plaintiff Pangan that his grievances would be investigated and given its immediate
plaintiffs Sotang Bastos and Archer Production while in San Francisco, Califonia and Primo consideration (Exhs. N, P and R). Due to the defendant's failure to communicate with
Quesada of Prime Films, San Francisco, California, entered into an agreement (Exh. A) Pangan about the action taken on his protests, the present complaint was filed by the
whereby the former, for and in consideration of the amount of US $2,500.00 per picture, plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]
bound himself to supply the latter with three films. 'Ang Mabait, Masungit at ang Pangit,' On the basis of these facts, the Court of First Instance found petitioner liable and rendered
'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United judgment as follows:
States. It was also their agreement that plaintiffs would provide the necessary
promotional and advertising materials for said films on or before May 30, 1978. (1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum
of P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum
On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted from December 6, 1978, when the complaint was filed, until the same is fully paid, plus
Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan likewise entered into a the further sum of P10,000.00 as attorney's fees;
verbal agreement with Slutchnick for the exhibition of two of the films above-mentioned (2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan
at the Hafa Adai Theater in Guam on May 30, 1978 for the consideration of P7,000.00 per the sum of P8,123.34, for additional actual damages, with interest thereon at the rate of
picture (p. 11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide the necessary 14% per annum from December 6, 1978, until the same is fully paid;
promotional and advertising materials for said films on or before the exhibition date on (3) Dismissing the counterclaim interposed by defendant Pan American World Airways,
May 30,1978. Inc.; and
By virtue of the above agreements, plaintiff Pangan caused the preparation of the (4) Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo,
requisite promotional handbills and still pictures for which he paid the total sum of pp. 106-107.]
P12,900.00 (Exhs. B, B-1, C and C1). Likewise in preparation for his trip abroad to comply
with his contracts, plaintiff Pangan purchased fourteen clutch bags, four capiz lamps and On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and F).
Hence, the instant recourse to this Court by petitioner.
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office,
through the Your Travel Guide, an economy class airplane ticket with No. 0269207406324 The petition was given due course and the parties, as required, submitted their respective
(Exh. G) for passage from Manila to Guam on defendant's Flight No. 842 of May 27,1978, memoranda. In due time the case was submitted for decision.
upon payment by said plaintiff of the regular fare. The Your Travel Guide is a tour and
travel office owned and managed by plaintiffs witness Mila de la Rama.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the Carriers assume no liability for fragile or perishable articles. Further information may be
following errors: obtained from the carrier. [Emphasis supplied.].
1. The respondent court erred as a matter of law in affirming the trial court's award of On the basis of the foregoing stipulations printed at the back of the ticket, petitioner
actual damages beyond the limitation of liability set forth in the Warsaw Convention and contends that its liability for the lost baggage of private respondent Pangan is limited to
the contract of carriage. $600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for his baggage and
2. The respondent court erred as a matter of law in affirming the trial court's award of pay the corresponding additional charges.
actual damages consisting of alleged lost profits in the face of this Court's ruling
concerning special or consequential damages as set forth in Mendoza v. To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R.
Philippine Airlines [90 Phil. 836 (1952).] No. L-40597, June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a
printed stipulation at the back of an airline ticket limiting the liability of the carrier for lost
The assigned errors shall be discussed seriatim baggage to a specified amount and ruled that the carrier's liability was limited to said
1. The airline ticket (Exh. "G') contains the following conditions: amount since the passenger did not declare a higher value, much less pay additional
NOTICE charges.
If the passenger's journey involves an ultimate destination or stop in a country other than We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the
the country of departure the Warsaw Convention may be applicable and the Convention Court, through Justice Melencio Herrera, stated:
governs and in most cases limits the liability of carriers for death or personal injury and in
respect of loss of or damage to baggage. See also notice headed "Advice to International Petitioner further contends that respondent Court committed grave error when it limited
Passengers on Limitation of Liability. PAL's carriage liability to the amount of P100.00 as stipulated at the back of the ticket....

CONDITIONS OF CONTRACT We agree with the foregoing finding. The pertinent Condition of Carriage printed at the
1. As used in this contract "ticket" means this passenger ticket and baggage check of which back of the plane ticket reads:
these conditions and the notices form part, "carriage" is equivalent to "transportation,"
"carrier" means all air carriers that carry or undertake to carry the passenger or his 8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damage baggage of the
baggage hereunder or perform any other service incidental to such air carriage. passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher
"WARSAW CONVENTION" means the convention for the Unification of Certain Rules valuation in excess of P100.00, but not in excess, however, of a total valuation of Pl,000.00
Relating to International Carriage by Air signed at Warsaw, 12th October 1929, or that and additional charges are paid pursuant to Carrier's tariffs.
Convention as amended at The Hague, 28th September 1955, whichever may be
applicable. There is no dispute that petitioner did not declare any higher value for his luggage, much
2. Carriage hereunder is subject to the rules and limitations relating to liability established less (lid he pay any additional transportation charge.
by the Warsaw Convention unless such carriage is not "international carriage" as defined But petitioner argues that there is nothing in the evidence to show that he had actually
by that Convention. entered into a contract with PAL limiting the latter's liability for loss or delay of the
3. To the extent not in conflict with the foregoing carriage and other services performed baggage of its passengers, and that Article 1750 * of the Civil Code has not been complied
by each carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, with.
(iii) carrier's conditions of carriage and related regulations which are made part hereof
(and are available on application at the offices of carrier), except in transportation While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is
between a place in the United States or Canada and any place outside thereof to which nevertheless bound by the provisions thereof. "Such provisions have been held to be a
tariffs in force in those countries apply. part of the contract of carriage, and valid and binding upon the passenger regardless of
xxx xxx xxx the latter's lack of knowledge or assent to the regulation." [Tannebaum v. National Airline,
Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691;
NOTICE OF BAGGAGE LIABILITY LIMITATIONS Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is "adhesion," in regards which it has been said that contracts of adhesion wherein one party
declared in advance and additional charges are paid: (1)for most international travel imposes a ready made form of contract on the other, as the plane ticket in the case at bar,
(including domestic portions of international journeys) to approximately $9.07 per pound are contracts not entirely prohibited. The one who adheres to the contract is in reality
($20.00 per kilo) for checked baggage and $400 per passenger for unchecked baggage: (2) free to reject it entirely; if he adheres, he gives his consent,[Tolentino, Civil Code, Vol. IV,
for travel wholly between U.S. points, to $750 per passenger on most carriers (a few have 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And
lower limits). Excess valuation may not be declared on certain types of valuable articles. as held in Randolph v. American Airlines, 103 Ohio App. 172,144 N.E. 2d 878; Rosenchein
v. Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract limiting liability upon an agreed We deem it unnecessary to pass upon the First assignment of error because the same is
valuation does not offend against the policy of the law forbidding one from contracting the basis of the second assignment of error, and the latter is devoid of merit, even if we
against his own negligence." assumed the former to be well taken. (Emphasis supplied.)

Considering, therefore, that petitioner had failed to declare a higher value for his baggage, Thus, it is quite clear that the Court never intended to, and in fact never did, rule against
he cannot be permitted a recovery in excess of P100.00.... the validity of provisions of the Warsaw Convention.
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099,
July 2, 1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's Consequently, by no stretch of the imagination may said quotation from Northwest be
liability to a specified amount was invalid, finds no application in the instant case, as the considered as supportive of the appellate court's statement that the provisions of the
ruling in said case was premised on the finding that the conditions printed at the back of Warsaw Convention limited a carrier's liability are against public policy.
the ticket were so small and hard to read that they would not warrant the presumption
that the passenger was aware of the conditions and that he had freely and fairly agreed 2. The Court finds itself unable to agree with the decision of the trial court, and affirmed
thereto. In the instant case, similar facts that would make the case fall under the exception by the Court of Appeals, awarding private respondents damages as and for lost profits
have not been alleged, much less shown to exist. when their contracts to show the films in Guam and San Francisco, California were
cancelled.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or
$600.00, as stipulated at the back of the ticket. The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be
any clearer:
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to ...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant herein, may
state that the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v. be held liable only for damages that were foreseen or might have been foreseen at the
Cuenca [G.R. No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to time the contract of transportation was entered into. The trial court correctly found that
apply the Warsaw Convention which limits a carrier's liability to US$9.07 per pound or the defendant company could not have foreseen the damages that would be suffered by
US$20.00 per kilo in cases of contractual breach of carriage ** is against public policy" is Mendoza upon failure to deliver the can of film on the 17th of September, 1948 for the
utterly misplaced, to say the least. In said case, while the Court, as quoted in the reason that the plans of Mendoza to exhibit that film during the town fiesta and his
Intermediate Appellate Court's decision, said: preparations, specially the announcement of said exhibition by posters and
advertisement in the newspaper, were not called to the defendant's attention.
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the
event of death of a passenger or injury suffered by him, or of destruction or loss of, or In our research for authorities we have found a case very similar to the one under
damages to any checked baggage or any goods, or of delay in the transportation by air of consideration. In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in
passengers, baggage or goods. This pretense is not borne out by the language of said Troy, New York, delivered motion picture films to the defendant Fargo, an express
Articles. The same merely declare the carrier liable for damages in enumerated cases, if company, consigned and to be delivered to him in Utica. At the time of shipment the
the conditions therein specified are present. Neither said provisions nor others in the attention of the express company was called to the fact that the shipment involved
aforementioned Convention regulate or exclude liability for other breaches of contract by motion picture films to be exhibited in Utica, and that they should be sent to their
the carrier. Under petitioner's theory, an air carrier would be exempt from any liability for destination, rush.
damages in the event of its absolute refusal, in bad faith, to comply with a contract of
carriage, which is absurd. There was delay in their delivery and it was found that the plaintiff because of his failure
to exhibit the film in Utica due to the delay suffered damages or loss of profits. But the
it prefaced this statement by explaining that: highest court in the State of New York refused to award him special damages. Said
appellate court observed:
...The case is now before us on petition for review by certiorari, upon the ground that the
lower court has erred: (1) in holding that the Warsaw Convention of October 12, 1929, But before defendant could be held to special damages, such as the present alleged loss
relative to transportation by air is not in force in the Philippines: (2) in not holding that of profits on account of delay or failure of delivery, it must have appeared that he had
respondent has no cause of action; and (3) in awarding P20,000 as nominal damages. notice at the time of delivery to him of the particular circumstances attending the
shipment, and which probably would lead to such special loss if he defaulted. Or, as the
rule has been stated in another form, in order to purpose on the defaulting party further
liability than for damages naturally and directly, i.e., in the ordinary course of things,
arising from a breach of contract, such unusual or extraordinary damages must have been
brought within the contemplation of the parties as the probable result of breach at the
time of or prior to contracting. Generally, notice then of any special circumstances which
will show that the damages to be anticipated from a breach would be enhanced has been
held sufficient for this effect.

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

Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a
showing that petitioner's attention was called to the special circumstances requiring
prompt delivery of private respondent Pangan's luggages, petitioner cannot be held liable
for the cancellation of private respondents' contracts as it could not have foreseen such
an eventuality when it accepted the luggages for transit.

The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid
down in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for
damages based on the finding that "[tlhe undisputed fact is that the contracts of the
plaintiffs for the exhibition of the films in Guam and California were cancelled because of
the loss of the two luggages in question." [Rollo, p. 36] The evidence reveals that the
proximate cause of the cancellation of the contracts was private respondent Pangan's
failure to deliver the promotional and advertising materials on the dates agreed upon. For
this petitioner cannot be held liable. Private respondent Pangan had not declared the
value of the two luggages he had checked in and paid additional charges. Neither was
petitioner privy to respondents' contracts nor was its attention called to the condition
therein requiring delivery of the promotional and advertising materials on or before a
certain date.

3. With the Court's holding that petitioner's liability is limited to the amount stated in the
ticket, the award of attorney's fees, which is grounded on the alleged unjustified refusal
of petitioner to satisfy private respondent's just and valid claim, loses support and must
be set aside.

WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate
Appellate Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay
private respondents damages in the amount of US $600.00 or its equivalent in Philippine
currency at the time of actual payment. SO ORDERED.
WHEN LIMITATIONS UNAVAILABLE all such amounts to earn interest at the rate of twelve (12%) percent per annum from February
G.R. No. 78656 August 30, 1988 15, 1980 when the complainant was filed until fully paid. Correspondingly, defendant's
TRANS WORLD AIRLINES, petitioner, counterclaim is dismissed. Costs against the defendant. SO ORDERED.
vs.
COURT OF APPEALS and ROGELIO A. VINLUAN, respondents. Not satisfied therewith, the TWA appealed to the Court of Appeals wherein in due course a
Guerrero & Torres Law Offices for petitioner. decision was rendered on May 27, 1987, 2 the dispositive part of which reads as follows:
Angara, Abello, Concepcion, Regala & Cruz for private respondent.
The Solicitor General for public respondent. WHEREFORE, the decision dated March 8, 1984 is hereby modified by (1) fixing the interest
which appellant must pay on the awards of moral and exemplary damages at six per cent (6%)
GANCAYCO, J.: per annum from the date of the decision a quo, March 8, 1984 until date of full payment and
Rogelio A. Vinluan is a practicing lawyer who had to travel in April, 1979 to several cities in (2) reducing the attorne's fees to P50,000.00 without interest, the rest of the decision is
Europe and the U.S. to attend to some matters involving several clients. He entered into a affirmed. Cost against appellant. SO ORDERED.
contract for air carriage for valuable consideration with Japan Airlines first class from Manila
to Tokyo, Moscow, Paris, Hamburg, Zurich, New York, Los Angeles, Honolulu and back to Hence, the herein petition for review.
Manila thru the same airline and other airlines it represents for which he was issued the
corresponding first class tickets for the entire trip. The theory of the petitioner is that because of maintenance problems of the aircraft on the
day of the flight, TWA Flight No. 41 was cancelled and a special Flight No. 6041 was organized
On April 18, 1979, while in Paris, he went to the office of Trans World Airlines (TWA) at the De to operate in lieu of Flight No. 41. 3 Flight No. 41 was to have utilized a Lockheed 1011 with 34
Gaulle Airport and secured therefrom confirmed reservation for first class accommodation on first class seats, but instead, a smaller Boeing 707 with only 16 first class seats was substituted
board its Flight No. 41 from New York to San Francisco which was scheduled to depart on April for use in Flight No. 6041. Hence, passengers who had first class reservations on Flight No. 41
20, 1979. A validated stub was attached to the New York-Los Angeles portion of his ticket had to be accommodated on Flight No. 6041 on a first-come, first-served basis. An
evidencing his confirmed reservation for said flight with the mark "OK " 1 On April 20, 1979, at announcement was allegedly made to all passengers in the entire terminal of the airport
about 8:00 o'clock A.M., Vinluan reconfirrred his reservation for first class accommodation on advising them to get boarding cards for Flight No. 6041 to San Francisco and that the first ones
board TWA Flight No. 41 with its New York office. He was advised that his reservation was getting them would get first preference as to seats in the aircraft. It denied declining to give
confirmed. He was even requested to indicate his seat preference on said flight on said any explanation for the downgrading of private respondent as well as the discourteous
scheduled date of departure of TWA Flight No. 41. Vinluan presented his ticket for check-in at attitude of Mr. Braam.
the counter of TWA at JFK International Airport at about 9:45 o'clock A.M., the scheduled time
of the departure being 11:00 o'clock A.M. He was informed that there was no first class seat On the other hand, private respondent asserts that he did not hear such announcement at the
available for him on the flight. He asked for an explanation but TWA employees on duty terminal and that he was among the early passengers to present his ticket for check-in only to
declined to give any reason. When he began to protest, one of the TWA employees, a certain be informed that there was no first class seat available for him and that he had to be
Mr. Braam, rudely threatened him with the words "Don't argue with me, I have a very bad downgraded.
temper."
The petitioner contends that the respondent Court of Appeals committed a grave abuse of
To be able to keep his schedule, Vinluan was compelled to take the economy seat offered to discretion in finding that petitioner acted maliciously and discriminatorily, and in granting
him and he was issued a refund application" as he was downgraded from first class to economy excessive moral and exemplary damages and attorney's fees.
class.
While waiting for the departure of Flight No. 41. Vinluan noticed that other passengers who The contention is devoid of merit. Private respondent had a first class ticket for Flight No. 41
were white Caucasians and who had checked-in later than him were given preference in some of petitioner from New York to San Francisco on April 20, 1979. It was twice confirmed and yet
first class seats which became available due to "no show" passengers. respondent unceremoniously told him that there was no first class seat available for him and
that he had to be downgraded to the economy class. As he protested, he was arrogantly
On February 15, 1980, Vinluan filed an action for damages against the TWA in the Court of First threatened by one Mr. Braam. Worst still, while he was waiting for the flight, he saw that
Instance of Rizal alleging breach of contract and bad faith. After trial on the merits, a decision several Caucasians who arrived much later were accommodated in first class seats when the
was rendered the dispositive part of which reads as follows: other passengers did not show up.

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant The discrimination is obvious and the humiliation to which private respondent was subjected
holding the latter liable to the for-mer for the amount representing the difference in fare is undeniable. Consequently, the award of moral and exemplary damages by the respondent
between first class and economy class accommodations on board Flight No. 6041 from New court is in order. 4
York to San Francisco, the amount of P500,000.00 as moral damages, the amount of Indeed, private respondent had shown that the alleged switch of planes from a Lockheed 1011
P300,000.00 as exemplary damages, and the amount of P100,000.00 as and for attorney's fees, to a smaller Boeing 707 was because there were only 138 confirmed economy class passengers
who could very well be accommodated in the smaller plane and not because of maintenance
problems.

Petitioner sacrificed the comfort of its first class passengers including private respondent
Vinluan for the sake of econonmy. Such inattention and lack of care for the interest of its
passengers who are entitled to its utmost consideration, particularly as to their convenience,
amount to bad faith which entitles the passenger to the award of moral damages. 5 More so in
this case where instead of courteously informing private respondent of his being downgraded
under the circumstances, he was angrily rebuffed by an employee of petitioner.

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

WHEREFORE, with the above modification reducing the moral and exemplary damages as
above-stated, the decision subject of the petition for review is AFFIRMED in all other respects,
without pronouncement as to costs in this instance.
SO ORDERED.
CONDITIONS ON IMPOSITION OF LIABILITY
G.R. Nos. 100374-75 November 27, 1992 On 26 March 1991, the Third Division of respondent Court of Appeals, applying the provisions
RUFINO Y. LUNA, RODOLFO J. ALONSO and PORFIRIO RODRIGUEZ, petitioners, vs. HON. of the Warsaw Convention and ruling that certiorari was not a substitute for a lost appeal,
COURT OF APPEALS, HON. CRISTINA M. ESTRADA in her capacity as Presiding Judge, RTC- dismissed the petition of Luna and Alonso,5 and on 7 June 1991 denied their motion for
Pasig, Br. 69, Metro Manila, HON. TERESITA D. CAPULONG in her capacity as Presiding reconsideration.6 Meanwhile, on 28 February 1991 the Seventh Division of respondent Court
Judge, RTC-Valenzuela, Br. 172, Metro Manila, and NORTHWEST AIRLINES, of Appeals, ruling that the questioned order of the trial court had already become final,
INC., respondents. similarly rejected the petition of Rodriquez, and on 6 June 1991 denied his motion for
reconsideration.7 Hence, this present recourse by petitioners Luna, Alonso and Rodriguez.
BELLOSILLO, J.:
This joint petition for review on certiorari originated from two (2) separate complaints arising Four (4) grounds are relied upon by petitioners which, nevertheless, may be reduced to three,
from an airline's delay in the delivery of the luggage of its passengers at their destination which namely: (a) that respondent appellate court disregarded Our ruling in Alitalia v. CA8 where We
respondent courts dismissed for lack of cause of action. The resulting issue is whether the said that "[t]he Convention does not thus operate as an exclusive enumeration of the instances
application of the Warsaw Convention operates to exclude the application of the provisions of of an airline's liability, or as an absolute limit of the extent of that liability;" 9 (b) that "petitions
the New Civil Code and the other statutes. to revoke orders and decisions may be entertained even after the time to appeal had elapsed,
in cases wherein the jurisdiction of the court had been exceeded;" 10 and, (c) that Art. 26 of
Briefly, the facts: On 19 May 1989, at around 8:00 in the morning, petitioners Rufino Luna, the Warsaw Convention which prescribes the reglementary period within which to file a claim
Rodolfo Alonso and Porfirio Rodriguez boarded Flight 020 of private respondent Northwest cannot be invoked if damage is caused by the carrier's willful misconduct, as provided by Art.
Airlines bound for Seoul, South Korea, to attend the four-day Rotary International Convention 25 of the same Warsaw Convention.
from the 21st to the 24th of May 1992. They checked in one (1) piece of luggage each. After Private respondent, on the other hand, argues that the dismissal order of respondent courts
boarding, however, due to engine trouble, they were asked to disembark and transfer to a had already become final after petitioners failed to either move for reconsideration or appeal
Korean Airlines plane scheduled to depart four (4) hours later. They were assured that their from the orders within the reglementary period, hence, certiorari is no substitute for a lost
baggage would be with them in the same flight. appeal.

When petitioners arrived in Seoul, they discovered that their personal belongings were Private respondent also maintains that it did not receive any demand letter from petitioners
nowhere to be found instead, they were allegedly flown to Seattle, U.S.A. It was not until four within the 21-day reglementary period, as provided in par. 7 of the Conditions of Contract
(4) days later, and only after repeated representations with Northwest Airlines personnel at appearing in the plane ticket. Since Art. 26. par. (4), of the Warsaw Convention provides that
the airport in Korea were petitioners able to retrieve their luggage. By then the Convention, "[f]ailing complaint within the times aforesaid, no action shall lie against the carrier, save in
which they were hardly able to attend, was almost over. the case of fraud on his part," the carrier consequently cannot be held liable for the delay in
the delivery of the baggage. In other words, non-observance of the prescribed period to file a
Petitioners Rufino Y. Luna and Rodolfo J. Alfonso assert that on 6 June 1989, or thirteen (13) claim bars claimant's action in court for recovery.
days after they recovered their luggage, they sent a written claim to private respondent's office
along Roxas Blvd., Ermita, Manila. Petitioner Porfirio Rodriquez, on his part, asserverates that Private respondent, citing foreign jurisprudence, 11 likewise submits that Art. 25, par. (1), of
he filed his claim on 13 June 1989. However, private respondent, is a letter of 21 June 1989, the Warsaw Convention which excludes or limits liability of common carriers if the damage is
disowned any liability for the delay and averred that it exerted "its best efforts to carry the caused by it willful misconduct, refers only to the monetary ceiling on damages found in Art.
passenger and baggage with reasonable dispatch."1 22.
Thus, on 14 July 1989, petitioners Luna and Alonso jointly filed a complaint for breach of
contract with damages before the Regional Trial Court of Pasig, Metro Manila, docketed as We find the appeal impressed with merit.
Civil Case No. 58390, subsequently raffled to Br. 69,2 while petitioner Rodriquez filed his own
complaint with the Regional Trial Court of Valenzuela, Metro Manila, docketed as Civil Case From the facts, it appears that private respondent Northwest Airlines indeed failed to deliver
No. 3194-V-89, assigned to Br. 172.3 However, upon motion of private respondent, both petitioners' baggage at the designated time and place. For this, all that respondent carrier
complaints were dismissed4 for lack of cause of action due to petitioners' failure to state in could say was that "[w]e exerted all efforts to comply with this condition of the
their respective complaints that they filed a prior claim with private respondent within the contract." 12 Hence, it is evident that petitioners suffered some special specie of injury for
prescribed period. which they should rightly be compensated. Private respondent cannot be allowed to escape
liability by seeking refuge in the argument that the trial courts' orders have attained finality
Petitioners Luna and Alonso then filed a petition for certiorari before the Court of Appeals to due to petitioners failure to move for reconsideration or to file a timely appeal therefrom.
set aside the order of respondent Judge Cristina M. Estrada granting private respondent's Technicalities should be disregarded if only to render to the respective parties that which is
motion to dismiss, while petitioner Rodriquez proceeded directly to this Court on certiorari for their due. Thus, although We have said that certiorari cannot be a substitute for a lapsed
the same purpose. However, in Our resolution of 26 February 1990, We referred his petition appeal, We have, time and again, likewise held that where a rigid application of that rule will
to the Court of Appeals. result in a manifest failure or miscarriage of justice, the rule may be relaxed. 13 Hence,
considering the broader and primordial interests of justice, particularly when there is grave
abuse of discretion, thus impelling occasional departure from the general rule that the
extraordinary writ of certiorari cannot substitute for a lost appeal, respondent appellate court
may legally entertain the special civil action for certiorari. 14
Previously, We ruled that the Warsaw Convention was a treaty commitment voluntarily
assumed by the Philippine government; consequently, it has the force and effect of law in this
country. 15 But, in the same token, We are also aware of jurisprudence that the Warsaw
Convention does not operate as an exclusive enumeration of the instances for declaring an
airline liable for breach of contract of carriage or as an absolute limit of the extent of that
liability. 16The Convention merely declares the carrier liable for damages in the enumerated
cases, if the conditions therein specified are present. 17 For sure, it does not regulate the
liability, much less exempt, the carrier for violating the rights of others which must simply be
respected in accordance with their contracts of carriage. The application of the Convention
must not therefore be construed to preclude the operation of the Civil Code and other
pertinent laws. In fact, in Alitalia v. IAC, 18 We awarded Dr. Felipa Pablo nominal damages, the
provisions of the Convention notwithstanding.
Hence, petitioners' alleged failure to file a claim with the common carrier as mandated by the
provisions of the Warsaw Convention should not be a ground for the summary dismissal of
their complaints since private respondent may still be held liable for breach of other relevant
laws which may provide a different period or procedure for filing a claim. Considering that
petitioners indeed filed a claim which private respondent admitted having received on 21 June,
1989, their demand may have very well been filed within the period prescribed by those
applicable laws. Consequently, respondent trial courts, as well as respondent appellate court,
were in error when they limited themselves to the provisions of the Warsaw Convention and
disregarding completely the provisions of the Civil Code.

We are unable to agree however with petitioners that Art. 25 of the Convention operations to
exclude the other provisions of the Convention if damage is caused by the common carrier's
willful misconduct. As correctly pointed out by private respondent, Art. 25 refers only to the
monetary ceiling on damages found in Art. 22 should damage be caused by the carrier's willful
misconduct. Hence, only the provisions of Art. 22 limiting the carrier's liability and imposing a
monetary ceiling in case of willful misconduct on its part that the carrier cannot invoke. 19 This
issue however has become academic in the light of our ruling that the trial courts erred in
dismissing petitioners' respective complaints.

We are not prepared to subscribed to petitioners' argument that the failure of private
respondent to deliver their luggage at the designated time and place amounted ipso facto to
willful misconduct. For willful misconduct to exist, there must be a showing that the acts
complained of were impelled by an intention to violate the law, or were in persistent disregard
of one's rights. It must be evidenced by a flagrantly or shamefully wrong or improper conduct.

WHEREFORE, the assailed decisions and resolutions of respondent Court of Appeals are
REVERSED and SET ASIDE. The complaints for breach of contract of carriage with damages in
Civil Case No. 3194-V-89 and Civil Case No. 58390 dismissed by respondent Judges Teresita D.
Capulong and Cristina M. Estrada, respectively, are ordered REINSTATED and given due course
until terminated. No costs. SO ORDERED.
CONDITIONS ON IMPOSITION OF LIABILITY Thus, petitioner filed the complaint for damages, praying that respondent be ordered to
EDNA DIAGO LHUILLIER, G.R. No. 171092 pay P5 million as moral damages, P2 million as nominal damages, P1 million as exemplary
Petitioner, damages, P300,000.00 as attorneys fees, P200,000.00 as litigation expenses, and cost of the
suit.
Present:
On May 16, 2005, summons, together with a copy of the complaint, was served on the
CARPIO, J., Chairperson, respondent through Violeta Echevarria, General Manager of Euro-Philippine Airline Services,
- versus - BRION, Inc.[3]
DEL CASTILLO,
ABAD, and On May 30, 2005, respondent, by way of special appearance through counsel, filed a Motion
PEREZ, JJ. to Dismiss[4] on grounds of lack of jurisdiction over the case and over the person of the
respondent. Respondent alleged that only the courts of London, United
BRITISH AIRWAYS, Promulgated: Kingdom or Rome, Italy, have jurisdiction over the complaint for damages pursuant to the
Respondent. March 15, 2010 Warsaw Convention,[5] Article 28(1) of which provides:
x-------------------------------------------------------------------x
An action for damages must be brought at the option of the plaintiff, either before the court
of domicile of the carrier or his principal place of business, or where he has a place of business
through which the contract has been made, or before the court of the place of destination.
DECISION
Thus, since a) respondent is domiciled in London; b) respondents principal place of business is
in London; c) petitioner bought her ticket in Italy (through Jeepney Travel S.A.S, in
DEL CASTILLO, J.: Rome);[6] and d) Rome, Italy is petitioners place of destination, then it follows that the
complaint should only be filed in the proper courts of London, United Kingdom or Rome, Italy.
Jurisdictio est potestas de publico introducta cum necessitate juris dicendi. Jurisdiction is a Likewise, it was alleged that the case must be dismissed for lack of jurisdiction over the person
power introduced for the public good, on account of the necessity of dispensing justice. [1] of the respondent because the summons was erroneously served on Euro-Philippine Airline
Services, Inc. which is not its resident agent in the Philippines.
Factual Antecedents
On June 3, 2005, the trial court issued an Order requiring herein petitioner to file her
On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint[2] for damages against Comment/Opposition on the Motion to Dismiss within 10 days from notice thereof, and for
respondent British Airways before the Regional Trial Court (RTC) of Makati City. She alleged respondent to file a Reply thereon.[7] Instead of filing a Comment/Opposition, petitioner filed
that on February 28, 2005, she took respondents flight 548 from London, United on June 27, 2005, an Urgent Ex-Parte Motion to Admit Formal Amendment to the Complaint
Kingdom to Rome, Italy. Once on board, she allegedly requested Julian Halliday (Halliday), one and Issuance of Alias Summons.[8] Petitioner alleged that upon verification with the Securities
of the respondents flight attendants, to assist her in placing her hand-carried luggage in the and Exchange Commission, she found out that the resident agent of respondent in
overhead bin. However, Halliday allegedly refused to help and assist her, and even the Philippines is Alonzo Q. Ancheta. Subsequently, on September 9, 2005, petitioner filed a
sarcastically remarked that If I were to help all 300 passengers in this flight, I would have a Motion to Resolve Pending Incident and Opposition to Motion to Dismiss.[9]
broken back!
Ruling of the Regional Trial Court
Petitioner further alleged that when the plane was about to land in Rome, Italy, another flight
attendant, Nickolas Kerrigan (Kerrigan), singled her out from among all the passengers in the On October 14, 2005, the RTC of Makati City, Branch 132, issued an Order [10] granting
business class section to lecture on plane safety. Allegedly, Kerrigan made her appear to the respondents Motion to Dismiss. It ruled that:
other passengers to be ignorant, uneducated, stupid, and in need of lecturing on the safety
rules and regulations of the plane. Affronted, petitioner assured Kerrigan that she knew the The Court sympathizes with the alleged ill-treatment suffered by the plaintiff. However, our
planes safety regulations being a frequent traveler. Thereupon, Kerrigan allegedly thrust his Courts have to apply the principles of international law, and are bound by treaty stipulations
face a mere few centimeters away from that of the petitioner and menacingly told her that entered into by the Philippines which form part of the law of the land. One of this is the
We dont like your attitude. Warsaw Convention. Being a signatory thereto, the Philippines adheres to its stipulations and
is bound by its provisions including the place where actions involving damages to plaintiff is to
Upon arrival in Rome, petitioner complained to respondents ground manager and demanded be instituted, as provided for under Article 28(1) thereof. The Court finds no justifiable reason
an apology. However, the latter declared that the flight stewards were only doing their job. to deviate from the indicated limitations as it will only run counter to the provisions of the
Warsaw Convention. Said adherence is in consonance with the comity of nations and deviation
from it can only be effected through proper denunciation as enunciated in the Santos case
(ibid). Since the Philippines is not the place of domicile of the defendant nor is it the The petition is without merit.
principal place of business, our courts are thus divested of jurisdiction over cases for
damages. Neither was plaintiffs ticket issued in this country nor was her The Warsaw Convention has the force and effect of law in this country.
destination Manila but Rome in Italy. It bears stressing however, that referral to the court of
proper jurisdiction does not constitute constructive denial of plaintiffs right to have access to It is settled that the Warsaw Convention has the force and effect of law in this
our courts since the Warsaw Convention itself provided for jurisdiction over cases arising from country. In Santos III v. Northwest Orient Airlines,[12] we held that:
international transportation. Said treaty stipulations must be complied with in good faith
following the time honored principle of pacta sunt servanda. The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules
Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It
The resolution of the propriety of service of summons is rendered moot by the Courts want of took effect on February 13, 1933. The Convention was concurred in by the Senate, through its
jurisdiction over the instant case. Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by
President Elpidio Quirino on October 13, 1950, and was deposited with the Polish government
WHEREFORE, premises considered, the present Motion to Dismiss is hereby GRANTED and this on November 9, 1950. The Convention became applicable to the Philippines on February 9,
case is hereby ordered DISMISSED. 1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201,
declaring our formal adherence thereto, to the end that the same and every article and clause
Petitioner filed a Motion for Reconsideration but the motion was denied in an thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the
Order[11] dated January 4, 2006. citizens thereof.

Petitioner now comes directly before us on a Petition for Review on Certiorari on pure The Convention is thus a treaty commitment voluntarily assumed by the Philippine
questions of law, raising the following issues: government and, as such, has the force and effect of law in this country. [13]
Issues

I. WHETHER X X X PHILIPPINE COURTS HAVE JURISDICTION The Warsaw Convention applies because the air travel, where the alleged tortious conduct
OVER A TORTIOUS CONDUCT COMMITTED AGAINST A FILIPINO CITIZEN AND RESIDENT BY occurred, was between the United Kingdom and Italy, which are both signatories to
AIRLINE PERSONNEL OF A FOREIGN CARRIER TRAVELLING BEYOND THE TERRITORIAL LIMIT OF the Warsaw Convention.
ANY FOREIGN COUNTRY; AND THUS IS OUTSIDE THE AMBIT OF THE WARSAW CONVENTION.

II. WHETHER X X X RESPONDENT AIR CARRIER OF Article 1 of the Warsaw Convention provides:
PASSENGERS, IN FILING ITS MOTION TO DISMISS BASED ON LACK OF JURISDICTION OVER THE
SUBJECT MATTER OF THE CASE AND OVER ITS PERSON MAY BE DEEMED AS HAVING IN FACT 1. This Convention applies to all international carriage of persons, luggage or goods
AND IN LAW SUBMITTED ITSELF TO THE JURISDICTION OF THE LOWER COURT, ESPECIALLY SO, performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed
WHEN THE VERY LAWYER ARGUING FOR IT IS HIMSELF THE RESIDENT AGENT OF THE CARRIER. by an air transport undertaking.

Petitioners Arguments 2. For the purposes of this Convention the expression "international carriage" means any
carriage in which, according to the contract made by the parties, the place of departure and
Petitioner argues that her cause of action arose not from the contract of carriage, but from the place of destination, whether or not there be a break in the carriage or a transhipment, are
the tortious conduct committed by airline personnel of respondent in violation of the situated either within the territories of two High Contracting Parties, or within the territory of
provisions of the Civil Code on Human Relations. Since her cause of action was not predicated a single High Contracting Party, if there is an agreed stopping place within a territory subject
on the contract of carriage, petitioner asserts that she has the option to pursue this case in to the sovereignty, suzerainty, mandate or authority of another Power, even though that
this jurisdiction pursuant to Philippine laws. Power is not a party to this Convention. A carriage without such an agreed stopping place
between territories subject to the sovereignty, suzerainty, mandate or authority of the same
Respondents Arguments High Contracting Party is not deemed to be international for the purposes of this Convention.
(Emphasis supplied)
In contrast, respondent maintains that petitioners claim for damages fell within the ambit of
Article 28(1) of the Warsaw Convention. As such, the same can only be filed before the courts Thus, when the place of departure and the place of destination in a contract of carriage are
of London, United Kingdom or Rome, Italy. situated within the territories of two High Contracting Parties, said carriage is deemed an
international carriage. The High Contracting Parties referred to herein were the signatories to
Our Ruling the Warsaw Convention and those which subsequently adhered to it.[14]
 United States, that place being the (1) domicile of the Northwest Orient Airlines; (2) principal
In the case at bench, petitioners place of departure was London, United Kingdom while her office of the carrier; (3) place where contract had been made (San Francisco); and (4) place of
place of destination was Rome, Italy.[15] Both the United Kingdom[16] and Italy[17] signed and destination (San Francisco).[21]
ratified the Warsaw Convention. As such, the transport of the petitioner is deemed to be an
international carriage within the contemplation of the Warsaw Convention. We further held that Article 28(1) of the Warsaw Convention is jurisdictional in
character. Thus:
Since the Warsaw Convention applies in the instant case, then the jurisdiction over the
subject matter of the action is governed by the provisions of the Warsaw Convention. A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and
not a venue provision. First, the wording of Article 32, which indicates the places where the
action for damages "must" be brought, underscores the mandatory nature of Article 28(1).
Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages Second, this characterization is consistent with one of the objectives of the Convention, which
before is to "regulate in a uniform manner the conditions of international transportation by air." Third,
1. the court where the carrier is domiciled; the Convention does not contain any provision prescribing rules of jurisdiction other than
2. the court where the carrier has its principal place of business; Article 28(1), which means that the phrase "rules as to jurisdiction" used in Article 32 must
3. the court where the carrier has an establishment by which the contract has been made; or refer only to Article 28(1). In fact, the last sentence of Article 32 specifically deals with the
4. the court of the place of destination. exclusive enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the
will of the parties regardless of the time when the damage occurred.
In this case, it is not disputed that respondent is a British corporation domiciled
in London, United Kingdom with London as its principal place of business. Hence, under the xxxx
first and second jurisdictional rules, the petitioner may bring her case before the courts
of London in the United Kingdom. In the passenger ticket and baggage check presented by In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on
both the petitioner and respondent, it appears that the ticket was issued a dual concept. Jurisdiction in the international sense must be established in accordance with
in Rome, Italy. Consequently, under the third jurisdictional rule, the petitioner has the option Article 28(1) of the Warsaw Convention, following which the jurisdiction of a particular court
to bring her case before the courts of Rome in Italy. Finally, both the petitioner and must be established pursuant to the applicable domestic law. Only after the question of which
respondent aver that the place of destination is Rome, Italy, which is properly designated given court has jurisdiction is determined will the issue of venue be taken up. This second question
the routing presented in the said passenger ticket and baggage check. Accordingly, petitioner shall be governed by the law of the court to which the case is submitted.[22]
may bring her action before the courts of Rome, Italy. We thus find that the RTC of Makati
correctly ruled that it does not have jurisdiction over the case filed by the petitioner. Contrary to the contention of petitioner, Santos III v. Northwest Orient Airlines[23] is analogous
to the instant case because (1) the domicile of respondent is London, United Kingdom; [24] (2)
Santos III v. Northwest Orient Airlines[18] applies in this case. the principal office of respondent airline is likewise in London, United Kingdom;[25] (3) the ticket
was purchased in Rome, Italy;[26] and (4) the place of destination is Rome, Italy.[27] In addition,
petitioner based her complaint on Article 2176[28] of the Civil Code on quasi-delict and Articles
Petitioner contends that Santos III v. Northwest Orient Airlines[19] cited by the trial court is 19[29] and 21[30] of the Civil Code on Human Relations. In Santos III v. Northwest Orient
inapplicable to the present controversy since the facts thereof are not similar with the instant Airlines,[31] Augusto Santos III similarly posited that Article 28 (1) of the Warsaw Convention
case. did not apply if the action is based on tort. Hence, contrary to the contention of the petitioner,
the factual setting of Santos III v. Northwest Orient Airlines[32] and the instant case are parallel
We are not persuaded. on the material points.

In Santos III v. Northwest Orient Airlines,[20] Augusto Santos III, a resident of the Philippines, Tortious conduct as ground for the petitioners complaint is within the purview of
purchased a ticket from Northwest Orient Airlines in San Francisco, for transport between San the Warsaw Convention.
Francisco and Manila via Tokyo and back to San Francisco. He was wait-listed in
the Tokyo to Manila segment of his ticket, despite his prior reservation. Contending that Petitioner contends that in Santos III v. Northwest Orient Airlines,[33] the cause of action was
Northwest Orient Airlines acted in bad faith and discriminated against him when it canceled based on a breach of contract while her cause of action arose from the tortious conduct of the
his confirmed reservation and gave his seat to someone who had no better right to it, Augusto airline personnel and violation of the Civil Code provisions on Human Relations.[34] In addition,
Santos III sued the carrier for damages before the RTC. Northwest Orient Airlines moved to she claims that our pronouncement in Santos III v. Northwest Orient Airlines[35] that the
dismiss the complaint on ground of lack of jurisdiction citing Article 28(1) of the Warsaw allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the
Convention. The trial court granted the motion which ruling was affirmed by the Court of comprehension of the Warsaw Convention, is more of an obiter dictum rather than
Appeals. When the case was brought before us, we denied the petition holding that under the ratio decidendi.[36] She maintains that the fact that said acts occurred aboard a plane is
Article 28(1) of the Warsaw Convention, Augusto Santos III must prosecute his claim in the merely incidental, if not irrelevant.[37]
 grounds for the dismissal of the action under Rule 16, he is not deemed to be in estoppel or to
We disagree with the position taken by the petitioner. Black defines obiter dictum as "an have waived his objection to the jurisdiction over his person.[46]
opinion entirely unnecessary for the decision of the case" and thus "are not binding as
precedent."[38] In Santos III v. Northwest Orient Airlines,[39] Augusto Santos III categorically put This issue has been squarely passed upon in the recent case of Garcia
in issue the applicability of Article 28(1) of the Warsaw Convention if the action is based on v. Sandiganbayan,[47] where we reiterated our ruling in La Naval Drug Corporation v. Court of
tort. Appeals[48] and elucidated thus:

In the said case, we held that the allegation of willful misconduct resulting in a tort is Special Appearance to Question a Courts Jurisdiction Is Not
insufficient to exclude the case from the realm of the Warsaw Convention. In fact, our ruling Voluntary Appearance
that a cause of action based on tort did not bring the case outside the sphere of the Warsaw
Convention was our ratio decidendi in disposing of the specific issue presented by Augusto The second sentence of Sec. 20, Rule 14 of the Revised Rules of Civil Procedure clearly
Santos III. Clearly, the contention of the herein petitioner that the said ruling is an obiter provides:
dictum is without basis.
Sec. 20. Voluntary appearance. The defendants voluntary appearance in the action shall be
Relevant to this particular issue is the case of Carey v. United Airlines,[40] where the passenger equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside
filed an action against the airline arising from an incident involving the former and the airlines from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary
flight attendant during an international flight resulting to a heated exchange which included appearance.
insults and profanity. The United States Court of Appeals (9th Circuit) held that the passenger's
action against the airline carrier arising from alleged confrontational incident between Thus, a defendant who files a motion to dismiss, assailing the jurisdiction of the court over his
passenger and flight attendant on international flight was governed exclusively by the Warsaw person, together with other grounds raised therein, is not deemed to have appeared
Convention, even though the incident allegedly involved intentional misconduct by the flight voluntarily before the court. What the rule on voluntary appearance the first sentence of the
attendant.[41] above-quoted rule means is that the voluntary appearance of the defendant in court is without
qualification, in which case he is deemed to have waived his defense of lack of jurisdiction over
In Bloom v. Alaska Airlines,[42] the passenger brought nine causes of action against the airline his person due to improper service of summons.
in the state court, arising from a confrontation with the flight attendant during an international
flight to Mexico. The United States Court of Appeals (9th Circuit) held that the Warsaw The pleadings filed by petitioner in the subject forfeiture cases, however, do not show that she
Convention governs actions arising from international air travel and provides the exclusive voluntarily appeared without qualification. Petitioner filed the following pleadings in
remedy for conduct which falls within its provisions. It further held that the said Convention Forfeiture I: (a) motion to dismiss; (b) motion for reconsideration and/or to admit answer; (c)
created no exception for an injury suffered as a result of intentional conduct [43] which in that second motion for reconsideration; (d) motion to consolidate forfeiture case with plunder
case involved a claim for intentional infliction of emotional distress. case; and (e) motion to dismiss and/or to quash Forfeiture I. And in Forfeiture II: (a) motion to
dismiss and/or to quash Forfeiture II; and (b) motion for partial reconsideration.
It is thus settled that allegations of tortious conduct committed against an airline passenger
during the course of the international carriage do not bring the case outside the ambit of the The foregoing pleadings, particularly the motions to dismiss, were filed by petitioner solely for
Warsaw Convention. special appearance with the purpose of challenging the jurisdiction of the SB over her person
and that of her three children. Petitioner asserts therein that SB did not acquire jurisdiction
over her person and of her three children for lack of valid service of summons through
Respondent, in seeking remedies from the trial court through special appearance of counsel, improvident substituted service of summons in both Forfeiture I and Forfeiture II. This stance
is not deemed to have voluntarily submitted itself to the jurisdiction of the trial court. the petitioner never abandoned when she filed her motions for reconsideration, even with a
prayer to admit their attached Answer Ex Abundante Ad Cautelam dated January 22,
2005 setting forth affirmative defenses with a claim for damages. And the other subsequent
Petitioner argues that respondent has effectively submitted itself to the jurisdiction of the trial pleadings, likewise, did not abandon her stance and defense of lack of jurisdiction due to
court when the latter stated in its Comment/Opposition to the Motion for Reconsideration improper substituted services of summons in the forfeiture cases. Evidently, from the
that Defendant [is at a loss] x x x how the plaintiff arrived at her erroneous impression that it foregoing Sec. 20, Rule 14 of the 1997 Revised Rules on Civil Procedure, petitioner and her
is/was Euro-Philippines Airlines Services, Inc. that has been making a special appearance since sons did not voluntarily appear before the SB constitutive of or equivalent to service of
x x x British Airways x x x has been clearly specifying in all the pleadings that it has filed with summons.
this Honorable Court that it is the one making a special appearance.[44]
In refuting the contention of petitioner, respondent cited La Naval Drug Corporation v. Court Moreover, the leading La Naval Drug Corp. v. Court of Appeals applies to the instant case. Said
of Appeals[45] where we held that even if a party challenges the jurisdiction of the court over case elucidates the current view in our jurisdiction that a special appearance before the
his person, as by reason of absence or defective service of summons, and he also invokes other courtchallenging its jurisdiction over the person through a motion to dismiss even if
the movant invokes other groundsis not tantamount to estoppel or a waiver by the movant of
his objection to jurisdiction over his person; and such is not constitutive of a voluntary
submission to the jurisdiction of the court.

Thus, it cannot be said that petitioner and her three children voluntarily appeared before the
SB to cure the defective substituted services of summons. They are, therefore,
not estopped from questioning the jurisdiction of the SB over their persons nor are they
deemed to have waived such defense of lack of jurisdiction. Consequently, there being no valid
substituted services of summons made, the SB did not acquire jurisdiction over the persons of
petitioner and her children. And perforce, the proceedings in the subject forfeiture cases,
insofar as petitioner and her three children are concerned, are null and void for lack of
jurisdiction. (Emphasis supplied)

In this case, the special appearance of the counsel of respondent in filing the Motion to Dismiss
and other pleadings before the trial court cannot be deemed to be voluntary submission to
the jurisdiction of the said trial court. We hence disagree with the contention of the petitioner
and rule that there was no voluntary appearance before the trial court that could
constitute estoppel or a waiver of respondents objection to jurisdiction over its person.

WHEREFORE, the petition is DENIED. The October 14, 2005 Order of

the Regional Trial Court of Makati City, Branch 132, dismissing the complaint for lack of
jurisdiction, is AFFIRMED.
CONDITIONS ON IMPOSITION OF LIABILITY without PALs endorsement, PAL would not pay Singapore Airlines for their passage. Private
PHILIPPINE AIRLINES, INC., G.R. No. 149547 respondent tried to contact PALs office at the airport, only to find out that it was closed.[5]
Petitioner,
Present: Stranded at the airport in Singapore and left with no recourse, private respondent was in panic
and at a loss where to go; and was subjected to humiliation, embarrassment, mental anguish,
YNARES-SANTIAGO, J., serious anxiety, fear and distress. Eventually, private respondent and his companions were
- versus - Chairperson, forced to purchase tickets from GarudaAirlines and board its last flight bound
AUSTRIA-MARTINEZ, for Jakarta. When they arrived in Jakarta at about 12:00 oclock midnight, the party who was
CHICO-NAZARIO, supposed to fetch them from the airport had already left and they had to arrange for their
NACHURA, and transportation to the hotel at a very late hour. After the series of nerve-wracking experiences,
HON. ADRIANO SAVILLO, Presiding Judge REYES, JJ. private respondent became ill and was unable to participate in the tournament. [6]
of RTC Branch 30 , Iloilo City, and
SIMPLICIO GRIO, Promulgated: Upon his return to the Philippines, private respondent brought the matter to the attention of
Respondents. PAL. He sent a demand letter to PAL on 20 December 1993 and another to Singapore Airlines
July 4, 2008 on 21 March 1994. However, both airlines disowned liability and blamed each other for the
x-------------------------------------------------x fiasco. On 15 August 1997, private respondent filed a Complaint for Damages before the RTC
DECISION docketed as Civil Case No. 23773, seeking compensation for moral damages in the amount
CHICO-NAZARIO, J.: of P1,000,000.00 and attorneys fees.[7]

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Instead of filing an answer to private respondents Complaint, PAL filed a Motion to
Decision[1] dated 17 August 2001, rendered by the Court of Appeals in CA-G.R. SP No. 48664, Dismiss[8] dated 18 September 1998 on the ground that the said complaint was barred on the
affirming in toto the Order[2] dated 9 June 1998, of Branch 30 of the Regional Trial Court (RTC) ground of prescription under Section 1(f) of Rule 16 of the Rules of Court. [9] PAL argued that
of Iloilo City, dismissing the Motion to Dismiss filed by petitioner Philippine Airlines Inc. (PAL) the Warsaw Convention,[10]particularly Article 29 thereof,[11] governed this case, as it provides
in the case entitled, Simplicio Grio v. Philippine Airlines, Inc. and Singapore Airlines, docketed that any claim for damages in connection with the international transportation of persons is
as Civil Case No. 23773. subject to the prescription period of two years. Since the Complaint was filed on 15 August
1997, more than three years after PAL received the demand letter on 25 January 1994, it was
PAL is a corporation duly organized under Philippine law, engaged in the business of providing already barred by prescription.
air carriage for passengers, baggage and cargo.[3]
On 9 June 1998, the RTC issued an Order[12] denying the Motion to Dismiss. It maintained that
Public respondent Hon. Adriano Savillo is the presiding judge of Branch 30 of the Iloilo RTC, the provisions of the Civil Code and other pertinent laws of the Philippines, not the Warsaw
where Civil Case No. 23773 was filed; while private respondent Simplicio Grio is the plaintiff in Convention, were applicable to the present case.
the aforementioned case.
The Court of Appeals, in its assailed Decision dated 17 August 2001, likewise dismissed the
The facts are undisputed. Petition for Certiorari filed by PAL and affirmed the 9 June 1998 Order of the RTC. It
pronounced that the application of the Warsaw Convention must not be construed to preclude
Private respondent was invited to participate in the 1993 ASEAN Seniors Annual Golf the application of the Civil Code and other pertinent laws. By applying Article 1144 of the Civil
Tournament held in Jakarta, Indonesia. He and several companions decided to purchase their Code,[13] which allowed for a ten-year prescription period, the appellate court declared that
respective passenger tickets from PAL with the following points of passage: MANILA- the Complaint filed by private respondent should not be dismissed.[14]
SINGAPORE-JAKARTA-SINGAPORE-MANILA. Private respondent and his companions were
made to understand by PAL that its plane would take them from Manila to Singapore, while Hence, the present Petition, in which petitioner raises the following issues:
Singapore Airlines would take them from Singapore to Jakarta.[4]
1. THE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO THE PETITION AS
On 3 October 1993, private respondent and his companions took the PAL flight RESPONDENT JUDGE COMMITED GRAVE ABUSE OF DISCRETION AMOUNTING TO
to Singapore and arrived at about 6:00 oclock in the evening. Upon their arrival, they LACK OF JURSIDICTION IN DENYING PALS MOTION TO DISMISS.
proceeded to the Singapore Airlines office to check-in for their flight to Jakarta scheduled 2. THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF
at 8:00 oclock in the same evening. Singapore Airlines rejected the tickets of private THE WARSAW CONVENTION DESPITE THE FACT THAT GRIOS CAUSE OF ACTION
respondent and his group because they were not endorsed by PAL. It was explained to private AROSE FROM A BREACH OF CONTRACT FOR INTERNATIONAL AIR TRANSPORT.
respondent and his group that if Singapore Airlines honored the tickets
 3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE COMPLAINT FILED BY disadvantage, an act punishable under the United States laws, then the plaintiff may claim
GRIO BEYOND THE TWO (2)-YEAR PERIOD PROVIDED UNDER purely nominal compensatory damages for humiliation and hurt feelings, which are not
THE WARSAW CONVENTION IS ALREADY BARRED BY PRESCRIPTION.[15] provided for by the Warsaw Convention. In another case, Wolgel v. Mexicana Airlines,[20] the
court pronounced that actions for damages for the bumping off itself, rather than the
The petition is without merit. incidental damages due to the delay, fall outside the Warsaw Convention and do not prescribe
in two years.
In determining whether PALs Motion to Dismiss should have been granted by the trial court, it
must be ascertained if all the claims made by the private respondent in his Complaint are In the Petition at bar, private respondents Complaint alleged that both PAL and Singapore
covered by the Warsaw Convention, which effectively bars all claims made outside the two- Airlines were guilty of gross negligence, which resulted in his being subjected to humiliation,
year prescription period provided under Article 29 thereof. If the Warsaw Convention covers embarrassment, mental anguish, serious anxiety, fear and distress.[21] The emotional harm
all of private respondents claims, then Civil Case No. 23773 has already prescribed and should suffered by the private respondent as a result of having been unreasonably and unjustly
therefore be dismissed. On the other hand, if some, if not all, of respondents claims are outside prevented from boarding the plane should be distinguished from the actual damages which
the coverage of the Warsaw Convention, the RTC may still proceed to hear the case. resulted from the same incident. Under the Civil Code provisions on tort,[22] such emotional
harm gives rise to compensation where gross negligence or malice is proven.
The Warsaw Convention applies to all international transportation of persons, baggage or
goods performed by any aircraft for hire. It seeks to accommodate or balance the interests of The instant case is comparable to the case of Lathigra v. British Airways.[23]
passengers seeking recovery for personal injuries and the interests of air carriers seeking to
limit potential liability. It employs a scheme of strict liability favoring passengers and imposing In Lathigra, it was held that the airlines negligent act of reconfirming the passengers
damage caps to benefit air carriers.[16] The cardinal purpose of the Warsaw Convention is to reservation days before departure and failing to inform the latter that the flight had already
provide uniformity of rules governing claims arising from international air travel; thus, it been discontinued is not among the acts covered by the Warsaw Convention, since the alleged
precludes a passenger from maintaining an action for personal injury damages under local law negligence did not occur during the performance of the contract of carriage but, rather, days
when his or her claim does not satisfy the conditions of liability under the Convention. [17] before the scheduled flight.

Article 19 of the Warsaw Convention provides for liability on the part of a carrier for damages In the case at hand, Singapore Airlines barred private respondent from boarding the Singapore
occasioned by delay in the transportation by air of passengers, baggage or goods. Article 24 Airlines flight because PAL allegedly failed to endorse the tickets of private respondent and his
excludes other remedies by further providing that (1) in the cases covered by articles 18 and companions, despite PALs assurances to respondent that Singapore Airlines had already
19, any action for damages, however founded, can only be brought subject to the conditions confirmed their passage. While this fact still needs to be heard and established by adequate
and limits set out in this convention. Therefore, a claim covered by the Warsaw Convention proof before the RTC, an action based on these allegations will not fall under the Warsaw
can no longer be recovered under local law, if the statute of limitations of two years has Convention, since the purported negligence on the part of PAL did not occur during the
already lapsed. performance of the contract of carriage but days before the scheduled flight. Thus, the present
action cannot be dismissed based on the statute of limitations provided under Article 29 of the
Nevertheless, this Court notes that jurisprudence in the Philippines and the United States also Warsaw Convention.
recognizes that the Warsaw Convention does not exclusively regulate the relationship
between passenger and carrier on an international flight. This Court finds that the present case Had the present case merely consisted of claims incidental to the airlines delay in transporting
is substantially similar to cases in which the damages sought were considered to be outside their passengers, the private respondents Complaint would have been time-barred under
the coverage of the Warsaw Convention. Article 29 of the Warsaw Convention. However, the present case involves a special species of
injury resulting from the failure of PAL and/or Singapore Airlines to transport private
In United Airlines v. Uy,[18] this Court distinguished between the (1) damage to the passengers respondent from Singapore to Jakarta the profound distress, fear, anxiety and humiliation that
baggage and (2) humiliation he suffered at the hands of the airlines employees. The first cause private respondent experienced when, despite PALs earlier assurance that Singapore Airlines
of action was covered by the Warsaw Convention which prescribes in two years, while the confirmed his passage, he was prevented from boarding the plane and he faced the daunting
second was covered by the provisions of the Civil Code on torts, which prescribes in four years. possibility that he would be stranded in Singapore Airport because the PAL office was already
closed.
Similar distinctions were made in American jurisprudence. In Mahaney v. Air France,[19] a
passenger was denied access to an airline flight between New York and Mexico, despite the These claims are covered by the Civil Code provisions on tort, and not within the purview of
fact that she held a confirmed reservation. The court therein ruled that if the plaintiff were to the Warsaw Convention. Hence, the applicable prescription period is that provided under
claim damages based solely on the delay she experienced for instance, the costs of renting a Article 1146 of the Civil Code:
van, which she had to arrange on her own as a consequence of the delay the complaint would
be barred by the two-year statute of limitations. However, where the plaintiff alleged that the Art. 1146. The following actions must be instituted within four years:
airlines subjected her to unjust discrimination or undue or unreasonable preference or
(1) Upon an injury to the rights of the plaintiff;

(2) Upon a quasi-delict.

Private respondents Complaint was filed with the RTC on 15 August 1997, which was less than
four years since PAL received his extrajudicial demand on 25 January 1994. Thus, private
respondents claims have not yet prescribed and PALs Motion to Dismiss must be denied.

Moreover, should there be any doubt as to the prescription of private respondents Complaint,
the more prudent action is for the RTC to continue hearing the same and deny the Motion to
Dismiss. Where it cannot be determined with certainty whether the action has already
prescribed or not, the defense of prescription cannot be sustained on a mere motion to dismiss
based on what appears to be on the face of the complaint.[24] And where the ground on which
prescription is based does not appear to be indubitable, the court may do well to defer action
on the motion to dismiss until after trial on the merits. [25]

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed Decision of the Court
of Appeals in CA-G.R. SP No. 48664, promulgated on 17 August 2001 is AFFIRMED. Costs
against the petitioner.

SO ORDERED.
CONDITIONS ON IMPOSITION OF LIABILITY Similarly, he alleged that the damage to his luggage and its stolen contents amounted to
G.R. No. 127768 November 19, 1999 around $5,310.00, and requested reimbursement therefor.
UNITED AIRLINES, petitioner, vs. WILLIE J. UY, respondent.
United Airlines moved to dismiss the complaint on the ground that respondent's cause of
BELLOSILLO, J.: action had prescribed, invoking Art. 29 of the Warsaw Convention which provides —
UNITED AIRLINES assails in this petition for review on certiorari under Rule 45 the 29 August Art. 29 (1) The right to damages shall be extinguished if an action is not brought within two (2)
1995 Decision of the Court of Appeals in CA-G.R. CV No. 39761 which reversed the 7 August years, reckoned from the date of arrival at the destination, or from the date on which the
1992 order issued by the trial court in Civil Case No. Q-92-12410 1 granting petitioner's motion aircraft ought to have arrived, or from the date on which the transportation stopped.
to dismiss based on prescription of cause of action. The issues sought to be resolved are (2) The method of calculating the period of limitation shall be determined by the law of the
whether the notice of appeal to the appellate court was timely filed, and whether Art. 29 of court to which the case is submitted.
the Warsaw Convention 2 should apply to the case at bar.
Respondent countered that par. (1) of Art. 29 of the Warsaw Convention must be reconciled
On 13 October 1989 respondent Willie J. Uy, a revenue passenger on United Airlines Flight No. with par. (2) thereof which states that "the method of calculating the period of limitation shall
819 for the San Francisco — Manila route, checked in together with his luggage one piece of be determined by the law of the court to which the case is submitted." Interpreting thus,
which was found to be overweight at the airline counter. To his utter humiliation, an employee respondent noted that according to Philippine laws the prescription of actions is interrupted
of petitioner rebuked him saying that he should have known the maximum weight allowance "when they are filed before the court, when there is a written extrajudicial demand by the
to be 70 kgs. per bag and that he should have packed his things accordingly. Then, in a loud creditors, and when there is any written acknowledgment of the debt by the debtor." 4 Since
voice in front of the milling crowd, she told respondent to repack his things and transfer some he made several demands upon United Airlines: first, through his personal letter dated 16
of them from the overweight luggage to the lighter ones. Not wishing to create further scene, October 1989; second, through a letter dated 4 January 1990 from Atty. Pesigan; and, finally,
respondent acceded only to find his luggage still overweight. The airline then billed him through a letter dated 28 October 1991 written for him by Atty. Ampil, the two (2)-year period
overweight charges which he offered to pay with a miscellaneous charge order (MCO) or an of limitation had not yet been exhausted.
airline pre-paid credit.
On 2 August 1992 the trial court ordered the dismissal of the action holding that the language
However, the airline's employee, and later its airport supervisor, adamantly refused to honor of Art. 29 is clear that the action must be brought within two (2) years from the date of arrival
the MCO pointing out that there were conflicting figures listed on it. Despite the explanation at the destination. It held that although the second paragraph of Art. 29 speaks of deference
from respondent that the last figure written on the MCO represented his balance, petitioner's to the law of the local court in "calculating the period of limitation," the same does not refer
employees did not accommodate him. Faced with the prospect of leaving without his luggage, to the local forum's rules in interrupting the prescriptive period but only to the rules of
respondent paid the overweight charges with his American Express credit card. determining the time in which the action may be deemed commenced, and within our
jurisdiction the action shall be deemed "brought" or commenced by the filing of a complaint.
Respondent's troubles did not end there. Upon arrival in Manila, he discovered that one of his Hence, the trial court concluded that Art. 29 excludes the application of our interruption rules.
bags had been slashed and its contents stolen. He particularized his losses to be around US Respondent received a copy of the dismissal order on 17 August 1992. On 31 August 1992, or
$5,310.00. In a letter dated 16 October 1989 respondent bewailed the insult, embarrassment fourteen (14) days later, he moved for the reconsideration of the trial court's order. The trial
and humiliating treatment he suffered in the hands of United Airlines employees, notified court denied the motion and respondent received copy of the denial order on 28 September
petitioner of his loss and requested reimbursement thereof. Petitioner United Airlines, 1992. Two (2) days later, on 1 October 1992 respondent filed his notice of appeal.
through Central Baggage Specialist Joan Kroll, did not refute any of respondent's allegations United Airlines once again moved for the dismissal of the case this time pointing out that
and mailed a check representing the payment of his loss based on the maximum liability of US respondent's fifteen (15)-day period to appeal had already elapsed. Petitioner argued that
$9.70 per pound. Respondent, thinking the amount to be grossly inadequate to compensate having used fourteen (14) days of the reglementary period for appeal, respondent Uy had only
him for his losses, as well as for the indignities he was subjected to, sent two (2) more letters one (1) day remaining to perfect his appeal, and since he filed his notice of appeal two (2) days
to petitioner airline, one dated 4 January 1990 through a certain Atty. Pesigan, and another later, he failed to meet the deadline.
dated 28 October 1991 through Atty. Ramon U. Ampil demanding an out-of-court settlement
of P1,000,000.00. Petitioner United Airlines did not accede to his demands. In its questioned Decision dated 29 August 1995 5 the appellate court gave due course to the
appeal holding that respondent's delay of two (2) days in filing his notice of appeal did not
Consequently, on 9 June 1992 respondent filed a complaint for damages against United hinder it from reviewing the appealed order of dismissal since jurisprudence dictates that an
Airlines alleging that he was a person of good station, sitting in the board of directors of several appeal may be entertained despite procedural lapses anchored on equity and justice.
top 500 corporations and holding senior executive positions for such similar firms; 3 that
petitioner airline accorded him ill and shabby treatment to his extreme embarrassment and On the applicability of the Warsaw Convention, the appellate court ruled that the Warsaw
humiliation; and, as such he should be paid moral damages of at least P1,000,000.00, Convention did not preclude the operation of the Civil Code and other pertinent laws.
exemplary damages of at least P500,000.00, plus attorney's fees of at least P50,000.00. Respondent's failure to file his complaint within the two (2)-year limitation provided in the
Warsaw Convention did not bar his action since he could still hold petitioner liable for breach
of other provisions of the Civil Code which prescribe a different period or procedure for Within our jurisdiction we have held that the Warsaw Convention can be applied, or ignored,
instituting an action. Further, under Philippine laws, prescription of actions is interrupted depending on the peculiar facts presented by each case. 14 Thus, we have ruled that the
where, among others, there is a written extrajudicial demand by the creditors, and since Convention's provisions do not regulate or exclude liability for other breaches of contract by
respondent Uy sent several demand letters to petitioner United Airlines, the running of the the carrier or misconduct of its officers and employees, or for some particular or exceptional
two (2)-year prescriptive period was in effect suspended. Hence, the appellate court ruled that type of damage. 15 Neither may the Convention be invoked to justify the disregard of some
respondent's cause of action had not yet prescribed and ordered the records remanded to the extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond
Quezon City trial court for further proceedings. the limits set by said Convention. 16 Likewise, we have held that the Convention does not
preclude the operation of the Civil Code and other pertinent laws. 17 It does not regulate, much
Petitioner now contends that the appellate court erred in assuming jurisdiction over less exempt, the carrier from liability for damages for violating the rights of its passengers
respondent's appeal since it is clear that the notice of appeal was filed out of time. It argues under the contract of carriage, especially if willful misconduct on the part of the carrier's
that the courts relax the stringent rule on perfection of appeals only when there are employees is found or established. 18
extraordinary circumstances, e.g., when the Republic stands to lose hundreds of hectares of
land already titled and used for educational purposes; when the counsel of record was already Respondent's complaint reveals that he is suing on two (2) causes of action: (a) the shabby and
dead; and wherein appellant was the owner of the trademark for more than thirty (30) years, humiliating treatment he received from petitioner's employees at the San Francisco Airport
and the circumstances of the present case do not compare to the above exceptional cases. 6 which caused him extreme embarrassment and social humiliation; and, (b) the slashing of his
luggage and the loss of his personal effects amounting to US $5,310.00.
Sec. 1 of Rule 45 of the 1997 Rules of Civil Procedure provides that "a party may appeal
by certiorari, from a judgment of the Court of Appeals, by filing with the Supreme Court a While his second cause of action — an action for damages arising from theft or damage to
petition for certiorari, within fifteen (15) days from notice of judgment or of the denial of his property or goods — is well within the bounds of the Warsaw Convention, his first cause of
motion for reconsideration filed in due time . . . ." This Rule however should not be interpreted action — an action for damages arising from the misconduct of the airline employees and the
as "to sacrifice the substantial right of the appellant in the sophisticated altar of technicalities violation of respondent's rights as passenger — clearly is not.
with impairment of the sacred principles of justice." 7 It should be borne in mind that the real
purpose behind the limitation of the period of appeal is to forestall or avoid an unreasonable Consequently, insofar as the first cause of action is concerned, respondent's failure to file his
delay in the administration of justice. Thus, we have ruled that delay in the filing of a notice of complaint within the two (2)-year limitation of the Warsaw Convention does not bar his action
appeal does not justify the dismissal of the appeal where the circumstances of the case show since petitioner airline may still be held liable for breach of other provisions of the Civil Code
that there is no intent to delay the administration of justice on the part of appellant's which prescribe a different period or procedure for instituting the action, specifically, Art. 1146
counsel, 8 or when there are no substantial rights affected, 9 or when appellant's counsel thereof which prescribes four (4) years for filing an action based on torts.
committed a mistake in the computation of the period of appeal, an error not attributable to
negligence or bad faith. 10 As for respondent's second cause of action, indeed the travaux preparatories of the Warsaw
Convention reveal that the delegates thereto intended the two (2)-year limitation
In the instant case, respondent filed his notice of appeal two (2) days later than the prescribed incorporated in Art. 29 as an absolute bar to suit and not to be made subject to the various
period. Although his counsel failed to give the reason for the delay, we are inclined to give due tolling provisions of the laws of the forum. This therefore forecloses the application of our own
course to his appeal due to the unique and peculiar facts of the case and the serious question rules on interruption of prescriptive periods. Article 29, par. (2), was intended only to let local
of law it poses. In the now almost trite but still good principle, technicality, when it deserts its laws determine whether an action had been commenced within the two (2)-year period, and
proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves within our jurisdiction an action shall be deemed commenced upon the filing of a complaint.
scant consideration. 11 Since it is indisputable that respondent filed the present action beyond the two (2)-year time
frame his second cause of action must be barred. Nonetheless, it cannot be doubted that
Petitioner likewise contends that the appellate court erred in ruling that respondent's cause respondent exerted efforts to immediately convey his loss to petitioner, even employed the
of action has not prescribed since delegates to the Warsaw Convention clearly intended the services of two (2) lawyers to follow up his claims, and that the filing of the action itself was
two (2)-year limitation incorporated in Art. 29 as an absolute bar to suit and not to be made delayed because of petitioner's evasion.
subject to the various tolling provisions of the laws of the forum. Petitioner argues that in
construing the second paragraph of Art. 29 private respondent cannot read into it Philippine In this regard, Philippine Airlines, Inc. v. Court of Appeals 19 is instructive. In this case of PAL,
rules on interruption of prescriptive periods and state that his extrajudicial demand has private respondent filed an action for damages against petitioner airline for the breakage of
interrupted the period of prescription. 12 American jurisprudence has declared that "Art. 29 (2) the front glass of the microwave oven which she shipped under PAL Air Waybill No. 0-79-
was not intended to permit forums to consider local limitation tolling provisions but only to let 1013008-3. Petitioner averred that, the action having been filed seven (7) months after her
local law determine whether an action had been commenced within the two-year period, since arrival at her port of destination, she failed to comply with par. 12, subpar. (a) (1), of the Air
the method of commencing a suit varies from country to country." 13 Waybill which expressly provided that the person entitled to delivery must make a complaint
to the carrier in writing in case of visible damage to the goods, immediately after discovery of
the damage and at the latest within 14 days from receipt of the goods. Despite non-compliance
therewith the Court held that by private respondent's immediate submission of a formal claim
to petitioner, which however was not immediately entertained as it was referred from one
employee to another, she was deemed to have substantially complied with the requirement.
The Court noted that with private respondent's own zealous efforts in pursuing her claim it
was clearly not her fault that the letter of demand for damages could only be filed, after
months of exasperating follow-up of the claim, on 13 August 1990, and that if there was any
failure at all to file the formal claim within the prescriptive period contemplated in the Air
Waybill, this was largely because of the carrier's own doing, the consequences of which could
not in all fairness be attributed to private respondent.

In the same vein must we rule upon the circumstances brought before us. Verily, respondent
filed his complaint more than two (2) years later, beyond the period of limitation prescribed
by the Warsaw Convention for filing a claim for damages. However, it is obvious that
respondent was forestalled from immediately filing an action because petitioner airline gave
him the runaround, answering his letters but not giving in to his demands. True, respondent
should have already filed an action at the first instance when his claims were denied by
petitioner but the same could only be due to his desire to make an out-of-court settlement for
which he cannot be faulted. Hence, despite the express mandate of Art. 29 of the Warsaw
Convention that an action for damages should be filed within two (2) years from the arrival at
the place of destination, such rule shall not be applied in the instant case because of the
delaying tactics employed by petitioner airline itself. Thus, private respondent's second cause
of action cannot be considered as time-barred under Art. 29 of the Warsaw Convention.

WHEREFORE, the assailed Decision of the Court of Appeals reversing and setting aside the
appealed order of the trial court granting the motion to dismiss the complaint, as well as its
Resolution denying reconsideration, is AFFIRMED. Let the records of the case be remanded to
the court of origin for further proceedings taking its bearings from this disquisition.
SO ORDERED.