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[G.R. No. 125138. March 2, 1999]

AIR LINES, INC., respondent.


This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of
Appeals[1] in CA GR CV No. 41407, entitled Nicholas Y. Cervantes vs. Philippine Air Lines
Inc., affirming in toto the judgment of the trial court dismissing petitioners complaint for

On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to the
herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for Manila-Honolulu-
Los Angeles-Honolulu-Manila, which ticket expressly provided an expiry of date of one year
from issuance, i.e., until March 27, 1990. The issuance of the said plane ticket was in
compliance with a Compromise Agreement entered into between the contending parties in two
previous suits, docketed as Civil Case Nos. 3392 and 3451 before the Regional Trial Court in
Surigao City.[2]

On March 23, 1990, four days before the expiry date of subject ticket, the petitioner used it.
Upon his arrival in Los Angeles on the same day, he immediately booked his Los Angeles-
Manila return ticket with the PAL office, and it was confirmed for the April 2, 1990 flight.

Upon learning that the same PAL plane would make a stop-over in San Francisco, and
considering that he would be there on April 2, 1990, petitioner made arrangements with PAL for
him to board the flight in San Francisco instead of boarding in Los Angeles.

On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco, he was
not allowed to board. The PAL personnel concerned marked the following notation on his ticket:

Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract of
carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial Court of
Surigao del Norte in Surigao City. But the said complaint was dismissed for lack of merit.[3]

On September 20, 1993, petitioner interposed an appeal to the Court of Appeals, which came
out with a Decision, on July 25, 1995, upholding the dismissal of the case.

On May 22, 1996, petitioner came to this Court via the Petition for Review under consideration.

The issues raised for resolution are: (1) Whether or not the act of the PAL agents in confirming
subject ticket extended the period of validity of petitioners ticket; (2) Whether or not the defense
of lack of authority was correctly ruled upon; and (3) Whether or not the denial of the award for
damages was proper.

To rule on the first issue, there is a need to quote the findings below. As a rule, conclusions and
findings of fact arrived at by the trial court are entitled to great weight on appeal and should not
be disturbed unless for strong and cogent reasons.[4]

The facts of the case as found by the lower court[5] are, as follows:

The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is not valid
after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the Conditions of
Contract (Exhibit 1, page 2) as follows:

"8. This ticket is good for carriage for one year from date of issue, except as otherwise provided
in this ticket, in carriers tariffs, conditions of carriage, or related regulations. The fare for
carriage hereunder is subject to change prior to commencement of carriage. Carrier may refuse
transportation if the applicable fare has not been paid.[6]

The question on the validity of subject ticket can be resolved in light of the ruling in the case of
Lufthansa vs. Court of Appeals[7]. In the said case, the Tolentinos were issued first class
tickets on April 3, 1982, which will be valid until April 10,1983. On June 10, 1982, they changed
their accommodations to economy class but the replacement tickets still contained the same
restriction. On May 7, 1983, Tolentino requested that subject tickets be extended, which
request was refused by the petitioner on the ground that the said tickets had already expired.
The non-extension of their tickets prompted the Tolentinos to bring a complaint for breach of
contract of carriage against the petitioner. In ruling against the award of damages, the Court
held that the ticket constitute the contract between the parties. It is axiomatic that when the
terms are clear and leave no doubt as to the intention of the contracting parties, contracts are to
be interpreted according to their literal meaning.

In his effort to evade this inevitable conclusion, petitioner theorized that the confirmation by the
PALs agents in Los Angeles and San Francisco changed the compromise agreement between
the parties.

As aptly ruled by the appellate court:

xxx on March 23, 1990, he was aware of the risk that his ticket could expire, as it did, before he
returned to the Philippines. (pp. 320-321, Original Records)[8]

The question is: Did these two (2) employees, in effect , extend the validity or lifetime of the
ticket in question? The answer is in the negative. Both had no authority to do so. Appellant
knew this from the very start when he called up the Legal Department of appellee in the
Philippines before he left for the United States of America. He had first hand knowledge that the
ticket in question would expire on March 27,1990 and that to secure an extension, he would
have to file a written request for extension at the PALs office in the Philippines (TSN, Testimony
of Nicholas Cervantes, August 2, 1991, pp 20-23). Despite this knowledge, appellant persisted
to use the ticket in question.[9]
From the aforestated facts, it can be gleaned that the petitioner was fully aware that there was a
need to send a letter to the legal counsel of PAL for the extension of the period of validity of his

Since the PAL agents are not privy to the said Agreement and petitioner knew that a written
request to the legal counsel of PAL was necessary, he cannot use what the PAL agents did to
his advantage. The said agents, according to the Court of Appeals,[10] acted without authority
when they confirmed the flights of the petitioner.

Under Article 1898[11] of the New Civil Code, the acts of an agent beyond the scope of his
authority do not bind the principal, unless the latter ratifies the same expressly or impliedly.
Furthermore, when the third person (herein petitioner) knows that the agent was acting beyond
his power or authority, the principal cannot be held liable for the acts of the agent. If the said
third person is aware of such limits of authority, he is to blame, and is not entitled to recover
damages from the agent, unless the latter undertook to secure the principals ratification.[12]

Anent the second issue, petitioners stance that the defense of lack of authority on the part of
the PAL employees was deemed waived under Rule 9, Section 2 of the Revised Rules of Court,
is unsustainable. Thereunder, failure of a party to put up defenses in their answer or in a motion
to dismiss is a waiver thereof.

Petitioner stresses that the alleged lack of authority of the PAL employees was neither raised in
the answer nor in the motion to dismiss. But records show that the question of whether there
was authority on the part of the PAL employees was acted upon by the trial court when Nicholas
Cervantes was presented as a witness and the depositions of the PAL employees, Georgina M.
Reyes and Ruth Villanueva, were presented.

The admission by Cervantes that he was told by PALs legal counsel that he had to submit a
letter requesting for an extension of the validity of subject tickets was tantamount to knowledge
on his part that the PAL employees had no authority to extend the validity of subject tickets and
only PALs legal counsel was authorized to do so.

However, notwithstanding PALs failure to raise the defense of lack of authority of the said PAL
agents in its answer or in a motion to dismiss, the omission was cured since the said issue was
litigated upon, as shown by the testimony of the petitioner in the course of trial. Rule 10, Section
5 of the 1997 Rules of Civil Procedure provides:

Sec. 5. Amendment to conform or authorize presentation of evidence. - When issues not
raised by the pleadings are tried with express or implied consent of the parties, as if they had
been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause
them to conform to the evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does not affect the result of the trial
of these issues. xxx

Thus, when evidence is presented by one party, with the express or implied consent of the
adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly as
regards the said issue, which shall be treated as if they have been raised in the pleadings.
There is implied consent to the evidence thus presented when the adverse party fails to object

Re: the third issue, an award of damages is improper because petitioner failed to show that PAL
acted in bad faith in refusing to allow him to board its plane in San Francisco.

In awarding moral damages for breach of contract of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted fraudulently or with malice or bad faith.[14]
Petitioner knew there was a strong possibility that he could not use the subject ticket, so much
so that he bought a back-up ticket to ensure his departure. Should there be a finding of bad
faith, we are of the opinion that it should be on the petitioner. What the employees of PAL did
was one of simple negligence. No injury resulted on the part of petitioner because he had a
back-up ticket should PAL refuse to accommodate him with the use of subject ticket.

Neither can the claim for exemplary damages be upheld. Such kind of damages is imposed by
way of example or correction for the public good, and the existence of bad faith is established.
The wrongful act must be accompanied by bad faith, and an award of damages would be
allowed only if the guilty party acted in a wanton, fraudulent, reckless or malevolent manner.[15]
Here, there is no showing that PAL acted in such a manner. An award for attorneys fees is also

WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated July 25,
1995 AFFIRMED in toto. No pronouncement as to costs.


G.R. No. L-55347 October 4, 1985



Invoking the principle of state immunity from suit, the Philippine National Railways, PNR for
short, instituted this petition for review on certiorari to set aside the decision of the respondent
Appellate Court which held petitioner PNR liable for damages for the death of Winifredo
Tupang, a paying passenger who fell off a train operated by the petitioner.

The pertinent facts are summarized by the respondent court as follows:

The facts show that on September 10, 1972, at about 9:00 o'clock in the evening, Winifredo
Tupang, husband of plaintiff Rosario Tupang, boarded 'Train No. 516 of appellant at Libmanan,
Camarines Sur, as a paying passenger bound for Manila. Due to some mechanical defect, the
train stopped at Sipocot, Camarines Sur, for repairs, taking some two hours before the train
could resume its trip to Manila. Unfortunately, upon passing Iyam Bridge at Lucena, Quezon,
Winifredo Tupang fell off the train resulting in his death.The train did not stop despite the alarm
raised by the other passengers that somebody fell from the train. Instead, the train conductor
Perfecto Abrazado, called the station agent at Candelaria, Quezon, and requested for
verification of the information. Police authorities of Lucena City were dispatched to the Iyam
Bridge where they found the lifeless body of Winifredo Tupang.

As shown by the autopsy report, Winifredo Tupang died of cardio-respiratory failure due to
massive cerebral hemorrhage due to traumatic injury [Exhibits B and C, Folder of
Exhibits],Tupang was later buried in the public cemetery of Lucena City by the local police
authorities. [Rollo, pp. 91-92]

Upon complaint filed by the deceased's widow, Rosario Tupang, the then Court of First Instance
of Rizal, after trial, held the petitioner PNR liable for damages for breach of contract of carriage
and ordered "to pay the plaintiff the sum of P12,000,00 for the death of Winifredo Tupang, plus
P20,000.00 for loss of his earning capacity and the further sum of P10,000.00 as moral
damages, and P2,000.00 as attorney's fees, and costs. 1

On appeal, the Appellate Court sustained the holding of the trial court that the PNR did not
exercise the utmost diligence required by law of a common carrier. It further increased the
amount adjudicated by the trial court by ordering PNR to pay the plaintiff an additional sum of
P5,000.00 as exemplary damages.

Moving for reconsideration of the above decision, the PNR raised for the first time, as a
defense, the doctrine of state immunity from suit. It alleged that it is a mere agency of the
Philippine government without distinct or separate personality of its own, and that its funds are
governmental in character and, therefore, not subject to garnishment or execution. The motion
was denied; the respondent court ruled that the ground advanced could not be raised for the
first time on appeal.

Hence, this petition for review.

The petition is devoid of merit. The PNR was created under Rep. Act 4156, as amended.
Section 4 of the said Act provides:

The Philippine national Railways shall have the following powers:

a. To do all such other things and to transact all such business directly or indirectly
necessary, incidental or conducive to the attainment of the purpose of the corporation; and

b. Generally, to exercise all powers of a corporation under the Corporation Law.

Under the foregoing section, the PNR has all the powers, the characteristics and attributes of a
corporation under the Corporation Law. There can be no question then that the PNR may sue
and be sued and may be subjected to court processes just like any other corporation. 2

The petitioner's contention that the funds of the PNR are not subject to garnishment or
execution hardly raises a question of first impression. In Philippine National Railways v. Union
de Maquinistas, et al., 3 then Justice Fernando, later Chief Justice, said. "The main issue posed
in this certiorari proceeding, whether or not the funds of the Philippine National Railways, could
be garnished or levied upon on execution was resolved in two recent decisions, the Philippine
National Bank v. Court of Industrial Relations [81 SCRA 314] and Philippine National Bank v.
Hon. Judge Pabalan [83 SCRA 595]. This Court in both cases answered the question in the
affirmative. There was no legal bar to garnishment or execution. The argument based on non-
suability of a state allegedly because the funds are governmental in character was
unavailing.So it must be again."

In support of the above conclusion, Justice Fernando cited the Court's holding in Philippine
National Bank v. Court of Industrial Relations, to wit: "The premise that the funds could be
spoken of as public in character may be accepted in the sense that the People's Homesite and
Housing Corporation was a government-owned entity. It does not follow though that they were
exempt from garnishment. National Shipyard and Steel Corporation v. Court of Industrial
Relations is squarely in point. As was explicitly stated in the opinion of then Justice, later Chief
Justice, Concepcion: "The allegation to the effect that the funds of the NASSCO are public
funds of the government, and that, as such, the same may not be garnished, attached or levied
upon, is untenable for, as a government- owned and controlled corporation, the NASSCO has a
personality of its own, distinct and separate from that of the Government. It has-pursuant to
Section 2 of Executive Order No. 356, dated October 23, 1950 * * *, pursuant to which the
NASSCO has been established- 'all the powers of a corporation under the Corporation Law * *
*. 4

As far back as 1941, this Court in the case of Manila Hotel Employees Association v. Manila
Hotel Co., 5 laid down the rule that "when the government enters into commercial business, it
abandons its sovereign capacity and is to be treated like any other corporation. [Bank of the
U.S. v. Planters' Bank, 9 Waitch 904, 6 L. ed. 244]. By engaging in a particular business through
the instrumentality of a corporation the government divests itself pro hac vice of its sovereign
character, so as to render the corporation subject to the rules of law governing private
corporations. 6 Of Similar import is the pronouncement in Prisco v. CIR,' that "when the
government engages in business, it abdicates part of its sovereign prerogatives and descends
to the level of a citizen, ... . " In fine, the petitioner PNR cannot legally set up the doctrine of non-
suability as a bar to the plaintiff's suit for damages.

The appellate court found, the petitioner does not deny, that the train boarded by the deceased
Winifredo Tupang was so over-crowded that he and many other passengers had no choice but
to sit on the open platforms between the coaches of the train. It is likewise undisputed that the
train did not even slow down when it approached the Iyam Bridge which was under repair at the
time, Neither did the train stop, despite the alarm raised by other passengers that a person had
fallen off the train at lyam Bridge. 7

The petitioner has the obligation to transport its passengers to their destinations and to observe
extraordinary diligence in doing so. Death or any injury suffered by any of its passengers gives
rise to the presumption that it was negligent in the performance of its obligation under the
contract of carriage. Thus, as correctly ruled by the respondent court, the petitioner failed to
overthrow such presumption of negligence with clear and convincing evidence.

But while petitioner failed to exercise extraordinary diligence as required by law, 8 it appears
that the deceased was chargeable with contributory negligence. Since he opted to sit on the
open platform between the coaches of the train, he should have held tightly and tenaciously on
the upright metal bar found at the side of said platform to avoid falling off from the speeding
train. Such contributory negligence, while not exempting the PNR from liability, nevertheless
justified the deletion of the amount adjudicated as moral damages. By the same token, the
award of exemplary damages must be set aside. Exemplary damages may be allowed only in
cases where the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner. 9 There being no evidence of fraud, malice or bad faith on the part of petitioner, the
grant of exemplary damages should be discarded.

WHEREFORE, the decision of the respondent appellate court is hereby modified by eliminating
therefrom the amounts of P10,000.00 and P5,000.00 adjudicated as moral and exemplary
damages, respectively. No costs.



G.R. No. 88052 December 14, 1989

CO., INC., respondents.


At 6:20 o'clock in the morning of 22 April 1980, the M/T "Tacloban City," a barge-type oil tanker
of Philippine registry, with a gross tonnage of 1,241,68 tons, owned by the Philippine National
Oil Company (PNOC) and operated by the PNOC Shipping and Transport Corporation (PNOC
Shipping), having unloaded its cargo of petroleum products, left Amlan, Negros Occidental, and
headed towards Bataan. At about 1:00 o'clock in the afternoon of that same day, the M/V "Don
Juan," an interisland vessel, also of Philippine registry, of 2,391.31 tons gross weight, owned
and operated by the Negros Navigation Co., Inc. (Negros Navigation) left Manila bound for
Bacolod with seven hundred fifty (750) passengers listed in its manifest, and a complete set of
officers and crew members.

On the evening of that same day, 22 April 1980, at about 10:30 o'clock, the "Tacloban City" and
the "Don Juan" collided at the Talbas Strait near Maestra de Ocampo Island in the vicinity of the
island of Mindoro. When the collision occurred, the sea was calm, the weather fair and visibility
good. As a result of this collision, the M/V "Don Juan" sank and hundreds of its passengers
perished. Among the ill-fated passengers were the parents of petitioners, the spouses Perfecto
Mecenas and Sofia Mecenas, whose bodies were never found despite intensive search by

On 29 December 1980, petitioners filed a complaint in the then Court- of First Instance of
Quezon City, docketed as Civil Case No. Q-31525, against private respondents Negros
Navigation and Capt. Roger Santisteban, the captain of the "Don Juan" without, however,
impleading either PNOC or PNOC Shipping. In their complaint, petitioners alleged that they
were the seven (7) surviving legitimate children of Perfecto Mecenas and Sofia Mecenas and
that the latter spouses perished in the collision which had resulted from the negligence of
Negros Navigation and Capt. Santisteban. Petitioners prayed for actual damages of not less
than P100,000.00 as well as moral and exemplary damages in such amount as the Court may
deem reasonable to award to them.

Another complaint, docketed as Civil Case No. Q-33932, was filed in the same court by Lilia
Ciocon claiming damages against Negros Navigation, PNOC and PNOC Shipping for the death
of her husband Manuel Ciocon, another of the luckless passengers of the "Don Juan." Manuel
Ciocon's body, too, was never found.

The two (2) cases were consolidated and heard jointly by the Regional Trial Court of Quezon
City, Branch 82. On 17 July 1986, after trial, the trial court rendered a decision, the dispositive of
which read as follows:

WHEREFORE, the Court hereby renders judgment ordering:

a) The defendant Negros Navigation Co., Inc. and Capt. Roger Santisteban jointly and
severally liable to pay plaintiffs in Civil Case No Q-31525, the sum of P400,000.00 for the death
of plaintiffs' parents, Perfecto A. Mecenas and Sofia P. Mecenas; to pay said plaintiff's the sum
of P15.000,00 as and for attorney's fees; plus costs of the suit.

b) Each of the defendants Negros Navigation Co Inc. and Philippine National Oil
Company/PNOC Shipping and Transportation Company, to pay the plaintiff in Civil Case No. Q-
33932, the sum of P100,000.00 for the death of Manuel Ciocon, to pay said plaintiff jointly and
severally, the sum of P1 5,000.00 as and for attorney's fees, plus costs of the suit. 1

Negros Navigation, Capt. Santisteban, PNOC and PNOC Shipping appealed the trial court's
decision to the Court of Appeals. Later, PNOC and PNOC Shipping withdrew their appeal citing
a compromise agreement reached by them with Negros Navigation; the Court of Appeals
granted the motion by a resolution dated 5 September 1988, subject to the reservation made by
Lilia Ciocon that she could not be bound by the compromise agreement and would enforce the
award granted her by the trial court.

In time, the Court of Appeals rendered a decision dated 26 January 1989 which decreed the

WHEREFORE, in view of the foregoing, the decision of the court a quo is hereby affirmed as
modified with respect to Civil Case No. 31525, wherein defendant appellant Negros Navigation
Co. Inc. and Capt. Roger Santisteban are held jointly and severally liable to pay the plaintiffs the
amount of P100,000. 00 as actual and compensatory damages and P15,000.00 as attorney's
fees and the cost of the suit. 2

The issue to be resolved in this Petition for Review is whether or not the Court of Appeals had
erred in reducing the amount of the damages awarded by the trial court to the petitioners from
P400,000.00 to P100,000.00.

We note that the trial court had granted petitioners the sum of P400,000,00 "for the death of
[their parents]" plus P15,000.00 as attorney's fees, while the Court of Appeals awarded them
P100,000.00 "as actual and compensatory damages" and P15,000.00 as attorney's fees. To
determine whether such reduction of the damages awarded was proper, we must first determine
whether petitioners were entitled to an award of damages other than actual or compensatory
damages, that is, whether they were entitled to award of moral and exemplary damages.

We begin by noting that both the trial court and the Court of Appeals considered the action (Civil
Case No. Q-31525) brought by the sons and daughters of the deceased Mecenas spouses
against Negros Navigation as based on quasi-delict. We believed that action is more
appropriately regarded as grounded on contract, the contract of carriage between the Mecenas
spouses as regular passengers who paid for their boat tickets and Negros Navigation; the
surviving children while not themselves passengers are in effect suing the carrier in
representation of their deceased parents. 3 Thus, the suit (Civil Case No. Q-33932) filed by the
widow Lilia Ciocon was correctly treated by the trial and appellate courts as based on contract
(vis-a-vis Negros Navigation) and as well on quasi-delict (vis-a-vis PNOC and PNOC Shipping).
In an action based upon a breach of the contract of carriage, the carrier under our civil law is
liable for the death of passengers arising from the negligence or willful act of the carrier's
employees although such employees may have acted beyond the scope of their authority or
even in violation of the instructions of the carrier, 4 which liability may include liability for moral
damages. 5 It follows that petitioners would be entitled to moral damages so long as the
collision with the "Tacloban City" and the sinking of the "Don Juan" were caused or attended by
negligence on the part of private respondents.

In respect of the petitioners' claim for exemplary damages, it is only necessary to refer to Article
2232 of the Civil Code:

Article 2332. In contracts and quasi-contracts, the court may exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 6

Thus, whether petitioners are entitled to exemplary damages as claimed must depend upon
whether or not private respondents acted recklessly, that is, with gross negligence.

We turn, therefore, to a consideration of whether or not Negros Navigation and Capt.
Santisteban were grossly negligent during the events which culminated in the collision with
"Tacloban City" and the sinking of the "Don Juan" and the resulting heavy loss of lives.

The then Commandant of the Philippine Coast Guard, Commodore B.C. Ochoco, in a decision
dated 2 March 1981, held that the "Tacloban City" was "primarily and solely [sic] at fault and
responsible for the collision." 7 Initially, the Minister of National Defense upheld the decision of
Commodore Ochoco. 8 On Motion for Reconsideration, however, the Minister of National
Defense reversed himself and held that both vessels had been at fault:

It is therefore evident from a close and thorough review of the evidence that fault is imputable to
both vessels for the collision. Accordingly, the decision dated March 12, 1982, subject of the
Motion for Reconsideration filed by counsel of M/T Tacloban City, is hereby reversed. However,
the administrative penalties imposed oil both vessels and their respective crew concerned are
hereby affirmed. 9

The trial court, after a review of the evidence submitted during the trial, arrived at the same
conclusion that the Minister of National Defense had reached that both the "Tacloban City" and
the "Don Juan" were at fault in the collision. The trial court summarized the testimony and
evidence of PNOC and PNOC Shipping as well as of Negros Navigation in the following terms:

Defendant PNOC's version of the incident:

M/V Don Juan was first sighted at about 5 or 6 miles from Tacloban City (TSN, January 21,
1985, p. 13); it was on the starboard (right) side of Tacloban City. This was a visual contact; not
picked up by radar (p. 15, Ibid). Tacloban City was travelling 310 degrees with a speed of 6
knots, estimated speed of Don Juan of 16 knots (TSN, May 9, pp. 5-6). As Don Juan
approached, Tacloban City gave a leeway of 1 0 degrees to the left. 'The purpose was to enable
Tacloban to see the direction of Don Juan (p. 19, Ibid). Don Juan switched to green light,
signifying that it will pass Tacloban City's right side; it will be a starboard to starboard passing
(p. 21, Ibid) Tacloban City's purpose in giving a leeway of 10 degrees at this point, is to give
Don Juan more space for her passage (p. 22, Ibid). This was increased by Tacloban City to an
additional 15 degrees towards the left (p. 22, Ibid). The way was clear and Don Juan has not
changed its course (TSN, May 9,1985, p. 39).

When Tacloban City altered its course the second time, from 300 degrees to 285 degrees, Don
Juan was about 4.5 miles away (TSN, May 9,1985, p. 7).

Despite executing a hardport maneuver, the collision nonetheless occurred. Don Juan rammed
the Tacloban City near the starboard bow (p. 7, Ibid)."

NENACO's [Negros Navigation] version.

Don Juan first sighted Tacloban City 4 miles away, as shown by radar (p. 13, May 24, 1983).
Tacloban City showed its red and green lights twice; it proceeded to, and will cross, the path of
Don Juan. Tacloban was on the left side of Don Juan (TSN, April 20,1983, p. 4).

Upon seeing Tacloban's red and green lights, Don Juan executed hard starboard (TSN, p. 4,
Ibid.) This maneuver is in conformity with the rule that 'when both vessels are head on or nearly
head on, each vessel must turn to the right in order to avoid each other. (p. 5, Ibid).
Nonetheless, Tacloban appeared to be heading towards Don Juan (p. 6, Ibid),

When Don Juan executed hard starboard, Tacloban was about 1,500 feet away (TSN, May
24,1983, p. 6). Don Juan, after execution of hard starboard, will move forward 200 meters
before the vessel will respond to such maneuver (p. 7, Ibid). The speed of Don Juan at that time
was 17 knits; Tacloban City 6.3 knots. t "Between 9 to 15 seconds from execution of hard
starboard, collision occurred (p. 8, Ibid). (pp. 3-4 Decision). 10

The trial court concluded:

M/ V Don Juan and Tacloban City became aware of each other's presence in the area by visual
contact at a distance of something like 6 miles from each other. They were fully aware that if
they continued on their course, they will meet head on. Don Juan - steered to the right;
Tacloban City continued its course to the left. There can be no excuse for them not to realize
that, with such maneuvers, they will collide. They executed maneuvers inadequate, and too late,
to avoid collision.

The Court is of the considered view that the defendants are equally negligent and are liable for
damages. (p. 4, decision). 11

The Court of Appeals, for its part, reached the same conclusion. 12

There is, therefore, no question that the "Don Juan" was at least as negligent as the M/T
"Tacloban City" in the events leading up to the collision and the sinking of the "Don Juan." The
remaining question is whether the negligence on the part of the "Don Juan" reached that level of
recklessness or gross negligence that our Civil Code requires for the imposition of exemplary
damages. Our own review of the record in the case at bar requires us to answer this in the

In the first place, the report of the Philippine Coast Guard Commandant (Exhibit "l 0"), while
holding the "Tacloban City" as "primarily and solely [sic] at fault and responsible for the
collision," did itself set out that there had been fault or negligence on the part of Capt.
Santisteban and his officers and crew before the collision and immediately after contact of the
two (2) vessels. The decision of Commodore Ochoco said:

x x x x x x x x x

M/S Don Juan's Master, Capt. Rogelio Santisteban, was playing mahjong before and up to the
time of collision. Moreover, after the collision, he failed to institute appropriate measures to
delay the sinking MS Don Juan and to supervise properly the execution of his order of
abandonship. As regards the officer on watch, Senior 3rd Mate Rogelio Devera, he admitted
that he failed or did not call or inform Capt. Santisteban of the imminent danger of collision and
of the actual collision itself Also, he failed to assist his master to prevent the fast sinking of the
ship. The record also indicates that Auxiliary Chief Mate Antonio Labordo displayed laxity in
maintaining order among the passengers after the collision.

x x x x x x x x x. 13

We believe that the behaviour of the captain of the "Don Juan" in tills instance-playing mahjong
"before and up to the time of collision constitutes behaviour that is simply unacceptable on the
part of the master of a vessel to whose hands the lives and welfare of at least seven hundred
fifty (750) passengers had been entrusted. Whether or not Capt. Santisteban was "off-duty" or
"on-duty" at or around the time of actual collision is quite immaterial; there is, both realistically
speaking and in contemplation of law, no such thing as "off-duty" hours for the master of a
vessel at sea that is a common carrier upon whom the law imposes the duty of extraordinary

[t]he duty to carry the passengers safely as far as human care and foresight can provide, using
the utmost diligence of very cautious persons, with a due regard for all the circumstances. 14

The record does not show that was the first or only time that Capt. Santisteban had entertained
himself during a voyage by playing mahjong with his officers and passengers; Negros
Navigation in permitting, or in failing to discover and correct such behaviour, must be deemed
grossly negligent.

Capt. Santisteban was also faulted in the Philippine Coast Guard decision for failing after the
collision, "to institute appropriate measures to delay the sinking of M/V Don Juan." This appears
to us to be a euphemism for failure to maintain the sea-worthiness or the water-tight integrity of
the "Don Juan." The record shows that the "Don Juan" sank within ten (10) to fifteen (15)
minutes after initial contact with the "Tacloban City. 15 While the failure of Capt. Santisteban to
supervise his officers and crew in the process of abandoning the ship and his failure to avail of
measures to prevent the too rapid sinking of his vessel after collision, did not cause the collision
by themselves, such failures doubtless contributed materially to the consequent loss of life and,
moreover, were indicative of the kind and level of diligence exercised by Capt. Santisteban in
respect of his vessel and his officers and men prior to actual contact between the two (2)
vessels. The officer-on-watch in the "Don Juan" admitted that he had failed to inform Capt.
Santisteban not only of the "imminent danger of collision" but even of "the actual collision itself "

There is also evidence that the "Don Juan" was carrying more passengers than she had been
certified as allowed to carry. The Certificate of Inspection 16 dated 27 August 1979, issued by
the Philippine Coast Guard Commander at Iloilo City, the Don Juan's home port, states:

Passengers allowed : 810

Total Persons Allowed : 864

The report of the Philippine Coast Guard (Exhibit "10") stated that the "Don Juan" had been
"officially cleared with 878 passengers on board when she sailed from the port of Manila on April
22, 1980 at about 1:00 p.m." This head-count of the passengers "did not include the 126 crew
members, children below three (3) years old and two (2) half-paying passengers" which had
been counted as one adult passenger. 17 Thus, the total number of persons on board the "Don
Juan" on that ill-starred night of 22 April 1 980 was 1,004, or 140 persons more than the
maximum lumber that could be safely carried by the "Don Juan," per its own Certificate of
Inspection. 18 We note in addition, that only 750 passengers had been listed in its manifest for
its final voyage; in other words, at least 128 passengers on board had not even been entered
into the "Don Juan's" manifest. The "Don Juan's" Certificate of Inspection showed that she
carried life boat and life raft accommodations for only 864 persons, the maximum number of
persons she was permitted to carry; in other words, she did not carry enough boats and life rafts
for all the persons actually on board that tragic night of 22 April 1980.

We hold that under these circumstances, a presumption of gross negligence on the part of the
vessel (her officers and crew) and of its ship-owner arises; this presumption was never rebutted
by Negros Navigation.

The grossness of the negligence of the "Don Juan" is underscored when one considers the
foregoing circumstances in the context of the following facts: Firstly, the "Don Juan" was more
than twice as fast as the "Tacloban City." The "Don Juan's" top speed was 17 knots; while that
of the "Tacloban City" was 6.3. knots. 19 Secondly, the "Don Juan" carried the full complement
of officers and crew members specified for a passenger vessel of her class. Thirdly, the "Don
Juan" was equipped with radar which was functioning that night. Fourthly, the "Don Juan's"
officer on-watch had sighted the "Tacloban City" on his radar screen while the latter was still
four (4) nautical miles away. Visual confirmation of radar contact was established by the "Don
Juan" while the "Tacloban City" was still 2.7 miles away. 20 In the total set of circumstances
which existed in the instant case, the "Don Juan," had it taken seriously its duty of extraordinary
diligence, could have easily avoided the collision with the "Tacloban City," Indeed, the "Don
Juan" might well have avoided the collision even if it had exercised ordinary diligence merely.

It is true that the "Tacloban City" failed to follow Rule 18 of the International Rules of the Road
which requires two (2) power- driven vessels meeting end on or nearly end on each to alter her
course to starboard (right) so that each vessel may pass on the port side (left) of the other. 21
The "Tacloban City," when the two (2) vessels were only three-tenths (0.3) of a mile apart,
turned (for the second time) 150 to port side while the "Don Juan" veered hard to starboard.
This circumstance, while it may have made the collision immediately inevitable, cannot,
however, be viewed in isolation from the rest of the factual circumstances obtaining before and
up to the collision. In any case, Rule 18 like all other International Rules of the Road, are not to
be obeyed and construed without regard to all the circumstances surrounding a particular
encounter between two (2) vessels. 22 In ordinary circumstances, a vessel discharges her duty
to another by a faithful and literal observance of the Rules of Navigation, 23 and she cannot be
held at fault for so doing even though a different course would have prevented the collision. This
rule, however, is not to be applied where it is apparent, as in the instant case, that her captain
was guilty of negligence or of a want of seamanship in not perceiving the necessity for, or in so
acting as to create such necessity for, a departure from the rule and acting accordingly. 24 In
other words, "route observance" of the International Rules of the Road will not relieve a vessel
from responsibility if the collision could have been avoided by proper care and skill on her part
or even by a departure from the rules. 25

In the petition at bar, the "Don Juan" having sighted the "Tacloban City" when it was still a long
way off was negligent in failing to take early preventive action and in allowing the two (2)
vessels to come to such close quarters as to render the collision inevitable when there was no
necessity for passing so near to the "Tacloban City" as to create that hazard or inevitability, for
the "Don Juan" could choose its own distance. 26, It is noteworthy that the "Tacloban City,"
upon turning hard to port shortly before the moment of collision, signalled its intention to do so
by giving two (2) short blasts with horn. 26A The "Don Juan " gave no answering horn blast to
signal its own intention and proceeded to turn hatd to starboard. 26B

We conclude that Capt. Santisteban and Negros Navigation are properly held liable for gross
negligence in connection with the collision of the "Don Juan" and "Tacloban City" and the
sinking of the "Don Juan" leading to the death of hundreds of passengers. We find no necessity
for passing upon the degree of negligence or culpability properly attributable to PNOC and
PNOC Shipping or the master of the "Tacloban City," since they were never impleaded here.

It will be recalled that the trial court had rendered a lump sum of P400,000.00 to petitioners for
the death of their parents in the "Don Juan" tragedy. Clearly, the trial court should have included
a breakdown of the lump sum award into its component parts: compensatory damages, moral
damages and exemplary damages. On appeal, the Court of Appeals could have and should
have itself broken down the lump sum award of the trial court into its constituent parts; perhaps,
it did, in its own mind. In any case, the Court of Appeals apparently relying upon Manchester
Development Corporation V. Court of Appeals 27 reduced the P400,000.00 lump sum award
into a P100,000.00 for actual and compensatory damages only.

We believe that the Court of Appeals erred in doing so, It is true that the petitioners' complaint
before the trial court had in the body indicated that the petitioner-plaintiffs believed that moral
damages in the amount of at least P1,400,000.00 were properly due to them (not
P12,000,000.00 as the Court of Appeals erroneously stated) as well as exemplary damages in
the sum of P100,000.00 and that in the prayer of their complaint, they did not specify the
amount of moral and exemplary damages sought from the trial court. We do not believe,
however, that the Manchester doctrine, which has been modified and clarified in subsequent
decision by the Court in Sun Insurance Office, Ltd. (SIOL), et al. v. Asuncion, et al. 28 can be
applied in the instant case so as to work a striking out of that portion of the trial court's award
which could be deemed nationally to constitute an award of moral and exemplary damages.
Manchester was promulgated by the Court on 7 May 1987. Circular No. 7 of this Court, which
embodied the doctrine in Manchester, is dated 24 March 1988. Upon the other hand, the
complaint in the case at bar was filed on 29 December 1980, that is, long before either
Manchester or Circular No. 7 of 24 March 1988 emerged. The decision of the trial court was
itself promulgated on 17 July 1986, again, before Manchester and Circular No. 7 were
promulgated. We do not believe that Manchester should have been applied retroactively to this
case where a decision on the merits had already been rendered by the trial court, even though
such decision was then under appeal and had not yet reached finality. There is no indication at
all that petitioners here sought simply to evade payment of the court's filing fees or to mislead
the court in the assessment of the filing fees. In any event, we apply Manchester as clarified and
amplified by Sun Insurance Office Ltd. (SIOL), by holding that the petitioners shall pay the
additional filing fee that is properly payable given the award specified below, and that such
additional filing fee shall constitute a lien upon the judgment.

We consider, finally, the amount of damages-compensatory, moral and exemplary-properly
imposable upon private respondents in this case. The original award of the trial court of
P400,000.00 could well have been disaggregated by the trial court and the Court of Appeals in
the following manner:

actual or compensatory damages proved in the course of trial consisting of actual expenses
incurred by petitioners

in their search for their

parents' bodies- -P126,000.00

actual or compensatory
damages in case of

wrongful death

(P30,000.00 x 2) -P60,000.00 29

(3) moral damages -P107,000.00

(4) exemplary damages -P107,000.00

Total -P400,000.00

Considering that petitioners, legitimate children of the deceased spouses Mecenas, are seven
(7) in number and that they lost both father and mothe in one fell blow of fate, and considering
the pain and anxiety they doubtless experienced while searching for their parents among the
survivors and the corpses recovered from the sea or washed ashore, we believe that an
additional amount of P200,000.00 for moral damages, making a total of P307,000.00 for moral
damages, making a total of P307,000.00 as moral damages, would be quite reasonable.

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that
is socially deleterious in its consequence by creating negative incentives or deterrents against
such behaviour. In requiring compliance with the standard which is in fact that of the highest
possible degree of diligence, from common carriers and in creating a presumption of negligence
against them, the law seels to compel them to control their employees, to tame their reckless
instincts and to force them to take adequate care of human beings and their property. The Court
will take judicial notive of the dreadful regularity with which grievous maritime disasters occur in
our waters with massive loss of life. The bulk of our population is too poor to afford domestic air
transportation. So it is that notwithstanding the frequent sinking of passenger vessels in our
waters, crowds of people continue to travel by sea. This Court is prepared to use the
instruments given to it by the law for securing the ends of law and public policy. One of those
instruments is the institution of exemplary damages; one of those ends, of special importance in
an archipelagic state like the Philippines, is the safe and reliable carriage of people and goods
by sea. Considering the foregoing, we believe that an additional award in the amount of
P200,000.00 as exmplary damages, is quite modest.

The Court is aware that petitioners here merely asked for the restoration of the P 400.000.00
award of the trial court. We underscore once more, however, the firmly settled doctrine that this
Court may consider and resolved all issues which must be decided in order to render substantial
justice to the parties, including issues not explicity raised by the party affected. In the case at
bar, as in Kapalaran Bus Line v. Coronado, et al., 30 both the demands of sustantial justice and
the imperious requirements of public policy compel us to the conclusion that the trial court's
implicit award of moral and exemplary damages was erronoeusly deledted and must be
restored and augmented and brought more nearely to the level required by public policy and
substantial justice.

WHEREFORE, the Petition for Review on certiorari is hereby GRANTED and the Decision of
the Court of Appeals insofar as it redurce the amount of damages awarded to petitioners to
P100,000.00 is hereby REVERSED and SET ASIDE. The award granted by the trial court is
hereby RESTORED and AUGMENTED as follows:

(a) P 126,000.00 for actual damages;

(b) P 60,000.00 as compensatory damages for wrongful death;

(c) P 307,000.00 as moral damages;

(d) P 307,000.00 as exemplary damages making a total of P 800,000.00; and

(e) P 15,000.00 as attorney's fees.

Petitioners shall pay the additional filing fees properly due and payable in view of the award
here made, which fees shall be computed by the Clerks of Court of the trial court, and shall
constitute a lien upon the judgment here awarded. Cost against private respondents.


G.R. No. L-28692 J uly 30, 1982

ABETO, plaintiffs-appellees,


Appeal from the decision of the Court of First Instance of Iloilo finding that defendant-appellant
"did not exercise extraordinary diligence or prudence as far as human foresight can provide ...
but on the contrary showed negligence and indifference for the safety of the passengers that it
was bound to transport, " and for the death of Judge Quirico Abeto, defendant- appellant was
ordered to pay plaintiffs, the heirs of Judge Abeto, the following:

1st For the death of Judge Quirico Abeto, the amount of P6,000.00;

2nd For the loss of his earning capacity, for 4.75 (4 ) years at the rate of P7,200.00 per
annum in the amount of P34,200.00;

3rd For moral damages in favor of the plaintiffs in the sum of P10,000.00;

4th For actual damages in the sum of P2,000.00 minus P400.00 received under Voucher
Exhibit 'H' the amount of Pl,600.00;

5th For attorney's fees, the sum of P6,000.00 and/or the total sum of P57,800.00 and; To pay
the costs of this proceedings.

Plaintiff's evidence shows that about 5:30 in the afternoon of November 23, 1960, Judge Quirico
Abeto, with the necessary tickets, boarded the Philippine Air Lines' PI-C133 plane at the
Mandurriao Airport, Iloilo City for Manila. He was listed as the No. 18 passenger in its Load
Manifest (Exhibit A). The plane which would then take two hours from Iloilo to Manila did not
reach its destination and the next day there was news that the plane was missing. After three
weeks, it was ascertained that the plane crashed at Mt. Baco, Province of Mindoro. All the
passengers, including Judge Abeto, must have been killed instantly and their remains were
scattered all over the area. Among the articles recovered on the site of the crash was a leather
bag with the name "Judge Quirico Abeto. " (Exhibit C.)

Judge Abeto, prior to the plane crash, was a Technical Assistant in the Office of the President
receiving an annual compensation of P7,200.00; and before that, has held the various positions
in the government, namely: Municipal President of Iloilo; Provincial Fiscal of Antique, Negros
Occidental and Cebu; Judge of the Court of First Instance of Manila, and Secretary of Justice.
He was in good health before the incident even if he was already 79 years old at that time.

Plaintiff-appellee Conrada Vda. de Abeto was appointed administratrix of the estate of Judge
Abeto. The other plaintiffs-appellees are the children of the deceased. When they received the
news of the plane crash, Mrs. Abeto was shocked and until it was ascertained that the plane
had crashed three weeks after, she could not sleep and eat. She felt sick and was miserable
after that. The members of the family also suffered.

Personal belongings which were lost amounted to P300.00. Burial expenses of the late judge
was P1,700.00.

When defendant-appellant would not hear demands for settlement of damages, plaintiffs-
appellees were compelled to hire counsel for the institution and prosecution of this case.

Defendant-appellant tried to prove that the plane crash at Mt. Baco was beyond the control of
the pilot. The plane at the time of the crash was airworthy for the purpose of conveying
passengers across the country as shown by the certificate of airworthiness issued by the Civil
Aeronautics Administration (CAA). There was navigational error but no negligence or
malfeasance on the part of the pilot. The plane had undergone 1,822 pre- flight checks, 364
thorough checks, 957 terminating checks and 501 after maintenance checks. These checks
were part of the quality control operation of defendant airline Further, deviation from its
prescribed route was due to the bad weather conditions between Mt. Baco and Romblon and
strong winds which caused the plane to drift to Mt. Baco. Under the circumstances, appellant
argues that the crash was a fortuitous event and, therefore, defendant-appellant cannot be held
liable under the provisions of Article 1174 of the New Civil Code. Besides, appellant tried to
prove that it had exercised all the cares, skill and diligence required by law on that particular
flight in question.

The trial court, finding for the plaintiffs, said:

The Court after a thorough perusal of the evidences, testimonial and documentaries submitted
by both parties has come into the conclusion that the evidence introduced by the plaintiffs have
established the following significant facts which proved the negligence of the defendant's pilot of
the plane on that flight- in question.

1st That the Pilot of the plane disobeyed instruction given in not following the route of Amber
1 prescribed by the CAA in Violation of Standard Regulation.

Second The defendant failed to perform the pre-flight test on plane PIC-133 before the same
took off from Mandurriao Airport to Manila in order to find out a possible defect of the plane.

Third When the defendant allowed during the flight in question, student Officer Rodriguez on
training as proved when his body was found on the plane's cockpit with its microphone hanging
still on his left leg.

Fourth When the Pilot during the flight in question failed or did not report his position over or
abeam Romblon which is a compulsory reporting point.

These facts as established by the evidence of the plaintiff lead to the inevitable conclusion that
the defendant did not exercise extraordinary diligence or prudence as far as human foresight
can provide imposed upon by the Law, but on the contrary showed negligence and indifference
for the safety of the passengers that it was bound to transport. By the very evidence of the
defendant, as shown by the deposition of one Jose Abanilla, dated December 13, 1963, Section
Chief of the Actuarial Department of the Insular Life Insurance Company regarding life
expectancy through American experience, the late Judge Abeto at the age of 79 would still live
or have a life expectancy of 4.75 years.

Appealing to this Court, defendant claimed that the trial court erred:


... in finding, contrary to the evidence, that the appellant was negligent;


... in not finding that the appellant, in the conduct and operation of PI-C133, exercised its
statutory obligation over the passengers of PI C133 of extraordinary diligence as far as human
care and foresight can provide, using the utmost diligence of a very cautious person with due
regard for all the circumstances and in not finding that the crash of PI-C133 was caused by
fortuitous events;

... in awarding damages to the appellees; and


... in not finding that appellant acted in good faith and exerted efforts to minimize damages.

The issue before Us in this appeal is whether or not the defendant is liable for violation of its
contract of carriage.

The provisions of the Civil Code on this question of liability are clear and explicit. Article 1733
binds common carriers, "from the nature of their business and by reasons of public policy, ... to
observe extraordinary diligence in the vigilance ... for the safety of the passengers transported
by them according to all the circumstances of each case." Article 1755 establishes the standard
of care required of a common carrier, which is, "to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances." Article 1756 fixes the burden of proof by providing that "in
case of death of or injuries to passengers, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they observed extra-ordinary diligence as
prescribed in Articles 1733 and 1755." Lastly, Article 1757 states that "the responsibility of a
common carrier for the safety of passengers ... cannot be dispensed with or lessened by
stipulation, by the posting of notices, by statements on tickets, or otherwise."

The prescribed airway of plane PI-C133 that afternoon of November 23, 1960, with Capt. de
Mesa, as the pilot, was Iloilo-Romblon-Manila, denominated as airway "Amber l," and the
prescribed elevation of the flight was 6,000 ft. The fact is, the plane did not take the designated
route because it was some 30 miles to the west when it crashed at Mt. Baco. According to
defendant's witness, Ramon A. Pedroza, Administrative Assistant of the Philippine Air Lines,
Inc., this tragic crash would have not happened had the pilot continued on the route indicated.
Hereunder is Mr. Pedroza's testimony on this point:

Q Had the pilot continued on the route indicated, Amber A-1 there would have been no crash,

A Yes, Your Honor


(To the witness)

Q Because Mt. Baco is 30 miles from Amber I?

A Yes,sir.(TSN,p.75,Oct.22,1963 hearing)

xxx xxx xxx

And, Assistant Director Cesar Mijares of the Civil Aeronautics Administration testified that the
pilot of said plane was "off course."

Q But the fact is that you found him out, that he was off course?

A Yes, sir.

Q And off course, you mean that he did not follow the route prescribed for him?

A Yes, sir.

Q And the route for him to follow was Amber A-l?

A Yes, sir.

Q And the route for Iloilo direct to Manila, is passing Romblon to Manila?

A Yes, passing Romblon to Manila.

Q And you found that he was not at all following the route to Romblon to Manila?

A Yes, sir.

Q You know Mr. Witness that a disregard or, violation, or disregard of instruction is punishable
by law?

A Yes,sir. (TSN,pp.247-248,Dec. 20, 1963)

xxx xxx xxx

It is clear that the pilot did not follow the designated route for his flight between Romblon and
Manila. The weather was clear and he was supposed to cross airway "Amber I" over Romblon;
instead, he made a straight flight to Manila in violation of air traffic rules.

At any rate, in the absence of a satisfactory explanation by appellant as to how the accident
occurred, the presumption is, it is at fault.

In an action based on a contract of carriage, the court need not make an express finding of fault
or negligence on the part of the carrier in order to hold it responsible to pay the damages sought
for by the passenger. By the contract of carriage, the carrier assumes the express obligation to
transport the passenger to his destination safely and to observe extraordinary diligence with a
due regard for all the circumstances, and any injury that might be suffered by the passenger is
right away attributable to the fault or negligence of the carrier (Art. 1756, New Civil Code). This
is an exception to the general rule that negligence must be proved. (Batangas Transportation
Company vs. Caguimbal, 22 SCRA 171.)

The total of the different items which the lower court adjudged herein appellant to pay the
plaintiffs is P57,800.00. The judgment of the court a quo is modified in the sense that the
defendant is hereby ordered to pay the said amount to the plaintiffs, with legal interest thereon
from the finality of this judgment. With costs against defendant-appellant.

G.R. No. L-23733 October 31, 1969

HERMINIO L. NOCUM, plaintiff-appellee,
LAGUNA TAYABAS BUS COMPANY, defendant-appellant.


Appeal of the Laguna Tayabas Bus Co., defendant in the Court below, from a judgment of the
said court (Court of First Instance of Batangas) in its Civil Case No. 834, wherein appellee
Herminio L. Nocum was plaintiff, sentencing appellant to pay appellee the sum of P1,351.00 for
actual damages and P500.00 as attorney's fees with legal interest from the filing of the
complaint plus costs. Appellee, who was a passenger in appellant's Bus No. 120 then making a
trip within the barrio of Dita, Municipality of Bay, Laguna, was injured as a consequence of the
explosion of firecrackers, contained in a box, loaded in said bus and declared to its conductor as
containing clothes and miscellaneous items by a co-passenger. The findings of fact of the trial
court are not assailed. The appeal is purely on legal questions.

Appellee has not filed any brief. All that We have before Us is appellant's brief with the following
assignment of errors:







Upon consideration of the points raised and discussed by appellant, We find the appeal to be
well taken.

The main basis of the trial court's decision is that appellant did not observe the extraordinary or
utmost diligence of a very cautious person required by the following articles of the Civil Code:

ART. 1733. Common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed in articles
1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in articles 1755 and 1756.

ART. 1755. A common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due
regard for all the circumstances.

ART 1756. In case of death of or injuries to passengers, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.

Analyzing the evidence presented by the parties, His Honor found:

According to Severino Andaya, a witness for the plaintiff, a man with a box went up the baggage
compartment of the bus where he already was and said box was placed under the seat. They
left Azcarraga at about 11:30 in the morning and when the explosion occurred, he was thrown
out. PC investigation report states that thirty seven (37) passengers were injured (Exhibits "O"
and "2").

The bus conductor, Sancho Mendoza, testified that the box belonged to a passenger whose
name he does not know and who told him that it contained miscellaneous items and clothes. He
helped the owner in loading the baggage which weighed about twelve (12) kilos and because of
company regulation, he charged him for it twenty-five centavos (P0.25). From its appearance
there was no indication at all that the contents were explosives or firecrackers. Neither did he
open the box because he just relied on the word of the owner.

Dispatcher Nicolas Cornista of defendant company corroborrated the testimony of Mendoza and
he said, among other things, that he was present when the box was loaded in the truck and the
owner agreed to pay its fare. He added that they were not authorized to open the baggages of
passengers because instruction from the management was to call the police if there were
packages containing articles which were against regulations.

xxx xxx xxx

There is no question that Bus No. 120 was road worthy when it left its Manila Terminal for
Lucena that morning of December 5, 1960. The injuries suffered by the plaintiff were not due to
mechanical defects but to the explosion of firecrackers inside the bus which was loaded by a co-

... Turning to the present case, it is quite clear that extraordinary or utmost diligence of a very
cautious person was not observed by the defendant company. The service manual, exhibits "3"
and "3-A," prohibits the employees to allow explosives, such as dynamite and firecrackers to be
transported on its buses. To implement this particular rule for 'the safety of passengers, it was
therefore incumbent upon the employees of the company to make the proper inspection of all
the baggages which are carried by the passengers.

But then, can it not be said that the breach of the contract was due to fortuitous event? The
Supreme Court in the case of Lasam vs. Smith, 45 Phil. 657, quoted Escriche's definition of
caso fortuito as "an unexpected event or act of God which could neither be foreseen nor
resisted, such as floods, torrents, shipwrecks, conflagrations, lightning, compulsions,
insurrections, destructions of buildings by unforeseen accidents and other occurrences of a
similar nature." In other words, the cause of the unexpected event must be independent of the
will of man or something which cannot be avoided. This cannot be said of the instant case. If
proper and rigid inspection were observed by the defendant, the contents of the box could have
been discovered and the accident avoided. Refusal by the passenger to have the package
opened was no excuse because, as stated by Dispatcher Cornista, employees should call the
police if there were packages containing articles against company regulations. Neither was
failure by employees of defendant company to detect the contents of the packages of
passengers because like the rationale in the Necesito vs. Paras case (supra), a passenger has
neither choice nor control in the exercise of their discretion in determining what are inside the
package of co-passengers which may eventually prove fatal.

We cannot agree. No doubt, the views of His Honor do seem to be in line with the reasons that
the Code Commission had for incorporating the above-quoted provisions in its draft of the Civil
Code. Indeed, in approving the said draft, Congress must have concurred with the Commission
that by requiring the highest degree of diligence from common carriers in the safe transport of
their passengers and by creating a presumption of negligence against them, the recklessness of
their drivers which is a common sight even in crowded areas and, particularly, on the highways
throughout the country may, somehow, if not in a large measure, be curbed. We are not
convinced, however, that the exacting criterion of said provisions has not been met by appellant
in the circumstances of this particular case.

It is undisputed that before the box containing the firecrackers were allowed to be loaded in the
bus by the conductor, inquiry was made with the passenger carrying the same as to what was in
it, since its "opening ... was folded and tied with abaca." (Decision p. 16, Record on Appeal.)
According to His Honor, "if proper and rigid inspection were observed by the defendant, the
contents of the box could have been discovered and the accident avoided. Refusal by the
passenger to have the package opened was no excuse because, as stated by Dispatcher
Cornista, employees should call the police if there were packages containing articles against
company regulations." That may be true, but it is Our considered opinion that the law does not
require as much. Article 1733 is not as unbending as His Honor has held, for it reasonably
qualifies the extraordinary diligence required of common carriers for the safety of the
passengers transported by them to be "according to all the circumstances of each case." In fact,
Article 1755 repeats this same qualification: "A common carrier is bound to carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of
very cautious persons, with due regard for all the circumstances."

In this particular case before Us, it must be considered that while it is true the passengers of
appellant's bus should not be made to suffer for something over which they had no control, as
enunciated in the decision of this Court cited by His Honor,1 fairness demands that in
measuring a common carrier's duty towards its passengers, allowance must be given to the
reliance that should be reposed on the sense of responsibility of all the passengers in regard to
their common safety. It is to be presumed that a passenger will not take with him anything
dangerous to the lives and limbs of his co-passengers, not to speak of his own. Not to be lightly
considered must be the right to privacy to which each passenger is entitled. He cannot be
subjected to any unusual search, when he protests the innocuousness of his baggage and
nothing appears to indicate the contrary, as in the case at bar. In other words, inquiry may be
verbally made as to the nature of a passenger's baggage when such is not outwardly
perceptible, but beyond this, constitutional boundaries are already in danger of being
transgressed. Calling a policeman to his aid, as suggested by the service manual invoked by
the trial judge, in compelling the passenger to submit to more rigid inspection, after the
passenger had already declared that the box contained mere clothes and other miscellaneous,
could not have justified invasion of a constitutionally protected domain. Police officers acting
without judicial authority secured in the manner provided by law are not beyond the pale of
constitutional inhibitions designed to protect individual human rights and liberties. Withal, what
must be importantly considered here is not so much the infringement of the fundamental sacred
rights of the particular passenger herein involved, but the constant threat any contrary ruling
would pose on the right of privacy of all passengers of all common carriers, considering how
easily the duty to inspect can be made an excuse for mischief and abuse. Of course, when
there are sufficient indications that the representations of the passenger regarding the nature of
his baggage may not be true, in the interest of the common safety of all, the assistance of the
police authorities may be solicited, not necessarily to force the passenger to open his baggage,
but to conduct the needed investigation consistent with the rules of propriety and, above all, the
constitutional rights of the passenger. It is in this sense that the mentioned service manual
issued by appellant to its conductors must be understood.

Decisions in other jurisdictions cited by appellant in its brief, evidently because of the paucity of
local precedents squarely in point, emphasize that there is need, as We hold here, for evidence
of circumstances indicating cause or causes for apprehension that the passenger's baggage is
dangerous and that it is failure of the common carrier's employee to act in the face of such
evidence that constitutes the cornerstone of the common carrier's liability in cases similar to the
present one.

The principle that must control the servants of the carrier in a case like the one before us is
correctly stated in the opinion in the case of Clarke v. Louisville & N.R. Co. 20 Ky L. Rep. 839,
49 S.W. 1120. In that case Clarke was a passenger on the defendant's train. Another passenger
took a quantity of gasoline into the same coach in which Clarke was riding. It ignited and
exploded, by reason of which he was severely injured. The trial court peremptorily instructed the
jury to find for the defendant. In the opinion, affirming the judgment, it is said: "It may be stated
briefly, in assuming the liability of a railroad to its passengers for injury done by another
passenger, only where the conduct of this passenger had been such before the injury as to
induce a reasonably prudent and vigilant conductor to believe that there was reasonable ground
to apprehend violence and danger to the other passengers, and in that case asserting it to be
the duty of the conductor of the railroad train to use all reasonable means to prevent such injury,
and if he neglects this reasonable duty, and injury is done, that then the company is
responsible; that otherwise the railroad is not responsible."

The opinion quotes with approval from the case of Gulf, C. & S. F. R. Co. vs. Shields, 9 Tex.
Civ. App. 652, 29 S. W. 652, in which case the plaintiff was injured by alcohol which had been
carried upon the train by another passenger. In the opinion in that case it is said: "It was but a
short period of time after the alcohol was spilt when it was set on fire and the accident occurred,
and it was not shown that appellant's employees knew that the jug contained alcohol. In fact, it
is not shown that the conductor or any other employee knew that Harris had a jug with him until
it fell out of the sack, though the conductor had collected ... (his) fare, and doubtless knew that
he had the sack on the seat with him. ... It cannot be successfully denied that Harris had the
right as a passenger to carry baggage on the train, and that he had a right to carry it in a sack if
he chose to do so. We think it is equally clear that, in the absence of some intimation or
circumstance indicating that the sack contained something dangerous to other passengers, it
was not the duty of appellant's conductor or any other employee to open the sack and examine
its contents." Quinn v. Louisville & N. R. Co. 98 Ky. 231, 32 S. W. 742; Wood v. Louisville & N.
R. Co. 101 Ky. 703, 42 S. W. 349; Louisville & N. R. Co. v. Vincent, 29 Ky. L. Rep. 1049, 96 S.
W. 898; Louisville & N. R. Co. v. Renfro, 142 Ky. 590, 33 L. R. A. (N. S.) 133, 135 S. W. 266.2
(Emphasis supplied)

Explosive or Dangerous Contents. A carrier is ordinarily not liable for injuries to passengers
from fires or explosions caused by articles brought into its conveyances by other passengers, in
the absence of any evidence that the carrier, through its employees, was aware of the nature of
the article or had any reason to anticipate danger therefrom. (Bogard v. Illinois C. R Co. 144 Ky.
649, 139 S. W. 855, 36 L. R. A.[N. S.] 337; Clarke v. Louisville & N. R. Co. 101 Ky. 34, 39 S. W.
840, 36 L. R. A. 123 [explosion of can of gasoline]; East Indian R. Co. v. Mukerjee [1901] A. C.
[Eng.] 396, 3 B. R. C. 420 P. C. [explosion of fireworks]; Annotation: 37 L. R. A. [N. S.] 725.)3

Appellant further invokes Article 1174 of the Civil Code which relieves all obligors, including, of
course, common carriers like appellant, from the consequence of fortuitous events. The court a
quo held that "the breach of contract (in this case) was not due to fortuitous event and that,
therefore, the defendant is liable in damages." Since We hold that appellant has succeeded in
rebutting the presumption of negligence by showing that it has exercised extraordinary diligence
for the safety of its passengers, "according to the circumstances of the (each) case", We deem
it unnecessary to rule whether or not there was any fortuitous event in this case.

ACCORDINGLY, the appealed judgment of the trial court is reversed and the case is dismissed,
without costs.

G.R. No. L-22985 J anuary 24, 1968



Appeal by certiorari from a decision of the Court of Appeals.

The main facts are set forth in said decision from which we quote:

There is no dispute at all that the deceased Pedro Caguimbal, Barrio Lieutenant of Barrio
Calansayan, San Jose, Batangas, was a paying passenger of BTCO bus, with plate TPU-507,
going south on its regular route from Calamba, Laguna, to Batangas, Batangas, driven by
Tomas Perez, its regular driver, at about 5:30 o'clock on the early morning of April 25, 1954.
The deceased's destination was his residence at Calansayan, San Jose, Batangas. The bus of
the Bian Transportation Company, bearing plate TPU-820, driven by Marciano Ilagan, was
coming from the opposite direction (north-bound). Along the national highway at Barrio Daraza,
Tanauan, Batangas, on the date and hour above indicated, a horse-driven rig (calesa) managed
by Benito Makahiya, which was then ahead of the Bian bus, was also coming from the
opposite direction, meaning proceeding towards the north. As to what transpired thereafter, the
lower court chose to give more credence to defendant Batangas Transportation Company's
version which, in the words of the Court a quo, is as follows: "As the BTCO bus was nearing a
house, a passenger requested the conductor to stop as he was going to alight, and when he
heard the signal of the conductor, the driver Tomas Perez slowed down his bus swerving it
farther to the right in order to stop; at this juncture, a calesa, then driven by Benito Makahiya
was at a distance of several meters facing the BTCO bus coming from the opposite direction;
that at the same time the Bian bus was about 100 meters away likewise going northward and
following the direction of the calesa; that upon seeing the Bian bus the driver of the BTCO bus
dimmed his light as established by Magno Ilaw, the very conductor of the Bian bus at the time
of the accident; that as the calesa and the BTCO bus were passing each other from the
opposite directions, the Bian bus following the calesa swerved to its left in an attempt to pass
between the BTCO bus and the calesa; that without diminishing its speed of about seventy (70)
kilometers an hour, the Bian bus passed through the space between the BTCO bus and the
calesa hitting first the left side of the BTCO bus with the left front corner of its body and then
bumped and struck the calesa which was completely wrecked; that the driver was seriously
injured and the horse was killed; that the second and all other posts supporting the top of the left
side of the BTCO bus were completely smashed and half of the back wall to the left was ripped
open. (Exhibits 1 and 2). The BTCO bus suffered damages for the repair of its damaged portion.

As a consequence of this occurrence, two (2) passengers of BTCO died, namely, Pedro
Caguimbal and Guillermo Tolentino, apart from others who were injured. The widow and
children of Caguimbal instituted the present action, which was tried jointly with a similar action of
the Tolentinos, to recover damages from the Batangas Transportation Company, hereinafter
referred to as BTCO. The latter, in turn, filed a third-party complaint against the Bian
Transportation Company hereinafter referred to as Bian and its driver, Marciano Ilagan.
Subsequently, the Caguimbals amended their complaint, to include therein, as defendants, said
Bian and Ilagan.

After appropriate proceedings, the Court of First Instance of Batangas rendered a decision
dismissing the complaint insofar as the BTCO is concerned, without prejudice to plaintiff's right
to sue Bian which had stopped participating in the proceedings herein, owing apparently, to
a case in the Court of First Instance of Laguna for the insolvency of said enterprise and
Ilagan, and without pronouncement as to costs.

On appeal taken by the Caguimbals, the Court of Appeals reversed said decision and rendered
judgment for them, sentencing the BTCO, Bian and Ilagan to, jointly and severally, pay to the
plaintiffs the aggregate sum of P10,500.00 1 and the costs in both instances. Hence, this appeal
by BTCO, upon the ground that the Court of Appeals erred: 1) in finding said appellant liable for
damages; and 2) in awarding attorney's fees.

In connection with the first assignment of error, we note that the recklessness of defendant was,
manifestly, a major factor in the occurrence of the accident which resulted, inter alia, in the
death of Pedro Caguimbal. Indeed, as driver of the Bian bus, he overtook Benito Makahiya's
horse-driven rig or calesa and passed between the same and the BTCO bus despite the fact
that the space available was not big enough therefor, in view of which the Bian bus hit the left
side of the BTCO bus and then the calesa. This notwithstanding, the Court of Appeals rendered
judgment against the BTCO upon the ground that its driver, Tomas Perez, had failed to exercise
the "extraordinary diligence," required in Article 1733 of the new Civil Code, "in the vigilance for
the safety" of his passengers. 2

The record shows that, in order to permit one of them to disembark, Perez drove his BTCO bus
partly to the right shoulder of the road and partly on the asphalted portion thereof. Yet, he could
have and should have seen to it had he exercised "extraordinary diligence" that his bus
was completely outside the asphalted portion of the road, and fully within the shoulder thereof,
the width of which being more than sufficient to accommodate the bus. He could have and
should have done this, because, when the aforementioned passenger expressed his wish to
alight from the bus, Ilagan had seen the aforementioned "calesa", driven by Makahiya, a few
meters away, coming from the opposite direction, with the Bian bus about 100 meters behind
the rig cruising at a good speed. 3 When Perez slowed down his BTCO bus to permit said
passenger to disembark, he must have known, therefore, that the Bian bus would overtake the
calesa at about the time when the latter and BTCO bus would probably be on the same line, on
opposite sides of the asphalted portions of the road, and that the space between the BTCO bus
and the "calesa" would not be enough to allow the Bian bus to go through. It is true that the
driver of the Bian bus should have slowed down or stopped, and, hence, was reckless in not
doing so; but, he had no especial obligations toward the passengers of the BTCO unlike Perez
whose duty was to exercise "utmost" or "extraordinary" diligence for their safety. Perez was thus
under obligation to avoid a situation which would be hazardous for his passengers, and, make
their safety dependent upon the diligence of the Bian driver. Such obligation becomes more
patent when we considered the fact of which the Court may take judicial cognizance that
our motor vehicle drivers, particularly those of public service utilities, have not distinguished
themselves for their concern over the safety, the comfort or the convenience of others. Besides,
as correctly stated in the syllabus to Brito Sy vs. Malate Taxicab & Garage, Inc., 4

In an action based on a contract of carriage, the court need not make an express finding of fault
or negligence on the part of the carrier in order to hold it responsible to pay the damages sought
for by the passenger. By the contract of carriage, the carrier assumes the express obligation to
transport the passenger to his destination safely and to observe extraordinary diligence with a
due regard for all the circumstances, and any injury that might be suffered by the passenger is
right away attributable to the fault or negligence of the carrier (Article 1756, new Civil Code).
This is an exception to the general rule that negligence must be proved, and it is therefore
incumbent upon the carrier to prove that it has exercised extraordinary diligence as prescribed
in Articles 1733 and 1755 of the new Civil Code.

In the case at bar, BTCO has not proven the exercise of extraordinary diligence on its part. For
this reason, the case of Isaac vs. A. L. Ammen Trans. Co., Inc. 5 relied upon by BTCO, is not in
point, for, in said case, the public utility driver had done everything he could to avoid the
accident, and could not have possibly avoided it, for he "swerved the bus to the very extreme
right of the road," which the driver, in the present case, had failed to do.

As regards the second assignment of error, appellant argues that the award of attorney's fees is
not authorized by law, because, of the eleven (11) cases specified in Article 1208 of the new
Civil Code, only the fifth and the last are relevant to the one under consideration; but the fifth
case requires bad faith, which does not exist in the case at bar. As regards the last case, which
permits the award, "where the court deems it just and equitable that attorney's fees . . . should
be recovered," it is urged that the evidence on record does not show the existence of such just
and equitable grounds.

We, however, believe otherwise, for: (1) the accident in question took place on April 25, 1954,
and the Caguimbals have been constrained to litigate for over thirteen (13) years to vindicate
their rights; and (2) it is high time to impress effectively upon public utility operators the nature
and extent of their responsibility in respect of the safety of their passengers and their duty to
exercise greater care in the selection of drivers and conductor and in supervising the
performance of their duties, in accordance, not only with Article 1733 of the Civil Code of the
Philippines, but, also, with Articles 1755 and 1756 thereof 6 and the spirit of these provisions, as
disclosed by the letter thereof, and elucidated by the Commission that drafted the same. 7

WHEREFORE, the decision appealed from, should be, as it is hereby, affirmed, with the costs
of this instance against appellant Batangas Transportation Company.

[G.R. No. 128607. J anuary 31, 2000]




ALFREDO MALLARI SR. and ALFREDO MALLARI JR. in this petition for review on certiorari
seek to set aside the Decision of the Court of Appeals[1] which reversed the court a quo and
adjudged petitioners to be liable for damages due to negligence as a common carrier resulting
in the death of a passenger.

On 14 October 1987, at about 5:00 o'clock in the morning, the passenger jeepney driven by
petitioner Alfredo Mallari Jr. and owned by his co-petitioner Alfredo Mallari Sr. collided with the
delivery van of respondent Bulletin Publishing Corp. (BULLETIN, for brevity) along the National
Highway in Barangay San Pablo, Dinalupihan, Bataan. Petitioner Mallari Jr. testified that he
went to the left lane of the highway and overtook a Fiera which had stopped on the right lane.
Before he passed by the Fiera, he saw the van of respondent BULLETIN coming from the
opposite direction. It was driven by one Felix Angeles. The sketch of the accident showed that
the collision occurred after Mallari Jr. overtook the Fiera while negotiating a curve in the
highway. The points of collision were the left rear portion of the passenger jeepney and the left
front side of the delivery van of BULLETIN. The two (2) right wheels of the delivery van were on
the right shoulder of the road and pieces of debris from the accident were found scattered along
the shoulder of the road up to a certain portion of the lane travelled by the passenger jeepney.
The impact caused the jeepney to turn around and fall on its left side resulting in injuries to its
passengers one of whom was Israel Reyes who eventually died due to the gravity of his injuries.

On 16 December 1987 Claudia G. Reyes, the widow of Israel M. Reyes, filed a complaint for
damages with the Regional Trial Court of Olongapo City against Alfredo Mallari Sr. and Alfredo
Mallari Jr., and also against BULLETIN, its driver Felix Angeles, and the N.V. Netherlands
Insurance Company. The complaint alleged that the collision which resulted in the death of
Israel Reyes was caused by the fault and negligence of both drivers of the passenger jeepney
and the Bulletin Isuzu delivery van. The complaint also prayed that the defendants be ordered
jointly and severally to pay plaintiff P1,006,777.40 in compensatory damages, P40,000.00 for
hospital and medical expenses, P18,270.00 for burial expenses plus such amounts as may be
fixed by the trial court for exemplary damages and attorneys fees.

The trial court found that the proximate cause of the collision was the negligence of Felix
Angeles, driver of the Bulletin delivery van, considering the fact that the left front portion of the
delivery truck driven by Felix Angeles hit and bumped the left rear portion of the passenger
jeepney driven by Alfredo Mallari Jr. Hence, the trial court ordered BULLETIN and Felix Angeles
to pay jointly and severally Claudia G. Reyes, widow of the deceased victim, the sums of
P42,106.93 for medical expenses; P8,600.00 for funeral and burial expenses; P1,006,777.40 for
loss of earning capacity; P5,000.00 for moral damages and P10,000.00 for attorneys fees. The
trial court also ordered N.V. Netherlands Insurance Company to indemnify Claudia G. Reyes
P12,000.00 as death indemnity and P2,500.00 for funeral expenses which when paid should be
deducted from the liabilities of respondent BULLETIN and its driver Felix Angeles to the plaintiff.
It also dismissed the complaint against the other defendants Alfredo Mallari Sr. and Alfredo
Mallari Jr.

On appeal the Court of Appeals modified the decision of the trial court and found no negligence
on the part of Angeles and consequently of his employer, respondent BULLETIN. Instead, the
appellate court ruled that the collision was caused by the sole negligence of petitioner Alfredo
Mallari Jr. who admitted that immediately before the collision and after he rounded a curve on
the highway, he overtook a Fiera which had stopped on his lane and that he had seen the van
driven by Angeles before overtaking the Fiera. The Court of Appeals ordered petitioners Mallari
Jr. and Mallari Sr. to compensate Claudia G. Reyes P1,006,777.50 for loss of earning capacity,
P50,000.00 as indemnity for death and P10,000.00 for attorneys fees. It absolved from any
liability respondent BULLETIN, Felix Angeles and N.V. Netherlands Insurance Company. Hence
this petition. Oldmis o

Petitioners contend that there is no evidence to show that petitioner Mallari Jr. overtook a
vehicle at a curve on the road at the time of the accident and that the testimony of Angeles on
the overtaking made by Mallari Jr. was not credible and unreliable. Petitioner also submits that
the trial court was in a better position than the Court of Appeals to assess the evidence and
observe the witnesses as well as determine their credibility; hence, its finding that the proximate
cause of the collision was the negligence of respondent Angeles, driver of the delivery van
owned by respondent BULLETIN, should be given more weight and consideration.

We cannot sustain petitioners. Contrary to their allegation that there was no evidence
whatsoever that petitioner Mallari Jr. overtook a vehicle at a curve on the road at the time of or
before the accident, the same petitioner himself testified that such fact indeed did occur -

Q:.......And what was that accident all about?

A:.......Well, what happened, sir, is that at about that time 5:00 oclock in that morning of October
14 while I was negotiating on the highway at San Pablo, Dinalupihan, Bataan, I was then
following a blue Ford Fierra and my distance behind was about twenty (20) feet and then I
passed that blue Ford Fierra. I overtook and when I was almost on the right lane of the highway
towards Olongapo City there was an oncoming delivery van of the Bulletin Publishing
Corporation which bumped the left rear portion of the jeepney which I was driving and as a
result of which the jeepney x x x turned around and fell on its left side and as a result of which
some of my passengers including me were injured, sir x x x x

Q:.......Before you overtook the Ford Fierra jeepney did you look x x x whether there was any
vehicle coming towards you?

A:.......Yes, sir.

Q:.......Did you see the Bulletin van or the Press van coming towards you?

A:.......Yes, sir.

Q:.......At the moment the Ford Fierra xxx stop(ped) and in overtaking the Fierra, did you not
have an option to stop and not to overtake the Ford Fierra?

A:.......Well, at the time when the Ford Fierra stopped in front of me I slowed down with the
intention of applying the brake, however, when I saw the oncoming vehicle which is the Press
van is very far x x x which is 100 feet distance, x x x it is sufficient to overtake the Ford Fierra so
I overt(ook) it x x x x

Q:.......You said that you took into consideration the speed of the oncoming Press van but you
also could not estimate the speed of the press van because it was dark at that time, which of
these statements are true? Ncm

A:.......What I wanted to say, I took into consideration the speed of the oncoming vehicle, the
Press van, although at the moment I could not estimate the speed of the oncoming vehicle x x x

The Court of Appeals correctly found, based on the sketch and spot report of the police
authorities which were not disputed by petitioners, that the collision occurred immediately after
petitioner Mallari Jr. overtook a vehicle in front of it while traversing a curve on the highway.[3]
This act of overtaking was in clear violation of Sec. 41, pars. (a) and (b), of RA 4136 as
amended, otherwise known as The Land Transportation and Traffic Code which provides:

Sec. 41. Restrictions on overtaking and passing. - (a) The driver of a vehicle shall not drive to
the left side of the center line of a highway in overtaking or passing another vehicle proceeding
in the same direction, unless such left side is clearly visible and is free of oncoming traffic for a
sufficient distance ahead to permit such overtaking or passing to be made in safety.

(b) The driver of a vehicle shall not overtake or pass another vehicle proceeding in the same
direction when approaching the crest of a grade, nor upon a curve in the highway, where the
drivers view along the highway is obstructed within a distance of five hundred feet ahead
except on a highway having two or more lanes for movement of traffic in one direction where the
driver of a vehicle may overtake or pass another vehicle:

Provided That on a highway, within a business or residential district, having two or more lanes
for movement of traffic in one direction, the driver of a vehicle may overtake or pass another
vehicle on the right.

The rule is settled that a driver abandoning his proper lane for the purpose of overtaking another
vehicle in an ordinary situation has the duty to see to it that the road is clear and not to proceed
if he cannot do so in safety.[4] When a motor vehicle is approaching or rounding a curve, there
is special necessity for keeping to the right side of the road and the driver does not have the
right to drive on the left hand side relying upon having time to turn to the right if a car
approaching from the opposite direction comes into view.[5] Ncmmis

In the instant case, by his own admission, petitioner Mallari Jr. already saw that the BULLETIN
delivery van was coming from the opposite direction and failing to consider the speed thereof
since it was still dark at 5:00 o'clock in the morning mindlessly occupied the left lane and
overtook two (2) vehicles in front of it at a curve in the highway. Clearly, the proximate cause of
the collision resulting in the death of Israel Reyes, a passenger of the jeepney, was the sole
negligence of the driver of the passenger jeepney, petitioner Alfredo Mallari Jr., who recklessly
operated and drove his jeepney in a lane where overtaking was not allowed by traffic rules.
Under Art. 2185 of the Civil Code, unless there is proof to the contrary, it is presumed that a
person driving a motor vehicle has been negligent if at the time of the mishap he was violating a
traffic regulation. As found by the appellate court, petitioners failed to present satisfactory
evidence to overcome this legal presumption.

The negligence and recklessness of the driver of the passenger jeepney is binding against
petitioner Mallari Sr., who admittedly was the owner of the passenger jeepney engaged as a
common carrier, considering the fact that in an action based on contract of carriage, the court
need not make an express finding of fault or negligence on the part of the carrier in order to hold
it responsible for the payment of damages sought by the passenger. Under Art. 1755 of the Civil
Code, a common carrier is bound to carry the passengers safely as far as human care and
foresight can provide using the utmost diligence of very cautious persons with due regard for all
the circumstances. Moreover, under Art. 1756 of the Civil Code, in case of death or injuries to
passengers, a common carrier is presumed to have been at fault or to have acted negligently,
unless it proves that it observed extraordinary diligence. Further, pursuant to Art. 1759 of the
same Code, it is liable for the death of or injuries to passengers through the negligence or willful
acts of the formers employees. This liability of the common carrier does not cease upon proof
that it exercised all the diligence of a good father of a family in the selection of its employees.
Clearly, by the contract of carriage, the carrier jeepney owned by Mallari Sr. assumed the
express obligation to transport the passengers to their destination safely and to observe
extraordinary diligence with due regard for all the circumstances, and any injury or death that
might be suffered by its passengers is right away attributable to the fault or negligence of the
carrier. Scnc m

The monetary award ordered by the appellate court to be paid by petitioners to the widow of the
deceased passenger Israel M. Reyes of P1,006,777.50 for loss of earning capacity, P50,000.00
as civil indemnity for death, and P10,000.00 for attorneys fees, all of which were not disputed
by petitioners, is a factual matter binding and conclusive upon this Court.

WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals dated 20
September 1995 reversing the decision of the trial court being in accord with law and evidence
is AFFIRMED. Consequently, petitioners are ordered jointly and severally to pay Claudia G.
Reyes P1,006,777.50 for loss of earning capacity, P50,000.00 as civil indemnity for death, and
P10,000.00 for attorneys fees. Costs against petitioners.


G.R. No. L-82619 September 15, 1993



This petition for review in certiorari seeks to annul and set aside the decision of the then
Intermediate Appellant Court, 1 now Court of Appeals, dated 28 February 1985, in AC-G.R. CV
No. 69327 ("Pedro Zapatos v. Philippine Airlines, Inc.") affirming the decision of the then Court
of first Instance, now Regional Trial Court, declaring Philippine Airlines, Inc., liable in damages
for breach of contract.

On 25 November 1976, private respondent filed a complaint for damages for breach of contract
of carriage 2 against Philippine Airlines, Inc. (PAL), before the then Court of First Instance, now
Regional Trial Court, of Misamis Occidental, at Ozamiz City. According to him, on 2 August
1976, he was among the twenty-one (21) passengers of PAL Flight 477 that took off from Cebu
bound for Ozamiz City. The routing of this flight was Cebu-Ozamiz-Cotabato. While on flight and
just about fifteen (15) minutes before landing at Ozamiz City, the pilot received a radio message
that the airport was closed due to heavy rains and inclement weather and that he should
proceed to Cotabato City instead.

Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to
return to Cebu on flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or
take the next flight to Cebu the following day, or remain at Cotabato and take the next available
flight to Ozamiz City on 5 August 1975. 3 The Station Agent likewise informed them that Flight
560 bound for Manila would make a stop-over at Cebu to bring some of the diverted
passengers; that there were only six (6) seats available as there were already confirmed
passengers for Manila; and, that the basis for priority would be the check-in sequence at Cebu.

Private respondent chose to return to Cebu but was not accommodated because he checked-in
as passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed
passengers in the accommodation, but the Station Agent refused private respondent's demand
explaining that the latter's predicament was not due to PAL's own doing but to be a force
majeure. 4

Private respondent tried to stop the departure of Flight 560 as his personal belongings, including
a package containing a camera which a certain Miwa from Japan asked him to deliver to Mrs.
Fe Obid of Gingoog City, were still on board. His plea fell on deaf ears. PAL then issued to
private respondent a free ticket to Iligan city, which the latter received under protest. 5 Private
respondent was left at the airport and could not even hitch a ride in the Ford Fiera loaded with
PAL personnel. 6 PAL neither provided private respondent with transportation from the airport to
the city proper nor food and accommodation for his stay in Cotabato City.

The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL
personnel that he would not use the free ticket because he was filing a case against PAL. 7 In
Iligan City, private respondent hired a car from the airport to Kolambugan, Lanao del Norte,
reaching Ozamiz City by crossing the bay in a launch. 8 His personal effects including the
camera, which were valued at P2,000.00 were no longer recovered.

On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate
private respondent. 9 It alleged that there was simply no more seat for private respondent on
Flight 560 since there were only six (6) seats available and the priority of accommodation on
Flight 560 was based on the check-in sequence in Cebu; that the first six (6) priority passengers
on Flight 477 chose to take Flight 560; that its Station Agent explained in a courteous and polite
manner to all passengers the reason for PAL's inability to transport all of them back to Cebu;
that the stranded passengers agreed to avail of the options and had their respective tickets
exchanged for their onward trips; that it was
only the private respondent who insisted on being given priority in the accommodation; that
pieces of checked-in baggage and had carried items of the Ozamiz City passengers were
removed from the aircraft; that the reason for their pilot's inability to land at Ozamis City airport
was because the runway was wet due to rains thus posing a threat to the safety of both
passengers and aircraft; and, that such reason of force majeure was a valid justification for the
pilot to bypass Ozamiz City and proceed directly to Cotabato City.

On 4 June 1981, the trial court rendered its decision 10 the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant
Philippine AirLines, Inc. ordering the latter to pay:

(1) As actual damages, the sum of Two Hundred Pesos (P200.00) representing plaintiff's
expenses for transportation, food and accommodation during his stranded stay at Cotabato City;
the sum of Forty-Eight Pesos (P48.00) representing his flight fare from Cotabato City to Iligan
city; the sum of Five Hundred Pesos (P500.00) representing plaintiff's transportation expenses
from Iligan City to Ozamiz City; and the sum of Five Thousand Pesos (P5,000.00) as loss of
business opportunities during his stranded stay in Cotabato City;

(2) As moral damages, the sum of Fifty Thousand Pesos (P50,000.00) for plaintiff's hurt
feelings, serious anxiety, mental anguish and unkind and discourteous treatment perpetrated by
defendant's employees during his stay as stranded passenger in Cotabato City;

(3) As exemplary damages, the sum of Ten Thousand Pesos (P10,000.00) to set a
precedent to the defendant airline that it shall provide means to give comfort and convenience
to stranded passengers;

(4) The sum of Three Thousand Pesos (P3,000.00) as attorney's fees;

(5) To pay the costs of this suit.

PAL appealed to the Court of Appeals which on 28 February 1985, finding no reversible error,
affirmed the judgment of the court a quo. 11

PAL then sought recourse to this Court by way of a petition for review on certiorari 12 upon the
following issues: (1) Can the Court of Appeals render a decision finding petitioner (then
defendant-appellant in the court below) negligent and, consequently, liable for damages on a
question of substance which was neither raised on a question nor proved at the trial? (2) Can
the Court of Appeals award actual and moral damages contrary to the evidence and established
jurisprudence? 13

An assiduous examination of the records yields no valid reason for reversal of the judgment on
appeal; only a modification of its disposition.

In its petition, PAL vigorously maintains that private respondent's principal cause of action was
its alleged denial of private respondent's demand for priority over the confirmed passengers on
Flight 560. Likewise, PAL points out that the complaint did not impute to PAL neglect in failing to
attend to the needs of the diverted passengers; and, that the question of negligence was not
and never put in issue by the pleadings or proved at the trial.

Contrary to the above arguments, private respondent's amended complaint touched on PAL's
indifference and inattention to his predicament. The pertinent portion of the amended complaint
14 reads:

10. That by virtue of the refusal of the defendant through its agent in Cotabato to
accommodate (sic) and allow the plaintiff to take and board the plane back to Cebu, and by
accomodating (sic) and allowing passengers from Cotabato for Cebu in his stead and place,
thus forcing the plaintiff against his will, to be left and stranded in Cotabato, exposed to the peril
and danger of muslim rebels plundering at the time, the plaintiff, as a consequence, (have)
suffered mental anguish, mental torture, social humiliation, bismirched reputation and wounded
feeling, all amounting to a conservative amount of thirty thousand (P30,000.00) Pesos.

To substantiate this aspect of apathy, private respondent testified 15

A I did not even notice that I was I think the last passenger or the last person out of the
PAL employees and army personnel that were left there. I did not notice that when I was already
outside of the building after our conversation.

Q What did you do next?

A I banished (sic) because it seems that there was a war not far from the airport. The
sound of guns and the soldiers were plenty.

Q After that what did you do?

A I tried to look for a transportation that could bring me down to the City of Cotabato.

Q Were you able to go there?

A I was at about 7:00 o'clock in the evening more or less and it was a private jeep that I
boarded. I was even questioned why I and who am (sic) I then. Then I explained my side that I
am (sic) stranded passenger. Then they brought me downtown at Cotabato.

Q During your conversation with the Manager were you not offered any vehicle or
transportation to Cotabato airport downtown?

A In fact I told him (Manager) now I am by-passed passenger here which is not my
destination what can you offer me. Then they answered, "it is not my fault. Let us forget that."

Q In other words when the Manager told you that offer was there a vehicle ready?

A Not yet. Not long after that the Ford Fiera loaded with PAL personnel was passing by
going to the City of Cotabato and I stopped it to take me a ride because there was no more
available transportation but I was not accommodated.

Significantly, PAL did not seem to mind the introduction of evidence which focused on its
alleged negligence in caring for its stranded passengers. Well-settled is the rule in evidence that
the protest or objection against the admission of evidence should be presented at the time the
evidence is offered, and that the proper time to make protest or objection to the admissibility of
evidence is when the question is presented to the witness or at the time the answer thereto is
given. 16 There being no objection, such evidence becomes property of the case and all the
parties are amenable to any favorable or unfavorable effects resulting from the evidence. 17

PAL instead attempted to rebut the aforequoted testimony. In the process, it failed to
substantiate its counter allegation for want of concrete proof 18

Atty. Rubin O. Rivera PAL's counsel:

Q You said PAL refused to help you when you were in Cotabato, is that right?

Private respondent:

A Yes.

Q Did you ask them to help you regarding any offer of transportation or of any other matter
asked of them?

A Yes, he (PAL PERSONNEL) said what is? It is not our fault.

Q Are you not aware that one fellow passenger even claimed that he was given Hotel
accommodation because they have no money?

xxx xxx xxx

A No, sir, that was never offered to me. I said, I tried to stop them but they were already
riding that PAL pick-up jeep, and I was not accommodated.

Having joined in the issue over the alleged lack of care it exhibited towards its passengers, PAL
cannot now turn around and feign surprise at the outcome of the case. When issues not raised
by the pleadings are tried by express or implied consent of the parties, they shall be treated in
all respects as if they had been raised in the pleadings. 19

With regard to the award of damages affirmed by the appellate court, PAL argues that the same
is unfounded. It asserts that it should not be charged with the task of looking after the
passengers' comfort and convenience because the diversion of the flight was due to a fortuitous
event, and that if made liable, an added burden is given to PAL which is over and beyond its
duties under the contract of carriage. It submits that granting arguendo that negligence exists,
PAL cannot be liable in damages in the absence of fraud or bad faith; that private respondent
failed to apprise PAL of the nature of his trip and possible business losses; and, that private
respondent himself is to be blamed for unreasonably refusing to use the free ticket which PAL

The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires
common carriers to carry the passengers safely as far as human care and foresight can provide,
using the utmost diligence of very cautious persons, with due regard for all the circumstances.
20 In Air France v. Carrascoso, 21 we held that

A contract to transport passengers is quite different in kind and degree from any other
contractual relation. And this, because of the relation which an air carrier sustains with the
public. Its business is mainly with the travelling public. It invites people to avail of the comforts
and advantages it offers. The contract of air carriage, therefore, generates a relation attended
with a public duty . . . . ( emphasis supplied).

The position taken by PAL in this case clearly illustrates its failure to grasp the exacting
standard required by law. Undisputably, PAL's diversion of its flight due to inclement weather
was a fortuitous event. Nonetheless, such occurrence did not terminate PAL's contract with its
passengers. Being in the business of air carriage and the sole one to operate in the country,
PAL is deemed equipped to deal with situations as in the case at bar. What we said in one case
once again must be stressed, i.e., the relation of carrier and passenger continues until the latter
has been landed at the port of destination and has left the carrier's premises. 22 Hence, PAL
necessarily would still have to exercise extraordinary diligence in safeguarding the comfort,
convenience and safety of its stranded passengers until they have reached their final
destination. On this score, PAL grossly failed considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City and the fact that the private respondent
was a stranger to the place. As the appellate court correctly ruled

While the failure of plaintiff in the first instance to reach his destination at Ozamis City in
accordance with the contract of carriage was due to the closure of the airport on account of rain
and inclement weather which was radioed to defendant 15 minutes before landing, it has not
been disputed by defendant airline that Ozamis City has no all-weather airport and has to
cancel its flight to Ozamis City or by-pass it in the event of inclement weather. Knowing this fact,
it becomes the duty of defendant to provide all means of comfort and convenience to its
passengers when they would have to be left in a strange place in case of such by-passing. The
steps taken by defendant airline company towards this end has not been put in evidence,
especially for those 7 others who were not accommodated in the return trip to Cebu, only 6 of
the 21 having been so accommodated. It appears that plaintiff had to leave on the next flight 2
days later. If the cause of non-fulfillment of the contract is due to a fortuitous event, it has to be
the sole and only cause (Art. 1755 CC., Art. 1733 C.C.) Since part of the failure to comply with
the obligation of common carrier to deliver its passengers safely to their destination lay in the
defendant's failure to provide comfort and convenience to its stranded passengers using extra-
ordinary diligence, the cause of non-fulfillment is not solely and exclusively due to fortuitous
event, but due to something which defendant airline could have prevented, defendant becomes
liable to plaintiff. 23

While we find PAL remiss in its duty of extending utmost care to private respondent while being
stranded in Cotabato City, there is no sufficient basis to conclude that PAL failed to inform him
about his non-accommodation on Flight 560, or that it was inattentive to his queries relative

On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City that

3. Of the fifteen stranded passengers two pax elected to take F478 on August 05, three
pax opted to take F442 August 03. The remaining ten (10) including subject requested that they
be instead accommodated (sic) on F446 CBO-IGN the following day where they intended to
take the surface transportation to OZC. Mr. Pedro Zapatos had by then been very vocal and
boiceterous (sic) at the counter and we tactfully managed to steer him inside the Station Agent's
office. Mr. Pedro Zapatos then adamantly insisted that all the diverted passengers should have
been given priority over the originating passengers of F560 whether confirmed or otherwise. We
explained our policies and after awhile he seemed pacified and thereafter took his ticket (in-
lieued (sic) to CBO-IGN, COCON basis), at the counter in the presence of five other passengers
who were waiting for their tickets too. The rest of the diverted pax had left earlier after being
assured their tickets will be ready the following day. 24

Aforesaid Report being an entry in the course of business is prima facie evidence of the facts
therein stated. Private respondent, apart from his testimony, did not offer any controverting
evidence. If indeed PAL omitted to give information about the options available to its diverted
passengers, it would have been deluged with complaints. But, only private respondent

Atty. Rivera (for PAL)

Q I understand from you Mr. Zapatos that at the time you were waiting at Cotabato Airport
for the decision of PAL, you were not informed of the decision until after the airplane left is that

A Yes.


Q What do you mean by "yes"? You meant you were not informed?

A Yes, I was not informed of their decision, that they will only accommodate few

Q Aside from you there were many other stranded passengers?

A I believed, yes.

Q And you want us to believe that PAL did not explain (to) any of these passengers about
the decision regarding those who will board the aircraft back to Cebu?

A No, Sir.

Q Despite these facts Mr. Zapatos did any of the other passengers complained (sic)
regarding that incident?

xxx xxx xxx

A There were plenty of argument and I was one of those talking about my case.

Q Did you hear anybody complained (sic) that he has not been informed of the decision
before the plane left for Cebu?

A No. 25

Admittedly, private respondent's insistence on being given priority in accommodation was
unreasonable considering the fortuitous event and that there was a sequence to be observed in
the booking, i.e., in the order the passengers checked-in at their port of origin. His intransigence
in fact was the main cause for his having to stay at the airport longer than was necessary.

Atty. Rivera:

Q And, you were saying that despite the fact that according to your testimony there were at
least 16 passengers who were stranded there in Cotabato airport according to your testimony,
and later you said that there were no other people left there at that time, is that correct?

A Yes, I did not see anyone there around. I think I was the only civilian who was left there.

Q Why is it that it took you long time to leave that place?

A Because I was arguing with the PAL personnel. 26

Anent the plaint that PAL employees were disrespectful and inattentive toward private
respondent, the records are bereft of evidence to support the same. Thus, the ruling of
respondent Court of Appeals in this regard is without basis. 27 On the contrary, private
respondent was attended to not only by the personnel of PAL but also by its Manager." 28

In the light of these findings, we find the award of moral damages of Fifty Thousand Pesos
(P50,000.00) unreasonably excessive; hence, we reduce the same to Ten Thousand Pesos
(P10,000.00). Conformably herewith, the award of exemplary damages is also reduced to five
Thousand Pesos (5,000.00). Moral damages are not intended to enrich the private respondent.
They are awarded only to enable the injured party to obtain means, diversion or amusements
that will serve to alleviate the moral suffering he has undergone by reason of the defendant's
culpable action. 29

With regard to the award of actual damages in the amount of P5,000.00 representing private
respondent's alleged business losses occasioned by his stay at Cotabato City, we find the same
unwarranted. Private respondent's testimony that he had a scheduled business "transaction of
shark liver oil supposedly to have been consummated on August 3, 1975 in the morning" and
that "since (private respondent) was out for nearly two weeks I missed to buy about 10 barrels
of shark liver oil," 30 are purely speculative. Actual or compensatory damages cannot be
presumed but must be duly proved with reasonable degree of certainty. A court cannot rely on
speculation, conjecture or guesswork as to the fact and amount of damages, but must depend
upon competent proof that they have suffered and on evidence of the actual amount thereof. 31

WHEREFORE the decision appealed from is AFFIRMED with modification however that the
award of moral damages of Fifty Thousand Pesos (P50,000.00) is reduced to Ten Thousand
Pesos (P10,000.00) while the exemplary damages of Ten Thousand Pesos (P10,000.00) is also
reduced to Five Thousand Pesos (P5,000.00). The award of actual damages in the amount Five
Thousand Pesos (P5,000.00) representing business losses occasioned by private respondent's
being stranded in Cotabato City is deleted.


G.R. No. 95529 August 22, 1991



Petitioner, via this petition for review on certiorari, seeks the reversal of the judgment of
respondent Court of Appeals in CA-G.R. CV No. 18781, 1 affirming in part the decision of the
trial court, 2 the dispositive portion of which reads:

Premises considered, the decision appealed from is affirmed insofar as it dismisses the
complaint. On the counter-claim, however, appellant is ordered to pay appellees the amount of
P52,102.45 with legal interest from date of extra-judicial demand. The award of attorney's fees
is deleted. 3

The facts as found by respondent appellate court are as follows:

On May 20, 1980, plaintiff-appellant Magellan Manufacturers Marketing Corp. (MMMC) entered
into a contract with Choju Co. of Yokohama, Japan to export 136,000 anahaw fans for and in
consideration of $23,220.00. As payment thereof, a letter of credit was issued to plaintiff MMMC
by the buyer. Through its president, James Cu, MMMC then contracted F.E. Zuellig, a shipping
agent, through its solicitor, one Mr. King, to ship the anahaw fans through the other appellee,
Orient Overseas Container Lines, Inc., (OOCL) specifying that he needed an on-board bill of
lading and that transhipment is not allowed under the letter of credit (Exh. B-1). On June 30,
1980, appellant MMMC paid F.E. Zuellig the freight charges and secured a copy of the bill of
lading which was presented to Allied Bank. The bank then credited the amount of US$23,220.00
covered by the letter of credit to appellant's account. However, when appellant's president
James Cu, went back to the bank later, he was informed that the payment was refused by the
buyer allegedly because there was no on-board bill of lading, and there was a transhipment of
goods. As a result of the refusal of the buyer to accept, upon appellant's request, the anahaw
fans were shipped back to Manila by appellees, for which the latter demanded from appellant
payment of P246,043.43. Appellant abandoned the whole cargo and asked appellees for

In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047 cartons of
136,000 pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers was loaded at Manila
on board the MV 'Pacific Despatcher' freight prepaid, and duly covered by Bill of Lading No.
MNYK201T dated June 27, 1980 issued by OOCL; that the shipment was delivered at the port
of discharge on July 19, 1980, but was subsequently returned to Manila after the consignee
refused to accept/pay the same. 4

Elaborating on the above findings of fact of respondent court and without being disputed by
herein private respondents, petitioner additionally avers that:

When petitioner informed private respondents about what happened, the latter issued a
certificate stating that its bill of lading it issued is an on board bill of lading and that there was no
actual transhipment of the fans. According to private respondents when the goods are
transferred from one vessel to another which both belong to the same owner which was what
happened to the Anahaw fans, then there is (no) transhipment. Petitioner sent this certification
to Choju Co., Ltd., but the said company still refused to accept the goods which arrived in Japan
on July 19, 1980.

Private respondents billed petitioner in the amount of P16,342.21 for such shipment and
P34,928.71 for demurrage in Japan from July 26 up to August 31, 1980 or a total of P51,271.02.
In a letter dated March 20, 1981, private respondents gave petitioner the option of paying the
sum of P51,271.02 or to abandon the Anahaw fans to enable private respondents to sell them at
public auction to cover the cost of shipment and demurrages. Petitioner opted to abandon the
goods. However, in a letter dated June 22, 1981 private respondents demanded for payment of
P298,150.93 from petitioner which represents the freight charges from Japan to Manila,
demurrage incurred in Japan and Manila from October 22, 1980 up to May 20, 1981; and
charges for stripping the container van of the Anahaw fans on May 20, 1981.

On July 20, 1981 petitioner filed the complaint in this case praying that private respondents be
ordered to pay whatever petitioner was not able to earn from Choju Co., Ltd., amounting to
P174,150.00 and other damages like attorney's fees since private respondents are to blame for
the refusal of Choju Co., Ltd. to accept the Anahaw fans. In answer thereto the private
respondents alleged that the bill of lading clearly shows that there will be a transhipment and
that petitioner was well aware that MV (Pacific) Despatcher was only up to Hongkong where the
subject cargo will be transferred to another vessel for Japan. Private respondents also filed a
counterclaim praying that petitioner be ordered to pay freight charges from Japan to Manila and
the demurrages in Japan and Manila amounting to P298,150.93.

The lower court decided the case in favor of private respondents. It dismissed the complaint on
the ground that petitioner had given its consent to the contents of the bill of lading where it is
clearly indicated that there will be transhipment. The lower court also said that petitioner is liable
to pay to private respondent the freight charges from Japan to Manila and demurrages since it
was the former which ordered the reshipment of the cargo from Japan to Manila.

On appeal to the respondent court, the finding of the lower (court) that petitioner agreed to a
transhipment of the goods was affirmed but the finding that petitioner is liable for P298,150.93
was modified. It was reduced to P52,102.45 which represents the freight charges and
demurrages incurred in Japan but not for the demurrages incurred in Marta. According to the
respondent (court) the petitioner can not be held liable for the demurrages incurred in Manila
because Private respondents did not timely inform petitioner that the goods were already in
Manila in addition to the fact that private respondent had given petitioner the option of
abandoning the goods in exchange for the demurrages. 5

Petitioner, being dissatisfied with the decision of respondent court and the motion for
reconsideration thereof having been denied, invokes the Court's review powers for the
resolution of the issues as to whether or not respondent court erred (1) in affirming the decision
of the trial court which dismissed petitioner's complaint; and (2) in holding petitioner liable to
private respondents in the amount of P52,102.45. 6

I. Petitioner obstinately faults private respondents for the refusal of its buyer, Choju Co., Ltd., to
take delivery of the exported anahaw fans resulting in a loss of P174,150.00 representing the
purchase price of the said export items because of violation of the terms and conditions of the
letter of credit issued in favor of the former which specified the requirement for an on board bill
of lading and the prohibition against transhipment of goods, inasmuch as the bill of lading issued
by the latter bore the notation "received for shipment" and contained an entry indicating
transhipment in Hongkong.

We find no fault on the part of private respondents. On the matter of transhipment, petitioner
maintains that "... while the goods were transferred in Hongkong from MV Pacific Despatcher,
the feeder vessel, to MV Oriental Researcher, a mother vessel, the same cannot be considered
transhipment because both vessels belong to the same shipping company, the private
respondent Orient Overseas Container Lines, Inc." 7 Petitioner emphatically goes on to say: "To
be sure, there was no actual transhipment of the Anahaw fans. The private respondents have
executed a certification to the effect that while the Anahaw fans were transferred from one
vessel to another in Hong Kong, since the two vessels belong to one and the same company
then there was no transhipment. 8

Transhipment, in maritime law, is defined as "the act of taking cargo out of one ship and loading
it in another," 9 or "the transfer of goods from the vessel stipulated in the contract of
affreightment to another vessel before the place of destination named in the contract has been
reached," 10 or "the transfer for further transportation from one ship or conveyance to another."
11 Clearly, either in its ordinary or its strictly legal acceptation, there is transhipment whether or
not the same person, firm or entity owns the vessels. In other words, the fact of transhipment is
not dependent upon the ownership of the transporting ships or conveyances or in the change of
carriers, as the petitioner seems to suggest, but rather on the fact of actual physical transfer of
cargo from one vessel to another.

That there was transhipment within this contemplation is the inescapable conclusion, as there
unmistakably appears on the face of the bill of lading the entry "Hong Kong" in the blank space
labeled "Transhipment," which can only mean that transhipment actually took place. 12 This fact
is further bolstered by the certification 13 issued by private respondent F.E. Zuellig, Inc. dated
July 19, 1980, although it carefully used the term "transfer" instead of transhipment.
Nonetheless, no amount of semantic juggling can mask the fact that transhipment in truth
occurred in this case.

Petitioner insists that "(c)onsidering that there was no actual transhipment of the Anahaw fans,
then there is no occasion under which the petitioner can agree to the transhipment of the
Anahaw fans because there is nothing like that to agree to" and "(i)f there is no actual
transhipment but there appears to be a transhipment in the bill of lading, then there can be no
possible reason for it but a mistake on the part of the private respondents. 14

Petitioner, in effect, is saying that since there was a mistake in documentation on the part of
private respondents, such a mistake militates against the conclusiveness of the bill of lading
insofar as it reflects the terms of the contract between the parties, as an exception to the parol
evidence rule, and would therefore permit it to explain or present evidence to vary or contradict
the terms of the written agreement, that is, the bill of lading involved herein.

It is a long standing jurisprudential rule that a bill of lading operates both as a receipt and as a
contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as
therein stipulated. As a contract, it names the parties, which includes the consignee, fixes the
route, destination, and freight rates or charges, and stipulates the rights and obligations
assumed by the parties. 15 Being a contract, it is the law between the parties who are bound by
its terms and conditions provided that these are not contrary to law, morals, good customs,
public order and public policy. 16 A bill of lading usually becomes effective upon its delivery to
and acceptance by the shipper. It is presumed that the stipulations of the bill were, in the
absence of fraud, concealment or improper conduct, known to the shipper, and he is generally
bound by his acceptance whether he reads the bill or not. 17

The holding in most jurisdictions has been that a shipper who receives a bill of lading without
objection after an opportunity to inspect it, and permits the carrier to act on it by proceeding with
the shipment is presumed to have accepted it as correctly stating the contract and to have
assented to its terms. In other words, the acceptance of the bill without dissent raises the
presumption that all the terms therein were brought to the knowledge of the shipper and agreed
to by him and, in the absence of fraud or mistake, he is estopped from thereafter denying that
he assented to such terms. This rule applies with particular force where a shipper accepts a bill
of lading with full knowledge of its contents and acceptance under such circumstances makes it
a binding contract. 18

In the light of the series of events that transpired in the case at bar, there can be no logical
conclusion other than that the petitioner had full knowledge of, and actually consented to, the
terms and conditions of the bill of lading thereby making the same conclusive as to it, and it
cannot now be heard to deny having assented thereto. As borne out by the records, James Cu
himself, in his capacity as president of MMMC, personally received and signed the bill of lading.
On practical considerations, there is no better way to signify consent than by voluntarry signing
the document which embodies the agreement. As found by the Court of Appeals

Contrary to appellant's allegation that it did not agree to the transhipment, it could be gleaned
from the record that the appellant actually consented to the transhipment when it received the
bill of lading personally at appellee's (F.E. Zuellig's) office. There clearly appears on the face of
the bill of lading under column "PORT OF TRANSHIPMENT" an entry "HONGKONG'
(Exhibits'G-l'). Despite said entries he still delivered his voucher (Exh. F) and the corresponding
check in payment of the freight (Exhibit D), implying that he consented to the transhipment
(Decision, p. 6, Rollo). 19

Furthermore and particularly on the matter of whether or not there was transhipment, James Cu,
in his testimony on crossexamination, categorically stated that he knew for a fact that the
shipment was to be unloaded in Hong Kong from the MV Pacific Despatcher to be transferred to
a mother vessel, the MV Oriental Researcher in this wise:

Q Mr. Cu, are you not aware of the fact that your shipment is to be transferred or transhipped at
the port of Hongkong?

A I know. It's not transport, they relay, not trans... yes, that is why we have an agreement if they
should not put a transhipment in Hongkong, that's why they even stated in the certification.

xxx xxx xxx

Q In layman's language, would you agree with me that transhipment is the transfer of a cargo
from one vessel to the other?

A As a layman, yes.

Q So, you know for a fact that your shipment is going to be unloaded in Hongkong from M. V.
Dispatcher (sic) and then transfer (sic) to another vessel which was the Oriental Dispatcher,
(sic) you know that for a fact?

A Yes, sir. (Emphasis supplied.) 20

Under the parol evidence rule, 21 the terms of a contract are rendered conclusive upon the
parties, and evidence aliunde is not admissible to vary or contradict a complete and enforceable
agreement embodied in a document, subject to well defined exceptions which do not obtain in
this case. The parol evidence rule is based on the consideration that when the parties have
reduced their agreement on a particular matter into writing, all their previous and
contemporaneous agreements on the matter are merged therein. Accordingly, evidence of a
prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or
defeat the operation of a valid instrument. 22 The mistake contemplated as an exception to the
parol evidence rule is one which is a mistake of fact mutual to the parties. 23 Furthermore, the
rules on evidence, as amended, require that in order that parol evidence may be admitted, said
mistake must be put in issue by the pleadings, such that if not raised inceptively in the complaint
or in the answer, as the case may be, a party can not later on be permitted to introduce parol
evidence thereon. 24 Needless to say, the mistake adverted to by herein petitioner, and by its
own admission, was supposedly committed by private respondents only and was raised by the
former rather belatedly only in this instant petition. Clearly then, and for failure to comply even
only with the procedural requirements thereon, we cannot admit evidence to prove or explain
the alleged mistake in documentation imputed to private respondents by petitioner.

Petitioner further argues that assuming that there was transhipment, it cannot be deemed to
have agreed thereto even if it signed the bill of lading containing such entry because it had
made known to private respondents from the start that transhipment was prohibited under the
letter of credit and that, therefore, it had no intention to allow transhipment of the subject cargo.
In support of its stand, petitioner relies on the second paragraph of Article 1370 of the Civil
Code which states that "(i)f the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former," as wen as the supposed ruling in Caltex Phil.,
Inc. vs. Intermediate Appellate Court, et al. 25 that "where the literal interpretation of a contract
is contrary to the evident intention of the parties, the latter shall prevail."

As between such stilted thesis of petitioner and the contents of the bill of lading evidencing the
intention of the parties, it is irremissible that the latter must prevail. Petitioner conveniently
overlooks the first paragraph of the very article that he cites which provides that "(i)f the terms of
the contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of the stipulations shall control." In addition, Article 1371 of the same Code provides
that "(i)n order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered."

The terms of the contract as embodied in the bill of lading are clear and thus obviates the need
for any interpretation. The intention of the parties which is the carriage of the cargo under the
terms specified thereunder and the wordings of the bill of lading do not contradict each other.
The terms of the contract being conclusive upon the parties and judging from the
contemporaneous and subsequent actuations of petitioner, to wit, personally receiving and
signing the bill of lading and paying the freight charges, there is no doubt that petitioner must
necessarily be charged with full knowledge and unqualified acceptance of the terms of the bill of
lading and that it intended to be bound thereby.

Moreover, it is a well-known commercial usage that transhipment of freight without legal excuse,
however competent and safe the vessel into which the transfer is made, is a violation of the
contract and an infringement of the right of the shipper, and subjects the carrier to liability if the
freight is lost even by a cause otherwise excepted. 26 It is highly improbable to suppose that
private respondents, having been engaged in the shipping business for so long, would be
unaware of such a custom of the trade as to have undertaken such transhipment without
petitioner's consent and unnecessarily expose themselves to a possible liability. Verily, they
could only have undertaken transhipment with the shipper's permission, as evidenced by the
signature of James Cu.

Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd.
was that the bill of lading that was issued was not an on board bill of lading, in clear violation of
the terms of the letter of credit issued in favor of petitioner. On cross-examination, it was
likewise established that petitioner, through its aforesaid president, was aware of this fact, thus:

Q If the container van, the loaded container van, was transported back to South Harbor on June
27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was received by you?

A I received on June 30, 1980. I received at the same time so then I gave the check.

xxx xxx xxx

Q So that in exchange of the Bill of Lading you issued your check also dated June 30, 1980?

A Yes, sir.

Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of Lading
states: 'Received for shipment'only? .

A Yes, sir.

Q What did you say?

A I requested to issue me on board bill of lading.

Q When?

A In the same date of June 30.

Q What did they say?

A They said, they cannot.

xxx xxx xxx

Q Do you know the difference between a "received for shipment bill of lading" and "on board bill
of lading"?

A Yes, sir.

Q What's the difference?

A Received for shipment, you can receive the cargo even you don't ship on board, that is placed
in the warehouse; while on-board bill of lading means that is loaded on the vessel, the goods.

xxx xxx xxx

Q In other words, it was not yet on board the vessel?

A During that time, not yet.

xxx xxx xxx

Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a vessel you
can demand an on-board bill of lading not only a received for shipment bill of lading.?

A Yes sir.

Q And did you demand from F.E. Zuellig the substitution of that received for shipment bill of
lading with an on-board bill of lading?

A Of course, instead they issue me a certification.

Q They give you a ... ?

A ... a certification that it was loaded on board on June 30.

xxx xxx xxx

Q Mr. Cu, are you aware of the conditions of the Letter of Credit to the effect that there should
be no transhipment and that it should also get an on board bill of lading.?

A Yes sir. 27

Undoubtedly, at the outset, petitioner knew that its buyer, Choju Co., Ltd., particularly required
that there be an on board bill of lading, obviously due to the guaranty afforded by such a bill of
lading over any other kind of bill of lading. The buyer could not have insisted on such a
stipulation on a pure whim or caprice, but rather because of its reliance on the safeguards to the
cargo that having an on board bill of lading ensured. Herein petitioner cannot feign ignorance of
the distinction between an "on board" and a "received for shipment" bill of lading, as manifested
by James Cu's testimony. It is only to be expected that those long engaged in the export
industry should be familiar with business usages and customs.

In its petition, MMMC avers that "when petitioner teamed of what happened, it saw private
respondent F.E. Zuellig which, in turn, issued a certification that as of June 30, 1980, the
Anahaw fans were already on board MV Pacific Despatcher (which means that the bill of lading
is an on- board-bill of lading or 'shipped' bill of lading as distinguished from a 'received for
shipment'bill of lading as governed by Sec. 3, par. 7, Carriage of Goods by Sea Act) ...." 28
What the petitioner would suggest is that said certification issued by F.E. Zuellig, Inc., dated
July 19, 1980, had the effect of converting the original "received for shipment only" bill of lading
into an "on board" bill of lading as required by the buyer and was, therefore, by substantial
compliance, not violative of the contract.

An on board bill of lading is one in which it is stated that the goods have been received on board
the vessel which is to carry the goods, whereas a received for shipment bill of lading is one in
which it is stated that the goods have been received for shipment with or without specifying the
vessel by which the goods are to be shipped. Received for shipment bills of lading are issued
whenever conditions are not normal and there is insufficiency of shipping space. 29 An on board
bill of lading is issued when the goods have been actually placed aboard the ship with every
reasonable expectation that the shipment is as good as on its way. 30 It is, therefore,
understandable that a party to a maritime contract would require an on board bill of lading
because of its apparent guaranty of certainty of shipping as well as the seaworthiness of the
vessel which is to carry the goods.

It cannot plausibly be said that the aforestated certification of F.E. Zuellig, Inc. can qualify the
bill of lading, as originally issued, into an on board bill of lading as required by the terms of the
letter of credit issued in favor of petitioner. For one, the certification was issued only on July 19,
1980, way beyond the expiry date of June 30, 1980 specified in the letter of credit for the
presentation of an on board bill of lading. Thus, even assuming that by a liberal treatment of the
certification it could have the effect of converting the received for shipment bill of lading into an
on board of bill of lading, as petitioner would have us believe, such an effect may be achieved
only as of the date of its issuance, that is, on July 19, 1980 and onwards.

The fact remains, though, that on the crucial date of June 30, 1980 no on board bill of lading
was presented by petitioner in compliance with the terms of the letter of credit and this default
consequently negates its entitlement to the proceeds thereof. Said certification, if allowed to
operate retroactively, would render illusory the guaranty afforded by an on board bill of lading,
that is, reasonable certainty of shipping the loaded cargo aboard the vessel specified, not to
mention that it would indubitably be stretching the concept of substantial compliance too far.

Neither can petitioner escape hability by adverting to the bill of lading as a contract of adhesion,
thus warranting a more liberal consideration in its favor to the extent of interpreting ambiguities
against private respondents as allegedly being the parties who gave rise thereto. The bill of
lading is clear on its face. There is no occasion to speak of ambiguities or obscurities
whatsoever. All of its terms and conditions are plainly worded and commonly understood by
those in the business.

It will be recalled that petitioner entered into the contract with Choju Co., Ltd. way back on May
20,1980 or over a month before the expiry date of the letter of credit on June 30, 1980, thus
giving it more than ample time to find a carrier that could comply with the requirements of
shipment under the letter of credit. It is conceded that bills of lading constitute a class of
contracts of adhesion. However, as ruled in the earlier case of Ong Yiu vs. Court of Appeals, et
al. 31 and reiterated in Servando, et al. vs. Philippine Steam Navigation Co., 32 plane tickets as
well as bills of lading are contracts not entirely prohibited. The one who adheres to the contract
is in reality free to reject it entirely; if he adheres, he gives his consent. The respondent court
correctly observed in the present case that "when the appellant received the bill of lading, it was
tantamount to appellant's adherence to the terms and conditions as embodied therein. 33

In sum, petitioner had full knowledge that the bill issued to it contained terms and conditions
clearly violative of the requirements of the letter of credit. Nonetheless, perhaps in its eagerness
to conclude the transaction with its Japanese buyer and in a race to beat the expiry date of the
letter of credit, petitioner took the risk of accepting the bill of lading even if it did not conform with
the indicated specifications, possibly entertaining a glimmer of hope and imbued with a touch of
daring that such violations may be overlooked, if not disregarded, so long as the cargo is
delivered on time. Unfortunately, the risk did not pull through as hoped for. Any violation of the
terms and conditions of the letter of credit as would defeat its right to collect the proceeds
thereof was, therefore, entirely of the petitioner's making for which it must bear the
consequences. As finally averred by private respondents, and with which we agree, "... the
questions of whether or not there was a violation of the terms and conditions of the letter of
credit, or whether or not such violation was the cause or motive for the rejection by petitioner's
Japanese buyer should not affect private respondents therein since they were not privies to the
terms and conditions of petitioner's letter of credit and cannot therefore be held liable for any
violation thereof by any of the parties thereto." 34

II. Petitioner contends that respondent court erred in holding it liable to private respondents for
P52,102.45 despite its exercise of its option to abandon the cargo. It will be recalled that the trial
court originally found petitioner liable for P298,150.93, which amount consists of P51,271.02 for
freight, demurrage and other charges during the time that the goods were in Japan and for its
reshipment to Manila, P831.43 for charges paid to the Manila International Port Terminal, and
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981. On appeal, the
Court of Appeals limited petitioner's liability to P52,102.45 when it ruled:

As regards the amount of P51,271.02, which represents the freight charges for the return
shipment to Manila and the demurrage charges in Japan, the same is supported by appellant's
own letter request (Exh. 2) for the return of the shipment to Manila at its (appellant's) expense,
and hence, it should be held liable therefor. The amount of P831.43 was paid to the Manila
International Port Terminal upon arrival of the shipment in Manila for appellant's account. It
should properly be charged to said appellant. 35

However, respondent court modified the trial court's decision by excluding the award for
P246,043.43 for demurrage in Manila from October 22, 1980 to June 18, 1981.

Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment
for the detention of the vessel beyond the time agreed on for loading and unloading. Essentially,
demurrage is the claim for damages for failure to accept delivery. In a broad sense, every
improper detention of a vessel may be considered a demurrage. Liability for demurrage, using
the word in its strictly technical sense, exists only when expressly stipulated in the contract.
Using the term in its broader sense, damages in the nature of demurrage are recoverable for a
breach of the implied obligation to load or unload the cargo with reasonable dispatch, but only
by the party to whom the duty is owed and only against one who is a party to the shipping
contract. 36 Notice of arrival of vessels or conveyances, or of their placement for purposes of
unloading is often a condition precedent to the right to collect demurrage charges.

Private respondents, admittedly, have adopted the common practice of requiring prior notice of
arrival of the goods shipped before the shipper can be held liable for demurrage, as declared by
Wilfredo Hans, head of the accounting department of F.E. Zuellig, Inc., on cross-examination as
a witness for private respondents:

Q ... you will agree with me that before one could be charged with demurrage the shipper
should be notified of the arrival of the shipment?

A Yes sir.

Q Without such notification, there is no way by which the shipper would know (of) such arrival?

A Yes.

Q And no charges of demurrage before the arrival of the cargo?

A Yes sir. 37

Accordingly, on this score, respondent court ruled:

However, insofar as the demurrage charges of P246,043.43 from October up to May 1980,
arriv(al) in Manila, are concerned, We are of the view that appellant should not be made to
shoulder the same, as it was not at fault nor was it responsible for said demurrage charges.
Appellee's own witness (Mabazza) testified that while the goods arrived in Manila in October
1980, appellant was notified of said arrival only in March 1981. No explanation was given for the
delay in notifying appellant. We agree with appellant that before it could be charged for
demurrage charges it should have been notified of the arrival of the goods first. Without such
notification it could not- be so charged because there was no way by which it would know that
the goods had already arrived for it to take custody of them. Considering that it was only in
March 1981 (Exh. K) that appellant was notified of the arrival of the goods, although the goods
had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14), appellant cannot be
charged for demurrage from October 1980 to March 1981. ... 38

While being satisfied with the exclusion of demurrage charges in Manila for the period from
October 22,1980 to June 18,1981, petitioner nevertheless assails the Court of Appeals' award
of P52,102.43 in favor of private respondents, consisting of P51,271.01 as freight and
demurrage charges in Japan and P831.43 for charges paid at the Manila International Port

Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to allow
private respondents to sell the same at a public auction and to apply the proceeds thereof as
payment for the shipping and demurrage charges, it was released from liability for the sum of
P52,102.43 since such amount represents the shipping and demurrage charges from which it is
considered to have been released due to the abandonment of goods. It further argues that the
shipping and demurrage charges from which it was released by the exercise of the option to
abandon the goods in favor of private respondents could not have referred to the demurrage
charges in Manila because respondent court ruled that the same were not chargeable to
petitioner. Private respondents would rebut this contention by saying in their memorandum that
the abandonment of goods by petitioner was too late and made in bad faith. 39

On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to the
fact that the shipment was made for its benefit or under its direction and, correspondingly, the
carrier is entitled to collect charges for its shipping services. This is particularly true in this case
where the reshipment of the goods was made at the instance of petitioner in its letter of August
29, 1980. 40

However, in a letter dated March 20, 1981, 41 private respondents belatedly informed petitioner
of the arrival of its goods from Japan and that if it wished to take delivery of the cargo it would
have to pay P51,271.02, but with the last paragraph thereof stating as follows:

Please can you advise within 15 days of receipt of this letter whether you intend to take delivery
of this shipment, as alternatively we will have to take legal proceedings in order to have the
cargo auctioned to recover the costs involved, as well as free the container which are (sic)
urgently required for export cargoes.

Clearly, therefore, private respondents unequivocally offered petitioner the option of paying the
shipping and demurrage charges in order to take delivery of the goods or of abandoning the
same so that private respondents could sell them at public auction and thereafter apply the
proceeds in payment of the shipping and other charges.

Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its
decision to abandon to the goods in favor of private respondents with the specific instruction
that any excess of the proceeds over the legal costs and charges be turned over to petitioner.
Receipt of said letter was acknowledged by private respondents, as revealed by the testimony
of Edwin Mabazza, a claim officer of F.E. Zuellig, Inc., on cross-examination. 42

Despite petitioner's exercise of the option to abandon the cargo, however, private respondents
sent a demand letter on June 22, 1981 43 insisting that petitioner should pay the entire amount
of P298,150.93 and, in another letter dated Apiril 30, 1981, 44 they stated that they win not
accept the abandonment of the goods and demanded that the outstanding account be settled.
The testimony of said Edwin Mabazza definitely admits and bears this out. 45

Now, there is no dispute that private respondents expressly and on their own volition granted
petitioner an option with respect to the satisfaction of freightage and demurrage charges.
Having given such option, especially since it was accepted by petitioner, private respondents
are estopped from reneging thereon. Petitioner, on its part, was well within its right to exercise
said option. Private respondents, in giving the option, and petitioner, in exercising that option,
are concluded by their respective actions. To allow either of them to unilaterally back out on the
offer and on the exercise of the option would be to countenance abuse of rights as an order of
the day, doing violence to the long entrenched principle of mutuality of contracts.

It will be remembered that in overland transportation, an unreasonable delay in the delivery of
transported goods is sufficient ground for the abandonment of goods. By analogy, this can also
apply to maritime transportation. Further, with much more reason can petitioner in the instant
case properly abandon the goods, not only because of the unreasonable delay in its delivery but
because of the option which was categorically granted to and exercised by it as a means of
settling its liability for the cost and expenses of reshipment. And, said choice having been duly
communicated, the same is binding upon the parties on legal and equitable considerations of

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.