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[G.R. No. 71929 : December 4, 1990.

]
192 SCRA 9
ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO, Respondents.
DECISION
NARVASA, J.:
Dr. Felipa Pablo an associate professor in the University of the Philippines, 1 and a research grantee of the Philippine
Atomic Energy Agency was invited to take part at a meeting of the Department of Research and Isotopes of the Joint
FAO-IAEA Division of Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. 2 She was invited in view
of her specialized knowledge in "foreign substances in food and the agriculture environment." She accepted the invitation,
and was then scheduled by the organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating
Vegetable Crops." 3 The program announced that she would be the second speaker on the first day of the meeting. 4 To
fulfill this engagement, Dr. Pablo booked passage on petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and time table set for her by ALITALIA.
She was however told by the ALITALIA personnel there at Milan that her luggage was "delayed inasmuch as the same . . .
(was) in one of the succeeding flights from Rome to Milan." 5 Her luggage consisted of two (2) suitcases: one contained
her clothing and other personal items; the other, her scientific papers, slides and other research material. But the other
flights arriving from Rome did not have her baggage on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she inquired about her suitcases in
the domestic and international airports, and filled out the forms prescribed by ALITALIA for people in her predicament.
However, her baggage could not be found. Completely distraught and discouraged, she returned to Manila without
attending the meeting in Ispra, Italy. : nad
Once back in Manila she demanded that ALITALIA make reparation for the damages thus suffered by her. ALITALIA
offered her "free airline tickets to compensate her for any alleged damages. . . ." She rejected the offer, and forthwith
commenced the action 6 which has given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy, but only on the day after her
scheduled appearance and participation at the U.N. meeting there. 8 Of course Dr. Pablo was no longer there to accept
delivery; she was already on her way home to Manila. And for some reason or other, the suitcases were not actually
restored to Prof. Pablo by ALITALIA until eleven (11) months later, and four (4) months after institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr. Pablo's favor: 10
"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY THOUSAND PESOS (P20,000.00),
Philippine Currency, by way of nominal damages;
(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine
Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the judgment. 11 Indeed, the
Appellate Court not only affirmed the Trial Court's decision but also increased the award of nominal damages payable by
ALITALIA to P40,000.00. 12 That increase it justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence committed by defendant, the
amount of P20,000.00 under present inflationary conditions as awarded . . . to the plaintiff as nominal damages, is
too little to make up for the plaintiff's frustration and disappointment in not being able to appear at said
conference; and for the embarrassment and humiliation she suffered from the academic community for failure to
carry out an official mission for which she was singled out by the faculty to represent her institution and the
country. After weighing carefully all the considerations, the amount awarded to the plaintiff for nominal damages
and attorney's fees should be increased to the cost of her round trip air fare or at the present rate of peso to the
dollar at P40,000,00."
ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the same points it tried to make before
the Trial Court and the Intermediate Appellate Court, i.e.:
1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability; and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal damages and attorney's fees. 14

In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to have refused to pass on all the
assigned errors and in not stating the facts and the law on which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident causing it took place on board the
aircraft or in the course of its operations of embarking or disembarking; 17
2) the destruction or loss of, or damage to, any registered luggage or goods, if the occurrence causing it took
place during the carriage by air;" 18 and
3) delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however, founded, can only be brought
subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner: 21
1. In the carriage of passengers the liability of the carrier for each passenger is limited to the sum of 250,000
francs . . . Nevertheless, by special contract, the carrier and the passenger may agree to a higher limit of liability.:
nad
2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is limited to a sum of 250 francs
per kilogramme, unless the passenger or consignor has made, at the time when the package was handed over to
the carrier, a special declaration of interest in delivery at destination and has paid a supplementary sum if the
case so requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he
proves that sum is greater than the actual value to the consignor at delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained therein,
the weight to be taken into consideration in determining the amount to which the carrier's liability is limited shall be
only the total weight of the package or packages concerned. Nevertheless, when the loss, damage or delay of a
part of the registered baggage or cargo, or of an object contained therein, affects the value of other packages
covered by the same baggage check or the same air way bill, the total weight of such package or packages shall
also be taken into consideration in determining the limit of liability.
3. As regards objects of which the passenger takes charge himself the liability of the carrier is limited to 5000
francs per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in accordance with its own law, in addition,
the whole or part of the court costs and of the other expenses of litigation incurred by the plaintiff. The foregoing
provision shall not apply if the amount of the damages awarded, excluding court costs and other expenses of the
litigation, does not exceed the sum which the carrier has offered in writing to the plaintiff within a period of six
months from the date of the occurrence causing the damage, or before the commencement of the action, if that is
later.
The Warsaw Convention however denies to the carrier availment "of the provisions which exclude or limit his liability, if the
damage is caused by his wilful misconduct or by such default on his part as, in accordance with the law of the court
seized of the case, is considered to be equivalent to wilful misconduct," or "if the damage is (similarly) caused . . by any
agent of the carrier acting within the scope of his employment." 22 The Hague Protocol amended the Warsaw Convention
by removing the provision that if the airline took all necessary steps to avoid the damage, it could exculpate itself
completely, 23 and declaring the stated limits of liability not applicable "if it is proved that the damage resulted from an act
or omission of the carrier, its servants or agents, done with intent to cause damage or recklessly and with knowledge that
damage would probably result." The same deletion was effected by the Montreal Agreement of 1966, with the result that a
passenger could recover unlimited damages upon proof of wilful misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the instances of an airline's liability, or as an
absolute limit of the extent of that liability. Such a proposition is not borne out by the language of the Convention, as this
Court has now, and at an earlier time, pointed out. 25 Moreover, slight reflection readily leads to the conclusion that it
should be deemed a limit of liability only in those cases where the cause of the death or injury to person, or destruction,
loss or damage to property or delay in its transport is not attributable to or attended by any wilful misconduct, bad faith,
recklessness, or otherwise improper conduct on the part of any official or employee for which the carrier is responsible,
and there is otherwise no special or extraordinary form of resulting injury. The Convention's provisions, in short, do not
"regulate or exclude liability for other breaches of contract by the carrier" 26 or misconduct of its officers and employees,
or for some particular or exceptional type of damage. Otherwise, "an air carrier would be exempt from any liability for
damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd." 27 Nor
may it for a moment be supposed that if a member of the aircraft complement should inflict some physical injury on a
passenger, or maliciously destroy or damage the latter's property, the Convention might successfully be pleaded as the
sole gauge to determine the carrier's liability to the passenger. Neither may the Convention be invoked to justify the

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

G.R. No. 182864, January 12, 2015


EASTERN SHIPPING LINES, INC., Petitioner, v. BPI/MS INSURANCE CORP., & MITSUI SUMITOMO INSURANCE
CO., LTD., Respondents.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review on Certiorari1 of the Decision2 of the Second Division of the Court of Appeals in
CA-G.R. CV No. 88744 dated 31 January 2008, modifying the Decision of the Regional Trial Court (RTC) by upholding the
liability of Eastern Shipping Lines, Inc. (ESLI) but absolving Asian Terminals, Inc. (ATI) from liability and deleting the award
of attorneys fees.
The facts gathered from the records follow:
On 29 December 2004, BPI/MS Insurance Corporation (BPI/MS) and Mitsui Sumitomo Insurance Company Limited
(Mitsui) filed a Complaint3 before the RTC of Makati City against ESLI and ATI to recover actual damages amounting to
US$17,560.48 with legal interest, attorneys fees and costs of suit.
In their complaint, BPI/MS and Mitsui alleged that on 2 February 2004 at Yokohama, Japan, Sumitomo Corporation
shipped on board ESLIs vessel M/V Eastern Venus 22 22 coils of various Steel Sheet weighing 159,534 kilograms in
good order and condition for transportation to and delivery at the port of Manila, Philippines in favor of consignee Calamba
Steel Center, Inc. (Calamba Steel) located in Saimsim, Calamba, Laguna as evidenced by a Bill of Lading with Nos.
ESLIYMA001. The declared value of the shipment was US$83,857.59 as shown by an Invoice with Nos. KJGE-03-1228NT/KE3. The shipment was insured with the respondents BPI/MS and Mitsui against all risks under Marine Policy No.
103-GG03448834.
On 11 February 2004, the complaint alleged that the shipment arrived at the port of Manila in an unknown condition and
was turned over to ATI for safekeeping. Upon withdrawal of the shipment by the Calamba Steels representative, it was
found out that part of the shipment was damaged and was in bad order condition such that there was a Request for Bad
Order Survey. It was found out that the damage amounted to US$4,598.85 prompting Calamba Steel to reject the
damaged shipment for being unfit for the intended purpose.
On 12 May 2004 at Kashima, Japan, Sumitomo Corporation again shipped on board ESLIs vessel M/V Eastern Venus
25 50 coils in various Steel Sheet weighing 383,532 kilograms in good order and condition for transportation to and
delivery at the port of Manila, Philippines in favor of the same consignee Calamba Steel as evidenced by a Bill of Lading
with Nos. ESLIKSMA002. The declared value of the shipment was US$221,455.58 as evidenced by Invoice Nos. KJGE04-1327-NT/KE2. The shipment was insured with the respondents BPI/MS and Mitsui against all risks under Marine Policy
No. 104-GG04457785.
On 21 May 2004, ESLIs vessel with the second shipment arrived at the port of Manila partly damaged and in bad order.
The coils sustained further damage during the discharge from vessel to shore until its turnover to ATIs custody for
safekeeping.
Upon withdrawal from ATI and delivery to Calamba Steel, it was found out that the damage amounted to US$12,961.63.
As it did before, Calamba Steel rejected the damaged shipment for being unfit for the intended purpose.
Calamba Steel attributed the damages on both shipments to ESLI as the carrier and ATI as thearrastre operator in charge
of the handling and discharge of the coils and filed a claim against them. When ESLI and ATI refused to pay, Calamba
Steel filed an insurance claim for the total amount of the cargo against BPI/MS and Mitsui as cargo insurers. As a result,
BPI/MS and Mitsui became subrogated in place of and with all the rights and defenses accorded by law in favor of
Calamba Steel.
Opposing the complaint, ATI, in its Answer, denied the allegations and insisted that the coils in two shipments were

already damaged upon receipt from ESLIs vessels. It likewise insisted that it exercised due diligence in the handling of
the shipments and invoked that in case of adverse decision, its liability should not exceed P5,000.00 pursuant to Section
7.01, Article VII4 of the Contract for Cargo Handling Services between Philippine Ports Authority (PPA) and ATI. 5 A crossclaim was also filed against ESLI.
On its part, ESLI denied the allegations of the complainants and averred that the damage to both shipments was incurred
while the same were in the possession and custody of ATI and/or of the consignee or its representatives. It also filed a
cross-claim against ATI for indemnification in case of liability.6chanRoblesvirtualLawlibrary
To expedite settlement, the case was referred to mediation but it was returned to the trial court for further proceedings due
to the parties failure to resolve the legal issues as noted in the Mediators Report dated 28 June
2005.7chanRoblesvirtualLawlibrary
On 10 January 2006, the court issued a Pre-Trial Order wherein the following stipulations were agreed upon by the
parties:chanroblesvirtuallawlibrary
1. Parties admitted the capacity of the parties to sue and be sued;
2. Parties likewise admitted the existence and due execution of the Bill of Lading covering various steel sheets in coil
attached to the Complaint as Annex A;
3. Parties admitted the existence of the Invoice issued by Sumitomo Corporation, a true and faithful copy of which
was attached to the Complaint as Annex B;
4. Parties likewise admitted the existence of the Marine Cargo Policy issued by the Mitsui Sumitomo Insurance
Company, Limited, copy of which was attached to the Complaint as Annex C;
5. [ATI] admitted the existence and due execution of the Request for Bad Order Survey dated February 13, 2004,
attached to the Complaint as Annex D;
6. Insofar as the second cause of action, [ESLI] admitted the existence and due execution of the document [Bill of
Lading Nos. ESLIKSMA002, Invoice with Nos. KJGE-04-1327-NT/KE2 and Marine Cargo Policy against all risks
on the second shipment] attached to the Complaint as Annexes E, F and G;
7. [ATI] admitted the existence of the Bill of Lading together with the Invoices and Marine Cargo Policy. [It] likewise
admitted by [ATI] are the Turn Over Survey of Bad Order Cargoes attached to the Complaint as Annexes H, H-1
and J.8

The parties agreed that the procedural issue was whether there was a valid subrogation in favor of BPI/MS and Mitsui;
and that the substantive issues were, whether the shipments suffered damages, the cause of damage, and the entity
liable for reparation of the damages caused.9chanRoblesvirtualLawlibrary
Due to the limited factual matters of the case, the parties were required to present their evidence through affidavits and
documents. Upon submission of these evidence, the case was submitted for resolution. 10chanRoblesvirtualLawlibrary
BPI/MS and Mitsui, to substantiate their claims, submitted the Affidavits of (1) Mario A. Manuel (Manuel), 11 the Cargo
Surveyor of Philippine Japan Marine Surveyors and Sworn Measurers Corporation who personally examined and
conducted the surveys on the two shipments; (2) Richatto P. Almeda, 12 the General Manager of Calamba Steel who
oversaw and examined the condition, quantity, and quality of the shipped steel coils, and who thereafter filed formal
notices and claims against ESLI and ATI; and (3) Virgilio G. Tiangco, Jr., 13 the Marine Claims Supervisor of BPI/MS who
processed the insurance claims of Calamba Steel. Along with the Affidavits were the Bills of Lading 14covering the two
shipments, Invoices,15 Notices of Loss of Calamba Steel,16 Subrogation Form,17Insurance Claims,18 Survey Reports,19 Turn
Over Survey of Bad Order Cargoes20 and Request for Bad Order Survey.21chanRoblesvirtualLawlibrary
ESLI, in turn, submitted the Affidavits of Captain Hermelo M. Eduarte, 22 Manager of the Operations Department of ESLI,

who monitored in coordination with ATI the discharge of the two shipments, and Rodrigo Victoria (Rodrigo), 23 the Cargo
Surveyor of R & R Industrial and Marine Services, Inc., who personally surveyed the subject cargoes on board the vessel
as well as the manner the ATI employees discharged the coils. The documents presented were the Bills of Lading,
Secretarys Certificate24 of PPA, granting ATI the duty and privilege to provide arrastre and stevedoring services at South
Harbor, Port of Manila, Contract for Cargo Handling Services, 25 Damage Report26 and Turn Over Report made by
Rodrigo.27 ESLI also adopted the Survey Reports submitted by BPI/MS and Mitsui. 28chanRoblesvirtualLawlibrary
Lastly, ATI submitted the Affidavits of its Bad Order Inspector Ramon Garcia (Garcia) 29 and Claims Officer Ramiro De
Vera.30 The documents attached to the submissions were the Turn Over Surveys of Bad Cargo Order,31 Requests for Bad
Order Survey,32 Cargo Gatepasses issued by ATI,33 Notices of Loss/Claims of Calamba Steel34 and Contract for Cargo
Handling Services.35chanRoblesvirtualLawlibrary
On 17 September 2006, RTC Makati City rendered a decision finding both the ESLI and ATI liable for the damages
sustained by the two shipments. The dispositive portion reads:chanroblesvirtuallawlibrary
WHEREFORE, judgment is hereby rendered in favor of [BPI/MS and Mitsui] and against [ESLI Inc.] and [ATI], jointly and
severally ordering the latter to pay [BPI/MS and Mitsui] the following:
1. Actual damages amounting to US$17,560.48 plus 6% legal interest per annum commencing from the filing of this
complaint, until the same is fully paid;
2. Attorneys fees in a sum equivalent to 20% of the amount claimed;
3. Costs of suit.36
Aggrieved, ESLI and ATI filed their respective appeals before the Court of Appeals on both questions of fact and
law.37chanRoblesvirtualLawlibrary
Before the appellate court, ESLI argued that the trial court erred when it found BPI/MS has the capacity to sue and when it
assumed jurisdiction over the case. It also questioned the ruling on its liability since the Survey Reports indicated that the
cause of loss and damage was due to the rough handling of ATIs stevedores during discharge from vessel to shore and
during loading operation onto the trucks. It invoked the limitation of liability of US$500.00 per package as provided in
Commonwealth Act No. 65 or the Carriage of Goods by Sea Act (COGSA). 38chanRoblesvirtualLawlibrary
On the other hand, ATI questioned the capacity to sue of BPI/MS and Mitsui and the award of attorneys fees despite its
lack of justification in the body of the decision. ATI also imputed error on the part of the trial court when it ruled that ATIs
employees were negligent in the ruling of the shipments. It also insisted on the applicability of the provision of COGSA on
limitation of liability.39chanRoblesvirtualLawlibrary
In its Decision,40 the Court of Appeals absolved ATI from liability thereby modifying the decision of the trial court. The
dispositive portions reads:chanroblesvirtuallawlibrary
WHEREFORE, the appeal of ESLI is DENIED, while that of ATI is GRANTED. The assailed Judgment dated September
17, 2006 of Branch 138, RTC of Makati City in Civil Case No. 05-108 is hereby MODIFIED absolving ATI from liability and
deleting the award of attorneys fees. The rest of the decision is affirmed. 41

Before this Court, ESLI seeks the reversal of the ruling on its liability.
At the outset, and notably, ESLI included among its arguments the attribution of liability to ATI but it failed to implead the
latter as a party to the present petition. This non-inclusion was raised by BPI/MS and Mitsui as an issue 42 in its
Comment/Opposition43 and Memorandum:44chanRoblesvirtualLawlibrary
For reasons known only to [ESLI], it did not implead ATI as a party respondent in this case when it could have easily done
so. Considering the nature of the arguments raised by petitioner pointing to ATI as solely responsible for the damages
sustained by the subject shipments, it is respectfully submitted that ATI is an indispensable party in this case. Without ATI

being impleaded, the issue of whether ATI is solely responsible for the damages could not be determined with finality by
this Honorable Court. ATI certainly deserves to be heard on the issue but it could not defend itself because it was not
impleaded before this Court. Perhaps, this is the reason why [ESLI] left out ATI in this case so that it could not rebut while
petitioner puts it at fault.45

ESLI in its Reply46 put the blame for the non-exclusion of ATI to BPI/MS and Mitsui:chanroblesvirtuallawlibrary
[BPI/MS and Mitsui] claim that herein [ESLI] did not implead [ATI] as a party respondent in the Petition for Review on
Certiorari it had filed. Herein Petitioner submits that it is not the obligation of [ESLI] to implead ATI as the same is already
the look out of [BPI/MS and Mitsui]. If [BPI/MS and Mitsui] believe that ATI should be made liable, they should have filed a
Motion for Reconsideration with the Honorable Court of Appeals. The fact that [BPI/MS and Mitsui] did not even lift a finger
to question the decision of the Honorable Court of Appeals goes to show that [BPI/MS and Mitsui] are not interested as to
whether or not ATI is indeed liable.47

It is clear from the exchange that both [ESLI] and [BPI/MS and Mitsui] are aware of the non-inclusion of ATI,
the arrastre operator, as a party to this review of the Decision of the Court of Appeals. By blaming each other for the
exclusion of ATI, [ESLI] and [BPI/MS and Mitsui] impliedly agree that the absolution of ATI from liability is final and beyond
review. Clearly, [ESLI] is the consequential loser. It alone must bear the proven liability for the loss of the shipment. It
cannot shift the blame to ATI, thearrastre operator, which has been cleared by the Court of Appeals. Neither can it argue
that the consignee should bear the loss.
Thus confined, we go to the merits of the arguments of ESLI.
First Issue: Liability of ESLI
ESLI bases of its non-liability on the survey reports prepared by BPI/MS and Mitsuis witness Manuel which found that the
cause of damage was the rough handling on the shipment by the stevedores of ATI during the discharging
operations.48 However, Manuel does not absolve ESLI of liability. The witness in fact includes ESLI in the findings of
negligence. Paragraphs 3 and 11 of the affidavit of witness Manuel attribute fault to both ESLI and ATI.
3. The vessel M.V. EASTERN VENUS V 22-S carrying the said shipment of 22 coils of various steel sheets arrived at the
port of Manila and discharged the said shipment on or about 11 February 2004 to the arrastre operator [ATI]. I personally
noticed that the 22 coils were roughly handled during their discharging from the vessel to the pier of [ATI] and even during
the loading operations of these coils from the pier to the trucks that will transport the coils to the consigneess
warehouse. During the aforesaid operations, the employees and forklift operators of [ESLI] and [ATI] were very
negligent in the handling of the subject cargoes.
xxxx
11. The vessel M.V. EASTERN VENUS V 25-S carrying the said shipment of 50 coils of various steel sheets arrived at
the port of Manila and discharged the said shipment on or about 21 May 2004 to the arrastre operator [ATI]. I personally
noticed that the 50 coils were roughly handled during their discharging from the vessel to the pier of [ATI] and even during
the loading operations of these coils from the pier to the trucks that will transport the coils to the consigneess
warehouse. During the aforesaid operations, the employees and forklift operators of [ESLI] and [ATI] were very
negligent in the handling of the subject cargoes.49 (Emphasis supplied).

ESLI cannot rely only on parts it chooses. The entire body of evidence should determine the liability of the parties. From
the statements of Manuel, [ESLI] was negligent, whether solely or together with ATI.
To further press its cause, ESLI cites the affidavit of its witness Rodrigo who stated that the cause of the damage was the
rough mishandling by ATIs stevedores.

The affidavit of Rodrigo states that his functions as a cargo surveyor are, (1) getting hold of a copy of the bill of lading and
cargo manifest; (2) inspection and monitoring of the cargo on-board, during discharging and after unloading from the
vessel; and (3) making a necessary report of his findings. Thus, upon arrival at the South Harbor of Manila of the two
vessels of ESLI on 11 February 2004 and on 21 May 2004, Rodrigo immediately boarded the vessels to inspect and
monitor the unloading of the cargoes. In both instances, it was his finding that there was mishandling on the part of ATIs
stevedores which he reported as the cause of the damage. 50chanRoblesvirtualLawlibrary
Easily seen, however, is the absence of a crucial point in determining liability of either or both ESLI and ATI lack of
determination whether the cargo was in a good order condition as described in the bills of lading at the time of his
boarding. As Rodrigo admits, it was also his duty to inspect and monitor the cargo on-board upon arrival of the vessel.
ESLI cannot invoke its non-liability solely on the manner the cargo was discharged and unloaded. The actual condition of
the cargoes upon arrival prior to discharge is equally important and cannot be disregarded. Proof is needed that the cargo
arrived at the port of Manila in good order condition and remained as such prior to its handling by ATI.
Common carriers, from the nature of their business and on public policy considerations, are bound to observe
extraordinary diligence in the vigilance over the goods transported by them. Subject to certain exceptions enumerated
under Article 173451 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the
goods. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in
the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them. 52chanRoblesvirtualLawlibrary
In maritime transportation, a bill of lading is issued by a common carrier as a contract, receipt and symbol of the goods
covered by it. If it has no notation of any defect or damage in the goods, it is considered as a clean bill of lading. A clean
bill of lading constitutes prima facie evidence of the receipt by the carrier of the goods as therein
described.53chanRoblesvirtualLawlibrary
Based on the bills of lading issued, it is undisputed that ESLI received the two shipments of coils from shipper Sumitomo
Corporation in good condition at the ports of Yokohama and Kashima, Japan. However, upon arrival at the port of Manila,
some coils from the two shipments were partly dented and crumpled as evidenced by the Turn Over Survey of Bad Order
Cargoes No. 67982 dated 13 February 200454 and Turn Over Survey of Bad Order Cargoes Nos. 68363 55 and
6836556 both dated 24 May 2004 signed by ESLIs representatives, a certain Tabanao and Rodrigo together with ATIs
representative Garcia. According to Turn Over Survey of Bad Order Cargoes No. 67982, four coils and one skid were
partly dented and crumpled prior to turnover by ESLI to ATIs possession while a total of eleven coils were partly dented
and crumpled prior to turnover based on Turn Over Survey Bad Order Cargoes Nos. 68363 and 68365.
Calamba Steel requested for a re-examination of the damages sustained by the two shipments. Based on the Requests
for Bad Order Survey Nos. 5826757 and 5825458 covering the first shipment dated 13 and 17 February 2004, four coils
were damaged prior to turnover. The second Request for Bad Order Survey No. 58658 59 dated 25 May 2004 also affirmed
the earlier findings that eleven coils on the second shipment were damaged prior to turnover.
In Asian Terminals, Inc., v. Philam Insurance Co., Inc.,60 the Court based its ruling on liability on the Bad Order Cargo and
Turn Over of Bad Order. The Receipt bore a notation B.O. not yet t/over to ATI, while the Survey stated that the said
steel case was not opened at the time of survey and was accepted by the arrastre in good order. Based on these
documents, packages in the Asian Terminals, Inc. case were found damaged while in the custody of the carrier Westwind
Shipping Corporation.
Mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination
constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the
deterioration, loss, or destruction of the goods happened, the transporter shall be held responsible. 61 From the foregoing,
the fault is attributable to ESLI. While no longer an issue, it may be nonetheless state that ATI was correctly absolved of
liability for the damage.

Second Issue: Limitation of Liability


ESLI assigns as error the appellate courts finding and reasoning that the package limitation under the COGSA 62 is
inapplicable even if the bills of lading covering the shipments only made reference to the corresponding invoices.
Noticeably, the invoices specified among others the weight, quantity, description and value of the cargoes, and bore the
notation Freight Prepaid and As Arranged.63ESLI argues that the value of the cargoes was not incorporated in the bills
of lading64 and that there was no evidence that the shipper had presented to the carrier in writing prior to the loading of the
actual value of the cargo, and, that there was a no payment of corresponding freight. 65 Finally, despite the fact that ESLI
admits the existence of the invoices, it denies any knowledge either of the value declared or of any information contained
therein.66chanRoblesvirtualLawlibrary
According to the New Civil Code, the law of the country to which the goods are to be transported shall govern the liability
of the common carrier for their loss, destruction or deterioration. 67 The Code takes precedence as the primary law over the
rights and obligations of common carriers with the Code of Commerce and COGSA applying
suppletorily.68chanRoblesvirtualLawlibrary
The New Civil Code provides that a stipulation limiting a common carriers liability to the value of the goods appearing in
the bill of lading is binding, unless the shipper or owner declares a greater value. 69 In addition, a contract fixing the sum
that may be recovered by the owner or shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely agreed upon. 70chanRoblesvirtualLawlibrary
COGSA, on the other hand, provides under Section 4, Subsection 5 that an amount recoverable in case of loss or
damage shall not exceed US$500.00 per package or per customary freight unless the nature and value of such goods
have been declared by the shipper before shipment and inserted in the bill of lading.
In line with these maritime law provisions, paragraph 13 of bills of lading issued by ESLI to the shipper specifically
provides a similar restriction:chanroblesvirtuallawlibrary
The value of the goods, in calculating and adjusting any claims for which the Carrier may be liable shall, to avoid
uncertainties and difficulties in fixing value, be deemed to the invoice value of the goods plus ocean freight and insurance,
if paid, Irrespective of whether any other value is greater or less, and any partial loss or damage shall be adjusted pro rata
on the basis of such value; provided, however, that neither the Carrier nor the ship shall in any event be or become liable
for any loss, non-delivery or misdelivery of or damage or delay to, or in connection with the custody or transportation of
the goods in an amount exceeding $500.00 per package lawful money of the United States, or in case of goods not
shipped in packages, per customary freight unit, unless the nature of the goods and a valuation higher than $500.00 is
declared in writing by the shipper on delivery to the Carrier and inserted in the bill of lading and extra freight is paid therein
as required by applicable tariffs to obtain the benefit of such higher valuation. In which case even if the actual value of the
goods per package or unit exceeds such declared value, the value shall nevertheless be deemed to be the declared value
and any Carriers liability shall not exceed such declared value and any partial loss or damage shall be adjusted pro-rata
on the basis thereof. The Carrier shall not be liable for any loss or profit or any consequential or special damage and shall
have the option of replacing any lost goods and replacing o reconditioning any damage goods. No oral declaration or
agreement shall be evidence of a value different from that provided therein. 71chanRoblesvirtualLawlibrary
xxxx
Accordingly, the issue whether or not ESLI has limited liability as a carrier is determined by either absence or presence of
proof that the nature and value of the goods have been declared by Sumitomo Corporation and inserted in the bills of
lading.
ESLI contends that the invoices specifying the weight, quantity, description and value of the cargo in reference to the bills
of lading do not prove the fact that the shipper complied with the requirements mandated by the COGSA. It contends that
there must be an insertion of this declaration in the bill of lading itself to fall outside the statutory limitation of liability.
ESLI asserts that the appellate court erred when it ruled that there was compliance with the declaration requirement even
if the value of the shipment and fact of payment were indicated on the invoice and not on the bill of lading itself.

There is no question about the declaration of the nature, weight and description of the goods on the first bill of lading.
The bills of lading represent the formal expression of the parties rights, duties and obligations. It is the best evidence of
the intention of the parties which is to be deciphered from the language used in the contract, not from the unilateral post
facto assertions of one of the parties, or of third parties who are strangers to the contract. 72 Thus, when the terms of an
agreement have been reduced to writing, it is deemed to contain all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms other than the contents of the written
agreement.73chanRoblesvirtualLawlibrary
As to the non-declaration of the value of the goods on the second bill of lading, we see no error on the part of the
appellate court when it ruled that there was a compliance of the requirement provided by COGSA. The declaration
requirement does not require that all the details must be written down on the very bill of lading itself. It must be
emphasized that all the needed details are in the invoice, which contains the itemized list of goods shipped to a buyer,
stating quantities, prices, shipping charges, and other details which may contain numerous sheets. 74 Compliance can be
attained by incorporating the invoice, by way of reference, to the bill of lading provided that the former containing the
description of the nature, value and/or payment of freight charges is as in this case duly admitted as evidence.
In Unsworth Transport International (Phils.), Inc. v. Court of Appeals,75 the Court held that the insertion of an invoice
number does not in itself sufficiently and convincingly show that petitioner had knowledge of the value of the cargo.
However, the same interpretation does not squarely apply if the carrier had been advised of the value of the goods as
evidenced by the invoice and payment of corresponding freight charges. It would be unfair for ESLI to invoke the limitation
under COGSA when the shipper in fact paid the freight charges based on the value of the goods. In Adams Express
Company v. Croninger,76 it was said: Neither is it conformable to plain principles of justice that a shipper may understate
the value of his property for the purpose of reducing the rate, and then recover a larger value in case of loss. Nor does a
limitation based upon an agreed value for the purpose of adjusting the rate conflict with any sound principle of public
policy. Conversely, but for the same reason, it is unjust for ESLI to invoke the limitation when it is informed that the
shipper paid the freight charges corresponding to the value of the goods.
Also, ESLI admitted the existence and due execution of the Bills of Lading and the Invoice containing the nature and value
of the goods on the second shipment. As written in the Pre-Trial Order,77 the parties, including ESLI, admitted
the existence and due execution of the two Bills of Lading78together with the Invoice on the second shipment with
Nos. KJGE-04-1327-NT/KE279 dated 12 May 2004. On the first shipment, ESLI admitted the existence of the Invoice
with Nos. KJGE-031228-NT/KE380 dated 2 February 2004.
The effect of admission of the genuineness and due execution of a document means that the party whose signature it
bears admits that he voluntarily signed the document or it was signed by another for him and with his
authority.81chanRoblesvirtualLawlibrary
A review of the bill of ladings and invoice on the second shipment indicates that the shipper declared the nature and value
of the goods with the corresponding payment of the freight on the bills of lading. Further, under the caption description of
packages and goods, it states that the description of the goods to be transported as various steel sheet in coil with a
gross weight of 383,532 kilograms (89.510 M3). On the other hand, the amount of the goods is referred in the invoice, the
due execution and genuineness of which has already been admitted by ESLI, is US$186,906.35 as freight on board with
payment of ocean freight of US$32,736.06 and insurance premium of US$1,813.17. From the foregoing, we rule that the
non- limitation of liability applies in the present case.
We likewise accord the same binding effect on the contents of the invoice on the first shipment.
ESLI contends that what was admitted and written on the pre-trial order was only the existence of the first shipment
invoice but not its contents and due execution. It invokes admission of existence but renounces any knowledge of the
contents written on it.82chanRoblesvirtualLawlibrary
Judicial admissions are legally binding on the party making the admissions. Pre-trial admission in civil cases is one of the

instances of judicial admissions explicitly provided for under Section 7, Rule 18 of the Rules of Court, which mandates
that the contents of the pre-trial order shall control the subsequent course of the action, thereby, defining and limiting the
issues to be tried. In Bayas v. Sandiganbayan,83 this Court emphasized that:chanroblesvirtuallawlibrary
Once the stipulations are reduced into writing and signed by the parties and their counsels, they become binding on the
parties who made them. They become judicial admissions of the fact or facts stipulated. Even if placed at a
disadvantageous position, a party may not be allowed to rescind them unilaterally, it must assume the consequences of
the disadvantage.84
Moreover, in Alfelor v. Halasan,85 this Court declared that:chanroblesvirtuallawlibrary
A party who judicially admits a fact cannot later challenge that fact as judicial admissions are a waiver of proof; production
of evidence is dispensed with. A judicial admission also removes an admitted fact from the field of controversy.
Consequently, an admission made in the pleadings cannot be controverted by the party making such admission and are
conclusive as to such party, and all proofs to the contrary or inconsistent therewith should be ignored, whether objection is
interposed by the party or not. The allegations, statements or admissions contained in a pleading are conclusive as
against the pleader. A party cannot subsequently take a position contrary of or inconsistent with what was
pleaded.86 (Citations omitted)

The admission having been made in a stipulation of facts at pre-trial by the parties, it must be treated as a judicial
admission. Under Section 4, of Rule 129 of the Rules of Court, a judicial admission requires no
proof.87chanRoblesvirtualLawlibrary
It is inconceivable that a shipping company with maritime experience and resource like the ESLI will admit the existence
of a maritime document like an invoice even if it has no knowledge of its contents or without having any copy thereof.
ESLI also asserts that the notation Freight Prepaid and As Arranged, does not prove that there was an actual
declaration made in writing of the payment of freight as required by COGSA. ESLI did not as it could not deny payment of
freight in the amount indicated in the documents. Indeed, the earlier discussions on ESLIs admission of the existence and
due execution of the invoices, cover and disprove the argument regarding actual declaration of payment. The bills of
lading bore a notation on the manner of payment which was Freight Prepaid and As Arranged while the invoices
indicated the amount exactly paid by the shipper to ESLI.chanrobleslaw
WHEREFORE, we DENY the Petition for Review on Certiorari. The Decision dated 31 January 2008 and Resolution
dated 5 May 2008 of the Second Division of the Court of Appeals in CA-G.R. CV. No. 88744 are hereby AFFIRMED.

G.R. No. L-65510 March 9, 1987


TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.
Cirilo A. Diaz, Jr. for petitioner.
Henry V. Briguera for private respondent.
PARAS, J.:
"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that must be applied to
the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each
must bear the consequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.)
The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed
decision, as follows:
On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a
sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total
purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would pay
plaintiff the balance within sixty days. The defendant, however, failed to comply with his promise and so
upon his own request, the period of paying the balance was extended to one year in monthly installments
until January 1976 when he stopped paying anymore. The plaintiff made demands but just the same the
defendant failed to comply with the same thus forcing the plaintiff to consult a lawyer and file this action
for his damage in the amount of P546.21 for attorney's fees and P100.00 for expenses of litigation. The
plaintiff also claims that as of February 20, 1978, the total account of the defendant was already
P2,731.06 as shown in a statement of account (Exhibit. "B"). This amount includes not only the balance of
P1,700.00 but an additional 12% interest per annum on the said balance from January 26, 1976 to
February 27, 1978; a 2% service charge; and P 546.21 representing attorney's fees.
In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment
of the balance of the purchase price. It has been the practice of financing firms that whenever there is a
balance of the purchase price the registration papers of the motor vehicle subject of the sale are not given
to the buyer. The records of the LTC show that the motorcycle sold to the defendant was first mortgaged
to the Teja Marketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the
same, because it was made to appear that way only as the defendant had no franchise of his own and he
attached the unit to the plaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to
undertake the yearly registration of the motorcycle with the Land Transportation Commission. Pursuant to
this agreement the defendant on February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the
mortgage fee and the P82.00 for the registration fee of the motorcycle. The plaintiff, however failed to
register the motorcycle on that year on the ground that the defendant failed to comply with some
requirements such as the payment of the insurance premiums and the bringing of the motorcycle to the
LTC for stenciling, the plaintiff saying that the defendant was hiding the motorcycle from him. Lastly, the
plaintiff explained also that though the ownership of the motorcycle was already transferred to the
defendant the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of
Camaligan for the reason that all motorcycle purchased from the plaintiff on credit was rediscounted with
the bank.
On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still payable
to the plaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with the side car

because of the condition that the plaintiff would be the one to register every year the motorcycle with the
Land Transportation Commission. In 1976, however, the plaintfff failed to register both the chattel
mortgage and the motorcycle with the LTC notwithstanding the fact that the defendant gave him P90.00
for mortgage fee and registration fee and had the motorcycle insured with La Perla Compana de Seguros
(Exhibit "6") as shown also by the Certificate of cover (Exhibit "3"). Because of this failure of the plaintiff to
comply with his obligation to register the motorcycle the defendant suffered damages when he failed to
claim any insurance indemnity which would amount to no less than P15,000.00 for the more than two
times that the motorcycle figured in accidents aside from the loss of the daily income of P15.00 as
boundary fee beginning October 1976 when the motorcycle was impounded by the LTC for not being
registered.
The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle
resulting in its not being registered. The truth being that the motorcycle was being used for transporting
passengers and it kept on travelling from one place to another. The motor vehicle sold to him was
mortgaged by the plaintiff with the Rural Bank of Camaligan without his consent and knowledge and the
defendant was not even given a copy of the mortgage deed. The defendant claims that it is not true that
the motorcycle was mortgaged because of re-discounting for rediscounting is only true with Rural Banks
and the Central Bank. The defendant puts the blame on the plaintiff for not registering the motorcycle with
the LTC and for not giving him the registration papers inspite of demands made. Finally, the evidence of
the defendant shows that because of the filing of this case he was forced to retain the services of a lawyer
for a fee on not less than P1,000.00.
xxx xxx xxx
... it also appears and the Court so finds that defendant purchased the motorcycle in question, particularly
for the purpose of engaging and using the same in the transportation business and for this purpose said
trimobile unit was attached to the plaintiffs transportation line who had the franchise, so much so that in
the registration certificate, the plaintiff appears to be the owner of the unit.Furthermore, it appears to have
been agreed, further between the plaintiff and the defendant, that plaintiff would undertake the yearly
registration of the unit in question with the LTC. Thus, for the registration of the unit for the year 1976, per
agreement, the defendant gave to the plaintiff the amount of P82.00 for its registration, as well as the
insurance coverage of the unit.
Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against
private respondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner,
the dispositive portion of which reads:
WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to
pay plaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal rate of
interest from the date of the filing of the complaint until the same is fully paid; to pay plaintiff the sum of
P546.21 as attorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the
costs.
SO ORDERED.
On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed a
petition for review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision, the
pertinent portion of which reads
However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private
respondent Jaucian, pursuant to what is commonly known as the "kabit system", without the prior
approval of the Board of Transportation (formerly the Public Service Commission) was an illegal
transaction involving the fictitious registration of the motor vehicle in the name of the private respondent
so that he may traffic with the privileges of his franchise, or certificate of public convenience, to operate a

tricycle service, the parties being in pari delicto, neither of them may bring an action against the other to
enforce their illegal contract [Art. 1412 (a), Civil Code].
xxx xxx xxx
WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja
Marketing and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No.
1153 of the Court of First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of
Naga City) are dismissed. No pronouncement as to costs.
SO ORDERED.
The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a lone
assignment of error whether or not respondent court erred in applying the doctrine of "pari delicto."
We find the petition devoid of merit.
Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a
person who has been granted a certificate of public convenience allows another person who owns motor vehicles to
operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the
government. Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has been
Identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices.
Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to
public policy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that the
court will not aid either party to enforce an illegal contract, but will leave both where it finds then. Upon this premise it
would be error to accord the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It
provides:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover that he has given by virtue
of the contract, or demand, the performance of the other's undertaking.
The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere
lapse of time cannot give efficacy to contracts that are null and void.
WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate Court
(now the Court of Appeals) is AFFIRMED. No costs.
SO ORDERED.

G.R. No. L-24219

June 13, 1968

PHILIPPINE AIR LINES, INC., petitioner,


vs.
CIVIL AERONAUTICS BOARD, and FILIPINAS ORIENT AIRWAYS, INC., respondents.
Crispin D. Baizas, Edgardo Diaz de Rivera and Cenon S. Cervantes, Jr. for petitioner.
Office of the Solicitor General for respondent Civil Aeronautics Board.
Honorio Poblador and Ramon A. Pedrosa for respondent Filipinas Orient Airways, Inc.
CONCEPCION, C.J.:
Original petition for certiorari, to set aside and annul a resolution of the Civil Aeronautics Board hereinafter referred to
as CAB granting respondent Filipinas Orient Airways Inc. hereinafter referred to as Fairways "provisional
authority to operate scheduled and non-scheduled domestic air services with the use of DC-3 aircrafts", subject to
specified conditions.
Pursuant to Republic Act No. 4147, granting thereto "a franchise to establish, operate and maintain transport services for
the carriage of passengers, mail, industrial flights and cargo by air in and between any and all points and places
throughout the Philippines and other countries", on September 16, 1964, Fairways filed with CAB the corresponding
application for a "certificate of public convenience and necessity", which was Docketed as economic proceedings (EP) No.
625, and was objected to by herein petitioner, Philippine Air Lines, Inc., hereinafter referred to as PAL. Subsequently, a
CAB hearing officer began to receive evidence on said application. After several hearings before said officer, or on
December 14, 1964, Fairways filed an "urgent petition for provisional authority to operate" under a detailed "program of
implementation" attached to said petition, and for the approval of its bond therefor, as well as the provisional approval of
its "tariff regulations and the conditions of carriage to be printed at the back of the passenger tickets." Despite PAL's
opposition thereto, in a resolution issued on January 5, 1965, CAB granted said urgent petition of Fairways. The pertinent
part of said resolution provides:
Filipinas Orient Airways, Inc., (FAIRWAYS) having presented to the Board evidence showing prima facie its
fitness, willingness and ability to operate the services applied for and the public need for more air transportation
service, and to encourage and develop commercial air transportation, RESOLVED, to grant, as the Board hereby

grants, the said Filipinas Orient Airways, Inc., provisional authority to operate scheduled and non-scheduled
domestic air services with the use of DC-3 aircraft, subject to the following conditions;
1. The term of the provisional authority herein granted shall be until such time as the main application for a
certificate of public convenience and necessity is finally decided or for such period as the Board may at any time
determine;
xxx

xxx

xxx

A reconsideration of this resolution having been denied, PAL filed the present civil action alleging that, in issuing said
resolution, CAB had acted illegally and in excess of its jurisdiction or with grave abuse of discretion, because:
(1) CAB is not empowered to grant any provisional authority to operate, prior to the submission for decision of the
main application for a certificate of public convenience and necessity;
(2) CAB had no evidence before it that could have justified the granting of the provisional authority complained of;
(3) PAL was denied due process when CAB granted said authority before the presentation of its evidence on
Fairway's main application; and
(4) In granting said provisional authority, the CAB had prejudged the merits of said application.
The first ground is devoid of merit. Section 10-C(1) of Republic Act No. 776, reading:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify, cancel
suspend or revoke, in whole or in part, upon petitioner complaint, or upon its own initiative, any temporary
operating permit or Certificate of Public Convenience and Necessity; Provided, however, That in the case of
foreign air carriers, the permit shall be issued with the approval of the President of the Republic of the
Philippines....
explicitly authorizes CAB to issue a "temporary operating permit," and nothing contained, either in said section, or in
Chapter IV of Republic Act No. 776, negates the power to issue said "permit", before the completion of the applicant's
evidence and that of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit
"upon its own initiative," strongly suggests the power to exercise said authority, even before the presentation of said
evidence has begun.
Moreover, we perceive no cogent reason to depart, in connection with the commercial air transport service, from the policy
of our public service law, which sanctions the issuance of temporary or provisional permits or certificates of public
convenience and necessity, before the submission of a case for decision on the merits. 1 The overriding considerations in
both instances are the same, namely, that the service be required by public convenience and necessity, and, that the
applicant is fit, as well as willing and able to render such service properly, in conformity with law and the pertinent rules,
regulations and requirements.2
As regards PAL's second contention, we have no more than PAL's assertion and conclusion regarding the absence of
substantial evidence in support of the finding, in the order complained of, to the effect that Fairways' evidence had
established " prima facie its fitness, willingness and ability to operate the services applied for and the public need for more
transportation service ...". Apart from PAL's assertion being contradicted by the tenor of said order, there is the legal
presumption that official duty has been duly performed.
Such presumption is particularly strong as regards administrative agencies, like the CAB, vested with powers said to be
quasi-judicial in nature, in connection with the enforcement of laws affecting particular fields of activity, the proper

regulation and/or promotion of which requires a technical or special training, aside from a good knowledge and grasp of
the overall conditions, relevant to said field, obtaining in the nation. 3 The consequent policy and practice underlying our
Administrative Law is that courts of justice should respect the findings of fact of said administrative agencies, unless there
is absolutely no evidence in support thereof or such evidence is clearly, manifestly and patently insubstantial. 4 This, in
turn, is but a recognition of the necessity of permitting the executive department to adjust law enforcement to changing
conditions, without being unduly hampered by the rigidity and the delays often attending ordinary court proceedings or the
enactment of new or amendatory legislations. In the case at bar, petitioner has not satisfactorily shown that the
aforementioned findings of the CAB are lacking in the necessary evidentiary support.
Needless to say, the case of Ang Tibay vs. C.I.R.5 on which petitioner relies, is not in point. Said case refers to the
conditions essential to a valid decision on the merits, from the viewpoint of due process, whereas, in the case at bar, we
are concerned with an interlocutory order prior to the rendition of said decision. In fact, interlocutory orders may
sometimes be issued ex parte, particularly, in administrative proceedings, without previous notice and hearing,
consistently with due process.6 Again, the constitutional provision to the effect that "no decision shall be rendered by any
court of record without expressing therein clearly and distinctly the facts and the law on which it is based", 7 applies, not to
such interlocutory orders, but to the determination of the case on the merits. 8
Lastly, the provisional nature of the permit granted to Fairways refutes the assertion that it prejudges the merits of
Fairways' application and PAL's opposition thereto. As stated in the questioned order, CAB's findings therein made reflect
its view merely on the prima facie effect of the evidence so far introduced and do not connote a pronouncement or an
advanced expression of opinion on the merits of the case.
WHEREFORE, the petition herein should be, as it is hereby, dismissed, and the writ prayed for, denied, with costs against
petitioner Philippine Air Lines, Inc. It is so ordered.

[G.R. No. 118664. August 7, 1998]


JAPAN AIRLINES, petitioner, vs. THE COURT OF APPEALS ENRIQUE AGANA, MARIA ANGELA NINA AGANA,
ADALIA B. FRANCISCO and JOSE MIRANDA, respondents.
DECISION
ROMERO, J.:
Before us is an appeal by certiorari filed by petitioner Japan Airlines, Inc. (JAL) seeking the reversal of the decision of
the Court of Appeals,[1] which affirmed with modification the award of damages made by the trial court in favor of herein
private respondents Enrique Agana, Maria Angela Nina Agana, Adelia Francisco and Jose Miranda.
On June 13, 1991, private respondent Jose Miranda boarded JAL flight No. JL 001 in San Francisco, California
bound for Manila. Likewise, on the same day private respondents Enrique Agana, Maria Angela Nina Agana and Adelia
Francisco left Los Angeles, California for Manila via JAL flight No. JL 061. As an incentive for travelling on the said airline,
both flights were to make an overnight stopover at Narita, Japan, at the airlines expense, thereafter proceeding to Manila
the following day.
Upon arrival at Narita, Japan on June 14, 1991, private respondents were billeted at Hotel Nikko Narita for the
night. The next day, private respondents, on the final leg of their journey, went to the airport to take their flight to
Manila. However, due to the Mt. Pinatubo eruption, unrelenting ashfall blanketed Ninoy Aquino International Airport
(NAIA), rendering it inaccessible to airline traffic. Hence, private respondents trip to Manila was cancelled indefinitely.

To accommodate the needs of its stranded passengers, JAL rebooked all the Manila-bound passengers on flight No.
741 due to depart on June 16, 1991 and also paid for the hotel expenses for their unexpected overnight stay. On June 16,
1991, much to the dismay of the private respondents, their long anticipated flight to Manila was again cancelled due to
NAIAs indefinite closure. At this point, JAL informed the private respondents that it would no longer defray their hotel and
accommodation expense during their stay in Narita.
Since NAIA was only reopened to airline traffic on June 22, 1991, private respondents were forced to pay for their
accommodations and meal expenses from their personal funds from June 16 to June 21, 1991. Their unexpected stay in
Narita ended on June 22, 1991 when they arrived in Manila on board JL flight No. 741.
Obviously, still reeling from the experience, private respondents, on July 25, 1991, commenced an action for
damages against JAL before the Regional Trial Court of Quezon City, Branch 104. [2] To support their claim, private
respondents asserted that JAL failed to live up to its duty to provide care and comfort to its stranded passengers when it
refused to pay for their hotel and accommodation expenses from June 16 to 21, 1991 at Narita, Japan. In other words,
they insisted that JAL was obligated to shoulder their expenses as long as they were still stranded in Narita. On the other
hand, JAL denied this allegation and averred that airline passengers have no vested right to these amenities in case a
flight is cancelled due to force majeure.
On June 18, 1992, the trial court rendered its judgment in favor of private respondents holding JAL liable for
damages, viz.:
WHEREFORE, judgment is rendered in favor of plaintiffs ordering the defendant Japan Airlines to pay the plaintiffs
Enrique Agana, Adalia B. Francisco and Maria Angela Nina Agana the sum of One million Two Hundred forty-six
Thousand Nine Hundred Thirty-Six Pesos (P1,246,936.00) and Jose Miranda the sum of Three Hundred Twenty
Thousand Six Hundred sixteen and 31/100 (P320,616.31) as actual, moral and exemplary damages and pay attorneys
fees in the amount of Two Hundred Thousand Pesos (P200,000.00), and to pay the costs of suit.
Undaunted, JAL appealed the decision before the Court of Appeals, which, however, with the exception of lowering
the damages awarded affirmed the trial courts finding, [3] thus:
Thus, the award of moral damages should be as it is hereby reduced to P200,000.00 for each of the plaintiffs, the
exemplary damages to P300,000.00 and the attorneys fees toP100,000.00 plus the costs.
WHEREFORE, with the foregoing Modification, the judgment appealed from is hereby AFFIRMED in all other respects.
JAL filed a motion for reconsideration which proved futile and unavailing. [4]
Failing in its bid to reconsider the decision, JAL has now filed this instant petition.
The issue to be resolved is whether JAL, as a common carrier has the obligation to shoulder the hotel and meal
expenses of its stranded passengers until they have reached their final destination, even if the delay were caused by force
majeure.
To begin with, there is no dispute that the Mt. Pinatubo eruption prevented JAL from proceeding to Manila on
schedule. Likewise, private respondents concede that such event can be considered as force majeure since their delayed
arrival in Manila was not imputable to JAL.[5]
However, private respondents contend that while JAL cannot be held responsible for the delayed arrival in Manila, it
was nevertheless liable for their living expenses during their unexpected stay in Narita since airlines have the obligation to
ensure the comfort and convenience of its passengers. While we sympathize with the private respondents plight, we are
unable to accept this contention.

We are not unmindful of the fact that in a plethora of cases we have consistently ruled that a contract to transport
passengers is quite different in kind and degree from any other contractual relation. It is safe to conclude that it is
a relationship imbued with public interest. Failure on the part of the common carrier to live up to the exacting standards
of care and diligence renders it liable for any damages that may be sustained by its passengers. However, this is not to
say that common carriers are absolutely responsible for all injuries or damages even if the same were caused by a
fortuitous event. To rule otherwise would render the defense of force majeure, as an exception from any liability, illusory
and ineffective.
Accordingly, there is no question that when a party is unable to fulfill his obligation because of force majeure, the
general rule is that he cannot be held liable for damages for non-performance. [6] Corollarily, when JAL was prevented from
resuming its flight to Manila due to the effects of Mt. Pinatubo eruption, whatever losses or damages in the form of hotel
and meal expenses the stranded passengers incurred, cannot be charged to JAL. Yet it is undeniable that JAL assumed
the hotel expenses of respondents for their unexpected overnight stay on June 15, 1991.
Admittedly, to be stranded for almost a week in a foreign land was an exasperating experience for the private
respondents. To be sure, they underwent distress and anxiety during their unanticipated stay in Narita, but their
predicament was not due to the fault or negligence of JAL but the closure of NAIA to international flights. Indeed, to hold
JAL, in the absence of bad faith or negligence, liable for the amenities of its stranded passengers by reason of a fortuitous
event is too much of a burden to assume.
Furthermore, it has been held that airline passengers must take such risks incident to the mode of travel. [7] In this
regard, adverse weather conditions or extreme climatic changes are some of the perils involved in air travel, the
consequences of which the passenger must assume or expect. After all, common carriers are not the insurer of all risks. [8]
Paradoxically, the Court of Appeals, despite the presence of force majeure, still ruled against JAL relying in our
decision in PAL v. Court of Appeals,[9] thus:
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard required by
law. Undisputably, PALs diversion of its flight due to inclement weather was a fortuitous event. Nonetheless, such
occurrence did not terminate PALs 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 carriers premises. 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.
The reliance is misplaced. The factual background of the PAL case is different from the instant petition. In that case
there was indeed a fortuitous event resulting in the diversion of the PAL flight. However, the unforeseen diversion was
worsened when private respondents (passenger) was left at the airport and could not even hitch a ride in a Ford Fiera
loaded with PAL personnel,[10] not to mention the apparent apathy of the PAL station manager as to the predicament of the
stranded passengers.[11] In light of these circumstances, we held that if the fortuitous event was accompanied by neglect
and malfeasance by the carriers employees, an action for damages against the carrier is permissible. Unfortunately, for
private respondents, none of these conditions are present in the instant petition.
We are not prepared, however, to completely absolve petitioner JAL from any liability. It must be noted that private
respondents bought tickets from the United States with Manila as their final destination. While JAL was no longer required
to defray private respondents living expenses during their stay in Narita on account of the fortuitous event, JAL had the
duty to make the necessary arrangements to transport private respondents on the first available connecting flight to
Manila. Petitioner JAL reneged on its obligation to look after the comfort and convenience of its passengers when it
declassified private respondents from transit passengers to new passengers as a result of which private respondents
were obliged to make the necessary arrangements themselves for the next flight to Manila. Private respondents were
placed on the waiting list from June 20 to June 24. To assure themselves of a seat on an available flight, they were

compelled to stay in the airport the whole day of June 22, 1991 and it was only at 8:00 p.m. of the aforesaid date that they
were advised that they could be accommodated in said flight which flew at about 9:00 a.m. the next day.
We are not oblivious to the fact that the cancellation of JAL flights to Manila from June 15 to June 21, 1991 caused
considerable disruption in passenger booking and reservation.In fact, it would be unreasonable to expect, considering
NAIAs closure, that JAL flight operations would be normal on the days affected. Nevertheless, this does not excuse JAL
from its obligation to make the necessary arrangements to transport private respondents on its first available flight to
Manila. After all, it had a contract to transport private respondents from the United States to Manila as their final
destination.
Consequently, the award of nominal damages is in order. Nominal damages are adjudicated in order that a right of a
plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized and not for the purpose of
indemnifying any loss suffered by him. [12] The court may award nominal damages in every obligation arising from any
source enumerated in Article 1157, or in every case where any property right has been invaded. [13]
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated December 22, 1993 is hereby
MODIFIED. The award of actual, moral and exemplary damages is hereby DELETED. Petitioner JAL is ordered to pay
each of the private respondents nominal damages in the sum of P100,000.00 each including attorneys fees ofP50,000.00
plus costs.

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