KINDS OF CHARTER PARTIES carrier is in turn bound?
carrier is in turn bound? Second, whether or not the insurer was subrogated into the rights of
G.R. No. 114167 July 12, 1995
COASTWISE LIGHTERAGE CORPORATION, petitioner, vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.
RESOLUTION
FRANCISCO, R., J.:
This is a petition for review of a Decision rendered by the Court of Appeals, dated December
17, 1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein
petitioner is liable to pay herein private respondent the amount of P700,000.00, plus legal
interest thereon, another sum of P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros
to Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's
dumb barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise
owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck
an unknown sunken object. The forward buoyancy compartment was damaged, and water
gushed in through a hole "two inches wide and twenty-two inches long"1 As a consequence,
the molasses at the cargo tanks were contaminated and rendered unfit for the use it was
intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses
as a total loss. Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost
cargo, herein private respondent, Philippine General Insurance Company (PhilGen, for short)
and against the carrier, herein petitioner, Coastwise Lighterage. Coastwise Lighterage denied
the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of
P700,000.00, representing the value of the damaged cargo of molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial
Court of Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales,
Inc. for the latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights
and claims which the consignee may have against the carrier, which is presumed to have
violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the
Court of Appeals, the award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment
which it entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact
transformed into a private carrier, did it exercise the ordinary diligence to which a private
the consignee against the carrier, upon payment by the insurer of the value of the consignee's
goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding
that it was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to
transport the shipment of molasses from Negros Oriental to Manila and refers to this contract
as a "charter agreement". It then proceeds to cite the case of Home Insurance Company vs.
American Steamship Agencies, Inc.2 wherein this Court held: ". . . a common carrier
undertaking to carry a special cargo or chartered to a special person only becomes a private
carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions
of the court are as follows:
Accordingly, the charter party contract is one of affreightment over the whole vessel, rather
than a demise. As such, the liability of the shipowner for acts or negligence of its captain and
crew, would remain in the absence of stipulation.3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract
of affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of
Appeals,4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the charterer will generally be regarded
as the owner for the voyage or service stipulated. The charterer mans the vessel with his
own people and becomes the owner pro hac vice, subject to liability to others for damages
caused by negligence. To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the
charterer, anything short of such a complete transfer is a contract of affreightment (time or
voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of the vessel leases
part or all of its space to haul goods for others. It is a contract for special service to be
rendered by the owner of the vessel and under such contract the general owner retains the
possession, command and navigation of the ship, the charterer or freighter merely having
use of the space in the vessel in return for his payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the property of the
charterer, remains liable as carrier and must answer for any breach of duty as to the care,
loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same
however is not true in a contract of affreightment on account of the aforementioned
distinctions between the two.

Petitioner admits that the contract it entered into with the consignee was one of
affreightment.5 We agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order
to carry cargo from one point to another, but the possession, command and navigation of the
vessels remained with petitioner Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by
the contract of affreightment, was not converted into a private carrier, but remained a
common carrier and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of
goods in good order to a carrier and the subsequent arrival of the same goods at the place of
destination in bad order makes for a prima facie case against the carrier.
It follows then that the presumption of negligence that attaches to common carriers, once the
goods it transports are lost, destroyed or deteriorated, applies to the petitioner. This
presumption, which is overcome only by proof of the exercise of extraordinary diligence,
remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was
caused by its hitting an unknown sunken object as it was heading for Pier 18. The object turned
out to be a submerged derelict vessel. Petitioner contends that this navigational hazard was
the efficient cause of the accident. Further it asserts that the fact that the Philippine
Coastguard "has not exerted any effort to prepare a chart to indicate the location of sunken
derelicts within Manila North Harbor to avoid navigational accidents" 6 effectively contributed
to the happening of this mishap. Thus, being unaware of the hidden danger that lies in its path,
it became impossible for the petitioner to avoid the same. Nothing could have prevented the
event, making it beyond the pale of even the exercise of extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far
from having rendered service with the greatest skill and utmost foresight, and being free from
fault, the carrier was culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed.
The Code of Commerce, which subsidiarily governs common carriers (which are primarily
governed by the provisions of the Civil Code) provides:
Art. 609. — Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to
contract in accordance with this code, and prove the skill capacity and qualifications
necessary to command and direct the vessel, as established by marine and navigation laws,
ordinances or regulations, and must not be disqualified according to the same for the
discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron
violates this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a
person whose navigational skills are questionable, at the helm of the vessel which eventually
met the fateful accident. It may also logically, follow that a person without license to navigate,
lacks not just the skill to do so, but also the utmost familiarity with the usual and safe routes
taken by seasoned and legally authorized ones. Had the patron been licensed, he could be
presumed to have both the skill and the knowledge that would have prevented the vessel's
hitting the sunken derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported,
by proof of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once
more rule against the petitioner. We have already found petitioner liable for breach of the
contract of carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained
by the loss of the cargo which petitioner-carrier was transporting, it was not the carrier which
paid the value thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent
PhilGen.
Article 2207 of the Civil Code is explicit on this point:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a long
line of cases including Compania Maritima v. Insurance Company of North America;7 Fireman's
Fund Insurance Company v. Jamilla & Company, Inc.,8 and Pan Malayan Insurance Corporation
v. Court of Appeals,9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the
insured property is destroyed or damaged through the fault or negligence of a party other
than the assured, then the insurer, upon payment to the assured will be subrogated to the
rights of the assured to recover from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operated as an equitable assignment
to the former of all remedies which the latter may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon,
nor does it grow out of, any privity of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to
Pag-asa Sales, Inc., the consignee of the cargo of molasses totally damaged while being
transported by petitioner Coastwise Lighterage, the former was subrogated into all the rights
which Pag-asa Sales, Inc. may have had against the carrier, herein petitioner Coastwise
Lighterage.

WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming
the order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage
to pay respondent Philippine General Insurance Company the "principal amount of
P700,000.00 plus interest thereon at the legal rate computed from March 29, 1989, the date
the complaint was filed until fully paid and another sum of P100,000.00 as attorney's fees and
costs"10 is likewise hereby AFFIRMED SO ORDERED.
KINDS OF CHARTER PARTIES
[G.R. No. 131166. September 30, 1999]
CALTEX (PHILIPPINES), INC. petitioner, vs. SULPICIO LINES, INC., GO SIOC SO, ENRIQUE S. GO,
EUSEBIO S. GO, CARLOS S. GO, VICTORIANO S. GO, DOMINADOR S. GO, RICARDO
S. GO, EDWARD S. GO, ARTURO S. GO, EDGAR S. GO, EDMUND S. GO, FRANCISCO
SORIANO, VECTOR SHIPPING CORPORATION, TERESITA G. CAEZAL AND SOTERA E.
CAEZAL, respondents.
SYNOPSIS
On December 19, 1987, the MV Doa Paz, a passenger ship bound for Manila colided with
motor tanker MT Vector. MT Vector carried on board oil products owned by Caltex by virtue
of a charter contract. Numerous people died in that accident including public school teacher
Sebastian Caezal and his 11 year old daughter. In 1989, Caezals wife and mother filed a
complaint for Damages arising from Breach of Contract of Carriage against Sulpicio Lines, Inc.
Sulpicio Lines, in turn, filed a third party complaint against Vector Shipping, Inc. and Caltex
Phils. The trial court rendered decision against Sulpicio Lines and dismissed the third-party
complaint. On appeal, the Court of Appeals modified the trial courts ruling and held Vector
Shipping Co. and Caltex Phils., Inc., equally liable. Hence, this petition.
Caltex Phils. and Vector entered into a contract of affreightment also known as a voyage
charter. In a voyage charter, the charter party provides for the hire of the vessel only, the ship
owner to supply the ships store, pay for the wages of the master of the crew, and defray the
expenses for the maintenance of the ship. If the charter is a contract of affreightment, which
leaves the general owner in possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The Charterer is free from liability to third
persons in respect of the ship.
The charterer of a vessel has no obligation before transporting all legal requirements.
The duty rests upon the common carrier simply for being engaged in public service.
SYLLABUS
1. COMMERCIAL LAW; TRANSPORTATION; CONTRACT OF CARRIAGE; RESPECTIVE RIGHTS
AND DUTIES OF PARTIES, HOW DETERMINED.- The respective rights and duties of a
shipper and the carrier depends not on whether the carrier is public or private, but on
whether the contract of carriage is a bill of lading or equivalent shipping documents on
the one hand, or a charter party or similar contract on the other.
2. ID.; ID.; ID.; CHARTER PARTY DIFFERENTIATED FROM CONTRACT OF AFFREIGHTMENT.- A
charter party is a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; a contract of affreightment
is one by which the owner of a ship or other vessel lets the whole or part of her to a
merchant or other person for the conveyance of goods, on a particular voyage, in
consideration of the payment of freight.
3. ID.; ID.; ID.; CONTRACT OF AFFREIGHTMENT; CATEGORIES.- A contract of affreightment
may be either time charter, wherein the leased vessel is leased to the charterer for a
fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In
both cases, the charter-party provides for the hire of the vessel only, either for a
determinate period of time or for a single or consecutive voyage, the Ship owner to
supply the ships store, pay for the wages of the master of the crew, and defray the
expenses for the maintenance of the ship.
4. ID.; ID.; ID.; ID.; WHERE CHARTER IS ONE OF AFFREIGHTMENT, CHARTERER FREE FROM
LIABILITY TO THIRD PERSONS.- If the charter is a contract of affreightment, which leaves
the general owner in possession of the ship as owner for the voyage, the rights and the
responsibilities of ownership rest on the owner. The charterer is free from liability to
third persons in respect of the ship.
5. ID.; ID.; COMMON CARRIER; REMAINS AS SUCH NOTWITHSTANDING CHARTER OF WHOLE
OR PORTION OF VESSEL.- In this case, the charter party agreement did not convert the
common carrier into a private carrier. The parties entered into a voyager charter, which
retains the character of the vessel as a common carrier. In Planters Products, Inc. vs.
Court of Appeals, we said: It is therefore imperative that a public carrier shall remain as
such, notwithstanding the charter of the whole or portion of a vessel by one or more
persons, provided the charter is limited to the ship only, as in the case of a time-charter
or voyage charter. It is only when the charter includes both the vessel and its crew, as in
a bareboat or demise that a common carrier becomes private, at least insofar as the
particular voyage covering the charter-party is concerned. Indubitably, a ship-owner in a
time or voyage charter retains possession and control of the ship, although her holds
may, for the moment, be the property of the charterer. Later, we ruled in Coastwise
Lighterage Corporation vs. Court of Appeals. Although a charter party may transform a
common carrier into a private one, the same however is not true in a contract of
affreightment xxx
6. ID.; ID.; ID.; SEAWORTHINESS, IMPLIEDLY WARRANTED.- A common carrier is a person or
corporation whose regular business is to carry passenger or property for all persons who
may choose to employ and to remunerate him. MT Vector fits the definition of a common
carrier under Article 1732 of the Civil Code. Thus, the carriers are deemed to warrant
impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be
adequately equipped for the voyage and manned with a sufficient number of competent
officers and crew. The failure of a common carrier to maintain in seaworthy condition
the vessel involved in its contract of carriage is a clear breach of its duty prescribed in
Article 1755 of the Civil Code. The provisions owed their conception to the nature of the
business of common carriers. This business is impressed with a special public duty. The
public must of necessity rely on the care and skill of common carriers in the vigilance over
the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid, more
complicated and somehow more hazardous. For these reasons, a passenger or a shipper
of goods is under no obligation to conduct an inspection of the ship and its crew, the
carrier being obliged by law to impliedly warrant its seaworthiness.
7. ID.; ID.; ID.; NEGLIGENCE, CONSTRUED.- In Southeastern College, Inc. vs. Court of
Appeals, we said that negligence, as commonly understood, is conduct which naturally
or reasonably creates undue risk or harm to others. It may be the failure to observe that
degree of care, precaution, and vigilance, which the circumstances justly demand, or the
omission to do something which ordinarily regulate the conduct of human affairs, would
do.
8. ID.; ID.; ID.; ID.; CHARTERER WITH NO OBLIGATION TO ENSURE VESSEL COMPLIED WITH
ALL LEGAL REQUIREMENTS.- The charterer of a vessel has no obligation before
transporting its cargo to ensure that the vessel it chartered complied with all legal
requirements. The duty rests upon the common carrier simply for being engaged in
public service. The Civil Code demands diligence which is required by the nature of the
obligation and that which corresponds with the circumstances of the persons, the time
 and the place. Hence, considering the nature of the obligation between Caltex and MT
Vector, the liability as found by the Court of Appeals is without basis.
9. ID.; ID.; ID.; ID.; ID.; CASE AT BAR.- The relationship between the parties in this case is
governed by special laws. Because of the implied warranty of seaworthiness, shippers of
goods, when transacting with common carriers, are not expected to inquire into the
vessels seaworthiness, genuineness of its licenses and compliance with all maritime laws.
To demand more from shippers and hold them liable in case of failure exhibits nothing
but the futility of our maritime laws insofar as the protection of the public in general is
concerned. By the same token, we cannot expect passengers to inquire every time they
board a common carrier, whether the carrier possesses the necessary papers or that all
the carriers employees are qualified. Such a practice would be an absurdity in a business
where time is always of the essence. Considering the nature of transportation business,
passengers and shippers alike customarily presume that common carriers possess all the
legal requisites in its operation. Thus, the nature of the obligation of Caltex demands
ordinary diligence like any other shipper in shipping his cargoes
DECISION
PARDO, J.:
Is the charterer of a sea vessel liable for damages resulting from a collision between the
chartered vessel and a passenger ship?
When MT Vector left the port of Limay, Bataan, on December 19, 1987 carrying
petroleum products of Caltex (Philippines), Inc. (hereinafter Caltex) no one could have guessed
that it would collide with MV Doa Paz, killing almost all the passengers and crew members of
both ships, and thus resulting in one of the countrys worst maritime disasters.
The petition before us seeks to reverse the Court of Appeals decision[1]holding petitioner
jointly liable with the operator of MT Vector for damages when the latter collided with Sulpicio
Lines, Inc.s passenger ship MV Doa Paz.
The facts are as follows:
On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m.,
enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner
Caltex.[2] MT Vector is a tramping motor tanker owned and operated by Vector Shipping
Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene,
diesel and crude oil. During that particular voyage, the MT Vector carried on board gasoline
and other oil products owned by Caltex by virtue of a charter contract between them. [3]
On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doa Paz left the port
of Tacloban headed for Manila with a complement of 59 crew members including the master
and his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. [4] The
MV Doa Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying
the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making
trips twice a week.
At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea
within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the
crewmembers of MV Doa Paz died, while the two survivors from MT Vector claimed that they
were sleeping at the time of the incident.
The MV Doa Paz carried an estimated 4,000 passengers; many indeed, were not in the
passenger manifest. Only 24 survived the tragedy after having been rescued from the burning
waters by vessels that responded to distress calls.[5] Among those who perished were public
school teacher Sebastian Caezal (47 years old) and his daughter Corazon Caezal (11 years old),
both unmanifested passengers but proved to be on board the vessel.
On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after
investigation found that the MT Vector, its registered operator Francisco Soriano, and its
owner and actual operator Vector Shipping Corporation, were at fault and responsible for its
collision with MV Doa Paz.[6]
On February 13, 1989, Teresita Caezal and Sotera E. Caezal, Sebastian Caezals wife and
mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for
Damages Arising from Breach of Contract of Carriage against Sulpicio Lines, Inc. (hereafter
Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector
Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT
Vector with gross and evident bad faith knowing fully well that MT Vector was improperly
manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed
against MV Doa Paz in the open sea setting MT Vectors highly flammable cargo ablaze.
On September 15, 1992, the trial court rendered decision dismissing the third party
complaint against petitioner. The dispositive portion reads:
WHEREFORE, judgement is hereby rendered in favor of plaintiffs and against defendant-3rd
party plaintiff Sulpicio Lines, Inc., to wit:
1. For the death of Sebastian E. Caezal and his 11-year old daughter Corazon G. Caezal,
including loss of future earnings of said Sebastian, moral and exemplary damages, attorneys
fees, in the total amount of P 1,241,287.44 and finally;
2. The statutory costs of the proceedings.
Likewise, the 3rd party complaint is hereby DISMISSED for want of substantiation and with
costs against the 3rd party plaintiff.
IT IS SO ORDERED.
DONE IN MANILA, this 15th day of September 1992.
ARSENIO M. GONONG Judge[7]
On appeal to the Court of Appeals interposed by Sulpicio Lines, Inc., on April 15, 1997,
the Court of Appeal modified the trial courts ruling and included petitioner Caltex as one of
the those liable for damages.Thus:
WHEREFORE, in view of all the foregoing, the judgment rendered by the Regional Trial Court
is hereby MODIFIED as follows:
WHEREFORE, defendant Sulpicio Lines, Inc., is ordered to pay the heirs of Sebastian E. Caezal
and Corazon Caezal:
1. Compensatory damages for the death of Sebastian E.Caezal and Corazon Caezal the total
amount of ONE HUNDRED THOUSAND PESOS (P100,000);
2. Compensatory damages representing the unearned income of Sebastian E. Caezal, in the
total amount of THREE HUNDRED SIX THOUSAND FOUR HUNDRED EIGHTY (P306,480.00)
PESOS;
3. Moral damages in the amount of THREE HUNDRED THOUSAND PESOS (P 300,000.00);
4. Attorneys fees in the concept of actual damages in the amount of FIFTY THOUSAND PESOS
(P 50,000.00);
5. Costs of the suit.
Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable under
the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-
mentioned damages, attorneys fees and costs which the latter is adjudged to pay plaintiffs,
the same to be shared half by Vector Shipping Co. (being the vessel at fault for the collision)
and the other half by Caltex (Phils.), Inc. (being the charterer that negligently caused the
shipping of combustible cargo aboard an unseaworthy vessel).
SO ORDERED.
JORGE S. IMPERIAL
Associate Justice
WE CONCUR:
RAMON U. MABUTAS. JR. PORTIA ALIO HERMACHUELOS
Associate Justice Associate Justice[8]
Hence, this petition.
We find the petition meritorious.
First: The charterer has no liability for damages under Philippine Maritime laws.
The respective rights and duties of a shipper and the carrier depends not on whether the
carrier is public or private, but on whether the contract of carriage is a bill of lading or
equivalent shipping documents on the one hand, or a charter party or similar contract on the
other.[9]
Petitioner and Vector entered into a contract of affreightment, also known as a voyage
charter.[10]
A charter party is a contract by which an entire ship, or some principal part thereof, is let
by the owner to another person for a specified time or use; a contract of affreightment is one
by which the owner of a ship or other vessel lets the whole or part of her to a merchant or
other person for the conveyance of goods, on a particular voyage, in consideration of the
payment of freight.[11]
A contract of affreightment may be either time charter, wherein the leased vessel is
leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased
for a single voyage. In both cases, the charter-party provides for the hire of the vessel only,
either for a determinate period of time or for a single or consecutive voyage, the ship owner
to supply the ships store, pay for the wages of the master of the crew, and defray the expenses
for the maintenance of the ship.[12]
Under a demise or bareboat charter on the other hand, the charterer mans the vessel
with his own people and becomes, in effect, the owner for the voyage or service stipulated,
subject to liability for damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession
of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on
the owner. The charterer is free from liability to third persons in respect of the ship.[13]
Second : MT Vector is a common carrier
Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter,
(3) voyage charter. Does a charter party agreement turn the common carrier into a private
one? We need to answer this question in order to shed light on the responsibilities of the
parties.
In this case, the charter party agreement did not convert the common carrier into a
private carrier. The parties entered into a voyage charter, which retains the character of the
vessel as a common carrier.
In Planters Products, Inc. vs. Court of Appeals,[14] we said:
It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter
of the whole or portion of a vessel by one or more persons, provided the charter is limited to
the ship only, as in the case of a time-charter or voyage charter. It is only when the charter
includes both the vessel and its crew, as in a bareboat or demise that a common carrier
becomes private, at least insofar as the particular voyage covering the charter-party is
concerned. Indubitably, a ship-owner in a time or voyage charter retains possession and
control of the ship, although her holds may, for the moment, be the property of the charterer.
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeal: Although a
charter party may transform a common carrier into a private one, the same however is not
true in a contract of affreightment xxx
A common carrier is a person or corporation whose regular business is to carry
passengers or property for all persons who may choose to employ and to remunerate
him.[16] MT Vector fits the definition of a common carrier under Article 1732 of the Civil
Code. In Guzman vs. Court of Appeals,[17] we ruled:
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers for passengers or goods or both, by land,
water, or air for compensation, offering their services to the public.
The above article makes no distinction between one whose principal business activity is the
carrying of persons or goods or both, and one who does such carrying only as
an ancillary activity (in local idiom, as a sideline). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or
scheduled basis and one offering such services on a an occasional, episodic or unscheduled
basis. Neither does Article 1732 distinguish between a carrier offering its services to the
general public, i.e., the general community or population, and one who offers services or
solicits business only from a narrow segment of the general population. We think that Article
1733 deliberately refrained from making such distinctions.
It appears to the Court that private respondent is properly characterized as a common carrier
even though he merely back-hauled goods for other merchants from Manila to Pangasinan,
although such backhauling was done on a periodic, occasional rather than regular or scheduled
manner, and even though respondents principal occupation was not the carriage of goods for
others. There is no dispute that private respondent charged his customers a fee for hauling
their goods; that the fee frequently fell below commercial freight rates is not relevant here.
Under the Carriage of Goods by Sea Act :
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to exercise due
diligence to -
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
xxx xxx xxx
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a
vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew. The failure of a common carrier to
maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach
of its duty prescribed in Article 1755 of the Civil Code.[18]
The provisions owed their conception to the nature of the business of common
carriers. This business is impressed with a special public duty. The public must of necessity rely
on the care and skill of common carriers in the vigilance over the goods and safety of the
passengers, especially because with the modern development of science and invention,
transportation has become more rapid, more complicated and somehow more
hazardous.[19] For these reasons, a passenger or a shipper of goods is under no obligation to
conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly
warrant its seaworthiness.
This aside, we now rule on whether Caltex is liable for damages under the Civil Code.
Third: Is Caltex liable for damages under the Civil Code?
We rule that it is not.
Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard
an unseaworthy vessel such as the MT Vector when Caltex:
1. Did not take steps to have M/T Vectors certificate of inspection and coastwise
license renewed;
2. Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan
Refinery Corporation;
3. Witnessed M/T Vector submitting fake documents and certificates to the
Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these
deficiencies:
1. The master of M/T Vector did not posses the required Chief Mate license to
command and navigate the vessel;
2. The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized
to navigate only in bays and rivers when the subject collision occurred in the
open sea;
3. The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the
vessel;
4. The vessel did not have a Third Mate, a radio operator and a lookout; and
5. The vessel had a defective main engine.[20]
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of
the Civil Code, which provide:
Article 20. - Every person who contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
Article 2176. - Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by
the provisions of this Chapter.
And what is negligence?
The Civil Code provides:
Article 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. When negligence shows bad faith, the provisions of
Article 1171 and 2201 paragraph 2, shall apply.
If the law does not state the diligence which is to be observed in the performance, that which
is expected of a good father of a family shall be required.
In Southeastern College, Inc. vs. Court of Appeals,[21] we said that negligence, as
commonly understood, is conduct which naturally or reasonably creates undue risk or harm to
others. It may be the failure to observe that degree of care, precaution, and vigilance, which
the circumstances justly demand, or the omission to do something which ordinarily regulate
the conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that
the vessel it chartered complied with all legal requirements. The duty rests upon the common
carrier simply for being engaged in public service.[22] The Civil Code demands diligence which
is required by the nature of the obligation and that which corresponds with the circumstances
of the persons, the time and the place. Hence, considering the nature of the obligation
between Caltex and MT Vector, the liability as found by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by special laws. Because of
the implied warranty of seaworthiness,[23] shippers of goods, when transacting with common
carriers, are not expected to inquire into the vessels seaworthiness, genuineness of its licenses
and compliance with all maritime laws. To demand more from shippers and hold them liable
in case of failure exhibits nothing but the futility of our maritime laws insofar as the protection
of the public in general is concerned. By the same token, we cannot expect passengers to
inquire every time they board a common carrier, whether the carrier possesses the necessary
papers or that all the carriers employees are qualified. Such a practice would be an absurdity
in a business where time is always of the essence. Considering the nature of transportation
business, passengers and shippers alike customarily presume that common carriers possess all
the legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other
shipper in shipping his cargoes.
 A cursory reading of the records convinces us that Caltex had reasons to believe that MT
Vector could legally transport cargo that time of the year. Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was
Atty. Poblador: Mr. Witness, I direct your attention to this portion here containing the seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All
entries here under VESSELS DOCUMENTS things considered, we find no legal basis to hold petitioner liable for damages.
1. Certificate of Inspection No. 1290-85, issued December 21, 1986, and Expires
December 7, 1987, Mr. Witness, what steps did you take regarding the As Vector Shipping Corporation did not appeal from the Court of Appeals decision, we
impending expiry of the C.I. or the Certificate of Inspection No. 1290-85 during limit our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals
the hiring of MT Vector? ruling insofar as Vector is concerned .
Apolinar Ng: At the time when I extended the Contract, I did nothing because the tanker
has a valid C.I. which will expire on December 7, 1987 but on the last week of WHEREFORE, the Court hereby GRANTS the petition and SETS ASIDE the decision of the
November, I called the attention of Mr. Abalos to ensure that the C.I. be renewed Court of Appeals in CA-G. R. CV No. 39626, promulgated on April 15, 1997, insofar as it held
and Mr. Abalos, in turn, assured me they will renew the same. Caltex liable under the third party complaint to reimburse/indemnify defendant Sulpicio Lines,
Q: What happened after that? Inc. the damages the latter is adjudged to pay plaintiffs-appellees. The Court AFFIRMS the
A: On the first week of December, I again made a follow-up from Mr. Abalos, and said they decision of the Court of Appeals insofar as it orders Sulpicio Lines, Inc. to pay the heirs of
were going to send me a copy as soon as possible, sir.[24] Sebastian E. Caezal and Corazon Caezal damages as set forth therein. Third-party defendant-
xxx xxx xxx appellee Vector Shipping Corporation and Francisco Soriano are held liable to
Q: What did you do with the C.I.? reimburse/indemnify defendant Sulpicio Lines, Inc. whatever damages, attorneys fees and
A: We did not insist on getting a copy of the C.I. from Mr. Abalos on the first place, because costs the latter is adjudged to pay plaintiffs-appellees in the case.
of our long business relation, we trust Mr. Abalos and the fact that the vessel was
able to sail indicates that the documents are in order. xxx[25] No costs in this instance.
On cross examination -
Atty. Sarenas: This being the case, and this being an admission by you, this Certificate of SO ORDERED.
Inspection has expired on December 7. Did it occur to you not to let the vessel sail on
that day because of the very approaching date of expiration?
Apolinar Ng: No sir, because as I said before, the operation Manager assured us that they
were able to secure a renewal of the Certificate of Inspection and that they will in
time submit us a copy.[26]
Finally, on Mr. Ngs redirect examination:
Atty. Poblador: Mr. Witness, were you aware of the pending expiry of the Certificate of
Inspection in the coastwise license on December 7, 1987. What was your assurance
for the record that this document was renewed by the MT Vector?
Atty. Sarenas: xxx
Atty. Poblador: The certificate of Inspection?
A: As I said, firstly, we trusted Mr. Abalos as he is a long time business partner; secondly,
those three years, they were allowed to sail by the Coast Guard. That are some that
make me believe that they in fact were able to secure the necessary renewal.
Q: If the Coast Guard clears a vessel to sail, what would that mean?
Atty. Sarenas: Objection.
Court: He already answered that in the cross examination to the effect that if it was
allowed, referring to MV Vector, to sail, where it is loaded and that it was scheduled
for a destination by the Coast Guard, it means that it has Certificate of Inspection
extended as assured to this witness by Restituto Abalos. That in no case MV Vector
will be allowed to sail if the Certificate of Inspection is, indeed, not to be
extended. That was his repeated explanation to the cross-examination. So, there is
no need to clarify the same in the re-direct examination.[27]

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about
two years before the tragic incident occurred in 1987. Past services rendered showed no
reason for Caltex to observe a higher degree of diligence.
PROBATIVE VALUE OF BILL OF LADING
G.R. No. 95529 August 22, 1991
MAGELLAN MANUFACTURING MARKETING CORPORATION,* petitioner,
vs.
COURT OF APPEALS, ORIENT OVERSEAS CONTAINER LINES and F.E. ZUELLIG,
INC. respondents.
REGALADO, J.:
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 damages.
In their Partial Stipulation of Facts, the parties admitted that a shipment of 1,047
cartons of 136,000 pieces of Anahaw Fans contained in 1 x 40 and 1 x 20 containers
was loaded at Manila on board the MV 'Pacific Despatcher' freight prepaid, and duly
covered by Bill of Lading No. MNYK201T dated June 27, 1980 issued by OOCL; that
the shipment was delivered at the port of discharge on July 19, 1980, but was
subsequently returned to Manila after the consignee refused to accept/pay the
same.4
Elaborating on the above findings of fact of respondent court and without being disputed by
herein private respondents, petitioner additionally avers that:
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 certification13 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
 of the contract and an infringement of the right of the shipper, and subjects the carrier to
Under the parol evidence rule,21 the terms of a contract are rendered conclusive upon the liability if the freight is lost even by a cause otherwise excepted.26 It is highly improbable to
parties, and evidence aliunde is not admissible to vary or contradict a complete and suppose that private respondents, having been engaged in the shipping business for so long,
enforceable agreement embodied in a document, subject to well defined exceptions which do would be unaware of such a custom of the trade as to have undertaken such transhipment
not obtain in this case. The parol evidence rule is based on the consideration that when the without petitioner's consent and unnecessarily expose themselves to a possible liability. Verily,
parties have reduced their agreement on a particular matter into writing, all their previous and they could only have undertaken transhipment with the shipper's permission, as evidenced by
contemporaneous agreements on the matter are merged therein. Accordingly, evidence of a the signature of James Cu.
prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or
defeat the operation of a valid instrument.22 The mistake contemplated as an exception to the Another ground for the refusal of acceptance of the cargo of anahaw fans by Choju Co., Ltd.
parol evidence rule is one which is a mistake of fact mutual to the parties.23 Furthermore, the was that the bill of lading that was issued was not an on board bill of lading, in clear violation
rules on evidence, as amended, require that in order that parol evidence may be admitted, of the terms of the letter of credit issued in favor of petitioner. On cross-examination, it was
said mistake must be put in issue by the pleadings, such that if not raised inceptively in the likewise established that petitioner, through its aforesaid president, was aware of this fact,
complaint or in the answer, as the case may be, a party can not later on be permitted to thus:
introduce parol evidence thereon.24 Needless to say, the mistake adverted to by herein Q If the container van, the loaded container van, was transported back to South
petitioner, and by its own admission, was supposedly committed by private respondents only Harbor on June 27, 1980, would you tell us, Mr. Cu, when the Bill of Lading was
and was raised by the former rather belatedly only in this instant petition. Clearly then, and received by you?
for failure to comply even only with the procedural requirements thereon, we cannot admit A I received on June 30, 1980. I received at the same time so then I gave the check.
evidence to prove or explain the alleged mistake in documentation imputed to private xxx xxx xxx
respondents by petitioner. Q So that in exchange of the Bill of Lading you issued your check also dated June 30,
1980?
Petitioner further argues that assuming that there was transhipment, it cannot be deemed to A Yes, sir.
have agreed thereto even if it signed the bill of lading containing such entry because it had Q And June 27, 1980 was the date of the Bill of Lading, did you notice that the Bill of
made known to private respondents from the start that transhipment was prohibited under Lading states: 'Received for shipment'only? .
the letter of credit and that, therefore, it had no intention to allow transhipment of the subject A Yes, sir.
cargo. In support of its stand, petitioner relies on the second paragraph of Article 1370 of the Q What did you say?
Civil Code which states that "(i)f the words appear to be contrary to the evident intention of A I requested to issue me on board bill of lading.
the parties, the latter shall prevail over the former," as wen as the supposed ruling in Caltex Q When?
Phil., Inc. vs. Intermediate Appellate Court, et al.25 that "where the literal interpretation of a A In the same date of June 30.
contract is contrary to the evident intention of the parties, the latter shall prevail." Q What did they say?
A They said, they cannot.
As between such stilted thesis of petitioner and the contents of the bill of lading evidencing xxx xxx xxx
the intention of the parties, it is irremissible that the latter must prevail. Petitioner Q Do you know the difference between a "received for shipment bill of lading" and
conveniently overlooks the first paragraph of the very article that he cites which provides that "on board bill of lading"?
"(i)f the terms of the contract are clear and leave no doubt upon the intention of the A Yes, sir.
contracting parties, the literal meaning of the stipulations shall control." In addition, Article Q What's the difference?
1371 of the same Code provides that "(i)n order to judge the intention of the contracting A Received for shipment, you can receive the cargo even you don't ship on board,
parties, their contemporaneous and subsequent acts shall be principally considered." that is placed in the warehouse; while on-board bill of lading means that is loaded on
the vessel, the goods.
The terms of the contract as embodied in the bill of lading are clear and thus obviates the need xxx xxx xxx
for any interpretation. The intention of the parties which is the carriage of the cargo under the Q In other words, it was not yet on board the vessel?
terms specified thereunder and the wordings of the bill of lading do not contradict each other. A During that time, not yet.
The terms of the contract being conclusive upon the parties and judging from the xxx xxx xxx
contemporaneous and subsequent actuations of petitioner, to wit, personally receiving and Q Do you know, Mr. Cu, that under the law, if your shipment is received on board a
signing the bill of lading and paying the freight charges, there is no doubt that petitioner must vessel you can demand an on-board bill of lading not only a received for shipment
necessarily be charged with full knowledge and unqualified acceptance of the terms of the bill bill of lading.?
of lading and that it intended to be bound thereby. A Yes sir.
Q And did you demand from F.E. Zuellig the substitution of that received for shipment
Moreover, it is a well-known commercial usage that transhipment of freight without legal bill of lading with an on-board bill of lading?
excuse, however competent and safe the vessel into which the transfer is made, is a violation A Of course, instead they issue me a certification.
 Q They give you a ... ?
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.29An 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.1âwphi1 Without such notification it could
not- be so charged because there was no way by which it would know that the goods
had already arrived for it to take custody of them. Considering that it was only in
March 1981 (Exh. K) that appellant was notified of the arrival of the goods, although
the goods had actually arrived in October 1980 (tsn, Aug. 14, 1986, pp. 10-14),
appellant cannot be charged for demurrage from October 1980 to March 1981. ...38
While being satisfied with the exclusion of demurrage charges in Manila for the period from
October 22,1980 to June 18,1981, petitioner nevertheless assails the Court of Appeals' award
of P52,102.43 in favor of private respondents, consisting of P51,271.01 as freight and
demurrage charges in Japan and P831.43 for charges paid at the Manila International Port
Termninal.
Petitioner asserts that by virtue of the exercise of its option to abandon the goods so as to
allow private respondents to sell the same at a public auction and to apply the proceeds
thereof as payment for the shipping and demurrage charges, it was released from liability for
the sum of P52,102.43 since such amount represents the shipping and demurrage charges
from which it is considered to have been released due to the abandonment of goods. It further
argues that the shipping and demurrage charges from which it was released by the exercise of
the option to abandon the goods in favor of private respondents could not have referred to
the demurrage charges in Manila because respondent court ruled that the same were not
chargeable to petitioner. Private respondents would rebut this contention by saying in their
memorandum that the abandonment of goods by petitioner was too late and made in bad
faith.39
On this point, we agree with petitioner. Ordinarily, the shipper is liable for freightage due to
the fact that the shipment was made for its benefit or under its direction and, correspondingly,
the carrier is entitled to collect charges for its shipping services. This is particularly true in this
case where the reshipment of the goods was made at the instance of petitioner in its letter of
August 29, 1980.40
However, in a letter dated March 20, 1981,41 private respondents belatedly informed
petitioner of the arrival of its goods from Japan and that if it wished to take delivery of the
cargo it would have to pay P51,271.02, but with the last paragraph thereof stating as follows:
Please can you advise within 15 days of receipt of this letter whether you intend to
take delivery of this shipment, as alternatively we will have to take legal proceedings
in order to have the cargo auctioned to recover the costs involved, as well as free the
container which are (sic) urgently required for export cargoes.
Clearly, therefore, private respondents unequivocally offered petitioner the option of paying
the shipping and demurrage charges in order to take delivery of the goods or of abandoning
the same so that private respondents could sell them at public auction and thereafter apply
the proceeds in payment of the shipping and other charges.
Responding thereto, in a letter dated April 3, 1981, petitioner seasonably communicated its
decision to abandon to the goods in favor of private respondents with the specific instruction
that any excess of the proceeds over the legal costs and charges be turned over to petitioner.
Receipt of said letter was acknowledged by private respondents, as revealed by the testimony
of Edwin Mabazza, a claim officer of F.E. Zuellig, Inc., on cross-examination.42
Despite petitioner's exercise of the option to abandon the cargo, however, private
respondents sent a demand letter on June 22, 198143 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 estoppel.

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

MODIFICATION that petitioner is likewise absolved of any hability and the award of P52,102.45
with legal interest granted by respondent court on private respondents' counterclaim is SET
ASIDE, said counterclaim being hereby DISMISSED, without pronouncement as to costs.
SO ORDERED.
RIGHTS OF PASSENGERS IN SEA VOYAGE
G.R. No. L-46340 April 28, 1983
SWEET LINES, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MICAELA B. QUINTOS, FR. JOSE BACATAN, S.J.,
MARCIANO CABRAS and ANDREA VELOSO, respondents.
RESOLUTION
MELENCIO-HERRERA, J.:
For having by-passed a port of call without previous notice, petitioner shipping company and
the ship captain were sued for damages by four of its passengers, private respondents herein,
before the then Court of First Instance of Cebu, Branch VIII.
Briefly, the facts of record show that private respondents purchased first- class tickets from
petitioner at the latter's office in Cebu City. They were to board petitioner's vessel, M/V Sweet
Grace, bound for Catbalogan, Western Samar. Instead of departing at the scheduled hour of
about midnight on July 8, 1972, the vessel set sail at 3:00 A.M. of July 9, 1972 only to be towed
back to Cebu due to engine trouble, arriving there at about 4:00 P.M. on the same day. Repairs
having been accomplished, the vessel lifted anchor again on July 10, 1972 at around 8:00 A.M.
Instead of docking at Catbalogan, which was the first port of call, the vessel proceeded direct
to Tacloban at around 9:00 P.M. of July 10, 1972. Private respondents had no recourse but to
disembark and board a ferryboat to Catbalogan.
Hence, this suit for damages for breach of contract of carriage which the Trial Court, affirmed
by respondent Appellate Court, awarded as follows:
IN THE LIGHT OF THE FOREGOING OBSERVATIONS, judgment is rendered
ordering the defendant Sweet Lines, Incorporated to pay to the plaintiffs
the following:
l) P175,000.00 as moral damages divided among the plaintiffs as follows:
P30,000.00 for Mrs. Micaela B. Quintos, P26,000.00 for Jesuit Father Jose
Bacatan; P10,000.00 for Mrs. Andrea Veloso and P10,000.00 for plaintiff
Mike Cabras;
2) P30,000.00 as exemplary or corrective damages;
3) Interest at the legal rate of 6% per annum on the moral and exemplary
damages as set forth above from the date of this decision until said damages
are fully paid;
4) P5,000.00 as attorney's fees; and
5) The costs.
Counterclaim dismissed.
The governing provisions are found in the Code of Commerce and read as follows:
ART. 614. A captain who, having agreed to make a voyage, fails to fulfill his
undertaking, without being prevented by fortuitous event or force majeure,
shall indemnify all the losses which his failure may cause, without prejudice
to criminal penalties which may be proper.
ART. 698. In case of interruption of a voyage already begun, the passengers
shall only be obliged to pay the fare in proportion to the distance covered,
without right to recover damages if the interruption is due to fortuitous
event or force majeure, but with a right to indemnity, if the interruption
should have been caused by the captain exclusively. If the interruption
should be caused by the disability of the vessel, and the passenger should
agree to wait for her repairs, he may not be required to pay any increased
fare of passage, but his living expenses during the delay shall be for his own
account.
The crucial factor then is the existence of a fortuitous event or force majeure. Without it, the
right to damages and indemnity exists against a captain who fails to fulfill his undertaking or
where the interruption has been caused by the captain exclusively.
As found by both Courts below, there was no fortuitous event or force majeure which
prevented the vessel from fulfilling its undertaking of taking private respondents to
Catbalogan. In the first place, mechanical defects in the carrier are not considered a caso
fortuito that exempts the carrier from responsibility. 1
In the second place, even granting arguendo that the engine failure was a fortuitous event, it
accounted only for the delay in departure. When the vessel finally left the port of Cebu on July
10, 1972, there was no longer any force majeure that justified by-passing a port of call. The
vessel was completely repaired the following day after it was towed back to Cebu. In fact, after
docking at Tacloban City, it left the next day for Manila to complete its voyage. 2
The reason for by-passing the port of Catbalogan, as admitted by petitioner's General
Manager, was to enable the vessel to catch up with its schedule for the next week. The record
also discloses that there were 50 passengers for Tacloban compared to 20 passengers for
Catbalogan,3 so that the Catbalogan phase could be scrapped without too much loss for the
company.
In defense, petitioner cannot rely on the conditions in small bold print at the back of the ticket
reading.
The passenger's acceptance of this ticket shall be considered as an acceptance of the
following conditions:
3. In case the vessel cannot continue or complete the trip for any cause whatsoever,
the carrier reserves the right to bring the passenger to his/her destination at the
expense of the carrier or to cancel the ticket and refund the passenger the value of
his/her ticket; xxx xxx xxx
11. The sailing schedule of the vessel for which this ticket was issued is subject to
change without previous notice. (Exhibit "l -A")
Even assuming that those conditions are squarely applicable to the case at bar, petitioner did
not comply with the same. It did not cancel the ticket nor did it refund the value of the tickets
to private respondents. Besides, it was not the vessel's sailing schedule that was involved.
Private respondents' complaint is directed not at the delayed departure the next day but at
the by- passing of Catbalogan, their destination. Had petitioner notified them previously, and
offered to bring them to their destination at its expense, or refunded the value of the tickets
purchased, perhaps, this controversy would not have arisen.
 plus P1,250.00, each, by way of att/rney's fees and litigation expenses. Costs against
Furthermore, the conditions relied upon by petitioner cannot prevail over Articles 614 and 698 petitioner.
of the Code of Commerce heretofore quoted. SO ORDERED.
The voyage to Catbalogan was "interrupted" by the captain upon instruction of management.
The "interruption" was not due to fortuitous event or for majeure nor to disability of the
vessel. Having been caused by the captain upon instruction of management, the passengers'
right to indemnity is evident. The owner of a vessel and the ship agent shall be civilly liable for
the acts of the captain. 4

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

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

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

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

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

ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner is hereby
sentenced to indemnify private respondents in the sum of P3,000.00 each, without interest,
RIGHTS OF PASSENGERS IN SEA VOYAGE
[G.R. No. 118126. March 4, 1996]
TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. COURT OF APPEALS and ATTY. RENATO T.
ARROYO, respondents.
DECISION
DAVIDE, JR., J.:
As formulated by the petitioner, the issue in this petition for review on certiorari under
Rule 45 of the Rules of Court is as follows:
In case of interruption of a vessels voyage and the consequent delay in that vessels arrival at
its port of destination, is the right of a passenger affected thereby to be determined and
governed by the vague Civil Code provision on common carriers, or shall it be, in the absence
of a specific provision thereon, governed by Art. 698 of the Code of Commerce?[1]
The petitioner considers it a novel question of law.
Upon a closer evaluation, however, of the challenged decision of the Court of Appeals of
23 November 1994,[2] vis-a-vis, the decision of 29 June 1992 in Civil Case No. 91-491 of the
Regional Trial Court (RTC) of Cagayan de Oro City, Branch 24,[3] as well as the allegations and
arguments adduced by the parties, we find the petitioners formulation of the issue imprecise.
As this Court sees it, what stands for resolution is a common carriers liability for damages to a
passenger who disembarked from the vessel upon its return to the port of origin, after it
suffered engine trouble and had to stop at sea, having commenced the contracted voyage on
one engine.
The antecedents are summarized by the Court of Appeals as follows:
Plaintiff [herein private respondent Atty. Renato Arroyo], a public attorney, bought a ticket
[from] defendant [herein petitioner], a corporation engaged in x x x inter-island shipping, for
the voyage of M/V Asia Thailand vessel to Cagayan de Oro City from Cebu City on November
12, 1991.
At around 5:30 in the evening of November 12, 1991, plaintiff boarded the M/V Asia Thailand
vessel. At that instance, plaintiff noticed that some repair works [sic] were being undertaken
on the engine of the vessel. The vessel departed at around 11:00 in the evening with only one
(1) engine running.
After an hour of slow voyage, the vessel stopped near Kawit Island and dropped its anchor
thereat. After half an hour of stillness, some passengers demanded that they should be
allowed to return to Cebu City for they were no longer willing to continue their voyage to
Cagayan de Oro City. The captain acceded [sic] to their request and thus the vessel headed
back to Cebu City.
At Cebu City, plaintiff together with the other passengers who requested to be brought back
to Cebu City, were allowed to disembark. Thereafter, the vessel proceeded to Cagayan de Oro
City. Plaintiff, the next day, boarded the M/V Asia Japan for its voyage to Cagayan de Oro City,
likewise a vessel of defendant.
On account of this failure of defendant to transport him to the place of destination
on November 12, 1991, plaintiff filed before the trial court a complaint for damages against
defendant.[4]
In his complaint, docketed as Civil Case No. 91-491, plaintiff (hereinafter private
respondent) alleged that the engines of the M/V Asia Thailand conked out in the open sea, and
for more than an hour it was stalled and at the mercy of the waves, thus causing fear in the
passengers. It sailed back to Cebu City after it regained power, but for unexplained reasons,
the passengers, including the private respondent, were arrogantly told to disembark without
the necessary precautions against possible injury to them. They were thus unceremoniously
dumped, which only exacerbated the private respondents mental distress. He further alleged
that by reason of the petitioners wanton, reckless, and willful acts, he was unnecessarily
exposed to danger and, having been stranded in Cebu City for a day, incurred additional
expenses and loss of income. He then prayed that he be awarded P1,100.00, P50,000.00, and
P25,000.00 as compensatory, moral, and exemplary damages, respectively.[5]
In his pre-trial brief, the private respondent asserted that his complaint was an action for
damage&arising from bad faith, breach of contract and from tort, with the former arising from
the petitioners failure to carry [him] to his place of destination as contracted, while the latter
from the conduct of the [petitioner] resulting [in] the infliction of emotional distress to the
private respondent.[6]
After due trial, the trial court rendered its decision [7] and ruled that the action was only
for breach of contract, with Articles 1170, 1172, and 1173 of the Civil Code as applicable law -
not Article 2180 of the same Code. It was of the opinion that Article 1170 made a person liable
for damages if, in the performance of his obligation, he was guilty of fraud, negligence, or
delay, or in any manner contravened the tenor thereof; moreover, pursuant to Article 2201 of
the same Code, to be entitled to damages, the non-performance of the obligation must have
been tainted not only by fraud, negligence, or delay, but also bad faith, malice, and wanton
attitude. It then disposed of the case as follows:
WHEREFORE, it not appearing from the evidence that plaintiff was left in
the Port of Cebu because of the fault, negligence, malice or wanton attitude of defendants
employees, the complaint is DISMISSED. Defendants counterclaim is likewise dismissed it not
appearing also that filing of the case by plaintiff was motivated by malice or bad faith.[8]
The trial court made the following findings to support its disposition:
In the light of the evidence adduced by the parties and of the above provisions of the New Civil
Code, the issue to be resolved, in the resolution of this case is whether or not, defendant thru
its employee in [sic] the night of November 12, 1991, committed fraud, negligence, bad faith
or malice when it left plaintiff in the Port of Cebu when it sailed back to Cagayan de Oro City
after it has [sic] returned from Kawit Island.
Evaluation of the evidence of the parties tended to show nothing that defendant committed
fraud. As early as 3:00 p.m. of November 12, 1991, defendant did not hide the fact that the
cylinder head cracked. Plaintiff even saw during its repair. If he had doubts as to the vessels
capacity to sail, he had time yet to take another boat. The ticket could be returned to
defendant and corresponding cash [would] be returned to him.
Neither could negligence, bad faith or malice on the part of defendant be inferred from the
evidence of the parties. When the boat arrived at [the] Port of Cebu after it returned
from Kawit Island, there was an announcement that passengers who would like to disembark
were given ten (10) minutes only to do so. By this announcement, it could be inferred that the
boat will [sic] proceed to Cagayan de Oro City. If plaintiff entertained doubts, he should have
asked a member of the crew of the boat or better still, the captain of the boat. But as admitted
by him, he was of the impression only that the boat will not proceed to Cagayan de Oro that
evening so he disembarked. He was instead, the ones [sic] negligent. Had he been prudent,
with the announcement that those who will disembark were given ten minutes only, he should
have lingered a little by staying in his cot and inquired whether the boat will proceed to
Cagayan de Oro City or not. Defendant cannot be expected to be telling [sic] the reasons to
each passenger. Announcement by microphone was enough.
The court is inclined to believe that the story of defendant that the boat returned to
the Port of Cebu because of the request of the passengers in view of the waves. That it did not
return because of the defective engines as shown by the fact that fifteen (15) minutes after
the boat docked [at] the Port of Cebu and those who wanted to proceed to Cagayan de Oro
disembarked, it left for Cagayan de Oro City.
The defendant got nothing when the boat returned to Cebu to let those who did not want to
proceed to Cagayan de Oro City including plaintiff disembarked. On the contrary, this would
mean its loss instead because it will have to refund their tickets or they will use it the next trip
without paying anymore. It is hard therefore, to imagine how defendant by leaving plaintiff
in Cebu could have acted in bad faith, negligently, want only and with malice.
If plaintiff, therefore, was not able to [m]ake the trip that night of November 12, 1991, it was
not because defendant maliciously did it to exclude him [from] the trip. If he was left, it was
because of his fault or negligence.[9]
Unsatisfied, the private respondent appealed to the Court of Appeals (CA-G.R. CV No. 39901)
and submitted for its determination the following assignment of errors: (1) the trial court erred
in not finding that the defendant-appellee was guilty of fraud, delay, negligence, and bad faith;
and (2) the trial court erred in not awarding moral and exemplary damages.[10]
In its decision of 23 November 1994,[11] the Court of Appeals reversed the trial courts decision
by applying Article 1755 in relation to Articles 2201, 2208, 2217, and 2232 of the Civil Code
and, accordingly, awarded compensatory, moral, and exemplary damages as follows:
WHEREFORE, premises considered, the appealed decision is hereby REVERSED and SET ASIDE
and another one is rendered ordering defendant-appellee to pay plaintiff-appellant:
1. P20,000.00 as moral damages;
2. P10,000.00 as exemplary damages;
3. P5,000.00 as attorneys fees;
4. Cost of suit.
SO ORDERED.[12]
It did not, however, allow the grant of damages for the delay in the performance of the
petitioners obligation as the requirement of demand set forth in Article 1169 of the Civil Code
had not been met by the private respondent. Besides, it found that the private respondent
offered no evidence to prove that his contract of carriage with the petitioner provided for
liability in case of delay in departure, nor that a designation of the time of departure was the
controlling motive for the establishment of the contract.
On the latter, the court a quo observed that the private respondent even admitted he was
unaware of the vessels departure time, and it was only when he boarded the vessel that he
became aware of such. Finally, the respondent Court found no reasonable basis for the private
respondents belief that demand was useless because the petitioner had rendered it beyond
its power to perform its obligation; on the contrary, he even admitted that the petitioner had
been assuring the passengers that the vessel would leave on time, and that it could still
perform its obligation to transport them as scheduled.
To justify its award of damages, the Court of Appeals ratiocinated as follows:
It is an established and admitted fact that the vessel before the voyage had undergone some
repair work on the cylinder head of the engine. It is likewise admitted by defendant-appellee
that it left the port of Cebu City with only one engine running. Defendant-appellee averred:
x x x The dropping of the vessels anchor after running slowly on only one engine when it
departed earlier must have alarmed some nervous passengers x x x
The entries in the logbook which defendant-appellee itself offered as evidence categorically
stated therein that the vessel stopped at Kawit Island because of engine trouble. It reads:
2330 HRS STBD ENGINE EMERGENCY STOP
2350 HRS DROP ANCHOR DUE TO. ENGINE TROUBLE, 2 ENGINE STOP.
The stoppage was not to start and synchronized [sic] the engines of the vessel as claimed
by defendant-appellee. It was because one of the engines of the vessel broke down; it was
because of the disability of the vessel which from the very beginning of the voyage was known
to defendant-appellee.
Defendant-appellee from the very start of the voyage knew for a fact that the vessel was
not yet in its sailing condition because the second engine was still being repaired. Inspite of
this knowledge, defendant-appellee still proceeded to sail with only one engine running.
Defendant-appellee at that instant failed to exercise the diligence which all common
carriers should exercise in transporting or carrying passengers. The law does not merely
require extraordinary diligence in the performance of the obligation. The law mandates that
common carrier[s] should exercise utmost diligence in the transport of passengers.
Article 1755 of the New Civil Code provides:
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.
Utmost diligence of a VERY CAUTIOUS person dictates that defendant-appellee should
have pursued the voyage only when its vessel was already fit to sail. Defendant-appellee
should have made certain that the vessel [could] complete the voyage before starting [to] sail.
Anything less than this, the vessel [could not] sail x x x with so many passengers on board it.
However, defendant-appellant [sic] in complete disregard of the safety of the
passengers, chose to proceed with its voyage even if only one engine was running as the
second engine was still being repaired during the voyage. Defendant-appellee disregarded
the not very remote possibility that because of the disability of the vessel, other problems
might occur which would endanger the lives of the passengers sailing with a disabled vessel.
 As expected, x x x engine trouble occurred. Fortunate[ly] for defendant-appellee, such
trouble only necessitated the stoppage of the vessel and did not cause the vessel to capsize.
No wonder why some passengers requested to be brought back to Cebu City. Common carriers
which are mandated to exercise utmost diligence should not be taking these risks.
On this premise, plaintiff-appellant should not be faulted why he chose to disembark
from the vessel with the other passengers when it returned back to Cebu City. Defendant-
appellee may call him a very panicky passenger or a nervous person, but this will not relieve
defendant-appellee from the liability it incurred for its failure to exercise utmost diligence. [13]
xxx xxx xxx
As to the second assigned error, we find that plaintiff-appellant is entitled to the award
of moral and exemplary damages for the breach committed by defendant-appellee.
As discussed, defendant-appellee in sailing to Cagayan de Oro City with only one engine
and with full knowledge of the true condition of the vessel, acted in bad faith with malice, in
complete disregard for the safety of the passengers and only for its own personal
advancement/interest.
The Civil Code provides:
Art 2201. xxx xxx xxx In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-performance of
the obligation.
Plaintiff-appellant is entitled to moral damages for the mental anguish, fright and serious
anxiety he suffered during the voyage when the vessels engine broke down and when he
disembarked from the vessel during the wee hours of the morning at Cebu City when it
returned.[14]
Moral damages are recoverable in a damage suit predicated upon a breach of contract
of carriage where it is proved that the carrier was guilty of fraud or bad faith even if death does
not result.[15]
Fraud and bad faith by defendant-appellee having been established, the award of moral
damages is in order.[16]
To serve as a deterrent to the commission of similar acts in the future, exemplary
damages should be imposed upon defendant-appellee.[17] Exemplary damages are designed by
our civil law to permit the courts to reshape behavior that is socially deleterious in its
consequence by creating x x x negative incentives or deterrents against such behavior.[18]
Moral damages having been awarded, exemplary damages maybe properly awarded.
When entitlement to moral damages has been established, the award of exemplary damages
is proper.[19]
The petitioner then instituted this petition and submitted the question of law earlier
adverted to.
Undoubtedly, there was, between the petitioner and the private respondent, a contract
of common carriage. The laws of primary application then are the provisions on common
carriers under Section 4, Chapter 3, Title VIII, Book IV of the Civil Code, while for all other
matters not regulated thereby, the Code of Commerce and special laws.[20]
Under Article 1733 of the Civil Code, the petitioner was bound to observe extraordinary
diligence in ensuring the safety of the private respondent. That meant that the petitioner was,
pursuant to Article 1755 of the said Code, bound to carry the private respondent safely as far
as human care and foresight could provide, using the utmost diligence of very cautious
persons, with due regard for all the circumstances. In this case, we are in full accord with the
Court of Appeals that the petitioner failed to discharge this obligation.
Before commencing the contracted voyage, the petitioner undertook some repairs on
the cylinder head of one of the vessels engines. But even before it could finish these repairs, it
allowed the vessel to leave the port of origin on only one functioning engine, instead of two.
Moreover, even the lone functioning engine was not in perfect condition as sometime after it
had run its course, it conked out. This caused the vessel to stop and remain adrift at sea, thus
in order to prevent the ship from capsizing, it had to drop anchor. Plainly, the vessel was
unseaworthy even before the voyage began. For a vessel to be seaworthy, it must be
adequately equipped for the voyage and manned with a sufficient number of competent
officers and crew.[21] The failure of a common carrier to maintain in seaworthy condition its
vessel involved in a contract of carriage is a clear breach of is duty prescribed in Article 1755
of the Civil Code.
As to its liability for damages to the private respondent, Article 1764 of the Civil Code
expressly provides:
ART. 1764. Damages in cases comprised in this Section shall be awarded in accordance with
Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a
passenger caused by the breach of contract by common carrier.
The damages comprised in Title XVIII of the Civil Code are actual or compensatory, moral,
nominal, temperate or moderate, liquidated, and exemplary.
In his complaint, the private respondent claims actual or compensatory, moral, and
exemplary damages.
Actual or compensatory damages represent the adequate compensation for pecuniary
loss suffered and for profits the obligee failed to obtain.[22]
In contracts or quasi-contracts, the obligor is liable for all the damages which may be
reasonably attributed to the non-performance of the obligation if he is guilty of fraud, bad
faith, malice, or wanton attitude.[23]
Moral damages include moral suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, or similar injury.
They may be recovered in the cases enumerated in Article 2219 of the Civil Code, likewise, if
they are the proximate result of, as in this case, the petitioners breach of the contract of
carriage.[24] Anent a breach of a contract of common carriage, moral damages may be awarded
if the common carrier, like the petitioner, acted fraudulently or in bad faith.[25]
Exemplary damages are imposed by way of example or correction for the public good, in
addition to moral, temperate, liquidated or compensatory damages.[26] In contracts and quasi-
contracts, exemplary damages may be awarded if the defendant acted in a wanton fraudulent,
reckless, oppressive or malevolent manner.[27] It cannot, however, be considered as a matter
of right; the court having to decide whether or not they should be adjudicated. [28] Before the
court may consider an award for exemplary damages, the plaintiff must first show that he is
entitled to moral, temperate or compensatory damages; but it is not necessary that he prove
the monetary value thereof.[29]
The Court of Appeals did not grant the private respondent actual or compensatory
damages, reasoning that no delay was incurred since there was no demand, as required by
Article 1169 of the Civil Code. This article, however, finds no application in this case because,
as found by the respondent Court, there was in fact no delay in the commencement of the
contracted voyage. If any delay was incurred, it was after the commencement of such voyage,
more specifically, when the voyage was subsequently interrupted when the vessel had to stop
near Kawit Island after the only functioning engine conked out.
As to the rights and duties of the parties strictly arising out of such delay, the Civil Code
is silent. However, as correctly pointed out by the petitioner, Article 698 of the Code of
Commerce specifically provides for such a situation.
It reads: In case a voyage already begun should be interrupted, the passengers shall be
obliged to pay the fare in proportion to the distance covered, without right to recover for
losses and damages if the interruption is due to fortuitous event or force majeure, but with a
right to indemnity if the interruption should have been caused by the captain exclusively. If
the interruption should be caused by the disability of the vessel and a passenger should agree
to await the repairs, he may not be required to pay any increased price of passage, but his
living expenses during the stay shall be for his own account.
This article applies suppletorily pursuant to Article 1766 of the Civil Code.
Of course, this does not suffice for a resolution of the case at bench for, as earlier stated,
the cause of the delay or interruption was the petitioners failure to observe extraordinary
diligence. Article 698 must then be read together with Articles 2199, 2200, 2201, and 2208 in
relation to Article 21 of the Civil Code. So read, it means that the petitioner is liable for any
pecuniary loss or loss of profits which the private respondent may have suffered by reason
thereof. For the private respondent, such would be the loss of income if unable to report to
his office on the day he was supposed to arrive were it not for the delay. This, however,
assumes that he stayed on the vessel and was with it when it thereafter resumed its voyage;
but he did not. As he and some passengers resolved not to complete the voyage, the vessel
had to return to its port of origin and allow them to disembark. The private respondent then
took the petitioners other vessel the following day, using the ticket he had purchased for the
previous days voyage.
Any further delay then in the private respondents arrival at the port of destination was
caused by his decision to disembark. Had he remained on the first vessel, he would have
reached his destination at noon of 13 November 1991, thus been able to report to his office in
the afternoon. He, therefore, would have lost only the salary for half of a day. But actual or
compensatory damages must be proved,[30] which the private respondent failed to do. There
is no convincing evidence that he did not receive his salary for 13 November 1991 nor that his
absence was not excused.
We likewise fully agree with the Court of Appeals that the petitioner is liable for moral
and exemplary damages. In allowing its unseaworthy M/V Asia Thailand to leave the port of
origin and undertake the contracted voyage, with full awareness that it was exposed to perils
of the sea, it deliberately disregarded its solemn duty to exercise extraordinary diligence and
obviously acted with bad faith and in a wanton and reckless manner. On this score, however,
the petitioner asserts that the safety of the vessel and passengers was never at stake because
the sea was calm in the vicinity where it stopped as faithfully recorded in the vessels log book
(Exhibit 4). Hence, the petitioner concludes, the private respondent was merely over-reacting
to the situation obtaining then.[31]
We hold that the petitioners defense cannot exculpate it nor mitigate its liability. On the
contrary, such a claim demonstrates beyond cavil the petitioners lack of genuine concern for
the safety of its passengers. It was, perhaps, only providential that the sea happened to be
calm. Even so, the petitioner should not expect its passengers to act in the manner it desired.
The passengers were not stoics; becoming alarmed, anxious, or frightened at the stoppage of
a vessel at sea in an unfamiliar zone at nighttime is not the sole prerogative of the faint-
hearted. More so in the light of the many tragedies at sea resulting in the loss of lives of
hopeless passengers and damage to property simply because common carriers failed in their
duty to exercise extraordinary diligence in the performance of their obligations.
We cannot, however, give our affirmance to the award of attorneys fees. Under Article
2208 of the Civil Code, these are recoverable only in the concept of actual damages,[32] not as
moral damages[33] nor judicial costs.[34] Hence, to merit such an award, it is settled that the
amount thereof must be proven.[35] Moreover, such must be specifically prayed for - as was
not done in this case - and may not be deemed incorporated within a general prayer for such
other relief and remedy as this court may deem just and equitable.[36] Finally, it must be noted
that aside from the following, the body of the respondent Courts decision was devoid of any
statement regarding attorneys fees:
Plaintiff-appellant was forced to litigate in order that he can claim moral and exemplary
damages for the suffering he encurred [sic]. He is entitled to attorneys fees pursuant to Article
2208 of the Civil Code. It states:
Article 2208. In the absence of stipulation, attorney s fees and expenses of litigation, other
than judicial costs cannot be recovered except:
1. When exemplary damages are awarded;
2. When the defendants act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest.
This Court holds that the above does not satisfy the benchmark of factual, legal and equitable
justification needed as basis for an award of attorneys fees.[37] In sum, for lack of factual and
legal basis, the award of attorneys fees must be deleted.
WHEREFORE, the instant petition is DENIED and the challenged decision of the Court of
Appeals in CA-G.R. CV No. 39901 is AFFIRMED subject to the modification as to the award for
attorneys fees which is hereby SET ASIDE.
Costs against the petitioner.
SO ORDERED.
CARRIAGE OF GOODS BY SEA ACT
G.R. No. L-69044 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT and
DEVELOPMENT INSURANCE & SURETY CORPORATION, respondents.
GR No. 71478 May 29, 1987
EASTERN SHIPPING LINES, INC., petitioner, vs. THE NISSHIN FIRE AND MARINE INSURANCE
CO., and DOWA FIRE & MARINE INSURANCE CO., LTD., respondents.
MELENCIO-HERRERA, J.:
These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship
and cargo.
The basic facts are not in controversy:
In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at
Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages
valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare
parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were
insured against marine risk for their stated value with respondent Development Insurance and
Surety Corporation.
In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of
garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel
Corporation, and two cases of surveying instruments consigned to Aman Enterprises and
General Merchandise. The 128 cartons were insured for their stated value by respondent
Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa
Fire & Marine Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss
of ship and cargo. The respective respondent Insurers paid the corresponding marine
insurance values to the consignees concerned and were thus subrogated unto the rights of the
latter as the insured.
G.R. NO. 69044
On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies,
filed suit against petitioner Carrier for the recovery of the amounts it had paid to the insured
before the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).
Petitioner-Carrier denied liability mainly on the ground that the loss was due to an
extraordinary fortuitous event, hence, it is not liable under the law.
On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in
the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00
as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals
which, on August 14, 1984, affirmed.
Petitioner Carrier is now before us on a Petition for Review on Certiorari.
G.R. NO. 71478
On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and
Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed
suit against Petitioner Carrier for the recovery of the insured value of the cargo lost with the
then Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing
unseaworthiness of the ship and non-observance of extraordinary diligence by petitioner
Carrier.
Petitioner Carrier denied liability on the principal grounds that the fire which caused the
sinking of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods
by Sea Act (COGSA); and that when the loss of fire is established, the burden of proving
negligence of the vessel is shifted to the cargo shipper.
On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in
the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus
attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on
September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the
amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of
liability under the COGSA.
Hence, this Petition for Review on certiorari by Petitioner Carrier.
Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by
the First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon
Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course
on March 25, 1985, and the parties were required to submit their respective Memoranda,
which they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the
Resolution denying the Petition for Review and moved for its consolidation with G.R. No.
69044, the lower-numbered case, which was then pending resolution with the First Division.
The same was granted; the Resolution of the Second Division of September 25, 1985 was set
aside and the Petition was given due course.
At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica
but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its
Petition:
There are about 22 cases of the "ASIATICA" pending in various courts where various plaintiffs
are represented by various counsel representing various consignees or insurance
companies. The common defendant in these cases is petitioner herein, being the operator
of said vessel.
Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged
in a party's pleading are deemed admissions of that party and binding upon it. 2 And an
admission in one pleading in one action may be received in evidence against the pleader or his
successor-in-interest on the trial of another action to which he is a party, in favor of a party to
the latter action. 3
The threshold issues in both cases are: (1) which law should govern — the Civil Code provisions
on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the burden of proof
to show negligence of the carrier?
On the Law Applicable
The law of the country to which the goods are to be transported governs the liability of the
common carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question
were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed
primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights and
obligations of common carrier shall be governed by the Code of Commerce and by special
laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of
the Civil Code. 7
On the Burden of Proof
Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over goods,
according to all the circumstances of each case. 8Common carriers are responsible for the loss,
destruction, or deterioration of the goods unless the same is due to any of the following causes
only:
(1) Flood, storm, earthquake, lightning or other natural disaster or
calamity;
xxx xxx xxx 9
Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the
phrase "natural disaster or calamity. " However, we are of the opinion that fire may not be
considered a natural disaster or calamity. This must be so as it arises almost invariably from
some act of man or by human means. 10 It does not fall within the category of an act of God
unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused
by the actual fault or privity of the carrier. 13
Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers
to leases of rural lands where a reduction of the rent is allowed when more than one-half of
the fruits have been lost due to such event, considering that the law adopts a protection policy
towards agriculture. 14
As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article
1735 of the Civil Code provides that all cases than those mention in Article 1734, the common
carrier shall be presumed to have been at fault or to have acted negligently, unless it proves
that it has observed the extraordinary deligence required by law.
In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused
by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the
extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the
Appellate Court, made the following Finding of fact:
The cargoes in question were, according to the witnesses defendant placed in hatches No,
2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that smoke was coming out from
hatch No. 2 and hatch No. 3; that where the smoke was noticed, the fire was already big;
that the fire must have started twenty-four 24) our the same was noticed; that carbon
dioxide was ordered released and the crew was ordered to open the hatch covers of No, 2
tor commencement of fire fighting by sea water: that all of these effort were not enough to
control the fire.
Pursuant to Article 1733, common carriers are bound to extraordinary
diligence in the vigilance over the goods. The evidence of the defendant did
not show that extraordinary vigilance was observed by the vessel to prevent
the occurrence of fire at hatches numbers 2 and 3. Defendant's evidence
did not likewise show he amount of diligence made by the crew, on orders,
in the care of the cargoes. What appears is that after the cargoes were
stored in the hatches, no regular inspection was made as to their condition
during the voyage. Consequently, the crew could not have even explain
what could have caused the fire. The defendant, in the Court's mind, failed
to satisfactorily show that extraordinary vigilance and care had been made
by the crew to prevent the occurrence of the fire. The defendant, as a
common carrier, is liable to the consignees for said lack of deligence
required of it under Article 1733 of the Civil Code. 15
Having failed to discharge the burden of proving that it had exercised the extraordinary
diligence required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.
And even if fire were to be considered a "natural disaster" within the meaning of Article 1734
of the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster"
must have been the "proximate and only cause of the loss," and that the carrier has "exercised
due diligence to prevent or minimize the loss before, during or after the occurrence of the
disaster. " This Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act,
It is provided therein that:
Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or
damage arising or resulting from
(b) Fire, unless caused by the actual fault or privity of the carrier.
xxx xxx xxx
In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there
was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was
noticed, the fire was already big; that the fire must have started twenty-four (24) hours before
the same was noticed; " and that "after the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the voyage." The foregoing suffices to show
that the circumstances under which the fire originated and spread are such as to show that
Petitioner Carrier or its servants were negligent in connection therewith. Consequently, the
complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner
Carrier.
On the US $500 Per Package Limitation:
Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as
provided in section 4(5) of the COGSA, which reads:
(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or
damage to or in connection with the transportation of goods in an amount exceeding $500
per package lawful money of the United States, or in case of goods not shipped in packages,
 per customary freight unit, or the equivalent of that sum in other currency, unless the nature
and value of such goods have been declared by the shipper before shipment and inserted in
bill of lading. This declaration if embodied in the bill of lading shall be prima facie evidence,
but all be conclusive on the carrier.
By agreement between the carrier, master or agent of the carrier, and the shipper another
maximum amount than that mentioned in this paragraph may be fixed: Provided, That such
maximum shall not be less than the figure above named. In no event shall the carrier be
Liable for more than the amount of damage actually sustained. xxx xxx xxx
Article 1749 of the New Civil Code also allows the limitations of liability in this wise:
Art. 1749. A stipulation that the common carrier's liability as limited to the value of the goods
appearing in the bill of lading, unless the shipper or owner declares a greater value, is
binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier
to a fixed amount per package although the Code expressly permits a stipulation limiting such
liability. Thus, the COGSA which is suppletory to the provisions of the Civil Code, steps in and
supplements the Code by establishing a statutory provision limiting the carrier's liability in the
absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The
provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of
lading as though physically in it and as much a part thereof as though placed therein by
agreement of the parties. 16
In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-
3") 1 7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a
declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not
exceed US $500 per package, or its peso equivalent, at the time of payment of the value of the
goods lost, but in no case "more than the amount of damage actually sustained."
The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"),
which was exactly the amount of the insurance coverage by Development Insurance (Exhibit
"A"), and the amount affirmed to be paid by respondent Court. The goods were shipped in 28
packages (Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of $14,000
which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the
amount of damage actually sustained."
Consequently, the aforestated amount of P256,039 should be upheld.
With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was
P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and
amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by
$500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would
yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those
spare parts, and not P92,361.75.
In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court
following the statutory $500 liability per package, is in order.
In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured
with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package
and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is
more than the insured value of the goods, that is $46,583, the Trial Court was correct in
awarding said amount only for the 128 cartons, which amount is less than the maximum
limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be
considered as the shipping unit.
In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator
to recover for loss of ingots and floor covering, which had been shipped in vessel — supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment
for the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second
Division, modified and affirmed holding that:
When what would ordinarily be considered packages are shipped in a container supplied by
the carrier and the number of such units is disclosed in the shipping documents, each of
those units and not the container constitutes the "package" referred to in liability limitation
provision of Carriage of Goods by Sea Act. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.&
1304(5).
Even if language and purposes of Carriage of Goods by Sea Act left doubt as to whether
carrier-furnished containers whose contents are disclosed should be treated as packages,
the interest in securing international uniformity would suggest that they should not be so
treated. Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A. 1304(5).
... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that treating a
container as a package is inconsistent with the congressional purpose of establishing a
reasonable minimum level of liability, Judge Beeks wrote, 414 F. Supp. at 907 (footnotes
omitted):
Although this approach has not completely escaped criticism, there is, nonetheless, much
to commend it. It gives needed recognition to the responsibility of the courts to construe
and apply the statute as enacted, however great might be the temptation to "modernize"
or reconstitute it by artful judicial gloss. If COGSA's package limitation scheme suffers
from internal illness, Congress alone must undertake the surgery. There is, in this regard,
obvious wisdom in the Ninth Circuit's conclusion in Hartford that technological
advancements, whether or not forseeable by the COGSA promulgators, do not warrant a
distortion or artificial construction of the statutory term "package." A ruling that these
large reusable metal pieces of transport equipment qualify as COGSA packages — at least
where, as here, they were carrier owned and supplied — would amount to just such a
distortion.
Certainly, if the individual crates or cartons prepared by the shipper and containing his
goods can rightly be considered "packages" standing by themselves, they do not suddenly
lose that character upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship. They simply serve to divide
the ship's overall cargo stowage space into smaller, more serviceable loci. Shippers'
 packages are quite literally "stowed" in the containers utilizing stevedoring practices and
materials analogous to those employed in traditional on board stowage.
In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on other grounds,
595 F 2nd 943 (4 Cir. 1979), another district with many maritime cases followed Judge Beeks'
reasoning in Matsushita and similarly rejected the functional economics test. Judge Kellam
held that when rolls of polyester goods are packed into cardboard cartons which are then
placed in containers, the cartons and not the containers are the packages.
xxx xxx xxx
The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:
Eurygenes concerned a shipment of stereo equipment packaged by the shipper into cartons
which were then placed by the shipper into a carrier- furnished container. The number of
cartons was disclosed to the carrier in the bill of lading. Eurygenes followed the Mitsui test
and treated the cartons, not the container, as the COGSA packages. However, Eurygenes
indicated that a carrier could limit its liability to $500 per container if the bill of lading failed
to disclose the number of cartons or units within the container, or if the parties indicated,
in clear and unambiguous language, an agreement to treat the container as the package.
(Admiralty Litigation in Perpetuum: The Continuing Saga of Package Limitations and Third
World Delivery Problems by Chester D. Hooper & Keith L. Flicker, published in Fordham
International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis supplied)
In this case, the Bill of Lading (Exhibit "A") disclosed the following data:
2 Containers
(128) Cartons)
Men's Garments Fabrics and Accessories Freight Prepaid
Say: Two (2) Containers Only.
Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers,
the number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers
should be considered as the shipping unit subject to the $500 limitation of liability.
True, the evidence does not disclose whether the containers involved herein were carrier-
furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the
probability is that they were so furnished for Petitioner Carrier was at liberty to pack and carry
the goods in containers if they were not so packed. Thus, at the dorsal side of the Bill of Lading
(Exhibit "A") appears the following stipulation in fine print:
11. (Use of Container) Where the goods receipt of which is acknowledged
on the face of this Bill of Lading are not already packed into container(s) at
the time of receipt, the Carrier shall be at liberty to pack and carry them in
any type of container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill
of Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean
that the shipper had furnished the containers for if so, "Two (2) Containers" appearing as the
first entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal
principle in the construction of contracts that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity. 20 This applies
with even greater force in a contract of adhesion where a contract is already prepared and the
other party merely adheres to it, like the Bill of Lading in this case, which is draw. up by the
carrier. 21
On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044
only)
Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the
depositions of its witnesses in Japan by written interrogatories.
We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it
failed to do so. On this point, the Trial Court found:
xxx xxx xxx
Indeed, since after November 6, 1978, to August 27, 1979, not to mention the time from
June 27, 1978, when its answer was prepared and filed in Court, until September 26, 1978,
when the pre-trial conference was conducted for the last time, the defendant had more than
nine months to prepare its evidence. Its belated notice to take deposition on written
interrogatories of its witnesses in Japan, served upon the plaintiff on August 25th, just two
days before the hearing set for August 27th, knowing fully well that it was its undertaking
on July 11 the that the deposition of the witnesses would be dispensed with if by next time
it had not yet been obtained, only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy from the Court in that regard. The
defendant has told the Court since February 16, 1979, that it was going to take the
deposition of its witnesses in Japan. Why did it take until August 25, 1979, or more than six
months, to prepare its written interrogatories. Only the defendant itself is to blame for its
failure to adduce evidence in support of its defenses.
xxx xxx xxx 22
Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain
now that it was denied due process when the Trial Court rendered its Decision on the basis of
the evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24
On the Award of Attorney's Fees:
Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court
affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development
Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that
the amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00
in G.R. No. 71478 is affirmed.
WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern Shipping
Lines shall pay the Development Insurance and Surety Corporation the amount of P256,039
for the twenty-eight (28) packages of calorized lance pipes, and P71,540 for the seven (7) cases
of spare parts, with interest at the legal rate from the date of the filing of the complaint on
June 13, 1978, plus P5,000 as attorney's fees, and the costs.
2) In G.R.No.71478,the judgment is hereby affirmed.
SO ORDERED.
CARRIAGE OF GOODS BY SEA ACT
G.R. No. L-25047 March 18, 1967
DOMINGO ANG, plaintiff-appellant,
vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.
-----------------------------
G.R. No. L-25050 March 18, 1967
DOMINGO ANG, plaintiff-appellant,
vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.
Juan T. David for plaintiff-appellant.
Ross, Selph & Carrascoso for defendant-appellee.
BENGZON, J. P., J.:
These are two cases separately appealed to the Court of Appeals and certified to Us by said
Court. Since both appeals involve the same parties and issue, they are decided together herein.
Yau Yue Commercial Bank, Ltd. of Hongkong, also referred to hereafter as Yau Yue, agreed to
sell one boat (50 feet, 30 tons) containing used U.S. Military Surplus to one Davao
Merchandising Corp. for the sum of $8,820.27 (US), and 42 cases (62 sets and 494 pieces) of
Hiranos Automatic Cop Change for Cotton Loom for Calieo to one Herminio Teves for the sum
of $18,246.,65 (US), respectively.
Said agreements were both subject to the following terms and arrangements: (a) the purchase
price should be covered by a bank draft for the corresponding amount which should be paid
by the purchaser in exchange for the delivery of the corresponding bill of lading to be
deposited with a local bank, the Hongkong & Shanghai Bank of Manila; (b) upon arrival of the
articles in Manila the purchaser would be notified and would have to pay the amount called
for in the corresponding demand draft, after which the bill of lading would be delivered to said
purchaser; and (c) the purchaser would present said bill of lading to the carrier's agent;
American Steamship Agencies, Inc., which would then issue the correspoding "Permit To
Deliver Imported Articles" to be presented to the Bureau of Custom to obtain the release of
the articles.
Pursuant thereto, on February 17, 1961, Hirahira & Co., Ltd. shipped the 42 cases (62 sets and
494 pieces ) of Hiranos Automatic Cop Change for Cotton Loom for Calico at Nagoya, aboard
the "S.S. CELEBES MARU", for Manila, with the Kansai Steamship Co., Ltd. of Osaka, Japan, as
carrier, of which the American Steamship Agencies, Inc. is the agent in the Philippines, under
a shipping agreement, Bill of Lading No. NM 1, dated February 17, 1961, consigned "to order
of the shipper", with Herminio G. Teves as the party to be notified of the arrival of said
articles.1äwphï1.ñët
Similarly, on June 3, 1961, the United States Contracting Officer, on behalf of Nippon Trading
Shokai for Nishiman Kaihatsu Co., Ltd. shipped the boat containing U.S. Military Surplus at
Yokohama, Japan, the "KYOJU MARU", with Sankyo Kiun Kabushiki Kaisha of Japan as carrier,
of which the American Steamship Agencies, Inc. is the agent in the Philippines, under a shipping
agreement, Bill of Lading No. YM-3, dated June 3, 1961, consigned "to the order of Yau Yue
Commercial Bank, Ltd. of Hongkong", with Davao Merchandising Corporation as the party to
be notified of the arrival of said boat.
The bills of lading were indorsed to the order of Yau Yue and delivered to it by the respective
shippers. Upon receipt thereof, Yan Yue drew demand drafts together with the bills of lading
against Teves and Davao Merchandising Corp., through the Hongkong & Shanghai Bank.
The shipment for Teves arrived in Manila on March 2, 1961; that of Davao Merchandising
Corp., arrived on June 10, 1961. Accordingly, Hongkong & Shanghai Bank notified Teves and
the Davao Merchandising Corporation, the "notify parties" under the bills of lading, of the
arrival of the goods and requested payment of the demand drafts representing the purchase
prices of the articles. The Davao Merchandising Corp. and Teves, however, did not pay the
respective drafts, prompting the bank in both cases to make the corresponding protests. The
bank likewise returned the bills of lading and demand drafts to Yau Yue which indorsed both
bills of lading to Domingo Ang.
Teves and Davao Merchandising Corporation, however, were able to obtain bank guaranties
in favor of the American Steamship Agencies., Inc., as carriers' agent, to the effect that they
would surrender the original and negotiable bills of lading duly indorsed by Yau Yue. And on
the strength of said guaranties, Davao Merchandising Corp. and Teves each succeeded in
securing a "Permit To Deliver Imported Articles" from the carriers' agent, which they presented
to the Bureau of Customs. In turn the latter released to them the articles covered by the bills
of lading.
After being informed by the American Steamship Agencies that the articles covered by the
respective bills of lading were already delivered by them to the Davao Merchandising Corp.
and to Teves, Domingo Ang filed claims with the carriers' agent for the cost of said articles,
interests and damages. The American Steamship Agencies, Inc., however, refused payment.
Domingo Ang thereafter filed separate complaints in the Court of First Instance of Manila
against the American Steamship Agencies, Inc., for having allegedly wrongfully delivered
and/or converted the goods covered by the bills of lading belonging to plaintiff Ang, to the
damage and prejudice of the latter. The suit as to the Teves shipment was filed on October 30,
1963; that referring to the Davao Merchandising Corp.'s shipment was filed on November 14,
1963.
Subsequently, defendant filed motions to dismiss upon the ground that plaintiff's causes of
action have prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65),
more particularly section 3(6), paragraph 4, which provides:
In any event, the carrier and the ship shall be discharged from all liability in respect
to loss or damage unless suit is brought within one year after delivery of the goods or
the date when the goods should have been delivered.
It argued that the cargoes should have been delivered to the person entitled to the
delivery thereof, i.e., plaintiff, on March 2, 1961 (Teves shipment) and June 10, 1961
(Davao Merchandising Corp. shipment), the respective dates of the vessels' arrival in
Manila, and that even allowing a reasonable time (even one month) after such
arrivals within which to make delivery, still, the actions commenced on October 30,
1963 and November 14, 1963. respectively, were filed beyond the prescribed period
of one year.
By order dated February 21, 1964, copy of which was received by plaintiff on February 28,
1964, the lower court presided over by the Hon. Judge Guillermo S. Santos, dismissed the
action (in re the 42 cases [62 sets and 494 pieces] of Hiranos Automatic Cop Change for Cotton
Loom for Calico) on the ground of prescription. His motion for reconsideration dated March
20, 1964 having been denied by the lower court in its order dated June 5, 1964, plaintiff
appealed to the Court of Appeals. This is now L-25050 and refers to the Teves shipment.
Upon the other hand, by order dated January 6, 1964, the lower court presided over by the
Hon. Jesus P. Morfe (in re the boat [50 feet, 30 tons] containing used U.S. Military Surplus)
denied the motion to dismiss on the ground that there being no allegation in the complaint as
to the date of arrival of the cargo or the date of which it should have been delivered, the
defendant was relying on facts which are not yet in evidence such as presuming that the cargo
had arrived on the specific date and that the same had been delivered on another specific
date.
Upon a motion for reconsideration filed by the defendant on January 13, 1964 and after the
parties submitted their memoranda of authorities and counter-authorities, respectively, the
lower court by an order dated February 20, 1964, reconsidered its prior order of January 6,
1964 and dismissed plaintiff's action also on the ground of prescription. From this order,
defendant appealed to the Court of Appeals. This is now L-25047 and refers to the Davao
Merchandising Corp. shipment.
At issue is a question purely of law, namely: Did plaintiff-appellant's causes of action prescribe
under Section 3(6), paragraph 4 of the Carriage of Goods by Sea Act? .
The point has already been resolved by this Court in a case involving the same parties and
parallel facts to those herein involved. In Domingo Ang vs. American Steamship Agencies, Inc.,
L-22491, January 27, 1967, We held that the one-year prescriptive period under Section 3(6),
paragraph 4 of the Carriage of Goods by Sea Act does not apply to cases of misdelivery or
conversion. For convenience, We quote the ruling therein:
The provision of law involved in this case speaks of "loss or damage". That there was
no damage caused to the goods which were delivered intact to Herminio G. Teves
who did not file any notice of damage, is admitted by both parties in this case. What
is to be resolved — in order to determine the applicability of the prescriptive period
of one year to the case at bar — is whether or not there was 'loss' of the goods subject
matter of the complaint.
Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse
must be had to the Civil Code which provides in Article 18 thereof that, "In matters
which are governed by the Code of Commerce and special law, their deficiency shall
be supplied by the provision of this Code."
Article 1189 of the Civil Code defines the word 'loss' in cases where condition have
been imposed with the intention of suspending the efficacy of an obligation to give.
The contract of carriage under consideration entered into by and between American
Steamship Agencies, Inc. and the Yau Yue (which later on endorsed the bill of lading
covering the shipment to plaintiff herein Domingo Ang), is one involving an obligation
to give or to deliver the goods "to the order of shipper" that is, upon the presentation
and surrender of the bill of lading. This being so, said article can be applied to the
present controversy, more specifically paragraph 2 thereof which provides that, "...
it is understood that a thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered."
As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage
of Goods by Sea Act, 'loss' contemplates merely a situation where no delivery at all
was made by the shipper of the goods because the same had perished, gone out of
commerce, or disappeared in much a way that their existence is unknown or they
cannot be recovered. It does not include a situation where there was indeed delivery
— but delivery to the wrong person, or a misdelivery, as alleged fir the complaint in
this case.
xxx xxx xxx
The point that matters here is that the situation is either delivery or misdelivery, but
not non-delivery. Thus, the goods were either rightly delivered or misdelivered, but
they were not lost. There being no loss or damage to the goods, the aforequoted
provision of the Carriage of Goods by Sea Act stating that "In any event, the carrier
and the ship shall be discharged from all liability in respect of loss or damage unless
it is brought within one year after delivery of the goods or the date of when the goods
should have been delivered," does not apply. The reason is not difficult to see. Said
one-year period of limitation is designed to meet the exigencies of maritime hazards.
In a case where the goods shipped were neither lost nor damaged in transit but were,
on the contrary, delivered in port to someone who claimed to be entitled thereto,
the situation is different, and the special need for the short period of limitation in
case of loss or damage caused by maritime perils does not obtain.
It follows that for suits predicated not upon loss or damage but on alleged misdelivery
(or conversion) of the goods, the applicable rule on prescription is that found in the
Civil Code, namely, either ten years for breach of a written contract or four years for
quasi-delict (Arts. 1144[1], 1146, Civil Code). ...
The goods covered by the two shipments subject matter of these appealed cases were also
delivered to the notify parties, Davao Merchandising Corporation and Herminio Teves, despite
the latter's inability to present the proper bills of lading and without the knowledge and
consent of plaintiff-appellant Domingo Ang to whom were endorsed said bills of lading. There
is therefore likewise misdelivery not nondelivery. Finally, the recipients of said goods did not
file any complaint with defendant regarding any damage to the same. No loss nor damage is
therefore involved in these cases. And thus the prescriptive period under Section 3(6),
paragraph 4 of the Carriage of Goods by Sea Act does not apply. The applicable prescriptive
period is that found in the Civil Code, namely, either ten years for breach of a written contract
or four years for quasi-delict (Arts. 1144[1] and 1146). Since the complaints in these appealed
cases were filed two years and five months (as to Davao Merchandising Corp. shipment) and
2 years and 8 months (as to Teves shipment), from the arrival of the two shipments, it is clear
that the causes of action have not yet prescribed.
Wherefore, the orders appealed from dismissing plaintiff's complaints in these two cases on
the ground of prescription are hereby reversed and set aside; let said cases be remanded to
the respective court a quo for further proceedings. So ordered.
CARRIAGE OF GOODS BY SEA ACT
G.R. No. L-17730 September 29, 1962
F. H. STEVENS & CO., INC., plaintiff-appellant,
vs.
NORDDEUSCHER LLOYD, defendant-appellee.
CONCEPCION, J.:
This is an appeal from an order granting defendant's motion to dismiss and, accordingly,
dismissing the case without any pronouncement as to costs.
Plaintiff commenced this action in the Court of First Instance of Manila on June 24, 1960. It
alleged in the complaint that on March 28, 1959, it had shipped from Hamburg to Manila,
aboard the "MS SCHWABENSTEIN", a vessel of defendant Norddeuscher Lloyd, 2,000 pieces of
prismatical thermometers valued at $650; that on May 15, 1959, said vessel arrived at Manila;
that on May 21, 1959, the master of said vessel notified the plaintiff, thru its broker, of the
delivery of said goods; that, upon examination of the case containing the same, it turned out
that 1,154 pieces of said thermometers valued at $342.74, were missing and/or destroyed;
that plaintiff immediately filed the corresponding notice of loss and/or short delivery, followed
by the corresponding notice and formal claim for loss and/or short delivery; that, despite
several demands, defendant had refused and failed to pay said sum of $342.74; that, as a
consequence, plaintiff had, also, incurred damages in the sums of P1,000, as attorney's fees,
and P664.70, as unrealized profits; and that an action instituted in the Municipal Court of
Manila on April 27, 1960 — seemingly, for the recovery of the value of said thermometers and
the amount of said — damages was dismissed by said court on June 13, 1960, without any trial
on the merits, upon the ground of lack of jurisdiction over the subject-matter of the case,
inasmuch as the same involved the exercise of admiralty and maritime jurisdiction. Plaintiff
prayed for judgment for said sums of $342.74, P1,000 and P664.70, plus costs.
On July 8, 1960, defendant moved to dismiss the complaint upon the ground that plaintiff's
causes of action had prescribed, it having been filed on June 24, 1960, or more than a year
from May 21, 1959, when plaintiff was notified of the delivery of the case containing the
thermometers in question. This motion having been granted and the complaint dismissed,
plaintiff interposed this appeal, maintaining that the period of one (1) year prescribed in
Commonwealth Act No. 65, in relation to Carriage of Goods by Sea Act — within which the
liability of carriers, based upon a contract of carriage goods by sea, may be enforced by suit —
was suspended by the commencement of the first action in the municipal court, on April 27,
1960; that the running of said period was resumed or continued on June 13, 1960, when said
action was dismissed; and that, excluding said period from April 27, 1960 to June 13, 1960, or
forty-seven (47) days, less than one (1) year has elapsed from May 21, 1959 to June 24, 1960,
when this case was filed in the court of first instance. In support of this pretense, plaintiff
invokes Article 1155 of the Civil Code of the Philipines, reading:
The prescription of actions is interrupted when they filed before the court, when there is a
written extrajudicial command by the creditors, and when there is any written acknowledged
judgment of the debt by the debtor.
Upon mature deliberation, we are of the opinion, and so hold, that the order appealed from
should be reversed, not only because of the operation of said Article 1155 of our Civil Code,
but, also, in view of the provisions section 49 of Act No. 190, pursuant to which:
If, in an action commenced, in due time, a judgment for the plaintiff be reversed, or
if the plaintiff fail otherwise than upon the merits, and the time limited for the
commencement of such action has, at the date of such reversal or failure, expired,
the plaintiff, or, if he die and the cause of action survive, his representatives may
commence a new action within one year after such date, and this provision shall
apply to any claim asserted in any pleading by a defendant.
The action commenced by the plaintiff in the Municipal Court of Manila, on April 27, 1960, was
dismissed June 13, 1960, or over twenty (20) days after the expiration of the period of one (1)
year, beginning from May 21, 1959, within which plaintiff's action could be brought pursuant
to Commonwealth Act No. 65, in relation to the Carriage of Goods by Sea Act. Under said
section of Act No. 190, the period within which plaintiff could initiate the present case was
renewed, therefore, for another year, beginning from June 14, 1960 (Tolentino Vitug, 39 Phil.,
126; Smith vs. McNeal, 100 U.S. 426, 27 L. ed. 986). The case at bar was commenced on June
24, 1960, or within the period last mentioned.
The cases of Oriental Commercial Co. vs. Jureidini (71 Phil., 25) and Conspecto vs. Fruto (31
Phil., 144), in which it was held that:
. . . Cuando se entabia una accion dentro del plazo de prescripcion y se desiste de ella despues,
o se sobresee sin condiciones, por una razon u otra, no hace que la accion que se entable mas
tarde pero ya fuera del periodo de prescripcion, se pueda considerar como presentada detro
de dicho periodo porque quiere contrase con la accion entablada con anterioridad. La falta de
gestion de la recurrente por cuya causa se desestimaron sus demandas segunda y tercera, no
puede interpretarse sino como una renuncia de su parte y, al ejercitar su ultima accion no se
ha colocado en la misma situacion en que antes se hallaba al ejercitar sus tres anteriores
acciones. Este es el mismo criterio que expresamos cuando se nos presents una cuestion
aniloga en la causa de Conspecto contra Fruto, 31 Jur. Fil 155. (EmphasiS supplied.)1awphîl.nèt
are not in point, for the dismissal of the herein plaintiff's complaint in the municipal court was
not due to its desistance or voluntary abandonment.
Insofar as inconsistent with the conclusion we have thus reached, the view adopted in Chua
Kuy vs. Everett Steamship Corp., L-5534 (May 27, 1953) and Yek Tong Lin Fire & Marine
Insurance Co. vs. American President Lines, Inc., L-11081 (April 30, 1958) should be, as it is
hereby, modified accordingly.
WHEREFORE, the order appealed from is reversed and this case remanded to the lower court
for further proceedings, with costs of this instance against defendant Norddeuscher Lloyd. It
is so ordered.
CARRIAGE OF GOODS BY SEA ACT
G.R. No. 187701 July 23, 2014
PHILAM INSURANCE COMPANY, INC. (now CHARTIS PHILIPPINES INSURANCE,
INC.*), Petitioner,
vs.
HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES SHIPPING,
INC., Respondents.
x-----------------------x
G.R. No. 187812
HEUNG-A SHIPPING CORPORATION and WALLEM PHILIPPINES SHIPPING, INC., Petitioners,
vs.
PHILAM INSURANCE COMPANY, INC. (now CHARTIS PHILIPPINES INSURANCE,
INC.), Respondent.
DECISION
REYES, J.:
At bar are consolidated petitions for review on certiorari1 under Rule 45 of the Rules of Court
assailing the Decision2dated January 30, 2009 of the Court of Appeals (CA) in CA-G.R. CV No.
89482 affirming with modifications the Decision3 dated February 26, 2007 of the Regional Trial
Court (RTC) of Makati City, Branch 148, in Civil Case No. 01-889.
The Factual Antecedents
On December 19, 2000, Novartis Consumer Health Philippines, Inc. (NOVARTIS) imported from
Jinsuk Trading Co. Ltd., (JINSUK) in South Korea, 19 pallets of 200 rolls of Ovaltine Power 18
Glaminated plastic packaging material.
In order to ship the goods to the Philippines, JINSUK engaged the services of Protop Shipping
Corporation (PROTOP), a freight forwarder likewise based in South Korea, to forward the goods
to their consignee, NOVARTIS.
Based on Bill of Lading No. PROTAS 200387 issued by PROTOP, the cargo was on freight prepaid
basis and on "shipper’s load and count" which means that the "container [was] packed with
cargo by one shipper where the quantity, description and condition of the cargo is the sole
responsibility of the shipper."4 Likewise stated in the bill of lading is the name Sagawa Express
Phils., Inc., (SAGAWA) designated as the entity in the Philippines which will obtain the delivery
contract.
PROTOP shipped the cargo through Dongnama Shipping Co. Ltd. (DONGNAMA) which in turn
loaded the same on M/V Heung-A Bangkok V-019 owned and operated by Heung-A Shipping
Corporation, (HEUNG-A), a Korean corporation, pursuant to a ‘slot charter agreement’
whereby a space in the latter’s vessel was reserved for the exclusive use of the former. Wallem
Philippines Shipping, Inc. (WALLEM) is the ship agent of HEUNG-A in the Philippines. NOVARTIS
insured the shipment with Philam Insurance Company, Inc. (PHILAM, now Chartis Philippines
Insurance, Inc.) under All Risk Marine Open Insurance Policy No. MOP-0801011828 against all
loss, damage, liability, or expense before, during transit and even after the discharge of the
shipment from the carrying vessel until its complete delivery to the consignee’s premises. The
vessel arrived at the port ofManila, South Harbor, on December 27, 2000 and the subject
shipment contained in Sea Van Container No. DNAU 420280-9 was discharged without
exception into the possession, custody and care of Asian Terminals, Inc. (ATI) as the customs
arrastre operator.
The shipment was thereafter withdrawn on January 4, 2001, by NOVARTIS’ appointed broker,
Stephanie Customs Brokerage Corporation (STEPHANIE) from ATI’s container yard.
The shipment reached NOVARTIS’ premises on January 5, 2001 and was thereupon inspected
by the company’s Senior Laboratory Technician, Annie Rose Caparoso (Caparoso).5
Upon initial inspection, Caparoso found the container van locked with its load intact. After
opening the same, she inspected its contents and discovered that the boxes of the shipment
were wet and damp. The boxes on one side of the van were in disarray while others were
opened or damaged due to the dampness. Caparoso further observed that parts of the
container van were damaged and rusty. There were also water droplets on the walls and the
floor was wet. Since the damaged packaging materials might contaminate the product they
were meant to hold, Caparoso rejected the entire shipment.
Renato Layug and Mario Chin, duly certified adjusters of the Manila Adjusters and Surveyors
Company wereforthwith hailed to inspect and conduct a survey of the shipment. 6 Their
Certificate of Survey7 dated January 17, 2001 yielded results similar to the observations of
Caparoso, thus:
[T]he sea van panels/sidings and roofing were noted with varying degrees of indentations and
partly corroded/rusty. Internally, water bead clung along the roofs from rear to front section.
The mid section dented/sagged with affected area was noted withminutes hole evidently due
to thinning/corroded rusty metal plates. The shipment was noted with several palletized
cartons already in collapsed condition due to wetting. The van’s entire floor length was also
observed wet.8
All 17 pallets of the 184 cartons/rolls contained in the sea van were found wet/water damaged.
Sixteen (16)cartons/rolls supposedly contained in 2 pallets were unaccounted for although the
surveyors remarked that this may be due to short shipment by the supplier considering that
the sea van was fully loaded and can no longer accommodate the said unaccounted items. The
survey report further stated that the "wetting sustained by the shipment may have reasonably
be attributed to the water seepage that gain entry into the sea van container damageroofs
(minutes hole) during transit period[sic]."9
Samples from the wet packing materials/boxes were submitted to the chemist of Precision
Analytical Services, Inc. (PRECISION), Virgin Hernandez (Hernandez), and per Laboratory
Report No. 042-07 dated January 16, 2001, the cause of wetting in the carton boxes and kraft
paper/lining materials as well as the aluminum foil laminated plastic packaging material, was
salt water.10
Aggrieved, NOVARTIS demanded indemnification for the lost/damaged shipment from
PROTOP, SAGAWA, ATI and STEPHANIE but was denied. Insurance claims were, thus, filed with
PHILAM which paid the insured value of the shipment inthe adjusted amount of One Million
Nine Hundred Four Thousand Six Hundred Thirteen Pesos and Twenty Centavos
(₱1,904,613.20). Claiming that after such payment, it was subrogated to all the rights and
claims of NOVARTIS against the parties liable for the lost/damaged shipment, PHILAM filed on
June 4, 2001, a complaint for damages against PROTOP, as the issuer of Bill of Lading No.
PROTAS 200387, its ship agent in the Philippines, SAGAWA, consignee, ATI and the broker,
STEPHANIE.
On October 12, 2001, PHILAM sent a demand letter to WALLEM for reimbursement of the
insurance claims paid to NOVARTIS.11 When WALLEM ignored the demand, PHILAM impleaded
it as additional defendant in an Amended Complaint duly admitted by the trial court on
October 19, 2001.12
On December 11, 2001, PHILAM filed a Motion to Admit Second Amended Complaint this time
designating PROTOP as the owner/operator of M/V Heung-A Bangkok V-019 and adding
HEUNG-A as party defendant for being the registered owner of the vessel. 13 The motion was
granted and the second amended complaint was admitted by the trial court on December 14,
2001.14
PROTOP, SAGAWA, ATI, STEPHANIE, WALLEM and HEUNG-A denied liability for the
lost/damaged shipment.
SAGAWA refuted the allegation that it is the ship agent of PROTOP and argued that a ship
agent represents the owner of the vessel and not a mere freight forwarder like PROTOP.
SAGAWA averred that its only role with respect to the shipment was to inform NOVARTIS of
its arrival in the Philippines and to facilitate the surrender of the original bill of lading issued
by PROTOP.
SAGAWA further remarked that it was deprived an opportunity to examine and investigate the
nature and extent of the damage while the matter was still fresh so as tosafeguard itself from
false/fraudulent claims because NOVARTIS failed totimely give notice about the
loss/damage.15
SAGAWA admitted that it has a non-exclusive agency agreement with PROTOP to serve as the
latter’s delivery contact person in the Philippines with respect to the subject shipment.
SAGAWA is also a freight forwarding company and that PROTOPwas not charged any fee for
the services rendered by SAGAWA with respect to the subject shipment and instead the latter
was given US$10 as commission.16 For having been dragged into court on a baseless cause,
SAGAWA counterclaimed for damages in the form of attorney’s fees.
ATI likewise interposed a counterclaim for damages against PHILAM for its allegedly baseless
complaint. ATI averred that it exercised due care and diligence in handling the subject
container. Also, NOVARTIS, through PHILAM, is now barred from filing any claim for
indemnification because the latter failed to file the same within 15 days from receipt of the
shipment.17 Meanwhile, STEPHANIE asserted that its only role with respect to the shipment
was its physical retrieval from ATI and thereafter its delivery to NOVARTIS. That entire time,
the sealwas intact and not broken. Also, based on the Certificate of Survey, the damage to the
shipment was due to salt water which means that it could not have occurred while STEPHANIE
was in possession thereof during its delivery from ATI’s container yard to NOVARTIS’ premises.
STEPHANIE counterclaimed for moral damages and attorney’s fees.18
WALLEM alleged that the damageand shortages in the shipment were the responsibility of the
shipper, JINSUK, because it was taken on board on a "shipper’s load and count" basis which
means that it was the shipper that packed, contained and stuffed the shipment in the container
van without the carrier’s participation. The container van was already sealed when it was
loadedon the vessel and hence, the carrier was in no position to verify the condition and other
particulars of the shipment.
WALLEM also asserted that the shipment was opened long after it was discharged from the
vessel and that WALLEM or HEUNG-A were not present during the inspection, examination
and survey.
WALLEM pointed the blame to PROTOP because its obligation to the shipper as freight
forwarder carried the concomitant responsibility of ensuring the shipment’s safety from the
port of loading until the final place of delivery. WALLEM claimed to haveexercised due care
and diligence in handling the shipment.
In the alternative, WALLEM averred that any liability which may be imputed to it is limited only
to US$8,500.00 pursuant to the Carriage of Goods by Sea Act (COGSA).19
HEUNG-A argued that it is not the carrier insofar as NOVARTIS is concerned. The carrier was
either PROTOP, a freight forwarder considered as a non-vessel operating common carrier or
DONGNAMA which provided the container van to PROTOP. 20 HEUNG-A denied being the
carrier of the subjectshipment and asserted that its only obligation was to provide
DONGNAMA a space on board M/V Heung-A Bangkok V-019.
PROTOP failed to file an answer to the complaint despite having been effectively served with
alias summons. It was declared in default in the RTC Order dated June 6, 2002.21
Ruling of the RTC
In a Decision22 dated February 26, 2007, the RTC ruled that the damage to the shipment
occurred onboard the vessel while in transit from Korea to the Philippines.
HEUNG-A was adjudged as the common carrier of the subject shipment by virtue of the
admissions of WALLEM’s witness, Ronald Gonzales (Gonzales) that despite the slot charter
agreement with DONGNAMA, it was still the obligation of HEUNG-A to transport the cargo
from Busan, Korea to Manila and thus any damage to the shipment is the responsibility of the
carrier to the consignee.
The RTC further observed that HEUNG-A failed to present evidence showing that it exercised
the diligence required of a common carrier in ensuring the safety of the shipment.
The RTC discounted the slot charter agreement between HEUNG-A and DONGNAMA, and held
that it did not bind the consignee who was not a party thereto. Further, it was HEUNG-A’s duty
to ensure that the container van was in good condition by taking an initiative to state in its
contract and demand from the owner of the container van that it should be in a good condition
all the time. Such initiative cannot be shifted to the shipper because it is in no position to
demand the same from the owner of the container van.
WALLEM was held liable as HEUNG-A’s ship agent in the Philippines while PROTOP was
adjudged liable because the damage sustained by the shipment was due to the bad condition
of the container van. Also, based on the statement at the backof the bill of lading, it assumed
responsibility for loss and damage as freight forwarder, viz:
6.1 The responsibility of the Freight Forwarder for the goods under these conditions covers
the period from the time the Freight Forwarder has taken the goods in his charge to the time
of the delivery.
6.2 The Freight Forwarde[r] shall beliable for loss or damage to the goods as well as for delay
in delivery if the occurrence which caused the loss, damage, delay in delivery took place while
the goods were in his charge as defined in clause 2.1.a unless the Freight Forwarder proves
that no fault or neglect of his own servants or agents or any other person referred to in Clause
2.2 has caused or contributed to such loss, damage or delay. However, the Freight Forwarder
shall only be liable for loss following from delay in delivery if the Consignor has made a
declaration of interest in timely delivery which has been accepted by the Freight Forwarder
and stated in this FBL.23
PHILAM was declared to havebeen validly subrogated in NOVARTIS’ stead and thus entitled to
recover the insurance claims it paid to the latter.
ATI and STEPHANIE were exonerated from any liability. SAGAWA was likewise adjudged not
liable for the loss/damage to the shipment by virtue of the phrase "Shipper’s Load and Count"
reflected in the bill of lading issued by PROTOP. Since the container van was packed under the
sole responsibility of the shipper in Korea, SAGAWA, which is based in the Philippines, had no
chance to check if the contents were in good condition or not. The RTC concluded that
SAGAWA cannot be expected to observe the diligence or care required of a carrier or ship
agent. SAGAWA, ATI and STEPHANIE’s counterclaims for attorney’s fees were granted and
PHILAM was ordered to pay the same for having been filed a ‘shotgun case’ against them.
Accordingly, the dispositive portion of the RTC decision read:
WHEREFORE, premises considered, judgment is hereby rendered declaring defendants
PROTOP SHIPPING CORPORATION, HEUNG-A SHIPPING CORPORATION and WALLEM
PHILIPPINES SHIPPING, INC. solidarily liable to pay x x x PHILAM INSURANCE COMPANY, INC.
the following amounts:
1. [P]1,904,613.20 plus interest of 12% per annum from December 26, 2001 (date of
service of summons to defendant Heung-A) until full payment;
2. [P]350,000.00 as attorney’s fees; and 3. Cost of suit.
With regards to the counter claims, x x x PHILAM INSURANCE COMPANY, INC. is hereby
ordered to pay defendants SAGAWA EXPRESS PHILIPPINES, INC., ASIAN TERMINALS, INC., and
STEPHANIE CUSTOMS BROKERAGE CORPORATION the amount of [P]100,000.00 each as
attorney’s fees.
SO ORDERED.24
Ruling of the CA
An appeal to the CA was interposed by PHILAM, WALLEM and HEUNG-A. In a Decision25 dated
January 30, 2009, the CA agreed with the RTC that PROTOP, HEUNG-A and WALLEM are liable
for the damaged shipment. The fact that HEUNG-A was not a party to the bill of lading did not
negate the existence of a contract of carriage between HEUNG-A and/or WALLEM and
NOVARTIS. A bill of lading is not indispensable for the creation of a contract of carriage. By
agreeing to transport the goods contained in the sea van providedby DONGNAMA, HEUNG-A
impliedly entered into a contract of carriage with NOVARTIS with whom the goods were
consigned. Hence, it assumed the obligations of a common carrier to observe extraordinary
diligence in the vigilance over the goods transported by it. Further the Slot Charter Agreement
did not change HEUNG-A’s character as a common carrier.
Moreover, the proximate cause ofthe damage was the failure of HEUNG-A to inspect and
examine the actual condition of the sea van before loading it on the vessel. Also,
propermeasures in handling and stowage should have been adopted to prevent seepage of
sea water into the sea van.
The CA rejected WALLEM and HEUNG-A’s argument that NOVARTIS failed to comply with
Article 366 of the Code of Commerce requiring that a claim must be made against the carrier
within 24 hours from receipt of the merchandise because such provision applies only to inter-
island shipments within the Philippines.
The CA limited the liability of PROTOP, WALLEM and HEUNG-A to US$8,500.00 pursuant to the
liability limitation under the COGSA since the shipper failed to declare the value of the subject
cargo in the bill of lading and since they could not be made answerable for the two (2)
unaccounted pallets because the shipment was on a "shipper’s load, count and seal" basis.
The attorney’s fees awarded to SAGAWA, ATI and STEPHANIE were deleted because it was not
shown that PHILAM was motivated by malice and bad faith in impleading them as defendants.
Thus, the CA decision was disposed as follows:
WHEREFORE, premises considered, the appealed Decision is hereby AFFIRMED with
MODIFICATION.Defendants PROTOP SHIPPING CORPORATION, HEUNG-A SHIPPING
CORPORATION [and] WALLEM PHILIPPINES SHIPPING,INC.’s solidary liability to PHILAM
INSURANCE COMPANY, INC. is reduced to $8,500.00 plus interest per annum from26
December 2001 (date ofservice of summons to defendant Heung-A) until full payment. The
award of attorney’s fees in the amount of One Hundred Thousand Pesos ([P]100,000.[00]) each
to SAGAWA EXPRESS PHILIPPINES, INC., ASIAN TERMINALS, INC. and STEPHANIE CUSTOMS
BROKERAGE is hereby DELETED.SO ORDERED.26
The foregoing judgment was reiterated in the CA Resolution27 dated May 8, 2009 which denied
the motions for reconsideration filed by PHILAM, WALLEM and HEUNG-A.
PHILAM thereafter filed a petition for review before the Court docketed as G.R. No. 187701.
WALLEM and HEUNG-A followed suit and their petition was docketed as G.R. No. 187812.
Considering that both petitions involved similar parties and issue, emanated from the same
Civil Case No. 01-889 and assailed the same CA judgment, they were ordered consolidated in
a Resolution28 dated January 13, 2010.
In G.R. No. 187701, PHILAM raised the following grounds:
THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT RULED IN ITS DECISION OF 30
JANUARY 2009 THAT [HEUNG-A and WALLEM] HAVE THE RIGHT TO LIMIT THEIR LIABILITY
UNDER THE PACKAGE LIMITATION OF LIABILITY OF SECTION 4(5) OF THE CARRIAGE OF GOODS
BY SEA ACT, 1924, IN VIEW OF ITS OBSERVATION THAT [NOWHERE] IN THE BILL OF LADING
DID THE SHIPPER DECLARE THE VALUE OF THE SUBJECT CARGO;
THE HONORABLE [CA] COMMITTED SERIOUS ERROR WHEN IT COMPLETELY DISREGARDED THE
FUNDAMENTAL BREACHES OF [HEUNG-A and WALLEM] OF [THEIR] OBLIGATIONS AND
RESPONSIBILITIES UNDER THE CONTRACT OF CARRIAGE AND LAW OF THE CASE AS LEGAL
GROUNDS TO PRECLUDE ITS AVAILMENT OF THE PACKAGE LIMITATION OF LIABILITY UNDER
SECTION 4(5) OF THE CARRIAGE OF GOODS BY SEA ACT, 1924.29
In G.R. No. 187812, HEUNG-A and WALLEM argued that:
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT THE CODE OFCOMMERCE,
SPECIFICALLY ARTICLE 366 THEREOF, DOES NOT APPLY IN THIS CASE[;]
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT THE SO-CALLED
"PARAMOUNT CLAUSE" IN THE BILL OF LADING, WHICH PROVIDED THAT "COGSA" SHALL
GOVERN THE TRANSACTION, RESULTED IN THE EXCLUSION OR INAPPLICABILITY OF THE CODE
OF COMMERCE[;]
THE [CA] COMMITTED A SERIOUS ERROR OF LAW IN NOT RULING THAT [PHILAM] HAS NO
RIGHT OF ACTION AGAINST [HEUNG-A and WALLEM] INSOFAR AS DAMAGE TO CARGO IS
CONCERNED IN VIEW OF THE FACT THAT NO TIMELY CLAIM WAS FILED PURSUANT TO ARTICLE
366 OF THE CODE OF COMMERCE OR THE PROVISIONS OF THE BILL OF LADING
NO.DNALGOBUM 005019[;]
THE [CA] GRAVELY ABUSED ITS DISCRETION AMOUNTING TO EXCESS OR LACK OF
JURISDICTION IN FINDING THAT THE CONTAINERIZED CARGO WAS DAMAGED WHILE IN THE
POSSESSION OR CUSTODY OF THE VESSEL "HEUNG-A BANGKOK".30
Issues
The arguments proffered by the parties can be summed up into the following issues: (1)
Whether the shipment sustained damage while in the possession and custody of HEUNG-A,
and if so, whether HEUNG-A’s liability can be limited to US$500 per package pursuant tothe
COGSA; (2) Whether or not NOVARTIS/PHILAM failed to file a timely claim against HEUNG-A
and/or WALLEM.
Ruling of the Court
It must be stressed that the question on whether the subject shipment sustained damaged
while in the possession and custody of HEUNG-A is a factual matter which has already
beendetermined by the RTC and the CA. The courts a quowere uniform in finding that the
goods inside the container van were damaged by sea water whilein transit on board HEUNG-
A’s vessel.
Being a factual question, it is notreviewable in the herein petition filed under Rule 45 of the
Rules of Court. It isnot the Court’s duty to evaluate and weigh the evidence all over again as
such function is conceded to be within the expertise of the trial court whose findings, when
supported by substantial evidence on record and affirmed by the CA, are regarded with
respect, if not binding effect, by this Court.31
There are certain instances, however, when the Court is compelled to deviate from this rule,
dismantle the factual findings of the courts a quoand conduct a probe into the factual
questions at issue. These circumstances are: (1) the inference made ismanifestly mistaken,
absurd or impossible; (2) there is grave abuse of discretion; (3) the findings are grounded
entirely on speculations, surmises or conjectures; (4) the judgment of the CA is based on
misapprehension of facts; (5) the CA, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee; (6) the findings of
fact are conclusions without citation of specific evidence on which theyare based; (7) the CA
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (8) the findings of fact of the CA are
premised on the absence ofevidence and are contradicted by the evidence on record.32
None of the foregoing instances is extant from records of the present case. Instead, the Court
finds that the factual findings of the courts a quo are supported by evidence on record.
The uncontested results of the inspection survey conducted by Manila Adjusters Surveyors
Company showed that sea water seeped into the panels/sidings and roofing of the container
van. This was confirmed by the examination conducted by Hernandez, the chemist of
PRECISION, on samples from the cartons, boxes, aluminum foil and laminated plastic packaging
materials. Based on the laboratory examination results, the contents of the van were drenched
by sea water, an element which is highly conspicuous in the high seas. It can thus be reasonably
concluded that negligence occurred while the container van was in transit, in HEUNG-A’s
possession, control and custody as the carrier.
Although the container van had defects, they were not, however, so severe as to
accommodate heavy saturation of sea water. The holes were tiny and the rusty portions did
not cause gaps or tearing. Hence, the van was still in a suitable condition to hold the goods and
protect them from natural weather elements or even the normal flutter of waves in the seas.
The scale of the damage sustained by the cargo inside the van could have been only caused by
large volume of sea water since not a single package inside was spared. Aside from the
defective condition of the van, some other circumstance or occurrence contributed to the
damages sustained by the shipment. Since the presence of sea water is highly concentrated in
the high seas and considering HEUNG-A’s failure to demonstrate how it exercised due diligence
in handling and preserving the container van while in transit, it is liable for the damages
sustained thereby.
As the carrier of the subject shipment, HEUNG-A was bound to exercise extraordinary diligence
in conveying the same and its slot charter agreement with DONGNAMA did not divest it of
such characterization nor relieve it of any accountability for the shipment.
Based on the testimony of Gonzales,33 WALLEM’s employee and witness, the charter party
between HEUNG-A and DONGNAMA was a contract of affreightment and not a bare boat or
demise charter, viz:
Q: Now, the space charter that you are mentioning is not either a bareboat or a demise?
A: Yes, sir.
Q: Okay. So in other words, that space charter party is only to allow the shipper, Dongnama,
to load its cargo for a certain specified space?
A: Yes, sir.34
A charter party has been defined in Planters Products, Inc. v. Court of Appeals 35 as:
[A] contract by which an entire ship, orsome principal part thereof, is let by the owner to
another person for a specified time or use; a contract of affreightment by which the owner of
a ship or other vessel lets the whole or a part of her to a merchant or other person for the
conveyance of goods, on a particular voyage, in consideration of the payment of freight. x x
x.36 (Citations omitted)
A charter party has two types. First, it could be a contract of affreightment whereby the use of
shipping space on vessels is leased in part or as a whole, to carry goods for others. The charter-
party provides for the hire of vessel only, either for a determinate period of time (time charter)
or for a single or consecutive voyage (voyage charter). The shipowner supplies the ship’s
stores, pay for the wages ofthe master and the crew, and defray the expenses for the
maintenance of the ship.37 The voyage remains under the responsibility of the carrier and it is
answerable for the loss of goods received for transportation. The charterer is free from liability
to third persons in respect of the ship.38
Second, charter by demise or bareboat charter under which the whole vessel is let to the
charterer with a transfer to him of its entire command and possession and consequent control
over its navigation, including the master and the crew, who are his servants. 39 The charterer
mans the vessel with his own people and becomes, in effect, the owner for the voyage or
service stipulated and hence liable for damages or loss sustained by the goods transported. 40
Clearly then, despite its contract of affreightment with DONGNAMA, HEUNG-A remained
responsible as the carrier, hence, answerable for the damages incurred by the goods received
for transportation. "[C]ommon carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligenceand vigilance with respect to the
safety of the goods and the passengers they transport. Thus, common carriers are required to
render service with the greatest skill and foresight and ‘to use all reasonable means to
ascertain the nature and characteristics of the goods tendered for shipment, and toexercise
due care in the handling and stowage, including such methods as their nature requires.’" 41
"[C]ommon carriers, as a general rule, are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or destroyed. That is, unless they provethat
they exercised extraordinary diligence in transporting the goods. Inorder to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that they
observed such diligence."42 Further, under Article 1742 of the Civil Code, even if the loss,
destruction, or deterioration of the goods should be caused by the faulty nature of the
containers, the common carrier must exercise due diligence to forestall or lessen the loss.
Here, HEUNG-A failed to rebut this prima faciepresumption when it failed to give adequate
explanation as to how the shipment inside the container van was handled, stored and
preserved to forestall or prevent any damage or loss while the same was inits possession,
custody and control.
PROTOP is solidarily liable with HEUNG-A for the lost/damaged shipment in view of the bill of
lading the former issued to NOVARTIS. "A bill of lading is a written acknowledgement of the
receipt of goods and an agreement to transport and to deliver them at a specified place to a
person named or on his or her order. It 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."43 PROTOP breached its contract with NOVARTIS when it failed to deliver the goods
in the same quantity, quality and description as stated in Bill of Lading No. PROTAS 200387.
The CA did not err in applying the provisions of the COGSA specifically, the rule on Package
Liability Limitation.
Under Article 1753 of the 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. Since the subject shipment was being transported from South Korea to the
Philippines, the Civil Code provisions shall apply. In all mattersnot regulated by the Civil Code,
the rights and obligations of common carriers shall be governed by the Code of Commerce and
by special laws,44 such as the COGSA.
While the Civil Code contains provisions making the common carrier liable for loss/damage to
the goods transported, it failed to outline the manner of determining the amount of
suchliability. Article372 of the Code of Commerce fills in this gap, thus:
Article 372. The value of the goods which the carrier must pay in cases if loss or misplacement
shall be determined in accordance with that declared in the bill of lading, the shipper not being
allowed to present proof that among the goods declared therein there were articles of greater
value and money.
Horses, vehicles, vessels, equipment and all other principal and accessory means of
transportation shall be especially bound infavor of the shipper, although with respect to
railroads said liability shall be subordinated to the provisions of the laws of concession with
respect to the property, and to what this Code established as to the manner and form of
effecting seizures and attachments against said companies. (Emphasis ours)
In case, however, of the shipper’s failure to declare the value of the goods in the bill of lading,
Section 4, paragraph 5 of the COGSA provides:
Neither the carrier nor the ship shall in any event be or become liable for any loss or damage
to or in connection with the transportation of goods in an amount exceeding $500 per package
lawful money of the United States, or in case of goods not shipped in packages, per customary
freight unit, or the equivalent of that sum in other currency, unless the nature and value of
such goods have been declared by the shipper before shipment and inserted in the bill of
lading. This declaration, if embodied in the bill of lading shall be prima facieevidence, but shall
be conclusive on the carrier.
Hence, when there is a loss/damage to goods covered by contracts of carriage from a foreign
port to a Philippine port and in the absence a shipper’s declaration of the value of the goods
in the bill of lading, as in the present case, the foregoing provisions of the COGSA shall apply.
The CA, therefore, did not err in ruling that HEUNG-A, WALLEM and PROTOP’s liability is limited
to $500 per package or pallet.45
The Court likewise affirms the CA in pronouncing HEUNG-A, WALLEM and PROTOP liable only
for the lost/damaged 17 pallets instead of 19 pallets stated in the bill of lading. This is because,
per the "Shipper’s Load and Count" arrangement, the contents are not required to be checked
and inventoried by the carrier at the port of loading or before said carrier enters the port of
unloading in the Philippines since it is the shipper who has the sole responsibility for the
quantity, description and condition of the cargoes shipped in container vans. 46 As such, the
carrier cannot be held responsible for any discrepancy if the description in the bill of lading is
different from the actual contents of the container.47
Consonant with the ruling in the recent Asian Terminals, Inc. v. Philam Insurance Co., Inc., 48 the
prescriptive period for filing an action for lost/damaged goods governed by contracts of
carriage by sea to and from Philippine ports in foreign trade is governed by paragraph 6,Section
3 of the COGSA which states:
(6) Unless notice of loss or damageand the general nature of such loss or damage be given in
writing to the carrier or his agent at the port of discharge before or at the time of the removal
of the goods into the custody of the person entitled to delivery thereof under the contract of
carriage, such removal shall be prima facieevidence of the delivery by the carrier of the goods
as described in the bill of lading. If the loss or damage is not apparent, the notice must be given
within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the
person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their receipt
been the subject of joint survey or inspection. In any event the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought withinone year
after delivery of the goods or the date when the goods should have been delivered: Provided,
That if a notice of loss or damage, either apparent or concealed, is not given as provided for in
this section, that fact shall not affect or prejudice the right of the shipper to bring suit within
one year after the delivery of the goods or the date when the goods should have been
delivered.
It was further ruled in Asian Terminals that pursuant to the foregoing COGSA prov:sion, failure
to comply with the notice requirement shall not affect or prejudice the right of the shipper to
bring suit within one year after delivery of the goods.

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

The amount which PHILAM is entitled to receive shall earn a legal interest at the rate of six
percent (6%) per annum from the date of finality of this judgment until its full satisfaction
pursuant to Nacar v. Gallery Frames.49
WHEREFORE, all the foregoing considered, the Decision dated January 30, 2009 of the Court
of Appeals in CA-G.R. CV No. 89482 is hereby AFFlHMED with MODIFICATION in that the
interest rate on the award of US$8,500.00 shall be six percent (6%) per annum from the date
of finality of this judgment until fully paid.
SO ORDERED.
CARRIAGE OF GOODS BY SEA ACT
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 attorney’s 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,
attorney’s 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 ESLI’s 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-03-1228-NT/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 Steel’s 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 ESLI’s
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. KJGE-04-1327-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, ESLI’s 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 ATI’s 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
the arrastreoperator 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 ESLI’s 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 cross-claim 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 Mediator’s 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 Lading14 covering the two shipments,
Invoices,15 Notices of Loss of Calamba Steel,16 Subrogation Form,17 Insurance 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, Secretary’s 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. Attorney’s 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 ATI’s 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 attorney’s 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 ATI’s 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 attorney’s 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 issue42 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, the arrastre 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 Mitsui’s 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 consignees’s warehouse. During the aforesaid operations, the employees and forklift
operators of [ESLI] and [ATI] were very negligent in the handling of the subject cargoes.
x x x x
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
consignees’s 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 ATI’s 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 ATI’s 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. 6836355 and 6836556 both dated 24 May 2004 signed by ESLI’s representatives,
a certain Tabanao and Rodrigo together with ATI’s 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 ATI’s 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. 5865859 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 court’s finding and reasoning that the package limitation
under the COGSA62 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.”63 ESLI argues that the value of the cargoes was not
incorporated in the bills of lading64 and that there was no evidence that the shipper had
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 carrier’s 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 Carrier’s 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.71
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 Lading78 together 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/KE380dated 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.81
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,83this 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:
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 ESLI’s 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.
SO ORDERED.
CONSTITUTIONALITY OF AIR TRANSPORTATION
G.R. No. 101538 June 23, 1992
AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian,
Augusto Benedicto Santos, petitioner, vs.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.
CRUZ, J.:
This case involves the Proper interpretation of Article 28(1) of the Warsaw Convention,
reading as follows:
Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in the
territory of one of the High Contracting Parties, either before the court of the domicile of
the carrier or of his principal place of business, or where he has a place of business through
which the contract has been made, or before the court at the place of destination.
The petitioner is a minor and a resident of the Philippines. Private respondent Northwest
Orient Airlines (NOA) is a foreign corporation with principal office in Minnesota, U.S.A.
and licensed to do business and maintain a branch office in the Philippines.
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San
Francisco. U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The
scheduled departure date from Tokyo was December 20, 1986. No date was specified for
his return to San Francisco. 1
On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco
airport for his scheduled departure to Manila. Despite a previous confirmation and re-
confirmation, he was informed that he had no reservation for his flight from Tokyo to
Manila. He therefore had to be wait-listed.
On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of
Makati. On April 13, 1987, NOA moved to dismiss the complaint on the ground of lack of
jurisdiction. Citing the above-quoted article, it contended that the complaint could be
instituted only in the territory of one of the High Contracting Parties, before:
1. the court of the domicile of the carrier;
2. the court of its principal place of business;
3. the court where it has a place of business through which the contract had been made;
4. the court of the place of destination.
The private respondent contended that the Philippines was not its domicile nor was this
its principal place of business. Neither was the petitioner's ticket issued in this country nor
was his destination Manila but San Francisco in the United States.
On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The
petitioner appealed to the Court of Appeals, which affirmed the decision of the lower
court. 3 On June 26, 1991, the petitioner filed a motion for reconsideration, but the same
was denied. 4 The petitioner then came to this Court, raising substantially the same issues
it submitted in the Court of Appeals.
The assignment of errors may be grouped into two major issues, viz:
(1) the constitutionality of Article 28(1) of the Warsaw Convention; and
(2) the jurisdiction of Philippine courts over the case.
The petitioner also invokes Article 24 of the Civil Code on the protection of minors.
THE ISSUE OF CONSTITUTIONALITY
A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of
the Warsaw Convention violates the constitutional guarantees of due process
and equal protection.
The Republic of the Philippines is a party to the Convention for the Unification of Certain
Rules Relating to International Transportation by Air, otherwise known as the Warsaw
Convention. It took effect on February 13, 1933. The Convention was concurred in by the
Senate, through its Resolution No. 19, on May 16, 1950. The Philippine instrument of
accession was signed by President Elpidio Quirino on October 13, 1950, and was deposited
with the Polish government on November 9, 1950. The Convention became applicable to
the Philippines on February 9, 1951. On September 23, 1955, President Ramon Magsaysay
issued Proclamation No. 201, declaring our formal adherence thereto. "to the end that
the same and every article and clause thereof may be observed and fulfilled in good faith
by the Republic of the Philippines and the citizens thereof." 5
The Convention is thus a treaty commitment voluntarily assumed by the Philippine
government and, as such, has the force and effect of law in this country.
The petitioner contends that Article 28(1) cannot be applied in the present case because
it is unconstitutional. He argues that there is no substantial distinction between a person
who purchases a ticket in Manila and a person who purchases his ticket in San Francisco.
The classification of the places in which actions for damages may be brought is arbitrary
and irrational and thus violates the due process and equal protection clauses.
It is well-settled that courts will assume jurisdiction over a constitutional question only if
it is shown that the essential requisites of a judicial inquiry into such a question are first
satisfied. Thus, there must be an actual case or controversy involving a conflict of legal
rights susceptible of judicial determination; the constitutional question must have been
opportunely raised by the proper party; and the resolution of the question is unavoidably
necessary to the decision of the case itself. 6
Courts generally avoid having to decide a constitutional question. This attitude is based
on the doctrine of separation of powers, which enjoins upon the departments of the
government a becoming respect for each other's acts.
The treaty which is the subject matter of this petition was a joint legislative-executive act.
The presumption is that it was first carefully studied and determined to be constitutional
before it was adopted and given the force of law in this country.
The petitioner's allegations are not convincing enough to overcome this presumption.
Apparently, the Convention considered the four places designated in Article 28 the most
convenient forums for the litigation of any claim that may arise between the airline and
its passenger, as distinguished from all other places. At any rate, we agree with the
respondent court that this case can be decided on other grounds without the necessity of
resolving the constitutional issue.
B. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the
Warsaw Convention is inapplicable because of a fundamental change in the circumstances
that served as its basis.
The petitioner goes at great lengths to show that the provisions in the Convention were
intended to protect airline companies under "the conditions prevailing then and which
have long ceased to exist." He argues that in view of the significant developments in the
airline industry through the years, the treaty has become irrelevant. Hence, to the extent
that it has lost its basis for approval, it has become unconstitutional.
The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this
doctrine constitutes an attempt to formulate a legal principle which would justify non-
performance of a treaty obligation if the conditions with relation to which the parties
contracted have changed so materially and so unexpectedly as to create a situation in
which the exaction of performance would be unreasonable." 7 The key element of this
doctrine is the vital change in the condition of the contracting parties that they could not
have foreseen at the time the treaty was concluded.
The Court notes in this connection the following observation made in Day v. Trans World
Airlines, Inc.: 8
The Warsaw drafters wished to create a system of liability rules that would cover all the
hazards of air travel . . . The Warsaw delegates knew that, in the years to come, civil
aviation would change in ways that they could not foresee. They wished to design a
system of air law that would be both durable and flexible enough to keep pace with these
changes . . . The ever-changing needs of the system of civil aviation can be served within
the framework they created.
It is true that at the time the Warsaw Convention was drafted, the airline industry was still
in its infancy. However, that circumstance alone is not sufficient justification for the
rejection of the treaty at this time. The changes recited by the petitioner were,
realistically, not entirely unforeseen although they were expected in a general sense only.
In fact, the Convention itself, anticipating such developments, contains the following
significant provision:
Article 41. Any High Contracting Party shall be entitled not earlier than two years after the
coming into force of this convention to call for the assembling of a new international
conference in order to consider any improvements which may be made in this convention.
To this end, it will communicate with the Government of the French Republic which will
take the necessary measures to make preparations for such conference.
But the more important consideration is that the treaty has not been rejected by the
Philippine government. The doctrine of rebus sic stantibus does not operate automatically
to render the treaty inoperative. There is a necessity for a formal act of rejection, usually
made by the head of State, with a statement of the reasons why compliance with the
treaty is no longer required.
In lieu thereof, the treaty may be denounced even without an expressed justification for
this action. Such denunciation is authorized under its Article 39, viz:
Article 39. (1) Any one of the High Contracting Parties may denounce this convention by
a notification addressed to the Government of the Republic of Poland, which shall at once
inform the Government of each of the High Contracting Parties. (2) Denunciation shall
take effect six months after the notification of denunciation, and shall operate only as
regards the party which shall have proceeded to denunciation.
Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or
pursuant to Article 39, is not a function of the courts but of the other branches of
government. This is a political act. The conclusion and renunciation of treaties is the
prerogative of the political departments and may not be usurped by the judiciary. The
courts are concerned only with the interpretation and application of laws and treaties in
force and not with their wisdom or efficacy.
B. The petitioner claims that the lower court erred in ruling that the plaintiff must
sue in the United States, because this would deny him the right to access to our
courts.
The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the
United States would constitute a constructive denial of his right to access to our courts
for the protection of his rights. He would consequently be deprived of this vital guaranty
as embodied in the Bill of Rights.
Obviously, the constitutional guaranty of access to courts refers only to courts with
appropriate jurisdiction as defined by law. It does not mean that a person can go
to any court for redress of his grievances regardless of the nature or value of his claim. If
the petitioner is barred from filing his complaint before our courts, it is because they are
not vested with the appropriate jurisdiction under the Warsaw Convention, which is part
of the law of our land.
THE ISSUE OF JURISDICTION.
A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the
Warsaw Convention is a rule merely of venue and was waived by defendant when it did
not move to dismiss on the ground of improper venue.
By its own terms, the Convention applies to all international transportation of persons
performed by aircraft for hire.
International transportation is defined in paragraph (2) of Article 1 as follows: (2) For the
purposes of this convention, the expression "international transportation" shall mean any
transportation in which, according to the contract made by the parties, the place of
departure and the place of destination, whether or not there be a break in the
transportation or a transshipment, are situated [either] within the territories of two High
Contracting Parties . . .
Whether the transportation is "international" is determined by the contract of the parties,
which in the case of passengers is the ticket. When the contract of carriage provides for
the transportation of the passenger between certain designated terminals "within the
territories of two High Contracting Parties," the provisions of the Convention
automatically apply and exclusively govern the rights and liabilities of the airline and its
passenger.
Since the flight involved in the case at bar is international, the same being from the United
States to the Philippines and back to the United States, it is subject to the provisions of
the Warsaw Convention, including Article 28(1), which enumerates the four places where
an action for damages may be brought.
Whether Article 28(1) refers to jurisdiction or only to venue is a question over which
authorities are sharply divided. While the petitioner cites several cases holding that Article
28(1) refers to venue rather than jurisdiction, 9 there are later cases cited by the private
respondent supporting the conclusion that the provision is jurisdictional. 10
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by
consent or waiver upon d court which otherwise would have no jurisdiction over the
subject-matter of an action; but the venue of an action as fixed by statute may be changed
by the consent of the parties and an objection that the plaintiff brought his suit in the
wrong county may be waived by the failure of the defendant to make a timely objection.
In either case, the court may render a valid judgment. Rules as to jurisdiction can never
be left to the consent or agreement of the parties, whether or not a prohibition exists
against their alteration. 11
A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction
and not a venue provision. First, the wording of Article 32, which indicates the places
where the action for damages "must" be brought, underscores the mandatory nature of
Article 28(1). Second, this characterization is consistent with one of the objectives of the
Convention, which is to "regulate in a uniform manner the conditions of international
transportation by air." Third, the Convention does not contain any provision prescribing
rules of jurisdiction other than Article 28(1), which means that the phrase "rules as to
jurisdiction" used in Article 32 must refer only to Article 28(1). In fact, the last sentence of
Article 32 specifically deals with the exclusive enumeration in Article 28(1) as
"jurisdictions," which, as such, cannot be left to the will of the parties regardless of the
time when the damage occurred.
This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways,
Ltd., 12 where it was held:
. . . Of more, but still incomplete, assistance is the wording of Article 28(2), especially when
considered in the light of Article 32. Article 28(2) provides that "questions
of procedure shall be governed by the law of the court to which the case is submitted"
(Emphasis supplied). Section (2) thus may be read to leave for domestic decision questions
regarding the suitability and location of a particular Warsaw Convention case.
In other words, where the matter is governed by the Warsaw Convention, jurisdiction
takes on a dual concept. Jurisdiction in the international sense must be established in
accordance with Article 28(1) of the Warsaw Convention, following which the jurisdiction
of a particular court must be established pursuant to the applicable domestic law. Only
after the question of which court has jurisdiction is determined will the issue of venue be
taken up. This second question shall be governed by the law of the court to which the case
is submitted.
The petitioner submits that since Article 32 states that the parties are precluded "before
the damages occurred" from amending the rules of Article 28(1) as to the place where the
action may be brought, it would follow that the Warsaw Convention was not intended to
preclude them from doing so "after the damages occurred."
Article 32 provides:
Art. 32. Any clause contained in the contract and all special agreements entered into
before the damage occurred by which the parties purport to infringe the rules laid down
by this convention, whether by deciding the law to be applied, or by altering the rules as
to jurisdiction, shall be null and void. Nevertheless for the transportation of goods,
arbitration clauses shall be allowed, subject to this convention, if the arbitration is to take
place within one of the jurisdictions referred to in the first paragraph of Article 28.
His point is that since the requirements of Article 28(1) can be waived "after the damages
(shall have) occurred," the article should be regarded as possessing the character of a
"venue" and not of a "jurisdiction" provision. Hence, in moving to dismiss on the ground
of lack of jurisdiction, the private respondent has waived improper venue as a ground to
dismiss.
The foregoing examination of Article 28(1) in relation to Article 32 does not support this
conclusion. In any event, we agree that even granting arguendo that Article 28(1) is a
venue and not a jurisdictional provision, dismissal of the case was still in order. The
respondent court was correct in affirming the ruling of the trial court on this matter, thus:
Santos' claim that NOA waived venue as a ground of its motion to dismiss is not correct.
True it is that NOA averred in its MOTION TO DISMISS that the ground thereof is "the
Court has no subject matter jurisdiction to entertain the Complaint" which SANTOS
considers as equivalent to "lack of jurisdiction over the subject matter . . ." However, the
gist of NOA's argument in its motion is that the Philippines is not the proper place where
SANTOS could file the action — meaning that the venue of the action is improperly laid.
Even assuming then that the specified ground of the motion is erroneous, the fact is the
proper ground of the motion — improper venue — has been discussed therein.
Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-
waiver if there are special circumstances justifying this conclusion, as in the petition at
bar. As we observed in Javier vs. Intermediate Court of Appeals: 13
Legally, of course, the lack of proper venue was deemed waived by the petitioners when
they failed to invoke it in their original motion to dismiss. Even so, the motivation of the
private respondent should have been taken into account by both the trial judge and the
respondent court in arriving at their decisions.
The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of
Appeals, where it was held that Article 28(1) is a venue provision. However, the private
respondent avers that this was in effect reversed by the case of Aranas v. United
Airlines, 15 where the same court held that Article 28(1) is a jurisdictional provision.
Neither of these cases is binding on this Court, of course, nor was either of them appealed
to us. Nevertheless, we here express our own preference for the later case of Aranas
insofar as its pronouncements on jurisdiction conform to the judgment we now make in
this petition.
C. The petitioner claims that the lower court erred in not ruling that under Article
28(1) of the Warsaw Convention, this case was properly filed in the Philippines,
because Manila was the destination of the plaintiff.
The Petitioner contends that the facts of this case are analogous to those in Aanestad v.
Air Canada. 16 In that case, Mrs. Silverberg purchased a round-trip ticket from Montreal
to Los Angeles and back to Montreal. The date and time of departure were specified but
not of the return flight. The plane crashed while on route from Montreal to Los Angeles,
killing Mrs. Silverberg. Her administratrix filed an action for damages against Air Canada
in the U.S. District Court of California. The defendant moved to dismiss for lack of
jurisdiction but the motion was denied thus:
. . . It is evident that the contract entered into between Air Canada and Mrs. Silverberg as
evidenced by the ticket booklets and the Flight Coupon No. 1, was a contract for Air
Canada to carry Mrs. Silverberg to Los Angeles on a certain flight, a certain time and a
certain class, but that the time for her to return remained completely in her power.
Coupon No. 2 was only a continuing offer by Air Canada to give her a ticket to return to
Montreal between certain dates. . . .
The only conclusion that can be reached then, is that "the place of destination" as used in
the Warsaw Convention is considered by both the Canadian C.T.C. and the United States
C.A.B. to describe at least two "places of destination," viz., the "place of destination" of
a particular flight either an "outward destination" from the "point of origin" or from the
"outward point of destination" to any place in Canada.
Thus the place of destination under Art. 28 and Art. 1 of the Warsaw Convention of the
flight on which Mrs. Silverberg was killed, was Los Angeles according to the ticket, which
was the contract between the parties and the suit is properly filed in this Court which has
jurisdiction.
The Petitioner avers that the present case falls squarely under the above ruling because
the date and time of his return flight to San Francisco were, as in the Aanestad case, also
left open. Consequently, Manila and not San Francisco should be considered the
petitioner's destination.
The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where
the United States District Court (Eastern District of Pennsylvania) said:
. . . Although the authorities which addressed this precise issue are not extensive, both
the cases and the commentators are almost unanimous in concluding that the "place of
destination" referred to in the Warsaw Convention "in a trip consisting of several parts . .
. is the ultimate destination that is accorded treaty jurisdiction." . . .
But apart from that distinguishing feature, I cannot agree
with the Court's analysis in Aanestad; whether the return portion of the ticket is
characterized as an option or a contract, the carrier was legally bound to transport the
passenger back to the place of origin within the prescribed time and. the passenger for
her part agreed to pay the fare and, in fact, did pay the fare. Thus there was mutuality of
obligation and a binding contract of carriage, The fact that the passenger could forego her
rights under the contract does not make it any less a binding contract. Certainly, if the
parties did not contemplate the return leg of the journey, the passenger would not have
paid for it and the carrier would not have issued a round trip ticket.
We agree with the latter case. The place of destination, within the meaning of the Warsaw
Convention, is determined by the terms of the contract of carriage or, specifically in this
case, the ticket between the passenger and the carrier. Examination of the petitioner's
ticket shows that his ultimate destination is San Francisco. Although the date of the return
flight was left open, the contract of carriage between the parties indicates that NOA was
bound to transport the petitioner to San Francisco from Manila. Manila should therefore
be considered merely an agreed stopping place and not the destination.
The petitioner submits that the Butz case could not have overruled the Aanestad case
because these decisions are from different jurisdictions. But that is neither here nor there.
In fact, neither of these cases is controlling on this Court. If we have preferred the Butz
case, it is because, exercising our own freedom of choice, we have decided that it
represents the better, and correct, interpretation of Article 28(1).
Article 1(2) also draws a distinction between a "destination" and an "agreed stopping
place." It is the "destination" and not an "agreed stopping place" that controls for
purposes of ascertaining jurisdiction under the Convention.
The contract is a single undivided operation, beginning with the place of departure and
ending with the ultimate destination. The use of the singular in this expression indicates
the understanding of the parties to the Convention that every contract of carriage has one
place of departure and one place of destination. An intermediate place where the carriage
may be broken is not regarded as a "place of destination."
D. The petitioner claims that the lower court erred in not ruling that under Art. 28(1)
of the Warsaw Convention, this case was properly filed in the Philippines because
the defendant has its domicile in the Philippines.
The petitioner argues that the Warsaw Convention was originally written in French and
that in interpreting its provisions, American courts have taken the broad view that the
French legal meaning must govern. 18 In French, he says, the "domicile" of the carrier
means every place where it has a branch office.
The private respondent notes, however, that in Compagnie Nationale Air France vs.
Giliberto, 19 it was held:
The plaintiffs' first contention is that Air France is domiciled in the United States. They say
that the domicile of a corporation includes any country where the airline carries on its
business on "a regular and substantial basis," and that the United States qualifies under
such definition. The meaning of domicile cannot, however, be so extended. The domicile
of a corporation is customarily regarded as the place where it is incorporated, and the
courts have given the meaning to the term as it is used in article 28(1) of the Convention.
(See Smith v. Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452 F2d 798, 802; Nudo v.
Societe Anonyme Belge d' Exploitation de la Navigation Aerienne Sabena Belgian World
Airlines (E.D. pa. 1962). 207 F. Supp, 191; Karfunkel v. Compagnie Nationale Air France
(S.D.N.Y. 1977), 427 F. Suppl. 971, 974). Moreover, the structure of article 28(1), viewed
as a whole, is also incompatible with the plaintiffs' claim. The article, in stating that places
of business are among the bases of the jurisdiction, sets out two places where an action
for damages may be brought; the country where the carrier's principal place of business
is located, and the country in which it has a place of business through which the particular
contract in question was made, that is, where the ticket was bought, Adopting the
plaintiffs' theory would at a minimum blur these carefully drawn distinctions by creating
a third intermediate category. It would obviously introduce uncertainty into litigation
under the article because of the necessity of having to determine, and without standards
or criteria, whether the amount of business done by a carrier in a particular country was
"regular" and "substantial." The plaintiff's request to adopt this basis of jurisdiction is in
effect a request to create a new jurisdictional standard for the Convention.
Furthermore, it was argued in another case 20 that:
. . . In arriving at an interpretation of a treaty whose sole official language is French, are
we bound to apply French law? . . . We think this question and the underlying choice of
law issue warrant some discussion
. . . We do not think this statement can be regarded as a conclusion that internal French
law is to be "applied" in the choice of law sense, to determine the meaning and scope of
the Convention's terms. Of course, French legal usage must be considered in arriving at
an accurate English translation of the French. But when an accurate English translation is
made and agreed upon, as here, the inquiry into meaning does not then revert to a quest
for a past or present French law to be "applied" for revelation of the proper scope of the
terms. It does not follow from the fact that the treaty is written in French that in
interpreting it, we are forever chained to French law, either as it existed when the treaty
was written or in its present state of development. There is no suggestion in the treaty
that French law was intended to govern the meaning of Warsaw's terms, nor have we
found any indication to this effect in its legislative history or from our study of its
application and interpretation by other courts. Indeed, analysis of the cases indicates that
the courts, in interpreting and applying the Warsaw Convention, have, not considered
themselves bound to apply French law simply because the Convention is written in
French. . . .
We agree with these rulings.
Notably, the domicile of the carrier is only one of the places where the complaint is
allowed to be filed under Article 28(1). By specifying the three other places, to wit, the
principal place of business of the carrier, its place of business where the contract was
made, and the place of destination, the article clearly meant that these three other places
were not comprehended in the term "domicile."
D. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the
Warsaw Convention does not apply to actions based on tort.
The petitioner alleges that the gravamen of the complaint is that private respondent acted
arbitrarily and in bad faith, discriminated against the petitioner, and committed a willful
misconduct because it canceled his confirmed reservation and gave his reserved seat to
someone who had no better right to it. In short. the private respondent committed a tort.
Such allegation, he submits, removes the present case from the coverage of the Warsaw
Convention. He argues that in at least two American cases, 21 it was held that Article 28(1)
of the Warsaw Convention does not apply if the action is based on tort.
This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article
in question was interpreted thus:
. . . Assuming for the present that plaintiff's claim is "covered" by Article 17, Article 24
clearly excludes any relief not provided for in the Convention as modified by the
Montreal Agreement. It does not, however, limit the kind of cause of action on which
the relief may be founded; rather it provides that any action based on the injuries
specified in Article 17 "however founded," i.e., regardless of the type of action on which
relief is founded, can only be brought subject to the conditions and limitations
established by the Warsaw System. Presumably, the reason for the use of the phrase
"however founded," in two-fold: to accommodate all of the multifarious bases on which
a claim might be founded in different countries, whether under code law or common
law, whether under contract or tort, etc.; and to include all bases on which a claim
seeking relief for an injury might be founded in any one country. In other words, if the
injury occurs as described in Article 17, any relief available is subject to the conditions
and limitations established by the Warsaw System, regardless of the particular cause of
action which forms the basis on which a plaintiff could seek
relief . . .
The private respondent correctly contends that the allegation of willful misconduct
resulting in a tort is insufficient to exclude the case from the comprehension of the
Warsaw Convention. The petitioner has apparently misconstrued the import of Article
25(l) of the Convention, which reads as follows:
Art. 25 (1). The carrier shall not be entitled to avail himself of the provisions of this
Convention which exclude or limit his liability. if the damage is caused by his willful
misconduct or by such default on his part as, in accordance with the law of the court to
which the case is submitted, is considered to be equivalent to willful misconduct.
It is understood under this article that the court called upon to determine the applicability
of the limitation provision must first be vested with the appropriate jurisdiction. Article
28(1) is the provision in the Convention which defines that jurisdiction. Article
22 23 merely fixes the monetary ceiling for the liability of the carrier in cases covered by
the Convention. If the carrier is indeed guilty of willful misconduct, it can avail itself of the
limitations set forth in this article. But this can be done only if the action has first been
commenced properly under the rules on jurisdiction set forth in Article 28(1).
grant him the relief he seeks because we are limited by the provisions of the Warsaw
Convention which continues to bind us. It may not be amiss to observe at this point that
the mere fact that he will have to litigate in the American courts does not necessarily
mean he will litigate in vain. The judicial system of that country in known for its sense of
fairness and, generally, its strict adherence to the rule of law.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.

THE ISSUE OF PROTECTION TO MINORS

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

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

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

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

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

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

The Court can only sympathize with the petitioner, who must prosecute his claims in the
United States rather than in his own country at least inconvenience. But we are unable to
LIABILITIES UNDER THE CONVENTION
G.R. No. L-22425 August 31, 1965
NORTHWEST AIRLINES, INC., petitioner, vs. NICOLAS L. CUENCA and COURT OF APPEALS
(SPECIAL SIXTH DIVISION), respondents.
CONCEPCION, J.:
This is an action for damages for alleged breach of contract. After appropriate proceedings the
Court of First Instance of Manila, in which the case was originally filed, rendered judgment
sentencing defendant Northwest Airlines, Inc. — hereinafter referred to as petitioner — to pay
to plaintiff Cuenca — hereinafter referred to as respondent — the sum of P20,000 as moral
damages, together with the sum of P5,000 as exemplary damages, with legal interest thereon
from the date of the filing of complaint," December 12, 1959, "until fully paid, plus the further
sum of P2,000 as attorney's fees and expenses of litigation." On appeal taken by petitioner,
said decision was affirmed by the Court of Appeals, except as to the P5,000.00 exemplary
damages, which was eliminated, and the P20,000.00 award for moral damages, which was
converted into nominal damages. The case is now before us on petition for review
by certiorari filed by petitioner, upon the ground that the lower court has erred: (1) in holding
that the Warsaw Convention of October 12, 1929, relative to transportation by air is not in
force in the Philippines; (2) in not holding that respondent has no cause of action; and (3) in
awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the first assignment of error because the same is the
basis of the second assignment of error, and the latter is devoid of merit, even if we assumed
the former to be well-taken. Indeed the second assignment of error is predicated upon Articles
17, 18 and 19 of said Convention, reading:
ART. 17. The carrier shall be liable for damages sustained in the event of the death or wounding
of a passenger or any other bodily injury suffered by a passenger, if the accident which caused
the damage so sustained took place on board the aircraft or in the course of any of the
operations of embarking or disembarking.
ART. 18. (1) The carrier shall be liable for damage sustained in the event of the destruction or
loss of, or of damage to, any checked baggage, or any goods, if the occurrence which caused
the damage so sustained took place during the transportation by air.
(2) The transportation by air within the meaning of the preceding paragraph shall comprise
the period during which the baggage or goods are in charge of the carrier, whether in an airport
or on board an aircraft, or, in the case of a landing outside an airport, in any place whatsoever.
(3) The period of the transportation by air shall not extend to any transportation by land, by
sea, or by river performed outside an airport. If, however, such transportation takes place in
the performance of a contract for transportation by air, for the purpose of loading, delivery,
or transhipment, any damage is presumed, subject to proof to the contrary, to have been the
result of an event which took place during the transportation by air.
ART. 19. The carrier shall be liable for damage occasioned by delay in the transportation by air
of passengers, baggage, or goods.
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event
of death of a passenger or injury suffered by him, or of destruction or loss of, or damage to
any checked baggage or any goods, or of delay in the transportation by air of passengers,
baggage or goods. This pretense is not borne out by the language of said Articles. The same
merely declare the carrier liable for damages in the enumerated cases, if the conditions therein
specified are present. Neither said provisions nor others in the aforementioned Convention
regulate or exclude liability for other breaches of contract by the carrier. Under petitioner's
theory, an air carrier would be exempt from any liability for damages in the event of its
absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd.
The third assignment of error is based upon Medina vs. Cresencia (52 Off. Gaz. 4606),
and Quijano vs. Philippine Air Lines (CA-G.R. No. 21804-R). Neither case is, however, in point,
aside from the fact that the latter is not controlling upon us. In the first case, this Court
eliminated a P10,000 award for nominal damages, because the aggrieved party had already
been awarded P6,000 as compensatory damages, P30,000 as moral damages and P10,000 as
exemplary damages, and "nominal damages cannot co-exist with compensatory damages." In
the case at bar, the Court of Appeals has adjudicated no such compensatory, moral and
exemplary damages to respondent herein.
Moreover, there are special reasons why the P20,000.00 award in favor of respondent herein
is justified, even if said award were characterized as nominal damages. When his contract of
carriage was violated by the petitioner, respondent held the office of Commissioner of Public
Highways of the Republic of the Philippines. Having boarded petitioner's plane in Manila with
a first class ticket to Tokyo, he was, upon arrival at Okinawa, transferred to the tourist class
compartment. Although he revealed that he was traveling in his official capacity as official
delegate of the Republic to a conference in Tokyo, an agent of petitioner rudely compelled him
in the presence of other passengers to move, over his objection, to the tourist class, under
threat of otherwise leaving him in Okinawa. In order to reach the conference on time,
respondent had no choice but to obey.
It is true that said ticket was marked "W/L," but respondent's attention was not called thereto.
Much less was he advised that "W/L" meant "wait listed." Upon the other hand, having paid
the first class fare in full and having been given first class accommodation as he took
petitioner's plane in Manila, respondent was entitled to believe that this was a confirmation
of his first class reservation and that he would keep the same until his ultimate destination,
Tokyo. Then, too, petitioner has not tried to explain or even alleged that the person to whom
respondent's first class seat was given had a better right thereto. In other words, since the
offense had been committed with full knowledge of the fact that respondent was an official
representative of the Republic of the Philippines, the sum of P20,000 awarded as damages
may well be considered as merely nominal. At any rate, considering that petitioner's agent had
acted in a wanton, reckless and oppressive manner, said award may also be considered as one
for exemplary damages.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against the petitioner.
It is so ordered.
LIABILITIES UNDER THE CONVENTION
[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. : AND
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.
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:
"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:
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.
4. As regards objects of which the passenger takes charge himself the liability of the
carrier is limited to 5000 francs per passenger.
5.
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.
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.
SO ORDERED.
LIMITATIONS ON LIABILITY
G.R. No. 70462 August 11, 1988
PAN AMERICAN WORLD AIRWAYS, INC., petitioner,
vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS
and ARCHER PRODUCTIONS, respondents.
Guerrero & Torres for petitioner.
Jose B. Layug for private respondents.
CORTES, J.:
Before the Court is a petition filed by an international air carrier seeking to limit its liability
for lost baggage, containing promotional and advertising materials for films to be
exhibited in Guam and the U.S.A., clutch bags, barong tagalogs and personal belongings,
to the amount specified in the airline ticket absent a declaration of a higher valuation and
the payment of additional charges.
The undisputed facts of the case, as found by the trial court and adopted by the appellate
court, are as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the
plaintiffs Sotang Bastos and Archer Production while in San Francisco, Califonia and Primo
Quesada of Prime Films, San Francisco, California, entered into an agreement (Exh. A)
whereby the former, for and in consideration of the amount of US $2,500.00 per picture,
bound himself to supply the latter with three films. 'Ang Mabait, Masungit at ang Pangit,'
'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United
States. It was also their agreement that plaintiffs would provide the necessary
promotional and advertising materials for said films on or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted
Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan likewise entered into a
verbal agreement with Slutchnick for the exhibition of two of the films above-mentioned
at the Hafa Adai Theater in Guam on May 30, 1978 for the consideration of P7,000.00 per
picture (p. 11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide the necessary
promotional and advertising materials for said films on or before the exhibition date on
May 30,1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the
requisite promotional handbills and still pictures for which he paid the total sum of
P12,900.00 (Exhs. B, B-1, C and C1). Likewise in preparation for his trip abroad to comply
with his contracts, plaintiff Pangan purchased fourteen clutch bags, four capiz lamps and
four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office,
through the Your Travel Guide, an economy class airplane ticket with No. 0269207406324
(Exh. G) for passage from Manila to Guam on defendant's Flight No. 842 of May 27,1978,
upon payment by said plaintiff of the regular fare. The Your Travel Guide is a tour and
travel office owned and managed by plaintiffs witness Mila de la Rama.
On May 27, 1978, two hours before departure time plaintiff Pangan was at the
defendant's ticket counter at the Manila International Airport and presented his ticket
and checked in his two luggages, for which he was given baggage claim tickets Nos.
963633 and 963649 (Exhs. H and H-1). The two luggages contained the promotional and
advertising materials, the clutch bags, barong tagalog and his personal belongings.
Subsequently, Pangan was informed that his name was not in the manifest and so he
could not take Flight No. 842 in the economy class. Since there was no space in the
economy class, plaintiff Pangan took the first class because he wanted to be on time in
Guam to comply with his commitment, paying an additional sum of $112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did
not arrive with his flight, as a consequence of which his agreements with Slutchnick and
Quesada for the exhibition of the films in Guam and in the United States were cancelled
(Exh. L). Thereafter, he filed a written claim (Exh. J) for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary
representations to protest as to the treatment which he received from the employees of
the defendant and the loss of his two luggages (Exh. M, O, Q, S, and T). Defendant Pan Am
assured plaintiff Pangan that his grievances would be investigated and given its immediate
consideration (Exhs. N, P and R). Due to the defendant's failure to communicate with
Pangan about the action taken on his protests, the present complaint was filed by the
plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and rendered
judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum
of P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum
from December 6, 1978, when the complaint was filed, until the same is fully paid, plus
the further sum of P10,000.00 as attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan
the sum of P8,123.34, for additional actual damages, with interest thereon at the rate of
14% per annum from December 6, 1978, until the same is fully paid;
(3) Dismissing the counterclaim interposed by defendant Pan American World Airways,
Inc.; and
(4) Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo,
pp. 106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their respective
memoranda. In due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the
following errors:
1. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages beyond the limitation of liability set forth in the Warsaw Convention and
the contract of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages consisting of alleged lost profits in the face of this Court's ruling
concerning special or consequential damages as set forth in Mendoza v.
Philippine Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim
1. The airline ticket (Exh. "G') contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other than
the country of departure the Warsaw Convention may be applicable and the Convention
governs and in most cases limits the liability of carriers for death or personal injury and in
respect of loss of or damage to baggage. See also notice headed "Advice to International
Passengers on Limitation of Liability.
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and baggage check of which
these conditions and the notices form part, "carriage" is equivalent to "transportation,"
"carrier" means all air carriers that carry or undertake to carry the passenger or his
baggage hereunder or perform any other service incidental to such air carriage.
"WARSAW CONVENTION" means the convention for the Unification of Certain Rules
Relating to International Carriage by Air signed at Warsaw, 12th October 1929, or that
Convention as amended at The Hague, 28th September 1955, whichever may be
applicable.
2. Carriage hereunder is subject to the rules and limitations relating to liability established
by the Warsaw Convention unless such carriage is not "international carriage" as defined
by that Convention.
3. To the extent not in conflict with the foregoing carriage and other services performed
by each carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs,
(iii) carrier's conditions of carriage and related regulations which are made part hereof
(and are available on application at the offices of carrier), except in transportation
between a place in the United States or Canada and any place outside thereof to which
tariffs in force in those countries apply.
xxx xxx xxx
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is
declared in advance and additional charges are paid: (1)for most international travel
(including domestic portions of international journeys) to approximately $9.07 per pound
($20.00 per kilo) for checked baggage and $400 per passenger for unchecked baggage: (2)
for travel wholly between U.S. points, to $750 per passenger on most carriers (a few have
lower limits). Excess valuation may not be declared on certain types of valuable articles.
Carriers assume no liability for fragile or perishable articles. Further information may be
obtained from the carrier. [Emphasis supplied.].
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner
contends that its liability for the lost baggage of private respondent Pangan is limited to
$600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for his baggage and
pay the corresponding additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R.
No. L-40597, June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a
printed stipulation at the back of an airline ticket limiting the liability of the carrier for lost
baggage to a specified amount and ruled that the carrier's liability was limited to said
amount since the passenger did not declare a higher value, much less pay additional
charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the
Court, through Justice Melencio Herrera, stated:
Petitioner further contends that respondent Court committed grave error when it limited
PAL's carriage liability to the amount of P100.00 as stipulated at the back of the ticket....
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the
back of the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damage baggage of the
passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher
valuation in excess of P100.00, but not in excess, however, of a total valuation of Pl,000.00
and additional charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much
less (lid he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually
entered into a contract with PAL limiting the latter's liability for loss or delay of the
baggage of its passengers, and that Article 1750 * of the Civil Code has not been complied
with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be a
part of the contract of carriage, and valid and binding upon the passenger regardless of
the latter's lack of knowledge or assent to the regulation." [Tannebaum v. National Airline,
Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691;
Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of
"adhesion," in regards which it has been said that contracts of adhesion wherein one party
imposes a ready made form of contract on the other, as the plane ticket in the case at bar,
are contracts not entirely prohibited. The one who adheres to the contract is in reality
free to reject it entirely; if he adheres, he gives his consent,[Tolentino, Civil Code, Vol. IV,
1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And
as held in Randolph v. American Airlines, 103 Ohio App. 172,144 N.E. 2d 878; Rosenchein
v. Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract limiting liability upon an agreed
valuation does not offend against the policy of the law forbidding one from contracting
against his own negligence."
Considering, therefore, that petitioner had failed to declare a higher value for his baggage,
he cannot be permitted a recovery in excess of P100.00....
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099,
July 2, 1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's
liability to a specified amount was invalid, finds no application in the instant case, as the
ruling in said case was premised on the finding that the conditions printed at the back of
the ticket were so small and hard to read that they would not warrant the presumption
that the passenger was aware of the conditions and that he had freely and fairly agreed
thereto. In the instant case, similar facts that would make the case fall under the exception
have not been alleged, much less shown to exist.
In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or
$600.00, as stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to
state that the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v.
Cuenca [G.R. No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to
apply the Warsaw Convention which limits a carrier's liability to US$9.07 per pound or
US$20.00 per kilo in cases of contractual breach of carriage ** is against public policy" is
utterly misplaced, to say the least. In said case, while the Court, as quoted in the
Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the
event of death of a passenger or injury suffered by him, or of destruction or loss of, or
damages to any checked baggage or any goods, or of delay in the transportation by air of
passengers, baggage or goods. This pretense is not borne out by the language of said
Articles. The same merely declare the carrier liable for damages in enumerated cases, if
the conditions therein specified are present. Neither said provisions nor others in the
aforementioned Convention regulate or exclude liability for other breaches of contract by
the carrier. Under petitioner's theory, an air carrier would be exempt from any liability for
damages in the event of its absolute refusal, in bad faith, to comply with a contract of
carriage, which is absurd.
it prefaced this statement by explaining that:
...The case is now before us on petition for review by certiorari, upon the ground that the
lower court has erred: (1) in holding that the Warsaw Convention of October 12, 1929,
relative to transportation by air is not in force in the Philippines: (2) in not holding that
respondent has no cause of action; and (3) in awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the First assignment of error because the same is
the basis of the second assignment of error, and the latter is devoid of merit, even if we
assumed the former to be well taken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against
the validity of provisions of the Warsaw Convention.
Consequently, by no stretch of the imagination may said quotation from Northwest be
considered as supportive of the appellate court's statement that the provisions of the
Warsaw Convention limited a carrier's liability are against public policy.
2. The Court finds itself unable to agree with the decision of the trial court, and affirmed
by the Court of Appeals, awarding private respondents damages as and for lost profits
when their contracts to show the films in Guam and San Francisco, California were
cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be
any clearer:
...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant herein, may
be held liable only for damages that were foreseen or might have been foreseen at the
time the contract of transportation was entered into. The trial court correctly found that
the defendant company could not have foreseen the damages that would be suffered by
Mendoza upon failure to deliver the can of film on the 17th of September, 1948 for the
reason that the plans of Mendoza to exhibit that film during the town fiesta and his
preparations, specially the announcement of said exhibition by posters and
advertisement in the newspaper, were not called to the defendant's attention.
In our research for authorities we have found a case very similar to the one under
consideration. In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in
Troy, New York, delivered motion picture films to the defendant Fargo, an express
company, consigned and to be delivered to him in Utica. At the time of shipment the
attention of the express company was called to the fact that the shipment involved
motion picture films to be exhibited in Utica, and that they should be sent to their
destination, rush.
There was delay in their delivery and it was found that the plaintiff because of his failure
to exhibit the film in Utica due to the delay suffered damages or loss of profits. But the
highest court in the State of New York refused to award him special damages. Said
appellate court observed:
But before defendant could be held to special damages, such as the present alleged loss
of profits on account of delay or failure of delivery, it must have appeared that he had
notice at the time of delivery to him of the particular circumstances attending the
shipment, and which probably would lead to such special loss if he defaulted. Or, as the
rule has been stated in another form, in order to purpose on the defaulting party further
liability than for damages naturally and directly, i.e., in the ordinary course of things,
arising from a breach of contract, such unusual or extraordinary damages must have been
brought within the contemplation of the parties as the probable result of breach at the
time of or prior to contracting. Generally, notice then of any special circumstances which
will show that the damages to be anticipated from a breach would be enhanced has been
held sufficient for this effect.

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

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

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

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

WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate
Appellate Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay
private respondents damages in the amount of US $600.00 or its equivalent in Philippine
currency at the time of actual payment. SO ORDERED.
WHEN LIMITATIONS UNAVAILABLE
G.R. No. 78656 August 30, 1988
TRANS WORLD AIRLINES, petitioner,
vs.
COURT OF APPEALS and ROGELIO A. VINLUAN, respondents.
Guerrero & Torres Law Offices for petitioner.
Angara, Abello, Concepcion, Regala & Cruz for private respondent.
The Solicitor General for public respondent.
GANCAYCO, J.:
Rogelio A. Vinluan is a practicing lawyer who had to travel in April, 1979 to several cities in
Europe and the U.S. to attend to some matters involving several clients. He entered into a
contract for air carriage for valuable consideration with Japan Airlines first class from Manila
to Tokyo, Moscow, Paris, Hamburg, Zurich, New York, Los Angeles, Honolulu and back to
Manila thru the same airline and other airlines it represents for which he was issued the
corresponding first class tickets for the entire trip.
On April 18, 1979, while in Paris, he went to the office of Trans World Airlines (TWA) at the De
Gaulle Airport and secured therefrom confirmed reservation for first class accommodation on
board its Flight No. 41 from New York to San Francisco which was scheduled to depart on April
20, 1979. A validated stub was attached to the New York-Los Angeles portion of his ticket
evidencing his confirmed reservation for said flight with the mark "OK " 1 On April 20, 1979, at
about 8:00 o'clock A.M., Vinluan reconfirrred his reservation for first class accommodation on
board TWA Flight No. 41 with its New York office. He was advised that his reservation was
confirmed. He was even requested to indicate his seat preference on said flight on said
scheduled date of departure of TWA Flight No. 41. Vinluan presented his ticket for check-in at
the counter of TWA at JFK International Airport at about 9:45 o'clock A.M., the scheduled time
of the departure being 11:00 o'clock A.M. He was informed that there was no first class seat
available for him on the flight. He asked for an explanation but TWA employees on duty
declined to give any reason. When he began to protest, one of the TWA employees, a certain
Mr. Braam, rudely threatened him with the words "Don't argue with me, I have a very bad
temper."
To be able to keep his schedule, Vinluan was compelled to take the economy seat offered to
him and he was issued a refund application" as he was downgraded from first class to economy
class.
While waiting for the departure of Flight No. 41. Vinluan noticed that other passengers who
were white Caucasians and who had checked-in later than him were given preference in some
first class seats which became available due to "no show" passengers.
On February 15, 1980, Vinluan filed an action for damages against the TWA in the Court of First
Instance of Rizal alleging breach of contract and bad faith. After trial on the merits, a decision
was rendered the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant
holding the latter liable to the for-mer for the amount representing the difference in fare
between first class and economy class accommodations on board Flight No. 6041 from New
York to San Francisco, the amount of P500,000.00 as moral damages, the amount of
P300,000.00 as exemplary damages, and the amount of P100,000.00 as and for attorney's fees,
all such amounts to earn interest at the rate of twelve (12%) percent per annum from February
15, 1980 when the complainant was filed until fully paid. Correspondingly, defendant's
counterclaim is dismissed. Costs against the defendant. SO ORDERED.
Not satisfied therewith, the TWA appealed to the Court of Appeals wherein in due course a
decision was rendered on May 27, 1987, 2 the dispositive part of which reads as follows:
WHEREFORE, the decision dated March 8, 1984 is hereby modified by (1) fixing the interest
which appellant must pay on the awards of moral and exemplary damages at six per cent (6%)
per annum from the date of the decision a quo, March 8, 1984 until date of full payment and
(2) reducing the attorne's fees to P50,000.00 without interest, the rest of the decision is
affirmed. Cost against appellant. SO ORDERED.
Hence, the herein petition for review.
The theory of the petitioner is that because of maintenance problems of the aircraft on the
day of the flight, TWA Flight No. 41 was cancelled and a special Flight No. 6041 was organized
to operate in lieu of Flight No. 41. 3 Flight No. 41 was to have utilized a Lockheed 1011 with 34
first class seats, but instead, a smaller Boeing 707 with only 16 first class seats was substituted
for use in Flight No. 6041. Hence, passengers who had first class reservations on Flight No. 41
had to be accommodated on Flight No. 6041 on a first-come, first-served basis. An
announcement was allegedly made to all passengers in the entire terminal of the airport
advising them to get boarding cards for Flight No. 6041 to San Francisco and that the first ones
getting them would get first preference as to seats in the aircraft. It denied declining to give
any explanation for the downgrading of private respondent as well as the discourteous
attitude of Mr. Braam.
On the other hand, private respondent asserts that he did not hear such announcement at the
terminal and that he was among the early passengers to present his ticket for check-in only to
be informed that there was no first class seat available for him and that he had to be
downgraded.
The petitioner contends that the respondent Court of Appeals committed a grave abuse of
discretion in finding that petitioner acted maliciously and discriminatorily, and in granting
excessive moral and exemplary damages and attorney's fees.
The contention is devoid of merit. Private respondent had a first class ticket for Flight No. 41
of petitioner from New York to San Francisco on April 20, 1979. It was twice confirmed and yet
respondent unceremoniously told him that there was no first class seat available for him and
that he had to be downgraded to the economy class. As he protested, he was arrogantly
threatened by one Mr. Braam. Worst still, while he was waiting for the flight, he saw that
several Caucasians who arrived much later were accommodated in first class seats when the
other passengers did not show up.
The discrimination is obvious and the humiliation to which private respondent was subjected
is undeniable. Consequently, the award of moral and exemplary damages by the respondent
court is in order. 4
Indeed, private respondent had shown that the alleged switch of planes from a Lockheed 1011
to a smaller Boeing 707 was because there were only 138 confirmed economy class passengers
who could very well be accommodated in the smaller plane and not because of maintenance
problems.

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

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

WHEREFORE, with the above modification reducing the moral and exemplary damages as
above-stated, the decision subject of the petition for review is AFFIRMED in all other respects,
without pronouncement as to costs in this instance.
SO ORDERED.
CONDITIONS ON IMPOSITION OF LIABILITY
G.R. Nos. 100374-75 November 27, 1992
RUFINO Y. LUNA, RODOLFO J. ALONSO and PORFIRIO RODRIGUEZ, petitioners, vs. HON.
COURT OF APPEALS, HON. CRISTINA M. ESTRADA in her capacity as Presiding Judge, RTC-
Pasig, Br. 69, Metro Manila, HON. TERESITA D. CAPULONG in her capacity as Presiding
Judge, RTC-Valenzuela, Br. 172, Metro Manila, and NORTHWEST AIRLINES,
INC., respondents.
BELLOSILLO, J.:
This joint petition for review on certiorari originated from two (2) separate complaints arising
from an airline's delay in the delivery of the luggage of its passengers at their destination which
respondent courts dismissed for lack of cause of action. The resulting issue is whether the
application of the Warsaw Convention operates to exclude the application of the provisions of
the New Civil Code and the other statutes.
Briefly, the facts: On 19 May 1989, at around 8:00 in the morning, petitioners Rufino Luna,
Rodolfo Alonso and Porfirio Rodriguez boarded Flight 020 of private respondent Northwest
Airlines bound for Seoul, South Korea, to attend the four-day Rotary International Convention
from the 21st to the 24th of May 1992. They checked in one (1) piece of luggage each. After
boarding, however, due to engine trouble, they were asked to disembark and transfer to a
Korean Airlines plane scheduled to depart four (4) hours later. They were assured that their
baggage would be with them in the same flight.
When petitioners arrived in Seoul, they discovered that their personal belongings were
nowhere to be found instead, they were allegedly flown to Seattle, U.S.A. It was not until four
(4) days later, and only after repeated representations with Northwest Airlines personnel at
the airport in Korea were petitioners able to retrieve their luggage. By then the Convention,
which they were hardly able to attend, was almost over.
Petitioners Rufino Y. Luna and Rodolfo J. Alfonso assert that on 6 June 1989, or thirteen (13)
days after they recovered their luggage, they sent a written claim to private respondent's office
along Roxas Blvd., Ermita, Manila. Petitioner Porfirio Rodriquez, on his part, asserverates that
he filed his claim on 13 June 1989. However, private respondent, is a letter of 21 June 1989,
disowned any liability for the delay and averred that it exerted "its best efforts to carry the
passenger and baggage with reasonable dispatch."1
Thus, on 14 July 1989, petitioners Luna and Alonso jointly filed a complaint for breach of
contract with damages before the Regional Trial Court of Pasig, Metro Manila, docketed as
Civil Case No. 58390, subsequently raffled to Br. 69,2 while petitioner Rodriquez filed his own
complaint with the Regional Trial Court of Valenzuela, Metro Manila, docketed as Civil Case
No. 3194-V-89, assigned to Br. 172.3 However, upon motion of private respondent, both
complaints were dismissed4 for lack of cause of action due to petitioners' failure to state in
their respective complaints that they filed a prior claim with private respondent within the
prescribed period.
Petitioners Luna and Alonso then filed a petition for certiorari before the Court of Appeals to
set aside the order of respondent Judge Cristina M. Estrada granting private respondent's
motion to dismiss, while petitioner Rodriquez proceeded directly to this Court on certiorari for
the same purpose. However, in Our resolution of 26 February 1990, We referred his petition
to the Court of Appeals.
On 26 March 1991, the Third Division of respondent Court of Appeals, applying the provisions
of the Warsaw Convention and ruling that certiorari was not a substitute for a lost appeal,
dismissed the petition of Luna and Alonso,5 and on 7 June 1991 denied their motion for
reconsideration.6 Meanwhile, on 28 February 1991 the Seventh Division of respondent Court
of Appeals, ruling that the questioned order of the trial court had already become final,
similarly rejected the petition of Rodriquez, and on 6 June 1991 denied his motion for
reconsideration.7 Hence, this present recourse by petitioners Luna, Alonso and Rodriguez.
Four (4) grounds are relied upon by petitioners which, nevertheless, may be reduced to three,
namely: (a) that respondent appellate court disregarded Our ruling in Alitalia v. CA8 where We
said that "[t]he 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;" 9 (b) that "petitions
to revoke orders and decisions may be entertained even after the time to appeal had elapsed,
in cases wherein the jurisdiction of the court had been exceeded;" 10 and, (c) that Art. 26 of
the Warsaw Convention which prescribes the reglementary period within which to file a claim
cannot be invoked if damage is caused by the carrier's willful misconduct, as provided by Art.
25 of the same Warsaw Convention.
Private respondent, on the other hand, argues that the dismissal order of respondent courts
had already become final after petitioners failed to either move for reconsideration or appeal
from the orders within the reglementary period, hence, certiorari is no substitute for a lost
appeal.
Private respondent also maintains that it did not receive any demand letter from petitioners
within the 21-day reglementary period, as provided in par. 7 of the Conditions of Contract
appearing in the plane ticket. Since Art. 26. par. (4), of the Warsaw Convention provides that
"[f]ailing complaint within the times aforesaid, no action shall lie against the carrier, save in
the case of fraud on his part," the carrier consequently cannot be held liable for the delay in
the delivery of the baggage. In other words, non-observance of the prescribed period to file a
claim bars claimant's action in court for recovery.
Private respondent, citing foreign jurisprudence, 11 likewise submits that Art. 25, par. (1), of
the Warsaw Convention which excludes or limits liability of common carriers if the damage is
caused by it willful misconduct, refers only to the monetary ceiling on damages found in Art.
22.
We find the appeal impressed with merit.
From the facts, it appears that private respondent Northwest Airlines indeed failed to deliver
petitioners' baggage at the designated time and place. For this, all that respondent carrier
could say was that "[w]e exerted all efforts to comply with this condition of the
contract." 12 Hence, it is evident that petitioners suffered some special specie of injury for
which they should rightly be compensated. Private respondent cannot be allowed to escape
liability by seeking refuge in the argument that the trial courts' orders have attained finality
due to petitioners failure to move for reconsideration or to file a timely appeal therefrom.
Technicalities should be disregarded if only to render to the respective parties that which is
their due. Thus, although We have said that certiorari cannot be a substitute for a lapsed
appeal, We have, time and again, likewise held that where a rigid application of that rule will
result in a manifest failure or miscarriage of justice, the rule may be relaxed. 13 Hence,
considering the broader and primordial interests of justice, particularly when there is grave
abuse of discretion, thus impelling occasional departure from the general rule that the
extraordinary writ of certiorari cannot substitute for a lost appeal, respondent appellate court
may legally entertain the special civil action for certiorari. 14
Previously, We ruled that the Warsaw Convention was a treaty commitment voluntarily
assumed by the Philippine government; consequently, it has the force and effect of law in this
country. 15 But, in the same token, We are also aware of jurisprudence that the Warsaw
Convention does not operate as an exclusive enumeration of the instances for declaring an
airline liable for breach of contract of carriage or as an absolute limit of the extent of that
liability. 16The Convention merely declares the carrier liable for damages in the enumerated
cases, if the conditions therein specified are present. 17 For sure, it does not regulate the
liability, much less exempt, the carrier for violating the rights of others which must simply be
respected in accordance with their contracts of carriage. The application of the Convention
must not therefore be construed to preclude the operation of the Civil Code and other
pertinent laws. In fact, in Alitalia v. IAC, 18 We awarded Dr. Felipa Pablo nominal damages, the
provisions of the Convention notwithstanding.
Hence, petitioners' alleged failure to file a claim with the common carrier as mandated by the
provisions of the Warsaw Convention should not be a ground for the summary dismissal of
their complaints since private respondent may still be held liable for breach of other relevant
laws which may provide a different period or procedure for filing a claim. Considering that
petitioners indeed filed a claim which private respondent admitted having received on 21 June,
1989, their demand may have very well been filed within the period prescribed by those
applicable laws. Consequently, respondent trial courts, as well as respondent appellate court,
were in error when they limited themselves to the provisions of the Warsaw Convention and
disregarding completely the provisions of the Civil Code.

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

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

WHEREFORE, the assailed decisions and resolutions of respondent Court of Appeals are
REVERSED and SET ASIDE. The complaints for breach of contract of carriage with damages in
Civil Case No. 3194-V-89 and Civil Case No. 58390 dismissed by respondent Judges Teresita D.
Capulong and Cristina M. Estrada, respectively, are ordered REINSTATED and given due course
until terminated. No costs. SO ORDERED.
CONDITIONS ON IMPOSITION OF LIABILITY Thus, petitioner filed the complaint for damages, praying that respondent be ordered to
EDNA DIAGO LHUILLIER, G.R. No. 171092 pay P5 million as moral damages, P2 million as nominal damages, P1 million as exemplary
Petitioner, damages, P300,000.00 as attorneys fees, P200,000.00 as litigation expenses, and cost of the
suit.
Present:
On May 16, 2005, summons, together with a copy of the complaint, was served on the
CARPIO, J., Chairperson, respondent through Violeta Echevarria, General Manager of Euro-Philippine Airline Services,
- versus - BRION, Inc.[3]
DEL CASTILLO,
ABAD, and On May 30, 2005, respondent, by way of special appearance through counsel, filed a Motion
PEREZ, JJ. to Dismiss[4] on grounds of lack of jurisdiction over the case and over the person of the
respondent. Respondent alleged that only the courts of London, United
BRITISH AIRWAYS, Promulgated: Kingdom or Rome, Italy, have jurisdiction over the complaint for damages pursuant to the
Respondent. March 15, 2010 Warsaw Convention,[5] Article 28(1) of which provides:
x-------------------------------------------------------------------x
An action for damages must be brought at the option of the plaintiff, either before the court
of domicile of the carrier or his principal place of business, or where he has a place of business
through which the contract has been made, or before the court of the place of destination.
DECISION
Thus, since a) respondent is domiciled in London; b) respondents principal place of business is
in London; c) petitioner bought her ticket in Italy (through Jeepney Travel S.A.S, in
DEL CASTILLO, J.: Rome);[6] and d) Rome, Italy is petitioners place of destination, then it follows that the
complaint should only be filed in the proper courts of London, United Kingdom or Rome, Italy.
Jurisdictio est potestas de publico introducta cum necessitate juris dicendi. Jurisdiction is a Likewise, it was alleged that the case must be dismissed for lack of jurisdiction over the person
power introduced for the public good, on account of the necessity of dispensing justice. [1] of the respondent because the summons was erroneously served on Euro-Philippine Airline
Services, Inc. which is not its resident agent in the Philippines.
Factual Antecedents
On June 3, 2005, the trial court issued an Order requiring herein petitioner to file her
On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint[2] for damages against Comment/Opposition on the Motion to Dismiss within 10 days from notice thereof, and for
respondent British Airways before the Regional Trial Court (RTC) of Makati City. She alleged respondent to file a Reply thereon.[7] Instead of filing a Comment/Opposition, petitioner filed
that on February 28, 2005, she took respondents flight 548 from London, United on June 27, 2005, an Urgent Ex-Parte Motion to Admit Formal Amendment to the Complaint
Kingdom to Rome, Italy. Once on board, she allegedly requested Julian Halliday (Halliday), one and Issuance of Alias Summons.[8] Petitioner alleged that upon verification with the Securities
of the respondents flight attendants, to assist her in placing her hand-carried luggage in the and Exchange Commission, she found out that the resident agent of respondent in
overhead bin. However, Halliday allegedly refused to help and assist her, and even the Philippines is Alonzo Q. Ancheta. Subsequently, on September 9, 2005, petitioner filed a
sarcastically remarked that If I were to help all 300 passengers in this flight, I would have a Motion to Resolve Pending Incident and Opposition to Motion to Dismiss.[9]
broken back!
Ruling of the Regional Trial Court
Petitioner further alleged that when the plane was about to land in Rome, Italy, another flight
attendant, Nickolas Kerrigan (Kerrigan), singled her out from among all the passengers in the On October 14, 2005, the RTC of Makati City, Branch 132, issued an Order [10] granting
business class section to lecture on plane safety. Allegedly, Kerrigan made her appear to the respondents Motion to Dismiss. It ruled that:
other passengers to be ignorant, uneducated, stupid, and in need of lecturing on the safety
rules and regulations of the plane. Affronted, petitioner assured Kerrigan that she knew the The Court sympathizes with the alleged ill-treatment suffered by the plaintiff. However, our
planes safety regulations being a frequent traveler. Thereupon, Kerrigan allegedly thrust his Courts have to apply the principles of international law, and are bound by treaty stipulations
face a mere few centimeters away from that of the petitioner and menacingly told her that entered into by the Philippines which form part of the law of the land. One of this is the
We dont like your attitude. Warsaw Convention. Being a signatory thereto, the Philippines adheres to its stipulations and
is bound by its provisions including the place where actions involving damages to plaintiff is to
Upon arrival in Rome, petitioner complained to respondents ground manager and demanded be instituted, as provided for under Article 28(1) thereof. The Court finds no justifiable reason
an apology. However, the latter declared that the flight stewards were only doing their job. to deviate from the indicated limitations as it will only run counter to the provisions of the
Warsaw Convention. Said adherence is in consonance with the comity of nations and deviation
from it can only be effected through proper denunciation as enunciated in the Santos case
(ibid). Since the Philippines is not the place of domicile of the defendant nor is it the
principal place of business, our courts are thus divested of jurisdiction over cases for
damages. Neither was plaintiffs ticket issued in this country nor was her
destination Manila but Rome in Italy. It bears stressing however, that referral to the court of
proper jurisdiction does not constitute constructive denial of plaintiffs right to have access to
our courts since the Warsaw Convention itself provided for jurisdiction over cases arising from
international transportation. Said treaty stipulations must be complied with in good faith
following the time honored principle of pacta sunt servanda.
The resolution of the propriety of service of summons is rendered moot by the Courts want of
jurisdiction over the instant case.
WHEREFORE, premises considered, the present Motion to Dismiss is hereby GRANTED and this
case is hereby ordered DISMISSED.
Petitioner filed a Motion for Reconsideration but the motion was denied in an
Order[11] dated January 4, 2006.
Petitioner now comes directly before us on a Petition for Review on Certiorari on pure
questions of law, raising the following issues:
Issues
I. WHETHER X X X PHILIPPINE COURTS HAVE JURISDICTION
OVER A TORTIOUS CONDUCT COMMITTED AGAINST A FILIPINO CITIZEN AND RESIDENT BY
AIRLINE PERSONNEL OF A FOREIGN CARRIER TRAVELLING BEYOND THE TERRITORIAL LIMIT OF
ANY FOREIGN COUNTRY; AND THUS IS OUTSIDE THE AMBIT OF THE WARSAW CONVENTION.
II. WHETHER X X X RESPONDENT AIR CARRIER OF
PASSENGERS, IN FILING ITS MOTION TO DISMISS BASED ON LACK OF JURISDICTION OVER THE
SUBJECT MATTER OF THE CASE AND OVER ITS PERSON MAY BE DEEMED AS HAVING IN FACT
AND IN LAW SUBMITTED ITSELF TO THE JURISDICTION OF THE LOWER COURT, ESPECIALLY SO,
WHEN THE VERY LAWYER ARGUING FOR IT IS HIMSELF THE RESIDENT AGENT OF THE CARRIER.
Petitioners Arguments
Petitioner argues that her cause of action arose not from the contract of carriage, but from
the tortious conduct committed by airline personnel of respondent in violation of the
provisions of the Civil Code on Human Relations. Since her cause of action was not predicated
on the contract of carriage, petitioner asserts that she has the option to pursue this case in
this jurisdiction pursuant to Philippine laws.
Respondents Arguments
In contrast, respondent maintains that petitioners claim for damages fell within the ambit of
Article 28(1) of the Warsaw Convention. As such, the same can only be filed before the courts
of London, United Kingdom or Rome, Italy.
Our Ruling
The petition is without merit.
The Warsaw Convention has the force and effect of law in this country.
It is settled that the Warsaw Convention has the force and effect of law in this
country. In Santos III v. Northwest Orient Airlines,[12] we held that:
The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules
Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It
took effect on February 13, 1933. The Convention was concurred in by the Senate, through its
Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by
President Elpidio Quirino on October 13, 1950, and was deposited with the Polish government
on November 9, 1950. The Convention became applicable to the Philippines on February 9,
1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201,
declaring our formal adherence thereto, to the end that the same and every article and clause
thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the
citizens thereof.
The Convention is thus a treaty commitment voluntarily assumed by the Philippine
government and, as such, has the force and effect of law in this country. [13]
The Warsaw Convention applies because the air travel, where the alleged tortious conduct
occurred, was between the United Kingdom and Italy, which are both signatories to
the Warsaw Convention.
Article 1 of the Warsaw Convention provides:
1. This Convention applies to all international carriage of persons, luggage or goods
performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed
by an air transport undertaking.
2. For the purposes of this Convention the expression "international carriage" means any
carriage in which, according to the contract made by the parties, the place of departure and
the place of destination, whether or not there be a break in the carriage or a transhipment, are
situated either within the territories of two High Contracting Parties, or within the territory of
a single High Contracting Party, if there is an agreed stopping place within a territory subject
to the sovereignty, suzerainty, mandate or authority of another Power, even though that
Power is not a party to this Convention. A carriage without such an agreed stopping place
between territories subject to the sovereignty, suzerainty, mandate or authority of the same
High Contracting Party is not deemed to be international for the purposes of this Convention.
(Emphasis supplied)
Thus, when the place of departure and the place of destination in a contract of carriage are
situated within the territories of two High Contracting Parties, said carriage is deemed an
international carriage. The High Contracting Parties referred to herein were the signatories to
the Warsaw Convention and those which subsequently adhered to it.[14]

In the case at bench, petitioners place of departure was London, United Kingdom while her
place of destination was Rome, Italy.[15] Both the United Kingdom[16] and Italy[17] signed and
ratified the Warsaw Convention. As such, the transport of the petitioner is deemed to be an
international carriage within the contemplation of the Warsaw Convention.
Since the Warsaw Convention applies in the instant case, then the jurisdiction over the
subject matter of the action is governed by the provisions of the Warsaw Convention.
Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages
before
1. the court where the carrier is domiciled;
2. the court where the carrier has its principal place of business;
3. the court where the carrier has an establishment by which the contract has been made; or
4. the court of the place of destination.
In this case, it is not disputed that respondent is a British corporation domiciled
in London, United Kingdom with London as its principal place of business. Hence, under the
first and second jurisdictional rules, the petitioner may bring her case before the courts
of London in the United Kingdom. In the passenger ticket and baggage check presented by
both the petitioner and respondent, it appears that the ticket was issued
in Rome, Italy. Consequently, under the third jurisdictional rule, the petitioner has the option
to bring her case before the courts of Rome in Italy. Finally, both the petitioner and
respondent aver that the place of destination is Rome, Italy, which is properly designated given
the routing presented in the said passenger ticket and baggage check. Accordingly, petitioner
may bring her action before the courts of Rome, Italy. We thus find that the RTC of Makati
correctly ruled that it does not have jurisdiction over the case filed by the petitioner.
Santos III v. Northwest Orient Airlines[18] applies in this case.
Petitioner contends that Santos III v. Northwest Orient Airlines[19] cited by the trial court is
inapplicable to the present controversy since the facts thereof are not similar with the instant
case.
We are not persuaded.
In Santos III v. Northwest Orient Airlines,[20] Augusto Santos III, a resident of the Philippines,
purchased a ticket from Northwest Orient Airlines in San Francisco, for transport between San
Francisco and Manila via Tokyo and back to San Francisco. He was wait-listed in
the Tokyo to Manila segment of his ticket, despite his prior reservation. Contending that
Northwest Orient Airlines acted in bad faith and discriminated against him when it canceled
his confirmed reservation and gave his seat to someone who had no better right to it, Augusto
Santos III sued the carrier for damages before the RTC. Northwest Orient Airlines moved to
dismiss the complaint on ground of lack of jurisdiction citing Article 28(1) of the Warsaw
Convention. The trial court granted the motion which ruling was affirmed by the Court of
Appeals. When the case was brought before us, we denied the petition holding that under
Article 28(1) of the Warsaw Convention, Augusto Santos III must prosecute his claim in the
United States, that place being the (1) domicile of the Northwest Orient Airlines; (2) principal
office of the carrier; (3) place where contract had been made (San Francisco); and (4) place of
destination (San Francisco).[21]
We further held that Article 28(1) of the Warsaw Convention is jurisdictional in
character. Thus:
A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and
not a venue provision. First, the wording of Article 32, which indicates the places where the
action for damages "must" be brought, underscores the mandatory nature of Article 28(1).
Second, this characterization is consistent with one of the objectives of the Convention, which
is to "regulate in a uniform manner the conditions of international transportation by air." Third,
the Convention does not contain any provision prescribing rules of jurisdiction other than
Article 28(1), which means that the phrase "rules as to jurisdiction" used in Article 32 must
refer only to Article 28(1). In fact, the last sentence of Article 32 specifically deals with the
exclusive enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the
will of the parties regardless of the time when the damage occurred.
xxxx
In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on
a dual concept. Jurisdiction in the international sense must be established in accordance with
Article 28(1) of the Warsaw Convention, following which the jurisdiction of a particular court
must be established pursuant to the applicable domestic law. Only after the question of which
court has jurisdiction is determined will the issue of venue be taken up. This second question
shall be governed by the law of the court to which the case is submitted.[22]
Contrary to the contention of petitioner, Santos III v. Northwest Orient Airlines[23] is analogous
to the instant case because (1) the domicile of respondent is London, United Kingdom;[24] (2)
the principal office of respondent airline is likewise in London, United Kingdom;[25] (3) the ticket
was purchased in Rome, Italy;[26] and (4) the place of destination is Rome, Italy.[27] In addition,
petitioner based her complaint on Article 2176[28] of the Civil Code on quasi-delict and Articles
19[29] and 21[30] of the Civil Code on Human Relations. In Santos III v. Northwest Orient
Airlines,[31] Augusto Santos III similarly posited that Article 28 (1) of the Warsaw Convention
did not apply if the action is based on tort. Hence, contrary to the contention of the petitioner,
the factual setting of Santos III v. Northwest Orient Airlines[32] and the instant case are parallel
on the material points.
Tortious conduct as ground for the petitioners complaint is within the purview of
the Warsaw Convention.
Petitioner contends that in Santos III v. Northwest Orient Airlines,[33] the cause of action was
based on a breach of contract while her cause of action arose from the tortious conduct of the
airline personnel and violation of the Civil Code provisions on Human Relations.[34] In addition,
she claims that our pronouncement in Santos III v. Northwest Orient Airlines[35] that the
allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the
comprehension of the Warsaw Convention, is more of an obiter dictum rather than
the ratio decidendi.[36] She maintains that the fact that said acts occurred aboard a plane is
merely incidental, if not irrelevant.[37]

We disagree with the position taken by the petitioner. Black defines obiter dictum as "an
opinion entirely unnecessary for the decision of the case" and thus "are not binding as
precedent."[38] In Santos III v. Northwest Orient Airlines,[39] Augusto Santos III categorically put
in issue the applicability of Article 28(1) of the Warsaw Convention if the action is based on
tort.
In the said case, we held that the allegation of willful misconduct resulting in a tort is
insufficient to exclude the case from the realm of the Warsaw Convention. In fact, our ruling
that a cause of action based on tort did not bring the case outside the sphere of the Warsaw
Convention was our ratio decidendi in disposing of the specific issue presented by Augusto
Santos III. Clearly, the contention of the herein petitioner that the said ruling is an obiter
dictum is without basis.
Relevant to this particular issue is the case of Carey v. United Airlines,[40] where the passenger
filed an action against the airline arising from an incident involving the former and the airlines
flight attendant during an international flight resulting to a heated exchange which included
insults and profanity. The United States Court of Appeals (9th Circuit) held that the passenger's
action against the airline carrier arising from alleged confrontational incident between
passenger and flight attendant on international flight was governed exclusively by the Warsaw
Convention, even though the incident allegedly involved intentional misconduct by the flight
attendant.[41]
In Bloom v. Alaska Airlines,[42] the passenger brought nine causes of action against the airline
in the state court, arising from a confrontation with the flight attendant during an international
flight to Mexico. The United States Court of Appeals (9th Circuit) held that the Warsaw
Convention governs actions arising from international air travel and provides the exclusive
remedy for conduct which falls within its provisions. It further held that the said Convention
created no exception for an injury suffered as a result of intentional conduct [43] which in that
case involved a claim for intentional infliction of emotional distress.
It is thus settled that allegations of tortious conduct committed against an airline passenger
during the course of the international carriage do not bring the case outside the ambit of the
Warsaw Convention.
Respondent, in seeking remedies from the trial court through special appearance of counsel,
is not deemed to have voluntarily submitted itself to the jurisdiction of the trial court.
Petitioner argues that respondent has effectively submitted itself to the jurisdiction of the trial
court when the latter stated in its Comment/Opposition to the Motion for Reconsideration
that Defendant [is at a loss] x x x how the plaintiff arrived at her erroneous impression that it
is/was Euro-Philippines Airlines Services, Inc. that has been making a special appearance since
x x x British Airways x x x has been clearly specifying in all the pleadings that it has filed with
this Honorable Court that it is the one making a special appearance.[44]
In refuting the contention of petitioner, respondent cited La Naval Drug Corporation v. Court
of Appeals[45] where we held that even if a party challenges the jurisdiction of the court over
his person, as by reason of absence or defective service of summons, and he also invokes other
grounds for the dismissal of the action under Rule 16, he is not deemed to be in estoppel or to
have waived his objection to the jurisdiction over his person.[46]
This issue has been squarely passed upon in the recent case of Garcia
v. Sandiganbayan,[47] where we reiterated our ruling in La Naval Drug Corporation v. Court of
Appeals[48] and elucidated thus:
Special Appearance to Question a Courts Jurisdiction Is Not
Voluntary Appearance
The second sentence of Sec. 20, Rule 14 of the Revised Rules of Civil Procedure clearly
provides:
Sec. 20. Voluntary appearance. The defendants voluntary appearance in the action shall be
equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside
from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary
appearance.
Thus, a defendant who files a motion to dismiss, assailing the jurisdiction of the court over his
person, together with other grounds raised therein, is not deemed to have appeared
voluntarily before the court. What the rule on voluntary appearance the first sentence of the
above-quoted rule means is that the voluntary appearance of the defendant in court is without
qualification, in which case he is deemed to have waived his defense of lack of jurisdiction over
his person due to improper service of summons.
The pleadings filed by petitioner in the subject forfeiture cases, however, do not show that she
voluntarily appeared without qualification. Petitioner filed the following pleadings in
Forfeiture I: (a) motion to dismiss; (b) motion for reconsideration and/or to admit answer; (c)
second motion for reconsideration; (d) motion to consolidate forfeiture case with plunder
case; and (e) motion to dismiss and/or to quash Forfeiture I. And in Forfeiture II: (a) motion to
dismiss and/or to quash Forfeiture II; and (b) motion for partial reconsideration.
The foregoing pleadings, particularly the motions to dismiss, were filed by petitioner solely for
special appearance with the purpose of challenging the jurisdiction of the SB over her person
and that of her three children. Petitioner asserts therein that SB did not acquire jurisdiction
over her person and of her three children for lack of valid service of summons through
improvident substituted service of summons in both Forfeiture I and Forfeiture II. This stance
the petitioner never abandoned when she filed her motions for reconsideration, even with a
prayer to admit their attached Answer Ex Abundante Ad Cautelam dated January 22,
2005 setting forth affirmative defenses with a claim for damages. And the other subsequent
pleadings, likewise, did not abandon her stance and defense of lack of jurisdiction due to
improper substituted services of summons in the forfeiture cases. Evidently, from the
foregoing Sec. 20, Rule 14 of the 1997 Revised Rules on Civil Procedure, petitioner and her
sons did not voluntarily appear before the SB constitutive of or equivalent to service of
summons.
Moreover, the leading La Naval Drug Corp. v. Court of Appeals applies to the instant case. Said
case elucidates the current view in our jurisdiction that a special appearance before the
courtchallenging its jurisdiction over the person through a motion to dismiss even if
the movant invokes other groundsis not tantamount to estoppel or a waiver by the movant of
his objection to jurisdiction over his person; and such is not constitutive of a voluntary
submission to the jurisdiction of the court.

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

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

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

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

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the
Decision[1] dated 17 August 2001, rendered by the Court of Appeals in CA-G.R. SP No. 48664,
affirming in toto the Order[2] dated 9 June 1998, of Branch 30 of the Regional Trial Court (RTC)
of Iloilo City, dismissing the Motion to Dismiss filed by petitioner Philippine Airlines Inc. (PAL)
in the case entitled, Simplicio Grio v. Philippine Airlines, Inc. and Singapore Airlines, docketed
as Civil Case No. 23773.
PAL is a corporation duly organized under Philippine law, engaged in the business of providing
air carriage for passengers, baggage and cargo.[3]
Public respondent Hon. Adriano Savillo is the presiding judge of Branch 30 of the Iloilo RTC,
where Civil Case No. 23773 was filed; while private respondent Simplicio Grio is the plaintiff in
the aforementioned case.
The facts are undisputed.
Private respondent was invited to participate in the 1993 ASEAN Seniors Annual Golf
Tournament held in Jakarta, Indonesia. He and several companions decided to purchase their
respective passenger tickets from PAL with the following points of passage: MANILA-
SINGAPORE-JAKARTA-SINGAPORE-MANILA. Private respondent and his companions were
made to understand by PAL that its plane would take them from Manila to Singapore, while
Singapore Airlines would take them from Singapore to Jakarta.[4]
On 3 October 1993, private respondent and his companions took the PAL flight
to Singapore and arrived at about 6:00 oclock in the evening. Upon their arrival, they
proceeded to the Singapore Airlines office to check-in for their flight to Jakarta scheduled
at 8:00 oclock in the same evening. Singapore Airlines rejected the tickets of private
respondent and his group because they were not endorsed by PAL. It was explained to private
respondent and his group that if Singapore Airlines honored the tickets
Instead of filing an answer to private respondents Complaint, PAL filed a Motion to
Dismiss[8] dated 18 September 1998 on the ground that the said complaint was barred on the
ground of prescription under Section 1(f) of Rule 16 of the Rules of Court. [9] PAL argued that
the Warsaw Convention,[10]particularly Article 29 thereof,[11] governed this case, as it provides
that any claim for damages in connection with the international transportation of persons is
subject to the prescription period of two years. Since the Complaint was filed on 15 August
1997, more than three years after PAL received the demand letter on 25 January 1994, it was
already barred by prescription.
On 9 June 1998, the RTC issued an Order[12] denying the Motion to Dismiss. It maintained that
the provisions of the Civil Code and other pertinent laws of the Philippines, not the Warsaw
Convention, were applicable to the present case.
The Court of Appeals, in its assailed Decision dated 17 August 2001, likewise dismissed the
Petition for Certiorari filed by PAL and affirmed the 9 June 1998 Order of the RTC. It
pronounced that the application of the Warsaw Convention must not be construed to preclude
the application of the Civil Code and other pertinent laws. By applying Article 1144 of the Civil
Code,[13] which allowed for a ten-year prescription period, the appellate court declared that
the Complaint filed by private respondent should not be dismissed.[14]
Hence, the present Petition, in which petitioner raises the following issues:
1. THE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO THE PETITION AS
RESPONDENT JUDGE COMMITED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURSIDICTION IN DENYING PALS MOTION TO DISMISS.
2. THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF
THE WARSAW CONVENTION DESPITE THE FACT THAT GRIOS CAUSE OF ACTION
AROSE FROM A BREACH OF CONTRACT FOR INTERNATIONAL AIR TRANSPORT.
 3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE COMPLAINT FILED BY
GRIO BEYOND THE TWO (2)-YEAR PERIOD PROVIDED UNDER
THE WARSAW CONVENTION IS ALREADY BARRED BY PRESCRIPTION.[15]
The petition is without merit.
In determining whether PALs Motion to Dismiss should have been granted by the trial court, it
must be ascertained if all the claims made by the private respondent in his Complaint are
covered by the Warsaw Convention, which effectively bars all claims made outside the two-
year prescription period provided under Article 29 thereof. If the Warsaw Convention covers
all of private respondents claims, then Civil Case No. 23773 has already prescribed and should
therefore be dismissed. On the other hand, if some, if not all, of respondents claims are outside
the coverage of the Warsaw Convention, the RTC may still proceed to hear the case.
The Warsaw Convention applies to all international transportation of persons, baggage or
goods performed by any aircraft for hire. It seeks to accommodate or balance the interests of
passengers seeking recovery for personal injuries and the interests of air carriers seeking to
limit potential liability. It employs a scheme of strict liability favoring passengers and imposing
damage caps to benefit air carriers.[16] The cardinal purpose of the Warsaw Convention is to
provide uniformity of rules governing claims arising from international air travel; thus, it
precludes a passenger from maintaining an action for personal injury damages under local law
when his or her claim does not satisfy the conditions of liability under the Convention. [17]
Article 19 of the Warsaw Convention provides for liability on the part of a carrier for damages
occasioned by delay in the transportation by air of passengers, baggage or goods. Article 24
excludes other remedies by further providing that (1) in the cases covered by articles 18 and
19, any action for damages, however founded, can only be brought subject to the conditions
and limits set out in this convention. Therefore, a claim covered by the Warsaw Convention
can no longer be recovered under local law, if the statute of limitations of two years has
already lapsed.
Nevertheless, this Court notes that jurisprudence in the Philippines and the United States also
recognizes that the Warsaw Convention does not exclusively regulate the relationship
between passenger and carrier on an international flight. This Court finds that the present case
is substantially similar to cases in which the damages sought were considered to be outside
the coverage of the Warsaw Convention.
In United Airlines v. Uy,[18] this Court distinguished between the (1) damage to the passengers
baggage and (2) humiliation he suffered at the hands of the airlines employees. The first cause
of action was covered by the Warsaw Convention which prescribes in two years, while the
second was covered by the provisions of the Civil Code on torts, which prescribes in four years.
Similar distinctions were made in American jurisprudence. In Mahaney v. Air France,[19] a
passenger was denied access to an airline flight between New York and Mexico, despite the
fact that she held a confirmed reservation. The court therein ruled that if the plaintiff were to
claim damages based solely on the delay she experienced for instance, the costs of renting a
van, which she had to arrange on her own as a consequence of the delay the complaint would
be barred by the two-year statute of limitations. However, where the plaintiff alleged that the
airlines subjected her to unjust discrimination or undue or unreasonable preference or
disadvantage, an act punishable under the United States laws, then the plaintiff may claim
purely nominal compensatory damages for humiliation and hurt feelings, which are not
provided for by the Warsaw Convention. In another case, Wolgel v. Mexicana Airlines,[20] the
court pronounced that actions for damages for the bumping off itself, rather than the
incidental damages due to the delay, fall outside the Warsaw Convention and do not prescribe
in two years.
In the Petition at bar, private respondents Complaint alleged that both PAL and Singapore
Airlines were guilty of gross negligence, which resulted in his being subjected to humiliation,
embarrassment, mental anguish, serious anxiety, fear and distress. [21] The emotional harm
suffered by the private respondent as a result of having been unreasonably and unjustly
prevented from boarding the plane should be distinguished from the actual damages which
resulted from the same incident. Under the Civil Code provisions on tort,[22] such emotional
harm gives rise to compensation where gross negligence or malice is proven.
The instant case is comparable to the case of Lathigra v. British Airways.[23]
In Lathigra, it was held that the airlines negligent act of reconfirming the passengers
reservation days before departure and failing to inform the latter that the flight had already
been discontinued is not among the acts covered by the Warsaw Convention, since the alleged
negligence did not occur during the performance of the contract of carriage but, rather, days
before the scheduled flight.
In the case at hand, Singapore Airlines barred private respondent from boarding the Singapore
Airlines flight because PAL allegedly failed to endorse the tickets of private respondent and his
companions, despite PALs assurances to respondent that Singapore Airlines had already
confirmed their passage. While this fact still needs to be heard and established by adequate
proof before the RTC, an action based on these allegations will not fall under the Warsaw
Convention, since the purported negligence on the part of PAL did not occur during the
performance of the contract of carriage but days before the scheduled flight. Thus, the present
action cannot be dismissed based on the statute of limitations provided under Article 29 of the
Warsaw Convention.
Had the present case merely consisted of claims incidental to the airlines delay in transporting
their passengers, the private respondents Complaint would have been time-barred under
Article 29 of the Warsaw Convention. However, the present case involves a special species of
injury resulting from the failure of PAL and/or Singapore Airlines to transport private
respondent from Singapore to Jakarta the profound distress, fear, anxiety and humiliation that
private respondent experienced when, despite PALs earlier assurance that Singapore Airlines
confirmed his passage, he was prevented from boarding the plane and he faced the daunting
possibility that he would be stranded in Singapore Airport because the PAL office was already
closed.
These claims are covered by the Civil Code provisions on tort, and not within the purview of
the Warsaw Convention. Hence, the applicable prescription period is that provided under
Article 1146 of the Civil Code:
Art. 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;

(2) Upon a quasi-delict.

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

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

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

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

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

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