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click here for freelancing tutoring sitesG.R. No. 150751. September 20, 2004 CENTRAL SHIPPING COMPANY, INC., petitioner, vs.INSURANCE COMPANY OF NORTH AMERICA, respondent.

A common carrier is presumed to be at fault or negligent. It shall be liable for the loss, destruction or deterioration of its cargo, unless it can prove that the sole and proximate cause of such event is one of the causes enumerated in Article 1734 of the Civil Code, or that it exercised extraordinary diligence to prevent or minimize the loss. In the present case, the weather condition encountered by petitioner’s vessel was not a "storm" or a natural disaster comprehended in the law. Given the known weather condition prevailing during the voyage, the manner of stowage employed by the carrier was insufficient to secure the cargo from the rolling action of the sea. The carrier took a calculated risk in improperly securing the cargo . Having lost that risk, it cannot now disclaim any liability for the loss.

Before the Court is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse and set aside the March 23, 2001 Decision2 of the CA in CA-GR CV No. 48915. The assailed Decision disposed as follows: "WHEREFORE, the decision of the RTC of Makati City, Branch 148 dated August 4, 1994 is hereby MODIFIED in so far as the award of attorney’s fees is DELETED. The decision is AFFIRMED in all other respects."3 The CA denied petitioner’s Motion for Reconsideration in its November 7, 2001 Resolution.4

The FactsThe factual antecedents, summarized by the trial court and adopted by the appellate court, are as follows:"On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the M/V ‘Central Bohol’, 376 pieces [of] Philippine Apitong Round Logs and undertook to transport said shipment to Manila for delivery to Alaska Lumber Co., Inc. The cargo was insured for P3,000,000.00 against total loss under [respondent’s] Marine Cargo Policy No. MCPB-00170. On July 25, 1990, upon completion of loading of the cargo, the vessel left Palawan and commenced the voyage to Manila. At about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about 10 degrees starboard side, due to the shifting of logs in the hold. At about 0128 hours, after the listing of the vessel had increased to 15 degrees, the ship captain ordered his men to abandon ship and at about 0130 hours of the same day the vessel completely sank. Due to the sinking of the vessel, the cargo was totally

lost. [Respondent] alleged that the total loss of the shipment was caused by the fault and negligence of the [petitioner] and its captain and as direct consequence thereof the consignee suffered damage in the sum of P3,000,000.00. The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the [petitioner] but the latter failed and refused to settle the claim, hence [respondent], being the insurer, paid said claim and now seeks to be subrogated to all the rights and actions of the consignee as against the [petitioner]. [Petitioner], while admitting the sinking of the vessel, interposed the defense that the vessel was fully manned, fully equipped and in all respects seaworthy; that all the logs were properly loaded and secured; that the vessel’s master exercised due diligence to prevent or minimize the loss before, during and after the occurrence of the storm. It raised as its main defense that the proximate and only cause of the sinking of its vessel and the loss of its cargo was a natural disaster, a tropical storm which neither [petitioner] nor the captain of its vessel could have foreseen." 5

Ruling of the RTCThe RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or any other caso fortuito. It noted that monsoons, which were common occurrences during the months of July to December, could have been foreseen and provided for by an ocean-going vessel. Applying the rule of presumptive fault or negligence against the carrier, the trial court held petitioner liable for the loss of the cargo. Thus, the RTC deducted the salvage value of the logs in the amount of P200,000 from the principal claim of respondent and found that the latter was entitled to be subrogated to the rights of the insured. The court a quo disposed as follows: "WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent] and against the [petitioner] ordering the latter to pay the following: 1) the amount of P2,800,000.00 with legal interest thereof from the filing of this complaint up to and until the same is fully paid; 2) P80,000.00 as and for attorney’s fees; 3) Plus costs of suit."6

Ruling of the Court of AppealsThe CA affirmed the trial court’s finding that the southwestern monsoon encountered by the vessel was not unforeseeable. Given the season of rains and monsoons, the ship captain and his crew should have anticipated the perils of the sea. The appellate court further held that the weather disturbance was not the sole and proximate cause of the sinking of the vessel, which was also due to the concurrent shifting of the logs in the hold that could have resulted only from improper stowage. Thus, the carrier was held responsible for the consequent loss of or damage to the cargo, because its own negligence had contributed thereto.

The CA found no merit in petitioner’s assertion of the vessel’s seaworthiness. It held that the Certificates of Inspection and Drydocking were not conclusive proofs thereof. In order to consider a vessel to be seaworthy, it must be fit to meet the perils of the sea.

Found untenable was petitioner’s insistence that the trial court should have given greater weight to the factual findings of the Board of Marine Inquiry (BMI) in the investigation of the Marine Protest filed by the ship captain, Enriquito Cahatol. The CA further observed that what petitioner had presented to the court a quo were mere excerpts of the testimony of Captain Cahatol given during the course of the proceedings before the BMI, not the actual findings and conclusions of the agency. Citing Arada v. CA, 7 it said that findings of the BMI were limited to the administrative liability of the owner/operator, officers and crew of the vessel. However, the determination of whether the carrier observed extraordinary diligence in protecting the cargo it was transporting was a function of the courts, not of the BMI. The CA concluded that the doctrine of limited liability was not applicable, in view of petitioner’s negligence -- particularly its improper stowage of the logs. Hence, this Petition.8

Issues: In its Memorandum, petitioner submits the following issues for our consideration:"(i) Whether or not the weather disturbance which caused the sinking of the vessel M/V Central Bohol was a fortuitous event."(ii) Whether or not the investigation report prepared by Claimsmen Adjustment Corporation is hearsay evidence under Section 36, Rule 130 of the Rules of Court."(iii) Whether or not the finding of the Court of Appeals that ‘the logs in the hold shifted and such shifting could only be due to improper stowage’ has a valid and factual basis."(iv) Whether or not M/V Central Bohol is seaworthy."(v) Whether or not the Court of Appeals erred in not giving credence to the factual finding of the Board of Marine Inquiry (BMI), an independent government agency tasked to conduct inquiries on maritime accidents."(vi) Whether or not the Doctrine of Limited Liability is applicable to the case at bar."9

The issues boil down to two: (1) whether the carrier is liable for the loss of the cargo; and (2) whether the doctrine of limited liability is applicable. These issues involve a determination of factual questions of whether the loss of the cargo was due to the occurrence of a natural disaster; and if so, whether its sole and proximate cause was such natural disaster or whether petitioner was partly to blame for failing to exercise due diligence in the prevention of that loss.

The Court’s RulingThe Petition is devoid of merit.

First Issue: Liability for Lost Cargo From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence over the goods they transport, according to all the circumstances of each case.10 In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible; that is, unless they can prove that such loss, destruction or deterioration was brought about -- among others -- by "flood, storm, earthquake, lightning or other natural disaster or calamity." 11 In all other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence. 12

In the present case, petitioner disclaims responsibility for the loss of the cargo by claiming the occurrence of a "storm" under Article 1734(1). It attributes the sinking of its vessel solely to the weather condition between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990.

At the outset, it must be stressed that only questions of law13 may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. Questions of fact are not proper subjects in this mode of appeal, 14 for "[t]he Supreme Court is not a trier of facts."15 Factual findings of the CA may be reviewed on appeal16 only under exceptional circumstances such as, among others, when the inference is manifestly mistaken,17 the judgment is based on a misapprehension of facts,18 or the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion.19

In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion of the CA that the weather encountered by the vessel was not a "storm" as contemplated by Article 1734(1). Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a southwestern monsoon in the course of its voyage.

The Note of Marine Protest,20 which the captain of the vessel issued under oath, stated that he and his crew encountered a southwestern monsoon about 2200 hours on July 25, 1990, and another monsoon about 2400 hours on July 26, 1990. Even petitioner admitted in its Answer that the sinking of M/V Central Bohol had been caused by the strong southwest monsoon.21Having made such factual representation, it cannot now be allowed to retreat and claim that the southwestern monsoon was a "storm."

The pieces of evidence with respect to the weather conditions encountered by the vessel showed that there was a southwestern monsoon at the time. Normally expected on sea voyages, however, were such monsoons, during which strong winds were not unusual. Rosa S. Barba, weather specialist of the Philippine Atmospheric Geophysical and Astronomical Services Administration (PAGASA), testified that a thunderstorm might occur in the midst of a southwest monsoon. According to her, one did occur between 8:00 p.m. on July 25, 1990, and 2 a.m. on July 26, 1990, as recorded by the PAGASA Weather Bureau.22

Nonetheless, to our mind it would not be sufficient to categorize the weather condition at the time as a "storm" within the absolutory causes enumerated in the law. Significantly, no typhoon was observed within the Philippine area of responsibility during that period.23

According to PAGASA, a storm has a wind force of 48 to 55 knots,24 equivalent to 55 to 63 miles per hour or 10 to 11 in the Beaufort Scale. The second mate of the vessel stated that the wind was blowing around force 7 to 8 on the Beaufort Scale.25 Consequently, the strong winds accompanying the southwestern monsoon could not be classified as a "storm." Such winds are the ordinary vicissitudes of a sea voyage.26

Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the Civil Code, petitioner failed to show that such natural disaster or calamity was the proximate and only cause of the loss. Human agency must be entirely excluded from the cause of injury or loss. In other words, the damaging effects blamed on the event or phenomenon must not have been caused, contributed to, or worsened by the presence of human participation.27The defense of fortuitous event or natural disaster cannot be successfully made when the injury could have been avoided by human precaution.28

Hence, if a common carrier fails to exercise due diligence -- or that ordinary care that the circumstances of the particular case demand -- to prevent or minimize the loss before, during and after the occurrence of the natural disaster, the carrier shall be deemed to have been negligent. The loss or injury is not, in a legal sense, due to a natural disaster under Article 1734(1).29

We also find no reason to disturb the CA’s finding that the loss of the vessel was caused not only by the southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been due only to improper stowage. The assailed Decision stated: "Notably, in Master Cahatol’s account, the vessel encountered the first southwestern monsoon at about 1[0]:00 in the evening. The monsoon was coupled with heavy rains and rough seas yet the vessel withstood the onslaught. The second monsoon attack occurred at about 12:00 midnight. During this occasion, the master ‘felt’ that the logs in the hold shifted, prompting him to order second mate Percival Dayanan to look at the bodega. Complying with the captain’s order, 2nd mate Percival Dayanan found that there was seawater in the bodega. 2nd mate Dayanan’s account was:‘14.T – Kung inyo pong natatandaanang mga pangyayari, maarimo bang isalaysay ang naganap na paglubog sa barkong M/V Central Bohol?‘S – Opo, noong ika-26 ng Julio 1990 humigit kumulang alas 1:20 ngumaga (dst) habang kami ay nagnanabegar patungong Maynila sa tapat ng Cadlao Island at Cauayan Island sakopng El Nido, Palawan, inutusan akoni Captain Enriquito Cahatol na tingnan ko ang bodega; nang ako ay nasa bodega, nakita ko ang loob nang bodega na maraming tubig at naririnig ko ang malakas na agos ng tubig-dagat na pumapasok sa loob ng bodega ng barko; agad bumalik ako kay Captain Enriquito Cahatol at sinabi ko ang malakas napagpasok ng tubig-dagat sa loob nang bodega ng barko na ito ay naka-tagilid humigit kumulang sa 020 degrees, nag-order si Captain Cahatol na standby engine at tinawag ang lahat ng mga officials at mga crew nang maipon kaming lahat ang barko ay naka-tagilid at ito ay tuloy-tuloy ang pagtatagilid na ang ilan sa mga officials ay naka-hawak nasa barandilla ng barko at di-nagtagal sumigaw nang ABANDO[N] SHIP si Captain Cahatol at kami ay nagkanya-kanyana ng talunan at languyan sa dagat na malakas ang alon at nangako ay lumingon sa barko ito ay di ko na nakita.’

"Additionally, [petitioner’s] own witnesses, boatswain Eduardo Viñas Castro and oiler Frederick Perena, are one in saying that the vessel encountered two weather disturbances, one at around 10 o’clock to 11 o’clock in the evening and the other at around 12 o’clock midnight. Both disturbances were coupled with waves and heavy rains, yet, the vessel endured the first and not the second. Why? The reason is plain. The vessel felt the strain during the second onslaught because the logs in the bodega shifted and there were already seawater that seeped inside."30

The above conclusion is supported by the fact that the vessel proceeded through the first southwestern monsoon without any mishap, and that it began to list only during the second monsoon immediately after the logs had shifted and seawater had entered the hold. In the hold, the sloshing of tons of water back and forth had created

pressures that eventually caused the ship to sink. Had the logs not shifted, the ship could have survived and reached at least the port of El Nido. In fact, there was another motor launch that had been buffeted by the same weather condition within the same area, yet it was able to arrive safely at El Nido.31

In its Answer, petitioner categorically admitted the allegation of respondent in paragraph 5 of the latter’s Complaint "[t]hat at about 0125 hours on 26 July 1990, while enroute to Manila, the M/V ‘Central Bohol’ listed about 10 degrees starboardside, due to the shifting of logs in the hold." Further, petitioner averred that "[t]he vessel, while navigating through this second southwestern monsoon, was under extreme stress. At about 0125 hours, 26 July 1990, a thud was heard in the cargo hold and the logs therein were felt to have shifted. The vessel thereafter immediately listed by ten (10) degrees starboardside."32

Yet, petitioner now claims that the CA’s conclusion was grounded on mere speculations and conjectures. It alleges that it was impossible for the logs to have shifted, because they had fitted exactly in the hold from the port to the starboard side. After carefully studying the records, we are inclined to believe that the logs did indeed shift, and that they had been improperly loaded.

According to the boatswain’s testimony, the logs were piled properly, and the entire shipment was lashed to the vessel by cable wire.33The ship captain testified that out of the 376 pieces of round logs, around 360 had been loaded in the lower hold of the vessel and 16 on deck. The logs stored in the lower hold were not secured by cable wire, because they fitted exactly from floor to ceiling. However, while they were placed side by side, there were unavoidable clearances between them owing to their round shape. Those loaded on deck were lashed together several times across by cable wire, which had a diameter of 60 millimeters, and were secured from starboard to port.34

It is obvious, as a matter of common sense, that the manner of stowage in the lower hold was not sufficient to secure the logs in the event the ship should roll in heavy weather. Notably, they were of different lengths ranging from 3.7 to 12.7 meters.35 Being clearly prone to shifting, the round logs should not have been stowed with nothing to hold them securely in place. Each pile of logs should have been lashed together by cable wire, and the wire fastened to the side of the hold. Considering the strong force of the wind and the roll of the waves, the loose arrangement of the logs did not rule out the possibility of their shifting. By force of gravity, those on top of the pile would naturally roll towards the bottom of the ship.

The adjuster’s Report, which was heavily relied upon by petitioner to strengthen its claim that the logs had not shifted, stated that "the logs were still properly lashed by steel chains on deck." Parenthetically, this statement referred only to those loaded on deck and did not mention anything about the condition of those placed in the lower hold. Thus, the finding of the surveyor that the logs were still intact clearly pertained only to those lashed on deck.

The evidence indicated that strong southwest monsoons were common occurrences during the month of July. Thus, the officers and crew of M/V Central Bohol should have reasonably anticipated heavy rains, strong winds and rough seas. They should then have taken extra precaution in stowing the logs in the hold, in consonance with their duty of observing extraordinary diligence in safeguarding the goods. But the carrier took a calculated risk in improperly securing the cargo. Having lost that risk, it cannot now escape responsibility for the loss.

Second Issue: Doctrine of Limited Liability The doctrine of limited liability under Article 587 of the Code of Commerce 36 is not applicable to the present case. This rule does not apply to situations in which the loss or the injury is due to the concurrent negligence of the shipowner and the captain.37 It has already been established that the sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the crew, as shown by the improper stowage of the cargo of logs. "Closer supervision on the part of the shipowner could have prevented this fatal miscalculation."38 As such, the shipowner was equally negligent. It cannot escape liability by virtue of the limited liability rule.

WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. 141716 July 4, 2002. SAN MIGUEL CORPORATION, petitioner, vs.HEIRS OF SABINIANO INGUITO, and JULIUS OUANO, respondents.

San Miguel Corporation entered into a Time Charter Party Agreement with Julius Ouano, doing business under the name and style J. Ouano Marine Services. Under the terms of the agreement, SMC chartered the M/V Doña Roberta owned by Julius Ouano for a period of two years, from June 1, 1989 to May 31, 1991, for the purpose of transporting SMC’s beverage products from its Mandaue City plant to various points in Visayas and Mindanao. Pertinent portions of the Time Charter Party Agreement state:1. OWNER [i.e., Ouano] warrants ownership, title and interest over the vessel DOÑA ROBERTA and represents that on the date the vessel is placed at CHARTERER’s San Miguel Corporation] disposal the following shall be the accurate or approximate description of the particulars and capacities of the vessel and her equipment:xxx           xxx           xxx.2. That for and in consideration of the premises hereinafter stipulated, the OWNER hereby lets, demises and the CHARTERER hereby hires the use and service of the aforementioned vessel;xxx           xxx           xxx.

4. OWNER warrants that the vessel is seaworthy and in proper, useful and operational condition and in the event that CHARTERER finds any defect in the vessel with regards to its working order, condition and function, CHARTERER shall immediately notify OWNER of this fact;xxx           xxx           xxx.9. There shall be no employer-employee relations between the OWNER and/or its vessel’s crew on one hand and the CHARTERER on the other. The crew of the vessel shall continue to be under the employ, control and supervision of the OWNER. Consequently, damage or loss that may be attributable to the crew, including loss of the vessel used shall continue to be the responsibility of, and shall be borne, by the OWNER; the OWNER further covenants to hold the CHARTERER free from all claims and liabilities arising out of the acts of the crew and the condition of the vessel;10. The OWNER shall undertake to pay all compensation of all the vessel’s crew, including the benefits, premia and protection in accordance with the provisions of the New Labor Code and other applicable laws and decrees and the rules and regulations promulgated by competent authorities as well as all of the SSS premium. Thus, it is understood that the crew of he vessel shall and always remain the employees of the OWNER;11. The OWNER shall be responsible to and shall indemnify the CHARTERER for damages and losses arising from the incompetence and/or negligence of, and/or the failure to observe the required extra-ordinary diligence by the crew. It shall be automatically liable to the CHARTERER for shortlanded shipment and wrong levels, the value of which shall be withheld from the OWNER’s collectibles with the CHARTERER. However, in the case of wrong levels, CHARTERER shall immediately reimburse OWNER after the former’s laboratory shall be able to determine that the bottles were never opened after it left the Plant;xxx           xxx           xxx.1

On November 11, 1990, during the term of the charter, SMC issued sailing orders to the Master of the MN Doña Roberta, Captain SabinianoInguito, instructing him as follows:1. Sail for Opol, Cagayan 0500H Nov. 12, 1990, or as soon as loading of FGS is completed, with load:SEE BILL OF LADING2. You are expected to arriveOpol 0900H Nov. 13, 1990.3. You are expected to depart Opol 0900H Nov. 14, 1990, or as soon as loading of empties is completed, back to Mandaue.4. You are expected to arriveMandaue 1300H Nov. 15, 1990.5. In case you need cash advance, send your request thru radio addressed to us for needed authority.6. Maintain communications and keep us posted of your developments.7. Observe weather condition, exercise utmost precautionary measures.BON VOYAGE AND GOOD LUCK.2

In accordance with the sailing orders, Captain Inguito obtained the necessary sailing clearance from the Philippine Coast Guard.3 Loading of the cargo on the M/V Doña Roberta was completed at 8:30 p.m. of November 11, 1990. However, the vessel did not leave Mandaue City until 6:00 a.m. of the following day, November 12, 1990.Meanwhile, at 4:00 a.m. of November 12, 1990, typhoon Ruping was spotted 570 kilometers east-southeast of Borongan, Samar, moving west-northwest at 22 kilometers per hour in the general direction of Eastern Visayas. The typhoon had maximum sustained winds of 240 kilometers per hour near the center with gustiness of up to 280 kilometers per hour.4

At 7:00 a.m., November 12, 1990, one hour after the M/V Doña Roberta departed from Mandaue City and while it was abeam Cawit Island off Cebu, SMC Radio Operator Rogelio P. Moreno contacted Captain Inguito through the radio and advised him to take shelter. Captain Inguito replied that they will proceed since the typhoon was far away from them, and that the winds were in their favor.5

At 2:00 p.m., while the vessel was two kilometers abeam Boljoon Point, Moreno again communicated with Captain Inguito and advised him to take shelter. The captain responded that they can manage.6 Hearing this, Moreno immediately tried to get in touch with Rico Ouano to tell him that Captain Inguito did not heed their advice. However, Rico Ouano was out of his office, so Moreno left the message with the secretary.7

Moreno again contacted Captain Inguito at 4:00 p.m. of November 12, 1990. By then the vessel was already 9.5 miles southeast of Balicasag Island heading towards Sulauan Point. The sky was cloudy with southwesterly winds and the sea was choppy.8 Moreno reiterated the advice and pointed out that it will be difficult to take shelter after passing Balicasag Island because they were approaching an open sea. Still, the captain refused to heed his advice.9

At 8:00 p.m., the vessel was 38 miles southeast of Balicasag Island. West-southwest winds were prevailing. At 10:00 p.m., the M/V Doña Roberta was 25 miles approaching Sulauan Point.10 Moments later, power went out in Moreno’s office and resumed at 11:40 p.m. He immediately made a series of calls to the M/V Doña Roberta but he failed to get in touch with anyone in the vessel.11

At 1:15 a.m., November 13, 1990, Captain Inguito called Moreno over the radio and requested him to contact Rico Ouano, son of Julius Ouano, because they needed a helicopter to rescue them. The vessel was about 20 miles west of Sulauan Point.12

Upon being told by SMC’s radio operator, Rico Ouano turned on his radio and read the distress signal from Captain Ingiuto. When he talked to the captain, the latter requested for a helicopter to rescue them.13 Rico Ouano talked to the Chief Engineer who informed him that they can no longer stop the water from coming into the vessel because the crew members were feeling dizzy from the petroleum fumes.14

At 2:30 a.m. of November 13, 1990, the M/V Doña Roberta sank. Out of the 25 officers and crew on board the vessel, only five survived, namely, Fernando Bucod, Rafael Macairan, ChenitoSugabo, RamilPabayo and Gilbert Gonzaga.15

On November 24, 1990, shipowner Julius Ouano, in lieu of the captain who perished in the sea tragedy, filed a Marine Protest.16

The heirs of the deceased captain and crew, as well as the survivors,17 of the ill-fated M/V Doña Roberta filed a complaint for tort against San Miguel Corporation and Julius Ouano, docketed as Civil Case No. 2472-L of the Regional Trial Court of Lapu-Lapu City, Branch 27.18

Julius Ouano filed an answer with cross-claim,19 alleging that the proximate cause of the loss of the vessel and its officers and crew was the fault and negligence of SMC, which had complete control and disposal of the vessel as charterer and which issued the sailing order for its departure despite being forewarned of the impending typhoon. Thus, he prayed that SMC indemnify him for the cost of the vessel and the unrealized rentals and earnings thereof.In its answer to the complaint19 and answer to the cross-claim,20 SMC countered that it was Ouano who had the control, supervision and responsibilities over the navigation of the vessel. This notwithstanding, and despite his knowledge of the incoming typhoon, Ouano never bothered to initiate contact with his vessel. Contrary to his allegation, SMC argued that the proximate cause of the sinking was Ouano’s breach of his obligation to provide SMC with a seaworthy vessel duly manned by competent crew members. SMC interposed counterclaims against Ouano for the value of the cargo lost in the sea tragedy.After trial, the court a quo rendered judgment finding that the proximate cause of the loss of the M/V Doña Roberta was attributable to SMC. Thus, it disposed of the case as follows:WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:1. Declaring defendant San Miguel Corporation and its acts or omissions as having produced the proximate cause which resulted in the death of the crew members of MN Doña Roberta at past midnight of November 12, 1990 during the height of super typhoon "Ruping" and as such said defendant is hereby ordered and sentenced to pay to the heirs of the deceased crew members the following sum[s] plus 12% per annum from the filing of the Complaint:A.         For loss of life. . . . . . . P50,000.00 each of the deceased crew members, namely: SabinianoInguito Felipe Pusa, AbundioGalon, Isidro Celetaria, Henry Cabigas, Pedro Abayon, Simeon Asentista, Norman Loon, Leonardo Presbitero, Renato Suscano, Antonio Du, George Basilgo, IsaganiDayondon;B. For loss of earnings based on life expectancy less 50% representing estimated living expenses except for the apprentices as they were presumed at the time of their deaths to be dependent on their parents:

Name Total loss of earnings1. Sabiniano, Inguito(sic) P1,740,000 (50% x P3,480,000)2. Pusa, Felipe P 1,200,000 (50% x P2,400,000)3. Galon, Abundio P 825,000 (50% x P 1,650,000)4. Celetaria, Isidro P 600,000 (50% x P1,200,000)5. Cabigas, Henry P 930,000 (50% x P 1,860,000)6. Abayon, Pedro P 660,000 (50% x P 1,320,000)7. Asentista, Simeon P 500,000 (50% x P1,000,000)8. Loon, Norman P 550,000 (50% x P 1,100,000)9. Presbitero, Leonardo P 460,000 (50% x P 920,000)10. Suscano, Renato P 460,000 (50% x P 920,000)11. Du, Antonio P 480,000 (50% x P 960,000)12. Basilgo, George P 120,000 (Apprentice)13. Dayondon, Isagani P 120,000 (Ditto)  --------------------------------------------            Total: P8,645,000

vvvvvvvvvvvvvvC. P300,000.00 for moral damages and P200,000.00 for exemplary damages for the heirs of each of the deceased crew members of the M/V Doña Roberta named in the Amended Complaint including survivor Gilbert Gonzaga;D. To pay plaintiffs’ counsel attorney’s fees in the sum of P500,000.00;2. Under the cross-claim of defendant, Ouano, San Miguel Corporation is further ordered and sentenced to pay defendant cross-claimant Engr. Julius C. Ouano the total sum of P32,893,300.00 plus 12% per annum from the filing of his crossclaim, broken down as follows:1) P9.8 million for the value of the total loss of the vessel M/V Doña Roberta;2) P1,833,300.00 for unrealized rental earnings (P3,666,600.00 less 50% for operating expenses and taxes) from November 19, 1990 to May 31, 1991 as stipulated in the Charter Party Agreement;3) P21,000,000.00 for unrealized earnings of M/V Doña Roberta based on the expected additional lifetime of the vessel estimated at seven (7) years (42,000,000.00 less 50% for operating expenses and taxes);4) P250,000.00 for and as attorney’s fees and P 10,000.00 as expenses of litigation;3. The counter-claims against plaintiffs and the cross-claim of defendant San Miguel Corporation against defendant Engr. Julius C. Ouano are hereby dismissed for lack of merit.With costs against defendant San Miguel Corporation.SO ORDERED.22

Both SMC and Ouano appealed to the Court of Appeals, docketed as CA-G.R. CV No. 48296. SMC argued that as mere charterer, it did not have control of the vessel and that the proximate cause of the loss of the vessel and its cargo was the negligence of the ship captain. For his part, Ouano complained of the reduced damages awarded to him by the trial court.On December 10, 1998, the Court of Appeals rendered the decision subject of the instant petitions for review, to wit:WHEREFORE, judgment is hereby rendered, modifying the decision appealed from, declaring defendant-appellants San Miguel Corporation and Julian C. Ouano jointly and severally liable to plaintiffs-appellees, except to the heirs of Capt. SabinianoInguito, for the following reduced amounts:

A.         P50,000.00 death indemnity (loss of life) for each of the deceased officers and crew of M/V Doña Roberta.b. Loss of earning for each of the deceased officers and crew, in the amount awarded by the trial court.c. P100,000.00 moral damages and P50,000.00 exemplary damages for each deceased officer and crew members, including Gilbert Gonzaga.d. P300,000,00 attorney’s fees to plaintiffs-appellees.e. The counter-claims of defendants-appellants against plaintiffs-appellees are dismissed.f. The cross-claims of defendants-appellants SMC and Julius Ouano against each other are likewise dismissed.g. Costs against defendants-appellants.SO ORDERED.23

SMC and Ouano filed separate motions for reconsideration, which were denied by the Court of Appeals for lack of merit.24

Petitioner SMC, in G.R. No. 141716, raises the following arguments:I.SMC COULD NOT BE A TORTFEASOR CONSIDERING THE UNDISPUTED FACT THAT:A.         SMC HAS NO LEGAL OR CONTRACTUAL DUTY TO INFORM OUANO ABOUT THE SITUATION OF THE VESSEL.B. EVEN WITHOUT SUCH DUTY, SMC NEVERTHELESS EXERCISED THE NECESSARY DEGREE OF PRUDENCE BY INFORMING OUANO ABOUT INGUITO’S REFUSAL TO TAKE SHELTER. C. THE COURT OF APPEALS ITSELF FOUND THAT THE PROXIMATE CAUSE OF THE LOSS OF THE VESSEL WAS INGUITO’S FAILURE TO HEED SMC’S ADVICE TO TAKE SHELTER, AND INGUITO WAS AN EMPLOYEE OF OUANO AND NOT OF SMC.II.UNDER THE CHARTER, OUANO WAS RESPONSIBLE AND UNDERTOOK TO INDEMNIFY SMC FOR ALL DAMAGES ARISING FROM THE NEGLIGENCE OF HIS CREW, PARTICULARLY INGUITO.25

Meanwhile, petitioner Ouano, in G.R. No. 142025, anchors his petition on the following assignment of errors:First ErrorThe Court of Appeals committed serious error of law and/or grave abuse of discretion in not finding that the Charter Party between SMC and Ouano is legally and in fact a demise charter, an issue raised by petitioner from the very start in the Trial CourtSecond ErrorThe Court of Appeals committed serious error of law and/or grave abuse of discretion in not finding that Capt. Inguito, master of the ill-fated M/V Doña Roberta, was legally and in fact an agent/servant of SMC demise charterer as correctly characterized by the Trial CourtThird ErrorThe Court of Appeals committed serious error of law and/or grave abuse of discretion in completely disregarding or suppressing the findings of fact of the Trial Court on the issues of possession and control of M/V Doña Roberta by SMC and its actions relating thereto as demise charterer/owner pro hac vice which led to the tragedy and in not declaring that said actions of SMC constituted the proximate cause of the sinking and loss of the vessel and the death of most of its crew membersFourth ErrorThe Court of Appeals committed serious error of law and/or grave abuse of discretion in finding Ouano at fault in the sinking of M/V Doña Roberta against the evidence on record which is largely undisputedFifth ErrorThe Court of Appeals committed serious error of law and/or grave abuse of discretion insofar as it failed to find and declare respondent SMC’s tort or negligence as the proximate cause which resulted in the sinking and total loss of M/V Doña Roberta as well as the death of its officers and crew members and correspondingly in not awarding to petitioner Ouano the sums of money as awarded by the Trial Court in the dispositive part of its decision dated 10 December 1998.Sixth ErrorIn any event, the Court of Appeals committed serious error of law and/or grave abuse of discretion in not declaring and holding petitioner Ouano not liable for the claims of private respondents heirs of SabinianoInguito, et al. and SMC under the well-established principle in Maritime Law that the owner’s liability sinks with the vessel.26

The two petitions were consolidated.In deciding the cases at bar, the Court of Appeals correctly resolved the issues with an initial discussion of the definition and kinds of charter parties. Preliminarily, a charter party is a contract by virtue of which the owner or the agent of a vessel binds himself to transport merchandise or persons for a fixed price. It has also been defined as a contract by virtue of which the owner or the agent of the vessel leases for a certain price the whole or a portion of the vessel for the transportation of goods or persons from one port to another.27

A charter party may either be a (1) bareboat or demise charter or (2) contract of affreightment. Under a demise or bareboat charter, the charterer mans the vessel with his own people and becomes, in effect, the owner of the ship for the voyage or service stipulated, subject to liability for damages caused by negligence.28

In a contract of affreightment, on the other hand, 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. Under such contract the ship 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.29 Otherwise put, 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.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 charterer 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 ship’s 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.30

We concur with the findings of the Court of Appeals that the charter party in these cases was a contract of affreightment, contrary to petitioner Ouano’s protestation that it was a demise charter, as shown by the following stipulations in the Time Charter Party Agreement:9. There shall be no employer-employee relations between the OWNER and/or its vessel’s crew on one hand and the CHARTERER on the other. The crew of the vessel shall continue to be under the employ, control and supervision of the OWNER. Consequently, damage or loss that may be attributable to the crew, including loss of the vessel used shall continue to be the responsibility of, and shall be borne, by the OWNER; the OWNER further covenants to hold the CHARTERER free from all claims and liabilities arising out of the acts of the crew and the condition of the vessel;10. The OWNER shall undertake to pay all compensation of all the vessel’s crew, including the benefits, premia and protection in accordance with the provisions of the New Labor Code and other applicable laws and decrees and the rules and regulations promulgated by competent authorities as well as all of the SSS premium. Thus, it is understood that the crew of he vessel shall and always remain the employees of the OWNER;11. The OWNER shall be responsible to and shall indemnify the CHARTERER for damages and losses arising from the incompetence and/or, negligence of, and/or the failure to observe the required extraordinary diligence by the crew. It shall be automatically liable to the CHARTERER for shortlanded shipment and wrong levels, the value of which shall be withheld from the OWNER’s collectibles with the CHARTERER. However, in the case of wrong levels, CHARTERER shall immediately reimburse OWNER after the former’s laboratory shall be able to determine that the bottles were never opened after it left the Plant;It appearing that Ouano was the employer of the captain and crew of the M/V Doña Roberta during the term of the charter, he therefore had command and control over the vessel. His son, Rico Ouano, even testified that during the period that the vessel was under charter to SMC, the Captain thereof had control of the navigation of all voyages.31

Under the foregoing definitions, as well as the clear terms of the Charter Party Agreement between the parties, the charterer, SMC, should be free from liability for any loss or damage sustained during the voyage,32 unless it be shown that the same was due to its fault or negligence.The evidence does not show that SMC or its employees were amiss in their duties. The facts indubitably establish that SMC’s Radio Operator, Rogelio P. Moreno, who was tasked to monitor every shipment of its cargo, contacted Captain Inguito as early as 7:00 a.m., one hour after the M/V Doña Roberta departed from Mandaue, and advised him to take shelter from typhoon Ruping. This advice was reiterated at 2:00 p.m. At that point, Moreno thought of calling Ouano’s son, Rico, but failed to find him. At 4:00 p.m., Moreno again advised Captain Inguito to take shelter and stressed the danger of venturing into the open sea. The Captain insisted that he can handle the situation.That evening, Moreno tried in vain to contact the captain. Later at 1:15 a.m., Captain Inguito himself radioed a distress signal and asked that the same be relayed to Rico Ouano.In contrast to the care exercised by Moreno, Rico Ouano tried to communicate with the captain only after receiving the S.O.S. message. Neither Ouano nor his son was available during the entire time that the vessel set out and encountered foul weather. Considering that the charter was a contract of affreightment, the shipowner had the clear duty to ensure the safe carriage and arrival of goods transported on board its vessels. More specifically, Ouano expressly warranted in the Time Charter Party that his vessel was seaworthy.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.33 Seaworthiness is defined as the sufficiency of the vessel in materials, construction, equipment, officers, men, and outfit, for the trade or service in which it is employed.34 It includes the fitness of a ship for a particular voyage with reference to its physical and mechanical condition, the extent of its fuel and provisions supply, the quality of its officers and crew, and its adaptability for the time of voyage proposed.35

In the assailed decision, the Court of Appeals found that the proximate cause of the sinking of the vessel was the negligence of Captain SabinianoInguito, thus:It appears that the proximate cause of the sinking of the vessel was the gross failure of the captain of the vessel to observe due care and to heed SMC’s advices to take shelter. Gilbert Gonsaga, Chief Engineer of Doña Roberta, testified that the ship sank at 2:30 in the early morning of November 13th. On the other hand, from the time the vessel left the port of Mandaue at six o’clock in the morning, Exh "15 SMC", Exh "16 SMC", Exh "17 SMC" and Exh "18 SMC" would show that Captain SabinianoInguito was able to contact the radio operator of SMC. He was fully apprised of typhoon "Ruping" and its strength. Due diligence dictates that at any time before the vessel was in distress, he should have taken shelter in order to safeguard the vessel and its crew. Gonsaga testified that at 7:00 a.m. of November 12, 1990, he was able to talk to the captain and inquired from him what the message was of the radio operator of SMC. The captain answered that they would take shelter in Tagbilaran if the wind would grow stronger. But Gonsaga was surprised when they did not take shelter and, instead, proceeded with the voyage.Gonsaga further testified that at 7:00 in the evening of November 12, 1990, he went up to the office of the captain when the wind was getting stronger and asked him, "What is this captain, the wind is already very strong and the waves are very big, what is the message of SMC?" The captain plotted the position of the typhoon and said that the typhoon is still very far per the data supplied by SMC.It is very clear that Captain SabinianoInguito had sufficient time within which to secure his men and the vessel. But he waited until the vessel was already in distress at 1:15 in the early morning of November 13m, 1990 to seek help in saving his men and the vessel. In any event, Capt. Inguito had full control and responsibility, whether to follow a sailing order or to take shelter when already at sea. In fact, there was an incident when a sailing order was issued by SMC to Inguito but he decided not to proceed with the voyage because of a tropical storm.36

The foregoing factual conclusions are binding on us. Settled is the rule that findings of fact of the Court of Appeals are conclusive and are not reviewable by this Court,37 unless the case falls under any of the recognized exceptions, such as: (1) when the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when

the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners’ main and reply briefs are not disputed by the respondents; and (10) when the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.38 None of these exceptions obtain in the case at bar.We likewise agree with the Court of Appeals that Ouano is vicariously liable for the negligent acts of his employee, Captain Inguito. Under Articles 2176 and 2180 of the Civil Code, owners and managers are responsible for damages caused by the negligence of a servant or an employee, the master or employer is presumed to be negligent either in the selection or in the supervision of that employee. This presumption may be overcome only by satisfactorily showing that the employer exercised the care and the diligence of a good father of a family in the selection and the supervision of its employee.39

Ouano miserably failed to overcome the presumption of his negligence. He failed to present proof that he exercised the due diligence of a bonus paterfamilias in the selection and supervision of the captain of the M/V Doña Roberta. Hence, he is vicariously liable for the loss of lives and property occasioned by the lack of care and negligence of his employee.However, we cannot sustain the appellate court’s finding that SMC was likewise liable for the losses. The contention that it was the issuance of the sailing order by SMC which was the proximate cause of the sinking is untenable. The fact that there was an approaching typhoon is of no moment. It appears that on one previous occasion, SMC issued a sailing order to the captain of the M/V Doña Roberta, but the vessel cancelled its voyage due to typhoon.40 Likewise, it appears from the records that SMC issued the sailing order on November 11, 1990, before typhoon "Ruping" was first spotted at 4:00 a.m. of November 12, 1990.41

Consequently, Ouano should answer for the loss of lives and damages suffered by the heirs of the officers and crew members who perished on board the M/V Doña Roberta, except Captain SabinianoInguito. The award of damages granted by the Court of Appeals is affirmed only against Ouano, who should also indemnify SMC for the cost of the lost cargo, in the total amount of P10,278,542.40.42

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 48296 is MODIFIED as follows: Julius C. Ouano is ordered to pay each of the deceased officers and crew of the M/V Doña Roberta, except Captain SabinanoInguito, death indemnity in the amount of P50,000.00 and damages for loss of earnings in the amounts awarded by the trial court. Further, Julius C. Ouano is ordered to pay each deceased officer and crew members, except Captain SabinianoInguito, including Gilbert Gonzaga, P100,000.00 as moral damages, P50,000.00 as exemplary damages and P300,000.00 as attorney’s fees. Finally, Julius C. Ouano is ordered to pay San Miguel Corporation the sums of P10,278,542.40 as actual damages.SO ORDERED.

G.R. No. 106999 June 20, 1996. PHILIPPINE HOME ASSURANCE CORPORATION, petitioner, vs.COURT OF APPEALS and EASTERN SHIPPING LINES, INC., respondents. The FactsEastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in Kobe, Japan, the following shipment for carriage to Manila and Cebu, freight pre-paid and in good order and condition, viz: (a) two (2) boxes internal combustion engine parts, consigned to William Lines, Inc. under Bill of Lading No. 042283; (b) ten (l0) metric ton. (334 bags) ammonium chloride, consigned to Orca's Company under Bill of Lading No. KCE-I2; (c) two hundred (200) bags Glue 300, consigned to Pan Oriental Match Company under Bill of Lading No. KCE-8; and (d) garments, consigned to Ding Velayo under Bills of Lading Nos. KMA-73 and KMA-74.

While the vessel was off Okinawa, Japan, a small flame was detected on the acetylene cylinder located in the accommodation area near the engine room on the main deck level. As the crew was trying to extinguish the fire, the acetylene cylinder suddenly exploded sending a flash of flame throughout the accommodation area, thus causing death and severe injuries to the crew and instantly setting fire to the whole superstructure of the vessel. The incident forced the master and the crew to abandon the ship.

Thereafter, SS Eastern Explorer was found to be a constructive total loss and its voyage was declared abandoned. Several hours later, a tugboat under the control of Fukuda Salvage Co. arrived near the vessel and commenced to tow the vessel for the port of Naha, Japan.

Fire fighting operations were again conducted at the said port. After the fire was extinguished, the cargoes which were saved were loaded to another vessel for delivery to their original ports of destination. ESLI charged the consignees several amounts corresponding to additional freight and salvage charges, as follows: (a) for the goods covered by Bill of Lading No. 042283, ESLI charged the consignee the sum of P1,927.65, representing salvage charges assessed against the goods; (b) for the goods covered by Bill of Lading No. KCE-12, ESLI charged the consignee the sum of P2,980.64 for additional freight and P826.14 for salvage charges against the goods; (c) for the goods covered by Bill of Lading No. KCE-8, ESLI charged the consignee the sum of P3,292.26 for additional freight and P4,130.68 for salvage charges against the goods; and (d) for the goods under Bills of Lading Nos. KMA-73 and KMA-74, ESLI charged the consignee the sum of P8,337.06 for salvage charges against the goods.

The charges were all paid by Philippine Home Assurance Corporation (PHAC) under protest for and in behalf of the consignees. PHAC, as subrogee of the consignees, thereafter filed a complaint before the Regional Trial Court of Manila, Branch 39, against ESLI to recover the sum paid under protest on the ground that the same were actually damages directly brought about by the fault, negligence, illegal act and/or breach of contract of ESLI.

In its answer, ESLI contended that it exercised the diligence required by law in the handling, custody and carriage of the shipment; that the fire was caused by an unforeseen event; that the additional freight charges are due and demandable pursuant to the Bill of Lading; 1 and that salvage charges are properly collectible under Act No. 2616, known as the Salvage Law.

Ruling of the RTCThe trial court dismissed PHAC's complaint and ruled in favor of ESLI ratiocinating thus: The question to be resolved is whether or not the fire on the vessel which was caused by the explosion of an acetylene cylinder loaded on the same was the fault or negligence of the defendant.

Evidence has been presented that the SS "Eastern Explorer" was a seaworthy vessel (Deposition of Jumpei Maeda, October 23, 1980, p. 3) and before the ship loaded the Acetylene Cylinder No. NCW 875, the same has been tested, checked and examined and was certified to have complied with the required safety measures and standards (Deposition of Senjei Hayashi, October 23, 1980, pp. 2-3). When the fire was detected by the crew, fire fighting operations was immediately conducted but due to the explosion of the acetylene cylinder, the crew were unable to contain the fire and had to abandon the ship to save their lives and were saved from drowning by passing vessels in the vicinity. The burning of the vessel rendering it a constructive total loss and incapable of pursuing its voyage to the Philippines was, therefore, not the fault or negligence of defendant but a natural disaster or calamity which nobody would like to happen. The salvage operations conducted by Fukuda Salvage

Company (Exhibits "4-A" and "6-A") was perfectly a legal operation and charges made on the goods recovered were legitimate charges.

Act No. 2616, otherwise known as the Salvage Law, is thus applicable to the case at bar. Section 1 of Act No. 2616 states:Sec 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of the crew, or shall have been abandoned by them, and picked up and conveyed to a safe place by other persons, the latter shall be entitled to a reward for the salvage.

Those who, not being included in the above paragraph, assist in saving a vessel or its cargo from shipwreck, shall be entitled to like reward.

In relation to the above provision, the Supreme Court has ruled in Erlanger & Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178, that three elements are necessary to a valid salvage claim, namely (a)a marine peril (b) service voluntarily rendered when not required as an existing duty or from a special contract and (c) success in whole or in part, or that the service rendered contributed to such success.

The above elements are all present in the instant case. Salvage charges may thus be assessed on the cargoes saved from the vessel. As provided for in Section 13 of the Salvage Law, "The expenses of salvage, as well as the reward for salvage or assistance, shall be a charge on the things salvaged or their value." In Manila Railroad Co. v. Macondray Co., 37 Phil. 583, it was also held that "when a ship and its cargo are saved together, the salvage allowance should be charged against the ship and cargo in the proportion of their respective values, the same as in a case of general average . . ." Thus, the "compensation to be paid by the owner of the cargo is in proportion to the value of the vessel and the value of the cargo saved." (Atlantic Gulf and Pacific Co. v. Uchida Kisen Kaisha, 42 Phil. 321).(Memorandum for Defendant, Records, pp. 212-213).

With respect to the additional freight charged by defendant from the consignees of the goods, the same are also validly demandable. As provided by the Civil Code:Art. 1174. Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation require the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable.

Art 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor."

The burning of "EASTERN EXPLORER" while off Okinawa rendered it physically impossible for defendant to comply with its obligation of delivering the goods to their port of destination pursuant to the contract of carriage. Under Article 1266 of the Civil Code, the physical impossibility of the prestation extinguished defendant's obligation..

It is but legal and equitable for the defendant therefore, to demand additional freight from the consignees for forwarding the goods from Naha, Japan to Manila and Cebu City on board another vessel, the "EASTERN MARS." This finds support under Article 844 of the Code of Commerce which provides as follows:Art. 844. A captain who may have taken on board the goods saved from the wreck shall continue his course to the port of destination; and on arrival should deposit the same, with judicial intervention at the disposal of their legitimate owners. . . .The owners of the cargo shall defray all the expenses of this arrival as well as the payment of the freight which, after taking into consideration the circumstances of the case, may be fixed by agreement or by a judicial decision.

Furthermore, the terms and conditions of the Bill of Lading authorize the imposition of additional freight charges in case of forced interruption or abandonment of the voyage. At the dorsal portion of the Bills of Lading issued to the consignees is this stipulation:12. All storage, transshipment, forwarding or other disposition of cargo at or from a port of distress or other place where there has been a forced interruption or abandonment of the voyage shall be at the expense of the owner, shipper, consignee of the goods or the holder of this bill of lading who shall be jointly and severally liable for all freight charges and expenses of every kind whatsoever, whether payable in advance or not that may be incurred by the cargo in addition to the ordinary freight, whether the service be performed by the named carrying vessel or by carrier's other vessels or by strangers. All such expenses and charges shall be due and payable day by day immediately when they are incurred.

The bill of lading is a contract and the parties are bound by its terms (Gov't of the Philippine Islands vs. Ynchausti and Co., 40 Phil. 219). The provision quoted is binding upon the consignee.

Defendant therefore, can validly require payment of additional freight from the consignee. Plaintiff can not thus recover the additional freight paid by the consignee to defendant. (Memorandum for Defendant, Record, pp. 215-216). 2Ruling of the CAOn appeal to the Court of Appeals, respondent court affirmed the trial court's findings and conclusions, 3 hence, the present petition for review before this Court on the following errors:I. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL THE TRIAL COURT'S FINDINGS THAT THE BURNING OF THE SS "EASTERN EXPLORER", RENDERING ET A CONSTRUCTIVE TOTAL LOSS, IS A NATURAL DISASTER OR CALAMITY WHICH NOBODY WOULD LIKE TO HAPPEN, DESPITE EXISTING JURISPRUDENCE TO THE CONTRARY.

II. THE RESPONDENT COURT ARBITRARILY RULED THAT THE BURNING OF THE SS "EASTERN EXPLORER" WAS NOT THE FAULT AND NEGLIGENCE OF RESPONDENT EASTERN SHIPPING LINES.III. THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF DISCRETION IN RULING THAT DEFENDANT HAD EXERCISED THE EXTRAORDINARY DILIGENCE IN THE VIGILANCE OVER THE GOODS AS REQUIRED BY LAW.IV. THE RESPONDENT COURT ARBITRARILY RULED THAT THE MARINE NOTE OF PROTEST AND STATEMENT OF FACTS ISSUED BY THE VESSEL'S MASTER ARE NOT HEARSAY DESPITE THE FACT THAT THE VESSEL'S MASTER, CAPT. LICAYLICAY WAS NOT PRESENTED COURT, WITHOUT EXPLANATION WHATSOEVER FOR HIS NON-PRESENTATION, THUS, PETITIONER WAS DEPRIVED OF ITS RIGHT TO CROSS- EXAMINE THE AUTHOR THEREOF.V. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL THE TRIAL COURT'S CONCLUSION THAT THE EXPENSES OR AVERAGES INCURRED IN SAVING THE CARGO CONSTITUTE GENERAL AVERAGE.VI. THE RESPONDENT COURT ERRONEOUSLY ADOPTED THE TRIAL COURT'S RULING THAT PETITIONER WAS LIABLE TO RESPONDENT CARRIER FOR ADDITIONAL FREIGHT AND SALVAGE CHARGES. 4

The Court’s RulingIt is quite evident that the foregoing assignment of errors challenges the findings of fact and the appreciation of evidence made by the trial court and later affirmed by respondent court. While it is a well-settled rule that only questions of law may be raised in a petition for review under Rule 45 of the Rules of Court, it is equally well-settled that the same admits of the following exceptions, namely: (a) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (b) when the inference made is manifestly mistaken, absurd or impossible; (c) where there is a grave abuse of discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of fact are conflicting; (f) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (g) when the findings of the Court of Appeals are contrary to those of the trial court; (h) when the findings of fact are conclusions without citation of specific evidence on which they are based; (i) when the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the respondents; and (j) when the finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is contradicted by the evidence on record. 5 Thus, if there is a showing, as in the instant case, that the findings complained of are totally devoid of support in the records, or that they are so glaringly erroneous as to constitute grave abuse of discretion, the same may be properly reviewed and evaluated by this Court.

It is worthy to note at the outset that the goods subject of the present controversy were neither lost nor damaged in transit by the fire that razed the carrier. In fact, the said goods were all delivered to the consignees, even if the transshipment took longer than necessary. What is at issue therefore is not whether or not the carrier is liable for the loss, damage, or deterioration of the goods transported by them but who, among the carrier, consignee or insurer of the goods, is liable for the additional charges or expenses incurred by the owner of the ship in the salvage operations and in the transshipment of the goods via a different carrier.

In absolving respondent carrier of any liability, respondent Court of Appeals sustained the trial court's finding that the fire that gutted the ship was a natural disaster or calamity. Petitioner takes exception to this conclusion and we agree. In our jurisprudence, fire may not be considered a natural disaster or calamity since it almost always arises from some act of man or by human means. It cannot be an act of God unless caused by lightning or a natural disaster or casualty not attributable to human agency. 6

In the case at bar, it is not disputed that a small flame was detected on the acetylene cylinder and that by reason thereof, the same exploded despite efforts to extinguish the fire. Neither is there any doubt that the acetylene cylinder, obviously fully loaded, was stored in the accommodation area near the engine room and not in a storage area considerably far, and in a safe distance, from the engine room. Moreover, there was no showing, and none was alleged by the parties, that the fire was caused by a natural disaster or calamity not attributable to human agency. On the contrary, there is strong evidence indicating that the acetylene cylinder caught fire because of the fault and negligence of respondent ESLI, its captain and its crew.

First, the acetylene cylinder which was fully loaded should not have been stored in the accommodation area near the engine room where the heat generated therefrom could cause the acetylene cylinder to explode by reason of spontaneous combustion. Respondent ESLI should have easily foreseen that the acetylene cylinder, containing highly inflammable material was in real danger of exploding because it was stored in close proximity to the engine room.

Second, respondent ESLI should have known that by storing the acetylene cylinder in the accommodation area supposed to be reserved for passengers, it unnecessarily exposed its passengers to grave danger and injury. Curious passengers, ignorant of the danger the tank might have on humans and property, could have handled the same or could have lighted and smoked cigarettes while repairing in the accommodation area.

Third, the fact that the acetylene cylinder was checked, tested and examined and subsequently certified as having complied with the safety measures and standards by qualified experts 7 before it was loaded in the vessel only shows to a great extent that negligence was present in the handling of the acetylene cylinder after it was loaded and while it was on board the ship. Indeed, had the respondent and its agents not been negligent in storing the acetylene cylinder near the engine room, then the same would not have leaked and exploded during the voyage.

Verily, there is no merit in the finding of the trial court to which respondent court erroneously agreed that the fire was not the fault or negligence of respondent but a natural disaster or calamity. The records are simply wanting in this regard.

Anent petitioner's objection to the admissibility of Exhibits "4'' and ''5", the Statement of Facts and the Marine Note of Protest issued by Captain Tiburcio A. Licaylicay, we find the same impressed with merit because said documents are hearsay evidence. Capt. Licaylicay, Master of S.S. Eastern Explorer who issued the said documents, was not presented in court to testify to the truth of the facts he stated therein; instead, respondent ESLI presented Junpei Maeda, its Branch Manager in Tokyo and Yokohama, Japan, who evidently had no personal knowledge of the facts stated in the documents at issue. It is clear from Section 36, Rule 130 of the Rules of Court that any evidence, whether oral or documentary, is hearsay if its probative value is not based on the personal knowledge of the witness but on the knowledge of some other person not on the witness stand. Consequently, hearsay evidence, whether objected to or not, has no probative value unless the proponent can show that the evidence falls within the exceptions to the hearsay evidence rule. 8 It is excluded because the party against whom it is presented is deprived of his right and opportunity to cross-examine the persons to whom the statements or writings are attributed.

On the issue of whether or not respondent court committed an error in concluding that the expenses incurred in saving the cargo are considered general average, we rule in the affirmative. As a rule, general or gross averages include all damages and expenses which are deliberately caused in order to save the vessel, its cargo, or both at the same time, from a real and known risk 9 While the instant case may technically fall within the purview of the said provision, the formalities prescribed under Articles 813 10 and 814 11 of the Code of Commerce in order to incur the expenses and cause the damage corresponding to gross average were not complied with. Consequently, respondent ESLI's claim for contribution from the consignees of the cargo at the time of the occurrence of the average turns to naught.

Prescinding from the foregoing premises, it indubitably follows that the cargo consignees cannot be made liable to respondent carrier for additional freight and salvage charges. Consequently, respondent carrier must refund to herein petitioner the amount it paid under protest for additional freight and salvage charges in behalf of the consignees.

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. Respondent Eastern Shipping Lines, Inc. is ORDERED to return to petitioner Philippine Home Assurance Corporation the amount it paid under protest in behalf of the consignees herein. SO ORDERED.

G.R. No. 118030 January 15, 2004. PROVIDENT INSURANCE CORP., petitioner, vs. HONORABLE COURT OF APPEALS and AZUCAR SHIPPING CORP., respondents.

This is a petition for review under Rule 45 of the Rules of Court assailing the Decision of the Court of Appeals dated November 15, 1994, which affirmed the appealed Orders dated August 12, 1991 and February 4, 1992 issued by the Regional Trial Court of Manila, Branch 51, in Civil Case No. 91-56167.

The FactsThe pertinent facts as culled from the stipulation of facts submitted by the parties are as follows:On or about June 5, 1989, the vessel MV "Eduardo II" took and received on board at Sangi, Toledo City a shipment of 32,000 plastic woven bags of various fertilizer in good order and condition for transportation to Cagayan de Oro City. The subject shipment was consigned to Atlas Fertilizer Corporation, and covered by Bill of Lading No. 01 and Marine Insurance Policy No. CMI-211/89-CB. Upon its arrival at General Santos City on June 7, 1989, the vessel MV "Eduardo II" was instructed by the consignee's representative to proceed to Davao City and deliver the shipment to its Davao Branch in Tabigao.

On June 10, 1989, the MV "Eduardo II" arrived in Davao City where the subject shipment was unloaded. In the process of unloading the shipment, three bags of fertilizer fell overboard and 281 bags were considered to be unrecovered spillages. Because of the mishandling of the cargo, it was determined that the consignee incurred actual damages in the amount of P68,196.16. As the claims were not paid, petitioner Provident Insurance Corporation indemnified the consignee Atlas Fertilizer Corporation for its damages. Thereafter, petitioner, as subrogee of the consignee, filed on June 3, 1991 a complaint against respondent carrier seeking reimbursement for the value of the losses/damages to the cargo.

Respondent carrier moved to dismiss the complaint on the ground that the claim or demand by petitioner has been waived, abandoned or otherwise extinguished for failure of the consignee to comply with the required claim for damages set forth in the first sentence of Stipulation No. 7 of the bill of lading, the full text of which reads –7. All claims for damages to the goods must be made to the carrier at the time of delivery to the consignee or his agent if the package or containers show exterior sign of damage, otherwise to be made in writing to the carrier within twenty-four hours from the time of delivery. Notice of loss due to delay must be given in writing to the carrier within 30 days from the time the goods were ready for delivery, or in case of non-delivery or misdelivery of shipment the written notice must be given within 30 days after the arrival at the port of discharge of the vessels on

which the goods were received in case of the failure of the vessel on which the goods were shipped to arrived at the port of discharge, misdelivery must be presented in writing to the carrier within two months after the arrival of the vessel of the port of discharge or in case of the failure of the vessel in which the goods were shipped to arrive at the port of discharge written claims shall be made within 30 days of the time the vessel should have arrived. The giving of notice and the filing of claims as above provided shall be conditions precedent to the securing of the right of actions against the carrier for losses due to delay, non-delivery, or misdelivery. In the case of damage to goods, the filing of the suit based upon claims arising from damage, delay, non-delivery or mis-delivery shall be instituted within one year from the date of the accrual of the right of action. Failure to institute judicial proceedings as herein provided shall constitute a waiver of the claim or right of action, and no agent nor employee of the carrier shall have authority to waive any of the provisions or requirements of this bill of lading. Any action by the ship owner or its agents or attorneys in considering or dealing with claims where the provisions or requirements of this bill of lading have not been complied with shall not be considered a waiver of such requirements and they shall not be considered as waived except by an express waiver.1 (Italics Supplied)

Ruling of the RTCThe trial court, in an Order dated August 12, 1991, found the motion to dismiss well taken and accordingly, dismissed the complaint.2 Petitioner filed a motion for reconsideration which the trial court, in an Order dated February 4, 1992, denied.3

Ruling of the CAAggrieved by the lower court's decision, petitioner appealed to the Court of Appeals. On November 15, 1994, the Court of Appeals rendered the assailed decision which affirmed the lower court's Orders dated August 12, 1991 and February 4, 1992.4 Hence, this petition raising the lone error that – THE HONORABLE COURT OF APPEALS HAS DECIDED THE QUESTION IN ISSUE NOT IN ACCORDANCE WITH THE PURPOSE FOR WHICH THE LAW WAS ESTABLISHED AND CONTRARY TO THE EXISTING JURISPRUDENCE.5

In support of its petition, petitioner contends that it is unreasonable for the consignee Atlas Fertilizer Corporation to be required to abide by the provisions of Stipulation No. 7 of the bill of lading. According to petitioner, since the place of delivery was remote and inaccessible, the consignee cannot be expected to have been able to immediately inform its main office and make the necessary claim for damages for the losses and unrecovered spillages in the subject cargo. Petitioner further argues that the contents of the bill of lading are printed in small letters that no one would bother to read them, as they are difficult to read.

Finally, petitioner avers that from June 13 to 18, 1987, the vessel's Chief Officer supervised the unloading of the shipment and thereafter signed a discharging report attesting to the fact of loss and unrecovered spillages on the cargo. Thus, petitioner argues that respondent carrier's knowledge of the loss and spillages was substantial compliance with the notice of claim required under Stipulation No. 7 of the bill of lading.

The Court’s RulingThe petition is bereft of merit.

It is a fact admitted by both parties that the losses and damages were caused by the mishandling of the cargo by respondent carrier. There is also no dispute that the consignee failed to strictly comply with Stipulation No. 7 of the Bill of Lading in not making claims for damages to the goods within the twenty-four hour period from the time of delivery, and that there was no exterior sign of damage of the goods. Consequently, the only issue left to be resolved is whether the failure to make the prompt notice of claim as required is fatal to the right of petitioner to claim indemnification for damages.

Validity of the StipulationThe bill of lading defines the rights and liabilities of the parties in reference to the contract of carriage. Stipulations therein are valid and binding in the absence of any showing that the same are contrary to law, morals, customs, public order and public policy. Where the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control.

In light of the foregoing, there can be no question about the validity and enforceability of Stipulation No. 7 in the bill of lading. The twenty-four hour requirement under the said stipulation is, by agreement of the contracting parties, a sine qua non for the accrual of the right of action to recover damages against the carrier. The wisdom of this kind of proviso has been succinctly explained in Consunji v. Manila Port Service, where it was held:Carriers and depositaries sometimes require presentation of claims within a short time after delivery as a condition precedent to their liability for losses. Such requirement is not an empty formalism. It has a definite purpose, i.e., to afford the carrier or depositary a reasonable opportunity and facilities to check the validity of the claims while the facts are still fresh in the minds of the persons who took part in the transaction and the document are still available.6

Considering that a prompt demand was necessary to foreclose the possibility of fraud or mistake in ascertaining the validity of claims, there was a need for the consignee or its agent to observe the conditions provided for in Stipulation No. 7. Hence, petitioner's insistence that respondent carrier had knowledge of the damage because one of respondent carrier's officers supervised the unloading operations and signed a discharging report, cannot be construed as sufficient compliance with the aforementioned proviso. The Discharge Report is not the notice referred to in Stipulation No. 7, hence, its accomplishment cannot be considered substantial compliance of the requirement embodied therein. Moreover, a reading of the first paragraph of Stipulation No. 7 will readily show that upon the consignee or its agent rests the obligation to make the necessary claim within the prescribed period and not merely rely on the supposed knowledge of the damages by the carrier.

Petitioner also makes much of the fact that it had nothing to do with the preparation of the bill of lading. Worse, according to petitioner, the bill of lading, particularly Stipulation No. 7, was printed in very small letters that no one would be minded to closely examine the contents thereof and understand its legal implications.

We are not persuaded. A bill of lading is in the nature of a contract of adhesion, defined as one where one of the parties imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely. 7 After it received the bill of lading without any objection, consignee Atlas Fertilizer Corporation was presumed to have knowledge of its contents and to have assented to the terms and conditions set forth therein. The pronouncement by this Court in Magellan Manufacturing Marketing Corp. v. Court of Appeals may be cited by analogy –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.8 (Italics Supplied)

In this regard, we also quote with approval the lower court's view on the matter when it said:It is very clear that the Bill of Lading provides for the time or period within which a claim should be made or suit filed in Court. Plaintiff or Atlas Fertilizer Corporation failed on this score. Moreover, Atlas Fertilizer Corporation could not claim ignorance of the contents of the Bill of Lading just because the printed letters are so small that they are hard to read or that the shipper did not sign it for Atlas Fertilizer Corporation being a regular shipper and a big corporation. Plaintiff is presumed to know the contents thereof for the reason that this is the very document (Annex "A" of the complaint) where plaintiff relied its suit.9

We are likewise not inclined to lend credence to petitioner's allegation that the lack of communications facilities in the place of delivery prevented the consignee from making a prompt claim for recovery of damages as prescribed by Stipulation No. 7. It is indeed hard to believe that Atlas Fertilizer Corporation, being an established corporation and a regular shipper, would be so inept as not to have the necessary facilities to at least monitor, in the form of communications equipment, the condition of its large shipment involving 32,000 bags of fertilizer. As pointed out by the appellate court, at this day and age of advanced telecommunications and modern transportation, even in the year 1989, the time limitation provided for in Stipulation No. 7 are just and reasonable.

WHEREFORE, in view of all the foregoing, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 36498 is AFFIRMED in toto. SO ORDERED.

G.R. No. 136888 June 29, 2005. PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs.CHEMOIL LIGHTERAGE CORPORATION, respondent.

Before Us is a petition for review on certiorari which assails the Decision of the Court of Appeals1 in CA-G.R. CV No. 56209, dated 18 December 1998. The Decision reversed and set aside the decision of the Regional Trial Court (RTC),2 Branch 16, City of Manila, which ordered herein respondent to pay the petitioner’s claim in the amount of P5,000,000.00 with legal interest from the date of the filing of the complaint.

THE FACTSPetitioner Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of non-life insurance. Respondent ChemoilLighterage Corporation is also a domestic corporation engaged in the transport of goods.On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan, South Korea, shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board MT "TACHIBANA" which was valued at US$90,201.57 under Bill of Lading No. ULS/MNL-13 and another 436.70 metric tons of DOP valued at US$634,724.89 under Bill of Lading No. ULS/MNL-24 to the Philippines. The consignee was Plastic Group Phils., Inc. (PGP) in Manila.PGP insured the cargo with herein petitioner Philippine Charter Insurance Corporation against all risks. The insurance was under Marine Policies No. MRN-307215 dated 06 February 1991 for P31,757,969.19 and No. MRN-307226 for P4,514,881.00. Marine Endorsement No. 27867 dated 11 May 1991 was attached and formed part of MRN-30721, amending the latter’s insured value to P24,667,422.03, and reduced the premium accordingly.The ocean tanker MT "TACHIBANA" unloaded the cargo to Tanker Barge LB-1011 of respondent ChemoilLighterage Corporation, which shall transport the same to Del Pan Bridge in Pasig River. Tanker Barge LB-1011 would unload

the cargo to tanker trucks, also owned by the respondent, and haul it by land to PGP’s storage tanks in Calamba, Laguna.Upon inspection by PGP, the samples taken from the shipment showed discoloration from yellowish to amber, demonstrating that it was damaged, as DOP is colorless and water clear. PGP then sent a letter to the petitioner dated 18 February 19918 where it formally made an insurance claim for the loss it sustained due to the contamination.The petitioner requested an independent insurance adjuster, the GIT Insurance Adjusters, Inc. (GIT), to conduct a Quantity and Condition Survey of the shipment. On 22 February 1991, GIT issued a Report,9 part of which states:As unloading progressed, it was observed on February 14, 1991 that DOP samples taken were discolored from yellowish to amber. Inspection of cargo tanks showed manhole covers of ballast tanks’ ceilings loosely secured. Furthermore, it was noted that the rubber gaskets of the manhole covers of the ballast tanks re-acted to the chemical causing shrinkage thus, loosening the covers and cargo ingress to the rusty ballast tanks…10

On 13 May 1991, the petitioner paid PGP the amount of P5,000,000.0011 as full and final payment for the loss. PGP issued a Subrogation Receipt to the petitioner.Meanwhile, on 03 April 1991, PGP paid the respondent the amount of P301,909.50 as full payment for the latter’s services, as evidenced by Official Receipt No. 1274.12

On 15 July 1991, an action for damages was instituted by the petitioner-insurer against respondent-carrier before the RTC, Branch 16, City of Manila, docketed as Civil Case No. 91-57923.13 The petitioner prayed for actual damages in the amount of P5,000,000.00, attorney’s fees in the amount of no less than P1,000,000.00, and costs of suit.An Answer with Compulsory Counterclaim14 was filed by the respondent on 05 September 1991. The respondent admitted it undertook to transport the consignee’s shipment from MT "TACHIBANA" to the Del Pan Bridge, Pasig River, where it was transferred to its tanker trucks for hauling to PGP’s storage tanks in Calamba, Laguna. The respondent alleged that before the DOP was loaded into its barge (LB-1011), the surveyor/representative of PGP, Adjustment Standard Corporation, inspected it and found the same clean, dry, and fit for loading. The entire loading and unloading of the shipment were also done under the control and supervision of PGP’s surveyor/representative. It was also mentioned by the respondent that the contract between it and PGP expressly stipulated that it shall be free from any and all claims arising from contamination, loss of cargo or part thereof; that the consignee accepted the cargo without any protest or notice; and that the cargo shall be insured by its owner sans recourse against all risks. As subrogee, the petitioner was bound by this stipulation. As carrier, no fault and negligence can be attributed against respondent as it exercised extraordinary diligence in handling the cargo.15

After due hearing, the trial court rendered a Decision on 06 January 1997, the dispositive portion of which reads:WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff ordering defendant to pay plaintiff’s claim of P5,000,000.00 with legal interest from the date of the filing of the complaint. The counterclaims are DISMISSED.16

Aggrieved by the trial court’s decision, the respondent sought relief with the Court of Appeals where it alleged in the main that PGP failed to file any notice, claim or protest within the period required by Article 366 of the Code of Commerce, which is a condition precedent to the accrual of a right of action against the carrier. 17 A telephone call which was supposedly made by a certain Alfred Chan, an employee of PGP, to one of the Vice Presidents of the respondent, informing the latter of the discoloration, is not the notice required by Article 366 of the Code of Commerce.18

On 18 December 1998, the Court of Appeals promulgated its Decision reversing the trial court, the dispositive portion of which reads:WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and a new one is entered dismissing the complaint.19

A petition for review on certiorari20 was filed by the petitioner with this Court, praying that the decision of the trial court be affirmed.After the respondent filed its Comment21 and the petitioner filed its Reply22 thereto, this Court issued a Resolution23

on 18 August 1999, giving due course to the petition.ASSIGNMENT OF ERRORSThe petitioner assigns as errors the following:ITHE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE OF CLAIM WAS NOT FILED WITHIN THE REQUIRED PERIOD.IITHE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF RESPONDENT CHEMOIL.IIITHE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL COURT’S DECISION AND IN DISMISSING THE COMPLAINT.24

ISSUESSynthesized, the issues that must be addressed by this Court are:IWHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE REQUIRED PERIOD. If the answer is in the affirmative,IIWHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF THE RESPONDENT.THE COURT’S RULINGSArticle 366 of the Code of Commerce has profound application in the case at bar. This provision of law imparts:Art. 366. Within twenty-four hours following the receipt of the merchandise a claim may be made against the carrier on account of damage or average found upon opening the packages, provided that the indications of the damage or average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim shall only be admitted at the time of the receipt of the packages.

After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.As to the first issue, the petitioner contends that the notice of contamination was given by Alfredo Chan, an employee of PGP, to Ms.EncarnacionAbastillas, Vice President for Administration and Operations of the respondent, at the time of the delivery of the cargo, and therefore, within the required period.25 This was done by telephone.The respondent, however, claims that the supposed notice given by PGP over the telephone was denied by Ms.Abastillas. Between the testimonies of Alfredo Chan and EncarnacionAbastillas, the latter’s testimony is purportedly more credible because it would be quite unbelievable and contrary to business practice for Alfredo Chan to merely make a verbal notice of claim that involves millions of pesos.26

On this point, the Court of Appeals declared:. . . We are inclined to sustain the view that a telephone call made to defendant-company could constitute substantial compliance with the requirement of notice considering that the notice was given to a responsible official, the Vice-President, who promptly replied that she will look into the matter. However, it must be pointed out that compliance with the period for filing notice is an essential part of the requirement, i.e..immediately if the damage is apparent, or otherwise within twenty-four hours from receipt of the goods, the clear import being that prompt examination of the goods must be made to ascertain damage if this is not immediately apparent. We have examined the evidence, and We are unable to find any proof of compliance with the required period, which is fatal to the accrual of the right of action against the carrier.27

The petitioner is of the view that there was an incongruity in the findings of facts of the trial court and the Court of Appeals, the former allegedly holding that the period to file the notice had been complied with, while the latter held otherwise.We do not agree. On the matter concerning the giving of the notice of claim as required by Article 366 of the Code of Commerce, the finding of fact of the Court of Appeals does not actually contradict the finding of fact of the trial court. Both courts held that, indeed, a telephone call was made by Alfredo Chan to EncarnacionAbastillas, informing the latter of the contamination. However, nothing in the trial court’s decision stated that the notice of claim was relayed or filed with the respondent-carrier immediately or within a period of twenty-four hours from the time the goods were received. The Court of Appeals made the same finding. Having examined the entire records of the case, we cannot find a shred of evidence that will precisely and ultimately point to the conclusion that the notice of claim was timely relayed or filed.The allegation of the petitioner that not only the Vice President of the respondent was informed, but also its drivers, as testified by Alfredo Chan, during the time that the delivery was actually being made, cannot be given great weight as no driver was presented to the witness stand to prove this. Part of the testimony of Alfredo Chan is revealing:Q: …Mr. Witness, were you in your plant site at the time these various cargoes were delivered?A: No, sir.…Q: So, do you have a first hand knowledge that your plant representative informed the driver of the alleged contamination?A: What do you mean by that?Q: Personal knowledge [that] you yourself heard or saw them [notify] the driver?A: No, sir.28

From the preceding testimony, it is quite palpable that the witness Alfredo Chan had no personal knowledge that the drivers of the respondent were informed of the contamination.The requirement that a notice of claim should be filed within the period stated by Article 366 of the Code of Commerce is not an empty or worthless proviso. In a case, we held:The object sought to be attained by the requirement of the submission of claims in pursuance of this article is to compel the consignee of goods entrusted to a carrier to make prompt demand for settlement of alleged damages suffered by the goods while in transport, so that the carrier will be enabled to verify all such claims at the time of delivery or within twenty-four hours thereafter, and if necessary fix responsibility and secure evidence as to the nature and extent of the alleged damages to the goods while the matter is still fresh in the minds of the parties.29

In another case, we ruled, thus:More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss of or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce the carrier’s liability. Such requirement is not an empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefore, and to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims.30

The filing of a claim with the carrier within the time limitation therefore actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.31

The second paragraph of Article 366 of the Code of Commerce is also edifying. It is not only when the period to make a claim has elapsed that no claim whatsoever shall be admitted, as no claim may similarly be admitted after the transportation charges have been paid.In this case, there is no question that the transportation charges have been paid, as admitted by the petitioner, and the corresponding official receipt32 duly issued. But the petitioner is of the view that the payment for services does not invalidate its claim. It contends that under the second paragraph of Article 366 of the Code of Commerce, it is clear that if notice or protest has been made prior to payment of services, claim against the bad order condition of the cargo is allowed.

We do not believe so. As discussed at length above, there is no evidence to confirm that the notice of claim was filed within the period provided for under Article 366 of the Code of Commerce. Petitioner’s contention proceeds from a false presupposition that the notice of claim was timely filed.Considering that we have resolved the first issue in the negative, it is therefore unnecessary to make a resolution on the second issue.WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals dated 18 December 1998, which reversed and set aside the decision of the trial court, is hereby AFFIRMED in toto. No pronouncement as to costs.SO ORDERED.

G.R. No. 160286             July 30, 2004SPOUSES FRANCISCO M. HERNANDEZ and ANICETA ABEL-HERNANDEZ and JUAN GONZALES, petitioners, vs.SPOUSES LORENZO DOLOR and MARGARITA DOLOR, FRED PANOPIO, JOSEPH SANDOVAL, RENE CASTILLO, SPOUSES FRANCISCO VALMOCINA and VIRGINIA VALMOCINA, SPOUSES VICTOR PANOPIO and MARTINA PANOPIO, and HON. COURT OF APPEALS, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision1 of the Court of Appeals, dated April 29, 2003, in CA-G.R. CV No. 60357, which affirmed with modification the amount of damages awarded in the November 24, 1997 decision2 of the Regional Trial Court of Batangas City, Branch IV.The undisputed facts are as follows:At about 3:00 p.m. of December 19, 1986, Lorenzo Menard "Boyet" Dolor, Jr. was driving an owner-type jeepney with plate no. DEB 804 owned by her mother, Margarita, towards Anilao, Batangas. As he was traversing the road at Barangay Anilao East, Mabini, Batangas, his vehicle collided with a passenger jeepney bearing plate no. DEG 648, driven by petitioner Juan Gonzales and owned by his co-petitioner Francisco Hernandez, which was travelling towards Batangas City.BoyetDolor and his passenger, Oscar Valmocina, died as a result of the collision. Fred Panopio, Rene Castillo and Joseph Sandoval, who were also on board the owner-type jeep, which was totally wrecked, suffered physical injuries. The collision also damaged the passenger jeepney of Francisco Hernandez and caused physical injuries to its passengers, namely, Virgie Cadavida, Fiscal Artemio Reyes and Francisca Corona.3

Consequently, respondents commenced an action4 for damages against petitioners before the Regional Trial Court of Batangas City, alleging that driver Juan Gonzales was guilty of negligence and lack of care and that the Hernandez spouses were guilty of negligence in the selection and supervision of their employees.5

Petitioners countered that the proximate cause of the death and injuries sustained by the passengers of both vehicles was the recklessness of BoyetDolor, the driver of the owner-type jeepney, who was driving in a zigzagging manner under the influence of alcohol. Petitioners also alleged that Gonzales was not the driver-employee of the Hernandez spouses as the former only leased the passenger jeepney on a daily basis. The Hernandez spouses further claimed that even if an employer-employee relationship is found to exist between them, they cannot be held liable because as employers they exercised due care in the selection and supervision of their employee.During the trial of the case, it was established that the drivers of the two vehicles were duly licensed to drive and that the road where the collision occurred was asphalted and in fairly good condition.6 The owner-type jeep was travelling uphill while the passenger jeepney was going downhill. It was further established that the owner-type jeep was moderately moving and had just passed a road bend when its passengers, private respondents Joseph Sandoval and Rene Castillo, saw the passenger jeepney at a distance of three meters away. The passenger jeepney was traveling fast when it bumped the owner type jeep.7 Moreover, the evidence presented by respondents before the trial court showed that petitioner Juan Gonzales obtained his professional driver's license only on September 24, 1986, or three months before the accident. Prior to this, he was holder of a student driver's permit issued on April 10, 1986.8

On November 24, 1997, the trial court rendered a decision in favor of respondents, the dispositive portion of which states:Premises duly considered and the plaintiffs having satisfactorily convincingly and credibly presented evidence clearly satisfying the requirements of preponderance of evidence to sustain the complaint, this Court hereby declares judgment in favor of the plaintiffs and against the defendants. Defendants-spouses Francisco Hernandez and Aniceta Abel Hernandez and Juan Gonzales are therefore directed to pay jointly and severally, the following:1) To spouses Lorenzo Dolor and Margarita Dolor:a) P50,000.00 – for the death of their son, Lorenzo Menard "Boyet" Dolor, Jr.;b) P142,000.00 – as actual and necessary funeral expenses;c) P50,000.00 – reasonable value of the totally wrecked owner-type jeep with plate no. DEB 804 Phil '85;d) P20,000.00 – as moral damages;e) P20,000.00 as reasonable litigation expenses and attorney's fees.2) To spouses Francisco Valmocina and Virginia Valmocina:a) P50,000.00 – for the death of their son, Oscar Balmocina (sic);b) P20,000.00 – as moral damages;c) P18,400.00 – for funeral expenses;d) P10,000.00 – for litigation expenses and attorney's fees.3) To spouses Victor Panopio and Martina Panopio:a) P10,450.00 – for the cost of the artificial leg and crutches being used by their son Fred Panopio;b) P25,000.00 – for hospitalization and medical expenses they incurred for the treatment of their son, Fred Panopio.4) To Fred Panopio:a) P25,000.00 – for the loss of his right leg;b) P10,000.00 – as moral damages.5) To Joseph Sandoval:a) P4,000.00 for medical treatment.The defendants are further directed to pay the costs of this proceedings.SO ORDERED.9

Petitioners appealed10 the decision to the Court of Appeals, which affirmed the same with modifications as to the amount of damages, actual expenses and attorney's fees awarded to the private respondents. The decretal portion of the decision of the Court of Appeals reads:WHEREFORE, the foregoing premises considered, the appealed decision is AFFIRMED. However, the award for damages, actual expenses and attorney's fees shall be MODIFIED as follows:1) To spouses Lorenzo Dolor and Margarita Dolor:a) P50,000.00 – civil indemnity for their son Lorenzo Menard Dolor, Jr.;b) P58,703.00 – as actual and necessary funeral expenses;c) P25,000,00 – as temperate damages;d) P100,000.00 – as moral damages;e) P20,000.00 – as reasonable litigation expenses and attorney's fees. 2) To Spouses Francisco Valmocina and Virginia Valmocina:a) P50,000.00 – civil indemnity for the death of their son, Oscar Valmocina;b) P100,000.00 – as moral damages;c) P10,000.00 – as temperate damages;d) P10,000.00 – as reasonable litigation expenses and attorney's fees.3) To Spouses Victor Panopio and Martina Panopio:a) P10,352.59 – as actual hospitalization and medical expenses;b) P5,000.00 – as temperate damages.4) To Fred Panopio:a) P50,000.00 – as moral damages.5) To Joseph Sandoval:a) P3,000.00 as temperate damages.SO ORDERED.11

Hence the present petition raising the following issues:1. Whether the Court of Appeals was correct when it pronounced the Hernandez spouses as solidarily liable with Juan Gonzales, although it is of record that they were not in the passenger jeepney driven by latter when the accident occurred;

2. Whether the Court of Appeals was correct in awarding temperate damages to private respondents namely the Spouses Dolor, Spouses Valmocina and Spouses Panopio and to Joseph Sandoval, although the grant of temperate damages is not provided for in decision of the court a quo;3. Whether the Court of Appeals was correct in increasing the award of moral damages to respondents, Spouses Dolor, Spouses Valmocina and Fred Panopio;4. Whether the Court of Appeals was correct in affirming the grant of attorney's fees to Spouses Dolor and to Spouses Valmocina although the lower court did not specify the fact and the law on which it is based.Petitioners contend that the absence of the Hernandez spouses inside the passenger jeepney at the time of the collision militates against holding them solidarily liable with their co-petitioner, Juan Gonzales, invoking Article 2184 of the Civil Code, which provides:ARTICLE 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the vehicle, could have, by the use of the due diligence, prevented the misfortune. It is disputably presumed that a driver was negligent, if he had been found guilty of reckless driving or violating traffic regulations at least twice within the next preceding two months.If the owner was not in the motor vehicle, the provisions of article 2180 are applicable.The Hernandez spouses argues that since they were not inside the jeepney at the time of the collision, the provisions of Article 2180 of the Civil Code, which does not provide for solidary liability between employers and employees, should be applied.We are not persuaded.Article 2180 provides:ARTICLE 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible.The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the minor children who live in their company.Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and live in their company.The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions.Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused by the official to whom the task done properly pertains, in which case what is provided in article 2176 shall be applicable.Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they remain in their custody.The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. (Underscoring supplied)On the other hand, Article 2176 provides –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.While the above provisions of law do not expressly provide for solidary liability, the same can be inferred from the wordings of the first paragraph of Article 2180 which states that the obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible.Moreover, Article 2180 should be read with Article 2194 of the same Code, which categorically states that the responsibility of two or more persons who are liable for quasi-delict is solidary. In other words, the liability of joint tortfeasors is solidary.12 Verily, under Article 2180 of the Civil Code, an employer may be held solidarily liable for the negligent act of his employee.13

The solidary liability of employers with their employees for quasi-delicts having been established, the next question is whether Julian Gonzales is an employee of the Hernandez spouses. An affirmative answer will put to rest any issue on the solidary liability of the Hernandez spouses for the acts of Julian Gonzales. The Hernandez spouses maintained that Julian Gonzales is not their employee since their relationship relative to the use of the jeepney is that of a lessor and a lessee. They argue that Julian Gonzales pays them a daily rental of P150.00 for the use of the jeepney.14 In essence, petitioners are practicing the "boundary system" of jeepney operation albeit disguised as a lease agreement between them for the use of the jeepney.We hold that an employer-employee relationship exists between the Hernandez spouses and Julian Gonzales.Indeed to exempt from liability the owner of a public vehicle who operates it under the "boundary system" on the ground that he is a mere lessor would be not only to abet flagrant violations of the Public Service Law, but also to place the riding public at the mercy of reckless and irresponsible drivers — reckless because the measure of their earnings depends largely upon the number of trips they make and, hence, the speed at which they drive; and irresponsible because most if not all of them are in no position to pay the damages they might cause.15

Anent the award of temperate damages to the private respondents, we hold that the appellate court committed no reversible error in awarding the same to the respondents.Temperate or moderate damages are damages which are more than nominal but less than compensatory which may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty.16 Temperate damages are awarded for those cases where, from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. A judge should be empowered to calculate moderate damages in such cases, rather than the plaintiff should suffer, without redress, from the defendant's wrongful act.17 The assessment of temperate damages is left to the sound discretion of the court provided that such an award is reasonable under the circumstances.18

We have gone through the records of this case and we find that, indeed, respondents suffered losses which cannot be quantified in monetary terms. These losses came in the form of the damage sustained by the owner type jeep of the Dolor spouses; the internment and burial of Oscar Valmocina; the hospitalization of Joseph Sandoval on account of the injuries he sustained from the collision and the artificial leg and crutches that respondent Fred Panopio had to use because of the amputation of his right leg. Further, we find that the amount of temperate damages awarded to the respondents were reasonable under the circumstances.As to the amount of moral damages which was awarded to respondents, a review of the records of this case shows that there exists no cogent reason to overturn the action of the appellate court on this aspect.Under Article 2206, the "spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish for the death of the deceased." The reason for the grant of moral damages has been explained, thus:. . . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual status quo ante; and therefore, it must be proportionate to the suffering inflicted. The intensity of the pain experienced by the relatives of the victim is proportionate to the intensity of affection for him and bears no relation whatsoever with the wealth or means of the offender.19

Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the former to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone due to the defendant's culpable action and must, perforce, be proportional to the suffering inflicted.20

Truly, the pain of the sudden loss of one's offspring, especially of a son who was in the prime of his youth, and who holds so much promise waiting to be fulfilled is indeed a wellspring of intense pain which no parent should be made to suffer. While it is true that there can be no exact or uniform rule for measuring the value of a human life and the measure of damages cannot be arrived at by a precise mathematical calculation,21 we hold that the Court of Appeals' award of moral damages of P100,000.00 each to the Spouses Dolor and Spouses Valmocina for the death of their respective sons, BoyetDolor and Oscar Valmocina, is in full accord with prevailing jurisprudence.22

With respect to the award of attorney's fees to respondents, no sufficient basis was established for the grant thereof.It is well settled that attorney's fees should not be awarded in the absence of stipulation except under the instances enumerated in Article 2208 of the Civil Code. As we have held in Rizal Surety and Insurance Company v. Court of Appeals:23

Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought. While judicial discretion is here extant, an award thereof demands, nevertheless, a factual, legal or equitable justification. The matter cannot and should not be left to speculation and conjecture (Mirasol vs. De la Cruz, 84 SCRA 337; Stronghold Insurance Company, Inc. vs. Court of Appeals, 173 SCRA 619).In the case at bench, the records do not show enough basis for sustaining the award for attorney's fees and to adjudge its payment by petitioner. x xx.Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals that:"In Abrogar v. Intermediate Appellate Court G.R. No. 67970, January 15, 1988, 157 SCRA 57], the Court had occasion to state that '[t]he reason for the award of attorney's fees must be stated in the text of the court's decision, otherwise, if it is stated only in the dispositive portion of the decision, the same must be disallowed on appeal.' x x x."24

WHEREFORE, the petition is DENIED. The assailed decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the grant of attorney's fees is DELETED for lack of basis.Costs against petitioners.SO ORDERED.

G.R. No. 128705      June 29, 2001CONRADO AGUILAR, SR., petitioner, vs.COMMERCIAL SAVINGS BANK and FERDINAND BORJA, respondents. QUISUMBING, J.:This petition1 seeks to annul and set aside the decision dated October 16, 1996, of the Court of Appeals in CA-G.R. CV No. 48793, reversing the decision of the Regional Trial Court of Makati, Branch 59, and dismissing the complaint insofar as respondent Commercial Savings Bank is concerned.The facts in this case are uncomplicated.Petitioner Conrado Aguilar, Sr. is the father of Conrado Aguilar, Jr., the victim in a vehicular accident involving a Lancer car registered in the name of respondent bank, but driven by co-respondent Ferdinand G. Borja.On September 8, 1984, at around 11:15 P.M., Aguilar, Jr. and his companions, among them Nestor Semella, had just finished their snack at the Uncle Watt’s Bakery along Zapote-Alabang Road. As they crossed the road, a Lancer with plate no. NNP 349 and driven by Ferdinand Borja, overtook a passenger jeepney. In so doing, the Lancer hit Aguilar and Semella. Aguilar was thrown upwards and smashed against the windshield of the Lancer, which did not stop. Aguilar and Semella were then brought to the Perpetual Help Hospital at Pamplona, Las Piñas, where Aguilar was pronounced dead on arrival.On July 29, 1985, petitioner filed a complaint for damages against respondents in the Regional Trial Court of Makati, Branch 59. Borja did not file his answer within the reglementary period, hence, he was declared in default by the trial court.At the trial, respondent bank admitted that the Lancer was registered in its name at the time of the incident. Petitioner’s counsel also showed that Borja was negligent in driving the car.On June 14, 1991, the trial court held defendants (herein respondents) liable for Aguilar’s death, in its decision that reads:Premises considered, judgment is hereby rendered ordering the defendants, jointly and severally, to pay to the plaintiff the following:1. The amount of P18,900.00 representing actual expenses incurred by the plaintiff;2. The amount of P50,000.00 representing moral damages;3. The amount of P100,000.00 representing loss of earning capacity of the deceased victim, Conrado Aguilar, Jr.4. The sum of P20,000.00 representing attorney’s fees; and5. With costs against the defendants.Defendant bank’s counterclaim is ordered DISMISSED for lack of merit.On the cross-claim of the defendant bank, the cross-defendant Ferdinand Borja is hereby ordered to pay the cross-claimant Comsavings Bank whatever amount the latter may have paid or is required to pay to the plaintiff by virtue of this decision.SO ORDERED.2

The trial court declared that Borja’s negligence, carelessness and imprudence caused the victim’s death. It also found that Borja was an assistant vice president of respondent bank at the time of the incident. It held that under Art. 21803 of the Civil Code, the negligence of the employee is presumed to be that of the employer, whose liability is primary and direct; and that respondent bank failed to exercise due diligence in the selection of its employees.Respondent bank appealed to the Court of Appeals.The Court of Appeals found the appeal meritorious. It said that before it can apply Art. 2180 on which private respondent anchored its claim of the bank’s negligence, petitioner must first establish that Borja acted on the occasion or by reason of the functions entrusted to him by his employer. The appellate court found no evidence that Borja had acted as respondent bank’s assistant vice-president at the time of the mishap. The Court of Appeals reversed the trial court’s decision, thus:WHEREFORE, the appealed decision is reversed only insofar as defendant-appellant bank is concerned. The complaint against it is DISMISSED. No award of damages on said appellant’s counterclaim.No costs.1âwphi1.nêtSO ORDERED.4

Petitioner’s motion for reconsideration was denied. Hence, this petition where petitioner avers that:THE COURT OF APPEALS ERRED IN FINDING THAT RESPONDENT COMSAVINGS IS NOT LIABLE FOR DAMAGES DESPITE THE ESTABLISHED FACT THAT RESPONDENT COMSAVINGS IS THE REGISTERED OWNER OF THE CAR THAT HIT AND KILLED PETITIONER’S SON WHICH FINDING, COUPLED WITH THE DISMISSAL OF THE COMPLAINT AGAINST RESPONDENT COMSAVINGS, IS CONTRARY TO LAW AND EXISTING JURISPRUDENCE.5

The sole issue is whether or not respondent bank, as the Lancer’s registered owner, is liable for damages.

Petitioner states that the Court of Appeals erred when it disregarded the fact that respondent bank was the registered owner of the car and concluded that the bank was not liable since there was "no iota of evidence that Borja was performing his assigned task at the time of the incident."6 He insists that the existence or absence of employer-employee relationship between the bank and Borja is immaterial in this case for the registered owner of a motor vehicle is legally liable for the damages incurred by third persons for injuries sustained in the operation of said vehicle.Respondent bank counters that the appellate court’s decision is well supported by law and jurisprudence. According to respondent bank, under Article 2180 of the Civil Code, when the negligent employee commits the act outside the actual performance of his assigned tasks or duties, the employer has no vicarious liability. Further, the bank insists that it is not liable since at the time of the accident, Borja was driving the Lancer in his private capacity and was not performing functions in furtherance of the interest of Comsavings Bank. Additionally, according to the bank, Borja already bought the car on installment basis. Hence, at the time of the incident, the bank concluded it was no longer the owner of the car.7

We are, however, unimpressed by respondent bank’s disquisition. It goes against established jurisprudence.In BA Finance Corporation vs. Court of Appeals, 215 SCRA 715, we had already held that the registered owner of any vehicle, even if not for public service, is primarily responsible to third persons for deaths, injuries and damages it caused. This is true even if the vehicle is leased to third persons. In that case, petitioner’s Isuzu ten-wheeler truck driven by an employee of a certain Lino Castro met an accident. Neither the driver nor Lino Castro was connected to petitioner, for at the time of the incident, the truck was on lease to Rock Component Philippines, Inc. The Court held petitioner liable as the truck’s registered owner, despite the absence of employer-employee relationship between petitioner and the driver. Though petitioner in said case had a right of reimbursement against Rock Component for the total amount of its liability, the Court per Melo, J. made clear petitioner remained legally responsible to the victim of vehicular mishap on the basis of jurisprudential dogmas.As early as Erezo vs. Jepte, 102 Phil. 103, the Court through Labrador, J. had synthesized the rationale for holding the registered owner of a vehicle directly liable. There we said:Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any public highway (section 5 [a], Act No. 3992, as amended.) The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways."‘One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and another is that the knowledge that means of detection are always available may act as a deterrent from lax observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to discover him.’ The purpose of the statute is thwarted, and the displayed number becomes a ‘snare and delusion,’ if courts would entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to place a ‘middleman’ between them and the public, and escape liability by the manner in which they recompense their servants." (King vs. Brenham Automobile Co., 145 S.W. 278, 279.)With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed at the trial to prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility and lay the same on the person actually owning the vehicle? We hold with the trial court that the law does not allow him to do so; the law, with its aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence of registration. Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public highways is usually without means to discover or identify the person actually causing the injury or damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person injured, that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured person.The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think it is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that the law demands and requires.In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount that he may be required to pay as damage for the injury caused to the plaintiff-appellant.8

The rationale well postulated in Erezo applies in the present case. Thus far no change in jurisprudence has been brought to our attention. In our view, respondent bank, as the registered owner of the vehicle, is primarily liable for

Aguilar, Jr.’s death. The Court of Appeals erred when it concluded that the bank was not liable simply because (a) petitioner did not prove that Borja was acting as the bank’s vice president at the time of the accident; and (b) Borja had, according to respondent bank, already bought the car at the time of the mishap. For as long as the respondent bank remained the registered owner of the car involved in the vehicular accident, it could not escape primary liability for the death of petitioner’s son.WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals dated October 16, 1996 in CA-G.R. CV No. 48793 is REVERSED. The judgment of the Regional Trial Court of Makati, Branch 59 in Civil Case No. 11231 is UPHELD. Costs against respondent bank.SO ORDERED.

G.R. No. 144274             September 20, 2004NOSTRADAMUS VILLANUEVA, petitioner, vs.PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO, respondents.D E C I S I O NCORONA, J.:This is a petition to review the decision1 of the Court of Appeals in CA-G.R. CV No. 52203 affirming in turn the decision of the trial court finding petitioner liable to respondent for damages. The dispositive portion read:WHEREFORE, the appealed decision is hereby AFFIRMED except the award of attorney’s fees including appearance fees which is DELETED.SO ORDERED.2

The facts of the case, as summarized by the Court of Appeals, are as follows:[Respondent] Priscilla R. Domingo is the registered owner of a silver Mitsubishi Lancer Car model 1980 bearing plate No. NDW 781 ’91 with [co-respondent] Leandro Luis R. Domingo as authorized driver. [Petitioner] Nostradamus Villanueva was then the registered "owner" of a green Mitsubishi Lancer bearing Plate No. PHK 201 ’91.On 22 October 1991 at about 9:45 in the evening, following a green traffic light, [respondent] Priscilla Domingo’s silver Lancer car with Plate No. NDW 781 ’91 then driven by [co-respondent] Leandro Luis R. Domingo was cruising along the middle lane of South Superhighway at moderate speed from north to south. Suddenly, a green Mitsubishi Lancer with plate No. PHK 201 ’91 driven by Renato Dela Cruz Ocfemia darted from Vito Cruz Street towards the South Superhighway directly into the path of NDW 781 ’91 thereby hitting and bumping its left front portion. As a result of the impact, NDW 781 ’91 hit two (2) parked vehicles at the roadside, the second hitting another parked car in front of it.Per Traffic Accident Report prepared by Traffic Investigator Pfc.Patrocinio N. Acido, Renato dela Cruz Ocfemia was driving with expired license and positive for alcoholic breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua recommended the filing of information for reckless imprudence resulting to (sic) damage to property and physical injuries.The original complaint was amended twice: first, impleading Auto Palace Car Exchange as commercial agent and/or buyer-seller and second, impleading Albert Jaucian as principal defendant doing business under the name and style of Auto Palace Car Exchange.Except for Ocfemia, all the defendants filed separate answers to the complaint. [Petitioner] Nostradamus Villanueva claimed that he was no longer the owner of the car at the time of the mishap because it was swapped with a Pajero owned by Albert Jaucian/Auto Palace Car Exchange. For her part, Linda Gonzales declared that her presence at the scene of the accident was upon the request of the actual owner of the Mitsubishi Lancer (PHK 201 ’91) [Albert Jaucian] for whom she had been working as agent/seller. On the other hand, Auto Palace Car Exchange represented by Albert Jaucian claimed that he was not the registered owner of the car. Moreover, it could not be

held subsidiary liable as employer of Ocfemia because the latter was off-duty as utility employee at the time of the incident. Neither was Ocfemia performing a duty related to his employment.3

After trial, the trial court found petitioner liable and ordered him to pay respondent actual, moral and exemplary damages plus appearance and attorney’s fees:WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus Villanueva to pay the amount of P99,580 as actual damages, P25,000.00 as moral damages, P25,000.00 as exemplary damages and attorney’s fees in the amount of P10,000.00 plus appearance fees of P500.00 per hearing with legal interest counted from the date of judgment. In conformity with the law on equity and in accordance with the ruling in First Malayan Lending and Finance Corporation vs. Court of Appeals (supra), Albert Jaucian is hereby ordered to indemnify Nostradamus Villanueva for whatever amount the latter is hereby ordered to pay under the judgment.SO ORDERED.4

The CA upheld the trial court’s decision but deleted the award for appearance and attorney’s fees because the justification for the grant was not stated in the body of the decision. Thus, this petition for review which raises a singular issue:MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE FOR DAMAGES ARISING FROM A VEHICULAR ACCIDENT INVOLVING HIS MOTOR VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS BUYER WITHOUT THE LATTER’S CONSENT AND KNOWLEDGE?5

Yes. We have consistently ruled that the registered owner of any vehicle is directly and primarily responsible to the public and third persons while it is being operated.6The rationale behind such doctrine was explained way back in 1957 in Erezo vs. Jepte7: The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law, the public has the right to assume or presume that the registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that they may have for injuries caused to them by the vehicles being negligently operated if the public should be required to prove who the actual owner is. How would the public or third persons know against whom to enforce their rights in case of subsequent transfers of the vehicles? We do not imply by his doctrine, however, that the registered owner may not recover whatever amount he had paid by virtue of his liability to third persons from the person to whom he had actually sold, assigned or conveyed the vehicle.Under the same principle the registered owner of any vehicle, even if not used for a public service, should primarily be responsible to the public or to third persons for injuries caused the latter while the vehicle is being driven on the highways or streets. The members of the Court are in agreement that the defendant-appellant should be held liable to plaintiff-appellee for the injuries occasioned to the latter because of the negligence of the driver, even if the defendant-appellant was no longer the owner of the vehicle at the time of the damage because he had previously sold it to another. What is the legal basis for his (defendant-appellant’s) liability?There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered owner in the Motor Vehicles Office. Should he not be allowed to prove the truth, that he had sold it to another and thus shift the responsibility for the injury to the real and actual owner? The defendant holds the affirmative of this proposition; the trial court held the negative.The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle may be used or operated upon any public highway unless the same is property registered. It has been stated that the system of licensing and the requirement that each machine must carry a registration number, conspicuously displayed, is one of the precautions taken to reduce the danger of injury to pedestrians and other travelers from the careless management of automobiles. And to furnish a means of ascertaining the identity of persons violating the laws and ordinances, regulating the speed and operation of machines upon the highways (2 R.C.L. 1176). Not only are vehicles to be registered and that no motor vehicles are to be used or operated without being properly registered for the current year, but that dealers in motor vehicles shall furnish thee Motor Vehicles Office a report showing the name and address of each purchaser of motor vehicle during the previous month and the manufacturer’s serial number and motor number. (Section 5(c), Act No. 3992, as amended.) Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any public highway (section 5 [a], Act No. 3992, as amended). The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefore can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways:One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and another is that the knowledge that means of detection are always available may act as a deterrent from lax observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to discover him. The purpose of the statute is thwarted, and the displayed number becomes a "share and delusion," if courts would entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to pace a "middleman" between them and the public, and escape liability by the manner in which they recompense servants. (King vs. Brenham Automobile Co., Inc. 145 S.W. 278, 279.)With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed at the trial to prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility by and lay the same on the person actually owning the vehicle? We hold with the trial court that the

law does not allow him to do so; the law, with its aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence of registration. Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public highways is usually without means to discover or identify the person actually causing the injury or damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person injured, that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured person.The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think it is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that the law demands and requires.In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner of the amount that he may be required to pay as damage for the injury caused to the plaintiff-appellant.8

Petitioner insists that he is not liable for damages since the driver of the vehicle at the time of the accident was not an authorized driver of the new (actual) owner of the vehicle. He claims that the ruling in First Malayan Leasing and Finance Corporation vs. CA9 implies that to hold the registered owner liable for damages, the driver of the vehicle must have been authorized, allowed and permitted by its actual owner to operate and drive it. Thus, if the vehicle is driven without the knowledge and consent of the actual owner, then the registered owner cannot be held liable for damages.He further argues that this was the underlying theory behind Duavit vs. CA10 wherein the court absolved the registered owner from liability after finding that the vehicle was virtually stolen from the owner’s garage by a person who was neither authorized nor employed by the owner. Petitioner concludes that the ruling in Duavit and not the one in First Malayan should be applicable to him. Petitioner’s argument lacks merit. Whether the driver is authorized or not by the actual owner is irrelevant to determining the liability of the registered owner who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of the vehicle in the streets and highways. To require the driver of the vehicle to be authorized by the actual owner before the registered owner can be held accountable is to defeat the very purpose why motor vehicle legislations are enacted in the first place. Furthermore, there is nothing in First Malayan which even remotely suggests that the driver must be authorized before the registered owner can be held accountable. In First Malayan, the registered owner, First Malayan Corporation, was held liable for damages arising from the accident even if the vehicle involved was already owned by another party:This Court has consistently ruled that regardless of who the actual owner is of a motor vehicle might be, the registered owner is the operator of the same with respect to the public and third persons, and as such, directly and primarily responsible for the consequences of its operation. In contemplation of law, the owner/operator of record is the employer of the driver, the actual operator and employer being considered merely as his agent (MYC-Agro-Industrial Corporation vs. Vda. de Caldo, 132 SCRA 10, citing Vargas vs. Langcay, 6 SCRA 174; Tamayo vs. Aquino, 105 Phil. 949).‘We believe that it is immaterial whether or not the driver was actually employed by the operator of record. It is even not necessary to prove who the actual owner of the vehicle and the employer of the driver is. Granting that, in this case, the father of the driver is the actual owner and that he is the actual employer, following the well-settled principle that the operator of record continues to be the operator of the vehicle in contemplation of law, as regards the public and third person, and as such is responsible for the consequences incident to its operation, we must hold and consider such owner-operator of record as the employer, in contemplation of law, of the driver. And, to give effect to this policy of law as enunciated in the above cited decisions of this Court, we must now extend the same and consider the actual operator and employer as the agent of the operator of record.’11

Contrary to petitioner’s position, the First Malayan ruling is applicable to him since the case involves the same set of facts ― the registered owner had previously sold the vehicle to someone else and was being driven by an employee of the new (actual) owner. Duavit is inapplicable since the vehicle there was not transferred to another; the registered and the actual owner was one and the same person. Besides, in Duavit, the defense of the registered owner, Gilberto Duavit, was that the vehicle was practically stolen from his garage by Oscar Sabiano, as affirmed by the latter: Defendant Sabiano, in his testimony, categorically admitted that he took the jeep from the garage of defendant Duavit without the consent and authority of the latter. He testified further that Duavit even filed charges against him for the theft of the jeep but which Duavit did not push through as his (Sabiano’s) parents apologized to Duavit on his behalf.12

As correctly pointed out by the CA, the Duavit ruling is not applicable to petitioner’s case since the circumstance of unauthorized use was not present. He in fact voluntarily delivered his car to Albert Jaucian as part of the downpayment for a vehicle he purchased from Jaucian. Thus, he could not claim that the vehicle was stolen from him since he voluntarily ceded possession thereof to Jaucian. It was the latter, as the new (actual) owner, who could have raised the defense of theft to prove that he was not liable for the acts of his employee Ocfemia. Thus, there is no reason to apply the Duavitruling to this case. The ruling in First Malayan has been reiterated in BA Finance Corporation vs. CA13and more recently in Aguilar, Sr. vs. Commercial Savings Bank.14InBA Finance, we held the registered owner liable even if, at the time of the

accident, the vehicle was leased by another party and was driven by the lessee’s employee. In Aguilar, the registered owner-bank answered for damages for the accident even if the vehicle was being driven by the Vice-President of the Bank in his private capacity and not as an officer of the Bank, as claimed by the Bank. We find no reason to deviate from these decisions. The main purpose of vehicle registration is the easy identification of the owner who can be held responsible for any accident, damage or injury caused by the vehicle. Easy identification prevents inconvenience and prejudice to a third party injured by one who is unknown or unidentified. To allow a registered owner to escape liability by claiming that the driver was not authorized by the new (actual) owner results in the public detriment the law seeks to avoid. Finally, the issue of whether or not the driver of the vehicle during the accident was authorized is not at all relevant to determining the liability of the registered owner. This must be so if we are to comply with the rationale and principle behind the registration requirement under the motor vehicle law.WHEREFORE, the petition is hereby DENIED. The January 26, 2000 decision of the Court of Appeals is AFFIRMED. SO ORDERED.

G.R. No. 161730            January 28, 2005JAPAN AIRLINES, petitioner, vs.MICHAEL ASUNCION and JEANETTE ASUNCION,respondents.D E C I S I O NYNARES-SANTIAGO, J.:This petition for review seeks to reverse and set aside the October 9, 2002 decision1 of the Court of Appeals and its January 12, 2004 resolution,2 which affirmed in toto the June 10, 1997 decision of the Regional Trial Court of Makati City, Branch 61 in Civil Case No. 92-3635.3

On March 27, 1992, respondents Michael and Jeanette Asuncion left Manila on board Japan Airlines’ (JAL) Flight 742 bound for Los Angeles. Their itinerary included a stop-over in Narita and an overnight stay at Hotel Nikko Narita. Upon arrival at Narita, Mrs. Noriko Etou-Higuchi of JAL endorsed their applications for shore pass and directed them to the Japanese immigration official.4 A shore pass is required of a foreigner aboard a vessel or aircraft who desires to stay in the neighborhood of the port of call for not more than 72 hours.During their interview, the Japanese immigration official noted that Michael appeared shorter than his height as indicated in his passport. Because of this inconsistency, respondents were denied shore pass entries and were brought instead to the Narita Airport Rest House where they were billeted overnight.The immigration official also handed Mrs. Higuchi a Notice5 where it was stated that respondents were to be "watched so as not to escape".Mr. Atsushi Takemoto of the International Service Center (ISC), the agency tasked by Japan’s Immigration Department to handle passengers who were denied shore pass entries, brought respondents to the Narita Airport Rest House where they stayed overnight until their departure the following day for Los Angeles. Respondents were charged US$400.00 each for their accommodation, security service and meals.On December 12, 1992, respondents filed a complaint for damages6 claiming that JAL did not fully apprise them of their travel requirements and that they were rudely and forcibly detained at Narita Airport.

JAL denied the allegations of respondents. It maintained that the refusal of the Japanese immigration authorities to issue shore passes to respondents is an act of state which JAL cannot interfere with or prevail upon. Consequently, it cannot impose upon the immigration authorities that respondents be billeted at Hotel Nikko instead of the airport resthouse.7

On June 10, 1997, the trial court rendered its decision, the dispositive portion of which reads:WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiffs ordering defendant JAL to pay plaintiffs as follows:1. the sum of US$800.00 representing the expenses incurred at the Narita Airport with interest at 12% per annum from March 27, 1992 until the sum is fully paid;2. the sum of P200,000.00 for each plaintiff as moral damages;3. the amount of P100,000.00 for each plaintiff as exemplary damages;4. the amount of P100,000.00 as attorney’s fees; and5. costs of suit.SO ORDERED.8

The trial court dismissed JAL’s counterclaim for litigation expenses, exemplary damages and attorney’s fees.On October 9, 2002, the Court of Appeals affirmed in toto the decision of the trial court. Its motion for reconsideration having been denied,9 JAL now files the instant petition.The basic issue for resolution is whether JAL is guilty of breach of contract.Under Article 1755 of the Civil Code, a common carrier such as JAL is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger has every right to expect that he be transported on that flight and on that date and it becomes the carrier’s obligation to carry him and his luggage safely to the agreed destination.10 If the passenger is not so transported or if in the process of transporting he dies or is injured, the carrier may be held liable for a breach of contract of carriage.11

We find that JAL did not breach its contract of carriage with respondents. It may be true that JAL has the duty to inspect whether its passengers have the necessary travel documents, however, such duty does not extend to checking the veracity of every entry in these documents. JAL could not vouch for the authenticity of a passport and the correctness of the entries therein. The power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by JAL. This is not within the ambit of the contract of carriage entered into by JAL and herein respondents. As such, JAL should not be faulted for the denial of respondents’ shore pass applications.Prior to their departure, respondents were aware that upon arrival in Narita, they must secure shore pass entries for their overnight stay. Respondents’ mother, Mrs. Imelda Asuncion, insisted though that Ms. Linda Villavicencio of JAL assured her that her children would be granted the passes.12 This assertion was satisfactorily refuted by Ms. Villavicencio’s testimony during the cross examination, to wit:ATTY. GONZAGA:Q I will show to you Exh. 9 which is the TIM and on page 184 hereof, particularly number 10, and I quote, "Those holding tickets with confirmed seats and other documents for their onward journey and continuing their journey to a third country provided that they obtain an indorsement with an application of shore pass or transit pass from the airline ground personnel before clearing the immigration formality?"WITNESS:A Yes, Sir.Q Did you tell this provision to Mrs. Asuncion?A Yes, Sir. I did.Q Are you sure?A Yes, Sir.Q Did you give a copy?A No, Sir, I did not give a copy but verbally I explained to her the procedure they have to undergo when they get to narita airport.….Q And you read the contents of this [TIM]?A No, Sir, I did not read it to her but I explained to her the procedure that each passenger has to go through before when they get to narita airport before they line up in the immigration counter.Q In other words, you told Mrs. Asuncion the responsibility of securing shore passes bears solely on the passengers only?A Yes, Sir.Q That the airline has no responsibility whatsoever with regards (sic) to the application for shore passes?A Yes, Sir. 13 Next, respondents claimed that petitioner breached its contract of carriage when it failed to explain to the immigration authorities that they had overnight vouchers at the Hotel Nikko Narita. They imputed that JAL did not exhaust all means to prevent the denial of their shore pass entry applications.To reiterate, JAL or any of its representatives have no authority to interfere with or influence the immigration authorities. The most that could be expected of JAL is to endorse respondents’ applications, which Mrs. Higuchi did immediately upon their arrival in Narita.As Mrs. Higuchi stated during her deposition:ATTY. QUIMBOQ: Madam Witness, what assistance did you give, if any, to the plaintiffs during this interview?A: No, I was not present during their interview. I cannot assist.Q: Why not?A: It is forbidden for a civilian personnel to interfere with the Immigration agent’s duties. 14 ….

Q: During the time that you were in that room and you were given this notice for you to sign, did you tell the immigration agent that Michael and Jeanette Asuncion should be allowed to stay at the Hotel Nikko Narita because, as passengers of JAL, and according to the plaintiff, they had vouchers to stay in that hotel that night?A: No, I couldn’t do so.Q: Why not?A: This notice is evidence which shows the decision of immigration authorities. It shows there that the immigration inspector also designated Room 304 of the Narita Airport Resthouse as the place where the passengers were going to wait for their outbound flight. 1awphi1.nét I cannot interfere with that decision. 15 Mrs. Higuchi did all she could to assist the respondents. Upon being notified of the denial of respondents’ applications, Mrs. Higuchi immediately made reservations for respondents at the Narita Airport Rest House which is really more a hotel than a detention house as claimed by respondents.16

More importantly, nowhere in respondent Michael’s testimony did he state categorically that Mrs. Higuchi or any other employee of JAL treated them rudely or exhibited improper behavior throughout their stay. We therefore find JAL not remiss in its obligations as a common carrier.1awphi1.nétMoral damages may be recovered in cases where one willfully causes injury to property, or in cases of breach of contract where the other party acts fraudulently or in bad faith. Exemplary damages are imposed by way of example or correction for the public good, when the party to a contract acts in wanton, fraudulent, oppressive or malevolent manner. Attorney’s fees are allowed when exemplary damages are awarded and when the party to a suit is compelled to incur expenses to protect his interest.17 There being no breach of contract nor proof that JAL acted in wanton, fraudulent or malevolent manner, there is no basis for the award of any form of damages.Neither should JAL be held liable to reimburse respondents the amount of US$800.00. It has been sufficiently proven that the amount pertained to ISC, an agency separate and distinct from JAL, in payment for the accommodations provided to respondents. The payments did not in any manner accrue to the benefit of JAL.However, we find that the Court of Appeals correctly dismissed JAL’s counterclaim for litigation expenses, exemplary damages and attorney’s fees. The action was filed by respondents in utmost good faith and not manifestly frivolous. Respondents honestly believed that JAL breached its contract. A person’s right to litigate should not be penalized by holding him liable for damages. This is especially true when the filing of the case is to enforce what he believes to be his rightful claim against another although found to be erroneous.18

WHEREFORE, in view of the foregoing, the instant petition is PARTLY GRANTED. The October 9, 2002 decision of the Court of Appeals and its January 12, 2004 resolution in CA-G.R. CV No. 57440, are REVERSED and SET ASIDE insofar as the finding of breach on the part of petitioner and the award of damages, attorney’s fees and costs of the suit in favor of respondents is concerned. Accordingly, there being no breach of contract on the part of petitioner, the award of actual, moral and exemplary damages, as well as attorney’s fees and costs of the suit in favor of respondents Michael and Jeanette Asuncion, is DELETED for lack of basis. However, the dismissal for lack of merit of petitioner’s counterclaim for litigation expenses, exemplary damages and attorney’s fees, is SUSTAINED. No pronouncement as to costs.SO ORDERED.

G.R. No. 165266               December 15, 2010AIR FRANCE, Petitioner, vs.BONIFACIO H. GILLEGO, substituted by his surviving heirs represented by Dolores P. Gillego, Respondent.D E C I S I O NVILLARAMA, JR., J.:For review is the Decision1 dated June 30, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 56587 which affirmed the Decision2 dated January 3, 1996 of the Regional Trial Court (RTC) of Makati City, Branch 137 in Civil Case No. 93-2328.The facts follow:Sometime in April 1993, respondent Bonifacio H. Gillego,3 then incumbent Congressman of the Second District of Sorsogon and Chairman of the House of Representatives Committee on Civil, Political and Human Rights, was invited to participate as one of the keynote speakers at the 89th Inter-Parliamentary Conference Symposium on

Parliament Guardian of Human Rights to be held in Budapest, Hungary and Tokyo, Japan from May 19 to 22, 1993. The Philippines is a member of the Inter-Parliamentary Union which organized the event.4

On May 16, 1993, respondent left Manila on board petitioner Air France’s aircraft bound for Paris, France. He arrived in Paris early morning of May 17, 1993 (5:00 a.m.). While waiting at the De’ Gaulle International Airport for his connecting flight to Budapest scheduled at 3:15 p.m. that same day, respondent learned that petitioner had another aircraft bound for Budapest with an earlier departure time (10:00 a.m.) than his scheduled flight. He then went to petitioner’s counter at the airport and made arrangements for the change in his booking. He was given a corresponding ticket and boarding pass for Flight No. 2024 and also a new baggage claim stub for his checked-in luggage.5

However, upon arriving in Budapest, respondent was unable to locate his luggage at the claiming section. He sought assistance from petitioner’s counter at the airport where petitioner’s representative verified from their computer that he had indeed a checked-in luggage. He was advised to just wait for his luggage at his hotel and that petitioner’s representatives would take charge of delivering the same to him that same day. But said luggage was never delivered by petitioner’s representatives despite follow-up inquiries by respondent.Upon his return to the Philippines, respondent’s lawyer immediately wrote petitioner’s Station Manager complaining about the lost luggage and the resulting damages he suffered while in Budapest. Respondent claimed that his single luggage contained his personal effects such as clothes, toiletries, medicines for his hypertension, and the speeches he had prepared, including the notes and reference materials he needed for the conference. He was thus left with only his travel documents, pocket money and the clothes he was wearing. Because petitioner’s representatives in Budapest failed to deliver his luggage despite their assurances and his repeated follow-ups, respondent was forced to shop for personal items including new clothes and his medicines. Aside from these unnecessary expenditures of about $1,000, respondent had to prepare another speech, in which he had difficulty due to lack of data and information. Respondent thus demanded the sum of P1,000,000.00 from the petitioner as compensation for his loss, inconvenience and moral damages.6 Petitioner, however, continued to ignore respondent’s repeated follow-ups regarding his lost luggage.On July 13, 1993, respondent filed a complaint7 for damages against the petitioner alleging that by reason of its negligence and breach of obligation to transport and deliver his luggage, respondent suffered inconvenience, serious anxiety, physical suffering and sleepless nights. It was further alleged that due to the physical, mental and emotional strain resulting from the loss of his luggage, aggravated by the fact that he failed to take his regular medication, respondent had to be taken to a medical clinic in Tokyo, Japan for emergency treatment. Respondent asserted that as a common carrier which advertises and offers its services to the public, petitioner is under obligation to observe extraordinary diligence in the vigilance over checked-in luggage and to see to it that respondent’s luggage entrusted to petitioner’s custody would accompany him on his flight and/or could be claimed by him upon arrival at his point of destination or delivered to him without delay. Petitioner should therefore be held liable for actual damages ($2,000.00 or P40,000.00), moral damages (P1,000,000.00), exemplary damages (P500,000.00), attorney’s fees (P50,000.00) and costs of suit.Petitioner filed its answer8 admitting that respondent was issued tickets for the flights mentioned, his subsequent request to be transferred to another flight while at the Paris airport and the loss of his checked-in luggage upon arrival at Budapest, which luggage has not been retrieved to date and the respondent’s repeated follow-ups ignored. However, as to the rest of respondent’s allegations, petitioner said it has no knowledge and information sufficient to form a belief as to their truth. As special and affirmative defense, petitioner contended that its liability for lost checked-in baggage is governed by the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage. Under the said treaty, petitioner’s liability for lost or delayed registered baggage of respondent is limited to 250 francs per kilogram or US$20.00, which constitutes liquidated damages and hence respondent is not entitled to any further damage.Petitioner averred that it has taken all necessary measures to avoid loss of respondent’s baggage, the contents of which respondent did not declare, and that it has no intent to cause such loss, much less knew that such loss could occur. The loss of respondent’s luggage is due to or occasioned by force majeure or fortuitous event or other causes beyond the carrier’s control. Diligent, sincere and timely efforts were exerted by petitioner to locate respondent’s missing luggage and attended to his problem with utmost courtesy, concern and dispatch. Petitioner further asserted that it exercised due diligence in the selection and supervision of its employees and acted in good faith in denying respondent’s demand for damages. The claims for actual, moral and exemplary damages and attorney’s fees therefore have no basis in fact and in law, and are, moreover speculative and unconscionable.In his Reply,9 respondent maintained that the loss of his luggage cannot be attributed to anything other than petitioner’s simple negligence and its failure to perform the diligence required of a common carrier.On January 3, 1996, the trial court rendered its decision in favor of respondent and against the petitioner, as follows:WHEREFORE, premises considered, judgment is rendered ordering defendant to pay plaintiff:1. The sum of P1,000,000.00 as moral damages;2. The sum of P500,000.00 as exemplary damages;3. The sum of P50,000.00 as attorney’s fees; and4. The costs.SO ORDERED.10

The trial court found there was gross negligence on the part of petitioner which failed to retrieve respondent’s checked-in luggage up to the time of the filing of the complaint and as admitted in its answer, ignored respondent’s repeated follow-ups. It likewise found petitioner guilty of willful misconduct as it persistently disregarded the rights of respondent who was no ordinary individual but a high government official. As to the applicability of the limited liability for lost baggage under the Warsaw Convention, the trial court rejected the argument of petitioner citing the case of Alitalia v. Intermediate Appellate Court.11

Petitioner appealed to the CA, which affirmed the trial court’s decision. The CA noted that in the memorandum submitted by petitioner before the trial court it was mentioned that respondent’s luggage was eventually found and delivered to him, which was not denied by respondent and thus resulted in the withdrawal of the claim for

actual damages. As to the trial court’s finding of gross negligence, bad faith and willful misconduct which justified the award of moral and exemplary damages, the CA sustained the same, stating thus:It bears stressing that defendant-appellant committed a breach of contract by its failure to deliver the luggage of plaintiff-appellee on time despite demand from plaintiff-appellee. The unreasonable delay in the delivery of the luggage has not been satisfactorily explained by defendant-appellant, either in its memorandum or in its appellant’s brief. Instead of justifying the delay, defendant-appellant took refuge under the provisions of the Warsaw Convention to escape liability. Neither was there any showing of apology on the part of defendant-appellant as to the delay. Furthermore, the unapologetic defendant-appellant even faulted plaintiff-appellee for not leaving a local address in Budapest in order for the defendant-appellant to contact him (plaintiff-appellee) in the event the luggage is found. This actuation of defendant-appellant is a clear showing of willful misconduct and a deliberate design to avoid liability. It amounts to bad faith. As elucidated by Chief Justice HilarioDavide, Jr., "[b]ad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud."12 (Emphasis supplied.)Its motion for reconsideration having been denied, petitioner filed the present Rule 45 petition raising the following grounds:I.THE AMOUNTS AWARDED TO RESPONDENT AS MORAL AND EXEMPLARY DAMAGES ARE EXCESSIVE, UNCONSCIONABLE AND UNREASONABLE.II.THERE IS NO LEGAL AND FACTUAL BASIS TO THE FINDINGS OF THE TRIAL COURT AND THE COURT OF APPEALS THAT PETITIONER’S ACTIONS WERE ATTENDED BY GROSS NEGLIGENCE, BAD FAITH AND WILLFUL MISCONDUCT AND THAT IT ACTED IN A WANTON, FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT MANNER, TO JUSTIFY THE AWARD OF MORAL AND EXEMPLARY DAMAGES.13

Petitioner assails the trial and appellate courts for awarding extravagant sums to respondent that already tend to punish the petitioner and enrich the respondent, which is not the function at all of moral damages. Upon the facts established, the damages awarded are definitely not proportionate or commensurate to the wrong or injury supposedly inflicted. Without belittling the problems respondent experienced in Budapest after losing his luggage, petitioner points out that despite the unfortunate incident, respondent was able to reconstruct the speeches, notes and study guides he had earlier prepared for the conference in Budapest and Tokyo, and to attend, speak and participate therein as scheduled. Since he prepared the research and wrote his speech, considering his acknowledged and long-standing expertise in the field of human rights in the Philippines, respondent should have had no difficulty delivering his speech even without his notes. In addition, there is no evidence that members of the Inter-Parliamentary Union made derogatory statements or even knew that he was unprepared for the conference. Bearing in mind that the actual damages sought by respondent was only $2,000.00, then clearly the trial court went way beyond that amount in determining the appropriate damages, inspite of the fact that the respondent eventually got back his baggage.14

Comparing the situation in this case to other cases awarding similar damages to the aggrieved passenger as a result of breaches of contract by international carriers, petitioner argues that even assuming that respondent was entitled to moral and exemplary damages, the sums adjudged should be modified or reduced. It is stressed that petitioner or its agents were never rude or discourteous toward respondent; he was not subjected to humiliating treatment or comments as in the case of Lopez, et al. v. Pan American World Airways,15Ortigas, Jr. v. Lufthansa German Airlines16 and Zulueta v. Pan American World Airways, Inc.17. The mere fact that respondent was a Congressman should not result in an automatic increase in the moral and exemplary damages recoverable. As held in Kierulf v. Court of Appeals18 the social and financial standing of a claimant may be considered only if he or she was subjected to contemptuous conduct despite the offender’s knowledge of his or her social and financial standing.19

In any event, petitioner invokes the application of the exception to the rule that only questions of law may be entertained by this Court in a petition for review under Rule 45 as to allow a factual review of the case. First, petitioner contends that it has always maintained that the "admission" in its answer was only made out of inadvertence, considering that it was inconsistent with the special and affirmative defenses set forth in the same pleading. The trial court incorrectly concluded that petitioner had not prepared a Property Irregularity Report (PIR) but fabricated one only as an afterthought. A PIR can only be initiated upon the instance of a passenger whose baggage had been lost, and in this case it was prepared by the station where the loss was reported. The PIR in this case was automatically and chronologically recorded in petitioner’s computerized system. Respondent himself admitted in his testimony that he gave his Philippine address and telephone number to the lady in charge of petitioner’s complaint desk in Budapest. It was not necessary to furnish a passenger with a copy of the PIR since its purpose is for the airline to trace a lost baggage. What respondent ought to have done was to make a xerox copy thereof for himself.20

Petitioner reiterates that there was no bad faith or negligence on its part and the burden is on the respondent to prove by clear and convincing evidence that it acted in bad faith. Respondent in his testimony miserably failed to prove that bad faith, fraud or ill will motivated or caused the delay of his baggage. This Court will surely agree that mere failure of a carrier to deliver a passenger’s baggage at the agreed place and time did not ipso facto amount to willful misconduct as to make it liable for moral and exemplary damages. Petitioner adduced evidence showing that it exerted diligent, sincere and timely efforts to locate the missing baggage, eventually leading to its recovery. It attended to respondent’s problem with utmost courtesy, concern and dispatch. Respondent, moreover, never alleged that petitioner’s employees were at anytime rude, mistreated him or in anyway showed improper behavior.21

The petition is partly meritorious.A business intended to serve the travelling public primarily, a contract of carriage is imbued with public interest. 22

The law governing common carriers consequently imposes an exacting standard. Article 1735 of the Civil Code provides that in case of lost or damaged goods, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required by Article 1733. Thus,

in an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by the carrier.23

That respondent’s checked-in luggage was not found upon arrival at his destination and was not returned to him until about two years later24 is not disputed. The action filed by the respondent is founded on such breach of the contract of carriage with petitioner who offered no satisfactory explanation for the unreasonable delay in the delivery of respondent’s baggage. The presumption of negligence was not overcome by the petitioner and hence its liability for the delay was sufficiently established. However, upon receipt of the said luggage during the pendency of the case in the trial court, respondent did not anymore press on his claim for actual or compensatory damages and neither did he adduce evidence of the actual amount of loss and damage incurred by such delayed delivery of his luggage. Consequently, the trial court proceeded to determine only the propriety of his claim for moral and exemplary damages, and attorney’s fees.In awarding moral damages for breach of contract of carriage, the breach must be wanton and deliberately injurious or the one responsible acted fraudulently or with malice or bad faith.25 Not every case of mental anguish, fright or serious anxiety calls for the award of moral damages.26 Where in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not include moral and exemplary damages.27

Bad faith should be established by clear and convincing evidence. The settled rule is that the law always presumes good faith such that any person who seeks to be awarded damages due to the acts of another has the burden of proving that the latter acted in bad faith or with ill motive.28

In the case of Tan v. Northwest Airlines, Inc.,29 we sustained the CA’s deletion of moral and exemplary damages awarded to a passenger whose baggage were loaded to another plane with the same expected date and time of arrival but nevertheless not delivered to her on time. We found that respondent carrier was not motivated by malice or bad faith in doing so due to weight and balance restrictions as a safety measure. In another case involving the off-loading of private respondents’ baggage to another destination, taken together with petitioner airline’s neglect in providing the necessary accommodations and assistance to its stranded passengers, aggravated by the discourteous acts of its employees, we upheld the CA in sustaining the trial court’s decision awarding moral and exemplary damages and attorney’s fees. We pointed out that it is PAL’s duty to provide assistance to private respondents and to any other passenger similarly inconvenienced due to delay in the completion of the transport and the receipt of their baggage.30

After a careful review, we find that petitioner is liable for moral damages.Petitioner’s station manager, Ma. Lourdes Reyes, testified that upon receiving the letter-complaint of respondent’s counsel, she immediately began working on the PIR from their computerized data. Based on her testimony, a PIR is issued at the airline station upon complaint by a passenger concerning missing baggage. From the information obtained in the computer-printout, it appears that a PIR31 was initiated at petitioner’s Budapest counter. A search telex for the missing luggage was sent out on the following dates: May 17, May 21 and May 23, 1993. As shown in the PIR printout, the information respondent supposedly furnished to petitioner was only his Philippine address and telephone number, and not the address and contact number of the hotel where he was billeted at Budapest. According to the witness, PIR usually is printed in two originals, one is kept by the station manager and the other copy given to the passenger. The witness further claimed that there was no record or entry in the PIR of any follow-up call made by the respondent while in Budapest.32 Respondent, on the other hand, claimed that he was not given a copy of this PIR and that his repeated telephone calls to inquire about his lost luggage were ignored.We hold that the trial and appellate courts did not err in finding that petitioner acted in bad faith in repeatedly ignoring respondent’s follow-up calls. The alleged entries in the PIR deserve scant consideration, as these have not been properly identified or authenticated by the airline station representative in Budapest who initiated and inputed the said entries. Furthermore, this Court cannot accept the convenient excuse given by petitioner that respondent should be faulted in allegedly not giving his hotel address and telephone number. It is difficult to believe that respondent, who had just lost his single luggage containing all his necessities for his stay in a foreign land and his reference materials for a speaking engagement, would not give an information so vital such as his hotel address and contact number to the airline counter where he had promptly and frantically filed his complaint. And even assuming arguendo that his Philippine address and contact number were the only details respondent had provided for the PIR, still there was no explanation as to why petitioner never communicated with respondents concerning his lost baggage long after respondent had already returned to the Philippines. While the missing luggage was eventually recovered, it was returned to respondent only after the trial of this case.Furthermore, the alleged copy of the PIR confirmed that the only action taken by the petitioner to locate respondent’s luggage were telex searches allegedly made on May 17, 21 and 23, 1993. There was not even any attempt to explain the reason for the loss of respondent’s luggage. Clearly, petitioner did not give the attention and care due to its passenger whose baggage was not transported and delivered to him at his travel destination and scheduled time. Inattention to 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 an award of moral damages.33 What the law considers as bad faith which may furnish the ground for an award of moral damages would be bad faith in securing the contract and in the execution thereof, as well as in the enforcement of its terms, or any other kind of deceit.34

While respondent failed to cite any act of discourtesy, discrimination or rudeness by petitioner’s employees, this did not make his loss and moral suffering insignificant and less deserving of compensation. In repeatedly ignoring respondent’s inquiries, petitioner’s employees exhibited an indifferent attitude without due regard for the inconvenience and anxiety he experienced after realizing that his luggage was missing. Petitioner was thus guilty of bad faith in breaching its contract of carriage with the respondent, which entitles the latter to the award of moral damages.1awphi1However, we agree with petitioner that the sum of P1,000,000.00 awarded by the trial court is excessive and not proportionate to the loss or suffering inflicted on the passenger under the circumstances. As in Trans World Airlines v. Court of Appeals35 where this Court after considering the social standing of the aggrieved passenger who is a

lawyer and director of several companies, the amount of P500,000.00 awarded by the trial court as moral damages was still reduced to P300,000.00, the moral damages granted to herein respondent should likewise be adjusted.The purpose of awarding moral damages is to enable the injured party to obtain means, diversion or amusement that will serve to alleviate the moral suffering he has undergone by reason of defendant's culpable action. On the other hand, the aim of awarding exemplary damages is to deter serious wrongdoings.36 Article 2216 of the Civil Code provides that assessment of damages is left to the discretion of the court according to the circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court. Simply put, the amount of damages must be fair, reasonable and proportionate to the injury suffered.37

Where as in this case the air carrier failed to act timely on the passenger’s predicament caused by its employees’ mistake and more than ordinary inadvertence or inattention, and the passenger failed to show any act of arrogance, discourtesy or rudeness committed by the air carrier’s employees, the amounts of P200,000.00, P50,000.00 and P30,000.00 as moral damages, exemplary damages and attorney’s fees would be sufficient and justified.38

WHEREFORE, the petition is DENIED. The Decision dated June 30, 2004 of the Court of Appeals in CA-G.R. CV No. 56587 is hereby AFFIRMED with MODIFICATION in that the award of moral damages, exemplary damages and attorney’s fees are hereby reduced to P200,000.00, P50,000.00 and P30,000.00, respectively.With costs against the petitioner.SO ORDERED.