G.R. No.

83612 November 24, 1994

LUFTHANSA GERMAN AIRLINES, petitioner,
vs.
COURT OF APPEALS and TIRSO V. ANTIPORDA, SR., respondents..
ROMERO, J.:
In this petition for review on certiorari, the Court is confronted with the issue of whether or not petitioner Lufthansa German Airlines
which issued a confirmed Lufthansa ticket to private respondent Antiporda covering a five-leg trip abroad different airlines should be
held liable for damages occasioned by the "bumping-off" of said private respondent Antiporda by Air Kenya, one of the airlines
contracted to carry him to a particular destination of the five-leg trip.
Tirso V. Antiporda, Sr. was an associate director of the Central Bank of the Philippines and a registered consultant of the
Asian Development Bank, the World Bank and the UNDP. He was, contracted by Sycip, Gorres, Velayo & Co. (SGV) to be
the institutional financial specialist for the agricultural credit institution project of the Investment and Development Bank of
Malawi in Africa. According to the letter of August 30, 1984 addressed to Antiporda from J.F. Singson of SGV, he would
render his services to the Malawi bank as an independent contractor for which he would be paid US$9,167 for a 50-day
period commencing sometime in September 1984. For the engagement, Antiporda would be provided one round-trip
economy ticket from Manila to Blantyre and back with a maximum travel time of four days per round-trip and, in addition, a
travel allowance of $50 per day, a travel insurance coverage of P100,000 and major hospitalization with AFIA and an
accident insurance coverage of P150,000. 1 On September 17, 1984, Lufthansa, through SGV, issued ticket No. 3477712678
for Antiporda's confirmed flights to Malawi, Africa. The ticket particularized his itinerary as follows:
Carrier Flight Date Time Status
Manila to SQ 081 25-9-84 1530 OK
Singapore
Singapore to LH 695 25-9-84 2200 OK
Bombay
Bombay to KQ 203 26-9-84 0215 OK
Nairobi
Nairobi to QM 335 26-9-84 1395 OK
Lilongwe
Lilongwe to QM 031 26-9-84 1600 OK
Blantyre
Thus, on September 25, 1984, Antiporda took the Lufthansa flight to Singapore from where he proceeded to Bombay on board the
same airline. He arrived in Bombay as scheduled and waited at the transit area of the airport for his connecting flight to Nairobi which
was, per schedule given him by Lufthansa, to leave Bombay in the morning of September 26, 1984. Finding no representative of
Lufthansa waiting for him at the gate, Antiporda asked the duty officer of Air India how he could get in touch with Lufthansa. He was
told to call up Lufthansa which informed him that somebody would attend to him shortly. Ten minutes later, Gerard Matias,
Lufthansa's traffic officer, arrived, asked for Antiporda's ticket and told him to just sit down and wait. Matias returned with one Leslie
Benent, duty officer of Lufthansa, who informed Antiporda that his seat in Air Kenya Flight 203 to Nairobi had been given to a very
important person of Bombay who was attending a religious function in Nairobi. Antiporda protested, stressing that he had an
important professional engagement in Blantyre, Malawi in the afternoon of September 26, 1984. He requested that the situation be
remedied but Air Kenya Flight 203 left for Nairobi without him on board. Stranded in Bombay, Antiporda was booked for Nairobi via

Addis Ababa only on September 27, 1984. He finally arrived in Blantyre at 9:00 o'clock in the evening of September 28, 1984, more
than a couple of days late for his appointment with people from the institution he was to work with in Malawi.
Consequently, on January 8, 1985, Antiporda's counsel wrote the general manager of Lufthansa in Manila demanding P1,000,000 in
damages for the airline's "malicious, wanton, disregard of the contract of carriage." 2 In reply, Lufthansa general manager Hagen
Keilich assured Antiporda that the matter would be investigated.
Apparently getting no positive action from Lufthansa, on January 21, 1985, Antiporda filed with the Regional Trial Court of Quezon
City a complaint against Lufthansa which was docketed as Civil Case No. Q-43810.
The lower court, 3 guided by the Supreme Court ruling in KLM Dutch Airlines v. Court of Appeals, et al., 4 found that Lufthansa
breached the contract to transport Antiporda from Manila to Blantyre on a trip of five legs. It said:
The threshold issue that confronts this Court is:
Was there a breach of obligation by the defendant in failing to transport the plaintiff from Manila to Blantyre,
Malawi, Africa?
The defendant admits the issuance and validity of Ticket
No. 3477712678 (Exh. B). However, it denies its obligation to transport the plaintiff to his point of destination at
Blantyre, Malawi, Africa. Defendant claims that it was obligated to transport the plaintiff only up to Bombay.
This case is one of a contract of carriage. And the ticket issued by the defendant to the plaintiff is the written
agreement between the
parties herein. Ticket No. 3477712678 particularizes the itinerary of the plaintiff . . .
xxx xxx xxx
From the ticket, therefore, it is indubitably clear that it was the duty and responsibility of the defendant Lufthansa to
transport the plaintiff from Manila to Blantyre, on a trip of five legs.
The posture taken by the defendant that it was Air Kenya's, not Lufthansa's, liability to transport plaintiff from
Bombay to Malawi, is inacceptable. The plaintiff dealt exclusively with the defendant Lufthansa which issued to
him the ticket for his entire trip and which in effect guaranteed to the plaintiff that he would have sure space in Air
Kenya's flight to Nairobi. Plaintiff, under that assurance of the defendant, naturally, had the right to expect that his
ticket would be honored by Air Kenya, to which, in the legal sense, Lufthansa had endorsed and in effect guaranteed
the performance of its principal engagement to carry out plaintiff's scheduled itinerary previously and mutually
agreed upon by the parties. Defendant itself admitted that the flight from Manila, Singapore, Bombay, Nairobi,
Lilongwe, Blantyre, Malawi, were all confirmed with the stamped letters "OK" thereon. In short, after issuing a
confirmed ticket from Manila to Malawi and receiv(ing) payment from the plaintiff for such one whole trip, how can
the defendant now deny its contractual obligation by alleging that its responsibility ceased at the Bombay Airport?
The contract of air transportation was exclusively between the plaintiff Antiporda and the defendant Lufthansa, the
latter merely endorsing its performance to Air Kenya, as its subcontractor or agent. The fourth paragraph of the
"Conditions of Contracts" of the ticket (Exh. B) issued by Lufthansa to plaintiff indubitably shows that the contract
was one of continuous air transportation from Manila to Blantyre, Malawi.
4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single
operation.

This condition embodied in the ticket issued to plaintiff is diametrically opposed to the defense theory that
Lufthansa's liability is only limited up to Bombay.
Pursuant to the above reasoning, the lower court held that Lufthansa cannot limit its liability as a mere ticket issuing agent for other
airlines and only to untoward occurrences on its own line.
The lower court added that under the pool arrangement of the International Air Transport Association (IATA), of which Lufthansa and
Air Kenya are members, member airlines are agents of each other in the issuance of tickets and, therefore, in accordance with Ortigas
v. Lufthansa, 5 an airline company is considered bound by the mistakes committed by another member of IATA which, in behalf of the
former, had confirmed a passenger's reservation for accommodation.
In justifying its award of moral and exemplary damages, the lower court emphasized that the breach of contract was "aggravated by
the discourteous and highly arbitrary conduct of Gerard Matias, an official of petitioner Lufthansa in Bombay." Its factual findings on
the matter are the following:
. . . . Bumped off from his connecting flight to Nairobi and stranded in the Bombay Airport for 32 hours, when
plaintiff insisted on taking his scheduled flight to Nairobi, Gerard Matias got angry and threw the ticket and passport
on plaintiff's lap and was ordered to go to the basement with his heavy luggages for no reason at all. It was a
difficult task for the plaintiff to carry three luggages and yet Gerard Matias did not even offer to help him. Plaintiff
requested accommodation but Matias ignored it and just left. Not even Lufthansa office in Bombay, after learning
plaintiff's being stranded in Bombay and his accommodation problem, provided any relief to plaintiff's sordid
situation. Plaintiff had to stay in the transit area and could not sleep for fear that his luggages might be lost.
Everytime he went to the toilet, he had to drag with him his luggages. He tried to eat the high-seasoned food
available at the airport but developed stomach trouble. It was indeed a pathetic sight that the plaintiff, an official of
the Central Bank, a multi-awarded institutional expert, tasked to perform consultancy work in a World Bank funded
agricultural bank project in Malawi instead found himself stranded in a foreign land where nobody was expected to
help him in his predicament except the defendant, who displayed utter lack of concern of its obligation to the
plaintiff and left plaintiff alone in his misery at the Bombay airport.
Citing Air France v. Carrascoso, 6 the lower court ruled that passengers have a right to be treated with kindness, respect, courtesy and
consideration by the carrier's employees apart from their right to be protected against personal misconduct, injurious language,
indignities and abuses from such employees.
Consequently, the trial court ordered Lufthansa to pay Antiporda the following:
(a) the amount of P300,000.00 as moral damages;
(b) the amount of P200,000.00 as exemplary damages; and
(c) the amount of P50,000.00 as reasonable attorney's fees.
With costs against the defendant.
Lufthansa elevated the case to the Court of Appeals arguing that it cannot be held liable for the acts committed by Air Kenya on the
basis of the following:
(a) it merely acted as a ticket-issuing agent in behalf of Air Kenya; consequently the contract of carriage entered into
is between respondent Antiporda and Air Kenya, to the exclusion of petitioner Lufthansa;
(b) under sections (1) and (2) Article 30 of the Warsaw Convention, an airline carrier is liable only to untoward
occurrences on its own line;

(c) the award of moral and exemplary damages in addition to attorney's fees by the trial court is without basis in fact
and in law.
The Court of Appeals not convinced with Lufthansa's appeal, affirmed the decision on the trial court sought to be reviewed.
Explained the Court of Appeals: although the contract of carriage was to be performed by several air carriers, the same is to be treated
as a single operation conducted by Lufthansa because Antiporda dealt exclusively with it which issued him a Lufthansa ticket for the
entire trip. By issuing a confirmed ticket, Lufthansa in effect guaranteed Antiporda a sure seat with Air Kenya. Private respondent
Antiporda, maintained the Court of Appeals, had the right to expect that his ticket would be honored by Air Kenya which, in the legal
sense, Lufthansa had endorsed and, in effect, guaranteed the performance of its principal engagement to carry out his five-leg trip.
The appellate court also ruled that Lufthansa cannot rely on Sections (1) and (2), Article 30 of the Warsaw Convention 7 because the
provisions thereof are not applicable under the circumstances of the case.
Sections (1) and (2), Article 30 of the Warsaw Convention provide:
Art. 30 (1). In the case of transportation to be performed by various successive carriers and falling within the
definition set out in the third paragraph of Article I, each carrier who accepts passengers, baggage, or goods shall be
subject to the rules set out in the convention, and shall be deemed to be one of the contracting parties to the contract
of transportation insofar as the contract deals with that part of the transportation which is performed under his
supervision.
(2) In the case of transportation of this nature, the passenger or his representative can take action only against the
carrier who performed the transportation during which the accident or the delay occurred, save in the case where, by
express agreement, the first carrier has assumed liability for the whole journey. (Emphasis supplied).
According to the Court of Appeals, Antiporda's cause of action is not premised on the occurrence of an accident or delay as
contemplated under Section 2 of said Article but on Air Kenya's refusal to transport him in order to accommodate another. To support
this ruling, the Court of Appeals cited the Supreme Court ruling in KLM Royal Dutch Airlines v. Court of Appeals, 8 which held, inter
alia, that:
1. The applicability insisted upon by the KLM of Article 30 of the Warsaw Convention cannot be sustained. That
article presupposes the occurrence of either an accident or a delay, neither of which took place at the Barcelona
airport; what is here manifest, instead, is that the Aer Lingus, through its manager there, refused to transport the
respondents to their planned and contracted destination.
The Court of Appeals concluded that Lufthansa cannot, thus, invoke Sections (1) and (2), Article 30 of the Warsaw Convention to
evade liability.
Failing to obtain a favorable decision, Lufthansa filed this petition for review on certiorari anchored on the following arguments:
1. The respondent court erred as a matter of law in refusing to apply the Warsaw Convention to the instant case.
2. Respondent court's ruling that Lufthansa had deceived private respondent has no factual or legal basis.
3. The respondent court erred as a matter of law in affirming the trial court's award of moral damages in the face of
this Court's rulings concerning moral damages in cases of breach of contract.
4. The respondent court erred as a matter of law in affirming the trial court's award of exemplary damages for lack
of legal or factual basis therefor.

The arguments propounded by petitioner Lufthansa cannot suffice to reverse the appellate court's decision as prayed for. Lufthansa
raised four assignments of error but the focal point at issue has been defined by us at the inception of this ponencia.
Lufthansa maintains that its liability to any passenger is limited to occurrences in its own line, and, thus, in the case at bench, its
liability to Antiporda is limited to the extent that it had transported him from Manila to Singapore and from Singapore to Bombay; that
therefrom, responsibility for the performance of the contract of carriage is assumed by the succeeding carriers tasked to transport him
for the remaining leg of his trip because at that stage, its contract of carriage with Antiporda ceases, with Lufthansa acting, no longer
as the principal in the contract of carriage, but merely as a ticket-issuing agent for the other carriers.
In further advancing this line of defense, Lufthansa invoked Section 2, Article 30 of the Warsaw Convention 9which expressly
stipulates that in cases where the transportation of passengers or goods is performed by various successive carriers, the passenger can
take action only against the carrier which performed the transportation, during which the accident or delay occurred. Lufthansa further
advanced the theory that this provision of the Warsaw Convention is applicable to the present case, contrary to the decision of the
Court of Appeals which relied on the Supreme Court ruling in KLM Royal Dutch Lines. 10 For Lufthansa, "bumping-off" is considered
delay since delay would inevitably result therefrom. It implored this Court to re-examine our ruling in KLM and take heed of
jurisprudence 11 in the U.S. where "delay," unlike in our ruling in KLM, contemplates the instance of "bumping-off." In KLM, we held
that the term "delay" does not encompass the instance of "bumping-off," the latter having been defined as refusal to carry or transport
a passenger.
On his part, private respondent Antiporda insists that he entered with Lufthansa an exclusive contract of carriage, the nature of which
is a continuous carriage by air from Manila to Blantyre Malawi; that it did not enter into a series of independent contracts with the
carriers that transported him for the remaining leg of his trip.
The basis for such claim is well-founded. As ruled by the trial court, with the Court of Appeals concurring favorably, Antiporda was
issued a confirmed Lufthansa ticket all throughout the five-leg trip. The fourth paragraph of the "Conditions of Contract" stipulated in
the ticket indubitably showed that the contract of carriage was considered as one of continuous air transportation from Manila to
Blantyre, Malawi, thus:
4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation.
In light of the stipulations expressly specified in the ticket defining the true nature of its contract of carriage with Antiporda, Lufthansa
cannot claim that its liability thereon ceased at Bombay Airport and thence, shifted to the various carriers that assumed the actual task
of transporting said private respondent.
We, therefore, reject Lufthansa's theory that from the time another carrier was engaged to transport Antiporda on another segment of
his trip, it merely acted as a ticket-issuing agent in behalf of said carrier. In the very nature of their contract, Lufthansa is clearly the
principal in the contract of carriage with Antiporda and remains to be so, regardless of those instances when actual carriage was to be
performed by various carriers. The issuance of a confirmed Lufthansa ticket in favor of Antiporda covering his entire five-leg trip
abroad successive carriers concretely attests to this. This also serves as proof that Lufthansa, in effect guaranteed that the successive
carriers, such as Air Kenya would honor his ticket; assure him of a space therein and transport him on a particular segment of his trip.
This ruling finds corroboration in the Supreme Court decision in KLM , 12 where the same issues were confronted, thus:
xxx xxx xxx
The passage tickets of the respondents provide that the carriage to be performed thereunder by several successive
carriers "is to be regarded as a single operation," which is diametrically incompatible with the theory of the KLM
that the respondents entered into a series of independent contracts with the carriers which took them on the various
segments of their trip. This position of KLM we reject. The respondents dealt exclusively with the KLM which
issued them tickets for their entire trip and which in effect guaranteed to them that they would have sure space in
Aer Lingus flight 861. The respondents, under that assurance of the internationally prestigious KLM, naturally had
the right to expect that their tickets would be honored by Aer Lingus to which, in the legal sense, the KLM had

indorsed and in effect guaranteed the performance of its principal engagement to carry out the respondents'
scheduled itinerary previously and mutually agreed upon between the parties.
On the issue of whether the Warsaw Convention, particularly Section 2, Article 30 thereof is applicable herein, we agree with the
Court of Appeals in ruling in the negative. We reiterate what has been settled in KLM:
1. The applicability insisted upon by the KLM of Article 30 of the Warsaw Convention cannot be sustained. That
article presupposes the occurrence of either an accident or a delay, neither of which took place at the Barcelona
airport; what is here manifest, instead, is that the Aer Lingus, through its manager there, refused to transport the
respondents to their planned and contracted destination. . . .
Lufthansa prays this court to take heed of jurisprudence in the United States where the term "delay" was interpreted to include
"bumping-off" or failure to carry a passenger with a confirmed reservation. These decisions in the United States are not controlling in
this jurisdiction. We are not prepared, absent reasons of compelling nature, to entertain an extended meaning of the term "delay,"
which in KLM was given its ordinary signification. "Construction and interpretation come only after it has been demonstrated that
application is impossible or inadequate without them. The ordinary language of a statute must be given its ordinary meaning and
limited to a reasonable interpretation." 13 In its ordinary sense, "delay" means to prolong the time of or before; to stop, detain or hinder
for a time, or cause someone or something to be behind in schedule or usual rate of movement in progress. 14"Bumping-off," which is
the refusal to transport passengers with confirmed reservation to their planned and contracted destinations, totally forecloses said
passengers' right to be transported, whereas delay merely postpones for a time being the enforcement of such right.
Consequently, Section 2, Article 30 of the Warsaw Convention which does not contemplate the instance of "bumping-off" but merely
of simple delay, cannot provide a handy excuse for Lufthansa as to exculpate it from any liability to Antiporda. The payment of
damages is, thus, deemed warranted by this Court. We find no reversible error in the lower court's award of moral and exemplary
damages, including attorney's fees in favor of Antiporda.
Article 2220 of the Civil Code provides:
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith.
According to the findings of the appellate court which affirmed that of the lower court, the reasons given by the witnesses for
Lufthansa for private respondent's being "bumped off" at Bombay airport were conflicting.
Observed the Court of Appeals:
If there was really no seat available because of over-booking, why did Lufthansa confirm the ticket of the plaintiffappellee? It has to be pointed out that the confirmed ticket is up to Blantyre, Malawi, not only to Bombay.
If the plaintiff-appellee was not in the list of passengers of Kenya Airways (the connecting flight) then Lufthansa
must have deceived him in Manila because according to Gerard Matias, the passengers booked by Kenya Airways
for Boeing 707 were 190 passengers when the plane could accommodate only 144 passengers considering that the
name of plaintiff-appellee was not in the list. If that was the situation, Lufthansa by the issuance of its ticket should
have not assured the plaintiff-appellee that he could get the connecting flights as scheduled. Surely, Lufthansa before
confirming the ticket of the plaintiff-appellee must have confirmed the flight with Kenya Airways. If it was
impossible to get a seat upon its own investigation in Bombay, then it should have not confirmed the ticket of the
plaintiff-appellee. It is the defendant-appellant who was negligent in the performance of its duties, and plaintiffappellee was just plainly deceived.
Since the ticket was marked O.K., meaning confirmed, therefore plaintiff-appellee must have a definite seat with
Kenya Airways but it was lost or given to another person. It is not true therefore, that plaintiff-appellee's name was

not in the list of Kenya Airways. Besides, why should Lufthansa allow a passenger to depart from the Philippines
with a confirmed ticket, without instructing its Bombay office to reserve a seat with Kenya Airways for its
connecting flight? In spite of the confirmation, Nelda Aquino testified that plaintiff-appellee was stranded in
Bombay because he did not get a seat with Kenya Airways, and his name did not appear in the list of passengers.
Then contrary to the testimonies of
Berndt Loewe and Gerard Matias that the obligation of the
defendant-appellant is only up to Bombay and the reason why plaintiff-appellee was not in the list of passengers is
because of overbooking. Nelda Aquino contrary to the testimonies of the two, testified that the reason for the
bumping-off is that the seat was given to another passenger, to wit:
Q Did you know or eventually learned later that the name of Antiporda was not in the list of
confirmed passengers?
A I only learned from the office at Bombay that it was given to other passenger which I only
learned from the office at Bombay.
Q Who informed you that the seat of Mr. Antiporda was given to other passenger?
A From our international officer.
Q Who is he?
A Our Sales Manager.
Q Is he your Sales Manager in Bombay?
A Yes, our Manager.
If Nelda Aquino knew that the reason for the bumping-off is that the seat was given to another, how come Berndt
Loewe, passenger Sales Manager of defendant, Gerard Matias, an employee of defendant-appellant in Bombay did
not know the said reason why the name of plaintiff-appellee did not appear in the list of passengers? It is either they
knew the truth but because they wanted to escape liability they pretended not to know the truth.
Clearly, bad faith attended the performance of the contract of carriage, for even while Antiporda was in Bombay, representatives of
Lufthansa already tried to evade liability first, by claiming that the contract of carriage between Lufthansa and Antiporda ceased at
Bombay airport, in disregard of the fact that Antiporda was holding a Lufthansa ticket for the entire five-leg trip; second, despite
Berndt Loewe's knowledge that Antiporda's seat was allowed to be given to another passenger, the same suppressed the information
and feigned ignorance of the matter, presenting altogether another reason why Antiporda was not listed in the manifest, i.e. that Air
Kenya Boeing 707 was overbooked, notwithstanding clear proof that Lufthansa in Manila confirmed his reservation for said flight.
Antiporda is likewise entitled to the award of exemplary damages on the basis of Article 2232 of the Civil Code which provides:
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.
There is every indication that Lufthansa, through its representatives in Bombay, acted in a reckless and malevolent manner in dealing
with Antiporda.
As found by the trial court:

The breach of the guarantee was aggravated by the discourteous and highly arbitrary conduct of Gerard Matias, an
official of Lufthansa in Bombay. Bumped off from his connecting flight to Nairobi and stranded in the Bombay
Airport for 32 hours, when plaintiff insisted on taking his scheduled flight to Nairobi, Gerard Matias got angry and
threw the ticket and passport on plaintiff's lap and was ordered to go to the basement with his heavy luggages for no
reason at all. It was a difficult task for the plaintiff to carry three luggages and yet Gerard Matias did not even offer
to help him. Plaintiff requested accommodation but Matias ignored it and just left. Not even Lufthansa office in
Bombay, after learning plaintiff's being stranded in Bombay and his accommodation problem, provided any relief to
plaintiff's sordid situation. Plaintiff has to stay in the transit area and could not sleep for fear that his luggages might
be lost. Everytime he went to the toilet, he had to drag with him his luggages. He tried to eat the high-seasoned food
available at the airport but developed stomach trouble. It was indeed a pathetic sight that the plaintiff, an official of
the Central Bank, a multi-awarded institutional expert, tasked to perform consultancy work in a World Bank funded
agricultural bank project in Malawi instead found himself stranded in a foreign land where nobody was expected to
help him in his predicament except the defendant, who displayed utter lack of concern of its obligation to the
plaintiff and left plaintiff alone in his misery at the Bombay airport.
These findings of the trial court were affirmed by the Court of Appeals on the ground that there are no cogent reasons to justify a
contrary finding. The same holds true with this Court. The findings of fact of lower courts are binding on us and will not be generally
disturbed on appeal. 15 In affirming the lower court's award of damages to Antiporda, we take into account his high position in the
government, coupled with the fact that he failed to meet his professional commitment in Blantyre, Malawi due to the "bumping-off"
incident accompanied by rude and discourteous behavior on the part of airline officials who should have been the first to attend to his
travel needs.
WHEREFORE, the petition for review is hereby DENIED and the decision of the Court of Appeals AFFIRMED.
Costs against petitioner.
G.R. No. L-31150 July 22, 1975
KONINKLIJKE LUCHTVAART MAATSHAPPIJ N.V., otherwise known as KLM ROYAL DUTCH AIRLINES,petitioner,
vs.
THE HONORABLE COURT OF APPEALS, CONSUELO T. MENDOZA and RUFINO T. MENDOZA, respondents.
CASTRO, J.:
In this appeal by way of certiorari the Koninklijke Luchtvaart Maatschappij N.V., otherwise known as the KLM Royal Dutch Airlines
(hereinafter referred to as the KLM) assails the award of damages made by the Court of Appeals in CA-G.R. 40620 in favor of the
spouses Rufino T. Mendoza and Consuelo T. Mendoza (hereinafter referred to as the respondents).1wph1.t
Sometime in March 1965 the respondents approached Tirso Reyes, manager of a branch of the Philippine Travel Bureau, a travel
agency, for consultations about a world tour which they were intending to make with their daughter and a niece. Reyes submitted to
them, after preliminary discussions, a tentative itinerary which prescribed a trip of thirty-five legs; the respondents would fly on
different airlines. Three segments of the trip, the longest, would be via KLM. The respondents expressed a desire to visit Lourdes,
France, and discussed with Reyes two alternate routes, namely, Paris to Lourdes and Barcelona to Lourdes. The respondents decided
on the Barcelona-Lourdes route with knowledge that only one airline, Aer Lingus, serviced it.
The Philippine Travel Bureau to which Reyes was accredited was an agent for international air carriers which are members of the
International Air Transport Association, popularly known as the "IATA," of which both the KLM and the Aer Lingus are members.
After about two weeks, the respondents approved the itinerary prepared for them, and asked Reyes to make the necessary plane
reservations. Reyes went to the KLM, for which the respondents had expressed preference. The KLM thereafter secured seat
reservations for the respondents and their two companions from the carriers which would ferry them throughout their trip, with the
exception of Aer Lingus. When the respondents left the Philippines (without their young wards who had enplaned much earlier), they

were issued KLM tickets for their entire trip. However, their coupon for the Aer Lingus portion (Flight 861 for June 22, 1965) was
marked "RQ" which meant "on request".
After sightseeing in American and European cities (they were in the meantime joined by their two young companions), the
respondents arrived in Frankfurt, Germany. They went to a KLM office there and obtained a confirmation from Aer Lingus of seat
reservations on flight 861. After meandering in London, Paris and Lisbon, the foursome finally took wing to Barcelona for their trip to
Lourdes, France.
In the afternoon of June 22, 1965 the respondents with their wards went to the Barcelona airport to take their plane which arrived at
4:00 o'clock. At the airport, the manager of Aer Lingus directed the respondents to check in. They did so as instructed and were
accepted for passage. However, although their daughter and niece were allowed to take the plane, the respondents were off-loaded on
orders of the Aer Lingus manager who brusquely shoved them aside with the aid of a policeman and who shouted at them, "Conos!
Ignorantes Filipinos!"
Mrs. Mendoza later called up the manager of Aer Lingus and requested that they provide her and her husband means to get to Lourdes,
but the request was denied. A stranger, however, advised them to take a train, which the two did; despite the third class
accommodations and lack of food service, they reached Lourdes the following morning. During the train trip the respondents had to
suffer draft winds as they wore only minimum clothing, their luggage having gone ahead with the Aer Lingus plane. They spent $50
for that train trip; their plane passage was worth $43.35.
On March 17, 1966 the respondents, referring to KLM as the principal of Aer Lingus, filed a complaint for damages with the Court of
First Instance of Manila arising from breach of contract of carriage and for the humiliating treatment received by them at the hands of
the Aer Lingus manager in Barcelona. After due hearing, the trial court awarded damages to the respondents as follows: $43.35 or its
peso equivalent as actual damages, P10,000 as moral damages, P5,000 as exemplary damages, and P5,000 as attorney's fees, and
expenses of litigation.
Both parties appealed to the Court of Appeals. The KLM sought complete exoneration; the respondents prayed for an increase in the
award of damages. In its decision of August 14, 1969 the Court of Appeals decreed as follows: "Appellant KLM is condemned to pay
unto the plaintiffs the sum of $43.35 as actual damages; P50,000 as moral damages; and P6,000 as attorney's fees and costs."
Hence, the present recourse by the KLM.
The KLM prays for exculpation from damages on the strength of the following particulars which were advanced to but rejected by the
Court of Appeals:
(a) The air tickets issued to the respondents stipulate that carriage thereunder is subject to the "Convention for the Unification of
Certain Rules Relating to International Transportation by Air," otherwise known as the "Warsaw Convention," to which the Philippine
Government is a party by adherence, and which pertinently provides. 1
ART. 30. (1) In the case of transportation to be performed by various successive carriers and failing within the
definition set out in the third paragraph of Article I, each carrier who accepts passengers, baggage, or goods shall be
subject to the rules set out in the convention, and shall be deemed to be one of the contracting parties to the contract
of transportation insofar as the contract deals with that part of transportation which is performed under his
supervision. 2
(2) In the case of transportation of this nature, the passenger or his representative can take action only against the
carrier who performed the transportation during which the accident or the delay occured, save in the case where, by
express agreement, the first carrier has assumed liability for the whole journey. (emphasis supplied)
(b) On the inside front cover of each ticket the following appears under the heading "Conditions of Contract":

1 ... (a) Liability of carrier for damages shall be limited to occurrences on its own line, except in the case of checked
baggage as to which the passenger also has a right of action against the first or last carrier. A carrier issuing a ticket
or checking baggage for carriage over the lines of others does so only as agent..
(c) All that the KLM did after the respondents completed their arrangements with the travel agency was to request for seat reservations
among the airlines called for by the itinerary submitted to the KLM and to issue tickets for the entire flight as a ticket-issuing agent.
The respondents rebut the foregoing arguments, thus:
(a) Article 30 of the Warsaw Convention has no application in the case at bar which involves, not an accident or delay, but a willful
misconduct on the part of the KLM's agent, the Aer Lingus. Under article 25 of the same Convention the following is prescribed:
ART. 25. (1) The carrier shall not be entitled to avail himself of the provisions of this convention which exclude or
limit his liability, if the damage is caused by his willful misconduct or by such default on his part as, in accordance
with the law of the court to which the case is submitted, is considered to be equivalent to willful misconduct. 3
(2) Similarly, the carrier shall not be entitled to avail himself of the said provisions, if the damage is caused under
the same circumstances by any agent of the carrier acting within the scope of his employment. (emphasis by
respondents)
(b) The condition in their tickets which purportedly excuse the KLM from liability appears in very small print, to read which, as found
by the Court of Appeals, one has practically to use a magnifying glass.
(c) The first paragraph of the "Conditions of Contract" appearing identically on the KLM tickets issued to them idubitably shows that
their contract was one of continuous air transportation around the world:
1 ... "carriage" includes the air carrier issuing this ticket and all carriers that carry or undertake to carry the passenger
or his baggage hereunder or perform any other service incidental to such air carriage... Carriage to be performed
hereunder by several successive carrier is regarded as a single operation.
(d) The contract of air transportation was exclusively between the respondents and the KLM, the latter merely endorsing its
performance to other carriers, like Aer Lingus, as its subcontractors or agents, as evidenced by the passage tickets themselves which
on their face disclose that they are KLM tickets. Moreover, the respondents dealt only with KLM through the travel agency.
1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be sustained. That article presupposes
the occurrence of either an accident or a delay, neither of which took place at the Barcelona airport; what is here manifest, instead, is
that the Aer Lingus, through its manager there, refused to transport the respondents to their planned and contracted destination.
2. The argument that the KLM should not be held accountable for the tortious conduct of Aer Lingus because of the provision printed
on the respondents' tickets expressly limiting the KLM's liability for damages only to occurrences on its own lines is unacceptable. As
noted by the Court of Appeals that condition was printed in letters so small that one would have to use a magnifying glass to read the
words. Under the circumstances, it would be unfair and inequitable to charge the respondents with automatic knowledge or notice of
the said condition so as to preclude any doubt that it was fairly and freely agreed upon by the respondents when they accepted the
passage tickets issued to them by the KLM. As the airline which issued those tickets with the knowledge that the respondents would
be flown on the various legs of their journey by different air carriers, the KLM was chargeable with the duty and responsibility of
specifically informing the respondents of conditions prescribed in their tickets or, in the very least, to ascertain that the respondents
read them before they accepted their passage tickets. A thorough search of the record, however, inexplicably fails to show that any
effort was exerted by the KLM officials or employees to discharge in a proper manner this responsibility to the respondents.
Consequently, we hold that the respondents cannot be bound by the provision in question by which KLM unilaterally assumed the role
of a mere ticket-issuing agent for other airlines and limited its liability only to untoward occurrences on its own lines.

10

3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of the respondents provide that the
carriage to be performed thereunder by several successive carriers "is to be regarded as a single operation," which is diametrically
incompatible with the theory of the KLM that the respondents entered into a series of independent contracts with the carriers which
took them on the various segments of their trip. This position of KLM we reject. The respondents dealt exclusively with the KLM
which issued them tickets for their entire trip and which in effect guaranteed to them that they would have sure space in Aer Lingus
flight 861. The respondents, under that assurance of the internationally prestigious KLM, naturally had the right to expect that their
tickets would be honored by Aer Lingus to which, in the legal sense, the KLM had indorsed and in effect guaranteed the performance
of its principal engagement to carry out the respondents' scheduled itinerary previously and mutually agreed upon between the parties.
4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct of an official of the Aer Lingus which
the KLM had engaged to transport the respondents on the Barcelona-Lourdes segment of their itinerary. It is but just and in full accord
with the policy expressly embodied in our civil law which enjoins courts to be more vigilant for the protection of a contracting party
who occupies an inferior position with respect to the other contracting party, that the KLM should be held responsible for the abuse,
injury and embarrassment suffered by the respondents at the hands of a supercilious boor of the Aer Lingus.
ACCORDINGLY, the judgment of the Court of Appeals dated August 14, 1969 is affirmed, at KLM's cost.
G.R. No. 152122

July 30, 2003

CHINA AIRLINES, petitioner,

vs.
DANIEL CHIOK, respondent.
PANGANIBAN, J.:
A common carrier has a peculiar relationship with and an exacting responsibility to its passengers. For reasons of public interest and
policy, the ticket-issuing airline acts as principal in a contract of carriage and is thus liable for the acts and the omissions of any errant
carrier to which it may have endorsed any sector of the entire, continuous trip.
The Case
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to reverse the August 7, 2001
Decision2 and the February 7, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 45832. The challenged Decision
disposed as follows:
"WHEREFORE, premises considered, the assailed Decision dated July 5, 1991 of Branch 31, Regional Trial Court, National
Capital Judicial Region, Manila, in Civil Case No. 82-13690, is hereby MODIFIED by deleting that portion regarding
defendants-appellants liabilities for the payment of the actual damages amounting to HK$14,128.80 and US$2,000.00 while
all other respects are AFFIRMED. Costs against defendants-appellants." 4
The assailed Resolution denied Petitioners Motion for Partial Reconsideration.
The Facts
The facts are narrated by the CA5 as follows:
"On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased from China Airlines, Ltd. (CAL for
brevity) airline passenger ticket number 297:4402:004:278:5 for air transportation covering Manila-Taipei-HongkongManila. Said ticket was exclusively endorseable to Philippine Airlines, Ltd. (PAL for brevity).

11

"Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei using [the] CAL ticket. Before he left for
said trip, the trips covered by the ticket were pre-scheduled and confirmed by the former. When he arrived in Taipei, he went
to the CAL office and confirmed his Hongkong to Manila trip on board PAL Flight No. PR 311. The CAL office attached a
yellow sticker appropriately indicating that his flight status was OK.
"When Chiok reached Hongkong, he went to the PAL office and sought to reconfirm his flight back to Manila. The PAL
office confirmed his return trip on board Flight No. PR 311 and attached its own sticker. On November 24, 1981, Chiok
proceeded to Hongkong International Airport for his return trip to Manila. However, upon reaching the PAL counter, Chiok
saw a poster stating that PAL Flight No. PR 311 was cancelled because of a typhoon in Manila. He was then informed that all
the confirmed ticket holders of PAL Flight No. PR 311 were automatically booked for its next flight, which was to leave the
next day. He then informed PAL personnel that, being the founding director of the Philippine Polysterene Paper Corporation,
he ha[d] to reach Manila on November 25, 1981 because of a business option which he ha[d] to execute on said date.
"On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess Lok Chan (hereafter referred to as Lok) ha[d]
taken and received Chioks plane ticket and his luggage. Lok called the attention of Carmen Chan (hereafter referred to as
Carmen), PALs terminal supervisor, and informed the latter that Chioks name was not in the computer list of passengers.
Subsequently, Carmen informed Chiok that his name did not appear in PALs computer list of passengers and therefore could
not be permitted to board PAL Flight No. PR 307.
"Meanwhile, Chiok requested Carmen to put into writing the alleged reason why he was not allowed to take his flight. The
latter then wrote the following, to wit: PAL STAFF CARMEN CHAN CHKD WITH R/C KENNY AT 1005H NO SUCH
NAME IN COMPUTER FOR 311/24 NOV AND 307/25 NOV. The latter sought to recover his luggage but found only 2
which were placed at the end of the passengers line. Realizing that his new Samsonite luggage was missing, which contained
cosmetics worth HK$14,128.80, he complained to Carmen.
"Thereafter, Chiok proceeded to PALs Hongkong office and confronted PALs reservation officer, Carie Chao (hereafter
referred to as Chao), who previously confirmed his flight back to Manila. Chao told Chiok that his name was on the list and
pointed to the latter his computer number listed on the PAL confirmation sticker attached to his plane ticket, which number
was R/MN62.
"Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5 and asked Chao if this ticket could be used to
book him for the said flight. The latter, once again, booked and confirmed the formers trip, this time on board PAL Flight
No. PR 311 scheduled to depart that evening. Later, Chiok went to the PAL check-in counter and it was Carmen who attended
to him. As this juncture, Chiok had already placed his travel documents, including his clutch bag, on top of the PAL check-in
counter.
"Thereafter, Carmen directed PAL personnel to transfer counters. In the ensuing commotion, Chiok lost his clutch bag
containing the following, to wit: (a) $2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d) P2,000.00; (e) a three-piece set of
gold (18 carats) cross pens valued at P3,500; (f) a Cartier watch worth about P7,500.00; (g) a tie clip with a garnet birthstone
and diamond worth P1,800.00; and (h) a [pair of] Christian Dior reading glasses. Subsequently, he was placed on stand-by
and at around 7:30 p.m., PAL personnel informed him that he could now check-in.
"Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 for damages, against PAL and CAL, as
defendants, docketed as Civil Case No. 82-13690, with Branch 31, Regional Trial Court, National Capital Judicial Region,
Manila.
"He alleged therein that despite several confirmations of his flight, defendant PAL refused to accommodate him in Flight No.
307, for which reason he lost the business option aforementioned. He also alleged that PALs personnel, specifically Carmen,
ridiculed and humiliated him in the presence of so many people. Further, he alleged that defendants are solidarily liable for
the damages he suffered, since one is the agent of the other."6

12

The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and severally liable to respondent. It did not, however, rule on
their respective cross-claims. It disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants to jointly and severally pay:
1. Actual damages in the amount of HK$14,128.80 or its equivalent in Philippine Currency at the time of the loss of the
luggage consisting of cosmetic products;
2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag containing the money;
3. P200,000.00 by way of moral damages;
4. P50,000.00 by way of exemplary damages or corrective damages;
5. Attorney[]s fees equivalent to 10% of the amounts due and demandable and awarded in favor of the plaintiff; and
6. The costs of this proceedings."7
The two carriers appealed the RTC Decision to the CA.
Ruling of the Court of Appeals
Affirming the RTC, the Court of Appeals debunked petitioners claim that it had merely acted as an issuing agent for the ticket
covering the Hong Kong-Manila leg of respondents journey. In support of its Decision, the CA quoted a purported ruling of this Court
in KLM Royal Dutch Airlines v. Court of Appeals8 as follows:
"Article 30 of the Warsaw providing that in case of transportation to be performed by various successive carriers, the
passenger can take action only against the carrier who performed the transportation during which the accident or the delay
occurred presupposes the occurrence of either an accident or delay in the course of the air trip, and does not apply if the
damage is caused by the willful misconduct on the part of the carriers employee or agent acting within the scope of his
employment.
"It would be unfair and inequitable to charge a passenger with automatic knowledge or notice of a condition which
purportedly would excuse the carrier from liability, where the notice is written at the back of the ticket in letters so small that
one has to use a magnifying glass to read the words. To preclude any doubt that the contract was fairly and freely agreed
upon when the passenger accepted the passage ticket, the carrier who issued the ticket must inform the passenger of the
conditions prescribed in the ticket or, in the very least, ascertain that the passenger read them before he accepted the passage
ticket. Absent any showing that the carriers officials or employees discharged this responsibility to the passenger, the latter
cannot be bound by the conditions by which the carrier assumed the role of a mere ticket-issuing agent for other airlines and
limited its liability only to untoward occurrences in its own lines.
"Where the passage tickets provide that the carriage to be performed thereunder by several successive carriers is to be
regarded as a single operation, the carrier which issued the tickets for the entire trip in effect guaranteed to the passenger that
the latter shall have sure space in the various carriers which would ferry him through the various segments of the trip, and the
ticket-issuing carrier assumes full responsibility for the entire trip and shall be held accountable for the breach of that
guaranty whether the breach occurred in its own lines or in those of the other carriers."9
On PALs appeal, the appellate court held that the carrier had reneged on its obligation to transport respondent when, in spite of the
confirmations he had secured for Flight PR 311, his name did not appear in the computerized list of passengers. Ruling that the
airlines negligence was the proximate cause of his excoriating experience, the appellate court sustained the award of moral and
exemplary damages.

13

The CA, however, deleted the RTCs award of actual damages amounting to HK$14,128.80 and US$2,000.00, because the lost piece
of luggage and clutch bag had not actually been "checked in" or delivered to PAL for transportation to Manila.
On August 28, 2001, petitioner filed a Motion for Partial Reconsideration, contending that the appellate court had erroneously relied
on a mere syllabus of KLM v. CA, not on the actual ruling therein. Moreover, it argued that respondent was fully aware that the
booking for the PAL sector had been made only upon his request; and that only PAL, not CAL, was liable for the actual carriage of
that segment. Petitioner likewise prayed for a ruling on its cross-claim against PAL, inasmuch as the latters employees had acted
negligently, as found by the trial court.
Denying the Motion, the appellate court ruled that petitioner had failed to raise any new matter or issue that would warrant a
modification or a reversal of the Decision. As to the alleged misquotation, the CA held that while the portion it had cited appeared to
be different from the wording of the actual ruling, the variance was "more apparent than real since the difference [was] only in form
and not in substance."10
CAL and PAL filed separate Petitions to assail the CA Decision. In its October 3, 2001 Resolution, this Court denied PALs appeal,
docketed as GR No. 149544, for failure to serve the CA a copy of the Petition as required by Section 3, Rule 45, in relation to Section
5(d) of Rule 56 and paragraph 2 of Revised Circular No. 1-88 of this Court. PALs Motion for Reconsideration was denied with
finality on January 21, 2002.
Only the appeal of CAL11 remains in this Court.
Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
"1. The Court of Appeals committed judicial misconduct in finding liability against the petitioner on the basis of a
misquotation from KLM Royal Dutch Airlines vs. Court of Appeals, et al., 65 SCRA 237 and in magnifying its misconduct
by denying the petitioners Motion for Reconsideration on a mere syllabus, unofficial at that.
"2. The Court of Appeals committed an error of law when it did not apply applicable precedents on the case before it.
"3. The Court of Appeals committed a non sequitur when it did not rule on the cross-claim of the petitioner." 12
The Courts Ruling
The Petition is not meritorious.
First Issue:
Alleged Judicial Misconduct
Petitioner charges the CA with judicial misconduct for quoting from and basing its ruling against the two airlines on an unofficial
syllabus of this Courts ruling in KLM v. CA. Moreover, such misconduct was allegedly aggravated when the CA, in an attempt to
justify its action, held that the difference between the actual ruling and the syllabus was "more apparent than real." 13
We agree with petitioner that the CA committed a lapse when it relied merely on the unofficial syllabus of our ruling in KLM v. CA.
Indeed, lawyers and litigants are mandated to quote decisions of this Court accurately.14 By the same token, judges should do no less
by strictly abiding by this rule when they quote cases that support their judgments and decisions. Canon 3 of the Code of Judicial
Conduct enjoins them to perform official duties diligently by being faithful to the law and maintaining their professional competence.

14

However, since this case is not administrative in nature, we cannot rule on the CA justices administrative liability, if any, for this
lapse. First, due process requires that in administrative proceedings, the respondents must first be given an opportunity to be heard
before sanctions can be imposed. Second, the present action is an appeal from the CAs Decision, not an administrative case against
the magistrates concerned. These two suits are independent of and separate from each other and cannot be mixed in the same
proceedings.
By merely including the lapse as an assigned error here without any adequate and proper administrative case therefor, petitioner
cannot expect the imposition of an administrative sanction.
In the case at bar, we can only determine whether the error in quotation would be sufficient to reverse or modify the CA Decision.
Applicability of KLM v. CA
In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their world tour. The tour included a Barcelona-Lourdes
route, which was serviced by the Irish airline Aer Lingus. At the KLM office in Frankfurt, Germany, they obtained a confirmation
from Aer Lingus of their seat reservations on its Flight 861. On the day of their departure, however, the airline rudely off-loaded them.
When sued for breach of contract, KLM sought to be excused for the wrongful conduct of Aer Lingus by arguing that its liability for
damages was limited only to occurrences on its own sectors. To support its argument, it cited Article 30 of the Warsaw Convention,
stating that when transportation was to be performed by various successive carriers, the passenger could take action only against the
carrier that had performed the transportation when the accident or delay occurred.
In holding KLM liable for damages, we ruled as follows:
"1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be sustained. That article
presupposes the occurrence of either an accident or a delay, neither of which took place at the Barcelona airport; what is here
manifest, instead, is that the Aer Lingus, through its manager there, refused to transport the respondents to their planned and
contracted destination.
"2. The argument that the KLM should not be held accountable for the tortious conduct of Aer Lingus because of the
provision printed on the respondents' tickets expressly limiting the KLM's liability for damages only to occurrences on its
own lines is unacceptable. As noted by the Court of Appeals that condition was printed in letters so small that one would have
to use a magnifying glass to read the words. Under the circumstances, it would be unfair and inequitable to charge the
respondents with automatic knowledge or notice of the said condition so as to preclude any doubt that it was fairly and freely
agreed upon by the respondents when they accepted the passage tickets issued to them by the KLM. As the airline which
issued those tickets with the knowledge that the respondents would be flown on the various legs of their journey by different
air carriers, the KLM was chargeable with the duty and responsibility of specifically informing the respondents of conditions
prescribed in their tickets or, in the very least, to ascertain that the respondents read them before they accepted their passage
tickets. A thorough search of the record, however, inexplicably fails to show that any effort was exerted by the KLM officials
or employees to discharge in a proper manner this responsibility to the respondents. Consequently, we hold that the
respondents cannot be bound by the provision in question by which KLM unilaterally assumed the role of a mere ticketissuing agent for other airlines and limited its liability only to untoward occurrences on its own lines.
"3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of the respondents provide that
the carriage to be performed thereunder by several successive carriers is to be regarded as a single operation, which is
diametrically incompatible with the theory of the KLM that the respondents entered into a series of independent contracts
with the carriers which took them on the various segments of their trip. This position of KLM we reject. The respondents
dealt exclusively with the KLM which issued them tickets for their entire trip and which in effect guaranteed to them that
they would have sure space in Aer Lingus flight 861. The respondents, under that assurance of the internationally prestigious
KLM, naturally had the right to expect that their tickets would be honored by Aer Lingus to which, in the legal sense, the
KLM had indorsed and in effect guaranteed the performance of its principal engagement to carry out the respondents'
scheduled itinerary previously and mutually agreed upon between the parties.

15

"4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct of an official of the Aer
Lingus which the KLM had engaged to transport the respondents on the Barcelona-Lourdes segment of their itinerary. It is
but just and in full accord with the policy expressly embodied in our civil law which enjoins courts to be more vigilant for the
protection of a contracting party who occupies an inferior position with respect to the other contracting party, that the KLM
should be held responsible for the abuse, injury and embarrassment suffered by the respondents at the hands of a supercilious
boor of the Aer Lingus."15
In the instant case, the CA ruled that under the contract of transportation, petitioner -- as the ticket-issuing carrier (like KLM) -- was
liable regardless of the fact that PAL was to perform or had performed the actual carriage. It elucidated on this point as follows:
"By the very nature of their contract, defendant-appellant CAL is clearly liable under the contract of carriage with
[respondent] and remains to be so, regardless of those instances when actual carriage was to be performed by another carrier.
The issuance of a confirmed CAL ticket in favor of [respondent] covering his entire trip abroad concretely attests to this. This
also serves as proof that defendant-appellant CAL, in effect guaranteed that the carrier, such as defendant-appellant PAL
would honor his ticket, assure him of a space therein and transport him on a particular segment of his trip."16
Notwithstanding the errant quotation, we have found after careful deliberation that the assailed Decision is supported in substance
by KLM v. CA. The misquotation by the CA cannot serve as basis for the reversal of its ruling.
Nonetheless, to avert similar incidents in the future, this Court hereby exhorts members of the bar and the bench to refer to and quote
from the official repository of our decisions, the Philippine Reports, whenever practicable.17In the absence of this primary source,
which is still being updated, they may resort to unofficial sources like the SCRA.18 We remind them that the Courts ponencia, when
used to support a judgment or ruling, should be quoted accurately.19
Second Issue:
Liability of the Ticket-Issuing Airline
We now come to the main issue of whether CAL is liable for damages. Petitioner posits that the CA Decision must be annulled, not
only because it was rooted on an erroneous quotation, but also because it disregarded jurisprudence, notably China Airlines v.
Intermediate Appellate Court20 and China Airlines v. Court of Appeals.21
Jurisprudence Supports CA Decision
It is significant to note that the contract of air transportation was between petitioner and respondent, with the former endorsing to PAL
the Hong Kong-to-Manila segment of the journey. Such contract of carriage has always been treated in this jurisdiction as a single
operation. This jurisprudential rule is supported by the Warsaw Convention,22 to which the Philippines is a party, and by the existing
practices of the International Air Transport Association (IATA).
Article 1, Section 3 of the Warsaw Convention states:
"Transportation to be performed by several successive air carriers shall be deemed, for the purposes of this Convention, to be
one undivided transportation, if it has been regarded by the parties as a single operation, whether it has been agreed upon
under the form of a single contract or of a series of contracts, and it shall not lose its international character merely because
one contract or a series of contracts is to be performed entirely within a territory subject to the sovereignty, suzerainty,
mandate, or authority of the same High Contracting Party."23
Article 15 of IATA-Recommended Practice similarly provides:
"Carriage to be performed by several successive carriers under one ticket, or under a ticket and any conjunction ticket issued
therewith, is regarded as a single operation."

16

In American Airlines v. Court of Appeals,24 we have noted that under a general pool partnership agreement, the ticket-issuing airline is
the principal in a contract of carriage, while the endorsee-airline is the agent.
"x x x Members of the IATA are under a general pool partnership agreement wherein they act as agent of each other in the
issuance of tickets to contracted passengers to boost ticket sales worldwide and at the same time provide passengers easy
access to airlines which are otherwise inaccessible in some parts of the world. Booking and reservation among airline
members are allowed even by telephone and it has become an accepted practice among them. A member airline which enters
into a contract of carriage consisting of a series of trips to be performed by different carriers is authorized to receive the fare
for the whole trip and through the required process of interline settlement of accounts by way of the IATA clearing house an
airline is duly compensated for the segment of the trip serviced. Thus, when the petitioner accepted the unused portion of the
conjunction tickets, entered it in the IATA clearing house and undertook to transport the private respondent over the route
covered by the unused portion of the conjunction tickets, i.e., Geneva to New York, the petitioner tacitly recognized its
commitment under the IATA pool arrangement to act as agent of the principal contracting airline, Singapore Airlines, as to the
segment of the trip the petitioner agreed to undertake. As such, the petitioner thereby assumed the obligation to take the place
of the carrier originally designated in the original conjunction ticket. The petitioners argument that it is not a designated
carrier in the original conjunction tickets and that it issued its own ticket is not decisive of its liability. The new ticket was
simply a replacement for the unused portion of the conjunction ticket, both tickets being for the same amount of US$ 2,760
and having the same points of departure and destination. By constituting itself as an agent of the principal carrier the
petitioners undertaking should be taken as part of a single operation under the contract of carriage executed by the private
respondent and Singapore Airlines in Manila."25
Likewise, as the principal in the contract of carriage, the petitioner in British Airways v. Court of Appeals26 was held liable, even when
the breach of contract had occurred, not on its own flight, but on that of another airline. The Decision followed our ruling in Lufthansa
German Airlines v. Court of Appeals,27 in which we had held that the obligation of the ticket-issuing airline remained and did not
cease, regardless of the fact that another airline had undertaken to carry the passengers to one of their destinations.
In the instant case, following the jurisprudence cited above, PAL acted as the carrying agent of CAL. In the same way that we ruled
against British Airways and Lufthansa in the aforementioned cases, we also rule that CAL cannot evade liability to respondent, even
though it may have been only a ticket issuer for the Hong Kong-Manila sector.
Moral and Exemplary Damages
Both the trial and the appellate courts found that respondent had satisfactorily proven the existence of the factual basis for the damages
adjudged against petitioner and PAL. As a rule, the findings of fact of the CA affirming those of the RTC will not be disturbed by this
Court.28 Indeed, the Supreme Court is not a trier of facts. As a rule also, only questions of law -- as in the present recourse -- may be
raised in petitions for review under Rule 45.
Moral damages cannot be awarded in breaches of carriage contracts, except in the two instances contemplated in Articles 1764 and
2220 of the Civil Code, which we quote:
"Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book,
concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a common
carrier.
xxx

xxx

xxx

"Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith." (Italics supplied)
There is no occasion for us to invoke Article 1764 here. We must therefore determine if CAL or its agent (PAL) is guilty of bad faith
that would entitle respondent to moral damages.

17

In Lopez v. Pan American World Airways,29 we defined bad faith as a breach of a known duty through some motive of interest or ill
will.
In the case at bar, the known duty of PAL was to transport herein respondent from Hong Kong to Manila. That duty arose when its
agent confirmed his reservation for Flight PR 311,30 and it became demandable when he presented himself for the trip on November
24, 1981.
It is true that due to a typhoon, PAL was unable to transport respondent on Flight PR 311 on November 24, 1981. This fact, however,
did not terminate the carriers responsibility to its passengers. PAL voluntarily obligated itself to automatically transfer all confirmed
passengers of PR 311 to the next available flight, PR 307, on the following day.31 That responsibility was subsisting when respondent,
holding a confirmed ticket for the former flight, presented himself for the latter.
The records amply establish that he secured repeated confirmations of his PR 311 flight on November 24, 1981. Hence, he had every
reason to expect that he would be put on the replacement flight as a confirmed passenger. Instead, he was harangued and prevented
from boarding the original and the replacement flights. Thus, PAL breached its duty to transport him. After he had been directed to pay
the terminal fee, his pieces of luggage were removed from the weighing-in counter despite his protestations. 32
It is relevant to point out that the employees of PAL were utterly insensitive to his need to be in Manila on November 25, 1981, and to
the likelihood that his business affairs in the city would be jeopardized because of a mistake on their part. It was that mistake that had
caused the omission of his name from the passenger list despite his confirmed flight ticket. By merely looking at his ticket and
validation sticker, it is evident that the glitch was the airlines fault. However, no serious attempt was made by PAL to secure the allimportant transportation of respondent to Manila on the following day. To make matters worse, PAL allowed a group of non-revenue
passengers, who had no confirmed tickets or reservations, to board Flight PR 307.33
Time and time again, this Court has stressed that the business of common carriers is imbued with public interest and duty; therefore,
the law governing them imposes an exacting standard.34 In Singson v. Court of Appeals,35we said:
"x x x [T]he carrier's utter lack of care and sensitivity to the needs of its passengers, clearly constitutive of gross negligence,
recklessness and wanton disregard of the rights of the latter, [are] acts evidently indistinguishable or no different from fraud,
malice and bad faith. As the rule now stands, where in breaching the contract of carriage the defendant airline is shown to
have acted fraudulently, with malice or in bad faith, the award of moral and exemplary damages, in addition to actual
damages, is proper."36(Italics supplied)
In Saludo v. Court of Appeals,37 the Court reminded airline companies that due to the nature of their business, they must not merely
give cursory instructions to their personnel to be more accommodating towards customers, passengers and the general public; they
must require them to be so.
The acts of PALs employees, particularly Chan, clearly fell short of the extraordinary standard of care that the law requires of
common carriers.38 As narrated in Chans oral deposition,39 the manner in which the airline discharged its responsibility to respondent
and its other passengers manifested a lack of the requisite diligence and due regard for their welfare. The pertinent portions of the Oral
Deposition are reproduced as follows:
"Q
Now you said that flight PR 311 on 24th November was cancelled due to [a] typhoon and naturally the passengers on
said flight had to be accommodated on the first flight the following day or the first flight subsequently. [W]ill you tell the
Honorable Deposition Officer the procedure followed by Philippine Airlines in the handling of passengers of cancelled
flight[s] like that of PR 311 which was cancelled due to [a] typhoon?
A
The procedure will be: all the confirmed passengers from [PR] 311 24th November [are] automatically transfer[red] to
[PR] 307, 25th November[,] as a protection for all disconfirmed passengers.

18

Q
Aside from this procedure[,] what do you do with the passengers on the cancelled flight who are expected to check-in
on the flights if this flight is cancelled or not operating due to typhoon or other reasons[?] In other words, are they not
notified of the cancellation?
A
I think all these passengers were not notified because of a typhoon and Philippine Airlines Reservation were [sic] not
able to call every passenger by phone.
Atty. Fruto:
Q

Did you say were not notified?

I believe they were not, but believe me, I was on day-off.

Atty. Calica:
Q
Per procedure, what should have been done by Reservations Office when a flight is cancelled for one reason or
another?
A
If there is enough time, of course, Reservations Office x x x call[s] up all the passengers and tell[s] them the reason.
But if there [is] no time[,] then the Reservations Office will not be able to do that."40
xxx

xxx

xxx

"Q
I see. Miss Chan, I [will] show you a ticket which has been marked as Exh. A and A-1. Will you please go over this
ticket and tell the court whether this is the ticket that was used precisely by Mr. Chiok when he checked-in at [F]light 307, 25
November 81?
A

[Are you] now asking me whether he used this ticket with this sticker?

No, no, no. That was the ticket he used.

Yes, [are you] asking me whether I saw this ticket?

Atty. Fruto: Yes.

A

I believe I saw it.

Q
You saw it, O.K. Now of course you will agree with me Miss Chan that this yellow stub here which has been marked
as Exh. A-1-A, show[s] that the status on flight 311, 24th November, is O.K., correct?
A

Yes.

Q
You agree with me. And you will also agree with me that in this ticket of flight 311, on this, another sticker Exh. A-1B for 24 November is O.K.?
A

May I x x x look at them. Yes, it says O.K. x x x, but [there is] no validation.

O.K. Miss Chan what do you understand by these entries here R bar M N 6 V?41

This is what we call a computer reference.

19

Q
I see. This is a computer reference showing that the name of Mr. Chiok has been entered in Philippine Airlines
computer, and this is his computer number.
A

Yes.

Q
Now you stated in your answer to the procedure taken, that all confirmed passengers on flight 311, 24 November[,]
were automatically transferred to 307 as a protection for the passengers, correct?
A

Correct.

Q
So that since following the O.K. status of Mr. Chioks reservation [on] flight 311, [he] was also automatically
transferred to flight 307 the following day?
A

Should be.

Q
Should be. O.K. Now do you remember how many passengers x x x were transferred from flight 311, 24 November to
flight 307, 25 November 81?
A
I can only give you a very brief idea because that was supposed to be air bus so it should be able to accommodate 246
people; but how many [exactly], I dont know."42
xxx

xxx

xxx

"Q
So, between six and eight oclock in the evening of 25 November 81, Mr. Chiok already told you that he just [came]
from the Swire Building where Philippine Airlines had [its] offices and that he told you that his space for 311 25 November
81 was confirmed?
A

Yes.

That is what he told you. He insisted on that flight?

Yes.

And did you not try to call up Swire Building-- Philippine Airlines and verify indeed if Mr. Chiok was there?

A
Swire House building is not directly under Philippine Airlines. it is just an agency for selling Philippine Airlines
ticket. And besides around six o clock theyre close[d] in Central.
Q
So this Swire Building is an agency authorized by Philippine Airlines to issue tickets for and on behalf of Philippine
Airlines and also...
A

Yes.

And also to confirm spaces for and on behalf of Philippine Airlines.

Yes."43

Under the foregoing circumstances, we cannot apply our 1989 ruling in China Airlines v. Intermediate Appellate Court, 44 which
petitioner urges us to adopt. In that case, the breach of contract and the negligence of the carrier in effecting the immediate flight
connection for therein private respondent was incurred in good faith.45 Having found no gross negligence or recklessness, we thereby
deleted the award of moral and exemplary damages against it.46

20

This Courts 1992 ruling in China Airlines v. Court of Appeals47 is likewise inapplicable. In that case, we found no bad faith or malice
in the airlines breach of its contractual obligation.48 We held that, as shown by the flow of telexes from one of the airlines offices to
the others, petitioner therein had exercised diligent efforts in assisting the private respondent change his flight schedule. In the instant
case, petitioner failed to exhibit the same care and sensitivity to respondents needs.
In Singson v. Court of Appeals,49 we said:
"x x x Although the rule is that moral damages predicated upon a breach of contract of carriage may only be recoverable in
instances where the mishap results in the death of a passenger, or where the carrier is guilty of fraud or bad faith, there are
situations where the negligence of the carrier is so gross and reckless as to virtually amount to bad faith, in which case, the
passenger likewise becomes entitled to recover moral damages."
In the present case, we stress that respondent had repeatedly secured confirmations of his PR 311 flight on November 24, 1981 -initially from CAL and subsequently from the PAL office in Hong Kong. The status of this flight was marked "OK" on a validating
sticker placed on his ticket. That sticker also contained the entry "RMN6V." Ms Chan explicitly acknowledged that such entry was a
computer reference that meant that respondents name had been entered in PALs computer.
Since the status of respondent on Flight PR 311 was "OK," as a matter of right testified to by PALs witness, he should have been
automatically transferred to and allowed to board Flight 307 the following day. Clearly resulting from negligence on the part of PAL
was its claim that his name was not included in its list of passengers for the November 24, 1981 PR 311 flight and, consequently, in
the list of the replacement flight PR 307. Since he had secured confirmation of his flight -- not only once, but twice -- by personally
going to the carriers offices where he was consistently assured of a seat thereon -- PALs negligence was so gross and reckless that it
amounted to bad faith.
In view of the foregoing, we rule that moral and exemplary50 damages were properly awarded by the lower courts.51
Third Issue:
Propriety of the Cross-Claim
We now look into the propriety of the ruling on CALs cross-claim against PAL. Petitioner submits that the CA should have ruled on
the cross-claim, considering that the RTC had found that it was PALs employees who had acted negligently.
Section 8 of Rule 6 of the Rules of Court reads:
"Sec. 8. Cross-claim. - A cross claim is any claim by one party against a co-party arising out of the transaction or occurrence
that is the subject matter either of the original action or of a counterclaim therein. Such cross-claim may include a claim that
the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action
against the cross-claimant."
For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA Finance Corporation v. CA,52the Court stated:
"x x x. An indispensable party is one whose interest will be affected by the courts action in the litigation, and without whom
no final determination of the case can be had. The partys interest in the subject matter of the suit and in the relief sought are
so inextricably intertwined with the other parties that his legal presence as a party to the proceeding is an absolute necessity.
In his absence there cannot be a resolution of the dispute of the parties before the court which is effective, complete, or
equitable.
xxx

xxx

xxx

"Without the presence of indispensable parties to a suit or proceeding, judgment of a court cannot attain real finality."

21

PALs interest may be affected by any ruling of this Court on CALs cross-claim. Hence, it is imperative and in accordance with due
process and fair play that PAL should have been impleaded as a party in the present proceedings, before this Court can make a final
ruling on this matter.
Although PAL was petitioners co-party in the case before the RTC and the CA, petitioner failed to include the airline in the present
recourse. Hence, the Court has no jurisdiction over it. Consequently, to make any ruling on the cross-claim in the present Petition
would not be legally feasible because PAL, not being a party in the present case, cannot be bound thereby.53
WHEREFORE, the Petition is DENIED. Costs against petitioner.
G.R. No. 119528 March 26, 1997
PHILIPPINE AIRLINES, INC., petitioner,
vs.
CIVIL AERONAUTICS BOARD and GRAND INTERNATIONAL AIRWAYS, INC., respondents.

TORRES, JR., J.:

This Special Civil Action for Certiorari and Prohibition under Rule 65 of the Rules of Court seeks to prohibit respondent Civil
Aeronautics Board from exercising jurisdiction over private respondent's Application for the issuance of a Certificate of Public
Convenience and Necessity, and to annul and set aside a temporary operating permit issued by the Civil Aeronautics Board in favor of
Grand International Airways (GrandAir, for brevity) allowing the same to engage in scheduled domestic air transportation services,
particularly the Manila-Cebu, Manila-Davao, and converse routes.
The main reason submitted by petitioner Philippine Airlines, Inc. (PAL) to support its petition is the fact that GrandAir does not
possess a legislative franchise authorizing it to engage in air transportation service within the Philippines or elsewhere. Such franchise
is, allegedly, a requisite for the issuance of a Certificate of Public Convenience or Necessity by the respondent Board, as mandated
under Section 11, Article XII of the Constitution.
Respondent GrandAir, on the other hand, posits that a legislative franchise is no longer a requirement for the issuance of a Certificate
of Public Convenience and Necessity or a Temporary Operating Permit, following the Court's pronouncements in the case of Albano
vs. Reyes, 1 as restated by the Court of Appeals in Avia Filipinas International vs. Civil Aeronautics Board 2 and Silangan Airways,
Inc. vs. Grand International Airways, Inc., and the Hon. Civil Aeronautics Board. 3
On November 24, 1994, private respondent GrandAir applied for a Certificate of Public Convenience and Necessity with the Board,
which application was docketed as CAB Case No. EP-12711. 4 Accordingly, the Chief Hearing Officer of the CAB issued a Notice of
Hearing setting the application for initial hearing on December 16, 1994, and directing GrandAir to serve a copy of the application and
corresponding notice to all scheduled Philippine Domestic operators. On December 14, 1994, GrandAir filed its Compliance, and
requested for the issuance of a Temporary Operating Permit. Petitioner, itself the holder of a legislative franchise to operate air
transport services, filed an Opposition to the application for a Certificate of Public Convenience and Necessity on December 16, 1995
on the following grounds:
A. The CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a franchise to
operate from Congress.
B. The petitioner's application is deficient in form and substance in that:
1. The application does not indicate a route structure including a computation of trunkline,
secondary and rural available seat kilometers (ASK) which shall always be maintained at a

22

monthly level at least 5% and 20% of the ASK offered into and out of the proposed base of
operations for rural and secondary, respectively.
2. It does not contain a project/feasibility study, projected profit and loss statements, projected
balance sheet, insurance coverage, list of personnel, list of spare parts inventory, tariff structure,
documents supportive of financial capacity, route flight schedule, contracts on facilities (hangars,
maintenance, lot) etc.
C. Approval of petitioner's application would violate the equal protection clause of the constitution.
D. There is no urgent need and demand for the services applied for.
E. To grant petitioner's application would only result in ruinous competition contrary to Section 4(d) of R.A. 776. 5
At the initial hearing for the application, petitioner raised the issue of lack of jurisdiction of the Board to hear the application because
GrandAir did not possess a legislative franchise.
On December 20, 1994, the Chief Hearing Officer of CAB issued an Order denying petitioner's Opposition. Pertinent portions of the
Order read:
PAL alleges that the CAB has no jurisdiction to hear the petitioner's application until the latter has first obtained a
franchise to operate from Congress.
The Civil Aeronautics Board has jurisdiction to hear and resolve the application. In Avia Filipina vs.CAB, CA G.R.
No. 23365, it has been ruled that under Section 10 (c) (I) of R.A. 776, the Board possesses this specific power and
duty.
In view thereof, the opposition of PAL on this ground is hereby denied.
SO ORDERED.
Meantime, on December 22, 1994, petitioner this time, opposed private respondent's application for a temporary permit maintaining
that:
1. The applicant does not possess the required fitness and capability of operating the services applied for under RA
776; and,
2. Applicant has failed to prove that there is clear and urgent public need for the services applied for.6
On December 23, 1994, the Board promulgated Resolution No. 119(92) approving the issuance of a Temporary Operating Permit in
favor of Grand Air 7 for a period of three months, i.e., from December 22, 1994 to March 22, 1994. Petitioner moved for the
reconsideration of the issuance of the Temporary Operating Permit on January 11, 1995, but the same was denied in CAB Resolution
No. 02 (95) on February 2, 1995. 8 In the said Resolution, the Board justified its assumption of jurisdiction over GrandAir's
application.
WHEREAS , the CAB is specifically authorized under Section 10-C (1) of Republic Act No. 776 as follows:
(c) The Board shall have the following specific powers and duties:
(1) In accordance with the provision of Chapter IV of this Act, to issue, deny, amend revise, alter, modify, cancel,
suspend or revoke, in whole or in part, upon petitioner-complaint, or upon its own initiative, any temporary

23

operating permit or Certificate of Public Convenience and Necessity; Provided, however; that in the case of foreign
air carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines.
WHEREAS, such authority was affirmed in PAL vs. CAB, (23 SCRA 992), wherein the Supreme Court held that the
CAB can even on its own initiative, grant a TOP even before the presentation of evidence;
WHEREAS, more recently, Avia Filipinas vs. CAB, (CA-GR No. 23365), promulgated on October 30, 1991, held
that in accordance with its mandate, the CAB can issue not only a TOP but also a Certificate of Public Convenience
and Necessity (CPCN) to a qualified applicant therefor in the absence of a legislative franchise, citing therein as
basis the decision of Albano vs. Reyes (175 SCRA 264) which provides (inter alia) that:
a) Franchises by Congress are not required before each and every public utility may operate when the law has
granted certain administrative agencies the power to grant licenses for or to authorize the operation of certain public
utilities;
b) The Constitutional provision in Article XII, Section 11 that the issuance of a franchise, certificate or other form of
authorization for the operation of a public utility does not necessarily imply that only Congress has the power to
grant such authorization since our statute books are replete with laws granting specified agencies in the Executive
Branch the power to issue such authorization for certain classes of public utilities.
WHEREAS, Executive Order No. 219 which took effect on 22 January 1995, provides in Section 2.1 that a
minimum of two (2) operators in each route/link shall be encouraged and that routes/links presently serviced by only
one (1) operator shall be open for entry to additional operators.
RESOLVED, (T)HEREFORE, that the Motion for Reconsideration filed by Philippine Airlines on January 05, 1995
on the Grant by this Board of a Temporary Operating Permit (TOP) to Grand International Airways, Inc. alleging
among others that the CAB has no such jurisdiction, is hereby DENIED, as it hereby denied, in view of the
foregoing and considering that the grounds relied upon by the movant are not indubitable.
On March 21, 1995, upon motion by private respondent, the temporary permit was extended for a period of six (6) months or up to
September 22, 1995.
Hence this petition, filed on April 3, 1995.
Petitioners argue that the respondent Board acted beyond its powers and jurisdiction in taking cognizance of GrandAir's application
for the issuance of a Certificate of Public Convenience and Necessity, and in issuing a temporary operating permit in the meantime,
since GrandAir has not been granted and does not possess a legislative franchise to engage in scheduled domestic air transportation. A
legislative franchise is necessary before anyone may engage in air transport services, and a franchise may only be granted by
Congress. This is the meaning given by the petitioner upon a reading of Section 11, Article XII, 9 and Section 1, Article VI, 10 of the
Constitution.
To support its theory, PAL submits Opinion No. 163, S. 1989 of the Department of Justice, which reads:
Dr. Arturo C. Corona
Executive Director
Civil Aeronautics Board
PPL Building, 1000 U.N. Avenue
Ermita, Manila
Sir:

24

This has reference to your request for opinion on the necessity of a legislative franchise before the Civil Aeronautics
Board ("CAB") may issue a Certificate of Public Convenience and Necessity and/or permit to engage in air
commerce or air transportation to an individual or entity.
You state that during the hearing on the application of Cebu Air for a congressional franchise, the House Committee
on Corporations and Franchises contended that under the present Constitution, the CAB may not issue the
abovestated certificate or permit, unless the individual or entity concerned possesses a legislative franchise. You
believe otherwise, however, for the reason that under R.A. No. 776, as amended, the CAB is explicitly empowered
to issue operating permits or certificates of public convenience and necessity and that this statutory provision is not
inconsistent with the current charter.
We concur with the view expressed by the House Committee on Corporations and Franchises. In an opinion
rendered in favor of your predecessor-in-office, this Department observed that,
. . . it is useful to note the distinction between the franchise to operate and a permit to commence operation. The
former is sovereign and legislative in nature; it can be conferred only by the lawmaking authority (17 W and P, pp.
691-697). The latter is administrative and regulatory in character (In re Application of Fort Crook-Bellevue
Boulevard Line, 283 NW 223); it is granted by an administrative agency, such as the Public Service Commission
[now Board of Transportation], in the case of land transportation, and the Civil Aeronautics Board, in case of air
services. While a legislative franchise is a pre-requisite to a grant of a certificate of public convenience and necessity
to an airline company, such franchise alone cannot constitute the authority to commence operations, inasmuch as
there are still matters relevant to such operations which are not determined in the franchise, like rates, schedules and
routes, and which matters are resolved in the process of issuance of permit by the administrative. (Secretary of
Justice opn No. 45, s. 1981)
Indeed, authorities are agreed that a certificate of public convenience and necessity is an authorization issued by the
appropriate governmental agency for the operation of public services for which a franchise is required by law
(Almario, Transportation and Public Service Law, 1977 Ed., p. 293; Agbayani, Commercial Law of the Phil., Vol. 4,
1979 Ed., pp. 380-381).
Based on the foregoing, it is clear that a franchise is the legislative authorization to engage in a business activity or
enterprise of a public nature, whereas a certificate of public convenience and necessity is a regulatory measure
which constitutes the franchise's authority to commence operations. It is thus logical that the grant of the former
should precede the latter.
Please be guided accordingly.
(SGD.) SEDFREY A.
ORDONEZ
Secretary of Justice
Respondent GrandAir, on the other hand, relies on its interpretation of the provisions of Republic Act 776, which follows the
pronouncements of the Court of Appeals in the cases of Avia Filipinas vs. Civil Aeronautics Board, andSilangan Airways,
Inc. vs. Grand International Airways (supra).
In both cases, the issue resolved was whether or not the Civil Aeronautics Board can issue the Certificate of Public Convenience and
Necessity or Temporary Operating Permit to a prospective domestic air transport operator who does not possess a legislative franchise
to operate as such. Relying on the Court's pronouncement in Albano vs. Reyes (supra), the Court of Appeals upheld the authority of
the Board to issue such authority, even in the absence of a legislative franchise, which authority is derived from Section 10 of
Republic Act 776, as amended by P.D. 1462. 11

25

The Civil Aeronautics Board has jurisdiction over GrandAir's Application for a Temporary Operating Permit. This rule has been
established in the case of Philippine Air Lines Inc., vs. Civil Aeronautics Board, promulgated on June 13, 1968. 12 The Board is
expressly authorized by Republic Act 776 to issue a temporary operating permit or Certificate of Public Convenience and Necessity,
and nothing contained in the said law negates the power to issue said permit before the completion of the applicant's evidence and that
of the oppositor thereto on the main petition. Indeed, the CAB's authority to grant a temporary permit "upon its own initiative"
strongly suggests the power to exercise said authority, even before the presentation of said evidence has begun.
Assuming arguendo that a legislative franchise is prerequisite to the issuance of a permit, the absence of the same does not affect the
jurisdiction of the Board to hear the application, but tolls only upon the ultimate issuance of the requested permit.
The power to authorize and control the operation of a public utility is admittedly a prerogative of the legislature, since Congress is that
branch of government vested with plenary powers of legislation.
The franchise is a legislative grant, whether made directly by the legislature itself, or by any one of its properly
constituted instrumentalities. The grant, when made, binds the public, and is, directly or indirectly, the act of the
state. 13
The issue in this petition is whether or not Congress, in enacting Republic Act 776, has delegated the authority to authorize the
operation of domestic air transport services to the respondent Board, such that Congressional mandate for the approval of such
authority is no longer necessary.
Congress has granted certain administrative agencies the power to grant licenses for, or to authorize the operation of certain public
utilities. With the growing complexity of modern life, the multiplication of the subjects of governmental regulation, and the increased
difficulty of administering the laws, there is a constantly growing tendency towards the delegation of greater powers by the legislature,
and towards the approval of the practice by the courts. 14 It is generally recognized that a franchise may be derived indirectly from the
state through a duly designated agency, and to this extent, the power to grant franchises has frequently been delegated, even to
agencies other than those of a legislative nature. 15 In pursuance of this, it has been held that privileges conferred by grant by local
authorities as agents for the state constitute as much a legislative franchise as though the grant had been made by an act of the
Legislature. 16
The trend of modern legislation is to vest the Public Service Commissioner with the power to regulate and control the operation of
public services under reasonable rules and regulations, and as a general rule, courts will not interfere with the exercise of that
discretion when it is just and reasonable and founded upon a legal right. 17
It is this policy which was pursued by the Court in Albano vs. Reyes. Thus, a reading of the pertinent issuances governing the
Philippine Ports Authority, 18 proves that the PPA is empowered to undertake by itself the operation and management of the Manila
International Container Terminal, or to authorize its operation and management by another by contract or other means, at its option.
The latter power having been delegated to the to PPA, a franchise from Congress to authorize an entity other than the PPA to operate
and manage the MICP becomes unnecessary.
Given the foregoing postulates, we find that the Civil Aeronautics Board has the authority to issue a Certificate of Public Convenience
and Necessity, or Temporary Operating Permit to a domestic air transport operator, who, though not possessing a legislative franchise,
meets all the other requirements prescribed by the law. Such requirements were enumerated in Section 21 of R.A. 776.
There is nothing in the law nor in the Constitution, which indicates that a legislative franchise is an indispensable requirement for an
entity to operate as a domestic air transport operator. Although Section 11 of Article XII recognizes Congress' control over any
franchise, certificate or authority to operate a public utility, it does not mean Congress has exclusive authority to issue the same.
Franchises issued by Congress are not required before each and every public utility may operate. 19 In many instances, Congress has
seen it fit to delegate this function to government agencies, specialized particularly in their respective areas of public service.
A reading of Section 10 of the same reveals the clear intent of Congress to delegate the authority to regulate the issuance of a license
to operate domestic air transport services:

26

Sec. 10.Powers and Duties of the Board. (A) Except as otherwise provided herein, the Board shall have the power to
regulate the economic aspect of air transportation, and shall have general supervision and regulation of, the
jurisdiction and control over air carriers, general sales agents, cargo sales agents, and air freight forwarders as well
as their property rights, equipment, facilities and franchise, insofar as may be necessary for the purpose of carrying
out the provision of this Act.
In support of the Board's authority as stated above, it is given the following specific powers and duties:
(C) The Board shall have the following specific powers and duties:
(1) In accordance with the provisions of Chapter IV of this Act, to issue, deny, amend, revise, alter, modify, cancel,
suspend or revoke in whole or in part upon petition or complaint or upon its own initiative any Temporary Operating
Permit or Certificate of Public Convenience and Necessity: Provided however, That in the case of foreign air
carriers, the permit shall be issued with the approval of the President of the Republic of the Philippines.
Petitioner argues that since R.A. 776 gives the Board the authority to issue "Certificates of Public Convenience and Necessity", this,
according to petitioner, means that a legislative franchise is an absolute requirement. It cites a number of authorities supporting the
view that a Certificate of Public Convenience and Necessity is issued to a public service for which a franchise is required by law, as
distinguished from a "Certificate of Public Convenience" which is an authorization issued for the operation of public services for
which no franchise, either municipal or legislative, is required by law. 20
This submission relies on the premise that the authority to issue a certificate of public convenience and necessity is a regulatory
measure separate and distinct from the authority to grant a franchise for the operation of the public utility subject of this particular
case, which is exclusively lodged by petitioner in Congress.
We do not agree with the petitioner.
Many and varied are the definitions of certificates of public convenience which courts and legal writers have drafted. Some statutes
use the terms "convenience and necessity" while others use only the words "public convenience." The terms "convenience and
necessity", if used together in a statute, are usually held not to be separable, but are construed together. Both words modify each other
and must be construed together. The word 'necessity' is so connected, not as an additional requirement but to modify and qualify what
might otherwise be taken as the strict significance of the word necessity. Public convenience and necessity exists when the proposed
facility will meet a reasonable want of the public and supply a need which the existing facilities do not adequately afford. It does not
mean or require an actual physical necessity or an indispensable thing. 21
The terms "convenience" and "necessity" are to be construed together, although they are not synonymous, and effect
must be given both. The convenience of the public must not be circumscribed by according to the word "necessity"
its strict meaning or an essential requisites. 22
The use of the word "necessity", in conjunction with "public convenience" in a certificate of authorization to a public service entity to
operate, does not in any way modify the nature of such certification, or the requirements for the issuance of the same. It is the law
which determines the requisites for the issuance of such certification, and not the title indicating the certificate.
Congress, by giving the respondent Board the power to issue permits for the operation of domestic transport services, has delegated to
the said body the authority to determine the capability and competence of a prospective domestic air transport operator to engage in
such venture. This is not an instance of transforming the respondent Board into a mini-legislative body, with unbridled authority to
choose who should be given authority to operate domestic air transport services.
To be valid, the delegation itself must be circumscribed by legislative restrictions, not a "roving commission" that
will give the delegate unlimited legislative authority. It must not be a delegation "running riot" and "not canalized
with banks that keep it from overflowing." Otherwise, the delegation is in legal effect an abdication of legislative
authority, a total surrender by the legislature of its prerogatives in favor of the delegate. 23

27

Congress, in this instance, has set specific limitations on how such authority should be exercised.
Firstly, Section 4 of R.A. No. 776, as amended, sets out the following guidelines or policies:
Sec. 4.Declaration of policies. In the exercise and performance of its powers and duties under this Act, the Civil
Aeronautics Board and the Civil Aeronautics Administrator shall consider the following, among other things, as
being in the public interest, and in accordance with the public convenience and necessity:
(a) The development and utilization of the air potential of the Philippines;
(b) The encouragement and development of an air transportation system properly adapted to the present and future
of foreign and domestic commerce of the Philippines, of the Postal Service and of the National Defense;
(c) The regulation of air transportation in such manner as to recognize and preserve the inherent advantages of,
assure the highest degree of safety in, and foster sound economic condition in, such transportation, and to improve
the relations between, and coordinate transportation by, air carriers;
(d) The promotion of adequate, economical and efficient service by air carriers at reasonable charges, without unjust
discriminations, undue preferences or advantages, or unfair or destructive competitive practices;
(e) Competition between air carriers to the extent necessary to assure the sound development of an air transportation
system properly adapted to the need of the foreign and domestic commerce of the Philippines, of the Postal Service,
and of the National Defense;
(f) To promote safety of flight in air commerce in the Philippines; and,
(g) The encouragement and development of civil aeronautics.
More importantly, the said law has enumerated the requirements to determine the competency of a prospective operator to engage in
the public service of air transportation.
Sec. 12.Citizenship requirement. Except as otherwise provided in the Constitution and existing treaty or treaties, a
permit authorizing a person to engage in domestic air commerce and/or air transportation shall be issued only to
citizens of the Philippines 24
Sec. 21.Issuance of permit. The Board shall issue a permit authorizing the whole or any part of the service covered
by the application, if it finds: (1) that the applicant is fit, willing and able to perform such service properly in
conformity with the provisions of this Act and the rules, regulations, and requirements issued thereunder; and (2)
that such service is required by the public convenience and necessity; otherwise the application shall be denied.
Furthermore, the procedure for the processing of the application of a Certificate of Public Convenience and Necessity had been
established to ensure the weeding out of those entities that are not deserving of public service. 25
In sum, respondent Board should now be allowed to continue hearing the application of GrandAir for the issuance of a Certificate of
Public Convenience and Necessity, there being no legal obstacle to the exercise of its jurisdiction.
ACCORDINGLY, in view of the foregoing considerations, the Court RESOLVED to DISMISS the instant petition for lack of merit.
The respondent Civil Aeronautics Board is hereby DIRECTED to CONTINUE hearing the application of respondent Grand
International Airways, Inc. for the issuance of a Certificate of Public Convenience and Necessity.
G.R. No. 180784

February 15, 2012

28

INSURANCE COMPANY OF NORTH AMERICA, Petitioner,

vs.
ASIAN TERMINALs, INC., Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari1 of the Decision of the Regional Trial Court (RTC) of Makati City, Branch 138 (trial court) in
Civil Case No. 05-809 and its Order dated December 4, 2007 on the ground that the trial court committed reversible error of law.
The trial court dismissed petitioners complaint for actual damages on the ground of prescription under the Carriage of Goods by Sea
Act (COGSA).
The facts are as follows:
On November 9, 2002, Macro-Lite Korea Corporation shipped to San Miguel Corporation, through M/V "DIMI P" vessel, one
hundred eighty-five (185) packages (231,000 sheets) of electrolytic tin free steel, complete and in good order condition and covered
by Bill of Lading No. POBUPOHMAN20638.2 The shipment had a declared value of US$169,850.353 and was insured with petitioner
Insurance Company of North America against all risks under Marine Policy No. MOPA-06310.4
The carrying vessel arrived at the port of Manila on November 19, 2002, and when the shipment was discharged therefrom, it was
noted that seven (7) packages thereof were damaged and in bad order.5 The shipment was then turned over to the custody of
respondent Asian Terminals, Inc. (ATI) on November 21, 2002 for storage and safekeeping pending its withdrawal by the consignee's
authorized customs broker, R.V. Marzan Brokerage Corp. (Marzan).
On November 22, 23 and 29, 2002, the subject shipment was withdrawn by Marzan from the custody of respondent. On November 29,
2002, prior to the last withdrawal of the shipment, a joint inspection of the said cargo was conducted per the Request for Bad Order
Survey6 dated November 29, 2002, and the examination report, which was written on the same request, showed that an additional five
(5) packages were found to be damaged and in bad order.
On January 6, 2003, the consignee, San Miguel Corporation, filed separate claims7 against respondent and petitioner for the damage to
11,200 sheets of electrolytic tin free steel.
Petitioner engaged the services of an independent adjuster/surveyor, BA McLarens Phils., Inc., to conduct an investigation and
evaluation on the claim and to prepare the necessary report.8 BA McLarens Phils., Inc. submitted to petitioner an Survey Report9 dated
January 22, 2003 and another report10 dated May 5, 2003 regarding the damaged shipment. It noted that out of the reported twelve (12)
damaged skids, nine (9) of them were rejected and three (3) skids were accepted by the consignees representative as good order. BA
McLarens Phils., Inc. evaluated the total cost of damage to the nine (9) rejected skids (11,200 sheets of electrolytic tin free steel) to
be P431,592.14.
The petitioner, as insurer of the said cargo, paid the consignee the amount of P431,592.14 for the damage caused to the shipment, as
evidenced by the Subrogation Receipt dated January 8, 2004. Thereafter, petitioner, formally demanded reparation against respondent.
As respondent failed to satisfy its demand, petitioner filed an action for damages with the RTC of Makati City.
The trial court found, thus:
The Court finds that the subject shipment indeed suffered additional damages. The Request for Bad Order Survey No. 56422 shows
that prior to the turn over of the shipment from the custody of ATI to the consignee, aside from the seven (7) packages which were
already damaged upon arrival at the port of Manila, five (5) more packages were found with "dent, cut and crumple" while in the
custody of ATI. This document was issued by ATI and was jointly executed by the representatives of ATI, consignee and customs, and
the Shed Supervisor. Thus, ATI is now estopped from claiming that there was no additional damage suffered by the shipment. It is,
therefore, only logical to conclude that the damage was caused solely by the negligence of defendant ATI. This evidence of the
plaintiff was refuted by the defendant by merely alleging that "the damage to the 5 Tin Plates is only in its external packaging."
However, the fact remains that the consignee has rejected the same as total loss for not being suitable for their intended purpose. In
addition, the photographs presented by the plaintiff show that the shipment also suffered severe dents and some packages were even
critically crumpled.11

29

As to the extent of liability, ATI invoked the Contract for Cargo Handling Services executed between the Philippine Ports Authority
and Marina Ports Services, Inc. (now Asian Terminals, Inc.). Under the said contract, ATI's liability for damage to cargoes in its
custody is limited to P5,000.00 for each package, unless the value of the cargo shipment is otherwise specified or manifested or
communicated in writing, together with the declared Bill of Lading value and supported by a certified packing list to the contractor by
the interested party or parties before the discharge or lading unto vessel of the goods.
The trial court found that there was compliance by the shipper and consignee with the above requirement. The Bill of Lading, together
with the corresponding invoice and packing list, was shown to ATI prior to the discharge of the goods from the vessel. Since the
shipment was released from the custody of ATI, the trial court found that the same was declared for tax purposes as well as for the
assessment of arrastre charges and other fees. For the purpose, the presentation of the invoice, packing list and other shipping
documents to ATI for the proper assessment of the arrastre charges and other fees satisfied the condition of declaration of the actual
invoices of the value of the goods to overcome the limitation of liability of the arrastre operator.12
Further, the trial court found that there was a valid subrogation between the petitioner and the assured/consignee San Miguel
Corporation. The respondent admitted the existence of Global Marine Policy No. MOPA-06310 with San Miguel Corporation and
Marine Risk Note No. 3445,13 which showed that the cargo was indeed insured with petitioner. The trial court held that petitioners
claim is compensable because the Subrogation Receipt,16 which was admitted as to its existence by respondent, was sufficient to
establish not only the relationship of the insurer and the assured, but also the amount paid to settle the insurance claim. 14
However, the trial court dismissed the complaint on the ground that the petitioners claim was already barred by the statute of
limitations. It held that COGSA, embodied in Commonwealth Act (CA) No. 65, applies to this case, since the goods were shipped
from a foreign port to the Philippines. The trial court stated that under the said law, particularly paragraph 4, Section 3 (6) 15 thereof,
the shipper has the right to bring a suit within one year after the delivery of the goods or the date when the goods should have been
delivered, in respect of loss or damage thereto.
The trial court held:
In the case at bar, the records show that the shipment was delivered to the consignee on 22, 23 and 29 of November 2002. The plaintiff
took almost a year to approve and pay the claim of its assured, San Miguel, despite the fact that it had initially received the latter's
claim as well as the inspection report and survey report of McLarens as early as January 2003. The assured/consignee had only until
November of 2003 within which to file a suit against the defendant. However, the instant case was filed only on September 7, 2005 or
almost three (3) years from the date the subject shipment was delivered to the consignee. The plaintiff, as insurer of the shipment
which has paid the claim of the insured, is subrogated to all the rights of the said insured in relation to the reimbursement of such
claim. As such, the plaintiff cannot acquire better rights than that of the insured. Thus, the plaintiff has no one but itself to blame for
having acted lackadaisically on San Miguel's claim.
WHEREFORE, the complaint and counterclaim are hereby DISMISSED.16
Petitioners motion for reconsideration was denied by the trial court in the Order17 dated December 4, 2007.
Petitioner filed this petition under Rule 45 of the Rules of Court directly before this Court, alleging that it is raising a pure question of
law:
THE TRIAL COURT COMMITTED A PURE AND SERIOUS ERROR OF LAW IN APPLYING THE ONE-YEAR PRESCRIPTIVE
PERIOD FOR FILING A SUIT UNDER THE CARRIAGE OF GOODS BY SEA ACT (COGSA) TO AN ARRASTRE
OPERATOR.18
Petitioner states that while it is in full accord with the trial court in finding respondent liable for the damaged shipment, it submits that
the trial courts dismissal of the complaint on the ground of prescription under the COGSA is legally erroneous. It contends that the
one-year limitation period for bringing a suit in court under the COGSA is not applicable to this case, because the prescriptive period
applies only to the carrier and the ship. It argues that respondent, which is engaged in warehousing, arrastre and stevedoring business,
is not a carrier as defined by the COGSA, because it is not engaged in the business of transportation of goods by sea in international
trade as a common carrier. Petitioner asserts that since the complaint was filed against respondent arrastre operator only, without
impleading the carrier, the prescriptive period under the COGSA is not applicable to this case.
Moreover, petitioner contends that the term "carriage of goods" in the COGSA covers the period from the time the goods are loaded to
the vessel to the time they are discharged therefrom. It points out that it sued respondent only for the additional five (5) packages of

30

the subject shipment that were found damaged while in respondents custody, long after the shipment was discharged from the vessel.
The said damage was confirmed by the trial court and proved by the Request for Bad Order Survey No. 56422.19
Petitioner prays that the decision of the trial court be reversed and set aside and a new judgment be promulgated granting its prayer for
actual damages.
The main issues are: (1) whether or not the one-year prescriptive period for filing a suit under the COGSA applies to this action for
damages against respondent arrastre operator; and (2) whether or not petitioner is entitled to recover actual damages in the amount
of P431,592.14 from respondent.
To reiterate, petitioner came straight to this Court to appeal from the decision of the trial court under Rule 45 of the Rules of Court on
the ground that it is raising only a question of law.
Microsoft Corporation v. Maxicorp, Inc.20 explains the difference between questions of law and questions of fact, thus:
The distinction between questions of law and questions of fact is settled. A question of law exists when the doubt or difference centers
on what the law is on a certain state of facts. A question of fact exists if the doubt centers on the truth or falsity of the alleged facts.
Though this delineation seems simple, determining the true nature and extent of the distinction is sometimes problematic. For
example, it is incorrect to presume that all cases where the facts are not in dispute automatically involve purely questions of law.
There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the
evidence. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that
the issue invites a review of the evidence presented, the question posed is one of fact. If the query requires a re-evaluation of the
credibility of witnesses, or the existence or relevance of surrounding circumstances and their relation to each other, the issue in that
query is factual. x x x21
In this case, although petitioner alleged that it is merely raising a question of law, that is, whether or not the prescriptive period under
the COGSA applies to an action for damages against respondent arrastre operator, yet petitioner prays for the reversal of the decision
of the trial court and that it be granted the relief sought, which is the award of actual damages in the amount of P431,592.14. For a
question to be one of law, it must not involve an examination of the probative value of the evidence presented by the litigants or any of
them.22 However, to resolve the issue of whether or not petitioner is entitled to recover actual damages from respondent requires the
Court to evaluate the evidence on record; hence, petitioner is also raising a question of fact.
Under Section 1, Rule 45, providing for appeals by certiorari before the Supreme Court, it is clearly enunciated that only questions of
law may be set forth.23 The Court may resolve questions of fact only when the case falls under the following exceptions:
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is 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 in making its findings the Court of Appeals went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to those of
the trial court; (8) when the findings 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 petitioner's main and reply briefs are not disputed by the respondent; and (10) when the
findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record. 24
In this case, the fourth exception cited above applies, as the trial court rendered judgment based on a misapprehension of facts.
We first resolve the issue on whether or not the one-year prescriptive period for filing a suit under the COGSA applies to respondent
arrastre operator.
The Carriage of Goods by Sea Act (COGSA), Public Act No. 521 of the 74th US Congress, was accepted to be made applicable to all
contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by virtue of CA No. 65.
Section 1 of CA No. 65 states:
Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one of the Seventy-fourth Congress of the United
States, approved on April sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby accepted to be made applicable to all

31

contracts for the carriage of goods by sea to and from Philippine ports in foreign trade: Provided, That nothing in the Act shall be
construed as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its application.
Section 1, Title I of CA No. 65 defines the relevant terms in Carriage of Goods by Sea, thus:
Section 1. When used in this Act (a) The term "carrier" includes the owner or the charterer who enters into a contract of carriage with a shipper.
(b) The term "contract of carriage" applies only to contracts of carriage covered by a bill of lading or any similar document of
title, insofar as such document relates to the carriage of goods by sea, including any bill of lading or any similar document as
aforesaid issued under or pursuant to a charter party from the moment at which such bill of lading or similar document of title
regulates the relations between a carrier and a holder of the same.
(c) The term "goods" includes goods, wares, merchandise, and articles of every kind whatsoever, except live animals and
cargo which by the contract of carriage is stated as being carried on deck and is so carried.
(d) The term "ship" means any vessel used for the carriage of goods by sea.
(e) The term "carriage of goods" covers the period from the time when the goods are loaded to the time when they are
discharged from the ship.25
It is noted that the term "carriage of goods" covers the period from the time when the goods are loaded to the time when they are
discharged from the ship; thus, it can be inferred that the period of time when the goods have been discharged from the ship and given
to the custody of the arrastre operator is not covered by the COGSA.
The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in paragraph (6), Section 3,
thus:
6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier or his agent at the
port of discharge before or at the time of the removal of the goods into the custody of the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie evidence of the delivery by the carrier of the goods as described in the bill of
lading. If the loss or damage is not apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of joint survey or
inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one
year after delivery of the goods or the date when the goods should have been delivered: Provided, That if a notice of loss or damage,
either apparent or concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to
bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. 26
From the provision above, the carrier and the ship may put up the defense of prescription if the action for damages is not brought
within one year after the delivery of the goods or the date when the goods should have been delivered. It has been held that not only
the shipper, but also the consignee or legal holder of the bill may invoke the prescriptive period. 27 However, the COGSA does not
mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator.
Respondent arrastre operators responsibility and liability for losses and damages are set forth in Section 7.01 of the Contract for
Cargo Handling Services executed between the Philippine Ports Authority and Marina Ports Services, Inc. (now Asian Terminals,
Inc.), thus:
Section 7.01 Responsibility and Liability for Losses and Damages; Exceptions - The CONTRACTOR shall, at its own expense, handle
all merchandise in all work undertaken by it hereunder, diligently and in a skillful, workman-like and efficient manner. The
CONTRACTOR shall be solely responsible as an independent contractor, and hereby agrees to accept liability and to pay to the

32

shipping company, consignees, consignors or other interested party or parties for the loss, damage or non-delivery of cargoes in its
custody and control to the extent of the actual invoice value of each package which in no case shall be more than FIVE THOUSAND
PESOS (P5,000.00) each, unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing
together with the declared Bill of Lading value and supported by a certified packing list to the CONTRACTOR by the interested party
or parties before the discharge or loading unto vessel of the goods. This amount of Five Thousand Pesos (P5,000.00) per package may
be reviewed and adjusted by the AUTHORITY from time to time. The CONTRACTOR shall not be responsible for the condition or
the contents of any package received, nor for the weight nor for any loss, injury or damage to the said cargo before or while the goods
are being received or remains in the piers, sheds, warehouses or facility, if the loss, injury or damage is caused by force majeure or
other causes beyond the CONTRACTOR's control or capacity to prevent or remedy; PROVIDED, that a formal claim together with
the necessary copies of Bill of Lading, Invoice, Certified Packing List and Computation arrived at covering the loss, injury or damage
or non-delivery of such goods shall have been filed with the CONTRACTOR within fifteen (15) days from day of issuance by the
CONTRACTOR of a certificate of non-delivery; PROVIDED, however, that if said CONTRACTOR fails to issue such certification
within fifteen (15) days from receipt of a written request by the shipper/consignee or his duly authorized representative or any
interested party, said certification shall be deemed to have been issued, and thereafter, the fifteen (15) day period within which to file
the claim commences; PROVIDED, finally, that the request for certification of loss shall be made within thirty (30) days from the date
of delivery of the package to the consignee.28
Based on the Contract above, the consignee has a period of thirty (30) days from the date of delivery of the package to the consignee
within which to request a certificate of loss from the arrastre operator. From the date of the request for a certificate of loss, the arrastre
operator has a period of fifteen (15) days within which to issue a certificate of non-delivery/loss either actually or constructively.
Moreover, from the date of issuance of a certificate of non-delivery/loss, the consignee has fifteen (15) days within which to file a
formal claim covering the loss, injury, damage or non-delivery of such goods with all accompanying documentation against the
arrastre operator.
Petitioner clarified that it sued respondent only for the additional five (5) packages of the subject shipment that were found damaged
while in respondents custody, which fact of damage was sustained by the trial court and proved by the Request for Bad Order Survey
No. 56422.29
Petitioner pointed out the importance of the Request for Bad Order Survey by citing New Zealand Insurance Company Limited v.
Navarro.30 In the said case, the Court ruled that the request for, and the result of, the bad order examination, which were filed and done
within fifteen days from the haulage of the goods from the vessel, served the purpose of a claim, which is to afford the carrier or
depositary reasonable opportunity and facilities to check the validity of the claims while facts are still fresh in the minds of the persons
who took part in the transaction and documents are still available. Hence, even if the consignee therein filed a formal claim beyond the
stipulated period of 15 days, the arrastre operator was not relieved of liability as the purpose of a formal claim had already been
satisfied by the consignees timely request for the bad order examination of the goods shipped and the result of the said bad order
examination.
To elaborate, New Zealand Insurance Company, Ltd. v. Navarro held:
We took special note of the above pronouncement six (6) years later in Firemans Fund Insurance Co. v. Manila Port Service Co., et al.
There, fifteen (15) cases of nylon merchandise had been discharged from the carrying vessel and received by defendant Manila Port
Service Co., the arrastre operator, on 7 July 1961. Out of those fifteen (15) cases, however, only twelve (12) had been delivered to the
consignee in good condition. Consequently, on 20 July 1961, the consignee's broker requested a bad order examination of the
shipment, which was later certified by defendant's own inspector to be short of three (3) cases. On 15 August 1961, a formal claim for
indemnity was then filed by the consignee, who was later replaced in the action by plaintiff Fireman's Fund Insurance Co., the insurer
of the goods. Defendant, however, refused to honor the claim, arguing that the same had not been filed within fifteen (15) days from
the date of discharge of the shipment from the carrying vessel, as required under the arrastre Management Contract then in force
between itself and the Bureau of Customs. The trial court upheld this argument and hence dismissed the complaint. On appeal by the
consignee, this Court, speaking through Mr. Justice J.B.L. Reyes, reversed the trial court and found the defendant arrastre operator
liable for the value of the lost cargo, explaining as follows:
"However, the trial court has overlooked the significance of the request for, and the result of, the bad order examination, which were
filed and done within fifteen days from the haulage of the goods from the vessel. Said request and result, in effect, served the purpose
of a claim, which is
to afford the carrier or depositary reasonable opportunity and facilities to check the validity of the claims while facts are still fresh in
the minds of the persons who took part in the transaction and documents are still available. (Consunji vs. Manila Port Service, L15551, 29 November 1960)

33

Indeed, the examination undertaken by the defendant's own inspector not only gave the defendant an opportunity to check the goods
but is itself a verification of its own liability x xx.
In other words, what the Court considered as the crucial factor in declaring the defendant arrastre operator liable for the loss
occasioned, in the Fireman's Fund case, was the fact that defendant, by virtue of the consignee's request for a bad order examination,
had been able formally to verify the existence and extent of its liability within fifteen (15) days from the date of discharge of the
shipment from the carrying vessel -- i.e., within the same period stipulated under the Management Contract for the consignee to file a
formal claim. That a formal claim had been filed by the consignee beyond the stipulated period of fifteen (15) days neither relieved
defendant of liability nor excused payment thereof, the purpose of a formal claim, as contemplated in Consunji, having already been
fully served and satisfied by the consignee's timely request for, and the eventual result of, the bad order examination of the nylon
merchandise shipped.
Relating the doctrine of Fireman's Fund to the case at bar, the record shows that delivery to the warehouse of consignee Monterey
Farms Corporation of the 5,974 bags of soybean meal, had been completed by respondent Razon (arrastre operator) on 9 July 1974.
On that same day, a bad order examination of the goods delivered was requested by the consignee and was, in fact, conducted by
respondent Razon's own inspector, in the presence of representatives of both the Bureau of Customs and the consignee. The ensuing
bad order examination report what the trial court considered a "certificate of loss" confirmed that out of the 5,974 bags of
soybean meal loaded on board the M/S "Zamboanga" and shipped to Manila, 173 bags had been damaged in transitu while an
additional 111 bags had been damaged after the entire shipment had been discharged from the vessel and placed in the custody of
respondent Razon. Hence, as early as 9 July 1974 (the date of last delivery to the consignee's warehouse), respondent Razon had been
able to verify and ascertain for itself not only the existence of its liability to the consignee but, more significantly, the exact amount
thereof - i.e., P5,746.61, representing the value of 111 bags of soybean meal. We note further that such verification and ascertainment
of liability on the part of respondent Razon, had been accomplished "within thirty (30) days from the date of delivery of last package
to the consignee, broker or importer" as well as "within fifteen (15) days from the date of issuance by the Contractor [respondent
Razon] of a certificate of loss, damage or injury or certificate of non-delivery" the periods prescribed under Article VI, Section 1 of
the Management Contract here involved, within which a request for certificate of loss and a formal claim, respectively, must be filed
by the consignee or his agent. Evidently, therefore, the rule laid down by the Court in Fireman's Fund finds appropriate application in
the case at bar.31
In this case, the records show that the goods were deposited with the arrastre operator on November 21, 2002. The goods were
withdrawn from the arrastre operator on November 22, 23 and 29, 2002. Prior to the withdrawal on November 29, 2002, the broker of
the importer, Marzan, requested for a bad order survey in the presence of a Customs representative and other parties concerned. The
joint inspection of cargo was conducted and it was found that an additional five (5) packages were found in bad order as evidenced by
the document entitled Request for Bad Order Survey32 dated November 29, 2002, which document also contained the examination
report, signed by the Customs representative, Supervisor/Superintendent, consignees representative, and the ATI Inspector.
Thus, as early as November 29, 2002, the date of the last withdrawal of the goods from the arrastre operator, respondent ATI was able
to verify that five (5) packages of the shipment were in bad order while in its custody. The certificate of non-delivery referred to in the
Contract is similar to or identical with the examination report on the request for bad order survey.33 Like in the case of New Zealand
Insurance Company Ltd. v. Navarro, the verification and ascertainment of liability by respondent ATI had been accomplished within
thirty (30) days from the date of delivery of the package to the consignee and within fifteen (15) days from the date of issuance by the
Contractor (respondent ATI) of the examination report on the request for bad order survey. Although the formal claim was filed
beyond the 15-day period from the issuance of the examination report on the request for bad order survey, the purpose of the time
limitations for the filing of claims had already been fully satisfied by the request of the consignees broker for a bad order survey and
by the examination report of the arrastre operator on the result thereof, as the arrastre operator had become aware of and had verified
the facts giving rise to its liability.34 Hence, the arrastre operator suffered no prejudice by the lack of strict compliance with the 15-day
limitation to file the formal complaint.35
The next factual issue is whether or not petitioner is entitled to actual damages in the amount of P431,592.14. The payment of the said
amount by petitioner to the assured/consignee was based on the Evaluation Report36 of BA McLarens Phils., Inc., thus:
x xxx
CIRCUMSTANCES OF LOSS
As reported, the shipment consisting of 185 packages (344.982 MT) Electrolytic Tin Free Steel, JISG 3315SPTFS, MRT-4CA, Matte
Finish arrived Manila via Ocean Vessel, M/V "DIMI P" V-075 on November 9, 2002 and subsequently docked alongside Pier No. 9,
South Harbor, Manila. The cargo of Electrolyic Tin Free Steel was discharged ex-vessel complete with seven (7) skids noted in bad

34

order condition by the vessel[s] representative. These skids were identified as nos. 2HD804211, 2HD804460, SHD804251,
SHD803784, 2HD803763, 2HD803765 and 2HD803783 and covered with Bad Order Tally Receipts No. 3709, 3707, 3703 and 3704.
Thereafter, the same were stored inside the warehouse of Pier No. 9, South Harbor, Manila, pending delivery to the consignees
warehouse.
On November 22, 23 and 29, 2002, the subject cargo was withdrawn from the Pier by the consignee authorized broker, R. V. Marzan
Brokerage Corp. and the same was delivered to the consignees final warehouse located at Silangan, Canlubang, Laguna complete
with twelve (12) skids in bad order condition.
VISUAL INSPECTION
We conducted an ocular inspection on the reported damaged Electrolytic Tin Free Steel, Matte Finish at the consignees warehouse
located at Brgy. Silangan, Canlubang, Laguna and noted that out of the reported twelve(12) damaged skids, nine (9) of them were
rejected and three (3) skids were accepted by the consignees representative as complete and without exceptions.
x xxx
EVALUATION OF INDEMNITY
We evaluated the loss/damage sustained by the subject shipments and arrived as follows:
PRODUCT NOS.

PRODUCTS NAMED

NET WT. PER

PACKING LIST

NO. OF SHEETS

2HD803763

Electrolytic Tin Free

Steel JISG3315

1,200

1,908

2HD803783

-do-

1,200

1,908

2HD803784

-do-

1,200

1,908

2HD804460

-do-

1,400

1,698

2HD803765

-do-

1,200

1,908

2HD804522

-do-

1,200

1,987

2HD804461

-do-

1,400

1,698

2HD804540

-do-

1,200

1,987

2HD804549

-do-

1,200

1,987

TOTAL

11,200

16,989 kgs.

9 SKIDS
P9,878,547.58
------------------231,000

= 42.7643 x 11,200

Less: Deductible 0.50% based on sum insured

Total
Add: Surveyors Fee
Sub-Total

P478,959.88
49,392.74
P429,567.14
2,025.00
P431,592.14

Note: Above evaluation is Assureds tentative liability as the salvage proceeds on the damaged stocks has yet to be determined.
RECOVERY ASPECT

35

Prospect of recovery would be feasible against the shipping company and the Arrastre operator considering the copies of Bad Order
Tally Receipts and Bad Order Certificate issued by the subject parties.37
To clarify, based on the Evaluation Report, seven (7) skids were damaged upon arrival of the vessel per the Bad Order Cargo
Receipts38 issued by the shipping company, and an additional five (5) skids were damaged in the custody of the arrastre operator per
the Bad Order Certificate/Examination Report39 issued by the arrastre contractor. The Evaluation Report states that out of the reported
twelve damaged skids, only nine were rejected, and three were accepted as good order by the consignees representative. Out of the
nine skids that were rejected, five skids were damaged upon arrival of the vessel as shown by the product numbers in the Evaluation
Report, which product numbers matched those in the Bad Order Cargo Receipts40 issued by the shipping company. It can then be
safely inferred that the four remaining rejected skids were damaged in the custody of the arrastre operator, as the Bad Order
Certificate/Examination Report did not indicate the product numbers thereof.
Hence, it should be pointed out that the Evaluation Report shows that the claim for actual damages in the amount of P431,592.14
covers five (5)41 out of the seven (7) skids that were found to be damaged upon arrival of the vessel and covered by Bad Order Cargo
Receipt Nos. 3704, 3706, 3707 and 3709,42 which claim should have been filed with the shipping company. Petitioner must have
realized that the claim for the said five (5) skids was already barred under COGSA; hence, petitioner filed the claim for actual
damages only against respondent arrastre operator.
As regards the four (4) skids that were damaged in the custody of the arrastre operator, petitioner is still entitled to recover from
respondent.1awp++i1 The Court has ruled that the Request for Bad Order Survey and the examination report on the said request
satisfied the purpose of a formal claim, as respondent was made aware of and was able to verify that five (5) skids were damaged or in
bad order while in its custody before the last withdrawal of the shipment on November 29, 2002. Hence, even if the formal claim was
filed beyond the 15-day period stipulated in the Contract, respondent was not prejudiced thereby, since it already knew of the number
of skids damaged in its possession per the examination report on the request for bad order survey.
Remand of the case to the trial court for the determination of the liability of respondent to petitioner is not necessary as the Court can
resolve the same based on the records before it.43 The Court notes that petitioner, who filed this action for damages for the five (5)
skids that were damaged while in the custody of respondent, was not forthright in its claim, as it knew that the damages it sought in
the amount of P431,592.14, which was based on the Evaluation Report of its adjuster/surveyor, BA McLarens Phils., Inc., covered
nine (9) skids. Based on the same Evaluation Report, only four of the nine skids were damaged in the custody of respondent.
Petitioner should have been straightforward about its exact claim, which is borne out by the evidence on record, as petitioner can be
granted only the amount of damages that is due to it.
Based on the Evaluation Report44 of BA McLarens Phils., Inc., dated May 5, 2003, the four (4) skids damaged while in the custody of
the arrastre operator and the amount of actual damages therefore are as follows:
PRODUCT NOS.

PRODUCTS NAMED

NET WT. PER

PACKING LIST

NO. OF SHEETS

2HD804522

Electrolytic Tin Free

Steel JISG3315

1,200

1,987

2HD804461

-do-

1,400

1,698

2HD804540

-do-

1,200

1,987

2HD804549

-do-

1,200

1,987

4 SKIDS

TOTAL

5,000
45

P9,878,547.58 (Insured value)

---------------------------------------------231,000 (Total number of sheets)
Less: Deductible 0.50% based on sum insured46
Total

= 42.7643 x 5,000

P213,821.50
49,392.74
P164,428.76

36

In view of the foregoing, petitioner is entitled to actual damages in the amount of P164,428.76 for the four (4) skids damaged while in
the custody of respondent.1wphi1
WHEREFORE, the petition is GRANTED. The Decision of the Regional Trial Court of Makati City, Branch 138, dated October 17,
2006, in Civil Case No. 05-809, and its Order dated December 4, 2007, are hereby REVERSED and SET ASIDE. Respondent Asian
Terminals, Inc. is ORDERED to pay petitioner Insurance Company of North America actual damages in the amount of One Hundred
Sixty-Four Thousand Four Hundred Twenty-Eight Pesos and Seventy-Six Centavos (P164,428.76). Twelve percent (12%) interest per
annum shall be imposed on the amount of actual damages from the date the award becomes final and executory until its full
satisfaction.

37