TRANSPORTATION

AMERICAN AIRLINES petitioner, issued its own ticket to the private respondent in Geneva and
claimed the value of the unused portion of the conjunction ticket from
vs. the IATA 2 clearing house in Geneva.
COURT OF APPEALS, HON. BERNARDO LL. SALAS and
DEMOCRITO MENDOZA, respondents.
In September 1989, private respondent filed an action for damages
before the regional trial court of Cebu for the alleged embarrassment
Before us is a petition for review of the decision dated December 24, and mental anguish he suffered at the Geneva Airport when the
1993 rendered by the Court of Appeals in the consolidated cases petitioner's security officers prevented him from boarding the plane,
docketed as CA-G.R. SP nos. 30946 and 31452 entitled American detained him for about an hour and allowed him to board the plane
Airlines vs. The Presiding Judge Branch 8 of the Regional Trial Court only after all the other passengers have boarded. The petitioner filed
of Cebu and Democrito Mendoza, petitions for certiorari and a motion to dismiss for lack of jurisdiction of Philippine courts to
prohibition. In SP no. 30946, the petitioner assails the trial court's entertain the said proceedings under Art. 28(1) of the Warsaw
order denying the petitioner's motion to dismiss the action for Convention. The trial court denied the motion. The order of denial
damages filed by the private respondent for lack of jurisdiction under was elevated to the Court of Appeals which affirmed the ruling of the
section 28 (1) of the Warsaw Convention; and in SP No. 31452 the trial court. Both the trial and the appellate courts held that the suit
petitioner challenges the validity of the trial court's order striking off may be brought in the Philippines under the pool partnership
the record the deposition of the petitioner's security officer taken in agreement among the IATA members, which include Singapore
Geneva, Switzerland for failure of the said security officer to answer Airlines and American Airlines, wherein the members act as agents
the cross interrogatories propounded by the private respondent. of each other in the issuance of tickets to those who may need their
services. The contract of carriage perfected in Manila between the
private respondent and Singapore Airlines binds the petitioner as an
agent of Singapore Airlines and considering that the petitioner has a
The sole issue raised in SP No. 30946 is the questioned jurisdiction
place of business in Manila, the third option of the plaintiff under the
of the Regional Trial Court of Cebu to take cognizance of the action
Warsaw Convention i.e. the action may be brought in the place
for damages filed by the private respondent against herein petitioner
where the contract was perfected and where the airline has a place
in view of Art 28 (1) of the Warsaw Convention. 1 It is undisputed
of business, is applicable. Hence this petition assailing the order
that the private respondent purchased from Singapore Airlines in
upholding the jurisdiction of Philippine courts over the instant action.
Manila conjunction tickets for Manila-Singapore-Athens-Larnaca-
Rome-Turin-Zurich-Geneva-Copenhagen-New York. The petitioner
was not a participating airline in any of the segments in the itinerary
under the said conjunction tickets. In Geneva the petitioner decided Both parties filed simultaneous memoranda pursuant to the
to forego his trip to Copenhagen and to go straight to New York and resolution of this Court giving due course to the petition.
in the absence of a direct flight under his conjunction tickets from
Geneva to New York, the private respondent on June 7, 1989
exchanged the unused portion of the conjunction ticket for a one-way The petitioner's theory is as follows: Under Art 28 (1) of the Warsaw
ticket from Geneva to New York from the petitioner airline. Petitioner convention an action for damages must be brought at the option of

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the plaintiff either before the court of the 1) domicile of the carrier; 2) Private respondent controverts the applicability of the Warsaw
the carrier's principal place of business; 3) the place where the Convention in this case. He posits that under Article 17 of the
carrier has a place of business through which the contract was Warsaw Convention 3 a carrier may be held liable for damages if the
made; 4) the place of destination. The petitioner asserts that the "accident" occurred on board the airline or in the course of
Philippines is neither the domicile nor the principal place of business "embarking or disembarking" from the carrier and that under Article
of the defendant airline; nor is it the place of destination. As regards 25 (1) 4 thereof the provisions of the convention will not apply if the
the third option of the plaintiff, the petitioner contends that since the damage is caused by the "willful misconduct" of the carrier. He
Philippines is not the place where the contract of carriage was made argues that his cause of action is based on the incident at the pre-
between the parties herein, Philippine courts do not have jurisdiction departure area of the Geneva airport and not during the process of
over this action for damages. The issuance of petitioner's own ticket embarking nor disembarking from the carrier and that security
in Geneva in exchange for the conjunction ticket issued by Singapore officers of the petitioner airline acted in bad faith. Accordingly, this
Airlines for the final leg of the private respondent's trip gave rise to a case is released from the terms of the Convention. Private
separate and distinct contract of carriage from that entered into by respondent argues that assuming that the Convention applies, his
the private respondent with Singapore Airlines in Manila. Petitioner trip to nine cities in different countries performed by different carriers
lays stress on the fact that the plane ticket for a direct flight from under the conjunction tickets issued in Manila by Singapore Airlines
Geneva to New York was purchased by the private respondent from is regarded as a single transaction; as such the final leg of his trip
the petitioner by "exchange and cash" which signifies that the from Geneva to New York with the petitioner airline is part and parcel
contract of carriage with Singapore Airlines was terminated and a of the original contract of carriage perfected in Manila. Thus, the third
second contract was perfected. Moreover, the second contract of option of the plaintiff under Art. 28 (1) e.g., where the carrier has a
carriage cannot be deemed to have been an extension of the first as place of business through which the contract of carriage was made,
the petitioner airline is not a participating airline in any of the applies herein and the case was properly filed in the Philippines. The
destinations under the first contract. The petitioner claims that the private respondent seeks affirmance of the ruling of the lower courts
private respondent's argument that the petitioner is bound under the that the petitioner acted as an agent of Singapore Airlines under the
IATA Rules as agent of the principal airline is irrelevant and the IATA Rules and as an agent of the principal carrier the petitioner may
alleged bad faith of the airline does not remove the case from the be held liable under the contract of carriage perfected in Manila,
applicability of the Warsaw Convention. Further the IATA Rule cited citing the judicial admission made by the petitioner that it claimed the
by the private respondent which is admittedly printed on the ticket value of the unused portion of the private respondent's conjunction
issued by the petitioner to him which states, "An air carrier issuing a tickets from the IATA Clearing House in Geneva where the accounts
ticket for carriage over the lines of another carrier does so only as its of both airlines are respectively credited and debited. Accordingly,
agent" does not apply herein, as neither Singapore Airlines nor the the petitioner cannot now deny the contract of agency with Singapore
petitioner issued a ticket to the private respondent covering the route Airlines after it honored the conjunction tickets issued by the latter.
of the other. Since the conjunction tickets issued by Singapore
Airlines do not include the route covered by the ticket issued by the
petitioner, the petitioner airline submits that it did not act as an agent The petition is without merit.
of Singapore Airlines.

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The Warsaw Convention to which the Republic of the Philippines is a contract has been made, or before the court at the place of
party and which has the force and effect of law in this country applies destination.
to all international transportation of persons, baggage or goods
performed by an aircraft gratuitously or for hire. 5 As enumerated in
the Preamble of the Convention, one of the objectives is "to regulate There is no dispute that petitioner issued the ticket in Geneva which
in a uniform manner the conditions of international transportation by was neither the domicile nor the principal place of business of
air". 6 The contract of carriage entered into by the private respondent petitioner nor the respondent's place of destination.
with Singapore Airlines, and subsequently with the petitioner, to
transport him to nine cities in different countries with New York as the
final destination is a contract of international transportation and the
The question is whether the contract of transportation between the
provisions of the Convention automatically apply and exclusively
petitioner and the private respondent would be considered as a
govern the rights and liabilities of the airline and its passengers. 7
single operation and part of the contract of transportation entered
This includes section 28 (1) which enumerates the four places where
into by the latter with Singapore Airlines in Manila.
an action for damages may be brought.

Petitioner disputes the ruling of the lower court that it is. Petitioner's
The threshold issue of jurisdiction of Philippine courts under Art 28
main argument is that the issuance of a new ticket in Geneva created
(1) must first be resolved before any pronouncements may be made
a contract of carriage separate and distinct from that entered by the
on the liability of the carrier thereunder. 8 The objections raised by
private respondent in Manila.
the private respondent that this case is released from the terms of
the Convention because the incident on which this action is
predicated did not occur in the process of embarking and
disembarking from the carrier under Art 17 9 and that the employees We find the petitioner's argument without merit.
of the petitioner airline acted with malice and bad faith under Art 25
(1) 10 pertain to the merits of the case which may be examined only
if the action has first been properly commenced under the rules on Art 1(3) of the Warsaw Convention which states:
jurisdiction set forth in Art. 28 (1).

Transportation to be performed by several successive carriers shall

Art 28 (1) of the Warsaw Convention states: 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
Art 28 (1) An action for damages must be brought at the option of the single contract or a series of contracts, and it shall not lose its
plaintiff, in the territory of one of the High Contracting Parties, either international character merely because one contract or series of
before the court of the domicile of the carrier or of his principal place contracts is to be performed entirely within the territory subject of the
of business or where he has a place of business through which the sovereignty, suzerainty, mandate or authority of the same High
Contracting Party.

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The quoted provision of the Warsaw Convention Art. 1(3) clearly

states that a contract of air transportation is taken as a single
The contract of carriage between the private respondent and operation whether it is founded on a single contract or a series of
Singapore Airlines although performed by different carriers under a contracts. The number of tickets issued does not detract from the
series of airline tickets, including that issued by the petitioner, oneness of the contract of carriage as long as the parties regard the
constitutes a single operation. Members of the IATA are under a contract as a single operation. The evident purpose underlying this
general pool partnership agreement wherein they act as agent of Article is to promote international air travel by facilitating the
each other in the issuance of tickets 11 to contracted passengers to procurement of a series of contracts for air transportation through a
boost ticket sales worldwide and at the same time provide single principal and obligating different airlines to be bound by one
passengers easy access to airlines which are otherwise inaccessible contract of transportation. Petitioner's acquiescence to take the place
in some parts of the world. Booking and reservation among airline of the original designated carrier binds it under the contract of
members are allowed even by telephone and it has become an carriage entered into by the private respondent and Singapore
accepted practice among them. 12 A member airline which enters Airlines in Manila.
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 The third option of the plaintiff under Art 28 (1) of the Warsaw
is duly compensated for the segment of the trip serviced. 13 Thus, Convention e.g., to sue in the place of business of the carrier
when the petitioner accepted the unused portion of the conjunction wherein the contract was made, is therefore, Manila, and Philippine
tickets, entered it in the IATA clearing house and undertook to courts are clothed with jurisdiction over this case. We note that while
transport the private respondent over the route covered by the this case was filed in Cebu and not in Manila the issue of venue is no
unused portion of the conjunction tickets, i.e., Geneva to New York, longer an issue as the petitioner is deemed to have waived it when it
the petitioner tacitly recognized its commitment under the IATA pool presented evidence before the trial court.
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 The issue raised in SP No. 31452 which is whether or not the trial
to take the place of the carrier originally designated in the original court committed grave abuse of discretion in ordering the deposition
conjunction ticket. The petitioner's argument that it is not a of the petitioner's security officer taken in Geneva to be stricken off
designated carrier in the original conjunction tickets and that it issued the record for failure of the said security officer to appear before the
its own ticket is not decisive of its liability. The new ticket was simply Philippine consul in Geneva to answer the cross-interrogatories filed
a replacement for the unused portion of the conjunction ticket, both by the private respondent does not have to be resolved. The
tickets being for the same amount of US$2,760 and having the same subsequent appearance of the said security officer before the
points of departure and destination. 14 By constituting itself as an Philippine consul in Geneva on September 19, 1994 and the answer
agent of the principal carrier the petitioner's undertaking should be to the cross-interrogatories propounded by the private respondent
taken as part of a single operation under the contract of carriage was transmitted to the trial court by the Philippine consul in Geneva
executed by the private respondent and Singapore Airlines in Manila. on September 23, 1994 15 should be deemed as full compliance with
the requisites of the right of the private respondent to cross-examine
the petitioner's witness. The deposition filed by the petitioner should

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be reinstated as part of the evidence and considered together with

the answer to the cross-interrogatories.

WHEREFORE, the judgment of the appellate court in CA-G.R. SP

No. 30946 is affirmed. The case is ordered remanded to the court of
origin for further proceedings. The decision of the appellate court in
CA-G.R. SP. No. 31452 is set aside. The deposition of the
petitioner's security officer is reinstated as part of the evidence.

SO ORDERED.

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FEDERAL EXPRESS CORPORATION, petitioner, The assailed Resolution denied petitioner's Motion for
Reconsideration.
vs.

AMERICAN HOME ASSURANCE COMPANY and PHILAM

INSURANCE COMPANY, INC., respondents. The Facts

Basic is the requirement that before suing to recover loss of or The antecedent facts are summarized by the appellate court as
damage to transported goods, the plaintiff must give the carrier follows:
notice of the loss or damage, within the period prescribed by the
Warsaw Convention and/or the airway bill.
"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for
brevity) of Nebraska, USA delivered to Burlington Air Express
The Case (BURLINGTON), an agent of [Petitioner] Federal Express
Corporation, a shipment of 109 cartons of veterinary biologicals for
delivery to consignee SMITHKLINE and French Overseas Company
Before us is a Petition for Review1 under Rule 45 of the Rules of in Makati City, Metro Manila. The shipment was covered by
Court, challenging the June 4, 2001 Decision2 and the September Burlington Airway Bill No. 11263825 with the words, 'REFRIGERATE
21, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. WHEN NOT IN TRANSIT' and 'PERISHABLE' stamp marked on its
58208. The assailed Decision disposed as follows: face. That same day, Burlington insured the cargoes in the amount of
$39,339.00 with American Home Assurance Company (AHAC). The
following day, Burlington turned over the custody of said cargoes to
Federal Express which transported the same to Manila. The first
"WHEREFORE, premises considered, the present appeal is hereby
shipment, consisting of 92 cartons arrived in Manila on January 29,
DISMISSED for lack of merit. The appealed Decision of Branch 149
1994 in Flight No. 0071-28NRT and was immediately stored at
of the Regional Trial Court of Makati City in Civil Case No. 95-1219,
[Cargohaus Inc.'s] warehouse. While the second, consisting of 17
entitled 'American Home Assurance Co. and PHILAM Insurance Co.,
cartons, came in two (2) days later, or on January 31, 1994, in Flight
Inc. v. FEDERAL EXPRESS CORPORATION and/or CARGOHAUS,
No. 0071-30NRT which was likewise immediately stored at
INC. (formerly U-WAREHOUSE, INC.),' is hereby AFFIRMED and
Cargohaus' warehouse. Prior to the arrival of the cargoes, Federal
REITERATED.
Express informed GETC Cargo International Corporation, the
customs broker hired by the consignee to facilitate the release of its
cargoes from the Bureau of Customs, of the impending arrival of its
"Costs against the [petitioner and Cargohaus, Inc.]."4 client's cargoes.

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TRANSPORTATION

"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve

(12) days after the cargoes arrived in Manila, a non-licensed
custom's broker who was assigned by GETC to facilitate the release 1. Actual damages in the amount of the peso equivalent of
of the subject cargoes, found out, while he was about to cause the US$39,339.00 with interest from the time of the filing of the complaint
release of the said cargoes, that the same [were] stored only in a to the time the same is fully paid.
room with two (2) air conditioners running, to cool the place instead
of a refrigerator. When he asked an employee of Cargohaus why the
cargoes were stored in the 'cool room' only, the latter told him that 2. Attorney's fees in the amount of P50,000.00 and
the cartons where the vaccines were contained specifically indicated
therein that it should not be subjected to hot or cold temperature.
Thereafter, DIONEDA, upon instructions from GETC, did not proceed 3. Costs of suit.
with the withdrawal of the vaccines and instead, samples of the same
were taken and brought to the Bureau of Animal Industry of the
Department of Agriculture in the Philippines by SMITHKLINE for
'SO ORDERED.'
examination wherein it was discovered that the 'ELISA reading of
vaccinates sera are below the positive reference serum.'

"Aggrieved, [petitioner] appealed to [the CA]."5

"As a consequence of the foregoing result of the veterinary biologics
test, SMITHKLINE abandoned the shipment and, declaring 'total loss'
for the unusable shipment, filed a claim with AHAC through its Ruling of the Court of Appeals
representative in the Philippines, the Philam Insurance Co., Inc.
('PHILAM') which recompensed SMITHKLINE for the whole insured
amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY The Test Report issued by the United States Department of
NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an Agriculture (Animal and Plant Health Inspection Service) was found
action for damages against the [petitioner] imputing negligence on by the CA to be inadmissible in evidence. Despite this ruling, the
either or both of them in the handling of the cargo. appellate court held that the shipping Receipts were a prima facie
proof that the goods had indeed been delivered to the carrier in good
condition. We quote from the ruling as follows:
"Trial ensued and ultimately concluded on March 18, 1997 with the
[petitioner] being held solidarily liable for the loss as follows:
"Where the plaintiff introduces evidence which shows prima facie
that the goods were delivered to the carrier in good condition [i.e.,
'WHEREFORE, judgment is hereby rendered in favor of the shipping receipts], and that the carrier delivered the goods in a
[respondents] and [petitioner and its Co-Defendant Cargohaus] are damaged condition, a presumption is raised that the damage
directed to pay [respondents], jointly and severally, the following: occurred through the fault or negligence of the carrier, and this casts
upon the carrier the burden of showing that the goods were not in

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TRANSPORTATION

good condition when delivered to the carrier, or that the damage was insured under the policy is Burlington Air Express is devoid of merit –
occasioned by some cause excepting the carrier from absolute correct or not?
liability. This the [petitioner] failed to discharge. x x x."6

"III.
Found devoid of merit was petitioner's claim that respondents had no
personality to sue. This argument was supposedly not raised in the
Answer or during trial. Is the conclusion of the Honorable Court of Appeals that the goods
were received in good condition, correct or not?

Hence, this Petition.7

"IV.

The Issues
Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not
admissible?
In its Memorandum, petitioner raises the following issues for our
consideration:
"V.

"I.
Is the Honorable Court of Appeals correct in ignoring and
disregarding respondents' own admission that petitioner is not liable?
Are the decision and resolution of the Honorable Court of Appeals and
proper subject for review by the Honorable Court under Rule 45 of
the 1997 Rules of Civil Procedure?
"VI.

"II.
Is the Honorable Court of Appeals correct in ignoring the Warsaw
Convention?"8
Is the conclusion of the Honorable Court of Appeals – petitioner's
claim that respondents have no personality to sue because the
payment was made by the respondents to Smithkline when the

8
TRANSPORTATION

Simply stated, the issues are as follows: (1) Is the Petition proper for Pertinent to this issue is the Certificate of Insurance10 ("Certificate")
review by the Supreme Court? (2) Is Federal Express liable for that both opposing parties cite in support of their respective
damage to or loss of the insured goods? positions. They differ only in their interpretation of what their rights
are under its terms. The determination of those rights involves a
question of law, not a question of fact. "As distinguished from a
This Court's Ruling question of law which exists 'when the doubt or difference arises as
to what the law is on a certain state of facts' -- 'there is a question of
fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts'; or when the 'query necessarily invites
The Petition has merit.
calibration of the whole evidence considering mainly the credibility of
witnesses, existence and relevancy of specific surrounding
circumstance, their relation to each other and to the whole and the
Preliminary Issue: probabilities of the situation.'"11
Propriety of Review

Proper Payee
The correctness of legal conclusions drawn by the Court of Appeals
from undisputed facts is a question of law cognizable by the
Supreme Court.9 The Certificate specifies that loss of or damage to the insured cargo
is "payable to order x x x upon surrender of this Certificate." Such
wording conveys the right of collecting on any such damage or loss,
as fully as if the property were covered by a special policy in the
In the present case, the facts are undisputed. As will be shown
name of the holder itself. At the back of the Certificate appears the
shortly, petitioner is questioning the conclusions drawn from such
signature of the representative of Burlington. This document has thus
facts. Hence, this case is a proper subject for review by this Court.
been duly indorsed in blank and is deemed a bearer instrument.

Main Issue:
Since the Certificate was in the possession of Smithkline, the latter
Liability for Damages had the right of collecting or of being indemnified for loss of or
damage to the insured shipment, as fully as if the property were
covered by a special policy in the name of the holder. Hence, being
the holder of the Certificate and having an insurable interest in the
Petitioner contends that respondents have no personality to sue --
goods, Smithkline was the proper payee of the insurance proceeds.
thus, no cause of action against it -- because the payment made to
Smithkline was erroneous.

Subrogation

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TRANSPORTATION

this fact has never been denied by respondents and is plainly evident
from the records.
Upon receipt of the insurance proceeds, the consignee (Smithkline)
executed a subrogation Receipt12 in favor of respondents. The latter
were thus authorized "to file claims and begin suit against any such
carrier, vessel, person, corporation or government." Undeniably, the Airway Bill No. 11263825, issued by Burlington as agent of petitioner,
consignee had a legal right to receive the goods in the same states:
condition it was delivered for transport to petitioner. If that right was
violated, the consignee would have a cause of action against the
person responsible therefor. "6. No action shall be maintained in the case of damage to or partial
loss of the shipment unless a written notice, sufficiently describing
the goods concerned, the approximate date of the damage or loss,
Upon payment to the consignee of an indemnity for the loss of or and the details of the claim, is presented by shipper or consignee to
damage to the insured goods, the insurer's entitlement to an office of Burlington within (14) days from the date the goods are
subrogation pro tanto -- being of the highest equity -- equips it with a placed at the disposal of the person entitled to delivery, or in the
cause of action in case of a contractual breach or negligence.13 case of total loss (including non-delivery) unless presented within
"Further, the insurer's subrogatory right to sue for recovery under the (120) days from the date of issue of the [Airway Bill]."16
bill of lading in case of loss of or damage to the cargo is
jurisprudentially upheld."14
Relevantly, petitioner's airway bill states:

In the exercise of its subrogatory right, an insurer may proceed

against an erring carrier. To all intents and purposes, it stands in the "12./12.1 The person entitled to delivery must make a complaint to
place and in substitution of the consignee. A fortiori, both the insurer the carrier in writing in the case:
and the consignee are bound by the contractual stipulations under
the bill of lading.15
12.1.1 of visible damage to the goods, immediately after discovery of
the damage and at the latest within fourteen (14) days from receipt of
Prescription of Claim the goods;

From the initial proceedings in the trial court up to the present, 12.1.2 of other damage to the goods, within fourteen (14) days from
petitioner has tirelessly pointed out that respondents' claim and right the date of receipt of the goods;
of action are already barred. The latter, and even the consignee,
never filed with the carrier any written notice or complaint regarding
its claim for damage of or loss to the subject cargo within the period
required by the Warsaw Convention and/or in the airway bill. Indeed,

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TRANSPORTATION

12.1.3 delay, within twenty-one (21) days of the date the goods are
placed at his disposal; and
(4) Failing complaint within the times aforesaid, no action shall lie
against the carrier, save in the case of fraud on his part."18

12.1.4 of non-delivery of the goods, within one hundred and twenty

(120) days from the date of the issue of the air waybill.
Condition Precedent

12.2 For the purpose of 12.1 complaint in writing may be made to the
carrier whose air waybill was used, or to the first carrier or to the last In this jurisdiction, the filing of a claim with the carrier within the time
carrier or to the carrier who performed the transportation during limitation therefor actually constitutes a condition precedent to the
which the loss, damage or delay took place."17 accrual of a right of action against a carrier for loss of or damage to
the goods.19 The shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right of action against
the carrier can accrue in favor of the former. The aforementioned
Article 26 of the Warsaw Convention, on the other hand, provides: requirement is a reasonable condition precedent; it does not
constitute a limitation of action.20

"ART. 26. (1) Receipt by the person entitled to the delivery of

baggage or goods without complaint shall be prima facie evidence The requirement of giving notice of loss of or injury to the goods is
that the same have been delivered in good condition and in not an empty formalism. The fundamental reasons for such a
accordance with the document of transportation. stipulation are (1) to inform the carrier that the cargo has been
damaged, and that it is being charged with liability therefor; and (2) to
give it an opportunity to examine the nature and extent of the injury.
(2) In case of damage, the person entitled to delivery must complain "This protects the carrier by affording it an opportunity to make an
to the carrier forthwith after the discovery of the damage, and, at the investigation of a claim while the matter is fresh and easily
latest, within 3 days from the date of receipt in the case of baggage investigated so as to safeguard itself from false and fraudulent
and 7 days from the date of receipt in the case of goods. In case of claims."21
delay the complaint must be made at the latest within 14 days from
the date on which the baggage or goods have been placed at his
disposal. When an airway bill -- or any contract of carriage for that matter --
has a stipulation that requires a notice of claim for loss of or damage
to goods shipped and the stipulation is not complied with, its
(3) Every complaint must be made in writing upon the document of enforcement can be prevented and the liability cannot be imposed on
transportation or by separate notice in writing dispatched within the the carrier. To stress, notice is a condition precedent, and the carrier
times aforesaid. is not liable if notice is not given in accordance with the stipulation.22

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TRANSPORTATION

Failure to comply with such a stipulation bars recovery for the loss or
damage suffered.23

Being a condition precedent, the notice must precede a suit for

enforcement.24 In the present case, there is neither an allegation nor
a showing of respondents' compliance with this requirement within
the prescribed period. While respondents may have had a cause of
action then, they cannot now enforce it for their failure to comply with
the aforesaid condition precedent.

In view of the foregoing, we find no more necessity to pass upon the

other issues raised by petitioner.

We note that respondents are not without recourse. Cargohaus, Inc.

-- petitioner's co-defendant in respondents' Complaint below -- has
been adjudged by the trial court as liable for, inter alia, "actual
damages in the amount of the peso equivalent of US $39,339."25
This judgment was affirmed by the Court of Appeals and is already
final and executory.26

WHEREFORE, the Petition is GRANTED, and the assailed Decision

REVERSED insofar as it pertains to Petitioner Federal Express
Corporation. No pronouncement as to costs.

SO ORDERED.

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TRANSPORTATION

Court of Appeals2 (CA) in CA-GR CV No. 47165. The dispositive

part of the Decision reads:

"WHEREFORE, the judgment of July 29, 1994 is hereby

REVERSED and SET ASIDE and another rendered DISMISSING
[petitioners'] Complaint. No pronouncement as to costs."3

VICTORINO SAVELLANO, VIRGINIA B. SAVELLANO and On the other hand, the dispositive portion of the Regional Trial Court
DEOGRACIAS B. SAVELLANO, petitioners, (RTC) Decision4 that was reversed by the CA disposed thus:

vs.

NORTHWEST AIRLINES, respondent. "WHEREFORE, premises considered, decision is hereby rendered in

favor of the plaintiffs and against the defendant, sentencing the latter
to pay to the former, the following amounts:
When, as a result of engine malfunction, a commercial airline is
unable to ferry its passengers on the original contracted route, it
nonetheless has the duty of fulfilling its responsibility of carrying them 1. P500,000.00 as actual damages;
to their contracted destination on the most convenient route possible.
Failing in this, it cannot just unilaterally shuttle them, without their
consent, to other routes or stopping places outside of the contracted 2. P3,000,000.00 as moral damages;
sectors. However, moral damages cannot be awarded without proof
of the carrier's bad faith, ill will, malice or wanton conduct. Neither
will actual damages be granted in the absence of convincing and 3. P500,000.00 as exemplary damages; and
timely proof of loss. But nominal damages may be allowed under the
circumstances in the case herein.
4. P500,000.00 as attorney's fees;

The Case
"All such sums shall bear legal interest, i.e., 6% per annum pursuant
to Article 2209 of the Civil Code (Reformina vs. Tomol, 139 SCRA
Before the Court is a Petition for Review under Rule 45 of the Rules 260) from the date of the filing of the complaint until fully paid. Costs
of Court, seeking to set aside the June 29, 2001 Decision1 of the against the x x x Northwest Airlines, Inc.

13
TRANSPORTATION

Seattle after announcing that a fire had started in one of the plane's
engines.
"[Respondent's] counterclaim is ordered dismissed, for lack of
merit."5

"[Petitioners] and the other passengers proceeded to Gate 8 of the

Seattle Airport where they were instructed to go home to Manila the
The Facts next day, 'using the same boarding passes with the same seating
arrangements'.

The facts of the case are summarized by the CA as follows:

"[Respondent's] shuttle bus thereafter brought all passengers to the
Seattle Red Lion Hotel where they were billeted by, and at the
"[Petitioner] Victorino Savellano (Savellano) was a Cabugao, Ilocos expense of [respondent].
Sur mayor for many terms, former Chairman of the Commission on
Elections and Regional Trial Court (RTC) judge. His wife, [Petitioner]
Virginia is a businesswoman and operates several rural banks in "[Petitioners] who were travelling as a family were assigned one
Ilocos Sur. The couple's x x x son [Petitioner] Deogracias was, at the room at the hotel. At around 12:00 midnight, they were awakened by
time [of] the incident subject of the case, the Vice-Governor of Ilocos a phone call from [respondent's] personnel who advised them to be
Sur. at the Seattle Airport by 7:00 a.m. (Seattle time) the following day,
October 28, 1991, for departure. To reach the airport on time, the
NW shuttle bus fetched them early, making them skip the 6:30 a.m.
"On October 27, 1991, at around 1:45 p.m., [petitioners] departed hotel breakfast.
from San Francisco, USA on board Northwest Airlines (NW) Flight
27, Business Class, bound for Manila, Philippines using the NW
round-trip tickets which were issued at [respondent's] Manila "Prior to leaving the hotel, however, [petitioners] met at the lobby
ticketing office. Col. Roberto Delfin, a Filipino co-passenger who was also travelling
Business Class, who informed them that he and some passengers
were leaving the next day, October 29, 1991, on board the same
"[Petitioners] were expected to arrive at the Ninoy Aquino plane with the same itinerary.
International Airport (NAIA), Manila on October 29, 1991 (Manila
time) or after twelve (12) hours of travel.
"On account of the 'engine failure' of the plane, [petitioner] Virginia
developed nervousness. On getting wind of information that they
"After being airborne for approximately two and one-half (2½) hours were 'bumped off', she took 'valium' to calm her nerves and 'cough
or at about 4:15 p.m. of the same day, October 27, 1991 (Seattle, syrup' for the fever and colds she had developed during the trip.
USA time), NW Flight 27's pilot made an emergency landing in

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TRANSPORTATION

P300,000.00, two (2) Perry Gan shoes worth US$250.00, four (4)
watches costing US$40.00 each, two (2) pieces of Tag Heuer watch
"When [petitioners] reached the Seattle Airport, [respondent's] and three (3) boxes of Elizabeth Arden [perfumes]. Deogracias, on
ground stewardess belatedly advised them that instead of flying to the other hand, claimed to have lost two (2) pairs of Cole Haan
Manila they would have to board NW Flight 94, a DC-10 plane, shoes which he bought for his wife, and the clothes, camera,
bound for a 3-hour flight to Los Angeles for a connecting flight to personal computer, and jeans he bought for his children.
Manila. When [Petitioner] Savellano insisted theirs was a direct flight
to Manila, the female ground stewardess just told them to hurry up as
they were the last passengers to board.
"By letter of November 22, 1991, [petitioners] through counsel
demanded from [respondent] the amount of P3,000,000.00 as
damages for what they claimed to be the humiliation and
"In Los Angeles, [petitioners] and the other passengers became inconvenience they suffered in the hands of its personnel.
confused for while 'there was a sort of a board' which announced a [Respondent] did not accede to the demand, however, impelling
Seoul-Bangkok flight, none was posted for a Manila flight. It was only [petitioners] to file a case for damages at the RTC of Cabugao, Ilocos
after they complained to the NW personnel that the latter 'finally Sur — subject of the present appeal.
changed the board to include Manila.'

"[Petitioners] concede that they were not downgraded in any of the

"Before boarding NW Flight 23 for Manila via Seoul, [petitioners] flights on their way home to Manila. Their only complaint is that they
encountered another problem. Their three small handcarried items suffered inconvenience, embarrassment, and humiliation for taking a
which were not padlocked as they were merely closed by zippers longer route.
were 'not allowed' to be placed inside the passengers' baggage
compartments of the plane by an arrogant NW ground stewardess.

"During the trial, the [RTC], on motion of [petitioners], issued on

October 29, 1993 a subpoena duces tecum directing [respondent] to
"On [petitioners'] arrival at the NAIA, Manila where they saw Col. submit the passengers' manifest of the distressed flight from San
Delfin and his wife as well as the other passengers of the distressed Francisco to Tokyo on October 27, 1991, the passengers' manifest of
flight who unlike them [petitioners] who left Seattle on October 28, the same distressed plane from Seattle to Tokyo which took off on
1991, left Seattle on October 29, 1991, they were teased for taking October 29, 1991, and the passenger manifest of the substitute
the longer and tiresome route to the Philippines. plane from Seattle to Los Angeles and Los Angeles to Seoul enroute
to Manila which took off on October 28, 1991.

"When [petitioners] claimed their luggage at the baggage carousel,

they discovered that the would-have-been handcarried items which "The subpoena duces tecum was served on December 1, 1993 but
were not allowed to be placed inside the passengers' baggage was not complied with, however, by [respondent], it proffering that its
compartment had been ransacked and the contents thereof stolen.
Virginia was later to claim having lost her diamond earrings costing

15
TRANSPORTATION

Minneapolis head office retains documents only for one year after compartment, given the ease with which it could have been done as
which they are destroyed. the small luggage was merely closed by zipper. Just as it is odd why
no receipts for alleged purchases for valuable pasalubongs including
Tag Huer watches, camera and personal computer were presented x
" x x x Branch 24 of the RTC of Cabugao, Ilocos Sur rendered x x "7
judgment in favor of [petitioners] x x x.

Thus, even the trial court's award of actual damages was reversed
"In granting moral and actual damages to [petitioners], the [RTC] by the appellate court.
credited [petitioners'] claim that they were excluded from the Seattle-
Tokyo-Manila flight to accommodate several Japanese passengers
bound for Japan. And as basis of its award of actual damages arising Hence this Petition.8
from the allegedly lost articles contained in the would-have-been
handcarried [luggage], the [RTC], passing on the lack of receipts
covering the same, took judicial notice of the Filipinos' practice of Issues
often bringing home pasalubong for friends and relatives."6

In their appeal, petitioners ask this Court to rule on these issues:

Ruling of the Court of Appeals

" x x x [W]hether or not petitioners' discriminatory bump-off from NW

The CA ruled that petitioners had failed to show respondent's bad Flight No. 0027 on 28 October 1991 (not the diversion of the
faith, negligence or malice in transporting them via the Seattle-Los distressed plane to Seattle the day before, i.e. NW Flight 27 on 27
Angeles-Seoul-Manila route. Hence, it held that there was no basis October 1991) constitutes breach by respondent airline of its air-
for the RTC's award of moral and exemplary damages. Neither did it carriage contract?
find any reason to grant attorney's fees.

"And if so, whether or not petitioners are entitled to actual, moral and
It further ruled: exemplary damages — including attorney's fees — as a
consequence?"9

"[Petitioners'] testimonial claim of losses is unsupported by any other

evidence at all. It is odd and even contrary to human experience for The Court's Ruling
[petitioner] Virginia not to have taken out a P300,000.00 pair of
diamond earrings from an unlocked small luggage after such luggage
was not allowed to be placed inside the passenger's baggage

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TRANSPORTATION

The Petition is partly meritorious. that were available. It unilaterally decided on the most expedient way
for them to reach their final destination.

First Issue:
Passengers' Consent
Breach of Contract

After an examination of the conditions printed on the airline ticket, we

Petitioners' contract of carriage with Northwest was for the San find nothing there authorizing Northwest to decide unilaterally, after
Francisco-Tokyo (Narita)-Manila flights scheduled for October 27, the distressed flight landed in Seattle, what other stopping places
1991. This itinerary was not followed when the aircraft used for the petitioners should take and when they should fly. True, Condition 9
first segment of the journey developed engine trouble. Petitioners on the ticket allowed respondent to substitute alternate carriers or
stress that they are questioning, not the cancellation of the original aircraft without notice. However, nothing there permits shuttling
itinerary, but its substitution, which they allegedly had not contracted passengers — without so much as a by your-leave — to stopping
for or agreed to. They insist that, like the other passengers of the places that they have not been previously notified of, much less
distressed flight, they had the right to be placed on Flight 27, which agreed to or been prepared for. Substituting aircrafts or carriers
had a connecting flight from Japan to Manila. They add that in being without notice is entirely different from changing stopping places or
treated differently and shabbily, they were being discriminated connecting cities without notice.
against.

The ambiguities in the contract, being one of adhesion, should be

A contract is the law between the parties.10 Thus, in determining construed against the party that caused its preparation — in this
whether petitioners' rights were violated, we must look into its case, respondent.13 Since the conditions enumerated on the ticket
provisions, which are printed on the airline ticket. Condition 9 in the do not specifically allow it to change stopping places or to fly the
agreement states that a " x x x [c]arrier may without notice substitute passengers to alternate connecting cities without consulting them,
alternate carriers or aircraft, and may alter or omit stopping places then it must be construed to mean that such unilateral change was
shown on the ticket in case of necessity. x x x ."11 not permitted.

The basis of the Complaint was the way respondent allegedly treated Proof of Necessity of Alteration
petitioners like puppets that could be shuttled to Manila via Los
Angeles and Seoul without their consent.12 Undeniably, it did not
take the time to explain how it would be meeting its contractual
obligation to transport them to their final destination. Its employees Furthermore, the change in petitioners' flight itinerary does not fall
merely hustled the confused petitioners into boarding one plane after under the situation covered by the phrase "may alter or omit stopping
another without giving the latter a choice from other courses of action places shown on the ticket in case of necessity."14 A case of

17
TRANSPORTATION

necessity must first be proven. The burden of proving it necessarily

fell on respondent. This responsibility it failed to discharge.
Being guilty of a breach of their contract, respondent may be held
liable for damages suffered by petitioners in accordance with Articles
1170 and 2201 of the Civil Code, which state:
Petitioners do not question the stop in Seattle, so we will not delve
into this matter. The airplane engine trouble that developed during
the flight bound for Tokyo from San Francisco definitely merited the
"necessity" of landing the plane at some place for repair — in this "Art. 1170. Those who in the performance of their obligations are
case, Seattle — but not that of shuttling petitioners to other guilty of fraud, negligence, or delay and those who in any manner
connecting points thereafter without their consent. contravene the tenor thereof are liable for damages." (Emphasis
supplied)

Northwest failed to show a "case of necessity" for changing the

stopping place from Tokyo to Los Angeles and Seoul. It is a fact that "Art. 2201. In contracts and quasi-contracts, the damages for which
some of the passengers on the distressed flight continued on to the the obligor who acted in good faith is liable shall be those that are the
Tokyo (Narita) connecting place. No explanation whatsoever was natural and probable consequences of the breach of the obligation,
given to petitioners as to why they were not similarly allowed to do and which the parties have foreseen or could have reasonably
so. It may be that the Northwest connecting flight from Seattle to foreseen at the time the obligation was constituted."
Tokyo to Manila could no longer accommodate them. Yet it may also
be that there were other carriers that could have accommodated
them for these sectors of their journey, and whose route they might "In case of fraud, bad faith, malice or wanton attitude, the obligor
have preferred to the more circuitous one unilaterally chosen for shall be responsible for all damages which may be reasonably
them by respondent. attributed to the non-performance of the obligation."

In the absence of evidence as to the actual situation, the Court is As a general rule, the factual findings of the CA when supported by
hard pressed to determine if there was a "case of necessity" substantial evidence on record are final and conclusive and may not
sanctioning the alteration of the Tokyo stopping place in the case of be reviewed on appeal.15 An exception to this rule is when the lower
petitioners. Thus, we hold that in the absence of a demonstrated court and the CA arrive at different factual findings.16 In this case,
necessity thereof and their rerouting to Los Angeles and Seoul as the trial court found the presence of bad faith and hence awarded
stopping places without their consent, respondent committed a moral and exemplary damages; while the CA found none and hence
breach of the contract of carriage. deleted the award of damages. Thus, the Court is now behooved to
review the basis for sustaining the award or deletion of damages.

Second Issue:

Damages

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TRANSPORTATION

Petitioners impute oppression, discrimination, recklessness and subsequently issued in their favor. Mistakenly, however, defendant's
malevolence to respondent. We are not convinced. There is no agent cancelled the reservation. But expecting other cancellations
persuasive evidence that they were maliciously singled out to fly the before the flight scheduled a month later, the reservations supervisor
Seattle-Los Angeles-Seoul-Manila route. It appears that the decided to withhold the information from them, with the result that
passengers of the distressed flight were randomly divided into two upon arrival in Tokyo, the Lopezes discovered they had no first-class
groups. One group was made to take the Tokyo-Manila flight; and accommodations. Thus, they were compelled to take the tourist
the other, the Los Angeles-Seoul-Manila flight. The selection of who class, just so the senator could be on time for his pressing
was to take which flight was handled via the computer reservation engagements in the United States.
system, which took into account only the passengers' final
destination.17
In the light of these facts, the Court held there was a breach of the
contract of carriage. The failure of the defendant to inform the
The records show that respondent was impelled by sincere motives plaintiffs on time that their reservations for the first class had long
to get petitioners to their final destination by whatever was the most been cancelled was considered as the element of bad faith entitling
expeditious course — in its judgment, if not in theirs. Though they them to moral damages for the contractual breach. According to the
claim that they were not accommodated on Flight 27 from Seattle to Court, such omission had placed them in a predicament that enabled
Tokyo because respondent had taken on Japanese passengers, the company to keep them as — their passengers in the tourist class.
petitioners failed to present convincing evidence to back this Thus, the defendant was able to retain the business and to promote
allegation. In the absence of convincing evidence, we cannot find its self-interest at the expense of embarrassment, discomfort and
respondent guilty of bad faith. humiliation on their part.

Lopez, Zulueta and Ortigas Rulings Not Applicable In Zulueta, the passenger was coming home to Manila from Honolulu
via a Pan-American flight. The plane had a stopover at Wake Island,
where Rafael Zulueta went down to relieve himself. At flight time, he
Petitioners cite the cases of Lopez v. Pan American World could not be located immediately. Upon being found, an altercation
Airways,18 Zulueta v. Pan American World Airways, Inc.19 and ensued between him and the Pan-Am employees. One of them
Ortigas Jr. v. Lufthansa German Airlines20 to support their claim for remonstrated: "What in the hell do you think you are? Get on that
moral and exemplary damages. plane." An exchange of angry words followed, and the pilot went to
the extent of referring to the Zuluetas as "those monkeys."
Subsequently, for his "belligerent" attitude, Rafael Zulueta was
intentionally off-loaded and left at Wake Island with the prospect of
In Lopez, Honorable Fernando Lopez, then an incumbent senator
being stranded there for a week, with malice aforethought. The Court
and former Vice President of the Philippines — together with his wife,
awarded to the Zuluetas P500,000.00 as moral damages,
his daughter and his son-in-law — made first-class reservations with
P200,000.00 as exemplary damages and P75,000.00 as attorney's
the Pan American World Airways on its Tokyo-San Francisco flight.
fees, apart from the actual damages of P5,502.85.
The reservation having been confirmed, first-class tickets were

19
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convincingly that they were rerouted by respondent to Los Angeles

and Seoul because of malice, profit motive or self-interest. Good faith
In Ortigas, Francisco Ortigas Jr. had a confirmed and validated first- is presumed, while bad faith is a matter of fact that needs to be
class ticket for Lufthansa's Flight No. 646. His reserved first class proved21 by the party alleging it.
seat was, however, given to a Belgian. As a result, he was forced to
take economy class on the same flight. Lufthansa succeeded in
keeping him as a passenger by assuring him that he would be given
first-class accommodation at the next stop. The proper arrangements In the absence of bad faith, ill will, malice or wanton conduct,
therefor had supposedly been made already, when in truth such was respondent cannot be held liable for moral damages. Article 2219 of
not the case. In justifying the award of moral and exemplary the Civil Code22 enumerates the instances in which moral damages
damages, the Court explained. may be awarded. In a breach of contract, such damages are not
awarded if the defendant is not shown to have acted fraudulently or
with malice or bad faith.23 Insufficient to warrant the award of moral
damages is the fact that complainants suffered economic hardship,
" x x x [W]hen it comes to contracts of common carriage, inattention or that they worried and experienced mental anxiety.24
and lack of care on the part of the carrier resulting in the failure of the
passenger to be accommodated in the class contracted for amounts
to bad faith or fraud which entitles the passenger to the award of
moral damages in accordance with Article 2220 of the Civil Code. Neither are exemplary damages proper in the present case. The Civil
But in the instant case, the breach appears to be of graver nature, Code provides that "[i]n contracts and quasi-contracts, the court may
since the preference given to the Belgian passenger over plaintiff award exemplary damages if the defendant acted in a wanton,
was done willfully and in wanton disregard of plaintiff's rights and his fraudulent, reckless, oppressive, or malevolent manner."25
dignity as a human being and as a Filipino, who may not be Respondent has not been proven to have acted in that manner. At
discriminated against with impunity." most, it can only be found guilty of having acted without first
considering and weighing all other possible courses of actions it
could have taken, and without consulting petitioners and securing
their consent to the new stopping places.
To summarize, in Loipez despite sufficient time — one month — to
inform the passengers of what had happened to their booking, the
airline agent intentionally withheld that information from them. In
Zulueta, the passenger was deliberately off-loaded after being The unexpected and sudden requirement of having to arrange the
gravely insulted during an altercation. And in Ortigas, the passenger connecting flights of every single person in the distressed plane in
was intentionally downgraded in favor of a European. just a few hours, in addition to the Northwest employees' normal
workload, was difficult to satisfy perfectly. We cannot find respondent
liable for exemplary damages for its imperfection of neglecting to
consult with the passengers beforehand.
These cases are different from and inapplicable to the present case.
Here, there is no showing that the breach of contract was done with
the same entrepreneurial motive or self-interest as in Lopez or with ill
will as in Zulueta and Ortigas. Petitioners have failed to show

20
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Nevertheless, herein petitioners will not be totally deprived of

compensation. Nominal damages may be awarded as provided by
the Civil Code, from which we quote: A claim for the alleged lost items from the baggage of petitioners
cannot prosper, because they failed to give timely notice of the loss
to respondent. The Conditions printed on the airline ticket plainly
read:
"Art. 2221. Nominal damages are adjudicated in order that a right of
the plaintiff, which has been violated or invaded by the defendant,
may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him." "2. Carriage hereunder is subject to the rules and limitations relating
to liability established by the Warsaw Convention unless such
carriage is not `International carriage' as defined by that Convention.

"Art. 2222. The court may award nominal damages in every

obligation arising from any source enumerated in article 1157, or in
every case where any property right has been invaded." xxx xxx xxx

Nominal damages are recoverable if no actual, substantial or specific "7. Checked baggage will be delivered to bearer of the baggage
damages were shown to have resulted from the breach.26 The check. In case of damage to baggage moving in international
amount of such damages is addressed to the sound discretion of the transportation complaint must be made in writing to carrier forthwith
court, taking into account the relevant circumstances.27 after discovery of damage, and at the latest, within 7 days from
receipt; in case of delay, complaint must be made within 21 days
from date the baggage was delivered. x x x ."30

In the present case, we must consider that petitioners suffered the

inconvenience of having to wake up early after a bad night and
having to miss breakfast; as well as the fact that they were business The pertinent provisions of the Rules Relating to International
class passengers. They paid more for better service; thus, rushing Carriage by Air (Warsaw Convention) state:
them and making them miss their small comforts was not a trivial
thing. We also consider their social and official status. Victorino
Savellano was a former mayor, regional trial court judge and "Article 26
chairman of the Commission on Elections. Virginia B. Savellano was
the president of five rural banks, and Deogracias Savellano was then
the incumbent vice governor of Ilocos Sur. Hence, it will be proper to 1. Receipt by the person entitled to delivery of luggage or goods
grant one hundred fifty thousand pesos (P150,000) as nominal without complaint is prima facie evidence that the same have been
damages28 to each of them, in order to vindicate and recognize their delivered in good condition and in accordance with the document of
right29 to be notified and consulted before their contracted stopping carriage.
place was changed.

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2. In case of damage, the person entitled to delivery must complain

to the carrier forthwith after the discovery of the damage, and, at the
latest, within three days from the date of receipt in the case of
luggage and seven days from date of receipt in the case of goods. In
the case of delay the complaint must be made at the latest within
fourteen days from the date on which the luggage or goods have
been placed at his disposal.

3. Every complaint must be made in writing upon the document of

carriage or by separate notice in writing dispatched within the times
aforesaid.

4. Failing complaint within the times aforesaid, no action shall lie

against the carrier, save in the case of fraud on his part."

After allegedly finding that their luggage had been ransacked,

petitioners never lodged a complaint with any Northwest airport
personnel. Neither did they mention the alleged loss of their
valuables in their November 22, 1991 demand letter.31 Hence, in
accordance with the parties' contract of carriage, no claim can be
heard or admitted against respondent with respect to alleged
damage to or loss of petitioners' baggage.

WHEREFORE, the Petition is hereby PARTIALLY GRANTED, and

the assailed Decision MODIFIED. Respondent is ORDERED to pay
one hundred fifty thousand pesos (P150,000) to each of the three
petitioners as nominal damages. No. pronouncement as to costs.

SO ORDERED.

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her in placing her hand-carried luggage in the overhead bin.

However, Halliday allegedly refused to help and assist her, and even
sarcastically remarked that "If I were to help all 300 passengers in
this flight, I would have a broken back!"

Petitioner further alleged that when the plane was about to land in
Rome, Italy, another flight attendant, Nickolas Kerrigan (Kerrigan),
singled her out from among all the passengers in the business class
section to lecture on plane safety. Allegedly, Kerrigan made her
appear to the other passengers to be ignorant, uneducated, stupid,
and in need of lecturing on the safety rules and regulations of the
plane. Affronted, petitioner assured Kerrigan that she knew the
plane’s safety regulations being a frequent traveler. Thereupon,
Kerrigan allegedly thrust his face a mere few centimeters away from
that of the petitioner and menacingly told her that "We don’t like your
EDNA DIAGO LHUILLIER, Petitioner, attitude."

vs.

BRITISH AIRWAYS, Respondent. Upon arrival in Rome, petitioner complained to respondent’s ground
manager and demanded an apology. However, the latter declared
that the flight stewards were "only doing their job."
Jurisdictio est potestas de publico introducta cum necessitate juris
dicendi. Jurisdiction is a power introduced for the public good, on
account of the necessity of dispensing justice.1 Thus, petitioner filed the complaint for damages, praying that
respondent be ordered to pay ₱5 million as moral damages, ₱2
million as nominal damages, ₱1 million as exemplary damages,
₱300,000.00 as attorney’s fees, ₱200,000.00 as litigation expenses,
Factual Antecedents
and cost of the suit.

On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint2

On May 16, 2005, summons, together with a copy of the complaint,
for damages against respondent British Airways before the Regional
was served on the respondent through Violeta Echevarria, General
Trial Court (RTC) of Makati City. She alleged that on February 28,
Manager of Euro-Philippine Airline Services, Inc.3
2005, she took respondent’s flight 548 from London, United Kingdom
to Rome, Italy. Once on board, she allegedly requested Julian
Halliday (Halliday), one of the respondent’s flight attendants, to assist

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TRANSPORTATION

On May 30, 2005, respondent, by way of special appearance through Exchange Commission, she found out that the resident agent of
counsel, filed a Motion to Dismiss4 on grounds of lack of jurisdiction respondent in the Philippines is Alonzo Q. Ancheta. Subsequently,
over the case and over the person of the respondent. Respondent on September 9, 2005, petitioner filed a Motion to Resolve Pending
alleged that only the courts of London, United Kingdom or Rome, Incident and Opposition to Motion to Dismiss.9
Italy, have jurisdiction over the complaint for damages pursuant to
the Warsaw Convention,5 Article 28(1) of which provides:
Ruling of the Regional Trial Court

An action for damages must be brought at the option of the plaintiff,

either before the court of domicile of the carrier or his principal place On October 14, 2005, the RTC of Makati City, Branch 132, issued an
of business, or where he has a place of business through which the Order10 granting respondent’s Motion to Dismiss. It ruled that:
contract has been made, or before the court of the place of
destination.
The Court sympathizes with the alleged ill-treatment suffered by the
plaintiff. However, our Courts have to apply the principles of
Thus, since a) respondent is domiciled in London; b) respondent’s international law, and are bound by treaty stipulations entered into by
principal place of business is in London; c) petitioner bought her the Philippines which form part of the law of the land. One of this is
ticket in Italy (through Jeepney Travel S.A.S, in Rome);6 and d) the Warsaw Convention. Being a signatory thereto, the Philippines
Rome, Italy is petitioner’s place of destination, then it follows that the adheres to its stipulations and is bound by its provisions including the
complaint should only be filed in the proper courts of London, United place where actions involving damages to plaintiff is to be instituted,
Kingdom or Rome, Italy. as provided for under Article 28(1) thereof. The Court finds no
justifiable reason to deviate from the indicated limitations as it will
only run counter to the provisions of the Warsaw Convention. Said
Likewise, it was alleged that the case must be dismissed for lack of adherence is in consonance with the comity of nations and deviation
jurisdiction over the person of the respondent because the summons from it can only be effected through proper denunciation as
was erroneously served on Euro-Philippine Airline Services, Inc. enunciated in the Santos case (ibid). Since the Philippines is not the
which is not its resident agent in the Philippines. place of domicile of the defendant nor is it the principal place of
business, our courts are thus divested of jurisdiction over cases for
damages. Neither was plaintiff’s ticket issued in this country nor was
On June 3, 2005, the trial court issued an Order requiring herein her destination Manila but Rome in Italy. It bears stressing however,
petitioner to file her Comment/Opposition on the Motion to Dismiss that referral to the court of proper jurisdiction does not constitute
within 10 days from notice thereof, and for respondent to file a Reply constructive denial of plaintiff’s right to have access to our courts
thereon.7 Instead of filing a Comment/Opposition, petitioner filed on since the Warsaw Convention itself provided for jurisdiction over
June 27, 2005, an Urgent Ex-Parte Motion to Admit Formal cases arising from international transportation. Said treaty
Amendment to the Complaint and Issuance of Alias Summons.8 stipulations must be complied with in good faith following the time
Petitioner alleged that upon verification with the Securities and honored principle of pacta sunt servanda.

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LAWYER ARGUING FOR IT IS HIMSELF THE RESIDENT AGENT

OF THE CARRIER.
The resolution of the propriety of service of summons is rendered
moot by the Court’s want of jurisdiction over the instant case.

Petitioner’s Arguments

WHEREFORE, premises considered, the present Motion to Dismiss

is hereby GRANTED and this case is hereby ordered DISMISSED.
Petitioner argues that her cause of action arose not from the contract
of carriage, but from the tortious conduct committed by airline
personnel of respondent in violation of the provisions of the Civil
Petitioner filed a Motion for Reconsideration but the motion was Code on Human Relations. Since her cause of action was not
denied in an Order11 dated January 4, 2006. predicated on the contract of carriage, petitioner asserts that she has
the option to pursue this case in this jurisdiction pursuant to
Philippine laws.
Petitioner now comes directly before us on a Petition for Review on
Certiorari on pure questions of law, raising the following issues:
Respondent’s Arguments

Issues
In contrast, respondent maintains that petitioner’s claim for damages
fell within the ambit of Article 28(1) of the Warsaw Convention. As
I. WHETHER X X X PHILIPPINE COURTs HAVE JURISDICTION such, the same can only be filed before the courts of London, United
OVER A TORTIOUS CONDUCT COMMITTED AGAINST A Kingdom or Rome, Italy.
FILIPINO CITIZEN AND RESIDENT BY AIRLINE PERSONNEL OF
A FOREIGN CARRIER TRAVELLING BEYOND THE TERRITORIAL
LIMIT OF ANY FOREIGN COUNTRY; AND THUS IS OUTSIDE THE Our Ruling
AMBIT OF THE WARSAW CONVENTION.

The petition is without merit.

II. WHETHER x x x RESPONDENT AIR CARRIER OF
PASSENGERS, IN FILING ITS MOTION TO DISMISS BASED ON
LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE
CASE AND OVER ITS PERSON MAY BE DEEMED AS HAVING IN The Warsaw Convention has the force and effect of law in this
FACT AND IN LAW SUBMITTED ITSELF TO THE JURISDICTION country.
OF THE LOWER COURT, ESPECIALLY SO, WHEN THE VERY

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TRANSPORTATION

It is settled that the Warsaw Convention has the force and effect of to gratuitous carriage by aircraft performed by an air transport
law in this country. In Santos III v. Northwest Orient Airlines,12 we undertaking.
held that:

2. For the purposes of this Convention the expression "international

The Republic of the Philippines is a party to the Convention for the carriage" means any carriage in which, according to the contract
Unification of Certain Rules Relating to International Transportation made by the parties, the place of departure and the place of
by Air, otherwise known as the Warsaw Convention. It took effect on destination, whether or not there be a break in the carriage or a
February 13, 1933. The Convention was concurred in by the Senate, transhipment, are situated either within the territories of two High
through its Resolution No. 19, on May 16, 1950. The Philippine Contracting Parties, or within the territory of a single High
instrument of accession was signed by President Elpidio Quirino on Contracting Party, if there is an agreed stopping place within a
October 13, 1950, and was deposited with the Polish government on territory subject to the sovereignty, suzerainty, mandate or authority
November 9, 1950. The Convention became applicable to the of another Power, even though that Power is not a party to this
Philippines on February 9, 1951. On September 23, 1955, President Convention. A carriage without such an agreed stopping place
Ramon Magsaysay issued Proclamation No. 201, declaring our between territories subject to the sovereignty, suzerainty, mandate or
formal adherence thereto, "to the end that the same and every article authority of the same High Contracting Party is not deemed to be
and clause thereof may be observed and fulfilled in good faith by the international for the purposes of this Convention. (Emphasis
Republic of the Philippines and the citizens thereof." supplied)

The Convention is thus a treaty commitment voluntarily assumed by Thus, when the place of departure and the place of destination in a
the Philippine government and, as such, has the force and effect of contract of carriage are situated within the territories of two High
law in this country.13 Contracting Parties, said carriage is deemed an "international
carriage". The High Contracting Parties referred to herein were the
signatories to the Warsaw Convention and those which subsequently
The Warsaw Convention applies because the air travel, where the adhered to it.14
alleged tortious conduct occurred, was between the United Kingdom
and Italy, which are both signatories to the Warsaw Convention.
In the case at bench, petitioner’s place of departure was London,
United Kingdom while her place of destination was Rome, Italy.15
Article 1 of the Warsaw Convention provides: Both the United Kingdom16 and Italy17 signed and ratified the
Warsaw Convention. As such, the transport of the petitioner is
deemed to be an "international carriage" within the contemplation of
the Warsaw Convention.
1. This Convention applies to all international carriage of persons,
luggage or goods performed by aircraft for reward. It applies equally

26
TRANSPORTATION

Since the Warsaw Convention applies in the instant case, then the the RTC of Makati correctly ruled that it does not have jurisdiction
jurisdiction over the subject matter of the action is governed by the over the case filed by the petitioner.
provisions of the Warsaw Convention.

Santos III v. Northwest Orient Airlines18 applies in this case.

Under Article 28(1) of the Warsaw Convention, the plaintiff may bring
the action for damages before –
Petitioner contends that Santos III v. Northwest Orient Airlines19
cited by the trial court is inapplicable to the present controversy since
1. the court where the carrier is domiciled; the facts thereof are not similar with the instant case.

2. the court where the carrier has its principal place of business; We are not persuaded.

3. the court where the carrier has an establishment by which the In Santos III v. Northwest Orient Airlines,20 Augusto Santos III, a
contract has been made; or resident of the Philippines, purchased a ticket from Northwest Orient
Airlines in San Francisco, for transport between San Francisco and
Manila via Tokyo and back to San Francisco. He was wait-listed in
4. the court of the place of destination. the Tokyo to Manila segment of his ticket, despite his prior
reservation. Contending that Northwest Orient Airlines acted in bad
faith and discriminated against him when it canceled his confirmed
reservation and gave his seat to someone who had no better right to
In this case, it is not disputed that respondent is a British corporation
it, Augusto Santos III sued the carrier for damages before the RTC.
domiciled in London, United Kingdom with London as its principal
Northwest Orient Airlines moved to dismiss the complaint on ground
place of business. Hence, under the first and second jurisdictional
of lack of jurisdiction citing Article 28(1) of the Warsaw Convention.
rules, the petitioner may bring her case before the courts of London
The trial court granted the motion which ruling was affirmed by the
in the United Kingdom. In the passenger ticket and baggage check
Court of Appeals. When the case was brought before us, we denied
presented by both the petitioner and respondent, it appears that the
the petition holding that under Article 28(1) of the Warsaw
ticket was issued in Rome, Italy. Consequently, under the third
Convention, Augusto Santos III must prosecute his claim in the
jurisdictional rule, the petitioner has the option to bring her case
United States, that place being the (1) domicile of the Northwest
before the courts of Rome in Italy. Finally, both the petitioner and
Orient Airlines; (2) principal office of the carrier; (3) place where
respondent aver that the place of destination is Rome, Italy, which is
contract had been made (San Francisco); and (4) place of
properly designated given the routing presented in the said
destination (San Francisco).21
passenger ticket and baggage check. Accordingly, petitioner may
bring her action before the courts of Rome, Italy. We thus find that

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TRANSPORTATION

We further held that Article 28(1) of the Warsaw Convention is of respondent is London, United Kingdom;24 (2) the principal office
jurisdictional in character. Thus: of respondent airline is likewise in London, United Kingdom;25 (3)
the ticket was purchased in Rome, Italy;26 and (4) the place of
destination is Rome, Italy.27 In addition, petitioner based her
A number of reasons tends to support the characterization of Article complaint on Article 217628 of the Civil Code on quasi-delict and
28(1) as a jurisdiction and not a venue provision. First, the wording of Articles 1929 and 2130 of the Civil Code on Human Relations. In
Article 32, which indicates the places where the action for damages Santos III v. Northwest Orient Airlines,31 Augusto Santos III similarly
"must" be brought, underscores the mandatory nature of Article posited that Article 28 (1) of the Warsaw Convention did not apply if
28(1). Second, this characterization is consistent with one of the the action is based on tort. Hence, contrary to the contention of the
objectives of the Convention, which is to "regulate in a uniform petitioner, the factual setting of Santos III v. Northwest Orient
manner the conditions of international transportation by air." Third, Airlines32 and the instant case are parallel on the material points.
the Convention does not contain any provision prescribing rules of
jurisdiction other than Article 28(1), which means that the phrase
"rules as to jurisdiction" used in Article 32 must refer only to Article Tortious conduct as ground for the petitioner’s complaint is within the
28(1). In fact, the last sentence of Article 32 specifically deals with purview of the Warsaw Convention.
the exclusive enumeration in Article 28(1) as "jurisdictions," which, as
such, cannot be left to the will of the parties regardless of the time
when the damage occurred. Petitioner contends that in Santos III v. Northwest Orient Airlines,33
the cause of action was based on a breach of contract while her
cause of action arose from the tortious conduct of the airline
xxxx personnel and violation of the Civil Code provisions on Human
Relations.34 In addition, she claims that our pronouncement in
Santos III v. Northwest Orient Airlines35 that "the allegation of willful
In other words, where the matter is governed by the Warsaw misconduct resulting in a tort is insufficient to exclude the case from
Convention, jurisdiction takes on a dual concept. Jurisdiction in the the comprehension of the Warsaw Convention," is more of an obiter
international sense must be established in accordance with Article dictum rather than the ratio decidendi.36 She maintains that the fact
28(1) of the Warsaw Convention, following which the jurisdiction of a that said acts occurred aboard a plane is merely incidental, if not
particular court must be established pursuant to the applicable irrelevant.37
domestic law. Only after the question of which court has jurisdiction
is determined will the issue of venue be taken up. This second
question shall be governed by the law of the court to which the case We disagree with the position taken by the petitioner. Black defines
is submitted.22 obiter dictum as "an opinion entirely unnecessary for the decision of
the case" and thus "are not binding as precedent."38 In Santos III v.
Northwest Orient Airlines,39 Augusto Santos III categorically put in
Contrary to the contention of petitioner, Santos III v. Northwest Orient issue the applicability of Article 28(1) of the Warsaw Convention if
Airlines23 is analogous to the instant case because (1) the domicile the action is based on tort.

28
TRANSPORTATION

It is thus settled that allegations of tortious conduct committed

against an airline passenger during the course of the international
In the said case, we held that the allegation of willful misconduct carriage do not bring the case outside the ambit of the Warsaw
resulting in a tort is insufficient to exclude the case from the realm of Convention.
the Warsaw Convention. In fact, our ruling that a cause of action
based on tort did not bring the case outside the sphere of the
Warsaw Convention was our ratio decidendi in disposing of the
specific issue presented by Augusto Santos III. Clearly, the Respondent, in seeking remedies from the trial court through special
contention of the herein petitioner that the said ruling is an obiter appearance of counsel, is not deemed to have voluntarily submitted
dictum is without basis. itself to the jurisdiction of the trial court.

Relevant to this particular issue is the case of Carey v. United Petitioner argues that respondent has effectively submitted itself to
Airlines,40 where the passenger filed an action against the airline the jurisdiction of the trial court when the latter stated in its
arising from an incident involving the former and the airline’s flight Comment/Opposition to the Motion for Reconsideration that
attendant during an international flight resulting to a heated "Defendant [is at a loss] x x x how the plaintiff arrived at her
exchange which included insults and profanity. The United States erroneous impression that it is/was Euro-Philippines Airlines
Court of Appeals (9th Circuit) held that the "passenger's action Services, Inc. that has been making a special appearance since x x x
against the airline carrier arising from alleged confrontational incident British Airways x x x has been clearly specifying in all the pleadings
between passenger and flight attendant on international flight was that it has filed with this Honorable Court that it is the one making a
governed exclusively by the Warsaw Convention, even though the special appearance."44
incident allegedly involved intentional misconduct by the flight
attendant."41
In refuting the contention of petitioner, respondent cited La Naval
Drug Corporation v. Court of Appeals45 where we held that even if a
In Bloom v. Alaska Airlines,42 the passenger brought nine causes of party "challenges the jurisdiction of the court over his person, as by
action against the airline in the state court, arising from a reason of absence or defective service of summons, and he also
confrontation with the flight attendant during an international flight to invokes other grounds for the dismissal of the action under Rule 16,
Mexico. The United States Court of Appeals (9th Circuit) held that he is not deemed to be in estoppel or to have waived his objection to
the "Warsaw Convention governs actions arising from international the jurisdiction over his person."46
air travel and provides the exclusive remedy for conduct which falls
within its provisions." It further held that the said Convention "created
no exception for an injury suffered as a result of intentional conduct" This issue has been squarely passed upon in the recent case of
43 which in that case involved a claim for intentional infliction of Garcia v. Sandiganbayan,47 where we reiterated our ruling in La
emotional distress. Naval Drug Corporation v. Court of Appeals48 and elucidated thus:

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TRANSPORTATION

Special Appearance to Question a Court’s Jurisdiction Is Not

The foregoing pleadings, particularly the motions to dismiss, were

filed by petitioner solely for special appearance with the purpose of
Voluntary Appearance challenging the jurisdiction of the SB over her person and that of her
three children. Petitioner asserts therein that SB did not acquire
jurisdiction over her person and of her three children for lack of valid
The second sentence of Sec. 20, Rule 14 of the Revised Rules of service of summons through improvident substituted service of
Civil Procedure clearly provides: summons in both Forfeiture I and Forfeiture II. This stance the
petitioner never abandoned when she filed her motions for
reconsideration, even with a prayer to admit their attached Answer
Sec. 20. Voluntary appearance. – The defendant’s voluntary Ex Abundante Ad Cautelam dated January 22, 2005 setting forth
appearance in the action shall be equivalent to service of summons. affirmative defenses with a claim for damages. And the other
The inclusion in a motion to dismiss of other grounds aside from lack subsequent pleadings, likewise, did not abandon her stance and
of jurisdiction over the person of the defendant shall not be deemed defense of lack of jurisdiction due to improper substituted services of
a voluntary appearance. summons in the forfeiture cases. Evidently, from the foregoing Sec.
20, Rule 14 of the 1997 Revised Rules on Civil Procedure, petitioner
and her sons did not voluntarily appear before the SB constitutive of
or equivalent to service of summons.
Thus, a defendant who files a motion to dismiss, assailing the
jurisdiction of the court over his person, together with other grounds
raised therein, is not deemed to have appeared voluntarily before the
court. What the rule on voluntary appearance – the first sentence of Moreover, the leading La Naval Drug Corp. v. Court of Appeals
the above-quoted rule – means is that the voluntary appearance of applies to the instant case. Said case elucidates the current view in
the defendant in court is without qualification, in which case he is our jurisdiction that a special appearance before the court––
deemed to have waived his defense of lack of jurisdiction over his challenging its jurisdiction over the person through a motion to
person due to improper service of summons. dismiss even if the movant invokes other grounds––is not
tantamount to estoppel or a waiver by the movant of his objection to
jurisdiction over his person; and such is not constitutive of a
voluntary submission to the jurisdiction of the court.1avvphi1
The pleadings filed by petitioner in the subject forfeiture cases,
however, do not show that she voluntarily appeared without
qualification. Petitioner filed the following pleadings in Forfeiture I: (a)
motion to dismiss; (b) motion for reconsideration and/or to admit Thus, it cannot be said that petitioner and her three children
answer; (c) second motion for reconsideration; (d) motion to voluntarily appeared before the SB to cure the defective substituted
consolidate forfeiture case with plunder case; and (e) motion to services of summons. They are, therefore, not estopped from
dismiss and/or to quash Forfeiture I. And in Forfeiture II: (a) motion to questioning the jurisdiction of the SB over their persons nor are they
dismiss and/or to quash Forfeiture II; and (b) motion for partial deemed to have waived such defense of lack of jurisdiction.
reconsideration. Consequently, there being no valid substituted services of summons

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TRANSPORTATION

made, the SB did not acquire jurisdiction over the persons of G.R. No. 149507 May 28, 2004
petitioner and her children. And perforce, the proceedings in the
subject forfeiture cases, insofar as petitioner and her three children
are concerned, are null and void for lack of jurisdiction. (Emphasis CASA MONTESSORI INTERNATIONALE, petitioner,
supplied)
vs.

BANK OF THE PHILIPPINE ISLANDS, respondent.

In this case, the special appearance of the counsel of respondent in
filing the Motion to Dismiss and other pleadings before the trial court
cannot be deemed to be voluntary submission to the jurisdiction of
the said trial court. We hence disagree with the contention of the
petitioner and rule that there was no voluntary appearance before the By the nature of its functions, a bank is required to take meticulous
trial court that could constitute estoppel or a waiver of respondent’s care of the deposits of its clients, who have the right to expect high
objection to jurisdiction over its person. standards of integrity and performance from it.

WHEREFORE, the petition is DENIED. The October 14, 2005 Order Among its obligations in furtherance thereof is knowing the
of the Regional Trial Court of Makati City, Branch 132, dismissing the signatures of its clients. Depositors are not estopped from
complaint for lack of jurisdiction, is AFFIRMED. questioning wrongful withdrawals, even if they have failed to question
those errors in the statements sent by the bank to them for
verification.

The Case

BANK OF THE PHILIPPINE ISLANDS, petitioner,

Before us are two Petitions for Review1 under Rule 45 of the Rules
vs. of Court, assailing the March 23, 2001 Decision2 and the August 17,
2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No.
CASA MONTESSORI INTERNATIONALE LEONARDO T. YABUT, 63561. The decretal portion of the assailed Decision reads as
respondents. follows:

x ----------------------------- x "WHEREFORE, upon the premises, the decision appealed from is

AFFIRMED with the modification that defendant bank [Bank of the
Philippine Islands (BPI)] is held liable only for one-half of the value of

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TRANSPORTATION

the forged checks in the amount of ₱547,115.00 after deductions 5. 839569 Sept. 23, 1990 52,277.00
subject to REIMBURSEMENT from third party defendant Yabut who
is likewise ORDERED to pay the other half to plaintiff corporation 6. 729149 Mar. 22, 1990 148,000.00
[Casa Montessori Internationale (CASA)]."4 7. 729129 Mar. 16, 1990 51,015.00

8. 839684 Dec. 1, 1990 140,000.00

The assailed Resolution denied all the parties’ Motions for 9. 729034 Mar. 2, 1990 98,985.00
Reconsideration.
Total --

₱ 782,600.006
The Facts
"It turned out that ‘Sonny D. Santos’ with account at BPI’s Greenbelt
Branch [was] a fictitious name used by third party defendant
The facts of the case are narrated by the CA as follows: Leonardo T. Yabut who worked as external auditor of CASA. Third
party defendant voluntarily admitted that he forged the signature of
Ms. Lebron and encashed the checks. "The PNP Crime Laboratory
conducted an examination of the nine (9) checks and concluded that
"On November 8, 1982, plaintiff CASA Montessori International5 the handwritings thereon compared to the standard signature of Ms.
opened Current Account No. 0291-0081-01 with defendant BPI[,] Lebron were not written by the latter.
with CASA’s President Ms. Ma. Carina C. Lebron as one of its
authorized signatories.

"On March 4, 1991, plaintiff filed the herein Complaint for Collection
with Damages against defendant bank praying that the latter be
"In 1991, after conducting an investigation, plaintiff discovered that ordered to reinstate the amount of ₱782,500.007 in the current and
nine (9) of its checks had been encashed by a certain Sonny D. savings accounts of the plaintiff with interest at 6% per annum.
Santos since 1990 in the total amount of ₱782,000.00, on the
following dates and amounts:

"On February 16, 1999, the RTC rendered the appealed decision in
favor of the plaintiff."8
‘Check No. Date Amount

1. 839700 April 24, 1990 ₱ 43,400.00

Ruling of the Court of Appeals
2. 839459 Nov. 2, 1990 110,500.00

3. 839609 Oct. 17, 1990 47,723.00

Modifying the Decision of the Regional Trial Court (RTC), the CA
4. 839549 April 7, 1990 90,700.00 apportioned the loss between BPI and CASA. The appellate court

32
TRANSPORTATION

took into account CASA’s contributory negligence that resulted in the thus denying the prayer for the award of attorney’s fees, moral
undetected forgery. It then ordered Leonardo T. Yabut to reimburse damages and exemplary damages to [CASA]. The Honorable Court
BPI half the total amount claimed; and CASA, the other half. It also also erred when it did not order [BPI] to pay interest on the amounts
disallowed attorney’s fees and moral and exemplary damages. due to [CASA].

Hence, these Petitions.9 "2. The Honorable Court of Appeals erred when it declared that
[CASA] was likewise negligent in the case at bar, thus warranting its
conclusion that the loss in the amount of ₱547,115.00 be
Issues ‘apportioned between [CASA] and [BPI] x x x.’"11

In GR No. 149454, Petitioner BPI submits the following issues for our These issues can be narrowed down to three. First, was there
consideration: forgery under the Negotiable Instruments Law (NIL)? Second, were
any of the parties negligent and therefore precluded from setting up
forgery as a defense? Third, should moral and exemplary damages,
attorney’s fees, and interest be awarded?
"I. The Honorable Court of Appeals erred in deciding this case NOT
in accord with the applicable decisions of this Honorable Court to the
effect that forgery cannot be presumed; that it must be proved by
clear, positive and convincing evidence; and that the burden of proof The Court’s Ruling
lies on the party alleging the forgery.

The Petition in GR No. 149454 has no merit, while that in GR No.

"II. The Honorable Court of Appeals erred in deciding this case not in 149507 is partly meritorious.
accord with applicable laws, in particular the Negotiable Instruments
Law (NIL) which precludes CASA, on account of its own negligence,
from asserting its forgery claim against BPI, specially taking into First Issue:
account the absence of any negligence on the part of BPI."10

Forged Signature Wholly Inoperative

In GR No. 149507, Petitioner CASA submits the following issues:

Section 23 of the NIL provides:

"1. The Honorable Court of Appeals erred when it ruled that ‘there is
no showing that [BPI], although negligent, acted in bad faith x x x’

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TRANSPORTATION

"Section 23. Forged signature; effect of. -- When a signature is same as that in the Report24 that the PNP Crime Laboratory had
forged or made without the authority of the person whose signature it earlier issued to BPI -- the drawee bank -- upon the latter’s request.
purports to be, it is wholly inoperative, and no right x x x to enforce
payment thereof against any party thereto, can be acquired through
or under such signature, unless the party against whom it is sought Indeed, we respect and affirm the RTC’s factual findings, especially
to enforce such right is precluded from setting up the forgery or want when affirmed by the CA, since these are supported by substantial
of authority."12 evidence on record.25

Under this provision, a forged signature is a real13 or absolute Voluntary Admission Not Violative of Constitutional Rights
defense,14 and a person whose signature on a negotiable
instrument is forged is deemed to have never become a party thereto
and to have never consented to the contract that allegedly gave rise
The voluntary admission of Yabut did not violate his constitutional
to it.15
rights (1) on custodial investigation, and (2) against self-
incrimination.

The counterfeiting of any writing, consisting in the signing of

another’s name with intent to defraud, is forgery.16
In the first place, he was not under custodial investigation.26 His
Affidavit was executed in private and before private individuals.27
The mantle of protection under Section 12 of Article III of the 1987
In the present case, we hold that there was forgery of the drawer’s Constitution28 covers only the period "from the time a person is
signature on the check. taken into custody for investigation of his possible participation in the
commission of a crime or from the time he is singled out as a suspect
in the commission of a crime although not yet in custody."29
First, both the CA17 and the RTC18 found that Respondent Yabut
himself had voluntarily admitted, through an Affidavit, that he had
forged the drawer’s signature and encashed the checks.19 He never Therefore, to fall within the ambit of Section 12, quoted above, there
refuted these findings.20 That he had been coerced into admission must be an arrest or a deprivation of freedom, with "questions
was not corroborated by any evidence on record.21 propounded on him by the police authorities for the purpose of
eliciting admissions, confessions, or any information."30 The said
constitutional provision does "not apply to spontaneous statements
Second, the appellate and the trial courts also ruled that the PNP made in a voluntary manner"31 whereby an individual orally admits
Crime Laboratory, after its examination of the said checks,22 had to authorship of a crime.32 "What the Constitution proscribes is the
concluded that the handwritings thereon -- compared to the standard compulsory or coercive disclosure of incriminating facts."33
signature of the drawer -- were not hers.23 This conclusion was the

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TRANSPORTATION

Moreover, the right against self-incrimination34 under Section 17 of rights while under custodial investigation and against self-
Article III35 of the Constitution, which is ordinarily available only in incrimination.
criminal prosecutions, extends to all other government proceedings --
including civil actions, legislative investigations,36 and administrative
proceedings that possess a criminal or penal aspect37 -- but not to Clear, Positive and Convincing Examination and Evidence
private investigations done by private individuals. Even in such
government proceedings, this right may be waived,38 provided the
waiver is certain; unequivocal; and intelligently, understandingly and
The examination by the PNP, though inconclusive, was nevertheless
willingly made.39
clear, positive and convincing.

If in these government proceedings waiver is allowed, all the more is

Forgery "cannot be presumed."47 It must be established by clear,
it so in private investigations. It is of no moment that no criminal case
positive and convincing evidence.48 Under the best evidence rule as
has yet been filed against Yabut. The filing thereof is entirely up to
applied to documentary evidence like the checks in question, no
the appropriate authorities or to the private individuals upon whom
secondary or substitutionary evidence may inceptively be introduced,
damage has been caused. As we shall also explain later, it is not
as the original writing itself must be produced in court.49 But when,
mandatory for CASA -- the plaintiff below -- to implead Yabut in the
without bad faith on the part of the offeror, the original checks have
civil case before the lower court.
already been destroyed or cannot be produced in court, secondary
evidence may be produced.50 Without bad faith on its part, CASA
proved the loss or destruction of the original checks through the
Under these two constitutional provisions, "[t]he Bill of Rights40 does Affidavit of the one person who knew of that fact51 -- Yabut. He
not concern itself with the relation between a private individual and clearly admitted to discarding the paid checks to cover up his
another individual. It governs the relationship between the individual misdeed.52 In such a situation, secondary evidence like microfilm
and the State."41 Moreover, the Bill of Rights "is a charter of liberties copies may be introduced in court.
for the individual and a limitation upon the power of the [S]tate."42
These rights43 are guaranteed to preclude the slightest coercion by
the State that may lead the accused "to admit something false, not
The drawer’s signatures on the microfilm copies were compared with
prevent him from freely and voluntarily telling the truth."44
the standard signature. PNP Document Examiner II Josefina de la
Cruz testified on cross-examination that two different persons had
written them.53 Although no conclusive report could be issued in the
Yabut is not an accused here. Besides, his mere invocation of the absence of the original checks,54 she affirmed that her findings were
aforesaid rights "does not automatically entitle him to the 90 percent conclusive.55 According to her, even if the microfilm
constitutional protection."45 When he freely and voluntarily copies were the only basis of comparison, the differences were
executed46 his Affidavit, the State was not even involved. Such evident.56 Besides, the RTC explained that although the Report was
Affidavit may therefore be admitted without violating his constitutional inconclusive, no conclusive report could have been given by the
PNP, anyway, in the absence of the original checks.57 This

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explanation is valid; otherwise, no such report can ever be relied cannot merely rely on a handwriting expert’s testimony,68 but should
upon in court. also exercise independent judgment in evaluating the authenticity of
a signature under scrutiny.69 In the present case, both the RTC and
the CA conducted independent examinations of the evidence
Even with respect to documentary evidence, the best evidence rule presented and arrived at reasonable and similar conclusions. Not
applies only when the contents of a document -- such as the only did they admit secondary evidence; they also appositely
drawer’s signature on a check -- is the subject of inquiry.58 As to considered testimonial and other documentary evidence in the form
whether the document has been actually executed, this rule does not of the Affidavit.
apply; and testimonial as well as any other secondary evidence is
admissible.59 Carina Lebron herself, the drawer’s authorized
signatory, testified many times that she had never signed those The best evidence rule admits of exceptions and, as we have
checks. Her testimonial evidence is admissible; the checks have not discussed earlier, the first of these has been met.70 The result of
been actually executed. The genuineness of her handwriting is examining a questioned handwriting, even with the aid of experts and
proved, not only through the court’s comparison of the questioned scientific instruments, may be inconclusive;71 but it is a non sequitur
handwritings and admittedly genuine specimens thereof,60 but to say that such result is not clear, positive and convincing. The
above all by her. preponderance of evidence required in this case has been
satisfied.72

The failure of CASA to produce the original checks neither gives rise
to the presumption of suppression of evidence61 nor creates an Second Issue:
unfavorable inference against it.62 Such failure merely authorizes
the introduction of secondary evidence63 in the form of microfilm
copies. Of no consequence is the fact that CASA did not present the Negligence Attributable to BPI Alone
signature card containing the signatures with which those on the
checks were compared.64 Specimens of standard signatures are not
limited to such a card. Considering that it was not produced in
Having established the forgery of the drawer’s signature, BPI -- the
evidence, other documents that bear the drawer’s authentic
drawee -- erred in making payments by virtue thereof. The forged
signature may be resorted to.65 Besides, that card was in the
signatures are wholly inoperative, and CASA -- the drawer whose
possession of BPI -- the adverse party.
authorized signatures do not appear on the negotiable instruments --
cannot be held liable thereon. Neither is the latter precluded from
setting up forgery as a real defense.
We have held that without the original document containing the
allegedly forged signature, one cannot make a definitive comparison
that would establish forgery;66 and that a comparison based on a
Clear Negligence in Allowing Payment Under a Forged Signature
mere reproduction of the document under controversy cannot
produce reliable results.67 We have also said, however, that a judge

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We have repeatedly emphasized that, since the banking business is This notice is a simple confirmation81 or "circularization" -- in
impressed with public interest, of paramount importance thereto is accounting parlance -- that requests client-depositors to affirm the
the trust and confidence of the public in general. Consequently, the accuracy of items recorded by the banks.82 Its purpose is to obtain
highest degree of diligence73 is expected,74 and high standards of from the depositors a direct corroboration of the correctness of their
integrity and performance are even required, of it.75 By the nature of account balances with their respective banks.83 Internal or external
its functions, a bank is "under obligation to treat the accounts of its auditors of a bank use it as a basic audit procedure84 -- the results
depositors with meticulous care,76 always having in mind the of which its client-depositors are neither interested in nor privy to -- to
fiduciary nature of their relationship."77 test the details of transactions and balances in the bank’s records.85
Evidential matter obtained from independent sources outside a bank
only serves to provide greater assurance of reliability86 than that
BPI contends that it has a signature verification procedure, in which obtained solely within it for purposes of an audit of its own financial
checks are honored only when the signatures therein are verified to statements, not those of its client-depositors.
be the same with or similar to the specimen signatures on the
signature cards. Nonetheless, it still failed to detect the eight
instances of forgery. Its negligence consisted in the omission of that Furthermore, there is always the audit risk that errors would not be
degree of diligence required78 of a bank. It cannot now feign detected87 for various reasons. One, materiality is a consideration in
ignorance, for very early on we have already ruled that a bank is audit planning;88 and two, the information obtained from such a
"bound to know the signatures of its customers; and if it pays a substantive test is merely presumptive and cannot be the basis of a
forged check, it must be considered as making the payment out of its valid waiver.89 BPI has no right to impose a condition unilaterally
own funds, and cannot ordinarily charge the amount so paid to the and thereafter consider failure to meet such condition a waiver.
account of the depositor whose name was forged."79 In fact, BPI Neither may CASA renounce a right90 it has never possessed.91
was the same bank involved when we issued this ruling seventy
years ago.
Every right has subjects -- active and passive. While the active
subject is entitled to demand its enforcement, the passive one is
Neither Waiver nor Estoppel Results from Failure to Report Error in duty-bound to suffer such enforcement.92
Bank Statement

On the one hand, BPI could not have been an active subject,
The monthly statements issued by BPI to its clients contain a notice because it could not have demanded from CASA a response to its
worded as follows: "If no error is reported in ten (10) days, account notice. Besides, the notice was a measly request worded as follows:
will be correct."80 Such notice cannot be considered a waiver, even "Please examine x x x and report x x x."93 CASA, on the other hand,
if CASA failed to report the error. Neither is it estopped from could not have been a passive subject, either, because it had no
questioning the mistake after the lapse of the ten-day period. obligation to respond. It could -- as it did -- choose not to respond.

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Estoppel precludes individuals from denying or asserting, by their Proximate cause is determined by the facts of the case.106 "It is that
own deed or representation, anything contrary to that established as cause which, in natural and continuous sequence, unbroken by any
the truth, in legal contemplation.94 Our rules on evidence even make efficient intervening cause, produces the injury, and without which
a juris et de jure presumption95 that whenever one has, by one’s the result would not have occurred."107
own act or omission, intentionally and deliberately led another to
believe a particular thing to be true and to act upon that belief, one
cannot -- in any litigation arising from such act or omission -- be Pursuant to its prime duty to ascertain well the genuineness of the
permitted to falsify that supposed truth.96 signatures of its client-depositors on checks being encashed, BPI is
"expected to use reasonable business prudence."108 In the
performance of that obligation, it is bound by its internal banking
In the instant case, CASA never made any deed or representation rules and regulations that form part of the contract it enters into with
that misled BPI. The former’s omission, if any, may only be deemed its depositors.109
an innocent mistake oblivious to the procedures and consequences
of periodic audits. Since its conduct was due to such ignorance
founded upon an innocent mistake, estoppel will not arise.97 A Unfortunately, it failed in that regard. First, Yabut was able to open a
person who has no knowledge of or consent to a transaction may not bank account in one of its branches without privity;110 that is,
be estopped by it.98 "Estoppel cannot be sustained by mere without the proper verification of his corresponding identification
argument or doubtful inference x x x."99 CASA is not barred from papers. Second, BPI was unable to discover early on not only this
questioning BPI’s error even after the lapse of the period given in the irregularity, but also the marked differences in the signatures on the
notice. checks and those on the signature card. Third, despite the
examination procedures it conducted, the Central Verification
Unit111 of the bank even passed off these evidently different
Loss Borne by Proximate Source of Negligence signatures as genuine. Without exercising the required prudence on
its part, BPI accepted and encashed the eight checks presented to it.
As a result, it proximately contributed to the fraud and should be held
For allowing payment100 on the checks to a wrongful and fictitious primarily liable112 for the "negligence of its officers or agents when
payee, BPI -- the drawee bank -- becomes liable to its depositor- acting within the course and scope of their employment."113 It must
drawer. Since the encashing bank is one of its branches,101 BPI can bear the loss.
easily go after it and hold it liable for reimbursement.102 It "may not
debit the drawer’s account103 and is not entitled to indemnification
from the drawer."104 In both law and equity, when one of two CASA Not Negligent in Its Financial Affairs
innocent persons "must suffer by the wrongful act of a third person,
the loss must be borne by the one whose negligence was the
proximate cause of the loss or who put it into the power of the third In this jurisdiction, the negligence of the party invoking forgery is
person to perpetrate the wrong."105 recognized as an exception114 to the general rule that a forged
signature is wholly inoperative.115 Contrary to BPI’s claim, however,

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we do not find CASA negligent in handling its financial affairs. CASA,

we stress, is not precluded from setting up forgery as a real defense.
Cash Balances Open to Manipulation

Role of Independent Auditor

It is a non sequitur to say that the person who receives the monthly
bank statements, together with the cancelled checks and other
debit/credit memoranda, shall examine the contents and give notice
The major purpose of an independent audit is to investigate and of any discrepancies within a reasonable time. Awareness is not
determine objectively if the financial statements submitted for audit equipollent with discernment.
by a corporation have been prepared in accordance with the
appropriate financial reporting practices116 of private entities. The
relationship that arises therefrom is both legal and moral.117 It
begins with the execution of the engagement letter118 that embodies Besides, in the internal accounting control system prudently installed
the terms and conditions of the audit and ends with the fulfilled by CASA,130 it was Yabut who should examine those documents in
expectation of the auditor’s ethical119 and competent performance in order to prepare the bank reconciliations.131 He owned his working
all aspects of the audit.120 papers,132 and his output consisted of his opinion as well as the
client’s financial statements and accompanying notes thereto. CASA
had every right to rely solely upon his output -- based on the terms of
the audit engagement -- and could thus be unwittingly duped into
The financial statements are representations of the client; but it is the believing that everything was in order. Besides, "[g]ood faith is
auditor who has the responsibility for the accuracy in the recording of always presumed and it is the burden of the party claiming otherwise
data that underlies their preparation, their form of presentation, and to adduce clear and convincing evidence to the contrary."133
the opinion121 expressed therein.122 The auditor does not assume
the role of employee or of management in the client’s conduct of
operations123 and is never under the control or supervision124 of
the client. Moreover, there was a time gap between the period covered by the
bank statement and the date of its actual receipt. Lebron personally
received the December 1990 bank statement only in January
1991134 -- when she was also informed of the forgery for the first
Yabut was an independent auditor125 hired by CASA. He handled its time, after which she immediately requested a "stop payment order."
monthly bank reconciliations and had access to all relevant She cannot be faulted for the late detection of the forged December
documents and checkbooks.126 In him was reposed the client’s127 check. After all, the bank account with BPI was not personal but
trust and confidence128 that he would perform precisely those corporate, and she could not be expected to monitor closely all its
functions and apply the appropriate procedures in accordance with finances. A preschool teacher charged with molding the minds of the
generally accepted auditing standards.129 Yet he did not meet these youth cannot be burdened with the intricacies or complexities of
expectations. Nothing could be more horrible to a client than to corporate existence.
discover later on that the person tasked to detect fraud was the same
one who perpetrated it.

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There is also a cutoff period such that checks issued during a given The vouchers, invoices and check stubs in support of all check
month, but not presented for payment within that period, will not be disbursements could be concealed or fabricated -- even in collusion
reflected therein.135 An experienced auditor with intent to defraud -- and management would still have no way to verify its cash
can easily conceal any devious scheme from a client unwary of the accountabilities.
accounting processes involved by manipulating the cash balances on
record -- especially when bank transactions are numerous, large and
frequent. CASA could only be blamed, if at all, for its unintelligent Clearly then, Yabut was able to perpetrate the wrongful act through
choice in the selection and appointment of an auditor -- a fault that is no fault of CASA. If auditors may be held liable for breach of contract
not tantamount to negligence. and negligence,146 with all the more reason may they be charged
with the perpetration of fraud upon an unsuspecting client. CASA had
the discretion to pursue BPI alone under the NIL, by reason of
Negligence is not presumed, but proven by whoever alleges it.136 Its expediency or munificence or both. Money paid under a mistake may
mere existence "is not sufficient without proof that it, and no other rightfully be recovered,147 and under such terms as the injured party
cause,"137 has given rise to damages.138 In addition, this fault is may choose.
common to, if not prevalent among, small and medium-sized
business entities, thus leading the Professional Regulation
Commission (PRC), through the Board of Accountancy (BOA), to Third Issue:
require today not only accreditation for the practice of public
accountancy,139 but also the registration of firms in the practice
thereof. In fact, among the attachments now required upon
Award of Monetary Claims
registration are the code of good governance140 and a sworn
statement on adequate and effective training.141

Moral Damages Denied

The missing checks were certainly reported by the bookkeeper142 to
the accountant143 -- her immediate supervisor -- and by the latter to
the auditor. However, both the accountant and the auditor, for We deny CASA’s claim for moral damages.
reasons known only to them, assured the bookkeeper that there
were no irregularities.
In the absence of a wrongful act or omission,148 or of fraud or bad
faith,149 moral damages cannot be awarded.150 The adverse result
The bookkeeper144 who had exclusive custody of the of an action does not per se make the action wrongful, or the party
checkbooks145 did not have to go directly to CASA’s president or to liable for it. One may err, but error alone is not a ground for granting
BPI. Although she rightfully reported the matter, neither an such damages.151 While no proof of pecuniary loss is necessary
investigation was conducted nor a resolution of it was arrived at, therefor -- with the amount to be awarded left to the court’s
precisely because the person at the top of the helm was the culprit. discretion152 -- the claimant must nonetheless satisfactorily prove

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the existence of its factual basis153 and causal relation154 to the Imposed by way of correction165 for the public good,166 exemplary
claimant’s act or omission.155 damages cannot be recovered as a matter of right.167 As we have
said earlier, there is no bad faith on the part of BPI for paying the
checks of CASA upon forged signatures. Therefore, the former
Regrettably, in this case CASA was unable to identify the particular cannot be said to have acted in a wanton, fraudulent, reckless,
instance -- enumerated in the Civil Code -- upon which its claim for oppressive or malevolent manner.168 The latter, having no right to
moral damages is predicated.156 Neither bad faith nor negligence so moral damages, cannot demand exemplary damages.169
gross that it amounts to malice157 can be imputed to BPI. Bad faith,
under the law, "does not simply connote bad judgment or
negligence;158 it imports a dishonest purpose or some moral Attorney’s Fees Granted
obliquity and conscious doing of a wrong, a breach of a known duty
through some motive or interest or ill will that partakes of the nature
of fraud."159 Although it is a sound policy not to set a premium on the right to
litigate,170 we find that CASA is entitled to reasonable attorney’s
fees based on "factual, legal, and equitable justification."171
As a general rule, a corporation -- being an artificial person without
feelings, emotions and senses, and having existence only in legal
contemplation -- is not entitled to moral damages,160 because it When the act or omission of the defendant has compelled the plaintiff
cannot experience physical suffering and mental anguish.161 to incur expenses to protect the latter’s interest,172 or where the
However, for breach of the fiduciary duty required of a bank, a court deems it just and equitable,173 attorney’s fees may be
corporate client may claim such damages when its good reputation is recovered. In the present case, BPI persistently denied the claim of
besmirched by such breach, and social humiliation results CASA under the NIL to recredit the latter’s account for the value of
therefrom.162 CASA was unable to prove that BPI had debased the the forged checks. This denial constrained CASA to incur expenses
good reputation of,163 and consequently caused incalculable and exert effort for more than ten years in order to protect its
embarrassment to, the former. CASA’s mere allegation or corporate interest in its bank account. Besides, we have already
supposition thereof, without any sufficient evidence on record,164 is cautioned BPI on a similar act of negligence it had committed
not enough. seventy years ago, but it has remained unrelenting. Therefore, the
Court deems it just and equitable to grant ten percent (10%)174 of
the total value adjudged to CASA as attorney’s fees.
Exemplary Damages Also Denied

Interest Allowed
We also deny CASA’s claim for exemplary damages.

For the failure of BPI to pay CASA upon demand and for compelling
the latter to resort to the courts to obtain payment, legal interest may

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be adjudicated at the discretion of the Court, the same to run from full; and attorney’s fees of ten percent (10%) thereof, subject to
the filing175 of the Complaint.176 Since a court judgment is not a reimbursement from Respondent Yabut for the entire amount, excepting
loan or a forbearance of recovery, the legal interest shall be at six attorney’s fees. Let a copy of this Decision be furnished the Board of
Accountancy of the Professional Regulation Commission for such action as it
percent (6%) per annum.177 "If the obligation consists in the
may deem appropriate against Respondent Yabut. No costs.
payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, KONINKLIJKE LUCHTVAART MAATSHAPPIJ N.V., otherwise
shall be the payment of x x x legal interest, which is six percent per known as KLM ROYAL DUTCH AIRLINES, petitioner,
annum."178 The actual base for its computation shall be "on the
amount finally adjudged,"179 compounded180 annually to make up vs.
for the cost of money181 already lost to CASA.
THE HONORABLE COURT OF APPEALS, CONSUELO T.
MENDOZA and RUFINO T. MENDOZA, respondents.

Moreover, the failure of the CA to award interest does not prevent us

from granting it upon damages awarded for breach of contract.182
In this appeal by way of certiorari the Koninklijke Luchtvaart
Because BPI evidently breached its contract of deposit with CASA,
Maatschappij N.V., otherwise known as the KLM Royal Dutch
we award interest in addition to the total amount adjudged. Under
Airlines (hereinafter referred to as the KLM) assails the award of
Section 196 of the NIL, any case not provided for shall be "governed
damages made by the Court of Appeals in CA-G.R. 40620 in favor of
by the provisions of existing legislation or, in default thereof, by the
the spouses Rufino T. Mendoza and Consuelo T. Mendoza
rules of the law merchant."183 Damages are not provided for in the
(hereinafter referred to as the respondents).1äwphï1.ñët
NIL. Thus, we resort to the Code of Commerce and the Civil Code.
Under Article 2 of the Code of Commerce, acts of commerce shall be
governed by its provisions and, "in their absence, by the usages of
commerce generally observed in each place; and in the absence of Sometime in March 1965 the respondents approached Tirso Reyes,
both rules, by those of the civil law."184 This law being silent, we manager of a branch of the Philippine Travel Bureau, a travel
look at Article 18 of the Civil Code, which states: "In matters which agency, for consultations about a world tour which they were
are governed by the Code of Commerce and special laws, their intending to make with their daughter and a niece. Reyes submitted
deficiency shall be supplied" by its provisions. A perusal of these to them, after preliminary discussions, a tentative itinerary which
three statutes unmistakably shows that the award of interest under prescribed a trip of thirty-five legs; the respondents would fly on
our civil law is justified. 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
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in
GR No. 149507 PARTLY GRANTED. The assailed Decision of the Court of
decided on the Barcelona-Lourdes route with knowledge that only
Appeals is AFFIRMED with modification: BPI is held liable for ₱547,115, the one airline, Aer Lingus, serviced it.
total value of the forged checks less the amount already recovered by CASA
from Leonardo T. Yabut, plus interest at the legal rate of six percent (6%) per
annum -- compounded annually, from the filing of the complaint until paid in

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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 Mrs. Mendoza later called up the manager of Aer Lingus and
"IATA," of which both the KLM and the Aer Lingus are members. 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
After about two weeks, the respondents approved the itinerary following morning. During the train trip the respondents had to suffer
prepared for them, and asked Reyes to make the necessary plane draft winds as they wore only minimum clothing, their luggage having
reservations. Reyes went to the KLM, for which the respondents had gone ahead with the Aer Lingus plane. They spent $50 for that train
expressed preference. The KLM thereafter secured seat reservations trip; their plane passage was worth $43.35.
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 On March 17, 1966 the respondents, referring to KLM as the
tickets for their entire trip. However, their coupon for the Aer Lingus principal of Aer Lingus, filed a complaint for damages with the Court
portion (Flight 861 for June 22, 1965) was marked "RQ" which meant of First Instance of Manila arising from breach of contract of carriage
"on request". 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,
After sightseeing in American and European cities (they were in the P5,000 as exemplary damages, and P5,000 as attorney's fees, and
meantime joined by their two young companions), the respondents expenses of litigation.
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. 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
In the afternoon of June 22, 1965 the respondents with their wards unto the plaintiffs the sum of $43.35 as actual damages; P50,000 as
went to the Barcelona airport to take their plane which arrived at 4:00 moral damages; and P6,000 as attorney's fees and costs."
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 Hence, the present recourse by the KLM.
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!"

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The KLM prays for exculpation from damages on the strength of the the passenger also has a right of action against the first or last
following particulars which were advanced to but rejected by the carrier. A carrier issuing a ticket or checking baggage for carriage
Court of Appeals: over the lines of others does so only as agent..

(a) The air tickets issued to the respondents stipulate that carriage (c) All that the KLM did after the respondents completed their
thereunder is subject to the "Convention for the Unification of Certain arrangements with the travel agency was to request for seat
Rules Relating to International Transportation by Air," otherwise reservations among the airlines called for by the itinerary submitted
known as the "Warsaw Convention," to which the Philippine to the KLM and to issue tickets for the entire flight as a ticket-issuing
Government is a party by adherence, and which pertinently agent.
provides.1

The respondents rebut the foregoing arguments, thus:

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, (a) Article 30 of the Warsaw Convention has no application in the
baggage, or goods shall be subject to the rules set out in the case at bar which involves, not an accident or delay, but a willful
convention, and shall be deemed to be one of the contracting parties misconduct on the part of the KLM's agent, the Aer Lingus. Under
to the contract of transportation insofar as the contract deals with that article 25 of the same Convention the following is prescribed:
part of transportation which is performed under his supervision.2

ART. 25. (1) The carrier shall not be entitled to avail himself of the
(2) In the case of transportation of this nature, the passenger or his provisions of this convention which exclude or limit his liability, if the
representative can take action only against the carrier who damage is caused by his willful misconduct or by such default on his
performed the transportation during which the accident or the delay part as, in accordance with the law of the court to which the case is
occured, save in the case where, by express agreement, the first submitted, is considered to be equivalent to willful misconduct.3
carrier has assumed liability for the whole journey. (emphasis
supplied)
(2) Similarly, the carrier shall not be entitled to avail himself of the
said provisions, if the damage is caused under the same
(b) On the inside front cover of each ticket the following appears circumstances by any agent of the carrier acting within the scope of
under the heading "Conditions of Contract": his employment. (emphasis by respondents)

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

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(b) The condition in their tickets which purportedly excuse the KLM the respondents' tickets expressly limiting the KLM's liability for
from liability appears in very small print, to read which, as found by damages only to occurrences on its own lines is unacceptable. As
the Court of Appeals, one has practically to use a magnifying glass. 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
(c) The first paragraph of the "Conditions of Contract" appearing charge the respondents with automatic knowledge or notice of the
identically on the KLM tickets issued to them idubitably shows that said condition so as to preclude any doubt that it was fairly and freely
their contract was one of continuous air transportation around the agreed upon by the respondents when they accepted the passage
world: 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
1 ... "carriage" includes the air carrier issuing this ticket and all
the respondents of conditions prescribed in their tickets or, in the
carriers that carry or undertake to carry the passenger or his
very least, to ascertain that the respondents read them before they
baggage hereunder or perform any other service incidental to such
accepted their passage tickets. A thorough search of the record,
air carriage... Carriage to be performed hereunder by several
however, inexplicably fails to show that any effort was exerted by the
successive carrier is regarded as a single operation.
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
(d) The contract of air transportation was exclusively between the KLM unilaterally assumed the role of a mere ticket-issuing agent for
respondents and the KLM, the latter merely endorsing its other airlines and limited its liability only to untoward occurrences on
performance to other carriers, like Aer Lingus, as its subcontractors its own lines.
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.
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
1. The applicability insisted upon by the KLM of article 30 of the "is to be regarded as a single operation," which is diametrically
Warsaw Convention cannot be sustained. That article presupposes incompatible with the theory of the KLM that the respondents entered
the occurrence of either an accident or a delay, neither of which took into a series of independent contracts with the carriers which took
place at the Barcelona airport; what is here manifest, instead, is that them on the various segments of their trip. This position of KLM we
the Aer Lingus, through its manager there, refused to transport the reject. The respondents dealt exclusively with the KLM which issued
respondents to their planned and contracted destination. 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
2. The argument that the KLM should not be held accountable for the KLM, naturally had the right to expect that their tickets would be
tortious conduct of Aer Lingus because of the provision printed on honored by Aer Lingus to which, in the legal sense, the KLM had

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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.

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